[Federal Register Volume 82, Number 155 (Monday, August 14, 2017)]
[Rules and Regulations]
[Pages 37990-38589]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16434]



[[Page 37989]]

Vol. 82

Monday,

No. 155

August 14, 2017

Part II

Book 2 of 2 Books

Pages 37989-38590





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 Policy Changes and Fiscal Year 2018 Rates; Quality 
Reporting Requirements for Specific Providers; Medicare and Medicaid 
Electronic Health Record (EHR) Incentive Program Requirements for 
Eligible Hospitals, Critical Access Hospitals, and Eligible 
Professionals; Provider-Based Status of Indian Health Service and 
Tribal Facilities and Organizations; Costs Reporting and Provider 
Requirements; Agreement Termination Notices; Final Rule

  Federal Register / Vol. 82 , No. 155 / Monday, August 14, 2017 / 
Rules and Regulations  

[[Page 37990]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 412, 413, 414, 416, 486, 488, 489, and 495

[CMS-1677-F]
RIN 0938-AS98


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Policy Changes and Fiscal Year 2018 Rates; Quality 
Reporting Requirements for Specific Providers; Medicare and Medicaid 
Electronic Health Record (EHR) Incentive Program Requirements for 
Eligible Hospitals, Critical Access Hospitals, and Eligible 
Professionals; Provider-Based Status of Indian Health Service and 
Tribal Facilities and Organizations; Costs Reporting and Provider 
Requirements; Agreement Termination Notices

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

ACTION: Final rule.

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SUMMARY: We are revising the Medicare hospital inpatient prospective 
payment systems (IPPS) for operating and capital-related costs of acute 
care hospitals to implement changes arising from our continuing 
experience with these systems for FY 2018. Some of these changes 
implement certain statutory provisions contained in the Pathway for 
Sustainable Growth Rate (SGR) Reform Act of 2013, the Improving 
Medicare Post-Acute Care Transformation Act of 2014, the Medicare 
Access and CHIP Reauthorization Act of 2015, the 21st Century Cures 
Act, and other legislation. We also are making changes relating to the 
provider-based status of Indian Health Service (IHS) and Tribal 
facilities and organizations and to the low-volume hospital payment 
adjustment for hospitals operated by the IHS or a Tribe. In addition, 
we are providing the market basket update that will 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 
2018. We are updating the payment policies and the annual payment rates 
for the Medicare prospective payment system (PPS) for inpatient 
hospital services provided by long-term care hospitals (LTCHs) for FY 
2018.
    In addition, we are establishing new requirements or revising 
existing requirements for quality reporting by specific Medicare 
providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, 
and inpatient psychiatric facilities). We also are establishing new 
requirements or revising existing requirements for eligible 
professionals (EPs), eligible hospitals, and critical access hospitals 
(CAHs) participating in the Medicare and Medicaid Electronic Health 
Record (EHR) Incentive Programs. We are updating policies relating to 
the Hospital Value-Based Purchasing (VBP) Program, the Hospital 
Readmissions Reduction Program, and the Hospital-Acquired Condition 
(HAC) Reduction Program.
    We also are making changes relating to transparency of accrediting 
organization survey reports and plans of correction of providers and 
suppliers; electronic signature and electronic submission of the 
Certification and Settlement Summary page of the Medicare cost reports; 
and clarification of provider disposal of assets.

DATES: This final rule is effective on October 1, 2017.

FOR FURTHER INFORMATION CONTACT: 
    Donald Thompson, (410) 786-4487, and Michele Hudson, (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, Sole Community Hospitals, Medicare 
Disproportionate Share Hospital (DSH) Payment Adjustment, Medicare-
Dependent Small Rural Hospital (MDH) Program, and Low-Volume Hospital 
Payment Adjustment Issues.
    Michele Hudson, (410) 786-4487, Mark Luxton, (410) 786-4530, 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 Hospital Market Basket Issues.
    Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
    Jeris Smith, (410) 786-0110, Frontier Community Health Integration 
Project Demonstration Issues.
    Lein Han, (617) 879-0129, Hospital Readmissions Reduction Program--
Readmission Measures for Hospitals Issues.
    James Poyer, (410) 786-2261, Hospital Readmissions Reduction 
Program--Administration Issues.
    Elizabeth Bainger, (410) 786-0529, Hospital-Acquired Condition 
Reduction Program Issues.
    Joseph Clift, (410) 786-4165, Hospital-Acquired Condition Reduction 
Program--Measures Issues.
    Grace Im, (410) 786-0700, and James Poyer, (410) 786-2261, Hospital 
Inpatient Quality Reporting and Hospital Value-Based Purchasing--
Program Administration, Validation, and Reconsideration Issues.
    Reena Duseja, (410) 786-1999, and 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.
    Lisa Marie Gomez, (410) 786-1175, EHR Incentive Program Clinical 
Quality Measure Related Issues.
    Kathleen Johnson, (410) 786-3295, and Steven Johnson (410) 786-
3332, EHR Incentive Program Nonclinical Quality Measure Related Issues.
    Caecilia Blondiaux, (410), 786-2190, and Ariadne Saklas, (410) 786-
3322, Changes in Notice of Termination of Medicare Providers and 
Suppliers Issues.
    Monda Shaver, (410) 786-3410, and Patricia Chmielewski, (410) 786-
6899, Accrediting Organizations Survey Reporting Transparency Issues.
    Kellie Shannon, (410) 786-0416, Medicare Cost Reporting and 
Valuation of Assets Issues.

SUPPLEMENTARY INFORMATION: 

Electronic Access

    This Federal Register document is 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.

[[Page 37991]]

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 final 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 2018 IPPS Final 
Rule Home Page'' or ``Acute Inpatient--Files for Download''. The LTCH 
PPS tables for this FY 2018 final rule are available through the 
Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the 
list item for Regulation Number CMS-1677-F. For further details on the 
contents of the tables referenced in this final rule, we refer readers 
to section VI. of the Addendum to this final rule.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified above should contact 
Michael Treitel at (410) 786-4552.

Acronyms

3M 3M Health Information System
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
ACoS American College of Surgeons
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
AJCC American Joint Committee on Cancer
ALOS Average length of stay
ALTHA Acute Long-Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AMI Acute myocardial infarction
AO Accrediting Organizations
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
CEHRT Certified electronic health record technology
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
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
HWR Hospital-wide readmission
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, 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
LDS Limited Data Set
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group

[[Page 37992]]

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
PRA Paperwork Reduction Act
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
QPP Quality Payment Program
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
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 Implemented in 
This Final Rule
    1. The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-
240), the Medicare Access and CHIP Reauthorization Act of 2015 
(MACRA) (Pub. L. 114-10), and the 21st Century Cures Act (Pub. L. 
114-255)
    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 of 2015 
(MACRA) (Pub. L. 114-10)
    5. The 21st Century Cures Act (Pub. L. 114-255)
    D. Issuance of Notice of Proposed Rulemaking
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 
Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    C. Adoption of the MS-DRGs in FY 2008
    D. FY 2018 MS-DRG Documentation and Coding Adjustment

[[Page 37993]]

    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    2. Recoupment or Repayment Adjustment Authorized by Section 631 
of the American Taxpayer Relief Act of 2012 (ATRA)
    3. Adjustment for FY 2018 Required Under Section 414 of Public 
Law 114-10 (MACRA) and Section 15005 of Public Law 114-255
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Discussion of Policy for FY 2018
    F. Changes to Specific MS-DRG Classifications
    1. Discussion of Changes to Coding System and Basis for FY 2018 
MS-DRG Updates
    a. Conversion of MS-DRGs to the International Classification of 
Diseases, 10th Revision (ICD-10)
    b. Basis for FY 2018 MS-DRG Updates
    2. MDC 1 (Diseases and Disorders of the Nervous System)
    a. Functional Quadriplegia
    b. Responsive Neurostimulator (RNS(copyright)) System
    c. Precerebral Occlusion or Transient Ischemic Attack With 
Thrombolytic
    3. MDC 2 (Diseases and Disorders of the Eye: Swallowing Eye 
Drops (Tetrahydrozoline))
    4. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Percutaneous Cardiovascular Procedures and Insertion of a 
Radioactive Element
    b. Modification of the Titles for MS-DRG 246 (Percutaneous 
Cardiovascular Procedures With Drug-Eluting Stent With MCC or 4+ 
Vessels or Stents) and MS-DRG 248 (Percutaneous Cardiovascular 
Procedures With Non-Drug-Eluting Stent With MCC or 4+ Vessels or 
Stents)
    c. Transcatheter Aortic Valve Replacement (TAVR) and Left Atrial 
Appendage Closure (LAAC)
    d. Percutaneous Mitral Valve Replacement Procedures
    e. Percutaneous Tricuspid Valve Repair
    5. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue)
    a. Total Ankle Replacement (TAR) Procedures
    b. Revision of Total Ankle Replacement (TAR) Procedures
    c. Magnetic Controlled Growth Rods (MAGEC[supreg] System)
    d. Combined Anterior/Posterior Spinal Fusion
    6. MDC 14 (Pregnancy, Childbirth and the Puerperium)
    a. Vaginal Delivery and Complicating Diagnoses
    b. MS-DRG 998 (Principal Diagnosis Invalid as Discharge 
Diagnosis)
    c. MS-DRG 782 (Other Antepartum Diagnoses Without Medical 
Complications)
    d. Shock During or Following Labor and Delivery
    7. MDC 15 (Newborns and Other Neonates with Conditions 
Originating in Perinatal Period): Observation and Evaluation of 
Newborn
    8. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): 
Complication Codes
    9. MDC 23 (Factors Influencing Health Status and Other Contacts 
With Health Services): Updates to MS-DRGs 945 and 946 
(Rehabilitation With CC/MCC and Without CC/MCC, Respectively)
    10. Changes to the Medicare Code Editor (MCE)
    a. Age Conflict Edit
    b. Sex Conflict Edit
    c. Non-Covered Procedure Edit
    d. Unacceptable Principal Diagnosis Edit
    e. Future Enhancement
    11. Changes to Surgical Hierarchies
    12. Changes to the MS-DRG Diagnosis Codes for FY 2018
    a. Background of the CC List and the CC Exclusions List
    b. Additions and Deletions to the Diagnosis Code Severity Levels 
for FY 2018
    c. Principal Diagnosis Is Its Own CC or MCC
    d. CC Exclusions List for FY 2018
    13. Comprehensive Review of CC List for FY 2019
    14. 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
    15. Changes to the ICD-10-CM and ICD-10-PCS Coding Systems
    16. Replaced Devices Offered Without Cost or With a Credit
    a. Background
    b. Changes for FY 2018
    17. Other Policy Changes: Other Operating Room (O.R.) and Non-
O.R. Issues
    a. O.R. Procedures to Non-O.R. Procedures
    b. Revision of Neurostimulator Generator
    c. External Repair of Hymen
    d. Non-O.R. Procedures in MDC 17 (Myeloproliferative Diseases 
and Disorders Poorly Differentiated Neoplasms)
    G. Recalibration of the FY 2018 MS-DRG Relative Weights
    1. Data Sources for Developing the Relative Weights
    2. Methodology for Calculation of the Relative Weights
    3. Development of National Average CCRs
    H. Add-On Payments for New Services and Technologies for FY 2018
    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. Revision of Reference to an ICD-9-CM Code in Sec.  
412.87(b)(2) of the Regulations
    5. FY 2018 Status of Technologies Approved for FY 2017 Add-On 
Payments
    a. CardioMEMSTM HF (Heart Failure) Monitoring System
    b. Defitelio[supreg] (Defibrotide)
    c. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis 
(IBE)
    d. Idarucizumab
    e. Lutonix[supreg] Drug Coated Balloon PTA Catheter and 
In.PACTTM AdmiralTM Paclitaxel Coated 
Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter
    f. MAGEC[supreg] Spinal Bracing and Distraction System 
(MAGEC[supreg] Spine)
    g. VistogardTM (Uridine Triacetate)
    h. Blinatumomab (BLINCYTOTM Trade Brand)
    6. FY 2018 Applications for New Technology Add-On Payments
    a. Bezlotoxumab (ZINPLAVATM)
    b. EDWARDS INTUITY EliteTM Valve System (INTUITY) and 
Liva Nova Perceval Valve (Perceval)
    c. Ustekinumab (Stelara[supreg])
III. Changes to the Hospital Wage Index for Acute Care Hospitals
    A. Background
    1. Legislative Authority
    2. Core-Based Statistical Areas (CBSAs) for the FY 2018 Hospital 
Wage Index
    3. Codes for Constituent Counties in CBSAs
    B. Worksheet S-3 Wage Data for the FY 2018 Wage Index
    1. Included Categories of Costs
    2. Excluded Categories of Costs
    3. Use of Wage Index Data by Suppliers and Providers Other Than 
Acute Care Hospitals Under the IPPS
    C. Verification of Worksheet S-3 Wage Data
    D. Method for Computing the FY 2018 Unadjusted Wage Index
    1. Methodology for FY 2018
    2. Clarification of Other Wage Related Costs in the Wage Index
    E. Occupational Mix Adjustment to the FY 2018 Wage Index
    1. Use of 2013 Occupational Mix Survey for the FY 2018 Wage 
Index
    2. Use of the 2016 Medicare Wage Index Occupational Mix Survey 
for the FY 2019 Wage Index
    3. Calculation of the Occupational Mix Adjustment for FY 2018
    F. Analysis and Implementation of the Occupational Mix 
Adjustment and the FY 2018 Occupational Mix Adjusted Wage Index
    G. Application of the Rural, Imputed, and Frontier Floors
    1. Rural Floor
    2. Expiration of the Imputed Floor Policy
    3. State Frontier Floor for FY 2018
    H. FY 2018 Wage Index Tables
    I. 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 2018
    a. FY 2018 Reclassification Requirements and Approvals
    b. Extension of PRA Information Collection Requirement Approval 
for MGCRB Applications
    c. Deadline for Submittal of Documentation of Sole Community 
Hospital (SCH) and Rural Referral Center (RRC) Classification Status 
to the MGCRB

[[Page 37994]]

    d. Clarification of Special Rules for SCHs and RRCs 
Reclassifying to Geographic Home Area
    3. Redesignations Under Section 1886(d)(8)(B) of the Act
    4. Changes to the 45-Day Notification Rules
    J. Out-Migration Adjustment Based on Commuting Patterns of 
Hospital Employees
    K. Reclassification From Urban to Rural Under Section 
1886(d)(8)(E) of the Act Implemented at 42 CFR 412.103
    L. Clarification of Application Deadline for Rural Referral 
Center (RRC) Classification
    M. Process for Requests for Wage Index Data Corrections
    1. Process for Hospitals to Accept Wage Index Data Corrections
    2. Process for Wage Index Data Corrections by CMS After the 
January Public Use File (PUF)
    N. Labor Market Share for the FY 2018 Wage Index
IV. Rebasing and Revising of the Hospital Market Baskets for Acute 
Care Hospitals
    A. Background
    B. Rebasing and Revising the IPPS Market Basket
    1. Development of Cost Categories and Weights
    a. Use of Medicare Cost Report Data
    b. Final Major Cost Category Computation
    c. Derivation of the Detailed Cost Weights
    2. Selection of Price Proxies
    3. Labor-Related Share
    C. Market Basket for Certain Hospitals Presently Excluded From 
the IPPS
    D. Rebasing and Revising the Capital Input Price Index (CIPI)
V. Other Decisions and Changes to the IPPS for Operating Costs
    A. Changes to MS-DRGs Subject to Postacute Care Transfer and MS-
DRG Special Payment Policies
    B. Changes in the Inpatient Hospital Updates for FY 2018 (Sec.  
412.64(d))
    1. FY 2018 Inpatient Hospital Update
    2. FY 2018 Puerto Rico Hospital Update
    C. Change to Volume Decrease Adjustment for Sole Community 
Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals 
(MDHs) (Sec.  412.92)
    1. Background
    2. Changes to the Volume Decrease Adjustment Calculation 
Methodology for SCHs
    D. Rural Referral Centers (RRCs): Annual Updates to Case-Mix 
Index (CMI) and Discharge Criteria (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    E. Payment Adjustment for Low-Volume Hospitals (Sec.  412.101)
    1. Expiration of Temporary Changes to Low-Volume Hospital 
Payment Policy
    2. Background
    3. Payment Adjustment for FY 2018 and Subsequent Fiscal Years
    4. Parallel Low-Volume Hospital Payment Adjustment Regarding 
Hospitals Operated by the Indian Health Service (IHS) or a Tribe
    F. Indirect Medical Education (IME) Payment Adjustment (Sec.  
412.105)
    G. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs) for FY 2018 (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 Factor 1 for FY 2018
    b. Calculation of Factor 2 for FY 2018
    (1) Background
    (2) Methodology for Calculation of Factor 2 for FY 2018
    c. Calculation of Factor 3 for FY 2018
    (1) Background
    (2) Data Source for FY 2018
    (3) Time Period for Calculating Factor 3 for FY 2018, Including 
Methodology for Incorporating Worksheet S-10 Data
    (4) Methodological Considerations for Calculating Factor 3
    (5) Methodological Considerations for Incorporating Worksheet S-
10 Data
    H. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108)
    1. Background for the MDH Program
    a. Expiration of the MDH Program
    I. Hospital Readmissions Reduction Program: Updates and Changes 
(Sec. Sec.  412.150 Through 412.154)
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Regulatory Background
    3. Maintenance of Technical Specifications for Quality Measures
    4. Policies for the Hospital Readmissions Reduction Program
    5. Applicable Period for FY 2018
    6. Calculation of Aggregate Payments for Excess Readmissions for 
FY 2018
    7. Background and Current Payment Adjustment Methodology
    a. Background
    b. Current Payment Adjustment Methodology
    8. Provisions for the Payment Adjustment Methodology for FY 
2019: Methodology for Calculating the Proportion of Dual-Eligible 
Patients
    a. Background
    b. Data Sources Used To Determine Dual Eligibility
    c. Data Period Used To Define Dual Eligibility
    9. Provisions for the Payment Adjustment Methodology for FY 
2019: Methodology for Assigning Hospitals to Peer Groups
    10. Provisions for the Payment Adjustment Methodology for FY 
2019: Payment Adjustment Formula Calculation Methodology
    a. Background
    b. Proposals
    c. Analysis
    11. Accounting for Social Risk Factors in the Hospital 
Readmissions Reduction Program
    12. Extraordinary Circumstances Exceptions (ECE) Policy
    13. Timeline for Public Reporting of Excess Readmission Ratios 
on Hospital Compare for the FY 2018 Payment Determination
    J. Hospital Value-Based Purchasing (VBP) Program: Policy Changes
    1. Background
    a. Statutory Background and Overview of Past Program Years
    b. FY 2018 Program Year Payment Details
    2. Accounting for Social Risk Factors in the Hospital VBP 
Program
    3. Retention and Removal of Quality Measures for the FY 2019 
Program Year
    a. Retention of Previously Adopted Hospital VBP Program Measures
    b. Removal of the PSI 90 Measure
    c. Summary of Previously Adopted Measures and Measure for 
Removal for the FY 2019 and FY 2020 Program Years
    4. New Measures for the FY 2022 Program Year, FY 2023 Program 
Year, and Subsequent Years
    a. New Measure for the FY 2022 Program Year and Subsequent 
Years: Hospital-Level, Risk-Standardized Payment Associated with a 
30-Day Episode-of-Care for Pneumonia (PN Payment)
    b. New Measure for the FY 2023 Program Year and Subsequent 
Years: Patient Safety and Adverse Events (Composite) (NQF #0531)
    5. Previously Adopted and Baseline and Performance Periods
    a. Background
    b. 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 Finalized Baseline 
and Performance Periods for the FY 2019 Through FY 2023 Program 
Years
    6. Performance Standards for the Hospital VBP Program
    a. Background
    b. Previously Adopted and Newly Finalized Performance Standards 
for the FY 2020 Program Year
    c. Previously Adopted Performance Standards for Certain Measures 
for the FY 2021 Program Year
    d. Previously Adopted and Newly Finalized Performance Standards 
for Certain Measures for the FY 2022 Program Year
    e. Performance Standards for Certain Measures for the FY 2023 
Program Year
    7. Scoring Methodology and Data Requirements for the FY 2019 
Program Year and Subsequent Years
    a. Domain Weighting for the FY 2020 Program Year and Subsequent 
Years for Hospitals That Receive a Score on All Domains
    b. Domain Weighting for the FY 2019 Program Year and Subsequent 
Years for Hospitals Receiving Scores on Fewer than Four Domains
    c. Minimum Numbers of Cases for Hospital VBP Program Measures 
for the FY 2019 Program Year and Subsequent Years
    d. Weighting Measures Within the Efficiency and Cost Reduction 
Domain
    K. Changes to the Hospital-Acquired Condition (HAC) Reduction 
Program
    1. Background
    2. Implementation of the HAC Reduction Program for FY 2018
    3. Data Collection Time Periods for the FY 2020 HAC Reduction 
Program

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    4. Request for Comments on Additional Measures for Potential 
Future Adoption
    5. Accounting for Social Risk Factors in the HAC Reduction 
Program
    6. Request for Comments on Inclusion on Disability and Medical 
Complexity for CDC NHSN Measures
    7. Extraordinary Circumstances Exceptions (ECE) Policy for the 
HAC Reduction Program
    8. Maintenance of Technical Specifications for Quality Measures
    L. Rural Community Hospital Demonstration Program
    1. Introduction
    2. Background
    3. Provisions of the 21st Century Cures Act (Pub. L. 114-255) 
and Finalized Policies for Implementation
    a. Statutory Provisions
    b. Terms of Continuation for Previously Participating Hospitals
    c. Solicitation for Additional Participants
    4. Budget Neutrality
    a. Statutory Budget Neutrality Requirement
    b. Methodology Used in Previous Final Rules
    c. Budget Neutrality Methodology for Extension Period Authorized 
by the 21st Century Cures Act (Pub. L. 114-255)
    d. Finalized Budget Neutrality Approach
    e. Reconciling Actual and Estimated Costs of the Demonstration 
for Previous Years (2011, 2012, and 2013)
    M. Adjustment to IPPS Rates Resulting From the 2-Midnight Policy 
for FY 2018
    N. Provider-Based Status of Indian Health Service and Tribal 
Facilities and Organizations
VI. Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Additional Provisions
    1. Exception Payments
    2. New Hospitals
    3. Payments for Hospitals Located in Puerto Rico
    C. Annual Update for FY 2018
VII. Changes for Hospitals Excluded From the IPPS
    A. Rate-of-Increase in Payments to Excluded Hospitals for FY 
2018
    B. Revisions to Hospital-Within-Hospital Regulations
    C. Report of Adjustment (Exceptions) Payments
    D. Critical Access Hospitals (CAHs)
    1. Background
    2. Frontier Community Health Integration Project (FCHIP) 
Demonstration
    3. Physician Certification Requirement for Payment of Inpatient 
CAH Services Under Medicare Part A
    a. Background
    b. Notice Regarding Changes to Instructions for the Review of 
the CAH 96-Hour Certification Requirement
VIII. Changes to the Long-Term Care Hospital Prospective Payment 
System (LTCH PPS) for FY 2018
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as an LTCH
    a. Classification as an LTCH
    b. Hospitals Excluded From the LTCH PPS
    3. Limitation on Charges to Beneficiaries
    4. Administrative Simplification Compliance Act (ASCA) and 
Health Insurance Portability and Accountability Act (HIPAA) 
Compliance
    B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-
LTC-DRG) Classifications and Relative Weights for FY 2018
    1. Background
    2. Patient Classifications Into MS-LTC-DRGs
    a. Background
    b. Changes to the MS-LTC-DRGs for FY 2018
    3. Development of the FY 2018 MS-LTC-DRG Relative Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Development of the MS-LTC-DRG Relative Weights for FY 2018
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the MS-LTC-DRG 
Relative Weights
    f. Low-Volume MS-LTC-DRGs
    g. Steps for Determining the FY 2018 MS-LTC-DRG Relative Weights
    C. Changes to the LTCH PPS Payment Rates and Other Changes to 
the LTCH PPS for FY 2018
    1. Overview of Development of the LTCH PPS Standard Federal 
Payment Rates
    2. FY 2018 LTCH PPS Standard Federal Payment Rate Annual Market 
Basket Update
    a. Overview
    b. Annual Update to the LTCH PPS Standard Federal Payment Rate 
for FY 2018
    c. Adjustment to the LTCH PPS Standard Federal Payment Rate 
under the Long-Term Care Hospital Quality Reporting Program (LTCH 
QRP)
    d. Annual Update under the LTCH PPS for FY 2018
    D. Changes to the Short-Stay Outlier Adjustment Policy (Sec.  
412.529)
    E. Temporary Exception to the Site Neutral Payment Rate for 
Certain Spinal Cord Specialty Hospitals
    F. Temporary Exception to the Site Neutral Payment Rate for 
Certain Discharges With Severe Wounds From Certain LTCHs
    G. Moratorium and Regulatory Delay of the Full Implementation of 
the ``25-Percent'' Threshold Policy'' Adjustment (Sec.  412.538)
    H. Revision to Moratorium on Increasing Beds in Existing LTCH or 
LTCH Satellite Locations Under the 21st Century Cures Act (Pub. L. 
114-255) (Sec.  412.23)
    I. Changes to the Average Length of Stay Criterion Under the 
21st Century Cures Act (Pub. L. 114-255)
    J. Change in Medicare Classification for Certain Hospitals 
(Sec.  412.23)
IX. Quality Data Reporting Requirements for Specific Providers and 
Suppliers
    A. Hospital Inpatient Quality Reporting (IQR) Program
    1. Background
    a. History of the Hospital IQR Program
    b. Maintenance of Technical Specifications for Quality Measures
    c. Public Display of Quality Measures
    d. Accounting for Social Risk Factors in the Hospital IQR 
Program
    2. Retention of Previously Adopted Hospital IQR Program Measures 
for Subsequent Payment Determinations
    3. Removal and Suspension of Previously Adopted Hospital IQR 
Program Measures
    4. Previously Adopted Hospital IQR Program Measures for the FY 
2019 Payment Determination and Subsequent Years
    5. Considerations in Expanding and Updating of Quality Measures
    6. Refinements to Existing Measures in the Hospital IQR Program 
for the FY 2020 Payment Determination and Subsequent Years
    a. Refining Hospital Consumer Assessment of Healthcare Providers 
and Systems (HCAHPS) Survey (NQF #0166) for the FY 2020 Payment 
Determination and Subsequent Years
    b. Refinement of the Hospital 30-Day, All-Cause, Risk-
Standardized Mortality Rate (RSMR) following Acute Ischemic Stroke 
Hospitalization Measure for the FY 2023 Payment Determination and 
Subsequent Years
    c. Summary of Previously Adopted Hospital IQR Program Measures 
for the FY 2020 Payment Determination and Subsequent Years
    7. Voluntary Hybrid Hospital-Wide Readmission Measure With 
Claims and Electronic Health Record Data (NQF #2879)
    a. Background
    b. Voluntary Reporting of Electronic Health Record Data for the 
Hybrid HWR Measure (NQF #2879)
    c. Data Sources
    d. Outcome
    e. Cohort
    f. Inclusion and Exclusion Criteria
    g. Risk-Adjustment
    h. Calculating the Risk-Standardized Readmission Rate (RSRR)
    i. Data Submission and Reporting Requirements
    j. Confidential Hospital-Specific Reports
    8. Changes to Policies on Reporting of eCQMs
    a. Background
    b. Modifications to the eCQM Reporting Requirements for the 
Hospital IQR Program for the CY 2017 Reporting Period/FY 2019 
Payment Determination
    c. Modifications to the eCQM Reporting Requirements for the 
Hospital IQR Program for the CY 2018 Reporting Period/FY 2020 
Payment Determination
    9. Possible New Quality Measures and Measure Topics for Future 
Years
    a. Potential Inclusion of the Quality of Informed Consent 
Documents for Hospital-Performed, Elective Procedures Measure
    b. Potential Inclusion of Four End-of-Life (EOL) Measures for 
Cancer Patients
    c. Potential Inclusion of Two Nurse Staffing Measures
    d. Potential Inclusion of Additional Electronic Clinical Quality 
Measures (eCQMs) in the Hospital IQR and Medicare and Medicaid EHR 
Incentive Programs

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    10. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Procedural Requirements for the FY 2020 Payment Determination 
and Subsequent Years
    c. Data Submission Requirements for Chart-Abstracted Measures
    d. Changes to the Reporting and Submission Requirements for 
eCQMs
    e. Submission Form and Method for the Voluntary Hybrid Hospital-
Wide Readmission Measure with Claims and Electronic Health Record 
Data (NQF #2879)
    f. Sampling and Case Thresholds for the FY 2020 Payment 
Determination and Subsequent Years
    g. HCAHPS Administration and Submission Requirements for the FY 
2020 Payment Determination and Subsequent Years
    h. Data Submission Requirements for Structural Measures for the 
FY 2020 Payment Determination and Subsequent Years
    i. Data Submission and Reporting Requirements for HAI Measures 
Reported via NHSN
    11. Modifications to the Validation of Hospital IQR Program Data
    a. Background
    b. Changes to the Existing Processes for Validation of Hospital 
IQR Program eCQM Data for the FY 2020 Payment Determination and 
Subsequent Years
    c. Modifications to the Educational Review Process for Chart-
Abstracted Measures Validation
    12. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements for the FY 2020 Payment Determination and Subsequent 
Years
    13. Public Display Requirements for the FY 2020 Payment 
Determination and Subsequent Years
    a. Background
    b. Potential Options for Confidential and Public Reporting of 
Hospital IQR Measures Stratified by Patient Dual-Eligibility Status
    14. Reconsideration and Appeal Procedures for the FY 2020 
Payment Determination and Subsequent Years
    15. Change to the Hospital IQR Program Extraordinary 
Circumstances Exceptions (ECE) Policy
    a. Background
    b. Alignment of the Hospital IQR Program ECE Policy With Other 
CMS Quality Programs
    B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
    1. Background
    2. Criteria for Removal and Retention of PCHQR Program Measures
    3. Retention and Removal of Previously Finalized Quality 
Measures for PCHs Beginning With the FY 2020 Program Year
    a. Background
    b. Removal of Measures from the PCHQR Program Beginning With the 
FY 2020 Program Year
    4. New Quality Measures Beginning With the FY 2020 Program Year
    a. Considerations in the Selection of Quality Measures
    b. New Quality Measures Beginning With the FY 2020 Program Year
    c. Summary of Previously Finalized and Newly Finalized PCHQR 
Program Measures for the FY 2020 Program Year and Subsequent Years
    5. Accounting for Social Risk Factors in the PCHQR Program
    6. Possible New Quality Measure Topics for Future Years
    a. Background
    b. Localized Prostate Cancer: Vitality; Localized Prostate 
Cancer: Urinary Incontinence; Localized Prostate Cancer: Urinary 
Frequency, Obstruction, and/or Irritation; Localized Prostate 
Cancer: Sexual Function; and Localized Prostate Cancer: Bowel 
Function
    c. 30-Day Unplanned Readmission for Cancer Patients
    7. Maintenance of Technical Specifications for Quality Measures
    8. Public Display Requirements
    a. Background
    b. Deferment of Public Display of Two Measures
    9. Form, Manner, and Timing of Data Submission
    a. Background
    b. Reporting Requirements for New Measures
    10. Extraordinary Circumstances Exceptions (ECE) Policy Under 
the PCHQR Program
    a. Background
    b. Modifications to the ECE Policy
    C. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
    1. Background and Statutory Authority
    2. General Considerations Used for Selection of Quality Measures 
for the LTCH QRP
    a. Background
    b. Accounting for Social Risk Factors in the LTCH QRP
    3. Collection of Standardized Patient Assessment Data Under the 
LTCH QRP
    a. Definition of Standardized Patient Assessment Data
    b. General Considerations Used for the Selection of Standardized 
Patient Assessment Data
    4. Policy for Retaining LTCH QRP Measures and Policy To Apply 
That Retention Policy to Standardized Patient Assessment Data
    5. Policy for Adopting Changes to LTCH QRP Measures and Policy 
To Apply That Policy for Adopting Changes to Standardized Patient 
Assessment Data
    6. Quality Measures Currently Adopted for the LTCH QRP
    7. LTCH QRP Quality Measures Beginning With the FY 2020 LTCH QRP
    a. Finalized Proposal To Replace the Current Pressure Ulcer 
Quality Measure, Percent of Residents or Patients With Pressure 
Ulcers That Are New or Worsened (Short Stay) (NQF #0678), With a 
Modified Pressure Ulcer Measure, Changes in Skin Integrity Post-
Acute Care: Pressure Ulcer/Injury
    b. Mechanical Ventilation Process Quality Measure: Compliance 
With Spontaneous Breathing Trial (SBT) by Day 2 of the LTCH Stay
    c. Mechanical Ventilation Outcome Quality Measure: Ventilator 
Liberation Rate
    8. Removal of the All-Cause Unplanned Readmission Measure for 30 
Days Post-Discharge From LTCHS From the LTCH QRP
    9. LTCH QRP Quality Measures Under Consideration for Future 
Years
    a. LTCH QRP Quality Measures Under Consideration for Future 
Years
    b. IMPACT Act Measure--Possible Future Update to Measure 
Specifications
    c. IMPACT Act Implementation Update
    10. Standardized Patient Assessment Data Reporting for the LTCH 
QRP
    a. Standardized Patient Assessment Data Reporting for the FY 
2019 LTCH QRP
    b. Standardized Patient Assessment Data Reporting Beginning With 
the FY 2020 LTCH QRP
    11. Form, Manner, and Timing of Data Submission Under the LTCH 
QRP
    a. Start Date for Standardized Patient Assessment Data Reporting 
by New LTCHs
    b. Mechanism for Reporting Standardized Patient Assessment Data 
Beginning With the FY 2019 LTCH QRP
    c. Schedule for Reporting Standardized Patient Assessment Data 
Beginning With the FY 2019 LTCH QRP
    d. Schedule for Reporting the Newly Finalized Quality Measures 
Beginning With the FY 2020 LTCH QRP
    e. Removal of Interrupted Stay Items From the LTCH CARE Data Set
    12. Changes to Previously Codified Participation Requirements 
Under the LTCH QRP
    13. Changes to Previously Codified Data Submission Requirements 
Under the LTCH QRP
    14. Changes to Previously Codified Exception and Extension 
Requirements Under the LTCH QRP
    15. Changes to Previously Codified Reconsiderations Requirements 
Under the LTCH QRP
    16. Application of the LTCH QRP Data Completion Thresholds to 
the Submission of Standardized Patient Assessment Data Beginning 
With the FY 2019 LTCH QRP
    17. Policies Regarding Public Display of Measure Data for the 
LTCH QRP
    18. 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. Factors for Removal or Retention of IPFQR Program Measures
    a. Background
    b. Considerations in Removing or Retaining Measures
    3. Proposal for New Quality Measure for the FY 2020 Payment 
Determination and Subsequent Years--Medication Continuation 
following Inpatient Psychiatric Discharge

[[Page 37997]]

    a. Background
    b. Appropriateness for the IPFQR Program
    c. Measure Calculation
    d. Data Sources
    e. Public Comment
    4. Summary of Previously Finalized Measures for the FY 2020 
Payment Determinations and Subsequent Years
    5. Possible IPFQR Program Measures and Topics for Future 
Consideration
    6. Public Display and Review Requirements
    7. Form, Manner, and Timing of Quality Data Submission for the 
FY 2019 Payment Determination and Subsequent Years
    a. Procedural Requirements for FY 2019 Payment Determination and 
Subsequent Years
    b. Data Submission Requirements for the FY 2019 Payment 
Determination and Subsequent Years
    c. Reporting Requirements for the FY 2019 Payment Determination 
and Subsequent Years
    d. Population and Sampling
    e. Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements
    8. Reconsideration and Appeals Procedures
    9. Extraordinary Circumstances Exceptions (ECE) for the IPFQR 
Program
    a. Background
    b. ECE Policy Modifications
    E. Clinical Quality Measurement for Eligible Hospitals and 
Critical Access Hospitals (CAHs) Participating in the EHR Incentive 
Programs
    1. Background
    2. Modifications to the CQM Reporting Requirements for the 
Medicare and Medicaid EHR Incentive Programs for CY 2017
    a. Background
    b. Changes to Policies Regarding Electronic Reporting of CQMs 
for CY 2017
    3. CQM Reporting for the Medicare and Medicaid EHR Incentive 
Programs in 2018
    a. Background
    b. CQM Reporting Period for the Medicare and Medicaid EHR 
Incentive Programs in CY 2018
    c. CQM Reporting Form and Method for the Medicare EHR Incentive 
Program in 2018
    F. Clinical Quality Measurement for Eligible Professionals (EPs) 
Participating in the Medicaid EHR Incentive Program in 2017
    1. Modifications to the CQM Reporting Period for EPs in 2017
    2. Modifications to CQM Reporting Requirements for Medicaid EPs 
Under the Medicaid EHR Incentive Program
    G. Changes to the Medicare and Medicaid EHR Incentive Programs
    1. Revisions to the EHR Reporting Period in 2018
    2. Significant Hardship Exception for Decertified Certified EHR 
Technology (CEHRT) for EPs, Eligible Hospitals, and CAHs Seeking To 
Avoid the Medicare Payment Adjustment
    3. Ambulatory Surgical Center (ASC)-Based Eligible Professionals 
(EPs)
    4. Certification Requirements for 2018
X. Revisions of Medicare Cost Reporting and Provider Requirements
    A. Electronic Signature and Submission of the Certification and 
Settlement Summary Page of the Medicare Cost Report
    1. Background
    2. Changes Relating to Electronic Signature on the Certification 
and Settlement Summary Page of the Medicare Cost Report
    3. Changes Relating to Electronic Submission of the 
Certification and Settlement Summary Page of the Medicare Cost 
Report
    4. Clarifications Relating to the Items Required to be Submitted 
by Providers with the Medicare Cost Report
    a. Settlement Summary and Certification Statement
    b. Removal of the Transition Period Language
    5. Revisions to 42 CFR 413.24(f)(4)(iv)
    B. Clarification of Limitations on the Valuation of Depreciable 
Assets Disposed of on or after December 1, 1997
XI. Changes Relating to Survey and Certification Requirements
    A. Revisions to the Application and Re-Application Procedures 
for National Accrediting Organizations (AOs), Provider and Supplier 
Conditions, and Posting of Survey Reports and Acceptable Plans of 
Corrections (PoCs)
    B. Changes to Termination Public Notice Requirements for Certain 
Providers and Suppliers
    1. Background
    2. Basis for Changes
    3. Changes to Regulations
XII. MedPAC Recommendations
XIII. Other Required Information
    A. Publicly Available Data
    B. Collection of Information Requirements
    1. Statutory Requirement for Solicitation of Comments
    2. ICRs for Temporary Exception to the LTCH PPS Site Neutral 
Payment Rate for Certain Spinal Cord Specialty Hospitals
    3. ICRs for the Hospital Inpatient Quality Reporting (IQR) 
Program
    4. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    5. ICRs for Hospital Value-Based Purchasing (VBP) Program
    6. ICRs for the Long-Term Care Hospital Quality Reporting 
Program (LTCH QRP)
    7. ICRs for the Inpatient Psychiatric Facility Quality Reporting 
(IPFQR) Program
    8. ICRs for the Electronic Health Record (EHR) Incentive 
Programs and Meaningful Use
    9. ICRs Relating to Electronic Signature and Electronic 
Submission of the Certification and Settlement Summary Page of 
Medicare Cost Reports
    10. ICRs Relating to Changes in Public Notices of Terminations
Regulation Text
Addendum--Schedule of Standardized Amounts, Update Factors, and 
Rate-of-Increase Percentages Effective with Cost Reporting Periods 
Beginning on or after October 1, 2017 and Payment Rates for LTCHs 
Effective with Discharges Occurring on or after October 1, 2017
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2018
    A. Calculation of the Adjusted Standardized Amount
    B. Adjustments for Area Wage Levels and Cost-of-Living
    C. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient 
Capital-Related Costs for FY 2018
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2018
    C. Capital Input Price Index
IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-
Increase Percentages for FY 2018
V. Updates to the Payment Rates for the LTCH PPS for FY 2018
    A. LTCH PPS Standard Federal Payment Rate for FY 2018
    B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 
2018
    1. Background
    2. Geographic Classifications (Labor Market Areas) for the LTCH 
PPS Standard Federal Payment Rate
    3. Labor-Related Share for the LTCH PPS Standard Federal Payment 
Rate
    4. Wage Index for FY 2018 for the LTCH PPS Standard Federal 
Payment Rate
    5. Budget Neutrality Adjustment for Changes to the LTCH PPS 
Standard Federal Payment Rate Area Wage Level Adjustment
    C. LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located 
in Alaska and Hawaii
    D. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
    E. Update to the IPPS Comparable/Equivalent Amounts to Reflect 
the Statutory Changes to the IPPS DSH Payment Adjustment Methodology
    F. Computing the Adjusted LTCH PPS Federal Prospective Payments 
for FY 2018
VI. Tables Referenced in this Final Rule and Available through the 
Internet on the CMS Web site
Appendix A--Economic Analyses
I. Regulatory Impact Analysis
    A. Introduction
    B. Need
    C. Objectives of the IPPS
    D. Limitations of Our Analysis
    E. Hospitals Included in and Excluded From the IPPS
    F. Effects on Hospitals and Hospital Units Excluded From the 
IPPS
    G. Quantitative Effects of the Policy Changes Under the IPPS for 
Operating Costs
    1. Basis and Methodology of Estimates
    2. Analysis of Table I
    3. Impact Analysis of Table II
    H. Effects of Other Policy Changes

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    1. Effects of Policy Relating to New Medical Service and 
Technology Add-On Payments
    2. Effects of Changes to MS-DRGs Subject to the Postacute Care 
Transfer Policy and the MS-DRG Special Payment Policy
    3. Effects of the Changes to the Volume Decrease Adjustment for 
Sole Community Hospitals (SCHs)
    4. Effects of Changes to Low-Volume Hospital Payment Adjustment 
Policy
    5. Effects of the Changes to Medicare DSH and Uncompensated Care 
Payments for FY 2018
    6. Effects of Reduction Under the Hospital Readmissions 
Reduction Program
    7. Effects of Changes Under the FY 2018 Hospital Value-Based 
Purchasing (VBP) Program
    8. Effects of Changes to the HAC Reduction Program for FY 2018
    9. Effects of Implementation of the Additional 5-Year Expansion 
of the Rural Community Hospital Demonstration Program
    10. Effects of the Changes Relating to Provider-Based Status of 
Indian Health Service and Tribal Facilities and Organizations
    11. Effects of the Changes Relating to Hospital-Within-Hospital 
Policy
    12. Effects of Continued Implementation of the Frontier 
Community Health Integration Project (FCHIP) Demonstration
    I. Effects of Changes in the Capital IPPS
    1. General Considerations
    2. Results
    J. Effects of Payment Rate Changes and Policy Changes Under the 
LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals
    3. Anticipated Effects of LTCH PPS Payment Rate Changes and 
Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    K. Effects of Requirements for Hospital Inpatient Quality 
Reporting (IQR) Program
    L. Effects of Requirements for the PPS-Exempt Cancer Hospital 
Quality Reporting (PCHQR) Program
    M. Effects of Requirements for the Long-Term Care Hospital 
Quality Reporting Program (LTCH QRP)
    N. Effects of Updates to the Inpatient Psychiatric Facility 
Quality Reporting (IPFQR) Program
    O. Effects of Requirements Regarding the Electronic Health 
Record (EHR) Incentive Programs and Meaningful Use
    P. Effects of Electronic Signature and Electronic Submission of 
the Certification and Settlement Summary Page of Medicare Cost 
Reports
    Q. Effects of Changes Relating to Survey and Certification 
Requirements
    R. Effects of Clarification of Limitations on the Valuation of 
Depreciable Assets Disposed of on or after December 1, 1997
    S. Alternatives Considered
    T. Reducing Regulation and Controlling Regulatory Costs
    U. Overall Conclusion
    1. Acute Care Hospitals
    2. LTCHs
    V. Regulatory Review Costs
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 13175
VII. 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 2018
    A. FY 2018 Inpatient Hospital Update
    B. Update for SCHs for FY 2018
    C. FY 2018 Puerto Rico Hospital Update
    D. Update for Hospitals Excluded from the IPPS
    E. Update for LTCHs for FY 2018
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and 
Updating Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
    This final rule makes payment and policy changes under the Medicare 
inpatient prospective payment systems (IPPS) for operating and capital-
related costs of acute care hospitals as well as for certain hospitals 
and hospital units excluded from the IPPS. We also are making changes 
relating to the provider-based status of Indian Health Service (IHS) 
and Tribal facilities and organizations and to the IPPS low-volume 
hospital payment adjustment for hospitals operated by the IHS or a 
Tribe. In addition, it makes payment and policy changes for inpatient 
hospital services provided by long-term care hospitals (LTCHs) under 
the long-term care hospital prospective payment system (LTCH PPS). It 
also makes policy changes to programs associated with Medicare IPPS 
hospitals, IPPS-excluded hospitals, and LTCHs.
    We are establishing new requirements or revising requirements for 
quality reporting by specific providers (acute care hospitals, PPS-
exempt hospitals, LTCHs, and inpatient psychiatric facilities) that are 
participating in Medicare. We also are establishing new requirements or 
revising existing requirements for eligible professionals (EPs), 
eligible hospitals, and CAHs participating in the Medicare and Medicaid 
EHR Incentive Programs. We are updating policies relating to the 
Hospital Value-Based Purchasing (VBP) Program, the Hospital 
Readmissions Reduction Program, and the Hospital-Acquired Condition 
(HAC) Reduction Program. We also are making changes related to the 
transparency of accrediting organization survey reports and plans of 
correction; to allow electronic signature and electronic submission of 
the Certification and Settlement Summary page of the Medicare cost 
reports; and to clarify provider reimbursement regulations relative to 
the sale or scrapping of depreciable assets on or after December 1, 
1997.
    Under various statutory authorities, we are making changes to the 
Medicare IPPS, to the LTCH PPS, and to other related payment 
methodologies and programs for FY 2018 and subsequent fiscal years. 
These statutory authorities include, but are not limited to, the 
following:
     Section 1886(d) of the Social Security Act (the Act), 
which sets forth a system of payment for the operating costs of acute 
care hospital inpatient stays under Medicare Part A (Hospital 
Insurance) based on prospectively set rates. Section 1886(g) of the Act 
requires that, instead of paying for capital-related costs of inpatient 
hospital services on a reasonable cost basis, the Secretary use a 
prospective payment system (PPS).
     Section 1886(d)(1)(B) of the Act, which specifies that 
certain hospitals and hospital units are excluded from the IPPS. These 
hospitals and units are: Rehabilitation hospitals and units; LTCHs; 
psychiatric hospitals and units; children's hospitals; cancer 
hospitals; extended neoplastic disease care hospitals (previously 
referred to as ``long-term care neoplastic disease hospitals'' and 
renamed in this final rule), 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). Religious nonmedical health care institutions 
(RNHCIs) are also excluded from the IPPS.
     Sections 123(a) and (c) of the BBRA (Pub. L. 106-113) and 
section 307(b)(1) of the BIPA (Pub. L. 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 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.

[[Page 37999]]

     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 that would 
otherwise apply to the standardized amount applicable to a subsection 
(d) hospital for discharges occurring in 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 and section 15002 of the 21st Century Cures Act, which 
establishes the ``Hospital Readmissions Reduction Program.'' Under the 
program, payments for discharges from an ``applicable hospital'' under 
section 1886(d) of the Act will be reduced to account for certain 
excess readmissions. Section 15002 of the 21st Century Cures Act 
requires the Secretary to compare cohorts of hospitals to each other in 
determining the extent of 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 who are 
uninsured (minus 0.2 percentage point for FY 2018 through FY 2019); 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(c) 
of the Pathway for Sustainable Growth Rate (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)(6) of the Act, as amended by section 15009 
of the 21st Century Cures Act (Pub. L. 114-255), which provides for a 
temporary exception to the application of the site neutral payment rate 
under the LTCH PPS for certain spinal cord specialty hospitals for 
discharges in cost reporting periods beginning during FYs 2018 and 
2019.
     Section 1886(m)(6) of the Act, as amended by section 15010 
of the 21st Century Cures Act (Pub. L. 114-255), which provides for a 
temporary exception to the application of the site neutral payment rate 
under the LTCH PPS for certain LTCHs with certain discharges with 
severe wounds occurring in cost reporting periods beginning during FY 
2018.
     Section 1886(m)(5)(D)(iv) of the Act, as added by section 
1206(c) of the Pathway for Sustainable Growth Rate (SGR) Reform Act of 
2013 (Pub. L. 113-67), which provides for the establishment of a 
functional status quality measure under the LTCH QRP for change in 
mobility among inpatients requiring ventilator support.
     Section 1899B of the Act, as added by section 2(a) of the 
Improving Medicare Post-Acute Care Transformation Act of 2014 (the 
IMPACT Act, Pub. L. 113-185), which provides for the establishment of 
data reporting for certain post-acute care providers, including LTCHs.
2. Summary of the Major Provisions
a. MS-DRG Documentation and Coding Adjustment
    Section 631 of the American Taxpayer Relief Act of 2012 (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. The FY 2014 through FY 2017 adjustments 
represented 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. Section 414 of the Medicare Access and CHIP Reauthorization Act of 
2015 (MACRA) (Pub. L. 114-10) replaced the single positive adjustment 
we intended to make in FY 2018 with a 0.5 percent positive adjustment 
to the standardized amount of Medicare payments to acute care hospitals 
for FYs 2018 through 2023. The FY 2018 adjustment was subsequently 
adjusted to 0.4588 percent by section 15005 of the 21st Century Cures 
Act.
    For FY 2018, we are making the 0.4588 percent positive adjustment 
to the standardized amount as required by section 414 of Public Law 
114-10, as amended by section 15005 of the 21st Century Cures Act.
b. Adjustment to IPPS Rates Resulting From 2-Midnight Policy
    In FY 2017, we made a permanent adjustment to the standardized 
amount, the hospital-specific payment rates, and the national capital 
Federal rate to 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, we made 
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 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.
    For FY 2018, we are including a factor of (1/1.006) in the 
calculation of the FY

[[Page 38000]]

2018 standardized amount, the hospital-specific payment rates, and the 
national capital Federal rate to remove the temporary one-time factor 
of 1.006, as established in the FY 2017 IPPS/LTCH PPS final rule.
c. Reduction of Hospital Payments for Excess Readmissions
    We are making 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 2018 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 final rule, we are establishing the following policies: 
(1) Specify applicable time period for FY 2018; (2) specifying the 
calculation of aggregate payments for excess readmissions for FY 2018; 
(3) making changes to the payment adjustment factor in accordance with 
the 21st Century Cures Act for FY 2019; and (4) updating the 
Extraordinary Circumstances Exceptions policy.
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 final rule, we are removing one previously adopted measure, the 
PSI 90: Patient Safety for Selected Indicators measure, from the 
Hospital VBP Program beginning with the FY 2019 program year. We also 
are adopting one new measure, Hospital-Level, Risk-Standardized Payment 
Associated with a 30-Day Episode of Care for Pneumonia, beginning with 
the FY 2022 program year, and adopting a modified version of a 
previously adopted measure, Patient Safety and Adverse Events Composite 
(NQF #0531), beginning with the FY 2023 program year. In addition, we 
are making two modifications to our domain scoring policies beginning 
with the FY 2019 program year, and further establishing a new weighting 
methodology for the measures within the Efficiency and Cost Reduction 
domain. We also are addressing public comment submitted in response to 
our comment solicitation on whether and how to account for social risk 
factors in the Hospital VBP Program.
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 final rule, we are establishing the following policies: (1) 
Specifying the data collection time periods for the FY 2020 HAC 
Reduction Program; and (2) updating the Extraordinary Circumstances 
Exception policy for the HAC Reduction Program. In this final rule, we 
also are responding to comments received regarding: (1) Additional 
measures and potential future adoption; (2) accounting for social risk 
factors; and (3) the inclusion of disability and medical complexity for 
the CDC NHSN measures.
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 2014. Under section 1886(r) of the Act, which was added by section 
3133 of the Affordable Care Act, starting in FY 2014, DSHs 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 the amount that 
otherwise would have been paid as Medicare DSH payments, is 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 final rule, we are updating our estimates of the three 
factors used to determine uncompensated care payments for FY 2018. The 
statute permits the use of a data source other than the CBO estimates 
to determine the percent change in the rate of uninsurance as part of 
the calculation of Factor 2 beginning in FY 2018. We are using 
uninsured estimates produced by CMS' Office of the Actuary (OACT) as 
part of the development of the National Health Expenditure Accounts 
(NHEA) in the calculation of Factor 2. We also are beginning to 
incorporate data from Worksheet S-10 in the calculation of hospitals' 
share of uncompensated care by combining data on uncompensated care 
costs from the Worksheet S-10 for FY 2014 with proxy data regarding a 
hospital's share of low-income insured days for FYs 2012 and 2013 to 
determine Factor 3 for FY 2018. We will continue to use data from three 
cost reporting periods to calculate Factor 3, which will gradually 
incorporate uncompensated care data from Worksheet S-10 into the 
calculation of Factor 3. As part of this policy, we are including a 
definition of uncompensated care costs consisting of the sum of charity 
care and bad debt and a trim methodology to address aberrant cost-to-
charge ratios (CCRs) as well as potentially aberrant uncompensated care 
costs that exceed a threshold of 50 percent of total operating costs. 
We also are providing that, for Puerto Rico hospitals, Indian Health 
Service and Tribal hospitals, and all-inclusive rate providers, we will 
substitute data regarding low-income insured days for FY 2013 for the 
Worksheet S-10 data from FY 2014 cost reports.
    We are continuing the policies that were finalized in FY 2015 to 
address several specific issues concerning the process and data to be 
employed in determining hospitals' share of uncompensated care in the 
case of hospital mergers. We also are continuing the policies finalized 
in FY 2017 concerning the methodology for calculating each hospital's 
relative share of uncompensated care, such as combining data from 
multiple cost reports beginning in the same fiscal year and averaging 
the sum of three individual Factor 3s by the number of cost reporting 
periods with data. In addition, we are annualizing hospital cost 
reports that do not span 12 months. We also are applying a scaling 
factor to each hospital's uncompensated care amount so that total 
uncompensated care payments will be consistent with the estimated 
amount available to make

[[Page 38001]]

uncompensated care payments for FY 2018.
g. Changes to the LTCH PPS
    In this final rule, we set forth changes to the LTCH PPS Federal 
payment rates, factors, and other payment rate policies under the LTCH 
PPS for FY 2018; changes to the payment methodology under the short-
stay outlier (SSO) policy; implementation of several provisions of the 
21st Century Cures Act; and the adoption of a 1-year regulatory delay 
on the full implementation of the 25-percent threshold policy for 
discharges occurring in FY 2018 (that is, for the fiscal year after 
expiration of the current statutory moratoria under the 21st Century 
Cures Act, which is set to expire September 30, 2017).
h. Hospital Inpatient Quality Reporting (IQR) Program
    Under section 1886(b)(3)(B)(viii) of the Act, subsection (d) 
hospitals are required to report data on measures selected by the 
Secretary for a fiscal year in order to receive the full annual 
percentage increase that would otherwise apply to the standardized 
amount applicable to discharges occurring in that fiscal year. In past 
years, we have established measures on which hospitals must report data 
and the process for submittal and validation of the data.
    In this final rule, we are finalizing several changes. First, we 
are refining two previously adopted measures. Specifically, we are 
finalizing an update to the Hospital Consumer Assessment of Healthcare 
Providers and Systems (HCAHPS) survey measure by replacing the three 
existing questions about Pain Management with three new questions that 
address Communication About Pain During the Hospital Stay, beginning 
with the FY 2020 payment determination with modification that public 
reporting would be delayed. In addition, we are finalizing an update to 
the stroke mortality measure to include the use of NIH Stroke Scale 
claims data for risk adjustment, beginning with the FY 2023 payment 
determination. We also are adopting the Hospital-Wide All-Cause 
Unplanned Readmission Hybrid Measure as a voluntary measure for the CY 
2018 reporting period.
    In addition, we are finalizing a modified, reduced policy for eCQM 
reporting as compared to our proposals. For both the CY 2017 reporting 
period/FY 2019 payment determination and CY 2018 reporting period/FY 
2020 payment determination, we are finalizing that hospitals will be 
required to select and submit four of the available eCQMs included in 
the Hospital IQR Program measure set and provide one self-selected, 
calendar year quarter of data. We are also modifying our eCQM 
certification requirements such that for the CY 2018 reporting period 
hospitals will be able to use: (1) The 2014 Edition of CERHT, (2) the 
2015 Edition of CEHRT, or (3) a combination of both the 2014 and 2015 
Editions of CEHRT. In addition, we are finalizing the following 
policies: (1) For the CY 2017 reporting period/FY 2019 payment 
determination and the CY 2018 reporting period/FY 2020 payment 
determination, a hospital using EHR technology certified to the 2014 or 
2015 Edition, but for which such EHR technology is not certified to all 
15 available eCQMs available to report, will be required to have its 
EHR technology certified to all 15 eCQMs that are available to report 
in the Hospital IQR Program; (2) for the CY 2017 reporting period/FY 
2019 payment determination, hospitals will be required to use the most 
recent version of the eCQM electronic specifications (namely, the 
Spring 2016 version of the eCQM specifications and any applicable 
addenda); (3) for the CY 2018 reporting period/FY 2020 payment 
determination, hospitals will be required to use the most recent 
version of the eCQM electronic specifications (namely, the Spring 2017 
version of the eCQM specifications and any applicable addenda); and (5) 
hospitals' EHR technology certified to all 15 eCQMs would not need to 
be recertified each time it is updated to a more recent version of the 
eCQMs. These policies are being made in alignment with the CQM 
electronic reporting policies for the Medicare and Medicaid EHR 
Incentive Programs, and will decrease the required number of eCQMs and 
quarters of reporting as compared with the previously finalized 
requirements in the FY 2017 IPPS/LTCH PPS final rule.
    Furthermore, we are finalizing our policies for the eCQM data 
validation process, whereby we will select eight cases per quarter (the 
number of quarters required will vary by specific FY payment 
determination) to complete eCQM validation for the FY 2020 payment 
determination and subsequent years. In addition, for the FY 2020 
payment determination and subsequent years, we are establishing 
policies related to the exclusion criteria for hospital and case 
selection, and the data submission requirements for participating 
hospitals. For the FY 2021 payment determination and subsequent years, 
we are finalizing our proposal to extend our previously finalized 
medical record submission policy for eCQM validation requiring 
submission of at least 75 percent of sampled eCQM measure medical 
records in a timely and complete manner. Also, we are: (1) Formalizing 
our educational review process for chart-abstracted measures for the FY 
2020 payment determination and subsequent years, and (2) finalizing 
that we will use this process to correct quarterly scores for any of 
the first 3 quarters of validation in order to compute the final 
confidence interval.
    Moreover, we are establishing policies related to our Hospital IQR 
Program Extraordinary Circumstances Extension or Exemptions policy, 
including a change to the name of the policy to Extraordinary 
Circumstances Exceptions (ECE) policy and updates to 42 CFR 
412.140(c)(2) to reflect our ECE policy. Finally, we responded to our 
solicitation of public comment on accounting for social risk factors in 
the Hospital IQR Program, the confidential and potential future public 
reporting of clinical quality measure data stratified by patients' 
dual-eligible status, and the following clinical quality measures that 
we are considering for future inclusion in the Hospital IQR Program: 
(1) Quality of Informed Consent Documents for Hospital-Performed, 
Elective Procedures measure; (2) four End-of-Life process and outcome 
measures for cancer patients; (3) two nurse staffing measures; and (4) 
11 newly specified electronic clinical quality measures (eCQMs).
i. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
    Section 1886(m)(5) of the Act requires LTCHs to report certain 
quality data to CMS in order to receive their full annual update under 
the LTCH PPS. In this final rule, we are adopting one new outcome 
measure related to pressure ulcers and two new measures (one process 
and one outcome) related to ventilator weaning. We also are defining 
the certain standardized patient assessment data that LTCHs must report 
to comply with section 1886(m)(5)(F)(ii) of the Act, as well as the 
requirements for the reporting of these data. Finally, we will publicly 
report data on four assessment-based measures and three claims-based 
measures.
j. Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program
    For the Inpatient Psychiatric Facility Quality Reporting (IPFQR) 
Program, we are making several policy changes. First, beginning with 
the FY 2019 payment determination (that is, for extraordinary 
circumstances occurring during CY 2018), we are updating the IPFQR 
Program's extraordinary circumstances

[[Page 38002]]

exceptions (ECE) policy by: (1) Allowing designated personnel to 
provide their contact information and sign the ECE request in lieu of 
the requesting IPF's Chief Executive Officer (CEO); (2) allowing up to 
90 days after the extraordinary circumstance to submit the request; and 
(3) stating that we will strive to respond to ECE requests within 90 
days of receiving them. Second, we are changing the annual data 
submission period from a specific date range to a 45-day period that 
begins at least 30 days following the end of the collection period. 
Third, we are aligning our deadlines for submission of a Notice of 
Participation (NOP) or program withdrawal with this data submission 
timeframe. Finally, we are establishing factors by which we will 
evaluate measures for removal from or retention under the IPFQR 
Program. These factors align with those in use in other quality 
reporting programs.
    We are not finalizing our proposal to adopt the Medication 
Continuation following Inpatient Psychiatric Discharge measure for FY 
2020 payment determination and subsequent years.
3. Summary of Costs and Benefits
     Adjustment for MS-DRG Documentation and Coding Changes. 
Section 414 of the MACRA replaced the single positive adjustment we 
intended to make in FY 2018 once the recoupment required by section 631 
of the ATRA was complete with a 0.5 percent positive adjustment to the 
standardized amount of Medicare payments to acute care hospitals for 
FYs 2018 through 2023. The FY 2018 adjustment was subsequently adjusted 
to 0.4588 percent by section 15005 of the 21st Century Cures Act (Pub. 
L. 114-255). For FY 2018, we are making the 0.4588 percent positive 
adjustment to the standardized amount as required by these provisions.
     Adjustment to IPPS Payment Rates as a Result of the 2-
Midnight Policy. The removal of the adjustment to IPPS rates resulting 
from the 2-midnight policy will decrease IPPS payment rates by (1/
1.006) for FY 2018. The (1/1.006) is a one-time factor that will be 
applied to the standardized amount, the hospital-specific rates, and 
the national capital Federal rate for FY 2018 only.
     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 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 remainder, equal to an estimate of 75 percent of what 
otherwise would have been paid as Medicare DSH payments, is 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 2018, we are providing that the 75 percent of what otherwise 
would have been paid for Medicare DSH will be adjusted to approximately 
58.01 percent of the amount to reflect changes in the percentage of 
individuals that are uninsured and additional statutory adjustments. In 
other words, approximately 43.51 percent (the product of 75 percent and 
58.01 percent) of our estimate of Medicare DSH payments, prior to the 
application of section 3133 of the Affordable Care Act, will be 
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 2018, will increase 
payments overall by approximately 0.6 percent as compared to the 
estimate of overall payments, including Medicare DSH payments and 
uncompensated care payments that will be distributed in FY 2017. 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 calculated payment amount is not directly tied to a hospital's 
number of discharges.
     Changes to the Hospital Readmissions Reduction Program. 
For FY 2018 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). Overall, in this final rule, we estimate that 2,591 hospitals 
will have their base operating DRG payments reduced by their determined 
proxy FY 2018 hospital-specific readmission adjustment. As a result, we 
estimate that the Hospital Readmissions Reduction Program will save 
approximately $564 million in FY 2018, an increase of approximately $27 
million over the estimated FY 2017 savings.
     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 2018 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 2018 program year 
and, therefore, the estimated amount available for value-based 
incentive payments for FY 2018 discharges is approximately $1.9 
billion.
     Changes to the HAC Reduction Program. 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 changes for FY 2018, including which 
hospitals will receive the adjustment, will depend on actual 
experience.
     Update to the LTCH PPS Payment Rates and Other Payment 
Factors. Based on the best available data for the 415 LTCHs in our 
database, we estimate that the changes to the payment rates and factors 
that we are presenting in the preamble and Addendum of this final rule, 
which reflects the rolling end to the transition of the statutory 
application of the site neutral payment rate required by section 
1886(m)(6)(A) of the Act, the update to the LTCH PPS standard Federal 
payment rate for FY 2018, and estimated changes to the site neutral 
payment rate and high-cost outlier (HCO) payments will result in an 
estimated decrease in payments from FY 2017 of approximately $195 
million.
     Changes to the 25-Percent Threshold Policy. In this final 
rule, we estimate our adoption of a 1-year regulatory delay of the full 
implementation of the 25-percent threshold policy for discharges 
occurring in FY 2018 will increase payments to LTCHs in FY 2018 by $70 
million.
     Changes to the Hospital Inpatient Quality Reporting (IQR) 
Program. Across 3,300 IPPS hospitals, we

[[Page 38003]]

estimate that our finalized requirements for the Hospital IQR Program 
will result in the following changes to costs and benefits in this 
program compared to previously finalized requirements: (1) A cost 
reduction of $613,864 for the FY 2019 payment determination due to the 
updates to the eCQM reporting requirements; (2) a total net cost 
reduction of $866,277 for the FY 2020 payment determination due to the 
updates to the eCQM reporting requirements, the updates to the eCQM 
validation procedures, and the voluntary reporting of the new Hybrid 
Hospital-Wide Readmission measure; and (3) a total cost reduction of 
$255,104 for the FY 2021 payment determination due to the updates to 
the eCQM validation procedures.
     Changes Related to the LTCH QRP. In this final rule, we 
are adopting one outcome measure related to pressure ulcers and two new 
measures (one process and one outcome) related to ventilator weaning. 
We also are specifying the use of certain standardized patient 
assessment data as required under section 1899B(b)(1)(B) of the Act and 
policies regarding public display of measure data. Overall, the cost 
associated with the changes to the LTCH QRP is estimated at a reduction 
of $893.14 per LTCH annually or $380,480 for all LTCHs.
     Changes to the IPFQR Program. In this final rule, we are 
not adopting the one claims-based measure we proposed. However, we are 
updating our ECE process; changing the specification of the data 
submission period; aligning the timeframe for submission of the NOP or 
program withdrawal with the data submission period; and establishing 
factors to evaluate measures for retention or removal. We do not 
believe that these policies will have any impact on the IPFQR program 
burden.

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

[[Page 38004]]

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; cancer hospitals; extended 
neoplastic disease care hospitals (referred to as ``long-term care 
neoplastic disease hospitals'' in the proposed rule and renamed for 
this final rule, which were formerly LTCHs classified under section 
1886(d)(1)(B)(iv)(II) of the Act and redesignated by section 15008 of 
Pub. L 114-255) 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). Religious nonmedical health care institutions (RNHCIs) 
are also excluded from the IPPS. Various sections of the Balanced 
Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare, Medicaid and 
SCHIP [State Children's Health Insurance Program] Balanced Budget 
Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA, Pub. L. 106-554) provide for the implementation of PPSs for 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 included along with the IPPS 
annual update in this document. Updates to the IRF PPS and IPF PPS are 
issued as separate documents.) Children's hospitals, cancer hospitals, 
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), 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 the Pathway for SGR Reform Act 
of 2013 (Pub. L. 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 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) of the Act and existing regulations under 42 CFR part 413.
5. Payments for Graduate Medical Education (GME)
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities are excluded from the operating costs of inpatient hospital 
services. Hospitals with approved graduate medical education (GME) 
programs are paid for the direct costs of GME in accordance with 
section 1886(h) of the Act. The amount of payment for direct GME costs 
for a cost reporting period is based on the hospital's number of 
residents in that period and the hospital's costs per resident in a 
base year. The existing regulations governing payments to the various 
types of hospitals are located in 42 CFR part 413.

C. Summary of Provisions of Recent Legislation Implemented in This 
Final Rule

1. The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), 
the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. 
L. 114-10), and the 21st Century Cures Act (Pub. L. 114-255)
    Section 631 of the American Taxpayer Relief Act of 2012 (ATRA) 
(Pub. L. 112-240) amended section 7(b)(1)(B) of Public Law 110-90 to 
require CMS to make a recoupment adjustment to the standardized amounts 
under section 1886(d) of the Act based upon the Secretary's estimates 
for discharges occurring from FYs 2014 through FY 2017 to fully offset 
$11 billion. Once the recoupment required under section 631 of the ATRA 
was completed, CMS 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, section 414 of the MACRA 
replaced the single positive adjustment CMS intended to make in FY 2018 
with a 0.5 percent positive adjustment for each of FYs 2018 through 
2023. Section 15005 of the 21st Century Cures Act (Pub. L. 114-255, 
enacted December 13, 2016) further amended Public Law 110-90 to reduce 
the adjustment for FY 2018 from 0.5 percent point to 0.4588 percentage 
point.
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 
final rule, we are continuing to update certain policies 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

[[Page 38005]]

Quality Reporting Program (LTCH QRP). In this final rule, we are 
continuing to implement portions of section 1899B of the Act, as added 
by section 2(a) 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)
    Section 411(g) of the Medicare Access and CHIP Reauthorization Act 
of 2015 (MACRA, Pub. L. 114-10) sets the annual update under the LTCH 
PPS to 1.0 percent for FY 2018. In this final rule, consistent with 
this requirement, we are updating the LTCH standard Federal payment 
rate by 1.0 percent for FY 2018.
    The MACRA also extended the MDH program and temporary changes to 
the payment adjustment for low-volume hospitals through FY 2017. In 
this final rule, we discuss the expiration of the MDH program and the 
expiration of the temporary changes to the low-volume hospital payment 
adjustment under current law.
5. The 21st Century Cures Act (Pub. L. 114-255)
    The 21st Century Cures Act (Pub. L. 114-255), enacted on December 
13, 2016, contains a number of provisions affecting payments under the 
LTCH PPS, the Hospital Readmissions Reduction Program and the Medicare 
EHR Incentive Program, which we are implementing in this final rule:
     Section 4002(b)(1)(A) amended section 1848(a)(7)(B) of the 
Act to provide that the Secretary shall exempt an eligible professional 
from the application of the payment adjustment under section 
1848(a)(7)(A) of the Act with respect to a year, subject to annual 
renewal, if the Secretary determines that compliance with the 
requirement for being a meaningful EHR user is not possible because the 
certified EHR technology used by such eligible professional has been 
decertified under the Office of the National Coordinator for Health 
Information Technology's (ONC) Health IT Certification Program.
     Section 4002(b)(2) amended section 1886(b)(3)(B)(ix)(II) 
of the Act to provide that the Secretary shall exempt a hospital from 
the application of the payment adjustment under section 
1886(b)(3)(B)(ix)(I) with respect to a fiscal year, subject to annual 
renewal, if the Secretary determines that compliance with the 
requirement for being a meaningful EHR user is not possible because the 
certified EHR technology used by the hospital is decertified under 
ONC's Health IT Certification Program.
     Section 15002, which amended section 1886(q)(3) of the Act 
by adding subparagraphs (D) and (E), which requires the Secretary to 
develop a methodology for the calculating the excess readmissions 
adjustment factor for the Hospital Readmissions Reduction Program based 
on cohorts defined by the percentage of dual eligible patients (that 
is, patients who are eligible for both Medicare and full-benefit 
Medicaid coverage) cared for by a hospital. In this final rule, we are 
implementing changes to the payment adjustment factor to assess 
penalties based on a hospital's performance relative to other hospitals 
treating a similar proportion of dual-eligible patients.
     Section 15004(a), which further amended section 114(d)(7) 
of the MMSEA (as amended) by striking ``The moratorium under paragraph 
(1)(A)'' and inserting ``[a]ny moratorium under paragraph (1)'' and 
specified that such amendment shall take effect as if included in the 
enactment of section 112 of the PAMA. We are implementing the 
exceptions to the current statutory moratorium, which is in effect 
through September 30, 2017, on increasing beds in an existing LTCH or 
an existing LTCH satellite as provided by Section 15004(a).
     Section 15004(b), which modifies high cost outlier 
payments to LTCH standard Federal rate cases beginning in FY 2018.
     Section 15006, which further amended section 114(c)(1)(A) 
of the MMSEA (as amended) by extending the moratorium on the full 
implementation of the 25-percent threshold policy through June 30, 
2016, and for discharges occurring on or after October 1, 2016 and 
before October 1, 2017. In this final rule, we are implementing the 
moratorium on the full implementation of the 25-percent threshold 
policy for discharges occurring on or after October 1, 2016, through 
September 30, 2017, as provided by section 15006.
     Section 15007, which amended section 1206(a)(3) of the 
Pathway for SGR Reform Act by extending the exclusion for of Medicare 
Advantage plans' and site neutral payment rate discharges from the 
calculation of the average length-of-stay to all LTCHs, for discharges 
occurring in cost reporting periods beginning on or after October 1, 
2015.
     Section 15008, which provided for a change in Medicare 
classification for ``subclause (II)'' LTCHs by redesignating such 
hospitals from section 1886(d)(1)(B)(iv)(II) to section 
1886(d)(1)(B)(vi) of the Act. In this final rule, we are implementing 
the reclassification of hospitals which had previously been classified 
as ``subclause (II)'' LTCHs as their own category of IPPS-excluded 
hospitals as provided by the provisions of section 15008.
     Section 15009 of Public Law 114-255, which added new 
subparagraph (F) to section 1886(m)(6) of the Act, providing for a 
temporary exception to the site neutral payment rate for certain spinal 
cord specialty hospitals for all discharges occurring during such 
LTCH's cost reporting periods that begin during FYs 2018 and 2019.
     Section 15010, which added a new subparagraph (G) to 
section 1886(m)(6) of the Act, to create a temporary exception to the 
site neutral payment rate for certain severe wound discharges from 
certain LTCHs during such LTCH's cost reporting period beginning during 
FY 2018.
     Section 16003 amended section 1848(a)(7)(D) of the Act to 
provide that no payment adjustment may be made under section 
1848(a)(7)(A) of the Act for 2017 and 2018 in the case of an eligible 
professional who furnishes substantially all of his or her covered 
professional services in an ambulatory surgical center (ASC). Section 
1848(a)(7)(D)(iii) of the Act provides that determinations of whether 
an eligible professional is ASC-based may be made based on the site of 
service as defined by the Secretary or an attestation, but shall be 
made without regard to any employment or billing arrangement between 
the eligible professional and any other supplier or provider of 
services. Section 1848(a)(7)(D)(iv) of the Act provides that the ASC-
based exception shall no longer apply as of the first year that begins 
more than 3 years after the date on which the Secretary determines, 
through notice-and-comment rulemaking, that certified EHR technology 
applicable to the ASC setting is available.

D. Issuance of a Notice of Proposed Rulemaking

    In the proposed rule that appeared in the Federal Register on April 
28, 2017 (82 FR 19796), we set forth proposed payment and policy 
changes to the Medicare IPPS for FY 2018 operating costs and for 
capital-related costs of acute care hospitals and certain hospitals and 
hospital units that are excluded from IPPS. In addition, we set forth 
proposed changes to the payment rates, factors, and other payment and 
policy-related changes to programs

[[Page 38006]]

associated with payment rate policies under the LTCH PPS for FY 2018.
    Below is a summary of the major changes that we proposed to make.
1. Proposed Changes to MS-DRG Classifications and Recalibrations of 
Relative Weights
    In section II. of the preamble of the proposed rule, we included--
     Proposed changes to MS-DRG classifications based on our 
yearly review for FY 2018.
     Proposed adjustment to the standardized amounts under 
section 1886(d) of the Act for FY 2018 in accordance with the 
amendments made to section 7(b)(1)(B) of Public Law 110-90 by section 
414 of the MACRA and section 15005 of the 21st Century Cures Act.
     Proposed recalibration of the MS-DRG relative weights.
     A discussion of the FY 2018 status of new technologies 
approved for add-on payments for FY 2017 and a presentation of our 
evaluation and analysis of the FY 2018 applicants for add-on payments 
for high-cost new medical services and technologies (including public 
input, as directed by Pub. L. 108-173, obtained in a town hall 
meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to the proposed rule, we proposed 
to make revisions to the wage index for acute care hospitals and the 
annual update of the wage data. Specific issues addressed include, but 
are not limited to, the following:
     The proposed FY 2018 wage index update using wage data 
from cost reporting periods beginning in FY 2014.
     Clarification of other wage-related costs in the wage 
index.
     Calculation of the proposed occupational mix adjustment 
for FY 2018 based on the 2013 Occupational Mix Survey.
     Analysis and implementation of the proposed FY 2018 
occupational mix adjustment to the wage index for acute care hospitals.
     Proposed application of the rural floor and the frontier 
State floor and the proposed expiration of the imputed floor.
     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.
     Proposal to require documentation of SCH and RRC 
classification status approvals to be submitted to the MGCRB by the 
first business day after January 1.
     Clarification of special rules for SCHs and RRCs 
reclassifying to geographic home areas.
     Proposed changes to the 45-day notification rule.
     The proposed adjustment to the wage index for acute care 
hospitals for FY 2018 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 2018 wage index.
3. Proposed Rebasing and Revising of Hospital Market Basket
    In section IV. of the proposed rule, we proposed to revise and 
rebase the hospital market baskets for acute care hospitals and update 
the labor-related share.
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs
    In section V. of the preamble of the proposed rule, we discussed 
proposed changes or clarifications of a number of the provisions of the 
regulations in 42 CFR parts 412 and 413, including the following:
     Proposed changes to MS-DRGs subject to the postacute care 
transfer policy.
     Proposed changes to the inpatient hospital update for FY 
2018.
     Proposed changes to the volume decrease adjustment for 
SCHs.
     Proposed updated national and regional case-mix values and 
discharges for purposes of determining RRC status.
     Expiration of the temporary changes to the payment 
adjustment for low-volume hospitals at the end of FY 2017.
     Proposed parallel low-volume hospital payment adjustment 
concerning hospitals operated by the Indian Health Service (IHS) or a 
Tribe.
     The statutorily required IME adjustment factor for FY 
2018.
     Proposed changes to the methodologies for determining 
Medicare DSH payments and the additional payments for uncompensated 
care.
     Discussion of expiration of the MDH program at the end of 
FY 2017 and our policy to allow MDHs to apply for SCH status in advance 
of the expiration of the MDH program and be paid as such under certain 
conditions.
     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 2018.
     Proposed changes to the requirements and provision of 
value-based incentive payments under the Hospital Value-Based 
Purchasing Program.
     Proposed requirements for payment adjustments to hospitals 
under the HAC Reduction Program for FY 2018.
     Discussion of and proposals relating to the additional 5-
year extension of the Rural Community Hospital Demonstration Program.
     Proposals related to the provider-based status of IHS and 
Tribal facilities and organizations that would remove the regulatory 
date limitation that restricted the grandfathering provision to IHS or 
Tribal facilities and organizations furnishing services on or before 
April 7, 2000. We also proposed to make a technical change to make the 
regulation text more consistent with our current rules that require 
these facilities to comply with all applicable Medicare conditions of 
participation that apply to the main provider.
5. Proposed FY 2018 Policy Governing the IPPS for Capital-Related Costs
    In section VI. of the preamble to the proposed rule, we discussed 
the proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2018.
6. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VII. of the preamble of the proposed rule, we 
discussed--
     Proposed changes to payments to certain excluded hospitals 
for FY 2018.
     Proposed policy changes relating to payments to hospitals-
within-hospitals.
     Proposed continued implementation of the Frontier 
Community Health Integration Project (FCHIP) Demonstration.
7. Proposed Changes to the LTCH PPS
    In section VIII. of the preamble of the 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 
2018.
     Proposed changes to the short-stay outlier (SSO) policy.
     Proposed 1-year regulatory delay of the full 
implementation of the 25-percent threshold policy for discharges 
occurring in FY 2018.
     Proposed changes to implement the temporary exception to 
the site neutral payment rate for certain spinal cord specialty 
hospitals and for certain discharges with severe wounds from certain 
LTCHs, as provided under sections 15009 and 15010 of Public Law 114-
255, respectively.

[[Page 38007]]

     Proposed change to the average length of stay criterion to 
implement section 15007 of Public Law 114-255.
     Proposed change in Medicare classification for certain 
hospitals to implement section 15008 of Public Law 114-255.
8. Proposed Changes Relating to Quality Data Reporting for Specific 
Providers and Suppliers
    In section IX. of the preamble of the proposed rule, we addressed--
     Proposed requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program.
     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 to requirements pertaining to the 
clinical quality measurement of eligible hospitals and CAHs as well as 
EPs participating in the Medicare and Medicaid Electronic Health Record 
(EHR) Incentive Programs.
9. Proposed Changes Relating to Medicare Cost Reporting and Provider 
Requirements
    In section X. of the preamble of the proposed rule, we presented 
our proposals to revise the regulations to allow providers to use an 
electronic signature to sign the Certification and Settlement Summary 
page of the Medicare cost report and submit this page electronically, 
and clarify the rules relating to the sale or scrapping of depreciable 
assets disposed of on or after December 1, 1997.
10. Proposed Changes Relating to Survey and Certification Requirements
    In section XI. of the preamble of the proposed rule, we present our 
proposals for allowing transparency in accrediting organization survey 
reports and plans of correction and for changing the requirement for 
providers to publish self-termination notices in newspapers.
11. Determining Prospective Payment Operating and Capital Rates and 
Rate-of-Increase Limits for Acute Care Hospitals
    In section V. of the Addendum to the proposed rule, we set forth 
proposed changes to the amounts and factors for determining the 
proposed FY 2018 prospective payment rates for operating costs and 
capital-related costs for acute care hospitals. We proposed to 
establish the threshold amounts for outlier cases. In addition, we 
addressed the update factors for determining the rate-of-increase 
limits for cost reporting periods beginning in FY 2018 for certain 
hospitals excluded from the IPPS.
12. Determining Prospective Payment Rates for LTCHs
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed FY 2018 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 2018. We proposed 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.
13. Impact Analysis
    In Appendix A of the proposed rule, we set forth an analysis of the 
impact that the proposed changes would have on affected acute care 
hospitals, CAHs, LTCHs, PCHs, and IPFs.
14. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    In Appendix B of the proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of 
the appropriate percentage changes for FY 2018 for the following:
     A single average standardized amount for all areas for 
hospital inpatient services paid under the IPPS for operating costs of 
acute care hospitals (and hospital-specific rates applicable to SCHs).
     Target rate-of-increase limits to the allowable operating 
costs of hospital inpatient services furnished by certain hospitals 
excluded from the IPPS.
     The LTCH PPS standard Federal payment rate and the site 
neutral payment rate for hospital inpatient services provided for LTCH 
PPS discharges.
15. Discussion of Medicare Payment Advisory Commission Recommendations
    Under section 1805(b) of the Act, MedPAC is required to submit a 
report to Congress, no later than March 15 of each year, in which 
MedPAC reviews and makes recommendations on Medicare payment policies. 
MedPAC's March 2017 recommendations concerning hospital inpatient 
payment policies address the update factor for hospital inpatient 
operating costs and capital-related costs for hospitals under the IPPS. 
We addressed these recommendations in Appendix B of the proposed rule. 
For further information relating specifically to the MedPAC March 2017 
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. 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. Section 
1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG 
classifications and relative weights at least annually to account for 
changes in resource consumption. 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) and the FYs 2011 through 2017 IPPS/LTCH PPS final 
rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR 
53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; and 81 FR 56787 through 
56872, respectively).

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

[[Page 38008]]

with comment period (72 FR 47140 through 47189).

D. FY 2018 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. 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 percentage 
points to the national standardized amount. We provided for phasing in 
this -4.8 percentage point adjustment over 3 years. Specifically, we 
established prospective documentation and coding adjustments of -1.2 
percentage points for FY 2008, -1.8 percentage points for FY 2009, and 
-1.8 percentage points for FY 2010.
    On September 29, 2007, Congress enacted the TMA [Transitional 
Medical Assistance], Abstinence Education, and QI [Qualifying 
Individuals] Programs Extension Act of 2007 (Public Law 110-90). 
Section 7(a) of Public Law 110-90 reduced the documentation and coding 
adjustment made as a result of the MS-DRG system that we adopted in the 
FY 2008 IPPS final rule with comment period to -0.6 percentage point 
for FY 2008 and -0.9 percentage point for FY 2009.
    As discussed in prior year rulemaking, and most recently in the FY 
2017 IPPS/LTCH PPS final rule (81 FR 56780 through 56782), we 
implemented a series of adjustments required under sections 7(b)(1)(A) 
and 7(b)(1)(B) of Public Law 110-90, based on a retrospective review of 
FY 2008 and FY 2009 claims data. We completed these adjustments in FY 
2013, but indicated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53274 through 53275) that delaying full implementation 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, and that these overpayments could not be recovered.
2. 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 
represented 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 was 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 percentage point 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 would address this MACRA 
provision in future rulemaking. However, section 15005 of the 21st 
Century Cures Act (Pub. L. 114-255), enacted on December 13, 2016, 
reduced the adjustment for FY 2018 from 0.5 percentage points to 0.4588 
percentage points. We are addressing these provisions of MACRA and the 
21st Century Cures Act in section II.D.3. of the preamble of this final 
rule.
    As we stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50515 
through 50517), our actuaries estimated that a -9.3 percentage point 
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 percentage 
point recoupment adjustment to the standardized amount in FY 2014. We 
estimated that if adjustments of approximately -0.8 percentage point 
were implemented in FYs 2014, 2015, 2016, and 2017, using standard 
inflation factors, the entire $11 billion would be accounted for by the 
end of the statutory 4-year timeline. As estimates of any future 
adjustments are subject to variations in total savings, we did not 
provide for specific adjustments for FYs 2015, 2016, or 2017 at that 
time.
    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 
percentage point 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 percentage point 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.
    As indicated in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 
24966), due to lower than previously estimated inpatient spending, we 
determined that an adjustment of -0.8 percentage point in FY 2017 would 
not recoup the $11 billion under section 631 of the ATRA. For the FY 
2017 IPPS/LTCH PPS final rule (81 FR 56785), based on the Midsession 
Review of the President's FY 2017 Budget, our actuaries estimated

[[Page 38009]]

that, to the nearest tenth of a percentage point, 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 percentage points. Based on those updated estimates 
by the Office of the Actuary using the Midsession Review of the 
President's FY 2017 Budget, we made a -1.5 percentage point adjustment 
for FY 2017 as the final adjustment required under section 631 of the 
ATRA. The estimates by our actuaries related to this finalized 
adjustment were included in a memorandum that we made publicly 
available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-OACT.html.
3. Adjustment for FY 2018 Required Under Section 414 of Public Law 114-
10 (MACRA) and Section 15005 of Public Law 114-255
    As stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56785), 
once the recoupment required under section 631 of the ATRA 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, section 414 of the MACRA (which was 
enacted on April 16, 2015) replaced the single positive adjustment we 
intended to make in FY 2018 with a 0.5 percentage point positive 
adjustment for each of FYs 2018 through 2023. In the FY 2017 
rulemaking, we indicated that we would address the adjustments for FY 
2018 and later fiscal years in future rulemaking. As noted previously, 
section 15005 of the 21st Century Cures Act (Pub. L. 114-255), which 
was enacted on December 13, 2016, amended section 7(b)(1)(B) of the 
TMA, as amended by section 631 of the ATRA and section 414 of the 
MACRA, to reduce the adjustment for FY 2018 from a 0.5 percentage point 
to a 0.4588 percentage point. We believe the directive under section 
15005 of Public Law 114-255 is clear. Therefore, in the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 19816) for FY 2018, we proposed to 
implement the required +0.4588 percentage point adjustment to the 
standardized amount. This is a permanent adjustment to payment rates. 
While we did not propose future adjustments required under section 414 
of the MACRA and section 15005 of Public Law 114-255 at that time, we 
stated in the proposed rule that we expect to propose positive 0.5 
percentage point adjustments to the standardized amounts for FYs 2019 
through 2023.
    Comment: Several commenters reiterated their disagreement with the 
-1.5 percentage point adjustment that CMS made for FY 2017 under 
section 631 of the ATRA, which exceeded the estimated adjustment of 
approximately -0.8 percentage point described in the FY 2014 IPPS/LTCH 
PPS rulemaking. Commenters contended that, as a result, hospitals would 
be left with a larger permanent cut than Congress intended following 
the enactment of MACRA. They asserted that CMS' proposal to apply a 
0.4588 percent positive adjustment for FY 2018 misinterprets the 
relevant statutory authority, and urged CMS to align with their view of 
Congress' intent by restoring an additional +0.7 percentage point 
adjustment to the standardized amount in FY 2018; that is, the 
difference between the -1.5 percentage point adjustment made in FY 2017 
and the initial estimate of -0.8 percentage point discussed in the FY 
2014 IPPS/LTCH PPS rulemaking. Commenters also urged CMS to use its 
discretion under section 1886(d)(5)(I) of the Act to increase the FY 
2018 adjustment by 0.7 percentage point. Other commenters requested 
that, despite current law, CMS ensure that adjustments totaling the 
full 3.9 percentage points withheld under section 631 of the ATRA be 
returned.
    Response: As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 
FR 56783 through 56785), CMS completed the $11 billion recoupment 
required under section 631 of the ATRA. We continue to disagree that 
section 414 of the MACRA was intended to augment or limit our separate 
obligation under the ATRA to fully offset $11 billion by FY 2017, as we 
discussed in response to comments in the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 56784). Moreover, as we discussed in the FY 2018 IPPS/LTCH 
PPS proposed rule, we believe the directive regarding the applicable 
adjustment for FY 2018 is clear. While we had anticipated making a 
positive adjustment in FY 2018 to offset the reductions required to 
recoup the $11 billion under section 631 of the ATRA, 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 percentage point 
positive adjustment for each of FYs 2018 through 2023. As noted by the 
commenters, and discussed in the FY 2017 IPPS/LTCH PPS final rule, by 
phasing in a total positive adjustment of only 3.0 percentage points, 
section 414 of the MACRA would not fully restore even the 3.2 
percentage point adjustment originally estimated by CMS in the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50515). Finally, Public Law 114-255, 
which further reduced the positive adjustment required for FY 2018 from 
0.5 percentage point to 0.4588 percentage point, was enacted on 
December 13, 2016, after CMS proposed and finalized the -1.5 percentage 
point adjustment as the final adjustment required under section 631 of 
the ATRA in the FY 2017 rulemaking.
    After consideration of the public comments we received, we are 
finalizing the +0.4588 percentage point adjustment to the standardized 
amount for FY 2018, as required under section 15005 of Public Law 114-
255.

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. We also refer readers to the FY 2017 IPPS/
LTCH PPS final rule (81 FR 56785 through 56787) for a detailed 
discussion of the history of changes to the number of cost centers used 
in calculating the DRG relative weights. Since FY 2014, we calculate 
the IPPS MS-DRG relative weights using 19 CCRs, which now include 
distinct CCRs for implantable devices, MRIs, CT scans, and cardiac 
catheterization.
2. Discussion of Policy for FY 2018
    Consistent with our established policy, we calculated the final MS-
DRG relative weights for FY 2018 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 19 CCRs and the MS-DRG relative 
weights for FY 2018 is included in section II.G. of the preamble to 
this FY 2018 IPPS/LTCH PPS final rule. As we did with the FY 2018 IPPS/
LTCH PPS proposed rule, we are providing the version of the HCRIS from 
which we calculated these 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

[[Page 38010]]

left side of the screen titled, ``FY 2018 IPPS Final Rule Home Page'' 
or ``Acute Inpatient Files for Download.''
    Comment: One commenter recommended that CMS work with stakeholders 
to update cost reporting instructions and improve the accuracy and 
validity of the national average CCRs. The commenter expressed concern 
that the differences between hospitals' use of nonstandard cost center 
codes and CMS' procedures for mapping and rolling up nonstandard codes 
to the standard cost centers will continue to result in invalid CCRs 
and inaccurate payments. The commenter stressed the need for 
flexibility in cost reporting, to accommodate any new or unique 
services that certain hospitals may provide, which may not be easily 
captured through the cost reporting software. Finally, the commenter 
again recommended, as it had done in response to prior IPPS rules, that 
CMS pay particular attention to data used for CT scan and MRI cost 
centers; the commenter believed that the hospital payment rates 
established by CMS from the CT scan and MRI CCRs simply do not 
correlate with resources used for these capital-intensive services.
    Response: We received a similar public comment last year and 
responded to it in the FY 2017 IPPS/LTCH PPS final rule. We refer 
readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56787) for our 
response to these issues. We note that we will continue to explore ways 
in which we can improve the accuracy of the cost report data and 
calculated CCRs used in the cost estimation process.
    Comment: One commenter requested that CMS use a single diagnostic 
radiology CCR to set weights, rather than using the separate CT and MRI 
cost centers. The commenter requested that if CMS maintains the 
separate CT and MRI cost centers, CMS should not include cost reports 
from hospitals that use the ``square foot'' allocation methodology. The 
commenter provided an analysis to support its assertion that the CCRs 
for CT and MRI are incorrect and are inappropriately reducing payments 
under the IPPS. The commenter indicated that the charge-compression 
hypothesis has been shown to be false with the use of the separate CT 
and MRI cost centers. The commenter discussed problems with cost 
allocation to the CT and MRI cost centers. The commenter referenced 
discussions in prior IPPS/LTCH PPS rules about this issue. The 
commenter acknowledged that CMS did not include a specific proposal in 
the FY 2018 proposed rule regarding this issue.
    Response: As the commenter noted, we did not make any proposals for 
FY 2018 relating to the number of cost centers used to calculate the 
relative weights. As noted previously and discussed in detail in prior 
rulemaking, we have calculated the IPPS MS-DRG relative weights using 
19 CCRs, including distinct CCRs for MRIs and CT scans, since FY 2014. 
We refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56785) 
for a detailed discussion of the basis for establishing these 19 CCRs. 
We further note that in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50518 through 50523), we presented data analyses using distinct CCRs 
for implantable devices, MRIs, CT scans, and cardiac catheterization. 
As we noted, we will continue to explore ways in which we can improve 
the accuracy of the cost report data and calculated CCRs used in the 
cost estimation process.

F. Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for FY 2018 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. For a detailed discussion of the conversion of the MS-DRGs 
to ICD-10, we refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 
FR 56787 through 56789).
b. Basis for FY 2018 MS-DRG Updates
    CMS has previously encouraged input from our stakeholders 
concerning the annual IPPS updates when that input is made available to 
us by December 7 of the year prior to the next annual proposed rule 
update. For example, to be considered for any updates or changes in FY 
2018, comments and suggestions should have been submitted by December 
7, 2016. The comments that were submitted in a timely manner for FY 
2018 are discussed in this section of the preamble of this final rule. 
As CMS works with the public to examine the ICD-10 claims data used for 
updates to the ICD-10 MS-DRGs, we would like to examine areas where the 
MS-DRGs can be improved. This will require additional time for us to 
review requests from the public to make specific updates, analyze 
claims data, and consider any proposed updates. As discussed in the 
proposed rule, given the need for more time to carefully evaluate 
requests and propose updates, we are changing the deadline to request 
updates to MS-DRGs to November 1 of each year. This will provide an 
additional 5 weeks for the data analysis and review process. Interested 
parties should submit any comments and suggestions for FY 2019 by 
November 1, 2017, via the CMS MS-DRG Classification Change Requests 
Mailbox located at: [email protected].
    Following are the changes that we proposed to the MS-DRGs for FY 
2018 in the FY 2018 IPPS/LTCH PPS proposed rule. We invited public 
comments on each of the MS-DRG classification proposed changes as well 
as our proposals to maintain certain existing MS-DRG classifications 
discussed in the proposed rule. In some cases, we proposed changes to 
the MS-DRG classifications based on our analysis of claims data. In 
other cases, we proposed to maintain the existing MS-DRG classification 
based on our analysis of claims data. For the FY 2018 proposed rule, 
our MS-DRG analysis was based on ICD-10 claims data from the December 
2016 update of the FY 2016 MedPAR file, which contains hospital bills 
received through September 30, 2016, for discharges occurring through 
September 30, 2016. In our discussion of the proposed MS-DRG 
reclassification changes, we referred to our analysis of claims data 
from the ``December 2016 update of the FY 2016 MedPAR file''.
    In this FY 2018 IPPS/LTCH PPS final rule, we summarize the public 
comments we received on our proposals, present our responses, and state 
our final policies. For this FY 2018 final rule, we performed limited 
additional MS-DRG analysis of claims data. Therefore, all of the data 
analysis is based on claims data from the December 2016 update of the 
FY 2016 MedPAR file, which contains hospital bills received through 
September 30, 2016, for discharges occurring through September 30, 
2016, except where specifically noted that it is based on the

[[Page 38011]]

March 2017 update of the FY 2016 MedPAR file, which contains hospital 
bills received through March 31, 2017, for discharges occurring through 
September 30, 2016.
    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 represented 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 determine whether patients are clinically 
distinct or similar to other patients represented 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.
    Comment: Several commenters expressed concern regarding the use of 
ICD-10 claims data for proposed updates to the FY 2018 ICD-10 MS-DRGs 
Version 35 and in recalibrating the proposed FY 2018 MS-DRG relative 
weights. Commenters reported that the proposed relative weights for 
certain MS-DRGs had large reductions when compared to the current FY 
2017 ICD-10 MS-DRG Version 34 relative weights. Specifically, 
commenters noted that MS-DRG 215 (Other Heart Assist System Implant) 
appeared to have the largest decrease by approximately 35% although it 
was not the subject of a new proposal in the FY 2018 IPPS/LTCH PPS 
proposed rule. According to the commenters, the proposed reductions for 
certain relative weights are a direct result of the transition from 
ICD-9 to ICD-10 coded claims data that was utilized in setting the 
proposed FY 2018 MS-DRG relative weights. The commenters stated that, 
if finalized as proposed, these reductions could limit access to the 
necessary services for Medicare beneficiaries and urged CMS to consider 
phasing in these significant fluctuations that they asserted cause 
instability of the weights and hinder providers in their ability to 
project anticipated payment rates. Many commenters also recommended 
that CMS limit the percentage by which an MS-DRG's relative weight can 
be reduced.
    Commenters also believed that the fluctuations in the proposed 
relative weights do not appear to be consistent with the deliberate 
approach CMS has taken to ensure a smooth transition from ICD-9 to ICD-
10. The commenters noted that, in the past, CMS has appropriately 
recognized and made efforts to maintain stability within the IPPS 
during the transition, such as providing several versions of the ICD-10 
MS-DRG Grouper for review, contracting for studies to evaluate the 
impact of converting the MS-DRGs to ICD-10 and assembling various 
public meetings. The commenters also noted that CMS has observed 
broader principles in prior rulemaking with regard to payment stability 
such as during the transition from charge-based weights to cost-based 
weights in FY 2007 and the conversion of the CMS DRGs to MS-DRGs in FY 
2008. Consistent with those past policy refinements and the steps taken 
to mitigate fluctuations potentially affecting IPPS payment, commenters 
requested that CMS once again exercise its authority to do so. We refer 
readers to section II.G. of the preamble of this FY 2018 IPPS/LTCH PPS 
final rule for further discussion regarding recalibration of the FY 
2018 MS-DRG relative weights, including our response to comments 
requesting a transition period for substantial reductions in relative 
weights in order to facilitate payment stability.
    As stated above, commenters noted that MS-DRG 215 (Other Heart 
Assist System Implant) appeared to have the largest decrease by 
approximately 35% although it was not the subject of a new proposal in 
the FY 2018 IPPS/LTCH PPS proposed rule. We received multiple comments 
stating that the American Hospital Association published Coding Clinic 
advice that changed coding guidance for external heart assist devices 
and that this will result in higher-cost patients with more ICU days 
and increased lengths of stay that are assigned to MS-DRG 215 in FY 
2018. The commenters noted there will be a substantial difference in 
coding for this patient population that is not reflected in the current 
cost data used to set the FY 2018 payment rates and a commenter urged 
CMS to revise the structure of MS-DRG 215 as an alternative option to 
address the decrease in the FY 2018 proposed relative weight for this 
MS-DRG. According to the commenter, restructuring this MS-DRG would 
more accurately reflect the resources required for cases that will be 
assigned to this MS-DRG in FY 2018 and is consistent with the agency's 
continuing efforts to ensure accurate replication between the ICD-9 and 
ICD-10 based MS-DRGs.
    The commenter noted that currently, patients who receive heart 
assist devices may be assigned to the Pre-MDC MS-DRGs 001 and 002 
(Heart Transplant or Implant of Heart Assist System) or MS-DRG 215 
(Other Heart Assist System Implant). The commenter asserted that the 
transition from using ICD-9 codes to ICD-10 codes as the basis for MS-
DRG assignment has been impacted by the significant increase in the 
number of codes relevant to the assignment of a MS-DRG because ICD-10 
is more granular. This commenter recommended that CMS revise the 
assignments for the ICD-10 procedure codes grouping to MS-DRG 215 to 
accurately replicate the logic used to assign ICD-9 procedure codes to 
MS-DRG 215.
    An example of how the MS-DRG assignment has been impacted by the 
transition to ICD-10 was provided by the commenter who noted that under 
the ICD-9 based MS-DRGs, procedure code 37.62 (Insertion of temporary 
non-implantable extracorporeal circulatory assist device) was reported 
for both the insertion and removal of an external heart assist device 
and was assigned to MS-DRG 215. However, under ICD-10, two codes are 
required, one for the insertion and one for the removal of the device 
where the logic for the combination of those two codes results in 
assignment to Pre-MDC MS-DRGs 001 and 002 (Heart transplant or Implant 
of Heart Assist System).

[[Page 38012]]

Another example offered by the commenter included ICD-9 procedure code 
37.63 (Repair of heart assist system) where, under ICD-10, these cases 
could be reported with a code describing revision of an external heart 
assist device or these cases could be reported with a combination of 
codes, one for the removal and one for the revision of an external 
heart assist device. The commenter suggested that the combinations of 
insertion and removal codes and the combinations of removal and 
revision codes be reassigned from the Pre-MDC MS-DRGs 001 and 002 to 
MS-DRG 215 to accurately replicate the logic that was used in the ICD-9 
based MS-DRGs.
    The commenter performed its own analysis of MS-DRG 215 using the FY 
2016 MedPAR data and noted that its findings indicated there was a 
decrease in the volume of procedures involving a repair or revision of 
a heart assist system device and an increase in the number of insertion 
or implantation of heart assist system devices when compared to the FY 
2015 MedPAR data. The commenter's findings also indicated that there 
was a decrease in the average total standardized charges, as well as a 
decrease in the severity of illness of the patients grouping to this 
MS-DRG in FY 2016 compared to FY 2015. For example, the commenter noted 
that its analysis showed approximately 95 percent of insertion or 
implant of heart assist system cases also reported a secondary 
diagnosis of an MCC in FY 2015; however, this number dropped to 84 
percent in FY 2016. Additionally, the commenter reported that 
approximately 73 percent of the revision of heart assist system cases 
also reported a secondary diagnosis of an MCC in FY 2015; however, this 
number dropped to 67 percent in FY 2016. The commenter stated that the 
clinical and usage changes for these devices do not account for this 
dramatic 1-year reversal.
    Response: We agree with the commenter that under the ICD-9 based 
MS-DRGs, procedure code 37.62 (Insertion of temporary non-implantable 
extracorporeal circulatory assist device) was reported for both the 
insertion and removal of an external heart assist device and was 
assigned to MS-DRG 215. We also agree with the commenter that, under 
ICD-10, two codes are currently required to describe this same 
procedure, one for the insertion and one for the removal of the device 
where the logic for the combination of those two codes results in 
assignment to Pre-MDC MS-DRGs 001 and 002 (Heart transplant or Implant 
of Heart Assist System). Lastly, we agree with the example offered by 
the commenter that included ICD-9 procedure code 37.63 (Repair of heart 
assist system) where under ICD-10, these cases could be reported with a 
code describing revision of a heart assist device or these cases could 
be reported with a combination of codes, one for the removal and one 
for the revision of a heart assist device.
    We also are aware that the American Hospital Association published 
Coding Clinic advice that clarified coding and reporting for certain 
external heart assist devices due to the technology being approved for 
new indications. We point out that coding advice is issued 
independently from payment policy. That is, in our annual IPPS 
rulemaking, in considering updates to the MS-DRGs, it is typically not 
our process to analyze changes in published coding advice. We generally 
do not make proposals for MS-DRG reclassification changes in the 
absence of data and clinical input from our clinical advisors.
    In response to the commenters' request to ensure accurate 
replication between the ICD-9 and ICD-10 based MS-DRGs for external 
heart assist devices in conjunction with the public comments requesting 
that we maintain stability in the MS-DRG relative payment weights, we 
note that, for FY 2018 and beyond, we are no longer replicating the 
ICD-9 MS-DRGs. As stated in the FY 2018 IPPS/LTCH PPS proposed rule and 
this final rule, we are using ICD-10 coded claims data for the first 
time to propose changes to the ICD-10 MS-DRG classifications and to 
compute the relative weights. Therefore, our proposals and final 
policies for FY 2018 are based only on the ICD-10 claims data from the 
FY 2016 MedPAR file. However, similar to our efforts in identifying 
areas where improvements could be made to better account for severity 
of illness and resource utilization during the transition from the CMS 
DRGs to the MS-DRGs, we are making concerted efforts to continue 
refining the ICD-10 MS-DRGs after transitioning from the ICD-9 MS-DRGs.
    We appreciate the commenters' acknowledgement of our efforts to 
maintain stability within the IPPS during the transition period to ICD-
10 as noted above. We also acknowledge and appreciate the analysis that 
was conducted by the commenter for MS-DRG 215. We believe it is 
important to be able to fully evaluate the effects and the impact of 
restructuring any MS-DRGs for which all heart assist system procedures 
are currently assigned under ICD-10. As part of this evaluation, we 
believe it would be advantageous to consider additional ICD-10 coded 
claims data as well as changes in a hospital's case-mix (for example, 
patient characteristics) to determine if the patients undergoing a 
heart assist system procedure or a combination of heart assist system 
procedures demonstrate a greater severity of illness and/or increased 
treatment difficulty as a result of the surgical approach that is used 
(for example, open, percutaneous, percutaneous endoscopic, among 
others). Finally, consultation with our clinical advisors is also 
important to properly analyze the appropriateness of any modifications 
to the MS-DRGs where a heart assist device is currently assigned.
    Therefore, in response to the public comments received, we are 
planning to review for FY 2019 the current ICD-10 logic for Pre-MDC MS-
DRGs 001 and 002 (Heart Transplant or Implant of Heart Assist System 
with and without MCC, respectively), MS-DRG 215 (Other Heart Assist 
System Implant) and MS-DRGs 268 and 269 (Aortic and Heart Assist 
Procedures Except Pulsation Balloon with and without MCC, respectively) 
where procedures involving the heart assist devices are currently 
assigned. We refer the reader to the ICD-10 MS-DRG Definitions Manual 
version 34, which is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending for 
complete documentation of the GROUPER logic for Pre-MDC MS-DRGs 001 and 
002, MS-DRG 215, and MS-DRGs 268 and 269. We also encourage the public 
to submit any comments on restructuring the MS-DRGs for heart assist 
system procedures to the CMS MS-DRG Classification Change Request 
Mailbox located at: [email protected] by November 
1, 2017.
    As previously stated, we are making concerted efforts to continue 
refining the ICD-10 MS-DRGs after transitioning from the ICD-9 MS-DRGs. 
We believe that it is important to include the Pre-MDC MS-DRGs and the 
other MS-DRGs comprised of heart assist system procedures as part of 
our comprehensive review of each MDC and the corresponding MS-DRGs 
assigned to them. After consideration of the public comments we 
received, we are maintaining the current structure of MS-DRG 215 for FY 
2018, under the ICD-10 MS-DRGs Version 35.
    We are making the FY 2018 ICD-10 MS-DRG GROUPER and Medicare Code 
Editor (MCE) Software Version 35 available to the public on our CMS Web

[[Page 38013]]

site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html through the FY 2018 IPPS Final Rule Home 
Page.
2. MDC 1 (Diseases and Disorders of the Nervous System)
a. Functional Quadriplegia
    We received a request to reassign cases identified by diagnosis 
code R53.2 (Functional quadriplegia) from MS-DRGs 052 and 053 (Spinal 
Disorders and Injuries with and without CC/MCC, respectively). The 
requestor stated that because functional quadriplegia does not involve 
any spinal injury or pathology, cases identified by the diagnosis code 
should not be assigned to MS-DRGs 052 and 053. However, the requestor 
did not suggest an alternative MS-DRG assignment.
    Section I.C.18.f. of the FY 2017 ICD-10-CM Official Coding 
Guidelines addresses the coding for the diagnosis of functional 
quadriplegia. Section I.C.18.f. states that functional quadriplegia 
(described by diagnosis code R53.2) is the lack of ability to use one's 
limbs or to ambulate due to extreme debility. The condition is not 
associated with neurologic deficit or injury, and diagnosis code R53.2 
should not be used to identify cases of neurologic quadriplegia. In 
addition, the Guidelines state that the diagnosis code should only be 
assigned if functional quadriplegia is specifically documented by a 
physician in the medical record, and the diagnosis of functional 
quadriplegia is not associated with a neurologic deficit or injury. A 
physician may document the diagnosis of functional quadriplegia as 
occurring with a variety of conditions.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19817 through 19818), we examined claims data from the December 2016 
update of the FY 2016 MedPAR file on cases reporting diagnosis code 
R53.2 in MS-DRGs 052 and 053. Our findings are shown in the table 
below.

                         Cases Reporting Functional Quadriplegia in MS-DRGs 052 and 053
----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                  Number of      length  of    Average  costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
MS-DRG 052--All cases...........................................             865             5.4         $10,247
MS-DRG 052--Cases reporting diagnosis code R53.2................              63             4.9           6,420
MS-DRG 053--All cases...........................................             239             3.3           6,326
MS-DRG 053-- Cases reporting diagnosis code R53.2...............              16             3.3           2,318
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, for MS-DRG 052, there were a total of 
865 cases with an average length of stay of 5.4 days and average costs 
of $10,247. Of the 865 cases in MS-DRG 052, there were 63 cases that 
reported a principal diagnosis of functional quadriplegia, with an 
average length of stay of 4.9 days and average costs of $6,420. For MS-
DRG 053, there were a total of 239 cases, with an average length of 
stay of 3.3 days and average costs of $6,326. Of the 239 cases in MS-
DRG 053, there were 16 cases that reported a principal diagnosis of 
functional quadriplegia, with an average length of stay of 3.3 days and 
average costs of $2,318.
    To address the request to reassign cases reporting a diagnosis of 
functional quadriplegia to a different MS-DRG, we reviewed the data for 
a total of 79 cases (63 cases in MS-DRG 052 and 16 cases in MS-DRG 053) 
that reported a principal diagnosis of functional quadriplegia in MS-
DRGs 052 and 053. As shown in the table above, our data analysis 
demonstrates that the average costs for these 79 cases are lower than 
the average costs of all cases in MS-DRGs 052 and 053 ($6,420 compared 
to $10,247 for all cases in MS-DRG 052, and $2,318 compared to $6,326 
for all cases in MS-DRG 053), and the average lengths of stay are 
shorter for cases reporting a diagnosis of functional quadriplegia in 
MS-DRG 052 (4.9 days compared to 5.4 days for all cases in MS-DRG 052), 
but equal for cases in MS-DRG 053 (3.3 days for cases reporting a 
diagnosis of functional quadriplegia and for all cases).
    As we discussed in the proposed rule, our clinical advisors 
reviewed this issue and agreed that a diagnosis of functional 
quadriplegia does not involve a spinal disorder or injury, and may be 
associated with, or the result of, a variety of underlying conditions. 
Our clinical advisors also agreed that it is not clinically appropriate 
to include cases reporting a diagnosis of functional quadriplegia 
within MS-DRGs 052 and 053 because these cases do not involve a spinal 
disorder or injury. Therefore, given the fact that functional 
quadriplegia can be the result of a variety of other conditions, we 
reviewed the MS-DRGs in order to identify a more appropriate placement 
for cases reporting this diagnosis. Our clinical advisors recommended 
assigning cases representing a diagnosis of functional quadriplegia 
from MS-DRGs 052 and 053 to MS-DRGs 091, 092, and 093 (Other Disorders 
of Nervous System with MCC, with CC, and without CC/MCC, respectively). 
Within each MDC, there are MS-DRGs that describe a variety of other 
conditions that do not have the clinical characteristics of the more 
specific MS-DRGs. In this case, MS-DRGs 091, 092, and 093 describe a 
variety of other disorders of the nervous system that are not 
clinically similar in characteristics to the disorders described by MS-
DRGs 052 and 053. We stated in the proposed rule that our clinical 
advisors believe that MS-DRGs 091, 092, and 093 are more appropriate 
MS-DRG assignments for cases representing a diagnosis of functional 
quadriplegia.
    We examined claims data from the December 2016 update of the FY 
2016 MedPAR file on cases in MS-DRGs 091, 092, and 093. Our findings 
are shown in the table below.

                                       Cases in MS-DRGs 091, 092, and 093
----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                  Number of      length  of    Average  costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
MS-DRG 091--All cases...........................................          12,607             5.6         $10,815
MS-DRG 092--All cases...........................................          19,392             3.9           6,706

[[Page 38014]]

 
MS-DRG 093--All cases...........................................           8,120             2.7           5,253
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, for MS-DRG 091, there were a total of 
12,607 cases, with an average length of stay of 5.6 days and average 
costs of $10,815. For MS-DRG 092, there were a total of 19,392 cases, 
with an average length of stay of 3.9 days and average costs of $6,706. 
For MS-DRG 093, there were a total of 8,120 cases, with an average 
length of stay of 2.7 days and average costs of $5,253. As stated 
earlier, of the 865 total cases in MS-DRG 052, there were 63 cases that 
reported a principal diagnosis of functional quadriplegia, with an 
average length of stay of 4.9 days and average costs of $6,420. Of the 
239 total cases in MS-DRG 053, there were 16 cases that reported a 
principal diagnosis of functional quadriplegia, with an average length 
of stay of 3.3 days and average costs of $2,318. The average lengths of 
stay for cases reporting a diagnosis of functional quadriplegia in MS-
DRGs 052 and 053 are similar to the average lengths of stay for cases 
found in MS-DRGs 091, 092 and 093 (4.9 days and 3.3 days for cases in 
MS-DRGs 052 and 053, respectively, compared to 5.6 days, 3.9 days, and 
2.7 days, respectively, for cases in MS-DRGs 091, 092, and 093). The 
average costs for cases reporting a diagnosis of functional 
quadriplegia in MS-DRGs 052 and 053 are $6,420 and $2,318, 
respectively, compared to $10,815, $6,706, and $5,253 for all cases in 
MS-DRGs 091, 092, and 093. The average costs for cases reporting a 
diagnosis of functional quadriplegia in MS-DRG 053 are lower than the 
average costs for all cases in MS-DRG 093 without a CC or MCC ($2,318 
compared to $5,253, respectively). The average costs for cases 
reporting a diagnosis of functional quadriplegia in MS-DRG 052 are 
$6,420, which is lower than the average costs of $10,815 for all cases 
in MS-DRG 091, but close to the average costs of $6,706 for all cases 
in MS-DRG 092. We stated in the proposed rule that while we acknowledge 
that the average costs for cases reporting a diagnosis of functional 
quadriplegia are lower than those cases within MS-DRGs 091, 092, and 
093, as stated earlier, the average costs of cases reporting a 
diagnosis of functional quadriplegia also are lower than the average 
costs of all cases in MS-DRGs 052 and 053 where these cases are 
currently assigned.
    Our clinical advisors reviewed the clinical issues as well as the 
claims data for MS-DRGs 052, 053, 091, 092, and 093. As a result of 
this review, they recommended that cases reporting a diagnosis of 
functional quadriplegia be reassigned from MS-DRGs 052 and 053 to MS-
DRGs 091, 092, and 093 because the current MS-DRG assignment is not 
clinically appropriate. We stated in the proposed rule that our 
clinical advisors stated that reassigning these cases to MS-DRGs 091, 
092, and 093 is more appropriate because this set of MS-DRGs includes a 
variety of nervous system disorders that are not appropriately 
classified to more specific MS-DRGs within MDC 1. Therefore, in the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 19817 through 19818), we 
proposed to reassign cases identified by diagnosis code R53.2 from MS-
DRGs 052 and 053 to MS-DRGs 091, 092, and 093 for FY 2018.
    We invited public comments on our proposal.
    Comment: Several commenters supported CMS' statement that diagnosis 
code R53.2 does not belong in MS-DRGs 052 and 053 because this 
condition does not involve a spinal disorder or injury. The commenters 
supported reassigning the code from MS-DRGs 052 and 053. However, one 
commenter suggested that instead of assigning diagnosis code R53.2 to 
MS DRGs 091, 092, and 093 (Other Disorders of Nervous System with MCC, 
with CC, and without CC/MCC, respectively) for FY 2018, CMS instead 
reassign it to MS-DRGs 947 and 948 (Signs and Symptoms with MCC and 
without MCC, respectively). The commenter stated that the ICD-10-CM 
code for functional quadriplegia, R53.2, is located in Chapter 18, 
Symptoms, Signs and Abnormal Findings because it can be the result of a 
variety of underlying conditions. Therefore, the commenter believed it 
was not appropriate to classify this diagnosis as a nervous system 
disorder. The commenter pointed out that other codes in ICD-10-CM 
category R53 are assigned to MS-DRGs 947 and 948. Therefore, the 
commenter believed that it was appropriate to reassign code R53.2 from 
MS-DRGs 052 and 053 to MS-DRGs 947 and 948.
    Response: We agree with the commenter that diagnosis code R53.2 is 
located in Chapter 18, Symptoms, Signs and Abnormal Findings because it 
can be the result of a variety of underlying conditions. We also agree 
that this code cannot be labeled as a nervous system disorder. 
Therefore, we agree that there is merit in reassigning diagnosis code 
R53.2 where other codes in category R53 are assigned in MS-DRGs 947 and 
948. We examined claims data from the December 2016 update of the FY 
2016 MedPAR file on cases in MS-DRGs 947 and 948. Our findings are 
shown in the table below.

                                          Cases in MS-DRGs 947 and 948
----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                 Number  of      length  of    Average  costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
MS-DRG 947-All cases............................................          10,799             4.7          $8,225
MS-DRG 948-All cases............................................          36,123             3.3           5,494
----------------------------------------------------------------------------------------------------------------

    As stated earlier, of the 865 total cases in MS-DRG 052, there were 
63 cases that reported a principal diagnosis of functional 
quadriplegia, with an average length of stay of 4.9 days and average 
costs of $6,420. This compares to all cases in MS-DRG 947 which had an 
average length of stay of 4.7 days and average costs of $8,225. 
Therefore, the average length of stay for functional quadriprlegia 
cases in MS-DRG 052 was 0.2 days longer and the average costs

[[Page 38015]]

were $1,805 lower than all cases in MS-DRG 947. Of the 239 total cases 
in MS-DRG 053, there were 16 cases that reported a principal diagnosis 
of functional quadriplegia, with an average length of stay of 3.3 days 
and average costs of $2,318. This compares to all cases in MS-DRG 948 
which had an average length of stay of 3.3 days and average costs of 
$5,494. Therefore, the average length of stay for functional 
quadriprlegia cases in MS-DRG 053 is the same as all cases in MS-DRG 
948 and the average costs are $3,176 lower than all cases in MS-DRG 
948. The average costs of functional quadriplegia cases are lower than 
all cases in MS-DRGs 091, 092, and 093 as well as in MS-DRGs 947 and 
948. The average length of stay of functional quadriplegia cases are 
similar to those in MS-DRGs 947 and 948. We agree with the commenter 
that the more appropriate MS-DRG assignment would be MS-DRGs 947 and 
948 because these MS-DRGs capture similar symptom codes.
    Our clinical advisors reviewed this clinical issue along with the 
claims data for MS-DRGs 947 and 948. Our clinical advisors agree that 
because diagnosis code R53.2 is a symptom code that could be the result 
of a variety of underlying conditions, it would not be appropriate to 
assign it to nervous system MS-DRGs such as MS DRGs 091, 092, and 093 
as we proposed. Our clinical advisors agreed with the commenter that 
this symptom code should be assigned to MS-DRGs 947 and 948 where other 
symptom codes are assigned.
    After consideration of the public comments that we received and the 
advice of our clinical advisors, we are finalizing the assignment of 
code R53.2 (Functional quadriplegia) to MS-DRGs 947 and 948 (Signs and 
Symptoms with MCC and without MCC, respectively).
b. Responsive Neurostimulator (RNS(copyright)) System
    We received a request to modify the MS-DRG assignment for cases 
involving the use of the RNS(copyright) neurostimulator, a 
cranially implanted neurostimulator that is a treatment option for 
persons diagnosed with medically intractable epilepsy. Cases involving 
the use of the RNS(copyright) neurostimulator are assigned 
to MS-DRG 023 (Craniotomy with Major Device Implant or Acute Complex 
Central Nervous System (CNS) Principal Diagnosis (PDX) with MCC or 
Chemo Implant) and MS-DRG 024 (Craniotomy with Major Device Implant or 
Acute Complex Central Nervous System (CNS) Principal Diagnosis (PDX) 
without MCC).
    Cases involving the use of the RNS(copyright) 
neurostimulator generator and leads are captured within the 
descriptions of four ICD-10-PCS codes. ICD-10-PCS code 0NH00NZ 
(Insertion of neurostimulator generator into skull, open approach) 
captures the use of the neurostimulator generator, and the other three 
ICD-10-PCS codes, 00H00MZ (Insertion of neurostimulator lead into 
brain, open approach), 00H03MZ (Insertion of neurostimulator lead into 
brain, percutaneous approach), and 00H04MZ (Insertion of 
neurostimulator lead into brain, percutaneous endoscopic approach) 
describe the insertions of the leads, depending on the approach used. 
The combination of an ICD-10-PCS code capturing the use of the 
generator and another ICD-10-PCS code describing the specific approach 
used to insert the leads would capture the performance of the entire 
procedure.
    The requestor stated that the RNS(copyright) 
neurostimulator received FDA pre-market approval on November 14, 2013. 
The RNS(copyright) neurostimulator includes a cranially 
implanted programmable neurostimulator connected to one or two depth 
and/or subdural cortical strip leads that are surgically placed in or 
on the brain at the seizure focus. The neurostimulator and leads are 
typically implanted during a single acute inpatient hospital procedure 
at a Comprehensive Epilepsy Center (CEC). The implanted neurostimulator 
continuously monitors brain electrical activity and is programmed by a 
physician to detect abnormal patterns of electrical activity that the 
physician believes may lead to seizures (epileptiform activity). In 
response to the detection of epileptiform activity, the device delivers 
brief, mild electrical pulses (responsive stimulation) to one or two 
epileptic foci. Detection and stimulation parameters are adjusted 
noninvasively by the physician to optimize control of epileptic 
seizures for each patient.
    As the neurostimulator monitors brain activity, electrocorticograms 
(ECoGs) recorded immediately before and after certain events are stored 
for later review by the physician. The physician reviews the stored 
recordings to see the detections and the effects of stimulation. The 
physician can reprogram the neurostimulator at an in-person office 
appointment to change detection and stimulation settings based on this 
information, as well as review the patient's seizures.
    The RNS(copyright) neurostimulator was approved for new 
technology add-on payments for FY 2015 and FY 2016, and new technology 
add-on payments were discontinued for FY 2017. The new technology add-
on payment application was discussed in the FY 2015 IPPS/LTCH PPS 
proposed and final rules (79 FR 28051 through 28054 and 79 FR 49946 
through 49950, respectively), the FY 2016 IPPS/LTCH PPS proposed and 
final rules (80 FR 24427 through 24448 and 80 FR 49442 through 49443, 
respectively), and the FY 2017 IPPS/LTCH PPS proposed and final rules 
(81 FR 25036 through 25037 and 81 FR 56882 through 56884, 
respectively).
    The requestor suggested the following three options for MS-DRG 
assignment updates for cases involving the RNS(copyright) 
neurostimulator:
     Create new MS-DRGs for cases involving the use of the 
RNS(copyright) neurostimulator. The requestor suggested MS-
DRG XXX (Cranially Implanted Neurostimulators with MCC) and MS-DRG XXX 
(Cranially Implanted Neurostimulators without MCC) as possible MS-DRG 
titles. The requestor acknowledged that the number of cases assigned to 
this MS-DRG would be low, but anticipated that the number of cases 
would increase in the future.
     Reassign cases involving the use of the 
RNS(copyright) neurostimulator to MS-DRGs 020 and 021 
(Intracranial Vascular Procedures with Principal Diagnosis of 
Hemorrhage with MCC, with CC, respectively) and update the MS-DRG logic 
and titles. The requestor asked CMS to reassign all cases involving the 
use of the RNS(copyright) neurostimulator that currently map 
to MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex CNS 
Principal Diagnosis with MCC or Chemo Implant) to MS-DRG 20, and change 
the title of MS-DRG 20 to ``Intracranial Vascular Procedures with 
Principal Diagnosis of Hemorrhage or Cranially Implanted 
Neurostimulator with MCC.'' In addition, the requestor asked CMS to 
reassign all cases involving the use of the RNS(copyright) 
neurostimulator that currently map to MS-DRG 024 (Craniotomy with Major 
Device Implant/Acute Complex CNS Principal Diagnosis without MCC) to 
MS-DRG 021, and change the title of MS-DRG 021 to ``Intracranial 
Vascular Procedures with Principal Diagnosis of Hemorrhage with CC or 
Cranially Implanted Neurostimulator without MCC''. The requestor 
believed that the majority of cases involving the use of the 
RNS(copyright) neurostimulator that map to MS-DRG 024 do not 
include a secondary diagnosis that is classified as a CC, and the 
average cost of cases involving the use of the 
RNS(copyright) neurostimulator without a CC is significantly 
higher than the average cost of all cases in MS-DRG 022 (Intracranial 
Vascular Procedures with Principal Diagnosis of Hemorrhage

[[Page 38016]]

without CC/MCC). Therefore, the requestor stated that it would not be 
adequate to assign cases involving the use of the 
RNS(copyright) neurostimulator without a CC to MS-DRG 022.
     Reassign cases involving the use of the 
RNS(copyright) neurostimulator to other higher paying MS-
DRGs that would provide adequate payment.
    The requestor stated that it had analyzed data from two sources, 
which demonstrated that the average cost of cases involving the use of 
the RNS(copyright) neurostimulator was higher than the 
average cost of all cases in MS-DRGs 023 and 024 (the current MS-DRGs 
for cases involving the use of the RNS(copyright) 
neurostimulator). The requestor indicated that the data used for its 
analysis was obtained from hospitals performing the procedure, as well 
as from the FY 2015 MedPAR file.
    The requestor also asked that CMS examine the cases representing 
cranially implanted neurostimulators and leads that were inserted for 
the treatment of epilepsy. The requestor pointed out that 
neurostimulators also are used in the treatment of movement disorders 
such as Parkinson's disease, essential tremor, or dystonia. The 
requestor asked that CMS identify those cases with a principal 
diagnosis of epilepsy, and identified the following ICD-10-CM codes 
that it believed were representative of potential epilepsy cases.

 
------------------------------------------------------------------------
      ICD-10-CM  code                   ICD-10-CM code title
------------------------------------------------------------------------
G40.001...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset, not
                             intractable, with status epilepticus.
G40.009...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset, not
                             intractable, without status epilepticus.
G40.011...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset,
                             intractable, with status epilepticus.
G40.019...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset,
                             intractable, without status epilepticus.
G40.101...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with simple partial seizures, not
                             intractable, with status epilepticus.
G40.119...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with simple partial seizures,
                             intractable, without status epilepticus.
G40.201...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             not intractable, with status epilepticus.
G40.209...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             not intractable, without status
                             epilepticus.
G40.211...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             intractable, with status epilepticus.
G40.219...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             intractable, without status epilepticus.
G40.301...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, not intractable, with
                             status epilepticus.
G40.309...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, not intractable,
                             without status epilepticus.
G40.311...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, intractable, with
                             status epilepticus.
G40.319...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, intractable, without
                             status epilepticus.
G40.401...................  Other generalized epilepsy and epileptic
                             syndromes, not intractable, with status
                             epilepticus.
G40.409...................  Other generalized epilepsy and epileptic
                             syndromes, not intractable, without status
                             epilepticus.
G40.411...................  Other generalized epilepsy and epileptic
                             syndromes, intractable, with status
                             epilepticus.
G40.419...................  Other generalized epilepsy and epileptic
                             syndromes, intractable, without status
                             epilepticus.
G40.501...................  Epileptic seizures related to external
                             causes, not intractable, with status
                             epilepticus.
G40.509...................  Epileptic seizures related to external
                             causes, not intractable, without status
                             epilepticus.
G40.801...................  Other epilepsy, not intractable, with status
                             epilepticus.
G40.802...................  Other epilepsy, not intractable, without
                             status epilepticus.
G40.803...................  Other epilepsy, intractable, with status
                             epilepticus.
G40.804...................  Other epilepsy, intractable, without status
                             epilepticus.
G40.811...................  Lennox-Gastaut syndrome, not intractable,
                             with status epilepticus.
G40.812...................  Lennox-Gastaut syndrome, not intractable,
                             without status epilepticus.
G40.813...................  Lennox-Gastaut syndrome, intractable, with
                             status epilepticus.
G40.814...................  Lennox-Gastaut syndrome, intractable,
                             without status epilepticus.
G40.821...................  Epileptic spasms, not intractable, with
                             status epilepticus.
G40.822...................  Epileptic spasms, not intractable, without
                             status epilepticus.
G40.823...................  Epileptic spasms, intractable, with status
                             epilepticus.
G40.824...................  Epileptic spasms, intractable, without
                             status epilepticus.
G40.89....................  Other seizures.
G40.901...................  Epilepsy, unspecified, not intractable, with
                             status epilepticus.
G40.909...................  Epilepsy, unspecified, not intractable,
                             without status epilepticus.
G40.911...................  Epilepsy, unspecified, intractable, with
                             status epilepticus.
G40.919...................  Epilepsy, unspecified, intractable, without
                             status epilepticus.
------------------------------------------------------------------------

    MS-DRGs 023 and 024 contain a number of cases representing 
neurostimulator generator and lead code combinations that are captured 
under a list referred to as ``Major Device Implant.'' The 
neurostimulator generators on this list are inserted into the skull, as 
well as into the subcutaneous areas of the chest, back, or abdomen. The 
leads are all inserted into the brain. The RNS(copyright) 
neurostimulator generators are inserted into the skull and the leads 
are inserted into the brain. The following three ICD-10-PCS code 
combinations capture the use of the

[[Page 38017]]

RNS(copyright) neurostimulator and leads that would 
determine an assignment of a case to MS-DRGs 023 and 024, as shown in 
the ``Major Device Implant'' list:
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H00MZ (Insertion of 
neurostimulator lead into brain, open approach);
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H03MZ (Insertion of 
neurostimulator lead into brain, percutaneous approach); and
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H04MZ (Insertion of 
neurostimulator lead into brain, percutaneous endoscopic approach).
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19818 through 19822), we examined claims data from the December 2016 
update of the FY 2016 MedPAR file for all cases representing the use of 
a neurostimulator in MS-DRGs 023 and 024 listed under the ``Major 
Device Implant'' list. As requested, we also examined the cases 
represented by the three neurostimulator code combinations, which 
capture the use of the RNS(copyright) neurostimulator that 
are a subset of the cases listed on the ``Major Device Implant'' list 
using the code combinations listed above, and that had a principal 
diagnosis of epilepsy from the list supplied by the requestor. The 
following tables show our findings for those cases in MS-DRGs 023 and 
024 as well as findings for cases in MS-DRGs 020 and 021.

                                               MS-DRGs 023 and 024
                                             [Neurostimulator Cases]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 023--All cases...........................................           6,723            10.9         $39,014
MS-DRG 023--Cases with neurostimulators (Major Device Implant                 21             6.7          48,821
 list cases)....................................................
MS-DRG 023--Cases with neurostimulator generators inserted into                7             8.0          63,365
 skull (includes cases involving the use of the RNS(copyright)
 neurostimulator) and cases with a principal diagnosis of
 epilepsy.......................................................
MS-DRG 024--All cases...........................................           2,275             5.5          27,574
MS-DRG 024--Cases with neurostimulators (Major Device Implant                394             2.1          31,669
 list cases)....................................................
MS-DRG 024--Cases with neurostimulator generators inserted into               54             4.3          51,041
 skull (includes cases involving the use of the RNS(copyright)
 neurostimulator) and cases with a principal diagnosis of
 epilepsy.......................................................
----------------------------------------------------------------------------------------------------------------


                                          Cases in MS-DRGs 020 and 021
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay   Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 020-All cases............................................           1,372            16.7         $72,926
MS-DRG 021-All cases............................................             336            13.5          54,385
----------------------------------------------------------------------------------------------------------------

    As shown by the table above, for MS-DRG 023, we identified a total 
of 6,723 cases, with an average length of stay of 10.9 days and average 
costs of $39,014. Of the 6,723 cases in MS-DRG 023, there were 21 cases 
representing the implantation of any type of neurostimulator generator 
with an average length of stay of 6.7 days, and average costs of 
$48,821. Of the 21 neurostimulator generator cases, there were 7 cases 
with the neurostimulator generators inserted into skull (including 
cases involving the use of the RNS(copyright) 
neurostimulator) and a principal diagnosis of epilepsy with an average 
length of stay of 8.0 days and average costs of $63,365. For MS-DRG 
024, we identified a total of 2,275 cases, with an average length of 
stay of 5.5 days and average costs of $27,574. Of the 2,275 cases in 
MS-DRG 024, there were 394 cases representing the implantation of any 
type of neurostimulator generator with an average length of stay of 2.1 
days and average costs of $31,669. Of the 394 neurostimulator generator 
cases, there were 54 cases with the neurostimulator generators inserted 
into skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal diagnosis of 
epilepsy with an average length of stay of 4.3 days and average costs 
of $51,041.
    There were only 61 cases involving the use of the 
RNS(copyright) neurostimulator with a principal diagnosis of 
epilepsy in MS-DRGs 023 and 024 (7 and 54, respectively). As we stated 
in the proposed rule, our clinical advisors reviewed this issue, and 
agreed that this number of cases is too small on which to base a 
rationale for creating a new MS-DRG. Basing a new MS-DRG on such a 
small number of cases (61) could lead to distortion in the relative 
payment weights for the MS-DRG because several expensive cases could 
impact the overall relative payment weight. Having larger clinical 
cohesive groups within an MS-DRG provides greater stability for annual 
updates to the relative payment weights.
    We also examined the possibility of reassigning cases involving the 
use of the RNS(copyright) neurostimulator to MS-DRGs 020 and 
021. As the table above shows, for MS-DRG 020, there were a total of 
1,372 cases with an average length of stay of 16.7 days and average 
costs of $72,926. For MS-DRG 021, there were a total of 336 cases with 
an average length of stay of 13.5 days and average costs of $54,385. 
The cases in MS-DRG 023 with neurostimulator generators inserted into 
skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal diagnosis of 
epilepsy have average costs that are $9,561 lower than that for all 
cases in MS-DRG 020 ($63,365 compared to $72,926), and the average 
length of stay is 8.7 days shorter (8.0 days compared to 16.7 days). We 
stated in the proposed rule that we do not believe these data support 
reassigning the cases in MS-DRG 023 with neurostimulator generators 
inserted into the skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal

[[Page 38018]]

diagnosis of epilepsy to MS-DRG 020. While the cases in MS-DRG 024 with 
neurostimulator generators inserted into the skull (including cases 
involving the use of the RNS(copyright) neurostimulator) and 
a principal diagnosis of epilepsy have average costs that are similar 
to the average costs of cases in MS-DRG 021 ($51,041 compared to 
$54,385), they have an average length of stay that is 9.2 days shorter 
(4.3 days compared to 13.5 days). Our clinical advisors reviewed the 
clinical issues and the claims data and, as we discussed in the 
proposed rule, did not support reassigning the cases with 
neurostimulator generators inserted into skull (including cases 
involving the use of the RNS(copyright) neurostimulator) and 
a principal diagnosis of epilepsy from MS-DRGs 023 and 024 to MS-DRGs 
020 and 021. Our clinical advisors pointed out that the cases in MS-
DRGs 020 and 021 have a principal diagnosis of a hemorrhage. The 
RNS(copyright) neurostimulator generators are not used to 
treat patients with diagnosis of a hemorrhage. Therefore, our clinical 
advisors stated that it was inappropriate to reassign cases 
representing a principal diagnosis of epilepsy to an MS-DRG that 
contains cases that represent the treatment of intracranial hemorrhage. 
They also stated that the differences in average length of stay and 
average costs support this recommendation.
    We then explored alternative MS-DRG assignments, as was requested. 
We noted that the 7 cases with the neurostimulator generators inserted 
into the skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal diagnosis of 
epilepsy had an average length of stay of 8.0 days and average costs of 
$63,365, as compared to the 6,723 cases in MS-DRG 023 that had an 
average length of stay of 10.9 days and average costs of $39,014. While 
these neurostimulator cases had average costs that were $24,351 higher 
than the average costs of all cases in MS-DRG 023, there were only a 
total of 7 cases. There may have been other factors contributing to the 
higher costs. We noted that the 54 cases with the neurostimulator 
generators inserted into skull (including cases involving the use of 
the RNS(copyright) neurostimulator) and a principal 
diagnosis of epilepsy in MS-DRG 024 had average costs of $51,041 and an 
average length of stay of 4.3 days, compared to average costs of 
$27,574 and average length of stay of 5.5 days for all cases in MS-DRG 
024. By reassigning all cases with the neurostimulator generators 
inserted into the skull (including cases involving the use of the 
RNS(copyright) neurostimulator) and a principal diagnosis of 
epilepsy to MS DRG 023, even if there is not a MCC present, the cases 
would receive higher payment. The average costs of MS-DRG 023 were 
$39,014, compared to the average costs of $51,041 for the cases with 
the neurostimulator generators inserted into skull (including cases 
involving the use of the RNS(copyright) neurostimulator) and 
a principal diagnosis of epilepsy in MS-DRG 024. Our clinical advisors 
reviewed the clinical issues and the claims data, and supported the 
recommendation to reassign the cases with the neurostimulator 
generators inserted into skull (including cases involving the use of 
the RNS(copyright) neurostimulator) and a principal 
diagnosis of epilepsy to MS-DRG 023, even if there is not a MCC 
reported. Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19818 through 19822), we proposed to reassign all cases with a 
principal diagnosis of epilepsy from the epilepsy diagnosis list 
provided earlier, and one of the following ICD-10-PCS code combinations 
capturing cases with the neurostimulator generators inserted into the 
skull (including cases involving the use of the 
RNS(copyright) neurostimulator), to MS-DRG 023, even if 
there is no MCC reported:
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H00MZ (Insertion of 
neurostimulator lead into brain, open approach);
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H03MZ (Insertion of 
neurostimulator lead into brain, percutaneous approach); and
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H04MZ (Insertion of 
neurostimulator lead into brain, percutaneous endoscopic approach).
    We also proposed to change the title of MS-DRG 023 from 
``Craniotomy with Major Device Implant or Acute Complex Central Nervous 
System (CNS) Principal Diagnosis (PDX) with MCC or Chemo Implant'' to 
``Craniotomy with Major Device Implant or Acute Complex Central Nervous 
System (CNS) Principal Diagnosis (PDX) with MCC or Chemotherapy Implant 
or Epilepsy with Neurostimulator'' to reflect the proposed 
modifications to MS-DRG assignments.
    We invited public comments on our proposals.
    Comment: Commenters supported CMS' proposal to reassign cases with 
insertion of a neurostimulator generator and a principal diagnosis of 
epilepsy to MS-DRG 023. The commenters also agreed with the proposed 
change in the title of MS-DRG 023. The commenters stated that the 
updates were necessary for Comprehensive Epilepsy Centers to be able to 
offer the RNS(copyright) neurostimulator. One commenter who 
supported this MS-DRG update recommended that codes in subcategories 
G40.A and G40.B be included in the list of epilepsy diagnosis codes 
classified to MS-DRG 023 because these subcategory codes are also 
epilepsy codes.
    Response: We appreciate the commenters' support for our 
recommendations. We identified the following list of epilepsy codes 
that are included under categories G40.A and G40.B.

 G40.A01 Absence epileptic syndrome, not intractable, with 
status epilepticus
 G40.A09 Absence epileptic syndrome, not intractable, without 
status epilepticus
 G40.A11 Absence epileptic syndrome, intractable, with status 
epilepticus
 G40.A19 Absence epileptic syndrome, intractable, without 
status epilepticus
 G40.B01 Juvenile myoclonic epilepsy, not intractable, with 
status epilepticus
 G40.B09 Juvenile myoclonic epilepsy, not intractable, without 
status epilepticus
 G40.B11 Juvenile myoclonic epilepsy, intractable, with status 
epilepticus
 G40.B19 Juvenile myoclonic epilepsy, intractable, without 
status epilepticus

    We agree that the codes listed above are also epilepsy codes and 
should be added to the list of epilepsy codes assigned to MS-DRG 023 
because they also capture a type of epilepsy. Our clinical advisors 
reviewed this issue and agree with adding the additional epilepsy 
codes.
    For FY 2018, the complete list of epilepsy codes assigned to MS-DRG 
023 under our finalized policy is as follows:

------------------------------------------------------------------------
      ICD-10-CM code                    ICD-10-CM code title
------------------------------------------------------------------------
G40.001...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset, not
                             intractable, with status epilepticus.

[[Page 38019]]

 
G40.009...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset, not
                             intractable, without status epilepticus.
G40.011...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset,
                             intractable, with status epilepticus.
G40.019...................  Localization-related (focal) (partial)
                             idiopathic epilepsy and epileptic syndromes
                             with seizures of localized onset,
                             intractable, without status epilepticus.
G40.101...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with simple partial seizures, not
                             intractable, with status epilepticus.
G40.119...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with simple partial seizures,
                             intractable, without status epilepticus.
G40.201...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             not intractable, with status epilepticus.
G40.209...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             not intractable, without status
                             epilepticus.
G40.211...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             intractable, with status epilepticus.
G40.219...................  Localization-related (focal) (partial)
                             symptomatic epilepsy and epileptic
                             syndromes with complex partial seizures,
                             intractable, without status epilepticus.
G40.301...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, not intractable, with
                             status epilepticus.
G40.309...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, not intractable,
                             without status epilepticus.
G40.311...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, intractable, with
                             status epilepticus.
G40.319...................  Generalized idiopathic epilepsy and
                             epileptic syndromes, intractable, without
                             status epilepticus.
G40.A01...................  Absence epileptic syndrome, not intractable,
                             with status epilepticus.
G40.A09...................  Absence epileptic syndrome, not intractable,
                             without status epilepticus.
G40.A11...................  Absence epileptic syndrome, intractable,
                             with status epilepticus.
G40.A19...................  Absence epileptic syndrome, intractable,
                             without status epilepticus.
G40.B01...................  Juvenile myoclonic epilepsy, not
                             intractable, with status epilepticus.
G40.B09...................  Juvenile myoclonic epilepsy, not
                             intractable, without status epilepticus.
G40.B11...................  Juvenile myoclonic epilepsy, intractable,
                             with status epilepticus.
G40.B19...................  Juvenile myoclonic epilepsy, intractable,
                             without status epilepticus.
G40.401...................  Other generalized epilepsy and epileptic
                             syndromes, not intractable, with status
                             epilepticus.
G40.409...................  Other generalized epilepsy and epileptic
                             syndromes, not intractable, without status
                             epilepticus.
G40.411...................  Other generalized epilepsy and epileptic
                             syndromes, intractable, with status
                             epilepticus.
G40.419...................  Other generalized epilepsy and epileptic
                             syndromes, intractable, without status
                             epilepticus.
G40.501...................  Epileptic seizures related to external
                             causes, not intractable, with status
                             epilepticus.
G40.509...................  Epileptic seizures related to external
                             causes, not intractable, without status
                             epilepticus.
G40.801...................  Other epilepsy, not intractable, with status
                             epilepticus.
G40.802...................  Other epilepsy, not intractable, without
                             status epilepticus.
G40.803...................  Other epilepsy, intractable, with status
                             epilepticus.
G40.804...................  Other epilepsy, intractable, without status
                             epilepticus.
G40.811...................  Lennox-Gastaut syndrome, not intractable,
                             with status epilepticus.
G40.812...................  Lennox-Gastaut syndrome, not intractable,
                             without status epilepticus.
G40.813...................  Lennox-Gastaut syndrome, intractable, with
                             status epilepticus.
G40.814...................  Lennox-Gastaut syndrome, intractable,
                             without status epilepticus.
G40.821...................  Epileptic spasms, not intractable, with
                             status epilepticus.
G40.822...................  Epileptic spasms, not intractable, without
                             status epilepticus.
G40.823...................  Epileptic spasms, intractable, with status
                             epilepticus.
G40.824...................  Epileptic spasms, intractable, without
                             status epilepticus.
G40.89....................  Other seizures.
G40.901...................  Epilepsy, unspecified, not intractable, with
                             status epilepticus.
G40.909...................  Epilepsy, unspecified, not intractable,
                             without status epilepticus.
G40.911...................  Epilepsy, unspecified, intractable, with
                             status epilepticus.
G40.919...................  Epilepsy, unspecified, intractable, without
                             status epilepticus.
------------------------------------------------------------------------

    After consideration of the public comments that we received, we are 
finalizing our proposal to reassign all cases with a principal 
diagnosis of epilepsy from the epilepsy diagnosis list provided above, 
and one of the following ICD-10-PCS code combinations capturing cases 
with the neurostimulator generators inserted into the skull (including 
cases involving the use of the RNS(copyright) 
neurostimulator), to MS-DRG 023, even if there is no MCC reported:
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H00MZ (Insertion of 
neurostimulator lead into brain, open approach);
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H03MZ (Insertion of 
neurostimulator lead into brain, percutaneous approach); and
     0NH00NZ (Insertion of neurostimulator generator into 
skull, open approach), in combination with 00H04MZ (Insertion of 
neurostimulator lead into brain, percutaneous endoscopic approach).
    We also finalizing our proposed change to the title of MS-DRG 023 
from ``Craniotomy with Major Device Implant or Acute Complex Central 
Nervous System (CNS) Principal Diagnosis (PDX) with MCC or Chemo 
Implant'' to ``Craniotomy with Major Device Implant or Acute Complex 
Central Nervous System (CNS) Principal Diagnosis (PDX) with MCC or 
Chemotherapy Implant or Epilepsy with Neurostimulator'' to reflect the 
modifications to MS-DRG assignments.
c. Precerebral Occlusion or Transient Ischemic Attack with Thrombolytic
    We received a request to add the ICD-10-CM diagnosis codes 
currently

[[Page 38020]]

assigned to MS-DRGs 067 and 068 (Nonspecific CVA and Precerebral 
Occlusion without Infarction with MCC and without MCC, respectively) 
and the ICD-10-CM diagnosis codes currently assigned to MS-DRG 069 
(Transient Ischemia) to the GROUPER logic for MS-DRGs 061, 062, and 063 
(Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC, with 
CC, and without CC/MCC, respectively) when those conditions are 
sequenced as the principal diagnosis and reported with an ICD-10-PCS 
procedure code describing use of a thrombolytic agent (for example, 
tPA).
    The ICD-10-CM diagnosis codes displayed in the table below identify 
the conditions that are assigned to MS-DRGs 067 and 068 when reported 
as a principal diagnosis.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
I65.01....................  Occlusion and stenosis of right vertebral
                             artery.
I65.02....................  Occlusion and stenosis of left vertebral
                             artery.
I65.03....................  Occlusion and stenosis of bilateral
                             vertebral arteries.
I65.09....................  Occlusion and stenosis of unspecified
                             vertebral artery.
I65.1.....................  Occlusion and stenosis of basilar artery.
I65.21....................  Occlusion and stenosis of right carotid
                             artery.
I65.22....................  Occlusion and stenosis of left carotid
                             artery.
I65.23....................  Occlusion and stenosis of bilateral carotid
                             arteries.
I65.29....................  Occlusion and stenosis of unspecified
                             carotid artery.
I65.8.....................  Occlusion and stenosis of other precerebral
                             arteries.
I65.9.....................  Occlusion and stenosis of unspecified
                             precerebral artery.
I66.01....................  Occlusion and stenosis of right middle
                             cerebral artery.
I66.02....................  Occlusion and stenosis of left middle
                             cerebral artery.
I66.03....................  Occlusion and stenosis of bilateral middle
                             cerebral arteries.
I66.09....................  Occlusion and stenosis of unspecified middle
                             cerebral artery.
I66.11....................  Occlusion and stenosis of right anterior
                             cerebral artery.
I66.12....................  Occlusion and stenosis of left anterior
                             cerebral artery.
I66.13....................  Occlusion and stenosis of bilateral anterior
                             cerebral arteries.
I66.19....................  Occlusion and stenosis of unspecified
                             anterior cerebral artery.
I66.21....................  Occlusion and stenosis of right posterior
                             cerebral artery.
I66.22....................  Occlusion and stenosis of left posterior
                             cerebral artery.
I66.23....................  Occlusion and stenosis of bilateral
                             posterior cerebral arteries.
I66.29....................  Occlusion and stenosis of unspecified
                             posterior cerebral artery.
I66.3.....................  Occlusion and stenosis of cerebellar
                             arteries.
I66.8.....................  Occlusion and stenosis of other cerebral
                             arteries.
I66.9.....................  Occlusion and stenosis of unspecified
                             cerebral artery.
------------------------------------------------------------------------

    The ICD-10-CM diagnosis codes displayed in the table below identify 
the conditions that are assigned to MS-DRG 069 when reported as a 
principal diagnosis.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
G45.0.....................  Vertebro-basilar artery syndrome.
G45.1.....................  Carotid artery syndrome (hemispheric).
G45.2.....................  Multiple and bilateral precerebral artery
                             syndromes.
G45.8.....................  Other transient cerebral ischemic attacks
                             and related syndromes.
G45.9.....................  Transient cerebral ischemic attack,
                             unspecified.
G46.0.....................  Middle cerebral artery syndrome.
G46.1.....................  Anterior cerebral artery syndrome.
G46.2.....................  Posterior cerebral artery syndrome.
I67.81....................  Acute cerebrovascular insufficiency.
I67.82....................  Cerebral ischemia.
I67.841...................  Reversible cerebrovascular vasoconstriction
                             syndrome.
I67.848...................  Other cerebrovascular vasospasm and
                             vasoconstriction.
I67.89....................  Other cerebrovascular disease.
------------------------------------------------------------------------

    The ICD-10-PCS procedure codes displayed in the table below 
describe use of a thrombolytic agent. These procedure codes are 
designated as non-O.R. procedure codes affecting the MS-DRG assignment 
for MS-DRGs 061, 062, and 063.

------------------------------------------------------------------------
      ICD-10-PCS code                     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.

[[Page 38021]]

 
3E08017...................  Introduction of other thrombolytic into
                             heart, open approach.
3E08317...................  Introduction of other thrombolytic into
                             heart, percutaneous approach.
------------------------------------------------------------------------

    At the onset of stroke symptoms, tPA must be given within 3 hours 
(or up to 4.5 hours for certain eligible patients) in an attempt to 
dissolve a clot and improve blood flow to the specific area affected in 
the brain. If, upon receiving the tPA, the stroke symptoms completely 
resolve within 24 hours and imaging studies (if performed) are 
negative, the patient has suffered what is clinically defined as a 
transient ischemic attack, not a stroke. According to the requestor, 
the current MS-DRG assignments do not account for this subset of 
patients who were successfully treated with tPA to prevent a stroke.
    In addition, the requestor expressed concerns regarding 
documentation and quality of the data. For example, the requestor noted 
that the terms ``stroke-in-evolution'' and ``aborted stroke'' may be 
documented as a ``workaround'' for a patient exhibiting symptoms of a 
stroke who receives tPA and, regardless of the outcome, would result in 
assignment to MS-DRG 061, 062, or 063. Therefore, in cases where the 
patient's stroke symptoms completely resolved upon receiving tPA and 
the patient clinically suffered a precerebral occlusion or transient 
ischemia, this documentation practice is incorrectly labeling these 
patients as having had a stroke and ultimately leading to inaccurate 
data.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19822 through 19824), we analyzed claims data from the December 2016 
update of the FY 2016 MedPAR file for MS-DRGs 061, 062, and 063. Our 
findings are shown in the tables below.

                        MS-DRGs for Acute Ischemic Stroke With Use of Thrombolytic Agent
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 061-All cases............................................           4,528             6.4         $20,270
MS-DRG 062-All cases............................................           8,600             4.2          14,124
MS-DRG 063-All cases............................................           1,859             3.0          11,898
----------------------------------------------------------------------------------------------------------------

    Our analysis also consisted of claims data for MS-DRGs 067 and 068 
when reported with a procedure code describing the use of tPA. As shown 
in the table below, the total number of cases reported in MS-DRG 067 
was 811, with an average length of stay of 4.8 days and average costs 
of $10,248. There were 9 cases in MS-DRG 067 with a precerebral 
occlusion receiving tPA, with an average length of stay of 5.2 days and 
average costs of $20,156. The total number of cases reported in MS-DRG 
068 was 3,809, with an average length of stay of 2.8 days and average 
costs of $6,555. There were 33 cases in MS-DRG 068 with a precerebral 
occlusion receiving tPA, with an average length of stay of 4.3 days and 
average costs of $13,814.

                        MS-DRGs for Precerebral Occlusion With Use of Thrombolytic Agent
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 067--All cases...........................................             811             4.8         $10,248
MS-DRG 067--Cases with tPA......................................               9             5.2          20,156
MS-DRG 068--All cases...........................................           3,809             2.8           6,555
MS-DRG 068--Cases with tPA......................................              33             4.3          13,814
----------------------------------------------------------------------------------------------------------------

    As we stated in the proposed rule, we recognize that while the 
volume of cases for patients with a diagnosis of precerebral occlusion 
receiving tPA in MS-DRGs 067 and 068 is relatively low, the average 
length of stay is longer, and the average costs for this subset of 
patients is approximately twice the amount of the average costs in 
comparison to all cases in MS-DRGs 067 and 068.
    We then analyzed claims data for cases in MS-DRG 069 when reported 
with a procedure code describing the use of tPA. As shown in the table 
below, the total number of cases reported in MS-DRG 069 was 50,633, 
with an average length of stay of 2.5 days and average costs of $5,518. 
There were 554 cases of transient ischemia receiving tPA, with an 
average length of stay of 3.2 days and average costs of $12,481.

                          MS-DRG for Transient Ischemia With Use of Thrombolytic Agent
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 069--All cases...........................................          50,633             2.5          $5,518
MS-DRG 069--Cases with tPA......................................             554             3.2          12,481
----------------------------------------------------------------------------------------------------------------

    Similar to the findings for MS-DRGs 067 and 068, the number of 
cases for transient ischemia receiving tPA in MS-DRG 069 was relatively 
low in comparison to all the cases in the MS-DRG, with a longer average 
length of

[[Page 38022]]

stay and approximately twice the amount of average costs in comparison 
to all cases in MS-DRG 069.
    We stated in the proposed rule that the results of analysis of the 
data and the advice of our clinical advisors support adding the ICD-10-
CM diagnosis codes in MS-DRGs 067, 068, and 069 to the list of 
principal diagnoses in MS-DRGs 061, 062, and 063 to better account for 
this subset of patients who were successfully treated with tPA to 
prevent a stroke, to identify the increasing use of thrombolytics at 
the onset of symptoms of a stroke, to further encourage appropriate 
physician documentation for a precerebral occlusion or transient 
ischemic attack when patients are treated with tPA, and to reflect more 
appropriate payment for the resources involved in evaluating and 
treating these patients. We stated that we believe this approach will 
improve accuracy of the data and assist in addressing the concern that 
facilities may be reporting incorrect diagnoses for this subset of 
patients.
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19824), for FY 2018, we proposed to add the ICD-10-CM diagnosis codes 
listed earlier in this section that are currently assigned to MS-DRGs 
067 and 068 and the ICD-10-CM diagnosis codes currently assigned to MS-
DRG 069 to the GROUPER logic for MS-DRGs 061, 062, and 063 when those 
conditions are sequenced as the principal diagnosis and reported with 
an ICD-10-PCS procedure code describing use of a thrombolytic agent 
(for example, tPA). We invited public comments on our proposal.
    We also proposed to retitle MS-DRGs 061, 062, and 063 as ``Ischemic 
Stroke, Precerebral Occlusion or Transient Ischemia with Thrombolytic 
Agent with MCC, with CC and without CC/MCC'', respectively, and to 
retitle MS-DRG 069 as ``Transient Ischemia without Thrombolytic''.
    We invited public comments on our proposals.
    Comment: Several commenters supported the proposal to modify the 
GROUPER logic for MS-DRGs 061, 062, and 063 to better account for the 
subset of patients who are treated successfully with tPA at the onset 
of stroke symptoms. The commenters agreed that this change will 
encourage appropriate physician documentation for a precerebral 
occlusion or transient ischemic attack when patients are treated with 
tPA and that it will more accurately reflect proper payment for stroke 
care. Commenters also agreed with retitling MS-DRGs 061, 062, 063 and 
069. One commenter who supported the proposals also suggested that CMS 
consider developing new MS-DRGs in the future to specifically 
distinguish acute ischemic strokes from precerebral occlusions and 
transient ischemia, with and without thrombolytics, with and without 
MCC/CC, respectively.
    Response: We appreciate the commenters' support. As additional ICD-
10 claims data become available, we will continue to welcome input from 
the public and consider further modifications to the ICD-10 MS-DRGs if 
warranted.
    After consideration of the public comments that we received, we are 
finalizing our proposal to add the ICD-10-CM diagnosis codes listed 
earlier in this section that are currently assigned to MS-DRGs 067 and 
068 and the ICD-10-CM diagnosis codes currently assigned to MS-DRG 069 
to the GROUPER logic for MS-DRGs 061, 062, and 063 when those 
conditions are sequenced as the principal diagnosis and reported with 
an ICD-10-PCS procedure code describing use of a thrombolytic agent 
(for example, tPA). We also are finalizing our proposal to retitle MS-
DRGs 061, 062, and 063 as ``Ischemic Stroke, Precerebral Occlusion or 
Transient Ischemia with Thrombolytic Agent with MCC, with CC and 
without CC/MCC'', respectively, and to retitle MS-DRG 069 as 
``Transient Ischemia without Thrombolytic'' effective October 1, 2017 
for the ICD-10 MS-DRGs Version 35.
3. MDC 2 (Diseases and Disorders of the Eye: Swallowing Eye Drops 
(Tetrahydrozoline)
    We received a request to reassign the following ICD-10-CM diagnosis 
codes that capture swallowing eye drops from MS-DRGs 124 and 125 (Other 
Disorders of the Eye with and without MCC, respectively) to MS-DRGs 917 
and 918 (Poisoning and Toxic Effects of Drugs with and without MCC, 
respectively). The requestor described a case where a patient was 
treated following swallowing eye drops, specifically Tetrahydrozoline, 
which the provider considers to be a poisoning, not a disorder of the 
eye.
     T49.5X1A (Poisoning by ophthalmological drugs and 
preparations, accidental (unintentional), initial encounter);
     T49.5X2A (Poisoning by ophthalmological drugs and 
preparations, intentional self-harm, initial encounter);
     T49.5X3A (Poisoning by ophthalmological drugs and 
preparations, assault, initial encounter); and
     T49.5X4A (Poisoning by ophthalmological drugs and 
preparations, undetermined, initial encounter).
    As stated in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19824 
through 19825), we agree with the requestor that the four diagnosis 
codes describe a poisoning, not a disorder of the eye. We examined 
claims data for cases in MS-DRGs 124 and 125 from the December 2016 
update of the FY 2016 MedPAR file. Our findings are shown in the table 
below.

                                            MS-DRG 124 and 125 Cases
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay   Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 124--All cases...........................................             874             4.8          $8,826
MS-DRG 124--Cases reporting poisoning by ophthalmological drugs                1             2.0           3,007
 and preparations code..........................................
MS-DRG 125--All cases...........................................           3,205             3.3           5,565
MS-DRG 125--Cases reporting poisoning by ophthalmological drugs                1             2.0           1,446
 and preparations code..........................................
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, there were only 2 cases of poisoning 
by ophthalmological drugs and preparations--1 case in MS-DRG 124 with 
an average length of stay of 2 days and average costs of $3,007 and 1 
case in MS-DRG 125 with an average length of stay of 2 days and average 
costs of $1,446. The case of poisoning by ophthalmological drugs and 
preparations in MS-DRG 124 had a shorter average length of stay than 
the average length of stay for all cases in MS-DRG 124 (2.0 days 
compared to 4.8 days) and lower average costs than the average costs 
for all cases in MS-DRG 124 ($3,007 compared to $8,826). The case of 
poisoning by ophthalmological

[[Page 38023]]

drugs and preparations in MS-DRG 125 also had a shorter average length 
of stay than the average length of stay for all cases in MS-DRG 125 
(2.0 days compared to 3.3 days) and lower average costs than the 
average costs for all cases in MS-DRG 125 ($1,446 compared to $5,565).
    We also examined claims data on cases reported in MS-DRGs 917 and 
918 from the December 2016 update of the FY 2016 MedPAR file. Our 
findings are shown in the table below.

                                            MS-DRGs 917 and 918 Cases
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay   Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 917-- All cases..........................................          32,381             4.8          $9,882
MS-DRG 918--All cases...........................................          24,061             3.0           5,326
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, the 2 cases of poisoning by 
ophthalmological drugs and preparations also had shorter average 
lengths of stay than the average length of stay for all cases in MS-
DRGs 917 and 918 (2.0 days compared to 4.8 days in MS-DRG 917 and 2.0 
days compared to 3.0 days in MS-DRG 918). The average costs also were 
lower for the 2 cases of poisoning by ophthalmological drugs and 
preparations than the average costs for all cases in MS-DRGs 917 and 
918 ($3,007 compared to $9,882 for all cases in MS-DRG 917 and $1,446 
compared to $5,326 for all cases in MS-DRG 918). Therefore, cases with 
this type of poisoning had lower average lengths of stay and lower 
average costs than all other cases assigned to MS-DRGs 124 and 125 and 
cases in MS-DRGs 917 and 918 where poisonings are assigned.
    Because the codes clearly capture a poisoning and not an eye 
disorder, we stated in the proposed rule that we believe that these 
codes are more appropriately assigned to MS-DRGs 917 and 918 where 
other poisonings are assigned. Our clinical advisors also reviewed this 
issue and agreed that the codes should be moved from MS-DRGs 124 and 
125 to MS-DRGs 917 and 918 because they clearly capture a poisoning and 
not a disorder of the eye. Because MS-DRGs 917 and 918 contain cases 
with multiple types of poisonings, it is expected that some types of 
poisoning cases will have longer lengths of stay and greater average 
costs than other types of poisoning cases. Therefore, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19824 through 19825), we proposed to 
reassign the following ICD-10-CM diagnosis codes from MS-DRGs 124 and 
125 to MS-DRGs 917 and 918 for FY 2018: T49.5X1A; T49.5X2A; T49.5X3A; 
and T49.5X4A.
    We invited public comments on our proposal.
    Comment: Several commenters supported CMS' proposal to reassign 
four poisoning codes from MS-DRGs 124 and 125 to MS-DRGs 917 and 918. 
The commenters stated that the proposal was reasonable considering the 
information provided.
    Response: We appreciate the commenters' support for our proposal.
    After consideration of the public comments that we received, we are 
finalizing our proposal to reassign the following ICD-10-CM diagnosis 
codes from MS-DRGs 124 and 125 to MS-DRGs 917 and 918 for FY 2018: 
T49.5X1A; T49.5X2A; T49.5X3A; and T49.5X4A.
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Cardiovascular Procedures and Insertion of a 
Radioactive Element
    Currently, under ICD-10-PCS, the logic for MS-DRG 246 (Percutaneous 
Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ 
Vessels or Stents), MS-DRG 247 (Percutaneous Cardiovascular Procedures 
with Drug-Eluting Stent without MCC), MS-DRG 248 (Percutaneous 
Cardiovascular Procedures with Non-Drug-Eluting Stent with MCC or 4+ 
Vessels or Stents), and MS-DRG 249 (Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent without MCC) includes six 
procedure codes that describe the insertion of a radioactive element. 
When any of these six procedure codes are reported without the 
reporting of a percutaneous cardiovascular procedure code, they are 
assigned to MS-DRG 264 (Other Circulatory System O.R. Procedures). The 
six specific procedure codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0WHC01Z...................  Insertion of radioactive element into
                             mediastinum, open approach.
0WHC31Z...................  Insertion of radioactive element into
                             mediastinum, percutaneous approach.
0WHC41Z...................  Insertion of radioactive element into
                             mediastinum, percutaneous endoscopic
                             approach.
0WHD01Z...................  Insertion of radioactive element into
                             pericardial cavity, open approach.
0WHD31Z...................  Insertion of radioactive element into
                             pericardial cavity, percutaneous approach.
0WHD41Z...................  Insertion of radioactive element into
                             pericardial cavity, percutaneous endoscopic
                             approach.
------------------------------------------------------------------------

    Unlike procedures involving the insertion of stents, none of the 
procedures described by the procedure codes listed above are performed 
in conjunction with a percutaneous cardiovascular procedure, and two of 
the six procedures described by these procedure codes (ICD-10-PCS codes 
0WHC01Z and 0WHD01Z) are not performed using a percutaneous approach, 
but rather describe an open approach to performing the specific 
procedure. We stated in the proposed rule that our clinical advisors 
agreed that these procedures should not be used to classify cases 
within MS-DRGs 246 through 249 because they are not performed in 
conjunction with a percutaneous cardiovascular procedure. Furthermore, 
the indications for the insertion of a radioactive element typically 
involve a diagnosis of cancer, whereas the indications for the 
insertion of a coronary artery stent typically involve a diagnosis of 
coronary artery disease.
    We conducted an analysis for the six procedures described by these 
procedure codes by reviewing the claims data for MS-DRGs 246 through 
249 from the December 2016 update of the FY 2016 MedPAR file. We did 
not find any cases where any one of the six

[[Page 38024]]

procedure codes listed above was reported. As noted earlier, when any 
of these six procedure codes are reported without the reporting of a 
percutaneous cardiovascular procedure code, the case is assigned to MS-
DRG 264. Therefore, as we discussed in the proposed rule, our clinical 
advisors also agreed that it would be more appropriate to remove these 
six procedure codes from MS-DRGs 246 through 249, but maintain their 
current assignment in MS-DRG 264. Based on our analysis and the advice 
from our clinical advisors, in the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 19825 through 19826), for FY 2018, we proposed to remove ICD-10-
PCS procedure codes 0WHC01Z, 0WHC31Z, 0WHC41Z, 0WHD01Z, 0WHD31Z, and 
0WHD41Z from MS-DRGs 246 through 249, but maintain their current 
assignment in MS-DRG 264.
    We invited public comments on our proposal to remove the six 
procedure codes listed above from MS-DRGs 246 through 249. We also 
invited public comments on our proposal to maintain their current 
assignment in MS-DRG 264.
    Comment: Commenters supported the proposal to remove the six 
procedure codes describing insertion of radioactive element into the 
mediastinum and insertion of radioactive element into the pericardial 
cavity from MS-DRGs 246 through 249 and to maintain their assignment in 
MS-DRG 264.
    Response: We appreciate the commenters' support.
    Comment: One commenter noted that CMS did not discuss how we 
identified the listed procedure codes or why CMS believes these 
procedure codes were assigned to MS-DRGs 246 through 249 erroneously. 
However, the commenter also agreed with the proposal to remove the six 
procedure codes describing insertion of radioactive element into the 
mediastinum and insertion of radioactive element into the pericardial 
cavity from MS-DRGs 246 through 249 and to maintain their assignment in 
MS-DRG 264. The commenter acknowledged that eliminating erroneous 
assignments that may have occurred as a result of the transition to 
ICD-10 is important and requires ongoing efforts.
    Response: We appreciate the commenter's support. In response to the 
comment regarding how these procedure codes were identified, as 
discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19825), we 
recognized the fact that two of the six procedure codes describing 
insertion of radioactive element (0WHC01Z and 0WHD01Z) are not 
performed using a percutaneous approach, but rather described an open 
approach to performing the specific procedure and their assignment was 
to a group of ``percutaneous'' cardiovascular procedure MS-DRGs. 
Because the comparable translation of these procedure codes under ICD-
9-CM, procedure code 92.27 (Implantation or insertion of radioactive 
element) did not specify an approach, all comparable ICD-10-PCS 
translations of the ICD-9-CM code were automatically replicated to the 
same ICD-10 MS-DRGs during the transition. We agree with the commenter 
that eliminating erroneous assignments that may have occurred as a 
result of the transition to ICD-10 is important and requires ongoing 
efforts.
    After consideration of the public comments that we received, we are 
finalizing our proposal to remove ICD-10-PCS procedure codes 0WHC01Z, 
0WHC31Z, 0WHC41Z, 0WHD01Z, 0WHD31Z, and 0WHD41Z from MS-DRGs 246 
through 249, and maintain their current assignment in MS-DRG 264 
effective October 1, 2017 for ICD-10 MS-DRGs Version 35.
b. Proposed Modification of the Titles for MS-DRG 246 (Percutaneous 
Cardiovascular Procedures With Drug-Eluting Stent With MCC or 4+ 
Vessels or Stents) and MS-DRG 248 (Percutaneous Cardiovascular 
Procedures With Non-Drug-Eluting Stent With MCC or 4+ Vessels or 
Stents)
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19826), we 
proposed to revise the titles for MS-DRGs 246 (Percutaneous 
Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ 
Vessels or Stents) and MS-DRG 248 (Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent with MCC or 4+ Vessels or 
Stents) to better reflect the ICD-10-PCS terminology of ``arteries'' 
versus ``vessels'' as used in the procedure code titles within the 
classification. Specifically, we proposed to revise the title of MS-DRG 
246 to ``Percutaneous Cardiovascular Procedures with Drug-Eluting Stent 
with MCC or 4+ Arteries or Stents''. We proposed to revise the title of 
MS-DRG 248 to ``Percutaneous Cardiovascular Procedures with Non-Drug-
Eluting Stent with MCC or 4+ Arteries or Stents''. We invited public 
comments on our proposals.
    Comment: Commenters agreed with the proposal to update the titles 
for MS-DRG 246 and MS-DRG 248 to better reflect the ICD-10-PCS 
terminology of ``arteries'' versus ``vessels'' as used in the procedure 
code titles within the classification. One commenter noted that this 
change adds specificity and makes sense anatomically because 
percutaneous coronary intervention procedures are performed in 
arteries, which are a type of vessel.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to revise the titles for MS-DRGs 246 and MS-DRG 
248. We are finalizing the title of MS-DRG 246 to ``Percutaneous 
Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ 
Arteries or Stents'' and the title of MS-DRG 248 to ``Percutaneous 
Cardiovascular Procedures with Non-Drug-Eluting Stent with MCC or 4+ 
Arteries or Stents'' effective October 1, 2017 for ICD-10 MS-DRGs 
Version 35.
c. Transcatheter Aortic Valve Replacement (TAVR) and Left Atrial 
Appendage Closure (LAAC)
    We received a request to create new MS-DRGs for cases involving 
transcatheter aortic valve replacement (TAVR) and left atrial appendage 
closure (LAAC) procedures when performed in combination in the same 
operative episode. The requestor stated that there are both clinical 
and financial advantages for the patient when performing concomitant 
procedures. For example, the requestor indicated that the clinical 
advantages for the patient may include single exposure to anesthesia 
and a reduction in overall procedure time, while the financial 
advantages may include lower cost-sharing. The requestor further 
believed that a single hospitalization for these concomitant procedures 
could be cost-effective for various providers and payers.
    TAVR is indicated and approved as a treatment option for patients 
diagnosed with symptomatic aortic stenosis who are not surgical 
candidates for traditional open surgical techniques. Cases involving 
TAVR procedures are assigned to MS-DRGs 266 and 267 (Endovascular 
Cardiac Valve Replacement with MCC and without MCC, respectively), and 
are identified by the following ICD-10-PCS procedure codes shown in the 
table below.

[[Page 38025]]



------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
02RF37Z...................  Replacement of aortic valve with autologous
                             tissue substitute, percutaneous approach.
02RF38Z...................  Replacement of aortic valve with zooplastic
                             tissue, percutaneous approach.
02RF3JZ...................  Replacement of aortic valve with synthetic
                             substitute, percutaneous approach.
02RF3KZ...................  Replacement of aortic valve with
                             nonautologous tissue substitute,
                             percutaneous approach.
02RF37H...................  Replacement of aortic valve with autologous
                             tissue substitute, transapical,
                             percutaneous approach.
02RF38H...................  Replacement of aortic valve with zooplastic
                             tissue, transapical, percutaneous approach.
02RF3JH...................  Replacement of aortic valve with synthetic
                             substitute, transapical, percutaneous
                             approach.
02RF3KH...................  Replacement of aortic valve with
                             nonautologous tissue substitute,
                             transapical, percutaneous approach.
------------------------------------------------------------------------

    LAAC is indicated and approved as a treatment option for patients 
diagnosed with atrial fibrillation. Cases involving LAAC procedures are 
assigned to MS-DRGs 273 and 274 (Percutaneous Intracardiac Procedures 
with MCC and without MCC, respectively), and are identified by ICD-10-
PCS procedure code 02L73DK (Occlusion of left atrial appendage with 
intraluminal device, percutaneous approach).
    The requestor suggested that the structure of the possible new MS-
DRGs for TAVR procedures performed in combination with LAAC procedures 
could be modeled similar to the structure of MS-DRGs 266 and 267. While 
contemplating creation of the new MS-DRGs, the requestor asked CMS to 
also consider subdividing the possible new MS-DRGs into two severity 
levels and title them as follows:
     Suggested MS-DRG 26x (Endovascular Cardiac Valve 
Replacement with LAAC with MCC); and
     Suggested MS-DRG 26x (Endovascular Cardiac Valve 
Replacement with LAAC without MCC).
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19826 through 19827), we analyzed claims data from the December 2016 
update of the FY 2016 MedPAR file for MS-DRGs 266 and 267 and 
identified the cases reporting TAVR procedures with and without an LAAC 
procedure. As shown in the table below, the data findings show that the 
total number of cases reported in MS-DRG 266 was 9,949, with an average 
length of stay of 7.2 days and average costs of $56,762. There were 
9,872 cases involving a TAVR procedure, with an average length of stay 
of 7.2 days and average costs of $56,628. There was only one case 
identified in MS-DRG 266 where both a TAVR and an LAAC procedure were 
reported. This case had an average length of stay of 21.0 days and 
average costs of $60,226. For MS-DRG 267, the total number of cases 
found was 13,290, with an average length of stay of 3.5 days and 
average costs of $45,297. There were 13,245 cases involving a TAVR 
procedure, with an average length of stay of 3.5 days and average costs 
of $45,302. There were no cases identified in MS-DRG 267 where both a 
TAVR and an LAAC procedure were reported.

                                           MS-DRGs for TAVR Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay   Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 266--All cases...........................................           9,949             7.2         $56,762
MS-DRG 266--Cases with TAVR.....................................           9,872             7.2          56,628
MS-DRG 266--Cases TAVR and LAAC.................................               1            21.0          60,226
MS-DRG 267--All cases...........................................          13,290             3.5          45,297
MS-DRG 267--Cases with TAVR.....................................          13,245             3.5          45,302
MS-DRG 267--Cases TAVR and LAAC.................................               0               0               0
----------------------------------------------------------------------------------------------------------------

    We then analyzed claims data in MS-DRGs 273 and 274 for cases 
reporting an LAAC procedure. As shown in the table below, the data 
findings show that the total number of cases reported in MS-DRG 273 was 
6,541, with an average length of stay of 7.7 days and average costs of 
$26,042. There were 179 cases involving an LAAC procedure, with an 
average length of stay of 3.6 days and average costs of $30,131. For 
MS-DRG 274, the total number of cases found was 14,441, with an average 
length of stay of 3.0 days and average costs of $20,267. There were 
2,428 cases involving an LAAC procedure, with an average length of stay 
of 1.2 days and average costs of $26,213.

                                           MS-DRGs for LAAC Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay   Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 273--All cases...........................................           6,541             7.7         $26,042
MS-DRG 273--Cases with LAAC.....................................             179             3.6          30,131
MS-DRG 274--All cases...........................................          14,441             3.0          20,267
MS-DRG 274--Cases with LAAC.....................................           2,428             1.2          26,213
----------------------------------------------------------------------------------------------------------------

    We stated in the proposed rule that the analysis of claims data for 
MS-DRGs 266, 267, 273, and 274 and input from our clinical advisors do 
not support creating new MS-DRGs for TAVR and LAAC procedures when 
performed in combination in the same operative episode. We found only 
one case in MS-DRG 266 where both a TAVR and an LAAC procedure were 
reported and the claims data for cases reporting an LAAC procedure in 
MS-DRGs 273 and 274 support their current assignment. Our clinical 
advisors agreed the current MS-DRG assignments are appropriate for each 
respective procedure.
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19827), we

[[Page 38026]]

did not propose to create new MS-DRGs for cases involving TAVR and LAAC 
procedures when performed in combination in the same operative episode. 
We invited public comments on our proposal to maintain the current MS-
DRG structure for TAVR procedures in MS-DRGs 266 and 267, as well as 
the current MS-DRG structure for LAAC procedures in MS-DRGs 273 and 
274.
    Comment: Commenters supported the proposal to maintain the current 
MS-DRG structure for TAVR and LAAC procedures when performed in 
combination in the same operative episode.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to maintain the current MS-DRG structure for 
TAVR procedures in MS-DRGs 266 and 267, as well as the current MS-DRG 
structure for LAAC procedures in MS-DRGs 273 and 274 effective October 
1, 2017 for ICD-10 MS-DRGs Version 35.
d. Percutaneous Mitral Valve Replacement Procedures
    We received a request to reassign four ICD-10-PCS procedure codes 
that describe percutaneous mitral valve replacement procedures from MS-
DRGs 216 through 221 (Cardiac Valve and Other Major Cardiothoracic 
Procedures with and without Cardiac Catheterization with MCC, with CC 
and without CC/MCC, respectively) to MS-DRGs 266 and 267 (Endovascular 
Cardiac Valve Replacement with MCC and without MCC, respectively). The 
requestor indicated that there are inconsistencies in the current 
GROUPER logic for endovascular cardiac valve replacement procedures. 
Specifically, the requestor stated that the procedure codes that 
describe both the percutaneous approach and the transapical, 
percutaneous approach for the aortic and pulmonary valves are included 
in MS-DRGs 266 and 267. However, for the mitral valve, the GROUPER 
logic only includes the procedure codes that describe the transapical, 
percutaneous approach.
    The requestor also stated that when MS-DRGs 266 and 267 were 
created, the intent was to include percutaneous replacement procedures 
for all cardiac valves. Therefore, the requestor recommended that CMS 
reassign the four ICD-10-PCS procedure codes shown in the table below 
that describe mitral valve replacement procedures, performed with the 
percutaneous approach from MS-DRGs 216 through 221 to MS-DRGs 266 and 
267 to more appropriately group these procedures within the MS-DRG 
structure.

------------------------------------------------------------------------
 ICD-10-PCS procedure code                Code description
------------------------------------------------------------------------
02RG37Z...................  Replacement of mitral valve with autologous
                             tissue substitute, percutaneous approach.
02RG38Z...................  Replacement of mitral valve with zooplastic
                             tissue, percutaneous approach.
02RG3JZ...................  Replacement of mitral valve with synthetic
                             substitute, percutaneous approach.
02RG3KZ...................  Replacement of mitral valve with
                             nonautologous tissue substitute,
                             percutaneous approach.
------------------------------------------------------------------------

    We stated in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19827 
through 19828) that we agree with the requestor regarding the intent of 
the creation of MS-DRGs 266 and 267. As discussed in the FY 2015 IPPS/
LTCH PPS final rule (79 FR 49890 through 49893), MS-DRGs 266 and 267 
were created to uniquely classify the subset of high-risk cases 
representing patients who undergo a cardiac valve replacement procedure 
performed by a percutaneous (endovascular) approach. As such, we agree 
that all cardiac valve replacement procedures should be grouped within 
the same MS-DRG. In FY 2015, under the ICD-9-CM classification, there 
was not a specific procedure code for a percutaneous mitral valve 
replacement procedure. Therefore, when we converted from the ICD-9 
based MS-DRGs to the ICD-10 MS-DRGs, there was not a code available 
from which to replicate. We refer the reader to the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 49890 through 49893) for a detailed discussion on 
the initial request to create new MS-DRGs for endovascular cardiac 
valve replacement procedures, as well as the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49354 through 49358) and the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56787 through 56790) for a detailed discussion of the 
conversion to ICD-10 MS-DRGs, including our analysis of claims data and 
the need to accurately replicate the ICD-9-CM based MS-DRGs.
    The requestor also noted that a proposal was discussed at the 
September 13-14, 2016 ICD-10 Coordination and Maintenance Committee 
meeting involving the creation of procedure codes that describe 
percutaneous tricuspid valve replacement procedures and, if finalized, 
these new procedure codes would also be assigned to MS-DRGs 266 and 
267.
    As shown in the table below and in Table 6B.-New Procedure Codes, 
which is associated with the proposed rule and this final rule and 
available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html, 
there are eight new procedure codes that describe tricuspid valve 
replacement procedures performed with percutaneous and transapical 
types of percutaneous approaches that will be effective October 1, 
2017.

------------------------------------------------------------------------
 ICD-10-PCS procedure code                Code description
------------------------------------------------------------------------
02RJ37H...................  Replacement of tricuspid valve with
                             autologous tissue substitute, transapical,
                             percutaneous Approach.
02RJ37Z...................  Replacement of tricuspid valve with
                             autologous tissue substitute, percutaneous
                             approach.
02RJ38H...................  Replacement of tricuspid valve with
                             zooplastic tissue, transapical,
                             percutaneous approach.
02RJ38Z...................  Replacement of tricuspid valve with
                             zooplastic tissue, percutaneous approach.
02RJ3JH...................  Replacement of tricuspid valve with
                             synthetic substitute, transapical,
                             percutaneous approach.
02RJ3JZ...................  Replacement of tricuspid valve with
                             synthetic substitute, percutaneous
                             approach.
02RJ3KH...................  Replacement of tricuspid valve with
                             nonautologous tissue substitute,
                             transapical, percutaneous approach.
02RJ3KZ...................  Replacement of tricuspid valve with
                             nonautologous tissue substitute,
                             percutaneous approach.
------------------------------------------------------------------------


[[Page 38027]]

    We stated in the proposed rule that we agree with the requestor and 
believe that, in addition to the four procedure codes that describe the 
percutaneous mitral valve replacement procedures listed earlier in this 
section, the eight codes that describe percutaneous and transapical 
types of percutaneous tricuspid valve replacement procedures also 
should be grouped with the other endovascular cardiac valve replacement 
procedures. Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 19827 through 19828), we proposed to reassign the four percutaneous 
mitral valve replacement procedures described by the procedure codes 
listed in the table above from MS-DRGs 216 through 221 to MS-DRGs 266 
and 267. In addition, we proposed to assign the eight new procedure 
codes (also listed in a separate table above) that describe 
percutaneous and transapical, percutaneous tricuspid valve replacement 
procedures to MS-DRGs 266 and 267.
    We invited public comments on our proposals.
    Comment: Many commenters supported the proposal to reassign the 
four percutaneous mitral valve replacement procedures from MS-DRGs 216 
through 221 to MS-DRGs 266 and 267 and to assign the eight new 
procedure codes that describe percutaneous and transapical, 
percutaneous tricuspid valve replacement procedures to MS-DRGs 266 and 
267. Commenters noted that these updates will appropriately reflect the 
clinical characteristics and resource use for this group of 
endovascular cardiac valve replacement procedures.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to reassign the four percutaneous mitral valve 
replacement procedures described by the procedure codes listed in the 
table above from MS-DRGs 216 through 221 to MS-DRGs 266 and 267 and 
assign the eight new procedure codes (also listed in a separate table 
above) that describe percutaneous and transapical, percutaneous 
tricuspid valve replacement procedures to MS-DRGs 266 and 267 effective 
October 1, 2017 for ICD-10 MS-DRGs Version 35.
e. Percutaneous Tricuspid Valve Repair
    We received a request to reassign cases reporting ICD-10-PCS 
procedure code 02UJ3JZ (Supplement tricuspid valve with synthetic 
substitute, percutaneous approach) from MS-DRGs 216 through 221 
(Cardiac Valve and Other Major Cardiothoracic Procedures with and 
without Cardiac Catheterization with MCC, with CC and without CC/MCC, 
respectively) to MS-DRGs 228 and 229 (Other Cardiothoracic Procedures 
with MCC and without MCC, respectively). According to the requestor, 
reassigning cases involving these procedures would more appropriately 
align the cohesiveness with other clinically similar procedures, such 
as percutaneous mitral valve repair (for example, procedures involving 
the Mitraclip) described by procedure code 02UG3JZ (Supplement mitral 
valve with synthetic substitute, percutaneous approach), which are 
assigned to MS-DRGs 228 and 229.
    The requestor noted that the FORMA Tricuspid Transcatheter Repair 
System (herein after referred to as the FORMA system) is currently in 
clinical trials in the United States, Europe, and Canada, but has not 
received FDA approval/clearance marketing authorization. However, the 
FORMA system is presently available through a compassionate use 
program. The FORMA system technology is indicated for use in the 
treatment of patients diagnosed with tricuspid regurgitation and 
occupies the regurgitant area of the affected valve, providing a 
surface for native leaflet coaptation. The requestor stated that the 
technology offers a viable alternative treatment using traditional 
tricuspid valve surgery. According to the requestor, the technology 
consists of a rail and a spacer, and the procedure to insert the device 
involves fluoroscopic imaging guidance.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19828 through 19829), we analyzed claims data from the December 2016 
update of the FY 2016 MedPAR file for MS-DRGs 216 through 221 for cases 
reporting procedure code 02UJ3JZ (Supplement tricuspid valve with 
synthetic substitute, percutaneous approach). Our findings are shown in 
the following table.

                       MS-DRGs for Cardiac Valve and Other Major Cardiothoracic Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay   Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 216--All cases...........................................           9,139            14.4         $68,304
MS-DRG 216--Cases with percutaneous tricuspid valve repair......               1             5.0          14,954
MS-DRG 217--All cases...........................................           3,536             8.9          45,857
MS-DRG 217--Cases with percutaneous tricuspid valve repair......               1             3.0          16,234
MS-DRG 218--All cases...........................................             498             5.9          41,274
MS-DRG 218--Cases with percutaneous tricuspid valve repair......               0               0               0
MS-DRG 219--All cases...........................................          16,011            11.1          54,519
MS-DRG 219--Cases with percutaneous tricuspid valve repair......               6             9.0          58,075
MS-DRG 220--All cases...........................................          18,476             6.8          37,506
MS-DRG 220--Cases with percutaneous tricuspid valve repair......               1             5.0          90,155
MS-DRG 221--All cases...........................................           3,547             5.0          33,606
MS-DRG 221--Cases with percutaneous tricuspid valve repair......               0               0               0
----------------------------------------------------------------------------------------------------------------

    We also analyzed claims data for MS-DRGs 228 and 229. Our findings 
are shown in the following table below.

                                   MS-DRGs for Other Cardiothoracic Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay   Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 228--All cases...........................................           3,466             9.8         $47,435

[[Page 38028]]

 
MS-DRG 229--All cases...........................................           4,553             4.9          33,347
----------------------------------------------------------------------------------------------------------------

    The claims data show that there were very few cases reported for 
performing a percutaneous tricuspid valve repair procedure in MS-DRGs 
216 through 221. Of the 6 cases found in MS-DRG 219, with average costs 
of $58,075, the average cost of these cases aligned with the average 
cost of all cases in the MS-DRG assignment ($54,519). We stated in the 
proposed rule that the data analysis and our clinical advisors do not 
support reassigning cases reporting procedure code 02UJ3JZ to MS-DRGs 
228 and 229. The current MS-DRG assignment for percutaneous tricuspid 
valve repair procedures to MS-DRGs 216 through 221 is clinically 
coherent with the other percutaneous procedures performed on the heart 
valves that are currently assigned to these MS-DRGs. Percutaneous 
repair of the aortic, pulmonary and tricuspid valves utilizing various 
tissue substitutes (autologous, nonautologous, zooplastic, and 
synthetic) are assigned to MS-DRGs 216 through 221. The exception is 
the percutaneous mitral valve repair, which, as the requestor pointed 
out, is assigned to MS-DRGs 228 and 229 as discussed in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 56809 through 56813). Our clinical 
advisors also agreed that the limited number of cases reported in MS-
DRGs 216 through 221 does not warrant reassignment.
    As a result of our review and the input from our clinical advisors, 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19829), we did not 
propose to reassign cases reporting procedure code 02UJ3JZ from MS-DRGs 
216 through 221 to MS-DRGs 228 and 229.
    We invited public comments on our proposal to maintain the current 
MS-DRG assignment for cases reporting procedure code 02UJ3JZ.
    Comment: Commenters supported the proposal to maintain the current 
MS-DRG assignment for ICD-10-PCS procedure code 02UJ3JZ in MS-DRGs 216 
through 221. One commenter also noted that, while CMS' analysis 
demonstrated the current assignment is appropriate, CMS should consider 
revisiting this procedure in the future in the event it becomes more 
common and warrants further consideration for reassignment. The 
commenter believed that there could be value in creating MS-DRGs for 
endovascular cardiac repair similar to those MS-DRGs for endovascular 
cardiac valve replacement.
    Response: We appreciate the commenters' support. As additional ICD-
10 claims data become available, we will continue to welcome input from 
the public and consider further modifications to the ICD-10 MS-DRGs if 
warranted.
    Comment: One commenter did not agree with the proposal to maintain 
the current MS-DRG assignment for ICD-10-PCS procedure code 02UJ3JZ in 
MS-DRGs 216 through 221. The commenter stated that transcatheter 
tricuspid valve repair procedures are clinically coherent with other 
percutaneous transcatheter cardiac valve repair procedures. This 
commenter asserted that the devices utilized in these procedures are 
currently under clinical investigation and the utilization of these 
technologies is expected to increase through clinical trials. 
Therefore, the commenter suggested that these procedures should be 
assigned to MS-DRGs 228 and 229.
    Response: As we noted in the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 19829), the results of our analysis of the current MS-DRG 
assignment for percutaneous tricuspid valve repair procedures to MS-
DRGs 216 through 221 and the advice of our clinical advisors 
demonstrate that this procedure is clinically coherent with the other 
percutaneous procedures performed on the heart valves that are 
currently assigned to these MS-DRGs because percutaneous repair of the 
aortic, pulmonary, and tricuspid valves utilizing various tissue 
substitutes (autologous, nonautologous, zooplastic, and snythetic) are 
assigned to MS-DRGs 216 through 221. We will continue to consider 
further modifications to the ICD-10 MS-DRGs as additional ICD-10 claims 
data become available that support suggested changes.
    After consideration of the public comments that we received, we are 
finalizing our proposal to maintain the current MS-DRG assignment for 
cases reporting procedure code 02UJ3JZ (Supplement tricuspid valve with 
synthetic substitute, percutaneous approach) to MS-DRGs 216 through 221 
for FY 2018.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue)
a. Total Ankle Replacement (TAR) Procedures
    For FY 2018, we again received two requests for the reassignment of 
total ankle replacement (TAR) procedures to a different MS-DRG. TAR 
procedures are currently assigned to MS-DRGs 469 and 470 (Major Joint 
Replacement or Reattachment of Lower Extremity with and without MCC, 
respectively). This topic was discussed previously in the FY 2015 IPPS/
LTCH PPS proposed and final rules (79 FR 28013 through 28015 and 79 FR 
49896 through 49899, respectively) and in the FY 2017 IPPS/LTCH PPS 
proposed and final rules (81 FR 24989 through 24990 and 81 FR 56814 
through 56816, respectively). For FY 2015 and FY 2017, we did not 
change the MS-DRG assignment for TAR procedures. The requestors 
indicated that TAR procedures are currently assigned to MS-DRGs 469 and 
470, to which total hip replacement and total knee replacement 
procedures also are assigned. The requestors stated that there are 
significant clinical and cost differences among these procedures, which 
results in underpayment for TAR procedures. The requestors asked CMS to 
examine claims data for the following six ICD-10-PCS codes within MS-
DRGs 469 and 470:
     0SRF0J9 (Replacement of right ankle joint with synthetic 
substitute, cemented, open approach);
     0SRF0JA (Replacement of right ankle joint with synthetic 
substitute, uncemented, open approach);
     0SRF0JZ (Replacement of right ankle joint with synthetic 
substitute, open approach);
     0SRG0J9 (Replacement of left ankle joint with synthetic 
substitute, cemented, open approach);
     0SRG0JA (Replacement of left ankle joint with synthetic 
substitute, uncemented, open approach); and
     0SRG0JZ (Replacement of left ankle joint with synthetic 
substitute, open approach).
    The requestors recommended that, if the claims data show a 
disparity in costs between TAR procedures and total hip and knee 
replacement procedures, the TAR procedures be reassigned to a more 
appropriate MS-DRG.

[[Page 38029]]

    The requestors also stated that total ankle replacement is a 
complicated surgery that involves the replacement of the damaged parts 
of the three bones that comprise the ankle joint, as compared to the 
two bones in hip and knee replacement procedures. Furthermore, as the 
smallest weight-bearing large joint in the body, the requestors stated 
that TAR procedures demand a complexity of implant device design, 
engineering, and manufacture to exacting functional specifications that 
is vastly different from that of total hip and knee replacement 
devices. One of the requestors stated that the ankle region typically 
has poorer circulation and thinner soft tissue coverage than the hip 
and knee, leading to a higher risk of wound complications and infection 
that may be more challenging and expensive to treat. In addition, this 
requestor stated that the unique anatomical characteristics and 
function of the ankle joint require a specialized surgical skill set, 
operative technique, and level of operating room resource utilization 
that is vastly dissimilar from that of total hip and knee replacement 
procedures.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19829 through 19830), we examined claims data from the December 2016 
update of the FY 2016 MedPAR file on reported cases of TAR procedures 
in MS-DRGs 469 and 470. Our findings are shown in the table below.

                                       Total Ankle Replacements Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay   Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases...........................................          25,778             6.7         $22,139
MS-DRG 469--Cases reporting TAR procedure codes.................              31             4.6          23,828
MS-DRG 470--All cases...........................................         461,553             2.7          14,751
MS-DRG 470--Cases reporting TAR procedure codes.................           2,114             1.9          20,862
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, for MS-DRG 469, there were a total of 
25,778 cases, with an average length of stay of 6.7 days and average 
costs of $22,139. Of the 25,778 cases in MS-DRG 469, there were 31 
cases reporting a TAR procedure, with an average length of stay of 4.6 
days and average costs of $23,828. For MS-DRG 470, there were a total 
of 461,553 cases, with an average length of stay of 2.7 days and 
average costs of $14,751. Of the 461,553 cases in MS-DRG 470, there 
were 2,114 cases reporting a TAR procedure, with an average length of 
stay of 1.9 days and average costs of $20,862. As mentioned earlier, 
there were only 31 TAR procedure cases in MS-DRG 469, and these cases 
had average costs of $1,689 higher than the average costs of all cases 
within MS-DRG 469. 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. We also note that 
the average length of stay for the TAR procedure cases was 4.6 days, as 
compared to 6.7 days for all cases within MS-DRG 469. The 2,114 TAR 
procedure cases in MS-DRG 470 had average costs that were $6,111 higher 
than the average costs of all cases in MS-DRG 470 ($20,862 compared to 
$14,751 for all cases). We stated in the proposed rule that the data 
support reassigning all of the TAR procedures to MS-DRG 469, even when 
there is no MCC reported. While the average costs of the TAR procedures 
in MS-DRG 470 are lower than the average costs for all cases in MS-DRG 
469 ($20,862 compared to $22,139), the average costs are much closer to 
the average costs of TAR procedure cases in MS-DRG 470.
    We stated in the proposed rule that our clinical advisors reviewed 
this clinical issue and the claims data, and agreed that it is 
clinically appropriate to reassign all of the TAR procedure cases from 
MS-DRG 470 to MS-DRG 469, even when there is no MCC reported. The 
claims data support the fact that these cases require more resources 
than other cases assigned to MS-DRG 470. Therefore, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19829 through 19830), we proposed to 
reassign the following TAR procedure codes from MS-DRG 470 to MS-DRG 
469, even if there is no MCC reported: 0SRF0J9; 0SRF0JA; 0SRF0JZ; 
0SRG0J9; 0SRG0JA; and 0SRG0JZ for FY 2018.
    We proposed to change the titles of MS-DRGs 469 and 470 to the 
following to reflect these proposed MS-DRG reassignments:
     Proposed retitle of MS-DRG 469: ``Major Hip and Knee Joint 
Replacement or Reattachment of Lower Extremity with MCC or Total Ankle 
Replacement''; and
     Proposed retitle of MS-DRG 470: ``Major Hip and Knee Joint 
Replacement or Reattachment of Lower Extremity without MCC.''
    We invited public comments on our proposals.
    Comment: Several commenters supported CMS' recommendation to 
reassign the following TAR procedure codes from MS DRG 470 to MS DRG 
469, even if there is no MCC reported: 0SRF0J9; 0SRF0JA; 0SRF0JZ; 
0SRG0J9; 0SRG0JA; and 0SRG0JZ for FY 2018. The commenters also 
supported the change in MS-DRG titles for MS-DRG 469 and 470 to reflect 
this MS-DRG update. One commenter stated that claims data supported 
this recommendation because, as CMS pointed out, the average costs of 
TAR cases in MS-DRG 470 are much closer to the average costs of all 
cases in MS-DRG 469 ($20,862 versus $22,139). The commenter also agreed 
with the CMS clinical advisors that it was clinically appropriate to 
reassign all TAR procedure cases from MS-DRG 470 to MS-DRG 469, even 
when there is no MCC reported. The commenter stated that the update 
will remedy a historical cost-to-payment disparity, and thus enable 
hospitals to continue offering Primary TAR surgery to Medicare 
beneficiaries as an economically sustainable, and clinically viable, 
alternative to ankle fusion when medically appropriate. The commenter 
commended CMS for its consideration of how to address this MS-DRG 
issue.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
reassigning the following TAR procedure codes from MS DRG 470 to MS DRG 
469, even if there is no MCC reported: 0SRF0J9; 0SRF0JA; 0SRF0JZ; 
0SRG0J9; 0SRG0JA; and 0SRG0JZ for FY 2018. We are changing the titles 
of MS-DRGs 469 and 470 to the following to reflect these MS-DRG 
reassignments:
     MS-DRG 469: ``Major Hip and Knee Joint Replacement or 
Reattachment of Lower Extremity with MCC or Total Ankle Replacement''; 
and
     MS-DRG 470: ``Major Hip and Knee Joint Replacement or 
Reattachment of Lower Extremity without MCC.''

[[Page 38030]]

b. Revision of Total Ankle Replacement (TAR) Procedures
    We received two requests to modify the MS-DRG assignment for 
revision of total ankle replacement (TAR) procedures, which the 
requestors indicated 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 and final rules (79 FR 28013 through 
28015 and 79 FR 49896 through 49899, respectively) and in the FY 2017 
IPPS/LTCH PPS proposed and final rules (81 FR 24992 through 24993 and 
81 FR 56819 through 56820, respectively). For FY 2015 and FY 2017, we 
did not change the MS-DRG assignment for revision of TAR procedures.
    The requestors asked that CMS examine the following eight ICD-10-
PCS codes which they indicated identify revision of TAR procedures and 
which are assigned to MS-DRGs 515, 516, and 517. As we discuss later in 
this section in response to public comments, while the requestors 
requested that we analyze these eight procedure codes for revisions of 
TAR procedures in the proposed rule, these procedures are in fact 
represented by a combination of other codes that capture the root 
operation removal and replacement of joint devices.
     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);
     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); and
     0SWGXJZ (Revision of synthetic substitute in left ankle 
joint, external approach).
    One requestor stated that these ICD-10-PCS codes more specifically 
identify the revision of TAR procedures than the prior ICD-9-CM codes. 
Specifically, ICD-9-CM code 81.59 (Revision of joint replacement of 
lower extremity, not elsewhere classified) was an unspecified code, 
which included toe and foot joint revision procedures in addition to 
revision of TAR procedures. The requestor stated that claims data 
reporting these ICD-10-PCS codes would allow CMS to better identify 
revisions of TAR procedures, and determine if the procedures are 
assigned to the appropriate MS-DRGs.
    One requestor suggested the following three options for MS-DRG 
assignments:
     Assign the ICD-10-PCS ankle revision procedure codes 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);
     Assign the ICD-10-PCS ankle revision procedure codes to 
MS-DRG 469 (Major Joint Replacement or Reattachment of Lower Extremity 
with MCC) to more appropriately recognize higher hospital procedure 
costs associated with revision of TAR procedures; or
     Establish a new MS-DRG for the assignment of revision of 
TAR procedures.
    The other requestor asked that CMS consider reassigning revision of 
TAR procedures to MS-DRGs that better address the cost-to-payment 
differential, such as MS-DRGs 466, 467, and 468.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19830 through 19831), we examined claims data from the December 2016 
update of the FY 2016 MedPAR file on cases reporting the eight revision 
codes listed above as well as cases assigned to MS-DRGs 466, 467, 468, 
and MS-DRG 469. Our findings are shown in the tables below.

                                   Revisions of Joint Replacements Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay  Average  costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 515--All cases...........................................           5,038             8.0         $20,562
MS-DRG 515--Cases reporting revision of total ankle replacement                0               0               0
 procedure codes................................................
MS-DRG 516--All cases...........................................          13,276             4.8          13,524
MS-DRG 516--Cases reporting revision of total ankle replacement                2             2.5          11,400
 procedure codes................................................
MS-DRG 517--All cases...........................................          13,330             2.8          10,003
MS-DRG 517--Cases reporting revision of total ankle replacement                4             1.5           7,423
 procedure codes................................................
----------------------------------------------------------------------------------------------------------------


                                     Cases in MS-DRGs 466, 467, 468, and 469
----------------------------------------------------------------------------------------------------------------
                                                                     Number of        Average
                             MS-DRG                                    cases      length of stay   Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 466--All cases...........................................           3,886             8.4         $33,720
MS-DRG 467--All cases...........................................          19,145             4.2          24,609
MS-DRG 468--All cases...........................................          16,529             2.7          20,208
MS-DRG 469--All cases...........................................          25,778             6.7          22,139
----------------------------------------------------------------------------------------------------------------

    As shown in the tables above, there were only 6 cases identified 
with the eight revision codes suggested by the requestor with no cases 
in MS-DRG 515, two cases in MS-DRG 516, and four cases in MS-DRG 517. 
We stated in the proposed rule that the limited number of six cases 
does not justify the creation of a new MS-DRG for the assignment of 
revision of TAR procedures. Our data analysis demonstrates that the 
average length of stay for these revision procedures was lower than 
that for all cases in MS-DRG 516 (2.5 days compared to 4.8 days), and 
the average costs were lower ($11,400 compared to $13,524). The average 
length of stay for these revision

[[Page 38031]]

procedures also was lower than that for all cases in MS-DRG 517 (1.5 
days compared to 2.8 days), and the average costs were lower ($7,423 
compared to $10,003). We stated that the data do not support 
reassigning the cases from MS-DRGs 515, 516, and 517.
    Furthermore, we stated that the average length of stay and average 
costs of cases in MS-DRGs 466, 467, 468, and 469 are significantly 
higher than those for these revision procedures in MS-DRG 516 and 517. 
We stated that the average length of stay for all cases in MS-DRGs 466, 
467, 468, and 469 is 8.4, 4.2, 2.7, and 6.7 days, respectively, 
compared to the average length of stay of 2.5 and 1.5 days for cases 
representing these revision procedures in MS-DRGs 516 and 517, 
respectively. The average costs for all cases in MS-DRGs 466, 467, 468, 
and 469 are $33,720, $24,609, $20,208, and $22,139, respectively, 
compared to the average costs of $11,400 and $7,423 for cases 
representing these revision procedures in MS-DRGs 516 and 517, 
respectively. Therefore, we stated that in the proposed rule that the 
data do not support reassigning the cases to MS-DRGs 466, 467, 468, or 
469.
    We stated in the proposed rule that our clinical advisors reviewed 
the clinical issue and the claims data and agreed that the eight 
revision codes are appropriately assigned to MS-DRGs 515, 516, and 517, 
along with other procedures that describe revisions of joint 
replacements of the lower extremities, including the foot and toe. Our 
clinical advisors did not support reassigning these cases to MS-DRGs 
466, 467, 468, or 469, or creating a new MS-DRG. Therefore, based on 
the findings of our analysis of claims data and the advice of our 
clinical advisors, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19830 through 19831), we proposed to maintain the current MS-DRG 
assignment for these revision procedures within MS-DRGs 515, 516, and 
517 for FY 2018.
    Comment: Commenters supported CMS' proposal to maintain the current 
MS-DRG assignments for procedures within MS-DRGs 515, 516, and 517 for 
FY 2018.
    Several commenters questioned the reliability of the revision of 
TAR data presented in the proposed rule. The commenters questioned the 
codes used in the analysis and stated that revision of TAR procedures 
are not captured with the Revision of synthetic substitute codes 
identified in the proposed rule. The commenters stated that the 
procedures are captured by reporting a combination of codes that 
capture the removal of a prior device and the replacement of the device 
with a new device. The commenters stated that the correct root 
operations for these codes would be Removal and Replacement instead of 
Revision as stated in the proposed rule. The commenters provided the 
following codes which reported in combination would identify revision 
of TAR procedures. The commenters stated that revisions of TAR 
procedures are performed with an open approach.

    Removals
     0SPG0JZ (Removal of Synthetic Substitute from Left Ankle 
Joint, Open Approach); and
     0SPF0JZ (Removal of Synthetic Substitute from Right Ankle 
Joint, Open Approach)
    Replacements
     0SRF0J9 (Replacement of right ankle joint with synthetic 
substitute, cemented, open approach);
     0SRF0JA (Replacement of right ankle joint with synthetic 
substitute, uncemented, open approach);
     0SRF0JZ (Replacement of right ankle joint with synthetic 
substitute, open approach);
     0SRG0J9 (Replacement of left ankle joint with synthetic 
substitute, cemented, open approach);
     0SRG0JA (Replacement of left ankle joint with synthetic 
substitute, uncemented, open approach); and
     0SRG0JZ (Replacement of left ankle joint with synthetic 
substitute, open approach).

    The commenters requested that CMS encourage the correct coding of 
revision of TAR cases through additional educational materials. The 
commenters requested that CMS review hospital claims data for revision 
of TAR procedures using the list of Removal and Replacement code 
combinations provided to identify revision of TAR cases. The commenter 
stated that an increasing number of claims for revision of TAR 
procedures will become identifiable in the future as patients and 
implants naturally age into a need for revision surgery.
    Response: We appreciate the commenters' support for our proposal to 
maintain the current MS-DRG assignment for procedures within MS-DRGs 
515, 516, and 517 for FY 2018.
    We conducted an analysis of the correct coding of revision of TARs 
and agree with the commenters that these cases are not captured with 
ICD-10-PCS codes with the root operation Revision as stated in the 
proposed rule. The commenters are correct that the revision of TAR 
cases are correctly coded using a combination of codes with the root 
operation Removal and Replacement as the commenters suggested. Updates 
were made to the ICD-10-PCS index on October 1, 2015 to reinforce this 
direction. The index entry is shown below:
    Revision
    Correcting a portion of existing device
    see Revision of device in Removal of device without replacement
    see Removal of device from Replacement of existing device
    see Removal of device from
    see Root operation to place new device, e.g., Insertion, 
Replacement, Supplement
    We agree that this index entry clearly indicates that the correct 
root operations for revision of TARs would be Removal and Replacement. 
The codes with the root operation Revision (included in the Revision of 
synthetic substitute codes used in our original analysis) would not be 
used to capture revision of TAR procedures. Cases reporting the 
combination codes are assigned to MS-DRGs 469 and 470 (Major Joint 
Replacement or Reattachment of Lower Extremity with and without MCC, 
respectively).
    As requested by the commenters, we identified revision of TAR cases 
using the correct ICD-10-PCS codes that are captured with the root 
operation of Removal and Replacement. We examined our claims data for 
cases within MDC 8 that reported one of the Removal codes with one of 
the Replacement codes for ankle joint devices. These codes accurately 
capture revision of TAR cases. The following table shows our findings.

                     Revision of Total Ankle Replacement Procedures Using Code Combinations
----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                 Number  of      length  of    Average  costs
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
MS-DRG 469--All cases...........................................          25,778             6.7         $22,139
MS-DRG 469--Cases reporting revision of TAR code combinations...               0  ..............  ..............

[[Page 38032]]

 
MS-DRG 470--All cases...........................................         461,553             2.7          14,751
MS-DRG 470--Cases reporting revision of TAR code combinations...              59             1.7          19,594
----------------------------------------------------------------------------------------------------------------

    Using the updated correct ICD-10-PCS codes, we found that there 
were 59 revision of TAR procedures in MS-DRG 470 with average costs of 
$19,594 and average length of stay of 1.7 days compared to average 
costs of $14,751 and average length of stay of 2.7 days for all cases 
in MS-DRG 470. There were no revision of TAR procedures in MS-DRG 469. 
As discussed in section II.5.a. of the preamble of this final rule on 
Total Ankle Replacements, we are finalizing updates to reassign all of 
the TAR procedure codes to MS-DRG 469, even if there is no MCC present, 
for FY 2018. This update will also impact revision of TAR cases because 
the same total ankle replacement codes are also used to identify 
revision of TAR procedures. Therefore, the MS-DRG 469 and 470 updates 
result in all revision of TAR procedures being assigned to MS-DRG 469 
even if there is no MCC reported in FY 2018.
    Revisions of TARs were assigned to MS-DRGs 515, 516, and 517 under 
the ICD-9-CM MS-DRGs. However, an error in replication for the ICD-10 
MS-DRGs resulted in the revision of TAR procedure cases being assigned 
to MS-DRGs 469 and 470. This replication error was not noticed until 
the commenters on the FY 2018 IPPS/LTCH PPS proposed rule pointed out 
that accurate coding of revision of TARs would result in cases not 
being assigned to MS-DRGs 515, 516, and 517. Since the implementation 
of ICD-10 MS-DRGs, revision of TAR procedure cases have not been 
assigned to MS-DRGs 515, 516, and 517. Therefore, we do not need to 
modify MS-DRG logic to reassign revision of TAR procedures from MS-DRGs 
515, 516, and 517 because correctly coded cases are not assigned there, 
but instead to MS-DRGs 469 and 470. As noted earlier, under our 
finalized policy for FY 2018, all revision of TAR procedures will be 
assigned to MS-DRG 469, even if there is no MCC reported.
    We agree with the commenters that it is important to encourage the 
accurate and consistent use of ICD-10-PCS to capture procedures such as 
revision of TAR. Therefore, we have asked the American Hospital 
Association to provide additional information on how to capture 
revision of TARs in a future issue of Coding Clinic for ICD-10. We 
encourage any providers that have revision of TAR cases on which they 
need ICD-10 coding assistance to submit this information and their 
questions to the American Hospital Association's Central Office on ICD-
10 at https://www.codingclinicadvisor.com/. We share information 
included in Coding Clinic for ICD-10 with our contractors.
    After consideration of the public comments that we received, we are 
not finalizing any changes to MS-DRGs 515, 516, and 517 for FY 2018 
because, as noted, the revision of TAR procedures are not assigned to 
these MS-DRGs. Under our finalized policy regarding TAR procedures, as 
discussed in section II.5.a. of the preamble of this final rule, all 
TAR procedure cases, as well as revision of TAR procedure cases, will 
be assigned to MS-DRG 469 for FY 2018, even if there is no MCC present.
c. Magnetic Controlled Growth Rods (MAGEC[supreg] System)
    We received a request to add six ICD-10-PCS procedure codes that 
describe the use of magnetically controlled growth rods for the 
treatment of early onset scoliosis (MAGEC[supreg] System) to MS-DRGs 
456, 457, and 458 (Spinal Fusion Except Cervical with Spinal Curvature 
or Malignancy or Infection or Extensive Fusions with MCC, with CC or 
without CC/MCC, respectively). The MAGEC[supreg] System was discussed 
in the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25040 through 25042) 
and final rule (81 FR 56888 through 56891) as a new technology add-on 
payment application. The application was approved for FY 2017 new 
technology add-on payments, effective with discharges occurring on and 
after October 1, 2016. The request for new procedure codes to identify 
the MAGEC[supreg] System technology was discussed at the March 9-10, 
2016 ICD-10 Coordination and Maintenance Committee meeting. Six new 
procedure codes were approved, effective October 1, 2016, and were 
displayed in Table 6B.--New Procedure Codes associated with the FY 2017 
IPPS/LTCH PPS final rule (which is available via the Internet on the 
CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page.html). These 
six procedure codes are currently assigned to MS-DRGs 518, 519, and 520 
(Back and Neck Procedure Except Spinal Fusion with MCC or Disc Device/
Neurostimulator, with CC, or without CC/MCC, respectively) and are 
shown in the table below.

------------------------------------------------------------------------
     ICD-10-PCS  code                     Code description
------------------------------------------------------------------------
XNS0032...................  Reposition of lumbar vertebra using
                             magnetically controlled growth rod(s), open
                             approach, new technology group 2.
XNS0432...................  Reposition of lumbar vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous endoscopic approach, new
                             technology group 2.
XNS3032...................  Reposition of cervical vertebra using
                             magnetically controlled growth rod(s), open
                             approach, new technology group 2.
XNS3432...................  Reposition of cervical vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous endoscopic approach, new
                             technology group 2.
XNS4032...................  Reposition of thoracic vertebra using
                             magnetically controlled growth rod(s), open
                             approach, new technology group 2.
XNS4432...................  Reposition of thoracic vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous endoscopic approach, new
                             technology group 2.
------------------------------------------------------------------------


[[Page 38033]]

    According to the requestor, adding these six procedure codes will 
allow these cases to group to MS-DRGs that more accurately reflect the 
diagnosis of early onset scoliosis for which the MAGEC[supreg] System 
is indicated. In addition, the requestor stated that because this 
technology is utilized on a small subset of patients with approximately 
2,500 cases per year, adding these procedure codes to MS-DRGs 456, 457, 
and 458 would have little impact.
    We stated in the proposed rule that because these six procedure 
codes shown in the table above were effective as of October 1, 2016, 
there are no MedPAR claims data available to analyze. More importantly, 
we noted that cases are assigned to MS-DRGs 456, 457, and 458 when an 
actual spinal fusion procedure is performed. We stated that our 
clinical advisors agree that use of the MAGEC[supreg] System's 
magnetically controlled growth rods technology alone does not 
constitute a spinal fusion. Therefore, because there were no claims 
data available at the time of development of the proposed rule and 
based on the advice of our clinical advisors, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19832), we did not propose to add the six 
procedure codes to MS-DRGs 456, 457, or 458. We stated that if a spinal 
fusion procedure is performed along with the procedure to insert the 
MAGEC[supreg] System's magnetically controlled growth rods, it would be 
appropriate to report that a spinal fusion was performed and the case 
would be assigned to one of the spinal fusion MS-DRGs.
    We invited public comments on our proposal to maintain the current 
GROUPER logic for cases assigned to MS-DRGs 456, 457, and 458 and not 
add the six procedure codes describing the use of the MAGEC[supreg] 
System magnetically controlled growth rods. We also invited public 
comments on our proposal to maintain the assignment of the six 
procedure codes in MS-DRGs 518, 519, and 520.
    Comment: Commenters agreed with CMS' proposal to maintain the 
assignment of the six procedure codes in MS-DRGs 518, 519, and 520 and 
to not reassign the six procedure codes describing the use of the 
MAGEC[supreg] System magnetically controlled growth rods to the spinal 
fusion MS-DRGs 456, 457 and 458.
    Response: We appreciate the commenters' support. We also take this 
time to point out that the three ICD-10-PCS procedure codes describing 
reposition of the vertebra using magnetically controlled growth rods 
with a percutaneous endoscopic approach listed below have been deleted 
as displayed in Table 6D.--Invalid Procedure Codes associated with this 
FY 2018 IPPS/LTCH PPS final 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) effective October 1, 2017 
in the ICD-10 MS-DRGs Version 35.

------------------------------------------------------------------------
     ICD-10-PCS  code                     Code description
------------------------------------------------------------------------
XNS0432...................  Reposition of lumbar vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous endoscopic approach, new
                             technology group 2.
XNS3432...................  Reposition of cervical vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous endoscopic approach, new
                             technology group 2.
XNS4432...................  Reposition of thoracic vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous endoscopic approach, new
                             technology group 2.
------------------------------------------------------------------------

    The three ICD-10-PCS procedure codes listed in the table above were 
discussed in a proposal at the March 7-8, 2017 ICD-10 Coordination and 
Maintenance Committee meeting. Decisions for proposals presented at 
that meeting were not finalized at the time of publication of the FY 
2018 IPPS/LTCH PPS proposed rule. Additional information relating to 
the discussion of these codes can be located via the Internet on the 
CMS Web site at: https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html. 
Also included in that discussion was a proposal to add a new approach 
value to the procedures describing Reposition of the vertebra. As 
displayed in Table 6B.--New Procedure Codes associated with this FY 
2018 IPPS/LTCH PPS final 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), the following three ICD-
10-PCS codes have been created effective October 1, 2017 in the ICD-10 
MS-DRGs Version 35 and are assigned to MS-DRGs 518, 519 and 520.

------------------------------------------------------------------------
     ICD-10-PCS  code                     Code description
------------------------------------------------------------------------
XNS0332...................  Reposition of lumbar vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous approach, new technology group
                             2.
XNS3332...................  Reposition of cervical vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous approach, new technology group
                             2.
XNS4332...................  Reposition of thoracic vertebra using
                             magnetically controlled growth rod(s),
                             percutaneous approach, new technology group
                             2.
------------------------------------------------------------------------

    After consideration of the public comments that we received, we are 
finalizing our proposal to maintain the current GROUPER logic for cases 
assigned to MS-DRGs 456, 457, and 458. We also are finalizing our 
proposal to maintain the assignment of the three existing ICD-10-PCS 
procedure codes (describing an open approach) and finalizing assignment 
of the three new ICD-10-PCS codes (describing a percutaneous approach) 
for the use of magnetically controlled growth rods in the treatment of 
early onset scoliosis to MS-DRGs 518, 519, and 520 for FY 2018.
d. Combined Anterior/Posterior Spinal Fusion
    It was brought to our attention that 7 of the 10 new ICD-10-PCS 
procedure codes describing fusion using a nanotextured surface 
interbody fusion device were not added to the appropriate GROUPER logic 
list for MS-

[[Page 38034]]

DRGs 453, 454, and 455 (Combined Anterior/Posterior Spinal Fusion with 
MCC, with CC and without CC/MCC, respectively), effective October 1, 
2016. The logic for MS-DRGs 453, 454, and 455 is comprised of two 
lists: An anterior spinal fusion list and a posterior spinal fusion 
list. Assignment to one of the combined spinal fusion MS-DRGs requires 
that a code from each list be reported.
    The seven new ICD-10-PCS procedure codes currently included in the 
posterior spinal fusion list for MS-DRGs 453, 454, and 455 are shown in 
the table below.

------------------------------------------------------------------------
     ICD-10-PCS  code                     Code description
------------------------------------------------------------------------
XRG6092...................  Fusion of thoracic vertebral joint using
                             nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRG7092...................  Fusion of 2 to 7 thoracic vertebral joints
                             using nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRG8092...................  Fusion of 8 or more thoracic vertebral
                             joints using nanotextured surface interbody
                             fusion device, open approach, new
                             technology group 2.
XRGA092...................  Fusion of thoracolumbar vertebral joint
                             using nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRGB092...................  Fusion of lumbar vertebral joint using
                             nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRGC092...................  Fusion of 2 or more lumbar vertebral joints
                             using nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
XRGD092...................  Fusion of lumbosacral joint using
                             nanotextured surface interbody fusion
                             device, open approach, new technology group
                             2.
------------------------------------------------------------------------

    We note that the remaining three new procedure codes are accurately 
reflected in the anterior spinal fusion list; that is, ICD-10-PCS code 
XRG1092 (Fusion of cervical vertebral joint using nanotextured surface 
interbody fusion device, open approach, new technology group 2); ICD-
10-PCS code XRG2092 (Fusion of 2 or more cervical vertebral joints 
using nanotextured surface interbody fusion device, open approach, new 
technology group 2); and ICD-10-PCS code XRG4092 (Fusion of 
cervicothoracic vertebral joint using nanotextured surface interbody 
fusion device, open approach, new technology group 2).
    The seven procedure codes currently included in the posterior 
spinal fusion list describe an anterior spinal fusion by use of the 
interbody fusion device. In an interbody fusion, the anterior column of 
the spine is being fused. We stated in the proposed rule that the 
results of our review of these procedure codes discussed below and the 
advice of our clinical advisors support moving the seven procedure 
codes from the posterior spinal fusion list to the anterior spinal 
fusion list in the GROUPER logic for MS-DRGs 453, 454, and 455. We 
stated that this will improve clinical accuracy and allow appropriate 
assignment to these MS-DRGs when both an anterior and posterior spinal 
fusion is performed.
    During our review of the spinal fusion codes using a nanotextured 
surface interbody fusion device in MS-DRGs 453, 454, and 455, we 
identified 149 additional procedure codes that should be moved from the 
posterior spinal fusion list to the anterior spinal fusion list. These 
codes describe spinal fusion of the anterior column with a posterior 
approach. As mentioned earlier, the logic for MS-DRGs 453, 454, and 455 
is dependent upon a code from the anterior spinal fusion list and a 
code from the posterior spinal fusion list. Spinal fusion codes 
involving the anterior column should be included on the anterior spinal 
fusion list only. In the FY 2018 IPPS/LTCH PPS proposed rule, we 
proposed to move the 149 ICD-10-PCS procedure codes listed in Table 
6P.3a. associated with the 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) from the 
posterior spinal fusion list to the anterior spinal fusion list in MS-
DRGs 453, 454, and 455.
    In addition, we also identified 33 ICD-10-PCS procedure codes in 
the posterior spinal fusion list in MS-DRGs 453, 454, and 455 that 
describe an interbody fusion device in the posterior column and, 
therefore, are not considered clinically valid spinal fusion 
procedures. These procedure codes are shown in the table below.

------------------------------------------------------------------------
     ICD-10-PCS  code                     Code description
------------------------------------------------------------------------
0RG00A1...................  Fusion of occipital-cervical joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG03A1...................  Fusion of occipital-cervical joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RG04A1...................  Fusion of occipital-cervical joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG10A1...................  Fusion of cervical vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG13A1...................  Fusion of cervical vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RG14A1...................  Fusion of cervical vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG20A1...................  Fusion of 2 or more cervical vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column, open
                             approach.
0RG23A1...................  Fusion of 2 or more cervical vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column,
                             percutaneous approach.
0RG24A1...................  Fusion of 2 or more cervical vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column,
                             percutaneous endoscopic approach.
0RG40A1...................  Fusion of cervicothoracic vertebral joint
                             with interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG43A1...................  Fusion of cervicothoracic vertebral joint
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.

[[Page 38035]]

 
0RG44A1...................  Fusion of cervicothoracic vertebral joint
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG60A1...................  Fusion of thoracic vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG63A1...................  Fusion of thoracic vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RG64A1...................  Fusion of thoracic vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG70A1...................  Fusion of 2 to 7 thoracic vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, open approach.
0RG73A1...................  Fusion of 2 to 7 thoracic vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RG74A1...................  Fusion of 2 to 7 thoracic vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0RG80A1...................  Fusion of 8 or more thoracic vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column, open
                             approach.
0RG83A1...................  Fusion of 8 or more thoracic vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column,
                             percutaneous approach.
0RG84A1...................  Fusion of 8 or more thoracic vertebral
                             joints with interbody fusion device,
                             posterior approach, posterior column,
                             percutaneous endoscopic approach.
0RGA0A1...................  Fusion of thoracolumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0RGA3A1...................  Fusion of thoracolumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0RGA4A1...................  Fusion of thoracolumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0SG00A1...................  Fusion of lumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, open approach.
0SG03A1...................  Fusion of lumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0SG04A1...................  Fusion of lumbar vertebral joint with
                             interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0SG10A1...................  Fusion of 2 or more lumbar vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, open approach.
0SG13A1...................  Fusion of 2 or more lumbar vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             approach.
0SG14A1...................  Fusion of 2 or more lumbar vertebral joints
                             with interbody fusion device, posterior
                             approach, posterior column, percutaneous
                             endoscopic approach.
0SG30A1...................  Fusion of lumbosacral joint with interbody
                             fusion device, posterior approach,
                             posterior column, open approach.
0SG33A1...................  Fusion of lumbosacral joint with interbody
                             fusion device, posterior approach,
                             posterior column, percutaneous approach.
0SG34A1...................  Fusion of lumbosacral joint with interbody
                             fusion device, posterior approach,
                             posterior column, percutaneous endoscopic
                             approach.
------------------------------------------------------------------------

    In the proposed rule, we proposed to delete these 33 procedure 
codes from MS-DRGs 453, 454, and 455 for FY 2018. We also noted that 
some of the above listed codes also may be included in the logic for 
MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with Spinal 
Curvature or Malignancy or Infection or Extensive Fusions with MCC, 
with CC or without CC/MCC, respectively), MS-DRGs 459 and 460 (Spinal 
Fusion Except Cervical with MCC and without MCC, respectively), and MS-
DRGs 471, 472, and 473 (Cervical Spinal Fusion with MCC, with CC and 
without CC/MCC, respectively). Therefore, we proposed to delete the 33 
procedure codes from the logic for those spinal fusion MS-DRGs as well. 
In addition, we proposed to delete the 33 procedure codes from the ICD-
10-PCS classification as shown in Table 6D.--Invalid Procedure Codes 
associated with the 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).
    In summary, we invited public comments on our proposal to move the 
seven procedure codes describing spinal fusion using a nanotextured 
surface interbody fusion device from the posterior spinal fusion list 
to the anterior spinal fusion list in the GROUPER logic for MS-DRGs 
453, 454, and 455. We also invited public comments on our proposal to 
move the 149 procedure codes describing spinal fusion of the anterior 
column with a posterior approach from the posterior spinal fusion list 
to the anterior spinal fusion list in the GROUPER logic for MS-DRGs 
453, 454, and 455. In addition, we invited public comments on our 
proposal to delete the 33 procedure codes describing spinal fusion of 
the posterior column with an interbody fusion device from MS-DRGs 453, 
454, 455, 456, 457, 458, 459, 460, 471, 472, and 473, as well as from 
the ICD-10-PCS classification.
    Comment: Many commenters supported CMS' proposals related to the 
combined anterior/posterior spinal fusion MS-DRGs, including (1) 
support to move the seven procedure codes describing spinal fusion 
using a nanotextured surface interbody fusion device from the posterior 
spinal fusion list to the anterior spinal fusion list in the GROUPER 
logic for MS-DRGs 453, 454, and 455; (2) support to move the 149 
procedure codes describing spinal fusion of the anterior column with a 
posterior approach from the posterior spinal fusion list to the 
anterior spinal fusion list in the GROUPER logic for MS-DRGs 453, 454, 
and 455; and (3) to delete the 33 procedure codes describing spinal 
fusion of the posterior column with an interbody fusion device from MS-
DRGs 453, 454, 455, 456, 457, 458, 459, 460, 471, 472, and 473, as well 
as from the ICD-10-PCS classification.
    Response: We appreciate the commenters' support.
    Comment: One commenter expressed concern with the proposal to move 
the 149 ICD-10-PCS procedure codes describing spinal fusion of the 
anterior column with a posterior approach that are currently on the 
posterior spinal fusion list to the anterior spinal fusion list and 
indicated that the proposed decrease in payment weights for this set of 
MS-DRGs would affect providers' ability to continue treating patients 
necessitating these procedures. The commenter noted that results from 
an

[[Page 38036]]

independent analysis it had conducted demonstrated that reassignment of 
these procedure codes and the resulting combinations for anterior/
posterior spinal fusion are less costly in comparison to other 
procedure combinations assigned to MS-DRGs 453, 454 and 455. This 
commenter acknowledged that ICD-10 coded claims data enable CMS to make 
important clinical refinements to the ICD-10 MS-DRGs. However, the 
commenter stated, the resource homogeneity of the MS-DRGs may be 
adversely affected. The commenter also stated that it understood that 
the greater specificity of ICD-10 codes will naturally lead to changes 
in the MS-DRG weights and assignments and that these changes should 
generally lead to improved payment accuracy within the IPPS. However, 
the commenter pointed out that not all weight fluctuations occurring 
during the early stages of the ICD-10 transition necessarily reflect 
improvements in coding and payment. The commenter stated that providers 
should not be subject to such disruptive fluctuations in their payments 
in a single year. The commenter recommended applying a cap to the 
decline in the MS-DRG payment weights relative to the FY 2017 payment 
weights until the fluctuations in the number of cases and the case 
weights can be determined and Medicare's utilization reflects hospital 
adaptation to ICD-10 coding. The commenter stated that applying a cap 
would allow CMS to move forward with the proposal to move the 149 ICD-
10-PCS spinal fusion procedure codes from the posterior spinal fusion 
list to the anterior spinal fusion list.
    Response: We acknowledge the commenter's concerns and appreciate 
the analysis that was conducted. In response to the recommendation that 
we implement a cap to the decline in the MS-DRG payment weights 
relative to the FY 2017 payment weights, we refer readers to section 
II.G. of the preamble of this FY 2018 IPPS/LTCH PPS final rule for 
further discussion regarding recalibration of the FY 2018 MS-DRG 
relative weights, including our response to comments requesting a 
transition period for substantial reductions in relative weights in 
order to facilitate payment stability.
    We also believe it is important to be able to fully evaluate the 
MS-DRGs for which all spinal fusion procedures are currently assigned 
under ICD-10 with additional claims data. Therefore, in response to the 
public comments received, we are planning to review the ICD-10 logic 
for the MS-DRGs where procedures involving spinal fusion are currently 
assigned for FY 2019.
    After consideration of the public comments we received, we are 
finalizing our proposal to: (1) Move the seven procedure codes 
describing spinal fusion using a nanotextured surface interbody fusion 
device from the posterior spinal fusion list to the anterior spinal 
fusion list in the GROUPER logic for MS-DRGs 453, 454, and 455; (2) 
move the 149 procedure codes describing spinal fusion of the anterior 
column with a posterior approach from the posterior spinal fusion list 
to the anterior spinal fusion list in the GROUPER logic for MS-DRGs 
453, 454, and 455; and (3) delete the 33 procedure codes describing 
spinal fusion of the posterior column with an interbody fusion device 
from MS-DRGs 453, 454, 455, 456, 457, 458, 459, 460, 471, 472, and 473, 
as well as from the ICD-10-PCS classification for FY 2018.
6. MDC 14 (Pregnancy, Childbirth and the Puerperium)
a. Vaginal Delivery and Complicating Diagnoses
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56854), we noted 
that the code list as displayed in the ICD-10 MS-DRG Version 33 
Definitions Manual for MS-DRG 774 (Vaginal Delivery with Complicating 
Diagnoses) required further analysis to clarify what constitutes a 
vaginal delivery to satisfy the ICD-10 MS-DRG logic. We stated our 
plans to conduct further analysis of the diagnosis code lists in MS-DRG 
774 for FY 2018. We stated in the proposed rule that we believe that 
the Version 34 Definitions Manual and GROUPER logic for MS-DRG 774 
continues to require additional analysis to determine how best to 
classify a vaginal delivery. For example, under MS-DRG 774, the 
Definitions Manual currently states that three conditions must be met, 
the first of which is a vaginal delivery. To satisfy this first 
condition, codes that describe conditions or circumstances from among 
three lists of codes must be reported. The first list is comprised of 
ICD-10-CM diagnosis codes that may be reported as a principal diagnosis 
or a secondary diagnosis. These diagnosis codes describe conditions in 
which it is assumed that a vaginal delivery has occurred. The second 
list of codes is a list of ICD-10-PCS procedure codes that also 
describe circumstances in which it is assumed that a vaginal delivery 
occurred. The third list of codes identifies diagnoses describing the 
outcome of the delivery. Therefore, if any code from one of those three 
lists is reported, the first condition (vaginal delivery) is considered 
to be met for assignment to MS-DRG 774.
    As discussed in the proposed rule, our continued concern with the 
first list of ICD-10-CM diagnosis codes as currently displayed in the 
Definitions Manual under the first condition is that not all of the 
conditions necessarily reflect that a vaginal delivery occurred. 
Several of the diagnosis codes listed could also reflect that a 
cesarean delivery occurred. For example, ICD-10-CM diagnosis code 
O10.02 (Pre-existing essential hypertension complicating childbirth) 
does not specify that a vaginal delivery took place; yet it is included 
in the list of conditions that may be reported as a principal diagnosis 
or a secondary diagnosis in the GROUPER logic for a vaginal delivery. 
The reporting of this code also could be appropriate for a delivery 
that occurred by cesarean section.
    As noted earlier, the second list of codes for the first condition 
are comprised of ICD-10-PCS procedure codes. As we stated in the 
proposed rule, while we agree that the current list of procedure codes 
in MS-DRG 774 may appropriately describe that a vaginal delivery 
occurred, we also believe this list could be improved and warrants 
closer review.
    The third list of codes for the first condition in MS-DRG 774 
includes conditions describing the outcome of the delivery that would 
be reported as secondary diagnoses. Similar to concerns with the first 
list of codes, we believe the conditions do not necessarily reflect 
that a vaginal delivery occurred because they also can be reported on 
claims where a cesarean delivery occurred.
    For the second condition in MS-DRG 774 to be met, diagnosis codes 
that are identified as a complicating diagnosis from among two lists 
may be reported. The first list is comprised of ICD-10-CM diagnosis 
codes that may be reported as a principal or secondary diagnosis. The 
second list is comprised of ICD-10-CM diagnosis codes that may be 
reported as a secondary diagnosis. Currently, there is only one code 
listed under the secondary diagnosis list. We have concerns with these 
lists and what is classified as a complicating diagnosis when reviewing 
the code lists for this and other MS-DRGs that use that logic in MDC 
14.
    For the third condition in MS-DRG 774 to be met, a limited set of 
O.R. procedures, including both extensive and nonextensive procedures, 
are listed. We have concerns with this third condition as being needed 
to satisfy the logic for a vaginal delivery MS-DRG.

[[Page 38037]]

    In summary, the MS-DRG logic involving a vaginal delivery under MDC 
14 is technically complex as a result of the requirements that must be 
met to satisfy assignment to the affected MS-DRGs. As discussed in the 
FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19834), upon review and 
discussion, our clinical advisors recommended, and we agreed, that we 
should solicit public comments on further refinement to the following 
four MS-DRGs related to vaginal delivery: MS-DRG 767 (Vaginal Delivery 
with Sterilization and/or D&C); MS-DRG 768 (Vaginal Delivery with O.R. 
Procedure Except Sterilization and/or D&C); MS-DRG 774 (Vaginal 
Delivery with Complicating Diagnosis); and MS-DRG 775 (Vaginal Delivery 
without Complicating Diagnosis).
    In addition, our clinical advisors agreed that we should solicit 
public comments on further refinement to the conditions defined as a 
complicating diagnosis in MS-DRG 774 and MS-DRG 781 (Other Antepartum 
Diagnoses with Medical Complications).
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19834), we solicited public comments on which diagnosis or procedure 
codes, or both, should be considered in the logic to identify a vaginal 
delivery and which diagnosis codes should be considered in the logic to 
identify a complicating diagnosis. As MS-DRGs 767, 768, 774, 775, and 
781 incorporate one or both aspects (vaginal delivery or complicating 
diagnosis), we stated that public comments that we receive from this 
solicitation will be helpful in determining what proposed revisions to 
the current logic should be made. We indicated that we will review 
public comments received in response to this solicitation as we 
continue to evaluate these areas under MDC 14 and, if warranted, we 
would propose refinements for FY 2019. We requested that all comments 
be directed to the CMS MS-DRG Classification Change Request Mailbox 
located at: [email protected] by November 1, 2017.
    Comment: Commenters agreed that the MS-DRG logic for a vaginal 
delivery under MDC 14 is technically complex. One commenter stated its 
intention to provide separate comments related to the solicitation in 
accordance with the November 1, 2017 deadline.
    Response: We thank the commenters for their acknowledgment of the 
complexity with the GROUPER logic for vaginal deliveries under MDC 14 
and for their support and consideration of these issues as we continue 
to consider possible refinement to the logic. We will review the 
comments received in response to the solicitation as we continue to 
evaluate this area and, if warranted, we will propose refinements for 
the FY 2019 rulemaking.
b. MS-DRG 998 (Principal Diagnosis Invalid as Discharge Diagnosis)
    The logic for MS-DRG 998 (Principal Diagnosis Invalid as Discharge 
Diagnosis) currently includes a list of diagnoses that are considered 
inappropriate for reporting as a principal diagnosis on an inpatient 
hospital claim. In other words, these conditions would reasonably be 
expected not to necessitate an inpatient admission. Examples of these 
diagnosis codes include what are referred to as the ``Supervision of 
pregnancy'' codes, as well as pregnancy, maternal care and fetal 
related codes with an ``unspecified trimester''. We refer the reader to 
the ICD-10 Version 34 Definitions Manual which is available via the 
Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending for the 
complete list of diagnosis codes in MS-DRG 998 under MDC 14.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56840 through 
56841), there was discussion regarding the supervision of ``high-risk'' 
pregnancy codes, including elderly primigravida and multigravida 
specifically, with regard to removing them from the Unacceptable 
principal diagnosis edit code list in the Medicare Code Editor (MCE). 
After consultation with the staff at the CDC's NCHS, we learned that 
the FY 2017 ICD-10-CM Official Guidelines for Coding and Reporting were 
updated to explain appropriate coding for this set of codes. As a 
result, the codes describing supervision of high-risk pregnancy (and 
other supervision of pregnancy codes) remained on the Unacceptable 
principal diagnosis edit code list in the MCE. Therefore, the MCE code 
edit is consistent with the logic of MS-DRG 998 (Principal Diagnosis 
Invalid as Discharge Diagnosis) for these supervision of pregnancy 
codes.
    However, as a result of our review and consultation with our 
clinical advisors regarding the ``unspecified trimester'' codes in MS-
DRG 998, as discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19835), we determined that there are more appropriate MS-DRG 
assignments for this set of codes. Although it may seem unlikely that a 
patient would be admitted and ultimately discharged or transferred 
without the caregiver or medical personnel having any further knowledge 
of the exact trimester, it is conceivable that a situation may present 
itself. For example, the pregnant patient may be from out of town or 
unable to communicate effectively. The fact that the specific trimester 
is not known or documented does not preclude the resources required to 
care for the patient with the particular diagnosis.
    Therefore, as shown in Table 6P.3b. associated with the 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), we proposed to remove the 314 ICD-10-CM 
diagnosis codes identified with ``unspecified trimester'' from MS-DRG 
998 and reassign them to the MS-DRGs in which their counterparts (first 
trimester, second trimester, or third trimester) are currently assigned 
as specified in Column C. We stated that this would enable more 
appropriate MS-DRG assignments and payment for these cases. We invited 
public comments on our proposal.
    Comment: Commenters agreed with the proposal to remove the 314 ICD-
10-CM diagnosis codes identified with ``unspecified trimester'' from 
MS-DRG 998 and reassign them to the MS-DRGs in which their counterparts 
(first trimester, second trimester, or third trimester) are currently 
assigned. However, one commenter disagreed with the proposal and noted 
that lack of documentation that specifies the trimester on an inpatient 
record is representative of poor documentation and should not be 
acceptable for valid MS-DRG assignment. This commenter believed that 
the trimester could reasonably be determined or estimated, despite the 
patient's circumstances, such as being from out of town or unable to 
communicate effectively.
    Response: We appreciate the commenters' support. In response to the 
commenter who did not support our proposal, we acknowledge that any 
diagnosis involving the term ``unspecified'' in a code title can appear 
to be the result of poor documentation. However, there are several 
instances across the ICD-10 MS-DRG GROUPER logic where an 
``unspecified'' principal diagnosis leads to a valid MS-DRG assignment 
as a result of the resources and/or complexities involved regarding the 
condition itself. The ``unspecified trimester'' diagnoses involved in 
the proposal included significant clinical conditions such as 
eclampsia, preexisting hypertensive heart disease, and cerebral venous 
thrombosis, to

[[Page 38038]]

name a few. The fact that the trimester is not specified does not 
preclude the significance of these conditions nor the resources 
involved in caring for the patients with these conditions. Therefore, 
while we encourage providers to continue to focus efforts on improving 
their respective facilities medical record documentation practices, we 
also believe that the MS-DRG assignment should appropriately reflect 
the resources involved in evaluating and caring for these patients.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove the 314 ICD-10-CM diagnosis codes 
identified with ``unspecified trimester'' from MS-DRG 998 as shown in 
Table 6P.3b. associated with this final 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 and 
reassign them to the MS-DRGs in which their counterparts (first 
trimester, second trimester, or third trimester) are currently assigned 
as specified in Column C, in the ICD-10 MS-DRGs Version 35, effective 
October 1, 2017.
c. MS-DRG 782 (Other Antepartum Diagnoses Without Medical 
Complications)
    The following three ICD-10-CM diagnosis codes are currently on the 
principal diagnosis list for the MS-DRG 782 (Other Antepartum Diagnoses 
without Medical Complications) logic.

 
------------------------------------------------------------------------
      ICD-10-CM  code                     Code description
------------------------------------------------------------------------
O09.41....................  Supervision of pregnancy with grand
                             multiparity, first trimester.
O09.42....................  Supervision of pregnancy with grand
                             multiparity, second trimester.
O09.43....................  Supervision of pregnancy with grand
                             multiparity, third trimester.
------------------------------------------------------------------------

    It was brought to our attention that these codes also are included 
in the MCE Unacceptable principal diagnosis code edit list. As 
discussed in section II.F.6.b. of the preamble of the FY 2018 IPPS/LTCH 
PPS proposed rule, the supervision of pregnancy codes are accurately 
reflected in the MCE code edit list for Unacceptable principal 
diagnosis. Therefore, we stated that it is not appropriate to include 
the three above listed codes in MS-DRG 782.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19835), we 
proposed to remove the three codes describing supervision of pregnancy 
from MS-DRG 782 and reassign them to MS-DRG 998 (Principal Diagnosis 
Invalid as Discharge Diagnosis) to reflect a more appropriate MS-DRG 
assignment. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to remove the three 
codes (ICD-10-CM diagnosis codes O09.41, O09.42 and O09.43) describing 
supervision of pregnancy and reassign them to a more appropriate MS-DRG 
assignment.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove ICD-10-CM diagnosis codes O09.41, 
O09.42 and O09.43, which describe supervision of pregnancy, from MS-DRG 
782 and reassign them to MS-DRG 998 (Principal Diagnosis Invalid as 
Discharge Diagnosis) in the ICD-10 MS-DRGs Version 35, effective 
October 1, 2017.
d. Shock During or Following Labor and Delivery
    We received a request to review ICD-10-CM diagnosis code O75.1 
(Shock during or following labor and delivery), which is currently 
assigned to MS-DRG 774 (Vaginal Delivery with Complicating Diagnosis), 
MS-DRG 767 (Vaginal Delivery with Sterilization and/or D&C), and MS-DRG 
768 (Vaginal Delivery with O.R. Procedure Except Sterilization and/or 
D&C).
    The requestor provided an example of a patient that delivered at 
Hospital A and was transferred to Hospital B for specialized care 
related to the diagnosis of shock. The claim for Hospital B resulted in 
assignment to a delivery MS-DRG, despite the fact that a delivery did 
not occur during that hospitalization. The requestor noted that, by not 
reporting the diagnosis code for shock, the claim grouped to a 
postpartum MS-DRG and recommended that we evaluate the issue further.
    Our analysis initially involved reviewing the GROUPER logic for MS-
DRGs 774, 767 and 768. As discussed in section II.F.14.a. of the 
preamble of the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19835 
through 19836) and this final rule, the GROUPER logic for 
classification and assignment to MS-DRG 774 requires that three 
conditions must be met, the first of which is a vaginal delivery. 
Similar GROUPER logic applies for assignment to MS-DRGs 767 and 768, 
except that only two conditions must be met, with the first condition 
being a vaginal delivery. For each of these three MS-DRGs, to satisfy 
the first condition, one code that describes a condition or 
circumstance from among the three separate lists of codes must be 
reported. The first list is comprised of ICD-10-CM diagnosis codes that 
may be reported as a principal or secondary diagnosis. These diagnosis 
codes describe conditions in which it is assumed that a vaginal 
delivery has occurred. Among this first list is ICD-10-CM diagnosis 
code O75.1, which is included in the GROUPER logic for MS-DRGs 774, 767 
and 768 (under the first condition-vaginal delivery). We refer readers 
to the ICD-10 MS-DRG Version 34 Definitions Manual located via the 
Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending for 
documentation of the GROUPER logic associated with these MS-DRGs.
    In addition, in MS-DRG 774, to satisfy the second condition, 
diagnosis codes that are identified as a complicating diagnosis from 
among two lists may be reported. The first list is comprised of ICD-10-
CM diagnosis codes that may be reported as a principal or secondary 
diagnosis. The second list is comprised of ICD-10-CM diagnosis codes 
that may be reported as a secondary diagnosis. Currently, there is only 
one code listed under the secondary diagnosis list.
    Next, our analysis involved reviewing the GROUPER logic for 
assignment to post-partum MS-DRG 769 (Postpartum and Post Abortion 
Diagnoses with Major Procedure) and MS-DRG 776 (Postpartum and Post 
Abortion Diagnoses without O.R. Procedure). The GROUPER logic for these 
postpartum

[[Page 38039]]

MS-DRGs requires that a principal diagnosis be reported from a list of 
several conditions, such as those following pregnancy, those 
complicating the puerperium, conditions that occurred during or 
following delivery and conditions associated with lactation disorders. 
For assignment to MS-DRG 769, the GROUPER logic also requires that a 
major procedure be reported in addition to a principal diagnosis from 
the list of conditions.
    We stated in the proposed rule that as a result of our analysis, we 
agree with the requestor that ICD-10-CM diagnosis code O75.1 should be 
added to the GROUPER logic for assignment to the postpartum MS-DRGs. 
This diagnosis code is consistent with other diagnosis codes structured 
within the GROUPER logic for assignment to MS-DRGs 769 and 776, and 
clearly represents a post-partum diagnosis with the terminology 
``during or following labor and delivery'' in the title. We stated that 
we believe that adding this diagnosis code to the postpartum MS-DRGs 
will enable more appropriate MS-DRG assignment for cases where a 
delivery did not occur.
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19835 
through 19836), we proposed the following:
     Removing ICD-10-CM diagnosis code O75.1 from the list of 
principal or secondary diagnosis under the first condition-vaginal 
delivery GROUPER logic in MS-DRGs 774, 767, and 768;
     Moving ICD-10-CM diagnosis code O75.1 from the list of 
principal or secondary diagnosis under the second condition-
complicating diagnosis for MS-DRG 774 to the secondary diagnosis list 
only; and
     Adding ICD-10-CM diagnosis code O75.1 to the principal 
diagnosis list GROUPER logic in MS-DRGs 769 and 776.
    We invited public comments on our proposals.
    Comment: Many commenters supported all of CMS' proposals involving 
diagnosis code O75.1 and MS-DRGs 767, 768, 769, 774, and 776.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing the following in the ICD-10 MS-DRGs Version 35, effective 
October 1, 2017:
     Removing ICD-10-CM diagnosis code O75.1 from the list of 
principal or secondary diagnosis under the first condition-vaginal 
delivery GROUPER logic in MS-DRGs 774, 767, and 768;
     Moving ICD-10-CM diagnosis code O75.1 from the list of 
principal or secondary diagnosis under the second condition-
complicating diagnosis for MS-DRG 774 to the secondary diagnosis list 
only; and
     Adding ICD-10-CM diagnosis code O75.1 to the principal 
diagnosis list GROUPER logic in MS-DRGs 769 and 776.
7. MDC 15 (Newborns and Other Neonates With Conditions Originating in 
Perinatal Period): Observation and Evaluation of Newborn
    We received a request to add the ICD-10-CM diagnosis codes 
describing observation and evaluation of newborns for suspected 
conditions that are ruled out to MS-DRG 795 (Normal Newborn). The 14 
diagnosis codes describing observation and evaluation of newborn for 
suspected conditions ruled out are displayed in the table below.

 
------------------------------------------------------------------------
      ICD-10-CM  code                     Code description
------------------------------------------------------------------------
Z05.0.....................  Observation and evaluation of newborn for
                             suspected cardiac condition ruled out.
Z05.1.....................  Observation and evaluation of newborn for
                             suspected infectious condition ruled out.
Z05.2.....................  Observation and evaluation of newborn for
                             suspected neurological condition ruled out.
Z05.3.....................  Observation and evaluation of newborn for
                             suspected respiratory condition ruled out.
Z05.41....................  Observation and evaluation of newborn for
                             suspected genetic condition ruled out.
Z05.42....................  Observation and evaluation of newborn for
                             suspected metabolic condition ruled out.
Z05.43....................  Observation and evaluation of newborn for
                             suspected immunologic condition ruled out.
Z05.5.....................  Observation and evaluation of newborn for
                             suspected gastrointestinal condition ruled
                             out.
Z05.6.....................  Observation and evaluation of newborn for
                             suspected genitourinary condition ruled
                             out.
Z05.71....................  Observation and evaluation of newborn for
                             suspected skin and subcutaneous tissue
                             condition ruled out.
Z05.72....................  Observation and evaluation of newborn for
                             suspected musculoskeletal condition ruled
                             out.
Z05.73....................  Observation and evaluation of newborn for
                             suspected connective tissue condition ruled
                             out.
Z05.8.....................  Observation and evaluation of newborn for
                             other specified suspected condition ruled
                             out.
Z05.9.....................  Observation and evaluation of newborn for
                             unspecified suspected condition ruled out.
------------------------------------------------------------------------

    The requestor expressed concern that currently when one of these 
ruled out. codes is added to a newborn encounter with a principal 
diagnosis described by ICD-10-CM code Z38.00 (Single liveborn infant, 
delivered vaginally), the case is assigned to MS-DRG 794 (Neonate with 
Other Significant Problems). The requestor stated that this assignment 
appears to be in error and that the assignment should instead be to MS-
DRG 795 (Normal Newborn).
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19836), we reviewed Section I.C.16.b. of the 2017 ICD-10-CM Official 
Guidelines for Coding and Reporting which includes the following 
instructions for the diagnosis codes listed in the table above:
     Assign a code from category Z05 (Observation and 
evaluation of newborns and infants for suspected conditions ruled out.) 
to identify those instances when a healthy newborn is evaluated for a 
suspected condition that is determined after study not to be present. 
Do not use a code from category Z05 when the patient has identified 
signs or symptoms of a suspected problem; in such cases code the sign 
or symptom.
     A code from category Z05 may also be assigned as a 
principal or first-listed code for readmissions or encounters when the 
code from category Z38 code no longer applies. Codes from category Z05 
are for use only for healthy newborns and infants for which no 
condition after study is found to be present.
     A code from category Z05 is to be used as a secondary code 
after the code from category Z38, Liveborn infants according to place 
of birth and type of delivery.
    We stated in the proposed rule that after review of the guidelines 
and discussion with our clinical advisors, we agree with the requestor 
that the assignment of these codes to MS-DRG

[[Page 38040]]

794 is not accurate because the assignment incorrectly labels the 
newborns as having a significant problem when the condition does not 
truly exist. We stated that we and our clinical advisors also agree 
that the above list of diagnosis codes should be added to MS-DRG 795. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19836), we 
proposed to add the 14 diagnosis codes describing observation and 
evaluation of newborns for suspected conditions that are ruled out 
listed in the table above to the GROUPER logic for MS-DRG 795. We 
invited public comments on our proposals.
    Comment: Commenters supported the proposal to add the 14 diagnosis 
codes describing observation and evaluation of newborn for suspected 
conditions ruled out to the MS-DRG logic for normal newborn.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to add the 14 diagnosis codes describing 
observation and evaluation of newborns for suspected conditions that 
are ruled out listed in the table above to the GROUPER logic for MS-DRG 
795 (Normal newborn) in the ICD-10 MS-DRGs Version 35, effective 
October 1, 2017.
8. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): 
Complication Codes
    We received a request to examine the ICD-10-CM diagnosis codes in 
the T85.8-series of codes that describe other specified complications 
of internal prosthetic devices, implants and grafts, not elsewhere 
classified and their respective MS-DRG assignments. According to the 
requestor, the 7th character values in this series of codes impact the 
MS-DRG assignment under MDC 21 (Injuries, Poisonings and Toxic Effects 
of Drugs) and MDC 23 (Factors Influencing Health Status & Other 
Contacts with Health Services) that have resulted in inconsistencies 
(that is, shifts) between the MS-DRG assignments under Version 33 and 
Version 34 of the ICD-10 MS-DRGs.
    Under ICD-10-CM, diagnosis codes in the range of S00 through T88 
require a 7th character value of ``A-'' initial encounter, ``D-
''subsequent encounter, or ``S-''sequela to identify if the patient is 
undergoing active treatment for a condition. For complication codes, 
active treatment refers to treatment for the condition described by the 
code, even though it may be related to an earlier precipitating 
problem.
    The requestor suggested that the following list of diagnosis codes 
with the 7th character ``A'' (initial encounter) may have been 
inadvertently assigned to the GROUPER logic in the list of diagnoses 
(Assignment of Diagnosis Codes) under MDC 23 because when one of these 
diagnosis codes was reported with an O.R. procedure, the requestor 
found claims grouping to MS-DRG 939, 940, or 941 (O.R. Procedures with 
Diagnoses of Other Contact with Health Services with MCC, with CC and 
without CC/MCC, respectively) that had previously grouped to MDC 21 
under Version 33 of the ICD-10 MS-DRGs. The requestor also suggested 
these codes may have been inadvertently assigned to the GROUPER logic 
list of principal diagnoses for MS-DRGs 949 and 950 (Aftercare with CC/
MCC and without CC/MCC, respectively) under MDC 23 because it found 
claims that grouped to these MS-DRGs (949 and 950) when one of the 
following diagnosis codes was reported as a principal diagnosis that 
had previously grouped to MDC 21 under Version 33 of the ICD-10 MS-
DRGs.

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                 Code description
------------------------------------------------------------------------
T85.818A..................  Embolism due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.828A..................  Fibrosis due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.838A..................  Hemorrhage due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.848A..................  Pain due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.858A..................  Stenosis due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.868A..................  Thrombosis due to other internal prosthetic
                             devices, implants and grafts, initial
                             encounter.
T85.898A..................  Other specified complication of other
                             internal prosthetic devices, implants and
                             grafts, initial encounter.
------------------------------------------------------------------------

    The requestor believed that the above list of diagnosis codes with 
the 7th character ``A'' (initial encounter) would be more appropriately 
assigned under MDC 21 to MS-DRGs 919, 920, and 921 (Complications of 
Treatment with MCC, with CC and without CC/MCC, respectively), 
according to its review of the 2017 Official Coding Guidelines for use 
of the 7th character and assignment of other diagnoses of associated 
complications of care. The requestor also noted that these codes were 
new, effective October 1, 2016 (FY 2017), and the predecessor codes 
grouped to MS-DRGs 919, 920, and 921 in MDC 21 under Version 33 of the 
ICD-10 MS-DRGs in FY 2016.
    In addition, the requestor suggested that the following list of 
diagnosis codes with the 7th character ``D'' (subsequent encounter) may 
have been inadvertently assigned to the GROUPER logic list of principal 
diagnoses for MS-DRG 919, 920, or 921 in MDC 21. The requestor noted 
that these codes were new, effective October 1, 2016 (FY 2017), and the 
predecessor codes grouped to MS-DRGs 949 and 950 (Aftercare with CC/MCC 
and without CC/MCC, respectively) in MDC 23 under Version 33 of the 
ICD-10 MS-DRGs in FY 2016.

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                 Code description
------------------------------------------------------------------------
T85.810D..................  Embolism due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.820D..................  Fibrosis due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.830D..................  Hemorrhage due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.840D..................  Pain due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.850D..................  Stenosis due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.860D..................  Thrombosis due to nervous system prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.890D..................  Other specified complication of nervous
                             system prosthetic devices, implants and
                             grafts, subsequent encounter.
------------------------------------------------------------------------


[[Page 38041]]

    The requestor also suggested that the following list of additional 
diagnosis codes with the 7th character ``D'' (subsequent encounter) may 
have been inadvertently assigned to the GROUPER logic list of principal 
diagnoses for MS-DRGs 922 and 923 (Other Injury, Poisoning and Toxic 
Effect with MCC and without MCC, respectively) also under MDC 21. The 
requestor noted these codes were also new, effective October 1, 2016 
(FY 2017) and that the predecessor codes grouped to MS-DRGs 949 and 950 
in MDC 23 under Version 33 of the ICD-10 MS-DRGs in FY 2016.

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                 Code description
------------------------------------------------------------------------
T85.818D..................  Embolism due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.828D..................  Fibrosis due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.838D..................  Hemorrhage due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.848D..................  Pain due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.858D..................  Stenosis due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.868D..................  Thrombosis due to other internal prosthetic
                             devices, implants and grafts, subsequent
                             encounter.
T85.898D..................  Other specified complication of other
                             internal prosthetic devices, implants and
                             grafts, subsequent encounter.
------------------------------------------------------------------------

    The requestor believed that the lists of diagnosis codes above with 
7th character ``D'' (subsequent encounter) would be more appropriately 
assigned to MS-DRGs 949 and 950 under MDC 23, according to its review 
of the 2017 Official Coding Guidelines for use of the 7th character and 
assignment of other diagnoses of associated complications of care.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19837 through 19839), we ran test cases to determine if we could 
duplicate the requestor's findings with regard to the shifts in MS-DRG 
assignment between Version 33 and Version 34 of the ICD-10 MS-DRGs. 
Results of our review were consistent with the requestor's findings. We 
found that the T85.8- series of diagnosis codes with the 7th character 
of ``A'' (initial encounter) and 7th character of ``D'' (subsequent 
encounter) were inadvertently assigned to the incorrect MDC for Version 
34 of the ICD-10 MS-DRGs, which led to inconsistencies (MS-DRG shifts) 
when compared to Version 33 of the ICD-10 MS-DRGs. Our analysis also 
included review of all of the diagnosis codes in the T85.8- series and 
their current MDC and MS-DRG assignments, as well as review of the 2017 
Official Coding Guidelines for use of the 7th character and assignment 
of other diagnoses of associated complications of care. Based on the 
results of our review, we agreed with the requestor's findings.
    In addition, we identified the following list of diagnosis codes 
with the 7th character ``S'' (sequela) that appear to have been 
inadvertently assigned to MS-DRGs 949 and 950 in MDC 23 rather than MDC 
21 in MS-DRGs 922 and 923 (Other Injury, Poisoning and Toxic Effect 
with MCC and without MCC, respectively).

------------------------------------------------------------------------
 ICD-10-CM diagnosis code                 Code description
------------------------------------------------------------------------
T85.810S..................  Embolism due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.820S..................  Fibrosis due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.830S..................  Hemorrhage due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.840S..................  Pain due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.850S..................  Stenosis due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.860S..................  Thrombosis due to nervous system prosthetic
                             devices, implants and grafts, sequela.
T85.890S..................  Other specified complication of nervous
                             system prosthetic devices, implants and
                             grafts, sequela.
------------------------------------------------------------------------

    In the FY 2018 IPPS/LTCH PPS proposed rule, we invited public 
comment on our proposals to (1) reassign the ICD-10-CM diagnosis codes 
with the 7th character ``A'' (initial encounter) from MS-DRGs 949 and 
950 in MDC 23 to MS-DRGs 919, 920 and 921 in MDC 21; (2) reassign the 
ICD-10-CM diagnosis codes with the 7th character ``D'' (subsequent 
encounter) from MS-DRGs 919, 920, 921, 922, and 923 in MDC 21 to MS-
DRGs 949 and 950 in MDC 23; and (3) reassign the ICD-10-CM diagnosis 
codes with the 7th character ``S'' (sequela) from MS-DRGs 949 and 950 
in MDC 23 to MS-DRGs 922 and 923 in MDC 21 for FY 2018. The table below 
displays the current Version 34 MDC and MS-DRG assignments and the 
proposed Version 35 MDC and MS-DRG assignments on which we sought 
public comment for the respective ICD-10-CM diagnosis codes.

----------------------------------------------------------------------------------------------------------------
                                                    Current V34   Current V34 MS-  Proposed V35    Proposed V35
       ICD-10-CM code          Code description         MDC             DRG             MDC           MS-DRG
----------------------------------------------------------------------------------------------------------------
T85.810D...................  Embolism due to                  21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.810S...................  Embolism due to                  23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.818A...................  Embolism due to                  23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.818D...................  Embolism due to                  21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.820D...................  Fibrosis due to                  21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.820S...................  Fibrosis due to                  23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.

[[Page 38042]]

 
T85.828A...................  Fibrosis due to                  23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.828D...................  Fibrosis due to                  21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.830D...................  Hemorrhage due to                21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.830S...................  Hemorrhage due to                23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.838A...................  Hemorrhage due to                23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.838D...................  Hemorrhage due to                21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.840D...................  Pain due to nervous              21   919, 920, 921              23        949, 950
                              system prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.840S...................  Pain due to nervous              23        949, 950              21        922, 923
                              system prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.848A...................  Pain due to other                23        949, 950              21   919, 920, 921
                              internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.848D...................  Pain due to other                21        922, 923              23        949, 950
                              internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.850D...................  Stenosis due to                  21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.850S...................  Stenosis due to                  23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.858A...................  Stenosis due to                  23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.858D...................  Stenosis due to                  21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.860D...................  Thrombosis due to                21   919, 920, 921              23        949, 950
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.860S...................  Thrombosis due to                23        949, 950              21        922, 923
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.868A...................  Thrombosis due to                23        949, 950              21   919, 920, 921
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.868D...................  Thrombosis due to                21        922, 923              23        949, 950
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.890D...................  Other specified                  21   919, 920, 921              23        949, 950
                              complication of
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
T85.890S...................  Other specified                  23        949, 950              21        922, 923
                              complication of
                              nervous system
                              prosthetic
                              devices, implants
                              and grafts,
                              sequela.
T85.898A...................  Other specified                  23        949, 950              21   919, 920, 921
                              complication of
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              initial encounter.
T85.898D...................  Other specified                  21        922, 923              23        949, 950
                              complication of
                              other internal
                              prosthetic
                              devices, implants
                              and grafts,
                              subsequent
                              encounter.
----------------------------------------------------------------------------------------------------------------

    Comment: Commenters supported the proposals to (1) reassign the 
ICD-10-CM diagnosis codes with the 7th character ``A'' (initial 
encounter) from MS-DRGs 949 and 950 in MDC 23 to MS-DRGs 919, 920 and 
921 in MDC 21; (2) reassign the ICD-10-CM diagnosis codes with the 7th 
character ``D'' (subsequent encounter) from MS-DRGs 919, 920, 921, 922, 
and 923 in MDC 21 to MS-DRGs 949 and 950 in MDC 23; and (3) reassign 
the ICD-10-CM diagnosis codes with the 7th character ``S'' (sequela) 
from MS-DRGs 949 and 950 in MDC 23 to MS-DRGs 922 and 923 in MDC 21 for 
FY 2018. However, one commenter did not support the reassignment of 
ICD-10-CM diagnosis codes with the 7th character ``S'' (sequela) from 
MS-DRGs 949 and 950 in MDC 23 to MS-DRGs 922 and 923 in MDC 21. This 
commenter agreed that the codes with the 7th character ``S'' should not 
be assigned to MS-DRGs 949 and 950. However, the commenter disagreed 
with the proposed reassignment to MS-DRGs 922 and 923 and referenced 
language from the FY 2017 ICD-10-CM Official Guidelines for Coding and 
Reporting under Section I.B.10. Sequela (Late Effects) which states: 
``A sequela is the residual effect (condition produced) after the acute 
phase of an illness or injury has terminated. The condition or nature 
of the sequela is sequenced first. The sequela code is sequenced 
second.'' According to the commenter, sequela cases are appropriately 
classified to the MS-DRGs corresponding to the reported residual 
condition rather than MS-DRGs 922 and 923 or MS-DRGs 949 and 950.
    Response: We appreciate the support of the commenters on our 
proposals. In response to the commenter who did not agree with the 
reassignment of ICD-10-CM diagnosis codes with the 7th character ``S'' 
(sequela) from MS-DRGs 949 and 950 in MDC 23 to MS-DRGs 922 and 923 in 
MDC 21, we note that the proposal for the ICD-10-CM diagnosis codes 
with the 7th character ``S'' (sequela) is consistent with the 
assignments under Version 33 of the ICD-10 MS-DRGs from which their 
respective predecessor codes were derived. For example, under Version 
33 of the ICD-10 MS-DRGs, ICD-10-CM diagnosis code T85.81XS (Embolism 
due to internal prosthetic devices, implants and grafts, not elsewhere

[[Page 38043]]

classified, sequela) was assigned to MDC 21 under MS-DRGs 922 and 923. 
Similar to the inadvertent errors in MDC and MS-DRG assignments that 
occurred with the ICD-10-CM diagnosis codes involving 7th characters 
``A'' (initial encounter) and ``D'' (subsequent encounter) from Version 
33 to Version 34 of the ICD-10 MS-DRGs, the ICD-10-CM diagnosis codes 
involving 7th character ``S'' were also inadvertently assigned to the 
incorrect MDC and MS-DRGs under Version 34 of the ICD-10 MS-DRGs. 
Therefore, the proposal is consistent for all the 7th characters. In 
addition, while the commenter disagreed with our proposed MDC and MS-
DRG assignments, the commenter did not offer suggestions on alternative 
assignments.
    After consideration of the public comments we received, we are 
finalizing our proposals as set forth in the FY 2018 IPPS/LTCH PPS 
proposed rule for the complication codes discussed above in the ICD-10 
MS-DRGs Version 35, effective October 1, 2017.
9. MDC 23 (Factors Influencing Health Status and Other Contacts With 
Health Services): Updates to MS-DRGs 945 and 946 (Rehabilitation With 
CC/MCC and Without CC/MCC, Respectively)
    In FY 2016, we received requests to modify the MS-DRG assignment 
for MS-DRGs 945 and 946 (Rehabilitation with CC/MCC and without CC/MCC, 
respectively). This issue was addressed in the FY 2017 IPPS/LTCH PPS 
proposed and final rules (81 FR 24998 through 25000 and 81 FR 56826 
through 56831). For FY 2017, we did not change the MS-DRG assignments 
for MS-DRGs 945 and 946.
    We did not receive a request to address this issue as part of the 
FY 2018 IPPS/LTCH PPS proposed rule or suggestions on how to update the 
MS-DRGs 945 and 946 logic. However, we did refer the FY 2016 requests 
for a new ICD-10-CM diagnosis code to the Centers for Disease Control 
and Prevention (CDC) for consideration at a future meeting of the ICD-
10 Coordination and Maintenance Committee. CDC has the lead on updating 
and maintaining ICD-10-CM codes. CDC did not address the issue at the 
September 13-14, 2016 ICD-10 Coordination and Maintenance Committee 
meeting. When the topic was not addressed at the September 13-14, 2016 
ICD-10 Coordination and Maintenance Committee meeting, we asked CDC to 
address the code request at the March 7-8, 2017 meeting of the ICD-10 
Coordination and Maintenance Committee. The topic was on the agenda for 
the March 7-8, 2017 ICD-10 Coordination and Maintenance Committee 
meeting. The deadline for providing comments on proposals considered at 
this meeting was April 7, 2017. Any new codes approved after this 
meeting which will be implemented on October 1, 2017 were posted on the 
CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/index.html 
and on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10.html in 
June 2017. New codes also are included in Table 6A associated with this 
FY 2018 IPPS/LTCH PPS final 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).
    As addressed in the FY 2017 IPPS/LTCH PPS final rule, the ICD-9-CM 
MS-DRGs used ICD-9-CM codes reported as the principal diagnosis that 
clearly identified an encounter for rehabilitation services, such as 
diagnosis codes V57.89 (Care involving other specified rehabilitation 
procedure) and V57.9 (Care involving unspecified rehabilitation 
procedure), and these codes were not included in ICD-10-CM. Given this 
lack of ICD-10-CM codes to indicate that the reason for the encounter 
was for rehabilitation, the ICD-10 MS-DRG logic could not reflect the 
logic of the ICD-9-CM MS-DRGs. Commenters on the final rule recommended 
that CDC create new diagnosis codes for these concepts in ICD-10-CM so 
that the MS-DRG logic could be updated to more closely reflect that of 
the ICD-9-CM MS-DRGs.
    As we stated in the proposed rule, if new ICD-10-CM codes are 
created for encounter for rehabilitation services, we would address any 
updates to MS-DRGs 945 and 946 utilizing these new codes in future 
rulemaking. In the meantime, we welcome other specific recommendations 
on how to update MS-DRGs 945 and 946. We are sharing the following data 
on these MS-DRGs from the MedPAR file.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
               FY 2015 MS-DRGs with ICD-9-CM codes                     cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 945......................................................           3,991            10.3          $8,242
MS-DRG 946......................................................           1,184             8.0           7,322
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
              FY 2016 MS-DRGs with ICD-10-CM codes                     cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 945......................................................             671            10.8          $7,814
MS-DRG 946......................................................             157             7.3           7,672
----------------------------------------------------------------------------------------------------------------

    As shown by the tables above, there was a decrease of 3,320 MS-DRG 
945 cases (from 3,991 to 671) from FY 2015, when claims were submitted 
with ICD-9-CM codes, to FY 2016 when ICD-10 codes were submitted. There 
was a decrease of 1,027 MS-DRG 946 cases (from 1,184 to 157) from FY 
2015 to FY 2016. The average length of stay increased 0.5 days (from 
10.3 to 10.8 days) for MS-DRG 945 and decreased 0.7 days (from 8.0 to 
7.3 days) for MS-DRG 946. The average costs decreased by $428 (from 
$8,242 to $7,814) for MS-DRG 945 cases and increased by $350 (from 
$7,322 to $7,672) for MS-DRG 946 cases. The number of cases was 
significantly lower in FY 2016 compared to FY 2015. However, the 
difference in average length of stay and average costs did not show 
large changes.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule, we also 
examined possible MS-DRGs where these cases may have been assigned in 
FY 2016 based on increases in the number of claims. Because there is 
not a diagnosis code that could be reported as a principal diagnosis, 
which would indicate if the admissions were for rehabilitation 
services, we are unable to determine if these were cases admitted for 
rehabilitation that moved from MS-DRGs 945 and 946 because of the lack 
of a code for encounter for rehabilitation, or if there was simply a 
change in the number of cases. The following tables show our findings 
for MS-DRG 056 (Degenerative Nervous System Disorders with MCC); MS-DRG 
057 (Degenerative Nervous System

[[Page 38044]]

Disorders without MCC); MS-DRG 079 (Hypertensive Encephalopathy without 
CC/MCC); MS DRG 083 (Traumatic Stupor & Coma, Coma >1 Hour with CC); 
MS-DRG 084 (Traumatic Stupor & Coma, Coma >1 Hour without CC/MCC); MS-
DRG 092 (Other Disorders of Nervous System with MCC); and MS-DRG 093 
(Other Disorders of Nervous System without CC/MCC).

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
               FY 2015 MS-DRGs with ICD-9-CM codes                     cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 056......................................................           9,548             7.3         $12,606
MS-DRG 057......................................................          25,652             5.1           7,918
MS-DRG 079......................................................             618             2.7           5,212
MS-DRG 083......................................................           2,516             4.3           9,446
MS-DRG 084......................................................           1,955             2.8           6,824
MS-DRG 092......................................................          12,643             5.7          11,158
MS-DRG 093......................................................           7,928             2.8           5,182
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
              FY 2016 MS-DRGs with ICD-10-CM codes                     cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 056......................................................          10,817             7.6         $12,930
MS-DRG 057......................................................          28,336             5.3           7,902
MS-DRG 079......................................................           1,233             2.7           5,579
MS-DRG 083......................................................           4,058             6.2           9,134
MS-DRG 084......................................................           3,016             2.7           6,508
MS-DRG 092......................................................          19,392             3.9           6,706
MS-DRG 093......................................................           8,120             2.7           5,253
----------------------------------------------------------------------------------------------------------------

    As shown by the tables above, some of the MS-DRGs that show the 
largest increase in number of cases do not show significant changes in 
the average length of stay or average costs. For instance, MS-DRG 079 
cases doubled from FY 2015 to FY 2016 (from 618 to 1,233). However, the 
average length of stay did not change from 2.7 days and the average 
costs increased only $367 (from $5,212 to $5,579). MS-DRG 083 cases 
increased by 1,542 (from 2,516 to 4,058) with a 1.9 day increase in the 
average length of stay (from 4.3 to 6.2 days); however, the average 
costs decreased only $312 (from $9,446 to $9,134). There were large 
changes for MS-DRG 092 with cases increasing by 6,749 (from 12,643 to 
19,392), the average length of stay decreasing by 1.8 days (from 5.7 to 
3.9) and the average costs decreasing by $4,452 (from $11,158 to 
$6,706). Once again, it is not possible to determine if any changes are 
a result of the impact of not having a code for the encounter for 
rehabilitation services to report as a principal diagnosis, or if other 
factors such as changes in types of patient admissions were involved.
    Given the lack of a diagnosis code to capture the principal 
diagnosis of encounter for rehabilitation, we stated in the FY 2018 
proposed rule that we were unable to update MS-DRG 945 or MS-DRG 946 to 
better identify those cases in which patients are admitted for 
rehabilitation services. If the CDC creates a new code, we will 
consider proposing updates to MS-DRGs 945 and 946 in the future.
    We invited public comments on our proposal not to update MS-DRGs 
945 and 946 for FY 2018.
    Comment: Several commenters acknowledged that CMS' analysis 
indicates that there was a decrease in the number of cases reported in 
MS-DRG 945 and 946 from FY 2015 to FY 2016 and there was an increase in 
average length of stay for MS-DRG 945 and a decrease in average length 
of stay for MS-DRG 946 from FY 2015 to FY 2016. The commenters stated 
that, without an ICD-10-CM diagnosis code to capture encounters for 
rehabilitation therapy, it was not possible to identify any specific 
shifts in these cases. The commenters stated that they had written to 
CDC to support the creation of a new diagnosis code to capture these 
admissions after the topic was presented at the March 7-8, 2017 ICD-10 
Coordination and Maintenance Committee meeting. The commenters stated 
that if CDC creates a new ICD-10-CM code for encounters for 
rehabilitation therapy, it recommended that CMS propose adding the new 
code as part of the MS-DRG logic for MS-DRGs 945 and 946 as part of the 
FY 2019 IPPS/LTCH PPS proposed rule. The commenters stated that if CDC 
decides not to create a new ICD-10-CM code for encounters for 
rehabilitation therapy, CMS should consider assembling a technical 
advisory panel made up of stakeholders, such as rehabilitation 
providers and other representation, to conduct an evaluation of this 
issue and recommend options to improve the MS-DRG logic and changes 
that could be proposed as part of future rulemaking.
    Response: We agree with the commenters that without a specific ICD-
10-CM code for encounters for rehabilitation therapy, it is not 
possible to identify any specific shifts in these cases. If the CDC 
creates a new code effective October 1, 2018, we will evaluate 
potential updates to the MS-DRGs utilizing this new code as part of the 
FY 2019 IPPS/LTCH PPS proposed rule. If the CDC decides not to create a 
new code, we welcome recommendations from the public on how the MS-DRG 
logic could be updated to better capture patients within MS-DRGs 945 
and 946.
    After consideration of the public comments that we received, we are 
finalizing our proposal not to update MS-DRGs 945 and 946 for FY 2018.
10. Changes to the Medicare Code Editor (MCE)
    The Medicare Code Editor (MCE) is a software program that detects 
and reports errors in the coding of Medicare claims data. Patient 
diagnoses, procedure(s), and demographic information are entered into 
the Medicare claims processing systems and are subjected to a series of 
automated screens. The MCE screens are designed to identify cases that 
require further review before classification into an MS-DRG.
    As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56831 
through 56844), we made available the FY 2017 ICD-10 MCE Version 34 
manual file and an ICD-9-CM MCE

[[Page 38045]]

Version 34.0A 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 34 (and ICD-10 MS-DRGs) are 
posted on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html through the FY 
2017 IPPS Final Rule Home Page.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19840 through 
19846), we addressed the MCE requests we received by the December 7, 
2016 deadline. We also discussed the proposals we made based on our 
internal review and analysis. In addition, as a result of new and 
modified code updates approved after the annual spring ICD-10 
Coordination and Maintenance Committee meeting, we routinely make 
changes to the MCE. In the past, in both the IPPS proposed and final 
rules, we have only provided the list of changes to the MCE that were 
brought to our attention after the prior year's final rule. We 
historically have not listed the changes we have made to the MCE as a 
result of the new and modified codes approved after the annual spring 
ICD-10 Coordination and Maintenance Committee meeting. These changes 
are approved too late in the rulemaking schedule for inclusion in the 
proposed rule. Furthermore, although our MCE policies have been 
described in our proposed and final rules, we have not provided the 
detail of each new or modified diagnosis and procedure code edit in the 
final rule. However, we make available the finalized Definitions of 
Medicare Code Edits (MCE) file. Therefore, we have made available the 
FY 2018 ICD-10 MCE Version 35 manual file. The link to this MCE manual 
file, along with the link to the mainframe and computer software for 
the MCE Version 35 (and ICD-10 MS-DRGs) are posted on the CMS Web site 
at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html through the FY 2018 IPPS Final Rule Home 
Page.
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:
     Perinatal/Newborn--Age of 0 years only; a subset of 
diagnoses which will only occur during the perinatal or newborn period 
of age 0 (for example, tetanus neonatorum, health examination for 
newborn under 8 days old).
     Pediatric--Age is 0 to 17 years inclusive (for example, 
Reye's syndrome, routine child health examination).
     Maternity--Age range is 12 to 55 years inclusive (for 
example, diabetes in pregnancy, antepartum pulmonary complication).
     Adult--Age range is 15 to 124 years inclusive (for 
example, senile delirium, mature cataract).
    We received a request to provide clarification regarding the 
overlapping age ranges (0 to 17 years and 15 to 124 years) in the 
Pediatric and Adult categories under the Age Conflict edit. The 
requestor questioned which diagnosis code would be most appropriate to 
identify when a general or routine health examination is performed on 
patients who are within the age range of 15 to 17 years. The specific 
ICD-10-CM diagnosis codes that the requestor inquired about related to 
a child or to an adult encounter for a health examination are displayed 
in the table below.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
Z00.00....................  Encounter for general adult medical
                             examination without abnormal findings.
Z00.01....................  Encounter for general adult medical
                             examination with abnormal findings.
Z00.121...................  Encounter for routine child health
                             examination with abnormal findings.
Z00.129...................  Encounter for routine child health
                             examination without abnormal findings.
------------------------------------------------------------------------

    The age ranges defined within the Age Conflict edits were 
established with the implementation of the IPPS. The adult age range 
includes the minimum age of 15 years for those patients who are 
declared emancipated minors. We note that, historically, we have not 
provided coding advice in rulemaking with respect to policy. We 
collaborate with the American Hospital Association (AHA) through the 
Coding Clinic for ICD-10-CM and ICD-10-PCS to promote proper coding. We 
recommend that the requestor and other interested parties submit any 
questions pertaining to correct coding practices for this specific 
issue to the AHA.
    Comment: Some commenters believe that CMS is responsible for 
addressing questions relating to the pediatric and adult age ranges in 
the Age Conflict edit. Other commenters stated that, while the Coding 
Clinic for ICD-10-CM and ICD-10-PCS addresses proper coding, it cannot 
address issues related to payer-specific edits or definitions.
    Response: We believe there is some confusion with regard to the 
issue presented in the FY 2018 IPPS/LTCH PPS proposed rule pertaining 
to the Age Conflict edit. We specifically responded to a request that 
sought clarification regarding the overlapping age ranges (0 to 17 
years and 15 to 124 years) in the Pediatric and Adult categories under 
the Age Conflict edit. We responded that the age ranges defined within 
the Age Conflict edits were established with the implementation of the 
IPPS and noted that the adult age range includes the minimum age of 15 
years for those patients who are declared emancipated minors. 
Therefore, we fully responded to the request that we clarify the Age 
ranges in the MCE. However, in addition to the request regarding the 
overlapping age ranges in the Age Conflict edit, the requester 
specifically asked for coding advice. As noted earlier, ``The requester 
questioned which diagnosis code would be most appropriate to identify 
when a general or routine health examination is performed on patients 
who are within the age range of 15 to 17 years.'' We provided the 
specific ICD-10-CM diagnosis codes that the requestor inquired about 
related to a child or to an adult encounter for a health examination as 
displayed in the table above. The statement recommending that the 
requester and other interested parties submit questions pertaining to 
correct coding practices for this specific issue to the AHA was with 
regard to reporting the most appropriate diagnosis code based on the 
clarification provided regarding the Age Conflict edit. As stated in 
the FY 2018 IPPS/LTCH PPS proposed rule, we have not provided coding 
advice in rulemaking with respect to policy. Accordingly, any

[[Page 38046]]

questions regarding which diagnosis code would be most appropriate to 
report when a general or routine health examination is performed on 
patients who are within the age range of 15 to 17 years would be best 
addressed by the Coding Clinic.
(1) Perinatal/Newborn Diagnosis Category
    Under the ICD-10 MCE, the Perinatal/Newborn Diagnosis category 
under the Age Conflict edit considers the age of 0 years only; a subset 
of diagnoses which will only occur during the perinatal or newborn 
period of age 0 to be inclusive. This includes conditions that have 
their origin in the fetal or perinatal period (before birth through the 
first 28 days after birth) even if morbidity occurs later. 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.
    In the ICD-10-CM classification, there are two diagnosis codes that 
describe conditions as occurring during infancy and the neonatal period 
that are currently not on the Perinatal/Newborn Diagnosis category edit 
code list. We consulted with staff at 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. The NCHS' 
staff confirmed that, although diagnosis codes D80.7 (Transient 
hypogammaglobulinemia of infancy) and diagnosis code E71.511 (Neonatal 
adrenoleukodystrophy) do occur during infancy and the neonatal period, 
both conditions can last beyond the 28-day timeframe which is used to 
define the perinatal/newborn period. These diagnosis codes are not 
intended to be restricted for assignment to newborn patients. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19841), we 
proposed to not add these two diagnosis codes to the Perinatal/Newborn 
Diagnosis category under the Age Conflict edit. We invited public 
comments on our proposal.
    Comment: Commenters agreed that ICD-10-CM diagnosis codes D80.7 and 
E71.511 should not be added to the Perinatal/Newborn Diagnosis category 
under the Age Conflict edit.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to not add diagnosis code D80.7 (Transient 
hypogammaglobulinemia of infancy) and diagnosis code E71.511 (Neonatal 
adrenoleukodystrophy) to the Perinatal/Newborn Diagnosis category under 
the Age Conflict edit.
(2) Pediatric Diagnosis Category
    Under the ICD-10 MCE, the Pediatric diagnosis category under 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 ICD-10-CM diagnosis code list for the Pediatric diagnosis 
category under the Age Conflict edit currently includes a diagnosis 
code pertaining to dandruff that is not intended to apply to pediatric 
patients only. We consulted with staff at 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. The 
NCHS' staff confirmed that, although diagnosis code L21.0 (Seborrhea 
capitis) has an inclusion term of ``Cradle cap,'' the description of 
the diagnosis code is not intended to be restricted for assignment of 
pediatric patients. Therefore, in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19841), we proposed to remove diagnosis code L21.0 from the 
list of diagnosis codes for the Pediatric diagnosis category under the 
Age Conflict edit. We invited public comments on our proposal.
    Comment: Commenters agreed that diagnosis code L21.0 should be 
removed from the list of diagnosis codes for the Pediatric diagnosis 
category under the Age Conflict edit.
    Response: We appreciate the commenters support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to remove diagnosis code L21.0 (Seborrhea 
capitis) from the Pediatric diagnosis category under the Age Conflict 
edit in the ICD-10 MCE Version 35, effective October 1, 2017.
(3) Maternity Diagnoses
    Under the ICD-10 MCE, the Maternity diagnosis category under the 
Age Conflict edit considers the age range of 12 to 55 years inclusive. 
For that reason, the ICD-10-CM diagnosis codes on this Age Conflict 
edit list would be expected to apply to conditions or disorders 
specific to that age group only.
    As discussed in section II.F.12. of the preamble of the proposed 
rule and this final rule, Table 6A.--New Diagnosis Codes lists the new 
ICD-10-CM diagnosis codes that have been approved to date, which will 
become effective with discharges occurring on and after October 1, 
2017. Included on this list are a number of diagnosis codes associated 
with pregnancy and maternal care that we believe are appropriate to add 
to the list of diagnosis codes for the Maternity diagnoses category 
under the Age Conflict edit. We refer readers to Table 6P.1a. 
associated with the FY 2018 IPPS/LTCH PPS 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) 
for a review of the ICD-10-CM diagnosis codes that we proposed to add 
to the Age Conflict edit list. We invited public comments on our 
proposal.
    Comment: Commenters supported the proposal to add the list of 
diagnosis codes displayed in Table 6P.1a. associated with the FY 2018 
IPPS/LTCH PPS proposed rule to the Maternity diagnoses category under 
the Age Conflict edit. Commenters recommended that this same list of 
diagnosis codes also be added to the Diagnoses for Females Only edit.
    Response: We appreciate the commenters' support. We agree that the 
diagnosis codes proposed to be added to the Maternity diagnoses 
category under the Age Conflict edit are also appropriate to be added 
to the Diagnoses for Females Only edit code list under the Sex Conflict 
edit with other diagnosis codes associated with pregnancy and maternal 
care.
    After consideration of the public comments that we received, we are 
finalizing our proposal to add the list of diagnosis codes displayed in 
Table 6P.1a. associated with the FY 2018 IPPS/LTCH PPS proposed rule 
and this final 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) to the Maternity diagnoses category under 
the Age Conflict edit and we are adding this same list of diagnosis 
codes to the Diagnoses for Females Only code list under the Sex 
Conflict edit, effective October 1, 2017.
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.

[[Page 38047]]

(1) Diagnoses for Males Only Edit
    We received a request to review the following ICD-10-CM diagnosis 
codes pertaining to conditions associated with males for possible 
inclusion on the list of diagnosis codes for the Diagnoses for Males 
Only edit.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
B37.42....................  Candidal balanitis.
N35.011...................  Post-traumatic bulbous urethral stricture.
N35.012...................  Post-traumatic membranous urethral
                             stricture.
N35.013...................  Post-traumatic anterior urethral stricture.
N35.112...................  Postinfective bulbous urethral stricture,
                             not elsewhere classified.
N35.113...................  Postinfective membranous urethral stricture,
                             not elsewhere classified.
N35.114...................  Postinfective anterior urethral stricture,
                             not elsewhere classified.
N99.115...................  Postprocedural fossa navicularis urethral
                             stricture.
------------------------------------------------------------------------

    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19842), we agreed with the requestor that diagnosis code B37.42 
describes a condition that is applicable only to males. Balanitis is 
the inflammation of the glans (rounded head) of the penis. We also 
agreed that the diagnosis codes listed above that align under 
subcategory N35.01 (Post-traumatic urethral stricture, male) and 
subcategory N35.11 (Postinfection urethral stricture, not elsewhere 
classified, male) are appropriate to add to the list of diagnosis codes 
for the Diagnoses for Males Only edit because these diagnosis codes 
include specific terminology that is applicable only to males. Further, 
we agreed that diagnosis code N99.115 is appropriate to add to the list 
of diagnosis codes for the Diagnoses for Males Only edit because 
subcategory N99.11 (Postprocedural urethral stricture, male) includes 
specific terminology that is applicable to males only as well. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule, we proposed to 
add the ICD-10-CM diagnosis codes listed in the table above to the list 
of diagnosis codes for the Diagnoses for Males Only edit.
    We also proposed to remove ICD-10-CM diagnosis code Q64.0 
(Epispadias) from the list of diagnosis codes for the Diagnoses for 
Males Only edit because this rare, congenital condition involving the 
opening of the urethra can occur in both males and females.
    In addition, as discussed in section II.F.12. of the preamble of 
the proposed rule, Table 6A.--New Diagnosis Codes associated with the 
proposed rule listed the new ICD-10-CM diagnosis codes that had been 
approved to date, which will become effective with discharges occurring 
on and after October 1, 2017. Included on this list are a number of 
diagnosis codes associated with male body parts that we believe are 
appropriate to add to the list of diagnosis codes for the Diagnoses for 
Males Only category under the Sex Conflict edit. We refer readers to 
Table 6P.1b. associated with the 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) for a 
review of the ICD-10-CM diagnosis codes that we proposed to add to the 
list of diagnosis codes for the Diagnoses for Males Only category.
    We invited public comments on our proposals.
    Comment: Commenters supported the proposal to add the diagnosis 
codes listed in the table in the proposed rule describing conditions 
applicable to males to the Diagnoses for Males Only edit. Commenters 
also supported the addition of new diagnosis codes associated with male 
body parts as displayed in Table 6P.1b. associated with the proposed 
rule to the Diagnoses for Males Only edit. In addition, commenters 
supported the proposal to remove diagnosis code Q64.0 (Epispadias) from 
the list of diagnosis codes for the Diagnoses for Males Only edit 
because this condition can occur in both males and females.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposals to add the eight diagnosis codes displayed in 
the table above and the new diagnosis codes associated with male body 
parts as displayed in Table 6P.1b. associated with the proposed rule 
and this final 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) to the Diagnoses for Males Only edit, 
effective October 1, 2017. We are also finalizing our proposal to 
remove diagnosis code Q64.0 (Epispadias) from the list of diagnosis 
codes for the Diagnoses for Males Only edit, effective October 1, 2017.
(2) Diagnoses for Females Only
    We received a request to review the following ICD-10-CM diagnosis 
codes for possible removal from the list of diagnosis codes for the 
Diagnoses for Females Only edit.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
F52.6.....................  Dyspareunia not due to a substance or known
                             physiological condition.
J84.81....................  Lymphangioleiomyomatosis.
R97.1.....................  Elevated cancer antigen 125 [CA 125].
------------------------------------------------------------------------

    The requestor noted that, in the ICD-10-CM classification, the term 
``Dyspareunia'' (painful sexual intercourse) has specified codes for 
males and females located in the Alphabetic Index to Diseases for 
Reporting Physiological Dyspareunia. However, the indexing for 
diagnosis code F52.6 (Dyspareunia not due to a substance or known 
physiological condition) specifies that it is not due to a 
physiological condition and the entry is not gender specific. According 
to the requestor, while the condition is most often associated with 
female sexual dysfunction, there is a subset of males who also suffer 
from this condition.

[[Page 38048]]

    In addition, the requestor stated that diagnosis code J84.81 
(Lymphangioleiomyomatosis) describes a rare form of lung disease 
believed to occur more often in patients with tuberous sclerosis 
complex (TSC), a disorder due to genetic mutation. Although the 
condition is described as being exclusive to women, unique cases for 
men with TSC have also been reported.
    Lastly, the requestor indicated that diagnosis code R97.1 (Elevated 
cancer antigen 125 [CA 125]) describes the tumor marker that commonly 
identifies ovarian cancer cells in women. However, the requestor stated 
that high levels have also been demonstrated in men (and women) with 
lung cancer as well.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19842 through 19843), we reviewed ICD-10-CM diagnosis codes F52.6, 
J84.81, and R97.1, and we agree with the requestor that Dyspareunia, 
not due to a physiological condition, can also occur in males. We also 
agree that the condition of Lymphangioleiomyomatosis and Elevated CA 
125 levels can be found in males. Therefore, we proposed to remove 
these three diagnosis codes from the list of diagnosis codes for the 
Diagnoses for Females Only edit. We invited public comments on our 
proposals.
    In addition, we proposed to add new diagnosis code Z40.03 
(Encounter for prophylactic removal of fallopian tube(s)) to the list 
of diagnosis codes for the Diagnoses for Females Only edit. Currently, 
diagnosis code Z40.02 (Encounter for prophylactic removal of ovary) is 
on the edit's code list; therefore, inclusion of new diagnosis code 
Z40.03 would be consistent. We referred readers to Table 6A.--New 
Diagnosis Codes associated with the FY 2018 IPPS/LTCH PPS 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) for the list of new ICD-10-CM diagnosis 
codes that had been finalized to date. We invited public comments on 
our proposal.
    Comment: Commenters supported the proposal to remove diagnosis 
codes F52.6, J84.81, and R97.1 from the list of diagnosis codes for the 
Diagnoses for Females Only edit. Commenters also supported the proposal 
to add new diagnosis code Z40.03 to the list of diagnosis codes for the 
Diagnoses for Females Only edit.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to remove diagnosis codes F52.6 (Dyspareunia 
not due to a substance or known physiological condition), J84.81 
(Lymphangioleiomyomatosis) and diagnosis code R97.1 (Elevated cancer 
antigen 125 [CA 125]) from the Diagnoses for Females Only edit, 
effective October 1, 2017. We are also finalizing our proposal to add 
new diagnosis code Z40.03 (Encounter for prophylactic removal of 
fallopian tube(s)) to the list of diagnosis codes for the Diagnoses for 
Females Only edit, effective Octber 1, 2017.
c. Non-Covered Procedure Edit: Gender Reassignment Surgery
    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.
    We issued instructions on June 27, 2014, as a one-time 
notification, Pub. 100-03, Transmittal 169, Change Request 8825, 
effective May 30, 2014, announcing to MACs the invalidation of National 
Coverage Determination (NCD) 140.3 for Transsexual Surgery. As a 
result, MACs determined coverage on a case-by-case basis. The 
transmittal is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-Transmittals-Items/R169NCD.html?DLPage=1&DLEntries=10&DLFilter=Transsexual&DLSort=1&DLSortDir=ascending.
    It was brought to our attention that the ICD-10-PCS procedure codes 
shown in the table below are currently included on the list of 
procedure codes for the Non-Covered Procedure edit. As a result, when 
one of these procedure codes is reported on a claim, the edit for Non-
Covered Procedure is triggered and claims are not able to process 
correctly.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0W4M070...................  Creation of vagina in male perineum with
                             autologous tissue substitute, open
                             approach.
0W4M0J0...................  Creation of vagina in male perineum with
                             synthetic substitute, open approach.
0W4M0K0...................  Creation of vagina in male perineum with
                             nonautologous tissue substitute, open
                             approach.
0W4M0Z0...................  Creation of vagina in male perineum, open
                             approach.
0W4N071...................  Creation of penis in female perineum with
                             autologous tissue substitute, open
                             approach.
0W4N0J1...................  Creation of penis in female perineum with
                             synthetic substitute, open approach.
0W4N0K1...................  Creation of penis in female perineum with
                             nonautologous tissue substitute, open
                             approach.
0W4N0Z1...................  Creation of penis in female perineum, open
                             approach.
------------------------------------------------------------------------

    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19843), we proposed to remove the ICD-10-PCS procedure codes included 
in the table above from the list of procedure codes for the Non-Covered 
Procedure edit to help resolve claims processing issues associated with 
the reporting of these procedure codes. We invited public comments on 
our proposal.
    Comment: Commenters agreed with the proposal to remove the ICD-10-
PCS procedure codes included in the table in the proposed rule from the 
list of procedure codes under the Non-Covered Procedure edit. One 
commenter who supported the proposal also requested that CMS review 
current policies related to breast implant procedures for transgender 
females. This commenter noted that estrogen therapy by itself does not 
provide adequate growth tissue. Another commenter stated that these 
gender reassignment procedures should remain noncovered as they are a 
form of plastic surgery and, in principle, are not unlike elective 
abortion procedures.
    Response: We appreciate the commenters' support. In response to the 
commenter who requested that we review current policies related to 
breast implant procedures for transgender females, we recommend that 
the commenter contact its local MAC for additional information because 
there is

[[Page 38049]]

no national coverage determination (NCD) for this service. With regard 
to the commenter who stated that the procedure codes describing gender 
reassignment surgery listed in the table in the proposed rule should 
remain noncovered, we note that, as mentioned earlier in this section, 
NCD 140.3 for Transsexual Surgery was invalidated effective May 30, 
2014, and therefore, the MACs determine coverage on a case-by-case 
basis.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove the ICD-10-PCS procedure codes 
included in the table above from the list of procedure codes for the 
Non-Covered Procedure edit to help resolve claims processing issues 
associated with the reporting of these procedure codes.
d. Unacceptable Principal Diagnosis Edit
    In the MCE, there are select codes that describe a circumstance 
that influences an individual's health status, 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) Bacterial and Viral Infectious Agents (B95 Through B97)
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19843), we examined ICD-10-CM diagnosis codes in Chapter 1 (Certain 
Infectious and Parasitic Diseases) of the Classification Manual that 
fall within the range of three code categories for ``Bacterial and 
Viral Infectious Agents'' (B95 through B97). The instructional note 
provided at this section states that these categories are provided for 
use as supplementary or additional codes to identify the infectious 
agent(s) in diseases classified elsewhere. We identified 45 ICD-10-CM 
diagnosis codes within the range of these code categories for 
``Bacterial and Viral Infectious Agents'' (B95 through B97) that, as a 
result of the instructional note, are not appropriate to report as a 
principal diagnosis. In the FY 2018 IPPS/LTCH PPS proposed rule, we 
proposed to add the 45 ICD-10-CM diagnosis codes shown in Table 6P.1c. 
associated with the 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) to the list of codes for 
the Unacceptable Principal Diagnosis edit. We invited public comments 
on our proposal.
    Comment: Commenters supported the proposal to add the 45 ICD-10-CM 
diagnosis codes shown in Table 6P.1c. associated with the proposed rule 
to the list of codes for the Unacceptable Principal Diagnosis edit.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to add the 45 ICD-10-CM diagnosis codes shown 
in Table 6P.1c. associated with the proposed rule and this final 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) to the list of codes for the Unacceptable 
Principal Diagnosis edit, effective October 1, 2017.
(2) Mental Disorders Due to Known Physiological Conditions (F01 Through 
F09)
    We examined ICD-10-CM diagnosis codes in Chapter 5 (Mental and 
Behavioral Disorders) of the Classification Manual that fall within the 
range of nine code categories for ``Mental Disorders Due to Known 
Physiological Conditions'' (F01 through F09). The instructional note 
provided at this section states that this block comprises a range of 
mental disorders grouped together on the basis of their having in 
common a demonstrable etiology in cerebral disease, brain injury, or 
other insult leading to cerebral dysfunction. The dysfunction may be 
primary, as in diseases, injuries, and insults that affect the brain 
directly and selectively; or secondary, as in systemic diseases and 
disorders that attack the brain only as one of the multiple organs or 
systems of the body that are involved.
    We identified 21 ICD-10-CM diagnosis codes that fall within the 
range of these code categories for ``Mental Disorders Due to Known 
Physiological Conditions'' (F01 through F09). Of these nine code 
categories, seven have a ``Code first the underlying physiological 
condition'' note. For example, at code category F01--Vascular dementia, 
the note reads, ``Code first the underlying physiological condition or 
sequelae of cerebrovascular disease.'' We stated in the proposed rule 
that there are a total of 19 diagnosis codes that fall under these 7 
code categories with a ``Code first'' note and, therefore, are not 
appropriate to report as a principal diagnosis. Therefore, in the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 19843 through 19844), we 
proposed to add the 19 ICD-10-CM diagnosis codes shown in Table 6P.1d. 
associated with the 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) to the list of codes for 
the Unacceptable Principal Diagnosis edit. We invited public comments 
on our proposal.
    Comment: Some commenters disagreed with the proposal to add the 19 
ICD-10-CM diagnosis codes shown in Table 6P.1d. associated with the 
proposed rule to the list of codes for the Unacceptable Principal 
Diagnosis edit. The commenters suggested that CMS consult with the NCHS 
to determine if any of the codes may appropriately be sequenced as a 
principal diagnosis in certain circumstances. One commenter noted it 
had been informed through communications with the NCHS and AHA that, 
within the ICD-10-CM classification, there are instances where some 
``Code first'' notes are intended to be interpreted as ``Code first, if 
applicable'' or ``Code first, if known,'' although those terms are not 
explicitly stated in the instructional note. The commenter acknowledged 
that while some of the diagnosis codes that were proposed to be added 
to the Unacceptable Principal Diagnosis edit appear straightforward, 
such as diagnosis code F04 (Amnestic disorder due to known 
physiological condition), other diagnosis codes are not as clear, such 
as diagnosis code F01.5 (Vascular dementia) or diagnosis code F07.81 
(Postconcussional syndrome).
    Response: We appreciate the commenters' review and input regarding 
the proposal. We consulted with the staff at NCHS and they acknowledged 
that this group of codes was modified from the original World Health 
Organization (WHO) version of ICD-10. They indicated that while some 
code titles do include the language ``due to known physiological 
condition,'' they are evaluating these ``Code first'' instructional 
notes further as they perform their annual review of the coding 
guidelines and consider updates for FY 2018.
    After consideration of the public comments that we received and for 
the reasons described, we are not finalizing our proposal to add the 19 
ICD-10-CM diagnosis codes shown in Table 6P.1d. associated with the 
proposed rule to the list of codes for the Unacceptable Principal 
Diagnosis edit.

[[Page 38050]]

(3) Other Obstetric Conditions, Not Elsewhere Classified (O94 Through 
O9A)
    We examined ICD-10-CM diagnosis codes in Chapter 15 (Pregnancy, 
Childbirth and the Puerperium) of the Classification Manual that fall 
within the range of four code categories for ``Other Obstetric 
Conditions, Not Elsewhere Classified'' (O94 through O9A). The 
instructional note provided at this section under category O94 states 
that ``this category is to be used to indicate conditions in O00 
through O77, O85 through O94 and O98 through O9A as the cause of late 
effects. The sequelae include conditions specified as such, or as late 
effects, which may occur at any time after the puerperium. Code first 
condition resulting from (sequela) of complication of pregnancy, 
childbirth, and the puerperium.''
    We stated in the proposed rule that we identified one ICD-10-CM 
diagnosis code within the range of these code categories for ``Other 
Obstetric Conditions, Not Elsewhere Classified'' (O94 through O9A) 
that, as a result of the instructional note, is not appropriate to 
report as a principal diagnosis because that code identifies the cause 
of the late effect. This ICD-10-CM diagnosis code is O94 (Sequelae of 
complication of pregnancy, childbirth, and the puerperium). In the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 19844), we proposed to add ICD-
10-CM diagnosis code O94 to the list of codes for the Unacceptable 
Principal Diagnosis edit. We invited public comments on our proposal.
    Comment: Commenters agreed with the proposal to add diagnosis code 
O94 to the list of codes for the Unacceptable Principal Diagnosis edit.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to add diagnosis code O94 (Sequelae of 
complication of pregnancy, childbirth, and the puerperium) to the list 
of codes for the Unacceptable Principal Diagnosis edit, effective 
October 1, 2017.
(4) Symptoms and Signs Involving Cognition, Perception, Emotional State 
and Behavior (R40 Through R46)
    We examined ICD-10-CM diagnosis codes in Chapter 18 (Symptoms, 
Signs and Abnormal Findings) of the Classification Manual that fall 
within the range of code categories for ``Symptoms and Signs Involving 
Cognition, Perception, Emotional State and Behavior'' (R40 through 
R46), specifically under code category R40--Somnolence, stupor and 
coma. At subcategory R40.2--Coma, there is an instructional note, which 
states ``Code first any associated: Fracture of skull (S02.-); 
Intracranial injury (S06.-).'' We stated in the proposed rule that we 
identified 96 ICD-10-CM diagnosis codes under this subcategory that, as 
a result of the instructional note, are not appropriate to report as a 
principal diagnosis. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19844), we proposed to add the 96 ICD-10-CM diagnosis codes shown in 
Table 6P.1e. associated with the 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) to the 
list of codes for the Unacceptable Principal Diagnosis edit. We invited 
public comments on our proposal.
    Comment: Commenters agreed with the proposed addition of 95 of the 
96 diagnosis codes included in Table 6P.1e. associated with the 
proposed rule. The commenters specifically disagreed with the proposal 
to include diagnosis code R40.20 (Unspecified coma) to the Unacceptable 
Principal Diagnosis edit because the term ``any'' in the instructional 
note ``Code first any associated: Fracture of skull (S02.-); 
Intracranial injury (S06.-)'' indicates that if there is not a 
documented skull fracture or intracranial injury, then diagnosis code 
R40.20 could appropriately be reported as a Principal Diagnosis.
    Response: We appreciate the commenters' support to add 95 of the 96 
diagnosis codes included in our proposal as shown in Table 6P.1e. 
associated with the proposed rule. We agree with the commenters that 
there could be circumstances in which diagnosis code R40.20 would 
appropriately be reported as the principal diagnosis in the absence of 
a documented fracture of skull or intracranial injury.
    After consideration of the public comments we received, we are 
finalizing the addition of 95 of the 96 diagnosis codes shown in Table 
6P.1e. associated with the proposed rule (which is available via the 
Internet on the CMS Web site) to the list of codes for the Unacceptable 
Principal Diagnosis edit. For the reasons stated, we are not finalizing 
the proposal to add diagnosis code R40.20 (Unspecified coma) to the 
Unacceptable Principal Diagnosis edit. Table 6P.1e. associated with 
this final 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) sets forth the 95 diagnosis codes that we 
are adding to the list of codes for the Unacceptable Principal 
Diagnosis edit, consistent with our finalized policy.
(5) General Symptoms and Signs (R50 Through R69)
    We examined ICD-10-CM diagnosis codes in Chapter 18 (Symptoms, 
Signs and Abnormal Findings) of the Classification Manual that fall 
within the range of code categories for ``General Symptoms and Signs'' 
(R50 through R69), specifically, at code category R65--Symptoms and 
signs associated with systemic inflammation and infection. There is an 
instructional note at subcategory R65.1--Systemic inflammatory response 
syndrome (SIRS) of non-infectious origin, which states ``Code first 
underlying condition, such as: Heatstroke (T67.0); Injury and trauma 
(S00-T88).'' There is also an instructional note at subcategory R65.2--
Severe sepsis, which states ``Code first underlying infection, such 
as:'' and provides a list of examples.
    We identified four ICD-10-CM diagnosis codes in these subcategories 
that, as a result of the instructional notes described above, are not 
appropriate to report as a principal diagnosis. These four ICD-10-CM 
codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
R65.10....................  Systemic inflammatory response syndrome
                             (SIRS) of non-infectious origin without
                             acute organ dysfunction.
R65.11....................  Systemic inflammatory response syndrome
                             (SIRS) of non-infectious origin with acute
                             organ dysfunction.
R65.20....................  Severe sepsis without septic shock.
R65.21....................  Severe sepsis with septic shock.
------------------------------------------------------------------------


[[Page 38051]]

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19844), we 
proposed to add the four ICD-10-CM diagnosis codes shown in the table 
above to the list of codes for the Unacceptable Principal Diagnosis 
edit. We invited public comments on our proposal.
    Comment: Commenters agreed with the proposal to add the four 
diagnosis codes listed in the table in the proposed rule to the 
Unacceptable Principal Diagnosis edit. However, another commenter 
disagreed with adding diagnosis code R65.10 (Systemic inflammatory 
response syndrome (SIRS) of non-infectious origin without acute organ 
dysfunction) and diagnosis code R65.11 (Systemic inflammatory response 
syndrome (SIRS) of non-infectious origin with acute organ dysfunction) 
to the edit. According to the commenter, if the underlying condition is 
not known, it would be appropriate to report either one of the two 
codes (R65.10 and R65.11) as the principal diagnosis.
    Response: We appreciate the commenters' support. We disagree with 
the commenter who asserted that if the underlying condition is not 
known, it would be appropriate to report either diagnosis code R65.10 
or R65.11 as a principal diagnosis. The current FY 2017 ICD-10-CM 
Official Guidelines for Coding and Reporting at Section 1.C.18.g. 
states, ``The systemic inflammatory response syndrome (SIRS) can 
develop as a result of certain non-infectious disease processes, such 
as trauma, malignant neoplasm, or pancreatitis. When SIRS is documented 
with a noninfectious condition, and no subsequent infection is 
documented, the code for the underlying condition, such as an injury, 
should be assigned, followed by code R65.10, Systemic inflammatory 
response syndrome (SIRS) of non-infectious origin without acute organ 
dysfunction, or code R65.11, Systemic inflammatory response syndrome 
(SIRS) of non-infectious origin with acute organ dysfunction.'' 
Therefore, the underlying condition (for example, trauma, neoplasm, 
pancreatitis, amongothers) responsible for causing the systemic 
inflammatory response syndrome (SIRS) should be readily available in 
the medical record documentation due to its clinical significance for 
the care and treatment of the patient.
    After consideration of the public comments that we received, we are 
finalizing our proposal to add the four diagnosis codes shown in the 
table above from code category R65 (Symptoms and signs associated with 
systemic inflammation and infection) to the Unacceptable Principal 
Diagnosis edit code list, effective October 1, 2017.
(6) Poisoning by, Adverse Effects of, and Underdosing of Drugs, 
Medicaments and Biological Substances (T36 Through T50)
    We examined ICD-10-CM diagnosis codes in Chapter 19 (Injury and 
Poisoning) of the Classification Manual that fall within the range of 
code categories for ``Poisoning by, Adverse Effects of and Underdosing 
of Drugs, Medicaments and Biological Substances'' (T36 through T50). 
The instructional note provided at this section states ``Code first, 
for adverse effects, the nature of the adverse effect, such as:'' and 
provides a list of examples. In addition, the FY 2017 ICD-10-CM 
Official Guidelines for Coding and Reporting at Section I.C.19.e.5.c., 
state that ``Codes for underdosing should never be assigned as 
principal or first-listed codes.''
    We identified 996 ICD-10-CM diagnosis codes that, as a result of 
the instructional note for adverse effects and the guideline for 
reporting diagnosis codes for underdosing, are not appropriate to 
report as a principal diagnosis. In the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19844 through 19845), we proposed to add the 996 ICD-10-CM 
diagnosis codes shown in Table 6P.1f. associated with the 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) to the list of codes for the Unacceptable 
Principal Diagnosis edit. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to add the 996 ICD-10-CM 
diagnosis codes shown in Table 6P.1f. associated with the proposed rule 
describing adverse effects and underdosing to the Unacceptable 
Principal Diagnosis edit.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to add the 996 ICD-10-CM diagnosis codes shown 
in Table 6P.1f. associated with the proposed rule and this final 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) to the list of codes for the Unacceptable 
Principal Diagnosis edit code list, effective October 1, 2017.
(7) Complications of Surgical and Medical Care, Not Elsewhere 
Classified (T80 Through T88)
    We examined ICD-10-CM diagnosis codes in Chapter 19 (Injury and 
Poisoning) of the Classification Manual that fall within the range of 
code categories for ``Complications of Surgical and Medical Care, Not 
Elsewhere Classified'' (T80 through T88), specifically, at code 
category T81--Complications of procedures, not elsewhere classified. 
There is an instructional note at subcategory T81.12x--Postprocedural 
septic shock, which states, ``Code first underlying infection.''
    We identified two ICD-10-CM diagnosis codes in this subcategory 
that, as a result of the instructional note, are not appropriate to 
report as a principal diagnosis. These two ICD-10-CM codes are shown in 
the table below.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
T81.12XD..................  Postprocedural septic shock, subsequent
                             encounter.
T81.12XS..................  Postprocedural septic shock, sequela.
------------------------------------------------------------------------

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19845), we 
proposed to add the two ICD-10-CM diagnosis codes shown in the table 
above to the list of codes for the Unacceptable Principal Diagnosis 
edit. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to add the two diagnosis 
codes shown in the table in the proposed rule to the Unacceptable 
Principal Diagnosis edit.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to add the two diagnosis codes describing 
postprocedural septic shock listed in the

[[Page 38052]]

proposed rule and above in this final rule to the list of codes for the 
Unacceptable Principal Diagnosis edit, effective October 1, 2017.
(8) Persons Encountering Health Services for Examinations (Z00 Through 
Z13)
    We examined ICD-10-CM diagnosis codes in Chapter 21 (Factors 
Influencing Health Status) of the Classification Manual that fall 
within the range of code categories for ``Persons Encountering Health 
Services for Examinations'' (Z00 through Z13), specifically, at code 
category Z00--Encounter for general examination without complaint, 
suspected or reported diagnosis. The FY 2017 ICD-10-CM Official 
Guidelines for Coding and Reporting at Section I.C.21.c.16., state that 
the following ICD-10-CM Z-codes/categories may only be reported as the 
principal/first-listed diagnosis, except when there are multiple 
encounters on the same day and the medical records for the encounters 
are combined:
     Z00 (Encounter for general examination without complaint, 
suspected or reported diagnosis); except Z00.6 (Encounter for 
examination for normal comparison and control in clinical research 
program).
    Therefore, we stated in the proposed rule that diagnosis code Z00.6 
should not be reported as a principal/first-listed diagnosis. In the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 19845), we proposed to add ICD-
10-CM diagnosis code Z00.6 to the list of codes for the Unacceptable 
Principal Diagnosis edit. We invited public comments on our proposal.
    Comment: Commenters did not support the proposal to add diagnosis 
code Z00.6 to the list of codes for the Unacceptable Principal 
Diagnosis edit. The commenters stated that, although this diagnosis 
code is listed as an exception in the FY 2017 ICD-10-CM Official 
Guidelines for Coding and Reporting, the code is not prohibited from 
ever being reported as a principal diagnosis, rather, it is not 
required to be reported as a principal diagnosis. According to the 
commenters, there are circumstances when a control subject in a 
clinical research program may be admitted to the hospital and diagnosis 
code Z00.6 would be appropriate to report as the principal diagnosis. 
One commenter also noted that while Medicare may not be the responsible 
payer in these circumstances, other payers use the MCE edits, and these 
edits are frequently programmed in their billing software. Therefore, 
the commenter believed that including diagnosis code Z00.6 on the edit 
could cause unintended coding and reporting issues.
    Response: We appreciate the commenters' feedback on our proposal. 
We agree that there could be circumstances where it would be 
appropriate to report diagnosis code Z00.6 as the principal diagnosis. 
We have noted previously (72 FR 47152) that we encourage other payers 
to develop refinements to Medicare's DRG system, which includes the 
Medicare code edits, consistent with their population's needs. However, 
we also recognize that tother payers use the MCE edits in their 
systems.
    After consideration of the public comments we received and for the 
reasons described, we are not finalizing our proposal to add diagnosis 
code Z00.6 (Encounter for examination for normal comparison and control 
in clinical research program) to the list of codes for the Unacceptable 
Principal Diagnosis edit.
    To address a separate issue, in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19845), we proposed to remove the diagnosis codes under 
category Z05 (Encounter for observation and examination of newborn for 
suspected diseases and conditions ruled out) from the list of codes for 
the Unacceptable Principal Diagnosis edit. The FY 2017 ICD-10-CM 
Official Guidelines for Coding and Reporting at Section I.C.16.b. state 
the following:
     Assign a code from category Z05, Observation and 
evaluation of newborns and infants for suspected conditions ruled out, 
to identify those instances when a healthy newborn is evaluated for a 
suspected condition that is determined after study not to be present. 
Do not use a code from category Z05 when the patient has identified 
signs or symptoms of a suspected problem; in such cases code the sign 
or symptom.
     A code from category Z05 may also be assigned as a 
principal or first-listed code for readmissions or encounters when the 
code from category Z38 no longer applies. Codes from category Z05 are 
for use only for healthy newborns and infants for which no condition 
after study is found to be present.
     A code from category Z05 is to be used as a secondary code 
after the code from category Z38, Liveborn infants according to place 
of birth and type of delivery.
    Therefore, the ICD-10-CM diagnosis codes under category Z05 are 
allowed to be reported as a principal diagnosis. We proposed to remove 
the 14 ICD-10-CM diagnosis codes shown in the table below from the list 
of codes for the Unacceptable Principal Diagnosis edit.

------------------------------------------------------------------------
      ICD-10-CM code                      Code description
------------------------------------------------------------------------
Z05.0.....................  Observation and evaluation of newborn for
                             suspected cardiac condition ruled out.
Z05.1.....................  Observation and evaluation of newborn for
                             suspected infectious condition ruled out.
Z05.2.....................  Observation and evaluation of newborn for
                             suspected neurological condition ruled out.
Z05.3.....................  Observation and evaluation of newborn for
                             suspected respiratory condition ruled out.
Z05.41....................  Observation and evaluation of newborn for
                             suspected genetic condition ruled out.
Z05.42....................  Observation and evaluation of newborn for
                             suspected metabolic condition ruled out.
Z05.43....................  Observation and evaluation of newborn for
                             suspected immunologic condition ruled out.
Z05.5.....................  Observation and evaluation of newborn for
                             suspected gastrointestinal condition ruled
                             out.
Z05.6.....................  Observation and evaluation of newborn for
                             suspected genitourinary condition ruled
                             out.
Z05.71....................  Observation and evaluation of newborn for
                             suspected skin and subcutaneous tissue
                             condition ruled out.
Z05.72....................  Observation and evaluation of newborn for
                             suspected musculoskeletal condition ruled
                             out.
Z05.73....................  Observation and evaluation of newborn for
                             suspected connective tissue condition ruled
                             out.
Z05.8.....................  Observation and evaluation of newborn for
                             other specified suspected condition ruled
                             out.
Z05.9.....................  Observation and evaluation of newborn for
                             unspecified suspected condition ruled out.
------------------------------------------------------------------------

    We invited public comments on our proposal.
    Comment: Commenters agreed with the proposal to remove the 14 ICD-
10-CM diagnosis codes describing observation and evaluation of newborn 
for various suspected conditions that have been ruled out as shown in 
the

[[Page 38053]]

table in the proposed rule from the list of codes for the Unacceptable 
Principal Diagnosis edit.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove the 14 ICD-10-CM diagnosis codes as 
shown in the table above from the list of codes for the Unacceptable 
Principal Diagnosis edit, effective October 1, 2017.
(9) Encounters for Other Specific Health Care (Z40 Through Z53)
    We examined ICD-10-CM diagnosis codes in Chapter 21 (Factors 
Influencing Health Status) of the Classification Manual that fall 
within the range of code categories for ``Encounters for Other Specific 
Health Care'' (Z40 through Z53), specifically, at code category Z52--
Donors of organs and tissues. The FY 2017 ICD-10-CM Official Guidelines 
for Coding and Reporting at Section I.C.21.c.16. state that the 
following Z-codes/categories may only be reported as the principal/
first-listed diagnosis, except when there are multiple encounters on 
the same day and the medical records for the encounters are combined:
     Z52 (Donors of organs and tissues); except Z52.9 (Donor of 
unspecified organ or tissue).
    Therefore, we stated in the proposed rule that ICD-10-CM diagnosis 
code Z52.9 should not be reported as a principal/first-listed 
diagnosis. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19846), we 
proposed to add ICD-10-CM diagnosis code Z52.9 to the list of codes for 
the Unacceptable Principal Diagnosis edit. We invited public comments 
on our proposal.
    Comment: Commenters supported the proposal to add diagnosis code 
Z52.9 to the list of codes for the Unacceptable Principal Diagnosis 
edit. Commenters stated that this code is on the list of ``non-specific 
Z codes'' in the FY 2017 ICD-10-CM Official Guidelines for Coding and 
Reporting, indicating that this code is so nonspecific that there is 
little justification for its use in the hospital inpatient setting. 
However, another commenter disagreed with adding diagnosis code Z52.9 
to the list of codes for the Unacceptable Principal Diagnosis edit. 
Similar to the circumstances with diagnosis code Z00.6 (Encounter for 
examination for normal comparison and control in clinical research 
program) discussed earlier in this section, this commenter stated that 
the FY 2017 ICD-10-CM Official Guidelines for Coding and Reporting does 
not prohibit diagnosis code Z52.9 from ever being reported as a 
principal diagnosis; rather, it is not required to be reported as a 
principal diagnosis.
    Response: We thank the commenters for their support and feedback. 
Upon further review, we agree that, consistent with the FY 2017 ICD-10-
CM Official Guidelines for Coding and Reporting, the interpretation of 
the exception for diagnosis code Z52.9 is that it does not prohibit the 
code from ever being reported as a principal diagnosis; rather, the 
exception is indicating that the code is not required to be reported as 
a principal diagnosis.
    After consideration of the public comments we received and for the 
reasons described, we are not finalizing our proposal to add ICD-10-CM 
diagnosis code Z52.9 to the list of codes for the Unacceptable 
Principal Diagnosis edit.
(10) Persons Encountering Health Services in Other Circumstances (Z69 
Through Z76)
    We examined ICD-10-CM diagnosis codes in Chapter 21 (Factors 
Influencing Health Status) of the Classification Manual that fall 
within the range of code categories for ``Persons Encountering Health 
Services in Other Circumstances'' (Z69 through Z76), specifically, at 
subcategory Z71.8--Other specified counseling. Consistent with ICD-10-
CM diagnosis codes Z71.81 (Spiritual or religious counseling) and 
Z71.89 (Other specified counseling), in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19846), we proposed to add new diagnosis code 
Z71.82 (Exercise counseling) to the list of codes for the Unacceptable 
Principal Diagnosis edit. We referred readers to Table 6A.--New 
Diagnosis Codes associated with the 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) for the 
list of new ICD-10-CM diagnosis codes that had been finalized to date. 
We invited public comments on our proposal.
    Comment: Commenters supported the proposal to add new diagnosis 
code Z71.82 (Exercise counseling) to the list of codes for the 
Unacceptable Principal Diagnosis edit.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to add new ICD-10-CM diagnosis code Z71.82 
(Exercise counseling) to the list of codes for the Unacceptable 
Principal Diagnosis edit, effective October 1, 2017.
(11) Persons With Potential Health Hazards Related to Family and 
Personal History and Certain Conditions Influencing Health Status (Z77 
Through Z99)
    We examined ICD-10-CM diagnosis codes in Chapter 21 (Factors 
Influencing Health Status) of the Classification Manual that fall 
within the range of code categories for ``Persons with Potential Health 
Hazards Related to Family and Personal History and Certain Conditions 
Influencing Health Status'' (Z77 through Z99), specifically, at code 
category Z91.8--Other specified personal risk factors, not elsewhere 
classified. Consistent with ICD-10-CM diagnosis codes Z91.81 (History 
of falling), Z91.82 (Personal history of military deployment), and 
Z91.89 (Other specified personal risk factors, not elsewhere 
classified), in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19846), 
we proposed to add new ICD-10-CM diagnosis codes Z91.841 (Risk for 
dental caries, low), Z91.842 (Risk for dental caries, moderate), 
Z91.843 (Risk for dental caries, high), and Z91.849 (Unspecified risk 
for dental caries) to the list of codes for the Unacceptable Principal 
Diagnosis edit. We referred readers to Table 6A.--New Diagnosis Codes 
associated with the 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) for the list of new ICD-
10-CM diagnosis codes that had been finalized to date. We invited 
public comments on our proposal.
    Comment: Commenters supported the proposal to add new diagnosis 
codes in subcategory Z91.84, Risk for dental caries, to the list of 
codes for the Unacceptable Principal Diagnosis edit.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to add new ICD-10-CM diagnosis codes Z91.841 
(Risk for dental caries, low), Z91.842 (Risk for dental caries, 
moderate), Z91.843 (Risk for dental caries, high), and Z91.849 
(Unspecified risk for dental caries) to the list of codes for the 
Unacceptable Principal Diagnosis edit, effective October 1, 2017.
e. Future Enhancement
    Similar to our discussion in the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 56843 through 56844), with the implementation of ICD-10, it is 
clear that there are several new concepts in the classification. 
Looking ahead to the needs and uses of coded data as the data

[[Page 38054]]

continue to evolve from the reporting, collection, processing, 
coverage, payment and analysis aspects, 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 
we continue to evaluate the purpose and function of the MCE with 
respect to ICD-10, we encourage public input for future discussion. As 
we discussed in the FY 2017 IPPS/LTCH PPS final rule, we recognize a 
need to further examine the current list of edits and the definitions 
of those edits. We continue to 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. Comments should be 
directed to the MS-DRG Classification Change Mailbox located at 
[email protected] by November 1, 2017 for FY 2019.
11. 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.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19846), because the relative resource intensity of surgical classes can 
shift as a function of MS-DRG reclassification and recalibrations, for 
FY 2018, 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.
    We received a request to examine a case involving the principal 
procedure for excision of pituitary gland (ICD-10-PCS code 0GB00ZZ 
(Excision of pituitary gland, open approach)) with a secondary 
procedure for harvesting of a fat graft (ICD-10-PCS code 0JB80ZZ 
(Excision of abdomen subcutaneous tissue and fascia, open approach)) to 
treat a condition of pituitary adenoma (ICD-10-CM diagnosis code D35.2 
(Benign neoplasm of pituitary gland)) and the resulting sella turcica 
defect. The requestor noted that when the procedure code for harvesting 
of the fat graft is reported on the claim, the case currently groups to 
MS-DRGs 622, 623, and 624 (Skin Grafts and Wound Debridement for 
Endocrine, Nutritional, and Metabolic Disorders with MCC, with CC and 
without CC/MCC, respectively). However, when the procedure code for 
harvesting of the fat graft is not reported on the claim, the case 
groups to MS-DRGs 614 and 615 (Adrenal and Pituitary Procedures with 
CC/MCC and without CC/MCC, respectively), which appears to be a more 
appropriate assignment. The requester expressed concern regarding the 
procedure code for harvesting of the fat graft in the secondary 
position driving the MS-DRG assignment versus the principal procedure 
of the excision of pituitary gland.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19847), we analyzed the codes provided by the requestor in the GROUPER 
to determine if we could duplicate the requestor's findings. The 
findings from our analysis were consistent with the requestor's 
findings. Our clinical advisors reviewed this issue and agreed that it 
should be the procedure code for excision of the pituitary gland that 
is used to determine the MS-DRG assignment in this scenario and not the 
harvesting of the fat graft procedure code.
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule, we proposed 
to move MS-DRGs 614 and 615 above MS-DRGs 622, 623, and 624 in the 
surgical hierarchy to enable more appropriate MS-DRG assignment for 
these types of cases.
    We invited public comments on our proposal.
    Comment: Commenters supported the proposal to move MS-DRGs 614 and

[[Page 38055]]

615 above MS-DRGs 622, 623, and 624 in the surgical hierarchy. Another 
commenter expressed concern that the proposal to move MS-DRGs 614 and 
615 above MS-DRGs 622, 623, and 624 in the surgical hierarchy was made 
as the result of a single scenario and recommended that a more thorough 
analysis be performed to determine the potential impact of such a 
change prior to modifying existing GROUPER logic.
    Response: We appreciate the commenters' support. In response to the 
commenter who expressed concern that the proposal to move MS-DRGs 614 
and 615 above MS-DRGs 622, 623, and 624 in the surgical hierarchy was 
made as the result of a single scenario and that additional analysis 
should be performed to determine potential impacts, we are unclear as 
to what specific impacts the commenter is referring to and what type of 
analysis the commenter is recommending. However, we did analyze claims 
from the December 2016 update of the FY 2016 MedPAR file for MS-DRGs 
614 and 615, as well as from MS-DRGs 622, 623 and 624, to determine the 
volume of cases where procedure codes from both sets of MS-DRGs were 
reported. Our findings are shown in the tables below.

                                  MS-DRGs for Adrenal and Pituitary Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 614--All cases...........................................           1,526               5         $16,957
MS-DRG 615--All cases...........................................           1,007             2.4          10,680
----------------------------------------------------------------------------------------------------------------


                            MS-DRGs for Skin Grafts and Wound Debridement Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 622--All cases...........................................           1,289            10.7         $23,954
MS-DRG 623--All cases...........................................           4,423             6.3          12,522
MS-DRG 624--All cases...........................................             454             3.5           9,345
----------------------------------------------------------------------------------------------------------------

    As shown in the tables above, there were a total of 1,526 cases in 
MS-DRG 614 with an average length of stay of 5 days and average costs 
of $16,957. There were a total of 1,007 cases in MS-DRG 615 with an 
average length of stay of 2.4 days and average costs of $10,680. For 
MS-DRG 622, there were a total of 1,289 cases with an average length of 
stay of 10.7 days and average costs of $23,954. For MS-DRG 623, there 
were a total of 4,423 cases with an average length of stay of 6.3 days 
and average costs of $12,522. For MS-DRG 624, there were a total of 454 
cases with an average length of stay of 3.5 days and average costs of 
$9,345.
    We then analyzed claims from the March 2017 update of the FY 2016 
MedPAR file to determine the number of cases where a procedure code 
from MS-DRG 614 or MS-DRG 615 was reported with a procedure code from 
MS-DRGs 622, 623 or 624 on the same claim. Our findings are shown in 
the table below.

                  MS-DRGs for Adrenal, Pituitary, Skin Grafts and Wound Debridement Procedures
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 614 procedures with MS-DRG 622 procedures................              46            10.2         $12,977
MS-DRG 614 procedures with MS-DRG 623 procedures................             240             4.4          11,540
MS-DRG 615 procedures with MS-DRG 624 procedures................             125             2.9          14,494
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, there were a total of 46 cases 
reporting procedures from MS-DRG 614 and 622 on the same claim with an 
average length of stay of 10.15 days and average costs of $12,977. 
There were a total of 240 cases reporting procedures from MS-DRG 614 
and MS-DRG 623 on the same claim with an average length of stay of 4.42 
days and average costs of $11,540. Lastly, there were a total of 125 
cases reporting procedures from MS-DRG 615 and MS-DRG 624 on the same 
claim with an average length of stay of 2.93 days and average costs of 
$14,494.
    We then examined the redistribution of cases that is anticipated to 
occur as a result of the proposal to move MS-DRGs 614 and 615 above MS-
DRGs 622, 623, and 624 in the surgical hierarchy for Version 35 of the 
ICD-10 MS-DRGs, by processing the claims data from the March update of 
the FY 2016 MedPAR file through the ICD-10 MS-DRG GROUPER Version 34 
and then processing the same claims data through the ICD-10 MS-DRG 
GROUPER Version 35 for comparison. The number of cases from this 
comparison that result in different MS-DRG assignments is the number of 
the cases that are anticipated to potentially shift or be 
redistributed. We found that the number of cases moving out of MS-DRG 
622 and into MS-DRG 614 is approximately 46 cases, the number of cases 
moving out of MS-DRG 623 and into MS-DRG 614 is approximately 240 cases 
and the number of cases moving out of MS-DRG 624 and into MS-DRG 615 is 
approximately 125 cases. We believe that overall, the impact of this 
change is limited because the subset of cases that would be 
reclassified is approximately 6.7 percent of the total cases currently 
grouping to MS-DRGs 622, 623 and 624. Additionally, as shown above, in 
the analysis of claims where a procedure code from MS-DRG 614 or MS-DRG 
615 was reported with a procedure code from MS-DRGs 622, 623, or 624 on 
the same claim, the average costs for those cases are consistent with 
the average costs for all cases in MS DRGs 614 and 615.
    For issues pertaining to the surgical hierarchy, as with other MS-
DRG

[[Page 38056]]

related requests, we encourage commenters to submit requests to examine 
ICD-10 claims data via the CMS MS-DRG Classification Change Requests 
Mailbox located at [email protected] by November 1, 
2017 for FY 2019 consideration.
    After consideration of the public comments we received, we are 
finalizing our proposal to move MS-DRGs 614 and 615 above MS-DRGs 622, 
623, and 624 in the surgical hierarchy effective October 1, 2017.
12. Changes to the MS-DRG Diagnosis Codes for FY 2018
a. Background of the CC List and the CC Exclusions List
    Under the IPPS MS-DRG classification system, we have developed a 
standard list of diagnoses that are considered CCs. Historically, we 
developed this list using physician panels that classified each 
diagnosis code based on whether the diagnosis, when present as a 
secondary condition, would be considered a substantial complication or 
comorbidity. A substantial complication or comorbidity was defined as a 
condition that, because of its presence with a specific principal 
diagnosis, would cause an increase in the length-of-stay by at least 1 
day in at least 75 percent of the patients. However, depending on the 
principal diagnosis of the patient, some diagnoses on the basic list of 
complications and comorbidities may be excluded if they are closely 
related to the principal diagnosis. In FY 2008, we evaluated each 
diagnosis code to determine its impact on resource use and to determine 
the most appropriate CC subclassification (non-CC, CC, or MCC) 
assignment. We refer readers to sections II.D.2. and 3. of the preamble 
of the FY 2008 IPPS final rule with comment period for a discussion of 
the refinement of CCs in relation to the MS-DRGs we adopted for FY 2008 
(72 FR 47152 through 47171).
b. Additions and Deletions to the Diagnosis Code Severity Levels for FY 
2018
    We stated in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19847) 
that the following 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 2018 are available 
via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
    Table 6I.1--Proposed Additions to the MCC List--FY 2018;
    Table 6I.2--Proposed Deletions to the MCC List--FY 2018;
    Table 6J.1--Proposed Additions to the CC List--FY 2018; and
    Table 6J.2--Proposed Deletions to the CC List--FY 2018.
    We invited public comments on our proposed severity level 
designations for the diagnosis codes listed in Table 6I.1. and Table 
6J.1. We noted that, for Table 6I.2. and Table 6J.2., the proposed 
deletions were a result of code expansions. Therefore, the diagnosis 
codes on these lists are no longer valid codes, effective FY 2018. For 
example, diagnosis code O00.10 (Tubal pregnancy without intrauterine 
pregnancy) is a current CC for FY 2017 under Version 34 of the ICD-10 
MS-DRGs. Effective FY 2018, under Version 35 of the ICD-10 MS-DRGs, 
this single code has been expanded into three diagnosis codes to 
include laterality (left/right) and an unspecified option with the 
addition of a sixth character. Therefore, diagnosis code O00.10 is 
included in Table 6J.2. for deletion from the CC list because it is no 
longer a valid code in FY 2018.
    Comment: Commenters agreed with the proposed additions and 
deletions to the MCC and CC List severity level designations for FY 
2018. One commenter suggested that CMS also consider adding existing 
diagnosis codes from subcategories L97.5 (Non-pressure chronic ulcer of 
other part of foot) and L98.4 (Non-pressure chronic ulcer of skin, not 
elsewhere classified) to the CC List. This commenter noted that new 
diagnosis codes from these subcategories were proposed to be added to 
the CC List. However, according to the commenter, existing codes from 
these same subcategories are not currently included in the CC List even 
though some of them represent a greater severity level than the new 
codes that were proposed to be added to the CC List.
    Response: We appreciate the commenters' support. In response to the 
commenter who suggested that we consider adding existing diagnosis 
codes in subcategories L97.5 and L98.4 to the CC list, we were unable 
to fully evaluate this request for FY 2018 but will consider this 
recommendation as part of our comprehensive review of the CC and MCC 
lists. As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19848) and in the sections that follow, we have plans to conduct a 
comprehensive review of the CC and MCC lists for FY 2019. Therefore, we 
will be evaluating all of the ICD-10-CM diagnosis codes for this 
effort.
    After consideration of the public comments we received, we are 
finalizing our proposed additions and deletions to the MCC severity 
levels list and the proposed additions and deletions to the CC severity 
levels list for FY 2018. We refer readers to the Tables 6I.1, 6I.2, 
6J.1, and 6J.2 associated with this final rule, which are available via 
the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
c. Principal Diagnosis Is Its Own CC or MCC
    CMS' initial goal in developing the ICD-10 MS-DRGs was to ensure 
that a patient case was assigned to the same MS-DRG, regardless of 
whether the patient record was to be coded in ICD-9-CM or ICD-10. When 
certain ICD-10-CM combination codes are reported as a principal 
diagnosis, it implies that a CC or MCC is present. This occurs as a 
result of evaluating the cluster of ICD-9-CM codes that would have been 
coded on an ICD-9-CM record. If one of the ICD-9-CM codes in the 
cluster was a CC or an MCC, the single ICD-10-CM combination code used 
as a principal diagnosis also must imply that the CC or MCC is present.
    The ICD-10-CM diagnosis codes to which this logic applies are 
included in Appendix J of the ICD-10 MS-DRG Version 34 Definitions 
Manual (which is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending). 
Appendix J includes two lists: Part 1 is the list of principal 
diagnosis codes where the ICD-10-CM code is its own MCC. Part 2 is the 
list of principal diagnosis codes where the ICD-10-CM code is its own 
CC. Part 1 of Appendix J corresponds to Table 6L.--Principal Diagnosis 
Is Its Own MCC List, and Part 2 of Appendix J corresponds to Table 
6M.--Principal Diagnosis Is Its Own CC List.
    We received a request to add the ICD-10-CM diagnosis codes for 
acute myocardial infarction, decompensated heart failure and specified 
forms of shock, which are currently designated as a CC or an MCC when 
reported as a secondary diagnosis, to Table 6L.--Principal Diagnosis Is 
Its Own MCC List. According to the requestor, the addition of these 
codes to the list is necessary for bundled payment initiatives and so 
that facilities that

[[Page 38057]]

accept these patients in transfer have resources to care for them.
    As we stated in the proposed rule, the purpose of the Principal 
Diagnosis Is Its Own CC or MCC Lists was to ensure consistent MS-DRG 
assignment between the ICD-9-CM and ICD-10 MS-DRGs due to the clusters 
and combination codes. There are a number of other ICD-10-CM 
combination codes that, due to their prior designation as a CC or an 
MCC when reported as a secondary diagnosis, are not on either of these 
lists. Having multiple lists for CC and MCC diagnoses when reported as 
a principal and/or secondary diagnosis may not provide an accurate 
representation of resource utilization for the MS-DRGs. As discussed in 
further detail below, we have plans to conduct a comprehensive review 
of the CC and MCC lists for FY 2019. We believe the results of that 
review will help to inform the future of these lists.
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19848), we did not propose to add the ICD-10-CM diagnosis codes for 
acute myocardial infarction, decompensated heart failure and specified 
forms of shock to Table 6L.--Principal Diagnosis Is Its Own MCC List. 
In addition, we did not propose any changes to Table 6L.--Principal 
Diagnosis Is Its Own MCC List and Table 6M.--Principal Diagnosis Is Its 
Own CC List. We invited public comments on our proposal to maintain the 
existing lists of principal diagnosis codes in Tables 6L. and 6M for FY 
2018.
    Comment: Commenters supported the proposal to not make changes to 
Table 6L and Table 6M. One commenter acknowledged that CMS is delaying 
further modifications to Tables 6L. and 6M. until the severity level 
(MCC and CC) analysis is performed for FY 2019. However, this commenter 
requested that the proposed MS-DRG assignments for the new myocardial 
infarction type 2 diagnosis codes be reviewed for more appropriate 
assignments.
    Response: We appreciate the commenters' support. In response to the 
commenter's request that we review the proposed MS-DRG assignments for 
the new myocardial infarction type 2 diagnosis codes for more 
appropriate assignments, we point out that the codes identifying 
myocardial infarction type 2 diagnoses were not finalized at the time 
of publication of the FY 2018 IPPS/LTCH PPS proposed rule and, 
therefore, were not included in Table 6A.--New Diagnosis Codes that was 
associated with the proposed rule. As discussed in the section that 
follows, we have made available the final tables associated with this 
final rule via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. We refer readers to the final rule Table 
6A.--New Diagnosis Codes for the MS-DRG assignments for the acute 
myocardial infarction type 2 diagnosis codes for FY 2018, which are 
based on our usual process of assigning new codes to their predecessor 
code's MS-DRG assignment(s).
    After consideration of the public comments we received, we are 
maintaining the current code lists for Table 6L.--Principal Diagnosis 
Is Its Own MCC and Table 6M.--Principal Diagnosis Is Its Own CC List 
for FY 2018.
    d. CC Exclusions List for FY 2018
    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 
through 50544) for detailed information regarding revisions that were 
made to the CC and CC Exclusion Lists under the ICD-9-CM MS-DRGs.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19848), for FY 
2018, we proposed changes to the ICD-10 MS-DRGs Version 35 CC Exclusion 
List. Therefore, we developed Table 6G.1.--Proposed Secondary Diagnosis 
Order Additions to the CC Exclusions List--FY 2018; Table 6G.2.--
Proposed Principal Diagnosis Order Additions to the CC Exclusions 
List--FY 2018; Table 6H.1.--Proposed Secondary Diagnosis Order 
Deletions to the CC Exclusions List--FY 2018; and Table 6H.2.--Proposed 
Principal Diagnosis Order Deletions to the CC Exclusions List--FY 2018. 
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 the proposed 
rule are available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
    Comment: Commenters supported the proposed modifications to the CC 
Exclusion List for FY 2018 as displayed in Table 6G.1., Table 6G.2., 
Table 6H.1., and Table 6H.2. that were associated with the proposed 
rule and made available via the Internet on the CMS Web site.
    Response: We appreciate the commenters' support.
    We note that, for this FY 2018 IPPS/LTCH PPS final rule, we have 
developed Table 6K.--Complete List of CC Exclusions. Table 6K. 
corresponds to the Part 1 list of Appendix C in the ICD-10 MS-DRG 
Definitions Manual as described above.
    The complete documentation of the ICD-10 MS-DRG Version 35 GROUPER 
logic, including the CC Exclusion List, is available via the Internet 
on the CMS Acute Inpatient PPS Web page at: https://www.cms.gov/
Medicare/

[[Page 38058]]

Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
    To identify new, revised and deleted diagnosis and procedure codes, 
for FY 2018, we developed Table 6A.--New Diagnosis Codes, Table 6B.--
New Procedure Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--
Invalid Procedure Codes, Table 6E.--Revised Diagnosis Code Titles, and 
Table 6F.--Revised Procedure Code Titles for the proposed rule and this 
final rule.
    These tables are not published in the Addendum to the proposed rule 
or the final rule but are available via the Internet on the CMS Web 
site at: (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html) as described in section VI. of 
the Addendum to this final rule. As discussed in section II.F.15. of 
the preamble of this final rule, 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. In the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 19849), we invited public comments on the MDC and MS-DRG assignments 
for the new diagnosis and procedure codes as set forth in Table 6A.--
New Diagnosis Codes and Table 6B.--New Procedure Codes. In addition, we 
invited public comments on the proposed severity level designations for 
the new diagnosis codes as set forth in Table 6A. and the proposed O.R. 
status for the new procedure codes as set forth in Table 6B.
    Comment: One commenter disagreed with the addition of new ICD-10-CM 
diagnosis code R06.03 (Acute respiratory distress) as displayed in 
Table 6A.--New Diagnosis Codes associated with the FY 2018 IPPS/LTCH 
PPS proposed rule, stating that the terminology for this code title is 
outdated. The commenter stated that physician documentation generally 
supports either Acute Respiratory Distress Syndrome (ARDS) or Acute 
Respiratory Failure (ARF). The commenter requested that new diagnosis 
codes be created to avoid confusion and to support appropriate 
physician documentation.
    Response: As noted earlier and discussed in section II.F.15. of the 
preamble of this final rule, 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. We also note that the condition of ARDS is 
identified by ICD-10-CM diagnosis code J80 (Acute respiratory distress 
syndrome) and ARF is identified in ICD-10-CM subcategory J96.0 (Acute 
respiratory failure). Therefore, it is not necessary to submit a 
request for new diagnosis codes to the ICD-10 Coordination and 
Maintenance Committee.
    Comment: Several commenters disagreed with the proposed Non-O.R. 
designations for certain procedure codes displayed in Table 6B.--New 
Procedure Codes associated with the FY 2018 IPPS/LTCH PPS proposed 
rule. The commenters recommended that CMS consider revising the 
designation of these procedure codes from Non-O.R. to O.R. The 
commenters identified approximately 200 new procedure codes describing 
the insertion, removal, or revision of ``other device'' in various body 
parts that they stated require an O.R. setting or are most often 
performed in the O.R. setting using sterile technique. The commenters 
further stated that patients undergoing these procedures are placed 
under general anesthesia and the procedures require significant time 
and skill.
    Response: We reexamined a significant portion of the procedure 
codes listed in Table 6B.--New Procedure Codes that was associated with 
the FY 2018 IPPS/LTCH PPS proposed rule that the commenters recommended 
we consider revising from Non-O.R. to O.R. We note that we were unable 
to fully reevaluate the complete list for FY 2018, but we plan to 
conduct a review for FY 2019. Based upon our review, and upon further 
consideration of whether these procedures would be performed in an O.R. 
setting, we are revising the designation of the new procedure codes in 
the following table from non-O.R. to O.R.

 
------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
00H03YZ...................  Insertion of Other Device into Brain,
                             Percutaneous Approach.
00H04YZ...................  Insertion of Other Device into Brain,
                             Percutaneous Endoscopic Approach.
00H63YZ...................  Insertion of Other Device into Cerebral
                             Ventricle, Percutaneous Approach.
00H64YZ...................  Insertion of Other Device into Cerebral
                             Ventricle, Percutaneous Endoscopic
                             Approach.
00HU0YZ...................  Insertion of Other Device into Spinal Canal,
                             Open Approach.
00HV0YZ...................  Insertion of Other Device into Spinal Cord,
                             Open Approach.
00HV3YZ...................  Insertion of Other Device into Spinal Cord,
                             Percutaneous Approach.
00HV4YZ...................  Insertion of Other Device into Spinal Cord,
                             Percutaneous Endoscopic Approach.
02H43YZ...................  Insertion of Other Device into Coronary
                             Vein, Percutaneous Approach.
02H44YZ...................  Insertion of Other Device into Coronary
                             Vein, Percutaneous Endoscopic Approach.
02H63YZ...................  Insertion of Other Device into Right Atrium,
                             Percutaneous Approach.
02H64YZ...................  Insertion of Other Device into Right Atrium,
                             Percutaneous Endoscopic Approach.
02H73YZ...................  Insertion of Other Device into Left Atrium,
                             Percutaneous Approach.
02H74YZ...................  Insertion of Other Device into Left Atrium,
                             Percutaneous Endoscopic Approach.
02HA3YZ...................  Insertion of Other Device into Heart,
                             Percutaneous Approach.
02HA4YZ...................  Insertion of Other Device into Heart,
                             Percutaneous Endoscopic Approach.
02HK3YZ...................  Insertion of Other Device into Right
                             Ventricle, Percutaneous Approach.
02HK4YZ...................  Insertion of Other Device into Right
                             Ventricle, Percutaneous Endoscopic
                             Approach.
02HL3YZ...................  Insertion of Other Device into Left
                             Ventricle, Percutaneous Approach.
02HL4YZ...................  Insertion of Other Device into Left
                             Ventricle, Percutaneous Endoscopic
                             Approach.
02HN3YZ...................  Insertion of Other Device into Pericardium,
                             Percutaneous Approach.
02HN4YZ...................  Insertion of Other Device into Pericardium,
                             Percutaneous Endoscopic Approach.
02HP0YZ...................  Insertion of Other Device into Pulmonary
                             Trunk, Open Approach.
02HP3YZ...................  Insertion of Other Device into Pulmonary
                             Trunk, Percutaneous Approach.
02HP4YZ...................  Insertion of Other Device into Pulmonary
                             Trunk, Percutaneous Endoscopic Approach.
02HQ3YZ...................  Insertion of Other Device into Right
                             Pulmonary Artery, Percutaneous Approach.
02HQ4YZ...................  Insertion of Other Device into Right
                             Pulmonary Artery, Percutaneous Endoscopic
                             Approach.

[[Page 38059]]

 
02HR3YZ...................  Insertion of Other Device into Left
                             Pulmonary Artery, Percutaneous Approach.
02HR4YZ...................  Insertion of Other Device into Left
                             Pulmonary Artery, Percutaneous Endoscopic
                             Approach.
02HS3YZ...................  Insertion of Other Device into Right
                             Pulmonary Vein, Percutaneous Approach.
02HS4YZ...................  Insertion of Other Device into Right
                             Pulmonary Vein, Percutaneous Endoscopic
                             Approach.
02HT3YZ...................  Insertion of Other Device into Left
                             Pulmonary Vein, Percutaneous Approach.
02HT4YZ...................  Insertion of Other Device into Left
                             Pulmonary Vein, Percutaneous Endoscopic
                             Approach.
02HV3YZ...................  Insertion of Other Device into Superior Vena
                             Cava, Percutaneous Approach.
02HV4YZ...................  Insertion of Other Device into Superior Vena
                             Cava, Percutaneous Endoscopic Approach.
02HW0YZ...................  Insertion of Other Device into Thoracic
                             Aorta, Descending, Open Approach.
02HW3YZ...................  Insertion of Other Device into Thoracic
                             Aorta, Descending, Percutaneous Approach.
02HW4YZ...................  Insertion of Other Device into Thoracic
                             Aorta, Descending, Percutaneous Endoscopic
                             Approach.
07HK0YZ...................  Insertion of Other Device into Thoracic
                             Duct, Open Approach.
07HK4YZ...................  Insertion of Other Device into Thoracic
                             Duct, Percutaneous Endoscopic Approach.
07HL0YZ...................  Insertion of Other Device into Cisterna
                             Chyli, Open Approach.
07HL4YZ...................  Insertion of Other Device into Cisterna
                             Chyli, Percutaneous Endoscopic Approach.
07HM0YZ...................  Insertion of Other Device into Thymus, Open
                             Approach.
07HM4YZ...................  Insertion of Other Device into Thymus,
                             Percutaneous Endoscopic Approach.
07HN0YZ...................  Insertion of Other Device into Lymphatic,
                             Open Approach.
07HP0YZ...................  Insertion of Other Device into Spleen, Open
                             Approach.
09HY0YZ...................  Insertion of Other Device into Sinus, Open
                             Approach.
0BH04YZ...................  Insertion of Other Device into
                             Tracheobronchial Tree, Percutaneous
                             Endoscopic Approach.
0BH14YZ...................  Insertion of Other Device into Trachea,
                             Percutaneous Endoscopic Approach.
0BHK4YZ...................  Insertion of Other Device into Right Lung,
                             Percutaneous Endoscopic Approach.
0BHK8YZ...................  Insertion of Other Device into Right Lung,
                             Via Natural or Artificial Opening
                             Endoscopic.
0BHL4YZ...................  Insertion of Other Device into Left Lung,
                             Percutaneous Endoscopic Approach.
0BHL8YZ...................  Insertion of Other Device into Left Lung,
                             Via Natural or Artificial Opening
                             Endoscopic.
0BHQ4YZ...................  Insertion of Other Device into Pleura,
                             Percutaneous Endoscopic Approach.
0BHQ8YZ...................  Insertion of Other Device into Pleura, Via
                             Natural or Artificial Opening Endoscopic.
0BHT4YZ...................  Insertion of Other Device into Diaphragm,
                             Percutaneous Endoscopic Approach.
0BPK4YZ...................  Removal of Other Device from Right Lung,
                             Percutaneous Endoscopic Approach.
0BPK8YZ...................  Removal of Other Device from Right Lung, Via
                             Natural or Artificial Opening Endoscopic.
0BPL4YZ...................  Removal of Other Device from Left Lung,
                             Percutaneous Endoscopic Approach.
0BPL8YZ...................  Removal of Other Device from Left Lung, Via
                             Natural or Artificial Opening Endoscopic.
0BPQ0YZ...................  Removal of Other Device from Pleura, Open
                             Approach.
0BPQ4YZ...................  Removal of Other Device from Pleura,
                             Percutaneous Endoscopic Approach.
0BPQ8YZ...................  Removal of Other Device from Pleura, Via
                             Natural or Artificial Opening Endoscopic.
0BPT4YZ...................  Removal of Other Device from Diaphragm,
                             Percutaneous Endoscopic Approach.
0BWK4YZ...................  Revision of Other Device in Right Lung,
                             Percutaneous Endoscopic Approach.
0BWK8YZ...................  Revision of Other Device in Right Lung, Via
                             Natural or Artificial Opening Endoscopic.
0BWL4YZ...................  Revision of Other Device in Left Lung,
                             Percutaneous Endoscopic Approach.
0BWL8YZ...................  Revision of Other Device in Left Lung, Via
                             Natural or Artificial Opening Endoscopic.
0BWQ4YZ...................  Revision of Other Device in Pleura,
                             Percutaneous Endoscopic Approach.
0BWQ8YZ...................  Revision of Other Device in Pleura, Via
                             Natural or Artificial Opening Endoscopic.
0BWT4YZ...................  Revision of Other Device in Diaphragm,
                             Percutaneous Endoscopic Approach.
0HPT0YZ...................  Removal of Other Device from Right Breast,
                             Open Approach.
0HPU0YZ...................  Removal of Other Device from Left Breast,
                             Open Approach.
0HWT0YZ...................  Revision of Other Device in Right Breast,
                             Open Approach.
0HWU0YZ...................  Revision of Other Device in Left Breast,
                             Open Approach.
0JHS0YZ...................  Insertion of Other Device into Head and Neck
                             Subcutaneous Tissue and Fascia, Open
                             Approach.
0JHT0YZ...................  Insertion of Other Device into Trunk
                             Subcutaneous Tissue and Fascia, Open
                             Approach.
0JHV0YZ...................  Insertion of Other Device into Upper
                             Extremity Subcutaneous Tissue and Fascia,
                             Open Approach.
0JHW0YZ...................  Insertion of Other Device into Lower
                             Extremity Subcutaneous Tissue and Fascia,
                             Open Approach.
0TH58YZ...................  Insertion of Other Device into Kidney, Via
                             Natural or Artificial Opening Endoscopic.
0TH98YZ...................  Insertion of Other Device into Ureter, Via
                             Natural or Artificial Opening Endoscopic.
0THB8YZ...................  Insertion of Other Device into Bladder, Via
                             Natural or Artificial Opening Endoscopic.
0TP58YZ...................  Removal of Other Device from Kidney, Via
                             Natural or Artificial Opening Endoscopic.
0TW98YZ...................  Revision of Other Device in Ureter, Via
                             Natural or Artificial Opening Endoscopic.
0TWB8YZ...................  Revision of Other Device in Bladder, Via
                             Natural or Artificial Opening Endoscopic.
------------------------------------------------------------------------

    After consideration of the public comments that we received, we are 
finalizing the designation of the procedure codes listed in the table 
above from non-O.R. to O.R., effective October 1, 2017.
    We note that, historically, when new procedure codes were created, 
they were proposed to be given the same O.R. designation as their 
predecessor code. However, with the transition from ICD-9 to ICD-10, 
the determination of when a procedure code should be designated as an 
O.R. procedure has become a much more complex task. This is, in part, 
due to the number of various approaches available in the ICD-10-PCS 
classification. While we have typically evaluated procedures on the 
basis of whether or not they would be performed in an operating room, 
we believe that there may be other factors to consider, particularly 
with the implementation of ICD-10. Therefore, we are soliciting 
comments on what factors or criteria to consider in determining whether 
a procedure should be designated as an O.R. procedure in the ICD-10-PCS

[[Page 38060]]

classification system. We encourage commenters to submit comments via 
the CMS MS-DRG Classification Change Requests Mailbox located at 
[email protected] by November 1, 2017 for FY 2019 
consideration.
    We are also making available on the CMS Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html the following final tables associated with 
this final rule:
     Table 6A.--New Diagnosis Codes-FY 2018;
     Table 6B.--New Procedure Codes-FY 2018;
     Table 6C.--Invalid Diagnosis Codes-FY 2018;
     Table 6D.--Invalid Procedure Codes-FY 2018;
     Table 6E.--Revised Diagnosis Code Titles-FY 2018;
     Table 6F.--Revised Procedure Code Titles-FY 2018;
     Table 6G.1.--Secondary Diagnosis Order Additions to the CC 
Exclusions List--FY 2018;
     Table 6G.2.--Principal Diagnosis Order Additions to the CC 
Exclusions List--FY 2018;
     Table 6H.1.--Secondary Diagnosis Order Deletions to the CC 
Exclusions List--FY 2018;
     Table 6H.2.--Principal Diagnosis Order Deletions to the CC 
Exclusions List--FY 2018;
     Table 6I.--Complete MCC List--FY 2018;
     Table 6I.1.--Additions to the MCC List-FY 2018;
     Table 6I.2.-Deletions to the MCC List--FY 2018;
     Table 6J.--Complete CC List--FY 2018;
     Table 6J.1.--Additions to the CC List-FY 2018;
     Table 6J.2.--Deletions to the CC List -FY 2018;
     Table 6K.--Complete List of CC Exclusions-FY 2018;
     Table 6L.--Principal Diagnosis Is Its Own MCC List-FY 
2018; and
     Table 6M.--Principal Diagnosis Is Its Own CC List-FY 2018.
13. Comprehensive Review of CC List for FY 2019
    In the FY 2008 IPPS final rule (72 FR 47153 through 47175), we 
discussed our efforts to better recognize severity of illness which 
began with a comprehensive review of the CC list and, ultimately, the 
implementation of the MS-DRGs. Similar to the analysis that was 
performed at that time, we are providing the public with notice of our 
plans to conduct a comprehensive review of the CC and MCC lists for FY 
2019.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19849), as a result of the time that has elapsed since that review and 
changes to how inpatient care is currently delivered, we plan to 
analyze if further refinements to these lists are warranted. For 
example, over the past several years, there has been a steady increase 
in the proportion of cases grouping to the MS-DRGs with an MCC severity 
level than had previously occurred. Our evaluation will assist in 
determining if the conditions designated as an MCC continue to 
represent significant increases in resource utilization that support 
the MCC designation.
    We currently utilize a statistical algorithm to determine the 
impact on resource use of each secondary diagnosis. Each diagnosis for 
which Medicare data are available is evaluated to determine its impact 
on resource use and to determine the most appropriate CC subclass (non-
CC, CC, or MCC) assignment. In order to make this determination, the 
average costs for each subset of cases is compared to the expected 
costs for cases in that subset. The following format is used to 
evaluate each diagnosis:

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
           Code  Diagnosis               Cnt1          C1            Cnt2          C2            Cnt3          C3
----------------------------------------------------------------------------------------------------------------

    Count (Cnt) is the number of patients in each subset and C1, C2, 
and C3 are a measure of the impact on resource use of patients in each 
of the subsets. The C1, C2, and C3 values are a measure of the ratio of 
average costs for patients with these conditions to the expected 
average costs across all cases. The C1 value reflects a patient with no 
other secondary diagnosis or with all other secondary diagnoses that 
are non-CCs. The C2 value reflects a patient with at least one other 
secondary diagnosis that is a CC but none that is an MCC. The C3 value 
reflects a patient with at least one other secondary diagnosis that is 
an MCC. A value close to 1.0 in the C1 field would suggest that the 
code produces the same expected value as a non-CC diagnosis. That is, 
average costs for the case are similar to the expected average costs 
for that subset and the diagnosis is not expected to increase resource 
usage. A higher value in the C1 (or C2 and C3) field suggests more 
resource usage is associated with the diagnosis and an increased 
likelihood that it is more like a CC or major CC than a non-CC. Thus, a 
value close to 2.0 suggests the condition is more like a CC than a non-
CC but not as significant in resource usage as an MCC. A value close to 
3.0 suggests the condition is expected to consume resources more 
similar to an MCC than a CC or non-CC. For example, a C1 value of 1.8 
for a secondary diagnosis means that for the subset of patients who 
have the secondary diagnosis and have either no other secondary 
diagnosis present, or all the other secondary diagnoses present are 
non-CCs, the impact on resource use of the secondary diagnoses is 
greater than the expected value for a non-CC by an amount equal to 80 
percent of the difference between the expected value of a CC and a non-
CC (that is, the impact on resource use of the secondary diagnosis is 
closer to a CC than a non-CC).
    We invited public comments regarding other possible ways we can 
incorporate meaningful indicators of clinical severity.
    We did not receive any public comments offering suggestions on 
alternate ways to incorporate meaningful indicators of clinical 
severity. Therefore, we expect to continue to utilize this same 
statistical algorithm to determine the impact on resource use of each 
secondary diagnosis to conduct our comprehensive review of the CC and 
MCC lists for FY 2019.
14. 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 principal diagnosis. These MS-DRGs

[[Page 38061]]

are intended to capture atypical cases, that is, those cases not 
occurring with sufficient frequency to represent a distinct, 
recognizable clinical group.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19849), we stated 
that under the ICD-10 MS-DRGs Version 34, MS-DRGs 984 through 986 are 
assigned when one or more of the procedures described by ICD-10-PCS 
codes in Table 6P.2. that was associated with the FY 2018 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) are performed and are unrelated to the 
principal diagnosis. 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 2017 IPPS/LTCH PPS final rule (81 FR 
56847 through 56848) for a discussion of the movement and redesignation 
of procedure codes from MS-DRGs 984 through 986 related to the 
transition of the ICD-10 MS-DRGs.
    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 for FY 2018. Therefore, 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19849 through 19850), 
for FY 2018, we did not propose to change the procedures assigned among 
these MS-DRGs. We invited public comments on our proposal to maintain 
the current structure of these MS-DRGs.
    Comment: Commenters supported the proposal to maintain the current 
structure of MS-DRGs 984 through 986 and not to reassign or change the 
procedures assigned among these MS-DRGs to other MDCs.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to maintain the current structure of MS-DRGs 
984 through 986 (Prostatic O.R. Procedure Unrelated to Principal 
Diagnosis with MCC, with CC, and without CC/MCC, respectively) and not 
to reassign or change the procedures assigned among these MS-DRGs to 
other MDCs for ICD-10 MS-DRGs Version 35, effective October 1, 2017.
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 
Through 989 Into MDCs
    We annually conduct a review of procedures producing assignment to 
MS-DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to 
Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively) on the basis of volume, by procedure, to see if it would 
be appropriate to move procedure codes out of these MS-DRGs into one of 
the surgical MS-DRGs for the MDC into which the principal diagnosis 
falls. The data are arrayed in two ways for comparison purposes. We 
look at a frequency count of each major operative procedure code. We 
also compare procedures across MDCs by volume of procedure codes within 
each MDC.
    We identify those procedures occurring in conjunction with certain 
principal diagnoses with sufficient frequency to justify adding them to 
one of the surgical MS-DRGs for the MDC in which the diagnosis falls. 
As we indicated in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19850), upon review of the claims data from the December 2016 update of 
the FY 2016 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 2018, we did not propose to remove any procedures 
from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the 
surgical MS-DRGs for the MDC into which the principal diagnosis is 
assigned. We invited public comments on our proposal to maintain the 
current structure of these MS-DRGs.
    Comment: Commenters supported the proposal to maintain the current 
structure of MS-DRGs 981 through 983 and MS-DRGs 987 through 989.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to not remove any procedures from 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) into one 
of the surgical MS-DRGs for the MDC into which the principal diagnosis 
is assigned for ICD-10 MS-DRGs Version 35, effective October 1, 2017.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    We also review 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.
    Based on the results of our review of the December 2016 update of 
the FY 2016 MedPAR file, in the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 19850), we proposed to reassign the procedure codes currently 
assigned to MS-DRGs 984 through 986 (Prostatic O.R. Procedure Unrelated 
to Principal Diagnosis with MCC, with CC and without CC/MCC, 
respectively) to MS-DRGs 987 through 989 (Non-extensive O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC and without CC/MCC, 
respectively). As shown in the table below, we found a total of 1,001 
cases in MS-DRGs 984 through 986 with an average length-of-stay of 7.5 
days and average costs of $16,539. In MS-DRGs 987 through 989, we found 
a total of 17,772 cases, with an average length of stay of 7.5 days and 
average costs of $16,193.

[[Page 38062]]



                                O.R. Procedures Unrelated to Principal Diagnosis
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay     Average  costs
----------------------------------------------------------------------------------------------------------------
MS-DRGs 984, 985 and 986 (Prostatic O.R. Procedure Unrelated to            1,001             7.5         $16,539
 Principal Diagnosis with MCC, with CC, and without CC/MCC,
 respectively)..................................................
MS-DRGs 987, 988 and 989 (Non[dash]extensive O.R. Procedure               17,772             7.5          16,193
 Unrelated to Principal Diagnosis with MCC, with CC, and without
 CC/MCC, respectively)..........................................
----------------------------------------------------------------------------------------------------------------

    The claims data demonstrate that it is no longer necessary to 
maintain a separate set of MS-DRGs specifically for the prostatic O.R. 
procedures. The average length of stay of 7.5 days is identical in both 
sets of MS-DRGs and the average costs are very similar with a 
difference of only $346. As we discussed in the proposed rule, our 
clinical advisors reviewed the data and support movement of these 1,001 
cases into the nonextensive O.R. procedures MS-DRGs. They noted that 
treatment practices have shifted since the inception of the prostatic 
O.R. procedures grouping and the average costs are in alignment.
    Therefore, for FY 2018, we proposed to reassign the prostatic O.R. 
procedure codes from MS-DRGs 984 through 986 to MS-DRGs 987 through 989 
and to delete MS-DRGs 984, 985 and 986 because they would no longer be 
needed as a result of this proposed movement. We invited public 
comments on our proposals.
    Comment: Commenters supported the proposal to reassign the 
prostatic O.R. procedure codes from MS-DRGs 984 through 986 to MS-DRGs 
987 through 989 and to delete MS-DRGs 984, 985 and 986.
    Response: We appreciate the commenters' support.
    After consideration of the public comments that we received, we are 
finalizing our proposal to reassign the prostatic O.R. procedure codes 
from MS-DRGs 984 through 986 to MS-DRGs 987 through 989 (Non-extensive 
O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC and 
without CC/MCC, respectively) and to delete MS-DRGs 984, 985 and 986 
(Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC and without CC/MCC, respectively) for ICD-10 MS-DRGs Version 
35, effective October 1, 2017.
15. Changes to the ICD-10-CM and ICD-10-PCS Coding Systems
    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 (CDC), and CMS, charged with 
maintaining and updating the ICD-9-CM system. The final update to ICD-
9-CM codes was 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 2018 at a public meeting held on September 13-14, 
2016, and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 13, 2016.
    The Committee held its 2017 meeting on March 7-8, 2017. The 
deadline for submitting comments on these code proposals was April 7, 
2017. 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 2017 would be 
included in the October 1, 2017 update to ICD-10-CM/ICD-10-PCS. As 
discussed in earlier sections of the preamble of the proposed rule and 
this final rule, there are new, revised, 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, Table 
6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure Codes, Table 
6E.--Revised Diagnosis Code Titles, and Table 6F.--Revised Procedure 
Code Titles for the proposed rule and this final 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 published in the 
Addendum to this final rule. Rather, they are available via the 
Internet as discussed in section VI. of the Addendum to this final 
rule.
    We note that after publication of the FY 2018 IPPS/LTCH PPS 
proposed rule, we were notified by the CDC of changes to the FY 2018 
ICD-10-CM diagnosis codes that were listed in Table 6A.--New Diagnosis 
Codes and Table 6C.-- Invalid Diagnosis Codes that were

[[Page 38063]]

associated with the proposed rule. Specifically, ICD-10-CM diagnosis 
code K61.3 (Ischiorectal abscess) was listed in Table 6C. as an invalid 
diagnosis, and diagnosis codes K61.31 (Horseshoe abscess) and K61.32 
(Ischiorectal abscess, NOS) were listed in Table 6A. as new diagnosis 
codes. The CDC informed us that they reversed their decision with 
respect to these codes. Therefore, diagnosis codes K61.31 and K61.32 
are not being created for FY 2018 and are not reflected in Table 6A.--
New Diagnosis Codes associated with this FY 2018 IPPS/LTCH PPS final 
rule. In addition, diagnosis code K61.3 is no longer reflected in Table 
6C. associated with this final rule as an invalid diagnosis. Diagnosis 
code K61.3 will continue to be a valid code for FY 2018 in the ICD-10-
CM classification.
    The CDC also informed us of changes to diagnosis code K61.5 
(Supralevator abscess). This diagnosis code was listed as a new 
diagnosis code in Table 6A.--New Diagnosis Codes that was associated 
with the proposed rule. However, this decision was also reversed. 
Therefore, diagnosis code K61.5 is not reflected in Table 6A. 
associated with this FY 2018 IPPS/LTCH PPS final rule and will not be 
reflected in the ICD-10-CM classification.
    We also note that after publication of the FY 2018 IPPS/LTCH PPS 
proposed rule, the CDC revised the title for diagnosis code O00.212 
from ``Left ovarian pregnancy without intrauterine pregnancy'' to 
``Left ovarian pregnancy with intrauterine pregnancy''. The description 
of the code title changed from ``without'' to ``with'' for this 
diagnosis code. This change will not be reflected in Table 6E.--Revised 
Diagnosis Code Titles because it is a new diagnosis code effective FY 
2018. Rather, the corrected code title description will appear in Table 
6A.--New Diagnosis Codes associated with this FY 2018 IPPS/LTCH PPS 
final rule. Furthermore, the CDC issued an ICD-10-CM Errata on June 27, 
2017 regarding this code title change for diagnosis code O00.212. The 
Errata document is available via the Internet on the CMS Web site at: 
https://www.cms.gov/Medicare/Coding/ICD10/2018-ICD-10-CM-and-GEMs.html.
    Live Webcast recordings of the discussions of procedure codes at 
the Committee's September 13-14, 2016 meeting and March 7-8, 2017 
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 13-14, 2016 meeting and 
March 7-8, 2017 meeting can be found at: http://www.cdc.gov/nchs/icd/icd10cm_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 June 
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 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

[[Page 38064]]

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, 2017 implementation of a code at the 
September 13-14, 2016 Committee meeting. Therefore, there were no new 
codes implemented on April 1, 2017.
    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.
    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.
    The following chart shows the number of ICD-10-CM and ICD-10-PCS 
codes and code changes since FY 2016 when ICD-10 was implemented.

  Total Number of Codes and Changes in Total Number of Codes per Fiscal
                   Year ICD-10-CM and ICD-10-PCS Codes
------------------------------------------------------------------------
                  Fiscal year                      Number       Change
------------------------------------------------------------------------
FY 2016
ICD-10-CM.....................................       69,823  ...........
ICD-10-PCS....................................       71,974  ...........
FY 2017
ICD-10-CM.....................................       71,486       +1,663
ICD-10-PCS....................................       75,789       +3,815
FY 2018
ICD-10-CM.....................................       71,704         +218
ICD-10-PCS....................................       78,705       +2,916
------------------------------------------------------------------------

    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.
    At the September 12-13, 2016 and March 7-8, 2017 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, 2017. We invited public comments on any code 
requests discussed at the September 12-13, 2016 and March 7-8, 2017 
Committee meetings for implementation as part of the October 1, 2017 
update. The deadline for commenting on code proposals discussed at the 
September 12-13, 2016 Committee meeting was November 13, 2016. The 
deadline for commenting on code proposals discussed at the March 7-8, 
2017 Committee meeting was April 7, 2017.
    Comment: One commenter stated that coding updates interfere with 
consistent clinical vocabulary maintenance. The commenter pointed to 
ICD-10-PCS code updates for FY 2018 which involve the addition of 
specificity beyond what was included in the 2017 version of ICD-10-PCS. 
The commenter stated that a core principle of clinical vocabulary 
maintenance is that the meaning of a code should not change over time. 
The commenter acknowledged that deadline for submitting comments on 
code proposals for the FY 2018 ICD-10-PCS had passed. The commenter 
stated that clinical vocabulary maintenance should be a primary 
consideration of the ICD-10 Coordination and Maintenance Committee 
before any further coding updates are proposed. The commenter looked 
forward to working with the ICD-10 Coordination and Maintenance 
Committee meeting on future code updates.
    Response: CMS and CDC welcome the participation of the public at 
the ICD-10 Coordination and Maintenance Committee meetings. CMS and CDC 
encourage comments on any ICD-10-CM and ICD-10-PCS code updates 
presented at the meetings. The ICD-10-CM and ICD-10-PCS coding systems 
are not clinical vocabularies. The coding systems do not attempt to 
clarify or standardize how physicians describe clinical conditions or 
procedures. The ICD-10-CM and ICD-10-PCS coding systems are clinical 
classification systems. Classification systems arrange and organize 
like or related clinical conditions and procedures. The coding systems 
assign codes to capture diagnoses and procedures as documented by 
physicians. This can involve multiple diagnosis and procedure terms 
being captured in a single code. It is recognized that not all 
physicians use consistent terminology for identifying a condition or 
procedure. The coding systems recognize this fact and develop codes 
which capture this group of similar terms into a single code. The 
coding systems should not be viewed as a means to standardize medical 
terminology.
    In response to public requests for updates to ICD-10-CM and ICD-10-
PCS, the ICD-10 Coordination and Maintenance Committee presents the 
requested code updates and then solicits comments prior to making those 
updates. The ICD-9-CM and ICD-10 coding systems have been updated 
through the Coordination and Maintenance Committee since 1985, making 
updates to the coding systems that capture advances in medicine and 
changes in medical practices. The Committee will continue to meet to 
allow the public to provide comments on any requests to update the ICD-
10-CM and ICD-10-PCS coding systems.
    Comment: One commenter stated that it was a strong supporter of the 
conversion from ICD-9-CM to ICD-10-CM, including the creation of the 
new Section ``X'' codes to identify new medical services and 
technologies, because the newer, more robust coding system will allow 
for recognition of more technologies, procedures, and variations in 
patients' conditions on Medicare claims, which in turn will support 
greater specificity in MS-DRGs. However, the commenter asked that CMS 
provide additional information about how the ``X'' codes will be used 
and applied.
    Response: We encourage the public to participate in the ICD-10 
Coordination and Maintenance Committee meetings to offer comments on 
code updates. Any new codes that are finalized prior to the IPPS/LTCH 
PPS proposed rules, including ICD-10-PCS ``X'' codes, are included in 
the Table 6 series in the

[[Page 38065]]

IPPS/LTCH PPS proposed rule along with their proposed MS-DRG 
classifications. The public is offered the opportunity to comment on 
those MS-DRG classifications. Any new codes that are finalized after 
the IPPS/LTCH PPS proposed rule are included in the IPPS/LTCH PPS final 
rule along with their MS-DRG classifications. We refer the commenter to 
section II.H. of the preamble of this final rule for additional 
discussion of the section ``X'' codes.
16. 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. Changes for FY 2018
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19852 through 
19853), for FY 2018, we did not propose to add any MS-DRGs to the 
policy for replaced devices offered without cost or with a credit. We 
proposed to continue to include the existing MS-DRGs currently subject 
to the policy as displayed in a table in the proposed rule.
    In the proposed rule, we solicited public comments on our proposal 
to continue to include the existing MS-DRGs currently subject to the 
policy for replaced devices offered without cost or with credit and to 
not add any additional MS-DRGs to the policy. We noted that, as 
discussed in section II.F.2.b. and in section II.F.5.a. of the preamble 
of the proposed rule, we proposed to revise the titles for MS-DRG 023 
and MS-DRGs 469 and 470. We referred readers to those discussions of 
the specific proposed MS-DRG titles. We did not receive any public 
comments opposing our proposal to continue to include the existing MS-
DRGs currently subject to the policy and to not add any additional MS-
DRGs. Therefore, we are finalizing the list of MS-DRGs displayed in the 
table in the proposed rule and below, with conforming changes to the 
finalized titles for MS-DRGs 023, 469, and 470, that will be subject to 
the replaced devices offered without cost or with a credit policy, 
effective October 1, 2017. As we indicated in the proposed rule, we 
also will issue this final list of MS-DRGs subject to the payment 
policy for devices provided at no cost or with a credit for FY 2018 to 
providers through guidance and instructions in the form of a Change 
Request (CR).

----------------------------------------------------------------------------------------------------------------
                    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 or Acute CNS
                                                                Principal Diagnosis with MCC or Chemotherapy
                                                                Implant or Epilepsy with Neurostimulator.
1.........................................                024  Craniotomy with Major Device Implant or 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
                                                                Procedures with MCC.
1.........................................                041  Peripheral, Cranial Nerve & Other Nervous System
                                                                Procedures with CC or Peripheral
                                                                Neurostimulator.
1.........................................                042  Peripheral, Cranial Nerve & Other Nervous System
                                                                Procedures 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 Catheterization with MCC.
5.........................................                217  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure with Cardiac Catheterization with CC.
5.........................................                218  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure with Cardiac Catheterization without
                                                                CC/MCC.
5.........................................                219  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure without Cardiac Catheterization with
                                                                MCC.
5.........................................                220  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure without Cardiac Catheterization with
                                                                CC.
5.........................................                221  Cardiac Valve & Other Major Cardiothoracic
                                                                Procedure without Cardiac Catheterization
                                                                without CC/MCC.
5.........................................                222  Cardiac Defibrillator Implant with Cardiac
                                                                Catheterization with AMI/Heart Failure/Shock
                                                                with MCC.
5.........................................                223  Cardiac Defibrillator Implant with Cardiac
                                                                Catheterization with AMI/Heart Failure/Shock
                                                                without MCC.
5.........................................                224  Cardiac Defibrillator Implant with Cardiac
                                                                Catheterization without AMI/Heart Failure/Shock
                                                                with MCC.
5.........................................                225  Cardiac Defibrillator Implant with Cardiac
                                                                Catheterization without AMI/Heart Failure/Shock
                                                                without MCC.
5.........................................                226  Cardiac Defibrillator Implant without Cardiac
                                                                Catheterization with MCC.
5.........................................                227  Cardiac Defibrillator Implant without Cardiac
                                                                Catheterization 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.........................................                265  AICD Lead Procedures.
5.........................................                266  Endovascular Cardiac Valve Replacement with MCC.
5.........................................                267  Endovascular Cardiac Valve Replacement without
                                                                MCC.

[[Page 38066]]

 
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 Hip and Knee Joint Replacement or
                                                                Reattachment of Lower Extremity with MCC or
                                                                Total Ankle Replacement.
8.........................................                470  Major Hip and Knee Joint Replacement or
                                                                Reattachment of Lower Extremity without MCC.
----------------------------------------------------------------------------------------------------------------

17. Other Policy Changes: Other Operating Room (O.R.) and Non-O.R. 
Issues
a. O.R. Procedures to Non-O.R. Procedures
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19853), we have continued our efforts to address the recommendations 
for consideration that we received in response to some of the proposals 
set forth in the FY 2017 IPPS/LTCH PPS proposed rule pertaining to 
changing the designation of ICD-10-PCS procedure codes from O.R. 
procedures to non-O.R. procedures. As we stated in the FY 2017 IPPS/
LTCH PPS final rule (81 FR 56871), we received requests and 
recommendations for over 800 procedure codes that we were not able to 
fully evaluate and finalize for FY 2017. We discuss these requests and 
recommendations below.
    As discussed in the proposed rule, we also are addressing separate 
requests that we received regarding changing the designation of 
specific ICD-10-PCS procedure codes. For each group summarized below, 
the detailed lists of procedure codes are shown in Tables 6P.4a. 
through 6P.4p. (ICD-10-CM and ICD-10-PCS Code Designations, MCE and MS-
DRG Changes--FY 2018) associated with the FY 2018 proposed rule and 
this final 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).
    Comment: Some commenters expressed concern with the proposed 
changes from O.R. procedures to non-O.R. procedures for such a large 
number of procedure codes without having more detailed analysis of the 
impact to specific MS-DRGs. The commenters stated that many of the 
proposed changes for FY 2018 go beyond last year's changes when the 
changes from O.R. procedures to non-O.R. procedures were done for 
purposes of replicating the logic of the ICD-9 MS-DRGs.
    Response: We acknowledge the concerns of the commenters regarding 
the volume of proposed changes for procedures to be redesignated from 
O.R. to non-O.R. As we stated in the FY 2018 IPPS/LTCH PPS proposed 
rule, we continued our efforts to address the recommendations that we 
received in response to some of the proposals set forth in the FY 2017 
IPPS/LTCH PPS proposed rule pertaining to changing the designation of 
ICD-10-PCS procedure codes from O.R. procedures to non-O.R. procedures. 
We noted that those recommendations were for over 800 procedure codes 
that we were not able to fully evaluate and finalize for FY 2017. 
Therefore, we discussed the proposed changes for FY 2018.
    The commenters are correct that the proposed changes for FY 2018 go 
beyond the FY 2017 proposed (and finalized) MS-DRG updates to change 
the designation of procedure codes from O.R. to non-O.R. that were done 
for purposes of replicating the logic of the ICD-9 MS-DRGs. We stated 
in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56790) that some of the 
issues evaluated for the FY 2017 MS-DRGs update continued 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. We noted that replication 
was important because both the logic for the MS-DRGs and the data 
source used to calculate and develop the relative payment weights were 
based on the same MedPAR claims data. We further noted that the logic 
for the proposed and final FY 2017 ICD-10 MS-DRGs was based upon the FY 
2015 ICD-9-CM MedPAR claims data, which was also the data source used 
to calculate and develop the FY 2017 relative payment weights. However, 
for FY 2018 and future fiscal years, we are no longer replicating the 
ICD-9 MS-DRGs. As discussed in the FY 2018 IPPS/LTCH PPS proposed rule 
and this final rule, we are using ICD-10 coded claims data for the 
first time to propose changes to the ICD-10 MS-DRG classifications and 
to compute the relative weights. Therefore, our proposals and final 
policies for FY 2018 are based solely on the ICD-10 claims data from 
the FY 2016 MedPAR file.
    As such, procedures that were designated as O.R. under ICD-9 will 
not necessarily be appropriate to designate as O.R. under ICD-10. 
Conversely, procedures that were not designated as O.R. under ICD-9 may 
be appropriate to designate as O.R. under ICD-10. As discussed 
elsewhere in this final rule, with the transition from ICD-9 to ICD-10, 
the determination of when a procedure code should be designated as an 
O.R. procedure has become a much more complex task. This is, in part, 
due to the number of various approaches available in the ICD-10-PCS 
classification, as well as changes in medical practice. While we have 
typically evaluated procedures on the basis of whether or not they 
would be performed in an operating room, we believe that there may be 
other factors to consider with regard to resource utilization, 
particularly with the implementation of ICD-10. Therefore, we are 
soliciting comments on what factors or criteria to consider in 
determining whether a procedure is designated as an O.R. procedure in 
the ICD-10-PCS classification system for FY 2019 consideration. 
Commenters should submit their recommendations to the following email 
address: [email protected] by November 1, 2017.
(1) Percutaneous/Diagnostic Drainage
    One commenter identified 135 ICD-10-PCS procedure codes describing 
procedures involving percutaneous diagnostic and therapeutic drainage 
of central nervous system, vascular and other body sites that generally 
would not require the resources of an operating room and can be 
performed at the bedside. The list includes procedure codes that 
describe procedures

[[Page 38067]]

involving drainage with or without placement of a drainage device. We 
stated in the proposed rule that we agreed with the commenter. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19853), we 
proposed that the 135 ICD-10-PCS procedure codes listed in Table 6P.4a. 
associated with the 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 designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 135 procedure codes describing percutaneous 
diagnostic and therapeutic drainage of central nervous system, vascular 
and other body sites. However, one commenter disagreed with 
reclassifying procedure codes 009330Z (Drainage of Epidural Space with 
Drainage Device, Percutaneous Approach) and 00933ZZ (Drainage of 
Epidural Space, Percutaneous Approach) to non-O.R. procedures. 
According to the commenter, these two codes are assigned for 
percutaneous burr hole drainage of acute traumatic and nontraumatic 
intracranial epidural hematomas, and for drainage of intracranial 
epidural abscesses. The commenter noted that, although percutaneous 
burr hole drainages are performed through smaller openings in the skull 
than open burr hole drainages, they require drilling through the skull 
under sterile technique and anesthesia for pain control. The commenter 
also noted that similar procedure codes such as 009430Z (Drainage of 
Subdural Space with Drainage Device, Percutaneous Approach) and 00943ZZ 
(Drainage of Subdural Space, Percutaneous Approach) are currently 
classified as O.R. procedures.
    Response: We appreciate the commenters' support. In response to the 
commenter who disagreed with reclassifying procedure codes 009330Z and 
00933ZZ to non-O.R. procedures, upon further review and consideration, 
for the reasons the commenter pointed out and consistent with the 
current designation of procedure codes 009430Z and 00943ZZ, which are 
classified as O.R. procedures, we believe it is appropriate to maintain 
the current O.R. designation of procedure codes 009330Z and 00933ZZ.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of 133 ICD-10-PCS 
procedure codes listed in Table 6P.4a. associated with this final 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 from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017. We also are finalizing the 
designation of procedure codes 009330Z and 00933ZZ to remain O.R. 
procedures for FY 2018. We note that, as shown in Table 6F.--Revised 
Procedure Code Titles associated with this final rule, the titles for 
procedure codes 009330Z, 00933ZZ, 009430Z and 00943ZZ are revised to 
include the term ``intracranial.'' Effective October 1, 2017, the title 
of ICD-10-PCS procedure code 009330Z is revised to read ``Drainage of 
Intracranial Epidural Space with Drainage Device, Percutaneous 
Approach''; the title of ICD-10-PCS procedure code 00933ZZ is revised 
to read ``Drainage of Intracranial Epidural Space, Percutaneous 
Approach''; the title of ICD-10-PCS procedure code 009430Z is revised 
to read ``Drainage of Intracranial Subdural Space with Drainage Device, 
Percutaneous Approach''; and the title of ICD-10-PCS procedure code 
00943ZZ is revised to read ``Drainage of Intracranial Subdural Space, 
Percutaneous Approach''.
(2) Percutaneous Insertion of Intraluminal or Monitoring Device
    One commenter identified 28 ICD-10-PCS procedure codes describing 
procedures involving the percutaneous insertion of intraluminal and 
monitoring devices into central nervous system and other cardiovascular 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. We stated in the 
proposed rule that we agreed with the commenter. Therefore, in the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 19853), we proposed that the 28 
ICD-10-PCS procedure codes listed in Table 6P.4b. associated with the 
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 designated as non-O.R. procedures. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 28 procedure codes describing percutaneous insertion 
of intraluminal or monitoring devices into central nervous system and 
other cardiovascular body parts. However, one commenter disagreed with 
changing the designation for 15 of the 28 listed procedure codes. The 
commenter disagreed with changing the designation for ICD-10-PCS 
procedure codes 00H032Z (Insertion of Monitoring Device into Brain, 
Percutaneous Approach) and 00H632Z (Insertion of Monitoring Device into 
Cerebral Ventricle, Percutaneous Approach). According to the commenter, 
these two codes are assigned for inserting a monitoring device into the 
brain or cerebral ventricle by a percutaneous burr hole which is most 
often performed in the O.R. setting under sterile technique and 
requires anesthesia for pain control. In addition, the commenter 
disagreed with changing the designation for the following 13 ICD-10-PCS 
procedure codes. The commenter stated that these intravascular 
procedures are performed in specialized vascular suites and involve 
insertion of a filter into the vena cava for prevention of pulmonary 
emboli or the insertion of vascular stents for conditions such as 
stenosis and other types of intraluminal devices into the great vessels 
and are significant procedures that warrant an O.R. designation.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
02H43DZ...................  Insertion of intraluminal device into
                             coronary vein, percutaneous approach.
02H63DZ...................  Insertion of intraluminal device into right
                             atrium, percutaneous approach.
02H73DZ...................  Insertion of intraluminal device into left
                             atrium, percutaneous approach.
02HK3DZ...................  Insertion of intraluminal device into right
                             ventricle, percutaneous approach.
02HL3DZ...................  Insertion of intraluminal device into left
                             ventricle, percutaneous approach.
02HP3DZ...................  Insertion of intraluminal device into
                             pulmonary trunk, percutaneous approach.
02HQ3DZ...................  Insertion of intraluminal device into right
                             pulmonary artery, percutaneous approach.
02HR3DZ...................  Insertion of intraluminal device into left
                             pulmonary artery, percutaneous approach.
02HS3DZ...................  Insertion of intraluminal device into right
                             pulmonary vein, percutaneous approach.
02HT3DZ...................  Insertion of intraluminal device into left
                             pulmonary vein, percutaneous approach.
02HV3DZ...................  Insertion of intraluminal device into
                             superior vena cava, percutaneous approach.

[[Page 38068]]

 
02HW3DZ...................  Insertion of intraluminal device into
                             thoracic aorta, percutaneous approach.
06H03DZ...................  Insertion of intraluminal device into
                             inferior vena cava, percutaneous approach.
------------------------------------------------------------------------

    Response: We appreciate the commenters' support. In response to the 
commenter who disagreed with changing the designation for 15 of the 28 
procedure codes, upon further review and consideration, we agree that 
the status of the above list of procedure codes, in addition to the two 
procedure codes discussed earlier in this section (00H032Z and 00H632Z) 
should be maintained as O.R. procedures due to the indications for 
which these procedures may be performed and the risks involved.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of 13 ICD-10-PCS 
procedure codes listed in Table 6P.4b. associated with this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017. We also are finalizing 
maintaining the designation of ICD-10-PCS procedure codes 00H032Z 
(Insertion of Monitoring Device into Brain, Percutaneous Approach) and 
00H632Z (Insertion of Monitoring Device into Cerebral Ventricle, 
Percutaneous Approach) and the list of procedure codes shown in the 
table above as O.R. procedures, effective October 1, 2017.
(3) Percutaneous Removal of Drainage, Infusion, Intraluminal or 
Monitoring Device
    One commenter identified 22 ICD-10-PCS procedure codes that 
describe procedures involving the percutaneous removal of drainage, 
infusion, intraluminal and monitoring devices from central nervous 
system and other vascular body parts that generally would not require 
the resources of an operating room and can be performed at the bedside. 
We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19854), we proposed that the 22 ICD-10-PCS 
procedure codes listed in Table 6P.4c. associated with the 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 designated as non-O.R. procedures. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of 22 ICD-10-PCS procedure codes describing the 
percutaneous removal of drainage, infusion, intraluminal and monitoring 
devices from central nervous system and other vascular body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 22 ICD-10-PCS 
procedure codes listed in Table 6P.4c. associated with the proposed 
rule and this final 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 from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(4) External Removal of Cardiac or Neurostimulator Lead
    One commenter identified four ICD-10-PCS procedure codes that 
describe procedures involving the external removal of cardiac leads 
from the heart and neurostimulator leads from central nervous system 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These four ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
00P6XMZ...................  Removal of neurostimulator lead from
                             cerebral ventricle, external approach.
00PEXMZ...................  Removal of neurostimulator lead from cranial
                             nerve, external approach.
01PYXMZ...................  Removal of neurostimulator lead from
                             peripheral nerve, external approach.
02PAXMZ...................  Removal of cardiac lead from heart, external
                             approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19854), we proposed that the four ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of four ICD-10-PCS procedure codes that describe the 
external removal of cardiac leads from the heart and neurostimulator 
leads from central nervous system body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the four ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(5) Percutaneous Revision of Drainage, Infusion, Intraluminal or 
Monitoring Device
    One commenter identified 28 ICD-10-PCS procedure codes that 
describe procedures involving the percutaneous revision of drainage, 
infusion, intraluminal and monitoring devices for vascular and heart 
and great vessel body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. We 
agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19854), we proposed that the 28 ICD-10-PCS 
procedure codes listed in Table 6P.4d. associated with the 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 designated as non-O.R. procedures. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of 28 ICD-10-PCS procedure codes that describe the 
percutaneous revision of drainage, infusion, intraluminal and 
monitoring devices for vascular and heart and great vessel body parts.
    Response: We appreciate the commenters' support.

[[Page 38069]]

    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation for the 28 ICD-10-PCS 
procedure codes listed in Table 6P.4d. associated with the proposed 
rule and this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(6) Percutaneous Destruction
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving the percutaneous destruction of retina 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These two ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
085E3ZZ...................  Destruction of right retina, percutaneous
                             approach.
085F3ZZ...................  Destruction of left retina, percutaneous
                             approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19854), we proposed that the two ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of two ICD-10-PCS procedure codes that describe the 
percutaneous destruction of retina body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the two ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(7) External/Diagnostic Drainage
    One commenter identified 20 ICD-10-PCS procedure codes that 
describe procedures involving external drainage for structures of the 
eye that generally would not require the resources of an operating room 
and can be performed at the bedside. We agreed with the commenter. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19854), we 
proposed that the 20 ICD-10-PCS procedure codes listed in Table 6P.4e. 
associated with the 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 designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of 20 ICD-10-PCS procedure codes that describe external 
drainage for structures of the eye.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation for the 20 ICD-10-PCS 
procedure codes listed in Table 6P.4e. associated with the proposed 
rule and this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(8) External Extirpation
    One commenter identified four ICD-10-PCS procedure codes that 
describe procedures involving external extirpation of matter from eye 
structures that generally would not require the resources of an 
operating room and can be performed at the bedside. These four ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
08C0XZZ...................  Extirpation of matter from right eye,
                             external approach.
08C1XZZ...................  Extirpation of matter from left eye,
                             external approach.
08CSXZZ...................  Extirpation of matter from right
                             conjunctiva, external approach.
08CTXZZ...................  Extirpation of matter from left conjunctiva,
                             external approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19854 through 19855), we proposed that the 
four ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the four ICD-10-PCS procedure codes shown in the table 
above that describe procedures involving external extirpation of matter 
from eye structures.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the four ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(9) External Removal of Radioactive Element or Synthetic Substitute
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving the external removal of radioactive or 
synthetic substitutes from the eye that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These three ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
08P0X1Z...................  Removal of radioactive element from right
                             eye, external approach.
08P0XJZ...................  Removal of synthetic substitute from right
                             eye, external approach.
08P1XJZ...................  Removal of synthetic substitute from left
                             eye, external approach.
------------------------------------------------------------------------


[[Page 38070]]

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19855), we proposed that the three ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the three ICD-10-PCS procedure codes shown in the table 
above that describe the external removal of radioactive or synthetic 
substitutes from the eye.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the three ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(10) Endoscopic/Transorifice Diagnostic Drainage
    One commenter identified eight ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) drainage of ear structures that generally would not 
require the resources of an operating room and can be performed at the 
bedside. These eight ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
09977ZX...................  Drainage of right tympanic membrane, via
                             natural or artificial opening, diagnostic.
09978ZX...................  Drainage of right tympanic membrane, via
                             natural or artificial opening endoscopic,
                             diagnostic.
09987ZX...................  Drainage of left tympanic membrane, via
                             natural or artificial opening, diagnostic.
09988ZX...................  Drainage of left tympanic membrane, via
                             natural or artificial opening endoscopic,
                             diagnostic.
099F7ZX...................  Drainage of right eustachian tube, via
                             natural or artificial opening, diagnostic.
099F8ZX...................  Drainage of right eustachian tube, via
                             natural or artificial opening endoscopic,
                             diagnostic.
099G7ZX...................  Drainage of left eustachian tube, via
                             natural or artificial opening, diagnostic.
099G8ZX...................  Drainage of left eustachian tube, via
                             natural or artificial opening endoscopic,
                             diagnostic.
------------------------------------------------------------------------

    We stated in the proposed rule that we agreed with the commenter. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19855), we 
proposed that the eight ICD-10-PCS procedure codes shown in the table 
above be designated as non-O.R. procedures. We invited public comments 
on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the eight ICD-10-PCS procedure codes shown in the table 
above that describe drainage of ear structures.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the eight ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(11) External Release
    One commenter identified four ICD-10-PCS procedure codes that 
describe procedures involving the external release of ear structures 
that generally would not require the resources of an operating room and 
can be performed at the bedside. These four ICD-10-PCS codes are shown 
in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
09N0XZZ...................  Release right external ear, external
                             approach.
09N1XZZ...................  Release left external ear, external
                             approach.
09N3XZZ...................  Release right external auditory canal,
                             external approach.
09N4XZZ...................  Release left external auditory canal,
                             external approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19855), we proposed that the four ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the four ICD-10-PCS procedure codes shown in the table 
above that describe external release of ear structures.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the four ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(12) External Repair
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving the external repair of body parts that 
generally would not require the resources of an operating room and can 
be performed at the bedside. These three ICD-10-PCS codes are shown in 
the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
09QKXZZ...................  Repair nose, external approach.
0CQ4XZZ...................  Repair buccal mucosa, external approach.
0CQ7XZZ...................  Repair tongue, external approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2019 IPPS/LTCH 
PPS proposed rule (82 FR 19855), we proposed that the three ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the three ICD-10-PCS procedure codes shown in the table 
above that describe

[[Page 38071]]

external repair of body parts of various structures.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the three ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(13) Endoscopic/Transorifice Destruction
    One commenter identified eight ICD-10-PCS procedure codes that 
describe procedures involving the endoscopic/transorifice destruction 
of respiratory system body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These eight ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0B538ZZ...................  Destruction of right main bronchus, via
                             natural or artificial opening endoscopic.
0B548ZZ...................  Destruction of right upper lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0B558ZZ...................  Destruction of right middle lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0B568ZZ...................  Destruction of right lower lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0B578ZZ...................  Destruction of left main bronchus, via
                             natural or artificial opening endoscopic.
0B588ZZ...................  Destruction of left upper lobe bronchus, via
                             natural or artificial opening endoscopic.
0B598ZZ...................  Destruction of lingula bronchus, via natural
                             or artificial opening endoscopic.
0B5B8ZZ...................  Destruction of left lower lobe bronchus, via
                             natural or artificial opening endoscopic.
------------------------------------------------------------------------

    We stated in the proposed rule that we agreed with the commenter. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19855 
through 19856), we proposed that the eight ICD-10-PCS procedure codes 
shown in the table above be designated as non-O.R. procedures. We 
invited public comments on our proposal.
    Comment: Some commenters agreed with the proposal to change the 
designation of the eight ICD-10-PCS procedure codes that describe 
procedures involving the endoscopic/transorifice destruction of 
respiratory system body parts from O.R. procedures to non-O.R. 
procedures. However, other commenters disagreed with the proposal. 
These commenters believed that these procedures do, in fact, require 
the resources of an operating room and stated that the suggestion that 
these procedures can be performed at the bedside is clinically 
inaccurate and misrepresents the nature of these procedures. According 
to the commenters, the only instances in which these procedures would 
be performed at the bedside would be if the patient was in the 
intensive care unit and in emergent need of care. Otherwise, the 
commenters indicated that providing these services at the patient's 
bedside would not be appropriate. Commenters also noted that the 
patients who undergo the above procedures typically have poor 
respiratory function that requires treatment within an O.R. setting for 
clinical and safety purposes. In addition, the commenters reported that 
the administration of anesthesia during these procedures is critically 
important. The commenters conducted an in-depth analysis to determine 
the impact of the proposed change and noted that the resource 
utilization associated with the inpatient claims reporting these 
procedures more closely aligns with surgical MS-DRGs versus medical MS-
DRGs.
    Response: We appreciate the commenters' support. In response to the 
commenters who disagreed with changing the designation of the eight 
ICD-10-PCS procedure codes that describe the endoscopic/transorifice 
destruction of respiratory system body parts, we appreciate the 
thorough review and analysis conducted in response to our solicitation 
for comments on the proposal. Upon further review and consideration, we 
agree that these procedures warrant an O.R. setting and assignment to 
surgical MS-DRGs.
    After consideration of the public comments we received, we are not 
finalizing our proposal to change the designation of the eight ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures. The eight procedure codes shown in the table above 
will maintain their O.R. designation for FY 2018.
(14) Endoscopic/Transorifice Drainage
    One commenter identified 40 ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) drainage of respiratory system body parts that 
generally would not require the resources of an operating room and can 
be performed at the bedside. We agreed with the commenter. Therefore, 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19856), we proposed 
that the 40 ICD-10-PCS procedure codes listed in Table 6P.4f. 
associated with the 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 designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 40 ICD-10-PCS procedure codes that describe 
endoscopic/transorifice (via natural or artificial opening) drainage of 
respiratory system body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 40 ICD-10-PCS 
procedure codes listed in Table 6P.4f. associated with the proposed 
rule and this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(15) Endoscopic/Transorifice Extirpation
    One commenter identified nine ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice extirpation of 
matter from respiratory system body parts that generally would not 
require the resources of an operating room and can be performed at the 
bedside. These nine ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0BCC8ZZ...................  Extirpation of matter from right upper lung
                             lobe, via natural or artificial opening
                             endoscopic.

[[Page 38072]]

 
0BCD8ZZ...................  Extirpation of matter from right middle lung
                             lobe, via natural or artificial opening
                             endoscopic.
0BCF8ZZ...................  Extirpation of matter from right lower lung
                             lobe, via natural or artificial opening
                             endoscopic.
0BCG8ZZ...................  Extirpation of matter from left upper lung
                             lobe, via natural or artificial opening
                             endoscopic.
0BCH8ZZ...................  Extirpation of matter from lung lingula, via
                             natural or artificial opening endoscopic.
0BCJ8ZZ...................  Extirpation of matter from left lower lung
                             lobe, via natural or artificial opening
                             endoscopic.
0BCK8ZZ...................  Extirpation of matter from right lung, via
                             natural or artificial opening endoscopic.
0BCL8ZZ...................  Extirpation of matter from left lung, via
                             natural or artificial opening endoscopic.
0BCM8ZZ...................  Extirpation of matter from bilateral lungs,
                             via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We stated in the proposed rule that we agreed with the commenter. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19856), we 
proposed that the nine ICD-10-PCS procedure codes shown in the table 
above be designated as non-O.R. procedures. We invited public comments 
on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the nine ICD-10-PCS procedure codes that describe 
endoscopic/transorifice extirpation of matter from respiratory system 
body parts. However, one commenter disagreed with the proposal. 
According to the commenter, the codes describe endoscopic procedures 
performed on the lung and are more invasive in comparison to 
endobronchial procedures and they require specialized equipment. The 
commenter also noted that time, skill, and duration of sedation are 
increased for endoscopic lung procedures versus procedures performed on 
the bronchus (endobronchial).
    Response: We appreciate the commenters' support. In response to the 
commenter who disagreed with our proposal, upon further review and 
consideration, we agree that these procedure codes warrant an O.R. 
setting.
    After consideration of the public comments we received, we are not 
finalizing our proposal to designate the nine ICD-10-PCS procedure 
codes shown in the table above as non-O.R. procedures. These procedure 
codes will remain designated as O.R. procedures for FY 2018.
(16) Endoscopic/Transorifice Fragmentation
    One commenter identified 16 ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice fragmentation of 
respiratory system body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These 16 ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0BF37ZZ...................  Fragmentation in right main bronchus, via
                             natural or artificial opening.
0BF38ZZ...................  Fragmentation in right main bronchus, via
                             natural or artificial opening endoscopic.
0BF47ZZ...................  Fragmentation in right upper lobe bronchus,
                             via natural or artificial opening.
0BF48ZZ...................  Fragmentation in right upper lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0BF57ZZ...................  Fragmentation in right middle lobe bronchus,
                             via natural or artificial opening.
0BF58ZZ...................  Fragmentation in right middle lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0BF67ZZ...................  Fragmentation in right lower lobe bronchus,
                             via natural or artificial opening.
0BF68ZZ...................  Fragmentation in right lower lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0BF77ZZ...................  Fragmentation in left main bronchus, via
                             natural or artificial opening.
0BF78ZZ...................  Fragmentation in left main bronchus, via
                             natural or artificial opening endoscopic.
0BF87ZZ...................  Fragmentation in left upper lobe bronchus,
                             via natural or artificial opening.
0BF88ZZ...................  Fragmentation in left upper lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
0BF97ZZ...................  Fragmentation in lingula bronchus, via
                             natural or artificial opening.
0BF98ZZ...................  Fragmentation in lingula bronchus, via
                             natural or artificial opening endoscopic.
0BFB7ZZ...................  Fragmentation in left lower lobe bronchus,
                             via natural or artificial opening.
0BFB8ZZ...................  Fragmentation in left lower lobe bronchus,
                             via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19856 through 19857), we proposed that the 16 
ICD-10-PCS procedure codes shown in the table above be designated as 
non-O.R. procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the16 ICD-10-PCS procedure codes that describe 
endoscopic/transorifice fragmentation of respiratory system body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 16 ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(17) Endoscopic/Transorifice Insertion of Intraluminal Device
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving an endoscopic/transorifice (via natural 
or artificial opening) insertion of intraluminal devices into 
respiratory system body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These two ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0BH17DZ...................  Insertion of intraluminal device into
                             trachea, via natural or artificial opening.
0BH18DZ...................  Insertion of intraluminal device into
                             trachea, via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------


[[Page 38073]]

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19857), we proposed that the two ICD-10-PCS 
procedure codes shown in the table above be designated non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the two ICD-10-PCS procedure codes that describe an 
endoscopic/transorifice (via natural or artificial opening) insertion 
of intraluminal devices into respiratory system body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the two ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(18) Endoscopic/Transorifice Removal of Radioactive Element
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving the endoscopic/transorifice removal of 
radioactive elements from respiratory system body parts that generally 
would not require the resources of an operating room and can be 
performed at the bedside. These two ICD-10-PCS codes are shown in the 
table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0BPK71Z...................  Removal of radioactive element from right
                             lung, via natural or artificial opening.
0BPK81Z...................  Removal of radioactive element from right
                             lung, via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19857), we proposed that the two ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the two ICD-10-PCS procedure codes that describe 
procedures involving the endoscopic/transorifice removal of radioactive 
elements from respiratory system body parts. However, one commenter 
disagreed with the proposal and asserted that endoscopic procedures 
performed on the lung are more invasive than endobronchial procedures.
    Response: We appreciate the commenters' support. In response to the 
commenter who disagreed with our proposal, we recognize that endoscopic 
procedures performed on the lung may be considered more invasive than 
endobronchial procedures. However, according to the American Cancer 
Society, in most cases, anesthesia is not needed when the applicator 
and/or radioactive implant is removed, as it is usually done in the 
hospital room.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of ICD-10-PCS 
procedure codes 0BPK71Z and 0BPK81Z from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(19) Endoscopic/Transorifice Revision of Drainage, Infusion, 
Intraluminal or Monitoring Device
    One commenter identified 18 ICD-10-PCS procedure codes that 
describe procedures involving the revision of drainage, infusion, 
intraluminal, or monitoring devices from respiratory system body parts 
that generally would not require the resources of an operating room and 
can be performed at the bedside. We agreed with the commenter. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19857), we 
proposed that the 18 ICD-10-PCS procedure codes listed in Table 6P.4g. 
associated with the 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 designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 18 ICD-10-PCS procedure codes that describe 
procedures involving the revision of drainage, infusion, intraluminal, 
or monitoring devices from respiratory system body parts. However, one 
commenter disagreed with the proposal and recommended that CMS maintain 
an O.R. designation of 12 of the 18 proposed codes. The commenter 
stated that, although it is uncertain how often a device within the 
lung would be revised versus removed and replaced, endoscopic 
procedures performed on the lung are more invasive than endobronchial 
procedures.
    Response: We appreciate the commenters' support. In response to the 
commenter who disagreed with 12 of the 18 procedure codes in our 
proposal, we still believe our proposal is appropriate, given that 
there are a wide range of procedures that may be performed and are 
described as a revision of a drainage, infusion, intraluminal, or 
monitoring device in the lung and generally do not require the 
resources of an operating room.
    After consideration of the public comments we received, we are 
finalizing our proposal to designate the 18 ICD-10-PCS procedure codes 
listed in Table 6P.4g. associated with the proposed rule and this final 
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) as non-O.R. procedures, effective October 
1, 2017.
(20) Endoscopic/Transorifice Excision
    One commenter identified one ICD-10-PCS procedure code that 
describes the procedure involving endoscopic/transorifice (via natural 
or artificial opening) excision of the digestive system body parts that 
generally would not require the resources of an operating room and can 
be performed at the bedside. This code is 0DBQ8ZZ (Excision of anus, 
via natural or artificial opening endoscopic). We agreed with the 
commenter. Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19857), we proposed that ICD-10-PCS procedure code 0DBQ8ZZ be 
designated as a non-O.R. procedure. We invited public comments on our 
proposal.
    Comment: Commenters supported the proposal to change the 
designation of ICD-10-PCS procedure code 0DBQ8ZZ.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of ICD-10-PCS 
procedure code 0DBQ8ZZ (Excision of anus, via natural or artificial 
opening endoscopic) from an O.R. procedure to a non-O.R. procedure, 
effective October 1, 2017.
(21) Endoscopic/Transorifice Insertion
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving the endoscopic/transorifice (via natural 
or artificial opening) insertion of intraluminal device into the 
stomach that generally would not require the resources of an operating 
room and can be performed at

[[Page 38074]]

the bedside. These two ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0DH67DZ...................  Insertion of intraluminal device into
                             stomach, via natural or artificial opening.
0DH68DZ...................  Insertion of intraluminal device into
                             stomach, via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19857), we proposed that the two ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the two ICD-10-PCS procedure codes that describe the 
endoscopic/transorifice (via natural or artificial opening) insertion 
of intraluminal device into the stomach.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the two ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(22) Endoscopic/Transorifice Removal
    One commenter identified six ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) removal of feeding devices that generally would not 
require the resources of an operating room and can be performed at the 
bedside. These six ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0DP07UZ...................  Removal of feeding device from upper
                             intestinal tract, via natural or artificial
                             opening.
0DP08UZ...................  Removal of feeding device from upper
                             intestinal tract, via natural or artificial
                             opening endoscopic.
0DP67UZ...................  Removal of feeding device from stomach, via
                             natural or artificial opening.
0DP68UZ...................  Removal of feeding device from stomach, via
                             natural or artificial opening endoscopic.
0DPD7UZ...................  Removal of feeding device from lower
                             intestinal tract, via natural or artificial
                             opening.
0DPD8UZ...................  Removal of feeding device from lower
                             intestinal tract, via natural or artificial
                             opening endoscopic.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19857 through 19858), we proposed that the six 
ICD-10-PCS procedure codes shown in the table above be designated as 
non-O.R. procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the six ICD-10-PCS procedure codes that describe the 
endoscopic/transorifice (via natural or artificial opening) removal of 
feeding devices.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the six ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(23) External Reposition
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving external reposition of gastrointestinal 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These two ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0DS5XZZ...................  Reposition esophagus, external approach.
0DSQXZZ...................  Reposition anus, external approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19858), we proposed that the two ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the two ICD-10-PCS procedure codes that describe the 
external reposition of gastrointestinal body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the two ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(24) Endoscopic/Transorifice Drainage
    One commenter identified eight ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) drainage of hepatobiliary system and pancreatic 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These eight ICD-10-
PCS codes are shown in the table below.

[[Page 38075]]



------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0F9580Z...................  Drainage of right hepatic duct with drainage
                             device, via natural or artificial opening
                             endoscopic.
0F958ZZ...................  Drainage of right hepatic duct, via natural
                             or artificial opening endoscopic.
0F9680Z...................  Drainage of left hepatic duct with drainage
                             device, via natural or artificial opening
                             endoscopic.
0F968ZZ...................  Drainage of left hepatic duct, via natural
                             or artificial opening endoscopic.
0F9880Z...................  Drainage of cystic duct with drainage
                             device, via natural or artificial opening
                             endoscopic.
0F988ZZ...................  Drainage of cystic duct, via natural or
                             artificial opening endoscopic.
0F9D8ZZ...................  Drainage of pancreatic duct, via natural or
                             artificial opening endoscopic.
0F9F8ZZ...................  Drainage of accessory pancreatic duct, via
                             natural or artificial opening endoscopic.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19858), we proposed that the eight ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the eight ICD-10-PCS procedure codes that describe 
endoscopic/transorifice (via natural or artificial opening) drainage of 
hepatobiliary system and pancreatic body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the eight ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(25) Endoscopic/Transorifice Fragmentation
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) fragmentation of hepatobiliary system and 
pancreatic body parts that generally would not require the resources of 
an operating room and can be performed at the bedside. These two ICD-
10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0FFD8ZZ...................  Fragmentation in pancreatic duct, via
                             natural or artificial opening endoscopic.
0FFF8ZZ...................  Fragmentation in accessory pancreatic duct,
                             via natural or artificial opening
                             endoscopic.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19858), we proposed that the two ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the two ICD-10-PCS procedure codes that describe 
endoscopic/transorifice (via natural or artificial opening) 
fragmentation of hepatobiliary system and pancreatic body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the two ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(26) Percutaneous Alteration
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving percutaneous alteration of the breast 
that generally would not require the resources of an operating room and 
can be performed at the bedside. These three ICD-10-PCS codes are shown 
in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0H0T3JZ...................  Alteration of right breast with synthetic
                             substitute, percutaneous approach.
0H0U3JZ...................  Alteration of left breast with synthetic
                             substitute, percutaneous approach.
0H0V3JZ...................  Alteration of bilateral breast with
                             synthetic substitute, percutaneous
                             approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19858 through 19859), we proposed that the 
three ICD-10-PCS procedure codes shown in the table above be designated 
as non-O.R. procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the three ICD-10-PCS procedure codes that describe 
percutaneous alteration of the breast.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the three ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(27) External Division and Excision of Skin
    One commenter identified 41 ICD-10-PCS procedure codes that 
describe procedures involving external division and excision of the 
skin for body parts that generally would not require the resources of 
an operating room and can be performed at the bedside. We agreed with 
the commenter. Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 19859), we proposed that the 41 ICD-10-PCS procedure codes 
listed in Table 6P.4h. associated with the proposed rule (which is 
available via the Internet on the CMS Web site at: http://www.cms.gov/
Medicare/Medicare-Fee-for-Service-Payment/

[[Page 38076]]

AcuteInpatientPPS/index.html) be designated as non-O.R. procedures. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 41 ICD-10-PCS procedure codes that describe external 
division and excision of the skin for body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 41 ICD-10-PCS 
procedure codes listed in Table 6P.4h. associated with the proposed 
rule and this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(28) External Excision of Breast
    One commenter identified six ICD-10-PCS procedure codes that 
describe procedures involving external excision of the breast that they 
believed would generally not require the resources of an operating room 
and can be performed at the bedside. These six ICD-10-PCS codes are 
shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0HBTXZZ...................  Excision of right breast, external approach.
0HBUXZZ...................  Excision of left breast, external approach.
0HBVXZZ...................  Excision of bilateral breast, external
                             approach.
0HBWXZZ...................  Excision of right nipple, external approach.
0HBXXZZ...................  Excision of left nipple, external approach.
0HBYXZZ...................  Excision of supernumerary breast, external
                             approach.
------------------------------------------------------------------------

    We disagreed with the commenter because these procedure codes 
describe various types of surgery performed on the breast or nipple 
(for example, partial mastectomy) that would typically involve the use 
of general anesthesia. Therefore, in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19859), we proposed that the six ICD-10-PCS procedure codes 
shown in the table above remain designated as O.R. procedures. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to maintain the current 
designation of the six ICD-10-PCS procedure codes that describe 
external excision of the breast. However, one commenter disagreed 
specifically with the example of a partial mastectomy utilizing an 
external approach. The commenter stated that the breast itself includes 
glandular and ductal tissue, although it is assigned with skin to 
Section 0H in the Medical and Surgical section of the ICD-10-PCS 
classification. Therefore, according to the commenter, by definition, a 
partial mastectomy, which involves excision of glandular/ductal tissue, 
cannot be performed by an external approach because glandular tissue 
cannot be removed through direct action upon the skin or mucous 
membrane.
    Response: We appreciate the commenters' support. In response to the 
commenter who noted the example of a partial mastectomy that cannot be 
performed by an external approach, we agree that the example may not 
have been an appropriate illustration of an external approach according 
to the ICD-10-PCS definitions. A more appropriate example would be an 
excision of lesion of breast for the external approach. As the 
commenter pointed out, the breast itself includes glandular and ductal 
tissue, although it is assigned with skin to Chapter 0H. Because the 
code title description does not specifically include the term ``skin,'' 
it can lead to confusion. We believe this area in the classification 
may benefit from further review to determine if modifications are 
warranted, in which case any proposals would be presented at a future 
ICD-10 Coordination and Maintenance Committee meeting.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the six ICD-10-PCS procedure codes 
shown in the table above as O.R. procedures for FY 2018.
(29) Percutaneous Supplement
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving percutaneous supplement of the breast 
with synthetic substitute that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These three ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0HUT3JZ...................  Supplement right breast with synthetic
                             substitute, percutaneous approach.
0HUU3JZ...................  Supplement left breast with synthetic
                             substitute, percutaneous approach.
0HUV3JZ...................  Supplement bilateral breast with synthetic
                             substitute, percutaneous approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19859), we proposed that the three ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the three ICD-10-PCS procedure codes that describe 
percutaneous supplement of the breast with synthetic substitute.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the three ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(30) Open Drainage
    One commenter identified 25 ICD-10-PCS procedure codes that 
describe procedures involving open drainage of subcutaneous tissue and 
fascia body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. The list includes 
procedure codes for drainage with or without placement of a drainage 
device. We stated in the

[[Page 38077]]

proposed rule that we agreed with the commenter. Therefore, in the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 19859), we proposed that the 25 
ICD-10-PCS procedure codes listed in Table 6P.4i. associated with the 
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 designated as non-O.R. procedures. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 25 ICD-10-PCS procedure codes that describe 
procedures involving open drainage of subcutaneous tissue and fascia 
body parts. However, one commenter disagreed with changing the 
designation for 22 of the 25 procedure codes in the proposal from O.R. 
to non-O.R. This commenter agreed with the proposal to change the 
designation for 3 of the 25 procedure codes because these codes 
specifically describe the objective of placing a drainage device. The 
commenter noted that the other procedures described by the 22 procedure 
codes are performed on deeper subcutaneous tissue and fascia, are more 
invasive, and are most often performed in the O.R. setting under 
general anesthesia. According to the commenter, these codes are 
assigned when the primary objective of the procedure is to incise 
through the skin into the subcutaneous tissue and/or fascia in order to 
drain and clean out an abscess or hematoma (fluid collection). The 
commenter also noted that CMS disagreed with the recommendation to 
reclassify open extraction of subcutaneous tissue and fascia to non-
O.R. procedures as discussed with regard to Table 6P.4k associated with 
the FY 2018 IPPS/LTCH PPS proposed rule and for the same reasons, the 
commenter believed that open drainage of subcutaneous tissue and fascia 
should not be changed from an O.R. procedure to a non-O.R. procedure.
    Response: We appreciate the commenters' support. In response to the 
commenter who noted that the procedures described by the 22 procedure 
codes are performed on deeper subcutaneous tissue and fascia, are more 
invasive, and are most often performed in the O.R. setting under 
general anesthesia, upon further review and consideration, we agree 
that it is appropriate to maintain the designation of the procedure 
codes as O.R. procedures.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the following 
three ICD-10-PCS procedure codes that were listed in Table 6P.4i. 
associated with the 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) from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0J9100Z...................  Drainage of Face Subcutaneous Tissue and
                             Fascia with Drainage Device, Open Approach.
0J9J00Z...................  Drainage of Right Hand Subcutaneous Tissue
                             and Fascia with Drainage Device, Open
                             Approach.
0J9K00Z...................  Drainage of Left Hand Subcutaneous Tissue
                             and Fascia with Drainage Device, Open
                             Approach.
------------------------------------------------------------------------

    We are not finalizing our proposal to change the designation for 
the remaining 22 ICD-10-PCS procedure codes that were listed in Table 
6P.4i. associated with the 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) from O.R. 
procedures to non-O.R. procedures. Rather, these codes will maintain 
their O.R. designation for FY 2018.
(31) Percutaneous Drainage
    One commenter identified two ICD-10-PCS procedure codes that 
describe procedures involving percutaneous drainage of subcutaneous 
tissue and fascia body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. 
These two ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0J9J3ZZ...................  Drainage of right hand subcutaneous tissue
                             and fascia, percutaneous approach.
0J9K3ZZ...................  Drainage of left hand subcutaneous tissue
                             and fascia, percutaneous approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19859), we proposed that the two ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the two ICD-10-PCS procedure codes that describe 
percutaneous drainage of subcutaneous tissue and fascia body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the two ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(32) Percutaneous Extraction
    One commenter identified 22 ICD-10-PCS procedure codes that 
describe procedures involving percutaneous extraction of subcutaneous 
tissue and fascia body parts that generally would not require the 
resources of an operating room and can be performed at the bedside. We 
agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19859 through 19860), we proposed that the 22 ICD-
10-PCS procedure codes listed in Table 6P.4j. associated with the 
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 designated as non-O.R. procedures. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 22 ICD-10-PCS procedure codes that describe 
percutaneous extraction of

[[Page 38078]]

subcutaneous tissue and fascia body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 22 ICD-10-PCS 
procedure codes listed in Table 6P.4j. associated with the proposed 
rule and this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(33) Open Extraction
    One commenter identified 22 ICD-10-PCS procedure codes that 
describe procedures involving open extraction of subcutaneous tissue 
and fascia body parts that the commenter believed would generally not 
require the resources of an operating room and can be performed at the 
bedside. We stated in the proposed rule that we disagreed with the 
commenter because these codes describe procedures that utilize an open 
approach and are being performed on the skin and subcutaneous tissue. 
Depending on the medical reason for the open extraction, the procedures 
may require an O.R. setting. Therefore, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19860), we proposed that the 22 ICD-10-PCS 
procedure codes listed in Table 6P.4k. associated with the 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) remain designated as O.R. procedures. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to maintain the 
designation of the 22 ICD-10-PCS procedure codes that describe open 
extraction of subcutaneous tissue and fascia body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to maintain the 22 ICD-10-PCS procedure codes 
listed in Table 6P.4k. associated with the proposed rule and this final 
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) as O.R. procedures for FY 2018.
(34) Percutaneous and Open Repair
    One commenter identified 44 ICD-10-PCS procedure codes that 
describe procedures involving percutaneous and open repair of 
subcutaneous tissue and fascia body parts that generally would not 
require the resources of an operating room and can be performed at the 
bedside. We stated in the proposed rule that we agreed with the 
commenter. Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19860), we proposed that the 44 ICD-10-PCS procedure codes listed in 
Table 6P.4l. associated with the 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 
designated as non-O.R. procedures. We invited public comments on our 
proposal.
    Comment: Commenters supported the proposal to change the 
designation of 44 ICD-10-PCS procedure codes that describe percutaneous 
and open repair of subcutaneous tissue and fascia body parts from O.R. 
to non-O.R. However, one commenter disagreed with changing the 
designation of 22 of the 44 procedure codes. The commenter stated that 
open repair of deeper subcutaneous tissue and fascia is much more 
invasive and often performed in the O.R. setting under general 
anesthesia. The commenter noted that patients who are admitted to the 
inpatient setting following trauma often have multiple traumatic 
injuries whereby extensive wound lacerations often require the O.R. 
setting for complex repair and debridement under anesthesia.
    Response: We appreciate the commenters' support. In response to the 
commenter who disagreed with the proposal to change the designation of 
22 of the 44 procedure codes, we agree that open repair of deeper 
subcutaneous tissue and fascia is much more invasive and may be 
performed in the O.R. setting under general anesthesia.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation for 22 procedure 
codes that describe percutaneous repair of subcutaneous tissue and 
fascia body parts listed in Table 6P.4l. associated with this final 
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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017. We are not finalizing our 
proposal to change the designation for the other 22 procedure codes 
that describe open repair of subcutaneous tissue and fascia body parts 
from O.R. procedures to non-O.R. procedures. Rather, they will maintain 
their O.R. designation for FY 2018.
(35) External Release
    One commenter identified 28 ICD-10-PCS procedure codes that 
describe procedures involving external release of bursa and ligament 
body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. We agreed with the 
commenter. Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19860), we proposed that the 28 ICD-10-PCS procedure codes listed in 
Table 6P.4m. associated with the 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 
designated as non-O.R. procedures. We invited public comments on our 
proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 28 ICD-10-PCS procedure codes that describe 
procedures involving external release of bursa and ligament body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 28 ICD-10-PCS 
procedure codes listed in Table 6P.4m. associated with the proposed 
rule and this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(36) External Repair
    One commenter identified 135 ICD-10-PCS procedure codes that 
describe procedures involving external repair of various bones and 
joints. We stated in the proposed rule that we believed that these 
procedures generally would not be performed in the operating room. In 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19860), we proposed that 
the 135 ICD-10-PCS procedure codes listed in Table 6P.4n. associated 
with the 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 designated as non-O.R. 
procedures. We invited public comments on our proposal.

[[Page 38079]]

    Comment: Commenters supported the proposal to change the 
designation of the 135 ICD-10-PCS procedure codes that describe 
external repair of various bones and joints.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 135 ICD-10-PCS 
procedure codes listed in Table 6P.4n. associated with the proposed 
rule and this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(37) External Reposition
    One commenter identified 14 ICD-10-PCS procedure codes that 
describe procedures involving external reposition of various bones. 
These 14 ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0NS0XZZ...................  Reposition skull, external approach.
0NS1XZZ...................  Reposition right frontal bone, external
                             approach.
0NS2XZZ...................  Reposition left frontal bone, external
                             approach.
0NS3XZZ...................  Reposition right parietal bone, external
                             approach.
0NS4XZZ...................  Reposition left parietal bone, external
                             approach.
0NS5XZZ...................  Reposition right temporal bone, external
                             approach.
0NS6XZZ...................  Reposition left temporal bone, external
                             approach.
0NS7XZZ...................  Reposition right occipital bone, external
                             approach.
0NS8XZZ...................  Reposition left occipital bone, external
                             approach.
0PS3XZZ...................  Reposition cervical vertebra, external
                             approach.
0PS4XZZ...................  Reposition thoracic vertebra, external
                             approach.
0QS0XZZ...................  Reposition lumbar vertebra, external
                             approach.
0QS1XZZ...................  Reposition sacrum, external approach.
0QSSXZZ...................  Reposition coccyx, external approach.
------------------------------------------------------------------------

    We stated in the proposed rule that we believed that these 
procedures generally would not be performed in the operating room. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19860), we 
proposed that the 14 ICD-10-PCS procedure codes shown in the table 
above be designated as non-O.R. procedures. We invited public comments 
on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 14 ICD-10-PCS procedure codes that describe 
procedures involving external reposition of various bones.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 14 ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017. We note that, effective 
October 1, 2017, the code titles for procedure code 0NS1XZZ (Reposition 
right frontal bone, external approach) and procedure code 0NS7XZZ 
(Reposition right occipital bone, external approach) have been revised 
as reflected in Table 6F.--Revised Procedure Code Titles, and procedure 
codes 0NS2XZZ (Reposition left frontal bone, external approach) and 
0NS8XZZ (Reposition left occipital bone, external approach) have been 
deleted as reflected in Table 6D. --Invalid Procedure Codes associated 
with this final 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).
(38) Endoscopic/Transorifice Dilation
    One commenter identified eight ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) dilation of urinary system body parts that 
generally would not require the resources of an operating room and can 
be performed at the bedside. These eight ICD-10-PCS codes are shown in 
the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0T767ZZ...................  Dilation of right ureter, via natural or
                             artificial opening.
0T768ZZ...................  Dilation of right ureter, via natural or
                             artificial opening endoscopic.
0T777ZZ...................  Dilation of left ureter, via natural or
                             artificial opening.
0T778ZZ...................  Dilation of left ureter, via natural or
                             artificial opening endoscopic.
0T7B7DZ...................  Dilation of bladder with intraluminal
                             device, via natural or artificial opening.
0T7B7ZZ...................  Dilation of bladder, via natural or
                             artificial opening.
0T7B8DZ...................  Dilation of bladder with intraluminal
                             device, via natural or artificial opening
                             endoscopic.
0T7B8ZZ...................  Dilation of bladder, via natural or
                             artificial opening endoscopic.
------------------------------------------------------------------------

    We stated in the proposed rule that we agreed with the commenter. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19860 
through 19861), we proposed that the eight ICD-10-PCS procedure codes 
shown in the table above be designated as non-O.R. procedures. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the eight ICD-10-PCS procedure codes that describe 
procedures involving endoscopic/transorifice (via natural or artificial 
opening) dilation of urinary system body parts. However, one commenter 
disagreed with changing the designation for four of the eight procedure 
codes. These four codes are shown in the table below:

[[Page 38080]]



------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0T768ZZ...................  Dilation of right ureter, via natural or
                             artificial opening endoscopic.
0T778ZZ...................  Dilation of left ureter, via natural or
                             artificial opening endoscopic.
0T7B8DZ...................  Dilation of bladder with intraluminal
                             device, via natural or artificial opening
                             endoscopic.
0T7B8ZZ...................  Dilation of bladder, via natural or
                             artificial opening endoscopic.
------------------------------------------------------------------------

    According to the commenter, these four endoscopic procedures 
typically require the use of the operating room or a dedicated suite 
with specialized equipment and anesthesia.
    Response: We appreciate the commenters' support. In response to the 
commenter who disagreed with changing the designation for four of the 
eight procedure codes that are displayed above, upon further review and 
consideration, we agree that these four procedures are appropriate to 
designate as O.R. procedures for the reasons provided by the commenter.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation for four ICD-10-PCS 
procedure codes describing a transorifice (via natural or artificial 
opening) approach for dilation of urinary system body parts from O.R. 
procedures to non-O.R. procedures as shown in the table below, 
effective October 1, 2017.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0T767ZZ...................  Dilation of right ureter, via natural or
                             artificial opening.
0T777ZZ...................  Dilation of left ureter, via natural or
                             artificial opening.
0T7B7DZ...................  Dilation of bladder with intraluminal
                             device, via natural or artificial opening.
0T7B7ZZ...................  Dilation of bladder, via natural or
                             artificial opening.
------------------------------------------------------------------------

    We are not finalizing our proposal to change the designation of 
four procedure codes (0T768ZZ, 0T778ZZ, 0T7B8DZ, and 0T7B8ZZ) that 
describe endoscopic dilation of urinary system body parts from O.R. 
procedures to non-O.R. procedures. Rather, they will maintain their O.R 
designation for FY 2018.
(39) Endoscopic/Transorifice Excision
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving endoscopic/transorifice (via natural or 
artificial opening) excision of urinary system body parts that the 
commenter believed would generally not require the resources of an 
operating room and can be performed at the bedside. These three ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0TBD7ZZ...................  Excision of urethra, via natural or
                             artificial opening.
0TBD8ZZ...................  Excision of urethra, via natural or
                             artificial opening endoscopic.
0TBDXZZ...................  Excision of urethra, external approach.
------------------------------------------------------------------------

    We disagreed with the commenter because, depending on the medical 
reason for the excision, the procedures may require an O.R. setting. 
Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19861), we 
proposed that the three ICD-10-PCS procedure codes shown in the table 
above remain designated as O.R. procedures. We invited public comments 
on our proposal.
    Comment: Commenters supported the proposal to maintain the 
designation for three ICD-10-PCS procedure codes that describe an 
endoscopic/transorifice (via natural or artificial opening) excision of 
urinary system body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal for the three ICD-10-PCS procedure codes shown 
in the table above to maintain the O.R. designation for FY 2018.
(40) External/Transorifice Repair
    One commenter identified three ICD-10-PCS procedure codes that 
describe procedures involving external and transorifice (via natural or 
artificial opening) repair of the vagina body part that generally would 
not require the resources of an operating room and can be performed at 
the bedside. These three ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
0UQG7ZZ...................  Repair vagina, via natural or artificial
                             opening.
0UQGXZZ...................  Repair vagina, external approach.
0UQMXZZ...................  Repair vulva, external approach.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19861), we proposed that these three ICD-10-
PCS procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.

[[Page 38081]]

    Comment: Commenters supported the proposal to change the 
designation for three ICD-10-PCS procedure codes that describe external 
and transorifice (via natural or artificial opening) repair of the 
vagina body part.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal for the three ICD-10-PCS procedure codes shown 
in the table above to change the designation from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
(41) Percutaneous Transfusion
    One commenter identified 20 ICD-10-PCS procedure codes that 
describe procedures involving percutaneous transfusion of bone marrow 
and stem cells that generally would not require the resources of an 
operating room and can be performed at the bedside. We agreed with the 
commenter. Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19861), we proposed that the 20 ICD-10-PCS procedure codes listed in 
Table 6P.4o. associated with the 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 
designated as non-O.R. procedures. We invited public comments on our 
proposal.
    Comment: Numerous commenters expressed concern with the proposal 
that involved 20 ICD-10-PCS procedure codes describing percutaneous 
transfusion of bone marrow and stem cells. The commenters agreed that, 
clinically, the proposal to designate these procedures as non-O.R. is 
appropriate. However, the commenters objected to the notion that these 
procedures would be reassigned to medical MS-DRGs with lower payment 
rates as a result of the proposal. The commenters urged CMS to maintain 
the current Pre-MDC logic for patients undergoing bone marrow 
transplants and to maintain their respective MS-DRG assignments to MS-
DRG 014 (Allogeneic Bone Marrow Transplant); MS-DRG 016 (Autologous 
Bone Marrow Transplant with CC/MCC and MS-DRG 017 (Autologous Bone 
Marrow Transplant without CC/MCC).
    Response: We acknowledge the concerns of the commenters. We agree 
that it is important to maintain the current Pre-MDC logic for these 
procedures while also appropriately designating them as non-O.R. 
procedures.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation for the 20 ICD 10-PCS 
procedure codes listed in Table 6P.4o. associated with the proposed 
rule and this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017, and maintaining their assignment 
to the Pre-MDC MS-DRGs 014, 016, and 017 for FY 2018.
(42) External/Percutaneous/Transorifice Introduction
    One commenter identified 51 ICD-10-PCS procedure codes that 
describe procedures involving external, percutaneous and transorifice 
(via natural or artificial opening) introduction of substances that 
generally would not require the resources of an operating room and can 
be performed at the bedside. We agreed with the commenter. Therefore, 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19861), we proposed 
that the 51 ICD-10-PCS procedure codes listed in Table 6P.4p. 
associated with the 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 designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 51 ICD-10-PCS procedure codes that describe 
procedures involving external, percutaneous and transorifice (via 
natural or artificial opening) introduction of substances.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 51 ICD-10-PCS 
procedure codes listed in Table 6P.4p. associated with the proposed 
rule and this final 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) from O.R. procedures to non-O.R. 
procedures, effective October 1, 2017.
(43) Percutaneous/Diagnostic and Endoscopic/Transorifice Irrigation, 
Measurement and Monitoring
    One commenter identified 15 ICD-10-PCS procedure codes that 
describe procedures involving percutaneous/diagnostic and endoscopic/
transorifice (via natural or artificial opening) irrigation, 
measurement and monitoring of structures, pressures and flow that 
generally would not require the resources of an operating room and can 
be performed at the bedside. These 15 ICD-10-PCS codes are shown in the 
table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
3E1N38X...................  Irrigation of male reproductive using
                             irrigating substance, percutaneous
                             approach, diagnostic.
3E1N38Z...................  Irrigation of male reproductive using
                             irrigating substance, percutaneous
                             approach.
3E1N78X...................  Irrigation of male reproductive using
                             irrigating substance, via natural or
                             artificial opening, diagnostic.
3E1N78Z...................  Irrigation of male reproductive using
                             irrigating substance, via natural or
                             artificial opening.
3E1N88X...................  Irrigation of male reproductive using
                             irrigating substance, via natural or
                             artificial opening endoscopic, diagnostic.
3E1N88Z...................  Irrigation of male reproductive using
                             irrigating substance, via natural or
                             artificial opening endoscopic.
4A0635Z...................  Measurement of lymphatic flow, percutaneous
                             approach.
4A063BZ...................  Measurement of lymphatic pressure,
                             percutaneous approach.
4A0C35Z...................  Measurement of biliary flow, percutaneous
                             approach.
4A0C3BZ...................  Measurement of biliary pressure,
                             percutaneous approach.
4A0C75Z...................  Measurement of biliary flow, via natural or
                             artificial opening.
4A0C7BZ...................  Measurement of biliary pressure, via natural
                             or artificial opening.
4A0C85Z...................  Measurement of biliary flow, via natural or
                             artificial opening endoscopic.
4A1635Z...................  Monitoring of lymphatic flow, percutaneous
                             approach.
4A163BZ...................  Monitoring of lymphatic pressure,
                             percutaneous approach.
------------------------------------------------------------------------


[[Page 38082]]

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19861 through 19862), we proposed that the 15 
ICD-10-PCS procedure codes shown in the table above be designated as 
non-O.R. procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the 15 ICD-10-PCS procedure codes that describe 
procedures involving percutaneous/diagnostic and endoscopic/
transorifice (via natural or artificial opening) irrigation, 
measurement and monitoring of structures, pressures and flow.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the 15 ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(44) Imaging
    One commenter identified six ICD-10-PCS procedure codes that 
describe procedures involving imaging with contrast of hepatobiliary 
system body parts that generally would not require the resources of an 
operating room and can be performed at the bedside. These six ICD-10-
PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
BF030ZZ...................  Plain radiography of gallbladder and bile
                             ducts using high osmolar contrast.
BF031ZZ...................  Plain radiography of gallbladder and bile
                             ducts using low osmolar contrast.
BF03YZZ...................  Plain radiography of gallbladder and bile
                             ducts using other contrast.
BF0C0ZZ...................  Plain radiography of hepatobiliary system,
                             all using high osmolar contrast.
BF0C1ZZ...................  Plain radiography of hepatobiliary system,
                             all using low osmolar contrast.
BF0CYZZ...................  Plain radiography of hepatobiliary system,
                             all using other contrast.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19862), we proposed that the six ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the six ICD-10-PCS procedure codes that describe imaging 
with contrast of hepatobiliary system body parts.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the six ICD-10-PCS 
procedure codes shown in the table above from O.R. procedures to non-
O.R. procedures, effective October 1, 2017.
(45) Prosthetics
    One commenter identified five ICD-10-PCS procedure codes that 
describe procedures involving the fitting and use of prosthetics and 
assistive devices that would not require the resources of an operating 
room. These five ICD-10-PCS codes are shown in the table below.

------------------------------------------------------------------------
      ICD-10-PCS code                     Code description
------------------------------------------------------------------------
F0DZ8ZZ...................  Prosthesis device fitting.
F0DZ9EZ...................  Assistive, adaptive, supportive or
                             protective devices device fitting using
                             orthosis.
F0DZ9FZ...................  Assistive, adaptive, supportive or
                             protective devices device fitting using
                             assistive, adaptive, supportive or
                             protective equipment.
F0DZ9UZ...................  Assistive, adaptive, supportive or
                             protective devices device fitting using
                             prosthesis.
F0DZ9ZZ...................  Assistive, adaptive, supportive or
                             protective devices device fitting.
------------------------------------------------------------------------

    We agreed with the commenter. Therefore, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19862), we proposed that the five ICD-10-PCS 
procedure codes shown in the table above be designated as non-O.R. 
procedures. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of the five ICD-10-PCS procedure codes that describe the 
fitting and use of prosthetics and assistive devices.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of the five ICD-10-
PCS procedure codes shown in the table above from O.R. procedures to 
non-O.R. procedures, effective October 1, 2017.
b. Revision of Neurostimulator Generator
    We received a request to review three ICD-10-PCS procedure codes 
that describe procedures for revision of a neurostimulator generator 
that are currently designated as O.R. procedures and assigned to MS-
DRGs 252, 253 and 254 (Other Vascular Procedures with MCC, with CC and 
without CC/MCC, respectively). The three codes are 0JWT0MZ (Revision of 
stimulator generator in trunk subcutaneous tissue and fascia, open 
approach), 0JWT3MZ (Revision of stimulator generator in trunk 
subcutaneous tissue and fascia, percutaneous approach), and 0JWTXMZ 
(Revision of stimulator generator in trunk subcutaneous tissue and 
fascia, external approach).
    The requester expressed concern with the MS-DRG assignments and 
noted that although these codes are used to report revision of a 
carotid sinus stimulator pulse generator and appropriately assigned to 
MS-DRGs 252, 253 and 254 in MDC 5 (Diseases and Disorders of the 
Circulatory System), they also are very frequently used for the 
revision of the more common (for example, gastric, intracranial, sacral 
and spinal) neurostimulator generators that would generally not require 
the resources of an operating room.
    The requestor also stated that the indication for revision of a 
neurostimulator generator is typically due to a complication, which 
would be reflected in a complication code such as ICD-10-CM diagnosis 
code T85.734A (Infection and inflammatory reaction

[[Page 38083]]

due to implanted electronic neurostimulator, generator, initial 
encounter) or T85.890A (Other specified complication of nervous system 
prosthetic devices, implants and grafts, initial encounter). Because 
both of these diagnosis codes are assigned to MDC 1 (Diseases and 
Disorders of the Nervous System), when either code is reported in 
combination with one of the three procedure codes that describe 
revision of neurostimulator generator codes (currently assigned to MDC 
5 (Diseases and Disorders of the Circulatory System)), the resulting 
MS-DRG assignment is to MS-DRGs 981, 982 and 983 (Extensive O.R. 
Procedure Unrelated to Principal Diagnosis with MCC, with CC and 
without CC/MCC, respectively).
    The requestor presented the following three options for 
consideration.
     Reclassify the ICD-10-PCS procedure codes from O.R. 
Procedures to non-O.R. procedures that affect MS-DRG assignment only in 
MDC 5. The requestor stated that, under this option, the procedure 
codes would continue to appropriately group to MDC 5 when representing 
cases involving carotid sinus stimulators and the other types of 
neurostimulator cases would appropriately group to medical MS-DRGs.
     Add the ICD-10-PCS procedure codes to MDC 1, such as 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) under MDC 1. The requestor stated that 
this option would resolve the inconsistency between a revision of a 
carotid sinus stimulator generator being classified as an O.R. 
procedure, while the other comparable procedures involving a revision 
of a regular neurostimulator generator are not. The requestor also 
stated that this option would preclude cases being assigned to MS-DRGs 
981 through 983.
     Stop classifying the ICD-10-PCS procedure codes as O.R. 
procedures entirely. The requestor stated that, under this option, all 
cases would then group to medical MS-DRGs, regardless of the type of 
neurostimulator generator.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19862 through 19863), we analyzed claims data for the three revision of 
neurostimulator generator procedure codes from the December 2016 update 
of the FY 2016 MedPAR file and identified cases under MDC 1 in MS-DRGs 
025, 026, and 027 (Craniotomy and Endovascular Intracranial Procedures 
with MCC, with CC and without CC/MCC, respectively); MS-DRGs 029 and 
030 (Spinal Procedures with CC or Neurostimulators and Spinal 
Procedures without CC/MCC, respectively); and MS-DRGs 041 and 042 
(Peripheral, Cranial Nerve and Other Nervous System Procedures with CC 
or Peripheral Neurostimulator and without CC/MCC, respectively). We 
also identified cases in MS-DRGs 982 and 983 (Extensive O.R. Procedure 
Unrelated to Principal Diagnosis with CC and without CC/MCC, 
respectively). Lastly, we identified cases under MDC 5 in MS-DRGs 252, 
253 and 254 (Other Vascular Procedures with MCC, with CC and without 
CC/MCC, respectively). Our findings are shown in the table below.

                                MS-DRGs for Revision of Neurostimulator Generator
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 025--All cases...........................................          18,442             9.1         $29,984
MS-DRG 025--Cases with revision of neurostimulator generator....               1            12.0          73,716
MS-DRG 026--All cases...........................................           8,415             5.6          21,557
MS-DRG 026--Cases with revision of neurostimulator generator....               1             6.0           4,537
MS-DRG 027--All cases...........................................          10,089             2.9          17,320
MS-DRG 027--Cases with revision of neurostimulator generator....               4             1.8          13,906
MS-DRG 029--All cases...........................................           3,192             5.9          23,145
MS-DRG 029--Cases with revision of neurostimulator generator....               6             3.5          32,799
MS-DRG 030--All cases...........................................           1,933             2.9          14,901
MS-DRG 030--Cases with revision of neurostimulator generator....              11             2.2          18,294
MS-DRG 041--All cases...........................................           5,154             5.5          16,633
MS-DRG 041--Cases with revision of neurostimulator generator....               1             1.0          14,145
MS-DRG 042--All cases...........................................           2,099             3.2          13,725
MS-DRG 042--Cases with revision of neurostimulator generator....               2             2.0          28,587
MS-DRG 982--All cases...........................................          15,216             6.6          17,341
MS-DRG 982--Cases with revision of neurostimulator generator....              11             3.0          15,336
MS-DRG 983--All cases...........................................           3,508             3.2          11,627
MS-DRG 983--Cases with revision of neurostimulator generator....               9             4.2          19,951
MS-DRG 252--All cases...........................................          33,817             7.6          23,384
MS-DRG 252--Cases with revision of neurostimulator generator....               1             7.0          18,740
MS-DRG 253--All cases...........................................          27,456             5.5          18,519
MS-DRG 253--Cases with revision of neurostimulator generator....               7             2.4          19,078
MS-DRG 254--All cases...........................................          13,036             2.9          13,253
MS-DRG 254--Cases with revision of neurostimulator generator....               3             3.0          11,981
----------------------------------------------------------------------------------------------------------------

    As shown in the table above, the overall volume of cases reporting 
revision of neurostimulator generator is low, with a total of only 57 
cases found across all of the MS-DRGs reviewed. The average length of 
stay for these cases reporting revision of neurostimulator generators 
is, in most cases, consistent with the average length of stay for all 
cases in the respective MS-DRG, with the majority having an average 
length of stay below the average length of stay of all cases in the 
respective MS-DRG. Finally, the average costs for cases reporting 
revision of neurostimulator generator reflect a wide range, with a low 
of $4,537 in MS-DRG 026 to a high of $73,716 in MS-DRG 025. It is clear 
that, for MS-DRG 025 where the average costs of all cases were $29,984 
and the average costs of the one case reporting revision of a 
neurostimulator generator was $73,716, this is an atypical case. It is 
also clear from the data that there were other procedures reported on 
the claims where a procedure code for a revision of a neurostimulator 
generator was assigned due to the various MS-DRG assignments.

[[Page 38084]]

    We stated in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19862 
and 19863) that after review of the claims data and discussion with our 
clinical advisors, we agreed with and supported the requestor's first 
option--to reclassify the three ICD-10-PCS procedure codes for revision 
of neurostimulator generators from O.R. procedures to non-O.R. 
procedures that affect the assignment for MS-DRGs 252, 253 and 254 to 
account for the subset of patients undergoing revision of a carotid 
sinus neurostimulator generator specifically. In cases where one of the 
more common (for example, gastric, intracranial, sacral and spinal) 
neurostimulator generators are undergoing revision, in the absence of 
another O.R. procedure, these cases would group to a medical MS-DRG. We 
invited public comments on our proposal.
    Comment: Commenters supported the proposal to reclassify the 
procedures described by ICD-10-PCS procedure codes 0JWT0MZ, 0JWT3MZ, 
and 0JWTXMZ from O.R. procedures to non-O.R. procedures that affect the 
assignment for MS-DRGs 252, 253 and 254. One commenter agreed with 
reclassifying procedures described by ICD-10-PCS procedure codes 
0JWT3MZ and 0JWTXMZ from O.R. procedures to non-O.R. procedures. 
However, this commenter disagreed with reclassifying the procedure 
described by procedure code 0JWT0MZ and stated that the procedure 
utilizes an open approach and may require an O.R. setting. The 
commenter suggested that the procedure code should be retained as an 
O.R. designation to group to surgical MS-DRGs.
    Response: We appreciate the commenters' support. In response to the 
commenter who disagreed with reclassifying the procedure described by 
procedure code 0JWT0MZ from an O.R. procedure to a non-O.R. procedure, 
we note that, as discussed earlier, the three ICD-10-PCS procedure 
codes would be classified as non-O.R. procedures that affect MS-DRGs 
252, 253, and 254 for revision of carotid sinus neurostimulator 
generators. We also noted that the volume of cases reporting revision 
of neurostimulator generator is low, with a total of only 57 cases 
found across all of the MS-DRGs reviewed. The initial requestor pointed 
out that these three procedure codes are very frequently used for the 
revision of the more common (for example, gastric, intracranial, 
sacral, and spinal) neurostimulator generators that would generally not 
require the resources of an operating room. Therefore, we believe it is 
appropriate to classify the three procedure codes as non-O.R. 
procedures affecting MS-DRGs 252, 253, and 254 specifically.
    After consideration of the public comments we received, we are 
finalizing our proposal to reclassify the procedures described by ICD-
10-PCS procedure codes 0JWT0MZ (Revision of stimulator generator in 
trunk subcutaneous tissue and fascia, open approach), 0JWT3MZ (Revision 
of stimulator generator in trunk subcutaneous tissue and fascia, 
percutaneous approach), and 0JWTXMZ (Revision of stimulator generator 
in trunk subcutaneous tissue and fascia, external approach) from O.R. 
procedures to non-O.R. procedures that affect the assignment for MS-
DRGs 252, 253, and 254 to account for the subset of patients undergoing 
revision of a carotid sinus neurostimulator generator, effective 
October 1, 2017.
c. External Repair of Hymen
    We received a request to examine ICD-10-PCS procedure code 0UQKXZZ 
(Repair Hymen, External Approach). This procedure code is currently 
designated as an O.R. procedure in MS-DRGs 746 and 747 (Vagina, Cervix 
and Vulva Procedures with CC/MCC and without CC/MCC, respectively) 
under MDC 13. The requestor provided examples and expressed concern 
that procedure code 0UQKXZZ was assigned to MS-DRG 987 (Non-Extensive 
O.R. Procedures Unrelated to Principal Diagnosis with MCC) when 
reported on a maternal delivery claim. The requestor noted that when a 
similar code was reported with an external approach (for example, 
procedure code 0UQMXZZ (Repair vulva, external approach)), the case was 
appropriately assigned to MS-DRG 774 (Vaginal Delivery with 
Complicating Diagnosis). The requestor stated that the physician 
documentation was simply more specific to the location of the repair 
and this should not affect assignment to one of the MS-DRGs for vaginal 
delivery.
    As we discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19863 through 19864), we reviewed claims data involving the examples 
provided by the requestor involving ICD-10-PCS procedure code 0UQKXZZ 
(Repair hymen, external approach). Our clinical advisors agreed with 
the requestor that reporting of this procedure code should not affect 
assignment to one of the MS-DRGs for vaginal delivery. We stated that, 
as discussed in section II.F.15.a. of the preamble of the proposed 
rule, we were proposing to change the designation for a number of 
procedure codes from O.R. procedures to non-O.R. procedures. Included 
in that proposal were ICD-10-PCS procedure codes 0UQGXZZ (Repair 
vagina, external approach) and 0UQMXZZ (Repair vulva, external 
approach). Consistent with the change in designation for these 
procedure codes, we also proposed to designate ICD-10-PCS procedure 
code 0UQKXZZ (Repair hymen, external approach) as a non-O.R. procedure. 
The procedure by itself would generally not require the resources of an 
operating room. If the procedure is performed following a vaginal 
delivery, it is the vaginal delivery procedure code 10E0XZZ (Delivery 
of products of conception) that determines the MS-DRG assignment 
because this code is designated as a non-O.R. procedure affecting the 
MS-DRG.
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19864), we proposed to change the designation of ICD-10-PCS procedure 
code 0UQKXZZ (Repair hymen, external approach) to a non-O.R. procedure. 
We stated that this redesignation will enable more appropriate MS-DRG 
assignment for these cases by eliminating erroneous assignment to MS-
DRGs 987 through 989. We invited public comments on our proposal.
    Comment: Commenters supported the proposal to change the 
designation of ICD-10-PCS procedure code 0UQKXZZ from an O.R. procedure 
to a non-O.R. procedure.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to change the designation of ICD-10-PCS 
procedure code 0UQKXZZ (Repair hymen, external approach) from an O.R. 
procedure to a non-O.R. procedure, effective October 1, 2017.
d. Non-O.R. Procedures in MDC 17 (Myeloproliferative Diseases and 
Disorders, Poorly Differentiated Neoplasms)
    Under MDC 17 (Myeloproliferative Diseases and Disorders, Poorly 
Differentiated Neoplasms), there are 11 surgical MS-DRGs. Of these 11 
surgical MS-DRGs, there are 5 MS-DRGs containing GROUPER logic that 
includes ICD-10-PCS procedure codes designated as O.R. procedures as 
well as non-O.R. procedures that affect the MS-DRG. These five MS-DRGs 
are MS-DRGs 823, 824, and 825 (Lymphoma and Non-Acute Leukemia with 
Other O.R. Procedure with MCC, with CC and without CC/MCC, 
respectively) and MS-DRGs 829 and 830 (Myeloproliferative Disorders or 
Poorly Differentiated Neoplasms with Other O.R. Procedure with CC/MCC 
and without CC/MCC, respectively). We

[[Page 38085]]

refer the reader to the ICD-10 Version 34 MS-DRG Definitions Manual 
which is available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-IPPS-Final-Rule-Data-Files.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending for the 
complete list of ICD-10-PCS procedure codes assigned to these five MS-
DRGs under MDC 17.
    We reviewed the list of 244 ICD-10-PCS non-O.R. procedure codes 
currently assigned to these 5 MS-DRGs. Of these 244 procedure codes, we 
determined that 55 of the procedure codes do not warrant being 
designated as non-O.R. procedures that affect these MS-DRGs because 
they describe procedures that would generally not require a greater 
intensity of resources for facilities to manage the cases included in 
the definition (logic) of these MS-DRGs. Therefore, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19864), we proposed that the 55 ICD-
10-PCS procedure codes listed in Table 6P.3c. associated with the 
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 removed from the logic for MS-DRGs 
823, 824, 825, 829, and 830 as non-O.R. procedures affecting the MS-
DRG. We also proposed to revise the titles for these five MS-DRGs by 
deleting the reference to ``O.R.'' in the title. Specifically, we 
proposed to revise the titles for MS-DRGs 823, 824, and 825 to 
``Lymphoma and Non-Acute Leukemia with Other Procedure with MCC, with 
CC and without CC/MCC'', respectively, and we proposed to revise the 
titles for MS-DRGs 829 and 830 to ``Myeloproliferative Disorders or 
Poorly Differentiated Neoplasms with Other Procedure with CC/MCC and 
without CC/MCC'', respectively. We invited public comments on our 
proposals.
    Comment: Commenters supported the proposal to remove the 55 ICD-10-
PCS procedure codes listed in Table 6P.3c. associated with the proposed 
rule from the logic for MS-DRGs 823, 824, 825, 829, and 830 as non-O.R. 
procedures affecting the MS-DRG. Commenters also supported the proposal 
to revise the titles for MS-DRGs 823, 824, and 825, as well as for MS-
DRGs 829 and 830.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove the 55 ICD-10-PCS procedure codes 
listed in Table 6P.3c. associated with the proposed rule and this final 
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) from the logic for MS-DRGs 823, 824, 825, 
829, and 830 as non-O.R. procedures affecting the MS-DRG, effective 
October 1, 2017. We also are finalizing our proposal to revise the 
titles for MS-DRGs 823, 824, and 825 to ``Lymphoma and Non-Acute 
Leukemia with Other Procedure with MCC, with CC and without CC/MCC'', 
respectively, and to revise the titles for MS-DRGs 829 and 830 to 
``Myeloproliferative Disorders or Poorly Differentiated Neoplasms with 
Other Procedure with CC/MCC and without CC/MCC'', respectively, 
effective October 1, 2017.

G. Recalibration of the FY 2018 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights
    In developing the FY 2018 system of weights, in the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 19864), we proposed to use 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 2016 MedPAR data used in this final rule include 
discharges occurring on October 1, 2015, through September 30, 2016, 
based on bills received by CMS through March 31, 2017, 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 
2016 MedPAR file used in calculating the relative weights includes data 
for approximately 9,647,256 Medicare discharges from IPPS providers. 
Discharges for Medicare beneficiaries enrolled in a Medicare Advantage 
managed care plan are excluded from this analysis. These discharges are 
excluded when the MedPAR ``GHO Paid'' indicator field on the claim 
record is equal to ``1'' or when the MedPAR DRG payment field, which 
represents the total payment for the claim, is equal to the MedPAR 
``Indirect Medical Education (IME)'' payment field, indicating that the 
claim was an ``IME only'' claim submitted by a teaching hospital on 
behalf of a beneficiary enrolled in a Medicare Advantage managed care 
plan. In addition, the March 31, 2017 update of the FY 2016 MedPAR file 
complies with version 5010 of the X12 HIPAA Transaction and Code Set 
Standards, and includes a variable called ``claim type.'' Claim type 
``60'' indicates that the claim was an inpatient claim paid as fee-for-
service. Claim types ``61,'' ``62,'' ``63,'' and ``64'' relate to 
encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. 
Therefore, the calculation of the relative weights for FY 2018 also 
excludes claims with claim type values not equal to ``60.'' The data 
exclude CAHs, including hospitals that subsequently became CAHs after 
the period from which the data were taken. We note that the FY 2018 
relative weights are based on the ICD-10-CM diagnoses and ICD-10-PCS 
procedure codes from the FY 2016 MedPAR claims data, grouped through 
the ICD-10 version of the FY 2018 GROUPER (Version 35).
    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 are using cost report data from the March 
31, 2017 update of the FY 2015 HCRIS for calculating the final FY 2018 
cost-based relative weights.
2. Methodology for Calculation of the Relative Weights
    As we explain in section II.E.2. of the preamble of this final 
rule, we are calculating the FY 2018 relative weights based on 19 CCRs, 
as we did for FY 2017. The methodology we used to calculate the FY 2018 
MS-DRG cost-based relative weights based on claims data in the FY 2016 
MedPAR file and data from the FY 2015 Medicare cost reports is as 
follows:
     To the extent possible, all the claims were regrouped 
using the FY 2018 MS-DRG classifications discussed in sections II.B. 
and II.F. of the preamble of this final rule.
     The transplant cases that were used to establish the 
relative weights for heart and heart-lung, liver and/or intestinal, and 
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) 
were limited to those Medicare-approved transplant centers that have 
cases in the FY 2016 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

[[Page 38086]]

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 $30.00 from the sum of 
the routine day charges, intensive care charges, pharmacy charges, 
implantable devices charges, supplies and 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 and blood products charges, anesthesia charges, cardiac 
catheterization charges, CT scan charges, and MRI charges were also 
deleted.
     At least 92.2 percent of the providers in the MedPAR file 
had charges for 14 of the 19 cost centers. All claims of providers that 
did not have charges greater than zero for at least 14 of the 19 cost 
centers were deleted. In other words, a provider must have no more than 
five blank cost centers. If a provider did not have charges greater 
than zero in more than five cost centers, the claims for the provider 
were deleted.
     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 2018, as we proposed, we are continuing to 
include all applicable data from subsection (d) hospitals participating 
in BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 
calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 
for a complete discussion on our final policy for the treatment of 
hospitals 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).
    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. Statistical outliers were then removed. These charges were then 
adjusted to cost by applying the national average CCRs developed from 
the FY 2015 cost report data.
    The 19 cost centers that we used in the relative weight calculation 
are shown in the following table. The table shows the lines on the cost 
report and the corresponding revenue codes that we used to create the 
19 national cost center CCRs. In the FY 2018 IPPS/LTCH PPS proposed 
rule, we stated that if stakeholders have comments about the groupings 
in this table, we may consider those comments as we finalize our 
policy. However, we did not receive any comments on the groupings in 
this table, and therefore, we are finalizing the groupings as proposed.

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3. Development of National Average CCRs
    We developed the national average CCRs as follows:
    Using the FY 2015 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

[[Page 38103]]

cost center CCR. Once the cost report data were trimmed, we calculated 
a Medicare-specific CCR. The Medicare-specific CCR was determined by 
taking the Medicare charges for each line item from Worksheet D-3 and 
deriving the Medicare-specific costs by applying the hospital-specific 
departmental CCRs to the Medicare-specific charges for each line item 
from Worksheet D-3. Once each hospital's Medicare-specific costs were 
established, we summed the total Medicare-specific costs and divided by 
the sum of the total Medicare-specific charges to produce national 
average, charge-weighted CCRs.
    After we multiplied the total charges for each MS-DRG in each of 
the 19 cost centers by the corresponding national average CCR, we 
summed the 19 ``costs'' across each MS-DRG to produce a total 
standardized cost for the MS-DRG. The average standardized cost for 
each MS-DRG was then computed as the total standardized cost for the 
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The 
average cost for each MS-DRG was then divided by the national average 
standardized cost per case to determine the relative weight.
    The FY 2018 cost-based relative weights were then normalized by an 
adjustment factor of 1.737382 so that the average case weight after 
recalibration was equal to the average case weight before 
recalibration. The normalization adjustment is intended to ensure that 
recalibration by itself neither increases nor decreases total payments 
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
    The 19 national average CCRs for FY 2018 are as follows:

------------------------------------------------------------------------
                          Group                                 CCR
------------------------------------------------------------------------
Routine Days............................................           0.458
Intensive Days..........................................           0.373
Drugs...................................................           0.194
Supplies & Equipment....................................           0.297
Implantable Devices.....................................           0.332
Therapy Services........................................           0.321
Laboratory..............................................           0.120
Operating Room..........................................           0.191
Cardiology..............................................           0.112
Cardiac Catheterization.................................           0.117
Radiology...............................................           0.153
MRIs....................................................           0.079
CT Scans................................................           0.038
Emergency Room..........................................           0.171
Blood and Blood Products................................           0.322
Other Services..........................................           0.365
Labor & Delivery........................................           0.412
Inhalation Therapy......................................           0.169
Anesthesia..............................................           0.089
------------------------------------------------------------------------

    Since FY 2009, the relative weights have been based on 100 percent 
cost weights based on our MS-DRG grouping system.
    When we recalibrated the DRG weights for previous years, we set a 
threshold of 10 cases as the minimum number of cases required to 
compute a reasonable weight. In the FY 2018 IPPS/LTCH PPS proposed 
rule, we proposed to use that same case threshold in recalibrating the 
MS-DRG relative weights for FY 2018. Using data from the March 2017 
update of the FY 2016 MedPAR file, there are 7 MS-DRGs that contain 
fewer than 10 cases. We note that two MS-DRGs that were included as 
low-volume MS-DRGs in the proposed rule, MS-DRG 016 (Autologous Bone 
Marrow Transplant with CC/MCC) and MS-DRG 017 (Autologous Bone Marrow 
Transplant without CC/MCC), are no longer included in this list 
because, as discussed in section II.F.17.a. of the preamble of this 
final rule, we are maintaining the current Pre-MDC logic for the 
procedures assigned to those MS-DRGs in FY 2018. For FY 2018, because 
we do not have sufficient MedPAR data to set accurate and stable cost 
relative weights for these low-volume MS-DRGs, we proposed to compute 
relative weights for the low-volume MS-DRGs by adjusting their FY 2017 
relative weights by the percentage change in the average weight of the 
cases in other MS-DRGs. The crosswalk table based on data from the 
December 2016 update of the FY 2016 MedPAR file was included in the 
proposed rule. We invited public comments on our proposals.
    Comment: Some commenters requested a transition period for 
substantial reductions in relative weights in order to facilitate 
payment stability. Specifically, some commenters asked CMS to establish 
a cap of 10 percent for the degree to which a payment weight may 
decline in FY 2018 relative to FY 2017. Other commenters also suggested 
the possibility of a phase-in or multi-year transition period in cases 
of substantial fluctuation of payment rates. Commenters suggested that 
large decreases appear to result from the transition from ICD-9 coding 
to ICD-10 coding in the claims data used to establish the relative 
weights. These commenters also expressed concern that the proposed 
weights for MS-DRGs with significant reductions in relative weights 
would be too low to cover the costs of caring for patients, while other 
commenters expressed concern about access to such services.
    Commenters also indicated that the reductions to MS-DRG relative 
weights resulting from the transition from ICD-9 coding to ICD-10 
coding are in contrast to the goal of ICD-10 to accurately replicate 
ICD-9 assignments and avoid unintended payment redistribution. One 
commenter asserted that because IPPS is a prospective payment system, 
the future claims data should result in an upward adjustment to these 
MS-DRGs for FY 2019. The commenter believed that hospitals should not 
be penalized as significantly while the FY 2018 rates are in effect.
    Response: In considering these public comments, we examined the MS-
DRGs with proposed relative weights that were significantly lower than 
the FY 2017 relative weights. While we do not believe it is normally 
appropriate to address relative weight fluctuations that appear to be 
driven by changes in the underlying data, in this particular 
circumstance, we share the commenters' concern that, for a limited 
number of MS-DRGs, this may be more extensively related to the 
implementation of ICD-10 coding and believe this issue requires further 
analysis. In the interim, in response to these comments, we are 
adopting a temporary one-time measure for FY 2018 for MS-DRGs where the 
relative weight would have declined by more than 20 percent from the FY 
2017 relative weight. We believe this policy is consistent with our 
general authority to assign and update appropriate weighting factors 
under sections 1886(d)(4)(B) and (C) of the Act. Specifically, for 
these MS-DRGs, the relative weight will be set at 80 percent of the FY 
2017 final relative weight, and we will revisit this issue in the FY 
2019 rulemaking when additional ICD-10 claims data become available. We 
believe that 20 percent strikes an appropriate balance between 
addressing concerns that the relative weight changes for some MS-DRGs 
may be more extensively related to the implementation of ICD-10 and the 
fact that historically we occasionally have had appropriate relative 
weight changes of this magnitude. Further analysis and data will enable 
us to better determine the appropriateness of these changes, given the 
unique circumstances of the ICD-10 implementation.
    After consideration of the public comments we received, we are 
finalizing our proposal, with the modification for recalibrating the 
MS-DRG relative weights for FY 2018 at 80 percent of the FY 2017 final 
relative weights, for those MS-DRGs where the relative weight would 
have declined by more than 20 percent from the FY 2017 relative weight. 
The crosswalk table for the low-volume MS-DRGs is shown below.

[[Page 38104]]



------------------------------------------------------------------------
   Low-volume MS-DRG         MS-DRG title         Crosswalk to MS-DRG
------------------------------------------------------------------------
789...................  Neonates, Died or      Final FY 2017 relative
                         Transferred to         weight (adjusted by
                         Another Acute Care     percent change in
                         Facility.              average weight of the
                                                cases in other MS-DRGs).
790...................  Extreme Immaturity or  Final FY 2017 relative
                         Respiratory Distress   weight (adjusted by
                         Syndrome, Neonate.     percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
791...................  Prematurity with       Final FY 2017 relative
                         Major Problems.        weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
792...................  Prematurity without    Final FY 2017 relative
                         Major Problems.        weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
793...................  Full-Term Neonate      Final FY 2017 relative
                         with Major Problems.   weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
794...................  Neonate with Other     Final FY 2017 relative
                         Significant Problems.  weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
795...................  Normal Newborn.......  Final FY 2017 relative
                                                weight (adjusted by
                                                percent change in
                                                average weight of the
                                                cases in other MS-DRGs).
------------------------------------------------------------------------

H. Add-On Payments for New Services and Technologies for FY 2018

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies that a medical service or technology will be considered 
new if it meets criteria established by the Secretary after notice and 
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act 
specifies that a new medical service or technology may be considered 
for new technology add-on payment if, based on the estimated costs 
incurred with respect to discharges involving such service or 
technology, the DRG prospective payment rate otherwise applicable to 
such discharges under this subsection is inadequate. We note that, 
beginning with discharges occurring in FY 2008, CMS transitioned from 
CMS-DRGs to MS-DRGs.
    The regulations at 42 CFR 412.87 implement these provisions and 
specify three criteria for a new medical service or technology to 
receive the additional payment: (1) The medical service or technology 
must be new; (2) the medical service or technology must be costly such 
that the DRG rate otherwise applicable to discharges involving the 
medical service or technology is determined to be inadequate; and (3) 
the service or technology must demonstrate a substantial clinical 
improvement over existing services or technologies. Below we highlight 
some of the major statutory and regulatory provisions relevant to the 
new technology add-on payment criteria, as well as other information. 
For a complete discussion on the new technology add-on payment 
criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51572 through 51574).
    Under the first criterion, as reflected in Sec.  412.87(b)(2), a 
specific medical service or technology will be considered ``new'' for 
purposes of new medical service or technology add-on payments until 
such time as Medicare data are available to fully reflect the cost of 
the technology in the MS-DRG weights through recalibration. We note 
that we do not consider a service or technology to be new if it is 
substantially similar to one or more existing technologies. That is, 
even if a technology receives a new FDA approval or clearance, 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 or cleared 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 discharges involving the new medical service or technology 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 2017 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 2018. We 
refer readers to the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2017-IPPS-Final-Rule-Home-Page-Items/FY2017-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

[[Page 38105]]

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 Medicare Administrative 
Contractors (MACs) (in the case of local coverage and payment 
decisions). The CTI supplements, rather than replaces, these processes 
by working to assure that all of these activities reflect the agency-
wide priority to promote high-quality, innovative care. At the same 
time, the CTI also works to streamline, accelerate, and improve 
coordination of these processes to ensure that they remain up to date 
as new issues arise. To achieve its goals, the CTI works to streamline 
and create a more transparent coding and payment process, improve the 
quality of medical decisions, and speed patient access to effective new 
treatments. It is also dedicated to supporting better decisions by 
patients and doctors in using Medicare-covered services through the 
promotion of better evidence development, which is critical for 
improving the quality of care for Medicare beneficiaries.
    To improve the understanding of CMS' processes for coverage, 
coding, and payment and how to access them, the CTI has developed an 
``Innovator's Guide'' to these processes. The intent is to consolidate 
this information, much of which is already available in a variety of 
CMS documents and in various places on the CMS Web site, in a user-
friendly format. This guide was published in 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 2019 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 2019, 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

[[Page 38106]]

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 2018 prior 
to publication of the FY 2018 IPPS/LTCH PPS proposed rule, we published 
a notice in the Federal Register on November 9, 2016 (81 FR 78814), and 
held a town hall meeting at the CMS Headquarters Office in Baltimore, 
MD, on February 14, 2017. 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 2018 new medical service and technology add-on payment 
applications before the publication of the FY 2018 IPPS/LTCH PPS 
proposed rule.
    Approximately 66 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=9niqfxXe4oA&t=217s. 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 24, 
2017, in our evaluation of the new technology add-on payment 
applications for FY 2018 in the FY 2018 IPPS/LTCH PPS proposed rule.
    In response to the published notice and the February 14, 2017 New 
Technology Town Hall meeting, we received written comments regarding 
the applications for FY 2018 new technology add-on payments. We note 
that we do not summarize comments that are unrelated to the 
``substantial clinical improvement'' criterion. As explained above and 
in the Federal Register notice announcing the New Technology Town Hall 
meeting (81 FR78814 through 78816), the purpose of the meeting was 
specifically to discuss the substantial clinical improvement criterion 
in regard to pending new technology add-on payment applications for FY 
2018. Therefore, we did not summarize those written comments in the 
proposed rule. As we did in the proposed rule, we are summarizing below 
a general comment that we received prior to the issuance of the 
proposed rule that did not relate to a specific application for FY 2018 
new technology add-on payments. In addition, as we did in section 
II.H.5. of the preamble of the proposed rule, we are summarizing 
comments regarding individual applications, or, if applicable, 
indicating that there were no comments received in response to the New 
Technology Town Hall meeting notice, at the end of each discussion of 
the individual applications.
    Comment: One commenter recommended that CMS: (1) Prohibit local 
MACs from denying coverage and add-on payments for new medical services 
or technologies approved by the Secretary; and (2) broaden the criteria 
applied in making substantial clinical improvement determinations to 
require, in addition to existing criteria, that the Secretary consider 
whether the new technology or medical service meets one or more of the 
following criteria: (a) Results in a reduction of the length of a 
hospital stay; (b) improves patient quality of life; (c) creates long-
term clinical efficiencies in treatment; (d) addresses patient-centered 
objectives as defined by the Secretary; or (e) meets such other 
criteria as the Secretary may specify.
    Response: We appreciate the commenter's comments and will consider 
them in future rulemaking.
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 Section ``X'' codes. 
We encourage providers to view the material provided on ICD-10-PCS 
Section ``X'' codes.
4. Revision of the Reference to an ICD-9-CM Code in Sec.  412.87(b)(2) 
of the Regulations
    As we discussed in the FY 2018 IPS/LTCH PPS proposed rule (82 FR 
19871), the existing regulations under Sec.  412.87(b)(2) state that a 
medical service or technology may be considered new within 2 or 3 years 
after the point at which data begin to become available reflecting the 
ICD-9-CM code assigned to the new service or technology (depending on 
when a new code is assigned and data on the new service or technology 
become available for DRG recalibration). After CMS has recalibrated the 
DRGs, based on available data, to reflect the costs of an otherwise new 
medical service or technology, the medical service or technology will 
no longer be considered ``new'' under the criterion of this section.
    As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49454), 
HIPAA covered entities are required, as of October 1, 2015, to use the 
ICD-10 coding system (ICD-10-PCS codes for procedures and ICD-10-CM 
codes for diagnoses), instead of the ICD-9-CM coding system, to report 
diagnoses and procedures for Medicare hospital inpatient services 
provided to Medicare beneficiaries as classified under the MS-DRG 
system and paid for under the IPPS. The language in Sec.  412.87(b)(2) 
only references an ``ICD-9-CM code.'' Therefore, in the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 19871), we proposed to revise the 
regulations at Sec.  412.87(b)(2) to replace the term ``ICD-9-CM code'' 
with the term ``inpatient hospital code,'' as defined in section 
1886(d)(5)(K)(iii) of the Act. Section 1886(d)(5)(K)(iii) of the Act 
defines an ``inpatient hospital code'' as any code that is used with 
respect to inpatient hospital services for which payment may be made 
under this subsection of the Act and includes an alphanumeric code 
issued under the International Classification of Diseases, 9th 
Revision, Clinical Modification (``ICD-9-CM'')

[[Page 38107]]

and its subsequent revisions. We invited public comments on our 
proposal.
    We did not receive any public comments on this proposal. Therefore, 
we are finalizing our proposal to revise the regulations at Sec.  
412.87(b)(2) to replace the term ``ICD-9-CM code'' with the term 
``inpatient hospital code'', as defined in section 1886(d)(5)(K)(iii) 
of the Act.
5. FY 2018 Status of Technologies Approved for FY 2017 Add-On Payments
a. CardioMEMSTM HF (Heart Failure) Monitoring System
    CardioMEMS, Inc. submitted an application for new technology add-on 
payments 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 add-on 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. We refer the reader to the FY 2015 IPPS/LTCH PPS 
final rule (79 FR 49937) for complete details on the 
CardioMEMSTM HF Monitoring System.
    Our policy is 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 inpatient hospital code assigned to 
the new service or technology. 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 onto the U.S. market 
occurs in the latter half of the fiscal year (70 FR 47362).
    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 anniversary date of the entry of the 
CardioMEMSTM HF Monitoring System onto the U.S. market (May 
28, 2017) would occur prior to the beginning of FY 2018, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19871-19872), we proposed to 
discontinue new technology add-on payments for this technology for FY 
2018. We invited public comments on this proposal.
    Comment: Commenters agreed with our proposal to discontinue new 
technology add-on payments for the CardioMEMSTM HF 
Monitoring System.
    Response: As we proposed, we are discontinuing new technology add-
on payments for the CardioMEMSTM HF Monitoring System for FY 
2018. The 3-year anniversary date of the product's entry onto the U.S. 
market occurred prior to the beginning of FY 2018. Therefore, the 
technology is not eligible for new technology add-on payments for FY 
2018 because the technology will no longer meet the ``newness'' 
criterion.
b. 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 multiorgan dysfunction. VOD, also known as 
sinusoidal obstruction syndrome (SOS), is a potentially life-
threatening complication of hematopoietic stem cell transplantation 
(HSCT), with an incidence rate of 8 percent to 15 percent. 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 multi-organ failure 
face an immediate risk of death, with a mortality rate of more than 80 
percent when only supportive care is used. The applicant asserted that 
Defitelio[supreg] improves the survival rate of patients diagnosed with 
VOD with multi-organ failure by 23 percent.
    Defitelio[supreg] received Orphan Drug Designation for the 
treatment of VOD in 2003 and for the prevention of VOD in 2007. It has 
been available to patients as an investigational drug through an 
expanded access program since 2007. The applicant's New Drug 
Application (NDA) for Defitelio[supreg] received FDA approval on March 
30, 2016. The applicant confirmed that Defitelio[supreg] was not 
available on the U.S. market as of the FDA NDA approval date of March 
30, 2016. According to the applicant, commercial packaging could not be 
completed until the label for Defitelio[supreg] was finalized with FDA 
approval, and that commercial shipments of Defitelio[supreg]

[[Page 38108]]

to hospitals and treatment centers began on April 4, 2016. Therefore, 
we agreed that, based on this information, the newness period for 
Defitelio[supreg] begins on April 4, 2016, the date of its first 
commercial availability.
    The applicant received unique ICD-10-PCS procedure codes to 
describe the use of Defitelio[supreg] that became effective October 1, 
2016. The approved procedure codes are XW03392 (Introduction of 
defibrotide sodium anticoagulant into peripheral vein, percutaneous 
approach) and XW04392 (Introduction of defibrotide sodium anticoagulant 
into central vein, percutaneous approach).
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for 
Defitelio[supreg] and consideration of the public comments we received 
in response to the FY 2017 IPPS/LTCH PPS proposed rule, we approved 
Defitelio[supreg] for new technology add-on payments for FY 2017 (81 FR 
56906). With the new technology add-on payment application, the 
applicant estimated that the average Medicare beneficiary would require 
a dosage of 25 mg/kg/day for a minimum of 21 days of treatment. The 
recommended dose is 6.25 mg/kg given as a 2-hour intravenous infusion 
every 6 hours. Dosing should be based on a patient's baseline body 
weight, which is assumed to be 70 kg for an average adult patient. All 
vials contain 200 mg at a cost of $825 per vial. Therefore, we 
determined that cases involving the use of the Defitelio[supreg] 
technology would incur an average cost per case of $151,800 (70 kg 
adult x 25 mg/kg/day x 21 days = 36,750 mg per patient/200 mg vial = 
184 vials per patient x $825 per vial = $151,800). 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 new technology add-on payment amount for a case involving the 
use of Defitelio[supreg] is $75,900.
    Because the 3-year anniversary date of the entry of 
Defitelio[supreg] onto the U.S. market will occur after FY 2018 (April 
4, 2019), we proposed to continue new technology add-on payments for 
this technology for FY 2018. We proposed that the maximum payment for a 
case involving Defitelio[supreg] would remain at $75,900 for FY 2018. 
In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19872), we invited 
public comments on our proposal to continue new technology add-on 
payments for Defitelio[supreg].
    Comment: One commenter agreed with CMS' proposal to continue new 
technology add-on payments for Defitelio[supreg].
    Response: We appreciate the commenter's support. We are finalizing 
our proposal to continue new technology add-on payments for 
Defitelio[supreg] for FY 2018. The maximum new technology add-on 
payment for a case involving Defitelio[supreg] will remain at $75,900 
for FY 2018.
c. GORE[supreg] EXCLUDER[supreg] Iliac Branch Endoprosthesis (Gore IBE 
Device)
    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 received pre-
market FDA approval of the GORE IBE device on February 29, 2016. The 
applicant submitted a request for an unique ICD-10-PCS procedure code 
and was granted approval for the following procedure codes to describe 
the use of this technology: 04VC0EZ (Restriction of right common iliac 
artery with branched or fenestrated intraluminal device, one or two 
arteries, open approach); 04VC0FZ (Restriction of right common iliac 
artery with branched or fenestrated intraluminal device, three or more 
arteries, open approach); 04VC3EZ (Restriction of right common iliac 
artery with branched or fenestrated intraluminal device, one or two 
arteries, percutaneous approach); 04VC3FZ (Restriction of right common 
iliac artery with branched or fenestrated intraluminal device, three or 
more arteries, percutaneous approach); 04VC4EZ (Restriction of right 
common iliac artery with branched or fenestrated intraluminal device, 
one or two arteries, percutaneous approach); 04VC4FZ (Restriction of 
right common iliac artery with branched or fenestrated intraluminal 
device, three or more arteries, percutaneous endoscopic, approach); 
04VD0EZ (Restriction of left common iliac artery with branched or 
fenestrated intraluminal device, one or two arteries, open approach); 
04VD0FZ (Restriction of left common iliac artery with branched or 
fenestrated, intraluminal device, three or more arteries, open 
approach); 04VD3EZ (Restriction of left common iliac artery with 
branched or fenestrated intraluminal device, one or two arteries, 
percutaneous approach); 04VD3FZ (Restriction of left common iliac 
artery with branched or fenestrated intraluminal device, three or more 
arteries, percutaneous approach); 04VD4EZ (Restriction of left common 
iliac artery with branched or fenestrated intraluminal device, one or 
two arteries, percutaneous endoscopic approach); and 04VD4FZ 
(Restriction of left common iliac artery with branched or fenestrated 
intraluminal device, three or more arteries, percutaneous endoscopic 
approach). These new ICD-10-PCS procedure codes became effective on 
October 1, 2016. After evaluation of the newness, costs, and 
substantial clinical improvement criteria for new technology add-on 
payments for the GORE IBE device and consideration of the public 
comments we received in response to the FY 2017 IPPS/LTCH PPS proposed 
rule, we approved the GORE IBE device for new technology add-on 
payments for FY 2017 (81 FR 56909). With the new technology add-on 
payment application, the applicant indicated that the total operating 
cost of the GORE IBE device is $10,500. 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 GORE IBE device is $5,250.
    With regard to the newness criterion for the GORE IBE device, we 
considered the beginning of the newness period to commence when the 
GORE IBE device received FDA approval on February 29, 2016. Because the 
3-year anniversary date of the entry of the GORE IBE device onto the 
U.S. market will occur after FY 2018 (February 28, 2019), in the FY 
2018 IPPS/LTCH PPS proposed rule, we proposed to continue new 
technology add-on payments for this technology for FY 2018. We proposed 
that the maximum payment for a case involving the GORE IBE device would 
remain at $5,250 for FY 2018. We invited public comments on our 
proposal to continue

[[Page 38109]]

new technology add-on payments for the GORE IBE device.
    Comment: Some commenters supported CMS' proposal to continue new 
technology add-on payments for the GORE IBE device.
    Response: We appreciate the commenters' support. We are finalizing 
our proposal to continue new technology add-on payments for the GORE 
IBE device for FY 2018. The maximum new technology add-on payment for a 
case involving the GORE IBE device will remain at $5,250 for FY 2018.
d. Praxbind[supreg] Idarucizumab
    Boehringer Ingelheim Pharmaceuticals, Inc. submitted an application 
for new technology add-on payments for FY 2017 for Praxbind[supreg] 
Idarucizumab (Idarucizumab), a product developed as an antidote to 
reverse the effects of PRADAXAR (Dabigatran), which is also 
manufactured by Boehringer Ingelheim Pharmaceuticals, Inc.
    Dabigatran is an oral direct thrombin inhibitor currently 
indicated: (1) To reduce the risk of stroke and systemic embolism in 
patients who have been diagnosed with nonvalvular atrial fibrillation 
(NVAF); (2) for the treatment of deep venous thrombosis (DVT) and 
pulmonary embolism (PE) in patients who have been administered a 
parenteral anticoagulant for 5 to 10 days; (3) to reduce the risk of 
recurrence of DVT and PE in patients who have been previously treated; 
and (4) for the prophylaxis of DVT and PE in patients who have 
undergone hip replacement surgery. 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. 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 unique ICD-10-PCS procedure codes that 
became effective October 1, 2016, to describe the use of this 
technology. The approved procedure codes are XW03331 (Introduction of 
Idarucizumab, Dabigatran reversal agent into peripheral vein, 
percutaneous approach, New Technology Group 1) and XW04331 
(Introduction of Idarucizumab, Dabigatran reversal agent into central 
vein, percutaneous approach, New Technology Group 1).
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for 
Idarucizumab and consideration of the public comments we received in 
response to the FY 2017 IPPS/LTCH PPS proposed rule, we approved 
Idarucizumab for new technology add-on payments for FY 2017 (81 FR 
56897). With the new technology add-on payment application, the 
applicant indicated that the total operating cost of Idarucizumab is 
$3,500. 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 new technology add-on payment 
for a case involving Idarucizumab is $1,750.
    With regard to the newness criterion for Idarucizumab, we 
considered the beginning of the newness period to commence when 
Idarucizumab was approved by the FDA on October 16, 2015. Because the 
3-year anniversary date of the entry of Idarucizumab onto the U.S. 
market will occur after FY 2018 (October 15, 2018), in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19873), we proposed to continue new 
technology add-on payments for this technology for FY 2018. We proposed 
that the maximum payment for a case involving Idarucizumab would remain 
at $1,750 for FY 2018. We invited public comments on our proposal to 
continue new technology add-on payments for Idarucizumab.
    Comment: Several commenters supported CMS' proposal to continue new 
technology add-on payments for Idarucizumab.
    Response: We appreciate the commenters' support. We are finalizing 
our proposal to continue new technology add-on payments for 
Idarucizumab for FY 2018. The maximum new technology add-on payment for 
a case involving Idarucizumab will remain at $1,750 for FY 2018.
e. 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.\1\ 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).\2\
---------------------------------------------------------------------------

    \1\ 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.
    \2\ 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 PPS 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

[[Page 38110]]

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 payments 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 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 add-on payment 
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 
PPS 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 add-on 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.
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.
------------------------------------------------------------------------


[[Page 38111]]

    As discussed in the FY 2016 IPPS/LTCH PPS 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 the 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. 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 onto the U.S. market occurs in the latter half of 
the upcoming fiscal year. Because the 3-year anniversary date of the 
entry of LUTONIX[supreg] onto the U.S. market (October 10, 2017) will 
occur in the first half of FY 2018, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19875), we proposed to discontinue new technology 
add-on payments for both the LUTONIX[supreg] and IN.PACTTM 
AdmiralTM technologies for FY 2018. We invited public 
comments on this proposal.
    Comment: Some commenters supported CMS' proposal to discontinue new 
technology add-on payments for both the LUTONIX[supreg] and 
IN.PACTTM AdmiralTM technologies for FY 2018.
    Response: We appreciate the commenters' support. As we proposed, we 
are discontinuing new technology add-on payments for both the 
LUTONIX[supreg] and IN.PACTTM AdmiralTM 
technologies for FY 2018. The 3-year anniversary date of the product's 
entry onto the U.S. market occurs in the first half of FY 2018. 
Therefore, the technology is not eligible for new technology add-on 
payments for FY 2018 because the technology will no longer meet the 
``newness'' criterion.
f. 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 clearance for use of 
the predicate device, which used a Harrington Rod on February 27, 2014. 
The applicant verified that, due to manufacturing delays, the 
MAGEC[supreg] Spine was not available for implant until April 1, 2014. 
Specifically, the complete MAGEC[supreg] Spine system was produced and 
available for shipment for the first implant on April 1, 2014. 
Therefore, the newness period for the MAGEC[supreg] Spine began on 
April 1, 2014. Subsequent FDA clearance was granted for use of the 
modified device, which uses a shorter 70 mm rod on September 18, 2014. 
After minor modification of the product, the MAGEC[supreg] Spine 
received FDA clearances on March 24, 2015, and May 29, 2015, 
respectively.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for the 
MAGEC[supreg] Spine and consideration of the public comments we 
received in response to the FY 2017 IPPS/LTCH PPS proposed rule, we 
approved the MAGEC[supreg] Spine for new technology add-on payments for 
FY 2017 (81 FR 56891). Cases involving the MAGEC[supreg] Spine that are 
eligible for new technology add-on payments are identified by ICD-10-
PCS procedure codes XNS0032 (Reposition of lumbar vertebra using 
magnetically controlled growth rod(s), open approach); XNS0432 
(Reposition of lumbar vertebra using magnetically controlled growth 
rod(s), percutaneous endoscopic approach); XNS3032 (Reposition of 
cervical vertebra using magnetically controlled growth rod(s), open 
approach); XNS3432 (Reposition of cervical vertebra using magnetically 
controlled growth rod(s), percutaneous endoscopic approach); XNS4032 
(Reposition of thoracic vertebra using magnetically controlled growth 
rod(s), open approach); and XNS4432 (Reposition of thoracic vertebra 
using magnetically controlled growth rod(s).
    With the new technology add-on payment application, the applicant 
stated that the total operating cost of the MAGEC[supreg] Spine was 
$17,500 for a single rod and $35,000 for a dual rod. It is historical 
practice for CMS to make the new technology add-on payment based on the 
average cost of the technology and not the maximum. For example, in the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53358), we approved new 
technology add-on payments for

[[Page 38112]]

DIFICIDTM based on the average dosage of 6.2 days, rather 
than the maximum 10-day dosage. The applicant noted that 20 percent of 
cases use a single rod, while 80 percent of cases use a dual rod. As a 
result, the weighted average cost for a single and dual MAGEC[supreg] 
Spine is $31,500 (((0.2 * $17,500) + (0.8 * $35,000))). 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 MAGEC[supreg] 
Spine is $15,750. We refer the reader to the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56888) for complete details on the MAGEC[supreg] 
Spine.
    With regard to the newness criterion for the MAGEC[supreg] Spine, 
we considered the beginning of the newness period to commence when the 
MAGEC[supreg] Spine was produced and available for shipment for the 
first implant on April 1, 2014. 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 onto the U.S. market occurs in the latter half of the upcoming 
fiscal year. Because the 3-year anniversary date of the entry of the 
MAGEC[supreg] Spine onto the U.S. market (April 1, 2017) would occur 
prior to the beginning of FY 2018, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19876), we proposed to discontinue new technology 
add-on payments for this technology for FY 2018. We invited public 
comments on this proposal.
    Comment: Some commenters supported CMS' proposal to discontinue new 
technology add-on payments for the MAGEC[supreg] Spine for FY 2018. 
Some commenters supported the continuation of the new technology add-on 
payments for MAGEC[supreg] Spine for FY 2018. The manufacturer also 
requested that CMS extend new technology add-on payments for 
MAGEC[supreg] Spine. The manufacturer provided the following reasons to 
extend the new technology add-on payment:
     Based on internal data, there have not been enough cases 
to provide the stimulus that the new technology add-on payments program 
intended.
     The patient population for which the new technology add-on 
payment applies is very small, estimated at less than or equal to 10 
percent of the total annual cases.
     The new technology add-on payment has been available for 
approximately 9 months. Given the small number of patients, providers 
have not had enough cases yet to utilize the new technology add-on 
payments in the way the program intended.
     Extension of the new technology add-on payment for FY 2018 
would allow more patients to gain access to MAGEC[supreg] rods. The 
manufacturer stated that this has clinical benefits as noted in the 
literature, but also ultimately helps payers, including CMS. The 
manufacturer stated that payer costs of treatment are reduced over the 
course of care when MAGEC[supreg] rods are used vs. traditional growth 
rods.
     Extending the new technology add-on payment for 
MAGEC[supreg] Spine has minimal budgetary impact due again to the small 
patient population.
    The manufacturer cited the importance of the new technology add-on 
payments to MAGEC[supreg] Spine and stated that extending the new 
technology add-on payment would help make the technology more 
accessible.
    Response: We thank the commenters for their comments. With regard 
to the technology's newness, the timeframe that a new technology can be 
eligible to receive new technology add-on payments ends when data 
documenting the use and cost of the procedures become available. 
Section 412.87(b)(2) states that, a medical service or technology may 
be considered new within 2 or 3 years after the point at which data 
begin to become available reflecting the ICD-9-CM code (or, as 
finalized earlier in this section, the inpatient hospital code) 
assigned to the new service or technology (depending on when a new code 
is assigned and data on the new service or technology become available 
for DRG recalibration). Section 412.87(b)(2) also states, after CMS has 
recalibrated the DRGs, based on available data, to reflect the costs of 
an otherwise new medical service or technology, the medical service or 
technology will no longer be considered ``new'' under the applicable 
criteria. Therefore, as discussed in the FY 2005 IPPS final rule (69 FR 
49003), if the costs of the technology are included in the charge data, 
and the MS-DRGs have been recalibrated using that data, the technology 
can no longer be considered ``new'' for the purposes of this provision.
    In addition, similar to our discussion in the FY 2006 IPPS final 
rule (70 FR 47349), we do not believe that case volume is a relevant 
consideration for making the determination as to whether a product is 
``new.'' Consistent with the statute and our implementing regulations, 
a technology no longer qualifies as ``new'' once it is more than 2 to 3 
years old, irrespective of how frequently it has been used in the 
Medicare population. Therefore, if a product is more than 2 to 3 years 
old, we consider its costs to be included in the MS-DRG relative 
weights, whether its use in the Medicare population has been frequent 
or infrequent.
    Therefore, based on all of the reasons stated above, the 
MAGEC[supreg] Spine is no longer considered ``new'' for purposes of new 
technology add-on payments for FY 2018. Therefore, we are finalizing 
our proposal to discontinue making new technology add-on payments for 
the MAGEC[supreg] Spine for FY 2018.
g. Vistogard\TM\ (Uridine Triacetate)
    BTG International Inc., submitted an application for new technology 
add-on payments for the VistogardTM for FY 2017. 
VistogardTM was developed as an emergency treatment for 
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 by cells 
and causes the cell to metabolize into byproducts that are toxic and 
used to destroy cancerous cells. According to the applicant, the 
byproducts fluorodoxyuridine monophosphate (F-dUMP) and floxuridine 
triphosphate (FUTP) are believed to do the following: (1) Reduce DNA 
synthesis; (2) lead to DNA fragmentation; and (3) 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.
    VistogardTM is an emergency treatment for Fluorouracil 
toxicity and is a prodrug of uridine. Once the drug is metabolized into 
uridine, it competes with the toxic byproduct FUTP in binding to RNA, 
thereby reducing the impact FUTP has on cell death.
    The VistogardTM received FDA approval on December 11, 
2015. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56910), we stated 
that we agreed with the manufacturer that, due to the

[[Page 38113]]

delay in availability, the date the newness period begins for 
VistogardTM is March 2, 2016, instead of December 11, 2015.
    The applicant noted that the VistogardTM is the first 
FDA-approved antidote used to reverse fluorouracil toxicity. The 
applicant received a unique ICD-10-PCS procedure code that became 
effective October 1, 2016, to describe the use of this technology. The 
approved procedure code is XW0DX82 (Introduction of Uridine Triacetate 
into Mouth and Pharynx, External Approach, New Technology Group 2).
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for 
VistogardTM and consideration of the public comments we 
received in response to the FY 2017 IPPS/LTCH PPS proposed rule, we 
approved VistogardTM for new technology add-on payments for 
FY 2017 (81 FR 56912). With the new technology add-on payment 
application, the applicant stated that the total operating cost of 
VistogardTM is $75,000. 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 new 
technology add-on payment for a case involving VistogardTM 
is $37,500.
    As noted previously, with regard to the newness criterion for the 
VistogardTM, we considered the beginning of the newness 
period to commence on March 2, 2016. Because the 3-year anniversary 
date of the entry of the VistogardTM onto the U.S. market 
(March 2, 2019) will occur after FY 2018, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19876), we proposed to continue new technology 
add-on payments for this technology for FY 2018. We proposed that the 
maximum payment for a case involving the VistogardTM would 
remain at $37,500 for FY 2018. We invited public comments on our 
proposal to continue new technology add-on payments for the 
VistogardTM.
    Comment: The manufacturer commented that, as of April 1, 2017, 
pricing for VistogardTM has changed. The manufacturer noted 
that the wholesale acquisition cost (WAC) for VistogardTM is 
now $80,260 for a 20-dose pack (or $4,013.00 per each 10g packet of 
oral granules). Given the current price for VistogardTM, the 
manufacturer requested that CMS revise the maximum payment per case to 
$40,130, or 50 percent of the revised WAC.
    Response: According to the manufacturer, as noted in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 56912), the WAC of 
VistogardTM was $3,750.00 per each 10g packet of oral 
granules. The recommended adult dosing per the VistogardTM 
label is 10g (one packet every 6 hours for a minimum of 20 doses over 5 
days). The total cost was 20 packets x WAC of $3,750.00 per packet, 
which equaled $75,000 per patient.
    Using the updated WAC provided by the manufacturer, we performed an 
additional cost analysis to determine if Vistogard would meet the cost 
criterion. We determined that the price increase would increase the 
amount that the inflated average standardized case-weighted charge per 
case exceeds the average case-weighted threshold amount. Therefore, 
VistogardTM would still meet the cost criterion.
    We are finalizing our proposal to continue new technology add-on 
payments for VistogardTM for FY 2018. Using the revised 
pricing, the maximum new technology add-on payment for a case involving 
VistogardTM is $40,130 for FY 2018.
h. Blinatumomab (BLINCYTO[supreg])
    Amgen, Inc. submitted an application for new technology add-on 
payments for FY 2016 for Blinatumomab (BLINCYTO[supreg]), 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 BLINCYTO [supreg] 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 
BLINCYTO[supreg] 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 BLINCYTO[supreg] technology is 
the first, and the only, bi-specific CD19-directed CD3 T-cell engager 
single-agent immunotherapy approved by the FDA.
    BLINCYTO[supreg] 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 is 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 
BLINCYTO[supreg] are administered, and up to three additional cycles 
are administered during consolidation. The recommended dosage of 
BLINCYTO[supreg] 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 BLINCYTO[supreg] 
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 add-on payments for 
BLINCYTO[supreg] and consideration of the public comments we received 
in response to the FY 2016 IPPS/LTCH PPS proposed rule, we approved 
BLINCYTO[supreg] for new technology add-on payments for FY 2016 (80 FR 
49449). Cases involving BLINCYTO[supreg] 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 Group 1).
    As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49449), 
the

[[Page 38114]]

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 BLINCYTO[supreg], 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 BLINCYTO[supreg] 
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 treatment 
for an average length of 21.2 days, and 52 patients received cycle 2 
treatment for an average length of 10.2 days. The weighted average of 
cycle 1 and cycle 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 
setting the maximum new technology add-on payment amount for a case 
involving the BLINCYTO[supreg] 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 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 BLINCYTO[supreg] 
technology would incur an average cost per case of $54,035.69 (1 vial/
day x 17 days x $3,178.57/vial). 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 new technology add-
on payment amount for a case involving the use of the BLINCYTO[supreg] 
is $27,017.85.
    With regard to the newness criterion for BLINCYTO[supreg], we 
consider the beginning of the newness period to commence when the 
product gained entry onto the U.S. market on December 17, 2014. 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 onto the U.S. market occurs in 
the latter half of the upcoming fiscal year. Because the 3-year 
anniversary date of the entry of the BLINCYTO[supreg] onto the U.S. 
market will occur in the first half of FY 2018 (December 17, 2017), in 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19877), we proposed to 
discontinue new technology add-on payments for this technology for FY 
2018. We invited public comments on this proposal.
    Comment: Some commenters supported CMS' proposal to discontinue new 
technology add-on payments for BLINCYTO[supreg]. The applicant (the 
manufacturer) disagreed with the proposal to discontinue new technology 
add-on payments for BLINCYTO[supreg]. The manufacturer stated that CMS 
is discontinuing the new technology add-on payment in advance of the 3-
year statutory limit. The manufacturer requested that CMS reconsider 
and extend the new technology add-on payments for FY 2018.
    The manufacturer explained that the continuation of new technology 
add-on payments for BLINCYTO[supreg] in FY 2018 is well within CMS' 
statutory authority and would permit CMS to bolster its claims data for 
rate-setting to ensure that it can meaningfully recalibrate the MS-DRG 
weights to reflect the costs of BLINCYTO[supreg] in accordance with the 
policy objectives of the statute. The manufacturer stated that section 
1886(d)(5)(K) of the Act gives CMS authority to grant new technology 
add-on payments to new technologies to ``provide for the collection of 
data with respect to the costs of a new medical service or technology 
[. . .] for a period of not less than 2 years and not more than 3 years 
beginning on the date on which an inpatient hospital code is issued 
with respect to the service or technology.'' The manufacturer also 
stated that the regulation at 42 CFR 412.87(b)(2) is phrased similarly 
and reads that ``A medical service or technology may be considered new 
within 2 or 3 years after the point at which data begin to become 
available reflecting the ICD-9-CM code assigned to the new service or 
technology (depending on when a new code is assigned and data on the 
new service or technology become available for DRG recalibration). 
After CMS has recalibrated the DRGs, based on available data, to 
reflect the costs of an otherwise new medical service or technology, 
the medical service or technology will no longer be considered `new' 
under the criterion of this section.''
    The manufacturer stated that BLINCYTO[supreg] received FDA approval 
on December 3, 2014, gained entry onto the U.S. market on December 17, 
2014, and was issued an inpatient hospital code (ICD-10-PCS code) on 
October 1, 2015. Therefore, the manufacturer asserted that, as of 
October 1, 2017, BLINCYTO[supreg] will have received the new technology 
add-on payment for the minimum permitted duration of 2 years, and is 
eligible, by statute and regulation, for an additional year new 
technology add-on payments.
    The manufacturer also stated that CMS explained in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 56877) that ``a specific medical 
service or technology will be considered `new' for purposes of new 
technology add-on payments until such time as Medicare data are 
available to fully reflect the cost of the technology in the MS-DRG 
weights through recalibration'' and that only once the MS-DRGs have 
been recalibrated to reflect the costs of a new medical technology 
should new technology add-on payments cease. The manufacturer believed 
that the above quoted regulation likewise links the termination of new 
technology add-on payments to having data to incorporate the item into 
the calibration of the inpatient payment groupings. The manufacturer 
also cited the FY 2011 IPPS final rule (75 FR 50138) and stated that 
CMS has acknowledged in previous rulemaking that, in some cases, there 
may be valid reasons to extend new technology add-on payment status, 
including, for example, when ``there may be few to no Medicare data 
available for the new service or technology following FDA approval'' to 
achieve the objective of appropriately recalibrating MS-DRG weights. 
The manufacturer believed that if insufficient data are collected on 
the technology to ``fully reflect the cost of the technology'' in the 
MS-DRG weights, there would be a valid reason to continue the new 
technology add-on payment.
    The manufacturer stated that claims of BLINCYTO[supreg] in the FY 
2016

[[Page 38115]]

MedPAR, which is used for FY 2018 MS-DRG recalibration, are 
insufficient in number and do not fully reflect the cost of 
BLINCYTO[supreg] in the MS-DRG recalibration. The applicant stated 
that, in the FY 2016 MedPAR claims, there were a total of 145 
BLINCYTO[supreg] claims eligible for the new technology add-on payment, 
111 of which were distributed across 6 MS-DRGs that the technology most 
frequently mapped to. The manufacturer noted that this claims volume 
represents less than 1 percent of the over 10,000 patient discharge 
claims for these 6 MS-DRGs. As a result of this low claims volume, both 
objectively and relative to the frequency of the relevant MS-DRGs on 
patient discharge claims, the manufacturer believed it is very unlikely 
that the fundamental objective of the new technology add-on payment to 
provide time to collect sufficient data to recalibrate MS-DRG weights 
to ``fully reflect the cost of the technology'' can be achieved by 
discontinuing the new technology add-on payment status for 
BLINCYTO[supreg].
    The manufacturer stated that it recognizes that CMS has a general 
practice (not set forth in its regulations) for technologies that have 
had new technology add-on payments for 2 fiscal years to only provide 
an additional year of new technology add-on payment if the 3-year 
anniversary of the product's FDA approval is during the second half of 
the fiscal year unless CMS receives evidence of a documented delay in 
making the product available on the market. The manufacturer believed 
that this general practice should not be followed here because of the 
paucity of data on BLINCYTO[supreg]. The manufacturer noted that CMS 
does not apply the general practice when there is a delay in market 
availability, ostensibly because that delay has an impact on the 
availability of data for use in inpatient hospital payment rate 
setting. The manufacturer asserted that when there is a paucity of data 
from the first of the 2 years of the new technology add-on payment, CMS 
should continue making new technology add-on payments for a third year 
to ensure that when it incorporates the item into the inpatient payment 
system, it has enough data to do so.
    Further, the manufacturer noted that BLINCYTO[supreg] demonstrated 
significant improvements in overall survival, complete remission, and 
event-free survival in comparison to standard of care chemotherapy in 
adult patients with Ph-R/R B-cell precursor ALL. The manufacturer 
stated that extending new technology add-on payments for 
BLINCYTO[supreg] would continue to support access to this novel 
therapy.
    Response: We thank the commenters for their comments. With regard 
to the technology's newness, as discussed in the FY 2005 IPPS final 
rule (69 FR 49003), the timeframe that a new technology can be eligible 
to receive new technology add-on payments begins when data become 
available. As the manufacturer noted in its comments, Sec.  
412.87(b)(2) clearly states that a medical service or technology may be 
considered new within 2 or 3 years after the point at which data begin 
to become available reflecting the ICD-9-CM code (or, as finalized 
earlier in this section, the inpatient hospital code) assigned to the 
new service or technology (depending on when a new code is assigned and 
data on the new service or technology become available for DRG 
recalibration). Section 412.87(b)(2) also specifies that after CMS has 
recalibrated the DRGs, based on available data, to reflect the costs of 
an otherwise new medical service or technology, the medical service or 
technology will no longer be considered ``new'' under the criterion of 
the section. The period of newness does not necessarily start with the 
approval date for the medical service or technology, and does not 
necessarily start with the issuance of a distinct code. Instead, it 
begins with availability of the product on the U.S. market, which is 
when data become available. As the manufacturer noted, we considered 
the newness period for BLINCYTO[supreg] to commence when the product 
gained entry onto the U.S. market on December 17, 2014. We have 
consistently applied this standard, and believe that it is most 
consistent with the purpose of new technology add-on payments.
    While CMS may consider a documented delay in a technology's 
availability on the U.S. market in determining when the newness period 
begins, its policy for determining whether to extend new technology 
add-on payments for a third year generally applies regardless of the 
claims volume for the technology after the start of the newness period. 
Similar to our discussion earlier and in the FY 2006 IPPS final rule 
(70 FR 47349), we do not believe that case volume is a relevant 
consideration for making the determination as to whether a product is 
``new.'' Consistent with the statute, a technology no longer qualifies 
as ``new'' once it is more than 2 to 3 years old, irrespective of how 
frequently it has been used in the Medicare population. Similarly, this 
same determination is applicable no matter how many MS-DRGs the 
technology is spread across. Therefore, if a product is more than 2 to 
3 years old, we consider its costs to be included in the MS-DRG 
relative weights whether its use in the Medicare population has been 
frequent or infrequent.
    Based on the reasons stated above, BLINCYTO[supreg] is no longer 
considered ``new'' for purposes of new technology add-on payments for 
FY 2018. We are finalizing our proposal to discontinue making new 
technology add-on payments for BLINCYTO[supreg] for FY 2018.
6. FY 2018 Applications for New Technology Add-On Payments
    We received nine applications for new technology add-on payments 
for FY 2018. Three applicants withdrew their applications prior to the 
issuance of the FY 2018 IPPS/LTCH PPS proposed rule. Two applicants, 
Kite Pharma and IsoRay Medical, Inc., in conjunction with GammaTile 
LLC, withdrew their applications for KTE-C19 (axicabtagene ciloleucel) 
and GammaTileTM, respectively, prior to the issuance of this 
FY 2018 IPPS/LTCH PPS final rule.
    In addition, in accordance with the regulations under Sec.  
412.87(c), applicants for new technology add-on payments must have FDA 
approval or clearance by July 1 of each year prior to the beginning of 
the fiscal year that the application is being considered. One 
applicant, Celator Pharmaceuticals, Inc. for VYXEOSTM, did 
not receive FDA approval for its technology by July 1, 2017. Therefore, 
VYXEOSTM is not eligible for consideration for new 
technology add-on payments for FY 2018. We are not including in this 
final rule the descriptions and discussions of this application which 
was included in the FY 2018 IPPS/LTCH PPS proposed rule. We note that 
we did receive public comments on this application. However, because 
VYXEOSTM is ineligible for new technology add-on payments 
for FY 2018 because it did not receive FDA approval by July 1, 2017, we 
are not summarizing nor responding to public comments regarding the new 
technology criteria for this application in this final rule. We note 
that the applicant did request that we make an exception to the July 1 
deadline if it were to receive FDA approval prior to the beginning of 
FY 2018. However, we did not propose any changes to the regulations at 
Sec.  412.87(c), and we believe the request is out of scope for this 
final rule.
    A discussion of the three remaining applications is presented 
below.
a. Bezlotoxumab (ZINPLAVATM)
    Merck & Co., Inc. submitted an application for new technology add-
on payments for ZINPLAVATM for FY 2018. 
ZINPLAVATM is indicated to reduce

[[Page 38116]]

recurrence of Clostridium difficile infection (CDI) in adult patients 
who are receiving antibacterial drug treatment for a diagnosis of CDI 
who are at high risk for CDI recurrence. ZINPLAVATM is not 
indicated for the treatment of the presenting episode of CDI and is not 
an antibacterial drug.
    Clostridium difficile (C-diff) is a disease-causing anaerobic, 
spore forming bacteria that can affect the gastrointestinal (GI) tract. 
Some people carry the C-diff bacterium in their intestines, but never 
develop symptoms of an infection. The difference between asymptomatic 
colonization and pathogenicity is caused primarily by the production of 
an enterotoxin (Toxin A) and/or a cytotoxin (Toxin B). The presence of 
either or both toxins can lead to symptomatic CDI, which is defined as 
the acute onset of diarrhea with a documented infection with toxigenic 
C-diff, or the presence of either toxin A or B. The GI tract contains 
millions of bacteria, commonly referred to as ``normal flora'' or 
``good bacteria,'' which play a role in protecting the body from 
infection. Antibiotics can kill these good bacteria and allow the C-
diff bacteria to multiply and release toxins that damage the cells 
lining the intestinal wall, resulting in a CDI. CDI is a leading cause 
of hospital-associated gastrointestinal illnesses. Persons at increased 
risk for CDI include people who are treated with current or recent 
antibiotic use, people who have encountered current or recent 
hospitalization, people who are older than 65 years, immunocompromised 
patients, and people who have recently had a diagnosis of CDI. CDI 
symptoms include, but are not limited to, diarrhea, abdominal pain, and 
fever. CDI symptoms range in severity from mild (abdominal discomfort, 
loose stools) to severe (profuse, watery diarrhea, severe pain, and 
high fevers). Severe CDI can be life-threatening and, in rare cases, 
can cause bowel rupture, sepsis and organ failure. CDI is responsible 
for 14,000 deaths per year in the United States.
    C-diff produces two virulent, pro-inflammatory toxins, Toxin A and 
Toxin B, which target host colonocytes (that is, large intestine 
endothelial cells) by binding to endothelial cell surface receptors via 
combined repetitive oligopeptide (CROP) domains. These toxins cause the 
release of inflammatory cytokines leading to intestinal fluid secretion 
and intestinal inflammation. The applicant asserted that 
ZINPLAVATM targets Toxin B sites within the CROP domain 
rather than the C-diff organism itself. According to the applicant, by 
targeting C-diff Toxin B, ZINPLAVATM neutralizes Toxin B, 
prevents large intestine endothelial cell inflammation, symptoms 
associated with CDI, and reduces the recurrence of CDI. 
ZINPLAVATM binds to sites within the CROP domain, which 
prevents Toxin B from binding to the host cell, thereby preventing the 
inflammation and symptoms associated with CDI. ZINPLAVATM is 
used concomitantly with standard of care (SOC) antibiotics. Typical 
treatment of CDI includes antibiotic therapy using vancomycin, 
metronidazole, fidaxomicin, or other antibiotics. Alternative therapies 
include fecal microbiota transplant (FMT) and the use of probiotics.
    The primary goal of CDI treatment is resolving the infection. 
Antibacterial drug treatment remains the cornerstone of treatment of 
CDI. However, this treatment option alone may not be adequate for 
patients diagnosed with recurrent CDI. A major concern with respect to 
a CDI is that even when treatment with an antibacterial drug of a 
primary infection is successful, generally, 25 percent to 30 percent of 
patients experience a recurrence of the infection within days or weeks 
of the presenting episode's symptom resolution. The risk of recurrence 
increases to 65 percent with subsequent CDI episodes. Disease 
recurrence results from continued disruption of the intestinal 
microbiota by SOC CDI antibiotics (or use of other antibiotics used to 
treat non-gastrointestinal conditions), combined with persistence of 
resistant C-diff spores (relapse) or acquisition of new spores from the 
environment (reinfection).
    Antibacterial drug use may inhibit the intestinal microbiota from 
reestablishing itself, allowing C-diff spores potentially to germinate 
and colonize the intestines when the antibacterial drug is 
discontinued. If regrowth of C-diff overtakes the reestablishment of 
the intestinal microbiota, then spore germination and toxin production 
from vegetative C-diff may restart the cycle of CDI and the need for 
subsequent treatment. These challenges highlight the need for 
nonantibiotic therapies. ZINPLAVATM targets Toxin B rather 
than the C-diff bacteria itself. According to the applicant, unlike 
antibacterial drugs, ZINPLAVATM is a human monoclonal 
antibody and does not affect the microbiota. According to the 
applicant, ZINPLAVATM neutralizes C-diff Toxin B and reduces 
recurrence of CDI. ZINPLAVATM is given concomitantly during 
the course of SOC antibacterial treatment of a CDI..
    With respect to the newness criterion, ZINPLAVATM 
received FDA approval on October 21, 2016, for reduction of recurrence 
of CDI in patients receiving antibacterial drug treatment for CDI and 
who are at high risk of CDI recurrence. ZINPLAVATM became 
commercially available on February 10, 2017. Therefore, the newness 
period for ZINPLAVATM began on February 10, 2017.
    The applicant submitted a request for a unique ICD-10-PCS procedure 
code and was granted approval for the following procedure codes: 
XW033A3 (Introduction of bezlotoxumab monoclonal antibody, into 
peripheral vein, percutaneous approach, New Technology Group 3) and 
XW043A3 (Introduction of bezlotoxumab monoclonal antibody, into central 
vein, percutaneous approach, New Technology Group 3).
    As discussed above, 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, 
according to the applicant, ZINPLAVATM is a human monoclonal 
antibody with an innovative mechanism of action. The applicant asserted 
that ZINPLAVATM is a novel treatment, with a unique 
mechanism of action relative to SOC CDI antibiotics that target C-diff. 
The applicant explained that ZINPLAVATM is the first human 
monoclonal antibody that targets and neutralizes C. diff Toxin B 
because the technology specifically binds to and neutralizes C-diff 
Toxin B (which is an exotoxin that contributes to intestinal tissue 
damage and immune system effects that underlie the symptoms of CDI) and 
inhibits binding of the toxin to mammalian cells. The applicant further 
asserted that the administration of ZINPLAVATM, in addition 
to standard of care antibacterial drug treatment, reduces CDI 
recurrence by providing passive immunity against Toxin B resulting from 
persistent or newly acquired C-diff spores. According to the applicant, 
ZINPLAVATM is the only FDA-approved treatment indicated for 
reducing CDI recurrence as adjunctive therapy in adult patients who are 
receiving antibacterial drug treatment for CDI and who are at high risk 
for CDI recurrence.
    With respect to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, the applicant maintained that 
patients who may be eligible to receive treatment using 
ZINPLAVATM could be in an acute-care hospital setting for a 
wide

[[Page 38117]]

variety of reasons and may develop a secondary CDI as a hospital-
acquired infection and, therefore, cases representing patients that may 
be eligible for treatment using the technology can map to a wide range 
of MS-DRGs. ZINPLAVATM is indicated for patients receiving 
SOC treatment for CDI and who are at a high risk for CDI recurrence. In 
order to identify the range of MS-DRGs for which cases representing 
patients that may be eligible for treatment using ZINPLAVATM 
may map to, the applicant identified all MS-DRGs containing cases that 
represent patients presenting with CDI as a primary or secondary 
diagnosis. The applicant used FY 2015 MedPAR data to map the identified 
cases to 543 MS-DRGs, with 12 MS-DRGs accounting for approximately 40 
percent of all cases. The applicant segmented these cases based on age 
because patients 65 years and older are at higher risk for CDI 
recurrence. Based on the FY 2015 MedPAR data, MS-DRG distribution was 
found to be similar, irrespective of CDI status (primary or secondary), 
for patients over 65 years of age and those under 65 years of age. The 
top 7 MS-DRGs across both age groups account for nearly 54 percent 
(over 65 years of age) and 49 percent (under 65 years of age). The 
applicant further segmented these cases to determine if status of CDI 
as a primary or secondary diagnosis influenced MS-DRG mapping. 
Regardless of age, when CDI is the primary diagnosis, approximately 98 
percent of patient cases map to the same 3 MS-DRGs: MS-DRG 371 (Major 
Gastrointestinal Disorders and Peritoneal Infections with MCC); MS-DRG 
372 (Major Gastrointestinal Disorders and Peritoneal Infections with 
CC); and MS-DRG 373 (Major Gastrointestinal Disorders and Peritoneal 
Infections without CC/MCC), respectively. Potential cases representing 
patients who may be eligible for treatment with ZINPLAVATM 
would be assigned to the same MS-DRGs as cases representing patients 
who receive SOC treatment for a diagnosis of CDI.
    With respect 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, according to the 
applicant, ZINPLAVATM is administered concomitantly or as 
adjunctive therapy with SOC antibacterial treatment for recurrent CDI. 
The applicant stated that ZINPLAVATM is indicated to reduce 
recurrence of CDI in adult patients at high risk of CDI recurrence who 
are receiving antibacterial drug treatment for CDI. According to the 
applicant, the addition of ZINPLAVATM to SOC antibacterial 
drug treatment reduces CDI recurrence by providing passive immunity 
against Toxin B resulting from persistent or newly acquired C-diff 
spores. ZINPLAVATM is used to reduce recurrence of the same 
or similar type of disease (CDI) and to treat a similar patient 
population receiving SOC therapy for the treatment of recurrent CDI.
    We stated in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19879) 
that, based on the applicant's statements presented above, because 
ZINPLAVATM has a unique mechanism of action, we did not 
believe that the technology is substantially similar to existing 
technologies and, therefore, meets the newness criterion. We invited 
public comments on whether ZINPLAVATM meets the newness 
criterion.
    Comment: The applicant submitted comments in agreement with CMS' 
belief that ZINPLAVATM meets the newness criterion for new 
technology add-on payments. The applicant reiterated that 
ZINPLAVATM is the only FDA approved treatment indicated for 
reducing CDI recurrence as adjunctive therapy in adult patients who are 
receiving antibacterial drug treatment for CDI and who are at risk for 
CDI recurrence. The applicant agreed that ZINPLAVATM is not 
substantially similar to existing technologies and, therefore, meets 
the newness criterion.
    Response: We appreciate the comments submitted by the applicant on 
whether ZINPLAVATM meets the newness criterion. After review 
of the information provided by the applicant and consideration of its 
comments, we believe that ZINPLAVATM meets the newness 
criterion and we consider the technology to be ``new'' as of February 
10, 2017, when the technology became commercially available.
    With regard to the cost criterion, the applicant conducted the 
following analysis to demonstrate that the technology meets the cost 
criterion. In order to identify the range of MS-DRGs that cases 
representing potential patients who may be eligible for treatment using 
ZINPLAVATM may map to, the applicant identified all MS-DRGs 
for patients diagnosed with CDI as a primary or secondary diagnosis. 
Specifically, the applicant searched the FY 2015 MedPAR file for claims 
that included target patients over 65 years of age and identified cases 
reporting diagnoses of CDI by ICD-9-CM diagnosis code 008.45 
(Intestinal infection due to Clostridium difficile) as a primary or 
secondary diagnosis. This resulted in 139,135 cases across 543 MS-DRGs, 
with approximately 40 percent of all cases mapping to the following 12 
MS-DRGs: MS-DRG 177 (Respiratory Infections and Inflammations with 
MCC); MS-DRG 193 (Simple Pneumonia and Pleurisy with MCC); MS-DRG 
291(Heart Failure and Shock with MCC); MS-DRGs 371, 372, and 373 (Major 
Gastrointestinal Disorders and Peritoneal Infections with MCC, with CC, 
and without CC/MCC, respectively); MS-DRGs 682 and 683 (Renal Failure 
with MCC and with CC, respectively); MS-DRG 853 (Infectious and 
Parasitic Diseases with O.R. Procedure with MCC); MS-DRGs 870, 871, and 
872 (Septicemia or Severe Sepsis with Mechanical Ventilation >96 Hours, 
with MCC, and without MCC, respectively).
    Using the 139,135 identified cases, the average unstandardized 
case-weighted charge per case was $80,677. The applicant then 
standardized the charges. The applicant did not remove charges for the 
current treatment because, as discussed above, ZINPLAVATM 
will be used concomitantly with SOC antibacterial treatments for the 
treatment of CDI as an additive, or adjunctive treatment option, to 
reduce the recurrence of CDI infection. The applicant then applied the 
2-year inflation factor of 1.098446 from the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 57286) to inflate the charges from FY 2015 to FY 
2017. The applicant noted that the anticipated price for 
ZINPLAVATM has yet to be determined; therefore, no charges 
for ZINPLAVATM were added in the analysis. Based on the FY 
2017 IPPS/LTCH PPS Table 10 thresholds, the average case-weighted 
threshold amount was $56,871. The inflated average case-weighted 
standardized charge per case was $78,929. 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. The applicant noted that the inflated average 
case-weighted standardized charge per case exceeds the average case-
weighted threshold amount without the average per patient cost of the 
technology. As such, the applicant anticipated that the inclusion of 
the cost of ZINPLAVATM, at any price point, will further 
increase charges above the average case-weighted threshold amount. In 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19879), we invited 
public comments on whether ZINPLAVATM meets the cost 
criterion.
    Comment: The applicant submitted comments reiterating its cost 
analysis

[[Page 38118]]

results. Specifically, the applicant stated that as indicated in the FY 
2015 MedPAR data analysis summarized above, the average case-weighted 
standardized charge per case exceeded the average case-weighted 
threshold amount. As noted in the proposed rule, at the time the 
applicant submitted its application, the applicant indicated that the 
price of ZINPLAVATM had not yet been determined. However, 
because the inflated average case-weighted standardized charge per case 
exceeded the average case-weighted threshold amount without the average 
per-patient cost of the technology, the applicant contended that the 
inclusion of the cost of ZINPLAVA , at any price point, would further 
increase charges above the average case-weighted threshold amount.
    The applicant noted, in supplemental information submitted to CMS, 
the wholesale acquisition cost (WAC) of ZINPLAVATM (which is 
supplied as a 1000 mg/40 mL (25 mg/mL) solution in a single-dose vial) 
is $3,800 per vial. The recommended dosage of ZINPLAVATM is 
a single 10 mg/kg dose administered as an IV infusion based on patient 
body weight. Because each vial contains 1,000 mg of 
ZINPLAVATM, a single vial provides the complete recommended 
dose for a single patient who weighs 100 kg or less.
    As noted in the applicant's supplemental submission, to estimate 
the anticipated average charge submitted by hospitals for 
ZINPLAVATM, the applicant assumed that hospitals will mark 
up the cost for ZINPLAVATM by 200 percent. A 200 percent 
mark-up of the $3,800 WAC results in a total charge of $7,600 for 
ZINPLAVATM. The applicant added the anticipated charge for 
ZINPLAVATM of $7,600 to the previously determined inflated 
average case-weighted standardized charge per case of $78,929. This 
resulted in a revised inflated average case-weighted standardized 
charge per case of $86,529, which still exceeds the average case-
weighted threshold amount of $56,871.
    Response: After consideration of the comments we received, we agree 
that ZINPLAVATM meets the cost criterion.
    With respect to the substantial clinical improvement criterion, the 
applicant asserted that the addition of ZINPLAVATM to SOC 
antibacterial drug treatment reduces CDI recurrence because it provides 
passive immunity against Toxin B resulting from persistent or newly 
acquired C-diff spores.
    The applicant conducted two Phase III studies, MODIFY I and MODIFY 
II. The primary endpoint of the studies was recurrent CDI within 12 
weeks after completion of treatment with ZINPLAVATM. The 
first study design initially included actoxumab, an antitoxin A 
monoclonal antibody treatment arm that was later discontinued due to a 
high failure rate and increase in mortality compared to other treatment 
arms.\3\ Clinical data on ZINPLAVATM is provided exclusively 
from the FDA briefing document available on the FDA Web site at: http://www.fda.gov/AdvisoryCommittees/CommitteesMeetingMaterials/Drugs/Anti-InfectiveDrugsAdvisoryCommittee. Information is also provided in the 
package insert by the manufacturer, Merck & Company, Inc. The FDA 
briefing provided data on the safety and efficacy of 
ZINPLAVATM. The FDA considered sustained clinical responses 
defined as clinical cure of the initial CDI episode and the absence of 
CDI recurrence as an appropriate endpoint to assess the efficacy of 
ZINPLAVA\TM\ in the prevention of CDI recurrences.
---------------------------------------------------------------------------

    \3\ Wilcox MH et al. Bezlotoxumab for Prevention of Recurrent 
Clostridium difficile Infection. N Engl J Med. 2017 Jan 
26;376(4):305-317.
---------------------------------------------------------------------------

    In MODIFY I trial, the clinical cure rate of the presenting CDI 
episode was lower in the ZINPLAVA\TM\ arm as compared to the placebo 
arm, whereas in MODIFY II trial the clinical cure rate was lower in the 
placebo arm as compared to the ZINPLAVA\TM\ arm. Additional analyses 
showed that, by 3 weeks post study drug infusion, the clinical cure 
rates of the presenting CDI episode were similar between treatment 
arms.
    In MODIFY I, the rate of sustained clinical response was 
numerically in favor of ZINPLAVA\TM\ (60.1 percent) in comparison to 
placebo (55.2 percent) with an adjusted difference and 95 percent CI of 
4.8 percent (-2.1 percent; 11.7 percent). In MODIFY II, the proportion 
of subjects with sustained clinical response in the ZINPLAVA\TM\ arm 
(66.8 percent) was also higher than in the placebo arm (52.1 percent) 
with an adjusted difference of 14.6 percent and 95 percent CI (7.8 
percent; 21.4 percent). The treatment did not significantly decrease 
mortality. Recurrence rates, including CDI-related hospital readmission 
rates, reportedly were between 10 and 25 percent. No clinically 
meaningful differences in the exposure of bezlotoxumab were found 
between patients 65 years of age and older and patients under 65 years 
of age.
    In the Phase III trials, the safety profile of 
ZINPLAVATM was similar overall to that of placebo. However, 
heart failure was reported more commonly in the two Phase III clinical 
trials of ZINPLAVATM-treated patients compared to placebo-
treated patients. These adverse reactions occurred primarily in 
patients with underlying congestive heart failure (CHF). In patients 
with a history of CHF, 12.7 percent (15/118) of ZINPLAVATM-
treated patients and 4.8 percent (5/104) of placebo-treated patients 
had the serious adverse reaction of heart failure during the 12-week 
study period. In addition, in patients with a history of CHF, there 
were more deaths in ZINPLAVATM-treated patients (19.5 
percent (23/118)) than in placebo-treated patients (12.5 percent (13/
104)) during the 12-week study period. We stated in the proposed rule 
that we were concerned regarding the safety of ZINPLAVATM in 
patients diagnosed with CHF. In regards to safety, data from the MODIFY 
I and MODIFY II studies suggest few adverse events associated with 
ZINPLAVATM, with no significant differences in the number of 
serious adverse events, deaths or discontinuations of study drug that 
occurred between the ZINPLAVATM and the placebo groups. 
However, both the ZINPLAVATM and the ZINPLAVATM 
plus actoxumab treatment groups experienced more episodes of cardiac 
failure (defined as acute or chronic cardiac failure) then compared to 
the placebo group (2.2 percent versus 1 percent). We stated in the 
proposed rule that we were unsure if the cardiac failure reported in 
the studies may be the result of a higher number of baseline patients 
with heart failure in the treatment arms or the result of an adverse 
effect to ZINPLAVATM. Therefore, we stated that we were 
concerned with regard to the adverse event of cardiac failure of 
ZINPLAVATM.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19880), we 
invited public comments on whether ZINPLAVATM meets the 
substantial clinical improvement criterion. We noted that we did not 
receive any written public comments in response to the New Technology 
Town Hall meeting notice regarding the application of 
ZINPLAVATM for new technology add-on payments.
    Comment: The applicant submitted comments regarding the substantial 
clinical improvement criterion. The applicant reiterated that the 
addition of ZINPLAVATM to standard of care antibacterial 
drug treatment reduces the risk of CDI recurrence in adult patients who 
are at high risk for CDI recurrence because it provides passive 
immunity against Toxin B resulting from persistent or newly acquired C. 
difficile spores. The applicant noted CMS'

[[Page 38119]]

concern, as described in the proposed rule, regarding the reported 
adverse event of cardiac failure with ZINPLAVATM. The 
applicant provided additional information concerning serious adverse 
events (SAEs) observed in the Phase III trials, and also included a 
series of analyses performed in the 41 subjects with an SAE of cardiac 
failure, as well as a discussion of analyses performed in a subset of 
patients with a baseline history of CHF..
    The applicant noted that SAEs were collected for the full 12-week 
follow-up period in the both Phase III trials (P001 + P002). Amongst 
the 2344 Phase III trial subjects, 29.8 percent of subjects experienced 
an SAE during the 12-week follow-up period. According to the applicant, 
the proportion of subjects with a SAE was lower in the active treatment 
groups compared with placebo (bezlotoxumab, 29.4 percent; actoxumab + 
bezlotoxumab, 27.3 percent; and placebo, 32.7 percent). The most 
frequently reported SAEs across all treatment groups were CDI (4.7 
percent), pneumonia (2.0 percent), sepsis (1.8 percent), cardiac 
failure (1.7 percent), diarrhea (1.6 percent), and urinary tract 
infection (1.5 percent). A higher percentage of subjects in the active 
treatment groups reported SAEs of cardiac failure compared with placebo 
(bezlotoxumab, 2.2 percent; actoxumab + bezlotoxumab, 2.2 percent; and 
placebo, 0.9 percent), whereas a higher percentage of subjects reported 
SAEs of CDI, pneumonia, and sepsis in the placebo group compared with 
the bezlotoxumab and actoxumab + bezlotoxumab groups. The incidence for 
other frequently reported SAEs was similar across groups. SAEs 
generally reflected the underlying comorbidities and advanced age of 
the subjects enrolled.
    The applicant also further characterized the observed numerical 
imbalance of subjects experiencing cardiac failure SAEs in 
bezlotoxumab-containing versus placebo treatment groups, by performing 
a series of analyses in the 41 subjects with an SAE of cardiac failure. 
The applicant noted the baseline characteristics of the 41 subjects who 
experienced an SAE of cardiac failure. As compared with the All 
patients as treated (APaT) population for the integrated Phase III 
trials (P001 + P002) dataset, the 41 subjects were older, almost all 
were inpatients at the time of enrollment, had a higher incidence of 
comorbid conditions (as evidenced by Charlson Comorbidity Index and 
Horn's Index), and a higher incidence of severe CDI. Across the 
treatment groups, nearly 90 percent had a medical history of including 
at least one cardiac condition and approximately 70 percent had a 
history of cardiac failure and/or cardiomyopathy. Therefore, the 
applicant believed that any assessment of the safety profile of this 
morbidly ill patient population must be interpreted with caution.
    The applicant provided an analysis of the safety profile of the 41 
subjects with cardiac failure SAEs with respect to timing to cardiac 
failure SAE and death. In the placebo group, 5 of 7 subjects 
experienced an SAE of cardiac failure before Week 4, while in the 
bezlotoxumab and actoxumab + bezlotoxumab groups, the majority of such 
events occurred after Week 4. None of the cardiac failure SAEs was 
deemed drug related by the investigator. Among subjects with a cardiac 
failure SAE, a higher proportion of subjects in the placebo group than 
in the bezlotoxumab group died before Week 4. The applicant noted that 
the events were often associated with concurrent conditions such as 
infection and/or worsening CDI that are known to exacerbate CHF, 
thereby further supporting the assessments that these events were not 
drug related. Overall, according to the applicant, these findings do 
not support a clear association between cardiac failure and 
bezlotoxumab, especially recognizing the severe baseline morbidity of 
the subjects and the lack of a temporal association of the event and 
any associated death.
    The applicant reiterated that heart failure is listed in the 
warnings and precautions section of the prescribing information for 
ZINPLAVATM to describe the higher incidence of heart failure 
reported in the two Phase III trials in subjects who received 
ZINPLAVATM compared with those who received placebo, 
primarily in patients with underlying CHF. The warnings and precautions 
section of the ZINPLAVATM label states, in part, that in 
patients with a history of CHF, ZINPLAVATM ``should be 
reserved for use when the benefit outweighs the risk.'' Although the 
overall safety profile of ZINPLAVATM was found to be 
acceptable, the FDA considered that this information was clinically 
relevant. Furthermore, the applicant stated that ZINPLAVATM 
has also recently been authorized for use by the European Medicines 
Agency (EMA) and that there is no heart failure warning in the EU 
prescribing information.
    Response: We appreciate the additional information and analysis 
provided by the applicant in response to our concerns regarding the 
adverse event of cardiac failure. We are satisfied that the warnings 
and precautions section of the drug's label clearly state that 
``ZINPLAVATM should be reserved for use when the benefit 
outweighs the risk'' for patients with a history of congestive heart 
failure (CHF). We agree that ZINPLAVATM represents a 
substantial clinical improvement over existing technologies because, 
based on the studies provided by the applicant, it reduces CDI 
recurrence by providing passive immunity against Toxin B resulting from 
persistent or newly acquired C-diff spores. After consideration of the 
public comments we received, we have determined that 
ZINPLAVATM meets all of the criteria for approval of new 
technology add-on payments. Therefore, we are approving new technology 
add-on payments for ZINPLAVATM for FY 2018. Cases involving 
ZINPLAVATM that are eligible for new technology add-on 
payments will be identified by ICD-10-PCS procedure codes XW033A3 and 
XW043A3.
    In its application, the applicant estimated that the average 
Medicare beneficiary would require a dosage of 10 mg/kg administered as 
an IV infusion over 60 minutes as a single dose. According to the 
applicant, the WAC for one dose is $3,800. 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 
ZINPLAVATM is $1,900 for FY 2018. In keeping with the 
current ZINPLAVATM label, CMS expects ZINPLAVATM 
will be prescribed for adult patients who are receiving antibacterial 
drug treatment for a diagnosis of CDI who are at high risk for CDI 
recurrence, and after consideration of its current warnings and 
precautions section which indicates for patients with a history of CHF, 
ZINPLAVATM should be reserved for use when the benefit 
outweighs the risk.
b. EDWARDS INTUITY EliteTM Valve System (INTUITY) and 
LivaNova Perceval Valve (Perceval)
    Two manufacturers, Edwards Lifesciences and LivaNova, submitted 
applications for new technology add-on payments for FY 2018 for the 
INTUITY EliteTM Valve System (INTUITY) and the Perceval 
Valve (Perceval), respectively. Both of these technologies are 
prosthetic aortic valves inserted using surgical aortic valve 
replacement (AVR). We note that, while Edwards Lifesciences submitted 
an application for new technology add-on payments for

[[Page 38120]]

FY 2017 for the INTUITY valve, FDA approval was not received by July 1, 
2016, and, therefore, the device was not eligible for consideration for 
new technology add-on payments for FY 2017.
    Aortic valvular disease is relatively common, primarily manifested 
by aortic stenosis. Most aortic stenosis is due to calcification of the 
valve, either on a normal tri-leaflet valve or on a congenitally 
bicuspid valve. The resistance to outflow of blood is progressive over 
time, and as the size of the aortic orifice narrows, the heart must 
generate increasingly elevated pressures to maintain blood flow. 
Symptoms such as angina, heart failure, and syncope eventually develop, 
and portend a very serious prognosis. There is no effective medical 
therapy for aortic stenosis, so the diseased valve must be replaced or, 
less commonly, repaired.
    The INTUITY valve incorporates the expansion feature of a catheter 
implanted valve, but is designed to be placed during cardiac surgery. 
The manufacturer explained that the INTUITY valve requires fewer 
stitches to hold the device in place because of the balloon expanded 
design and, therefore, can be inserted more quickly than a standard 
valve, and also facilitates minimally invasive cardiac surgery; that 
is, use of a smaller incision to allow faster recovery. The 
manufacturer of the INTUITY valve indicated that the device is 
comprised of: (1) A bovine pericardial aortic bioprosthetic valve; (2) 
a balloon expandable stainless steel frame; and (3) a textured sealing 
cloth. The manufacturer of the Perceval valve indicated that the 
Perceval valve device is comprised of: (1) Sizers used to determine the 
correct size of the prosthesis; (2) a dual holder used for positioning 
and deployment (available in two models, one for sternal approaches and 
one for MIS); (3) a ``smart clip'' to assist during assembly of the 
valve on the dual holder to prevent release during positioning; (4) a 
dual collapser used to evenly reduce the diameter of the prosthesis 
allowing it to mount onto the holder prior to implantation; (5) a dual 
collapser base used to allow proper positioning; and (6) a postdilation 
catheter used for in situ dilation of the prosthesis after implantation 
(available in two models, one for sternal approaches and one for MIS). 
According to both applicants, the INTUITY valve and the Perceval valve 
are the first sutureless, rapid deployment aortic valves that can be 
used for the treatment of patients who are candidates for surgical AVR. 
The applicants indicated that the two new device innovations facilitate 
MIS approaches through: (1) The device rapid deployment mechanisms; and 
(2) the design of the prosthetic valve that allows for markedly fewer 
to no sutures to securely fasten the prosthetic valve to the aortic 
orifice. The applicants explained that both of these aspects of their 
devices are credited with the reduction of operating time.
    As noted, according to both applicants, the INTUITY valve and the 
Perceval valve are the first sutureless, rapid deployment aortic valves 
that can be used for the treatment of patients who are candidates for 
surgical AVR. Because potential cases representing patients who are 
eligible for treatment using the INTUITY and the Perceval aortic valve 
devices would group to the same MS-DRGs, and we believe that these 
devices 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 
believe these two devices are substantially similar to each other and 
that it is appropriate to evaluate both technologies as one application 
for new technology add-on payments under the IPPS.
    With respect to the newness criterion, the INTUITY valve received 
FDA approval on August 12, 2016, and was commercially available on the 
U.S. market on August 19, 2016. The Perceval valve received FDA 
approval on January 8, 2016, and was commercially available on the U.S. 
market on February 29, 2016. We believe that, in accordance with our 
policy, it is appropriate to use the earliest market availability date 
submitted as the beginning of the newness period. Therefore, we stated 
in the proposed rule that based on our policy, with regard to both 
devices, if the technologies are approved for new technology add-on 
payments, we believe that the beginning of the newness period would be 
February 29, 2016. In addition, both applicants indicated that ICD-10-
PCS code X2RF032 (Replacement of Aortic Valve using Zooplastic Tissue, 
Rapid Deployment Technique, Open Approach, New Technology Group 2) 
would identify procedures involving the use of the devices when 
surgically implanted.
    We previously stated that, because we believe these two devices are 
substantially similar to each other, we believe it is appropriate to 
evaluate 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 discuss each set of data separately. 
However, we stated in the proposed rule that we intend to make one 
determination regarding new technology add-on payments that will apply 
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 we believe that continuing our current practice of 
extending new technology add-on payments 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 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).
    We explained in the proposed rule that if these substantially 
similar technologies were submitted for review in different (and 
subsequent) years, rather than the same year, we would evaluate and 
make a determination on the first application and apply that same 
determination to the second application. However, because the 
technologies have been submitted for review in the same year, we 
believe that it is appropriate to consider both sets of cost data and 
clinical data in making a determination and we do not believe that it 
is possible to choose one set of data over another set of data in an 
objective manner.
    As stated above, we believe that the INTUITY valve and the Perceval 
valve are substantially similar to each other for purposes of analyzing 
these two applications as one application. As we stated in the proposed 
rule, we also need to determine whether the INTUITY valve and the 
Perceval valve are substantially similar to existing technologies prior 
to their approval by the FDA and their release on the market. 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

[[Page 38121]]

considered ``new'' for purposes of new technology add-on payments.
    With respect to the first criterion, whether a product uses the 
same or a similar mechanism of action to achieve a therapeutic outcome, 
the applicant for the INTUITY valve asserted that its unique design, 
which utilizes features that were not previously included in 
conventional aortic valves, constitutes a new mechanism of action. The 
deployment mechanism allows for rapid deployment. The expandable frame 
can reshape the native valve's orifice, creating a larger and more 
efficiently shaped effective orifice area. In addition, the expandable 
skirt allows for structural differentiation upon fixation of the valve 
requiring 3 permanent, guiding sutures rather than the 12 to 18 
permanent sutures used to fasten standard prosthetic aortic valves. The 
applicant for the Perceval valve described the Perceval valve's 
mechanism of action as including: (a) No permanent sutures; (b) a 
dedicated delivery system that increases the surgeon's visibility; (c) 
an enabler of minimally invasive approach; (d) a complexity reduction 
and reproducibility of the procedure; and (e) a unique device assembly 
and delivery systems.
    With respect to the second and third criteria, whether a product is 
assigned to the same or a different MS-DRG and 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 for 
the INTUITY valve indicated that the technology is used in the 
treatment of the same patient population and potential cases 
representing patients that may be eligible for treatment using the 
INTUITY valve would be assigned to the same MS-DRGs as cases involving 
the use of other prosthetic aortic valves (that is, 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 for the Perceval valve also indicated that the 
Perceval valve device is used in the treatment of the same patient 
population and potential cases representing patients that may be 
eligible for treatment using the technology would be assigned to the 
same MS-DRGs (MS-DRGs 216 through 221) as cases involving the use of 
other prosthetic aortic valves.
    We stated in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19881) 
that after considering the materials included with both applications, 
we remained concerned as to whether the mechanism of action described 
by the applicants represents an improvement to an existing surgical 
technique and technology or a new technology. While the INTUITY and 
Perceval valves address some of the challenges posed by implantation of 
existing valves, including improving the visibility of the orifice and 
the physiological function of the valves, we stated that we did not 
believe that their mechanisms of action are fundamentally different 
from that of other aortic valves. As one of the applicants stated in 
its application, the goal of the prosthetic aortic valve is to mimic 
the native valve that it has replaced via the incorporation of three 
leaflets that open and close in response to pressure gradients 
developed during the cardiac cycle. We stated that we believe that the 
INTUITY and Perceval valves are the same or similar to other prosthetic 
aortic valves used to treat the same or similar diagnoses.
    In the proposed rule, we invited public comments on whether the 
mechanism of action of the sutureless, rapid deployment of the INTUITY 
and Perceval valves differs from the mechanism of action of standard 
AVR valves and whether the technologies meet the newness criterion.
    Comment: The applicant for the INTUITY valve, as well as several 
physicians that have performed surgeries implanting the INTUITY, stated 
that the mechanism of action differs from that of standard aortic 
valves because of the expeditious implantation, rapid deployment, and 
improved hemodynamics. The applicant also emphasized innovative aspects 
about the INTUITY that were described in its application, such as the 
flexible delivery system, the ability to reshape the native valve's 
orifice, and the balloon expandable stented frame and subannular skirt. 
The applicant emphasized that minimally invasive aortic valve 
replacement has not been widely adopted because of greater technical 
challenge and longer cross-clamp times, but that the INTUITY 
facilitates minimally invasive surgery by addressing both of these 
challenges.
    One commenter, who also manufactures heart valves, indicated that 
it shared CMS' concern about whether the mechanism of action 
constitutes a new technology. This commenter indicated that prosthetic 
aortic valves fall into two categories: Traditional, open surgical and 
minimally invasive, and that differences in design of the valves are 
intended to address challenges in surgical valve replacement, including 
surgical technique, reduction in complications, improvement in 
hemodynamics, or resistance to calcification. The commenter stated that 
all prosthetic aortic valves are substantially similar to each other. 
The commenter described the steps involved in placing surgical valves, 
and indicated that the applicants' devices introduce a new technique 
for securing a surgically implanted bioprosthetic heart valve to the 
annulus and surrounding structures, but that the mechanism of action is 
unchanged. The commenter also noted that rapid deployment surgical 
aortic valves were introduced into clinical practice in 1963.
    Response: We thank the commenters for the details and input on 
whether INTUITY and Perceval meet the newness criterion. While we 
appreciate the additional information provided by the commenter that 
did not believe these valves represented a new technology, we believe 
that based on comments from the manufacturer and physicians who have 
used the INTUITY device, the mechanism of action for the INTUITY and 
Perceval is different from other aortic valves. Specifically, as the 
manufacturer and other physicians emphasized in their comments, the 
technical features of the valve provide the ability to improve clinical 
function beyond the opening and closing of the valve leaflets and allow 
it to perform more efficiently than a standard valve. Thus, as these 
commenters noted, a prosthetic aortic valve inserted using surgical AVR 
with its insertion process improves the physiologic function of the 
outflow track of the new valve. After further review of the information 
provided by the applicant and consideration of the public comments we 
received, we believe that INTUITY and Perceval meet the newness 
criterion. Therefore, we consider the technology to be ``new'' as of 
February 29, 2016, when the Perceval valve became commercially 
available.
    As we stated above, each applicant submitted separate analyses 
regarding the cost criterion for each of their devices, and both 
applicants maintained that their device meets the cost criterion. We 
summarize each analysis below.

[[Page 38122]]

    With regard to the cost criterion, the INTUITY valve's applicant 
researched the FY 2015 MedPAR claims data file to identify cases 
representing patients who may be potential recipients of treatment 
using the INTUITY valve. The applicant identified claims that reported 
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 25,173 cases that mapped to MS-
DRGs 216 through 221. Of these cases, the applicant identified 10,251 
CABG cases and 14,922 non-CABG cases. According to the applicant, 
patients that undergo a procedure without need of a concomitant CABG 
are more likely to receive treatment with the INTUITY valve than 
patients in need of a concomitant CABG. Therefore, the applicant 
weighted the non-CABG cases at 90 percent of total cases and the CABG 
cases at 10 percent of total cases under each of the six MS-DRGs. The 
final case count is a weighted average of 14,455 cases.
    The applicant calculated an average unstandardized charge per case 
of $192,506 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 valve. The applicant standardized the charges and then applied 
an inflation factor of 1.098446, which is the 2-year inflation factor 
in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57286), to update the 
charges from FY 2015 to FY 2017. The applicant calculated the average 
expected charge for the INTUITY valve based on the current list price 
of the device. Although the applicant submitted data related to the 
cost of the INTUITY valve, the applicant noted that the cost of the 
device is proprietary information. To add charges for the device, the 
applicant assumed a hospital mark-up of approximately 300 percent, 
based on the current average CCR for implantable devices (0.331) as 
reported in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56876). Based 
on the FY 2017 IPPS/LTCH PPS Table 10 thresholds, the average case-
weighted threshold amount was $170,321. The applicant computed an 
inflated average case-weighted standardized charge per case of 
$194,291, which is $23,970 above the average case-weighted threshold 
amount. 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.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19882), we 
thanked the applicant for the analysis above. However, we indicated 
that 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 invited public comments on whether 
the INTUITY valve meets the cost criterion. We summarize the public 
comment we received from the applicant regarding its cost analysis 
later in this section.
    With regard to the cost criterion in reference to the Perceval 
valve, the applicant conducted the following analysis. The applicant 
examined FY 2015 MedPAR claims data that included cases reporting an 
ICD-9 procedure code of 35.21 or 35.22, in combination with diagnosis 
code: 424.1. Noting that MS-DRGs 216 through 221 contained 97 percent 
of these cases, the applicant limited its analysis to these 6 MS-DRGs. 
The applicant identified 25,193 cases across these MS-DRGs, resulting 
in an average case-weighted unstandardized charge per case of $173,477. 
The applicant then standardized charges using FY 2015 standardization 
factors and applied an inflation factor of 1.089846 from the FY 2017 
IPPS/LTCH PPS proposed rule (81 FR 25271). The applicant indicated that 
the technology meets the cost criterion by applying the inflation 
factor from the proposed rule and, therefore, would meet the cost 
criterion by applying the higher inflation factor from the final rule.
    Included in the average case-weighted standardized charge per case 
were charges for the current valve prosthesis. Therefore, the applicant 
removed all charges associated with revenue center 0278, and calculated 
the adjusted average case-weighted standardized charge per case by 
subtracting these charges from the standardized charge per case. The 
applicant then added the charge for the new technology by taking the 
anticipated hospital cost of the new technology and dividing it by the 
national average implantable devices CCR of 0.331. The applicant then 
added the charge for the new technology to the inflated average case-
weighted standardized charges per case to arrive at the final inflated 
average case-weighted standardized charge per case, which was then 
case-weighted based on the distribution of cases within the six MS-
DRGs. This resulted in an inflated average case-weighted standardized 
charge per case of $206,109. Using the FY 2017 IPPS Table 10 
thresholds, the average case-weighted threshold amount was $173,477. 
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. In the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19882), we invited public comments 
on whether the Perceval technology meets the cost criterion. We did not 
receive any public comments concerning the costs for the Perceval 
technology.
    Comment: The applicant for the INTUITY valve stated that it based 
its initial sensitivity analysis on 14,455 cases that reflected the 
weighted mix of CABG and non-CABG cases, as the findings in European 
trials indicated that INTUITY was predominantly performed on patients 
who did not have a concomitant CABG during their inpatient stay. The 
applicant stated that

[[Page 38123]]

because the INTUITY is intended for use in all surgical aortic valve 
replacement procedures, regardless of whether the patient also receives 
CABG, it reran the cost threshold analysis including all 25,173 target 
cases in the FY 2015 MedPAR with 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) that mapped to MS-DRGs 216 through 
221. The applicant presented a summary table, which indicated that the 
case weighted threshold was $173,463, the final inflated case weighted 
standardized charge per case was $206,329, and the difference is 
$32,866.
    Response: We appreciate the applicant's submission of this 
additional information. Based on review of the sensitivity analysis 
included in the original application and subsequent analysis included 
in the INTUITY applicant's public comment, as well as the cost analyses 
set forth in both applicants' original applications as set forth above, 
we have determined that both the INTUITY and the Perceval valve meet 
the cost criterion.
    With regard to substantial clinical improvement for the INTUITY 
valve, the applicant asserted that several aspects of the valve system 
represent a substantial clinical improvement over existing 
technologies. The applicant believed that the flexible deployment arm 
allows improved surgical access and visualization, making the surgery 
less challenging for the surgeon, improving the likelihood that the 
surgeon can use a minimally invasive approach. According to the 
applicant, 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 indicated that the device improves clinical 
outcomes for patients undergoing minimally invasive AVR and full-
sternotomy AVR. The applicant stated that the rapid deployment 
technology enables reduced operative time, specifically cross-clamp 
time, thereby reducing the period of myocardial ischemia. In addition, 
the applicant indicated that the device offers a reduction in operative 
time for full-sternotomy AVR. The applicant noted that clinical results 
document 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 need for reoperation due to 
bleeding, reduced recovery time, reduced length of stay (both ICU and 
overall), more access to minimally invasive surgery, and improved 
hemodynamics.
    The INTUITY valve has been tested clinically in several trials. In 
the TRITON trial (Kocher et al., 2013 \4\), 287 patients diagnosed 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-op valve gradient was low, and 75 percent 
of the patients improved functionally. A total of 4 valves were 
explanted in the final 30 days due to bleeding, and 3 were explanted 
later for paravalvular leak, endocarditis, and aortic root aneurysms. 
Follow-up extended to 3 years (mean 1.8 years).
---------------------------------------------------------------------------

    \4\ 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 valve using minimally invasive surgery 
was compared with conventional aortic valve replacement via full 
sternotomy in the CADENCE-MIS randomized trial (Borger et al., 2015 
\5\) of 100 patients treated in 1 of 5 centers in Germany. The authors 
found no significant difference in 30-day mortality, the need for 
pacemaker implantation, significant paravalvular regurgitation, and 
quality of life scores at 3 months. Aortic cross-clamp time was 
significantly 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: No significant differences 
in mortality, reoperation, or other clinical outcomes. The aortic valve 
gradient was significantly lower in the MIS group: 8.5 versus 10.3 
mmHg.
---------------------------------------------------------------------------

    \5\ 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 TRANSFORM trial (Barnhart et al. 2017 \6\) was a single-arm, 
non-randomized, multicenter trial, in which 839 patients underwent 
rapid deployment AVR surgery. The average age of the patients was 73.5 
years. The mean cross-clamp time and cardiopulmonary bypass times for 
full sternotomy were 49.3  26.9 min and 69.2  
34.7 min, respectively, and for MIS, 63.1  25.4 min and 
84.6  33.5 min, respectively. The authors compared these 
times to STS database comparators: For full sternotomy, 76.3 minutes 
and 104.2 minutes, respectively, and for MIS, 82.9 minutes and 111.4 
minutes, respectively. All cause early mortality was 0.8 percent, mean 
EOA at 1 year was 1.7 cm\2\; mean gradient, 10.3 mmHg; and moderate and 
severe PVL, 1.2 percent and 0.4 percent, respectively. The authors 
indicated that the INTUITY valve ``. . . may lead to a relative 
reduction in aortic cross-clamp time and cardiopulmonary bypass time'' 
and ``may confer benefits to patients, such as decreased mortality and 
morbidity.'' The authors noted the possibility of potential bias 
resulting from the level of experience of the study surgeons relative 
to typical cardiac surgeons. In addition, long-term follow-up is not 
available, and study comparators from the Society of Thoracic Surgeons 
(STS) database were not matched.
---------------------------------------------------------------------------

    \6\ Barnhart, G.A. et al. (2017). TRANSFORM (Multicenter 
Experience with Rapid Deployment Edwards INTUITY Valve System for 
Aortic Valve Replacement) US clinical trial: Performance of a rapid 
deployment aortic valve. The Journal of Thoracic and Cardiovascular 
Surgery, 153, 241-251.
---------------------------------------------------------------------------

    In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25057), after 
reviewing the studies provided by the applicant with its application 
for FY 2017, we expressed some specific concerns. We indicated that we 
were concerned that the INTUITY valve does not have sufficient 
advantages over alternative surgically implanted valves to constitute a 
substantial clinical improvement. We noted that, while some of 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 use of the INTUITY valve or as 
a result of the MIS surgery in general.
    In response to these concerns, the INTUITY valve's applicant stated 
that the INTUITY valve is associated with significant clinical benefits 
outside of the benefits achieved by use of an MIS approach. The 
applicant referenced the sub-study of the TRANSFORM trial, which 
compared the MISAVR with the INTUITY valve to MISAVR with a 
conventional valve, stating that the results indicated reduced cross-
clamp time and other benefits that are not simply a function of the MIS 
approach. The applicant also referenced trials that indicated that the 
INTUITY valve had excellent hemodynamic performance

[[Page 38124]]

(Haverich et al.,\7\ Borger et al.,\8\ Barnhart et al.,\9\) one of 
which found a significant improvement in functional status (Haverich et 
al.).
---------------------------------------------------------------------------

    \7\ Haverich, A, et al. (2014), Three-year hemodynamic 
performance, left ventricular mass regression, and prosthetic-
patient mismatch after rapid deployment aortic valve replacement in 
287 patients. J Thorac Cardiovasc Surg, 148(6), 2854-60.
    \8\ Borger MA, Moustafine V, Concadi 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.
    \9\ Barnhart, G.A. et al. (2017). TRANSFORM (Multicenter 
Experience with Rapid Deployment Edwards INTUITY Valve System for 
Aortic Valve Replacement) US clinical trial: Performance of a rapid 
deployment aortic valve. The Journal of Thoracic and Cardiovascular 
Surgery, 153, 241-251.
---------------------------------------------------------------------------

    After considering the studies provided by the INTUITY valve 
applicant, in the proposed rule, we stated that we were concerned about 
the possibility of potential bias resulting from the level of 
experience of the study surgeons relative to typical cardiac surgeons, 
as well as the lack of long-term follow-up in these studies.
    Comment: The applicant stated that there are three key points to 
support the improved clinical performance of the INTUITY. First, there 
is a sufficient body of evidence across multiple clinical studies 
demonstrating improved clinical and hemodynamic performance versus 
traditionally implanted surgical valves. Second, these improvements are 
not simply a result of a minimally invasive surgical approach. Third, 
collectively, these points validate the premise that the technical 
features of the INTUITY are the primary contributor of the improved 
clinical outcomes, and that non-INTUITY procedures done with a 
minimally invasive surgical approach generally have longer cross-clamp 
and operative times. Physicians that have implanted the INTUITY valve 
also indicated that the INTUITY valve reduces cardiopulmonary bypass 
time and cross-clamp time, both of which have been shown to reduce 
complications.
    The applicant also stated that its studies included surgeons with 
varied degrees of experience, and that over 62 physicians participated 
in the US INTUITY trials, which reduces the impact of surgeon bias and 
allows for greater generalizability of results. The applicant stated 
that while no study is free of bias, the INTUITY has been shown to have 
consistent results in both clinical trials and the real-world setting. 
The applicant further supplemented its application with recently 
published 5-year follow-up data (Laufer et al., 2017),\10\ which found 
sustained benefits, including effective orifice area (EOA) 
improvements, low pressure gradients, and reductions in left 
ventricular mass, as well as excellent survival rates.
---------------------------------------------------------------------------

    \10\ Laufer, G et al. (2017). Long-term outcomes of a rapid 
deployment aortic valve: Data up to 5 years. European Journal of 
Cardiothorac Surgery, 2017 Apr 26.
---------------------------------------------------------------------------

    A manufacturer that also manufactures heart valves stated that the 
studies cited by the INTUITY applicant have potential bias resulting 
from the level of experience of the study surgeons relative to typical 
cardiac surgeons, as well as a lack of long-term follow-up. This 
commenter noted that, in the CADENCE-MIS trial, key outcome measures 
did not differ statistically significantly at 3 months between the 
randomized arms of the study, but that the rate of pacemaker implants 
was higher in the INTUITY group. This commenter noted that while 
transaortic valve gradients are reported as significantly lower, the 
study population was small, and that the comparator devices are not all 
representative of best in class gradients. This commenter also pointed 
to the high rate of pacemaker implants in the TRANSFORM trial, and 
mentioned a recent manuscript that reported that early pacemaker 
implantation after aortic valve replacement was associated with an 
increased risk of death.\11\
---------------------------------------------------------------------------

    \11\ Greason et al. (2017). Long-Term Mortality Effect of Early 
Pacemaker Implantation after Surgical Aortic Valve Replacement. The 
Society of Thoracic Surgeons.
---------------------------------------------------------------------------

    Response: While we appreciate the concerns raised by one commenter 
regarding the studies that examined the INTUITY valve, we believe the 
manufacturer addresses our concerns.
    With regard to substantial clinical improvement for the Perceval 
valve, the applicant submitted several studies examining the Perceval 
valve. The following discussion summarizes some of these studies.
    Pollari and colleagues \12\ (2014) utilized a propensity score 
analysis to examine 82 matched pairs as part of a larger trial that 
included 566 patients treated with bioprosthetic aortic valve 
replacement, 166 of which received treatment using the Perceval 
sutureless valve and 400 of which received treatment using a stented 
valve. Aortic cross-clamp, cardiopulmonary bypass, and operation times 
were significantly shorter in the group that received treatment using 
the Perceval sutureless valve. The Perceval sutureless group also had 
shorter ICU stays, hospital stays, and intubation times, and lower 
incidence of postoperative atrial fibrillation and respiratory 
insufficiency. The authors noted that, despite the promising 
preliminary results, longer follow-up is warranted before drawing 
definite conclusions.
---------------------------------------------------------------------------

    \12\ Pollari, F. (2014), Better short-term outcome by using 
sutureless valves: A propensity-matched score analysis, Ann Thorac 
Surg, 98; 611-6.
---------------------------------------------------------------------------

    In a nonrandomized trial of 100 patients in a German hospital, 
Santarpino and colleagues \13\ (2013) found that procedures completed 
using the Perceval valve were associated with significantly shorter 
cross-clamp and cardiopulmonary bypass times (40  13.8 and 
69  19.1 versus 66  20.4 and 105  
34.8) relative to conventional stented bioprosthetic valves, as well as 
less frequent use of blood transfusions, shorter ICU stays and shorter 
use of intubation. In contrast, Gilmanov and colleagues \14\ (2013) 
found that a MIS approach resulted in improved outcomes, albeit longer 
aortic cross-clamp times. A meta-analysis by Hurley and colleagues \15\ 
(2015) found reduced cross-clamp and cardiopulmonary bypass times, but 
found a significantly higher permanent pacemaker rate with the use of 
Perceval sutureless valves.
---------------------------------------------------------------------------

    \13\ Santarpino, G. et al. (2013), The Perceval S aortic valve 
has the potential of shortening surgical time: Does it also result 
in improved outcome?, Ann Thorac Surg, 96, 77-81.
    \14\ Gilmanov, D. (2013), Minimally invasive and conventional 
aortic valve replacement: a propensity score analysis, Ann Thorac 
Surg, 96, 837-843.
    \15\ Hurley et al., ``A Meta-Analysis Examining Differences in 
Short-Term Outcomes Between Sutureless and Conventional Aortic Valve 
Prostheses,'' Innovations 2015; 10:375-382.
---------------------------------------------------------------------------

    A study conducted by Dalen and colleagues \16\ (2015) used 
propensity score matching to examine early post-operative outcomes and 
2-year survival between 171 pairs of patients who underwent 
ministernotomy using the Perceval device or a full sternotomy with 
stented prosthesis. There were no differences in 30-day mortality or 2-
year survival between the groups. The aortic cross-clamp time and 
cardiopulmonary bypass time were shorter, and there were fewer blood 
transfusions in the group that received treatment using the Perceval 
device. However, this group was also at higher risk for post-operative 
permanent pacemaker implantation.
---------------------------------------------------------------------------

    \16\ Dale[aacute]n, M. (2015), Aortic valve replacement through 
full sternotomy with a stented bioprosthesis versus minimally 
invasive sternotomy with a sutureless bioprosthesis, Eur J 
Cardiothorac Surg 2015; doi:10.1093/ejcts/ezv014.
---------------------------------------------------------------------------

    We stated in the proposed rule that, after reviewing the 
publications submitted by the applicant, we are concerned that the lack 
of randomization and blinded investigators may have influenced the 
outcomes in many of the studies provided. For example, in the 
discussion following

[[Page 38125]]

Santarpino et al.'s 2013 study, one of the participants suggested that 
medical decision-making regarding ventilation times, ICU times, and 
blood transfusions may be affected by the knowledge of investigators as 
to which valve the patient received treatment using. Also, as indicated 
above with respect to the INTUITY valve, the experience of the surgeons 
in these studies may be confounding factors that may have influenced 
the length of surgical procedures and/or surgical outcomes.
    Comment: One manufacturer that produces heart valves stated that 
the evidence for the Perceval device suffers from lack of randomization 
and blinding of investigators. This commenter cited a brief by the 
Health Technology Assessment Information Services of ECRI summarizing 
the most recent evidence about the LivaNova Perceval valve. The brief 
cited a range of values for clinical outcomes, suggesting the 
importance in variation in technique. This commenter also compiled a 
table of gradients for aortic heart valves, including those of the 
applicants, and stated that the gradients are comparable to 
conventional surgical devices but are not best-in-class.
    Response: While we acknowledge the concerns raised by one commenter 
regarding the Perceval valve, we recognize that studies in general may 
have some limitations. We also note that the studies submitted by the 
manufacturer indicate that the Perceval valve is associated with fewer 
blood transfusions and significantly shorter aortic cross-clamp, 
cardiopulmonary bypass, and operation times. The Perceval sutureless 
group also had shorter ICU stays, hospital stays, and intubation times, 
and lower incidence of postoperative atrial fibrillation and 
respiratory insufficiency.
    In the proposed rule, we invited public comments on whether rapid 
deployment valves, specifically the INTUITY and Perceval valves, meet 
the substantial clinical improvement criterion. We noted that we did 
not receive any written public comments regarding the INTUITY and 
Perceval valves in response to the New Technology Town Hall meeting 
notice.
    We agree with the manufacturers that the INTUITY and Perceval 
valves represent a substantial clinical improvement for the following 
reasons: The rapid deployment technology enables reduced operative time 
for minimally invasive AVR and full-sternotomy AVR. Additionally, the 
device improves cross-clamp time, thereby reducing the period of 
myocardial ischemia. The improved patient outcomes were also reflected 
in improved patient satisfaction, faster return to normal activity, 
decreased postoperative pain, reduced mortality and decreased 
complications, including need for reoperation due to bleeding, reduced 
recovery time, reduced length of stay (both ICU and overall), and 
improved hemodynamics. In addition, the newly published 5-year data 
further support the substantial clinical improvement of this 
technology.
    For the reasons described above and after consideration of the 
public comments we received, we have determined that the INTUITY and 
Perceval valve meet all of the criteria for approval of new technology 
add-on payments for FY 2018. Each of the applicants submitted cost 
information for its valve. The manufacturer of the INTUITY valve stated 
that the cost of the valve is $12,500. The applicant projected that 
1,750 cases will involve the use of INTUITY in FY 2018. The 
manufacturer of the Perceval valve stated that the cost of the valve is 
$11,500. The applicant projected that 679 cases will involve the use of 
the Perceval valve in FY 2018.
    New technology add-on payments for cases involving these 
technologies will be based on the weighted average cost of the two 
valves described by the ICD-10-PCS procedure code X2RF032 (Replacement 
of Aortic Valve using Zooplastic Tissue, Rapid Deployment Technique, 
Open Approach, New Technology Group 2). Because ICD-10 codes are not 
manufacturer specific, we cannot set one new technology add-on payment 
amount for INTUITY and a different new technology add-on payment amount 
for the Perceval valve; both technologies will be captured by using the 
same ICD-10-PCS procedure code. As such, we believe that the use of a 
weighted average of the cost of the standard valves 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 2,429 cases 
(1,750 plus 679). 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: 72 percent for the INTUITY and 
28 percent for the Perceval valve. We then multiplied the cost per case 
for the manufacturer specific valve by the case-weighted percentage 
(0.72 * $12,500 = $9,005.76 for INTUITY and 0.28 * $11,500 = $3,214.70 
for the Perceval valve). This resulted in a case-weighted average cost 
of $12,220.46 for the valves. 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 INTUITY or Perceval valves is 
$6,110.23 for FY 2018.
c. Ustekinumab (Stelara[supreg])
    Janssen Biotech submitted an application for new technology add-on 
payments for the Stelara[supreg] induction therapy for FY 2018. 
Stelara[supreg] received FDA approval as an intravenous (IV) infusion 
treatment of Crohn's disease (CD) on September 23, 2016, which added a 
new indication for the use of Stelara[supreg] and route of 
administration for this monoclonal antibody. IV infusion of 
Stelara[supreg] is indicated for the treatment of adult patients (18 
years and older) diagnosed with moderately to severely active CD who 
have: (1) Failed or were intolerant to treatment using immunomodulators 
or corticosteroids, but never failed a tumor necrosis factor (TNF) 
blocker; or (2) failed or were intolerant to treatment using one or 
more TNF blockers. Stelara[supreg] for IV infusion has only one 
purpose, induction therapy. Stelara[supreg] must be administered 
intravenously by a health care professional in either an inpatient 
hospital setting or an outpatient hospital setting.
    Stelara[supreg] for IV infusion is packaged in single 130mg vials. 
Induction therapy consists of a single IV infusion dose using the 
following weight-based dosing regimen: patients weighing less than (<) 
55kg are administered 260mg of Stelara[supreg] (2 vials); patients 
weighing more than (>) 55kg, but less than (<) 85kg are administered 
390mg of Stelara[supreg] (3 vials); and patients weighing more than (>) 
85kg are administered 520mg of Stelara[supreg] (4 vials). An average 
dose of Stelara[supreg] administered through IV infusion is 390mg (3 
vials). Maintenance doses of Stelara[supreg] are administered at 90mg, 
subcutaneously, at 8-week intervals and may occur in the outpatient 
hospital setting.
    CD is an inflammatory bowel disease of unknown etiology, 
characterized by transmural inflammation of the gastrointestinal (GI) 
tract. Symptoms of CD may include fatigue, prolonged diarrhea with or 
without bleeding, abdominal pain, weight loss and fever. CD can affect 
any part of the GI tract including the mouth, esophagus, stomach, small 
intestine, and large intestine.
    Conventional pharmacologic treatments of CD include antibiotics, 
mesalamines, corticosteroids,

[[Page 38126]]

immunomodulators, tumor necrosis alpha (TNF[alpha]) inhibitors, and 
anti-integrin agents. Surgery may be necessary for some patients 
diagnosed with CD in which conventional therapies have failed. The 
applicant asserted that use of Stelara[supreg] offers an alternative to 
conventional pharmacologic treatments, and has been shown to be 
successful in the treatment of patients who have failed treatment using 
the conventional agents currently being used for a diagnosis of CD, 
including TNF[alpha] inhibitors.
    Although the precise cause of CD is unknown, the environment, 
genetics, and the patient's immune system are thought to play a role in 
this form of inflammatory bowel disease (IBD). Conventional 
pharmacologic therapy is directed against many different inflammatory 
mediators that produce inflammation and ultimately lead to 
gastrointestinal damage. The applicant asserted that it is of paramount 
importance to have a variety of pharmacologic agents that can address 
the proper inflammatory mediator for a particular patient. The 
applicant also asserted that, while the currently available anti-
inflammatory agents used in the treatment of a diagnosis of CD are 
excellent medications, these agents do not successfully treat all 
patients diagnosed with CD, nor do they reliably sustain disease 
remission once a response has been achieved. The applicant believed 
that the use of Stelara[supreg] offers an alternative to currently 
available treatment options.
    With regard to the newness criterion, Stelara[supreg] is not a 
newly formulated drug. Stelara[supreg], administered subcutaneously, 
received FDA approval in 2009 (September 25, 2009) for the treatment of 
moderate to severe plaque psoriasis in adults. Its IV use for the 
treatment of patients diagnosed with CD was approved by the FDA in 2016 
(September 23, 2016). With regard to the new use of an existing 
technology, in the September 1, 2001 final rule (66 FR 46915), we 
stated that if the new use of an existing technology was for treating 
patients not expected to be assigned to the same MS-DRG as the patients 
receiving the existing technology, it may be considered for approval, 
but it must also meet the cost and substantial clinical improvement 
criteria in order to qualify for the new technology add-on payment. We 
do not believe that potential cases representing patients that may be 
eligible for treatment with the new use of the Stelara[supreg] for IV 
treatment of a diagnosis of CD would be assigned to the same MS-DRGs as 
cases treated using the prior indications.
    As discussed above, 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, we 
stated in the proposed rule that we were concerned that 
Stelara[supreg]'s mechanism of action does not appear to differ from 
the mechanism of action of other monoclonal antibodies, which also 
target unique gastrointestinal-selective cytokines. The applicant 
believed that the Stelara[supreg] uses a different mechanism of action 
than other medications currently available for the treatment of 
patients diagnosed with CD. However, we stated that we believe that the 
mechanism of action for the new use of the Stelara[supreg] may be 
similar to the mechanism of action of other cytokine-selective 
monoclonal antibodies that disrupt cytokine mediated signals crucial to 
the inflammatory process in patients diagnosed with CD.
    The applicant stated that the Stelara[supreg] is a human IgG1 
monoclonal antibody that binds with specificity to the p40 protein 
subunit, which is common to both the interleukin-12 (IL-12) and 
interleukin (IL-23) cytokines. IL-12 and IL-23 are naturally occurring 
cytokines that are involved in inflammatory and immune responses, such 
as natural killer cell activation and CD4+ T-cell differentiation and 
activation. In in vitro models, the Stelara[supreg] was shown to 
disrupt IL-12 and IL-23 mediated signaling and cytokine cascades by 
blocking the interaction of these cytokines with a shared cell-surface 
receptor chain, IL-12R[beta]1. The cytokines IL-12 and IL-23 have been 
implicated as important contributors to chronic inflammation. According 
to the applicant, IV induction therapy quickly achieves optimal blood 
levels of Stelara[supreg] so that blockade of IL-12 and IL-23 is most 
effective. This level of blockade is not achieved with subcutaneous 
administration.
    The applicant further stated that other available CD anti-
inflammatory or immune modulator therapies do not target the IL-12/IL-
23p40 substrate. Rather, these therapies may target other integrin 
pairs such as the alpha4- beta7 integrins. Therefore, the applicant 
believed that the Stelara[supreg] drug is not substantially similar to 
any other approved drug for the treatment of moderately to severely 
active CD. As previously noted, the applicant asserted that, while the 
currently available agents are excellent medications, these agents do 
not successfully treat all patients diagnosed with CD, nor do these 
agents reliably sustain remission once a clinical response has been 
achieved. According to the applicant, the new use of the 
Stelara[supreg] offers an alternative to currently available treatment 
options, and has been shown to be successful in the treatment of 
patients who have failed treatment with the conventional agents 
currently being used for a diagnosis of CD, including TNF blockers. In 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19885), we stated that 
we are concerned that the Stelara[supreg]'s mechanism of action is 
similar to that of other immune system suppressors used in the 
treatment of patients diagnosed with moderately to severely active CD 
because other cytokine-selective monoclonal antibodies also disrupt 
cytokine mediated signals crucial to the inflammatory process in 
patients diagnosed with CD.
    With respect to the second criterion, whether a product is assigned 
to the same or a different MS-DRG, the applicant maintained that MS-
DRGs 386, 387, and 385 (Inflammatory Bowel Disease with CC, without CC/
MCC, and with MCC, respectively) and MS-DRGs 330, 329 and 331 (Major 
Small and Large Bowel Procedures with CC, without CC/MCC, and with MCC, 
respectively) are used to identify cases representing patients who may 
potentially be eligible for treatment using the Stelara[supreg]. The 
applicant researched claims data from the FY 2015 MedPAR file and found 
10,344 cases. About 85 percent of potentially eligible cases mapped to 
MS-DRGs for inflammatory bowel disease and most of the remainder of 
cases mapped to MS-DRGs for bowel surgery. In the proposed rule, we 
stated that we believe that potential cases involving Stelara[supreg] 
induction therapy may be assigned to the same MS-DRGs as cases 
representing patients who have been treated using currently available 
treatment options.
    With respect 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, according to the 
applicant, currently available pharmacologic treatments include 
antibiotics, mesalamines, corticosteroids, immunomodulators, tumor 
necrosis alfa (TNF[alpha]) inhibitors and anti-integrins. The applicant 
stated that the new use of the Stelara[supreg] for IV infusion is 
indicated for the treatment of adults (18 years and older) diagnosed 
with moderately to severely active CD

[[Page 38127]]

who have: (1) Failed or were intolerant to treatment with 
immunomodulators or corticosteroids, but never failed treatment using a 
TNF blocker; or (2) failed or were intolerant to treatment with one or 
more TNF blockers. The applicant asserted that Stelara[supreg] for 
induction therapy is not substantially similar to other treatment 
options because it does not involve the treatment of the same or 
similar type of patient population. Patients who are eligible for 
treatment using the Stelara[supreg] induction therapy have failed other 
CD treatment modalities. The applicant believed that the subset of 
primary and secondary nonresponder patients to TNF inhibitor treatments 
is a patient population unresponsive to, or ineligible for, currently 
available treatments for diagnoses of moderate to severe CD. Based on 
the indications for the use of Stelara[supreg], there is a class of 
patients who failed, or were intolerant to, treatment using 
immunomodulators or corticosteroids, but never failed treatment using a 
TNF blocker. The applicant indicated that, for those patients who never 
failed treatment with a TNF blocker, this class of patients can be 
recognized as two separate patient populations: One population of 
patients who have never received treatment using a TNF blocker, or the 
other population of patients who have received and responded to 
treatment using a TNF blocker. In the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19885), we stated that we believe that, if the new use of 
the Stelara[supreg] has the same mechanism of action as other immune 
system suppressors such as TNF blockers, the patient population that 
did not receive treatment using a TNF blocker may not be a new patient 
population because those patients may be able to receive treatment 
using, and would successfully respond to treatment using, a TNF 
blocker. Moreover, if the mechanism of action is the same as other 
immune system suppressors, we stated that we believe that the new use 
of the Stelara[supreg] may be targeted at a new patient population in 
some circumstances and instances, but we are concerned that it may not 
be targeted at a new patient population in all circumstances and 
instances.
    In the proposed rule, we invited public comments on whether the 
Stelara[supreg] meets the newness criterion.
    Comment: Several commenters stated that Stelara[supreg] has a 
different mechanism of action than other immune system suppressors. The 
applicant also submitted comments acknowledging that CMS accurately 
noted that other monoclonal antibodies targeting unique 
gastrointestinal-selective cytokines are currently marketed for the 
treatment of CD. The applicant noted that a critical differentiator is 
that Stelara[supreg] targets the IL-12 and IL-23 regulatory cytokines 
while other monoclonal antibodies used to treat Crohn's disease are 
either TNF inhibitors or anti-integrin monoclonal antibodies. The 
applicant stated that, as a result, Stelara[supreg] has a different 
mechanism of action for reducing the inflammatory response in CD than 
other monoclonal antibodies used to treat the disease. Furthermore, the 
applicant stated that while many patients respond to TNF inhibition, 20 
to 25 percent of them will not respond, regardless of the TNF inhibitor 
employed or the dose provided. By targeting the IL-12 and IL-23 
regulatory cytokines that may be responsible for the inflammation 
producing the patient's symptoms, the applicant stated that 
Stelara[supreg] has a different mechanism of action designed to treat 
patients that failed other Crohn's disease treatments. The applicant 
believed that this distinction makes Stelara[supreg] new and different 
for treating some patients with Crohn's disease. The applicant provided 
comments reflecting that clinicians have learned that different 
patients with Crohn's disease require different types of cytokine 
inhibition to target the inflammatory process in each particular 
patient. The applicant believed that this is an example of personalized 
medicine--choosing the right biologic for the right patient at the 
right time. Therefore, according to the applicant, Stelara[supreg]'s 
mechanism of action provides a treatment option for patients with CD 
where others have been unsuccessful.
    Response: We appreciate the comments we received from the applicant 
on whether or not Stelara[supreg] meets the newness criterion.
    After consideration of the public comments we received, we believe 
that Stelara[supreg] has a unique mechanism of action because it is 
unique from other immune system suppressors in that it targets the IL-
12 and IL-23 regulatory cytokines. Therefore, Stelara[supreg] meets the 
newness criterion for new technology add-on payments.
    With regard to the cost criterion, the applicant conducted the 
following analysis to demonstrate that Stelara[supreg] meets the cost 
criterion. The applicant searched claims from the FY 2015 MedPAR file 
for cases with a principal ICD-9-CM diagnosis of 555.x (Regional 
Enteritis), which are cases of a diagnosis of Crohn's Disease that may 
be eligible for treatment using Stelara[supreg].
    The applicant identified 10,344 cases that mapped to 35 MS-DRGs. 
Approximately 85 percent of cases mapped to the following Inflammatory 
Bowel MS-DRGs: MS-DRGs 385 (Inflammatory Bowel Disease with MCC), 386 
(Inflammatory Bowel Disease with CC), and 387 (Inflammatory Bowel 
Disease without CC/MCC). Similarly, 11 percent of the cases mapped to 
the following MS-DRGs for bowel surgery: MS-DRGs 329 (Major Small and 
Large Bowel Procedures with MCC), 330 (Major Small and Large Bowel 
Procedures with CC), and 331 (Major Small and Large Bowel Procedures 
without CC/MCC). The remaining cases (4 percent) represented all other 
digestive system disorders.
    Using the 10,344 identified cases, the average unstandardized case-
weighted charge per case was $39,935. The applicant then standardized 
the charges. The applicant did not remove charges for the current 
treatment because as discussed above Stelara[supreg] is indicated for 
use in patients who fail other treatments. The applicant then applied 
the 2-year inflation factor of 1.098446 from the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 57286) to inflate the charges from FY 2015 to FY 
2017. The applicant then added charges for the Stelara[supreg] 
technology. Specifically, the applicant assumed that hospitals would 
mark up Stelara[supreg] IV to the same extent that they currently mark-
up Stelara[supreg] SC (J3357, ustekinumab, 1 mg). The applicant used 
the actual hospital mark-up based on charges in the CY 2017 OPPS/ASC 
proposed rule file (OPPS claims incurred and paid in CY 2015). Based on 
the FY 2017 IPPS/LTCH PPS Table 10 thresholds, the average case-
weighted threshold amount was $55,023. The inflated average case-
weighted standardized charge per case was $69,826. 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. In the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19886), we invited public comments on whether 
Stelara[supreg] meets the cost criterion.
    Comment: The applicant submitted public comments reiterating its 
cost analysis results. According to the applicant, 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.
    Response: After consideration of the public comments we received, 
we agree that Stelara[supreg] meets the cost criterion.
    With regard to the third criterion, whether a technology represents 
a substantial clinical improvement over existing technologies, 
according to the

[[Page 38128]]

applicant, the new use of the Stelara[supreg] has been shown to produce 
clinical response and remission in patients diagnosed with moderate to 
severe CD who have failed treatment using conventional therapies, 
including antibiotics, mesalamine, corticosteroids, immunomodulators, 
and TNF[alpha] inhibitors. Stelara[supreg] has been commercially 
available on the U.S. market for the treatment of patients diagnosed 
with psoriasis (PsO) since 2009 and the treatment of patients diagnosed 
with psoriatic arthritis (PsA) since 2013, and the applicant has 
maintained a safety registry, which enrolled over 12,000 patients since 
2007. According to the applicant, the drug has been extremely well-
tolerated, and the safety profile in patients diagnosed with CD has 
been consistent with that experienced in cases representing patients 
diagnosed with PsO and PsA.
    The applicant presented the results of three pivotal trials 
involving over 1,300 patients diagnosed with moderate to severe CD. All 
three trials utilized a multicenter, double-blind, placebo controlled 
study design. There were two single-dose IV induction trials, which 
included patients who had failed treatment using one or more TNF[alpha] 
inhibitors (UNITI-1) (N = 741), and patients who had failed treatment 
using corticosteroids and/or immunomodulators (UNITI-2) (N = 628). 
Responders to the single IV induction dose were then eligible to be 
enrolled in a maintenance trial (IM-UNITI) (N = 397), which began 8 
weeks after administration of the single IV induction dose. IM-UNITI 
patients were given subcutaneous Stelara[supreg] and were treated for 
44 weeks. Over half of the patients treated with 90 mg of 
Stelara[supreg] every 12 weeks were able to achieve remission; a highly 
significant response compared to placebo, according to the applicant. 
The results of these trials have been published by the New England 
Journal of Medicine and the applicant provided the published 
studies.\17\ The published study supported the applicant's assertion 
that Stelara[supreg] single IV dose induces response and remission in 
patients diagnosed with moderately to severely active CD that is 
refractory to either TNF antagonists or conventional therapy. Of the 
patients in the IM-UNITI trial receiving subcutaneous Stelara[supreg] 
at 8 weeks or 12 weeks, 53.1 percent and 48 percent, respectively, were 
in remission at week 44 as compared with 35.9 percent of those patients 
receiving treatment using placebo.
---------------------------------------------------------------------------

    \17\ Feagan, W.J., et al. (2016) Ustekinumab as Induction and 
Maintenance Therapy for Crohn' Disease. The New England Journal of 
Medicine. 2016 Nov 17; 3745(20):1946-60.
---------------------------------------------------------------------------

    The applicant submitted published results of a multicenter, double-
blind, placebo controlled Phase III study of Stelara[supreg].\18\ In 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19886), we indicated 
that we were concerned that the study did not effectively establish the 
need for Stelara[supreg] induction therapy. Also, the median age of 
patients in the study was 37 years, and we stated that we were 
concerned that the study did not include a significant amount of older 
patients.
---------------------------------------------------------------------------

    \18\ Ibid.
---------------------------------------------------------------------------

    We also indicated that we were concerned that we do not have enough 
information to determine that the new use of the Stelara[supreg] is a 
substantial clinical improvement over existing technologies for the 
treatment of moderate to severe CD. We noted that the UNITI-1, UNITI-2, 
and IMUNITI trials were completed to evaluate efficacy and safety of 
Stelara[supreg], not superiority of Stelara[supreg] to current 
conventional therapy. Our concerns were based on a lack of head-to-head 
trials comparing IV induction and maintenance Stelara[supreg] therapy 
with conventional therapy in patients diagnosed with moderate to severe 
CD that are also primary and secondary nonresponders to treatment using 
TNF alpha inhibitor \19\ therapy. We recognized the subset of primary 
and secondary nonresponder patients to TNF inhibitor treatments as a 
patient population unresponsive to, or ineligible for, currently 
available treatments for diagnoses of moderate to severe CD. However, 
we stated that we believe that this primary and secondary TNF alpha 
inhibitor non-responder patient population represents patients that 
experience a gap in treatment for diagnoses of moderate to severe CD. 
Specifically, we recognized the nonresponder patient population as 
described by Simon et al.\20\ as those patients who are TNF inhibitor 
immunogenicity failures, pharmacokinetic failures, and/or 
pharmacodynamics failures. We also noted the supplement data in Feagan 
et al.'s publication \21\ summarized the primary and secondary 
nonresponders in UNITI-1. However, we stated that we were not clear how 
the inclusion of the TNF alpha inhibitor intolerant patients with 
primary and secondary TNF alpha inhibitor failure patients impacts the 
final comparison of the placebo and treatment arms. In addition, we 
noted that, in the UNITI-1, UNITI-2, and IMUNITI studies, all treatment 
arms were allowed to continue conventional treatments for diagnoses of 
CD throughout the study. We stated that we were concerned that it is 
difficult to determine whether the new use of the Stelara[supreg] 
represents a substantial clinical improvement over existing 
technologies with the concomitant use of other conventional CD 
medications throughout the duration of the UNITI-1, UNITI-2, and 
IMUNITI studies.
---------------------------------------------------------------------------

    \19\ Ibid.
    \20\ Simon E.G., et al., (2016) Ustekinumab for the treatment of 
Crohn's disease: can it find its niche? Therapeutic Advances in 
Gastroenterology. 2016 Jan; 9(1):26-36.
    \21\ Feagan, W.J., et al. (2016) Ustekinumab as Induction and 
Maintenance Therapy for Crohn' Disease. The New England Journal of 
Medicine. 2016 Nov 17; 3745(20):1946-60.
---------------------------------------------------------------------------

    Also, as mentioned earlier, based on the indications for the use of 
the Stelara[supreg], there is a class of patients who failed, or were 
intolerant to, treatment with immunomodulators or corticosteroids, but 
never failed treatment using a TNF blocker. According to the applicant, 
for those patients who never failed treatment using a TNF blocker, this 
patient population can be recognized as two separate patient 
populations: One patient population representing patients who never 
received treatment using a TNF blocker; or the other patient population 
representing patients who received and responded to treatment using a 
TNF blocker. In the patient population that did not receive treatment 
using a TNF blocker, we stated that we were unsure if the new use of 
the Stelara[supreg] represents a substantial clinical improvement 
because it is possible that some patients will have a positive response 
to treatment using a TNF blocker and will not respond successfully to 
treatment using Stelara[supreg], or some patients may have a positive 
response to both treatment using a TNF blocker and using 
Stelara[supreg], or some patients may not respond to treatment using a 
TNF blocker, but will have a positive response to treatment using 
Stelara[supreg].
    In the proposed rule, we invited public comments on whether the 
Stelara[supreg] meets the substantial clinical improvement criterion. 
We noted that we did not receive any written public comments in 
response to the New Technology Town Hall meeting notice regarding the 
application of Stelara[supreg] for new technology add-on payments.
    Comment: The applicant submitted public comments addressing CMS' 
concerns. The applicant stated that the first dose of any therapy may 
be considered induction therapy. The applicant reiterated the results 
of its early trials which demonstrated that

[[Page 38129]]

intravenous induction therapy was superior to subcutaneous 
administration and that higher intravenous doses appeared to be more 
efficacious than lower subcutaneous doses. The applicant noted that IBD 
experts are generally in agreement that higher doses of biologics are 
required at the outset to induce remission, while lower and less 
frequent doses may be adequate to maintain remission in a maintenance 
setting.
    The applicant also submitted comments addressing CMS' concerns with 
regards to the lack of head-to-head clinical trials comparing IV 
induction and maintenance Stelara[supreg] therapy with conventional 
therapy in patients diagnosed with moderate to severe CD that are also 
primary and secondary nonresponders to treatment using TNF alpha 
inhibitor therapy. The applicant stated that the UNITI trials were, in 
fact, head-to-head trials--the placebo group was receiving active 
treatment and was not truly a placebo group. Those patients continued 
the conventional therapies they were taking prior to study entry. The 
applicant noted that the UNITI induction trials covered the breadth of 
CD patients and that the UNITI-2 population had failed either 
corticosteroids and/or immunomodulators--these drugs are both 
recognized as standard conventional therapy for CD according to the 
applicant. The UNITI-1 population had failed at least one TNF 
inhibitor; in fact, approximately 50 percent had failed greater than 
one. This patient population, according to the applicant, is considered 
to be the most difficult group to treat in that they had, in most 
cases, already failed not only non-biologic therapy with 
corticosteroids and/or immunomodulators, but TNF inhibitors as well. 
The applicant summarized that the trials should be considered head-to-
head comparing Stelara[supreg] to conventional therapies.
    Response: We appreciate the comments submitted by the applicant in 
response to our concerns. After consideration of the public comments we 
received, which clarify the placebo group as having received 
conventional therapies and, therefore, the clinical trials did compare 
Stelara[supreg] to existing therapies, we believe Stelara[supreg] meets 
the substantial clinical improvement criterion because, according to 
the studies provided by the applicant, Stelara[supreg] produced a 
clinical response and remission in patients with moderate to severe 
Crohn's Disease who have failed conventional therapies, including 
antibiotics, mesalamines, corticosteroids, immunomodulators, and 
TNF[alpha] inhibitors as outlined in their label. Specifically, 
Stelara[supreg] targets cytokines IL-12 and IL-23 which are responsible 
for inflammation in CD, offering a treatment option, otherwise not 
available, for a specific patient population. Stelara[supreg] provides 
a treatment option for this difficult-to-treat patient population.
    We have determined that Stelara[supreg] meets all of the criteria 
for approval of new technology add-on payments. Therefore, we are 
approving new technology add-on payments for Stelara[supreg] for FY 
2018. We expect that Stelara[supreg] will be administered for the 
treatment of adult patients (18 years and older) diagnosed with 
moderately to severely active CD who have: (1) Failed or were 
intolerant to treatment using immunomodulators or corticosteroids, but 
never failed a tumor necrosis factor (TNF) blocker; or (2) failed or 
were intolerant to treatment using one or more TNF blockers. Cases 
involving Stelara[supreg] that are eligible for new technology add-on 
payments will be identified by ICD-10-PCS procedure code XW033F3 
(Introduction of other New Technology therapeutic substance into 
peripheral vein, percutaneous approach, New Technology Group 3). In its 
application, the applicant estimated that the average dose of 
Stelara[supreg] administered through IV infusion is 390 mg which would 
require 3 vials of Stelara IV at a hospital acquisition cost of $1,600 
per vial (for a total of $4,800). 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 
STELARATM is $2,400 for FY 2018.

III. 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 FY 2018 hospital wage index based on the 
statistical areas appears under section III.A.2. of the preamble of 
this final rule.
    Section 1886(d)(3)(E) of the Act requires the Secretary to update 
the wage index annually and to base the update on a survey of wages and 
wage-related costs of short-term, acute care hospitals. (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 adjustment for FY 2018 is 
discussed in section II.B. of the Addendum to this final rule.
    As discussed in section III.I. of the preamble of this final rule, 
we also take into account the geographic reclassification of hospitals 
in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act 
when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of 
the Act, the Secretary is required to adjust the standardized amounts 
so as to ensure that aggregate payments under the IPPS after 
implementation of the provisions of sections 1886(d)(8)(B), 
1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate 
prospective payments that would have been made absent these provisions. 
The budget neutrality adjustment for FY 2018 is discussed in section 
II.A.4.b. of the Addendum to this final rule.
    Section 1886(d)(3)(E) of the Act also provides for the collection 
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index. A 
discussion of the occupational mix adjustment that we are applying to 
the FY 2018 wage index appears under sections III.E.3. and F. of the 
preamble of this final rule.
2. Core-Based Statistical Areas (CBSAs) for the FY 2018 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.

[[Page 38130]]

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 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 through OMB Bulletins. 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. In the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 56913), we adopted the updates set forth in OMB Bulletin 
No. 15-01 effective October 1, 2016, beginning with the FY 2017 wage 
index. For a complete discussion of the adoption of the updates set 
forth in OMB Bulletin No. 15-01, we refer readers to the FY 2017 IPPS/
LTCH PPS final rule.
    For FY 2018, we are continuing to use the OMB delineations that we 
adopted beginning with FY 2015 to calculate the area wage indexes, with 
updates as reflected in OMB Bulletin No. 15-01 specified in the FY 2017 
IPPS/LTCH PPS final rule.
3. Codes for Constituent Counties in CBSAs
    CBSAs are made up of one or more constituent counties. Each CBSA 
and constituent county has its own unique identifying codes. There are 
two different lists of codes associated with counties: Social Security 
Administration (SSA) codes and Federal Information Processing Standard 
(FIPS) codes. Historically, CMS has listed and used SSA and FIPS county 
codes to identify and crosswalk counties to CBSA codes for purposes of 
the hospital wage index. We have learned that SSA county codes are no 
longer being maintained and updated. However, the FIPS codes continue 
to be maintained by the U.S. Census Bureau. The Census Bureau's most 
current statistical area information is derived from ongoing census 
data received since 2010; the most recent data are from 2015. For the 
purposes of crosswalking counties to CBSAs, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19898 through 19899), we proposed to 
discontinue the use of SSA county codes and begin using only the FIPS 
county codes.
    The Census Bureau maintains a complete list of changes to counties 
or county equivalent entities on the Web site at: https://www.census.gov/geo/reference/county-changes.html. In our proposed 
transition to using only FIPS codes for counties for the hospital wage 
index, we proposed to update the FIPS codes used for crosswalking 
counties to CBSAs for the hospital wage index to incorporate changes to 
the counties or county equivalent entities included in the Census 
Bureau's most recent list. Based on information included in the Census 
Bureau's Web site, since 2010, the Census Bureau has made the following 
updates to the FIPS codes for counties or county equivalent entities:
     Petersburg Borough, AK (FIPS State County Code 02-195), 
CBSA 02, was created from part of former Petersburg Census Area (02-
195) and part of Hoonah-Angoon Census Area (02-105). The CBSA code 
remains 02.
     The name of La Salle Parish, LA (FIPS State County Code 
22-059), CBSA 14, is now LaSalle Parish, LA (FIPS State County Code 22-
059). The CBSA code remains as 14.
     The name of Shannon County, SD (FIPS State County Code 46-
113), CBSA 43, is now Oglala Lakota County, SD (FIPS State County Code 
46-102). The CBSA code remains as 43.
    We believe that it is important to use the latest counties or 
county equivalent entities in order to properly crosswalk hospitals 
from a county to a CBSA for purposes of the hospital wage index used 
under the IPPS. In addition, we believe that using the latest FIPS 
codes will allow us to maintain a more accurate and up-to-date payment 
system that reflects the reality of population shifts and labor market 
conditions. Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 19898 through 19899), we proposed to implement these FIPS code 
updates, effective October 1, 2017, beginning with the FY 2018 wage 
indexes. We proposed to use these update changes to calculate area wage 
indexes in a manner that is generally consistent with the CBSA-based 
methodologies finalized in the FY 2005 IPPS final rule and the FY 2015 
IPPS/LTCH PPS final rule. We note that while the county update changes 
listed earlier changed the county names, the CBSAs to which these 
counties map did not change from the prior counties. Therefore, there 
is no impact or change to hospitals in these counties; they continue to 
be considered rural for the hospital wage index under these changes. We 
invited public comments on our proposals.
    We did not receive any public comments on our proposals. Therefore, 
for the reasons discussed earlier, we are finalizing our proposal, 
without modification, to discontinue the use of the SSA county codes 
and begin using only the FIPS county codes for purposes of crosswalking 
counties to CBSAs. In addition, we are finalizing our proposal, without 
modification, to implement the latest FIPS code updates, as discussed 
earlier, effective October 1, 2017, beginning with the FY 2018 wage 
indexes. As we proposed, we will use these update changes to calculate 
the wage indexes in a manner that is generally consistent with the 
CBSA-based methodologies finalized in the FY 2005 IPPS final rule and 
the FY 2015 IPPS/LTCH PPS final rule. For FY 2018, Tables 2 and 3 
associated with this final 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 county changes.

B. Worksheet S-3 Wage Data for the FY 2018 Wage Index

    The FY 2018 wage index values are based on the data collected from 
the Medicare cost reports submitted by hospitals for cost reporting 
periods beginning in FY 2014 (the FY 2017 wage indexes were based on 
data from cost reporting periods beginning during FY 2013).
1. Included Categories of Costs
    The FY 2018 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

[[Page 38131]]

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 2017, the wage 
index for FY 2018 also excludes the direct and overhead salaries and 
hours for services not subject to IPPS payment, such as skilled nursing 
facility (SNF) services, home health services, costs related to GME 
(teaching physicians and residents) and certified registered nurse 
anesthetists (CRNAs), and other subprovider components that are not 
paid under the IPPS. The FY 2018 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 FY 2018 wage index were obtained from 
Worksheet S-3, Parts II and III of the Medicare cost report (Form CMS-
2552-10) for cost reporting periods beginning on or after October 1, 
2013, and before October 1, 2014. For wage index purposes, we refer to 
cost reports during this period as the ``FY 2014 cost report,'' the 
``FY 2014 wage data,'' or the ``FY 2014 data.'' Instructions for 
completing the wage index sections of Worksheet S-3 are included in the 
Provider Reimbursement Manual (PRM), Part 2 (Pub.15-2), Chapter 40, 
Sections 4005.2 through 4005.4. The data file used to construct the FY 
2018 wage index includes FY 2014 data submitted to us as of June 14, 
2017. As in past years, we performed an extensive review of the wage 
data, mostly through the use of edits designed to identify aberrant 
data.
    We asked our MACs to revise or verify data elements that result in 
specific edit failures. For the proposed FY 2018 wage index, we 
identified and excluded 51 providers with aberrant data that should not 
be included in the wage index, although we stated in the FY 2018 IPPS/
LTCH PPS proposed rule that if data elements for some of these 
providers are corrected, we intend to include data from those providers 
in the final FY 2018 wage index (82 FR 19899). We note that of the 51 
hospitals that we excluded from the proposed wage index, some hospitals 
had data that we did not expect to change or improve (for example, 
among the reasons these providers were excluded are: 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). 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). We instructed MACs to 
complete their data verification of questionable data elements and to 
transmit any changes to the wage data no later than March 24, 2017. In 
addition, as a result of the April and May appeals processes, and 
posting of the April 28, 2017 PUF, we have made additional revisions to 
the FY 2018 wage data, as described further below. The revised data are 
reflected in this FY 2018 IPPS/LTCH PPS final rule.
    In constructing the proposed FY 2018 wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2014, 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 proposed 
rule, we removed 7 hospitals that converted to CAH status on or after 
January 22, 2016, the cut-off date for CAH exclusion from the FY 2017 
wage index, and through and including January 23, 2017, the cut-off 
date for CAH exclusion from the FY 2018 wage index. After excluding 
CAHs and hospitals with aberrant data, we calculated the proposed wage 
index using the Worksheet S-3, Parts II and III wage data of 3,325 
hospitals.
    Since the development of the FY 2018 proposed wage index, as a 
result of further review by the MACs and the April and May appeals 
processes, we received improved data for 15 hospitals and are including 
the wage data of these 15 hospitals in the final wage index. However, 
during our review of the wage data in preparation of the April 28, 2017 
PUF, we identified and deleted the data of 2 additional hospitals whose 
data we determined to be aberrant (unusually low average hourly wages) 
relative to their CBSAs, and there was insufficient documentation 
provided to explain their wage data. Finally, we learned that in the 
proposed wage index, we inadvertently deleted the data of one hospital 
when we should have deleted the data of a different hospital. We have 
corrected this error, although because we were including one hospital 
while deleting another, there was no effect on the number of hospitals 
in the wage index. With regard to CAHs, we have since learned of 2 
additional hospitals that converted to CAH status on or after January 
22, 2016, the cut-off date for CAH exclusion from the FY 2017 wage 
index, and through and including January 23, 2017, the cut-off date for 
CAH exclusion from the FY 2018 wage index. Accordingly, we have removed 
9 hospitals that converted to CAH status from the FY 2018 wage index. 
The final FY 2018 wage index is based on the wage index of 3,336 
hospitals (3,325 + 15-2-1 + 1-2 = 3,336).
    For the final FY 2018 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 2017 wage index (81 FR 56915). Table 2, which 
contains the final FY 2018 wage index associated with this final rule 
(available via the Internet on the CMS Web site), includes separate 
wage data for the campuses of 9 multicampus hospitals.

[[Page 38132]]

D. Method for Computing the FY 2018 Unadjusted Wage Index

1. Methodology for FY 2018
    The method used to compute the FY 2018 wage index without an 
occupational mix adjustment follows the same methodology that we used 
to compute the wage indexes without an occupational mix adjustment 
since FY 2012 (76 FR 51591 through 51593).
    Comment: One commenter requested that CMS consider developing a 
process for determining a wage index that would reward hospitals that 
invest in the workforce and raise the wages of the lowest paid workers, 
rather than relying primarily on the average hourly wages of the labor 
market area as a whole.
    Response: Section 1886(d)(3)(E) of the Act requires the Secretary 
to adjust for area differences in hospital wage levels by a factor 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level. The 
statute does not direct the Secretary to develop a wage index that 
rewards hospitals for workforce investment or other labor initiatives.
    Comment: One commenter requested that CMS establish a floor wage 
index for providers in Puerto Rico that is not lower than the ratio of 
Puerto Rico nonhealth care wages to U.S. nonhealth care wages, using 
data from the Occupational Employment Statistics (OES) of the U.S. 
Bureau of Labor Statistics (BLS).
    Response: We appreciate this comment. However, we consider it to be 
outside the scope of the FY 2018 IPPS/LTCH PPS proposed rule. 
Therefore, we are not responding to this comment at this time.
    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, 2013, through April 15, 
2015, for private industry hospital workers from the BLS' Compensation 
and Working Conditions. We have consistently used the ECI as the data 
source for our wages and salaries and other price proxies in the IPPS 
market basket, and we did not propose any changes to the usage of the 
ECI for FY 2018. 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
------------------------------------------------------------------------
                                                              Adjustment
               After                         Before             factor
------------------------------------------------------------------------
10/14/2013.........................  11/15/2013............      1.02310
11/14/2013.........................  12/15/2013............      1.02155
12/14/2013.........................  01/15/2014............      1.02004
01/14/2014.........................  02/15/2014............      1.01866
02/14/2014.........................  03/15/2014............      1.01740
03/14/2014.........................  04/15/2014............      1.01615
04/14/2014.........................  05/15/2014............      1.01482
05/14/2014.........................  06/15/2014............      1.01339
06/14/2014.........................  07/15/2014............      1.01193
07/14/2014.........................  08/15/2014............      1.01048
08/14/2014.........................  09/15/2014............      1.00905
09/14/2014.........................  10/15/2014............      1.00761
10/14/2014.........................  11/15/2014............      1.00614
11/14/2014.........................  12/15/2014............      1.00463
12/14/2014.........................  01/15/2015............      1.00309
01/14/2015.........................  02/15/2015............      1.00155
02/14/2015.........................  03/15/2015............      1.00000
03/14/2015.........................  04/15/2015............      0.99845
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2014, and ending December 31, 2014, is June 30, 2014. An 
adjustment factor of 1.01193 would be applied to the wages of a 
hospital with such a cost reporting period. Using the data as 
previously described, the FY 2018 national average hourly wage 
(unadjusted for occupational mix) is $42.1027.
    Previously, we also would provide a Puerto Rico overall average 
hourly wage. As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 
FR 56915), 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) 
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 we stated in the FY 2017 IPPS/
LTCH PPS final rule (81 FR 56915 through 56916), 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 is $42.1027 for this FY 2018 final rule) and the national wage 
index, which is applied to the national labor share of the national 
standardized amount. Therefore, for FY 2018, we did not propose a 
Puerto Rico-specific overall average hourly wage or wage index.
2. Clarification of Other Wage Related Costs in the Wage Index
    Section 1886(d)(3)(E) of the Act requires the Secretary to update 
the wage index based on a survey of hospitals' costs that are 
attributable to wages and wage-related costs. In the September 1, 1994 
IPPS final rule (59 FR 45356), we developed a list of ``core'' wage-
related costs that hospitals may report on Worksheet S-3, Part II of 
the Medicare hospital cost report in order to include those costs in 
the wage index. Core wage-related costs include categories of 
retirement cost, plan administrative costs, health and insurance costs, 
taxes, and other specified costs such as tuition reimbursement. In 
addition to these categories of core wage-related costs, we allow 
hospitals to report wage-related costs other than those on the core 
list if the other wage-related costs meet certain criteria. The 
criteria for including other wage-related costs in the wage index are 
discussed in the September 1, 1994 IPPS final rule (59 FR 45357) and 
also are listed in the Provider Reimbursement Manual (PRM), Part II, 
Chapter 40, Sections 4005.2 through 4005.4, Line 18 of the Medicare 
cost report (Form CMS-2552-10, OMB control number 0938-0050). 
Specifically, ``other'' wage-related costs are allowable for the wage 
index if the cost for employees whose services are paid under the IPPS 
exceeds 1 percent of the total adjusted salaries net of excluded area 
salaries, is a fringe benefit as defined by the IRS and has been 
reported to the IRS (as income to the employees or contractors), is not 
being furnished for the convenience of the provider, and is not listed 
on Worksheet S-3, Part IV.
    We note that other wage-related costs are not to include benefits 
already included in Line 1 salaries on Worksheet S-3, Part II (refer to 
the cost report instructions for Worksheet S-3, Part II, Line 18, which 
state, `` `Other' wage-related costs do not include wage-related costs 
reported on line 1 of this worksheet.''). We also note that the 1-
percent test is conducted by dividing each individual category of the 
other wage-related cost (that is, the

[[Page 38133]]

numerator) by the sum of the following lines on the Medicare hospital 
cost report (Form CMS-2552-10): Worksheet S-3, Part II, Lines 11, 12, 
13, and 14, Column 4, and Worksheet S-3, Part III, Line 3, Column 4 
(that is, the denominator). The other wage-related costs associated 
with contract labor and home office/related organization personnel are 
included in the numerator because these other wage-related costs are 
allowed in the wage index (in addition to other wage-related costs for 
direct employees), assuming the requirements for inclusion in the wage 
index are met. For example, if a hospital is trying to include a 
parking garage as an other-wage related cost that is reported on the W-
2 or 1099 form, when running the 1-percent test, include in the 
numerator all the parking garage other wage-related cost for direct 
salary employees, contracted employees, and home office employees and 
divide by the sum of Worksheet S-3, Part II, Lines 11, 12, 13, and 14, 
Column 4, and Worksheet S-3, Part III, Line 3, Column 4. For the 
category of parking other wage-related costs, the 1-percent test would 
be run only one time, inclusive of other wage-related costs for 
employee salaries, contracted employees, and home office employees. We 
intend to clarify the hospital cost report instructions to reflect that 
contract labor and home office/related organization salaries should be 
added to the subtotal of salaries on Worksheet S-3, Part III, Line 3, 
Column 4 (Line 3 is the difference of net salaries minus excluded area 
salaries) for purposes of performing the 1-percent test. If a hospital 
has more than one other wage-related cost, the 1-percent test must be 
conducted separately for each other wage-related cost (for example, 
parking and cafeteria separately; do not sum all the different types of 
other wage-related costs together and then run the 1-percent test). If 
the 1-percent test is met for a particular type of other wage-related 
costs, and the other criteria listed earlier are met as well, the other 
wage-related cost may be reported on Worksheet S-3, Part II, Line 18 of 
the hospital cost report.
    We originally allowed for the inclusion of wage-related costs other 
than those on the core list because we were concerned that individual 
hospitals might incur unusually large wage-related costs that are not 
reflected on the core list but that may represent a significant wage-
related cost. However, as we discussed in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19900 through 19902), we are reconsidering 
allowing other wage-related costs to be included in the wage index 
because recent internal reviews of the FY 2018 wage data show that only 
a small minority of hospitals are reporting other wage-related costs 
that meet the 1-percent test described earlier. In the calculation of 
the proposed FY 2018 wage index, for each hospital reporting other 
wage-related costs on Line 18 of Worksheet S-3, we performed the 1-
percent test. We then made internal edits removing other wage-related 
costs on Line 18 where hospitals reported data that failed to meet the 
mathematical requirement that other wage-related costs must exceed 1 
percent of total adjusted salaries net of excluded area salaries. After 
this review, only approximately 80 hospitals of approximately 3,320 
hospitals had other wage-related costs on Line 18 meeting the 1-percent 
test. We believe that such a limited number of hospitals nationally 
reporting and meeting the 1-percent test may indicate that other wage-
related costs might not constitute an appropriate part of a relative 
measure of wage costs in a particular labor market area, a longstanding 
tenet of the wage index. In other words, while other wage-related costs 
may represent costs that may have an impact on an individual hospital's 
average hourly wage, we do not believe that costs reported by only a 
very small minority of hospitals accurately reflect the economic 
conditions of the labor market areas in which those hospitals are 
located. Therefore, it is possible that inclusion of other wage-related 
costs in the wage index in such a limited manner may distort the 
average hourly wage of a particular labor market area so that its wage 
index does not accurately represent that labor market area's current 
wages relative to national wages.
    Furthermore, the open-ended nature of the types of other wage-
related costs that may be included on Line 18 of Worksheet S-3, in 
contrast to the concrete list of core wage-related costs, may hinder 
consistent and proper reporting of fringe benefits. Our internal review 
indicates widely divergent types of costs that hospitals are reporting 
as other wage-related costs on Line 18. We are concerned that 
inconsistent reporting of other wage-related costs on Line 18 further 
compromises the accuracy of the wage index as a representation of the 
relative average hourly wage for each labor market area. Our intent in 
creating a core list of wage-related costs in the September 1, 1994 
IPPS final rule was to promote consistent reporting of fringe benefits, 
and we are increasingly concerned that inconsistent reporting of wage-
related costs on Line 18 of Worksheet S-3 undermines this effort. 
Specifically, we expressed in the September 1, 1994 IPPS final rule 
that, since we began including fringe benefits in the wage index, we 
have been concerned with the inconsistent reporting of fringe benefits, 
whether because of a lack of provider proficiency in identifying fringe 
benefit costs or varying interpretations across fiscal intermediaries 
of the definition for fringe benefits in PRM-I, Section 2144.1 (59 FR 
45356).
    We believe that the limited and inconsistent use of Line 18 of 
Worksheet S-3 for reporting wage-related costs other than the core list 
might indicate that including other wage-related costs in the wage 
index compromises the accuracy of the wage index as a relative measure 
of wages in a given labor market area. Therefore, in the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 19901), we sought public comments on 
whether we should, in future rulemaking, propose to only include the 
wage-related costs on the core list in the calculation of the wage 
index and not to include any other wage-related costs in the 
calculation of the wage index.
    Meanwhile, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19901 
through 19902), we clarified that, under our current policy, an other 
wage-related cost (which we define as the value of a benefit) must be a 
fringe benefit as described by the IRS (refer to IRS Publication 15-B) 
and must be reported to the IRS on employees' or contractors' W-2 or 
1099 forms as taxable income in order to be considered an other wage-
related cost on Line 18 of Worksheet S-3 and for the wage index. That 
is, other wage-related costs that are not reported to the IRS on 
employees' or contractors' W-2 or 1099 forms as taxable income, even if 
not required to be reported to the IRS according to IRS requirements, 
will not be included in the wage index. This is consistent with current 
cost report instructions for Line 18 of Worksheet S-3, Part II of the 
Medicare cost report, Form 2552-10, which state that, to be considered 
an allowable other wage-related cost, the cost ``has been reported to 
the IRS.'' We will apply this policy to the process for calculating the 
wage index for FY 2019, including the FY 2019 desk reviews beginning in 
September 2017.
    As we stated in the FY 2018 proposed rule, we believe this 
clarification is necessary because some hospitals have incorrectly 
interpreted prior manual and existing preamble language to mean that a 
cost could be considered an other wage-related cost if the provider's 
reporting (or not reporting) of the cost

[[Page 38134]]

was in accordance with IRS requirements, rather than if the cost was 
actually reported on an employee's or contractor's W-2 or 1099 form as 
taxable income. We believe that such an interpretation of our policy 
would require an analysis of whether the reporting or not reporting of 
the cost to the IRS was done properly in accordance with IRS 
regulations and guidance in order to allow the cost as an other wage-
related cost. We believe that the determinations regarding the proper 
or improper reporting of certain other wage-related costs to the IRS 
for the purpose of inclusion in the Medicare wage index are impractical 
for CMS and the MACs because we do not have the expertise and fluency 
in IRS regulations and tax law sufficient to perform such technical 
reviews of hospital wage-related costs. In contrast, our current policy 
of including an amount as an other wage-related cost for wage index 
purposes only if the amount was actually reported to the IRS on 
employees' or contractors' W-2 or 1099 forms as taxable income is a 
straightforward policy that we believe provides clarity to all involved 
parties. The brightline test of allowing an other wage-related cost to 
be included in the wage index only if it has been reported on an 
employee's or contractor's W-2 or 1099 form as taxable income helps 
ensure consistent treatment of other wage-related costs for all 
hospitals. Considering the variety of types of costs that may be 
included on Line 18 of Worksheet S-3 of the cost report for other wage-
related costs (assuming the 1-percent test is met and other criteria 
are met), we believe that a straightforward policy that is simple for 
hospitals and CMS to apply is particularly important.
    In addition, we believe the policy we are clarifying that an other 
wage-related cost can be included in the wage index only if it was 
reported to the IRS as taxable income on the employee's or contractor's 
W-2 or 1099, is consistent with CMS' longstanding position that a 
fringe benefit is not furnished for the convenience of the employer or 
otherwise excludable from income as a fringe benefit (such as a working 
condition fringe) and that inappropriate types of costs may not be 
included in the wage index. In response to a comment when we finalized 
the criteria for other wage-related costs in the September 1, 1994 IPPS 
final rule (59 FR 45359), we stated that ``items such as the 
unrecovered cost of employee meals, tuition reimbursement, and auto 
allowances will only be allowed as a wage-related cost for purposes of 
the wage index if properly reported to the IRS on an employee's W-2 
form as a fringe benefit.'' (We note that the September 1, 1994 IPPS 
final rule does not mention the 1099 form for contractors, as contract 
labor was not allowed at that time in the wage index. Consistent with 
our treatment of costs for contract labor similar to that of employees 
for the wage index, we are clarifying that the requirement that a cost 
be reported to the IRS to be allowed as a wage-related cost for the 
wage index also applies to contract labor, which must be reported on 
the contractor's 1099 to be allowed as a wage-related cost for the wage 
index.) We believe that requiring other wage-related costs to be 
reported on employees' or contractors' W-2 or 1099 forms to be 
allowable for Line 18 of Worksheet S-3 of the Medicare cost report is 
consistent with the requirement that the cost is not being furnished 
for the convenience of the employer. A cost reported on an employee's 
or contractor's W-2 or 1099 form as taxable income is clearly a wage-
related cost that is provided solely for the benefit of the employee. 
We believe that the requirement that other wage-related costs be a 
benefit to the employee also guarantees that administrative costs such 
as overhead and capitalized costs are excluded from other wage-related 
costs in the wage index.
    Therefore, for the reasons discussed above, as we discussed in the 
FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19901 through 19902), we are 
clarifying that a cost must be a fringe benefit as described by the IRS 
and must be reported to the IRS on employees' or contractors' W-2 or 
1099 forms as taxable income in order to be considered an other wage-
related cost on Line 18 of Worksheet S-3 and for the wage index. In 
addition, as discussed earlier, in the proposed rule, we requested 
public comments on whether we should consider in future rulemaking 
removing other wage-related costs from the wage index.
    Because some hospitals have incorrectly interpreted prior manual 
and existing preamble language, as stated earlier, in the proposed rule 
we restated the criteria from the September 1, 1994 IPPS final rule (59 
FR 45357) for allowing other wage-related costs for the wage index, 
with clarifications. The criteria follow below, and as stated in the 
proposed rule, we intend to update the manual with these 
clarifications: Other Wage-Related Costs. A hospital may be able to 
report a wage-related cost (defined as the value of the benefit) that 
does not appear on the core list if it meets all of the following 
criteria:
     The wage-related cost is provided at a significant 
financial cost to the employer. To meet this test, the individual wage-
related cost must be greater than 1 percent of total salaries after the 
direct excluded salaries are removed (the sum of Worksheet S-3, Part 
II, Lines 11, 12, 13, 14, column 4, and Worksheet S-3, Part III, Line 
3, Column 4).
     The wage-related cost is a fringe benefit as described by 
the IRS and is reported to the IRS on an employee's or contractor's W-2 
or 1099 form as taxable income.
     The wage-related cost is not furnished for the convenience 
of the provider or otherwise excludable from income as a fringe benefit 
(such as a working condition fringe).
    We note that those wage-related costs reported as salaries on Line 
1 (for example, loan forgiveness and sick pay accruals) should not be 
included as other wage-related costs on Line 18.
    Comment: One commenter fully supported CMS proposing in future 
rulemaking to only include the wage-related costs on the core list in 
the calculation of the wage index and not to include any other wage-
related costs in the calculation of the wage index. The commenter 
reiterated CMS' observation that only a small minority of hospitals 
benefit from the reporting of other wage-related costs, emphasizing 
that the inclusion of other wage-related costs in the wage index in 
such a limited manner distorts the average hourly wage of a particular 
labor market area so that its wage index does not accurately represent 
that labor market area's current wages relative to national wages. 
Several commenters did not oppose CMS proposing in future rulemaking to 
only include wage-related costs on the core list but requested that CMS 
first consider convening stakeholders for additional input prior to the 
removal of the item. Similarly, one commenter requested that CMS be as 
transparent as possible and provide complete information on the impact 
on the wage index for all areas of the country in future rulemaking if 
CMS proposes to exclude other wage-related costs from the wage index 
calculation.
    Response: We appreciate the commenter's support for our proposing 
in future rulemaking to consider only including the wage-related costs 
on the core list in the calculation of the wage index and not to 
include any other wage-related costs in the calculation of the wage 
index. In response to the commenters who requested that CMS first 
consider convening stakeholders

[[Page 38135]]

for additional input prior to the removal of other wage-related costs 
(on Line 18 of Worksheet S-3) from the wage index, we are reassuring 
the commenters that we would engage in notice-and-comment rulemaking in 
order to solicit stakeholder input before removing Line 18 of Worksheet 
S-3 from the wage index calculation. Similarly, we endeavor to be as 
transparent as possible and, if appropriate, may consider providing 
information on the impact on the wage index for all areas of the 
country in future rulemaking if we propose to exclude other wage-
related costs from the wage index calculation.
    Comment: Two commenters applauded CMS' goals of achieving a more 
equitable and accurate wage index, but suggested that CMS address the 
inadequacies in the current reporting requirements for noncore other 
wage-related costs rather than consider eliminating Line 18 of 
Worksheet S-3 of the Medicare cost report from the wage index. These 
commenters asserted that all hospitals have noncore benefits. However, 
the commenters added, the limited guidance and ``significant threshold 
limitations'' in the current instructions prevent hospitals from 
capturing these noncore benefits. Furthermore, the commenters 
maintained that benefits are rapidly evolving into more nontraditional 
structures and, therefore, a mechanism to capture these evolving 
benefits is necessary for CMS to ensure an equitable survey. The 
commenters submitted several suggestions to ensure open and transparent 
reporting of other wage-related costs and to remove the onus from CMS 
and the MAC to make determinations regarding the acceptability of other 
wage-related costs. The commenters believed that clear and consistent 
reporting guidelines create an equitable playing field for all 
providers and stated that addressing the inadequacies in the current 
reporting requirements for Line 18 is prudent. However, the commenters 
suggested an approach different than CMS' clarifications of current 
policy to more accurately identify and capture other wage-related 
costs.
    Response: We appreciate the feedback from commenters in favor of 
our improving the current reporting requirements for noncore other 
wage-related costs rather than considering eliminating Line 18 of 
Worksheet S-3 from the wage index calculation. We are not eliminating 
Line 18 from the wage index calculation at this time. Rather, in line 
with the commenters' recommendation, we are clarifying the requirements 
for Line 18 in this final rule to facilitate consistent and accurate 
reporting of other wage-related costs for the wage index. We share the 
commenters' interests in reporting guidelines that are clear, 
consistent, and equitable. The commenters' specific suggestions and our 
responses follow below:
    Comment: Commenters suggested that CMS, with input from providers, 
define a specific list of noncore benefits commonly shared by a large 
number of providers for inclusion in the wage index, such as employee 
parking and transit costs, uniform costs, and meal allowances. The 
commenters suggested that CMS approach the identification of noncore 
benefits with the same specificity as it does with core benefits in 
order to ensure an equitable wage index, more easily address tax 
issues, and allow more direct application of the employer convenience 
test.
    Response: We appreciate the commenters' suggestion and agree that 
defined lists of allowable costs are generally helpful to support 
consistent and equitable reporting. In fact, our intent in creating a 
core list of wage-related costs in the September 1, 1994 IPPS final 
rule was to promote ``more equitable and consistent reporting of wage-
related costs for all hospitals'' (59 FR 45356). When developing the 
list of core wage-related costs, we stated that one or more of the 
following criteria must be met to be considered a core wage-related 
cost: The wage-related cost is provided at a significant financial cost 
to the employer; the wage-related cost is of a type and nature that 
would generally be offered as a fringe benefit by most employers; the 
perceived value of this wage-related cost is of such importance that it 
would influence an individual's employment decisions; and the wage-
related cost is a mandatory requirement under Federal or State law (for 
example FICA, Federal and State unemployment, among others) (59 FR 
45356).
    If there are noncore benefits that are of a type and nature that 
would generally be offered as a fringe benefit by most employers, as 
the commenters suggested, we believe that perhaps these costs should be 
added to the core list rather than defined separately as a list of 
other wage-related costs. In future rulemaking, we may consider this 
suggestion in the form of seeking hospitals' input on expanding the 
core list of wage-related costs to include common wage-related costs 
(such as parking) that are currently considered other wage-related 
costs.
    Comment: Commenters suggested that the taxable or nontaxable nature 
of the benefit should not be a determinant for inclusion as a noncore 
benefit. In the commenters' opinion, CMS made too broad a connection 
between taxable reporting and the employer convenience test; 
specifically, many employee benefits are not taxable due to dollar 
threshold exclusions and public policy considerations by Congress and 
the IRS. Furthermore, the commenters pointed out that evolving tax law 
could cause volatility in the wage index because what is considered a 
taxable benefit one year may not be taxable in the next year.
    Rather, the commenters suggested that, in order for other wage-
related costs to be included in the wage index, CMS require other wage-
related costs to be reported to the IRS on the W-2, regardless of 
whether the benefit is taxable or not (the W-2 allows for reporting of 
both taxable and nontaxable benefits), and that CMS could then include 
other wage-related costs in the wage index as long as those costs, 
whether taxable or nontaxable, are reported on the W-2. The commenters 
maintained that it should not be the responsibility of CMS or the MACs 
to prove that the benefit has been handled appropriately for tax 
purposes, and this requirement to include all taxable and nontaxable 
costs on the W-2 in order to have those costs included in the wage 
index would ensure that the benefit has been handled correctly for tax 
purposes.
    Response: In the proposed rule (82 FR 19902), we stated that 
requiring other wage-related costs to be reported on employees' or 
contractors' W-2 or 1099 forms to be allowable for Line 18 is 
consistent with the requirement that the cost is not being furnished 
for the convenience of the employer because, typically, a cost that is 
for the convenience of the employer is not taxable as income to the 
employee. This is not to say that all costs that are a benefit to the 
employee are taxable. Indeed, in our clarification of the criteria for 
allowing a cost as an other wage-related costs on Line 18 in the wage 
index, we specifically stated that ``The wage-related cost is not 
furnished for the convenience of the provider or otherwise excludable 
from income as a fringe benefit (such as a working condition fringe)'' 
(emphasis added). That is, we recognize that being furnished for the 
convenience of the provider is only one of many reasons that a cost may 
be excludable from income as a fringe benefit.
    While we understand that many employee benefits are not taxable due 
to dollar threshold exclusions and public policy considerations by 
Congress and the IRS, and thereby excluded from Line 18, we continue to 
believe that a brightline test is necessary for consistent

[[Page 38136]]

treatment of other wage-related costs for all hospitals. Taken with the 
commenter's suggestion that CMS allow taxable and nontaxable other 
wage-related costs (assuming other criteria are met) as long as the 
costs are reported on W-2s or 1099s, we understand that the commenter 
is suggesting a different brightline test: That the cost be listed on 
the W-2, regardless of whether the cost is taxable or tax-exempt. We 
continue to believe that our clarification in the proposed rule is a 
more straightforward policy than the commenter's suggestion for two 
reasons. First, not all employers report nontaxable costs on an 
employee's W-2, nor are they required to do so. Therefore, to allow 
nontaxable costs so long as those costs are on an employee's W-2 would 
create an uneven playing field with inconsistent treatment of 
nontaxable costs. Second, a taxable benefit is typically income-related 
and a benefit to the employee. While we understand that there may be 
benefits to the employee that are tax-exempt due to a variety of public 
policy considerations, we believe that costs should be taxable in order 
to be incorporated as part of the wage index because the wage index is 
a relative measure of salaries and wages.
    Furthermore, we agree with the commenters' assertion that it should 
not be the responsibility of CMS or the MACs to prove that the benefit 
has been handled appropriately for tax purposes. Indeed, it is for that 
reason that we clarified our current policy of allowing an amount as an 
other wage-related cost for wage index purposes only if the amount was 
actually reported to the IRS on employees' or contractors' W-2 or 1099 
forms as taxable income. We stated in the proposed rule (82 FR 19901 
through 19902) that other wage-related costs that are not reported to 
the IRS on employees' or contractors' W-2 or 1099 forms as taxable 
income, even if not required to be reported to the IRS according to IRS 
requirements, will not be included in the wage index. We explained that 
determinations regarding the proper or improper reporting of certain 
other wage-related costs to the IRS for the purpose of inclusion in the 
Medicare wage index are impractical for CMS and the MACs because we do 
not have the expertise and fluency in IRS regulations and tax law 
sufficient to perform such technical reviews of hospital wage-related 
costs.
    Comment: Commenters suggested that CMS change the 1-percent test to 
a test in aggregate for the items on their recommended noncore list. 
For benefits not specifically listed by CMS as noncore, the commenters 
suggested that CMS continue using the current methodology, which 
requires each individual benefit to meet the 1-percent test.
    Response: We appreciate the commenters' suggestion. However, as we 
stated earlier, if there are noncore benefits that are of a type and 
nature that would generally be offered as a fringe benefit by most 
employers, we believe that perhaps these costs should be added to the 
core list rather than defined separately as a list of other wage-
related costs. In future rulemaking, we may consider this suggestion in 
the form of seeking hospitals' input on expanding the core list of 
wage-related costs to include common wage-related costs (such as 
parking) that are currently considered other wage-related costs.
    We continue to believe that it is appropriate for the 1-percent 
test to be performed on individual, rather than aggregate, other wage-
related costs. In response to a public comment, in the September 1, 
1994 IPPS final rule (59 FR 45358), we stated that ``[t]he provision to 
include wage-related costs other than those reflected on the core list 
is intended to recognize only those limited circumstances where a 
hospital incurs any additional wage-related cost items that truly 
represent a significant financial burden to the hospital, but that also 
meet the current definition of a fringe benefit cost. We believe the 1-
percent threshold is an appropriate measure of significance, and that 
the exclusion of any cost representing less than 1 percent of total 
salaries would not significantly affect the hospital's overall average 
hourly wage. We consider the 1-percent test critical in ensuring that 
providers only include other wage-related costs that contribute 
significantly to their wage costs and that are not accounted for in the 
core list.'' We continue to believe that the 1-percent test performed 
on individual costs ensures that the wage-related cost is provided at a 
significant financial cost to the employer.
    Furthermore, we believe that allowing the 1-percent test to be 
performed on aggregate other wage-related costs (even on a limited list 
of other wage-related costs, as the commenter suggests) would lead to 
inequitable treatment of other wage-related costs. Hospitals with an 
other wage-related cost comprising an identical percentage of total 
adjusted salaries net of excluded area salaries could be treated 
differently, depending on the presence or absence of additional other 
wage-related costs to collectively ``pass'' the 1-percent test. For 
example, parking costs totaling .08 percent of total salaries for one 
hospital could be allowed (assuming the other criteria were met) if the 
hospital also has additional noncore wage-related costs that combine to 
exceed 1 percent, while another hospital with parking costs totaling 
the identical .08 percentage of total salaries could have those costs 
disallowed in absence of additional noncore wage-related costs to add 
to the parking costs to exceed 1 percent of salaries.
    We appreciate all of the comments submitted on this issue. We will 
take these comments into consideration in determining whether to 
propose in future rulemaking to remove other wage-related costs from 
the wage index calculation. Meanwhile, as discussed earlier and in the 
FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19900 through 19902), we are 
again clarifying that a cost must be a fringe benefit as described by 
the IRS and must be reported to the IRS on employees' or contractors' 
W-2 or 1099 forms as taxable income in order to be considered an other 
wage-related cost on Line 18 of Worksheet S-3 and for the wage index.

E. Occupational Mix Adjustment to the FY 2018 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 2018 Wage Index
    Section 304(c) of the Consolidated Appropriations Act, 2001 (Pub. 
L. 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

[[Page 38137]]

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. Use of the 2016 Medicare Wage Index Occupational Mix Survey for the 
FY 2019 Wage Index
    As stated earlier, 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) received OMB approval on September 27, 2016. The final 
CY 2016 Occupational Mix Survey Hospital Reporting Form is available on 
the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/2016-Occupational-Mix-Survey-Hospital-Reporting-Form-CMS-10079-for-the-Wage-Index-Beginning-FY-2019.html. Hospitals were required to submit their 
completed 2016 surveys to their MACs by July 3, 2017. The preliminary, 
unaudited CY 2016 survey data were posted on the CMS Web site on July 
12, 2017. As with the Worksheet S-3, Parts II and III cost report wage 
data, as part of the FY 2019 desk review process, the MACs will revise 
or verify data elements in hospitals' occupational mix surveys that 
result in certain edit failures.
3. Calculation of the Occupational Mix Adjustment for FY 2018
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19903), for FY 
2018, we proposed to calculate the occupational mix adjustment factor 
using the same methodology that we have used since the FY 2012 wage 
index (76 FR 51582 through 51586) and to apply the occupational mix 
adjustment to 100 percent of the FY 2018 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 2018 wage 
index. For the proposed FY 2018 wage index, we used the Worksheet S-3, 
Parts II and III wage data of 3,325 hospitals, and we used the 
occupational mix surveys of 3,128 hospitals for which we also have 
Worksheet S-3 wage data, which represented a ``response'' rate of 94 
percent (3,128/3,325). For the proposed FY 2018 wage index, 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).
    Comment: One commenter stated that all hospitals should be 
obligated to submit the occupational mix survey because failure to 
complete the survey jeopardizes the accuracy of the wage index. The 
commenter suggested that a penalty be instituted for nonsubmitters. 
This commenter also requested that, pending CMS' analysis of the 
Commuting Based Wage Index and given the Institute of Medicine's study 
on geographic variation in hospital wage costs, CMS eliminate the 
occupational mix survey and the significant reporting burden it 
creates.
    Response: We appreciate the commenter's concern about the accuracy 
of the wage index. We have continually requested that all hospitals 
complete and submit the occupational mix surveys. We did not establish 
a penalty for hospitals that did not submit the 2013 surveys. However, 
we are continuing to consider for future rulemaking various options for 
ensuring full compliance with future occupational mix surveys. 
Regarding the commenter's request that CMS eliminate the occupational 
mix survey, this survey is necessary to meet the provisions of section 
1886(d)(3)(E) of the Act, which requires us to measure the earnings and 
paid hours of employment by occupational category.
    After consideration of the public comments we received, for FY 
2018, we are adopting as final our proposal to calculate the 
occupational mix adjustment factor using the same methodology that we 
have used since the FY 2012 wage index. For the final FY 2018 wage 
index, we are using the Worksheet S-3, Parts II and III wage data of 
3,336 hospitals, and we are using the occupational mix surveys of 3,138 
hospitals for which we also have Worksheet S-3 wage data, which 
represents a ``response rate'' of 94 percent (3,138/3,336). We note 
that, in the proposed rule (82 FR 19903), we stated that we used the 
occupational mix survey of 3,128 hospitals. The reason for the increase 
in the number of hospitals from 3,128 to 3,138 is that 10 hospitals 
that had been deleted from the proposed rule wage index and that are 
now included in the final rule wage index had acceptable occupational 
mix surveys to use for the final rule. Therefore, we have included the 
occupational mix surveys of these 10 additional hospitals to calculate 
the wage index for this final rule. For the final FY 2018 wage index, 
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). As a result of applying this 
methodology, the FY 2018 occupational mix adjusted national average 
hourly wage is $42.0564.

F. Analysis and Implementation of the Occupational Mix Adjustment and 
the FY 2018 Occupational Mix Adjusted Wage Index

    As discussed in section III.E. of the preamble of this final rule, 
for FY 2018, we are applying the occupational mix adjustment to 100 
percent of the FY 2018 wage index. We calculated the 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 2018 
wage index results in a national average hourly wage of $42.0564.

[[Page 38138]]

    The FY 2018 national average hourly wages for each occupational mix 
nursing subcategory as calculated in Step 2 of the occupational mix 
calculation are as follows:

------------------------------------------------------------------------
                                                              Average
          Occupational mix nursing subcategory              hourly wage
------------------------------------------------------------------------
National RN.............................................    $38.86637039
National LPN and Surgical Technician....................     22.73227683
National Nurse Aide, Orderly, and Attendant.............     15.95002569
National Medical Assistant..............................     17.96799473
National Nurse Category.................................       32.856948
------------------------------------------------------------------------

    The national average hourly wage for the entire nurse category as 
computed in Step 5 of the occupational mix calculation is $32.856948. 
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 25.7 
percent in one CBSA to a high of 73.5 percent in another CBSA.
    We compared the FY 2018 occupational mix adjusted wage indexes for 
each CBSA to the unadjusted wage indexes for each CBSA. As a result of 
applying the occupational mix adjustment to the wage data, the final 
wage index values for 222 (54.4 percent) urban areas and 23 (48.9 
percent) rural areas will increase. The final wage index values for 110 
(27.0 percent) urban areas will increase by greater than or equal to 1 
percent but less than 5 percent, and the final wage index values for 6 
(1.5 percent) urban areas will increase by 5 percent or more. The final 
wage index values for 10 (21.3 percent) rural areas will increase by 
greater than or equal to 1 percent but less than 5 percent, and no 
rural areas' final wage index values will increase by 5 percent or 
more. However, the final wage index values for 184 (45.1 percent) urban 
areas and 24 (51.1 percent) rural areas will decrease. The final wage 
index values for 85 (20.8 percent) urban areas will decrease by greater 
than or equal to 1 percent but less than 5 percent, and no urban areas' 
final wage index value will decrease by 5 percent or more. The final 
wage index values of 8 (17.0 percent) rural areas will decrease by 
greater than or equal to 1 percent and less than 5 percent, and no 
rural areas' final wage index values will decrease by 5 percent or 
more. The largest final positive impacts will be 17.4 percent for an 
urban area and 2.9 percent for a rural area. The largest final negative 
impacts will be 4.9 percent for an urban area and 2.4 percent for a 
rural area. Two urban areas' final wage index, but no rural area wage 
indexes, will remain unchanged by application of the occupational mix 
adjustment. These results indicate that a larger percentage of urban 
areas (54.4 percent) will benefit from the occupational mix adjustment 
than will rural areas (48.9 percent).

G. Application of the Rural, Imputed, and Frontier Floors

1. 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 FY 2018 wage index associated with this final rule (which is 
available via the Internet on the CMS Web site), we estimate that 366 
hospitals will receive an increase in their FY 2018 wage index due to 
the application of the rural floor.
2. Expiration of the Imputed Floor Policy
    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 seven times, 
the last of which was adopted in the FY 2017 IPPS/LTCH PPS final rule 
and is set to expire on September 30, 2017. (We refer readers to 
further discussions of the imputed floor in the FY 2014, FY 2015, FY 
2016, and FY 2017 IPPS/LTCH PPS final rules (78 FR 50589 through 50590, 
79 FR 49969 through 49970, 80 FR 49497 through 49498, and 81 FR 56921 
through 56922, 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.I. of the preamble 
of this final 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 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

[[Page 38139]]

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. Similarly, in the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 56921 through 56922), for FY 2017, we extended 
the imputed floor policy (under both the original methodology and the 
alternative methodology) for 1 additional year, through September 30, 
2017. 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.
    The imputed floor is set to expire effective October 1, 2017, and 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19905), we did not 
propose to extend the imputed floor policy. In the FY 2005 IPPS final 
rule (69 FR 49110), we adopted the imputed floor policy for all-urban 
States under the authority of section 1886(d)(3)(E) of the Act, which 
gives the Secretary broad authority to adjust the proportion (as 
estimated by the Secretary from time to time) of hospitals' costs which 
are attributable to wages and wage-related costs of the DRG prospective 
payment rates for area differences in hospital wage levels by a factor 
(established by the Secretary). However, we have expressed reservations 
about establishment of an imputed floor, considering that the imputed 
rural floor methodology creates a disadvantage in the application of 
the wage index to hospitals in States with rural hospitals but no urban 
hospitals receiving the rural floor (72 FR 24786 and 72 FR 47322). As 
we discussed in the FY 2008 IPPS final rule (72 FR 47322), the 
application of the rural and imputed floors requires transfer of 
payments from hospitals in States with rural hospitals but where the 
rural floor is not applied to hospitals in States where the rural or 
imputed floor is applied. For this reason, in the FY 2018 IPPS/LTCH PPS 
proposed rule, we proposed not to apply an imputed floor to wage index 
calculations and payments for hospitals in all-urban States for FY 2018 
and subsequent years. That is, we proposed that hospitals in New 
Jersey, Delaware, and Rhode Island (and in any other all-urban State) 
would receive a wage index that is calculated without applying an 
imputed floor for FY 2018 and subsequent years. Therefore, under our 
proposal, only States containing both rural areas and hospitals located 
in such areas (including any hospital reclassified as rural under the 
provisions of Sec.  412.103 of the regulations) would benefit from the 
rural floor, in accordance with section 4410 of Public Law 105-33. In 
addition, we proposed to no longer include the imputed floor as a 
factor in the national budget neutrality adjustment. Therefore, the 
proposed wage index and impact tables associated with the FY 2018 IPPS/
LTCH PPS proposed rule (which are available via the Internet on the CMS 
Web site) did not reflect the imputed floor policy, and there was no 
proposed national budget neutrality adjustment for the imputed floor 
for FY 2018. We invited public comments on our proposal not to extend 
the imputed floor for FY 2018 and subsequent years.
    We are presenting below summaries of the public comments we 
received and our responses.
    Comment: Several commenters supported CMS' proposal to allow the 
imputed floor policy to expire. One commenter stated that the imputed 
floor policy only benefited two States at the expense of other States 
due to national budget neutrality. Another commenter stated the imputed 
floor policy should only apply when required by statute.
    Response: We appreciate the positions of commenters that support 
the proposal not to extend the imputed floor. In the FY 2005 IPPS final 
rule (69 FR 49110), we adopted the imputed floor policy for all-urban 
States under the authority of section 1886(d)(3)(E) of the Act, which 
gives the Secretary broad authority to adjust the proportion (as 
estimated by the Secretary from time to time) of hospitals' costs which 
are attributable to wages and wage-related costs, of the DRG 
prospective payment rates for area differences in hospital wage levels 
by a factor (established by the Secretary). Therefore, we believe that 
we have the discretion to adopt a policy that would adjust wage indexes 
in the stated manner. We adopted the imputed floor policy to address 
concerns from hospitals in all-urban States and subsequently extended 
it through notice-and-comment rulemaking. While we understand the 
commenters' concerns that the application of the imputed floors 
requires transfer of payments from hospitals in States with rural 
hospitals but where the rural floor is not applied to hospitals in 
States where the rural or imputed floor is applied, we also received 
many comments expressing concern about discontinuing the imputed floor 
(as further discussed below). As explained further below, we have 
decided to

[[Page 38140]]

temporarily extend the imputed floor for 1 year while we continue to 
consider the comments we received and assess whether to continue or 
discontinue the imputed floor policy for the long term.
    Comment: Several commenters disagreed with the proposal to allow 
the imputed floor to expire, and stated that CMS should maintain the 
status quo and continue to extend the imputed floor in 1-year 
increments until the entirety of Medicare wage index reform is 
complete. The commenters stated that, by eliminating the imputed floor 
wage index, CMS is alleviating only a fraction of the combined payment 
transfer from the application of the rural and imputed floors. The 
commenters pointed out that, combined, hospitals in the three all-urban 
States (New Jersey, Rhode Island, and Delaware) accounted for less than 
10 percent of the 397 hospitals nationally that received either the 
rural or imputed floor last year. The commenters conveyed that CMS 
indicated in the FY 2014 and FY 2015 IPPS/LTCH PPS final rules, both of 
which extended the imputed floor for an additional year, that CMS would 
continue to explore potential wage index reform, and that, as of the FY 
2018 IPPS/LTCH PPS proposed rule, such reform has not occurred.
    Multiple commenters indicated that eliminating the imputed floor 
would create the same uneven playing field that existed prior to 2005, 
in response to which CMS initially established the policy. The 
commenters stated that the anomaly originally cited by CMS (that is, 
that hospitals in all-urban States with predominant labor market areas 
do not have any type of protection, or ``floor,'' from declines in 
their wage index) would exist again if the imputed floor policy were 
discontinued.
    One commenter indicated that the imputed floor is an equitable 
measure established by CMS which provides relief to hospitals in all-
urban States. The commenter stated that this longstanding policy has 
reduced volatility and increased the equitability of the wage index 
system. The commenter believed that CMS should not remove the imputed 
floor from all-urban States. Regarding CMS' concern with the payment 
impact of the existing imputed floor policy on States with rural 
hospitals that do not have urban hospitals that benefit from a rural 
floor, the commenter believed this should be reviewed as part of a 
comprehensive Medicare wage index reform. The commenter suggested that 
CMS consider all recommended changes to the imputed floor as part of 
wage index reform, and that the public have a chance to provide input 
to CMS prior to finalizing any decisions regarding elimination of the 
imputed rural floor. The commenter further suggested that if there is a 
decision made to eliminate the imputed rural floor, the decision should 
include a 2-year notification period to allow impacted hospitals 
appropriate planning time. The commenter stated that CMS has extended 
such advance notice, including changes concerning the wage index, for 
this purpose in the past.
    Several commenters stated they would like to make the imputed floor 
wage index provision permanent in the FY 2018 IPPS/LTCH PPS final rule. 
The commenters pointed out that CMS has upheld the imputed floor for 
the past 12 years as a valuable method of maintaining equitable wage 
index protections for all-urban States, consistent with those that 
exist for States with rural areas. The commenters referenced CMS' 
explanation from the FY 2005 IPPS final rule (69 FR 49110) for adopting 
the imputed floor, such as: ``because there is no `floor' to protect 
those hospitals not located in the predominant labor market area from 
facing continued declines in their wage index, it becomes increasingly 
difficult for those hospitals to continue to compete for labor.'' The 
commenters stated it is imperative that the imputed floor policy be 
made permanent to ensure that its State's hospitals are not 
artificially disadvantaged simply because of geography and population.
    In addition, the commenters stated that there are many Medicare 
payment programs that redirect scarce Medicare funding to a class of 
unique hospitals. Not all States have hospitals that benefit from these 
programs. For example, the commenters stated that CMS makes payments to 
CAHs at a rate of 101 percent of their cost. The commenters noted that 
some States do not have any hospitals that qualify as a CAH and do not 
benefit from this program. The commenters further stated that while 
CAHs are paid outside the IPPS program, the dollars continue to come 
from a finite Medicare trust fund. The commenters believed that this 
represents a transfer of payments from hospitals in States without any 
CAHs, such as all-urban States, into States with CAHs, similar to the 
transfer of payments CMS cites as its rationale to discontinue the 
imputed floor. The commenters indicated that there is precedent for CMS 
to restore, in the final rule, policies or provisions that were 
scheduled for elimination or discontinuation in the proposed rule. The 
commenters pointed out that, in the FY 2012 IPPS/LTCH PPS proposed 
rule, CMS stated that the imputed floor would expire on September 30, 
2011. However, in the final rule, CMS announced that the imputed floor 
provision was extended for 2 additional years, through FY 2013 
(September 30, 2013).
    One commenter supported the alternative methodology for calculating 
the imputed rural floor in Rhode Island. According to the commenter, 
the methodology has been used since FY 2013 and has been key for the 
State's hospitals and maintaining access to care for residents of Rhode 
Island. The commenter stated that the alternative methodology for 
calculating the imputed floor appropriately addresses a hospital wage 
index reclassification system that does not reflect Rhode Island's 
characteristics. The commenter further expressed that the alternative 
methodology for calculating the imputed rural floor protects its 
hospitals from falling to some of the lowest reimbursement rates in the 
country, at the same time while competing with some of the most highly 
reimbursed urban hospitals. The commenter referenced FY 2013, where a 
majority of hospitals in Rhode Island reported operating losses and a 
cumulative operating margin of negative 2.0 percent. The commenter 
pointed out that since implementing the alternative methodology for 
calculating the imputed floor, there has been improvement in the 
overall fiscal condition of Rhode Island's health care system. 
According to the commenter, the alternative methodology provided nearly 
$29 million to hospitals in Rhode Island last year. The commenter was 
concerned that any discontinuation of this policy would be devastating 
for a State still facing challenging economic conditions.
    Response: While the commenters raised concerns that, if the imputed 
floor were discontinued, hospitals in all-urban States would again be 
disadvantaged by the absence of rural hospitals to set a wage index 
floor for those States, as well as concerns about the fiscal impacts of 
discontinuing the rural floor, we also have expressed concerns about 
continuing the imputed floor policy. As we discussed in the FY 2008 
IPPS/LTCH PPS final rule (72 FR 47322), the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51593), and the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19905), the application of the rural and imputed floors requires 
transfer of payments from hospitals in States with rural hospitals but 
where the rural floor is not applied to hospitals in States where the 
rural or imputed floor is applied. While the three all-urban States may 
count for a fraction of all States that

[[Page 38141]]

received the rural and imputed floor last year, the imputed rural floor 
methodology still creates a disadvantage in the application of the wage 
index to hospitals in States with rural hospitals but no urban 
hospitals receiving the rural floor. As discussed below, given the many 
comments we received both in support of and against our proposal to 
discontinue the imputed floor, we believe it would be appropriate to 
temporarily extend the imputed floor for an additional year, while we 
continue to consider these comments and further assess the effects of 
this policy and whether to continue or discontinue the policy for the 
long term.
    In response to the comment suggesting that we maintain the status 
quo and continue to extend the imputed floor until wage index reform is 
complete, we note that section 3137(b) of the Affordable Care Act 
required the Secretary to submit to Congress a report that includes a 
plan to reform the Medicare wage index applied under the IPPS. We 
submitted the report to Congress on April 11, 2012, and have posted the 
report and other information regarding wage index reform on the CMS Web 
site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html. While in past years we have 
stated that we continue to explore wage index reforms while extending 
the imputed floor in increments (for example, 78 FR 50589 through 50590 
and 79 FR 49969 through 49970), we note that it has already been many 
years since our Report to Congress was issued with no new legislation 
from Congress to comprehensively reform the wage index. Therefore, we 
do not agree with the commenter that the imputed floor should continue 
until such time as comprehensive wage index reform may be implemented.
    In addition, we note that the imputed floor was originally 
authorized for only 3 years. In the FY 2005 IPPS final rule (69 FR 
49110), we indicated that during the 3 years that the policy is in 
effect, we would determine whether to make additional changes to the 
policy or eliminate it. Given that we had indicated in the FY 2005 IPPS 
final rule that the provision was set to expire after 3 years, and that 
we have temporarily extended the provision in increments for several 
subsequent years due to the reasons discussed earlier, we believe that 
hospitals in all-urban States should not rely on the policy to continue 
permanently or until wage index reform is implemented. Furthermore, 
because the policy has been temporarily extended in increments for 
several years, we believe that hospitals have had ample notice that the 
policy could ultimately expire, and thus should not rely on a 
notification period as requested by the commenter. However, we would 
provide the public a chance to provide input to CMS through the 
rulemaking process prior to finalizing any decisions regarding 
elimination of the imputed rural floor.
    Finally, regarding the comparison made by commenters between the 
CAH payment methodology and the imputed floor methodology with respect 
to the transfer of payments, we disagree with this comparison. Because 
there is no national budget neutrality requirement relating to CAH 
payments (as there is with the imputed floor methodology), there is no 
transfer of payments from hospitals in States without any CAHs to 
hospitals in States with CAHs, similar to that which exists as a result 
of the application of the imputed floor. Under sections 1814(l) and 
1834(g) of the Act, payments made to CAHs for inpatient and outpatient 
services are generally based on 101 percent of the reasonable costs of 
the CAH in providing such services. Reasonable cost is defined in 
section 1861(v)(1)(A) of the Act and determined in accordance with the 
regulations under 42 CFR part 413.
    Comment: One commenter stated that, in more recent years, the rural 
floor wage index adjustment has been a cause for concern nationally 
because urban hospitals in certain States have had their wage indexes 
set equal to the highest wage index of any rural hospital in their 
respective State. As a result, the commenter pointed out, hospitals in 
such States draw Medicare money away from hospitals in other States. 
The commenter reemphasized its previous recommendations, which were 
also included in the MedPAC's 2007 Report to Congress, that Congress 
repeal the existing hospital wage index. The commenter appeared to be 
requesting support for legislation which would include: Removing the 
more than 900 individual hospital reclassifications, and other 
exceptions that occur each year, which are either stipulated in law or 
implemented through regulation, and also giving the Secretary authority 
to establish a new wage index system, using compensation data from all 
employees, together with hospital industry-specific occupational 
weights, and adjusting at the county level to smooth large differences 
between counties; and a transition period to mitigate large changes in 
wage index values. The commenter indicated that the system it proposed 
is similar to recommendations made by the Institute of Medicine and 
that its sets of recommendations would eliminate the need for the 
system of geographic reclassification and exceptions that is currently 
in place.
    Response: We thank the commenter for its comments and its 
recommendations regarding modifications to the hospital wage index. 
However, we note that we do not have authority to repeal or revise the 
existing wage index statutory provisions, including the rural floor 
statutory provisions at section 4410(b) of the BBA and section 3141 of 
the Affordable Care Act.
    Comment: One commenter opposed the continued application of the 
nationwide rural floor budget neutrality adjustment as described in the 
proposed rule. The commenter recognized that the impetus for the policy 
is a Federal statute, not regulation. The commenter discussed section 
3141 of the Affordable Care Act which established a policy of national 
budget neutrality for the application of the rural and imputed floors 
to the Medicare wage index. The commenter conveyed that, coupled with 
the orchestrated conversion of a single facility in Massachusetts--
Nantucket Cottage Hospital--from a CAH to an IPPS hospital, section 
3141 of the Affordable Care Act allows hospitals to unfairly manipulate 
the Medicare payment system and reward hospitals in Massachusetts and a 
few other States at the expense of most other hospitals across the 
nation. The commenter stated that the adverse consequences of 
nationwide rural floor budget neutrality have been recognized and 
commented upon by CMS, MedPAC, and many others over the past several 
years. Until this policy is corrected, the commenter stated that the 
Medicare wage index system cannot possibly accomplish its objective of 
ensuring that payments for the wage component of labor accurately 
reflect actual wage costs.
    Other commenters stated ``that the current application of the rural 
floor is broken'' and referenced how a single hospital can shift such a 
large amount of payments and have it paid for by many other States in 
the nation. The commenters explained that section 4410 of the BBA 
established a rural floor. The commenters noted that, by careful 
selection of specific hospitals converting from CAHs to hospitals paid 
under the IPPS, States could game the system and exploit this 
provision, shifting millions of dollars into that State. These 
commenters stated that the most notable example of such gaming is a 
hospital located on Nantucket Island off the coast of Massachusetts. 
This single hospital sets the wage index for all hospitals in 
Massachusetts. The commenters stated that, according to

[[Page 38142]]

rural floor impact statements provided by CMS in the annual IPPS final 
rule from FY 2012 through FY 2017, this one hospital will bring a 
projected $1.3 billion into the commonwealth of Massachusetts. The 
commenter pointed out that the inequity of this provision recently was 
highlighted in a March 2017 Office of Inspector General (OIG) report 
showing how a single hospital overreported dollars and underreported 
hours, driving up the average hourly wage. According to the commenter, 
the OIG estimated that this error resulted in more than $133 million in 
Medicare overpayments to be paid to Massachusetts hospitals. The 
commenters ``urged CMS to establish a national wage index ceiling (for 
example, 1.33) that can be used to increase the national wage index 
floor to a reasonable level (for example, .874)''. In addition, the 
commenters opposed the application of a nationwide rural floor budget 
neutrality adjustment and requested that CMS overturn section 3141 of 
the Affordable Care Act and restore integrity to the hospital wage 
index system.
    Response: We thank the commenters for their comments and 
suggestions. Because there is no national wage index floor, we are not 
clear what the commenter meant with respect to its request to establish 
a national wage index ceiling that can be used to increase the national 
wage index floor to a reasonable level. Therefore, we are unable to 
respond to this suggestion made by the commenter. As we stated earlier, 
section 4410 of the BBA requires the application of the rural floor and 
section 3141 of the Affordable Care Act requires a uniform, national 
budget neutrality adjustment for the rural floor. We do not have 
authority to repeal or revise these laws.
    Comment: One commenter suggested that CMS use its authority to 
establish a temporary wage index floor for Puerto Rico in the interest 
of preventing a decrease in Medicare payments due to Puerto Rico's 
lower than national average wages.
    Response: We appreciate the suggestions provided by the commenter 
regarding a temporary wage index floor for Puerto Rico. However, this 
comment is outside the scope of the proposed rule.
    We appreciate the positions of commenters that both supported and 
opposed the proposal to allow the imputed floor policy to expire. After 
consideration of public comments we received, we believe extending the 
imputed floor policy for 1 more year through FY 2018 is appropriate 
while we continue to consider the many comments we received and whether 
to continue or discontinue the imputed floor for the long term. 
Therefore, we are extending the imputed floor policy under both the 
original methodology and the alternative methodology for an additional 
year, through September 30, 2018, and will address this issue again in 
our FY 2019 rulemaking. We also are revising the regulations at 
Sec. Sec.  412.64(h)(4) and (h)(4)(vi) to reflect the 1-year extension 
of the imputed floor, through September 30, 2018.
    The wage index and impact tables associated with this FY 2018 IPPS/
LTCH PPS final rule (which are available on the Internet via the CMS 
Web site) reflect the continued application of the imputed floor policy 
at Sec.  412.64(h)(4) and a national budget neutrality adjustment for 
the imputed floor for FY 2018. There are 17 hospitals in New Jersey 
that will receive an increase in their FY 2018 wage index due to the 
continued application of the imputed floor policy under the original 
methodology, and 10 hospitals in Rhode Island and 6 hospitals in 
Delaware that will benefit under the alternative methodology.
3. State Frontier Floor for FY 2018
    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 the 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).) In the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 19905), we did not propose any changes to 
the frontier floor policy for FY 2018. We stated in the proposed rule 
that 52 hospitals would receive the frontier floor value of 1.0000 for 
their FY 2018 wage index. These hospitals are located in Montana, 
Nevada, North Dakota, South Dakota, and Wyoming.
    We did not receive any public comments on the application of the 
State frontier floor for 2018. In this final rule, 49 hospitals will 
receive the frontier floor value of 1.0000 for their FY 2018 wage 
index. These hospitals are located in Montana, Nevada, North Dakota, 
South Dakota, and Wyoming.
    The areas affected by the final rural and frontier floor policies 
for the FY 2018 wage index are identified in Table 2 associated with 
this final rule, which is available via the Internet on the CMS Web 
site.

H. FY 2018 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 final rule for a 
discussion of the final wage index tables for FY 2018.

I. 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 and the policies for the effects 
of hospitals' reclassifications and redesignations on the wage index 
are 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.
    On April 21, 2016, we published an interim final rule with comment 
period

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(IFC) in the Federal Register (81 FR 23428 through 23438) that included 
provisions amending our regulations to allow hospitals nationwide to 
have simultaneous Sec.  412.103 and MGCRB reclassifications. For 
reclassifications effective beginning FY 2018, a hospital may acquire 
rural status under Sec.  412.103 and subsequently apply for a 
reclassification under the MGCRB using distance and average hourly wage 
criteria designated for rural hospitals. In addition, we provided that 
a hospital that has an active MGCRB reclassification and is then 
approved for redesignation under Sec.  412.103 will not lose its MGCRB 
reclassification; such a hospital receives a reclassified urban wage 
index during the years of its active MGCRB reclassification and is 
still considered rural under section 1886(d) of the Act and for other 
purposes.
    We discussed that when there is both a Sec.  412.103 redesignation 
and an MGCRB reclassification, the MGCRB reclassification controls for 
wage index calculation and payment purposes. We exclude hospitals with 
Sec.  412.103 redesignations from the calculation of the reclassified 
rural wage index if they also have an active MGCRB reclassification to 
another area. That is, if an application for urban reclassification 
through the MGCRB is approved, and is not withdrawn or terminated by 
the hospital within the established timelines, we consider the 
hospital's geographic CBSA and the urban CBSA to which the hospital is 
reclassified under the MGCRB for the wage index calculation. We refer 
readers to the April 21, 2016 IFC (81 FR 23428 through 23438) and the 
FY 2017 IPPS/LTCH PPS final rule (81 FR 56922 through 56930) for a full 
discussion of the effect of simultaneous reclassifications under both 
the Sec.  412.103 and the MGCRB processes on wage index calculations.
2. MGCRB Reclassification and Redesignation Issues for FY 2018
a. FY 2018 Reclassification Requirements and Approvals
    As previously stated, under section 1886(d)(10) of the Act, the 
MGCRB considers applications by hospitals for geographic 
reclassification for purposes of payment under the IPPS. The specific 
procedures and rules that apply to the geographic reclassification 
process are outlined in regulations under 42 CFR 412.230 through 
412.280.
    At the time this final rule was constructed, the MGCRB had 
completed its review of FY 2018 reclassification requests. Based on 
such reviews, there are 374 hospitals approved for wage index 
reclassifications by the MGCRB starting in FY 2018. Because MGCRB wage 
index reclassifications are effective for 3 years, for FY 2018, 
hospitals reclassified beginning in FY 2016 or FY 2017 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 245 hospitals approved for wage index reclassifications in 
FY 2016 that will continue for FY 2018, and 246 hospitals approved for 
wage index reclassifications in FY 2017 that will continue for FY 2018. 
Of all the hospitals approved for reclassification for FY 2016, FY 
2017, and FY 2018, based upon the review at the time of this final 
rule, 865 hospitals are in a MGCRB reclassification status for FY 2018.
    Under the regulations at 42 CFR 412.273, hospitals that have been 
reclassified by the MGCRB are permitted to withdraw their applications 
if the request for withdrawal is received by the MGCRB within 45 days 
of the publication of CMS' annual notice of proposed rulemaking 
concerning changes to the inpatient hospital prospective payment system 
and proposed payment rates for the fiscal year for which the 
application has been filed. (We note that in section III.I.4. of the 
preamble of this final rule, we did not finalize our proposal to revise 
the above described regulation text to specify that written notice to 
the MGCRB must be provided within 45 days from the date of public 
display of the proposed rule at the Office of the Federal Register.) 
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 Sec.  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 2018 are incorporated 
into the wage index values published in this FY 2018 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.
    Comment: MedPAC and other commenters stated that the increasing 
number of wage index reclassifications, along with other wage index 
exceptions, raises questions regarding whether the current wage index 
is equitably adjusting payments for local input costs of providing 
patient care. One commenter stated that the increasing number of 
hospitals that reclassify is a ``clear indication of the broken 
system'' that needs to be replaced; another commenter requested general 
wage index reform. MedPAC reiterated that recommendations included in 
the Commission's 2007 Report to Congress and similar recommendations 
made by the Institute of Medicine would eliminate the need for the 
system of geographic reclassification and exceptions that is currently 
in place. Specifically, MedPAC recommended that the Congress repeal the 
existing hospital wage index, remove the more than 900 individual 
hospital reclassifications and other exceptions that occur each year, 
and give the Secretary the authority to establish a new wage index 
system.
    Response: We understand the commenters' concerns regarding the high 
volume of MGCRB reclassifications. We appreciate MedPAC's 
recommendation to repeal the current wage index statute. However, 
repealing the wage index statute would require legislative action by 
Congress. Specifically, section 1886(d)(3)(E) of the Act requires that, 
as part of the methodology for determining prospective payments to 
hospitals, the Secretary must adjust the standardized amounts for area 
differences in hospital wage levels by a factor (established by the 
Secretary) reflecting the relative hospital wage level in the 
geographic area of the hospital compared to the national average 
hospital wage level. We also appreciate the other commenters' requests 
for wage index reform. We will take the requests into consideration and 
may address this issue again in future rulemaking.
    Applications for FY 2019 reclassifications are due to the MGCRB by 
September 1, 2017 (the first working day of September 2017). 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

[[Page 38144]]

reclassifications may be obtained, beginning in mid-July 2017, 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 previous regulations at 42 CFR 412.256(a)(1), applications 
for reclassification were required to be mailed or delivered to the 
MGCRB, with a copy to CMS, and were not allowed to be submitted through 
the facsimile (FAX) process or by other electronic means. Because we 
believed this previous policy was outdated and overly restrictive and 
to promote ease of application for FY 2018 and subsequent years, in the 
FY 2017 IPPS/LTCH PPS final rule (81 FR 56928), we revised 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. We revised 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 specified that CMS copies should be sent via email to 
[email protected].
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56928), we 
reiterated that MGCRB application requirements will be published 
separately from the rulemaking process, and paper applications will 
likely still be required. The MGCRB makes all initial determinations 
for geographic reclassification requests, but CMS requests copies of 
all applications to assist in verifying a reclassification status 
during the wage index development process. We stated that we believed 
that requiring electronic versions would better aid CMS in this 
process, and would reduce the overall burden upon hospitals.
    We did not receive any public comments on the requirements for 
applications for FY 2019 reclassifications.
b. Extension of PRA Information Collection Requirement Approval for 
MGCRB Applications
    As stated earlier, 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 
the regulations under 42 CFR 412.230 through 412.280. The information 
collection requirements for the MGCRB procedures and criteria and 
supporting regulations in 42 CFR 412.256 subject to the Paperwork 
Reduction Act provisions were approved under OMB Control Number 0938-
0573 and expired on February 28, 2017. As discussed in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19906 and 19907), an extension of 
the collection was required in time for applications due to the MGCRB 
by September 1, 2017 for FY 2019 reclassifications. A request for an 
extension of the information collection requirements for the MGCRB 
procedures and criteria and supporting regulations received approval by 
OMB on June 30, 2017, and can be accessed at: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201612-0938-023.
c. Deadline for Submittal of Documentation of Sole Community Hospital 
(SCH) and Rural Referral Center (RRC) Classification Status to the 
MGCRB
    The regulations at 42 CFR 412.230(a)(3), consistent with section 
1886(d)(10)(D)(i)(III) of the Act, set special rules for sole community 
hospitals (SCHs) and rural referral centers (RRCs) that are 
reclassifying under the MGCRB. Specifically, a hospital that is an RRC 
or an SCH, or both, does not have to demonstrate a close proximity to 
the area to which it seeks redesignation. If a hospital that is an RRC 
or an SCH, or both, qualifies for urban redesignation, it is 
redesignated to the urban area that is closest to the hospital. If the 
hospital is closer to another rural area than to any urban area, it may 
seek redesignation to either the closest rural or the closest urban 
area.
    In addition, section 1886(d)(10)(D)(iii) of the Act, as implemented 
in the regulations at Sec.  412.230(d)(3)(i), provides an exception to 
certain wage comparison criteria for RRCs and former RRCs reclassifying 
under the MGCRB. Under Sec.  412.230(d)(3)(i), if a hospital was ever 
an RRC, it does not have to demonstrate that it meets the average 
hourly wage criterion at Sec.  412.230(d)(1)(iii), which would require 
that the hospital's average hourly wage be at least 106 percent for 
rural hospitals and at least 108 percent for urban hospitals of the 
average hourly wage of all other hospitals in the area in which the 
hospital is located. Rather, as codified at Sec.  412.230(d)(3)(ii), 
consistent with our authority under section 1886(d)(10)(D)(i) of the 
Act, if a hospital was ever an RRC, it is required to meet only the 
criterion for rural hospitals at Sec.  412.230(d)(1)(iv), which 
requires that the hospital's average hourly wage is equal to at least 
82 percent of the average hourly wage of hospitals in the area to which 
it seeks redesignation. The regulations at Sec.  412.96 set forth the 
criteria that a hospital must meet in order to qualify as an RRC.
    For a hospital to use the special rules at Sec.  412.230(a)(3) for 
SCHs and RRCs, the existing regulation at Sec.  412.230(a)(3) requires 
that the hospital be an active SCH or an RRC as of the date of the 
MGCRB's review. In addition, for a hospital to use the RRC exceptions 
at Sec.  412.230(d)(3), a hospital must either be an RRC at the time of 
the MGCRB's review or have previously been classified as an RRC in the 
past. In other words, under the existing regulations, if a hospital is 
approved by CMS as an SCH or an RRC but the approval is not yet 
effective at the time of the MGCRB's review, the hospital's status as 
an SCH or an RRC would not be considered in the MGCRB's decision, 
unless the hospital was a former RRC, in which case it would be able to 
use the RRC exceptions at Sec.  412.230(d)(3).
    The MGCRB currently accepts supporting documentation of SCH and RRC 
classification (including, but not limited to, the CMS approval letter) 
up until the date of MGCRB's review, which varies annually. A hospital 
may apply at any time for classification as an SCH, and the 
classification is effective 30 days after the date of CMS' written 
notification of approval, in accordance with Sec.  412.92. Considering 
that the MGCRB usually meets in early February, hospitals typically 
seek to obtain SCH approval letters no later than early January (30 
days prior to the date of MGCRB review) for the SCH status to be 
effective as of the date of the MGCRB's review. However, consistent 
with section 1886(d)(5)(C)(i) of the Act, a hospital must submit its 
application for RRC status during the quarter before the first quarter 
of the hospital's cost reporting period, to be effective at the 
beginning of the next cost reporting period. The existing regulation at 
Sec.  412.230(a)(3), combined with the statutory timeframe for RRC 
classification, require that a hospital's cost reporting period as an 
RRC begin on or before the date of the MGCRB's review in order to be 
considered an RRC by the MGCRB for purposes of the special rules under 
Sec.  412.230(a)(3). Similarly, in order to use the RRC exceptions 
under Sec.  412.230(d)(3), a hospital's RRC status must be effective on 
the date of the MGCRB's review, or (unlike Sec.  412.230(a)(3)) the 
hospital must have had RRC status in the past. For example, a hospital 
with a cost

[[Page 38145]]

reporting period beginning in March would obtain RRC approval, in 
accordance with the statutory timeframe, during the December through 
February quarter (potentially before the MGCRB's decision), but would 
not be considered an RRC by the MGCRB because the approval would not be 
effective until the next cost reporting period begins in March, after 
the MGCRB's decision (unless, for purposes of Sec.  412.230(d)(3), the 
hospital had previously been classified as an RRC in the past).
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19907 through 19908), the current practice of accepting documentation 
of SCH and RRC approvals up until the date of MGCRB review does not 
ensure adequate time for the MGCRB to include SCH and RRC approvals in 
its review. We noted in the proposed rule that many hospitals now 
obtain SCH or RRC status based on a Sec.  412.103 reclassification in 
order to reclassify using the special rules and exceptions under the 
MGCRB following the April 21, 2016 IFC (81 FR 23428), which revised the 
regulations to allow hospitals nationwide to reclassify based on 
acquired rural status. We stated in the proposed rule that we believe 
the additional volume of SCH and RRC approvals submitted to the MGCRB 
increases the need for an earlier deadline for documentation of SCH and 
RRC classifications to be submitted to the MGCRB for purposes of the 
special rules at Sec.  412.230(a)(3) and the exception for RRCs at 
Sec.  412.230(d)(3). In addition, because the date of the MGCRB's 
review varies annually, we stated in the proposed rule that we believe 
hospitals would benefit from the certainty of a set date by which 
documentation of RRC or SCH status must be submitted in order to have 
that status considered by the MGCRB under Sec.  412.230(a)(3) and Sec.  
412.230(d)(3).
    Therefore, to ensure sufficient time for the MGCRB to include SCH 
and RRC status approvals in its review and increase clarity for 
hospitals, while allowing as much time and flexibility as possible for 
hospitals applying for RRC status to be considered RRCs by the MGCRB, 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19907 through 19908), 
we proposed to revise the regulations at Sec.  412.230(a)(3) and Sec.  
412.230(d)(3). We proposed to revise the regulations at Sec.  
412.230(a)(3) in two ways. First, we proposed to establish a deadline 
of the first business day after January 1 for hospitals to submit to 
the MGCRB documentation of SCH or RRC status approval (the CMS approval 
letter) in order to take advantage of the special rules under Sec.  
412.230(a)(3) when reclassifying under the MGCRB. We stated that we 
believe that this date of the first business day after January 1 would 
provide sufficient time for the MGCRB to consider documentation of SCH 
or RRC status approval in its review, without negatively affecting 
hospitals seeking to obtain SCH or RRC status, as explained below. 
Second, we proposed to revise Sec.  412.230(a)(3) to require hospitals 
to submit documentation of SCH or RRC status approval (the CMS approval 
letter) by the deadline above, rather than to have SCH or RRC 
classification that is effective as of the date of MGCRB review, in 
order to use the special rules for SCHs and RRCs under Sec.  
412.230(a)(3). Likewise, we proposed to revise the regulations at Sec.  
412.230(d)(3) so that a hospital qualifies for these RRC exceptions if 
it was ever approved as a RRC. In other words, the exceptions at Sec.  
412.230(d)(3) would continue to apply to hospitals that were ever 
classified as RRCs, but consistent with our authority under section 
1886(d)(10)(D)(i) of the Act to publish guidelines to be utilized by 
the MGCRB, we proposed to also extend these exceptions to hospitals 
that were ever approved as RRCs. Similar to Sec.  412.230(a)(3), we 
also proposed to establish a deadline of the first business day after 
January 1 for hospitals to submit documentation of RRC status approval 
(the CMS approval letter) in order to take advantage of the exception 
under Sec.  412.230(d)(3) when reclassifying under the MGCRB. We stated 
in the proposed rule that these proposed revisions would more 
appropriately allow the MGCRB to prepare for its review and would allow 
hospitals obtaining SCH or RRC status approval as late as the first 
business day after January 1 to have these classifications considered 
by the MGCRB under Sec.  412.230(a)(3) and (d)(3), irrespective of the 
effective date of these classifications. We stated that these proposals 
would not substantially affect hospitals seeking SCH classification for 
purposes of reclassifying under the MGCRB because a hospital must 
obtain SCH status approval by early January under the existing 
regulation in order to have that classification effective 30 days later 
by the time the Board usually meets in early February. For hospitals 
seeking RRC classification for purposes of reclassifying under the 
MGCRB, however, the proposed deadline of no later than the first 
business day after January 1, in concert with our proposal to accept 
documentation of approval (the CMS approval letter) instead of 
requiring the hospital to be an active RRC at the time of the MGCRB 
review in order to take advantage of the special rules and exceptions 
under Sec.  412.230(a)(3) and (d)(3), is beneficial. We stated that the 
proposed revisions to the regulations at Sec.  412.230(a)(3) and (d)(3) 
would accommodate more hospitals with various cost reporting year ends 
by allowing hospitals with cost reporting periods beginning soon after 
the MGCRB's decision to have RRC status approvals included in the 
MGCRB's review. Under the proposals, the MGCRB would consider an RRC 
status approval obtained as late as the first business day after 
January 1 instead of requiring the RRC classification to be effective 
by the time the Board meets, which has been in February in past years. 
For example, under our proposal, a hospital with a cost reporting 
period beginning as late as March, which could apply for RRC status 
approval in accordance with the statutory timeframe starting in 
December, would be considered an RRC by the MGCRB if it submits 
documentation of approval of RRC status no later than the first 
business day after January 1, even though the approval would not be 
effective until after the MGCRB's decision.
    For the reasons discussed earlier, consistent with our authority 
under section 1886(d)(10)(D)(i) of the Act to publish guidelines to be 
utilized by the MGCRB, we proposed to revise the regulations at Sec.  
412.230(a)(3) to specify that, to be redesignated under the special 
rules in that paragraph, the hospital must submit documentation of the 
approval of SCH or RRC status to the MGCRB no later than the first 
business day after January 1. In addition, we proposed conforming 
revisions to paragraphs (a)(3)(i) and (ii) of Sec.  412.230 to reflect 
that these paragraphs apply to hospitals with SCH and RRC approval as 
specified above (and not only effective status). Specifically, we 
proposed to revise Sec.  412.230(a)(3)(i) to specify that a hospital 
that is approved as an RRC or SCH, or both, does not have to 
demonstrate a close proximity to the area to which it seeks 
redesignation; and to revise Sec.  412.230(a)(3)(ii) to specify that 
this paragraph applies if a hospital that is approved as an RRC or SCH, 
or both, qualifies for urban redesignation. We note that we proposed 
additional revisions to Sec.  412.230(a)(3)(ii) as discussed in section 
III.I.2.d. of the preamble of the proposed rule and this final rule.
    In addition, for the reasons discussed above, consistent with our 
authority under section 1886(d)(10)(D)(i) of the

[[Page 38146]]

Act to publish guidelines to be utilized by the MGCRB, we proposed to 
revise the regulations at Sec.  412.230(d)(3). Specifically, we 
proposed to add introductory language to Sec.  412.230(d)(3) to specify 
that for the exceptions in this paragraph to apply, the hospital must 
submit documentation of the approval of RRC status (current or past) to 
the MGCRB no later than the first business day after January 1. In 
addition, we proposed to revise Sec.  412.230(d)(3)(i) to specify that 
if a hospital was ever approved as an RRC, it does not have to 
demonstrate that it meets the average hourly wage criterion set forth 
in Sec.  412.230(d)(1)(iii); and to revise Sec.  412.230(d)(3)(ii) to 
specify that if a hospital was ever approved as an RRC, it is required 
to meet only the criterion that applies to rural hospitals under Sec.  
412.230(d)(1)(iv), regardless of its actual location in an urban or 
rural area.
    We invited public comments on these proposals.
    Comment: One commenter did not disagree with the establishment of a 
deadline for submitting documentation of SCH and RRC status to the 
MGCRB because the commenter believed that the proposed deadline will 
provide clarity to hospitals, the MGCRB, and CMS in this process and 
will ensure adequate time for the MGCRB to include SCH and RRC 
approvals in its review. However, the commenter urged CMS to also 
establish a deadline of 30 days from receipt of request for SCH or RRC 
status for CMS to respond. The commenter pointed out that while the 
regulations specify effective dates for SCH and RRC status, the 
regulations do not set a timeframe by which CMS must rule on an SCH or 
RRC request. Therefore, the commenter stated, a hospital may face 
uncertainty that CMS will respond to its request for SCH or RRC status 
by the first business day in January, in time to submit to the MGCRB. 
According to the commenter, absent a defined timeframe within which CMS 
must respond to hospitals' requests for SCH and RRC status, hospitals 
face a disadvantage in complying with the deadline of the first 
business day in January for submitting documentation of SCH and RRC 
status to the MGCRB.
    Response: We appreciate the commenter's support for our effort to 
provide clarity to all parties. The commenter is correct that the 
regulations do not set a timeframe by which CMS must rule on an SCH or 
RRC request. However, under section 1886(d)(5)(C)(i) of the Act, CMS 
must make a final determination on a request for RRC status within 60 
days after the date the request was submitted. We agree with the 
commenter that, depending on the timeframe within which SCH and RRC 
status approvals are issued, hospitals may face a disadvantage in 
complying with the proposed deadline to submit SCH and RRC 
documentation to the MGCRB. Thus, we believe that further consideration 
is needed regarding the appropriate timeframe for such approvals to 
avoid the disadvantage cited by the commenter. Accordingly, for FY 
2018, we are not finalizing the proposed deadline of the first business 
day after January 1 for hospitals to submit documentation of SCH and 
RRC status to the MGCRB. We may revisit the deadline for submitting 
documentation to the MGCRB in future rulemaking to give us the 
opportunity to further consider the timeframe for CMS to respond to 
applications for SCH and RRC status.
    However, we believe that the proposal to require that a hospital 
must be approved for SCH or RRC status, rather than have active RRC or 
SCH status, in order to use the special rules for SCHs and RRCs and 
exceptions for RRCs under Sec. Sec.  412.230(a)(3) and (d)(3), remains 
beneficial for hospitals. While we are still concerned with providing 
the MGCRB sufficient time to include SCH and RRC status approval in its 
review, we believe finalizing our proposal to require that a hospital 
be approved for SCH or RRC status, rather than have active RRC or SCH 
status, in order to use the special rules for SCHs and RRCs and 
exceptions for RRCs under Sec. Sec.  412.230(a)(3) and (d)(3) is 
appropriate because it provides flexibility and accommodates more 
hospitals. Therefore, as discussed further below, we are finalizing our 
proposed changes to the regulations to specify that a hospital must be 
approved as an SCH or RRC at the date of the MGCRB's review, 
irrespective of effective date of SCH or RRC status. While 
documentation of SCH and RRC status approval may include the CMS 
approval letter, we are clarifying that other documents could also 
serve this purpose as determined by the MGCRB, and that documentation 
in addition to the CMS approval letter may be required. Questions about 
acceptable supporting documentation should be directed to the MGCRB at 
410-786-1174.
    After consideration of the public comment we received, for the 
reasons discussed earlier, we are not finalizing our proposed revisions 
to the regulations at Sec. Sec.  412.230(a)(3) and (d)(3) to establish 
a deadline of the first business day after January 1 for hospitals to 
submit documentation of SCH and RRC status approval to the MGCRB. 
However, consistent with our authority under section 1886(d)(10)(D)(i) 
to publish guidelines to be used by the MGCRB, for the reasons 
discussed earlier and in the FY 2018 IPPS/LTCH PPS proposed rule, we 
are finalizing our proposal that a hospital must be approved for SCH or 
RRC status, rather than have active SCH or RRC status in order to use 
the special rules for SCHs and RRCs and exceptions for RRCs under 
Sec. Sec.  412.230(a)(3) and (d)(3). Specifically, we are revising the 
regulation at Sec.  412.230(a)(3) to specify that, to be redesignated 
under the special rules in this paragraph, a hospital must be approved 
as an SCH or RRC as of the date of the MGCRB's review. In addition, we 
are finalizing, without modification, our proposed revisions to 
paragraphs (a)(3)(i) and (ii) of Sec.  412.230 to reflect that these 
paragraphs apply to hospitals with SCH and RRC approval (and not only 
effective status). Specifically, we are revising Sec.  412.230(a)(3)(i) 
to specify that a hospital that is approved as an RRC or SCH, or both, 
does not have to demonstrate a close proximity to the area to which it 
seeks redesignation; and revising Sec.  412.230(a)(3)(ii) to specify 
that this paragraph applies if a hospital that is approved as an RRC or 
SCH, or both, qualifies for urban redesignation. (We note that we are 
making additional revisions to Sec.  412.230(a)(3)(ii) as discussed in 
section III.I.2.d. of the preamble of this final rule).
    In addition, for the reasons discussed earlier, while we are not 
finalizing our proposed introductory language at Sec.  412.230(d)(3), 
we are finalizing our proposed revisions to paragraphs (d)(3)(i) and 
(ii) of Sec.  412.230, without modification, to reflect that these 
paragraphs apply to hospitals with RRC approval (and not only effective 
status). Specifically, we are revising Sec.  412.230(d)(3)(i) to 
specify that if a hospital was ever approved as an RRC, it does not 
have to demonstrate that it meets the average hourly wage criterion set 
forth in Sec.  412.230(d)(1)(iii); and revising Sec.  412.230(d)(3)(ii) 
to specify that if a hospital was ever approved as an RRC, it is 
required to meet only the criterion that applies to rural hospitals 
under Sec.  412.230(d)(1)(iv), regardless of its actual location in an 
urban or rural area.
d. Clarification of Special Rules for SCHs and RRCs Reclassifying to 
Geographic Home Area
    Following issuance of the April 21, 2016 IFC (81 FR 23428), 
hospitals may simultaneously be redesignated as rural under Sec.  
412.103 and reclassified under the MGCRB. An urban hospital seeking

[[Page 38147]]

benefits of rural status, such as rural payments for disproportionate 
share hospitals (DSH) and eligibility for the 340B Drug Pricing Program 
administered by HRSA, without the associated rural wage index may be 
redesignated as rural under Sec.  412.103 (if it meets the applicable 
requirements) and also reclassify under the MGCRB to an urban area 
(again, if it meets the applicable requirements). As discussed earlier 
and in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56922 through 
56927), a hospital with simultaneous Sec.  412.103 redesignation and 
MGCRB reclassification receives the wage index of the CBSA to which it 
is reclassified under the MGCRB while still maintaining Sec.  412.103 
reclassified rural status for other purposes.
    Hospitals that are redesignated under Sec.  412.103 may seek MGCRB 
reclassification to their geographic home area. Such hospitals 
automatically meet the criteria for proximity, but must still 
demonstrate that they meet the wage comparison requirements using the 
criteria for rural hospitals at Sec.  412.230(d). Specifically, a 
hospital with a Sec.  412.103 redesignation seeking reclassification 
under the MGCRB must demonstrate that its average hourly wage is at 
least 106 percent of the average hourly wage of all other hospitals in 
the area in which the hospital is located in accordance with Sec.  
412.230(d)(1)(iii), and the hospital's average hourly wage is equal to 
at least 82 percent of the average hourly wage of hospitals in the area 
to which it seeks redesignation, in accordance with Sec.  
412.230(d)(1)(iv). In this case, both the area in which the hospital is 
located and the area to which it seeks redesignation are the geographic 
home area. If a hospital with a Sec.  412.103 rural redesignation also 
has SCH or RRC status based on its acquired rural status, the hospital 
may use the exception at Sec.  412.230(d)(3) for RRCs seeking 
reclassification under the MGCRB and the special reclassification rules 
at Sec.  412.230(a)(3) for SCHs and RRCs. Specifically, under Sec.  
412.230(d)(3)(ii), an RRC or former RRC must only demonstrate that its 
average hourly wage is equal to at least 82 percent of the average 
hourly wage of hospitals in the area to which it seeks redesignation. 
In other words, a hospital with RRC status based on a Sec.  412.103 
rural redesignation that is seeking additional reclassification under 
the MGCRB to its geographic home area must only demonstrate that its 
average hourly wage is equal to at least 82 percent of the average 
hourly wage of hospitals in its geographic home area. The proximity 
requirement is waived under Sec.  412.230(a)(3) for SCHs and RRCs, and 
SCHs and RRCs are redesignated to the urban area that is closest to the 
hospital (or if the hospital is closer to another rural area than to 
any urban area, it may seek redesignation to either the closest rural 
area or the closest urban area).
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19908 through 19909), the existing regulation at Sec.  
412.230(a)(3)(ii) states that if an SCH or RRC qualifies for urban 
redesignation, it is redesignated to the urban area that is closest to 
the hospital. As currently worded, we believe it is unclear how this 
provision would apply to a hospital with a Sec.  412.103 rural 
redesignation and SCH or RRC status. If the urban area that is closest 
to the hospital is interpreted to mean the hospital's geographic home 
area, a hospital with a Sec.  412.103 rural redesignation and SCH or 
RRC status would not be able to reclassify to any closest area outside 
of the hospital's geographic home area, but would only be allowed to 
reclassify to the geographic home area. Alternatively, if the urban 
area that is closest to the hospital is interpreted to mean the closest 
urban area to the hospital's geographic home area, the hospital would 
seem to be precluded from reclassifying under the MGCRB to its 
geographic home area. In other words, under the existing language of 
this regulation, the urban area that is closest to the hospital can 
either be interpreted to mean the hospital's geographic home area, or 
the closest area outside of the hospital's geographic home area.
    In the FY 2018 IPS/LTCH PPS proposed rule (82 FR 19909), we stated 
that we believe it would be appropriate to revise Sec.  
412.230(a)(3)(ii) to clarify that it allows for redesignation to either 
the hospital's geographic home area or to the closest area outside of 
the hospital's geographic home area. Prior to the April 21, 2016 
interim final rule with comment period (IFC) (81 FR 23428), it was not 
possible for a hospital with Sec.  412.103 rural redesignation to seek 
reclassification to its geographic home area or to the closest area 
outside its geographic home area under the MGCRB because dual 
reclassification under Sec.  412.103 and under the MGCRB was not 
permitted. However, the IFC allowed dual Sec.  412.103 and MGCRB 
reclassifications, so a hospital may now reclassify to a rural area 
under Sec.  412.103 and then reclassify back to its geographic home 
area or another area under the MGCRB for wage index purposes (if it 
meets all criteria). Thus, depending on the circumstances, a hospital 
may seek to reclassify to either its geographic home area or the 
closest area outside of its geographic home area.
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19909), we proposed to revise the regulations at Sec.  
412.230(a)(3)(ii) to clarify that a hospital with a Sec.  412.103 rural 
redesignation and SCH or RRC approval may reclassify under the MGCRB to 
its geographic home area or to the closest area outside of its 
geographic home area. Specifically, we proposed to revise Sec.  
412.230(a)(3)(ii) to state that if a hospital that is approved as an 
RRC or an SCH, or both, qualifies for urban redesignation, it is 
redesignated to the urban area that is closest to the hospital or to 
the hospital's geographic home area. If the hospital is closer to 
another rural area than to any urban area, it may seek redesignation to 
either the closest rural or the closest urban area.
    Comment: Two commenters supported the clarification in the proposed 
rule and stated that it provides clarity with respect to SCHs and RRCs 
with Sec.  412.103 rural redesignation applying for MGCRB 
reclassification based on special access rules. In addition, the 
commenters stated that the proposed regulatory revision is consistent 
with the regulations, past administrative decisions, and CMS' policy of 
allowing a hospital with Sec.  412.103 rural redesignation to 
reclassify under the MGCRB.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, for the 
reasons discussed earlier and in the FY 2018 IPPS/LTCH PPS proposed 
rule, we are finalizing, without modification, our proposed revision of 
Sec.  412.230(a)(3)(ii) to clarify that a hospital with a Sec.  412.103 
rural redesignation and SCH or RRC approval may reclassify under the 
MGCRB to its geographic home area or to the closest area outside of its 
geographic home area.
3. Redesignations Under Section 1886(d)(8)(B) of the Act
    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 effective for the 
fiscal year in which the hospital receives the out-migration 
adjustment. In addition, we adopted a minor procedural change that 
would allow a Lugar hospital that qualifies for and accepts the out-
migration adjustment (through written notification to CMS within 45 
days from

[[Page 38148]]

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. 
(We note that, in section III.I.4. of the preamble of this final rule, 
we finalized a policy revision to require a Lugar hospital that 
qualifies for and accepts the out-migration adjustment, or that no 
longer wishes to accept the out-migration adjustment and instead elects 
to return to its deemed urban status, to notify CMS within 45 days from 
the date of public display of the proposed rule at the Office of the 
Federal Register.) 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. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56930), we 
again clarified that such a request to waive Lugar status, received 
within 45 days of the publication of the proposed rule, is valid for 
the full 3-year period for which the hospital's out-migration 
adjustment is effective. We further clarified that if a hospital wishes 
to reinstate its urban status for any fiscal year within this 3-year 
period, it must send a request to CMS within 45 days of publication of 
the proposed rule for that particular fiscal year. We indicated that 
such reinstatement requests may be sent electronically to 
[email protected]. We wish to further clarify that both requests to 
waive and to reinstate ``Lugar'' status may be sent to this mailbox. To 
ensure proper accounting, we request hospitals to include their CCN, 
and either ``waive Lugar'' or ``reinstate Lugar'', in the subject line 
of these requests. As noted earlier, and discussed further in section 
III.I.4. of this final rule, we are finalizing our proposal to revise 
these notification timeframes, effective October 1, 2017, to 45 days 
from the date of public display of the annual proposed rule.
    We did not receive any public comments on this subject area in the 
proposed rule.
4. Changes to the 45-Day Notification Rules
    Certain Medicare regulations specify that hospitals have 45 days 
from the publication of the annual proposed rule for the hospital 
inpatient prospective payment system to inform CMS or the MGCRB of 
certain requested reclassification/redesignation and out-migration 
adjustment changes relating to the development of the hospital wage 
index. Specifically, 42 CFR 412.64(i)(3)(iii), which provides for 
adjusting the wage index to account for commuting patterns of hospital 
workers, and 42 CFR 412.211(f)(3)(iii), which provides for the same 
adjustment for hospitals in Puerto Rico, state that a hospital may 
waive the application of this wage index adjustment by notifying CMS in 
writing within 45 days after the publication of the annual notice of 
proposed rulemaking for the hospital inpatient prospective payment 
system. The regulations at Sec.  412.273(c) concerning withdrawing an 
MGCRB application, terminating an approved 3-year reclassification, or 
canceling a previous withdrawal or termination, also state 
(specifically Sec.  412.273(c)(1)(ii) and (2)) that a request for 
withdrawal or termination must be received by the MGCRB within 45 days 
of publication of CMS' annual notice of proposed rulemaking concerning 
changes to the inpatient hospital prospective payment system and 
proposed payment rates. Similarly, the policy outlined in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51599 through 51600) allows a Lugar 
hospital that qualifies for and accepts the out-migration adjustment, 
or that no longer wishes to accept the out-migration adjustment and 
instead elects to return to its deemed urban status to notify CMS 
within 45 days from the publication of the proposed rule.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19910), we 
proposed to revise the above described regulation text and policies as 
follows to specify that written notification to CMS or the MGCRB (as 
applicable) must be provided within 45 days from the date of public 
display of the annual proposed rule for the hospital inpatient 
prospective payment system at the Office of the Federal Register. We 
stated that we believe that the public has access to the necessary 
information from the date of public display of the proposed rule at the 
Office of the Federal Register and on its Web site in order to make the 
decisions at issue. Specifically, we proposed to revise the regulations 
at Sec.  412.64(i)(3)(iii) and Sec.  412.211(f)(3)(iii) to provide that 
a hospital may waive the application of the wage index adjustment by 
notifying CMS within 45 days of the date of public display of the 
annual notice of proposed rulemaking for the hospital inpatient 
prospective payment system at the Office of the Federal Register. In 
addition, we proposed to revise the regulations at Sec.  
412.273(c)(1)(ii) and (c)(2) to provide that a request for withdrawal 
or termination of an MGCRB reclassification must be received by the 
MGCRB within 45 days of the date of public display at the Office of the 
Federal Register of the annual notice of proposed rulemaking concerning 
changes to the inpatient hospital prospective payment system and 
proposed payment rates for the fiscal year for which the application 
has been filed (in the case of a withdrawal under Sec.  
412.273(c)(1)(ii)), or for the fiscal year for which the termination is 
to apply (under Sec.  412.273(c)(2)). We also proposed to revise our 
policy outlined in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 
through 51600) (as described above) to require a Lugar hospital that 
qualifies for and accepts the out-migration adjustment, or that no 
longer wishes to accept the out-migration adjustment and instead elects 
to return to its deemed urban status to notify CMS within 45 days from 
the date of public display of the IPPS proposed rule at the Office of 
the Federal Register. We invited public comments on these proposals.
    We did not receive any public comments on the proposed revisions to 
Sec.  412.64(i)(3)(iii) or Sec.  412.211(f)(3)(iii) with regard to the 
time period for hospitals to notify CMS of decisions about the out-
migration adjustment, or with regard to the proposed revision to the 
policy outlined in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 
through 51600) concerning the time period for notifications by Lugar 
hospitals regarding acceptance or nonacceptance of the out-migration 
adjustment. However, we did receive public comments on our proposed 
revisions to Sec.  412.273(c)(1)(ii) and (c)(2) regarding the time 
period to request withdrawal or termination of an MGCRB 
reclassification. These comments are summarized below.
    Comment: Several commenters disagreed with the proposal to change 
the 45-day notification requirement for MGCRB withdrawals and 
terminations. They stated that 45 days from the date of public display 
at the Office of the Federal Register would not give hospitals adequate 
time to review the applicable data. The commenters pointed out that the 
proposal would decrease the time period for providers to act by 
approximately 14 days, which they claimed would ``unnecessarily 
disadvantage'' hospitals in making the most beneficial reclassification 
determinations for their wage index. In addition, a few commenters 
presented scenarios whereby the proposal may require hospitals to 
submit withdrawal or termination requests to the MGCRB prior to the 
Administrator's decisions on MGCRB appeals. The commenters recommended 
that CMS maintain its existing policy of 45 days after the proposed 
rule is issued in the Federal Register for hospitals to request

[[Page 38149]]

withdrawal and termination of MGCRB reclassifications. One commenter 
suggested that CMS also allow for an extension of the current deadline 
to ensure providers have at least 15 days from the issuance of a CMS 
Administrator decision to make withdrawal and termination requests.
    Response: While the commenters are correct that requiring hospitals 
to submit withdrawal or termination requests to the MGCRB within 45 
days from the date of public display, rather than the date the proposed 
rule is issued in the Federal Register, reduces the time for hospitals 
to make such determinations, we do not agree that hospitals generally 
would have inadequate time to review the applicable data. As discussed 
in the proposed rule (82 FR 19910), we believe that the public has 
access to the necessary information from the date of public display of 
the proposed rule at the Office of the Federal Register and on its Web 
site in order to make the decisions at issue under our proposals. 
However, while we believe that hospitals generally would have adequate 
time to make reclassification determinations under the proposal, we 
acknowledge that hospitals may be disadvantaged if the Administrator's 
decision on a hospital's appeal of an MGCRB decision has not been 
issued prior to the proposed deadline for submitting withdrawal or 
termination requests to the MGCRB. Specifically, the regulations at 
Sec. Sec.  412.278(a) and (b)(1) provide that a hospital may request 
the Administrator to review the MGCRB decision, and that such request 
must be received by the Administrator within 15 days after the date the 
MGCRB issues its decision. Under Sec.  412.278(f)(2)(i), the 
Administrator issues a decision not later than 90 days following 
receipt of the party's request for review (except that the 
Administrator may, it his or her discretion, for good cause shown, toll 
such 90 days). Considering the usual dates of the MGCRB's decisions 
(generally early February) and of the public display of the IPPS 
proposed rule, the maximum amount of time for an Administrator's 
decision to be issued may potentially extend beyond the proposed 
deadline of 45 days from the date of public display. Therefore, in 
order to further consider whether our proposed revisions to Sec.  
412.273(c) may require hospitals to submit withdrawal or termination 
requests to the MGCRB before the Administrator's decision on an appeal 
is issued, we are not finalizing at this time our proposed change to 
the 45-day notification rule at Sec.  412.273(c)(1)(ii) and (c)(2) for 
requesting withdrawals and terminations of MGCRB reclassifications. 
However, after consideration of these comments, we are revising our 
regulations at Sec. Sec.  412.273(c)(1)(ii) and (c)(2) to ensure that 
our current policy under those regulations is clear. Specifically, we 
are revising Sec. Sec.  412.273(c)(1)(ii) and (c)(2) to clarify that, 
under these regulations, a hospital's request to withdraw or terminate 
an MGCRB reclassification must be received by the MGCRB within 45 days 
of the date the annual notice of proposed rulemaking is issued in the 
Federal Register. We believe that these revisions will provide for 
greater clarification regarding how these provisions are applied. We 
note that we are not providing for an extension of the current deadline 
as one commenter suggested to allow providers to have at least 15 days 
from the issuance of a CMS Administrator decision to withdraw or 
terminate an MGCRB reclassification because we do not believe that an 
extension is necessary under the current deadline under Sec. Sec.  
412.273(c)(1)(ii) and (c)(2). Under the current deadline, a hospital 
can plan its withdrawal or termination decisions for both potential 
alternatives of the Administrator's decision on its appeal, and then 
act immediately within the current 45-day timeframe as soon as the 
Administrator's decision either to affirm or reverse the MGCRB's 
decision is issued.
    Comment: One commenter stated that CMS' policy that hospitals must 
request to withdraw or terminate MGCRB reclassifications within 45 days 
of the proposed rule is problematic because a hospital could terminate 
a reclassification based on information in the proposed rule and, with 
the publication of the final rule, discover that its original 
reclassified status was more desirable. The commenter stated that 
hospitals cannot make informed decisions concerning their 
reclassification status based on values in a proposed rule that are 
likely to change and, therefore, recommended that CMS revise its 
existing policy to permit hospitals to withdraw or terminate their 
reclassification status within 45 days after the publication of the 
final rule.
    Response: We maintain that information provided in the proposed 
rule constitutes the best available data to assist hospitals in making 
reclassification decisions. In addition, section 1886(d)(8)(D) of the 
Act requires the Secretary to adjust the standardized amounts to ensure 
that aggregate payments under the IPPS after implementation of the 
provisions of certain sections of the Act, including section 
1886(d)(10) of the Act for geographic reclassifications by the MGCRB, 
are equal to the aggregate prospective payments that would have been 
made absent these provisions. If hospitals were to withdraw or 
terminate reclassification statuses after the final rule, as the 
commenter suggested CMS permit, any resulting changes in the wage index 
would not have been taken into account when calculating the IPPS 
standardized amounts in the final rule in accordance with the statutory 
budget neutrality requirement. Therefore, the values published in the 
final rule represent the final wage index values reflective of 
reclassification decisions.
    While we are not finalizing, for the reasons discussed earlier, the 
proposed changes to Sec.  412.273(c)(1)(ii) and (c)(2) concerning the 
time period for requesting withdrawals and terminations of MGCRB 
reclassifications, we are finalizing, without modification, our 
proposed changes to Sec.  412.64(i)(3)(iii) and Sec.  
412.211(f)(3)(iii) regarding the 45-day requirement for notifying CMS 
of decisions to waive application of the out-migration adjustment, and 
our proposed change to the policy outlined in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51599 through 51600) concerning the time period for 
notifications by Lugar hospitals regarding acceptance or nonacceptance 
of the out-migration adjustment. Unlike MGCRB decisions under Sec.  
412.278, out-migration adjustment and Lugar status decisions are not 
subject to Administrator's review. Therefore, hospitals deciding to 
waive the out-migration adjustment under Sec.  412.64(i)(3)(iii) or 
Sec.  412.211(f)(3)(iii) or Lugar hospitals deciding to accept or 
decline the out-migration adjustment would not experience the same 
potential disadvantage from implementation of the proposed revisions to 
the 45-day notification rules. For decisions regarding the out-
migration adjustment and Lugar status, we continue to believe that the 
public has access to the necessary information from the date of public 
display of the proposed rule at the Office of the Federal Register and 
on its Web site in order to make decisions. Therefore, we believe that 
it is appropriate to finalize without modification our proposed changes 
to Sec.  412.64(i)(3)(iii) and Sec.  412.211(f)(3)(iii) and our 
proposed change to the policy outlined in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51599 through 51600) as discussed earlier.
    In addition, as a courtesy, we will post on the CMS Web site at 
https://www.cms.gov/Medicare/Medicare-Fee-

[[Page 38150]]

for-Service-Payment/AcuteInpatientPPS/wageindex.html the calendar 
closing dates of the 45-day notification deadlines for waiving the out-
migration adjustment, for Lugar hospitals to notify CMS regarding 
acceptance or nonacceptance of the out-migration adjustment, and for 
requesting withdrawal or termination of an MGCRB reclassification. We 
note that the MGCRB is independent of CMS and that the deadline for 
withdrawals and terminations of MGCRB reclassifications posted on CMS' 
Web site will be posted as a courtesy only. The MGCRB makes the final 
decision regarding the date of the deadline and whether a request for 
withdrawal or termination is timely. The public should confirm the 
deadline for withdrawals and terminations of MGCRB reclassifications 
with the MGCRB.
    After consideration of the public comments we received, for the 
reasons discussed earlier and in the FY 2018 IPPS/LTCH PPS proposed 
rule, we are finalizing, without modification, the proposed changes to 
the regulations at Sec.  412.64(i)(3)(iii) and Sec.  412.211(f)(3)(iii) 
to provide that hospitals may waive the application of the out-
migration wage index adjustment within 45 days of the date of public 
display of the annual notice of proposed rulemaking for the hospital 
inpatient prospective payment system at the Office of the Federal 
Register. We also are finalizing, without modification, the proposed 
changes to the policy outlined in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51599 through 51600), so that a Lugar hospital that qualifies 
for and accepts the out-migration adjustment, or that no longer wishes 
to accept the out-migration adjustment and instead elects to return to 
its deemed urban status, must notify CMS within 45 days from the date 
of public display of the IPPS proposed rule at the Office of the 
Federal Register. For the reasons discussed earlier, we are not 
finalizing, as proposed, the changes to the regulations at Sec.  
412.273(c)(1)(ii) and (c)(2) concerning the timeframe for submitting a 
request to the MGCRB to withdraw or terminate an MGCRB 
reclassification. Rather, we are revising the regulations at Sec.  
412.273(c)(1)(ii) and Sec.  412.273(c)(2) to clarify our current policy 
under these regulations that a request for withdrawal or termination of 
an MGCRB reclassification must be received by the MGCRB within 45 days 
of the date the annual notice of proposed rulemaking is issued in the 
Federal Register. Accordingly, a request for withdrawal or termination 
of an MGCRB reclassification must still be received by the MGCRB within 
45 days of issuance in the Federal Register of CMS' annual notice of 
proposed rulemaking concerning changes to the inpatient hospital 
prospective payment system and proposed payment rates. Finally, as 
discussed earlier, as a courtesy (and independent of the MGCRB), we 
will begin posting on the CMS Web site the annual calendar dates of the 
45-day notification deadlines for (1) hospitals to notify CMS that they 
are waiving the out-migration adjustment; (2) Lugar hospitals to notify 
CMS that they qualify for and accept the out-migration adjustment or no 
longer wish to accept the outmigration adjustment and elect instead to 
return to deemed urban status; and (3) hospitals to request from the 
MGCRB withdrawal or termination of an MGCRB reclassification.

J. Out-Migration Adjustment Based on Commuting Patterns of Hospital 
Employees

    In accordance with section 1886(d)(13) of the Act, as added by 
section 505 of Public Law 108-173, beginning with FY 2005, we 
established a process to make adjustments to the hospital wage index 
based on commuting patterns of hospital employees (the ``out-
migration'' adjustment). The process, outlined in the FY 2005 IPPS 
final rule (69 FR 49061), provides for an increase in the wage index 
for hospitals located in certain counties that have a relatively high 
percentage of hospital employees who reside in the county but work in a 
different county (or counties) with a higher wage index. 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 and FY 2017 IPPS/
LTCH PPS final rules (80 FR 49501 and 81 FR 56930, respectively), the 
same policies, procedures, and computation that were used for the FY 
2012 out-migration adjustment were applicable for FY 2016 and FY 2017, 
and in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19910), we 
proposed to use them again for FY 2018. We have applied the same 
policies, procedures, and computations since FY 2012, and we believe 
they continue to be appropriate for FY 2018. 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 2018, 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 2018, we 
did not propose any changes to the methodology or data source that we 
used for FY 2016 (81 FR 25071). (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).) We did not receive any 
public comments regarding the FY 2018 out-migration adjustment. Thus, 
for the reasons discussed earlier and in the FY 2018 IPPS/LTCH PPS 
proposed rule, we are finalizing, without modification, our proposed 
policies, procedures, methodology, and computation for the out-
migration adjustment. Table 2 associated with this final rule (which is 
available via the Internet on the CMS Web site) includes the final out-
migration adjustments for the FY 2018 wage index.

[[Page 38151]]

K. Reclassification From Urban to Rural Under Section 1886(d)(8)(E) of 
the Act, Implemented at 42 CFR 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. 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 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.
    Therefore, after notice of proposed rulemaking and consideration of 
public comments, in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56931 
through 56932), we revised Sec.  412.103(b) by adding paragraph (6) to 
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. We refer 
readers to the FY 2017 IPPS/LTCH PPS final rule for a full discussion 
of this policy. We clarified that the lock-in date does not affect the 
timing of payment changes occurring at the hospital-specific level as a 
result of reclassification from urban to rural under Sec.  412.103. 
This lock-in date also does not change the current regulation that 
allows hospitals that qualify under Sec.  412.103(a) to request, at any 
time during a cost reporting period, to reclassify from urban to rural. 
A hospital's rural status and claims payment reflecting its rural 
status continue to be effective on the filing date of its 
reclassification application, which is the date the CMS Regional Office 
receives the application, in accordance with Sec.  412.103(d). The 
hospital's IPPS claims will be paid reflecting its rural status on the 
filing date (the effective date) of the reclassification, regardless of 
when the hospital applies.
    Comment: One commenter suggested that CMS' current policy that the 
effective date of an urban to rural reclassification under Sec.  
412.103 is the date the application is received by CMS be revised to 
allow flexibility for a later date. Specifically, the commenter 
requested that CMS allow hospitals to ask for an effective date anytime 
from the date the application is received until up to 60 days after the 
receipt of the application, to help hospitals that experience a short-
term reduction in payment from obtaining rural status before becoming 
eligible for increased payment at a later time. The commenter stated 
that amending the regulation in this way would accommodate the various 
reasons why hospitals request rural status and will be more consistent 
with the statutory language at section 1886(d)(8)(E) of the Act which 
provides that the Secretary shall treat a hospital as rural ``not later 
than 60 days after the receipt of an application.''
    Response: We did not propose any such revisions to the policy at 
Sec.  412.103 in the FY 2018 IPPS/LTCH PPS proposed rule, but instead 
explained and clarified our existing policy. We appreciate the comments 
and may consider the commenter's request in future rulemaking.

L. Clarification of Application Deadline for Rural Referral Center 
(RRC) Classification

    Section 1886(d)(5)(C)(i) of the Act, implemented at 42 CFR 412.96, 
provides for the classification and special treatment of rural referral 
centers (RRCs). The regulations at Sec.  412.96 set forth the criteria 
that a hospital must meet in order to qualify as an RRC. Under Sec.  
412.96(b)(1)(ii), a hospital may qualify as an RRC if it is located in 
a rural area and has 275 or more beds during its most recently 
completed cost reporting period. The hospital also can obtain RRC 
status by showing that at least 50 percent of its Medicare patients are 
referred from other hospitals or from physicians not on the staff of 
the hospital, and at least 60 percent of the hospital's Medicare 
patients live more than 25 miles from the hospital, and at least 60 
percent of all the services that the hospital furnishes to Medicare 
beneficiaries are furnished to beneficiaries who live more than 25 
miles from the hospital (Sec.  412.96(b)(2)), or by showing that the 
hospital meets the alternative criteria at Sec.  412.96(c). We refer 
readers to 42 CFR 412.96 for a full description of the criteria for 
classification as an RRC.
    Consistent with section 1886(d)(5)(C)(i) of the Act, the hospital 
must submit its application for RRC status during the last quarter of 
the hospital's cost reporting period, to be effective with the 
beginning of the next cost reporting period. Specifically, section 
1886(d)(5)(C)(i) of the Act provides that an appeal allowed under this 
paragraph must be submitted to the Secretary (in such form and manner 
as the Secretary may prescribe) during the quarter before the first 
quarter of the hospital's cost reporting period (or, in the case of a 
cost reporting period beginning during October 1984, during the first 
quarter of that period), and the Secretary must make a final 
determination with respect to such appeal within 60 days after the date 
the appeal was submitted. Any payment adjustments necessitated by a 
reclassification based upon the appeal will be effective at the 
beginning of such cost reporting period. Therefore, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19911), we clarified that 
applications for RRC status must be submitted during this timeframe. 
That is, applications for RRC status must be submitted during the last 
quarter of the cost reporting period before the first quarter of a 
hospital's cost reporting year. If approved, the RRC status is 
effective with the beginning of the hospital's cost reporting period 
occurring after the last quarter of the cost reporting period in which 
the hospital submits an application.
    We also clarified in the proposed rule that, while RRC applications 
must be submitted only within the timeframe described above, 
applications for urban-to-rural reclassification under Sec.  412.103 
may be submitted at any time for the hospital to be approved for rural 
reclassification. This includes hospitals seeking rural 
reclassification under Sec.  412.103(a)(3), which states that a 
hospital meets criteria for urban-to-rural

[[Page 38152]]

reclassification if the hospital would qualify as a RRC as set forth in 
Sec.  412.96, or as an SCH as set forth in Sec.  412.92, if the 
hospital were located in a rural area. A hospital seeking RRC status 
based on a rural reclassification under Sec.  412.103, including Sec.  
412.103(a)(3), must still submit an application for RRC status during 
the last quarter of its cost reporting year before the next cost 
reporting period in accordance with section 1886(d)(5)(C)(i) of the 
Act. While the Sec.  412.103 rural redesignation would be effective as 
of the date of filing the application, in accordance with Sec.  
412.103(d), the RRC status would be effective beginning with the 
hospital's cost reporting period occurring after the last quarter of 
the cost reporting period in which the hospital submits an application. 
Because a hospital may only apply for RRC status during the last 
quarter of its cost reporting year in accordance with section 
1886(d)(5)(C)(i) of the Act, hospitals seeking RRC status, in order to 
reclassify through the MGCRB using the special rules for SCHs and RRCs 
at Sec.  412.230(a)(3) and the exceptions at Sec.  412.230(d)(3) for 
RRCs, may be disadvantaged due to their cost reporting year end. As 
discussed in section III.I.2. of the preamble of the proposed rule, we 
proposed to revise the regulations at Sec.  412.230(a)(3) and (d)(3) to 
allow hospitals to submit documentation of the approval of SCH or RRC 
status (as applicable) to the MGCRB no later than the first business 
day after January 1. We stated in the proposed rule that we believe our 
proposal to accept documentation of approval of RRC classification, 
instead of requiring that the hospital be classified as a RRC at the 
time of Board review, would accommodate more hospitals with various 
cost reporting period endings. We refer readers to section III.I.2. of 
the preamble of the proposed rule for further discussion of this 
proposal. We note that, as discussed in section III.I.2. of the 
preamble of this final rule, while we are finalizing our proposal that 
a hospital must be approved for SCH or RRC status, rather than have 
active SCH or RRC status, in order to use the special rules for SCHs 
and RRCs and the exceptions for RRCs under Sec.  412.230(a)(3) and 
(d)(3), we are not finalizing our proposal to establish a deadline of 
the first business day after January 1 for hospitals to submit 
documentation of SCH and RRC status approval to the MGCRB.
    Comment: One commenter agreed that the specific timing is required 
by the statutory language, but argued that CMS is applying a 
``restrictive interpretation'' of the RRC application timing 
requirements so that there is not a level playing field based solely on 
cost report year-ends. The commenter suggested an interpretation of the 
statute that it believes could allow hospitals seeking to obtain RRC 
status for the purposes of an MGCRB application to be considered RRCs 
even outside of the statutory timeframe. Specifically, the commenter 
pointed to section 1886(d)(10)(D)(iii) of the Act, which states that, 
in the case of a hospital that has ever been classified by the 
Secretary as rural referral center, the MGCRB may not reject the 
application on the basis of any comparison between the average hourly 
wage of the hospital and the average hourly wage of hospitals in the 
area in which it is located. According to the commenter, CMS' 
determination that a hospital meets the rural redesignation 
requirements under Sec.  412.103(a)(3) (that is, the hospital would 
qualify as an RRC if it were located in a rural area) could be 
considered sufficient classification to trigger the exemption from the 
home area wage test and application of the special access rules.
    Response: As discussed earlier, and as noted by the commenter, the 
timeframe for applying for RRC status is set forth in the statute. We 
recognize that certain hospitals may be disadvantaged due to their cost 
reporting year end, and for that reason we proposed, and are finalizing 
(as discussed in section III.I.2. of the preamble of this final rule) 
revisions to the regulations at Sec.  412.230(a)(3) and (d)(3) to 
reflect that these paragraphs apply to hospitals with RRC approval (and 
not only effective status).
    We do not agree with the commenter that CMS' determination under 
Sec.  412.103(a)(3) that a hospital would qualify for RRC status if the 
hospital were located in a rural area (which is one condition under 
which a hospital can qualify for Sec.  412.103 rural redesignation) is 
considered RRC classification. In fact, hospitals may obtain rural 
reclassification under Sec.  412.103(a)(3), but not subsequently obtain 
RRC status. Therefore, we do not believe that such a determination 
under Sec.  412.103(a)(3) is sufficient to satisfy the requirements at 
section 1886(d)(10)(D)(iii) of the Act.

M. Process for Requests for Wage Index Data Corrections

1. Process for Hospitals To Request Wage Index Data Corrections
    The preliminary, unaudited Worksheet S-3 wage data files for the 
proposed FY 2018 wage index were made available on May 16, 2016, and 
the preliminary CY 2013 occupational mix data files on May 16, 2016, 
through the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-Wage-Index-Home-Page.html.
    On January 30, 2017, we posted a public use file (PUF) at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-Wage-Index-Home-Page.html containing FY 2018 wage index data available as of January 
29, 2017. 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, 2013 through 
September 30, 2014; that is, FY 2014 wage data), a tab with the 
occupational mix data (which includes data from the CY 2013 
occupational mix survey, Form CMS-10079), a tab containing the 
Worksheet S-3 wage data of hospitals deleted from the January 30, 2017 
wage data PUF, and a tab containing the CY 2013 occupational mix data 
(if any) of the hospitals deleted from the January 30, 2017 wage data 
PUF. In a memorandum dated January 27, 2017, we instructed all MACs to 
inform the IPPS hospitals that they service of the availability of the 
January 30, 2017 wage index data PUFs, and the process and timeframe 
for requesting revisions in accordance with the FY 2018 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 May 16, 2016, 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. We also instructed the MACs to advise hospitals that these 
data were also made available directly through their representative 
hospital organizations.
    If a hospital wished to request a change to its data as shown in 
the May

[[Page 38153]]

16, 2016 wage data files and the May 16, 2016 occupational mix data 
files, the hospital had to submit corrections along with complete, 
detailed supporting documentation to its MAC by September 2, 2016. 
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, 2016 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 2017 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 20, 2017. 
CMS published the wage index PUFs that included hospitals' revised wage 
index data on January 30, 2017. Hospitals had until February 17, 2017, 
to submit requests to the MACs for reconsideration of adjustments made 
by the MACs as a result of the desk review, and to correct errors due 
to CMS' or the MAC's mishandling of the wage index data. Hospitals also 
were required to submit sufficient documentation to support their 
requests.
    After reviewing requested changes submitted by hospitals, MACs were 
required to transmit to CMS any additional revisions resulting from the 
hospitals' reconsideration requests by March 24, 2017. Under our 
current policy, the deadline for a hospital to request CMS intervention 
in cases where a hospital disagreed with a MAC's policy interpretation 
was April 5, 2017. As discussed in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19912), beginning next year (that is, April 2018 for wage 
data revisions for the FY 2019 wage index), we proposed to require that 
a hospital that seeks to challenge the MAC's handling of wage data on 
any basis (including a policy, factual, or any other dispute) must 
request CMS to intervene by the date in April that is specified as the 
deadline for hospitals to appeal MAC determinations and request CMS' 
intervention in cases where the hospital disagrees with the MAC's 
determination (the wage index timetable would be updated to reflect the 
specified date). We note that, as we did for the FY 2017 wage index, 
for the FY 2018 wage index, in accordance with the FY 2018 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/FY2018-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.
    We did not receive any public comments regarding our proposal 
discussed above. Therefore, we are finalizing our proposal, without 
modification, to require that, beginning next year (that is, April 2018 
for wage data revisions for the FY 2019 wage index), a hospital that 
seeks to challenge the MAC's handling of wage data on any basis 
(including a policy, factual, or any other dispute) must request CMS to 
intervene by the date in April that is specified as the deadline for 
hospitals to appeal MAC determinations and request CMS' intervention in 
cases where the hospital disagrees with the MAC's determination (as we 
stated above and in the proposed rule, the wage index timetable will be 
updated to reflect the specified date).
    Hospitals were given the opportunity to examine Table 2, which was 
listed in section VI. of the Addendum to the proposed rule and 
available via the Internet on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-Wage-Index-Home-Page.html. Table 2 associated with 
the proposed rule contained each hospital's proposed adjusted average 
hourly wage used to construct the wage index values for the past 3 
years, including the FY 2014 data used to construct the proposed FY 
2018 wage index. We noted in the proposed rule (82 FR 19912) 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 early 
February 2017.
    We posted the final wage index data PUFs on April 28, 2017 on the 
Internet at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY2018-Wage-Index-Home-Page.html. The April 2017 PUFs were 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, 2017).
    After the release of the April 2017 wage index data PUFs, changes 
to the wage and occupational mix data could only be made in those very 
limited situations involving an error by the MAC or CMS that the 
hospital could not have known about before its review of the final wage 
index data files. Specifically, neither the MAC nor CMS will approve 
the following types of requests:
     Requests for wage index data corrections that were 
submitted too late to be included in the data transmitted to CMS by the 
MACs on or before March 24, 2017.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the January 30, 
2017 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 2017 final wage index data PUFs, a 
hospital believed that its wage or occupational mix data were incorrect 
due to a MAC or CMS error in the entry or tabulation of the final data, 
the hospital was given the opportunity to notify both its MAC and CMS 
regarding why the hospital believed an error exists and provide all 
supporting information, including relevant dates (for example, when it 
first became aware of the error). The hospital was required to send its 
request to CMS and to the MAC no later than May 30, 2017. Similar to 
the April appeals, beginning with the FY 2015 wage index, in accordance 
with the FY 2018 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/FY2018-Wage-Index-Home-Page.html, the May appeals were required to be sent via mail and email 
to CMS and the MACs. We refer readers to the wage index timeline for 
complete details.
    Verified corrections to the wage index data received timely by CMS 
and the MACs (that is, by May 30, 2017) were incorporated into the 
final FY 2018 wage index in this FY 2018 IPPS/LTCH PPS final rule, 
which is effective October 1, 2017.
    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 2018 payment rates. 
Accordingly, hospitals that did not meet the procedural deadlines set 
forth above will not be afforded a later opportunity to submit wage 
index data corrections or to dispute the MAC's decision with respect to 
requested changes. Specifically, our policy is that hospitals that do 
not meet the procedural deadlines set forth earlier (requiring requests 
to MACs by the specified date in February and, where such requests are 
unsuccessful,

[[Page 38154]]

requests for intervention by CMS by the specified date in April) 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 had access to the final wage index data 
PUFs by late April 2017, they had the opportunity to detect any data 
entry or tabulation errors made by the MAC or CMS before the 
development and publication of the final FY 2018 wage index by August 
2017, and the implementation of the FY 2018 wage index on October 1, 
2017. 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 30, 
2017, 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 30, 2017 for the FY 2018 
wage index). This provision is not available to a hospital seeking to 
revise another hospital's data that may be affecting the requesting 
hospital's wage index for the labor market area. As indicated earlier, 
because CMS makes the wage index data available to hospitals on the CMS 
Web site prior to publishing both the proposed and final IPPS rules, 
and the MACs notify hospitals directly of any wage index data changes 
after completing their desk reviews, we do not expect that midyear 
corrections will be necessary. However, under our current policy, if 
the correction of a data error changes the wage index value for an 
area, the revised wage index value will be effective prospectively from 
the date the correction is made.
    In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 
47485), we revised 42 CFR 412.64(k)(2) to specify that, effective on 
October 1, 2005, that is, beginning with the FY 2006 wage index, a 
change to the wage index can be made retroactive to the beginning of 
the Federal fiscal year only when CMS determines all of the following: 
(1) The MAC or CMS made an error in tabulating data used for the wage 
index calculation; (2) the hospital knew about the error and requested 
that the MAC and CMS correct the error using the established process 
and within the established schedule for requesting corrections to the 
wage index data, before the beginning of the fiscal year for the 
applicable IPPS update (that is, by the May 30, 2017 deadline for the 
FY 2018 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 30, 2017 deadline for the FY 2018 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.
2. Process for Data Corrections by CMS After the January Public Use 
File (PUF)
    The process set forth with the wage index timeline discussed in 
section III.M.1. of the preamble of this final rule allows hospitals to 
request corrections to their wage index data within prescribed 
timeframes. In addition to hospitals' opportunity to request 
corrections of wage index data errors or MACs' mishandling of data, CMS 
has the authority under section 1886(d)(3)(E) of the Act to make 
corrections to hospital wage index and occupational mix data in order 
to ensure the accuracy of the wage index. As we explained in the FY 
2016 IPPS/LTCH PPS final rule (80 FR 49490 through 49491) and the FY 
2017 IPPS/LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of 
the Act requires the Secretary to adjust the proportion of hospitals' 
costs attributable to wages and wage-related costs for area differences 
reflecting the relative hospital wage level in the geographic areas of 
the hospital compared to the national average hospital wage level. As 
discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19913 
through 19915), we believe that, under section 1886(d)(3)(E) of the 
Act, we have discretion to make corrections to hospitals' data to help 
ensure that the costs attributable to wages and wage-related costs in 
fact accurately reflect the relative hospital wage level in the 
hospitals' geographic areas.
    We have an established multistep, 15-month process for the review 
and correction of the hospital wage data that is used to create the 
IPPS wage index for the upcoming fiscal year. Since the origin of the 
IPPS, the wage index has been subject to its own annual review process, 
first by the MACs, and then by CMS. As a standard practice, after each 
annual desk review, CMS reviews the results of the MACs' desk reviews 
and focuses on items flagged during the desk review, requiring that, if 
necessary, hospitals provide additional documentation, adjustments, or 
corrections to the data. This ongoing communication with hospitals 
about their wage data may result in the discovery by CMS of additional 
items that were reported incorrectly or other data errors, even after 
the posting of the January PUF, and throughout the remainder of the 
wage index development process. In addition, the fact that CMS analyzes 
the data from a regional and even national level, unlike the review 
performed by the MACs that review a limited subset of hospitals, can 
facilitate additional editing of the data that may not be readily 
apparent to the MACs. In these occasional instances, an error may be of 
sufficient magnitude that the wage index of an entire CBSA is affected. 
Accordingly, CMS uses its authority to ensure that the wage index 
accurately reflects the relative hospital wage level in the geographic 
area of the

[[Page 38155]]

hospital compared to the national average hospital wage level, by 
continuing to make corrections to hospital wage data upon discovering 
incorrect wage data, distinct from instances in which hospitals request 
data revisions.
    We note that CMS corrects errors to hospital wage data as 
appropriate, regardless of whether that correction will raise or lower 
a hospital's average hourly wage. For example, as discussed in section 
III.D.2. of the preamble of the proposed rule (82 FR 19900 through 
19902), in the calculation of the proposed FY 2018 wage index, upon 
discovering that hospitals reported other wage-related costs on Line 18 
of Worksheet S-3, despite those other wage-related costs failing to 
meet the requirement that other wage related costs must exceed 1 
percent of total adjusted salaries net of excluded area salaries, CMS 
made internal edits to remove those other wage-related costs from Line 
18. Conversely, if CMS discovers after conclusion of the desk review, 
for example, that a MAC inadvertently failed to incorporate positive 
adjustments resulting from a prior year's wage index appeal to a 
hospital's wage related costs such as pension, CMS would correct that 
data error and the hospital's average hourly wage would likely increase 
as a result.
    While we maintain CMS' authority to conduct additional review and 
make resulting corrections at any time during the wage index 
development process, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19914), we proposed a process for hospitals to request further review 
of a correction made by CMS starting with the FY 2019 wage index. In 
order to allow opportunity for input from hospitals concerning 
corrections made by CMS after the posting of the January PUF, we 
proposed a process similar to the existing process in which hospitals 
may request corrections to wage index data displayed in the January 
PUF. We stated in the proposed rule that instances where CMS makes a 
correction to a hospital's data after the January PUF based on a 
different understanding than the hospital about certain reported costs, 
for example, could potentially be resolved using this proposed process 
before the final wage index is calculated. We stated that we believe 
this proposed process and timeline (as described below) would bring 
additional transparency to instances where CMS makes data corrections 
after the January PUF, and would provide opportunities for hospitals to 
request further review of CMS changes in time for the most accurate 
data to be reflected in the final wage index calculations.
    Effective beginning with the FY 2019 wage index development cycle, 
we proposed to use existing appeal deadlines (in place for hospitals to 
appeal determinations made by the MAC during the desk review process) 
for hospitals to dispute corrections made by CMS after posting of the 
January PUF that do not arise from a hospital request for a wage data 
revision. Starting with the April appeal deadline, hospitals would use 
the soonest approaching appeal deadline to dispute any adjustments made 
by CMS. However, if a hospital was notified of an adjustment within 14 
days of an appeal deadline, the hospital would have until the next 
appeal deadline to dispute any adjustments. We believe this would give 
hospitals sufficient time to prepare an appeal of adjustments made by 
CMS after the January PUF. Specifically, for any adjustments made by 
CMS between the date the January PUF is posted and at least 14 calendar 
days before the April appeals deadline, we proposed that hospitals 
would have until the April appeals deadline (which, for example, is 
April 5 in the FY 2018 Wage Index Timetable) to dispute the 
adjustments. For any adjustments made by CMS between 13 calendar days 
before the April appeals deadline and 14 calendar days before the May 
appeals deadline, we proposed that hospitals would have until the May 
appeals deadline (which, for example, is May 30 in the FY 2018 Wage 
Index Timetable) to dispute the adjustments. In cases where hospitals 
disagree with CMS adjustments of which they were notified 13 calendar 
days before the May appeals deadline or later, the hospitals could 
appeal to the PRRB with no need for further review by CMS before such 
appeal.
    We are using dates from the FY 2018 Wage Index Timetable in the 
following example which was included in the proposed rule at 82 FR 
19914 (we reiterate that this appeals process would be effective 
beginning with the FY 2019 wage index cycle, but for illustrative 
purposes, we are using dates from the FY 2018 Wage Index Timetable, the 
most recently published wage index timetable): A hospital that is 
notified by the MAC or CMS of an adjustment to its wage data after the 
release of the January 30, 2017 PUF could use the April 5, 2017 appeals 
deadline to dispute the adjustment. If the hospital is notified of an 
adjustment by CMS or the MAC to its wage data after March 22, 2017 
(that is, less than 14 days prior to the April 5 appeals deadline), it 
could use the May 30, 2017 appeals deadline to dispute the adjustment. 
If the hospital is first notified about the adjustment after May 16, 
2017 (that is, less than 14 days prior to the May 30 deadline), and 
disagrees with the adjustment, the hospital could appeal directly to 
the PRRB.
    As with the existing process for requesting wage data corrections, 
we proposed that a hospital disputing an adjustment made by CMS after 
the posting of the January PUF would be required to request a 
correction by the first applicable deadline. For example, using the FY 
2018 Wage Index Timetable for illustrative purposes only, if a hospital 
was notified on March 20 of an adjustment to its data by CMS and did 
not appeal by April 5, the hospital would not be able to appeal by May 
30 or bring the case before the PRRB. That is, hospitals that do not 
meet the procedural deadlines set forth earlier would not be afforded a 
later opportunity to submit wage index data corrections or to dispute 
CMS' decision with respect to requested changes. As with the existing 
process for hospitals to request wage data corrections, our policy is 
that hospitals that do not meet the procedural deadlines set forth 
earlier would not be permitted to challenge later, before the PRRB, the 
failure of CMS to make a requested data revision.
    In summary, under the statute, CMS has discretion to make 
corrections and revisions to hospitals' wage data throughout the 
multistep wage index development process, and we proposed a pathway for 
hospitals to request additional review of corrections to their wage 
data made by CMS. Beginning with the development of the FY 2019 wage 
index, we proposed a process whereby CMS could continue to correct data 
after the posting of the January PUF, while allowing hospitals to 
appeal changes made by CMS using existing deadlines from the process 
for hospitals to request wage data corrections. As with the existing 
process, a hospital would be required to appeal by the first applicable 
deadline, if relevant, to maintain the right to appeal to the PRRB to 
dispute a correction to its wage data made by CMS.
    We invited public comments on our proposals.
    Comment: Several commenters stated that CMS is proposing to limit 
the time a provider has to dispute an adjustment once the January PUF 
is posted. The commenters stated that, currently, hospitals have 1 
month to request corrections for errors in the April 28 PUF. They 
maintained that the reduced timelines will require hospitals to review 
the posted PUF immediately to

[[Page 38156]]

ensure that the data are correct and take any necessary action to 
correct. The commenters also noted that CMS has taken a more active 
role in recent years in performing additional data analysis that 
results in follow-up questions or requests to hospitals for supporting 
data, which require time for hospitals to develop a response. One 
commenter stated that, by reducing time, CMS will be placing an 
administrative hardship on hospitals while they attempt to respond to 
detailed audit requests. Some of the commenters were ``deeply 
concerned'' that the short timeline CMS proposed to respond to detailed 
requests will not allow for comprehensive analysis and a thorough 
response. One commenter specifically requested that the dispute process 
be expanded to 28 days prior to the appeal deadline, instead of the 
proposed 14 days, to give hospitals enough time to collect data and 
respond in a timely manner.
    Response: We believe that the commenters misunderstood our proposal 
as a change to the current process for hospitals to request wage data 
corrections, rather than an additional process for disputing 
corrections made by CMS after the January PUF that do not arise from a 
hospital's request for wage data revisions. Under our proposal, 
hospitals would still have approximately 1 month to request corrections 
for errors in the April 28 PUF, in accordance with the wage index 
timetable. Our proposal would create an additional process for 
hospitals to appeal adjustments or corrections made by CMS or the MAC 
after the normal desk review timeframe that do not arise from a 
hospital's request for wage data revisions. Therefore, we do not agree 
that this proposal requires hospitals to review the posted PUF any 
earlier than hospitals would do so under the current policy, or that it 
constitutes administrative hardship. Furthermore, we believe that, 
rather than limiting hospitals, our proposal would provide additional 
transparency and opportunities for hospitals to request further review 
of CMS changes made after the January PUF where there is currently no 
such established process.
    Regarding the concerns that the proposed timeline is too short and 
the suggestion that CMS expand the 14-day timeline to 28 days, we 
continue to believe that our proposed timeline would give hospitals 
sufficient time to prepare an appeal of adjustments made by CMS after 
the January PUF. We believe that a hospital that was notified of an 
adjustment at least 2 weeks before the upcoming deadline has enough 
time to prepare an appeal by the upcoming deadline. Specifically, 
starting with the April appeal deadline, hospitals would use the 
soonest approaching appeal deadline to dispute any adjustments made by 
CMS. However, if a hospital was notified of an adjustment within 14 
days of an appeal deadline, the hospital would have until the next 
appeal deadline to dispute any adjustments.
    Comment: One commenter did not state a position on the proposal but 
expressed the following concerns: First, that CMS should add the 
particulars of this appeal process to the existing FY 2019 Wage Index 
Timeline that is published and made available online each year by CMS; 
second, that most adjustments to the wage data made by CMS on a routine 
basis be performed much earlier in the process than these April and May 
appeal deadlines, so that the proposed appeal process would be reserved 
for ``rare and unusual circumstances requiring CMS' intervention and 
adjustment to the data.'' Specifically, this commenter stated that it 
would oppose a policy that gives CMS the latitude to indiscriminately 
make adjustments to the hospital wage data this late in the process 
where that adjustment was known of far ahead of time and/or could have 
easily been made earlier in the process.
    Response: We appreciate the commenter's concerns and suggestions. 
In response to the commenter's first suggestion, we intend to add the 
particulars of this appeal process to the existing Wage Index Timeline 
that is published and made available online each year by CMS. Second, 
while we maintain CMS' authority under section 1886(d)(3)(E) of the Act 
to make corrections to hospitals' data to help ensure the accuracy of 
the wage index, we note that routine adjustments to the wage data that 
are known of far ahead of time and/or could easily be made earlier in 
the process will continue to be performed earlier in the process than 
these April and May appeal deadlines.
    After consideration of the public comments we received, for the 
reasons discussed earlier and in the FY 2018 IPPS/LTCH PPS proposed 
rule, we are finalizing, without modification, our proposed process for 
hospitals to dispute data corrections made by CMS after the January PUF 
that do not arise from a hospital's request for wage data revisions. 
Effective beginning with the FY 2019 wage index development cycle, we 
will use existing appeal deadlines (in place for hospitals to appeal 
determinations made by the MAC during the desk review process) for 
hospitals to dispute corrections made by CMS after posting of the 
January PUF that do not arise from a hospital request for a wage data 
revisions. Starting with the April appeal deadline, hospitals must use 
the soonest approaching appeal deadline to dispute any adjustments made 
by CMS. However, if a hospital is notified of an adjustment within 14 
days of an appeal deadline, the hospital has until the next appeal 
deadline to dispute any adjustments, as discussed earlier. As with the 
existing process for requesting wage data corrections, a hospital 
disputing an adjustment made by CMS after the posting of the January 
PUF will be required to request a correction by the first applicable 
deadline. For example, using the FY 2018 Wage Index Timetable for 
illustrative purposes only, if a hospital was notified on March 20 of 
an adjustment to its data by CMS and did not appeal by April 5, the 
hospital would not be able to appeal by May 30 or bring the case before 
the PRRB. That is, 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 CMS' decision with respect to 
requested changes. Our policy is that hospitals that do not meet the 
procedural deadlines set forth earlier will not be permitted to 
challenge later, before the PRRB, the failure of CMS to make a 
requested data revision.
N. Labor-Market Share for the FY 2018 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

[[Page 38157]]

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, FY 2016, and FY 2017 of 69.6 
percent. In addition, in FY 2014, we implemented this rebased and 
revised 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.
    For FY 2018, as described in section IV. of the preamble of the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 19916 through 19929), we 
proposed to rebase and revise the IPPS market basket reflecting 2014 
data. We also proposed to recalculate the labor-related share for 
discharges occurring on or after October 1, 2017 using the proposed 
2014-based IPPS market basket. As discussed in Appendix A of the 
proposed rule, we proposed this rebased and revised labor-related share 
in a budget neutral manner. However, consistent with section 
1886(d)(3)(E) of the Act, we did not take into account the additional 
payments that would be made as a result of hospitals with a wage index 
less than or equal to 1.0000 being paid using a labor-related share 
lower than the labor-related share of hospitals with a wage index 
greater than 1.0000. We refer readers to section IV. of the preamble of 
this final rule and Appendix A for our finalized policies for the 2014-
based IPPS market basket.
    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. We include a cost category in the labor-related share if the 
costs are labor intensive and vary with the local labor market. As 
described in section IV. of the preamble of the proposed rule, we 
proposed to include in the labor-related share the national average 
proportion of operating costs that are attributable to Wages and 
Salaries, Employee Benefits, Professional Fees: Labor-Related, 
Administrative and Facilities Support Services, Installation, 
Maintenance, and Repair Services, and All Other: Labor-Related Services 
as measured in the proposed 2014-based IPPS market basket. Therefore, 
for FY 2018, we proposed to use a labor-related share of 68.3 percent 
for discharges occurring on or after October 1, 2017.
    We refer readers to section IV.B.3. of the preamble of this final 
rule for a discussion of our recalculation of the labor-related share 
for discharges occurring on or after October 1, 2017 using the 2014-
based IPPS market basket.
    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 2018, we did 
not propose a Puerto Rico-specific labor-related share percentage or a 
nonlabor-related share percentage in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19915).
    Comment: Commenters suggested that CMS consider an approach that 
will mitigate significant decreases in inpatient payments to hospitals 
as a result of the proposed decrease in the labor-related share for FY 
2018.
    Response: As noted earlier, 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. In section IV.B.3. of the preamble of this final rule, 
we discuss our recalculation of the labor-related share for discharges 
occurring on or after October 1, 2017, using the 2014-based IPPS market 
basket. We believe that the labor-related share calculated for FY 2018 
accurately and appropriately reflects the proportion of hospitals' 
costs that are attributable to wages and wage-related costs. Therefore, 
we do not believe it is necessary or appropriate to mitigate the 
effects of the labor-related share percentage finalized in this rule.
    After consideration of the public comments we received, for the 
reasons discussed in section IV.B.3. of the preamble of this final rule 
and in the FY 2018 IPPS/LTCH PPS proposed rule, we are finalizing our 
proposal to use a labor-related share of 68.3 percent for discharges 
occurring on or after October 1, 2017, for all hospitals (including 
Puerto Rico hospitals) whose wage indexes are greater than 1.0000.
    Tables 1A and 1B, which are published in section VI. of the 
Addendum to this FY 2018 IPPS/LTCH PPS final rule and available via the 
Internet on the CMS Web site, reflect the national labor-related share, 
which is also applicable to Puerto Rico hospitals. For FY 2018, for all 
IPPS hospitals (including Puerto Rico hospitals) whose wage indexes are 
less than or equal to 1.0000, we are applying the wage index to a 
labor-related share of 62 percent of the national standardized amount. 
For all hospitals (including Puerto Rico hospitals) whose wage indexes 
are greater than 1.0000, for FY 2018, we are applying the wage index to 
a labor-related share of 68.3 percent of the national standardized 
amount.

[[Page 38158]]

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

A. Background

    Effective for cost reporting periods beginning on or after July 1, 
1979, we developed and adopted a hospital input price index (that is, 
the hospital market basket for operating costs). Although ``market 
basket'' technically describes the mix of goods and services used in 
providing hospital care, this term is also commonly used to denote the 
input price index (that is, cost category weights and price proxies 
combined) derived from that market basket. Accordingly, the term 
``market basket'' as used in this document refers to the hospital input 
price index.
    The percentage change in the market basket reflects the average 
change in the price of goods and services hospitals purchase in order 
to provide inpatient care. We first used the market basket to adjust 
hospital cost limits by an amount that reflected the average increase 
in the prices of the goods and services used to provide hospital 
inpatient care. This approach linked the increase in the cost limits to 
the efficient utilization of resources.
    Since the inception of the IPPS, the projected change in the 
hospital market basket has been the integral component of the update 
factor by which the prospective payment rates are updated every year. 
An explanation of the hospital market basket used to develop the 
prospective payment rates was published in the Federal Register on 
September 1, 1983 (48 FR 39764). We also refer readers to the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50596) in which we discussed the most 
recent previous rebasing of the hospital input price index.
    The hospital market basket is a fixed-weight, Laspeyres-type price 
index. A Laspeyres-type price index measures the change in price, over 
time, of the same mix of goods and services purchased in the base 
period. Any changes in the quantity or mix of goods and services (that 
is, intensity) purchased over time are not measured.
    The index itself is constructed in three steps, which are discussed 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19916 through 19929) 
and in this final rule. First, a base period is selected (in the 
proposed rule, we proposed to use 2014 as the base period) and total 
base period expenditures are estimated for a set of mutually exclusive 
and exhaustive spending categories, with the proportion of total costs 
that each category represents being calculated. These proportions are 
called ``cost weights'' or ``expenditure weights.'' Second, each 
expenditure category is matched to an appropriate price or wage 
variable, referred to as a ``price proxy.'' In almost every instance, 
these price proxies are derived from publicly available statistical 
series that are published on a consistent schedule (preferably at least 
on a quarterly basis). Finally, the expenditure weight for each cost 
category is multiplied by the level of its respective price proxy. The 
sum of these products (that is, the expenditure weights multiplied by 
their price index levels) for all cost categories yields the composite 
index level of the market basket in a given period. Repeating this step 
for other periods produces a series of market basket levels over time. 
Dividing an index level for a given period by an index level for an 
earlier period produces a rate of growth in the input price index over 
that timeframe.
    As noted above, the market basket is described as a fixed-weight 
index because it represents the change in price over time of a constant 
mix (quantity and intensity) of goods and services needed to provide 
hospital services. The effects on total expenditures resulting from 
changes in the mix of goods and services purchased subsequent to the 
base period are not measured. For example, a hospital hiring more 
nurses to accommodate the needs of patients would increase the volume 
of goods and services purchased by the hospital, but would not be 
factored into the price change measured by a fixed-weight hospital 
market basket. Only when the index is rebased would changes in the 
quantity and intensity be captured, with those changes being reflected 
in the cost weights. Therefore, we rebase the market basket 
periodically so that the cost weights reflect recent changes in the mix 
of goods and services that hospitals purchase (hospital inputs) to 
furnish inpatient care between base periods.
    We last rebased the hospital market basket cost weights effective 
for FY 2014 (78 FR 50596), with FY 2010 data used as the base period 
for the construction of the market basket cost weights. For the FY 2018 
IPPS/LTCH PPS proposed rule, we proposed to rebase the cost structure 
for the IPPS hospital index from FY 2010 to 2014, as discussed in the 
proposed rule (82 FR 19916 through 19929) and below in this final rule.

B. Rebasing and Revising the IPPS Market Basket

    The terms ``rebasing'' and ``revising,'' while often used 
interchangeably, actually denote different activities. ``Rebasing'' 
means moving the base year for the structure of costs of an input price 
index (for example, in the proposed rule, we proposed to shift the base 
year cost structure for the IPPS hospital index from FY 2010 to 2014). 
We note that we proposed to no longer refer to the market basket as a 
``FY 2014-based'' market basket and instead referred to the proposed 
market basket as simply ``2014-based''. We proposed this change in 
naming convention for the market basket because the base year cost 
weight data for the proposed market basket does not reflect only fiscal 
year data. For example, the proposed 2014-based IPPS market basket uses 
Medicare cost report data and other government data that reflect 2014 
fiscal year, 2014 calendar year, and 2014 State fiscal year expenses to 
determine the base year cost weights. Given that it is based on a mix 
of classifications of 2014 data, we proposed to refer to the market 
basket as ``2014-based'' instead of ``FY 2014-based'' or ``CY 2014-
based''.
    ``Revising'' means changing data sources or price proxies used in 
the input price index. As published in the FY 2006 IPPS final rule (70 
FR 47387), in accordance with section 404 of Public Law 108-173, CMS 
determined a new frequency for rebasing the hospital market basket. We 
established a rebasing frequency of every 4 years and, therefore, for 
the FY 2018 IPPS update, we proposed to rebase and revise the IPPS 
market basket from FY 2010 to 2014. We invited public comments on our 
proposed methodology. A summary of the public comments we received and 
our responses are included below under the appropriate subject area.
1. Development of Cost Categories and Weights
a. Use of Medicare Cost Report Data
    The major source of expenditure data for developing the proposed 
hospital market basket cost weights is the 2014 Medicare cost reports. 
These 2014 Medicare cost reports are for cost reporting periods 
beginning on and after October 1, 2013 and before October 1, 2014. We 
note that while these dates appear to reflect fiscal year data, in 
order to be classified as a ``2014 cost report,'' a hospital's cost 
reporting period must begin between these dates. For example, we found 
that of the 2014 Medicare cost reports for IPPS hospitals, 
approximately 40 percent of the reports had a begin date on January 1, 
2014, approximately 30 percent had a begin date on July 1, 2014, and 
approximately 18 percent had a begin date on October 1, 2013. For this 
reason, we are defining the base year of the market basket as ``2014-
based'' instead of ``FY 2014-

[[Page 38159]]

based''. We proposed to use 2014 as the base year because we believe 
that the 2014 Medicare cost reports represent the most recent, complete 
set of Medicare cost report data available to develop cost weights for 
IPPS hospitals at the time of rulemaking. As was done in previous 
rebasings, these cost reports are from IPPS hospitals only (hospitals 
excluded from the IPPS and CAHs are not included) and are based on IPPS 
Medicare-allowable operating costs. IPPS Medicare-allowable operating 
costs are costs that are eligible to be paid under the IPPS. For 
example, the IPPS market basket excludes home health agency (HHA) costs 
as these costs would be paid under the HHA PPS and, therefore, these 
costs are not IPPS Medicare-allowable costs.
    We proposed to derive costs for eight major expenditures or cost 
categories for the 2014-based IPPS market basket from the CMS Medicare 
cost reports (Form 2552-10, OMB Control Number 0938-0050): Wages and 
Salaries, Employee Benefits, Contract Labor, Pharmaceuticals, 
Professional Liability Insurance (Malpractice), Blood and Blood 
Products, Home Office Contract Labor, and a residual ``All Other'' 
category. The residual ``All Other'' category reflects all remaining 
costs that are not captured in the other seven cost categories. We 
proposed that, for the 2014-based IPPS market basket, we obtain costs 
for one additional major cost category from the Medicare cost reports 
compared to the FY 2010-based IPPS market basket--Home Office Contract 
Labor Costs. We describe below the detailed methodology for obtaining 
costs for each of the seven cost categories directly determined from 
the Medicare cost reports. We received one specific comment on the 
detailed methodology of the major cost weights, specifically for the 
Home Office Contract Labor cost weight. We address this comment below.
(1) Wages and Salaries Costs
    To derive wages and salaries costs for the Medicare allowable cost 
centers, we proposed to first calculate total unadjusted wages and 
salaries costs as reported on Worksheet S-3, part II. We then proposed 
to remove the wages and salaries attributable to non-Medicare allowable 
cost centers (that is, excluded areas) as well as a portion of overhead 
wages and salaries attributable to these excluded areas. Specifically, 
wages and salaries costs were equal to total wages and salaries as 
reported on Worksheet S-3, Part II, Column 4, Line 1, less excluded 
area wages and salaries (reported on Worksheet S-3, Part II, Column 4, 
Lines 3 and 5 through 10) and less overhead wages and salaries 
attributable to the excluded areas.
    Overhead wages and salaries are attributable to the entire IPPS 
facility. Therefore, we proposed to only include the proportion 
attributable to the Medicare allowable cost centers. We proposed to 
estimate the proportion of overhead wages and salaries that are not 
attributable to Medicare allowable costs centers (that is, excluded 
areas) by multiplying the ratio of excluded area wages and salaries (as 
defined earlier) to total wages and salaries (Worksheet S-3, part II, 
Column 4, Line 1) by total overhead wages and salaries (Worksheet A, 
Column 1, Lines 4 through 18). A similar methodology was used to derive 
wages and salaries costs in the FY 2010-based IPPS market basket.
(2) Employee Benefits Costs
    We proposed to derive employee benefits costs using a similar 
methodology as the wages and salaries costs; that is, reflecting 
employee benefits costs attributable to the Medicare allowable cost 
centers. First, we calculated total unadjusted employee benefits costs 
as the sum of Worksheet S-3, Part II, Column 4, Lines 17, 18, 20, and 
22. We then excluded those employee benefits attributable to the 
overhead wages and salaries for the non-Medicare allowable cost centers 
(that is, excluded areas). Employee benefits attributable to the non-
Medicare allowable cost centers were derived by multiplying the ratio 
of total employee benefits (equal to the sum of Worksheet S-3, Part II, 
Column 4, Lines 17 through 25) to total wages and salaries (Worksheet 
S-3, Part II, Column 4, Line 1) by excluded overhead wages and salaries 
(as derived above for wages and salaries costs). A similar methodology 
was used in the FY 2010-based IPPS market basket.
(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. We proposed to derive contract labor costs for the 
2014-based IPPS market basket as the sum of Worksheet S-3, Part II, 
Column 4, Lines 11, 13 and 15. A similar methodology was used in the FY 
2010-based IPPS market basket.
(4) Professional Liability Insurance Costs
    We proposed 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 S-2, Part I, 
Columns 1 through 3, Line 118.01. A similar methodology was used for 
the FY 2010-based IPPS market basket.
(5) Pharmaceuticals Costs
    We proposed to calculate pharmaceuticals costs using nonsalary 
costs reported for the Pharmacy cost center (Worksheet A, Column 2, 
Line 15) and Drugs Charged to Patients cost center (Worksheet A, Column 
2, Line 73) less estimated employee benefits attributable to these two 
cost centers. We proposed to estimate these employee benefits costs by 
multiplying the ratio of total employee benefits (equal to the sum of 
Worksheet S-3, Part II, Column 4, Lines 17 through 25) to total wages 
and salaries (Worksheet S-3, Part II, Column 4, Line 1) by total wages 
and salaries costs for the Pharmacy and Drugs Charged to Patients cost 
centers (equal to the sum of Worksheet A, Column 1, Lines 15 and 73). A 
similar methodology was used for the FY 2010-based IPPS market basket.
(6) Blood and Blood Products Costs
    We proposed to calculate blood and blood products costs using 
nonsalary costs reported for the Whole Blood & Packed Red Blood Cells 
cost center (Worksheet A, Column 2, Line 62) and the Blood Storing, 
Processing, & Transfusing cost center (Worksheet A, Column 2, Line 63) 
less estimated employee benefits attributable to these two cost 
centers. We estimated these employee benefits costs by multiplying the 
ratio of total employee benefits (equal to the sum of Worksheet S-3, 
Part II, Column 4, Lines 17 through 25) to total wages and salaries 
(Worksheet S3, Part II, Column 4, Line 1) by total wages and salaries 
for the Whole Blood & Packed Red Blood Cells and Blood Storing, 
Processing, & Transfusing cost centers (equal to the sum of Worksheet 
A, Column 1, Lines 62 and 63). A similar methodology was used for the 
FY 2010-based IPPS market basket.
(7) Home Office Contract Labor Costs
    We proposed to determine home office contract labor costs using 
data reported on Worksheet S-3, Part II, Column 4, line 14. 
Specifically, we proposed to determine the Medicare allowable portion 
of these costs by multiplying them by the ratio of total Medicare 
allowable operating costs (as defined in section IV.B.1.b. of the 
preamble to the proposed rule and in section IV.B.1.b. of the preamble 
of this final rule) to total operating costs (calculated as Worksheet 
B, Part I, Column 26, Line 202, less Worksheet B,

[[Page 38160]]

Part I, Column 0, Lines 1 through 3). Home office contract labor costs 
in the FY 2010-based IPPS market basket were calculated using the U.S. 
Census Bureau's Bureau of Economic Analysis (BEA) Benchmark Input-
Output (I-O) data, as described in section IV.B.1.c. of the preamble to 
the proposed rule and in section IV.B.1.c. of the preamble of this 
final rule.
    Comment: One commenter stated that the data reported on Worksheet 
S-3, Part II, Column 4, Line 14 is not specific to home office costs 
but can include costs to other related organizations. The commenter 
recommended that if the intent is to only capture home office costs, 
CMS use a different data source. However, if the intent is to capture 
home office and other related organization costs, the commenter 
recommended that the label applied to the major cost category be 
altered to reflect the actual cost being utilized (for example, Home 
Office/Related Party Contract Labor Costs).
    Response: We agree with the commenter's suggestion to alter the 
label for this cost category. The instructions for the Medicare cost 
report (CMS form 2552-10) in the CMS Provider Reimbursement Manual, 
Part 2 state that the costs included on this line represent salaries 
and wage-related costs paid to 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 
(CMS Pub. 15-2, Section 4005.2). According to the CMS Provider 
Reimbursement Manual, Part 1, an organization is defined as being 
related to the provider when the provider to a significant extent is 
associated or affiliated with, or has control of, or is controlled by, 
the organization furnishing the services, facilities, or supplies (CMS 
Pub 15-1, Section 1002.1).
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19923), the costs included in this proposed category for the 2014-based 
IPPS market basket were previously obtained from the BEA Benchmark I-O 
data using the costs from the NAICS 55 sector (Management of Companies 
or Enterprises). The definition of the NAICS 55 sector from the BLS Web 
site is: (1) Establishments that hold the securities of (or other 
equity interests in) companies and enterprises for the purpose of 
owning a controlling interest or influencing management decisions or 
(2) establishments (except government establishments) that administer, 
oversee, and manage establishments of the company or enterprise and 
that normally undertake the strategic or organizational planning and 
decision-making role of the company or enterprise. Establishments that 
administer, oversee, and manage may hold the securities of the company 
or enterprise. (https://www.bls.gov/iag/tgs/iag55.htm).
    As was done for the FY 2010-based IPPS market basket when we used 
the Benchmark I-O data, to calculate home office contract labor costs 
using the Medicare cost reports, our intent is to capture both home 
office and related organization compensation costs. Our proposed 
methodology of using the Medicare cost report data meets our intention 
and reflects the most current data on these expenses. We appreciate the 
commenter's suggestion and will incorporate this suggestion by 
finalizing the cost category label to be ``Home Office/Related 
Organization Contract Labor'' so it is more consistent with the scope 
of costs included in this category.
b. Final Major Cost Category Computation
    After we derived costs for the seven major cost categories for each 
provider using the Medicare cost report data as previously described, 
we proposed to address data outliers using the following steps. First, 
we divided the costs for each of the seven categories by total Medicare 
allowable operating costs calculated for the provider to obtain cost 
weights for each PPS hospital. We proposed that total Medicare 
allowable operating costs were equal to noncapital costs (Worksheet B, 
part I, Column 26 less Worksheet B, part II, Column 26) that are 
attributable to the Medicare allowable cost centers of the hospital. 
Medicare allowable cost centers were defined as Lines 30 through 35, 
50, 51, 53 through 60, 62 through 76, 90, 91, 92.01 and 93.
    For all of the major cost weights except the Home Office Contract 
Labor cost weight, we then removed those providers whose derived cost 
weights fall in the top and bottom 5 percent of provider-specific cost 
weights to ensure the removal of outliers. After the outliers were 
removed, we summed the costs for each category across all remaining 
providers. We then divided this by the sum of total Medicare allowable 
operating costs across all remaining providers to obtain a cost weight 
for the proposed 2014-based IPPS market basket for the given category.
    We note that, in the FY 2018 IPPS/LTCH PPS proposed rule, we 
mistakenly referenced that we used the same trimming methodology for 
the Home Office Contract Labor cost weight that we used for the other 
major cost weights (a top and bottom 5 percent trimming methodology).
    For the Home Office Contract Labor cost weight, we applied a 1-
percent top-only trimming methodology. This allowed all providers' 
Medicare allowable costs to be included, even if their home office 
contract labor costs were zero. We believe, as the Medicare cost report 
data (Worksheet S-2, Part 1, Line 140) indicate, that not all IPPS 
hospitals have a home office. IPPS hospitals without a home office can 
incur these expenses directly by having their own staff, for which the 
costs would be included in the Wages and Salaries and Employee Benefits 
cost weights. Alternatively, IPPS hospitals without a home office could 
also purchase related services from external contractors for which 
these expenses would be captured in the residual ``All-Other'' cost 
weight. We believe this 1-percent top-only trimming methodology is 
appropriate as it addresses outliers while allowing providers with zero 
Home Office Contract Labor costs to be included in the Home Office 
Contract Labor cost weight calculation. If we applied both the top and 
bottom 5 percent trimming methodology, we would exclude providers who 
have zero Home Office Contract Labor costs. Finally, we proposed to 
calculate the residual ``All Other'' cost weight that reflects all 
remaining costs that are not captured in the seven cost categories 
listed.
    Table IV-01 in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19918) shows the major cost categories and their respective cost 
weights as derived from the Medicare cost reports for the proposed 
rule. Table IV-01 below provides these same major cost categories and 
respective cost weights, with the change made to the Home Office 
Contract Labor Cost category name as discussed earlier in our response 
to public comments.

[[Page 38161]]



  Table IV-01--Major Cost Categories as Derived From the Medicare Cost
                                 Reports
------------------------------------------------------------------------
                                                           Proposed and
          Major cost categories               FY 2010       final 2014
------------------------------------------------------------------------
Wages and Salaries......................            45.8            42.1
Employee Benefits.......................            12.7            12.0
Contract Labor..........................             1.8             1.8
Professional Liability Insurance                     1.3             1.2
 (Malpractice)..........................
Pharmaceuticals.........................             5.4             5.9
Blood and Blood Products................             1.1             0.8
Home Office/Related Organization                       -             4.2
 Contract Labor*........................
``All Other'' Residual..................            31.9            32.0
------------------------------------------------------------------------
*Home Office/Related Organization Contract Labor costs were included in
  the ``All Other'' residual cost weight of the FY 2010-based IPPS
  market basket.

    From FY 2010 to 2014, the Wages and Salaries and Employee Benefits 
cost weights as calculated directly from the Medicare cost reports 
decreased by approximately 3.7 and 0.7 percentage points, respectively, 
while the Contract Labor cost weight was unchanged. The decrease in the 
Wages and Salaries cost weight occurred among most cost centers and in 
aggregate for the General Service (overhead), Inpatient Routine 
Service, Ancillary Service, and Outpatient Service cost centers.
    Comment: One commenter expressed concerns that several of the 
updated payment rates based on the proposed market basket do not 
accurately account for the realities facing hospitals and health 
systems. For example, the commenter believed the proposed market basket 
cost weights for certain categories are too low. Specifically, the 
weight for employee benefits that decreased from 12.7 percent to 12.0 
percent, and the weight for pharmaceuticals that increased from 5.4 
percent to 5.9 percent. The commenter further stated that hospitals, 
similar to other employers, are experiencing significant increases in 
costs for providing health care to their employees. The commenter 
claimed that, in 2017 alone, employer-sponsored premiums increased by 3 
percent nationally. The commenter further cited a study conducted for 
the American Hospital Association and the Federation of American 
Hospitals, which found that between FY 2013 and FY 2015, average annual 
inpatient drug spending at community hospitals increased by 23.4 
percent and average spending per admission increased 38.7 percent. The 
commenter stated that Virginia hospitals saw a 9.6-percent increase in 
spending on pharmaceuticals between 2014 and 2015 and a 41-percent 
increase in the last 6 years. The commenter further stated that it is 
important that CMS ensures any rebasing of the market basket adequately 
accounts for these increased costs.
    Response: As stated in the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 19916), the market basket is described as a fixed-weight index 
because it represents the change in price over time of a constant mix 
(quantity and intensity) of goods and services needed to provide 
hospital services. The effects on total expenditures resulting from 
changes in the mix of goods and services purchased subsequent to the 
base period are not measured. Only when the index is rebased and 
updated cost weights determined would changes in the quantity and 
intensity be captured. Therefore, we rebase the market basket 
periodically so that the cost weights reflect recent changes in the mix 
of goods and services that hospitals purchase (hospital inputs) to 
furnish inpatient care between base periods.
    We used a similar methodology for calculating the Employee Benefits 
and Pharmaceuticals cost weights as we used to derive the FY 2010-based 
IPPS market basket. These data are obtained directly from the Medicare 
cost reports completed by IPPS hospitals. In addition, in the FY 2018 
IPPS/LTCH PPS proposed rule, we provided the specific fields from the 
Medicare cost report that we were proposing to use to calculate the 
cost weights. We did not receive any technical public comments on these 
specific methodologies we proposed.
    The change in the cost weight of a specific category from the 
current index (FY 2010) to the rebased index (2014) is a function of 
the growth rate of those specific expenses relative to other components 
of the market basket. For pharmaceuticals, costs increased faster than 
other components of the market basket between FY 2010 and 2014, which 
is why the Pharmaceuticals cost weight increased from 5.4 to 5.9 
percent. As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19917), the Pharmaceuticals cost weight does not include compensation 
costs associated with hospital pharmacy employees; rather, these costs 
are included in the compensation cost weight. The increase in 
pharmaceutical costs over this period reflects changes in both the 
price of prescription drugs, proxied by the Producer Price Index for 
Prescription Drugs, as well the quantity and intensity of 
prescriptions.
    We note that, for the FY 2018 IPPS market basket update, 
pharmaceuticals price growth contributes approximately 0.4 percentage 
point to the FY 2018 IPPS market basket update of 2.7 percent, or 
nearly 15 percent of the update. This large contribution (relative to 
the base year cost weight) reflects not only a projected FY 2018 
prescription drug price increase that is approximately 80 percent 
faster than the weighted average price associated with the other 
remaining market basket cost categories, but also that over the FY 2014 
to FY 2017 time period, the pharmaceuticals prices are projected to 
increase over 25 percent compared to the price increases of the other 
market basket categories combined at approximately 5 percent. Thus, we 
believe that the market basket is adequately reflecting the recent 
trends in prescription drug price growth.
    For employee benefits, costs increased over the FY 2010 to FY 2014 
period but at a slower rate than other components of the market basket, 
which resulted in a slight decrease in the proposed Employee Benefits 
cost weight from 12.7 to 12.0 percent. The changes in employee benefit 
costs over this period reflect not only the price changes associated 
with employee benefits, which are proxied by the Employment Cost Index 
for All Civilian Workers in Hospitals, but also any changes in the mix 
of workers. For FY 2018, the price change in the benefits component for 
the ECI for hospital workers is projected to be 2.6 percent.
    After consideration of public comments we received, in this final 
rule, we are finalizing our calculation of the major cost weights of 
the 2014-based IPPS market basket as proposed. As

[[Page 38162]]

discussed above, we are making one revision to change the label of the 
proposed ``Home Office Contract Labor'' category to ``Home Office/
Related Organization Contract Labor''. However, there is no effect on 
the calculation of the major cost weight for this category or in how it 
is apportioned between Professional Fees: Labor-Related and 
Professional Fees: Nonlabor Related as described in detail in section 
IV.B.3 of the preamble of this final rule.
    As we did for the FY 2010-based IPPS market basket (78 FR 50597), 
we proposed to allocate contract labor costs to the Wages and Salaries 
and Employee Benefits cost weights based on their relative proportions 
for employed labor under the assumption that contract labor costs are 
comprised of both wages and salaries and employee benefits. The 
contract labor allocation proportion for wages and salaries was equal 
to the Wages and Salaries cost weight as a percent of the sum of the 
Wages and Salaries cost weight and the Employee Benefits cost weight. 
Using the 2014 Medicare cost report data, this percentage was 78 
percent. Therefore, we proposed to allocate approximately 78 percent of 
the Contract Labor cost weight to the Wages and Salaries cost weight 
and 22 percent to the Employee Benefits cost weight. The FY 2010-based 
IPPS market basket also allocated 78 percent of the Contract Labor cost 
weight to the Wages and Salaries cost weight.
    Table IV-02 in the proposed rule (82 FR 19918) shows the Wages and 
Salaries and Employee Benefits cost weights after contract labor 
allocation for the FY 2010-based IPPS market basket and the proposed 
2014-based IPPS market basket. This table is also included below to 
reflect the final 2014-based IPPS market basket.

Table IV-02--Wages and Salaries and Employee Benefits Cost Weights After
                        Contract Labor Allocation
------------------------------------------------------------------------
                                                           Proposed and
                                           FY 2010-based    final 2014-
          Major cost categories             IPPS market     based IPPS
                                              basket       market basket
------------------------------------------------------------------------
Wages and Salaries......................            47.2            43.4
Employee Benefits.......................            13.1            12.4
------------------------------------------------------------------------

    We did not receive any specific public comments regarding the 
allocation of the Contract Labor cost weight to the Wages and Salaries 
and Employee Benefits cost weights. In this final rule, we are 
finalizing our methodology of allocating the Contract Labor cost weight 
as we proposed.
c. Derivation of the Detailed Cost Weights
    To further divide the ``All Other'' residual cost weight estimated 
from the 2014 Medicare cost report data into more detailed cost 
categories, we proposed to use the 2007 Benchmark I-O ``Use Tables/
Before Redefinitions/Purchaser Value'' for NAICS 622000, Hospitals, 
published by the 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 generally scheduled for publication every 5 
years on a lagged basis, 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.\22\ 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 become available. Instead of using the 
less detailed Annual I-O data, we proposed to inflate the detailed 2007 
Benchmark I-O data forward to 2014 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. In our 
calculations for the proposed rule, we repeated this practice for each 
year.
---------------------------------------------------------------------------

    \22\ http://www.bea.gov/papers/pdf/IOmanual_092906.pdf.
---------------------------------------------------------------------------

    We then calculated the cost shares that each cost category 
represents of the 2007 data inflated to 2014. These resulting 2014 cost 
shares were applied to the ``All Other'' residual cost weight to obtain 
the detailed cost weights for the proposed 2014-based IPPS market 
basket. For example, the cost for Food: Direct Purchases represented 
7.3 percent of the sum of the ``All Other'' 2007 Benchmark I-O Hospital 
Expenditures inflated to 2014. Therefore, the Food: Direct Purchases 
cost weight represented 7.3 percent of the proposed 2014-based IPPS 
market basket's ``All Other'' cost category (32.0 percent), yielding a 
Food: Direct Purchases proposed cost weight of 2.3 percent in the 
proposed 2014-based IPPS market basket (0.073 x 32.0 percent = 2.3 
percent). For the FY 2010-based IPPS market basket (78 FR 50597), we 
used the same methodology utilizing the 2002 Benchmark I-O data (aged 
to FY 2010).
    Using this methodology, we proposed to derive 18 detailed cost 
categories from the proposed 2014-based IPPS market basket residual 
cost weight (32.0 percent). These categories were: (1) Fuel: Oil and 
Gas; (2) Electricity; (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.
    Similar to the 2013-based LTCH market basket, the proposed 2014-
based IPPS 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 believed that consolidating 
these smaller cost category weights with other cost categories in the 
proposed market basket that experience similar price increases 
eliminates unnecessary complexity to the market basket without having a 
material impact on the total market basket increase. Therefore, we 
proposed 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

[[Page 38163]]

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 
proposed 2014-based Capital Input Price Index (described in section 
IV.D. of the preamble of this final rule). For the proposed 2014-based 
IPPS market basket, we also proposed 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.
    We did not receive any specific public comments on the derivation 
of the detailed cost weights. In this final rule, we are finalizing our 
methodology for deriving the detailed cost weights as we proposed.
2. Selection of Proposed Price Proxies
    After computing the proposed 2014 cost weights for the IPPS market 
basket, it was necessary to select appropriate wage and price proxies 
to reflect the rate of price change for each expenditure category. With 
the exception of the proxy for professional liability insurance (PLI), 
all the proxies we proposed are based on Bureau of Labor Statistics 
(BLS) data and are grouped into one of the following BLS categories:
     Producer Price Indexes--Producer Price Indexes (PPIs) 
measure price changes for goods sold in markets other than the retail 
market. PPIs are preferable price proxies for goods and services that 
hospitals purchase as inputs because PPIs better reflect the actual 
price changes encountered by hospitals. For example, we proposed to use 
a PPI for prescription drugs, rather than the Consumer Price Index 
(CPI) for prescription drugs, because hospitals generally purchase 
drugs directly from a wholesaler. The PPIs that we proposed to use 
measure price changes at the final stage of production.
     Consumer Price Indexes--Consumer Price Indexes (CPIs) 
measure change in the prices of final goods and services bought by the 
typical consumer. Because they may not represent the price faced by a 
producer, we proposed to use CPIs only if an appropriate PPI is not 
available, or if the expenditures are more like those faced by retail 
consumers in general rather than by purchasers of goods at the 
wholesale level. For example, the CPI for food purchased away from home 
was proposed to be used as a proxy for contracted food services.
     Employment Cost Indexes--Employment Cost Indexes (ECIs) 
measure the rate of change in employee wage rates and employer costs 
for employee benefits per hour worked. These indexes are fixed-weight 
indexes and strictly measure the change in wage rates and employee 
benefits per hour. Appropriately, they are not affected by shifts in 
employment mix.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance. Reliability indicates that the 
index is based on valid statistical methods and has low sampling 
variability. Timeliness implies that the proxy is published regularly, 
preferably at least once a quarter. Availability means that the proxy 
is publicly available. Finally, relevance means that the proxy is 
applicable and representative of the cost category weight to which it 
is applied. We stated in the proposed rule that we believe the proposed 
PPIs, CPIs, and ECIs selected meet these criteria.
a. Price Proxies for Each Cost Category
    Below we present a detailed explanation of the price proxies that 
we proposed for each cost category weight and a statement of our 
finalized policies. We note that many of the proxies that we proposed 
to use for the 2014-based IPPS market basket are the same as those used 
for the FY 2010-based IPPS market basket.
(1) Wages and Salaries
    We proposed 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 FY 2010-based IPPS market basket.
(2) Employee Benefits
    We proposed 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 FY 2010-based 
IPPS market basket.
(3) Fuel: Oil and Gas
    We proposed to change the proxy used for the Fuel: Oil and Gas cost 
category. The FY 2010-based IPPS market basket uses the PPI Industry 
for Petroleum Refineries (BLS series code PCU32411-32411-) to proxy 
these expenses.
    For the proposed 2014-based IPPS market basket, we proposed 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 BEA 2007 Benchmark I-O data (use table 
before redefinitions, purchaser's value for NAICS 622000 [Hospitals]) 
shows that petroleum refineries expenses account for approximately 70 
percent and Natural Gas expenses account for approximately 30 percent 
of the Fuel: Oil and Gas expenses. Therefore, we proposed 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 stated in the proposed rule 
that we believe that these two price proxies are the most technically 
appropriate indices available to measure the price growth of the Fuel: 
Oil and Gas cost category in the proposed 2014-based IPPS market 
basket.
(4) Electricity
    We proposed 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 FY 2010-based IPPS 
market basket.
(5) Water and Sewerage
    We proposed 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 
FY 2010-based IPPS market basket.
(6) Professional Liability Insurance
    We proposed to proxy price changes in hospital professional 
liability insurance premiums (PLI) using percentage changes as 
estimated by the CMS Hospital Professional Liability Index. To generate 
these estimates, we 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 FY 2010-based IPPS market basket.
(7) Pharmaceuticals
    We proposed 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 
FY 2010-based IPPS market basket.

[[Page 38164]]

(8) Food: Direct Purchases
    We proposed 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 FY 2010-based IPPS 
market basket.
(9) Food: Contract Services
    We proposed 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 FY 
2010-based IPPS market basket.
(10) Chemicals
    We proposed to continue to use a four-part blended index 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 proposed to update 
the blended weights using 2007 Benchmark I-O data, which we also 
proposed to use for the proposed 2014-based IPPS market basket. The FY 
2010-based IPPS 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 have a 
higher weight for organic chemical products and a lower weight for the 
other chemical products compared to the 2002 Benchmark I-O data.
    Table IV-03 in the proposed rule (82 FR 19920) shows the proposed 
weights for each of the four PPIs used to create the blended index 
compared to those used for the FY 2010-based IPPS market basket. This 
table is also included below and reflects the final 2014-based IPPS 
weights.

                                      Table IV-03--Blended Chemical Weights
----------------------------------------------------------------------------------------------------------------
                                                                                   Proposed and
                                                                   FY 2010-based    final 2014-
                              Name                                 IPPS weights     Based IPPS         NAICS
                                                                        (%)        weights  (%)
----------------------------------------------------------------------------------------------------------------
PPI for Industrial Gas Manufacturing............................              35              32          325120
PPI for Other Basic Inorganic Chemical Manufacturing............              25              17          325180
PPI for Other Basic Organic Chemical Manufacturing..............              30              45          325190
PPI for Soap and Cleaning Compound Manufacturing................              10               6          325610
----------------------------------------------------------------------------------------------------------------

(11) Blood and Blood Products
    We proposed to use the PPI Industry for Blood and Organ Banks (BLS 
series code PCU621991621991) to measure the price growth of this cost 
category. This is the same price proxy used in the FY 2010-based IPPS 
market basket.
(12) Medical Instruments
    We proposed to use a blended price proxy for the Medical 
Instruments cost category. The 2007 Benchmark Input-Output data show an 
approximate 50/50 split between Surgical and Medical Instruments and 
Medical and Surgical Appliances and Supplies for this cost category. 
Therefore, we proposed a blend composed of 50 percent of the PPI 
Commodity for Surgical and Medical Instruments (BLS series code 
WPU1562) and 50 percent of the PPI Commodity for Medical and Surgical 
Appliances and Supplies (BLS series code WPU1563). The FY 2010-based 
IPPS market basket used the single, higher level PPI Commodity for 
Medical, Surgical, and Personal Aid Devices (BLS series code WPU156). 
We stated in the proposed rule that 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.
(13) Rubber and Plastics
    We proposed 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 FY 2010-based 
IPPS market basket.
(14) Paper and Printing Products
    We proposed 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 
FY 2010-based IPPS market basket.
(15) Miscellaneous Products
    We proposed 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 FY 2010-
based IPPS market basket.
(16) Professional Fees: Labor-Related
    We proposed 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 FY 2010-based IPPS 
market basket.
(17) Administrative and Facilities Support Services
    We proposed 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 FY 2010-based IPPS market basket.
(18) Installation, Maintenance, and Repair Services
    We proposed 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.

[[Page 38165]]

(19) All Other: Labor-Related Services
    We proposed 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 FY 2010-based IPPS market 
basket.
(20) Professional Fees: Nonlabor-Related
    We proposed 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 proposed to use for the Professional 
Fees: Labor-Related cost category and the same price proxy used in the 
FY 2010-based IPPS market basket.
(21) Financial Services
    We proposed 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 FY 2010-based IPPS market 
basket.
(22) Telephone Services
    We proposed 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 FY 2010-based IPPS market basket.
(23) All Other: Nonlabor-Related Services
    We proposed 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 FY 2010-based IPPS market basket. We did 
not receive any specific public comments on the price proxies we 
proposed to use for the 2014-based IPPS market basket. In this final 
rule, we are finalizing the use of these price proxies as we proposed.
    After consideration of the public comments we received, we are 
finalizing the 2014-based IPPS market basket as proposed.
    Table IV-04 in the proposed rule (82 FR 19921) set forth the 
proposed 2014-based IPPS market basket, including the cost categories 
and their respective weights and price proxies. For comparison 
purposes, the corresponding FY 2010-based IPPS market basket cost 
weights also were listed. This table is also included below and 
reflects the final 2014-based IPPS market basket.

 Table IV-04--Proposed and Final 2014-Based IPPS Market Basket Cost Categories, Cost Weights, and Price Proxies
                            Compared to FY 2010-Based IPPS Market Basket Cost Weights
----------------------------------------------------------------------------------------------------------------
                                                                 Proposed and
                                                 FY 2010-based    final 2014-
                Cost categories                   IPPS market     based IPPS      Proposed and final 2014-based
                                                  basket cost    market basket  IPPS market basket price proxies
                                                    weights      cost weights
----------------------------------------------------------------------------------------------------------------
1. Compensation...............................            60.3            55.8
    A. Wages and Salaries \1\.................            47.2            43.4  ECI for Wages and Salaries for
                                                                                 All Civilian Workers in
                                                                                 Hospitals.
    B. Employee Benefits \1\..................            13.1            12.4  ECI for Total Benefits for All
                                                                                 Civilian Workers in Hospitals.
2. Utilities..................................             2.2             2.5
    A. Fuel: Oil and Gas......................             0.4             1.3  Blend of PPIs for Petroleum
                                                                                 Refineries and Natural Gas.
    B. Electricity............................             1.7             1.0  PPI Commodity for Commercial
                                                                                 Electric Power.
    C. Water and Sewerage.....................             0.1             0.1  CPI for Water and Sewerage
                                                                                 Maintenance (All Urban
                                                                                 Consumers).
3. Professional Liability Insurance...........             1.3             1.2  CMS Hospital Professional
                                                                                 Liability Insurance Premium
                                                                                 Index.
4. All Other..................................            36.1            40.5
    A. All Other Products.....................            19.5            17.4
        (1) Pharmaceuticals...................             5.4             5.9  PPI Commodity for
                                                                                 Pharmaceuticals for Human Use,
                                                                                 Prescription.
        (2) Food: Direct Purchases............             4.2             2.3  PPI Commodity for Processed
                                                                                 Foods and Feeds.
        (3) Food: Contract Services...........             0.6             1.3  CPI for Food Away From Home (All
                                                                                 Urban Consumers).
        (4) Chemicals.........................             1.5             0.9  Blend of Chemical PPIs.
        (5) Blood and Blood Products..........             1.1             0.8  PPI Industry for Blood and Organ
                                                                                 Banks.
        (6) Medical Instruments...............             2.6             2.9  Blend of PPI for Surgical and
                                                                                 Medical Instruments and PPI for
                                                                                 Medical and Surgical Appliances
                                                                                 and Supplies.
        (7) Rubber and Plastics...............             1.6             0.8  PPI Commodity for Rubber and
                                                                                 Plastic Products.
        (8) Paper and Printing Products.......             1.5             1.5  PPI Commodity for Converted
                                                                                 Paper and Paperboard Products.
        (9) Miscellaneous Products \2\........             1.0             1.1  PPI Commodity for Finished Goods
                                                                                 less Food and Energy.
    B. Labor-Related Services.................             9.2            12.5
        (1) Professional Fees: Labor-Related..             5.5             6.8  ECI for Total Compensation for
                                                                                 Private Industry Workers in
                                                                                 Professional and Related.
        (2) Administrative and Facilities                  0.6             1.0  ECI for Total Compensation for
         Support Services.                                                       Private Industry Workers in
                                                                                 Office and Administrative
                                                                                 Support.

[[Page 38166]]

 
        (3) Installation, Maintenance and                                  2.4  ECI for Total Compensation for
         Repair Services.                                                        Civilian Workers in
                                                                                 Installation, Maintenance, and
                                                                                 Repair.
        (4) All Other: Labor-Related Services.             3.1             2.3  ECI for Total Compensation for
                                                                                 Private Industry Workers in
                                                                                 Service Occupations.
    C. Nonlabor-Related Services..............             7.4            10.7
        (1) Professional Fees: Nonlabor-                   3.7             5.1  ECI for Total Compensation for
         Related.                                                                Private Industry Workers in
                                                                                 Professional and Related.
        (2) Financial Services................             1.2             3.0  ECI for Total Compensation for
                                                                                 Private Industry Workers in
                                                                                 Financial Activities.
        (3) Telephone Services................             0.6             0.8  CPI for Telephone Services.
        (4) All Other: Nonlabor-Related                    1.9             1.7  CPI for All Items less Food and
         Services \3\.                                                           Energy.
                                               --------------------------------
            Total.............................           100.0           100.0
----------------------------------------------------------------------------------------------------------------
Note: The cost weights are calculated using three decimal places. For presentational purposes, we are displaying
  one decimal and therefore, the detail may not add to the total due to rounding.
\1\ Contract labor is distributed to wages and salaries and employee benefits based on the share of total
  compensation that each category represents.
\2\ The FY 2010-based IPPS market basket Miscellaneous Products cost category also includes Apparel and
  Machinery and Equipment cost categories. These costs were not broken out separately in the 2014-based IPPS
  market basket.
\3\ The FY 2010-based IPPS market basket All Other: Nonlabor-Related Services cost category also includes the
  Postage cost category. These costs were not broken out separately in the 2014-based IPPS market basket.

    Table IV-05 in the proposed rule (82 FR 19922) compares both the 
historical and forecasted percent changes in the FY 2010-based IPPS 
market basket and the proposed 2014-based IPPS market basket. The 
percent changes in the proposed rule were based on IHS Global Inc.'s 
(IGI's) fourth quarter 2016 forecast with historical data through third 
quarter 2016. The forecasted growth rates provided in Table IV-05 below 
are based on IGI's more recent second quarter 2017 forecast with 
historical data through first quarter 2017.

    Table IV-05--FY 2010-Based and Proposed and Final 2014-Based IPPS
    Hospital Operating Index Percent Change, FY 2013 Through FY 2020
------------------------------------------------------------------------
                                                           Proposed and
                                           FY 2010-based    final 2014-
            Fiscal year (FY)                IPPS market     based IPPS
                                          basket percent   market basket
                                              change      percent change
------------------------------------------------------------------------
Historical data:
    FY 2013.............................             2.0             2.0
    FY 2014.............................             1.8             1.8
    FY 2015.............................             1.8             1.6
    FY 2016.............................             1.8             1.8
    Average FYs 2013-2016...............             1.9             1.8
Forecast:
    FY 2017.............................             2.6             2.7
    FY 2018.............................             2.7             2.7
    FY 2019.............................             2.9             2.9
    FY 2020.............................             3.0             3.1
    Average FYs 2017-2020...............             2.8             2.9
------------------------------------------------------------------------
Source: IHS Global Inc., 2nd Quarter 2017 forecast.

    The percent change in the proposed and final 2014-based IPPS market 
basket is, on average, 0.1 percentage point lower than the FY 2010-
based IPPS market basket over the FY 2013 to FY 2016 historical time 
period and on average 0.1 percentage point higher over the FY 2017 to 
FY 2020 forecasted time period. The difference in the average growth 
rates is mostly a result of the lower compensation cost weight and the 
revised price proxy for the Fuel, Oil and Gasoline cost category. As 
stated in section IV.B.2. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (and in section IV.B.2.a. of the preamble of this final 
rule), for the 2014-based IPPS market basket, we proposed to revise the 
price proxy for the Fuel: Oil and Gas cost category to be 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). The FY 2010-based IPPS market basket used only the PPI 
Industry for Petroleum Refineries.

[[Page 38167]]

3. Labor-Related Share
    Under section 1886(d)(3)(E) of the Act, the Secretary estimates 
from time to time the proportion of payments that are labor-related. 
Section 1886(d)(3)(E) of the Act states that the Secretary shall adjust 
the proportion, (as estimated by the Secretary from time to time) of 
hospitals' costs which are attributable to wages and wage-related 
costs, of the DRG prospective payment rates. We refer to the proportion 
of hospitals' costs that are attributable to wages and wage-related 
costs as the ``labor-related share.''
    The labor-related share is used to determine the proportion of the 
national PPS base payment rate to which the area wage index is applied. 
We include a cost category in the labor-related share if the costs are 
labor intensive and vary with the local labor market. For the FY 2018 
IPPS/LTCH PPS proposed rule, we proposed (82 FR 19923) to include in 
the labor-related share the national average proportion of operating 
costs that are attributable to the following cost categories in the 
proposed 2014-based IPPS market basket: Wages and Salaries, Employee 
Benefits, Professional Fees: Labor-Related, Administrative and 
Facilities Support Services, Installation, Maintenance, and Repair 
Services, and All Other: Labor-Related Services. As noted in section 
IV.B.1.c. of the preamble of the proposed rule, for the proposed 2014-
based IPPS market basket, we 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 FY 2010-based IPPS 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.
    Similar to the FY 2010-based IPPS market basket, we proposed that 
the Professional Fees: Labor-Related cost category includes expenses 
associated with advertising and a proportion of legal services, 
accounting and auditing, engineering, management consulting, and 
management of companies and enterprises expenses. As was done in the FY 
2010-based IPPS market basket rebasing, we proposed to determine the 
proportion of legal, accounting and auditing, engineering, and 
management consulting services that meet our definition of labor-
related services based on a survey of hospitals conducted by CMS in 
2008. We notified the public of our intent to conduct this survey on 
December 9, 2005 (70 FR 73250) and did not receive any public comments 
in response to the notice (71 FR 8588).
    A discussion of the composition of the survey and 
poststratification can be found in the FY 2010 IPPS/LTCH PPS final rule 
(74 FR 43850 through 43856). Based on the weighted results of the 
survey, we determined that hospitals purchase, on average, the 
following portions of contracted professional services outside of their 
local labor market:
     34 percent of accounting and auditing services;
     30 percent of engineering services;
     33 percent of legal services; and
     42 percent of management consulting services.
    We proposed to apply each of these percentages to its respective 
Benchmark I-O cost category underlying the professional fees cost 
category. This is the methodology that we used to separate the FY 2010-
based IPPS market basket professional fees cost category into 
Professional Fees: Labor-Related and Professional Fees: Nonlabor-
Related cost categories. We proposed to use the same methodology and 
survey results to separate the professional fees costs for the proposed 
2014-based IPPS market basket into Professional Fees: Labor-Related and 
Professional Fees: Nonlabor-Related cost categories. We stated that we 
believe these survey results are appropriate to use for the 2014-based 
IPPS market basket as they empirically determine the proportion of 
contracted professional services purchased by the industry that is 
attributable to local firms and the proportion that is purchased from 
national firms.
    In the proposed 2014-based IPPS market basket, nonmedical 
professional fees that were subject to allocation based on these survey 
results represent 4.9 percent of total operating costs (and are limited 
to those fees related to Accounting & Auditing, Legal, Engineering, and 
Management Consulting services). Based on our survey results, we 
proposed to apportion 3.1 percentage points of the 4.9 percentage point 
figure into the Professional Fees: Labor-Related share cost category 
and designate the remaining 1.8 percentage point into the Professional 
Fees: Nonlabor-Related cost category.
    Comment: Several commenters expressed concern about the methodology 
CMS proposed to use to remove a portion of professional fees from the 
labor-related share. Several commenters believed the Professional Fees 
Survey that was gathered in 2008 is outdated. Some of those commenters 
stated that it is inappropriate to use data gathered in 2008 to adjust 
payments made in 2018. In addition, one commenter stated that the 
survey was outdated because hospitals have reduced staff since 2008 and 
rely more on consulting services for obtaining needed personnel 
expertise. A few commenters stated that if CMS' intention is to update 
the labor-related share to account for recent changes, it should also 
update these survey data.
    A few commenters reiterated how, in previous comments, they stated 
that they did not believe the survey could be statistically 
representative because it was based on 108 hospitals. The commenters 
also stated that CMS failed to share data on the characteristics of the 
hospitals that responded to the survey, selection bias, or survey 
methodology. The commenters urged CMS not to use the results of this 
survey to estimate the proportion of professional fees that are labor-
related. Several commenters urged CMS to continue to investigate 
alternative methodologies for determining the proportion that is labor-
related before implementing any changes.
    Response: We first utilized the Professional Fees Survey in the FY 
2006-based IPPS market basket finalized in the FY 2010 IPPS/LTCH PPS 
final rule (74 FR 43843). In response to our proposal to use this 
Professional Fees Survey in the FY 2010 IPPS/LTCH PPS proposed rule, 
commenters had similar requests for additional information on the 
survey, specifically requesting the characteristics of the hospitals 
that responded, possible selection bias, and survey methodology. For 
the FY 2010 IPPS/LTCH PPS final rule (74 FR 43853), we provided 
additional information on the Professional Fees Survey methodology, 
sample selection, and methodology for deriving the final weights. The 
FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19923) made note of this 
information and provided the Federal Register reference for the FY 2010 
IPPS/LTCH PPS final rule (74 FR 43850 through 43856). Therefore, we 
disagree with the commenters' claim that we failed to share 
characteristics of the hospitals that responded to the survey, 
selection bias, and survey methodology.
    With respect to the comment that the survey is outdated because 
hospitals have reduced staff since 2008 and rely more on consulting 
services for obtaining needed personnel expertise, the Professional 
Fees Survey is not used

[[Page 38168]]

to determine the level of hospital staffing relative to contract 
staffing. As stated above, the Medicare cost report data show that over 
the FY 2010 to FY 2014 time period, the Wages and Salaries and Employee 
Benefit cost weights decreased while the Labor-related services cost 
weight increased. This supports the commenter's claim that hospitals 
have reduced staff and are relying more on consulting services, and is 
reflected in the hospital market basket. The Professional Fees Survey 
is only used to determine the proportion of Professional Fees costs 
that are purchased within a hospital's local labor market, a proportion 
that we believe is unlikely to change significantly over time.
    With respect to the commenters' concern regarding alternative 
methodologies, we are not aware of any other currently available data 
source regarding the proportion of Professional Fees that are labor-
related. Therefore, the only possible alternatives to the current 
methods would be to assume that 100 percent of the accounting and 
auditing services, engineering services, legal services, and management 
consulting services are purchased in the national market or assume that 
100 percent are purchased in the local labor market. Neither of these 
approaches seems reasonable, given that the 2008 Professional Fees 
Survey results in the assumption that 63 percent of those services are 
purchased locally (in aggregate) and the remaining 37 percent are 
purchased nationally. As stated in the FY 2018 IPPS/LTCH PPS proposed 
rule, we continue to believe the survey results are appropriate to use 
for the 2014-based IPPS market basket as they empirically determine the 
proportion of contracted professional services purchased by the 
industry that is attributable to local firms and the proportion that is 
purchased from national firms. We will continue to explore options for 
updating the Professional Fees Survey to reflect more recent data for 
incorporation into future market basket rebasing and labor-related 
share determinations. If conducted, we encourage providers to respond 
to the survey, which would be announced in the Federal Register as done 
previously. After consideration of the public comments we received, we 
are finalizing the use of the Professional Fees Survey as proposed.
    In addition to the professional services listed earlier, we also 
proposed to classify a proportion of the home office/related 
organization contract labor expenses (as this cost category has been 
relabeled, as discussed earlier in section IV.B.1.a. of the preamble of 
this final rule, and is referred to throughout this discussion) into 
the Professional Fees: Labor-Related cost category as was done in the 
previous rebasing. For the FY 2010-based IPPS market basket, we 
obtained home office/related organization contract labor expenses from 
the Benchmark I-O data for the NAICS 55 industry (Management of 
Companies and Enterprises). As stated in section IV.B.1.a. of the 
preamble to the FY 2018 IPPS/LTCH PPS proposed rule, for the 2014-based 
IPPS market basket, we proposed to obtain these data from the Medicare 
cost reports. We believe that many of the home office/related 
organization contract labor expenses are labor-intensive and vary with 
the local labor market. However, data indicate that not all IPPS 
hospitals with home offices have home offices located in their local 
labor market. Therefore, we proposed to include in the labor-related 
share only a proportion of the home office/related organization 
contract labor expenses based on the methodology described below.
    For the FY 2010-based IPPS 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). We determined the proportion 
of costs that should be allocated to the labor-related share based on 
the percent of hospital home office/related organization contract labor 
compensation as reported in Worksheet S-3, Part II. Using this 
methodology, we determined that 62 percent of hospitals' home office/
related organization contract labor compensation costs were for home 
offices located in their respective local labor markets (defined as the 
same Metropolitan Statistical Area (MSA)). Therefore, we classified 62 
percent of these costs into the Professional Fees: Labor-Related 
Services cost category and the remaining 38 percent into the 
Professional Fees: Nonlabor-Related Services cost category for the FY 
2010-based IPPS market basket. For a detailed discussion of this 
analysis, we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50601).
    For the proposed 2014-based IPPS 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 IPPS hospitals used to derive the proposed 2014-based IPPS 
market basket cost weights. The Medicare cost report requires a 
hospital to report information regarding their home office provider. 
Approximately 64 percent of IPPS hospitals reported some type of home 
office information on their Medicare cost report for 2014 (for example, 
city, State, and zip code). Using the data reported on the Medicare 
cost report, we compared the location of the hospital with the location 
of the hospital's home office. We then proposed to determine the 
proportion of costs that should be allocated to the labor-related share 
based on the percent of total hospital home office/related organization 
contract labor compensation costs (as reported in Worksheet S-3, Part 
II) for those hospitals that had home offices located in their 
respective local labor markets--defined as being in the same MSA. We 
determined a hospital's and home office's MSAs using their zip code 
information from the Medicare cost report. Using this methodology, we 
determined that 60 percent of hospitals' home office/related 
organization contract labor compensation costs were for home offices 
located in their respective local labor markets. Therefore, we proposed 
to allocate 60 percent of home office expenses to the labor-related 
share.
    In the proposed 2014-based IPPS market basket, home office/related 
organization contract labor expenses that were subject to allocation 
based on the home office allocation methodology represent 4.2 percent 
of total operating costs. Based on the results of the home office 
analysis discussed earlier, we proposed to apportion 2.5 percentage 
points of the 4.2 percentage points figure into the Professional Fees: 
Labor-Related cost category and designate the remaining 1.7 percentage 
points into the Professional Fees: Nonlabor-Related cost category. In 
summary, based on the two allocations mentioned earlier, we apportioned 
5.6 percentage points of the professional fees and home office/related 
organization contract labor cost weights into the Professional Fees: 
Labor-Related cost category. This amount was added to the portion of 
professional fees that we already identified as labor-related using the 
I-O data such as contracted advertising and marketing costs 
(approximately 1.2 percentage point of total operating costs) resulting 
in a Professional Fees: Labor-Related cost weight of 6.8 percent.
    The FY 2018 IPPS/LTCH PPS proposed rule included Table IV-06 (82 FR 
19924), which compared the proposed 2014-based labor-related share and 
the FY 2010-based labor-related share. As discussed in section 
IV.B.1.b. of the preamble of the FY 2018 IPPS/LTCH PPS proposed rule, 
the Wages and Salaries and Employee Benefits cost weights reflect 
contract labor costs. This

[[Page 38169]]

table is also included below and reflects the final 2014-based labor-
related share.

Table IV-06--Comparison of the FY 2010-Based Labor-Related Share and the
            Proposed and Final 2014-Based Labor-Related Share
------------------------------------------------------------------------
                                                           Proposed and
                                           FY 2010-based    final 2014-
                                            IPPS market     based IPPS
                                            basket cost    market basket
                                              weights      cost weights
------------------------------------------------------------------------
Wages and Salaries......................            47.2            43.4
Employee Benefits.......................            13.1            12.4
Professional Fees: Labor-Related........             5.5             6.8
Administrative and Facilities Support                0.6             1.0
 Services...............................
Installation, Maintenance, and Repair     ..............             2.4
 Services \1\...........................
All Other: Labor-Related Services.......             3.1             2.3
                                         -------------------------------
    Total Labor-Related Share...........            69.6            68.3
------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Installation, Maintenance, and Repair Services costs were previously
  included in the All Other: Labor-Related Services cost category of the
  FY 2010-based IPPS market basket.

    Using the cost category weights from the proposed 2014-based IPPS 
market basket, we calculated a labor-related share of 68.3 percent, 
approximately 1.3 percentage points lower than the current labor-
related share of 69.6 percent. Therefore, we proposed to use a labor-
related share of 68.3 percent for discharges occurring on or after 
October 1, 2017. We continue to believe, as we have stated in the past, 
that these operating cost categories are related to, influenced by, or 
vary with the local markets. Therefore, our definition of the labor-
related share continues to be consistent with section 1886(d)(3) of the 
Act. We note that section 403 of Public Law 108-173 amended sections 
1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the 
Secretary must employ 62 percent as the labor-related share unless 62 
percent would result in lower payments to a hospital than would 
otherwise be made.
    Comment: Several commenters stated that they were unable to 
replicate or verify the proposed labor-related share. One commenter 
stated that it is unclear how we determined that a reduction to the 
labor-related share from 69.6 percent to 68.3 percent was warranted 
since we did not release the base calculations. Several commenters 
further stated that not having access to this information severely 
limited their ability to comment sufficiently on this issue. The 
commenters requested that CMS provide all information necessary to 
replicate the agency's calculation of the labor-related share, 
including, but not limited to, greater clarity of data sources used; 
case counts at different points, such as number of providers after 
trimming; provider level data illustrating what information was used in 
the calculation; and the kinds of checks CMS made during calculations 
to assess and ensure accuracy. The commenters requested that this 
information be provided in advance of publication of the final rule.
    Response: We disagree with the commenters' claim that we did not 
provide sufficiently detailed information regarding our calculations of 
the labor-related share. As stated in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19923), the labor-related share is derived using 
the cost weights of the proposed 2014-based IPPS market basket. The FY 
2018 IPPS/LTCH PPS proposed rule included a detailed description of the 
data sources and methodology used to derive all of the market basket 
cost weights.
    Specifically, section IV.B.1.a. of the preamble of the proposed 
rule (82 FR 19916) provided the detailed Medicare cost report 
methodology used to calculate the major cost weights of the proposed 
2014-based IPPS market basket (including the specific Medicare cost 
report worksheets and trimming methodologies). Section IV.B.1.c. of the 
preamble of the proposed rule (82 FR 19918) provided the specific 
methodology and data source used to derive the remaining detailed cost 
weights. Section IV.B.3. of the preamble of proposed rule (82 FR 19923) 
provided information regarding how the Professional Fees cost category 
was divided between Labor-related and Nonlabor-related services. The 
data sources used to produce the market basket cost weights are 
publicly available. In addition, contact information for CMS staff was 
provided in the proposed rule to provide the opportunity to ask any 
specific questions regarding the methodology.
    We note that we provided a similar detailed description of the 
methodologies used to derive the 2012-based IPF and 2012-based IRF 
market baskets in the FY 2016 IPF PPS proposed rule and the FY 2016 IRF 
PPS proposed rule, respectively. In those instances, stakeholders were 
able to use the detailed description in the proposed rules to closely 
replicate the proposed cost weights and suggest methodological changes 
that were considered during final rulemaking.
    Therefore, for the reasons stated earlier, we believe that there 
was sufficient detail provided in the FY 2018 IPPS/LTCH PPS proposed 
rule to describe the proposed methodology for deriving the market 
basket cost weights and labor-related share.
    Comment: Several commenters opposed the decrease in the labor-
related share from 69.6 percent to 68.3 percent, stating that reducing 
the labor-related share further undervalues the very real differences 
in hospital-specific costs. These commenters stated that such a change 
to the labor-related share would specifically harm hospitals in higher-
cost urban areas that already experience some of the highest labor 
costs in the country. Furthermore, they stated that they opposed 
reducing the sensitivity of the prospective payment system to the 
different circumstances of individual hospitals through the 
introduction of an approach that would foster the development of a 
reimbursement system that trends toward the mean despite unquestionable 
differences in hospital costs. The commenters urged CMS to withdraw the 
proposal to reduce the labor-related share for FY 2018.
    Response: We disagree with the commenters' rationale for the 
request to

[[Page 38170]]

withdraw the proposal to reduce the labor-related share. The 
methodology used to derive the proposed labor-related share of 68.3 
percent based on the proposed 2014-based market basket is the same 
methodology used to determine the current labor-related share of 69.6 
percent using the FY 2010-based IPPS market basket. The decrease in the 
labor-related share of 1.3 percentage points stems from a decrease in 
the Wages and Salaries and Employee Benefit cost weights (which were 
derived from the Medicare cost reports), as discussed in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19918), accounting for a decrease of 
4.5 percentage points. This is partially offset by an increase in the 
Labor-related services cost weight, accounting for an increase of 3.2 
percentage points. As stated in the FY 2018 IPPS/LTCH PPS proposed 
rule, the decrease in the Wages and Salaries cost weight from FY 2010 
to FY 2014 occurred across most cost centers and in aggregate for the 
General Service (overhead), Inpatient Routine Service, Ancillary 
Service, and Outpatient Service cost centers.
    Furthermore, the other components of the IPPS (including, but not 
limited to, MS-DRG, wage index, disproportionate share hospital 
adjustment, and indirect medical education adjustment) account for 
variations in costs among individual hospitals. After consideration of 
the public comments we received, we are finalizing our methodology for 
calculating the labor-related share of 68.3 percent using the 2014-
based IPPS market basket cost weights.

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

    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857), we 
adopted the use of the FY 2006-based IPPS operating market basket 
percentage increase to update the target amounts for children's 
hospitals, PPS-excluded cancer hospitals and religious nonmedical 
health care institutions (RNHCIs). Children's hospitals and PPS-
excluded cancer hospitals and RNHCIs are still reimbursed solely under 
the reasonable cost-based system, subject to the rate-of-increase 
limits. Under these limits, an annual target amount (expressed in terms 
of the inpatient operating cost per discharge) is set for each hospital 
based on the hospital's own historical cost experience trended forward 
by the applicable rate-of-increase percentages.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50603), under the 
broad authority in sections 1886(b)(3)(A) and (B), 1886(b)(3)(E), and 
1871 of the Act and section 4454 of the BBA, consistent with our use of 
the IPPS operating market basket percentage increase to update target 
amounts, we adopted the use of the FY 2010-based IPPS operating market 
basket percentage increase to update the target amounts for children's 
hospitals, PPS-excluded cancer hospitals, and RNHCIs that are paid on 
the basis of reasonable cost subject to the rate-of-increase limits 
under Sec.  413.40. In addition, as discussed in the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 50156 through 50157), 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 FY 2010-based IPPS operating market 
basket to update the target amounts for short-term acute care 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). These hospitals also are 
paid on the basis of reasonable cost, subject to the rate-of-increase 
limits under Sec.  413.40.
    Due to the small number of children's and cancer hospitals and 
RNHCIs and hospitals located outside the 50 States, the District of 
Columbia, and Puerto Rico and because these facilities provide limited 
Medicare cost report data, we are unable to create a separate market 
basket specifically for these facilities. Due to the limited cost 
report data available, we stated that we believe that the proposed 
2014-based IPPS operating market basket most closely represents the 
cost structure of children's hospitals, PPS-excluded cancer hospitals, 
RNHCIs, and hospitals located outside the 50 States, the District of 
Columbia, and Puerto Rico. We believe this is appropriate as the IPPS 
operating market basket would reflect the input price growth for 
providing inpatient hospital services (similar to the services provided 
by the above excluded facilities) based on the specific mix of goods 
and services required. Therefore, we proposed to use the 2014-based 
IPPS market basket percentage increase to update the target amounts for 
children's hospitals, PPS-excluded cancer hospitals, RNHCIs, and 
hospitals located outside the 50 States, the District of Columbia, and 
Puerto Rico that are paid on the basis of reasonable cost subject to 
the rate-of-increase limits under Sec.  413.40. We stated that we 
believe it is the best available measure of the average increase in the 
prices of the goods and services purchased by children's hospitals, the 
cancer hospitals, RNHCIs, and hospitals located outside the 50 States, 
the District of Columbia, and Puerto Rico in order to provide care.
    We did not receive any public comments on our proposal. Therefore, 
we are adopting the use of the 2014-based IPPS market basket percentage 
increase to update the target amounts for children's hospitals, PPS-
excluded cancer hospitals, RNHCIs, and hospitals located outside the 50 
States, the District of Columbia, and Puerto Rico that are paid on the 
basis of reasonable cost.

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

    The CIPI was originally described in the FY 1993 IPPS final rule 
(57 FR 40016). There have been subsequent discussions of the CIPI 
presented in the IPPS proposed and final rules. The FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50603 through 50607) described the most recent 
rebasing and revision of the CIPI to a FY 2010 base year, which 
reflected the capital cost structure of IPPS hospitals available at 
that time.
    For the FY 2018 IPPS update, in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19925 through 19929), we proposed to rebase and revise the 
CIPI to a 2014 base year to reflect a more current structure of capital 
costs for IPPS hospitals. This proposed 2014-based CIPI was derived 
using 2014 cost reports for IPPS hospitals, which includes providers 
whose cost reporting period began on or after October 1, 2013, and 
prior to September 30, 2014. While we proposed and finalized the title 
of the current CIPI in the FY 2014 IPPS/LTCH proposed and final rules 
as ``FY 2010-based CIPI'', for the proposed CIPI, we proposed to simply 
refer to the proposed CIPI as ``2014-based CIPI'' (dropping the 
reference to FY). As discussed in section IV.B. of the preamble of the 
proposed rule, for the 2014-based IPPS operating market basket, we 
proposed this change in naming convention for the market basket because 
the base year cost weight data for the proposed market basket do not 
reflect only fiscal year data. Similarly, the proposed 2014-based CIPI 
uses Medicare cost report data and other government data that reflect 
2014 fiscal year, 2014 calendar year, and 2014 State fiscal year 
expenses to determine the base year cost weights and vintage weights. 
Given that it is based on a mix of classifications of 2014 data, we 
proposed to refer to the CIPI as ``2014-based'' instead of ``FY 2014-
based'' or ``CY 2014-based''. However, the methods and data used to 
derive each of these CIPI are similar. As with the FY 2010-based index, 
we proposed to develop two sets of weights to derive

[[Page 38171]]

the proposed 2014-based CIPI. The first set of weights identifies the 
proportion of hospital capital expenditures attributable to each 
expenditure category, while the second set of weights is a set of 
relative vintage weights for depreciation and interest. The set of 
vintage weights is used to identify the proportion of capital 
expenditures within a cost category that is attributable to each year 
over the useful life of the capital assets in that category. A more 
thorough discussion of vintage weights is provided later in this 
section.
    Using 2014 Medicare cost reports, we were able to group capital 
costs into the following categories: Depreciation, Interest, Lease, and 
Other. For each of these categories, we proposed to determine what 
proportion of total capital costs the category represents using the 
data reported by IPPS hospitals on Worksheet A-7, which is the same 
methodology used for the FY 2010-based CIPI. As shown in the left 
column of Table IV-07 in the proposed rule (82 FR 19926), in 2014, 
depreciation expenses accounted for 66.4 percent of total capital 
costs, interest expenses accounted for 16.3 percent, leasing expenses 
accounted for 11.8 percent, and other capital expenses accounted for 
5.5 percent. This table is also listed below.
    We also proposed to allocate lease costs across each of the 
remaining capital cost categories as was done in the FY 2010-based 
CIPI. This resulted in three primary capital cost categories in the 
proposed 2014-based CIPI: Depreciation, Interest, and Other. Lease 
costs are unique in that they are not broken out as a separate cost 
category in the proposed 2014-based CIPI. Rather, we proposed to 
proportionally distribute leasing costs among the cost categories of 
Depreciation, Interest, and Other, reflecting the assumption that the 
underlying cost structure of leases is similar to that of capital costs 
in general. As was done for the FY 2010-based CIPI, we proposed to 
assume that 10 percent of the lease costs as a proportion of total 
capital costs represents overhead and to assign those costs to the 
Other capital cost category accordingly. Therefore, we assumed that 
approximately 1.2 percent (11.8 percent x 0.1) of total capital costs 
represent lease costs attributable to overhead, and we proposed to add 
this 1.2 percent to the 5.5 percent Other cost category weight. We then 
proposed to distribute the remaining lease costs (10.6 percent, or 11.8 
percent - 1.2 percent) proportionally across the three cost categories 
(Depreciation, Interest, and Other) based on the proportion that these 
categories comprise of the sum of the Depreciation, Interest, and Other 
cost categories (excluding lease expenses). For example, the Other cost 
category represented 6.3 percent of all three cost categories 
(Depreciation, Interest, and Other) prior to any lease expenses being 
allocated. This 6.3 percent is applied to the 10.6 percent of remaining 
lease expenses so that another 0.7 percent of lease expenses as a 
percent of total capital costs is allocated to the Other cost category. 
Therefore, the resulting proposed Other cost weight is 7.4 percent (5.5 
percent + 1.2 percent + 0.7 percent). This is the same methodology used 
for the FY 2010-based CIPI. The resulting cost weights of the proposed 
allocation of lease expenses were shown in the right column of Table 
IV-07 in the proposed rule (82 FR 19926). This table is also included 
below and reflects the final allocation of lease expenses.

  Table IV-07--Proposed and Final Allocation of Lease Expenses for the
                   Proposed and Final 2014-Based CIPI
------------------------------------------------------------------------
                                           Proposed and
                                            final cost     Proposed and
                                              shares        final cost
                                           obtained from   shares after
             Cost categories               medicare cost   allocation of
                                              reports     lease expenses
                                            (percent of     (percent of
                                           total capital   total capital
                                              costs)          costs)
------------------------------------------------------------------------
Depreciation............................            66.4            74.4
Interest................................            16.3            18.2
Lease...................................            11.8  ..............
Other...................................             5.5             7.4
------------------------------------------------------------------------

    Finally, we proposed to further divide the Depreciation and 
Interest cost categories. We proposed to separate the Depreciation cost 
category into the following two categories: (1) Building and Fixed 
Equipment and (2) Movable Equipment. We also proposed 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 IPPS hospitals 
(after the allocation of lease costs) that are attributable to building 
and fixed equipment, which we hereafter refer to as the ``fixed 
percentage.'' Based on Worksheet A-7 data from the 2014 IPPS Medicare 
cost reports, we have determined that depreciation costs for building 
and fixed equipment account for approximately 49 percent of total 
depreciation costs, while depreciation costs for movable equipment 
account for approximately 51 percent of total depreciation costs. As 
was done for the FY 2010-based CIPI, we proposed to apply this fixed 
percentage to the depreciation cost weight (after leasing costs are 
included) to derive a Depreciation cost weight attributable to Building 
and Fixed Equipment and a Depreciation cost weight attributable to 
Movable Equipment.
    To disaggregate the interest cost weight, we needed to determine 
the percent of total interest costs for IPPS hospitals that are 
attributable to government and nonprofit facilities, which we hereafter 
refer to as the ``nonprofit percentage,'' because interest price 
pressures tend to differ between nonprofit and for-profit facilities. 
We proposed to use interest costs data from Worksheet A-7 of the 2014 
Medicare cost reports for IPPS hospitals, which is the same methodology 
used for the FY 2010-based CIPI. The nonprofit percentage determined 
using this method is 86 percent. Table IV-08 in the proposed rule (82 
FR 19927) provides a comparison of the FY 2010-based CIPI cost weights 
and the proposed 2014-based CIPI cost weights. This table is also 
included below and

[[Page 38172]]

reflects the final 2014-based CIPI cost weights.
    After the capital cost category weights were computed, it was 
necessary to select appropriate price proxies to reflect the rate-of-
increase for each expenditure category. We proposed to apply the same 
price proxies as were used in the FY 2010-based CIPI, which are listed 
below and provided in Table IV-08 in the proposed rule. We also 
proposed 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 FY 2010-based CIPI and is described below.
    We proposed to continue to proxy the Depreciation--Building and 
Fixed Equipment cost category by the BEA Chained Price Index for 
Private Fixed Investment in Structures, Nonresidential, Hospitals and 
Special Care (BEA Table 5.4.4. Price Indexes for Private Fixed 
Investment in Structures by Type). As stated in the FY 2010 IPPS/LTCH 
PPS final rule (74 FR 43860), for the FY 2006-based CIPI we finalized 
the use of this index to measure the price growth of this cost 
category. This BEA index is intended to capture prices for construction 
of facilities such as hospitals, nursing homes, hospices, and 
rehabilitation centers. For the Depreciation--Movable Equipment cost 
category, we proposed to continue to measure the price growth using the 
PPI Commodity for Machinery and Equipment (BLS series code WPU11). This 
price index reflects price inflation associated with a variety of 
machinery and equipment that would be utilized by hospitals including 
but not limited to communication equipment, computers, and medical 
equipment. For the Nonprofit Interest and For-profit Interest cost 
categories, we proposed to continue to measure the price growth using 
the average yield on domestic municipal bonds (Bond Buyer 20-bond 
index) and the average yield on Moody's Aaa bonds (Federal Reserve), 
respectively. As stated above, we proposed two proxies because interest 
price pressures tend to differ between nonprofit and for-profit 
facilities.
    For the Other capital cost category (including insurances, taxes, 
and other capital-related costs), we proposed to continue to measure 
the price growth using the CPI for Rent of Primary Residence (All Urban 
Consumers) (BLS series code CUUS0000SEHA), which would reflect the 
price growth of these costs. We believe that these price proxies 
continue to be the most appropriate proxies for IPPS capital costs that 
meet our selection criteria of relevance, timeliness, availability, and 
reliability.

   Table IV-08--Proposed and Final 2014-Based CIPI Cost Weights and Price Proxies With FY 2010-Based CIPI Cost
                                         Weights Included for Comparison
----------------------------------------------------------------------------------------------------------------
                                                               Proposed and
              Cost categories                 FY 2010 cost   final 2014 cost    Proposed and final price proxy
                                                weights          weights
----------------------------------------------------------------------------------------------------------------
Total.....................................            100.0            100.0  ..................................
    Depreciation..........................             74.0             74.4  ..................................
        Building and Fixed Equipment......             36.2             36.7  BEA's Chained Price Index for
                                                                               Private Fixed Investment in
                                                                               Structures, Nonresidential,
                                                                               Hospitals and Special Care.
        Movable Equipment.................             37.9             37.7  PPI Commodity for Machinery and
                                                                               Equipment.
    Interest..............................             19.2             18.2  ..................................
        Government/Nonprofit..............             17.1             15.7  Average Yield on Domestic
                                                                               Municipal Bonds (Bond Buyer 20-
                                                                               Bond Index).
        For-Profit........................              2.1              2.5  Average Yield on Moody's Aaa
                                                                               Bonds.
    Other.................................              6.8              7.4  CPI for Rent of Primary Residence.
----------------------------------------------------------------------------------------------------------------
Note: The cost weights are calculated using three decimal places. For presentational purposes, we are displaying
  one decimal and therefore, the detail may not add to the total due to rounding.

    Because capital is acquired and paid for over time, capital 
expenses in any given year are determined by both past and present 
purchases of physical and financial capital. We stated in the proposed 
rule that the proposed vintage-weighted 2014-based CIPI is intended to 
capture the long-term consumption of capital, using vintage weights for 
depreciation (physical capital) and interest (financial capital). These 
vintage weights reflect the proportion of capital purchases 
attributable to each year of the expected life of building and fixed 
equipment, movable equipment, and interest. We proposed to use vintage 
weights to compute vintage-weighted price changes associated with 
depreciation and interest expenses.
    Vintage weights are an integral part of the CIPI. Capital costs are 
inherently complicated and are determined by complex capital purchasing 
decisions, over time, based on such factors as interest rates and debt 
financing. In addition, capital is depreciated over time instead of 
being consumed in the same period it is purchased. By accounting for 
the vintage nature of capital, we are able to provide an accurate and 
stable annual measure of price changes. Annual nonvintage price changes 
for capital are unstable due to the volatility of interest rate changes 
and, therefore, do not reflect the actual annual price changes for IPPS 
capital costs. The CIPI reflects the underlying stability of the 
capital acquisition process.
    To calculate the vintage weights for depreciation and interest 
expenses, we first needed a time series of capital purchases for 
building and fixed equipment and movable equipment. We found no single 
source that provides an appropriate time series of capital purchases by 
hospitals for all of the above components of capital purchases. The 
early Medicare cost reports did not have sufficient capital data to 
meet this need. Data we obtained from the American Hospital Association 
(AHA) did not include annual capital purchases. However, we were able 
to obtain data on total expenses back to 1963 from the AHA. 
Consequently, we proposed 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 proposed 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 2014. We proposed to separate 
these depreciation expenses into annual amounts of building and fixed

[[Page 38173]]

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. We 
used the AHA data and similar methodology to derive the FY 2010-based 
IPPS capital market basket (78 FR 50604).
    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 2014-based CIPI. We proposed to calculate the expected lives 
using Medicare cost report data. The expected life of any asset can be 
determined by dividing the value of the asset (excluding fully 
depreciated assets) by its current year depreciation amount. This 
calculation yields the estimated 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 27 years, and the average expected life of movable equipment to be 
equal to 12 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 the FY 2010-based CIPI 
was based on an expected average life of building and fixed equipment 
of 26 years and an expected average life of movable equipment of 12 
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 proposed 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 described in the proposed rule, and this final rule. For the 
interest vintage weights, we proposed 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 purchases time series specific to each asset type, we 
proposed 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, 27 years, and in the 
case of movable equipment, 12 years). For each asset type, we proposed 
to use the time series of annual capital purchases amounts available 
from 2014 back to 1964. These data allow us to derive twenty-five 27-
year periods of capital purchases for building and fixed equipment and 
interest, and forty 12-year periods of capital purchases for movable 
equipment. For each 27-year period for building and fixed equipment and 
interest, or 12-year period for movable equipment, we proposed 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 27-year or 12-year period. This calculation was done for 
each year in the 27-year or 12-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 proposed 2014-based CIPI and the FY 
2010-based CIPI were presented in Table IV-09 in the proposed rule (82 
FR 19928). This table is also included below and reflects the final 
2014-based CIPI.

                                 Table IV-09--Proposed and Final 2014-Based CIPI and FY 2010-Based CIPI Vintage Weights
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Building and fixed equipment          Movable equipment                   Interest
                                                         -----------------------------------------------------------------------------------------------
                        Year \1\                           Proposed and                    Proposed and                    Proposed and
                                                            final 2014-    FY 2010-based    final 2014-    FY 2010-based    final 2014-    FY 2010-based
                                                          based 27 years     26 years     based 12 years     12 years     based 27 years     26 years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           0.024           0.023           0.062           0.064           0.012           0.012
2.......................................................           0.025           0.024           0.064           0.068           0.014           0.013
3.......................................................           0.027           0.026           0.070           0.071           0.015           0.015
4.......................................................           0.028           0.028           0.074           0.073           0.017           0.017
5.......................................................           0.030           0.029           0.078           0.076           0.019           0.018
6.......................................................           0.031           0.031           0.082           0.078           0.021           0.021
7.......................................................           0.033           0.032           0.086           0.084           0.023           0.023
8.......................................................           0.034           0.034           0.088           0.088           0.025           0.025
9.......................................................           0.035           0.036           0.092           0.092           0.027           0.028
10......................................................           0.036           0.038           0.097           0.098           0.029           0.030
11......................................................           0.037           0.040           0.102           0.103           0.030           0.033
12......................................................           0.039           0.041           0.105           0.106           0.033           0.036
13......................................................           0.040           0.042  ..............  ..............           0.035           0.038
14......................................................           0.040           0.042  ..............  ..............           0.037           0.040
15......................................................           0.039           0.043  ..............  ..............           0.037           0.043
16......................................................           0.039           0.044  ..............  ..............           0.040           0.045
17......................................................           0.040           0.044  ..............  ..............           0.041           0.047
18......................................................           0.042           0.044  ..............  ..............           0.045           0.048
19......................................................           0.042           0.044  ..............  ..............           0.048           0.051
20......................................................           0.042           0.044  ..............  ..............           0.050           0.052
21......................................................           0.043           0.045  ..............  ..............           0.052           0.056
22......................................................           0.043           0.045  ..............  ..............           0.054           0.057

[[Page 38174]]

 
23......................................................           0.042           0.045  ..............  ..............           0.055           0.060
24......................................................           0.042           0.046  ..............  ..............           0.057           0.062
25......................................................           0.043           0.045  ..............  ..............           0.059           0.064
26......................................................           0.043           0.045  ..............  ..............           0.061           0.066
27......................................................           0.043  ..............  ..............  ..............           0.062  ..............
                                                         -----------------------------------------------------------------------------------------------
    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 27 for the 2014-based CIPI) is applied to the most recent data point and prior vintage weights
  are applied going back in time. For example, year 27 vintage weight would be applied to the 2018q3 fixed price proxy level, year 26 vintage weight
  would be applied to the 2017q3 fixed price proxy level, and so forth.

    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 IV-09 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.''
    Comment: A few commenters supported the proposal to rebase the 
CIPI.
    Response: We appreciate the commenters' support.
    We did not receive any detailed public comments on our methodology 
for deriving the proposed 2014-based CIPI. After consideration of the 
public comments we received, in this final rule, we are finalizing the 
2014-based CIPI as proposed.
    Table IV-10 in the proposed rule (82 FR 19929) compares both the 
historical and forecasted percent changes in the FY 2010-based CIPI and 
the proposed 2014-based CIPI. The percent changes in the proposed rule 
were based on IGI's fourth quarter 2016 forecast with historical data 
through third quarter 2016. The forecasted growth rates provided in 
Table IV-10 below are based on IGI's more recent second quarter 2017 
forecast with historical data through first quarter 2017.

  Table IV-10--Comparison of FY 2010-Based and Proposed and Final 2014-
Based Capital Input Price Index, Percent Change, FY 2013 Through FY 2020
------------------------------------------------------------------------
                                                           Proposed and
               Fiscal year                CIPI,  FY 2010-   final CIPI,
                                               based        2014-based
------------------------------------------------------------------------
Historical Data:
    FY 2013.............................             1.1             1.0
    FY 2014.............................             1.2             1.2
    FY 2015.............................             1.2             1.1
    FY 2016.............................             1.1             1.0
    Average FYs 2013-2016...............             1.2             1.1
Forecast:
    FY 2017.............................             1.2             1.1
    FY 2018.............................             1.4             1.3
    FY 2019.............................             1.4             1.4
    FY 2020.............................             1.5             1.5
    Average FYs 2017-2020...............             1.4             1.3
------------------------------------------------------------------------
Source: IHS Global Inc., 2nd quarter 2017 forecast.

    IGI forecasts a 1.3 percent increase in the proposed and final 
2014-based CIPI for FY 2018, as shown in Table IV-10. The underlying 
vintage-weighted price increases for depreciation (including building 
and fixed equipment and movable equipment) and interest (including 
government/nonprofit and for-profit) based on the proposed 2014-based 
CIPI were included in Table IV-11 of the proposed rule (82 FR 19929). 
Again, the percent changes in the proposed rule were based on IGI's 
fourth quarter 2016 forecast with historical data through third quarter 
2016. The forecasted growth rates provided in Table IV-11 below are 
based on IGI's more recent second quarter 2017 forecast with historical 
data through first quarter 2017.

[[Page 38175]]



Table IV-11--Proposed and Final 2014-Based Capital Input Price Index Percent Changes, Total and Depreciation and
                                   Interest Components--FYs 2013 Through 2020
----------------------------------------------------------------------------------------------------------------
                           Fiscal year                                 Total       Depreciation      Interest
----------------------------------------------------------------------------------------------------------------
Historical Data:
    FY 2013.....................................................             1.0             1.7            -2.5
    FY 2014.....................................................             1.2             1.8            -1.8
    FY 2015.....................................................             1.1             1.8            -2.7
    FY 2016.....................................................             1.0             1.7            -3.0
Forecast:
    FY 2017.....................................................             1.1             1.6            -2.2
    FY 2018.....................................................             1.3             1.6            -1.3
    FY 2019.....................................................             1.4             1.6            -0.5
    FY 2020.....................................................             1.5             1.6            -0.1
----------------------------------------------------------------------------------------------------------------
Source: IHS Global Inc. 2nd quarter 2017 forecast.

    Rebasing the CIPI from FY 2010 to 2014 decreased the percent change 
in the forecasted update for FY 2018 by 0.1 percentage point, from 1.4 
percent to 1.3 percent, as shown in Table IV-10. The lower FY 2018 
update is primarily due to a change in the vintage weights for the 
proposed and final 2014-based CIPI, which includes updating the asset 
purchase data through 2014 and changing the building and fixed 
equipment and interest asset lives from 26 years to 27 years. This 
lower update is only partially offset by the change in the base year 
weights, which produce a faster increase due to more weight being given 
to the Depreciation cost category and less weight being given to the 
Interest cost category. As shown in Table IV-11 in the proposed rule 
(82 FR 19929) and this final rule, for FY 2018, vintage-weighted price 
growth is projected to be positive for the Depreciation cost category 
and negative for the Interest cost category.

V. Other Decisions and Changes to the IPPS for Operating System

A. Changes to MS-DRGs Subject To Postacute Care Transfer Policy and MS-
DRG Special Payments Policies (Sec.  412.4)

1. Background
    Existing regulations at 42 CFR 412.4(a) define discharges under the 
IPPS as situations in which a patient is formally released from an 
acute care hospital or dies in the hospital. Section 412.4(b) defines 
acute care transfers, and Sec.  412.4(c) defines postacute care 
transfers. Our policy set forth in Sec.  412.4(f) provides that when a 
patient is transferred and his or her length of stay is less than the 
geometric mean length of stay for the MS-DRG to which the case is 
assigned, the transferring hospital is generally paid based on a 
graduated per diem rate for each day of stay, not to exceed the full 
MS-DRG payment that would have been made if the patient had been 
discharged without being transferred.
    The per diem rate paid to a transferring hospital is calculated by 
dividing the full MS-DRG payment by the geometric mean length of stay 
for the MS-DRG. Based on an analysis that showed that the first day of 
hospitalization is the most expensive (60 FR 45804), our policy 
generally provides for payment that is twice the per diem amount for 
the first day, with each subsequent day paid at the per diem amount up 
to the full MS-DRG payment (Sec.  412.4(f)(1)). Transfer cases also are 
eligible for outlier payments. In general, the outlier threshold for 
transfer cases, as described in Sec.  412.80(b), is equal to the fixed-
loss outlier threshold for nontransfer cases (adjusted for geographic 
variations in costs), divided by the geometric mean length of stay for 
the MS-DRG, and multiplied by the length of stay for the case, plus 1 
day.
    We established the criteria set forth in Sec.  412.4(d) for 
determining which DRGs qualify for postacute care transfer payments in 
the FY 2006 IPPS final rule (70 FR 47419 through 47420). The 
determination of whether a DRG is subject to the postacute care 
transfer policy was initially based on the Medicare Version 23.0 
GROUPER (FY 2006) and data from the FY 2004 MedPAR file. However, if a 
DRG did not exist in Version 23.0 or a DRG included in Version 23.0 is 
revised, we use the current version of the Medicare GROUPER and the 
most recent complete year of MedPAR data to determine if the DRG is 
subject to the postacute care transfer policy. Specifically, if the MS-
DRG's total number of discharges to postacute care equals or exceeds 
the 55th percentile for all MS-DRGs and the proportion of short-stay 
discharges to postacute care to total discharges in the MS-DRG exceeds 
the 55th percentile for all MS-DRGs, CMS will apply the postacute care 
transfer policy to that MS-DRG and to any other MS-DRG that shares the 
same base MS-DRG. The statute directs us to identify MS-DRGs based on a 
high volume of discharges to postacute care facilities and a 
disproportionate use of postacute care services. As discussed in the FY 
2006 IPPS final rule (70 FR 47416), we determined that the 55th 
percentile is an appropriate level at which to establish these 
thresholds. In that same final rule (70 FR 47419), we stated that we 
will not revise the list of DRGs subject to the postacute care transfer 
policy annually unless we are making a change to a specific MS-DRG.
    To account for MS-DRGs subject to the postacute care policy that 
exhibit exceptionally higher shares of costs very early in the hospital 
stay, Sec.  412.4(f) also includes a special payment methodology. For 
these MS-DRGs, hospitals receive 50 percent of the full MS-DRG payment, 
plus the single per diem payment, for the first day of the stay, as 
well as a per diem payment for subsequent days (up to the full MS-DRG 
payment (Sec.  412.4(f)(6)). For an MS- DRG to qualify for the special 
payment methodology, the geometric mean length of stay must be greater 
than 4 days, and the average charges of 1-day discharge cases in the 
MS-DRG must be at least 50 percent of the average charges for all cases 
within the MS-DRG. MS-DRGs that are part of an MS-DRG severity level 
group will qualify under the MS-DRG special payment methodology policy 
if any one of the MS-DRGs that share that same base MS-DRG qualifies 
(Sec.  412.4(f)(6)).
2. Changes for FY 2018
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19929 through 
19931), based on our annual review of MS-DRGs, we identified three MS-
DRGs that we proposed to be included on the list of MS-DRGs subject to 
the special payment transfer policy. As we discussed in section II.F. 
of the preamble of that proposed rule, in

[[Page 38176]]

response to public comments and based on our analysis of FY 2016 MedPAR 
claims data, we proposed to make changes to MS-DRGs, effective for FY 
2018.
    As discussed in the preamble of the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19850), we proposed to delete MS-DRGs 984, 985, and 986 
(Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC and without CC/MCC, respectively) and reassign the procedure 
codes currently assigned to these three MS-DRGs to MS-DRGs 987, 988, 
and 989 (Non-Extensive O.R. Procedure Unrelated to Principal Diagnosis 
with MCC, with CC and without CC/MCC, respectively).
    In light of the proposed changes to the MS-DRGs for FY 2018, 
according to the regulations under Sec.  412.4(d), we evaluated 
proposed revised MS-DRGs 987, 988, and 989 (which would contain the 
proposed reassigned procedures from MS-DRGs 984, 985, and 986) against 
the general postacute care transfer policy criteria using the FY 2016 
MedPAR data. If an MS-DRG qualified for the postacute care transfer 
policy, we also evaluated that MS-DRG under the special payment 
methodology criteria according to regulations at Sec.  412.4(f)(6). We 
continue to believe it is appropriate to reassess MS-DRGs when 
proposing reassignment of procedure or diagnosis codes that would 
result in material changes to an MS-DRG. MS-DRGs 987, 988, and 989 are 
currently subject to the postacute care transfer policy. We stated in 
the proposed rule that as a result of our review, the proposed revised 
MS-DRGs 987, 988, and 989 continue to qualify to be included on the 
list of MS-DRGs that are subject to the postacute care transfer policy. 
We did not propose to change the postacute care transfer policy status 
for MS-DRGs 987, 988, and 989.
    As discussed in section II.F.14.b. of the preamble of this FY 2018 
IPPS/LTCH PPS final rule, we are finalizing the proposed revisions to 
these MS-DRGs. Using the March 2017 update of the FY 2016 MedPAR file, 
we developed the following chart which sets forth the most recent 
analysis of the postacute care transfer policy criteria completed for 
this final rule.

                             List of Revised MS-DRGs Subject to Review of Postacute Care Transfer Policy Status for FY 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Percent of
                                                                                                              short-stay
                                                                            Postacute care                  postacute care
                                                                               transfers      Short-stay     transfers to      Postacute care transfer
       Revised MS-DRG                 MS-DRG title            Total cases        (55th      postacute care     all cases            policy status
                                                                              percentile:      transfers         (55th
                                                                                1,418)                        percentile:
                                                                                                               7.80629%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
987........................  Non-Extensive O.R. Procedure            8,485           4,395           1,117        13.16441  Yes.
                              Unrelated to Principal
                              Diagnosis with MCC.
988........................  Non-Extensive O.R. Procedure            8,876           3,774             817         9.20460  Yes.
                              Unrelated to Principal
                              Diagnosis with CC.
989........................  Non-Extensive O.R. Procedure            2,364           * 568              53       * 2.24196  Yes. **
                              Unrelated to Principal
                              Diagnosis without MCC/CC.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Indicates a current postacute care transfer policy criterion that the MS-DRG did not meet.
** As described in the policy at 42 CFR 412.4(d)(3)(ii)(D), MS-DRGs that share the same base MS-DRG will all qualify under the postacute care transfer
  policy if any one of the MS-DRGs that share that same base MS-DRG qualifies.

    As we discussed in the proposed rule, we also determined that 
proposed revised MS-DRGs 987, 988, and 989 would meet the criteria for 
the MS-DRG special payment methodology. MS-DRGs 987, 988, and 989 are 
not currently listed as being subject to the special payment policy. 
Therefore, we proposed that these three proposed revised MS-DRGs would 
be subject to the MS-DRG special payment methodology, effective FY 
2018.
    We did not receive any public comments on this proposal. Therefore, 
we are finalizing the proposed changes to the special payment policy 
status of MS-DRGs 987, 988, and 989. We note that, in a chart in the 
proposed rule (82 FR 19931), we erroneously listed the geometric mean 
length of stay for MS-DRG 988 as 8.6 days. The figure should have been 
4.4 days (which, for this final rule, is revised to 4.3 days as a 
result of the most recent data analysis). Regardless, because the 
revised geometric mean length of stay is also greater than 4 days, MS-
DRG 988 qualifies for special payment policy status, and as described 
in the policy at 42 CFR 412.4(d)(6)(iv), MS-DRGs 987 and 989 also 
qualify, consistent with our proposal. Using the March 2017 update of 
the FY 2016 MedPAR file, we developed the following chart which set 
forth the most recent data analysis of the special payment methodology 
criteria completed for this final rule.

             List of Revised MS-DRGs Subject To Review of Special Payment Policy Status for FY 2018
----------------------------------------------------------------------------------------------------------------
                                                                             50 percent of
                                                                Average         average
   Revised MS-DRG         MS-DRG title      Geometric mean  charges of  1-    charges for      Special payment
                                            length of stay  day discharges     all cases        policy status
                                                                             within MS-DRG
----------------------------------------------------------------------------------------------------------------
987................  Non-Extensive O.R.                7.9         $33,424         $52,050  Yes *.
                      Procedure Unrelated
                      to Principal
                      Diagnosis with MCC.
988................  Non-Extensive O.R.                4.3          34,443          28,404  Yes.
                      Procedure Unrelated
                      to Principal
                      Diagnosis with CC.

[[Page 38177]]

 
989................  Non-Extensive O.R.                2.2               0               0  Yes.*
                      Procedure Unrelated
                      to Principal
                      Diagnosis without
                      MCC/CC.
----------------------------------------------------------------------------------------------------------------
* As described in the policy at 42 CFR 412.4(d)(6)(iv), MS-DRGs that share the same base MS-DRG will all qualify
  under the MS-DRG special payment policy if any one of the MS-DRGs that share that same base MS-DRG qualifies.

    The finalized special payment policy status of these three MS-DRGs 
is reflected in Table 5 associated with this final rule, which is 
listed in section VI. of the Addendum to this final rule and available 
via the Internet on the CMS Web site.

B. Changes in the Inpatient Hospital Update for FY 2018 (Sec.  
412.64(d))

1. FY 2018 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.'' As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 19931 through 19933), for FY 2018, we are setting the applicable 
percentage increase by applying the adjustments listed in this section 
in the same sequence as we did for FY 2017. 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 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 2018 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 
2018 IPPS/LTCH PPS proposed rule (82 FR 19916 through 19923), we 
proposed to replace the FY 2010-based IPPS operating market basket with 
the rebased and revised 2014-based IPPS operating market basket for FY 
2018. We proposed to base the proposed FY 2018 market basket update 
used to determine the applicable percentage increase for the IPPS on 
IHS Global Inc.'s (IGI's) fourth quarter 2016 forecast of the proposed 
2014-based IPPS market basket rate-of-increase with historical data 
through third quarter 2016, which was estimated to be 2.9 percent. We 
proposed that if more recent data subsequently became 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 2018 market basket update and the MFP adjustment in this final rule. 
We received public comments regarding the rebasing and revising of the 
IPPS operating market basket and refer readers to section IV.B. of this 
final rule for a complete discussion on the rebasing and revising of 
the market basket. In section IV.B., we are finalizing our proposals 
without modification and, therefore, are using the finalized rebased 
and revised 2014-based IPPS market basket rate-of-increase for FY 2018.
    Based on the most recent data available for this FY 2018 IPPS/LTCH 
PPS final rule (that is, IGI's second quarter 2017 forecast of the 
2014-based IPPS market basket rate-of-increase with historical data 
through first quarter 2017), we estimate that the FY 2018 market basket 
update used to determine the applicable percentage increase for the 
IPPS is 2.7 percent.
    For FY 2018, 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

[[Page 38178]]

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.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19932), for FY 
2018, we proposed an MFP adjustment of 0.4 percentage point. Similar to 
the market basket update, for the proposed rule, we used IGI's fourth 
quarter 2016 forecast of the MFP adjustment to compute the proposed MFP 
adjustment. As noted previously, we proposed that if more recent data 
subsequently become available, we would use such data, if appropriate, 
to determine the FY 2018 market basket update and the MFP adjustment 
for the final rule. Based on the most recent data available for this 
final rule, we have determined an MFP adjustment of 0.6 percentage 
point for FY 2018.
    We did not receive any public comments on our proposal to use the 
most recent available data to determine the final market basket update 
and the MFP adjustment. Therefore, for this final rule, we are 
finalizing a market basket update of 2.7 percent and an MFP adjustment 
of 0.6 percentage point based on the most recent available data.
    Based on the most recent data available for this final rule, as 
described previously, we have determined four applicable percentage 
increases to the standardized amount for FY 2018, as specified in the 
following table:

                              FY 2018 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 2018                         and is a      and is not a      and is a      and is not a
                                                  meaningful EHR  meaningful EHR  meaningful EHR  meaningful EHR
                                                       user            user            user            user
----------------------------------------------------------------------------------------------------------------
Market Basket Rate[dash]of[dash]Increase........             2.7             2.7             2.7             2.7
Adjustment for Failure to Submit Quality Data                0.0             0.0          -0.675          -0.675
 under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR                0.0          -2.025             0.0          -2.025
 User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi)              -0.6            -0.6            -0.6            -0.6
 of the Act.....................................
Statutory Adjustment under Section                         -0.75           -0.75           -0.75           -0.75
 1886(b)(3)(B)(xii) of the Act..................
Applicable Percentage Increase Applied to                   1.35          -0.675           0.675           -1.35
 Standardized Amount............................
----------------------------------------------------------------------------------------------------------------

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19932), we 
proposed to revise the existing regulations at 42 CFR 412.64(d) to 
reflect the current law for the FY 2018 update. Specifically, in 
accordance with section 1886(b)(3)(B) of the Act, we proposed to revise 
paragraph (vii) of Sec.  412.64(d)(1) to include the applicable 
percentage increase to the FY 2018 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.
    We did not receive any public comments on our proposed changes to 
the regulations at Sec.  412.64(d)(1)(vii) and, therefore, are 
finalizing these proposed changes without modification in this final 
rule.
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase to the hospital-specific rates for SCHs equals the 
applicable percentage increase set forth in section 1886(b)(3)(B)(i) of 
the Act (that is, the same update factor as for all other hospitals 
subject to the IPPS). Therefore, the update to the hospital-specific 
rates for SCHs 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.
    As discussed in section V.H. of the preamble of the FY 2018 IPPS/
LTCH PPS proposed rule and in this final rule, 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). Therefore, under current law, the MDH program will 
expire at the end of FY 2017.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19932), for FY 
2018, we proposed updates to the hospital-specific rates applicable to 
SCHs based on IGI's fourth quarter 2016 forecast of the proposed 2014-
based IPPS market basket update with historical data through third 
quarter 2016. Similarly, we used IGI's fourth quarter 2016 forecast of 
the MFP adjustment. We proposed that if more recent data subsequently 
became 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 in the final rule.
    We did not receive any public comments with regard to our proposal. 
Therefore, we are finalizing the proposal to determine the update to 
the hospital-specific rates for SCHs in this final rule using the most 
recent data available.
    For this final rule, based on the most recent available data, we 
are finalizing the following updates to the hospital-specific rates 
applicable to SCHs (using IGI's second quarter 2017 forecast of the 
2014-based IPPS market basket update and the MFP adjustment): An update 
of 1.35 percent for a hospital that submits quality data and is a 
meaningful EHR user; an update of 0.675 percent for a hospital that 
fails to submit quality data and is a meaningful EHR user; an update of 
-0.675 percent for a hospital that submits quality data and is not a 
meaningful EHR user; and an update of -1.35 percent for a hospital that 
fails to submit quality data and is not a meaningful EHR user.
2. FY 2018 Puerto Rico Hospital Update
    As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56937 
through 56938), prior to January 1, 2016, Puerto Rico hospitals were 
paid based on 75 percent of the national

[[Page 38179]]

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 determine 
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 V.B.1. of the preamble of this final 
rule. Accordingly, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19932 through 19933), for FY 2018, we proposed an applicable percentage 
increase of 1.75 percent to the standardized amount for hospitals 
located in Puerto Rico. We did not receive any public comments on our 
proposal. Based on the most recent available data, we are finalizing an 
applicable percentage increase of 1.35 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 2018.

C. Change to Volume Decrease Adjustment for Sole Community Hospitals 
(SCHs) and Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec. Sec.  
412.92 and 412.108)

1. Background
    Sections 1886(d)(5)(D) and (d)(5)(G) of the Act provide special 
payment protections under the IPPS to sole community hospitals (SCHs) 
and Medicare-dependent, small rural hospitals (MDHs), respectively. 
Section 1886(d)(5)(D)(iii) of the Act defines an SCH in part as a 
hospital that the Secretary determines is located more than 35 road 
miles from another hospital or that, by reason of factors such as 
isolated location, weather conditions, travel conditions, or absence of 
other like hospitals (as determined by the Secretary), is the sole 
source of inpatient hospital services reasonably available to Medicare 
beneficiaries. The regulations at 42 CFR 412.92 set forth the criteria 
that a hospital must meet to be classified as a SCH. For more 
information on SCHs, we refer readers to the FY 2009 IPPS/LTCH PPS 
final rule (74 FR 43894 through 43897).
    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 MDH 
program is not authorized by statute beyond September 30, 2017. 
Therefore, beginning October 1, 2017, all hospitals that previously 
qualified for MDH status under section 1886(d)(5)(G) of the Act will no 
longer have MDH status and will be paid based on the IPPS Federal rate. 
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).
2. Changes to the Volume Decrease Adjustment Calculation Methodology 
for SCHs
    Section 1886(d)(5)(D)(ii) and section 1886(d)(5)(G)(iii) of the Act 
require that the Secretary adjust the payments made to an SCH and MDH, 
respectively, as may be necessary to fully compensate the hospital for 
the fixed costs it incurs in providing inpatient hospital services, 
including the reasonable cost of maintaining necessary core staff and 
services, when it experiences a decrease of more than 5 percent in its 
total number of inpatient discharges due to circumstances beyond its 
control. These adjustments are known as ``volume decrease 
adjustments.''
    The regulations governing volume decrease adjustments are found at 
42 CFR 412.92(e) for SCHs and Sec.  412.108(d) for MDHs. As noted 
earlier, the MDH program is set to expire as of October 1, 2017. As 
such, we proposed that if the MDH program ends up being extended by 
law, similar to how it was extended by section 205 of the MACRA (Pub. 
L. 114-10) and prior legislation, the proposed changes to the volume 
decrease adjustment methodology and the proposed amendment to Sec.  
412.92(e)(3) for SCHs would also be made to the parallel requirements 
for MDHs under Sec.  412.108(d)(3).
    To qualify for a volume decrease adjustment, the SCH must: (a) 
Submit documentation demonstrating the size of the decrease in 
discharges and the resulting effect on per discharge costs; and (b) 
show that the decrease is due to circumstances beyond the hospital's 
control. If an SCH demonstrates to the MAC's satisfaction that it has 
suffered a qualifying decrease in total inpatient discharges, the MAC 
determines the appropriate amount, if any, due to the SCH as an 
adjustment.
    As we have noted in Section 2810.1 of the Provider Reimbursement 
Manual, Part 1 (PRM-1) and in adjudications rendered by the PRRB and 
the CMS Administrator, under the current methodology, the MAC 
determines a volume decrease adjustment amount not to exceed a cap 
calculated as the difference between the lesser of (1) the hospital's 
current year's Medicare inpatient operating costs or (2) its prior 
year's Medicare inpatient operating costs multiplied by the appropriate 
IPPS update factor, and the hospital's total MS-DRG revenue for 
inpatient operating costs (including outlier payments, DSH payments, 
and IME payments). In determining the volume decrease adjustment 
amount, the MAC considers the individual hospital's needs and 
circumstances, including the reasonable cost of maintaining necessary 
core staff and services in view of minimum staffing requirements 
imposed by State agencies; the hospital's fixed costs (including 
whether any semi-fixed costs are to be considered fixed) other than 
those costs paid on a reasonable cost basis; and the length of time the 
hospital has experienced a decrease in utilization.

[[Page 38180]]

    We have set forth interpretive guidance regarding volume decrease 
adjustments in the preambles to various rules and in Section 2810.1 of 
the PRM-1. The adjustment also has been the subject of a series of 
adjudications, rendered by the PRRB and the CMS Administrator. For 
example, we refer readers to Greenwood County Hospital Eureka, Kansas, 
v. Blue Cross Blue Shield Association/Blue Cross Blue Shield of Kansas, 
2006 WL 3050893 (PRRB August 29, 2006); Unity Healthcare Muscatine, 
Iowa v. Blue Cross Blue Shield Association/Wisconsin Physicians 
Service, 2014 WL 5450066 (CMS Administrator September 4, 2014); Lakes 
Regional Healthcare Spirit Lake, Iowa v. Blue Cross Blue Shield 
Association/Wisconsin Physicians Service, 2014 WL 5450078 (CMS 
Administrator September 4, 2014); Fairbanks Memorial Hospital v. 
Wisconsin Physician Services/BlueCross BlueShield Association, 2015 WL 
5852432 (CMS Administrator, August 5, 2015); St. Anthony Regional 
Hospital v. Wisconsin Physicians Service, 2016 WL 7744992 (CMS 
Administrator October 3, 2016); and Trinity Regional Medical Center v. 
Wisconsin Physician Services, 2017 WL 2403399 (CMS Administrator 
February 9, 2017). In those adjudications, the PRRB and the CMS 
Administrator have recognized that: (1) The volume decrease adjustment 
is intended to compensate qualifying SCHs for their fixed costs only, 
and that variable costs are to be excluded from the adjustment; and (2) 
an SCH's volume decrease adjustment should be reduced to reflect the 
compensation of fixed costs that has already been made through MS-DRG 
payments.
    However, some hospitals have recently expressed concerns regarding 
the exact calculations that the MACs use when determining the volume 
decrease adjustment. The issue also has been addressed in some recent 
decisions of the PRRB. As the above referenced Administrator decisions 
illustrate and explain, under the current calculation methodology, the 
MACs calculate the volume decrease adjustment by subtracting the 
entirety of the hospital's total MS-DRG revenue for inpatient operating 
costs, including outlier payments and IME and DSH payments in the cost 
reporting period in which the volume decrease occurred, from fixed 
costs in the cost reporting period in which the volume decrease 
occurred, minus any adjustment for excess staff. If the result of that 
calculation is greater than zero and less than the cap, the hospital 
receives that amount in a lump-sum payment. If the result of that 
calculation is zero or less than zero, the hospital does not receive a 
volume decrease payment adjustment.
    Under the IPPS, MS-DRG payments are not based on an individual 
hospital's actual costs in a given cost reporting period. However, the 
main issue raised by the PRRB and individual hospitals is that, under 
the current calculation methodology, if the hospital's total MS-DRG 
revenue for treating Medicare beneficiaries for which it incurs 
inpatient operating costs (consisting of fixed, semi-fixed, and 
variable costs) exceeds the hospital's fixed costs, the calculation by 
the MACs results in no volume decrease adjustment for the hospital. In 
some recent decisions, the PRRB has indicated that it believes it would 
be more appropriate for the MACs to adjust the hospital's total MS-DRG 
revenue from Medicare by looking at the ratio of a hospital's fixed 
costs to its total costs (as determined by the MAC) and applying that 
ratio as a proxy for the share of the hospital's MS-DRG payments that 
it assumes are attributable (or allocable) to fixed costs, and then 
comparing that estimate of the fixed portion of MS-DRG payments to the 
hospital's fixed costs. In this way, the calculation would compare 
estimated Medicare revenue for fixed costs to the hospital's fixed 
costs when determining the volume decrease adjustment.
    We continue to believe that our current approach in calculating 
volume decrease adjustments is reasonable and consistent with the 
statute. The relevant statutory provisions, at sections 
1886(d)(5)(D)(ii) and 1886(d)(5)(G)(iii) of the Act, are silent about 
and thus delegate to the Secretary the responsibility of determining 
which costs are to be deemed ``fixed'' and what level of adjustment to 
IPPS payments may be necessary to ensure that total Medicare payments 
have fully compensated an SCH or MDH for its ``fixed costs.'' These 
provisions suggest that the volume decrease adjustment amount should be 
reduced (or eliminated as the case may be) to the extent that some or 
all of an SCH's or MDH's fixed costs have already been compensated 
through other Medicare subsection (d) payments. The Secretary's current 
approach is also consistent with the regulations and the PRM-1. Like 
the statute, the relevant regulations do not address variable costs, 
and the regulations and the PRM-1 (along with the Secretary's preambles 
to issued rules (48 FR 39781 through 39782 and 55 FR 15156) and 
adjudications) all make it clear that the volume decrease adjustment is 
intended to compensate qualifying SCHs and MDHs for their fixed costs, 
not for their variable costs, and that variable costs are to be 
excluded from the volume decrease adjustment calculation. Nevertheless, 
we understand why hospitals might take the view that CMS should make an 
effort, in some way, to ascertain whether a portion of MS-DRG payments 
can be allocated or attributed to fixed costs in order to fulfill the 
statutory mandate to ``fully compensate'' a qualifying SCH for its 
fixed costs.
    Accordingly, after considering these views, in the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 19933), we proposed to prospectively 
change how the MACs calculate the volume decrease adjustments and 
require that the MACs compare estimated Medicare revenue for fixed 
costs to the hospital's fixed costs to remove any conceivable 
possibility that a hospital that qualifies for the volume decrease 
adjustment could ever be less than fully compensated for fixed costs as 
a result of the application of the adjustment. We proposed that, in 
order to estimate the fixed portion of the Medicare revenue, the MACs 
would apply the ratio of the hospital's fixed costs to total costs in 
the cost reporting period when it experienced the volume decrease to 
the hospital's total Medicare revenue in that same cost reporting 
period. We proposed to revise the regulations at 42 CFR 412.92(e)(3) to 
reflect our proposed change in the MAC's calculation of the volume 
decrease adjustment that would apply prospectively to cost reporting 
periods beginning on or after October 1, 2017, and to reflect that the 
language requiring that the volume decrease adjustment amount not 
exceed the difference between the hospital's Medicare inpatient 
operating costs and the hospital's total DRG revenue for inpatient 
operating costs would only apply to cost reporting periods beginning 
before October 1, 2017, but not to subsequent cost reporting periods. 
Under the proposed methodology, if a hospital's total MS-DRG payment is 
less than its total Medicare inpatient operating costs, the sum of any 
resulting volume decrease adjustment payment and its MS-DRG payment 
would never exceed its total Medicare inpatient operating costs due to 
the fact that the fixed cost percentage is applied to the MS-DRG 
payment in calculating the volume decrease adjustment amount. By taking 
the ratio derived from the subset of fixed costs to total costs and 
applying that same ratio to the MS-DRG payment, we ensure that the sum 
of a hospital's IPPS payment

[[Page 38181]]

and its volume decrease adjustment payment would never exceed its total 
Medicare inpatient operating costs, thus negating the need for a cap 
calculation. Thus, the proposed methodology would render the current 
volume decrease adjustment cap calculation obsolete. Conversely, if a 
hospital's total MS-DRG payment is greater than its total Medicare 
inpatient operating costs, calculating a volume decrease adjustment 
using the proposed methodology would result in a negative payment 
amount, which would yield a volume decrease adjustment payment of zero. 
Finally, if a hospital's total MS-DRG payment is equal to its total 
Medicare inpatient operating costs, calculating a volume decrease 
adjustment using the proposed methodology would also yield a volume 
decrease adjustment payment of zero. Furthermore, we believe that 
because a hospital could not foresee a decrease in its volume from one 
year to the next and would therefore not plan for a volume decrease 
adjustment, the volume decrease adjustment payment should therefore not 
be limited to a cap that is based on the previous year's costs. For 
these reasons, we proposed to remove the cap calculation from the 
volume decrease adjustment calculation methodology in future periods. 
We believe that this new approach to calculating the volume decrease 
adjustment, like the current methodology, is reasonable and consistent 
with the statute.
    We proposed that these proposed changes in the MAC's calculation of 
the volume decrease adjustment would be prospective, effective for cost 
reporting periods beginning on or after October 1, 2017. We indicated 
in the proposed rule that if these proposed changes are adopted, we 
also intended to update Section 2810.1 of the PRM-1 to reflect the 
changes in the calculation of the volume decrease adjustment by the 
MAC. For volume decrease adjustments for earlier cost reporting 
periods, we stated that the current calculation methodology would 
continue. In addition, we stated that we were not proposing to change 
any part of the methodology, criteria, rules, or presumptions we 
consider and apply in determining whether to classify a given cost as 
fixed, semi-fixed, or variable for purposes of the volume decrease 
adjustment.
    In the proposed rule, we presented the following example to 
illustrate the calculation of the volume decrease adjustment by the MAC 
under our proposed change. We note that, as presented in our proposed 
rule, the example may have implied that under the proposed methodology, 
the MACs would apply the ratio of the hospital's Medicare fixed costs 
to total Medicare costs, rather than ``the ratio of the hospital's 
fixed costs to total costs in the cost reporting period when it 
experienced the volume decrease to the hospital's total Medicare 
revenue in that same cost reporting period,'' as stated elsewhere in 
the preamble (82 FR 19934). We have modified the example below to 
address this inconsistency and to clarify our intent by including 
additional details to more clearly illustrate how Medicare fixed costs 
and the fixed MS-DRG revenue are calculated and used in the 
calculation, including to reflect that this same ratio, that is, the 
hospital's fixed inpatient costs to total inpatient costs, is applied 
to total Medicare costs to arrive at fixed Medicare costs, as under the 
current methodology.
    Example: In its cost reporting period beginning October 1, 2017, 
Hospital A has total Medicare inpatient operating costs equaling 
$1,600,000 and total MS-DRG revenue (including outlier payments, IME 
and DSH) of $1,400,000. The MAC determines that the hospital qualifies 
for a volume decrease adjustment for this cost reporting period. The 
MAC classifies $2,720,000 of Hospital A's total (Medicare and non-
Medicare) costs as fixed and $480,000 as variable. Hospital A's fixed 
cost ratio is therefore .85 = $2,720,000/($2,720,000 + $480,000) = 
$2,720,000/$3,200,000. The MAC applies this ratio to the (1) total MS-
DRG revenue of $1,400,000 to estimate the hospital's fixed MS-DRG 
revenue to be $1,190,000 and (2) total Medicare inpatient operating 
costs to estimate the hospital's fixed Medicare costs to be $1,360,000. 
The volume decrease adjustment payment is then calculated by comparing 
the fixed MS-DRG revenue of $1,190,000 to the Medicare fixed costs of 
$1,360,000, resulting in a volume decrease adjustment payment of 
$170,000 ($1,360,000 minus $1,190,000).
    Under the current methodology used by the MACs, Hospital A would 
receive no volume decrease adjustment payment because its total MS-DRG 
revenue from Medicare of $1,400,000 exceeded the hospital's Medicare 
fixed costs of $1,360,000. Furthermore, under the current methodology, 
but not under our proposed methodology, it is possible that a hospital 
would still receive no volume decrease adjustment payment even if its 
Medicare fixed costs exceeded its total MS-DRG revenue if those fixed 
costs exceeded the previous year's costs updated for inflation.
    We also proposed changes to an adjustment that might be made to a 
hospital's staffing costs in calculating the volume decrease 
adjustment. The statute and regulations and the PRM-1 imply, and we 
have expressly indicated in prior rulemaking, most recently in the FY 
2006 rulemaking, our belief that not all staff costs can necessarily be 
considered fixed costs (71 FR 48056 through 48060). Therefore, we 
currently require a hospital, when applying for a volume decrease 
adjustment, to demonstrate that it appropriately adjusted the number of 
staff in inpatient areas of the hospital based on the decrease in the 
number of inpatient days but not beyond minimum levels as required by 
State or local laws. If a hospital does not appropriately adjust its 
number of staff, the cost of maintaining those staff members is 
deducted from the total volume decrease adjustment payment. In 
reviewing the volume decrease adjustment calculation, we have also 
weighed the administrative burden on the hospital of making this 
demonstration to CMS, as compared to an assumption that it is likely 
that a hospital would, in its normal course of business, adjust its 
staffing levels as revenue declines. In the absence of evidence to 
contrary, we believe that a hospital would adjust its staffing levels 
as revenue declines rather than maintain those staffing levels for the 
sole purpose of potentially having those staffing costs eventually 
reflected in a Medicare volume decrease adjustment payment that the 
hospital may or may not qualify for when it files its cost report. 
Therefore, we proposed to modify the volume decrease adjustment process 
to no longer require that a hospital explicitly demonstrate that it 
appropriately adjusted the number of staff in inpatient areas of the 
hospital based on the decrease in the number of inpatient days and to 
no longer require the MAC to adjust the volume decrease adjustment 
payment amount for excess staffing. We proposed that these changes 
would be effective for cost reporting periods beginning on or after 
October 1, 2017.
    Comment: Commenters supported CMS' proposed changes to the volume 
decrease adjustment methodology to (1) apply the ratio of the 
hospital's fixed costs to total costs in the cost reporting period when 
it experienced the volume decrease to the hospital's total Medicare 
revenue in that same cost reporting period; (2) remove the cap 
calculation from the volume decrease adjustment calculation methodology 
in future periods; (3) no longer require that a hospital explicitly 
demonstrate that it appropriately adjusted the number of

[[Page 38182]]

staff in inpatient areas of the hospital based on the decrease in the 
number of inpatient days; and (4) no longer require the MAC to adjust 
the volume decrease adjustment payment amount for excess staffing. 
However, commenters suggested that CMS apply these proposals 
retrospectively with a gamut of suggestions as to the specific types of 
volume decrease adjustment determinations for which to apply the 
proposed methodology: Pending volume decrease adjustment 
determinations; volume decrease adjustment determinations currently 
under appeal; unsettled cost reports; volume decrease adjustment 
determinations that are still within the PRRB appeal timeline; volume 
decrease adjustment determinations for which the MAC has issued a 
recoupment demand; volume decrease adjustment determinations for all 
open cost reports, regardless of whether an appeal was made; and all 
open cost reports, including those for which a volume decrease 
adjustment was not requested.
    Some commenters asserted that what CMS outlined in the proposed 
rule as its ``current methodology'' was not, in fact, the current 
methodology being applied consistently across the board and that 
applying that methodology to pending volume decrease adjustment cases 
would amount to retroactive rulemaking. The commenters added that the 
proposed methodology, or the ``proxy methodology,'' is not, in fact, 
new because it has been referenced in PRRB decisions and has been used 
by some MACs at times. Other commenters stated that critical funding to 
hospitals for pending volume decrease adjustment determinations should 
not be at risk due to a lack of standardization across CMS and MAC 
decisions.
    Response: We appreciate the commenters' support of our proposed 
changes to the volume decrease adjustment methodology. We disagree with 
the commenters' assertion that the methodology that we outlined as our 
``current methodology'' is not current but a new methodology that we 
are introducing as ``current.'' While there may have been 
inconsistencies in volume decrease adjustment determinations made by 
some MACs, inconsistent MAC determinations and PRRB decisions that are 
subsequently reversed by the Administrator do not establish agency 
policy nor bind the agency. Furthermore, our current methodology has 
been upheld by the PRRB in Greenwood County Hospital Eureka, Kansas, v. 
Blue Cross Blue Shield Association/Blue Cross Blue Shield of Kansas, 
2006 WL 3050893 (PRRB, August 29, 2006) and clearly outlined in the 
Administrator's decisions in Unity Healthcare Muscatine, Iowa v. Blue 
Cross Blue Shield Association/Wisconsin Physicians Service, 2014 WL 
5450066 (CMS Administrator September 4, 2014); Lakes Regional 
Healthcare Spirit Lake, Iowa v. Blue Cross Blue Shield Association/
Wisconsin Physicians Service, 2014 WL 5450078 (CMS Administrator 
September 4, 2014); Fairbanks Memorial Hospital v. Wisconsin Physician 
Services/BlueCross BlueShield Association, 2015 WL 5852432 (CMS 
Administrator, August 5, 2015); St. Anthony Regional Hospital v. 
Wisconsin Physicians Service, 2016 WL 7744992 (CMS Administrator 
October 3, 2016); and Trinity Regional Medical Center v. Wisconsin 
Physician Services, 2017 WL 2403399 (CMS Administrator February 9, 
2017), to name a few. For these reasons, we disagree with the 
commenters that our current policy was not the established policy, and 
we believe that applying this policy does not constitute retroactive 
rulemaking. Indeed, some of these same commenters are currently 
awaiting a court decision in a pending appeal in which they challenged 
the exact methodology which they claim in their comments is not 
``current policy'' but a redefined ``new policy.''
    We also do not agree that we should apply our proposed methodology 
retroactively. The IPPS is a prospective system and, absent 
legislation, a judicial decision, or other compelling considerations to 
the contrary, we generally make changes to IPPS regulations effective 
prospectively based on the date of discharge or the start of a cost 
reporting period within a certain Federal fiscal year. We believe 
following our usual approach and applying the new methodology for cost 
reporting periods beginning on or after October 1, 2017 would allow for 
the most equitable application of this methodology among all IPPS 
providers seeking to qualify for volume decrease adjustments. For these 
reasons, we are finalizing that our proposed changes to the volume 
decrease adjustment methodology will apply prospectively for cost 
reporting periods beginning on or after October 1, 2017.
    Comment: One commenter suggested that, because CMS did not issue 
updated core staffing factors for FY 2012 or later, the proposed change 
to no longer require a hospital to explicitly demonstrate that it 
appropriately adjusted the number of staff in inpatient areas of the 
hospital based on the decrease in the number of inpatient days and to 
no longer require the MAC to adjust the volume decrease adjustment 
payment amount for excess staffing be effective for cost reporting 
periods beginning on or after October 1, 2011.
    Response: We appreciate the commenter's support of our effort to 
streamline the volume decrease adjustment determination process by 
eliminating the core staffing adjustment. However, we disagree with the 
suggestion to apply this change retroactively. As noted earlier, the 
IPPS is a prospective system and we generally make changes effectively 
prospectively. The absence of updated core staffing data does not 
undermine the policy that we expressly indicated in prior rulemaking. 
Therefore, we do not see any compelling reason to apply this change 
retrospectively.
    Comment: Some commenters addressed areas of volume decrease 
adjustment policy for which we did not propose any changes. These 
included waiving the requirement for hospitals to demonstrate that the 
decrease in discharges was beyond the hospital's control; to no longer 
require the removal of variable costs and calculate the volume decrease 
adjustment by subtracting the MS-DRG payment from total inpatient 
costs; shortening the timeline in which MACs need to make volume 
decrease adjustment determinations; and stopping MACs from rejecting 
requests for volume decrease adjustments before an NPR is issued.
    Response: We appreciate the commenters' concerns. However, because 
we did not make any proposals related to these specific policy areas 
and we consider these comments to be out of the scope of the proposed 
rule, we are not addressing them in this final rule.
    After consideration of the public comments we received, we are 
finalizing our policies as proposed, with one modification to our 
proposed amendment to Sec.  412.92(e)(3) to reflect these policies. We 
are finalizing our proposal to prospectively require that the MACs 
compare Medicare revenue allocable to fixed costs from the cost 
reporting period in which the hospital experienced the volume decrease 
to the hospital's fixed costs from that same cost reporting period when 
calculating a volume decrease adjustment and that the cap will no 
longer be applied to the volume decrease adjustment calculation 
methodology. We proposed to revise the regulations at Sec.  
412.92(e)(3) to reflect these changes. However, our proposed regulatory 
text did not precisely capture the new calculation methodology that we 
described in the preamble to the proposed rule, and which we are now 
finalizing, in one respect. Specifically,

[[Page 38183]]

the preamble to the proposed rule stated that, under the proposed 
change in the MAC's calculation of the volume decrease adjustment, ``in 
order to estimate the fixed portion of the Medicare revenue, the MACs 
would apply the ratio of the hospital's fixed costs to total costs in 
the cost reporting period when it experienced the volume decrease to 
the hospital's total Medicare revenue in that same cost reporting 
period'' (82 FR 19934). By contrast, the proposed regulatory text in 
the proposed rule stated that the ratio to be applied by the MAC would 
be ``the ratio of the hospital's fixed Medicare inpatient operating 
costs to its total Medicare inpatient operating costs'' (82 FR 20161). 
Therefore, consistent with the proposed policy which we are now 
finalizing, we are deleting the two instances of the words ``Medicare'' 
that appear in the clause quoted in the preceding sentence. 
Accordingly, as finalized, the second sentence of Sec.  412.92(e)(3) 
specifies that, effective for cost reporting periods beginning on or 
after October 1, 2017, the MAC determines a lump sum adjustment amount 
equal to the difference between the hospital's fixed Medicare inpatient 
operating costs and the hospital's total MS-DRG revenue based on MS-
DRG-adjusted prospective payment rates for inpatient operating costs 
(including outlier payments for inpatient operating costs determined 
under subpart F of Part 412 and additional payments made for inpatient 
operating costs for hospitals that serve a disproportionate share of 
low-income patients as determined under Sec.  412.106 and for indirect 
medical education costs as determined under Sec.  412.105) multiplied 
by the ratio of the hospital's fixed inpatient operating costs to its 
total inpatient operating costs. We also are finalizing our proposal to 
prospectively modify the volume decrease adjustment process to no 
longer require that a hospital explicitly demonstrate that it 
appropriately adjusted the number of staff in inpatient areas of the 
hospital based on the decrease in the number of inpatient days and to 
no longer require the MAC to adjust the volume decrease adjustment 
payment amount for excess staffing. These changes will be effective for 
cost reporting periods beginning on or after October 1, 2017. As we 
noted earlier, we proposed that if the MDH program ends up being 
extended by law, similar to how it was extended by section 205 of the 
MACRA (Pub. L. 114-10) and prior legislation, these changes to the 
volume decrease adjustment methodology and the amendment to Sec.  
412.92(e)(3) for SCHs would also be made to the parallel requirements 
for MDHs under Sec.  412.108(d)(3). To that end, we are modifying the 
regulations at Sec.  412.108(d)(3) by modifying the introductory 
paragraph to cross-reference the requirements found at Sec.  
412.92(e)(3). This will allow for consistency in the regulations 
governing volume decrease adjustments should the MDH program be 
extended.

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

    Under the authority of section 1886(d)(5)(C)(i) of the Act, the 
regulations at Sec.  412.96 set forth the criteria that a hospital must 
meet in order to qualify under the IPPS as a rural referral center 
(RRC). RRCs receive some special treatment under both the DSH payment 
adjustment and the criteria for geographic reclassification.
    Section 402 of Public Law 108-173 raised the DSH payment adjustment 
for RRCs such that they are not subject to the 12-percent cap on DSH 
payments that is applicable to other rural hospitals. RRCs 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 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 national median CMI 
value for FY 2018 is based on the CMI values of all urban hospitals 
nationwide, and the regional median CMI values for FY 2018 are based on 
the CMI values of all urban hospitals within each census region, 
excluding those hospitals with approved teaching programs (that is, 
those hospitals that train residents in an approved GME program as 
provided in Sec.  413.75). These values are based on discharges 
occurring during FY 2016 (October 1, 2015 through September 30, 2016), 
and include bills posted to CMS' records through March 2016.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19936), we 
proposed that, in addition to meeting other criteria, if rural 
hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
2017, they must have a CMI value for FY 2016 that is at least--
     1.6635 (national--all urban); or
     The median CMI value (not transfer-adjusted) for urban 
hospitals

[[Page 38184]]

(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 median CMI values by region were set forth in the 
proposed rule (82 FR 19936). We stated in the proposed rule that we 
intended to update these proposed CMI values in the FY 2018 final rule 
to reflect the updated FY 2016 MedPAR file, which will contain data 
from additional bills received through March 2017. We did not receive 
any public comments on our proposal. Based on the latest available data 
(FY 2016 bills received through March 2017), 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, 2017, they must have a CMI value for FY 2016 that 
is at least--
     1.6638 (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 final CMI values by region are set forth in the table below:

------------------------------------------------------------------------
                                                          Case-mix index
                         Region                                value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................          1.4192
2. Middle Atlantic (PA, NJ, NY).........................          1.5133
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          1.5405
4. East North Central (IL, IN, MI, OH, WI)..............          1.5896
5. East South Central (AL, KY, MS, TN)..................          1.5086
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......          1.6344
7. West South Central (AR, LA, OK, TX)..................          1.6950
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............          1.7580
9. Pacific (AK, CA, HI, OR, WA).........................          1.6473
------------------------------------------------------------------------

    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. In the FY 2018 IPPS/LTCH 
PPS proposed rule, for FY 2018, we proposed to update the regional 
standards based on discharges for urban hospitals' cost reporting 
periods that began during FY 2015 (that is, October 1, 2014 through 
September 30, 2015), which were the latest cost report data available 
at the time this proposed rule was developed. Therefore, we proposed 
that, in addition to meeting other criteria, a hospital, if it is to 
qualify for initial RRC status for cost reporting periods beginning on 
or after October 1, 2017, must have, as the number of discharges for 
its cost reporting period that began during FY 2015, at least--
     5,000 (3,000 for an osteopathic hospital); or
     The median number of discharges for urban hospitals in the 
census region in which the hospital is located. (We refer readers to 
the table set forth in the FY 2018 IPPS/LTCH PPS proposed rule at 82 FR 
19936.) In the proposed rule, we stated that we intended to update 
these numbers in the FY 2018 final rule based on the latest available 
cost report data.
    We did not receive any public comments on our proposal.
    Based on the latest discharge data available at this time, that is, 
for cost reporting periods that began during FY 2015, the final median 
number of discharges for urban hospitals by census region are set forth 
in the following table.

------------------------------------------------------------------------
                                                             Number of
                         Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................           8,080
2. Middle Atlantic (PA, NJ, NY).........................           9,988
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          10,552
4. East North Central (IL, IN, MI, OH, WI)..............           8,181
5. East South Central (AL, KY, MS, TN)..................           8,647
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......           7,709
7. West South Central (AR, LA, OK, TX)..................           5,325
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............           8,735
9. Pacific (AK, CA, HI, OR, WA).........................           9,101
------------------------------------------------------------------------

    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 final rule, 5,000 discharges is the 
minimum criterion for all hospitals, except for osteopathic hospitals 
for which the minimum criterion is 3,000 discharges.

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

1. Expiration of Temporary Changes to Low-Volume Hospital Payment 
Policy
    Under section 1886(d)(12) of the Act, as amended, most recently by 
section 204 of the Medicare Access and CHIP

[[Page 38185]]

Reauthorization Act of 2015 (MACRA), Public Law 114-10, 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. Beginning with FY 2018, the preexisting 
low-volume hospital payment adjustment and qualifying criteria, as 
implemented in FY 2005 and discussed later in this section, will 
resume. We discuss the payment policies for FY 2018 in section V.E.3. 
of the preamble of this final rule.
2. Background
    Section 1886(d)(12) of the Act, as added by section 406(a) of 
Public Law 108-173, provides for a payment adjustment to account for 
the higher costs per discharge for low-volume hospitals under the IPPS, 
effective beginning FY 2005. Sections 3125 and 10314 of the Affordable 
Care Act amended section 1886(d)(12) of the Act by modifying the 
definition of a low-volume hospital and the methodology for calculating 
the payment adjustment for low-volume hospitals, effective only for 
discharges occurring during 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. The 
temporary changes to the low-volume hospital qualifying criteria and 
the payment adjustment originally provided by the Affordable Care Act 
were extended by subsequent legislation, most recently through FY 2017 
by section 204 of the MACRA. (We refer readers to the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 56941 through 59943) for a detailed summary of 
the applicable legislation.) Under current law, beginning with FY 2018, 
the preexisting low-volume hospital qualifying criteria and payment 
adjustment, as implemented in FY 2005 and described in this section, 
will resume. The regulations implementing the low-volume hospital 
adjustment provided by section 1886(d)(12) of the Act are located at 42 
CFR 412.101.
    The additional payment adjustment to a low-volume hospital provided 
for under section 1886(d)(12) of the Act is in addition to any payment 
calculated under this section. Therefore, the additional payment 
adjustment is based on the per discharge amount paid to the qualifying 
hospital under section 1886 of the Act. In other words, the low-volume 
add-on payment amount is based on total per discharge payments made 
under section 1886 of the Act, including capital, DSH, IME, and 
outliers. For hospitals paid based on the hospital-specific rate, the 
low-volume add-on payment amount is based on either the Federal rate or 
the hospital-specific rate, whichever results in a greater operating 
IPPS payment.
    Section 1886(d)(12)(C)(i) of the Act defines a low-volume hospital, 
for fiscal years other than FYs 2011 through 2017, as a subsection (d) 
hospital (as defined in paragraph (1)(B)) that the Secretary determines 
is located more than 25 road miles from another subsection (d) hospital 
and that has less than 800 discharges during the fiscal year. Section 
1886(d)(12)(C)(ii) of the Act further stipulates that the term 
``discharge'' means an inpatient acute care discharge of an individual, 
regardless of whether the individual is entitled to benefits under 
Medicare Part A. Therefore, for fiscal years other than FYs 2011 
through 2017, the term ``discharge'' refers to total discharges, 
regardless of payer (that is, not only Medicare discharges). 
Furthermore, section 1886(d)(12)(B) of the Act requires, for discharges 
occurring in FYs 2005 through 2010 and FY 2018 and subsequent years, 
that the Secretary determine an applicable percentage increase for 
these low-volume hospitals based on the ``empirical relationship'' 
between the standardized cost-per-case for such hospitals and the total 
number of discharges of such hospitals and the amount of the additional 
incremental costs (if any) that are associated with such number of 
discharges. The statute thus mandates that the Secretary develop an 
empirically justifiable adjustment based on the relationship between 
costs and discharges for these low-volume hospitals. Section 
1886(d)(12)(B)(iii) of the Act limits the applicable percentage 
increase adjustment to no more than 25 percent.
    Based on an analysis we conducted for the FY 2005 IPPS final rule 
(69 FR 49099 through 49102), a 25-percent low-volume adjustment to all 
qualifying hospitals with less than 200 discharges was found to be most 
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher 
incremental costs are associated with low numbers of total discharges. 
In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we stated 
that multivariate analyses supported the existing low-volume adjustment 
implemented in FY 2005.
3. Payment Adjustment for FY 2018 and Subsequent Fiscal Years
    In accordance with section 1886(d)(12) of the Act, beginning with 
FY 2018, the low-volume hospital definition and payment adjustment 
methodology will revert back to the statutory requirements that were in 
effect prior to the amendments made by the Affordable Care Act and 
extended by subsequent legislation. Therefore, effective for FY 2018 
and subsequent years, in order to qualify as a low-volume hospital, a 
subsection (d) hospital must be more than 25 road miles from another 
subsection (d) hospital and have less than 200 discharges (that is, 
less than 200 discharges total, including both Medicare and non-
Medicare discharges) during the fiscal year. As discussed earlier, the 
statute specifies that a low-volume hospital must have less than 800 
discharges during the fiscal year. However, as required by section 
1886(d)(12)(B)(i) of the Act and as discussed earlier, the Secretary 
has developed an empirically justifiable payment adjustment based on 
the relationship, for IPPS hospitals with less than 800 discharges, 
between the additional incremental costs (if any) that are associated 
with a particular number of discharges. Based on an analysis we 
conducted for the FY 2005 IPPS final rule (69 FR 49099 through 49102), 
a 25-percent low-volume adjustment to all qualifying hospitals with 
less than 200 discharges was found to be most consistent with the 
statutory requirement to provide relief for low-volume hospitals where 
there is empirical evidence that higher incremental costs are 
associated with low numbers of total discharges. (Under the policy we 
established in that same final rule, hospitals with between 200 and 799 
discharges do not receive a low-volume hospital adjustment.)
    As described earlier, for FYs 2005 through 2010 and FY 2018 and 
subsequent years, the discharge determination is made based on the 
hospital's number of total discharges, that is, Medicare and non-
Medicare discharges. The hospital's most recently

[[Page 38186]]

submitted cost report is used to determine if the hospital meets the 
discharge criterion to receive the low-volume payment adjustment in the 
current year (Sec.  412.101(b)(2)(i)). We use cost report data to 
determine if a hospital meets the discharge criterion because this is 
the best available data source that includes information on both 
Medicare and non-Medicare discharges. We note that, for FYs 2011 
through 2017, we used the most recently available MedPAR data to 
determine the hospital's Medicare discharges because only Medicare 
discharges were used to determine if a hospital met the discharge 
criterion for those years.
    For FY 2018 and for subsequent fiscal years, in addition to a 
discharge criterion, the eligibility for the low-volume payment 
adjustment is also dependent upon the hospital meeting the mileage 
criterion specified at Sec.  412.101(b)(2)(i). Specifically, to meet 
the mileage criterion to qualify for the low-volume payment adjustment 
for FY 2018 and subsequent fiscal years, a hospital must be located 
more than 25 road miles from the nearest subsection (d) hospital. We 
define, at Sec.  412.101(a), the term ``road miles'' to mean ``miles'' 
as defined at Sec.  412.92(c)(1) (75 FR 50238 through 50275 and 50414).
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 
and 50414) and subsequent rulemaking, most recently in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 56942 through 56943), we discussed the 
process for requesting and obtaining the low-volume hospital payment 
adjustment. In order to qualify for the low-volume hospital payment 
adjustment, a hospital must provide to its MAC sufficient evidence to 
document that it meets the discharge and distance requirements. The MAC 
will determine, based on the most recent data available, if the 
hospital qualifies as a low-volume hospital, so that the hospital will 
know in advance whether or not it will receive a payment adjustment. 
The MAC and CMS may review available data, in addition to the data the 
hospital submits with its request for low-volume hospital status, in 
order to determine whether or not the hospital meets the qualifying 
criteria.
    In order to receive a low-volume hospital payment adjustment under 
Sec.  412.101, a hospital must notify and provide documentation to its 
MAC that it meets the mileage criterion. The use of a Web-based mapping 
tool as part of documenting that the hospital meets the mileage 
criterion for low-volume hospitals is acceptable. The MAC will 
determine if the information submitted by the hospital, such as the 
name and street address of the nearest hospitals, location on a map, 
and distance (in road miles, as defined in the regulations at Sec.  
412.101(a)) from the hospital requesting low-volume hospital status, is 
sufficient to document that it meets the mileage criterion. If not, the 
MAC will follow up with the hospital to obtain additional necessary 
information to determine whether or not the hospital meets the low-
volume mileage criterion. In addition, the MAC will refer to the 
hospital's most recently submitted cost report to determine whether or 
not the hospital meets the discharge criterion. A hospital should refer 
to its most recently submitted cost report for total discharges 
(Medicare and non-Medicare) in order to decide whether or not to apply 
for low-volume hospital status for a particular fiscal year. A hospital 
must continue to meet the qualifying criteria at Sec.  412.101(b)(2)(i) 
as a low-volume hospital (that is, the discharge criterion and the 
mileage criterion) in order to receive the payment adjustment in that 
year; that is, low-volume hospital status is not based on a ``one-
time'' qualification (75 FR 50238 through 50275).
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19938), in order to be a low-volume hospital in FY 2018 and subsequent 
fiscal years, in accordance with our previously established procedure, 
a hospital must make a written request for low-volume hospital status 
that is received by its MAC by September 1 immediately preceding the 
start of the Federal fiscal year for which the hospital is applying for 
low-volume hospital status in order for the 25-percent, low-volume, 
add-on payment adjustment to be applied to payments for its discharges 
for the fiscal year beginning on or after October 1 immediately 
following the request (that is, the start of the Federal fiscal year). 
For a hospital whose request for low-volume hospital status is received 
after September 1, if the MAC determines the hospital meets the 
criteria to qualify as a low-volume hospital, the MAC will apply the 
25-percent, low-volume, add-on payment adjustment to determine payment 
for the hospital's discharges for the fiscal year, effective 
prospectively within 30 days of the date of the MAC's low-volume status 
determination.
    Specifically, for FY 2018, a hospital must make a written request 
for low-volume hospital status that is received by its MAC no later 
than September 1, 2017, in order for the 25-percent, low-volume, add-on 
payment adjustment to be applied to payments for its discharges 
beginning on or after October 1, 2017 (through September 30, 2018). 
Under this procedure, a hospital that qualified for the low-volume 
hospital payment adjustment for FY 2017 may continue to receive a low-
volume hospital payment adjustment for FY 2018 without reapplying if it 
meets both the discharge criterion and the mileage criterion applicable 
for FY 2018. As in previous years, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19938), we proposed that such a hospital must send 
written verification that is received by its MAC no later than 
September 1, 2017, stating that it meets the mileage criterion 
applicable for FY 2018. For FY 2018, we further proposed that this 
written verification must also state, based upon the most recently 
submitted cost report, that the hospital meets the discharge criterion 
applicable for FY 2018 (that is, less than 200 discharges total, 
including both Medicare and non-Medicare discharges). If a hospital's 
request for low-volume hospital status for FY 2018 is received after 
September 1, 2017, and if the MAC determines the hospital meets the 
criteria to qualify as a low-volume hospital, the MAC will apply the 
25-percent, low-volume, add-on payment adjustment to determine the 
payment for the hospital's FY 2018 discharges, effective prospectively 
within 30 days of the date of the MAC's low-volume hospital status 
determination. We noted that this process mirrors our established 
application process but is updated to ensure that providers currently 
receiving the low-volume hospital payment adjustment verify that they 
meet both the mileage criterion and the discharge criterion applicable 
for FY 2018 to continue receiving the adjustment for FY 2018. For 
additional information on our established application process for the 
low-volume hospital payment adjustment, we refer readers to the FY 2017 
IPPS/LTCH PPS final rule (81 FR 56942 through 56943).
    Comment: A few commenters expressed concern about the financial 
impact of the expiration of the temporary changes to the low-volume 
hospital payment adjustment provided for by the Affordable Care Act and 
extended through subsequent legislation (most recently the MACRA). Some 
commenters supported legislative action that would make permanent these 
changes to the low-volume hospital payment adjustment. Other commenters 
requested that CMS use the existing statutory authority to make the 
low-volume adjustment to qualifying hospitals that have less than 800 
total discharges rather than only to qualifying hospitals that have 
less than 200 total discharges. These commenters did not provide any 
data analysis in support of

[[Page 38187]]

their comments to expand the low-volume hospital adjustment to 
qualifying hospitals that have less than 800 total discharges.
    One commenter questioned whether CMS would be making any claims 
processing or cost report changes in light of the expiration of the 
temporary changes to the low-volume hospital payment adjustment.
    Response: As noted earlier in the preamble of this final rule and 
as discussed in response to public comments in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53408 through 53409) and the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50612 through 50613), to implement the original 
low-volume hospital payment adjustment provision, and as mandated by 
statute, we developed an empirically justified adjustment based on the 
relationship between costs and total discharges of hospitals with less 
than 800 total (Medicare and non-Medicare) discharges. Specifically, we 
performed several regression analyses to evaluate the relationship 
between hospitals' costs per case and discharges, and found that an 
adjustment for hospitals with less than 200 total discharges is most 
consistent with the statutory requirement to provide for additional 
payments to low-volume hospitals where there is empirical evidence that 
higher incremental costs are associated with lower numbers of 
discharges (69 FR 49101 through 49102). Based on these analyses, we 
established a low-volume hospital policy under which qualifying 
hospitals with less than 200 total discharges receive a payment 
adjustment of an additional 25 percent. (Section 1886(d)(12)(B)(iii) of 
the Act limits the applicable percentage increase adjustment to no more 
than 25 percent.) In the future, we may reevaluate the low-volume 
hospital adjustment policy; that is, the definition of a low-volume 
hospital and the payment adjustment. However, because we are not aware 
of any analysis or empirical evidence that would support expanding the 
originally established a low-volume hospital adjustment policy, we did 
not make any proposals regarding the low-volume hospital payment 
adjustment for FY 2018 and are not making any changes to the low-volume 
hospital payment adjustment policy in this final rule.
    Therefore, the low-volume hospital definition and payment 
adjustment methodology will revert back to the policy established under 
statutory requirements that were in effect prior to the amendments made 
by the Affordable Care Act and extended through subsequent legislation 
(most recently the MACRA).
    With regard to the comment regarding revisions to claims processing 
or the cost report, any such changes will be addressed through 
subregulatory guidance or other avenues, as appropriate.
    After consideration of the public comments we received, we are 
finalizing our proposals as described above, without modification.
    As described earlier, for FYs 2005 through 2010 and FY 2018 and 
subsequent fiscal years, the discharge determination will be made based 
on the hospital's number of total discharges; that is, Medicare and 
non-Medicare discharges. The hospital's most recently submitted cost 
report is used to determine if the hospital meets the discharge 
criterion to receive the low-volume hospital payment adjustment in the 
current year (Sec.  412.101(b)(2)(i)). We use cost report data to 
determine if a hospital meets the discharge criterion because this is 
the best available data source that includes information on both 
Medicare and non-Medicare discharges. As we noted in the proposed rule, 
for FYs 2011 through 2017, we used the most recently available MedPAR 
data to determine the hospital's Medicare discharges because only 
Medicare discharges were used to determine if a hospital met the 
discharge criterion for those years. In addition to a discharge 
criterion, the eligibility for the low-volume hospital payment 
adjustment also will be dependent upon the hospital meeting the mileage 
criterion specified at Sec.  412.101(b)(2)(i). Specifically, to meet 
the mileage criterion to qualify for the low-volume hospital payment 
adjustment for FY 2018 and subsequent fiscal years, a hospital must be 
located more than 25 road miles from the nearest subsection (d) 
hospital.
    For FY 2018, as discussed in the proposed rule, we will continue to 
use the established process for requesting and obtaining the low-volume 
hospital payment adjustment. That is, in order to receive a low-volume 
hospital payment adjustment under Sec.  412.101, a hospital must notify 
and provide documentation to its MAC that it meets the discharge and 
distance requirements. The MAC will determine, based on the most recent 
data available, if the hospital qualifies as a low-volume hospital, so 
that the hospital will know in advance whether or not it will receive a 
payment adjustment. The MAC and CMS may review available data, in 
addition to the data the hospital submits with its request for low-
volume hospital status, in order to determine whether or not the 
hospital meets the qualifying criteria. (For additional details on our 
established process for the low-volume hospital payment adjustment, we 
refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56942 
through 56943).)
    Consistent with our previously established procedure, for FY 2018, 
a hospital must make a written request for low-volume hospital status 
that is received by its MAC no later than September 1, 2017, in order 
for the 25-percent low-volume hospital payment adjustment to be applied 
to payments for its discharges beginning on or after October 1, 2017 
(through September 30, 2018). Under this procedure, a hospital that 
qualified for the low-volume hospital payment adjustment for FY 2017 
may continue to receive a low-volume hospital payment adjustment for FY 
2018 without reapplying if it meets both the discharge criterion and 
the mileage criterion applicable for FY 2018. As in previous years, 
such a hospital must send written verification that is received by its 
MAC no later than September 1, 2017, stating that it meets the mileage 
criterion applicable for FY 2018. In addition, for such a hospital, 
this written verification must also state, based upon the most recently 
submitted cost report, that the hospital meets the discharge criterion 
applicable for FY 2018 (that is, less than 200 discharges total, 
including both Medicare and non-Medicare discharges). If a hospital's 
request for low-volume hospital status for FY 2018 is received after 
September 1, 2017, and if the MAC determines the hospital meets the 
criteria to qualify as a low-volume hospital, the MAC will apply the 
25-percent low-volume hospital payment adjustment to determine the 
payment for the hospital's FY 2018 discharges, effective prospectively 
within 30 days of the date of the MAC's low-volume hospital status 
determination.
    In the FY 2016 IPPS interim final rule with comment period (80 FR 
49594 through 49597 and 49767), we made conforming changes to the 
regulations at 42 CFR 412.101 to reflect the extension of the changes 
to the qualifying criteria and the payment adjustment methodology for 
low-volume hospitals through FY 2017 in accordance with section 204 of 
the MACRA. Under these revisions, beginning with FY 2018, consistent 
with current law, the low-volume hospital qualifying criteria and 
payment adjustment methodology will return to the criteria and 
methodology that were in effect prior to the amendments made by the 
Affordable Care Act (that is, the low-volume hospital payment policy in 
effect for FYs 2005 through 2010). Therefore, no

[[Page 38188]]

further revisions to the policy or to the regulations at Sec.  412.101 
are required to conform them to the statutory requirement that the low-
volume hospital policy in effect prior to the Affordable Care Act will 
again be in effect for FY 2018 and subsequent years.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19938), for this reason, we did not propose specific amendments to the 
regulations at Sec.  412.101 to reflect the expiration of the temporary 
changes to the low-volume hospital payment adjustment policy originally 
provided for by the Affordable Care Act, but we proposed that if these 
temporary changes to the low-volume hospital payment policy were to be 
extended by law, similar to extensions provided most recently through 
FY 2017 by MACRA, we would make conforming changes to the regulations 
at Sec.  412.101(b) through (d), as appropriate, to reflect any such 
extension. Because, as of the time of the development of this final 
rule, these temporary changes to the low-volume hospital payment policy 
have not been extended by law, we are not making any such conforming 
changes. As noted previously, any changes to the cost report will be 
addressed through subregulatory guidance or other avenues, as 
appropriate.
4. Parallel Low-Volume Hospital Payment Adjustment Regarding Hospitals 
Operated by the Indian Health Services (IHS) or a Tribe
    As previously stated, section 1886(d)(12)(C) of the Act and our 
regulations at 42 CFR 412.101(b)(2) require that, in order to qualify 
for the low-volume hospital payment adjustment, a hospital must be 
located more than a specified number of miles from the nearest 
subsection (d) hospital (referred to as the mileage criterion). Section 
1886(d)(1)(B) of the Act defines a ``subsection (d) hospital'' as a 
hospital located in one of the 50 States or District of Columbia, other 
than the specified excluded types of hospitals. As stated in prior 
rulemaking (for example, 79 FR 50153 (August 22, 2014), 78 FR 61194 and 
61196 (October 3, 2013), 78 FR 50710 (August 19, 2013), 78 FR 27623 
(May 10, 2013), 77 FR 53397 (August 31, 2012), 77 FR 27965 (May 11, 
2012), 75 FR 50307 (August 16, 2010)), CMS considers IHS and Tribal 
hospitals to be subsection (d) hospitals. However, in the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 19939), we stated that, given the unique 
nature of IHS and Tribal hospitals and the populations they serve, as 
discussed below, we believe it would be appropriate to provide 
additional flexibility in determining eligibility for the low-volume 
hospital payment adjustment for IHS and Tribal hospitals and non-IHS 
hospitals that are located less than the specified mileage from one 
another. Specifically, we proposed that, for an IHS or Tribal hospital, 
only its proximity to other IHS or Tribal hospitals would be used to 
determine if the mileage criterion is met. Similarly, for a non-IHS 
hospital, only its proximity to other non-IHS hospitals would be used 
to determine if the mileage criterion is met.
    Except for emergencies and a few other limited special cases, those 
individuals who are not members of a federally recognized Tribe are not 
eligible for treatment at IHS or Tribal hospitals. Therefore, such a 
hospital is not a valid option for the general Medicare population, 
including local residents who are not members of a federally recognized 
Tribe or not otherwise eligible for IHS services. Therefore, we stated 
that we believe it would be appropriate to not consider IHS and Tribal 
hospitals when evaluating whether a non-IHS hospital meets the mileage 
criterion.
    Likewise, we stated that we believe it would be appropriate to not 
consider non-IHS hospitals when evaluating whether an IHS or Tribal 
hospital meets the mileage criterion. The principal mission of the IHS 
is the provision of health care to American Indians and Alaska Natives 
throughout the United States. In carrying out that mission, IHS 
operates under two primary authorizing statutes. The first statute, the 
Snyder Act, authorizes IHS to expend such moneys as Congress may 
determine from time to time appropriate for the conservation of the 
health of American Indians or Alaska Natives. We refer readers to 25 
U.S.C. 13 (providing that the Bureau of Indian Affairs (BIA) will 
expend funds as appropriated for, among other things, the conservation 
of health of American Indians and Alaska Natives); and 42 U.S.C. 
2001(a) (transferring the responsibility for American Indian and Alaska 
Native health care from BIA to HHS). The second statute, the Indian 
Health Care Improvement Act (IHCIA), established IHS as an agency 
within the Public Health Service of HHS and provides authority for 
numerous programs to address particular health initiatives for American 
Indians and Alaska Natives, such as alcohol and substance abuse and 
diabetes (25 U.S.C. 1601 et seq.).
    IHS and Tribal hospitals are charged with addressing the health of 
American Indians and Alaska Natives and are uniquely situated to 
provide services to this population. For this reason, we stated that we 
believe it would be appropriate to not consider the non-IHS hospitals 
when evaluating whether an IHS or Tribal hospital meets the mileage 
criterion.
    Because IHS and Tribal hospitals are subsection (d) hospitals, in 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19339), we proposed to 
use our authority under section 1886(d)(5)(I)(i) of the Act to provide 
an adjustment equal to the applicable low-volume adjustment provided 
for under section 1886(d)(12) of the Act for an IHS or Tribal hospital 
whose sole disqualifier for the low-volume hospital adjustment is its 
proximity to a non-IHS hospital, and for a non-IHS hospital whose sole 
disqualifier is its proximity to an IHS or Tribal hospital. Such an 
adjustment would provide that, practically speaking, an IHS or Tribal 
hospital would be able to receive a low-volume hospital adjustment 
based on its distance to the nearest IHS or Tribal hospital, and a non-
IHS hospital would be able to qualify to receive a low-volume hospital 
adjustment based on its distance to the nearest non-IHS hospital. We 
believe it is appropriate to apply this authority here, given the 
unique characteristics of IHS and Tribal hospitals, as discussed above. 
To implement this proposed adjustment, we proposed to revise 42 CFR 
412.101 by adding paragraph (e) to provide that, for discharges 
occurring in FY 2018 and subsequent years, only the distance between 
IHS or Tribal hospitals would be considered when assessing whether an 
IHS or Tribal hospital meets the mileage criterion under Sec.  
412.101(b)(2). Similarly, only the distance between non-IHS hospitals 
would be considered when assessing whether a non-IHS hospital meets the 
mileage criterion under Sec.  412.101(b)(2).
    Comment: Commenters supported the proposed parallel adjustment so 
that, for discharges occurring in FY 2018 and subsequent years, only 
the distance between IHS or Tribal hospitals would be considered when 
assessing whether an IHS or Tribal hospital meets the mileage criterion 
under Sec.  412.101(b)(2), and similarly, only the distance between 
non-IHS hospitals would be considered when assessing whether a non-IHS 
hospital meets the mileage criterion under Sec.  412.101(b)(2). Several 
commenters urged CMS to apply this proposal retroactively as, according 
to some commenters, they did not believe CMS has always considered IHS 
and Tribal hospitals to be subsection (d) hospitals for purposes of the 
low-volume payment adjustment, while other commenters believed that IHS 
and Tribal hospitals are not ``like'' hospitals. Some commenters asked 
CMS to state in

[[Page 38189]]

its final rule that the proposed addition of paragraph (e) to Sec.  
412.101 is a codification and clarification of existing policy 
regarding dissimilar hospitals, and that under that policy it is proper 
to approve a low-volume hospital adjustment to a hospital despite its 
proximity to an IHS or Tribal hospital. In general, commenters pointed 
to one or more of the following reasons in support of their assertion 
that the proposed rule is a codification and clarification of existing 
policy rather than a new policy: (1) Published CMS and MAC guidance 
that commenters claim has provided for a ``like hospital'' standard 
since the implementation of the adjustment (for example, Transmittal 
1347, Change Request 8627 (February 14, 2014)); (2) a hospital that is 
within 15 miles of an IHS hospital and also has sole community hospital 
status indicates that such hospitals and IHS facilities are not ``like 
hospitals''; (3) assertions that some MACs had, at times for some cost 
reporting periods (or portions thereof), allowed non-IHS hospitals 
whose sole disqualifier was proximity to an IHS or Tribal hospital to 
receive a low-volume hospital adjustment; and (4) two Departmental 
Appeals Board decisions for cases which involved CAH designation not 
eligibility for a low-volume hospital adjustment (Cibola General 
Hospital, DAB No. 2387 (2011) and La Paz Regional Hospital, DAB CR 2883 
(2013)), that commenters asserted found that ``IHS facilities should be 
disregarded in determining a hospital's eligibility for Medicare 
program classifications that are based on proximity to other Medicare 
hospitals.''
    Response: We appreciate the commenters' support of our proposal. 
Because we have consistently considered IHS and Tribal hospitals to be 
subsection (d) hospitals, as noted in the preambles of the above cited 
rules, we believe it is inappropriate to apply this parallel adjustment 
retroactively. While CMS may have in certain instances used terms such 
as ``like'' in place of ``subsection (d)'' when issuing subregulatory 
guidance for the low-volume hospital adjustment and there may have been 
inconsistencies in low-volume hospital adjustment determinations made 
by some contractors, these factors do not establish agency policy or 
bind the agency. Indeed, CMS' regulations at Sec.  412.101(b)(2) 
clearly refer to the proximity to the nearest subsection (d) hospital, 
consistent with section 1886(d)(12)(C)(i) of the Act, but neither the 
statutory nor the regulatory provisions that govern the low-volume 
hospital adjustment refer to a ``like'' hospital standard. The SCH 
regulations at Sec.  412.92(a), by comparison, expressly refer to 
proximity to a ``like'' hospital (as defined at Sec.  412.92(c)(2)), 
consistent with section 1886(d)(5)(D)(iii) of the Act.
    Moreover, the DAB decisions cited by the commenters concerned the 
certification of a hospital for CAH status, not the requirements for 
determining proximity to a subsection (d) hospital for purposes of the 
low-volume hospital payment adjustment. To the extent that these 
decisions could be interpreted to mean that the DAB has held that IHS 
hospitals may not, by implication, be subsection (d) hospitals, we 
reiterate that CMS has a longstanding policy of considering IHS and 
Tribal hospitals to be subsection (d) hospitals (as noted in the 
preambles to the rules cited above). As a result, we believe that it is 
necessary to amend the regulation governing the low-volume hospital 
payment adjustment in order to provide flexibility in determining 
eligibility for the adjustment. Therefore, after consideration of the 
public comments we received, we are finalizing this proposal, including 
our proposed revisions to 42 CFR 412.101, without modification.

F. Indirect Medical Education (IME) Payment Adjustment Factor for FY 
2018 (Sec.  412.105)

    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, in the FY 2018 IPPS/LTH PPS proposed 
rule (82 FR 19940), we stated that, for discharges occurring during FY 
2018, the formula multiplier is 1.35. We estimate that application of 
this formula multiplier for the FY 2018 IME adjustment will result in 
an increase in IPPS payment of 5.5 percent for every approximately 10 
percent increase in the hospital's resident-to-bed ratio.
    Comment: One commenter stated that it appreciated that the 
resident-to-bed ratio is statutorily required for purposes of 
calculating the IME adjustment. The commenter requested that, in order 
to respond to physician shortages, policymakers provide additional 
funding to train future physicians and urged CMS to consider additional 
funding that would supplement the current IME adjustment factor.
    Response: We appreciate the commenter's comment. As noted above, 
the IME adjustment factor is statutory and the calculation of the IME 
payment is also specified in statute. Accordingly, for discharges 
occurring during FY 2018, the formula multiplier is 1.35.

G. Payment Adjustment for Medicare Disproportionate Share Hospitals 
(DSHs) for FY 2018 (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

[[Page 38190]]

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 
statutory references to ``days'' in section 1886(d)(5)(F) of the Act 
have been interpreted to 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 
section 1886(r) to the Act that modifies the methodology for computing 
the Medicare DSH payment adjustment. (For purposes of this final 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 who are uninsured, is 
available to make additional payments to each hospital that qualifies 
for Medicare DSH payments and that has uncompensated care. The payments 
to each hospital for a fiscal year are based on the hospital's amount 
of uncompensated care for a given time period relative to the total 
amount of uncompensated care for that same time period reported by all 
hospitals that receive Medicare DSH payments for that fiscal year.
    As provided by section 3133 of the Affordable Care Act, section 
1886(r) of the Act requires that, for FY 2014 and each subsequent 
fiscal year, a subsection (d) hospital that would otherwise receive 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 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 
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 such 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: https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/costestimate/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.
    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

[[Page 38191]]

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 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 will 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 continue to be 
eligible to receive empirically justified Medicare DSH payments and 
uncompensated care payments if their DPP is at least 15 percent. We 
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. We note that 
there has not been legislation at the time of development of this final 
rule that would extend the MDH program beyond September 30, 2017. 
However, if the MDH program were to be extended beyond its current 
expiration date, similar to how it was extended under MACRA, MDHs would 
continue to be 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. Accordingly, if the MDH program were to be 
extended beyond its current expiration date of September 30, 2017, we 
would 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 would 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 would 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 would 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.

[[Page 38192]]

    These policies for MDHs would only apply in FY 2018 if the MDH 
program is extended by statute, beyond its current expiration date of 
September 30, 2017.
     IPPS hospitals that have elected to participate in the 
Bundled Payments for Care Improvement initiative and IPPS hospitals 
that are participating in the mandatory Comprehensive Care for Joint 
Replacement Model, the Episode Payment Models, or the Cardiac 
Rehabilitation Incentive Payment Model 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 are not eligible to receive empirically justified 
Medicare DSH payments and uncompensated care payments under section 
1886(r) of the Act because they are not paid under the IPPS (78 FR 
50625 and 79 FR 50008). The Rural Community Hospital Demonstration 
Program was originally authorized for a 5-year period by section 410A 
of the Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) (Pub. L. 108-173), and extended for another 5-year period 
by sections 3123 and 10313 of the Affordable Care Act (Pub. L. 114-
255). The period of performance for this 5-year extension period ended 
December 31, 2016. Section 15003 of the 21st Century Cures Act (Pub. L. 
114-255), enacted December 13, 2016, again amended section 410A of 
Public Law 108-173 to require a 10-year extension period (in place of 
the 5-year extension required by the Affordable Care Act), to begin on 
the date immediately following the last day of the initial 5-year 
period. Section 15003 also requires that, no later than 120 days after 
enactment of Public Law 114-255, the Secretary issue a solicitation to 
select additional hospitals to participate in the demonstration program 
for the second 5 years of the 10-year extension period so long as the 
maximum number of 30 hospitals stipulated by the Affordable Care Act is 
not exceeded. (We refer readers to section V.L. of the preamble of this 
final rule for a full discussion of the provisions of section 15003 of 
Public Law 114-255 and our implementation of this provision.) As of the 
time of development of this final rule, the entire set of hospitals 
that will participate in the second 5 years of the extension period is 
unknown. However, we intend to apply a similar payment methodology 
during the remainder of the extension period. As a result, we expect 
that hospitals participating in the demonstration will not receive 
empirically justified DSH payments, and that they will be excluded from 
receiving interim and final uncompensated care payments for FY 2018 and 
subsequent fiscal years for the duration of the second 5 years of the 
extension period.
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.
4. Uncompensated Care Payments
    As we 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 2017, and our 
proposed and final policies for FY 2018.
a. Calculation of Factor 1 for FY 2018
    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 2017, in the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR

[[Page 38193]]

19943), in order to determine Factor 1 in the uncompensated care 
payment formula for FY 2018, we proposed 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 2018.
    Therefore, in order to determine the two elements of proposed 
Factor 1 for FY 2018 (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), for the 
proposed rule, 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 proposed Factor 1 and modeling the 
impact of the FY 2018 IPPS/LTCH PPS proposed rule, we used the Office 
of the Actuary's January 2017 Medicare DSH estimates, which were based 
on data from the December 2016 update of the Medicare Hospital Cost 
Report Information System (HCRIS) and the FY 2017 IPPS/LTCH PPS final 
rule IPPS Impact file, published in conjunction with the publication of 
the FY 2017 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 January 2017 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 were also 
excluded from the Office of the Actuary's January 2017 Medicare DSH 
estimates. Hospitals that had been participating in the Rural Community 
Hospital Demonstration Program through December 31, 2016 were included 
in these estimates. (As discussed earlier, the Affordable Care Act 
authorized a 5-year extension period for the demonstration, which ended 
December 31, 2016.) The demonstration was extended for an additional 5 
years by section 15003 of Public Law 114-255. Although the hospitals 
that will participate in the second 5 years of the extension period had 
not been determined at the time of development of the proposed rule, we 
stated that we intend to apply a similar payment methodology during the 
second 5 years of the extension period as for the earlier periods of 
the demonstration. Therefore, hospitals participating in the 
demonstration would not be eligible to receive DSH payments. We stated 
in the proposed rule that if the hospitals participating in the second 
5 years of the extension period are known prior to the development of 
the Medicare DSH estimates for the FY 2018 final rule, these hospitals 
would be excluded from the Office of the Actuary's final Medicare DSH 
estimates for FY 2018.
    For the proposed rule, using the data sources discussed earlier, 
the Office of the Actuary used 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 
applied inflation updates and assumptions for future changes in 
utilization and case-mix to estimate Medicare DSH payments for the 
upcoming fiscal year. The January 2017 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, was approximately $16.003 
billion. This estimate excluded Maryland hospitals participating in the 
Maryland All-Payer Model and SCHs paid under their hospital-specific 
payment rate. Therefore, based on the January 2017 estimate, the 
estimate for empirically justified Medicare DSH payments for FY 2017, 
with the application of section 1886(r)(1) of the Act, was 
approximately $4.001 billion (or 25 percent of the total amount of 
estimated Medicare DSH payments for FY 2018). 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 the 
proposed rule, we proposed that Factor 1 for FY 2018 was 
$12,001,915,095.04, which is equal to 75 percent of the total amount of 
estimated Medicare DSH payments for FY 2017 ($16,002,553,460.05 minus 
$4,000,638,365.01). We invited public comments on our proposed 
calculation of Factor 1 for FY 2018.
    Comment: A number of commenters requested greater transparency in 
the methodology used by CMS and the OACT to estimate aggregate DSH 
payments that would have been paid absent implementation of the 
Affordable Cart Act, particularly with respect to the calculation of 
estimated DSH payments for purposes of determining Factor 1. The 
commenters believed that CMS has not adequately explained its 
methodology in calculating DSH payments and urged CMS to clarify the 
methodology and provide additional information on the factor 
assumptions used to make these projections. One commenter noted that 
providing a table explaining the factors applied for FYs 2015-2018 to 
estimate Medicare DSH expenditures using a 2014 baseline is not 
sufficient, given that CMS does not provide more detail on the 
completion factor used to adjust the FY 2015 and FY 2016 claims data 
used for the ``Discharges'' column. The commenter stated that this lack 
of information severely limited the public's ability to comment on the 
projections and estimates for Factor 1. Commenters also requested that 
this information be provided in advance of the publication of the FY 
2018 IPPS/LTCH PPS final rule and in future proposed rules each year.
    The majority of comments on Factor 1 related to the ``Other'' and 
``Discharges'' factors that are used to estimate Medicare DSH 
expenditures. Some commenters stated that there is variability in the 
factors and requested full disclosure of the methodology and the 
various components used to estimate the catch-all ``Other'' column. A 
number of commenters noted that, other than the statements in the 
proposed rule, CMS provided no further explanation for the specific 
items that make up the ``Other'' column or the value of each component. 
Specifically, one commenter expressed concern that the annual growth 
rate due to ``other'' factors projected by CMS increased from 4.9 
percent in FY 2015 to 6.9 percent in FY 2017, while it decreased by 1 
percent in FY 2018. Commenters requested that CMS provide a breakdown 
of the factors influencing these changes and their impact on FY 2018 
DSH estimates to allow providers to understand and verify these 
projections, as well as to make meaningful comments, if warranted.
    Many commenters also asked CMS to explain how Medicaid expansion is 
accounted for in the ``Other'' column used to determine the Factor 1 
estimate.

[[Page 38194]]

A few commenters stated that the effect of Medicaid expansion on the 
agency's projection of the amount of traditional DSH payments that 
would have been paid in FY 2014, absent of the Affordable Care Act, has 
varied erratically in the agency's successive rulemakings for FYs 2015 
through 2018. Another commenter noted that the most recent 
Congressional Budget Office report showed a 32-percent increase in 
Medicaid/CHIP enrollment as a result of Medicaid expansion, and 
expected that this increase in enrollment would result in a substantial 
increase in DSH payments that is not reflected in OACT's DSH estimate 
for Factor 1.
    Commenters objected to CMS' statement from prior rulemaking that 
``the increase due to Medicaid expansion is not as large as commenters 
contended due to the actuarial assumption that the new enrollees are 
healthier than the average Medicaid recipient, and, therefore, use 
fewer hospital services.'' Some commenters asserted that there is no 
solid evidentiary basis for the assumption that new Medicaid enrollees 
are healthier, and requested that CMS reconsider and discontinue use of 
this assumption. In addition, the commenters argued that CMS should by 
now have accurate information regarding States that have expanded 
Medicaid, and that CMS should utilize the available enrollment and/or 
utilization information from Medicaid expansion programs either to 
support or refute the assumption that the Medicaid expansion population 
is healthier than the average Medicaid recipient. Many commenters also 
stated that the level of Medicaid expansion included in the calculation 
of Factor 1, including the adjustments made to Factor 1 to account for 
the estimated Medicaid expansion in FY 2018, is unclear. The commenters 
requested that CMS resolve the inconsistency with the decrease in the 
uninsured rate from 14 percent in 2013 to 8.15 percent in 2018 due to 
Medicaid expansion, and fully account for the increase in Medicaid 
participation in the Factor 1 calculation.
    Response: We thank the commenters for their input. As in previous 
years, we would like to clarify that Factor 1 is not estimated in 
isolation. The Factor 1 estimates for proposed rules are generally 
consistent with the economic assumptions and actuarial analysis used to 
develop the President's Budget estimates under current law, and the 
Factor 1 estimates for the final rule are generally consistent with 
those used for the Midsession Review of the President's Budget. For 
additional information on the development of the President's Budget, we 
refer readers to the Office of Management and Budget Web site at: 
https://www.whitehouse.gov/omb/budget. For additional information on 
the specific economic assumptions used in the Midsession Review of the 
President's FY 2018 Budget, we refer readers to the ``Midsession Review 
of the President's FY 2018 Budget'' available on the Office of 
Management and Budget Web site at: https://www.whitehouse.gov/omb/budget. For a general overview of the principal steps involved in 
projecting future inpatient costs and utilization, we refer readers to 
the ``2017 Annual Report of the Boards of Trustees of the Federal 
Hospital Insurance and Federal Supplementary Medical Insurance Trust 
Funds'' available on the CMS Web site at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html?redirect=/reportstrustfunds/ under 
``Downloads.'' For the OACT's memorandum describing its methodology and 
estimates, we refer readers to ``OACT Memorandum on DSH Factor 1 for FY 
2018'' available on the CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html under 
``Downloads''.
    As we did in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56950), 
later in this section, we provide additional information regarding the 
data sources, methods, and assumptions employed by the actuaries in 
determining the OACT's updated estimate of Factor 1 for FY 2018. We 
believe that this discussion addresses the methodological concerns 
raised by commenters regarding the various assumptions used in the 
estimate, including the ``Other'' and ``Discharges'' assumptions and 
also provides additional information regarding how we address the 
Medicaid and CHIP expansion. However, we note that, with regard to the 
commenters' questions and concerns regarding the use of completion 
factors to adjust preliminary data, the OACT assumed a discharge 
completion factor of 99 percent for FY 2015 and 98 percent for FY 2016. 
Similarly, the OACT assumed that case-mix for these years was 
stabilized at the time of the estimate and no additional completion 
factor adjustment was needed. These assumptions are consistent with 
historical patterns of completion factors that have been determined for 
discharge and case-mix numbers.
    Regarding the commenters' assertion that Medicaid expansion is not 
adequately accounted for in the ``Other'' column and that there is no 
evidentiary basis for the assumption that the newly covered Medicaid 
expansion population is healthier than the average Medicaid recipient, 
we note that, based on data from the Midsession Review of the 
President's Budget, the OACT assumed per capita spending for Medicaid 
beneficiaries who enrolled due to the expansion to be 50 percent of the 
average per capita spending of a pre-expansion Medicaid beneficiary due 
to the better health of these beneficiaries. This assumption is 
consistent with recent internal estimates of Medicaid per capita 
spending pre-expansion and post-expansion.
    Comment: In addition to requesting that the methodology and 
assumptions used for Factor 1 be made public before the publication of 
the final rule and with the proposed rule each subsequent year, 
commenters requested that CMS furnish interested parties with advance 
opportunity to comment on new calculations based on the more recent 
data that CMS intends ultimately to use for the final rule. One 
commenter believed that CMS' rulemaking is flawed because different 
data and calculations are used in the final rule than were used for 
purposes of the proposed rule, without any opportunity for the 
hospitals to comment. This commenter requested that CMS make clear that 
it will use different or updated data to determine payments for 
uncompensated care in the final rule. The commenter believed that the 
proposal to determine the amount of hospitals' uncompensated care 
payments based on data first released with the final rule and on which 
hospitals will have no meaningful opportunity to comment violates 
notice-and-comment rulemaking requirements. As discussed earlier, 
several commenters noted the variability in the values of the ``Other'' 
column as well as in the factor applied to account for Medicaid 
expansion; one of the commenters called on CMS to explain why these 
values were allowed to change from one rulemaking to the next when the 
agency has otherwise taken the position that the estimates used to 
determine uncompensated care payments should be fixed when made and not 
be reconciled with data that become available later.
    Response: We believe that stakeholders had notice and a full 
opportunity to comment on the methodology that would be used to 
determine uncompensated care payments, including the data sources that 
would be used. As a result, commenters had a full opportunity to raise 
any concerns regarding the appropriateness of the data generally, even 
if the actual data were not yet

[[Page 38195]]

available, consistent with the requirements for notice-and-comment 
rulemaking under the Administrative Procedure Act. With respect to 
concerns about the variability of the factors used to estimate Factor 
1, we note that, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50630), 
using the discretion afforded in the statute to estimate the aggregate 
amount of DSH payments that would be made in the absence of section 
1886(r) of the Act, we finalized a policy of defining the methodology 
for calculating Factor 1 using the OACT's biannual Medicare DSH payment 
projections, which are typically available around February of each year 
(based on data from December of the previous year) as part of the 
President's Budget, and around July (based on data from June) as part 
of the Midsession Review of the President's Budget.
    Comment: One commenter requested that, in light of its concerns 
about the data sources and methods used to estimate Factor 1, CMS adopt 
a process to reconcile data for Factor 1. Commenters noted their 
concern that the DSH payment estimates for FY 2014 through FY 2017, as 
displayed in the table for factors applied to update the Medicare DSH 
baseline in the FY 2018 proposed rule, compared to original projections 
from the respective payment year from the FY 2014 through FY 2017 final 
rules, show that Factor 1 would have been higher, in retrospect, over 
that period of time. In other words, commenters noted how, based on the 
more recent data used in the FY 2018 proposed rule, the Factor 1 
estimates are higher compared to the data available at the time of the 
past final rules.
    Response: We continue to believe that applying our best estimates 
prospectively is most conducive to administrative efficiency, finality, 
and predictability in payments (78 FR 50628; 79 FR 50010; 80 FR 49518; 
and 81 FR 56949). We believe that, in affording the Secretary the 
discretion to estimate the amount of these payments and by including a 
prohibition against administrative and judicial review of those 
estimates in section 1886(r)(3) of the Act, Congress recognized the 
importance of finality and predictability in payments. As a result, we 
do not agree with the commenter that we should establish a process for 
reconciling our estimate of Factor 1. However, we note that, in 
reviewing the OACT's prior estimates for DSH payments compared to more 
updated estimates and/or actual experience, from FY 2005 to FY 2017, 
the original estimates have been higher than either the more updated 
estimates and/or actual experience for 8 of the 14 years and lower than 
actual experience in only 6 years.
    After consideration of the public comments received, we are 
finalizing our proposed methodology for calculating Factor 1 for FY 
2018. We discuss the resulting Factor 1 amount for FY 2018 below.
    To determine Factor 1 and to model the impact of this provision for 
FY 2018, we used the Office of the Actuary's June 2017 Medicare DSH 
estimates based on data from the March 2017 update of the cost report 
data for FY 2014 included in the HCRIS and the Impact File published in 
conjunction with the publication of the FY 2017 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 June 2017 Medicare 
DSH estimates. Furthermore, because Maryland hospitals participating in 
the Maryland All-Payer Model do not receive DSH payments, these 
hospitals also are excluded from the Office of the Actuary's Medicare 
DSH estimates. At the time of development of this final rule, the set 
of hospitals participating in the Rural Community Hospital 
Demonstration program is still unknown. As a result, it was not 
possible for these hospitals to be excluded from the Office of the 
Actuary's Medicare DSH estimates. However, we expect that hospitals 
participating in the demonstration will not receive empirically 
justified DSH payments, and that they will be excluded from receiving 
interim and final uncompensated care payments for FY 2018 and 
subsequent fiscal years for the duration of the second 5 years of the 
extension period.
    For this final rule, using the data sources discussed above, the 
Office of the Actuary used the most recently submitted Medicare cost 
report data for FY 2014 to identify Medicare DSH payments and the most 
recent Medicare DSH payment adjustments provided in the Impact File 
published in conjunction with the publication of the FY 2017 IPPS/LTCH 
PPS final rule and applied update factors and assumptions for future 
changes in utilization and case-mix to estimate Medicare DSH payments 
for the upcoming fiscal year. The June 2017 Office of the Actuary 
estimate for Medicare DSH payments for FY 2018, without regard to the 
application of section 1886(r)(1) of the Act, was approximately $15.533 
billion. This estimate excluded Maryland hospitals participating in the 
Maryland All-Payer Model and SCHs paid under their hospital-specific 
payment rate. Therefore, based on the June 2017 estimate, the estimate 
for empirically justified Medicare DSH payments for FY 2018, with the 
application of section 1886(r)(1) of the Act, is approximately $3.888 
billion (or 25 percent of the total amount of estimated Medicare DSH 
payments for FY 2018). Under Sec.  412.106(g)(1)(i) of the regulations, 
Factor 1 is the difference between these two estimates of the Office of 
the Actuary. Therefore, in this final rule, Factor 1 for FY 2018 is 
$11,664,704,643.27, which is equal to 75 percent of the total amount of 
estimated Medicare DSH payments for FY 2018 ($15,552,939,524.36 minus 
$3,888,234,881.09).
    The Office of the Actuary's final estimates for FY 2018 began with 
a baseline of $12.395 billion in Medicare DSH expenditures for FY 2014. 
The following table shows the factors applied to update this baseline 
through the current estimate for FY 2018:

                          Factors Applied for FY 2015 Through FY 2018 To Estimate Medicare DSH Expenditures Using 2014 Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                           Estimated DSH
                           FY                                 Update        Discharges       Case-mix          Other           Total       payment  (in
                                                                                                                                            billions) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015....................................................           1.014          1.0068           1.005          1.0496          1.0769         $13.348
2016....................................................           1.009          0.9742           1.027          1.0685          1.0787          14.398
2017....................................................          1.0015          0.9952           1.005          1.0535          1.0553          15.194
2018....................................................        1.018088          1.0070           1.005          0.9935          1.0236          15.533
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Rounded.


[[Page 38196]]

    In this table, the ``Discharges'' column shows the increase in the 
number of Medicare fee-for-service (FFS) inpatient hospital discharges. 
The figures for FY 2015 and FY 2016 are based on Medicare claims data 
that have been adjusted by a completion factor. The discharge figure 
for FY 2017 is based on preliminary data for 2017. The discharge figure 
for FY 2018 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 FY 2015 and FY 2016 are based on actual data adjusted by a 
completion factor. The FY 2017 increase is based on preliminary data.
    The FY 2018 increase is 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, and 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 factor for Medicaid expansion was developed using public 
information and statements for each State regarding its intent to 
implement the expansion. Based on this information, it is assumed that 
50 percent of all individuals who were potentially newly eligible 
Medicaid enrollees in 2016 resided in States that had elected to expand 
Medicaid eligibility and, for 2017 and thereafter, that 55 percent of 
such individuals would reside in expansion States. In the future, these 
assumptions may change based on actual participation by States. For a 
discussion of general issues regarding Medicaid projections, we refer 
readers to the 2016 Actuarial Report on the Financial Outlook for 
Medicaid (https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/MedicaidReport2016.pdf). We note 
that, in developing their estimates of the effect of Medicaid expansion 
on Medicare DSH expenditures, our actuaries have assumed that the new 
Medicaid enrollees are healthier than the average Medicaid recipient 
and, therefore, use fewer hospital services.
    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
----------------------------------------------------------------------------------------------------------------
2015............................             2.9            -0.2            -0.5            -0.8             1.4
2016............................             2.4            -0.2            -0.5            -0.8             0.9
2017............................             2.7           -0.75            -0.3            -1.5            0.15
2018............................             2.7           -0.75            -0.6          0.4588          1.8088
----------------------------------------------------------------------------------------------------------------
Note: All numbers are based on Midsession Review of FY 2018 President's Budget projections.

b. Calculation of Factor 2 for FY 2018
(1) Background
    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: 
https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/costestimate/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

[[Page 38197]]

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 was 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, FY 2016, and FY 2017 IPPS/LTCH 
PPS final rules (78 FR 50634, 79 FR 50014, 80 FR 49522, and 81 FR 
56952, 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 the FY 2017 IPPS/LTCH PPS final rule (81 FR 56952), we 
used the most recently available estimate of the uninsurance rate, 
which was based on the CBO's March 2016 estimates of the effects of the 
Affordable Care Act on health insurance coverage (which are available 
at https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51385-HealthInsuranceBaseline.pdf). The CBO's March 2016 
estimate of individuals under the age of 65 with insurance in CY 2016 
was 90 percent. Therefore, the CBO's most recent estimate of the rate 
of uninsurance in CY 2016 was 10 percent (that is, 100 percent minus 90 
percent). The CBO's March 2016 estimate of individuals under the age of 
65 with insurance in CY 2017 was also 90 percent. Therefore, the CBO's 
most recent estimate of the rate of uninsurance in CY 2017 available 
for the FY 2017 final rule was also 10 percent (that is, 100 percent 
minus 90 percent).
    The calculation of the final Factor 2 for FY 2017, employing a 
weighted average of the CBO projections for CY 2016 and CY 2017, was as 
follows:
     CY 2016 rate of insurance coverage (March 2016 CBO 
estimate): 90 percent.
     CY 2017 rate of insurance coverage (March 2016 CBO 
estimate): 90 percent.
     FY 2016 rate of insurance coverage: (90 percent * .25) + 
(90 percent * .75) = 90 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 percent.

1-[verbarlm]((0.10-0.18)/0.18)[verbarlm] = 1- 0.4444 = 0.5555 (55.56 
percent)
0.5556 (55.56 percent)-.002 (0.2 percentage points for FY 2017 under 
section 1886(r)(2)(B)(i) of the Act) = 0.5536 or 55.36 percent
0.5536 = Factor 2

    Therefore, the final Factor 2 for FY 2017 was 55.36 percent.
    The FY 2017 final uncompensated care amount was: $10,797,476,782.62 
x 0.5536 = $5,977,483,146.86.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
FY 2017 Uncompensated Care Total Available...........  $5,977,483,146.86
------------------------------------------------------------------------

(2) Methodology for Calculation of Factor 2 for FY 2018
    Section 1886(r)(2)(B)(ii) of the Act permits the use of a data 
source other than the CBO estimates to determine the percent change in 
the rate of uninsurance beginning in FY 2018. In addition, for FY 2018 
and subsequent years, the statute does not require that the estimate of 
the percent of individuals who are uninsured be limited to individuals 
who are under 65. Specifically, the statute states that, 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. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56952), we 
indicated that we planned to address changes to the methodology for 
determining Factor 2 and the viability of potential alternative data 
sources in the FY 2018 IPPS/LTCH PPS proposed rule.
    As we discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19945), in our analysis of a potential data source for the rate of 
uninsurance for purposes of computing Factor 2 in FY 2018, we 
considered the following: (a) The extent to which the source accounted 
for the full U.S. population; (b) the extent to which the source 
comprehensively accounted for both public and private health insurance 
coverage in deriving its estimates of the number of uninsured; (c) the 
extent to which the source utilized data from the Census Bureau; (d) 
the timeliness of the estimates; (e) the continuity of the estimates 
over time; (f) the accuracy of the estimates; and (g) the availability 
of projections (including the availability of projections using an 
established estimation methodology that would allow for calculation of 
the rate of uninsurance for the applicable Federal fiscal year). As we 
explained in the proposed rule, these considerations are consistent 
with the statutory requirement that this estimate be based on data from 
the Census Bureau or other sources the Secretary determines appropriate 
and help to ensure the data source will provide reasonable estimates 
for the rate of uninsurance that are available in conjunction with the 
IPPS rulemaking cycle.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19946 and 19947), 
we explained that we have determined that the source that, on balance, 
best meets all of these considerations is the uninsured estimates 
produced by CMS' Office of the Actuary (OACT) as part of the 
development of the National Health Expenditure Accounts (NHEA). The 
NHEA represents the government's official estimates of economic 
activity (spending) within the health sector. The information contained 
in the NHEA has been used to study numerous topics related to the 
health care sector, including, but not limited to, changes in the 
amount and cost of health services purchased and the payers or programs 
that provide or purchase these services; the economic causal factors at 
work in the health sector; the impact of policy changes, including 
major health reform; and comparisons to other countries' health 
spending. Of relevance to the determination of Factor 2 is that the 
comprehensive and integrated structure of the NHEA creates an ideal 
tool for evaluating changes to the health care system, such as the mix 
of the insured and uninsured because this mix is integral to the well-
established NHEA

[[Page 38198]]

methodology. Below we describe some aspects of the methodology used to 
develop the NHEA that we believe are particularly relevant in 
estimating the percent change in the rate of uninsurance for FY 2018. A 
full description of the methodology used to develop the NHEA is 
available on the CMS Web site at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/DSM-15.pdf.
    The NHEA estimates of U.S. population reflect the Census Bureau's 
definition of the resident-based population, which includes all people 
who usually reside in the 50 States or the District of Columbia, but 
excludes residents living in Puerto Rico and areas under U.S. 
sovereignty, members of the U.S. Armed Forces overseas, and U.S. 
citizens whose usual place of residence is outside of the United 
States, plus a small (typically less than 0.2 percent of population) 
adjustment to reflect Census undercounts. In past years, the estimates 
for Factor 2 were made using the CBO's uninsured population estimates 
for the under 65 population. For FY 2018 and subsequent years, the 
statute does not restrict the estimate to the measurement of the 
percent of individuals under the age of 65 who are uninsured. 
Accordingly, as we explained in the proposed rule, we believe it is 
appropriate to use an estimate that reflects the rate of uninsurance in 
the United States across all age groups. In addition, we continue to 
believe that a resident-based population estimate more fully reflects 
the levels of uninsurance in the United States that influence 
uncompensated care for hospitals than an estimate that reflects only 
legal residents. The NHEA estimates of uninsurance are for the total 
U.S. population (all ages) and not by specific age cohort, such as the 
population under the age of 65.
    The NHEA includes comprehensive enrollment estimates for total 
private health insurance (PHI) (including direct and employer-sponsored 
plans), Medicare, Medicaid, the Children's Health Insurance Program 
(CHIP), and other public programs, and estimates of the number of 
individuals who are uninsured. Estimates of total PHI enrollment are 
available for 1960 through 2015, estimates of Medicaid, Medicare, and 
CHIP enrollment are available for the length of the respective 
programs, and all other estimates (including the more detailed 
estimates of direct-purchased and employer-sponsored insurance) are 
available for 1987 through 2015. The NHEA data are publicly available 
on the CMS Web site at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html. In order to compute Factor 2, the first metric that is 
needed is the proportion of the total U.S. population that was 
uninsured in 2013. In developing the estimates for the NHEA, OACT's 
methodology included using the number of uninsured individuals for 1987 
through 2009 based on the enhanced Current Population Survey (CPS) from 
the State Health Access Data Assistance Center (SHADAC). The CPS, 
sponsored jointly by the U.S. Census Bureau and the U.S. Bureau of 
Labor Statistics (BLS), is the primary source of labor force statistics 
for the population of the United States. (We refer readers to the Web 
site at: http://www.census.gov/programs-surveys/cps.html.) The enhanced 
CPS, available from SHADAC (available at http://datacenter.shadac.org) 
accounts for changes in the CPS methodology over time. OACT further 
adjusts the enhanced CPS for an estimated undercount of Medicaid 
enrollees (a population that is often not fully captured in surveys 
that include Medicaid enrollees due to a perceived stigma associated 
with being enrolled in the Medicaid program or confusion about the 
source of their health insurance).
    To estimate the number of uninsured individuals for 2010 through 
2014, OACT extrapolates from the 2009 CPS data using data from the 
National Health Interview Survey (NHIS) The NHIS is one of the major 
data collection programs of the National Center for Health Statistics 
(NCHS), which is part of the Centers for Disease Control and Prevention 
(CDC). The U.S. Census Bureau is the data collection agent for the 
NHIS.
    The NHIS results have been instrumental over the years in providing 
data to track health status, health care access, and progress toward 
achieving national health objectives. For further information regarding 
the NHIS, we refer readers to the CDC Web site at: https://www.cdc.gov/nchs/nhis/index.htm. For 2015, the estimate of the rate of uninsurance 
in the NHEA matches with the estimate from the NHIS.
    The next metrics needed to compute Factor 2 are projections of the 
rate of uninsurance in both calendar years 2017 and 2018. On an annual 
basis, the OACT projects enrollment and spending trends for the coming 
10-year period. Those projections (currently for years 2016 through 
2025) use the latest NHEA historical data, which presently run through 
2015. The NHEA projection methodology accounts for expected changes in 
enrollment across all of the categories of insurance coverage 
previously listed. The sources for projected growth rates in enrollment 
for Medicare, Medicaid, and CHIP include the latest Medicare Trustees 
Report, the Medicaid Actuarial Report, or other updated estimates as 
produced by the OACT. Projected rates of growth in enrollment for 
private health insurance and the uninsured are based largely on OACT's 
econometric models, which rely on the set of macroeconomic assumptions 
underlying the latest Medicare Trustees Report. Greater detail can be 
found in OACT's report titled ``Projections of National Health 
Expenditure: Methodology and Model Specification,'' which is available 
on the CMS Web site at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology.pdf As discussed in the proposed rule, 
the use of data from the NHEA to estimate the rate of uninsurance is 
consistent with the statute and meets the criteria we have identified 
for determining the appropriate data source. Section 1886(r)(2)(B)(ii) 
of the Act instructs the Secretary to estimate the rate of uninsurance 
for purposes of Factor 2 based on data from the Census Bureau or other 
sources the Secretary determines appropriate. The NHEA utilizes data 
from the Census Bureau; the estimates are available in time for the 
IPPS rulemaking cycle; the estimates are produced by OACT on an annual 
basis and are expected to continue to be produced for the foreseeable 
future; and projections are available for calendar year time periods 
that span the upcoming fiscal year. Timeliness and continuity are 
important considerations because of our need to be able to update this 
estimate annually. Accuracy is also a very important consideration and, 
all things being equal, we would choose the most accurate data source 
that sufficiently meets our other criteria.
    Using these data sources and the methodologies described above, 
OACT estimates that the uninsured rate for the historical, baseline 
year of 2013 was 14 percent and for CYs 2017 and 2018 is 8.3 percent 
and 8.1 percent, respectively. As required by section 1886(r)(2)(B)(ii) 
of the Act, the Chief Actuary of CMS has certified these estimates. As 
with the CBO estimates on which we based Factor 2 in prior fiscal 
years, the NHEA estimates are for a calendar year. In the rulemaking 
for FY 2014, many commenters noted that the

[[Page 38199]]

uncompensated care payments are made on fiscal year and not a calendar 
year basis and requested that CMS normalize the CBO estimate to reflect 
a fiscal year basis. Specifically, commenters requested that CMS 
calculate a weighted average of the CBO estimate for October through 
December 2013 and the CBO estimate for January through September 2014 
when determining Factor 2 for FY 2014. We agreed with the commenters 
that normalizing the estimate to cover FY 2014 rather than CY 2014 
would more accurately reflect the rate of uninsurance that hospitals 
would experience during the FY 2014 payment year. Accordingly, we 
estimated the rate of uninsurance for FY 2014 by calculating a weighted 
average of the CBO estimates for CY 2013 and CY 2014 (78 FR 50633). We 
have continued this weighted average approach in each fiscal year since 
FY 2014.
    We continue to believe that, in order to estimate the rate of 
uninsurance during a fiscal year more accurately, Factor 2 should 
reflect the estimated rate of uninsurance that hospitals will 
experience during the fiscal year, rather than the rate of uninsurance 
during only one of the calendar years that the fiscal year spans. 
However, we have concerns about the future potential for the uninsured 
rate to vary nonuniformly in the 2 calendar years that the fiscal year 
spans (for example, due to changes in the economy or changes in 
legislation). Nevertheless, for FY 2018, because OACT's current 
estimates of the percent of individuals without insurance in CY 2017 
and CY 2018 are relatively close, we stated in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19947) that we do not believe this is a 
significant policy issue, and we proposed to continue with the weighted 
average approach used in past fiscal years in order to estimate the 
rate of uninsurance for FY 2018.
    The calculation of the proposed Factor 2 for FY 2018 using a 
weighted average of OACT's projections for CY 2017 and CY 2018 was as 
follows:
     Percent of individuals without insurance for CY 2013: 14 
percent.
     Percent of individuals without insurance for CY 2017: 8.3 
percent.
     Percent of individuals without insurance for CY 2018: 8.1 
percent.
     Percent of individuals without insurance for FY 2018 (0.25 
times 0.083) + (0.75 times 0.081): 8.15 percent

1-[verbarlm]((0.0815-0.14)/0.14)[bond] = 1-0.4179 = 0.5821 (58.21 
percent)
1-[verbarlm]((0.0815-0.14)/0.14)[bond] = 1-0.4179 = 0.5821 (58.21 
percent)
0.5821 (58.21 percent)-.002 (0.2 percentage points for FY 2018 under 
section 1886(r)(2)(B)(ii) of the Act) = 0.5801 or 58.01 percent
0.5801 = Factor 2

    Therefore, the proposed Factor 2 for FY 2018 was 58.01 percent.
    The proposed FY 2018 uncompensated care amount was: 
$12,001,915,095.04 x 0.5801 = $6,962,310,946.63.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Proposed FY 2018 Uncompensated Care Total Available..  $6,962,310,946.63
------------------------------------------------------------------------

    We invited public comments on our proposed methodology for 
calculation of Factor 2 for FY 2018.
    Comment: Several commenters supported the proposal to use the 
uninsured estimates produced by CMS' OACT as part of the development of 
the NHEA in estimating the percent change in the rate of uninsurance 
for FY 2018. Some of these commenters stated that, in their view, the 
estimates produced by OACT are timely, complete, and more accurately 
capture the change in the number of uninsured individuals than CBO's 
historical estimate of the rate of uninsurance in 2013. A few 
commenters noted that the data source adds greater transparency to the 
process as the NHEA estimates are publicly available, while other 
commenters urged CMS to ensure that all data are provided with complete 
transparency of the type of data and data collection methods that are 
used. One commenter requested further explanation for our assumption 
regarding underreporting of Medicaid coverage in the survey data and 
the corresponding adjustment to our estimate of the rate of 
uninsurance, and then contended that this assumption was applied 
inconsistently between Factors 1 and 2.
    Commenters supported the proposed methodology for determining 
Factor 2 because they believed it provides a more accurate comparison 
when evaluating changes in the uninsured population since 2013, noting 
that the amount available to make uncompensated care payments in FY 
2017 was lower using CBO estimates than if the NHEA data had been used. 
A number of commenters asked CMS to retrospectively apply the NHEA 
estimates when measuring the effect of changes in Medicare DSH policy 
across time periods prior to FY 2018. Some of these commenters 
recognized that CMS does not have the authority to retroactively change 
estimates from prior years, but suggested that CMS consider this point 
in its analysis of payment changes occurring from the proposal to move 
from the use of low-income patient days to Worksheet S-10 data to 
estimate uncompensated care.
    Several commenters requested that CMS use the most recent estimates 
available and update them in a timely manner. The commenters also 
requested that CMS account for any legislative or policy changes that 
may have an effect on the uninsurance rate during FY 2018.
    Several commenters expressed concern about the sustainability of 
continued reductions to aggregate uncompensated care payments due to 
the application of Factor 2. The commenters noted that, as insurance 
coverage increases, the aggregate amount available for uncompensated 
care payments will decline and thus reduce the amount of payments to be 
made.
    Response: We appreciate the commenters' support for our proposal to 
begin using the uninsured estimates produced by OACT in the computation 
of Factor 2 for FY 2018. Section 1886(r)(2)(B)(ii) of the Act permits 
us to use a data source other than CBO estimates to determine the 
percent change in the rate of uninsurance beginning in FY 2018. We 
believe that the NHEA data, on balance, best meet all of our 
considerations to ensure that the data source meets the statutory 
requirement that the estimate be based on data from the Census Bureau 
or other sources the Secretary determines appropriate and will provide 
reasonable estimates of the rate of uninsurance that are available in 
conjunction with the IPPS rulemaking cycle. In the FY 2018 IPPS/LTCH 
PPS proposed rule, we provided additional information regarding the 
data sources, methods, and assumptions employed by the actuaries in 
determining the OACT's updated estimate of Factor 2 for FY 2018. We 
believe that this discussion addresses the concerns raised by 
commenters regarding the various assumptions used in the estimate. 
Regarding the assumption of undercount for Medicaid enrollees in 
surveys, we refer readers to research by Michael Davern, et al. as 
cited by the NHEA's Methodology Paper available on the CMS Web site at: 
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/DSM-15.pdf. With 
respect to the commenters' request to retrospectively apply the NHEA 
estimates when measuring the effect of changes in Medicare DSH policy, 
section 1886(r)(2)(B)(ii) of the Act states that, for FY 2018 and 
subsequent fiscal years, Factor 2 is determined by comparing the 
percent of individuals who were uninsured in 2013, as

[[Page 38200]]

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. Because the statute specifies the use of these 
estimates only for FY 2018 and subsequent years, and section 
1886(r)(2)(B)(i) of the Act expressly requires the use of CBO estimates 
for prior fiscal years, we do not believe that we have authority to use 
the NHEA data to retroactively recalculate uninsurance rates for 
previous years.
    In response to the commenters who requested that we update the 
estimates and account for any legislative or policy changes that may 
affect the uninsurance rate in FY 2018, in the FY 2018 IPPS/LTCH PPS 
proposed rule, we indicated that we considered timeliness and accuracy 
when selecting the NHEA as the appropriate data on which to base our 
estimates of the rate of uninsurance. Furthermore, we continue to 
believe that applying our best estimate of the change in the rate of 
uninsurance for a fiscal year prospectively would be most conducive to 
administrative efficiency, finality, and predictability in payments.
    Finally, in response to concerns about the decrease in the amount 
available to make uncompensated care payments, we believe that the 
intent of the statute is to reduce the amount available to make 
uncompensated care payments to reflect the decline in the number of 
uninsured individuals and the expected corresponding decrease in the 
amount of uncompensated care.
    After consideration of the public comments we received, we are 
finalizing the proposed calculation of Factor 2 for this FY 2018 IPPS/
LTCH PPS final rule. The estimates of the percent of uninsured 
individuals have been certified by the Chief Actuary of CMS as 
discussed in the proposed rule. The final calculation using a weighted 
average of OACT's projections for CY 2017 and CY 2018 is as follows:
     Percent of individuals without insurance for CY 2013: 14 
percent.
     Percent of individuals without insurance for CY 2017: 8.3 
percent.
     Percent of individuals without insurance for CY 2018: 8.1 
percent.
     Percent of individuals without insurance for FY 2018 (0.25 
times 0.083) + (0.75 times 0.081): 8.15 percent

1-[verbarlm]((0.0815-0.14)/0.14)[verbarlm] = 1-0.4179 = 0.5821 (58.21 
percent)
0.5821 (58.21 percent)-.002 (0.2 percentage points for FY 2018 under 
section 1886(r)(2)(B)(ii) of the Act) = 0.5801
0.5801 = Factor 2

    Therefore, the final Factor 2 for FY 2018 is 58.01 percent.
    The FY 2018 final uncompensated care amount is: $11,664,704,643.27 
x 0.5801 = $6,766,695,163.56.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
FY 2018 Uncompensated Care Total Available...........  $6,766,695,163.56
------------------------------------------------------------------------

c. Calculation of Factor 3 for FY 2018
(1) Background
    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 
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 Worksheet S-10 
and the completeness of these data, we did not propose to use data from 
Worksheet S-10 to determine Factor 3 for FY 2014, the first year this 
provision was in effect, or for FY 2015, 2016, or 2017. 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 concerns about the standardization and completeness of 
the Worksheet S-10 data could be more acute for data collected in the 
first year of the Worksheet's use (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

[[Page 38201]]

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 believed it was also 
appropriate to use proxy data to calculate Factor 3 for these years.
    We stated in the preamble of the FY 2017 IPPS/LTCH PPS proposed 
rule that we believed that, for FY 2018, many of the above concerns 
would no longer be relevant. That is, 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. Furthermore, hospitals' 
cost reports from FY 2014 had been publicly available for some time, 
and CMS had analyses of Worksheet S-10 conducted both internally and by 
stakeholders demonstrating that Worksheet S-10 accuracy had improved 
over time. Specifically, as discussed in the FY 2017 IPPS/LTCH PPS 
proposed rule (81 FR 25090), 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, and 
that the data on Worksheet S-10 would improve over time as the data are 
actually used to make payments. CMS has also 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. (This analysis, 
performed by Dobson DaVanzo & Associates, LLC, under contract to CMS, 
was 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,'' 
which 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.) The analysis determined a strong and 
converging correlation between the amounts for Factor 3 derived using 
the IRS Form 990 and Worksheet S-10 data, suggesting that Worksheet S-
10 uncompensated care data are becoming more stable over time. As we 
discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19947 
through 19948), given these results and in light of the fact that 
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, we believed it would be 
appropriate to propose to begin incorporating Worksheet S-10 data for 
purposes of calculating Factor 3 starting in FY 2018. In section 
IV.F.4.d. of the preamble of the FY 2017 IPPS/LTCH PPS proposed rule 
(81 FR 25090 through 25094), we proposed a methodology and timeline for 
incorporating Worksheet S-10 data in the calculation of Factor 3 
beginning in FY 2018 and invited public comments on that proposal.
    While some commenters, including MedPAC, were supportive of the 
proposal, many other commenters expressed concerns about a perceived 
lack of clarity in the Worksheet S-10 instructions and their belief in 
the necessity of a strict audit mechanism to capture aberrant 
uncompensated care costs reported on Worksheet S-10. Many commenters 
also cited the report from Dobson DaVanzo, which concluded that 
hospitals are doing a better job of reporting their uncompensated care 
data on Worksheet S-10 than they did a few years ago. However, these 
commenters disagreed with CMS about the significance of this 
observation. One commenter stated that even if it is true in the 
aggregate that hospitals are reporting data more accurately on 
Worksheet S-10, the zero-sum nature of the calculation of uncompensated 
care payments is such that the remaining inaccuracy and lack of 
uniformity in the data reported can have a very large impact on 
hospitals. The commenter asserted that if hospitals, for whatever 
reason, over-report their uncompensated care, they benefit financially 
from doing so, while those that do not aggressively report suffer 
financial harm. The commenter concluded that, for this reason, the 
possibility that some hospitals are generally ``doing better'' with 
reporting data is not good enough. All hospitals must do better, and 
until they do, the commenter believed that data from Worksheet S-10 are 
not accurate enough for public policymaking purposes. Other commenters 
asserted that the Dobson/DaVanzo study did not illustrate or even 
evaluate whether data from Worksheet S-10 are a reasonable proxy for 
the costs hospitals incur in providing care to the uninsured. These 
commenters pointed to their own analyses, which indicated that the most 
notable aberrations in Worksheet S-10 data reporting occur among public 
hospitals, which do not file a Form 990 and are therefore missing from 
the Dobson/DaVanzo analysis.
    On balance, after considering all of the comments, we elected not 
to finalize our proposal to begin to incorporate Worksheet S-10 into 
the calculation of Factor 3 for FY 2018 in the FY 2017 IPPS/LTCH PPS 
final rule. We stated that we were postponing the decision regarding 
when to begin incorporating data from Worksheet S-10 and proceeding 
with certain additional quality control and data improvement measures 
to the Worksheet S-10 instructions as commenters had requested. We 
indicated that we would consider further whether the current Worksheet 
S-10 data or a proxy should be used to calculate Factor 3 for FY 2018 
and subsequent fiscal years. We also expressed our intention to explore 
whether there is an appropriate proxy for uncompensated care that could 
be used to calculate Factor 3 until we determine that data from the 
revised Worksheet S-10 can be used for this purpose. We stated that we 
would undertake notice-and-comment rulemaking to address the issue of 
the appropriate data to use to determine Factor 3 for FY 2018 and 
subsequent years.
(2) Data Sources for FY 2018
    Since the publication of the FY 2017 final rule and as part of our 
ongoing quality control and data improvement measures for Worksheet S-
10, we have updated the benchmarking analysis described in the report 
``Improvements to Medicare Disproportionate Share Hospital (DSH) 
Payments Report: Benchmarking S-10 Data Using IRS Form 990 Data and 
Worksheet S-10 Trend Analyses'' posted with the FY 2017 IPPS/LTCH PPS 
proposed rule. A copy of the updated analysis was made available in 
conjunction with the FY 2018 IPPS/LTCH PPS proposed rule on the CMS Web 
site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2018-NPRM-Update-of-Benchmarking-S-10-Data.pdf. As discussed in the FY 2017 IPPS/LTCH PPS proposed rule, the 
purpose of the benchmarking analysis was to determine if Worksheet S-10 
uncompensated care data are becoming more stable over time (81 FR 
25090). In the report issued in conjunction with the FY 2017 
rulemaking, 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 at

[[Page 38202]]

that time) 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 indicated that the amounts for Factor 3 derived using 
the IRS Form 990 and Worksheet S-10 data were highly correlated. In 
addition, the correlation coefficient between the amounts for Factor 3 
calculated from the IRS Form 990 and Worksheet S-10 had increased over 
time, from 0.71 in 2010 to 0.77 in 2011 and 0.80 in 2012, demonstrating 
an increasing convergence between the data sources.
    As we discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19949), in the updated analysis performed for the FY 2018 rulemaking, 
we again compared Worksheet S-10 and IRS Form 990 data and assessed the 
correlation in Factor 3s derived from each of the data sources. We 
conducted an analysis of 2011, 2012, and 2013 Worksheet S-10 data and 
IRS Form 990 data from the same years. (The previous analysis used data 
from 2010 to 2012.) Using IRS Form 990 data for tax years 2011, 2012, 
and 2013 (again, the latest available years) as a benchmark, we 
utilized the same methodology as was used in the previous analysis, 
which yielded a sample of 1,061 not-for-profit hospitals (representing 
918 unique Taxpayer Identification Numbers) and found that the amounts 
for Factor 3 derived using the IRS Form 990 and Worksheet S-10 data 
continue to be highly correlated and that, within the larger sample in 
the updated analysis, this correlation continues to increase over time, 
from 0.80 in 2011 to 0.85 in 2013. (The highest correlation found in 
the earlier analysis performed for the FY 2017 rulemaking was 0.80.)
    The fact that this most recent analysis, which was performed after 
the issuance of the FY 2017 IPPS/LTCH PPS final rule, continues to 
demonstrate a high correlation between the amounts for Factor 3 derived 
using the IRS 990 data and the Worksheet S-10 data and that this 
correlation continues to increase over time leads us to believe that we 
have reached a tipping point with respect to the use of the Worksheet 
S-10 data. Specifically, we can no longer conclude that alternative 
data are available for FY 2014 that are a better proxy for the costs of 
subsection (d) hospitals for treating individuals who are uninsured 
than the data on uncompensated care costs reported on the Worksheet S-
10. However, we stated in the proposed rule that we continue to believe 
that it is appropriate to use low-income insured days as a proxy for 
uncompensated care costs for years prior to FY 2014. Hospitals did not 
have notice that the Worksheet S-10 data from these years might be used 
for purposes of computing uncompensated care payments and, as a result, 
may not have fully appreciated the importance of reporting their 
uncompensated care costs as completely and accurately as possible.
    We found further evidence for this tipping point when we examined 
changes to the FY 2014 Worksheet S-10 data submitted by hospitals since 
the publication of the FY 2017 IPPS/LTCH PPS final rule. In the FY 2017 
IPPS/LTCH PPS final rule, as part of our ongoing quality control and 
data improvement measures for the Worksheet S-10, we referred readers 
to Change Request 9648, Transmittal 1681, titled ``The Supplemental 
Security Income (SSI)/Medicare Beneficiary Data for Fiscal Year 2014 
for Inpatient Prospective Payment System (IPPS) Hospitals, Inpatient 
Rehabilitation Facilities (IRFs), and Long Term Care Hospitals 
(LTCH),'' issued on July 15, 2016 (available at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Downloads/R1681OTN.pdf). 
In this transmittal, as part of the process for ensuring complete 
submission of Worksheet S-10 by all eligible DSH hospitals, we 
instructed MACs to accept amended Worksheets S-10 for FY 2014 cost 
reports submitted by hospitals (or initial submissions of Worksheet S-
10 if none had been submitted previously) and to upload them to the 
Health Care Provider Cost Report Information System (HCRIS) in a timely 
manner. The transmittal stated that, for revisions to be considered, 
hospitals were required to submit their amended FY 2014 cost report 
containing the revised Worksheet S-10 (or a completed Worksheet S-10 if 
no data were included on the previously submitted cost report) to the 
MAC no later than September 30, 2016.
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19949), we examined hospitals' FY 2014 cost reports to see if the 
Worksheet S-10 data on those cost reports have changed as a result of 
the opportunity for hospitals to submit revised Worksheet S-10 data for 
FY 2014. Specifically, we compared hospitals' FY 2014 Worksheet S-10 
data as they existed in the first quarter of CY 2016 with data from the 
fourth quarter of CY 2016. We found that the FY 2014 Worksheet S-10 
data had changed over that time period for approximately one quarter of 
hospitals that receive uncompensated care payments. As we discussed in 
the proposed rule, the fact that the Worksheet S-10 data changed for 
such a significant number of hospitals following a review of the cost 
report data they originally submitted and that the revised Worksheet S-
10 information is available to be used in determining uncompensated 
care costs contributes to our belief that we can no longer conclude 
that alternative data are available that are a better proxy than the 
Worksheet S-10 data for the costs of subsection (d) hospitals for 
treating individuals who are uninsured.
    Commenters have also provided equity arguments with respect to the 
relationship between uncompensated care payments and the expansion of 
Medicaid in certain States under the authority provided by the 
Affordable Care Act. The commenters have made a twofold argument. 
First, they have argued that hospitals in States that did not expand 
Medicaid treat a higher number of uninsured patients compared to 
hospitals in States that did expand Medicaid and, as a result, provide 
more uncompensated care. However, since the implementation of the new 
DSH payment methodology under section 3133 of the Affordable Care Act 
in FY 2014, these hospitals have experienced reductions in the payments 
for uncompensated care due to the national decline in the uninsured 
rate driven in large part by Medicaid expansions in other States. 
Second, they have argued that hospitals in nonexpansion States will be 
penalized a second time when Medicaid utilization is used as part of 
the basis for determining Factor 3 because their Medicaid utilization 
has not grown as much relative to hospitals in expansion States. 
Although CMS has not yet used data affected by Medicaid expansion when 
determining Factor 3, commenters are concerned that they will be 
penalized in future calculations when these data are used.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50639), we 
recognized that, in using Medicaid days as part of the proxy for 
uncompensated care, it would be possible for hospitals in States that 
choose to expand Medicaid to receive higher uncompensated care payments 
because they may have more Medicaid

[[Page 38203]]

patient days than hospitals in a State that does not choose to expand 
Medicaid. Because the earliest Medicaid expansions under the Affordable 
Care Act began in 2014, the 2011, 2012, and 2013 Medicaid days data 
used to determine Factor 3 for FY 2017 are the most recent available 
data on Medicaid utilization that do not reflect the effects of these 
Medicaid expansions. Accordingly, if we were to use only low-income 
insured days to estimate uncompensated care in FY 2018, we would need 
to hold the time period of these data constant and use data on Medicaid 
days from 2011, 2012, and 2013 in order to avoid the risk of any 
redistributive effects arising from the decision to expand Medicaid in 
certain States. As a result, we would be using older data that may 
provide a less accurate proxy for the level of uncompensated care being 
furnished by hospitals in FY 2018, contributing to our growing concerns 
regarding the continued use of low-income insured days as a proxy for 
uncompensated care costs in FY 2018.
    In the proposed rule, we also noted that when weighing the new 
information that has become available to us regarding the Worksheet S-
10 and the low-income days proxy since the FY 2018 rulemaking, we are 
not considering these developments in isolation, but rather in the 
context of the information that we previously considered as part our 
discussions of the Worksheet S-10 data in prior rulemaking. Part of 
this background is provided by the 2007 MedPAC analysis of data from 
the Government Accountability Office (GAO) and 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). Additional analyses performed by MedPAC showed that the 
correlation between audited uncompensated care data from 2009 and the 
data from the FY 2011 Worksheet S-10 was over 0.80, as compared to a 
correlation of approximately 0.50 between the audited uncompensated 
care data and 2011 Medicare SSI and Medicaid days. Based on this 
analysis, 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 (81 FR 
25090). Furthermore, MedPAC in the past has raised concerns about the 
low-income days proxy we have used historically because it is an 
inpatient measure and much of the uncompensated care provided by 
certain hospitals, including rural hospitals, occurs in the emergency 
room or other outpatient areas. In its comments on the FY 2017 IPPS/
LTCH PPS proposed rule, MedPAC again recommended that we start using 
the Worksheet S-10 data with a phase-in (81 FR 56962).
    In summary, as we stated in the FY 2018 IPPS/LTCH PPS proposed 
rule, when weighing the new information that has become available to us 
since the FY 2017 rulemaking in conjunction with the information 
regarding Worksheet S-10 data and the low-income days proxy that we 
have analyzed as part of our consideration of this issue in prior 
rulemaking, we can no longer conclude that alternative data to the 
Worksheet S-10 are available for FY 2014 that are a better proxy for 
the costs of subsection (d) hospitals for treating individuals who are 
uninsured.
    Comment: Many commenters expressed disapproval that CMS 
``backtracked'' on its decision in the FY 2017 IPPS/LTCH PPS final rule 
to postpone incorporating data from Worksheet S-10 into the calculation 
of Factor 3 and voiced their confusion and surprise over the apparent 
change in policy. These commenters noted that CMS' position in the FY 
2017 IPPS/LTCH PPS final rule was that additional time was needed to 
make certain modifications and clarifications to the cost report 
instructions for Worksheet S-10, as well as to explore suggestions made 
by commenters in previous years for ensuring the consistent submission 
of Worksheet S-10 by hospitals when filing their cost reports (such as 
software edits to flag negative, unusual, or missing data or a missing 
Worksheet S-10). They added that CMS stated that this postponement also 
allowed time for hospitals to more accurately complete and submit the 
form. The commenters observed that CMS' stated intent in the FY 2017 
IPPS/LTCH PPS final rule was to begin to incorporate Worksheet S-10 
data into the computation of Factor 3 once these additional measures to 
ensure data quality and completeness are in place, and no later than FY 
2021, yet CMS had reversed this decision by proposing to use Worksheet 
S-10 data from FY 2014 in the calculation of Factor 3 for FY 2018 in 
the FY 2018 IPPS/LTCH PPS proposed rule.
    Response: We appreciate the comments regarding our proposal to 
begin using data from Worksheet S-10 in the calculation of Factor 3 in 
FY 2018. As stated in the FY 2018 IPPS/LTCH PPS proposed rule and 
explained in greater detail below, when weighing the new information 
that has become available to us since the FY 2017 rulemaking, in 
conjunction with the information regarding Worksheet S-10 data and the 
low-income days proxy that we have analyzed as part of our 
consideration of this issue in prior rulemaking, we can no longer 
conclude that alternative data to the Worksheet S-10 are available for 
FY 2014 that are a better proxy for the costs of subsection (d) 
hospitals for treating individuals who are uninsured.
    Comment: Several commenters approved of CMS' proposal to begin 
using data from Worksheet S-10 in the calculation of Factor 3 prior to 
FY 2021. MedPAC stated that using Worksheet S-10 data, in conjunction 
with select auditing of cost reports, will lead to better estimates of 
uncompensated care costs than the continued use of the current proxy of 
Medicaid and SSI days. Other commenters echoed MedPAC's statement, 
noting that the metrics from Worksheet S-10 appear to provide a better 
assessment of a hospital's uncompensated care costs than the current 
proxy data, which assess only low-income insured days and distribute 
the bulk of Medicare DSH payments based on the amount of inpatient care 
a hospital delivers to Medicaid patients and recipients of SSI 
payments. One commenter cited the December 2016 article in Health 
Affairs (Stensland, et al.), which estimated that Medicare payments on 
average are reduced by $20 for every additional uninsured patient a 
hospital treats, to support the argument that the distribution of 
uncompensated care payments according to a hospital's proportion of 
low-income insured days results in payments that are poorly correlated 
with a hospital's true uncompensated care burden. The commenter 
asserted that uncompensated care payments should compensate hospitals 
based on their delivery of care to the uninsured rather than based on a 
proxy that is poorly correlated with the costs of treating the 
uninsured.
    As in previous years, commenters also believed that the proposed 
methodology for FY 2018 brings parity and equity across the States, 
regardless of their decision to expand Medicaid. Commenters stated that 
implementation of the proposal to use data from Worksheet S-10 will 
create more balance between Medicaid expansion and nonexpansion States, 
especially because hospitals in nonexpansion States are ``at a 
significant disadvantage'' under the current proxy methodology. The 
commenters noted that, under the current methodology used to calculate 
Factor 3, hospitals in

[[Page 38204]]

nonexpansion States bear a greater uncompensated care burden, yet are 
effectively penalized in Medicare DSH allocations twice: First, because 
they incur a reduction in the total amount available to be distributed 
as uncompensated care payments based on the national decline in the 
uninsured rate that largely reflects the experience of expansion 
States; and second, because their Medicaid utilization rates remain 
relatively flat compared to the increasing rates of hospitals in 
expansion States, resulting in lower uncompensated care payments. These 
commenters believed that FY 2018 is an appropriate time to transition 
to Worksheet S-10, as CMS proposed, using an average of 2 years of 
Medicaid and SSI days data in conjunction with 1 year of Worksheet S-10 
data that eliminates the use of the low-income insured days proxy for 
FY 2014 when many States expanded Medicaid. Furthermore, as proposed, 
the amount available for uncompensated care payments would increase by 
approximately $1 billion in FY 2018, which helps mitigate the financial 
impact of transitioning to Worksheet S-10 data for hospitals treating 
higher numbers of Medicaid and SSI patients and fewer uninsured 
patients.
    In response to arguments that further refinement of Worksheet S-10 
is needed, one commenter pointed to separate evaluations performed by 
MedPAC and the consulting firm Dobson DaVanzo, which both found a high 
degree of correlation between data reported on Worksheet S-10 and 
audited uncompensated care data, as evidence that the information 
currently reported on Worksheet S-10 is satisfactory for purposes of 
allocating uncompensated care payments. The commenter argued that while 
CMS should continue to refine the instructions for Worksheet S-10, the 
transition from the proxy of low-income insured days to Worksheet S-10 
as a method of allocating uncompensated care payments will never take 
place if CMS postpones the transition until the Worksheet S-10 data are 
perfect. The commenter stated that, despite years of refinements, 
Medicare has yet to achieve perfection in the Medicare cost report 
data; nevertheless, there are various examples throughout the Medicare 
inpatient PPS in which payments are made based on the best available 
information from the Medicare cost report. This commenter was troubled 
that CMS had delayed the implementation of Worksheet S-10 until no 
later than FY 2021 in the FY 2017 IPPS/LTCH PPS final rule, and 
encouraged CMS to finalize its proposal to begin incorporating 
Worksheet S-10 data in the calculation of Factor 3 for FY 2018.
    Response: We appreciate the support for our proposal to begin to 
incorporate Worksheet S-10 data into the computation of Factor 3 for FY 
2018. We agree with the commenters that FY 2018 is an appropriate time 
to begin using Worksheet S-10 data in the calculation of Factor 3 due 
to a confluence of factors, including evidence that the Worksheet S-10 
data are improving over time and concerns that the proxy data for FY 
2014 and subsequent years will reflect the effects of Medicaid 
expansion. As we stated in the FY 2018 IPPS/LTCH PPS proposed rule, we 
can no longer conclude that alternative data to the Worksheet S-10 are 
available for FY 2014 that are a better proxy for the costs of 
subsection (d) hospitals for treating individuals who are uninsured. We 
also acknowledge that the approximately $800 million increase in the 
total amount available to make uncompensated care payments will help to 
mitigate the impact of this change on hospitals that serve a large 
number of Medicaid and SSI patients and fewer uninsured patients.
    Comment: Many commenters opposed the use of Worksheet S-10 to 
compute Factor 3 and allocate uncompensated care costs beginning in FY 
2018. Most of these commenters maintained their position from previous 
years that, while Worksheet S-10 has the potential to serve as a more 
exact measure of hospital uncompensated care costs, the data reported 
are not presently a reliable and accurate reflection of these 
uncompensated care costs. These commenters disagree with CMS that the 
agency has reached a ``tipping point'' and shared observations that 
they believe refute each of the factors cited in the FY 2018 IPPS/LTCH 
PPS proposed rule as a reason to begin using Worksheet S-10 data. 
Overall, commenters stated that the rationale provided by CMS for 
transitioning to the use of data from Worksheet S-10--that the accuracy 
of the data has improved over time--was not sufficient to justify the 
transition.
    With respect to the Dobson DaVanzo report, which showed a strong 
correlation between Factor 3 values derived from data reported on IRS 
990 Schedule H and Worksheet S-10, several commenters noted limitations 
that they believe should be taken into consideration when using these 
findings to support the use of Worksheet S-10 data. Commenters noted 
that a simple correlation between two data sources that have not been 
reviewed for accuracy does not support the statistical validity of the 
uncompensated care data reported on Worksheet S-10. Furthermore, 
commenters noted that because the data from IRS 990 do not include for-
profit and government hospitals, the sample used in the analysis is not 
representative of the universe of hospitals receiving Medicare DSH 
payments and therefore presents biased results. One commenter observed 
that the analysis overrepresents certain States and underrepresents 
other States. Another commenter noted some specific line items that 
illustrate inconsistencies between the IRS 990 data and the S-10 data. 
For example, the commenter stated that in tax year 2011, the IRS 990 
Schedule H changed such that bad debt expense is no longer reported at 
cost, and filing organizations were no longer instructed to multiply 
bad debt expense by their CCR, a change that is not reflected in the 
Worksheet S-10 instructions and which the Dobson analysis does not take 
into consideration.
    Commenters continued to express concerns about the lack of accurate 
and consistent data being reported on Worksheet S-10, primarily due to 
what they perceive as a lack of clear and concise line level 
instructions. Commenters pointed out that, in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56963), CMS agreed to institute certain additional 
quality control and data improvement measures prior to moving forward 
with incorporating Worksheet S-10 data into the calculation of Factor 
3. However, the commenters pointed out that, aside from a brief window 
in 2016 for hospitals to submit corrected data on their FY 2014 
Worksheet S-10 by September 30, 2016, and the issuance of revised 
instructions (Transmittal 10) in November 2016 that are applicable to 
cost reports beginning on or after October 1, 2016, no additional 
quality control and data improvement measures have been implemented. 
Furthermore, commenters asserted that the clarifications and guidance 
with respect to the instructions for Worksheet S-10 issued by CMS are 
not sufficient to ensure consistent submission of uncompensated care 
data, and that the 25 percent of hospitals that either resubmitted 
their FY 2014 Worksheet S-10 or provided a missing FY 2014 Worksheet S-
10 do not present significant evidence that the problems with Worksheet 
S-10 reporting have been resolved. One commenter took issue with CMS' 
statement in the proposed rule that it does not anticipate making any 
further modifications to the

[[Page 38205]]

instructions for completing Worksheet S-10 at this time, and asserted 
that hospitals should have the benefit of a final rule and instructions 
that can be referenced in completing Worksheet S-10 data for future 
cost reports, ensuring accuracy, consistency and completeness.
    Because many commenters were concerned that unclear reporting 
instructions on Worksheet S-10 would result in inconsistent and 
inaccurate reporting of data, commenters requested that, after more 
precise instructions are provided, CMS apply a strict auditing process 
for information reported on the Worksheet S-10 before it is used to 
determine uncompensated care costs. The commenters believed that simply 
tying information reported on Worksheet S-10 to payment and requiring 
its regular use will not improve the accuracy of the data. In addition, 
commenters requested that CMS ensure that its contractors administer an 
auditing process consistently and make the instructions for such an 
audit public. To support their claim that auditing is needed, many 
commenters shared observations regarding anomalies they identified in 
data from Worksheet S-10 and associated concerns. A number of 
commenters shared their own analyses that looked at the small 
proportion of hospitals receiving a large share of uncompensated care 
payments, and the proportion of hospitals that reported aberrant data 
relating to uncompensated care costs. The commenters stated that the 
aberrant numbers reported by some hospitals illustrate some combination 
of misinterpretation of Worksheet S-10 instructions, lack of clarity of 
those instructions, and possible attempts by providers to maximize 
their Medicare DSH dollars.
    MedPAC also commented that a hospital's charges may have errors 
that could result in overstating uncompensated care costs. To limit the 
effect of aberrant charges, MedPAC suggested that CMS could screen out 
Worksheet S-10 data where there were high levels of reported 
uncompensated care relative to total operating costs reported on the 
cost report (for example, 50 percent of operating costs). MedPAC 
expected that very few hospitals would report uncompensated care costs 
in excess of this threshold. For hospitals that did exceed this 
threshold, MedPAC suggested using 2015 Worksheet S-10 data if they were 
available. If the hospital insisted that the 2014 data were correct, 
MedPAC suggested that CMS require the hospital to provide support for 
the 2014 data. If the hospital did not provide audited financial 
statements supporting the uncompensated care reported, MedPAC suggested 
that the reported uncompensated care could be reduced down to a 
threshold of 50 percent of operating costs. Other commenters also 
discussed examining the ratio of the reported uncompensated care to 
total operating costs to identify aberrant data. They provided 
additional ratio examples such as uncompensated care costs relative to 
total revenue, operating budget, Worksheet C total costs, or Worksheet 
C total charges. Some commenters suggested that CMS adopt an 
empirically derived upper threshold for the ratio of uncompensated care 
costs to operating costs, and then prioritize those hospitals that 
exceeded the threshold for audit purposes. One commenter's example of 
an empirically derived threshold was 3 standard deviations from the 
mean for the ratio of uncompensated care costs to total operating 
costs.
    The majority of the commenters who opposed the use of Worksheet S-
10 in FY 2018 stated that the low-income insured days proxy is more 
accurate than Worksheet S-10 in its current form. They suggested that 
CMS should continue to use this proxy on a temporary basis to 
distribute uncompensated care payments until the data from Worksheet S-
10 are more reliable, or CMS should consider using a methodology that 
utilizes a permanent blend of data from Worksheet S-10 and low-income 
insured days. Some commenters believed that the proposed methodology 
for calculating Factor 3 in FY 2018, which excludes Medicaid shortfalls 
from the calculation of uncompensated care costs, could lead to a huge 
inequity, as there would be a substantial redistribution of Medicare 
DSH payments from Medicaid expansion States to non-expansion States. 
While one commenter referred to CMS' potential legal concern about 
continuing to use low-income insured days as a proxy for uncompensated 
care for FY 2014 and subsequent years, several commenters and their 
outside counsel concluded that CMS has the authority to ``fashion an 
`appropriate' calculation using proxy data as it has already been doing 
for three years, adjusted proxy data or blended data.''
    Commenters stated that using uncompensated care data from Worksheet 
S-10 for computing uncompensated care payments would be highly 
redistributive, with many hospitals experiencing significant swings in 
their payments. Commenters noted that using data from Worksheet S-10 to 
calculate Factor 3, as opposed to using the current low-income insured 
days proxy, has serious implications for entire States. Many commenters 
noted that the States that would lose uncompensated care dollars are 
States that have expanded their Medicaid programs, as the current proxy 
captures Medicaid days and the Worksheet S-10 does not. One analysis 
showed that the Worksheet S-10 data would be highly redistributive to 
the extent that 10 percent of hospitals would receive 77 percent of 
total gains in uncompensated care payments among all hospitals, while 
other hospitals would experience significant losses. One commenter 
indicated that the losses it anticipates if the proposal to incorporate 
data from the Worksheet S-10 in FY 2018 is finalized will not only 
hamper its system's ability to provide care through different service 
lines, but will also affect its ability to participate in different 
types of value-based purchasing programs. Another commenter noted that 
the cuts CMS outlines also are far more redistributive than had been 
intended when the Affordable Care Act was enacted in 2010 prior to the 
Supreme Court ruling that rendered Medicaid expansion optional.
    Response: We thank the commenters for their input. In previous 
rulemaking cycles, commenters, both in favor of and opposed to use of a 
proxy for calculation of Factor 3, requested that CMS provide a 
timeline and implementation process for when and how the Worksheet S-10 
data would be used for determining uncompensated care costs (for 
example, we refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 
FR 49524)). We note that we have been receiving such requests since the 
rulemaking for the FY 2014 IPPS/LTCH PPS final rule, and that hospitals 
have been on notice since FY 2014 that Worksheet S-10 could eventually 
become the data source for computing Factor 3. With this in mind, and 
based on the growing evidence that Worksheet S-10 is improving over 
time, we proposed to begin incorporating Worksheet S-10 data from FY 
2014 cost reports into the calculation of Factor 3 for FY 2018.
    We understand the commenters' concerns about the limitations of the 
IRS 990 correlation analysis and the shortcomings of using the study 
findings to support assertions about the validity of the Worksheet S-10 
data. Notwithstanding those limitations, a few commenters supported the 
findings and the use of Worksheet S-10 in FY 2018. 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.

[[Page 38206]]

Because many not-for-profit hospitals are eligible for empirically 
justified Medicare DSH payments and, therefore, uncompensated care 
payments, we believe they represent a suitable standard of comparison. 
Furthermore, as stated in the proposed rule, we did not make the 
decision to propose to begin Worksheet S-10 implementation in FY 2018 
based on the correlation analysis alone. MedPAC also submitted an 
analysis that corroborated the results of the Dobson DaVanzo report, 
showing a high level of correlation between audited uncompensated care 
data and uncompensated care costs reported on Worksheet S-10 and a 
lower correlation between the audited uncompensated care data and 
Medicaid and SSI days.
    After considering the comments submitted by MedPAC and others 
regarding the potential for aberrant data to be reported on the 
Worksheet S-10, we agree that using the ratio of uncompensated care 
costs to total operating costs to identify potentially aberrant data 
when determining the Factor 3 amounts for FY 2018 has merit. We 
acknowledge that it is not possible to determine a perfect threshold 
for when this ratio reflects potentially aberrant data. However, after 
a review of the comments received, we do not believe that it is 
appropriate to have no threshold, nor do we believe that it is 
appropriate to delay beginning to incorporate the Worksheet S-10 data 
in the calculation of Factor 3 in pursuit of a perfect threshold. It is 
relatively straightforward to identify the extreme end of the spectrum 
of possible threshold values: it does not appear to us to be reasonable 
for a hospital to have uncompensated care costs that exceed all of its 
operating expenses (that is, a threshold of 100 percent or more). Using 
the data currently available to us, we have attempted to determine the 
most appropriate threshold above which it would be reasonable to 
believe that aberrant uncompensated care data may have been reported. 
While we do not want to include aberrant data in the determination of 
Factor 3, we also do not want to inappropriately reduce FY 2018 
uncompensated care payments to a hospital with a legitimately high 
ratio. Weighing all of these considerations, we believe it is 
appropriate to adopt MedPAC's suggestion that uncompensated care costs 
in excess of half a hospital's total operating expenses may be 
potentially aberrant. In the rare situations where a hospital has a FY 
2014 ratio in excess of 50 percent, we also agree with MedPAC and other 
commenters that it would be appropriate to utilize 2015 data in some 
manner to address the potentially aberrant 2014 Worksheet S-10 data. As 
we have previously indicated, we do not believe it would be appropriate 
to use Worksheet S-10 data from years prior to FY 2014 in the 
determination of Factor 3. Therefore, the most widely available 
Worksheet S-10 data available to us if a hospital exceeds the threshold 
for its FY 2014 Worksheet S-10 data are the FY 2015 Worksheet S-10 
data. We believe that when a hospital has reported uncompensated care 
costs in excess of 50 percent of operating costs, the issue is most 
likely its FY 2014 uncompensated care costs and not its FY 2014 total 
operating expenses. Accordingly, we will determine the ratio of FY 2015 
uncompensated care costs to FY 2015 total operating expenses from the 
hospital's FY 2015 cost report and apply that ratio to the FY 2014 
total operating expenses from the hospital's FY 2014 cost report to 
determine an adjusted amount of uncompensated care costs for FY 2014. 
Under this approach, if a hospital has a consistently high ratio across 
the 2 years, we are less likely to inappropriately reduce its 
uncompensated care payments.
    However, if a hospital has a much lower ratio in FY 2015, we 
believe it is reasonable to believe that the data reported for FY 2014 
were aberrant. Specifically, after considering the public comments 
received, for hospitals where the ratio of uncompensated care costs 
relative to total operating costs for the hospital's 2014 cost report 
(as reported on Worksheet G, Part 3, Line 4) exceeds 50 percent, we 
will determine the ratio of uncompensated care costs relative to total 
operating costs from the hospital's 2015 cost report (as of March 2017) 
and apply that ratio to the hospital's total operating costs from the 
2014 cost report to determine an adjusted amount of uncompensated care 
costs for FY 2014. We will then substitute this amount for the FY 2014 
Worksheet S-10 data when determining Factor 3 for FY 2018. We believe 
this approach, which affects the data from three hospitals, balances 
our desire to exclude potentially aberrant data from a small number of 
hospitals in the determination of Factor 3 with our concern regarding 
inappropriately reducing FY 2018 uncompensated care payments to a 
hospital that may have a legitimately high ratio. As discussed 
elsewhere in this section, we are developing audit protocols for the 
Worksheet S-10 data for use in future rulemaking. We will consider in 
future rulemaking whether continued use of this adjustment or an 
alternative adjustment is necessary for subsequent years.
    We appreciate the commenters' concerns relating to the instructions 
for Worksheet S-10. In November 2016, we issued Transmittal 10, which 
clarified and revised the instructions for the Worksheet S-10, 
including the instructions regarding the reporting of charity care 
charges. Transmittal 10 is available for download on the CMS Web site 
at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2016-Transmittals-Items/R10P240.html. In Transmittal 10, we clarified 
that hospitals may include discounts given to uninsured patients who 
meet the hospital's charity care criteria in effect for that cost 
reporting period. This clarification applied to cost reporting periods 
beginning prior to October 1, 2016, as well as cost reporting periods 
beginning on or after October 1, 2016. As a result, nothing prohibits a 
hospital from considering a patient's insurance status as a criterion 
in its charity care policy. A hospital determines its own financial 
criteria as part of its charity care policy. The instructions for the 
Worksheet S-10 set forth that hospitals may include discounts given to 
uninsured patients, including patients with coverage from an entity 
that does not have a contractual relationship with the provider, who 
meet the hospital's charity care criteria in effect for that cost 
reporting period. In addition, we revised the instructions for the 
Worksheet S-10 for cost reporting periods beginning on or after October 
1, 2016, to provide that charity care charges must be determined in 
accordance with the hospital's charity care criteria/policy and written 
off in the cost reporting period, regardless of the date of service. We 
will continue to work with our stakeholders to address their concerns 
regarding the reporting of uncompensated care through provider 
education and refinement of the instructions to the Worksheet S-10.
    We also understand the commenters' concerns regarding the effects 
on hospitals' payments of moving from calculating Factor 3 using a 
proxy based on low-income days to the use of uncompensated care data 
from Worksheet S-10. As discussed in prior rulemaking, in using 
Medicaid and Medicare SSI days as a proxy for uncompensated care, we 
recognize that it would be possible for hospitals in States that choose 
to expand Medicaid to receive higher uncompensated care payments 
because they may have more Medicaid patient days than hospitals in a 
State that does not choose to expand Medicaid. We believe that the

[[Page 38207]]

redistribution of payments from hospitals that serve a greater number 
of Medicaid patients to hospitals that serve more uninsured patients is 
consistent with the intent of the Affordable Care Act. However, as 
described below, we have proposed a methodology that would help to 
stabilize payments and protect hospitals from undue fluctuations by 
gradually incorporating Worksheet S-10 data into the calculation of 
Factor 3. In addition, the approximately $800 million increase in the 
amount available to be distributed as uncompensated care payments will 
also help to offset some of the redistributive effects of moving to 
Worksheet S-10 in FY 2018.
    Regarding some commenters' recommendation that we continue to use 
low-income insured days to calculate Factor 3, either on their own or 
in a permanent blend with Worksheet S-10 data, we note that the 
earliest Medicaid expansions under the Affordable Care Act began in 
2014. Therefore, in order to insulate the calculation of Factor 3 from 
the effects of Medicaid expansion, Medicaid days must be drawn from 
cost reporting periods prior to FY 2014. This prohibits the use of low-
income insured days on a permanent basis, as the data will become too 
old to ensure accuracy. However, the methodology of using 3 years of 
data to estimate uncompensated care that we first adopted for FY 2017 
and that we again proposed for FY 2018 would help to protect hospitals 
from undue payment fluctuations by using a blend of low-income insured 
days data and Worksheet S-10 data on a temporary basis.
    When all of these factors are taken into consideration, we maintain 
that we can no longer conclude that alternative data to the Worksheet 
S-10 are available for FY 2014 that are a better proxy for the costs of 
subsection (d) hospitals for treating individuals who are uninsured. We 
believe that continued use of Worksheet S-10 will improve the accuracy 
and consistency of the reported data, especially in light of our 
concerted efforts to allow hospitals to review and resubmit their 
Worksheet S-10 data for past years and the use of select audit 
protocols to trim aberrant uncompensated care costs and replace them 
with more reasonable amounts.
    Comment: Many commenters, whether supporting or opposing the 
eventual use of Worksheet S-10, believed that it was premature to use 
its data in the calculation of Factor 3 for FY 2018. The commenters 
noted that, given that data elements used for the distribution of 
uncompensated care payments must be ``historically publicly available, 
subject to audit, and used for payment purposes,'' CMS has not met its 
own criteria for using Worksheet S-10 data to determine the 
distribution of uncompensated care payments. They stated that this is 
particularly troublesome because CMS has stated that it does not 
anticipate completing desk audits of data from Worksheet S-10 until FY 
2020.
    Most commenters recommended that CMS delay the use of data from 
Worksheet S-10 for at least 1 year, and up to 3 years, or until CMS has 
put processes in place to ensure consistent submissions by all 
hospitals as discussed in the FY 2017 IPPS/LTCH PPS final rule. 
Specifically, the majority of commenters stated that before Worksheet 
S-10 data are used, CMS must improve and clarify the instructions for 
Worksheet S-10 to ensure consistent reporting, and also implement 
audits of the data from Worksheet S-10.
    One commenter suggested that these audits be conducted outside of 
the regular cost report audit for FY 2014 cost reports to ensure 
consistency with the Worksheet S-10's cost reporting instructions. The 
commenter also indicated that CMS may need to develop separate audit 
protocols for different cost reporting periods, as there are 
differences between the Worksheet S-10 instructions for cost reporting 
periods beginning before October 1, 2016 and those beginning on or 
after that date. The commenter urged CMS to make proposed audit 
instructions to the MACs available in advance and to gather additional 
stakeholder input before finalizing an audit approach, and noted that 
making the instructions available in advance would help the agency to 
identify issues that need additional refinement. Several commenters 
suggested that the data be audited in a rigorous manner, similar to 
wage index data. One commenter provided a list of metrics for CMS to 
consider including in a guide for MACs for their audits of the 
Worksheet S-10 data. Several other commenters disagreed with CMS' 
decision not to share the audit criteria with hospitals, and asked that 
CMS also release the audit criteria for charity care and non-Medicare 
bad debt. Similarly, commenters asked that before data from Worksheet 
S-10 are used, CMS implement additional steps to eliminate outliers, 
including data that represent unreasonable uncompensated care costs. 
However, the commenters also noted that CMS must allow hospitals a way 
to appeal any adjustments made to their data, and that CMS needs to 
allow a grace period similar to the Medicaid DSH audits before the 
results of the audit have financial consequences.
    Many commenters who urged CMS to delay the use of data from 
Worksheet S-10 also provided recommendations for CMS to address during 
the intervening time. Commenters requested that, before Worksheet S-10 
data are put to use, CMS further educate hospitals about how to 
complete the Worksheet S-10 accurately and consistently and allow them 
to correct their data retroactively. This would include providing 
hospitals the opportunity to amend previously submitted worksheets for 
FY 2014 and FY 2015. The commenters emphasized the importance of 
providing this opportunity because the previous September 30, 2016 
deadline for amending 2014 cost reports meant that the revised 
instructions for the Worksheet S-10 published in November 2016 could 
not be used because the deadline for resubmission had already passed. 
In addition, commenters recommended that CMS convene a stakeholder 
technical advisory group to make Worksheet S-10 data recommendations.
    Response: We acknowledge the concerns raised by commenters 
regarding the use of data from Worksheet S-10 in the calculation of 
Factor 3 for FY 2018. However, as we stated in the FY 2018 IPPS/LTCH 
PPS proposed rule, when weighing the new information that has become 
available to us since the FY 2017 rulemaking in conjunction with the 
information regarding Worksheet S-10 data and the low-income days proxy 
that we have analyzed as part of our consideration of this issue in 
prior rulemaking, we can no longer conclude that alternative data to 
the Worksheet S-10 are available for FY 2014 that are a better proxy 
for the costs of subsection (d) hospitals for treating individuals who 
are uninsured. We also note that, as part of our ongoing quality 
control and data improvement measures to continue to improve the 
Worksheet S-10 data over time, we have revised the cost report 
instructions and are currently developing an audit process. With 
respect to the cost reporting instructions, on November 18, 2016, we 
issued Transmittal 10 which updated the instructions for Form 2552-10. 
Specifically, we updated the instructions in Section 4012 of Chapter 40 
of the Provider Reimbursement Manual, Part II. The instructions clarify 
the reporting of charity care charges. Transmittal 10 is available for 
download on the CMS Web site at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2016-Transmittals-Items/R10P240.html.

[[Page 38208]]

    With respect to the audit process, in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56964), we stated that we intended to provide 
standardized instructions to the MACs to guide them in determining when 
and how often a hospital's Worksheet S-10 should be reviewed. We 
indicated that we would not make the MACs' review protocol public, as 
all CMS desk review and audit protocols are confidential and are for 
CMS and MAC use only. The instructions for the MACs are still under 
development and will be provided to the MACs as soon as possible and in 
advance of any audit. We refer readers to the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56964) for a complete discussion concerning the 
issues that we are considering in developing the instructions that will 
be provided to the MACs.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19955), we stated 
our belief that cost reports beginning in FY 2017 will be the first 
cost reports for which the Worksheet S-10 data will be subject to a 
desk review. In addition, due to the overwhelming feedback from 
commenters emphasizing the importance of audits in ensuring the 
accuracy and consistency of the Worksheet S-10 data, we expect cost 
reports beginning in FY 2014, FY 2015, and FY 2016 to be subject to 
further scrutiny after submission.
    We will continue to work with our stakeholders to address their 
concerns through provider education and further refinement of the 
instructions to the Worksheet S-10 as appropriate.
    In reference to allowing hospitals to amend or submit new data for 
Worksheet S-10 for FYs 2014 and 2015, we note that, as discussed in the 
FY 2017 IPPS/LTCH PPS final rule, hospitals were given the opportunity 
to revise and resubmit their data for FY 2014. For revisions to be 
considered, hospitals were required to submit their amended FY 2014 
cost report containing the revised Worksheet S-10 (or a completed 
Worksheet S-10 if no data were included on the previously submitted 
cost report) to the MAC no later than September 30, 2016. Although 
commenters asserted that the September 30, 2016 deadline for amending 
2014 cost reports meant that the revised instructions for Worksheet S-
10 published in November 2016 could not be used because the deadline 
had already passed, the changes to the instructions for Worksheet S-10 
did not apply to FY 2014 cost reports as they were limited to cost 
reporting periods beginning on or after October 1, 2016. However, we 
note that the clarification that only the charges of uninsured patients 
who do not meet the hospital's charity care criteria for a full or 
partial discount must be excluded from charity care could affect 
hospitals who provided discounts to uninsured patients who met the 
hospital's charity care policy in FY 2014. Accordingly, we are allowing 
hospitals another opportunity to resubmit data for FY 2014 Worksheets 
S-10, and they may include these charges if they were previously 
omitted. For revisions to be considered, hospitals must submit their 
amended FY 2014 cost report containing the revised Worksheet S-10 (or a 
completed Worksheet S-10 if no data were included on the previously 
submitted cost report) to the MAC no later than September 30, 2017. We 
note that these revised data will not be used to calculate Factor 3 for 
FY 2018, but will be available for use in future years if we propose 
and finalize a methodology for determining Factor 3 that uses FY 2014 
Worksheet S-10 data.
    We will provide hospitals with a similar opportunity for FY 2015 
cost reports. We refer readers to Change Request 10026, Transmittal 
1863, titled ``The Supplemental Security Income (SSI)/Medicare 
Beneficiary Data for Fiscal Year 2015 for Inpatient Prospective Payment 
System (IPPS) Hospitals, Inpatient Rehabilitation Facilities (IRFs), 
and Long Term Care Hospitals (LTCH),'' issued on June 30, 2017 
(available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2017-Transmittals-Items/R1863OTN.html). In this 
transmittal, as a step in the process of ensuring complete submission 
of Worksheet S-10 by all DSH-eligible hospitals, we instruct MACs to 
accept amended Worksheets S-10 of FY 2015 cost reports submitted by 
hospitals (or initial submissions of Worksheet S-10 if none have been 
submitted previously) and to upload them to the Health Care Provider 
Cost Report Information System (HCRIS) in a timely manner. The 
transmittal states that, for revisions to be considered, hospitals must 
submit their amended FY 2015 cost report containing the revised 
Worksheet S-10 (or a completed Worksheet S-10 if no data were included 
on the previously submitted cost report) to the MAC no later than 
September 30, 2017.
    After consideration of the public comments received, we are 
finalizing our proposal to begin incorporating Worksheet S-10 into the 
calculation of Factor 3 beginning in FY 2018. We discuss below our 
proposed methodology for how we would begin to incorporate Worksheet S-
10 data into the calculation of Factor 3 of the uncompensated care 
payment methodology.
(3) Time Period for Calculating Factor 3 for FY 2018, Including 
Methodology for Incorporating Worksheet S-10 Data
    Section 1886(r)(2)(C) of the Act not only governs the selection of 
the data to be used in calculating Factor 3, but 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 2017 IPPS/LTCH PPS final rule, in order to mitigate undue 
fluctuations in the amount of uncompensated care payments to hospitals 
from year to year and smooth over anomalies between cost reporting 
periods, we finalized a policy of calculating a hospital's share of 
uncompensated care based an average of data derived from three cost 
reporting periods instead of one cost reporting period. As explained in 
the preamble to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56957 
through 56959), instead of determining Factor 3 using Medicaid days 
from a single cost reporting period and the most recent available data 
on Medicare SSI utilization, as we did in FY 2014, FY 2015, and FY 
2016, we used Medicaid days from three cost reporting periods (FYs 
2011, 2012, and 2013) and SSI days from the three most recent available 
years of SSI utilization

[[Page 38209]]

data (FYs 2012, 2013, and 2014) to compute Factor 3 for FY 2017. We 
continued to extract Medicaid days data from the most recent update of 
HCRIS, which for FY 2017 was the March 2016 update. Furthermore, 
instead of determining a single Factor 3 as we have done since the 
first year of the uncompensated care payment in FY 2014, we calculated 
an individual Factor 3 for each of the three cost reporting periods, 
which we then averaged by the number of cost reporting years with data 
to compute the final Factor 3 for a hospital. Under this policy, if a 
hospital had merged, we would combine data from both hospitals for the 
cost reporting periods in which the merger was 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 combined data from the multiple 
cost reports so that a hospital could have a Factor 3 calculated using 
more than one cost report within a cost reporting period. We codified 
these changes for FY 2017 by amending the regulations at Sec.  
412.106(g)(1)(iii)(C).
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19951), we 
proposed to continue to use the methodology finalized in FY 2017 and to 
compute Factor 3 for FY 2018 using an average of data from three cost 
reporting periods instead of one cost reporting period. Consistent with 
the methodology used to calculate Factor 3 for FY 2017, we proposed to 
advance the time period of the data used in the calculation of Factor 3 
forward by 1 year and use data from FY 2012, FY 2013, and FY 2014 cost 
reports. For the reasons we described earlier, we explained our belief 
that it would not be appropriate to use Worksheet S-10 data for periods 
prior to FY 2014. Rather, for cost reporting periods prior to FY 2014, 
we indicated that we believe it would be appropriate to continue to use 
low-income insured days. Accordingly, with a time period that includes 
3 cost reporting years consisting of FY 2014, FY 2013, and FY 2012, we 
proposed to use Worksheet S-10 data for the FY 2014 cost reporting 
period and the low-income insured days proxy data for the two earlier 
cost reporting periods. In order to perform this calculation, we will 
draw three sets of data (2 years of Medicaid utilization data and 1 
year of Worksheet S-10 data) from the most recent available HCRIS 
extract, which was the December 2016 update of HCRIS for the FY 2018 
IPPS/LTCH PPS proposed rule and is the March 2017 update of HCRIS for 
this final rule. Accordingly, for FY 2018, in addition to the Worksheet 
S-10 data for FY 2014, we proposed to use Medicaid days from FY 2012 
and FY 2013 cost reports and FY 2014 and FY 2015 SSI ratios. We also 
proposed to continue to use FY 2012 cost report data submitted to CMS 
by IHS and Tribal hospitals to determine Medicaid days for those 
hospitals. (Cost report data from IHS and Tribal hospitals are included 
in HCRIS beginning in FY 2013, and are no longer submitted separately.) 
We also proposed 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 as well as the policies 
finalized in the FY 2017 IPPS/LTCH PPS final rule concerning multiple 
cost reports beginning in the same fiscal year (81 FR 56957).
    We stated in the proposed rule that we believe this approach, if we 
were to propose to continue it for FY 2019 and FY 2020, would have the 
effect of transitioning the incorporation of data from Worksheet S-10 
into the calculation of Factor 3. Starting with 1 year of Worksheet S-
10 data in FY 2018, an additional year of Worksheet S-10 data would be 
incorporated into the calculation of Factor 3 in FY 2019, and the use 
of low-income insured days would be phased out by FY 2020.
    In addition, in the proposed rule we acknowledged the concerns 
regarding IHS/Tribal hospitals and subsection (d) Puerto Rico hospitals 
that some commenters expressed in response to the FY 2017 proposal to 
begin using Worksheet S-10 data to determine Factor 3 in FY 2018. 
According to some of these commenters, the use of data from Worksheet 
S-10 to calculate uncompensated care may jeopardize all of the IHS/
Tribal hospitals' uncompensated care payments due to their unique 
funding structure. With respect to Puerto Rico, other commenters 
asserted that the use of Worksheet S-10 data may not be appropriate, 
given the historical treatment of subsection (d) Puerto Rico hospitals 
under the statutory provisions governing payments under Medicaid and 
Medicare Part A and its impact on the reporting of uncompensated care 
payments by these hospitals. After consideration of the concerns, we 
indicated that we believe the uncompensated care data reported by 
Puerto Rico and IHS/Tribal hospitals needs to be further examined and 
should not be used for FY 2018. For the reasons described earlier 
related to the impact of the Medicaid expansion beginning in FY 2014, 
we also stated that we do not believe it would be appropriate to 
calculate a Factor 3 for these hospitals using FY 2014 low-income 
insured days. Because we do not believe it is appropriate to use the FY 
2014 uncompensated care data for these hospitals and we also do not 
believe it is appropriate to use the FY 2014 low-income insured days, 
we stated that we believe the best proxy for the costs of Puerto Rico 
and IHS/Tribal hospitals for treating the uninsured is the low income-
insured days data for FY 2012 and FY 2013. Accordingly, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19951), we proposed for these 
hospitals that when we compute the individual Factor 3s for each of the 
three cost reporting periods that are used to determine Factor 3, 
rather than computing a Factor 3 using Worksheet S-10 data from the 
hospital's FY 2014 cost report, we would substitute the Factor 3 
calculated using the hospital's FY 2013 low-income insured days. That 
is, in order to determine the Factor 3 for FY 2018, we would calculate 
an average of three individual Factor 3s using the Factor 3 calculated 
using FY 2013 cost report data twice and the Factor 3 calculated using 
FY 2012 cost report data once. We indicated that we believe it is 
appropriate to double-weight the Factor 3 calculated using FY 2013 data 
as it reflects the most recent available information regarding the 
hospital's low-income insured days before any expansion of Medicaid. We 
also noted that, as we were not making any proposals with respect to 
the calculation of Factor 3 for FY 2019 in the FY 2018 IPPS/LTCH PPS 
proposed rule, we would reexamine the use of the Worksheet S-10 data 
for Puerto Rico and IHS/Tribal hospitals as part of the FY 2019 
rulemaking. In addition, we proposed to continue to use a proxy for SSI 
days consisting of 14 percent of a hospital's Medicaid days for Puerto 
Rico hospitals, as finalized in the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 56953 through 56956).
    Therefore, for FY 2018, we proposed to compute Factor 3 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 (or

[[Page 38210]]

using the Factor 3 calculated in Step 2 for Puerto Rico and IHS/Tribal 
hospitals); and
     Step 4: Averaging the Factor 3 values from 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.
    We invited public comments on our proposed methodology for 
calculating Factor 3 for FY 2018. We also noted that if this proposed 
methodology was adopted for FY 2018, we would expect to propose to use 
a similar methodology for calculating Factor 3 for subsequent years, 
meaning that for FY 2019 we would expect to incorporate data from the 
FY 2015 Worksheet S-10 into the methodology and drop the FY 2012 low-
income insured day proxy data. However, we did not make any proposals 
with respect to the calculation of Factor 3 for FY 2019 in the FY 2018 
IPPS/LTCH PPS proposed rule.
    Comment: While many commenters supported CMS' proposal to use a 3-
year average to calculate Factor 3 for FY 2018, some commenters also 
provided suggestions for modified or alternative methodologies to 
calculate Factor 3 in FY 2018 and beyond. Many of these commenters 
opposed the use of Worksheet S-10 data beginning in FY 2018 and 
recommended a delay of at least 1 year to allow for further refinement 
of the Worksheet S-10 instructions and audit protocols to identify and 
remove aberrant uncompensated care costs. Several commenters requested 
that, instead of adding 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, CMS continue to use the same data that was 
used to calculate uncompensated care payments in FY 2017 (Medicaid days 
from FYs 2011, 2012, and 2013 cost reports and SSI days from FY 2012, 
FY 2013, and FY 2014 SSI ratios) for purposes of calculating 
uncompensated care payments to hospitals in FY 2018. The commenters 
noted that using these data during a 1-year delay in incorporating 
Worksheet S-10 data would avoid including post-Medicaid expansion data 
for FY 2014 in the Factor 3 calculation.
    Many commenters asked that CMS implement a stop-loss policy to 
protect hospitals that lose more than 5 to 10 percent in DSH payments 
in any given year as a result of transitioning to use of Worksheet S-10 
data. These commenters suggested that this stop-loss should extend 
beyond the transition to help hospitals with decreasing uncompensated 
care payments adjust to their new payment levels. However, other 
commenters noted that a permanent stop-loss would not be warranted, 
given that a 3-year phase-in is an appropriate way to temporarily 
reduce the impact of new provisions.
    One commenter recommended that any measure of uncompensated care 
should account for the different sources of uncompensated care burden 
hospitals incur as they treat low income patients in a changing 
coverage landscape. The commenter suggested that CMS use a permanent 
hybrid methodology that includes both a hospital's low-income insured 
days and uncompensated care costs from Worksheet S-10 to calculate its 
Factor 3. This commenter recommended that instead of transitioning 
entirely to Worksheet S-10 data (presumably in FY 2020), CMS use a 
weighted average of low-income insured days and uncompensated care 
costs from Worksheet S-10, with low-income insured days weighted 25 
percent and Worksheet S-10 data weighted 75 percent.
    Another commenter suggested an alternative 5-year phase-in, 
beginning in FY 2019. This commenter recommended that the weight 
accorded to data from Worksheet S-10 from FY 2014 be limited in the 
first year to 10 percent, with the remaining 90 percent determined 
using data on low-income insured days for FYs 2012 and 2013. In the 
second year, the commenter suggested that 2 years of data from 
Worksheet S-10 (FY 2014 and FY 2015) would be averaged and would equal 
20 percent, with the remaining 80 percent weight accorded to the data 
on low-income insured days from FYs 2012 and 2013. In the third year, 
the commenter suggested that Worksheet S-10 data from FYs 2016 and 2017 
would be averaged and weighted at 40 percent, with 60 percent weight 
accorded to the data on low income insured days. The commenter added 
that the phase-in process would continue in Year 4, FY 2022, with the 
use of averaged FY 2017 and FY 2018 Worksheet S-10 data with 80 percent 
weight, the remainder accorded to the data on low-income insured days. 
According to the commenter, Year 5 of the phase-in would utilize 
Worksheet S-10 as the sole data source, with an average of audited data 
from FYs 2017 through 2019.
    While many commenters expressed approval of the proposed 3-year 
phase-in approach to using data from Worksheet S-10, there were other 
varying opinions expressed regarding the length of the phase-in period. 
Many commenters agreed with the proposed 3-year phase-in following a 
period of delay, as outlined above. However, other commenters 
encouraged CMS to expedite the transition to Worksheet S-10 data with 
potentially no phase-in. Commenters who recommended no phase-in noted 
that Worksheet S-10 uses the most accurate information available on 
uncompensated care costs, and while it is not perfect, no cost report 
schedule or other source of information provided by individual 
hospitals will ever achieve perfection. Conversely, other commenters 
requested that CMS consider a longer phase-in period. These commenters 
recommended a minimum 5-year transition period to gradually phase-in 
the use of Worksheet S-10 data once the data have been audited. 
According to the commenters, this longer phase-in would mitigate the 
effect on hospitals of the redistribution in uncompensated care 
payments resulting from the inclusion of data from the Worksheet S-10.
    One commenter did not agree with the use of a 3-year average in the 
computation of Factor 3 because it would result in the use of dated 
information and is not a reasonable solution to solve data anomalies. 
This commenter requested that CMS use both Medicaid and Medicare SSI 
days from the most recent available full year of cost report data to 
compute Factor 3 for FY 2018. However, most commenters supported the 
use of 3 years of data in the calculation of Factor 3 in FY 2018, 
regardless of whether they supported a 1-year delay prior to 
implementing the use of Worksheet S-10 data or the implementation of 
the use of Worksheet S-10 data in FY 2018, as proposed.
    Response: We appreciate the commenters' support for the use of a 3-
year average in the calculation of Factor 3 for FY 2018. We also 
appreciate the comments regarding alternative timelines for 
incorporating Worksheet S-10 data into the calculation of Factor 3 and 
alternative methods for computing proxies for uncompensated care costs. 
As we stated in the FY 2018 IPPS/LTCH PPS proposed rule, when weighing 
the new information that has become available to us since the FY 2017 
rulemaking in conjunction with the information regarding Worksheet S-10 
data and the low-income days proxy that we have analyzed as part of our 
consideration of this issue in prior rulemaking, we can no longer 
conclude that alternative data to the Worksheet S-10 are available for 
FY 2014 that are a better proxy for the costs of subsection (d) 
hospitals for treating individuals

[[Page 38211]]

who are uninsured. For these reasons, we believe that it is appropriate 
to begin to incorporate the Worksheet S-10 data in the calculation of 
Factor 3 starting in FY 2018. We note that the proposals in the FY 2018 
IPPS/LTCH PPS proposed rule were limited to FY 2018, and that we did 
not make any proposals with respect to the data that would be used to 
calculate Factor 3 for subsequent years. As a result, it would be 
premature for CMS to establish policies for future years in this final 
rule. We will consider the commenters' suggestions for further 
incorporating Worksheet S-10 into the calculation of Factor 3, or 
computing proxies for uncompensated care costs using a blend of 
Worksheet S-10 data, low-income insured days, or other data sources, in 
future rulemaking.
    With respect to the stop-loss policy that one commenter suggested, 
we believe that the use of 3 years of data instead of 1 year of data 
already provides assurance that hospitals' uncompensated care payments 
will remain reasonably stable and predictable, and would not be subject 
to unpredictable swings and anomalies in a hospital's low-income 
insured days or reported uncompensated care costs. As a result, because 
there is already a mechanism for smoothing the transition from the use 
of low-income insured days to the use of Worksheet S-10 data in place, 
we do not believe a stop-loss policy is necessary at this time.
    Comment: One commenter requested that CMS consider using a proxy 
for Puerto Rico hospitals' SSI days in computing the empirically 
justified DSH payment amount, or 25 percent of the amount that would 
have been paid for Medicare DSH prior to implementation of section 3133 
of the Affordable Care Act.
    Response: In the FY 2018 IPPS/LTCH PPS proposed rule, we did not 
propose any changes to the methodology used to calculate empirically 
justified Medicare DSH payments. Therefore, we consider this comment to 
be outside the scope of the proposed rule. However, we note that while 
section 1886(r)(2)(C)(i) of the Act allows for the use of alternative 
data as a proxy to determine the costs of subsection (d) hospitals for 
treating the uninsured for purposes of determining uncompensated care 
payments, section 1886(r)(1) of the Act requires the Secretary to pay 
an empirically justified DSH payment that is equal to 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 for the 
fiscal year. Because section 1886(d)(5)(F)(vi) of the Act, which 
prescribes the disproportionate patient percentage used to determine 
empirically justified Medicare DSH payments, specifically calls for the 
use of SSI days in the Medicare fraction and does not allow the use of 
alternative data, we do not believe there is any legal basis for CMS to 
use a proxy for Puerto Rico hospitals' SSI days in the calculation of 
the empirically justified Medicare DSH payment under section 1886(r)(1) 
of the Act.
    Comment: Several commenters supported the proposal to use 14 
percent of Medicaid days as a proxy for Medicare SSI days when 
determining Factor 3 for Puerto Rico hospitals. These commenters stated 
that they appreciated the attention and effort by CMS to develop a fair 
and appropriate method to estimate SSI days for Puerto Rico hospitals, 
as the SSI program is statutorily unavailable to U.S. citizens residing 
in the Territories.
    One commenter recommended that CMS examine data to evaluate future 
proxy alternatives for Puerto Rico hospitals, such as using data for 
Medicare beneficiaries with Medicaid eligibility (dual eligible 
beneficiaries). The commenter proposed that CMS initiate a plan to work 
with hospitals in Puerto Rico to formally review and define cost report 
data for recent years in relation to the documentation of hospital 
inpatient days for dual eligible beneficiaries. As a second step, the 
commenter recommended that CMS allow hospitals in Puerto Rico to 
resubmit the pertinent worksheets of the cost reports for past years, 
to appropriately document the inpatient days for dual-eligible 
beneficiaries.
    Response: We appreciate the support for our continued use of 14 
percent of a Puerto Rico hospital's Medicaid days as a proxy for SSI 
days. Because we are continuing to use insured low-income patient days 
as a proxy for uncompensated care as part of the Factor 3 calculation 
in FY 2018 and residents of Puerto Rico are not eligible for SSI 
benefits, we believe it is important to create a proxy for SSI days for 
Puerto Rico hospitals.
    Regarding the comment recommending that we use 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, 
either within or outside Puerto Rico. We expect to further address 
issues related to estimating the amount of uncompensated care for 
hospitals in Puerto Rico as part of the FY 2019 rulemaking.
    Comment: A few commenters expressed concern that the use of data 
from Worksheet S-10 to calculate uncompensated care costs does not take 
into account the IHS's unique funding structure and therefore may 
jeopardize all uncompensated care payments for IHS hospitals. The 
commenters stated that, due to their unique funding structure, Indian 
Health Care Providers (IHCPs) do not have uncompensated care costs 
under Worksheet S-10. They indicated that because funding for the costs 
of patient care is provided through congressional appropriations, all 
care is considered compensated, even though appropriations fund only 
approximately 59 percent of the health care needs for American Indians/
Alaska Natives. The commenters also stated that many Tribes and Tribal 
organizations invest non-Federal resources in their health care 
programs to furnish care that could easily be classified as 
uncompensated care because IHCPs may not charge beneficiaries to 
receive care and, thus, may not have the accounting methods to track 
these costs. As a result, the commenters stated that IHCP hospitals are 
currently unable to report charity care and non-Medicare bad debt 
consistent with the proposed definition of uncompensated care in the 
proposed rule. Therefore, the commenters requested that CMS consult 
with IHS and Tribal stakeholders to estimate the amount of 
uncompensated care furnished in IHCP hospitals. The commenters also 
stated that the opportunity to submit comments on the rulemaking 
process is not considered meaningful consultation in accordance with 
Executive Order 13175 or the CMS Tribal consultation policy approved 
December 5, 2015, and that additional Tribal consultation is necessary.
    Response: We appreciate these comments and acknowledge that the use 
of data from Worksheet S-10 to calculate uncompensated care costs does 
not take into account the unique funding structure of IHS hospitals and 
therefore using these data to determine Factor 3 may have an unintended 
impact on the uncompensated care payments to these hospitals. Through 
consultation and communication with IHS and Tribal hospitals, including 
an All Tribes' Call on May 22, 2017, to discuss the FY 2018 IPPS/LTCH 
PPS proposed rule, we have confirmed that it would not be appropriate 
to use FY 2014 uncompensated care cost data from Worksheet S-10 to 
calculate Factor 3 for IHS and Tribal hospitals.
    In the FY 2018 IPPS/LTCH PPS proposed rule, we proposed for IHS

[[Page 38212]]

hospitals that when we compute the individual Factor 3s for each of the 
three cost reporting periods that are used to determine Factor 3, 
rather than computing a Factor 3 using Worksheet S-10 data from the 
hospital's FY 2014 cost report, we would substitute the Factor 3 
calculated using the hospital's FY 2013 low-income insured days. That 
is, in order to determine the Factor 3 for FY 2018, we would calculate 
an average of three individual Factor 3s using the Factor 3 calculated 
using FY 2013 cost report data twice and the Factor 3 calculated using 
FY 2012 cost report data once. We believe it is appropriate to double-
weight the Factor 3 calculated using FY 2013 data as it reflects the 
most recent available information regarding the hospital's low-income 
insured days before any expansion of Medicaid. We note that we did not 
make any proposals with respect to the calculation of Factor 3 for FY 
2019 in the FY 2018 proposed rule. We will reexamine the use of the 
Worksheet S-10 data for IHS/Tribal hospitals as part of the FY 2019 
rulemaking.
    Comment: Many commenters asked CMS to change, rescind, or otherwise 
edit methodologies with respect to all-inclusive rate providers, which 
several commenters called ``inappropriate'' and ``erroneous.'' Several 
commenters suggested a separate audit protocol to address the unique 
circumstances of all-inclusive billers, and to ensure that their 
uncompensated care is accurately captured. They observed that because 
all-inclusive rate providers do not use charges, the CCR on the 
Worksheet S-10 would be inaccurate. One commenter suggested the use of 
an audit protocol akin to the one that is used to audit charity care 
reported by CAHs for purposes of the meaningful use program.
    One suggestion to ameliorate the issues regarding all-inclusive 
rate providers was to add a line to the Worksheet S-10 that asks 
hospitals ``Are you an all-inclusive biller?'' that would provide an 
alternative methodology for those hospitals to calculate their CCRs. 
Another suggestion was to allow all-inclusive rate providers to submit 
their own CCRs, so they could explain or correct their data prior to 
CMS substitution of the hospital-reported CCR with the statewide 
average. A third suggestion was to use the uncompensated care costs as 
reported by all-inclusive rate providers on Line 30 of Worksheet S-10 
(as opposed to converting charges to costs using the CCR reported on 
Line 1 of Worksheet S-10 or a statewide average CCR as CMS proposed) or 
to use low-income days as a proxy for uncompensated care when 
calculating Factor 3 either for all all-inclusive rate providers or for 
public all-inclusive rate providers.
    Response: We appreciate the concerns and suggestions raised by 
commenters with respect to the CCRs that will be used in determining 
the uncompensated care costs of all-inclusive rate providers. Given the 
unique charge structure of all-inclusive rate providers, we have 
determined that it would not be appropriate to use FY 2014 
uncompensated care cost data from Worksheet S-10 to calculate Factor 3 
for these hospitals, and we will instead use an alternate methodology 
that is consistent with the methodology that we proposed for IHS/Tribal 
hospitals and Puerto Rico hospitals, which also experience special 
circumstances that could potentially affect the validity of their 
Worksheet S-10 data. We note that we did not make any proposals with 
respect to the calculation of Factor 3 for FY 2019 or subsequent years 
in the FY 2018 proposed rule; we will reexamine the use of the 
Worksheet S-10 data for all-inclusive rate providers as part of the FY 
2019 rulemaking.
    After consideration of the public comments we received, we are 
finalizing our proposal to incorporate 1 year of Worksheet S-10 data 
into the calculation of Factor 3 in FY 2018 in conjunction with data on 
low-income insured days for FYs 2012 and 2013. We will continue to use 
data from three cost reports, which will gradually incorporate data 
from Worksheet S-10 into the calculation of Factor 3.
    We also are finalizing our proposal not to incorporate Worksheet S-
10 data for Puerto Rico hospitals and IHS and Tribal hospitals, but 
will double-weight the 2013 Factor 3 calculated for these hospitals. In 
addition, we will not use Worksheet S-10 data for all-inclusive rate 
providers, but will also double-weight the 2013 Factor 3 calculated for 
these hospitals. We believe that the uncompensated care data reported 
by Puerto Rico hospitals, IHS/Tribal hospitals, and all-inclusive rate 
providers on Worksheet S-10 need to be further examined and should not 
be used in determining Factor 3 for FY 2018. Because we do not believe 
it is appropriate to use the FY 2014 uncompensated care data for these 
hospitals and we also do not believe it is appropriate to use the FY 
2014 low-income insured days due to the effects of Medicaid expansion, 
we believe that the best proxy for the costs of Puerto Rico hospitals, 
IHS/Tribal hospitals, and all-inclusive rate providers for treating the 
uninsured is the low-income insured days data for FY 2012 and FY 2013.
    In addition, we are finalizing the proposed amendment to the 
regulation at Sec.  412.106(g)(1)(iii)(C) to reflect the data that will 
be used to calculate Factor 3 for FY 2018. We have made a minor 
modification to the proposed text of the regulation in order to clarify 
that data on uncompensated care costs will not be used to determine 
Factor 3 for Puerto Rico hospitals, IHS and Tribal hospitals, and all-
inclusive rate providers.
    For new hospitals that do not have data for any of the three cost 
reporting periods used in the Factor 3 calculation, we will continue to 
apply the new hospital policy finalized in the FY 2014 IPPS/LTCH PPS 
final rule (78 FR 50643). That is, the hospital will not receive either 
interim empirically justified Medicare DSH payments or interim 
uncompensated care payments. However, if the hospital is later 
determined to be eligible to receive empirically justified Medicare DSH 
payments based on its FY 2018 cost report, the hospital will also 
receive an uncompensated care payment calculated using a Factor 3, 
where the numerator is the uncompensated care costs reported on 
Worksheet S-10 of the hospital's FY 2018 cost report, and the 
denominator is the sum of uncompensated care costs reported on 
Worksheet S-10 of all DSH eligible hospitals' FY 2014 cost reports as 
prospectively determined during rulemaking. We note that, given the 
selected time period of the data used to calculate Factor 3, any 
hospitals with a CCN established after October 1, 2014 will be 
considered new and subject to this policy.
    As we have done for each proposed and final rule beginning in FY 
2014, in conjunction with this final rule, we will publish on the CMS 
Web site a table listing Factor 3 for all hospitals that we estimate 
will receive empirically justified Medicare DSH payments in FY 2018 
(that is, those hospitals that will 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.
    In conjunction with the proposed rule, we published a supplemental 
data file containing a list of the mergers that we were aware of and 
the computed uncompensated care payment for each merged hospital. 
Hospitals had 60 days from the date of public display of the FY 2018 
IPPS/LTCH PPS proposed rule to review the table and supplemental data

[[Page 38213]]

file published on the CMS Web site and to notify CMS in writing of any 
inaccuracies. We stated in the proposed rule that we would address 
these comments as appropriate in the table and the supplemental data 
file that we publish on the CMS Web site in conjunction with the 
publication of this FY 2018 IPPS/LTCH PPS final rule. Hospitals will 
have until August 31, 2017, to review and submit comments on the 
accuracy of the table and supplemental data file published in 
conjunction with this final rule. Comments may be submitted to the CMS 
inbox at [email protected] through August 31, 2017, and any 
changes to Factor 3 will be posted on the CMS Web site prior to October 
1, 2017.
    Comment: Some commenters provided specific information regarding 
merger situations involving their hospitals and requested that CMS 
consider these mergers in determining Factor 3 for FY 2018 payments. A 
few commenters also pointed out that specific data for the calculation 
of Factor 3, such as Medicaid days, were incorrect due to missing cost 
report data in the HCRIS extract for the applicable year. In addition, 
a few commenters noted inaccuracies in the FY 2018 Proposed Rule 
Supplemental Data File, which, in some cases, had not been updated to 
reflect the most recent FY 2014 cost report filed in accordance with 
CMS Transmittal 1681. CMS Transmittal 1681 instructed MACs to accept 
amended Worksheets S-10 for FY 2014 cost reports submitted by hospitals 
(or initial submissions of Worksheet S-10 if none had been submitted 
previously) and to upload them to the Health Care Provider Cost Report 
Information System (HCRIS) in a timely manner if received no later than 
September 30, 2016.
    Response: We thank the commenters for their input. We have updated 
our list of mergers based on information submitted by the MACs as of 
June 2017. In addition, we have reviewed the commenters' submissions of 
mergers not previously identified in the proposed rule and have updated 
our list accordingly. We also have reviewed the commenters' submissions 
regarding missing or incorrect Worksheet S-10 data from FY 2014 cost 
reports in the FY 2018 Proposed Rule Supplemental Data File and 
included those data that were submitted timely and inadvertently 
excluded from the March 2017 HCRIS extract due to MAC or CMS error. We 
will continue to pay diligent attention to data inaccuracies and work 
internally and with our contractors to resolve these issues in a timely 
manner.
(4) Methodological Considerations for Calculating Factor 3
     Annualizing short cost reports. As we explained 
in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56957 through 56959) and 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19953), we believe 
that for hospitals that file multiple cost reports beginning in the 
same year, combining the data from these cost reports has 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. In response to our original proposal 
in the FY 2017 IPPS/LTCH PPS proposed rule to combine data from 
multiple cost reports, many hospitals stated that while they were 
appreciative of CMS' efforts to provide a more equitable playing field 
for hospitals that filed short cost reports, they believed that 
expanding the time period of the data used to calculate Factor 3 as 
well as combining data across multiple cost reports would not remedy 
the fact that some hospitals are still disadvantaged by having less 
than 36 months of data in their Factor 3 calculation (81 FR 56959). 
Other commenters opposed the use of multiple cost reporting periods if 
it would result in a hospital having more than 12 months of data in the 
Factor 3 calculation for a year, and recommended that CMS prorate the 
data to a 12-month period. Similarly, other commenters recommended that 
CMS annualize cost report data for any cost reporting period that is 
less than 12 months. In the FY 2017 IPPS/LTCH PPS final rule, we 
acknowledged that, although we had not made any proposal in the FY 2017 
IPPS/LTCH PPS proposed rule to annualize the cost reports used to 
calculate Factor 3, the situations presented by commenters, including 
both long and short cost reporting periods, pose unique challenges in 
the context of estimating Factor 3. We stated that we intended to 
consider the issue further and might address the issue in future 
rulemaking.
    For the FY 2018 IPPS/LTCH PPS proposed rule, taking into 
consideration the feedback from hospitals that have been disadvantaged 
in the Factor 3 calculation due to cost reports that do not span a full 
year, we proposed to annualize Medicaid data if a hospital's cost 
report does not equal 12 months of data. We did not propose to 
annualize SSI days because we do not obtain these data from hospital 
cost reports in HCRIS. Rather, we obtain these data from the latest 
available SSI ratios posted on the Medicare DSH homepage (https://
www.cms.gov/medicare/medicare-fee-for-service-payment/
AcuteInpatientPPS/dsh.html), which are aggregated at the hospital level 
and do not have the information needed to determine if the data should 
be annualized.
    Under this proposal, if the time between the start date of a 
hospital's cost reporting year and the end date of its cost reporting 
year is less than 12 months, we proposed that we would annualize the 
Medicaid days so that the hospital has 12 months of data included in 
its Factor 3 calculation. Conversely, if the time between the 
aforementioned start date and the end date is greater than 12 months, 
we would annualize the Medicaid days to achieve 12 months of Medicaid 
days data. If a hospital files more than one cost report beginning in 
the same fiscal year, we would first combine the data across the 
multiple cost reports before determining the difference between the 
start date and the end date to see if annualization is needed.
    To annualize the Medicaid days for a long or short cost reporting 
year, we proposed that we would divide the length of a full year (365 
or 366 calendar days, as applicable) by the length of the cost 
reporting year (the number of calendar days in the cost reporting year) 
and then multiply the quotient by the number of Medicaid days in the 
cost reporting year.
    For instance, a cost reporting year that is 285 calendar days long 
with 1,200 Medicaid days would be annualized as follows: (365/285) * 
1,200 = 1,537 days.
    A cost reporting year that is 385 calendar days long with 1,200 
Medicaid days would be annualized using the same formula: (365/385) * 
1,200 = 1,137 days.
    Likewise, because long and short cost reporting periods pose the 
same challenges in the context of estimating Factor 3 using hospital 
uncompensated care costs, we proposed to annualize the uncompensated 
care cost data reported on Worksheet S-10 for cost reports that do not 
equal 12 months of data, by dividing the length of a full year (365 or 
366 calendar days, as applicable) by the length of the cost reporting 
year (number of calendar days in the cost reporting year) and then 
multiplying the quotient by the total reported uncompensated care costs 
for the cost reporting year.
    For instance, a cost reporting year that is 285 calendar days long 
reporting $10,500,000 in uncompensated care costs would be annualized 
as follows: (365/285) * $10,500,000 = $13,447,368.

[[Page 38214]]

    A cost reporting year that is 385 calendar days long reporting 
$10,500,000 in uncompensated care costs would be annualized using the 
same formula: (365/385) * $10,500,000 = $9,954,545.
    If a hospital files more than one cost report beginning in the same 
fiscal year, we proposed that we would first combine the data across 
the multiple cost reports before determining the length of the cost 
reporting year to see if annualization is needed.
    We invited public comment on our proposal to annualize the cost 
reports used to calculate Factor 3 for FY 2018. In addition, as noted 
earlier, our proposal to continue calculating a hospital's share of 
uncompensated care payments using a time period that includes 3 cost 
reporting years was also designed to mitigate undue fluctuations in the 
amount of uncompensated care payments to hospitals from year to year 
and smooth over anomalies between cost reporting periods. Given that 
our proposal to annualize the cost reports used to calculate Factor 3 
for FY 2018 would also mitigate fluctuations in the amount of 
uncompensated care payments from year to year, we also sought public 
comment on the degree to which the use of three cost reporting years 
would still be necessary if we were to adopt our proposal to annualize 
the cost reports used to calculate Factor 3, or if instead the use of a 
single cost reporting year or two cost reporting years would be 
appropriate. In order to facilitate public comments, we indicated that 
we intend to post on our Web site a data file containing information 
similar to the information provided in section I.H.5., ``Effects of the 
Proposed Changes to Medicare DSH and Uncompensated Care Payments for FY 
2018'' of Appendix A of the proposed rule. However, instead of 
reflecting our proposed approach of calculating Factor 3 using a time 
period that includes 3 cost reporting years, it would reflect an 
alternative approach of calculating Factor 3 using only the most recent 
year (FY 2014) of our proposed 3-year average. In all other respects, 
the calculation of Factor 3 would remain the same.
    Comment: Many commenters supported CMS' proposal to annualize cost 
reports that do not reflect 12 months of data (short and long periods). 
One commenter specifically supported the proposal to annualize Medicare 
SSI days for the Factor 3 calculation, while another commenter 
supported the proposal to combine data from multiple cost reports 
beginning in the same fiscal year before annualization.
    Response: We appreciate the support for the proposal to annualize 
cost reports that do not meet the 12-month threshold. However, we 
reiterate that the proposal did not apply to Medicare SSI days as these 
data are not obtained directly from cost reports in HCRIS (unlike 
Medicaid days and uncompensated care cost data), but rather from a file 
posted on the CMS Web site: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html, where the data are 
aggregated at the hospital level and without the information to 
determine if annualization is needed. Therefore, we are unable to 
annualize Medicare SSI days as we proposed for Medicaid days from 
Worksheet S-2 and uncompensated care cost data from Worksheet S-10 of 
the Medicare cost report.
    After consideration of the comments we received, we are finalizing 
our proposal to annualize cost reports that do not have 12 months of 
data. As stated in the FY 2018 IPPS/LTCH PPS proposed rule, if the time 
between the start date of a hospital's cost reporting year and the end 
date of its cost reporting year is less than 12 months, we will 
annualize the Medicaid days so that the hospital has 12 months of data 
included in its Factor 3 calculation. Conversely, if the time between 
the aforementioned start date and the end date is greater than 12 
months, we will annualize the Medicaid days to achieve 12 months of 
Medicaid days data. If a hospital files more than one cost report 
beginning in the same fiscal year, we will first combine the data 
across the multiple cost reports before determining the difference 
between the start date and the end date to see if annualization is 
needed.
     Scaling Factor. Under the methodology adopted in 
the FY 2017 IPPS/LTCH PPS final rule and as we proposed to apply in FY 
2018, if a hospital does not have data for one or more of the three 
cost reporting periods, we would 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 with 
data so as not to disadvantage hospitals that are missing data for one 
or more cost reporting periods. Following the publication of the FY 
2017 IPPS/LTCH PPS final rule, several hospitals noted that this aspect 
of the methodology resulted in the Factor 3 values of DSH eligible 
hospitals in Table 18 and the Medicare DSH Supplemental Data File 
adding up to slightly greater than one, which resulted in total 
uncompensated care payments somewhat exceeding the estimate published 
in the FY 2017 final rule. Specifically, for hospitals that have fewer 
than 3 cost reporting years with data, dividing the individual Factor 
3s by the number of cost reporting years with data (that is, 2 cost 
reporting years or 1 cost reporting year) results in a higher average 
Factor 3 than if the individual Factor 3s were divided by the number of 
cost reporting years, regardless of whether or not there is data (that 
is, 3 cost reporting years). For example, a hospital with no data for 
FY 2011 and a Factor 3 of 0.000051762 for FY 2012 and 0.000049852 for 
FY 2013 will have an average Factor 3 of 0.000050807 if divided by 2 
but an average Factor 3 of only 0.000033871 if divided by 3. After 
reviewing the data in Table 18 and the Medicare DSH Supplemental Data 
File, which were published in conjunction with the FY 2017 IPPS/LTCH 
PPS final rule, we concluded that the hospitals' observations are 
correct and that an adjustment is needed so that total uncompensated 
care payments do not exceed the estimated amount available to make 
uncompensated care payments as discussed in section V.G.4.b of the 
preamble of this final rule.
    Accordingly, to address the effects of averaging Factor 3s 
calculated for three separate fiscal years, we proposed to apply a 
scaling factor to the Factor 3 values of all DSH eligible hospitals so 
that total uncompensated care payments are consistent with the 
estimated amount available to make uncompensated care payments for FY 
2018. We proposed to first compute Factor 3 and the uncompensated care 
payments for all hospitals that we anticipate qualifying for Medicare 
DSH payments in FY 2018. We proposed to then divide 1 (the expected sum 
of all eligible hospitals' Factor 3 values) by the actual sum of all 
eligible hospitals' Factor 3 values and multiply the quotient by each 
hospital's total uncompensated care payment to obtain scaled 
uncompensated care payment amounts whose sum is consistent with the 
estimate of the total amount available to make uncompensated care 
payments. The hospital-specific uncompensated care amount would then be 
divided by a 3-year claims average to obtain the amount of the interim 
uncompensated care payment the hospital will receive for each claim. As 
an illustration of the calculation of the scaling factor, applying this 
proposal to the FY 2017 uncompensated care payments would have resulted 
in a scaling factor of 0.9992 (1/1.0008). We noted that the FY 2017 
uncompensated

[[Page 38215]]

care payments as calculated for the FY 2017 IPPS final rule exceeded 
the estimated amount by approximately $5 million due to the lack of a 
scaling factor.
    We invited public comments on our proposal to apply a scaling 
factor to all DSH eligible hospitals' Factor 3 values for FY 2018.
    Comment: One commenter supported applying a scaling factor to 
Factor 3 and noted that it would prevent artificial inflation of a 
hospital's amount of uncompensated care in the absence of 3 years of 
cost report data.
    Response: We appreciate the commenter's support for the proposed 
scaling factor.
    After consideration of the comments we received, we are finalizing 
our proposal to implement a scaling factor to all DSH eligible 
hospitals' Factor 3 values for FY 2018.
(5) Methodological Considerations for Incorporating Worksheet S-10 Data
     Definition of uncompensated care. 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:

Cost of Charity Care (Line 23)
+ Cost of non-Medicare bad debt expanse (Line 29)
Cost of non-Medicare uncompensated care (Line 30)
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).

    In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25092), we 
proposed to adopt a definition of uncompensated care costs that 
included charity care and non-Medicare bad debt. We explained that we 
believe there are compelling arguments for excluding Medicaid 
shortfalls from the definition of uncompensated care, including the 
fact that several government agencies and key stakeholders do not 
consider Medicaid shortfalls in their definition of uncompensated care 
and that excluding Medicaid shortfalls from the uncompensated care 
definition allows Medicare uncompensated care payments to target 
hospitals that have a disproportionate share of uncompensated care for 
patients with no insurance coverage. Although we did not finalize the 
proposed definition of uncompensated care costs as part of the FY 2017 
rulemaking, we continue to believe a definition of uncompensated care 
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, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19954), we again proposed 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 (Line 23) and the cost of non-
Medicare bad debt (Line 29). We invited public comments on this 
proposal.
    Comment: Several commenters supported the proposed definition of 
uncompensated care as charity care plus non-Medicare bad debt. However, 
a common concern expressed by these commenters, as well as those 
commenters who disagreed with the proposed definition, was the 
inclusion of Medicaid shortfalls in the definition of uncompensated 
care as captured by Worksheet S-10. Commenters stated that excluding 
Medicaid shortfalls from the definition of uncompensated care severely 
penalizes hospitals that care for a large number of Medicaid patients 
because, while uninsured costs have declined as people have gained 
coverage through Medicaid, hospitals continue to lose money on Medicaid 
patients as the Medicaid payment rates are often below the cost of 
providing health care services. The commenters also stated that 
including Medicaid losses in the definition of uncompensated care would 
align with the Medicaid DSH program and the IRS method of calculating 
the community benefit provided by nonprofit hospitals. Some commenters 
also requested that shortfalls from CHIP and State and local indigent 
care programs be included in uncompensated care costs along with 
charity care and non-Medicare bad debt.
    Other commenters supported the exclusion of Medicaid shortfalls 
from the definition of uncompensated care. One of these commenters 
pointed out that the current use of low-income insured days as a proxy 
for uncompensated care already penalizes hospitals in nonexpansion 
States as their Medicaid ratio is lower than hospitals in expansion 
States. The commenter believed that including Medicaid shortfalls in 
the definition of uncompensated care would exacerbate this impact. In 
addition, the commenter supported the exclusion of Medicaid shortfalls 
from the definition of uncompensated care because it believed that 
Medicaid programs vary by State, making the data on shortfalls less 
reliable. Commenters added that excluding Medicaid unreimbursed costs 
from non-Medicare uncompensated care will result in a more equitable 
distribution of uncompensated care payments. Another commenter believed 
that continuing to exclude Medicaid shortfalls from Factor 3 
calculations will improve the accuracy and consistency of the data 
reported on Worksheet S-10. In addition, commenters noted that 
computing losses on Medicaid patients is operationally problematic 
because it is unclear how much Medicaid shortfalls are left after the 
Medicare DSH payment is made. That is, commenters noted that Medicare 
DSH payments may already be covering the Medicaid shortfalls.
    In addition to comments about the Medicaid shortfalls, commenters 
observed that States differ in how they define uncompensated care 
costs, and that not all costs incurred by hospitals in treating the 
uninsured are categorized as charity care and bad debt, such as in the 
case of discounts to the uninsured who are unable to pay or unwilling 
to provide means-tested information. Specifically, commenters pointed 
out that Worksheet S-10 does not capture all of the information 
relevant to the

[[Page 38216]]

purposes of section 3133 of the Affordable Care Act. To this end, one 
commenter noticed definitional discrepancies in Worksheet S-10 that 
failed to recognize the requirement under section 3133 of the 
Affordable Care Act that the amount of uncompensated care costs of 
subsection (d) hospitals reflect the costs of treating the uninsured, 
which should include costs incurred through non-means tested uninsured 
discount programs. Commenters expressed concern for the disregard of 
uninsured discounts, which, according to them, results in uncompensated 
care being undercounted.
    Several commenters stated that the uncompensated care definition 
should be expanded to include discounts to the uninsured and 
underinsured as well as those who self-pay. According to one commenter, 
such discounts should include ``self-pay imposed charge discounts,'' 
``state mandated self-pay charge discounts,'' and ``means tested'' 
charge discounts. The same commenter stated that, despite CMS' concerns 
that adding self-pay discounts into uncompensated care may result in 
situations where payments exceed costs, overall self-pay patient 
payments are immaterial in the aggregate and would not be a significant 
factor in such a calculation.
    Some commenters also argued that adopting a policy that excludes 
discounts would inappropriately penalize hospitals that offer uninsured 
discounts and disincentivize hospitals from offering this financial 
help to the uninsured. To this end, commenters noted that Worksheet S-
10 does not adequately reflect discounts to the uninsured and expressed 
concern that hospitals that attempt to collect on a full debt with no 
discount receive the same or a higher uncompensated care total as 
hospitals that do provide discounts. Specifically, one commenter noted 
that the current policy for uninsured discounts is irrational because 
it gives special treatment to those hospitals unwilling to discount 
care for the uninsured. Another commenter argued that discounts offered 
to the uninsured are costs that hospitals incur in providing care for 
such patients; therefore, regardless of whether they are called 
``discounts'' or some other term, they should be incorporated in the 
definition of uncompensated care in Worksheet S-10. One commenter also 
noted that it applies discounts according to its charity patients' 
liability, which includes both coinsurance and deductible for covered 
services, and the costs of services provided but not covered by the 
patient's insurance, stating that this practice is ``industry 
standard'' as well as allowable under IRS Form 990. Echoing calls from 
others, the commenter suggested that CMS revise the definitions for 
uncompensated care to reflect the entirety of costs to hospitals for 
providing charity care, including uninsured discounts.
    In contrast to the support for the inclusion of discounts to the 
uninsured in the definition of uncompensated care, one commenter 
believed that expansion of the definition of uncompensated care to 
include discounts to the uninsured is flawed because these discounts 
are nonlegitimate ``costs'' for community health reporting. The 
commenter stated that hospitals in its State have a long history of 
discounts to the uninsured through an Attorney General's agreement, and 
that the State tends to have a higher-than-normal adoption rate of 
high-deductible health plans. Therefore, the commenter has come to this 
conclusion regarding these discounts based on its own significant 
experience.
    Response: In general, we will attempt to address commenters' 
concerns in future cost report clarifications to ensure that Worksheet 
S-10 is an appropriate instrument to collect the information necessary 
to implement section 3133 of the Affordable Care Act. With regard to 
the comments regarding Medicaid shortfalls, we recognize commenters' 
concerns but continue to believe there are other compelling arguments 
for excluding Medicaid shortfalls from the definition of uncompensated 
care, including the fact that several key stakeholders do not consider 
Medicaid shortfalls in their definition of uncompensated care, and that 
it is most consistent with section 3133 of the Affordable Care Act for 
Medicare uncompensated care payments to target hospitals that incur a 
disproportionate share of uncompensated care for patients with no 
insurance coverage. Conceptual issues aside, we note that even if we 
were to adjust the definition of uncompensated care to include Medicaid 
shortfalls, this would not be a feasible option at this time due to 
computational limitations. Specifically, computing such losses is 
operationally problematic because Medicaid pays hospitals a single DSH 
payment that in part covers the hospital's costs in providing care to 
the uninsured and in part covers estimates of the Medicaid 
``shortfalls.'' Therefore, it is not clear how CMS would determine how 
much of the ``shortfalls'' is left after the Medicaid DSH payment is 
made. In addition, in some States, hospitals return a portion of their 
Medicaid revenues to the State via provider taxes, making the 
computation of ``shortfalls'' even more complex. Accordingly, we 
continue to believe it is appropriate to apply a definition of 
uncompensated care costs that includes charity care and non-Medicare 
bad debt for FY 2018.
    With regard to the comments that States differ in how they define 
uncompensated care costs, and that hospitals' costs of treating the 
uninsured are not always categorized as charity care and bad debt, such 
as in the case of discounts to the uninsured who are unable to pay or 
unwilling to provide income information, we believe the commenters are 
referring to the Worksheet S-10 instructions for Line 20, which state, 
in part, ``Do not include charges for either uninsured patients given 
discounts without meeting the hospital's charity care criteria or 
patients given courtesy discounts.'' We believe that hospitals have the 
discretion to design their charity care policies as appropriate, and 
may include discounts offered to uninsured patients as ``charity 
care.'' However, we will also further consider the concern raised by 
the commenter as to whether CMS' current instructions are inadvertently 
creating a disincentive to offer such discounts, and we may consider 
revisions to the instructions on Line 20 of Worksheet S-10 to further 
clarify when patient discounts would be considered charity care versus 
bad debt.
    Comment: Many commenters expressed concerns relating to, and 
provided suggestions for, calculating charity care and bad debt as 
captured on Worksheet S-10:
     Commenters expressed confusion about what is identified as 
an indigent care program, and when charity care and Medicaid noncovered 
charges are components of charity care, pointing out that there are 
several areas of confusion and areas that might encourage individual 
interpretation. In addition, commenters believed that government 
providers are misreporting data related to charity care by including 
all charges for their indigent care/general relief patient populations 
as charity care while not accounting for offsetting payments. The 
commenters expressed their view that services furnished under these 
programs are not uncompensated, but are funded through State and local 
tax assessments. Therefore, the commenters requested that CMS require 
that patient charges cannot be included in the cost of charity care 
unless the related services are not covered by an indigent care 
program. More generally, commenters stated that hospitals have 
difficulty in identifying where to report

[[Page 38217]]

nonpatient-specific payments that are received to offset charity care 
and bad debt.
     Commenters raised a similar concern about Line 20 of 
Worksheet S-10 regarding a possible discrepancy between considering 
noncovered charges for Medicaid patients as eligible for charity care, 
but not allowing noncovered charges for patients that have some 
commercial coverage to be considered charity care. In particular, 
according to commenters, the current methodology used to calculate the 
cost of charity care for insured patients is incorrect because it asks 
hospitals to apply a CCR to deductibles and coinsurance in order to 
arrive at the cost, which will significantly understate the cost of 
charity care because coinsurance and deductibles are typically a 
function of the payment rate rather than the hospital's charges for the 
service. To this end, one commenter noted that waived deductibles and 
coinsurance for charity care insured patients would always be expected 
to be less than, and only a fraction of, full charges for charity care 
for uninsured patients. Commenters suggested that CMS develop a 
separate CCR applicable to deductible and coinsurance amounts to 
calculate the cost of charity care.
     One commenter requested that instructions for the 
Worksheet S-10 ensure that the dollar amount reported for Line 22, 
Column 2 represents payments from both patients and insurers for 
specific patient accounts that were granted charity care during the 
cost reporting period.
     A few commenters stated that any further revision to the 
instructions for Line 20 of Worksheet S-10 should reference a 
hospital's ``financial assistance policy'' for consistency with the 
terminology used in the regulations implementing section 501(r) of the 
Internal Revenue Code, which require hospitals to establish financial 
assistance policies and to reduce charges for services furnished to 
individuals who qualify for assistance under those policies. In 
addition, commenters suggested that CMS clarify that Federal law does 
not mandate eligibility criteria for a hospital's financial assistance 
policy.
     Commenters stated that hospitals report charity care 
amounts for patients that qualify for partial charity inconsistently, 
and requested that CMS clarify how amounts should be reported for 
patients that qualify for partial charity care, including both 
uninsured individuals as well as patients with financial responsibility 
after their insurance pays. In addition, one commenter asked CMS to 
provide guidance that protects facilities that expanded their tiered 
partial charity care programs in order to cover more individuals 
falling within a broader income scale.
     Many commenters believed that the definition of bad debt 
is unclear and that the methodology CMS uses to arrive at the cost of 
bad debt significantly understates the uncompensated care expense that 
hospitals incur as a result of uncollectable amounts. Commenters also 
asked for clarification on whether or not non-Medicare bad debt claimed 
on Line 26 of Worksheet S-10 should be netted of recoveries received 
during the cost report period.
     Commenters also expressed concern in regard to patients 
who have some form of insurance but are not able to meet their cost 
sharing responsibility, in particular coinsurance and deductibles. 
These commenters believed that applying the hospital's CCR to the 
amount on Line 26 of Worksheet S-10 understates the costs associated 
with deductibles and coinsurance for insured patients written off as 
bad debt. The commenters recommended that CMS revise Worksheet S-10 to 
require separate reporting for bad debt written off for the uninsured 
and for those who are insured but cannot afford their cost sharing, 
similar to the instructions for Line 20.
     Several commenters observed that the current Worksheet S-
10 methodology may provide an incentive to hospitals to overstate 
charity care, compromising the fidelity of the information collected.
     One commenter stated that bad debt and charity care should 
be considered reductions to expected hospital payment and thus should 
not treated as hospital charges and adjusted by the CCR.
     One commenter believed that charity care and bad debt are 
not valid measures of a hospital's uncompensated care burden, as 
charity care may be offset with direct taxes, appropriations, and/or 
uncompensated care payments.
    Response: We intend to consider the various issues raised by the 
commenters that directly relate to reporting of charity care and bad 
debt costs on Worksheet S-10 as we continue to review Worksheet S-10. 
We will continue to work with our stakeholders to address their 
concerns through provider education and further refinement of the 
instructions to the Worksheet S-10 as appropriate. We also clarify that 
the bad debt claimed on Line 26 of Worksheet S-10 must be net of bad 
debt recoveries received during the cost report period.
     Trims to apply to CCRs on Line 1 of Worksheet S-
10. As we noted in the FY 2017 IPPS/LTCH PPS proposed and final rules 
(81 FR 25093 and 81 FR 56971), commenters have suggested that 
uncompensated care costs reported on Worksheet S-10 should be audited 
due to extremely high values consistently reported by some hospitals. 
In response to these comments, we reviewed the Worksheet S-10 data and 
identified approximately 10 to 20 hospitals that have anomalous 
uncompensated care costs. We note that many of these hospitals are 
public hospitals, which can have charging practices that are distinct 
from other hospital types. We believe that, just as we apply trims to 
hospitals' CCRs to eliminate anomalies when calculating outlier 
payments for extraordinarily high cost cases (Sec.  412.84(h)(3)(ii)), 
it is appropriate to apply statistical trims to the CCRs on Worksheet 
S-10, Line 1 that are considered anomalies. 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, in the FY 2017 rulemaking, we considered 
approaches that would trim hospitals' CCRs to ensure reasonable CCRs 
are used to convert charges to costs for purposes of determining 
uncompensated care costs.
    After considering the comments received in response to the FY 2017 
IPPS/LTCH PPS proposed rule, which were discussed in the FY 2017 IPPS/
LTCH PPS final rule (81 FR 56971 through 56973), in the FY 2018 IPPS/
LTH PPS proposed rule (82 FR 19954 and 19955), for FY 2018, we proposed 
the following alternative methodology for trimming CCRs:
    Step 1: Remove Maryland hospitals. In addition, we will remove all-
inclusive rate providers, as they have charge structures that differ 
from other IPPS hospitals, and providers that did not report a CCR on 
Worksheet S-10, Line 1, and assign them the statewide average CCR in 
step 5 below.
    Step 2: For hospitals with multiple cost reports included in the 
2014 HCRIS data, (a) combine the amounts from Worksheet C, Part I, Line 
202, Column 3 from each cost report to calculate total costs, (b) 
combine the amounts from Worksheet C, Part I, Line 202, Column 8 from 
each cost report to calculate total charges, and (c) divide the total 
costs by

[[Page 38218]]

the total charges to arrive at a recalculated CCR.
    Step 3: Calculate a CCR ``ceiling'' using the CCRs reported on 
Worksheet S-10, Line 1, from all IPPS hospitals that were not removed 
in Step 1 (including non-DSH eligible hospitals), or the recalculated 
CCR described in Step 2. The ceiling is calculated as 3 standard 
deviations above the national geometric mean CCR. This approach is 
consistent with our calculation of the CCR ceiling used for high-cost 
outliers. Remove all hospitals that exceed the ceiling so that these 
aberrant CCRs do not skew the calculation of the statewide average CCR. 
Based on the information currently available to us during the 
development of this final rule, this trim would remove 9 hospitals that 
have CCRs above the calculated ceiling of 0.932.
    Step 4: Using the CCRs for the remaining hospitals in Step 3, 
determine the urban and rural statewide average CCRs using Line 1 of 
Worksheet S-10 for hospitals within each State (including non-DSH 
eligible hospitals), weighted by the sum of total inpatient discharges 
and outpatient visits from Worksheet S-3, Part I, Line 14, Column 14.
    Step 5: Assign the appropriate statewide average CCR (urban or 
rural) calculated in Step 4 to all hospitals with a CCR greater than 3 
standard deviations above the corresponding national geometric mean 
(that is, the CCR ``ceiling''), as well as to providers that did not 
report a CCR on Worksheet S-10, Line 1. The statewide average CCR would 
therefore be applied to 27 hospitals, of which 18 did not report a CCR 
on Worksheet S-10, Line 1 and 9 had a CCR that exceeded the calculated 
ceiling of 0.932. (We note that the number of hospitals that are 
assigned the statewide average CCR has changed significantly from the 
estimates included in the proposed rule due to our decision not to 
incorporate Worksheet S-10 data into the calculation of Factor 3 for 
all-inclusive rate providers, as discussed above.)
    After applying the applicable trims to a hospital's CCR as 
appropriate, we proposed to 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 (as adjusted, if applicable) x charity care line 20) - 
(Payments received for charity care Line 22)]
+
[(Line 1 CCR (as adjusted, if applicable) x Non-Medicare and non-
reimbursable Bad Debt Line 28)].

    We invited public comments on our proposed trim methodology for FY 
2018.
    Comment: Many commenters expressed concern that the proposed trim 
methodology would improve neither the accuracy nor consistency of 
uncompensated care data. The commenters recommended that CMS further 
review the trim methodology or delay its application until an audit of 
the Worksheet S-10 is complete.
    Several commenters suggested that high-cost outliers be entirely 
removed to avoid skewing the data instead of setting their CCRs as the 
statewide average. The commenters contended that automatically setting 
CCRs to the statewide average would be ``inappropriate,'' especially 
when performed without opportunities for explanation. One commenter 
stated that hospitals that have been identified as potential outliers 
should have the opportunity to explain their data and correct errors 
before the trim methodology is applied, which would facilitate data 
validity.
    A few commenters requested that the trimming methodology should not 
be finalized until an audit of the data has been conducted, and that 
hospitals with extremely high CCRs should be audited and an appropriate 
CCR determined instead of applying an arbitrary trim to a statewide 
average. One commenter suggested that CMS develop a separate audit 
protocol for all-inclusive billers before application of the trimming 
methodology. Another commenter believed that it would be inappropriate 
to assume that reported amounts are incorrect and thus change State 
averages or other DSH calculations, especially without an auditing 
process in place. Others identified ``anomalies'' in data that would 
not be addressed by the proposed trims, such as a hospital with 
uncompensated care that equaled to four times total hospital charges. 
Another commenter requested that instead of applying the statewide 
average CCR, CMS instruct MACs to use 2015 Worksheet S-10 data if the 
2014 data were incomplete or unusually high.
    As noted above, several commenters expressed concern over the 
proposed trim methodology because hospitals that are considered ``all-
inclusive rate providers'' are not required to complete Worksheet C, 
Part I, which is used for reporting the CCR on Line 1 of the Worksheet 
S-10. Commenters noted that, as a result, the proposed trim methodology 
inappropriately modifies their uncompensated care costs, and that a 
high CCR could be accurate if the hospital's charges are close to 
costs, as is usually the case for all-inclusive rate hospitals. One 
commenter suggested that, instead of applying a trim, CMS evaluate CCRs 
on cost reports to identify misreported, erroneous values and not 
penalize hospitals that are accurately reporting information under a 
CMS-sanctioned methodology.
    Response: We appreciate the additional information provided by the 
commenters related to applying trims to the CCRs. We intend to further 
explore which trims are appropriate to apply to the CCRs on Line 1 of 
Worksheet S-10, including whether it is appropriate to apply a unique 
trim to certain subsets of hospitals, such as all-inclusive rate 
providers. We note that all-inclusive rate providers have the ability 
to compute and enter their appropriate CCR on Worksheet S-10, Line 1, 
by answering Yes to the question on Worksheet S-2, Part I, Line 115, 
and not have it computed using information from Worksheet C, Part I. We 
will give more consideration to the utilization of statewide averages 
in substituting outlier CCRs, and in future rulemaking, we intend to 
consider other approaches that would ensure validity of the trim 
methodology and not penalize hospitals that use alternative methods of 
cost apportionment. However, as we previously discussed, because all-
inclusive rate providers have charge structures that differ from other 
IPPS hospitals, we will not use data from the Worksheet S-10 to 
determine Factor 3 for these hospitals for FY 2018. Instead, we will 
determine Factor 3 for these hospitals using an average of three 
individual Factor 3s, using the Factor 3 calculated using low-income 
insured days for FY 2013 twice and the Factor 3 calculated using low-
income insured days for FY 2012 once.
    Comment: Many commenters requested that the cost of graduate 
medical education (GME) be included within the CCR calculation to 
account for the costs associated with the training of interns and 
residents. One commenter stated that hospitals charges are based on 
``all costs'' acquired in the provision of medical services, which 
would ``naturally'' include GME. The commenter indicated that exclusion 
of costs associated with GME would result in inaccurate reporting of 
costs and lower CCRs.
    Several commenters observed that GME is included in the denominator 
but not the numerator of the Worksheet S-10 CCR and that this 
discrepancy should be rectified. One commenter observed that this 
inconsistency occurs

[[Page 38219]]

because Line 1 uses data from Worksheet C, Column 3 (``costs,'' which 
do not include GME) and Worksheet C, Column 8 (``charges,'' which do 
include GME). The commenter recommended using the ``costs'' definition 
from Worksheet B, Column 24, Line 118 to reconcile the discrepancy. One 
commenter noted that inclusion of GME costs in the numerator would 
ensure ``fairness'' in the calculation. Another commenter stated that 
modification of the calculation to include GME costs within the CCR 
should occur on Line 1 of the Worksheet S-10.
    Response: 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 is pulled from Worksheet C, Part I, and 
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, we continue to believe 
that it is not appropriate to modify the calculation of the CCR on Line 
1 of Worksheet S-10 to include GME costs in the numerator.
    After consideration of the comments we received, we are finalizing 
our proposal to apply statistical trims to the CCRs on Worksheet S-10, 
Line 1 that are considered anomalies using the methodology outlined 
earlier, but are not applying the statewide average to all-inclusive 
rate providers as described earlier.
     Cost report revisions and Worksheet S-10 audits. 
While not directly relevant to our proposal to use FY 2014 Worksheet S-
10 data beginning in FY 2018, in the proposed rule, we noted that, as 
part of our ongoing quality control and data improvement measures to 
continue to improve the Worksheet S-10 data over time, we have made 
revisions to the cost report instructions and developed an audit 
process.
    With respect to the cost reporting instructions, on November 18, 
2016, we issued Transmittal 10 which updated the instructions for Form 
2552-10. Specifically, we updated the instructions in Section 4012 of 
Chapter 40 of the Provider Reimbursement Manual, Part II. The 
instructions clarify the reporting of charges for charity care. 
Transmittal 10 is available for download at the CMS Web site at: 
https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2016-Transmittals-Items/R10P240.html.
    With respect to the audit process, in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56964), we stated that we intended to provide 
standardized instructions to the MACs to guide them in determining when 
and how often a hospital's Worksheet S-10 should be reviewed. We 
indicated that we would not make the MACs' review protocol public, as 
all CMS desk review and audit protocols are confidential and are for 
CMS and MAC use only. The instructions for the MACs are still under 
development and will be provided to the MACs as soon as possible. We 
refer readers to the FY 2017 IPPS/LTCH PPS final rule for a complete 
discussion concerning the issues that we are considering in developing 
the instructions that will be provided to the MACs. We note that, in 
addition to our stated belief in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 19955) that cost reports beginning in FY 2017 will be the 
first cost reports for which the Worksheet S-10 data will be subject to 
a desk review, we expect cost reports beginning in FY 2014, FY 2015, 
and FY 2016, to be subject to further scrutiny after submission. We 
will continue to work with our stakeholders to address their concerns 
through provider education and further refinement of the instructions 
to the Worksheet S-10, as appropriate.
    Comment: Many commenters expressed concern about confusing or 
unclear instructions in the Worksheet S-10, especially with regard to 
the definition of ``uncompensated care.'' The commenters expressed a 
general concern toward ``inconsistent reporting'' and ``inadequate and 
unreliable data'' abounded as a result of current Worksheet S-10 
instructions. One commenter requested that CMS clarify the definition 
of ``uncompensated care'' specifically within the general instructions 
of the Worksheet S-10. Another commenter observed that issues with 
flawed data may be the result of inconsistent reporting that could be 
ameliorated by clarification of the Worksheet S-10 instructions, such 
as on Lines 20 and 21.
    Several commenters expressed concern that, despite the 
clarifications discussed in the FY 2017 IPPS/LTCH PPS final rule, MACs 
lacked ``guidance, instruction, and training'' for the ``uniform and 
even application'' of the reporting requirements for the Worksheet S-
10. One commenter recommended that CMS provide additional guidance and 
documentation to MACs and instruct them to accept amended and/or 
corrected cost reports. Another commenter expressed discontent that CMS 
allowed hospitals to amend data from FY 2014 in late FY 2016 but 
provided ``no education,'' guidance, or other ``insight'' that may have 
facilitated accurate and/or consistent hospital reporting. Many 
commenters provided a broad range of detailed suggestions related to 
reporting requirements for specific lines of Worksheet S-10. Commenters 
suggested the following general modifications to the manner in which 
uncompensated care costs are captured on Worksheet S-10:
     Commenters observed that the instructions for Worksheet S-
10 are inconsistent with generally accepted accounting principles 
(GAAP) and differ from the accounting practices of the majority of 
hospitals. Therefore, the commenters requested that CMS amend the cost 
reporting instructions to require hospitals to report amounts based on 
GAAP. One commenter believed that using GAAP would make every hospital 
be under the same rules. Commenters also suggested that the Worksheet 
S-10 instructions be amended to require hospitals to report the same 
bad debt and charity care amounts they report on their financial 
statements, which are GAAP appropriate. In particular, one commenter 
asked that CMS clarify whether the 35 percent residual of Medicare bad 
debts recorded as bad debt expense should be included in the 
determination of uncompensated care costs (currently, based on GAAP, a 
hospital will record 100 percent of the unpaid Medicare deductible and 
coinsurance as bad debt; however, only 65 percent is reimbursed by 
Medicare).
     Commenters noted that because Worksheet S-10 data is 
derived from data reported on the Medicare cost report, charges and 
payments for physician services are currently excluded. However, the 
commenters stated that hospitals provide physician services to patients 
with little or no access to private physicians. They noted that safety-
net hospitals in low-income communities particularly provide these 
services. As a result, several commenters argued the Worksheet S-10 
should include uncompensated care costs related to employed physician 
services.
     Commenters requested clarification of whether charity care 
charges should be reported for inpatient hospital services, outpatient 
hospital services, or both. The commenters requested the ability to 
report these charges on separate lines and to apply separate CCRs to 
these separate sets of costs. One commenter noted that because 
``aggregate outpatient CCRs are usually

[[Page 38220]]

higher than aggregate inpatient CCRs, application of an overall CCR to 
uncompensated care charges will generally underestimate UC costs.''
     Commenters noted that the instructions for Line 26 include 
Medicare bad debts for services provided beyond the inpatient and 
outpatient setting, and interpreted this to mean that hospitals should 
include non-Medicare bad debts for services provided in the following 
settings for which expenses are included on the hospital cost report: 
Skilled nursing beds (both swing beds and distinct part facilities); 
distinct part inpatient rehabilitation units; distinct part LTCHs; 
distinct part psychiatric units; dialysis centers; CMHCs; RHCs; and 
FQHCs. The commenters asked CMS to confirm in the final rule that this 
interpretation is correct. Similarly, commenters requested that CMS 
define any additional distinct part units or services that are not 
listed in the instructions for Line 26 but should be included in that 
line when reporting non-Medicare bad debt.
     Commenters advised requiring Medicaid DSH payments and 
Medicaid supplemental payment information to be reported on separate 
lines, and to offset all of these payments against Medicaid costs 
reported on Worksheet S-10. In addition, according to one commenter, 
the current Worksheet S-10 provides an incomplete picture of Medicaid 
shortfall and should be revised to allow hospitals to deduct 
intergovernmental transfers, certified public expenditures, and 
provider taxes from their Medicaid revenues. Specifically, some 
commenters also requested separate reporting of a number of such 
payments, including direct payments to hospitals, Medicaid DSH, and 
supplementary payments including upper payment limits, 
intergovernmental transfers, certified government expenditures, 
provider taxes, other government payments, and payments for local or 
state indigent care.
     One commenter suggested that CMS integrate payer mix into 
Worksheet S-10, as providers with a substantial commercial payer mix 
often have operating margins that help offset uncompensated care costs. 
The commenter recommended that CMS examine methods to adjust the 
uncompensated care amount for payer mix.
     One commenter noted that CCRs in Worksheet S-10 are 
reported with Reasonable Compensation Equivalency (RCE) limits applied. 
The commenter cited the discussion in the FY 2015 IPPS/LTCH PPS final 
rule (79 FR 50161), which states that RCE limits have no effect on IPPS 
provider payments. Therefore, the commenter believed that if the CCR in 
Worksheet S-10 is used, IPPS hospitals' payments would be affected by 
RCE limits, and RCE disallowances should therefore be removed from the 
CCR on Line 1 of Worksheet S-10.
     Commenters observed that CCRs for ``parts of hospitals'' 
such as facility-based skilled nursing facilities and inpatient 
rehabilitation facilities are very different from the CCRs for acute 
care hospitals paid under the IPPS. The commenters questioned the 
appropriateness of including parts of hospitals in the CCR in Worksheet 
S-10. In particular, one commenter noted that the initial instructions 
on the Worksheet S-10 ask hospitals to report costs ``incurred by the 
hospital for providing inpatient and outpatient hospital services.'' 
However, later instructions for Line 20 ask hospitals to report gross 
charity care costs for the ``entire facility,'' which could lead to 
IPPS and OPPS payments to parts of the hospital that should not have 
been covered, such as skilled nursing facilities and rehabilitation 
facilities. The commenter recommended that CMS either use consistent 
language or list the subparts of hospitals that should be included.
    Response: Some of the commenters express concerns and raise 
questions that have not been raised before, while others have been 
raised in previous rulemaking. We believe that a number of these 
questions and concerns are addressed by the updated instructions for 
the Worksheet S-10 that were issued in November 2016, which clarify the 
reporting of charges for charity care. We will continue to work with 
our stakeholders to address their concerns through provider education 
and further refinement of the instructions to the Worksheet S-10, as 
appropriate.
    With regard to the comments asking for clarification of which 
inpatient and outpatient services should be included in the 
uncompensated care costs reported on the Worksheet S-10, we note that 
the cost report instructions at Section 4012 of CMS Pub. 15-2, state: 
``Worksheet S-10--Hospital Uncompensated and Indigent Care Data--
Section 112(b) of the Balanced Budget Refinement Act (BBRA) requires 
that short-term acute care hospitals (Sec.  1886(d) of the Act) submit 
cost reports containing data on the cost incurred by the hospital for 
providing inpatient and outpatient hospital services for which the 
hospital is not compensated'' (emphasis added). In a similar vein, the 
CCR used on Worksheet S-10, Line 1 is from Worksheet C, Part I, Line 
202. This CCR reflects costs and charges of all hospital inpatient 
departments and outpatient department and clinics. Thus, Worksheet S-10 
is designed to capture uncompensated care costs associated with the 
hospital under all of the hospital's Medicare provider agreements, 
including provider-based facilities. However, Worksheet S-10 is not 
intended to capture uncompensated care costs related to physician 
services. We note that at various points on Worksheet S-10, the 
instructions state, ``Include payments for all covered services except 
physician or other professional services'' (emphasis added).
    Finally, with regard to the comment that the CCRs on Worksheet S-10 
are reported with the RCE limits applied, we believe the commenter is 
mistaken. Line 1 of Worksheet S-10 instructs hospitals to compute the 
CCR by dividing the costs from Worksheet C, Part I, Line 202, Column 3, 
by the charges on Worksheet C, Part I, Line 202, Column 8. The RCE 
limits are applied in Column 4, not in Column 3; thus, the RCE limits 
do not affect the CCR on Line 1 of Worksheet S-10.

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

1. Background for the MDH Program
    Section 1886(d)(5)(G) of the Act provides special payment 
protections, under the IPPS, to a Medicare-dependent, small rural 
hospital (MDH). (For additional information on the MDH program and the 
payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51683 through 51684).) As discussed in section V.B.1. 
of the preamble of the FY 2018 IPPS/LTCH PPS proposed rule and this 
final rule, the MDH program provisions at section 1886(d)(5)(G) of the 
Act will expire at the end of FY 2017. Beginning with discharges 
occurring on or after October 1, 2017, all hospitals that previously 
qualified for MDH status will be paid based on the Federal rate.
    Since the extension of the MDH program through FY 2012 provided by 
section 3124 of the Affordable Care Act, the MDH program had been 
extended by subsequent legislation as follows: Section 606 of the ATRA 
(Pub. L. 112-240) extended the MDH program through FY 2013 (that is, 
for discharges occurring before October 1, 2013). Section 1106 of the 
Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) extended the MDH 
program through the first half of FY 2014 (that is, for discharges 
occurring before April 1, 2014). Section 106 of the PAMA (Pub. L. 113-
93) extended the MDH program

[[Page 38221]]

through the first half of FY 2015 (that is, for discharges occurring 
before April 1, 2015). Section 205 of the MACRA (Pub. 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 interim final rule with comment 
period (79 FR 15025 through 15027); the FY 2014 notice (79 FR 34446 
through 34449); the FY 2015 IPPS/LTCH PPS final rule (79 FR 50022 
through 50024); the August 2015 interim final rule with comment period 
(80 FR 49596); and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57054 
through 57057).
b. Expiration of the MDH Program
    Because section 205 of the MACRA extended the MDH program through 
FY 2017 only, beginning October 1, 2017, the MDH program will no longer 
be in effect. Because the MDH program is not authorized by statute 
beyond September 30, 2017, beginning October 1, 2017, all hospitals 
that previously qualified for MDH status under section 1886(d)(5)(G) of 
the Act will no longer have MDH status and will be paid based on the 
IPPS Federal rate.
    When the MDH program was set to expire at the end of FY 2012, in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405), we 
revised our sole community hospital (SCH) policies to allow MDHs to 
apply for SCH status in advance of the expiration of the MDH program 
and be paid as such under certain conditions. We codified these changes 
in the regulations at Sec. Sec.  412.92(b)(2)(i) and (b)(2)(v). 
Specifically, the existing regulations at Sec. Sec.  412.92(b)(2)(i) 
and (b)(2)(v) allow for an effective date of an approval of SCH status 
that is the day following the expiration date of the MDH program. We 
note that these same conditions apply to MDHs that intend to apply for 
SCH status with the expiration of the MDH program on September 30, 
2017. Therefore, in order for an MDH to receive SCH status effective 
October 1, 2017, the MDH must apply for SCH status at least 30 days 
before the expiration of the MDH program; that is, the MDH must apply 
for SCH status by September 1, 2017. The MDH also must request that, if 
approved as an SCH, the SCH status be effective with the expiration of 
the MDH program; that is, the MDH must request that the SCH status, if 
approved, be effective October 1, 2017, immediately after its MDH 
status expires with the expiration of the MDH program on September 30, 
2017. We emphasize that an MDH that applies for SCH status in 
anticipation of the expiration of the MDH program would not qualify for 
the October 1, 2017 effective date for SCH status if it does not apply 
by the September 1, 2017 deadline. If the MDH does not apply by the 
September 1, 2017 deadline, the hospital would instead be subject to 
the usual effective date for SCH classification; that is, 30 days after 
the date of CMS' written notification of approval as specified at Sec.  
412.92(b)(2)(i).
    We note that the regulations governing the MDH program are found at 
Sec.  412.108 and the MDH program is also cited in the general payment 
rules in the regulations at Sec.  412.90. As stated earlier, under 
current law, the MDH program will expire at the end of FY 2017, which 
is already reflected in Sec.  412.108. As such, we did not propose to 
make specific amendments to the regulations at Sec.  412.108 to reflect 
the expiration of the MDH program. However, it has come to our 
attention that, with the various extensions of the MDH program as noted 
earlier, we neglected to make conforming changes to the regulation text 
at Sec.  412.90. Therefore, we proposed to revise the general payment 
rules under Sec.  412.90 to reflect the expiration of the MDH program. 
We did not receive any public comments on our proposed conforming 
changes to the regulation text at Sec.  412.90 and are finalizing these 
changes as proposed. However, we also proposed that if the MDH program 
were to be extended by law, similar to how it was extended through 
legislation set forth above, including most recently through FY 2017, 
by the MACRA (Pub. L. 114-10), we would make conforming changes to the 
regulations governing the MDH program at Sec.  412.108(a)(1) and 
(c)(2)(iii) and the general payment rules at Sec.  412.90(j) to reflect 
such an extension of the MDH program. We stated that these conforming 
changes would only be made if the MDH program were to be extended by 
statute beyond September 30, 2017. As of the time of the development of 
this final rule, there has been no change in law to extend the MDH 
program beyond FY 2017. Therefore, in this final rule, we are not 
making any additional changes to the regulations governing the MDH 
program at Sec.  412.108, and, as stated above, the revisions we are 
finalizing to the general payment rules under Sec.  412.90 reflect the 
current expiration of the MDH program on September 30, 2017.
    Comment: Several commenters indicated that hospitals in their 
States would experience payment decreases as a result of the expiration 
of the MDH program. One commenter urged CMS to work with Congress to 
permanently extend the MDH program. Another commenter indicated that it 
would continue supporting congressional efforts to protect the MDH 
program.
    Response: We appreciate the commenters' concerns about the 
expiration of the MDH program. However, CMS does not have the authority 
under current law to continue the MDH program beyond the September 30, 
2017 statutory expiration date. These comments are similar to comments 
we received previously, prior to the statutory extensions of the MDH 
program for FYs 2013 and 2014 provided by subsequent legislation, and 
discussed in both the FY 2013 IPPS/LTCH PPS final rule (77 FR 53413 
through 53414) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 
through 50649). Therefore, under current law, beginning October 1, 
2017, all hospitals that previously qualified for MDH status will no 
longer have MDH status.

I. Hospital Readmissions Reduction Program: Updates and Changes 
(Sec. Sec.  412.150 Through 412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program
    Section 3025 of the Patient Protection and Affordable Care Act, as 
amended by section 10309 of the Patient Protection and 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.
    On December 13, 2016, the 21st Century Cures Act (Pub. L. 114-255) 
was enacted. Section 15002 of Public Law 114-255 added subparagraphs 
(D) and (E) to section 1886(q)(3) of the Act. These subparagraphs 
direct the Secretary to assign hospitals to peer groups, develop a 
methodology that allows for separate comparisons for hospitals within 
these groups, and

[[Page 38222]]

allows for changes in the risk adjustment methodology. Section 15002 of 
Public Law 114-255 also directs MedPAC to conduct a review of overall 
hospital readmissions and whether such readmissions are related to any 
changes in outpatient and emergency services furnished. A report on the 
study is required to be submitted in the MedPAC's Report to Congress no 
later than June 2018.
    Section 1886(q)(3)(D) of the Act directs the Secretary to develop a 
transitional methodology that accounts for the percentage of full-
benefit dual-eligible patients treated by a hospital to determine a 
hospital's payment adjustment factor. Section 1886(q)(3)(D)(i) of the 
Act sets forth the requirement that the Secretary assign hospitals to 
groups and apply a methodology ``that allows for separate comparison of 
hospitals within each such group.'' This applies to discharges that 
occur during and after FY 2019 and before the application of section 
1886(q)(3)(E)(i) of the Act, which allows the Secretary to take into 
account the recommendations in the reports required by the IMPACT Act 
(Pub. L. 113-185) related to risk adjustment and social risk factors. 
The first of two reports required in the IMPACT Act was released in 
December 2016 (available at: https://aspe.hhs.gov/system/files/pdf/253971/ASPESESRTCfull.pdf), and the second report is required to be 
completed by October 2019.
    The hospital groups in section 1886(q)(3)(D)(ii) of the Act are 
described as being based on their overall proportion of the inpatients 
who are entitled to, or enrolled for, benefits under Medicare Part A 
and who are full-benefit dual-eligible individuals (as defined in 
section 1935(c)(6) of the Act). The Secretary is further required to 
consult with MedPAC when defining groups and may consider analysis done 
by MedPAC in preparation for its June 2013 report submitted to 
Congress. Section 1886(q)(3)(D)(iii) of the Act prevents the imposition 
of additional reporting requirements in order to carry out subparagraph 
(D). Section 1886(q)(3)(D)(iv) of the Act requires that the estimated 
total amount of reductions in payments using the methodology should 
equal the estimated total amount of reductions in payments if 
subparagraph (D) did not apply.
    Section 1886(q)(3)(E) of the Act outlines the considerations the 
Secretary may take into account with respect to the risk adjustment 
methodology. Section 1886(q)(3)(E)(i) of the Act allows the Secretary 
to take into account studies conducted and recommendations made by the 
Secretary under section 2(d)(1) of the IMPACT Act in the application of 
risk adjustment methodologies. This does not preclude the consideration 
of the use of groupings of hospitals. The Secretary is also allowed 
under section 1886(q)(3)(E)(ii) of the Act to consider the use of ``V'' 
or other ICD-related codes for removal of a readmission with respect to 
discharges occurring after FY 2018. Section 1886(q)(3)(E)(iii) of the 
Act outlines the considerations the Secretary may make in the removal 
of certain readmissions. For discharges occurring after FY 2018, the 
Secretary may consider the removal as a readmission of an admission 
that is classified within one or more of the following: Transplants; 
end-stage renal disease; burns, trauma; psychosis; or substance abuse.
2. Regulatory Background
    We refer readers to the following past final rules for detailed 
discussions of the regulatory background and descriptions of the 
current policies for the Hospital Readmissions Reduction Program: The 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51660 through 51676); the FY 
2013 IPPS/LTCH PPS final rule (77 FR 53374 through 53401); the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50649 through 50676); the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50024 through 50048); the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49530 through 49543); and the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 56973 through 56979). These policies describe the 
general framework for the implementation of the Hospital Readmissions 
Reduction Program, including: (1) The selection of and measures for the 
applicable conditions; (2) the calculation of the excess readmission 
ratio, which is used, in part, to calculate the readmissions adjustment 
factor; (3) the current calculation of the hospital readmission payment 
adjustment factor, specifically addressing the base operating DRG 
payment amount, aggregate payments for excess readmissions, and 
aggregate payments for all discharges; (4) the opportunity for 
hospitals to review and submit corrections using a process similar to 
what is currently used for posting results on Hospital Compare; (5) the 
adoption of an extraordinary circumstances exception policy to address 
hospitals that experience a disaster or other extraordinary 
circumstance; (6) the clarification that the 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; 
and (7) the specification that the definition of ``applicable 
hospital'' does not include hospitals and hospital units excluded from 
the IPPS, such as LTCHs, cancer hospitals, children's hospitals, IRFs, 
IPFs, CAHs, and hospitals in Puerto Rico.
    We also have codified certain requirements of the Hospital 
Readmissions Reduction Program at 42 CFR 412.152 through 412.154.
    CMS strives to put patients first, ensuring that they are empowered 
to make decisions about their own healthcare along with their 
clinicians, using information from data-driven insights that are 
increasingly aligned with meaningful quality measures. We support 
technology that reduces burden and allows clinicians to focus on 
providing high-quality health care for their patients. We also support 
innovative approaches to improve quality, accessibility, and 
affordability of care while paying particular attention to improving 
clinicians' and beneficiaries' experience when interacting with CMS 
programs. We believe the Hospital Readmissions Reduction Program in 
combination with other efforts across the Department of Health and 
Human Services encourages hospitals to improve health care quality and 
value, while giving patients and providers the tools and information 
needed to make the best decisions for them. We recognize that the 
Hospital Readmissions Reduction Program represents a key component of 
the way that we bring quality measurement and improvement together with 
payment, we have taken efforts to review existing policies to identify 
how to move the program forward in the least burdensome manner possible 
while continuing to encourage improvement in the quality of care 
provided to patients.
3. 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://

[[Page 38223]]

www.qualitynet.org/dcs/
ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=12287724
12995.
4. Policies for the Hospital Readmissions Reduction Program
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19957 through 
19967), we proposed the following policies for the Hospital 
Readmissions Reduction Program: (1) The applicable time period for FY 
2018; (2) the calculation of aggregate payments for excess readmissions 
for FY 2018; (3) changes to the payment adjustment factor in accordance 
with section 15002 of Public Law 114-255 for FY 2019; and (4) updates 
to the Extraordinary Circumstance Exception policy beginning in FY 2018 
as related to extraordinary circumstances that occur on or after 
October 1, 2017. These proposals are described in more detail below.
5. Applicable Period for FY 2018
    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 is 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 2017 IPPS/LTCH PPS final rule (81 FR 56974 through 
56975), for FY 2017, consistent with the definition specified at Sec.  
412.152, we established an ``applicable period'' for the Hospital 
Readmissions Reduction Program to be the 3-year period from July 1, 
2012 through June 30, 2015. 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 
2017 are calculated using data from the 3-year time period of July 1, 
2012 through June 30, 2015.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19957), for FY 
2018, consistent with the definition specified at Sec.  412.152, we 
proposed that the ``applicable period'' for the Hospital Readmissions 
Reduction Program would be the 3-year period from July 1, 2013 through 
June 30, 2016. In other words, we proposed that the excess readmissions 
ratios and the payment adjustment (including aggregate payments for 
excess readmissions and aggregate payments for all discharges) for FY 
2018 would be calculated using data from the 3-year time period of July 
1, 2013 through June 30, 2016. We invited public comment on this 
proposal.
    Comment: Many commenters expressed concern about the proposed 
Hospital Readmissions Reduction Program performance period for FY 2018 
because it combines data collected under both ICD-9 and ICD-10. 
Commenters requested that CMS provide further empirical analysis in the 
final rule to show that measure reliability and validity are not 
compromised by using two different coding systems and ensure that the 
ICD-10 versions of the measures in the Hospital Readmissions Reduction 
Program are endorsed by the National Quality Forum (NQF). One commenter 
also recommended that CMS analyze performance differences resulting 
from the transition to ICD-10 for all the measures used in all its 
public reporting and pay-for-performance programs to determine if there 
are any unintended biases and measure performance changes because of 
the change. One commenter disagreed with the use of the three-year 
performance period for FY 2018 because commenter believes it is too 
long and combines data from ICD-9 and ICD-10. The commenter suggested 
that a one-year performance period would be more appropriate.
    Response: The readmission measures in the Hospital Readmissions 
Reduction Program all completed ``maintenance of endorsement,'' a 
periodic evaluation of measures to assess impact and potential 
unintended consequences, in December 2016 and are NQF-endorsed. The NQF 
requires developers to submit all ICD-9 and ICD-10 diagnosis and 
procedure codes used to define the measure cohorts. We identified all 
ICD-10 codes that corresponded with ICD-9 codes used in the measure 
cohort definitions using the General Equivalence Mappings tool (GEMs). 
The ICD-10 codes identified using GEMs were reviewed by measure and 
clinical experts and made public as a part of the maintenance of 
endorsement process. However, because the ICD-10 code system was 
implemented in October 2015, there were insufficient claims coded with 
ICD-10 to provide any testing results to NQF during the endorsement 
maintenance process. We will submit testing results in claims data 
coded with ICD-10 in future cycles of NQF endorsement maintenance.
    In addition to identifying ICD-10 codes used to define the 
measures' cohorts using the GEMs tool and completing a review of those 
codes by clinical and measure experts, we also examined the frequency 
of the use of these codes in the first 6-months of ICD-10 coded claims 
for Medicare fee-for-service (FFS) patients who were 65 years and 
older. As a part of calculating measure results that will be made 
public in July 2017, we completed extensive testing of measure 
specifications and of measure performance. For the most recent 
measurement period from July 2013 through June 2016, there are 9 
months, from October 2015 through June 2016, of ICD-10 coded claims. 
Results of some of this testing is described in the publicly available 
2017 Annual Updates and Specifications reports for all readmission 
measures, including a description of the ICD-10 measure specifications, 
a description of measure cohort sizes, the number of acute care 
hospitals included in the measure, risk-standardized readmission rates 
in the national sample, risk variable frequencies and risk model 
coefficients, as well as overall model performance for each year and 
for the 3-year measurement period with the combined ICD-9 and ICD-10 
codes. The results of these analyses demonstrate stability in the 
measure cohort, in the number of hospitals included in the measure, in 
the performance of the measure risk model, and in trends of modest 
reductions in risk-standardized readmission rates across the country.
    We have decided to continue to use a three-year measurement period 
rather than a one-year measurement period despite the implementation of 
ICD-10. We use a 3-year measurement period because some small and rural 
hospitals do not have at least 25 admissions for Medicare FFS patients 
who are 65 years and older for each of the measure conditions in a 
single year or even over the course of two years. The three-year period 
allows us to include the maximum possible number of hospitals in public 
reporting.
    In addition, we have examined the average change in risk-
standardized readmission rates at the hospital-level and the 
distribution of changes in rates for all readmission measures comparing 
the results of the 2015, 2016, and 2017 reporting periods. We found 
that differences in average hospital-level performance comparing the 
2016 performance year, which included only ICD-9 claims, and the 2017 
performance year, which included 9 months of ICD-

[[Page 38224]]

10 claims, were similar to differences in performance observed between 
the 2015 and 2016 performance years. We are currently evaluating and 
considering the feasibility of publicly releasing these analyses. We 
believe the results show that our conversion process is maintaining a 
high level of accuracy.
    After consideration of the public comments we received, we are 
finalizing as proposed, without modification, the applicable period of 
the 3-year time period of July 1, 2013 through June 30, 2016 to 
calculate readmission payment adjustment factor for FY 2018 under the 
Hospital Readmissions Reduction Program.
6. Calculation of Aggregate Payments for Excess Readmissions for FY 
2018
    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. For a detailed discussion on 
the methodology for the calculation of aggregate payments for excess 
readmissions, we refer readers to the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53387 through 53397). We also have codified the definition of 
``aggregate payments for excess readmissions'' and ``aggregate payments 
for all discharges,'' as well as a current methodology for calculating 
the numerator of the ratio (aggregate payments for excess readmissions) 
and the denominator of the ratio (aggregate payments for all 
discharges) at 42 CFR 412.152 through 412.154.
    The Hospital Readmissions Reduction Program currently includes the 
following six applicable conditions: Acute myocardial infarction (AMI); 
heart failure (HF); pneumonia (PN); total hip arthroplasty/total knee 
arthroplasty (THA/TKA); chronic obstructive pulmonary disease (COPD); 
and Coronary Artery Bypass Graft (CABG) Surgery.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56975 through 
56977), we adopted the methodology to include CABG in the calculation 
of the readmissions payment adjustment for FY 2017. Specifically, we 
discussed 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 policy did 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. To determine 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.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19957 through 
19959), for FY 2018, we proposed to use MedPAR claims with discharge 
dates that are on or after July 1, 2013, and no later than June 30, 
2016, 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.
    In the proposed rule, for FY 2018, we proposed to determine 
aggregate payments for excess readmissions and aggregate payments for 
all discharges using data from MedPAR claims with discharge dates that 
are on or after July 1, 2013, and no later than June 30, 2016. However, 
we noted that, for the purpose of modeling the proposed FY 2018 
readmissions payment adjustment factors for the proposed rule, we used 
excess readmissions ratios for applicable hospitals from the FY 2017 
Hospital Readmissions Reduction Program applicable period. For the FY 
2018 IPPS/LTCH PPS final rule, applicable hospitals will have had the 
opportunity to review and correct data from the proposed FY 2018 
applicable period of July 1, 2013 to June 30, 2016, 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 the proposed rule, for FY 2018, we proposed to use MedPAR data 
from July 1, 2013 through June 30, 2016. Specifically, for the proposed 
rule, we used the following MedPAR files:
     March 2014 update of the FY 2013 MedPAR file to identify 
claims within FY 2013 with discharges dates that are on or after July 
1, 2013;
     March 2015 update of the FY 2014 MedPAR file to identify 
claims within FY 2014;
     March 2016 update of the FY 2015 MedPAR file to identify 
claims within FY 2015;
     December 2016 update of the FY 2016 MedPAR file to 
identify claims within FY 2016 with discharge dates no later than June 
30, 2016.
    For the final rule, we proposed to use the same MedPAR files as 
listed above for claims within FY 2013, FY 2014 and FY 2015, and for 
claims within FY 2016, we proposed to use the March 2017 update of the 
FY 2016 MedPAR file.
    For a discussion of how we identified the applicable conditions to 
calculate the aggregate payments for excess readmissions for FY 2017, 
we refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56975 
through 56977).
    Under our current methodology, in identifying the applicable 
conditions to calculate the aggregate payments for excess readmissions, 
we apply the same exclusions to the claims in the MedPAR file as are 
applied in the measure methodology for each of the applicable 
conditions. In the proposed rule, for FY 2018, we proposed to continue 
to apply the same exclusions to the claims in the MedPAR file as we 
applied for FY 2017 for the AMI, HF, PN, THA/TKA, CABG and COPD 
applicable conditions. We refer readers to the FY 2016 IPPS/LTCH PPS 
and FY 2017 IPPS/LTCH PPS final rules (80 FR 49539; 81 FR 56976) 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.
    Furthermore, under our current methodology we only identify 
Medicare FFS claims that meet the criteria described above for each 
applicable condition to calculate the aggregate payments for excess 
readmissions (that is, claims paid for under Medicare Part C or 
Medicare Advantage, are not included in this calculation). This policy 
is 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 2018, we proposed to continue to exclude admissions for patients 
enrolled in Medicare Advantage as identified in the Medicare Enrollment 
Database.

[[Page 38225]]

    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). As described above, the proposed 3-
year applicable period for FY 2018 of July 1, 2013 through June 30, 
2016 includes discharges occurring in four Federal FYs (FY 2013, FY 
2014, FY 2015, and FY 2016). Diagnoses and procedure codes for 
discharges occurring prior to October 1, 2015 were reported under the 
ICD-9-CM code set. Effective with discharges occurring on or after 
October 1, 2015 (FY 2016), diagnoses and procedure codes are reported 
under the ICD-10-CM and ICD-10-PCS code sets. Thus, for the proposed FY 
2018 applicable period, the discharge diagnoses for each applicable 
condition would be based on a list of specific ICD-9-CM or ICD-10-CM 
and ICD-10-PCS code sets, as applicable, for that condition.
    In the proposed rule, to identify the discharges for each 
applicable condition for FY 2018 to calculate the aggregate payments 
for excess readmissions for an individual hospital, we proposed to 
identify each applicable condition, using, for FY 2013, FY 2014 and FY 
2015, the appropriate ICD-9-CM codes, and for FY 2016, the appropriate 
ICD-10-CM and ICD-10-PCS code sets. This proposal is consistent with 
our established policy for identifying the discharges for each 
applicable condition to calculate the aggregate payments for excess 
readmissions (76 FR 51673 through 51676). 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. For a complete list of the ICD-9-CM codes we proposed to 
use to identify the applicable conditions, we refer readers to the 
following tables of the measure methodology reports on the QualityNet 
Web site:
     2016 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: 2016 Condition-Specific 
Readmission Measures Updates and Specifications Report)--
    ++ Table D.1.1--ICD-9-CM Codes for AMI Cohort (page 79).
    ++ Table D.2.1--ICD-9-CM Codes for COPD Cohort (page 83).
    ++ Table D.3.1--ICD-9-CM Codes for Inclusion in HF Cohort (page 
89).
    ++ Table D.4.1--ICD-9-CM Codes for Pneumonia Cohort (page 94).
     2016 Measure Updates: THA/TKA and CABG Readmission (THA 
and/or TKA-Version 4.0, CABG-Version 2.0: 2016 Procedure-Specific 
Readmission Measures Updates and Specifications Report)--
    ++ Table D.1.1--ICD-9-CM Codes Used to Identify Eligible CABG 
Procedures (page 49).
    ++ Table D.2.1--ICD-9-CM Codes Used to Identify Eligible THA/TKA 
Procedures (page 58).
    The ICD-10-CM codes for the AMI, HF, PN, THA/TKA, COPD, and CABG 
applicable conditions for the period from October 1, 2015 to June 30, 
2016 can be found on the QualityNet Web site at: http://www.QualityNet.org > Hospital-Inpatient > Claims-Based Measures > 
Readmission Measures > Measure Methodology. For a complete list of the 
ICD-10-CM codes we are proposing to use to identify the applicable 
conditions, we refer readers to the following tables of the measure 
methodology reports on the QualityNet Web site:
     2017 Measure Updates: AMI, HF, Pneumonia, COPD, Stroke 
Readmission (AMI-Version 10.0, HF-Version 10.0, Pneumonia-Version 10.0, 
COPD-Version 6.0, and Stroke-Version 6.0: 2017 Condition-Specific 
Readmission Measures Updates and Specifications Report)--
    ++ Table D.1.1--ICD-10-CM Codes for AMI Cohort (page 77).
    ++ Table D.2.1--ICD-10-CM Codes for COPD Cohort (page 81).
    ++ Table D.3.1--ICD-10-CM Codes for Inclusion in HF Cohort (page 
87).
    ++ Table D.4.1--ICD-9-CM Codes for Pneumonia Cohort (page 93).
     2016 Measure Updates: THA/TKA and CABG Readmission (THA 
and/or TKA-Version 6.0, CABG-Version 4.0: 2017 Procedure-Specific 
Readmission Measures Updates and Specifications Report)--
    ++ Table D.1.1--ICD-10-CM Codes Used to Identify Eligible CABG 
Procedures (page 49).
    ++ Table D.2.1--ICD-10-CM Codes Used to Identify Eligible THA/TKA 
Procedures (page 63).
    In summary, for FY 2018, we proposed to calculate aggregate 
payments for excess readmissions, using MedPAR claims from July 1, 2013 
through June 30, 2016, to identify applicable conditions based on the 
same ICD-9-CM codes or ICD-10-CM and ICD-10-PCS code sets, as 
applicable, used to identify the conditions for the readmissions 
measures, and to apply the proposed exclusions for the types of 
admissions (as previously discussed). We did not propose any changes to 
our existing methodology for calculating ``aggregate payments for 
excess readmissions'' for each hospital (the numerator of the ratio). 
Specifically, to calculate aggregate payments for excess readmissions 
for each hospital, we proposed to calculate the base operating DRG 
payment amounts for all claims in the 3-year applicable period for each 
applicable condition (AMI, HF, PN, COPD, 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 proposed 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 proposed to 
then multiply the amount for each condition by the respective excess 
readmissions ratio minus 1 when that excess readmissions ratio is 
greater than 1, which indicates that a hospital has performed, with 
respect to readmissions for that applicable condition, worse than the 
average hospital with similar patients. Each product in this 
computation represents the payments for excess readmissions for that 
condition. We proposed to then sum the resulting products which 
represent a hospital's proposed ``aggregate payments for excess 
readmissions'' (the numerator of the ratio). Because this calculation 
is performed separately for each of the 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 did not 
propose 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

[[Page 38226]]

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 2018, 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 2018, a hospital subject to the Hospital 
Readmissions Reduction Program would have an adjustment factor that is 
between 1.0 (no reduction) and 0.9700 (greatest possible reduction).
    We did not receive public comments related to this proposal. 
Therefore, we are finalizing as proposed, without modification, the 
calculation of aggregate payments for excess readmissions for FY 2018.
7. Background and Current Payment Adjustment Methodology
a. Background
    As described above, section 1886(q)(3)(D) of the Act requires the 
Secretary to group hospitals and apply a methodology that allows for 
separate comparisons of hospitals within groups in determining a 
hospital's adjustment factor for payments applied to discharges 
beginning in FY 2019.
b. Current Payment Adjustment Methodology
    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 at that time addressed the calculation of the 
hospital readmissions payment adjustment factor. 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.
    Consistent with section 1886(q)(3)(C) of the Act, codified at Sec.  
412.154(c)(2), for FY 2015 and subsequent years, the adjustment factor 
is either the greater of the ratio or the floor adjustment factor of 
0.9700. In other words, a hospital subject to the Hospital Readmissions 
Reduction Program will have an adjustment factor that is between 1.0000 
(no reduction) and 0.9700 (greatest possible reduction). Under our 
established policy, the ratio is rounded to the fourth decimal place.
8. Provisions for the Payment Adjustment Methodology for FY 2019: 
Methodology for Calculating the Proportion of Dual-Eligible Patients
a. Background
    As described above, section 1886(q)(3)(D) of the Act requires the 
Secretary to group hospitals and apply a methodology that allows for 
separate comparisons of hospitals within groups in determining a 
hospital's adjustment factor for payments of discharges beginning in FY 
2019. Furthermore, section 1886(q)(3)(D)(ii) of the Act directs the 
Secretary to define groups of hospitals, based on their overall 
proportion, of the inpatients who are entitled to, or enrolled for, 
benefits under part A, and who are full-benefit dual-eligible 
individuals (as defined in section 1935(c)(6) of the Act).\23\ Under 
these statutory requirements, hospitals are grouped based on the 
proportion or ratio of full-benefit dual-eligible patients (numerator) 
to the hospital's Medicare inpatient stays (denominator). The Act 
specifies that in defining groups, the Secretary shall consult the 
MedPAC and may consider the analysis done by MedPAC in preparing the 
portion of its report submitted to Congress in June 2013 relating to 
readmissions.
---------------------------------------------------------------------------

    \23\ Section 1935(c)(6)(A) of the Act defines ``full-benefit 
dual-eligible individual'' as, ``for a State for a month, an 
individual who--(i) has coverage for the month for covered part D 
drugs under a prescription drug plan under part D of title XVIII, or 
under an MA-PD plan under part C of such title; and (ii) is 
determined eligible by the State for medical assistance for full 
benefits under this title for such month under section 
1902(a)(10)(A) or 1902(a)(10)(C) [of the Act], by reason of section 
1902(f) [of the Act], or under any other category of eligibility for 
medical assistance for full benefits under this title, as determined 
by the Secretary.''
---------------------------------------------------------------------------

b. Data Sources Used To Determine Dual Eligibility
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19960), we 
proposed to identify full-benefit dual status (numerator) using dual 
eligibility status data, where the original data source is the State 
Medicare Modernization Act (MMA) file of dual eligibility, which States 
submit to CMS monthly. The State MMA file is considered the most 
current and most accurate source of data for identifying dual-eligible 
beneficiaries since it is also used for operational purposes related to 
the administration of Part D benefits. Under our proposal, an 
individual would be counted as a full-benefit dual patient if the 
beneficiary was identified as full-benefit dual status in the State MMA 
files for the month he/she was discharged from the hospital.
    We invited public comment on this proposal.
    Comment: Many commenters supported the preferred approach of using 
the State Medicare Modernization Act (MMA) files as the source to 
identify full-benefit dual-eligible individuals, noting this approach 
adheres to the statutory requirement and does not impose any additional 
reporting burden on providers.
    Response: We thank commenters for their support and agree with 
commenters.
    Comment: A few commenters expressed support for comparing hospitals 
based on their proportion of patients who are dual-eligible patients. 
One commenter believed that this approach helps hospitals that have a 
disproportionate number of dual-eligible patients and specifically 
cited safety net hospitals as key beneficiaries.
    Response: We thank commenters for their support and agree with 
commenters. We proposed to finalize approaches to implement policy 
options that change the payment formula to reduce the financial burden 
on safety-net hospitals without disproportionately increasing the 
penalty for non-safety-net hospitals to address stakeholder concerns 
and meet the implementation requirement of Public Law 114-255, which 
included grouping hospitals based on their proportion of dual-eligible 
beneficiaries.
    Comment: A few commenters expressed concern with using the 
proportion of dual-eligible beneficiaries because it is an 
inappropriate mechanism for determining socioeconomic status. One 
commenter cautioned that dual-eligible peer groups exclude several at-
risk and socioeconomically stressed patients that are not part of the 
data set. One commenter suggested that CMS should use the community 
distress index for the community where a hospital is located or a 
patient resides. One commenter expressed concern that dual eligibility 
was insufficient to identify socio-demographic risk. Another commenter 
suggested that CMS consider whether it should continue to use dual-
eligibility as the adjustment variable, and whether to move from the 
current peer grouping approach to one that

[[Page 38227]]

incorporates one or more socioeconomic variables into the readmission 
measures risk-adjustment models of the Hospital Readmissions Reduction 
Program measures (that is, direct risk adjustment of the readmission 
measures). One commenter cautioned CMS against stating on Hospital 
Compare that dual eligibility denotes poverty.
    Response: We thank commenters for their input and agree that we 
should be cautious in not stating on Hospital Compare that dual-
eligibility denotes poverty. While we agree that many socioeconomically 
stressed patients are not dual eligible and therefore not accounted for 
when stratifying hospitals based on dual proportion, Public Law 114-255 
requires that we use the proportion of dual-eligible beneficiaries to 
stratify hospitals into peer groups for the purpose of determining 
payments. Section 15002 of Public Law 114-255 added subparagraphs (D) 
and (E) to section 1886(q)(3) of the Act, which directs the Secretary 
to assign hospitals to peer groups, develop a methodology that allows 
for separate comparisons for hospitals within these groups, and allows 
for changes in the risk adjustment methodology. Specifically, section 
1886(q)(3)(D) of the Act directs the Secretary to develop a 
transitional methodology that accounts for the percentage of full-
benefit dual-eligible patients treated by a hospital to determine a 
hospital's payment adjustment factor. Section 1886(q)(3)(D)(i) of the 
Act sets forth the requirement that the Secretary assign hospitals to 
groups and apply a methodology that allows for separate comparison of 
hospitals within each such group.
    Section 1886(q)(3)(E)(i) of the Act does not preclude the inclusion 
of additional risk factors. We will continue to monitor the impact of 
accounting for dual-eligible beneficiaries in the Hospital Readmissions 
Reduction Program and assess the appropriateness and feasibility of 
future changes to include other variables or adjustments.
    Comment: One commenter expressed concern over the impact of risk 
adjustment for non-safety net facilities, arguing that facilities 
should be rewarded for outreach to at-risk populations instead of 
penalized with risk adjustment which may not reflect their actual 
readmission rates or patient's risk for readmissions at the facility, 
and which has the potential to reduce transparency.
    Response: As required by Public Law 114-255, we are stratifying 
hospitals based on dual-eligible proportion and modifying the payment 
adjustment factor formula to assess a hospital's performance relative 
to other hospitals in its peer group. To clarify, we are not changing 
the measure methodology for calculating of the excess readmission 
ratios, rather we are stratifying hospitals based on the proportion of 
dual-eligible beneficiaries to set the threshold used to assess 
hospital performance. Because quality assessment is determined based on 
a hospital's performance relative to all other Hospital Readmissions 
Reduction Program eligible hospitals, and therefore allows for 
comparison between peer groups of hospitals, this approach is 
transparent. At the same time, by stratifying hospitals and determining 
the payment adjustment factors based on performance relative to the 
peer group median, we can reduce the penalty for safety-net hospitals, 
hence avoiding a reduction in the resources available to safety-net 
hospitals to provide high quality care for their at-risk patients. 
Because peer groups are based on proportion of dual-eligible patients 
served, the same would also be true for non-safety net facilities that 
do outreach to at-risk patients and thus have a higher proportion of 
dual-eligible patients than other non-safety net facilities.
    We believe the proposed approach achieves both the goal of holding 
all hospitals to a high standard while also ensuring we are not 
disproportionally penalizing hospitals serving an at-risk population. 
Section 1886(q)(3)(E)(i) of the Act allows the Secretary to consider 
studies conducted and recommendations made by the Secretary under 
section 2(d)(1) of the IMPACT Act in the application of risk adjustment 
methodologies. We will continue to monitor the progress and findings of 
research the Assistant Secretary for Planning and Evaluation (ASPE) is 
conducting as part of its IMPACT Act study and the National Quality 
Forum's trial period and will consider their recommendations. We will 
continue to monitor the impact of accounting for dual-eligible patients 
in the Hospital Readmissions Reduction Program and evaluate if future 
changes to include other variables or adjustments are needed.
    Comment: One commenter requested that CMS develop an adjustment for 
the variability in Medicaid eligibility across states for the 
calculations of the proportion of dual-eligible patients, citing its 
belief that the variation distorts the population measure of poverty 
that in fact may be representative of patients under treatment. The 
commenter also stated that Medicare Advantage data should only be 
included in the denominator if it is included in State reporting. 
Another commenter expressed concern with using quintiles based on the 
proportion of Medicare FFS and Medicare Advantage patients that are 
full-benefit, dual-eligible patients because it does not consider 
differences in States' health care program eligibility and if a State 
has expanded Medicaid under the Patient Protection and Affordable Care 
Act.
    Response: We acknowledge the commenter's concern about using the 
proportion of Medicare FFS and Medicare Advantage patients that are 
full-benefit, dual-eligible patients when there is variability in 
Medicaid eligibility across states. However, Public Law 114-255 
requires hospitals be stratified based on the proportion of Medicare 
patients who are eligible for full-benefit Medicaid. Although Medicaid 
eligibility is defined on a State-by-State basis, it varies much less 
across States for the over 65 and people with disabilities populations, 
the population covered under Medicare.24 25 In addition, the 
Patient Protection and Affordable Care Act did not expand Medicaid 
eligibility to patients enrolled in Medicare Part A or Part B. Because 
the dual proportion is calculated among Medicare beneficiaries only, 
there is much less variability in dual proportion than if it was 
calculated as the percentage of all hospital patients who were eligible 
for Medicaid. We will continue to monitor the impact of changes to 
Medicaid eligibility for the Medicare population and evaluate if future 
changes to include other variables or adjustments are needed.
---------------------------------------------------------------------------

    \24\ For over-65 and people with disabilities populations in 40 
States plus the District of Columbia, Medicaid eligibility in the 
Medicare population is connected to receipt of SSI, which sets an 
income standard for eligibility at roughly 75 percent of the Federal 
Poverty Level (FPL). However, about one third of States set their 
eligibility levels at 100 percent FPL or higher. There are also ten 
States, known as 209(b) States, in which eligibility rules for 
dually eligible populations can be set lower than the SSI standards.
    \25\ United States Department of Health and Human Services 
Office of the Assistant Secretary for Planning and Evaluation. 
``Social Risk Factors and Performance Under Medicare's Value-Based 
Purchasing Programs: A Report Required by the Improving Medicare 
Post-Acute Care Transformation (IMPACT) Act of 2014''. Washington, 
DC: December, 2016.
---------------------------------------------------------------------------

    Comment: Commenters supported the inclusion of a socioeconomic 
adjustment in the readmissions reduction program but recommended that 
the Secretary expand the conditions excluded from the readmission 
measures used in the Hospital Readmissions Reduction Program. 
Commenters also asked CMS to continue to find ways to adjust for social 
risk factors that capture variation

[[Page 38228]]

in the complexity of patients across hospitals.
    Response: We thank the commenters for their input and plan to 
investigate the impact on the readmission measures and appropriateness 
of categorizing additional diagnoses as planned readmissions as 
directed by Public Law 114-255. We will also continue to monitor the 
work being done by the Assistant Secretary for Planning and Evaluation 
(ASPE) as part of its study required by the IMPACT Act. The first of 
two reports on the study was released in December of 2016 and the 
second report is required to be completed by October 2019. The study 
analyzed the effects of certain social risk factors in Medicare 
beneficiaries on quality measures and measures of resource use used in 
one or more of nine Medicare value-based purchasing programs. The 
report also included considerations for strategies to account for 
social risk factors in these programs. We will continue to consider the 
analyses and recommendations from this report.
    Comment: Numerous commenters expressed concern that they were 
unable to comment on the proposals due to the lack of publicly 
available data. To evaluate proposals and confirm estimates, commenters 
requested that CMS publicly provide a summary file providing hospital-
level data consistent with the data used by CMS to derive the results 
reported in the tables and Readmission Proposal Supplemental files for 
each of the alternative approaches providing the data necessary to 
duplicate the CMS estimates that are reported in the tables.
    Commenters further requested that dual-eligible summary files be 
released publicly since they reside with the States. Commenters also 
requested that CMS release patient population lists, quarterly, to 
identify this population for improvement activities and to allow for 
replication. Commenters asked CMS to make more data available on the 
proposed payment adjustment methodology to ensure full transparency on 
the various aspects of the agency's determinations. In addition, 
commenters recommended that CMS prepare a dry-run using this year's 
data so that hospitals can familiarize themselves with the new 
methodology. Commenters also suggested that CMS include hospital peer 
group assignments in future proposed rules, allow for review and 
corrections and asked CMS to continually evaluate its adjustment 
approach, and to engage with the field on ensuring its adjustment 
approach keeps up with the science.
    Response: We thank commenters for their input and we agree with the 
need for transparency and providing stakeholders with data to confirm 
their dual proportion assignment. However, we also have a 
responsibility to safeguard patient information and comply with the 
federal regulations governing data. To ensure CMS upholds data security 
standards, we established the CMS Data Request Center through the 
Research Data Assistance Center (ResDAC) to review requests for data. 
To obtain the full MBSF data file a request can be submitted to ResDAC 
at: https://www.resdac.org/cms-data/request/cms-data-request-center. 
Such a request will be reviewed and approved based on ResDAC's 
established criteria. We are considering methods for publicly releasing 
this data. We are also considering different options to provide 
hospitals with early individualized feedback regarding their peer 
grouping and payment adjustment.
    After consideration of the public comments we received, we are 
finalizing, without modification, our proposal that an individual would 
be counted as a full benefit dual-eligible patient if the beneficiary 
was identified as full-benefit dual status in the State MMA files for 
the month he/she was discharged from the hospital.
    In the proposed rule, we considered two alternative definitions of 
total number of Medicare patients (denominator) that could be used to 
calculate each hospital's proportion of dual-eligible patients. We 
proposed to define the proportion of full-benefit dual-eligible 
beneficiaries as the proportion of dual-eligible patients among all 
Medicare FFS and Medicare Advantage stays. This is our preferred 
approach because using the proportion of dual-eligible patients 
calculated among all Medicare FFS and managed care patients more 
accurately represents the proportion of dual-eligible patients served 
by the hospital, particularly for hospitals in States with high managed 
care penetration rates. For example, Hospital A located in Arizona has 
a high managed care penetration rate. When stratified based on the 
proportion of dual-eligible patients, calculated among Medicare FFS and 
managed care patients, Hospital A was assigned to the top quintile of 
proportion of dual-eligible patients and its payment adjustment 
calculated based on its ERR relative to the threshold for the top 
quintile. When stratified based on the proportion of dual-eligible 
patients among only Medicare FFS patients, Hospital A was assigned to 
the second quintile and its payment adjustment calculated relative to 
the threshold of the second quintile. Its classification when managed 
care patients are included more accurately identifies the social risk 
of the patients Hospital A serves, compared to its classification if 
only the FFS population is included.
    However, because the Hospital Readmissions Reduction Program 
payment adjustment is only applied to Medicare FFS payments, and is 
based on excess readmissions among Medicare FFS patients only, we 
included an alternative to define the proportion of full-benefit dual-
eligible beneficiaries as only Medicare FFS stays. Under both 
approaches, we proposed to use the MedPAR files, the same data source 
used to calculate the payment adjustment factors, to identify total 
hospital stays as this is the best available claims data that are 
readily publicly available. However, in developing our proposal, we 
also considered using other data sources such as the CMS integrated 
data repository (IDR), which may incorporate managed care claims more 
consistently to calculate total hospital stays, but it is currently not 
readily available to the public. We invited stakeholder input on the 
most appropriate data source to identify total hospital stays and 
whether such stays should include all Medicare FFS and Medicare 
Advantage stays or only Medicare FFS stays.
    We invited public comment on our preferred proposals and 
alternative considerations.
    Comment: Many commenters supported using both Medicare Advantage 
and Medicare FFS patients to determine the total number of Medicare 
stays as the denominator because it accurately represents the 
proportion of dual-eligible patients a hospital serves. One commenter 
recommended including Medicaid enrollees under 100 percent of federal 
poverty level in addition to dual-eligibility status to improve 
accuracy. One commenter requested that CMS should monitor for any 
unintended consequences among hospitals in states with high managed 
care penetration, compared with those that have low penetration, and 
modify the methodology to adjust for future growth in managed care.
    Response: We thank commenters for their support and we will 
continue to monitor the impact of stratifying hospitals based on the 
proportion of full-benefit dual-eligible beneficiaries in the Hospital 
Readmissions Reduction Program and evaluate if future changes to 
include other variables or adjustments are needed.
    Comment: Several commenters recommended stratifying hospitals based 
on the share of full-benefit Medicaid patients among Medicare FFS 
patients only and not all FFS and MA

[[Page 38229]]

patients. One commenter stated that the share of Medicare FFS patients 
that are full dual-eligible beneficiaries should be used because 
penalties will not apply to MA readmissions. Another commenter 
expressed concerned that because penalties will not apply to MA 
readmissions, MA patients would distort the risk profiles of hospitals 
because their income characteristics may differ from FFS patients in 
certain hospitals.
    Response: We thank the commenters for the input. In selecting a 
proposal, we considered calculating the proportion of dual-eligible 
patients (dual proportion) among Medicare FFS and managed care patients 
as well as Medicare FFS patients only. We agree that determining this 
proportion among Medicare FFS beneficiaries instead of all Medicare 
beneficiaries more accurately reflects the incidence of these factors 
among patients eligible for inclusion in the Hospital Readmissions 
Reduction Program measures. However, calculating the dual proportion 
among all Medicare FFS and managed care patients more accurately 
represents the dual status of the hospital, particularly for hospitals 
in States with high managed care penetration rates. This approach 
enables more accurate and complete risk profiles for hospitals. There 
is a strong relationship between dual proportion and penalties under 
both the current methodology and proposed approaches whether hospitals 
are stratified based on Medicare FFS patients only or based on both 
Medicare FFS and managed care patients. In general, this relationship 
is similarly positive; hospitals with higher dual proportions by either 
definition incur larger penalties on average. However, the relationship 
between the penalty share of payments and dual proportion among FFS and 
managed care patients exhibits a slightly stronger upward trend.
    Comment: One commenter supported using both the Medicare Advantage 
and Medicare FFS patients identified through the CMS Integrated Data 
Repository (IDR) to determine the dual-eligible population, and 
supported calculating the dual proportion among both MA and FFS 
beneficiaries because it provides an accurate representation of a 
hospital's dual-eligible population.
    Response: We thank the commenter for the support of calculating the 
dual proportion among both MA and FFS beneficiaries. Both the IDR and 
the Master Beneficiary Summary File (MBSF) are sourced from the State 
Medicare Modernization Act (MMA) file. Many commenters supported using 
data sourced from the State MMA file as it is considered the most 
current and most accurate source of data for identifying dual-eligible 
beneficiaries since it is also used for operational purposes related to 
the administration of Part D benefits. We will assess the feasibility 
of different datasets with dual status information sourced from the 
State MMA files as part of implementation.
    After consideration of the public comments we received, we are 
finalizing, without modification, our proposal to define the proportion 
of full benefit dual-eligible beneficiaries as the proportion of dual-
eligible patients among all Medicare FFS and Medicare Advantage stays.
c. Data Period Used To Define Dual Eligibility
    Consistent with the requirement of the statute, we proposed to 
group or stratify hospitals based on the proportion of full-benefit 
dual-eligible patients determined under the proposals discussed above 
and proposed to define the proportion of full-benefit dual-eligible 
beneficiaries as the number of dual-eligible patients discharged during 
the 3-year applicable period under the Hospital Readmissions Reduction 
Program. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19960), we 
considered two alternatives for the data period used to define dual 
eligibility, a 3-year period corresponding to the performance period, 
and a 1-year period, which would be calculated over the most recent 
year for which complete data is available.
    While both data periods would include the most recently available 
data to define dual eligibility, our proposal to use a 3-year period 
accounts for the influence of social risk factors on the excess 
readmissions ratio (ERR) because the proportion of dual-eligible 
patients is measured over the full period when they influenced the 
likelihood of excess readmissions. However, the most recent 1-year 
period would capture the most recent population served by the hospital 
and may enable a more accurate stratification to calibrate the impact 
of payment adjustments to the proportion of dual-eligible patients that 
the hospital currently serves.
    We invited public comment on our preferred proposal and alternative 
considerations.
    Comment: Many commenters supported using the 3-year data period 
because it aligns the adjustment for the proportion of dual-eligible 
patients with the established measurement period. Commenters stated 
that using a 3-year period will guard against the effects of recent 
shifts in year-to-year patient population changes. One commenter noted 
that both the 3-year data period and the 1-year data period provide 
similar information about the current patient population because both 
programs rely on data that will not be current at the time that payment 
penalty adjustment is applied.
    Response: We thank commenters for their support and agree that the 
proposed 3-year data period is appropriate.
    Comment: A few commenters supported the use of the 1-year data 
period. Commenters stated that a 1-year data period would provide the 
most recent population served by the hospitals and enable a more 
accurate stratification by proportion of dual-eligible patients for 
payment adjustments.
    Response: While we understand commenters' support of using a 1-year 
data period, we agree with the many commenters who supported using the 
3-year data period because it accounts for the influence of social risk 
factors on the excess readmission ratios (ERR) since the proportion of 
dual-eligible patients is measured over the full period when they 
influenced excess readmissions. We recognize that the 1-year data 
period may better represent a hospital's current patient population. 
However, the 3-year data period corresponds to the performance period; 
therefore, it more accurately reflects the influence of social risk 
factors on the ERRs and payment adjustments. We will continue to 
monitor the impact of accounting for dual-eligible patients in the 
Hospital Readmissions Reduction Program and evaluate if future changes 
to include other variables or other adjustments are needed.
    After consideration of the public comments we received, we are 
finalizing the 3-year data period corresponding to the performance 
period as the data period used to define dual eligibility.
9. Provisions for the Payment Adjustment Methodology for FY 2019: 
Methodology for Assigning Hospitals to Peer Groups
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19960 through 
19961), we considered three alternative methodologies for assigning 
hospitals to peer groups. For the reasons discussed below, our 
preferred approach is to stratify hospitals into quintiles (five peer 
groups). However, we also sought public comment on stratifying 
hospitals into two and 10 peer groups.
    To understand the impact on payment adjustments of stratifying 
hospitals into different numbers of peer groups, we conducted an 
analysis that estimated

[[Page 38230]]

payment adjustments when stratifying hospitals into 2, 5 (quintiles), 
or 10 (deciles) peer groups. Two and 10 peer groups were considered to 
align with previous research conducted by MedPAC and ASPE that assessed 
impacts from stratifying hospitals into 2 or 10 groups. MedPAC's 
analysis stratified hospitals into 10 peer groups when setting the 
target rate used to compare hospital performance. ASPE's analysis 
stratified hospitals into 2 and 10 peer groups to calculate payment 
adjustments. Our analysis showed that using five peer groups allows for 
more precisely defined peer groups than is possible with a grouping of 
two, while ensuring that the number of hospitals is sufficient to 
represent a peer group, even for measures, like CABG, in which only a 
minority of hospitals are subject to a payment adjustment.
    We note, as the number of groupings increase, hospitals became more 
similar within their peer groups with respect to proportion of dual-
eligible patients in their patient population. Hence, payment 
adjustments are more closely related to the proportion of dual-eligible 
patients, and to the possible influence on the likelihood of 
readmission resulting from small variations in patient populations. We 
also observed that increasing the number of peer groups also increases 
the likelihood that hospitals with similar exposure to dual-eligible 
patients will be compared to different thresholds in the payment 
adjustment formula. Deciles cover a narrow range of dual-eligible 
patient proportions in each peer group; therefore, small differences in 
proportion are likely to result in differences in peer group assignment 
and corresponding comparison thresholds used in the payment adjustment 
formula. This problem is compounded by the small number of hospitals in 
deciles. When the number of hospitals is small, peer group thresholds 
or distributions and the resulting payment adjustments are less 
predictable.
    Stratifying hospitals into two peer groups is a simpler method and 
reduces the likelihood that similar hospitals are assigned different 
payment adjustments. However, this approach yields peer groups with a 
more heterogeneous mix of hospitals assigned to each group and weakens 
the relationship between the payment adjustment and the hospital's 
patient population. When the impact on payments of different peer group 
definitions was tested using the various methods of incorporating 
stratification into the payment formula, we found a substantial 
reduction in penalties (measured as the share of payment adjustments as 
a percentage of total payments) to safety-net hospitals, defined as 
hospitals in the highest quintile for disproportionate share hospital 
(DSH) patient percentage, from stratification into quintiles compared 
to stratification into two groups. Furthermore, our analysis found a 
similar impact on the share of total payments borne as payment 
adjustments by safety-net hospitals from stratifying hospitals into 
quintiles and deciles, suggesting that the benefit to safety-net 
hospitals from increasing the number of strata would be small. For 
example, using the preferred modified payment formula, proposed below, 
across the current set of six conditions, we found that for safety-net 
hospitals, payment adjustment as a proportion of total payments 
decreased from a baseline of 0.64 percent to 0.59 percent with two 
groups, 0.55 percent with quintiles and 0.54 percent with deciles.
    Based on the analysis described above, we proposed to stratify 
hospitals into quintiles (five peer groups) because it creates peer 
groups that accurately reflect the relationship between the proportion 
of dual-eligible patients in the hospital's population without the 
disadvantage of establishing a larger number of peer groups.
    We invited public comment on our preferred proposal and alternative 
considerations.
    Comment: Many commenters supported using quintiles because it 
creates peer groups that more accurately reflect the relationship 
between the proportion of dual-eligible patients in the hospital's 
population, while mitigating the disadvantages of establishing a larger 
number of peer groups. One commenter, using its data, found that 2 
groups did not adequately differentiate among hospitals and 10 groups 
resulted in too many nonmonotonic excess readmission ratios. However, 
commenters urged CMS to be mindful of unintended consequences and be 
open to future changes if issues do rise.
    Response: We thank commenters for their support.
    Comment: One commenter stated that, while using quintiles is 
reasonable, there was no compelling reason for having the groups all 
have the same number of hospitals in them. One commenter suggested that 
many hospitals with relatively low proportions of ``duals'' could be 
grouped together, with the peer-grouping done to create several smaller 
groups at the high end of the distribution. Some commenters agreed that 
neither 2 nor 10 peer groups are adequate. However, commenters believed 
that the ideal number of groups could be improved. Commenters cited the 
use of continuous data, the introduction of additional covariates, and 
the use of statistical modeling as ways to produce a better method of 
grouping hospitals. One commenter also provided an example of a method 
it previously used to determine cut points (that is, performance 
thresholds or peer groupings).
    Response: As the commenter noted, the upper part of the 
distribution is where the choice of peer groups has the greatest 
impact. This means the choice of the number of peer groups is most 
strongly influenced by hospitals with high dual proportions. Thus, the 
benefits of smaller peer groups among these hospitals were considered 
in establishing the number of peer groups. In our proposal, we 
considered how different numbers of peer groups influenced the yearly 
variation in peer group assignment. This is one of the reasons we 
proposed quintiles. The quintile-based approach is based on larger peer 
groups, thereby producing less arbitrary variation and yearly 
fluctuation in hospital assignments.
    We considered many factors in developing peer groups to calculate 
payment adjustments for the Hospital Readmissions Reduction Program. 
These factors included: (1) The legislative requirements of Public Law 
114-255, such as stratification by the proportion of dual-eligible 
beneficiaries in the patient census, budget neutrality, and the need 
for immediate implementation; (2) constructing peer groups that are 
consistent across six current measures and future additional measures, 
and are defined consistently over time; (3) the intent of the program 
to encourage efficient, high quality care; and (4) the impact of peer 
group definitions on the distribution of payments to hospital groups, 
such as safety-net or rural hospitals. The goodness of fit of the 
readmission measure models with hospitals' dual proportion is a 
contributory factor among these others factors. Preselecting peer 
groups of equal size and choosing the size that best meets these 
objectives is transparent and effective. In the future, more flexible 
methods for peer group formation may be considered for implementation. 
Any approach must be evaluated based on multiple criteria including 
those described above and proposed through the rulemaking process.
    We need to consider both hospital performance on multiple measures 
and the program's impact on the distribution of payments. The most 
salient criterion for evaluating approaches is the impact

[[Page 38231]]

of stratification on the penalty share of payments in groups defined 
both by the stratifying variable and other relevant hospital 
characteristics. Preselecting peer groups of equal size and choosing 
the size that best meets these objectives is transparent and effective. 
Our use of cut-point evaluation techniques within the context described 
above helps to establish the relative benefit of choosing quintile or 
decile peer groups. In the future, a more flexible method for peer 
group formation may be developed and considered for implementation. 
However, this approach must still be evaluated based on multiple 
criteria, including those described above, and proposed through the 
rulemaking process.
    Comment: One commenter discouraged the use of two peer groups 
because it does not adequately differentiate between hospitals' payer 
mixes and will continue to unfairly penalize urban safety net 
hospitals. The commenter noted the use of two peer groups would 
overgeneralize hospital SDS groupings.
    Response: We agree with commenter that the use of two peer groups 
does not allow for meaningful comparison of hospitals.
    Comment: One commenter recommended CMS use deciles rather than 
quintiles because hospitals in the highest decile of low-income shares 
tended to have higher readmissions than those in the eighth or ninth 
decile. Therefore, the commenter believed deciles would do a better job 
of acknowledging the challenges of the hospitals with the highest share 
of low-income patients.
    Response: Our analyses found the relationship between hospital dual 
proportion decile and ERR is not consistent among the six readmission 
measures included in the Hospital Readmissions Reduction Program. 
However, the median ERR for the top decile is higher than that of the 
ninth decile for all six measures. When considering a final policy 
option, we assessed the strengths and weaknesses of both quintiles and 
deciles. While we agree that, compared to quintiles, stratification 
into deciles more completely accounts for the challenges faced by 
hospitals with the highest share of dually-eligible patients, both 
deciles and quintiles substantially reduce the share of penalties paid 
by safety-net hospitals (defined as the top DSH quintile), to a level 
below that paid by non-safety-net hospitals. The quintile-based 
approach is also based on larger peer groups and produces less 
arbitrary variation in hospital assignments and penalty changes from 
year to year. Using deciles causes hospitals to face more uncertainty 
in the standard from year to year.
    Comment: One commenter expressed concern that the individual 
penalty amount for hospitals may be increased in a way that 
disproportionately shifts to a small group of outlier providers, citing 
its own analysis of the proposed methodology for quintile assignment.
    Response: When considering the different approaches for adjusting 
the payment factor formula, one of our goals was to avoid 
disproportionally increasing the penalty for any hospital. Compared to 
other approaches, the use of the peer group median as the threshold for 
payment adjustment calculation results in smaller changes for 
individual hospitals. Our analysis found the proportion of hospitals 
estimated to have an increased penalty under the proposed approach 
slightly exceeds the proportion with decreased penalties. Because 
Public Law 114-255 requires total Medicare savings under the stratified 
methodology be equivalent to total Medicare savings under the current 
methodology (that is, budget neutrality), the mean penalty increase for 
hospitals with an increased penalty will be smaller than the mean 
penalty decrease for hospitals with a decreased penalty. The largest 
penalty increase projected under the preferred approach compared to the 
current methodology is substantially less than projected by the 
commenter, perhaps due to differences in the peer groups formed by DSH 
and dual proportions. We will continue to monitor the impact of these 
program changes on hospital penalties, including their impact on 
individual hospitals and consider changes to mitigate undesirable 
effects.
    Comment: One commenter recommended that the peer groups account for 
academic status, citing studies that have shown a strong correlation 
between provider academic status and readmissions rates. In addition, 
one commenter recommended hospital groupings per other features, with 
special consideration for designated safety net hospitals, Level 1 
Trauma centers, hospitals affiliated with schools of medicine and 
nursing, hospitals with in-house neonatal and pediatric intensive care 
units, and hospitals with solid organ transplant programs that include 
liver transplantation.
    Response: We thank commenters for their recommendations, and we 
will continue to monitor the impact of accounting for dual-eligible 
beneficiaries in the Hospital Readmissions Reduction Program and 
evaluate if future changes to include other variables or adjustments 
are needed.
    Comment: One commenter supported the development of peer groups for 
the purposes of payment but disagreed with accounting for social risk 
factors for the purposes of calculating readmission rates for public 
reporting.
    Response: We will take this commenter's input into consideration as 
we continue to assess the appropriateness and feasibility of publicly 
and/or confidentially reporting information related to certain social 
risk factors, such as a hospital's proportion of dual-eligible 
beneficiaries. Public Law 114-255 requires the development of peer 
groups based on the number of dual-eligible patients served by each 
hospital for the purposes of scoring performance. In addition, as we 
are required under 1886(q)(6)(A) of the Act, we will continue to report 
the readmission rate data on Hospital Compare as we always have.
    After consideration of the public comments we received, we are 
finalizing our proposal to stratify hospitals into quintiles.
10. Provisions for the Payment Adjustment Methodology for FY 2019: 
Payment Adjustment Formula Calculation Methodology
a. Background
    As described above, section 1886(q)(3)(D)(iv) of the Act requires 
the Secretary to design the methodology to implement this subparagraph 
so that the estimated total amount of Medicare savings under this 
subsection (stratified methodology) equals the estimated total amount 
of Medicare savings that would otherwise occur under this subsection 
(current methodology) if this subparagraph did not apply (that is, 
maintain budget neutrality).
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19961 through 
19966), we analyzed several modifications of the payment adjustment 
formula to assess payment reductions based on a hospital's performance 
compared to performance of other hospitals in its peer group. The 
current readmissions payment adjustment can be written as
---------------------------------------------------------------------------

    \26\ ``Payment'' refers to the base operating DRG payment.

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

[[Page 38232]]

[GRAPHIC] [TIFF OMITTED] TR14AU17.016

where dx is AMI, HF, pneumonia, COPD, THA/TKA or CABG. In our analyses, 
we modified the payment adjustment formula by replacing the current 
threshold ERR of 1.0000 with a peer group specific threshold.

    In adopting a methodology for achieving budget neutrality, our 
priority is to adopt a simplified and well-known metric that allows us 
to be more transparent in our methodology and reduces the penalty on 
safety-net hospitals, while not disproportionality increasing the 
penalty to non-safety-net hospitals. In developing policy options to 
implement the budget neutrality requirement, we analyzed the following 
alternatives to evaluate the financial impacts:
     Using the median ERR for the hospital's peer group in 
place of 1.0000 in the payment adjustment formula and applying a 
uniform modifier to maintain budget neutrality;
     Using the mean ERR for the hospital's peer group in place 
of 1.0000 in the payment adjustment formula and applying a uniform 
modifier to maintain budget neutrality;
     Using the ``budget neutralizing'' ERR for each peer group 
in place of 1.0000 in the payment adjustment formula. The budget 
neutralizing ERR is defined as the ERR corresponding to the percentile 
(for example, 52nd) of the peer group distributions that would maintain 
budget neutrality for each peer group; and
     Using a standardized ERR for each individual hospital's 
ERR in place of the hospital's current calculated ERR and applying a 
uniform modifier to maintain budget neutrality. Each hospital's ERR is 
transformed to create a distribution of ERRs within each stratum with 
the same mean and standard deviation as the original mean and standard 
deviation across all hospitals.
b. Proposals
    In the proposed rule, we discussed four alternative budget neutral 
methodologies for calculating the payment adjustment factor. Our 
preferred approach is assessing performance compared to the peer group 
median ERR, rather than the current threshold of 1.0000, and scaling 
hospital payment adjustments by a neutrality modifier. However, we are 
seeking public comment on three additional approaches--using the mean 
ERR plus a neutrality modifier, a budget neutralizing ERR, and a 
standardized ERR plus a neutrality modifier.
(1) Median ERR Plus a Neutrality Modifier
    As we stated in the proposed rule, our preferred approach is using 
the median ERR plus a neutrality modifier. We would use the median ERR 
for the hospital's peer group in place of 1.0000, which is the 
approximate mean and median of the baseline distribution, in the 
current payment adjustment formula. The payment adjustment formula 
would then be:
[GRAPHIC] [TIFF OMITTED] TR14AU17.017

    The payment reduction (1-P) resulting from use of the median ERR 
for the peer group is scaled by a neutrality modifier (NMM) 
to achieve budget neutrality. To calculate the neutrality modifier, we 
estimate total Medicare savings across all hospitals under the current 
method and under the proposed stratified method, in the absence of a 
modifier. We then calculate a multiplicative factor that, when applied 
to each hospital's adjustment calculated using the stratified method, 
would equate total Medicare savings from that method to total Medicare 
savings under the current method. Total Medicare savings and the 
neutrality modifier will be calculated using the same payment data. 
These data will consist of the most recently available full year of 
MedPAR data. For example, if the payment reduction for a hospital (1-P) 
equals 0.00748 when using the median threshold, then under the median 
plus neutrality modifier method it would equal NM * 0.00748 = 0.9545 * 
0.00748 = 0.00714, where the neutrality modifier was equal to 0.9545. 
Thus, the hospital's payment adjustment factor (P) would equal 0.9925 
(1-0.00748) in the absence of the neutrality modifier, and 0.9929 (1-
0.00714) when the modifier is added.
(2) Mean ERR Plus a Neutrality Modifier
    We also analyzed the use of the mean ERR plus a neutrality modifier 
to calculate the readmissions adjustment factor. Just like the median 
ERR plus neutrality modifier approach mentioned above, the mean ERR for 
the hospital's peer group would be used in place of 1.0000 in the 
payment adjustment formula. The payment adjustment formula would then 
be:
[GRAPHIC] [TIFF OMITTED] TR14AU17.018

(3) Budget Neutralizing ERR
    We also analyzed using a budget neutralizing ERR in which penalties 
are assessed based on the difference between the hospital's ERR and the 
budget neutralizing ERR. The payment adjustment formula would be:
[GRAPHIC] [TIFF OMITTED] TR14AU17.019


[[Page 38233]]


(4) Standardized ERR Plus a Neutrality Modifier
    We also analyzed using a standardized ERR in which penalties are 
assessed by determining the mean and standard deviation of the ERRs 
across all hospitals. The payment adjustment formula would be 
calculated by dividing hospitals into strata based on a hospital's 
proportion of dual-eligible patients. The current ERRs would then be 
transformed to create a new standardized distribution of ERRs within 
each stratum with the same mean and standard deviation as the original 
mean and standard deviation across all hospitals.
[GRAPHIC] [TIFF OMITTED] TR14AU17.020

    where SB (dx) and [mu]B (dx) are the standard deviation and mean of 
the current ERR distribution for a condition (dx), and Sp (dx) and 
[mu]p (dx) are the standard deviation and mean of the peer group ERR 
distribution for that dx. The standardized ERRs has a mean of 1 and a 
standard deviation equal to the standard deviation of ERRs across all 
hospitals in the peer group for that condition. The standardized ERRs 
are compared to 1.0000 in the payment adjustment formula to determine 
excess readmissions. The payment reduction (1-P) resulting from use of 
the standardized ERR is then scaled by a neutrality modifier 
(NMS) to achieve budget neutrality.
c. Analysis
    As mentioned above, in adopting a methodology for achieving budget 
neutrality, our priority is to adopt a simplified and well-known metric 
that allows us to be more transparent in our methodology and reduces 
the penalty on safety-net hospitals, while not disproportionality 
increasing the penalty to non-safety-net hospitals. To assess the 
expected impact on hospital payment adjustments resulting from the 
changes to the formula, we simulated hospitals' readmission adjustment 
factors under different stratified thresholds. Readmissions adjustment 
factors were calculated using total base operating DRG payment amounts 
for each hospital as well as total base DRG payment amounts for each of 
the six measure cohorts (AMI, HF, pneumonia, COPD, CABG, THA/TKA) 
included in the FY 2018 program. We used DRG payment information for 
the period July 1, 2012 through June 30, 2015. Furthermore, to estimate 
the dollar amount of the penalty and the share of payments the penalty 
represents, we used total base operating DRG payments among Medicare 
FFS claims from the FY 2015 MedPAR data file.
    All four methods support the agency's efforts to reduce the payment 
adjustment for safety-net hospitals. We proposed to use the median ERR 
plus a neutrality modifier because it creates a standard where a 
hospital's ERR is subject to payment reduction when a hospital's 
performance as measured by the ERR is worse than that of half the other 
hospitals in its peer group. The median ERR plus neutrality modifier is 
preferred to the mean ERR plus neutrality modifier because the median 
represents a consistent standard (that is, 50th percentile) for the 
hospital's rank within its peer group, while the rank corresponding to 
the mean changes between years, cohorts and peer groups. The median ERR 
plus neutrality modifier substantially reduces the penalty as a share 
of total payments (from 0.64 percent to 0.55 percent with quintile peer 
groups) and penalty per discharge (from $157 to $135) for safety-net 
hospitals while not disproportionately increasing the payment reduction 
amount for non-safety-net hospitals (from 0.61 percent to 0.63 percent 
as share of total payments). The median ERR plus neutrality modifier is 
also preferred because it achieves more precise budget neutrality than 
the budget neutralizing ERR. Below we show the estimated total Medicare 
savings under the current and stratified methodology used to assess 
budget neutrality.

----------------------------------------------------------------------------------------------------------------
                                                                                                    Percentage
                                                                                    Difference      difference
                                                                Estimated total       between         between
                            Method                              medicare savings  stratified and  stratified and
                                                                                      current         current
                                                                                    methodology     methodology
----------------------------------------------------------------------------------------------------------------
Current methodology..........................................       $532,948,318             N/A             N/A
Mean plus neutrality modifier (neutrality modifier=1.0135            532,949,006             688           <0.00
 when using quintiles).......................................
Median plus neutrality modifier (neutrality modifier=0.9546          532,946,272        ($2,046)           <0.00
 when using quintiles).......................................
Budget neutralizing ERR......................................        533,199,304         250,985            0.05
Standardized ERR plus neutrality modifier (neutrality                532,948,288           ($30)           <0.00
 modifier=0.9710 when using quintiles).......................
----------------------------------------------------------------------------------------------------------------
Source: FY 2017 Hospital Readmissions Reduction Program Final Rule Results. Results are based on July 1, 2012,
  through June 30, 2015, discharges among subsection (d) and Maryland hospitals only. Although data from all
  subsection (d) and Maryland hospitals are used in calculations of each hospital's Excess Readmission Ratio
  (ERR), this table does not include results for Maryland hospitals. Hospital Characteristics are based on the
  FY 2017 final rule Impact File. Hospitals are stratified into quintiles based on the proportion of dual-
  eligible beneficiaries among Medicare FFS and managed care patients discharged between July 1, 2012, through
  June 30, 2015.

    When we analyzed the other options, we found that the mean 
threshold permits a higher standard to be set if hospitals in the peer 
group have performance well above the midpoint but not far below, or a 
lower standard if hospitals are more likely to have very high rates. In 
our testing, the mean plus modifier resulted in lower penalties for 
safety-net hospitals (0.52 percent as a share of total payments 
compared to 0.55 percent for the median plus modifier). However, our 
preferred approach of the median is based on the judgment that the 
standard reflected by the threshold should not be affected by hospitals 
with unusually strong or weak performance in the peer group. Like the 
median, the budget neutralizing ERR threshold approach imposes a 
consistent rank-based standard across peer groups. However, this method 
is not preferred since it is more complex, less intuitive and results 
in greater

[[Page 38234]]

divergence between total payment adjustments under the stratified and 
current methodologies than approaches using a neutrality modifier 
(differing from the current methodology by approximately 0.05 percent 
of total payments when simulated with quintile peer groups). The median 
uses the original distribution of hospital ERR estimates, based on 
their relationship to a national standard, and represents the most 
precise possible measures of their performance under that standard. 
Using a standardized ERR within each peer group compares a hospital's 
performance to other hospitals in the peer group. In contrast, using 
the mean or median threshold adjusts penalties based on a hospital's 
relative performance within the peer group, but the performance 
indicator of the ERR retains the comparison to the mean performance of 
all hospitals across all peer groups. However, comparing the ERR to the 
mean or median for each peer group is a more straightforward 
methodology than re-standardizing ERRs. The median is preferred to the 
standardized ERR because, as with the budget neutralizing ERR, the 
median is less complex and more intuitive. Using a less complex and 
well-known metric, will create a more transparent methodology since it 
will be easier for hospitals and other stakeholders to replicate the 
calculation of the median ERRs.
    The impact of the proposed changes to the payment adjustment 
formula for the budget neutral considered methods, by peer group 
options, for safety-net and non-safety-net hospitals is shown in the 
table below. The table includes three penalty metrics: average payment 
reduction, total Medicare savings, and share of payment adjustments as 
a percentage of total payments. The average payment reduction shows the 
average reduction in Medicare DRG payments for safety-net and non-
safety-net hospitals. The total Medicare savings column shows the total 
estimated penalties borne by safety-net and non-safety-net hospitals 
under each approach. Because the payment reduction is applied to 
hospitals' base DRG payments, hospitals with more discharges will 
contribute a larger amount of Medicare savings to the group total of 
Medicare savings.
    Furthermore, because there are fewer safety-net than non-safety-net 
hospitals, as safety-net is defined as hospitals in the top quintile of 
DSH patient percentage, the total Medicare savings for non-safety-net 
hospitals are inherently much larger than for safety-net hospitals. 
Therefore, to compare the financial impact of the program on hospitals 
in each group, we calculated the payment adjustment as a proportion of 
DRG payments. Using this metric allows comparison across the different 
methodologies where the total base operating DRG payments are different 
between different groups of hospitals and is a more accurate indication 
of the financial impact on the group. For example, under the current 
methodology, the payment adjustment as a proportion of all DRG payments 
among safety-net hospitals is 0.64 percent.

Comparison of Penalty Metrics by Threshold Methods and Peer Group Options for All Hospitals, Safety-Net, and Non-
                                              Safety-Net Hospitals
----------------------------------------------------------------------------------------------------------------
                                                                                                      Payment
                                                                   Average                         adjustment as
   Stratification approach and payment formula methodology         payment       Total Medicare    a proportion
                                                                reduction (1-       savings         of all DRG
                                                                 P) \a\ (%)                        payments  (%)
----------------------------------------------------------------------------------------------------------------
Current methodology:
    Safety-net hospitals.....................................            0.62       $109,142,525            0.64
    Non-safety-net hospitals.................................            0.61       $423,805,793            0.61
----------------------------------------------------------------------------------------------------------------
            Approach 1: Two equal peer groups based on the proportion of dual-eligible beneficiaries
----------------------------------------------------------------------------------------------------------------
Median plus neutrality modifier (neutrality modifier =
 0.9558):
    Safety-net hospitals.....................................            0.56        100,205,115            0.59
    Non-safety-net hospitals.................................            0.61        432,741,958            0.62
Mean plus neutrality modifier (neutrality modifier = 1.0191):
    Safety-net hospitals.....................................            0.54         97,837,278            0.57
    Non-safety-net hospitals.................................            0.61        435,112,491            0.63
Budget neutralizing ERR:
    Safety-net hospitals.....................................            0.55         98,208,670            0.58
    Non-safety-net hospitals.................................            0.61        435,216,961            0.63
Standardized ERR plus neutrality modifier (neutrality
 modifier = 0.9796):
    Safety-net hospitals.....................................            0.55         98,468,430            0.58
    Non-safety-net hospitals.................................            0.61        434,478,852            0.63
----------------------------------------------------------------------------------------------------------------
                  Approach 2: Quintiles based on the proportion of dual-eligible beneficiaries
----------------------------------------------------------------------------------------------------------------
Median plus neutrality modifier (neutrality modifier =
 0.9546)
    Safety-net hospitals.....................................            0.52         93,878,536            0.55
    Non-safety-net hospitals.................................            0.62        439,067,736            0.63
Mean plus neutrality modifier (neutrality modifier = 1.0135)
    Safety-net hospitals.....................................            0.49         89,182,424            0.52
    Non-safety-net hospitals.................................            0.62        443,766,582            0.64
Budget neutralizing ERR
    Safety-net hospitals.....................................            0.49         88,510,157            0.52
    Non-safety-net hospitals.................................            0.62        444,689,147            0.64
Standardized ERR plus neutrality modifier (neutrality
 modifier = 0.9710)
    Safety-net hospitals.....................................            0.50         91,686,964            0.54
    Non-safety-net hospitals.................................            0.62        441,261,324            0.64
----------------------------------------------------------------------------------------------------------------

[[Page 38235]]

 
                   Approach 3: Deciles based on the proportion of dual-eligible beneficiaries
----------------------------------------------------------------------------------------------------------------
Median plus neutrality modifier (neutrality modifier = 0.9555)..................................................
    Safety-net hospitals.....................................            0.51         91,881,047            0.54
    Non-safety-net hospitals.................................            0.62        441,068,999            0.64
Mean plus neutrality modifier (neutrality modifier = 1.0148)
    Safety-net hospitals.....................................            0.48         87,289,962            0.51
    Non-safety-net hospitals.................................            0.62        445,653,065            0.64
Budget neutralizing ERR
    Safety-net hospitals.....................................            0.47         86,671,374            0.51
    Non-safety-net hospitals.................................            0.62        446,299,280            0.64
Standardized ERR plus neutrality modifier (neutrality
 modifier = 0.9713)
    Safety-net hospitals.....................................            0.49         90,058,433            0.53
    Non-safety-net hospitals.................................            0.62        442,888,696            0.64
----------------------------------------------------------------------------------------------------------------
Notes: Results based on July 1, 2012 through June 30, 2015 discharges among subsection (d) and Maryland
  hospitals only. Although data from all subsection (d) and Maryland hospitals are used in calculations of each
  hospital's ERR, this table does not include results for Maryland hospitals. Hospitals are stratified based on
  the proportion of duals calculated among Medicare FFS and managed care patients for the FY 2017 performance
  period. Safety-net hospitals are defined as hospitals in the top quintile of DSH patient percentage. DSH
  patient percentage was calculated among all hospitals with a positive DSH value (including hospitals not
  eligible for DSH payments).
\a\ The payment reduction shows what percentage of DRG payments hospitals will lose as a result of the program.
  This is slightly different than the adjustment factor that CMS applies, which is 1 minus the number reported
  here (that is, ranges from 0.97 to 1).
\b\ Total Medicare savings is estimated by multiplying the payment reduction by total base operating DRG
  payments from July 1, 2014 through June 30, 2015.
\c\ The group share of payment adjustments as a percentage of all DRG payments is calculated as the sum of total
  Medicare savings for the group of hospitals (that is, safety-net hospitals or non-safety-net hospitals)
  divided by total base operating DRG payments from July 1, 2014 through June 30, 2015 for the group of
  hospitals.

    Our analysis also assesses the impact of the proposed changes to 
the payment adjustment formula on additional groups of hospitals. 
Variation in the impact of the proposed changes by hospital 
characteristics on the share of payment adjustments as a percentage of 
all DRG payments for the FY 2019 Hospital Readmissions Reduction 
Program, is shown in the table below. The table is based on results 
when hospitals are stratified into quintiles based on the proportion of 
dual-eligible beneficiaries among Medicare FFS and managed care 
patients discharged between July 1, 2012, and June 30, 2015, our 
preferred approaches. The table shows the average share of payment 
adjustments as a percentage of all DRG payments for each group of 
hospitals. The group average is calculated as the sum of penalties for 
all hospitals with that characteristic over the sum of all DRG payments 
for those hospitals between July 1, 2014 and June 30, 2015. For 
example, under the current methodology, the average share of payment 
adjustments as a percentage of all DRG payments for urban hospitals is 
0.61 percent. This means that total penalties for all urban hospitals 
is 0.61 percent of total payments for urban hospitals (that is the 
ratio of total penalties to total DRG payments is 0.61 percent). This 
metric allows us to compare the financial impact of the different 
methods for assessing penalties between hospitals with different number 
of beds even though larger hospitals tend to generate higher total 
Medicare savings because their payment reduction is applied to more DRG 
payments. Measuring the financial impact on hospitals as a proportion 
of total DRG payments allows us to account for differences in the 
amount of DRG payments for hospitals when comparing the financial 
impact of the program on different groups of hospitals, and allows 
comparison across the different methodologies between groups of 
hospitals with different numbers of eligible hospitals.

 Average Share of Payment Adjustments as a Percentage of All DRG Payments for Considered Approaches for the Hospital Readmissions Reduction Program, by
                                                                 Hospital Characteristic
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                           Standardized
                                                                                            Median plus      Mean plus                       ERR plus
                                                             Number of        Current       neutrality      neutrality        Budget        neutrality
                Hospital characteristics                     hospitals      methodology      modifier        modifier      neutralizing      modifier
                                                               with             (%)         (neutrality     (neutrality       ERR (%)       (neutrality
                                                          characteristic                    modifier =      modifier =                      modifier =
                                                                                            0.9546) (%)     1.0135) (%)                     0.9710) (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Hospitals...........................................           3,096            0.62            0.62            0.62            0.62            0.62
Geographic Location:
    Urban...............................................           2,304            0.61            0.62            0.62            0.62            0.62
Rural:                                                               792            0.65            0.62            0.60            0.60            0.60
Bed size:
    1-99 beds...........................................           1,113            0.57            0.57            0.56            0.56            0.57
    100-199 beds........................................             886            0.70            0.70            0.70            0.70            0.70

[[Page 38236]]

 
    200-299 beds........................................             453            0.65            0.66            0.66            0.66            0.66
    300-399 beds........................................             278            0.64            0.63            0.63            0.63            0.63
    400-499.............................................             155            0.53            0.54            0.54            0.54            0.54
    500 or more beds....................................             211            0.57            0.57            0.57            0.57            0.56
By DSH Payment Eligibility:
    Not eligible........................................             474            0.55            0.61            0.65            0.64            0.64
    DSH payment eligible................................           2,622            0.63            0.62            0.61            0.61            0.61
By Teaching Status:
    Non-teaching........................................           2,076            0.66            0.67            0.67            0.67            0.67
    Teaching............................................           1,020            0.59            0.58            0.58            0.58            0.58
    Fewer than 100 residents............................             772            0.59            0.60            0.60            0.61            0.60
    100 or more residents...............................             248            0.57            0.55            0.54            0.54            0.55
By Type of Ownership:
    Government..........................................             490            0.54            0.53            0.53            0.53            0.53
    Proprietary.........................................             779            0.79            0.79            0.80            0.80            0.79
    Voluntary...........................................           1,827            0.59            0.59            0.59            0.59            0.59
DSH patient percentage:
    1st.................................................             547            0.54            0.60            0.63            0.63            0.63
    2nd.................................................             635            0.66            0.71            0.72            0.72            0.72
    3rd.................................................             646            0.60            0.61            0.62            0.62            0.61
    4th.................................................             642            0.61            0.60            0.59            0.59            0.59
    5th.................................................             626            0.64            0.55            0.52            0.52            0.54
MCR Percent:
    0-24................................................             410            0.42            0.40            0.39            0.39            0.39
    25-49...............................................           2,081            0.63            0.63            0.63            0.63            0.63
    50 and over.........................................             590            0.72            0.73            0.74            0.74            0.74
Region:
    New England.........................................             130            0.68            0.64            0.63            0.63            0.64
    Middle Atlantic.....................................             354            0.86            0.83            0.83            0.83            0.83
    South Atlantic......................................             512            0.74            0.76            0.78            0.78            0.77
    East North Central..................................             482            0.63            0.63            0.63            0.63            0.63
    East South Central..................................             290            0.76            0.79            0.80            0.80            0.79
    West North Central..................................             252            0.39            0.41            0.41            0.41            0.41
    West South Central..................................             487            0.46            0.48            0.48            0.48            0.47
    Mountain............................................             223            0.36            0.39            0.40            0.40            0.39
    Pacific.............................................             366            0.42            0.37            0.34            0.34            0.36
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: FY 2017 Hospital Readmissions Reduction Program Final Rule Results. Results are based on July 1, 2012, through June 30, 2015, discharges among
  subsection (d) and Maryland hospitals only. Although data from all subsection (d) and Maryland hospitals are used in calculations of each hospital's
  Excess Readmission Ratio (ERR), this table does not include results for Maryland hospitals. This table only includes results for hospitals who are
  eligible for a penalty under the program on the basis of having at least 25 eligible discharges for at least one measure. Hospital Characteristics are
  based on the FY 2017 final rule Impact File. There were 15 hospitals that did not have MCR percentages in the FY 2017 final rule Impact File. To
  calculate the payment adjustment as a proportion of total base operating DRG payments, this analysis used MedPAR data to calculate the total base
  operating DRG payments from July 1, 2014 through June 30, 2015. The group average share of payment adjustments as a percentage of all DRG payments is
  calculated as the sum of all Medicare savings for the group of hospitals divided by total base operating DRG payments for all hospitals in that group.

    We invited public comment on our preferred proposal and alternative 
considerations.
    Comment: Many commenters supported using the median ERR plus 
neutrality modifier because a homogenous group of hospitals are 
included in each peer group, the approach is simple and accurate, it is 
not skewed by extreme values, and provides a more robust threshold. 
However, one commenter argued that budget neutrality should be done at 
the national level rather than using a budget-neutralizing ERR at the 
peer group level.
    Response: We thank commenters for their support. We agree that the 
peer group median ERR is a strong threshold. To clarify, the budget 
neutralizing ERR is not calculated only among hospitals in the peer 
group. The budget neutralizing ERR is the ERR corresponding to the 
percentile within each peer group's distribution of ERRs that will 
ensure budget neutrality across all applicable hospitals.
    Comment: One commenter asked CMS to reconsider the budget 
neutrality requirement for the payment adjustment methodology because 
it disincentivizes the overall goal of the program.
    Response: While we understand commenters' concerns, one of the 
requirements of Public Law 114-255 is to maintain budget neutrality. 
For this reason, we have proposed using the median ERR as the threshold 
and scaling payment adjustments by a neutrality modifier. Many 
commenters expressed support for using the median ERR plus neutrality 
modifier. We believe that adopting the median ERR plus neutrality 
modifier methodology meets our priority to adopt a simplified and well-
known metric that allows us to be more transparent in our methodology 
and reduces the penalty on safety-net

[[Page 38237]]

hospitals. We will continue to monitor the impact of accounting for 
dual-eligible patients in the Hospital Readmissions Reduction Program 
and evaluate if future changes to include other variables or 
adjustments are needed.
    Comment: One commenter noted that, to calculate the difference 
between each hospital's excess readmission ratio and the quintile 
average, CMS must divide the former by the latter and then subtract 1 
rather than simply subtracting the latter from the former. The 
commenter also argued that it was essential that CMS modify the 
quintile medians to ensure monotonicity to adhere to the intent of the 
statute.
    Response: We considered many factors in developing peer groups to 
calculate payment adjustments for the Hospital Readmissions Reduction 
Program in response to Public Law 114-255. These factors included: (1) 
The legislative requirements of Public Law 114-255 such as 
stratification by dual proportion, budget neutrality, and immediate 
implementation; (2) constructing peer groups that were consistent 
across six current measures and future additional measures, and were 
defined consistently over time; (3) the intent of the program to 
encourage efficient, high quality care; and (4) the impact of peer 
group definitions on the distribution of payments to hospital groups, 
such as safety-net or rural hospitals.
    The modification to the formula recommended in the proposed rule, 
to use the peer group median to assess hospital performance, meets 
these objectives. The proposed approach transforms the distribution of 
excess readmission ratios by subtracting from it the difference between 
the median of the peer group and the overall median. The commenter's 
proposed alternative modification, of dividing the excess readmission 
ratio by the peer group median, is consistent with the formulation of 
the payment adjustment as the proportion by which the hospital's 
readmission rate exceeds a standard rate multiplied by the cost of 
admissions. However, we do not agree that the formula modification must 
be performed in this way to be consistent with the requirements of the 
legislation and our objectives. Though monotonicity is desirable, the 
proposed approach, preselecting peer groups of equal size and choosing 
the size that best meets the objectives above with an unmodified 
median, is transparent and effective.
    Comment: One commenter recommended that CMS delay implementing the 
payment adjustment methodology based on proportion of dual-eligible 
patients while better measures are developed.
    Response: We thank the commenter for its recommendation. However, 
Public Law 114-255 requires the implementation of these changes to 
apply to discharges that occur during and after FY 2019. Public Law 
114-255 added section 1886(q)(3)(D) to the Act, which directs the 
Secretary to develop a transitional methodology that accounts for the 
percentage of full-benefit dual-eligible patients treated by a hospital 
to determine a hospital's payment adjustment factor. Section 
1886(q)(3)(D)(i) of the Act sets forth the requirement that the 
Secretary assign hospitals to groups and apply a methodology that 
allows for separate comparison of hospitals within each such group. 
This applies to discharges that occur during and after FY 2019, until 
and unless the system is revised under the authority of section 
1886(q)(3)(E)(i) of the Act.
    After consideration of the public comments we received, we are 
finalizing, without modification, our proposal to use the median ERR 
plus neutrality modifier.
11. Accounting for Social Risk Factors in the Hospital Readmissions 
Reduction Program
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19966 through 
19967), we discussed the accounting for social risk factors in the 
Hospital Readmissions Reduction Program. Although the program has made 
steps to account for social risk factors in this year's rule, we 
understand that social risk factors such as income, education, race and 
ethnicity, employment, disability, community resources, and social 
support (certain factors of which are also sometimes referred to as 
socioeconomic status (SES) factors or socio-demographic status (SDS) 
factors) play a major role in health. One of our core objectives is to 
improve beneficiary outcomes, including reducing health disparities, 
and we want to ensure that all beneficiaries, including those with 
social risk factors, receive high quality care. In addition, we seek to 
ensure that the quality of care furnished by providers and suppliers is 
assessed as fairly as possible under our programs while ensuring that 
beneficiaries have adequate access to excellent care.
    We have been reviewing reports prepared by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) \27\ and the 
National Academies of Sciences, Engineering, and Medicine on the issue 
of accounting for social risk factors in CMS' quality measurement and 
payment programs, and considering options on how to address the issue 
in these programs. On December 21, 2016, ASPE submitted a report to 
Congress on a study it was required to conduct under section 2(d) of 
the Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 
2014. The study analyzed the effects of certain social risk factors in 
Medicare beneficiaries on quality measures and measures of resource use 
used in one or more of nine Medicare value-based purchasing programs, 
including the Hospital Readmissions Reduction Program.\28\ The report 
also included considerations for strategies to account for social risk 
factors in these programs. In a January 10, 2017 report released by the 
National Academies of Sciences, Engineering, and Medicine, that body 
provided various potential methods for measuring and accounting for 
social risk factors, including stratified public reporting.\29\
---------------------------------------------------------------------------

    \27\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \28\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \29\ National Academies of Sciences, Engineering, and Medicine. 
2017. Accounting for social risk factors in Medicare payment. 
Washington, DC: The National Academies Press.
---------------------------------------------------------------------------

    As noted in the FY 2017 IPPS/LTCH PPS final rule, the NQF undertook 
a 2-year trial period in which certain new measures, measures 
undergoing maintenance review, and measures endorsed with the condition 
that they enter the trial period were assessed to determine whether 
risk adjustment for selected social risk factors is appropriate for 
these measures. This trial entailed temporarily allowing inclusion of 
social risk factors in the risk-adjustment approach for these measures. 
We await the recommendations of the NQF trial on risk adjustment for 
quality measures.
    As we continue to consider the analyses and recommendations from 
these reports and await the results of the NQF trial on risk adjustment 
for quality measures, we are continuing to work with stakeholders in 
this process. As we have previously indicated, we are concerned about 
holding providers to different standards for the outcomes of their 
patients with social risk factors because we do not want to mask 
potential disparities or minimize incentives to improve the outcomes 
for disadvantaged populations. Keeping this concern in mind, while we 
sought input on this topic previously, we continue to seek public 
comment on

[[Page 38238]]

whether we should account for additional social risk factors in the 
Hospital Readmissions Reduction Program and, if so, what method or 
combination of methods, in addition to the method of stratification 
based on proportion of dual-eligible beneficiaries in the facility that 
we are finalizing in this rule, would be most appropriate for 
accounting for social risk factors. We believe that the path forward 
should incentivize improvements in health outcomes for disadvantaged 
populations while ensuring that beneficiaries have access to excellent 
care. Examples of methods include: Confidential reporting of stratified 
measure rates to providers; public reporting of stratified measure 
rates; risk adjustment of a particular measure as appropriate based on 
data and evidence; developing readmission measures or statistical 
approaches that are suitable for the reporting of performance on 
readmissions; providing financial incentives for achievement of low 
readmission rates for beneficiaries with social risk factors; and using 
a hospital-wide readmissions measure. While we consider whether and to 
what extent we currently have statutory authority to implement one or 
more of the above-described methods, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19966), we sought comments on whether any of these 
methods should be considered, and if so, which of these methods or 
combination of methods would best account for social risk factors in 
the Hospital Readmissions Reduction Program.
    In addition, in the proposed rule, we sought public comment on 
which social risk factors might be most appropriate for stratifying 
measure scores and/or potential risk adjustment of a particular 
measure. Examples of social risk factors include, but are not limited 
to, dual eligibility/low-income subsidy, race and ethnicity, and 
geographic area of residence. We also sought comments on which of these 
factors, including current data sources where this information would be 
available, could be used alone or in combination, and whether other 
data should be collected to better capture the effects of social risk. 
We will take commenters' input into consideration as we continue to 
assess the appropriateness and feasibility of accounting for social 
risk factors in the Hospital Readmissions Reduction Program. We note 
that any such changes would be proposed through future notice-and-
comment rulemaking.
    We look forward to working with stakeholders as we consider the 
issue of accounting for social risk factors and reducing health 
disparities in CMS programs. Of note, implementing any of the above 
methods would be taken into consideration in the context of how this 
and other CMS programs operate (for example, data submission methods, 
availability of data, statistical considerations relating to 
reliability of data calculations, among others); therefore, we also 
welcomed comment on operational considerations. CMS is committed to 
ensuring that its beneficiaries have access to and receive excellent 
care, and that the quality of care furnished by providers and suppliers 
is assessed fairly in CMS programs.
    Comment: Numerous commenters supported adjusting for social risk 
factors and recommended that any methodology support equitable care 
delivery while not disproportionately penalizing certain hospitals. 
Commenters cited the importance of transparency in risk factors related 
to any risk adjustment methodology to meet both aims and discourages 
the use of unadjusted data in public reporting and pay-for-performance. 
Commenters agreed with CMS' approach to stratify hospitals into peer 
groups and recommended that CMS consider additional social risk factors 
in addition to the peer grouping requirements using dual-eligibility 
data required by Public Law 114-255. Commenters recommended that CMS 
closely examine the considerations provided by National Academy of 
Medicine (NAM) for risk adjustment, which recommend four domains of 
risk indicators: Income, education, and dual eligibility; race, 
ethnicity, language, and nativity; marital/partnership status and 
living alone; and neighborhood deprivation, urbanicity, and housing.
    Commenters also recommended that CMS study the relationship between 
a hospital's readmission rates and the surrounding area's Health 
Professional Shortage Area (HPSA), Type II Diabetes, hypertension, 
arthritis, heart disease and depression to determine if these factors 
should be accounted for. Commenters also suggested focusing on: 
Continuing refinement of performance scoring and measurements to end 
any bias to major teaching providers; continuing development of 
appropriate peer groups; develop and apply appropriate socio-
demographic status adjustments to all the quality risk programs; and 
ensuring efficiency in data reporting. Commenters requested that CMS 
lay out a longer-term effort for testing and refining additional 
variables when accounting for social risk factors due to the wide range 
of variables that impact a person's health outcomes. A few commenters 
suggested that CMS use census data on poverty rates and education 
levels of patients in a hospital's service area, two key indicators of 
population health per Healthy People 2020, to adjust a hospital's 
measure score.
    Some commenters recommended the use of confidential patient-
reported data as self-reports offer a reasonably valid estimate of 
differences in utilization of health care between socioeconomic groups. 
Commenters requested that CMS consider providing hospitals with 
confidential reports of performance on accountability measures 
stratified by dual-eligible status or other nationally available data 
elements. Once hospitals have had sufficient opportunity to review and 
understand their performance on these stratified measures, CMS should 
work with stakeholders to publicly report this data in an appropriate 
fashion. Commenters further recommend the implementation of 
demonstration projects to encourage hospitals to collect data on social 
risk factors through their electronic health records (EHR).
    Some commenters recommended that CMS start with standard patient 
admission information and use the information from NQF and other 
sources to gather additional data, provide appropriate metrics, risk 
models, and risk adjustment strategies. One commenter suggested that 
CMS should consider concurrently quality and disparities using a two-
stage reimbursement strategy because it can mitigate unintended 
consequences while reducing disparities and improving quality.
    A few commenters recommended that CMS not use social risk factors 
to adjust quality measures and recommended that CMS first evaluate and 
learn from the use of peer groups before additional adjustment to 
either the program or program measures. Commenters noted that adjusting 
for social risk factors does not address the underlying disparities 
that are often associated with poor health outcomes and would mask 
potential disparities or minimize incentives to improve the outcomes 
for disadvantaged populations.
    Commenters expressed concern regarding the potential use of a 
hospital-wide readmission measure to account for social risk factors, 
citing the uncertainty that CMS has the legal authority to do so and 
government reports indicating that it would increase penalties for all 
hospitals and increase the disparity between safety-net and other 
hospitals. Commenters stated that if CMS incorporated the hospital-wide 
readmission measure in the Hospital Readmissions Reduction Program, it 
would need to remove the existing six

[[Page 38239]]

measures and do it in a budget-neutral manner.
    One commenter believed that the readmission measures used in the 
Hospital Readmissions Reduction Program should be risk adjusted for 
social risk factors that are associated with higher readmission rates. 
The commenter recommended CMS undertake analysis that would directly 
measure those factors and make appropriate risk adjustments as part of 
the measure calculation.
    Response: We thank commenters for the extensive responses to our 
request for public comments on whether we should account for social 
risk factors in the Hospital Readmissions Reduction Program, and if so, 
what method or combination of methods would be most appropriate for 
accounting for social risk factors. We recognize that social risk 
factors impact health, and one of our core objectives is to improve 
beneficiary outcomes including reducing health disparities. In 
addition, we seek to ensure that the quality of care furnished by 
providers and suppliers is assessed as fairly as possible under our 
programs while ensuring that beneficiaries receive high quality care. 
To this end, we have closely reviewed reports by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) and the National 
Academies of Sciences, Engineering, and Medicine on the issue of 
accounting for social risk factors in CMS' value-based purchasing and 
quality reporting programs. We also await the recommendations of the 
recently concluded NQF trial on risk adjustment for quality measures. 
As we have previously stated, we are concerned about holding providers 
to different standards for the outcomes of their patients with social 
risk factors, because we do not want to mask potential disparities or 
minimize incentives to improve the outcomes for disadvantaged 
populations.
    Commenters were generally supportive of how the Hospital 
Readmissions Reduction Program is adopting a methodology for accounting 
for dual-eligible patients. However, commenters also stated concerns 
such as the need to: Continue refinement of performance scoring and 
measurements to end any bias to major teaching providers; continue 
development of appropriate peer groups; and work to develop and apply 
appropriate socio-demographic status adjustments. Some recommendations, 
such as the use of a hospital-wide readmission measure, would require a 
statutory change. We will consider all suggestions as we continue to 
assess each measure and the overall program. We intend to explore 
options including but not limited to measure stratification by social 
risk factors in a consistent manner across programs, informed by 
considerations of stratification methods described in section IX.A.13. 
of the preamble of this final rule. We thank commenters for this 
important feedback and will continue to consider options to account for 
social risk factors that would allow us to view disparities and 
potentially incentivize improvement in care for patients and 
beneficiaries. We will also consider providing feedback to providers on 
outcomes for individuals with social risk factors in confidential 
reports.
12. Extraordinary Circumstance Exception (ECE) Policy
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19967), we noted 
that many of our quality reporting and value-based purchasing programs 
share a common process for requesting an exception from program 
reporting due to an extraordinary circumstance not within a provider's 
control. The Hospital IQR, the Hospital OQR, the IPFQR, the Ambulatory 
Surgical Center Quality Reporting (ASCQR), and the PCHQR Programs, as 
well as the HAC Reduction Program, and the Hospital Readmissions 
Reduction Program, share common processes for ECE requests. In 
reviewing the policies for these programs, we recognized that there are 
five areas in which these programs have variance regarding ECE 
requests. These are: (1) Allowing the facilities or hospitals to submit 
a form signed by the facility's or hospital's CEO versus CEO or 
designated personnel; (2) requiring the form be submitted within 30 
days following the date that the extraordinary circumstance occurred 
versus within 90 days following the date the extraordinary circumstance 
occurred; (3) inconsistency regarding specification of a timeline for 
us to provide our formal response notifying the facility or hospital of 
our decision; (4) inconsistency regarding specification of our 
authority to grant ECEs due to CMS data system issues; and (5) 
referring to the program as ``extraordinary extensions/exemptions'' 
versus as ``extraordinary circumstances exceptions.'' We believe 
addressing these five areas, as appropriate, can improve administrative 
efficiencies for affected facilities or hospitals.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49542 through 
49543), we adopted an ECE policy for the Hospital Readmissions 
Reduction Program beginning in FY 2016. This policy was similar to the 
ECE policy for the Hospital IQR Program, as finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51651), modified in the FY 2014 IPPS/
LTCH PPS final rule (78 FR 50836) (designation of a non-CEO hospital 
contact), and further modified in the FY 2015 IPPS/LTCH PPS final rule 
(79 FR 50277) (amended 42 CFR 412.140(c)(2) to refer to ``extension or 
exemption'' instead of the former ``extension or waiver'').
    We proposed to update these policies by: (1) Allowing the facility 
to submit a form signed by the facility's CEO or designated personnel; 
(2) clarifying that we will strive to provide our formal response 
notifying the facility of our decision within 90 days of receipt of the 
facility's request; and (3) allowing CMS to have the authority to grant 
ECEs due to CMS data system issues which affect data submission. These 
proposed policies generally align with policies in the Hospital IQR 
Program (76 FR 51651 through 51652), (78 FR 50836 through 50837), and 
(81 FR 57181 through 57182), the Hospital OQR Program (77 FR 68489 and 
81 FR 79795), as well as other quality reporting programs. We proposed 
that these policies would apply beginning in FY 2018 as related to 
extraordinary circumstances that occur on or after October 1, 2017.
    We note that there may be circumstances in which it is not feasible 
for a facility's CEO to sign the ECE request form. In these 
circumstances, we believe that facilities affected by such 
circumstances should be able to submit ECE forms regardless of the 
CEO's availability to sign. This proposed change would allow hospitals 
to designate an appropriate, non-CEO, contact at its discretion. This 
individual would be responsible for the submission, and would be the 
one signing the form. Therefore, we proposed to accept ECE forms which 
have been signed by designated personnel.
    We also believe that it is important for facilities to receive 
timely feedback regarding the status of ECE requests. We strive to 
complete our review of each ECE request as quickly as possible. 
However, we recognize that the number of requests we receive, and the 
complexity of the information provided impacts the actual timeframe to 
make ECE determinations. To improve transparency of our process, we 
believe it is appropriate to clarify that we will strive to complete 
our review of each request within 90 days of receipt.
    Although we do not anticipate this situation will happen on a 
regular basis, there may be times where CMS experiences issues with its 
data systems that directly affects facilities' abilities to submit 
data. In these cases, we believe

[[Page 38240]]

it would be inequitable to require facilities to report. Therefore, we 
proposed to allow CMS to grant ECEs to facilities if we determine that 
a systemic problem with one of our data collection systems directly 
affected the ability of the facilities to submit data. If we make the 
determination to grant ECEs, we proposed to communicate this decision 
through routine communication channels.
    We invited public comment on these proposed modifications to the 
Extraordinary Circumstance Exception policy.
    Comment: Commenters supported the proposals to modify the 
extraordinary circumstances exceptions (ECE) policies to align across 
CMS quality reporting and value-based purchasing programs.
    Response: We thank commenters for their support.
    Comment: A few commenters noted that there currently is no ECE 
policy for the Indian Health Service or Tribally-operated programs, 
although tribal programs have requested an exception from CMS in 
previous fiscal years. Commenters requested an ECE specifically for IHS 
and tribal healthcare programs.
    Response: We appreciate the commenters' concern. However, we note 
that section 1886(q)(5)(C) of the Act defines applicable hospitals and 
requires all subsection (d) hospitals to be included in the Hospital 
Readmissions Reduction Program. The ECE policy was not designed to 
allow a hospital to seek exclusion from the Hospital Readmissions 
Reduction on Program in its entirety, but to provide relief for a 
hospital whose ability to accurately collect quality measure data and/
or to report those data in a timely manner has been negatively impacted 
as a direct result of experiencing a significant disaster or other 
extraordinary circumstance beyond the control of the hospital.
    After consideration of the public comments we received, we are 
finalizing, without modification, our proposal to update our 
extraordinary circumstances exception policies to align with other 
quality reporting programs.
13. Timeline for Public Reporting of Excess Readmission Ratios on 
Hospital Compare for the FY 2018 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 the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56978 through 56979), we clarified 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.

J. Hospital Value-Based Purchasing (VBP) Program: Policy Changes

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 (FY) 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); the 
FY 2016 IPPS/LTCH PPS final rule with comment period (80 FR 49544 
through 49570); the FY 2017 IPPS/LTCH PPS final rule (81 FR 56979 
through 57011); and the CY 2017 OPPS/ASC final rule with comment period 
(81 FR 79855 through 79862).
    We also have codified certain requirements for the Hospital VBP 
Program at 42 CFR 412.160 through 412.167.
b. FY 2018 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 
2018 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 2018 is approximately $1.9 billion, based on the March 
2017 update of the FY 2016 MedPAR file.
    As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53573 
through 53576), 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). 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 2018, on a per-claim 
basis. We published proxy value-based incentive payment adjustment 
factors in Table 16 associated with the FY 2018 IPPS/LTCH PPS proposed 
rule (which is available via the Internet on the CMS Web site). The 
proxy factors are based on the TPS from the FY 2017 program year.
    These FY 2017 performance scores are the most recently available 
performance scores hospitals have been given the opportunity to review 
and correct. The updated slope of the linear exchange function used to 
calculate those proxy value-based incentive payment adjustment factors 
is 3.0693696034. This slope, along with the estimated amount available 
for value-based incentive payments has been updated based on the March 
2017 update of the FY 2016 MedPAR file, and is published with this 
final rule in Table 16A (which is available via the Internet on the CMS 
Web site).
    After hospitals have been given an opportunity to review and 
correct their

[[Page 38241]]

actual TPSs for FY 2018, 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 2018 program year. We expect 
Table 16B will be posted on the CMS Web site in the fall of 2017.
    We strive to put patients first, ensuring they are empowered to 
make decisions about their own healthcare along with their clinicians 
using information from data-driven insights that are increasingly 
aligned with meaningful quality measures. We support technology that 
reduces burden and allows clinicians to focus on providing high-quality 
healthcare for their patients. We also support innovative approaches to 
improve quality, accessibility, and affordability of care while paying 
particular attention to improving clinicians' and beneficiaries' 
experience when interacting with our programs. In combination with 
other efforts across the Department of Health and Human Services, we 
believe the Hospital VBP Program helps to incentivize hospitals to 
improve healthcare quality and value, while giving patients and 
providers the tools and information needed to make the best decisions 
for them. We recognize that the Hospital VBP Program represents a key 
component of the way that we bring quality measurement and improvement 
together with payment, we have taken efforts to review existing 
policies to identify how to move the program forward in the least 
burdensome manner possible while continuing to incentivize improvement 
in the quality of care provided to patients.
2. Accounting for Social Risk Factors in the Hospital VBP Program
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19968 through 
19969), we discussed accounting for social risk factors in the Hospital 
VBP Program. We understand that social risk factors such as income, 
education, race and ethnicity, employment, disability, community 
resources, and social support (certain factors of which are also 
sometimes referred to as socioeconomic status (SES) factors or socio-
demographic status (SDS) factors) play a major role in health. One of 
our core objectives is to improve beneficiary outcomes, including 
reducing health disparities, and we want to ensure that all 
beneficiaries, including those with social risk factors, receive high 
quality care. In addition, we seek to ensure that the quality of care 
furnished by providers and suppliers is assessed as fairly as possible 
under our programs while ensuring that beneficiaries have adequate 
access to excellent care.
    We have been reviewing reports prepared by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) \30\ and the 
National Academies of Sciences, Engineering, and Medicine on the issue 
of accounting for social risk factors in CMS' value-based purchasing 
and quality reporting programs, and considering options on how to 
address the issue in these programs. On December 21, 2016, ASPE 
submitted a Report to Congress on a study it was required to conduct 
under section 2(d) of the Improving Medicare Post Acute Care 
Transformation (IMPACT) Act of 2014. The study analyzed the effects of 
certain social risk factors in Medicare beneficiaries on quality 
measures and measures of resource use used in one or more of nine 
Medicare value-based purchasing programs, including the Hospital VBP 
Program.\31\ The report also included considerations for strategies to 
account for social risk factors in these programs. In a January 10, 
2017 report released by the National Academies of Sciences, 
Engineering, and Medicine, that body provided various potential methods 
for measuring and accounting for social risk factors, including 
stratified public reporting.\32\
---------------------------------------------------------------------------

    \30\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \31\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \32\ National Academies of Sciences, Engineering, and Medicine. 
2017. Accounting for social risk factors in Medicare payment. 
Washington, DC: The National Academies Press.
---------------------------------------------------------------------------

    In the ASPE report noted above, there is an analysis of and focus 
on the Medicare Spending Per Beneficiary (MSPB) measure, which was 
adopted by the Hospital VBP Program beginning with the FY 2015 program 
year.\33\ We note that the MSPB measure is currently undergoing 
endorsement review for NQF, as part of the 2-year socioeconomic trial 
period described below.\34\ ASPE's December 2016 Report to Congress did 
not include an analysis of the effect of social risk factors on 
hospital performance on any condition-specific payment measures that 
are currently adopted for the Hospital VBP Program beginning with the 
FY 2021 program year (Hospital-Level, Risk-Standardized Payment 
Associated with a 30-Day Episode-of-Care for Acute Myocardial 
Infarction (AMI Payment) measure and Hospital-Level, Risk-Standardized 
Payment Associated with a 30-Day Episode-of-Care for Heart Failure (HF 
Payment) measure) (81 FR 56986 through 56990 and 81 FR 56990 through 
56992, respectively). We look forward to ASPE's continued analyses in 
this area, such as the role of frailty and disability in explaining 
variation in hospital episode spending among Medicare beneficiaries.
---------------------------------------------------------------------------

    \33\ Office of the Assistant Secretary for Planning and 
Evaluation. 2016. Report to Congress: Social Risk Factors and 
Performance Under Medicare's Value-Based Purchasing Programs; 
Chapter 7: The Hospital Value-Based Purchasing Program (p. 141-176). 
Available at: https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \34\ Medicare Spending Per Beneficiary (MSPB)--Hospital. See 
Section 2b.4.5 in National Quality Forum--Measure Testing. Accessed 
2/21/17 from: http://www.qualityforum.org/ProjectMeasures.aspx?projectID=83458.
---------------------------------------------------------------------------

    As noted in the FY 2017 IPPS/LTCH PPS final rule, the NQF undertook 
a 2-year trial period in which certain new measures, measures 
undergoing maintenance review, and measures endorsed with the condition 
that they enter the trial period were assessed to determine whether 
risk adjustment for selected social risk factors is appropriate for 
these measures. This trial entailed temporarily allowing inclusion of 
social risk factors in the risk-adjustment approach for these measures. 
We await the recommendations of the NQF trial on risk adjustment for 
quality measures.
    We note that the AMI Payment and HF Payment measures adopted in the 
FY 2017 IPPS/LTCH PPS final rule (81 FR 56987 through 56990 and 81 FR 
56990 through 56992, respectively), as well as the Hospital-Level, 
Risk-Standardized Payment Associated with a 30-Day Episode-of-Care for 
Pneumonia (PN Payment) measure (prior to the expansion of the measure 
cohort), recently underwent successful NQF re-endorsement following 
enrollment in the NQF's trial. Based on its review of these measures 
during the trial, the NQF re-endorsed these measures without 
modifications to their risk adjustment methodologies for social risk 
factors. We are finalizing our proposal to adopt the PN Payment measure 
beginning with the FY 2022 program year for the Hospital VBP Program 
(we refer readers to section V.J.4.a. of the preamble of this final 
rule), and we intend to submit the measure with the proposed expanded 
measure cohort for NQF review during the measure's next re-endorsement 
review.
    As we continue to consider the analyses and recommendations from 
these reports and await the results of the NQF trial on risk adjustment 
for quality measures, we are continuing to work with stakeholders in 
this process. As we have previously communicated, we are

[[Page 38242]]

concerned about holding providers to different standards for the 
outcomes of their patients with social risk factors because we do not 
want to mask potential disparities or minimize incentives to improve 
the outcomes for disadvantaged populations. Keeping this concern in 
mind, while we sought input on this topic previously, we continue to 
seek public comment on whether we should account for social risk 
factors in the Hospital VBP Program, and if so, what method or 
combination of methods would be most appropriate for accounting for 
social risk factors. Examples of methods include: Adjustment of the 
payment adjustment methodology under the Hospital VBP Program; 
adjustment of provider performance scores (for instance, stratifying 
providers based on the proportion of their patients who are dual 
eligible); confidential reporting of stratified measure rates to 
providers; public reporting of stratified measure rates; risk 
adjustment of a particular measure as appropriate based on data and 
evidence; and redesigning payment incentives (for instance, rewarding 
improvement for providers caring for patients with social risk factors 
or incentivizing providers to achieve health equity).
    We note that in section V.I.9. of the preamble of this final rule, 
we discuss considerations for stratifying hospitals into peer groups 
for purposes of assessing payment adjustments under the Hospital 
Readmissions Reduction Program, as required under the 21st Century 
Cures Act. We refer readers to that section for a detailed discussion 
of these alternatives; while this discussion and corresponding proposal 
are specific to the Hospital Readmissions Reduction Program, they 
reflect the level of analysis we would undertake when evaluating 
methods and combinations of methods for accounting for social risk 
factors in CMS' other value-based purchasing programs, such as the 
Hospital VBP Program. While we consider whether and to what extent we 
currently have statutory authority to implement one or more of the 
above-described methods, in the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 19969), we sought comments on whether any of these methods should be 
considered, and if so, which of these methods or combination of methods 
would best account for social risk factors in the Hospital VBP Program.
    In addition, in the proposed rule, we sought public comment on 
which social risk factors might be most appropriate for stratifying 
measure scores and/or potential risk adjustment of a particular 
measure. Examples of social risk factors include, but are not limited 
to, dual eligibility/low-income subsidy, race and ethnicity, and 
geographic area of residence. We also sought comments on which of these 
factors, including current data sources where this information would be 
available, could be used alone or in combination, and whether other 
data should be collected to better capture the effects of social risk. 
We also welcomed comment on operational considerations. Of note, 
implementing any of the above methods would be taken into consideration 
in the context of how this and other CMS programs operate (for example, 
data submission methods, availability of data, statistical 
considerations relating to reliability of data calculations, among 
others).
    We received extensive comments in response to our request for 
public comment on whether we should account for social risk factors in 
the Hospital VBP Program, and if so, what method or combination of 
methods would be most appropriate for accounting for social risk 
factors.
    Comment: Commenters were generally supportive of accounting for 
social risk factors at the domain and measure level for the Hospital 
VBP Program in order to avoid penalizing hospitals for factors beyond 
their control or issues with the measures themselves. These commenters 
further stated that because social risk factors influence health 
outcomes, failure to appropriately risk-adjust for these factors in 
outcome measures could result in inadvertent penalties for hospitals 
who treat large populations of socially at-risk patients, and 
unintended consequences, such as reduced access to care for complex 
patients, due to provider concern that treating high-risk patients 
could negatively affect their performance rating. Commenters 
specifically recommended that CMS look to risk-adjust for socio-
demographic and socioeconomic factors--such as income, education, race, 
payer type, patient travel distance, homelessness, and language 
proficiency--as well as functional status and frailty. However, 
commenters also stated concerns that changing Medicare payment policies 
to risk adjust or stratify measure rates for social risk factors would 
not address the underlying disparities that are often associated with 
poor health outcomes, would mask potential disparities or minimize 
incentives to improve the outcomes for disadvantaged populations, and 
may create perverse incentives for poor performers to continue with the 
status quo and for high performers to retreat from their efforts to 
address disparities in high social risk factor populations.
    Response: We appreciate all the comments and interest in this 
topic. As we have previously stated, we are concerned about holding 
providers to different standards for the outcomes of their patients 
with social risk factors, because we do not want to mask potential 
disparities or minimize incentives to improve outcomes for 
disadvantaged populations. We believe that the path forward should 
incentivize improvements in health outcomes for disadvantaged 
populations while ensuring that beneficiaries have access to excellent 
care. We intend to consider all suggestions as we continue to assess 
each measure and the overall program. We appreciate that some 
commenters recommended risk adjustment as a strategy to account for 
social risk factors, while others stated a concern that risk adjustment 
could minimize incentives and reduce efforts to address disparities for 
patients with social risk factors. We intend to conduct further 
analyses on the impact of strategies such as measure-level risk 
adjustment and stratifying performance scoring to account for social 
risk factors including the options suggested by commenters. In 
addition, we appreciate the recommendations from the commenters about 
consideration of specific social risk factor variables and will work to 
determine the feasibility of collecting these patient-level variables. 
As we consider the feasibility of collecting patient-level data and the 
impact of strategies to account for social risk factors through further 
analysis, we will continue to evaluate the reporting burden on 
providers. Future proposals would be made after further research and 
continued stakeholder engagement.
3. Retention and Removal of Quality Measures for the FY 2019 Program 
Year
a. Retention of Previously Adopted Hospital VBP Program Measures
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53592), we finalized 
a policy to retain measures from prior program years for each 
successive program year, unless otherwise proposed and finalized. In 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19970), we did not 
propose any changes to this policy.
b. Removal of the PSI 90 Measure
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56979 through 
56981), we finalized our proposal to shorten the performance period for 
the current \35\

[[Page 38243]]

PSI 90 measure for the FY 2018 program year due to concerns associated 
with combining measure performance data that use both ICD-9 and ICD-10 
data in calculating performance scores under the measure. In that final 
rule, we explained our system requires an ICD-10 risk-adjusted version 
of the AHRQ PSI software \36\ in order to calculate scores using ICD-10 
codes, and AHRQ needs a full year of nationally representative ICD-10 
coded data before it can complete development of risk-adjusted models 
based on a national reference population for this software. This means 
the AHRQ PSI software will not be available for us to calculate scores 
until late CY 2017. More importantly, we noted an ICD-10 version of the 
current PSI 90 measure is not being developed (81 FR 56980), nor will 
ICD-10 AHRQ PSI software be available to calculate performance scores 
for the FY 2019 program year (81 FR 56981). As a result, we will not be 
able to calculate performance scores for the current PSI 90 measure for 
the FY 2019 program year because these scores would include ICD-10 
data. Based on these concerns, in the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 56981), we signaled our intent to propose to remove the current 
PSI 90 measure from the Hospital VBP Program beginning with the FY 2019 
program year. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19970), 
we proposed to remove the current PSI 90 measure from the Hospital VBP 
Program beginning with the FY 2019 program year.
---------------------------------------------------------------------------

    \35\ The ``current'' PSI 90 measure refers to the version of the 
PSI 90 measure previously finalized for use in the Hospital VBP 
Program in the FY 2013 IPPS/LTCH PPS final rule (78 FR 50694).
    \36\ The AHRQ PSI 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.
---------------------------------------------------------------------------

    We invited public comment on this proposal. We also refer readers 
to section V.J.4.b. of the preamble of this final rule where we discuss 
our proposal to adopt the modified version of the PSI 90 measure for 
the Hospital VBP Program beginning with the FY 2023 program year.
    Comment: The vast majority of commenters supported CMS' proposal to 
remove the PSI 90 measure from the Hospital VBP Program beginning with 
the FY 2019 program year.
    Response: We thank the commenters for their support.
    Comment: Two commenters supported the removal of PSI 90 from the 
Hospital VBP Program measure set, but recommended CMS remove the 
measure immediately and permanently, including the FY 2018 program 
year. A few commenters noted the measure is unreliable and lacks 
appropriate exclusions based on patient social risk factors. One 
commenter stated that only 15 months of data will be available for the 
FY 2018 performance period, questioned the measure's reliability, and 
stated that the measure is flawed. Another commenter expressed concern 
that continued use of the current PSI 90 measure during the FY 2018 
program year while the HAC Reduction Program implements the modified 
PSI 90 measure would create confusion and misalignment across the 
programs.
    Response: While we understand commenters' concerns, we previously 
decided to retain the currently adopted version of the PSI 90 measure 
for the FY 2018 program year because we had the option to shorten the 
performance period so that performance standards can be calculated 
using the ICD-9 AHRQ PSI software (81 FR 56981). We also continue to 
believe that this measure meets the program goal of providing important 
information on hospital performance on patient safety and adverse 
events. In addition, the PSI 90 measure was developed using a 
scientifically rigorous process that involved the input of technical 
experts and stakeholders. Further, AHRQ has supported a series of 
validation studies, based on detailed abstraction of medical records, 
that have informed AHRQ's PSI development process, including making 
further refinements to indicators and working with others to improve 
coding practices. We refer commenters to the AHRQ PSI Development zip 
file and AHRQ Composite Measures Workgroup document available at: 
http://www.qualityindicators.ahrq.gov/modules/psi_resources.aspx. We 
therefore believe that the PSI 90 measure in its current form is 
reliable, valid, and appropriate to retain in the Hospital VBP Program 
for the FY 2018 program year because it encourages robust hospital 
attention to patient safety. We further believe that a 15-month 
performance period is sufficiently reliable, particularly in light of 
the case minimum of three cases for any of the underlying PSI 90 
indicators as finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53609). Because we believe the measure is sufficiently reliable with 15 
months of data, we do not believe we need to suspend or remove the 
measure or extend the measure's performance period for the FY 2018 
program year.
    Comment: A few commenters did not support the removal of PSI 90, 
stating that retaining consistency in measures over time enables 
hospitals to focus on improvement and CMS should not allow a 3-year 
lapse in public reporting of a critical safety measure. One commenter 
expressed particular concern that removing the current PSI 90 measure 
will result in a redistribution of the Safety domain score across the 
NHSN measures, which the commenter believed are of limited value 
because they allow hospitals to use different surveillance methods and 
have inadequate risk adjustment. Commenters therefore urged CMS to look 
more broadly for opportunities to accelerate the inclusion of the 
proposed Patient Safety and Adverse Events (Composite) measure into the 
Hospital VBP Program, such as suspending the current PSI 90 measure for 
one year and phasing in a 24-month performance period beginning in FY 
2020, or continuing to include the current PSI 90 measure rather than 
waiting for the new measures to become available to ensure that 
surgical complications remain a key component of the Hospital VBP 
Program.
    Response: We thank the commenters for their recommendations, but 
note that, as discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 19970), we will be unable to calculate measure scores for the 
current PSI 90 measure in the FY 2019 program year because ICD-10 AHRQ 
PSI software for the currently adopted measure will not be available. 
This lack of measure calculation software also precludes us from 
suspending the measure for one year and re-instituting the measure in 
FY 2020 using only ICD-10 data, because we will not be able to 
calculate measure scores.
    Furthermore, due to certain statutory requirements in the Hospital 
VBP Program, we are unable to adopt the proposed Patient Safety and 
Adverse Events (Composite) measure earlier than proposed. Section 
1886(o)(2)(A) of the Act requires the Hospital VBP Program to select 
measures that have been specified for the Hospital IQR Program. In 
addition, 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. The Hospital IQR Program finalized adoption of 
the modified PSI 90 measure (also known as the Patient Safety and 
Adverse Events (Composite) measure) in the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 57133), and we are required to wait one full year after 
data has been posted before that measure's performance period may begin 
in the Hospital VBP Program. Because measure data for the Patient 
Safety and Adverse Events (Composite) measure has not

[[Page 38244]]

been posted on Hospital Compare, we are unable to adopt the measure for 
the FY 2019 program year. However, as discussed the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19973 through 19974), we proposed to adopt the 
Patient Safety and Adverse Events (Composite) measure beginning with 
the FY 2023 program year, which was the soonest program year possible 
under the Hospital VBP Program's statutory authority.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove the current PSI 90 measure from the 
Hospital VBP Program beginning with the FY 2019 program year.
c. Summary of Previously Adopted Measures and Finalized Measure for 
Removal for the FY 2019 and FY 2020 Program Years
    In summary, for the FY 2019 and FY 2020 program years, we have 
finalized the following measure set, which no longer includes the 
current PSI 90 measure, as we are finalizing our proposal to remove the 
measure from the Hospital VBP Program beginning with the FY 2019 
program year:

Previously Adopted Measures and Finalized Measure for Removal for the FY
                     2019 and FY 2020 Program Years
------------------------------------------------------------------------
        Measure short name          Domain/measure name        NQF #
------------------------------------------------------------------------
                Person and Community Engagement Domain *
------------------------------------------------------------------------
HCAHPS...........................  Hospital Consumer                0166
                                    Assessment of                 (0228)
                                    Healthcare Providers
                                    and Systems
                                    (HCAHPS)**.
                                   (including Care
                                    Transition Measure).
------------------------------------------------------------------------
                          Clinical Care Domain
------------------------------------------------------------------------
MORT-30-AMI......................  Hospital 30-Day, All-            0230
                                    Cause, Risk-
                                    Standardized
                                    Mortality Rate
                                    (RSMR) Following
                                    Acute Myocardial
                                    Infarction (AMI)
                                    Hospitalization.
MORT-30-HF.......................  Hospital 30-Day, All-            0229
                                    Cause, Risk-
                                    Standardized
                                    Mortality Rate
                                    (RSMR) Following
                                    Heart Failure (HF)
                                    Hospitalization.
MORT-30-PN.......................  Hospital 30-Day, All-            0468
                                    Cause, Risk-
                                    Standardized
                                    Mortality Rate
                                    (RSMR) Following
                                    Pneumonia
                                    Hospitalization.
THA/TKA..........................  Hospital-Level Risk-             1550
                                    Standardized
                                    Complication Rate
                                    (RSCR) Following
                                    Elective Primary
                                    Total Hip
                                    Arthroplasty (THA)
                                    and/or Total Knee
                                    Arthroplasty (TKA).
------------------------------------------------------------------------
                              Safety Domain
------------------------------------------------------------------------
CAUTI............................  National Healthcare              0138
                                    Safety Network
                                    (NHSN)
                                    Catheter[dash]Associ
                                    ated Urinary Tract
                                    Infection (CAUTI)
                                    Outcome Measure.
CLABSI...........................  National Healthcare              0139
                                    Safety Network
                                    (NHSN) Central
                                    Line[dash]Associated
                                    Bloodstream
                                    Infection (CLABSI)
                                    Outcome Measure.
Colon and Abdominal Hysterectomy   American College of              0753
 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.
CDI..............................  National Healthcare              1717
                                    Safety Network
                                    (NHSN)
                                    Facility[dash]wide
                                    Inpatient Hospital-
                                    onset Clostridium
                                    difficile Infection
                                    (CDI) Outcome
                                    Measure.
PC-01............................  Elective Delivery....            0469
------------------------------------------------------------------------
                  Efficiency and Cost Reduction Domain
------------------------------------------------------------------------
MSPB.............................  Payment-Standardized             2158
                                    Medicare Spending
                                    Per Beneficiary
                                    (MSPB).
------------------------------------------------------------------------
* In section IV.H.3.b. of the preamble of the FY 2017 IPPS/LTCH PPS
  final rule (81 FR 56984), we renamed 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.
** In section XIX.B.3. of the preamble of the CY 2017 OPPS/ASC final
  rule with comment period (81 FR 79855 through 79862), we finalized the
  removal of the Pain Management dimension from the Hospital VBP Program
  beginning with the FY 2018 program year.

4. New Measures for the FY 2022 Program Year, FY 2023 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.
a. New Measure for the FY 2022 Program Year and Subsequent Years: 
Hospital-Level, Risk-Standardized Payment Associated With a 30-Day 
Episode-of-Care for Pneumonia (PN Payment)
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19971 through 
19973), we proposed a new measure for the FY 2022 program year and 
subsequent years:

[[Page 38245]]

Hospital-Level, Risk-Standardized Payment Associated With a 30-Day 
Episode-of-Care for Pneumonia (PN Payment).
(1) Measure Proposal
    Hospital-Level, Risk-Standardized Payment Associated with a 30-Day 
Episode-of-Care for Pneumonia (PN Payment) is a measure assessing 
hospital risk-standardized payment associated with a 30-day episode-of-
care for pneumonia. We adopted this measure in the Hospital IQR Program 
in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50227 through 50231), 
and we adopted an updated version of the measure, with an expanded 
cohort and modified risk-adjustment model, in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 57125 through 57128). For purposes of describing this 
measure, the ``cohort'' is the set of hospitalizations, or ``index 
admissions,'' that meet all of the measure's inclusion and exclusion 
criteria and, thus, are used to calculate the total payments Medicare 
makes on behalf of these Medicare beneficiaries for a 30-day episode-
of-care. The cohort for the expanded version of the PN Payment measure 
includes Medicare FFS patients aged 65 or older with: (1) A principal 
hospital discharge diagnosis of pneumonia, including not only viral or 
bacterial pneumonia but also aspiration pneumonia; or (2) a 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. The measure 
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 
30-day outcome measures previously adopted for the Hospital VBP 
Program, including the 30-day PN mortality measure, MORT-30-PN. Initial 
measure data collected under the Hospital IQR Program for the expanded 
PN Payment cohort and modified risk-adjustment model will be posted on 
Hospital Compare in July 2017, and the full measure specifications are 
available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Promoting high-value care is an essential part of our mission to 
provide better health care for individuals, better health for 
populations, and lower costs for health care. 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. Pneumonia is one of the 
leading causes of hospitalization for Americans aged 65 and over,\37\ 
and pneumonia patients incur roughly $10.2 billion in aggregate health 
care costs.\38\ There is evidence of variation in payments at hospitals 
for pneumonia patients in the proposed PN Payment measure; median 30-
day risk-standardized payment among Medicare FFS patients aged 65 or 
older hospitalized for pneumonia was $15,988 and ranged from $9,193 to 
$26,546 for the July 2011 through June 2014 reporting period in the 
Hospital IQR Program.\39\ This variation in payment suggests there is 
opportunity for improvement. We believe it is important to adopt the PN 
Payment measure for the Hospital VBP Program because variation in 
payment may reflect differences in care decision-making and resource 
utilization (for example, treatment, supplies, or services) for 
patients with pneumonia both during hospitalization and immediately 
post-discharge. The PN Payment measure specifically addresses the NQS 
priority and CMS Quality Strategy goal to make quality care more 
affordable.
---------------------------------------------------------------------------

    \37\ Lindenauer PK, Lagu T, Shieh M, Pekow PS, Rothberg MB. 
Association of diagnostic coding with trends in hospitalizations and 
mortality of patients with pneumonia, 2003-2009. JAMA. 
2012;307(13):1405-1413.
    \38\ Pfuntner, A (Truven Health Analytics), Wier, LM (Truven 
Health Analytics), Steiner, C (AHRQ). Costs for Hospital Stays in 
the United States, 2010. HCUP Statistical Brief #146. January 2013. 
Agency for Healthcare Research and Quality, Rockville, MD. Available 
at: http://www.hcup-us.ahrq.gov/reports/statbriefs/sb146.pdf.
    \39\ 2016 Reevaluation and Re-Specifications Report of the 
Hospital-Level 30-Day Risk-Standardized Pneumonia Payment Measure. 
AMI, HF, PN Payment Updates (zip file). Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    We recognize 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, consumers, payers, and providers would be 
able to better assess the value of care. In order to incentivize 
innovation that promotes high-quality care at high value, it is 
important to examine measures of payment and patient outcomes 
concurrently. The proposed PN Payment measure is intended to be paired 
with the MORT-30-PN measure in the Hospital VBP Program,\40\ 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 believe adopting the PN 
Payment measure will 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.
---------------------------------------------------------------------------

    \40\ The Hospital VBP Program first adopted the MORT-30-PN 
measure for the FY 2014 program year in the Hospital Inpatient 
Value-Based Purchasing Program final rule (76 FR 26497 through 
26511). We subsequently expanded the measure cohort beginning with 
the FY 2021 program year in the FY 2017 IPPS/LTCH PPS final rule (81 
FR 56994 through 56996).
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    We proposed to adopt the PN Payment measure beginning with the FY 
2022 program year. The PN Payment measure would be added to the 
Efficiency and Cost Reduction domain. The proposed measure fulfills all 
of the statutory requirements for the Hospital VBP Program based on our 
adoption of the measure in the Hospital IQR Program, and our 
anticipated posting of measure data for the refined PN Payment measure, 
with the expanded cohort and modified risk-adjustment model, on 
Hospital Compare beginning July 2017, which would be at least one year 
before the beginning of the proposed performance period of August 1, 
2018. We refer readers to sections V.J.5.c.(3) through V.J.5.c.(5) of 
the preamble of this final rule where we discussed our proposed 
baseline periods and performance periods for this measure if adopted 
for the Hospital VBP Program.
    The proposed PN Payment measure (MUC15-378) was reviewed by the MAP 
in December 2015 and did not receive support for adoption into the 
Hospital VBP Program.\41\ The result of the MAP vote was 31 percent 
support, 15 percent conditional support, and 54 percent do not support. 
The MAP's decision of ``do not support'' for the proposed PN Payment 
measure was based on concerns that the measure may overlap with and 
thereby double count services that are already captured in the MSPB 
measure. In addition, some MAP members expressed a desire to have more 
experience with the measure in the Hospital IQR Program to understand

[[Page 38246]]

whether there may be unintended consequences or a need to adjust for 
social risk factors. We note some MAP members expressed support for the 
proposed PN Payment measure and other condition-specific payment 
measures, expressing that the increased granularity provided by 
condition-specific payment measures will provide valuable feedback to 
hospitals for targeted improvement.
---------------------------------------------------------------------------

    \41\ ``2016 Spreadsheet of Final Recommendations to HHS and 
CMS'' available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367 and ``Process and Approach for 
MAP Pre-Rulemaking Deliberations'' found at: http://www.qualityforum.org/Publications/2016/02/Process_and_Approach_for_MAP_Pre-Rulemaking_Deliberations.aspx.
---------------------------------------------------------------------------

    With respect to MAP stakeholder concerns that treatment- or 
condition-specific payment measures may overlap and double count 
services, we note that the proposed PN Payment measure addresses a 
topic of critical importance to quality improvement in the inpatient 
hospital setting. As discussed above, we selected the PN Payment 
measure because we believe it is appropriate to provide stronger 
incentives for hospitals to provide high-value and efficient care, 
especially for a high-volume condition such as pneumonia. We 
acknowledge that hospitals that do not perform well on the PN Payment 
measure may also perform poorly on the MSPB measure and potentially 
receive a lower incentive payment, depending upon their performance on 
other measures. However, because admissions for pneumonia make up only 
a part of all admissions included in the MSPB measure, a hospital's 
results on the MSPB measure may not be the same as their result on the 
PN Payment measure. In other words, a hospital's results for one 
measure are not deterministic of its results of the other, so we cannot 
state conclusively that if a hospital performs well (or poorly) on one 
measure, that they will also perform well (or poorly) on the second 
measure. Hospitals would perform differently on the MSPB and PN Payment 
measures because these measures evaluate performance on different 
metrics. For example, some hospitals with poorer results on the MSPB 
measure may have better results on the PN Payment measure allowing them 
to improve their overall score. In addition, the overlap between the 
MSPB and PN Payment measures may result in some hospitals receiving an 
increased benefit by performing well on both measures. Furthermore, if 
a hospital does not perform as well on the MSPB measure relative to 
other hospitals but performs very well with respect to its pneumonia 
patients on the proposed PN Payment measure, that hospital would have 
the opportunity to earn a higher score in the Efficiency and Cost 
Reduction domain.
    Regarding MAP stakeholder concerns for the need to adjust for 
social risk factors, we note the proposed PN Payment measure already 
incorporates a risk-adjustment methodology that accounts for age and 
comorbidities. We understand the important role social risk factors 
play in the care of patients, routinely monitor the impact of social 
risk factors on hospitals' results on our measures, and will continue 
to do so. In addition, as discussed in section V.J.3. of the preamble 
of this final rule, the original PN Payment measure using the previous 
measure cohort (Hospital-level, risk-standardized payment associated 
with a 30-day episode-of-care for pneumonia (NQF #2579)), as well as 
the AMI Payment and HF Payment measures adopted in the FY 2017 IPPS/
LTCH PPS final rule (81 FR 56987 through 56990 and 81 FR 56990 through 
56992, respectively), which use the same measurement methodology as the 
proposed PN Payment measure, recently underwent successful NQF re-
endorsement following enrollment in the NQF's trial. The NQF re-
endorsed these measures without requesting modifications to their risk 
adjustment methodologies for adjustment by social risk factors. The 
proposed PN Payment measure includes an updated risk-adjustment model 
that accounts for patient comorbidities, and we intend to submit to NQF 
that risk adjustment model as part of the overall proposed PN Payment 
measure specifications during the next Cost and Resource Use project.
    As noted above, some MAP members expressed support for the proposed 
PN Payment measure and other condition-specific payment measures, 
agreeing the increased granularity provided by condition-specific 
payment measures will provide valuable feedback to hospitals for 
targeted improvement. In addition, a 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 which 
link cost and quality are the preferred method of assessing hospital 
efficiency.\42\ The PN Payment measure, which directly pairs with the 
MORT-30-PN measure in the Hospital VBP Program, follows this 
recommended approach. Based on our analysis of the issues surrounding 
condition-specific payment measures, we believe the benefits of 
adopting the PN Payment measure outweigh any potential risks; however, 
we also remain committed to monitoring for unintended consequences.
---------------------------------------------------------------------------

    \42\ Ryan AM, Tompkins CP. Efficiency and Value in Healthcare: 
Linking Cost and Quality Measures. Washington, DC: NQF; 2014.
---------------------------------------------------------------------------

    We invited public comment on this proposal.
    Comment: A number of commenters supported the addition of the PN 
Payment measure. A few commenters supported adoption of the PN Payment 
measure because pneumonia is one of the leading causes of 
hospitalization for Americans aged 65 and over, and these 
hospitalizations result in high aggregate costs for patients. Two 
commenters expressed particular support for the measure's inclusion of 
patients with a principal diagnosis of aspiration pneumonia, or a 
principal diagnosis of sepsis with a secondary diagnosis of pneumonia, 
because including these patients addresses stakeholder concerns 
regarding variation in coding of pneumonia as a principal diagnosis in 
order to avoid patients being captured by the pneumonia episode of care 
measure. Two other commenters noted the measure's alignment with the 
National Quality Strategy, and that tracking of this measure will 
enable identification of outlier performers in managing pneumonia and 
thereby spur incorporation of evidence-based practices for monitoring 
and managing pneumonia patients. One commenter expressed support for 
CMS' intention to focus more strongly on cost as an element of value in 
the Hospital VBP Program.
    Response: We thank the commenters for their support.
    Comment: One commenter expressed support for CMS' goals in 
proposing to adopt the PN Payment measure, but urged CMS to carefully 
consider the risk adjustments used in this measure because not all 
pneumonia diagnoses are comparable and factors outside the control of 
hospitals, such as geographic location, can impact the disease. Another 
commenter strongly recommended that CMS not include the PN Payment 
measure in the Hospital VBP Program because the expansion of the PN 
Payment measure cohort to include patients with a principal discharge 
diagnosis of aspiration pneumonia or sepsis with a secondary diagnosis 
of pneumonia coded as present on admission could make hospitals that 
care for complex patients look worse unless there is appropriate risk 
adjustment for social risk factors.
    Response: We appreciate the commenters' concerns that different 
types of pneumonia, such as community acquired pneumonia and aspiration 
pneumonia, have different causes and associated risks (for example, 
recurrent aspiration due to other comorbidities). While the 
pathological causes of aspiration pneumonia are slightly different from 
the causes of community acquired pneumonia, in routine clinical 
practice, evidence shows it can be very

[[Page 38247]]

challenging for physicians to differentiate aspiration syndromes, 
including pneumonitis and pneumonia, from other types of pneumonia 
included in the measure.43 44 This is reflected in the 
tremendous variation across hospitals in the use of aspiration 
pneumonia diagnosis codes. This variation suggests that hospitals are 
not consistently distinguishing between these conditions as distinct 
subtypes regardless of patients' comorbid conditions. Furthermore, we 
note that the treatment of patients hospitalized for pneumonia, 
aspiration pneumonia, or sepsis due to pneumonia is very similar and 
involves treatment with antibiotics, IV fluids, and symptom 
management.\45\ In addition, although some patients with aspiration 
pneumonia, such as medically frail patients, have a higher predicted 
mortality risk (that is, are more complex), many of the associated 
comorbidities are captured in the PN Payment measure's risk-adjustment 
methodology.
---------------------------------------------------------------------------

    \43\ Lanspa MJ, Jones BE, Brown SM, Dean NC. Mortality, 
morbidity, and disease severity of patients with aspiration 
pneumonia. J Hosp Med. 2013 Feb;8(2):83-90. doi: 10.1002/jhm.1996. 
Epub 2012 Nov 26.
    \44\ Marik PE. Aspiration pneumonitis and aspiration pneumonia. 
N Engl J Med. 2001 Mar 1;344(9):665-71.
    \45\ Ibid.
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    With respect to geographic variation, the incidence of fungal and 
mycobacterial infections are strongly associated with a patient's area 
of residence, and these infections would be expected to have different 
outcomes than typical bacterial and viral pneumonias, including higher 
levels of spending. They also involve different treatments than those 
provided to patients with typical bacterial and viral pneumonia. These 
considerations justify their continued exclusion from the pneumonia 
outcome measures. Although similar arguments might be applied to the 
different bacterial pathogens included in the pneumonia measure, most 
treatment of pneumonia remains empiric, and it is unusual to identify a 
specific etiologic agent. For this reason, we do not believe that is 
appropriate to include the specific bacterial pathogen in risk-
adjustment models.
    The risk adjustment model adequately accounts for the varying 
severity and comorbidities of patients across the modified cohort; 
therefore, we believe that hospitals will not be unfairly penalized for 
treating sicker patients. Expanding the measure cohort ensures that the 
measure is clinically comprehensive. Moreover, the treatment of 
patients hospitalized for pneumonia, aspiration pneumonia, or sepsis 
due to pneumonia is very similar and involves treatment with 
antibiotics, IV fluids, and symptom management. In addition, although 
some patients with aspiration pneumonia, such as medically frail 
patients, have a higher predicted mortality risk, many of the 
associated comorbidities are captured in the MORT-30-PN (updated 
cohort) measure's risk-adjustment methodology. Of note, due to the 
increased number of patients that are included in the expanded cohort, 
we reselected risk-adjustment variables to ensure that the measure does 
not bias hospital performance as well as accounts for the differences 
in risk among the subgroup of patients. For example, the risk model 
includes clinical history of stroke, as well as conditions associated 
with frailty, such as neuromuscular disease, and dementia. The full PN 
Payment measure specifications are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Comment: Many commenters did not support adoption of the PN Payment 
measure because it will overlap with the MSPB measure in the Efficiency 
and Cost Reduction domain. A large subset of these commenters did not 
support adoption of the PN Payment measure because the MAP did not 
support this measure for inclusion in the Hospital VBP Program, and 
stated their belief that CMS has not addressed the MAP's concerns of 
double-counting and overlap with services already captured by the MSPB 
measure, which could potentially penalize hospitals twice for the same 
episode. A number of commenters urged CMS to reconcile this overlap 
before adopting the PN Payment measure by removing episodes of 
pneumonia payment from the MSPB measure calculation. One commenter 
expressed concern that the overlap between the MSPB and proposed PN 
Payment measures may send mixed signals to hospitals about their 
resource use performance. One commenter also noted that it will be 
possible for hospitals to score well on the MSPB measure, but poorly on 
the condition-specific payment measures, even though the measures will 
capture many of the same services.
    Response: While we acknowledge that there may be some overlap 
between the MSPB and condition-specific payment measures, including the 
PN Payment measure, we believe that the condition-specific measures are 
of critical importance to improving efficiency of care. We selected the 
PN Payment measure for the Hospital VBP Program because pneumonia is 
one of the leading causes of hospitalization for Americans aged 65 and 
over,\46\ and pneumonia patients incur roughly $10 billion in aggregate 
health care costs.\47\ Including condition-specific measures alongside 
the MSPB measure provides hospitals with actionable feedback that will 
better equip them to implement targeted improvements, in comparison to 
an overall payment measure alone. Moreover, these condition-specific 
measures will allow consumers, providers, and payers to make a more 
fully informed assessment of value of care.
---------------------------------------------------------------------------

    \46\ Lindenauer PK, Lagu T, Shieh M, Pekow PS, Rothberg MB. 
Association of diagnostic coding with trends in hospitalizations and 
mortality of patients with pneumonia, 2003-2009. JAMA. 
2012;307(13):1405-1413.
    \47\ Pfuntner, A (Truven Health Analytics), Wier, LM (Truven 
Health Analytics), Steiner, C (AHRQ). Costs for Hospital Stays in 
the United States, 2010. HCUP Statistical Brief #146. January 2013. 
Agency for Healthcare Research and Quality, Rockville, MD. Available 
at: http://www.hcup-us.ahrq.gov/reports/statbriefs/sb146.pdf.
---------------------------------------------------------------------------

    As we noted in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19972), because admissions for pneumonia make up only a part of all 
admissions included in the MSPB measure, a hospital's results on the 
MSPB measure may not be the same as their result on the PN Payment 
measure, and hospitals would perform differently on the MSPB and PN 
Payment measures because these measures evaluate performance on 
different metrics. In other words, a hospital's results for one measure 
are not deterministic of its results of the other, so we cannot state 
conclusively that if a hospital performs well (or poorly) on one 
measure, that they will also perform well (or poorly) on the second 
measure. 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.
    In addition, we note that the PN Payment measure already 
incorporates a risk-adjustment methodology that accounts for age and 
comorbidities, discussed in more detail below. We understand the 
important role social risk factors play in the care of patients, 
routinely monitor the impact of social

[[Page 38248]]

risk factors on hospitals' results on our measures, and will continue 
to do so.
    Comment: A number of commenters did not support adoption of the PN 
Payment measure because the measure is not risk-adjusted to account for 
socio-demographic status factors. Some of these commenters expressed 
further concern that the measure is not risk-adjusted to account for 
socioeconomic status factors. One commenter stated that previous 
testing of the measure should have included additional social risk 
factors, such as community characteristics. One commenter stated that 
it is premature to adopt the PN Payment measure without the NQF SDS 
trial results. Another commenter acknowledged the PN Payment measure 
was reviewed as part of the NQF's SDS trial and NQF's evaluation 
indicated that SDS adjustment was not necessary, but recommended that 
CMS continue to examine the impact of socioeconomic factors on measure 
performance under the PN Payment measure and incorporate adjustments as 
needed. A third commenter encouraged CMS to continue to engage with 
stakeholders regarding the inclusion of social risk factors for the PN 
Payment measure, noting that specific risk factors often lead to worse 
outcomes, so providing care may cost more and make it more difficult 
for hospitals to achieve high performance on quality measures.
    Response: We acknowledge commenters' concerns that the proposed PN 
Payment measure is not properly risk-adjusted and we understand the 
important role that socio-demographic status plays in the care of 
patients; however, we continue to believe the PN Payment measure's 
risk-adjustment methodology is appropriate and reliable. As we noted in 
the FY 2018 IPPS/LTCH PPS proposed rule, the proposed measure already 
incorporates a risk-adjustment methodology that accounts for age and 
comorbidities and we intend to submit to NQF that risk adjustment model 
as part of the overall proposed PN Payment measure specifications 
during the next Cost and Resource Use project. We also continue to have 
concerns about holding hospitals to different standards for the 
outcomes of their patients of diverse socio-demographic status because 
we do not want to mask potential disparities or minimize incentives to 
improve the outcomes of disadvantaged populations.
    In addition, as discussed in section V.J.3. of the preamble of this 
final rule, the original PN Payment measure using the previous measure 
cohort (Hospital-level, risk-standardized payment associated with a 30-
day episode-of-care for pneumonia (NQF #2579)), as well as the AMI 
Payment and HF Payment measures adopted in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56987 through 56990 and 81 FR 56990 through 56992, 
respectively), which use the same measurement methodology as the 
proposed PN Payment measure, recently underwent successful NQF re-
endorsement following enrollment in the NQF's trial. The NQF 2-year 
trial period allowed for the temporary inclusion of socio-demographic 
factors in the risk-adjustment approach for some performance measures. 
This trial period considered the analyses and interpretations as well 
as performance scores with and without socio-demographic factors in the 
risk-adjustment model. NQF's evaluation indicated that SDS adjustment 
was not necessary for this measure. We routinely monitor the impact of 
socio-demographic status on hospitals' results on our measures and, as 
noted in section V.J.2. of the preamble of this final rule where we 
discuss accounting for social risk factors in the Hospital VBP Program, 
we will conduct further research and continue engaging stakeholders as 
we assess the appropriateness of any specific strategies such as 
measure-level risk adjustment or stratified performance scoring.
    We also thank commenters for their recommendation that we engage 
with stakeholders regarding risk adjustments for the PN Payment 
measure, and note we routinely solicit public comment on our payment 
measures and other measures under development. For current and future 
opportunities, we encourage the commenter to visit the CMS Quality 
Measures Public Comment page at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html. In addition, there are opportunities for 
stakeholders to serve on Technical Expert Panels and provide technical 
input to CMS and the measure contractors on the development, selection, 
and maintenance of measures. We refer the commenter to the following 
Web site for more information: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/TechnicalExpertPanels.html.
    Comment: Some commenters did not support the addition of condition-
specific payment measures because the commenters believed the measures 
inappropriately assign costs to the hospitals. A few commenters noted 
that variations in Medicare payments are due primarily to readmission 
rates and post-acute care. One commenter further noted that post-acute 
care use varies due to wide-ranging differences in local market 
availability of these services and patterns of care, which are not 
within the hospital's control. Two commenters recommended that CMS work 
with the hospital community to develop and implement efficiency metrics 
of spending that hospitals directly influence because the current and 
proposed condition-specific payment measures include physician spending 
and preferences, which are beyond the control of the hospital. One 
commenter recommended limiting inclusion of payments used in the 
calculation of the measures to only payment directly related to the 
condition-specific index admission, because the commenter believed this 
would be a more accurate proxy for factors within a hospital's control 
than all spending over a 30-day period.
    Response: We continue to believe that hospitals that provide 
quality inpatient care and conduct appropriate discharge planning can 
work with providers and suppliers in coordinating efficient follow-up 
care. When examining variation in payments, consideration of the 
episode-of-care triggered by admissions is meaningful for several 
reasons. First, hospitalizations represent a brief period of a 
patient's illness that require ongoing management post discharge, and 
decisions made at the admitting hospital affect payments for care in 
the immediate post discharge period. Second, attributing payments for a 
continuous episode-of-care to admitting hospitals may reveal practice 
variations in the full care of the patient's illness that can result in 
increased payments. Third, a 30-day preset window provides a standard 
observation period by which to compare all hospitals. Lastly, we note 
the PN Payment measure is intended to be paired with the MORT-30-PN 
measure to capture payments for Medicare fee-for-service patients age 
65 and older across all care settings, services, and supplies (that is, 
inpatient, outpatient, skilled nursing facility, home health, hospice, 
physician/clinical laboratory/ambulance services, durable medical 
equipment, prosthetics/orthotics, and supplies).
    We thank commenters for the recommendations and note that we have 
developed, and will continue to develop, efficiency measures in 
consultation with clinical and measurement experts, key stakeholders 
(including the hospital and patient communities), and the public. We 
disagree with commenters that all payment measures should be limited to 
only payments directly related to the index admission because, as noted

[[Page 38249]]

above, we continue to believe that inclusion of payments on a broad 
range of services incentivizes quality care and care coordination. The 
intensity of services needed for patients after an inpatient stay may 
be the result of quality failures during the stay that led to poor 
clinical outcomes.
    Comment: A few commenters did not support adoption of the proposed 
PN Payment measure due to concerns about the measure's validity and 
reliability. One commenter asserted that because not all hospitals will 
have sufficient volume to be scored on each condition-specific payment 
measure, the statistical reliability of those measures' scores will 
likely be lower than the MSPB measure and, as a result, provide a less 
useful picture of hospital performance. Another commenter recommended 
that CMS not adopt the PN Payment measure because the measure's 
population is too small to be stable, reliable, or meaningful for many 
smaller facilities. A third commenter cautioned against implementation 
of the PN Payment measure without conclusive evidence that the measure 
is clinically and statistically fair and meaningful. One commenter 
recommended that if CMS chooses to finalize the PN Payment measure, it 
use the years leading up to FY 2022 to ensure the validity of the 
measure and resolve MAP stakeholder concerns about incorporating social 
risk factors into the measure to improve quality of care while not 
unduly penalizing essential hospitals.
    Response: We disagree with the commenter that hospitals will not be 
able to report statistically reliable information on the condition-
specific payment measures because, as discussed in section V.J.7.c.(5) 
below, hospitals must report a minimum number of 25 cases to receive a 
payment measure score. We believe the case minimum will ensure that 
each hospital's payment measure rate is sufficiently reliable to 
generate a score that meaningfully distinguishes hospital performance 
on the measures. We also disagree with the commenter's assertion that 
the statistical reliability of the condition-specific payment measures 
is likely to be weaker than the MSPB measure. The statistical model 
that we use to calculate the payment measures allows for the inclusion 
of hospitals with relatively few cases by taking into account the 
uncertainty associated with sample size. In addition, we note the PN 
Payment measure uses longer baseline and performance periods than the 
MSPB measure (three years instead of a single year) in order to 
increase the measure's sample size and ensure sufficiently reliable 
measure results.
    Comment: A number of commenters expressed concern that the PN 
Payment measure, without a linkage to a quality measure, is purely 
focused on payment for pneumonia episodes of care and therefore does 
not reflect appropriateness of care. A few commenters expressed concern 
that the PN Payment measure is not an indicator of value because it 
does not capture the quality of care provided and is not paired with 
measures that do so. Other commenters expressed concern about the 
inclusion of additional payment measures in the Hospital VBP Program 
and stated their belief that condition-specific payment measures 
themselves do not provide insight into where improvements need to be 
made in the delivery of care across the continuum of care. Three 
commenters further stated these measures do not give beneficiaries a 
sense of their financial obligation. A few commenters agreed with CMS' 
stated intent to interpret the condition-specific payment measures 
alongside corresponding quality measures, but asserted that adopting 
the payment and quality measures separately instead of directly linking 
the information from each measure will not provide an assessment of 
value. One commenter acknowledged CMS' intent to link the PN Payment 
and MORT-30-PN measures, but stated there are outcomes other than 
mortality relevant to understanding the quality and cost of care that 
pneumonia patients receive in the hospital.
    Response: We disagree with the commenters who believed that the PN 
Payment measure, and condition-specific payment measures more 
generally, will not provide hospitals with actionable data for quality 
improvement efforts. By adopting condition-specific payment measures 
and viewing results alongside quality measure results, we believe that 
consumers, payers, and providers will be able to better assess the 
overall value of care provided at a hospital. We also believe that 
adopting condition-specific payment measures for the Hospital VBP 
Program that are directly paired with clinical outcome measures, 
aligned by comparable populations, performance periods, or risk-
adjustment methodologies, helps move toward achievement of this goal. 
We also believe that adopting condition-specific payment measures (for 
example, the MORT-30-PN measure) will 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.
    Comment: Two commenters expressed concern that the PN Payment 
measure's focus on reducing cost will not necessarily lead to or 
provide measurable proof of improved patient care and outcomes. One 
commenter expressed concern that focusing on cost-effectiveness will 
overshadow patients' needs during a care episode. One commenter 
expressed concern that measures focusing solely on the cost of care 
without consideration of overall quality create incentives for 
hospitals to cut costs without consideration of patients' unique needs. 
The commenter recommended that CMS work with hospitals and other 
stakeholders to ensure that existing and future episode-based measures 
align with the objectives of creating efficiency and economy in the 
Medicare program and to appropriately tailor measures in the Hospital 
VBP Program to support these objectives.
    Response: We understand commenter's concern that condition-specific 
payment measures, viewed in isolation, may create an incentive for 
hospitals to focus on reducing costs without accounting for potential 
impacts on the quality of care provided. We also agree the PN Payment 
measure as a standalone measure is not designed to assess improvements 
in patient care or outcomes. However, we note that the Hospital VBP 
Program explicitly proposed to adopt the PN Payment measure for 
interpretation alongside the previously finalized MORT-30-PN measure, 
thereby linking the condition-specific payment measure with a measure 
of quality of care. We believe that adding the PN Payment measure, 
paired with the MORT-30-PN measure, will provide actionable feedback to 
hospitals on the overall value of their services to beneficiaries. In 
addition, we note that the Hospital VBP Program scoring methodology 
takes into account both quality and cost of care by weighting the 
quality domains at 75 percent of a hospital's TPS and the Efficiency 
and Cost Reduction domain at 25 percent of a hospital's TPS. We thank 
commenters for the recommendations and note that we have developed, and 
will continue to develop, efficiency measures in consultation with 
clinical and measurement experts, key stakeholders (including the 
hospital community), and the public.
    Comment: A few commenters strongly recommended that CMS not include 
the PN Payment measure because hospital performance on the measure will 
not be publicly reported until after the public comment period for the 
FY 2018 IPPS/LTCH PPS proposed rule has ended.

[[Page 38250]]

Commenters noted that publicly reporting measures provides transparency 
on provider performance, allows hospitals to gain experience submitting 
data for the measure, and allows time to identify errors, unintended 
consequences, or other concerns with the measure methodology. One 
commenter asserted that stakeholders are unable to provide sufficient 
feedback on the PN Payment measure without access to publicly reported 
data on this measure. One commenter stated that all measures should be 
publicly reported under the Hospital IQR Program for one year before 
being considered for inclusion in the Hospital VBP Program.
    Response: While we understand stakeholders' desire to see 
performance data from the PN Payment measure before deciding whether to 
adopt this measure for the Hospital VBP Program, we note that, as 
discussed in the FY 2018 IPPS/LTCH PPS proposed rule, the measure has 
undergone extensive testing and has been determined to be both reliable 
and valid. Furthermore, we note that the proposed adoption of this 
measure before its public reporting on Hospital Compare did not 
preclude hospitals from submitting questions and comments on the 
measure to CMS. Publicly reported PN Payment measure data became 
available on July 26, 2017, and we encourage hospitals, providers, 
patients, and other stakeholders to review these data. We further note 
the PN Payment measure is not proposed for implementation in the 
Hospital VBP Program until the FY 2022 program year with a performance 
period of August 1, 2018 through June 30, 2020; we believe the time 
period before implementation provides hospitals with sufficient time to 
become familiar with the measure's specifications and reporting 
requirements before performance on the PN Payment measure is reflected 
in hospitals' TPSs.
    We further disagree that, absent publicly reported performance 
data, hospitals lack sufficient information to comment on the proposed 
adoption of the PN Payment measure. In proposing to adopt this measure, 
CMS provided a full description of the measure's specifications and its 
development history, explained how the proposal satisfied the 
requirements of the statute, and provided links to additional sources 
of in-depth information regarding the detailed specifications for this 
measure. In addition, performance data for the PN Payment measure using 
the original cohort has been publicly available for hospitals' review 
on Hospital Compare since July 2015. We therefore believe commenters 
had sufficient information to use in reviewing the PN Payment measure, 
allowing them to comment meaningfully on its proposed adoption.
    Comment: One commenter did not support CMS' proposal to adopt the 
PN Payment measure because the commenter believed CMS lacks a mechanism 
to provide claims data to hospitals in a timely manner for use in 
performance improvement activities under the condition-specific payment 
measure. The commenter further stated that risk-standardized measures 
are difficult to track using hospitals' internal data due to a lack of 
insight into care and payments provided outside of the hospital. 
Another commenter requested that CMS make the claims data for the 
measure available to hospitals on a more timely basis to allow 
hospitals to review the current spending per episode and make the 
necessary changes in improving processes.
    Response: We acknowledge the commenter's concern that hospitals' 
internal data only include care provided at their hospital and the 
payments made on behalf of the patient for that care, whereas the PN 
Payment measure is designed to capture the full spectrum of care 
provided during and for 30 days following the index hospitalization. We 
therefore provide confidential, hospital-specific reports to each 
hospital on this and other claims-based outcome measures, which for the 
payment measures provides hospitals with additional information about 
care their patients received following discharge. The type of follow-up 
care patients receive is often influenced by the discharging hospital 
(for example, discharge to a skilled nursing facility or provision of 
home health care) which will then impact the cost of care for the 30 
days captured by the measure.
    We recognize that there is a delay in reporting the claims data 
because this measure reports hospitals' results on a yearly basis, but 
we believe using the available annual data would enable hospitals to 
improve their performance year-over-year. We note that we previously 
addressed this concern in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53380) in the context of the Hospital Readmissions Reduction Program. 
In addition, we note that the Hospital VBP Program uses a 90 day ``run-
out'' period following the last date of discharge used in the 
performance period for purposes of calculating claims-based measure 
rates (77 FR 53579 through 53580). This ``run-out'' period balances our 
desire to provide hospitals with timely quality data for the purpose of 
quality improvement and the need to have as complete a data set as 
possible for measure calculations. After we run the data and create the 
data extract for purposes of calculating the measure rate for a claims-
based measure, it takes several months to incorporate other data needed 
to complete the rate calculation; generate and check the rate 
calculations; and program, populate, and deliver the confidential 
reports and accompanying data to hospitals. As a result, we cannot 
provide the PN Payment hospital-specific reports earlier than the 
spring following the end of the performance period.
    Comment: One commenter recommended that instead of adding the PN 
Payment measure to the Hospital VBP Program now, CMS should first 
examine methods of pairing cost and payment measures so that they 
signal value to beneficiaries.
    Response: We believe that adding the PN Payment measure now will 
provide actionable feedback to hospitals on the overall value of their 
services to pneumonia patients as both payment data and mortality data 
would be made available through the Hospital VBP Program. We note that 
we solicited comments on methods of accounting for value of care in the 
Hospital VBP Program scoring methodology in the FY 2017 IPPS/LTCH PPS 
proposed rule (81 FR 25105 through 25106), and discussed comments 
received in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56993 through 
56994). We are continuing to evaluate the feasibility of incorporating 
condition- or procedure-specific assessments of value in the Hospital 
VBP Program scoring methodology. We also note currently for public 
reporting purposes our Hospital Compare Web site shows individual 
hospital's results for the payment (AMI, HF, and PN Payment) measures 
and corresponding mortality measures together to assess the value of 
care.\48\
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    \48\ https://www.medicare.gov/hospitalcompare/Data/Value-of-care.html.
---------------------------------------------------------------------------

    Comment: One commenter recommended that CMS develop a plan for 
incorporating additional measures of efficiency and either focus on 
condition-specific payment measures or global efficiency measures, 
without overlapping.
    Response: We thank the commenter for this recommendation, and will 
take this into consideration in future years of the program.
(2) Scoring Methodology for the PN Payment Measure
    We proposed to calculate the PN Payment measure using the same 
methodology we use to score the MSPB measure and, as finalized in the 
FY

[[Page 38251]]

2017 IPPS/LTCH PPS final rule (81 FR 56992 through 56993), the AMI 
Payment and HF Payment measures so that all measures in the Efficiency 
and Cost Reduction domain are scored in the same manner. We note for 
these measures that lower values represent better performance.
    For achievement points, we proposed to calculate a spending ratio 
of PN spending for each hospital to the median PN spending across all 
hospitals during the performance period. We would then use each 
hospital's PN spending ratio to calculate between 0 and 10 achievement 
points. We proposed to set the achievement threshold at the median PN 
spending ratio across all hospitals during the performance period. 
Because lower values represent better performance under the proposed PN 
Payment measure, we proposed to set the benchmark at the mean of the 
lowest decile of the PN spending ratios during the performance period. 
Therefore, if a hospital's individual PN spending ratio falls above the 
achievement threshold, the hospital would score 0 achievement points on 
the measure. If a hospital's individual PN spending ratio falls at or 
below the benchmark, the hospital would score the maximum 10 
achievement points on the measure. If a hospital's individual PN 
spending ratio falls at or below the achievement threshold but above 
the benchmark, the hospital 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 proposed to calculate a spending ratio of PN 
spending for each hospital to the median PN spending across all 
hospitals during the performance period. We would then use each 
hospital's PN spending ratio to calculate between 0 and 9 improvement 
points by comparing each hospital's ratio to its own performance during 
the baseline period. Again, because lower values represent better 
performance under the proposed PN Payment measure, we proposed to set 
the benchmark as the mean of the lowest decile of PN spending ratios 
across all hospitals. Therefore, if a hospital's PN spending ratio is 
equal to or higher than its baseline period ratio, the hospital 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

    We note that if a hospital scores at or below the benchmark on the 
achievement scoring methodology, that hospital will receive the maximum 
10 points for this measure. As a result, the hospital would not receive 
an improvement score for this measure.
    For more information about the proposed scoring methodology for the 
proposed PN Payment measure, we refer readers to section IV.B.3.b. of 
the preamble of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51654 
through 51656) where we discuss the MSPB measure's identical scoring 
methodology in detail.
    We invited public comment on the proposed scoring methodology for 
the proposed PN Payment measure.
    We did not receive any public comments specific to the proposed 
scoring methodology for the proposed PN Payment measure. After 
considering all of the comments received regarding the proposed 
adoption of the PN Payment measure in the Hospital VBP Program as 
discussed above, we are finalizing our proposal to adopt the PN Payment 
measure beginning with the FY 2022 program year as proposed.
b. New Measure for the FY 2023 Program Year and Subsequent Years: 
Patient Safety and Adverse Events (Composite) (NQF #0531)
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19973 through 
19974), we proposed a new measure for the FY 2023 program year and 
subsequent years: Patient Safety and Adverse Events (Composite) (NQF 
#0531).
    The current PSI 90 measure previously adopted for the Hospital VBP 
Program underwent NQF maintenance review and re-endorsement in 2015, 
leading to several substantive measure changes.\49\ Due to statutory 
requirements in the Hospital VBP Program,\50\ we were unable to adopt 
the newly re-endorsed version of the PSI 90 measure in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 56981), but stated our intent to 
propose to adopt the modified version of the PSI 90 measure in future 
rulemaking. In section V.J.3.b. of the preamble of this final rule, we 
discuss our proposal to remove the current PSI 90 measure from the 
Hospital VBP Program beginning with the FY 2019 program year due to the 
operational constraints associated with calculating measure scores for 
the current measure for FY 2019 and subsequent years. Because of the 
priority of improving patient safety and reducing adverse events during 
inpatient stays, and with substantive refinements made to the measure 
in response to feedback as further described below, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19973 through 19974), we proposed to 
adopt a modified version of the current PSI 90 measure, entitled 
Patient Safety and Adverse Events (Composite) (NQF #0531), for the 
Hospital VBP Program for the FY 2023 program year and subsequent years.
---------------------------------------------------------------------------

    \49\ National Quality Forum QPS Measure Description for 
``Patient Safety for Selected Indicators (modified version of PSI 
90) (Composite Measure)'' found at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3; and 
PSI 90 Fact Sheet found at: http://www.qualityindicators.ahrq.gov/News/PSI90_Factsheet_FAQ_v2.pdf (we note that this fact sheet is 
written from an all-payer perspective, and is therefore not limited 
to the measure as used in the Medicare FFS population).
    \50\ First, section 1886(o)(2)(A) of the Act requires the 
Hospital VBP 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.
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    The Hospital IQR Program adopted this measure in the FY 2017 IPPS/
LTCH PPS final rule (81 FR 57128 through 57133),\51\ beginning with the 
FY 2018 payment determination, and we intend to publicly report initial 
measure data on the measure on Hospital Compare in the fall of 2017. 
The full measure specifications are available at: https://www.qualityindicators.ahrq.gov/Modules/PSI_TechSpec_ICD09_v60.aspx.
---------------------------------------------------------------------------

    \51\ We note that the HAC Reduction Program also adopted this 
measure in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57013 through 
57030).
---------------------------------------------------------------------------

    The Patient Safety and Adverse Events (Composite) measure is a 
weighted average of the reliability-adjusted, indirectly standardized, 
observed-to-expected ratios for the following 10 individual PSI 
component indicators:
     PSI 03 Pressure Ulcer Rate;
     PSI 06 Iatrogenic Pneumothorax Rate;
     PSI 08 In-Hospital Fall with Hip Fracture Rate; \52\
---------------------------------------------------------------------------

    \52\ Previously titled ``Postoperative Hip Fracture'' prior to 
v6.0.
---------------------------------------------------------------------------

     PSI 09 Perioperative Hemorrhage or Hematoma Rate; *

[[Page 38252]]

     PSI 10 Postoperative Acute Kidney Injury Requiring 
Dialysis Rate;* \53\
---------------------------------------------------------------------------

    \53\ Previously titled ``Postoperative Physiologic and Metabolic 
Derangement'' prior to v6.0.
---------------------------------------------------------------------------

     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 Unrecognized Abdominopelvic Accidental Puncture/
Laceration Rate.54 55
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    \54\ Previously titled ``Accidental Puncture or Laceration 
Rate'' prior to v6.0.
    \55\ Available at: http://www.qualityforum.org/QPS/0531.

    (* Denotes new component for the Patient Safety and Adverse 
---------------------------------------------------------------------------
Events (Composite) measure)

    The Patient Safety and Adverse Events (Composite) measure no longer 
includes 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 VBP Program since the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53597 through 53598).
    The measure is calculated using administrative claims data. Like 
the previously adopted PSI 90 measure, under the Patient Safety and 
Adverse Events (Composite) measure, the predicted value for each case 
is computed using a Generalized Estimating Equation hierarchical 
modeling approach that adjusts for demographic and clinical 
characteristics. 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.\56\
---------------------------------------------------------------------------

    \56\ For more information regarding the Patient Safety and 
Adverse Events (Composite) measure's risk adjustment methodology, we 
refer readers to: http://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2015/Empirical_Methods_2015.pdf.
---------------------------------------------------------------------------

    As stated above, the previously adopted eight-indicator version of 
the PSI 90 measure underwent an extended NQF maintenance re-endorsement 
in the 2014 NQF Patient Safety Committee. In its final report, the NQF 
Patient Safety Committee deferred their final decision for the PSI 90 
measure until the following measure evaluation cycle.\57\ Following 
this report, AHRQ worked to address many of the NQF stakeholders' 
concerns about the PSI 90 measure, and subsequently completed NQF 
maintenance re-review and received re-endorsement on December 10, 2015. 
As a result of this process, the current PSI 90 measure's NQF 
maintenance re-endorsement led to several changes to the measure, 
specifically: A change to the measure name; the addition of three 
indicators; the removal of one indicator; the re-specification of two 
indicators; and a revision to the weighting of component 
indicators.\58\ For more information on the proposed Patient Safety and 
Adverse Events (Composite) measure and component indicators, we refer 
readers to the AHRQ Quality Indicators Web site available at: 
www.qualityindicators.ahrq.gov.
---------------------------------------------------------------------------

    \57\ National Quality Forum. 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.
    \58\ National Quality Forum QPS Measure Description for 
``Patient Safety for Selected Indicators (modified version of PSI 
90) (Composite Measure)'' found at: https://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=321&print=0&entityTypeID=3.
---------------------------------------------------------------------------

    We continue to believe the PSI 90 measure is an important measure 
of patient safety, addressing the NQS priority and CMS Quality Strategy 
goal to make care safer, and that these modifications help broaden and 
strengthen the measure. We expect inclusion of the Patient Safety and 
Adverse Events (Composite) measure in the Hospital VBP Program will 
encourage improvement in patient safety over the long-term for all 
hospitals. Conditions such as perioperative hemorrhage, postoperative 
respiratory failure, pressure ulcers, and other complications or 
conditions that arise after a patient was admitted to the hospital for 
the treatment of another condition are often preventable, and cost 
Medicare and the private sector billions of dollars each year and take 
a significant toll on patients and families. In most cases, hospitals 
can prevent these conditions when they follow protocols, procedures, 
and evidence-based guidelines. We anticipate the Patient Safety and 
Adverse Events (Composite) measure will provide actionable information 
and specific direction for prevention of patient safety events, because 
hospitals can track and monitor individual PSI rates and develop 
targeted improvements to patient safety using this measure data.\59\
---------------------------------------------------------------------------

    \59\ For further guidance on PSI monitoring and strategies for 
applying quality improvements to PSI data, we refer readers to the 
Toolkit for Using the AHRQ quality indicators available at: http://www.ahrq.gov/professionals/systems/hospital/qitoolkit/index.html.
---------------------------------------------------------------------------

    We proposed to adopt the Patient Safety and Adverse Events 
(Composite) measure for the Hospital VBP Program beginning with the FY 
2023 program year because we believe the measure would continue to 
create 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 also proposed that the measure 
would be added to the Safety domain, like the previously adopted PSI 90 
measure that we proposed to remove in section V.J.3.b. of the preamble 
of the proposed rule. The Patient Safety and Adverse Events (Composite) 
measure fulfills all statutory requirements for the Hospital VBP 
Program based on our adoption of that measure in the Hospital IQR 
Program and the anticipated posting of measure data on Hospital Compare 
at least 1 year prior to the start of the proposed measure performance 
period. The Patient Safety and Adverse Events (Composite) measure 
(MUC15-604) was included on the ``List of Measures Under Consideration 
for December 1, 2015'' \60\ and received support from the MAP, which 
noted the importance of safety measures for the Hospital VBP 
Program.\61\ Therefore, we proposed to add the Patient Safety and 
Adverse Events (Composite) measure to the Safety domain for the FY 2023 
program year and subsequent years.
---------------------------------------------------------------------------

    \60\ ``List of Measures Under Consideration for December 1, 
2015.'' Available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    \61\ National Quality Forum, Measure Applications Partnership, 
``MAP 2016 Considerations for Implementing Measures in Federal 
Programs: Hospitals'' Final Report, (February 2016). Available at: 
http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_Hospitals.aspx.
---------------------------------------------------------------------------

    We invited public comment on this proposal.
    Comment: A number of commenters supported CMS' proposal to adopt 
the Patient Safety and Adverse Events (Composite) measure because it 
was updated using the NQF maintenance re-endorsement process; the 
measure aligns with CMS' priority to improve patient safety and reduce 
adverse events during patient stays; and the measure is used in other 
programs and adopting it for the Hospital VBP Program would align 
quality measures across programs. Some commenters strongly supported 
adoption of the Patient Safety and Adverse Events (Composite) measure, 
but expressed concern that the Hospital VBP Program will lack a patient 
safety composite measure between the FY

[[Page 38253]]

2019 and FY 2023 program years. Commenter urged CMS to look for 
opportunities to advance use of this measure in the Hospital VBP 
Program prior to the FY 2023 program year, or look to include other 
available measures to ensure that surgical complications remain a key 
component of the Hospital VBP Program.
    Response: We thank the commenters for their support. As discussed 
in section V.J.3.b. of the preamble of this final rule, above, we will 
be unable to calculate measure scores for the current PSI 90 measure in 
the FY 2019 program year or a subsequent year because ICD-10 AHRQ PSI 
software for the currently adopted measure will not be available. 
Furthermore, due to certain statutory requirements in the Hospital VBP 
Program, we are unable to adopt the proposed Patient Safety and Adverse 
Events (Composite) measure earlier than the FY 2023 program year. 
Section 1886(o)(2)(A) of the Act requires the Hospital VBP Program to 
select measures that have been specified for the Hospital IQR Program. 
In addition, 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. The Hospital IQR Program finalized adoption of 
the modified PSI 90 measure (also known as the Patient Safety and 
Adverse Events (Composite) measure) in the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 57133), and we are required to wait one full year after 
data has been posted before that measure's performance period may begin 
in the Hospital VBP Program. Because measure data for the Patient 
Safety and Adverse Events (Composite) measure has not been posted on 
Hospital Compare, and because AHRQ requires sufficient time to develop 
the ICD-10 AHRQ PSI software for a given year, we are unable to adopt 
the measure before the FY 2023 program year.
    We agree with commenters that surgical complications remain a key 
concern to address within our quality programs, including the Hospital 
VBP Program, and note that the NHSN measures will continue in the 
Safety domain of the Hospital VBP Program. We note that information on 
hospital performance on the Patient Safety and Adverse Events 
(Composite) measure will be publicly available through the Hospital IQR 
Program beginning in the fall of 2017. In addition, the HAC Reduction 
Program, which is not subject to the same statutory requirements as the 
Hospital VBP Program, will use this measure beginning with the FY 2018 
program year. We believe earlier inclusion of this measure in the HAC 
Reduction Program will help incentivize hospitals to reduce patient 
safety events until the measure can be implemented in the Hospital VBP 
Program.
    Comment: Many commenters strongly recommended that CMS not include 
the Patient Safety and Adverse Events (Composite) measure because 
hospital performance on the measure will not be publicly reported until 
after the comment period has ended. A number of these commenters noted 
that publicly reporting measures: Provides transparency on provider 
performance; allows hospitals to gain experience submitting data and 
become familiar with the measure's refinements and use of ICD-10 codes; 
allows time to identify errors and unintended consequences; and informs 
CMS and the measure developer of any implementation concerns. Some 
commenters further asserted that all measures should be publicly 
reported under the Hospital IQR Program for one year before being 
considered for inclusion in the Hospital VBP Program. One commenter 
asserted that stakeholders are unable to provide sufficient feedback on 
the proposed Patient Safety and Adverse Events measure without access 
to publicly reported measure data from the Hospital IQR Program. For 
these reasons, commenters urged CMS to postpone finalizing this measure 
for the Hospital VBP Program until stakeholders have sufficient data to 
review this measure to determine the appropriateness of the Patient 
Safety and Adverse Events (Composite) measure in the Hospital VBP 
Program.
    Response: While we understand stakeholders' desire to see 
performance data from the Patient Safety and Adverse Events (Composite) 
measure before commenting on whether this measure should be adopted for 
the Hospital VBP Program, we note that, as discussed in the FY 2018 
IPPS/LTCH PPS proposed rule, the measure has undergone extensive 
testing and found to be both reliable and valid. Furthermore, we note 
that adoption of this measure before its public reporting on Hospital 
Compare does not preclude hospitals from submitting questions and 
comments on the measure to CMS. Publicly reported Patient Safety and 
Adverse Events (Composite) measure data will be available in the fall 
of 2017, and we encourage hospitals, providers, patients, and other 
stakeholders to review these data and contact CMS with any questions 
regarding their measure scores. We further note the Patient Safety and 
Adverse Events (Composite) measure is being finalized for 
implementation in the Hospital VBP Program for the FY 2023 program year 
with a performance period of July 1, 2019 through June 30, 2021; we 
believe the time period before implementation provides hospitals with 
sufficient time to become familiar with the measure's specifications 
and reporting requirements before performance on the Patient Safety and 
Adverse Events (Composite) measure is reflected in hospitals' TPSs.
    We further disagree that, absent publicly reported performance 
data, hospitals lack sufficient information to sufficiently comment on 
the proposed adoption of the Patient Safety and Adverse Events 
(Composite) measure. In proposing to adopt this measure, CMS provided a 
full description of the measure's specifications and its development 
history, explained the satisfaction of all statutorily-required 
actions, and provided links to additional sources of in-depth 
information regarding the detailed specifications for this measure. In 
addition, seven of the ten Patient Safety and Adverse Event (Composite) 
component indicators were also included in the previously adopted PSI 
90 measure. We therefore believe commenters had ample information to 
use in reviewing the Patient Safety and Adverse Events (Composite) 
measure, allowing them to comment meaningfully on its proposed 
adoption.
    Comment: A number of commenters did not support CMS' proposal to 
adopt the Patient Safety and Adverse Events (Composite) measure because 
the measure is subject to reliability and accuracy concerns; commenters 
believe the measure will not provide accurate, meaningful, actionable 
data on hospital safety performance; and commenters believe the measure 
is not sufficiently risk-adjusted for patient characteristics. Two 
commenters asserted that the proposed Patient Safety and Adverse Events 
(Composite) measure is flawed, stating that, according to the 
developer, the measure was not meant to be used in pay-for-performance 
programs. One commenter expressed concern regarding CMS' proposal to 
use a composite measure of patient safety, because the commenter 
believes composite measures limit the ability of a hospital to identify 
the specific component of the composite measure causing them to fall 
out of compliance. Another commenter believed it was likely that the 
PSI 90 measure will undergo additional updates before the FY 2023 
program year, which would render this measure proposal outdated before 
the measure's implementation.

[[Page 38254]]

    Response: We disagree with commenters that the Patient Safety and 
Adverse Events (Composite) measure has not demonstrated that it is an 
accurate, reliable, and valid indicator of quality and safety of care 
that is adequately risk-adjusted. Over the past decade, AHRQ has 
supported a series of validation studies based on detailed abstraction 
of medical records.\62\ These studies informed AHRQ's PSI development 
process, including further refinements to the indicators, working with 
others to improve coding practices, and retirement of a few indicators. 
Furthermore, many of these claims-based indicators have been endorsed 
by the NQF, which includes a review process that assesses reliability 
and validity.\63\ We note that NQF endorsed the Patient Safety and 
Adverse Events (Composite) measure (NQF #0531), including the risk-
adjustment methodology of the component indicators, as reliable and 
valid. Further, we believe this measure does provide actionable 
information and specific direction for prevention of patient safety 
events, because hospitals can track and monitor individual PSI rates 
and develop targeted improvements to improve patient safety. For 
further guidance on PSI monitoring and strategies for applying quality 
improvements to PSI data, we refer readers to the Toolkit for Using the 
AHRQ quality indicators available at: http://www.ahrq.gov/professionals/systems/hospital/qitoolkit/index.html.
---------------------------------------------------------------------------

    \62\ AHRQ, ``AHRQ PSI Development,'' available at: https://www.qualityindicators.ahrq.gov/Modules/psi_resources.aspx. AHRQ, 
``Quality Indicator Measure Development, Implementation, 
Maintenance, and Retirement,'' available at: https://www.qualityindicators.ahrq.gov/Downloads/Resources/Publications/2011/QI_Measure_Development_Implementation_Maintenance_Retirement_Full_5-3-11.pdf.
    \63\ http://www.qualityforum.org/Publications/2013/10/Review_and_Update_of_Guidance_for_Evaluating_Evidence_and_Measure_Testing_-_Technical_Report.aspx.
---------------------------------------------------------------------------

    While we do not anticipate any further updates to the Patient 
Safety and Adverse Events (Composite) measure at this time, we 
acknowledge that the measure may undergo additional updates in the 
future as part of measure maintenance. Depending on the nature of these 
updates and their applicability to the Hospital VBP Program's aims, we 
will determine how best to address them in future years of the program.
    Comment: Several commenters did not support adoption of the Patient 
Safety and Adverse Events (Composite) measure because it is susceptible 
to surveillance bias; measures components that occur infrequently or 
may not be preventable through evidence-based practices; lacks 
appropriate and necessary exclusions associated primarily with large 
academic centers; and is based on administrative claims data that does 
not fully reflect a patient's history, course of care, and clinical 
risk factors and therefore impacts the measure's ability to draw 
meaningful conclusions about hospital performance on safety issues. 
Some commenters also believe that it may disproportionately impact 
teaching hospitals because they tend to have robust infection control 
programs and are therefore more likely to identify patient safety 
events.
    Response: While we acknowledge commenters' concerns, administrative 
claims data are valid for quality measurement and significantly less 
burdensome on hospitals for quality reporting. We note that there are 
previously conducted studies that validate the relationship between 
administrative claims data and medical records.\64\ These studies 
demonstrate that administrative claims data can provide sufficient 
clinical information to assess patient safety. We refer readers to the 
FY 2015 IPPS/LTCH PPS final rule (79 FR 50091) for a further discussion 
of this issue in the context of the HAC Reduction Program.
---------------------------------------------------------------------------

    \64\ Zrelak PA, Romano PS, Tancredi DJ, Geppert JJ, Utter GH. 
Validity of the AHRQ Patient Safety Indicator for Postoperative 
Physiologic and Metabolic Derangement based on a national sample of 
medical records. Medical Care 2013; 51(9):806-11.
---------------------------------------------------------------------------

    We also acknowledge commenters' concern regarding the impact of 
surveillance bias, but note that there is little evidence that 
hospitals that may have a less robust surveillance program or 
underreport diagnoses for the PSI 90 indicators. Further, the measure 
exhibits a high degree of sensitivity (true positives, or the 
proportion of positives that are correctively identified as such) with 
respect to indicator diagnoses among hospitals. In addition, we note 
that many teaching hospitals do as well or better on the measure than 
non-teaching hospitals, and many of the patient safety indicator 
components are preventable through evidence-based practices. We have 
previously addressed commenters' concerns regarding the use of 
administrative claims, coding issues, and the impact on academic 
hospitals. We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50684) and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50064) for 
this discussion.
    Comment: One commenter expressed particular concern about the 
vulnerability of PSI 12 (Perioperative PE or DVT Rate) to surveillance 
bias, because hospitals with more sophisticated tools to identify and 
track venous thromboembolism (VTE) show higher rates of VTE and may 
therefore be penalized for doing a better job at detection. Commenter 
stated that performance on PSI 12 may reflect differences in VTE 
imaging use rather than differences in the quality of care, and the 
inclusion of PSI 12 in the Patient Safety and Adverse Events 
(Composite) measure could unfairly penalize hospitals with increased 
vigilance in VTE detection.
    Response: CMS and AHRQ recognize the commenter's concerns about 
surveillance bias for PSI 12, and note this issue was addressed in the 
NQF Patient Safety Steering Committee in 2015. Several research teams 
have examined DVT and PE rates and surveillance bias.\65\ However, 
studies have not specifically examined whether the observed rates 
reflect underdiagnosis of DVT or PE at low-testing hospitals, or the 
underlying true incidence of symptomatic DVT or PE, and there is no 
evidence currently available to support the hypothesis that increased 
vigilance in DVT or PE detection is desirable from the perspective of 
patients and their families. Thus, while we acknowledge commenter's 
concerns regarding surveillance bias, we believe the PSI 12 is an 
important component indicator of the Patient Safety and Adverse Events 
(Composite) measure because it encourages hospitals not only to prevent 
DVT or PE, but also to appropriately assess a patient's risk for DVT 
and PE to prevent over-diagnosis and underdiagnosis.
---------------------------------------------------------------------------

    \65\ Bilimoria Y, Chun J. Ju MH, et al. Evaluation of 
surveillance bias and the validity of venous thromboembolism quality 
measure. JAMA. 2013;310(14):1482-1489; Holcomb CN, DeRussy A, 
Richman JS, Hawn MT. Association between inpatient surveillance and 
venous thromboembolism rates after hospital discharge. JAMA Surg. 
2015;150(6):520-527.
---------------------------------------------------------------------------

    Comment: Several commenters expressed concern that the timing and 
operational difficulties associated with procuring the AHRQ software 
hospitals need in order to calculate their own scores makes it 
impossible for hospitals to use this measure for internal quality 
improvement activities. Two commenters recommended that CMS delay 
adoption of the Patient Safety and Adverse Events (Composite) measure 
until the measure and associated software have been developed and 
validated in order to provide hospitals time to acquire the AHRQ 
software required to assess hospital performance on an ongoing basis 
and inform intervention strategies.

[[Page 38255]]

    Response: We appreciate commenters' commitment to continuous 
monitoring of performance. We understand that it is imperative for 
hospitals to monitor performance in an ongoing manner, and we are 
working with AHRQ to have the risk-adjusted software available as soon 
as possible. For more information on the release plan for ICD-10 risk 
adjusted software, we refer commenters to the AHRQ Quality Indicators 
Software page available at: http://www.qualityindicators.ahrq.gov/Software/Default.aspx.
    Comment: Two commenters did not support CMS' proposal to adopt the 
Patient Safety and Adverse Events (Composite) measure beginning with 
the FY 2023 program year because this measure has already been adopted 
for the HAC Reduction Program, and adopting this measure for Hospital 
VBP would result in double counting of measure scores across programs.
    Response: While we acknowledge that there is some overlap in 
quality measures between the Hospital VBP Program and the HAC Reduction 
Program, we note that these measures cover topics of critical 
importance to quality improvement and patient safety in the inpatient 
hospital setting. We selected these quality measures because we believe 
that hospital acquired condition measures comprise some of the most 
critical patient safety areas. These measures track infections and 
adverse events that could cause significant health risks to Medicare 
beneficiaries, and we believe it is appropriate to provide incentives 
for hospitals to avoid them under more than one program.
    We further stress that the HAC Reduction Program and the Hospital 
VBP Program are separate programs with different purposes and policy 
goals. The HAC Reduction Program reduces payments to hospitals for 
excess hospital acquired conditions to increase patient safety in 
hospitals. On the other hand, the Hospital VBP Program is an incentive 
program that redistributes a portion of the Medicare payments made to 
hospitals based on their performance on a variety of measures, 
including safety measures, in order to provide a more holistic 
assessment of hospitals' quality of care. Accordingly, we believe that 
the critical importance of these measures to patient safety warrants 
their inclusion in both programs. We will, in the future, continue to 
monitor the HAC Reduction Program and Hospital VBP Program and analyze 
the impact of our measures selection, including any unintended 
consequences with having a measure in more than one program, and will 
revise the measure set in one or both programs if needed.
    Comment: A few commenters did not support adoption of the Patient 
Safety and Adverse Events (Composite) measure because the first 
performance periods for the Patient Safety and Adverse Event 
(Composite) measure data that involve the use of ICD-10-CM data in the 
Hospital IQR Program did not end until June 30, 2017, and hospitals 
will see initial performance scores once CMS performs those 
calculations for FY 2019. Commenters noted the transition from ICD-9-CM 
to ICD-10-CM resulted in a number of issues with the previous PSI 90 
measure, and therefore recommended CMS delay finalizing adoption of the 
measure in order to allow hospitals time to review their performance 
data and identify any issues with the Patient Safety and Adverse Events 
(Composite) measure's specifications.
    Response: We thank the commenter for their recommendation, but note 
that one of the factors in our decision to delay the use of ICD-10 
claims data for this measure in the Hospital IQR Program until the FY 
2019 payment determination was to allow for the necessary time for AHRQ 
to create a risk-adjusted software version. While we are not aware that 
the transition to ICD-10-CM/PCS codes has currently caused inaccuracies 
in PSI reporting and evaluation, we are actively monitoring for any 
potential issues related to ICD-10 conversion. We note that all measure 
specifications for the Patient Safety and Adverse Events (Composite) 
measure have been translated to and updated for corresponding ICD-10 
code specifications; these changes for ICD-10-CM/PCS conversion of 
AHRQ's patient safety indicators are available at: http://www.qualityindicators.ahrq.gov/FAQs_Support/FAQ_QI.aspx#.
    We further note that AHRQ welcomes input from the user community on 
the AHRQ PSI ICD-10-CM/PCS software. Please provide suggestions and 
comments directly to: [email protected].
    Comment: One commenter requested additional information about how 
performance for selected indicators under the Patient Safety and 
Adverse Events (Composite) measure will be assessed for conditions 
where a hospital's expected rate of a given safety event is less than 
1.0. A second commenter strongly recommended CMS revisit the scoring 
methodology for the Patient Safety and Adverse Events (Composite) 
measure because hospitals that have been effective in driving down 
infection rates to below 1.0 are, in effect, penalized by the measure 
not being scored, rather than being rewarded for their work.
    Response: The Patient Safety and Adverse Events (Composite) measure 
does not use minimum criteria as described in commenters' comments; we 
therefore interpret commenters' reference to expected rates of safety 
events less than 1.0 to refer to the minimum precision criteria for the 
NHSN HAI measures, that is, at least one predicted infection for a 
reporting period for the measure result to be reported. We would note 
the Patient Safety and Adverse Events (Composite) measure requires that 
hospitals have a minimum of three eligible cases on any one underlying 
indicator during the baseline period in order to receive an improvement 
score and three eligible cases on any one underlying indicator during 
performance period in order to receive an improvement or achievement 
score. For the purposes of the Patient Safety and Adverse Events 
(Composite) measure, a case is ``eligible'' for a given indicator if it 
meets the criterion for inclusion in the indicator measure population. 
This minimum number of cases is based on AHRQ's methodology for scoring 
performance on the Patient Safety and Adverse Events (Composite) 
measure. Under this methodology, all hospitals that meet the case 
minimum will be scored based on their performance on this measure, and 
those that do not meet the case minimum will not receive a score for 
that component indicator. In addition, a hospital will be eligible to 
receive a score on the Patient Safety and Adverse Events (Composite) 
measure if they meet the case minimum criteria for at least one 
component indicator. We note that this case minimum applies to all 
hospitals, including those that experience zero numerator events during 
the performance period. Therefore, a hospital that meets the case 
minimum for a given component indicator but experiences zero numerator 
events will still receive a score on that component indicator.
    Comment: Two commenters recommended that CMS consider replacing the 
current PSI 90 measure with objective, clinical outcome measures from 
the CDC's National Healthcare Safety Network.
    Response: We thank the commenters for their recommendation, and we 
will take this into consideration in the future. We note that the 
Hospital VBP Program has adopted a number of NHSN-based measures in 
previous years, including the CLABSI, CAUTI, CDI, Colon and the 
Abdominal

[[Page 38256]]

Hysterectomy SSI, and MRSA Bacteremia measures.
    Comment: A few commenters urged CMS to remove PSI 03 (Pressure 
Ulcer Rate) from the Patient Safety and Adverse Events (Composite) 
measure because pressure ulcers are complex and may not be 
appropriately captured under the composite measure. In the alternative, 
commenters recommended that CMS adopt the Percent of Residents or 
Patients with Pressure Ulcers that are New or Worsened (NQF #0678) 
measure for the Hospital VBP Program.
    Response: We thank the commenters for their recommendation; 
however, we believe it is appropriate to use the PSI 03 indicator in 
the Patient Safety and Adverse Events (Composite) measure for the 
Hospital VBP Program because none of the measures previously adopted 
for the program capture pressure ulcer or injury data. The recommended 
measure, Percent of Residents or Patients with Pressure Ulcers that are 
New or Worsened (NQF #0678), is not currently specified for use in the 
acute, inpatient hospital setting of care.\66\ In addition, this 
measure is also collected via chart abstraction, and we believe the 
additional reporting burden on hospitals for this measure currently 
outweighs the benefit of collecting this data in the inpatient hospital 
setting when the PSI 03 indicator in the Patient Safety and Adverse 
Events (Composite) measure is available for use and hospitals are 
familiar with this indicator. Furthermore, due to the statutory 
requirements of the Hospital VBP Program, we are unable to adopt the 
recommended measure at this time. However, if the same or similar 
measure that is specified for the acute, inpatient hospital setting 
becomes available, we will consider the measure for future program 
years.
---------------------------------------------------------------------------

    \66\ National Quality Forum. ``0678: Percent of Residents or 
Patients with Pressure Ulcers That Are New or Worsened (Short-
Stay).'' Available at: https://www.qualityforum.org/QPS/QPSTool.aspx 
after searching ``0678.''
---------------------------------------------------------------------------

    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the Patient Safety and Adverse Events 
(Composite) measure beginning with the FY 2023 program year.
5. Previously Adopted and Newly Finalized 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 Efficiency and Cost Reduction domains 
that we have adopted for the FY 2018 program year. We refer readers to 
the FY 2017 IPPS/LTCH PPS final rule (81 FR 56998 through 57003) for 
additional baseline and performance periods that we have adopted for 
the FY 2018, FY 2019, FY 2020, FY 2021 and FY 2022 program years. 
Although in past rulemaking we have proposed and adopted a new baseline 
and performance period for each program year for each measure in each 
final rule, in the FY 2017 IPPS/LTCH PPS final rule, we finalized a 
schedule for all future baseline and performance periods.
b. Person and Community Engagement Domain
    Since the FY 2015 program year, we have adopted a 12-month baseline 
period and 12-month performance period for measures in the Person and 
Community Engagement domain (previously 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). In the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 56998), we finalized our proposal to adopt a 12-
month performance period for the Person and Community Engagement domain 
that runs on the calendar year two years prior to the applicable 
program year and a 12-month baseline period that runs on the calendar 
year four years prior to the applicable program year, for the FY 2019 
program year and subsequent years.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19974 through 
19775), we did not propose any changes to these policies.
c. Efficiency and Cost Reduction Domain
(1) MSPB Measure
    Since the FY 2016 program year, we have adopted a 12-month baseline 
period and 12-month performance period for the MSPB measure in the 
Efficiency and Cost Reduction domain (78 FR 50692; 79 FR 50072; 80 FR 
49562). In the FY 2017 IPPS/LTCH PPS final rule, we finalized our 
proposal to adopt a 12-month performance period for the MSPB measure 
that runs on the calendar year two years prior to the applicable 
program year and a 12-month baseline period that runs on the calendar 
year four years prior to the applicable program year for the FY 2019 
program year and subsequent years (81 FR 56998).
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19775), we did 
not propose any changes to these policies.
(2) AMI Payment and HF Payment Measures
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56999), we adopted a 
24-month performance period and a 36-month baseline period for the AMI 
Payment and HF Payment measures for the FY 2021 program year. We did so 
in order to adopt the measures as early as feasible into the Hospital 
VBP Program, and stated our belief that using a 24-month performance 
period rather than a 36-month performance period for the first program 
year of these measures would still enable us to accurately assess the 
quality of care provided by hospitals and would not substantially 
change a hospital's performance on the measure (81 FR 56998 through 
56999). In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19975), we 
did not propose any changes to the length of these performance or 
baseline periods for the FY 2021 program year.
    In the FY 2017 IPPS/LTCH PPS final rule, we also adopted a 36-month 
performance period and 36-month baseline period for the AMI Payment and 
HF Payment measures for the FY 2022 program year (81 FR 57000). In the 
FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19975), we did not propose 
any changes to the length of these performance or baseline periods for 
the FY 2022 program year.
    For the FY 2023 program year and subsequent years, we proposed it 
would be appropriate to use a 36-month performance period and 36-month 
baseline period for the AMI Payment and HF Payment measures as we have 
adopted for the FY 2022 program year. Therefore, in the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 19975), for the FY 2023 program year and 
subsequent years, we proposed to adopt a 36-month performance period 
that runs from July 1st five years prior to the applicable fiscal 
program year to June 30th two years prior to the applicable fiscal 
program year. We also proposed to adopt a 36-month baseline period that 
runs from July 1, 10 years prior to the applicable fiscal program year, 
to June 30, 7 years prior to the applicable fiscal program year.
    We invited public comment on these proposals.
    Comment: One commenter supported CMS' proposal to adopt 36-month 
performance and baseline periods for the AMI and HF Payment measures.

[[Page 38257]]

    Response: We thank the commenter for their support.
    Comment: Two commenters urged CMS to reevaluate the length of time 
between the baseline period, performance period, and payment 
implications of the AMI and HF Payment measures because commenters 
believed using a baseline period that begins 10 years prior to the 
program year would fail to provide relevant data to CMS on hospital 
performance.
    Response: We use a three-year period of index admissions for the PN 
Payment measure in order to increase the number of cases per hospital 
used for measure calculation, which improves the precision of each 
hospital's measure rate. As a result, the baseline and performance 
periods cover a much longer period of time than used in other measures, 
and are further in time from the payment impacts for a given program 
year. Although this approach utilizes older data, it also identifies 
more variation in hospital performance and still allows for improvement 
from one year of reporting to the next. We decided to use the proposed 
timeframe because it balances the need for the most recent claims and 
sufficient time to process the claims data and calculate the measures 
to meet the program's timelines.
    After consideration of the public comments we received, we are 
finalizing the baseline and performance periods for the AMI and HF 
Payment measures as proposed.
(3) PN Payment Measure in the FY 2022 Program Year
    As discussed in section V.J.4.a. of the preamble of this final 
rule, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19971 through 
19973), we proposed a new PN Payment measure for the FY 2022 program 
year and subsequent years. In order to adopt this measure as early as 
feasible into the Hospital VBP Program, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19975 through 19976), we proposed to adopt a 36-
month baseline period and a 23-month performance period. We proposed to 
adopt a 23-month performance period because we anticipate that the 
refined measure will not be posted on Hospital Compare for one year 
until July 2017. Therefore, for the FY 2022 program year, we proposed 
to adopt a 23-month performance period that runs from August 1, 2018 to 
June 30, 2020 and a baseline period that runs from July 1, 2013 to June 
30, 2016.
    We believe that using a 23-month performance period for the 
proposed PN Payment measure, rather than a 36-month performance period, 
in the FY 2022 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 proposed PN Payment measure's 
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 assessment of a 
hospital using different but randomly selected subsets of patients 
produces similar measures of hospital performance.\67\ We calculated 
the risk-standardized payment (RSP) using a random split-sample of a 
36-month performance period (we used July 1, 2013 through June 30, 
2016) and a random split-sample of a 24-month performance period (we 
used July 1, 2013 through June 30, 2015).
---------------------------------------------------------------------------

    \67\ Shrout P, Fleiss J. Intraclass Correlations: Uses in 
Assessing Rater Reliability. Psychol. Bull. Mar 1979;86(2):420-428.
---------------------------------------------------------------------------

    For both the 36-month and 24-month performance period, 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 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) \68\ for both the 36-month and 24-month 
performance periods.
---------------------------------------------------------------------------

    \68\ Shrout P, Fleiss J. Intraclass Correlations: Uses in 
Assessing Rater Reliability. Psychol. Bull. Mar 1979;86(2):420-428.
---------------------------------------------------------------------------

    For the proposed PN Payment measure, there were 1,170,762 index 
admissions and 3,242 hospitals that met the minimum case threshold for 
reporting a measure result (at least 25 cases) in the 36-month 
performance period. There were 787,817 index admissions and 3,218 
hospitals that met the minimum case 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 0.868. For the 24-month 
performance period, the ICC for the two independent assessments of each 
hospital was 0.834. Therefore, the data subsets showcase 
``substantial'' agreement of hospital performance, and we can 
demonstrate that, even with a shortened performance period, the 
proposed PN Payment measure assesses the quality of care provided at a 
hospital rather than the types of patients that these hospitals 
treat.\69\
---------------------------------------------------------------------------

    \69\ Landis J, Joch G. The Measurement of Observer Agreement for 
Categorical Data. Biometrics. Mar 1997;33(1):159-174.
---------------------------------------------------------------------------

    To assess whether using fewer than 36 months of data change the 
performance in the same hospital, we compared the percent change in a 
hospital's predicted/expected (P/E) ratio using 24 months of data. For 
hospitals that met the minimum case threshold in the 24-month 
performance period, the median percent change was 0.11 percent (with an 
interquartile range of -1.5 percent to 0.07 percent). These results 
suggest minimal difference in same-hospital performance when using a 
24-month measurement period. Based on these analyses, we are confident 
that using a 23-month performance period will result in reliable 
measure scores because our analysis demonstrates strong reliability at 
24 months and we believe the change in available data due to a one 
month difference in the performance period is insufficient to 
substantially impact the measure's reliability.
    In summary, based on the analysis described above, we are confident 
that using a 23-month performance period, rather than 36-month 
performance period, for the initial performance period for this measure 
would accurately assess the quality of care provided by that hospital 
and would not substantially change the hospital's performance on that 
measure.
    We invited public comment on these proposals.
    Comment: One commenter requested that CMS consider reducing the 
performance period for the PN Payment measure from three years to one 
year.
    Response: As noted above, our goal is to use a three-year period of 
index admissions for the PN Payment measure in order to increase the 
number of cases per hospital used for measure calculation, which 
improves the precision of each hospital's measure rate. Although this 
approach utilizes older data, it also identifies more variation in 
hospital performance and still allows for improvement from one year of 
reporting to the next.
    Comment: One commenter recommended that, if CMS finalizes adoption 
of the PN Payment measure, CMS delay implementation of the measure 
until a 36-month performance period can be adopted for this measure 
because the commenter believes that having a performance period that is 
different from the performance period used for other condition-specific 
measures is confusing for providers and patients.

[[Page 38258]]

    Response: We continue to believe that the 23-month performance 
period for the FY 2022 program year and 35-month performance period for 
the FY 2023 program year are sufficiently reliable to accurately assess 
the resource use by hospitals and would not substantially change 
hospitals' performance on the measure. We note that the PN Payment 
measure will only have an abbreviated performance period in the FY 2022 
and FY 2023 program years, the first two years this measure is in the 
program, but we are adopting a 36-month performance period for the FY 
2024 program year and subsequent years, as detailed in the next section 
below.
    After consideration of the public comments we received, we are 
finalizing the baseline and performance periods for the PN Payment 
measure for the FY 2022 program year as proposed.
(4) PN Payment Measure in the FY 2023 Program Year
    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 (78 FR 50074; 79 FR 50057; and 80 FR 49588). While we cannot 
adopt a 36-month performance period for the FY 2023 program year 
because we anticipate that the refined measure will not be posted on 
Hospital Compare for 1 year until July 2017, we could lengthen the PN 
Payment measure performance period from 23 months to 35 months. As 
demonstrated above, our analysis of the proposed PN Payment measure 
indicates that the measure would produce reliable measure scores using 
24 months of data as well as 36 months of data. As such, we are 
confident they will also be reliable when calculated using 35 months of 
data for the performance period for the FY 2023 program year. 
Therefore, for the FY 2023 program year, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19776), we proposed to adopt a 35-month 
performance period that runs from August 1, 2018 to June 30, 2021 and a 
36-month baseline period that runs from July 1, 2013 to June 30, 2016.
    We invited public comment on these proposals. We did not receive 
public comments on the proposed baseline and performance periods for 
the PN Payment measure for the FY 2023 program year and subsequent 
years. We are finalizing the baseline and performance periods for the 
PN Payment measure for the FY 2023 program year as proposed.
(5) PN Payment Measure in the FY 2024 Program Year and Subsequent Years
    For the FY 2024 program year and subsequent years, we believe it 
would be appropriate to use a 36-month performance period and 36-month 
baseline period for the PN Payment measure. Therefore, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19976), for the FY 2024 program year 
and subsequent years, we proposed to adopt a 36-month baseline period 
and a 36-month performance period for the proposed PN Payment measure. 
Specifically, we proposed to adopt a 36-month performance period that 
runs from July 1, 5 years prior to the applicable fiscal program year, 
to June 30, 2 years prior to the applicable fiscal program year and a 
36-month baseline period that runs from July 1, 10 years prior to the 
applicable fiscal program year, to June 30, 7 years prior to the 
applicable fiscal program year.
    We invited public comment on these proposals. We did not receive 
public comments on the proposed baseline and performance periods for 
the PN Payment measure for the FY 2024 program year and subsequent 
years. We are finalizing the baseline and performance periods for FY 
2024 and subsequent years as proposed.
d. Safety Domain
(1) Previously Adopted Measures in the 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). In the FY 2017 IPPS/LTCH PPS final rule, we 
finalized our proposal to adopt a performance period for all measures 
in the Safety domain--with the exception of the PSI 90 measure, as 
discussed in more detail below--that runs on the calendar year 2 years 
prior to the applicable program year and a baseline period that runs on 
the calendar year 4 years prior to the applicable program year for the 
FY 2019 program year and subsequent program years (81 FR 57000).
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19976), we did 
not propose any changes to these policies.
(2) Patient Safety and Adverse Events (Composite) Measure in the FY 
2023 Program Year
    As discussed above in section V.J.3.b. of the preamble of this 
final rule, In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19970), 
we proposed to remove the currently adopted PSI 90 measure beginning 
with the FY 2019 program year, and in section V.J.4.b. of the preamble 
of this final rule, we discuss our proposal to adopt the Patient Safety 
and Adverse Events (Composite) measure beginning with the FY 2023 
program year. In order to adopt the Patient Safety and Adverse Events 
(Composite) measure as early as feasible into the Hospital VBP Program, 
we proposed to adopt a 21-month baseline period and 24-month 
performance period for the measure for the FY 2023 program year. 
Specifically, we proposed to adopt a performance period that runs from 
July 1, 2019 to June 30, 2021, and a baseline period that runs from 
October 1, 2015 to June 30, 2017. The 21-month baseline period would 
only apply to the FY 2023 program year and would only use ICD-10 data.
    Prior to deciding to propose an abbreviated baseline period for the 
FY 2023 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 
a shortened baseline period. We believe using a 21-month baseline 
period for the Patient Safety and Adverse Events (Composite) measure 
for the FY 2023 program year 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 measure 
scores, while minimizing the reporting burden and program disruption. 
We also believe that measure scores would continue to be reliable for 
the above proposed baseline period because the NQF, which re-endorsed 
the modified version of the measure that we proposed, found it to be 
reliable using 12 months of data.\70\
---------------------------------------------------------------------------

    \70\ ``Patient Safety 2015 Final Report'' is available at: 
http://www.qualityforum.org/Publications/2016/02/Patient_Safety_2015_Final_Report.aspx.
---------------------------------------------------------------------------

    We invited public comment on these proposals. We did not receive 
public comments on the proposed baseline and performance periods for 
the Patient Safety and Adverse Events (Composite) measure for the FY 
2023 program year. We are finalizing the baseline and performance 
period as proposed.
(3) Patient Safety and Adverse Events (Composite) Measure in the FY 
2024 Program Year and Subsequent Years
    For the FY 2024 program year and subsequent years, in the FY 2018 
IPPS/

[[Page 38259]]

LTCH PPS proposed rule (82 FR 19976), we proposed to lengthen the 
Patient Safety and Adverse Events (Composite) measure baseline period 
to 24 months and continue to adopt a 24-month performance period 
because we believe the measure is most reliable with a 24-month 
baseline period. For the FY 2024 program year, the baseline period 
would run from July 1, 2016 to June 30, 2018. Therefore, we proposed to 
adopt a performance period that runs from July 1, 4 years prior to the 
applicable fiscal program year, to June 0, 2 years prior to the 
applicable fiscal program year, and a baseline period that runs from 
July 1, 8 years prior to the applicable program year, to June 30, 6 
years prior to the applicable program year.
    We invited public comment on these proposals. We did not receive 
public comments on the proposed baseline and performance periods for 
the Patient Safety and Adverse Events (Composite) measure for the FY 
2024 program year and subsequent years. We are finalizing the baseline 
and performance periods for the FY 2024 program year and subsequent 
years as proposed.
e. Clinical Care Domain
(1) Previously Adopted Measures in the Clinical Care Domain
    For the FY 2019, FY 2020, and FY 2021 program years, we adopted a 
36-month baseline period and 36-month performance period for measures 
in the Clinical Care domain (78 FR 50692 through 50694; 79 FR 50073; 80 
FR 49563).\71\ In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57000), 
we finalized our proposal to adopt a 36-month performance period and 
36-month baseline period for the FY 2022 program year for each of the 
previously finalized measures in the Clinical Care domain--that is, the 
MORT-30-AMI, MORT-30-HF, MORT-30-COPD, THA/TKA, and MORT-30-CABG 
measures. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19977), we 
proposed to adopt a 36-month performance period and 36-month baseline 
period for these measures for the FY 2023 program year and subsequent 
years.
---------------------------------------------------------------------------

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

    Specifically, for the mortality measures (MORT-30-AMI, MORT-30-HF, 
MORT-30-COPD, and MORT-30-CABG), the performance period would run for 
36 months from July 1, 5 years prior to the applicable fiscal program 
year, to June 30, 2 years prior to the applicable fiscal program year, 
and the baseline period would run for 36 months from July 1, 10 years 
prior to the applicable fiscal program year, to June 30, 7 years prior 
to the applicable fiscal program year. For the THA/TKA measure, the 
performance period would run for 36 months from April 1, 5 years prior 
to the applicable fiscal program year, to March 31, 2 years prior to 
the applicable fiscal program year, and the baseline period would run 
for 36 months from April 1, 10 years prior to the applicable fiscal 
program year, to March 31, 7 years prior to the applicable fiscal 
program year.
    We invited public comment on these proposals. We did not receive 
any public comments on these proposals; we are finalizing our proposals 
to set the baseline and performance periods for the MORT-30-AMI, MORT-
30-HF, MORT-30-COPD, THA/TKA, and MORT-30-CABG measures for FY 2023 
program year and subsequent years as proposed.
(2) MORT-30-PN (Updated Cohort) Measure
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57001), we adopted a 
22-month performance period for the MORT-30-PN (updated cohort) measure 
and a 36-month baseline period for the FY 2021 program year. In the 
same final rule, we adopted a 34-month performance period and 36-month 
baseline period for the MORT-30-PN (updated cohort) measure for the FY 
2022 program year. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19977), we did not propose any changes to the length of these 
performance or baseline periods for the FY 2021 and FY 2022 program 
years.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57001), we also 
stated our intent to lengthen the MORT-30-PN (updated cohort) measure 
performance period to a full 36-month performance period beginning in 
July, instead of September. Therefore, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19977), we proposed to adopt a 36-month 
performance period that would run from July 1, 5 years prior to the 
applicable fiscal program year, to June 30, 2 years prior to the 
applicable fiscal program year, and a 36-month baseline period that 
would run from July 1, 10 years prior to the applicable fiscal program 
year, to June 30, 7 years prior to the applicable fiscal program year 
for the MORT-30-PN (updated cohort) measure for the FY 2023 program 
year and subsequent years.
    We invited public comment on these proposals. We did not receive 
any public comments on this proposal; we are finalizing our proposal to 
set the baseline and performance periods for the MORT-30-PN (updated 
cohort) measure for the FY 2023 program year and subsequent years as 
proposed.
f. Summary of Previously Adopted and Newly Finalized Baseline and 
Performance Periods for the FY 2019 Through FY 2023 Program Years
    The tables below summarize the baseline and performance periods 
that we have previously adopted and are finalizing in this final rule.

   Previously Adopted Baseline and Performance Periods for the FY 2019
                              Program Year
------------------------------------------------------------------------
             Domain                 Baseline period   Performance period
------------------------------------------------------------------------
Person and Community Engagement:
     HCAHPS Survey......   January     January
                                   1, 2015-December    1, 2017-December
                                   31, 2015.           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:*
     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:

[[Page 38260]]

 
     MSPB...............   January     January
                                   1, 2015-December    1, 2017-December
                                   31, 2015.           31, 2017.
------------------------------------------------------------------------
* In section V.J.3.b. of the preamble of this final rule, we discuss our
  decision to finalize the removal of the current PSI 90 measure
  beginning with the FY 2019 program year. As a result, the previously
  finalized performance and baseline periods for this measure were not
  included in this table.


                Previously Adopted Baseline and Performance Periods for the FY 2020 Program Year
----------------------------------------------------------------------------------------------------------------
              Domain                 Baseline period                       Performance period
----------------------------------------------------------------------------------------------------------------
Person and Community Engagement:
     HCAHPS Survey.......   January 1,                January 1, 2018-December 31, 2018.
                                    2016-December 31,
                                    2016.
Clinical Care:
     Mortality (MORT-30-    July 1,                          July 1, 2015-June 30, 2018.
     AMI, MORT-30-HF, MORT-30-PN).  2010-June 30, 2013.
     THA/TKA.............   July 1,                          July 1, 2015-June 30, 2018.
                                    2010-June 30, 2013.
Safety: *
     PC-01 and NHSN         January 1,                January 1, 2018-December 31, 2018.
     measures (CAUTI, CLABSI,       2016-December 31,
     SSI, CDI, MRSA).               2016.
Efficiency and Cost Reduction:
     MSPB................   January 1,                January 1, 2018-December 31, 2018.
                                    2016-December 31,
                                    2016.
----------------------------------------------------------------------------------------------------------------
* In section V.J.3.b. of the preamble of this final rule, we discuss our decision to finalize the removal of the
  current PSI 90 measure beginning with the FY 2019 program year. As a result, the previously finalized
  performance and baseline periods for this measure were not included in this table.


   Previously Adopted Baseline and Performance Periods for the FY 2021
                              Program Year
------------------------------------------------------------------------
             Domain                 Baseline period   Performance period
------------------------------------------------------------------------
Person and Community Engagement:   January     January
                                   1, 2017-December    1, 2019-December
                                   31, 2017.           31, 2019.
     HCAHPS Survey......
Clinical Care:
     Mortality (MORT-30-   July 1,     July 1,
     AMI, MORT-30-HF, MORT-30-     2011-June 30,       2016-June 30,
     COPD).                        2014.               2019.
     MORT-30-PN (updated   July 1,     September
     cohort).                      2012-June 30,       1, 2017-June 30,
                                   2015.               2019.
     THA/TKA............   April 1,    April 1,
                                   2011-March 31,      2016-March 31,
                                   2014.               2019.
Safety: *
     PC-01 and NHSN        January     January
     measures (CAUTI, CLABSI,      1, 2017-December    1, 2019-December
     SSI, CDI, MRSA).              31, 2017.           31, 2019.
Efficiency and Cost Reduction:
     MSPB...............   January     January
                                   1, 2017-December    1, 2019-December
                                   31, 2017.           31, 2019.
     Payment (AMI          July 1,     July 1,
     Payment and HF Payment).      2012-June 30,       2017-June 30,
                                   2015.               2019.
------------------------------------------------------------------------
* In section V.J.3.b. of the preamble of this final rule, we discuss our
  decision to finalize the removal of the current PSI 90 measure
  beginning with the FY 2019 program year. As a result, the previously
  finalized performance and baseline periods for this measure were not
  included in this table.


 Previously Adopted and Newly Finalized Baseline and Performance Periods
                      for the FY 2022 Program Year
------------------------------------------------------------------------
             Domain                 Baseline period   Performance period
------------------------------------------------------------------------
Person and Community Engagement:
     HCAHPS Survey......   January     January
                                   1, 2018-December    1, 2020-December
                                   31, 2018.           31, 2020.
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.
     MORT-30-PN (updated   July 1,     September
     cohort).                      2012-June 30,       1, 2017-June 30,
                                   2015.               2020.
     THA/TKA............   April 1,    April 1,
                                   2012-March 31,      2017-March 31,
                                   2015.               2020.
Safety: *
     PC-01 and NHSN        January     January
     measures (CAUTI, CLABSI,      1, 2018-December    1, 2020-December
     SSI, CDI, MRSA).              31, 2018.           31, 2020.
Efficiency and Cost Reduction:
     MSPB...............   January     January
                                   1, 2018-December    1, 2020-December
                                   31, 2018.           31, 2020.
     Payment (AMI          July 1,     July 1,
     Payment, HF Payment).         2012-June 30,       2017-June 30,
                                   2015.               2020.

[[Page 38261]]

 
     PN Payment * *.....   July 1,     August 1,
                                   2013-June 30,       2018-June 30,
                                   2016.               2020.
------------------------------------------------------------------------
* In section V.J.3.b. of the preamble of this final rule, we discuss our
  decision to finalize the removal of the current PSI 90 measure
  beginning with the FY 2019 program year. As a result, the previously
  finalized performance and baseline periods for this measure are not
  included in this table.
** In section V.J.4.a. of the preamble of this final rule, we discuss
  our decision to adopt the PN Payment measure beginning with the FY
  2022 program year.


      Previously Adopted and Newly Finalized Baseline and Performance Periods for the FY 2023 Program Year
----------------------------------------------------------------------------------------------------------------
              Domain                 Baseline period                       Performance period
----------------------------------------------------------------------------------------------------------------
Person and Community Engagement:
     HCAHPS Survey.......   January 1,                January 1, 2021-December 31, 2021.
                                    2019-December 31,
                                    2019.
Clinical Care:
     Mortality              July 1,                          July 1, 2018-June 30, 2021.
     (MORT[dash]30-AMI, MORT-30-    2013-June 30, 2016.
     HF, MORT-30-COPD, MORT-30-
     CABG, MORT[dash]30-PN
     (updated cohort).
     THA/TKA.............   April 1,                       April 1, 2018-March 31, 2021.
                                    2013-March 31,
                                    2016.
Safety:
     PC-01 and NHSN         January 1,                January 1, 2021-December 31, 2021.
     measures (CAUTI, CLABSI,       2019-December 31,
     SSI, CDI, MRSA).               2019.
     Patient Safety and     October 1,                       July 1, 2019-June 30, 2021.
     Adverse Events (Composite) *.  2015-June 30, 2017.
Efficiency and Cost Reduction:
     MSPB................   January 1,                January 1, 2021-December 31, 2021.
                                    2019-December 31,
                                    2019.
     Payment (AMI           July 1,                          July 1, 2018-June 30, 2021.
     Payment, HF Payment).          2013-June 30, 2016.
     PN Payment * *......   July 1,                        August 1, 2018-June 30, 2021.
                                    2013-June 30, 2016.
----------------------------------------------------------------------------------------------------------------
* In section V.J.4.b. of the preamble of this final rule, we discuss our decision to adopt the Patient Safety
  and Adverse Events (Composite) measure beginning with the FY 2023 program year.
** In section V.J.4.a. of the preamble of this final rule, we discuss our decision to adopt the PN Payment
  measure beginning with the FY 2022 program year.

6. 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, respectively) 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, Colon and the 
Abdominal Hysterectomy SSI, and MRSA Bacteremia measures);
     The THA/TKA measure;
     The PC-01 measure;
     The MSPB measure;
     The HF, AMI, and PN Payment measures; and
     The Patient Safety and Adverse Events (Composite) measure.
    This distinction is made in contrast to other measures for which 
higher values indicate better performance.\72\ 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 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.
---------------------------------------------------------------------------

    \72\ We note that the mortality measures in the Hospital VBP 
Program use survival rates rather than mortality rates; as a result, 
higher values indicate better performance on these measures.
---------------------------------------------------------------------------

b. Previously Adopted and Newly Finalized Performance Standards for the 
FY 2020 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)), in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19979 through 19980), we proposed to 
adopt additional

[[Page 38262]]

performance standards for the FY 2020 program year. We noted that the 
numerical values for the performance standards displayed in the 
proposed rule represented estimates based on the most recently 
available data, and we stated our intention to update the numerical 
values in this FY 2018 IPPS/LTCH PPS final rule. We noted further that 
the MSPB measure's performance standards are based on performance 
period data; therefore, we are unable to provide numerical equivalents 
for the standards at this time.
    We invited public comment on the proposed performance standards. We 
did not receive any public comments on the proposed performance 
standards for the FY 2020 program year. We are adopting the performance 
standards listed in the table below. These performance standards have 
been updated from the FY 2018 IPPS/LTCH PPS proposed rule and represent 
the most recently available data.

 Previously Adopted and Newly Finalized Performance Standards for the FY
    2020 Program Year: Safety, Clinical Care, and Efficiency and Cost
                           Reduction Domains 
------------------------------------------------------------------------
                                   Achievement
     Measure short name             threshold             Benchmark
------------------------------------------------------------------------
                         Safety Domain [ssdiam]
------------------------------------------------------------------------
CAUTI *[dagger].............  0.828...............  0.000.
CLABSI *[dagger]............  0.784...............  0.000.
CDI *[dagger]...............  0.852...............  0.091.
MRSA Bacteremia *[dagger]...  0.815...............  0.000.
Colon and Abdominal            0.781......   0.000.
 Hysterectomy SSI *[dagger].   0.722......   0.000.
PC-01 *.....................  0.000000............  0.000000.
------------------------------------------------------------------------
                          Clinical Care Domain
------------------------------------------------------------------------
MORT-30-AMI ....  0.853715............  0.875869.
MORT-30-HF .....  0.881090............  0.906068.
MORT-30-PN .....  0.882266............  0.909532.
THA/TKA *.......  0.032229............  0.023178.
------------------------------------------------------------------------
                  Efficiency and Cost Reduction Domain
------------------------------------------------------------------------
MSPB *..........  Median Medicare       Mean of the lowest
                               Spending Per          decile Medicare
                               Beneficiary ratio     Spending Per
                               across all            Beneficiary ratios
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
------------------------------------------------------------------------
 In section V.J.3.b. of the preamble of this final rule, we are
  removing the current PSI 90 measure beginning with the FY 2019 program
  year. As a result, the previously finalized performance standards for
  this measure are not included in this table.
[ssdiam] The performance standards displayed in this table for the
  Safety domain measures are updated using four quarters of CY 2016 data
  in this final rule.
[dagger] In section III.F.2.e. of preamble of the FY 2016 IPPS/LTCH PPS
  final rule (80 FR 49554 thorough 49555), we finalized our proposal to
  use the CDC's new standard population data to calculate performance
  standards for the NHSN measures beginning with the FY 2019 program
  year. We refer readers to that final rule for additional information
  regarding the NHSN measures' standard population data. In addition, we
  note that a technical update was released for these measures for the
  FY 2019 program year in order to ensure that hospitals have the
  correct performance standards for the applicable performance period.
* Lower values represent better performance.
 Previously adopted performance standards.

    In the CY 2017 OPPS/ASC final rule with comment period (81 FR 
79857), we discussed how the removal of the Pain Management dimension 
of the HCAHPS Survey, beginning with the FY 2018 program year, affects 
the scoring of the Person and Community Engagement domain. The eight 
dimensions of the HCAHPS measure are calculated to generate the HCAHPS 
Base Score. For each of the eight dimensions, Achievement Points (0-10 
points) and Improvement Points (0-9 points) are calculated, the larger 
of which is then summed across the eight dimensions to create the 
HCAHPS Base Score (0-80 points). Each of the eight dimensions is of 
equal weight, thus the HCAHPS Base Score ranges from 0 to 80 points. 
HCAHPS Consistency Points are then calculated, which range from 0 to 20 
points. The Consistency Points take into consideration the scores of 
all eight Person and Community Engagement dimensions; as noted above, 
the Pain Management dimension is not included in the scoring of this 
Domain. The final element of the scoring formula is the summation of 
the HCAHPS Base Score and the HCAHPS Consistency Points, which results 
in the Person and Community Engagement Domain score that ranges from 0 
to 100 points.
    We invited public comment on the proposed performance standards for 
the eight HCAHPS survey dimensions. We did not receive any public 
comments on these proposed performance standards, and are adopting the 
performance standards listed in the table below. These HCAHPS survey 
dimension performance standards have been updated from the FY 2018 
IPPS/LTCH PPS proposed rule and represent the most recently available 
data.

[[Page 38263]]



   Newly Finalized Performance Standards for the FY 2020 Program Year: Person and Community Engagement Domain
                                                  *
----------------------------------------------------------------------------------------------------------------
                                                                                 Achievement
                  HCAHPS survey dimension                    Floor (percent)      threshold         Benchmark
                                                                                  (percent)         (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses.................................             51.80             79.08             87.12
Communication with Doctors................................             50.67             80.41             88.44
Responsiveness of Hospital Staff..........................             35.74             65.07             80.14
Communication about Medicines.............................             26.16             63.30             73.86
Hospital Cleanliness & Quietness..........................             41.92             65.72             79.42
Discharge Information.....................................             66.72             87.44             92.11
Care Transition...........................................             20.33             51.14             62.50
Overall Rating of Hospital................................             32.47             71.59             85.12
----------------------------------------------------------------------------------------------------------------
* We renamed 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, as discussed in the FY 2017
  IPPS/LTCH PPS final rule (81 FR 56984).
 The performance standards displayed in this table were calculated using four quarters of CY 2016
  data in this final rule.

c. Previously Adopted Performance Standards for Certain Measures for 
the FY 2021 Program Year
    As discussed above, we have adopted certain measures for the 
Clinical Care and Efficiency and Cost Reduction domains 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 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, and 
MORT-30-COPD). In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57008), 
we adopted performance standards for the MORT-30-PN (updated cohort) 
measure (81 FR 57008) and the AMI Payment and HF Payment measures for 
the FY 2021 program year. We note that the performance standards for 
the MSPB, AMI Payment, and HF Payment measures are based on performance 
period data; therefore, we are unable to provide numerical equivalents 
for the standards at this time. The previously adopted performance 
standards for these measures are set out in the table below.

  Previously Adopted Performance Standards for the FY 2021 Program Year
------------------------------------------------------------------------
                                   Achievement
     Measure short name             threshold             Benchmark
------------------------------------------------------------------------
                          Clinical Care Domain
------------------------------------------------------------------------
MORT-30-AMI ....  0.860355............  0.879714.
MORT-30-HF......  0.883803............  0.906144.
MORT-30-PN (updated           0.836122............  0.870506.
 cohort)[dagger].
MORT-30-COPD....  0.923253............  0.938664.
THA/TKA*........  0.031157............  0.022418.
------------------------------------------------------------------------
                  Efficiency and Cost Reduction Domain
------------------------------------------------------------------------
MSPB *..........  Median Medicare       Mean of the lowest
                               Spending Per          decile Medicare
                               Beneficiary ratio     Spending Per
                               across all            Beneficiary ratios
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
AMI Payment *...  Median Hospital-      Mean of the lowest
                               Level, Risk-          decile Hospital-
                               Standardized          Level, Risk-
                               Payment Associated    Standardized
                               with a 30-Day         Payment Associated
                               Episode-of-Care       with a 30-Day
                               across all            Episode-of-Care
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
HF Payment *....  Median Hospital-      Mean of the lowest
                               Level, Risk-          decile Hospital-
                               Standardized          Level, Risk-
                               Payment Associated    Standardized
                               with a 30-Day         Payment Associated
                               Episode-of-Care       with a 30-Day
                               across all            Episode-of-Care
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
------------------------------------------------------------------------
 Previously adopted performance standards.
* Lower values represent better performance.
[dagger] After publication of the FY 2017 IPPS/LTCH PPS final rule, we
  determined there was a display error in the performance standards for
  this measure. We have since undertaken a technical update for these
  performance standards in order to ensure that hospitals have the
  correct performance standards for the applicable performance period.
  The corrected performance standards are displayed here.

d. Previously Adopted and Newly Finalized Performance Standards for 
Certain Measures for the FY 2022 Program Year
    As discussed above, we have adopted certain measures for the 
Clinical Care and Efficiency and Cost Reduction domains 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 2017 IPPS/LTCH PPS final rule (81 FR 57009), we 
adopted performance standards for the FY 2022 program year for the 
Clinical Care domain measures (THA/TKA, MORT-30-HF, MORT-30-AMI, MORT-
30-PN (updated cohort), MORT-30-COPD, and MORT-30-CABG) and the 
Efficiency and Cost Reduction domain measures (AMI Payment and HF 
Payment). In section V.J.4.a. of the preamble of the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 19971 through 19973), we proposed to add one 
measure, the PN Payment

[[Page 38264]]

measure, beginning with the FY 2022 program year. We note that the 
performance standards for the MSPB, AMI Payment, HF Payment, and PN 
Payment measures are based on performance period data; therefore, we 
are unable to provide numerical equivalents for the standards at this 
time.
    We invited public comment on the proposed performance standards for 
certain measures for the FY 2022 program year. We did not receive any 
public comments on the proposed PN Payment measure performance 
standards for the FY 2022 program year and are are adopting the 
performance standards listed in the table below. The previously adopted 
and newly finalized performance standards for these measures are set 
out in the table below.
    The table below is up-to-date and represents the most recently 
available data.

 Previously Adopted and Newly Finalized Performance Standards for the FY
                            2022 Program Year
------------------------------------------------------------------------
                                   Achievement
     Measure short name             threshold             Benchmark
------------------------------------------------------------------------
                          Clinical Care Domain
------------------------------------------------------------------------
MORT-30-AMI ....  0.861793............  0.881305.
MORT-30-HF .....  0.879869............  0.903608.
MORT-30-PN (updated cohort)   0.836122............  0.870506.
 .
MORT-30-COPD ...  0.920058............  0.936962.
MORT-30-CABG ...  0.968210............  0.979000.
THA/TKA * ......  0.029833............  0.021493.
------------------------------------------------------------------------
                  Efficiency and Cost Reduction Domain
------------------------------------------------------------------------
MSPB * .........  Median Medicare       Mean of the lowest
                               Spending Per          decile Medicare
                               Beneficiary ratio     Spending Per
                               across all            Beneficiary ratios
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
AMI Payment * ..  Median Hospital-      Mean of the lowest
                               Level, Risk-          decile Hospital-
                               Standardized          Level, Risk-
                               Payment Associated    Standardized
                               with a 30[dash]Day    Payment Associated
                               Episode-of-Care       with a 30-Day
                               across all            Episode-of-Care
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
HF Payment * ...  Median Hospital-      Mean of the lowest
                               Level, Risk-          decile Hospital-
                               Standardized          Level, Risk-
                               Payment Associated    Standardized
                               with a 30[dash]Day    Payment Associated
                               Episode-of-Care       with a 30-Day
                               across all            Episode-of-Care
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
PN Payment *...............  Median Hospital-      Mean of the lowest
                               Level, Risk-          decile Hospital-
                               Standardized          Level, Risk-
                               Payment Associated    Standardized
                               with a 30-Day         Payment Associated
                               Episode-of-Care       with a 30-Day
                               across all            Episode-of-Care
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
------------------------------------------------------------------------
 Previously adopted performance standards.
[dagger] After publication of the FY 2017 IPPS/LTCH PPS final rule, we
  determined there was a display error in the performance standards for
  this measure. Specifically, the Achievement Threshold and Benchmark
  values, while accurate, were presented in the wrong categories. We
  have corrected this issue in the table above, and the correct
  performance standards are displayed here.
* Lower values represent better performance.
 Scored the same as the MSPB, AMI Payment, and HF Payment measures, as
  discussed in section V.J.4.a.(2) of the preamble of this final rule.

e. Performance Standards for Certain Measures for the FY 2023 Program 
Year
    As discussed above, we have adopted certain measures for the 
Clinical Care and Efficiency and Cost Reduction domains 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 2018 IPPS/LTCH PPS proposed rule (82 FR 19982 
through 19983), we proposed the following performance standards for the 
FY 2023 program year for the Clinical Care domain measures (THA/TKA, 
MORT-30-AMI, MORT-30-HF, MORT-30-PN (updated cohort), MORT-30-COPD, and 
MORT-30-CABG) and for the Efficiency and Cost Reduction domain measures 
(MSPB, AMI Payment, HF Payment, and the proposed PN Payment measure). 
Although we are finalizing our proposal to adopt the Patient Safety and 
Adverse Events (Composite) measure beginning with the FY 2023 program 
year, we do not currently have data available to calculate the 
performance standards; we therefore intend to propose the FY 2023 
performance standards for this measure in next year's rulemaking. We 
note that the performance standards for the MSPB, AMI Payment, HF 
Payment, and PN Payment measures are based on performance period data; 
therefore, we are unable to provide numerical equivalents for the 
standards at this time. These newly proposed performance standards for 
these measures are set out in the table below.
    We invited public comment on the proposed performance standards for 
certain measures for the FY 2023 program year. We did not receive any 
public comments on the proposed performance standards for the FY 2023 
program year, and are adopting the performance standards listed below. 
The table below is up-to-date and represents the most recently 
available data.

[[Page 38265]]



   Newly Finalized Performance Standards for the FY 2023 Program Year
------------------------------------------------------------------------
                                   Achievement
     Measure short name             threshold             Benchmark
------------------------------------------------------------------------
                          Clinical Care Domain
------------------------------------------------------------------------
MORT-30-AMI.................  0.866548............  0.885499.
MORT-30-HF..................  0.881939............  0.906798.
MORT-30-PN (updated cohort).  0.840138............  0.871741.
MORT-30-COPD................  0.919769............  0.936349.
MORT-30-CABG................  0.968747............  0.979620.
THA/TKA *...................  0.027428............  0.019779.
------------------------------------------------------------------------
                  Efficiency and Cost Reduction Domain
------------------------------------------------------------------------
MSPB *......................  Median Medicare       Mean of the lowest
                               Spending Per          decile Medicare
                               Beneficiary ratio     Spending Per
                               across all            Beneficiary ratios
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
AMI Payment *..............  Median Hospital-      Mean of the lowest
                               Level, Risk-          decile Hospital-
                               Standardized          Level, Risk-
                               Payment Associated    Standardized
                               with a 30-Day         Payment Associated
                               Episode-of-Care       with a 30-Day
                               across all            Episode-of-Care
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
HF Payment *...............  Median Hospital-      Mean of the lowest
                               Level, Risk-          decile Hospital-
                               Standardized          Level, Risk-
                               Payment Associated    Standardized
                               with a 30-Day         Payment Associated
                               Episode-of-Care       with a 30-Day
                               across all            Episode-of-Care
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
PN Payment *...............  Median Hospital-      Mean of the lowest
                               Level, Risk-          decile Hospital-
                               Standardized          Level, Risk-
                               Payment Associated    Standardized
                               with a 30-Day         Payment Associated
                               Episode-of-Care       with a 30-Day
                               across all            Episode-of-Care
                               hospitals during      across all
                               the performance       hospitals during
                               period.               the performance
                                                     period.
------------------------------------------------------------------------
* Lower values represent better performance.
 Scored the same as the MSPB, AMI Payment, and HF Payment measures, as
  discussed in section V.J.4.a.(2) of the preamble of this final rule.

7. Scoring Methodology and Data Requirements for the FY 2019 Program 
Year and Subsequent Years
a. Domain Weighting for the FY 2020 Program Year and Subsequent Years 
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. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57009 
through 57010), for the FY 2019 program year, we retained this domain 
weighting. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19983), we 
did not propose any changes to the domain weights for the FY 2018 and 
FY 2019 program years.
    For the FY 2020 program year and subsequent years, we proposed to 
retain this same domain weighting for hospitals receiving a score on 
all four domains. The previously adopted domain weighting is summarized 
in the table below.

  Domain Weights for the FY 2019 Program Year and Subsequent Years 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 renamed 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, as discussed in
  section IV.H.3.b. of the FY 2017 IPPS/LTCH PPS final rule (81 FR
  56984).

    We invited public comment on this proposal.
    Comment: A few commenters recommended that CMS remove the 
Efficiency and Cost Reduction domain from the Hospital VBP Program 
because commenters believe the domain is poorly defined and its only 
current measure, the MSPB measure, cannot be meaningfully interpreted. 
In the alternative, commenters recommended that CMS reduce the 
weighting of the Efficiency and Cost Reduction domain until the 
measures finalized for that domain are further defined and tested.
    One commenter stated that the MSPB measure contains a substantial 
proportion of expense which is outside the influence or control of the 
hospital, and is not risk adjusted for clinical or social factors, for 
market resources, or for patient preference and decision-making and is, 
therefore, not appropriate for inpatient care. In addition, the 
commenter stated that because Medicare has very few 30-day episode 
payments benchmarked, this domain may not reflect performance on 
Medicare populations. The commenter therefore recommended CMS reduce 
the weight of the Efficiency and Cost Reduction domain as a whole and 
should focus on the episode payments which are most reliably manageable 
and suitable for influence and improvement by actions taken in the 
inpatient setting.
    Response: As we stated in the FY 2014 IPPS/LTCH PPS final rule (79 
FR 50048 through 50087), we believe we have appropriately balanced our 
desire to provide strong incentives for hospitals to consider both the 
cost and the quality of the care that they provide to Medicare 
beneficiaries by weighting the Efficiency and Cost Reduction domain at 
25 percent of the TPS while the quality-focused domains encompass 75 
percent of the TPS. We note that section 1886(o)(2)(B)(ii) of the Act 
requires that the Hospital VBP Program include efficiency measures, 
including measures of Medicare spending per beneficiary. We continue to 
believe the

[[Page 38266]]

Efficiency and Cost Reduction domain merits a significant portion of 
the TPS in order to ensure that hospitals monitor the costs of the care 
they provide to Medicare beneficiaries during the inpatient 
hospitalization and are involved in the coordination of beneficiaries' 
care immediately prior to a hospitalization and post-discharge. We 
believe based on the current Hospital VBP Program measure set that the 
Efficiency and Cost Reduction domain is appropriately weighted, and 
despite not directly addressing patient outcomes, this domain 
encourages hospitals to assess cost in conjunction with quality of 
care. We also believe that hospitals can effect change through the 
measures in each of the four domains in the Hospital VBP Program.
    After consideration of the public comments we received, we are 
finalizing our proposal to retain the equal weight of 25 percent for 
each of the four domains in the FY 2020 program year and subsequent 
years for hospitals that receive a score in all domains.
b. Domain Weighting for the FY 2019 Program Year and Subsequent 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). In the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 19983), we did not propose any 
changes to these domain weights for the FY 2019 program year or 
subsequent years.
    For a hospital to receive a TPS for the FY 2019 program year and 
subsequent years:
     Hospitals must report a minimum number of 100 completed 
HCAHPS surveys for a hospital to receive a Person and Community 
Engagement domain score.
     Hospitals must receive a minimum of one measure score 
within the Efficiency and Cost Reduction domain.
     Hospitals must receive a minimum of two measure scores 
within the Clinical Care domain.
     Hospitals must receive a minimum of two measure scores 
within the Safety domain.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19983 through 
19984), we proposed two changes to our domain scoring policies for the 
FY 2019 program year and subsequent years. We proposed to change the 
minimum number of measures scores a hospital must receive to receive a 
score on the Safety domain from three measures to two measures. Second, 
we proposed that hospitals must receive a minimum of one measure score 
within the Efficiency and Cost Reduction domain to receive a domain 
score rather than requiring that hospitals meet the requirements to 
receive a MSPB measure score.
    The proposed change to the Safety domain minimum number of measure 
scores was based on our proposal to remove the current PSI 90 measure 
from the Hospital VBP Program beginning with the FY 2019 program year. 
Based on our analyses, removing this measure but maintaining the 
requirement that a hospital receive three measure scores in order to 
receive a Safety domain score would have a significant impact on the 
number of hospitals eligible to receive a Safety domain score. 
Therefore, in order to include the greatest number of hospitals in the 
Hospital VBP Program possible while ensuring the need for TPSs to be 
sufficiently reliable, we proposed to reduce the minimum number of 
required measure scores within the Safety domain from three measures to 
two.
    In addition, we note that we did not propose to reduce the number 
of measures a hospital must receive a score on in order to receive an 
Efficiency and Cost Reduction domain score. Under the current program 
requirements (79 FR 50086), a hospital must be eligible to receive a 
score on the MSPB measure in order to receive a score for this domain. 
In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56987 through 56990 and 
81 FR 56990 through 56992), we adopted two condition-specific payment 
measures, the AMI Payment and HF Payment measures, beginning with the 
FY 2021 program year, and as discussed in section V.J.4.a. of the 
preamble of this final rule in the FY 2018 IPPS/LTCH PPS proposed rule, 
we proposed to adopt one additional condition-specific payment measure, 
the PN Payment measure. We therefore proposed to require that hospitals 
must be eligible to receive a score on at least one measure within the 
Efficiency and Cost Reduction domain, rather than on the MSPB measure 
specifically, to reflect this expansion of the domain's measure set.
    We believe these proposed changes reflect the evolution of the 
Hospital VBP Program measure set, and 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 invited public comment on these proposals.
    Comment: A few commenters supported CMS' proposal to reduce the 
number of measures for which a hospital must have a score to receive a 
Safety domain score from three measures to two.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposals to: Reduce the number of measures for which a 
hospital must have a score to receive a Safety domain score from three 
measures to two; and that hospitals must be eligible to receive a score 
on at least one measure within the Efficiency and Cost Reduction domain 
as proposed.
c. Minimum Numbers of Cases for Hospital VBP Program Measures for the 
FY 2019 Program Year and Subsequent Years
(1) Background
    Section 1886(o)(1)(C)(ii)(IV) of the Act requires the Secretary to 
exclude for the fiscal year hospitals that do not report a minimum 
number (as determined by the Secretary) of cases for the measures that 
apply to the hospital for the performance period for the fiscal year. 
Under section 1886(o)(1)(C)(iii) of the Act, in determining the minimum 
number of reported cases for a given measure, the Secretary must 
conduct an independent analysis of what minimum numbers would be 
appropriate. For additional discussion of the previously finalized 
minimum numbers of cases for measures under the Hospital VBP Program, 
we refer readers to the Hospital Inpatient VBP Program final rule (76 
FR 26527 through 26531); the CY 2012 OPPS/ASC final rule (76 FR 74532 
through 74534); the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 
through 53609); the FY 2015 IPPS/LTCH PPS final rule (79 FR 50085); the 
FY 2016 IPPS/LTCH PPS final rule (80 FR 49570); and the FY 2017 IPPS/
LTCH PPS final rule (81 FR 57011).
(2) Person and Community Engagement Domain
    In the Hospital Inpatient VBP Program final rule (76 FR 26527 
through 26531), we adopted a minimum number of 100 completed HCAHPS 
Surveys for a hospital to receive a score on the HCAHPS measure.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19984), we did 
not propose any changes to this policy.

[[Page 38267]]

(3) Clinical Care Domain
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74532 
through 74534), we adopted a minimum number of 10 cases for the MORT-
30-AMI, MORT-30-HF, and MORT-30-PN measures beginning with the FY 2014 
program year. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 
through 53609), we adopted a new minimum number of 25 cases for the 
MORT-30-AMI, MORT-30-HF, and MORT-30-PN measures for the FY 2015 
program year. We adopted the same 25-case minimum for the MORT-30-COPD 
measure in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49570), and for 
the MORT-30-CABG, MORT-30-PN (updated cohort), and THA/TKA measures in 
the FY 2017 IPPS/LTCH PPS final rule (81 FR 57011).
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19984), we did 
not propose any changes to these policies.
(4) Safety Domain
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 through 
53609), we adopted a minimum of one predicted infection for NHSN-based 
surveillance measures (that is, the CAUTI, CLABSI, CDI, MRSA, and SSI 
measures) based on CDC's minimum case criteria. In the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50085), we adopted this case minimum for the 
NHSN-based surveillance measures FY 2016 Hospital VBP Program and 
subsequent years. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 
26530), we adopted a minimum of 10 cases for the PC-01 measure.\73\
---------------------------------------------------------------------------

    \73\ We note that the PC-01 measure was previously included in 
the Clinical Care--Process domain. In the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49553 through 49554), we re-categorized this 
measure as a Safety domain measure beginning with the FY 2018 
program year.
---------------------------------------------------------------------------

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19984), beginning 
with the FY 2023 program year, we proposed that hospitals must report a 
minimum of three eligible cases on any one underlying indicator during 
the baseline period in order to receive an improvement score and three 
eligible cases on any one underlying indicator during performance 
period in order to receive an achievement score on the Patient Safety 
and Adverse Events (Composite) measure. For the purposes of the Patient 
Safety and Adverse Events (Composite) measure, a case is ``eligible'' 
for a given indicator if it meets the criterion for inclusion in the 
indicator measure population. This minimum number of cases is based on 
AHRQ's methodology for scoring performance on the Patient Safety and 
Adverse Events (Composite) measure. We note that these proposed minimum 
data requirements for the Patient Safety and Adverse Events (Composite) 
measure are the same as those previously finalized for the current PSI 
90 measure.
    We invited public comment on our proposal regarding the minimum 
number of cases for the Patient Safety and Adverse Events (Composite) 
measure.
    We did not receive any public comments on our proposal regarding 
the minimum number of cases for the Patient Safety and Adverse Events 
(Composite) measure, and are finalizing our proposal that hospitals 
must report a minimum of three eligible cases on any one underlying 
indicator during the baseline period in order to receive an improvement 
score and three eligible cases on any one underlying indicator during 
performance period in order to receive an achievement score on the 
Patient Safety and Adverse Events (Composite) measure.
(5) Efficiency and Cost Reduction Domain
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53609 through 
53610), we adopted a minimum of 25 cases in order to receive a score 
for the MSPB measure. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 
50085 through 50086), we retained the same MSPB measure case minimum 
for the FY 2016 program year and subsequent years.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 56987 through 56990 
and 81 FR 56990 through 56992, respectively), we adopted the AMI 
Payment and HF Payment measures in the Efficiency and Cost Reduction 
domain for the FY 2021 program year and subsequent years. In section 
V.J.4.a. of the preamble of this final rule, we discuss our decision to 
adopt the PN Payment measure in the Efficiency and Cost Reduction 
domain for the FY 2022 program year and subsequent years. For these 
condition-specific payment measures (namely, the AMI Payment, HF 
Payment, and PN Payment measures), in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19984 through 19985), we proposed that hospitals 
must report a minimum number of 25 cases per measure in order to 
receive a measure score for the FY 2021 program year, FY 2022 program 
year, and subsequent years. We believe this minimum number of cases is 
appropriate because it balances our interest in allowing the maximum 
possible number of hospitals the opportunity to receive a score on the 
measure and maintaining sufficiently reliable scores. As we noted in 
the FY 2017 IPPS/LTCH PPS final rule (81 FR 56992), we expect this case 
minimum will ensure that each hospital's payment measure rate is 
sufficiently reliable to generate a score that meaningfully 
distinguishes hospital performance on the measures. In addition, the 
statistical model that CMS uses to calculate the payment measures 
allows for the inclusion of hospitals with relatively few cases by 
taking into account the uncertainty associated with sample size.
    We invited public comment on our proposal regarding the minimum 
number of cases for the AMI, HF, and PN Payment measures.
    Comment: One commenter stated that requiring only 25 cases to 
calculate condition-specific payment measure scores for the AMI, HF, 
and PN Payment measures is insufficient for stable, reliable, and 
meaningful performance metrics.
    Response: We disagree with the commenter that hospitals will not be 
able to report statistically reliable information on the PN Payment 
measure because we believe the case minimum will ensure that each 
hospital's payment measure rate is sufficiently reliable to generate a 
score that meaningfully distinguishes hospital performance on the 
measures. The statistical model that we use to calculate the payment 
measures allows for the inclusion of hospitals with relatively few 
cases by taking into account the uncertainty associated with sample 
size.
    After consideration of the public comments we received, we are 
finalizing our proposal that hospitals must report a minimum number of 
25 cases per measure in order to receive a measure score on the 
condition-specific payment measures as proposed.
(6) Summary of Previously Adopted and Newly Finalized Minimum Numbers 
of Cases for the FY 2019 Program Year and Subsequent Years
    The previously adopted and newly finalized minimum numbers of cases 
for these measures are set forth in the table below.

[[Page 38268]]



 Previously Adopted and Newly Finalized Minimum Case Number Requirements
            for the FY 2019 Program Year and Subsequent Years
------------------------------------------------------------------------
      Measure short name                Minimum number of cases
------------------------------------------------------------------------
                 Person and Community Engagement Domain
------------------------------------------------------------------------
HCAHPS.......................  Hospitals must report a minimum number of
                                100 completed HCAHPS surveys.
------------------------------------------------------------------------
                          Clinical Care Domain
------------------------------------------------------------------------
MORT-30-AMI..................  Hospitals must report a minimum number of
                                25 cases.
MORT-30-HF...................  Hospitals must report a minimum number of
                                25 cases.
MORT-30-PN (updated cohort)..  Hospitals must report a minimum number of
                                25 cases.
MORT-30-COPD.................  Hospitals must report a minimum number of
                                25 cases.
MORT-30-CABG.................  Hospitals must report a minimum number of
                                25 cases.
THA/TKA......................  Hospitals must report a minimum number of
                                25 cases.
------------------------------------------------------------------------
                              Safety Domain
------------------------------------------------------------------------
CAUTI........................  Hospitals have a minimum of 1.000
                                predicted infections as calculated by
                                the CDC.
CLABSI.......................  Hospitals have a minimum of 1.000
                                predicted infections as calculated by
                                the CDC.
Colon and Abdominal            Hospitals have a minimum of 1.000
 Hysterectomy SSI.              predicted infections as calculated by
                                the CDC.
MRSA Bacteremia..............  Hospitals have a minimum of 1.000
                                predicted infections as calculated by
                                the CDC.
CDI..........................  Hospitals have a minimum of 1.000
                                predicted infections as calculated by
                                the CDC.
Patient Safety and Adverse     Hospitals must report a minimum of three
 Events (Composite).           eligible cases on any one underlying
                                indicator.
PC-01........................  Hospitals must report a minimum of 10
                                cases.
------------------------------------------------------------------------
                  Efficiency and Cost Reduction Domain
------------------------------------------------------------------------
MSPB.........................  Hospitals must report a minimum number of
                                25 cases.
AMI Payment..................  Hospitals must report a minimum number of
                                25 cases.
HF Payment...................  Hospitals must report a minimum number of
                                25 cases.
PN Payment *.................  Hospitals must report a minimum number of
                                25 cases.
------------------------------------------------------------------------
 In section V.J.3.b. of the preamble of this final rule, we are
  finalizing our proposal to remove the current PSI 90 measure beginning
  with the FY 2019 program year. In section V.J.4.b. of the preamble of
  this final rule, we are finalizing our proposal to adopt the Patient
  Safety and Adverse Events (Composite) measure beginning with the FY
  2023 program year.
* In section V.J.4.a. of the preamble of this final rule, we are
  finalizing our proposal to adopt the PN Payment measure beginning with
  the FY 2022 program year.

d. Weighting Measures Within the Efficiency and Cost Reduction Domain
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51618 through 
51627), we adopted the MSPB measure for the Hospital VBP Program 
beginning with the FY 2015 program year. MSPB is the only cost measure 
in the Hospital VBP Program through the FY 2020 program year; as a 
result, hospitals' Efficiency and Cost Reduction domain scores are 
currently based solely on their MSPB measure scores. In the FY 2017 
IPPS/LTCH PPS final rule, we adopted two condition-specific cost 
measures, the AMI Payment and HF Payment measures, beginning with the 
FY 2021 program year (81 FR 56987 through 56990 and 81 FR 56990 through 
56992, respectively). In addition, as discussed in section V.J.4.a. of 
the preamble of this final rule, we are finalizing our proposal to 
adopt an additional condition-specific cost measure, the PN Payment 
measure, beginning with the FY 2022 program year. Based on this 
evolution of the Hospital VBP Program measure set, we believe it is 
appropriate to address measure score weighting within the Efficiency 
and Cost Reduction domain.
    In determining how to weight measures in the Efficiency and Cost 
Reduction domain, we took into consideration hospitals' experience with 
the measures and the measures' ability to incentivize greater 
coordination among hospitals, physicians, and providers of post-acute 
care services to optimize the value of care they provide to Medicare 
beneficiaries. Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 19985 through 19986), we proposed to weight the measures within 
the Efficiency and Cost Reduction domain such that the MSPB measure 
comprises 50 percent of a hospital's domain score and the other 
condition-specific payment measures, weighed equally, comprise the 
remaining 50 percent of a hospital's domain score, beginning with the 
FY 2021 program year and for subsequent years. We further proposed 
that:
     If a hospital meets the case minimum to receive a score on 
the MSPB measure but does not meet the minimum number of cases for any 
other measures in the Efficiency and Cost Reduction domain, its domain 
score will be based solely on its MSPB score;
     If a hospital does not meet the case minimum to receive a 
score on the MSPB measure but meets the minimum number of cases for any 
other measure or measures within the Efficiency and Cost Reduction 
domain, its domain score will be based on its scores on the other 
payment measures, weighted equally (that is, the MSPB measure's weight 
will be redistributed equally among the Efficiency and Cost Reduction 
domain measures for which the hospital is eligible receive a score); 
and
     If a hospital meets the case minimum to receive a score on 
the MSPB measure and one or more other measures within the Efficiency 
and Cost Reduction domain, but not all measures within this domain, the 
hospital's MSPB measure score will comprise 50 percent of its domain 
score and the remaining 50 percent will be divided equally among the 
measures for which the hospital is eligible to receive a score.
    Under our proposed weighting scheme, a hospital's MSPB measure 
score could constitute between 12.5 percent and 25 percent of the 
hospital's TPS. We believe the proposed weighting is appropriate 
because the MSPB

[[Page 38269]]

measure is an overall spending measure and is therefore more broadly 
applicable than the condition-specific payment measures. In addition, 
hospitals have the most familiarity with this measure because it has 
been in the program the longest. We also considered proposing to weight 
all measures within the Efficiency and Cost Reduction domain equally. 
However, we determined this weighting may not reflect the broader 
applicability of the MSPB measure and its importance in ensuring that 
hospitals monitor the overall costs of care they provide to a larger 
subset of Medicare beneficiaries during an inpatient hospitalization 
and are involved in the coordination of beneficiaries' care immediately 
prior to hospitalization and post-discharge.
    We invited public comment on these proposals.
    Comment: Some commenters supported CMS' proposal to reweight the 
Efficiency and Cost Reduction domain to reflect the adoption of 
additional condition-specific payment measures. One commenter 
specifically supported CMS' proposal to reweight the Efficiency and 
Cost Reduction domain because these measures encourage providers to 
consider the resource use implications of their hospital and specialist 
referral patterns.
    Response: We thank the commenters for their support.
    Comment: A few commenters recommended that CMS weight all measures 
within the Efficiency and Cost Reduction domain equally, because these 
commenters believe doing so would enable hospitals to more easily 
improve performance in this domain by targeting cost reduction for 
specific conditions. One commenter noted the other measure domains in 
the Hospital VBP Program weight all measures equally within a given 
domain, and therefore recommended that CMS weight all measures within 
the Efficiency and Cost Reduction domain equally.
    Response: While we acknowledge the commenter's concerns regarding 
the disproportionate weighting of the MSPB measure, we believe the 
fundamental differences between this measure and condition-specific 
payment measures justify weighting the MSPB measure higher in the 
Efficiency and Cost Reduction domain. The MSPB measure is an overall 
spending measure that has been in the Hospital VBP Program for many 
years. In addition, we note this weighting allocation actually reduces 
the total weight of the MSPB measure in hospitals' TPSs from 25 percent 
to 12.5 percent, depending upon whether the hospital is eligible to 
receive a score on one of the condition-specific payment measures.
    Comment: Many commenters recommended that CMS not finalize its 
proposal to weight the MSPB measure at 50 percent of the Efficiency and 
Cost Reduction domain, noting that the measure double-counts payments 
captured in the condition-specific measures in the domain, the 
measure's comprehensiveness makes it difficult for hospitals to 
improve, and the recent ASPE report that noted deficiencies in the 
measure's current risk adjustment which may penalize providers for 
medical risk beyond the provider's control. Two commenters recommended 
that the MSPB measure should be removed from the program starting FY 
2021, stating that reliance on condition-specific measures will ensure 
that payments are not double-counted and will make it easier for 
providers to implement targeted strategies to improve performance. At a 
minimum, commenters requested that the measure be equally weighted with 
the other episode of care payment measures.
    Response: We thank the commenters for their recommendations. 
However, we note that section 1886(o)(2)(B)(ii) of the Act requires 
that the Hospital VBP Program ``include efficiency measures, including 
measures of `Medicare spending per beneficiary.' '' While we agree the 
condition-specific payment measures will provide hospitals with 
important data on payments associated with an episode of care, we 
continue to believe the MSPB measure also provides hospitals with 
valuable information because this measure captures resource use data 
for a wide range of services provided in the inpatient hospital 
setting. We will continue to consider other future measures for the 
Efficiency and Cost Reduction domain, and encourage commenters to 
submit any fully developed measures for consideration for the Measures 
Under Consideration List as part of the pre-rulemaking process (details 
available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Pre-Rule-Making.html).
    Comment: One commenter stated that weighting the HF and PN Payment 
measures together at 50 percent of the Efficiency and Cost Reduction 
domain in the FY 2021 program year gives these measures a significantly 
disproportionate weight in the overall calculation compared to other 
measures.
    Response: We interpret commenter's reference to PN Payment in the 
FY 2021 program year to mean the AMI Payment measure finalized for that 
year alongside the HF Payment measure. While we recognize this proposed 
weighting results in the condition-specific payment measures represent 
between 12.5 percent and 6.25 percent, we believe this weight is 
appropriate for the condition-specific payment measures. The condition-
specific payment measures, paired with their corresponding quality 
measures, are intended to serve as a larger assessment of value of care 
provided at a hospital. We therefore believe it is important to weight 
the measures in a manner that incentivizes hospitals to strive for 
continued improvement in this area.
    Comment: One commenter recommended weighting the condition-specific 
payment measures at 20 percent of the Efficiency and Cost Reduction 
domain in order to mitigate the overlap between these measures and the 
MSPB measure, and to reduce the possibility of this overlap leading to 
mixed signals for hospitals regarding their resource use.
    Response: We interpret commenter's recommendation to mean weighting 
the three condition-specific payment measures, combined, at 20 percent 
of the Efficiency and Cost Reduction domain, which represents 25 
percent of a hospital's TPS. Assuming this position, under this 
recommendation, if a hospital were eligible to receive a score on all 
three condition-specific payment measures, these three measures would 
only represent five percent of the hospital's TPS. We believe weighting 
the condition-specific payments measures at 20 percent of the 
Efficiency and Cost Reduction domain does not afford the measures 
sufficient weight to drive an increased focus on the value of care 
provided at hospitals. However, we will continue to monitor the impact 
of weighting the measures within the Efficiency and Cost Reduction 
domain for unintended consequences.
    After consideration of the public comments we received, we are 
finalizing our proposal to weight the measures within the Efficiency 
and Cost Reduction domain such that the MSPB measure comprises 50 
percent of a hospital's domain score and the other condition-specific 
payment measures, weighed equally, comprise the remaining 50 percent of 
a hospital's domain score, beginning with the FY 2021 program year.

K. 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. For a detailed discussion of

[[Page 38270]]

the statutory basis of 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 further description of our previously finalized 
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), the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49570 through 49581), and the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 57011 through 57026). 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 
process 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.
2. Implementation of the HAC Reduction Program for FY 2018
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized 
the following Centers for Disease Control and Prevention (CDC) National 
Healthcare Safety Network (NHSN) measures for Domain 2 for use in the 
FY 2015 program and subsequent years: CLABSI, CAUTI, Colon and 
Abdominal Hysterectomy SSI, MRSA Bacteremia, and CDI. In the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57020), we finalized the use of the 
Patient Safety and Adverse Events Composite (PSI 90) measure for use in 
the FY 2018 program and subsequent years for Domain 1.
    CMS strives to put patients first, ensuring they are empowered to 
make decisions about their own healthcare along with their clinicians 
using information from data-driven insights that are increasingly 
aligned with meaningful quality measures. We support technology that 
reduces burden and allows clinicians to focus on providing high-quality 
healthcare for their patients. We also support innovative approaches to 
improve quality, accessibility, and affordability of care while paying 
particular attention to improving clinicians' and beneficiaries' 
experience when interacting with CMS programs. In combination with 
other efforts across the Department of Health and Human Services, we 
believe the HAC Reduction Program helps to encourage hospitals to 
improve healthcare quality and value, while giving patients and 
providers the tools and information needed to make the best decisions 
for themselves. We recognize that the HAC Reduction Program represents 
a key component of the way that we bring quality measurement and 
improvement together with payment, we have taken efforts to review 
existing policies to identify how to move the program forward in the 
least burdensome manner possible while continuing to promote 
improvement in the quality of care provided to patients. These 
previously finalized measures are shown in the table below.

               HAC Reduction Program Measures for FY 2018
------------------------------------------------------------------------
            Short name                  Measure name           NQF #
------------------------------------------------------------------------
                                Domain 1
------------------------------------------------------------------------
PSI 90............................  Patient Safety and              0531
                                     Adverse Events
                                     Composite.
------------------------------------------------------------------------
                                Domain 2
------------------------------------------------------------------------
CAUTI.............................  NHSN Catheter-                  0138
                                     associated Urinary
                                     Tract Infection
                                     (CAUTI) Outcome
                                     Measure.
CDI...............................  NHSN Facility-wide              1717
                                     Inpatient Hospital-
                                     onset Clostridium
                                     difficile Infection
                                     (CDI) Outcome
                                     Measure.
CLABSI............................  NHSN Central Line-              0139
                                     Associated
                                     Bloodstream
                                     Infection (CLABSI)
                                     Outcome Measure.
Colon and Abdominal Hysterectomy    American College of             0753
 SSI.                                Surgeons--Centers
                                     for Disease Control
                                     and Prevention (ACS-
                                     CDC) Harmonized
                                     Procedure Specific
                                     Surgical Site
                                     Infection (SSI)
                                     Outcome Measure.
MRSA Bacteremia...................  NHSN Facility-wide              1716
                                     Inpatient Hospital-
                                     onset Methicillin-
                                     resistant
                                     Staphylococcus
                                     aureus (MRSA)
                                     Bacteremia Outcome
                                     Measure.
------------------------------------------------------------------------

    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57022), we finalized 
a 15-month performance period from July 1, 2014 through September 30, 
2015, for the Domain 1 measure (PSI 90 Patient Safety and Adverse 
Events Composite) and a 24-month performance period from January 1, 
2015 through December 31, 2016 (CYs 2015 and 2016) for Domain 2 
measures (CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, MRSA 
Bacteremia, and CDI) for the FY 2018 HAC Reduction Program. 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 2018 Total HAC Score in late summer 2017 via 
the QualityNet Secure Portal.\74\ In order to access their hospital-
specific reports, hospitals must register for a QualityNet Secure 
Portal account.
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    \74\ Available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetBasic&cid=1228773343598.
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    We did not make any changes to the review and correction policies 
for FY 2017. 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. As we 
have noted on the QualityNet Web site,\75\ the review and corrections 
process does not allow hospitals to submit additional corrections 
related to the underlying claims data for the PSI 90 Composite, or to 
add new claims to the data extract used to calculate the results. In 
addition, under the Hospital IQR Program, hospitals have an opportunity 
to submit, review, and correct the chart-abstracted information used to 
calculate the CLABSI, CAUTI, Surgical Site Infection (SSI), MRSA, and 
CDI healthcare-associated infection (HAI)

[[Page 38271]]

measures. The HAC Reduction Program's review and corrections process 
does not allow hospitals to correct: (1) Reported number of HAIs, (2) 
Standardized Infection Ratios (SIRs), or (3) reported central-line 
days, urinary catheter days, surgical procedures performed, or patient 
days. For further information related to the review and correction 
process we refer readers to the 2014 IPPS/LTCH PPS final rule (78 FR 
50725 through 50728).
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    \75\ Available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228774298609.
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    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50726), we stated 
that the HAC Reduction Program would use the same process as the 
Hospital IQR Program for hospitals to review and correct data for 
chart-abstracted measures in Domain 2. Under this process, hospitals 
can review and correct data they submit on all Hospital IQR Program 
chart-abstracted measures, whether or not the measures were adopted as 
a measure for the HAC Reduction Program. In that rule, we stated that 
under the Hospital IQR Program, hospitals had an opportunity to submit, 
review, and correct any of the chart-abstracted information for the 
full 4\1/2\ months following the last discharge date in a calendar 
quarter. To align with the Hospital IQR Program, we are clarifying the 
language used for reporting requirements for chart-abstracted measures. 
We note that NHSN requires that data be submitted on a monthly basis 
and CDC strongly encourages healthcare facilities to enter each month's 
data within 30 days of the end of the month in which it is collected so 
it has the greatest impact on infection prevention activities.
    However, for purposes of fulfilling CMS quality measurement 
reporting requirements, each facility's data must be entered into NHSN 
no later than 4\1/2\ months after the end of the reporting quarter. We 
further note that NHSN data are reported based on when the event 
occurred, as opposed to when the patient was discharged. For data 
submitted for SSIs, facilities should include SSIs that are associated 
with procedures that were performed during the reporting time period. 
We refer readers to CDC Web site for additional resources and data 
submission requirements, which can be found at: https://www.cdc.gov/nhsn/cms/index.html.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19986 through 
19990), for the HAC Reduction Program, we: (1) Proposed to specify the 
dates of the time period used to calculate hospital performance for the 
FY 2020 HAC Reduction Program; (2) requested comment on additional 
measures for potential future adoption; (3) requested comment on social 
risk factors; (4) requested comment on accounting for disability and 
medical complexity in the CDC NHSN measures in Domain 2; and (5) 
proposed to update the Extraordinary Circumstance Exception policy 
beginning in FY 2018 as related to extraordinary circumstances that 
occur on or after October 1, 2017. These proposals are described in 
more detail below.
3. Data Collection Time Periods for the FY 2020 HAC Reduction Program
    Section 1886(p)(4) of the Act gives the Secretary the statutory 
authority to determine the ``applicable period'' during which data are 
collected 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 24-month data collection period of performance data 
to calculate the Total HAC Score. In the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 57020), we finalized a truncated data collection period for 
Domain 1, shorter than the previous 24-month data collection period for 
calculating the Total HAC Score for the FY 2018 and FY 2019 HAC 
Reduction Programs, to accommodate the transition to the ICD-10 
classification system. We also changed the definition of ``applicable 
period,'' in 42 CFR 412.170, to reflect this change.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19987), for the 
FY 2020 program, we proposed to return to a 24-month data collection 
period for the calculation of HAC Reduction Program measure results. We 
believe that using 24 months of data for both domains balances the 
needs of the program against the data-collection processes utilized by 
hospitals, and allows for sufficient time to process the claims data 
and calculate the measure results. The 24-month data collection period 
allows time to complete the complex calculation process for the 
measures, to perform comprehensive quality assurance to enhance the 
accuracy of measure results, and to disseminate confidential reports on 
hospital-level results to individual hospitals. For the Domain 1 
measure (Patient Safety and Adverse Events Composite), we proposed to 
use the 24-month period from July 1, 2016 through June 30, 2018. The 
claims for all Medicare Fee-for-Service beneficiaries discharged during 
this period would be included in the calculations of measure results 
for Domain 1 for the FY 2020 program. For the CDC NHSN measures in 
Domain 2 (CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, MRSA 
Bacteremia, and CDI), we proposed to use data from CYs 2017 and 2018, 
that is January 1, 2017-December 31, 2018, for the FY 2020 program.
    Comment: Some commenters supported returning to a 24-month data 
collection period for all measures. However, a few commenters 
recommended adoption of a 12-month data collection period. These 
commenters stated that a shorter performance would provide hospitals 
with more timely information to develop quality improvement 
initiatives.
    Response: We thank commenters for their support and we understand 
that reliable data is a critical component of accurately assessing 
hospital performance. We believe the 24-month data collection period 
supports our continued goal to minimize provider burden and incentivize 
high-quality care. As we noted in the 2014 IPPS/LTCH PPS final rule (78 
FR 50717), we adopted the 24-month data collection period based on 
recommendations from AHRQ, the measure developer. An analysis of the 
recalibrated PSIs show that most PSIs included in the PSI 90 composite 
have at least moderate reliability, on average, using a 24-month time 
period. We continue to believe that the 24-month data collection period 
provides hospitals and the public the most reliable data available.
    After consideration of the public comments we received, we are 
finalizing the Fiscal Year 2020 data collection period as proposed.
4. Request for Comments on Additional Measures for Potential Future 
Adoption
    In the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25123), we 
welcomed public comment and suggestions for additional HAC Reduction 
Program measures. 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.
    As part of our ongoing efforts to evaluate and strengthen the HAC 
Reduction Program, we are conducting a review of patient safety 
measures to include in Domain 1. We seek to adopt outcomes-focused 
patient-safety measures with an emphasis on topic areas including, but 
not limited to: Falls with injury, adverse drug events (ADEs),

[[Page 38272]]

glycemic events and ventilator associated events (VAEs). NQF identified 
these as gap areas for the HAC Reduction Program.\76\
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    \76\ The National Quality Forum. NQF: MAP hospital Workgroup--
materials. October 18, 2016 http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75369.
---------------------------------------------------------------------------

    We note that falls are frequent in the inpatient setting. An 
estimated 700,000 to 1 million inpatients fall each year in U.S. 
hospitals.\77\ These falls can result in further health care 
complications for patients and add costs by increasing the need for 
expensive imaging, like head computed-tomography scans.\78\ Risk 
assessment is the primary tool for preventing falls \79\ and research 
has indicated that inpatient fall prevention programs with patient 
education components are effective in reducing fall rates.\80\
---------------------------------------------------------------------------

    \77\ Sonnad, S.S., S. Mascioli, J. Cunningham, and J. Goldsack. 
``Do Patients Accurately Perceive their Fall Risk?'' Nursing, vol. 
44, no. 11, 2014, pp. 58-62.
    \78\ Fields, J., T. Alturkistani, N. Kumar, A. Kanuri, D.N. 
Salem, S. Munn, and D. Blazey-Martin. ``Prevalence and cost of 
imaging in inpatient falls: the rising cost of falling.'' 
ClinicoEconomics and Outcomes Research, vol. 7, 2015, pp. 281-286.
    \79\ Callis, N. ``Falls Prevention: Identification of Predictive 
Fall Risk Factors.'' Applied Nursing Research, vol. 29, 2016, pp. 
53-58.
    \80\ Lee, D.A., E. Pritchard, F. McDermott, and T. P. Haines. 
``Falls Prevention Education for Older Adults during and After 
Hospitalization: A Systematic Review and Meta-Analysis.'' Health 
Education Journal, vol. 73, no. 5, 2014, pp. 530-544.
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    ADEs are a frequent and preventable occurrence among hospital 
inpatients. They pose serious threats to patient safety and can result 
in prolonged hospitalization, increased morbidity and higher health 
care costs.\81\
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    \81\ Martins, A.C., F. Giordani, and S. Rozenfeld. ``Adverse 
Drug Events among Adult Inpatients: A Meta-Analysis of Observational 
Studies.'' Journal of Clinical Pharmacy and Therapeutics, vol. 39, 
no. 6, 2014, pp. 609-620.
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    Glycemic events, a common occurrence among inpatients, are 
associated with a greater risk of negative health outcomes.\82\ Many 
guidelines exist to support glycemic control in hospitalized patients. 
The most common guideline recommendations include documenting diabetes 
diagnoses, obtaining a hemoglobin A1C on admission, use of the ``basal-
bolus'' method for insulin delivery, discontinuation of noninsulin 
agents for non-ICU patients with type 2 diabetes, and use of 
standardized order sets.\83\
---------------------------------------------------------------------------

    \82\ Kilpatrick, C.R., M.B. Elliott, E. Pratt, S.J. Schafers, 
M.C. Blackburn, K. Heard, J.B. Mcgill, M. Thoelke, and G.S. Tobin. 
``Prevention of Inpatient Hypoglycemia with a Real-Time Informatics 
Alert.'' Journal of Hospital Medicine, vol. 9, no. 10, 2014, pp. 
621-626.
    \83\ Maynard, G., K. Kulasa, P. Ramos, D. Childers, B. Clay, M. 
Sebasky, E. Fink, A. Field, M. Renvall, P.S. Juang, C. Choe, D. 
Pearson, B. Serences, and S. Lohnes. ``Impact of a hypoglycemia 
reduction bundle and a systems approach to inpatient glycemic 
management.'' Endocrine Practice, vol. 21, no. 4, 2015, pp. 355-367.
---------------------------------------------------------------------------

    Mechanically ventilated patients are at greater risk for VAEs, 
which can result in morbidity and death.\84\ VAEs include ventilator 
associated pneumonia (VAP) and preventable adverse events, such as 
pulmonary edema and acute respiratory distress syndrome. VAP continues 
to rank among the most common HACs. Effective prevention strategies for 
VAP include early removal of invasive devices and strict infection 
control and prevention efforts to target these high-risk groups.\85\
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    \84\ Resetar, E., K.M. McMullen, A.J. Russo, J.A. Doherty, K.A. 
Gase, and K.F. Woeltje. Development, ``Implementation and Use of 
Electronic Surveillance for Ventilator Associated Events (VAE) in 
Adults.'' AMIA Annual Symposium Proceedings, 2014, pp. 1010-1017.
    \85\ Mendoza, C., and S. Patel. ``Antimicrobial Therapy for 
Hospital-Acquired Pneumonia.'' U.S. Pharmacist, vol. 41, no. 7, 
2016, pp. HS11-15.
---------------------------------------------------------------------------

    Our overarching purpose is to support the National Quality 
Strategy's goals of better health care for individuals, better health 
for populations, and lower costs for health care.\86\ To the extent 
practicable, 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 consider widely accepted 
criteria established in medical literature.
---------------------------------------------------------------------------

    \86\ About the National Quality Strategy, https://www.ahrq.gov/workingforquality/about.htm#aims.
---------------------------------------------------------------------------

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19987 through 
19988), we welcomed public comment and suggestions on these measure 
areas, as well as additional outcome-based patient-safety measures that 
will help achieve the program goals.
    Comment: Many commenters recommended that CMS emphasize measures of 
patient safety by adopting outcomes-focused measures which include 
falls and injury, adverse drug effects, glycemic events, and ventilator 
associated events (VAEs). Commenters noted that future inclusion of 
these measures supports the National Quality Strategy three-part aim of 
better health for individuals, better health for populations, and lower 
costs for health.
    Commenters also recommended that CMS concentrate on patient-focused 
measures that increase quality, reduce harm, and provide opportunities 
for payers and consumers to be prudent purchasers of clinical services. 
Specifically, commenters recommended that measures reflect clinical 
reality by accurately measuring the intended target, be usable by 
providers who can use the data to implement evidence-based practices to 
improve care, align with one another using standardized definitions, 
and represent only the most important health priorities.
    Some commenters stated that measures should be integrated in 
interoperable EHRs, allowing for more comprehensive measurement and 
requiring no extra reporting effort. In addition, commenters 
recommended that CMS utilize measures that were fully tested and 
received NQF endorsement. Commenters believed that NQF endorsement was 
the most prominent standard which confirmed that measures reflected 
evidence-based care, were feasible to collect and report in a specific 
care setting, were clearly defined and usable, and met the highest 
standard of reliability and validity.
    Commenters further requested that CMS avoid measure overlap with 
the Hospital VBP Program. Commenters requested that any new measure 
should also be included in the Hospital IQR Program and reported on 
Hospital Compare for one year and approved by the MAP before the 
measure is proposed.
    Some commenters expressed concern that hospitals and other 
providers were required to report on hundreds of measures and 
recommended against the addition of any new measures. These commenters 
did not support the addition of VAE measures, noting a lack of data on 
VAEs' responsiveness to quality improvement initiatives. These 
commenters also expressed concern with measures that focused on ADE and 
glycemic events unless appropriate clinical data could be efficiently 
collected and reliance on administrative data could be avoided.
    One commenter believed it would be prudent to delay the adoption of 
such measures until more interventional studies were published to 
bolster the evidence base and better inform healthcare providers how 
best to reduce VAEs. This commenter noted that the number of published 
papers that delineate risk factors (for example, sedation, fluids, high 
tidal volumes, acid suppression) and effective ways to reduce VAEs (for 
example, spontaneous awakening trials, spontaneous breathing trials, 
conservative fluid management) were growing, but the subject is not 
mature at this point.
    Some commenters believed that adding more HAI measures could serve 
to dilute the focus on improvement efforts. Commenters noted that when 
additional measures were added, facilities were not able to prioritize 
the

[[Page 38273]]

infection-related events that were most relevant to the population 
served and services provided in their facilities. Commenters requested 
that CMS: Commit to the minimum number of measures needed to evaluate 
healthcare quality, outcomes, and value; use measures that are 
naturally derived from the delivery of patient care; align with 
nationally endorsed, evidence-based measures; focus on measures that 
target the most vital aspects of care, are usable, tailored to the 
patient population, and that offer opportunities to directly and 
positively impact patient outcomes; and collaborate with key healthcare 
stakeholders, including patients, payers, regulators, and providers, to 
coordinate efforts.
    One commenter recommended two NQF-endorsed measures of glycemic 
control, Glycemic Control--Hypoglycemia (NQF #2363) and Glycemic 
Control--Hyperglycemia (NQF #2362). This commenter noted that 
hypoglycemia and hyperglycemia occur frequently in the inpatient 
setting, have a negative impact on patient outcomes, and increase 
costs. This commenter encouraged CMS to consider adding these measures 
because: Studies have identified that the bundling of specific 
therapies is effective at preventing glycemic events; protocols to 
reduce the risk of glycemic events have been identified, documented, 
and are available for implementation by hospitals; and credible data 
are available to assess the rate of hypoglycemia and hyperglycemia 
among hospitalized patients.
    Some commenters recommended that CMS consider the addition of a 
Medication Safety Domain (Domain 3). To construct this domain, 
commenters suggested two measures which address sources of medication 
errors and related adverse events: Medication Reconciliation: 
Unintentional Medication Discrepancies (NQF #2456) and the Computerized 
Provider Order Entry (CPOE) Evaluation Tool. Medication Reconciliation: 
Unintentional Medication Discrepancies (NQF #2456) measures the rate of 
unintentional medication discrepancies per patient and is currently in 
use in the MARQUIS Multi-Center Medication Reconciliation Quality 
Improvement Study funded by AHRQ. The measure calls for a licensed 
pharmacist to create a gold standard preadmission medication list 
(PAML) for a sample of twenty-five adult inpatients per quarter; the 
PAML is compared to the medication list at admission and to the 
medication list upon discharge. Hospitals report the number of 
unintentional medication discrepancies identified between the PAML and 
the admission and discharge orders, resulting in a rate of 
unintentional medication discrepancies per patient. The Computerized 
Provider Order Entry (CPOE) Evaluation Tool, funded by AHRQ, is 
designed to test the ability of inpatient CPOE systems to alert 
prescribers to common, serious medication errors. In addition, the Tool 
is designed to help hospitals improve their use of clinical decision 
support to reduce adverse drug events and improve medication safety.
    Noting a measures gap in maternity care, one commenter recommended 
the addition of two maternity safety measures: Cesarean Birth (PC-02) 
(NQF #0471), developed by The Joint Commission, and Unexpected Newborn 
Complications (NQF #0716), developed by the California Maternal Quality 
Care Collaborative. The commenter noted that cesarean births result in 
increased neonatal and maternal morbidities when compared to vaginal 
deliveries which, in turn, leads to increased cost of care. The 
Unexpected Newborn Complications measure was initially endorsed by NQF 
in 2011 and was recently revised to incorporate several improvements to 
the measure.
    One commenter recommended that CMS adopt the Percent of Residents 
or Patients with Pressure Ulcers That Are New or Worsened (NQF #0678) 
measure. This commenter noted that pressure ulcers/injuries exact a 
significant clinical and financial toll; pressure ulcers result in 
pain, delayed recovery, prolonged hospital stays, increased risk of 
sepsis, and even death. The commenter also noted published 
international guidelines for the prevention and treatment of pressure 
ulcers/injuries that specify emerging therapies as part of pressure 
ulcer/injury prevention. The commenter further noted that CMS has 
implemented this measure in the LTCH QRP, and it had been vetted by the 
NQF.
    Finally, the commenter stated their belief that using this measure 
would add consistency across sites of care and would advance the CMS 
goal of harmonizing key measures across the continuum of care.
    One commenter requested that CMS put a process or system in place 
to account for patient safety among children. Another commenter 
recommended CMS explore a measure for the use of antipsychotics for 
patients with dementia.
    Response: We appreciate the commenters' input. Improving patient 
safety is the primary objective of the HAC Reduction Program. When 
considering measures for inclusion in the program, we assess measures 
that are currently available, risk-adjusted, and reflective of hospital 
performance. Endorsement by the NQF and input from the Measures 
Application Partnership (MAP) are also considered. Section 1886(p)(3) 
of the Act defines ``hospital acquired conditions'' and does not 
require that each measure we adopt for the HAC Reduction Program be 
endorsed by a national consensus building entity, or the NQF 
specifically. Under this provision, the Secretary has further authority 
to adopt non-NQF-endorsed measures. While we strive to adopt NQF-
endorsed measures when possible, we believe consensus among affected 
parties can be achieved in other ways, including through the measure 
development process, stakeholder input via the TEP, broad acceptance 
and use of the measure, and public comments. We will take commenters' 
feedback into consideration for future measure selection and 
rulemaking.
5. Accounting for Social Risk Factors in the HAC Reduction Program
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19988 through 
19989), we discussed the issue of accounting for social risk factors in 
the HAC Reduction Program. We understand that social risk factors such 
as income, education, race and ethnicity, employment, disability, 
community resources, and social support (certain factors of which are 
also sometimes referred to as socioeconomic status (SES) factors or 
socio-demographic status (SDS) factors) play a major role in health. 
One of our core objectives is to improve beneficiary outcomes, 
including reducing health disparities, and we want to ensure that all 
beneficiaries, including those with social risk factors, receive high 
quality care. In addition, we seek to ensure that the quality of care 
furnished by providers and suppliers is assessed as fairly as possible 
under our programs while ensuring that beneficiaries have adequate 
access to excellent care.
    We have been reviewing reports prepared by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) \87\ and the 
National Academies of Sciences, Engineering, and Medicine on the issue 
of accounting for social risk factors in CMS' quality measurement and 
payment programs, and considering options on how to address the issue 
in these programs. On December 21, 2016, ASPE submitted a report to 
Congress on

[[Page 38274]]

a study it was required to conduct under section 2(d) of the Improving 
Medicare Post-Acute Care Transformation (IMPACT) Act of 2014. The study 
analyzed the effects of certain social risk factors in Medicare 
beneficiaries on quality measures and measures of resource use used in 
one or more of nine Medicare value-based purchasing programs, including 
the HAC Reduction Program.\88\ The report also included considerations 
for strategies to account for social risk factors in these programs. In 
a January 10, 2017 report released by the National Academies of 
Sciences, Engineering, and Medicine, that body provided various 
potential methods for measuring and accounting for social risk factors, 
including stratified public reporting.\89\
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    \87\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \88\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \89\ National Academies of Sciences, Engineering, and Medicine. 
2017. Accounting for social risk factors in Medicare payment. 
Washington, DC: The National Academies Press.
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    As noted in the FY 2017 IPPS/LTCH PPS final rule, the NQF undertook 
a 2-year trial period in which certain new measures, measures 
undergoing maintenance review, and measures endorsed with the condition 
that they enter the trial period were assessed to determine whether 
risk-adjustment for selected social risk factors was appropriate for 
these measures. This trial entailed temporarily allowing inclusion of 
social risk factors in the risk-adjustment approach for these measures. 
The trial has concluded, and NQF will issue recommendations regarding 
the future inclusion of social risk factors in risk-adjustment for 
these quality measures, and we will closely review its findings.
    We note that measures in the HAC Reduction Program, generally, 
represent never events,\90\ and are often preventable conditions like 
central line associated bloodstream infections, catheter associated 
urinary tract infections, and other complications or conditions that 
arise after a patient was admitted to the hospital for the treatment of 
another condition. We believe these events should not be influenced by 
social risk factors; instead, they are risk-adjusted for factors listed 
in specifications for the AHRQ and CDC developed measures. Currently, 
risk factors such as the patient's age, gender, comorbidities, and 
complications are considered in the calculation of the measure rates so 
that they account for the clinical differences in the patients served 
by hospitals. Our measures continually undergo maintenance to determine 
the need for updated specifications, and to monitor for trends and any 
relevant risk-adjustment changes needed for the measures. We remind 
readers that, beginning for payments made in FY 2018, we adopted the 
modified PSI 90: Patient Safety and Adverse Events Composite (NQF 
#0531); the composite was revised to reflect the relative importance 
and harm associated with each component indicator, and to provide a 
more reliable and valid signal of patient safety events (81 FR 57020). 
We also adopted a continuous scoring approach in the HAC Reduction 
Program that brings our scoring domains into alignment with each other, 
essentially eliminates ties in Total HAC scores, reduces effects on 
outliers, and enhances the ability to distinguish among hospitals of 
varying quality (81 FR 57025).
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    \90\ The term ``Never Event'' was first introduced in 2001 by 
Ken Kizer, MD, former CEO of the National Quality Forum (NQF), in 
reference to particularly shocking medical errors (such as wrong-
site surgery) that should never occur. Over time, the list has been 
expanded to signify adverse events that are unambiguous (clearly 
identifiable and measurable), serious (resulting in death or 
significant disability), and usually preventable. The NQF initially 
defined 27 such events in 2002. The list has been revised since 
then, most recently in 2011, and now consists of 29 events grouped 
into 6 categories: Surgical, product or device, patient protection, 
care management, environmental, radiologic, and criminal. Never 
Events, https://psnet.ahrq.gov/primers/primer/3/never-events, 
accessed on February 22, 2017.
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    As we continue to consider the analyses and recommendations from 
these reports and await the results of the NQF trial on risk-adjustment 
for quality measures, we are continuing to work with stakeholders in 
this process. As we have previously communicated, we are concerned 
about holding providers to different standards for the outcomes of 
their patients with social risk factors because we do not want to mask 
potential disparities or minimize incentives to improve the outcomes 
for disadvantaged populations. Keeping this concern in mind, we 
continue to seek public comment on whether we should account for social 
risk factors in the HAC Reduction Program and, if so, what method or 
combination of methods would be most appropriate for accounting for 
social risk factors. Examples of methods include: Adjustment of the 
payment adjustment methodology under the HAC Reduction Program; 
adjustment of provider performance scores (for instance, stratifying 
providers based on the proportion of their patients who are dual 
eligible); confidential reporting of stratified measure rates to 
providers; public reporting of stratified measure rates; risk-
adjustment of a particular measure as appropriate based on data and 
evidence; and redesigning payment incentives (for instance, rewarding 
improvement for providers caring for patients with social risk factors 
or incentivizing providers to achieve health equity).
    We note that in section V.I.9. of the preamble of this final rule, 
we discuss considerations for stratifying hospitals into peer groups 
for purposes of assessing payment adjustments under the Hospital 
Readmissions Reduction Program, as required under the 21st Century 
Cures Act. We refer readers to that section for a detailed discussion 
of these alternatives; while this discussion and corresponding proposal 
are specific to the Hospital Readmissions Reduction Program, they 
reflect the level of analysis we would undertake when evaluating 
methods and combinations of methods for accounting for social risk 
factors in CMS' other value-based purchasing programs, such as the HAC 
Reduction Program. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19989), we sought comment on whether any of these methods should be 
considered, and if so, which of these methods or combination of methods 
would best account for social risk factors in the HAC Reduction 
Program.
    In addition, in the proposed rule, we sought public comment on 
which social risk factors might be most appropriate for stratifying 
measure scores and/or potential risk-adjustment of a particular 
measure. Examples of social risk factors include, but are not limited 
to, dual eligibility/low-income subsidy, race and ethnicity, and 
geographic area of residence. We also sought comments on which of these 
factors, including current data sources where this information would be 
available, could be used alone or in combination, and whether other 
data should be collected to better capture the effects of social risk. 
We will take commenters' input into consideration as we continue to 
assess the appropriateness and feasibility of accounting for social 
risk factors in the HAC Reduction Program. We note that any such 
changes would be proposed through future notice-and-comment rulemaking.
    We look forward to working with stakeholders as we consider the 
issue of accounting for social risk factors and reducing health 
disparities in CMS programs. Of note, implementing any of the above 
methods would be taken into consideration in the context of how this 
and other CMS programs operate (for example, data submission methods, 
availability of data, statistical considerations relating to 
reliability of

[[Page 38275]]

data calculations, among others), so we also welcomed comment on 
operational considerations. CMS is committed to ensuring its 
beneficiaries have access to and receive excellent care, and the 
quality of care furnished by providers and suppliers is assessed fairly 
in CMS programs.
    Comment: Many commenters expressed concern that hospitals caring 
for large numbers of disadvantaged patients are more likely to receive 
penalties in the value-based programs. Commenters suggested that the 
lack of adjustment for social factors can worsen health care 
disparities because the penalties divert resources away from hospitals 
and other providers treating large proportions of vulnerable patients. 
Commenters recommended socio-demographic factors should be included in 
the HAC Reduction Program's risk-adjustment methodology to ensure the 
measures accurately reflect quality outcomes within a hospital's 
control. Commenters suggested that social and economic conditions 
within the patient population influence the health of the patients when 
they arrive to the hospital and impact whether patients acquire HACs.
    Other commenters supported the inclusion of factors such as: 
Socioeconomic position (for example dual eligible status, income, and 
education); race, ethnicity and cultural context; gender; social 
relationships (for example marital status); residential and community 
context (for example, housing, walkability, transportation options, and 
proximity to services); and health literacy. Commenters further 
recommended that CMS stratify hospitals into peer groups so that 
hospitals are compared to others with a similar patient mix or grouping 
such as bed size. Commenters further recommended that, in addition to 
adjusting payments based on social risk factors, CMS should adjust the 
measures for public reporting. Commenters noted that failure to adjust 
measures for public reporting provides an inadequate picture to 
consumers about provider quality.
    Commenters also recommended that CMS examine the National Academies 
of Sciences, Engineering, and Medicine report for examples of currently 
available data that could be included in measure risk-adjustment. Some 
commenters recommended CMS closely examine the considerations provided 
by National Association of Medicine (NAM) for risk-adjustment. NAM 
recommended four domains of risk indicators: Income, education, and 
dual eligibility; race, ethnicity, language, and nativity; marital/
partnership status and living alone; and neighborhood deprivation, 
urbanicity, and housing. NAM found community-level elements that 
providers are not able to change can indicate risk unrelated to quality 
of care; this finding is also being reported in the growing body of 
research on socioeconomic risk-adjustment. Commenters recommended that 
CMS work closely with the relevant medical societies with the goal of 
incorporating appropriate social risk factors into quality measures as 
soon as possible.
    Some commenters recommended that CMS consider the use of 
confidential patient-reported data because these offer a reasonably 
valid estimate of differences in utilization of health care between 
socioeconomic groups. Commenters requested that CMS consider providing 
hospitals with confidential reports of performance on accountability 
measures stratified by dual eligible status or other nationally 
available data elements. Once hospitals have had sufficient opportunity 
to review and understand their performance on these stratified 
measures, the commenters suggested that CMS work with stakeholders to 
publicly report this data in an appropriate fashion. Commenters further 
recommended the implementation of demonstration projects to encourage 
hospitals to collect data on social risk factors through their 
electronic health records (EHR). Commenters noted that where meaningful 
and comprehensive neighborhood level socio-demographic data currently 
exists, CMS should encourage empirical tests of quality metrics 
adjusted for those factors to assess the impact of those adjustments on 
local provider performance metrics. Commenters further recommended 
including functional status (activities of daily living, instrumental 
activities of daily living, and mobility) as a risk-adjustment variable 
to accurately assess patients across settings.
    In addition, commenters specifically suggested that CMS stratify 
hospitals into peer groups so that hospitals would be compared to 
others with a similar patient mix or grouping, such as number of 
patient beds.
    Some commenters did not support changing payment policies to risk-
adjust for social risk factors. Commenters noted that this approach 
would not address the underlying disparities often associated with poor 
health outcomes. Instead, these commenters maintained, it would mask 
potential disparities or minimize incentives to improve the outcomes 
for disadvantaged populations. Commenters suggested that adjusting for 
socioeconomic and socio-demographic risk factors would create perverse 
incentives for poor performers to continue with the status quo and for 
high performers to retreat from their efforts to address disparities in 
high socioeconomic status populations. There was also a concern that 
risk-adjusting for social risk factors would not address the underlying 
disparities often associated with poor health outcomes and could mask 
potential disparities.
    Commenters suggested that it was unacceptable for patients with 
social risk factors to experience never events, or a higher incidence 
of other serious events assessed by patient safety measures. Commenters 
stated that safe care should be a consistent and universal expectation 
for all patients. Commenters noted this position has also been taken by 
the NQF; patient safety measures were not included in the two-year 
trial period. Commenters recommended that CMS continue to collect a 
variety of data that could be analyzed over a 2-year period to 
establish a baseline that identifies how social risk factors impact 
populations and appropriately weigh those factors when measuring HACs.
    Response: We appreciate the recommendations from the commenters 
about consideration of socioeconomic position; race, ethnicity and 
cultural context; gender; social relationships; residential and 
community context; and health literacy and will work to determine the 
feasibility of collecting these patient-level variables. We also will 
consider whether we should stratify hospitals into peer groups so that 
hospitals are compared to others with a similar patient mix or grouping 
such as number of beds.
    We intend to explore options including, but not limited to, measure 
stratification by social risk factors in a consistent manner across 
programs, informed by considerations of stratification methods 
described in section IX.A.13. of the preamble of this final rule. We 
thank the commenters for this important feedback and will continue to 
consider options to account for social risk factors that would allow us 
to view disparities and potentially incentivize improvement in care for 
patients and beneficiaries. We also will consider providing feedback to 
providers on outcomes for individuals with social risk factors in 
confidential reports. As we consider the feasibility of collecting 
patient-level data and the impact of strategies to account for social 
risk factors through further analysis, we will continue to evaluate the 
reporting burden on providers. We also will consider the concerns 
commenters

[[Page 38276]]

raised about masking disparities associated with adjusting for social 
risk factors. Future proposals would be made after further research and 
continued stakeholder engagement.
    We thank the commenters, and we will consider their views as we 
develop further policy regarding social risk factors in the HAC 
Reduction Program.
6. Request for Comments on Inclusion of Disability and Medical 
Complexity for CDC NHSN Measures
    The intent of the HAC Reduction Program is to encourage all 
hospitals to reduce the incidence of HACs. We continue to believe that 
there is room for improvement in the incidence of HACs, regardless of 
the institution or hospital. The measures adopted in the HAC Reduction 
Program, which are risk-adjusted to account for the different patient 
populations that hospitals service, target important quality 
improvement areas. In its IMPACT Act report,\91\ ASPE suggested payment 
strategies to improve the HAC Reduction Program. ASPE noted that it is 
well-proven that higher levels of medical risk are associated with a 
higher risk for many (although not all) patient safety events, 
particularly infections.\92\ For example, diabetes is associated with 
roughly 70 percent higher odds of surgical site infections and 
diabetes, pulmonary disease, renal failure, and exposure to nursing 
homes are associated with a higher risk of MRSA.\93\ Many of the same 
medical factors also confer a higher risk of C. diff. infection, as 
well as CAUTI and CLABSI.\94\
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    \91\ ASPE, ``Report to Congress: Social Risk Factors and 
Performance Under Medicare's Value-Based Purchasing Programs.'' 21 
Dec 2016. Available at: https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \92\ Ibid. 102.
    \93\ Ibid. 102.
    \94\ Ibid. 102.
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    ASPE suggested that patient-level clinical data from the CDC 
healthcare-associated infection (HAI) measures should be examined and 
considered for additional risk-adjustment.\95\ ASPE also noted that the 
clinical risk-adjustment of the patient safety and hospital-acquired 
infection measures should be improved to ensure the measures adequately 
adjust for differences in patients' clinical risk, so that fair 
comparisons for hospital accountability and performance assessment can 
be made to hold providers to the same fair standard.\96\ ASPE 
recommended additional analyses for measure developers such as AHRQ and 
CDC to determine whether adjusting key components of the patient safety 
or HAI measures (for example frailty, functional limitations, prior 
hospitalizations or nursing home residence, or other markers of immune 
system deficiencies or unmeasured medical complexity) may better 
account for susceptibility to infection and patient safety events.\97\
---------------------------------------------------------------------------

    \95\ Ibid. 135.
    \96\ Ibid. 136.
    \97\ Ibid. 136.
---------------------------------------------------------------------------

    Based on ASPE's analysis and considerations, in the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 19899), we requested stakeholder feedback 
on risk-adjusting the CDC NHSN measures for disability or medical 
complexity. Although we did not propose any specific changes to the 
measures in the proposed rule, we will consider all comments as a guide 
to potential future action.
    Comment: Many commenters supported the adjustment of the CDC NHSN 
measures to account for patient medical complexity. Commenters agreed 
that patients with certain medical conditions (for example, diabetes, 
pulmonary disease, adrenal failure) are at higher risk for infection, 
and that frailty and functional limitations are risk factors for some 
patient safety events. Commenters noted the complex linkages between 
socioeconomic factors and performance in the HAC Reduction Program; the 
program's measures, healthcare-associated infections (HAIs), and 
serious safety events largely reflect actions within a hospital's 
control. This contrasts with other outcome measures such as 
readmissions, cost or patient experience, where socioeconomic factors 
like poverty and access issues can affect outcomes. Commenters agreed 
with the findings of the ASPE report that patient disability and 
complexity have a significant impact on patient outcomes, and may not 
be adequately captured in the current measures.
    Commenters encouraged CMS to work with CDC on gathering additional 
data on medical complexity for further evaluation as part of improved 
risk-adjustment as well as being able to trend the risks associated 
with infections for use in prevention strategies. Commenters 
recommended that any adjustments to the CDC NHSN measures should come 
directly from CDC based on their experience, testing, and feasibility 
of accurately obtaining the additional data.
    One commenter recommended that CMS examine whether there are any 
broader community environmental factors that may impact a patient's 
risk for infections or other complications. For example, poorer 
communities can have environmental pollution, reduced access to 
resources to manage chronic conditions, and food deserts that impact 
nutrition. One commenter suggested that exposure to nursing homes 
increased the risk for infection, and urged CMS to consider this as a 
factor. Another commenter recommended that CMS adopt risk factors that 
can be extracted from EHRs or claims data rather than chart 
abstraction.
    Response: We thank the commenters and we will consider their views 
as we develop further policy regarding risk-adjusting the CDC NHSN 
measures for disability or medical complexity in the HAC Reduction 
Program. We also appreciate the suggestion to examine whether broader 
community environmental factors have a differential bearing on the 
healthcare-associated infection (HAI) outcome measures. While community 
environmental factors are a plausible contributor to differential risks 
for HAIs, we are not aware of empirical data that establishes an 
association or associations. We will continue to partner with CDC to 
analyze whether we should include additional patient risk factors, 
preexisting or coexisting conditions, community environmental exposures 
or healthcare exposures to the CDC NHSN measures.
7. Extraordinary Circumstance Exception (ECE) Policy for the HAC 
Reduction Program
    Many of our quality reporting and value-based purchasing programs 
share a common process for requesting an exception from program 
reporting due to an extraordinary circumstance not within a provider's 
control. The Hospital IQR, Hospital OQR, IPFQR, ASCQR, and PCHQR 
Programs, as well as the Hospital Readmissions Reduction Program, share 
common processes for Extraordinary Circumstance Exception (ECE) 
requests. In reviewing the policies for these programs, we recognized 
that there are five areas in which these programs have variance 
regarding ECE requests. These are: (1) Allowing the facilities or 
hospitals to submit a form signed by the facility's or hospital's CEO 
versus CEO or designated personnel; (2) requiring the form be submitted 
within 30 days following the date that the extraordinary circumstance 
occurred versus within 90 days following the date the extraordinary 
circumstance occurred; (3) inconsistency regarding specification of a 
timeline for us to provide our formal response notifying the facility 
or hospital of our decision; (4) inconsistency regarding specification 
of our authority to grant ECEs due to CMS data system issues; and (5)

[[Page 38277]]

referring to the program as ``extraordinary extensions/exemptions'' 
versus as ``extraordinary circumstances exceptions.'' We believe 
addressing these five areas, as appropriate, can improve administrative 
efficiencies for affected facilities or hospitals.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49579 through 
49581), we adopted an ECE policy for the HAC Reduction Program 
beginning in FY 2016. This policy was similar to the ECE policy for the 
Hospital IQR Program, as finalized in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51651), modified in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50836) (designation of a non-CEO hospital contact), and further 
modified in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50277) (amended 
42 CFR 412.140(c)(2) to refer to ``extension or exemption'' instead of 
the former ``extension or waiver''). In section IX.A.15. of the 
preamble of this final rule, we discuss our proposal to amend the 
Hospital IQR Program regulations at 42 CFR 412.140(c)(2) to refer to 
``extraordinary circumstances exceptions'' and we will continue to use 
this nomenclature for the HAC Reduction Program.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19990), we 
proposed to modify the ECE policy for the HAC Reduction Program by: (1) 
Allowing the facility to submit a form signed by the facility's CEO or 
designated personnel; (2) specifying that we will strive to provide our 
formal response notifying the facility of our decision within 90 days 
of receipt of the facility's request; and (3) specifying that CMS may 
grant ECEs due to CMS data system issues which affect data submission. 
These proposed modifications generally align with policies in the 
Hospital IQR Program (76 FR 51651 through 51652; 78 FR 50836 through 
50837; and 81 FR 57181 through 57182), the Hospital OQR Program (77 FR 
68489 and 81 FR 79795), as well as other quality reporting programs. We 
proposed that these modifications would apply beginning in FY 2018 as 
related to extraordinary circumstances that occur on or after October 
1, 2017.
    We note that there may be circumstances in which it is not feasible 
for a facility's CEO to sign the ECE request form. In these 
circumstances, we believe that facilities affected by such 
circumstances should be able to submit ECE forms regardless of the 
CEO's availability to sign. Therefore, the first proposed modification 
would allow any hospital to designate an appropriate, non-CEO, contact 
at its discretion. This individual would be responsible for the 
submission, and would be the one signing the form. We would accept ECE 
forms which have been signed by designated personnel.
    We also believe that it is important for facilities to receive 
timely feedback regarding the status of ECE requests. We strive to 
complete our review of each ECE request as quickly as possible. 
However, we recognize that the number of requests we receive, and the 
complexity of the information provided impacts the actual timeframe to 
make ECE determinations. To improve transparency of our process, we 
believe it is appropriate to clarify that we will strive to provide our 
response within 90 days of receipt.
    Although we do not anticipate this situation will happen on a 
regular basis, there may be times where CMS experiences issues with its 
data systems that directly affects facilities' abilities to submit 
data. In these cases, we believe it would be inequitable to require 
facilities to report. Therefore, we proposed to allow CMS to grant ECEs 
to facilities if we determine that a systemic problem with one of our 
data collection systems directly affected the ability of the facilities 
to submit data. If we make the determination to grant ECEs, we proposed 
to communicate this decision through routine communication channels.
    We invited public comment on these proposed modifications to the 
HAC Reduction Program's ECE policy.
    Comment: Commenters supported the proposals to modify the 
extraordinary circumstances exceptions (ECE) policies to align across 
CMS quality reporting and value-based purchasing programs. One 
commenter recommended CMS communicate to other agencies when 
transmission or submission of data to CMS is affected so deadlines 
imposed by those agencies can be adjusted. One commenter further 
recommended that if dual eligible hospitals or providers are submitting 
eCQMs and Attestation data through the CMS portal, CMS work with and 
instruct State Medicaid agencies to accept the data from CMS regardless 
of deadlines or time frames, if reasonable. In addition, some 
commenters recommended a definition that includes circumstances of a 
health-related nature that make it more difficult to provide patient 
care, such as disease outbreaks, epidemics, drug or vaccine shortages.
    Response: We appreciate the commenters' recommendations and we will 
take them into consideration as we determine operational decisions. As 
we discussed in the 2016 IPPS/LTCH PPS final rule (80 FR 49581), based 
on our experience with the Hospital VBP Program and the Hospital IQR 
Program, we anticipate providing exemptions to only a small number of 
hospitals where the ability to accurately or timely submits claims has 
been directly impacted as a direct result of experiencing a significant 
disaster or other extraordinary circumstance beyond the control of the 
hospital. We do not intend to modify the criteria for an extraordinary 
circumstance exception at this time.
    Comment: A few commenters noted that there is currently no ECE 
policy for Indian Health Service or Tribally-operated programs, 
although tribal programs have requested an exception from CMS in 
previous fiscal years. Commenters requested an ECE specifically for IHS 
and tribal healthcare programs.
    Response: We appreciate the commenters' concern; however, we note 
that sections 1886(p)(2)(A) and (B) of the Act defines applicable 
hospitals and requires all subsection (d) hospitals to be included in 
the HAC Reduction Program. The ECE policy was not designed to allow a 
category of hospital to seek exclusion from the HAC Reduction Program 
in its entirety, but to provide relief for a hospital whose ability to 
accurately collect quality measure data and/or to report those data in 
a timely manner has been negatively impacted as a direct result of 
experiencing a significant disaster or other extraordinary circumstance 
beyond the control of the hospital.
    After consideration of the public comments we received we are 
finalizing the modifications to the Extraordinary Circumstances 
Exception (ECE) policy as proposed.
8. Maintenance of Technical Specifications for Quality Measures
    Technical specifications for Patient Safety and Adverse Events 
Composite 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. 
In the FY 2018 IPPS/LTCH PPS proposed

[[Page 38278]]

rule (82 FR 19989), we did not propose any changes to this policy at 
this time.

L. Rural Community Hospital Demonstration Program

1. Introduction
    The Rural Community Hospital Demonstration was originally 
authorized for a 5-year period by section 410A of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 
(Pub. L. 108-173), and extended for another 5-year period by sections 
3123 and 10313 of the Affordable Care Act (Pub. L. 111-148). 
Subsequently, section 15003 of the 21st Century Cures Act (Pub. L. 114-
255), enacted December 13, 2016, amended section 410A of Public Law 
108-173 to require a 10-year extension period (in place of the 5-year 
extension required by the Affordable Care Act, as further discussed 
below). Section 15003 also requires that no later than 120 days after 
enactment of Public Law 114-255 the Secretary must issue a solicitation 
for applications to select additional hospitals to participate in the 
demonstration program for the second 5 years of the 10-year extension 
period so long as the maximum number of 30 hospitals stipulated by the 
Affordable Care Act is not exceeded. In this final rule, we provide a 
summary of the previous legislative provisions and their 
implementation; a description of the provisions of section 15003 of 
Public Law 114-255; our proposals and final policies for 
implementation; and our proposals and finalized policies for budget 
neutrality, including a discussion of the budget neutrality methodology 
used in previous final rules, the budget neutrality methodology for the 
extension period authorized by section 15003 of Public Law 114-255, and 
the reconciliation of actual and estimated costs of the demonstration 
for previous years (2011, 2012, and 2013).
2. Background
    Section 410A(a) of Public Law 108-173 required the Secretary to 
establish a demonstration program to test the feasibility and 
advisability of establishing ``rural community'' hospitals to furnish 
covered inpatient hospital services to Medicare beneficiaries. The 
demonstration pays rural community hospitals under a reasonable cost-
based methodology for Medicare payment purposes for covered inpatient 
hospital services furnished to Medicare beneficiaries. A rural 
community hospital, as defined in section 410A(f)(1), is a hospital 
that--
     Is located in a rural area (as defined in section 
1886(d)(2)(D) of the Act) or is treated as being located in a rural 
area under section 1886(d)(8)(E) of the Act;
     Has fewer than 51 beds (excluding beds in a distinct part 
psychiatric or rehabilitation unit) as reported in its most recent cost 
report;
     Provides 24-hour emergency care services; and
     Is not designated or eligible for designation as a CAH 
under section 1820 of the Act.
    Section 410A(a)(4) of Public Law 108-173 specified that the 
Secretary was to select for participation no more than 15 rural 
community hospitals in rural areas of States that the Secretary 
identified as having low population densities. Using 2002 data from the 
U.S. Census Bureau, we identified the 10 States with the lowest 
population density in which rural community hospitals were to be 
located in order to participate in the demonstration: Alaska, Idaho, 
Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, 
Utah, and Wyoming (Source: U.S. Census Bureau, Statistical Abstract of 
the United States: 2003).
    CMS originally solicited applicants for the demonstration in May 
2004; 13 hospitals began participation with cost reporting periods 
beginning on or after October 1, 2004. In 2005, 4 of these 13 hospitals 
withdrew from the demonstration 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 hospitals' 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. In CY 2011, one hospital that was among the original set 
of hospitals that participated in the demonstration withdrew from the 
demonstration. These actions left 7 of the originally participating 
hospitals (that is, hospitals that were selected to participate in 
either 2004 or 2008) participating in the demonstration program as of 
June 1, 2011.
    Sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-
148) amended section 410A of Public Law 108-173, changing the Rural 
Community Hospital Demonstration Program in several ways. First, the 
Secretary was 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 required, in the case of a rural community hospital 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 community hospital in the demonstration program during the 
5-year extension period, unless the hospital made an election to 
discontinue participation.
    In addition, the Affordable Care Act required 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 was 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 allowed 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). The 20 States 
with the lowest population density that were eligible for the 
demonstration program were: 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). Sixteen new hospitals began participation in the 
demonstration with the first cost reporting period beginning on or 
after April 1, 2011.
    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, which left 22 
hospitals participating in the demonstration, effective July 1, 2013, 
all of which continued their participation through December 2014. 
Starting from that date and extending through the end

[[Page 38279]]

of FY 2015, the 7 ``originally participating'' hospitals, that is, 
hospitals that were selected in either 2004 or 2008, ended on a rolling 
basis their scheduled 5-year periods of performance authorized by the 
Affordable Care Act (referred to hereafter as ``Cohort 1'' hospitals). 
Likewise, the participation period for the 14 hospitals that entered 
the demonstration following the mandate of the Affordable Care Act and 
that were still participating (referred to as ``Cohort 2'' hospitals) 
ended their scheduled periods of performance on a rolling basis 
according to the end dates of the hospitals' cost report periods, 
respectively, from April 30, 2016 through December 31, 2016. (One 
hospital among the Cohort 2 hospitals closed in October 2015.)
3. Provisions of the 21st Century Cures Act (Pub. L. 114-255) and 
Proposals and Finalized Policies for Implementation
a. Statutory Provisions
    As stated earlier, section 15003 of Public Law 114-255 further 
amended section 410A of Public Law 108-173 to require the Secretary to 
conduct the Rural Community Hospital Demonstration for a 10-year 
extension period (in place of the 5-year extension period required by 
the Affordable Care Act), beginning on the date immediately following 
the last day of the initial 5-year period under section 410A(a)(5) of 
Public Law 108-173. Thus, the Secretary is required to conduct the 
demonstration for an additional 5-year period. Specifically, section 
15003 of Public Law 114-255 amended section 410A(g)(4) of Public Law 
108-173 to require that, for hospitals participating in the 
demonstration as of the last day of the initial 5-year period, the 
Secretary shall provide for continued participation of such rural 
community hospitals in the demonstration during the 10-year extension 
period, unless the hospital makes an election, in such form and manner 
as the Secretary may specify, to discontinue participation. In 
addition, section 15003 of Public Law 114-255 amended section 
410A(g)(4)(B) (Pub. L. 108-173) to provide that in calculating the 
amount of payment under the demonstration program to the rural 
community hospital for covered inpatient hospital services furnished by 
the hospital during each 5-year period of such 10 year extension 
period, the amount of payment (for the first cost reporting period) is 
the reasonable costs of providing such services for discharges 
occurring in the first cost reporting period beginning on or after the 
first day of each applicable 5-year period in the 10-year extension 
period. Furthermore, section 15003 of Public Law 114-255 added 
subsection (g)(5) to section 410A of Public Law 108-173 to require 
that, during the second 5 years of the 10-year extension period, the 
Secretary shall apply the provisions of section 410A(g)(4) of Public 
Law 108-173 to rural community hospitals that are not described in 
subsection (g)(4) but that were participating in the demonstration as 
of December 30, 2014, in a similar manner as such provisions apply to 
hospitals described in subsection (g)(4). We interpret this as 
providing for participation in and payment under the demonstration 
during the second 5 years of the 10-year extension period for hospitals 
that are not described in section 410A(g)(4) of Public Law 108-173 (as 
amended) but that were participating in the demonstration as of 
December 30, 2014, in a similar manner as such extension and payment 
applies to hospitals described in section 410A(g)(4) of Public Law 108-
173 (as amended), unless a hospital makes an election, in such form and 
manner as the Secretary may specify, to discontinue participation.
    In addition, section 15003 of Public Law 114-255 amended section 
410A of Public Law 108-173 to add paragraph (g)(6)(A) which requires 
that, no later than 120 days after enactment of paragraph (g)(6), the 
Secretary shall issue a solicitation for applications to select 
additional rural community hospitals located in any State to 
participate in the demonstration program for the second 5 years of the 
10-year extension period, without exceeding the maximum number of 
hospitals (that is, 30) permitted under section 410A(g)(3) of Public 
Law 108-173 (which was added by the Affordable Care Act). Section 15003 
also amended section 410A of Public Law 108-173 to add paragraph 
(g)(6)(B) which provides that, in determining which hospitals 
submitting an application pursuant to this solicitation are to be 
selected for participation in the demonstration, the Secretary shall 
give priority to rural community hospitals located in one of the 20 
States with the lowest population densities, as determined using the 
2015 Statistical Abstract of the United States. In addition, in 
determining which among the hospitals submitting an application 
pursuant to this solicitation are to be selected for participation in 
the demonstration, section 410A(g)(6)(B) specifies that the Secretary 
may consider closures of hospitals located in rural areas in the State 
in which an applicant hospital is located during the 5-year period 
immediately preceding the date of enactment of section 410A(g)(6) of 
Public Law 108-173, as well as the population density of the State in 
which the rural community hospital is located.
b. Terms of Continuation for Previously Participating Hospitals
    As discussed earlier, section 15003 of Public Law 114-255 (the 21st 
Century Cures Act) amended section 410A of Public Law 108-173 to 
provide for a 10-year extension of the demonstration (in place of the 
5-year extension required by the Affordable Care Act) beginning on the 
date immediately following the last day of the initial 5-year period 
under section 410A(a)(5) of Public Law 108-173. Thus, section 15003 of 
Public Law 114-255 requires an additional 5-year extension of the 
demonstration beyond the extension required by the Affordable Care Act. 
Given the timing of the enactment of Public Law 114-255, for most of 
the previously participating hospitals, there is a gap between the end 
date of each hospital's participation in the first 5-year extension 
period and enactment of Public Law 114-255 on December 13, 2016. For 
these hospitals, this gap is for a period of between 2 to 23 months. 
Section 15003 of Public Law 114-255 does not address how the second 5 
years of the 10-year extension is to be implemented in the event of a 
gap between the end of the first 5 years of the 10-year extension 
period for a participating hospital and the enactment of Public Law 
114-255 authorizing the second 5 years of the 10-year extension period. 
As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19992), 
given this gap and the lack of specific direction in the statute 
regarding how to implement the extension in this situation for these 
previously participating hospitals, and the mandate under section 15003 
of Public Law 114-255 to issue a solicitation for additional 
participants for the second 5 years of the 10-year extension, we 
considered how to implement the second 5 years of the 10-year extension 
period. In the FY 2018 IPPS/LTCH PPS proposed rule, for each previously 
participating hospital that decides to participate in the second 5 
years of the 10-year extension period, we proposed that the start date 
for the period of performance under the second 5-year extension period 
would be the start of the first cost reporting period on or after 
October 1, 2017 following upon the announcement of the selection of the 
additional hospitals for the demonstration. In this manner, we proposed 
to align the periods of performance for the previously

[[Page 38280]]

participating hospitals that decide to participate in the second 5-year 
extension period with the periods of performance for the additional 
hospitals authorized by section 15003 of Public Law 114-255. In the FY 
2018 IPPS/LTCH PPS proposed rule, we stated that we believe the 
approach we proposed above is consistent with section 410A of Public 
Law 108-173, as amended by Public Law 114-255. We also stated that 
aligning, to the extent possible, the periods of performance of the 
previously participating hospitals with those of those newly selected 
under the demonstration was reasonable, given the need for time to 
carry out demonstration administration activities, evaluation 
considerations, and the necessity for the calculation of budget 
neutrality offset amounts.
    We invited public comments on the proposed approach discussed 
earlier for implementing the second 5-year period of the 10-year 
extension required under section 15003 of Public Law 114-255 for the 
previously participating hospitals. In addition, we invited public 
comments on alternative approaches under the statute for implementing 
the extension, particularly with respect to the commencement of the 
second 5-year period of the extension for previously participating 
hospitals.
    We described an alternative approach according to which each 
previously participating hospital would begin the second 5 years of the 
10-year extension period and the cost-based payment methodology under 
section 410A of Public Law 108-173 (as amended by section 15003 of Pub. 
L. 114-255), on the date immediately after the date the period of 
performance under the first 5-year extension period ended. For example, 
for a hospital whose 5-year period of performance authorized by the 
Affordable Care Act ended June 30, 2015, the extension period under 
section 15003 of Public Law 114-255 would be effective July 1, 2015, 
and it would extend through June 30, 2020. Likewise, for a hospital 
whose 5-year period of performance ended June 30, 2016, the extension 
period under section 15003 of Public Law 114-255 would be effective 
July 1, 2016, and it would extend through June 30, 2021. The 
methodology we considered for calculating the budget neutrality offset 
amount under this alternative approach is described in section V.L.4.d. 
of the preamble of the proposed rule. We stated that this alternative 
approach would also be consistent with the language of section 410A of 
Public Law 108-173 (as amended), and, unlike the proposed approach, 
would not provide for a gap in the reasonable cost payment methodology 
between the end of the first and start of the second 5-year periods of 
the 10-year extension period. We also sought public comments on this 
alternative approach to implementing the extension to the demonstration 
under section 15003 of Public Law 114-255 and the corresponding 
alternative budget neutrality calculation described in section V.L.4.d. 
of the preamble of the proposed rule.
    Comment: Several commenters expressed concern about our proposed 
approach, stating that section 15003 of Public Law 114-255, which 
authorizes the second 5-year extension, changes the language in Public 
Law 111-148 from 5 years to 10 years, beginning on the date immediately 
following the last day of the initial 5-year period, and that thus the 
alternative approach should be implemented so as to apply the cost-
based payment methodology continuously for the previously participating 
hospitals. The commenters added that adopting our proposed approach 
would create financial hardship for some of the previously 
participating hospitals. They noted that, in certain cases, these 
hospitals play a vital role in providing health services in remote 
communities, and that the gap in applying the cost-based payment under 
our proposed approach would jeopardize access to essential health care 
services.
    Response: We believe that our proposed approach to align the 
periods of participation for all participating hospitals for the second 
5-year extension period is consistent with the statute and reasonable, 
given the gap between the end of the first 5-year extension period for 
previously participating hospitals and the enactment of Public Law 114-
255 authorizing the second 5-year extension period. Nevertheless, we 
acknowledge that we have administered this demonstration program for 
the previous 5-year periods, as authorized by section 410A of Public 
Law 108-173 and sections 3123 and 10313 of Public Law 111-148, 
respectively, by aligning the period of participation for each of the 
hospitals with the start of the first cost report year upon selection 
to the demonstration program. Considering this previous experience for 
the demonstration program, we believe that implementing the periods of 
performance for the second 5-year extension period in accordance with 
the alternative approach would also be consistent with the language of 
the authorizing statutes and reasonable.
    We have considered the concerns expressed about the negative impact 
that our proposed approach of a gap in the cost-based payment 
methodology would have on the ability of the previously participating 
hospitals to provide essential health care services. We believe these 
are important concerns to balance against any considerations under the 
proposed approach in undertaking the administrative, evaluation, and 
budget neutrality functions for the demonstration. Therefore, we are 
finalizing the alternative approach with regard to the effective date 
for the application of the demonstration payment methodology for those 
previously participating hospitals that choose to participate in the 
second 5-year extension period. Thus, each previously participating 
hospital would begin the second 5 years of the 10-year extension period 
and the cost-based payment methodology under section 410A of Public Law 
108-173 (as amended by section 15003 of Pub. L. 114-255) on the date 
immediately after the date the period of performance under the first 5-
year extension period ended.
c. Solicitation for Additional Participants
    We stated in the FY 2018 IPPS/LTCH PPS proposed rule that, as 
required under section 15003 of Public Law 114-255, we would issue a 
solicitation for additional hospitals to participate in the 
demonstration. We released this solicitation on April 17, 2017, with 
applications due May 17, 2017. Among other things, the solicitation 
asked hospitals to describe challenges experienced with the current 
method of Medicare payment, the impact of rural hospital closures 
within the State or surrounding area, and a strategy for financial 
viability and improving the health care of the population.
    Section 15003 of Public Law 114-255, adding section 410A(g)(6)(B) 
to Public Law 108-173, provides that, in determining which rural 
community hospitals that submitted an application pursuant to the 
solicitation under section 410A(g)(6)(A) to select for participation in 
the demonstration program, the Secretary shall give priority to rural 
community hospitals located in one of the 20 States with the lowest 
population densities (as determined by the Secretary using the 2015 
Statistical Abstract of the United States). We note that the U.S. 
Census Bureau ceased publishing the Statistical Abstract of the United 
States in 2011, and that in the years since then, ProQuest, LLC, a 
private vendor, has produced a volume intended to serve the same 
function as a comprehensive collection of national statistics, 
compiling data from different sources

[[Page 38281]]

including published reports from the Census Bureau. Thus, we used 
ProQuest Statistical Abstract of the United States, 2015 in determining 
which States to give priority in selecting additional participants for 
the demonstration. We believe that, in the absence of a volume produced 
by the Census Bureau, using this compendium is consistent with the 
intent of the statute, and is appropriate for the purpose of 
designating States to which priority is to be given under section 
410A(g)(6)(B)(i) of Public Law 108-173.
    In the FY 2018 IPPS/LTCH PPS proposed rule, we noted that the table 
in this compendium presenting information on State population density 
includes separate sets of statistics for 2010 and 2013. Both data 
sources are available on the Census Bureau Web site. The source for the 
2010 statistics is ``2010 Census Briefs, Population Distribution and 
Change: 2000 to 2010, March 2011'' (http://www.census.gov/prod/cen2010/briefs/c2010br-01.pdf); the source for 2013 is ``Annual Estimates of 
the Population for the United States, Regions, States, and Puerto Rico: 
April 1, 2010 to July 1, 2013'' (http://www.census.gov/popest/data/state/totals/2013/index.html). Consistent with our policy for the 
previous solicitations, we chose the more recent data source to 
identify the 20 States to which priority is to be given. These States 
are: Alaska, Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, 
Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, 
Oklahoma, Oregon, South Dakota, Utah, Vermont, and Wyoming.
    We noted that section 410A(g)(6)(B)(ii)(II) of Public Law 108-173 
as added by section 15003 of Public Law 114-255 also states that, in 
selecting additional participants, the Secretary may consider the 
population density of the State in which the rural community hospital 
is located. We are doing so because the demonstration may have 
differing effects for health care services and populations depending on 
State population density. In addition, as permitted by section 
410A(g)(6)(B)(ii)(I) of Public Law 108-173, in selecting additional 
participants under this solicitation, we will consider the impact of 
closures of hospitals located in rural areas in the State in which the 
hospital is located during the 5-year period immediately preceding 
December 13, 2016. We believe that this consideration is reasonable, 
given the possibility that enhanced Medicare payment through the 
demonstration may increase access to health care services for 
populations thus affected by hospital closures.
    We stated that our goal was to finalize this selection by June 
2017, in time to include in the FY 2018 IPPS/LTCH PPS final rule an 
estimate of the costs of the demonstration during FY 2018 and the 
resulting budget neutrality offset amount for these newly participating 
hospitals (referred to as ``Cohort 3'' hospitals), as well as for those 
hospitals among the previously participating hospitals that decide to 
participate in the extension period (Cohorts 1 and 2 hospitals). Upon 
announcing the selection of new participants, we indicated that we 
would confirm the start dates for the periods of performance for these 
newly selected hospitals and for previously participating hospitals. We 
stated that in accordance with the proposed implementation approach 
discussed in section V.L.3.b. of the preamble of the FY 2018 IPPS/LTCH 
PPS proposed rule, if the selection were to be announced by June 2017, 
we would expect that we would determine the periods of performance for 
all of the participating hospitals to begin with the first cost 
reporting period on or after October 1, 2017, and we would include an 
estimate of the costs for the demonstration for FY 2018 for Cohorts 1, 
2, and 3 hospitals in the FY 2018 IPPS/LTCH PPS final rule.
    We stated, on the other hand, that if final selection of the Cohort 
3 hospitals were not to occur by June 2017, under our proposed 
approach, we would not be able to include an estimate of the costs of 
the demonstration or an estimate of the budget neutrality offset amount 
for FY 2018 for either these Cohort 3 hospitals or the previously 
participating Cohorts 1 and 2 hospitals in the FY 2018 IPPS/LTCH PPS 
final rule. Considering that periods of performance for the Cohorts 1 
and 2 hospitals would not be determined until after the selection of 
the Cohort 3 hospitals, we would not know precisely when the periods of 
performance would begin for the Cohorts 1 and 2 hospitals, or to what 
extent they would overlap with the 12 months in FY 2018 until the 
Cohort 3 hospitals were selected. Therefore, if the announcement of the 
final selection of the Cohort 3 hospitals were not to occur by June 
2017, we would not be able to include an estimate of the demonstration 
costs or budget neutrality offset amount for FY 2018 for the Cohorts 1 
and 2 hospitals in the FY 2018 IPPS/LTCH PPS final rule. As a result, 
if the announcement of the final selection of the Cohort 3 hospitals 
were not to occur by June 2017, we would specify the dates on which all 
participating hospitals would start in the second 5 years of the 10-
year extension period at the time the selection was announced in 
accordance with our proposal. We proposed that if the selection of the 
Cohort 3 hospitals was not announced in June 2017, we would include the 
estimated costs of the demonstration for all participating hospitals 
for FY 2018 in the budget neutrality offset amount to be calculated in 
the FY 2019 IPPS/LTCH PPS proposed and final rules.
    Comment: One commenter supported CMS' goal of aligning performance 
periods across all of the hospitals participating in the demonstration 
program. However, the commenter recommended that CMS achieve this end 
by implementing a retroactive reimbursement policy for the hospitals 
newly entering the demonstration program as well, so that all hospitals 
participating in the second 5-year extension period are subject to the 
demonstration payment methodology for the gap period occurring between 
the end of the first 5 years of the 10-year extension period and the 
enactment of Public Law 114-255 authorizing the second 5 years of the 
10-year extension period.
    Response: We appreciate the commenter's support and recommendation. 
As of the time of the publication of this final rule, we have not 
finalized the selection of additional participants (Cohort 3 hospitals) 
to participate in the demonstration. Once we announce selections, we 
will also announce the start dates for the 5-year extension period for 
the additional hospitals selected (Cohort 3). In addition, for the 
previously participating Cohorts 1 and 2 hospitals, as discussed in 
section V.L.3.b. of the preamble of this final rule, we are not 
finalizing the proposed approach under which the start date for the 
period of performance under the second 5-year extension period would be 
the start of the first cost reporting period on or after October 1, 
2017, following upon the announcement of the selection of the 
additional hospitals for the demonstration. We are finalizing the 
alternative approach, under which the start date of each previously 
participating Cohort 1 and 2 hospital for the second 5 years of the 10-
year extension period would be the date immediately after the date the 
period of performance under the first 5-year extension period ended. We 
will confirm the start dates for these hospitals after verifying which 
among them will continue to participate in the second 5-year extension 
period.
    Inasmuch as the selection of the Cohort 3 hospitals was not 
announced in June 2017, we are finalizing our

[[Page 38282]]

proposal to include the estimated costs of the demonstration for all 
participating hospitals (Cohorts 1, 2, and 3) for FY 2018 in the budget 
neutrality offset amount to be calculated in the FY 2019 IPPS/LTCH PPS 
proposed and final rules. We refer readers to section V.L.4.d. of the 
preamble of this final rule for a discussion of our finalized 
calculation methodology for the budget neutrality offset amount for FY 
2018.
4. Budget Neutrality
a. Statutory Budget Neutrality Requirement
    Section 410A(c)(2) of Public Law 108-173 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. 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 on 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 held to budget 
neutrality under the methodology normally used to calculate it--that 
is, cost-based payments to participating small rural hospitals are 
likely to increase Medicare outlays without producing any offsetting 
reduction in Medicare expenditures elsewhere. In addition, a rural 
community hospital's participation in this demonstration program would 
be unlikely to yield benefits to the participants if budget neutrality 
were to be implemented by reducing other payments for these same 
hospitals. Therefore, in the 12 IPPS final rules spanning the period 
from FY 2005 through FY 2016, we adjusted the national inpatient PPS 
rates by an amount sufficient to account for the added costs of this 
demonstration program, thus applying budget neutrality across the 
payment system as a whole rather than merely across the participants in 
the demonstration program. (In the FY 2017 IPPS/LTCH PPS final rule (81 
FR 57034), we described a different methodology which we specify 
below.) As we discussed in the FYs 2005 through 2017 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; 
80 FR 49585; and 81 FR 57034, respectively), we believe that the 
language of the statutory budget neutrality requirements permits the 
agency to implement the budget neutrality provision in this manner.
b. Methodology Used In Previous Final Rules
    We generally incorporated two components into the budget neutrality 
offset amounts identified in the final IPPS rules in previous years. 
First, we 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 
were incorporated into these estimates, as specified in the methodology 
described in the final rule for each fiscal year. Second, as finalized 
cost reports became available, we 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 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 for FYs 
2005 through 2010 between the actual costs of the demonstration 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 the FY 2017 IPPS/LTCH PPS final rule (81 FR 57036), we finalized 
a different methodology as compared to previous years for analyzing the 
costs attributable to the demonstration for FY 2017. We noted in the FY 
2017 IPPS/LTCH PPS final rule that, in accordance with the extension 
mandated by the Affordable Care Act, the demonstration would have 
substantially phased out by the beginning of FY 2017. In addition to 
the 7 originally participating hospitals (Cohort 1 hospitals) having 
ended their scheduled period of performance in the 5-year extension 
period prior to the start of FY 2016, we noted that the participation 
periods for the 14 hospitals that entered the demonstration following 
the extension mandated by the Affordable Care Act (Cohort 2 hospitals) 
that were still participating were to 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 the Cohort 2 hospitals closed in October 2015.) Of these 
14 hospitals, 10 ended 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 stated that, given the 
small number of participating hospitals and the limited time of 
participation for such hospitals during FY 2017, a revised methodology 
was appropriate for determining the costs of the demonstration during 
this period. We noted that, for the 4 hospitals that would 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) would be included in the finalized 
cost reports for FY 2016. We stated 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 used

[[Page 38283]]

prior to the FY 2017 IPPS/LTCH PPS final rule).
    Thus, in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57037), we 
finalized the proposal to forego the process of estimating the costs 
attributable to the demonstration for FY 2017, and to instead 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 became 
available.
c. Budget Neutrality Methodology for Extension Period Authorized by the 
21st Century Cures Act (Pub. L. 114-255)
    For the implementation approach that we proposed in section 
V.L.3.b. of the preamble of the FY 2018 IPPS/LTCH PPS proposed rule, we 
proposed that a budget neutrality offset methodology similar to 
previous years (prior to FY 2017) would be applied to the periods of 
performance under the second 5 years of the 10-year extension period 
authorized by section 15003 of Public Law 114-255. With the potential 
exception of the demonstration costs for FY 2018 as discussed below, 
for the periods of performance under the second 5 years of the 10-year 
extension period, an estimate of the costs of the demonstration, 
generally determined from historical, ``as submitted'' cost reports for 
the participating hospitals and the appropriate update factors, would 
be incorporated into a budget neutrality offset amount to be applied to 
the national IPPS rates for the upcoming fiscal year. We proposed that 
we would implement this adjustment through the corresponding proposed 
and final IPPS rules. In addition, we proposed that we would include as 
a second component to the budget neutrality offset amount, the amount 
by which the actual costs of the demonstration for an earlier, given 
year (as determined from finalized cost reports when available) 
differed from the estimated costs for the demonstration set forth in 
the final IPPS rule for the corresponding fiscal year.
    Regarding demonstration costs specifically for FY 2018, as 
described in section V.L.3.c. of the preamble of the FY 2018 IPPS/LTCH 
PPS proposed rule, we proposed that if the selection of additional 
hospitals pursuant to section 410A(g)(6) of Public Law 108-173 (as 
added by section 15003 of Pub. L. 114-255) were to be announced by June 
2017, we would include in this FY 2018 IPPS/LTCH PPS final rule an 
estimate of the costs of the demonstration for FY 2018 and the 
resulting estimated budget neutrality offset amount for the newly 
selected hospitals (Cohort 3 hospitals) and for the previously 
participating hospitals (Cohorts 1 and 2 hospitals). As discussed 
earlier, if the final selection of the additional hospitals were not to 
occur by June 2017, we stated in the proposed rule that we would not be 
able to include an estimate of the costs of the demonstration for any 
participating hospitals or an estimated budget neutrality adjustment 
for FY 2018 in the FY 2018 IPPS/LTCH PPS final rule. In that situation, 
we proposed to include the estimated costs of the demonstration for FY 
2018 for all participating hospitals (Cohorts 1, 2 and 3 hospitals) in 
the budget neutrality offset adjustment in the FY 2019 IPPS/LTCH PPS 
proposed and final rules. The budget neutrality offset adjustment for 
the FY 2019 IPPS/LTCH PPS proposed and final rules would also include 
the estimated costs of the demonstration for FY 2019 for all 
participating hospitals based on historical, ``as submitted'' cost 
reports and the appropriate update factors.
    Under our proposed implementation approach for the second 5-year 
extension period as described in section V.L.3.b. of the preamble of 
the FY 2018 IPPS/LTCH PPS proposed rule, if the selection of the new 
hospitals were to be announced by June 2017, we stated that we would 
continue to use the general methodology finalized in previous final 
rules (prior to FY 2017) to calculate the estimated budget neutrality 
adjustment factor to be applied to the FY 2018 national IPPS rates. (We 
noted that the same general methodology would be used if the 
announcement of the selection of additional hospitals did not occur by 
June 2017, and thus the budget neutrality offset amount reflecting the 
costs of the demonstration for hospitals participating in FY 2018 would 
be applied to the national IPPS rates for FY 2019.)
    We did not receive any public comments on this issue.
    Consistent with the approach adopted in the FY 2016 IPPS/LTCH PPS 
final rule, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 19996), 
we proposed a specific calculation to account for the fact that the 
periods of performance for the participating hospitals would start at 
different points of time during FY 2018. That is, we proposed to 
prorate estimated reasonable cost amounts and amounts that would be 
paid without the demonstration for FY 2018 according to the fraction of 
the number of months that the hospital would be participating out of 
the 12 months within FY 2018. For example, if a hospital would be 
starting this second 5-year period of the 10-year extension period on 
January 1, 2018, we would multiply the estimated cost and payment 
amounts, derived as described below, by a factor of 0.75. (In this 
discussion of how the overall calculations are conducted, this factor 
is referred to as ``the hospital-specific prorating factor''.) Our 
proposed methodology for calculating the budget neutrality offset 
amount proceeds in several steps, as set forth below:
    Step 1: For each of the participating hospitals, we proposed to 
identify the reasonable cost amount calculated under the reasonable 
cost methodology for covered inpatient hospital services, as indicated 
on the ``as submitted'' cost report for the most recent cost reporting 
period available. (We stated that we expected that, for most of the 
hospitals, these ``as submitted'' cost reports would be those with cost 
report period end dates in CY 2015. In the solicitation for additional 
participants, we requested that applicants submit cost report 
information from the most recent year available. For the selected 
additional hospitals (that is, Cohort 3), we stated that we would be 
using the submitted information for the calculation of the budget 
neutrality offset amount for FY 2018.) We stated that we believed the 
most recent available cost reports to be an accurate predictor of the 
costs of the demonstration in FY 2018 because they would give us a 
recent picture of the participating hospitals' costs.
    Because section 410A of Public Law 108-173 stipulates swing-bed 
services are to be included among the covered inpatient hospital 
services for which the demonstration payment methodology applies, we 
proposed to include the cost of these services, as reported on the cost 
reports for the hospitals that provide swing-bed services, in 
estimating the total reasonable cost amount for covered inpatient 
hospital services under the demonstration. Similar to what is stated 
above, we proposed to use the most recently available ``as submitted'' 
cost reports for this calculation.
    For each hospital, we proposed to sum the two above-referenced 
amounts, and then multiply this sum by the hospital-specific prorating 
factor (described above), to obtain an unadjusted hospital-specific 
amount, calculated for each hospital prior to applying adjustments for 
increases in cost or volume, as described below. (In the discussion 
below, we refer to this amount as the ``unadjusted hospital-specific 
amount''.) We proposed to sum these unadjusted hospital-specific 
amounts for all participating hospitals to obtain an unadjusted total 
estimated reasonable cost amount for covered inpatient hospital 
services (for all participating hospitals) to which update

[[Page 38284]]

factors representing increases in costs and volume would be applied.
    Accordingly, we proposed to multiply this sum (that is, the 
unadjusted total estimated reasonable cost amount for covered inpatient 
hospital services for all participating hospitals) by the FY 2016, FY 
2017, and final FY 2018 IPPS market basket percentage increases, which 
are formulated by the CMS Office of the Actuary. We proposed to use the 
market basket percentage increases for these particular years because 
we expect that most of the ``as submitted'' cost reports that would be 
used in determining the unadjusted hospital-specific amounts will end 
in FY 2015. If a majority of these ``as submitted'' cost reports end in 
FY 2016, we stated that we would apply only the FY 2017 and final FY 
2018 market basket percentage increases. We recognized that applying 
the set of FY 2016, FY 2017, and FY 2018 market basket percentage 
increases to a sum that may include information from ``as submitted'' 
cost reports ending in FY 2016 (or, conversely, applying these update 
factors for FY 2017 and FY 2018 to a sum that may include information 
from ``as submitted'' cost reports ending in FY 2015) might appear to 
reduce the precision of the estimate. However, we stated that we 
believed that the potential margin of error in estimating the total 
costs for the demonstration hospitals inherent in using a uniform set 
of update factors would be justifiable for purposes of streamlining and 
applying a consistent calculation method for all participating 
hospitals. In addition, we noted that, as in previous years, we 
proposed to reconcile the actual costs of the demonstration as 
determined from finalized cost reports when available with the estimate 
of the costs of the demonstration in FY 2018 as included in the budget 
neutrality offset amount, which would ultimately address any potential 
error in estimating the costs of the demonstration for FY 2018, thereby 
enhancing the accuracy of the calculation.
    In the proposed rule, we stated that the current estimate of the FY 
2018 IPPS market basket percentage increase provided by the CMS Office 
of the Actuary is specified in section V.B.1. of the preamble of the 
proposed rule. We also proposed to then multiply the product of the 
unadjusted total estimated reasonable cost amount for all participating 
hospitals and the market basket percentage increases applicable to the 
years involved by a 3-percent annual volume adjustment for each of FYs 
2016 through 2018 (or only FYs 2017 and 2018, in accordance with the 
discussion above). The result would be the general total estimated FY 
2018 reasonable cost amount for covered inpatient hospital services for 
all participating hospitals.
    We proposed to apply the IPPS market basket percentage increases 
applicable for FYs 2016 through 2018 (or FYs 2017 and 2018, in 
accordance with the discussion above) to the applicable total estimated 
reasonable cost amount described above to model the estimated FY 2018 
reasonable cost amount under the demonstration. We proposed to use the 
IPPS market basket percentage increases because we believe that these 
update factors appropriately indicate the trend of increase in 
inpatient hospital operating costs under the reasonable cost 
methodology for the years involved. The 3-percent annual volume 
adjustment was stipulated by the CMS Office of the Actuary and was 
proposed because it is intended to accurately reflect the tendency of 
hospitals' inpatient caseloads to increase. We acknowledged the 
possibility that inpatient caseloads for small hospitals may fluctuate, 
and thus proposed to incorporate into the estimate of demonstration 
costs a factor to allow for a potential increase in inpatient hospital 
services.
    Step 2: For each of the participating hospitals, we proposed to 
identify the general estimated amount that would otherwise be paid in 
FY 2018 under applicable Medicare payment methodologies for covered 
inpatient hospital services (as indicated on the same set of ``as 
submitted'' cost reports as in Step 1) if the demonstration was not 
implemented. Similarly, as in Step 1, for the hospitals that provide 
swing-bed services, we proposed to identify the estimated amount that 
generally would otherwise be paid for these services (using the same 
``as submitted'' cost reports as in Step 1) and include it in 
estimating the total FY 2018 general amount that would otherwise be 
paid for covered inpatient hospital services without the demonstration. 
Similar to Step 1, we proposed to multiply this sum for each 
participating hospital by the hospital-specific prorating factor. We 
then proposed to add together the resulting amounts for all 
participating hospitals to obtain an estimate of the amount that would 
otherwise be paid for covered inpatient hospital services for all 
participating hospitals without the demonstration, to which update 
factors representing increases in costs and volume would be applied.
    Accordingly, we proposed to then multiply this amount by the FYs 
2016 through 2018 (or only FYs 2017 and 2018, in accordance with the 
discussion above) IPPS applicable percentage increases, depending on 
whether the majority of the ``as submitted'' cost reports end in FY 
2015 or FY 2016, as discussed in Step 1. This methodology differs from 
Step 1, in which we proposed to apply the market basket percentage 
increases to the sum of the hospitals' applicable total estimated 
reasonable cost amount for covered inpatient hospital services. We 
stated that we believed that the IPPS applicable percentage increases 
are appropriate factors to update the estimated amounts that generally 
would otherwise be paid without the demonstration. This is because IPPS 
payments would constitute the majority of payments that would otherwise 
be made without the demonstration and the applicable percentage 
increase is the factor used under the IPPS to update the inpatient 
hospital payment rates. Most of the hospitals participating in the 
demonstration would be paid under the IPPS payment methodology if they 
were not in the demonstration. Then, for the same reasons discussed in 
Step 1, we proposed to multiply the product of the applicable estimated 
total payments that generally would otherwise be made without the 
demonstration and the IPPS applicable percentage increases applicable 
to the years involved by the 3-percent annual volume adjustment for 
each of FYs 2016 through 2018 (or FYs 2017 and 2018, in accordance with 
the discussion above). The result would be the general total estimated 
payment amount that would otherwise be paid without the demonstration 
for FY 2018 to participating hospitals for covered inpatient hospital 
services.
    Step 3: We proposed to subtract the amount derived in Step 2 
(representing the sum of estimated amounts that generally would 
otherwise be paid to the participating hospitals for covered inpatient 
hospital services for FY 2018 if the demonstration were not 
implemented) from the amount derived in Step 1 (representing the sum of 
the estimated reasonable cost amounts that generally would be paid 
under the demonstration to all participating hospitals for covered 
inpatient hospital services for FY 2018). We proposed that the 
resulting difference would be the estimated amount of the costs of the 
demonstration for FY 2018, which would be incorporated into an 
adjustment to the national IPPS rates.
    Similar to previous years, in order to meet the budget neutrality 
requirement in section 410A(c)(2) of Public Law 108-173, we proposed 
that when finalized cost reports for each of the second 5 years of the 
10-year extension period become available, we would determine the 
difference between the

[[Page 38285]]

actual costs of the demonstration as determined from these finalized 
cost reports and the estimated cost indicated in the corresponding 
fiscal year IPPS final rule, and include that difference either as a 
positive or negative adjustment in the upcoming year's final rule.
    Specifically for FY 2018, when the finalized cost reports beginning 
in FY 2018 are available, we stated that we would determine the 
difference between the actual costs of the demonstration as determined 
from these finalized cost reports and the estimated cost indicated in 
the FY 2018 (or FY 2019, as discussed above) IPPS/LTCH PPS final rule, 
and include that difference either as a positive or negative adjustment 
in the applicable year's final rule.
    Thus, in keeping with the methodologies used in previous final 
rules, we stated that we would continue to use a methodology for 
calculating the budget neutrality offset amount for the second 5-years 
of the 10-year extension period consisting of two components: (1) The 
estimated demonstration costs in the upcoming fiscal year (as described 
above); 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) differed from 
the budget neutrality offset amount finalized in the corresponding 
year's IPPS final rule.
    We invited public comments on the budget neutrality calculation 
methodology proposed above. In addition, we invited public comments on 
other approaches that would be consistent with section 410A(c)(2) of 
Public Law 108-173, and that would provide a reasonable determination 
of budget neutrality for the demonstration.
    We did not receive any public comments on the budget neutrality 
calculation that we proposed, which would apply in accordance with our 
proposed implementation approach. However, because we are not 
finalizing our proposed implementation approach, we are not finalizing 
the proposed budget neutrality calculation methodology. As subsequently 
discussed in section V.L.4.d. of the preamble of this final rule, we 
are finalizing the alternative budget neutrality methodology that was 
described in section V.L.4.d. of the preamble of the FY 2018 IPPS/LTCH 
PPS proposed rule.
d. Finalized Budget Neutrality Approach
    In section V.L.3.b. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19993), we described an alternative approach that 
we considered for implementing the extension of the demonstration 
pursuant to section 15003 of Public Law 114-255, and we invited public 
comments on this alternative approach. Under this alternative approach, 
for each previously participating hospital that decided to participate 
in the second 5 years of the 10-year extension period, the cost-based 
payment methodology under section 410A of Public Law 108-173 (as 
amended by section 15003 of Pub. L. 114-255) would begin on the date 
immediately following the end date of its period of performance for the 
first 5-year extension period.
    As discussed above, we are finalizing and adopting this alternative 
implementation approach in this final rule. Depending on which among 
the Cohort 1 and 2 hospitals choose to participate in this second 5-
year extension period, the demonstration's cost-based payment 
methodology would be applied to dates as far back as January 1, 2015 
and as late as January 1, 2017. This will require reconciling the 
reasonable costs associated with furnishing Medicare covered inpatient 
hospital services as reported on cost reports with the amounts already 
paid under the other Medicare payment methodologies applied since the 
end of their periods of performance for the first 5-year extension. 
Under this approach, any additional amounts associated with the cost-
based payment methodology for this period would be paid to the 
hospitals.
    In general, as described in the proposed rule, the methodology for 
calculating the budget neutrality offset under this approach would 
involve the following steps:
     To reflect the costs of the demonstration for fiscal years 
before FY 2018, for the previously participating hospitals (Cohorts 1 
and 2) that decide to participate in the 5-year extension period 
authorized by section 15003 of Public Law 114-255, when finalized cost 
reports become available, we indicated that we would determine the 
actual costs of the demonstration for cost report periods beginning on 
the day after the last day of the hospitals' periods of performance in 
the first 5-year extension period and extending through the last day of 
the cost report periods ending in FY 2018 (or FY 2017 for hospitals 
with an October 1 cost report start date, as explained below), and 
incorporate these amounts in the budget neutrality offset amount to be 
included in a future IPPS final rule. Thus, we would determine the 
actual costs for the previously participating hospitals for the period 
prior to the start of FY 2018. Similar to our proposed approach for 
implementation and budget neutrality, as described in sections V.L.3.b. 
and V.L.4.c. of the preamble of the proposed rule, under this 
methodology, we would begin our estimation of the costs of the 
demonstration for all hospitals in the same fiscal year (that is, in FY 
2018, with each hospital's first cost reporting period beginning on or 
after October 1, 2017).
    Thus, under this approach, for a Cohort 1 hospital whose period of 
performance in the first extension period ended June 30, 2015, we would 
determine the actual costs of the demonstration for the cost reporting 
periods from July 1, 2015 through June 30, 2016, from July 1, 2016 
through June 30, 2017, and from July 1, 2017 through June 30, 2018. For 
a Cohort 2 hospital whose period of performance in the first extension 
period ended June 30, 2016, under this approach, we would determine the 
actual costs of the demonstration for the cost reporting periods from 
July 1, 2016 through June 30, 2017, and from July 1, 2017 through June 
30, 2018. We noted that for both of these Cohorts 1 and 2 hospitals, 
this last cost report period would encompass services occurring since 
the enactment of Public Law 114-255, which authorizes the second 
extension period. However, we stated that we believed that applying a 
uniform method for determining costs across a cost report year would be 
more reasonable from the standpoint of operational feasibility and 
consistent application of cost determination principles. (We noted 
that, for hospitals (either Cohort 1 or 2) with an October 1 cost 
report start date, the estimation of costs for FY 2018 would apply for 
the period starting October 1, 2017, that is, the first day of FY 2018. 
Therefore, for these hospitals, we would determine actual costs from 
finalized cost reports when available for the period starting from the 
day after the last day of the period of performance under the first 5-
year extension period and concluding with the last day of FY 2017.) For 
all hospitals, under this approach, we stated that we would incorporate 
these amounts into a single amount to be included in the calculation of 
the budget neutrality offset amount to the national IPPS rates in a 
future final rule after such finalized cost reports become available.
     To reflect the costs of the demonstration for the upcoming 
fiscal year (that is, FY 2018) for Cohorts 1 and 2 hospitals that have 
decided to participate in the second 5-years of the 10-year extension 
period, we indicated that we would estimate the costs of the

[[Page 38286]]

demonstration for FY 2018, based on historical ``as submitted'' cost 
reports, applying prorating factors and updates as appropriate, as 
described below. Similar to the proposed methodology described in 
section V.L.4.c. of the preamble of the FY 2018 IPPS/LTCH PPS proposed 
rule for estimating the costs of the demonstration for FY 2018, we 
stated that the methodology for this approach for estimating the costs 
of the demonstration for FY 2018 would follow 3 steps:
    Step 1: We stated that we would determine the total estimated 
reasonable cost amount for covered inpatient hospital services (as 
indicated on the ``as submitted'' cost reports for the most recent cost 
reporting period available) for all participating hospitals for FY 2018 
calculated under the demonstration's reasonable cost-based payment 
methodology. We stated that these calculations would be identical to 
those described for our proposed methodology in section V.L.4.c. of the 
preamble of the proposed rule, with the exception that the formulation 
of the ``hospital-specific prorating factor,'' to be applied to each 
participating hospital's reasonable cost amounts as derived from its 
most recently available ``as submitted'' cost report, would be 
different. Under the different methodology for the formulation of the 
hospital-specific prorating factor, for hospitals with a cost report 
start date other than October 1, we indicated that the hospital-
specific prorating factor would be the ratio of the number of months 
between the end of the cost reporting period ending in FY 2018, on the 
basis of which actual costs are determined (as described above), and 
the end of the fiscal year, out of the total number of months in the 
fiscal year. Therefore, for a hospital (either Cohort 1 or 2) for which 
the end of the period on which we would determine actual costs (that 
is, the end date of the hospital's cost report year) would be June 30, 
2018, there would be 3 months remaining in FY 2018, and the hospital-
specific prorating factor would be .25. (We noted that hospitals with 
an October 1 cost report start date would participate in the 
demonstration for the full 12 months of FY 2018 and thus would have a 
hospital-specific prorating factor of 1.0.) We stated that we would 
then follow the same calculations as in our proposed budget neutrality 
calculation described in section V.L.4.c. of the preamble of the 
proposed rule, including application of the same update factors to 
reflect increases in cost and volume.
    Step 2: We stated that we would estimate the amount that would 
otherwise be paid for Medicare covered inpatient hospital services to 
all participating hospitals in FY 2018 without the demonstration. These 
calculations would be identical to those described for our proposed 
methodology in section V.L.4.c. of the preamble of the proposed rule, 
except for the difference that the hospital-specific prorating factor, 
to be applied to the estimated amount that the hospital would be paid 
without the demonstration, as derived from its most recently available 
``as submitted'' cost report, would be formulated in the same manner as 
described in Step 1 above under this methodology.
    Step 3: We stated that we would then subtract the amount derived in 
Step 2 (representing the estimated amount that would otherwise be paid 
to the participating hospitals for covered inpatient hospital services 
for FY 2018 if the demonstration were not implemented) from the amount 
derived in Step 1 (representing the estimated reasonable cost amounts 
that generally would be paid under the demonstration to all 
participating hospitals for covered inpatient hospital services for FY 
2018). The resulting difference would be the estimated amount of the 
costs of the demonstration for FY 2018, which would be incorporated 
into an adjustment to the national IPPS rates.
     For the Cohort 3 hospitals, we indicated that we would 
follow the identical methodology for estimating the costs of the 
demonstration for FY 2018 as described for the proposed budget 
neutrality methodology discussed in section V.L.4.c. of the preamble of 
the proposed rule under the proposed implementation approach. In the 
proposed rule, we noted that if the selection of additional 
participants under the solicitation authorized by Public Law 114-255 
were not announced by June 2017, we would not be able to include the 
estimates of the costs of the demonstration for FY 2018 for the Cohort 
3 hospitals in the budget neutrality offset adjustment for FY 2018, and 
similar to our proposed methodology in that situation, we would 
incorporate this estimate in the budget neutrality offset adjustment in 
the FY 2019 IPPS/LTCH PPS final rule. We noted that, under these 
circumstances, the budget neutrality offset adjustment for the FY 2019 
IPPS proposed and final rules would also include the estimated costs of 
the demonstration for FY 2019 for these Cohort 3 hospitals based on 
historical, ``as submitted'' cost reports and the appropriate update 
factors.
     Consistent with our approach in previous final rules, when 
the finalized cost reports for cost reporting periods beginning in FY 
2018 are available, we stated that we would determine the difference 
between the actual costs of the demonstration as determined from these 
finalized cost reports and the estimated cost indicated in the FY 2018 
IPPS/LTCH PPS final rule (or the FY 2019 IPPS/LTCH PPS final rule, as 
explained earlier), and include that difference either as a positive or 
negative adjustment in the upcoming year's final rule.
     For future years, we stated that we would continue to 
incorporate the estimated costs of the demonstration for all 
participating hospitals for the upcoming fiscal year in the budget 
neutrality offset adjustment in the IPPS final rule of the 
corresponding fiscal year. For these hospitals, we indicated that we 
also would determine the actual costs of the demonstration when 
finalized cost reports become available, and include the difference 
between the estimated and actual costs of the demonstration in the 
calculation of the budget neutrality offset amount to the national IPPS 
rates in the final rule for a future year.
    We noted that, under this approach, although we would not be able 
to include an estimate of the costs of the demonstration for FY 2018 
Cohort 3 hospitals in the budget neutrality offset adjustment in the FY 
2018 final rule if we were not able to announce the selection of 
additional hospitals by June 2017, we would do so for the Cohorts 1 and 
2 hospitals.
    We invited public comments on this alternative budget neutrality 
calculation methodology, as discussed earlier.
    We did not receive any public comments on this alternative 
methodology.
    Because we are finalizing the alternative implementation approach 
described in section V.L.3.b. of the preamble of this final rule, 
according to which each previously participating hospital would begin 
the second 5 years of the 10-year extension period and the cost-based 
payment methodology under section 410A of Public Law 108-173 (as 
amended by section 15003 of Pub. L. 114-255) on the date immediately 
after the date the period of performance under the first 5-year 
extension period ended, we are finalizing the alternative budget 
neutrality methodology from the proposed rule, as described in section 
V.L.4.d. of the preamble of this final rule specific to this approach. 
We note that in advance of finalizing our policy about the start date 
for the period of performance for the second 5-year extension period 
for the previously participating hospitals (Cohorts 1 and

[[Page 38287]]

2), at the time of publication of this final rule, we have not been 
able to verify which among these hospitals will continue to participate 
in the second 5-year extension period. Therefore, we are not including 
an estimate of the costs of the demonstration for any of the previously 
participating Cohort 1 or 2 hospitals for FY 2018 in the budget 
neutrality offset adjustment in this FY 2018 IPPS/LTCH PPS final rule. 
In addition, because the selection of additional participants under the 
solicitation authorized by Public Law 114-255 was not announced by June 
2017, we also are not able to include the estimates of the costs of the 
demonstration for the Cohort 3 hospitals for FY 2018 in the budget 
neutrality offset adjustment in this FY 2018 IPPS/LTCH PPS final rule. 
As a result, there will be no budget neutrality offset adjustment for 
the demonstration in this FY 2018 IPPS/LTCH PPS final rule. We will 
include the estimated costs of the demonstration for all participating 
hospitals (Cohorts 1, 2, and 3) for FY 2018 in the budget neutrality 
offset amount in the FY 2019 IPPS proposed and final rules.
e. Reconciling Actual and Estimated Costs of the Demonstration for 
Previous Years (2011, 2012, and 2013)
    As described earlier, we have calculated the difference for FYs 
2005 through 2010 between the actual costs of the demonstration, 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 the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57037), we finalized a proposal to 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 was scheduled to end 
December 31, 2016. In that final rule, we stated that we believed 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. We stated 
that such an aggregate analysis encompassing the cost experience 
through the end of the period of performance of the demonstration would 
represent 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 stated that we expected any such analysis would be 
conducted in FY 2020.
    With the extension of the demonstration for another 5-year period, 
as authorized by section 15003 of Public Law 114-255, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20000), we proposed to modify the 
plan outlined in the FY 2017 IPPS/LTCH PPS final rule, and instead 
return to the general procedure in previous final rules; that is, as 
finalized cost reports become available, to determine the amount by 
which the actual costs of the demonstration for an earlier, given year 
differ from the estimated costs for the demonstration set forth in the 
IPPS final rule for the corresponding fiscal year, and then incorporate 
that amount into the budget neutrality offset amount for an upcoming 
fiscal year. We proposed that if the actual costs of the demonstration 
for the earlier fiscal year exceed the estimated costs of the 
demonstration identified in the final rule for that year, this 
difference would be added to the estimated costs of the demonstration 
for the upcoming fiscal year when determining the budget neutrality 
adjustment for the final rule. Conversely, we proposed that if the 
estimated costs of the demonstration set forth in the final rule for a 
prior fiscal year exceed the actual costs of the demonstration for that 
year, this difference would be subtracted from the estimated cost of 
the demonstration for the upcoming fiscal year when determining the 
budget neutrality adjustment for an upcoming fiscal year. However, 
given that this adjustment for specific years could be positive or 
negative, we proposed to combine this reconciliation for multiple prior 
years into one adjustment to be applied to the budget neutrality offset 
amount for a single fiscal year, thus reducing the possibility of both 
positive and negative adjustments to be applied in consecutive years, 
and enhancing administrative feasibility. Specifically, we proposed 
that when finalized cost reports for FYs 2011, 2012, and 2013 are 
available, we would include this difference for these years in the 
budget neutrality offset adjustment to be applied to the national IPPS 
rates in a future final rule. We stated that we expected that this 
would occur in FY 2019. We also proposed that when finalized cost 
reports for FYs 2014 through 2016 are available, we would include the 
difference between the actual costs as reflected on these cost reports 
and the amounts included in the budget neutrality offset amounts for 
these fiscal years in a future final rule. We stated in the proposed 
rule that we plan to provide an update in a future final rule regarding 
the year that we would expect that this analysis would occur.
    We invited public comments on this proposal.
    We did not receive any public comments on this proposal. We are 
finalizing our proposal for reconciling the actual and estimated costs 
of the demonstration for 2011 through 2013.

M. Adjustment to IPPS Rates Resulting From 2-Midnight Policy for FY 
2018

    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. As discussed in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57058 through 57060), 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 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.
    For the reasons outlined in the FY 2017 IPPS/LTCH PPS proposed and 
final rules (81 FR 25136 through 25138 and 81 FR 57058 through 57060), 
we used 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

[[Page 38288]]

implemented by including a factor of 0.998 in the calculation of the FY 
2014 standardized amount, hospital-specific payment rates, and the 
national capital Federal rate, permanently reducing the rates for FY 
2014 and future years until the 0.998 is removed. In the FY 2017 IPPS/
LTCH PPS final rule (81 FR 57281 and 57294), we permanently removed 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, the hospital-
specific payment rates, and the national capital Federal rate.
    We also stated in the FY 2017 IPPS/LTCH PPS proposed and final 
rules that, for the reasons outlined in those rules, 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 percent reduction 
to the 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 rates in effect for FY 2016. We stated that we believe 
the most transparent, expedient, and administratively feasible method 
to accomplish this was 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 finalized our proposal 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 to remove this temporary one-time prospective increase by 
including a factor of (1/1.006) in the calculation of the rates for FY 
2018. We stated that while we generally did not believe it is 
appropriate in a prospective system to retrospectively adjust rates, we 
took this action in the specific context of this unique situation.
    In summary, for the reasons described in the FY 2017 IPPS/LTCH PPS 
proposed and final rules, we finalized our proposal 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, 
hospital-specific payment rates, and national capital Federal rate and 
to include a factor of (1/1.006) in the calculation of the FY 2018 
standardized amount, hospital-specific payment rates, and national 
capital Federal rate to remove the temporary one-time factor of 1.006.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20001), we stated 
that we were including a factor of (1/1.006) in the calculation of the 
FY 2018 standardized amount, hospital-specific payment rates, and 
national capital Federal rate to remove the temporary one-time factor 
of 1.006, as explained in detail in section II. of the Addendum to the 
proposed rule.
    We noted that, in the FY 2017 IPPS/LTCH PPS final rule, in our 
response to public comments, we recognized that for closed, converted, 
or new hospitals, our prospective method generally may have had a 
differential positive or negative impact compared to hospitals that 
were IPPS hospitals for all of the FY 2014 through FY 2017 time period. 
We stated that we generally believe that, given the prospective nature 
of our method and our goal to adopt a transparent, expedient, and 
administratively feasible approach, these differential impacts would be 
an appropriate consequence. However, after consideration of the public 
comments received, we agreed that we should provide a process to 
address the situation of closed or converted hospitals. Due to the 
small number of hospitals impacted, we stated that we will address 
closed and converted hospitals as part of the cost report settlement 
process. We stated that these hospitals should identify themselves to 
their MACs so that the appropriate cost report adjustment can be 
applied.
    Comment: One commenter opposed the removal of the one-time 1.006 
adjustment, stating that the original reduction was improper. Another 
commenter indicated that CMS should recalculate an adjustment to the 
IPPS rates using both medical and surgical Medicare claims data and 
recalculate the FY 2018 IPPS rates accordingly.
    Response: We did not propose to make any adjustment to the FY 2018 
rates related to the 2-midnight policy. We note that in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57060), we finalized the policy to 
remove the one-time 1.006 adjustment in the FY 2018 rates. We also 
refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 57060), 
where we responded to similar comments.
    As we finalized in the FY 2017 IPPS/LTCH PPS final rule, we are 
including a factor of (1/1.006) in the calculation of the FY 2018 
standardized amount, hospital specific payment rates, and national 
capital Federal rate to remove the temporary one-time factor of 1.006 
that was in place for FY 2017.

N. Provider-Based Status of Indian Health Service and Tribal Facilities 
and Organizations

    As we discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20001 through 20002), since the beginning of the Medicare program, some 
providers, which we refer to as ``main providers,'' have functioned as 
a single entity while owning and operating multiple departments, 
locations, and facilities. We have maintained that having clear 
criteria for provider-based status is important because a provider-
based status designation can result in additional Medicare payments 
under the OPPS for services provided at the provider-based facility, as 
well as increased beneficiary coinsurance liability for Medicare 
beneficiaries.
    The Medicare criteria for provider-based status are set forth in 
our regulations at 42 CFR 413.65. In the April 7, 2000 OPPS final rule 
(65 FR 18507), CMS (then HCFA), responded to several commenters who 
were concerned that the implementation of the proposed provider-based 
regulations would have the effect of denying Medicare participation as 
provider-based entities to a number of Indian Health Service (IHS) 
facilities that were being operated by Indian Tribes under the auspices 
of the Indian Self-Determination and Education Assistance Act (Pub. L. 
93-638). Other commenters were concerned that the regulations would 
jeopardize statutorily authorized contracting and compacting 
relationships and would severely restrict a number of IHS and Tribal 
clinics from receiving payments for outpatient services. The IHS itself 
strongly recommended that the proposed regulations not apply to IHS and 
the Tribal health system. In response to these concerns, we stated in 
that final rule (68 FR 18507): ``We recognize that the provision of 
health services to members of federally recognized Tribes is based on a 
special and legally recognized relationship between Indian Tribes and 
the United States Government. To address this relationship, the IHS has 
developed an integrated system to provide care that has its foundation 
in IHS hospitals. Because of these special circumstances, not present 
in the case of private, non-Federal facilities and organizations that 
serve patients generally, we agree that it would not be appropriate to 
apply the provider-based criteria to IHS facilities or organizations or 
to most tribal facilities or organizations.''
    In the April 7, 2000 OPPS final rule (65 FR 18507), we finalized a 
policy at Sec.  413.65(m) of our regulations under

[[Page 38289]]

which facilities and organizations operated by the IHS or Tribes would 
be considered to be ``departments of hospitals operated by the IHS or 
Tribes,'' and thereby grandfathered from application of the provider-
based rules, if on or before April 7, 2000, they furnished only 
services that were billed as if they had been furnished by a department 
of a hospital operated by the IHS or a Tribe and they are: (1) Owned 
and operated by the IHS; (2) owned by the Tribe but leased from the 
Tribe by the IHS under the Indian Self-Determination and Education 
Assistance Act in accordance with applicable regulations and policies 
of the IHS in consultation with Tribes; or (3) owned by the IHS but 
leased and operated by the Tribe under the Indian Self-Determination 
and Education Assistance Act in accordance with applicable regulations 
and policies of the IHS in consultation with Tribes.
    In order to qualify for grandfathering under Sec.  413.65(m), we 
required that the services be furnished by the facility or organization 
on or before April 7, 2000 because of our concern that, without such a 
date limitation, this provision would create an incentive for IHS or 
Tribal hospitals to establish new outpatient departments that were not 
sufficiently integrated with the main provider to support payment under 
the OPPS for the services that they furnished. Our intent was to 
implement a policy that both addressed a primary concern (that is, the 
rapid growth of off-campus provider-based clinics) that necessitated 
the provider-based regulations and recognized longstanding and complex 
IHS and Tribal arrangements. Since we finalized the policy at Sec.  
413.65(m), we have issued guidance on circumstances that would and 
would not result in a facility or organization losing its grandfathered 
status. In particular, we recognized the special relationship between 
Tribes and the IHS under the Self-Determination and Education 
Assistance Act and stated that changes in the status of a hospital or a 
facility from IHS to Tribal operation, or vice versa, or the 
realignment of a facility from one IHS or Tribal hospital to another 
IHS or Tribal hospital, would not be a basis for losing such a 
grandfathered status, so long as the resulting configuration is one 
that would have qualified for grandfathering under Sec.  413.65(m) had 
it been in effect on April 7, 2000.
    In the years since we implemented Sec.  413.65(m) and issued the 
guidance described earlier, we have considered whether it remains 
necessary to require that facilities and organizations be furnishing 
the services on or before April 7, 2000 in order to qualify for 
grandfathering. We have concluded that it does not because IHS policies 
and procedures (for example, as specified in the Indian Health Manual 
available on the IHS Web site at: https://ihs.gov/aboutihs/indianhealthmanual/) regarding the planning, operation, and funding of 
such facilities and organizations are resulting in appropriate Medicare 
payments to them. Therefore, after further consideration of the 
position CMS has set out in prior guidance, the special and legally 
recognized relationship between Indian Tribes and the U.S. Government, 
as well as current IHS policies and procedures, in the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 20002), we proposed to remove the date 
limitation in Sec.  413.65(m) that restricted the grandfathering 
provision to IHS or Tribal facilities and organizations furnishing 
services on or before April 7, 2000.
    We also proposed to make a technical change to the billing 
reference in Sec.  413.65(m) by replacing ``were billed'' with ``are 
billed using the CCN of the main provider and with the consent of the 
main provider.'' We stated that we believe this proposed change will 
make the regulation text more consistent with our current rules that 
require these facilities to comply with all applicable Medicare 
conditions of participation that apply to the main provider. In the 
proposed rule, we did not propose to otherwise change the requirement 
that the only services furnished at the facility or organization must 
be hospital outpatient services, or to change the other requirements 
for grandfathering in paragraphs (m)(1) through (3) of Sec.  413.65. 
Therefore, under our proposal, a facility or organization operated by 
the IHS or a Tribe will be considered to be a department of a hospital 
operated by the IHS or a Tribe if it furnishes only hospital outpatient 
services that are billed using the CMS Certification Number (CCN) of 
the main provider with the consent of the main provider, and it also 
meets one of the conditions in Sec.  413.65(m)(1) through (3).
    We welcomed public comments on our proposals.
    Comment: Commenters supported both CMS proposals to remove the date 
limitation and to clarify that only hospital outpatient services can be 
billed using the CCN of the main provider and with the consent of the 
main provider. Commenters requested that CMS further revise Sec.  
413.65(m)(1) through (3) to add an additional condition for facilities 
owned and operated by a Tribe or Tribal Organization pursuant to a 
contract or compact under the Indian Self-Determination Act (ISDA). 
Commenters contended that it is clear in the ISDA that Congressional 
intent was that the same resources available to the IHS be also 
available to Tribes to operate the same programs and services. 
Therefore, the commenters believed that the provisions in Sec.  
413.65(m) should be applied uniformly. Finally, commenters requested 
CMS to consider making regulatory changes to create flexibility in 
applying requirements at 42 CFR part 482, the conditions of 
participation (CoP) for provider-based IHS and Tribal facilities, and 
to similarly remove the April 7, 2000 date restriction for Tribal 
Grandfathered FQHC requirements.
    Response: We appreciate the commenters' support for our proposals. 
Regarding the commenters' request to add an additional condition for 
exemption under Sec.  413.65(m)(1) through (3), we did not propose to 
change the other requirements for grandfathering in paragraphs (m)(1) 
through (3) of Sec.  413.65. However, we will take this comment under 
consideration and, if appropriate, address it in future rulemaking.
    We appreciate the views shared by commenters regarding compliance 
with the hospital Conditions of Participation (CoPs) set out at 42 CFR 
part 482, and how the hospital CoPs might apply to provider-based 
facilities. We reiterate that the provider-based rules at Sec.  413.65 
govern whether a facility or organization is considered to be part of 
the main provider for purposes of Medicare payment, and those rules do 
not exempt any provider-based facilities from the need to comply with 
hospital requirements under the CoPs at Part 482. We also did not 
propose any changes to the Tribal grandfathered FQHC policy. As 
discussed in the CY 2016 Medicare Physician Fee Schedule final rule (80 
FR 71089 through 71096), in order to qualify for the ``grandfathered'' 
Tribal FQHC payment rate, a Tribal facility is required to have billed 
as a department of a provider prior to April 7, 2000. While we are 
finalizing our proposed removal of the April 7, 2000 date from Sec.  
413.65(m) in this final rule, this date requirement will remain in 
effect for Tribal FQHCs. However, we will take these views into 
consideration for future rulemaking.
    After consideration of public comments we received, we are 
finalizing the proposed revisions to Sec.  413.65(m). We are removing 
the date limitation in Sec.  413.65(m) that restricted the 
grandfathering provision to IHS or Tribal facilities and organizations 
furnishing services on or before April 7, 2000. We also are finalizing 
the

[[Page 38290]]

technical change to the billing reference in Sec.  413.65(m) by 
replacing ``were billed'' with ``are billed using the CCN of the main 
provider and with the consent of the main provider.''

VI. Changes to the IPPS for Capital-Related Costs

A. Overview

    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient acute hospital services in 
accordance with a prospective payment system established by the 
Secretary. Under the statute, the Secretary has broad authority in 
establishing and implementing the IPPS for acute care hospital 
inpatient capital-related costs. We initially implemented the IPPS for 
capital-related costs in the 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 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. Payments for Hospitals Located in Puerto Rico
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57061), we revised 
the regulations at 42 CFR 412.374 relating to the calculation of 
capital IPPS payments to hospitals located in Puerto Rico beginning in 
FY 2017 to parallel the change in the statutory calculation of 
operating IPPS payments to hospitals located in Puerto Rico, for 
discharges occurring on or after January 1, 2016, made by section 601 
of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113). Section 
601 of Public Law 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. As such, under revised Sec.  
412.374, for discharges occurring on or after October 1, 2016, capital 
IPPS payments to hospitals located in Puerto Rico are based on 100 
percent of the capital Federal rate.

C. Annual Update for FY 2018

    The annual update to the national capital Federal rate, as provided 
for at Sec.  412.308(c), for FY 2018 is discussed in section III. of 
the Addendum to this final 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, 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. Using our authority 
under section 1886(g) of the Act, and consistent with the approach 
taken for the operating IPPS standardized amount, the Puerto Rico-
specific standardized amount and the hospital-specific payment rates, 
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 explained in section V.B.3. of the FY 2017 
IPPS/LTCH PPS final rule, we discontinued use of the Puerto Rico 
capital rate in the calculation of capital IPPS payments to hospitals 
located in Puerto Rico beginning in FY 2017.)
    For the reasons discussed in the FY 2017 IPPS/LTCH PPS proposed and 
final rules (81 FR 25136 through 25138 and 57058 through 57060) and 
consistent with our approach for the operating IPPS rates, we used our 
authority under section 1886(g) of the Act to permanently remove the 
0.2 percent reduction to the national capital

[[Page 38291]]

Federal rate beginning in FY 2017. Specifically, we made an adjustment 
of (1/0.998) to the national capital Federal rate to remove the 0.2 
percent reduction, consistent with the adjustment to the operating IPPS 
standardized amount and the hospital-specific payment rates.
    In addition, consistent with our approach for the operating IPPS 
standardized amount and hospital-specific payment rates, and for the 
reasons discussed in the FY 2017 IPPS/LTCH PPS proposed and final 
rules, we finalized our proposal to use our authority under section 
1886(g) of the Act to adjust the FY 2017 national capital Federal 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 
making a one-time prospective adjustment of 1.006 in FY 2017 to the 
national capital Federal rate and, for FY 2018, to remove the effects 
of this one-time prospective adjustment through an adjustment of (1/
1.006) to the national capital Federal rate. Therefore, consistent with 
our finalized policy, and as discussed in the FY 2018 IPPS/LTCH PPS 
proposed rule, for FY 2018, we are including a factor of (1/1.006) in 
the calculation of the FY 2018 operating IPPS standardized amount, the 
hospital-specific payment rates, and the national capital Federal rate 
to remove the temporary one-time factor of 1.006. (For additional 
details, we refer readers to section IV.P. of the preamble of the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57058 through 57060 and 57062 
through 57063) and to section V.M. of the preamble of this final rule.)
    In section II.D. of the preamble of this final rule, we present a 
discussion of the MS-DRG documentation and coding adjustment, including 
previously finalized policies and historical adjustments, as well as 
the adjustment to the standardized amount under section 1886(d) of the 
Act that we proposed, and are finalizing, for FY 2018 in accordance 
with the amendments made to section 7(b)(1)(B) of Public Law 110-90 by 
section 414 of the MACRA and section 15005 of the 21st Century Cures 
Act. Because these provisions require us to make an adjustment only to 
the operating IPPS standardized amount, we are not making a similar 
adjustment to the national capital Federal rate (or to the hospital-
specific rates).

VII. Changes for Hospitals Excluded From the IPPS

A. Rate-of-Increase in Payments to Excluded Hospitals for FY 2018

    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 applied 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, religious nonmedical health care institutions 
(RNHCIs) also are subject to the rate-of-increase limits established 
under Sec.  413.40 of the regulations discussed previously. 
Furthermore, as discussed in VIII.J. of the preamble of this final 
rule, in accordance with Sec.  412.526(c)(3) of the regulations, 
extended neoplastic disease care hospitals (formerly termed long-term 
care neoplastic disease hospitals) 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. In the FYs 2014 and 2015 IPPS/LTCH PPS final rules 
(78 FR 50747 through 50748 and 79 FR 50156 through 50157, 
respectively), we adopted a policy of using the percentage increase in 
the FY 2010-based IPPS operating market basket to update the target 
amounts for FY 2014 and subsequent fiscal years 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. However, as discussed in section 
IV. of the preamble of the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20004), we proposed to rebase and revise the IPPS operating basket to a 
2014 base year. Therefore, we proposed to use the percentage increase 
in the 2014-based IPPS operating market basket to update the target 
amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and 
short-term acute care hospitals located in the U.S. Virgin Islands, 
Guam, the Northern Mariana Islands, and American Samoa for FY 2018 and 
subsequent fiscal years. Accordingly, for FY 2018, the rate-of-increase 
percentage to be applied to the target amount for these hospitals would 
be the FY 2018 percentage increase in the 2014-based IPPS operating 
market basket. We did not receive any public comments on these 
proposals. Therefore, we are finalizing these policies as proposed. 
Based on IGI's 2016 fourth quarter forecast, for the proposed rule, we 
estimated that the 2014-based IPPS operating market basket update for 
FY 2018 would be 2.9 percent (that is, the estimate of the market 
basket rate-of-increase). We indicated in the proposed rule that if 
more recent data became available for the final rule, we would use them 
to calculate the IPPS operating market basket update for FY 2018. For 
this FY 2018 IPPS/LTCH PPS final rule, based on IGI's 2017 second 
quarter forecast (which is the most recent data available), we 
calculated the 2014-based IPPS operating market basket update for FY 
2018 to be 2.7 percent. Therefore, the FY 2018 rate-of-increase 
percentage that is applied to the FY 2017 target amounts in order to 
calculate the FY 2018 target amounts for children's hospitals, cancer 
hospitals, RNCHIs, and short-term acute care hospitals located in the 
U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American 
Samoa is 2.7 percent, in accordance with the applicable regulations at 
42 CFR 413.40.
    In addition, as discussed in section VIII.J. of the preamble of 
this final rule, as originally enacted section 1886(d)(1)(B)(iv) of the 
Act established an IPPS-excluded category of hospitals that experience 
extended average inpatient length-of-stays, which are known as LTCHs 
under the Medicare program. Historically, section 1886(d)(1)(B)(iv) of 
the Act consisted of

[[Page 38292]]

two subclauses (I) and (II) (that is, sections 1886(d)(1)(B)(iv)(I) and 
(d)(1)(B)(iv)(II) of the Act), and the two categories of hospitals were 
generally referred to as ``subclause (I)'' and ``subclause (II)'' 
LTCHs. Section 15008 of the 21st Century Cures Act (Pub. L. 114-255) 
amended section 1886(d)(1)(B) of the Act by redesignating the 
``subclause (II) LTCH'' provision in section 1886(d)(1)(B)(iv)(II) of 
the Act to section 1886(d)(1)(B)(vi) of the Act. In addition, 
subsection (b) of section 15008 of Public Law 114-255 specifies that, 
for cost reporting periods beginning on or after January 1, 2015, 
hospitals classified under section 1886(d)(1)(B)(vi) of the Act are not 
subject to section 1886(m) of the Act, which sets forth the LTCH PPS. 
Section 15008(c) further specifies that, for cost reporting periods 
beginning on or after January 1, 2015, payment for inpatient operating 
costs for such hospitals is to be made as described in 42 CFR 
412.526(c)(3), and payment for capital costs is to be made as described 
in 42 CFR 412.526(c)(4). In order to implement these requirements, in 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20029), we proposed to 
amend Sec.  412.23 to codify the redesignation of such hospitals from 
section 1886(d)(1)(B)(iv)(II) of the Act to new section 
1886(d)(1)(B)(vi) of the Act (which we referred to as ``long-term care 
neoplastic disease hospitals'') and the statutory payment requirements 
for inpatient operating and capital costs. (For additional information 
on ``subclause (II)'' LTCHs, including the statutory criteria and the 
establishment of the payment adjustment under Sec.  412.526, and our 
changes to Sec.  412.22 to implement the provisions of section 15008 of 
Public Law 114-255, we refer readers to section VIII.J. of the preamble 
of this final rule.)
    Under the redesignation of subclause (II) LTCHs to long-term care 
neoplastic disease hospitals provided by section 15008 of Public Law 
114-255 (described above), the statute specifies that payment for 
inpatient operating costs shall continue to be made on a reasonable 
cost basis in the manner provided in Sec.  412.526(c)(3) of the 
regulations. Section 412.526(c)(3) provides that the hospital's 
Medicare allowable net inpatient operating costs for that period are 
paid on a reasonable cost basis, subject to that hospital's ceiling, as 
determined under Sec.  412.526(c)(1), for that period. Under section 
412.526(c)(1), for each cost reporting period, the ceiling was 
determined by multiplying the updated target amount, as defined in 
Sec.  412.526(c)(2), for that period by the number of Medicare 
discharges paid during that period. Section 412.526(c)(2)(i) describes 
the method for determining the target amount for cost reporting periods 
beginning during FY 2015. Section 412.526(c)(2)(ii) specifies that, for 
cost reporting periods beginning during fiscal years after FY 2015, the 
target amount will equal the hospital's target amount for the previous 
cost reporting period updated by the applicable annual rate-of-increase 
percentage specified in Sec.  413.40(c)(3) for the subject cost 
reporting period (79 FR 50197).
    For FY 2018, in accordance with proposed Sec.  412.23(j)(2) and 
existing Sec.  412.526(c)(2)(ii) of the regulations, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20029), we proposed that, for cost 
reporting periods beginning during FY 2018, the update to the target 
amount for long-term care neoplastic disease hospitals (that is, 
hospitals described under proposed Sec.  412.23(j)) would be the 
applicable annual rate-of-increase percentage specified in Sec.  
413.40(c)(3) for FY 2018, which would be equal to the percentage 
increase projected by the hospital market basket index, which, in the 
proposed rule, was estimated to be the percentage increase in the 
proposed 2014-based IPPS operating market basket (that is, the estimate 
of the market basket rate-of-increase). Accordingly, for the proposed 
rule, the update to a long-term care neoplastic disease hospital's 
target amount for FY 2018 was 2.9 percent, which was based on IGI, 
Inc.'s 2016 fourth quarter forecast. Furthermore, we proposed that if 
more recent data became available for the final rule, we would use that 
updated data to calculate the IPPS operating market basket update for 
FY 2018. For this final rule, based on IHS Global Insight, Inc.'s 
second quarter forecast (which is the most recent data available), the 
update to an extended neoplastic disease care hospital's target amount 
for FY 2018 is 2.7 percent.
    Comment: Some commenters requested that CMS move the regulations 
concerning payment for these hospitals from proposed Sec.  412.23 to 
Sec.  412.22.
    Response: We agree with these commenters and are finalizing our 
payment regulation at new paragraph (i) under Sec.  412.22. We note 
that the language of this paragraph is identical (with the exception of 
minor technical editing for cross-references) to the language we 
proposed.
    Comment: Some commenters pointed out that the proposed rule 
preamble description of hospitals excluded from the IPPS does not 
include these hospitals and requested their inclusion.
    Response: We agree and have made conforming changes to the preamble 
of this final rule.
    Comment: Some commenters requested that CMS change the name of 
these hospitals from ``long-term care neoplastic disease hospitals'' to 
``hospital for the treatment of advanced cancer and other diseases.''
    Response: We do not believe that the name suggested by the 
commenters is sufficiently descriptive to accurately capture a specific 
subset of hospitals. Most, if not all, hospitals treat advanced cancer 
and other diseases. However, given the commenters' concerns about the 
use of the term ``long-term care'' in the name of the new category of 
hospital, we are finalizing the name ``extended neoplastic disease care 
hospital.'' We believe this is appropriate because it distinguishes 
these hospitals from the 11 cancer hospitals and to account for the 
fact that these hospitals are still statutorily required to maintain a 
minimum average length of stay.
    Comment: Some commenters requested CMS to add a claims processing 
provision to the Medicare payment regulations for these hospitals.
    Response: We do not believe that it is appropriate to include 
claims processing information in our regulations and, therefore, are 
not adding the additional language requested by commenters.
    Comment: Some commenters requested that CMS include sunset dates to 
Sec.  412.526.
    Response: As we have added a sunset date to Sec.  412.22 (proposed 
Sec.  412.23(e)(ii)), we do not believe that it is necessary to include 
separate sunset dates in Sec.  412.526.
    After consideration of the public comments we received, we are 
finalizing our proposals with the minor technical changes noted above.

B. Changes to the Hospital-Within-Hospital Regulations

    On September 1, 1994, we published regulations governing hospitals-
within-hospitals (HwHs) to address inappropriate Medicare payments to 
LTCHs that were effectively units of other hospitals (59 FR 45330). 
There was concern that the LTCH HwH model was being used by some acute 
care hospitals paid under the IPPS as a way of inappropriately 
receiving higher payments for a subset of their cases. Moreover, we 
stated that the IPPS-exclusion of long-term care ``units'' may be 
inconsistent with the statutory scheme, which does not provide for the

[[Page 38293]]

exclusion from the IPPS of long-term care units.
    Therefore, we codified the HwH regulations at 42 CFR 412.23 
(currently at Sec.  412.22(e)) for an LTCH HwH that is co-located with 
another hospital. A co-located hospital is a hospital that occupies 
space in a building also used by another hospital or in one or more 
separate buildings located on the same campus as buildings used by 
another hospital. The regulations at Sec.  412.22(e) required that, to 
be excluded from the IPPS, long-term care HwHs must have a separate 
governing body, a chief medical officer, medical staff, and a chief 
executive officer, from that of the hospital with which it is co-
located. In addition, the long-term care HwH must have met either of 
the following two criteria: The HwH must perform certain specified 
basic hospital functions on its own and not receive them from the host 
hospital or a third entity that controls both hospitals; or the HwH 
must receive at least 75 percent of its inpatients from sources other 
than the co-located hospital. A third option was added to the 
regulations on September 1, 1995 (60 FR 45778) that allowed long-term 
care HwHs to demonstrate their separateness by showing that the cost of 
the services that the hospital obtains under contracts or other 
agreements with the co-located hospital or a third entity that controls 
both hospitals is no more than 15 percent of the hospital's total 
inpatient operating cost. In 1997, we extended application of the HwH 
regulations at Sec.  412.22 to all classifications of IPPS-excluded 
hospitals. Therefore, effective for cost reporting periods beginning on 
or after October 1, 1997, psychiatric, rehabilitation, cancer, and 
children's hospitals that are co-located with another hospital also are 
generally required to meet the ``separateness'' criteria at Sec.  
412.22(e). In addition, a ``grandfathering'' provision (that is, 
hospitals that were IPPS-excluded HwHs before October 1, 1995 are not 
required to comply with the separateness and control regulations so 
long as they continue to operate under the same terms and conditions) 
was added to the regulations at Sec.  412.22(f). We later modified the 
grandfathering provision to allow for a grandfathered hospital to make 
specified changes (for example increasing the number of beds) during 
particular timeframes, which vary depending on the change the hospital 
had made. Below we discuss our FY 2018 proposed and finalized changes 
to our HwH regulations.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20004), we 
proposed to revise our HwH regulations so that the separateness and 
control requirements would only apply to IPPS-excluded HwHs that are 
co-located with IPPS hospitals. Under this proposal, any hospital that 
occupies a building also used by another hospital, or in one or more 
separate buildings located on the same campus as buildings used by 
another hospital would remain, by definition, an HwH. However, the 
separateness and control requirements for IPPS-excluded HwHs would 
apply only when the IPPS-excluded hospital is co-located with an IPPS 
hospital. The proposal was premised on the belief that the policy 
concerns that underlie our existing HwH regulations (that is, 
inappropriate patient shifting and hospitals acting as illegal de facto 
units) are sufficiently moderated in situations where IPPS-excluded 
hospitals are co-located with each other but not IPPS hospitals, in 
large part due to the payment system changes that have occurred over 
the intervening years for IPPS-excluded hospitals. For example, LTCHs, 
inpatient rehabilitation facilities (IRFs) and inpatient psychiatric 
facilities (IPFs) are no longer paid on a reasonable cost-basis as was 
the case when HwH regulations were adopted. Currently, LTCHs, IRFs, and 
IPFs are each paid under their own respective PPS, and those payment 
systems include policies based on the types of patients they admit for 
treatment. For example, to be classified for payment under Medicare's 
IRF PPS, at least 60 percent of a facility's total inpatient population 
must require inpatient hospital-level treatment for one or more of 13 
conditions listed in 42 CFR 412.29(b)(2), and recent statutory changes 
require that specified patient-level criteria be met for LTCH 
discharges to be paid based on the standard Federal payment rate under 
the LTCH PPS. For these reasons, we proposed to revise our HwH 
regulations so that the separateness and control requirements would 
only apply to IPPS-excluded HwHs that are co-located with IPPS 
hospitals; we proposed to revise the introductory language of Sec.  
412.22(e) to reflect the proposed change. That is, the introductory 
language of Sec.  412.22(e) would state that, beginning on or after 
October 1, 2017, an HwH that is excluded from the IPPS that occupies 
space in a building also used by an IPPS hospital, or in one or more 
separate buildings located on the same campus as buildings used by an 
IPPS hospital, must meet the criteria specified in Sec. Sec.  
412.22(e)(1) through (e)(3) in order to be excluded from the IPPS. 
While we did not propose to make changes to our HwH regulations for co-
located IPPS and IPPS-excluded hospitals, we invited public comments on 
the issue of whether the separateness and control requirements are 
still necessary for IPPS-excluded HwHs that are co-located with IPPS 
hospitals, which we would consider for potential future rulemaking.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20004), we also 
proposed to revise the requirements at Sec.  412.22(e)(1)(v), which 
outlines performance of basic hospital functions, to make them 
effective for fiscal years prior to FY 2018. We believe that the 
requirements in paragraph (e)(1)(v)(A) are generally duplicative of 
CMS' interpretative guidance that relate to a number of hospital 
conditions of participation (CoPs) that are in the regulations (for 
example, 42 CFR 482.21 through 482.27, 482.30, 482.42, 482.43, and 
482.45). As such, we proposed to remove the overlap between the HwH 
regulations and the CoP Interpretative Guidance from the regulations by 
sunsetting the requirements in paragraph (e)(1)(v)(A) of Sec.  412.22. 
(The COP Interpretive Guidance for hospitals can be found in Appendix A 
of the State Operations Manual (CMS Pub. 100-07).) In addition, we 
proposed to remove the requirements in paragraph (e)(1)(v)(B) of Sec.  
412.22 because we believe these payment requirements could be 
interpreted to conflict with the requirements under the hospital CoPs, 
which do not provide for a minimum cost threshold regarding the 
services the HwH obtains from the hospital with which it is occupying 
space. We stated that we did not believe that this proposed revision 
would result in a practical change to how HwHs are currently operated 
because the performance of basic hospital functions requirements at 
Sec.  412.22(e)(1)(v) are currently addressed under CMS' Interpretative 
Guidance for the hospital CoPs. In addition, we stated that we did not 
believe, at that time, that there are payment policy concerns that 
would justify imposition of regulatory requirements on the performance 
of basic hospital functions for HwHs that are more stringent than what 
is addressed under the Interpretative Guidance for the hospital CoPs.
    We invited public comment on these proposals.
    Comment: Several commenters supported CMS' proposal to apply the 
separateness and control requirements only to IPPS-excluded HwHs that 
are co-located with IPPS hospitals. Some commenters requested 
clarification that Sec.  412.22(e)(1)(v)(C) would also not apply to a 
HwH after October 1, 2017 because the retention of that

[[Page 38294]]

requirement, taken together with the removal of Sec.  
412.22(e)(1)(v)(A) and (B), would have the result of eliminating HwH 
status for many IPPS-excluded HwHs. Some commenters also stated that 
the proposed revision to Sec.  412.22(e)(1)(v) should not be 
interpreted to mean that a HwH must have complied with Sec.  
412.22(e)(1)(v) prior to October 1, 2017 in order to maintain its IPPS-
excluded status after October 1, 2017.
    Response: We thank the commenters for their support and confirm 
that our intent was to eliminate the requirement that HwHs comply with 
Sec.  412.22(e)(1)(v) in its entirety starting in FY 2018. Eliminating 
Sec.  412.22(e)(1)(v)(A) and (B), but not (C), would have the 
unintended effect of requiring HwHs to ensure that they met the 75 
percent inpatient population requirement during the 6-month period 
immediately preceding the first cost reporting period for which they 
sought an exclusion in order to maintain that excluded status. As that 
was not our intent, we are finalizing that, beginning with FY 2018, 
HwHs will no longer be required to satisfy any of the criteria in Sec.  
412.22(e)(1)(v) in order to maintain their HwH status. This change will 
not affect requirements applicable to HwHs prior to October 1, 2017. We 
also note that none of the changes to the HwH regulations that we are 
finalizing in this final rule constitute changes to the conditions of 
participation (CoPs) at 42 CFR part 482 and applicable interpretative 
guidance; and that every hospital, regardless of co-location, must 
independently comply with all applicable CoPs.
    Comment: Some commenters believed that the proposed revisions to 
the HwH rules apply to all forms of co-located hospitals. Other 
commenters requested that CMS make analogous changes to the satellite 
facility rules in addition to the HwH rules.
    Response: We believe that some commenters have misunderstood the 
scope of our proposals. Co-located hospital locations can be either 
HwHs (entire hospitals that are co-located with another hospital) or 
satellite facilities (parts of hospitals that are co-located with 
another hospital). The HwH rules do not apply to satellite facilities. 
Regulations governing payment to satellite facilities can be found at 
Sec.  412.22(h). We appreciate the request by some commenters to 
consider making analogous changes to the regulations governing 
satellite facilities, and we will take that request under advisement 
for future rulemaking.
    Comment: Several commenters responded to CMS' solicitation of 
comments on whether it remains necessary to maintain the separateness 
and control requirements for IPPS-excluded HwHs that are co-located 
with IPPS hospitals.
    Response: We appreciate the comments we received on this topic and 
will take them under advisement for future rulemaking.
    After consideration of the public comments we received, we are 
finalizing our proposals as proposed, with one modification. Under our 
final policies, HwHs will no longer be required to satisfy any of the 
criteria at Sec.  412.22(e)(1)(v), including paragraph (e)(1)(v)(C), in 
order to maintain their HwH status.

C. Report on Adjustment (Exceptions) Payments

    Section 4419(b) of Public Law 105-33 requires the Secretary to 
publish annually in the Federal Register a report describing the total 
amount of adjustment payments made to excluded hospitals and hospital 
units by reason of section 1886(b)(4) of the Act during the previous 
fiscal year.
    The process of requesting, adjusting, and awarding an adjustment 
payment is likely to occur over a 2-year period or longer. First, 
generally, an excluded hospital must file its cost report for the 
fiscal year in accordance with Sec.  413.24(f)(2) of the regulations. 
The MAC reviews the cost report and issues a notice of provider 
reimbursement (NPR). Once the hospital receives the NPR, if its 
operating costs are in excess of the ceiling, the hospital may file a 
request for an adjustment payment. After the MAC receives the 
hospital's request in accordance with applicable regulations, the MAC 
or CMS, depending on the type of adjustment requested, reviews the 
request and determines if an adjustment payment is warranted. This 
determination is sometimes not made until more than 180 days after the 
date the request is filed because there are times when the request 
applications are incomplete and additional information must be 
requested in order to have a completed request application. However, in 
an attempt to provide interested parties with data on the most recent 
adjustment payments for which we have data, we are publishing data on 
adjustment payments that were processed by the MAC or CMS during FY 
2016.
    The table below includes the most recent data available from the 
MACs and CMS on adjustment payments that were adjudicated during FY 
2016. As indicated above, the adjustments made during FY 2016 only 
pertain to cost reporting periods ending in years prior to FY 2016. 
Total adjustment payments given to excluded hospitals during FY 2016 
are $13,123,870. The table depicts for each class of hospitals, in the 
aggregate, the number of adjustment requests adjudicated, the excess 
operating costs over the ceiling, and the amount of the adjustment 
payments.

----------------------------------------------------------------------------------------------------------------
                                                                                    Excess cost     Adjustment
                        Class of hospital                             Number       over ceiling      payments
----------------------------------------------------------------------------------------------------------------
Hospitals in Territories........................................               1      $3,007,636      $2,112,404
Cancer..........................................................               1      21,255,065      10,236,366
Religious Nonmedical Health Care Institution (RNHCI)............               4         420,960         420,960
Psychiatric Unit................................................               1       2,116,384         354,140
                                                                 -----------------------------------------------
    Total.......................................................  ..............  ..............      13,123,870
----------------------------------------------------------------------------------------------------------------

D. 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

[[Page 38295]]

Providers Act of 2008 (Pub. L. 110-275), as amended by section 3126 of 
the Affordable Care Act, 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 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 Law 110-275, as 
amended, limits participation in the demonstration to eligible entities 
in not more than 4 States. Section 123(f)(1) of Public Law 110-275 
requires the demonstration project to be conducted for a 3-year period. 
In addition, section 123(g)(1)(B) of Public Law 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 Law 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. 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 MHRFP. The RFA identified four 
interventions, under which specific waivers of Medicare payment rules 
would allow for enhanced payment for telehealth, skilled nursing 
facility/nursing facility beds, ambulance services, and home health 
services, respectively. These waivers were formulated with the goal of 
increasing access to care with no net increase in costs.
    Ten CAHs were selected for participation in the demonstration, 
which started on August 1, 2016. These CAHs are located in Montana, 
Nevada and North Dakota, and they are participating in three of the 
four interventions identified in the FY 2017 IPPS/LTCH PPS final rule. 
Eight CAHs are participating in the telehealth intervention, three CAHs 
are participating in the skilled nursing facility/nursing facility bed 
intervention, and two CAHs are participating in the ambulance services 
intervention. Each CAH is allowed to participate in more than one of 
the interventions. None of the selected CAHs are participants in the 
home health intervention, which was the fourth intervention proposed in 
the RFA.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57064 through 
57065), we finalized a policy to address the budget neutrality 
requirement for the demonstration. As explained in the FY 2017 IPPS/
LTCH PPS final rule, we 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 and 
uncertainty associated with projected Medicare utilization and costs, 
we adopted a contingency plan to ensure that the budget neutrality 
requirement in section 123 of Public Law 110-275 is met. If analysis of 
claims data for Medicare beneficiaries receiving services at each of 
the participating CAHs, as well as from 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 indicated that we did 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 
will comply with the budget neutrality requirement by reducing payments 
to all CAHs, not just those participating in the demonstration. We 
stated that 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 explained our belief that the language of the 
statutory budget neutrality requirement at section 123(g)(1)(B) of 
Public Law 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. For the FY 
2017 IPPS/LTCH PPS final rule, we estimated that the total impact of 
the payment recoupment would be no greater than 0.03 percent of CAHs' 
total Medicare payments within one fiscal year (that is, Medicare Part 
A and Part B). The final budget neutrality estimates for the FCHIP 
demonstration 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. As stated in the FY 2017 
IPPS/LTCH PPS final rule, in the event the demonstration is found not 
to have been budget neutral, any excess costs will be recouped over a 
period of 3 cost

[[Page 38296]]

reporting years, beginning in CY 2020. The 3-year period for recoupment 
will allow for a reasonable timeframe for the payment reduction and to 
minimize any impact on CAHs' operations. Therefore, because any 
reduction to CAH payments in order to recoup excess costs under the 
demonstration will not begin until CY 2020, this policy will have no 
impact for any national payment system for FY 2018.
    We did not receive any public comments on our discussion of this 
demonstration in the proposed rule.
3. Physician Certification Requirement for Payment of Inpatient CAH 
Services Under Medicare Part A
a. Background
    For inpatient CAH services to be payable under Medicare Part A, 
section 1814(a)(8) of the Act requires that a physician certify that 
the individual may reasonably be expected to be discharged or 
transferred to a hospital within 96 hours after admission to the CAH. 
The regulations implementing this statutory requirement are located at 
42 CFR 424.15.
    We most recently addressed the 96-hour certification requirement in 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50163 through 50165). In 
that rule, we finalized a policy regarding the timing of this physician 
certification requirement. We revised the regulations such that all 
physician certification requirements must be completed, signed, and 
documented in the medical record no later than 1 day before the date on 
which the claim for payment for the inpatient CAH service is submitted. 
This policy change was effective October 1, 2014. Prior to that 
revision, our policy, which was in effect during FY 2014, had been that 
the certification began with the order for inpatient admission and was 
required to be completed, signed, and documented in the medical record 
prior to discharge.
    In addition to this change regarding the timing of the 96-hour 
certification requirement, we also provided a general review of this 
certification requirement in the FY 2015 IPPS/LTCH PPS final rule (79 
FR 50165). We stated that because the statutory requirement at section 
1814(a)(8) of the Act is based on an expectation, if a physician 
certifies, in good faith, that an individual may reasonably be expected 
to be discharged or transferred to a hospital within 96 hours after 
admission to the CAH and then something unforeseen occurs that causes 
the individual to stay longer at the CAH, Medicare will pay for the 
costs of treating that patient and there would not be a problem with 
regard to the CAH designation as long as that individual's stay does 
not cause the CAH to exceed its 96-hour annual average condition of 
participation (CoP) requirement under 42 CFR 485.620(b) (which we note 
is separate and distinct from the 96-hour physician certification 
requirement). However, if a physician cannot in good faith certify that 
an individual may reasonably be expected to be discharged or 
transferred within 96 hours after admission to the CAH, the CAH will 
not receive Medicare Part A payment for any portion of that 
individual's inpatient stay (79 FR 50165). We further noted that time 
as an outpatient at the CAH is not included in applying the 96-hour 
requirement, nor does time in a CAH swing bed, which is being used to 
provide skilled nursing services, count towards the 96-hour 
requirement. The clock for the 96 hours only begins once the individual 
is admitted to the CAH as an inpatient.
b. Notice Regarding Changes to Instructions for the Review of the CAH 
96-Hour Certification Requirement
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20007), based on feedback from stakeholders, we reviewed the CAH 96-
hour certification requirement to determine if there were ways to 
minimize providers' concerns regarding this requirement. We noted that 
the requirement is statutory and cannot be modified through regulation. 
However, we do have discretion to determine how CMS will prioritize 
monitoring and enforcement of the requirement. In order to minimize the 
concerns of CAHs with respect to the 96-hour certification requirement, 
in the FY 2018 IPPS/LTCH PPS proposed rule, we provided notice that CMS 
will direct Quality Improvement Organizations (QIOs), Medicare 
Administrative Contractors (MACs), the Supplemental Medical Review 
Contractor (SMRC), and Recovery Audit Contractors (RACs) to make the 
CAH 96-hour certification requirement a low priority for medical record 
reviews conducted on or after October 1, 2017. We stated that this 
means that, absent concerns of probable fraud, waste, or abuse, these 
contractors will not conduct medical record reviews with respect to the 
96-hour certification requirement. Reviews by other entities, 
including, but not limited to, Zone Program Integrity Contractors 
(ZPICs), the Office of Inspector General, and the Department of Justice 
will continue as appropriate. Quality reviews and automated reviews 
(for example, those reviews that do not involve medical records) will 
also continue as appropriate.
    We stated that, in the past, RACs have never performed medical 
record reviews for CAH claims, and we will not approve medical record 
review of CAHs for only the 96-hour certification requirement. We 
provided notice that, beginning October 1, 2017, CMS will direct the 
QIOs, MACs, and the SMRC to make medical record review of CAHs for only 
the 96-hour certification requirement a low priority. We stated that 
QIOs and MACs may continue to conduct medical record review of CAH 
claims for the purposes of verifying compliance with other 
requirements, such as beneficiary complaints, quality of care reviews, 
higher weighted DRG reviews, readmission reviews, and the requirement 
that procedures be medically necessary.
    In the FY 2018 IPPS/LTCH PPS proposed rule, we stated that, under 
the revised instructions to contractors, CAHs will not receive any 
medical record requests from MACs, RACs, QIOs, or the SMRC related to 
the 96-hour certification requirement unless CMS or its contractors 
find evidence of gaming or a failure to comply with CMS' provider 
screening and revalidation requirements, or if medical review is needed 
for other issues. If this occurs, the MACs, RACs, QIOs, or the SMRC 
could also review the 96-hour certification requirement. In addition, 
if data analysis or other information indicates that possible fraud 
exists, CAHs may also receive medical record requests for the 96-hour 
certification requirement.
    Comment: Commenters supported CMS' notice in the FY 2018 IPPS/LTCH 
PPS proposed rule that, with respect to the 96-hour certification 
requirement, CMS is directing QIOs, MACs, the SMRC, and RACs to make 
the CAH 96-hour certification requirement a low priority for medical 
record reviews conducted on or after October 1, 2017.
    Commenters requested permanent removal of the 96-hour certification 
requirement, and many noted they are continuing to advocate for a 
legislative solution.
    Commenters stated they appreciated CMS recognizing that the 96-hour 
certification requirement could hinder the promotion of essential and 
life-saving health care services to rural America. Commenters also 
noted they appreciated CMS recognizing the conflict between the 96-hour 
certification requirement and the 96-hour annual average CoP 
requirement, as well as the administrative complexity associated with 
the certification requirement. Some commenters urged CMS to finalize 
the proposed notice so that CAHs can be assured that the 96-

[[Page 38297]]

hour certification requirement will not be the subject of future 
audits. Other commenters stated that providing notice that the CAH 96-
hour certification requirement is a low priority for medical record 
reviews is a positive first step. One commenter stated that the notice 
demonstrates that CMS is aware of the problems inherent in the 96-hour 
certification requirement, and asked CMS to provide a solution for 
these problems in future rulemaking that goes beyond instructing 
contractors to forego reviews of medical records associated with the 
96-hour certification requirement apart from instances where there are 
specific concerns related to program integrity.
    Other commenters stated they appreciated CMS' notice but were 
concerned that the notice, as included in the proposed rule, is too 
ambiguous because it does not remove the 96-hour certification 
requirement from the statute, and, therefore, CAHs are still at risk 
for penalties. The commenters believed there would be varying levels of 
enforcement of the 96-hour certification because of both broad 
definitions and concerns of fraud, waste and abuse. They encouraged CMS 
to finalize permanent removal of the 96-hour certification requirement 
to give CAHs certainty that CMS will not engage in future audits 
related to the 96-hour certification requirement.
    One commenter appreciated the recognition that the 96-hour 
certification requirement is burdensome and unnecessary. However, the 
commenter indicated that the notice regarding the 96-hour certification 
requirement included in the proposed rule is not a permanent 
moratorium. The commenter stated that CAHs must still comply with the 
requirement and, therefore, can still be audited for noncompliance. The 
commenter expressed concern regarding the impact on large health 
systems where failures of one hospital in the system can result in 
consequences for the entire system. The commenter stated that the 
notice included in the proposed rule ``muddies the waters'' and urged 
CMS to eliminate the 96-hour certification requirement.
    Commenters stated that, while the notice provides some relief, it 
does not remove the 96-hour certification requirement from statute, 
and, therefore, there are concerns that CAHs may still be at risk for 
penalties, including liability under the False Claims Act, as well as 
outside auditors using the 96-hour certification requirement to target 
and penalize CAHs.
    Response: We appreciate commenters' support of the notice included 
in the proposed rule regarding the 96-hour certification requirement. 
In this final rule, we are reiterating that CMS will direct QIOs, MACs, 
the SMRC, and RACs to make the CAH 96-hour certification requirement a 
low priority for medical record reviews conducted on or after October 
1, 2017. CAHs should not expect to receive any medical record requests 
from QIOs, MACs, RACs, or the SMRC related to the 96-hour certification 
requirement unless CMS or its contractors find evidence of gaming or a 
failure to comply with CMS' provider screening and revalidation 
requirements, or if medical review is needed for other issues. As 
commenters have noted, the 96-hour certification requirement is 
statutory; therefore, removal of this requirement requires legislative 
action.
    Comment: Commenters expressed their concerns with respect to the 
96-hour certification requirement in general. Commenters stated that 
while CAHs may meet the 96-hour annual average length of stay CoP 
requirement, they also provide medical services that require inpatient 
stays of more than 96 hours. In these situations, CAHs cannot adhere to 
the 96-hour certification requirement because a physician cannot, in 
good faith, certify that the beneficiary's stay will be 96 hours or 
less. In this scenario, if the 96-hour certification requirement were 
to be enforced, a CAH would not receive payment for the specific 
inpatient service and, as a result, patients would no longer have 
access to critical services that require an inpatient length of stay of 
more than 96 hours. Commenters further noted that because Medicare 
payments comprise approximately 47 percent of CAHs' revenues, any 
change in these payments is difficult to absorb and affects CAHs' 
ability to provide care to those living in rural areas.
    One commenter stated that from the inception of the CAH program 
through late 2013, the 96-hour annual average CoP requirement provided 
CAHs with greater flexibility within the CAH designation process. The 
commenter stated that strict enforcement of the 96-hour certification 
requirement leads to unnecessary red tape and barriers for CAHs as well 
as eliminates the flexibility to allow general surgical services to be 
provided by high quality local providers. The commenter stated that the 
96-hour certification requirement is not consistent with congressional 
intent to provide CAHs with greater flexibility. The commenter 
referenced the change made as part of the Balanced Budget Refinement 
Act of 1999 (Pub. L. 106-113), which amended the CAH CoP length of stay 
requirement such that it became based on an annual average number of 
hours. The commenter stated that the 96-hour certification requirement 
limits access to rural health care because it does not permit providers 
to focus on patient care. The commenter further stated that the 96-hour 
certification requirement interferes with practitioner judgment because 
high quality and qualified local providers are placed in a situation 
where they cannot care for their patients, and therefore patients have 
to travel further from home to receive care. The commenter believed 
these transfers result in additional Medicare expenditures because it 
is 2.5 percent less expensive to provide the same Medicare services in 
a rural setting versus an urban or suburban setting. The commenter 
referred to a study published in the Journal of the American Medical 
Association (JAMA), which stated that Medicare expenditures for minor 
general surgical procedures, when adjusted for patient factors and 
procedure type, are lower in CAHs, and that such procedures are 
associated with lower rates of serious complications when performed in 
CAHs. The commenter noted that these are the types of procedures 
generally called into question under the 96-hour certification 
requirement. Another comment raised concerns regarding ``judgmental 
pressure'' placed on admitting physicians and inconveniences placed on 
patients and their families with respect to meeting the 96-hour 
certification requirement.
    One commenter stated that the 96-hour certification requirement has 
imposed significant burdens on the surgical community, whose members 
extend essential surgical care to Medicare's rural beneficiaries. The 
commenter also expressed concerns regarding compliance with the 96-hour 
certification requirement and its intersection with the Emergency 
Medical Treatment and Labor Act (EMTALA) and the CoPs. Another 
commenter communicated concern that the 96-hour certification 
requirement is a quality and safety CoP requirement and is, therefore, 
for enforcement purposes, required to be included in accrediting body 
manuals. The commenter requested that CMS remove the 96-hour 
certification requirement from the quality and safety CoPs and instead 
rely on MACs such that accrediting organizations are not required to 
enforce the requirement but rather it is a part of CMS' fiscal 
oversight.
    Response: We appreciate commenters sharing their concerns regarding 
the 96-hour certification requirement. As noted throughout this section 
of the preamble,

[[Page 38298]]

the 96-hour certification requirement is statutory and cannot be 
amended through notice-and-comment rulemaking without a change in 
legislation. We also clarify that the 96-hour certification requirement 
(section 1814(a)(8) of the Act) is separate and distinct from the 96-
hour annual average length of inpatient stay CoP (meaning condition of 
participation) requirement (section 1820(c)(2)(B)(iii) of the Act). The 
96-hour certification requirement is not directly relevant to 
determining whether a facility remains eligible for designation as a 
CAH, but rather is applicable to determining whether a CAH may receive 
Medicare payment under Part A for inpatient CAH services. Therefore, 
primary enforcement of the 96-hour certification requirement should not 
be conducted by accrediting bodies.
    In summary, as stated earlier, we are reiterating that CMS will 
direct QIOs, MACs, the SMRC, and RACs to make the CAH 96-hour 
certification requirement a low priority for medical record reviews 
conducted on or after October 1, 2017. CAHs should not expect to 
receive any medical record requests from QIOs, MACs, RACs, or the SMRC 
related to the 96-hour certification requirement unless CMS or its 
contractors find evidence of gaming or a failure to comply with CMS' 
provider screening and revalidation requirements or if medical review 
is needed for other issues.

VIII. Changes to the Long-Term Care Hospital Prospective Payment System 
(LTCH PPS) for FY 2018

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 originally defined 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 provided an alternative 
definition of LTCHs: Specifically, a hospital that first received 
payment under section 1886(d) of the Act in 1986 and had an average 
inpatient length of stay (as determined by the Secretary of Health and 
Human Services (the Secretary)) of greater than 20 days and had 80 
percent or more of its annual Medicare inpatient discharges with a 
principal diagnosis that reflected a finding of neoplastic disease in 
the 12-month cost reporting period ending in FY 1997. However, as 
discussed below, section 15008 of the 21st Century Cures Act (Pub. L. 
114-255) amended section 1886 of the Act to exclude former ``subclause 
II'' LTCHs from payment under the LTCH PPS and created a new category 
of IPPS-excluded hospitals (named in the proposed rule ``long-term care 
neoplastic disease hospitals'' but renamed in this final rule 
``extended neoplastic disease care hospitals'') for hospitals that were 
formally classified as ``subclause (II)'' LTCHs.
    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 final rule, when we refer to discharges, we describe Medicare 
discharges.) The August 30, 2002 final rule further details the payment 
policy under the TEFRA system (67 FR 55954).
    In the August 30, 2002 final rule, we provided for a 5-year 
transition period from payments under the TEFRA system to payments 
under the LTCH PPS. During this 5-year transition period, 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

[[Page 38299]]

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) amended section 1886(m)(6) of the Act by revising subparagraph 
(A)(i) and adding new subparagraph (E), which established a temporary 
exception to the site neutral payment rate for certain severe wound 
care discharges occurring prior to January 1, 2017 from LTCHs 
identified by the amendment made by section 4417(a) of the Balanced 
Budget Act of 1997 that are located in a rural area (as defined in 
section 1886(d)(2)(D) of the Act) or treated as being so located in 
accordance with section 1886(d)(8)(E) of the Act.
    We implemented the provisions of section 231 of Public Law 114-113, 
and amended our regulations at 42 CFR 412.522 to reflect those 
policies, in an interim final rule with comment period (IFC) that 
appeared in the Federal Register on April 21, 2016 (81 FR 23428 through 
23438). In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57068), we 
finalized the provisions of the April 21, 2016 IFC and made limited 
modifications of those policies set forth in the April 21, 2016 IFC by 
revising the definitions of a ``wound with morbid obesity'' and an 
``infected wound,'' and adding additional ICD-10 diagnosis codes to our 
list of such codes to identify cases that meet the established 
definition of a ``severe wound'' for the six severe wound categories 
other than the categories of a ``wound with morbid obesity'' and an 
``infected wound.'' The provisions implementing section 231 of Public 
Law 114-113 were effective for LTCH discharges from qualifying LTCHs 
for discharges on or after April 21, 2016, through December 31, 2016. 
For a full discussion of these provisions, we refer readers to the 
April 21, 2016 IFC (81 FR 23428) and the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 57068 through 57075).
    The 21st Century Cures Act (``the Cures Act'') (Pub. L. 114-255) 
contains several provisions that affect the LTCH PPS. Section 15004 of 
Public Law 114-255 contains provisions that change the moratorium on 
increasing the number of beds in existing LTCHs and LTCH satellite 
facilities. We discuss our implementation of the provisions of section 
15004 in section VIII.H. of the preamble of this final rule. The 
provisions of section 15004 also included a change to the payment 
methodology for high-cost outlier payments made to LTCHs. We discuss 
our proposals and final policies related to high-cost outlier payments 
in section V.D. of the Addendum of this final rule. The provisions of 
section 15006 of Public Law 114-255 extended various moratoria on the 
implementation of the 25-percent threshold policy. We discuss our 
proposals and final policy related to the provisions of section 15006 
in section VIII.G. of the preamble of this final rule. The provisions 
of section 15007 of Public Law 114-255 revised the requirements of the 
average length-of-stay criterion for LTCH classification. We discuss 
our proposals and final policy related to the provisions of section 
15007 in section VIII.I. of the preamble of this final rule. The 
provisions of section 15008 of Public Law 114-255 changed the 
classification of certain hospitals. We discuss our proposals and final 
policy related to the provisions of section 15008 in section VIII.J. of 
the preamble of this final rule. The provisions of section 15009 of 
Public Law 114-255 contain a temporary exception to the site neutral 
payment rate for certain spinal cord specialty hospitals. We discuss 
our proposals and final policy related to the provisions of section 
15009 in section VIII.E. of the preamble of this final rule. The 
provisions of section 15010 of Public Law 114-255 contain a temporary 
exception to the site neural payment rate for certain severe wound care 
discharges from certain LTCHs. We discuss our proposals and final 
policy related to the provisions of section 15010 in section VIII.F. of 
the preamble of this final rule. In addition, as we proposed in the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 20009), in this final rule we 
are amending 42 CFR 412.500 to include Public Law 114-255 as one of the 
bases and scope of subpart O of part 412.
    We received several public comments that addressed issues that were 
outside the scope of the FY 2018 proposed rule. We will keep these 
comments in mind and may consider them for future 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) 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, existing Sec.  412.23(e)(2)(ii) 
states that, for cost reporting periods beginning on or after August 5, 
1997, a hospital that was first excluded from the PPS in 1986 and can 
demonstrate that at least 80 percent of its annual Medicare inpatient 
discharges in the 12-month cost reporting period ending in FY 1997 have 
a principal diagnosis that reflects a finding of neoplastic disease 
must have an average inpatient length of stay for all patients, 
including both Medicare and non-Medicare inpatients, of greater than 20 
days (referred to as ``subclause (II)'' LTCHs). In the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 20029), under our proposed changes to 
Sec.  412.23(e)(2)(ii) of the regulations to implement the provisions 
of section 15008 of Public Law 114-255, we proposed to add a sunset 
date to subclause (II) LTCHs (which have become a new category of IPPS-
excluded hospitals named in the proposed rule ``long-term care 
neoplastic disease hospitals'' but renamed ``extended neoplastic 
disease care hospitals'' in this final rule). Extended neoplastic 
disease care hospitals are discussed in greater detail in section 
VIII.J. of the preamble of this final rule. In addition, in section 
VIII.I. of the preamble of the proposed rule and this final rule, we 
discuss the proposed and finalized changes to the calculation of the 
greater than 25-day average length-of-stay requirement provided by the 
provisions of section 15007 of Public Law 114-255.
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

[[Page 38300]]

Social Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-
1), 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), or 
section 3201 of the Patient Protection and Affordable Care Act (Pub. L. 
111-148 (42 U.S.C. 1315a)).
     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 expressly 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 the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 57102), we also amended the existing regulations 
relating to the limitation on charges to expressly address beneficiary 
charges for LTCH services provided by subclause (II) LTCHs as part of 
our refinement of the payment adjustment for subclause (II) LTCHs under 
Sec.  412.526. We also amended 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 site neutral payment rate payments.
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 generally 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 (health IT) 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 health IT products, including 
electronic health record (EHR) technology certified under the ONC 
Health IT Certification Program (https://www.healthit.gov/policy-researchers-implementers/about-onc-health-it-certification-program) 
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 final 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 
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.
    In support of the goals of the Roadmap, ONC released the 2017 
Interoperability Standards Advisory (ISA) (available at: https://www.healthit.gov/standards-advisory), a coordinated catalog of 
standards and implementation specifications developed and used to meet 
specific interoperability needs. The ISA is intended to serve as an 
industry resource to further the use of

[[Page 38301]]

interoperable electronic health information exchange.

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-
DRG) Classifications and Relative Weights for FY 2018

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 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 757 MS-DRG 
groupings. For FY 2018, there will be 754 MS-DRG groupings based on the 
changes discussed in section II.F. of the preamble of this FY 2018 
IPPS/LTCH PPS final 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 final rule, we provide a general summary of 
our existing methodology for determining the FY 2018 MS-LTC-DRG 
relative weights under the LTCH PPS.
    As we proposed, in this final rule, in general, for FY 2018, we are 
continuing to use our existing methodology to determine the proposed 
MS-LTC-DRG relative weights (as discussed in greater detail in section 
VIII.B.3. of the preamble of this final rule). As we established when 
we implemented the dual rate LTCH PPS payment structure codified under 
Sec.  412.522, which began in 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 had been in 
effect at the time of discharge when claims data from time periods 
before the dual rate LTCH PPS payment structure applies are 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, our MS-LTC-DRG relative weight calculations do not use 
data from cases paid at the site neutral payment rate under Sec.  
412.522(c)(1) or data from cases that would have been paid at the site 
neutral payment rate if the dual rate LTCH PPS payment structure had 
been in effect at the time of that discharge. 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 VIII.B.3.c. of the preamble of this final rule). In addition, 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20011), for FY 2018, 
we proposed 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 VIII.B.3.c. of 
the preamble of the proposed rule.
    Furthermore, for FY 2018, in using data from applicable LTCH cases 
to establish MS-LTC-DRG relative weights, we proposed 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 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 relative weights for the large number of low-volume MS-
LTC-DRGs, we group all of the low-volume MS-LTC-DRGs into five 
quintiles based on average charges per discharge. Then, under our 
existing methodology, we 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 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 VIII.B.3.g. of 
the preamble of this final rule.)
    We did not receive any public comments on these proposals. 
Therefore, we are finalizing our proposals for calculating the MS-LTC-

[[Page 38302]]

DRG relative weights for FY 2018 without modification.
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 0JBH3ZX)) 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 that varies based on the 
MS-LTC-DRG to which a beneficiary's discharge 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 using version ASC X12 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 the HIPAA transactions and code sets regulations at 45 CFR 
parts 160 and 162, covered entities must comply with the adopted 
transaction standards and operating rules specified in Subparts I 
through S of Part 162. Among other requirements, by January 1, 2012, 
covered entities were required to use the ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care Claim: 
Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata 
to Health Care Claim: Institutional (837) ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3, October 2007, ASC 
X12N/005010X233A1 for the health care claims or equivalent encounter 
information transaction (45 CFR 162.1102(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 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, 
both of which were required to be implemented 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 FY 2017 IPPS/LTCH PPS final rule (81 FR 56787 through 
56790) and section II.F.1. of the preamble of this final 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 explanation (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 MAC 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 MAC and to submit additional information within a specified 
timeframe as provided in Sec.  412.513(c).
    The GROUPER software is used both to classify past cases to measure 
relative hospital resource consumption to establish the MS-LTC-DRG 
relative weights and to classify current cases for purposes of 
determining payment. The records for all Medicare hospital inpatient 
discharges are maintained in the MedPAR file. The data in this file are 
used to evaluate possible MS-DRG and MS-LTC-DRG classification changes 
and to recalibrate the MS-DRG and MS-LTC-DRG relative weights during 
our annual update under both the IPPS (Sec.  412.60(e)) and the LTCH 
PPS (Sec.  412.517), respectively.
b. Changes to the MS-LTC-DRGs for FY 2018
    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, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20012), we 
proposed to update the MS-LTC-DRG classifications effective October 1, 
2017, through September 30, 2018 (FY 2018), consistent with the 
proposed changes to specific MS-DRG classifications presented in 
section II.F. of the preamble of the proposed rule. Accordingly, the 
MS-LTC-DRGs for FY 2018 presented in the proposed rule and this final 
rule are the same as the MS-DRGs that will be used under the IPPS for 
FY 2018. In addition, because the

[[Page 38303]]

MS-LTC-DRGs for FY 2018 are the same as the MS-DRGs for FY 2018, the 
other changes that affect MS-DRG (and by extension MS-LTC-DRG) 
assignments under GROUPER Version 35 as discussed in section II.F. of 
the preamble of this final rule, including the changes to the MCE 
software and the ICD-10-CM/PCS coding system, also will be applicable 
under the LTCH PPS for FY 2018.
3. Development of the FY 2018 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 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 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 2016 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 the dual rate LTCH PPS payment structure had been in effect at 
the time of the discharge). (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 (or cases that would have 
qualified for such payment had the LTCH PPS dual payment rate structure 
been in effect at the time) 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 MS-LTC-DRG Relative Weights for FY 2018
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57078 through 
57079), we presented our policies for the development of the MS-LTC-DRG 
relative weights for FY 2017.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20013), we 
proposed to continue to use our current methodology to determine the 
MS-LTC-DRG relative weights for FY 2018, including the continued 
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 application of our existing 
methodology for determining the MS-LTC-DRG relative weights for FY 
2018, and we discuss the effects of our policies concerning the data 
used to determine the FY 2018 MS-LTC-DRG relative weights on the 
various components of our existing methodology in the discussion that 
follows.
c. Data
    For this final rule, consistent with our policies regarding the 
calculation of the MS-LTC-DRG relative weights for FY 2018, we obtained 
total charges from FY 2016 Medicare LTCH claims data from the March 
2017 update of the FY 2016 MedPAR file, which are the best available 
data at this time, and we are using Version 35 of the GROUPER to 
classify LTCH cases. Consistent with our historical practice, we used 
those data and the finalized Version 35 of the GROUPER in establishing 
the FY 2018 MS-LTC-DRG relative weights in this final rule. To 
calculate the FY 2018 MS-LTC-DRG relative weights under the dual rate 
LTCH PPS payment structure, we are continuing 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 began by first evaluating 
the LTCH claims data in the March 2017 update of the FY 2016 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 note that while the dual rate LTCH PPS payment structure 
began to be phased in during FY 2016, due to the statutory requirement 
that individual LTCHs begin to receive payment under the dual rate LTCH 
PPS payment structure based on their individual cost reporting periods, 
there are LTCH discharges that occurred in FY 2016 that would not have 
been paid under that structure.) We identified the FY 2016 LTCH cases 
that were not assigned to 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

[[Page 38304]]

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 2016 MedPAR file that reported ICD-10-PCS procedure code 5A1955Z 
were used to identify cases involving at least 96 hours of ventilator 
services in accordance with the ventilator criterion. We note that, for 
purposes of developing the FY 2018 MS-LTC-DRG relative weights using 
our current methodology, we did not make any proposals regarding the 
identification of cases that would have been excluded from the site 
neutral payment rate under the statutory provisions that provided for 
temporary exception from the site neutral payment rate under the LTCH 
PPS for certain severe wound care discharges from certain LTCHs or for 
certain spinal cord specialty hospitals provided by sections 15009 and 
15010 of Public Law 114-255, respectively, had our implementation of 
that law and 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 final rule 
would have met the criteria to be excluded from the site neutral 
payment rate under those exceptions (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 have met the criteria had the applicable 
statutes been in effect at the time of the discharge), such data do not 
include any discharges that would have been paid based on the LTCH PPS 
standard Federal payment rate under the provisions of sections 15009 
and 15010 of Public Law 114-255, had the exception been in effect at 
the time of the discharge.
    Furthermore, consistent with our historical methodology, as we 
proposed, we are excluding any claims in the resulting data set that 
were submitted by LTCHs that are all-inclusive rate providers and LTCHs 
that are paid 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 and 
our policies, we are excluding any Medicare Advantage (Part C) claims 
in the resulting data. Such claims were identified 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 MS-LTC-DRG 
relative weights for FY 2018. In summary, in general, we identified the 
claims data used in the development of the FY 2018 MS-LTC-DRG relative 
weights in this final rule, as we proposed, by trimming claims data 
that would have been paid the site neutral rate had the dual payment 
rate structure been in effect (except for discharges which would have 
been excluded from the site neutral payment under the temporary 
exception for certain severe wound care discharges from certain LTCHs 
and under the temporary exception for certain spinal cord specialty 
hospitals), as well as the claims data of 9 all-inclusive rate 
providers reported in the March 2017 update of the FY 2016 MedPAR file 
and any Medicare Advantage claims data. (We note that there were no 
data from any LTCHs that are paid in accordance with a demonstration 
project reported in the March 2017 update of the FY 2016 MedPAR file. 
However, had there been we would trim the claims data from those LTCHs 
as well, in accordance with our established policy.) We used the 
remaining data (that is, the applicable LTCH data) to calculate the 
relative weights for FY 2018.
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, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20014), we proposed to continue to use a hospital-
specific relative value (HSRV) methodology to calculate the MS-LTC-DRG 
relative weights for FY 2018. 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 proposed to reduce 
the impact of the variation in charges across providers on any 
particular MS-LTC-DRG relative weight by converting each LTCH's charge 
for 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 an 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 2018, as we 
proposed, we are continuing 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 VIII.B.3.g. (Step 
3) of the preamble of this final 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 is 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 an 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 an LTCH with high average charges as 
less resource intensive than they would be at an LTCH with low average 
charges. For example, a $10,000 charge for a case at

[[Page 38305]]

an 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 an 
LTCH with the same case-mix, but an average adjusted charge of $35,000. 
We believe that the adjusted charge of an individual case more 
accurately reflects actual resource use for an individual LTCH because 
the variation in charges due to systematic differences in the markup of 
charges among LTCHs is taken into account.
e. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative 
Weights
    For purposes of determining the MS-LTC-DRG relative weights, under 
our historical methodology, there are three different categories of MS-
DRGs based on volume of cases within specific MS-LTC-DRGs: (1) MS-LTC-
DRGs with at least 25 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 final 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 2018, 
we proposed to continue to use applicable LTCH cases to establish the 
same volume-based categories to calculate the FY 2018 MS-LTC-DRG 
relative weights.
    In determining the FY 2018 MS-LTC-DRG relative weights, when 
necessary, as is our longstanding practice, as we proposed, we make 
adjustments to account for nonmonotonicity, as discussed in greater 
detail later in Step 6 of section VIII.B.3.g. of the preamble of this 
final 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. 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 proposed to continue to employ the quintile methodology 
for low-volume MS-LTC-DRGs, such that we group the ``low-volume MS-LTC-
DRGs'' (that is, MS-LTC-DRGs that contain 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 81 
FR 25148)). In cases where the initial assignment of a low-volume MS-
LTC-DRG to a quintile results in nonmonotonicity within a base-DRG, as 
we proposed, we make adjustments to the resulting low-volume MS-LTC-
DRGs to preserve monotonicity, as discussed in detail in section 
VIII.B.3.g. (Step 6) of the preamble of this final rule.
    In this final rule, based on the best available data (that is, the 
March 2017 update of the FY 2016 MedPAR files), we identified 262 MS-
LTC-DRGs that contained between 1 and 24 applicable LTCH cases. This 
list of MS-LTC-DRGs was then divided into one of the 5 low-volume 
quintiles, each containing at least 52 MS-LTC-DRGs (262/5 = 52 with a 
remainder of 2). We assigned the low-volume MS-LTC-DRGs to specific 
low-volume quintiles by sorting the low-volume MS-LTC-DRGs in ascending 
order by average charge in accordance with our established methodology. 
Based on the data available for the proposed rule, the number of MS-
LTC-DRGs with less than 25 applicable LTCH cases was not evenly 
divisible by 5 and, therefore, we employed our historical methodology 
for determining which of the proposed low-volume quintiles contain the 
additional proposed low-volume MS-LTC-DRG. However, based on the data 
available for this final rule, the number of MS-LTC-DRGs with less than 
25 applicable LTCH cases was not evenly divisible by 5 and, therefore, 
we employed our historical methodology for determining which of the 
low-volume quintiles contain the additional proposed low-volume MS-LTC-
DRG. Specifically for this final rule, after organizing the MS-LTC-DRGs 
by ascending order by average charge, we assigned the first 52 (1st 
through 52nd) of low-volume MS-LTC-DRGs (with the lowest average 
charge) into Quintile 1. The 52 MS-LTC-DRGs with the highest average 
charge cases were assigned into Quintile 5. Because the average charge 
of the 105th low-volume MS-LTC-DRG in the sorted list was closer to the 
average charge of the 104th low-volume MS-LTC-DRG (assigned to Quintile 
2) than to the average charge of the 106th low-volume MS-LTC-DRG 
(assigned to Quintile 3), we assigned it to Quintile 2 (such that 
Quintile 2 contains 53 low-volume MS-LTC-DRGs before any adjustments 
for nonmonotonicity, as discussed below). Because the average charge of 
the 158th low-volume MS-LTC-DRG in the sorted list was closer to the 
157th low-volume MS-LTC-DRG (assigned to Quintile 3) than to the 
average charge of the 159th low-volume MS-LTC-DRG (assigned to Quintile 
4), we assigned it to Quintile 3 (such that Quintile 3 contains 53 low-
volume MS-LTC-DRGs before any adjustments for nonmonotonicity, as 
discussed below. This results in 3 of the 5 low-volume quintiles 
containing 52 MS-LTC-DRGs (Quintiles 1, 4, and 5) and 2 low-volume 
quintile containing 53 MS-LTC-DRGs (Quintiles 2 and 3). Table 13A, 
listed in section VI. of the Addendum to this final rule and available 
via the Internet, lists the composition of the low-volume quintiles for 
MS-LTC-DRGs for FY 2018.
    In order to determine the FY 2018 relative weights for the low-
volume MS-LTC-DRGs, consistent with our historical practice, we used 
the five low-volume quintiles described previously. We determined a 
relative weight and (geometric) average length of stay for each of the 
five low-volume quintiles using the methodology described in section 
VIII.B.3.g. of the preamble of this final rule. We assigned the same 
relative weight and average length of stay to each of the low-volume 
MS-LTC-DRGs that 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 
will 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 FY 2018 MS-LTC-DRG Relative Weights
    In this final rule, as we proposed, we are continuing to use our 
current methodology to determine the FY 2018 MS-LTC-DRG relative 
weights.
    In summary, to determine the FY 2018 MS-LTC-DRG relative weights, 
we grouped applicable LTCH cases to the appropriate MS-LTC-DRG, while 
taking into account the low-volume quintiles (as described above) and 
cross-walked no-volume MS-LTC-DRGs (as described later in this 
section). After establishing the appropriate MS-LTC-DRG (or low-volume 
quintile), as we proposed, we calculated the FY 2018 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 adjusted the 
number of applicable LTCH

[[Page 38306]]

cases in each MS-LTC-DRG (or 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 calculated 
``relative adjusted weights'' for each MS-LTC-DRG (or proposed 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 FY 2018 MS-LTC-DRG 
relative weights is 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 an LTCH because these stays do not fully receive or benefit 
from treatment that is typical in an LTCH stay, and full resources are 
often not used in the earlier stages of admission to an LTCH. If we 
were to include stays of 7 days or less in the computation of the FY 
2018 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 an LTCH by including data from these very short 
stays. Therefore, consistent with our existing relative weight 
methodology and as proposed, in determining the FY 2018 MS-LTC-DRG 
relative weights, we removed 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 FY 2018 MS-LTC-DRG relative 
weights is 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, as we proposed, we continued 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 final rule, we refer to 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 FY 2018 MS-LTC-DRG 
relative weights, consistent with our historical approach and as we 
proposed, we adjusted 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 made this adjustment by counting an 
SSO case as a fraction of a discharge based on the ratio of the length 
of stay of the case to the average length of stay for the MS-LTC-DRG 
for non-SSO cases. This has the effect of proportionately reducing the 
impact of the lower charges for the SSO cases in calculating the 
average charge for the MS-LTC-DRG. This process produces the same 
result as if the actual charges per discharge of an SSO case were 
adjusted to what they would have been had the patient's length of stay 
been equal to the average length of stay of the MS-LTC-DRG.
    Counting SSO cases as full LTCH cases with no adjustment in 
determining the FY 2018 MS-LTC-DRG relative weights would lower the FY 
2018 MS-LTC-DRG relative weight for affected MS-LTC-DRGs because the 
relatively lower charges of the SSO cases would bring down the average 
charge for all cases within a MS-LTC-DRG. This would result in an 
``underpayment'' for non-SSO cases and an ``overpayment'' for SSO 
cases. Therefore, as we proposed, we are continuing to adjust for SSO 
cases under Sec.  412.529 in this manner because it would result 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 FY 2018 MS-LTC-DRG relative weights on an 
iterative basis.
    Consistent with our historical relative weight methodology and as 
we proposed, we calculated the FY 2018 MS-LTC-DRG relative weights 
using the HSRV methodology, which is an iterative process. First, for 
each SSO-adjusted trimmed applicable LTCH case, we 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 is then multiplied by the LTCH's 
case-mix index to produce an adjusted hospital-specific relative charge 
value for the case. We used an initial case-mix index value of 1.0 for 
each LTCH.
    For each MS-LTC-DRG, we calculated the FY 2018 relative weight by 
dividing the SSO-adjusted average of the hospital-specific relative 
charge values for applicable LTCH cases for the 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 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 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) was 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) are then 
multiplied by the hospital-specific case-mix indexes. The hospital-
specific case-mix adjusted relative charge values are then used to 
calculate a new set of MS-LTC-DRG relative weights across all LTCHs. 
This iterative process continued until there was convergence between 
the relative weights produced at adjacent steps, for example, when the 
maximum difference was less than 0.0001.
    Step 5--Determine a FY 2018 relative weight for MS-LTC-DRGs with no 
applicable LTCH cases.
    Using the trimmed applicable LTCH cases, consistent with our 
historical methodology and as we proposed, we identified the MS-LTC-
DRGs for which there were no claims in the March 2017

[[Page 38307]]

update of the FY 2016 MedPAR file and, therefore, for which no charge 
data was available for these MS-LTC-DRGs. Because patients with a 
number of the diagnoses under these MS-LTC-DRGs may be treated at 
LTCHs, consistent with our historical methodology, we generally assign 
a relative weight to each of the no-volume MS-LTC-DRGs based on 
clinical similarity and relative costliness (with the exception of 
``transplant'' MS-LTC-DRGs, ``error'' MS-LTC-DRGs, and 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 this final 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 cross-walked each no-volume MS-LTC-DRG to another MS-LTC-DRG for 
which we calculated a relative weight (determined in accordance with 
the methodology described above). Then, the ``no-volume'' MS-LTC-DRG 
was assigned the same relative weight (and average length of stay) of 
the MS-LTC-DRG to which it was cross-walked (as described in greater 
detail in this section of this final rule).
    Of the 754 MS-LTC-DRGs for FY 2018, we identified 348 MS-LTC-DRGs 
for which there are no trimmed applicable LTCH cases (the number 
identified includes the 8 ``transplant'' MS-LTC-DRGs, the 2 ``error'' 
MS-LTC-DRGs, and the 15 ``psychiatric or rehabilitation'' MS-LTC-DRGs, 
which are discussed below). We assigned relative weights to each of the 
348 no-volume MS-LTC-DRGs that contained trimmed applicable LTCH cases 
based on clinical similarity and relative costliness to 1 of the 
remaining 406 (754 - 348 = 406) MS-LTC-DRGs for which we calculated 
relative weights based on the trimmed applicable LTCH cases in the FY 
2016 MedPAR file data using the steps described previously. (For the 
remainder of this discussion, we refer to the ``cross-walked'' MS-LTC-
DRGs as the MS-LTC-DRGs to which we cross-walked 1 of the 348 ``no 
volume'' MS-LTC-DRGs.) Then, we generally assigned the 348 no-volume 
MS-LTC-DRGs the relative weight of the cross-walked MS-LTC-DRG. (As 
explained below in Step 6, when necessary, we made adjustments to 
account for nonmonotonicity.)
    We cross-walked the no-volume MS-LTC-DRG to a MS-LTC-DRG for which 
we calculated relative weights based on the March 2017 update of the FY 
2016 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 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 MS-LTC-DRGs in FY 2017, the relative weights assigned 
based on the cross-walked MS-LTC-DRGs would result in an appropriate 
LTCH PPS payment because the crosswalks, which are based on clinical 
similarity and relative costliness, would be expected to generally 
require equivalent relative resource use.
    We then assigned the relative weight of the cross-walked MS-LTC-DRG 
as the relative weight for the no-volume MS-LTC-DRG such that both of 
these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-
walked MS-LTC-DRG) have the same relative weight (and average length of 
stay) for FY 2018. We note that, if the cross-walked MS-LTC-DRG had 25 
applicable LTCH cases or more, its relative weight (calculated using 
the methodology described in Steps 1 through 4 above) is assigned to 
the no-volume MS-LTC-DRG as well. Similarly, if the MS-LTC-DRG to which 
the no-volume MS-LTC-DRG was cross-walked had 24 or less cases and, 
therefore, is designated to 1 of the low-volume quintiles for purposes 
of determining the relative weights, we assigned the relative weight of 
the applicable low-volume quintile to the no-volume MS-LTC-DRG such 
that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and 
the cross-walked MS-LTC-DRG) have the same relative weight for FY 2018. 
(As we noted previously, in the infrequent case where nonmonotonicity 
involving a no-volume MS-LTC-DRG resulted, additional adjustments as 
described in Step 6 are required in order to maintain monotonically 
increasing relative weights.)
    For this final rule, a list of the no-volume MS-LTC-DRGs and the 
MS-LTC-DRGs to which each was cross-walked (that is, the cross-walked 
MS-LTC-DRGs) for FY 2018 is shown in Table 13B, which is listed in 
section VI. of the Addendum to this final rule and is available via the 
Internet on the CMS Web site.
    To illustrate this methodology for determining the relative weights 
for the proposed FY 2018 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 2018 provided in 
Table 13B.
    Example: There were no trimmed applicable LTCH cases in the FY 2016 
MedPAR file that we are using for this final rule for MS-LTC-DRG 061 
(Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC). We 
determined that MS-LTC-DRG 070 (Nonspecific Cerebrovascular Disorders 
with MCC) is similar clinically and based on resource use to MS-LTC-DRG 
061. Therefore, we assigned the same relative weight (and average 
length of stay) of MS-LTC-DRG 70 of 0.8833 for FY 2018 to MS-LTC-DRG 
061 (we refer readers 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 will 
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 relative weights in 
this rule.
    For FY 2018, consistent with our historical relative weight 
methodology and as we proposed, we are establishing a relative weight 
of 0.0000 for the following transplant MS-LTC-DRGs: Heart Transplant or 
Implant of Heart Assist System with MCC (MS-LTC-DRG 001); Heart 
Transplant or Implant of Heart Assist System without MCC (MS-LTC-DRG 
002); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 
005); Liver Transplant without MCC (MS-LTC-DRG 006); Lung Transplant 
(MS-LTC-DRG 007); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 
008); Pancreas Transplant (MS-LTC-DRG 010); 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 MS-
LTC-DRGs in the GROUPER program for administrative purposes only. 
Because we use the same GROUPER program for LTCHs as is used under the 
IPPS, removing these MS-LTC-DRGs would be administratively burdensome. 
(For additional information regarding our treatment of transplant MS-
LTC-DRGs, we refer readers to the RY 2010 LTCH PPS final rule (74 FR 
43964).) In addition, consistent with our historical policy and as we 
proposed, we are

[[Page 38308]]

establishing a relative weight of 0.0000 for the 2 ``error'' 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 MS-LTC-DRGs cannot be properly assigned to an 
MS-LTC-DRG according to the grouping logic.
    In this final rule, consistent with our practice in FYs 2016 and 
2017 and as we proposed, we are establishing a relative weight for FY 
2018 equal to the respective FY 2015 relative weight of the MS-LTC-DRGs 
for the following ``psychiatric or rehabilitation'' 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'' MS-LTC-DRGs. In other words, any 
LTCH PPS discharges grouped to any of the 15 ``psychiatric and 
rehabilitation'' MS-LTC-DRGs would always be paid at the site neutral 
payment rate, and, therefore, those MS-LTC-DRGs would 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'' MS-LTC-DRGs in 
FY 2018, we assigned a relative weight to these MS-LTC-DRGs for FY 2018 
that is 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'' 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 March 2017 
update of the FY 2016 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'' 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 2018, we are establishing a relative weight (and 
average length of stay thresholds) equal to the respective FY 2015 
relative weight of the MS-LTC-DRGs for the 15 ``psychiatric or 
rehabilitation'' 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 final rule and is available via the Internet on the CMS Web site, 
reflects this policy.
    Step 6--Adjust the FY 2018 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 may 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 FY 2018 MS-LTC-DRG relative 
weights, consistent with our historical methodology, we are continuing 
to combine MS-LTC-DRG severity levels within a base MS-LTC-DRG for the 
purpose of computing a relative weight

[[Page 38309]]

when necessary to ensure that monotonicity is maintained. For a 
comprehensive description of our existing methodology to adjust for 
nonmonotonicity, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43964 through 43966). Any adjustments for 
nonmonotonicity that were made in determining the FY 2018 MS-LTC-DRG 
relative weights in this final rule by applying this methodology are 
denoted in Table 11, which is listed in section VI. of the Addendum to 
this final rule and is available via the Internet on the CMS Web site.
    Step 7--Calculate the FY 2018 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 and as we proposed, we are update the MS-LTC-DRG 
classifications and relative weights for FY 2018 based on the most 
recent available LTCH data for applicable LTCH cases, and continue to 
apply a budget neutrality adjustment in determining the FY 2018 MS-LTC-
DRG relative weights. In this FY 2018 IPPS/LTCH PPS final rule, as we 
proposed, to ensure budget neutrality in the update to the MS-LTC-DRG 
classifications and relative weights under Sec.  412.517(b), we are 
continuing to use our established two-step budget neutrality 
methodology.
    To calculate the normalization factor for FY 2018, we grouped 
applicable LTCH cases using the FY 2018 Version 35 GROUPER, and the 
recalibrated FY 2018 MS-LTC-DRG relative weights to calculate the 
average case-mix index (CMI); we grouped the same applicable LTCH cases 
using the FY 2017 GROUPER Version 34 and MS-LTC-DRG relative weights 
and calculated the average CMI; and computed the ratio by dividing the 
average CMI for FY 2017 by the average CMI for FY 2018. That ratio is 
the normalization factor. Because the calculation of the normalization 
factor involves the relative weights for the MS-LTC-DRGs that contained 
applicable LTCH cases to calculate the average CMIs, any low-volume MS-
LTC-DRGs are included in the calculation (and the MS-LTC-DRGs with no 
applicable LTCH cases are not included in the calculation).
    To calculate the budget neutrality adjustment factor, we simulated 
estimated total FY 2018 LTCH PPS standard Federal payment rate payments 
for applicable LTCH cases using the FY 2018 normalized relative weights 
and GROUPER Version 35; simulated estimated total FY 2017 LTCH PPS 
standard Federal payment rate payments for applicable LTCH cases using 
the FY 2017 MS-LTC-DRG relative weights and the FY 2017 GROUPER Version 
34; and calculated the ratio of these estimated total payments by 
dividing the simulated estimated total LTCH PPS standard Federal 
payment rate payments for FY 2017 by the simulated estimated total LTCH 
PPS standard Federal payment rate payments for FY 2018. The resulting 
ratio is budget neutrality adjustment factor. The calculation of the 
budget neutrality factor involves the relative weights for the LTCH 
cases used in the payment simulation, which includes any cases grouped 
to low-volume MS-LTC-DRGs or to MS-LTC-DRGs with no applicable LTCH 
cases, and generally does not include payments for cases grouped to a 
MS-LTC-DRG with no applicable LTCH cases. (Occasionally, a few LTCH 
cases (that is, those with a covered length of stay of 7 days or less, 
which are removed from the relative weight calculation in step 2) that 
are grouped to a MS-LTC-DRG with no applicable LTCH cases are included 
in the payment simulations used to calculate the budget neutrality 
factor. However, the number and payment amount of such cases have a 
negligible impact on the budget neutrality factor calculation).
    In this final rule, to ensure budget neutrality in the update to 
the MS-LTC-DRG classifications and relative weights under Sec.  
412.517(b), as we proposed, we are continuing to use our established 
two-step budget neutrality methodology. Therefore, in this final rule, 
in the first step of our MS-LTC-DRG budget neutrality methodology, for 
FY 2018, we 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 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 normalization factor for FY 2018 (the first step 
of our budget neutrality methodology), we used the following three 
steps: (1.a.) Used the most recent available applicable LTCH cases from 
the most recent available data (that is, LTCH discharges from the FY 
2016 MedPAR file) and grouped them using the FY 2018 GROUPER (that is, 
Version 35 for FY 2018) and the recalibrated FY 2018 MS-LTC-DRG 
relative weights (determined in Steps 1 through 6 above) to calculate 
the average case-mix index; (1.b.) grouped the same applicable LTCH 
cases (as are used in Step 1.a.) using the FY 2017 GROUPER (Version 34) 
and FY 2017 MS-LTC-DRG relative weights and calculated the average 
case-mix index; and (1.c.) computed the ratio of these average case-mix 
indexes by dividing the average CMI for FY 2017 (determined in Step 
1.b.) by the average case-mix index for FY 2018 (determined in Step 
1.a.). As a result, in determining the MS-LTC-DRG relative weights for 
FY 2018, each recalibrated MS-LTC-DRG relative weight is multiplied by 
the normalization factor of 1.28590 (determined in Step 1.c.) in the 
first step of the budget neutrality methodology, which produced 
``normalized relative weights.''
    In the second step of our MS-LTC-DRG budget neutrality methodology, 
we calculate a second budget neutrality factor consisting of the ratio 
of estimated aggregate FY 2018 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 2018 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).

[[Page 38310]]

    That is, for this final rule, for FY 2018, under the second step of 
the budget neutrality methodology, as we proposed, we determine the 
budget neutrality adjustment factor using the following three steps: 
(2.a.) Simulated estimated total FY 2018 LTCH PPS standard Federal 
payment rate payments for applicable LTCH cases using the normalized 
relative weights for FY 2018 and GROUPER Version 35 (as described 
above); (2.b.) simulated estimated total FY 2017 LTCH PPS standard 
Federal payment rate payments for applicable LTCH cases using the FY 
2017 GROUPER (Version 34) and the FY 2017 MS-LTC-DRG relative weights 
in Table 11 of the FY 2017 IPPS/LTCH PPS final rule available on the 
Internet, as described in section VI. of the Addendum of that final 
rule; and (2.c.) calculated 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 FY 2018 MS-LTC-DRG relative weights, 
each normalized relative weight is then multiplied by a budget 
neutrality factor of 0.9907845 (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 FY 2018 MS-LTC-DRG relative weights 
in this final rule, consistent with our existing methodology, we 
applied a normalization factor of 1.28590 and a budget neutrality 
factor of 0.9907845. 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, lists the MS-LTC-DRGs and their respective relative 
weights, geometric mean length of stay, and five-sixths of the 
geometric mean length of stay (used to identify SSO cases under Sec.  
412.529(a)) for FY 2018.

C. Changes to the LTCH PPS Payment Rates and Other Changes to the LTCH 
PPS for FY 2018

1. Overview of Development of the LTCH PPS Standard Federal Payment 
Rates
    The basic methodology for determining LTCH PPS standard Federal 
payment rates is currently set forth at 42 CFR 412.515 through 412.538. 
In this section, we discuss the factors that we used to update the LTCH 
PPS standard Federal payment rate for FY 2018, that is, effective for 
LTCH discharges occurring on or after October 1, 2017 through September 
30, 2018. Under the dual rate LTCH PPS payment structure required by 
statute, beginning with discharges in cost reporting periods beginning 
in 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).)
    Prior to the implementation of the dual payment rate system in FY 
2016, all LTCHs were paid similarly to those now exempt from the site 
neutral payment rate. That legacy payment rate was called the standard 
Federal rate. For details on the development of the initial standard 
Federal rate for FY 2003, we refer readers to the August 30, 2002 LTCH 
PPS final rule (67 FR 56027 through 56037). For subsequent updates to 
the standard Federal rate (FYs 2003 through 2015)/LTCH PPS standard 
Federal payment rate (FY 2016 through present) 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); FY 2016 IPPS/LTCH PPS final rule (80 FR 49634 
through 49637); and FY 2017 IPPS/LTCH PPS final rule (81 FR 57296 
through 57310).
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20021 through 
20022), we presented our proposals related to the proposed annual 
update to the LTCH PPS standard Federal payment rate for FY 2018, which 
include certain statutory requirements as discussed below.
    The application of the update to the LTCH PPS standard Federal 
payment rate for FY 2018 is presented in section V.A. of the Addendum 
to this final rule. The components of the annual update to the LTCH PPS 
standard Federal payment rate for FY 2018 are discussed below, 
including the reduction to the annual update for LTCHs that fail to 
submit quality reporting data for FY 2018 as required by the statute 
(as discussed in section VIII.C.2.c. of the preamble of this final 
rule). In addition, we are making an adjustment to the LTCH PPS 
standard Federal payment rate to account for the estimated effect of 
the changes to the area wage level adjustment for FY 2018 on estimated 
aggregate LTCH PPS payments, in accordance with Sec.  412.523(d)(4) (as 
discussed in section V.B. of the Addendum to this final rule), and a 
budget neutrality adjustment stemming from our change to the SSO 
payment methodology (as discussed in VIII.D. of the preamble of this 
final rule).
2. FY 2018 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 2013-based LTCH-specific market basket for use under the 
LTCH PPS beginning in FY 2017 (81 FR 57101 through 57102). 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), and for a complete discussion 
of the LTCH market basket and a description of the methodologies used 
to determine the operating and capital-related portions of the 2013-
based LTCH market basket, we refer readers to section VII.D. of the 
preamble of the FY 2017 IPPS/LTCH PPS proposed and final rules.
    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 VIII.C.2.b. of the preamble of this final rule.) We note that 
because the annual update to the LTCH PPS policies, rates, and factors 
now occurs on October 1, we adopted the term ``fiscal year'' (FY) 
rather than ``rate year'' (RY) under the LTCH PPS beginning October 1, 
2010, to conform with the standard definition of the Federal fiscal 
year (October 1 through September 30) used by other PPSs, such as the 
IPPS (75 FR 50396 through

[[Page 38311]]

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 ``fiscal year'' rather than ``rate 
year'' for 2011 and subsequent years.
b. Annual Update to the LTCH PPS Standard Federal Payment Rate for FY 
2018
    Section 1886(m)(3)(A) of the Act provides that, beginning in FY 
2010, any annual update to the LTCH PPS standard Federal payment rate 
is reduced by the adjustments specified in clauses (i) and (ii) of 
subparagraph (A). Clause (i) of section 1886(m)(3)(A) of the Act 
provides for a reduction, for FY 2012 and each subsequent rate year, by 
the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) 
of the Act (that is, ``the multifactor productivity (MFP) 
adjustment''). Clause (ii) of section 1886(m)(3)(A) of the Act provides 
for a reduction, for each of FYs 2010 through 2019, by the ``other 
adjustment'' described in section 1886(m)(4)(F) of the Act.
    Section 411(e) of the Medicare Access and CHIP Reauthorization Act 
(MACRA) (Pub. L. 114-10), enacted on April 16, 2015, amended section 
1886(m)(3) of the Act by amending subparagraph (A) to be ``subject to 
subparagraph (C)'' and by adding new subparagraph (C), which specifies 
an additional special rule for FY 2018. Specifically, section 
1886(m)(3)(C) of the Act states for FY 2018, the annual update under 
subparagraph (A) for the fiscal year, after application of clauses (i) 
and (ii) of subparagraph (A), shall be 1 percent. That is, the annual 
update for FY 2018, after applications of the reductions for the MFP 
adjustment (under clause (i) of section 1886(m)(3)(A)) and the ``other 
adjustment'' (under clause (ii) of section 1886(m)(3)(A)) is 1 percent.
    Historically, CMS has used an estimated market basket increase to 
update the LTCH PPS. Under the authority of section 123 of the BBRA as 
amended by section 307(b) of the BIPA, we adopted a newly created 2013-
based LTCH-specific market basket for use under the LTCH PPS beginning 
in FY 2017. The 2013-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 2013-based LTCH-specific market 
basket, we refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57101 through 57102). For FYs 2010 through 2017, the estimated market 
basket update under the LTCH PPS was reduced by the MFP adjustment and 
``other adjustment'' as applicable. However, as described above, 
section 411(e) of the MACRA subsequently amended section 1886(m)(3)(A) 
of the Act so that, after the adjustments above, the FY 2018 annual 
update is set at 1 percent.
c. 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). 
Failure to report quality data under the LTCH QRP for FY 2014 and 
subsequent fiscal years results in a 2.0 percentage point reduction in 
the annual update as 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)).
d. Annual Update Under the LTCH PPS for FY 2018
    Consistent with the amendments to section 1886(m)(3)(C) of the Act 
provided by section 411 of the MACRA, as we proposed in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20021), we are making an update to 
the LTCH PPS standard Federal payment rate of 1 percent for FY 2018.
    For FY 2018, 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. For LTCHs 
that fail to submit quality reporting data under the LTCH QRP, under 
Sec.  412.523(c)(3)(xiv) in conjunction with Sec.  412.523(c)(4), as we 
proposed, we are further reducing the 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. As such, the update to the LTCH PPS 
standard Federal payment rate for FY 2018 for LTCHs that fail to submit 
quality reporting data under the LTCH QRP is the 1-percent annual rate 
increase for FY 2018 reduced by 2.0 percentage points. For this final 
rule, we are establishing an annual update to the LTCH PPS standard 
Federal payment rate of -1 percent (that is, 1 percent minus 2.0 
percentage points) for FY 2018 for LTCHs that fail to submit quality 
reporting data as required under the LTCH QRP. As provided in Sec.  
412.523(c)(4)(iii) and as noted above, 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. (We note that, consistent with historical practice, in 
determining the FY 2018 LTCH PPS standard Federal payment rate, we are 
also applying an area wage level budget neutrality factor in accordance 
with Sec.  412.523(d)(4) (as discussed in section V.B. of the Addendum 
to this final rule) and a budget neutrality adjustment stemming from 
our change to the SSO payment methodology (as discussed in VIII.D. of 
the preamble of this final rule).

[[Page 38312]]

    Absent the special provisions for FY 2018 required by section 
1886(m)(3)(C) of the Act, we note the annual market basket update would 
have been based on the FY 2018 full market basket increase of 2.7 
percent (based on IGI's second quarter 2017 forecast of the 2013-based 
LTCH market basket) reduced by the FY 2018 MFP adjustment of 0.6 
percentage point (also based on IGI's second quarter 2017 forecast). 
Following application of the productivity adjustment, the adjusted 
market basket update of 2.1 percent (2.7 percent minus 0.6 percentage 
point) would have then been further reduced by 0.75 percentage point, 
as required by sections 1886(m)(3)(A)(ii) and 1886(m)(4)(F) of the Act. 
This would have resulted in an annual market basket update under to the 
LTCH PPS standard Federal payment rate for FY 2018 of 1.35 percent 
(that is, 2.7 percent, less the MFP adjustment of 0.6 percentage point, 
and less the 0.75 percentage point required under section 1886(m)(4)(F) 
of the Act). (For additional information on the application of the MFP 
adjustment and ``other adjustment'' in developing the annual market 
based update under our historical approach, refer to the FY 2017 IPPS/
LTCH PPS final rule (81 FR 57296 through 57310).)

D. Changes to the Short-Stay Outlier Adjustment Policy (Sec.  412.529)

    In the FY 2003 LTCH PPS final rule (67 FR 55954) that implemented 
the LTCH PPS, under Sec.  412.529, we established a special payment 
policy for short-stay outlier (SSO) cases; that is, cases with a 
covered length of stay that is less than or equal to five-sixths of the 
geometric average length of stay for each LTC-DRG. When we established 
the SSO policy, we explained that a short-stay outlier case may occur 
when a beneficiary receives less than the full course of treatment at 
the LTCH before being discharged (67 FR 55995). Also, in the FY 2003 
LTCH PPS final rule, we stated that when we first described the policy 
in the proposed rule, we based the proposed policy on the belief that 
many of these patients could have been treated more appropriately in an 
acute hospital subject to the acute care hospital inpatient prospective 
payment system (67 FR 55995).
    Therefore, under the LTCH PPS, we implemented a special payment 
adjustment for SSO cases. Under the original SSO policy, for LTCH PPS 
discharges with a covered length of stay of up to and including five-
sixths of the geometric average length of stay for the LTC-DRG, we 
adjusted the per discharge payment amount under the LTCH PPS as the 
least of 120 percent of the estimated cost of the case, 120 percent of 
the LTC-DRG specific per diem amount multiplied by the covered length 
of stay of that discharge, or the full LTC-DRG payment amount (67 FR 
55995 through 56000).
    As noted previously, generally LTCHs are defined by statute as 
having an average length of stay of greater than 25 days. In the FY 
2003 LTCH PPS final rule, we stated that we believed that the SSO 
payment adjustment results in more appropriate payments because these 
SSO cases most likely did not receive a full course of treatment at a 
LTCH level in such a short period of time, and the full LTC-DRG payment 
would generally not be appropriate. Payment-to-cost ratio analyses at 
that time indicated that if LTCHs received a full LTC-DRG payment for 
those cases, they would have been significantly ``overpaid'' for the 
resources they actually expended in treating those patients (67 FR 
55995 through 56000). Furthermore, in establishing the SSO policy, we 
stated that we believed that providing a reduced payment for SSO cases 
would discourage hospitals from admitting these patients. We also 
believed that the policy did not severely penalize providers that, in 
good faith, had admitted a patient and provided some services before 
realizing that the beneficiary could receive more appropriate treatment 
at another site of care. As we further explained in the FY 2003 LTCH 
PPS final rule, establishing a SSO payment adjustment for these types 
of cases addresses the incentives inherent in a discharge-based PPS for 
LTCHs for treating patients with a short length of stay (67 FR 55995 
through 56000). We have made several changes to our SSO policy since it 
was first introduced.
    For a full discussion of those historic changes, we refer readers 
to the RY 2008 LTCH PPS final rule (72 FR 26904 through 26919).
    During our FY 2016 and FY 2017 IPPS/LTCH PPS rulemaking cycles, we 
received public comments that we determined were outside the scope of 
the FY 2016 and FY 2017 proposed rules that expressed concern with our 
existing SSO policy. Commenters stated that our SSO payment adjustment 
appears to result in an incentive to improperly hold patients beyond 
the SSO threshold (five-sixths the geometric average length of stay for 
the MS-LTC-DRG). Specifically, as SSO cases are paid the ``lesser of'' 
various payment options, while non-SSO cases are paid the full MS-LTC-
DRG payment, there is an economic incentive to hold a patient beyond 
the SSO threshold in order to increase (and in some cases dramatically 
increase) the LTCH PPS payment for that case. In its comment in 
response to the FY 2016 IPPS/LTCH PPS proposed rule, MedPAC stated that 
its analysis of LTCH discharge patterns have shown that LTCHs respond 
to that incentive. Analyses of lengths-of-stay by MS-LTC-DRG have 
consistently shown that the frequency of discharges rises sharply 
immediately after the SSO threshold is met.
    This pattern holds true across MS-LTC-DRGs and for every category 
of LTCHs. We believe that these analyses strongly suggest that LTCHs' 
discharge decisions are influenced at least as much by this financial 
incentive as by clinical considerations. Our own analysis of LTCH 
claims data showed similar findings.
    In light of these concerns, in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20023), we proposed to address this financial incentive and 
discourage such delay in the discharge of LTCH patients by proposing to 
revise our SSO policy. We note that, under the dual rate LTCH PPS 
payment structure, our existing SSO policy only applies to the LTCH PPS 
standard Federal payment rate. Accordingly, as explained in the 
proposed rule, the proposed changes to our SSO policy would only apply 
to LTCH PPS standard Federal payment rate cases (or, for cost reporting 
periods beginning before October 1, 2017, the LTCH PPS standard Federal 
payment rate portion of the blended rate payment under Sec.  
412.522(c)(3)(ii)).
    Under our proposed policy, the SSO definition remained unchanged, 
but the current payment adjustment options would be replaced with a 
single graduated per diem payment adjustment calculated using a blended 
payment rate that, as the length of stay increases, consists of a 
decreasing portion of the payment amount paid at the IPPS per diem 
amount (referred to as the ``IPPS comparable amount'') and an 
increasing portion paid at 120 percent of the MS-LTC-DRG per diem 
payment amount (referred to as the ``LTCH PPS per diem amount''), with 
a maximum payment amount set at the full LTCH PPS standard Federal 
payment rate. Specifically, beginning with discharges occurring on or 
after October 1, 2017, we proposed to pay SSO cases solely on the 
``blended'' option in the current SSO payment adjustment formula 
described at Sec.  412.529(c)(2)(iv); that is, a SSO case would be paid 
based on a blend of the IPPS comparable amount (determined under Sec.  
412.529(d)(4)(i)) and the MS-LTC-DRG per diem amount (determined under 
Sec.  412.529(d)(1) in conjunction with Sec.  412.503).

[[Page 38313]]

    Under this blended payment method at existing Sec.  
412.529(c)(2)(iv), as the length of stay of a SSO case increases, the 
percentage of the per diem payment amounts based on the full MS-LTC-DRG 
standard Federal payment rate would increase, and the percentage of the 
payment based on the IPPS comparable amount would decrease. This 
blended per diem payment rate adjustment would result in paying LTCH 
cases with a very short length of stay more like an IPPS case, and LTCH 
cases with relatively longer lengths-of-stay more like a non-short-stay 
LTCH PPS standard Federal payment rate case.
    Therefore, as the length of stay of as SSO case increases, the 
treatment resources and costs associated with the stay are more 
comparable with typical LTCH PPS standard Federal payment rate payments 
and less comparable to payments for the same stay at an acute care 
hospital under the IPPS.
    We stated in the proposed rule that, if adopted, this policy would 
result in payment amounts becoming more commensurate with the LTCH PPS 
standard Federal payment rate as the case begins to resemble a more 
characteristic LTCH PPS standard Federal payment rate case. We stated 
that we believe that, by paying SSO cases on this basis, we would 
reduce, if not eliminate, the payment ``cliffs'' (or payment 
differentials) inherent in our current payment methodology, as well as 
the financial incentives that appear to have resulted in potentially 
improper delays in patient discharges other than solely for medical 
reasons. In addition, we stated that we believe that the per diem 
``blended'' approach would provide an appropriate balance between the 
1-day marginal payment and the 1-day marginal incurred cost.
    Under this proposal, we proposed to codify the change to the SSO 
policy described above by revising Sec.  412.529 of the regulation. 
Specifically, we proposed to add paragraph (c)(4) to provide that, for 
discharges occurring on or after October 1, 2017, SSO cases will be 
paid according to the blended payment option at existing Sec.  
412.529(c)(2)(iv) and corresponding changes to Sec.  412.529(c)(3) by 
sunsetting the previous SSO payment formula as of October 1, 2017.
    Comment: Commenters supported the proposal to revise the SSO 
policy. Many commenters requested clarification on the interaction 
between the proposal and the so-called ``very short stay outlier'' 
policy at Sec.  412.529(c)(3)(ii).
    Response: We appreciate the commenters' support. In response to 
those seeking clarification, we note that our proposed changes to the 
SSO policy would apply to all short-stay cases, including those cases 
currently paid under Sec.  412.529(c)(3)(ii) (that is, the ``very short 
stay outlier'' policy). Because the proposed blended payment method 
pays cases with relatively short stays more like IPPS cases, we believe 
this single payment option provides appropriate payments for those SSO 
cases that most likely did not receive a full course of treatment at an 
LTCH. Moreover, as stated above, in the proposed rule, we proposed to 
sunset the existing SSO payment formula at Sec.  412.529(c)(3), 
effective October 1, 2017. Because the ``very short stay outlier'' 
payment is paragraph (ii) of Sec.  412.529(c)(3), our proposal would 
eliminate that payment option, while our proposed addition of Sec.  
412.529(c)(4) provides for an adjustment to all SSO cases under a 
single payment formula.
    After consideration of the public comments we received, we are 
adopting our proposed changes to Sec.  412.529 as final without 
modification. Specifically, we are finalizing our proposal to add 
paragraph (c)(4) to provide that, for discharges occurring on or after 
October 1, 2017, SSO cases will be paid according to the blended 
payment option at existing Sec.  412.529(c)(2)(iv) and finalizing our 
proposal to make corresponding changes to Sec.  412.529(c)(3) by 
sunsetting the previous SSO payment formula as of October 1, 2017.
    The goal of revising the SSO policy is to remove the incentive to 
delay patient discharges for payment reasons. As explained in the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 20023), in assessing the 
potential impact of this proposed policy change, we found two different 
impacts on Medicare LTCH spending: One would increase spending while 
the other would decrease spending.
    First, as we stated in the proposed rule, we expect this SSO 
payment adjustment methodology would result in increased payments to 
SSO cases. Based on data and FY 2018 payment estimates used for the 
proposed rule, we estimate that, under this SSO payment adjustment, 
Medicare payments to SSO cases will increase approximately 30 percent, 
or approximately $145 million (without taking into account any 
assumptions on changes to LTCHs' discharge practices). These increased 
payments for SSO cases will produce a somewhat substantial increase in 
aggregate Medicare spending for LTCH PPS standard Federal payment rate 
cases (that is, an approximate 4.6-percent increase to current 
projected LTCH PPS standard Federal payment rate case payments).
    At the same time, without the economic incentive to delay discharge 
until the SSO threshold is met, under our proposal, we stated that we 
expect LTCHs would discharge some patients sooner, even while the 
length of stay of the patient is still within the SSO period. 
Therefore, in the absence of this policy, these cases would not have 
previously been SSO cases. We stated our belief that this policy would 
result in some reduction in Medicare spending due to an expected 
decrease in Medicare payments for LTCH PPS standard Federal payment 
rate cases that, under the current SSO policy, were not receiving the 
SSO payment adjustment (because discharges were delayed until the SSO 
threshold was met).
    However, as also discussed in the proposed rule, while we expect 
this behavior change by LTCHs will reduce Medicare expenditures, we do 
not believe that the decrease in expenditures from fewer delayed 
discharge cases will offset the estimated increase in expenditures 
under the proposed SSO payment adjustment methodology. As such, we 
projected that the proposed change to the payment formula for SSOs 
would result in a net increase in aggregate Medicare LTCH payments 
compared to aggregate Medicare payments under the current methodology.
    As we stated in the proposed rule, the goal of the proposed policy 
is to remove the incentive to delay patient discharges for payment 
reasons, not to increase aggregate Medicare LTCH PPS payments. 
Therefore, we believed the appropriate policy approach was to propose 
to implement this change to the SSO payment methodology on a budget 
neutral basis; that is, to implement the SSO payment adjustment 
methodology by adjusting the LTCH PPS standard Federal payment rate so 
that our projection of aggregate FY 2018 payments for LTCH PPS standard 
Federal payment rate cases made under this SSO payment adjustment 
methodology would be equal to our projection of aggregate FY 2018 
payments paid for LTCH PPS standard Federal payment rate cases under 
our existing SSO payment adjustment methodology.
    We further note that, based on most recent claims data, we believe 
the effects of a budget neutral approach would primarily occur within 
each LTCH and, therefore, result in minimal redistribution between 
different LTCHs. Specifically, FY 2015 claims data show that nearly all 
LTCHs treated at least one SSO case, and those that did not treat any 
SSO cases, on average, had very few LTCH PPS standard Federal

[[Page 38314]]

payment rate cases. In addition, for over 90 percent of all LTCHs, at 
least 20 percent of their LTCH PPS standard Federal payment rate cases 
were SSO cases. Therefore, in the proposed rule, we stated that we 
expect that, for most LTCHs, the increase in payments for their SSO 
cases under this proposed change to the SSO payment methodology would 
generally offset any SSO budget neutrality-related decrease in payment 
to their non-SSO LTCH PPS standard Federal payment rate cases.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20023), we 
proposed to implement the proposed change to the SSO payment 
methodology by using a budget neutrality adjustment to offset the 
projected net increase in Medicare spending while accounting for both 
the estimated decrease in Medicare payments resulting from LTCHs no 
longer holding patients until the SSO threshold is met and the larger 
estimated increase in spending to SSO cases described earlier. We 
stated that we believe our proposal to incorporate a projection of the 
expected decrease in spending resulting from a behavior change to not 
hold patients beyond the SSO threshold appropriately reflects the net 
impact of the proposed change. Further, this lessens the impact of any 
budget neutrality adjustment estimated without accounting for these 
expected behavioral changes--in other words, if the budget neutrality 
adjustment only adjusted for the increased payments to SSO cases.
    To do so, we proposed to amend Sec.  412.523(d) by adding a new 
paragraph (5), which would specify that the LTCH PPS standard Federal 
payment rate will be adjusted by a one-time, permanent factor that 
accounts for the projected change in estimated aggregate payments to 
LTCH PPS standard Federal payment rate cases in FY 2018 due to the 
change in the payment methodology for SSO cases described at Sec.  
412.529(c)(4). (As noted earlier, this budget neutrality adjustment 
would only affect the LTCH PPS standard Federal payment rate.) This 
factor would ensure that the proposed change to the SSO payment 
methodology in FY 2018 does not affect aggregate LTCH PPS payments; 
that is, this proposed policy change is budget neutral. Specifically, 
in the proposed rule, we set out a proposed methodology to determine 
the budget neutrality factor that would be applied to the FY 2018 LTCH 
PPS standard Federal payment rate using the 2016 LTCH standard Federal 
payment rate payment cases used for the proposed rule. These estimates 
were based upon the most recently available data (the December 2016 
update of the FY 2016 MedPAR file), and consistent with historical 
practice, if more recent data become available, we proposed to use such 
data for the final rule.
    Comment: A few commenters, including MedPAC, supported the proposal 
to implement changes to the SSO payment adjustment by including a 
budget neutrality factor to the FY 2018 LTCH PPS standard Federal 
payment rate. Several other commenters urged CMS to implement these 
changes without a budget neutrality adjustment in light of various 
other changes to Medicare payment policies relating to LTCHs, such as 
the decrease in payments to site neutral payment rate cases resulting 
from the end of the blended payment rate provided under the statute. 
Many commenters objected to making the proposed changes to the SSO 
payment methodology (which, if finalized, would increase payments) 
budget neutral on the grounds that previous revisions to the SSO 
payment adjustment resulted in a net decrease in aggregate LTCH PPS 
payments and were not made budget neutral. Other commenters urged CMS 
to apply this factor in FY 2018 but not make it permanent. Commenters 
generally supported the proposal to include behavioral impact estimates 
in determining the budget neutral factor.
    However, some commenters addressed the actuarial assumptions used 
in the proposal, which we discuss in greater detail below.
    Response: We thank MedPAC and other commenters for their support of 
our proposal. In regard to those comments urging us to implement these 
changes without the budget neutral adjustment or only a temporary 
budget neutral adjustment, as we stated earlier and in the proposed 
rule, the goal of the proposed policy is to remove the incentive to 
delay patient discharges for payment reasons, not to increase aggregate 
Medicare LTCH PPS payments. While commenters are correct that previous 
changes to the SSO policy were not budget neutral, the proposed change 
to the SSO policy is being made for considerably different policy 
reasons than previous ones. In the past, we made changes to the SSO 
policy to ensure that LTCHs were paid appropriately for cases that were 
notably shorter than average. The proposed change in the SSO policy in 
the FY 2018 proposed rule was developed in response to LTCHs' apparent 
inappropriate behavior in delaying discharge in order to maximize 
Medicare payment. We see no reason why addressing the financial 
incentive for such behavior should result in increased payments to 
LTCHs. Therefore, we believe that it is wholly appropriate to make this 
change in a budget neutral manner. We further note that, under our 
proposed budget neutrality adjustment, the redistributional effects 
occur largely within individual LTCHs. As such, while individual 
hospitals will experience a difference in payment for individual 
discharges, they will not typically experience an overall reduction in 
aggregate payments for all of the LTCH's discharges due to this budget 
neutral change to the SSO policy. A temporary budget neutral adjustment 
would only maintain the level of aggregate payments for the period the 
budget neutrality adjustment is applied, thereby merely delaying the 
increase aggregate Medicare LTCH PPS payments until that adjustment is 
removed. Lastly, the purpose of the budget neutrality adjustment is not 
related to the statutory change in payments under the application of 
the site neutral payment rate and, therefore, does not provide 
sufficient explanation for implementing the proposed changes to the SSO 
policy without a budget neutrality adjustment.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modifications, to amend Sec.  
412.523(d) by adding a new paragraph (5), which will specify that the 
LTCH PPS standard Federal payment rate will be adjusted by a one-time, 
permanent factor that accounts for the projected change in estimated 
aggregate payments to LTCH PPS standard Federal payment rate cases in 
FY 2018 due to the change in the payment methodology for SSO cases 
described at Sec.  412.529(c)(4). Moreover, we are finalizing our 
proposal to include behavioral impact estimates in determining the 
budget neutral factor.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20023 through 
20026), we proposed to use a 3-step methodology (which contained 
substeps) to determine the budget neutrality factor that would be 
applied to the FY 2018 LTCH PPS standard Federal payment rate. The 
steps in our proposed methodology are summarized below.
    Step 1--Simulate estimated aggregate FY 2018 LTCH PPS standard 
Federal payment rate payments using the existing SSO payment 
methodology at Sec.  412.529(c)(3).
    Step 2--Simulate estimated aggregate FY 2018 LTCH PPS standard 
Federal payment rate payments using the proposed SSO payment 
methodology at proposed Sec.  412.529(c)(4), after accounting for 
expected changes in

[[Page 38315]]

LTCHs' discharge behavior, which is determined as follows in Step 2a 
through Step 2d.
    Step 2a--Simulate estimated aggregate FY 2018 LTCH PPS standard 
Federal payment rate payments under the proposed SSO payment 
methodology without accounting for expected changes in LTCHs' discharge 
behavior.
    Step 2b--Determine the estimated amount of aggregate FY 2018 LTCH 
PPS standard Federal payment rate payments that would reflect the 
projected decrease in non-SSO cases under the changes to the SSO 
policy.
    Step 2c--Determine the estimated amount of aggregate FY 2018 LTCH 
PPS standard Federal payment rate payments that reflect the projected 
increase in SSO cases under the proposed changes to the SSO policy.
    Step 2d--Adjust the original estimated unadjusted FY 2018 payments 
under the proposed SSO payment methodology (from Step 2a) to account 
for the projected decrease in non-SSO cases under the proposed changes 
to the SSO policy (by subtracting the amount determined in Step 2b) and 
for the projected increase in SSO cases under the proposed changes to 
the SSO policy (by adding the amount estimated in Step 2c).
    Step 3--Calculate the ratio of the estimated aggregate FY 2018 LTCH 
PPS standard Federal payment rate payments under the existing and 
proposed SSO policies to determine the adjustment factor that would 
need to be applied to the proposed FY 2018 LTCH PPS standard Federal 
payment rate to achieve budget neutrality (that is, where the estimated 
aggregate payments calculated in Step 2 are estimated to be equal to 
the estimated aggregate payments calculated in Step 1). A discussion 
and supporting details for the assumptions for expected changes in 
LTCHs' discharge behavior used in Step 2 are provided below. (A 
complete discussion of our proposed budget neutrality methodology, 
which we are finalizing without modification as discussed more fully 
below, can be found in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20023 through 20026).)
    Specifically, in the proposed rule (82 FR 20024 through 20025), we 
discussed the actuarial assumptions for shifts in cases used under 
Steps 2b and 2c in our proposed methodology for determining the budget 
neutrality factor or the proposed changes to the SSO payment 
methodology. As explained in the proposed rule, our actuarial 
assumptions for LTCHs' discharge behavior under our proposed SSO policy 
were estimated based on a comparative analysis of distributions of LTCH 
discharges relative to the SSO thresholds in FY 2003 and FY 2015 using 
data from FY 2002 (the year before the LTCH PPS was implemented and the 
final year prior to a SSO payment adjustment) to LTCH discharges in FY 
2015 (the most recent complete year of data available at the time the 
comparative analysis was performed in preparation for the proposed 
rule). (We note that, for FY 2002, because there was no applicable SSO 
threshold, we used the SSO thresholds from FY 2003 (LTC-DRG Version 23) 
based on the billed LTC-DRG (LTC-DRG Version 22) on the FY 2002 claim.)
    The FY 2002 distribution shows a nearly continuous distribution of 
LTCH discharges relative to what would become the SSO threshold in FY 
2003, and approximate symmetry before and after the SSO threshold. In 
other words, for FY 2002, the distribution of discharges just after 
what would become the FY 2003 threshold looks similar to the 
distribution of discharges just before that threshold, and there is a 
corresponding similarity between discharges well after and well before 
what would become the SSO threshold.
    While the FY 2015 distribution of LTCH discharges relative to the 
SSO threshold shows the same symmetry among discharges well before and 
well after the threshold, there are significantly fewer discharges just 
before the SSO threshold and significantly more discharges just after 
the SSO threshold (instead of a symmetry among discharges just before 
and just after the SSO threshold). For FY 2015, this lack of symmetry 
is concentrated in the 3 days leading up to the SSO threshold. (We note 
that, in our analysis of LTCH discharge patterns relative to the 
applicable SSO threshold, we found similar patterns for FYs 2003 
through 2014 as those observed for FY 2015, as well as for FY 2016 LTCH 
discharges.)
    In particular, the FY 2015 LTCH discharges have, as a proportion of 
total FY 2015 LTCH discharges, approximately 20 percent more discharges 
occurring just after the SSO threshold when compared to FY 2002 
discharges. However, due to other substantial changes in Medicare 
payments to LTCHs, including the introduction of the LTCH PPS in FY 
2003, we stated that we do not believe the entire 20-percent shift in 
discharges is attributable to only the introduction and subsequent 
revisions to the LTCH PPS SSO payment adjustment. Moreover, this shift 
is not uniform across all SSO discharges because the majority of 
shifting past the SSO threshold occurs within 3 days of the SSO 
threshold. Based on this, we stated that our actuaries estimate that 
the elimination of the payment cliff would result in a 10-percent 
reduction in non-SSO cases, so that SSO cases increase at the same 
level as the projected decrease in non-SSO cases. For these non-SSO 
cases that shift, we stated that our actuaries estimate the discharges 
to occur within 3 days prior to the SSO threshold based on the analysis 
of LTCH discharge patterns relative to the applicable SSO threshold 
described earlier.
    Comment: Several commenters advocated for a smaller budget 
neutrality reduction, with many commenters urging CMS to reconsider the 
actuarial assumptions used to arrive at the 10 percent behavioral shift 
as they believed this shift should be higher. A few commenters 
considered CMS' 10 percent behavioral shift to be arbitrary, and some 
commenters urged CMS to consider 15 percent to 20 percent or higher. 
Among those urging CMS to consider 15 percent to 20 percent, a few 
commenters pointed to a working paper \98\ that they believed supports 
a 15-percent behavioral shift, while other commenters referred to 
analysis by KNG Health Consulting on behalf of the National Association 
of Long Term Hospitals (NALTH) that shows LTCHs can shift 20 percent or 
more of non-SSO cases to below the SSO threshold and still meet the 
greater than 25-day average length of stay requirement. Other 
commenters, based on comparisons of historic LTCH discharge rates, 
suggested that CMS consider LTCH cases discharged within 6 days of the 
threshold, thereby increasing the expected shift beyond the 10 percent 
estimated by our actuaries. One commenter stated that its internal 
modeling suggested the budget neutrality adjustment should be 2.7 
percent instead of the approximately 3.3 percent reduction in the 
proposed rule.
---------------------------------------------------------------------------

    \98\ Paul J. Eliason, et al. Strategic Patient Discharge: The 
Case of Long-Term Care Hospitals. National Bureau of Economic 
Research. NBER Working Paper 22958. Available at: http://www.nber.org/papers/w22598.pdf.
---------------------------------------------------------------------------

    Response: We reviewed all the supporting material and studies 
submitted or referenced by commenters. We note that we do not have 
sufficient information to evaluate the individual commenter's claim 
that the budget neutrality adjustment should be 2.7 percent. However, 
we note that an adjustment of this magnitude is in line with what we 
estimate the budget neutrality adjustment would be under our proposed 
methodology if we were to

[[Page 38316]]

use an assumption of a behavioral shift in the 15 to 20 percent range 
as suggested by other commenters.
    As stated in the proposed rule and earlier in this final rule, 
while we observed a shift of 20 percent in non-SSO cases from FY 2002 
to FY 2015, the introduction of various payment policies in the 
intervening years does not support attributing the full 20 percent to 
the SSO payment policy alone, and thus, our actuarial assumption of 10 
percent is based upon consideration of the impact such changes have had 
over the years. Similarly, we do not believe it is appropriate to 
further extend our analysis based on a 3-day window to a 6-day window 
because we do not have any rationale or evidence to attribute the FY 
2002 to FY 2015 change in discharges 6 days past the threshold to the 
SSO policy. In this case, particularly, we do not believe cases more 
than 3 days past the threshold represent a response to financial 
incentives because each day past the threshold a patient remains in the 
LTCH represents a negative response to these financial incentives: each 
day a patient is held beyond the threshold increases the provider's 
costs without the opportunity to increase the full MS-LTC-DRG payment. 
In other words, there are diminishing returns the longer a discharge is 
delayed for financial reasons.
    After consideration of the public comments and supporting documents 
we received, we believe the available data and supporting studies are 
consistent with our actuarial assumption of a 10-percent behavioral 
shift. As noted by commenters, the KNG Health Consulting study only 
shows that increasing the shift to 20 percent is feasible in light of 
the greater than 25 average length of stay requirement for LTCHs. In 
other words, this finding establishes a ceiling for the behavioral 
shift, but it does not establish a lower bound nor does it point to an 
appropriate or expected shift resulting from the proposed changes to 
the SSO policy. Therefore, this analysis is consistent with a shift of 
up to 20 percent, which includes our actuarial assumption of a 10-
percent shift.
    While commenters pointed to the working paper as evidence for 
increasing our assumption of the shift in LTCH cases to 15 percent, we 
note the working paper is not addressing the same issue. The study 
examines the influence of financial incentives on LTCHs' discharges in 
order to compare the effectiveness various SSO payment policies have on 
this incentive by building a model incorporating financial incentives 
of a selected category of LTCH discharges. Specifically, as noted in 
the paper, the study assesses the impact of various SSO payment 
policies on nine selected MS-LTC-DRGs (177, 189, 190, 193, 207, 539, 
592, 871, and 949) and among these DRGs, only those LTCH patients 
discharged to home or a nursing facility as ``these are the discharges 
for which hospitals have the most discretion.'' (Paul J. Eliason, et 
al., p. 18.) The 15 percent cited by commenters represents the 
proportion of change in modeled non-SSO discharges, limited to these 
select cases, from our current SSO payment policy (their baseline) to a 
per diem SSO payment policy among these selected cases. As noted above, 
the paper presumes their selected category of cases are the LTCH cases 
most likely to be held, and thus, much like the average length of stay 
analysis discussed above, the 15 percent cited by commenters, as with 
the analysis by KNG Health Consulting, represents a ceiling on the 
behavioral shift and is not inconsistent with our actuarial assumption 
of 10 percent, which is representative of all MS-LTC-DRGs and cases.
    After consideration of the public comments we received, for the 
reasons presented above, we are finalizing our proposed methodology for 
computing the budget neutrality factor, including the 10 percent 
actuarial assumption in steps 2b and 2c, without modification.
    Based on the claims data used for the proposed rule, we estimated 
that our proposed change to the SSO payment methodology would result in 
an increase in payments of approximately $102 million (that is, the 
$3.177 billion as calculated in Step 1 in the proposed rule minus the 
$3.279 billion as calculated in Step 2 in the proposed rule) which 
reflected the approximate $43 million decrease that accounts for our 
actuarial assumptions for expected changes in LTCHs' discharge behavior 
under the proposed changes to the SSO policy. For the proposed rule, 
using the steps in the proposed methodology, we then determined a 
proposed budget neutrality factor for the proposed change to the SSO 
payment methodology of 0.9672. Accordingly, in section V.A. of the 
Addendum to the proposed rule, to determine the proposed FY 2018 LTCH 
PPS standard Federal payment rate, we proposed to apply a one-time, 
permanent budget neutrality factor of 0.9672 for the proposed change in 
the SSO payment methodology (82 FR 20025 through 20026).
    For this final rule, as we proposed, we are using the most recent 
available data (that is, FY 2016 LTCH standard Federal payment rate 
payment cases from the March 2017 update of the FY 2016 MedPAR file) to 
determine the budget neutrality factor applied to the FY 2018 LTCH PPS 
standard Federal payment rate to ensure that the change to the SSO 
payment methodology in FY 2018 does not affect aggregate LTCH PPS 
payments. Based upon the most recent data, and discussed in greater 
detail below, we are applying a one-time, permanent budget neutrality 
factor of 0.9651 under new Sec.  412.523(d)(5) for the change in the 
SSO payment methodology at new Sec.  412.529(c)(4).
    Specifically, the methodology summarized above and outlined in the 
proposed rule (82 FR 20025 through 20026) applied to the best available 
data used for this final rule yields the following results. We estimate 
that our change to the SSO payment methodology results in an increase 
in payments of approximately $112 million (that is, the $3.204 billion 
as calculated in Step 1 using data for this final rule minus the $3.316 
billion as calculated in Step 2 using data for this final rule) which 
reflects the approximate $40 million decrease that accounts for our 
actuarial assumptions for expected changes in LTCHs' discharge behavior 
under the changes to the SSO policy. Therefore, for this final rule, 
using the steps in the methodology outlined in the proposed rule and 
using the most recently updated data, we have determined a budget 
neutrality factor for the change to the SSO payment methodology of 
0.9651. Accordingly, in section V.A. of the Addendum to this final 
rule, to determine the FY 2018 LTCH PPS standard Federal payment rate, 
we are finalizing the application of a one-time, permanent budget 
neutrality factor of 0.9651 for the change in the SSO payment 
methodology.

E. Temporary Exception to the Site Neutral Payment Rate for Certain 
Spinal Cord Specialty Hospitals

    Section 15009 of Public Law 114-255 added new subparagraph (F) to 
section 1886(m)(6) of the Act, which provides for a temporary exception 
to the site neutral payment rate for certain spinal cord specialty 
hospitals. Under this provision, discharges occurring in cost reporting 
periods beginning during FY 2018 and FY 2019 for LTCHs that meet the 
specified statutory criteria are excepted from the site neutral payment 
rate (that is, all discharges from such LTCHs during this period would 
be paid at the LTCH PPS standard Federal payment rate). Clauses (i) 
through (iii) of section 1886(m)(6)(F) of the Act state that, in order 
for an LTCH to qualify for this temporary exception, the LTCH

[[Page 38317]]

must: (1) Have been a not-for-profit LTCH on June 1, 2014, as 
determined by cost report data; (2) of the discharges in calendar year 
2013 from the LTCH for which payment was made under the LTCH PPS, at 
least 50 percent were classified under MS-LTC-DRGs 28, 29, 52, 57, 551, 
573, and 963; and (3) have discharged inpatients (including both 
individuals entitled to, or enrolled for, Medicare Part A benefits and 
individuals not so entitled or enrolled) during FY 2014 who had been 
admitted from at least 20 of the 50 States, determined by the States of 
residency of such inpatients and based on such data submitted by the 
hospital to the Secretary as the Secretary may require. The statute 
further provides authority for the Secretary to implement the third 
criterion (set forth at section 1886(m)(6)(F)(iii) of the Act and 
referred to as the ``significant out-of-state admissions criterion'') 
by program instruction or otherwise, and exempts the policy initiatives 
from any information collection requirements under the Paperwork 
Reduction Act (Chapter 35 of Title 44 of the United States Code). Given 
this express authority, as we stated in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20026), we plan to provide further details 
regarding the implementation of the significant out-of-state admissions 
criterion through subregulatory guidance. However, in the proposed 
rule, we proposed to codify the requirements of the temporary exception 
to the site neutral payment rate for certain spinal cord specialty 
hospitals specified under section 1886(m)(6)(F) of the Act, as added by 
section 15009 of Public Law 114-255. Specifically, we proposed to 
codify the requirements of this provision at new Sec.  412.522(b)(4), 
by providing for an exception from the site neutral payment rate for 
discharges occurring in cost reporting periods beginning during FYs 
2018 and 2019 for LTCHs that meet the specified statutory criteria.
    We sought public comments on this proposal. Based on information 
currently available, we believe that two hospitals may qualify for this 
exception.
    Comment: Several commenters supported CMS' proposals to implement 
section 15009 of the 21st Century Cures Act.
    Response: We thank these commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposals without modification.

F. Temporary Exception to the Site Neutral Payment Rate for Certain 
Discharges With Severe Wounds From Certain LTCHs

    Section 15010 of Public Law 114-255 added a new subparagraph (G) to 
section 1886(m)(6) of the Act, which creates a temporary exception to 
the site neutral payment rate for certain severe wound discharges from 
certain LTCHs during such LTCHs' cost reporting periods beginning 
during FY 2018 (that is, for cost reporting period beginning on or 
after October 1, 2017 and on or before September 30, 2018). Under the 
provisions of section 15010 of Public Law 114-255, in order for an 
LTCH's discharge to be excluded from the site neutral payment rate 
under this exception during its FY 2018 cost reporting period, the 
discharge must be: (1) From an LTCH ``identified by the last sentence 
of subsection (d)(1)(B)'' of the Act; (2) classified under MS-LTC-DRG 
602, 603, 539, or 540; and (3) with respect to an individual treated by 
an LTCH, for a severe wound. The statute defines a ``severe wound,'' 
for the purposes of the exception, as ``a wound which is a stage 3 
wound, stage 4 wound, unstageable wound, non-healing surgical wound, or 
fistula as identified in the claim from the long-term care hospital.'' 
The statute further defines a ``wound'' as ``an injury involving 
division of tissue or rupture of the integument or mucous membrane with 
exposure to the external environment.''
    Much of this language is identical or substantially similar to the 
language for the previous temporary exception for discharges for the 
treatment of severe wounds provided for under the amendments made by 
section 231 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-
113), except for three key differences. First, the previous temporary 
exception for severe wound discharges applied to LTCHs that are 
grandfathered hospitals-within-hospitals (HwHs) (that is, hospitals 
that are described under Sec.  412.23(e)(2)(i) that meet the criteria 
of Sec.  412.22(f)) and are located in a rural area or treated as rural 
(Sec.  412.522(b)(2)(ii)(B)), while the new temporary exception for 
severe wound discharges only requires that LTCHs are grandfathered HwHs 
(and does not require the LTCH to also be located in a rural area or 
treated as rural). Second, under this new temporary exception for 
severe wound discharges, the definition of a ``severe wound'' includes 
only five of the eight categories (stage 3 wound, stage 4 wound, 
unstageable wound, non-healing surgical wound, and fistula) included in 
the definition of a ``severe wound'' under the original temporary 
exception for severe wound discharges (and does not include the 
categories of infected wound, osteomyelitis, and wound with morbid 
obesity). Finally, this new temporary exception for severe wound 
discharges is limited to discharges that meet the definition of a 
severe wound and are grouped to certain specified MS-LTC-DRGs, while 
the previous temporary exception for severe wound discharges only 
required the discharge to meet the definition of a severe wound (and 
did not include the requirement for the discharge to also be grouped to 
certain specified MS-LTC-DRGs). Additional details of the new temporary 
exception for payment for severe wound discharges provided by Public 
Law 114-255, including further discussion of the likenesses to and 
differences from the original temporary exception for payment for 
severe wound discharges provided by Public Law 114-113 are discussed 
below.
    We implemented the original temporary exception for payment for 
discharges for the treatment of severe wounds that was provided by the 
amendments made by section 231 of Public Law 114-113 in an interim 
final rule with comment period (IFC) that appeared in the Federal 
Register on April 21, 2016 (81 FR 23428 through 23438) (referred to as 
the ``April 21, 2016 IFC'') and finalized our FY 2017 proposed rule and 
that IFC concurrently in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57070). Therefore, to the extent applicable, we are implementing the 
temporary exception provision in an identical manner to our 
implementation of the original temporary exception under section 231 of 
Pub. 114-113, which is codified in the LTCH PPS regulations at Sec.  
412.522(b)(2). Specifically, Sec.  412.522(b)(2)(ii)(B)(1) refers to 
LTCHs ``identified by the last sentence of subsection (d)(1)(B)'' of 
the Act as LTCHs ``[d]escribed in Sec.  412.23(e)(2)(i) and meets the 
criteria of Sec.  412.22(f).'' In the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20026), we proposed to codify the requirements of this 
``new'' temporary exception for severe wounds at new Sec.  
412.522(b)(3), by providing for an exception for discharges meeting the 
statutory criteria that occur in a cost reporting period that begins 
during FY 2018 for LTCHs described in Sec.  412.23(e)(2)(i) and meet 
the criteria of Sec.  412.22(f).
    Clauses (ii) and (iii) of section 1886(m)(6)(G) of the Act, 
respectively, as added by section 15010 of Public Law 114-255, includes 
definitions of ``severe wound'' and ``wound'' for purposes of this 
``new'' temporary exception for discharges for the treatment of severe

[[Page 38318]]

wounds. We proposed to incorporate the definitions of ``wound'' and 
``severe wound'' at Sec.  412.522(b)(3)(i) as they are defined in the 
statute. We note that the definition of a ``wound'' in section 15010 is 
nearly identical to CMS' definition of ``wound'' at existing Sec.  
412.522(b)(2)(i). We further note that the definition of a ``severe 
wound'' is nearly identical to the definition used in section 231 of 
Public Law 114-113 with the exception that three categories included in 
the latter (that is, infected wound, osteomyelitis, and wound with 
morbid obesity) are not included in the definition set forth in section 
15010 of Public Law 114-255. The five remaining categories of stage 3 
wound, stage 4 wound, unstageable wound, non-healing surgical wound, 
and fistula are identified by the list of ICD-10-CM codes posted to the 
CMS Web site at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/download.html under the ``Severe Wound 
Diagnosis Codes by Category for Implementation of Section 231 of Public 
Law 114-113'' download file. For more information on our interpretation 
of these terms, we refer readers to the April 21, 2016 IFC (81 FR 23428 
through 23438) and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57070). 
Therefore, this information on how CMS interpreted the meanings of 
these categories of a ``severe wound'' for Public Law 114-113 was 
available at the time Public Law 114-255 was enacted. As such, we are 
implementing the ``new'' temporary exception for discharges for the 
treatment of severe wounds provided for by section 15010 using the same 
list of ICD-10-CM codes to identify the five categories of severe 
wounds enumerated in that section of Public Law 114-255. In addition, 
as provided by section 1886(m)(6)(G)(i)(III) of the Act as added by 
section 15010 of Public Law 114-255, we proposed at new Sec.  
412.522(b)(3)(ii) that the patient must be treated for a severe wound 
that meets the statutory definition of a ``severe wound'' at proposed 
Sec.  412.522(b)(3)(i) in order for the LTCH discharge to meet this 
``new'' temporary exception for discharges for the treatment of severe 
wounds.
    As we stated in the proposed rule, we believe that the requirement 
under the ``new'' temporary exception for discharges for the treatment 
of severe wounds set forth under section 1886(m)(6)(G)(i)(II) of the 
Act as added by section 15010 of Public Law 114-255 for an LTCH 
discharge be classified under MS-LTC-DRG 602, 603, 539, or 540 is self-
implementing. Accordingly, we proposed to codify this requirement at 
new Sec.  412.522(b)(3)(ii)(C) by listing the applicable MS-LTC-DRGs.
    Section 1886(m)(6)(G)(i)(I) of the Act, as added by section 15010 
of Public Law 114-255, specifies that, for purposes of this ``new'' 
temporary exception for discharges for the treatment of severe wounds, 
the LTCH discharge must be from an LTCH ``identified by the last 
sentence of subsection (d)(1)(B)''. The phrase ``identified by the last 
sentence of subsection (d)(1)(B) [of the Act]'' is equivalent to the 
phrase ``identified by the amendment made by section 4417(a) of the 
Balanced Budget Act of 1997'' used in section 231 of Public Law 114-
113, because the amendment made by section 4417(a) of the Balanced 
Budget Act of 1997 added the last sentence of subsection (d)(1)(B) to 
the Act. As discussed in the April 21, 2016 IFC (81 FR 23428), the 
phrase ``identified by the amendment made by section 4417(a) of the 
Balanced Budget Act of 1997'' (which as previously discussed is 
equivalent to ``identified by the last sentence of subsection (d)(1)(B) 
of the Act'') has been interpreted by CMS to mean hospitals-within-
hospitals (HwHs) that were participating in Medicare, but excluded from 
the hospital IPPS on or before September 30, 1995 (that is, hospitals 
which are described under Sec.  412.23(e)(2)(i)) that meet the criteria 
of Sec.  412.22(f) (81 FR 23430 through 23432). As further discussed in 
the April 21, 2016 IFC, Sec.  412.22(f) generally requires that, in 
order to have grandfathered status, an HwH must continue to operate 
under the same terms and conditions, including, but not limited to, the 
number of beds. A limited exception to this general policy allowed 
eligible hospitals to increase the number of beds between October 1, 
1995, and September 30, 2003, without loss of their grandfathered 
status. A second exception allows grandfathered HwHs to increase square 
footage or decrease the number of beds for cost reporting periods 
beginning on or after October 1, 2006, while still retaining 
grandfathered status. Because this phrase had already been interpreted 
in this manner, the April 21, 2016 IFC adopted the same meaning of the 
phrase for purposes of implementing section 231 of Public Law 114-113. 
For additional information on hospitals ``identified by the amendment 
made by section 4417(a) of the Balanced Budget Act of 1997,'' we refer 
readers to the April 21, 2016 IFC (81 FR 23431 through 23432). 
Therefore, for the purposes of the new temporary exception for LTCH 
discharges for the treatment of severe wounds, ``identified by the last 
sentence of subsection (d)(1)(B) of the Act'' means HwHs that were 
participating in Medicare, but excluded from the hospital IPPS on or 
before September 30, 1995 (that is, hospitals which are described under 
Sec.  412.23(e)(2)(i)) that meet the criteria of Sec.  412.22(f). We 
finalized this policy without modification in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 57069). Because we have already finalized our 
interpretation of this phrase, we believe that the requirement at 
section 1886(m)(6)(G)(i)(I) of the Act is self-implementing. 
Accordingly, we proposed to codify this requirement at new Sec.  
412.522(b)(3)(ii)(B). LTCHs that believe they meet the requirements to 
be a grandfathered HwH should contact their MACs. MACs will verify that 
the LTCH meets these requirements.
    Comment: Several commenters supported CMS' proposals to implement 
section 15010 of the 21st Century Cures Act.
    Response: We thank the commenters for their support.
    Comment: Some commenters requested that CMS expand the scope of the 
exception to allow additional LTCHs to benefit from the provision. 
Other commenters requested that CMS exclude severe wound discharges 
from the site neutral payment rate all together or to otherwise broaden 
the scope of cases excepted from the site neutral payment rate.
    Response: As we have stated in response to substantially similar 
comments in the past (80 FR 49602), under the LTCH PPS we do not have 
the authority to pay anything other than the site neutral payment rate 
for any LTCH discharge that does not meet the exclusion criteria. The 
statute explicitly established the dual payment rate structure, which 
expressly provides that payment for all LTCH discharges will be 
calculated based on the site neutral payment rate, unless the LTCH 
discharge meets the statutorily defined exclusion criteria to be paid 
based on the LTCH PPS standard Federal payment rate.
    After consideration of the public comments we received, we are 
finalizing our proposals without modification.

G. Moratorium and Regulatory Delay of the Full Implementation of the 
``25-Percent Threshold Policy'' Adjustment (Sec.  412.538)

    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

[[Page 38319]]

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 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). The 25-percent threshold policy was originally 
established in the FY 2005 IPPS final rule for LTCH HwHs and satellites 
(69 FR 49191 through 49214). We later expanded the 25-percent threshold 
policy in the RY 2008 LTCH PPS final rule to include all LTCHs and LTCH 
satellite facilities (72 FR 26919 through 26944). Several laws have 
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 
LTCHs identified by the amendment made by section 4417(a) of the 
Balanced Budget Act of 1997 (Pub. L. 105-33). As explained more fully 
in section VIII.H. of the preamble of this final rule, LTCHs 
``identified by the amendment made by section 4417(a) of the Balanced 
Budget Act of 1997'' are HwHs that were participating in Medicare, but 
excluded from the hospital IPPS on or before September 30, 1995 (that 
is, hospitals which are described under Sec.  412.23(e)(2)(i)) that 
meet the criteria of Sec.  412.22(f). LTCHs that believe they meet the 
requirements to be a grandfathered HwH should contact their MACs. MACs 
will verify that the LTCH meets these requirements. Section 
1206(b)(1)(A) of Public Law 113-67 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). In 
the FY 2017 IPPS/LTCH PPS final rule, we consolidated the 25-percent 
threshold policy by sunsetting Sec. Sec.  412.534 and 412.536 and 
establishing provisions under new Sec.  412.538.
    Section 15006 of Public Law 114-255 further amended section 
114(c)(1)(A) of the MMSEA (as amended) by striking ``for a 9-year 
period'' and inserting ``through June 30, 2016, and for discharges 
occurring on or after October 1, 2016 and before October 1, 2017'', 
which provides for an extension of the moratorium on the full 
implementation of the 25-percent threshold policy. In addition, section 
15006(b) of Public Law 114-255 further amended section 114(c)(2) of the 
MMSEA (as amended) by inserting ``or any similar provision,'' after 
``Regulations,'' in subparagraphs (A) and (B). (We note that the 
functional result of the extension of the moratorium under section 
15006(a) of Public Law 114-255 only extends to discharges on or after 
October 1, 2016 and before October 1, 2017.)
    To implement the provisions of section 15006 of Public Law 114-255, 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20028), we proposed 
to make conforming amendments to the regulations that currently govern 
the application of the 25-percent threshold policy. Section 114(c)(1) 
of the MMSEA, from its inception, precluded CMS from implementing 
either Sec. Sec.  412.534 or 412.536 (as applicable), as well as any 
similar provision to hospitals described in the provision of the MMSEA. 
Section 15006 of Public Law 114-255 amended section 114(c)(2) of the 
MMSEA by adding the words ``or any similar provisions'' to both (A) and 
(B). Section 412.538 of the regulations is a similar provision to the 
provisions of both Sec. Sec.  412.534 and 412.536 (we adopted the 
payment policy under Sec.  412.538 to create a consolidated and 
streamlined 25-percent threshold policy to replace the policies under 
Sec. Sec.  412.534 and 412.536, which were sunset).
    Therefore, in order to implement the moratorium on the 
implementation of the 25-percent threshold policy provided under 
section 15006 of Public Law 114-255, we proposed to amend Sec.  412.538 
to account for these statutory changes. We note that, similar to the 
July 1, 2012 through September 30, 2012 ``gap'' period discussed in the 
FY 2013 IPPS/LTCH PPS final rule (77 FR 53484 through 53486), this 
extension of the moratorium on the full application of the 25-percent 
threshold policy results in a ``gap'' period where LTCHs are required 
to comply with the fully-implemented 25-percent threshold policy for 
their cost reporting periods beginning on or after July 1, 2016, and 
before October 1, 2016, for any discharges occurring on or before 
September 30, 2016. For the same reasons discussed in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53485 through 53486), although those LTCHs 
with cost reporting periods beginning on or after July 1 and before 
October 1 2016 are ``technically'' subject to the 25-percent threshold 
policy until October 1, 2016, we believe that very few, if any, LTCHs 
will actually receive a payment adjustment because these LTCHs would 
rarely, if ever, admit more than 25 percent of their discharges from 
any one referring hospital during the limited period of 1 to 3 months 
(depending on the LTCH's cost reporting beginning date) that the 25-
percent threshold policy was technically in effect.)
    Comment: Several commenters supported CMS' proposals to implement 
section 15006 of the 21st Century Cures Act.
    Response: We thank these commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposals without modification.
    In addition, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20028), we proposed to adopt a 1-year regulatory moratorium on the 
implementation of the 25-percent threshold policy; that is, we proposed 
to impose a regulatory moratorium on our implementation of Sec.  
412.538 until October 1, 2018. This proposal was made in response to 
the further statutory delays and our continued consideration of public 
comments received in response to our proposal to consolidate and 
streamline the 25-percent threshold policy in the FY 2017 IPPS/LTCH PPS 
proposed rule. In response to that proposed rule, several commenters 
stated that the new site neutral payment rate would alleviate the 
policy concerns underlying the 25-percent threshold policy. As we 
stated in more detail in our response to those comments in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57106), we are not convinced that this 
is the case.
    However, given this additional statutory moratorium, we believe 
that it was appropriate at that time to propose to establish a 
regulatory moratorium on the implementation of the 25-percent threshold 
policy until we can examine data under the application of the site 
neutral payment rate to further evaluate, when more data are available, 
whether the policy is in fact still necessary. We stated in the 
proposed rule that while we are not convinced that the application of 
the site neutral payment rate removes the need for the 25-percent 
threshold policy, we believe that evaluating the impact of the 
application of the site neutral payment rate on LTCH admission 
practices would be premature at that time. The statute

[[Page 38320]]

provides that the site neutral payment rate be phased in, effective 
with LTCH cost reporting periods beginning on or after October 1, 2015 
and before October 1, 2017 (that is, LTCH cost reporting periods 
beginning in FYs 2016 and 2017). LTCH claims data for discharges that 
occurred in FY 2016 is currently the best available data, and given 
that phase-in of the site neutral payment rate is based on LTCHs' cost 
reporting period start dates, many LTCH discharges that occurred during 
FY 2016 were not yet subject to the site neutral payment rate because 
they occurred in a LTCH cost reporting period that had begun prior to 
October 1, 2016. Consequently, at the time of the proposed rule, we 
only had a partial year of LTCH claims data under the period where the 
site neural payment rate was in effect, which may not be fully 
reflective of any changes in LTCH admission practices under the new 
dual rate LTCH PPS. We stated in the proposed rule that proposing an 
additional regulatory moratorium on the 25-percent threshold policy 
through FY 2018 would allow CMS the opportunity to do an analysis of 
LTCH admission practices under the new dual payment rate LTCH PPS based 
on more complete data and would avoid creating any additional confusion 
by having the 25-percent threshold policy become effective for a period 
of time when future analysis of LTCH claims data may indicate the 
policy concerns underlying the 25-percent threshold policy have been 
moderated.
    Therefore, in the proposed rule, we proposed to revise the 
effective date of Sec.  412.538 so that the 25-percent threshold policy 
would apply to discharges occurring on or after October 1, 2018. 
Further, we proposed that if, in response to public comments, we did 
not finalize this proposed additional 1-year regulatory moratorium, we 
would revise Sec.  412.538 so that the 25-percent threshold policy 
would apply to discharges occurring on or after October 1, 2017, 
consistent with the provisions of section 15006 of Public Law 114-255. 
We sought public comments on our proposals.
    Comment: Several commenters supported CMS' proposal for an 
additional 1-year regulatory delay in the full application of the 25-
percent threshold policy. In addition, several commenters requested 
that, in lieu of or in addition to the additional 1-year regulatory 
delay in the full application of the 25-percent threshold policy, CMS 
rescind the policy. Some of these commenters also requested that CMS 
make public its analysis about whether the policy continues to be 
necessary. MedPAC opposed the proposed additional 1-year delay in the 
full application of the 25-percent threshold policy.
    Response: We thank commenters for their support of the proposed 
additional 1-year regulatory delay of the 25-percent threshold policy 
for FY 2018. As we explained in both the FY 2016 and FY 2017 rulemaking 
cycles, and reiterated in the proposed rule, we are not convinced that 
recent revisions to the LTCH PPS (for example the introduction of the 
site-neutral payment rate) have addressed the policy concerns which 
caused us to adopt the policy. We believe that the 1-year delay will 
allow both CMS and providers to gain additional experience with the 
site neutral payment rate and allow us to determine whether the policy 
is still necessary. For this reason, although we understand MedPAC's 
concerns, we believe that we should have additional experience under 
the revised LTCH PPS prior to the policy becoming effective in order to 
ensure it is still necessary and appropriate. We note that if we 
undertake further rulemaking on this topic, we will, in accordance with 
the APA, publically note our reasons for any potential proposed 
changes.
    After consideration of the public comments we received, we are 
finalizing the proposal for an additional 1-year regulatory delay of 
the 25-percent threshold policy for FY 2018 without modification.
    Comment: Some commenters requested confirmation that the 
regulations at Sec. Sec.  412.534 and 412.536 would not apply until 
October 1, 2018 and that the 25-percent threshold policy would not 
apply during the ``gap'' period between July 1, 2016 and October 1, 
2016 for certain locations of certain hospitals.
    Response: In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57102), we 
sunsetted both Sec. Sec.  412.534 and 536 and replaced them with the 
unified 25-percent threshold policy at Sec.  412.538. Under the unified 
policy, regardless of any statutory or regulatory moratorium on Sec.  
412.538, by the terms of Sec.  412.534 and 536 themselves, hospitals 
are no longer subject to them. As discussed above, we are finalizing 
our proposal of an additional 1-year regulatory delay of the 25-percent 
threshold policy for FY 2018. As such, we confirm that, under our 
finalized changes to the regulations, no hospital will be subject to 
Sec.  412.538 until discharges occurring on or after October 1, 2018. 
The commenters are incorrect that we proposed not to apply the 25-
percent threshold policy during the ``gap'' period. However, as we 
stated in the proposed rule, we do not believe that there will be any 
practical effect of the application of the policy. The 25-percent 
threshold policy (under Sec. Sec.  412.434, 412.536, and 412.538) is 
calculated based on a hospital's entire cost reporting period, which is 
generally a full calendar year (12 months). In order for a hospital to 
have any payment reduction during the ``gap'' period (which would only 
apply to discharges occurring before October 1, 2016 in cost reporting 
periods beginning on or after July 1, 2016) the hospital must exceed 
the 25-percent threshold with respect to a referring hospital within 
(at most) a 3-month period.

H. Revision To Moratorium on Increasing Beds in Existing LTCH or LTCH 
Satellite Locations Under the 21st Century Cures Act (Pub. L. 114-255) 
(Sec.  412.23)

    Section 1206(b)(2) of Public Law 113-67, as amended by section 
112(b) of the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 
113-93), established ``new'' statutory moratoria on the establishment 
of new LTCHs and LTCH satellite facilities and on the increase in the 
number of hospital beds in existing LTCHs and LTCH satellite 
facilities, effective April 1, 2014 through September 30, 2017, by 
amending section 114(d)(1) of the MMSEA (as amended). In addition, the 
statute also provided an exception under the ``new'' moratorium under 
section 114(d)(7) of the MMSEA (as amended) to establish a new LTCH or 
LTCH satellite facility during the period between April 1, 2014, and 
September 30, 2017, if a hospital or entity meets criteria, which 
mirror the expired provisions of section 114(d)(2)(A). For a discussion 
on our implementation of these moratoria, we refer readers to the FY 
2015 IPPS/LTCH PPS final rule (79 FR 50189 through 50193).
    Section 15004(a) of Public Law 114-255 further amended section 
114(d)(7) of the MMSEA (as amended) by striking ``The moratorium under 
paragraph (1)(A)'' and inserting ``[a]ny moratorium under paragraph 
(1)'' and specified that such amendment shall take effect as if 
included in the enactment of section 112 of the PAMA. Under this 
amendment, all existing LTCHs or LTCH satellite locations are no longer 
subject to a moratorium on an increase in LTCH beds set forth in 
paragraph (1)(B) if they meet certain criteria. In order to implement 
this statutory change, in the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 20029), we proposed to amend Sec.  412.23(e)(7) by revising 
paragraph (e)(7)(iii) to specify that the moratorium on increasing the 
number of beds in existing LTCHs and

[[Page 38321]]

existing LTCH satellites does not apply if one or more or the 
exceptions described in Sec.  412.23(e)(6)(ii) is met in accordance 
with the provisions of section 15004(a) of Public Law 114-255. (We note 
that section 15004(b) of Public Law 114-255 provides for a modification 
to LTCH high-cost outlier payments. Our proposals to implement this 
provision were discussed in section V.D. of the Addendum to the 
proposed rule.) We sought public comments on this proposal.
    Comment: Several commenters supported CMS' proposal to implement 
section 15004(a) of the 21st Century Cures Act.
    Response: We thank these commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to amend Sec.  
412.23(e)(7) by revising paragraph (e)(7)(iii) to specify that the 
moratorium on increasing the number of beds in existing LTCHs and 
existing LTCH satellites does not apply if one or more or the 
exceptions described in Sec.  412.23(e)(6)(ii) is met in accordance 
with the provisions of section 15004(a) of Public Law 114-255.

I. Change To the Average Length of Stay Criterion Under the 21st 
Century Cures Act (Pub. L. 114-255)

    Under the requirements at sections 1886(d)(1)(B)(iv)(I) and 
1861(ccc) of the Act, in order for a hospital to be classified as an 
LTCH, the hospital has to maintain an average length of stay of greater 
than 25 days as calculated by the Secretary. Section 1206(a)(3) of the 
Pathway for SGR Reform Act of 2013 (Pub. L. 113-67) excluded Medicare 
Advantage plans' and site neutral payment rate discharges from this 
calculation for hospitals that were classified as LTCHs as of December 
10, 2013. We implemented this provision in the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49638). Section 15007 of Public Law 114-255 amended 
section 1206(a)(3) of the Pathway for SGR Reform Act by extending the 
exclusion of Medicare Advantage plans' and site neutral payment rate 
discharges from the calculation of the average length of stay to all 
LTCHs, for discharges occurring in cost reporting periods beginning on 
or after October 1, 2015. In order to implement this provision, in the 
FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20029), we proposed to 
remove the final sentence of our regulations at 42 CFR 
412.23(e)(2)(vi), which included site neutral payment rate and Medicare 
Advantage discharges in the calculation of the average length of stay 
for LTCHs which were classified as such after December 10, 2013. We 
sought public comments on our proposal.
    Comment: Several commenters supported CMS' proposal to implement 
section 15007 of the 21st Century Cures Act.
    Response: We thank these commenters for their support.
    Comment: Several commenters requested that CMS remove the 
requirement for LTCHs to maintain a greater than 25 day average length 
of stay entirely, lower the requisite average length of stay, and/or 
make changes to the method of calculating the average length of stay.
    Response: While we consider these comments outside the scope of 
this proposed rule, we note that the requirement that LTCHs maintain an 
average length of stay of greater than 25 days is required under 
section 1886(d)(1)(B)(iv) of the Act, and therefore we have no 
authority to either remove or reduce this requirement. We may consider 
the possibility of refining the method of calculating whether an LTCH 
has maintained the requisite average length of stay in future 
rulemaking.
    After consideration of the public comments we received, we are 
finalizing our proposal, without modification, to remove the final 
sentence of our regulations at 42 CFR 412.23(e)(2)(vi), which included 
site neutral payment rate and Medicare Advantage discharges in the 
calculation of the average length of stay for LTCHs which were 
classified as such after December 10, 2013.

J. Change in Medicare Classification for Certain Hospitals (Sec.  
412.22)

    When enacted, section 1886(d)(1)(B)(iv) of the Act established a 
category of hospitals that experience extended average inpatient length 
of stays, which are known as LTCHs under the Medicare program. Clause 
(iv) of section 1886(d)(1)(B) consisted of two subclauses (I) and (II) 
(that is, section 1886(d)(1)(B)(iv)(I) and section 
1886(d)(1)(B)(iv)(II) of the Act) which corresponded to two categories 
of hospitals that were generally referred to as ``subclause (I)'' and 
``subclause (II)'' LTCHs. ``Subclause (I)'' LTCHs were required to have 
an average inpatient length of stay that is greater than 25 days. 
``Subclause (II)'' LTCHs were only required to have an average 
inpatient length of stay of greater than 20 days. The ``subclause 
(II)'' LTCH definition further limited the classification of a 
``subclause (II)'' LTCH by including the requirement that the LTCH must 
have been first excluded from the IPPS in CY 1986, and treated a 
Medicare inpatient population in which 80 percent of the discharges in 
the 12-month reporting period ending in Federal FY 1997 had a principal 
diagnosis that reflected a finding of neoplastic disease as defined in 
subsection (f)(1)(iv) section 1886 of the Act. This statutory 
requirement was implemented under 42 CFR 412.23(e)(2)(ii).
    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). Under this payment 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). This payment 
adjustment for ``subclause (II)'' LTCHs is specified at Sec.  412.526. 
For more information on this payment adjustment, we refer readers to 
the FY 2015 IPPS/LTCH PPS final rule (79 FR 50193 through 50197). As 
initially adopted, the ``TEFRA-like'' reasonable cost-based payment 
adjustment for ``subclause (II)'' LTCHs did not incorporate the 
limitation on charges to Medicare beneficiaries policies under the 
TEFRA payment system. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57109 through 57110), we amended the regulations at Sec.  412.507 
relating to the limitation on charges to address beneficiary charges 
for LTCH services provided by ``subclause (II)'' LTCHs as part of our 
refinement of the payment adjustment for ``subclause (II)'' LTCHs under 
Sec.  412.526. Under this refinement, ``subclause (II)'' LTCHs are 
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.
    Section 15008 of Public Law 114-225 provides for a change in 
Medicare classification for ``subclause (II)'' LTCH by redesignating 
such hospitals from section 1886(d)(1)(B)(iv)(II) to section 
1886(d)(1)(B)(vi) of the Act. In addition, subsection (b) of section 
15008 specifies that, for cost reporting periods beginning on or after 
January 1, 2015, such hospitals classified under section 
1886(d)(1)(B)(vi) of the Act are not subject to section 1886(m) of the 
Act, which sets forth the LTCH PPS. Section

[[Page 38322]]

15008 further specifies that, for cost reporting periods beginning on 
or after January 1, 2015, payment for inpatient operating costs is to 
be made as described in 42 CFR 412.526(c)(3), including any subsequent 
modifications, and payment for capital costs is to be made as described 
in 42 CFR 412.526(c)(4) as in effect on January 1, 2015. (We note that 
there have been no revisions to the regulations at 42 CFR 412.526, 
including Sec.  412.526(c)(3) and Sec.  412.526(c)(4), since January 1, 
2015.)
    In order to implement these requirements, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 20029), we proposed to revise Sec.  
412.23(e)(2)(ii) so that the definition in that paragraph would apply 
to hospitals in cost reporting periods beginning on or after August 5, 
1997 and on or before December 31, 2014. In addition, we proposed to 
add a new paragraph (j) to Sec.  412.23 that would establish a new 
classification of IPPS-excluded hospital (formerly named ``long-term 
care neoplastic disease hospitals'' but renamed ``extended neoplastic 
disease care hospital'') that would identify hospitals classified under 
new section 1886(d)(1)(B)(vi) of the Act. Proposed new paragraph (j) 
would further specify in paragraph (j)(2) that payment for inpatient 
operating costs for these hospitals is made as described in Sec.  
412.526(c)(3) and payment for capital costs for these hospitals is made 
as described in Sec.  412.526(c)(4). (We note that we did not propose 
to make changes to Subpart O by removing references to ``subclause (II) 
LTCHs'' due to the sunset date we proposed to add to Sec.  
412.23(e)(2)(ii).) We sought public comments on our proposal.
    In section VII.A of the preamble of this final rule, we summarize 
and respond to the public comments on these proposals. In summary, as 
discussed in greater detail in section VII.A of this preamble, we are 
finalizing our proposal, without modification, to revise Sec.  
412.23(e)(2)(ii) so that the definition in that paragraph will apply to 
hospitals in cost reporting periods beginning on or after August 5, 
1997 and on or before December 31, 2014; and in response to public 
comments we are making our changes to payment regulations at new 
paragraph (i) under Sec.  412.22 (which is identical, with the 
exception of minor technical editing for cross-references, to the 
language we proposed at Sec.  412.23(j)) that establishes a new 
classification of IPPS-excluded hospital (formerly termed ``long-term 
care neoplastic disease hospitals,'' but renamed ``extended neoplastic 
disease care hospitals'') that will identify hospitals classified under 
new section 1886(d)(1)(B)(vi) of the Act.

IX. 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 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, care coordination, and 
improving patient outcomes (including patient experiences with care).
    We have implemented quality reporting programs for multiple care 
settings, including, for example:
     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);
     Prospective Payment System (PPS)-exempt cancer hospitals 
under the PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program;
     Long-term care hospitals under the Long-Term Care Hospital 
Quality Reporting Program (LTCH QRP) (also referred to as the LTCHQR 
Program);
     Inpatient psychiatric facilities under the Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) 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));
     Ambulatory surgical centers under the Ambulatory Surgical 
Center Quality Reporting (ASCQR) Program;
     Inpatient rehabilitation facilities under the Inpatient 
Rehabilitation Facility Quality Reporting Program (IRF QRP);
     Care furnished by physicians and other eligible 
professionals under the Physician Quality Reporting System (PQRS). We 
note that beginning in CY 2019, PQRS will be replaced by the Quality 
Payment Program (QPP), as stated in the MIPS APM final rule with 
comment period (81 FR 77008);
     Skilled nursing facilities under the Skilled Nursing 
Facility Quality Reporting Program (SNF QRP);
     Home health agencies under the Home Health Quality 
Reporting Program (HH QRP); and
     Hospices under the Hospice Quality Reporting Program 
(HQRP).
    We have also implemented programs which link payment to performance 
including: The Hospital Readmissions Reduction Program (HRRP); the 
Hospital Value-Based Purchasing (VBP) Program (described further 
below); the Hospital-Acquired Condition (HAC) Reduction Program; the 
End-Stage Renal Disease Quality Incentive Program (ESRD QIP); and the 
Quality Payment Program (QPP).
    In implementing the Hospital IQR Program and other quality 
reporting programs, we have focused on measures which have high impact 
and support CMS and HHS priorities for improved quality and efficiency 
of care for Medicare beneficiaries. We have made significant progress 
over recent program years in reaching our goal of aligning 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 of multiple programs on providers 
will be reduced. We outline the aligned policies between the Hospital 
IQR Program and the Medicare and Medicaid EHR Incentive Programs in the 
FY 2017 IPPS/LTCH PPS final rule (81 FR 57172). Our goal for the future 
is to continue to align those quality measurement requirements and to 
adopt a more streamlined set of clinical quality measures with 
electronic specifications aligned to standardized data elements so that 
electronic collection of performance information is a seamless 
component of care delivery. We believe the electronic collection and 
reporting of quality data using health IT will greatly simplify and 
streamline reporting for various CMS quality reporting programs, and 
hospitals will experience decreased financial and administrative burden 
as they are able to switch primarily to health IT based data reporting 
for many measures that are currently manually chart-abstracted.
    We also have implemented a Hospital VBP Program under section 
1886(o) of the Act, described in the FY 2013 Hospital Inpatient VBP 
Program final rule (76 FR 26490 through 26547); the FY 2014 the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50676 through 50707); the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50048 through 50087); the FY 2016 IPPS/LTCH 
PPS final rule (80 FR 49544 through 49570); the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56979 through 57011); and the CY 2017 OPPS/ASC final 
rule with comment period (81

[[Page 38323]]

FR 79855 through 79862). Under the Hospital VBP Program, performance 
standards are set and applied to a performance period for the 
applicable FY. Hospitals receive value based incentive payments based 
on these performance standards. The measures under the Hospital VBP 
Program must be selected from current 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 publicly reported under the Hospital IQR 
Program, these two programs are linked. 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, 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 (scoring performance on each 
measure on the greater of improvement or achievement), while the HAC 
Reduction Program creates a payment adjustment resulting in payment 
reductions for hospitals with scores in the lowest performing quartile 
based on their rates of HACs.
    In the preamble of FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20030 
through 20064), we proposed changes to the following Medicare quality 
reporting systems:
     In section IX.A., the Hospital IQR Program.
     In section IX.B., the PCHQR Program.
     In section IX.C., the LTCH QRP.
     In section IX.D., the IPFQR Program.
    In addition, in section IX.E. of the preamble of the proposed rule 
(82 FR 20130 through 20139), we proposed changes to the Medicare and 
Medicaid EHR Incentive Programs for eligible hospitals and critical 
access hospitals (CAHs).

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. History of the Hospital IQR Program
    We seek to promote higher quality and more efficient health care 
for Medicare beneficiaries. This effort is supported by the adoption of 
widely-agreed upon quality measures. We have worked with relevant 
stakeholders to define measures of quality in almost every setting and 
currently measure some aspect of care for almost all Medicare 
beneficiaries. These measures assess structural aspects of care, 
clinical processes, patient experiences with care, and outcomes. We 
have implemented quality measure reporting programs for multiple 
settings of care. To measure the quality of hospital inpatient 
services, we implemented the Hospital Inpatient Quality Reporting (IQR) 
Program, previously referred to as the Reporting Hospital Quality Data 
for Annual Payment Update (RHQDAPU) 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), the FY 2016 IPPS/LTCH PPS final rule (80 FR 49660 
through 49692), and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57148 
through 57150) for the measures we have adopted for the Hospital IQR 
Program measure set through the FY 2019 payment determination and 
subsequent years.
    We strive to put patients first, ensuring they are empowered to 
make decisions about their own healthcare along with their clinicians 
using information from data-driven insights that are increasingly 
aligned with meaningful quality measures. We support technology that 
reduces burden and allows clinicians to focus on providing high-quality 
healthcare for their patients. We also support innovative approaches to 
improve quality, accessibility, and affordability of care while paying 
particular attention to improving clinicians' and beneficiaries' 
experience when interacting with our programs. In combination with 
other efforts across the Department of Health and Human Services, we 
believe the Hospital IQR Program helps to incentivize hospitals to 
improve healthcare quality and value, while giving patients and 
providers the tools and information needed to make the best decisions 
for them. Recognizing that the Hospital IQR Program represents a key 
component of the way that we bring quality measurement and improvement 
together with payment, we have taken efforts to review existing 
policies to identify how to move the program forward in the least 
burdensome manner possible while continuing to incentivize improvement 
in the quality of care provided to patients.
b. Maintenance of Technical Specifications for Quality Measures
    The technical specifications for chart-abstracted clinical process 
of care measures used in the Hospital IQR Program, or links to Web 
sites hosting technical specifications, are contained in the CMS/The 
Joint Commission (TJC) Specifications Manual for National Hospital 
Inpatient Quality Measures (Specifications Manual). This Specifications 
Manual is posted on the QualityNet Web site at: http://www.qualitynet.org/. We generally update the Specifications Manual on a 
semiannual basis and include in the updates detailed instructions and 
calculation algorithms for hospitals to use when collecting and 
submitting data on required chart-abstracted clinical process of care 
measures.
    The technical specifications for electronic clinical quality 
measures (eCQMs) used in the Hospital IQR Program are contained in the 
CMS Annual Update for Hospital Quality Reporting Programs (Annual 
Update). This Annual Update is posted on the eCQI Resource Center 
webpage at: https://ecqi.healthit.gov/. We generally update the measure 
specifications on an annual basis through the Annual Update, which 
includes code updates, logic corrections, alignment with current 
clinical guidelines, and additional guidance for hospitals and EHR 
vendors to use in order to collect and submit data on eCQMs from 
hospital EHRs.
    In addition, we believe that it is important to have in place a 
sub-regulatory process to incorporate non-substantive 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 sub-regulatory process to make non-substantive 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

[[Page 38324]]

might not be appropriate for adoption using a sub-regulatory process. 
We will continue to use rulemaking to adopt substantive updates made to 
measures we have adopted for the Hospital IQR Program. We refer readers 
to the FY 2017 IPPS/LTCH PPS final rule (81 FR 57111) for additional 
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 details on the measure maintenance process.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20031), we did 
not propose any changes to our policies on the measures maintenance 
process, including the maintenance of non-substantive 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. Our current policy is to report data from the Hospital IQR 
Program as soon as it is feasible on CMS Web sites such as the Hospital 
Compare Web site, http://www.medicare.gov/hospitalcompare after a 30-
day preview period (78 FR50776 through 50778).
    Information is available to the public on the Hospital Compare Web 
site. Hospital Compare is an interactive web tool that assists 
beneficiaries by providing information on hospital quality of care to 
those who need to select a hospital. The Hospital IQR Program currently 
includes process of care measures, risk-adjusted outcome measures, the 
HCAHPS patient experience-of-care survey measure, structural measures, 
Emergency Department throughput measures, patient safety and adverse 
event measures, immunization measures, hospital-acquired infection 
measures, and payment measures, all of which are featured on the 
Hospital Compare Web site. For more information on measures reported to 
Hospital Compare, we refer readers to the Web site at: http://www.medicare.gov/hospitalcompare.
    Other information that may not be as relevant to or easily 
understood by beneficiaries and information for which there are 
unresolved display issues or design considerations are not reported on 
Hospital Compare and may be made available on other CMS Web sites, such 
as https://data.medicare.gov. CMS also provides stakeholders access to 
archived data from Hospital Compare, which can be found at: https://data.medicare.gov/data/archives/hospital-compare.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20031 through 
20032), we did not propose any changes to these policies.
d. Accounting for Social Risk Factors in the Hospital IQR Program
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20032 through 
20033), we discussed the accounting for social risk factors in the 
Hospital IQR Program. We understand that social risk factors such as 
income, education, race and ethnicity, employment, disability, 
community resources, and social support (certain factors of which are 
also sometimes referred to as socioeconomic status (SES) factors or 
socio-demographic status (SDS) factors) play a major role in health. 
One of our core objectives is to improve beneficiary outcomes including 
reducing health disparities, and we want to ensure that all 
beneficiaries, including those with social risk factors, receive high 
quality care. In addition, we seek to ensure that the quality of care 
furnished by providers and suppliers is assessed as fairly as possible 
under our programs while ensuring that beneficiaries have adequate 
access to excellent care.
    We have been reviewing reports prepared by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) \99\ and the 
National Academies of Sciences, Engineering, and Medicine on the issue 
of measuring and accounting for social risk factors in CMS' quality 
measurement and payment programs, and considering options on how to 
address the issue in these programs. On December 21, 2016, ASPE 
submitted a Report to Congress on a study it was required to conduct 
under section 2(d) of the Improving Medicare Post-Acute Care 
Transformation (IMPACT) Act of 2014. The study analyzed the effects of 
certain social risk factors of Medicare beneficiaries on quality 
measures and measures of resource use used in one or more of nine 
Medicare value-based purchasing programs.\100\ The report also included 
considerations for strategies to account for social risk factors in 
these programs. In a January 10, 2017 report released by the National 
Academies of Sciences, Engineering, and Medicine, that body provided 
various potential methods for measuring and accounting for social risk 
factors, including stratified public reporting.\101\
---------------------------------------------------------------------------

    \99\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \100\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \101\ National Academies of Sciences, Engineering, and Medicine. 
2017. Accounting for social risk factors in Medicare payment. 
Washington, DC: The National Academies Press.
---------------------------------------------------------------------------

    As noted in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57124), the 
NQF undertook a 2-year trial period in which new measures, measures 
undergoing maintenance review, and measures endorsed with the condition 
that they enter the trial period could be assessed to determine whether 
risk adjustment for selected social risk factors is appropriate for 
these measures. This trial entailed temporarily including social risk 
factors in the risk-adjustment approach for these measures. Since 
publication of the FY 2018 IPPS/LTCH PPS proposed rule, we have learned 
that the trial period ended in April 2017 and a draft report is 
available at: http://www.qualityforum.org/SES_Trial_Period.aspx.
    As we continue to consider the analyses and recommendations from 
these reports, we are continuing to work with stakeholders in this 
process. As we have previously communicated, we are concerned about 
holding providers to different standards for the outcomes of their 
patients with social risk factors because we do not want to mask 
potential disparities or minimize incentives to improve the outcomes 
for disadvantaged populations. Keeping this concern in mind, while we 
sought input on this topic previously, we continue to seek public 
comment on whether we should account for social risk factors in the 
Hospital IQR Program, and if so, what method or combination of methods 
would be most appropriate for accounting for social risk factors. 
Examples of methods include: Confidential reporting to providers of 
measure rates stratified by social risk factors; public reporting of 
stratified measure rates; and potential risk adjustment of a particular 
measure as appropriate based on data and evidence.
    In addition, in the proposed rule (82 FR 20032), we sought public 
comment on which social risk factors might be most appropriate for 
reporting stratified measure scores and/or potential risk adjustment of 
a particular measure. Examples of social risk factors include, but are 
not limited to: Dual eligibility/low-income subsidy, race and 
ethnicity, and geographic area of residence. We also sought comments on 
which of these

[[Page 38325]]

factors, including current data sources where this information would be 
available, could be used alone or in combination, and whether other 
data should be collected to better capture the effects of social risk. 
We will take commenters' input into consideration as we continue to 
assess the appropriateness and feasibility of accounting for social 
risk factors in the Hospital IQR Program. We note that any such changes 
would be proposed through future notice-and-comment rulemaking.
    We refer readers to section IX.A.13. of the preamble of this final 
rule, where we discuss the potential future confidential reporting of 
stratified measure data for the Hospital 30-day, All-Cause, Risk-
Standardized Readmission Rate Following Pneumonia Hospitalization (NQF 
#0506) and the Hospital 30-day, All-Cause, Risk Standardized Mortality 
Rate (RSMR) for Pneumonia measures. Our goal is to provide examples 
from several domains for the same issue (pneumonia). We want the reader 
to understand the approaches from as many perspectives as possible. In 
addition, we sought comments on options for publicly displaying 
stratified rates using social risk factors as well as which other 
social risk factors besides dual eligibility should be used.
    Of note, implementing any of the above methods would be taken into 
consideration in the context of how this and other CMS programs operate 
(for example, data submission methods, availability of data, 
statistical considerations relating to reliability of data 
calculations, among others), so we also welcomed comment on operational 
considerations.
    We received extensive comments in response to our request for 
public comment on whether we should account for social risk factors in 
the Hospital IQR Program, and if so, what method or combination of 
methods would be most appropriate for accounting for social risk 
factors.
    Comment: Several commenters were generally supportive of accounting 
for social risk factors in the Hospital IQR Program. The commenters 
expressed appreciation for CMS' interest in providing data to hospitals 
and to the public to inform these efforts, and urged CMS to provide 
data in a way that minimizes the risk of providing divergent signals to 
hospitals. The commenters noted that risk stratification and adjustment 
are equally significant components of valid quality assessment. 
Specifically, the commenters believed that risk-adjusting quality 
measures would: (1) Have a positive impact on provider performance; (2) 
provide information essential to allocating resources in high-risk 
areas; (3) encourage equitable care delivery, while also accounting for 
the currently disproportionate penalties for safety net and academic 
medical centers; (4) reduce costs; and (5) prevent weakening of the 
network of providers that serve disadvantaged populations, which could 
have the unintended consequence of worsening health disparities. 
Conversely, some commenters voiced concerns such as: (1) This approach 
will not address the underlying disparities that are often associated 
with poor health outcomes and might instead, mask potential disparities 
or minimize incentives to improve the outcomes for disadvantaged 
populations; and (2) adjustments to quality measures could create a 
two-tier system of care where those with few economic or social 
resources are diminished in the calculation of quality measures. Some 
commenters stated that providers should not be financially penalized 
while caring for patients with greater needs.
    Several commenters recommended that comorbidities, functional 
impediments, and cognitive limitations must be accounted for when 
assessing quality and costs. The commenters suggested that CMS conduct 
analyses to determine the degree to which certain variables, such as 
insurance, age, race, and ethnicity, impact admission rates before 
these factors are weighted as part of any quality scoring metrics. 
Where meaningful and comprehensive neighborhood level SDS-data 
currently exist, several commenters stated that CMS should encourage 
empirical tests of quality metrics adjusted for those factors to assess 
the impact of said adjustments on local provider performance metrics. 
Based on these tests, CMS and other agencies would be able to 
prioritize the national collection of data most essential for valid 
risk adjustment methodologies.
    Many commenters suggested that CMS explore a variety of approaches 
for accounting for social risk factors, including; risk adjustment, 
stratification of measure rates for public reporting, and confidential 
stratification of measures. The commenters also encouraged CMS to work 
with measure developers and relevant medical societies to ensure social 
risk factors are considered during the measure development and update 
processes. Some commenters recommended that stratification or risk-
adjustment decisions should be made on a measure by measure level and 
incorporated into the measure specifications. Some commenters 
recommended that CMS require measure developers to test a range of 
national-level socio-demographic data elements, identified in the ASPE 
\102\ and NAM \103\ reports, into the risk adjustment methodology of 
accountability metrics.
---------------------------------------------------------------------------

    \102\ Office of the Assistant Secretary for Planning and 
Evaluation. 2016. Report to Congress: Social Risk Factors and 
Performance Under Medicare's Value-Based Purchasing Programs. 
Available at: https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \103\ National Academies of Sciences, Engineering, and Medicine. 
2017. Accounting for social risk factors in Medicare payment. 
Washington, DC: The National Academies Press.
---------------------------------------------------------------------------

    Many commenters recommended providing this risk-adjusted data 
alongside unadjusted data so that interventions can be appropriately 
targeted, but discouraged the use of unadjusted data in publicly 
reported and pay-for-performance measures. Some commenters stated that 
CMS should work with stakeholders after the hospitals' review is 
complete to publicly report this data in an appropriate fashion. Other 
concerns expressed by some commenters included that data should not be 
publicly reported until hospitals have had sufficient time to review 
and understand the results and correct any errors that may stem from 
the initial implementation of any new methodology. Some commenters 
suggested that CMS provide hospitals with confidential reports of 
performance on accountability measures stratified by dual eligible 
status or other nationally available data elements within a year of 
this testing.
    Commenters encouraged CMS to continue to work on developing more 
precise approaches to risk adjustment to account for social factors in 
the rural context. Some commenters stated that CMS should implement 
demonstration projects to encourage hospitals to collect SDS data 
through their electronic health records (EHR). Some commenters advised 
CMS to monitor the effects of changes to quality programs on hospitals 
serving beneficiaries with social risk factors so that future 
programmatic changes are made with these concerns in mind. Some 
commenters also encouraged CMS to reconsider the use of a 3-year look 
back period historically used to calculate readmission rates as it 
moves forward with changes to this program.
    Response: We appreciate all the comments and interest in this 
topic. As we have previously stated, we are concerned about holding 
providers to different standards for the outcomes of their patients 
with social risk factors, because we do not want to mask potential 
disparities or minimize

[[Page 38326]]

incentives to improve outcomes for disadvantaged populations. We 
believe that the path forward should incentivize improvements in health 
outcomes for disadvantaged populations while ensuring that 
beneficiaries have access to excellent care. We appreciate that some 
commenters recommended risk adjustment as a strategy to account for 
social risk factors, while others stated a concern that risk adjustment 
could minimize incentives and reduce efforts to address disparities for 
patients with social risk factors. We will consider all suggestions as 
we continue to assess the issue of accounting for social risk factors 
within individual measures and the program as a whole, and will 
actively perform additional research and monitor for trends to prevent 
unintended consequences. We intend to explore options including, but 
not limited to, measure stratification by social risk factors in a 
consistent manner across programs when appropriate, informed by 
considerations described in section IX.A.13. of the preamble of this 
final rule, which describes options of: (1) Stratified reporting of a 
measure by patient factors, which highlights disparities in outcomes by 
patient subgroup; and (2) peer-to-peer benchmarking based on hospital's 
share of patient factors, which allows hospitals to compare their 
performance with like-peers. We also intend to conduct further analyses 
on the impact of different approaches such as measure-level risk 
adjustment and stratifying performance scoring to account for social 
risk factors including the options suggested by commenters. In 
addition, we will consider the commenters' suggestion that we conduct 
empirical testing of risk-adjusted quality metrics, and assess the 
potential impact of the findings from such testing on the 
prioritization of national data collection, in relation to risk 
adjustment methodologies.
    We appreciate commenters' recommendations regarding specific social 
risk factor variables and will work to determine the feasibility of 
collecting these patient-level variables. As we consider the 
feasibility of collecting patient-level data and the impact of 
strategies to account for social risk factors through further analysis, 
we will also continue to evaluate the reporting burden on providers.
    We are committed to ensuring that CMS beneficiaries have access to 
and receive excellent care and that the quality of care furnished by 
providers and suppliers is assessed fairly in CMS programs. We thank 
the commenters, and we will consider their views as we develop further 
policy regarding social risk factors in the Hospital IQR Program. Any 
proposals would be made in future rulemaking after further research and 
continued stakeholder engagement.
2. Retention of 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 re-adopt these measures for all subsequent payment 
determinations unless we propose to remove, suspend, or replace the 
measures. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20033), we 
did not propose any changes to this policy.
3. Removal and Suspension of Previously Adopted Hospital IQR Program 
Measures
    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. We note in the FY 2015 IPPS/LTCH 
PPS final rule (79 FR 50203 through 50204), we clarified the criteria 
for determining when a measure is ``topped-out.'' In the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 20033), we did not propose any changes to 
these policies.
    We refer readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57112 through 57120) for the list of 15 measures finalized for removal 
for the FY 2019 payment determination and subsequent years. In the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 20033), we did not propose any 
measures for removal.
4. Previously Adopted Hospital IQR Program Measures for the FY 2019 
Payment Determination and Subsequent Years
    The Hospital IQR Program has previously finalized 62 measures for 
the FY 2019 payment determination and subsequent years as outlined in 
the table below:

 Hospital IQR Program Measures for the FY 2019 Payment Determination and
                            Subsequent Years
------------------------------------------------------------------------
          Short name                  Measure name             NQF #
------------------------------------------------------------------------
                Healthcare-Associated Infection Measures
------------------------------------------------------------------------
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.
HCP..........................  Influenza Vaccination                0431
                                Coverage Among
                                Healthcare Personnel.
MRSA Bacteremia..............  National Healthcare                  1716
                                Safety Network (NHSN)
                                Facility-wide Inpatient
                                Hospital-onset
                                Methicillin-resistant
                                Staphylococcus aureus
                                (MRSA) Bacteremia
                                Outcome Measure.
------------------------------------------------------------------------
                  Claims-Based Patient Safety Measures
------------------------------------------------------------------------
Hip/knee complications.......  Hospital-Level Risk-                 1550
                                Standardized
                                Complication Rate (RSCR)
                                Following Elective
                                Primary Total Hip
                                Arthroplasty (THA) and/
                                or Total Knee
                                Arthroplasty (TKA).

[[Page 38327]]

 
PSI 04.......................  Death Rate among Surgical            0351
                                Inpatients with Serious
                                Treatable Complications.
PSI 90.......................  Patient Safety for                   0531
                                Selected Indicators
                                Composite Measure,
                                Modified PSI 90 (Updated
                                Title: Patient Safety
                                and Adverse Events
                                Composite).
------------------------------------------------------------------------
                 Claims-Based Mortality Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI..................  Hospital 30-Day, All-                0230
                                Cause, Risk-Standardized
                                Mortality Rate (RSMR)
                                Following Acute
                                Myocardial Infarction
                                (AMI) Hospitalization.
MORT-30-CABG.................  Hospital 30-Day, All-                2558
                                Cause, Risk-Standardized
                                Mortality Rate (RSMR)
                                Following Coronary
                                Artery Bypass Graft
                                (CABG) Surgery.
MORT-30-COPD.................  Hospital 30-Day, All-                1893
                                Cause, Risk-Standardized
                                Mortality Rate (RSMR)
                                Following Chronic
                                Obstructive Pulmonary
                                Disease (COPD)
                                Hospitalization.
MORT-30-HF...................  Hospital 30-Day, All-                0229
                                Cause, Risk-Standardized
                                Mortality Rate (RSMR)
                                Following Heart Failure
                                (HF) Hospitalization.
MORT-30-PN...................  Hospital 30-Day, All-                0468
                                Cause, Risk-Standardized
                                Mortality Rate Following
                                Pneumonia
                                Hospitalization.
MORT-30-STK..................  Hospital 30-Day, All-                 N/A
                                Cause, Risk-Standardized
                                Mortality Rate Following
                                Acute Ischemic Stroke.
------------------------------------------------------------------------
               Claims-Based Coordination of Care Measures
------------------------------------------------------------------------
READM-30-AMI.................  Hospital 30-Day All-Cause            0505
                                Risk-Standardized
                                Readmission Rate (RSRR)
                                Following Acute
                                Myocardial Infarction
                                (AMI) Hospitalization.
READM-30-CABG................  Hospital 30-Day, All-                2515
                                Cause, Unplanned, Risk-
                                Standardized Readmission
                                Rate (RSRR) Following
                                Coronary Artery Bypass
                                Graft (CABG) Surgery.
READM-30-COPD................  Hospital 30-Day, All-                1891
                                Cause, Risk-Standardized
                                Readmission Rate (RSRR)
                                Following Chronic
                                Obstructive Pulmonary
                                Disease (COPD)
                                Hospitalization.
READM-30-HF..................  Hospital 30-Day, All-                0330
                                Cause, Risk-Standardized
                                Readmission Rate (RSRR)
                                Following Heart Failure
                                (HF) Hospitalization.
READM-30-HWR.................  Hospital-Wide All-Cause              1789
                                Unplanned Readmission
                                Measure (HWR).
READM-30-PN..................  Hospital 30-Day, All-                0506
                                Cause, Risk-Standardized
                                Readmission Rate (RSRR)
                                Following Pneumonia
                                Hospitalization.
READM-30-STK.................  30-Day Risk Standardized              N/A
                                Readmission Rate
                                Following Stroke
                                Hospitalization.
READM-30-THA/TKA.............  Hospital-Level 30-Day,               1551
                                All-Cause Risk-
                                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            2881
                                after Hospitalization
                                for Acute Myocardial
                                Infarction.
HF Excess Days...............  Excess Days in Acute Care            2880
                                after Hospitalization
                                for Heart Failure.
PN Excess Days...............  Excess Days in Acute Care            2882
                                after Hospitalization
                                for Pneumonia.
------------------------------------------------------------------------
                      Claims-Based Payment Measures
------------------------------------------------------------------------
AMI Payment..................  Hospital-Level, Risk-                2431
                                Standardized Payment
                                Associated with a 30-Day
                                Episode-of-Care for
                                Acute Myocardial
                                Infarction (AMI).
HF Payment...................  Hospital-Level, Risk-                2436
                                Standardized Payment
                                Associated with a 30-Day
                                Episode-of-Care For
                                Heart Failure (HF).
PN Payment...................  Hospital-Level, Risk-                2579
                                Standardized Payment
                                Associated with a 30-day
                                Episode-of-Care For
                                Pneumonia.
THA/TKA Payment..............  Hospital[hyphen]Level,                N/A
                                Risk[hyphen]Standardized
                                Payment Associated with
                                an Episode-of-Care for
                                Primary Elective Total
                                Hip Arthroplasty and/or
                                Total Knee Arthroplasty.
MSPB.........................  Payment-Standardized                 2158
                                Medicare Spending Per
                                Beneficiary (MSPB).
Cellulitis Payment...........  Cellulitis Clinical                   N/A
                                Episode-Based Payment
                                Measure.
GI Payment...................  Gastrointestinal                      N/A
                                Hemorrhage Clinical
                                Episode-Based Payment
                                Measure.
Kidney/UTI Payment...........  Kidney/Urinary Tract                  N/A
                                Infection Clinical
                                Episode-Based Payment
                                Measure.
AA Payment...................  Aortic Aneurysm Procedure             N/A
                                Clinical Episode-Based
                                Payment Measure.
Chole and CDE Payment........  Cholecystectomy and                   N/A
                                Common Duct Exploration
                                Clinical Episode-Based
                                Payment Measure.
SFusion Payment..............  Spinal Fusion Clinical                N/A
                                Episode-Based Payment
                                Measure.
------------------------------------------------------------------------
           Chart-Abstracted Clinical Process of Care Measures
------------------------------------------------------------------------
ED-1*........................  Median Time from ED                  0495
                                Arrival to ED Departure
                                for Admitted ED Patients.
ED-2*........................  Admit Decision Time to ED            0497
                                Departure Time for
                                Admitted Patients.
Imm-2........................  Influenza Immunization...            1659
PC-01*.......................  Elective Delivery........            0469
Sepsis.......................  Severe Sepsis and Septic             0500
                                Shock: Management Bundle
                                (Composite Measure).
VTE-6........................  Incidence of Potentially              \+\
                                Preventable Venous
                                Thromboembolism.
------------------------------------------------------------------------
    EHR-Based Clinical Process of Care Measures (that is, Electronic
                   Clinical Quality Measures (eCQMs))
------------------------------------------------------------------------
AMI-8a.......................  Primary PCI Received                  \+\
                                Within 90 Minutes of
                                Hospital Arrival.
CAC-3........................  Home Management Plan of               \+\
                                Care Document Given to
                                Patient/Caregiver.
ED-1*........................  Median Time from ED                  0495
                                Arrival to ED Departure
                                for Admitted ED Patients.

[[Page 38328]]

 
ED-2*........................  Admit Decision Time to ED            0497
                                Departure Time for
                                Admitted Patients.
EHDI-1a......................  Hearing Screening Prior              1354
                                to Hospital Discharge.
PC-01*.......................  Elective Delivery........            0469
PC-05........................  Exclusive Breast Milk                0480
                                Feeding.
STK-02.......................  Discharged on                        0435
                                Antithrombotic Therapy.
STK-03.......................  Anticoagulation Therapy              0436
                                for Atrial Fibrillation/
                                Flutter.
STK-05.......................  Antithrombotic Therapy by            0438
                                the End of Hospital Day
                                Two.
STK-06.......................  Discharged on Statin                 0439
                                Medication.
STK-08.......................  Stroke Education.........             \+\
STK-10.......................  Assessed for                         0441
                                Rehabilitation.
VTE-1........................  Venous Thromboembolism               0371
                                Prophylaxis.
VTE-2........................  Intensive Care Unit                  0372
                                Venous Thromboembolism
                                Prophylaxis.
------------------------------------------------------------------------
               Patient Experience of Care Survey Measures
------------------------------------------------------------------------
HCAHPS.......................  Hospital Consumer                    0166
                                Assessment of Healthcare          (0228)
                                Providers and Systems.
                               (including Care
                                Transition Measure
                                (CTM[dash]3)).
------------------------------------------------------------------------
                   Structural Patient Safety Measures
------------------------------------------------------------------------
Patient Safety Culture.......  Hospital Survey on                    N/A
                                Patient Safety Culture.
Safe Surgery Checklist.......  Safe Surgery Checklist                N/A
                                Use.
------------------------------------------------------------------------
* Measure listed twice, as both chart-abstracted and electronic clinical
  quality measure.
\+\ NQF endorsement has been removed.

5. Considerations in Expanding and Updating 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 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20035), we did not 
propose any changes to these policies.
6. Refinements To Existing Measures in the Hospital IQR Program for the 
FY 2020 Payment Determination and Subsequent Years
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20035 through 
20043), we proposed refinements to two measures. First, we proposed 
refinements to the Hospital Consumer Assessment of Healthcare Providers 
and Systems (HCAHPS) Survey (NQF #0166) measure for the FY 2020 payment 
determination and subsequent years. Second, we proposed refinements to 
the Stroke 30-Day Mortality Rate (MORT-30-STK) measure for the FY 2023 
payment determination and subsequent years. We discuss these 
refinements in more detail below.
a. Refining the Hospital Consumer Assessment of Healthcare Providers 
and Systems (HCAHPS) Survey (NQF #0166) Measure for the FY 2020 Payment 
Determination and Subsequent Years
    For the FY 2020 payment determination and subsequent years, we 
proposed to refine the existing Hospital Consumer Assessment of 
Healthcare Providers and Systems (HCAHPS) Survey by refining the 
current Pain Management questions (HCAHPS Q12, Q13, and Q14) to focus 
on the hospital's communications with patients about the patients' pain 
during the hospital stay. In accord with this new focus, we proposed to 
update the name of the composite measure from ``Pain Management'' to 
``Communication About Pain.''
(1) Background
    The HCAHPS Survey (NQF #0166) was adopted in the Reporting Hospital 
Quality Data Annual Payment Update Program in the CY 2007 OPPS final 
rule (71 FR 68202 through 68204), beginning with the FY 2008 payment 
determination and for subsequent years. This Survey includes three Pain 
Management questions, Q12, Q13 and Q14. In the FY 2013 IPPS/LTCH PPS 
final rule (77 FR 53513 through 53516), we added the Care Transition 
Measure (CTM-3) (NQF #0228) to the existing HCAHPS Survey, NQF #0166. 
The HCAHPS Survey, combining both NQF #0166 for the original survey and 
NQF #0228 for the Care Transition Measure adopted into the HCAHPS 
Survey in 2013, is the first national, standardized, publicly reported 
survey of patients' experience of hospital care. The HCAHPS Survey asks 
discharged patients 25 questions about their recent hospital stay and 7 
``About You'' questions. Survey results have been publicly reported on 
the Hospital Compare Web site since 2008. 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.
    The HCAHPS Survey (OMB control number 0938-0981) is administered to 
a random sample of adult patients who receive medical, surgical, or 
maternity care between 48 hours and 6 weeks (42 calendar days) after 
discharge and is not restricted to Medicare beneficiaries. Hospitals 
must survey patients throughout each month of the year. The HCAHPS 
Survey is available in official English, Spanish, Chinese, Russian, 
Vietnamese, and Portuguese versions. The HCAHPS Survey and its 
protocols for sampling, data collection and coding, and file submission 
can be found in the current HCAHPS Quality Assurance Guidelines, which 
is available on the official HCAHPS Web site at: http://www.hcahpsonline.org/qaguidelines.aspx. AHRQ carried out a rigorous, 
scientific process to develop and test the HCAHPS instrument. This 
process entailed multiple steps, including: A public call for measures; 
literature reviews; cognitive interviews, consumer focus groups; 
multiple

[[Page 38329]]

opportunities for additional stakeholder input; a 3-State pilot test; 
small-scale field tests; and notice-and-comment rulemaking.\104\ We 
refer readers to the CY 2007 OPPS final rule (71 FR 68201) for a more 
in-depth discussion about this process. The HCAHPS Survey was endorsed 
by the NQF on August 5, 2005 (#0166).
---------------------------------------------------------------------------

    \104\ ``Development, Implementation, and Public Reporting of the 
HCAHPS Survey.'' L.A. Giordano, M.N. Elliott, E. Goldstein, W.G. 
Lehrman and P.A. Spencer. Medical Care Research and Review, 67 (1): 
27-37. 2010.
---------------------------------------------------------------------------

    The Pain Management questions currently included in the HCAHPS 
Survey are as follows:
[GRAPHIC] [TIFF OMITTED] TR14AU17.021

    In the CY 2017 OPPS/ASC final rule with comment period in the 
context of the Hospital VBP Program (81 FR 79856), we stated that we 
received feedback that some stakeholders are concerned about the Pain 
Management dimension questions being used in a program where there is 
any link between scoring well on the questions and higher hospital 
payments (81 FR 79856). The Pain Management dimension used in the 
Hospital VBP Program is identical in composition to the Pain Management 
measure used in the Hospital IQR Program, questions Q12, Q13 and Q14 
with one difference: The HCAHPS dimension score in the Hospital VBP 
program is based on the percentage of patients who chose the most 
positive response option (``top-box'' response). For more information 
about the Hospital VBP Program scoring methodology, we refer readers to 
the FY 2017 IPPS/LTCH PPS final rule (81 FR 57006).
    Some stakeholders believed that the linkage of the Pain Management 
dimension questions to the Hospital VBP Program payment incentives 
created pressure on hospital staff to prescribe more opioids in order 
to achieve higher scores on this dimension (81 FR 79856). We stated 
that we continue to believe that pain control is an appropriate part of 
routine patient care that hospitals should manage and is an important 
concern for patients, their families, and their caregivers (81 FR 
79856). Further, we stated that it is important to note that the HCAHPS 
Survey does not specify any particular type of pain control method (81 
FR 79856). We added that appropriate pain management includes 
communication with patients about pain-related issues, setting 
expectations about pain, shared decision-making, and proper 
prescription practices (81 FR 79856). Furthermore, we stated that 
although we were not aware of any scientific studies that support an 
association between scores on the Pain Management dimension questions 
and opioid prescribing practices, we were developing alternative 
questions for the Pain Management dimension in order to remove any 
potential ambiguity in the HCAHPS Survey. We noted that we believe that 
removing the Pain Management dimension from the

[[Page 38330]]

Hospital VBP Program scoring calculations would address potential 
confusion about the appropriate use of the Pain Management dimension, 
and provide us with an opportunity to further refine the pain 
management questions used in the HCAHPS Survey (81 FR 79859).
    In the same final rule, we stated we would follow our standard 
survey development processes, which included drafting alternative 
questions, cognitive interviews and focus group evaluation, field 
testing, statistical analysis, stakeholder input, the Paperwork 
Reduction Act, and NQF endorsement (81 FR 79856).
    In that final rule, numerous commenters supported the development 
of modified questions regarding pain management for the HCAHPS Survey 
and some commenters expressed particular support for modified pain 
management questions that focused on effective communication with 
patients about pain management-related issues (81 FR 79859 through 
79860). Specifically, a number of commenters recommended modified pain 
management questions focused on shared decision-making, discussion of 
treatment options, including non-opioid pain management therapies, 
patient understanding of pain management options, and patient 
engagement in their care (81 FR 79860).
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20035 
through 20039), for the FY 2020 payment determination and subsequent 
years, we proposed to update and refine the existing HCAHPS Survey 
questions (HCAHPS Q12, Q13, and Q14) to focus more directly on 
communication with patients about their pain during the hospital stay.
    These proposed revised questions would be used to form the 
composite measure ``Communication About Pain.'' The proposed revised 
Communication about Pain composite measure would be a part of the 
HCAHPS Survey and would be publicly reported in the Hospital IQR 
Program. More information about the revised questions/composite measure 
is included below.
    In compliance with section 1890A(a)(2) of the Act, measures 
proposed for the Hospital IQR Program were included in a publicly 
available document: ``List of Measures under Consideration for December 
1, 2016'' available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Downloads/Measures-under-Consideration-List-for-2016.pdf.
    The Measure Applications Partnership (MAP), a multi-stakeholder 
group convened by the NQF, reviews the measures under consideration for 
the Hospital IQR Program, among other Federal programs, and provides 
input on those measures to the Secretary. The MAP's 2017 
recommendations for quality measures under consideration are captured 
in the following documents: ``2016-2017 Process and Approach for MAP 
Pre Rulemaking Deliberations'' available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84455 and ``2016-2017 Spreadsheet 
of Final Recommendations to HHS and CMS'' available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84452.
    We considered the input and recommendations provided by the MAP.
    The Communication About Pain (MUC16-263) composite measure was 
reviewed by the MAP in December 2016. The MAP recommended that this 
composite measure be refined and resubmitted prior to rulemaking. The 
MAP emphasized the need to include non-pharmacological options used to 
treat pain. The MAP recommended that the testing results demonstrate 
reliability and validity for the Hospital IQR Program. The MAP also 
recommended that the measure be submitted to NQF for review and 
endorsement.\105\ We plan to resubmit the proposed refined 
Communication About Pain composite measure to the MAP at the next 
opportunity. As we discuss in more detail below, the proposed refined 
Communication About Pain composite measure underwent field testing in 
2016. Results were not yet available for the MAP's review in December 
2016, but are now complete and are posted on the official HCAHPS On-
Line Web site, ``Development of a New Communication About Pain 
Composite Measure for the HCAHPS Survey,'' available at: http://www.hcahpsonline.org/modeadjustment.aspx. We believe the measure is now 
fully developed and tested and we intend to provide feedback to the MAP 
Hospital Workgroup for review of testing results.
---------------------------------------------------------------------------

    \105\ ``2016-2017 Spreadsheet of Final Recommendations to HHS 
and CMS'' available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84452.
---------------------------------------------------------------------------

    In early 2016, we empirically tested as part of the field test the 
reliability and validity of the proposed refined Communication About 
Pain composite measure in a large-scale experiment that involved 
patients from 51 hospitals across the nation. (We note that we are 
correcting a technical error here; the proposed rule (82 FR 20037) 
stated ``50 hospitals.'') Our analyses suggest the proposed refined 
Communication About Pain composite measure, which includes two 
substantive items regarding how often staff talked about pain and how 
often staff discussed how to treat pain while in the hospital (Q13 and 
Q14), as well as a screener item (Q12), have strong reliability 
(evidence that scores for hospitals are precisely measured) and 
validity (evidence that the measure does measure the intended construct 
of patient experience).\106\ These properties of the individual 
questions used in the proposed refined Communication About Pain 
composite measure are as good as or better than the current Pain 
Management questions. The new questions are not subject to floor or 
ceiling effects (which would occur if almost all responses were in the 
lowest or highest response category), have excellent hospital-level 
reliability (here 0.88 or higher, where 0.70 or higher is the 
conventional standard) at recommended sample sizes, are not redundant 
with other current questions, are related in a predictable manner with 
the standard patient-mix characteristics, positively correlate with the 
two HCAHPS questions that assess overall patient experience (rating and 
recommendation) with the hospital, providing evidence of validity and 
do not vary systematically by survey mode, patient race/ethnicity, or 
hospital characteristics after adjusting for patient mix. They also 
have higher internal consistency as a composite measure (Cronbach's 
alpha = 0.81), with 0.70 or higher being the conventional threshold, 
providing further evidence of reliability.\107\
---------------------------------------------------------------------------

    \106\ Judd, C.M., & McClelland, G.H. (1998). Measurement. In 
D.T. Gilbert, S.T. Fiske, & G. Lindzey (Eds.), The handbook of 
social psychology (4th ed., Vol. 1, pp. 180-232). New York: McGraw-
Hill.
    \107\ Cronbach, L.J. (1984). Essentials of psychological testing 
(4th ed.). New York: Harper.
---------------------------------------------------------------------------

    As stated above, the MAP recommended the proposed refined 
Communication About Pain composite measure be submitted to the NQF for 
review and endorsement once testing has been completed.\108\ The 
proposed refined Communication About Pain composite measure is not yet 
NQF endorsed; however, we intend to submit the measure to the NQF for 
endorsement when the Person and Family Centered Care Project has a call 
for measures.
---------------------------------------------------------------------------

    \108\ ``2017 Considerations for Implementing Measures Hospitals-
Final Report,'' available at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

    Whenever feasible, we adopt measures that are NQF-endorsed, but 
note sometimes there are important

[[Page 38331]]

areas of clinical concern for which NQF-endorsed measures do not exist. 
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. (The NQF 
currently holds this contract.) We considered other existing measures 
which have been endorsed by the NQF and other consensus organizations, 
but we were unable to identify any NQF-endorsed (or other consensus 
organization endorsed) measures that were feasible and practical.
    While we consider MAP recommendations and NQF endorsement status as 
part of our decision-making process for which measures to include in 
the Hospital IQR Program, we believe it is important to adopt this 
proposed refined Communication About Pain composite measure, because 
communicating with patients about their pain is an integral part of 
delivering high quality, person-centered care.\109\ In developing the 
proposed refined Communication About Pain composite measure, we 
followed our standard survey development processes,\110\ which included 
drafting alternative questions, cognitive interviews, focus group 
evaluation, field testing, statistical analysis, and stakeholder input. 
We believe the proposed refined Communication About Pain composite 
measure has been sufficiently tested, demonstrating high levels of 
reliability and validity, as noted above.
---------------------------------------------------------------------------

    \109\ ``A Special Contribution from the Centers for Medicare and 
Medicaid Services: Valuing Patient Experience While Addressing the 
Prescription Opioid Epidemic.'' L. Tefera, W.G. Lehrman, E.G. 
Goldstein and S. Agrawal. Annals of Emergency Medicine. 2016. 
Published online, 7-19-16. http://www.annemergmed.com/article/S0196-0644(16)30367-5/fulltext.
    \110\ ``Development, Implementation, and Public Reporting of the 
HCAHPS Survey.'' L.A. Giordano, M.N. Elliott, E. Goldstein, W.G. 
Lehrman and P.A. Spencer. Medical Care Research and Review, 67 (1): 
27-37. 2010.
---------------------------------------------------------------------------

    Further, we have consistently received feedback from some 
stakeholders expressing concern that the current Pain Management 
questions encourage overprescribing of opioids as discussed in the CY 
2017 OPPS/ASC final rule with comment period (81 FR 79856). As a 
result, we believe it is important to refine the existing Pain 
Management measure. In the proposed rule (82 FR 20038), we noted that 
if our proposal to revise the current Pain Management measure questions 
with those in the proposed refined Communication About Pain composite 
measure is not finalized, we would continue to use the Pain Management 
questions as previously finalized.
    The proposed refined Communication About Pain composite measure is 
discussed below. We proposed to revise the current Pain Management 
questions (Q12, Q13, and Q14) in the HCAHPS Survey for the FY 2020 
payment determination and subsequent years by adopting the proposed 
refined Communication About Pain composite measure in the HCAHPS Survey 
beginning with the FY 2020 payment determination, which would be 
applicable to surveys administered to patients beginning with January 
1, 2018 discharges and for subsequent years.
    In compliance with section 1886(b)(3)(B)(viii)(VII) of the Act, we 
calculate and publicly report HCAHPS measures from four consecutive 
quarters of data. From that point and forward, the oldest quarter of 
data is rolled off, the newest quarter is rolled on, and the measure 
scores are calculated for this unique set of four quarters and are 
publicly reported on the Hospital Compare Web site and available for 
payment determination. Data submitted for the current Pain Management 
measure in CY 2017 for the FY 2019 payment determination will be 
publicly reported on the Hospital Compare Web site in October 2018. In 
the proposed rule (82 FR 20038), we noted that if our proposal to 
revise the HCAHPS Pain Management measure with the HCAHPS Communication 
About Pain composite measure is finalized, we would begin to use the 
new Pain Management questions on the HCAHPS Survey in January of 2018. 
Once we have collected four consecutive quarters of the HCAHPS 
Communication About Pain composite measure questions, we would create 
scores for the Communication About Pain composite measure.
    We would be unable to report or use for payment determination 
either the original or new Pain Management measure unless and until we 
have collected 4 quarters of data for the measure. The CY 2017 
reporting period/FY 2019 payment determination would be the last period 
for which we have four quarters of the original Pain Management measure 
data which, as stated above, would be publicly reported on the Hospital 
Compare Web site in October 2018. We would be unable to publicly report 
either the original or proposed refined Communication About Pain 
composite measure on the Hospital Compare Web site in December 2018, 
April 2019, or July 2019 because there would be fewer than 4 quarters 
of data for both the original and the new measure. The CY 2018 
reporting period/FY 2020 payment determination would be the first 
period for which we have four quarters of the proposed refined 
Communication About Pain composite measure. Therefore, the first 
opportunity to publicly report the Communication About Pain composite 
measure on the Hospital Compare Web site would be in October 2019. From 
this point forward, the proposed refined Communication About Pain 
composite measure could be used for payment determinations.
(2) Overview of Measure
    The refined questions that comprise the proposed refined 
Communication About Pain composite measure closely mirror the structure 
and style of the existing Pain Management questions. However, the new 
questions address how providers communicate with patients about pain 
while removing any ambiguities in the wording or intent of the 
questions. This refinement is consistent with the HCAHPS Survey's 
original design, development, and NQF endorsement (NQF #0166). Further, 
we designed the Communication About Pain composite measure to be 
consistent and compatible with existing HCAHPS questions and HCAHPS 
sampling and survey administration protocols. The three Communication 
About Pain composite measure questions are as follows:

[[Page 38332]]

[GRAPHIC] [TIFF OMITTED] TR14AU17.022

    As stated above, in light of the ongoing opioid epidemic, we 
believe it is important the Communication About Pain composite measure 
is abundantly clear in its focus on communication about pain between 
providers and their patients, and it is applicable to all patients who 
experienced pain during their hospital stay.
(3) Data Collection
    The proposed refined Communication About Pain composite measure 
questions would be administered and data collected in exactly the same 
manner as the current Pain Management measure questions. There would be 
no changes to HCAHPS patient eligibility or exclusion criteria. 
Detailed information on HCAHPS data collection protocols can be found 
in the current HCAHPS Quality Assurance Guidelines, located at: http://www.hcahpsonline.org/qaguidelines.aspx. We reiterate that other than 
the revision of the HCAHPS Pain Management questions, the HCAHPS Survey 
and its administration and data collection protocols would be 
unchanged. The survey adjustment and patient-mix adjustment for the 
proposed refined Communication About Pain composite measure would be 
made available on the official HCAHPS On-Line Web site at: http://www.hcahpsonline.org/modeadjustment.aspx.
(4) Public Reporting
    The scoring of the proposed refined Communication About Pain 
composite measure would be the same as the current Pain Management 
measure. Detailed information on how the measure would be scored for 
purposes of public reporting can be found on the HCAHPS Web site at: 
http://www.hcahpsonline.org/Files/Calculation%20of%20HCAHPS%20Scores.pdf.
    We invited public comment on our proposal to revise the current 
Pain Management questions (Q12, Q13, and Q14) in the HCAHPS Survey for 
the FY 2020 payment determination and subsequent years by adopting the 
proposed refined Communication About Pain composite measure in the 
HCAHPS Survey beginning with the FY 2020 payment determination and 
subsequent years, which would be applicable to surveys administered to 
patients beginning with January 1, 2018 discharges and for subsequent 
years as discussed above.
    Comment: There was a consensus among commenters that pain care is a 
critical matter to measure as part of HCAHPS. Many commenters supported 
the proposed refinement to the HCAHPS Survey measure pain management 
questions. The commenters noted reframing the HCAHPS pain measures as 
``Communication About Pain'' is a positive change that would help 
ensure care is more patient-centered. The commenters appreciated the 
fact the new questions focus more directly on communication with 
patients about their pain during the hospital stay, as

[[Page 38333]]

opposed to patients' perceptions of the adequacy of pain treatment 
during the hospital stay. One commenter commended CMS on its 
responsiveness to concerns about pain and the development of new items 
focusing less on pharmacotherapy items. Another commenter noted that 
pain management measures address an important aspect of patient care. 
Another commenter noted that Pain Management questions are needed for 
improved delivery of care, proper pain management, and shared decision 
making. Another commenter noted that the revised pain management 
questions are an improvement. One commenter supported refining the pain 
management questions to dissuade over-prescription of opioids and 
remove ambiguities, and appreciated the steps taken by CMS to test for 
reliability and validity. One commenter noted that the new focus on 
pain communication is positive, ensuring that care is more patient-
centered. Another commenter noted that CMS should proceed with the 
proposed changes to the pain management questions.
    Response: We thank the commenters for their support. We believe 
that the proposed refined pain management questions as formulated shift 
focus from the method of pain management to patient-centered 
communication between provider and patient. We believe the proposed 
refined Communication About Pain composite measure adequately reflects 
shared decision making and pain management by focusing on communication 
between patients and providers rather than the particular course of 
treatment. We engaged the patient and caregiver community in evaluating 
and refining the questions related to pain management as part of our 
standard survey development process.
    Comment: Several commenters supported complete removal of the pain 
management questions from the HCAHPS Survey measure, arguing that 
questions evaluating how pain is discussed offer no benefit to 
patients.
    Another commenter encouraged CMS to reduce external pressure on 
providers to prescribe opioids inappropriately by completely removing 
the current Pain Management questions from the HCAHPS Survey measure 
beginning in CY 2018 because doing so would help ensure physicians have 
the ability to treat patients in the most appropriate manner. In 
addition, the commenter urged CMS to eliminate pain as a ``fifth vital 
sign'' from all professional standards because the current culture of 
pain as a fifth vital sign minimizes investigation into causes of pain 
and incentivizes methods of addressing pain in a manner that may not 
support the patient's health in the long term.
    Response: Pain management is an important component of the quality 
of care provided at a hospital, and we believe continued inclusion of 
the HCAHPS Survey measure in the Hospital IQR Program provides patients 
with critical information for use in selecting a hospital setting for 
their care, ensures hospitals continue to appropriately manage 
patients' pain, and encourages hospitals to engage in quality 
improvement efforts in addressing pain management and communication 
about pain. We continue to believe pain control is a critical part of 
routine patient care that hospitals should manage and is an important 
concern for patients, their families, and patient caregivers. 
Furthermore, as revised, the pain management questions focus entirely 
on communication about pain with patients and do not refer to, 
recommend, or imply that any particular type of treatment is 
appropriate. We believe the revised Communication About Pain composite 
measure questions should encourage more and better communication 
between hospital staff and patients about pain and should not affect 
patient treatment. Therefore, we believe there is continued benefit to 
include and publicly report the HCAHPS Survey Pain Management questions 
in this and other CMS quality programs that use the HCAHPS Survey.
    Finally, we acknowledge the commenter's recommendation that we 
eliminate pain as a ``fifth vital sign'' from professional standards, 
and we note that such requests should be referred to and addressed by 
relevant professional societies.
    Comment: Many commenters supported the proposed refinement of the 
HCAHPS Survey measure pain management questions to focus more on 
communication about pain, but only if first endorsed by the NQF. The 
commenters stated that having the NQF endorse the revised questions 
would allow the measure to be publicly vetted by different 
stakeholders, including hospitals and patient advocates and address 
concerns about the reliability and validity of the proposed refined 
Communication About Pain composite measure before they are implemented. 
The commenters expressed concern that CMS intends to resubmit the 
measure to the MAP Hospital Workgroup and to NQF for endorsement when 
there is a call for measures by the Person and Family Centered Care 
Project, after the measure is proposed to have been implemented in 
Hospital IQR Program already. In addition, one commenter believed the 
potential unintended consequences of the current pain management 
questions has resulted in CMS working too quickly to develop the 
proposed refined Communication About Pain composite measure, and 
cautioned that field testing including patients from 51 hospitals does 
not produce strong reliability and validity that are better than the 
current questions.
    Many commenters requested CMS release findings from the field 
testing of these proposed refined Communication About Pain composite 
measure and move the measure forward through the NQF process prior to 
considering adoption into the Hospital IQR Program.
    Response: We thank the commenters for their support. We continue to 
believe the HCAHPS Survey measure Pain Management questions, and the 
HCAHPS Survey as a whole, are valid and reliable measures of hospital 
quality that encourage hospitals to assess and improve the patient 
experience.111 112 The HCAHPS Survey as a whole is already 
NQF-endorsed (NQF #0166). We anticipate the proposed refined 
Communication About Pain composite measure will receive NQF-endorsement 
when there is a call for measures by the Person and Family Centered 
Care Project. We intend to resubmit the measure to the MAP and submit 
the measure to the NQF for endorsement after the measure refinement has 
already been implemented in the Hospital IQR Program. However, we have 
had to weigh the potential, unintended public health concerns against 
the necessary time to complete these reviews. Out of an abundance of 
caution, in the face of a nationwide epidemic of opioid over-
prescription, we believe implementing the proposed refined 
Communication About Pain composite measure as soon as feasible is 
necessary to address any perceived conflict between appropriate 
management of opioid use and patient satisfaction by relieving any 
potential pressure physicians may feel to overprescribe opioids. We 
believe that replacing the current pain management questions in the 
HCAHPS Survey with revised questions that focus on the adequacy and 
frequency of communication about pain will remove any perceived 
ambiguity or confusion about the intent of the pain items and

[[Page 38334]]

enhance communication about the particular needs individual patients 
have with respect to pain. We hope the refined pain management 
questions will shift focus from the method of pain management to 
patient-centered communication between provider and patient.
---------------------------------------------------------------------------

    \111\ ``Do Hospitals Rank Differently on HCAHPS for Different 
Patient Subgroups?'' M.N. Elliott, W.G. Lehrman, E. Goldstein, K. 
Hambarsoomian, M.K. Beckett and L.A. Giordano. Medical Care Research 
and Review, 67 (1): 56-73. 2010.
    \112\ National Quality Forum. NQF-Endorsed Measures for Person- 
and Family-Centered Care. Phase 1 Technical Report March 4, 2015. 
Pp. 26-40.
---------------------------------------------------------------------------

    As discussed in our proposal above, whenever feasible, we adopt 
measures that are NQF-endorsed, but note sometimes there are important 
areas of clinical concern for which NQF-endorsed measures do not exist. 
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. (The NQF 
currently holds this contract.) We considered other existing measures 
which have been endorsed by the NQF and other consensus organizations, 
but we were unable to identify any NQF-endorsed (or other consensus 
organization endorsed) measures that were feasible and practical.
    In addition, while we consider MAP recommendations and NQF 
endorsement status as part of our decision-making process for which 
measures to include in the Hospital IQR Program, we believe it is 
important to adopt the proposed refined Communication About Pain 
composite measure. In addition, in response to the MAP's request to 
receive an update on the status of measures that received a Refine and 
Resubmit recommendation, we intend to update the MAP about these 
Communication About Pain composite measure questions.
    The refined Communication About Pain composite measure was informed 
by input and guidance on survey content and approach from a technical 
expert panel, focus groups and cognitive testing to explore patient 
experience and interpretation of survey items, and field testing of 
survey items to test item properties and psychometric performance and 
composite measures. We disagree that field testing including patients 
from 51 hospitals does not produce strong reliability and validity that 
are better than the current questions. As described in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20037), in early 2016, we 
empirically tested, as part of the field testing, the reliability and 
validity of the proposed refined Communication About Pain composite 
measure in a large-scale experiment that involved patients from 51 
hospitals across the nation. The 51 hospitals were carefully selected 
to be nationally representative, and the sample sizes of patients and 
hospitals exceeded requirements for assessing reliability and validity. 
The statistical reliability and validity of the new proposed items meet 
high psychometric standards and have undergone testing that meets the 
standards of the field. Our analyses suggest the proposed refined 
Communication About Pain composite measure has strong reliability 
(evidence that scores for hospitals are precisely measured) and 
validity (evidence that the measure does measure the intended construct 
of patient experience).\113\ These properties of the individual 
questions used in the proposed refined Communication About Pain 
composite measure are as good as or better than the current Pain 
Management questions. The new questions are not subject to floor or 
ceiling effects (which would occur if almost all responses were in the 
lowest or highest response category), have excellent hospital-level 
reliability (here 0.88 or higher, where 0.70 or higher is the 
conventional standard) at recommended sample sizes, are not redundant 
with other current questions, are related in a predictable manner with 
the standard patient-mix characteristics, positively correlate with the 
two HCAHPS questions that assess overall patient experience (rating and 
recommendation) with the hospital, providing evidence of validity and 
do not vary systematically by survey mode, patient race/ethnicity, or 
hospital characteristics after adjusting for patient mix. They also 
have higher internal consistency as a composite measure (Cronbach's 
alpha = 0.81), with 0.70 or higher being the conventional threshold, 
providing further evidence of reliability.\114\ Therefore, we disagree 
that the field testing does not produce strong reliability and 
validity. With respect to commenters' request that we release findings 
from the field testing of the proposed refined Communication About Pain 
questions, a summary of the results of the field testing of the 
proposed refined Communication About Pain composite measure, among 
others, became available in early July 2017 on our HCAHPS On-Line Web 
site. We refer readers to ``Development of a New Communication About 
Pain Composite Measure for the HCAHPS Survey,'' available at: http://www.hcahpsonline.org/modeadjustment.aspx.
---------------------------------------------------------------------------

    \113\ Judd, C. M., & McClelland, G.H. (1998). Measurement. In 
D.T. Gilbert, S.T. Fiske, & G. Lindzey (Eds.), The handbook of 
social psychology (4th ed., Vol. 1, pp. 180-232). New York: McGraw-
Hill.
    \114\ Cronbach, L.J. (1984). Essentials of psychological testing 
(4th ed.). New York: Harper.
---------------------------------------------------------------------------

    As discussed in the CY 2017 OPPS/ASC final rule with comment period 
(81 FR 79855 through 79862), and in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20035), we followed our standard survey development 
processes, which included drafting alternative questions, cognitive 
interviews and group evaluation, field testing, statistical analysis, 
and soliciting stakeholder input. We believe the proposed refined 
Communication About Pain questions represent stakeholder consensus and 
have been specifically designed to reduce the probability of unintended 
consequences and to maximize improved patient outcomes. We will monitor 
the proposed refined Communication About Pain composite measure for any 
possible unintended consequences.
    Comment: A few commenters supported the proposed refinements to the 
HCAHPS pain management questions, but recommended suspending public 
reporting of pain management questions on the Hospital Compare Web site 
until the questions have been fully vetted by the NQF.
    One commenter encouraged CMS to consider publicly reporting less 
than four quarters of data in the interim period in which less than 
four quarters of data are available so that this important measure can 
be brought to the public sooner.
    Response: We believe continued public reporting of Pain Management 
performance rates provides the public with important quality data for 
use in health care decision-making and incentivizes quality improvement 
regarding pain management and communication. We further believe 
continued public reporting of the score for the composite Pain 
Management measure performance rates provides valuable information to 
patients and consumers and encourages hospitals to appropriately manage 
patients' pain and continue engaging in quality improvement 
efforts.\115\ However, in order to be responsive to stakeholder 
concerns, we are finalizing a modification of our proposal, to delay 
public reporting of the revised Communication About Pain composite 
measure. Instead of publicly reporting

[[Page 38335]]

in October 2019 using data from the CY 2018 reporting period/FY 2020 
payment determination, we will delay public reporting of the refined 
Communication About Pain composite measure on the Hospital Compare Web 
site until October of 2020, using data from the CY 2019 reporting 
period/FY 2021 payment determination. After this initial public 
reporting, public reporting will continue for subsequent years.
---------------------------------------------------------------------------

    \115\ L. Tefera, W.G. Lehrman, and P. Conway. ``Measurement of 
the Patient Experience: Clarifying Facts, Myths, and Approaches.'' 
Journal of the American Medical Association. Published online, 3-10-
16. http://jama.jamanetwork.com/article.aspx?articleid=2503222.
---------------------------------------------------------------------------

    In the meantime, we will provide results on the refined 
Communication About Pain composite measure questions to hospitals in 
confidential preview reports upon the availability of four quarters of 
data based on CY 2018 data. We anticipate that the confidential preview 
reports will be disseminated in the summer of 2019. We note hospitals 
may have access to their raw HCAHPS data and to unofficial HCAHPS 
scores through their survey vendor prior to the submission of their 
HCAHPS data to CMS and prior to the dissemination of the Hospital 
Specific Confidential Preview Reports that contain official HCAHPS 
scores.
    As stated above, we intend to resubmit the measure to the MAP 
Hospital Workgroup and to the NQF for endorsement when there is a call 
for measures by the Person and Family Centered Care Project and we 
anticipate the proposed refined Communication About Pain composite 
measure will receive MAP approval and NQF endorsement. Delaying public 
reporting of the proposed refined Communication About Pain composite 
measure on the Hospital Compare Web site until October of 2020 should 
provide sufficient time for NQF review prior to public display of this 
measure data. In addition, delaying public reporting of this measure 
until October of CY 2020 will give hospitals one year to review their 
performance data on the refined Communication About Pain composite 
measure questions prior to public reporting of their performance data 
on the Hospital Compare Web site.
    In response to the commenter's suggestion that we consider publicly 
reporting less than four quarters of data in the interim period in 
which less than four quarters of data are available so this measure can 
be brought to the public sooner, while we agree the Pain Management 
questions convey important information about hospital quality, we 
believe the value of the proposed refined Communication About Pain 
composite measure would be enhanced by adhering to the established 
practice of collecting four quarters of data for public reporting. 
Doing so ensures that publicly reported HCAHPS measures are based on 
the same discharge period and provides more time for hospitals to 
attain the minimum number of completed surveys required for public 
reporting.
    Comment: Many commenters supported removal of the existing pain 
management questions from the HCAHPS Survey measure, but expressed 
concern with the wording of the refined Communication About Pain 
composite measure. The commenters believed the exact wording of the 
pain management questions is important because results from patient 
satisfaction surveys influence quality improvement initiatives since 
hospitals are partially reimbursed based on patient satisfaction 
scores. While commenters agreed it is important to remove ambiguities 
in the wording or intent of the questions and appreciated CMS' steps to 
appropriately test the measure for reliability and validity, some 
commenters expressed concern the proposed refined Communication About 
Pain composite measure may not assist with quality improvement 
activities to ensure that patients receive appropriate pain management. 
The commenters provided a variety of alternate formulations for the 
pain questions for CMS to consider. Several commenters provided 
specific suggested language with which to replace the three existing 
pain management questions. In addition to specific language changes, 
some commenters made more general recommendations with respect to the 
refinement of the Pain Management questions.
    One commenter expressed concern with the use of the word ``treat'' 
in question HP3. The commenter believed the word ``treat'' implies 
complete pain relief should be achieved, which is not always possible. 
As such, the commenter suggested question HP3 be re-worded to replace 
the word ``treat'' with the words ``manage or treat.'' The commenters 
asserted this wording revision would be a better way to encompass all 
methods of pain management, rather than just medication.
    Another commenter challenged the terminology used in all three 
questions because the word ``pain'' has a negative connotation and 
suggested that asking a patient about their ``comfort,'' instead of 
``pain'' would be more appropriate.
    Finally, one commenter suggested all three revised pain management 
questions be modified to explicitly include the type of clinical staff 
(that is, nurses, primary care giver, or physician) communicating with 
the patient at the time the pain is being assessed.
    Response: We thank the commenters for their recommendations 
regarding alternative refinements to the wording of the Pain Management 
questions in the HCAHPS Survey measure. We would like to reiterate that 
the HCAHPS Survey is a patient experience of care survey and not a 
patient satisfaction survey. The HCAHPS Survey asks recently discharged 
patients about aspects of their hospital experience that they are 
uniquely suited to address. The survey asks ``how often'' or whether 
patients experienced a critical aspect of hospital care, rather than 
whether they were ``satisfied'' with their care.\116\ Furthermore, we 
are unaware of any empirical evidence demonstrating that failing to 
prescribe opioids lowers a hospital's HCAHPS Survey scores. However, we 
believe the potential confusion about the appropriate use and 
interpretation of the Pain Management questions, coupled with the 
public health concern about the opioid epidemic, warrants refinement to 
the existing Pain Management questions. As outlined above, we received 
multiple suggestions for alternate wording of the Pain Management 
questions. We appreciate the alternative survey question wording 
submitted by numerous commenters and will consider them for future use. 
In some instances, we have given consideration to similar concepts and 
formulations, but we note that for use in relatively short, national 
surveys of patient experience of care, items must be widely applicable, 
simple, clear, easily understood, and unambiguous.
---------------------------------------------------------------------------

    \116\ HCAHPS Fact Sheet available at: http://www.hcahpsonline.org/Facts.aspx.
---------------------------------------------------------------------------

    As discussed in the CY 2017 OPPS/ASC final rule with comment period 
(81 FR 79855 through 79862), and in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20035), in developing the proposed refined Pain Management 
questions, we have followed our standard survey development processes, 
working with our contractors, which included drafting alternative 
questions, cognitive interviews and group evaluation, field testing, 
statistical analysis, empirical testing in a large-scale experiment, 
and soliciting stakeholder input. We conducted interviews with 
providers and patients as well as cognitive testing with patients.
    We developed and submitted two measures related to the refinement 
of the pain management questions for consideration by the MAP and, 
subsequently, narrowed consideration to just one measure, 
``Communication about pain during the hospital stay,'' withdrawing the 
measure ``Communication about pain after

[[Page 38336]]

discharge.''\117\ The proposed refined Communication About Pain 
composite measure has proceeded through the pre-rulemaking process, 
including addition onto the ``Measures Under Consideration'' list and 
review by the MAP, as well as notice-and-comment rulemaking through 
this final rule. Furthermore, we intend to seek NQF endorsement for the 
proposed refined Pain Management questions. We believe the proposed 
refined pain management questions as formulated shift focus from the 
method of pain management to patient-centered communication between 
provider and patient.
---------------------------------------------------------------------------

    \117\ List of Measures Under Consideration for December 1, 
2016.'' Available at: https://www.qualityforum.org/Projects/i-m/MAP/2016_Measures_Under_Consideration_List.aspx.
---------------------------------------------------------------------------

    Moreover, we cognitively tested with both English- and Spanish-
speaking patients how the words ``treat,'' ``manage,'' and ``reduce'' 
pain were interpreted. After assessing the results, we decided we 
decided to use ``treat'' in the refined Communication About Pain 
composite measure.
    While we appreciate the suggestion, we believe that use of the word 
``comfort'' may lead to more misunderstanding than use of the word 
``pain'' because the concept of ``comfort'' is even more subjective 
than the concept of the word ``pain.'' Finally, in response to the 
commenter's suggestion that the Pain Management questions be modified 
to explicitly include the type of clinical staff communicating with the 
patient, doing so would entail adding more questions to the survey, 
which would result in an increase in the length and complexity of the 
survey, and thus, also increase the burden for both patients and 
hospitals, which we believe is inadvisable and unnecessary.
    Comment: Several commenters supported the refinements to the HCAHPS 
Survey measure pain management questions, but lacked confidence that 
simply including communication questions regarding pain management 
would reflect the true perception the patients have of their experience 
relative to pain management. These commenters encouraged CMS to 
continue to explore other ways to ensure better measurement of 
patients' experience with pain management, such as including additional 
questions about whether hospital staff talked about alternatives to 
medication for pain management and clearly communicated to the patients 
the addictive potential of opioid medications. The commenters also 
expressed concerns the questions related to pain management pertain 
only to whether the caregiver discussed the patient's pain but do not 
reflect the patient's engagement in this discussion.
    Several commenters recommended incorporating concepts of care 
quality for pain management, such as: (1) The degree to which hospital 
staff listened to patients and responded to their pain (including 
offering non-opioid or non-medication options); and (2) the degree to 
which patients felt the hospital staff helped them understand their 
options to manage their pain.
    Response: We thank the commenters for their support. In the 
comments received, there was broad support for shifting the focus of 
the pain management questions in the HCAHPS Survey from assessment of 
the adequacy and effectiveness of pain control efforts among patients 
who needed medicine for pain, to assessment of the frequency of 
hospital staff's efforts to talk about pain and its treatment among 
patients who experienced pain during their hospital stay. We continue 
to believe pain control is a critical part of routine patient care that 
hospitals should manage and is an important concern for patients, their 
families, and their caregivers.
    With respect to how pain is captured and monitored, we believe that 
adequate pain management is an important goal for hospitals and a 
concern of patients and consumers. By focusing directly on 
communication about pain with the patient, we believe that the refined 
Communication About Pain composite measure will encourage and enhance 
hospital staff's discussions with patients about patients' particular 
circumstances while reducing the potential for misinterpretation that 
could lead hospital staff to using inappropriate treatment. During 
measure development, in the 2016 HCAHPS mode experiment, we tested a 
question that asked patients about various non-prescription pain 
treatments. However, the question did not meet statistical criteria for 
acceptability,\118\ and could cause providers to infer that these 
treatments are appropriate for every patient. We will continue to 
evaluate this question for possible future inclusion as a question on 
the HCAHPS Survey.
---------------------------------------------------------------------------

    \118\ ``Development of a New Communication About Pain Composite 
Measure for the HCAHPS Survey,'' http://www.hcahpsonline.org/modeadjustment.aspx.
---------------------------------------------------------------------------

    In addition, regarding the comment raising concerns that the 
questions pertain only to whether the caregiver discussed the patient's 
pain, but do not reflect the patient's engagement in this discussion, 
we had tested different words during measure development to determine 
which would give better responses. Through cognitive interviews with 
patients and interviews with providers, we have learned that 
``talking'' with hospital staff about how much pain the patient had or 
how to treat pain indicated greater patient engagement than did 
``discussing'' or ``telling'' patients.
    Furthermore, although important, Pain Management is only one of 
nine aspects of patient experience explored by the HCAHPS Survey. 
Because parsimony and brevity are fundamental to the success of the 
survey, we believe there are limits on the number and specificity of 
the questions that can be devoted to any particular topic. Therefore, 
we had to balance brevity with utility in determining the ultimate 
version of the refined Communication About Pain composite measure 
questions. However, we will take into consideration commenters' 
suggestions for the future and continue to investigate effective means 
of exploring patients' pain management experience and ways to ensure 
better measurement of patients' experiences with pain management.
    Comment: One commenter believed these answers still would not 
provide much real, significant information about the patients' 
experience or provide information about whether their pain was 
addressed. The commenter suggested formulating questions that focus on 
patient function and regular assessment and treatment of their overall 
status rather than solely on their pain. A few commenters suggested 
that the Communication About Pain composite measure reflect current 
best practice for both acute and chronic pain, which is the use of 
multi-modal therapy and poly-pharmacy. The commenters suggested that 
treating pain using different receptors and mechanisms not only allows 
for the reduction of opioid use and morbidity, but allows an 
opportunity to optimize the patient's pain experience. One commenter 
recommended the HCAHPS Survey measure's pain management questions 
should capture whether this multi-modal pain pathway process happened 
during a hospitalization.
    Response: We note that some stakeholders have criticized the 
current Pain Management questions because they believed that asking 
patients who needed medicine for pain how often their pain was well 
controlled and how often hospital staff did everything they could to 
help with pain had the unintended consequence of creating pressure on 
physicians to over-prescribe opioid treatment for pain. In response to

[[Page 38337]]

this criticism, in the face of a national epidemic of overuse of 
opioids, the refined Communication About Pain questions shift the focus 
from patient assessments of the adequacy and vigor of pain management 
efforts to the frequency of communication about pain and addressing the 
availability of treatments.
    We agree that the concepts of care quality for pain management and 
use of multi-modal therapy and poly-pharmacy are important components 
in pain management for patients, as are differences in chronic and 
acute pain. In developing the new Communication About Pain measure, we 
explored these concepts in cognitive interviews and focus groups with 
patients. We note that the questions in the HCAHPS Survey were designed 
to be applicable to and easily understood by the wide spectrum of 
patients in American hospitals, and that its results are intended 
primarily for public reporting. As such, we are constrained to use 
questions in which the wording and intent are applicable and correctly 
understood by a wide spectrum of patients. However, we will consider 
use of multi-modal therapy and poly-pharmacy and other steps to address 
pain management, including additional questions about pain management 
in the HCAHPS Survey in the future.
    Comment: Some commenters recommended further steps to address pain 
management including analysis of: (1) The complete care continuum to 
identify breakdowns in communication (such as insufficient medication 
reconciliation on admission) that lead to opioid misuse; (2) additional 
considerations (pre-admission pain, unclear guidance on pain 
management, failure of the provider to identify non-opioid approaches 
to pain management, etc.) that may affect the patient's pain 
management; and (3) enhancement of the Communication About Pain 
composite measure (MUC16-263) with additional questions related to 
pain.
    Response: We acknowledge the commenters' recommendations that we 
analyze the complete care continuum to identify breakdowns in 
communication and additional considerations that may affect the 
patient's pain management, however, we note the HCAHPS Survey asks 
patients only about care experiences during a specific hospital stay. 
The HCAHPS Survey does not inquire about specific individuals, 
departments, or wards within the hospital. HCAHPS data submitted to us 
are patient de-identified. As such, it is not possible to link the 
patient or survey to anything that occurs pre-admission or post-
discharge, or to clinical records, thus we are prevented from following 
patients through the continuum of care. Furthermore, as stated above, 
although important, Pain Management is only one of nine aspects of 
patient experience explored by the HCAHPS Survey. Because parsimony and 
brevity are fundamental to the success of the survey, we believe there 
are limits on the number and specificity of items that can be devoted 
to any particular topic. As noted above, we had to balance brevity with 
utility in determining the ultimate version of pain management 
questions proposed.
    Comment: Another commenter urged CMS to revisit how pain is 
captured and monitored because asking only about the presence of pain 
does not provide enough information to improve an individual's overall 
quality of life. For example, pain levels may never change, even when 
the function/ability of the patient improves. Therefore, the focus on 
pain should be on how the patient's pain limits their functioning and 
physical abilities.
    A few commenters suggested the focus of the revised HCAHPS pain 
questions include a discussion of patient safety options, as well as 
the effectiveness of the provided pain treatment options, as opposed to 
solely focusing on pain treatment options and suggested that CMS cannot 
effectively evaluate the efficacy of treatment merely by including a 
question that asks whether or not hospital staff discussed pain 
treatment. One commenter supported the proposed refinements to the 
HCAHPS Survey measure Pain Management questions, but recommended CMS 
also consider the measurement of an overall analgesia strategy as part 
of an enhanced recovery pathway (ERP).\119\ The commenter noted that 
while the need for patient reported experiences in the management and 
communication of pain will continue to be critical, the ERP analgesia 
approach through enhanced recovery after surgery (ERAS) is a more 
comprehensive and patient-centered approach to optimize patient pain 
relief.
---------------------------------------------------------------------------

    \119\ An ``Enhanced Recovery Pathway'' is a care pathway 
designed to achieve early recovery after surgical procedures. 
Definition ascertained from the American Association of Nurse 
Anesthetist, available at: http://www.aana.com/resources2/professionalpractice/Pages/Enhanced-Recovery-After-Surgery.aspx.
---------------------------------------------------------------------------

    Response: In response to the commenters' concern that the 
Communication About Pain composite measure does not effectively 
evaluate the efficacy of treatment, the HCAHPS Survey is not intended 
to evaluate the efficacy of treatment. The refined Communication About 
Pain composite measure shifts the focus to communication with patients 
to promote more patient-centered care. As discussed earlier, in 
response to numerous public comments and out of an abundance of 
caution, we revised these pain management questions in the face of a 
nation-wide epidemic of opioid over-prescription. We believe that 
replacing the current Pain Management question in the HCAHPS Survey 
with revised questions that focus on the adequacy and frequency of 
communication about pain will remove any perceived ambiguity or 
confusion about the intent of the pain questions and enhance 
communication about the particular needs individual patients have with 
respect to pain. We hope the refined Communication About Pain questions 
will shift focus from the method of pain management to patient-centered 
communication between provider and patient.
    We appreciate the commenter's suggestion that we consider the 
measurement of an overall analgesia strategy as part of an ERP, but the 
HCAHPS Survey was not intended or designed to ask patients about the 
efficacy or outcome of clinical care or treatment.
    Comment: Some commenters supported the proposed refinements to the 
HCAHPS Survey measure, but expressed concern with frequency rating 
scale, observing that the response options do not seem to align 
realistically with the questions themselves. The commenters criticized 
the refined questions for being intangible and insufficient for the 
purpose of supporting beneficial initiatives tailored to promote pain 
management. Several commenters recommended changing from the ``Never-
Always'' response scale to a ``Yes/No'' response option. One commenter 
expressed concerns about asking the frequency of the communications and 
not necessarily the quality or impact of the communication on the 
patient's perception of their pain control. The commenter urged CMS to 
shift from the physical experience of pain to focus more on 
communication about pain and ways to manage it, both pharmacological 
and non-pharmacological. Another commenter was concerned that the 
proposed refined Communication About Pain composite measure may 
inappropriately lead to scores that are not meaningful, specifically 
because the ``Never-Always'' response scale is unclear with respect to 
how patients or providers should assess the term ``Always.''
    Response: We designed the refined Communication About Pain 
composite measure in conformance with CAHPS

[[Page 38338]]

survey principles and the established format of the HCAHPS Survey, 
including asking patients about the frequency of communication rather 
than whether such communication had ever occurred. From its inception, 
HCAHPS has inquired about frequency of experiences and employed the 
``Never-Always'' response options for most survey items. This scale and 
the associated structure of survey questions allows more granular 
responses than binary options such as ``Yes-No,'' and it is less 
susceptible to ceiling or floor effects, enhances commonality among 
survey questions, and maintains continuity over time. Testing of the 
HCAHPS Survey and other CAHPS surveys with patients and caregivers 
supports the understandability and utility of the ``Never-Always'' 
response scale.\120\ Further, the development of the refined 
Communication About Pain composite measure was in response to 
stakeholder concerns that the existing survey items, which inquire 
about patients' assessment of the efficacy of pain management, 
unintentionally created pressure on physicians to over-prescribe opioid 
medications. Therefore, we decided to shift away from the patient's 
assessment of the efficacy of pain treatment and instead focus on 
whether providers communicated with patients about their pain.
---------------------------------------------------------------------------

    \120\ Development and Evaluation of the CAHPS Hospital Survey. 
Health Services Research. Special Issue. Volume 40, Number 6, Part 
II. December 2005.
---------------------------------------------------------------------------

    Comment: One commenter supported the refinements to the HCAHPS 
Survey measure Pain Management questions, but recommended CMS also 
consider the measurement of an overall analgesia strategy as part of an 
ERP.\121\ The commenter noted that while the need for patient reported 
experiences in the management and communication of pain will continue 
to be critical, the ERP analgesia approach through enhanced recovery 
after surgery (ERAS) is a more comprehensive and patient-centered 
approach to optimize patient pain relief.
---------------------------------------------------------------------------

    \121\ An ``Enhanced Recovery Pathway'' (ERP) is a care pathway 
designed to achieve early recovery after surgical procedures. 
Definition ascertained from the American Association of Nurse 
Anesthetist, available at: http://www.aana.com/resources2/professionalpractice/Pages/Enhanced-Recovery-After-Surgery.aspx.
---------------------------------------------------------------------------

    Response: We appreciate the commenter's suggestion that we consider 
the measurement of an overall analgesia strategy as part of an ERP (a 
pathway for a surgical specialty), but the HCAHPS Survey was not 
intended or designed to ask patients about the efficacy or outcome of 
clinical care or treatment.
    Comment: Several commenters supported the refinements to the HCAHPS 
Survey measure, but expressed concern about potential unintended 
consequences associated with the proposed refined Communication About 
Pain composite measure, given the toll of the opioid epidemic on 
communities. One commenter commended CMS for previously removing the 
HCAHPS Survey questions related to pain management from the Hospital 
VBP Program because it eliminated any perceived expectation that pain 
management should always include the use of powerful prescription drugs 
such as opioids. The commenter recommended CMS focus on overall patient 
satisfaction, rather than the granular level of detail currently 
included in many of the HCAHPS questions, and encouraged CMS to leave 
this level of patient satisfaction data to providers to determine and 
measure. Another commenter believed the changes would result in doctors 
and hospitals denying patients their needed pain medications.
    One commenter cautioned CMS that hospital payment incentives under 
the Hospital VBP Program should not be structured in such a manner to 
cause hospitals to change their opioid prescribing patterns in order to 
achieve higher scores on the HCAHPS pain management dimension.
    Another commenter expressed concern the refined Pain Management 
questions may inappropriately lead to scores that are not meaningful. 
The commenter suggested additional testing and understanding of these 
measures is needed prior to implementation.
    A few commenters urged CMS to conduct regular assessments to ensure 
no unintended or inappropriate consequences on legitimate patient 
access to needed medicines arise as a result of the changes. These 
commenters encouraged CMS to continue to evaluate the proposed refined 
Communication About Pain composite measure for impact on HCAHPS scoring 
and resulting prescribing habits, including collecting more data for 
the measure. In addition, commenters cautioned that the proposed 
refined Communication About Pain composite measure should be carefully 
monitored for other unexpected and unintended consequences that may 
arise, including altering patient expectations and negatively impacting 
the doctor-patient relationship.
    Finally, several commenters urged CMS not to continue to use the 
existing pain questions if the proposed refined Communication About 
Pain composite measure are not finalized, but rather remove the pain 
management questions from the HCAHPS Survey measure from quality 
programs because the existing pain management questions may pose 
unintended consequences.
    Response: We thank the commenters for their support. As stated 
above, we are not aware of any scientific studies or empirical evidence 
that support an association between scores on the Pain Management 
questions and opioid prescribing practices. In addition, we do not 
believe that removing the pain questions from the HCAHPS Survey is 
appropriate because: (1) Many factors outside the control of our 
quality program requirements may contribute to the perception of a link 
between the Pain Management questions and opioid prescribing practices, 
(2) pain control is an appropriate part of routine patient care that 
hospitals should manage, and (3) pain control is an important concern 
for patients, their families, and their caregivers.\122\ To confront 
the opioid epidemic in America, our agency and other divisions of HHS 
have launched a multi-dimensional effort.\123\ Removing the Pain 
Management dimension from the HCAHPS component of the Hospital VBP 
Program and revising the Pain Management questions on the HCAHPS Survey 
are among those efforts. We believe refining the Pain Management 
questions in the HCAHPS Survey measure will: (1) Help remove any 
perceived ambiguity, and (2) shift focus from strictly considering the 
method of pain management to patient-centered communication between 
provider and patient.
---------------------------------------------------------------------------

    \122\ L. Tefera, W.G. Lehrman, and P. Conway. ``Measurement of 
the Patient Experience: Clarifying Facts, Myths, and Approaches.'' 
Journal of the American Medical Association. Published online, 3-10-
16. http://jama.jamanetwork.com/article.aspx?articleid=2503222.
    \123\ HHS' Opioid Initiative, available at: https://www.hhs.gov/sites/default/files/Factsheet-opioids-061516.pdf, focuses on 
improving opioid prescribing practices, expanding access to 
medication-assisted treatment, and increasing the use of naloxone to 
reverse opioid overdoses.
---------------------------------------------------------------------------

    With regard to the recommendation that we focus on overall patient 
satisfaction, rather than the granular detail featured in most HCAHPS 
questions, we do not agree. We always have believed the survey should 
cover a spectrum of patient experience, rather than focus on patient 
satisfaction. The HCAHPS Survey was designed to ask about specific 
aspects of patient experience of care (not patient satisfaction) that 
are important to patients and consumers and actionable by hospitals. 
For that reason, the survey delves into nine specific and actionable 
aspects of the hospitals experience,

[[Page 38339]]

including pain management. We note that the survey does contain two 
questions about the overall experience: (1) The patient's overall 
rating of the hospital; and (2) whether the patient would recommend the 
hospital. We continue to believe that it is valuable for providers to 
understand patient experience of care (not satisfaction with care) in 
actionable areas that are important to patients. We note that providers 
are not prevented from gathering additional information from patients 
for their own purposes.
    We do not believe the refined Communication About Pain composite 
measure will lead to scores that are not meaningful because we believe, 
as noted earlier, that large-scale testing of the new Communication 
About Pain measure questions has demonstrated that they are valid and 
reliable. We have thoroughly tested and evaluated the proposed refined 
Communication About Pain composite measure. We refer readers to a 
summary of this analysis which can be found on the HCAHPS On-Line Web 
site: ``Development of a New Communication About Pain Composite Measure 
for the HCAHPS Survey,'' at http://www.hcahpsonline.org/modeadjustment.aspx. To briefly summarize the findings of that 
analysis, as detailed earlier, a two-item version of Communication 
About Pain composite measure based on how often staff talked about pain 
and how often staff discussed how to treat pain, preceded by a screener 
item asking whether the patient had any pain during the hospital stay, 
has strong psychometric properties. The properties of the individual 
items used in the proposed refined Communication About Pain composite 
measure themselves are as good as or better than the two Pain 
Management questions currently on the HCAHPS Survey. The refined 
Communication About Pain questions in which a preponderance of 
responses fall into the highest or lowest response category are not 
subject to floor or ceiling effects, have good (>0.80) or excellent 
(>0.90) hospital-level reliability at recommended sample sizes, are not 
redundant with the current items, are related in a predictable manner 
with the standard patient-mix characteristics, are predictive of the 
global Hospital Rating question on the HCAHPS Survey, question number 
21, and do not vary systematically by survey mode after adjusting for 
patient mix. They also have high internal consistency as a composite 
(Cronbach's alpha=0.81).\124\ We reiterate that the HCAHPS Survey is a 
valid and reliable instrument for assessing patient experience of care 
at the hospital level, however, use of the survey to measure and 
compare individual practitioners is strongly discouraged.\125\
---------------------------------------------------------------------------

    \124\ ``A Special Contribution from the Centers for Medicare and 
Medicaid Services: Valuing Patient Experience While Addressing the 
Prescription Opioid Epidemic.'' L. Tefera, W.G. Lehrman, E.G. 
Goldstein and S. Agrawal. Annals of Emergency Medicine. 2016. 
Published online, 7-19-16. http://www.annemergmed.com/article/S0196-0644(16)30367-5/fulltext.
    \125\ ``Measurement of the Patient Experience: Clarifying Facts, 
Myths, and Approaches.'' L. Tefera, W.G. Lehrman and P. Conway. 
Journal of the American Medical Association. 2016. 315: 2167-2168. 
Published online, 3-10-16. http://jama.jamanetwork.com/article.aspx?articleid=2503222.
---------------------------------------------------------------------------

    We acknowledge the commenters' concerns about unintended or 
inappropriate consequences on legitimate patient access to needed 
medicines, and we will actively monitor and analyze responses to the 
proposed refined Communication About Pain composite measure to 
understand performance, relationship to other survey measures, and 
possible unintended consequences.
    With respect to the commenter who believed the changes would result 
in doctors and hospitals denying patients their needed pain 
medications, the refined Communication About Pain questions no longer 
reference any specific pain treatment or circumstance but rather focus 
on communication about pain to address the concern that the current 
items may have had an unintended consequence of encouraging opioid-
based treatment of pain. We will monitor use of the refined 
Communication About Pain questions and any feedback we receive from 
stakeholders as they implement these questions.
    With respect to the commenter who cautioned that hospital payment 
incentives under the Hospital VBP Program should not be structured in 
such a manner to cause hospitals to change their opioid prescribing 
patterns in order to achieve higher scores on the HCAHPS pain 
management dimension, we note that in the CY 2017 OPPS/ASC PPS final 
rule with comment period (81 FR 79862), we removed the Pain Management 
dimension from the Hospital VBP Program beginning with the FY 2018 
program year. We are not intending to adopt the refined Communication 
About Pain questions as part of the HCAHPS pain management dimension in 
the Hospital VBP Program at this time. In addition, we note that, as 
required under section 1890A of the Act, measures must be reviewed by a 
multi-stakeholder group (currently the MAP, convened by the NQF) before 
they can be proposed for adoption by a program.
    Comment: Several commenters supported the refinements to the HCAHPS 
Survey measure pain management questions, but expressed concerns about 
the timing of implementation of the proposed refined Communication 
About Pain composite measure.
    One commenter generally requested CMS allow pharmacists, 
physicians, and other members of the healthcare team sufficient time 
and opportunity to provide meaningful input and recommendations prior 
to finalizing and implementing the refinements.
    Another commenter suggested transition to the revised wording begin 
with January 1, 2018 discharges, as proposed, would be feasible and 
would provide enough time for hospitals to properly prepare.
    Response: We thank the commenters for their support. As discussed 
in the CY 2017 OPPS/ASC final rule with comment period (81 FR 79855 
through 79862), and the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20035), in developing the proposed refined Pain Management questions, 
we have followed our standard survey development processes, which 
include drafting alternative questions, cognitive interviews and group 
evaluations, field testing, statistical analysis, and soliciting 
stakeholder input. In addition, the proposed refined Pain Management 
questions have proceeded through the pre-rulemaking process, including 
adding the measures to the ``Measures Under Consideration'' list and 
having them reviewed by the MAP, as well as including them in notice-
and-comment rulemaking. In addition, we intend to seek NQF endorsement 
for the proposed refined Pain Management questions. We believe that all 
of these processes have allowed pharmacists, physicians, other members 
of the healthcare team, and the public at large, time and opportunity 
to provide meaningful input and recommendations. With respect to the 
suggestion that we transition to the revised wording beginning with 
January 1, 2018 discharges, we note that our proposal stated that the 
revised questions would be implemented beginning with October of 2019 
using CY 2018 data, which is what we are finalizing. In addition, 
implementation of the proposed refined Communication About Pain 
composite measure beginning with patients discharged January 1, 2018 
will produce a full

[[Page 38340]]

calendar year of data, which will provide prompt feedback to hospitals 
on their performance on this measure via their confidential Preview 
Reports. We will make information about the Pain Management questions 
available to HCAHPS Survey vendors and hospitals through HCAHPS 
training and information posted on the HCAHPS On-Line Web site, 
www.HCAHPSonline.org.
    Comment: A few commenters did not support the refinements to the 
HCAHPS Survey Pain Management questions because there is no peer-
reviewed evidence to suggest a link between opioid prescribing and the 
current pain management questions in this survey, nor do the existing 
questions even specify opioids as the treatment of choice for pain. The 
commenters disagreed with CMS' assessment that the HCAHPS pain 
management questions influence clinical decision-making in a manner 
that creates pressure on hospital staff to prescribe more opioids in 
order to achieve higher scores. The commenters suggested that rather 
than recreating new medication-oriented pain questions to incorporate 
back into HCAHPS at some future date, CMS should develop questions in 
collaboration with pain and palliative medicine specialists to measure 
a hospital's overall pain management strategies.
    Response: We agree with the commenters' assertions that neither is 
there any peer-reviewed evidence to suggest a link between opioid 
prescribing and the existing HCAHPS questions regarding pain, nor the 
existing questions even specify opioids as the treatment of choice for 
pain. As we stated above, we are not aware of any scientific studies 
that support an association between scores on the Pain Management 
questions and opioid prescribing practices. Furthermore, we are unaware 
of any empirical evidence demonstrating that failing to prescribe 
opioids lowers a hospital's HCAHPS Survey scores. However, we believe 
the potential confusion about the appropriate use of the Pain 
Management questions, coupled with the public health concern about the 
opioid epidemic, warrants refinement of the Pain Management questions. 
We will consider the commenter's suggestion to develop questions that 
assess a hospital's overall pain management strategies in future 
rulemaking.
    The current Pain Management questions in the HCAHPS Survey apply to 
patients who needed medicine for pain; whereas, the proposed refined 
Communication About Pain composite measure will apply to patients who 
experienced any pain during the hospital stay. As such, when 
implemented, more patients will have the opportunity to answer the 
proposed refined Communication About Pain composite measure, providing 
a broader perspective on pain management in hospitals. As stated in 
previous responses, out of an abundance of caution, in the face of a 
nation-wide epidemic of opioid over-prescription, we have chosen to 
focus the proposed refined Communication About Pain composite measure 
on communication between hospital staff and patients about patients' 
pain. We believe this will emphasize the importance of communication 
about pain and its treatment while avoiding any potential inference 
that medication is the best or only way to treat pain.
    The Communication About Pain measure questions were developed in 
collaboration with pain and palliative medicine specialists; we refer 
readers to our response earlier in this section that details the 
testing we undertook.
    Comment: Some commenters noted treating pain should be the 
objective of physicians and should be managed exclusively within the 
physician's scope of practice. However, another commenter stated that 
patient experience and satisfaction should not be used for 
accountability purposes because these are often not directly under the 
control of the physician.
    Response: We note that the HCAHPS Survey assesses patient 
experience of care at the hospital level, not the physician level. We 
strongly advise hospitals against using the HCAHPS Survey to measure, 
assess, and/or compare individual hospital staff.\126\
---------------------------------------------------------------------------

    \126\ L. Tefera, W.G. Lehrman, and P. Conway. ``Measurement of 
the Patient Experience: Clarifying Facts, Myths, and Approaches.'' 
Journal of the American Medical Association. Published online, 3-10-
16. http://jama.jamanetwork.com/article.aspx?articleid=2503222.
---------------------------------------------------------------------------

    Comment: One commenter noted patients' experience of pain is 
subjective and uniform guidelines dictating pain management could 
contribute to patients suffering as a result. Another commenter stated 
that patient experience and satisfaction should not be used for 
accountability purposes as these are: (1) Often subjective in nature; 
and (2) not necessarily true indicators of quality of overall care.
    Response: We believe the HCAHPS Survey measure is an appropriate 
mechanism for hospital accountability because patient experience of 
care is a valid and vital measure of provider quality across the 
healthcare spectrum and is an essential element of public reporting of 
provider quality and, where appropriate, a basic component of pay-for-
performance programs. Carefully constructed and thoroughly tested 
surveys that attain high levels of reliability and validity, such as 
the CAHPS family of surveys,\127\ when implemented in a standardized 
manner by trained survey vendors and hospitals subject to constant 
oversight, such as HCAHPS, produce information that allows fair 
comparisons of providers. Thus, we do not agree that pain/patient 
experience and satisfaction is subjective. Not only do surveys such as 
HCAHPS produce information about the patient's perspective that is 
beneficial in its own right, but a growing body of empirical research 
finds that hospitals that perform well on the HCAHPS Survey also 
perform well on indicators of clinical process, outcomes, readmissions, 
and mortality.\128\
    We also refer readers to our response above in which we detail the 
testing these questions underwent. We also disagree that the HCAHPS 
Survey dictates pain management or contributes to patient suffering. We 
continue to believe many factors outside the control of our quality 
program requirements may contribute to the perception of a link between 
the Pain Management questions and opioid prescribing practices, such as 
misuse of the survey, use of the survey with patients other than 
hospital inpatients (such as, emergency room patients, outpatients, or 
physician office patients), disaggregation of surveys results to assess 
the performance of individual hospital staff, and/or failure to 
recognize the HCAHPS Survey excludes certain populations from the 
sampling frame.
---------------------------------------------------------------------------

    \127\ R.A. Price, M.N. Elliott, A.M. Zaslavsky, R.D. Hays, W.G. 
Lehrman, L. Rybowski, S. Edgman-Levitan and P.D. Cleary. ``Examining 
the Role of Patient Experience Surveys in Measuring Health Care 
Quality.'' Medical Care Research and Review, 71 (5): 522-554. 2014.
    \128\ P. Chatterjee, T.C. Tsai and A.K. Jha. Delivering Value by 
Focusing on Patient Experience. American Journal of Managed Care, 
Published Online: October 09, 2015. http://www.ajmc.com/journals/issue/2015/2015-vol21-n10/delivering-value-by-focusing-on-patient-experience.
---------------------------------------------------------------------------

    Comment: Several commenters did not support the refinements to the 
HCAHPS Pain Management questions and recommended that the pain 
management questions in the HCAHPS Survey measure remain unchanged. 
These commenters did not believe changing the questions will address 
the real issue--whether or not a patient's pain was controlled. This is 
because the questions do not rate care based on how pain was managed 
and the questions do not to hold hospitals accountable for failing to 
manage patients' pain.

[[Page 38341]]

    One commenter generally referenced studies demonstrating patients 
get healthier faster and are less prone to secondary illness if their 
pain is sufficiently treated, and suggested that it is counter-
intuitive that the proposed refined Communication About Pain composite 
measure does not assess any action taken to reduce pain. The commenter 
encouraged CMS to keep the existing pain questions, or modify the 
proposed refined Communication About Pain composite measure to focus on 
efforts or actions taken to reduce pain. In addition, several 
commenters noted discussions about pain are an inadequate substitute 
for effective pain treatment, arguing that attempting to reduce 
addiction is not a valid reason for causing patients to endure physical 
and psychological pain.
    Response: As stated above, we believe pain management is an 
important component of the quality of care provided at a hospital, and 
we believe the HCAHPS Survey measure provides patients with critical 
information for use in selecting a hospital setting for their care, 
ensures hospitals continue to appropriately manage patients' pain, and 
encourages hospitals to engage in quality improvement efforts 
addressing pain management and communication about pain. We believe 
that replacing the current Pain Management questions in the HCAHPS 
Survey, which are addressed to patients who needed medicine for pain, 
with items addressed to patients who had any pain during their hospital 
stay and that are focused on the adequacy and frequency of 
communication about pain, will remove any ambiguity about the intent of 
the pain items and enhance communication about the particular needs 
individual patients have with respect to pain.
    We disagree the current Pain Management questions should be 
retained because we believe refining the Pain Management questions will 
address any potential confusion about appropriate pain management. 
Moreover, we believe the proposed refined pain management questions 
will shift focus from the method of pain management to patient-centered 
communication between provider and patient.
    As noted in the CY 2017 OPPS/ASC final rule with comment period (81 
FR 79855 through 79862), some stakeholders believe that the current 
Pain Management items' focus on the vigor and efficaciousness of pain 
control efforts creates pressure on physicians to over-treat pain, 
therefore, the proposed refined Communication About Pain composite 
measure does not delve into these topics. The shift in focus away from 
patients' assessment of treatment and outcomes and toward patient 
communication brings the Pain Management questions into closer 
alignment with the other survey items. We believe that placing greater 
emphasis on communication with patients about pain should encourage 
appropriate pain management. We reiterate the HCAHPS Survey is designed 
to produce valid measures of hospital-level performance, not that of 
individual physicians or nurses.
    Comment: A few commenters urged CMS to move away from medication-
based pain questions entirely.
    Response: We continue to believe pain control is an appropriate 
part of routine patient care that hospitals should manage and is an 
important concern for patients, their families, and patient caregivers. 
We believe the proposed refined Communication About Pain questions 
appropriately focus more clearly on patient-focused care than on the 
method of pain management.
    Comment: Many commenters did not support the refinements to the 
HCAHPS Survey measure pain management questions because they stated the 
proposed revised questions do not assure and reflect quality pain 
management, fail to objectively address the existence of pain, and 
remain ambiguous and open-ended. Several commenters recommended CMS 
restart the process of developing new pain management questions with 
additional testing and research prior to implementation of these 
proposed questions.
    One commenter advised CMS to test a variety of questions and answer 
options to see which questions provide the most accurate data without 
negatively affecting patient care. Specifically, the commenter 
suggested CMS work with stakeholders to reach consensus on the intent 
of the pain measures to ensure there are no unintended consequences, 
the measures are understood by patients, and the measures lead to 
improved patient outcomes.
    One commenter expressed concern that neither the existing nor the 
proposed refined pain management questions adequately reflect either 
shared decision making or adequate pain management. The commenter urged 
CMS to engage the patient and caregiver community in evaluating and 
refining the questions related to pain management.
    Another commenter believed the proposed refined questions fail to 
promise resolution of all pain or suggest that pain treatment should 
always include any one particular mode of therapy. The commenter urged 
CMS to lead the way in incentivizing evidence based multi-modal pain 
care through development of alternative methods for assessing pain 
management in quality reporting programs. Conversely, another commenter 
noted that ``no pain'' is not always a reasonable goal and decreasing 
pain should be the expectation for the patient.
    Response: We disagree that the revised questions do not assure and 
reflect quality pain management, fail to objectively address the 
existence of pain, and remain ambiguous and open-ended, and that we 
should restart the process of developing new pain management questions 
with additional testing and research prior to implementation. We 
believe the refined Communication About Pain questions have already 
undergone rigorous development and testing, and we refer readers to our 
response earlier in this section that details the testing we undertook.
    We thank the commenters for their suggestion that we lead the way 
in incentivizing evidence based multi-modal pain care through 
development of alternative methods for assessing pain management in 
quality reporting programs, but we believe that while potentially 
valuable, these activities are beyond the scope of the HCAHPS Survey. 
We reiterate that the primary purpose of the HCAHPS Survey is to 
collect and report patient experience of care in hospitals, not to 
collect clinical information, promote particular therapies, report 
patient outcomes or create standards of care. During this communication 
between patients and providers, reasonable pain goals should be 
addressed. Although ``no pain'' is not always an achievable outcome, 
the intent of the measure is to establish this frequent communication 
to achieve reasonable, mutually agreed upon pain goals. We will 
consider additional methods for assessing pain management in quality 
reporting programs and for incentivizing evidence-based multi-modal 
pain care in the Hospital IQR Program in the future.
    Comment: One commenter recommended CMS consider proxy reporting as 
a subsequent change to the HCAHPS Survey measure. The commenter noted 
that by allowing proxy reporting, CMS would have more complete 
information on the experience of care for all patients, rather than 
just those who are healthy enough to complete the survey.
    Response: Although we have never permitted proxy respondents, 
meaning permitting any person other than the patient who experienced 
the hospital

[[Page 38342]]

stay to respond to the HCAHPS Survey on behalf of the patient, we 
recently collected and are in the process of analyzing test data, in 
which proxies were permitted. These analyses will provide information 
about whether to proceed with potential future changes to the survey. 
Pending results of these analyses, we may consider allowing proxy 
reporting in the future.
    Comment: One commenter urged CMS to carefully consider whether 
measures in general add value and improve overall patient care before 
including them in payment or public reporting programs.
    Response: 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. With regard to the proposed refined Communication About Pain 
composite measure, and the HCAHPS Survey in general, we believe these 
improve overall patient care and add value to public reporting 
programs. Pain management is an important component of the quality of 
care provided at a hospital, and we believe public reporting of 
hospital rates on the HCAHPS Survey Pain Management questions provides 
patients with critical information for use in selecting a hospital 
setting for their care, ensures hospitals continue to appropriately 
manage patients' pain, and encourages hospitals to engage in quality 
improvement efforts addressing pain management and communication. We 
continue to believe pain control is a critical part of routine patient 
care that hospitals should manage and is an important concern for 
patients, their families, and their caregivers, and we continue to 
explore ways to ensure better measurement of patients' experiences with 
pain management.
    Comment: One commenter recommended CMS distinguish between hospice 
care (which usually occurs in the last six months of a patient's life) 
and palliative care (which could occur at any time during a patient's 
life and could re-occur at any time as well).
    Response: The HCAHPS Survey only asks about patient experience of 
care during a hospital stay. In addition, patients who are discharged 
to hospice care are not eligible to receive the HCAHPS Survey. We have 
implemented a separate survey for patient experience of care in 
hospices.
    After consideration of the public comments we received we are 
finalizing our proposed refinements to the HCAHPS Survey measure pain 
management questions as proposed, with a modification regarding public 
display. Instead of publicly reporting results beginning with October 
of 2019 using CY 2018 data as proposed, we are delaying public 
reporting, such that hospital performance data on the refined 
Communication About Pain composite measure questions will not be 
publicly reported on the Hospital Compare Web site until October of CY 
2020, using CY 2019 data. We will provide performance results, based on 
CY 2018 data on the refined Communication About Pain composite measure 
questions to hospitals in confidential preview reports, upon the 
availability of four quarters of data. We anticipate that these 
confidential preview reports would be available as early as July 2019.
b. Refinement of the Hospital 30-Day, All-Cause, Risk-Standardized 
Mortality Rate (RSMR) Following Acute Ischemic Stroke Hospitalization 
Measure for the FY 2023 Payment Determination and Subsequent Years
(1) Background
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20039 through 
20043), for the FY 2023 payment determination and subsequent years, we 
proposed a refinement of the 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 measure) by changing the measure's risk adjustment to 
include stroke severity (Stroke 30-Day Mortality Rate with the refined 
risk adjustment) obtained from International Classification of Disease, 
Tenth Edition Clinical Modifier (ICD-10-CM) codes in the administrative 
claims. The current Stroke 30-Day Mortality Rate measure was finalized 
in the Hospital IQR Program in the FY 2014 IPPS/LTCH PPS final rule (78 
FR 50798). The previously adopted measure includes 42 risk variables, 
but does not include an assessment of stroke severity because, 
previously, it has not been available in claims data and was not 
routinely performed by all providers. 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 FY 2017 IPPS/LTCH PPS final rule (81 FR 57161), we 
considered 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. Commenters generally supported the 
inclusion of the NIH Stroke Scale score in the Stroke 30-Day Mortality 
Rate measure for future inclusion in the Hospital IQR Program. We refer 
readers to FY 2017 IPPS/LTCH PPS final rule (81 FR 57161 through 57163) 
for a complete discussion of the considered potential measure, public 
comments, and our responses.
    Initial assessment of stroke severity, such as the NIH Stroke Scale 
score, is one of the strongest predictors of mortality in ischemic 
stroke patients,129 130 131 and is part of the national 
guidelines on stroke care.\132\
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    \129\ 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.
    \130\ Nedeltchev K, Renz N, Karameshev A, et al. Predictors of 
early mortality after acute ischemic stroke. Swiss Medical Weekly. 
2010;140(17-18):254-259.
    \131\ 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.
    \132\ 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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    This measure refinement was developed in collaboration with the 
American Heart Association (AHA) and American Stroke Association (ASA). 
We are seeking to update the current measure to include an assessment 
of stroke severity, 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 recent ability to obtain the 
scores through claims data by incorporation into ICD-10. The proposed 
refinement would create a more parsimonious risk model by reducing the 
total number of risk adjustment variables from 42 to 20 and includes 
the NIH Stroke Scale \133\ in the risk-adjustment model as a measure of 
stroke severity. These refinements result in a modestly higher c-
statistic,\134\ a measure of the ability to discriminate between 
patients at low and high risk of mortality following ischemic stroke,

[[Page 38343]]

compared with the risk-adjustment model in the current Stroke 30-Day 
Mortality Rate, which means the updated measure model differentiates 
the risk of mortality among patients better than the current model.
---------------------------------------------------------------------------

    \133\ NIH Stroke Scale. Available at: http://www.nihstrokescale.org/.
    \134\ C-Statistic Definition available at: http://www.statisticshowto.com/c-statistic/.
---------------------------------------------------------------------------

    Mortality following stroke is an important adverse outcome which 
can be measured reliably and objectively and is influenced by both the 
severity of the stroke as well as the quality of care provided to 
patients during their initial hospitalization; therefore, mortality is 
an appropriate measure of quality of care following stroke 
hospitalization.\135\ \136\
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    \135\ 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.
    \136\ 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.
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    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.137 138 139 140
---------------------------------------------------------------------------

    \137\ 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.
    \138\ 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.
    \139\ 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.
    \140\ 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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    We proposed a refinement to the Stroke 30-Day Mortality Rate for 
several reasons. First, the proposed, 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.\141\ 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 when patients first present with acute 
ischemic stroke is Class I recommended in the AHA and ASA 
guidelines.\142\
---------------------------------------------------------------------------

    \141\ NIH Stroke Scale. Available at: http://www.nihstrokescale.org/.
    \142\ 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.
---------------------------------------------------------------------------

    Third, in October 2016, the ICD-10-CM codes for the NIH Stroke 
Scale were implemented. As of that date, hospitals can record the NIH 
Stroke Scale as a representation of stroke severity in Medicare claims 
by using ICD-10-CM codes, and we can use this information as a variable 
in the risk-adjustment model for the refined Stroke 30-Day Mortality 
Rate measure and other claims-based measures with minimal data 
collection burden for hospitals.\143\
---------------------------------------------------------------------------

    \143\ ICD-10-CM Official Guidelines for Coding and Reporting. 
Available at: https://www.cdc.gov/nchs/data/icd/10cmguidelines_2017_final.pdf.
---------------------------------------------------------------------------

    Fourth, 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.\144\ In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50798 
through 50802), commenters emphasized that the medical literature and 
their own experience suggest that stroke severity is the dominant 
predictor of mortality in stroke patients; individuals and 
organizations expressed concern the measure might be misleading, 
limited, or inaccurate without adjustment for stroke severity, and four 
comments suggested risk adjusting using the NIH Stroke Scale or a 
similar index (78 FR 50800).
---------------------------------------------------------------------------

    \144\ 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.
---------------------------------------------------------------------------

    Members of the Technical Expert Panel convened by the measure 
developer also suggested risk-adjusting for stroke severity. In 
addition, during the 2012 Neurology Endorsement Maintenance Consensus 
Development Project, the NQF Neurology Steering Committee specifically 
identified the lack of the NIH Stroke Scale score in the risk-
adjustment model as a concern (78 FR 50800). Therefore, the refined 
Stroke 30-Day Mortality Rate is responsive to public comments from a 
broad array of stakeholder groups, including clinical societies and 
clinical experts, and to feedback received from the Technical Expert 
Panel convened by the measure developer (81 FR 57162).
    Fifth, in addition to a modestly higher c-statistic, which 
evaluates the measure's ability to differentiate between patients at 
varying risks of mortality following an acute ischemic stroke, the 
refined Stroke 30-Day Mortality Rate includes a more parsimonious risk 
model than the stroke mortality measure as previously adopted and 
specified, with a total of 20 risk adjustment variables including the 
NIH Stroke Scale, compared to the current use of 42 risk adjustment 
variables.
    In compliance with section 1890A(a)(2) of the Act, the Stroke 30-
Day Mortality Rate (MUC15-294) with the refined risk adjustment (using 
the NIH Stroke Scale) was included on a publicly available document 
entitled ``List of Measures under Consideration for December 1, 2015'' 
(available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367. Select ``2015 Measures Under 
Consideration List.''). The MAP reviewed and conditionally supported 
the Stroke 30-Day Mortality Rate (MUC15-294) with the refined risk 
adjustment pending NQF review and endorsement, and asked that we 
consider a phased approach in regards to implementation, to avoid 
multiple versions of the same measure.\145\ The MAP also noted outcomes 
other than mortality may be more meaningful for stroke patients and to 
consider cognitive or functional outcomes such as impaired capacity. We 
considered the input and recommendations provided by the MAP and note 
the NIH Stroke Scale incorporates cognitive functions in assessing 
severity.
---------------------------------------------------------------------------

    \145\ 2016 Spreadsheet of Final Recommendations to HHS & CMS 
Available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
---------------------------------------------------------------------------

    To avoid implementing multiple versions of the same measure, we 
intend for the Hospital IQR Program FY 2023 payment determination 
measure set either to include the 30-day stroke mortality measure as 
currently implemented or this modified version that includes the NIH 
stroke severity scale in the measures risk-adjustment model.
    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, but did not obtain endorsement. NQF endorsement was 
not granted primarily due to the inability to test the validity of NIH 
Stroke Scale data elements derived from Medicare claims prior to 
implementation of the new ICD-10-CM codes in October 2016.\146\ The NQF 
Consensus Standards Advisory Committee (CSAC) supported the concern of 
the NQF committee regarding our inability to test the measure using 
ICD-10-CM codes since

[[Page 38344]]

the codes were not implemented until October 2016. While we provided 
risk-standardized mortality rates using data from Medicare 
administrative claims and data from the Get With The Guidelines (GWTG)-
Stroke Registry, the Committee noted we could not validate the National 
Institutes of Health Stroke Scale (NIH Stroke Scale) against ICD-10-CM 
codes at the time the measure was considered for endorsement. The CSAC 
also acknowledged the primary reason for upholding the Committee's 
decision was based on the lack of testing of the measure using ICD-10-
CM codes. This measure went through the same rigorous development 
process as the other publicly reported outcomes measures and involved 
extensive input by stakeholders and clinical experts. It follows the 
same scientific approach to evaluate hospital performance as other 
Hospital IQR Program outcome measures.
---------------------------------------------------------------------------

    \146\ The memo regarding the CSAC's decision is available at: 
http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=83217.
---------------------------------------------------------------------------

    When the NQF committee considered the scientific acceptability of 
the Stroke 30-Day Mortality Rate measure, 19 of 22 members voted the 
measure met the NQF's evidence criterion, 19 members voted the measure 
met the high or moderate standard for the Performance Gap, 18 members 
voted the measure met high or moderate standard for reliability, 19 
members voted the measure met the high or moderate standard for 
feasibility, and 18 members voted the measure met the moderate standard 
for Use and Usability.\147\ We tested and validated the measure using 
NIH Stroke Scale data derived from medical record review done by the 
GWTG-Stroke registry data supplied by AHA/ASA. However, the NQF 
committee ultimately determined the validity testing was not sufficient 
for endorsement.\148\
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    \147\ The memo regarding the CSAC's decision is available at: 
http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=83217.
    \148\ Schwartz J, Wang Y, et al. Hospital 30-Day, All-Cause, 
Risk-Standardized Mortality Rate (RSMR) Following Acute Ischemic 
Stroke Hospitalization with Claims-Based Risk Adjustment for Stroke 
Severity Technical Report. 2016.
---------------------------------------------------------------------------

    We believe the inclusion of the NIH Stroke Scale score in the 
measure's risk-adjustment model improves upon the Stroke 30-Day 
Mortality Rate measure which is currently publicly reported on Hospital 
Compare and has been implemented in the Hospital IQR Program since FY 
2016 (78 FR 50802). This is supported by the improved risk-adjustment 
model performance. For example, the c-statistic, which is a measure of 
the ability to discriminate between patients at low and high risk of 
mortality following ischemic stroke, associated with the new, modified 
risk-adjustment model was 0.81 in the measure development sample \149\ 
and improved to a c-statistic of 0.75 in the most recent measurement 
period for the Stroke 30-Day Mortality Rate measure that is currently 
implemented in the Hospital IQR Program.\150\
---------------------------------------------------------------------------

    \149\ Schwartz J, Wang Y, et al. Hospital 30-Day, All-Cause, 
Risk-Standardized Mortality Rate (RSMR) Following Acute Ischemic 
Stroke Hospitalization with Claims-Based Risk Adjustment for Stroke 
Severity Technical Report. 2016.
    \150\ 2017 Condition-Specific Mortality Measures Updates and 
Specifications Report. Available at: www.qualitynet.org > 
Hospitals--Inpatient > Claims-Based Measures > Mortality Measures > 
Measure Methodology.
---------------------------------------------------------------------------

    The new refined Stroke 30-Day Mortality Rate measure also has 
increased face validity which is supported by the comments received 
from stakeholders. For example, we received comments that the more 
rigorous risk adjustment facilitated by the NIH Stroke Scale would help 
ensure the measure accurately risk adjusts for different hospital 
populations without unfairly penalizing high-performance providers, and 
the NIH Stroke Scale is well validated, highly reliable, widely used by 
providers caring for stroke patients, and a strong predictor of 
mortality and short- and long-term functional outcomes. However, we 
were not able to test the ICD-10 CM codes for NIH Stroke Scale score in 
claims during measure development because those codes were not 
available for hospitals to use in their claims until October 2016. 
Therefore, we proposed this measure now to inform hospitals they should 
begin to include the NIH stroke severity scale codes in the claims they 
submit for patients with a discharge diagnosis of ischemic stroke. Once 
hospitals have submitted these data, it will be possible for us to 
examine the completeness of these data in re-evaluation of the new 
refined Stroke 30-Day Mortality Rate measure before the proposed 
measure dry run and before the proposed implementation in the Hospital 
IQR Program. Once that testing is complete we will submit the retested 
measure to the NQF for endorsement prior to implementation.
    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. 
Although the proposed measure and the existing Stroke 30-Day mortality 
measure are not currently NQF-endorsed, we considered other available 
measures which have been endorsed or adopted by the NQF, and we were 
unable to identify any other NQF-endorsed measures that assess stroke 
mortality with a standard period of follow-up. We also are not aware of 
any other 30-day stroke mortality measures that have been endorsed or 
adopted by a consensus organization.
    We proposed this measure now because we believe the modifications 
to the measure's risk-adjustment model represent a substantial 
improvement over the Stroke 30-Day Mortality Rate measure that is 
currently publicly reported and implemented in the Hospital IQR Program 
and which does not include an assessment of stroke severity in the 
risk-adjustment model. In addition, by announcing our intention to 
include the Refined 30-Day Stroke Mortality Rate measure in the 
Hospital IQR Program in advance of implementation for FY 2023 payment 
determination and subsequent years, and by describing the proposed 
additional testing, dry run, and our intent to re-submit the measure to 
NQF once the NIH Stroke Scale data become available in claims, we are 
providing information that hospitals should begin to plan and alter 
their clinical workflows and billing processes in order to capture the 
NIH Stroke Scale score and include it in Medicare claims. Further, this 
notice will allow hospitals to complete collecting NIH Stroke Scale 
data over the three-year time period needed for measure calculation and 
implementation prior to any payment adjustment. The measure, as 
refined, is described in more detail below.
(2) Overview of Refined Measure
    The measure cohort is aligned with the currently adopted Stroke 30-
Day Mortality Rate measure. In addition, the data sources (Medicare 
fee-for-service (FFS) claims), three-year reporting period, inclusion 
and exclusion criteria, as well as the assessment of the outcome of 
mortality (assessed using Medicare enrollment data) would all align 
with the currently adopted measure (78 FR 50798). Only the measures' 
risk-adjustment models differ, as described in detail below. For the 
new refined Stroke 30-Day Mortality Rate measure, we proposed the first 
measurement period would include discharges between July 1, 2018 and 
June 30, 2021 for public reporting in FY 2022 and for the FY 2023 
payment determination.

[[Page 38345]]

(3) Risk Adjustment
    The Stroke 30-Day Mortality Rate measure that is currently adopted 
in the Hospital IQR Program adjusts for differences in patients' level 
of risk for death in one hospital relative to patients receiving care 
in another hospital but not for stroke severity. For details about the 
risk-adjustment model for the currently adopted measure, we refer 
readers to the Technical Report (78 FR 50798).\151\
---------------------------------------------------------------------------

    \151\ Bernheim S WC, Want Y, et al. Hospital 30-Day Mortality 
Following Acute Ischemic Stroke Hospitalization Measure Methodology 
Report. 2010.
---------------------------------------------------------------------------

    However, in developing the proposed, refined Stroke 30-Day 
Mortality Rate measure, we re-selected risk variables, resulting in a 
final model with 20 risk-adjustment variables, including the NIH Stroke 
Scale risk variable as an assessment of stroke severity. 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 assessment tool that can be administered at 
the bedside consistently by neurologists, physicians, nurses, or 
therapists, and is Class I recommended in the AHA/ASA guidelines.\152\ 
The NIH Stroke Scale is a publicly available standardized tool, the 
results of which should be assessed by a clinician when first examining 
a patient presenting to the hospital with a stroke and subsequently 
documented in the patient's medical record. Once this information has 
been documented by a clinician, it can then be recorded in the claim 
for that hospital admission using ICD-10-CM codes through the 
hospital's normal coding practices.
---------------------------------------------------------------------------

    \152\ 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.
---------------------------------------------------------------------------

    We sought to develop a risk-adjustment model that included the NIH 
Stroke Scale variable and other key variables which we believe are 
clinically relevant and demonstrate a strong statistical association 
with 30-day mortality. To select candidate variables, we considered 
those 42 risk-adjustment variables in the currently adopted measure, 
plus the NIH Stroke Scale as candidate variables. We then performed a 
bootstrapping simulation method for variable selection. This 
bootstrapping simulation method is a means of creating multiple samples 
to determine which risk variables are most important to include in a 
model. We selected the best model using the logistic regression model 
with the stepwise selection method based on 1,000 bootstrapping samples 
for each copy of the multiple imputed (MI) data. Variable selection 
rate for all the variables selected into the best model was calculated 
for each copy of the MI data, and variables were included into the 
final model if the minimum variable selection rate among the 5 copies 
of MI was 90 percent or more. This method resulted in 20 risk-
adjustment variables that were included more than 90 percent of the 
time for all the copies of the imputed data were retained in the final 
model, including the NIH Stroke Scale. For more details on the risk-
adjustment variable selection process, we refer readers to the 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.
    Refining the risk adjustment model of the Stroke 30-Day Mortality 
Rate created a modestly higher c-statistic with fewer risk variables, 
meaning the proposed, refined measure's risk-adjustment model better 
distinguishes among patients with a low risk and high risk of mortality 
following ischemic stroke compared with the Stroke 30-Day Mortality 
Rate measure that is currently implemented in the Hospital IQR Program. 
Including the NIH Stroke Scale in the risk-adjustment model allows the 
measure to more accurately account for patients' status upon arrival at 
the hospital, which is responsive to clinical guidelines and feedback 
from the medical community and other stakeholders, as discussed above.
    In order to use the NIH Stroke Scale data in the proposed, refined 
Stroke 30-Day Mortality Rate measure, many hospitals that have not 
routinely captured these data on patients with ischemic stroke will 
need to implement new workflows to ensure that their clinicians measure 
and record stroke severity. In addition, hospital coders will need to 
include the appropriate ICD-10 code for the clinician's documented NIH 
Stroke Scale score in the Medicare claim. By proposing this measure, we 
are providing hospitals the information and advanced notice that they 
would be required to submit this information in their Medicare claims 
for this proposed, refined Stroke 30-Day Mortality Rate measure.
(4) Effect of ICD-10
    New ICD-10 codes for the NIH Stroke Scale were implemented on 
October 1, 2016; these codes were included so that hospitals could 
characterize the severity of their patients' strokes using a rigorously 
validated and standardized approach and include that information in 
claims and for quality measurement purposes.\153\ However, because 
there were previously no ICD-9 or ICD-10 CM codes for the NIH Stroke 
Scale scores, hospitals have not previously included this information 
on claims they submit to CMS. In order to have information on the 
severity of patients' ischemic stroke included in the calculation 
Stroke 30-Day Mortality Rate, some hospitals that do not currently 
capture or record the NIH Stroke Scale would have to create workflows 
and processes to do this. This additional work, however, is consistent 
with current clinical guidelines for the care of ischemic stroke 
patients, and are consistent with the standard of care. Implementation 
of the proposed, refined Stroke 30-Day Mortality Rate with the refined 
risk adjustment would require hospitals to document in the medical 
record the first NIH Stroke Scale on every eligible patient who is 
admitted for treatment of acute ischemic stroke and provide that 
information among the ICD-10-CM code recorded on the claim. The new 
ICD-10-CM code representing the NIH Stroke Scale will be included in 
the risk adjustment model for the Stroke 30-Day Mortality Rate measure.
---------------------------------------------------------------------------

    \153\ ICD-10-CM Official Guidelines for Coding and Reporting. 
Available at: https://www.cdc.gov/nchs/data/icd/10cmguidelines_2017_final.pdf.
---------------------------------------------------------------------------

    Because many hospitals would have to create new clinical workflows 
to assess and document the NIH Stroke Scale in patients' medical 
records as well as include the appropriate ICD-10-CM code for the 
documented NIH Stroke Scale score in the claim they submit, we would 
provide hospitals with dry run results of this proposed, refined 
measure in their confidential hospital-specific feedback reports prior 
to implementation of the proposed, refined measure for the FY 2023 
payment determination. For example, we anticipate using claims data, 
which would include ICD-10-CM codes for the NIH Stroke Scale, for 
discharges occurring between October 1, 2017 through June 30, 2020, to 
calculate measure results for the dry run

[[Page 38346]]

anticipated in CY 2021.\154\ The data in the confidential hospital-
specific feedback reports would not be publicly reported.
---------------------------------------------------------------------------

    \154\ We note that we have made a correction to the date 
provided here. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20043), a typographical error resulted in the date of June 1, 2020; 
however, we have corrected the date within the preamble of this 
final rule to reflect the correct time period that will be used to 
calculate measure results for the dry run.
---------------------------------------------------------------------------

    We invited public comment on our proposal to adopt a refinement of 
the Stroke 30-Day Mortality Rate in the Hospital IQR Program for the FY 
2023 payment determination and subsequent years as discussed above.
    Comment: Many commenters supported the proposed refinement to the 
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate following 
Acute Ischemic Stroke Hospitalization (Stroke Mortality Measure) 
measure to include the NIH Stroke Scale as a measure of stroke severity 
beginning with the FY 2023 payment determination. One commenter 
believed the proposed refinements would provide an opportunity to 
better evaluate hospital performance and would not add additional 
reporting burden to providers. Another commenter believed the proposed 
refinements represent a significant improvement of the measure as it is 
currently reported because the more parsimonious and discriminating 
risk model would greatly enhance the accuracy of reporting and 
classifying the performance of hospitals.
    Response: We thank the commenters for their support.
    Comment: Some commenters acknowledged that while switching from 
ICD-9 to ICD-10 codes allowed for more robust coding, they were 
concerned about reliability and accuracy of ICD-10 coding, and 
comparability across sites. They requested CMS field test the measure 
using the new ICD-10 codes. Many commenters recommended that CMS fully 
test the refined measure using ICD-10 codes that included the NIH 
Stroke Scale and resubmit the measure for NQF-endorsement prior to 
implementation. Several commenters supported the proposed refinements 
to the Stroke Mortality measure, but asked that CMS not adopt this 
measure until it was endorsed by NQF.
    Response: Regarding the commenters' concern about the reliability 
and accuracy of ICD-10 coding and the comparability across sites, the 
refined stroke measure which includes stroke severity was developed and 
tested exclusively with ICD-9-coded claims.
    However, we note that we have completed extensive testing of the 
current stroke mortality measure specifications in ICD-10 coded claims 
and of measure performance in the 3-year measurement period, which 
includes a combination of ICD-9 and ICD-10 coded claims.\155\ The 
measure cohort sizes and number of hospitals with publicly reported 
results are similar, and the national and hospital-level measure 
results as well as the performance of the risk-adjustment model are 
similar to the results observed when calculating the measure with only 
ICD-9 coded-claims in previous reporting years. Results of some of this 
testing are described in the publicly available 2017 Annual Updates and 
Specifications Report Hospital-Level 30-Day Risk-Standardized Mortality 
Measures.\156\ In addition, consistent with the commenters' request, we 
do plan to further test the refined measure using ICD-10 codes. The 
ICD-10-CM codes for the NIH Stroke Scale were implemented in October 
2016, so we were not able to test the ICD-10-CM codes for NIH Stroke 
Scale score during measure development. However, since the ICD-10-CM 
codes for the NIH Stroke Scale have been available since October 2016 
for use in claims, it will be possible for us to examine these data 
under the refined Stroke 30-Day Mortality Rate measure before both the 
measure dry run and implementation in the Hospital IQR Program.
---------------------------------------------------------------------------

    \155\ Testing results found in the ``AMI, HF, PN, COPD and 
Stroke Mortality Update'' zip file, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    \156\ 2017 Condition-Specific Mortality Measures Updates and 
Specifications Report. Available at: www.qualitynet.org > 
Hospitals--Inpatient > Claims-Based Measures > Mortality Measures > 
Measure Methodology.
---------------------------------------------------------------------------

    Similarly, because the ICD-10 code system was implemented in 
October 2015, there were insufficient claims coded with ICD-10 (and the 
NIH Stroke Scale) submitted by hospitals to provide any testing results 
to NQF during the endorsement process in 2016.
    We will submit testing results in claims data coded using ICD-10 
codes in future cycles of NQF endorsement, as discussed in our proposal 
above. We plan to re-submit this measure to NQF for endorsement once we 
have adequate NIH Stroke Scale data from hospitals, which we anticipate 
will be prior to the FY 2023 payment determination. In addition, we 
will continue to assess the measure, including risk adjustment and 
model performance, as part of annual re-evaluation as the three-year 
measurement period includes a greater proportion of ICD-10 coded data 
over time. However, we did not want to delay finalization of the 
refined measure beginning with the FY 2023 payment determination 
because this provides hospitals with additional time to prepare for the 
implementation, which is generally perceived as an improvement in the 
measure by the stakeholder community.
    Furthermore, as discussed above in our proposal, we note that 
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. Although the 
proposed refined measure and the existing Stroke 30-Day mortality 
measure are not currently NQF-endorsed, we considered other available 
measures which have been endorsed or adopted by the NQF, and we were 
unable to identify any other NQF-endorsed measures that assess stroke 
mortality with a standard period of follow-up.
    Comment: Some commenters believed delaying implementation would 
allow hospitals time needed to implement new workflows to ensure that 
clinicians measure and record stroke severity, as many hospitals have 
not routinely captured the NIH Stroke Scale data.
    Response: We acknowledge hospitals need time prior to 
implementation of this measure since they have not previously included 
the NIH Stroke Scale information on claims they submit to CMS, and many 
hospitals will have to create new clinical workflows to assess and 
document the NIH Stroke Scale in patients' medical records as well as 
include the appropriate ICD-10-CM code in their administrative claims. 
In an effort to provide hospitals with more time to prepare for the use 
of ICD-10 stroke severity codes, in FY 2017 IPPS/LTCH PPS final rule 
(81 FR 57161), we included a detailed discussion of the refined Stroke 
30-Day Mortality Rate measure, which included the NIH Stroke Scale as a 
measure of stroke severity, as a measure for future consideration. In 
addition, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20043), we 
proposed the refined measure for the FY 2023 payment determination and 
subsequent years, affording hospitals multiple years to prepare. We 
also discussed conducting a dry run prior to implementation, in

[[Page 38347]]

which hospitals would receive dry run results in their confidential 
hospital-specific feedback reports a year prior to the measure being 
implemented and publicly reported in the Hospital IQR Program. For the 
dry run anticipated in CY 2021, we intend to calculate the measure by 
using discharges occurring between October 1, 2017 through June 30, 
2020.
    Comment: One commenter requested clarification on which NIH Stroke 
Scale assessment to use, since clinical personnel can record stroke 
scale scores at regular intervals on each patient should the NIH Stroke 
Scale be implemented.
    Response: The intent of the risk adjustment for stroke severity is 
to account for patients' clinical status at the time they are admitted 
to the hospital. Therefore, the refined Stroke 30-Day Morality Rate 
measure would utilize only the initial NIH Stroke Scale score, which is 
administered upon admission. We refer readers to the current clinical 
guidelines describing the qualifications and appropriate administration 
of the NIH Stroke Scale.
    Comment: One commenter was concerned that since registry data was 
used as a proxy for EHR data, CMS should test whether the measure 
captures valid data.
    Response: We would like to clarify that while this measure was 
developed using data from Medicare administrative claims and GWTG-
Stroke Registry, the Stroke 30-Day Mortality Rate measure uses the NIH 
Stroke Scale obtained from ICD-10 codes, and not from electronically 
submitted EHR data. In addition, we intend to conduct at least one dry 
run prior to the measure being implemented in order to ensure that 
enough hospitals are submitting data on stroke severity to be used in 
measure risk adjustment given that the original measure testing was 
done using registry data as a surrogate source of NIH Stroke Scale.
    Comment: One commenter encouraged CMS to recognize the value of the 
NIH Stroke Scale in future measures for the Hospital IQR Program, 
including measures that promote the use of the tool throughout the 
stages of care of a patient. Another commenter suggested if a measure 
of stroke mortality is proposed for any other CMS program, CMS require 
use of the NIH Stroke Scale in that measure. One commenter recommended 
CMS consider this refined stroke mortality measure for the Hospital VBP 
Program.
    Response: We thank the commenters for their suggestions. We will 
take these suggestions for future measures and other CMS programs into 
consideration in future rule-making.
    Comment: Several commenters recommended that CMS consider moving up 
the proposed year of implementation for the refinement of the Stroke 
Mortality measure from the FY 2023 payment determination to the FY 2022 
payment determination. The commenters believed that one year of 
preparation for hospitals to put the processes in place for documenting 
and coding for the NIH Stroke Scale is adequate. In addition, the 
commenters requested that CMS generate a parallel report that includes 
the NIH Stroke Scale for hospitals to track their progress on achieving 
completeness of documentation and coding beginning in FY 2018.
    Response: We thank the commenters for their support, however, we 
want to allow hospitals sufficient time to adjust their clinical 
workflows to capture the NIH Stroke Scale and include it in their 
claims. We believe adopting the Stroke 30-Day Mortality Rate measure in 
the Hospital IQR Program beginning with the FY 2023 payment 
determination (using discharges occurring between July 1, 2018 through 
June 30, 2021) appropriately balances the need to implement this 
substantive improvement to the measure with allowing time for hospitals 
to prepare for the use of ICD-10 stroke severity codes if they are not 
already doing so.
    With regards to a parallel report that includes the NIH Stroke 
Scale for hospitals to track their progress, we believe the 
confidential hospital-specific feedback reports will achieve this. The 
hospital-specific report (HSR) generally includes a hospital's results, 
summary results from other hospitals in the State and the nation, 
discharge-level data for all eligible discharges, and the prevalence of 
risk factors for a hospital's patients compared to State and national 
averages. In addition, we intend that the reports for the refined 
measure will include an enumeration of each hospital discharge with a 
principal diagnosis of ischemic stroke along with the NIH Stroke Scale 
code included in the Medicare claim sent to CMS, as well as each 
hospital discharge if no NIH Stroke Scale code is included. This will 
allow hospitals to explore processes and workflows involving capture 
and reporting of NIH Stroke Scale codes in their claims, and avoid 
having an additional, separate report run during the same time period 
specifically for the hospital's NIH Stroke Scale.
    Comment: Several commenters requested the measure add risk 
adjustments for tPA (tissue plasminogen activator) administration or 
thrombectomy, and for socio-demographic (SDS) factors.
    Response: We thank the commenters for their input. 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. We 
do not generally adjust the measures for actions taken by the hospital, 
such as administration of tPA, as such factors may be related to the 
quality of care rather than patient factors.
    In addition, we understand social risk factors such as income, 
education, race and ethnicity, employment, disability, community 
resources, and social support (certain factors of which are also 
sometimes referred to as socioeconomic status (SES) factors or socio-
demographic status (SDS) factors) play a major role in overall health. 
As noted in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57124), the NQF 
has undertaken a 2-year trial period in which new measures, measures 
undergoing maintenance review, and measures endorsed with the condition 
that they enter the trial period can be assessed to determine whether 
risk adjustment for selected social risk factors is appropriate for 
these measures. This trial entailed temporarily allowing inclusion of 
social risk factors in the risk-adjustment approach for these measures. 
This measure was considered for endorsement during the trial period. 
The results of the analyses presented to the committee demonstrated 
that the SES variables that could be feasibly incorporated into this 
model only have a small, though statistically significant, relationship 
with the outcome in multivariable modeling and that adding them in the 
risk model did not change hospitals' mortality rates.\157\ Although the 
measure was not recommended for endorsement, the exclusion of social 
risk factors from the risk-adjustment model was not among the concerns 
raised by the committee.\158\ We also refer readers to section 
IX.A.1.d. of the preamble of this final rule where SDS is discussed in 
more detail.
---------------------------------------------------------------------------

    \157\ http://www.qualityforum.org/ProjectMaterials.aspx?projectID=80601.
    \158\ Ibid.
---------------------------------------------------------------------------

    Comment: One commenter noted this measure excludes patients under 
age 65, which impacts its generalizability to all stroke patients.
    Response: The measure only includes admissions of Medicare FFS 
beneficiaries aged 65 years or older who were discharged from an 
inpatient stay

[[Page 38348]]

at a short-term acute care hospital.\159\ The measure does not include 
Medicare patients who are younger than 65 because these patients 
usually qualify for the program due to severe disability and, thus, are 
considered to be clinically distinct from Medicare patients 65 and 
over. Furthermore, this refined measure has not been tested on a 
population under 65. With respect to the generalizability of the 
measure to all stroke patients, we are unable to comment on the 
appropriateness of the use of the measure in data other than the 
Medicare data for which it was developed.
---------------------------------------------------------------------------

    \159\ Schwartz J, Wang Y, et al. Hospital 30-Day, All-Cause, 
Risk-Standardized Mortality Rate (RSMR) Following Acute Ischemic 
Stroke Hospitalization with Claims-Based Risk Adjustment for Stroke 
Severity Technical Report. 2016.
---------------------------------------------------------------------------

    After consideration of the public comments we received, we are 
finalizing our proposal to refine the Hospital 30-Day, All-Cause, Risk-
Standardized Mortality Rate following Acute Ischemic Stroke 
Hospitalization (Stroke Mortality Measure) measure for the FY 2023 
payment determination and subsequent years as proposed.
c. Summary of Previously Adopted and Finalized Hospital IQR Program 
Measures for the FY 2020 Payment Determination and Subsequent Years
    The table below outlines the Hospital IQR Program measure set 
(including previously adopted measures and finalized refinements from 
this final rule) for the FY 2020 payment determination and subsequent 
years. The refined measures, as discussed above, are denoted with a 
superscript as defined in the legend below the table.

Previously Adopted Hospital IQR Program Measures for the FY 2020 Payment
                   Determination and Subsequent Years
------------------------------------------------------------------------
          Short name                  Measure name             NQF #
------------------------------------------------------------------------
                Healthcare-Associated Infection Measures
------------------------------------------------------------------------
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.
HCP..........................  Influenza Vaccination                0431
                                Coverage Among
                                Healthcare Personnel.
MRSA Bacteremia..............  National Healthcare                  1716
                                Safety Network (NHSN)
                                Facility-wide Inpatient
                                Hospital-onset
                                Methicillin-resistant
                                Staphylococcus aureus
                                (MRSA) Bacteremia
                                Outcome Measure.
------------------------------------------------------------------------
                  Claims-Based Patient Safety Measures
------------------------------------------------------------------------
Hip/knee complications.......  Hospital-Level Risk-                 1550
                                Standardized
                                Complication Rate (RSCR)
                                Following Elective
                                Primary Total Hip
                                Arthroplasty (THA) and/
                                or Total Knee
                                Arthroplasty (TKA).
PSI 04.......................  Death Rate among Surgical            0351
                                Inpatients with Serious
                                Treatable Complications.
PSI 90.......................  Patient Safety for                   0531
                                Selected Indicators
                                Composite Measure,
                                Modified PSI 90 (Updated
                                Title: Patient Safety
                                and Adverse Events
                                Composite).
------------------------------------------------------------------------
                 Claims-Based Mortality Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI..................  Hospital 30-Day, All-                0230
                                Cause, Risk-Standardized
                                Mortality Rate (RSMR)
                                Following Acute
                                Myocardial Infarction
                                (AMI) Hospitalization.
MORT-30-CABG.................  Hospital 30-Day, All-                2558
                                Cause, Risk-Standardized
                                Mortality Rate (RSMR)
                                Following Coronary
                                Artery Bypass Graft
                                (CABG) Surgery.
MORT-30-COPD.................  Hospital 30-Day, All-                1893
                                Cause, Risk-Standardized
                                Mortality Rate (RSMR)
                                Following Chronic
                                Obstructive Pulmonary
                                Disease (COPD)
                                Hospitalization.
MORT-30-HF...................  Hospital 30-Day, All-                0229
                                Cause, Risk-Standardized
                                Mortality Rate (RSMR)
                                Following Heart Failure
                                (HF) Hospitalization.
MORT-30-PN...................  Hospital 30-Day, All-                0468
                                Cause, Risk-Standardized
                                Mortality Rate Following
                                Pneumonia
                                Hospitalization.
MORT-30-STK..................  Hospital 30-Day, All-                 N/A
                                Cause, Risk-Standardized
                                Mortality Rate Following
                                Acute Ischemic Stroke *.
------------------------------------------------------------------------
               Claims-Based Coordination of Care Measures
------------------------------------------------------------------------
READM-30-AMI.................  Hospital 30-Day All-Cause            0505
                                Risk-Standardized
                                Readmission Rate (RSRR)
                                Following Acute
                                Myocardial Infarction
                                (AMI) Hospitalization.
READM-30-CABG................  Hospital 30-Day, All-                2515
                                Cause, Unplanned, Risk-
                                Standardized Readmission
                                Rate (RSRR) Following
                                Coronary Artery Bypass
                                Graft (CABG) Surgery.
READM-30-COPD................  Hospital 30-Day, All-                1891
                                Cause, Risk-Standardized
                                Readmission Rate (RSRR)
                                Following Chronic
                                Obstructive Pulmonary
                                Disease (COPD)
                                Hospitalization.
READM-30-HF..................  Hospital 30-Day, All-                0330
                                Cause, Risk-Standardized
                                Readmission Rate (RSRR)
                                Following Heart Failure
                                (HF) Hospitalization.
READM-30-HWR.................  Hospital-Wide All-Cause              1789
                                Unplanned Readmission
                                Measure (HWR).
READM-30-PN..................  Hospital 30-Day, All-                0506
                                Cause, Risk-Standardized
                                Readmission Rate (RSRR)
                                Following Pneumonia
                                Hospitalization.
READM-30-STK.................  30-Day Risk-Standardized              N/A
                                Readmission Rate
                                Following Stroke
                                Hospitalization.

[[Page 38349]]

 
READM-30-THA/TKA.............  Hospital-Level 30-Day,               1551
                                All-Cause Risk-
                                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            2881
                                after Hospitalization
                                for Acute Myocardial
                                Infarction.
HF Excess Days...............  Excess Days in Acute Care            2880
                                after Hospitalization
                                for Heart Failure.
PN Excess Days...............  Excess Days in Acute Care            2882
                                after Hospitalization
                                for Pneumonia.
------------------------------------------------------------------------
                      Claims-Based Payment Measures
------------------------------------------------------------------------
AMI Payment..................  Hospital-Level, Risk-                2431
                                Standardized Payment
                                Associated with a 30-Day
                                Episode-of-Care for
                                Acute Myocardial
                                Infarction (AMI).
HF Payment...................  Hospital-Level, Risk-                2436
                                Standardized Payment
                                Associated with a 30-Day
                                Episode-of-Care For
                                Heart Failure (HF).
PN Payment...................  Hospital-Level, Risk-                2579
                                Standardized Payment
                                Associated with a 30-day
                                Episode-of-Care For
                                Pneumonia.
THA/TKA Payment..............  Hospital[hyphen]Level,                N/A
                                Risk[hyphen]Standardized
                                Payment Associated with
                                an Episode-of-Care for
                                Primary Elective Total
                                Hip Arthroplasty and/or
                                Total Knee Arthroplasty.
MSPB.........................  Payment-Standardized                 2158
                                Medicare Spending Per
                                Beneficiary (MSPB).
Cellulitis Payment...........  Cellulitis Clinical                   N/A
                                Episode-Based Payment
                                Measure.
GI Payment...................  Gastrointestinal                      N/A
                                Hemorrhage Clinical
                                Episode-Based Payment
                                Measure.
Kidney/UTI Payment...........  Kidney/Urinary Tract                  N/A
                                Infection Clinical
                                Episode-Based Payment
                                Measure.
AA Payment...................  Aortic Aneurysm Procedure             N/A
                                Clinical Episode-Based
                                Payment Measure.
Chole and CDE Payment........  Cholecystectomy and                   N/A
                                Common Duct Exploration
                                Clinical Episode-Based
                                Payment Measure.
SFusion Payment..............  Spinal Fusion Clinical                N/A
                                Episode-Based Payment
                                Measure.
------------------------------------------------------------------------
           Chart-Abstracted Clinical Process of Care Measures
------------------------------------------------------------------------
ED-1 **......................  Median Time from ED                  0495
                                Arrival to ED Departure
                                for Admitted ED Patients.
ED-2 **......................  Admit Decision Time to ED            0497
                                Departure Time for
                                Admitted Patients.
Imm-2........................  Influenza Immunization...            1659
PC-01 **.....................  Elective Delivery........            0469
Sepsis.......................  Severe Sepsis and Septic             0500
                                Shock: Management Bundle
                                (Composite Measure).
VTE-6........................  Incidence of Potentially            (\+\)
                                Preventable Venous
                                Thromboembolism.
------------------------------------------------------------------------
    EHR-Based Clinical Process of Care Measures (That is, Electronic
                   Clinical Quality Measures (eCQMs))
------------------------------------------------------------------------
AMI-8a.......................  Primary PCI Received                (\+\)
                                Within 90 Minutes of
                                Hospital Arrival.
CAC-3........................  Home Management Plan of             (\+\)
                                Care Document Given to
                                Patient/Caregiver.
ED-1**.......................  Median Time from ED                  0495
                                Arrival to ED Departure
                                for Admitted ED Patients.
ED-2**.......................  Admit Decision Time to ED            0497
                                Departure Time for
                                Admitted Patients.
EHDI-1a......................  Hearing Screening Prior              1354
                                to Hospital Discharge.
PC-01**......................  Elective Delivery........            0469
PC-05........................  Exclusive Breast Milk                0480
                                Feeding.
STK-02.......................  Discharged on                        0435
                                Antithrombotic Therapy.
STK-03.......................  Anticoagulation Therapy              0436
                                for Atrial Fibrillation/
                                Flutter.
STK-05.......................  Antithrombotic Therapy by            0438
                                the End of Hospital Day
                                Two.
STK-06.......................  Discharged on Statin                 0439
                                Medication.
STK-08.......................  Stroke Education.........           (\+\)
STK-10.......................  Assessed for                         0441
                                Rehabilitation.
VTE-1........................  Venous Thromboembolism               0371
                                Prophylaxis.
VTE-2........................  Intensive Care Unit                  0372
                                Venous Thromboembolism
                                Prophylaxis.
------------------------------------------------------------------------
               Patient Experience of Care Survey Measures
------------------------------------------------------------------------
HCAHPS.......................  Hospital Consumer                    0166
                                Assessment of Healthcare          (0228)
                                Providers and Systems
                                *** (including Care
                                Transition Measure
                                (CTM[dash]3) and
                                Communication About Pain
                                composite measure).
------------------------------------------------------------------------
                   Structural Patient Safety Measures
------------------------------------------------------------------------
Patient Safety Culture.......  Hospital Survey on                    N/A
                                Patient Safety Culture.
Safe Surgery Checklist.......  Safe Surgery Checklist                N/A
                                Use.
------------------------------------------------------------------------
* Measure refinement of the Hospital 30-Day, All-Cause, Risk-
  Standardized Mortality Rate Following Acute Ischemic Stroke, for the
  FY 2023 payment determination and for subsequent years, as described
  in section IX.A.6.b. of the preamble of this final rule.
** Measure listed twice, as both chart-abstracted and electronic
  clinical quality measure.
*** Measure refinement of the HCAHPS measure's Pain Management questions
  for the FY 2020 payment determination and for subsequent years, as
  described in section IX.A.6.a. of the preamble of this final rule.
(\+\) NQF endorsement has been removed.


[[Page 38350]]

7. Voluntary Hybrid Hospital-Wide Readmission Measure With Claims and 
Electronic Health Record Data (NQF #2879)
a. Background
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49698), we stated 
that we are considering the use of a set of core clinical data elements 
extracted from hospital EHRs for each hospitalized Medicare FFS 
beneficiary over the age of 65 years. The core clinical data elements 
are data which are routinely collected on hospitalized adults, 
extraction from hospital EHRs is feasible, and can be utilized as part 
of specific quality outcome measures. One way in which we envisioned 
using core clinical data elements in conjunction with other sources of 
data, such as administrative claims, is to calculate ``hybrid'' outcome 
measures, which are quality measures that utilize more than one source 
of data. For more detail about core clinical data elements, we refer 
readers to our discussion in the FY 2016 IPPS/LTCH PPS final rule (80 
FR 49698 through 49704). In addition, we note an important 
distinguishing factor about core clinical data elements and the hybrid 
measures: Hybrid measure results must be calculated by CMS to determine 
hospitals' risk-adjusted rates relative to national rates used in 
public reporting. With a hybrid measure, hospitals can submit data 
extracted from the EHR, and we can perform the measure calculations. 
This was the approach that was finalized for the calculation of the 
Hybrid Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 
(RSMR) Following Acute Myocardial Infarction (NQF #2473), which was 
incorporated into the Advancing Care Coordination Through Episode 
Payment Models as a voluntary measure for patients admitted for AMI in 
the AMI Model (82 FR 354 through 356).
    In the FY 2016 IPPS/LTCH PPS final rule, we stated we developed two 
hybrid measures: (1) Hospital 30-Day Risk-Standardized Acute Myocardial 
Infarction (AMI) Mortality eMeasure (NQF #2473) (now called the Hybrid 
Hospital 30-Day All Cause Risk-Standardized Mortality Rate Following 
Acute Myocardial Infarction (AMI) (NQF #2473)); and (2) a hybrid 
hospital-wide 30-day readmission measure now called the Hybrid 
Hospital-Wide Readmission Measure with Claims and Electronic Health 
Record Data (NQF #2879). Although the Hybrid Hospital-Wide Readmission 
Measure with Claims and Electronic Health Record Data (NQF #2879) 
(hereinafter referred to as Hybrid HWR measure) was not originally 
endorsed when the MAP considered the measure, the MAP encouraged 
further development (80 FR 49698),\160\ and the measure has since been 
endorsed by the NQF.
---------------------------------------------------------------------------

    \160\ National Quality Forum. Measure Application Partnership, 
MAP Hospital Programmatic Deliverable--Final Report. Available at: 
http://www.qualityforum.org/Publications/2015/02/MAP_Hospital_Programmatic_Deliverable_-_Final_Report.aspx. Accessed 
on March 10, 2017.
---------------------------------------------------------------------------

    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49702), commenters 
noted either outright or conditional support for the development of 
hybrid measures, and for the collection of additional administrative 
linkage variables to merge data from EHRs with claims. A few commenters 
noted collection of the core clinical data elements would not impose 
additional burden on hospitals (80 FR 49702). A few commenters 
recommended the hybrid measures should go through NQF review or be 
endorsed by NQF prior to inclusion in a quality reporting program, 
which we have done, as the Hybrid HWR measure was endorsed by NQF on 
December 9, 2016. Other commenters recommended that before we require 
the submission of the core clinical data elements, we should conduct 
further testing and analysis to ensure the accuracy and completeness of 
the data being submitted; specifically, one commenter suggested a 
testing period (80 FR 49703). We conducted further testing, which is 
further described below. We refer readers to the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49702 through 49704) for a full discussion of all 
public comments and our responses related to core clinical data 
elements.
    Since the FY 2016 IPPS/LTCH PPS final rule, in keeping with our 
goal to move toward greater use of data from EHRs for quality 
measurement, and in response to stakeholder feedback to include 
clinical data in outcome measures (80 FR 49702 through 49703), we have 
further developed the proposed voluntary Hybrid HWR measure. This 
measure would incorporate a combination of claims data and EHR data 
submitted by hospitals, and because of these combined data sources, it 
is referred to as a hybrid measure. The Hybrid HWR measure cohort and 
outcome are identical to those in the Hospital-Wide All-Cause Unplanned 
Readmission measure (NQF #1789), which was adopted into the Hospital 
IQR Program for the FY 2015 payment determination and subsequent years 
(77 FR 53521).
    The Hybrid HWR measure was presented on the List of Measures under 
Consideration for December 1, 2014. The MAP encouraged further 
development of the Hybrid HWR measure in December 2014.\161\ The Hybrid 
HWR measure (NQF #2879) was endorsed by NQF on December 9, 2016. This 
measure aligns with the National Quality Strategy (NQS) priorities of 
making care safer by reducing harm caused in the delivery of care and 
promoting effective communication and coordination of care.
---------------------------------------------------------------------------

    \161\ National Quality Forum. Measure Application Partnership, 
MAP Hospital Programmatic Deliverable--Final Report. Available at: 
http://www.qualityforum.org/Publications/2015/02/MAP_Hospital_Programmatic_Deliverable_-_Final_Report.aspx. Accessed 
on March 10, 2017.
---------------------------------------------------------------------------

    Measure development followed the same scientific approach and 
rigorous process as other Hospital IQR Program outcome measures. To 
align the core clinical data elements with other measures that utilize 
EHR data, we developed and tested a Measure Authoring Tool and 
identified value sets for extraction of the core clinical data 
elements. As stated in the FY 2016 IPPS/LTCH PPS final rule, the core 
clinical data elements use existing value sets where possible in an 
effort to harmonize with other measures and reporting requirements and 
we completed testing of the electronic specifications for the core 
clinical data elements used in the Hybrid HWR measure (80 FR 49703). 
The electronic specifications were tested in four separate health 
systems that used three separate EHR systems. During Hybrid HWR measure 
development and testing we demonstrated that the core clinical data 
elements were feasibly extracted from hospital EHRs for nearly all 
adult patients admitted. We also demonstrated that the use of the core 
clinical data elements to risk-adjust the Hybrid HWR measure improves 
the discrimination of the measure, or the ability to distinguish 
patients with a low risk of readmission from those at high risk of 
readmission, as assessed by the c-statistic.162 163 164 In 
addition, inclusion of clinical information from patient EHRs is 
responsive to stakeholders who find it preferable to

[[Page 38351]]

use clinical information that is available to the clinical care team at 
the time treatment is rendered to account for patients' severity of 
illness rather than relying solely on data from claims (80 FR 49702). 
The Hybrid HWR measure is now fully developed and tested and NQF-
endorsed (NQF #2879).
---------------------------------------------------------------------------

    \162\ Hybrid 30-day Risk-standardized Acute Myocardial 
Infarction Mortality Measure with Electronic Health Record Extracted 
Risk Factors (Version 1.1). Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    \163\ Hybrid Hospital-Wide Readmission Measure with Electronic 
Health Record Extracted Risk Factors (Version 1.1). Available at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    \164\ 2013 Core Clinical Data Elements Technical Report (Version 
1.1). Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

b. Voluntary Reporting of Electronic Health Record Data for the Hybrid 
HWR Measure (NQF #2879)
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20045 through 
20049), in accordance with, and to the extent permitted by, the HIPAA 
Privacy Rule and other applicable law, we proposed the Hybrid HWR 
measure as a voluntary measure for the reporting of data on discharges 
over a 6-month period in the first two quarters of CY 2018 (January 1, 
2018 through June 30, 2018). A hospital's annual payment determination 
would not be affected by this voluntary measure. As we stated when we 
adopted the Hospital-Wide All-Cause Unplanned Readmission measure (NQF 
#1789) that is currently used in the Hospital IQR Program, a hospital's 
readmission rate is affected by complex and critical aspects of care 
such as communication between providers or between providers and 
patients; prevention of, and response to, complications; patient 
safety; and coordinated transitions to the outpatient environment, such 
that a hospital-wide, all-condition readmission measure could portray a 
broader sense of the quality of care in hospitals and promote hospital 
quality improvement (77 FR 53522). We believe this would also be the 
case with using the Hybrid HWR measure (NQF #2879) that we proposed for 
voluntary data collection in the proposed rule.
    Hospitals that voluntarily submit data for this measure would 
receive confidential hospital-specific reports that detail submission 
results from the performance reporting period, as well as the Hybrid 
HWR measure results assessed from merged files created by our merging 
of the EHR data elements submitted by each participating hospital with 
claims data from the same set of index admission. We note that in the 
proposed rule (82 FR 20047), we stated we are only seeking to collect 
data for the Hybrid HWR measure that are in accordance with the 
measure's electronic specifications, available on the CMS Web site at: 
http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. Hospitals 
that volunteer to submit data would also increase their familiarity 
with submitting data for hybrid quality measures from their EHR 
systems. Participating hospitals would receive information and 
instruction on the use of the electronic specifications for this 
measure, would have an opportunity to test extraction and submission of 
data to CMS, and would receive reports from CMS, downloadable from 
QualityNet, with details on the success of their submission, such as 
the completeness and accuracy of the data. This would allow us to 
refine this measure if necessary to provide meaningful information on 
outcomes for hospitalizations for Medicare FFS beneficiaries with the 
intent to propose this as a required measure in future rulemaking. For 
example, we would consider feedback from hospitals when making 
refinements to improve the utility of the measure specifications. In 
addition, we would examine the completeness and accuracy of the data 
received to determine its adequacy for calculation of the measure's 
risk adjustment model and measure results.
    EHR data or measure results for this proposed voluntary Hybrid HWR 
measure would not be publicly reported. However, if we propose to 
require mandatory reporting of the Hybrid HWR measure in future 
rulemaking, such a proposal would include public reporting of the 
measure results. Consistent with estimates for previous voluntary 
measure reporting, such as the Hospital IQR Program eCQM voluntary 
reporting (79 FR 50346), we believe up to approximately 100 hospitals 
would voluntarily submit data for the Hybrid HWR measure. Details about 
the measure and our proposal for voluntarily reporting certain data 
elements for this measure are discussed below.
c. Data Sources
    We proposed to use two sources of data for the calculation of the 
proposed voluntary Hybrid HWR measure: Medicare Part A claims and core 
clinical data elements for Medicare FFS beneficiaries who are 65 years 
or older, comprising the measure cohort. Claims data would be used to 
identify index admissions included in the measure cohort, to create a 
risk-adjustment model, and to assess the 30-day unplanned readmission 
outcome. This data would be merged with core clinical data elements 
from each participant hospital's EHRs collected at presentation 
(discussed in more detail below) and used for risk-adjustment of 
patients' severity of illness (for Medicare FFS beneficiaries who are 
65 years or older), in addition to data from claims. Medicare 
enrollment data, from the Medicare Enrollment Database, are used to 
confirm Medicare enrollment for at least 30 days post hospital 
discharge for the unplanned readmission outcome assessment. For this 
proposed voluntary Hybrid HWR measure, in accordance with, and to the 
extent permitted by, the HIPAA Privacy Rule and other applicable law, 
the EHR data submission process would align as much as possible with 
existing electronic Clinical Quality Measure (eCQM) standards and data 
reporting procedures for hospitals, as further discussed below. We 
refer readers to section IX.A.10.e. of the preamble of this final rule 
for details on the Submission Form and Method for the Voluntary Hybrid 
Hospital-Wide Readmission Measure. The electronic specifications for 
the proposed voluntary Hybrid HWR measure, which include the electronic 
specifications for extraction of the core clinical data elements from 
hospital EHRs (the Measure Authoring Tool output and value sets) for 
all included data elements, are available on the CMS Web site at: 
http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
d. Outcome
    As stated above, the proposed voluntary Hybrid HWR measure outcome 
is aligned with the currently adopted, publicly reported, Hospital-Wide 
All-Cause Unplanned Readmission measure (NQF #1789), which was adopted 
into the Hospital IQR Program for the FY 2015 payment determination and 
subsequent years (77 FR 53521 through 53528). The proposed voluntary 
Hybrid HWR measure outcome assesses unplanned readmissions for any 
cause within 30 days of discharge from the index admission. It does not 
consider planned readmissions as part of the readmission outcome and 
identifies them by using the CMS Planned Readmission Algorithm, which 
is a set of criteria for classifying readmissions as planned using 
Medicare claims, and is currently used in the previously adopted, 
Hospital-Wide All-Cause Unplanned Readmission measure (77 FR 
53521).\165\ This algorithm identifies admissions that are typically 
planned and may occur within 30 days of discharge from the 
hospital.\166\ The algorithm was most

[[Page 38352]]

recently refined in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50211 
through 50216) for the previously adopted, claims-based measure. The 
same algorithm is used for this proposed voluntary Hybrid HWR 
measure.\167\ 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.
---------------------------------------------------------------------------

    \165\ 2017 All-Cause Hospital-Wide Measure Updates and 
Specifications Report. Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    \166\ Ibid.
    \167\ Hybrid Hospital-Wide Readmission Measure with Electronic 
Health Record Extracted Risk Factors (Version 1.1). Available at: 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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e. Cohort
    As noted above, the proposed voluntary Hybrid HWR measure cohort is 
aligned with the currently adopted, Hospital-Wide All-Cause Unplanned 
Readmission measure.\168\ The measure cohort consists of Medicare FFS 
beneficiaries, aged 65 years or older, discharged from non-Federal 
acute care hospitals. Hospitals would only submit data for this cohort, 
and the measure would only be calculated for this cohort. The proposed 
voluntary Hybrid HWR measure includes admissions for nearly all 
Medicare FFS beneficiaries over the age of 65 years who are discharged 
alive from acute care non-Federal hospitals. However, during measure 
calculation, a small number of these admissions are excluded under the 
measure specifications. Excluded admissions include those for principal 
discharge diagnoses indicating some psychiatric disorders. These 
exclusions are only a small proportion of all index admissions and are 
identified during the measure calculation process.
---------------------------------------------------------------------------

    \168\ 2017 All-Cause Hospital-Wide Measure Updates and 
Specifications Report. Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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f. Inclusion and Exclusion Criteria
    The proposed voluntary Hybrid HWR measure inclusion and exclusion 
criteria are also aligned with the currently adopted Hospital-Wide All-
Cause Unplanned Readmission measure.\169\ For both measures, the index 
admission is the hospitalization to which the readmission outcome is 
attributed. Both the claims-based, Hospital-Wide All-Cause Unplanned 
Readmission measure and the proposed voluntary Hybrid HWR measure 
include the following index admissions for patients:
---------------------------------------------------------------------------

    \169\ 2017 All-Cause Hospital-Wide Measure Updates and 
Specifications Report. Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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     Enrolled in Medicare FFS Part A for the 12 months prior to 
the date of admission and during the index admission.
     Aged 65 or older.
     Discharged alive from a non-Federal acute care hospital.
     Not transferred to another acute care facility.
    This measure excludes the following index admissions for patients:
     Admitted to prospective payment system (PPS)-exempt cancer 
hospitals.
     Without at least 30 days of post-discharge enrollment in 
Medicare FFS.
     Discharged against medical advice.
     Admitted for primary psychiatric diagnoses.
     Admitted for rehabilitation.
     Admitted for medical treatment of cancer.
    For both measures, each index admission is assigned to one of five 
mutually exclusive specialty cohort groups: medicine; surgery/
gynecology; cardiorespiratory; cardiovascular; and neurology. The 
cohorts reflect how care for patients is organized within hospitals. To 
assign admissions to cohorts, admissions are first screened for the 
presence of an eligible Agency for Healthcare Research and Quality 
(AHRQ) Clinical Classifications Software (CCS) \170\ surgical procedure 
category. Admissions with an eligible surgical procedure category are 
assigned to the surgical cohort, regardless of the principal discharge 
diagnosis code of the admission. All remaining admissions are assigned 
to cohorts based on the AHRQ CCS diagnosis category of the principal 
discharge diagnosis.
---------------------------------------------------------------------------

    \170\ Clinical Classifications Software (CCS) for ICD-9-CM Fact 
Sheet. Accessed at: https://www.hcup-us.ahrq.gov/toolssoftware/ccs/ccsfactsheet.jsp.
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g. Risk-Adjustment
    The proposed voluntary Hybrid HWR measure adjusts both for case mix 
differences (clinical status of the patient, accounted for by adjusting 
for age and comorbidities, and the core clinical data elements from 
patients' EHRs) and service-mix differences (the types of conditions 
and procedures cared for and procedures conducted by the hospital, 
accounted for by adjusting for the discharge condition category). 
Patient comorbidities are based on the index admission, the admission 
included in the measure cohort, and a full year of prior history. The 
core clinical data elements are derived from information captured in 
the EHR during the index admission only, and are listed below.

------------------------------------------------------------------------
                                                         Time window for
         Data elements           Units of measurement    first captured
                                                         values  (hours)
------------------------------------------------------------------------
Heart Rate....................  Beats per minute......              0-2.
Systolic Blood Pressure.......  mmHg..................              0-2.
Respiratory Rate..............  Breath per minute.....              0-2.
Temperature...................  Degrees Fahrenheit....              0-2.
Oxygen Saturation.............  Percent...............              0-2.
Weight........................  Pounds................             0-24.
Hematocrit....................  % red blood cells.....             0-24.
White Blood Cell Count........  Cells/mL..............             0-24.
Potassium.....................  mEq/L.................             0-24.
Sodium........................  mEq/L.................             0-24.
Bicarbonate...................  mmol/L................             0-24.
Creatinine....................  mg/dL.................             0-24.
Glucose.......................  mg/dL.................             0-24.
------------------------------------------------------------------------


[[Page 38353]]

    The risk-adjustment variables included in the development and 
testing of the proposed voluntary Hybrid HWR measure are derived from 
both claims and clinical EHR data. The variables are: (1) 13 Core 
clinical data elements derived from hospital EHRs; (2) the Clinical 
Classification Software (CCS) categories for the principal discharge 
diagnosis associated with each index admission derived from ICD-10 
codes in administrative claims data; and (3) comorbid conditions of 
each patient identified from inpatient claims in the 12 months prior to 
and including the index admission derived from ICD-10 codes and grouped 
into the CMS condition categories (CC).
    All 13 core clinical data elements were shown to be statistically 
significant predictors of readmission in one or more risk-adjustment 
models of the five specialty cohort groups used to calculate the 
proposed voluntary Hybrid HWR measure.\171\ The proposed voluntary 
Hybrid HWR measure specialty cohort groups are further defined in 
section IX.A.7.e. of the preamble of this final rule, below. The 
testing results demonstrate that the core clinical data elements 
enhanced the discrimination (assessed using the c-statistic) when used 
in combination with administrative claims data.\172\ For additional 
details regarding the risk-adjustment model, we refer readers to the 
proposed voluntary Hybrid HWR Measure technical report, which is posted 
on the CMS Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    \171\ Hybrid Hospital-Wide Readmission Measure with Electronic 
Health Record Extracted Risk Factors (Version 1.1). Available at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    \172\ Hybrid Hospital-Wide Readmission Measure with Electronic 
Health Record Extracted Risk Factors (Version 1.1). Available at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    We note this measure was developed using claims coded in ICD-9. 
However, we have identified and tested ICD-10 specifications for all 
information used in the measure derived from Medicare claims for both 
the claims-based, Hospital-Wide All-Cause Unplanned Readmission measure 
and for the proposed voluntary Hybrid HWR Measure. The ICD-10 
specifications are identical for both measures. Only the use of the 
core clinical data elements in the risk-adjustment models differs 
between the two measures. Those data elements are not affected by ICD-
10 implementation. For additional details regarding the measure 
specifications that accommodate ICD-10-coded claims, we refer readers 
to the 2017 All-Cause Hospital-Wide Measure Updates and Specifications 
Report, which is posted on the CMS Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
h. Calculating the Risk-Standardized Readmission Rate (RSRR)
    The methods used for calculation of the proposed voluntary Hybrid 
HWR measure align with the methods used to calculate the currently 
adopted, Hospital-Wide All-Cause Unplanned Readmission measure. Index 
admissions are assigned to one of five mutually exclusive specialty 
cohort groups consisting of related conditions or procedures. The five 
specialty cohort groups are: Surgery/gynecology, general medicine, 
cardiorespiratory, cardiovascular, and neurology. For each specialty 
cohort group, the standardized readmission ratio (SRR) is calculated as 
the ratio of the number of ``predicted'' readmissions to the number of 
``expected'' readmissions at a given hospital. For each hospital, the 
numerator of the ratio is the number of readmissions within 30 days 
predicted based on the hospital's performance with its observed case 
mix and service mix, and the denominator is the number of readmissions 
expected based on the nation's performance with that hospital's case 
mix and service mix. This approach is analogous to a ratio of 
``observed'' to ``expected'' used in other types of statistical 
analyses.
    The specialty cohort SRRs are then pooled for each hospital using a 
volume-weighted geometric mean to create a hospital-wide composite SRR. 
The composite SRR is multiplied by the national observed readmission 
rate to produce the RSRR. For additional details regarding the measure 
specifications to calculate the RSRR, we refer readers to the 2017 All-
Cause Hospital-Wide Measure Updates and Specifications Report, which is 
posted on the CMS Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
i. Data Submission and Reporting Requirements
    We proposed hospitals use QRDA I files for each Medicare FFS 
beneficiary who is 65 years and older. Submission of data using QRDA I 
files is the current EHR data and measure reporting standard adopted 
for electronic clinical quality measures (eCQMs) implemented in the 
Hospital IQR Program. This same standard would be used for reporting 
the core clinical data elements to the CMS data receiving system. We 
refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49706) 
where we have previously discussed QRDA I standards for use in the 
Hospital IQR Program. We also refer readers to section IX.A.10.e. of 
the preamble of this final rule for discussions of additional proposals 
related to data submission and reporting requirements for the Hybrid 
HWR measure.
    We also proposed to use the following criteria to determine if a 
hospital has successfully submitted voluntary Hybrid HWR measure data:
     Submission of only the first-captured values, which are 
data collected routinely on each Medicare FFS beneficiary who is 65 
years or older upon presentation to the hospital, for each of the 13 
core clinical data elements used in risk adjustment to assess the 
patient's severity of illness.
     Hospitals would be expected to successfully submit data 
values from hospital EHRs for vital signs (heart rate, respiratory 
rate, temperature, systolic blood pressure, oxygen saturation, weight), 
and six linking variables required to merge with the CMS claims data 
(CCN, HIC Number or Medicare Beneficiary Identifier, date of birth, 
sex, admission date, and discharge date). When we tested the electronic 
specifications for extraction of the core clinical data elements in 
hospital systems, we also tested the use of these linking variables to 
merge data from claims and from hospitals' EHRs from several health 
systems, and achieved match rates over 90 percent accounting for 
missing or erroneous data. In order to calculate results for the Hybrid 
HWR measure, hospitals would need to submit these data on more than 95 
percent of on all Medicare FFS patients who are 65 years and older 
discharged from the hospital.
     Participating hospitals would be requested to submit 
values for laboratory test results (hematocrit, white blood cell count, 
sodium, potassium, bicarbonate, creatinine, and glucose) for Medicare 
FFS beneficiaries, 65 years or older, included in the measure cohort. 
In order to calculate measure results for the Hybrid HWR measure, 
hospitals would need to submit these data elements on more than 80 
percent of these beneficiaries. However, for the proposed voluntary 
measure for the CY 2018 reporting period (January 1, 2018 through June 
30, 2018) we would request the data elements on at least 50

[[Page 38354]]

percent of these patients discharged over the same time period. Data 
submission to the CMS data receiving system would occur in the fall of 
2018.
     The measurement period would include discharges occurring 
over a 6-month period in the first two quarters of CY 2018 (January 1, 
2018 through June 30, 2018). However, for hospitals that choose to 
report this measure, we would request submission of these data elements 
on at least 50 percent of these patients. As we noted above, in our 
proposal for voluntary data collection of the Hybrid HWR measure, we 
are only seeking to collect data for this measure on applicable 
Medicare FFS beneficiaries in accordance with the measure's electronic 
specifications, available on the CMS Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
j. Confidential Hospital-Specific Reports
    Hospitals that voluntarily submit data for this measure would 
receive confidential hospital-specific reports that detail submission 
results from the reporting period, including detailed information about 
the completeness and accuracy of the EHR data they submit, as well as 
the Hybrid HWR measure results assessed from merged files created by 
our merging of the EHR data elements submitted by each participating 
hospital with claims data from the same set of index admission. We 
would calculate and provide each participating hospital with their 
risk-standardized readmission rate for the voluntary Hybrid HWR 
measure. This would provide each hospital with an indication of their 
performance relative to the other hospitals that participate in the 
voluntary measure. In addition, we would create a hospital-specific 
report for each participating hospital which would include detailed 
information about their Medicare FFS beneficiaries who are 65 and older 
who had an unplanned readmission within 30-days of hospital discharge, 
including the patients' clinical risk factors from claims and EHR data. 
This information would allow hospitals to identify the factors that 
increase patients' risk of readmission and would inform quality 
improvement strategies to reduce unplanned readmissions. In addition, 
the reports would include the match rate between the hospital's 
submitted EHR data and corresponding claims data, as well as the 
proportion of patient data submitted relative to all qualifying 
admissions for each of the 13 core clinical data elements.
    We note that we are considering proposing the Hybrid HWR (NQF 
#2879) measure as a required measure as early as the FY 2023 payment 
determination and requiring hospitals to submit the core clinical data 
elements and linking variables used in the measure as early as CY 2020 
to support a dry run of the measure during which hospitals would 
receive a confidential preview of their results in 2021. Any 
requirement for mandatory reporting on this measure would be proposed 
through future rulemaking. We invited public comment on our proposal to 
adopt the Hybrid HWR measure (NQF #2879) for the Hospital IQR Program 
as a voluntary measure for the CY 2018 reporting period as described 
above.
    Comment: A few commenters expressed that they would support the 
proposed voluntary reporting of the Hybrid HWR measure should it obtain 
NQF endorsement.
    Response: We thank the commenters for their support. As stated in 
the proposed rule (82 FR 20046) and above, the Hybrid Hospital-Wide 
Readmission Measure with Claims and Electronic Health Record Data (NQF 
#2879) was endorsed by NQF on December 9, 2016.
    Comment: Many commenters recommended that CMS focus efforts on 
using data elements from EHRs to risk-adjust condition specific 
measures that are currently being used in the Medicare performance or 
penalty programs. Specifically, commenters urged CMS to take steps to 
test the feasibility of using non-clinical EHR-derived elements, such 
as education, location, and other factors, to develop appropriate 
socio-demographic adjustments.
    Response: We understand the important role that socio-demographic 
factors play in the care of patients, however, we believe the Hybrid 
HWR measure's risk-adjustment methodology is appropriate and reliable. 
The measure already incorporates a risk-adjustment methodology that 
accounts for age and comorbidities, as well as vital signs and 
laboratory values at the start of the inpatient encounter. We will take 
under consideration potential future inclusion of additional non-
clinical EHR-derived elements, such as education, location, and other 
socio-demographic factors, however, we continue to have concerns about 
holding hospitals to different standards for the outcomes of their 
patients of diverse socio-demographic factors because we do not want to 
mask potential disparities or minimize incentives to improve the 
outcomes of disadvantaged populations. In addition, as discussed in 
section V.J.3. of the preamble of this final rule, the Hybrid HWR 
measure recently underwent successful NQF endorsement during the NQF's 
trial period for socio-demographic factors. We refer readers to section 
IX.A.1.d. of the preamble of this final rule for more details on 
accounting for social risk factors in the Hospital IQR Program. The NQF 
trial period considered the analyses and interpretations as well as 
performance scores with and without socio-demographic factors in the 
risk-adjustment model for this measure. In accordance with the NQF's 
trial criteria, NQF's evaluation indicated that SDS adjustment was not 
necessary for this measure.\173\ We routinely monitor the impact of 
socio-demographic status on hospitals' results on our measures and will 
assess the appropriateness of further risk adjustment in the future, as 
well as the availability and feasibility of collecting social risk 
factor data elements from EHRs. We will also continue to consider using 
data elements from EHRs to risk-adjust condition specific measures, the 
claims-based versions of which are currently being used in the Medicare 
pay for performance programs (sometimes referred to as penalty 
programs).
---------------------------------------------------------------------------

    \173\ NQF All-Cause Admissions and Readmissions 2015-2017 
Technical Report: http://www.qualityforum.org/Publications/2017/04/All-Cause_Admissions_and_Readmissions_2015-2017_Technical_Report.aspx.
---------------------------------------------------------------------------

    Comment: Two commenters encouraged CMS to incentivize both 
hospitals and vendors to participate in voluntary reporting either 
through recognition or reduction in other requirements to offset the 
resources required to fully participate.
    Response: We thank the commenter for their suggestion. We will 
continue to consider ways to reduce burden on hospitals as well as to 
incentivize participation in the voluntary reporting of this measure.
    Comment: One commenter expressed concern about the proposed 
voluntary reporting of the Hybrid HWR measure, because merging clinical 
data derived from electronic health records (EHRs) with claims data is 
especially difficult and extremely complex.
    Response: We will merge the EHR data submitted by hospitals as 
outlined in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20049) with 
the claims files and calculate the measure results. To clarify, 
participating hospitals or vendors are not expected to merge these data 
files themselves. We have successfully tested this process using EHR 
data and claims data submitted by three separate hospital systems 
during measure development. The additional experience we gain through 
voluntary data collection on

[[Page 38355]]

this measure will allow us to refine the data merging process as 
necessary without affecting payment or public reporting, since this 
voluntary measure will not be publicly reported. For hospitals that 
participate in the voluntary reporting of the Hybrid HWR measure, we 
will provide each hospital with a confidential hospital specific report 
that details submission results, as well as a description of the merged 
data set with both EHR and claims data included for the measure 
reporting period.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the Hybrid HWR measure (NQF #2879) as 
a voluntary measure for the CY 2018 reporting period, as proposed.
8. Changes to Policies on Reporting of eCQMs
a. Background
    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), the FY 2016 IPPS/LTCH PPS final rule (80 FR 49692 through 
49698; and 49704 through 49709), and the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 57150 through 57161; and 57169 through 57172). In the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57172), we finalized that 
hospitals must submit eCQM data 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.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20049 through 
20051), we proposed two modifications to our finalized eCQM reporting 
policies for the CY 2017 reporting period/FY 2019 payment determination 
and the CY 2018 reporting period/FY 2020 payment determination. 
Specifically, we proposed to: (1) Decrease the number of eCQMs for 
which hospitals must submit data; and (2) decrease the number of 
calendar quarters for which hospitals are required to submit data, as 
further detailed below. These proposals were made in conjunction with 
our proposals discussed in sections IX.E.2.b. of the preamble of this 
final rule to align requirements for the Hospital IQR Program and the 
Medicare and Medicaid EHR Incentive Programs for hospitals and CAHs.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57150 through 
57159), we finalized a policy to require hospitals to submit one full 
calendar year of data (consisting of four quarterly data reporting 
periods) for 8 self-selected eCQMs out of the available eCQMs for both 
the CY 2017 reporting period/FY 2019 payment determination and the CY 
2018 reporting period/FY 2020 payment determination.
    Since the conclusion of the public comment period for the FY 2017 
IPPS/LTCH PPS final rule, we have continued to receive frequent 
feedback (via email, webinar questions, help desk questions, and 
conference call discussions) from hospitals and EHR vendors about 
ongoing challenges of implementing eCQM reporting. A summary of the 
main concerns identified by these data submitters are as follows:
     The timing of the transition to a new EHR system during 
2017 (or system upgrades or new EHR vendor) affects hospitals' ability 
to report on an increased number of measures in a timely manner;
     There is a need for at least one year between new EHR 
requirements due to the varying 6- to 24-month cycles needed for 
vendors to code new measures, test and institute measure updates, train 
hospital staff, and rollout other upgraded features;
     Hospitals have had difficulty identifying applicable 
measures that reflect their patient population, given the reduction in 
the number of available eCQMs (from 28 to 15) for CY 2017 reporting;
     Hospitals have had challenges with data mapping (aligning 
the information available in an electronic health record (EHR), 
particularly if the information is not located in a structured field 
(for example, PDF attachment, free text section) to the required fields 
in a QRDA Category I (QRDA I) file), and workflow (the process of 
extrapolating the pertinent patient data from an EHR, transferring that 
data to a QRDA I file, and submission of the QRDA I file to CMS) 
because hospitals still need to collect CY 2017 data while reporting CY 
2016 data; and
     Hospitals have identified challenges in implementing 
annual updates and new editions of certified health IT because of 
significant impacts on workflow, staffing, and connected technology 
systems. (We note that this information was inadvertently omitted in 
the proposed rule at 82 FR 20050.)
    In response to these issues, we proposed to modify the eCQM 
reporting requirements for both the CY 2017 reporting period/FY 2019 
payment determination and the CY 2018 reporting period/FY 2020 payment 
determination as discussed in more detail below.
b. Modifications to the eCQM Reporting Requirements for the Hospital 
IQR Program for the CY 2017 Reporting Period/FY 2019 Payment 
Determination
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20050), for the 
CY 2017 reporting period/FY 2019 payment determination, we proposed to 
modify eCQM reporting requirements, such that hospitals: (1) Report on 
at least 6 of the available eCQMs, instead of 8 as previously 
finalized; and (2) submit two, self-selected quarters of data, instead 
of one full calendar year of data as previously finalized.
    We stated in the proposed rule that although the publication of the 
FY 2018 IPPS/LTCH PPS final rule will not occur until on or about 
August 1, 2017, the data submission deadline for the CY 2017 reporting 
period/FY 2019 payment determination is not until February 28, 2018 
which should provide hospitals with ample time to adjust to these 
modified policies. Hospitals that were prepared to submit one full 
calendar year of data for 8 eCQMs in accordance with the previously 
finalized CY 2017 eCQM reporting requirements should be able to submit 
two, self-selected quarters of data for 6 eCQMs in accordance with the 
modified CY 2017 reporting requirements. Reducing the number of data 
reporting periods to two quarters, rather than four, and allowing 
hospitals to self-select which two quarters of CY 2017 to report also 
offers greater reporting flexibility and allows hospitals and their 
vendors more time to plan for reporting and to account for and schedule 
hospital-specific scenarios, such as EHR upgrades or system 
transitions.
    We believe these modified reporting requirements directly address 
stakeholder concerns while remaining consistent with our goal to 
incrementally transition to electronic reporting (80 FR 49694).
    We note we proposed similar policies in the EHR Incentive Program 
and refer readers to section IX.E.2.b. of the preamble of this final 
rule. Our policies to modify the CY 2017 eCQM reporting requirements in 
the Hospital IQR Program continue to align with the requirements of the 
CQM electronic reporting requirements in the Medicare and Medicaid EHR 
Incentive Programs for eligible hospitals and CAHs to reduce confusion 
and reporting burden. In addition, in the proposed rule (82 FR 20050), 
we did not propose any changes to the February 28, 2018 submission 
deadline for CY 2017 reporting (81 FR 57172) to ensure that APU 
determinations for FY 2019 are not affected and to maintain the 
established

[[Page 38356]]

alignment with the Medicare EHR Incentive Program's submission deadline 
(81 FR 57255).
    We invited public comment on our proposals to modify the eCQM 
reporting requirements for the CY 2017 reporting period/FY 2019 payment 
determination for the Hospital IQR Program as described above.
    Comment: Several commenters supported the proposed policies for the 
CY 2017 reporting period/FY 2019 payment determination that reduce the 
reporting period from one full calendar year of data to two, self-
selected quarters of data and the number of eCQMs required to report 
from 8 to 6, but recommended that CMS further reduce the CY 2017 
reporting requirements by retaining the previously finalized CY 2016 
policies that required the reporting of 4 eCQMs for one quarter of 
data. The commenters indicated that maintaining the CY 2016 eCQM 
reporting requirements would provide certified health IT vendors and 
CMS additional time to work on measure specification and, data 
validation, while giving hospitals more time to focus on incorporating 
system upgrades, data mapping, staff training, and planning for data 
processing for CMS reporting. In addition, some commenters expressed 
concern regarding the increase in eCQM reporting requirements impacting 
the ability of hospitals to effectively execute current eCQM reporting 
requirements and prepare for potential future increases in eCQM 
reporting requirements, thus placing an additional burden on hospitals 
by limiting available time for testing prior to production file 
submission. These commenters indicated that recent updates to measure 
specifications have required labor-intensive updates to complete 
terminology mapping, which has reduced hospitals' ability to expand 
eCQM reporting to additional eCQMs. The commenters noted that 
implementation of eCQM reporting is a multi-year process that requires 
significant capital and operating expenditures and requires close 
collaboration with clinical and other operations staff. The commenters 
encouraged CMS to continue to take into account the operational 
implications of eCQM data submission requirements for smaller hospitals 
that have resource limitations. One commenter indicated that even if 
facilities were already collecting data on 8 eCQMs, the reduction in 
the number of eCQMs required to report and the decreased reporting 
period would give facilities that have limited resources or 
difficulties reporting for an entire calendar year the opportunity to 
be more successful.
    Response: We appreciate commenters expressing their concerns and 
providing more details regarding their challenges associated with eCQM 
reporting. Based on commenter feedback, we are finalizing a 
modification to our proposals for eCQM reporting requirements for the 
CY 2017 reporting period/FY 2019 payment determination. Instead of 
requiring submission of one calendar year of data, for 8 eCQMs, as 
previously finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57150 through 57159), or submission of two, self-select calendar 
quarters of data, for 6 eCQMs, as proposed in the FY 2018 IPPS proposed 
rule (82 FR 20050), we are finalizing a modification of our proposal to 
further reduce the eCQM reporting requirements, such that hospitals are 
required to submit only one, self-selected calendar quarter of data for 
4 eCQMs. This retains reporting requirements similar to the CY 2016 
reporting period/FY 2018 payment determination (80 FR 49698) with one 
change, such that hospitals will be able to submit data for any one of 
the 4 quarters for the CY 2017 reporting period/FY 2019 payment 
determination, whereas hospitals were only able to submit data for 
either Q3 or Q4 for the CY 2016 reporting period/FY 2018 payment 
determination.
    In determining the modified number of eCQMs to report for the CY 
2017 reporting period, we decided to continue the CY 2016 reporting 
period/FY 2018 payment determination requirements to give hospitals 
more time to gain experience reporting eCQMs. While we believe many 
hospitals are ready to successfully report on at least 6 eCQMs 
beginning with the CY 2017 reporting period/FY 2019 payment 
determination, as proposed, we also want to be responsive to feedback 
that many hospitals, especially small, rural, and IHS and tribal 
hospitals, as well as hospitals with fewer financial resources, need 
additional time and flexibility to successfully implement all of the 
eCQM reporting requirements. We intend to review the results of the 
first year of required eCQM data collection prior to increasing 
requirements for subsequent years.
    We believe these modified, reduced reporting requirements directly 
address stakeholder concerns while remaining consistent with our goal 
to gradually transition toward more robust electronic quality measure 
reporting. Further, we believe reducing the number of eCQMs required to 
be reported and reducing the quarters of data to be reported eases the 
burden on data submitters, allowing them to shift resources to support 
system upgrades, data mapping, and staff training related to eCQMs. 
Successful reporting in CY 2016 should streamline CY 2017 reporting 
because hospitals can re-use the same measures submitted to satisfy the 
CY 2016 reporting requirements. In addition, we believe that these 
modified, reduced reporting requirements will provide hospitals and 
health IT vendors more time to report quality data to CMS, including 
more time to submit test QRDA files before submitting production QRDA 
files for program credit. We also believe the reduction in the number 
of required eCQMs lessens the burden of identifying new measures to 
report; under the modified policy, hospitals are not required to 
identify any additional measures between CY 2016 and CY 2017. We will 
continue to assess the progress of hospitals in implementing eCQM 
reporting requirements and engage in discussions with hospitals and 
health IT vendors regarding their experiences as we consider eCQM 
policies in future rulemaking.
    Although we are not finalizing our original proposal to require 
reporting on 6 eCQMs, we encourage hospitals to continue refining their 
electronic reporting implementation activities to successfully achieve 
electronic data capture and reporting. In addition, we encourage early 
testing and the use of pre-submission testing tools to reduce errors 
and inaccurate data submissions in eCQM reporting. Over time, we 
anticipate hospitals will continue to build and refine their EHR 
systems and gain more familiarity with reporting eCQM data, resulting 
in more accurate data submissions with fewer errors.
    We note that we made similar proposals in the Medicare and Medicaid 
EHR Incentive Programs and refer readers to section IX.E.2.b. of the 
preamble of this final rule, where we also are finalizing a 
modification to our proposals. Our policies to modify and reduce the CY 
2017 reporting period/FY 2019 payment determination eCQM reporting 
requirements in the Hospital IQR Program will continue to align with 
requirements in the Medicare and Medicaid EHR Incentive Programs. We 
also refer readers to section IX.A.10.d. of the preamble of this final 
rule for our eCQM submission policies.
    Comment: A majority of commenters supported the proposed reduction 
from 8 required eCQMs to 6 eCQMs and the reduction from one full 
calendar year of data to two, self-selected quarters of data for the CY 
2017 reporting/FY 2019 payment determination. The

[[Page 38357]]

commenters noted that as proposed, the requirements align with the CY 
2017 Joint Commission reporting standards. A few commenters requested 
CMS finalize the proposed requirements as soon as possible in order for 
hospitals to prepare and educate appropriate staff.
    Several commenters indicated that the modified reporting period 
from one full year to two quarters of data would provide hospitals with 
sufficient time to adequately transition their EHR systems and allow 
them to avoid a reporting period that overlaps with the quarter in 
which they transition EHR systems.
    Response: We thank the commenters for their support. At this time, 
we believe that continuing the CY 2016 reporting requirements for 
hospitals to report one, self-selected calendar quarter of data for 4 
eCQMs, as discussed above, balances stakeholder concerns while 
remaining consistent with our goal to gradually transition toward more 
robust electronic quality measure reporting. As previously stated, we 
believe the electronic collection and reporting of quality data using 
health IT will ultimately simplify and streamline reporting for various 
CMS quality reporting programs and hospitals will experience decreased 
financial and administrative burden as we continue to align program 
reporting requirements and adopt a more streamlined set of clinical 
quality measures with electronic specifications.
    Comment: One commenter believed the current methodology of 
collecting information for more eCQMs, over a greater period of time, 
relies too heavily upon the entry of ``hardcoded'' documentation by 
physicians and nurses within certain timing constraints.
    Response: We interpret the commenter's concern about eCQMs relying 
too heavily upon entry of ``hardcoded'' documentation to mean that the 
commenter believes clinical staff may have difficulty inputting patient 
information in ``real time'' into the appropriate structured fields 
during the patient encounter due to competing clinical demands. The EHR 
may allow the clinician to update the patient information at a later 
time in the event that clinical staff need to provide crisis care and 
cannot record patient information at the time of the encounter without 
compromising patient care or in the case that additional information 
needs to be added to the medical record after the patient encounter. We 
recommend hospitals and their EHR vendors work together to implement 
EHR functionalities that will successfully support clinical activities, 
documentation, and quality measure reporting that are also consistent 
with each hospital's policies and procedures. We believe that recording 
patient information in structured fields for the purpose of reporting 
eCQMs is more accurate, less prone to errors because it relies less on 
interpretation, and ultimately reduces burden on hospitals because it 
does not require manual abstraction, as compared with conventional 
chart-abstracted data reporting.
    Comment: One commenter did not support the proposal to reduce the 
eCQM submission requirements and recommended that the number of 
measures and the reporting window be kept the same, if not increased. 
The commenter indicated that capturing and exporting the data for a 
QRDA I file is part of the ONC EHR certification program, and if a 
hospital is not capturing data in such a way that a QRDA I file can be 
generated, then this implies that either the EHR is violating its 
certification or the hospital is not using its EHR appropriately. 
Rather than modifying the Hospital IQR Program eCQM reporting 
requirements to make it acceptable for EHRs to violate their 
certification, the commenter suggested that the existing regulations be 
enforced and penalties be applied to these health IT vendors.
    In addition, the commenter suggested measure specifications could 
be published in advance to enable hospitals to view them before the 
reporting period begins; this does not require the total number of 
measures to be reduced. The commenter recognized the challenges some 
hospitals are having, but argued that these issues should be addressed 
directly with individual hospitals instead of through indirect 
mechanisms like changing the number of measures for all hospitals. The 
commenter expressed support for the creation of new eCQMs as a more 
appropriate approach to addressing concerns regarding the lack of 
measures rather than simply reducing the requirements.
    Response: We thank the commenter for their support of the eCQM 
reporting requirements for the CY 2017 reporting period/FY 2019 payment 
determination as previously finalized in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 57150 through 57161; and 57169 through 57172). We 
note that hospitals have reported data electronically for several years 
to both the Medicare and Medicaid EHR Incentive Programs and the 
Hospital IQR Program (3 prior years of pilot reporting and 3 prior 
years of voluntary reporting), and thus we believe most hospitals are 
able to successfully meet our previously finalized eCQM reporting 
requirements to report on additional measures for the CY 2017 reporting 
period/FY 2019 payment determination. However, as discussed above, we 
also want to be sensitive and responsive to feedback that a number of 
hospitals, especially small, rural, and IHS and tribal hospitals as 
well as hospitals with fewer financial resources, need additional time 
and flexibility to successfully implement all of the eCQM reporting 
requirements. At this time, we believe that continuing the CY 2016 
reporting requirements for hospitals to report one, self-selected 
calendar quarter of data for 4 eCQMs, as discussed above, better 
balances stakeholder concerns while remaining consistent with our goal 
to gradually transition toward more robust electronic quality measure 
reporting.
    We appreciate the commenter's suggestion that measure 
specifications could be published further in advance to enable 
hospitals to view them before the reporting period begins as well as 
the suggestion to find and develop better measures. We will take these 
suggestions into consideration. We note that, generally, each year we 
issue a call for new measures, including eCQMs and other types of 
electronic measures, to be considered for adoption in the Hospital IQR 
Program. We also refer readers to section IX.A.9. of the preamble of 
this final rule for discussion of future potential eCQMs under 
consideration for the Hospital IQR and Medicare and Medicaid EHR 
Incentive Programs. Interested stewards and/or developers may submit 
measures for consideration by NQF. Submission guidance for eCQMs are 
available at: www.qualityforum.org/Electronic_Quality_Measures.aspx.
    Comment: A few commenters recommended that CMS clarify the 
definitions used for the terms ``workflow'' and ``data submission,'' in 
the context of electronic measure reporting. Specifically, the 
commenters suggested that while ``workflow'' is related to technical 
challenges, the term is not appropriate in defining the process of data 
extraction and QRDA I submission.
    Response: We thank the commenters for their suggestion. Our 
references to the terms ``data submission'' and ``workflow'' depend on 
the context in which the terms are used, which party is providing data 
to which party, and for what purpose. In the context of eCQM reporting, 
hospitals may experience challenges modifying workflow in regards to 
clinical care, corresponding documentation, and data capture, such that 
clinical staff enter patient information into the appropriate fields of 
the EHR at the time of the patient

[[Page 38358]]

encounter. Sometimes the clinician, medical assistant, scribe, or other 
staff member entering data into the EHR may find it easier or more 
expeditious to enter patient information in the ``free text'' section 
of the EHR, even though specific fields exist in the EHR where that 
data should be recorded so that it maps appropriately when the eCQMs 
pull data from the EHRs. To clarify, when we suggested that hospitals 
need to make changes to workflow, we meant hospitals should focus 
additional time and effort on training the appropriate staff to 
effectively capture patient data within the EHR. We further encourage 
hospitals to innovate and design workflows that fit their unique needs 
to make the best use of both clinical and non-clinical staff resources 
to maintain patient health information in the EHR.
    In addition, when the staff enter patient information in the ``free 
text'' section of the EHR, it is also sometimes the case that staff or 
hospital administrators go back after the patient encounter has 
completed and manually enter that information into the appropriate 
fields. This also could be considered part of the ``workflow'' under 
the definition provided by the commenter. Data submission in the 
context of eCQM reporting would refer to the sending and subsequent 
receiving of that documented clinical data corresponding to eCQM 
specifications through the QualityNet Secure Portal for purposes of the 
Hospital IQR Program eCQM submissions.
    Comment: One commenter urged CMS to begin allowing hospitals to 
select eCQMs as their official Hospital IQR Program performance metric 
and opt out of the manual submission of the same quality metric; the 
commenter noted that it would encourage organizations to begin the 
transition towards eCQMs by relieving the burden of dual abstraction 
when the organization is comfortable with the accuracy of its eCQM 
data.
    Response: We thank the commenter for their suggestion to allow 
hospitals to elect to report eCQMs as their official Hospital IQR 
Program performance metric and opt out of manual submission for chart-
abstracted measures, and will take the suggestion under consideration 
for future policies on quality measure reporting for the Hospital IQR 
Program. At this time, as we are planning to validate eCQM data 
starting with CY 2017 data and not publicly displaying the eCQM data, 
we believe it is important for chart-abstracted measure data to 
continue to be collected and publicly displayed to provide important 
information to consumers and providers.
    Comment: One commenter urged CMS to suspend all regulatory 
requirements that mandate submission of eCQMs given that hospitals have 
spent significant time and resources to revise certified EHRs to meet 
eCQM requirements for the CY 2016 reporting period/FY 2018 payment 
determination, with no benefit for patient care.
    Response: We thank the commenter for their recommendations, but 
disagree that eCQM reporting does not benefit patients. While we 
recognize the current burden associated with implementing the necessary 
infrastructure and EHR technology as well as training and refinement of 
work flows for transitioning to electronic quality reporting and 
understand that there are operational shortcomings that need to be 
further reconciled to streamline the process, we do not believe that 
suspending all eCQM reporting would be the best way to advance the 
Hospital IQR Program's goals of improving the quality of care and 
transparency through quality measurement while also reducing the 
associated operational, administrative, and financial burdens 
associated with manual chart-abstraction. In addition, suspending all 
eCQM reporting in the Hospital IQR Program would result in misalignment 
with the EHR Incentive Program's CQM reporting policies.
    We believe electronic reporting furthers CMS and HHS policy goals 
to promote quality through performance measurement and, in the long-
term, will both improve the accuracy of the data and reduce reporting 
burden for providers. Moreover, we believe it is appropriate to require 
reporting and validation of eCQM data given that measures available now 
and those being developed for the future are based increasingly on 
electronic standards (80 FR 49696).
    We encourage hospitals to work closely with health IT vendors to 
ensure that a contract is in place that supports the hospital's quality 
reporting requirements and the annual update of quality measures. We 
understand that hospitals have spent resources to update certified EHRs 
to meet eCQM requirements, but we believe eCQMs will promote better 
quality of care as hospitals and health IT vendors continue to refine 
EHR systems to appropriately structure them commensurate with the 
clinical work flow. Further, we believe these updates will lead to 
improved accuracy, reliability, and completeness of the eCQM data, 
which will promote higher quality outcomes and lower costs while 
ultimately decreasing reporting burden on hospitals as compared with 
chart-abstraction of quality measure data. We will continue to monitor 
the progress of hospitals implementing eCQM reporting requirements and 
encourage hospitals to share their experiences in preparing for and 
meeting reporting requirements. In addition, we will evaluate the eCQMs 
available to report as part of routine measure maintenance as well as 
consider new electronic measures as they become available for potential 
use in the Hospital IQR and Medicare and Medicaid EHR Incentive 
Programs.
    After consideration of the public comments we received, we are 
finalizing a modification of our proposal. Instead of reporting two, 
self-selected quarters of data for 6 eCQMs as proposed, we are further 
reducing requirements, such that hospitals are required to report only 
one, self-selected calendar quarter of data for 4 self-selected eCQMs 
for the CY 2017 reporting period/FY 2019 payment determination. We 
refer readers to section IX.E.2.b. of the preamble of this final rule 
where we are finalizing a similar modified policy under the Medicare 
and Medicaid EHR Incentive Programs.
c. Modifications to the eCQM Reporting Requirements for the Hospital 
IQR Program for the CY 2018 Reporting Period/FY 2020 Payment 
Determination
    As stated above, in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57150 through 57159), we finalized a policy requiring submission of 8 
self-selected eCQMs out of the available eCQMs in the Hospital IQR 
Program for both the CY 2017 reporting period/FY 2019 payment 
determination and CY 2018 reporting period/FY 2020 payment 
determination. In addition, for the CY 2018 reporting period/FY 2020 
payment determination, hospitals are required to submit the data by 
February 28, 2019 (the end of two months following the close of the 
calendar year, as set out in the FY 2017 IPPS/LTCH PPS final rule (81 
FR 57172)). For the same reasons as discussed above, we proposed 
similar modifications for the CY 2018 reporting period/FY 2020 payment 
determination in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20050 
through 20051). Specifically, we proposed to require hospitals to 
report on at least six of the available eCQMs for the CY 2018 reporting 
period/FY 2020 payment determination, instead of eight as previously 
finalized. These six eCQMs may be the same or a different set of six 
eCQMs a hospital reports for the CY 2017 reporting period. In addition, 
we proposed to decrease the number of required reporting periods, from 
four quarters as previously finalized, to the

[[Page 38359]]

first three quarters of the CY 2018 reporting period (that is, Q1, Q2, 
and Q3 of CY 2018). We noted that this differs from our proposal for 
the CY 2017 reporting period as discussed above, which would only 
require two self-selected quarters of data.
    In crafting this proposal, we considered several alternatives. 
Specifically, we considered aligning the CY 2018 reporting period 
requirements with the proposed CY 2017 reporting period requirements, 
such that hospitals would report on at least six of the available eCQMs 
and submit two self-selected quarters of data for both years. We also 
considered retaining the reporting requirements finalized in the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57150 through 57159), such that 
hospitals would submit one full calendar year of data for 8 self-
selected eCQMs for the CY 2018 reporting period/FY 2020 payment 
determination. Ultimately, we believe that our proposals as stated 
above balance our goal to progressively shift towards electronic 
reporting of quality measure data with hospitals' concerns of the 
burden this increase may cause. In addition, hospitals will have had 
several years to report data electronically for the Hospital IQR and 
Medicare and Medicaid EHR Incentive Programs. Therefore, we believe 
that hospitals will be better prepared to submit an additional quarter 
of data for the CY 2018 reporting period compared to the number of 
quarterly reporting periods we are proposing for the CY 2017 reporting 
period. We also believe that hospitals will be better prepared to 
submit additional eCQMs in the future, since hospitals will have had a 
sufficient number of cycles of eCQM reporting.
    Our proposals for the CY 2018 reporting period/FY 2020 payment 
determination were made in conjunction with proposals discussed in 
section IX.E.3. of the preamble of the proposed rule that fully align 
requirements for the Hospital IQR Program with the requirements for the 
CQM electronic reporting option in the Medicare EHR Incentive Program 
for eligible hospitals and CAHs. We noted that the deadline for 
submission would be the same as previously finalized, two months 
following the end of the reporting period calendar year, specifically 
February 28, 2019 (81 FR 57172).
    We invited public comment on our proposals to modify the CY 2018 
reporting period/FY 2020 payment determination eCQM reporting 
requirements for the Hospital IQR Program as described above.
    Comment: Several commenters supported the proposed policies for the 
CY 2018 reporting period/FY 2020 payment determination that would 
reduce the reporting period from one full calendar year of data to the 
first three quarters of data and the number of eCQMs required to report 
from 8 to 6, for the CY 2018 reporting period/FY 2020 payment 
determination as a step in the right direction, but recommended that 
CMS further reduce the requirements by continuing the CY 2016 eCQM 
reporting requirement of one, self-selected calendar quarter of data 
for 4 eCQMs. The commenters indicated that maintaining the CY 2016 eCQM 
reporting requirements would provide certified health IT vendors and 
CMS additional time to work on measure specification and data 
validation, while giving hospitals more time to focus on incorporating 
system upgrades, data mapping, staff training, and planning for data 
processing for CMS reporting.
    Some commenters remained concerned with the pace of the expansion 
of eCQM reporting requirements impacting the ability of hospitals to 
effectively execute current eCQM reporting requirements and prepare for 
potential future increases in eCQM reporting requirements, thus placing 
an additional burden on hospitals by limiting available time for 
testing prior to production file submission. These commenters indicated 
that recent updates to measure specifications have required labor-
intensive updates to complete terminology mapping, which has hindered 
hospitals' ability to expand reporting to additional eCQMs. The 
commenters noted that implementation of eCQM reporting is a multi-year 
process that requires significant capital and operating expenditures 
and requires close collaboration with clinical and other operations 
staff.
    A few commenters expressed concern about the considerable burden 
required to map the necessary data elements from the EHR to the 
appropriate QRDA file format given that some vendors are not properly 
equipped to collect and transmit such data through the CMS QualityNet 
Secure Portal. The commenters stated that until these issues are 
sufficiently addressed, CMS should not increase the required eCQM 
reporting requirements for the Hospital IQR Program.
    Response: We appreciate commenters expressing their concerns and 
providing more detail regarding their challenges associated with eCQM 
reporting. Based on commenter feedback we are finalizing a modification 
to our proposals for eCQM reporting requirements for the CY 2018 
reporting period/FY 2020 payment determination. Instead of requiring 
submission of one calendar year (four quarters) of data, for 8 eCQMs, 
as previously finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57150 through 57159), or submission of two, self-selected calendar 
quarters of data, for 6 eCQMs, as proposed in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20050), we are modifying our proposal to further 
reduce the eCQM reporting requirements, such that hospitals are 
required to submit only one, self-selected calendar quarter of data for 
4 eCQMs. This continues reporting requirements similar to the CY 2016 
reporting period/FY 2018 payment determination (80 FR 49698) with one 
change, such that hospitals will be able to submit data for any one of 
the 4 quarters for the CY 2018 reporting period/FY 2020 payment 
determination, whereas hospitals are only able to submit data for 
either Q3 or Q4 for the CY 2016 reporting period/FY 2018 payment 
determination.
    We believe reducing the number of eCQMs required to be reported and 
reducing the quarters of data to be reported offers greater reporting 
flexibility and eases the burden on data submitters, allowing them to 
shift resources to support system upgrades, data mapping, and staff 
training related to eCQM documentation and reporting. In addition, we 
believe that these modified reporting requirements will provide 
hospitals and health IT vendors more time to report quality data to 
CMS, including more time to submit test QRDA files before submitting 
production QRDA files for program credit. We note we are aligning the 
requirement for hospitals to submit data on one, self-selected calendar 
quarter of data for 4 eCQMs between the Hospital IQR Program and the 
Medicare and Medicaid EHR Incentive Programs in order to streamline the 
electronic submission of quality data for hospitals.
    Further, successful reporting in CY 2016 and CY 2017 should 
streamline CY 2018 reporting because hospitals can re-use the same 
measures with which they already have gained familiarity. Once 
hospitals have become comfortable submitting data for 4 eCQMs in CY 
2016 and CY 2017, the requirements we are finalizing will also allow 
greater flexibility if hospitals wish to select different eCQMs from 
those they submitted for CY 2016 or CY 2017 reporting. In addition, 
hospitals will have flexibility to select which quarter of data to 
report data based upon their individual quality improvement needs and 
electronic reporting capabilities.

[[Page 38360]]

    Our decision to finalize the same requirements for both the CY 2017 
and CY 2018 reporting periods is in an effort to be responsive to the 
feedback we have received about the challenges of eCQM reporting and 
recommendations to allow more time to become familiar with and improve 
upon electronic reporting capabilities. While we believe most hospitals 
will be ready to successfully report on at least 6 eCQMs beginning with 
the CY 2018 reporting period/FY 2020 payment determination, we also 
want to be responsive to feedback that a number of hospitals, 
especially small, rural, and IHS and tribal hospitals as well as 
hospitals with fewer financial resources, need additional time and 
flexibility to successfully implement all of the eCQM reporting 
requirements. We intend to review the results of the first year of 
required eCQM data collection prior to increasing requirements for 
subsequent years. We believe these modified, reduced reporting 
requirements directly address stakeholder concerns while remaining 
consistent with our goal to gradually transition to more robust 
electronic quality measure reporting. In addition, we believe that 
these modified, reduced reporting requirements will provide hospitals 
more time and flexibility to address measure specification updates, 
data validation, technology readiness, system issues, and future 
requirements generally. We will continue to assess the progress of 
hospitals implementing eCQM reporting requirements and engage in 
discussions with hospitals regarding their experiences as we consider 
eCQM policies in future rulemaking. We intend to determine requirements 
for the CY 2019 reporting period/FY 2021 payment determination and 
subsequent years in future rulemaking.
    Although we are not finalizing our original proposal to require 
reporting on 6 eCQMs, we encourage hospitals to continue refining their 
electronic reporting implementation activities to successfully achieve 
electronic data capture and reporting. In addition, we encourage early 
testing and the use of pre-submission testing tools to reduce errors 
and inaccurate data submissions in eCQM reporting. Over time, we 
anticipate hospitals will continue to build and refine their EHR 
systems and gain more familiarity with reporting eCQM data, resulting 
in more accurate data submissions with fewer errors. We note that we 
made similar proposals in the Medicare and Medicaid EHR Incentive 
Programs and refer readers to section IX.E.2.b. of the preamble of this 
final rule where we also are finalizing the same modification of our 
proposal and is a continuation of our policy to align the eCQM 
reporting requirements of the Hospital IQR Program with the CQM 
electronic reporting requirements in the Medicare and Medicaid EHR 
Incentive Programs in order to reduce confusion and reporting burden 
for all hospitals. We also refer readers to section IX.10.d. of the 
preamble of this final rule for our eCQM submission policies for the 
Hospital IQR Program.
    In arriving at this modified finalized policy, we considered 
several alternatives. Specifically, we considered aligning the CY 2018 
reporting period requirements with the proposed CY 2017 reporting 
period requirements, such that hospitals would report on at least 6 of 
the available eCQMs and submit two, self-selected quarters of data. We 
also considered retaining the reporting requirements finalized in the 
FY 2017 IPPS/LTCH PPS final rule (81 FR 57150 through 57159), such that 
hospitals would submit one full calendar year of data for 8 self-
selected eCQMs for the CY 2018 reporting period/FY 2020 payment 
determination. Ultimately, based on commenter feedback and for the 
reasons articulated above, we have decided to modify our policy to 
further reduce the eCQM reporting requirements for the CY 2018 
reporting period/FY 2020 payment determination, such that hospitals are 
required to submit one, self-selected calendar quarter of data for 4 
eCQMs. Our decision to keep the same eCQM reporting requirements for 
the CY 2017 reporting period/FY 2019 payment determination and the CY 
2018 reporting period/FY 2020 payment determination was also based on 
commenter feedback recommending additional time and flexibility to 
successfully implement electronic reporting capabilities. As previously 
stated, we believe the electronic collection and reporting of quality 
data using health IT will ultimately simplify and streamline reporting 
for various CMS quality reporting programs and hospitals will 
experience decreased financial and administrative burden as we continue 
to align program reporting requirements and adopt a more streamlined 
set of clinical quality measures with electronic specifications.
    Comment: Many commenters supported the proposed reduction from 8 
required eCQMs to 6 required eCQMs and the reduction from one full 
calendar year of data to the first three calendar quarters of data for 
the CY 2018 reporting period/FY 2020 payment determination. A few 
commenters suggested CMS maintain the requirement to report 6 eCQMs 
beyond the CY 2018 reporting period, while increasing the performance 
period to one year and then gradually increasing the number of required 
eCQMs in future years.
    The commenters believed this approach would allow hospitals to 
adapt to more robust eCQM requirements. Other commenters supported the 
proposed reduction from 8 required eCQMs to 6 for the CY 2018 reporting 
period/FY 2020 payment determination, but suggested that CMS retain the 
proposed CY 2017 reporting period/FY 2019 payment determination 
requirement, such that hospitals are required to report two, self-
selected quarters of data for the CY 2018 reporting period/FY 2020 
payment determination. Some commenters noted smaller hospitals, with 
fewer resources, require more time to become proficient in all of the 
parameters (mapping, new work flows, staff education, etc.) associated 
with electronic reporting.
    A few commenters indicated that if hospitals were allowed to self-
select two quarters of data (instead of three or four quarters of data) 
for the CY 2018 reporting period/FY 2020 payment determination, it 
would provide the necessary time for quality, health IT, and clinical 
teams to more effectively utilize change management processes to 
improve scores until such time as alternative and more advanced 
techniques are more commonplace and tested without significantly 
impairing CMS' ability to review and analyze data generated by eCQMs.
    Response: We thank the commenters for their support. While we 
believe that most hospitals would be ready to successfully report on at 
least 6 eCQMs for the CY 2018 reporting period/FY 2020 payment 
determination, we also want to be responsive to feedback that a number 
of hospitals, especially small, rural, and IHS and tribal hospitals as 
well as hospitals with fewer financial resources, need additional time 
and flexibility to successfully implement all of the eCQM reporting 
requirements. Therefore, at this time, we believe finalizing the 
modified, reduced requirements for hospitals to report one, self-
selected calendar quarter of data for 4 eCQMs, as discussed above, 
better balances stakeholder concerns while remaining consistent with 
our goal to gradually transition toward more robust electronic quality 
measure reporting.
    Although we are not finalizing our original proposal to require 
reporting on the first three calendar quarters of data for 6 eCQMs, we 
encourage hospitals to continue refining their electronic reporting 
implementation activities to

[[Page 38361]]

successfully achieve electronic data capture and reporting. In 
addition, we encourage early testing and the use of pre-submission 
testing tools such as the PSVA to reduce errors and inaccurate data 
submissions in eCQM reporting. As time passes, we anticipate that 
hospitals will continue to build and refine their EHR systems and gain 
more familiarity with reporting eCQM data, resulting in more accurate 
data submissions with fewer errors.
    Comment: Several commenters supported the proposed reduction from 8 
required eCQMs to 6 for the CY 2018 reporting period/FY 2020 payment 
determination, but suggested that CMS allow hospitals to self-select 
the three quarters for which they provide data. The commenters noted 
that the comprehensive process at the start of the calendar year is 
still very time consuming and cumbersome with changing/updating eCQM 
logic definitions, vendor relations, schemas for running reports, and 
XML files occurring at the same time. Some commenters indicated that 
they would support reporting data from the first quarter performance 
period when this year-end process is more established and predictable.
    Response: We refer readers to our reduced requirements as discussed 
above. We acknowledge the burden associated with eCQM logic 
definitions, implementation of report schemas and reconciliation of XML 
files, which is why we have further reduced the reporting requirements 
for both the CY 2017 and CY 2018 reporting periods. In addition, we 
refer readers to section IX.A.10.d.(2)(b)(ii) of the preamble of this 
final rule, in which we discuss our policy to require EHRs to be 
certified to all available eCQMs. We believe that satisfying this 
requirement will offset the burden associated with health IT vendor 
relations, as hospitals will not have to certify individual electronic 
measures at the time electronic reporting is increased. Furthermore, we 
will take these comments into consideration for future policies. We 
believe that with time, as hospitals continue to gain more experience 
with eCQM reporting, the challenges hospitals encounter at the 
beginning of each calendar year will be reduced.
    Comment: One commenter supported the reduction in the number of 
required eCQMs from 8 to 6 for the CY 2018 reporting period/FY 2020 
payment determination, but suggested that CMS retain the requirement to 
report one full calendar year of data. Further, the commenter suggested 
gradually increasing the number of required eCQMs in future years. The 
commenter believed that this approach would allow hospitals to adapt to 
more robust eCQM requirements.
    Response: We thank the commenter for their support. We refer 
readers to our modified policies as discussed above. For future years, 
we will consider requiring hospitals to report more quarters of data 
and gradually increase the electronic reporting of quality measure data 
in the Hospital IQR Program. In the meantime, we will continue to 
assess the progress of implementing eCQM reporting capabilities and 
engage in discussions with hospitals regarding their experiences as we 
consider the establishment of eCQM policies in future rulemaking.
    Comment: One commenter sought clarification on whether or not the 
CY 2018 eCQM data would be publicly reported.
    Response: In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50815 
through 50818), we adopted a policy under which we would only publicly 
report eCQM data in the Hospital IQR Program if we deem that the data 
are accurate enough to be publicly reported (78 FR 50816). As described 
in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57176), we will not 
conduct the first validation of eCQM data until spring of 2018 to 
validate data from the CY 2017 reporting period. Validation of CY 2017 
data during spring of 2018 affects the FY 2020 payment determination 
(81 FR 57177).
    We believe it is important to confirm the validity of quality 
performance data before it is publicly reported on the Hospital Compare 
Web site. A number of commenters have expressed concerns about the 
accuracy of eCQM data or the comparability of eCQM data to non-
electronic CQMs, and a full validation of the CY 2017 data will allow 
us to assess the merit of these concerns. Once we have analyzed the 
first year of eCQM data validation results, we will determine whether 
the data should be publicly reported the Hospital Compare Web site.
    After consideration of the public comments we received, we are 
finalizing a modification of our proposal, such that instead of 
requiring submission of 6 eCQMs for the first three calendar quarters 
(Q1-Q3) of CY 2018, we are further reducing requirements, such that 
hospitals are required to report only one, self-selected calendar 
quarter of data for 4 eCQMs for the CY 2018 reporting period/FY 2020 
payment determination. We also refer readers to section IX.E.2.b. of 
the preamble of this final rule where we are finalizing the same 
modified policy for CQM electronic reporting requirements under the 
Medicare and Medicaid EHR Incentive Programs.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20051), we stated 
that the proposals related to the CY 2017 reporting period/FY 2019 
payment determination and CY 2018 reporting period/FY 2020 payment 
determination, if finalized, would also have implications for eCQM 
validation in the Hospital IQR Program. Validation of eCQM data under 
the Hospital IQR Program is set to begin using CY 2017 reported data 
for the FY 2020 payment determination, as finalized in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57153 through 57181). We refer readers 
to section IX.A.11. of the preamble of this final rule where we discuss 
our finalized validation policies.
9. Possible New Quality Measures and Measure Topics for Future Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53510 through 
53512), we outlined considerations to guide us in selecting new quality 
measures to adopt into the Hospital IQR Program. Specifically, we seek 
to adopt measures for the Hospital IQR Program that would: (1) Promote 
better, safer, more efficient care; (2) expand the pool of measures to 
include measures that aim to improve patient safety; (3) support the 
NQS' three-part aim of better health care for individuals, better 
health for populations, and lower costs for health care by creating 
transparency around the quality of care at inpatient hospitals to 
support patient decision-making and quality improvement; (4) collect 
data in a manner that balances the need for information related to the 
full spectrum of quality performance and the need to minimize the 
burden of data collection and reporting; (5) weigh the relevance and 
utility of the measures compared to the burden on hospitals in 
submitting data under the Hospital IQR Program; (6) to the extent 
practicable, consider measures that have been nationally endorsed by a 
multi-stakeholder organization, developed with the input of providers, 
purchasers/payers, and other stakeholders, and aligned with best 
practices among other payers and the needs of the end users of the 
measures; (7) 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, give due consideration to 
measures that have been endorsed or adopted by a consensus organization 
identified by the Secretary; (8) give priority to measures that assess 
performance on conditions that result in the greatest mortality and 
morbidity in

[[Page 38362]]

the Medicare population, are high volume and high cost for the Medicare 
program, and for which wide cost and treatment variations in the 
Medicare population have been reported across populations or geographic 
areas despite established clinical guidelines; (9) focus on selecting 
measures that will also meet the Hospital VBP Program measure inclusion 
criteria and advance the goals of the Hospital VBP Program by targeting 
hospitals' ability to improve patient care and patient outcomes; and 
(10) align with the HHS Strategic Plan and Initiatives \174\ and the 
CMS Strategic Plan.\175\
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    \174\ HHS Strategic Plan, available at: https://www.hhs.gov/about/strategic-plan/.
    \175\ CMS Strategy: The Road Forward 2013-2017, available at: 
https://www.cms.gov/About-CMS/Agency-Information/CMS-Strategy/Downloads/CMS-Strategy.pdf.
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    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20051 through 
20064), in keeping with these considerations, we invited public comment 
on the potential future inclusion of the following seven measures in 
the Hospital IQR Program (one measure related to the quality of 
informed consent documents, four measures that evaluate end-of-life 
processes and outcomes for cancer patients, and two measures that 
evaluate nursing skill mix):
     Quality of Informed Consent Documents for Hospital-
Performed, Elective Procedures measure;
     Proportion of Patients Who Died from Cancer Receiving 
Chemotherapy in the Last 14 Days of Life measure (NQF #0210);
     Proportion of Patients Who Died from Cancer Not Admitted 
to Hospice measure (NQF #0215);
     Proportion of Patients Who Died from Cancer Admitted to 
the ICU in the Last 30 Days of Life measure (NQF #0213);
     Proportion of Patients Who Died from Cancer Admitted to 
Hospice for Less Than Three Days measure (NQF #0216);
     Skill Mix (Registered Nurse [RN], Licensed Vocational/
Practical Nurse [LVN/LPN], Unlicensed Assistive Personnel [UAP], and 
contract) (Nursing Skill Mix) Measure (NQF #0204); and
     Nursing Hours per Patient Day Measure (NQF #0205).
    We also are considering newly specified eCQMs for possible 
inclusion in future years of the Hospital IQR and Medicare and Medicaid 
EHR Incentive Programs. These measures are listed and these topics are 
further discussed below.
     Safe Use of Opioids--Concurrent Prescribing;
     Completion of a Malnutrition Screening within 24 Hours of 
Admission;
     Completion of a Nutrition Assessment for Patients 
Identified as At-Risk for Malnutrition within 24 Hours of a 
Malnutrition Screening;
     Nutrition Care Plan for Patients Identified as 
Malnourished after a Completed Nutrition Assessment;
     Appropriate Documentation of a Malnutrition Diagnosis;
     Tobacco Use Screening (TOB-1);
     Tobacco Use Treatment Provided or Offered (TOB-2)/Tobacco 
Use Treatment (TOB-2a);
     Tobacco Use Treatment Provided or Offered at Discharge 
(TOB-3)/Tobacco Use Treatment at Discharge (TOB-3a);
     Alcohol Use Screening (SUB-1);
     Alcohol Use Brief Intervention Provided or Offered (SUB-
2)/Alcohol Use Brief Intervention (SUB-2a); and
     Alcohol & Other Drug Use Disorder Treatment Provided or 
Offered at Discharge (SUB-3)/Alcohol & Other Drug Use Disorder 
Treatment at Discharge (SUB-3a).
a. Potential Inclusion of the Quality of Informed Consent Documents for 
Hospital-Performed, Elective Procedures Measure
(1) Background
    The process and documentation of informed consent for surgical 
procedures is an ethical obligation and legal mandate intended to 
uphold patient autonomy. It is also a standard part of clinical 
practice performed prior to most procedures and therapies with material 
risks. This process provides information to patients about the 
associated risks and benefits, alternative treatment options, and what 
to expect during and after the procedure. As described in the 
literature and reported by patients, comprehensive informed consent 
documents can improve patient comprehension and satisfaction, and 
support patients in making decisions that are aligned with their 
expectations, preferences, and 
goals.176 177 178 179 180 181 182
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    \176\ Arnold SV, Decker C, Ahmad H, et al. Converting the 
informed consent from a perfunctory process to an evidence-based 
foundation for patient decision making. Circ Cardiovasc Qual 
Outcomes. 2008;1(1):21-28.
    \177\ Zuckerman MJ, Shen B, Harrison ME, et al. Informed consent 
for GI endoscopy. Gastrointestinal endoscopy. 2007;66(2):213-218.
    \178\ Wu HW, Nishimi RY, Page-Lopez CM, Kizer KW. Improving 
Patient Safety Through Informed Consent for Patients with Limited 
Health Literacy. An implementation report. National Quality Forum; 
2005. Available at: http://www.qualityforum.org/Publications/2005/09/Improving_Patient_Safety_Through_Informed_Consent_for_Patients_with_Limited_Health_Literacy.aspx. Accessed: July 5, 2016.
    \179\ Schenker Y, Fernandez A, Sudore R, Schillinger D. 
Interventions to improve patient comprehension in informed consent 
for medical and surgical procedures: a systematic review. Medical 
decision making: an international journal of the Society for Medical 
Decision Making. 2011;31(1):151-173.
    \180\ Tait AR, Voepel-Lewis T, Malviya S, Philipson SJ. 
Improving the readability and processability of a pediatric informed 
consent document: effects on parents' understanding. Archives of 
pediatrics & adolescent medicine. 2005;159(4):347-352.
    \181\ Kinnersley P, Phillips K, Savage K, et al. Interventions 
to promote informed consent for patients undergoing surgical and 
other invasive healthcare procedures. The Cochrane database of 
systematic reviews. 2013;7:Cd009445.
    \182\ Lorenzen B, Melby CE, Earles B. Using principles of health 
literacy to enhance the informed consent process. AORN journal. 
2008;88(1):23-29.
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    Despite their importance, and our regulations in the Conditions for 
Participation Guidelines,\183\ informed consent documents are 
frequently generic, lack information that is relevant to the procedure, 
and include illegible, hand-written information. Moreover, patients are 
often given and asked to sign the informed consent document minutes 
before the start of a procedure when they are most vulnerable and least 
likely to ask questions.
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    \183\ Electronic Code of Federal Regulations, available at: Part 
482--Conditions of Participation for Hospitals, Sec.  482.24, Sec.  
482.51, Sec.  482.90, Sec.  482.98, Sec.  482.102. http://www.ecfr.gov/cgi-bin/text-idx?SID=faac625d3284209cb805fb0b44c941fa&mc=true&node=pt42.5.482&rgn=div5#se42.5.482_124.
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    Therefore, we developed the Measure of Quality of Informed Consent 
Documents for Hospital-Performed, Elective Procedures (hereinafter 
referred to as, Quality of Informed Consent Documents measure). This 
measure was developed in conjunction with feedback from patients and 
patient advocates convened by the measure developers, all of whom 
affirmed the measure captured the most salient elements of informed 
consent documents, and represented a minimum, though significant, 
standard all hospitals should meet. We recognize the Quality of 
Informed Consent Documents measure does not capture all aspects of the 
informed consent process or all aspects of quality related to patient 
engagement in shared decision making. However, we view the Quality of 
Informed Consent Documents measure as a critical first step to 
incentivize hospitals to improve the informed consent process and to 
ensure patients receive basic information in a written format which is 
understandable, legible and presented with sufficient time allowed for 
questions and deliberation. The members of the patient workgroup 
involved in measure development also agreed with this determination and 
supported the measure.

[[Page 38363]]

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20052 through 
20055), we stated that we are considering including the Quality of 
Informed Consent Documents measure in the Hospital IQR Program in 
future rulemaking.
(2) Overview of Measure
    Improving the quality of informed consent documents is a 
fundamental step for advancing patient-centered decision 
making.184 185 186 187 188 189  The written quality of 
informed consent documents is a critical component of the informed 
consent process, and hospitals have a role in ensuring their patients 
have the information they need in a readable form and with time to 
consider their options. We expect the Quality of Informed Consent 
Documents measure will help to pave the way for future measures which 
evaluate other components of the informed consent process, including 
shared decision-making.
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    \184\ Spatz ES, Krumholz HM, Moulton BW. The new era of informed 
consent: Getting to a reasonable-patient standard through shared 
decision making. JAMA. 2016;315(19):2063-2064.
    \185\ Kinnersley P, Phillips K, Savage K, et al. Interventions 
to promote informed consent for patients undergoing surgical and 
other invasive healthcare procedures. The Cochrane database of 
systematic reviews. 2013;7:Cd009445.
    \186\ Robb WJ, Carroll C, Kuo C. Orthopaedic Surgical Consent: 
The First Step in Safety. American Academy of Orthopaedic Surgeons 
(AAOS) Now. 2015;9(9).
    \187\ Arnold SV, Decker C, Ahmad H, et al. Converting the 
informed consent from a perfunctory process to an evidence-based 
foundation for patient decision making. Circ Cardiovasc Qual 
Outcomes. 2008;1(1):21-28.
    \188\ The Joint Commission. Quick Safety: An advisory on safety 
and quality issues. Informed consent: More than getting a signature. 
February 2016. Available at: https://www.jointcommission.org/assets/1/23/Quick_Safety_Issue_Twenty-One_February_2016.pdf. Accessed: July 
5, 2016.
    \189\ Krumholz HM. Informed consent to promote patient-centered 
care. JAMA. 2010;303(12):1190-1191.
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    The measure focuses on the quality of informed consent documents 
for elective procedures. Further, with a focus on ensuring that each 
person and family is engaged as partners in their care, this measure 
addresses the NQS priority of promoting effective communication and 
coordination of care. Elective procedures were chosen as the focus of 
the measure because all elective procedures have informed consent 
documents as standard practice. In addition, we believe patients 
undergoing elective, rather than emergent surgery, will benefit from a 
measure aimed at optimizing communications about the risk, benefits, 
and purpose of the procedure because there are typically reasonable 
alternatives to elective procedures and different patients may choose 
different options depending on their preferences, values, and goals. 
Further, elective procedures usually allow ample decision time and do 
not require expedited explanations and decisions due to life 
threatening situations.
    The measure would require hospitals to evaluate a sample of their 
informed consent documents from elective procedures performed among 
Medicare FFS patients aged 18 years and older hospitalized at acute 
care hospitals. The measure uses administrative claims to select a 
stratified random sample of elective procedures across specialties that 
are performed in hospitals. The informed consent documents associated 
with these procedures are reviewed and abstracted by trained personnel 
using a validated Abstraction Tool. Abstractors are trained using 
standard instructions, videos, and test documents with audit review we 
have developed. For additional information about the training materials 
and procedures, see the measure methodology report on our Web site 
available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. 
After completing this training, we estimate the abstraction time is 
approximately four minutes per document and the inter-rater reliability 
is high. The tool captures 10 items which are fundamental to informed 
consent document quality. Documents are scored on a scale of 0 to 20, 
with 20 representing a better quality document. Document scores are 
then aggregated to calculate hospital-level performance on the measure. 
The measure is not risk adjusted because patient characteristics should 
not impact informed consent document quality. We invited public comment 
on how the measure would be reported and implemented.
    We developed the Quality of Informed Consent Documents measure in 8 
hospitals, and demonstrated the measure to be valid, reliable, feasible 
and of minimal hospital burden. We then tested the measure among a 
sample of 25 additional hospitals, which also showed feasibility and 
low burden on hospitals. In both the development and testing samples, 
we observed overall low performance on the measure, with intra-hospital 
and inter-hospital variation in the quality of consent documents. The 
Quality of Informed Consent Documents measure aligns with our goal to 
increase opportunities for shared decision making with patients and the 
NQS priorities of: (1) Ensuring person- and family-centered care; and 
(2) promoting effective communication and coordination of care. For 
details on development and testing, we refer readers to the measure 
methodology report on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(3) Data Sources
    The measure uses two sources of data to calculate the Quality of 
Informed Consent Documents measure: Medicare Part A administrative 
claims, specified below, to generate a random sample of qualified 
elective procedures performed at each hospital; and a sample of each 
hospital's informed consent documents and the first page of the 
procedure/operative report for those elective procedures. Basing the 
sample selection on administrative data to identify medical records of 
elective procedures ensures a diversity of informed consent documents 
on a range of procedures will be reviewed, and minimizes selection 
bias.
(4) Outcome
    The outcome for the Quality of Informed Consent Documents measure 
is a quality score which is calculated by aggregating the scores for 
individual informed consent documents from each hospital assessed with 
the Abstraction Tool. The items selected for inclusion in the 
Abstraction Tool were important to patients, supported by evidence in 
the literature and published standards and guidelines, applicable to 
the cohort of elective procedures, easily abstracted from medical 
records without undue burden on patients and hospitals, and feasibly 
and reliably measured. These elements are also meaningful components of 
informed consent document quality from the patient perspective. 
Further, we received consistent feedback from all participating 
hospitals during testing of this measure that this information was 
useful for hospitals' efforts to improve their informed consent 
documents and processes by identifying important gaps in existing 
documentation. Quality scores on each informed consent document will be 
aggregated to derive a hospital-level performance score.
    The measure outcome does not overlap with our current regulations 
holding hospitals accountable for informed consent pursuant to our 
Conditions of Participation or The Joint Commission 2009 Requirements 
Related to the Provision of Culturally Competent Patient-Centered Care 
Hospital

[[Page 38364]]

Accreditation Program (HAP),\190\ and fully aligns with State laws 
within the few States which have more specified informed consent rules. 
Current Conditions of Participation regulations focus on whether 
informed consent occurred and emphasize informed consent documents 
should include the name of the hospital, procedure, and practitioner 
performing the procedure along with a statement certifying the 
procedure, anticipated benefits, material risks, and alternative 
treatment options were explained to the patient or the patient's legal 
representative.\191\ The Joint Commission offers additional guidance 
for best practices.\192\ However, there are no regulations to ensure 
hospitals provide patients with adequate written information about the 
procedure. We believe the use of this measure would supplement and 
augment existing standards by incentivizing hospitals to provide a 
minimum set of critical information about an elective procedure to the 
patient within a reasonable time before the patient undergoes the 
procedure and to enable the patient to receive and process the 
information prior to signing and providing informed consent.
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    \190\ The Joint Commission. Quick Safety: An advisory on safety 
and quality issues. Informed consent: More than getting a signature. 
February 2016. Available at: https://www.jointcommission.org/assets/1/23/Quick_Safety_Issue_Twenty-One_February_2016.pdf. Accessed: July 
5, 2016.
    \191\ Department of Health & Human Services. Centers for 
Medicare & Medicaid Services (CMS). CMS Manual System. Regulations 
and Interpretive Guidelines for Hospitals--Condition of 
Participation: Medical Record Services. Sections 482.13(b), 
482.24(b), 482.51(b)(2). 2008. Available at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R37SOMA.pdf. Accessed: July 5, 2016.
    \192\ https://www.jointcommission.org/assets/1/23/Quick_Safety_Issue_Twenty-One_February_2016.pdf.
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(5) Cohort
    The cohort for the Quality of Informed Consent Documents measure 
includes informed consent documents for a randomly selected sample of 
qualifying elective surgical procedures performed within non-federal 
acute care hospitals performed on Medicare FFS beneficiaries, aged 18 
years and over who are enrolled in Part A at the time of the procedure. 
The list of qualifying elective procedures includes procedures for 
which informed consent is standard practice. The list of qualifying 
procedures is broad, capturing 10 specialties and various levels of 
invasiveness. For example, electively-performed knee replacements and 
coronary artery bypass surgeries are both included. For more 
information about the list of qualifying procedures, we refer readers 
to the measure methodology report on our Web site available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(6) Inclusion and Exclusion Criteria
    Qualifying electively-performed procedures were identified using 
the AHRQ Clinical Classification Software (CCS) codes \193\ from the 
list of potentially planned procedures and the list of acute discharge 
diagnosis AHRQ CCS codes in the CMS Planned Readmission Algorithm. The 
Planned Readmission Algorithm used for existing CMS readmission 
measures was refined in the FY 2015 IPPS/LTCH PPS final rule (79 FR 
50211 through 50216). A complete description of the CMS Planned 
Readmission Algorithm, which includes lists of potentially planned 
procedures and acute discharge diagnoses, can be found on the CMS Web 
site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    \193\ Clinical Classifications Software (CCS) for ICD-9-CM Fact 
Sheet. Accessed at: https://www.hcup-us.ahrq.gov/toolssoftware/ccs/ccsfactsheet.jsp.
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    The CMS Planned Readmission Algorithm identifies a list of 
potentially planned procedures and a list of acute discharge diagnosis 
codes. Admissions that have a potentially planned procedure without an 
acute discharge diagnosis code are considered planned according to the 
CMS Planned Readmission Algorithm. The Quality of Informed Consent 
Documents measure does not use the Planned Readmission Algorithm to 
identify planned versus unplanned readmissions. The measure builds upon 
the established approach of the Planned Readmission Algorithm to 
identify only electively-performed procedures because planned 
procedures are also commonly electively-performed. We used clinical 
expert review to further narrow the list of potentially planned 
procedures from the Planned Readmission Algorithm to those which are 
consistently elective-performed and likely to have informed consent 
obtained prior to every procedure.
    The measure excludes highly specialized procedures, such as organ 
transplantation because they typically use unique informed consent 
processes; non-invasive radiographic diagnostic tests because informed 
consent standards may be different than standards for invasive 
procedures and surgeries; and procedures that are conducted over 
several encounters since informed consent is likely only conducted 
prior to the first procedure. For more information about the list of 
qualifying procedures and excluded procedures, we refer readers to the 
measure methodology report on our Web site available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(7) Abstraction Tool
    The Abstraction Tool is an instrument used to evaluate the quality 
of a hospitals' informed consent documents based on a score of 0-20; a 
higher score indicates better quality. The Abstraction Tool is a 
checklist evaluating the presence of the following items in the consent 
document: A description of the procedure; how the procedure will be 
performed; the rationale for why the procedure will be performed; and 
the risks, benefits, and alternatives to the procedure. The Abstraction 
Tool also includes an item to assess whether patients received the 
document at least one calendar day in advance of the procedure date. 
Inclusion of the timing item ensures informed consent documents are not 
shared for the first time with patients on the day of the procedure. 
The Abstraction Tool provides an option for hospitals to note if a 
patient chose to opt out of signing their informed consent document 24 
or more hours before surgery, enabling full credit to be given to the 
hospital for this item in that scenario. In addition, the tool gives 
credit for sharing the document prior to the day of the procedure, even 
if the patient does not sign the document until the day of the 
procedure. These aspects were raised with the patient and patient 
advocate workgroup and deemed to be more flexible to a range of 
scenarios and contexts, and therefore more patient-sensitive. To assess 
the reliability of the Abstraction Tool, we examined the inter-rater 
reliability (the degree of agreement among abstractors) of each item on 
the Abstraction Tool as well as the document scores produced by the 
Abstraction Tool for 80 of the 800 documents tested from the pilot 
project hospitals. For additional information about testing refer to 
our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Abstractors enter responses for each item evaluated in each 
informed consent document. We would provide

[[Page 38365]]

comprehensive standardized training materials including an instruction 
manual with guidance and examples of what meets criteria for each item 
in the Abstraction Tool, a training video, and sample test documents. 
This process has previously been piloted and found to be effective and 
efficient. For more information about the Abstraction Tool and 
instructions manual, we refer readers to our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
(8) Calculating the Measure Score
    The measure will be calculated by aggregating the scores of the 
sample of hospitals' informed consent documents, as assessed using the 
Abstraction Tool. Based on input from stakeholders during the measure 
development stage, including the Technical Expert Panel convened by the 
measure developer, and feedback from patients and patient advocates, we 
are considering reporting the proportion of a hospital's sampled 
informed consent documents that achieve a pre-specified threshold 
score. For example, the proportion of a hospital's sampled informed 
consent documents which meet a minimum, patient-centered standard. We 
are considering setting the threshold score at 10 (out of 20 total 
points), and increasing the threshold over time. The stakeholders we 
sought input from during the measure development process agreed with 
incrementally increasing the threshold score over time. This would 
establish an initial target that hospitals could feasibly meet in a 
short period of time, and allow for further informed consent 
improvement. Ultimately, we envision this measure would either evolve 
to include additional components or could complement a measure of 
shared decision making when an appropriate measure becomes available 
for potential use in the Hospital IQR Program.
    Using this scoring approach, performance scores among the 25 
hospitals in the testing sample were poor. The median hospital level 
score, based on evaluation of 100 informed consent documents, ranged 
from 0 (95 percent CI: 0-5) to 12 (95 percent CI: 10-12) out of a total 
of 20 points. The proportion of documents achieving a threshold score 
of at least 10 (out of 20 points) per hospital, ranged from 0 percent 
to 70 percent, demonstrating that the quality of informed consent 
documents varies both within and between hospitals.
(9) Implementation
    We are considering two implementation approaches. One approach 
implements the measure in a centralized fashion where hospitals send 
their sample of informed consent documents directly to CMS or to an 
entity contracted by us for central abstraction and measure score 
calculation. Another approach is local; hospitals abstract their own 
informed consent documents and transmit the abstraction results to CMS 
for measure calculation.
    During measure development, we worked closely with hospitals to 
evaluate the burden associated with each approach. The greatest burden 
was associated with copying and electronically sending informed consent 
documents, making centralized abstraction a more burdensome option for 
hospitals. Using a brief formal training process and materials to 
prepare abstractors, we found hospital abstractors can reliably 
abstract documents at a rate of 15-20 documents per hour or 3-4 minutes 
per document. The final sample size required for measure reporting has 
not been determined but will not exceed 100 documents per hospital and 
may be substantially fewer than 100 documents per hospital.
    Implementation would entail identifying a hospital's elective 
procedures which meet eligibility for the Quality of Informed Consent 
Documents measure using administrative claims data. We would then 
provide hospitals with a list of procedures and encounter dates 
selected from a hospital's eligible elective procedures, along with the 
HIC number and date of birth of the patient who had the procedure in 
order to identify the medical record, the qualifying procedure, and the 
corresponding informed consent document and operative report. Hospitals 
would then locally evaluate the informed consent documents for these 
procedures using the Abstraction Tool and transmit the results of the 
abstraction through a secure data file transfer or similar process, 
such as the QualityNet Secure Portal or the External File Online Tool. 
We would then calculate and report the results as the proportion of a 
hospital's sampled informed consent documents achieving the threshold 
score of 10 out of 20. Hospitals could submit data on the prior year's 
informed consent documents on an annual basis or more frequently, such 
as quarterly or every six months, allowing for more rapid cycle 
improvements in measure performance. If we were to pursue a local 
abstraction approach, we would also consider expanding the data 
validation process in the Hospital IQR Program to ensure hospitals' 
abstraction work was accurate, requiring hospitals to submit select 
informed consent documents to us or an entity contracted by us via a 
secure mechanism for review and validation.
    The Quality of Informed Consent Documents for Hospital-Performed, 
Elective Procedures (MUC16-262) measure is included in a publicly 
available document entitled ``2016-2017 Spreadsheet of Final 
Recommendations to HHS and CMS,'' which is available on the NQF Web 
site.\194\ The MAP did not support this measure, indicating concern 
about the lack of evidence that implementation will affect hospital 
practices and the complexity of existing guidelines, regulations and 
State laws related to informed consent. Further, the MAP noted that 
this measure captures the quality of informed consent documents rather 
than the quality of communication between patients and their 
providers.\195\ However, the MAP noted that this measure concept is 
critical for shared decision making, and recommended that future 
measures on informed consent be patient-centered. In addition, the MAP 
noted that this measure should demonstrate reliability and validity, at 
the facility level, in the hospital setting, prior to being suitable 
for inclusion in the Hospital IQR Program measure set. Lastly, the MAP 
recommended the measure be submitted to NQF for review and 
endorsement.\196\
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    \194\ ``2016-2017 Spreadsheet of Final Recommendations to HHS 
and CMS, available at: http://www.qualityforum.org/map/.
    \195\ ``2017 Considerations for Implementing Measures Hospitals-
Final Report,'' available at: http://www.qualityforum.org/map/.
    \196\ Ibid.
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    We invited public comment on multiple aspects of the measure. 
Specifically, we sought public comment on the potential scoring 
approach described above, reporting the proportion of a hospital's 
sampled informed consent documents, and setting a threshold score of 10 
out of 20. In addition, we sought input on how the measure should be 
implemented, either through local abstraction where hospitals provide 
us with the results of their own abstraction work or by transmitting 
informed consent documents to us for centralized abstraction. We also 
sought public comment on the frequency of measure reporting for this 
measure, whether annually, quarterly, or at some other interval. More 
frequent reporting updates would require hospitals to abstract 
documents and submit the

[[Page 38366]]

results more often than less frequent reporting. Finally, we sought 
input on a potential validation process for the Quality of Informed 
Consent Documents measure.
    Comment: Many commenters supported the future inclusion of the 
``Quality of Informed Consent Measure.'' The commenters noted that this 
measure is critical to patient care because it would establish 
standards for informed consent that would help to alleviate confusion 
patients have about their care (by awarding credit for the use of lay 
terms on the consent document) and provide opportunities for patients 
to ask questions (because the consent documents that are shared with 
patients in advance of a procedure are given credit). The commenters 
also stated that the more patients are empowered to be proactive and 
educated in their own care, the more the care provided will align with 
their preferences and goals. In addition, the commenters noted that 
measurement of informed consent documents is important because 
communication about care is essential to patients and their families 
since written information, when provided in advance, can be reviewed 
and shared. Further, the commenters suggested that implementing this 
measure would instate new standard operating procedures that could 
improve the patient experience. To that end, the commenters recommended 
that the consent forms be tailored to patient-centered care by 
indicating diagnosis, procedure, and alternative methods of treatment. 
Lastly, the commenters suggested that the document also include any/all 
known harmful drug and/or procedural side effects so patients are fully 
informed of what to expect.
    Response: We thank the commenters for their support. The current 
version of the Abstraction Tool evaluates the informed consent document 
for the presence, readability, and legibility of the procedure name and 
a description of how the procedure is performed. It also assesses 
whether the document includes the rationale for the procedure 
(including the diagnosis), a quantitative and qualitative description 
of the risks associated with the procedure, patient-oriented benefits 
of the procedure (in other words, the physical impact of the procedure 
on patients), and alternatives to the procedure. The Tool also assesses 
whether the document was shared with the patient at least one calendar 
day prior to the procedure. These elements of informed consent 
documents were selected and developed for the measure in close 
partnership with a patient workgroup; they represent priority quality 
standards that are feasible to abstract reliably. The Tool gives credit 
for each item, and gives a score of 0 to 20; as such, the measure would 
demonstrate variation in quality between informed consent documents 
within a single hospital, and would illuminate overall quality 
differences between hospitals. In addition to illuminating quality, the 
measure is intended to incentivize hospitals to produce more patient-
centered informed consent documents that meet, at a minimum, the 
standards set forth in this tool.
    Comment: Many commenters supported the future inclusion of the 
``Quality of Informed Consent'' measure in the Hospital IQR Program 
measure set, but provided several recommendations for CMS to consider. 
Specifically, the commenters suggested being more prescriptive about 
the content and form of the description of alternative treatments, 
noting that this content should contain comparative benefits versus 
risks and a disclosure of any financial incentives in place. In 
addition, the commenters noted that the provided scoring standard is 
limited in the number of elements that are essential for an informed 
consent document. Commenters noted that facilities could develop a 
standardized consent form that meets the criteria of all elements that 
are specified in the measure.
    Response: We thank the commenters for their support and will 
consider these recommendations in planning for any potential future 
proposal of this measure. We acknowledge that although the Abstraction 
Tool captures many aspects of informed consent documents which 
commenters noted were important, it does not currently require a 
description of the comparative benefits versus risks associated with 
different treatment options or a disclosure of any financial incentives 
in place. While we believe the current Abstraction Tool effectively and 
concisely captures key elements of informed consent document quality 
that represent a minimum standard for informed consent documents that 
are meaningful to patients, we will continue to collect and evaluate 
feedback from stakeholders and consider commenters' suggestions to 
refine the Abstraction Tool during ongoing measure re-evaluation work. 
The measure is intended to evaluate quality and illuminate deficiencies 
in the current informed consent process. We hope this measure would 
lead hospitals to produce more patient-centered informed consent 
documents that meet, at a minimum, the standards set forth in this 
measure.
    Comment: Other commenters encouraged CMS to require shared decision 
making for its hospital elective procedures and for all conditions that 
it has identified under its Beneficiary Engagement models. Many 
commenters suggested that informed consent should be a shared process 
when the patient has a partner or spouse. Other commenters also 
recommended that the measure developer consider incorporating the 
American College of Surgeons (ACS) principles in the development of the 
informed consent document and capture the informed consent discussion, 
not simply the timing of when the legal document is shared. Other 
commenters were concerned that this measure focused on documentation 
rather than the actual communication process.
    Response: This measure evaluates one aspect of the quality of 
informed consent and is not intended to be a comprehensive measure of 
the informed consent process or shared decision-making. It is intended 
as an initial step toward improving the informed consent process and 
represents a minimum requirement for optimal informed consent and 
shared decision-making. The measure assesses basic elements of the 
informed consent document and captures when the document is shared with 
the patient, a signal of when an informed consent discussion took 
place. We did not consider the elements of the Beneficiary Engagement 
models, as they pertain to shared-decision making and not specifically 
to the informed consent document. Additional information about 
Beneficiary Engagement models can be found on the CMS Innovation Center 
Web site at: https://innovation.cms.gov/initiatives/Beneficiary-Engagement/. Regarding commenters' concern that the focus of the 
measure is on documentation rather than the actual communication 
process, there are significant challenges in both the methods and 
feasibility of assessing whether shared decision-making occurred prior 
to a broad range of elective procedures. While we acknowledge that this 
measure of informed consent does not assess all aspects of decision-
making quality, we believe the informed consent document is a critical 
part of the informed consent process. Patients and families have 
observed and experienced that many informed consent documents are of 
poor quality and in need of improvement. They have encouraged 
policymakers to work towards a more patient-centered standard. We have 
worked closely with patients, patient advocates, and families

[[Page 38367]]

to develop this measure, which provides a mechanism for assessing the 
quality of informed consent documents and the timing in relation to the 
procedure in which they are shared, as two aspects of the communication 
needed for informed decision-making. We received broad stakeholder 
support for the concept of measuring the quality of informed consent 
documents, and we believe this measure represents an important first 
step forward in improving high-quality decision-making. The measure 
would fill a significant gap in evaluating the quality of current 
informed consent documents. We will consider incorporating the American 
College of Surgeons (ACS) principles \197\ and other aspects of shared 
decision-making in future versions of the measure.
---------------------------------------------------------------------------

    \197\ American College of Surgeons Principles and Practice 7th 
Edition, available at: http://booksmedicos.org/acs-surgery-principles-and-practice-7th-edition/.
---------------------------------------------------------------------------

    Comment: A few commenters urged CMS to require that patient 
decision aids are certified pursuant to the certification criteria 
adopted by the NQF.
    Response: We recognize commenters' desire to capture the use of 
patient decision aids, which are tools designed for patients who have 
certain conditions to help them think about what is important to them 
when discussing with their clinician the options for health management. 
While standards exist for what defines a decision aid, pamphlets about 
a procedure and patient instructions are frequently labeled as decision 
aids \198\ despite not meeting the standards. As such, without the 
certification of decision aids, there is a risk of incentivizing the 
use of low-quality tools. While certification may be feasible in the 
future, at the current time, no national certification program exists. 
The NQF has put forth criteria for certifying decision aids, though the 
process for doing so has yet to be defined. We refer readers to the NQF 
Web site for more information regarding the decision aids project at: 
http://www.qualityforum.org/Decision_Aids.aspx. We will continue to 
evaluate the inclusion of decision aids as well as other elements of 
high-quality informed consent documents, as suggested above.
---------------------------------------------------------------------------

    \198\ Herrin J, Harris K, K K, Hines M, Frosch D. Patient and 
family engagement: a survey of US hospital practices. BMJ Qual Saf. 
2016;25:182-9.
---------------------------------------------------------------------------

    Comment: Several commenters expressed concerns about the Quality of 
Informed Consent measure's lack of NQF endorsement.
    Response: Although the Quality of Informed Consent measure has yet 
to undergo NQF endorsement review, the measure was developed according 
to and adhering to the guidelines and standards from NQF. NQF provides 
measure evaluation criteria on its Web site at: http://www.qualityforum.org/Measuring_Performance/Submitting_Standards/Measure_Evaluation_Criteria.aspx. We plan to submit the measure for NQF 
endorsement during the next appropriate call for measures.
    Comment: Several commenters expressed concern the Quality of 
Informed Consent measure fails to account for patient variables, such 
as health literacy and additional education.
    Response: We recognize that patients of different levels of English 
language proficiency and health literacy may require tailored informed 
consent documents. The current measure assesses lay language in 
English. Future measure development efforts may consider adapting the 
Abstraction Tool used to evaluate the quality of informed consent 
documents in non-English languages and the technical capacity for 
literacy support (for example, text readers, large print, health 
coaches, etc.).
    Comment: Several commenters stated that if hospitals are not 
communicating information necessary to achieve informed consent, the 
issue should be addressed through existing processes as opposed to 
layering on a new quality metric.
    Response: We believe the Quality of Informed Consent measure would 
fill a gap in existing processes, which may not be sufficient to ensure 
high quality informed consent documentation. Guidelines do not specify 
which details should be included in the written informed consent 
document, despite the documents' design to support patient- and 
procedure-specific information. Research has shown there is no 
standardization of informed consent documents and often the most 
important information about the procedure is missing, illegible, or 
incomprehensible.\199\ The Quality of Informed Consent measure is 
designed to set a basic standard for the quality of informed consent 
documents administered by hospitals and, as such, is an important 
quality improvement tool.
---------------------------------------------------------------------------

    \199\ Shahu A, Schwartz J, Perez M, Bernheim SM, Krumholz HM, 
Spatz ES. Discerning quality: an analysis of informed consent 
documents for common cardiovascular procedures. BMJ Qual Saf. 2016.
---------------------------------------------------------------------------

    Comment: Several commenters indicated they did not believe this 
measure would lead to improved patient engagement. The commenters 
encouraged CMS to work with hospitals, patient advocates, Congress, and 
States to streamline the amount of paperwork that patients, patient 
advocates, and their families are required to sign prior to or upon 
admission.
    Response: We collaborated closely with patients in developing this 
measure in order to identify the essential elements of informed consent 
documents. We designed the measure to illuminate deficiencies with 
informed consent and to incentivize improved, patient-centered informed 
consent documents that are shared with patients ahead of the procedure, 
which we and our patient collaborators believe would lead to improved 
patient engagement and more meaningful informed consent documents. The 
measure is a first step towards increasing the attention and effort 
that hospitals dedicate to providing high-quality informed consent, a 
critical aspect of patient-centered decision making.
    We appreciate the commenters' concerns about the burden of 
paperwork on patients. This measure assesses a practice that is already 
in place; informed consent documents are signed and scanned into 
patients' medical charts as routine medical care making them feasible 
to review without the need for further data collection.
    Comment: Some commenters expressed concern about the future 
inclusion of the Quality of Informed Consent measure in the Hospital 
IQR Program. Specifically, the commenters were concerned about the 
administrative burden of abstraction or transmission of informed 
consent documents to CMS for centralized abstraction in order to report 
the Quality of Informed Consent measure, especially for large academic 
medical hospitals. The commenters requested that CMS allow hospitals 
ample time to review and implement each abstracted element prior to the 
data collection period. Further, the commenters stated that additional 
testing should be performed and workable solutions identified prior to 
implementation. In addition, the commenters believed the collective 
administrative burden of reporting this measure would be immense, 
costly, and would not commensurately improve value for the patient. 
Several commenters did not support the future inclusion of the Quality 
of Informed Consent measure, indicating that the measure does not 
assess quality of care and is significantly burdensome.
    Response: We have performed testing across a diverse spectrum of 
hospitals and those findings indicate the measure would not be 
significantly burdensome. In developing this measure, we have worked 
with 33 hospitals to assess the feasibility of the abstraction process 
and

[[Page 38368]]

have determined it presents a low burden to hospitals. While 
abstraction was conducted centrally for the development and testing of 
the measure, we would recommend local abstraction of informed consent 
documents by hospital personnel, eliminating the transfer of documents. 
We have developed training materials and a process for easily 
identifying the informed consent document in the medical record and for 
rating the quality of informed consent documents. Among our test 
hospitals, experienced abstractors required less than 1 hour of 
training to be able to abstract documents accurately, with high inter-
rater reliability, at a rate of approximately 3 minutes per document. 
We will continue to consider this feedback and would inform 
stakeholders about the abstraction process if we decide to move forward 
with proposing to adopt the Quality of Informed Consent measure in the 
Hospital IQR Program through future rulemaking. With regard to the 
comment that the Quality of Informed Consent measure does not assess 
quality of care, we have received positive feedback from patients, 
patient advocates, and patient' families, both during measure 
development and during this public comment period in support of this 
measure as a meaningful metric of quality of care.
    Comment: Some commenters expressed concern with the scoring 
standard used for determining a high-quality informed consent document, 
noting that the current threshold score is too low, and recommended 
that CMS raise the threshold to ensure overall form improvement via the 
inclusion of information on the suggested items of alternative 
treatments and comparative benefits versus risks. These commenters 
strongly recommended that CMS raise the minimum passing score of 10 out 
of 20 points substantially, to 18 out of 20 points. The commenters 
noted that changing a singular document at multiple intervals to 
improve the score requires unnecessary, repeated corporate and legal 
review and may also confuse providers as well as patients. Setting the 
threshold at a higher level from the beginning better serves both 
patients and hospitals. Lastly, some commenters noted that all the 
scores are solely based on a ``Yes'' or ``No'' checklist completed by a 
healthcare provider, and suggested that those response options are 
insufficient to adequately represent the patient experience.
    Response: The threshold approach sets an external standard for 
quality. The threshold score we sought comment on (that is, the 
percentage of documents scoring at least 10 out of 20 points) was 
supported by the patient working group and TEP which was convened by a 
contractor during measure development. The patient working group and 
TEP felt that an intermediate threshold would reward hospitals in their 
efforts to improve documents. While this standard would need to be set 
by consensus, the standard could increase as hospitals gain more 
experience with the measure, which would also decrease the initial 
burden of training.
    We do not believe that increasing the threshold score over time 
would lead to repeated corporate or legal review, or be confusing to 
clinicians or patients, because hospitals could work to revise the 
content included in their informed consent document at one time and 
then focus on improving their score though efforts to share the 
documents at least one calendar day prior at a future time. These 
efforts may take longer, as they require changes in process and in some 
cases, the use of technology, but not necessarily corporate or legal 
review.
    While we agree the ``Yes'' or ``No'' checklist does not capture the 
spectrum of informed consent document quality, we developed definitions 
and criteria for what qualifies as ``passing'' based on iterative 
review of consent forms from 33 hospitals, considering a range of 
elective procedures and using feedback from the patient workgroup. 
Thus, we believe that the ``Yes'' or ``No'' approach is a meaningful 
indicator of quality. Nonetheless, we recognize that quality exists on 
a spectrum, and we will take into consideration the commenters' 
feedback in future development of the measure. We also will continue to 
collect and evaluate feedback from stakeholders and consider 
commenters' suggestions to refine the threshold used for initial 
measure implementation during ongoing measure re-evaluation work. We 
will inform stakeholders of any changes to the Abstraction Tool and/or 
minimum threshold in future rulemaking, should we move forward with 
proposing to adopt the Quality of Informed Consent Document measure for 
the Hospital IQR Program.
    Comment: Several commenters also recommended that the manual 
abstraction process defined in the Quality of Informed Consent measure 
be converted to electronic extraction. Several commenters recommended 
that this be a voluntary measure in at least the first year of 
reporting to determine feasibility of being able to electronically 
capture the data. Other commenters suggested that manual abstraction 
should remain an option for those organizations that are not early 
adopters. One commenter encouraged the use of Health Information 
Technology (HIT) to facilitate the informed consent process and 
suggested the inclusion of the Advancing Care Information requirements 
complementary to certified HIT standards (already in the 2015 Edition) 
that support patient specific education and clinical decision support 
selection for use in the selection of patient-specific informed 
consent, and the patient's response incorporated into the HIT using the 
existing clinical content document (CCD-CCDA) standards.
    Response: The measure currently utilizes a manual abstraction 
process, but we agree electronic extraction could potentially improve 
efficiency and decrease reporting burden in the future. Specifically, 
we appreciate the suggestion that this measure might be appropriate for 
the Advancing Care Information performance category under the Merit-
based Incentive Payment System (MIPS), which is part of the Quality 
Payment Program established under the Medicare Access and CHIP 
Reauthorization Act of 2015 (MACRA).\200\ We also recognize that some 
hospitals already have in place technology to assist with providing 
informed consent documents to patients. The purpose of the Quality of 
Informed Consent measure is to improve the quality of informed consent 
documents rather than assessing the methods by which hospitals choose 
to provide their informed consent documents to patients. We encourage 
innovation in informed consent development and delivery to patients. 
This measure captures hospital quality by assigning higher ratings to 
informed consent documents that are patient- and procedure-specific and 
that are shared with patients ahead of their procedures. We will 
consider additional abstraction options prior to proposing to adopt 
this measure for the Hospital IQR Program in the future.
---------------------------------------------------------------------------

    \200\ https://qpp.cms.gov/mips/advancing-care-information.
---------------------------------------------------------------------------

    We thank the commenters and we will consider their views as we 
develop future policy regarding the use of a Quality of Informed 
Consent Documents for Hospital-Performed, Elective Procedures measure 
in the Hospital IQR Program.
b. Potential Inclusion of Four End-of-Life (EOL) Measures for Cancer 
Patients
(1) Background
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20055 through 
20056), we discussed the potential use of palliative and end-of-life 
care measures in the Hospital IQR Program.

[[Page 38369]]

The quality of palliative and end-of-life care has been identified as a 
measurement gap in the Hospital IQR Program.\201\ End-of-life care may 
be defined as ``comprehensive care that addresses medical, emotional, 
spiritual, and social needs during the last stages of a person's 
terminal illness.'' \202\ While end-of-life care may include palliative 
care, palliative care is generally defined as multi-faceted, holistic 
care that anticipates, prevents, and alleviates suffering.\203\ Both 
palliative and end-of-life care can be provided when a patient is 
receiving hospice services, but it is not necessary for a patient to be 
admitted to hospice to receive such care. Hospitals are encouraged to 
counsel patients about palliative and end-of-life care; however, the 
National Academy of Medicine (NAM) of the National Academies has noted 
that ``too few patients and families receive this help [palliative and 
end-of life care] in a timely manner,'' \204\ despite evidence that 
this care improves patient quality of life. In the same report, the NAM 
proposed a number of core components of quality palliative and end-of-
life care. These proposals included offering a referral to hospice if a 
patient ``has a prognosis of 6 months or less'' and regular revision of 
a patient's care plan to address the patient's changing needs, as well 
as the changing needs of the patient's caregivers.\205\ The four 
palliative and end-of-life measures described below seek to improve the 
quality of care for cancer patients.
---------------------------------------------------------------------------

    \201\ National Quality Forum, Final Report. Palliative and End-
of-Life Care 2015-2016, available at: http://www.qualityforum.org/Palliative_and_End-of-Life_Care_Project_2015-2016.aspx.
    \202\ Ibid.
    \203\ Ibid.
    \204\ Committee on Approaching Death: Addressing Key End of Life 
Issues, Institute of Medicine: Dying in America: Improving Quality 
and Honoring Individual Preferences Near the End of Life. 
Washington, DC, National Academies Press, 2015.
    \205\ Ibid.
---------------------------------------------------------------------------

(2) Overview of Measures
    All four of these end-of-life measures seek to assess the quality 
of end-of-life care for patients who died of cancer in order to improve 
the quality of end-of-life care for future cancer patients. As such, 
the four palliative and end-of-life measures all address the NQS 
priority of communication and care coordination. The Proportion of 
Patients Who Died from Cancer Receiving Chemotherapy in the Last 14 
Days of Life (EOL-Chemo) (NQF #0210) measure evaluates the proportion 
of patients who died from cancer who received chemotherapy in the last 
14 days of life. This measure was finalized for CY 2017 for the MIPS 
(81 FR 77672). The Proportion of Patients Who Died from Cancer Not 
Admitted to Hospice (EOL-Hospice) (NQF #0215) measure assesses the 
proportion of patients who died from cancer who were not admitted to 
hospice and evaluates whether or not patients were admitted to hospice. 
The Proportion of Patients Who Died from Cancer Admitted to Hospice for 
Less Than Three Days (EOL-3DH) (NQF #0216) measure evaluates whether 
patients who were admitted to hospice were admitted to hospice late in 
the course of their illness, defined as within three days of their 
death. The Proportion of Patients Who Died from Cancer Admitted to the 
ICU in the Last 30 Days of Life (EOL-ICU) (NQF #0213) measure assesses 
whether cancer patients were admitted to the ICU in the last 30 days of 
their lives.
    These measures were reviewed by the MAP in December of 2016 for the 
PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program (MUC16-
271, MUC16-273, MUC16-274, and MUC16-275).\206\ The MAP Hospital 
Workgroup supported the inclusion of these measures in the PCHQR 
Program. Specifically, the MAP stressed the importance of end-of-life 
care as an area of cancer care that needs improvement and noted that 
these measures could help improve the patient and caregiver experience. 
The MAP also noted these measures could help encourage the use of 
hospice care and help avoid aggressive treatment in the last days of 
life, as unnecessary treatment at the end of life has been found to 
negatively impact a person's quality of life.\207\ We note that prior 
to implementation in the Hospital IQR Program, these measures would 
require a subsequent review from the MAP to assess appropriateness for 
programmatic inclusion.
---------------------------------------------------------------------------

    \206\ 2016-2017 Spreadsheet of Final Recommendations to HHS and 
CMS, Available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    \207\ ``2017 Considerations for Implementing Measures Hospitals-
Final Report,'' available at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

    With additional testing to assess the appropriateness of these 
measure in the acute care setting, we believe that these measures may 
be suitable for the Hospital IQR Program because they provide insight 
on the quality of end-of-life care for cancer patients provided in 
inpatient settings other than at PPS-exempt cancer hospitals. 
Currently, the Hospital IQR Program measure set does not contain any 
measure that assesses end-of-life care. As such, the future inclusion 
of these measures could promote the expansion of the Hospital IQR 
Program measure set to include a more robust set of measures that 
evaluate end-of-life care and address the NQS priority of improving 
person and family engagement. In addition, because these measures are 
specific to cancer patients, future inclusion would promote 
programmatic alignment between the Hospital IQR and PCHQR Programs 
should these measures be finalized as discussed in section IX.B.4.b. of 
the preamble of the final rule for inclusion in the PCHQR Program.
    Additional information on these measures is available at: http://www.qualityforum.org/Publications/2016/12/Palliative_and_End-of-Life_Care_2015-2016.aspx.
    We invited public comment on the possible future inclusion of one 
or more of these end-of-life measures in the Hospital IQR Program.
    Comment: Many commenters supported the proposed future inclusion of 
the End of Life Cancer measure set. The commenters believed that these 
measures represent a good start to ensuring that patients with cancer, 
who are at the end of life, receive appropriate care that serves to 
protect quality of life. The commenters indicated that the data from 
these measures would be useful in evaluating the impact of the use or 
lack of use of hospice services, and influential in improving the care 
of those with advanced illness. The commenters also stated there is a 
pressing need to establish additional quality measures that support 
evidence-based care for individuals with advanced illness and 
recommended CMS consider expanding measures to include additional 
illnesses, provider types, and use in additional care settings. In 
addition, commenters encouraged CMS to pair these utilization measures 
with measures of shared care planning, such as an assessment of how 
closely care received aligns with patient preferences and goals. 
Lastly, commenters noted these measures have been thoroughly tested and 
are NQF-endorsed. Some commenters suggested that CMS consider adding 
additional measures (``Advance Care Plan'' (NQF #0326) and ``Patients 
Admitted to the ICU Who Have Care Preferences Documented'' (NQF #1626)) 
to the Hospital IQR Program. The commenters stated these two measures 
would help fill a gap in the Program by ensuring that hospitals have 
documented patients' care preferences and make efforts to revisit and 
update these preferences as conditions change and critical care is 
needed.
    Response: We thank the commenters for their support. We will 
consider the

[[Page 38370]]

possibility of pairing these measures with measures of shared care 
planning if we move forward with proposing one or more these measures 
for future adoption in the Hospital IQR Program. Further, we will 
assess the suitability of the suggested measures (``Advance Care Plan'' 
(NQF #0326) and ``Patients Admitted to the ICU Who Have Care 
Preferences Documented'' (NQF #1626)), and any other measures that 
address patients with advance illness, as we consider future measures 
the Hospital IQR Program measure set. We recognize that in order for 
these measures to be considered for inclusion in the Hospital IQR 
Program measure set they would have to be re-specified for the 
inpatient setting. If the measure steward expands these end-of-life 
measures to include additional illnesses and provider types, we will 
examine how these additional variables affect their reliability and 
validity as we consider whether to propose to adopt these measures in 
the Hospital IQR Program in the future.
    Comment: Some commenters did not support the proposed future 
inclusion of the End of Life cancer measures in the Hospital IQR 
Program. These commenters expressed concern that these measures are not 
adjusted to exclude patients from the numerator and denominator who 
have stated a desire to pursue aggressive treatment through the end of 
life.
    Response: We acknowledge the commenters' concerns that these 
measures are not adjusted to exclude patients from the numerator and 
denominator who have stated a desire to pursue aggressive treatment 
through the end of life. We note that prior to proposing to adopt the 
End of Life cancer measures in the Hospital IQR Program, these measures 
would require a subsequent review by the MAP to assess appropriateness 
for programmatic inclusion, which would include feedback on the 
appropriateness of numerator and denominator exclusion criteria. Should 
we decide to move forward with proposing to adopt these measures for 
the Hospital IQR Program in the future, we may consult the measure 
steward to determine whether patients who have undergone aggressive 
treatment through the end of life should be excluded from the 
measurement cohort.
    Comment: Some commenters expressed concerns about the future 
inclusion of the End of Life cancer measure set in the Hospital IQR 
Program, noting that the proposed measures should remain only in the 
PCHQR Program, where they are more appropriate. The commenters 
expressed that patient mix and cancer stage at time of diagnosis can 
greatly impact the measures. In addition, the commenters suggested 
that, although these are inpatient measures, they are highly dependent 
on access to ambulatory services (for example, hospice, palliative 
care, and supportive services), which is in limited supply in many 
geographic areas. Other commenters stated that because measure 
performance is predicated on the physician, who is responsible for the 
patient's care, in instances where the hospital does not employ the 
oncologist (or primary care physician), the ability to drive 
performance improvement is limited. Further, these measures would 
disadvantage community hospitals that don't employ the oncologists in 
their community. Some commenters recommended CMS test the measures for 
use in both cancer hospitals and IPPS acute hospitals and the measures 
be reviewed for NQF endorsement in those settings prior to proposing to 
implement the measures in a public quality reporting program. Other 
commenters suggested these measures be tested in facilities with cancer 
patients and that CMS should adjust the specifications as needed prior 
to implementation.
    Response: We acknowledge the commenters' concerns. We note that 
prior to proposing to adopt the End of Life cancer measures for the 
Hospital IQR Program, these measures would require testing in acute 
care hospitals by the measure steward, which would provide insight on 
the burden associated with data collection in these settings. Through 
testing the measure steward could be able to better assess the impact 
of factors such as patient mix and cancer stage at time of diagnosis, 
and determine if they should be a part of numerator and/or denominator 
exclusion criteria. Further, testing could help determine the impact of 
factors such as access to ambulatory services (as the commenter 
described) and the impact on quality of hospitals that have an 
oncologist on staff versus hospitals that do not. In addition, these 
measures would be subject to review by the MAP to assess 
appropriateness for Hospital IQR Program inclusion, which would include 
feedback on the appropriateness of risk adjustment, and the degree of 
specificity required in the measures' components (for example, title, 
numerator description, denominator description, etc.) and to ensure no 
unintended consequences result, such as dis-incentivizing physicians to 
refer terminally ill patients to appropriate palliative care. We 
reiterate when the MAP reviewed these measures for the PCHQR Program, 
it noted these measures could help encourage the use of hospice care 
and help avoid aggressive treatment in the last days of life, as 
unnecessary treatment at the end of life has been found to negatively 
impact a person's quality of life.\208\ Further, we believe these 
measures may be suitable for the Hospital IQR Program as well, because 
they could provide insight on the quality of end-of-life care for 
cancer patients provided in inpatient settings other than at PPS-exempt 
cancer hospitals.
---------------------------------------------------------------------------

    \208\ 2017 Considerations for Implementing Measures Final 
Report--Hospitals, available at: http://www.qualityforum.org/Publications/2017/02/2017_Considerations_for_Implementing_Measures_Final_Report_-_Hospitals.aspx.
---------------------------------------------------------------------------

    Comment: Some commenters also expressed concerns about manual data 
collection for these items affecting data quality and reliability, and 
about unintended consequences, such as providers refraining from 
offering treatment of potential value in the face of prognostic 
uncertainty. The commenters suggested since not all cancer patients are 
terminal, at minimum, CMS should add the word ``terminal'' before the 
word ``cancer'' in each of the measures' titles, which would avoid 
undesired penalties and incentivize physicians to refer terminally ill 
patients to appropriate palliative care. The commenters also 
recommended CMS consider the NQF palliative care measure for 
Documentation of Preferences for Patients Admitted to the ICU (NQF 
#1626) instead.
    Response: We acknowledge the concerns about manual data collection 
for these items affecting data quality and reliability and about 
unintended consequences. As we noted above, prior to proposing to adopt 
the End of Life Cancer measures for the Hospital IQR Program in the 
future, these measures would require testing in the inpatient setting, 
which would provide insight on the burden associated with data 
collection in that setting. In addition, testing could provide the 
measure steward with data to be able to assess potential unintended 
consequences.
    We thank the commenter for their suggested revision to the name of 
the measure, and will consider this, as well as the impact of 
terminally ill patients being a part of the measurement cohort, should 
we decide to move forward with proposing to adopt these measures for 
the Hospital IQR Program. We will consider the suggested measure (for 
Documentation of Preferences for Patients Admitted to the ICU (NQF 
#1626)) and any other measures that

[[Page 38371]]

evaluate the quality of end-of-life care for cancer patients if we move 
forward with proposing adoption of these types of measures for the 
Hospital IQR Program in the future.
    Comment: One commenter recommended CMS consider a more 
comprehensive approach to measurement for end of life care and advance 
care planning that is consistent with the Institute of Medicine's (IOM) 
recommendations and sensitive to patient preferences.
    Response: We thank the commenter for their suggestion and will 
consider the National Academy of Medicine (NAM's) (formerly, the IOM) 
recommendations \209\ and the impact of patient preferences should we 
move forward with proposing to adopt the End of Life cancer measures in 
the Hospital IQR Program in the future.
---------------------------------------------------------------------------

    \209\ National Academy of Medicine Key Findings and 
Recommendations available at: http://www.nationalacademies.org/hmd/
~/media/Files/Report%20Files/2014/EOL/
Key%20Findings%20and%20Recommendations.pdf.
---------------------------------------------------------------------------

    We thank the commenters and we will consider their views as we 
develop future policy regarding the use of one or more of these end-of-
life measures in the Hospital IQR Program.
c. Potential Inclusion of Two Nurse Staffing Measures
(1) Background
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20056 through 
20059), we discussed the potential inclusion of two nurse staffing 
measures in the Hospital IQR Program. Nursing care is a core service of 
hospitals, and accordingly, hospital nurse staffing practices are 
increasingly recognized as a tool to improve the quality and value of 
patient care.\210\ Studies have shown there is a link between 
appropriate nurse staffing and care quality and patient outcomes. For 
example, the AHRQ conducted a systematic review and meta-analysis 
examining the relationship between nurse staffing and patient outcomes. 
The review of 96 studies, published between 1990 and 2006, found that 
increased nurse staffing is associated with a reduction in hospital-
related mortality and adverse patient events, such as respiratory 
failure, cardiac arrest, and hospital-acquired conditions.\211\ A 
review of studies examining the impact of nurse staffing on hospital 
costs and patient length of stay found that an increased level of 
registered nurse (RN) staffing may result in reduced patient length of 
stay and hospital costs.\212\ Furthermore, recent literature has 
demonstrated appropriate nursing skill mix (including licensure level 
and area of training for specialty) and increased RN nursing hours are 
associated with decreased rates of patient falls, pressure ulcers, 
urinary tract infections, and bloodstream 
infections.213 214 215
---------------------------------------------------------------------------

    \210\ Institute of Medicine. (2011). The future of nursing: 
Leading change, advancing health. Washington, DC: National Academies 
Press.
    \211\ Kane, R.L., Shamliyan, T.A., Mueller, C., Duval, S., & 
Wilt, T.J. (2007). The association of registered nurse staffing 
levels and patient outcomes: systematic review and meta-analysis. 
Medical Care, 45(12), 1195-1204.
    \212\ Thungiaroenjul, P., Cummings, G.G., Embleton, A. (2007). 
The impact of nurse staffing on hospital costs and patient length of 
stay: A systematic review. Nursing Economics, 25(5).
    \213\ Tzeng, H.-M., Titler, M.G., Ronis, D.L., & Yin, C.-Y. 
(2012). The contribution of staff call light response time to fall 
and injurious fall rates: an exploratory study in four US hospitals 
using archived hospital data. BMC Health Services Research, 12, 84. 
Available at: http://doi.org/10.1186/1472-6963-12-84.
    \214\ Esparza, S.J., Zoller, J.S., White, A.W., & Highfield, 
M.E.F. (2012). Nurse staffing and skill mix patterns: Are there 
differences in outcomes? Journal of Healthcare Risk Management: The 
Journal of the American Society for Healthcare Risk Management, 
31(3), 14-23. Available at: http://doi.org/10.1002/jhrm.20092.
    \215\ Yang, P.-H., Hung, C.-H., Chen, Y.-M., Hu, C.-Y., & Shieh, 
S.-L. (2012). The impact of different nursing skill mix models on 
patient outcomes in a respiratory care center. Worldviews on 
Evidence-Based Nursing/Sigma Theta Tau International, Honor Society 
of Nursing, 9(4), 227-233. Available at: http://doi.org/10.1111/j.1741-6787.2012.00246.x.
---------------------------------------------------------------------------

    We believe there is an opportunity for hospitals to develop nurse 
staffing strategies to improve quality and the value of care. The 
inclusion of nurse staffing measures in the Hospital IQR Program would 
allow hospitals to assess how their nurse staffing and skill mix 
compare to similar hospitals and State and national levels, as well as 
encourage hospitals to develop optimal nurse staffing plans that meet 
the needs of their patients and improve quality of care. Because of the 
important role of nursing in providing high value care, we sought 
public comment on including two nurse staffing measures in the Hospital 
IQR Program: (1) Skill Mix (Registered Nurse [RN], Licensed Vocational/
Practical Nurse [LVN/LPN], Unlicensed Assistive Personnel [UAP], and 
Contract) (Nursing Skill Mix) Measure (NQF #0204); and (2) Nursing 
Hours per Patient Day Measure (NQF #0205).
    These two measures (Skill Mix (Registered Nurse [RN], Licensed 
Vocational/Practical Nurse [LVN/LPN], Unlicensed Assistive Personnel 
[UAP], and Contract) (Nursing Skill Mix) Measure (NQF #0204) (MUCE0204) 
and Nursing Hours per Patient Day Measure (NQF #0205) (MUCEO205)), are 
included in a publicly available document entitled ``Spreadsheet of MAP 
2015 Final Recommendations,'' which is available on the NQF Web 
site.\216\ These measures address the NQS priority of effective 
prevention and treatment, and were reviewed by the MAP in 2014. The MAP 
noted the need for resolution of data issues, specifically that 
hospitals participating in the National Database of Nursing Quality 
Indicators[supreg] (NDNQI[supreg]) program can have their data directly 
shared with CMS while those that do not currently participate in that 
program have the opportunity to send their data directly to CMS. In 
addition, the MAP noted that, at the time, there was no gold standard 
for these measures, and thus it is difficult to access relative 
performance on these measures.\217\ The final recommendation from that 
review was to conditionally support the inclusion of these measures, 
contingent upon review and endorsement by the NQF. We note these 
measures initially obtained NQF endorsement on August 5, 2009, and 
after subsequent review by the NQF for aggregation at the hospital 
level, the measures retained their endorsement as of December 10, 
2015.\218\ Further, we note approximately 2,000 hospitals are already 
reporting this information to the NDNQI[supreg],\219\ founded by the 
American Nurses Association (ANA).\220\ NDNQI[supreg] data are not 
publicly reported.
---------------------------------------------------------------------------

    \216\ Spreadsheet of MAP 2015 Final Recommendations, available 
at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    \217\ MAP 2014-2015 Preliminary Recommendations, available at: 
http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    \218\ NQF Measures Database, ``Quality Positioning System,'' 
available at: http://www.qualityforum.org/QPS/204 and http://www.qualityforum.org/QPS/0205.
    \219\ NDNQI[supreg] database is one of the nation's largest 
repositories of data on nurse-sensitive quality and safety measure. 
Approximately 2000 hospitals participate in the program.
    \220\ Press Ganey Nursing Quality (NDNQI), available at: http://www.pressganey.com/solutions/clinical-quality/nursing-quality.
---------------------------------------------------------------------------

    We received a number of comments applicable to both measures and 
will respond to those first. A more detailed discussion of each of the 
two measures, along with comments and responses, follows further below.
    Comment: An overwhelming number of commenters supported the 
proposed future inclusion of the Nurse Staffing measure set in the 
Hospital IQR Program. The commenters stated that nurses are critical to 
patient safety in hospital settings and that inadequate staffing is 
associated with increased mortality and adverse events. The commenters 
indicated that proper use of support personnel improves workflow and 
hospitals that invest in appropriate

[[Page 38372]]

nurse staffing and skill mix to meet the needs of their patients will 
receive higher ratings. The commenters also noted that reporting these 
data is not burdensome to hospitals, nurses, or other clinicians 
because the information is not being newly collected but rather, newly 
reported. Further, the electronic data collected for these measures is 
already included in hospital databases, as more than 2,000 hospitals in 
the U.S. have already adopted these measures. Finally, the commenters 
indicated the measures are endorsed by the American Nurses Association 
and the NQF, which strengthens the argument for their implementation in 
the Hospital IQR Program.
    Response: We thank the commenters for their support. We are pleased 
to learn that electronic data collection of these measures is already 
widely in effect, as increased electronic reporting is an ongoing 
measurement goal for CMS.
    Comment: In addition to the support received from stakeholders who 
provided form letters, several additional commenters supported the 
proposed future inclusion of the nursing measure set. These commenters 
noted that these measures have been NQF-endorsed, which is a positive 
testament to the thoroughness of their reliability and validity. The 
commenters stated that skill mix is part of the formula for appropriate 
staffing and that proper use of support personnel improves nurses' 
workflow, permitting nurses to fully apply their professional knowledge 
and skill. The commenters also noted that better staffing results in 
better patient care and that patients and their families should have 
access to this data as tools to make educated and informed care 
decisions when selecting from comparable hospitals. Further, commenters 
noted that these measures promote transparency, which empowers 
patients.
    Response: We thank the commenters for their support. We recognize 
the importance of transparency and nurse staffing in the inpatient 
setting as it relates to patient engagement and quality of care.
    Comment: A few commenters particularly supported the provisions 
that establish public reporting of the two nurse staffing quality 
measures. Currently, patients and their families compare hospitals on 
several factors on the Hospital Compare Web site, but they are unable 
to access information on how many nurses are staffing the unit to which 
they may be admitted or the staff skill mix, both of which ultimately 
impact patient outcomes. The commenters noted that public reporting 
would provide patients with information on how prepared comparable 
hospitals are to provide high quality and safe care, because there is a 
direct correlation between nurse staffing, patient satisfaction, 
readmissions, and adverse events. The commenters urged CMS to consider 
adding nurse staffing measures to the Hospital Compare Web site to 
provide greater transparency for patients and their families.
    Response: We thank the commenters for their support, and share the 
commenters' opinion that public reporting of these measures could 
better equip patients to make more informed decisions when selecting 
from comparable hospitals. Transparency is a facet of patient care that 
is often overlooked and we will consider the future inclusion of these 
nurse staffing measures on the Hospital Compare Web site, should we 
move forward with proposing to adopt the nurse staffing measures in the 
Hospital IQR Program in the future.
    Comment: One commenter supported the future inclusion of the 
nursing measures in the Hospital IQR Program if the definitions 
continue to align with National Database of Nursing Quality 
Indicators.\221\ However, the commenter noted the measures fail to 
reflect the complexity of the patient population and any staffing 
challenges in the local environment (rural, labor supply, urban, etc.). 
The commenter recommended these measures not be linked to payment 
(through the Hospital VBP Program, for example) and that any 
publication of these measures be accompanied by explanations which 
clarify for the reader that these are not quality-of-care measures.
---------------------------------------------------------------------------

    \221\ National Database of Nurse Quality Indicators, available 
at: http://www.pressganey.com/solutions/clinical-quality/nursing-quality.
---------------------------------------------------------------------------

    Response: We thank the commenter for their support, and appreciate 
their acknowledgement of other integral components that help in the 
evaluation of nursing care (that is patient population complexity and 
staffing challenges). These components are elements that we will 
consider as we continue to solicit feedback on clinical quality 
measures that assess nurse staffing practices. We disagree that these 
are not quality of care measures. We believe the potential future 
inclusion of nurse staffing measures in the Hospital IQR Program would 
allow hospitals to assess how their nurse staffing and skill mix 
compare to similar hospitals at the State and national level, as well 
as encourage hospitals to develop optimal nurse staffing plans that 
meet the needs of their patients and improve quality of care. As such, 
there would be no need to footnote publications of these measures, as 
suggested by the commenter. Should we move forward with proposing to 
adopt these measures for the Hospital IQR Program in the future, we 
will consider the potential benefit of linking these quality measures 
to cost measures and/or linking them to payment (via the Hospital VBP 
Program, for example).
    Comment: Some commenters expressed concerns regarding the nurse 
staffing measures. Specifically, the commenters noted that the 
generalist ideology expected by hospital administration for its nursing 
staff, when specialty care nursing is often best for patient care, 
could be problematic. Further, staffing should not only encompass 
proper numbers but should also encompass nursing proficiency, 
education, and work environment. The commenters suggested that CMS 
conduct additional testing to ensure there are not unintended 
consequences associated with making information on the nurse staffing 
measures available to consumers. The commenters also suggested that CMS 
should develop a simple metric that can be understood by consumers and 
is associated with care outcomes. Lastly, other commenters suggested 
CMS explore simpler metrics that are meaningful to consumers.
    Response: We acknowledge the commenters' concerns. In our continued 
efforts to solicit clinical quality measures that assess nurse staffing 
practices, we will consider additional factors (that is nurse education 
and work environment) that influence an appropriate nurse staffing plan 
as we continue to review these measures for future use in the Hospital 
IQR Program. While we understand the importance of developing a metric 
that is easily understood by consumers, we want to ensure that such a 
metric would adequately convey the impact of the varying facets that 
contribute to the quality of patient care, in the context of nurse 
staffing. We believe that to provide comprehensive quality nursing 
care, and to avoid unintended consequences, there should be multiple 
metrics that assess nurse staffing in the Hospital IQR Program. 
Accordingly, we will continue to consider additional factors that the 
measure steward may determine to be appropriate to include in this 
measure and be vigilant about potential unintended consequences 
associated with sharing nursing staffing information with consumers.
    Comment: Some commenters did not support future inclusion of the 
nurse staffing measures in the Hospital IQR

[[Page 38373]]

Program, indicating these measures are already collected and used 
locally for quality improvement, thus, there would be no added value to 
reporting these measures on a national level. In addition, commenters 
stated that manual web-based submission causes undue burden in the form 
of labor resources to enter the data, as hospitals are duplicating the 
effort by submitting to NDNQI and CMS. Further, the commenters 
suggested that the administrative burden of frequent reporting far 
exceeds its value, as quarterly reporting warrants susceptibility to 
inaccurate data. The commenters also expressed disapproval of the 
American Nurses Association's dismissal of LPNs and LVNs as members of 
the nursing staff. The commenters recommended considering inclusion of 
this subset of nurses as a way of using all available resources in 
provision and delivery of patient care.
    Response: We appreciate the commenters sharing their concerns. We 
believe there is an opportunity for hospitals to develop nurse staffing 
strategies to improve quality and the value of care, and that future 
inclusion of nurse staffing measures in the Hospital IQR Program would 
allow hospitals to assess how their nurse staffing and skill mix 
compare to similar hospitals at the State and national level, as well 
as encourage hospitals to develop optimal nurse staffing plans that 
meet the needs of their patients and improve quality of care. We also 
note numerous studies have demonstrated that increased nurse staffing 
is associated with a reduction in hospital-related mortality and 
adverse patient events.\222\ We recognize that adding new measures to 
for the Hospital IQR Program could increase administrative and 
reporting burden for hospitals; however, as with any potential new 
measure, we would weigh the benefits of the measure with the burden. We 
note according to the public comments received, there are already over 
2,000 hospitals nationwide that are reporting these measures. We also 
note that the Skill Mix measure includes LPNs and LVNs as members of 
the nursing staff. This measure acknowledges the contributions of all 
members of the nursing team, but notes that differing levels of 
education and skill need to be considered when making staffing 
decisions for individual units.
---------------------------------------------------------------------------

    \222\ Safe Staffing Literature Review from the American Nurses 
Association. March 2017. Available at: http://www.nursingworld.org/SafeStaffing-LiteratureReview.
---------------------------------------------------------------------------

    We thank the commenters, and we will consider their views as we 
develop future policy regarding use of the nurse staffing measures in 
the Hospital IQR Program.
(2) Skill Mix (Registered Nurse [RN], Licensed Vocational/Practical 
Nurse [LVN/LPN], Unlicensed Assistive Personnel [UAP], and Contract) 
(Nursing Skill Mix) Measure (NQF #0204)
(a) Overview of Measure
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20057 through 
20058), we discussed the potential use of the Skill Mix (Registered 
Nurse [RN], Licensed Vocational/Practical Nurse [LVN/LPN], Unlicensed 
Assistive Personnel [UAP], and Contract) (Nursing Skill Mix) Measure 
(NQF #0204) in the Hospital IQR Program. The NQF-endorsed Nursing Skill 
Mix measure assesses the percentage of productive nursing care hours 
worked by nursing staff with direct patient care responsibilities for 
each nursing licensure category (RN, LPN/LVN, and UAP) and staff 
employment status (contract/agency versus hospital employee), by 
eligible hospital unit. The intent of this measure is to enable 
hospitals to track and assess their nursing skill mix, given that 
research demonstrates a relationship between skill mix and certain 
quality outcomes.\223\
---------------------------------------------------------------------------

    \223\ Kane, R.L., Shamliyan, T.A., Mueller, C., Duval, S., & 
Wilt, T.J. (2007). The association of registered nurse staffing 
levels and patient outcomes: systematic review and meta-analysis. 
Medical Care, 45(12), 1195-1204.
---------------------------------------------------------------------------

    The measure focuses on the structure of care quality and includes 
the skill mix for adult and pediatric medical-surgical hospital units. 
Medical-surgical hospital units include hospitals areas for the 
evaluation of patients with medical and/or surgical conditions. 
Eligible adult and pediatric medical-surgical units can be mapped to 
the CDC's National Healthcare Safety Network (NHSN) Healthcare Service 
locations codes as defined in the NHSN Patient Safety Component 
Manual.\224\ Additional unit types, such as adult and pediatric 
critical-care, step-down, medical, and surgical units could be included 
in the future. At this time, we believe limiting the measure to adult 
and pediatric medical-surgical units would allow hospitals to become 
accustomed to collecting and reporting staffing data while also 
providing important staffing information to consumers. However, we 
sought public comment on how many inpatient units to include and which 
units should be prioritized.
---------------------------------------------------------------------------

    \224\ NHSN Patient Safety Component Manual https://www.cdc.gov/nhsn/about-nhsn/index.html [under ``Related Links''].
---------------------------------------------------------------------------

    Productive nursing care hours are defined as the hours worked by 
nursing staff (RN, LPN/LVN, and UAP) with direct patient care 
responsibilities, including unbudgeted overtime or scheduled hours. 
Direct patient care responsibilities are nursing activities performed 
by unit-based staff in the presence of the patients and activities that 
occur away from the patient that are patient related, such as the 
following:

 Medication administration
 Nursing treatments
 Nursing rounds
 Admission, transfer, and discharge activities
 Patient education
 Patient communication
 Coordination of patient care
 Documentation time
 Treatment planning
 Patient screening and assessment

    Unlicensed assistive personnel (UAP) are defined as individuals 
trained to function in an assistive role to nursing in the provision of 
patient care, as delegated by and under the supervision of a registered 
nurse. UAPs include nursing assistants, patient care technicians/
assistants, and graduate nurses not yet licensed who have completed 
orientations.
    The measure includes: All nursing staff employed by the hospital; 
temporary staff who are not employed by the hospital (contract or 
agency); and float staff who are hospital employees temporarily 
assigned to provide direct patient care on an eligible unit other than 
their usual unit of employment.
(b) Data Source
    Data collection for this structural measure would occur quarterly 
for each eligible unit from January 1 through December 31 of each 
calendar year, with data submission occurring 4.5 months after the end 
of each reporting quarter. An eligible unit must be open, with patients 
present, at least one month during the reporting period to be included. 
These data would be collected via a web-based tool available on the 
QualityNet Web site.
(c) Measure Calculation
    For staff with direct patient care responsibilities, the measure 
assesses the percentage of total productive nursing hours worked by 
either employee or contract RNs, LPN/LVNs, and UAPs, as well as at the 
percentage of total productive nursing hours worked for contract or 
agency staff. Accordingly, four rates (percentages) are determined for 
each eligible hospital

[[Page 38374]]

unit, one for each type of nursing staff, and one for contract and 
agency nursing staff. The four separate rates are as follows: (1) RN 
hours--Productive nursing care hours worked by RNs (employee and 
contract) with direct patient care responsibilities for each eligible 
inpatient unit/the total number of productive hours worked by employee 
or contract nursing staff with direct patient care responsibilities 
(RN, LPN/LVN, and UAP) for each eligible inpatient unit; (2) LPN/LVN 
hours--Productive nursing care hours worked by LPNs/LVNs (employee and 
contract) with direct patient care responsibilities for each eligible 
inpatient unit/the total number of productive hours worked by hospital 
employee or contract nursing staff with direct patient care 
responsibilities (RN, LPN/LVN, and UAP) for each eligible inpatient 
unit; (3) UAP hours--Productive nursing care hours worked by UAP 
(employee and contract) with direct patient care responsibilities for 
each eligible inpatient unit/the total number of productive hours 
worked by hospital employee or contract nursing staff with direct 
patient care responsibilities (RN, LPN/LVN, and UAP) for each eligible 
inpatient unit; and (4) Contract or agency hours--Productive nursing 
care hours worked by contract or agency staff nursing staff (RN, LPN/
LVN, and UAP) with direct patient care responsibilities for each 
eligible inpatient unit/the total number of productive hours worked by 
employee or contract nursing staff with direct patient care 
responsibilities (RN, LPN/LVN, and UAP) for each eligible inpatient 
unit. The data collected and the rates calculated are aggregate nursing 
care hours worked by each licensure category, by unit type. Hospital 
rates are weighted for patient volume (patient days) to account for 
differences in unit sizes.
(d) Cohort
    Hospital employee, contract, or agency RNs, LPN/LVNs, and UAPs with 
direct patient care responsibilities are included in the numerator and 
denominator statements. The measure numerator and denominator include 
nursing staff assigned to the eligible unit who have direct patient 
care responsibilities for greater than 50 percent of their shift who 
are counted in an eligible unit's staffing matrix, are replaced if they 
call in sick, and whose work hours are charged to the unit's cost 
center. The measure numerator and denominator exclude the following: 
Nursing staff with no direct patient care responsibilities whose 
primary responsibility is administrative in nature; specialty teams 
(for example, wound care), patient educators, or case managers who are 
not assigned to a specific unit; unit clerks, monitor technicians, and 
secretaries with no direct patient care responsibilities; sitters not 
providing routine UAP activities; therapy assistants; student nurses 
fulfilling educational requirements; and nursing staff undergoing 
orientation who are not included in the eligible units staffing matrix. 
For more information regarding the Nursing Skill Mix measure, we refer 
readers to the NQF measure information page available at: http://www.qualityforum.org/QPS/0204.
    We invited public comment on the future inclusion of the Skill Mix 
(Registered Nurse [RN], Licensed Vocational/Practical Nurse [LVN/LPN], 
Unlicensed Assistive Personnel [UAP], and Contract) (Nursing Skill Mix) 
measure for the Hospital IQR Program. Specifically, we sought public 
comments on narrowing the number of hospital units included in the 
measures' calculation, which units we should consider for inclusion, 
and the burden of data collection on hospitals.
    Comment: One commenter requested that CMS evaluate the Nursing 
Skill Mix measure against the ever-increasing pressure of reimbursement 
reductions from CMS and other payers who follow the CMS example. The 
commenter noted that the metric of two events seems counterproductive 
and that increased skill mix and staffing ratios will increase costs to 
the organization at the same time reductions in reimbursements will not 
allow for additional funds to support this need. As such, the commenter 
suggested that where facilities can meet/exceed the best practice 
measure, an incentive be provided so that funding could continue to 
support this measure as opposed to negatively impacting organizations 
trying to meet the needs of the patients through increased skill mix 
and staffing levels.
    Response: We acknowledge the commenter's concern about costs 
associated with increased skill mix and staffing ratios and will take 
that under consideration; however, existing research shows improved 
patient outcomes when the nursing skill mix and number of RN hours are 
appropriate for the level of care on the individual unit.\225\ We 
appreciate the need to balance long-term and short-term considerations 
with respect to nurse staffing decisions. We note the potential long-
term benefits of the improved outcomes and reduction in adverse events 
may outweigh the potential short term goal of decreasing the immediate 
costs of appropriate staffing ratios and skill mix.
---------------------------------------------------------------------------

    \225\ Safe Staffing Literature Review from the American Nurses 
Association. March 2017. Available at: http://www.nursingworld.org/SafeStaffing-LiteratureReview.
---------------------------------------------------------------------------

    We thank the commenter, and we will consider their views as we 
develop future policy regarding the future inclusion of the Skill Mix 
(Registered Nurse [RN], Licensed Vocational/Practical Nurse [LVN/LPN], 
Unlicensed Assistive Personnel [UAP], and Contract) (Nursing Skill Mix) 
measure in the Hospital IQR Program.
(3) Nursing Hours per Patient Day Measure (NQF #0205)
(a) Overview of Measure
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20058 through 
20059), we discussed the potential use of the Nursing Hours per Patient 
Day Measure (NQF #0205) in the Hospital IQR Program. The NQF-endorsed 
Nursing Hours per Patient Day measure assesses the number of productive 
hours worked by both RNs and all nursing staff (RN, LPN/LVN, and UAP) 
with direct patient care responsibilities per patient day, by eligible 
hospital inpatient unit. The intent of this measure is to enable 
hospitals to track and assess the ratio of hours worked by nursing 
staff per patient day, given that research demonstrates a relationship 
between increased nursing hours and certain quality outcomes.
    The measure focuses on the structure of care quality and includes 
Nursing Hours per Patient Day for eligible adult and pediatric medical-
surgical inpatient hospital units. Medical-surgical hospital units 
include hospitals areas for the evaluation of patients with medical 
and/or surgical conditions. Eligible adult and pediatric medical-
surgical units can be mapped to the CDC's National Healthcare Safety 
Network (NHSN) Healthcare Service locations codes as defined in the 
NHSN Patient Safety Component Manual. Similar to the Nursing Skill Mix 
Measure, additional unit types, such as adult and pediatric critical-
care, step-down, medical, and surgical units could be included, but at 
this time, we believe limiting the measure to adult and pediatric 
medical-surgical units would allow hospitals to become accustomed to 
collecting and reporting staffing data while also providing important 
staffing information to consumers. However, we sought comment on how 
many inpatient units to include and which units should be prioritized.
    Productive hours are defined as the hours worked by nursing staff 
(RN,

[[Page 38375]]

LPN/LVN, and UAP) with direct patient care responsibilities, including 
overtime, not budgeted, or scheduled hours. Direct patient care 
responsibilities are nursing activities performed by unit-based staff 
in the presence of the patients and activities that occur away from the 
patient that are patient related, such as the following:

 Medication administration
 Nursing treatments
 Nursing rounds
 Admission, transfer, and discharge activities
 Patient education
 Patient communication
 Coordination of patient care
 Documentation time
 Treatment planning
 Patient screening and assessment

    UAP are individuals trained to function in an assistive role to 
nursing staff in the provision of patient care, as delegated by and 
under the supervision of a registered nurse. UAPs include nursing 
assistants, patient care technicians/assistants, and graduate nurses 
not yet licensed who have completed orientations.
    The measure includes all nursing staff employed by the hospital; 
temporary staff who are not employed by the hospital (contract or 
agency); and float staff who are hospital employees temporarily 
assigned to provide direct patient care on an eligible unit other than 
their usual unit of employment.
(b) Data Source
    Data collection for this structural measure for hospitals occurs 
quarterly, for each eligible unit, from January 1 through December 31 
of each calendar year, with data submission occurring 4.5 months after 
the end of each reporting quarter. These data would be collected via a 
web-based tool available on the QualityNet Web site.
(c) Measure Calculation
    For staff with direct patient care responsibilities, the measure 
assesses the number of productive hours per patient day worked by both 
RNs and by total nursing staff (RNs, LPN/LVNs, and UAPs). Accordingly, 
two rates are determined for each eligible hospital unit. The two 
separate rates are as follows: (1) RN hours per patient day--Total 
number of productive hours worked by RN nursing staff (contract and 
hospital employee) with direct patient care responsibilities for each 
eligible inpatient unit/total number of patient days for each eligible 
inpatient unit; and (2) Total nursing care hours per patient day--Total 
number of productive hours worked by RN, LPN/LVN, and UAP nursing staff 
(contract and employee) with direct patient care responsibilities for 
each eligible inpatient unit/total number of patient days for each 
eligible inpatient unit. Patient days must be from the same unit in 
which nursing care hours are reported. The data collected and the rates 
calculated are aggregate nursing hours per patient day, by unit type. 
Hospital rates are weighted for patient volume (patient days) to 
account for differences in unit sizes.
(d) Cohort
    RNs, LPN/LVNs, and UAPs with direct patient care responsibilities 
are included in the numerator and denominator statement. The measure 
numerator includes nursing staff assigned to the eligible inpatient 
unit who have direct patient care responsibilities for greater than 50 
percent of their shift, who are counted in an eligible unit's staffing 
matrix, are replaced if they call in sick, and work hours are charted 
to the unit's cost center. The numerator excludes the following: 
Nursing staff with no direct patient care responsibilities whose 
primary responsibility is administrative in nature; specialty teams 
(for example, wound care), patient educators, or case managers who are 
not assigned to a specific unit; unit clerks, monitor technicians, and 
secretaries with no direct patient care responsibilities; sitters not 
providing routine UAP activities; therapy assistants; student nurses 
fulfilling educational requirements; and nursing staff undergoing 
orientation who are not included in the eligible units staffing matrix. 
The measure denominator excludes patient days from ineligible units. 
For more information regarding the Nursing Hours Per Day measure, we 
refer readers to the National Quality Forum measure information page 
available at: http://www.qualityforum.org/QPS/0205.
    We invited public comment on the possible future inclusion of the 
Nursing Hours per Patient Day measure for the Hospital IQR Program. 
Specifically, we sought comments on narrowing the number of hospital 
units included in the measures' calculation, which units we should 
consider for inclusion, and the burden of data collection on hospitals.
    Comment: One commenter cautioned CMS that the complexity involved 
in determining the hours and staffing for the Nursing Hours Per Patient 
Days measure could be burdensome for the organizations. Further, the 
commenter stated that if the intent is to evaluate the impact of 
increased staffing in areas with respect to quality outcomes, it would 
seem more appropriate for an organization to provide the total number 
of patient days for a given unit (denominator) divided into the total 
hours (as categorized by the 4 groups noted) of staffing on that unit. 
The commenter suggested that this may be a simpler, less burdensome 
approach that would provide a better indication of the total number of 
hours that are dedicated to patient care in a given unit. In addition, 
another commenter stated that the management and oversight of the 
reporting has an element of burden and time commitment that is not 
easily supported in today's health care environment in which resources 
should be focused on the care of the patient.
    Response: We appreciate the commenter's feedback, and will consider 
the suggested approach on how to calculate nursing hours per patient 
day. It is our intent to promote improved quality of care in the least 
burdensome manner possible. This measure is not meant to simply 
increase RN staffing in the areas evaluated in the measure, but also to 
evaluate the number of hours provided to patients by RNs as related to 
patient care requirements and whether the current staffing mix is 
appropriate. Studies have demonstrated improved outcomes especially in 
complex patients when the nursing provider is an RN versus an LPN/LVN 
or UAP.\226\
---------------------------------------------------------------------------

    \226\ Ibid.
---------------------------------------------------------------------------

    Comment: One commenter did not support the future inclusion of the 
Nursing Hours per Patient Day measure in the Hospital IQR Program, 
citing a concern that nurse staffing levels are influenced by a variety 
of factors that, in varying combinations, could influence patient care 
outcomes and may or may not be reflected in RN Hours Per Patient Day 
(RN HPPD). The commenter noted when nurse staffing is examined in the 
nursing research literature, no evidence exists that identifies a nurse 
staffing configuration or a process to use when making staffing 
decisions. The commenter believed that staffing decisions that 
influence RN HPPD need to be based on evidence, including patient need, 
the education and skill level of staff, the geography and size of 
units, the availability of technology and support staff, and multiple 
other factors. The commenter noted their belief that one of the most 
effective ways to attain superior patient outcomes and enhance nurse 
satisfaction is for nurse leaders and nursing staff to openly and 
continually communicate, assess, plan, execute, and evaluate strategies 
used in the provision of patient care.

[[Page 38376]]

    Response: We acknowledge the commenter's concerns. We recognize the 
importance of having an evidence base, rooted in empirical data, to 
support any clinical quality measure implemented in the Hospital IQR 
Program. We also understand that there are numerous factors that 
contribute to the overall quality of nursing care. At this time, we are 
interested in the impact and effects of skill mix and nursing hours per 
patient on quality of nursing care, and we will consider additional 
quality metrics that examine nursing care using different factors in 
the future. We agree that attaining superior patient outcomes and 
enhanced nurse satisfaction could be achieved through enhanced 
communication and the execution of ``best practice'' strategies in the 
provision of patient care; however, we are also concerned about the 
limitations placed on nurse managers and nursing staff when the 
hospital administration does not provide the available resources to 
adjust the staffing mix as appropriate for optimal patient care and 
positive outcomes. We refer readers to the American Nurses 
Association's literature review \227\ of evidence to identify the 
proper nurse staffing configuration and/or process to use when making 
staffing decisions.
---------------------------------------------------------------------------

    \227\ Ibid.
---------------------------------------------------------------------------

    Comment: One commenter noted that publicly reported RN HPPD to the 
lay person or a regulating body does not facilitate comparisons that 
are relevant and meaningful.
    Response: We believe that publicly reporting RN hours per patient 
day, coupled with the existing evidence that shows improvement in 
patient and nurse outcomes, based on workplace environment \228\ could 
be useful for the lay person and regulating bodies to make meaningful 
and relevant hospital comparisons.
---------------------------------------------------------------------------

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

    We thank the commenters and we will take these comments into 
consideration if we propose to adopt the Nursing Hours per Patient Day 
Measure (NQF #0205) in the future.
d. Potential Inclusion of Additional Electronic Clinical Quality 
Measures (eCQMs) in the Hospital IQR and Medicare and Medicaid EHR 
Incentive Programs
    As we previously indicated in the FY 2013 IPPS/LTCH PPS final rule, 
EHR technology continues to evolve and additional infrastructure is 
being put in place to afford us the capacity to accept enhanced 
electronic reporting of many of the clinical chart-abstracted measures 
that are currently part of the Hospital IQR Program (77 FR 53534). We 
continue to believe that electronic reporting of quality measure data 
derived from the EHR will, in the long run, reduce the burden on 
hospitals to collect and submit data for the Hospital IQR Program.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20059 through 
20064), in keeping with this goal, we solicited feedback on the 
potential inclusion of additional eCQMs in the Hospital IQR and 
Medicare and Medicaid EHR Incentive Programs. These measures assess 
opioid prescribing practices, malnutrition, tobacco use, and substance 
use among the adult, inpatient population. As we continue to advance 
electronic reporting, we want to ensure that we provide hospitals with 
a robust selection of eCQMs. As we state in section IX.A.8. of the 
preamble of this final rule, hospitals have expressed concerns with 
identifying applicable measures that reflect their patient population; 
thus, we believe that the addition of new eCQMs in the future will 
offer more clinically relevant eCQMs with meaningful data that will 
help drive quality improvement.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57116 through 
57120), we removed 13 eCQMs from the Hospital IQR Program measure set, 
beginning with the CY 2017 reporting period/FY 2019 payment 
determination, in order to enable hospitals to focus on a smaller, more 
specific subset of eCQMs. In that same rule, we indicated that we are 
considering behavioral health measures for inclusion in the Hospital 
IQR Program to address an important gap in understanding the quality of 
care given to inpatient psychiatric patients treated in the acute care 
hospital setting rather than a distinct psychiatric unit or IPF (81 FR 
57166 through 51767). The future inclusion of measures assessing opioid 
prescribing practices, tobacco use, and substance use will help to 
inform how we can improve the quality of care in these clinical 
domains, and help to fill this identified gap area. The table below 
lists the eCQMs being considered for future inclusion in the Hospital 
IQR and Medicare and Medicaid EHR Incentive Programs and for which we 
sought public feedback.

Electronic Clinical Quality Measures (eCQMs) for Future Consideration in
    the Hospital IQR and Medicare and Medicaid EHR Incentive Programs
------------------------------------------------------------------------
                      Measure name                             NQF #
------------------------------------------------------------------------
Safe Use of Opioids--Concurrent Prescribing.............             N/A
Completion of a Malnutrition Screening within 24 Hours               N/A
 of Admission...........................................
Completion of a Nutrition Assessment for Patients                    N/A
 Identified as At-Risk for Malnutrition within 24 Hours
 of a Malnutrition Screening............................
Nutrition Care Plan for Patients Identified as                       N/A
 Malnourished after a Completed Nutrition Assessment....
Appropriate Documentation of a Malnutrition Diagnosis...             N/A
Tobacco Use Screening (TOB-1)...........................             N/A
Tobacco Use Treatment Provided or Offered (TOB-2)/                   N/A
 Tobacco Use Treatment (TOB-2a).........................
Tobacco Use Treatment Provided or Offered at Discharge               N/A
 (TOB-3)/Tobacco Use Treatment at Discharge (TOB-3a)....
Alcohol Use Screening (SUB-1)...........................             N/A
Alcohol Use Brief Intervention Provided or Offered (SUB-             N/A
 2)/Alcohol Use Brief Intervention (SUB-2a).............
Alcohol & Other Drug Use Disorder Treatment Provided or              N/A
 Offered at Discharge (SUB-3)/Alcohol & Other Drug Use
 Disorder Treatment at Discharge (SUB-3a)...............
------------------------------------------------------------------------


[[Page 38377]]

(1) Safe Use of Opioids-Concurrent Prescribing Measure
(a) Background
    Unintended opioid overdose fatalities have reached epidemic 
proportions in the last 20 years and are a major public health concern 
in the United States.\229\ Reducing the number of unintended opioid 
overdoses has become a priority for numerous HHS agencies. Concurrent 
prescriptions of opioids or opioids and benzodiazepines put patients at 
greater risk of unintended opioid overdose due to increased risk of 
respiratory depression.\230\ \231\ Despite this risk, studies of 
multiple claims and prescription databases have shown that between 5 to 
15 percent of patients receive concurrent opioid prescriptions, and 5 
to 20 percent of patients receive concurrent opioid and benzodiazepine 
prescriptions across various settings.\232\ \233\ \234\ In addition, an 
analysis of more than 1 million hospital admissions in the United 
States found that over 43 percent of all patients with nonsurgical 
admissions were exposed to multiple opioids during their 
hospitalization.\235\
---------------------------------------------------------------------------

    \229\ Rudd, R., Aleshire, N., Zibbell, J., et al. ``Increases in 
Drug and Opioid Overdose Deaths--United States, 2000-2014.'' MMWR, 
Jan 2016. 64(50);1378-82 http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6450a3.htm.
    \230\ Dowell, D., Haegerich, T., Chou, R. ``CDC Guideline for 
Prescribing Opioids for Chronic Pain--United States, 2016.'' MMWR 
Recomm Rep 2016;65. Available at: http://www.cdc.gov/media/dpk/2016/dpk-opioid-prescription-guidelines.html.
    \231\ Jena, A., et al. ``Opioid prescribing by multiple 
providers in Medicare: retrospective observational study of 
insurance claims,'' BMJ 2014; 348:g1393 doi: 10.1136/bmj.g1393. 
Available at: http://www.bmj.com/content/348/bmj.g1393.
    \232\ Liu, Y., Logan, J., Paulozzi, L., et al. ``Potential 
Misuse and Inappropriate Prescription Practices Involving Opioid 
Analgesics.'' Am J Manag Care. 2013 Aug;19(8):648-65. Available at: 
http://www.ajmc.com/journals/issue/2013/2013-1-vol19-n8/Potential-Misuse-and-Inappropriate-Prescription-Practices-Involving-Opioid-Analgesics/ Analgesics/.
    \233\ Mack, K., Zhang, K., et al. ``Prescription Practices 
involving Opioid Analgesics among Americans with Medicaid, 2010,'' J 
Health Care Poor Underserved. 2015 Feb; 26(1): 182-198. Available 
at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4365785/.
    \234\ Park, T., et al. ``Benzodiazepine Prescribing Patterns and 
Deaths from Drug Overdose among US Veterans Receiving Opioid 
Analgesics: Case-cohort Study,'' BMJ 2015; 350:h2698. Available at: 
http://www.bmj.com/content/350/bmj.h2698.
    \235\ Herzig, S., Rothberg, M., Cheung, M., et al. ``Opioid 
utilization and opioid-related adverse events in nonsurgical 
patients in US hospitals.'' Nov 2013. DOI: 10.1002/jhm.2102. 
Available at: http://onlinelibrary.wiley.com/doi/10.1002/jhm.2102/abstract.
---------------------------------------------------------------------------

(b) Overview of Measure
    The Safe Use of Opioids--Concurrent Prescribing (MUC16-167) measure 
assesses patients (excluding cancer patients or patients receiving 
palliative care), ages 18 years and older with active, concurrent 
prescriptions for opioids, or opioids and benzodiazepines, at 
discharge.\236\ This measure addresses the following NQS priorities: 
(1) Making care safer by reducing harm caused in the delivery of care; 
(2) promoting effective communication and coordination of care; and (3) 
promoting the most effective prevention and treatment practices for the 
leading causes of mortality, starting with cardiovascular disease.
---------------------------------------------------------------------------

    \236\ 2016 Measures Under Consideration List (PDF), available 
at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
---------------------------------------------------------------------------

    This measure was reviewed by the MAP in December 2016 and received 
the recommendation to refine and resubmit for consideration for 
programmatic inclusion. MAP stakeholders acknowledged the significant 
health risks associated with concurrent prescribing of opioids, and 
opioids and benzodiazepines, but expressed concern with the measure 
specifications, indicating the need for a stronger evidence base for 
clinical guidelines and refinement of the measure exclusions to reduce 
the risk of unintended consequences.\237\
---------------------------------------------------------------------------

    \237\ ``2017 Considerations for Implementing Measures Hospitals-
Final Report,'' available at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

    Additional information on this measure can be found in the 2016 
Measures Under Consideration Spreadsheet, available at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    We invited public comment on the possible future inclusion of this 
opioid prescribing measure in the Hospital IQR Program.
    Comment: Some commenters supported the future inclusion of the Safe 
Use of Opioids measure in the Hospital IQR Program. The commenters 
believed that there is a need for measures that assess opioid follow-
up, prescription, and appropriate prescribing, even though there are 
times when concurrent prescriptions of opioids and benzodiazepines are 
appropriate. There are studies that demonstrate that chronic pain 
patients are unlikely to become addicts or abuse their medication. 
Further, the addition of this measure would encourage appropriate pain 
management practices by providers and patients. In addition, commenters 
noted that adopting a measure that calculates the proportion of 
patients prescribed two or more different opioids or opioids and 
benzodiazepines concurrently has the potential to reduce preventable 
mortality and reduce the costs associated with adverse events. The 
commenters encouraged CMS to consider policies that promote 
alternatives to opioids for pain management, arguing that prescription 
opioids are often prescribed in the absence of affordable alternatives. 
The commenters also urged CMS to take an active role in educating 
prescribers about alternatives such as exercise, mindfulness, over-the-
counter medications, etc. Lastly, the commenters suggested that 
implementation of a system that flags the surveys of frequent opioid 
users could be used to prevent addicts skewing hospital scores.
    Response: We thank the commenters for their support. We understand 
the importance of provider education and will work towards including 
``best practices'' for prescription protocols and opioid alternatives 
in our education and outreach efforts. We appreciate the commenters' 
suggestion of a survey monitoring system and will consult with the 
appropriate technological entities to discuss the impact on existing 
workflows and infrastructure, and the feasibility of implementing such 
a system. In addition, we will consider the commenters' suggestion to 
establish policies that promote alternatives to opioids for pain 
management in the future.
    Comment: Many commenters indicated that they would support the 
future inclusion of the Safe Use of Opioids measure in the Hospital IQR 
Program measure set if CMS refined the measure in response to 
stakeholder feedback and if the measure obtained NQF endorsement. In 
addition, the commenter recommended that CMS prioritize the development 
and adoption of measures designed to improve identification of, and 
intervention with, patients at risk for developing a substance abuse 
disorder. Lastly, commenters advised CMS to consider the variation in 
States' prescribing requirements, citing concern that these differences 
may make the measure more complex and that in some cases, as determined 
by the physician, it can be appropriate for a patient to have multiple 
prescriptions.
    Response: We thank the commenters for their support. We agree that 
the development and adoption of measures designed to improve 
identification of, and intervention with, patients at risk for 
developing a substance abuse disorder is valuable. We will continue to 
assess our measure set in alignment with our evolving programmatic 
goals to ensure we prioritize certain clinical topical areas 
appropriately. We

[[Page 38378]]

understand that NQF-endorsement lends credibility to quality measures, 
and we recognize that variation in State prescribing practices could 
affect the data extrapolated from hospitals that report on this 
measure. We will consider both of these factors, as well as the 
provided stakeholder feedback on suggested measure refinements, should 
we propose to adopt this measure in the Hospital IQR Program in the 
future.
    Comment: A few commenters supported the future inclusion of a 
measure that assesses opioid prescribing patterns, specifically for 
patients already using an opioid or patients using benzodiazepine. 
However, commenters expressed concern that the ``Safe Use of Opioids'' 
measure may introduce unintended consequences, such as under treatment 
of pain and placing undue accountability on acute settings for long-
term pain management. Other commenters indicated that due to existing 
infrastructure deficiencies, the adoption of this measure would place 
unnecessary burden related to accountability upon acute care 
facilities. Some commenters stated that inclusion of this measure could 
encourage anti-opioid sentiments to irrational extremes. A few 
commenters noted that there are circumstances in which it may be 
appropriate for patients to be treated concurrently with opioids and 
recommended that the measure provides for the exclusion of cases in 
which polypharmacy may be warranted.
    Response: We thank the commenters for their support. We recognize 
the heightened sensitivity associated with opioid prescribing. We 
understand that there are existing operational and technological 
infrastructure hurdles that should be addressed to reduce the burden 
associated with electronically extrapolating data for this measure. We 
acknowledge that concurrent prescribing is appropriate in certain 
situations. We also note the intent of the measure is to raise 
prescriber awareness, when and if the patient requires concurrent 
prescriptions, and to take appropriate steps to provide education 
regarding potential side effects and alternative pain management 
techniques to the patient, in an effort to reduce adverse side effects 
and potentially prevent dependence. Should we decide to move forward 
with proposing to adopt this measure in the Hospital IQR Program in the 
future, we will be vigilant about potential unintended consequences, 
such as under treatment of pain and undue accountability based on care 
setting. We also note that the intent of any future inclusion of this 
measure in the Hospital IQR Program would not be to stigmatize the use 
of opioids, but to evaluate through quality measurement adherence to 
clinical standards that could help improve prescribing practices for 
these drugs and combat current misuse.
    Comment: One commenter supported the future inclusion of all the 
eCQMs we sought public comment for future inclusion in the Hospital IQR 
Program, including the Safe Use of Opioids measure, noting that the 
addition of these measures would give hospitals more options in 
selecting eCQMs that are applicable to their patient populations.
    Response: We thank the commenter for their support.
    Comment: Some commenters did not support the proposed future 
inclusion of the Safe Use of Opioids measure in the Hospital IQR 
Program. The commenters stated that the measure lacks sensitivity to 
the needs of the specific patient (that is, adequate patient 
education). Specifically, the commenters also expressed that until all 
facilities, vendors, and pharmacies are required to implement 
ePrescribing of controlled substances, and given ample development, 
testing, and implementation time, there is a risk of prescriptions not 
being included in data transfer systems (that is, Sure Scripts, Dr. 
First, etc.). The commenters noted that these circumstances would allow 
for continued risks associated with overdose due to lack of 
information.
    Response: We appreciate the commenters' concerns. We recognize the 
heightened sensitivity associated with opioid prescribing given the 
current opioid epidemic in our nation. We note again that the intent of 
the measure is not to completely eliminate concurrent prescriptions, 
but rather to raise provider awareness of appropriate prescribing 
practices and provide both education and alternative treatments to 
patients. In addition, we will monitor the impact of ePrescribing on 
streamlining hospital workflows as a part of efforts to better assess 
how to reduce the risk of overdose. Should we decide to move forward 
with proposing to adopt this measure in the Hospital IQR Program in the 
future, we will consider the impact of adequate patient education on 
the measure results as well as potential unintended consequences, such 
as patient overdose.
    We thank the commenters, and we will consider their views as we 
develop future policy regarding the use of an eCQM version of the Safe 
Use of Opioids--Concurrent Prescribing (MUC16-167) measure in the 
Hospital IQR Program.
(2) Malnutrition Measures
(a) Background
    Malnutrition is associated with many adverse outcomes including 
depression of the immune system, impaired wound healing, muscle 
wasting, and increased mortality.238 239 Patients who are 
malnourished during a hospital stay have an increased risk of 
complications, readmissions, and length of stay. In addition, evidence 
demonstrates an association between malnutrition risk and increased 
inpatient costs. One study found that patients identified with under-
nutrition risk and high under-nutrition risk experience increased costs 
by 28.8 percent and 21.1 percent, respectively, when compared to non-
malnourished patients.\240\ Malnutrition risk screening, using a 
validated screening tool, can be useful in predicting certain patient 
outcomes including length of stay, mortality, and post-operative 
complications.\241\ Nutrition assessments for patients identified as 
at-risk for malnutrition have been associated with improved patient 
outcomes including less weight loss, reduced length of stay, improved 
muscle function, better nutritional intake, and fewer 
readmissions.\242\ Further, there is evidence of a performance gap with 
regard to nutrition screening and assessment. A national survey of 
hospital-based professionals in the United States focused on nutrition 
screening and assessment practices demonstrated that out of 1,777 
unique respondents, only 36.7 percent reported completing nutrition 
screening at admission and 50.8 percent reported doing so within 24 
hours.\243\ Thus, there is an

[[Page 38379]]

opportunity for hospitals to improve nutrition screening and 
assessment.
---------------------------------------------------------------------------

    \238\ Corkins MR, Guenter P, Dimaria-ghalili RA, et al. 
Malnutrition diagnoses in hospitalized patients: United States, 
2010. JPEN J Parenter Enteral Nutr. 2014;38(2):186-95.
    \239\ Barker LA, Gout BS, Crowe TC. Hospital malnutrition: 
prevalence, identification and impact on patients and the healthcare 
system. Int J Environ Res Public Health. 2011;8(2):514-27.
    \240\ Guerra RS, Sousa AS, Fonseca I, et al. Comparative 
analysis of undernutrition screening and diagnostic tools as 
predictors of hospitalization costs. J Hum Nutr Diet. 
2016;29(2):165-73.
    \241\ Mueller C, Compher C & Druyan ME and the American Society 
for Parenteral and Enteral Nutrition (A.S.P.E.N.) Board of 
Directors. A.S.P.E.N. Clinical Guidelines: Nutrition Screening, 
Assessment, and Intervention in Adults. J Parenter Enteral Nutr. 
2011;35: 16-24.
    \242\ Mueller C, Compher C & Druyan ME and the American Society 
for Parenteral and Enteral Nutrition (A.S.P.E.N.) Board of 
Directors. A.S.P.E.N. Clinical Guidelines: Nutrition Screening, 
Assessment, and Intervention in Adults. J Parenter Enteral Nutr. 
2011;35: 16-24.
    \243\ Patel V, Romano M, Corkins MR, et al. Nutrition Screening 
and Assessment in Hospitalized Patients: A Survey of Current 
Practice in the United States. Nutr Clin Pract. 2014;29(4):483-490.
---------------------------------------------------------------------------

(b) Overview of Measures
    The malnutrition measure set consists of the following four 
measures:
     Completion of a Malnutrition Screening within 24 Hours of 
Admission (MUC16-294);
     Completion of a Nutrition Assessment for Patients 
Identified as At-Risk for Malnutrition within 24 Hours of a 
Malnutrition Screening (MUC16-296);
     Appropriate Documentation of a Malnutrition Diagnosis 
(MUC16-344); and
     Nutrition Care Plan for Patients Identified as 
Malnourished after a Completed Nutrition Assessment (MUC16-372).
    These malnutrition measures are new eCQMs that collectively 
evaluate the quality of care rendered to adult patients that are 
identified as malnourished. These measures address the NQS priorities 
of: (1) Making care safer by reducing harm caused in the delivery of 
care; and (2) promoting effective communication and coordination of 
care. The Completion of a Malnutrition Screening within 24 Hours of 
Admission measure (MUC16-294) assesses whether patients age 18 years or 
older are screened for malnutrition within 24 hours of admission to the 
hospital. The Completion of a Nutrition Assessment for Patients 
Identified as At-Risk for Malnutrition measure (MUC16-296) assesses 
whether patients age 65 years or older, who screen positive for being 
at-risk for malnutrition, have a nutrition assessment documented in the 
medical record within 24 hours of the most recent malnutrition 
screening. The Appropriate Documentation of a Malnutrition Diagnosis 
measure (MUC16-344) assesses whether patients age 65 years and older, 
who are found to be malnourished on the nutrition assessment, have 
adequate documentation of a malnutrition diagnosis in their medical 
record. This measure is important because there is often a disconnect 
between screening for malnutrition and documentation of a diagnosis of 
malnutrition, which is necessary for appropriate follow-up after 
hospital discharge. Data analyzed from the Healthcare Cost and 
Utilization Project (HCUP), a nationally-representative data set 
describing U.S. hospital discharges, indicated that approximately 3.2 
percent of hospital discharges in 2010 included malnutrition as a 
diagnosis. However, this same research article notes that the 
prevalence of a malnutrition diagnosis may be significantly higher as 
past researchers, using validated screening tools, indicate a 
significantly higher prevalence of undiagnosed malnutrition in the 
hospital, ranging from 33 to 54 percent.\244\ Lastly, the Nutrition 
Care Plan for Patients Identified as Malnourished after a Completed 
Nutrition Assessment measure (MUC16-372) assesses whether patients age 
65 years and older, who are found to be malnourished on a completed 
nutrition assessment, have a nutrition care plan documented in their 
medical record.
---------------------------------------------------------------------------

    \244\ Corkins, M.R., Guenter, P., DiMaria-Ghalili, R.A., Jensen, 
G.L., Malone, A., Miller, S., Patel, V., Plogsted, S. and Resnick, 
H.E., 2014. Malnutrition diagnoses in hospitalized patients: United 
States, 2010. Journal of Parenteral and Enteral Nutrition, 38(2), 
pp.186-195.
---------------------------------------------------------------------------

    These measures were reviewed by the MAP in December 2016 and 
received mixed support. The Nutrition Care Plan for Patients Identified 
as Malnourished after a Completed Nutrition Assessment (MUC16-372), 
Completion of a Malnutrition Screening within 24 Hours of Admission 
(MUC16-294), and Completion of a Nutrition Assessment for Patients 
Identified as At-Risk for Malnutrition within 24 Hours of a 
Malnutrition Screening (MUC16-296) measures were recommended to be 
refined and resubmitted for consideration for programmatic inclusion. 
For these three measures, the MAP encouraged providing more evidence to 
prove clinical importance and recommended that the exclusions continue 
to be tested for validity.\245\ The Appropriate Documentation of a 
Malnutrition Diagnosis measure (MUC16-344) was not supported because 
there was concern that there was insufficient evidence to support the 
link between documenting a malnutrition diagnosis and improved patient 
outcomes.
---------------------------------------------------------------------------

    \245\ ``2017 Considerations for Implementing Measures Hospitals-
Final Report,'' available at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

    The MAP concluded that completing a malnutrition assessment 
provided the most potential value to the measure set and quality of 
care. The MAP also encouraged the measure developer to test the 
individual malnutrition measures as a composite in an effort to balance 
the number of measures in the Hospital IQR Program with the need to 
fill the measure gap addressing malnutrition.\246\ We note that we 
received written support (formal letters addressed to CMS) of these 
measures from other stakeholders who noted that addressing malnutrition 
among beneficiaries is an important clinical issue.
---------------------------------------------------------------------------

    \246\ Ibid.
---------------------------------------------------------------------------

    Additional information on these measures is available at: http://www.qualityforum.org/ProjectMeasures.aspx?projectID=80741.
    We invited public comment on the possible future inclusion of one 
or more of these malnutrition measures in the Hospital IQR Program. In 
addition, we invited public comment on the possible future inclusion of 
a composite measure comprised of all or a subset of these individual 
malnutrition measures in the Hospital IQR Program.
    Comment: Several commenters supported the future inclusion of the 
malnutrition measure set as individual measures. These commenters 
stated malnutrition is an ongoing healthcare issue with demonstrated 
impacts on patient outcomes and, as such, it is imperative to have 
performance measures that quantify the degree to which established best 
practices are carried out. The commenters noted poor nutrition status 
is also associated with poor functional and clinical outcomes for 
patients and increased costs to healthcare systems, and asserted taking 
a systematic approach to increasing awareness of malnutrition and 
improving management of nutrition in hospitals would improve health 
outcomes and reduce the associated costs imposed on healthcare systems.
    The commenters also noted that the measures are reliable and valid, 
and that their implementation in the Hospital IQR Program would satisfy 
a measure gap area and incentivize the adoption of evidence-based 
malnutrition care best practices, thereby improving patient outcomes. 
Several commenters also noted that there is a need for more validated 
malnutrition screening tools to promote reliability between 
practitioners and to reduce the number of false-positive referrals that 
are being made due to use of invalid tools. The commenters indicated 
that the malnutrition eCQMs reflect key components of the recommended 
malnutrition clinical workflow, and that malnutrition intervention is a 
low-risk, low-cost clinical strategy that would help improve care 
coordination and the quality of hospital care.
    Commenters stated that Medicare beneficiaries would benefit from 
the adoption of malnutrition eCQMs that support prompt malnutrition 
screening, assessment, diagnosis, and development of a care plan. In 
addition, the commenters stated that because these eCQMs have been 
specifically designed and tested to be used with patient data included 
directly in the EHR, the burden of data collection and reporting

[[Page 38380]]

will be minimal. Lastly, the commenters stated that the inclusion of 
this measure set in the Hospital IQR Program could help improve 
outcomes and quality of life for patients, especially seniors and the 
disadvantaged. The commenters therefore recommended CMS adopt these 
measures into the Hospital IQR Program as soon as possible to ensure 
quality care for older adults.
    Response: We thank the commenters for their support. We agree that 
a systematic approach to quality improvement is essential and could 
include increasing awareness of malnutrition and improving management 
of nutrition in hospitals. We acknowledge the benefits and need for 
inclusion of malnutrition measures, as outlined by the commenters, and 
will consider the feasibility of implementing these measures in the 
Hospital IQR Program in the future.
    Comment: Some commenters supported the future proposed inclusion of 
the malnutrition measure set in the Hospital IQR Program as a composite 
measure, stating that this measure format would optimize assessment of 
nutrition care for those at risk of malnutrition or who are already 
malnourished in the hospital setting. These commenters further 
recommended that CMS adopt the measures as a composite immediately, as 
opposed to in the future.
    Response: We thank the commenters for their support. We note that 
as discussed in the proposed rule (82 FR 20061), in the preliminary 
review of these individual measures, both the MAP and the NQF Health 
and Well-Being Standing Committee advocated for the resubmission of the 
individual measures as a composite. Moving forward, we will weigh the 
benefits of adopting these measures as a composite versus as individual 
indicators. However, because the measures have not yet been evaluated 
by the MAP as a composite, they would need to undergo MAP review as a 
composite measure before we could propose to adopt it for the Hospital 
IQR Program in the future. We also appreciate commenters' 
recommendation that we adopt the measures immediately; however, we are 
not able to adopt them at this time because: (1) We are considering the 
future inclusion of these measures as a composite measure, but they 
have not yet been submitted as a Measure Under Consideration or 
reviewed by the MAP as a composite; and (2) the measures were not 
proposed for adoption in the FY 2018 IPPS/LTCH PPS proposed rule.
    Comment: A few commenters supported the future inclusion of the 
malnutrition eCQMs in the Hospital IQR Program only if they received 
NQF endorsement, to demonstrate that they are clinically important or 
linked to improved patient outcomes. A few commenters noted that these 
measures are not NQF-endorsed and did not receive MAP support for 
inclusion in Hospital IQR Program.
    Response: We thank the commenter for their support. We agree with 
commenters regarding the importance of adopting sound, evidence-based 
performance measures, and will work to ensure that any measure included 
in the Hospital IQR Program is thoroughly vetted prior to adoption. If 
the measure steward submits this measure for NQF endorsement review 
under the next applicable call for measures, we will consider the NQF's 
endorsement status prior to moving forward with proposing to adopt 
these measures in the Hospital IQR Program. However, we note that NQF 
endorsement is not a requirement for inclusion in the Hospital IQR 
Program measure set. Section 1886(s)(4)(D)(ii) of the Act provides 
that, in the case of a specified area or medical topic determined 
appropriate by the Secretary for which a feasible and practical measure 
has not been endorse 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.
    Comment: One commenter supported the future inclusion of the 
malnutrition eCQMs in the Hospital IQR Program, and recommended that 
``Completion of a Nutrition Assessment for Patients Identified as At-
Risk for Malnutrition within 24 Hours of a Malnutrition Screening'' 
measure be extended to all age groups.
    Response: We thank the commenter for their support. We note that 
these measures are intended to operate as a group, and as such, 
expanding the patient population in one measure would most likely 
require the expansion of the patient population in all the measures. We 
reiterate that the focus of this set of measures as currently specified 
is the assessment of malnutrition care among elderly patient 
populations (age 65 years and older), as they have been identified as 
the most at-risk cohort. We offer that if future testing of these 
measures yields results that improve care for this designated patient 
population, we could potentially assess how patients in other age 
groups are affected by malnutrition and whether the observed 
improvements could be broadly applied.
    Comment: A few commenters did not support the inclusion of the 
malnutrition measures in the Hospital IQR Program because nutritional 
screening is already a requirement under the CMS Conditions of 
Participation (CoP), therefore, these commenters believed these 
measures would provide no additional incentives for performance 
improvement. Further, the commenters stated that these measures would 
create a distracting documentation ``checkbox'' process which is 
unlikely to advance meaningful care improvement.
    Response: We note the measure steward is performing additional 
testing on all four of the malnutrition measures. Malnutrition is an 
ongoing healthcare issue with demonstrated impacts on patient outcomes. 
As such, we believe there could be important benefits to patients of 
having malnutrition measures that quantify the degree to which 
established best practices are carried out, improve health outcomes, 
and reduce cost burdens to healthcare systems. By referring to 
``checkbox'' practices, we interpret that commenters have concerns 
about implementing process measures. We will take the concerns into 
consideration, however, we also believe these measures could be an 
important first step to incentivizing hospitals to improve malnutrition 
awareness and care.
    Comment: Some commenters made suggestions on how to improve the 
malnutrition eCQM measures set. Specifically, the commenters suggested 
that the timeframe associated with the ``Completion of a Nutrition 
Assessment'' measure be modified such that hospitals can define their 
own time-intensive guidelines for documentation of assessments, as well 
as determining other patient populations who may be at potential 
nutrition risk. Other commenters suggested that the components of each 
assessment should be defined by each organization, arguing that 
organizations should guide practice based on their unique patient 
populations. In addition, the commenters recommended that consideration 
be given to the follow-up care provided for patients afflicted with 
malnutrition. The commenters also noted that nutrition assessment tools 
should be validated via clinical trials.
    Response: We appreciate the commenters' suggestions. If the measure 
steward moves forward with additional testing of these measures, both 
individually and as a composite, we will consider the impact of follow-
up care for patients afflicted with malnutrition, should we move 
forward with proposing to adopt these measures

[[Page 38381]]

in the Hospital IQR Program in the future. We understand the importance 
of hospitals having the autonomy to define their own guidelines related 
to the timing of documentation, however, we do not believe it is 
appropriate to allow hospitals to establish uniquely defined components 
for each measure based on their specific patient population because 
doing so introduces an untenable degree of variability and may mask 
disparities in patient care. It is imperative to evaluate the patient 
population as defined by the measures' denominators, as opposed to an 
individual hospital's or organization's parameters, in order to retain 
measurement integrity and not to skew the observed results with 
information bias. We agree with the commenters about the importance of 
ensuring the validity of tools and should we decide to move forward 
with proposing to adopt these measures for the Hospital IQR Program in 
the future, we will consider the feasibility of conducting a clinical 
trial of the nutrition assessment tools.
    We thank the commenters and we will consider their views as we 
develop future policy regarding the use of eCQM versions of one or more 
measures in the malnutrition measure set and the possible future 
inclusion of a composite measure comprised of all or a subset of these 
individual malnutrition measures in the Hospital IQR Program.
(3) Tobacco Use Measures
(a) Background
    Tobacco use is the single greatest cause of disease in the United 
States today and accounts for more than 480,000 deaths each year.\247\ 
Tobacco use creates a heavy cost to society as well as to individuals. 
Smoking is a known cause of multiple cancers, heart disease, stroke, 
complications of pregnancy, chronic obstructive pulmonary disease, 
other respiratory problems, poorer wound healing, and many other 
diseases.\248\
---------------------------------------------------------------------------

    \247\ Centers for Disease Control and Prevention. Current 
Cigarette Smoking Among Adults--United States, 2005-2013. Morbidity 
and Mortality Weekly Report (MMWR) 2014. 63(47); 1108-1112. 
Available at: http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6347a4.htm?s_cid=mm6347a4.
    \248\ U.S. Department of Health and Human Services. The health 
consequences of smoking--50 years of progress: a report of the 
Surgeon General. Atlanta, GA: U.S. Department of Health and Human 
Services, CDC; 2014. Available at: http://www.surgeongeneral.gov/library/reports/50-years-of-progress/full-report.pdf.
---------------------------------------------------------------------------

    Smoking-attributable health care expenditures are estimated to cost 
at least $130 billion per year in direct medical expenses for adults 
and over $150 billion in lost productivity.\249\ There is strong and 
consistent evidence that tobacco dependence interventions, if delivered 
in a timely and effective manner, significantly reduce the user's risk 
of suffering from tobacco-related disease and improve outcomes for 
those already suffering from a tobacco-related disease.\250\ \251\ 
\252\ \253\ Effective, evidence-based tobacco dependence interventions 
have been clearly identified and include brief clinician advice, 
individual, group, or telephone counseling, and use of FDA-approved 
medications. Tobacco cessation treatments are clinically effective and 
extremely cost-effective relative to other commonly used disease 
prevention interventions and medical treatments.\254\ Performance on 
the chart-abstracted versions of these measures, as reported by The 
Joint Commission, yields that the Tobacco Use Screening (TOB-1) measure 
had a screening rate of 98.15 percent, based on a reporting period of 
July 2015-June 2016.\255\ TOB-1 is necessary to operationalize Tobacco 
Use Treatment Provided or Offered (TOB-2)/Tobacco Use Treatment (TOB-
2a) and Tobacco Use Treatment Provided or Offered at Discharge (TOB-3)/
Tobacco Use Treatment at Discharge (TOB-3a) measures. The goal of TOB-1 
is to achieve 100 percent screening so that all tobacco users are 
consistently identified and offered appropriate interventions, which 
are evaluated by TOB-2/2a and TOB-3/3a. As noted in the table \256\ 
below, the performance rates for the chart-abstracted versions of TOB-
2/2a and TOB-3/3a measures suggest that there is an opportunity for 
hospitals to improve tobacco use treatment during the hospital stay and 
at discharge.
---------------------------------------------------------------------------

    \249\ Ibid.
    \250\ U.S. Department of Health and Human Services. Reducing 
tobacco use: a report of the Surgeon General. Atlanta, GA, U.S. 
Department of Health and Human Services, Centers for Disease Control 
and Prevention, National Center for Chronic Disease Prevention and 
Health Promotion, Office on Smoking and Health, 2000.
    \251\ Baumeister SE, Schumann A, Meyer C, et al. Effects of 
smoking cessation on health care use: is elevated risk of 
hospitalization among former smokers attributable to smoking-related 
morbidity? Drug Alcohol Depend. 2007 May 11;88(2-3):197-203. Epub 
2006 Nov 21.
    \252\ Lightwood JM. The economics of smoking and cardiovascular 
disease. Prog Cardiovasc Dis. 2003 Jul-Aug;46(1):39-78.
    \253\ Rigotti, et al. Interventions for smoking cessation in 
hospitalized patients. Cochrane Database of Systematic Reviews. 
2012. Available from: http://onlinelibrary.wiley.com/doi/10.1002/14651858.CD001837.pub3/abstract.
    \254\ Ibid.
    \255\ Joint Commission Quality Check Data, available at: https://www.qualitycheck.org/. (Data download.)
    \256\ The Joint Commission Quality Check Data available at: 
https://www.qualitycheck.org/.

       Tobacco Use Measures Screening Results July 2015-June 2016
------------------------------------------------------------------------
                                                              Screening
                        Measure name                           rate (%)
------------------------------------------------------------------------
Tobacco Use Treatment Provided or Offered (TOB-2)..........        66.41
Tobacco Use Treatment (TOB-2a).............................        32.97
Tobacco Use Treatment Provided or Offered at Discharge (TOB-       46.20
 3)........................................................
Tobacco Use Treatment at Discharge (TOB-3a)................        10.71
------------------------------------------------------------------------

(b) Overview of Measures
    The tobacco use measure set consists of the following three 
measures:
     Tobacco Use Screening (TOB-1) (MUC16-50);
     Tobacco Use Treatment Provided or Offered (TOB-2)/Tobacco 
Use Treatment (TOB-2a) (MUC16-51); and
     Tobacco Use Treatment Provided or Offered at Discharge 
(TOB-3)/Tobacco Use Treatment at Discharge (TOB-3a) (MUC16-52).
    The TOB measures are eCQMs that assess tobacco use screening and 
treatment for patients age 18 years or older during the hospital stay 
and at discharge. We note that these measures were derived from the 
chart-abstracted versions in use by The Joint Commission. The Joint 
Commission has been using the chart-abstracted versions of these 
measures for voluntary reporting since January 1, 2012.\257\ In 
addition, the chart-abstracted versions of these measures (TOB-1, TOB-
2/TOB-2a, and TOB-3/TOB-3a) are also part of the IPFQR Program measure 
set (81 FR 57246). These measures address the NQS priority of promoting 
the most effective prevention and treatment practices for the leading 
causes of mortality.
---------------------------------------------------------------------------

    \257\ The Joint Commission, Substance Use Measures overview, 
available at: https://www.jointcommission.org/core_measure_sets.aspx.
---------------------------------------------------------------------------

    TOB-1 assesses the proportion of hospitalized patients who are 
screened, or refuse screening, within the three days prior to admission 
through 1 day after admission, for tobacco use during the 30 days prior 
to the screening. TOB-2 assesses the proportion of patients who are 
light tobacco users who received or refused practical counseling to 
quit within 3 days prior to or anytime during admission. TOB-2 also 
assesses the proportion of heavy tobacco users who received or refused 
practical counseling to quit and received, had a medical reason not to 
receive, or refused FDA-approved cessation medications within 3 days 
prior to or anytime during

[[Page 38382]]

admission. The subset measure TOB-2a only assesses light tobacco users 
who received practical counseling to quit within 3 days prior to or 
anytime during admission, and heavy tobacco users who received 
practical counseling to quit and received, or had a medical reason not 
to receive, FDA-approved cessation medications within 3 days prior to 
or anytime during admission. TOB-3 assesses the proportion of patients 
who are light tobacco users who were referred to or refused counseling 
within 3 days prior to admission through 1 day after discharge. TOB-3 
also assesses the proportions of heavy tobacco users who were referred 
to or refused evidence-based counseling and received, had a medical 
reason not to receive, or refused a prescription for FDA-approved 
cessation medication upon discharge. The subset measure TOB-3a assesses 
light tobacco users who were referred to counseling within 3 days prior 
to admission through one day after discharge, and heavy tobacco users 
who were referred to evidence-based counseling and received, or had a 
medical reason not to receive, a prescription for FDA-approved 
cessation medication upon discharge.
    We note that we previously solicited comments on the future 
inclusion of electronically-specified versions of the tobacco use 
measures TOB-1, TOB-2/2a and TOB-3/3a, previously referred to as TAM-1, 
TAM-2, and TAM-3, respectively, in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53535). Commenters equally supported and opposed the future 
inclusion of the tobacco use measures in the Hospital IQR Program. 
Commenters highlighted the importance of high validation rates such as 
95 percent, across the electronic data capture method and manual chart-
abstraction (77 FR 53535). We note that at the time we sought public 
comments on these measure concepts related to tobacco use, 
electronically-specified measures were not yet developed.
    In the most recent MAP deliberations in December 2016, only the 
Tobacco Use Screening (TOB-1) eCQM (MUC16-50) was reviewed. The TOB-2/
TOB-2a (MUC16-51) and TOB-3/TOB-3a (MUC16-52) eCQMs were on the 
December 2016 MUC List, but were not submitted for MAP review because 
they were still undergoing field testing. We anticipate these measures 
should be ready for review by the MAP in the winter of CY 2017.
    The TOB-1 eCQM was recommended to be refined and resubmitted for 
consideration for programmatic inclusion.\258\ The MAP indicated that 
the measure should be tested to ensure that it returns accurate, 
reliable results. In addition, the MAP Hospital Workgroup noted that it 
will be important to carefully assess feasibility and burden of data 
collection.\259\ As previously stated, the chart-abstracted versions of 
the Tobacco Use Screening measures (TOB-1, TOB-2/TOB-2a, and TOB-3/TOB-
3a) are part of the IPFQR Program measure set (81 FR 57246); thus, 
future inclusion of the eCQM versions of these measures in the Hospital 
IQR Program measure set would promote programmatic alignment across 
these quality reporting programs.
    Additional information on the chart-abstracted version of these 
measures is available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228775749207.
---------------------------------------------------------------------------

    \258\ ``2016-2017 Spreadsheet of Final Recommendations to HHS 
and CMS, available at: http://www.qualityforum.org/map/.
    \259\ Ibid.
---------------------------------------------------------------------------

    We invited public comment on the possible future inclusion of one 
or more of the eCQM versions of these tobacco use measures (TOB-1, TOB-
2/2a and TOB-3/3a) in the Hospital IQR Program. In addition, we invited 
public comment on the possible future inclusion of a composite measure 
comprised of all or a subset of these individual tobacco use measures 
in the Hospital IQR Program.
    Comment: Many commenters supported the proposed future inclusion of 
the tobacco eCQM measure set. The commenters noted that 
hospitalizations and readmission rates are high among tobacco users, 
however, most hospitals have not placed high priority on systematically 
assessing (identifying, noting status, offering cessation methods and 
following-up with) smokers. As such, the inclusion of these measures 
would help address this lost clinical care opportunity and decrease the 
incidence of tobacco related illness. In addition, the commenters noted 
that the parameters evaluated by measures TOB-2a and TOB-3a are patient 
engagement activities that could help promote the adjustment of quality 
measures by social risk factors, as many times smoking habits are 
related to SES and/or SDS factors. Lastly, the commenters noted that 
the tobacco use measures address a gap area within the Hospital IQR 
Program measure set. The commenters recommended ensuring programmatic 
alignment with other regulatory bodies to align tobacco and smoking 
code sets and requirements or to provide mapping guidance because 
misalignment will result in increased provider burden.
    Response: We thank the commenters for their support. We will 
continue to work with other quality reporting programs and regulatory 
bodies as needed to align tobacco and smoking code sets and 
requirements. We appreciate the commenters input regarding the 
potential impact of the inclusion of these measures in the Hospital IQR 
Program on the broader CMS goal of accounting for social risk factors 
in clinical quality measures.
    Comment: A few commenters supported the future inclusion of the 
Tobacco Use eCQMs in the Hospital IQR Program only if they receive NQF 
endorsement to ensure they are clinically important and linked to 
improved patient outcomes.
    Response: We note that currently, the eCQM versions of the measures 
are undergoing beta testing. Upon completion of the testing, and the 
availability of a suitable project provided by the NQF, the eCQM 
versions of these measures will be submitted for endorsement 
consideration via NQF's consensus development process. However, we note 
that NQF endorsement is not a requirement for inclusion in the Hospital 
IQR measure set. Section 1886(s)(4)(D)(ii) of the Act provides that, in 
the case of a specified area or medical topic determined appropriate by 
the Secretary for which a feasible and practical measure has not been 
endorse 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.
    Comment: Some commenters urged CMS to develop the protocols and 
testing environments necessary to validate eCQMs.
    Response: We have previously finalized a validation process for 
eCQM data and we refer readers to section IX.A.11. of the preamble of 
this final rule for more details.
    Comment: The commenters also recommended that CMS convene a TEP to 
identify eCQMs that are appropriate for use across care settings.
    Response: An existing TEP has convened to assess these measures, 
and we will share the results of the beta testing of the eCQM versions 
prior to submission to NQF.
    Comment: A few commenters expressed that the tobacco use measures 
should be included as individual indicators, as opposed to a composite 
measure because the all-or-none scoring

[[Page 38383]]

of a composite measure could potentially dilute the quality improvement 
aspect of the measures' respective measurement domains. In addition, 
the commenters noted that combining multiple metrics into a composite 
measure increases challenges exponentially and does not allow the level 
of granularity necessary to know where improvements should be made. 
Further, commenters suggested that it would be less burdensome for 
hospitals to identify where improvement is required if the measures 
remain separate as opposed to determining deficiencies within a 
composite measure. The commenters urged CMS not to consider composite 
eCQMs until current single measure eCQMs are proven to be reliable and 
accurate.
    Response: We thank the commenters for their support. We acknowledge 
the commenters' concerns about the importance of retaining the 
integrity of the quality improvement aspect garnered by scoring each 
measure individually, as opposed to combining them into a composite. In 
addition, we recognize that there may be differences in burden 
associated with data collection and the level of granularity associated 
with observed results for the individual indicators, as opposed to a 
composite measure. We will take these factors into account if we move 
forward with proposing to adopt these measures in the Hospital IQR 
Program in the future.
    Comment: Some commenters did not support the future inclusion of 
the Tobacco measure set in the Hospital IQR Program because these 
measures are redundant and capturing these data elements electronically 
has proven to be a challenge. The commenters suggested that these 
measures be combined and reported as treatment provided/offered at any 
time during the hospital stay. Further, the commenters noted that 
capturing these data elements electronically has proven to be a 
challenge and has required substantial, time consuming electronic 
medical record revisions. The commenters acknowledged that while 
specifying the measures as eCQMs may eliminate some of the burden on 
hospitals, the measures should be field tested as eCQMs in acute care 
hospitals prior to consideration in the Hospital IQR Program to ensure 
the measures are accurately assessing clinically relevant variations in 
care. Finally, the commenters expressed concern that it would be 
difficult to submit information for TOB-2/2a in an eCQM format and 
believed that implementation of the TOB-1 as a standalone measure 
outside of the psychiatric setting would be most appropriate in the 
Hospital IQR Program. In addition, the commenters recommended that the 
tobacco use measures be tested as eCQMs, to ensure the measures are 
appropriately assessing clinically relevant variations in care, prior 
to being proposed for adoption in the Hospital IQR Program. Finally, 
the commenters recommended that CMS wait to implement these measures as 
eCQMs until the current core measures are more mature.
    Response: We note that the eCQM versions of the measures are 
currently undergoing beta testing, to ensure the feasibility of 
electronic data abstraction and to ensure that these measures are 
appropriately assessing clinical variations in care. In both the alpha 
and beta testing phases we have not observed any significant difficulty 
in electronically capturing the data elements for these measures. We 
will continue to monitor the level of effort associated with electronic 
data extraction and make note of any significant challenges (for 
example, electronic medical record revisions) that arise. We are 
considering combining these measures into a composite, however, we will 
continue to solicit stakeholder feedback on how to implement these 
measures (individually or as composite) in the Hospital IQR Program 
should we elect to move forward with proposing to adopt them in the 
future.
    We disagree with commenters that the measures are redundant, as 
there are currently no measures of behavioral health in the Hospital 
IQR Program. We also disagree that only the Tobacco Use Screening (TOB-
1) measure is suitable for inclusion in the Hospital IQR Program. The 
performance rates for the chart-abstracted versions of Tobacco Use 
Treatment Provided or Offered (TOB-2)/Tobacco Use Treatment (TOB-2a) 
and Tobacco Use Treatment Provided or Offered at Discharge (TOB-3)/
Tobacco Use Treatment at Discharge (TOB-3a) measures suggest that there 
is an opportunity for hospitals to improve tobacco use treatment during 
the hospital stay and at discharge. We reiterate that these measures 
are intended to be used as part of a linked set. Specifically, the TOB-
2/2a and TOB-3/3a measures ensure hospitals are not only screening 
patients for tobacco use, but also offering evidence-based 
interventions to improve the quality of care for patients with tobacco 
use. Lastly, to address the commenters' statement regarding the 
maturity of the core measures, we note that the chart-abstracted 
versions of these measures (TOB-1, TOB-2/TOB-2a, and TOB-3/TOB-3a) are 
also part of the IPFQR Program measure set (81 FR 57246).
    Comment: One commenter recommended that the Tobacco Use Measures be 
included in ambulatory quality reporting programs rather than in the 
Hospital IQR Program.
    Response: We thank the commenter for their suggestion, and 
acknowledge increased screening in ambulatory settings could lead to 
increased overall tobacco cessation success. We recognize these results 
could be used by researchers and health-care providers to learn of 
opportunities for tobacco cessation as a covered health benefit. 
Currently, these measures are not specified to assess care in 
ambulatory settings, however, this may be something we consider in 
future rulemaking. We thank the commenters, and we will consider their 
views as we develop future policy regarding the use of eCQM versions of 
one or more measures in the tobacco use measure set and the possible 
future inclusion of a composite measure comprised of all or a subset of 
these individual tobacco use measures in the Hospital IQR Program.
(4) Substance Use Measures
(a) Background
    Excessive alcohol consumption and drug misuse or abuse have a 
significant impact on the health of the U.S. population.\260\ Excessive 
alcohol consumption is a leading cause of preventable death and 
disability resulting in approximately 88,000 deaths per year with an 
estimated economic cost of $249 billion, including $28 billion (2010 
dollars) in direct health care costs.\261\ In 2015, approximately 20.8 
million individuals were classified as having a substance use disorder. 
Of those individuals with substance use disorders, 13.1 million had an 
alcohol use disorder, 5.1 million had an illicit drug use disorder, and 
2.7 million had an alcohol and illicit drug

[[Page 38384]]

use disorder.\262\ Excessive alcohol consumption and substance use 
disorders can increase the risk of preventable injury, worsen existing 
chronic diseases, such as mental illness, and lead to the development 
of diseases, such as heart disease, cancer, and liver disease.\263\ 
Studies show the majority of individuals who consume alcohol 
excessively do not meet the clinical criteria for diagnosis of a 
substance use disorder; yet evidence demonstrates screening and brief 
interventions, especially prior to the onset of a substance use 
disorder, can improve health and reduce costs.\264\ Similar benefits 
have been observed for individuals with substance use disorders who are 
identified and referred to treatment.\265\ \266\ The table below 
provides performance rates based on the July 2015-June 2016 reporting 
period for the chart-abstracted versions of these measures, as reported 
by The Joint Commission.\267\ The results show that there is an 
opportunity for hospitals to improve substance use screening, brief 
intervention, and treatment.
---------------------------------------------------------------------------

    \260\ Excessive alcohol consumption includes binge drinking. 
heavy drinking, and any drinking by pregnant women or people younger 
than age 21. Definitions are available from the Centers for Disease 
Control and Prevention at: https://www.cdc.gov/alcohol/fact-sheets/alcohol-use.htm.
    \261\ Centers for Disease Control and Prevention Alcohol and 
Public Health: Alcohol-Related Disease Impact available at: https://nccd.cdc.gov/DPH_ARDI/Default/Report.aspx?T=AAM&P=f6d7eda7-036e-4553-9968-9b17ffad620e&R=d7a9b303-48e9-4440-bf47-070a4827e1fd&M=8E1C5233-5640-4EE8-9247-1ECA7DA325B9&F=&D= ; Sacks 
JJ, Gonzales KR, Bouchery EE, Tomedi LE, Brewer RD. 2010 national 
and state costs of excessive alcohol consumption. American journal 
of preventive medicine. 2015 Nov 30;49(5): e73-9.; Stahre M, Roeber 
J, Kanny D, Brewer RD, Zhang X. Contribution of Excessive Alcohol 
Consumption to Deaths and Years of Potential Life Lost in the United 
States. Prev Chronic Dis 2014;11:130293. DOI: http://dx.doi.org/10.5888/pcd11.130293.
    \262\ Substance Abuse and Mental Health Services Administration 
(SAMHSA) Key Substance Use and Mental Health Indicators in the 
United States: Results from the 2015 National Survey on Drug Use and 
Health available at: https://www.samhsa.gov/data/sites/default/files/NSDUH-FFR1-2015/NSDUH-FFR1-2015/NSDUH-FFR1-2015.pdf.
    \263\ Excessive alcohol consumption includes binge drinking. 
heavy drinking, and any drinking by pregnant women or people younger 
than age 21. Definitions are available from the Centers for Disease 
Control and Prevention at: https://www.cdc.gov/alcohol/fact-sheets/alcohol-use.htm.
    \264\ Esser MB, Hedden SL, Kanny D, Brewer RD, Gfroerer JC, 
Naimi TS. Prevalence of Alcohol Dependence Among US Adult Drinkers, 
2009-2011. Prev Chronic Dis 2014;11:140329. DOI: http://dx.doi.org/10.5888/pcd11.140329; American Psychiatric Association. (1994). 
Diagnostic and statistical manual of mental disorders (DSM-IV) (4th 
ed.). Washington, DC.
    \265\ Maciosek MV, Coffield AB, Edwards NM, Flottemesch TJ, 
Goodman MJ, Solberg LI. Priorities among effective clinical 
preventive services results of a systematic review and analysis. Am 
J Prev Med Jul 2006;31(1):52-61.
    \266\ Saitz R, Palfai TP, Cheng DM, Horton NJ, Freedner N, Dukes 
K, et al. Brief intervention for medical inpatients with unhealthy 
alcohol use: a randomized, controlled trial. Ann Intern Med. 2007; 
146:167-76.
    \267\ Joint Commission Quality Check Data, available at: https://www.qualitycheck.org/. (Data download.)

      Substance Use Measures Screening Results July 2015-June 2016
------------------------------------------------------------------------
                                                          Screening rate
                      Measure name                              (%)
------------------------------------------------------------------------
Alcohol Use Screening (SUB-1)...........................           85.30
Alcohol Use Brief Intervention Provided or Offered (SUB-           62.68
 2).....................................................
Alcohol Use Brief Intervention (SUB-2a).................           57.43
Alcohol & Other Drug Use Disorder Treatment Provided or            65.46
 Offered at Discharge (SUB-3)...........................
Alcohol & Other Drug Use Disorder Treatment at Discharge           54.27
 (SUB-3a)...............................................
------------------------------------------------------------------------

(b) Overview of Measures
    The substance use measure set consists of the following three 
measures:
     Alcohol Use Screening (SUB-1) (MUC16-179);
     Alcohol Use Brief Intervention Provided or Offered (SUB-
2)/Alcohol Use Brief Intervention (SUB-2a) (MUC16-178); and
     Alcohol & Other Drug Use Disorder Treatment Provided or 
Offered at Discharge (SUB-3)/Alcohol & Other Drug Use Disorder 
Treatment at Discharge (SUB-3a) (MUC16-180).
    The SUB-1, SUB-2/2a and SUB-3/3a measures address the NQS priority 
of promoting the most effective prevention and treatment practices for 
the leading causes of mortality. These measures are intended to be used 
as part of a linked set. Specifically, the SUB-2/2a and SUB-3/3a 
measures will ensure hospitals are not only screening patients for 
excessive alcohol use, but also offering evidence-based interventions 
to improve the quality of care for patients with excessive alcohol use 
or other use disorders. The SUB-1 Alcohol Use Screening measure 
assesses whether hospital patients 18 years of age and older are 
screened for alcohol use using a validated screening questionnaire for 
excessive drinking during their inpatient stay. A validated screening 
questionnaire is defined as an instrument that has been 
psychometrically tested for reliability (the ability of the instrument 
to produce consistent results), validity (the ability of the instrument 
to produce true results), and sensitivity (the probability of correctly 
identifying a patient with the condition).
    As previously noted, these measures are intended to be implemented 
as a set. As such, it would be necessary to adopt the SUB-1 measure in 
order to implement the other two measures. The SUB-2/2a measure 
assesses whether hospital patients age 18 years of age or older who 
screened positive for excessive alcohol use or an alcohol use disorder 
receive or refuse a brief intervention during the hospital stay (SUB-
2). Subset measure SUB-2a includes only those patients who receive a 
brief intervention. A brief intervention is defined as a single session 
or multiple sessions conducted by a qualified healthcare professional 
or trained peer support person, which includes motivational discussion 
focused on increasing patient insight and awareness regarding alcohol 
use and motivating behavioral change. The SUB-3/3a measures assess 
whether hospitals patients 18 years of age or older with a substance 
use disorder (alcohol or drug) receive or refuse at discharge a 
medication prescription for treatment or receive or refuse a referral 
for substance use disorder treatment (SUB-3). Subset measure SUB-3a 
includes only those patients who receive a medication prescription or 
treatment referral at discharge.
    The chart-abstracted versions of these three measures, not the eCQM 
versions, were added to the MUC List in the summer of 2016,\268\ and 
reviewed by the MAP in December 2016 as discussed in the MAP Pre-
Rulemaking Report and Spreadsheet entitled ``2016-2017 Spreadsheet of 
Final Recommendations to HHS and CMS.'' \269\ The MAP recommended that 
the SUB-1 measure (MUC16-179) be refined and resubmitted. The MAP noted 
that the measure encourages hospitals to screen patients for excessive 
alcohol use and can prevent life-threatening alcohol withdrawal 
syndrome, but recommended that the measure be paired with an 
appropriate intervention and follow-up measure. The MAP did not support 
the SUB-2/2a measure

[[Page 38385]]

(MUC16-178) for adoption into the Hospital IQR Program. Proponents of 
the SUB-2/2a measure supported the incorporation of behavioral health 
measures into the Hospital IQR Program and noted that hospitalization 
is a prime opportunity to discuss harmful substance use because 
patients may be more amenable to a brief intervention during a hospital 
stay. Other stakeholders acknowledged the significant health impact of 
screening and brief intervention for substance use, but cited the 
burden of chart-abstracted data collection and encouraged the continued 
development of an electronic measure. MAP stakeholders also expressed 
concern the use of the measure in the hospital inpatient setting, 
rather than a primary care setting, was not strongly linked to improved 
patient outcomes. The MAP also did not support SUB-3/3a (MUC16-180) due 
to similar concerns as identified with the SUB-2/2a measure regarding 
the measure's link to improved outcomes.\270\
---------------------------------------------------------------------------

    \268\ 2016 Measures Under Consideration Spreadsheet, available 
at: http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75367.
    \269\ ``2016-2017 Spreadsheet of Final Recommendations to HHS 
and CMS, available at: http://www.qualityforum.org/map/.
    \270\ ``2017 Considerations for Implementing Measures Hospitals-
Final Report,'' available at: http://www.qualityforum.org/map/.
---------------------------------------------------------------------------

    With respect to MAP stakeholder concerns regarding the evidence 
supporting the use of the measures in the inpatient setting, we note 
such supporting evidence, including the evidence of the 
generalizability of studies to the acute inpatient setting, was 
included as part of the endorsement process and these measures received 
NQF endorsement. Sufficient evidence exists linking the measures to 
improved patient outcomes 271 272 in the inpatient 
setting.\273\ In addition, in light of the significant health impact of 
harmful substance use, and its associated healthcare costs, we believe 
the benefits of collecting these measure data from hospitals and 
publicly reporting the information outweigh the burden, and address a 
critical topic impacting a patient's quality of care and health 
outcomes.
---------------------------------------------------------------------------

    \271\ Kaner EF, Dickinson HO, Beyer FR, Campbell F, Schlesinger 
C, Heather N, Saunders JB, Burnand B, Pienaar ED. Effectiveness of 
brief alcohol interventions in primary care populations. Cochrane 
Database of Systematic Reviews 2007, Issue 2. Art. No.: CD004148. 
DOI: 10.1002/14651858.CD004148.pub3.
    \272\ Whitlock EP, Polen MA, Green CA, Orleans CT, Klein J. 
Behavioral Counseling Interventions in Primary Care to Reduce Risky/
Harmful Alcohol Use by Adults: A Summary of the Evidence for the U.S 
Preventive Services Task Force. Ann Intern Med. 2004; 140:558-569.
    \273\ McQueen J, Howe TE, Allan L, Mains D, Hardy V. Brief 
interventions for heavy alcohol users admitted to general hospital 
wards. Cochrane Database Syst Rev. 2011 Jan 1;8(8).
---------------------------------------------------------------------------

    We note that The Joint Commission has been using these chart-
abstracted measures for optional reporting since January 1, 2012.\274\ 
The chart-abstracted versions of the Substance Use measures (SUB-1, 
SUB-2/2a and SUB-3/3a) are also part of the IPFQR Program measure set 
(81 FR 57246); thus, future inclusion of the eCQM versions of these 
measures in the Hospital IQR Program measure set would promote 
programmatic alignment across these quality reporting programs. Lastly, 
we note that electronic versions of these measures are in development 
by SAMHSA; we anticipate that the eCQM versions will be ready for 
review within the next 18-24 months.
---------------------------------------------------------------------------

    \274\ The Joint Commission, Substance Use Measures overview, 
available at: https://www.jointcommission.org/core_measure_sets.aspx.
---------------------------------------------------------------------------

    Additional information on the chart-abstracted versions of these 
measures is available in TJC's Specification Manual for National 
Hospital Inpatient Quality Measures at: https://www.jointcommission.org/specifications_manual_for_national_hospital_inpatient_quality_measures.aspx.
    We invited public comment on the possible future inclusion of one 
or more of the eCQM versions of the Substance Use measures (SUB-1, SUB-
2/2a and SUB-3/3a) in the Hospital IQR Program. In addition, we invited 
public comment on the possible future inclusion of a composite measure 
comprised of all of these individual substance use measures in the 
Hospital IQR Program.
    Comment: Many commenters supported the proposed future inclusion of 
the Substance Use eCQM measure set. The commenters stated that 
substance use disorders are health issues that cause a great deal of 
illness in our country, but are terribly under-addressed by the 
treatment system. The commenters also stated that inclusion of these 
measures would incentivize screening, assessment, and evidence-based 
treatment for individuals with opioid and other substance use 
disorders. In addition, commenters agreed that these measures fill a 
gap area within the Hospital IQR Program measure set.
    Some commenters recommended that the substance use measures should 
be added as individual measures as opposed to a composite because all-
or-none scoring of a composite measure could potentially dilute the 
quality improvement aspect of the Substance Use measures and diminish 
the integrity of the quality improvement process. Further, commenters 
suggested that it would be less burdensome for hospitals to identify 
where improvement is required if the measures remain separate as 
opposed to determining deficiencies within a composite measure.
    Response: We thank the commenters for their support. We acknowledge 
the commenters' concerns about the importance of retaining the 
integrity of quality improvement aspect garnered by scoring each 
measure individually, as opposed to combining them into a composite, 
and we will take these factors into account if we move forward with 
proposing to adopt these measures in the Hospital IQR Program in the 
future.
    Comment: Some commenters supported the future inclusion of the 
Substance Use eCQMs in the Hospital IQR Program only if they receive 
NQF endorsement to ensure that they are clinically important and linked 
to improved patient outcomes.
    Response: We thank the commenters for their support. We note that 
currently the eCQM versions of the measures are undergoing beta 
testing. Upon completion of the testing, and the availability of a 
suitable project provided by the NQF, the eCQM versions of these 
measures will be submitted for endorsement consideration via NQF's 
consensus development process. However, we note that NQF endorsement is 
not a requirement for inclusion in the Hospital IQR Program measure 
set. Section 1886(s)(4)(D)(ii) of the Act provides that, in the case of 
a specified area or medical topic determined appropriate by the 
Secretary for which a feasible and practical measure has not been 
endorse 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.
    Comment: Some commenters urged CMS to develop the protocols and 
testing environments necessary to validate eCQMs.
    Response: We have previously finalized a validation process for 
eCQM data and we refer readers to section IX.A.11. of the preamble of 
this final rule for more details.
    Comment: Some commenters also recommended that CMS convene a TEP to 
identify eCQMs that are appropriate for use across care settings.
    Response: We also note that an existing TEP has convened to assess 
these measures and we will share the results of the beta testing of the 
eCQM versions prior to submission to NQF.
    Comment: Some commenters expressed concern with the proposed future 
inclusion of the substance use eCQM measures. Specifically, the 
commenters noted that capturing these

[[Page 38386]]

data elements electronically has proven to be a challenge and has 
required substantial, time consuming electronic medical record 
revisions. The commenters acknowledged that while specifying the 
measures as eCQMs may eliminate some of the burden on hospitals, the 
measures should be field tested as eCQMs in acute care hospitals prior 
to consideration in the Hospital IQR Program to ensure the measures are 
accurately assessing clinically relevant variations in care. Finally, 
the commenters expressed concern that it would be difficult to submit 
information for SUB-2/2a in an eCQM format and believed that 
implementation of the SUB-1 as a standalone measure outside of the 
psychiatric setting would be most appropriate.
    Response: We acknowledge the commenters concerns. We note that 
currently, the eCQM versions of the measures are undergoing beta 
testing in acute care hospitals to ensure the feasibility of electronic 
data abstraction and to ensure that these measures are appropriately 
assessing clinical variations in care. We also note that in both the 
alpha and beta testing phases we have not observed any significant 
difficulty in electronically capturing the data elements for any of 
these measures.
    We disagree that the Alcohol Use Screening (SUB-1) measure is more 
suitable for implementation in the Hospital IQR Program than the 
Alcohol Use Brief Intervention Provided or Offered (SUB-2)/Alcohol Use 
Brief Intervention (SUB-2a) and Alcohol & Other Drug Use Disorder 
Treatment Provided or Offered at Discharge (SUB-3)/Alcohol & Other Drug 
Use Disorder Treatment at Discharge (SUB-3a) measures. We reiterate 
that these measures are intended to be used as part of a linked set. 
Specifically, the SUB-2/2a and SUB-3/3a measures ensure hospitals are 
not only screening patients for excessive alcohol use, but also 
offering evidence-based interventions to improve the quality of care 
for patients with excessive alcohol use or other use disorders.
    Comment: One commenter recommended that the Substance Use Measures 
be included in ambulatory quality reporting programs rather than in the 
Hospital IQR Program.
    Response: We thank the commenter for their suggestion and 
acknowledge that preventable substance use events are common in 
ambulatory settings, with many resulting in hospitalization. Currently, 
these measures are not specified to assess care in ambulatory settings, 
however, this may be something we consider in future rulemaking. We 
note that quality improvement programs at large could benefit from 
targeting substance use disorders among patients.
    We thank the commenters, and we will consider their views as we 
develop future policy regarding the use of a one or more eCQM versions 
of the substance use measures and the possible future inclusion of a 
composite measure comprised of all of these individual substance use 
measures in the Hospital IQR Program.
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 2018 payment determination will begin the 
fourth 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/. The annual update of electronic clinical quality 
measure (eCQM) specifications and implementation guidance documents are 
available on the eCQI Resource Center Web site at: https://ecqi.healthit.gov/. 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 2020 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) and the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57168). In the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 20064), we did not propose any changes to 
these procedural requirements.
c. Data Submission Requirements for Chart-Abstracted Measures
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51640 through 51641), the FY 2013 IPPS/LTCH PPS final rule (77 FR 53536 
through 53537), and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50811) 
for details on the Hospital IQR Program data submission requirements 
for chart abstracted measures. In the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20064), we did not propose any changes to the data 
submission requirements for chart abstracted measures.
d. Changes to the Reporting and Submission Requirements for eCQMs
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20064 through 
20066), we proposed changes to the Hospital IQR Program eCQM reporting 
and submission requirements to align them with the Medicare EHR 
Incentive Program for eligible hospitals and CAHs.
(1) Background
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57157 through 
57159), we finalized policies to require hospitals to submit a full 
calendar year (four quarterly reporting periods) of data on at least 8, 
self-selected eCQMs from the available eCQMs in the Hospital IQR 
Program for the CY 2017 reporting period/FY 2019 payment determination 
and the CY 2018 reporting period/FY 2020 payment determinations. In 
this final rule, we are finalizing modified versions of our proposals 
regarding the CY 2017 reporting period/FY 2019 payment determination 
and the CY 2018 reporting period/FY 2020 payment determination eCQM 
reporting requirements such that hospitals are required to submit one, 
self-selected, calendar quarter of data for 4 eCQMs. We refer readers 
to section IX.A.8. of the preamble of this final rule for more detail 
on these policies. Consistent with previous years, with these finalized 
policies we have sought to align the

[[Page 38387]]

Hospital IQR Program eCQM reporting requirements and the CQM electronic 
reporting requirements in the Medicare EHR Incentive Program to the 
extent feasible for the CY 2017 reporting period/FY 2019 payment 
determination and the CY 2018 reporting period/FY 2020 payment 
determination in order to reduce reporting burden and confusion for 
hospitals and their health IT vendors. We refer readers to the 
finalized policies for the Medicare and Medicaid EHR Incentive Programs 
for eligible hospitals and CAHs in section IX.E.2.b. of the preamble of 
this final rule. We are finalizing these changes for both programs in 
order to assist hospitals in their efforts as they transition towards 
more robust electronic reporting of quality measure data and to be 
responsive to the feedback we have received about the challenges of 
eCQM reporting and recommendations to allow more time to become 
familiar with and improve upon eCQM reporting capabilities.
(2) Changes to the Reporting and Submission Requirements for eCQMs for 
the FY 2019 Payment Determination and Subsequent Years
    In the FY 2018 IPPS/LTCH PPS proposed rule, we did not propose any 
changes to our file format requirements or reporting deadlines. 
However, we proposed changes to our requirements related to eCQM 
electronic specification and certification. These are discussed in more 
detail below.
(a) File Format
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49705 through 
49708), we finalized that hospitals must submit eCQM data via the 
Quality Reporting Document Architecture Category I (QRDA I) file format 
for the CY 2016 reporting period/FY 2018 payment determination. In 
addition, we finalized that for the CY 2016 reporting period/FY 2018 
payment determination, hospitals may use third parties to submit QRDA I 
files on their behalf 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). Consistent with 
previously finalized reporting requirements, hospitals can meet the 
reporting requirements by submitting data via QRDA I files, zero 
denominator declaration, or case threshold exemption. In the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57170), we finalized our proposal to 
continue these eCQM reporting policies for the CY 2017 reporting 
period/FY 2019 payment determination and subsequent years. These 
finalized requirements align with the CQM electronic reporting 
requirements of the Medicare EHR Incentive Program for eligible 
hospitals and CAHs (81 FR 57255 through 57257). In the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 20065), we did not propose any changes to 
these requirements.
(b) Changes to the Certification Requirements for eCQM Reporting
(i) Background and Changes to the CY 2018 Reporting Period/FY 2020 
Payment Determination Certification Requirements
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57170 through 
57171), we finalized policies that hospitals must: (1) Report eCQM data 
using EHR technology certified to either the 2014 or 2015 Edition 
certification criteria for the CY 2017 reporting period/FY 2019 payment 
determination; and (2) report eCQM data using EHR technology certified 
to the 2015 Edition beginning with the CY 2018 reporting period/FY 2020 
payment determination and subsequent years. As we discuss in further 
detail in section IX.G.4. of the preamble of this final rule where the 
same considerations are discussed in detail for the Medicare and 
Medicaid EHR Incentive Programs, based on our past experience with the 
transition from the 2011 Edition to the 2014 Edition and concerns 
expressed by stakeholders, we understand that transitioning to 
technology certified to a new Edition can be complex and can require 
more resources and time than anticipated, including the time necessary 
to effectively deploy the upgraded system and make the necessary 
patient safety, staff training, and workflow investments. We understand 
and appreciate these concerns and are working in cooperation with our 
federal partners at ONC to monitor progress on the 2015 Edition 
upgrade. Nevertheless, we believe that there are many benefits of 
switching to EHR technology certified to the 2015 Edition. We will work 
with ONC to monitor the status of EHR technology certified to the 2015 
Edition and the deployment and implementation of such technology. In 
the proposed rule (82 FR 20065), we noted that if we identify a change 
in the current trends and significant issues with the certification and 
deployment of the 2015 Edition, we will consider additional methods to 
offer flexibility in CY 2018 for those hospitals that are not able to 
implement 2015 Edition certification criteria for CEHRT, including the 
flexibility to use technology certified to the 2014 Edition or the 2015 
Edition in CY 2018. Another option we noted is allowing a combination 
of EHR technologies certified to the 2014 Edition and 2015 Edition to 
be used in CY 2018, for those hospitals that are not able to fully 
implement EHR technology certified to the 2015 Edition. We invited 
public comment on these options for offering flexibility in CY 2018 
with regard to EHR certification requirements.
    Comment: A few commenters supported CMS' policy that eCQMs must be 
submitted using the 2015 Edition certification criteria for CEHRT for 
the CY 2018 reporting period/FY 2020 payment determination because it 
offers increased interoperability which would make both the sharing and 
usage of data easier.
    Response: We thank the commenters for their support. We believe 
using the most recent version of CEHRT, which incorporates updated 
standards and criteria, is important as it allows us to collect more 
relevant and accurate electronic data. We believe improved systems 
interoperability and use of the most current standards will facilitate 
more robust and accurate quality data reporting. One of the main tenets 
of the ONC 2015 Edition final rule (80 FR 62601) is to facilitate 
greater interoperability for several clinical health information 
purposes and enable health information exchange through new and 
enhanced certification criteria, standards, and implementation 
specifications. We note that we have worked closely with ONC to enhance 
testing and validation of certified technology's ability to capture, 
exchange, and report electronic patient data, such as improved testing 
and certification through the Cypress CQM testing and certification 
tool.\275\ As another example, we note that ONC proposed a ``CQM--
report'' certification criterion at 45 CFR 170.315(c)(3) as part of its 
2015 Edition certification criteria that we would then require as 
described in the FY 2016 IPPS/LTCH PPS proposed rule (80 FR 24613 
through 24614).
---------------------------------------------------------------------------

    \275\ Cypress Tool Overview, available at: https://www.healthit.gov/cypress/.
---------------------------------------------------------------------------

    Furthermore, we believe there are many benefits associated with 
upgrading to EHR technology certified to the 2015 Edition. 
Specifically, the 2015 Edition includes updates to standards for 
structured data capture as well as data elements in the common clinical 
data set which can be captured in a structured format. The use of 
relevant, up-to-date, standards-based structured data capture with an 
EHR certified to the 2015 Edition supports

[[Page 38388]]

electronic clinical quality measurement. Further, the 2015 Edition 
certification criteria enables health information exchange through new 
and enhanced certification criteria standards, and implementation 
specifications for interoperability while incorporating changes that 
are designed to spur innovation and provide more choices to health care 
providers and patients for the exchange of electronic health 
information including new application access (API) certification 
criteria. For example, a new ``transitions of care'' certification 
criterion rigorously assess a product's ability to create and receive 
an interoperable Consolidated-Clinical Document Architecture (C-CDA). 
ONC also adopted certification criteria that both support 
interoperability in other settings and use cases, such as the Common 
Clinical Data Set summary record, data segmentation for privacy, and 
care plan certification criteria (80 FR 62603). For additional details 
about the updates to the 2015 Edition, we refer readers to ONC's Common 
Clinical Data Set resource, available at: https://www.healthit.gov/sites/default/files/commonclinicaldataset_ml_11-4-15.pdf.
    The 2015 Edition certification criterion (that make up CEHRT) 
within the certification testing process includes features that are 
designed to improve the functionality and quality of eCQM data. 
Specifically, systems must demonstrate they can import and allow a user 
to export one or more QRDA files. This allows systems to share files 
and extract data for reporting into another system or send to another 
system. In addition, testing coverage is much more robust; all measures 
have >80 percent of test pathways tested in the test bundle with most 
>95 percent. The 2015 Edition certification criteria for CEHRT also 
includes optional certification criteria and program specific testing 
which can also support electronic clinical quality reporting. The 
filter criteria ensure a product can filter an electronic file based on 
demographics like sex or race, based on provider or site 
characteristics like TIN/NPI, and based on a diagnosis or problem. The 
testing for this function checks that patients are appropriately 
aggregated and calculated for this new function which supports 
flexibility, specificity and more robust analysis of eCQM data. 
Finally, the 2015 Edition provides optional testing to CMS requirements 
for reporting such as form and manner specifications and implementation 
guides. For these reasons, we encourage hospitals to deploy the 2015 
Edition certification criteria as soon as practicable.
    Comment: Many commenters did not support CMS' previously finalized 
policy that eCQMs must be submitted using the 2015 Edition 
certification criteria for CEHRT for the CY 2018 reporting period/FY 
2020 payment determination.
    Several commenters supported the options described in the FY 2018 
IPPS/LTCH PPS proposed rule, such that hospitals be permitted to use 
the 2014 Edition certification criteria for CEHRT or a combination of 
2014 and 2015 Editions for the CY 2018 reporting period/FY 2020 payment 
determination.
    A few commenters recommended CMS delay the requirement for eCQMs to 
be submitted using the 2015 Edition certification criteria for CEHRT 
until the CY 2019 reporting period/FY 2021 payment determination. The 
commenters suggested that additional time is necessary because the 
requirements for the 2015 Edition certification criteria for CEHRT are 
extensive and expensive. In addition, developers continue to struggle 
with completing the certification process by January 1, 2018.
    One commenter mentioned that turn over in the industry has caused a 
backlog in the certification process. Another commenter expressed 
concern that the slow pace of certification, the number of upgrades 
still to be performed, and the number of trainings yet to be held makes 
it highly unlikely that health systems and medical practices will be 
prepared to submit eCQMs using the 2015 Edition certification criteria 
for CEHRT for the CY 2018 reporting period/FY 2020 payment 
determination. Another commenter noted that implementing the 2015 
Edition certification criteria for CEHRT does not automatically create 
the ability to submit ``appropriate'' or complete quality data.
    Response: We recognize there is burden associated with the 
development and deployment of each new version of CEHRT, which may be 
labor intensive and expensive for hospitals. We understand that ONC 
considers trends within the industry when projecting for 2015 Edition 
readiness and has continued to update this tracking as the testing and 
certification process continues. This tracking, as of the end of the 
second quarter of CY 2017, indicates that overall progress is behind 
the first quarter projections.\276\ ONC has therefore updated the 
overall estimate to reflect an estimate of greater than 75 percent of 
hospitals will be ready by the end of CY 2017.\277\ We refer readers to 
section IX.G.4. of the preamble of this final rule for more discussion 
of ONC's efforts on this matter.
---------------------------------------------------------------------------

    \276\ https://dashboard.healthit.gov/dev/ticker.php.
    \277\ Ibid.
---------------------------------------------------------------------------

    We acknowledge commenter concerns that vendor industry turnover may 
delay hospitals' ability to deploy the 2015 Edition certification 
criteria for CEHRT. Since the conclusion of the public comment period 
for the FY 2017 IPPS/LTCH PPS final rule, we have continued to receive 
frequent feedback (via email, webinar questions, help desk questions, 
and conference call discussions) from hospitals and health IT vendors 
about ongoing challenges of implementing eCQM reporting. A summary of 
the main concerns identified by these data submitters are outlined in 
section IX.A.8.a. of the preamble of this final rule. One significant 
issue that commenters specifically identified is the timing of 
transitioning to new EHR systems during CY 2017 (for example, 
transition to a new EHR vendor or system upgrades necessary to deploy 
the 2015 Edition certification criteria for CEHRT) affects hospitals' 
ability to complete the certification process by January 1, 2018.
    Although we believe that the longer-term benefits of utilizing the 
2015 Edition as discussed in the above response outweigh these costs 
and challenges, in response to stakeholder concerns, in part about the 
burden associated with upgrading EHR technology certified to the 2015 
Edition, we will allow flexibility for hospitals to use the 2014 
Edition, the 2015 Edition, or a combination of both for the CY 2018 
reporting period/FY 2020 payment determination only. This is a change 
to our previously finalized policy that required hospitals to use the 
2015 Edition certification criteria for CEHRT for the CY 2018 reporting 
period/FY 2020 payment determination (81 FR 57171).
    We will continue to assess the progress of hospitals implementing 
certification requirements and engage in discussions with hospitals 
regarding their experiences as we consider certification policies 
related to eCQM reporting in future rulemaking. We intend to determine 
requirements for the CY 2019 reporting period/FY 2021 payment 
determination and subsequent years in future rulemaking. We are 
finalizing similar certification policies for the Medicare and Medicaid 
EHR Incentive Programs for hospitals and CAHs and refer readers to 
sections IX.E.2.b. of the preamble of this final rule.
    Furthermore, we refer readers to section IX.A.8. of the preamble of 
this final rule for details on our modified eCQM reporting requirements 
for the CY

[[Page 38389]]

2018 reporting period/FY 2020 payment determination, such that 
hospitals will be required to report on 4 eCQMs for only one, self-
selected calendar quarter of data (instead of a full calendar year) to 
reduce burden. By allowing providers to self-select which quarter of 
data they want to submit, they will have more flexibility to determine 
implementation timelines for EHR system upgrades, such as transitioning 
to the 2015 Edition.
    We acknowledge the commenter's concern that implementing the 2015 
Edition certification criteria for CEHRT may not automatically result 
in the ability to submit ``appropriate'' or complete quality data; 
however, as described above, we believe the most recent Edition of 
certification criteria for CEHRT will help support eCQM data capture 
and reporting in several ways.
    Comment: Some commenters expressed concern that their current 
vendors will not be certifying to the 2015 Edition certification 
criteria for CEHRT and worried that CMS would not grant ECE requests 
for hospitals experiencing vendor issues or transitions. These 
commenters suggested that CMS revise its eCQM ECE policy to allow for 
EHR vendor changes. One commenter requested clarification on the 
statement that a hospital is ``not able to implement the 2015 Edition 
of CEHRT.'' The commenter noted the wide variety of 2015 Edition 
certified products that are available and suggested waivers for the 
requirement to use the 2015 Edition be sparingly given, if at all, 
since use of the updated edition is an important and significant 
requirement.
    Response: While we strive to move forward in our electronic 
reporting efforts and aim to stay abreast of evolving infrastructure, 
we must balance those goals with being responsive to stakeholder 
concerns. We refer readers to our change in policy discussed above in 
order to provide greater flexibility to hospitals transitioning to 2015 
Edition certification criteria for CEHRT. However, if a hospital still 
finds it is unable to meet the eCQM submission deadline or other 
submission requirements, the hospital should review our criteria for an 
eCQM-related Extraordinary Circumstances Extension/Exemption (ECE) (81 
FR 57182) and consider submitting an ECE request by the ECE request 
deadline. Currently, the deadline for the CY 2017 reporting period/FY 
2019 payment determination is April 1st following the applicable eCQM 
submission deadline (February 28, 2018) (82 FR 57172). Our current 
policy allows hospitals to utilize the existing ECE form to request an 
exception from the Hospital IQR Program's eCQM reporting requirement 
for the applicable program year based on hardships preventing hospitals 
from electronically reporting (81 FR 57182). Such hardships could 
include, but are not limited to, infrastructure challenges (hospitals 
must demonstrate that they are in an area without sufficient internet 
access or face insurmountable barriers to obtaining infrastructure) or 
unforeseen circumstances, such as vendor issues outside of the 
hospital's control (including a vendor product losing certification) 
(80 FR 49695 and 49713). ECE requests for the Hospital IQR Program are 
considered on a case by case basis (81 FR 57182). We will assess the 
hospital's request on a case-by-case basis to determine if an exception 
is merited. Therefore, our decision whether or not to grant an ECE will 
be based on the specific circumstances of the hospital. For additional 
information about eCQM-related ECE requests, we refer readers to, ``The 
ECE Policy Clarification Questions and Answers'' document located 
online at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228775554109, link to document: ECE Policy Clarification Questions and 
Answers, question #5).
    Comment: One commenter believed it unfair to double penalize 
hospitals which may have excellent quality and are able to submit the 
chart-abstracted versions of the measure, but do not have fully 
operational EHRs. The commenter noted that only 5 percent of hospitals 
failed meaningful use, however, feared that number may increase with 
the transition to 2015 Edition certification criteria for CEHRT.
    Response: With respect to the commenter's assertion that it is 
unfair to double penalize hospitals that do not have fully operational 
EHRs, we disagree that the requirements for electronic reporting in the 
Hospital IQR Program duplicate penalties. In an effort to align the 
Hospital IQR and EHR Incentive Programs with regard to electronic 
quality reporting, we have specified that hospitals meeting eCQM 
reporting requirements for the Hospital IQR Program will be considered 
to have successfully electronically reported CQMs for the Medicare EHR 
Incentive Program as well. As noted by the commenter and as we 
previously stated in the FY 2016 IPPS/LTCH PPS final rule, our data 
show that 95 percent of hospitals already attest to successful eCQM 
reporting under the EHR Incentive Program and, accordingly, we believe 
that the majority of hospitals will be able to successfully report 
eCQMs to meet the Hospital IQR Program requirements (81 FR 57156). We 
do not believe that transition to the 2015 Edition certification 
criteria for CEHRT will materially impact the percentage of hospitals 
able to successfully report eCQM data, particularly in light of our 
change to previously finalized policy, discussed above, to allow 
flexibility for hospitals to use the 2014 Edition, 2015 Edition, or a 
combination of both for the CY 2018 reporting period/FY 2020 payment 
determination.
    Comment: One commenter expressed concern that allowing flexibility 
on the use of a combination of the 2014 and 2015 Editions of CEHRT for 
the CY 2018 reporting period/FY 2020 payment determination might create 
more problems than it could potentially solve.
    Response: We interpret the commenter's concern to be that allowing 
hospitals to use of a combination of the 2014 and 2015 Editions 
certification criteria for CEHRT might make it more difficult for them 
to meet the eCQM reporting requirements. We acknowledge the commenter's 
concern but do not share it; we have allowed hospitals to use a 
combination of the 2014 and 2015 Editions of CEHRT for the CY 2016 
reporting period/FY 2018 payment determination and the CY 2017 
reporting period/CY 2019 payment determination, and we are not aware of 
any specific issues in QRDA I file creation or submission. Based on the 
comments received, many hospitals and health IT vendors indicated they 
would prefer to have greater time and flexibility to implement upgrades 
to the 2015 Edition and specifically suggested we allow hospitals to 
use a combination of the 2014 and 2015 Editions of CEHRT to satisfy the 
eCQM certification requirements for the CY 2018 reporting period/FY 
2020 payment determination. If we interpret commenter's concern to mean 
that delaying full transition to the 2015 Edition might stall progress 
toward more robust electronic data submission, we believe that we must 
balance these goals with other commenters' concerns about their ability 
to timely meet the certification requirements in the face of vendor 
issues and other challenges, as discussed above. We believe our 
changes, as discussed above, to the previously finalized policy 
allowing greater flexibility for hospitals transitioning to the 2015 
Edition best achieves this balance. We will continue to assess the 
progress of hospitals implementing certification requirements and 
engage in discussions with

[[Page 38390]]

hospitals regarding their experiences as we consider certification 
policies in future rulemaking.
    Comment: Several commenters noted their support for the previously 
finalized policy that eCQMs could be submitted via the 2014 or 2015 
Edition certification criteria for CEHRT for the CY 2017 reporting 
period/FY 2019 payment determination and recommended that CMS extend 
this option to allow use of the 2014 or 2015 Edition certification 
criteria for CEHRT for the CY 2018 reporting period/FY 2020 payment 
determination, because it allows hospitals additional flexibility and 
enables facilities to spend appropriate time on implementation, 
testing, validation, and education of EHR systems.
    Response: We refer these commenters and readers to our discussion 
above, expanding these policies through the FY 2020 payment 
determination.
    Comment: A few commenters expressed concern that hospitals may be 
penalized more than once for failing to successfully report eCQMs in 
both the Hospital IQR and EHR Incentive Programs and thus a significant 
portion of their annual payment update hinges on the maturity of health 
IT vendor capabilities and the ability of CMS' QualityNet Secure Portal 
to manage and appropriately support the volume of incoming data 
submissions.
    Commenters noted that hospitals continue to report barriers to 
successfully submitting eCQM data, including health IT vendor failures 
during the submission of production data (which did not present during 
test submissions) and limitations of the QualityNet Secure Portal, such 
as: (1) An inability to accept QRDA I files over a certain size; (2) an 
inability to run reports verifying that data have been submitted to 
CMS; and (3) frequent periods when the system is down because it cannot 
accommodate more than a certain number of users at one time. Moreover, 
a commenter expressed serious concerns about eCQM measure specification 
and data validation.
    Response: We disagree with commenters that the requirements for 
electronic reporting in the Hospital IQR and Medicare EHR Incentive 
Programs duplicate penalties. As we previously stated in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57156), in an effort to align with the 
Medicare and Medicaid EHR Incentive Programs, we have specified that 
hospitals meeting electronic reporting requirements for the Hospital 
IQR Program will be considered to have successfully reported the eCQM 
requirement to the Medicare and Medicaid EHR Incentive Programs as 
well. Our data show that 95 percent of hospitals already attest to 
successful electronic clinical quality measure reporting under the EHR 
Incentive Program and, accordingly, we believe the majority of 
hospitals will be able to successfully report electronic clinical 
quality measures, meeting the Hospital IQR Program requirements (81 FR 
57156). In addition, if a hospital is unable to meet the Hospital IQR 
Program's eCQM reporting requirements due to extraordinary 
circumstances, the hospital should review the Hospital IQR Program's 
ECE policy, available at: https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid=1228775554109, and the EHR Incentive Program's hardship exception policy, 
available at: https://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/PaymentAdj_Hardship.html. We also refer readers to 
section IX.A.15. of the preamble of this final rule for more details 
about our ECE policy.
    Regarding the limitations of the QualityNet Secure Portal and QRDA 
I file submission difficulties that commenters described, we 
acknowledge that at certain times of high submission volume leading up 
to the submission deadline on February 28, 2017, some data submitters 
reported longer file processing times and inability to timely run 
feedback reports. We are actively taking steps to improve the data 
submission experience for the CY 2017 reporting period (the next 
submission deadline is February 28, 2018), such as working with the 
infrastructure contractor to increase system throughput and increase 
responsiveness to issues that arise. In addition, the development 
contractor is working to identify efficiencies that can be gained in 
our Hospital Quality Reporting system source code. These efficiencies 
should reduce the time it takes to receive submission confirmation and 
run reports.
    Regarding the comment that failures during the submission of 
production data were not identified during the test file submission 
process, we note the Pre-Submission Validation Application (PSVA) tool 
\278\ helps submitters to assess the QRDA I file format, however, 
hospitals and health IT vendors should submit files for testing in the 
CMS data receiving system via the QualityNet Secure Portal to ensure 
that production files are accepted prior to the submission deadline. 
Hospitals and their health IT vendors were notified via educational 
materials and presentations that the utilization of the PSVA tool 
assesses the format of the QRDA Category I file; however, the CMS data 
receiving system performs additional checks, such as the Clinical 
Document Architecture (CDA) schema, submission period dates, and 
authorization for a vendor to submit on a hospital's behalf. The PSVA 
tool is a good starting point for initial validation and will help 
hospitals and their vendors to work through many file format issues. 
Both validation methods provide value, but ultimately the hospital 
should aim to ensure that files are accepted through the CMS data 
receiving system.
---------------------------------------------------------------------------

    \278\ https://ecqi.healthit.gov/ecqm-tools-key-resources/tool-library/pre-submission-validation-application-psva.
---------------------------------------------------------------------------

    Regarding the QRDA file size limitation, hospitals and vendors were 
notified via education and outreach efforts the file size limit of QRDA 
I files is 5 MB for eCQM reporting. For the CY 2016 reporting period, 
we received a relatively small number of files which were greater than 
5 MB. These few files typically exceeded the file size limit due to 
lack of linearization (in other words, the files did not utilize XML 
tools to remove unnecessary spaces and line breaks) or contained 
excessive data unrelated to eCQM reporting. We were able to 
individually work with most data submitters to help them reduce file 
sizes over the 5 MB limitation. We are evaluating the feasibility of 
expanding the QRDA I file size for future eCQM reporting activities.
    In addition, as described in section IX.A.11.b. of the preamble of 
this final rule, we intend to address concerns about the reliability 
and accuracy of electronic data through validation. In order to be able 
to effectively validate eCQM data, we need to continuously assess more 
data. Moreover, we believe it is appropriate to require reporting and 
validation of eCQMs given that measures available now and those being 
developed for the future are increasingly based on electronic standards 
(80 FR 49696).
    As discussed above, after review of the comments received and in 
alignment with the Medicare and Medicaid EHR Incentive Programs, we are 
offering greater flexibility and finalizing a change to our previously 
finalized CY 2018 reporting period/FY 2020 payment determination 
certification requirements. Instead of requiring that all EHR 
technology used to report eCQM data be certified to the 2015 Edition 
for the CY 2018 reporting period/FY 2020 payment determination, we will 
allow hospitals to use: (1) Technology certified to the 2014 Edition; 
(2) technology certified to the 2015 Edition; or (3) a combination of

[[Page 38391]]

EHR technologies certified to the 2014 Edition and 2015 Edition for the 
CY 2018 reporting period/FY 2020 payment determination. We note the 
previously finalized certification requirements for the CY 2017 
reporting period/FY 2019 payment determination will remain unchanged 
(81 FR 57170 through 57171). We intend to determine requirements for 
the CY 2019 reporting period/FY 2021 payment determination and 
subsequent years in future rulemaking. We refer readers to section 
IX.G.4. of the preamble of this final rule, where we are finalizing a 
similar policy for the Medicare and Medicaid EHR Incentive Programs.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20064 through 
20065), we proposed two changes related to certification requirements 
with regard to eCQMs: (1) To require EHR technology certified to all 
eCQMs available to report; and (2) to note certified EHR technology 
does not need to be recertified each time it is updated to a more 
recent version of the eCQM specifications to align with the Medicare 
EHR Incentive Program requirements for eligible hospitals and CAHs. 
These proposals are discussed in more detail below.
(ii) Requirement for EHR Technology To Be Certified to all eCQMs That 
are Available To Report for the CY 2017 Reporting Period/FY 2019 
Payment Determination and the CY 2018 Reporting Period/FY 2020 Payment 
Determination
    We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49705) where we noted that although we require CEHRT, eligible 
hospitals were not required to ensure their CEHRT products were 
recertified to the most recent version of the electronic specifications 
for the clinical quality measures. In the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20065 through 20066), we proposed new policies 
regarding the Hospital IQR Program eCQM specification requirements to 
align with the Medicare EHR Incentive Program's CQM electronic 
reporting requirements.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57256) for the 
Medicare EHR Incentive Program, we finalized the continuation of a 
policy that electronic submission of CQMs will require the use of the 
most recent version of the electronic specification for each eCQM to 
which the EHR is certified. For the Medicare EHR Incentive Program, we 
previously finalized that in the event an eligible hospital or CAH has 
EHR technology which is certified to the 2014 Edition but not certified 
to all of the eCQMs that are available to electronically report for the 
CY 2017 reporting period/FY 2019 payment determination, we will require 
the hospital to have its EHR technology certified to all such eCQMs in 
order to meet the reporting requirements for the CY 2017 reporting 
period/FY 2019 payment determination (81 FR 57256). Further, for the 
Medicare EHR Incentive Program, we stated that for the CY 2017 
reporting period eligible hospitals and CAHs will be required to use 
the Spring 2016 version of the eCQM specifications available on the 
eCQI Resource Center Web site at: https://ecqi.healthit.gov/.
    In order to align the Hospital IQR Program's eCQM certification 
requirements and the Medicare EHR Incentive Program CQM electronic 
submission requirements for eligible hospitals and CAHs, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20133), we proposed that for the CY 
2017 reporting period/FY 2019 payment determination, a hospital using 
EHR technology certified to the 2014 or 2015 Edition, but for which 
such EHR technology is not certified to all 15 available eCQMs, would 
be required to have its EHR technology certified to all 15 eCQMs that 
are available to report under the Hospital IQR Program. We further 
proposed (at 82 FR 20066) that for the CY 2017 reporting period/FY 2019 
payment determination, hospitals would be required to use the most 
recent version of the eCQM electronic specifications (in other words, 
the Spring 2016 version of the eCQM specifications and any applicable 
addenda) available on the eCQI Resource Center Web site at: https://ecqi.healthit.gov/.
    For the CY 2018 reporting period/FY 2020 payment determination, we 
proposed to apply this same policy regarding the reporting of eCQMs, 
such that hospitals would be required to use the most recent version of 
the eCQM specifications for each eCQM to which the EHR is certified (82 
FR 20066). For the CY 2018 reporting period/FY 2020 payment 
determination, this means hospitals would be required to use the most 
recent version of the eCQM electronic specifications (in other words, 
the Spring 2017 version of the CQM electronic specifications and any 
applicable addenda) available on the eCQI Resource Center Web site at: 
https://ecqi.healthit.gov/. In addition, we proposed requiring that 
hospitals need to have their EHR technology certified to all 15 
available eCQMs in order to meet the reporting requirements for the CY 
2018 reporting period/FY 2020 payment determination. Furthermore, we 
proposed that an EHR certified for eCQMs under the 2015 Edition 
certification criteria would not need to be recertified each time it is 
updated to a more recent version of the eCQMs. We believe it is not 
necessary for EHRs certified for eCQMs under the 2015 Edition 
certification criteria to be recertified each time it is updated to the 
most recent version of the eCQMs. This is because the EHR technology 
continues to meet the 2015 Edition certification criteria and any 
updates to the eCQM specifications would not impact any elements 
regarding certification. Therefore, we proposed that recertification 
would not be necessary and would reduce the burden associated with 
recertification. For further discussion regarding EHR certification 
requirements, we refer readers to section IX.G.4. of the preamble of 
this final rule.
    We invited public comment on these proposals.
    Comment: Several commenters supported the proposal to require EHR 
technology to be certified to all eCQMs for the CY 2017 reporting 
period/FY 2019 payment determination because all 15 eCQMs should be 
available for submission to allow for reporting flexibility to better 
reflect the populations hospitals serve.
    Response: We thank the commenters for their support.
    Comment: Several commenters did not support the proposal to require 
that EHRs be certified to all 15 eCQMs for the CY 2017 reporting 
period/FY 2019 payment determination. A few of these commenters noted 
there is no requirement as a condition of ONC certification for EHRs to 
support all eCQM reporting options for hospitals, leaving each hospital 
or health system to work independently with vendors in implementing 
their measures. The commenters expressed concern these conditions may 
result in additional costs and hours of additional work for providers, 
and cause a tremendous waste of limited financial and personnel 
resources.
    Some commenters urged CMS to work with ONC and health IT vendors to 
ensure the 2015 Edition certified EHRs are capable of supporting 
hospitals' eCQM reporting, including the reporting of any of the eCQMs 
available to report in the Hospital IQR Program.
    Response: We appreciate the commenters' concerns about the proposal 
to require EHRs be certified to all available eCQMs for the CY 2017 
reporting period/FY 2019 payment determination, and we recognize the 
challenges associated with eCQM reporting. Although there is no 
specific requirement as a condition of ONC

[[Page 38392]]

certification for EHR technology to support all available eCQMs, ONC 
has adopted certification criteria that both support interoperability 
in other settings and use cases, such as the Common Clinical Data Set 
summary record, data segmentation for privacy, and care plan 
certification criteria (80 FR 62603). Specifically, systems must 
demonstrate they can import and allow a user to export one or more QRDA 
files. For additional details about certification criteria, we refer 
readers to ONC's Common Clinical Data Set resource, available at: 
https://www.healthit.gov/sites/default/files/commonclinicaldataset_ml_11-4-15.pdf.
    We believe requiring EHRs to be certified to all available eCQMs 
for the Hospital IQR Program would help to streamline the process of 
collecting electronic data by allowing hospitals flexibility in the 
particular eCQMs they want to select for data capture and reporting. 
Having an EHR certified to all available eCQMs would help prevent 
hospitals from having to go back and consult their health IT vendors 
and certify individual measures each time they want/need to report on a 
new or different eCQM. The process of individual measure certification 
could potentially create a bottleneck in the process, as hospitals 
would be reliant on vendor availability and timelines. This would 
inadvertently increase the overall eCQM reporting burden. If EHRs are 
certified to all available eCQMs, however, hospitals would have greater 
flexibility in selecting which eCQMs they want to report for a given 
reporting period up until the eCQM submission deadline, and they would 
not need to select which measures in advance based upon availability of 
certified eCQMs offered by the vendor.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57256), we adopted 
policy for the Medicare EHR Incentive Program requiring that for an 
eligible hospital or CAH that has EHR technology certified to the 2014 
Edition, the EHR technology must be certified to all CQMs that would be 
available for the Medicare EHR Incentive Program CY 2017 reporting 
period. Requiring EHRs to be certified to all available eCQMs in the 
Hospital IQR Program would align the Hospital IQR and EHR Incentive 
Programs, which would help streamline requirements across CMS programs, 
thereby reducing electronic reporting burden on hospitals. Because EHRs 
are already required to be certified to all available eCQMs for the EHR 
Incentive Program, most hospitals should already have EHR technology 
certified to all available eCQMs at least for the 2014 Edition.
    With regard to commenters' suggestion that CMS work with ONC and 
health IT vendors to ensure technology certified to the 2015 Edition 
are capable of supporting hospitals' eCQM reporting, we will continue 
to seek stakeholder input and collaborate with colleagues at ONC to 
define standards for EHR organization and structure which would allow 
for documentation to fit into the clinical workflow and to ensure our 
policies are responsive to evolving electronic standards to the 
greatest extent possible. We will also work with ONC to monitor the 
status of EHR technology certified to the 2015 Edition and the 
deployment and implementation of such technology, including reporting 
of the eCQMs that are available to report in the Hospital IQR Program.
    Comment: Some commenters expressed concern the proposal to require 
that EHRs be certified to all 15 eCQMs for the CY 2017 reporting 
period/FY 2019 payment determination inappropriately places the burden 
on hospitals, rather than vendors, to meet the requirement, especially 
for hospitals transitioning from 2014 to 2015 certified EHR technology 
and preparing for long-planned system upgrades.
    Response: While we recognize that requiring EHRs to be certified to 
all available eCQMs initially creates some burden for both hospitals 
and health IT vendors, we disagree that it unduly places the burden on 
hospitals, rather than vendors, to meet the requirement. We believe 
requiring EHRs to be certified to all available eCQMs could help 
alleviate some reporting burden by offering hospitals greater 
flexibility to report eCQM data most appropriate and useful to internal 
quality improvement efforts rather than being limited to only those 
eCQMs selected and supported by their vendors. In addition, requiring 
EHRs to be certified to all eCQMs offers greater certainty to hospitals 
that their EHR systems will be capable of reporting the particular 
eCQMs they select and that they could decide to select different eCQMs 
if and when needed. Therefore, we believe the burden will be offset by 
the flexibility it allows hospitals to report on any eCQMs they choose 
and to select those most relevant for their purposes. Once the initial 
process of certifying the EHR to all available eCQMs has been 
completed, we believe the burden will be offset by the flexibility it 
allows hospitals to report on any eCQMs they choose, without having to 
potentially re-negotiate with their health IT vendor for additional 
work to certify measures individually. Further, we note that, a 
certified health IT module supporting eCQMs would not need to be 
recertified each time it is updated to a more recent version of the 
eCQMs as stated above, under this policy, EHR technology certified for 
reporting all available eCQMs would not need to be recertified each 
time it is updated to a more recent version of the eCQM specifications.
    Comment: One commenter argued changes to certification requirements 
should be made in rules published by ONC, as this is the agency with 
authority over EHR certification standards.
    Response: We believe changes to certification requirements related 
to electronic reporting of quality measure data in the Hospital IQR 
Program appropriately fall under the purview of the Hospital IQR 
Program to specify the ``form and manner'' of quality data. In 
addition, as we stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57111), our goal is to align electronic 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, as much as 
feasible so that the reporting burden on providers will be reduced. We 
will continue to seek stakeholder input and collaborate with colleagues 
at ONC to define standards for EHR organization and structure. If we 
determine based upon stakeholder feedback that the benefits of 
requiring EHRs to be certified to all available eCQMs, as outlined 
above, do not outweigh the burden, we may revisit this requirement in 
future rulemaking.
    Comment: One commenter expressed concern this policy eliminates the 
opportunity for a specialty product to focus on measures only 
applicable to its domain, such as a surgical suite product focusing on 
surgery measures. The commenter also noted its concern that this policy 
would reduce the availability of certified HIT for hospitals or lead to 
poorer workflows for capturing quality data.
    Response: We appreciate the commenter's interest in specialty 
health IT products that may be even more applicable to their specialty 
services or patient population. We do not believe our eCQM 
certification requirements prevent health IT vendors from developing 
and offering such products or from providers asking for such products. 
With regard to our current eCQM measure set, adding new eCQMs that 
address unique and individual specialties, and incorporation of 
electronic products that assess specific clinical domains, is a 
consideration for future rules once the capabilities of

[[Page 38393]]

electronic reporting are more fully established. We will continue to 
seek stakeholder input and collaborate with colleagues at ONC to 
monitor the availability of certified health IT products for quality 
measure reporting.
    After consideration of the public comments we received, for the CY 
2017 reporting period/FY 2019 payment determination, we are finalizing 
our proposals as proposed to: (1) Require EHR technology used for eCQM 
reporting to be certified to all eCQMs, but that such certified EHR 
technology does not need to be recertified each time it is updated to a 
more recent version of the eCQM electronic specifications; and (2) 
require hospitals to use the most recent version of the eCQM electronic 
specifications. In addition, for the CY 2018 reporting period/FY 2020 
payment determination, we are finalizing our proposals, as proposed, 
to: (1) Require EHR technology used for eCQM reporting to be certified 
to all eCQMs, but that such certified EHR technology does not need to 
be recertified each time it is updated to a more recent version of the 
eCQM electronic specifications; and (2) require hospitals to use the 
most recent version of the eCQM electronic specifications. We refer 
readers to section IX.G.4. of the preamble of this final rule where the 
EHR Incentive Program is finalizing similar policies.
(c) Electronic Submission Deadlines for the FY 2020 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 periods and submission deadlines for both the Hospital 
IQR Program and the Medicare EHR Incentive Program for eligible 
hospitals and CAHs.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57172), we 
established eCQM submission deadlines for the Hospital IQR Program. In 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20066), we did not 
propose any changes to the eCQM submission deadlines for the FY 2020 
payment determination or subsequent years. Specifically, we are not 
making any changes to the February 28, 2018 submission deadline for CY 
2017 reporting or the February 28, 2019 submission deadline for CY 2018 
reporting (81 FR 57172) to ensure that APU determinations for FY 2019 
and FY 2020 payment determinations are not affected and to maintain the 
previously established alignment with the Medicare EHR Incentive 
Program's submission deadline (81 FR 57255).
    While we did not propose any changes to these policies, we received 
a few comments related to the submission deadline and general eCQM data 
submission and are addressing them below.
    Comment: One commenter recommended the submission deadline be moved 
to the end of the first quarter of 2019 instead of February 28, 2019 
because this would allow for final ICD-10 coding and corrections 
potentially needed after receiving final documentation from physicians.
    Response: We thank the commenter for the recommendation to adjust 
the eCQM submission deadline from February 28, 2019 to the end of the 
first quarter of 2019. We will take this suggestion into consideration; 
however, at this time, we do not plan to extend the previously 
finalized submission deadline.
    Comment: One commenter recommended that the CMS testing tools, such 
as updates to the PSVA tool and the QualityNet Secure Portal, need to 
be available at least three months before the start of the reporting 
year, instead of halfway through the reporting year, so that health IT 
developers can test with the new specifications and give healthcare 
organizations ample time to implement before the reporting period 
begins on January 1, 2018, because without sufficient time for adoption 
and testing, many organizations would not be ready for early 
submission.
    Response: We thank the commenter for their suggestion that updates 
to CMS testing tools, such as the PSVA tool, and availability of our 
data receiving system via the QualityNet Secure Portal be made 
available to developers before the reporting period, but due to 
operational constraints, earlier release of PSVA tool updates and 
earlier availability of the QualityNet Secure Portal is not possible. 
We note that we did not develop the PSVA tool specifically as a 
development tool, but as a tool for data submitters to test their QRDA 
I files before submitting the files as production files for program 
credit. In addition, we have designed the QualityNet Secure Portal to 
allow for test file submissions as well as production file submissions. 
QualityNet is the only CMS-approved Web site for secure communications 
and healthcare quality data exchange between: Quality improvement 
organizations (QIOs), hospitals, data vendors, and other providers. We 
will look further into how we may be able to release PSVA tool updates 
and make the QualityNet Secure Portal available sooner for hospitals 
and health IT vendors. We refer readers to section IX.A.8.b. of the 
preamble of this final rule, where we discuss the PSVA tool in more 
detail.
(d) Summary
    As noted in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49759) and 
the FY 2017 IPPS/LTCH PPS final rule (81 FR 57257), we continue to 
encourage health IT developers to test any updates on an annual basis, 
including any updates to the eCQMs and eCQM reporting requirements for 
the Hospital IQR and Medicare EHR Incentive Programs based on the CMS 
Implementation Guide for Quality Reporting Document Architecture [QRDA] 
Category I and Category III Eligible Professional Programs and Hospital 
Quality Reporting (HQR) (CMS Implementation Guide for QRDA). The CMS 
Implementation Guide for QRDA, program specific performance calculation 
guidance, and eCQM electronic specifications and guidance documents are 
available on the eCQI Resource Center Web site at: https://ecqi.healthit.gov/.
    As noted in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57172), we 
also continue to encourage all hospitals and health IT vendors to 
submit QRDA I files early, and to use one of the pre-submission testing 
tools for electronic reporting, such as the CMS PSVA tool, to allow 
additional time for testing and to make sure all required data files 
are successfully submitted by the deadline. The PSVA tool can be 
downloaded from the Secure File Transfer (SFT) section of the 
QualityNet Secure Portal at: https://cportal.qualitynet.org/QNet/pgm_select.jsp.
    In summary, in section IX.A.10.d.(2)(b)(ii) of the preamble of the 
FY 2018 IPPS/LTCH PPS proposed rule, for the CY 2017 reporting period/
FY 2019 payment determination, for the Hospital IQR Program we 
proposed: (1) A hospital using EHR technology certified to the 2014 or 
2015 Edition of CEHRT, but for which such EHR technology is not 
certified to all available eCQMs, would be required to have its EHR 
technology certified to all eCQMs that are available to report; and (2) 
EHR technology that is certified to all available eCQMs would not need 
to be recertified each time the eCQMs are updated to a more recent 
version of the eCQM specifications.
    For the CY 2018 reporting period/FY 2020 payment determination, for 
the Hospital IQR Program we proposed: (1) A hospital using EHR 
technology certified to the 2015 Edition certification criteria for 
CEHRT, but for which such EHR technology is not

[[Page 38394]]

certified to all available eCQMs, would be required to have its EHR 
technology certified to all eCQMs that are available to report; and (2) 
EHR technology that is certified to all available eCQMs would not need 
to be recertified each time the eCQMs are updated to a more recent 
version of the eCQM specifications. Further, we proposed: (1) For the 
CY 2017 reporting period, hospitals would be required to use the most 
recent version of the eCQM electronic specifications (in other words, 
the Spring 2016 version of the eCQM specifications, and any applicable 
addenda); and (2) for the CY 2018 reporting period, hospitals would be 
required to use the most recent version of the eCQM electronic 
specifications (in other words, the Spring 2017 version of the eCQM 
specifications, and any applicable addenda). These eCQM specifications 
are available on the eCQI Resource Center Web site at: https://ecqi.healthit.gov/. We refer readers to section IX.E.3.c. of the 
preamble of this final rule, where similar policies are described for 
the Medicare EHR Incentive Program for eligible hospitals and CAHs.
    We are reiterating our policies we are finalizing in this final 
rule related to the reporting and submission requirements of eCQM data 
for the Hospital IQR Program: (1) For the CY 2017 reporting period/FY 
2019 payment determination and for the CY 2018 reporting period/FY 2020 
payment determination, we will offer flexibility, such that hospitals 
may use: (a) EHR technology certified to the 2014 Edition; (b) EHR 
technology certified to the 2015 Edition; or (c) a combination of EHR 
technologies certified to the 2014 Edition and 2015 Edition; (2) for 
the CY 2017 reporting period/FY 2019 payment determination and the CY 
2018 reporting/FY 2020 payment determination, EHR technology certified 
to the 2014 or 2015 Edition must be certified to all 15 eCQMs available 
to report in the Hospital IQR Program; (3) for the CY 2017 reporting 
period/FY 2019 payment determination, hospitals will be required to use 
the most recent version of the eCQM electronic specifications (in other 
words, the Spring 2016 version of the eCQM specifications and any 
applicable addenda); (4) for the CY 2018 reporting period/FY 2020 
payment determination, hospitals will be required to use the most 
recent version of the eCQM electronic specifications (in other words, 
the Spring 2017 version of the eCQM specifications and any applicable 
addenda); and (5) an EHR certified for eCQMs under the 2014 or 2015 
Edition certification criteria would not need to be recertified each 
time it is updated to a more recent version of the eCQM electronic 
specifications.
e. Submission Form and Method for the Voluntary Hybrid Hospital Wide 
Readmission Measure With Claims and Electronic Health Record Data (NQF 
#2879)
(1) Background
    In section IX.A.7. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20045 through 20049), we proposed voluntary 
reporting of the Hybrid Hospital-Wide Measure with Claims and 
Electronic Health Record Data. In the FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49701 through 49704), we signaled our intent to use core 
clinical data elements in the Hospital IQR Program and requested 
comment on the use of the QRDA Category I (QRDA I) file format for this 
purpose. In that rule, we noted many commenters supported submitting 
the core clinical data elements using an EHR technology certified by 
the ONC. In addition, some commenters were supportive of our suggested 
use of QRDA I specifically for reporting core clinical data elements 
and recommended aligning the standards for data transmission 
requirements with those used in other reporting programs.
(2) Certification and File Format Requirements for Core Clinical Data 
Element Submissions
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20067), we 
proposed that hospitals that voluntary report data for the Hybrid 
Hospital-Wide Readmission measure use EHR technology certified to the 
2015 Edition. We also referred readers to our discussion of EHR 
certification requirements for eCQM reporting above and in section 
IX.G.4. of the preamble of this final rule where the same proposed 
requirements are discussed in detail for the Medicare EHR Incentive 
Program for eligible hospitals and CAHs. In addition, we proposed that 
the 13 core clinical data elements and six linking variables for the 
Hybrid Hospital-Wide Readmission measure be submitted using the QRDA I 
file format.
    In order to ensure the data have been appropriately connected to 
the encounter, the core clinical data elements specified for risk 
adjustment need to be captured in relation to the start of an inpatient 
encounter. The QRDA I standard enables the creation of an individual 
patient-level quality report that contains quality data for one patient 
for one or more quality measures. We note that as described in section 
IX.A.7. of the preamble of this final rule, participating hospitals are 
expected to successfully submit data values for vital signs and six 
linking variables and are required to merge with the CMS claims data on 
more than 95 percent of all Medicare FFS patients who are 65 years and 
older and are discharged from the hospital during the voluntary data 
collection period. In addition, participating hospitals are expected to 
successfully submit values for laboratory test results on more than 50 
percent of these patients discharged over the same time period. For 
further detail on QRDA I, the most recently available QRDA I 
specifications can be found at: http://www.hl7.org/implement/standards/product_brief.cfm?product_id=35.
    We invited public comment on our proposals related to the reporting 
and submission requirements of core clinical data elements and linking 
variables for the proposed, voluntary Hybrid Hospital-Wide Readmission 
measure as discussed above.
    Comment: Several commenters supported the proposed voluntary 
reporting of the Hybrid Hospital-Wide Readmission (HWR) measure, noting 
that the inclusion of core clinical data elements and laboratory test 
results may provide additional clinical variables that would enhance 
the administrative coding data that is utilized currently in the risk 
model variables. Other commenters supported the measure, because it is 
low burden and would further efforts to harmonize core clinical data 
elements with other measures and reporting requirements, without 
impacting payment. One commenter noted it displayed good use of EHR 
data, and testing this approach will develop useful information that 
could apply to other Medicare claims-based measures. In addition, 
commenters noted testing a measure through voluntary collection could 
highlight any data collection issues, while providing hospitals time 
needed to redesign their EHRs to collect and validate these data prior 
to mandatory reporting. The commenters noted reporting hybrid measure 
data will add hospital burden as compared to a measure using only 
claims, but expressed support for use of a QRDA I file when submitting 
electronic clinical data for this measure. Specifically, the commenters 
noted that use of a QRDA I file would streamline the submission process 
and enable hospitals to continue to direct resources toward electronic 
abstraction. One commenter believed that requiring QRDA I files 
increased the burden on hospitals.

[[Page 38395]]

    Response: We thank the commenters for their support. We refer 
readers to section IX.A.7. of the preamble of this final rule for more 
information about the voluntary Hybrid HWR measure that we are 
finalizing. We note that there is burden associated with the collection 
of the electronic data for the Hybrid HWR measure. We do not expect any 
additional burden on hospitals to report the claims-based portion of 
this measure, because these data are already reported to the Medicare 
program for payment purposes. We refer readers to section XIII.B.6.e. 
of the preamble of this final rule for more detail on these burden 
calculations.
    Comment: Several commenters supported the proposed voluntary 
reporting of the Hybrid HWR measure, but expressed concern that 
hospitals need time to redesign their EHRs to collect and validate 
these data, and believed CMS should maintain flexibility in the 
reporting requirements for several years. One commenter suggested CMS 
change the proposed initial reporting period from January 1 through 
June 30, 2018, to July 1 through December 31, 2018, or to require only 
a single quarter of reporting for the initial reporting year.
    Response: We thank the commenters for their support. We reiterate 
that reporting on the Hybrid HWR measure is voluntary; we will take 
into consideration the commenter's suggestion that reporting 
requirements should remain flexible for several years as we consider 
adopting the Hybrid HWR measure as mandatory for the Hospital IQR 
Program in future rulemaking. We do not anticipate that hospitals will 
need to redesign their EHR systems to accommodate reporting of the 
Hybrid HWR measure, because these data elements are currently recorded 
in EHRs for nearly all Medicare FFS beneficiaries admitted to acute 
care hospitals, as the Hybrid HWR measure cohort includes most hospital 
admissions. However, hospitals will need to map the data elements in 
their stored EHR data, validate that they have identified the first 
value captured at the start of the episode of care, and populate QRDA I 
templates for data reporting.
    We acknowledge not all hospitals will be able to submit data for 
the voluntary Hybrid HWR measure as soon as July 1, 2018. We note that 
we proposed the first two calendar quarters of 2018 as the reporting 
period so as not to overlap with the submission of eCQM data, which is 
usually very active during the winter up through the eCQM submission 
deadline of February 28th. We hope this July submission deadline will 
increase participation in voluntary reporting of the hybrid measure. In 
addition, during Hybrid HWR measure development and testing, we 
demonstrated the core clinical data elements were feasibly extracted 
from hospital EHRs for nearly all adult patients admitted. The 
electronic specifications were tested in four separate health systems 
that used three separate EHR systems, and were successfully merged with 
our administrative claims data.
    We are encouraging hospitals to participate in the voluntary 
reporting of the Hybrid HWR measure to gain experience validating the 
extracted EHR data. Participating hospitals would receive information 
and instruction on the use of the electronic specifications for this 
measure, have an opportunity to test extraction and submission of data 
to the QualityNet Secure Portal, and receive confidential feedback 
reports, downloadable from the QualityNet Secure Portal, with details 
on the success of their submission, such as the completeness and 
accuracy of the data. We will carefully consider these suggestions and 
all lessons learned from hospitals participating in the voluntary 
reporting of the Hybrid HWR measure before proposing any timeline for 
future potential implementation of the measure.
    Comment: Some commenters suggested instead of jumping from 50 
percent for the voluntary Hybrid HWR measure to 90 percent for the 
mandatory Hybrid HWR measure, the amount of data submitted should 
increase more gradually over time.
    Response: Based on our previous testing of this measure, we believe 
successful submission of the EHR data used in the Hybrid HWR measure on 
at least 90 percent of adult inpatient admissions would be necessary in 
order to calculate the risk-standardized readmission rates and publicly 
report measure results in the future. During the voluntary phase of 
data submission, there will be no strict requirement. However, we will 
request that hospitals submit the data elements on at least 50 percent 
and as many as 100 percent of their admitted patients. Our intent in 
setting this 50 percent threshold is to mimic full reporting as closely 
as possible while also encouraging participation. We will carefully 
consider the success of data submission during the voluntary reporting 
period before proposing a timeline and data reporting expectations for 
mandatory measure implementation through future rulemaking.
    Comment: One commenter recommended that if added to the Hospital 
IQR Program measure set as a mandatory measure, the measure should be 
considered an eCQM for reporting purposes, allowing hospitals to choose 
if they report this measure or other eCQMs.
    Response: We thank the commenter for their suggestion and will take 
it into consideration should we propose the Hybrid HWR measure as 
mandatory for the Hospital IQR Program and/or the EHR Incentive 
Programs for electronic reporting of CQMs in the future. We strive to 
align the electronic quality measure reporting requirements with the 
EHR Incentive Programs in order to reduce administrative burden and 
confusion about different reporting requirements in CMS programs to the 
extent feasible.
    Comment: Several commenters suggested CMS explore developing hybrid 
condition-specific readmission measures for the Hospital Readmissions 
Reduction Program.
    Response: We thank commenters for their suggestion and will take 
this under consideration in crafting future policies for other CMS 
programs.
    Comment: Several commenters noted they are dependent on their EHR 
vendor to produce the necessary code to capture and report in the QRDA 
I file format, and urged CMS to encourage the EHR vendor community to 
support this initiative. The commenters suggested CMS should solicit 
feedback from hospitals and vendors that choose to report the Hybrid 
HWR measure voluntarily before this measure is implemented as mandatory 
in the Hospital IQR Program. To make the reporting of this or any other 
hybrid measure viable in the long run, the commenters suggested that 
CMS would need the input from stakeholders on the feasibility of 
extracting the EHR data and the accuracy of measure results. The 
commenters also suggested CMS should release results of the voluntary 
collection efforts, including feedback on measure implementation and 
measure results from participating hospitals. The commenters noted 
hospitals would need to have sufficient experience prior to the measure 
being in mandatory reporting.
    Response: We will engage with stakeholders, including hospitals and 
health IT vendors, through educational webinars and national provider 
calls and welcome any feedback from hospitals and vendors that 
participate in voluntary submission of data for the Hybrid HWR measure. 
One purpose for voluntary reporting of this measure is so that 
hospitals and health IT vendors can become familiar with data 
extraction and submission for hybrid quality measures prior to any 
mandatory reporting. We will consider feedback

[[Page 38396]]

received from voluntary reporting to inform the future process and the 
timing for any proposals related to mandatory reporting.
    In addition, voluntary reporting of the Hybrid HWR measure by 
participating hospitals will allow us to calculate the measure results, 
provide participating hospitals with feedback about the extracted data 
(including the success of data submission and the measure results 
calculated using their EHR data), and to solicit input from 
participating hospitals about any feasibility issues with extracting 
the core clinical data elements. Because hospitals do not calculate the 
measure within the EHR and do not therefore report measure results to 
CMS, we will not provide information about the accuracy of measure 
results. Rather, we calculate the measure using a combination of data 
from claims and the EHR data that hospitals submit and share these 
results with participating hospitals. Hospitals that voluntarily submit 
data for this measure would receive confidential hospital-specific 
reports that detail submission results from the performance reporting 
period, as well as the Hybrid HWR measure results assessed from merged 
files created by us merging the EHR data elements submitted by each 
participating hospital with claims data from the same set of index 
admissions. EHR data or measure results for the voluntary reporting of 
the Hybrid HWR measure will not be publicly reported. However, if we 
propose to require mandatory reporting of the Hybrid HWR measure in 
future rulemaking, we intend for such a proposal to include a dry run, 
during which hospitals could preview their results. In addition, we 
will take into consideration comments suggesting that we inform 
stakeholders about lessons learned from hospitals that participate in 
the voluntary measure prior to proposing to adopt the Hybrid HWR 
measure as mandatory for the Hospital IQR Program.
    Comment: Some commenters requested additional details related to 
the proposed voluntary reporting of the Hybrid HWR measure. 
Specifically, commenters sought clarification on whether QRDA I file 
format would be required or whether participants could submit data via 
QualityNet Secure File Exchange or another method.
    Response: Hospitals electing to participate in voluntary reporting 
of the Hybrid HWR measure will be required to use QRDA I files for 
submission of electronic data, which is the current EHR data and 
measure reporting standard for adopted eCQMs implemented in the 
Hospital IQR Program. We refer readers to the measure specifications 
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. 
We will not accept data via QualityNet Secure File Exchange or any 
other method. As discussed in our proposal above, in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49701 through 49704), we signaled our intent 
to use core clinical data elements in the Hospital IQR Program and 
requested comment on the use of the QRDA I file format for this 
purpose. In that rule, we noted many commenters supported submitting 
the core clinical data elements using an EHR technology certified by 
the ONC. In addition, some commenters were supportive of our suggested 
use of QRDA I specifically for reporting core clinical data elements 
and recommended aligning the standards for data transmission 
requirements with those used in other reporting programs.
    Comment: Some commenters requested further guidance on whether the 
start ``0-24'' hours timing window for data capture for these data 
elements would be based on arrival time or admission time. 
Specifically, commenters asked if the 0-24 hours timeframe refers to 
the timeframe allotted to collect specimens for an ordered test or the 
timeframe to the result of the test.
    Response: For hospitals that choose to voluntarily submit data, the 
Hybrid HWR measure requires submission of the first captured core 
clinical data element values for each Medicare FFS beneficiary who is 
65 years or older and discharged from an acute care hospital during the 
measurement period.\279\ This includes data values captured in any 
department, including outpatient or emergency department visits that 
end inpatient admissions.
---------------------------------------------------------------------------

    \279\ Hybrid Hospital-Wide Readmission Measure with Electronic 
Health Record Extracted Risk Factors (Version 1.1). Available at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    To clarify the ``0-24'' hours timeframe for the core clinical data 
elements, they represent the result of the first collected data element 
(not the time of the order) after arrival at the hospital for care (not 
necessarily inpatient admission time). For example, if a patient 
receives care for several hours in the Emergency Department and is 
later admitted to the inpatient facility for additional treatment, the 
measure requires the first captured data value in the Emergency 
Department. Vital signs (heart rate, respiratory rate, temperature, 
systolic blood pressure, oxygen saturation), should be recorded within 
two hours (``0-2 hours''). Laboratory results (hematocrit, white blood 
cell count, sodium, potassium, bicarbonate, creatinine, and glucose) 
and weight should be recorded within 24 hours (``0-24 hours''). These 
time windows were based on empirical analysis of vital signs and 
laboratory test results captured in EHRs for patients admitted to acute 
care short stay hospitals. We assessed the time to capture of an 
initial set of vital signs and basic laboratory test results from the 
time of arrival at the facility for patients who were 65 years and 
older and subsequently admitted during the same encounter for treatment 
of a variety of medical conditions. We refer readers to the measure 
specifications \280\ for more details.
---------------------------------------------------------------------------

    \280\ Ibid.
---------------------------------------------------------------------------

    Comment: Some commenters sought clarification on whether the 
expectation would be that an EHR would only send data on encounters 
that meet the measure population requirements, since an EHR might not 
be able to identify an index admission.
    Response: We understand that all or nearly all hospitals maintain 
electronic administrative records which identify inpatient admissions 
to support billing for Medicare FFS beneficiaries and patients insured 
through other payers. We understand that for many hospitals these 
administrative systems are separate from the clinical EHR and that 
identifying inpatient admissions and then extracting the EHR data 
elements for those patients might require separate queries in the two 
systems. However, the testing we have performed in four volunteer 
hospitals that developed and deployed queries within their EHR and 
successfully extracted the data elements used in the voluntary Hybrid 
HWR measure demonstrated that hospitals were able to identify inpatient 
admissions using stored electronic data and were able to extract the 
EHR data elements for those patients.
    As we stated in the proposed rule (82 FR 20047), hospitals would 
only submit data for index admissions that meet the Hybrid HWR measure 
cohort inclusion criteria, and the measure would only be calculated for 
this cohort. The inclusion and exclusion criteria of the Hybrid HWR 
measure are also aligned with the currently adopted Hospital-Wide All-
Cause Unplanned Readmission measure, which can be found in the 2017 
All-Cause Hospital-Wide Measure Updates and Specifications Report, 
available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-

[[Page 38397]]

Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
    Further, we developed and tested a Measure Authoring Tool \281\ 
that uses existing value sets where possible, which includes 
identifying inpatient encounters (index admissions). As stated in the 
proposed rule (82 FR 20046), the electronic specifications were tested 
in multiple health systems, and they all were able to appropriately 
identify acute care hospital inpatient encounters.
---------------------------------------------------------------------------

    \281\ CMS Measure Authoring Tool. Available at: https://www.emeasuretool.cms.gov/.
---------------------------------------------------------------------------

    Comment: One commenter inquired about the proposed deadline and 
frequency for reporting.
    Response: We refer readers to section IX.A.7.b. of the preamble of 
this final rule for details on reporting and deadlines. To summarize, 
the voluntary reporting of the Hybrid HWR measure has a one-time 
measurement period for discharges occurring over a 6-month period in 
the first two quarters of CY 2018 (January 1, 2018 through June 30, 
2018), with data being reported to CMS in the fall of 2018. For this 
voluntary reporting effort, we ask hospitals to submit electronic data 
once on applicable Medicare FFS beneficiaries, on at least 50 percent 
of these patients.
    Comment: Several commenters requested that CMS not set any date for 
either mandatory submission or public reporting of the Hybrid HWR 
measure. The commenters expressed concerns the hybrid measure is 
incredibly challenging to implement and CMS does not have a robust 
infrastructure to collect these data.
    Several commenters requested that CMS provide at least an eighteen-
month window, and as much as 24-months, to organizations before a 
hybrid measure is implemented. The commenters recommended that CMS not 
require mandatory reporting of the Hybrid HWR measure until it has 
reviewed the experience of hospitals submitting the measure on a 
voluntary basis.
    Response: We appreciate the suggestions on the timing of future 
implementation. Although, we recognize there is some burden to 
hospitals in identifying the data elements required for the Hybrid HWR 
measure, it is important to note that these data elements are currently 
recorded in EHRs for nearly all Medicare FFS beneficiaries admitted to 
acute care hospitals, as the Hybrid HWR measure cohort includes most 
hospital admissions. We do not anticipate hospitals will need to alter 
clinical workflows to capture these data. However, hospitals will need 
to map the data elements in their stored EHR data, validate that they 
have identified the first value captured at the start of the episode of 
care, and populate QRDA I templates for data reporting.
    We note reporting on the Hybrid HWR measure is purposefully 
voluntary and that we have not set any date for either mandatory 
submission or public reporting of the Hybrid HWR measure. We intend to 
review the experience of hospitals submitting the Hybrid HWR measure 
data on a voluntary basis prior to potentially proposing to adopt this 
measure as mandatory in the future.
    With respect to commenters' concerns that CMS does not have a 
robust infrastructure to collect data for the Hybrid HWR measure, we 
disagree. Hybrid HWR measure data are derived from both claims and 
clinical EHR data, via submission of QRDA I files; we already collect 
and utilize claims data and QRDA I file data for other measures in the 
Hospital IQR Program measure set.
    We refer readers to section IX.A.10.d.(2)(b) of the preamble of 
this final rule, where we are finalizing a policy to allow hospitals 
greater flexibility, such that hospitals may use EHR technology that 
is: (1) Certified to the 2014 Edition; (2) certified to the 2015 
Edition; or (3) a combination of both the 2014 Edition and 2015 
Edition. As a result, we are modifying our proposal for the Hybrid HWR 
measure from requiring use of EHR technology certified to the 2015 
Edition to giving hospitals that elect to submit data voluntarily the 
option to use EHR technology that is: (1) Certified to the 2014 
Edition; (2) certified to the 2015 Edition; or (3) a combination of 
both the 2014 Edition and 2015 Edition.
    We recognize that these activities require effort and collaboration 
with health IT vendors and we will continue to solicit feedback from 
stakeholders throughout voluntary reporting of this measure and 
carefully consider provider burden before proposing any timeline for 
mandatory adoption or public reporting of hybrid measures.
    Comment: One commenter requested CMS delay implementation until 
further improvements have been made related to submitting data using 
the QRDA I file format.
    Response: We disagree that we should delay implementation until 
further improvements have been made related to submitting data using 
the QRDA I file format. We have experienced widespread utility of the 
QRDA I format among hospitals, dating back to electronic reporting 
pilots from 2012 and 2013, which included electronic reporting via QRDA 
I, as the basis for aligned reporting in 2014 for the Medicare EHR 
Incentive and the Hospital IQR Programs (79 FR 50905). In addition, 
QRDA I is the current EHR data and measure reporting standard for 
adopted eCQMs implemented in the Hospital IQR and Medicare EHR 
Incentive Programs.
    Comment: One commenter did not support the voluntary Hybrid HWR 
measure as they were concerned with the standardization of values.
    Response: We interpret this comment to mean that the commenter had 
concerns about how the core clinical data elements were selected for 
potential use in the voluntary Hybrid HWR measure. To be feasible for 
use in the measure, we applied a strict set of criteria that the data 
elements must be: (1) Consistently obtained in the target population 
based on current clinical practice; (2) captured with a standard 
definition and recorded in a standard format; and (3) entered in 
structured fields that are feasibly retrieved from current EHR systems. 
These criteria align with those proposed by the NQF for assessing the 
feasibility of EHR data elements in quality measurement.\282\ We 
established that the data elements used in the voluntary Hybrid HWR 
measure meet these criteria through empirical analysis of data provided 
by hospitals on patients who were 65 years and older admitted for 
treatment of a variety of conditions. This testing confirmed that the 
data elements are consistently obtained, captured as structured data, 
and recorded in standard format across different EHRs and different 
hospitals.
---------------------------------------------------------------------------

    \282\ NQF Measure Evaluation Criteria. Available at: http://www.qualityforum.org/Measuring_Performance/Endorsed_Performance_Measures_Maintenance.aspx.
---------------------------------------------------------------------------

    After consideration of the public comments we received, we are 
finalizing our proposals related to the voluntary reporting and 
submission of core clinical data elements and linking variables for the 
Hybrid Hospital-Wide Readmission measure as proposed, with one 
modification. Instead of requiring use of EHR technology certified to 
the 2015 Edition, we are allowing greater flexibility and will accept 
use of EHR technology that is: (1) Certified to the 2014 Edition; (2) 
certified to the 2015 Edition; or (3) a combination of both the 2014 
Edition and 2015 Edition.
f. Sampling and Case Thresholds for the FY 2020 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

[[Page 38398]]

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 49709) for details on our sampling and case 
thresholds for the FY 2016 payment determination and subsequent years. 
In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20067), we did not 
propose any changes to our sampling and case threshold policies.
g. HCAHPS Administration and Submission Requirements for the FY 2020 
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. We refer readers to section IX.A.6.a. of the preamble 
of this final rule for details on our proposal to refine the three 
questions of the Pain Management measure in the HCAHPS Survey. While we 
proposed to refine the survey with respect to the questions about pain 
management in section IX.A.6.a. of the preamble of the proposed rule, 
in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20067), we did not 
propose any changes to the HCAHPS administration nor the HCAHPS 
submission requirements.
h. Data Submission Requirements for Structural Measures for the FY 2020 
Payment Determination and Subsequent Years
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51643 through 51644) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53538 through 53539) for details on the data submission requirements 
for structural measures. In the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 20067), we did not propose any changes to data submission 
requirements for structural measures.
i. 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 the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20067), we did not propose any changes to data submission and reporting 
requirements for HAI measures reported via the NHSN.
11. Modifications to the 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 the FY 2017 IPPS/LTCH PPS final rule (81 FR 57173 through 
57181), we finalized our proposal to update the validation procedures 
in order to incorporate a process for validating eCQM data for the FY 
2020 payment determination and subsequent years. Specifically, we 
finalized a policy to: (1) Validate eCQM data submitted by up to 200 
hospitals selected via random sample; (2) 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; and (3) randomly 
select 32 cases from the QRDA I files submitted by each hospital 
selected for eCQM data validation for the FY 2020 payment determination 
and subsequent years. As described in the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 57176), we will not conduct the first validation of eCQM 
data until spring of 2018 to validate data from the CY 2017 reporting 
period. Validation of CY 2017 data during spring of 2018 affects the FY 
2020 payment determination (81 FR 57177). Accordingly, below we refer 
to the CY 2017 reporting period/FY 2020 payment determination for 
validation of data for encounters occurring during CY 2017 and the CY 
2018 reporting period/FY 2021 payment determination for validation of 
data for encounters during CY 2018.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20067 through 
20070), we proposed to change these previously finalized policies for 
eCQM data validation for the FY 2020 payment determination and 
subsequent years. First, for hospitals selected to participate in 
validation of eCQMs, we proposed that we will select eight cases per 
quarter for the CY 2017 reporting period/FY 2020 payment determination 
and subsequent years. We noted this proposal was contingent upon 
whether or not our proposed modifications to eCQM reporting 
requirements for the CY 2017 reporting period/FY 2019 payment 
determination and CY 2018 reporting period/FY 2020 payment 
determination, as described in section IX.A.8. of the preamble of this 
final rule, were finalized as proposed. Second, we proposed to add 
additional exclusion criteria to our hospital and case selection 
process for eCQM data validation for the CY 2017 reporting period/FY 
2020 payment determination and subsequent years. Third, we proposed to 
continue our previously finalized medical record submission 
requirements for the FY 2021 payment determination and subsequent years 
as well as to provide clarification of our previously finalized policy.
    For validation of chart-abstracted measures data, we proposed to 
update our educational review process for the FY 2020 payment 
determination and subsequent years. These proposals are discussed in 
more detail below.
b. Changes to the Existing Processes for Validation of Hospital IQR 
Program eCQM Data for the FY 2020 Payment Determination and Subsequent 
Years
(1) Number of Cases
    We finalized in the FY 2017 IPPS/LTCH PPS final rule that we would 
select eight cases per quarter, for four quarters, for a total of 32 
cases (individual patient-level reports), from the QRDA I files 
submitted by each hospital selected for eCQM data validation (81 FR 
57178). In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20068), we 
proposed to update that requirement, such that we would select eight 
cases per quarter, (the number of quarters required would vary by 
specific

[[Page 38399]]

FY payment determination) to complete eCQM data validation for the FY 
2020 payment determination and subsequent years, instead of 32 cases, 
over all four quarters, as previously finalized. This proposal was made 
in conjunction with our proposals to modify the number of quarters 
required for eCQM data submission from: (1) Four quarters to two, self-
selected quarters for CY 2017 (with validation of these data affecting 
the FY 2020 payment determination); and (2) four quarters to the first 
three quarters for CY 2018 (with validation of these data affecting the 
FY 2021 payment determination). If all of these proposals were 
finalized as proposed, hospitals selected for eCQM data validation 
would be required to submit: (1) 16 cases over two calendar quarters 
(eight cases x two quarters) for the CY 2017 reporting period/FY 2020 
payment determination; and (2) 24 cases over three quarters (eight 
cases x three quarters) for the CY 2018 reporting period/FY 2021 
payment determination. We invited public comment on the proposals we 
made in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20068) as 
discussed above.
    Comment: Several commenters supported the reduction to the number 
of eCQM cases to be validated from 32 to 16 cases for the CY 2017 
reporting period, which would impact the FY 2020 payment determination, 
and to 24 cases for the CY 2018 reporting period, which would impact 
the FY 2021 payment determination.
    Response: We thank the commenters for their support.
    Comment: One commenter urged CMS to consider reducing the number of 
cases selected for validation each quarter from 8 to a lower number in 
order to minimize reporting burden for hospitals.
    Response: We consider a sample of eight cases for each quarter to 
be the minimum sample size needed to accurately ascertain the quality 
of the reported data by measure. We believe using a sample size of 
eight cases per quarter balances the burden on hospitals of providing 
medical records for eCQM data validation with our need for a sufficient 
minimum number of cases to be able to properly evaluate the data. 
However, we refer readers to section IX.A.8. of the preamble of this 
final rule, where we are finalizing a modified policy to further reduce 
the eCQM reporting requirements, such that hospitals are only required 
to submit one, self-selected calendar quarter of data for 4 eCQMs for 
both the CY 2017 reporting period/FY 2019 payment determination and the 
CY 2018 reporting period/FY 2020 payment determination. This does not 
directly change our proposal to select eight cases per quarter for eCQM 
data validation for the FY 2020 payment determination and subsequent 
years (for validation of eCQM data reported in CY 2017 data and 
subsequent years). However, in effect, due to these finalized 
modifications to the eCQM reporting requirements, hospitals selected 
for validation will be required to submit only 8 cases in total for 
each of the CY 2017 reporting period/FY 2020 payment determination (8 
cases x 1 quarter) and CY 2018 reporting period/FY 2021 payment 
determination (8 cases x 1 quarter), instead of: (1) 16 cases over two 
calendar quarters (8 cases x 2 quarters) for the CY 2017 reporting 
period/FY 2020 payment determination; and (2) 24 cases over 3 quarters 
(8 cases x 3 quarters) for the CY 2018 reporting period/FY 2021 payment 
determination as discussed in the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 20068).
    After consideration of the public comments we received, we are 
finalizing our proposal, as proposed, to reduce the number of cases 
selected for eCQM data validation to eight cases per quarter for the FY 
2020 payment determination and subsequent years.
(2) Selection of Hospitals and Cases
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20068 through 
20069), for the CY 2017 reporting period/FY 2020 payment determination 
and subsequent years, we proposed changes to our policies related to 
the selection of hospitals and cases for eCQM data validation to: (1) 
Expand the types of hospitals that could be excluded; and (2) expand 
the types of cases excluded from selection. These proposals are 
discussed in more detail below.
(a) Selection of Hospitals
    As previously finalized in the FY 2017 IPPS/LTCH PPS final rule (81 
FR 57174 through 57178), we will validate eCQM data submitted by up to 
200 hospitals selected via random sample. Further, we finalized that 
the following hospitals may be excluded from this random sample of 200 
hospitals selected for eCQM data validation (81 FR 57178):
     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.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20068), we 
proposed to expand the types of hospitals that could be excluded. For 
the FY 2020 payment determination and subsequent years, we proposed to 
also exclude any hospital that does not have at least five discharges 
for at least one reported eCQM included among their QRDA I file 
submissions. In addition, we proposed that the three exclusions 
described above would be applied before the random selection of 200 
hospitals for eCQM data validation, so that hospitals meeting any of 
these exclusions would not be eligible for selection. We believe that 
these proposals improve the likelihood that there would be sufficient 
data for validation obtained from the hospitals selected for eCQM data 
validation.
    We invited public comment on our proposals to: (1) Exclude any 
hospital that does not have at least five discharges for at least one 
reported eCQM included among their QRDA I file submissions in eCQM data 
validation; and (2) to exclude from selection hospitals meeting either 
of the two exclusion criteria finalized in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 57178) as discussed above. We note that the proposed 
rule (at 82 FR 20068) included a technical error stating ``and/or (2) 
to exclude from selection hospitals meeting either of the two exclusion 
criteria finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57178).'' We have corrected the language in this final rule to state 
``and,'' instead of ``and/or.''
    Comment: A few commenters supported the exclusion of hospitals from 
eCQM data validation selection that have already been selected for 
chart-abstracted measure validation or that have been granted a 
Hospital IQR Program Extraordinary Circumstances Exemption because it 
provides relief of undue burden on facilities and increases the chance 
that selected hospitals will have an adequate sample size for 
validation.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposals, as proposed, for the FY 2020 payment 
determination and subsequent years: (1) To exclude any hospital that 
does not have at least five discharges for at least one reported eCQM 
included among their QRDA I file submissions; and (2) to exclude from 
selection hospitals meeting either of the two exclusion criteria 
finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57178). This 
means that the three exclusion criteria described would be applied 
before random selection of 200 hospitals for eCQM data validation, such 
that hospitals meeting one or more of these exclusion criteria would 
not be eligible for selection.

[[Page 38400]]

(b) Selection of Cases
    We have not previously specified processes for the selection of 
cases for eCQM data validation. For the FY 2020 payment determination 
and subsequent years, we proposed to exclude the following cases from 
validation for those hospitals selected to participate in eCQM data 
validation:
     Episodes of care that are longer than 120 days; and
     Cases with a zero denominator for each measure.
    We believe excluding episodes of care that are longer than 120 days 
will reduce the reporting burden on hospitals selected for eCQM data 
validation, as the volume of data reported for longer cases is greater. 
Further, we believe excluding cases with zero denominators for each 
measure would ensure we perform validation only on cases with 
applicable measure data. We note this proposed exclusion applies to 
cases, rather than measures. However, a measure would not be validated 
if a hospital did not have any applicable cases for the measure.
    We invited public comments on our proposal to exclude: (1) Episodes 
of care that are longer than 120 days; and (2) cases with a zero 
denominator for each measure from eCQM data validation for the FY 2020 
payment determination and subsequent years as discussed above.
    Comment: A few commenters supported the proposed policy of adding 
additional exclusion criteria to the hospital and case selection 
process for eCQM data validation to include: (1) Episodes of care that 
are longer than 120 days; and (2) cases with a zero denominator for 
each measure, because these exclusions would decrease hospital 
reporting burden.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposal, as proposed, for the FY 2020 payment 
determination and subsequent years, to add exclusion criteria to the 
hospital and case selection process for eCQM data validation to 
include: (1) Episodes of care that are longer than 120 days; and (2) 
cases with a zero denominator for each measure.
(3) Medical Record Submission Requirements and Scoring
(a) Medical Record Submission Requirements
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57179), we finalized 
that hospitals participating in eCQM data validation for the FY 2020 
payment determination and subsequent years are required to: (1) Submit 
data by 30 calendar days following the medical records request date 
listed on the CDAC request form; (2) provide sufficient patient level 
information necessary to match the requested medical record to the 
original Hospital IQR Program submitted eCQM measure data record; and 
(3) submit records in PDF file format through QualityNet using the 
Secure File Transfer (SFT). We also finalized for hospitals selected 
for eCQM data validation (for the FY 2020 payment determination only): 
(1) We require submission of at least 75 percent of sampled eCQM 
measure medical records in a timely and complete manner; and (2) the 
accuracy of eCQM data submitted for validation would not affect a 
hospital's validation score (81 FR 57180). In the FY 2018 IPPS/LTCH PPS 
proposed rule, we did not propose to make any changes related to these 
operational procedures. However, we proposed to continue these policies 
for the FY 2021 payment determination and subsequent years. In the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 20068 through 20069), we 
proposed to extend to the FY 2021 payment determination and subsequent 
years our previously finalized medical record submission policy for 
eCQM data validation, as finalized in the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 57181), requiring submission of at least 75 percent of 
sampled eCQM measure medical records in a timely and complete manner. 
We also proposed to extend to the FY 2021 payment determination our 
previously finalized medical record submission policy for eCQM data 
validation, as finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57181), that the accuracy of eCQM data submitted for validation would 
not affect a hospital's validation score. (We note that this policy is 
discussed in more detail in the next section and refer readers below.) 
We noted that if our proposals in section IX.A.8 of the preamble of the 
FY 2018 IPPS/LTCH PPS proposed rule, which proposed two quarters of 
data for CY 2017 eCQM data submission and eight cases per quarter for 
hospitals selected for validation (16 total cases for the entire data 
collection period), were finalized as proposed, and hospitals selected 
for eCQM data validation are required to submit complete information 
for 75 percent of requested cases as previously finalized, then those 
hospitals would be required to submit information for at least 12 
records, or 75 percent of the requested 16 records for the FY 2020 
payment determination. Similarly, if our proposals: (1) To continue our 
medical record submission policies for the FY 2021 payment 
determination and subsequent years; (2) to require three quarters of 
data for CY 2018 eCQM data submission and eight cases per quarter for 
hospitals selected for validation (24 total cases for the entire data 
collection period) as detailed in section IX.A.8 of the preamble of the 
FY 2018 IPPS/LTCH PPS proposed rule; and (3) hospitals selected for 
eCQM data validation are required to submit complete information for 75 
percent of requested cases, were all finalized as proposed, then those 
hospitals would be required to submit complete information for at least 
18 records, or 75 percent of the requested 24 records for the FY 2021 
payment determination.
    Furthermore, as finalized in the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 57180) for the FY 2020 payment determination, in the proposed 
rule (82 FR 20069), we proposed, for the FY 2021 payment determination 
and subsequent years, that any hospital that fails any validation 
requirement, such as submission of records in PDF file format within 30 
days of the date listed on the CDAC medical records request, and/or 
submission of complete information for at least 75 percent of the 
requested records, would be considered not to have met the eCQM 
validation requirements and would be subject to a one-quarter reduction 
of the applicable percentage increase for not meeting all Hospital IQR 
Program requirements.
    We invited public comment on the proposals we made in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20068 through 20069) as discussed 
above.
    Comment: One commenter recommended CMS reconsider the process of 
submitting PDF copies of the medical records for validation, suggesting 
that a more accurate method would be for CMS to send an auditor onsite 
to validate the data directly from the EHR.
    Response: We thank the commenters for the input. At this time, we 
believe the most feasible and less burdensome approach to hospitals is 
to continue the current process for medical record submission for 
validation via PDF file submission. In particular, we recognize the 
significant time and resources that hospitals would be required to 
address CMS onsite validator needs and access to onsite information. We 
strongly believe that hospital resources would be better devoted to 
caring for and communicating with patients and their caregivers. We 
also note that hospitals are familiar with this method of

[[Page 38401]]

reporting medical records for chart-abstracted measure validation.
    Comment: One commenter requested clarification on which format 
(complete medical record, including free text or printout of the QRDA I 
file) CMS will use to validate eCQM data.
    Response: Per the FY 2017 IPPS/LTCH PPS final rule (81 FR 57179), 
the format will be a portable document format (PDF) of the entire 
medical record.
    After consideration of the public comments we received, we are 
finalizing our proposals, as proposed, for the FY 2021 payment 
determination and subsequent years, that: (1) Hospitals selected for 
eCQM data validation are required to submit at least 75 percent of 
sampled eCQM measure medical records in a timely and complete manner; 
and (2) any hospital that fails any validation requirement would be 
considered not to have met the eCQM validation requirements and would 
be subject to a one-quarter reduction of the applicable percentage 
increase for not meeting all Hospital IQR Program requirements. As 
discussed in section IX.A.8 of the preamble of this final rule, we are 
finalizing a modification to the eCQM reporting requirements such that 
hospitals are required to submit one, self-selected calendar quarter of 
data for 4 eCQMs for both the CY 2017 reporting period/FY 2019 payment 
determination and the CY 2018 reporting period/FY 2020 payment 
determination. Furthermore, we refer readers to section IX.A.11.b.(1) 
of the preamble of this final rule where we are finalizing our 
proposals to require hospitals selected for eCQM data validation to 
submit eight cases for the selected calendar quarter. As applied to our 
finalized policies here for the FY 2021 payment determination, selected 
hospitals would be required to submit complete information for at least 
6 records, or 75 percent of the requested 8 records.
(b) Scoring
    As finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57178) 
for the FY 2020 payment determination only, the accuracy of eCQM data 
(the extent to which eCQM data reported for validation matches the data 
previously reported in the QRDA I files for eCQM reporting) submitted 
for validation will not affect a hospital's validation score. In the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 20069), we proposed the 
continuation of this policy for the FY 2021 payment determination, such 
that the accuracy of eCQM data submitted for validation would not 
affect a hospital's validation score. We intend for the accuracy of 
eCQM data validation to affect validation scores in the future and 
would propose any changes related to this in future rulemaking. The 
data submission deadlines and additional details about the eCQM data 
validation procedures will be posted on the QualityNet Web site at: 
http://www.QualityNet.org/. We invited public comment on this proposal 
as discussed above.
    We did not receive any public comments on our proposal. We are 
finalizing our proposal, as proposed, that the accuracy of eCQM data 
submitted for validation will not affect a hospital's validation score 
for the FY 2021 payment determination. We also received general 
comments about the eCQM data validation process in the Hospital IQR 
Program; these are discussed below.
    Comment: A few commenters did not support the proposed 
modifications to the eCQM data validation process in the Hospital IQR 
Program. The commenters noted that validation of eCQMs should not be 
done until additional measures are accepted and built by vendors to 
allow hospitals the opportunity to submit data which aligns with their 
population and workflow rather than those currently available from the 
vendor. In addition, commenters stated that small hospitals without 
pediatrics, perinatal care, or stroke centers are very limited in their 
ability to submit eCQMs.
    Response: We understand eCQM data validation imposes some burden on 
hospitals, but as we seek to evaluate the established validation 
procedures and expand electronic data reporting and validation, we 
believe validating data starting with the CY 2017 reporting period is 
necessary. Furthermore, because the accuracy of eCQM data submitted for 
validation will not affect a hospital's validation score for the FY 
2021 payment determination, as finalized above, we believe this will 
balance any hospital burden or need for additional time to update their 
systems with our need to evaluate the quality of reported eCQM data. We 
disagree that validation of eCQM data should be delayed until 
additional measures are built by health IT vendors to allow hospitals 
the opportunity to submit data which aligns with their population and 
workflow because eCQM data submission is already a requirement in the 
Hospital IQR Program. Moreover, we believe validation is a critical 
component in the overall process of electronic reporting, as it informs 
hospitals about potential workflow refinements to ensure efficient 
extrapolation and enables us to ensure the accuracy of eCQM data prior 
to future public reporting of the data. We encourage small hospitals 
that may be experiencing difficulty meeting the Hospital IQR Program's 
eCQM reporting requirements to review the Hospital IQR Program's ECE 
policy. We refer readers to section IX.A.15 of the preamble of this 
final rule for more information.
    Finally, we note that hospitals are able to select which eCQMs best 
align with their population and workflow. We also refer readers to 
section IX.A.10.d.(2)(b)(ii) of the preamble of this final rule, in 
which we are finalizing a policy that requires EHRs to be certified to 
all available eCQMs, which will offer hospitals greater flexibility to 
report eCQM data most appropriate for their population and workflow, 
rather than being limited to those eCQMs selected and supported by 
their vendors.
    Comment: Some commenters requested that CMS consider delaying 
mandatory validation of eCQM data for selected hospitals until the 
spring of 2020, using CY 2019 performance year for the FY 2021 payment 
determination, noting that this delay would allow hospitals sufficient 
time to install the 2015 Edition certification criteria for CEHRT, make 
necessary refinements and workflow process improvements, and complete 
internal validation to ensure the data output from the certified EHR 
technology's eCQM calculation is accurate.
    Response: We do not believe that delaying validation of eCQM data 
is necessary at this time, because we are finalizing several policies 
in this final rule to help reduce the burden associated with eCQM 
reporting requirements. We refer readers to section IX.A.10.d.(2)(b)(i) 
of the preamble of this final rule, in which we are finalizing greater 
flexibility to our previously finalized certification policy for the CY 
2018 reporting period/FY 2020 payment determination, and section 
IX.A.8. of the preamble of this final rule, where we are finalizing 
modified, reduced eCQM reporting requirements. We believe validation is 
a critical component in the overall process of electronic reporting, as 
it informs hospitals about potential workflow refinements to ensure 
efficient extrapolation and enables us to ensure the accuracy of eCQM 
data prior to future public reporting of the data.
    Comment: One commenter suggested that CMS develop a detailed plan 
for how validation will be performed, including which fields of 
structured data will be used for validation and how that will compare 
with medical record review. The commenter stated that the hospital and 
vendor communities

[[Page 38402]]

should have an opportunity to comment on this detailed plan, and then 
CMS should undertake a second expanded pilot to test and further refine 
the plan in collaboration with stakeholders prior to implementation.
    Response: We thank the commenters for their suggestion. More 
details on eCQM data validation will be provided at a later date, 
similar to the specifications that are posted on the QualityNet Web 
site for the validation of chart-abstracted measures. In addition, we 
encourage stakeholders to continue sharing feedback with us, to provide 
more information on their experience with the eCQM data validation 
process. This feedback will help us refine the process moving forward.
c. Modifications to the Educational Review Process for Chart-Abstracted 
Measures Validation
(1) Background
    In the FY 2015 IPPS/LTCH PPS final rule, we stated that we rely on 
hospitals to request an educational review or appeal cases to identify 
any potential CDAC or CMS errors (79 FR 50260). We also noted that a 
hospital may request from CMS at any time an educational review to 
better understand whether or not we reached a correct conclusion during 
validation; hospitals that fail to meet Hospital IQR Program validation 
requirements have 30 days to appeal after this determination (79 FR 
50260). We have described our processes for educational review on the 
QualityNet Web site.\283\ We note that historically this process 
functioned as an outreach opportunity we provided hospitals, but based 
on our experience, and more robust validation requirements, we believe 
that it would beneficial to hospitals to propose formalizing this 
process.
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    Under the current process, if the results of an educational review 
indicate that CDAC or CMS has incorrectly scored a hospital, those 
scores are not changed unless and until the hospital submits a 
reconsideration request. Therefore, In the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20069 through 20070), we proposed: (1) To 
formalize this process; and (2) to update the process to specify that 
if the results of an educational review indicate that we incorrectly 
scored a hospital, the corrected score would be used to compute the 
hospital's final validation score whether or not the hospital submits a 
reconsideration request. These proposals are discussed in more detail 
below. Stakeholder feedback, provided via email, has indicated that 
while the educational review process is helpful to participating 
hospitals, it is limited in its impact, given that a hospital's score 
is not corrected even after an educational review determines that CMS 
reached an incorrect conclusion regarding a hospital's validation score 
for a given quarter. Based on this feedback, we proposed to change the 
Hospital IQR Program's chart-abstracted measure validation educational 
review process. Our goal is to reduce the number of reconsideration 
requests by identifying and correcting errors before the final yearly 
validation score is derived. By identifying and correcting any mistakes 
early on, this process could help decrease the burden during the annual 
reconsideration process, both for hospitals and CMS.
(2) Educational Review Process Modifications for the FY 2020 Payment 
Determination and Subsequent Years
(a) Request for Educational Review
    Under this proposal, the educational review request process, as 
well as our procedures for responding to requests, remain the same. 
Specifically, under the current process, hospitals may request an 
educational review if they believe they have been scored incorrectly or 
if they have questions about their score. We would provide the results 
of the educational review, outlining the findings of whether the scores 
were correct or incorrect, to the requesting hospital through secure 
file transfer.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20069), we 
proposed to formalize this process. In formalizing our current 
procedures, the educational review request process, as well as our 
procedures for responding to requests, would remain the same. First, we 
proposed that, for the FY 2020 payment determination and subsequent 
years, a hospital may request from CMS an educational review to better 
understand whether or not CDAC or CMS reached a correct conclusion 
during validation for the first three quarters of validation. 
Specifically, upon receipt of an unsatisfactory score, a hospital would 
have 30 calendar days to contact the Validation Support Contractor 
(VSC) to solicit a written explanation of the provided score. We note 
that currently hospitals receive validation results on a quarterly 
basis, and that would not change under this proposed process. 
Accordingly, under this proposal, an educational review could be 
requested on a quarterly basis for the first three quarters of 
validation. Results of the educational review would be provided to 
hospitals via secure file transfer.
    Second, we proposed that the process used to evaluate whether or 
not validation results are correct would be the same in both an 
educational review and a reconsideration request. Specifically, as 
finalized in the FY 2012 IPPS/LTCH PPS final rule for the Hospital IQR 
Program's reconsideration request process, we proposed that upon 
receipt of an educational review request, we would review the data 
elements that were labeled as mismatched, as well as the written 
justifications provided by the hospitals, and make a decision on the 
educational review request.
(b) Scoring Update
    For the FY 2020 payment determination and subsequent years, we 
proposed that if an educational review, that is requested for any of 
the first 3 quarters of validation, yields incorrect CMS validation 
results for chart-abstracted measures, we would use the corrected 
quarterly score, as recalculated during the educational review process, 
to compute the final confidence interval (CI). These corrected scores 
would be applicable to the corresponding quarter, within the first 3 
quarters of validation, for which a request was submitted. We note that 
under this proposal, the quarterly validation reports issued to 
hospitals would not be changed to reflect the updated score due to the 
burden associated with reissuing corrected reports. Beginning with the 
FY 2020 payment determination, we proposed to use the revised score 
identified through an educational review when determining whether or 
not a hospital failed validation. Further, under this proposal, as with 
the current educational review process, corrected scores identified 
through the educational review would only be used if they indicate that 
the hospital performed more favorably than previously determined.
    Under this proposal, the educational review request process, as 
well as our procedures for responding to requests, remain the same. We 
also note that, in accordance with our previously established policies, 
a hospital may still request reconsideration even if an educational 
review determined that a hospital was scored correctly. Hospitals that 
fail Hospital IQR Program requirements, which include validation, can 
request reconsideration at the end of the year after the annual payment 
update has been made. We refer readers to section IX.A.14. of the 
preamble of this final rule for a discussion about our

[[Page 38403]]

reconsideration and appeals process. We note that under this proposal, 
corrected scores identified through the educational review would only 
be used if they indicate that the hospital performed more favorably 
than previously determined. In addition, we note that for the last 
quarter of validation, because of the need to calculate the confidence 
interval in a timely manner and the insufficient time available to 
conduct educational reviews, the existing reconsideration process would 
be used to dispute an unsatisfactory validation result. If a hospital 
does not fail validation they still would have the opportunity to 
request an educational review within 30 days of receiving the results.
    We invited public comment on our proposals to formalize the 
educational review process and use this process to correct scores for 
the first three quarters of chart-abstracted measure validation as 
discussed above.
    Comment: A few commenters supported the proposal to formalize the 
educational review process so that incorrect validation scores may be 
corrected for the first three quarters of validation for chart-
abstracted measures. One commenter believed that this change would make 
the process more meaningful and valuable to hospitals across the 
nation.
    Response: We thank the commenters for their support.
    Comment: One commenter expressed concern about the scoring metrics 
used to validate the educational review process of hospitals and 
emphasized the need to do more than just obtain a ``passing'' score.
    Response: We thank the commenters for their input. We do not apply 
scoring metrics to validate the educational review process. If an error 
is found during an educational review, then the case reliability would 
be updated prior to computing the overall confidence interval. For 
example, if the provider has 1 mismatch out of 10 total cases for the 
quarter, therefore having a quarterly case reliability of 9/10, and 
upon educational review it is determined that the mismatch should not 
have occurred, we would update the quarterly case reliability to 10/10 
prior to computing the overall confidence interval.
    After consideration of the public comments we received, we are 
finalizing our proposals, as proposed, for the FY 2020 payment 
determination and subsequent years, to: (1) Formalize the educational 
review process for chart-abstracted measures; and (2) use this process 
to correct quarterly scores for any of the first 3 quarters of 
validation in order to compute the final confidence interval (CI).
12. Data Accuracy and Completeness Acknowledgement (DACA) Requirements 
for the FY 2020 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. In the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 20070), we did not propose any 
changes to the DACA requirements.
13. Public Display Requirements for the FY 2020 Payment Determination 
and Subsequent Years
a. Background
    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.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20070 through 
20074), we did not propose any changes to public display requirements; 
however, we solicited public comment on potential options for 
confidential and public reporting of measures stratified by patient 
dual eligibility status as early as the summer of 2018 using data from 
the FY 2019 reporting period (July 1, 2014 through June 30, 2017). We 
previously sought public comment on the potential public reporting of 
quality measures data stratified by SES factors and future hospital 
quality measures that incorporate health equity in the FY 2017 IPPS/
LTCH PPS final rule (81 FR 57167 through 57168). In the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 20071), we sought additional public 
comment on the potential confidential and public reporting of Hospital 
30-day, All-Cause, Risk-Standardized Readmission Rate Following 
Pneumonia Hospitalization (NQF #0506), (the Pneumonia Readmission 
measure), and the Hospital 30-Day, All-Cause, Risk-Standardized 
Mortality Rate Following Pneumonia Hospitalization (NQF #0468), (the 
Pneumonia Mortality measure), data stratified specifically by patient 
dual eligibility status. These are discussed in more detail below.
b. Potential Options for Confidential and Public Reporting of Hospital 
IQR Measures Stratified by Patient Dual Eligibility Status
(1) Background
    In section IX.A.1.d. of the preamble of the proposed rule, we 
discussed the importance of improving beneficiary outcomes including 
reducing health disparities, and our commitment to ensuring that 
medically complex patients, as well as those with social risk factors, 
receive excellent care. As we noted in section IX.A.1.d. of the 
preamble of the proposed rule, studies show that social risk factors, 
such as earning a low-income, belonging to a racial or ethnic minority 
group, or living with a disability, are associated with poor health 
outcomes, some of which are related to the quality of health care.\284\ 
One of our core objectives is to improve health outcomes for all 
beneficiaries, and to ensure that complex patients as well as those 
with social risk factors receive excellent care. Within this context, 
recent reports by the Office of the Assistant Secretary for Planning 
and Evaluation (ASPE) and the National Academies of Sciences, 
Engineering, and Medicine have examined the influence of social risk 
factors in CMS value-based purchasing programs.\285\ In addition, as 
noted in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57185), the NQF 
has undertaken a 2-year trial period in which certain new measures and 
measures undergoing maintenance review have been assessed to determine 
if risk adjustment for social risk factors is appropriate for these 
measures.\286\ Since publishing the proposed rule, we have verified 
that the NQF trial period ended in April 2017 and a draft report is 
available at: http://www.qualityforum.org/SES_Trial_Period.aspx.
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    \284\ See, for example, United States Department of Health and 
Human Services. ``Healthy People 2020: Disparities. 2014,'' http://www.healthypeople.gov/2020/about/foundation-health-measures/Disparities or National Academies of Sciences, Engineering, and 
Medicine. Accounting for Social Risk Factors in Medicare Payment: 
Identifying Social Risk Factors. Washington, DC: National Academies 
of Sciences, Engineering, and Medicine 2016.
    \285\ Department of Health and Human Services Office of the 
Assistant Secretary for Planning and Evaluation (ASPE), ``Report to 
Congress: Social Risk Factors and Performance Under Medicare's 
Value-Based Purchasing Programs.'' December 2016, https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \286\ http://www.qualityforum.org/SES_Trial_Period.aspx.

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[[Page 38404]]

    Also as part of this effort, we solicited feedback on which social 
risk factors provide information that is most valuable to stakeholders. 
We also sought public comment on confidential reporting and future 
public reporting of some of our measures, specifically the Pneumonia 
Readmission measure (NQF #0506) and the Pneumonia Mortality measure 
(NQF #0468), stratified by patient dual eligibility. There are two 
potential purposes for providing information on hospital results 
stratified by dual eligibility. The approach we are considering would 
illuminate differences in outcome rates among patient groups within a 
hospital and would also allow for a comparison of those differences, or 
disparities, across hospitals. We also considered an alternative 
approach that would measure outcome rates for subgroups of patients, 
such as the dual eligible patients, across hospitals; however, this 
alternative would not allow for an examination of the difference in 
rates between groups (for example dual eligible patients compared to 
non-dual eligible patients).
    The goals of measuring and monitoring disparities in patient 
outcomes for specific sub-groups of patients within hospitals is to 
reduce health inequities, improve health care quality for vulnerable 
populations, and promote greater transparency for health care 
consumers. This is in alignment with the CMS Quality Strategy \287\ and 
the ASPE report \288\ to Congress, which stated performance rates, 
including readmission rates, stratified by social risk should be 
developed and considered for hospital specific confidential preview 
reports and public reporting in places such as the Hospital Compare Web 
site, so hospitals, health systems, policymakers, and consumers can see 
and address important disparities in care.
---------------------------------------------------------------------------

    \287\ https://www.cms.gov/medicare/quality-initiatives-patient-
assessment-instruments/qualityinitiativesgeninfo/cms-quality-
strategy.html.
    \288\ Department of Health and Human Services Office of the 
Assistant Secretary for Planning and Evaluation (ASPE), ``Report to 
Congress: Social Risk Factors and Performance Under Medicare's 
Value-Based Purchasing Programs.'' December 2016. Available at: 
https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
---------------------------------------------------------------------------

    Many levers exist for addressing and improving disparities in care 
and outcomes. The 21st Century Cures Act (Pub. L. 114-255) addresses 
payment penalty scoring in the Hospital Readmissions Reduction Program 
by identifying hospitals based on their proportion of dual eligible 
patients and supporting improvement efforts for hospitals caring for 
patients with social risk factors by setting penalty thresholds among 
similar peer hospitals.\289\ As discussed in sections V.I.7. through 
V.I.10. of the preamble of this final rule, the Hospital Readmissions 
Reduction Program, as required by the statute, proposed to use dual 
eligibility as a marker of poverty, one key patient social risk factor, 
and we would like to move in that direction for the Hospital IQR 
Program as well in the future. In the Hospital IQR Program, we are 
exploring methods to distinguish vulnerable patients with social risk 
factors, such as poverty. As such, we intend to use dual eligible 
status among the over 65 year old patients included in the measures as 
a marker of poverty.
---------------------------------------------------------------------------

    \289\ Ibid.
---------------------------------------------------------------------------

    Dual eligible status describes whether Medicare beneficiaries are 
also enrolled in Medicaid. We use dual enrollment in Medicare and 
Medicaid as a marker for a beneficiary having low income and/or few 
assets. The recent report to Congress by ASPE has shown that dual 
eligibility was the most powerful predictor of poor health care 
outcomes among the social risk factors they tested.\290\
---------------------------------------------------------------------------

    \290\ Ibid.
---------------------------------------------------------------------------

    The Hospital Compare Web site currently displays readmission rates 
for each hospital, but does not specifically highlight a hospitals 
quality of care for vulnerable populations. We believe stratifying data 
by social risk factors would supplement the current reporting of the 
Pneumonia Readmission measure (NQF #0506) and the Pneumonia Mortality 
measure (NQF #0468) by highlighting disparities, that is, differences 
in outcomes, within hospitals that are not simply due to differences in 
illness severity, to the extent that such disparities exist for any 
given hospital. To do so, we developed a method to quantify the 
disparities of readmission and mortality between these groups within 
each hospital after accounting for patient case mix. The disparities 
indicator used in the hospital specific confidential preview reports 
would provide information assessing the increased odds, or rates, of 
readmission for dual eligible patients admitted to the same hospital, 
after accounting for differences in age and comorbidities.
    For the Hospital IQR Program, we are considering options to improve 
health disparities among patient groups within hospitals by increasing 
the transparency of disparities among patients within hospitals and the 
ability to compare these disparities across hospitals. This would be 
accomplished by the methods described below. Our alternative approach, 
also described below, to measure outcome rates for subgroups of 
patients, such as the dual eligible patients, across hospitals, would 
examine the performance of hospitals on the subgroup of dual eligible 
patients.
    We previously sought public comment on the potential public 
reporting of quality measure data stratified by race, ethnicity, sex, 
and disability and future hospital quality measures that incorporate 
health equity in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57167 
through 57168). In general, commenters supported the development of 
health equity measures and their inclusion in the Hospital IQR Program 
(81 FR 57167). In particular, stakeholders noted that stratified 
measures could serve as tools for hospitals to identify gaps in 
outcomes for different groups of patients, improve the quality of 
health care for all patients and empower consumers to make informed 
decisions about health care. The stakeholders encouraged us to stratify 
measures by other social risk factors such as age, income, and 
educational attainment (81 FR 57167); however, commenters raised 
concerns about the small denominator sample size associated with 
measure stratification by social risk factors, which would skew the 
reliability of stratified quality measures. Commenters also expressed 
concern that it may not be a simple task to stratify measures by race, 
ethnicity, sex, and disability because specific considerations are 
required for every measure and each reporting mechanism to implement 
such a requirement (81 FR 57168). For more details on the public 
comments, we refer the readers to the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 57167 through 57168).
    We acknowledge the complexity of interpreting stratified outcome 
measures. Due to this complexity, prior to publicly reporting 
stratified outcome measure data, as early as the summer of 2018 using 
data from the FY 2019 reporting period (July 1, 2014 through June 30, 
2017), we are considering first providing hospitals with confidential 
results showing outcomes stratified by patient dual eligibility within 
the hospital, or more specifically, differences in outcome rates for 
the dual eligible and non-dual eligible patients in the measures. This 
would allow us to obtain feedback on reporting options and to ensure 
the information is reliable, valid, and understandable prior to any 
future public display on the Hospital Compare Web site. Our goal in 
producing stratified results is to provide information about 
disparities in patient

[[Page 38405]]

outcomes within hospitals to the extent that they exist for a given 
hospital. This information would supplement the assessment of overall 
hospital quality provided through the current measures of readmission 
and mortality rates; these measures would remain unchanged. We discuss 
below the methods and results of stratification for the current 
Hospital 30-day, All-Cause, Risk-Standardized Readmission Rate 
Following Pneumonia Hospitalization (NQF #0506) (the READM-30-PN or 
Pneumonia Readmission measure).
    The stratified results would provide hospitals with confidential 
reporting with information that could illuminate any disparities in 
care and outcome that can be targeted through quality improvement 
efforts. Then for the future, we are considering publicly posting both 
of these results on Hospital Compare to allow consumers and other 
stakeholders to view critical information about the care and outcomes 
of subgroups of patients, particularly those with social risk factors. 
This information could drive consumer choice and spark improvement 
efforts targeting dual eligible patients. In the future, we would also 
consider expanding this approach to other social risk factors and other 
measures.
    We invited public comment on: (1) Which social risk factors provide 
information that is most valuable to stakeholders; (2) providing 
hospitals with confidential preview reports containing stratified 
results for certain Hospital IQR Program measures, specifically the 
Pneumonia Readmission measure (NQF #0506) and the Pneumonia Mortality 
(MORT-30-PN) measure (NQF #0468); (3) a potential methodology for 
illuminating differences in outcomes rates among patient groups within 
a hospital that would also allow for a comparison of those differences, 
or disparities, across hospitals; (4) an alternative methodology that 
compares performance for patient subgroups across hospitals but does 
not provide information on hospital disparities and any additional 
suggested methodologies for calculating stratified results by patient 
dual eligible status; and (5) future public reporting of these same 
measures stratified by patient dual eligibility status on the Hospital 
Compare Web site. These are discussed in more detail below.
(2) Confidential Hospital Specific Preview Reports Prior to Publicly 
Reporting Stratified Data
    We sought public comment on the possibility of providing 
confidential hospital specific preview reports containing the results 
of the Pneumonia Readmission (NQF #0506) and Pneumonia Mortality (NQF 
#0468) measures stratified by patient dual eligibility, as early as the 
summer of 2018 using data from the FY 2019 reporting period (July 1, 
2014 through June 30, 2017), prior to any future potential public 
reporting of this data. The current publicly reported measures used in 
the Hospital IQR Program and reported on the Hospital Compare Web site 
would remain unchanged. Following the time period during which 
hospitals received confidential preview reports, we may display 
stratified results on the Hospital Compare Web site solely for the 
purpose of ``stratification,'' that is, producing results to describe 
differences between subgroups within the hospital.
(3) Potential Methodology for Calculating Stratified Results by Patient 
Dual Eligibility Status
(a) Background
    Under any future option to stratify measure results by patient dual 
eligibility status, we intend to focus on disparities between dual 
eligible patients and non-dual eligible patients, because dual 
eligibility is an important social risk factor among the Medicare FFS 
population and is feasible to measure.\291\ In order to provide 
information about differences in readmission outcomes for dual eligible 
patients and non-dual eligible patients within a hospital that may be 
due to quality differences, we need a methodology that accounts for any 
differences in comorbidities, age, and other risk factors between these 
groups of patients. Such a methodology ensures that differences in 
outcomes are not simply due to differences in clinical severity and 
comorbid conditions among the patient groups. Therefore, any approach 
to identifying within-hospital disparities for readmission measures by 
patients' dual eligibility status would build on the methodology used 
to calculate the currently implemented RSRRs.\292\ As the Pneumonia 
Readmission measure (NQF #0506) is currently specified, risk-adjusted 
rates are estimated using a hierarchical logistic regression to account 
for the clustering of observations within hospitals and differences in 
the number of admissions across hospitals.\293\
---------------------------------------------------------------------------

    \291\ Department of Health and Human Services Office of the 
Assistant Secretary for Planning and Evaluation (ASPE), ``Report to 
Congress: Social Risk Factors and Performance Under Medicare's 
Value-Based Purchasing Programs.'' December 2016, https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \292\ http://www.qualitynet.org/dcs/ContentServer?cid=1219069855841&pagename=QnetPublic%2FPage%2FQnetTier4&c=Page.
    \293\ Krumholz H, Normand SL, Keenan P, et al. Hospital 30-Day 
Pneumonia Readmission Measure Methodology: Report prepared for the 
Centers for Medicare & Medicaid Services, 2008, http://www.qualitynet.org/dcs/ContentServer?cid=1219069855841&pagename=QnetPublic%2FPage%2FQnetTier4&c=Page.
---------------------------------------------------------------------------

(b) Option To Measure Difference in Outcomes By Adding Three Additional 
Factors to Current Statistical Models
    There is both a hospital and patient-level effect of dual 
eligibility on readmission risk. We have considered the hospital fixed 
effect in our approaches to stratifications (described in section 
IX.A.13.b.(3)(a) of the preamble of this final rule), because without 
it, we will introduce bias in the patient-level dual eligibility, which 
would produce misleading results. The statistical approach we may 
employ in the future would use current statistical models and add three 
additional factors to the statistical model for the purposes of 
measuring differences in outcomes: (1) An indicator for patient-level 
dual eligibility; (2) a hospital-level dual eligible factor \294\ (for 
example, percentage of dual eligible patients in each hospital); and 
(3) a hospital-specific indicator (random coefficient) for dual 
eligibility. This third factor, the hospital-specific random 
coefficient for dual eligibility, assesses the disparity or difference 
in readmissions for dual eligible patients within a specific hospital 
after accounting for other factors, such as differences in clinical 
disease or comorbid conditions. The first two factors, (the patient-
level dual eligibility coefficient, which represents the overall 
difference between dual and non-dual groups in the entire country, and 
the hospital-level dual eligible factor, which reflects the difference 
in readmission rate between hospitals with different proportions of 
dual eligible patients) are only included in order to be able to 
interpret the third factor random coefficient and ensure it is specific 
to a particular hospital. It is the third factor, the hospital-specific 
indicator, which would be used to calculate the differences in 
readmission rates between the dual and non-dual eligible patients 
within the hospital. Using this method, within-hospital disparities in 
readmissions between

[[Page 38406]]

dual eligible patients and non-dual eligible patients would be included 
in confidential hospital specific preview reports in addition to the 
currently calculated and displayed Pneumonia Readmission (NQF #0506) 
and Pneumonia Mortality (NQF #0468) measures. We would provide 
information in the form of odds ratios (that is, the increased odds of 
readmission for dual eligible patients at a given hospital) or, 
alternatively, the average difference in readmission rates between dual 
and non-dual patients after accounting for differences in other risk-
factors.
---------------------------------------------------------------------------

    \294\ We note that although hospital-level dual eligible effect 
was not of interest, it often mixed with patient-level effect. 
Therefore, by breaking down the dual eligible effect into patient-
level and hospital-level components, we were able to better assess 
of relationship between readmission and patient-level dual 
eligibility.
---------------------------------------------------------------------------

    To calculate odds ratios, we would convert hospital-specific 
coefficients for dual eligibility into odds ratios. Odds ratios compare 
dual eligible patients relative to non-dual eligible patients in terms 
of their risk of readmission, assuming that the two groups have the 
same case mix (that is, comorbidities). If the readmission rate is the 
same in both groups, the odds ratio is 1. If the odds ratio is greater 
than 1, it would mean that dual eligible patients have worse 
readmission rates, and vice versa. To estimate the average difference 
of readmission rates between dual and non-dual beneficiaries for each 
hospital, we would first calculate the predicted probabilities of being 
readmitted by assuming all patients are dual eligible or all patients 
are non-dual eligible in a hospital. The difference between the two 
predicted probabilities is the average difference in the readmission 
rates between the two groups of patients at each hospital.
    Rather than assuming a uniform impact of dual eligible and non-dual 
eligible status across hospitals, this approach would assess the impact 
of dual eligibility across all hospitals separately, recognizing that 
socioeconomic disparities of patients may be greater or lesser at some 
hospitals as compared with others. This approach would allow 
quantification of the difference in readmissions between dual eligible 
patients and non-dual eligible patients within each hospital, as long 
as a hospital has a sufficient number of cases to produce a reliable 
estimate for both groups.
    In summary, this statistical model would uniquely identify 
disparities in readmission rates for dual eligible beneficiaries 
compared to non-dual eligible beneficiaries, after controlling for 
patients' prior medical history and age for each hospital. This random 
coefficient for dual eligibility within the statistical model would 
indicate how readmission rates at the same hospital would differ 
between two patients at that hospital with exactly the same age and 
underlying risk factors (those comorbid clinical conditions included in 
the statistical model), but differ with respect to dual eligibility.
(c) Option To Measure Difference in Outcomes Using Current Statistical 
Models
    Depending on the information that is most useful to stakeholders, 
an alternative approach to examining readmission rates among dual 
eligible patients could be considered. To examine the relative 
performance of hospitals on readmission rates for their dual eligible 
patients, rather than to compare hospitals on within-hospital 
disparities, we could calculate the current measures' statistical model 
(without the additional factors mentioned above) and include only dual 
eligible patients. Similarly, this could be done for non-dual eligible 
patients. This approach of using two separate models for the separate 
patient subgroups would produce information on readmission rates for 
dual eligible patients at one hospital compared to another (or non-dual 
eligible patients across hospitals). Because of the use of two separate 
statistical models, this approach would not ensure consistent treatment 
of risk factors across patient groups and could not be used to compare 
readmission rates for two groups within a hospital.
(d) Summary of Statistical Method Options
    We intend to provide information on the difference in readmission 
rates of dual eligible and non-dual eligible beneficiaries within 
hospitals and also provide information for hospitals and consumers on 
the relative disparities across hospitals. We solicited public comment 
on the information that stakeholders would find most useful and any 
additional suggested methodologies for calculating stratified results 
by patient dual eligible status. The confidential hospital specific 
preview reports containing data stratified by patient dual eligibility 
status would be modeled after current confidential hospital specific 
preview reports and include patient-level data for hospitalizations 
included in the measure. The current confidential hospital specific 
preview reports would be supplemented by information for each patient 
on their dual eligible status and a summary of the difference in 
readmission rates for dual eligible patients in the hospital as 
compared to other hospitals in the State and nation.
    We invited public comment on both methodologies, as described 
above, to produce stratified results by determining the differences in 
readmission and mortality by dual eligible status within a hospital, 
and a comparison of those disparities across hospitals, accounting for 
differences in comorbidities, age, and other risk factors between dual 
eligible and non-dual eligible patients.
    All comments received are summarized under section IX.A.13.b.(6) of 
the preamble of this final rule, below.
(4) Data Sources
    To provide an example of the statistical approach we could apply, 
we describe stratified results by patient dual eligibility for the 
Pneumonia Readmission measure (NQF #0506), using the first calculation 
method described in section IX.A.13.b.(3)(b) of the preamble of this 
final rule. To calculate the example rate, we used the CMS 
administrative claims data from each index pneumonia hospitalization, 
as well as from inpatient and outpatient Medicare claims from the 12 
months prior to the hospitalization from July 2012 to June 2015 to 
calculate the publicly reported RSRRs following pneumonia 
hospitalization (NQF #0506) in the July 2016 Hospital Compare update. 
Both the cohort and the risk-adjustment approach remain unchanged. For 
more details on the publicly reported RSRRs following pneumonia as 
currently implemented, we refer readers to its measure methodology 
report and measure update zip file on our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. The data was 
then linked to CMS denominator files \295\ (2012 to 2015) to derive the 
indicator of dual eligibility for each patient admission (1.3 percent 
index admissions were excluded because there is no information 
available in the denominator files).
---------------------------------------------------------------------------

    \295\ https://www.cms.gov/research-statistics-data-and-systems/files-for-order/limiteddatasets/denominatorlds.html.
---------------------------------------------------------------------------

    We conducted preliminary analyses on the Pneumonia Readmission 
measure (NQF #0506) \296\ and determined that there is a total of 3,851 
hospitals that have at least 25 included index hospitalizations 
overall, and at least 10 dual eligible and 10 non-dual eligible index 
hospitalizations for which we could report outcome disparity (82 
percent of hospitals). The minimum sample size for 25 hospitalizations 
is consistent with the current publicly

[[Page 38407]]

reported outcomes measures. We imposed an additional requirement of at 
least 10 dual eligible and 10 non-dual eligible index hospitalizations 
for this example to ensure we had adequate numbers to observe any 
meaningful differences in outcome. We used this requirement because if 
a hospital has fewer than 10 patients in one subgroup of patients, it 
is neither clear that readmission rates for that group as compared to 
others would be reliable, nor that it is meaningful or has face 
validity to measure stratified rates for hospitals with very few of one 
of the categories of patients. We welcomed public comment on this 
sample size determination.
---------------------------------------------------------------------------

    \296\ 1,456,289 hospitalizations (98.7 percent) were linked to 
the denominator data and 24.4 percent of those hospitalizations are 
from dual eligible patients.
---------------------------------------------------------------------------

    The observed readmission rate within 30-days of index discharge for 
all patients was 17.1 percent when we did not adjust for patients' 
prior medical history, and dual eligible beneficiaries had an 
approximately 3 percent higher readmission rate. Results from the 
hierarchical model \297\ indicate that there is a statistically 
significant association between dual eligibility and pneumonia 
readmission (adjusted odds ratio, 1.07; 95 percent CI, 1.06-1.08). In 
addition, there is substantial variation in the relationship between 
dual eligibility and readmission across hospitals (Median odd ratio, 
1.06; Min., 0.95; Max., 1.22). Findings also revealed that dual 
eligible patients are more likely to get readmitted in 95 percent of 
hospitals.
---------------------------------------------------------------------------

    \297\ Our hierarchical model is described in our measure 
methodology reports. See, for example, Krumholz H, Normand SL, 
Keenan P, et al. Hospital 30-Day Pneumonia Readmission Measure 
Methodology: Report prepared for the Centers for Medicare & Medicaid 
Services, 2008, http://www.qualitynet.org/dcs/ContentServer?cid=1219069855841&pagename=QnetPublic%2FPage%2FQnetTier4&c=Page.
---------------------------------------------------------------------------

(5) Future Potential Public Display
    We invited public comment on the potential future public reporting 
of certain outcomes measures, such as the Pneumonia Readmission measure 
(NQF #0506) and the Pneumonia Mortality measure (NQF #0468), stratified 
by social risk factors, specifically dual eligible status, to 
illuminate within-hospital disparities. If we decide to display measure 
data stratified by dual eligible status on the Hospital Compare Web 
site, we would clearly differentiate between the measure information we 
currently display and the measure information that is stratified by 
patients' dual eligible status. In addition, as discussed above, if we 
decide to display measure data stratified by dual eligible status on 
the Hospital Compare Web site, hospitals would receive information 
about their stratified readmission rates for a certain period of time 
through confidential hospital specific preview reports prior to the 
public reporting of any information.
    We invited public comment on this future consideration to display 
the stratified measure results, in addition to the current measure 
results, for certain Hospital IQR Program measures in future reporting 
years. We note that public display of measure data stratified by social 
risk factors such as dual eligible status would not occur until after a 
period of confidential reporting.
    All comments received are summarized under section IX.A.13.b.(6) of 
the preamble of this final rule below.
(6) Summary
    To summarize, we invited public comment on: (1) Which social risk 
factors provide the most valuable information to stakeholders; (2) 
providing hospitals with confidential preview reports containing 
stratified results for certain Hospital IQR Program measures, 
specifically the Pneumonia Readmission measure (NQF #0506) and the 
Pneumonia Mortality measure (NQF #0468); (3) a potential methodology 
for illuminating differences in outcomes rates among patient groups 
within a hospital and would also allow for a comparison of those 
differences, or disparities, across hospitals; (4) an alternative 
methodology that compares performance for patient subgroups across 
hospitals but does not provide information on within hospital 
disparities and any additional suggested methodologies for calculating 
stratified results by patient dual eligibility status; and (5) future 
public reporting of these same measures stratified by patient dual 
eligibility status on the Hospital Compare Web site as discussed above.
    Comment: Several commenters supported providing confidential 
reports to hospitals for the Pneumonia Readmission measure (NQF #0506) 
and the Pneumonia Mortality measure (NQF #0468) stratified by patient 
dual eligible status and publicly reporting stratified measure data in 
the future. The commenters believed this information would be 
informative to hospitals and would drive improvement.
    One commenter stated that this would be a positive direction for 
CMS when proposing new methodologies for quality metrics whether it be 
population stratification, risk adjustment, or any other significant 
changes in reporting.
    Response: We thank the commenters for their support on stratifying 
outcome measures. We believe that highlighting disparities in outcomes 
between sub-groups of patients could contribute to improved care for 
vulnerable patients.
    Comment: A few commenters urged CMS to explore if additional 
factors should be used to stratify or risk adjust the measures beyond 
dual eligibility as a marker of poverty and consider the full range of 
differences in patients' backgrounds that might affect outcomes (such 
as readmission rates).
    Response: We appreciate the commenters' suggestion to stratify 
outcome measures by additional social risk factors. Consistent with the 
findings of the ASPE and National Academies of Sciences, Engineering, 
and Medicine reports, we will consider stratifying outcome measures by 
appropriate additional social risk factors in the future as we continue 
to engage stakeholders and determine the availability of appropriate 
social risk factors that might influence outcomes such as readmission. 
Measure stratification is intended to identify disparities or 
differences by patient subgroup to support hospitals' efforts to 
improve care. Stratified reporting would allow us to provide measure 
data stratified by patient subgroup or the disparity between patient 
subgroups for each measure, via confidential hospital specific preview 
reports or public display on the Hospital Compare Web site.
    We note that there are several methods for stratification of 
patients by dual eligible status, two of which are: (1) Calculating the 
differences in outcomes between dual and non-dual eligible patients 
within hospitals, and (2) stratifying by groups of patients so that a 
given provider would receive a score for each group (one for dual 
eligible patients, one for non-dual eligible patients, etc.). We will 
continue to explore which of the two methodologies is most appropriate 
and how best to provide confidential reports to hospitals for the 
Pneumonia Readmission measure (NQF #0506), the Pneumonia Mortality 
measure (NQF #0468), or other outcome measures in the Hospital IQR 
Program stratified by patient dual eligible status in the future. We 
will also continue to evaluate what may be the best method or methods 
of publicly displaying stratified outcome measure information to ensure 
the public's understanding of the data.
    Comment: Most commenters expressed concern that CMS allow hospitals 
sufficient time to review and analyze stratified rates prior to 
publicly reporting.
    Response: We acknowledge the commenters' concern that hospitals 
have sufficient time to review and analyze stratified measure data 
prior to

[[Page 38408]]

public reporting. We believe confidential hospital specific preview 
reports of stratified measure data will allow us to obtain feedback on 
reporting options and to ensure the information is reliable, valid, and 
understandable prior to any future public display on the Hospital 
Compare Web site. We intend to continue to engage with hospitals about 
their experience with and recommendations for stratified measure data 
as we begin to provide confidential hospital specific preview reports 
prior to potentially proposing to publicly display stratified measure 
data in the future. Any display of stratified quality measures on the 
Hospital Compare Web site would be proposed through future rulemaking.
    Comment: One commenter agreed that public reporting on the Hospital 
Compare Web site should be considered in the future, but urged CMS to 
devote careful consideration to what type of display would be most 
useful to the public. The commenter suggested CMS conduct focus groups 
to test messaging and understanding of the data.
    Response: We recognize the importance of eventual public reporting 
of stratified outcome measures information. We will continue to 
evaluate what may be the best method or methods of publicly displaying 
stratified outcome measure information to ensure the public accurately 
understands the data. We will consider conducting focus groups or other 
outreach efforts to collect public feedback as part of this effort.
    Comment: Another commenter suggested that stratification and risk 
adjustment be a measure-by-measure consideration that is incorporated 
into the measure specifications.
    Response: We agree with the commenter that stratification and risk 
adjustment should be a measure-by-measure consideration. During the NQF 
SDS two-year trial period that ended in April 2017, we assessed 
measures individually to determine whether risk adjustment for social 
risk factors was warranted. Similarly, we are adopting a measure-by-
measure approach when considering stratification of quality measures. 
We plan to engage stakeholders through future rulemaking prior to any 
public reporting of stratified quality measures.
    Comment: One commenter did not support providing confidential 
reports to hospitals for the Pneumonia Readmission measure (NQF #0506) 
and the Pneumonia Mortality measure (NQF #0468) stratified by patient 
dual eligible status and publicly reporting stratified measure data in 
the future, raising concerns about the small sample size associated 
with measure stratification by social risk factors, which would skew 
the reliability of stratified quality measures. The commenter believed 
the proposed statistical approach using a hospital-specific indicator 
(random coefficient) for dual eligibility would allow quantification of 
the difference in readmissions between dual and non-dual eligible 
patients within each hospital only if a hospital has a sufficient 
number of cases to produce a reliable estimate for both groups. In 
other words, this approach may not be effective for hospitals with a 
small sample size of cases, and results reported for such hospitals may 
be skewed and inaccurate. The commenter suggested CMS study this issue 
further to determine the appropriate size of the patient pool to 
produce reliable results and should consider not reporting results for 
hospitals with an insufficient number of cases.
    Response: We agree with the commenter that some hospitals may have 
few dual eligible patients and that small samples sizes can skew the 
reliability of stratified quality measure results. Small sample sizes 
could be especially challenging for measure stratification because some 
hospitals might have few patients with social risk factors. One of our 
described stratification approaches (by patient group) would report 
disparities only for hospitals with at least 25 patients and 10 
patients for each sub-group. The same cut-off could be used for the 
second stratification methodology described in the proposed rule 
(specifically, measuring differences in outcomes for dual and non-dual 
beneficiaries separately). We note the overall sample size of 25 
patients is consistent with the quality outcome measures currently 
implemented. This sample size ensures our measure is reliable and 
includes as many hospitals as possible. This particular methodology 
further adjusts for small sample sizes by partially pooling the data so 
that hospitals with a small sample size and, therefore, less reliable 
estimates are pulled to the overall mean. Using this cut-off in sample 
size, preliminary analysis using the first proposed methodology (that 
is, measuring disparities in outcomes between dual and non-dual 
beneficiaries) suggests we could report disparities for 3,851 hospitals 
(82.1 percent) for the Pneumonia Readmission measure (NQF #0506) and 
3,844 hospitals (82.0 percent) for the Pneumonia Mortality measure 
stratified by dual eligibility status.
    We note that these results would be used under the first described 
stratification methodology (adding three additional factors), as 
described in section IX.A.13.b.(3)(b) of the preamble of this final 
rule, above. We also note that if we used the second described 
methodology of calculating the difference in current statistical 
models, as described in section IX.A.13.b.(3)(c) of the preamble of 
this final rule, above, we anticipate the results would not be as 
effective. We will continue to explore alternative approaches to 
determine the appropriate sample size to produce reliable results. We 
note that we would not provide disparities results or differences in 
outcomes for different patient groups if a given hospital has fewer 
than the minimum number of patients within a sub-group in the measure.
    Comment: One commenter requested that CMS publicly release the 
analytic file, model results, and research findings related to the 
pneumonia readmissions model with the added dual-eligible variables and 
recommended changes to the model should be vetted during the MAP pre-
rulemaking recommendation process. The commenter stated that during the 
NQF socio-demographic (SDS) trial period, the measure steward for the 
pneumonia readmission and mortality models, Yale Center for Outcomes 
Research and Evaluation (Yale CORE), presented their results for 
accounting for various SDS variables in the condition-specific 
readmissions models and the conclusion was that while there was a 
statistically significant relationship between dual-eligibility and 
readmissions, the addition of dual-eligible status did not improve the 
model or meaningfully change hospital results. Since this conflicts 
with the ASPE findings, the commenter would like to better understand 
the Yale CORE model.
    Response: Risk adjustment and stratification are two distinct ways 
of accounting for the importance of social risk factors on health 
outcomes. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20072 
through 20074), we detailed the findings of our modeling for the 
Pneumonia Readmission measure (NQF #0506) to share one example of 
stratified results. We note, however, that the approach presented for 
the Pneumonia Readmission measure (NQF #0506) stratification differs 
from the approach presented in the condition-specific readmission 
models described in the NQF two-year SDS trial by the measure steward. 
The analytical model and results for the NQF SDS Trial of these 
measures are publicly available on the NQF Web site at: http://
www.qualityforum.org/Project_Pages/

[[Page 38409]]

All-Cause_Admissions_and_Readmissions_2015-2017.aspx.
    As part of the SDS two-year trial, we assessed the impact of the 
addition of socioeconomic status, such as dual eligibility, in the risk 
adjustment model on readmissions on a case-by-case basis. The measure 
steward's results are largely consistent with the findings of the ASPE 
report. Both the ASPE report and the measure steward's findings show a 
relationship between socioeconomic factors and health outcomes when 
there is no other risk-adjustment. In the multi-variate, or fully 
adjusted model, results indicate that the effect of SES variables on 
readmission rates was significant but small. However, the measure 
steward has shown that adjusting for patient dual-eligible status in 
the overall measure changes hospital performance on the measure very 
little. Similarly, when ASPE simulated the effect of risk adjustment 
for patient dual eligible status on Hospital Readmissions Reduction 
Program penalties, they found that it would have a small overall impact 
on hospitals' performance and their ranking.
    Comment: One commenter discussed the two methodological approaches 
for SES stratification presented in the FY 2018 IPPS/LTCH PPS proposed 
rule. The commenter expressed a preference for reporting two rates, one 
rate for dual eligible patients and one rate for non-dual eligible 
patients, for the pneumonia readmission and mortality measures 
(Approach 2). The commenter encouraged CMS to adopt Approach 2 for now, 
because the commenter believed it minimizes the risk of mixed signals 
on measure performance. The commenter noted that Approach 2 is easier 
to understand for providers, because it uses the same risk adjustment 
model as our overall quality measures.
    The commenter continued and stated that on the other hand, Approach 
1 calculates differences in outcomes by adding three additional factors 
to the statistical model currently used in our outcome measures, 
including: (1) An indicator for patient-level dual eligibility; (2) a 
hospital-level dual eligible factor (that is, percentage of dual 
eligible patients in each hospital); and (3) a hospital-specific 
indicator (random coefficient) for dual eligibility. The commenter 
stated it would support Approach 1 if CMS decided to directly risk 
adjust measures included in the Hospital Readmissions Reduction Program 
for patient level SES.
    Response: We thank the commenter for their recommendation. As noted 
in the proposed rule and our responses above, there are potential 
merits and limitations to each approach. We will continue to explore 
multiple options and will solicit further feedback from stakeholders 
before deciding on a specific method or approach for providing 
confidential feedback reports or potential future public reporting of 
stratified measure data.
    One example of these methods could be noted in the efforts 
currently underway in the Hospital Readmissions Reduction Program under 
the 21st Century Cures Act, as described in section V.I.8. of the 
preamble of this final rule. We distinguish stratified reporting for 
the purposes of identifying disparities from the approach in the 
Hospital Readmissions Reduction Program under the 21st Century Cures 
Act that compares peers with peers based on hospital's share of 
patients with risk factors for benchmarking and/or calculation of 
payment adjustment. Further, we distinguish that the Hospital 
Readmissions Reduction Program is using this method for payment 
calculations and the Hospital IQR Program would not be using the data 
in this manner, but rather is considering these approaches as options 
for deriving confidential reports to hospitals and potential public 
reporting in the future.
    To summarize, we invited public comment on: (1) Which social risk 
factors provide the most valuable information to stakeholders; (2) 
providing hospitals with confidential preview reports containing 
stratified results for certain Hospital IQR Program measures, 
specifically the Pneumonia Readmission measure (NQF #0506) and the 
Pneumonia Mortality measure (NQF #0468); (3) a potential methodology 
for illuminating differences in outcomes rates among patient groups 
within a hospital and would also allow for a comparison of those 
differences, or disparities, across hospitals; (4) an alternative 
methodology that compares performance for patient subgroups across 
hospitals but does not provide information on within hospital 
disparities and any additional suggested methodologies for calculating 
stratified results by patient dual eligibility status; and (5) future 
public reporting of these same measures stratified by patient dual 
eligibility status on the Hospital Compare Web site, as discussed 
above.
    We thank the commenters, and we will consider all of the comments 
received as we develop policy regarding potential options for 
confidential and public reporting of Hospital IQR Program measures 
stratified by patient social risk factors, such as dual eligibility 
status and, specifically, as we develop policy regarding potential 
options on the future confidential and public reporting of the 
Pneumonia Readmission measure (NQF #0506) data and the Pneumonia 
Mortality measure (NQF #0468) data stratified specifically by patient 
dual eligibility status.
    After considering the public comments we received, we will continue 
to evaluate: (1) Which social risk factors provide the most valuable 
information to stakeholders; (2) which Hospital IQR Program outcome 
measures to provide stratified measure data; (3) how best to display 
information in the confidential hospital specific preview reports; (4) 
when to begin providing the confidential hospital specific preview 
reports; (5) potential methodologies for illuminating differences in 
outcomes; and (6) ways to most effectively publicly display this data. 
We will continue to consider beginning to provide confidential hospital 
specific preview reports as early as summer of 2018, using data from 
the FY 2019 reporting period (July 1, 2014 through June 30, 2017), 
however, it may take us longer in light of our plans for continued 
evaluation as described above and operational considerations. If we 
make such a determination to begin providing confidential hospital 
specific preview reports of measure data for the Pneumonia Readmission 
measure, the Pneumonia Mortality measure, or other outcome measures in 
the Hospital IQR Program stratified by patient dual eligibility status 
to hospitals, we will 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.
14. Reconsideration and Appeal Procedures for the FY 2020 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. 
In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20074), we did not 
propose any changes to the reconsideration and appeals procedures.
15. Change to the Hospital IQR Program Extraordinary Circumstances 
Exceptions (ECE) Policy
a. Background
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51651 through 51652), the FY 2014 IPPS/LTCH

[[Page 38410]]

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), the FY 2017 IPPS/LTCH PPS final rule (81 FR 57181 through 
57182), and 42 CFR 412.140(c)(2) for details on the current 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 the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20075), we made one proposal and a clarification 
in order to align the ECE policy across CMS quality programs. We also 
proposed updates to 42 CFR 412.140(c)(2) to reflect our ECE policy.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20074 through 
20075), we stated that many of our quality reporting and value-based 
purchasing programs share common processes for requesting an exception 
from program reporting due to an extraordinary circumstance not within 
a provider's control. The Hospital IQR Program, Hospital OQR Program, 
IPFQR Program, ASCQR Program, and PCHQR Program, as well as the 
Hospital VBP Program, HAC Reduction Program, and the Hospital 
Readmissions Reduction Program, share common processes for ECE 
requests. We refer readers to the Hospital IQR Program (76 FR 51651 
through 51652, 78 FR 50836 through 50837, 79 FR 50277, 81 FR 57181 
through 57182, and 42 CFR 412.140(c)(2)), Hospital OQR Program (77 FR 
68489, 78 FR 75119 through 75120, 79 FR 66966, and 80 FR 70524), and 
ASCQR Program (77 FR 53642 through 53643 and 78 FR 75140 through 75141) 
along with the HAC Program (80 FR 49579 through 49581), Hospital 
Readmissions Reduction Program (80 FR 49542 through 49543), IPFQR (77 
FR 53659 through 53660 and 79 FR 45978), and PCHQR Program (78 FR 
50848) for program specific information about extraordinary 
circumstances exceptions requests.
    In reviewing the policies for these programs, we recognized there 
are five areas in which these programs have variance regarding ECE 
requests. These are: (1) Allowing the facilities or hospitals to submit 
a form signed by the facility's or hospital's CEO versus CEO or 
designated personnel; (2) requiring the form be submitted within 30 
days following the date the extraordinary circumstance occurred versus 
within 90 days following the date the extraordinary circumstance 
occurred; (3) inconsistency regarding specification of a timeline for 
us to provide our formal response notifying the facility or hospital of 
our decision; (4) inconsistency regarding specification of our 
authority to grant ECEs due to CMS data system issues; and (5) 
referring to the program as ``extraordinary extensions/exemptions'' 
versus as ``extraordinary circumstances exceptions.'' We believe 
addressing these five areas across programs, can improve administrative 
efficiencies for affected facilities or hospitals.
b. Proposals To Align the Hospital IQR Program ECE Policy With Other 
CMS Quality Programs
    With the exception of the timeline for us to provide our formal 
response (item 3 above) and the nomenclature used to refer to the ECE 
process (item 5 above), the Hospital IQR Program is aligned with the 
ECE policies across the other CMS quality programs described above. In 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20075), we proposed to: 
(1) Update the nomenclature to align with the ECE policies across the 
other CMS quality programs and update the regulatory text to reflect 
this change; and (2) update our regulatory text to reflect other 
existing ECE policies. Also, we are clarifying the timing of our 
response to ECE requests. These proposals are discussed in more detail 
below.
(1) ECE Policy Nomenclature
    We have observed that while all quality programs listed above have 
developed similar policies to provide exceptions from program 
requirements to facilities that have experienced extraordinary 
circumstances, such as natural disasters, these programs refer to these 
policies using inconsistent terminology. Some programs refer to these 
policies as ``extraordinary circumstances extensions/exemptions'' while 
others refer to the set of policies as ``extraordinary circumstances 
exceptions.'' Several programs (specifically, the Hospital VBP Program, 
HAC Reduction Program, and the Hospital Readmissions Reduction Program) 
are not able to grant extensions to required data reporting timelines 
due to their reliance on data external to their program, and thus the 
term, ``extraordinary circumstances extensions/exemptions'' is not 
applicable to all programs. However, all of the described programs are 
able to offer exceptions from their reporting requirements. Therefore, 
we proposed to change the name of this policy from ``extraordinary 
circumstances extensions/exemptions'' to ``extraordinary circumstances 
exceptions'' for the Hospital IQR Program, beginning October 1, 2017, 
and to revise section 412.140(c)(2) of our regulations to reflect this 
change. We note that changing the name of this policy does not change 
the availability for a hospital to request an extension under the 
Hospital IQR Program.
    We invited public comment on this proposal as discussed above.
    Comment: Several commenters supported the proposed alignment of the 
extraordinary circumstances exceptions (ECE) policies in the Hospital 
Readmissions Reduction Program, the HAC Reduction, and the Hospital IQR 
Programs.
    Response: We thank the commenters for their support.
    Comment: A few commenters supported the proposed alignment of the 
extraordinary circumstances exceptions (ECE) policies in the Hospital 
Readmissions Reduction Program, the HAC Reduction, and the Hospital IQR 
Programs, but requested an ECE specifically for Indian Health Services 
(IHS) and tribal healthcare programs.
    Response: We thank the commenters for their support. We note that 
ECE requests for the Hospital IQR Program are considered on a case by 
case basis (81 FR 57182). We will assess the hospital's request on a 
case-by-case basis to determine if an exception is merited. Therefore, 
our decision whether or not to grant an ECE will be based on the 
specific circumstances of the hospital. For additional information 
about eCQM-related ECE requests, we refer readers to section IX.A.15. 
of the preamble of this final rule.
    We will explore the feasibility of creating a specific exemption 
policy for IHS and tribal health programs as a part of our future 
strategic initiatives.
    After consideration of the public comments we received, we are 
finalizing our proposals to change the name of this policy from 
``extraordinary circumstances extensions/exemptions'' to 
``extraordinary circumstances exceptions'' for the Hospital IQR 
Program, beginning October 1, 2017, and to revise section 412.140(c)(2) 
of our regulations to reflect this change as proposed.
(2) Timeline for CMS Response to ECE Requests
    We strive to provide our formal response notifying the facility of 
our decision within 90 days of receipt of the facility's ECE request. 
We believe that it is important for facilities to receive timely 
feedback regarding the status of ECE requests. We strive to complete 
our review of each ECE request as quickly as possible. However, we 
recognize the

[[Page 38411]]

number of requests we receive and the complexity of the information 
provided impacts the actual timeframe to make ECE determinations. To 
improve transparency of our process, we believe it is appropriate to 
clarify that we will strive to complete our review of each request 
within 90 days of receipt.
(3) Updates to CFR
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20075), we 
proposed to make conforming changes to the regulations at 42 CFR 
412.140(c)(2) to reflect our previously finalized policy that the ECE 
request form be submitted within 90 days following the date the 
extraordinary circumstance occurred (81 FR 57181 through 57182). In 
addition, we proposed to make conforming changes to the regulations to 
codify our other existing policies in the Hospital IQR Program: (1) At 
42 CFR 412.140(c)(2)(i), that a separate submission deadline of April 1 
following the end of the reporting calendar year in which the 
extraordinary circumstance occurred and applies to a hospital that 
wishes to request an extraordinary circumstances exception with respect 
to the reporting of electronic clinical quality measure data (81 FR 
57182); (2) at 42 CFR 412.140(c)(2)(ii), that at the discretion of CMS, 
an exception may be granted to a hospital if a systemic problem arises 
with CMS data collection systems which directly affected the ability of 
a hospital to submit data (78 FR 50837), and that CMS may also grant 
exceptions to hospitals that have not requested them if an 
extraordinary circumstance affects an entire region or locale (76 FR 
51651).
    We invited public comments on these proposals as discussed above.
    We received no public comments on our proposals to make conforming 
changes to the regulations to codify certain existing policies in the 
Hospital IQR Program. Therefore, we are finalizing our proposals to 
make conforming changes to the regulations to codify certain existing 
policies in the Hospital IQR Program as proposed.

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.
    The PCHQR Program strives to put patients first by ensuring they 
are empowered to make decisions about their own healthcare along with 
their clinicians using information from data-driven insights that are 
increasingly aligned with meaningful quality measures. We support 
technology that reduces burden and allows clinicians to focus on 
providing high quality health care for their patients. We also support 
innovative approaches to improve quality, accessibility, and 
affordability of care while paying particular attention to improving 
clinicians' and beneficiaries' experience when interacting with CMS 
programs. In combination with other efforts across the Department of 
Health and Human Services, we believe the PCHQR Program helps to 
incentivize hospitals to improve healthcare quality and value, while 
giving patients the tools and information needed to make the best 
decisions for them. We recognize that the PCHQR Program represents a 
key component of the way that we provide patients with quality 
measurement data for use in healthcare decision-making, and we have 
made efforts to review existing policies to identify how to move the 
program forward in the least burdensome manner possible while 
continuing to incentivize improvement in the quality of care provided 
to patients. 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); the FY 2016 IPPS/LTCH PPS final rule (80 
FR 49713 through 49723); and the FY 2017 IPPS/LTCH PPS final rule (81 
FR 57182 through 57193).
2. Criteria for Removal and Retention of PCHQR Program Measures
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57182 through 
57183), we adopted policies 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. We adopted 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 consider a measure to be ``topped-out'' if there is 
statistically indistinguishable performance at the 75th and 90th 
percentiles and the truncated coefficient of variation is less than or 
equal to 0.10.
    However, we recognized 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 adopted the 
following criteria for consideration in determining whether to retain a 
measure in the PCHQR Program, 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.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20076), we did 
not propose any changes to these policies.
3. Retention and Removal of Previously Finalized Quality Measures for 
PCHs Beginning With the FY 2020 Program Year
a. Background
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556 through 
53561), we

[[Page 38412]]

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. In the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57183 through 57184), for the FY 
2019 program year and subsequent years, we finalized one additional 
quality measure and updated the Oncology: Radiation Dose Limits to 
Normal Tissues (NQF #0382) measure.
    We refer readers to the final rules referenced in section IX.B.1. 
of the preamble of this final rule for more information regarding these 
previously finalized measures.
b. Removal of Measures From the PCHQR Program Beginning With the FY 
2020 Program Year
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20076 through 
20077), based on a review of the above criteria, we proposed to remove 
the following clinical process/cancer specific treatment measures from 
the PCHQR Program beginning with the FY 2020 program year because they 
are topped-out:
     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 (PCH-01/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 (PCH-
02/NQF #0559); and
     Adjuvant Hormonal Therapy (PCH-03/NQF #0220).
    We first adopted these three Clinical Process/Cancer Specific 
Treatment measures for the FY 2014 program year in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53556 through 53561). We refer readers to 
that rule for a detailed discussion of the measures. However, based on 
an analysis of data from January 1, 2014 through September 30, 2015, we 
have determined that these three measures meet our topped-out criteria. 
This analysis, performed by the HCQIS Reports and Analytics Team, 
evaluated data sets provided from Program Data Management and 
calculated the 5th, 10th, 25th, 50th, 75th, 90th, and 95th percentiles 
of national facility performance for each measure. For measures where 
higher values indicate better performance, the percent relative 
difference (PRD) between the 75th and 90th percentiles were obtained by 
taking their absolute difference divided by the average of their values 
and result multiplied by 100. To calculate the truncated coefficient of 
variation (TCV), the lowest 5 percent and the highest 5 percent of 
hospital rates were discarded before calculating the mean and standard 
deviation for reach measure.
    The following criteria were applied to the results:
     For measures ranging from 0-100 percent, with 100 percent 
being best, national measure data for the 75th and 90th percentiles 
have a relative difference of <=5 percent, or for measures ranging from 
0-100 percent, with 100 percent being the best, performance achieved by 
the median hospital is >=95 percent, and national measure data have a 
truncated coefficient of variation <=0.10.
     For measures ranging from 0-100 percent, with 0 percent 
being best, national measure data for the complement of the 10th and 
25th percentiles have a relative difference of <=5 percent, or for 
measures ranging from 0-100 percent, with 0% being best, national 
measure data for the median hospital is <=5 percent, or for other 
measures with a low number indicating good performance, national 
measure data for the 10th and 25th percentiles have a relative 
difference of <=5 percent, and national measure data have a truncated 
coefficient of variation <=0.10.
    The results for 2014 and 2015 are set out in the tables below.

                                                     Topped-Out Analysis Results for PCHQR Measures
                                                                         [2014]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       75th            90th          Relative
             Measure                   Mean           Median        Percentile      Percentile    difference (%)        TCV             Topped-out
--------------------------------------------------------------------------------------------------------------------------------------------------------
PCH-01..........................           .9680           .9800          1.0000          1.0000          0.0000           .0313  Yes
PCH-02..........................           .9501           .9595           .9821          1.0000          1.8018           .0358  Yes
PCH-03..........................           .9714           .9682           .9823           .9930          1.0807           .0149  Yes
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                     Topped-Out Analysis Results for PCHQR Measures
                                                                         [2015]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       75th            90th          Relative
             Measure                   Mean           Median        Percentile      Percentile    difference (%)        TCV             Topped-out
--------------------------------------------------------------------------------------------------------------------------------------------------------
PCH-01..........................           .9824          1.0000          1.0000          1.0000          0.0000           .0169  Yes
PCH-02..........................           .9389           .9434           .9750          1.0000           2.532           .0431  Yes
PCH-03..........................           .9383           .9449           .9556           .9703           1.535           .0232  Yes
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Based on this analysis, we have concluded that these three measures 
are topped-out and, as discussed below, we believe that collecting PCH 
data on these measures does not further program goals.
    We believe that continuing to collect PCH data on these measures 
does not further program goals of improving quality, given that measure 
performance is so high and unvarying that meaningful distinctions and

[[Page 38413]]

improvements in performance can no longer be made. We believe that 
these measures also do not meet the criteria for retention of an 
otherwise topped-out measure, as they do not align with other HHS and 
CMS policy goals, such as moving toward outcome measures; do not align 
with other CMS programs; and do not support the movement to electronic 
clinical quality measures due to the chart abstraction required to 
collect the data for these measures. If we determine at a subsequent 
point in the future that hospital adherence to these practices has 
unacceptably declined, we may propose to readopt these measures in 
future rulemaking.
    We invited public comment on our proposal to remove these three 
measures from the PCHQR Program beginning with the FY 2020 program 
year.
    Comment: Several commenters agreed with the proposal to remove the 
three cancer-specific measures from the PCHQR Program because they meet 
topped-out criteria. Commenters agreed that, once topped-out, the 
measures no longer add value to the program, and removing them will 
remove the burden of collecting and submitting the performance data.
    Response: We thank the commenters for their support.
    Comment: One commenter recommended that the measures be removed as 
quickly as possible, and to cease public reporting of the data once the 
last quarter of data is publicly posted. The commenter stated that 
waiting until the FY 2020 program year would continue to impose an 
unwarranted data burden on providers to collect data for measures that 
are known to be topped-out.
    Response: We thank the commenter for the recommendation. We 
understand that continuing to submit performance data on measures that 
meet topped-out criteria while the measures are in the process of being 
discontinued is burdensome. At this time, we expect to begin removing 
the measures beginning with diagnoses occurring as of January 1, 2018 
which will result in the last reporting of the three measures in 
February 2019.
    Comment: One commenter expressed concern that the removal of three 
cancer-specific measures at once would leave a gap in the measure set's 
clinical process domain.
    Response: We appreciate the commenter's concern. As the PCHQR 
Program evolves, it is necessary for us to evaluate whether existing 
measures continue to meet Program goals and advance the Program. We 
have concluded that these measures are topped-out pursuant to our 
topped-out criteria and no longer advance the goals of the program 
because measure performance is so high and unvarying that meaningful 
distinctions and improvements in performance can no longer be made; 
therefore, continued data collection and public reporting does not 
further program goals of improving quality. In addition, these measures 
do not meet our criteria for retention because they do not align with 
other HHS and CMS policy goals, such as moving toward outcome measures; 
do not align with other CMS programs; and do not support the movement 
to electronic clinical quality measures due to the chart abstraction 
required to collect the data for these measures. For these reasons, we 
believe that their removal is appropriate. We will continue to evaluate 
the measure set on an annual basis to ensure that we are addressing 
gaps in the measure set.
    Comment: One commenter stated that the removal of the three 
measures would result in the measure set no longer addressing care 
provided to two very common cancer types in the elderly population: 
breast and colon cancer.
    Response: We appreciate the commenter's concern. We recognize that 
breast and colon cancer are both common cancer types, and we note that 
our measure set also contains measures specific to prostate cancer and 
to a broader set of cancers. As we maintain and evolve the PCHQR 
Program measure cohort, we take into consideration not just the 
specific cancer types addressed under a measure, but also whether the 
measures meet program and CMS goals. In this instance, we believe it is 
in the interest of program goals to remove these three topped-out 
clinical process measures despite the cancers they address as they do 
not meet the goal of moving toward outcomes measures, do not align with 
other CMS programs, and do not support the movement to electronic 
clinical quality measures due to the chart abstraction required to 
collect the data for these measures. We also do not believe it is in 
the best interest of the program to continue to require PCHs to report 
on measures for which the performance level is so high and unvarying 
that meaningful distinctions and improvements in performance can no 
longer be made and therefore does not further program goals of 
improving quality.
    Comment: One commenter disagreed with the conclusion that the 
measures are topped-out, citing data that it gathered from its own 
clinical data registry of over 1,300 reporting programs that indicate 
disparities in measure performance.
    Response: We appreciate the commenter's views. We have proposed to 
remove the measures from the PCHQR Program because our analysis shows 
that the measures are topped-out for the cancer hospitals that 
participate in the PCHQR Program. Measure performance for the small 
group of providers that make up the PCHs is, unsurprisingly, different 
than that gathered from a broader range of providers in a much larger 
population of 1,300. As we stated, we will continue to monitor 
performance in this area and reserve the option to propose to 
reintroduce these measures if we feel that performance merits such 
reintroduction.
    Comment: One commenter recommended retaining the three measures as 
a composite measure to continue to measure compliance, particularly in 
sub-populations that demonstrate disparities in care.
    Response: We thank the commenter for the suggestion. We have 
proposed to remove the three measures from the PCHQR Program because 
our analysis of measure performance indicates that they meet the 
program's topped-out criteria, and that measure performance is so high 
or unvarying that no meaningful distinctions can be drawn from 
continued performance reporting. Given the burden of the chart 
abstraction required to collect these three measures, it is not 
practicable to retain these topped-out measures in the program as a 
composite measure when performance has been shown to be consistently 
high over more than one performance period. We also do not believe a 
composite measure would address the issue of the measures' topped-out 
status, which is an issue of lack of variation in performance. We will 
continue to evaluate the measure set in each rulemaking cycle, and 
should we determine that these measures should be reintroduced in 
future rulemaking, we will take commenter's suggestion under 
consideration.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove the following clinical process/cancer 
specific treatment measures from the PCHQR Program beginning with the 
FY 2020 program year because they are topped-out:
     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 (PCH-01/NQF #0223);

[[Page 38414]]

     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 (PCH-
02/NQF #0559); and
     Adjuvant Hormonal Therapy (PCH-03/NQF #0220).
4. New Quality Measures Beginning With the FY 2020 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 take 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 the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20077), we did not propose 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 proposed four new measures, described below.
b. New Quality Measures Beginning With the FY 2020 Program Year
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20077 through 
20081), beginning with the FY 2020 PCHQR program year, we proposed to 
adopt two clinical process measures and two intermediate clinical 
outcome quality measures. These measures meet the requirement under 
section 1866(k)(3)(A) of the Act that measures specified for the PCHQR 
Program be endorsed by the entity with a contract under section 1890(a) 
of the Act (currently the NQF). Although there is no financial 
incentive or penalty associated with the PCHQR Program, we encourage 
participation to further the goal of improving the quality of care for 
the PCH patient population. The proposed measures are:
     Proportion of Patients Who Died from Cancer Receiving 
Chemotherapy in the Last 14 Days of Life (NQF #0210);
     Proportion of Patients Who Died from Cancer Admitted to 
the ICU in the Last 30 Days of Life (NQF #0213);
     Proportion of Patients Who Died from Cancer Not Admitted 
to Hospice (NQF #0215); and
     Proportion of Patients Who Died from Cancer Admitted to 
Hospice for Less Than Three Days (NQF #0216).
    In compliance with section 1890A(a)(2) of the Act, the proposed 
measures were included on a publicly available document entitled ``List 
of Measures under Consideration for December 1, 2016,'' \298\ a list of 
quality and efficiency measures under consideration for use in various 
Medicare programs, and were reviewed by the MAP Hospital Workgroup. The 
MAP Hospital Workgroup supported the inclusion of these measures in the 
PCHQR Program in final recommendations it made in its February 2017 
report to HHS and CMS for 2016 to 2017.\299\ Additional details on MAP 
discussions of these measures may be found in the ``MAP Pre-Rulemaking 
Report: 2016 Recommendations on Measures Under Consideration by HHS,'' 
with additional discussion in the ``MAP 2017 Considerations for 
Implementing Measures in Federal Programs: Hospitals (Draft Report).'' 
\300\ The sections below outline our rationale for proposing these 
measures.
---------------------------------------------------------------------------

    \298\ Centers for Medicare and Medicaid Services, List of 
Measures under Consideration for December 1, 2016. Available at: 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Downloads/Measures-under-Consideration-List-for-2016.pdf.
    \299\ National Quality Forum. Measures Application Partnership 
Hospital Workgroup. MAP 2016-2017 Spreadsheet of Final 
Recommendations to HHS and CMS. Available at: http://www.qualityforum.org/MAP_Hospital_Workgroup.aspx.
    \300\ National Quality Forum. Measures Application Partnership 
Hospital Workgroup. MAP 2016-2017 Preliminary Recommendations. 
Available at: http://www.qualityforum.org/MAP_Hospital_Workgroup.aspx. National Quality Forum. Measures 
Application Partnership Hospital Workgroup. Draft for Comment, MAP 
2017 Considerations for Implementing Measures in Federal Programs: 
Hospitals. Available at: http://www.qualityforum.org/Project_Pages/MAP_Hospital_Workgroup.aspx.
---------------------------------------------------------------------------

(1) Background
    The quality of end-of-life care has been identified by the NQF as 
an area of care that continues to need improvement.\301\ End-of-life 
care may be defined as ``comprehensive care that addresses medical, 
emotional, spiritual, and social needs during the last stages of a 
person's terminal illness,'' \302\ and may include palliative care. 
Palliative care is generally defined as multi-faceted, holistic care 
that anticipates, prevents, and alleviates suffering.\303\ Both 
palliative and end-of-life care can be provided when a patient is 
receiving hospice services, but it is not necessary to be admitted to 
hospice to receive such care. The NQF notes that hospice is both a type 
of care team and a care philosophy, and is intended to enable patients 
to prepare for death while living as fully as possible.\304\ The 
Institute of Medicine of the National Academies (IOM) has noted that 
while clinicians are encouraged to counsel patients about palliative 
care, which betters chances of maintaining a high quality of life when 
dying, ``too few patients and families receive this help in a timely 
manner.'' \305\ In the same report, the IOM proposed a number of core 
components of quality end-of-life care. These proposals included 
offering a referral to hospice if a patient ``has a prognosis of 6 
months or less'' and regular revision of a patient's care plan to 
address the patient's changing needs, as well as the changing needs of 
the family.\306\
---------------------------------------------------------------------------

    \301\ National Quality Forum, Technical Report. Palliative and 
End-of-Life Care 2015-2016. (December 23, 2016).
    \302\ National Quality Forum, Technical Report. Palliative and 
End-of-Life Care 2015-2016. (December 23, 2016).
    \303\ National Quality Forum, Technical Report. Palliative and 
End-of-Life Care 2015-2016. (December 23, 2016).
    \304\ National Quality Forum, Technical Report. Palliative and 
End-of-Life Care 2015-2016. (December 23, 2016).
    \305\ Committee on Approaching Death: Addressing Key End of Life 
Issues, Institute of Medicine: Dying in America: Improving Quality 
and Honoring Individual Preferences Near the End of Life. Washington 
DC, National Academies Press, 2015.
    \306\ Committee on Approaching Death: Addressing Key End of Life 
Issues, Institute of Medicine: Dying in America: Improving Quality 
and Honoring Individual Preferences Near the End of Life. Washington 
DC, National Academies Press, 2015.
---------------------------------------------------------------------------

    In addition to all of the quality of care benefits of end-of-life 
care to patients and caregivers, there are financial cost benefits as 
well. In its Technical Report on palliative and end-of-life care, the 
NQF cited research indicating that the use of palliative care, 
including end-of-life care, results in various positive outcomes, 
including a reduction of

[[Page 38415]]

costs.\307\ For example, one study evaluated the impact of hospice 
enrollment at different time periods on Medicare expenditures, and 
found that regardless of when a patient was enrolled in hospice, such 
patients' subsequent Medicare costs were significantly lowered.\308\
---------------------------------------------------------------------------

    \307\ NQF. Final Report, National Voluntary Consensus Standards: 
Palliative Care and End-of-Life Care--A Consensus Report. 2012.
    \308\ Kelley AS et al., Hospice Enrollment Saves Money for 
Medicare and Improves Care Quality Across a Number of Different 
Lengths-of-Stay, Health Affairs (March 2013)32:3;552-561.
---------------------------------------------------------------------------

    Despite the benefits attributed to the use of palliative and end-
of-life services and the increase in their availability, the NQF and 
others have noted that such services remain underutilized. By proposing 
to include two process measures and two intermediate clinical outcome 
measures related to end-of-life care in the PCHQR Program, our intent 
is to assess the quality of end-of-life care provided to patients in 
the PCH setting. We recognize that these measures may also be used in 
the broader population of all hospitals providing cancer care; 
therefore, as discussed in section IX.A.9.b. of the preamble of this 
final rule, we invited public comment on the future inclusion of these 
measures in the Hospital IQR Program. These four measures are described 
in more detail below.
    Comment: Several commenters generally addressed all four measures. 
Several commenters supported the introduction of the end-of-life 
measures into the PCHQR measure set, but recommended that we also adopt 
measures that focus on care planning to ensure that patients are given 
opportunity to engage in meaningful end-of-life care discussions. Some 
commenters expressed concern that measuring end-of-life care processes 
and outcomes could result in unintended consequences and incentives to 
stint on necessary care, and believed that patient and family 
engagement is necessary to ensure that patient preferences are 
considered. Some commenters recommended that we update the measure 
specifications for all of the proposed measures to incorporate updates 
to the ICD-10 and CPT code lists. Finally, several commenters agreed 
that risk adjustment and risk stratification are not necessary for the 
end-of-life measures proposed.
    Response: We appreciate the commenters' suggestions and concerns. 
We believe that the inclusion of the proposed measures in the program 
will lead to more, not less, patient and family engagement, because the 
measures draw attention to the need to understand and clarify patient 
wishes regarding end-of-life care. Evidence cited by the measure 
developers and in other research indicates that when death is imminent, 
providing less aggressive care can improve quality of life for 
patients. We believe that end-of-life care that adapts to patient 
experience and need does not result in stinted care, but instead 
reshapes that care pursuant to changing patient needs and incorporation 
of patient wishes. We note that these measures are a first step that 
seeks to broadly assess what is happening in PCHs at the end of life, 
and will provide a baseline picture of existing end-of-life care at 
those hospitals. We will continue to consider other measures for future 
introduction into the program that can complement the proposed 
measures, and we welcome input from stakeholders as we do so.
(2) Proportion of Patients Who Died From Cancer Receiving Chemotherapy 
in the Last 14 Days of Life (EOL-Chemo) Measure (NQF #0210)
    Chemotherapy is typically used to treat cancer, but in patients 
with incurable cancer it may also be used with the goal of easing 
symptoms and improving survival.\309\ One study estimated that 6.2 
percent of cancer patients continue receiving chemotherapy close to the 
end of their lives (defined as within 2 weeks of death).\310\ However, 
studies have shown that administering palliative chemotherapy to 
terminally ill cancer patients may not be beneficial, as it may be 
associated with higher rates of interventions such as cardiopulmonary 
resuscitation in the last week of life without any difference in 
survival.\311\ Such patients may also be more likely to die in the 
intensive care unit (ICU), and less likely to die either at home or in 
the place where they had expressed preference to die.\312\ In addition, 
research has shown that some patients may receive chemotherapy for 
treatment instead of palliative care at the end of life, even when 
treatment has been determined to be unnecessary.\313\ While the impetus 
for continuing treatment may vary from case to case,\314\ the available 
evidence indicates continuing to receive chemotherapy--for palliation 
or treatment--toward the end of a patient's illness is associated with 
increased hospitalization and may be associated decreased experience of 
care.
---------------------------------------------------------------------------

    \309\ Wright A et al., Associations Between Palliative 
Chemotherapy and Adult Cancer Patients' End of Life Care and Place 
of Death: Prospective Cohort Study, BMJ 2014;348:g1219.
    \310\ Wright A et al., Associations Between Palliative 
Chemotherapy and Adult Cancer Patients' End of Life Care and Place 
of Death: Prospective Cohort Study, BMJ 2014;348:g1219.
    \311\ Wright A et al., Associations Between Palliative 
Chemotherapy and Adult Cancer Patients' End of Life Care and Place 
of Death: Prospective Cohort Study, BMJ 2014;348:g1219.
    \312\ Wright A et al., Associations Between Palliative 
Chemotherapy and Adult Cancer Patients' End of Life Care and Place 
of Death: Prospective Cohort Study, BMJ 2014;348:g1219.
    \313\ Mack JW et al., Patient Beliefs that Chemotherapy May be 
Curative and Care Received at the End of Life Among Patients with 
Metastatic Lung and Colorectal Cancer, Cancer (June 1, 
2015)121:11;1891-1897.
    \314\ Mack JW et al., Patient Beliefs that Chemotherapy May be 
Curative and Care Received at the End of Life Among Patients with 
Metastatic Lung and Colorectal Cancer, Cancer (June 1, 
2015)121:11;1891-1897.
---------------------------------------------------------------------------

    Researchers have also observed that patients receiving chemotherapy 
late into the course of a terminal illness tended to be referred to 
hospice later, resulting in lower quality of life, distress for 
caregivers, and increased cost.\315\ They noted that their results 
could suggest that either less use chemotherapy at the end of life or 
more frequent end-of-life discussions could improve the quality of 
those patients' end-of-life care.\316\ Another study of early 
engagement in palliative care in patients diagnosed with metastatic 
lung cancer found that patients who received palliative care and less 
chemotherapy survived longer, in addition to experiencing improvement 
in quality of life.\317\ In this study, palliative care was integrated 
into standard oncologic care, and included an assessment of physical 
and psychosocial symptoms as well as care decision assistance.\318\ 
Results from this study showed significantly higher quality of life in 
the patient cohort receiving palliative care compared to those 
receiving only the standard oncologic care.\319\ In particular,

[[Page 38416]]

clinically meaningful improvements in quality of life and mood were 
noted.\320\
---------------------------------------------------------------------------

    \315\ Wright A et al., Associations Between Palliative 
Chemotherapy and Adult Cancer Patients' End of Life Care and Place 
of Death: Prospective Cohort Study, BMJ 2014;348:g1219.
    \316\ Wright A et al., Associations Between Palliative 
Chemotherapy and Adult Cancer Patients' End of Life Care and Place 
of Death: Prospective Cohort Study, BMJ 2014;348:g1219.
    \317\ Committee on Approaching Death: Addressing Key End of Life 
Issues, Institute of Medicine: Dying in America: Improving Quality 
and Honoring Individual Preferences Near the End of Life. Washington 
DC, National Academies Press, 2015 (citing Temel JC et al. Early 
Palliative Care for Patients with Metastatic Non-Small-Cell Lung 
Cancer. NEJM. 2010; 363:733-742).
    \318\ Temel JC et al. Early Palliative Care for Patients with 
Metastatic Non-Small-Cell Lung Cancer. NEJM. 2010; 363:733-742.
    \319\ Temel JC et al. Early Palliative Care for Patients with 
Metastatic Non-Small-Cell Lung Cancer. NEJM. 2010; 363:733-742.
    \320\ Temel JC et al. Early Palliative Care for Patients with 
Metastatic Non-Small-Cell Lung Cancer. NEJM. 2010; 363:733-742.
---------------------------------------------------------------------------

    The proposed EOL-Chemo measure addresses the NQS Communication and 
Care Coordination and Affordable Care domains, and aligns with the CMS 
Quality Strategy goals of strengthening person and family engagement as 
partners in their care, and promoting effective communication and 
coordination of care. The proposed measure is a process measure that 
evaluates the proportion of patients who died from cancer who received 
chemotherapy in the last 14 days of life. Similar to the other three 
end-of-life measures we proposed, this proposed measure seeks to assess 
the use of chemotherapy at the end-of-life, a practice advanced with 
the intent to alleviate disease symptoms but which has been shown to 
also be associated with reduced quality of life and increased costs. 
This measure was finalized for use in the Merit-based Incentive Payment 
System (MIPS) in the FY 2017 MIPS final rule with comment period (81 FR 
77672). By introducing this measure here, we are seeking to evaluate 
how often chemotherapy is administered near the end of life in PCHs.
    The proposed EOL-Chemo measure cohort includes all Medicare 
beneficiaries who died of cancer and who received chemotherapy at a PCH 
within the last 14 days of their lives. The proposed measure uses 
Medicare administrative claims data to derive the numerator and 
denominator. The numerator for this measure is defined as cancer 
patients who received chemotherapy (regardless of whether for treatment 
or palliative purposes) in the last fourteen days of life. The 
denominator is defined as patients who died from cancer. Patients for 
whom numerator or denominator data cannot be identified will not be 
included in the calculation. The measure specifications contain no 
exclusions, risk adjustments or risk stratifications because the 
measure is intended to evaluate the quality of care provided to all 
cancer patients at the end of life. The measure will be calculated as 
the numerator divided by the denominator. Measure specifications for 
the proposed EOL-Chemo measure can be accessed on the NQF's Web site 
at: http://www.qualityforum.org/Publications/2016/12/Palliative_and_End-of-Life_Care_2015-2016.aspx.
    We invited public comment on our proposal to adopt the Proportion 
of Patients Who Died from Cancer Receiving Chemotherapy in the Last 14 
Days of Life (NQF #0210) measure for the FY 2020 program year and 
subsequent years.
    Comment: Many commenters supported the introduction of the EOL-
Chemo measure into the PCHQR Program. Commenters stated that the 
measure will improve care for cancer patients by encouraging providers 
to have difficult but necessary conversations with their patients; that 
it addresses treatment that could lead to unnecessary and futile care; 
that in concert with the other end-of-life measures proposed, this 
measure will promote accountability and drive improvement; and because 
it addresses a measurement gap. Commenters also noted that the measure 
was recently re-endorsed by the NQF.
    Response: We thank the commenters for their support.
    Comment: Several commenters recommended modification of the measure 
specifications to incorporate exclusions for patient preference, 
patients in clinical trials, and palliative chemotherapy, and urged 
recognition in reporting that a performance rate of zero is not the 
goal.
    Response: The measure is intended to gather information on the 
proportion of patients who receive chemotherapy close to the end of 
life regardless of the purpose of that chemotherapy and, to that end, 
does not distinguish between curative and palliative chemotherapy, or 
patients receiving chemotherapy as part of a clinical trial. We 
appreciate that commenters find it important to distinguish between 
chemotherapy used for palliative purposes as opposed to curatively, as 
well as the fact that some patients may choose to continue to receive 
curative or experimental chemotherapy until the end of life, perhaps 
despite medical advice. We do not believe, however, that it would be 
appropriate to modify measure specifications during the rule process 
without sufficient data analysis and clinical review to assess 
appropriateness for the measures. As with all measures adopted for the 
PCHQR Program, we will monitor the measure and continue to assess its 
use in the program as specified over time. We agree that a performance 
rate of zero is not a reasonable goal, and note this is not the intent 
of the measure. We will evaluate ways to address this as part of 
publicly reporting measure data in the future. After consideration of 
the public comments we received, we are finalizing our proposal to 
adopt the Proportion of Patients Who Died from Cancer Receiving 
Chemotherapy in the Last 14 Days of Life (NQF #0210) measure for the FY 
2020 program year and subsequent years.
(3) Proportion of Patients Who Died From Cancer Admitted to the ICU in 
the Last 30 Days of Life (EOL-ICU) Measure (NQF #0213)
    A number of research studies have determined that cancer care can 
become more aggressive at the end of life, which can result in a lower 
quality of care and lower quality of life.\321\ Care defined as 
``aggressive'' may include the ``possible misuse of treatment resulting 
in high rates of emergency room visits, hospitalization, or ICU stays 
for terminal patients'' in addition to overuse of chemotherapy close to 
death and the underuse of hospice.\322\ In a retrospective study of 
patients with advanced lung cancer, researchers found that between 1993 
and 2002, the number of patients being admitted to the ICU near death 
increased, and while in the ICU, one in four of those patients received 
mechanical ventilation, despite the likelihood that neither 
intervention would necessarily have effect on the advanced cancer.\323\ 
In this study, two-thirds of the patients died within a month of their 
admission to the ICU, which the authors interpreted as demonstrating 
that ICU admission in the context of advanced lung cancer was 
potentially ineffective.\324\ The authors noted other studies that 
showed that in-hospital mortality during ICU admissions exact a toll on 
patients and families in terms of ``financial cost, emotional burden, 
and failed expectations.'' \325\ The impact of ICU admission at the end 
of life is also observed amongst caregivers, who report excellent end-
of-life care less often for patients admitted to the ICU within 30 days 
of death compared to those who are not.\326\
---------------------------------------------------------------------------

    \321\ Barbera L et al., Quality of End-of-Life Cancer Care in 
Canada: A Retrospective Four-Province Study Using Administrative 
Health Care Data, Oncology (October 2015)22:5;341-355; Earle CC et 
al. Aggressiveness of Cancer Care Near the End of Life: Is It a 
Quality-of-Care Issue? Journal of Clinical Oncology. 2008; 26:23, 
3860-3866.
    \322\ Earle CC et al. Aggressiveness of Cancer Care Near the End 
of Life: Is It a Quality-of-Care Issue? Journal of Clinical 
Oncology. 2003; 26:23, 3860-3866.
    \323\ Sharma G et al., Trends in End-of-Life ICU Use Among Older 
Adults with Advanced Lung Cancer, Chest (January 2008)133:1;72-78.
    \324\ Sharma G et al., Trends in End-of-Life ICU Use Among Older 
Adults with Advanced Lung Cancer, Chest (January 2008)133:1;72-78.
    \325\ Sharma G et al., Trends in End-of-Life ICU Use Among Older 
Adults with Advanced Lung Cancer, Chest (January 2008)133:1;72-78.
    \326\ Wright AA et al., Family Perspectives on Aggressive Cancer 
Care Near the End of Life, JAMA (2016)315:3;284-292.

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

[[Page 38417]]

    Patients who are not admitted to the ICU or involved in other 
aggressive mechanisms of care in their final week of life have been 
shown to experience a higher quality of life via less physical and 
emotional distress.\327\ Researchers have theorized that while patients 
who die at home are able to have care that focuses on symptom 
management and comfort; hospitals and ICUs focus instead on keeping the 
patient alive.\328\
---------------------------------------------------------------------------

    \327\ Zhang B et al., Factors Important to Patients' Quality-of-
Life at the End-of-Life, Arch. Intern. Med (August 13, 
2012)172:15;1133-1142; Wright AA et al., Place of Death: 
Correlations with Quality of Life of Patients with Cancer and 
Predictors of Bereaved Caregivers' Mental Health, J Clin Oncol 
(October 10, 2010)28:29;4457-4464.
    \328\ Wright AA et al., Place of Death: Correlations with 
Quality of Life of Patients with Cancer and Predictors of Bereaved 
Caregivers' Mental Health, J Clin Oncol (October 10, 
2010)28:29;4457-4464.
---------------------------------------------------------------------------

    ICU admission at the end of life is also costly,\329\ with ICU 
admissions identified as one of the ``key drivers of resource use and 
expenditures.'' \330\ Studies of claims data indicate that 
aggressiveness of care given to Medicare beneficiaries with cancer at 
the end of life continues to increase, with nearly 25 percent of 
Medicare expenditures in the last month of such beneficiaries' lives, 
despite limited evidence that such an intervention improves patient 
outcomes.\331\
---------------------------------------------------------------------------

    \329\ Wright AA et al., Place of Death: Correlations with 
Quality of Life of Patients with Cancer and Predictors of Bereaved 
Caregivers' Mental Health, J Clin Oncol (October 10, 
2010)28:29;4457-4464.
    \330\ Langton JL et al., Retrospective Studies of End-of-Life 
Resource Utilization and Costs in Cancer Care Using Health 
Administrative Data: A Systematic Review, Palliative Medicine 
(2014)28:10;1167-1196.
    \331\ Wright AA et al. Place of Death: Correlations with Quality 
of Life of Patients with Cancer and Predictors of Bereaved 
Caregivers' Mental Health. Journal of Clinical Oncology. 
(2010)28:4457-4464.
---------------------------------------------------------------------------

    The proposed EOL-ICU measure addresses the NQS Communication and 
Care Coordination and Affordable Care domains, and addresses several 
CMS Quality Strategy goals: making care safer by reducing harm caused 
in the delivery of care; strengthening person and family engagement as 
partners in their care; and promoting effective communication and 
coordination of care. The proposed EOL-ICU measure is an intermediate 
clinical outcome measure that assesses whether cancer patients were 
admitted to the ICU in the last 30 days of their lives. As with the 
other three proposed end-of-life measures discussed in section 
IX.B.4.b. of the preamble of this final rule, this proposed measure 
seeks to evaluate the end-of-life care provided to patients at PCHs. In 
particular, we seek to assess the frequency of end-of-life admissions 
to the ICU in this setting, as the research has shown that 
interventions provided in the ICU to patients with irreversible disease 
can be futile and may negatively impact patients' quality of life. We 
recognize, however, that in some cases ICU admissions may be 
appropriate, and note that this measure broadly assesses how many 
patients are admitted to the ICU close to death, without excluding 
admissions for specific reasons.
    The proposed EOL-ICU measure cohort includes Medicare beneficiaries 
who are PCH patients who died of cancer and who were admitted to the 
ICU within the last thirty days of their lives. This proposed measure 
uses Medicare administrative claims data to derive the numerator and 
denominator. The numerator for this measure is defined as the number of 
patients who died from cancer and who were admitted to the ICU in the 
last 30 days of life. The denominator is defined as patients who died 
from cancer. The measure specifications do not contain exclusions from 
the denominator and do not provide for risk adjustment or risk 
stratification in order to assess the quality of care provided to all 
cancer patients at the end of life. The rate of ICU admissions in the 
last 30 days of life will be calculated from the numerator divided by 
the denominator. Measure specifications for the proposed EOL-ICU 
measure can be accessed on the NQF's Web site at: http://www.qualityforum.org/Publications/2016/12/Palliative_and_End-of-Life_Care_2015-2016.aspx.
    We invited public comment on our proposal to adopt the Proportion 
of Patients Who Died from Cancer Admitted to the ICU in the Last 30 
Days of Life (NQF #0213) measure for the FY 2020 program year and 
subsequent years.
    Comment: Many commenters supported the introduction of the EOL-ICU 
measure into the PCHQR Program. Commenters expressed that the measure 
will improve care for cancer patients by encouraging providers to have 
difficult but necessary conversations with their patients as well as 
allowing PCHs to identify where patients need additional supportive 
care; that it addresses treatment that could lead to unnecessary and 
futile care; that in concert with the other end-of-life measures 
proposed, this measure will promote accountability and drive 
improvement; and because it addresses a measurement gap. Commenters 
also noted that the measure was recently re-endorsed by the NQF and 
that the measure aligns with NQF's goal to improve end-of-life care.
    Response: We thank the commenters for their support.
    Comment: Several commenters recommended modification of the measure 
specifications to incorporate exclusions for bone marrow transplants 
with curative intent as well as exclusions for other patient 
characteristics. One commenter recommended against public reporting of 
the EOL-ICU measure or introducing the measure into quality programs 
tied to payment until adjustments to the specifications are made to 
account for patient characteristics.
    Response: We thank the commenters for these recommendations. The 
measure is intended to gather information on the proportion of patients 
admitted to the ICU close to the end of life and, to that end, does not 
distinguish between reasons for admission because the measure's goal is 
to assess such admissions overall for the cancer population regardless 
of reason for admission to the ICU. As the data is reported, we can 
determine whether there is a need to further evolve the program and 
measure specifications to account or exclude for specific reasons for 
admission. We do not believe, however, that it would be appropriate to 
modify measure specifications during the rule process without 
sufficient data analysis and clinical review to assess appropriateness 
for the measures. Finally, we note that the PCHQR Program is not tied 
to payment.
    Comment: One commenter recommended that PCHs be provided with 
confidential performance data that stratifies rates between ICU 
admission at a PCH as compared to that at non-PCH providers.
    Response: We continue to evaluate ways to report performance data 
that is meaningful not only to providers for their own quality 
improvement but also to patients, so that they can make informed 
choices about their healthcare providers. At the present time, we are 
unable to provide reports such as the one recommended above due to the 
operational concerns associated with collecting and reporting this data 
to PCHs. However, we welcome suggestions from providers as to ways to 
provide meaningful data to help them improve their performance.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the Proportion of Patients Who Died 
from Cancer Admitted to the ICU in the Last 30 Days of Life (NQF #0213) 
measure for the FY 2020 program year and subsequent years.

[[Page 38418]]

(4) Proportion of Patients Who Died from Cancer Not Admitted to Hospice 
(EOL-Hospice) Measure (NQF #0215)
    A number of research studies have determined that cancer care can 
become more aggressive at the end of life, which can result in a lower 
quality of care and lower quality of life.\332\ Such aggressive care 
has been identified to include the underutilization of hospice,\333\ 
which is either lack of referral or late referral to hospice 
services.\334\ Patients with advanced cancer who die while admitted to 
the hospital have been shown to have lower quality of life than those 
who die at home with hospice services.\335\
---------------------------------------------------------------------------

    \332\ Barbera L et al., Quality of End-of-Life Cancer Care in 
Canada: A Retrospective Four-Province Study Using Administrative 
Health Care Data, Oncology (October 2015)22:5;341-355; Earle CC et 
al. Aggressiveness of Cancer Care Near the End of Life: Is It a 
Quality-of-Care Issue? Journal of Clinical Oncology. 2008; 26:23, 
3860-3866.
    \333\ Earle CC et al. Aggressiveness of Cancer Care Near the End 
of Life: Is It a Quality-of-Care Issue? Journal of Clinical 
Oncology. 2003; 26:23, 3860-3866.
    \334\ Earle CC et al. Aggressiveness of Cancer Care Near the End 
of Life: Is It a Quality-of-Care Issue? Journal of Clinical 
Oncology. 2003; 26:23, 3860-3866.
    \335\ Wright AA et al., Place of Death: Correlations with 
Quality of Life of Patients with Cancer and Predictors of Bereaved 
Caregivers' Mental Health, J Clin Oncol (October 10, 
2010)28:29;4457-4464.
---------------------------------------------------------------------------

    By contrast, studies have shown that cancer patients enrolled in 
hospice were hospitalized less frequently and received fewer procedures 
than those who were not receiving hospice care.\336\ In addition, 
cancer patients who were enrolled in hospice 5 to 8 weeks prior to 
their deaths demonstrated significant cost savings, with savings 
decreasing as the time period enrolled shortens.\337\ Researchers 
theorize that one reason aggressive or ``injudicious'' treatment occurs 
at the end of life is that end-of-life discussions are not being held 
with patients, and note that it is ``the physician's responsibility to 
counsel patients and their families and . . . focus on the need for 
effective palliative care as patients approach the end of life.'' \338\
---------------------------------------------------------------------------

    \336\ Obermeyer Z et al., Association Between the Medicare 
Hospice Benefit and Health Care Utilization and Costs for Patients 
with Poor-Prognosis Cancer, JAMA (2014)312:18;1888-1896.
    \337\ Obermeyer Z et al., Association Between the Medicare 
Hospice Benefit and Health Care Utilization and Costs for Patients 
with Poor-Prognosis Cancer, JAMA (2014)312:18;1888-1896.
    \338\ Earle CC et al. Aggressiveness of Cancer Care Near the End 
of Life: Is It a Quality-of-Care Issue? Journal of Clinical 
Oncology. 2003; 26:23, 3860-3866.
---------------------------------------------------------------------------

    The proposed EOL-Hospice measure addresses the NQS Communication 
and Care Coordination and Affordable Care domains, as well as the CMS 
Quality Strategy goals of strengthening person and family engagement as 
partners in their care and promoting effective communication and 
coordination of care. The proposed measure is a process measure that 
assesses the proportion of patients who died from cancer who were not 
admitted to hospice. This measure evaluates whether or not patients 
were admitted to hospice, and then ties in to the following measure 
(EOL-3DH), which evaluates whether patients who were admitted to 
hospice were admitted to hospice late in the course of their illness, 
defined as within 3 days of their death. We discuss this proposed 
follow-on measure, EOL-3DH, in more detail below in section 
IX.B.4.b.(5) of the preamble of this final rule. In summary, EOL-
Hospice seeks to evaluate, simply, whether patients were admitted to 
hospice or not; the proposed follow-on measure EOL-3DH will then assess 
whether those patients admitted to hospice were admitted in a timely 
fashion to derive maximum benefit from hospice services. We do not 
expect PCHs to achieve perfect rates on the EOL-Hospice measure because 
we understand that some patients may refuse hospice, or that there may 
be additional intervening events or circumstances that impact whether 
or not a patient is admitted to hospice.
    The proposed EOL-Hospice measure cohort includes Medicare 
beneficiaries who are PCH patients who died of cancer. The proposed 
measure uses Medicare administrative claims data to derive the 
numerator and denominator. The numerator in this proposed measure is 
defined as the proportion of PCH patients not enrolled in hospice. The 
denominator is defined as patients who died from cancer. The measure 
specifications contain no denominator exclusions nor any risk 
adjustment or risk stratification. The proposed measure is calculated 
by dividing the numerator by the denominator. Measure specifications 
for the proposed EOL-Hospice measure can be accessed on the NQF's Web 
site at: http://www.qualityforum.org/Publications/2016/12/Palliative_and_End-of-Life_Care_2015-2016.aspx.
    We invited public comment on our proposal to adopt the Proportion 
of Patients Who Died from Cancer Not Admitted to Hospice (NQF #0215) 
measure for the FY 2020 program year and subsequent years.
    Comment: Many commenters supported the introduction of the EOL-
Hospice measure into the PCHQR Program. Commenters stated that the 
measure will improve care for cancer patients by encouraging providers 
to have difficult but necessary conversations with their patients as 
well as allowing earlier referrals to hospice care. Commenters noted 
that hospice referrals often come too late to be of benefit to 
patients, and that the measure may help PCHs identify opportunities to 
ensure appropriate care transitions and planning. Commenters also 
expressed that the measure addresses treatment that could lead to 
unnecessary and futile care; that in concert with the other end-of-life 
measures proposed, this measure will promote accountability and drive 
improvement; and because it addresses a measurement gap. Commenters 
also noted that the measure was recently re-endorsed by the NQF and 
that the measure aligns with NQF's goal to improve end-of-life care.
    Response: We thank the commenters for their support.
    Comment: One commenter recommended adoption of the EOL-Hospice 
measure with modification of the measure specifications to include 
hospital-based palliative care services into the measure numerator. 
Another commenter recommended expansion of the measure to include such 
services because the ability of palliative care services to provide 
symptom management.
    Response: We appreciate commenters' recommendations. At this point, 
we are interested in assessing whether or not patients in PCHs are 
admitted to hospice prior to death because patient admission to hospice 
has been shown to be an indicator of the aggressiveness of care at the 
end of life and whether discussions are being held with patients to 
discuss choice and preference regarding care at the end of life. We 
believe that pairing this measure with the EOL-3DH outcome measure, 
discussed below, provides additional insight into hospice admission at 
PCHs. We recognize the importance of palliative care services in 
alleviating symptoms during the disease process, and welcome 
recommendations as to additional measures related to palliative care 
for possible incorporation into the PCHQR Program in the future.
    Comment: One commenter did not support the introduction of the EOL-
Hospice measure. The commenter instead recommended the adoption of a 
process measure that evaluates if and when terminally ill patients are 
timely given the opportunity to consider hospice.
    Response: We appreciate the commenter's concern, and agree that it 
is important to gauge whether and when patients are alerted to their 
prognosis and given an opportunity to make decisions regarding their 
end-of-life care. We intend to take under advisement the commenter's 
suggestion

[[Page 38419]]

to adopt a process measure assessing if and when a terminally ill 
cancer patient is given an opportunity to consider hospice; however, we 
would not view such a measure as an alternative to the proposed EOL-
Hospice measure. We believe that the proportion of patients admitted to 
hospice is an important metric, and is particularly valuable when 
considered alongside the proposed EOL-3DH measure, which assesses the 
proportion of cancer patients who died after being admitted to hospice 
for less than three days.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the Proportion of Patients Who Died 
From Cancer Not Admitted to Hospice (NQF #0215) measure for the FY 2020 
program year and subsequent years.
(5) Proportion of Patients Who Died From Cancer Admitted to Hospice for 
Less Than 3 Days (EOL-3DH) Measure (NQF #0216)
    Older studies of patient cohorts from the mid-1990s have shown 
that, though there was an increasing trend to admit cancer patients to 
hospice, the number of patients admitted close to death was also 
increasing, about which the authors surmised that hospice care was not 
being used to mitigate symptoms but only to manage death.\339\ Patients 
with cancer have been identified as the largest users of hospice, but 
are also the cohort with the highest rates of hospice stays of less 
than 3 days.\340\
---------------------------------------------------------------------------

    \339\ Earle CC et al., Aggressiveness of Cancer Care Near the 
End of Life: Is It a Quality-of-Care Issue? Journal of Clinical 
Oncology. August 2008; 26:23; 3860-3866; Earle CC et al., Trends in 
the Aggressiveness of Cancer Care Near the End of Life, Journal of 
Clinical Oncology 22 no. 2 (January 2004) 315-321.
    \340\ Obermeyer Z et al., Association Between the Medicare 
Hospice Benefit and Health Care Utilization and Costs for Patients 
with Poor-Prognosis Cancer, JAMA (2014)312:18;1888-1896.
---------------------------------------------------------------------------

    In one study involving cancer patients' family members, patients' 
loved ones were more likely to report that the patients received 
excellent end-of-life care when hospice was initiated earlier than 
three days prior to death.\341\ The researchers indicated that 
enhancing counseling of patients and families and early referral to 
palliative care services could result in more ``preference-sensitive 
care for patients'' and overall improvement in the quality of care 
cancer patients receive at the end of life.\342\ Because this and other 
research indicates that earlier discussion with patients about 
palliative care can positively impact the care received at the end of 
life, including timely admission to hospice, we believe including the 
proposed EOL-3DH measure in the measure set will incentivize timely 
discussions and admissions to hospice within the PCH setting. We 
believe that the emphasis on timely admission to hospice may lead to 
improved quality of care for cancer patients at PCHs.
---------------------------------------------------------------------------

    \341\ Wright AA et al., Family Perspectives on Aggressive Cancer 
Care Near the End of Life, JAMA (2016)315:3;284-292.
    \342\ Wright AA et al., Family Perspectives on Aggressive Cancer 
Care Near the End of Life, JAMA (2016)315:3;284-292.
---------------------------------------------------------------------------

    The proposed EOL-3DH measure addresses the NQS Communication and 
Care Coordination domain. It also addresses two CMS Quality Strategy 
goals: Strengthening person and family engagement as partners in their 
care and promoting effective communication and coordination of care. 
The proposed EOL-3DH measure is an intermediate clinical outcome 
measure that assesses the proportion of patients who died from cancer 
who were admitted to hospice late in the course of their illness, 
within 3 days of their death. The measure ties in to the proposed 
process measure (EOL-Hospice) we discuss in section IX.B.4.b.(4) of the 
preamble of this final rule, above, and assesses whether, if patients 
were admitted to hospice, they were admitted prior to or when death was 
immediately imminent. As discussed, research has shown that the longer 
patients receive hospice services before the end of life, the more 
improvements in their quality of life and mood are observed.
    The proposed EOL-3DH measure cohort includes Medicare beneficiaries 
who are PCH patients that died of cancer and were admitted to hospice 
within the last 3 days of their lives. The proposed measure uses 
Medicare administrative claims data to derive the numerator and 
denominator. The numerator is defined as the number of patients who 
died from cancer and spent fewer than 3 days in hospice. The 
denominator is defined as the number of patients who died from cancer 
and were admitted to hospice. There are no exclusions from the 
denominator in the measure specifications, nor risk adjustment or risk 
stratification, because the goal of the measure is to assess the 
quality of care provided to all cancer patients at the end of life. 
Measure specifications for the proposed EOL-3DH measure can be accessed 
on the NQF's Web site at: http://www.qualityforum.org/Publications/2016/12/Palliative_and_End-of-Life_Care_2015-2016.aspx.
    We invited public comment on our proposal to adopt the Proportion 
of Patients Who Died From Cancer Admitted to Hospice for Less Than 3 
Days (NQF #0216) measure for the FY 2020 program year and subsequent 
years.
    Comment: Many commenters supported the introduction of the EOL-3DH 
measure into the PCHQR Program. Commenters stated that the measure will 
improve care for cancer patients by encouraging providers to have 
difficult but necessary conversations with their patients, promoting 
patient and family engagement in decision-making, as well as allowing 
earlier referrals to hospice care. Commenters noted that hospice 
referrals often come too late to be of benefit to patients, and that 
the measure may help PCHs identify opportunities to ensure appropriate 
care transitions and planning. Commenters also expressed that the 
measure addresses treatment that could lead to unnecessary and futile 
care; that in concert with the other proposed end-of-life measures, 
this measure will promote accountability and drive improvement; and 
because it addresses a measurement gap. Commenters also noted that the 
measure was recently re-endorsed by the NQF and that the measure aligns 
with NQF's goal to improve end-of-life care.
    Response: We thank the commenters for their support.
    Comment: One commenter recommended expansion of the measure to 
include palliative care services because of the ability of such 
services to provide symptom management. Another commenter recommended 
risk adjustment of the measure for social risk factors and 
comorbidities, such as dementia, that could impact timely admission to 
hospice.
    Response: We appreciate commenters' recommendations. At this time, 
we are interested in adopting the EOL-3DH outcome measure because it 
will enable us to assess current hospice admitting practices at PCHs. 
We recognize the importance of palliative care services in alleviating 
symptoms during the disease process, and we welcome recommendations as 
to additional measures related to palliative care for possible 
incorporation into the PCHQR Program in the future. We also welcome 
recommendations as to other aspects of the measure specifications that 
could be revised in the future, such as consideration of comorbidities 
that could delay timely admission, or additional measures that address 
issues related to timely admission to hospice, for future rulemaking.
    After consideration of the public comments we received we are 
finalizing our proposal to adopt the Proportion of Patients Who Died 
From Cancer Admitted to Hospice for Less Than 3 Days (NQF #0216) 
measure for the FY

[[Page 38420]]

2020 program year and subsequent years.
c. Summary of Previously Finalized and Newly Finalized PCHQR Program 
Measures for the FY 2020 Program Year and Subsequent Years
    In summary, the previously finalized and newly finalized measures 
for the PCHQR Program for the FY 2020 program year and subsequent years 
are listed in the table below.

    Previously Finalized and Newly Finalized PCHQR Measures for the FY 2020 Program Year and Subsequent Years
----------------------------------------------------------------------------------------------------------------
                  Short name                      NQF number                      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]resistant Staphylococcus
                                                                 aureus Bacteremia Outcome Measure
HCP...........................................            0431  Influenza Vaccination Coverage Among Healthcare
                                                                 Personnel
----------------------------------------------------------------------------------------------------------------
                                     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
EOL-Chemo.....................................            0210  Proportion of Patients Who Died From Cancer
                                                                 Receiving Chemotherapy in the Last 14 Days of
                                                                 Life*
EOL-Hospice...................................            0215  Proportion of Patients Who Died From Cancer Not
                                                                 Admitted to Hospice*
----------------------------------------------------------------------------------------------------------------
                                     Intermediate Clinical Outcome Measures
----------------------------------------------------------------------------------------------------------------
EOL-ICU.......................................            0213  Proportion of Patients Who Died From Cancer
                                                                 Admitted to the ICU in the Last 30 Days of
                                                                 Life*
EOL-3DH.......................................            0216  Proportion of Patients Who Died From Cancer
                                                                 Admitted to Hospice for Less Than Three Days*
----------------------------------------------------------------------------------------------------------------
                                      Patient Engagement/Experience of Care
----------------------------------------------------------------------------------------------------------------
HCAHPS........................................            0166  HCAHPS
----------------------------------------------------------------------------------------------------------------
                                         Clinical Effectiveness Measure
----------------------------------------------------------------------------------------------------------------
EBRT..........................................            1822  External Beam Radiotherapy for Bone Metastases
----------------------------------------------------------------------------------------------------------------
                                          Claims Based Outcome Measure
----------------------------------------------------------------------------------------------------------------
N/A...........................................             N/A  Admissions and Emergency Department (ED) Visits
                                                                 for Patients Receiving Outpatient Chemotherapy
----------------------------------------------------------------------------------------------------------------
 We note that the previously finalized measures finalized for removal in this final rule are not
  included in this table. These measures are: (1) Adjuvant Chemotherapy is Considered or Administered Within 4
  Months (120 Days) of Diagnosis to Patients Under the Age of 80 with AJCC II (Lymph Node Positive) Colon
  Cancer; (2) Combination Chemotherapy is Considered or Administered Within 4 Months (120 Days) of Diagnosis for
  Women Under 70 with AJCC T1c, or Stage II or III Hormone Receptor Negative Breast Cancer; and (3) Adjuvant
  Hormonal Therapy.
* This measure is finalized for adoption for the FY 2020 program year in section IX.B.4.b of the preamble of
  this final rule.

5. Accounting for Social Risk Factors in the PCHQR Program
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20082 through 
20083), we discussed the issue of accounting for social risk factors in 
the PCHQR Program. We understand that social risk factors such as 
income, education, race and ethnicity, employment, disability, 
community resources, and social support (certain factors of which are 
also sometimes referred to as socioeconomic status (SES) factors or 
socio-demographic status (SDS) factors) play a major role in health. 
One of our core objectives is to improve beneficiary outcomes including 
reducing health disparities, and we want to ensure that all 
beneficiaries, including those with social risk factors, receive high 
quality care. In addition, we seek to ensure that the quality of care 
furnished by providers and suppliers is assessed as fairly as possible 
under our programs while

[[Page 38421]]

ensuring that beneficiaries have adequate access to excellent care.
    We have been reviewing reports prepared by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) \343\ and the 
National Academies of Sciences, Engineering, and Medicine on the issue 
of measuring and accounting for social risk factors in CMS' quality 
measurement and payment programs, and considering options on how to 
address the issue in these programs. On December 21, 2016, ASPE 
submitted a Report to Congress on a study it was required to conduct 
under section 2(d) of the Improving Medicare Post-Acute Care 
Transformation (IMPACT) Act of 2014. The study analyzed the effects of 
certain social risk factors of Medicare beneficiaries on quality 
measures and measures of resource use used in one or more of nine 
Medicare value-based purchasing programs.\344\ The report also included 
considerations for strategies to account for social risk factors in 
these programs. In a January 10, 2017 report released by the National 
Academies of Sciences, Engineering, and Medicine, that body provided 
various potential methods for measuring and accounting for social risk 
factors, including stratified public reporting.\345\
---------------------------------------------------------------------------

    \343\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \344\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \345\ National Academies of Sciences, Engineering, and Medicine. 
2017. Accounting for social risk factors in Medicare payment. 
Washington, DC: The National Academies Press.
---------------------------------------------------------------------------

    As noted in the FY 2017 IPPS/LTCH PPS final rule, the NQF undertook 
a 2-year trial period in which certain new measures, measures 
undergoing maintenance review, and measures endorsed with the condition 
that they enter the trial period were assessed to determine whether 
risk adjustment for selected social risk factors is appropriate for 
these measures. This trial entailed temporarily allowing inclusion of 
social risk factors in the risk-adjustment approach for these measures. 
We await the recommendations of the NQF trial on risk adjustment for 
quality measures.
    As we continue to consider the analyses and recommendations from 
these reports and await the results of the NQF pilot on risk adjustment 
for quality measures, we are continuing to work with stakeholders in 
this process. As we have previously communicated, we are concerned 
about holding providers to different standards for the outcomes of 
their patients with social risk factors because we do not want to mask 
potential disparities or minimize incentives to improve the outcomes 
for disadvantaged populations. Keeping this concern in mind, while we 
sought input on this topic previously, we continue to seek public 
comment on whether we should account for social risk factors in the 
PCHQR Program, and if so, what method or combination of methods would 
be most appropriate for accounting for social risk factors. Examples of 
methods include: Confidential reporting to providers of measure rates 
stratified by social risk factors; public reporting of stratified 
measure rates; and potential risk adjustment of a particular measure as 
appropriate based on data and evidence.
    In addition, in the proposed rule, we sought public comment on 
which social risk factors might be most appropriate for reporting 
stratified measure scores and/or potential risk adjustment of a 
particular measure. Examples of social risk factors include, but are 
not limited to, dual eligibility/low-income subsidy, race and 
ethnicity, and geographic area of residence. We also sought comments on 
which of these factors, including current data sources where this 
information would be available, could be used alone or in combination, 
and whether other data should be collected to better capture the 
effects of social risk. We also welcomed comment on operational 
considerations. Of note, implementing any of the above methods would be 
taken into consideration in the context of how this and other CMS 
programs operate (for example, data submission methods, availability of 
data, statistical considerations relating to reliability of data 
calculations, among others).
    We received several comments in response to our request for public 
comment on whether we should account for social risk factors in the 
PCHQR Program and if so, what method or combination of methods would be 
most appropriate for accounting for social risk factors.
    Comment: Commenters were generally supportive of implementing an 
approach to account for social risk factors in the PCHQR Program. 
Commenters encouraged evaluation of each measure for applicability of 
adjustment for social risk factors, with considerations given to type 
and purpose of measure and whether or not a measure is reported 
publicly. Commenters also urged careful balancing of the need to risk 
adjust for social risk factors with the potential burden of collecting 
more data to perform such risk adjustment.
    Response: We appreciate the comments and interest in this topic. As 
we have previously stated, we are concerned about holding providers to 
different standards for the outcomes of their patients with social risk 
factors, because we do not want to mask potential disparities or 
minimize incentives to improve outcomes for disadvantaged populations. 
We believe that the path forward should incentivize improvements in 
health outcomes for disadvantaged populations while ensuring that 
beneficiaries have access to excellent care. We intend to consider all 
suggestions as we continue to assess each measure and the overall 
program. We appreciate that some commenters recommended risk adjustment 
as a strategy to account for social risk factors, while others noted 
the potential increased burden of collecting additional data for risk 
adjustment purposes.
    We will consider all suggestions as we continue to assess each 
measure and the overall program. We intend to conduct further analyses 
on the impact of strategies such as measure-level risk adjustment and 
measure stratification by social risk factors, including the options 
suggested by commenters. As we consider the feasibility of collecting 
patient-level data and the impact of strategies to account for social 
risk factors through further analysis, we will continue to evaluate the 
reporting burden on providers. Future proposals would be made after 
further research and continued stakeholder engagement.
6. Possible New Quality Measure Topics for Future Years
a. Background
    We discussed future quality measure topics and quality measure 
domain areas in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50280), the 
FY 2016 IPPS/LTCH PPS final rule (80 FR4979), and the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 25211). Specifically, we discussed public comment 
and suggestions for measure topics addressing the following CMS Quality 
Strategy domains: (1) Making care affordable; (2) communication and 
care coordination; and (3) working with communities to promote best 
practices of healthy living. In the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 20083), we welcomed public comment and specific suggestions for 
measure topics that we should consider for future rulemaking, including 
considerations related to risk adjustment and the inclusion of social 
risk factors in risk adjustment for any individual performance 
measures.

[[Page 38422]]

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20083 through 
20084), we also sought public comment on six measures for potential 
future inclusion in the PCHQR Program:
     Localized Prostate Cancer: Vitality;
     Localized Prostate Cancer: Urinary Incontinence;
     Localized Prostate Cancer: Urinary Frequency, Obstruction, 
and/or Irritation;
     Localized Prostate Cancer: Sexual Function;
     Localized Prostate Cancer: Bowel Function; and
     30 Day Unplanned Readmissions for Cancer Patients.
    These measures are discussed in more detail below.
b. Localized Prostate Cancer: Vitality; Localized Prostate Cancer: 
Urinary Incontinence; Localized Prostate Cancer: Urinary Frequency, 
Obstruction, and/or Irritation; Localized Prostate Cancer: Sexual 
Function; and Localized Prostate Cancer: Bowel Function
    The Localized Prostate Cancer measures are five related, patient-
reported outcome measures drawn from the Expanded Prostate Inventory 
Composite (EPIC), which is a survey intended to gather input from 
patients on their experience. The survey questions are intended to be 
administered to all non-metastatic prostate cancer patients undergoing 
radiation or surgical treatment for prostate cancer at the reporting 
facility (denominator); the numerator is patients with clinically 
significant changes in each of the listed areas from baseline to 
follow-up. The goal of the measurement is to identify issues of 
variation, suboptimal performance, and disparities in care. This 
measurement aligns with recent initiatives to include patient-reported 
outcomes and experience of care into quality reporting programs, as 
well as to incorporate more outcome measures generally. Patient-
centered experience measures are also a component of the 2016 CMS 
Quality Strategy, which emphasizes patient-centered care by rating 
patient experience as a means for empowering patients and improving the 
quality of their care and care experience.\346\
---------------------------------------------------------------------------

    \346\ CMS Quality Strategy 2016. Available at: https://www.cms.gov/medicare/quality-initiatives-patient-assessment-instruments/qualityinitiativesgeninfo/downloads/cms-quality-strategy.pdf.
---------------------------------------------------------------------------

    These measures were included on the publicly available document 
entitled ``List of Measures under Consideration for December 1, 2016'' 
\347\ but were not reviewed by the MAP. We anticipate that they will be 
included on a future list of measures under consideration for MAP 
review. For further information on these measures, we refer readers to 
the discussion from the Measures Application Partnership's Hospital 
Workgroup Discussion at: http://public.qualityforum.org/MAP/MAP%20Hospital%20Workgroup/2016-2017%20Hospital%20MAP/MAP_Hospital_Workgroup_Discussion_Guide.html#MUC16-375PCHQ. We 
requested public comment on the possible inclusion of these measures in 
future years of the program.
---------------------------------------------------------------------------

    \347\ Centers for Medicare and Medicaid Services, List of 
Measures under Consideration for December 1, 2016. Available at: 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Downloads/Measures-under-Consideration-List-for-2016.pdf.
---------------------------------------------------------------------------

    Comment: A number of commenters expressed support for the future 
introduction of the five Localized Prostate Cancer measures. Commenters 
noted the importance to patients of measures that assess quality of 
life as well as the ability of the measures to support meaningful 
comparisons between providers. Commenters stated that such measures 
will enable patients to make informed decisions as they will have 
available quality of care information. A commenter also stated that the 
measures would improve communications between hospitals and patients.
    Response: We appreciate the commenters' support and views on these 
potential measures.
    Comment: One commenter supported the future introduction of the 
measures and asked whether the tool mentioned as the means for 
collection, the Expanded Prostate Inventory Composite, would be the 
only mechanism for documenting patient-reported outcomes.
    Response: We thank the commenter for its support. We welcome 
recommendations and stakeholder input into different mechanisms for 
collection of patient-reported outcomes and will take such suggestions 
into consideration for future rulemaking. These measures are being 
developed based on a single data collection tool, although we 
understand that there may be several other tools that could potentially 
collect this information. We will continue to monitor the measures' 
development and testing to determine the best means of data collection 
for these measures.
    Comment: One commenter asked whether the tool mentioned as the 
means for collection, the Expanded Prostate Inventory Composite, would 
support the move to electronic quality reporting.
    Response: At this time, we cannot say with certainty whether the 
particular tool described in the measure specifications would support 
the move to electronic quality reporting. We thank the commenter for 
the inquiry and will take this under consideration as we continue to 
consider these and other measures for possible inclusion in the PCHQR 
Program in the future.
    We thank the commenters and we will consider their views as we 
develop further measures for use in the PCHQR Program.
c. 30-Day Unplanned Readmissions for Cancer Patients
    The 30-Day Unplanned Readmissions for Cancer Patients measure would 
measure the number of hospital-specific 30-day unscheduled and 
potentially avoidable readmissions following hospitalization among 
diagnosed malignant cancer patients. The measure numerator is the total 
number of unscheduled readmissions within 30 days of index admission. 
The measure denominator is total PCH admissions within the reporting 
year for patients, aged 18 years or older, who were discharged alive 
from the facility with an active malignant cancer diagnosis.
    For further information on this measure, we refer readers to the 
AHRQ National Quality Measure Clearinghouse at: https://www.qualitymeasures.ahrq.gov/summaries/summary/50490/cancer-30day-unplanned-readmission-rate-for-cancer-patients. We requested public 
comment on the possible inclusion of this measure in future years of 
the program.
    Comment: Several commenters generally supported the future 
inclusion of a 30-day, unplanned readmissions measure for cancer 
patients, noting that until recently no such measure existed and that 
the potential measure would take steps toward addressing a gap in the 
measurement of cancer care. One commenter supported the introduction of 
a measure even without NQF endorsement, stating that it believed the 
measure meets the criteria for introduction into the PCHQR Program 
without endorsement. Another commenter noted that the measure has been 
shown to demonstrate reliability and validity, and that the measure is 
currently in use in several of the PCHs for hospital-specific, non-
Medicare performance improvement or payment programs. Finally, a 
commenter noted that the measure incorporates risk adjustment in a way 
that carefully distinguishes preventable from non-preventable 
readmissions in cancer patients.

[[Page 38423]]

    Response: We thank the commenters for their support.
    Comment: One commenter supported the future adoption of the measure 
and encouraged additional consideration and evaluation of a measure 
that would report a five-year survival rate for cancer.
    Response: We appreciate the support for the potential readmissions 
measure, and we will take the suggestion to adopt a survival rate 
measure into consideration for future rulemaking.
    We thank the commenters and we will consider their views as we 
develop further measures for use in the PCHQR Program.
7. Maintenance of Technical Specifications for Quality Measures
    We maintain technical specifications for the PCHQR Program 
measures, and we periodically update those specifications. The 
specifications may be found on the QualityNet Web site at: https://qualitynet.org/dcs/ContentServer?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. In the 
FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20084), we did not propose 
any changes to this policy.
8. 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. In the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 57191 through 57192), we listed our finalized public display 
requirements. The measures we have finalized for public display are 
shown in the table below.

            Previously Finalized Public Display Requirements
------------------------------------------------------------------------
       Summary of previously finalized public display requirements
-------------------------------------------------------------------------
                  Measures                         Public reporting
------------------------------------------------------------------------
 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) \x\.
 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) \x\.
 Adjuvant Hormonal Therapy (NQF      2015 and subsequent years.
 #0220) \x\.
 Oncology: Radiation Dose Limits to  2016 and subsequent years.
 Normal Tissues (NQF #0382) *.
 Oncology: Plan of Care for Pain--
 Medical Oncology and Radiation Oncology
 (NQF #0383).
 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) **.............  Deferred.
 CAUTI (NQF #0138) **.
 External Beam Radiotherapy for      Beginning at the first
 Bone Metastases (NQF #1822) ***.             opportunity in 2017 and
                                              for subsequent years.
------------------------------------------------------------------------
* Update newly finalized for display for the FY 2019 program year and
  subsequent years in the FY 2017 IPPS/LTCH PPS final rule (81 FR
  57192)--expanded cohort will be displayed as soon as feasible.
** Deferral finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR
  57192).
*** Measure newly finalized for public display in the FY 2017 IPPS/LTCH
  PPS final rule (81 FR 57192).
\x\ Measure finalized for removal beginning the FY 2020 program year in
  section IX.B.3.b of the preamble of this final rule.

    As we strive to publicly display data as soon as possible on a CMS 
Web site, in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57191 through 
57192), we finalized an 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. Therefore, we finalized our policy 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 will make 
the data for this program available as soon as possible, and the 
timeframe for this publication may change year to year, we will not 
propose to specify in rulemaking the exact dates for review. However, 
in that final rule, we stated that the time period for review would be 
approximately 30 days in length. We will announce the exact timeframes 
on a CMS Web site and/or on our applicable listservs. In the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20084), we did not propose any 
changes to this policy.
b. Deferment 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, in the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57192), we finalized a proposal to 
continue to defer public reporting of the CLABSI and CAUTI measures 
pending ongoing collaboration with the CDC to identify an appropriate 
timeframe for public reporting and the analytic methods that

[[Page 38424]]

will be used to summarize the CLABSI and CAUTI data for public 
reporting purposes. We continue to collaborate with the CDC on these 
issues and continue to defer the public reporting of these two measures 
accordingly.
9. Form, Manner, and Timing of Data Submission
a. Background
    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. There 
are no financial incentives or penalties associated with the PCHQR 
Program.
    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.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20085), we did 
not propose any changes to previously finalized data submission 
requirements.
b. Reporting Requirements for the Newly Finalized Measures
    As further described above, we are finalizing the adoption of four 
new measures beginning with the FY 2020 program year: Proportion of 
Patients Who Died From Cancer Receiving Chemotherapy in the Last 14 
Days of Life (NQF #0210); Proportion of Patients Who Died From Cancer 
Admitted to the ICU in the Last 30 Days of Life (NQF #0213); Proportion 
of Patients Who Died From Cancer Not Admitted to Hospice (NQF #0215); 
and Proportion of Patients Who Died From Cancer Admitted to Hospice for 
Less Than Three Days (NQF #0216). All four measures are claims-based 
measures. Therefore, there will be no separate data submission 
requirements for PCHs related to these measures as CMS will calculate 
the measures from data submitted for reimbursement purposes. In the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 20085), we proposed to 
calculate these measures on a yearly basis because we will be 
calculating them using Medicare administrative claims data. 
Specifically, we proposed that the data collection period would be from 
July 1 of the year 3 years prior to the program year to June 30 of the 
year 2 years prior to the program year. Thus, for the FY 2020 program 
year, we would collect data from July 1, 2017 through June 30, 2018.
    We invited public comment on this proposal.
    Comment: One commenter supported the proposed time period for the 
reporting of the EOL-ICU measure data specifically, while another 
commenter recommended against public reporting of the EOL-ICU measure 
until adjustments are made to the measure specifications to account for 
patient characteristics.
    Response: We thank the commenters for their thoughts. However, we 
do not plan on altering the measure specifications to account for 
patient characteristics because the measure is intended to assess the 
overall proportion of patients receiving chemotherapy within fourteen 
days of the end of life and provide a broad picture of end-of-life 
care.
    Comment: One commenter sought further direction on the plans for 
the public reporting of the new end-of-life measures.
    Response: We thank the commenter for expressing the request for 
additional direction, and note that further information will be 
available on QualityNet in the future. We strive to make 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, and therefore 
believe it is best to not specify in rulemaking the exact timeframe 
during the year for publication as doing so may prevent earlier 
publication.
    After consideration of the public comments we received we are 
finalizing the data collection period, as proposed, from July 1 of the 
year 3 years prior to the program year to June 30 of the year 2 years 
prior to the program year. Thus, for the FY 2020 program year, we will 
collect data for the four new measures from July 1, 2017 through June 
30, 2018.
10. Extraordinary Circumstances Exceptions (ECE) Policy Under the PCHQR 
Program
a. Background
    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 year and subsequent years, PCHs 
may request and we may grant exceptions (formerly referred to as 
waivers) \348\ with respect to the reporting of required quality data 
when extraordinary circumstances beyond the control of the PCH warrant. 
The PCH may request a reporting extension or a complete exception from 
the requirement to submit quality data for one or more quarters. Under 
our current policy, PCHs can submit a request form to CMS with the 
following information:
---------------------------------------------------------------------------

    \348\ ECEs were originally referred to as ``waivers.'' This term 
was changed to ``exceptions'' in the FY 2015 IPPS/LTCH PPS final 
rule (79 FR 50286).
---------------------------------------------------------------------------

     The PCH's CCN;
     The PCH's name;
     Contact information for the PCH's CEO and any other 
designated personnel, including name, email address, telephone number, 
and mailing address (the address must be a physical address, not a post 
office box);
     The PCH's reason for requesting an extension or exception;
     Evidence of the impact of extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
     A date when the PCH will again be able to submit PCHQR 
Program data, and a justification for the proposed date.
    In addition, we finalized that the form must be signed by the PCH's 
CEO or designee and submitted within 30 days of the date that the 
extraordinary circumstances occurred. Lastly, we finalized that 
following the receipt of the request form, we would: (1) Provide a 
written acknowledgement; and (2) provide a formal response notifying 
the PCH of our decision.
    We also clarified that the above policy does not preclude us from 
granting exceptions (including extensions) to PCHs that have not 
requested them when we determine that an extraordinary circumstance has 
affected an entire region or locale. We stated that if we make the 
determination to grant such an exception, we would communicate this 
decision through routine communication channels.
b. Modifications to the ECE Policy
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20085 through 
20086), we proposed to modify the ECE policy for the PCHQR Program by: 
(1) Extending the deadline for a PCH to submit a request for an 
extension or exception from 30 days following the date that the 
extraordinary circumstance occurred to 90 days following the date that 
the extraordinary circumstance occurred; and (2) allowing CMS to grant 
an exception or extension due to CMS data system issues which affect 
data submission. These proposed

[[Page 38425]]

modifications will better align our ECE policy with that adopted for 
the Hospital IQR Program (76 FR 51651 through 51652, 78 FR 50836 
through 50837, and 81 FR 57181 through 57182), the Hospital OQR Program 
(77 FR 68489 and 81 FR 79795), as well as other quality reporting 
programs that already have such policies in place or have proposed to 
modify their policies to achieve alignment. We proposed that these 
modifications would apply beginning in FY 2018 as related to 
extraordinary circumstances that occur on or after October 1, 2017.
    We also believe that it is important for facilities to receive 
timely feedback regarding the status of ECE requests. We strive to 
complete our review of each ECE request as quickly as possible. 
However, we recognize that the number of requests we receive, and the 
complexity of the information provided impacts the actual timeframe to 
make ECE determinations. Therefore, to ensure transparency and 
understanding of our process, we are also taking this opportunity to 
clarify that we will strive to provide our response to an ECE request 
within 90 days of receipt.
(1) ECE Request Submission Deadline
    In the past, we have allowed facilities to submit an ECE request 
form within 30 calendar days following the occurrence of an 
extraordinary circumstance that causes hardship and prevents them from 
providing data. In certain circumstances, however, it may be difficult 
for facilities to timely evaluate the impact of a certain extraordinary 
circumstance within 30 calendar days. We believe that extending the 
deadline to 90 calendar days would allow PCHs more time to determine 
whether it is necessary and appropriate to submit an ECE request and to 
provide a more comprehensive account of the extraordinary circumstance 
in their ECE request form to CMS. For example, if a PCH has suffered 
damage due to a hurricane on June 1, it would have until August 30 to 
submit an ECE form via the QualityNet Secure Portal, mail, email, or 
secure fax as instructed on the ECE form.
    We invited public comments on this proposal.
    Comment: Commenters generally supported the proposed amendments to 
the ECE policy to align with other quality reporting programs. One 
commenter specifically noted that providing additional time to request 
an extension or exception after an extraordinary event will enable PCHs 
to focus on patient needs and service recovery.
    Response: We thank the commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposal to extend the deadline for a PCH to submit a 
request for an extension or exception from 30 days following the date 
that the extraordinary circumstance occurred to 90 days following the 
date that the extraordinary circumstance occurred.
(2) Exceptions or Extensions Due to CMS Data System Issues
    Although we do not anticipate this situation will happen often, 
there may be times where CMS experiences issues with its data systems 
that directly affect facilities' abilities to submit data. In these 
circumstances, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20086), we proposed to grant exceptions or extensions to one or more 
data reporting requirements. If we make the determination to grant 
exceptions or extensions to PCHs on this basis, we proposed to 
communicate this decision through routine communication channels.
    We invited public comment on this proposal.
    Comment: Commenters generally supported the proposed amendments to 
the ECE policy to align with other quality reporting programs. One 
comment specifically noted that modifying the policy to allow an 
exception for CMS data system issues will avoid unfairly penalizing 
PCHs for circumstances outside of their control.
    Response: We thank the commenters for their responses and comments. 
Regarding our proposal to modify the ECE policy to allow an exception 
for CMS data system issues, we wish to clarify that if CMS does not 
proactively notify PCHs that it plans to provide an exception to the 
policy after a data system issue, PCHs may still submit a request for 
an exception for CMS consideration.
    After consideration of the public comments we received, we are 
finalizing our proposal to allow CMS to grant an exception or extension 
due to CMS data system issues which affect data submission.

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

1. Background and Statutory Authority
    Section 3004(a) of the Affordable Care Act amended section 1886(m) 
of the Act by adding paragraph (5), requiring 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 LTCH QRP, 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. Specifically, section 1886(m)(5) of the Act requires that 
beginning with the FY 2014 LTCH QRP, 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).
    When we use the term ``FY [year] LTCH QRP,'' we are referring to 
the fiscal year for which the LTCH QRP requirements applicable to that 
fiscal year must be met for an LTCH to receive the full annual update 
when calculating the payment rates applicable to it for that fiscal 
year.
    The Improving Medicare Post-Acute Care Transformation Act of 2014 
(IMPACT Act) (Pub. L. 113-185) amended Title XVIII of the Act, in part, 
by adding a new section 1899B of the Act that requires the Secretary to 
establish new data reporting requirements for certain post-acute care 
(PAC) providers, including LTCHs. Specifically, sections 
1899B(a)(1)(A)(ii) and (iii) of the Act require LTCHs, inpatient 
rehabilitation facilities (IRFs), skilled nursing facilities (SNFs), 
and home health agencies (HHAs), under the provider-type's respective 
quality reporting program (which, for LTCHs, is found at section 
1886(m)(5) of the Act), to report data on quality measures specified 
under section 1899B(c)(1), with respect to at least five domains, and 
data on resource use and other measures specified under section 
1899B(d)(1) of the Act with respect to at least three domains. Section 
1899B(a)(1)(A)(i) of the Act further requires each of these PAC 
provider-types to report under its respective quality reporting program 
standardized patient assessment data in accordance with subsection (b) 
for at least the quality measures specified under subsection (c)(1) and 
that is with respect to five specific categories: functional status; 
cognitive function and mental status; special services, treatments, and 
interventions; medical conditions and co-morbidities; and impairments. 
Section 1899B(a)(1)(B) requires that all of the data that must be 
reported in accordance with section 1899B(a)(1)(A) of the Act be 
standardized and interoperable to allow for the exchange

[[Page 38426]]

of the information among PAC providers and other providers and the use 
of such data in order to enable access to longitudinal information and 
to facilitate coordinated care. We refer readers to the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49723 through 49724) for additional 
information on the IMPACT Act and its applicability to LTCHs.
2. General Considerations Used for Selection of Quality Measures for 
the LTCH QRP
a. Background
    We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49728) for a detailed discussion of the considerations we apply in 
measure selection for the LTCH QRP, such as alignment with the CMS 
Quality Strategy,\349\ which incorporates the three broad aims of the 
National Quality Strategy.\350\
---------------------------------------------------------------------------

    \349\ http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html.
    \350\ https://www.ahrq.gov/workingforquality/reports/2011-annual-report.html.
---------------------------------------------------------------------------

    As part of our consideration for measures for use in the LTCH QRP, 
we review and evaluate measures that have been implemented in other 
programs and take into account measures that have been endorsed by NQF 
for provider settings other than the LTCH setting. We have previously 
adopted measures with the term ``Application of'' in the names of those 
measures. We have received questions pertaining to the term 
``application'' and want to clarify that when we refer to a measure as 
an ``application of'' the measure, we mean that the measure will be 
used in the LTCH setting, rather than the setting for which it was 
endorsed by the NQF. For example, in the FY 2016 IPPS/LTCH PPS final 
rule (80 FR 49736 through 49739) we adopted a measure entitled, an 
Application of Percent of Residents Experiencing One or More Falls With 
Major Injury (Long Stay) (NQF #0674), which is currently endorsed for 
the nursing home setting but not for the LTCH setting. For such 
measures, we intend to seek NQF endorsement for the LTCH setting, and 
if the NQF endorses one or more of them, we will update the title of 
the measure to remove the reference to ``application.''
    We received several comments generally related to the proposed 
measures, the IMPACT Act, NQF endorsement, the NQF MAP review process, 
and the use of technical expert panels (TEPs), which are summarized and 
discussed below.
    Comment: Several commenters expressed support for the goals and 
objectives of the IMPACT Act. One commenter supported the continued 
additions and modifications to the LTCH QRP as mandated by the IMPACT 
Act, stating that regulatory changes from the LTCH QRP have not only 
required LTCHs to focus more on care processes and data collection, but 
have also promoted a shift in provider focus toward improved care 
quality, increased transparency, and enhanced provider accountability. 
Another commenter stated that, even though it supports CMS' effort 
under the IMPACT Act, additional time may be necessary to fully 
implement all changes as outlined in the final rule.
    Response: We appreciate the commenters' support for the continued 
additions and modifications to the LTCH QRP, particularly the support 
for modifications required by the IMPACT Act. We strive to put patients 
first, ensuring that they can make decisions about their own healthcare 
along with their clinicians. We want to ensure innovative approaches to 
improve quality, accessibility, and affordability while paying 
particular attention to improving clinicians' and beneficiaries' 
experience when interacting with CMS programs. To that end, we believe 
that a focus on data collection and quality measurement leads to 
improved care processes, facilitation of care coordination, and, 
ultimately, improved patient outcomes. However, we are also sensitive 
to LTCHs' needs for sufficient time to implement the requirements 
pertaining to the LTCH QRP, and we aim to be responsive to these needs 
to the extent feasible and appropriate.
    Comment: Several commenters expressed concern that quality measures 
proposed for the LTCH QRP lack NQF endorsement for the LTCH setting. 
One commenter noted that NQF endorsement for the LTCH setting reflects 
that the NQF has determined the measure to be appropriately modified 
for the LTCH setting, which is unique from other PAC settings due to 
the complexity of LTCH patient needs. A few commenters recommended that 
CMS obtain NQF endorsement for the LTCH setting through NQF review 
using the Consensus Development Process, a formal peer-review process 
providing input on performance measures, before proposing quality 
measures for the LTCH QRP. Commenters further recommended that CMS 
refrain from implementing measures in the LTCH QRP until the measures 
receive NQF endorsement for the LTCH setting.
    Response: We acknowledge the commenters' recommendation that 
proposed measures receive NQF endorsement in the LTCH setting prior to 
implementation. We would like to note that we consider and propose 
measures that have been endorsed by the NQF whenever possible. However, 
when this is not feasible because there is not an NQF endorsed measure 
that addresses quality gaps identified in the program, we believe it is 
appropriate to specify a measure for the LTCH QRP that is not NQF-
endorsed as long as due consideration is given to measures that have 
been endorsed or adopted by a consensus organization, as is the case 
for the proposed measures, and we have considered but have not been 
able to identify other feasible measures that are endorsed or adopted 
by a consensus organization. We plan to submit measures within our 
program for endorsement as soon as feasible.
    Comment: Several commenters expressed concern that quality measures 
proposed for the LTCH QRP may not be fully supported by the MAP. 
Commenters recommended that CMS obtain full support by the MAP before 
proposing quality measures for the LTCH QRP.
    Response: We acknowledge that the NQF-convened MAP serves a 
critical function in evaluating measures under consideration and 
providing recommendations for measure implementation prior to 
rulemaking though MAP support is not a requirement for a measure to be 
proposed or finalized. However, as the MAP's role is to maintain 
transparency for the public and encourage public engagement throughout 
the measure development process, we value the MAP's input and take into 
consideration all input received.
    We would like to clarify that the MAP recommended ``conditional 
support for rulemaking'' and ``encouraged continued development'' for 
the proposed measures for the LTCH QRP. According to the MAP, the term 
``conditional support for rulemaking'' is applied when a measure is 
fully developed and tested and meets MAP assessment criteria; however 
should meet a condition specified by MAP before it can be supported for 
implementation. Measures that are conditionally supported are not 
expected to be resubmitted to MAP. The term ``encourage continued 
development'' is applied when a measure addresses a critical program 
objective or promotes alignment. In contrast, the MAP uses the phrase 
``do not support'' when it does not support the measure at all.
    For the proposed measure, Changes in Skin Integrity Post-Acute 
Care: Pressure

[[Page 38427]]

Ulcer/Injury, the MAP Post-Acute Care/Long-Term Care (PAC/LTC) 
Workgroup met on December 14 and 15, 2016, and provided CMS a 
recommendation of ``support for rulemaking'' for use of the measure in 
the LTCH QRP. The MAP Coordinating Committee met on January 24 and 25, 
2017, and provided a recommendation of ``conditional support for 
rulemaking'' for use of the proposed measure in the LTCH QRP. The MAP's 
conditions of support include as a part of measure implementation, that 
CMS provide guidance on the correct collection and calculation of the 
measure result. CMS intends to comply with all conditions recommended 
by the MAP and will engage in intensive training and guidance efforts 
to ensure appropriate calculation of the measure.
    For the LTCH QRP ventilator weaning measures, Compliance with 
Spontaneous Breathing Trial (SBT) by Day 2 of the LTCH Stay and 
Ventilator Liberation Rate, the MAP met on December 12, 2014 and again 
on December 14 and 15, 2015. For the Compliance with SBT by Day 2 of 
the LTCH Stay measure, the MAP encouraged continued development, 
acknowledging that there is evidence for interventions that improve 
ventilator care, that variation in quality of care exists among LTCHs, 
and that ventilator care is an important safety priority for LTCHs. 
Pursuant to MAP review and recommendations, we have continued to refine 
this proposed measure and these activities are described more fully 
below. For the Ventilator Liberation Rate measure, the MAP encouraged 
continued development, stating that this measure has high value 
potential for the LTCH QRP because successful weaning is important for 
improving quality of life and decreasing morbidity, mortality, and 
resource use among patients. We have continued to refine these measures 
and these activities are described more fully below. CMS has 
consistently used the MAP process to improve measures prior to 
rulemaking and implementation and to ensure continued enhancement of 
the LTCH QRP. We believe that the measures have been fully and robustly 
developed, and believe they are appropriate for implementation and 
should not be delayed.
    Comment: Several commenters expressed concern that quality measures 
proposed for the LTCH QRP may not be fully supported by a TEP. 
Commenters recommended that CMS obtain full support by a TEP before 
proposing measures for the LTCH QRP. In addition, commenters requested 
that the TEPs that evaluate measures under consideration for the LTCH 
QRP include members who work in the LTCH setting.
    Response: TEP members are a valuable part of the measure 
development process, and we would like to note that we take all TEP 
input into consideration as we develop and refine all quality measure 
work. When our measurement development contractors convene TEPs, they 
ensure we have a group of individuals that represents a wide range of 
clinical, consumer, and academic expertise in order to balance 
discipline and experience. Further, individuals are selected for TEPs 
because they are relevant subject matter experts who have knowledge of 
measure development and clinical expertise. For the LTCH QRP, selected 
TEP members typically include experts who work in the LTCH setting. We 
would like to note that the overarching purpose of a TEP is to obtain 
technical input on CMS work that is under development so that 
stakeholders can add input early in the development process.
    Comment: A few commenters expressed concern regarding the intent of 
the IMPACT Act to facilitate care coordination and interoperability, 
stating there is currently a lack of comparability across PAC settings. 
One commenter expressed concern that data for assessment-based quality 
measures are collected on all patients in the LTCH setting, but 
collected only on Medicare Part A and Medicare Advantage patients/
residents in the IRF and SNF settings, inhibiting cross-setting quality 
comparison. Another commenter noted that LTCHs are highly specialized 
acute care facilities that differ from other PAC settings in several 
key areas, including patient acuity levels, average length of patient 
stay, and regulatory requirements, making cross-setting comparison 
difficult. The commenter requested that CMS exercise care in the 
development of methods for and interpretation of findings related to 
differences across PAC settings. Another commenter noted some measures 
proposed for the LTCH QRP were not proposed in other PAC settings. The 
commenter suggested CMS implement all proposed LTCH QRP measures in 
every PAC setting and implement future PAC QRP measures in every PAC 
setting.
    Response: Our intent is to develop standardized measures that can 
be collected across the LTCH, IRF, SNF, and HHA settings. However, we 
also recognize that each of these PAC settings is different in terms of 
patient mix, including complexity of care needed, therapies required, 
and length of stay. For this reason, we believe that in addition to 
adopting cross-setting measures that apply to all four settings, it is 
appropriate to adopt measures specific to each individual PAC setting 
that address a quality issue unique to that setting.
    Comment: Several commenters expressed concern regarding the 
increasing burden of reporting data under the current LTCH QRP. One 
commenter noted that reporting the proposed new data elements and 
related sub-elements will require additional facility clinical staff 
time, which may take time away from patient care. One commenter 
expressed concern that the value of data collection under the LTCH QRP 
is unsubstantiated. Another commenter stated that the reported data 
goes unused. One commenter encouraged CMS to reconsider the necessity 
of the new data elements and requested additional clarification 
regarding these elements and reporting requirements.
    Response: We appreciate commenters' concerns regarding burden due 
to the LTCH QRP data collection requirements. We also appreciate the 
importance of avoiding undue burden on providers and will continue to 
evaluate and avoid any unnecessary burden associated with the 
implementation of the LTCH QRP. We will also continue to work with 
stakeholders to explore ways to decrease burden as our shared goal is 
to focus on improving patient care. In response to these concerns 
regarding burden, and as we discuss further below, we have decided not 
to finalize a number of the proposed standardized patient assessment 
data elements.
    Comment: A commenter thanked CMS for the opportunity to comment on 
measures proposed for the LTCH QRP but expressed concern that complete 
measure specifications were not available for all proposed measures. 
The commenter requested that CMS provide an additional opportunity for 
public comment when complete measure specifications are available for 
all proposed measures. Another commenter expressed concern that 
complete specifications and appropriate crosswalks were not provided 
for all proposed measures, noting that these materials assist staff to 
appropriately implement measures and utilize data to improve patient 
care. The commenter requested that CMS make crosswalks available prior 
to measure implementation, within the final rule or in a separate 
publication.
    Response: We posted complete measure specifications for each 
proposed measure at the same time that we issued the proposed rule, and 
those

[[Page 38428]]

specifications can be viewed at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html. With the final rule, in 
accordance with our usual posting process, we will post all final 
measure specifications and associated measure documentation at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    We interpret the commenter's concern about crosswalks to be related 
to crosswalks from ICD-10 codes to LTCH CARE Data Set items. We refer 
readers to section IX.C.11.d. of the preamble of this final rule where 
we respond to similar issues.
b. Accounting for Social Risk Factors in the LTCH QRP
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20086 through 
20087), we discussed accounting for social risk factors in the LTCH 
QRP. We stated that we consider related factors that may affect 
measures in the LTCH QRP. We understand that social risk factors such 
as income, education, race and ethnicity, employment, disability, 
community resources, and social support (certain factors of which are 
also sometimes referred to as socioeconomic status (SES) factors or 
socio-demographic status (SDS) factors) play a major role in health. 
One of our core objectives is to improve beneficiary outcomes including 
reducing health disparities, and we want to ensure that all 
beneficiaries, including those with social risk factors, receive high 
quality care. In addition, we seek to ensure that the quality of care 
furnished by providers and suppliers is assessed as fairly as possible 
under our programs while ensuring that beneficiaries have adequate 
access to excellent care.
    We have been reviewing reports prepared by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) \351\ and the 
National Academies of Sciences, Engineering, and Medicine on the issue 
of measuring and accounting for social risk factors in CMS' quality 
measurement and payment programs, and considering options on how to 
address the issue in these programs. On December 21, 2016, ASPE 
submitted a Report to Congress on a study it was required to conduct 
under section 2(d) of the IMPACT Act. The study analyzed the effects of 
certain social risk factors of Medicare beneficiaries on quality 
measures and measures of resource use used in one or more of nine 
Medicare value-based purchasing programs.\352\ The report also included 
considerations for strategies to account for social risk factors in 
these programs. In a January 10, 2017 report released by The National 
Academies of Sciences, Engineering, and Medicine, that body provided 
various potential methods for measuring and accounting for social risk 
factors, including stratified public reporting.\353\
---------------------------------------------------------------------------

    \351\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \352\ https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \353\ National Academies of Sciences, Engineering, and Medicine. 
2017. Accounting for social risk factors in Medicare payment. 
Washington, DC: The National Academies Press.
---------------------------------------------------------------------------

    In addition, the NQF undertook a 2-year trial period in which new 
measures, measures undergoing maintenance review, and measures endorsed 
with the condition that they enter the trial period were assessed to 
determine whether risk adjustment for selected social risk factors was 
appropriate for these measures. A measure from the LTCH QRP was 
addressed in this trial (All-Cause Unplanned Readmission Measure for 
30-Days Post-Discharge from LTCHs (NQF #2512)). This trial entailed 
temporarily allowing inclusion of social risk factors in the risk-
adjustment approach for these measures. The trial has concluded, and 
NQF will issue recommendations on the future inclusion of social risk 
factors in risk adjustment for quality measures.
    As we continue to consider the analyses and recommendations from 
these reports and await the recommendations of the NQF trial on risk 
adjustment for quality measures, we are continuing to work with 
stakeholders in this process. As we have previously communicated, we 
are concerned about holding providers to different standards for the 
outcomes of their patients with social risk factors because we do not 
want to mask potential disparities or minimize incentives to improve 
the outcomes for disadvantaged populations. Keeping this concern in 
mind, while we sought input on this topic previously, we continue to 
seek public comment on whether we should account for social risk 
factors in measures in the LTCH QRP, and if so, what method or 
combination of methods would be most appropriate for accounting for 
social risk factors. Examples of methods include: Confidential 
reporting to providers of measure rates stratified by social risk 
factors; public reporting of stratified measure rates; and potential 
risk adjustment of a particular measure as appropriate based on data 
and evidence.
    In addition, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20086 through 20087), we sought public comment on which social risk 
factors might be most appropriate for reporting stratified measure 
scores and/or potential risk adjustment of a particular measure. 
Examples of social risk factors include, but are not limited to, dual 
eligibility/low-income subsidy, race and ethnicity, and geographic area 
of residence. We also sought comments on which of these factors, 
including current data sources where this information would be 
available, could be used alone or in combination, and whether other 
data should be collected to better capture the effects of social risk. 
We will take commenters' input into consideration as we continue to 
assess the appropriateness and feasibility of accounting for social 
risk factors in the LTCH QRP. We note that any such changes would be 
proposed through future notice and comment rulemaking.
    We look forward to working with stakeholders as we consider the 
issue of accounting for social risk factors and reducing health 
disparities in CMS programs. Of note, implementing any of the above 
methods would be taken into consideration in the context of how this 
and other CMS programs operate (for example, data submission methods, 
availability of data, statistical considerations relating to 
reliability of data calculations, among others), so we also sought 
comment on operational considerations. CMS is committed to ensuring 
that its beneficiaries have access to and receive excellent care, and 
that the quality of care furnished by providers and suppliers is 
assessed fairly in CMS programs.
    Comment: We received several comments in response to our request 
for public comment on whether we should account for social risk factors 
in the LTCH QRP. Some commenters expressed appreciation for the 
agency's efforts and ongoing consideration of this issue. Commenters 
were generally supportive of accounting for social risk factors for 
LTCH QRP quality measures. Many commenters expressed concerns that not 
adjusting for social risk factors may lead to the appearance of low 
quality of care for LTCHs that treat more underserved patients. Some 
commenters noted that lack of adjustment for social risk factors may 
impact beneficiaries' access to care. A few commenters encouraged CMS 
to consider the results

[[Page 38429]]

of NQF's SES trial period and closely monitor recommendations from the 
NQF Disparities Standing Committee.
    A few commenters expressed concerns with accounting for social risk 
factors. One commenter noted that adjusting for social risk factors may 
mask potential disparities and create disincentives to improve outcomes 
for vulnerable populations. Similarly, another commenter cautioned that 
the misapplication of social risk factors in the calculation of 
measures may create unintended consequences for disadvantaged groups.
    Regarding the methodology for risk adjustment, some commenters made 
specific recommendations regarding the type of risk adjustment to be 
used. Commenters suggested approaches for CMS to consider, such as 
reporting of performance stratified by certain social risk factors. A 
few commenters drew attention to how adjustment should be conducted on 
a measure-specific basis, as different social risk factors affect 
different outcomes. One commenter recommended that quality measures 
reflecting processes within the control of a provider, such as pressure 
ulcer incidence, not be stratified by SES factors. Other commenters 
recommended adjusting for social risk factors, specifically for 
resource use measures assessing potentially preventable readmissions, 
discharge to community, and Medicare spending per beneficiary. Several 
commenters recommended conducting additional testing and evaluating 
this on a measure by measure basis.
    In addition to support for CMS' suggested categories of race/
ethnicity, dual eligibility status, and geographical location, 
specific, commenters suggested social risk factors for consideration, 
including patient-level factors like caregiver availability, 
disability, income, education, presence of pre-morbid assistance, and 
health care literacy. Commenters also suggested community resources and 
other factors such as access to adequate housing, medications, food, 
transportation, and availability of primary care. Some commenters also 
recommended specific data sources, such as administrative data for dual 
eligibility or US census data to derive SES or SDS data. A few 
commenters supported data collection of SES or SDS elements by LTCHs or 
patient-reported information. One commenter suggested formal assessment 
of caregiver capacity to facilitate discharge planning. Another 
commenter suggested the use of confidential patient-reported data to 
determine social risk.
    There were a few comments discussing confidential and public 
reporting of data adjusted for social risk factors. Some commenters 
supported either statistical risk-adjustment or stratifying performance 
for public reporting. One commenter suggested that confidential 
feedback reports could include unadjusted performance.
    Response: As we have previously stated, we are concerned about 
holding providers to different standards for the outcomes of their 
patients with social risk factors, because we do not want to mask 
potential disparities. We believe that the path forward should 
incentivize improvements in health outcomes for disadvantaged 
populations while ensuring that beneficiaries have adequate access to 
excellent care. We will consider all suggestions as we continue to 
assess each measure and the overall program. We intend to explore 
options including but not limited to measure stratification by social 
risk factors in a consistent manner across programs, informed by 
considerations of stratification methods described in section IX.A.13. 
of the preamble of this final rule. We thank commenters for this 
important feedback and will continue to consider options to account for 
social risk factors that would allow us to view disparities and 
potentially incentivize improvement in care for patients and 
beneficiaries. We are considering providing feedback to providers on 
outcomes for individuals with social risk factors in confidential 
reports.
3. Collection of Standardized Patient Assessment Data Under the LTCH 
QRP
a. Definition of Standardized Patient Assessment Data
    Section 1886(m)(5)(F)(ii) of the Act requires that, for fiscal year 
2019 (beginning October 1, 2018) and each subsequent year, LTCHs report 
standardized patient assessment data required under section 1899B(b)(1) 
of the Act. For purposes of meeting this requirement, section 
1886(m)(5)(F)(iii) of the Act requires an LTCH to submit the 
standardized patient assessment data required under section 1899B(b)(1) 
of the Act using the standard instrument in a time, form, and manner 
specified by the Secretary.
    Section 1899B(b)(1)(B) of the Act describes standardized patient 
assessment data as data required for at least the quality measures 
described in section 1899B(c)(1) of the Act and that is with respect to 
the following categories:
     Functional status, such as mobility and self-care at 
admission to a PAC provider and before discharge from a PAC provider;
     Cognitive function, such as ability to express ideas and 
to understand and mental status, such as depression and dementia;
     Special services, treatments and interventions such as the 
need for ventilator use, dialysis, chemotherapy, central line placement 
and total parenteral nutrition;
     Medical conditions and comorbidities such as diabetes, 
congestive heart failure and pressure ulcers;
     Impairments, such as incontinence and an impaired ability 
to hear, see or swallow; and
     Other categories deemed necessary and appropriate.
    As required under section 1899B(b)(1)(A) of the Act, the 
standardized patient assessment data must be reported at least with 
respect to LTCH admissions and discharges, but the Secretary may 
require the data to be reported more frequently. In the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 20087 through 20088), we proposed to 
define the standardized patient assessment data that LTCHs must report 
to comply with section 1886(m)(5)(F)(ii) of the Act, as well as the 
requirements for the reporting of these data. The collection of 
standardized patient assessment data is critical to our efforts to 
drive improvement in health care quality across the four PAC settings 
to which the IMPACT Act applies. We intend to use these data for a 
number of purposes, including facilitating their exchange and 
longitudinal use among health care providers to enable high quality 
care and outcomes through care coordination, as well as for quality 
measure calculation and identifying comorbidities that might increase 
the medical complexity of a particular admission.
    LTCHs are currently required to report patient assessment data 
through the Long-Term Care Hospital Continuity Assessment Record and 
Evaluation Data Set (LTCH CARE Data Set or LCDS) by responding to an 
identical set of assessment questions using an identical set of 
response options (we refer to each solitary question/response option as 
a data element and we refer to a group of questions/responses as data 
elements), both of which incorporate an identical set of definitions 
and standards. The primary purpose of the identical questions and 
response options is to ensure that we collect a set of standardized 
data elements across LTCHs which can then be used for a number of 
purposes, including LTCH

[[Page 38430]]

payment and measure calculation for the LTCH QRP.
    SNFs, IRFs, and HHAs are also required to report patient assessment 
data through their applicable PAC assessment instruments, and they do 
so by responding to identical assessment questions developed for their 
respective settings using an identical set of response options (which 
incorporate an identical set of definitions and standards). Like the 
LCDS, the questions and response options for each of these other PAC 
assessment instruments are standardized across the PAC provider type to 
which the PAC assessment instrument applies. However, the assessment 
questions and response options in the four PAC assessment instruments 
are not currently standardized with each other. As a result, questions 
and response options that appear on the LCDS cannot be readily compared 
with questions and response options that appear, for example, on the 
Inpatient Rehabilitation Facility-Patient Assessment Instrument (IRF-
PAI), the PAC assessment instrument used by IRFs. This is true even 
when the questions and response options are similar. This lack of 
standardization across the four PAC providers has limited our ability 
to compare one PAC provider type with another for purposes such as care 
coordination and quality improvement.
    To achieve a level of standardization across SNFs, LTCHs, IRFs, and 
HHAs that enables us to make comparisons between them, we proposed to 
define ``standardized patient assessment data'' as patient assessment 
questions and response options that are identical in all four PAC 
assessment instruments, and to which identical standards and 
definitions apply.
    Standardizing the questions and response options across the four 
PAC assessment instruments will also enable the data to be 
interoperable, allowing it to be shared electronically, or otherwise, 
between PAC provider types. It will enable the data to be comparable 
for various purposes, including the development of cross-setting 
quality measures, which may enhance provider and patient choice when 
selecting a post-acute care setting that will deliver the best outcome 
possible, and to inform payment models that take into account patient 
characteristics rather than setting, as described in the IMPACT Act.
    We invited public comment on this proposed definition.
    Comment: A commenter expressed support for the proposed definition 
of standardized patient assessment data.
    Response: We thank the commenter for its support.
    After consideration of the public comments we received, we are 
finalizing, as proposed, the definition of standardized patient 
assessment data for the LTCH QRP.
b. General Considerations Used for the Selection of Standardized 
Patient Assessment Data
    As part of our effort to identify appropriate standardized patient 
assessment data for purposes of collecting under the LTCH QRP, we 
sought input from the general public, stakeholder community, and 
subject matter experts on items that would enable person-centered, high 
quality health care, as well as access to longitudinal information to 
facilitate coordinated care and improved beneficiary outcomes.
    To identify optimal data elements for standardization, our data 
element contractor organized teams of researchers for each category, 
and each team worked with a group of advisors made up of clinicians and 
academic researchers with expertise in PAC. Information-gathering 
activities were used to identify data elements, as well as key themes 
related to the categories described in section 1899B(b)(1)(B) of the 
Act. In January and February 2016, our data element contractor also 
conducted provider focus groups for each of the four PAC provider 
types, and a focus group for consumers that included current or former 
PAC patients and residents, caregivers, ombudsmen, and patient advocacy 
group representatives. The Development and Maintenance of Post-Acute 
Care Cross-Setting Standardized Patient Assessment Data Focus Group 
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.
    Our data element contractor also assembled a 16-member TEP that met 
on April 7 and 8, 2016, and January 5 and 6, 2017, in Baltimore, 
Maryland, to provide expert input on data elements that are currently 
in each PAC assessment instrument, as well as data elements that could 
be standardized. The Development and Maintenance of Post-Acute Care 
Cross-Setting Standardized Patient Assessment Data TEP Summary Reports 
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.
    As part of the environmental scan, data elements currently in the 
four existing PAC assessment instruments were examined to see if any 
could be considered for proposal as standardized patient assessment 
data. Specifically, this evaluation included consideration of data 
elements in OASIS-C2 (effective January 2017); IRF-PAI, v1.4 (effective 
October 2016); LCDS, v3.00 (effective April 2016); and MDS 3.0, v1.14 
(effective October 2016). Data elements in the standardized assessment 
instrument that we tested in the Post-Acute Care Payment Reform 
Demonstration (PAC PRD)--the Continuity Assessment Record and 
Evaluation (CARE)--were also considered. A literature search was also 
conducted to determine whether additional data elements to propose as 
standardized patient assessment data could be identified.
    We also held four Special Open Door Forums (SODFs) on October 27, 
2015; May 12, 2016; September 15, 2016; and December 8, 2016, to 
present data elements we were considering and solicit input. At each 
SODF, some stakeholders provided immediate input, and all were invited 
to submit additional comments via the CMS IMPACT Mailbox at: 
[email protected].
    We also convened a meeting with federal agency subject matter 
experts (SMEs) on May 13, 2016. In addition, a public comment period 
was open from August 12 to September 12, 2016, to solicit comments on 
detailed candidate data element descriptions, data collection methods, 
and coding methods. The IMPACT Act Public Comment Summary Report 
containing the public comments (summarized and verbatim) and our 
responses 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.
    We specifically sought to identify standardized patient assessment 
data that we could feasibly incorporate into the LTCH, IRF, SNF, and 
HHA assessment instruments and that have the following attributes: (1) 
Being supported by current science; (2) testing well in terms of their 
reliability and validity, consistent with findings from the PAC PRD; 
(3) the potential to be shared (for example, through interoperable 
means) among PAC and other provider types to facilitate efficient care 
coordination and improved beneficiary outcomes; (4) the potential to 
inform the development of quality, resource use and other

[[Page 38431]]

measures, as well as future payment methodologies that could more 
directly take into account individual beneficiary health 
characteristics; and (5) the ability to be used by practitioners to 
inform their clinical decision and care planning activities. We also 
applied the same considerations that we apply with quality measures, 
including the CMS Quality Strategy which is framed using the three 
broad aims of the National Quality Strategy.
4. Policy for Retaining LTCH QRP Measures and Application of That 
Policy to Standardized Patient Assessment Data
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through 
53615), we adopted a policy that would allow any quality measure 
adopted for use in the LTCH QRP to remain in effect until the measure 
is 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). In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20089), we proposed to apply this policy to the standardized patient 
assessment data that we adopt for the LTCH QRP.
    We invited public comment on our proposal.
    Comment: Some commenters expressed support for applying the CMS 
policy for retaining LTCH QRP measures to the standardized patient 
assessment data. Another commenter disagreed with applying the existing 
policy to standardized patient assessment data, and encouraged CMS to 
remove items with unsubstantiated value as soon as possible. The 
commenter also stated that CMS should alleviate the data collection 
burden on providers as soon as it is practicable.
    Response: Standardized patient assessment data elements are used to 
collect data for quality measures. Therefore, standardized patient 
assessment elements that support such data collection follow the policy 
for quality measures that, once adopted, are retained until CMS 
determines that the quality measure should be removed. This 
determination is based on specific criteria for removal, suspension, or 
replacement. For any such removal, the public will be given a chance to 
comment through the notice-and-comment rulemaking process.
    We understand the concerns raised by commenters to alleviate the 
data collection burden on providers resulting from the finalization of 
our standardized patient assessment data proposals. We strive to 
balance implementing the reporting requirements of standardized patient 
assessment data and responding to burden concerns.
    After consideration of the public comments we received, we are 
finalizing our proposal, as proposed, to apply the policy for retaining 
LTCH QRP measures to the standardized patient assessment data that we 
adopt for the LTCH QRP.
5. Policy for Adopting Changes to LTCH QRP Measures and Application of 
That Policy for Adopting Changes to Standardized Patient Assessment 
Data
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 
53616), we adopted a subregulatory process to incorporate updates to 
LTCH quality measure specifications that do not substantively change 
the nature of the measure. Under that policy, substantive changes to 
quality measures are proposed and finalized through rulemaking. For 
further information on what constitutes a substantive versus a 
nonsubstantive change and the subregulatory process we use to make 
nonsubstantive changes to measures, we refer readers to the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53615 through 53616). In the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20089), we proposed to apply this 
policy to the standardized patient assessment data that we adopt for 
the LTCH QRP.
    We invited public comment on our proposal.
    Comment: Several commenters supported CMS' subregulatory process 
for adopting nonsubstantive changes to LTCH QRP measures. One commenter 
expressed support for applying this approach to the standardized 
patient assessment data proposed for the LTCH QRP.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing our proposal, as proposed, to apply our policy for adopting 
changes to LTCH QRP measures to the standardized patient assessment 
data that we adopt for the LTCH QRP.
6. Quality Measures Currently Adopted for the LTCH QRP
    The LTCH QRP currently has 17 adopted measures as outlined in the 
table below:

           Quality Measures Currently Adopted for the LTCH QRP
------------------------------------------------------------------------
          Short name                   Measure name & data source
------------------------------------------------------------------------
                           LTCH CARE Data Set
------------------------------------------------------------------------
Pressure Ulcers..............  Percent of Residents or Patients with
                                Pressure Ulcers That Are New or Worsened
                                (Short Stay) (NQF #0678).
Patient Influenza Vaccine....  Percent of Residents or Patients Who Were
                                Assessed and Appropriately Given the
                                Seasonal Influenza Vaccine (Short Stay)
                                (NQF #0680).
Application of Falls.........  Application of Percent of Residents
                                Experiencing One or More Falls with
                                Major Injury (Long Stay) (NQF #0674).*
Functional Assessment........  Percent of Long-Term Care Hospital (LTCH)
                                Patients with an Admission and Discharge
                                Functional Assessment and a Care Plan
                                That Addresses Function (NQF #2631).
Application of Functional      Application of Percent of Long-Term Care
 Assessment.                    Hospital (LTCH) Patients with an
                                Admission and Discharge Functional
                                Assessment and a Care Plan That
                                Addresses Function (NQF #2631).
Change in Mobility...........  Functional Outcome Measure: Change in
                                Mobility Among Long-Term Care Hospital
                                (LTCH) Patients Requiring Ventilator
                                Support (NQF #2632).
DRR..........................  Drug Regimen Review Conducted With Follow-
                                Up for Identified Issues--Post Acute
                                Care (PAC) Long-Term Care Hospital
                                (LTCH) Quality Reporting Program (QRP).*
------------------------------------------------------------------------
                                  NHSN
------------------------------------------------------------------------
CAUTI........................  National Healthcare Safety Network (NHSN)
                                Catheter-Associated Urinary Tract
                                Infection Outcome Measure (NQF #0138).
CLABSI.......................  National Healthcare Safety Network (NHSN)
                                Central Line-Associated Bloodstream
                                Infection Outcome Measure (NQF #0139).

[[Page 38432]]

 
MRSA.........................  National Healthcare Safety Network (NHSN)
                                Facility-wide Inpatient Hospital-onset
                                Methicillin-resistant Staphylococcus
                                aureus (MRSA) Bacteremia Outcome Measure
                                (NQF #1716).
CDI..........................  National Healthcare Safety Network (NHSN)
                                Facility-wide Inpatient Hospital-onset
                                Clostridium difficile Infection (CDI)
                                Outcome Measure (NQF #1717).
HCP Influenza Vaccine........  Influenza Vaccination Coverage among
                                Healthcare Personnel (NQF #0431).
VAE..........................  National Healthcare Safety Network (NHSN)
                                Ventilator-Associated Event (VAE)
                                Outcome Measure.*
------------------------------------------------------------------------
                              Claims-based
------------------------------------------------------------------------
All-Cause Readmissions.......  All-Cause Unplanned Readmission Measure
                                for 30-Days Post[dash]Discharge from
                                Long-Term Care Hospitals (LTCHs) (NQF
                                #2512).
MSPB.........................  Medicare Spending Per Beneficiary (MSPB)--
                                Post Acute Care (PAC) Long-Term Care
                                Hospital (LTCH) Quality Reporting
                                Program (QRP).*
DTC..........................  Discharge to Community--Post Acute Care
                                (PAC) Long-Term Care Hospital (LTCH)
                                Quality Reporting Program (QRP).*
PPR..........................  Potentially Preventable 30-Day Post-
                                Discharge Readmission Measure for Long-
                                Term Care Hospital (LTCH) Quality
                                Reporting Program (QRP).*
------------------------------------------------------------------------
* Not currently NQF-endorsed for the LTCH setting.

    We received comments about quality measures currently adopted for 
the LTCH QRP. The comments are summarized and discussed below.
    Comment: A few commenters expressed views regarding Medicare 
Spending per Beneficiary--PAC LTCH QRP, a measure previously finalized 
in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57199 through 57207). 
Commenters addressed the risk-adjustment approach, episode length, 
accounting for social risk factors, and potential for unintended 
consequences related to implementation of the measure. Some commenters 
encouraged CMS to utilize claims and patient assessment data to 
incorporate functional status into the risk-adjustment. One commenter 
recommended expanding the associated services period from 30 days to 
180 days post-PAC discharge in order to enhance the measure's capacity 
to identify improvements in medically complex populations. Another 
commenter expressed concern that PAC providers' performance on this 
measure would focus on costs per patient, without fully accounting for 
patient outcomes, and that efficiency should not be based solely on the 
MSPB-PAC measures. This commenter also noted that this measure may 
result in limiting access to certain patients.
    Response: Since no changes were proposed to the previously 
finalized measure, Medicare Spending per Beneficiary--PAC LTCH QRP, the 
comments received are outside the scope of the current rule. We 
addressed these issues in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57199 through 57207), and we refer the reader to that detailed 
discussion. We continue to believe that the measure specifications, 
including the risk-adjustment and episode length, are appropriate for 
this measure. With regard to comments related to accounting for social 
risk factors, we refer readers to section IX.C.2.b. of the preamble of 
this final rule.
    Comment: A few commenters expressed views related to Discharge to 
Community--PAC LTCH QRP, a measure previously finalized in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57207 through 57215). Commenters 
suggested excluding patients who died in the observation window 
following return to a community setting, distinguishing between a 
patient's return to home in the community versus home in a custodial 
nursing facility, assessing reliability and validity of the claims 
discharge status code used to calculate the measure, and accounting for 
social risk factors.
    Response: Since no changes were proposed to the previously 
finalized Discharge to Community--PAC LTCH QRP measure, the comments 
received are outside the scope of the current rule. We addressed these 
issues in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57207 through 
57215), and we refer readers to that rule for a detailed discussion of 
these issues. We also note that in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20098), we sought comment on the exclusion of baseline 
nursing facility residents as a potential future modification of the 
Discharge to Community--PAC LTCH QRP measure. We refer readers to 
section IX.C.9.a. of the preamble of this final rule for a discussion 
of this issue. With regard to comments related to social risk factors, 
we refer readers to section IX.C.2.b. of the preamble of this final 
rule.
    Comment: A few commenters expressed views regarding the Potentially 
Preventable 30-Day Post-Discharge Readmission Measure for LTCH QRP, a 
measure previously finalized in the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 57215 through 57219). Commenters expressed support for this 
measure, but encouraged further measure testing. They also suggested 
some modifications to the measure, such as excluding readmissions for 
conditions unrelated to the initial reason for LTCH admission and risk 
adjusting for certain patient characteristics, such as ``hospital 
dependent'' patients. Commenters also expressed views related to 
accounting for social risk factors.
    Response: Since no changes were proposed to the previously 
finalized measure, Potentially Preventable 30-Day Post-Discharge 
Readmission Measure for LTCH QRP, comments received are outside the 
scope of the current rule. We addressed these issues in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57215 through 57219), and we refer the 
reader to that detailed discussion. We continue to believe that the 
measure specifications are appropriate for this measure. We also refer 
readers to section IX.C.2.b. of the preamble of this final rule for 
responses to comments received related to social risk factors for this 
measure.
    Comment: We received a comment regarding the Percent of Residents 
or Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short Stay) (NQF #0680) and Influenza Vaccination 
Coverage Among Healthcare Personnel (NQF #0431) measures. The commenter 
supported the continued inclusion of the previously adopted measure,

[[Page 38433]]

Influenza Vaccination Coverage Among Healthcare Personnel (NQF #0431), 
in the LTCH QRP. The commenter also supported CMS' proposal to extend 
the data collection period for the Percent of Residents or Patients Who 
Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 
(Short Stay) (NQF #0680) measure to allow for accurate calculation of 
the measure outcome.
    Response: Since no changes were proposed to the previously 
finalized measures, Percent of Residents or Patients Who Were Assessed 
and Appropriately Given the Seasonal Influenza Vaccine (Short Stay) 
(NQF #0680) and Influenza Vaccination Coverage among Healthcare 
Personnel (NQF #0431), the comments received are outside the scope of 
the current rule. We addressed these issues in the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 57227 through 57229) for the Percent of Residents 
or Patients Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short Stay) (NQF #0680) measure and in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53630 through 53631) for the Influenza 
Vaccination Coverage among Healthcare Personnel (NQF #0431) measure. We 
refer readers to those rules for a detailed discussion. We continue to 
believe the inclusion of these influenza measures are important for the 
LTCH setting.
    Comment: A commenter requested additional information regarding the 
Percent of Long-Term Care Hospital Patients with an Admission and 
Discharge Functional Assessment and A Care Plan That Addresses Function 
(NQF #2631) and the 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), measures previously 
finalized in the FY 2015 IPPS/LTCH PPS final rule and FY 2016 IPPS/LTCH 
PPS final rule, respectively. The commenter requested that CMS provide 
detailed examples for coding a patient's discharge functional goals, 
and suggested removing the gateway mobility item for both measures that 
have been previously finalized.
    Response: Since no changes were proposed to the previously 
finalized measures, Percent of Long-Term Care Hospital Patients with an 
Admission and Discharge Functional Assessment and A Care Plan That 
Addresses Function (NQF #2631) 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), the 
comments received are outside the scope of the current rule. We 
addressed these issues in the FY 2015 IPPS/LTCH PPS final rule (79 FR 
50291 through 50298) and the FY 2016 IPPS/LTCH PPS final rule (80 FR 
49739 through 49747), respectively. We refer readers to those rules for 
a detailed discussion.
    We also provide examples of coding goals in Section GG of the LTCH 
QRP Manual, which is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-CARE-Data-Set-and-LTCH-QRP-Manual.html.
7. LTCH QRP Quality Measures Beginning With the FY 2020 LTCH QRP
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20090 through 
20097), beginning with the FY 2020 LTCH QRP, in addition to the quality 
measures we are retaining under our policy described in section IX.C.4. 
of the preamble of this final rule, we proposed to remove the current 
pressure ulcer measure entitled Percent of Residents or Patients with 
Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) and 
replace it with a modified version of the measure entitled Changes in 
Skin Integrity Post-Acute Care: Pressure Ulcer/Injury and adopt two new 
measures (one process and one outcome) related to ventilator weaning. 
We also proposed to characterize the data elements described below as 
standardized patient assessment data under section 1899B(b)(1)(B) of 
the Act that must be reported by LTCHs under the LTCH QRP through the 
LTCH CARE Data Set.
    The proposed measures are as follows:

 Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/
Injury
 Compliance with Spontaneous Breathing Trial (SBT) by Day 2 of 
the LTCH Stay
 Ventilator Liberation Rate
    The measures are described in more detail below.
a. Finalized Policy To Replace the Current Pressure Ulcer Quality 
Measure, Percent of Residents or Patients With Pressure Ulcers That Are 
New or Worsened (Short Stay) (NQF #0678), With a Modified Pressure 
Ulcer Measure, Changes in Skin Integrity Post-Acute Care: Pressure 
Ulcer/Injury
(1) Measure Background
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20090 through 
20092), we proposed to remove the current pressure ulcer measure, 
Percent of Residents or Patients with Pressure Ulcers That Are New or 
Worsened (Short Stay) (NQF #0678), from the LTCH QRP measure set and to 
replace it with a modified version of that measure, Changes in Skin 
Integrity Post-Acute Care: Pressure Ulcer/Injury, beginning with the FY 
2020 LTCH QRP. The change in the measure name is to reduce confusion 
about the new modified measure. The modified version differs from the 
current version of the measure because it includes new or worsened 
unstageable pressure ulcers, including deep tissue injuries (DTIs), in 
the measure numerator. The proposed modified version of the measure 
also contains updated specifications intended to eliminate redundancies 
in the assessment items needed for its calculation and to reduce the 
potential for underestimating the frequency of pressure ulcers. The 
modified version of the measure would satisfy the IMPACT Act domain of 
skin integrity and changes in skin integrity.
(2) Measure Importance
    As described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51754 
through 51756), pressure ulcers are high-cost adverse events and an 
important measure of quality. For information on the history and 
rationale for the relevance, importance, and applicability of having a 
pressure ulcer measure in the LTCH QRP, we refer readers to the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51748 through 51750) and the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50861 through 50863).
    We proposed to adopt a modified version of the current pressure 
ulcer measure because unstageable pressure ulcers, including DTIs, are 
similar to Stage 2, Stage 3, and Stage 4 pressure ulcers in that they 
represent poor outcomes, are a serious medical condition that can 
result in death and disability, are debilitating and painful, and are 
often an avoidable outcome of medical 
care.354 355 356 357 358 359 Studies

[[Page 38434]]

show that most pressure ulcers can be avoided and can also be healed in 
acute, post-acute, and long-term care settings with appropriate medical 
care.\360\ Furthermore, some studies indicate that DTIs, if managed 
using appropriate care, can be resolved without deteriorating into a 
worsened pressure ulcer.361 362
---------------------------------------------------------------------------

    \354\ Casey, G. (2013). ``Pressure ulcers reflect quality of 
nursing care.'' Nurs N Z 19(10): 20-24.
    \355\ Gorzoni, M.L. and S.L. Pires (2011). ``Deaths in nursing 
homes.'' Rev Assoc Med Bras 57(3): 327-331.
    \356\ Thomas, J.M., et al. (2013). ``Systematic review: Health-
related characteristics of elderly hospitalized adults and nursing 
home residents associated with short-term mortality.'' J Am Geriatr 
Soc 61(6): 902-911.
    \357\ White-Chu, E.F., et al. (2011). ``Pressure ulcers in long-
term care.'' Clin Geriatr Med 27(2): 241-258.
    \358\ Bates-Jensen BM. Quality indicators for prevention and 
management of pressure ulcers in vulnerable elders. Ann Int Med. 
2001;135 (8 Part 2), 744-51.
    \359\ Bennet, G., Dealy, C., Posnett, J. (2004). The cost of 
pressure ulcers in the UK, Age and Aging, 33(3):230-235.
    \360\ Black, Joyce M., et al. ``Pressure ulcers: Avoidable or 
unavoidable? Results of the national pressure ulcer advisory panel 
consensus conference.'' Ostomy-Wound Management 57.2 (2011): 24.
    \361\ Sullivan, R. (2013). A Two-year Retrospective Review of 
Suspected Deep Tissue Injury Evolution in Adult Acute Care Patients. 
Ostomy Wound Management 59(9). http://www.o-wm.com/article/two-year-retrospective-review-suspected-deep-tissue-injury-evolution-adult-acute-care-patien.
    \362\ Posthauer, M.E., Zulkowski, K. (2005). Special to OWM: The 
NPUAP Dual Mission Conference: Reaching Consensus on Staging and 
Deep Tissue Injury. Ostomy Wound Management 51(4) http://www.o-wm.com/content/the-npuap-dual-mission-conference-reaching-consensus-staging-and-deep-tissue-injury.
---------------------------------------------------------------------------

    While there are few studies that provide information regarding the 
incidence of unstageable pressure ulcers in PAC settings, an analysis 
conducted by a contractor suggests the incidence of unstageable 
pressure ulcers varies according to the type of unstageable pressure 
ulcer and setting.\363\ This analysis examined the national incidence 
of new unstageable pressure ulcers in LTCHs at discharge compared with 
admission using LTCH discharges from January through December 2015. The 
contractor found a national incidence of 1.15 percent of new 
unstageable pressure ulcers due to slough and/or eschar, 0.05 percent 
of new unstageable pressure ulcers due to non-removable dressing/
device, and 1.01 percent of new DTIs. In addition, an international 
study spanning the time period 2006 to 2009 provides some evidence to 
suggest that the proportion of pressure ulcers identified as DTI has 
increased over time.\364\ The study found DTIs increased by three fold, 
to nine percent of all observed ulcers in 2009, and that DTIs were more 
prevalent than either Stage 3 or 4 ulcers. During the same time period, 
the proportion of Stage 1 and 2 ulcers decreased, and the proportion of 
Stage 3 and 4 ulcers remained constant.
---------------------------------------------------------------------------

    \363\ Final Specifications for LTCH QRP Quality Measures and 
Standardized Patient Assessment Data Elements, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    \364\ VanGilder, C., MacFarlane, G.D., Harrison, P., 
Lachenbruch, C., Meyer, S. (2010). The Demographics of Suspected 
Deep Tissue Injury in the United States: An Analysis of the 
International Pressure Ulcer Prevalence Survey 2006-2009. Advances 
in Skin & Wound Care. 23(6): 254-261.
---------------------------------------------------------------------------

    The inclusion of unstageable pressure ulcers, including DTIs, in 
the numerator of this measure is expected to increase measure scores 
and variability in measure scores, thereby improving the ability to 
discriminate among poor- and high-performing LTCHs. In the currently 
implemented pressure ulcer measure, Percent of Residents or Patients 
with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678), 
analysis using data from Quarter 1 through Quarter 4 2015 data reveals 
that the LTCH mean score is 1.95 percent; the 25th and 75th percentiles 
are 0.53 percent and 2.49 percent, respectively; and 12.11 percent of 
facilities have perfect scores. In the proposed measure, Changes in 
Skin Integrity Post-Acute Care: Pressure Ulcer/Injury, during the same 
time frame, the LTCH mean score is 3.73 percent; the 25th and 75th 
percentiles are 1.53 percent and 4.89 percent, respectively; and 5.46 
percent of facilities have perfect scores.
(3) Stakeholder Feedback
    Our measure development contractor sought input from subject matter 
experts, including Technical Expert Panels (TEPs), over the course of 
several years on various skin integrity topics and specifically those 
associated with the inclusion of unstageable pressure ulcers, including 
DTIs. Most recently, on July 18, 2016, a TEP convened by our measure 
development contractor provided input on the technical specifications 
of this quality measure, including the feasibility of implementing the 
proposed measure's updates across PAC settings. The TEP supported the 
updates to the measure across PAC settings, including the inclusion in 
the numerator of unstageable pressure ulcers due to slough and/or 
eschar that are new or worsened, new unstageable pressure ulcers due to 
a non-removable dressing or device, and new DTIs. The TEP also 
supported the use of different data elements for measure calculation. 
The TEP recommended supplying additional guidance to providers 
regarding each type of unstageable pressure ulcer. This support was in 
agreement with earlier TEP meetings, held on June 13 and November 15, 
2013, which had recommended that CMS update the specifications for the 
pressure ulcer measure to include unstageable pressure ulcers in the 
numerator.365 366 Exploratory data analysis conducted by our 
measure development contractor suggests that the addition of 
unstageable pressure ulcers, including DTIs, will increase the observed 
incidence and variation in the rate of new or worsened pressure ulcers 
at the facility level, which may improve the ability of the proposed 
quality measure to discriminate between poor- and high-performing 
facilities.
---------------------------------------------------------------------------

    \365\ Schwartz, M., Nguyen, K.H., Swinson Evans, T.M., Ignaczak, 
M.K., Thaker, S., and Bernard, S.L.: Development of a Cross-Setting 
Quality Measure for Pressure Ulcers: OY2 Information Gathering, 
Final Report. Centers for Medicare & Medicaid Services, November 
2013. Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/Development-of-a-Cross-Setting-Quality-Measure-for-Pressure-Ulcers-Information-Gathering-Final-Report.pdf.
    \366\ Schwartz, M., Ignaczak, M.K., Swinson Evans, T.M., Thaker, 
S., and Smith, L.: The Development of a Cross-Setting Pressure Ulcer 
Quality Measure: Summary Report on November 15, 2013, Technical 
Expert Panel Follow-Up Webinar. Centers for Medicare & Medicaid 
Services, January 2014. Available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/Development-of-a-Cross-Setting-Pressure-Ulcer-Quality-Measure-Summary-Report-on-November-15-2013-Technical-Expert-Pa.pdf.
---------------------------------------------------------------------------

    We solicited stakeholder feedback on this proposed measure by means 
of a public comment period held from October 17 through November 17, 
2016. In general, we received considerable support for the proposed 
measure. A few commenters supported all of the changes to the current 
pressure ulcer measure that resulted in the proposed measure, with one 
commenter noting the significance of the work to align the pressure 
ulcer quality measure specifications across the PAC settings.
    Many commenters supported the inclusion of unstageable pressure 
ulcers due to slough/eschar, due to non-removable dressing/device, and 
DTIs in the quality measure. Other commenters did not support the 
inclusion of DTIs in the quality measure because they stated that there 
is no universally accepted definition for this type of skin injury.
    Some commenters provided feedback on the data elements used to 
calculate the proposed quality measure. We believe that these data 
elements will promote facilitation of cross-setting quality comparison 
as mandated by the IMPACT Act, alignment between quality measures and 
payment, reduction in redundancies in assessment items, and prevention 
of inappropriate underestimation of pressure ulcers. The currently 
implemented pressure ulcer measure is calculated using retrospective 
data elements that assess the number of new or worsened pressure ulcers 
at each stage, while the proposed measure is calculated using the 
number of unhealed pressure ulcers at each stage after subtracting the 
number that were present upon admission. Some commenters did not 
support the data elements that would be used to calculate the proposed 
measure,

[[Page 38435]]

and requested further testing of these data elements. Other commenters 
supported the use of these data elements stating that these data 
elements simplified the measure calculation process.
    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. 
This summary includes further detail about our responses to various 
concerns and ideas stakeholders raised.
    The NQF-convened Measures Application Partnership (MAP) Post-Acute 
Care/Long-Term Care (PAC/LTC) Workgroup met on December 14 and 15, 
2016, and provided input to CMS about this measure. The Workgroup 
provided a recommendation of ``support for rulemaking'' for use of the 
proposed measure in the LTCH QRP. The MAP Coordinating Committee met on 
January 24 and 25, 2017, and provided a recommendation of ``conditional 
support for rulemaking'' for use of the proposed measure in the LTCH 
QRP. The MAP's conditions of support include that, as a part of measure 
implementation, CMS provide guidance on the correct collection and 
calculation of the measure result, as well as guidance on public 
reporting Web sites explaining the impact of the specification changes 
on the measure result. The MAP's conditions also specify that CMS 
continue analyzing the proposed measure in order to investigate 
unexpected results reported in public comment. We intend to fulfill 
these conditions by offering additional training opportunities and 
educational materials in advance of public reporting, and by continuing 
to monitor and analyze the proposed measure. More information about the 
MAP's recommendations for this measure is available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84452.
    We reviewed the NQF's consensus endorsed measures and were unable 
to identify any NQF-endorsed pressure ulcer quality measures for PAC 
settings that are inclusive of unstageable pressure ulcers. There are 
related measures, but after careful review, we determined these 
measures are not applicable for use in LTCHs based on the populations 
addressed or other aspects of the specifications. We are unaware of any 
other such quality measures that have been endorsed or adopted by 
another consensus organization for the LTCH setting. Therefore, based 
on the evidence discussed above, we proposed to adopt the quality 
measure entitled, Changes in Skin Integrity Post-Acute Care: Pressure 
Ulcer/Injury, for the LTCH QRP beginning with the FY 2020 LTCH QRP. We 
plan to submit the proposed measure to the NQF for endorsement 
consideration as soon as feasible.
(4) Data Collection
    The data for this quality measure would be collected using the LTCH 
CARE Data Set, which is currently submitted by LTCHs through the QIES 
ASAP System. The proposed standardized patient assessment data 
applicable to this measure that must be reported by LTCHs for 
admissions as well as discharges occurring on or after April 1, 2018 is 
described in section IX.C.11. of the preamble of this final rule. While 
the inclusion of unstageable wounds in the proposed measure results in 
a measure calculation methodology that is different from the 
methodology used to calculate the current pressure ulcer measure, the 
data elements needed to calculate the proposed measure are already 
included on the LTCH CARE Data Set. In addition, our proposal to 
eliminate duplicative data elements that were used in calculation of 
the current pressure ulcer measure will result in an overall reduced 
reporting burden for LTCHs with respect to the proposed measure. To 
view the updated LTCH CARE Data Set, with the proposed changes, we 
refer readers to: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-CARE-Data-Set-and-LTCH-QRP-Manual.html. For more information on LTCH CARE Data 
Set submission using the QIES ASAP System, we refer readers to: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Technical-Information.html.
    For technical information about this measure, including information 
about the measure calculation and the standardized patient assessment 
data elements used to calculate this measure, we refer readers to the 
document titled, Final Specifications for LTCH QRP Quality Measures and 
Standardized Patient Assessment Data Elements, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    We proposed that LTCHs would begin reporting the proposed pressure 
ulcer measure, Changes in Skin Integrity Post-Acute Care: Pressure 
Ulcer/Injury, which will replace the current pressure ulcer measure, 
with data collection beginning April 1, 2018.
    We invited public comment on our proposal to replace the current 
pressure ulcer measure, Percent of Residents or Patients with Pressure 
Ulcers That Are New or Worsened (Short Stay) (NQF #0678), with a 
modified version of that measure, entitled Changes in Skin Integrity 
Post-Acute Care: Pressure Ulcer/Injury, for the LTCH QRP beginning with 
the FY 2020 LTCH QRP.
    Comment: Many commenters supported the proposed replacement of the 
current pressure ulcer measure, the Percent of Residents or Patients 
with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678), 
with a modified version of that measure, entitled Changes in Skin 
Integrity Post-Acute Care: Pressure Ulcer/Injury. Commenters 
appreciated that the implementation of this modified measure will 
reduce regulatory burden for providers while continuing to maintain a 
high standard for measuring the quality of care. Commenters also 
encouraged the expansion of this measure into other settings.
    Response: We appreciate the commenters' support, and also agree 
that this measure may be suitable to adapt for other settings.
    Comment: Several commenters requested that additional testing 
analyses be conducted prior to the implementation of this measure. 
These commenters indicated that the purpose of this additional testing 
should be to verify that the specifications of this measure reflect 
actual differences in the care practices and the quality of care 
provided by LTCHs, rather than differences in compliance. Specifically, 
some commenters expressed concerns that the variation in measure scores 
between facilities could reflect differences in the interpretation of 
definitions for unstageable pressure ulcers or DTIs, rather than actual 
differences in quality or care practices. These commenters noted that a 
measure should not be changed to create performance variation, but 
rather to be consistent with current science or to provide clarity and 
consistent data collection. Commenters requested that additional 
guidance be provided to promote consistency in the way the new measure 
is interpreted among providers.
    Response: We have performed testing to compare the performance of 
the proposed measure with the existing pressure ulcer/injury measure. 
Current findings indicate that the measure is both valid and reliable 
in the SNF, LTCH, and IRF settings. One of the differences between the 
current and

[[Page 38436]]

proposed pressure ulcer measures is that the proposed measure is 
calculated using the M0300 data element. Reliability and validity of 
the data elements used to calculate this quality measure have been 
tested in several ways.
    Rigorous testing on both reliability and validity of the data 
elements in the MDS 3.0 provides evidence for the data elements used in 
the SNF, LTCH, and IRF settings.\367\ The MDS 3.0 pilot test showed 
good reliability, and the results are applicable to the IRF-PAI as well 
as the LTCH CARE Data Set because the data elements tested are the same 
as those used in the IRF-PAI and LTCH CARE Data Set. Across pressure 
ulcer data elements, average gold-standard to gold-standard kappa 
statistic was 0.905. The average gold-standard to facility-nurse kappa 
statistic was 0.937. These kappa scores indicate ``almost perfect'' 
agreement using the Landis and Koch standard for strength of 
agreement.\368\ Analyses conducted by the measure development 
contractor indicate that there is a high level of alignment between the 
M0300 data element and the M0800 data element, suggesting that the data 
elements assess an equivalent concept. Using the M0300 data elements 
improves accuracy by establishing a standardized calculation method.
---------------------------------------------------------------------------

    \367\ Saliba, D., & Buchanan, J. (2008, April). Development and 
validation of a revised nursing home assessment tool: MDS 3.0. 
Contract No. 500-00-0027/Task Order #2. Santa Monica, CA: Rand 
Corporation. Retrieved from: http://www.cms.hhs.gov/NursingHomeQualityInits/Downloads/MDS30FinalReport.pdf.
    \368\ Landis, R., & Koch, G. (1977, March). The measurement of 
observer agreement for categorical data. Biometrics 33(1), 159- 174.
---------------------------------------------------------------------------

    A second main difference between the current and proposed pressure 
ulcer measures is that the proposed measure includes unstageable 
pressure ulcers, including DTIs, in the numerator of the quality 
measure, resulting in increased scores in all settings compared with 
the previously implemented pressure ulcer measure. An analysis 
conducted by the measure development contractor, using data from 
October through December 2016, showed mean scores increasing by 2.03 
percentage points in LTCH. This is due to the fact that the proposed 
measure includes unstageable pressure ulcers, including DTIs, while the 
current measure does not, as well as the fact some pressure ulcers 
captured as new or worsened in the M0300 data element were not reported 
in the M0800 data element.
    To assess the construct validity of this measure, or the degree to 
which the measure construct measures what it claims or purports to be 
measuring, our measure contractor sought input from TEPs over the 
course of several years. Most recently, on July 18, 2016, a TEP 
supported the inclusion in the numerator of unstageable pressure ulcers 
due to slough and/or eschar that are new or worsened, new unstageable 
pressure ulcers/injuries due to a non-removable dressing or device, and 
new DTIs. The measure testing activities were presented to TEP members 
for their input on the reliability, validity, and feasibility of this 
measure change. The TEP members supported the measure construct.
    The proposed measure also increased the variability of measures 
scores between providers, as noted by some commenters. In the currently 
implemented pressure ulcer measure, analysis using 2015 data from 
Quarter 1 through Quarter 4 reveals that the LTCH mean score is 1.95 
percent; the 25th and 75th percentiles are 0.53 percent and 2.49 
percent, respectively; and 12.11 percent of facilities have perfect 
scores. In the proposed measure, during the same timeframe, the LTCH 
mean score is 3.73 percent; the 25th and 75th percentiles are 1.53 
percent and 4.89 percent, respectively; and 5.46 percent of facilities 
have perfect scores. We would like to clarify that the goal of the 
proposed measure is not to create performance variation where none 
exists, but rather to better measure existing performance variation. 
This increased variability of scores between facilities will improve 
the ability of the measure to distinguish between high- and low-
performing facilities. As described above, the proposed measure has 
been shown to be reliable and valid through testing of the measure and 
data elements, and input from stakeholders.
    We will continue to perform reliability and validity testing in 
compliance with NQF guidelines and the Blueprint for the CMS Measures 
Management System to ensure that that the measure demonstrates 
scientific acceptability (including reliability and validity) and meets 
the goals of the QRP. Finally, as with all measure development and 
implementation, we will provide training and guidance prior to 
implementation of the measure to promote consistency in the 
interpretation of the measure.
    Comment: A few commenters stated that the M0300 data element 
assesses the total number of unhealed pressure ulcers at the time of 
admission and of those, the total number of unhealed pressure ulcers at 
the time of discharge, for each stage. One commenter expressed concern 
that the proposed measure may disfavor LTCHs that admit patients with 
pressure ulcers because those pressure ulcers might not heal by the 
time the patients are discharged from the LTCH.
    Response: We do not believe that this measure will disfavor LTCHs 
that admit patients who already have pressure ulcers. We wish to 
clarify that the proposed measure, Changes in Skin Integrity Post-Acute 
Care: Pressure Ulcer/Injury, is calculated using a subtraction method. 
The M0300 data element collects the number of unhealed pressure ulcers 
present at the time of the assessment (that is, discharge) for each 
stage, and the number of those pressure ulcers that were present upon 
admission. The pressure ulcers that were present upon admission are 
subtracted from the number of pressure ulcers at the same stage that 
are present at discharge and, as a result, are not included in the 
measure.
    Comment: Commenters requested further training and guidance in 
completing the M0300 data element that will be used to calculate the 
proposed quality measure. Some commenters requested comprehensive 
guidance on completing the ``present on admission'' data element. Some 
commenters questioned how specific scenarios involving unstageable 
pressure ulcers should be coded. These commenters had questions about 
how to code a pressure ulcer that is unstageable at admission, and 
becomes numerically stageable during the patient's stay, remaining at 
that stage at discharge. One commenter supported the proposed measure 
calculation approach, which will not count pressure ulcers that were 
present at the time of admission at the same stage, but stated that 
this would add complexity in coding and would require further training. 
One commenter stated that the use of these data elements would require 
LTCHs to calculate the number of new or worsened pressure ulcers by 
subtracting those present on admission. Some commenters stated that the 
modified measure may be difficult for providers to capture because they 
are being asked to report on a different data element.
    Response: The measure will be calculated using data reported on the 
M0300 data element collected at discharge, which only requires LTCHs to 
report the number of pressure ulcers for each stage (including stages 
2, 3 and 4, unstageable due to slough and/or eschar, unstageable due to 
non-removable dressing/device, and DTIs) and of those, the number that 
were present on admission. The M0300 data element currently exists on 
the LTCH CARE Data Set, and the current LTCH QRP Manual, as well as 
prior versions

[[Page 38437]]

of the Manual, include guidance about how to complete the M0300 data 
element in the scenarios described by the commenters, including 
unstageable pressure ulcers that become numerically stageable. The LTCH 
QRP Manual can be found at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-CARE-Data-Set-and-LTCH-QRP-Manual.html.
    We will provide further training, education, and guidance prior to 
implementation of the proposed measure. The LTCH QRP Manual will be 
updated with additional examples to further address the coding of 
unstageable pressure ulcers, and to provide further clarification on 
the coding of pressure ulcers/injuries that are ``present on 
admission.''
    Comment: Several comments expressed general support for the 
inclusion of all unstageable pressure ulcers in the proposed measure. 
One commenter stated that the measure will provide a more accurate 
picture of pressure ulcers and the quality of their prevention and 
treatment in PAC settings. This commenter stated that unstageable 
pressure ulcers may be prevented, accurately diagnosed, and effectively 
treated when they occur, that this measure will result in a more 
accurate picture of quality in post-acute care, and that the 2016 NPUAP 
staging definitions will help to improve diagnostic accuracy.
    Some commenters did not support the inclusion of unstageable 
pressure ulcers in the quality measure as proposed. Some commenters 
stated that there is a lack of clear definitions for some types of 
unstageable pressure ulcers, and that those definitions may be too 
subjective to collect reliable data on unstageable pressure ulcers. One 
commenter requested that CMS clarify the criteria that would enable a 
LTCH to report that an unstageable pressure ulcer present on admission 
has improved by the time of discharge. One commenter stated that it was 
unclear whether mucosal pressure injuries are included in the measure, 
and what the definition of ``worsened'' is in the context of 
unstageable pressure ulcers. The commenter stated that it may not be 
possible to prevent unstageable pressure ulcers/injuries due to non-
removable devices and dressings, or DTIs, and they questioned how this 
measure would inform improvement or inform the public. Commenters 
requested that CMS conduct additional testing to examine the inclusion 
of unstageable pressure ulcers.
    Response: We appreciate the support we have received regarding the 
inclusion of unstageable pressure ulcers, including DTIs, in the 
proposed quality measure. We believe that the inclusion of unstageable 
pressure ulcers in the measure will result in a fuller picture of 
quality to patients and families, and lead to further quality 
improvement efforts that will advance patient safety by reducing the 
rate of facility acquired pressure ulcers at any stage.
    To provide greater clarity about the definitions of different types 
of unstageable pressure ulcers and how to code them on the LTCH CARE 
Data Set, we are currently engaged in multiple educational efforts. 
These include training events, updates to the manuals and training 
materials, and responses to Help Desk questions to promote 
understanding and proper coding of these data elements. We will 
continue to engage in these training activities prior to implementation 
of the proposed measure.
    With regard to provider concerns regarding the inclusion of mucosal 
pressure ulcers, we wish to clarify that mucosal pressure ulcers are 
not included in this measure. Further instruction about these types of 
pressure ulcers is provided in the LTCH QRP Manual, which can be found 
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-CARE-Data-Set-and-LTCH-QRP-Manual.html. We would like to clarify that the data elements 
used to collect information about unstageable pressure ulcers do not 
reflect whether a pressure ulcer is improved at discharge compared to 
admission. Rather, the data element collects the number of pressure 
ulcers present at each stage (at discharge), and the number of those 
there were present at the same stage at admission.
    Comment: One commenter specifically supported the inclusion of 
DTIs. This commenter stated that the currently implemented pressure 
ulcer measure is biased because it does not include DTIs, and that the 
inclusion of DTIs in the measure has value and directly impacts the 
patient. The commenter stated that prompt assessment for a DTI at early 
onset is optimal to initial treatment protocols, and that a well-
trained clinician is able to discern DTIs during an assessment. Another 
commenter stated that these types of injuries may be prevented, 
accurately diagnosed and effectively treated when they occur, and that 
the 2016 NPUAP staging definitions may help to improve diagnostic 
accuracy.
    Other commenters did not support the inclusion of DTIs in the 
measure. Some commenters stated that there is not a universally 
accepted definition of DTIs, and one stated that DTIs are commonly 
misdiagnosed, which could lead to surveillance bias. One commenter 
stated that the category of DTI is not sufficiently mature enough to 
include in the measure, and that it may not be possible to prevent 
DTIs.
    Response: We appreciate the comments regarding the specific 
inclusion of DTIs in the proposed quality measure. DTIs, often an 
avoidable outcome of medical care, are debilitating and painful, and 
can result in death and/or disability, similar to Stage 2, Stage 3 and 
Stage 4 pressure ulcers. While some DTIs may worsen, studies indicate 
that many DTIs, if managed using appropriate care, can be resolved 
without deteriorating into a worsened pressure ulcer. Therefore, we 
believe that the inclusion of DTIs in the proposed quality measure is 
essential to be able to accurately reflect the number of these types of 
pressure injuries and to provide the appropriate patient care. Further, 
we believe that it is important to do a thorough assessment on every 
patient in each PAC setting, including a thorough skin assessment 
documenting the presence of any pressure ulcers or injuries of any 
kind, including DTIs. We agree that it is important to conduct thorough 
and consistent assessments to avoid the possibility of surveillance 
bias.
    When considering the addition of DTIs to the measure numerator, we 
convened cross-setting TEPs in June and November 2013, and obtained 
input from clinicians, experts, and other stakeholders. An additional 
cross-setting TEP convened by our measure development contractor in 
July 2016 also supported the recommendation to include unstageable 
pressure ulcers, including DTIs, in the numerator of the quality 
measure. Given DTIs' potential impact on mortality, morbidity, and 
quality of life, it may be detrimental to the quality of care to 
exclude DTIs from a pressure ulcer quality measure.
    Comment: A few commenters recommended that CMS attain NQF 
endorsement of the Changes in Skin Integrity Post-Acute Care: Pressure 
Ulcer/Injury measure prior to implementation.
    Response: While this measure is not currently NQF-endorsed, we 
recognize that the NQF endorsement process is an important part of 
measure development and plan to submit this measure for NQF endorsement 
consideration as soon as feasible.
    Comment: Some commenters supported adopting the NPUAP terminology 
regarding the use of the term ``pressure injury.'' These commenters 
believed that use of NPUAP

[[Page 38438]]

language will help facilitate the use of consistent definitions across 
PAC settings. One commenter expressed support for the term ``injury'' 
to describe ``deep tissue injury,'' but not other types of pressure 
ulcers. This commenter requested further clarification on the term 
``pressure ulcer/injury'' used in the proposed rule for this measure.
    Other commenters opposed the use of the new NPUAP terminology. 
Commenters stated that the term ``injury'' is not universally supported 
by wound care organizations, does not differentiate closed versus open 
wounds, is clinically inaccurate, and does not align with ICD-10 codes 
in use for pressure ulcers. These commenters indicated that, while the 
term ``ulcer'' is related to underlying medical conditions, the term 
``wound'' is related to the results of operations and accidents, which 
may imply intentionality.
    Response: We are aware of the array of terms used to describe 
alterations in skin integrity due to pressure. Some of these terms 
include: Pressure ulcer, pressure injury, pressure sore, decubitus 
ulcer, and bed sore. However, for purposes of the proposed measure, a 
skin condition should be coded on the LTCH CARE Data Set as a pressure 
ulcer if the primary cause of the skin condition is related to 
pressure. For example, if the medical record reflects the presence of a 
Stage 2 pressure injury, it should be coded on the assessment as a 
Stage 2 pressure ulcer.
    A TEP held by our measure development contractor on July 15, 2016 
was very supportive of adopting the NPUAP terminology of ``pressure 
injury.'' Some members of the TEP stated that the term ``injury'' may 
be a more inclusive term than ``ulcer,'' and that the term ``pressure 
injury'' may be more easily and positively understood by patients, 
residents, and family members than ``pressure ulcer.'' The TEP 
recommended training for providers and consumers regarding any change 
in terminology. We concur with the TEP's recommendations. The purpose 
and intent of the measure is to provide increased surveillance of an 
important patient safety and quality of care issue, and language 
revisions are intended to ensure that patient wounds are captured in a 
comprehensive and systematic manner.
    Regarding concerns about changes to ICD codes, we would like to 
clarify that the Changes in Skin Integrity Post-Acute Care: Pressure 
Ulcer/Injury measure is calculated using data elements from the LTCH 
CARE Data Set, and does not use ICD codes.
    Comment: Several commenters expressed concern regarding the 
proposal to adopt a modified pressure ulcer measure. One commenter 
supported CMS' efforts to implement this measure as it may reduce the 
burden of collecting assessment data. Other commenters believed that 
the implementation of the modified pressure ulcer measure will create 
additional administrative and financial burdens for LTCHs. One 
commenter urged CMS to postpone the implementation of this measure, 
stating that this would allow LTCHs additional time to improve their 
performance on the existing pressure ulcer quality measure.
    Response: We do not believe that the reporting of the proposed 
measure will impose a new burden on LTCHs because the measure is 
calculated using data elements that are currently included in the LTCH 
CARE Data Set. Further, our proposal to remove duplicative data 
elements that we are finalizing in this final rule will result in an 
overall reduced reporting burden for providers for the proposed 
measure.
    Comment: Several commenters recommended using both the M0300 and 
M0800 data elements to calculate the pressure ulcer measure, and 
recommended that CMS maintain the M0800 data elements on the LTCH CARE 
Data Set. These commenters stated that M0800 data elements are used by 
PAC providers to verify the number of patients with pressure ulcers 
that are new or worsened since admission, and believed that the use of 
M0300 data elements might require PAC staff to review both admission 
and discharge assessments when verifying the accuracy of measure 
calculation. One commenter found the M0800 data elements to be clear 
and concise.
    Response: We proposed to collect the proposed measure using the 
M0300 data element, and to remove the M0800 from the LTCH CARE Data 
Set, because we have found that use of the M0800 data element could 
result in the underreporting of pressure ulcers. Using the M0300 data 
element improves the reporting accuracy by establishing a standardized 
calculation. Further, the use of the M0300 data element facilitates 
standardization of the measure across settings.
    During a TEP meeting held on July 18, 2016, to discuss this 
measure, multiple TEP members preferred the wording of the M0300 data 
element, compared with the M0800 data element. TEP members stated that 
this data element may be clearer and reduce opportunities for error. We 
agree with these views, and we plan to provide additional training 
opportunities to improve understanding of the data elements.
    Comment: A few commenters noted that LTCH performance scores on the 
proposed measure are likely to differ from performance scores on the 
currently implemented pressure ulcer measure, Percent of Residents or 
Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 
(NQF #0678). They recommended development of educational materials for 
the public to explain the perceived shifts in performance.
    Response: We appreciate commenters' concerns about differences in 
performance scores between the two measures and the possibility of 
misinterpretation. While the proposed measure will not be directly 
comparable to the existing measure, it is expected to provide an 
improved measure of quality moving forward since it will more 
accurately capture the number of new and worsened pressure ulcers and 
include unstageable pressure ulcers. Further information and training 
will be provided to providers as well as consumers regarding how to 
interpret scores on the proposed measure, to avoid any possible 
confusion between the proposed measure and the existing measure.
    Comment: One commenter suggested that we include additional risk 
factors in the proposed measure, including age, mechanical ventilation 
status of the patient, and incontinence associated dermatitis. The 
commenter also recommended that we revise the terminology to be more 
specific (that is, ``diabetes mellitus'' instead of ``diabetes'' and 
``impaired independent mobility'' instead of ``mobility'').
    Response: We would like to note that this proposed quality measure 
will be risk adjusted for functional mobility admission performance, 
bowel continence, diabetes mellitus or peripheral vascular disease/
peripheral arterial disease, and low body mass index in each of the 
four settings. In response to the commenters request for the use of 
more specific terminology of risk adjusters, we note that all terms are 
described in greater detail in the Specifications for LTCH QRP Quality 
Measures and Standardized Data Elements, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html. As with our measure modification and evaluation 
processes, we will continue to analyze this measure, specifically 
assessing the addition of variables to the risk adjustment model, and 
testing the

[[Page 38439]]

inclusion of other risk factors as additional risk adjustors. This 
continued refinement of the risk adjustment models will ensure that the 
measure remains valid and reliable to inform quality improvement within 
and across each PAC setting, and to fulfill the public reporting goals 
of quality reporting programs.
    Comment: One commenter requested clarification on measure 
specification differences between LTCHs and other PAC settings. One 
commenter stated that there is an IMPACT Act mandate to implement 
``interoperable measures'' across PAC settings.
    Response: The Changes in Skin Integrity Post-Acute Care: Pressure 
Ulcer/Injury measure is harmonized across all PAC settings and uses 
standardized patient assessment data as required by the IMPACT Act. 
Further, we would like to clarify that the M0300 data element used to 
calculate this measure is standardized across all PAC settings, 
enabling interoperability. This standardization and interoperability of 
data elements allows for the exchange of information among PAC 
providers and other providers to whom this data is applicable. We refer 
readers to the measure specifications, which describe the 
specifications for the measure in PAC settings, Final Specifications 
for LTCH QRP Quality Measures and Standardized Patient Assessment Data 
Elements, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove the current pressure ulcer measure, 
Percent of Residents or Patients with Pressure Ulcers That Are New or 
Worsened (Short Stay) (NQF #0678), from the LTCH QRP measure set and 
replace it with a modified version of that measure, entitled Changes in 
Skin Integrity Post-Acute Care: Pressure Ulcer/Injury, for the LTCH QRP 
with an implementation date of July 1, 2018.
b. Mechanical Ventilation Process Quality Measure: Compliance With 
Spontaneous Breathing Trial (SBT) by Day 2 of the LTCH Stay
    Invasive mechanical ventilation care was identified through 
technical expert panels convened by our measure development contractor 
and public comment periods as a gap in the LTCH QRP measure set and 
aligns with the National Quality Strategy priority and the CMS Quality 
Strategy goal of ``promoting the most effective prevention and 
treatment practices'' by reducing the risk of complications from 
unnecessarily prolonged mechanical ventilation. In the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 20092 through 20095), we proposed to 
adopt the quality measure, Compliance with Spontaneous Breathing Trial 
(SBT) by Day 2 of the LTCH Stay, beginning with the FY 2020 LTCH QRP. 
The data applicable to this measure that must be reported by LTCHs for 
admissions as well as discharges occurring on or after April 1, 2018 is 
described in section IX.C.11. of the preamble of this final rule.
    The Compliance with SBT by Day 2 of the LTCH Stay measure is a 
process quality measure. For patients on invasive mechanical 
ventilation support upon admission to the LTCH, except those who meet 
measure exclusion criteria, this measure assesses facility-level 
compliance with SBT, including Tracheostomy Collar Trial (TCT) or 
Continuous Positive Airway Pressure (CPAP) breathing trial, by Day 2 of 
the LTCH stay, where Day 1 is the day of admission to the LTCH and Day 
2 is the subsequent calendar day. This measure is calculated and 
reported for the following two components: (1) The percentage of 
patients admitted on invasive mechanical ventilation who were assessed 
for readiness for SBT by Day 2 of the LTCH Stay, and (2) the percentage 
of patients deemed medically ready for SBT who received SBT by Day 2 of 
the LTCH stay. Higher percentages indicate better compliance. Patients 
are included in this quality measure if they are on invasive mechanical 
ventilation support upon admission to the LTCH, unless they meet 
measure exclusion criteria.
    Patients on invasive mechanical ventilation support present a 
critical focus for assessment of high quality care because they 
comprise a substantial proportion of LTCH patient admissions. 
Mechanically ventilated patients are increasingly common in both acute 
care hospital intensive care units (ICUs), where up to 40 percent of 
patients require some duration of mechanical ventilation,\369\ and 
LTCHs, where patients are frequently transferred for weaning following 
treatment in ICUs.370 371 372 Patients who require invasive 
mechanical ventilation of longer than 14 or 21 days are undergoing 
prolonged mechanical ventilation (PMV). In 2012, about 22,000 or 15.8 
percent of all LTCH discharges received PMV services during the LTCH 
stay.\373\
---------------------------------------------------------------------------

    \369\ Dasta, J.F., et al. (2005). ``Daily cost of an intensive 
care unit day: the contribution of mechanical ventilation.'' Crit 
Care Med 33(6): 1266-1271.
    \370\ Dasta, J.F., et al. (2005). ``Daily cost of an intensive 
care unit day: the contribution of mechanical ventilation.'' Crit 
Care Med 33(6): 1266-1271.
    \371\ Kahn, J.M., et al. (2010). ``Long-term acute care hospital 
utilization after critical illness.'' JAMA 303(22): 2253-2259.
    \372\ Szubski, C.R., et al. (2014). ``Predicting discharge to a 
long-term acute care hospital after admission to an intensive care 
unit.'' Am J Crit Care 23(4): e46-53.
    \373\ MedPAC (2016). Chapter 10. Long-term Care Hospital 
Services. In: Report to the Congress: Medicare Payment Policy. 
Washington, DC, Medicare Payment Advisory Commission.
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    This ventilator weaning-related process quality measure is 
important for encouraging implementation of evidence-based weaning 
guidelines as early during the LTCH patient stay as is beneficial to 
the patient. Although often necessary for life support, invasive 
mechanical ventilation is not without risk of harm to patients, and 
these risks increase as duration of ventilation 
continues.374 375 376 In both ICUs and LTCHs, unsuccessful 
weaning and delayed weaning increase patient exposure to a number of 
ventilator-associated negative health outcomes, including ventilator-
associated pneumonia,377 378 379 380 ventilator-associated 
lung injury,381 382 383 ventilator induced diaphragm

[[Page 38440]]

dysfunction,\384\ psychological distress 385 386 387 and 
post-traumatic stress disorder,\388\ disability \389\ and decreased 
functional status,390 391 and chronic critical illness 
syndrome.\392\ Furthermore, these ventilator-associated negative health 
outcomes particularly affect the LTCH population since a significant 
number of its patients are on PMV. The majority of mechanically 
ventilated patients who are transferred to an LTCH have received 
mechanical ventilation for at least 21 days.\393\ PMV increases the 
risk of patient morbidity and short-term and long-term mortality. 
According to a recent systematic review, the pooled mortality of 
patients with PMV (defined here as invasive mechanical ventilation for 
>=14 days) undergoing weaning attempts in LTCHs was 31 percent (18 
studies); however, the pooled mortality at one year significantly 
increased to 73 percent (8 studies).\394\
---------------------------------------------------------------------------

    \374\ Esteban, A., et al. (2002). ``Characteristics and outcomes 
in adult patients receiving mechanical ventilation: a 28-day 
international study.'' JAMA 287(3): 345-355.
    \375\ Cox, C.E., et al. (2007). ``Differences in one-year health 
outcomes and resource utilization by definition of prolonged 
mechanical ventilation: a prospective cohort study.'' Crit Care 
11(1): R9.
    \376\ Penuelas, O., et al. (2011). ``Characteristics and 
outcomes of ventilated patients according to time to liberation from 
mechanical ventilation.'' Am J Respir Crit Care Med 184(4): 430-437.
    \377\ Cook, D.J., et al. (1998). ``Incidence of and risk factors 
for ventilator-associated pneumonia in critically ill patients.'' 
Ann Intern Med 129(6): 433-440.
    \378\ Papazian, L., et al. (1996). ``Effect of ventilator-
associated pneumonia on mortality and morbidity.'' Am J Respir Crit 
Care Med 154(1): 91-97.
    \379\ Vincent, J.L., et al. (1995). ``The prevalence of 
nosocomial infection in intensive care units in Europe. Results of 
the European Prevalence of Infection in Intensive Care (EPIC) Study. 
EPIC International Advisory Committee.'' JAMA 274(8): 639-644.
    \380\ Safdar, N., et al. (2005). ``Clinical and economic 
consequences of ventilator-associated pneumonia: a systematic 
review.'' Crit Care Med 33(10): 2184-2193.
    \381\ Meade, M.O. and D.J. Cook (1995). ``The aetiology, 
consequences and prevention of barotrauma: a critical review of the 
literature.'' Clin Intensive Care 6(4): 166-173.
    \382\ Meade, M.O., et al. (1997). ``How to use articles about 
harm: the relationship between high tidal volumes, ventilating 
pressures, and ventilator-induced lung injury.'' Crit Care Med 
25(11): 1915-1922.
    \383\ Slutsky, A.S. and L.N. Tremblay (1998). ``Multiple system 
organ failure. Is mechanical ventilation a contributing factor?'' Am 
J Respir Crit Care Med 157(6 Pt 1): 1721-1725.
    \384\ Levine, S., et al. (2008). ``Rapid disuse atrophy of 
diaphragm fibers in mechanically ventilated humans.'' N Engl J Med 
358(13): 1327-1335.
    \385\ Rose, L., et al. (2014). ``Psychological wellbeing, health 
related quality of life and memories of intensive care and a 
specialised weaning centre reported by survivors of prolonged 
mechanical ventilation.'' Intensive Crit Care Nurs 30(3): 145-151.
    \386\ Schou, L. and I. Egerod (2008). ``A qualitative study into 
the lived experience of post-CABG patients during mechanical 
ventilator weaning.'' Intensive Crit Care Nurs 24(3): 171-179.
    \387\ Rotondi, A.J., et al. (2002). ``Patients' recollections of 
stressful experiences while receiving prolonged mechanical 
ventilation in an intensive care unit.'' Crit Care Med 30(4): 746-
752.
    \388\ Jubran, A., et al. (2010). ``Post-traumatic stress 
disorder after weaning from prolonged mechanical ventilation.'' 
Intensive Care Med 36(12): 2030-2037.
    \389\ Barnato, A.E., et al. (2011). ``Disability among elderly 
survivors of mechanical ventilation.'' Am J Respir Crit Care Med 
183(8): 1037-1042.
    \390\ Scheinhorn, D.J., et al. (2007). ``Post-ICU mechanical 
ventilation at 23 long-term care hospitals: a multicenter outcomes 
study.'' Chest 131(1): 85-93.
    \391\ Cox, C.E., et al. (2007). ``Differences in one-year health 
outcomes and resource utilization by definition of prolonged 
mechanical ventilation: a prospective cohort study.'' Crit Care 
11(1): R9.
    \392\ Cox, C.E., et al. (2007). ``Differences in one-year health 
outcomes and resource utilization by definition of prolonged 
mechanical ventilation: a prospective cohort study.'' Crit Care 
11(1): R9.
    \393\ MacIntyre, N.R., Epstein, S.K., Carson, S., Scheinhorn, 
D., Christopher, K., Muldoon, S., & National Association for Medical 
Direction of Respiratory, C. (2005). Management of patients 
requiring prolonged mechanical ventilation: report of a NAMDRC 
consensus conference. Chest, 128(6), 3937-3954.
    \394\ Damuth, E., et al. (2015). ``Long-term survival of 
critically ill patients treated with prolonged mechanical 
ventilation: a systematic review and meta-analysis.'' Lancet Respir 
Med. 2015 May 20.
---------------------------------------------------------------------------

    In addition to increased morbidity and mortality, mechanical 
ventilation is also associated with higher costs. While the literature 
on costs of mechanical ventilation are limited for the LTCH setting, 
studies in the acute care hospital ICU setting indicate that patients 
who require mechanical ventilation can have up to 50 percent higher 
costs than patients who do not receive mechanical ventilation.\395\ ICU 
patients who develop VAP incur at least $40,000 more in hospital costs 
than ventilated patients without VAP, and costs increase with 
increasing duration of mechanical ventilation.396 397 398
---------------------------------------------------------------------------

    \395\ Dasta, J.F., et al. (2005). ``Daily cost of an intensive 
care unit day: the contribution of mechanical ventilation.'' Crit 
Care Med 33(6): 1266-1271.
    \396\ Kollef, M.H., et al. (2012). ``Economic impact of 
ventilator-associated pneumonia in a large matched cohort.'' Infect 
Control Hosp Epidemiol 33(3): 250-256.
    \397\ Restrepo, M.I., et al. (2010). ``Economic burden of 
ventilator-associated pneumonia based on total resource 
utilization.'' Infect Control Hosp Epidemiol 31(5): 509-515.
    \398\ Sedwick, M.B., et al. (2012). ``Using evidence-based 
practice to prevent ventilator-associated pneumonia.'' Crit Care 
Nurse 32(4): 41-51.
---------------------------------------------------------------------------

    Although there is evidence regarding the benefit of daily 
assessments of patient readiness for weaning from invasive mechanical 
ventilation,\399\ as well as for the importance of adherence to weaning 
protocols,\400\ we are not aware of any studies in LTCHs that evaluate 
timing of assessment for readiness to wean with respect to the 
admission date. However, an international task force, convened in 2005, 
developed guideline recommendations to address the entire weaning 
process. Despite the limited evidence, this task force recommended that 
weaning be considered as soon as possible,\401\ because failure to 
assess the patient for readiness to wean may lead to undue prolonged 
mechanical ventilation,\402\ thus exposing patients unnecessarily to 
adverse ventilator-associated morbidity and mortality.\403\ Based on 
studies and observations of implementation of regular assessment for 
SBTs and weaning protocols in ICUs, adherence to the recommended 
weaning processes, including prompt assessment of weaning readiness and 
initiation of SBTs, appears quite variable, likely due to differences 
in clinicians' intuitive thresholds for determination of patients' 
readiness to wean.404 405 Clinician delays in recognizing 
that weaning may be possible and beginning assessment of weaning 
readiness are two common causes of weaning delays.\406\ In one study, 
50 percent of the patients considered to be incapable of sustaining 
spontaneous ventilation by clinicians later were able to tolerate a 
weaning trial. The authors concluded that tests used to validate 
clinician intuition on a patient's readiness for weaning are often 
inaccurate and that clinicians should follow explicit protocols to 
consistently test patients on their readiness to wean.\407\ Because 
prompt identification of patients' readiness for SBTs has been shown to 
reduce weaning duration without harm to patients,\408\ such delays 
indicate less than optimal performance \409\ and opportunities for 
improvement.
---------------------------------------------------------------------------

    \399\ Robertson, T.E., et al. (2008). ``Improved extubation 
rates and earlier liberation from mechanical ventilation with 
implementation of a daily spontaneous-breathing trial protocol.'' J 
Am Coll Surg 206(3): 489-495.
    \400\ Blackwood, B., et al. (2014). ``Protocolized versus non-
protocolized weaning for reducing the duration of mechanical 
ventilation in critically ill adult patients.'' Cochrane Database 
Syst Rev 11: Cd006904.
    \401\ Boles, J.M., et al. (2007). ``Weaning from mechanical 
ventilation.'' Eur Respir J 29(5): 1033-1056.
    \402\ MacIntyre, N.R., Epstein, S.K., Carson, S., Scheinhorn, 
D., Christopher, K., Muldoon, S., & National Association for Medical 
Direction of Respiratory, C. (2005). Management of patients 
requiring prolonged mechanical ventilation: report of a NAMDRC 
consensus conference. Chest, 128(6), 3937-3954.
    \403\ Hess, D.R., & MacIntyre, N.R. (2011). Ventilator 
discontinuation: why are we still weaning? Am J Respir Crit Care 
Med, 184(4), 392-394.
    \404\ MacIntyre, N.R. (2013). ``The ventilator discontinuation 
process: an expanding evidence base.'' Respir Care 58(6): 1074-1086.
    \405\ Kollef, M.H., et al. (1997). ``A randomized, controlled 
trial of protocol-directed versus physician-directed weaning from 
mechanical ventilation.'' Crit Care Med 25(4): 567-574.
    \406\ Boles, J.M., et al. (2007). ``Weaning from mechanical 
ventilation.'' Eur Respir J 29(5): 1033-1056.
    \407\ Cook, D., et al. (2000). Criteria for Weaning from 
Mechanical Ventilation. Evidence Reports/Technology Assessments, 
Agency for Healthcare Research and Quality.
    \408\ Ely, E.W., et al. (1996). ``Effect on the duration of 
mechanical ventilation of identifying patients capable of breathing 
spontaneously.'' N Engl J Med 335(25): 1864-1869.
    \409\ Blackwood, B., et al. (2014). ``Protocolized versus non-
protocolized weaning for reducing the duration of mechanical 
ventilation in critically ill adult patients.'' Cochrane Database 
Syst Rev 11: Cd006904.
---------------------------------------------------------------------------

    Indirect evidence for the need for prompt recognition of patients' 
readiness to wean in LTCHs comes from a recent study of patients newly 
admitted to LTCHs on invasive mechanical ventilation, which reported 
that 32 percent of invasively mechanically ventilated patients admitted 
to an LTCH passed a 5-day TCT following admission.\410\ That nearly one 
third of newly admitted LTCH patients were able to be completely weaned 
within five days underscores the need to assess patients' ability to 
breathe without assistance soon after admission to an LTCH, and also 
indicates that this quality measure

[[Page 38441]]

has potential to positively impact the health and quality of care 
received by a considerable proportion of the LTCH patient population.
---------------------------------------------------------------------------

    \410\ Jubran, A., et al. (2013). ``Effect of pressure support vs 
unassisted breathing through a tracheostomy collar on weaning 
duration in patients requiring prolonged mechanical ventilation: a 
randomized trial.'' JAMA 309(7): 671-677.
---------------------------------------------------------------------------

    Because invasive mechanical ventilation should be discontinued as 
soon as patients are capable of breathing 
independently,411 412 unnecessarily prolonged mechanical 
ventilation can be an indicator of poor care quality or of persistent 
illness.\413\ This quality measure is designed to encourage adherence 
to evidence-based and consensus-based guidelines through implementation 
of timely assessment of patient readiness to wean and trials of 
unassisted breathing. To increase timeliness of weaning and reduce 
patient risk of complications, it is important to assess a patient's 
need for continued mechanical ventilation at the time of admission. 
Measuring and comparing assessment of readiness to wean and compliance 
with SBT by Day 2 is expected to help differentiate among facilities 
with varying performance in this important domain. The anticipated 
improvement in quality is an improvement in timeliness of weaning and 
ventilator liberation for patients admitted to LTCHs on invasive 
mechanical ventilation. In addition, facilities can use results of this 
measure to improve timely compliance with evidence-based weaning 
guidelines and develop ventilator weaning quality improvement programs.
---------------------------------------------------------------------------

    \411\ Blackwood, B., et al. (2011). ``Use of weaning protocols 
for reducing duration of mechanical ventilation in critically ill 
adult patients: Cochrane systematic review and meta-analysis.'' BMJ 
342: c7237.
    \412\ Epstein, S.K. (2009). ``Weaning from ventilatory 
support.'' Current opinion in critical care, 15(1), 36-43. doi: 
10.1097/MCC.0b013e3283220e07.
    \413\ MacIntyre, N.R. (2013). ``The ventilator discontinuation 
process: an expanding evidence base.'' Respir Care 58(6): 1074-1086.
---------------------------------------------------------------------------

    A TEP assembled by our measure development contractor convened nine 
meetings (two in-person meetings and seven webinars) between April 2014 
and August 2016 in order to refine the quality measure's technical 
specifications, including the measure target population, inclusion and 
exclusion criteria, and key definitions (for example, ``non-weaning''). 
The TEP also offered feedback on the individual LTCH CARE Data Set 
ventilator weaning items and supported the feasibility of implementing 
this measure in the LTCH setting. The measure developer recruited two 
former patients successfully weaned from mechanical ventilation as well 
as the primary caregiver of one of the patients to solicit their views 
on the measures. The 2014-2016 Development of Long-Term Care Hospital 
(LTCH) Ventilator Weaning Quality Measures Technical Expert Panel 
Summary Report is available on the CMS Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    We also solicited stakeholder feedback on the development of this 
measure through a public comment period held from May 19, 2016, through 
June 9, 2016. Several stakeholders and organizations supported this 
measure for implementation, including hospitals and professional 
organizations. 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/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    Our measure development contractor conducted a pilot test on the 
data elements used to calculate this quality measure. The pilot test 
was conducted in 10 LTCHs among approximately 150 LTCH patients and 
used a mixed methods research design to collect data. Quantitative data 
on the ventilator weaning items was collected from May 27, 2016 through 
September 10, 2016, and qualitative data on these items was collected 
from June 6, 2016 through October 4, 2016. The LTCHs who participated 
in the pilot test were selected to represent variation across several 
key facility-level characteristics: geographic location, size, and 
profit status.
    The qualitative data from the pilot test of the ventilator weaning 
process measure supported the importance of the measure. Results from 
qualitative and quantitative analysis further support the feasibility 
of data collection for this quality measure. Data collection for this 
quality measure was not seen as burdensome by pilot sites. The pilot 
test summary report for this measure is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    The NQF-convened MAP PAC/LTC Workgroup met on December 12, 2014 and 
again on December 14 and 15, 2015. During these meetings, the MAP 
encouraged continued development of this proposed measure, 
acknowledging that there is evidence for interventions that improve 
ventilator care,\414\ that variation in quality of care exists among 
LTCHs,\415\ and that ventilator care is an important safety priority 
for LTCHs.\416\
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    \414\ ``Spreadsheet of MAP 2015 Final Recommendations (XLSX).'' 
Measure Applications Partnership Post Acute Care/Long-Term Care 
Workgroup. Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=78711.
    \415\ ``Spreadsheet of MAP 2016 Final Recommendations (XLSX).'' 
Measure Applications Partnership Post Acute Care/Long-Term Care 
Workgroup. Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593.
    \416\ MAP 2015 Considerations for Implementing Measures in 
Federal Programs: Draft for Public Comment. Measure Applications 
Partnership Post Acute Care/Long-Term Care Workgroup. Available at: 
http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75370.
---------------------------------------------------------------------------

    Since the MAP's review and recommendation of continued development 
in 2015, we have continued to refine this proposed measure in 
accordance with the MAP's recommendations. Results of continued 
development activities, including stakeholder feedback from the 2016 
public comment period and 2016 pilot test findings, were presented to 
the MAP during the MAP feedback loop meeting in October 2016. The 
proposed measure is consistent with the information submitted to the 
MAP, and the original MAP submission and our continued refinements 
support its scientific acceptability for use in quality reporting 
programs. As discussed with the MAP, we fully anticipate that 
additional analyses will continue once data collection for the measure 
begins. More information about the MAP's recommendations for this 
proposed measure is available at: http://www.qualityforum.org/Publications/2016/02/MAP_2016_Considerations_for_Implementing_Measures_in_Federal_Programs_-_PAC-LTC.aspx.
    We reviewed the NQF's consensus endorsed measures and were unable 
to identify any NQF-endorsed ventilator weaning quality measures 
focused on assessment of readiness to wean for patients admitted on 
invasive mechanical ventilation in the LTCH setting. We are unaware of 
any other quality measures for weaning from invasive mechanical 
ventilation that have been endorsed or adopted by another consensus 
organization for the LTCH setting. Therefore, based on the evidence 
discussed above, we proposed to adopt the quality measure entitled, 
Compliance with SBT by Day 2 of the LTCH Stay, for the LTCH QRP 
beginning with the FY 2020 LTCH QRP. We plan to submit the quality 
measure to the NQF for consideration for endorsement.
    We proposed that data for this ventilator weaning quality measure 
be collected through the LTCH CARE Data

[[Page 38442]]

Set, with submission through the QIES ASAP System. For more information 
on LTCH QRP reporting using the QIES ASAP System, we refer readers to 
our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Technical-Information.html. We stated that we intended to revise the LTCH CARE 
Data Set to include new items that assess processes for weaning from 
invasive mechanical ventilation, should this proposed measure be 
adopted.
    This measure is calculated and reported for two components. The 
proposed measure denominator for Component 1, Percentage of Patients 
Assessed for Readiness for SBT by Day 2 of LTCH Stay, is the total 
number of patients admitted during the reporting period who were on 
invasive mechanical ventilation upon admission to an LTCH and expected 
or anticipated by the provider to undergo weaning attempts at 
admission. The proposed measure numerator for Component 1 is the number 
of patients admitted on invasive mechanical ventilation during the 
reporting period who were assessed for readiness for SBT (including TCT 
or CPAP breathing trial) by Day 2 of the LTCH stay.
    The proposed measure denominator for Component 2, Percentage of 
Patients Ready for SBT Who Received SBT by Day 2 of LTCH Stay, is the 
subset of patients in the denominator of the Component 1, who were 
assessed and deemed medically ready for SBT by Day 2 of the LTCH stay. 
The proposed measure numerator for Component 2, Percentage of Patients 
Ready for SBT Who Received SBT by Day 2 of LTCH Stay, is the number of 
patients admitted on invasive mechanical ventilation during the 
reporting period who were ready for SBT and who received an SBT 
(including TCT or CPAP breathing trial) by Day 2 of the LTCH stay.
    For technical information about this proposed measure, including 
information about the measure calculation and proposed measure 
denominator exclusions, we refer readers to the document titled, Final 
Specifications for LTCH QRP Quality Measures and Standardized Patient 
Assessment Data Elements, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    We invited public comments on our proposal to adopt the quality 
measure, Compliance with SBT by Day 2 of the LTCH Stay, beginning with 
the FY 2020 LTCH QRP.
    Comment: Some commenters expressed support for the adoption of 
Compliance with SBT by Day 2 of the LTCH Stay for the LTCH QRP. 
Commenters noted that reducing risks of complications associated with 
prolonged mechanical ventilation, such as VAEs, and improving 
ventilator weaning rates are important areas for quality measurement in 
LTCHs. Another commenter expressed support that this measure will 
provide data necessary to reduce the risk of complications from 
unnecessarily prolonged mechanical ventilation and reduce variations in 
practice that do not benefit patients.
    Response: We appreciate the commenters' support of the Compliance 
with SBT by Day 2 of the LTCH Stay measure and support for this topic 
for the LTCH QRP. We agree that the objective of this measure aligns 
with guidelines on reducing time spent on mechanical ventilation to 
decrease risk of complications and to improve ventilator weaning rates.
    Comment: Some commenters recommended that CMS further test the 
Compliance with SBT by Day 2 of the LTCH Stay measure prior to 
finalization and implementation for the LTCH QRP.
    Response: Determination of measure readiness for implementation and 
data collection was informed by feedback and results from the pilot 
test and TEP discussions. Pilot sites were able to test the items 
related to the measure and provided feedback via a series of check-ins 
that further informed measure development. The TEPs further supported 
measure development by providing critical insight and feedback from 
clinicians, researchers, and experienced LTCH administrators. In 
addition, patient advocates provided insight into ventilated patient 
experiences in the LTCH and the utility of the ventilator weaning 
measures. Additional testing will be conducted as data collection 
ensues, and we will continue to test these measures on a quarterly 
basis if feasible and conduct maintenance and evaluation of the measure 
for reliability and validity.
    Comment: One commenter appreciated that the measure has 
significantly evolved from conception and recommended that we submit 
the measure to NQF for consideration of endorsement.
    Response: We appreciate the commenter for their comment about the 
extensive work that went into the measure development process. With 
regard to NQF endorsement, as noted in the proposed rule, we intend to 
submit the measure to NQF for consideration of endorsement. We further 
note that we consider and propose appropriate measures that have been 
endorsed by the NQF whenever possible. However, section 
1886(m)(5)(D)(ii) of the Act allows the Secretary to specify a measure 
for the LTCH QRP that that is not NQF endorsed as long as due 
consideration is given to measures that have been endorsed or adopted 
by a consensus organization. In the case of the proposed measure, we 
have not been able to identify other measures that are endorsed or 
adopted by a consensus organization. While we appreciate the importance 
of consensus endorsement and intend to seek such endorsement, we 
believe the need to address the measure gap in invasive mechanical 
ventilation care in the LTCH QRP outweighs the general rule of adopting 
an NQF endorsed measure at this time.
    Comment: With respect to the addition of the two ventilator weaning 
measures for FY 2020, one commenter expressed concern that the expanded 
patient assessment data reporting requirements would impose a 
significant burden on providers.
    Response: We appreciate the commenter's concern about the burden 
associated with the measure proposals; however, we believe that these 
measures are important to assess measure gaps for LTCH patients. We 
intend to provide guidance and training for providers to address their 
concerns regarding the expanded patient assessment data reporting 
requirements.
    Comment: A commenter expressed concern that the small size of the 
pilot test used to inform the development of this measure may not be 
adequate to conclude that the measure is reliable and accurate.
    Response: The focus of the pilot test was to inform measure 
development as well as to evaluate the feasibility of patient-level 
data collection and submission. To obtain a balanced sample of 
participants, pilot sites were chosen based on criteria including LTCH 
size, geographic region, and ownership type. Based on the size and 
projected number of ventilated patients, the number of sites recruited 
was deemed to provide a sufficient number of patients for analysis of 
the feasibility of data collection and validity of the mechanical 
ventilation quality measures. Pilot sites received in-depth trainings 
and provided feedback via a series of check-ins that further informed 
measure development during the course of the pilot study. We concluded 
that the pilot test was adequate to proceed with proposal of the 
measure for adoption under the LTCH QRP. We will continue to test these 
measures on a quarterly basis and conduct

[[Page 38443]]

maintenance and evaluation of the measure for reliability and validity.
    Comment: Some commenters were concerned with the 2-day time frame 
to assess an admitted patient for readiness to perform SBT because it 
would be burdensome to providers especially for patients admitted 
during evenings or weekends. Some commenters recommended extending the 
time frame to complete the assessment to 5 days as used in a recent 
study led by Jubran et al., 2013.\417\
---------------------------------------------------------------------------

    \417\ Jubran, A., et al. (2013). ``Effect of pressure support vs 
unassisted breathing through a tracheostomy collar on weaning 
duration in patients requiring prolonged mechanical ventilation: a 
randomized trial.'' JAMA 309(7): 671-677.
---------------------------------------------------------------------------

    Response: We wish to clarify that the 5-day time frame used by a 
recent study led by Jubran et al., 2013 to assess LTCH patients on 
invasive mechanical ventilation is not an established protocol. A task 
force in 2005 on the subject of weaning from mechanical ventilation, 
which included international scientific experts and advisors, 
recommended that liberation be considered as soon as possible for 
patients to reduce risk of complications and mortality.\418\ 
Accordingly, TEP members agreed that the 5-day time frame was too long 
compared to best practices and that assessment for ventilator 
liberation should be prior to 5 days. After extensive discussion, TEP 
members recommended the 2-day time frame to set a high standard to 
encourage high quality of care and increase the chance that patients 
are determined to be capable of liberation from mechanical ventilation 
earlier.
---------------------------------------------------------------------------

    \418\ Boles, J.M., et al. (2007). ``Weaning from mechanical 
ventilation.'' Eur Respir J 29(5): 1033-1056.
---------------------------------------------------------------------------

    Comment: One commenter was concerned that the proposed measure 
conflicts with the site neutral payment policy.
    Response: We appreciate the opportunity to clarify that the 
proposed measure is intended to ensure that patients on invasive 
mechanical ventilation support upon LTCH admission are assessed for 
readiness for SBT as recommended. In addition, if a patient on invasive 
mechanical ventilation is found ready for SBT, then a provider should 
perform an SBT. This measure does not conflict with the site neutral 
payment policy because providers are not assessed on the time to 
liberation (completion of an SBT and liberation from mechanical 
ventilation), but assessed on initiating the process (completing an 
assessment of the patient) to determine whether the patient is 
medically ready to be liberated from mechanical ventilation.
    Comment: One commenter expressed concern about whether the proposed 
measure is a safe and feasible practice for patients. Another commenter 
noted that the short time frame may have unintended negative 
consequences for patient care and forces clinical judgment on weaning 
status.
    Response: We appreciate the commenters' concerns pertaining to 
patient safety, and would like to emphasize that patient safety is a 
top priority in all measurement development efforts. We encourage 
providers to use best patient care practices when assessing patients 
for readiness for liberation. In addition, we note that while the 
measure assesses providers on completing an assessment of the patient 
to determine whether the patient is medically ready to be liberated 
from mechanical ventilation, it does not ``force'' providers to make 
any particular assessment, and we encourage providers to classify 
patients as ``weaning'' or ``non-weaning'' as clinically appropriate. 
Of note, evidence-based guidelines recommend that liberation be 
considered as soon as possible for patients to reduce risk of 
complications and mortality. If a clinician deemed a patient medically 
unready to perform SBT, then the decision should be documented and 
providers should code this item appropriately.
    Comment: One commenter was concerned that the multi-component 
structure of the measure may be confusing to providers and that 
definitions embedded in the calculation of the two components 
(specifically, ``documentation,'' ``weaning,'' and ``non-weaning'') are 
too subjective.
    Response: We would like to clarify that ``documentation'' that the 
patient was not deemed medically ready for SBT can be any medical 
record that a provider uses to document patient information. In regard 
to weaning status, we encourage providers to classify patients as 
``weaning'' or ``non-weaning'' as clinically appropriate. We wish to 
further clarify that patients with specific conditions such as 
amyotrophic lateral sclerosis that may negate any expectation or 
anticipation of weaning attempts on admission may be considered ``non-
weaning'' by the provider. We intend to provide training and guidance 
prior to the implementation of the quality measure to ensure that 
providers are prepared to properly collect the data and fully 
understand the measure specifications.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the measure, Compliance with SBT by 
Day 2 of the LTCH Stay, beginning with the FY 2020 LTCH QRP with an 
implementation date of July 1, 2018, as discussed in section IX.C.11. 
of the preamble of this final rule.
c. Mechanical Ventilation Outcome Quality Measure: Ventilator 
Liberation Rate
    Invasive mechanical ventilation care was identified as an important 
gap in the LTCH QRP measure set,\419\ and aligns with the National 
Quality Strategy priority and the CMS Quality Strategy goal of 
``promoting the most effective prevention and treatment practices'' by 
reducing the risk of complications from unnecessarily prolonged 
mechanical ventilation. In the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 20095 through 20097), we proposed to adopt the quality measure, 
Ventilator Liberation Rate, for the LTCH QRP beginning with the FY 2020 
LTCH QRP. The data applicable to this measure that must be reported by 
LTCHs for admissions as well as discharges occurring on or after April 
1, 2018 is described in section IX.C.11. of the preamble of this final 
rule.
---------------------------------------------------------------------------

    \419\ Technical Expert Panel Report: Quality Measures for Long-
Term Care Hospitals. Thaker, S., Gage, B., Bernard, S., and Nguyen, 
K. March 2011.
---------------------------------------------------------------------------

    The Ventilator Liberation Rate measure is an outcome quality 
measure. This quality measure is a facility-level measure that reports 
the percentage of LTCH patients admitted on invasive mechanical 
ventilation, for whom weaning attempts were expected or anticipated, 
and are fully weaned by the end of their LTCH stay. Patients who are 
considered fully weaned at discharge are those who did not require any 
invasive mechanical ventilation support for at least 2 consecutive 
calendar days immediately prior to discharge. While the first 
ventilator weaning measure we proposed captures the weaning process, 
this measure captures the key outcome of successful liberation from 
invasive mechanical ventilation.
    We refer readers to section IX.C.7.b. of the preamble of this final 
rule for information regarding the literature review in support of 
proposing the mechanical ventilation process quality measure, 
Compliance with SBT by Day 2 of the LTCH Stay.
    Discontinuation of invasive mechanical ventilation, known as 
weaning or liberation, is feasible for many ventilated patients, and is 
associated with improved health outcomes. In LTCHs, higher weaning 
rates have been associated with lower

[[Page 38444]]

post-discharge mortality, even among the 
elderly,420 421 422 423 424 and fewer days of mechanical 
ventilation may lead to decreased risk of ventilator-associated 
complications/events, enhanced rehabilitation opportunities, and a 
shorter length of stay.\425\ Based on the evidence, increasing weaning 
rates is expected to reduce the risk of harm associated with invasive 
mechanical ventilation, thus contributing to more favorable clinical 
outcomes for patients 426 427 and decreased costs.
---------------------------------------------------------------------------

    \420\ Blackwood, B., et al. (2014). ``Protocolized versus non-
protocolized weaning for reducing the duration of mechanical 
ventilation in critically ill adult patients.'' Cochrane Database 
Syst Rev 11: Cd006904.
    \421\ Frengley, J., et al. (2014). ``Prolonged mechanical 
ventilation in 540 seriously ill older adults: effects of increasing 
age on clinical outcomes and survival.'' J Am Geriatr Soc 62(1): 1-
9.
    \422\ Rose, L. and I.M. Fraser (2012). ``Patient characteristics 
and outcomes of a provincial prolonged-ventilation weaning centre: a 
retrospective cohort study.'' Can Respir J 19(3): 216-220.
    \423\ Scheinhorn, D.J., et al. (2007). ``Post-ICU mechanical 
ventilation at 23 long-term care hospitals: a multicenter outcomes 
study.'' Chest 131(1): 85-93.
    \424\ Stearn-Hassenpflug, M., et al. (2013). ``Post-ICU 
Mechanical Ventilation: Trends in Mortality and 12-month Post-
discharge Survival.'' Critical Care Medicine 41(12): A166.
    \425\ Hassenpflug, M.S., et al. (2015). Post-ICU Mechanical 
Ventilation: Outcomes of the Revised Therapist-Implemented Patient-
Specific Weaning Protocol. [abstract] B44. Invasive And Non-Invasive 
Mechanical Ventilation, American Thoracic Society: A3166-A3166.
    \426\ Blackwood, B., et al. (2014). ``Protocolized versus non-
protocolized weaning for reducing the duration of mechanical 
ventilation in critically ill adult patients.'' Cochrane Database 
Syst Rev 11: Cd006904.
    \427\ Jubran, A., et al. (2013). ``Effect of pressure support vs 
unassisted breathing through a tracheostomy collar on weaning 
duration in patients requiring prolonged mechanical ventilation: a 
randomized trial.'' JAMA, 309(7): 671-677.
---------------------------------------------------------------------------

    Numerous studies from 1991 through 2015 have reported a range of 
ventilator liberation rates among LTCHs. A review of nine single-center 
studies conducted between 1991 and 2001 reported that, among more than 
3,000 patients with PMV >21 days, facility-level liberation rates 
ranged from 34 percent to 60 percent, with an overall weaning rate of 
52 percent.\428\ A recent systematic review identified nine studies 
(4,769 patients) reporting the proportion of patients successfully 
liberated from ventilation in LTCHs, and found a pooled weaning rate of 
47 percent (95 percent CI 42-51); rates reported by individual studies 
conducted in the United States varied from 13 percent to 56 
percent.\429\ Lower liberation rates may indicate less-than-optimal 
performance.
---------------------------------------------------------------------------

    \428\ Scheinhorn, D.J., et al. (2001). ``Post-ICU weaning from 
mechanical ventilation: the role of long-term facilities.'' Chest 
120(6 Suppl): 482S-484S.
    \429\ Damuth, E., et al. (2015). ``Long-term survival of 
critically ill patients treated with prolonged mechanical 
ventilation: a systematic review and meta-analysis.'' Lancet Respir 
Med.
---------------------------------------------------------------------------

    Ventilator liberation rate is an actionable health care outcome. 
Multiple interventions have been shown to increase ventilator 
liberation rates, including selection and implementation of weaning 
protocols, ventilator modes, and type of pressure support strategies. 
Multiple studies in LTCHs 430 431 432 and ICUs 
433 434 provide evidence to support the relationship between 
weaning processes and the successful weaning of mechanically ventilated 
LTCH patients. The effectiveness of these interventions suggests that 
improvement in liberation rates among LTCH patients is possible through 
modifying provider-led processes and interventions.
---------------------------------------------------------------------------

    \430\ Jubran, A., et al. (2013). ``Effect of pressure support vs 
unassisted breathing through a tracheostomy collar on weaning 
duration in patients requiring prolonged mechanical ventilation: a 
randomized trial.'' JAMA 309(7): 671-677.
    \431\ Vitacca, M., et al. (2001). ``Comparison of two methods 
for weaning patients with chronic obstructive pulmonary disease 
requiring mechanical ventilation for more than 15 days.'' Am J 
Respir Crit Care Med 164(2): 225-230.
    \432\ Hassenpflug, M.S., et al. (2015). Post-ICU Mechanical 
Ventilation: Outcomes of the Revised Therapist-Implemented Patient-
Specific (TIPS?) Weaning Protocol. B44. Invasive And Non-Invasive 
Mechanical Ventilation, American Thoracic Society: A3166-A3166.
    \433\ Ely, E.W., et al. (1996). ``Effect on the duration of 
mechanical ventilation of identifying patients capable of breathing 
spontaneously.'' N Engl J Med 335(25): 1864-1869.
    \434\ Burns, K.E., et al. (2014). ``Noninvasive ventilation as a 
weaning strategy for mechanical ventilation in adults with 
respiratory failure: a Cochrane systematic review.'' CMAJ 186(3): 
E112-122.
---------------------------------------------------------------------------

    Expectations of successful ventilator liberation are high for many 
LTCH patients.435 436 437 Unnecessarily prolonged mechanical 
ventilation increases the risk of negative patient outcomes and can be 
an indicator of poor quality care or of persistent illness.\438\ Based 
on the evidence, improving weaning processes and increasing weaning 
rates are expected to mitigate the risk of harm associated with 
invasive mechanical ventilation, thus contributing to more favorable 
clinical outcomes for patients 439 440 and decreased 
costs.\441\ This quality measure, Ventilator Liberation Rate, will 
assess the proportion of patients discharged alive from an LTCH who are 
fully weaned, thereby promoting weaning efforts and encouraging quality 
management of LTCH patients on invasive mechanical ventilation. Kahn et 
al. (2013) noted that inclusion of a liberation outcome measure is key 
to providing a truly patient-centered measure related to invasive 
mechanical ventilation weaning among LTCH patients.\442\
---------------------------------------------------------------------------

    \435\ Rose, L. and I.M. Fraser (2012). ``Patient characteristics 
and outcomes of a provincial prolonged-ventilation weaning centre: a 
retrospective cohort study.'' Can Respir J 19(3): 216-220.
    \436\ Hassenpflug, M.S., et al. (2011). Post-ICU Mechanical 
Ventilation: Extended Care Facility Residents Transferred From 
Intensive Care To Long-Term Acute Care. American Thoracic Society 
2011 International Conference. Denver, Colorado.
    \437\ Hassenpflug, M.S., et al. (2015). Post-ICU Mechanical 
Ventilation: Outcomes of the Revised Therapist-Implemented Patient-
Specific (TIPS?) Weaning Protocol. B44. Invasive And Non-Invasive 
Mechanical Ventilation, American Thoracic Society: A3166-A3166.
    \438\ MacIntyre, N.R. (2013). ``The ventilator discontinuation 
process: an expanding evidence base.'' Respir Care 58(6): 1074-1086.
    \439\ Blackwood, B., et al. (2014). ``Protocolized versus non-
protocolized weaning for reducing the duration of mechanical 
ventilation in critically ill adult patients.'' Cochrane Database 
Syst Rev 11: Cd006904.
    \440\ Jubran, A., et al. (2013). ``Effect of pressure support vs 
unassisted breathing through a tracheostomy collar on weaning 
duration in patients requiring prolonged mechanical ventilation: a 
randomized trial.'' JAMA 309(7): 671-677.
    \441\ Dasta, J.F., et al. (2005). ``Daily cost of an intensive 
care unit day: the contribution of mechanical ventilation.'' Crit 
Care Med 33(6): 1266-1271.
    \442\ Kahn, J.M., & Carson, S.S. (2013). Generating evidence on 
best practice in long-term acute care hospitals. JAMA, 309(7), 719-
720.
---------------------------------------------------------------------------

    A TEP assembled by our measure development contractor convened nine 
meetings (two in-person meetings and seven webinars) between April 2014 
and August 2016. TEP members provided input to guide the development of 
the quality measures, including feedback on the individual LTCH CARE 
Data Set ventilator weaning items, the target population, inclusion and 
exclusion criteria, and patient demographic and clinical factors that 
could affect ventilator weaning outcomes (risk adjustors). TEP members 
also supported the feasibility of implementing this measure in the LTCH 
setting. The measure developer recruited two former patients 
successfully weaned from mechanical ventilation as well as the primary 
caregiver of one of the patients to solicit their views on the 
measures. The 2014-2016 Development of Long-Term Care Hospital (LTCH) 
Ventilator Weaning Quality Measures Technical Expert Panel Summary 
Report is available on the CMS Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.

[[Page 38445]]

    We also solicited stakeholder feedback on the development of this 
measure through a public comment period held from May 19, 2016, through 
June 9, 2016. Several stakeholders and organizations supported this 
measure for implementation, including hospitals and professional 
organizations. 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/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    Our measure development contractor conducted a pilot test on the 
proposed data elements used to calculate this quality measure. The 
pilot test was conducted in ten LTCHs which included approximately 150 
LTCH patients and used a mixed methods research design to collect data. 
Quantitative data on the ventilator weaning items was collected from 
May 27, 2016 through September 10, 2016, and qualitative data on these 
items was collected from June 6, 2016 through October 4, 2016. The 
LTCHs who participated in the pilot test were selected to represent 
variation across several key facility-level characteristics: Geographic 
location, size, and profit status.
    The qualitative data from the pilot test of the ventilator 
liberation quality measure supported the importance of the measure; 
results from qualitative and quantitative analysis also supported the 
feasibility of data collection. Data collection for this quality 
measure was not seen as burdensome by pilot sites. The pilot test 
summary report for this measure is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    The NQF-convened MAP PAC/LTC Workgroup met on December 12, 2014, 
and on December 14 and 15, 2015. During these meetings, the MAP 
provided input on the importance and specifications of this measure. 
The MAP encouraged continued development of the measure, stating that 
this measure has high value potential for the LTCH QRP\443\ because 
successful weaning is important for improving quality of life and 
decreasing morbidity, mortality, and resource use among 
patients.444 445
---------------------------------------------------------------------------

    \443\ ``Spreadsheet of MAP 2016 Final Recommendations (XLSX).'' 
Measure Applications Partnership Post Acute Care/Long-Term Care 
Workgroup. Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593.
    \444\ MAP 2015 Considerations for Implementing Measures in 
Federal Programs: Draft for Public Comment. Measure Applications 
Partnership Post Acute Care/Long-Term Care Workgroup. Available at: 
http://www.qualityforum.org/ProjectMaterials.aspx?projectID=75370.
    \445\ ``Spreadsheet of MAP 2016 Final Recommendations (XLSX).'' 
Measure Applications Partnership Post Acute Care/Long-Term Care 
Workgroup. Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=81593.
---------------------------------------------------------------------------

    Since the MAP's review and recommendation of continued development 
in 2015, we have continued to refine this proposed measure in 
accordance with the MAP's recommendations. Results of continued 
development activities, including stakeholder feedback from the 2016 
public comment period and 2016 pilot test findings, were presented to 
the MAP during the MAP feedback loop meeting in October 2016. The 
proposed measure is consistent with the information submitted to the 
MAP, and the original MAP submission and our continued refinements 
support its scientific acceptability for use in quality reporting 
programs. As discussed with the MAP, we fully anticipate that 
additional analyses will continue once data collection for the measure 
begins. 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.
    We reviewed the NQF's consensus endorsed measures and were unable 
to identify any NQF-endorsed ventilator weaning quality measures 
focused on the liberation status at discharge for patients admitted on 
invasive mechanical ventilation in the LTCH setting. We are unaware of 
any other quality measures for liberation from invasive mechanical 
ventilation that have been endorsed or adopted by another consensus 
organization for the LTCH setting. Therefore, based on the evidence 
discussed above, we proposed to adopt the quality measure entitled, 
Ventilator Liberation Rate, for the LTCH QRP beginning with the FY 2020 
LTCH QRP. We plan to submit the quality measure to the NQF for 
consideration for endorsement.
    We proposed that data for this quality measure be collected through 
the LTCH CARE Data Set, with the submission through the QIES ASAP 
System. For more information on LTCH QRP reporting using the QIES ASAP 
system, we refer readers to our Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Technical-Information.html. We stated that we 
intended to revise the LTCH CARE Data Set to include new items that 
assess invasive mechanical ventilation liberation at discharge, should 
this proposed measure be adopted.
    This measure reports facility-level Ventilator Liberation Rate for 
patients admitted to an LTCH on invasive mechanical ventilation, and 
for whom weaning attempts were expected or anticipated as reported on 
the Admission Assessment. The Ventilator Liberation Rate is defined as 
the percentage of patients on invasive mechanical ventilation upon 
admission who are alive and fully liberated at discharge. The proposed 
measure denominator is the number of patients requiring invasive 
mechanical ventilation support upon admission to an LTCH, except those 
who meet exclusion criteria. The proposed measure numerator is the 
number of patients who are discharged alive and fully liberated. This 
measure is risk-adjusted for variables such as age, neurological injury 
or disease, dialysis, and other comorbidities and treatments. If a 
patient has more than one LTCH stay during the reporting period, then 
each LTCH stay will be included in the measure calculation and 
reporting. For technical information about this measure, including 
information about the measure calculation, risk adjustment, and 
proposed measure denominator exclusions, we refer readers to the 
document titled, Final Specifications for LTCH QRP Quality Measures and 
Standardized Patient Assessment Data Elements, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    We invited public comments on our proposal to adopt the quality 
measure, Ventilation Liberation Rate, beginning with the FY 2020 LTCH 
QRP.
    Comment: Some commenters expressed support for the adoption of 
Ventilator Liberation Rate into the LTCH QRP.
    Response: We appreciate commenters' support for the adoption of 
Ventilator Liberation Rate.
    Comment: Some commenters recommended that CMS further test the 
Ventilator Liberation Rate measure prior to finalization and 
implementation for the LTCH QRP.
    Response: Determination of measure readiness for implementation and 
data collection was informed by feedback

[[Page 38446]]

and results from the pilot test and TEP discussions. Pilot sites were 
able to test the items related to the measure and provided feedback via 
a series of check-ins that further informed measure development. The 
TEPs further supported measure development by providing critical 
insight and feedback from clinicians, researchers, and experienced LTCH 
administrators. In addition, patient advocates provided insight into 
ventilated patient experiences in the LTCH and the utility of the 
ventilator weaning measures. Additional testing will be conducted as 
data collection ensues and we will continue to test these measures on a 
quarterly basis if feasible and conduct maintenance and evaluation of 
the measure for reliability and validity.
    Comment: One commenter appreciated that the measure has 
significantly evolved from conception. This commenter recommended that 
we submit the measure to NQF for consideration of endorsement.
    Response: We appreciate the commenter for their comment about the 
extensive work that went into the measure development process. With 
regard to NQF endorsement, as noted in the proposed rule, we intend to 
submit the measure to NQF for consideration of endorsement. We further 
note that we consider and propose appropriate measures that have been 
endorsed by the NQF whenever possible. However, section 
1886(m)(5)(D)(ii) of the Act allows the Secretary to specify a measure 
for the LTCH QRP that that is not NQF endorsed as long as due 
consideration is given to measures that have been endorsed or adopted 
by a consensus organization. In the case of the proposed measure, we 
have not been able to identify other measures that are endorsed or 
adopted by a consensus organization. While we appreciate the importance 
of consensus endorsement and intend to seek such endorsement, we 
believe the need to address the measure gap in invasive mechanical 
ventilation care in the LTCH QRP outweighs the general rule of adopting 
an NQF endorsed measure at this time.
    Comment: With respect to the addition of the two ventilator weaning 
measures beginning with the FY 2020 LTCH QRP, one commenter expressed 
concern that the expanded patient assessment data reporting 
requirements would impose a significant burden on providers.
    Response: We appreciate the commenter's concern about the burden 
associated with the measure proposals; however, we believe that these 
measures are important to assess measure gaps for LTCH patients. We 
intend to provide guidance and training for providers to address their 
concerns regarding the expanded patient assessment data reporting 
requirements.
    Comment: A commenter expressed concern that the small size of the 
pilot test used to inform the development of this measure may not be 
adequate to conclude that the measure is reliable and accurate.
    Response: The focus of the pilot test was to inform measure 
development as well as to evaluate the feasibility of patient-level 
data collection and submission. To obtain a balanced sample of 
participants, pilot sites were chosen based on criteria including LTCH 
size, geographic region, and ownership type. Based on the size and 
projected number of ventilated patients, the number of sites recruited 
was deemed to provide a sufficient number of patients for analysis of 
the feasibility of data collection and validity of the mechanical 
ventilation quality measures. Pilot sites received in-depth trainings 
and provided feedback via a series of check-ins that further informed 
measure development during the course of the pilot study. We concluded 
that the pilot test was adequate to proceed with proposal of the 
measure for adoption under the LTCH QRP. We will continue to test these 
measures on a quarterly basis and conduct maintenance and evaluation of 
the measure for reliability and validity.
    Comment: With respect to data coding restrictions for item O0200, 
Ventilator Liberation Rate, one commenter requested clarification on 
the appropriate coding for the item for patients admitted on mechanical 
ventilation who were not expected to wean but are liberated at 
discharge and for patients ventilated during the LTCH stay who were 
liberated at discharge.
    Response: We would like to clarify that all patients who were 
liberated from mechanical ventilation should be coded as indicated 
regardless of admission status of the patient to ensure accurate data. 
The measure calculations for item O0200, Ventilator Liberation Rate, 
exclude the two sets of patients described by the commenter from the 
denominator. Therefore, data coding restrictions are not needed for 
item O0200, Ventilator Liberation Rate.
    Comment: A few commenters supported that the measure was risk-
adjusted and noted the importance of adequate risk adjustment to ensure 
that providers who care for more complex patients do not fare worse 
because of insufficient risk adjustment. Some commenters questioned 
whether the current risk-adjustment model for the measure was adequate. 
Specifically, one commenter suggested that cases with progressive 
neuromuscular disease and severe neuromuscular injury, disease or 
dysfunction be excluded from the measure numerator and denominator, and 
another commenter recommended to combine and risk-adjust these cases 
together, as the conditions are captured under one category in the LTCH 
CARE Data Set. Another commenter recommended that ventilated patients 
undergoing dialysis also be considered as a measure exclusion and that 
special adjustments be made for larger ventilator weaning programs 
where most ventilated patients are accepted, unlike LTCHs that only 
admit patients identified for weaning.
    Response: We appreciate the importance of adequate risk adjustment 
for this measure and appreciate the commenters' recommendations. The 
TEP identified several risk factors that affect ventilator liberation 
outcome, and these factors were included in the risk-adjustment model 
for initial measure testing. In addition, pilot sites have provided CMS 
feedback on these risk-adjustment variables. We will continue to test 
and refine the risk-adjustment model by further evaluating conditions 
such as progressive neuromuscular disease, severe neuromuscular injury, 
disease or dysfunction, and dialysis to ensure sufficient risk 
adjustment. We note that the LTCH CARE Data Set V4.00 contains two 
separate items that indicate either ``Other Progressive Neuromuscular 
Disease'' and ``Other Severe Neurological Injury, Disease, or 
Dysfunction.'' We would like to clarify that patients who were deemed 
non-weaning on admission are excluded from the denominator for 
Ventilator Liberation Rate. As a result of this exclusion, performance 
on the measure would not be impacted by the proportion of patients 
admitted that are undergoing mechanical ventilation and identified as 
weaning.
    After consideration of the public comments we received, we are 
finalizing our proposal to adopt the measure, Ventilator Liberation 
Rate, beginning with the FY 2020 LTCH QRP with an implementation date 
of July 1, 2018, as discussed in section IX.C.11. of the preamble of 
this final rule.
8. Removal of the All-Cause Unplanned Readmission Measure for 30 Days 
Post-Discharge From LTCHs From the LTCH QRP
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20097 through 
20098), we proposed to remove the All-Cause Unplanned Readmission 
Measure for 30 Days Post-Discharge from LTCHs

[[Page 38447]]

(NQF #2512) beginning with the FY 2019 LTCH QRP.
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49730 through 
49731), we adopted the All-Cause Unplanned Readmission Measure for 30 
Days Post-Discharge from LTCHs (NQF #2512) for the LTCH QRP. This 
measure assesses all-cause unplanned hospital readmissions from LTCHs. 
In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57215 through 57219), we 
adopted the Potentially Preventable 30-Day Post-Discharge Readmission 
Measure for LTCH QRP to fulfill IMPACT Act requirements. In response to 
the FY 2017 IPPS/LTCH PPS proposed rule, we received public comments 
expressing concern over the multiplicity of readmission measures and 
the overlap between the All-Cause Readmission and Potentially 
Preventable Readmission (PPR) 30-Day Post-Discharge measures (see 81 FR 
57217 through 57218). Commenters also stated that more than one 
readmission measure would create confusion and require additional 
effort by providers to track and improve performance.
    We retained the All-Cause Readmission measure because it would 
allow us to monitor trends in both all-cause and PPR rates. In 
particular, we could compare facility performance on the All-Cause 
Readmission and PPR 30-Day Post-Discharge measures. However, upon 
further consideration of the public comments, we believe that removing 
the All-Cause Readmission measure and retaining the PPR 30-Day Post-
Discharge measure in the LTCH QRP would prevent duplication, because 
potentially preventable readmissions are a subset of all-cause 
readmissions. Although there is no data collection burden associated 
with these claims-based measures, we recognize that having two hospital 
readmission measures in the LTCH QRP may create confusion. We agree 
with commenters that there is overlap between the All-Cause Readmission 
measure and the PPR 30-Day Post-Discharge measure, which identifies a 
subset of all-cause readmissions, and believe the PPR measure will be 
more actionable for quality improvement.
    Accordingly, we proposed to remove the All-Cause Unplanned 
Readmission measure beginning with the FY 2019 LTCH QRP. We proposed 
that public reporting of this measure would end by October 2018 when 
public reporting of the PPR 30-Day Post-Discharge measure begins by 
October 2018. We refer readers to section IX.C.17. of the preamble of 
this final rule for more information regarding our proposal to publicly 
report the PPR 30-Day Post-Discharge measure. We refer readers to the 
PPR 30-Day Post-Discharge measure specifications available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/Downloads/Measure-Specifications-for-FY17-LTCH-QRP-Final-Rule.pdf.
    We invited public comment on our proposal to remove the All-Cause 
Unplanned Readmission Measure for 30 Days Post-Discharge from LTCHs 
(NQF #2512) from the LTCH QRP, beginning with the FY 2019 LTCH QRP.
    Comment: Commenters supported the proposed removal of the All-Cause 
Unplanned Readmission Measure for 30 Days Post-Discharge from LTCHs 
from the LTCH QRP. The commenters stated that the lack of patient level 
data makes it difficult to track and improve performance on this 
measure. Several commenters supported the removal of this measure 
because they consider it confusing and duplicative of the PPR 30-Day 
Post-Discharge Measure for LTCH QRP. Some commenters urged CMS to 
evaluate PAC readmission measures adopted for quality reporting to 
ensure that they create consistent incentives across the system. One 
commenter requested additional detail on the components of the all-
cause readmission measure that are not represented in the PPR measure, 
as well as details on the components of the PPR measure.
    Response: We appreciate the support for the proposed removal of the 
All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge from 
LTCHs from the LTCH QRP. We note the commenters' concerns regarding the 
availability of patient level data for tracking and improving 
performance, and we are exploring the feasibility of making additional 
data available to LTCHs. We thank the commenters for their concern over 
consistent incentives and will continue to monitor PAC readmission 
measures to ensure they align incentives across the system.
    We appreciate the request for additional detail on the components 
of the all-cause and PPR measures. We wish to clarify that the PPR 
measure captures readmissions for conditions considered potentially 
preventable and unplanned, whereas the all-cause measure captured the 
broader set of all unplanned readmissions. For additional details on 
the components of the PPR measure, we refer readers to the measure 
specifications and Appendix 2 for the list of conditions used to define 
PPRs, available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/Downloads/Measure-Specifications-for-FY17-LTCH-QRP-Final-Rule.pdf.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove the All-Cause Unplanned Readmission 
Measure for 30 Days Post-Discharge from LTCHs (NQF #2512) from the LTCH 
QRP, beginning with the FY 2019 LTCH QRP.
9. LTCH QRP Quality Measures Under Consideration for Future Years
a. LTCH QRP Quality Measures Under Consideration for Future Years
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20098), we 
invited public 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.

     LTCH QRP Quality Measures Under Consideration for Future Years
------------------------------------------------------------------------
 
------------------------------------------------------------------------
           NQS Priority: Patient- and Caregiver-Centered Care
------------------------------------------------------------------------
Measures..........................   Experience of Care.
                                     Application of Percent of
                                     Residents Who Self-Report Moderate
                                     to Severe Pain (Short Stay) (NQF
                                     #0676).
                                     Advance Care Plan.
------------------------------------------------------------------------
                      NQS Priority: Patient Safety
------------------------------------------------------------------------
Measure...........................   Patients Who Received an
                                     Antipsychotic Medication.
------------------------------------------------------------------------

[[Page 38448]]

 
            NQS Priority: Communication and Care Coordination
------------------------------------------------------------------------
Measure...........................   Modification of the
                                     Discharge to Community-PAC LTCH QRP
                                     measure.
------------------------------------------------------------------------

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20098), we also 
solicited public comments on the use of survey-based experience of care 
measures for the LTCH QRP. We are currently developing an experience of 
care survey for LTCHs and survey-based measures will be developed from 
this survey. These survey-based measures may be considered for 
inclusion in the LTCH QRP through future notice-and-comment rulemaking. 
This survey was developed using a rigorous survey development 
methodology that included a public request for measures titled 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); focus groups and 
interviews with patients, family members, and caregivers; input from a 
TEP of LTCHs, researchers, and patient advocates; and cognitive 
interviewing. The survey has also been field tested. The survey 
explores experience of care across five main areas: (1) Beginning stay 
at the hospital; (2) interactions with staff; (3) experience during the 
hospital stay; (4) preparing for leaving hospital; and (5) overall 
hospital rating. We are specifically interested in comments regarding 
survey implementation and logistics, use of the survey-based measures 
in the LTCH QRP, and general feedback.
    Also, we are considering a measure focused on pain that relies on 
the collection of patient-reported pain data, and another measure that 
documents whether a patient has an Advance Care Plan. Finally, we are 
considering a measure related to patient safety, specifically, Patients 
Who Received an Antipsychotic Medication.
    We invited public comment on the possible inclusion of such 
measures in future years of the LTCH QRP.
    Comment: Several commenters provided feedback on the use of an 
experience of care survey in the LTCH setting.
    Response: We thank the commenters who submitted comments about the 
experience of care survey. We will take those comments into 
consideration as we finish developing the measure and related survey-
based measures.
    Comment: A number of commenters supported the inclusion of an 
Advance Care Plan measure in the LTCH QRP. Several commenters expressed 
concern regarding the ability of the LTCH population to engage in 
advance care planning given their severity of illness. One commenter 
emphasized the importance of ensuring access to advance care plans from 
the short-term acute care hospital. One commenter recommended inclusion 
of a more detailed measure that specifies the contents of an advanced 
care plan. Several commenters supported adoption of the NQF-endorsed 
measure, Advance Care Plan (NQF #0326). One commenter supported a 
revision of the current NQF-endorsed measure into two separate measures 
to capture the distinction between advance care plans and surrogate 
decision makers. One commenter also discussed the need to define what 
is considered an advance care plan, and the ability of the measure to 
account for the patient's willingness to engage in such planning. The 
commenter also emphasized the important role a patient's goals, values, 
and preferences play in the care planning process.
    Response: We appreciate the commenters' thoughtful comments and 
agree with the importance of advanced care plans as they relate to the 
critically, chronically ill and vulnerable patient population in LTCHs. 
As with all measures, we work to fulfill the aims of the NQS. Improving 
care through the provision of patient-centered care is one of the NQS's 
aims that we seek to fulfill. We acknowledge the importance of 
including patient preferences in advance care planning. We will take 
these comments into consideration as we develop future measures 
pertaining to advance care plans for the LTCH QRP.
    Comment: A commenter stated that, regarding the Application of 
Percent of Residents Who Self-Report Moderate to Severe Pain (Short 
Stay) (NQF #0676) measure for future consideration in the LTCH QRP, the 
pain experience alone should not be a quality measure and suggested 
that CMS revisit how pain is captured and monitored, as the presence of 
pain, its frequency, and severity do not provide enough information to 
help an individual's overall quality of life. The commenter expressed 
support for use of a pain measure that does not encourage unnecessary 
opioid prescribing, and recommended modification of the existing 
measure to one that relates pain to important daily functional tasks. 
The commenter suggested that such a measure would better capture the 
functional abilities of patients, as pain levels do not frequently 
change. Another commenter expressed caution in expanding the existing 
measure to the LTCH setting due to concerns with reliability, based on 
their experience, noting variable and inconsistent findings related to 
how the MDS is used to capture the data for this measure.
    Response: We appreciate the comments pertaining to the Application 
of Percent of Residents Who Self-Report Moderate to Severe Pain (Short 
Stay) (NQF #0676) measure under consideration for future implementation 
in the LTCH QRP. We note that appropriately assessing pain as an 
outcome is important, acknowledge the importance of avoiding unintended 
consequences that may arise from such assessments, and will take into 
consideration the commenters' recommendations.
    Comment: A commenter supported appropriate use of antipsychotic 
medications. Specifically, the commenter noted that measures 
implemented for this purpose should account for informed consent, 
preference, and potential improvements in the quality of life in order 
to accurately measure appropriate use of such medications. Another 
commenter suggested further development of the measure, as there is no 
existing baseline measurement to provide it with meaning as a measure 
of quality of care. A commenter noted the distinction between 
appropriate and inappropriate use of antipsychotic medications, and the 
lack of sensitivity of the proposed measure. Another commenter 
expressed opposition against adoption of the measure until CMS provides 
additional information regarding measure utilization, rationale, and 
specification.
    Response: We appreciate the comments received pertaining to the 
development of this potential quality measure construct. We note the 
support for the inclusion of an antipsychotic measure in the LTCH QRP, 
but recognize the potential limitations to the inclusion of this type 
of measure, as stated by the commenters. As we continue to explore the 
development of this future measure construct, we will take the 
commenters' recommendations

[[Page 38449]]

into consideration in our measure development and testing efforts, as 
well as in our ongoing efforts to identify and propose appropriate 
measures for the LTCH QRP in the future.
    Comment: A commenter supported the use of a cross-setting 
malnutrition measure. Another commenter also encouraged the use of 
malnutrition measures in post-acute care settings, and recommended the 
use of a nationally recognized ``blueprint'' that was developed to 
prevent and reduce malnutrition among older adults.
    Response: We agree with the commenters' rationale for consideration 
of adopting malnutrition quality measures, including a malnutrition 
care composite measure, to prevent and reduce malnutrition among older 
adults across the care continuum as they are important components of 
care for LTCH patients. We will take the suggestions into consideration 
as we develop future measures for the LTCH QRP.
    Comment: A commenter suggested the use of pain related questions in 
an HCAHPS survey in the LTCH setting instead of implementing the 
Application of Percent of Residents Who Self-Report Moderate to Severe 
Pain (Short Stay) (NQF #0676) measure.
    Response: We thank the commenter for the suggestion. We will 
continue to take these and future stakeholder inputs under advisement 
to inform our ongoing quality measure development.
    Comment: One commenter emphasized the importance of establishing 
quality measures for individuals with advanced illness which address 
symptom management, social and spiritual support, care coordination, 
and identification of goals and preferences and whether those goals are 
met, given unique care needs and the aging of the population as CMS 
considers future measure topics for consideration in the LTCH QRP.
    Response: We appreciate the commenter's suggestions regarding 
future measures, and will take them into consideration.
b. IMPACT Act Measure--Possible Future Update To Measure Specifications
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57207 through 
57215), we finalized the Discharge to Community-PAC LTCH QRP measure, 
which 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. We received public comments (see 81 FR 57211) 
recommending exclusion of baseline nursing facility residents from the 
measure, as these residents did not live in the community prior to 
their LTCH stay. At that time, we highlighted that, using Medicare FFS 
claims alone, we were unable to accurately identify baseline nursing 
facility residents. We stated that potential future modifications of 
the measure could include assessment of the feasibility and impact of 
excluding baseline nursing facility residents from the measure through 
the addition of patient assessment-based data. In response to these 
public comments, we are considering a future modification of the 
Discharge to Community-PAC LTCH QRP measure, which would exclude 
baseline nursing facility residents from the measure.
    We invited public comment on the possibility of excluding baseline 
nursing facility residents from the Discharge to Community-PAC LTCH QRP 
measure in future years of the LTCH QRP.
    Comment: Several commenters expressed support for excluding 
baseline nursing facility residents from the discharge to community 
measure as a potential future measure modification. Commenters stated 
that this exclusion would result in the measure more accurately 
portraying quality of care provided by LTCHs, while controlling for 
factors outside of LTCH control.
    Response: We thank commenters for their support for exclusion of 
baseline nursing facility residents as a potential future measure 
modification. We will consider their views and determine whether to 
propose to exclude baseline nursing facility residents from the 
Discharge to Community-PAC LTCH QRP measure in future years of the LTCH 
QRP.
c. IMPACT Act Implementation Update
    As a result of the input and suggestions provided by technical 
experts at the TEPs held by our measure developer, and through public 
comment, we are engaging in additional development work, including 
performing additional testing, with respect to two measures that would 
satisfy the domain of accurately communicating the existence of and 
providing for the transfer of health information and care preferences 
when the individual transitions, in section 1899B(c)(1)(E) of the Act. 
The measures under development are: Transfer of Information at Post-
Acute Care Admission, Start or Resumption of Care from other Providers/
Settings; and Transfer of Information at Post-Acute Care Discharge, and 
End of Care to other Providers/Settings. We intend to specify these 
measures under section 1899B(c)(1)(E) of the Act no later than October 
1, 2018, and we intend to propose to adopt them for the FY 2021 LTCH 
QRP, with data collection beginning on or about April 1, 2019.
    Comment: Commenters suggested that CMS be cautious in its 
development of the Transfer of Health Information measure set and only 
proceed to propose and adopt measures that receive NQF endorsement. One 
commenter cited concerns about the measure development, citing the 2016 
MAP PAC/LTC meeting. One commenter noted that the unique goals, 
preferences, and needs of the patient should be considered in 
transferring patient information, and that care transitions can be a 
confusing time for the patient and family/caregiver. The commenter 
recommended that the measures require PAC facilities to communicate 
their capabilities and limitations to ensure that they can provide the 
level of care that meets a patient's clinically assessed needs, as 
determined by the relevant decision-makers.
    Response: We appreciate the comments and feedback on the Transfer 
of Health Information measures that are currently under development. As 
we continue to develop these measures, we will take into account the 
feedback pertaining to modes of information transfer, prescreening 
requirements for LTCHs, and patient goals and preferences. We intend to 
re-submit these measures for review to the MAP PAC/LTC Workgroup. 
Further, we plan to submit the measures to the NQF for consideration 
for endorsement when we believe that they are ready for NQF review.
10. Standardized Patient Assessment Data Reporting for the LTCH QRP
a. Standardized Patient Assessment Data Reporting for the FY 2019 LTCH 
QRP
    Section 1886(m)(5)(F)(ii) of the Act requires that for fiscal year 
2019 and each subsequent year, LTCHs report standardized patient 
assessment data required under section 1899B(b)(1) of the Act. As we 
describe in more detail above, we are finalizing that the current 
pressure ulcer measure, Percent of Residents or Patients with Pressure 
Ulcers That Are New or Worsened (Short Stay) (NQF #0678), will be 
removed and replaced with the proposed pressure ulcer measure, Changes 
in Skin Integrity Post-Acute Care: Pressure Ulcer/Injury, beginning 
with the FY 2020 LTCH QRP. The current pressure ulcer measure will 
remain in the LTCH QRP until that time. Accordingly, in the FY 2018 
IPPS/LTCH

[[Page 38450]]

PPS proposed rule (82 FR 20099), with respect to the requirement that 
LTCHs report standardized patient assessment data for the FY 2019 LTCH 
QRP, we proposed that the data elements used to calculate the current 
pressure ulcer measure, Percent of Residents or Patients with Pressure 
Ulcers That Are New or Worsened (Short Stay) (NQF #0678), meet the 
definition of standardized patient assessment data with respect to 
medical conditions and co-morbidities under section 1899B(b)(1)(B)(iv) 
of the Act, and that the successful reporting of that data under 
section 1886(m)(5)(F)(i) of the Act with respect to admissions as well 
as discharges occurring during last three quarters of CY 2017 would 
also satisfy the requirement to report standardized patient assessment 
data for the FY 2019 LTCH QRP.
    The collection of assessment data pertaining to skin integrity, 
specifically pressure related wounds, is important for multiple 
reasons. Clinical decision support, care planning, and quality 
improvement all depend on reliable assessment data collection. Pressure 
related wounds represent poor outcomes, are a serious medical condition 
that can result in death and disability, are debilitating, painful and 
are often an avoidable outcome of medical 
care.446 447 448 449 450 451 Pressure related wounds are 
considered healthcare acquired conditions.
---------------------------------------------------------------------------

    \446\ Casey, G. (2013). ``Pressure ulcers reflect quality of 
nursing care.'' Nurs N Z 19(10): 20-24.
    \447\ Gorzoni, M.L. and S.L. Pires (2011). ``Deaths in nursing 
homes.'' Rev Assoc Med Bras 57(3): 327-331.
    \448\ Thomas, J.M., et al. (2013). ``Systematic review: health-
related characteristics of elderly hospitalized adults and nursing 
home residents associated with short-term mortality.'' J Am Geriatr 
Soc 61(6): 902-911.
    \449\ White-Chu, E.F., et al. (2011). ``Pressure ulcers in long-
term care.'' Clin Geriatr Med 27(2): 241-258.
    \450\ Bates-Jensen B.M. Quality indicators for prevention and 
management of pressure ulcers in vulnerable elders. Ann Int Med. 
2001;135 (8 Part 2), 744-51.
    \451\ Bennet, G., Dealy, C., Posnett, J. (2004). The cost of 
pressure ulcers in the UK, Age and Aging, 33(3):230-235.
---------------------------------------------------------------------------

    As we note above, the data elements needed to calculate the current 
pressure ulcer measure are already included on the LTCH CARE Data Set 
and reported by LTCHs, and exhibit validity and reliability for use 
across PAC providers. Item reliability for these data elements was also 
tested for the nursing home setting during implementation of MDS 3.0. 
Testing results are from the RAND Development and Validation of MDS 3.0 
project.\452\ The RAND pilot test of the MDS 3.0 data elements showed 
good reliability and is also applicable to both the IRF-PAI and the 
LTCH CARE Data Set because the data elements tested are the same. 
Across the pressure ulcer data elements, the average gold-standard 
nurse to gold-standard nurse kappa statistic was 0.905. The average 
gold-standard nurse to facility-nurse kappa statistic was 0.937. Data 
elements used to risk adjust this quality measure were also tested 
under this same pilot test, and the gold-standard to gold-standard 
kappa statistic, or percent agreement (where kappa statistic not 
available), ranged from 0.91 to 0.99 for these data elements. These 
kappa scores indicate ``almost perfect'' agreement using the Landis and 
Koch standard for strength of agreement.\453\
---------------------------------------------------------------------------

    \452\ Saliba, D., & Buchanan, J. (2008, April). Development and 
validation of a revised nursing home assessment tool: MDS 3.0. 
Contract No. 500-00-0027/Task Order #2. Santa Monica, CA: Rand 
Corporation. Retrieved from: http://www.cms.hhs.gov/NursingHomeQualityInits/Downloads/MDS30FinalReport.pdf.
    \453\ Landis, R., & Koch, G. (1977, March). The measurement of 
observer agreement for categorical data. Biometrics 33(1), 159-174.
---------------------------------------------------------------------------

    The data elements used to calculate the current pressure ulcer 
measure received public comment on several occasions, including when 
that measure was proposed in the FY 2012 IRF PPS (76 FR 47876) and 
IPPS/LTCH PPS proposed rules (76 FR 51754). Further, they were 
discussed in the past by TEPs held by our measure development 
contractor on June 13 and November 15, 2013, and recently by a TEP on 
July 18, 2016. TEP members supported the measure and its cross-setting 
use in PAC. The report, Technical Expert Panel Summary Report: 
Refinement of the Percent of Patients or Residents with Pressure Ulcers 
that are New or Worsened (Short Stay) (NQF #0678) Quality Measure for 
Skilled Nursing Facilities (SNFs), Inpatient Rehabilitation Facilities 
(IRFs), Long-Term Care Hospitals (LTCHs), and Home Health Agencies 
(HHAs), is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/Downloads/July-2016-Pressure-Ulcer-TEP-Report_revised.pdf.
    We invited public comment on this proposal.
    Comment: Several comments supported reporting the data elements 
already implemented in the LTCH QRP to fulfill the requirement to 
report standardized patient assessment data for the FY 2019 LTCH QRP.
    Response: We appreciate the commenters' support of the proposal and 
agree that these data elements currently reported by LTCHs meet the 
definition of standardized patient assessment data and satisfy the 
requirement to report standardized patient assessment data.
    Comment: One commenter expressed concern regarding the proposed 
reporting schedule for new standardized patient assessment data 
elements given the volume of data that will need to be reported by 
LTCHs. The commenter emphasized the reporting requirements for the 
current pressure ulcer measure, which fulfills the standardized patient 
assessment data element requirements beginning with the FY 2019 LTCH 
QRP.
    Response: We acknowledge the concerns raised by the commenter. Upon 
further consideration of the appropriate timeline for LTCHs to report 
this data for the FY 2019 LTCH QRP, we are finalizing that LTCHs would 
be required to report the current pressure ulcer measure for the last 
quarter of CY 2017 to meet the requirements for reporting standardized 
patient assessment data. We do not believe that the continued reporting 
of the current pressure ulcer measure is too burdensome on the LTCH 
industry since LTCHs will not need to change their reporting practices 
with respect to reporting the standardized pressure ulcer data, nor 
will they be reporting additional data as of October 1, 2017. The 
submission of the current pressure ulcer measure data will act to meet 
the requirement of submitting standardized patient assessment data 
beginning October 1, 2017. Further, in response to similar comments 
expressing concern with increased burden, CMS has decided to move the 
release date of the LTCH CARE Data Set Version 4.00 from April 1, 2018 
to July 1, 2018 which gives LTCHs an additional 3 months to prepare. We 
refer readers to section IX.C.11.d which describes the effect of the 
delayed release date of the LTCH CARE Data Set Version 4.00 on the 
currently adopted LTCH QRP measures.
    After consideration of the public comments received, we are 
finalizing our proposal, as proposed, that the data elements currently 
reported by LTCHs to calculate the current measure, Percent of 
Residents or Patients with Pressure Ulcers That Are New or Worsened 
(Short Stay) (NQF #0678), meet the definition of standardized patient 
assessment data with respect to medical conditions and co-morbidities 
under section 1899B(b)(1)(B)(iv) of the Act, and that the successful 
reporting of that data under section 1886(m)(5)(F)(i) of the Act would 
also satisfy the requirement to report standardized patient assessment 
data under section 1886(m)(5)(F)(ii) of the Act beginning October 1, 
2017 for the FY 2019 LTCH QRP. We are also finalizing the change

[[Page 38451]]

in the release date of the LTCH CARE Data Set Version 4.00 from April 
1, 2018 to July 1, 2018. We refer readers to section IX.C.11.c. of the 
preamble of this final rule for discussion on this issue.
b. Standardized Patient Assessment Data Reporting Beginning With the FY 
2020 LTCH QRP
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20099 through 
20116) we described our proposals for the reporting of standardized 
patient assessment data by LTCHs beginning with the FY 2020 LTCH QRP. 
LTCHs would be required to report these data with respect to LTCH 
admissions and discharges that occur between April 1, 2018 and December 
31, 2018, with the exception of three data elements (Brief Interview of 
Mental Status (BIMS), Hearing, and Vision), which would be required 
with respect to LTCH admissions only that occur between April 1, 2018 
and December 31, 2018. Following the initial reporting year for the FY 
2020 LTCH QRP, subsequent years for the LTCH QRP would be based on a 
full calendar year of such data reporting.
    In selecting the data elements proposed in the FY 2018 IPPS/LTCH 
PPS proposed rule, we carefully weighed the balance of burden in 
assessment-based data collection and aimed to minimize additional 
burden through the utilization of existing data in the assessment 
instruments. We also took into consideration the following factors with 
respect to each data element: Overall clinical relevance; ability to 
support clinical decisions, care planning and interoperable exchange to 
facilitate care coordination during transitions in care; and the 
ability to capture medical complexity and risk factors that can inform 
both payment and quality. In addition, the data elements had to have 
strong scientific reliability and validity; be meaningful enough to 
inform longitudinal analysis by providers; had to have received general 
consensus agreement for its usability; and had to have the ability to 
collect such data once but support multiple uses. Further, to inform 
the final set of data elements for proposal, we took into account 
technical and clinical subject matter expert review, public comment, 
and consensus input in which such principles were applied. We also took 
into account the consensus work and empirical findings from the PAC 
PRD.
    Comment: Many commenters expressed significant concerns with 
respect to our standardized patient assessment data proposals. Several 
commenters stated that the new standardized patient assessment data 
reporting requirements will impose significant burden on providers, 
given the volume of new standardized patient assessment data elements 
that were proposed to be added to the LCDS. A few commenters noted that 
the addition of the proposed standardized patient assessment data 
elements would require hiring more staff, retraining staff on revised 
questions or coding guidance, and reconfiguring internal databases and 
EHRs. Other commenters expressed concerns about the gradual but 
significant past and future expansion of the LCDS through the addition 
of standardized patient assessment data elements and quality measures, 
noting the challenge of coping with ongoing additions and changes.
    Several commenters expressed concern related to the implementation 
timeline in the proposed rule, which would require LTCHs to begin 
collecting the proposed standardized patient assessment data elements 
in the timeframe stated in the proposed rule. One commenter stated that 
there would not be sufficient time to be ready by April 1, 2018. 
Another commenter noted that CMS had not yet provided sufficient 
specifications or educational materials to support implementation of 
the new patient assessments in the proposed timeline.
    Several commenters urged CMS to delay the reporting of new 
standardized patient assessment data elements by at least one year, and 
to carefully assess whether all of the proposed standardized patient 
assessment data elements are necessary under the IMPACT Act. Commenters 
suggested ways to delay the proposals for standardized patient 
assessment data elements in the categories of Cognitive Function and 
Mental Status; Special Services, Treatments, and Interventions; and 
Impairments, including allowing voluntary or limited reporting for a 
period of time before making comprehensive reporting mandatory, and 
delaying the beginning of mandatory data collection for a period of 
time. Some commenters recommended that during the delay, CMS re-
evaluate whether it can require the reporting of standardized patient 
assessment data in a less burdensome manner.
    Response: We understand the concerns raised by commenters that the 
finalization of our standardized patient assessment data proposals 
would require LTCHs to spend a significant amount of resources 
preparing to report the data, including updating relevant protocols and 
systems and training appropriate staff. We also recognize that we can 
meet our obligation to require the reporting of standardized patient 
assessment data with respect to the categories described in section 
1899B(b)(1)(B) of the Act while simultaneously being responsive to 
these concerns. Therefore, after consideration of the public comments 
we received on these issues, we have decided that at this time, we will 
not finalize the standardized patient assessment data elements we 
proposed for three of the five categories under section 1899B(b)(1)(B) 
of the Act: Cognitive Function and Mental Status; Special Services, 
Treatments, and Interventions; and Impairments. Although we believe 
that the proposed standardized patient assessment data elements would 
promote transparency around quality of care and price as we continue to 
explore reforms to the PAC payment system, the data elements that we 
proposed for each of these categories would have imposed a new 
reporting burden on LTCHs. We agree that it would be useful to evaluate 
further how to best identify the standardized patient assessment data 
that would satisfy each of these categories; would be most appropriate 
for our intended purposes including payment and measure 
standardization; and can be reported by LTCHs in the least burdensome 
manner. As part of this effort, we intend to conduct a national field 
test that allows for stakeholder feedback and to consider how to 
maximize the time LTCHs have to prepare for the reporting of 
standardized patient assessment data in these categories. We intend to 
make new proposals with respect to the categories described in sections 
1899B(b)(1)(B)(ii), (iii) and (v) of the Act no later than in the FY 
2020 IPPS/LTCH PPS proposed rule.
    In this final rule, we are finalizing the standardized patient 
assessment data elements that we proposed to adopt for the IMPACT Act 
categories of Functional Status and Medical Conditions and Co-
Morbidities. Unlike the standardized patient assessment data that we 
are not finalizing, the standardized patient assessment data that we 
proposed for these categories are already required to calculate the 
Percent of Residents or Patients with Pressure Ulcers That Are New or 
Worsened (NQF #0678) quality measure, Changes in Skin Integrity Post-
Acute Care: Pressure Ulcer/Injury quality measure (which we are 
finalizing in this final rule), and the 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)

[[Page 38452]]

quality measure (which we finalized in the FY 2016 IPPS/LTCH PPS final 
rule). As a result, we do not believe that finalizing these proposals 
creates a new reporting burden for LTCHs or otherwise necessitates a 
delay.
    Comment: Several commenters expressed support for the adoption of 
standardized patient assessment data elements. One commenter expressed 
support for standardizing the definitions as well as the implementation 
of the data collection effort. The commenter also supported CMS' goal 
of standardizing the questions and responses across all PAC settings to 
help ``enable the data to be interoperable, allowing it to be shared 
electronically, or otherwise between PAC provider types.'' One 
commenter stated that streamlining requirements across Medicare's 
quality reporting programs will reduce the administrative burden of 
quality reporting for these facilities as well as the physicians and 
other clinicians who contribute to that reporting. Another commenter 
noted full support of the IMPACT Act's goals and objectives and 
appreciated CMS' efforts to regularly communicate with stakeholders 
through various national provider calls, convening of stakeholders, and 
meetings with individual organizations. Another commenter recognized 
the value of a unified patient assessment system for PAC as part of a 
potential unified payment system for PAC, but encouraged CMS to look 
carefully at opportunities to streamline the assessment and avoid 
duplication.
    Response: We appreciate the support of these proposals, but note 
that for the reasons explained above, we have decided at this time to 
not finalize the proposals for three of the five categories under 
section 1899B(b)(1)(B) of the Act: Cognitive Function and Mental 
Status; Special Services, Treatments, and Interventions; and 
Impairments.
    Comment: Several commenters addressed the variation in the look-
back period associated with the standardized patient assessment data 
elements. In general, commenters were concerned about the variation in 
look-back periods across items and how differences in look-back periods 
would affect the validity of the item responses and assessor burden. 
One commenter stated that the many and varied look-back periods 
associated with the proposed standardized patient assessment data 
elements would cause confusion for the assessors and patients.
    Response: We appreciate the commenters' review of the proposed 
standardized patient assessment data elements and concerns about 
implementation. We acknowledge that the look-back periods would vary 
for different standardized patient assessment data elements within a 
setting, but we wish to clarify that the look-back periods for each 
standardized patient assessment data element would be the same across 
PAC settings. In our ongoing work to identify candidate data elements 
for standardization, we will continue to carefully consider the impact 
of different look-back periods for different standardized patient 
assessment data elements on the validity of the data and assessor 
burden. We believe that it is important to collect the same information 
across settings, including over the same look-back period, and we will 
work to identify the best options for achieving this aspect of 
standardized assessment in the future.
    Comment: Several commenters stated that there is insufficient 
evidence demonstrating the reliability and validity of the proposed 
standardized patient assessment data elements. Some commenters stated 
that the expanded standardized patient assessment data reporting 
requirements have not yet been adequately tested to ensure they collect 
accurate and useful data in this setting. A few commenters stated that 
only five of the proposed 23 standardized patient assessment data 
elements are currently reported in the CARE Data Set and the other 18 
are currently used in other post-acute setting patient assessment 
instruments, mainly the Minimum Data Set (MDS) 3.0 used in skilled 
nursing facilities (SNFs). Other commenters stated that CMS' conclusion 
that the collection of these standardized patient assessment data 
elements in the LTCH setting would be feasible and the standardized 
patient assessment data elements would result in valid and reliable 
data was based on the current use of these data elements in the MDS and 
the testing of these data elements in the PAC PRD.
    A few commenters stated that several of the proposed standardized 
patient assessment data elements that had not been adequately tested 
were deemed close enough to an item that had been tested in the PAC PRD 
or in other PAC settings and thus appropriate for implementation.
    Response: Our standardized patient assessment data elements were 
selected based on a rigorous multi-stage process that was described in 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20088 through 20089). In 
addition, we believe that the PAC PRD testing of many of these data 
elements provides good evidence from a large, national sample of 
patients and residents in PAC settings to support the use of these 
standardized patient assessment data elements in and across PAC 
settings. However, as noted above, we have decided at this time to not 
finalize the proposals for three of the five categories under section 
1899B(b)(1)(B) of the Act: Cognitive Function and Mental Status; 
Special Services, Treatments, and Interventions; and Impairments. Prior 
to making new proposals for these categories, we intend to conduct 
extensive testing to ensure that the standardized patient assessment 
data elements we select are reliable, valid and appropriate for their 
intended use.
    A full discussion of the standardized patient assessment data 
elements that we proposed to adopt for the categories described in 
sections 1899B(b)(1)(B)(ii), (iii) and (v) of the Act can be found in 
the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20100 through 20116). In 
light of our decision to not finalize our proposals with respect to 
these categories, we are not going to address in this final rule the 
specific technical comments that we received on these proposed data 
elements. However, we appreciate the many technical comments we did 
receive specific to each of these data elements, and we will take them 
into consideration as we develop new proposals for these categories. 
Below we discuss the comments we received specific to the standardized 
patient assessment data we proposed to adopt, and are finalizing in 
this final rule, for the categories of Functional Status and Medical 
Conditions and Co-Morbidities.
(1) Functional Status Data
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20100), we 
proposed that the data elements currently reported by LTCHs to 
calculate the measure, 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), would also meet 
the definition of standardized patient assessment data with respect to 
functional status under section 1899B(b)(1)(B)(i) of the Act, and that 
the successful reporting of that data under section 1886(m)(5)(F)(i) of 
the Act would also satisfy the requirement to report standardized 
patient assessment data under section 1886(m)(5)(F)(ii) of the Act.
    These patient assessment data for functional status are from the 
CARE Item Set. The development of the CARE Item Set and a description 
and rationale for each item is described in a report entitled ``The 
Development and Testing of the Continuity Assessment Record

[[Page 38453]]

and Evaluation (CARE) Item Set: Final Report on the Development of the 
CARE Item Set: Volume 1 of 3.'' \454\ Reliability and validity testing 
were conducted as part of CMS' Post-Acute Care Payment Reform 
Demonstration, and we concluded that the functional status items have 
acceptable reliability and validity. A description of the testing 
methodology and results are available in several reports, including the 
report entitled ``The Development and Testing of the Continuity 
Assessment Record And Evaluation (CARE) Item Set: Final Report On 
Reliability Testing: Volume 2 of 3'' \455\ and the report entitled 
``The Development and Testing of The Continuity Assessment Record And 
Evaluation (CARE) Item Set: Final Report on Care Item Set and Current 
Assessment Comparisons: Volume 3 of 3.'' \456\ The reports are 
available on CMS' Post-Acute Care Quality Initiatives Web page at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Post-Acute-Care-Quality-Initiatives/CARE-Item-Set-and-B-CARE.html.
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    \454\ Barbara Gage et al., ``The Development and Testing of the 
Continuity Assessment Record and Evaluation (CARE) Item Set: Final 
Report on the Development of the CARE Item Set'' (RTI International, 
2012).
    \455\ Ibid.
    \456\ Ibid.
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    For more information about this quality measure and the data 
elements used to calculate it, we refer readers to the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49739 through 49747).
    We invited public comment on this proposal.
    Comment: One commenter requested that the following self-care and 
cognitive items to be added to the Percent of Long-Term Care Hospital 
(LTCH) Patients With an Admission and Discharge Functional Assessment 
and a Care Plan That Addresses Function (NQF #2631) measure in order to 
meet the definition of standardized patient assessment data with 
respect to functional status: upper body dressing, lower body dressing, 
and putting on/taking off footwear.
    Response: We will take these suggestions into consideration. We 
believe we should seek additional stakeholder input before considering 
proposing adding these data elements to the LTCH CARE Data Set, because 
we are mindful of burden associated with adding any new data elements. 
We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49739 
through 49747) for a detailed discussion of the 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) measure.
    After consideration of the public comments we received, we are 
finalizing as proposed that the data elements currently reported by 
LTCHs to calculate the measure, 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), also 
meet the definition of standardized patient assessment data with 
respect to functional status under section 1899B(b)(1)(B)(i) of the 
Act, and that the successful reporting of that data under section 
1886(m)(5)(F)(i) of the Act will also satisfy the requirement to report 
standardized patient assessment data under section 1886(m)(5)(F)(ii) of 
the Act.
(2) Medical Condition and Comorbidity Data
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20113 through 
20114), we proposed that the data elements needed to calculate the 
current measure, Percent of Residents or Patients with Pressure Ulcers 
That Are New or Worsened (Short Stay) (NQF #0678), and the proposed 
measure, Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/
Injury, meet the definition of standardized patient assessment data 
with respect to medical conditions and co-morbidities under section 
1899B(b)(1)(B)(iv) of the Act, and that the successful reporting of 
that data under section 1886(m)(5)(F)(i) of the Act would also satisfy 
the requirement to report standardized patient assessment data under 
section 1886(m)(5)(F)(ii) of the Act.
    ``Medical conditions and comorbidities'' and the conditions 
addressed in the standardized data elements used in the calculation and 
risk adjustment of these measures, that is, the presence of pressure 
ulcers, diabetes, incontinence, peripheral vascular disease or 
peripheral arterial disease, mobility, as well as low body mass index, 
are all health-related conditions that indicate medical complexity that 
can be indicative of underlying disease severity and other 
comorbidities.
    Specifically, the data elements used in the measure are important 
for care planning and provide information pertaining to medical 
complexity. Pressure ulcers are serious wounds representing poor 
healthcare outcomes, and can result in sepsis and death. Assessing skin 
condition, care planning for pressure ulcer prevention and healing, and 
informing providers about their presence in patient transitions of care 
is a customary and best practice. Venous and arterial disease and 
diabetes are associated with low blood flow which may increase the risk 
of tissue damage. These diseases are indicators of factors that may 
place individuals at risk for pressure ulcer development and are 
therefore important for care planning. Low BMI, which may be an 
indicator of underlying disease severity, may be associated with loss 
of fat and muscle, resulting in potential risk for pressure ulcers. 
Bowel incontinence, and the possible maceration to the skin associated, 
can lead to higher risk for pressure ulcers. In addition, the bacteria 
associated with bowel incontinence can complicate current wounds and 
cause local infection. Mobility is an indicator of impairment or 
reduction in mobility and movement which is a major risk factor for the 
development of pressure ulcers. Taken separately and together, these 
data elements are important for care planning, transitions in services 
and identifying medical complexities.
    In sections IX.C.7.a. and IX.C.10.a. of the preamble of this final 
rule, we discuss our rationale for proposing that the data elements 
used in the measures meet the definition of standardized patient 
assessment data. In summary, we believe that the collection of such 
assessment data is important for multiple reasons, including clinical 
decision support, care planning, and quality improvement, and that the 
data elements assessing pressure ulcers and the data elements used to 
risk adjust showed good reliability. We solicited stakeholder feedback 
on the quality measure, and the data elements from which it is derived, 
by means of a public comment period and TEPs, as described in section 
IX.C.7.a. of the preamble of this final rule.
    We invited public comment on this proposal.
    Comment: Some commenters supported the reporting of data elements 
already implemented in the LTCH QRP to satisfy the requirement to 
report standardized patient assessment data.
    Response: We appreciate the commenters' support.
    After consideration of the public comments we received, we are 
finalizing as proposed that the data elements currently reported by 
LTCHs to calculate the current measure, Percent of Residents or 
Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 
(NQF #0678), and the proposed measure, Changes in Skin Integrity Post-
Acute Care: Pressure Ulcer/Injury, meet the definition of standardized 
patient assessment data with respect to medical conditions and

[[Page 38454]]

co-morbidities under section 1899B(b)(1)(B)(iv) of the Act, and that 
the successful reporting of that data under section 1886(m)(5)(F)(i) of 
the Act would also satisfy the requirement to report standardized 
patient assessment data under section 1886(m)(5)(F)(ii) of the Act.
    For comments related to the pressure ulcer quality measure, we 
refer readers to section IX.C.7.a of the preamble of this final rule.
11. Form, Manner, and Timing of Data Submission Under the LTCH QRP
a. Start Date for Standardized Patient Assessment Data Reporting by New 
LTCHs
    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 beginning with the FY 2017 LTCH QRP. In the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20116), we proposed that new LTCHs 
will be required to begin reporting standardized patient assessment 
data on the same schedule.
    We invited public comment on this proposal. We did not receive any 
public comments on this proposal; therefore, we are finalizing as 
proposed the start date for standardized patient assessment data 
reporting by new LTCHs.
b. Mechanism for Reporting Standardized Patient Assessment Data 
Beginning With the FY 2019 LTCH QRP
    Under our current policy, LTCHs report data by completing 
applicable sections of the LCDS, and submitting the LCDS to CMS through 
the QIES ASAP system. For more information on LTCH QRP reporting 
through the QIES ASAP system, refer to the ``Related Links'' section at 
the bottom of: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Technical-Information.html.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20116), we stated 
that the proposed standardized patient assessment data elements are 
already included on, or would be added to, the LCDS. Details regarding 
the LCDS with respect to the proposed standardized patient assessment 
data are available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Measures-Information.html.
    We invited public comments on this proposal. We did not receive any 
comments on this proposal; therefore, we are finalizing as proposed the 
mechanism for reporting standardized patient assessment data beginning 
with the FY 2019 LTCH QRP.
c. Schedule for Reporting Standardized Patient Assessment Data 
Beginning With the FY 2019 LTCH QRP
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20116 through 
20117), we proposed that the standardized patient assessment data 
necessary to calculate the quality measure ``Percent of Residents or 
Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 
(NQF #0678)'' would be used for the FY 2019 LTCH QRP. We also proposed 
that for purposes of the FY 2019 LTCH QRP program year such data would 
only include the last three quarters of calendar year 2017 (April 1, 
2017 through December 31, 2017). In section IX.C.7.a of the preamble of 
the proposed rule, we discussed our proposal to adopt the measure, 
``Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/Injury'' to 
replace the current measure, ``Percent of Residents or Patients with 
Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678)'' 
with data collection beginning on April 1, 2018. We also stated that 
should the proposed measure be finalized, the FY 2020 LTCH QRP will be 
determined using the data from the first quarter of CY 2018 using the 
current measure, ``Percent of Residents or Patients with Pressure 
Ulcers That Are New or Worsened (Short Stay) (NQF #0678)'' and last 
three quarters of CY 2018 using the data from the proposed measure, 
``Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/Injury.''
    In section IX.C.10.b of the preamble of the proposed rule, we 
discussed the additional standardized patient assessment data proposed 
beginning with the FY 2020 LTCH QRP. Unless otherwise indicated, under 
our current policy, except for the first program year for which a 
measure is adopted, LTCHs must report data on measures with respect to 
LTCH admissions and discharges that occur during the 12 month calendar 
year period that applies to the program year. For the first program 
year for which a measure is adopted, LTCHs are usually required to 
report data for LTCH admissions and discharges that occur during the 
last three quarters of the calendar year that applies to that program 
year, as the version of the LTCH CARE Data Set that will contain the 
new items for LTCHs to report a new measure, is routinely released on 
April 1st of any given year.
    For example, for the FY 2018 LTCH QRP, data on measures adopted for 
earlier program years must be reported with respect to all CY 2016 LTCH 
admissions and discharges. However, data on new measures adopted for 
the first time for the FY 2018 LTCH QRP must only be reported with 
respect to LTCH admissions and discharges that occur during the last 
three calendar quarters of 2016.
    The tables below illustrate the data collection timeframes and data 
submission deadlines related to the April 1st standard release of the 
LTCH CARE Data Set:

    Summary Illustration of Initial Reporting Cycle for Measures and
 Standardized Patient Assessment Data Reporting Using CY Quarters 2, 3,
                              and 4 Data *
------------------------------------------------------------------------
                                            Data submission quarterly
  Data collection/submission quarterly     deadlines for the FY [year]
           reporting period *                 LTCH QRP * [supcaret]
------------------------------------------------------------------------
Q2: April 1-June 30....................  Q2 Deadline: November 15.
Q3: July 1-September 30................  Q3 Deadline: February 15.
Q4: October 1-December 30..............  Q4 Deadline: May 15.
------------------------------------------------------------------------
* Applies to data reporting using the LTCH CARE Data Set and data
  reporting using the National Healthcare Safety Network.
[supcaret] The term ``FY [year] LTCH QRP'' means the fiscal year for
  which the LTCH QRP requirements applicable to that fiscal year must be
  met in order for an LTCH to receive the full annual update when
  calculating the payment rates applicable to it for that fiscal year.

?>
[[Page 38455]]


   Summary Illustration of Calendar Year Quarterly Reporting Cycle for
      Measures and Standardized Patient Assessment Data Reporting *
------------------------------------------------------------------------
                                            Data submission quarterly
  Data collection/submission quarterly     deadlines for the FY [year]
           reporting period *                 LTCH QRP * [supcaret]
------------------------------------------------------------------------
Q1: January 1-March 31.................  Q1 Deadline: August 15.
Q2: April 1-June 30....................  Q2 Deadline: November 15.
Q3: July 1-September 30................  Q3 Deadline: February 15.
Q4: October 1-December 31..............  Q4 Deadline: May 15.
------------------------------------------------------------------------
*Applies to data reporting using the LTCH CARE Data Set and data
  reporting using the National Healthcare Safety Network.
[supcaret] The term ``FY [year] LTCH QRP'' means the fiscal year for
  which the LTCH QRP requirements applicable to that fiscal year must be
  met in order for an LTCH to receive the full annual update when
  calculating the payment rates applicable to it for that fiscal year.

    We invited public comment on our proposal for standardized patient 
assessment data reporting beginning with the FY 2019 LTCH QRP and to 
extend our current policy governing the schedule for reporting quality 
measure data to the reporting of standardized patient assessment data 
beginning with the FY 2020 LTCH QRP.
    The FY 2019 LTCH QRP will be determined using standardized patient 
assessment data collected from October 1, 2017 through December 31, 
2017 using the current measure, Percent of Residents or Patients with 
Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678), as 
described in section IX.C.10.a. of the preamble of this final rule.
    As described in section IX.C.10.b of the preamble of this final 
rule, commenters expressed concern related to the implementation 
timeline in the proposed rule and stated that there would not be 
sufficient time to be ready by April 1, 2018. In response to those 
comments, we are moving the implementation of the LTCH CARE Data Set 
Version 4.00 from April 1, 2018 to July 1, 2018.
    As a result of the delayed implementation of the LTCH CARE Data Set 
Version 4.00, the FY 2020 LTCH QRP will be determined using the 
standardized patient assessment data from the first two quarters of CY 
2018 using the current measure, Percent of Residents or Patients with 
Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678), and 
last two quarters of CY 2018 using the standardized patient assessment 
data from the finalized measures, Changes in Skin Integrity Post-Acute 
Care: Pressure Ulcer/Injury and Application of Percent of Long-Term 
Care Hospital (LTCH) Patients With an Admission and Discharge 
Functional Assessment and a Care Plan That Addresses Function (NQF 
#2631), as described in IX.C.10.b. of the preamble of this final rule.
    For the FY 2020 LTCH QRP, and with this final rule, LTCHs will be 
required to report measures and standardized patient assessment data 
for LTCH admissions and discharges during the last two quarters of CY 
2018 as the version of the LTCH CARE Data Set that will contain the new 
items for LTCHs to report new measures and standardized patient 
assessment data will be released July 1, 2018. This exception to our 
standard policy is relevant only to LTCH CARE Data Set data to be 
reported to CMS for new measures and standardized patient assessment 
data that is finalized in this FY 2018 IPPS/LTCH PPS final rule, and 
for which LTCHs will begin reporting data on July 1, 2018, with the 
release of the LTCH CARE Data Set Version 4.00, as all subsequent 
releases of LTCH CARE Data Set versions will revert back to their 
standard release date of April 1 of any given year.
    The FY 2021 LTCH QRP will be determined using standardized patient 
assessment data from CY 2019 from the finalized measures, Changes in 
Skin Integrity Post-Acute Care: Pressure Ulcer/Injury and Application 
of Percent of Long-Term Care Hospital (LTCH) Patients With an Admission 
and Discharge Functional Assessment and a Care Plan That Addresses 
Function (NQF #2631).
    The tables below illustrate the data collection timeframes and 
submission deadlines for measures and standardized patient assessment 
data finalized for the FY 2020 and FY 2021 LTCH QRP.

    Summary Illustration of Initial Reporting Cycle for Newly Adopted
 Measures and Standardized Patient Assessment Data Reporting for CY 2018
                         Quarters 3 and 4 Data *
------------------------------------------------------------------------
                                            Finalized data submission
  Finalized data collection/submission    quarterly deadlines beginning
      quarterly reporting period *         with the FY 2020 LTCH QRP *
                                                    [supcaret]
------------------------------------------------------------------------
Q3: CY 2018--7/1/2018-9/30/2018........  CY 2018 Q3 Deadline: February
                                          15, 2019.
Q4: CY 2018--10/1/2018-12/31/2018......  CY 2018 Q4 Deadline: May 15,
                                          2019.
------------------------------------------------------------------------
* Applies to data reporting using the LTCH CARE Data Set and data
  reporting using the National Healthcare Safety Network.
[supcaret] The term ``FY 2020 LTCH QRP'' means the fiscal year for which
  the LTCH QRP requirements applicable to that fiscal year must be met
  in order for an LTCH to receive the full annual update when
  calculating the payment rates applicable to it for that fiscal year.


   Summary Illustration of Calendar Year Quarterly Reporting Cycle for
      Measures and Standardized Patient Assessment Data Reporting *
------------------------------------------------------------------------
                                            Finalized data submission
  Finalized data collection/submission    quarterly deadlines beginning
      quarterly reporting period *         with the FY 2021 LTCH QRP *
                                                    [supcaret]
------------------------------------------------------------------------
Q1: CY 2019--1/1/2019-3/31/2019........  CY 2019 Q1 Deadline: August 15,
                                          2019.
Q2: CY 2019--4/1/2019-6/30/2019........  CY 2019 Q2 Deadline: November
                                          15, 2019.
Q3: CY 2019--7/1/2019-9/30/2019........  CY 2019 Q3 Deadline: February
                                          15, 2020.
Q4: CY 2019--10/1/2019-12/31/2019......  CY 2019 Q4 Deadline: May 15,
                                          2020.
------------------------------------------------------------------------
* Applies to data reporting using the LTCH CARE Data Set and data
  reporting using the National Healthcare Safety Network.

[[Page 38456]]

 
[supcaret] The term ``FY 2021 LTCH QRP'' means the fiscal year for which
  the LTCH QRP requirements applicable to that fiscal year must be met
  in order for an LTCH to receive the full annual update when
  calculating the payment rates applicable to it for that fiscal year.

    We are finalizing our proposal for reporting standardized patient 
assessment data beginning with the FY 2019 LTCH QRP. We are also 
finalizing the exception to the standard policy related to the timing 
of reporting standardized patient assessment data for the FY 2020 LTCH 
QRP and subsequent releases of the LTCH CARE Data Set will revert back 
to their standard release date of April 1 of any given year.
d. Schedule for Reporting the Newly Finalized Quality Measures 
Beginning With the FY 2020 LTCH QRP
    As discussed in section IX.C.7. of the preamble of this final rule, 
we adopted three quality measures beginning with the FY 2020 LTCH QRP: 
Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/Injury; 
Compliance with SBT by Day 2 of the LTCH Stay; and Ventilator 
Liberation Rate. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20117), we proposed that LTCHs would report data on these measures 
using the LTCH CARE Data Set that is submitted through the QIES ASAP 
system and LTCHs would be required to report these data beginning with 
LTCH admissions and discharges that occur between April 1, 2018 and 
December 31, 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.
    Under our current policy, LTCHs would only be required to submit 
data on the proposed measures for the last three quarters of CY 2018 
for purposes of the FY 2020 LTCH QRP. Starting in CY 2019, LTCHs would 
be required to submit data for the entire calendar year beginning with 
the FY 2021 LTCH QRP.
    We invited public comment on this proposal.
    Comment: A commenter requested that CMS reduce the unnecessary 
burden of the LTCH CARE Data Set, including revising the response 
timing requirements of the LTCH CARE Data Set, and suggested extending 
the response time beyond three days. The commenter also stated that CMS 
should provide clear assessment guidelines and guidance for reporting 
data.
    Response: We appreciate the comment, and we are working on ways to 
minimize the overall burden associated with the LTCH CARE Data Set, 
while keeping in mind our goal to collect valid, reliable and 
appropriate data for the LTCH QRP.
    The three-day assessment period is in place to standardize 
responses from all LTCHs in order to ensure that the data are 
comparable across LTCHs. In addition, when choosing the appropriate 
length of time in which to require that the assessment take place, we 
weighed the need for providers to have sufficient time to accurately 
assess the patient's clinical status at the time of admission. Due to 
the high acuity of LTCH patients, we believe extending the 3-day 
assessment period would not allow a true picture of the patient's 
clinical status at the time of admission. Moreover, LTCHs have 
approximately 135 days following the end of each calendar year quarter, 
during which to submit, review, and correct their quality data for that 
CY quarter, with exception of the Influenza Vaccination Coverage Among 
Healthcare Personnel (NQF #0431) measure, in which data is submitted 
annually and not quarterly. These timeframes are aligned with those of 
other quality reporting programs and allow an appropriate amount of 
time for LTCHs to review and correct quality data prior to the public 
display of that data.
    We provide comprehensive training to assist LTCHs with completing 
the LCDS, including through training manuals, webinars, open door 
forums, help desk support, and a Web site that hosts training 
information (http://www.youtube.com/user/CMSHHSgov). We also provide 
guidance on completing and submitting the LTCH CARE Data Set in Chapter 
2 of the LTCH QRP Manual, which is available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-CARE-Data-Set-and-LTCH-QRP-Manual.html.
    Comment: Some commenters requested crosswalks from ICD-10 codes to 
LTCH CARE Data Set items. One commenter requested that these crosswalks 
be kept up-to-date contemporaneously with ICD-10 changes.
    Response: A list of ICD-10 codes for the 2018 LTCH CARE Data Set 
items will be available no sooner than July 2018. We also intend to 
provide and update this information in LTCH manuals, training events, 
and on Web site postings.
    As described in section IX.C.10.c. of the preamble of this final 
rule, we are finalizing the schedule for reporting the newly finalized 
measures beginning July 1, 2018 for the FY 2020 LTCH QRP in response to 
public comments.
    As a result of the delayed implementation of the LTCH CARE Data Set 
Version 4.00, as described in section IX.C.10.c of the preamble of this 
final rule, in addition to the currently adopted measures in the LTCH 
QRP, LTCHs will be required to submit data on the finalized measures, 
Change in Skin Integrity Post-Acute Care: Pressure Ulcer/Injury, 
Compliance with SBT by Day 2 of the LTCH Stay, and Ventilator 
Liberation Rate, beginning with the last two quarters of CY 2018 for 
the FY 2020 LTCH QRP. LTCHs will also submit data on the previously 
finalized measure, Drug Regimen Review Conducted with Follow-Up for 
Identified Issues-PAC LTCH QRP, beginning with the last two quarters of 
CY 2018 for the FY 2020 LTCH QRP. Starting in CY 2019, LTCHs will be 
required to submit data for the entire calendar year beginning with the 
FY 2021 LTCH QRP. The finalized LTCH CARE Data Set Version 4.00 is 
available for review at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-CARE-Data-Set-and-LTCH-QRP-Manual.html.
    In summary, we are finalizing our proposal for reporting the 
standardized patient assessment data necessary to calculate quality 
measures beginning with the FY 2019 LTCH QRP. We are also finalizing 
our proposal to extend our current policy governing the schedule for 
reporting quality measure data to the reporting of standardized patient 
assessment data, including the schedule for reporting newly finalized 
measures beginning July 1, 2018 for the FY 2020 LTCH QRP.
e. Removal of Interrupted Stay Items From the LTCH CARE Data Set
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20117), we 
proposed to remove the program interruption items from the LTCH CARE 
Data Set. Specifically, we proposed to remove the following items: (1) 
A2500, Program Interruption(s); (2) A2510, Number of Program 
Interruptions During This Stay in This Facility; and (3) A2525, Program 
Interruption Dates, because we do not currently utilize this 
information nor do we have plans to utilize this information for the 
LTCH QRP. For a detailed discussion of burden related to LTCH CARE Data 
Set, we refer readers to section XIV.B.9. of the preamble of this final 
rule.

[[Page 38457]]

    We invited public comment on this proposal.
    Comment: Several commenters supported the removal of the 
interrupted stay items from the LTCH CARE Data Set, and commended CMS' 
efforts to reduce burden with the removal of these items.
    Response: We thank the commenters for their support of our efforts 
to reduce burden.
    After consideration of the public comments we received, we are 
finalizing our proposal to remove the program interruption items 
(A2500, A2510, and A2525) from the LTCH CARE Data Set Version 4.00, 
effective July 1, 2018.
12. Application of the LTCH QRP Participation Requirements to the 
Submission of Standardized Patient Assessment Data
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20117), we 
proposed to revise the regulatory text at Sec.  412.560(a) to state 
that an LTCH must begin submitting quality data, including standardized 
patient assessment data, under the LTCH QRP by no later than the first 
day of the calendar quarter subsequent to 30 days after the date on its 
CMS Certification Number (CCN) notification letter.
    We invited public comments on this proposal. We did not receive any 
public comments on this proposal. Therefore, we are finalizing our 
proposal as proposed to revise the regulatory text at Sec.  412.560(a) 
to state that an LTCH must begin submitting quality data, including 
standardized patient assessment data, under the LTCH QRP by no later 
than the first day of the calendar quarter subsequent to 30 days after 
the date on its CMS Certification Number (CCN) notification letter.
13. Application of the LTCH QRP Data Submission Requirements to the 
Submission of Standardized Patient Assessment Data
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20117), we 
proposed to revise the regulatory text at Sec.  412.560(b)(1) to 
require LTCHs to report both data on measures and standardized patient 
assessment data under the LTCH QRP in a form and manner, and at a time, 
specified by CMS.
    We invited public comments on this proposal. We did not receive any 
public comments on this proposal. Therefore, we are finalizing our 
proposal as proposed to revise the regulatory text at Sec.  
412.560(b)(1) to require LTCHs to report both data on measures and 
standardized patient assessment data under the LTCH QRP in a form and 
manner, and at a time, specified by CMS.
14. Application of the LTCH QRP Exception and Extension Requirements to 
the Submission of Standardized Patient Assessment Data
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20117 through 
20118), we proposed to revise the regulatory text at Sec.  412.560(c) 
to extend the Exception and Extension requirement policies to the 
submission of standardized patient assessment data beginning with the 
FY 2019 LTCH QRP.
    We invited public comments on this proposal. We did not receive any 
public comments on this proposal. Therefore, we are finalizing our 
proposal as proposed to revise the regulatory text at Sec.  412.560(c) 
to extend these policies to the submission of standardized patient 
assessment data beginning with the FY 2019 LTCH QRP.
15. Application of the LTCH QRP Reconsideration Policy to the 
Submission of Standardized Patient Assessment Data
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20118), we 
proposed to revise the regulatory text at Sec.  412.560(d) to extend 
the reconsideration policies to the submission of standardized patient 
assessment data beginning with the FY 2019 LTCH QRP.
    We invited public comments on this proposal. We did not receive any 
comments on this proposal. Therefore, we are finalizing our proposal to 
revise the regulatory text at Sec.  412.560(d) to extend these policies 
to the submission of standardized patient assessment data beginning 
with the FY 2019 LTCH QRP.
16. Application of the LTCH QRP Data Completion Thresholds to the 
Submission of Standardized Patient Assessment Data Beginning With the 
FY 2019 LTCH QRP
    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 LTCH QRP, LTCHs must meet or exceed two 
separate data completeness thresholds: One threshold set at 80 percent 
for completion of measures data collected using the LTCH CARE Data Set 
submitted through the QIES ASAP system, and a second threshold set at 
100 percent for measures data collected and submitted using the CDC 
NHSN. The term ``measures'' refers to quality measures, resource use, 
and other measures.
    Under our finalized policy, some assessment data will not invoke a 
response and, in those circumstances, are not ``missing'' nor is the 
data incomplete. For example, in the case of a patient who does not 
have any of the medical conditions in a ``check all that apply'' 
listing, the absence of a response of a health condition indicates that 
the condition is not present, and it would be incorrect to consider the 
absence of such data as missing in a threshold determination. In the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 20118), we proposed to extend 
our current LTCH QRP data completion requirements to the reporting of 
standardized patient assessment data. We invited public comment on this 
proposal.
    We also proposed to codify these LTCH QRP data completion 
thresholds at a new Sec.  412.560(f) for measures data collected using 
the LTCH CARE Data Set, beginning with the FY 2016 LTCH QRP, and 
standardized patient assessment data elements collected using the LTCH 
CARE Data Set, beginning with the FY 2019 LTCH QRP. Under this section, 
we proposed to codify that LTCHs must meet or exceed two separate data 
completeness thresholds: 80 Percent for completion of measures data and 
standardized patient assessment data collected using the LTCH CARE Data 
Set submitted through the QIES; and 100 percent for measures data 
collected and submitted using the CDC NHSN. These thresholds would 
apply to all measures and data elements adopted into LTCH QRP. A LTCH 
must meet or exceed both thresholds to avoid receiving a 2 percentage 
point reduction to its annual payment update for a given fiscal year, 
beginning with the FY 2016 LTCH QRP for measures data and beginning 
with the FY 2019 LTCH QRP for standardized patient assessment data 
elements.
    We invited public comment on our proposal to extend our current 
LTCH QRP data completion requirements to the reporting of standardized 
patient assessment data. We also invited public comment on our proposal 
to codify the LTCH QRP data completion thresholds at Sec.  412.560(f) 
for measures and standardized patient assessment data elements 
collected using the LTCH CARE Data Set.
    Comment: A commenter raised concerns regarding the addition of 
standardized patient assessment data that would be applied to the data 
completion threshold policy. The commenter suggested waiting a year to

[[Page 38458]]

impose the data completion threshold policy to the standardized patient 
assessment data so that providers have the opportunity to receive 
confidential feedback on their data from CMS.
    Response: We appreciate the commenter's suggestions pertaining to 
the application of the data completion threshold policy to the 
standardized patient assessment data elements. Providers generally have 
135 days following the end of each CY quarter to review and submit 
corrections to their data. Therefore, we believe that providers have 
the sufficient tools and time to manage the addition of the 
standardized patient assessment data to the data completion threshold 
policy.
    After consideration of the public comments we received, we are 
finalizing our proposal as proposed to extend our current LTCH QRP data 
completion requirements to the reporting of standardized patient 
assessment data. We are also finalizing our proposal as proposed to 
codify the LTCH QRP data completion thresholds at Sec.  412.560(f) for 
measures and standardized patient assessment data elements collected 
using the LTCH CARE Data Set.
17. Policies Regarding Public Display of Measure Data for the LTCH QRP
    Section 1886(m)(5)(E) of the Act requires the Secretary to 
establish procedures for making the LTCH QRP data available to the 
public after ensuring that an LTCH has the opportunity to review its 
data prior to public display. Measure data is currently displayed on 
the Long-Term Care Hospital Compare Web site, which is an interactive 
web tool that assists individuals by providing information on LTCH 
quality of care including those who need to select an LTCH. For more 
information on LTCH Compare, we refer readers to: https://www.medicare.gov/longtermcarehospitalcompare/. In addition, for a more 
detailed discussion about the provider's confidential review process 
prior to public display of quality measures we refer readers to the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57231 through 57236).
    We also finalized the process we use to publish a list of LTCHs 
that successfully meet the reporting requirements for the applicable 
LTCH QRP year on the LTCH QRP Web site in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 57231). The list of compliant LTCHs is available at: 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Data-Submission-Deadlines.html.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57231 through 
57236), we finalized the public display of measure data on the LTCH 
Compare Web site in CY 2017 for the following 4 quality measures 
pending the availability of data: (1) NHSN Facility-wide Inpatient 
Hospital-onset MRSA Bacteremia Outcome Measure (NQF #1716); (2) NHSN 
Facility-wide Inpatient Hospital-onset CDI Outcome Measure (NQF #1717); 
(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 (NQF #0680).
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57232), we stated 
that ``pending the availability of data,'' the public display of NHSN 
Facility-wide Inpatient Hospital-onset MRSA Bacteremia Outcome Measure 
(NQF #1716) and NHSN Facility-wide Inpatient Hospital-onset CDI Outcome 
Measure (NQF #1717) would initially be based on data collected from 
January 1, 2015 through December 31, 2015 and would be displayed based 
on 4 rolling quarters. We would like to clarify that the initial public 
display of data for these two quality measures (MRSA and CDI) will be 
based on data collected from January 1, 2016 through December 31, 2016 
(CY 2016), as the CY 2015 data is not available for display using the 
Standardized Infection Ratio (SIR) metric. Rather, this data (CY 2015) 
was used by the CDC to calculate the ``predicted'' number of infections 
(the number of infections that would be expected to occur based on 
previously reported data) for each LTCH, so that subsequent data could 
be used to calculate the SIR for each of these quality measures.
    The SIR is a summary statistic that compares the ``predicted'' 
number of infections to the ``observed'' or actual number of infections 
for a given LTCH. This process or ``rebaselining'' of data occurs 
periodically when the CDC determines that referent period of data or 
``baseline'' is no longer meaningful due to changes in the quality 
measure protocols or changes in provider populations. When the CDC uses 
a specific year's data to inform newly calculated ``predicted'' number 
of infections, CMS is unable to use that specific year of data to 
calculate the SIR, and for this reason, we are unable to display the 
MRSA and CDI performance data using the CY 2015 LTCH NHSN data, and 
will use the CY 2016 data to inform the SIR calculations when we 
publicly display the SIRs for these measures in fall 2017.
    The Influenza Vaccination Coverage Among Healthcare Personnel (NQF 
#0431) and Percent of Residents or Patients Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (NQF #0680) will be 
based on the influenza vaccination season from October 1, 2015 through 
March 31, 2016 and will be updated annually. We refer readers to the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57231 through 57233) for details 
on the calculations and display of these quality measures.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20118 through 
20120), pending the availability of data, we proposed to publicly 
report data in CY 2018 for the following 3 assessment-based measures: 
(1) Percent of LTCH Patients With an Admission and Discharge Functional 
Assessment and a Care Plan That Addresses Function (NQF #2631); (2) 
Application of Percent of LTCH Patients With an Admission and Discharge 
Functional Assessment and a Care Plan That Addresses Function (NQF 
#2631); and (3) Application of Percent of Residents Experiencing One or 
More Falls with Major Injury (NQF #0674). In addition, pending the 
availability of data, we proposed to publicly report data in CY 2020 
for the assessment-based measure Functional Outcome Measure: Change in 
Mobility Among Patients Requiring Ventilator Support (NQF #2632). Data 
collection for these 4 new assessment-based measures began on April 1, 
2016. We proposed to display data for the assessment-based measures 
based on four rolling quarters of data and would initially use 
discharges from January 1, 2017 through December 31, 2017, with the 
exception of Functional Outcome Measure: Change in Mobility Among 
Patients Requiring Ventilator Support (NQF #2632) which would be based 
on eight rolling quarters of data and would initially use discharges 
from January 1, 2017 through December 31, 2018.
    In addition, we proposed to publicly report 3 claims-based 
measures: (1) Medicare Spending Per Beneficiary-PAC LTCH QRP; (2) 
Discharge to Community-PAC LTCH QRP; and (3) Potentially Preventable 
30-Day Post-Discharge Readmission Measure for LTCH QRP.
    These measures were adopted for the LTCH QRP in the FY 2017 IPPS/
LTCH PPS final rule to be based on data from 2 consecutive calendar 
years. As previously adopted in the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 57233 through 57236), confidential feedback reports for these 3 
claims-based measures will be based on calendar years 2015 and 2016 and 
data collected

[[Page 38459]]

for discharges beginning January 1, 2015 through December 31, 2016. 
However, our current proposal revises the dates for public reporting, 
and we proposed to transition from calendar year to fiscal year to make 
these measure data publicly available by October 2018. Thus, we 
proposed public reporting beginning in CY 2018 for these claims-based 
measures based on fiscal years 2016 and 2017 and data collected from 
discharges beginning October 1, 2015 through September 30, 2017.
    We proposed to remove the following claims-based measure ``All-
Cause Unplanned Readmission Measure for 30 Days Post Discharge from 
LTCHs'' from the LTCH QRP and public reporting by October 2018. We 
refer readers to section IX.C.8. of the preamble of this final rule for 
additional information regarding the proposed removal of this measure 
from quality reporting and public display. We also proposed to remove 
the following assessment-based measure ``Percent of Residents or 
Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 
(NQF #0678)'' and to replace it with a modified version of the measure 
entitled ``Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/
Injury'' from the LTCH QRP and public reporting by October 2020. We 
refer readers to section IX.C.7.a. of the preamble of this final rule 
for additional information regarding the proposed replacement of this 
measure from quality reporting and public display.
    For the assessment-based measures: Percent of LTCH Patients With an 
Admission and Discharge Functional Assessment and a Care Plan That 
Addresses Function (NQF #2631); Application of Percent of LTCH Patients 
With an Admission and Discharge Functional Assessment and a Care Plan 
That Addresses Function (NQF #2631); and Application of Percent of 
Residents Experiencing One or More Falls with Major Injury (NQF #0674), 
to ensure the statistical reliability of the measures, we proposed to 
assign LTCHs with fewer than 20 eligible cases during a performance 
period to a separate category: ``The number of cases/patient stays is 
too small to report.'' If an LTCH had fewer than 20 eligible cases, the 
LTCH's performance would not be publicly reported for the measure for 
that performance period.
    For the claims-based measures: Discharge to Community-PAC LTCH QRP 
and Potentially Preventable 30-Day Post-Discharge Readmission Measure 
for LTCH QRP, to ensure the statistical reliability of the measures, we 
proposed to assign LTCHs with fewer than 25 eligible cases during a 
performance period to a separate category: ``The number of cases/
patient stays is too small to report.'' If an LTCH had fewer than 25 
eligible cases, the LTCH's performance would not be publicly reported 
for the measure for that performance period. For Medicare Spending Per 
Beneficiary-PAC LTCH QRP, to ensure the statistical reliability of the 
measure, we proposed to assign LTCHs with fewer than 20 eligible cases 
during a performance period to a separate category: ``The number of 
cases/patient stays is too small to report.'' If an LTCH had fewer than 
20 eligible cases, the LTCH's performance would not be publicly 
reported for the measure for that performance period.

  Previously Finalized and Proposed Measures for CY 2018 Public Display
                    and Confidential Feedback Reports
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Previously Finalized Measures:
    Percent of Residents or Patients with Pressure Ulcers That Are New
     or Worsened (Short Stay) (NQF #0678).
    National Healthcare Safety Network (NHSN) Catheter-Associated
     Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138).
    National Healthcare Safety Network (NHSN) Central Line-Associated
     Bloodstream Infection (CLABSI) Measure (NQF #0139).
    NHSN Facility-wide Inpatient Hospital-onset Methicillin-resistant
     Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF
     #1716).
    NHSN Facility-wide Inpatient Hospital-onset Clostridium difficile
     Infection (CDI) Outcome Measure (NQF #1717).
    Influenza Vaccination Coverage Among Healthcare Personnel (NQF
     #0431).
    Percent of Residents or Patients Who Were Assessed and Appropriately
     Given the Seasonal Influenza Vaccine (NQF #0680).
Proposed Measures:
    Percent of Long-Term Care Hospital (LTCH) 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 (LTCH) Patients
     With an Admission and Discharge Functional Assessment and a Care
     Plan That Addresses Function (NQF #2631).
    Application of Percent of Residents Experiencing One or More Falls
     with Major Injury (NQF #0674).
    Medicare Spending Per Beneficiary-PAC LTCH QRP.
    Discharge to Community-PAC LTCH QRP.
    Potentially Preventable 30-Day Post-Discharge Readmission Measure
     for LTCH QRP.
------------------------------------------------------------------------


 Proposed Additional Measure for CY 2020 Public Display and Confidential
                            Feedback Reports
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Functional Outcome Measure: Change in Mobility Among Long-Term Care
 Hospital (LTCH) Patients Requiring Ventilator Support (NQF #2632).
------------------------------------------------------------------------

    We invited public comment on the proposal for the public display of 
the four assessment-based measures and three claims-based measures, the 
removal of the All-Cause Unplanned Readmission Measure for 30 Days Post 
Discharge from LTCHs from the LTCH QRP and public display, and the 
replacement of ``Percent of Residents or Patients with Pressure Ulcers 
That Are New or Worsened (Short Stay) (NQF #0678)'' with a modified 
version of the measure entitled ``Changes in Skin Integrity Post-Acute 
Care: Pressure Ulcer/Injury'' as described above.
    Comment: A commenter supported CMS' efforts to display regional 
comparison rates. The commenter also requested state comparison data in 
addition to regional comparison data for the LTCH quality measures.
    Response: We appreciate the commenter's support. We also note that 
we addressed this issue in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57233), and we refer the reader to that final rule for a detailed 
response regarding the display of regional and state comparison rates.
    Comment: A commenter supported CASPER monthly updates to the data 
and the provision of detailed instructions on how to obtain their 
confidential feedback reports.
    Response: We acknowledge the commenter's support for the current 
process of providing monthly updates to the confidential feedback 
reports. We will continue to provide detailed instructions on how to 
obtain CASPER reports on the LTCH QRP Web site and will continue to 
offer trainings to help providers understand how to utilize the reports 
available to them.

[[Page 38460]]

    Comment: A commenter suggested that CMS provide consultative 
opportunities to assist LTCHs in their measure improvements.
    Response: We note that providers can use their confidential 
feedback and other CASPER reports to address their internal processes 
to improve quality outcomes. Further, there are established help desks 
for our public reporting and quality reporting programs that providers 
can submit questions about the measures and performance results that 
CMS reviews and responds to. Additional information about the help 
desks can be found on the LTCH QRP Web site: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Help.html. Finally, we also 
provide training opportunities and updated guidance which can be 
accessed by means of the LTCH QRP Web pages.
    Comment: A few commenters expressed concern that similar or 
overlapping quality measures would be publicly reported at the same 
time on the LTCH Compare Web site (for example, both pressure ulcer 
measures, both readmission measures).
    Response: We plan to remove the Percent of Residents or Patients 
with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) 
and All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge 
from Long-Term Care Hospitals from the LTCH Compare Web site prior to 
when we begin to publicly display the Changes in Skin Integrity Post-
Acute Care: Pressure Ulcer/Injury and Potentially Preventable 30-Day 
Post-Discharge Readmission Measure for Long-Term Care Hospital Quality 
Reporting Program, respectively.
    Comment: A few commenters recommended enhancements to the LTCH 
Compare Web site to further explain quality measure data and results in 
a way that is interpretable to patients, their families, and providers. 
One of these commenters also suggested convening a multi-stakeholder 
panel to review and provide guidance on the various Compare Web sites 
including LTCH Compare.
    Response: We appreciate the commenters' suggestions and will take 
these suggestions into consideration as we continue to enhance the LTCH 
Compare Web site, including making quality measure information 
interpretable for LTCH patients, families, and providers. Of note, when 
developing the LTCH Compare Web site, consumer testing of the Web site 
did occur during the development stages with members of the public 
including Medicare beneficiaries.
    Comment: A commenter expressed concerns about the ability of 
providers to review and correct the accuracy of measure data generated 
by the CDC NHSN and claims-based models prior to their display on the 
LTCH Compare Web site as mandated by the IMPACT Act. The commenter 
further stated that results for two of the four required measures, 
CLABSI and CAUTI, were not posted on the Compare Web site due to 
calculation issues while the unplanned readmission rate cannot be 
reviewed for accuracy by providers because they are not provided the 
raw source data or the model.
    Response: We recognize the commenter's concerns regarding the CDC 
NHSN CAUTI and CLABSI and claims-based All-Cause Unplanned Readmission 
Measure for 30 Days Post Discharge from Long-Term Care Hospitals. 
Providers are required to submit accurate HAI data to CDC and are given 
the opportunity to review and correct any data submitted. Providers 
have approximately 4.5 months after the reporting quarter to correct 
their assessment-based and NHSN data used to calculate the measures as 
detailed in FY 2017 IPPS/LTCH PPS final rule (81 FR 57234 through 
57236). Also, as stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57234), CMS can suppress data on LTCH Compare if it is determined that 
the measure performance on the Provider Preview reports contains a 
calculation error. We intend to display data on the CDC NHSN CAUTI and 
CLABSI measures for the most recent quarter when the data is corrected. 
We will continue to work with the CDC to ensure the accuracy of measure 
results. CDC measure specifications can be found on the CDC NHSN Web 
site (http://www.cdc.gov/nhsn/index.html).
    Regarding the claims-based All-Cause Unplanned Readmission Measure 
for 30 Days Post Discharge from Long-Term Care Hospitals measure, CMS 
appreciates commenter's concern regarding the accuracy of the measure 
because they are not provided the raw source data or the model. CMS is 
exploring the feasibility of making additional patient level data 
available to providers as well as posting updated information on the 
risk model results used for measure calculation. We intend to continue 
to display results for The All-Cause Unplanned Readmission Measure for 
30 Days Post Discharge from Long-Term Care Hospitals (NQF #2512) until 
the removal of the measure from public display by October 2018.
    Comment: A commenter expressed concerns regarding the ability of 
CDC NHSN HAI and claims-based All-Cause Unplanned Readmission Measure 
for 30 Days Post Discharge from Long-Term Care Hospitals measures to 
accurately reflect changing patient populations.
    Response: We appreciate the commenter's concerns about the CDC NHSN 
HAI CAUTI and CLABSI measures and the claims-based All-Cause Unplanned 
Readmission Measure for 30 Days Post-Discharge from Long-Term Care 
Hospitals. We will continue to update and refine measure specifications 
based on ongoing analysis of the data and patient populations. National 
averages are not stagnant but are calculated on an ongoing basis to 
reflect results based on the data from the time period reported.
    After consideration of the public comments we received, we are 
finalizing our proposal as proposed to begin publicly reporting in CY 
2018 the following assessment-based measures pending the availability 
of the data: ``Percent of Long-Term Care Hospital (LTCH) 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 (LTCH) Patients With an Admission and Discharge 
Functional Assessment and a Care Plan That Addresses Function'' (NQF 
#2631), ``Application of Percent of Residents Experiencing One or More 
Falls with Major Injury'' (NQF #0674), as well as the following claims-
based measures: ``Medicare Spending Per Beneficiary-PAC LTCH QRP,'' 
``Discharge to Community-PAC LTCH QRP,'' and ``Potentially Preventable 
30-Day Post-Discharge Readmission Measure for LTCH QRP.'' In addition, 
we will publicly report data in CY 2020 the assessment-based measure: 
``Functional Outcome Measure: Change in Mobility Among Long-Term Care 
Hospital (LTCH) Patients Requiring Ventilator Support'' (NQF #2632) 
pending availability of data.
    We are finalizing our proposal to remove the claims-based measure 
``All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge 
from Long-Term Care Hospitals'' from the LTCH QRP and public reporting 
by October 2018. We are also finalizing our proposals to remove the 
following assessment-based measure ``Percent of Residents or Patients 
with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF 
#0678)'' and to replace it with a modified version of the measure 
entitled ``Changes in Skin Integrity Post-Acute Care: Pressure

[[Page 38461]]

Ulcer/Injury'' from the LTCH QRP and public reporting by October 2020.
18. 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 on 
the measures specified under sections 1899B(c)(1) and (d)(1) of the 
Act, beginning one year after the specified application date that 
applies to such measures and PAC providers. In the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 57233 through 57236), we finalized processes to 
provide LTCHs the opportunity to review their data and information 
using confidential feedback reports that will enable LTCHs to review 
their performance on the measures required under the LTCH QRP. 
Information on how to obtain these and other reports available to the 
LTCH can be found at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-Public-Reporting.html.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20120), we did 
not propose any changes to this policy.

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 Patient Protection and 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 fiscal year (FY) 2014 
\457\ 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.
---------------------------------------------------------------------------

    \457\ 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 codes, effective on October 1 of each year. 
This change allowed for annual payment updates and the ICD 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).
---------------------------------------------------------------------------

    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 Inpatient Psychiatric Facility Prospective Payment System 
(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
    We strive to put patients first, ensuring they are empowered to 
make decisions about their own healthcare along with their clinicians 
using information from data-driven insights that are increasingly 
aligned with meaningful quality measures. We support technology that 
reduces burden and allows clinicians to focus on providing high-quality 
healthcare for their patients. We also support innovative approaches to 
improve quality, accessibility, and affordability of care while paying 
particular attention to improving clinicians' and beneficiaries' 
experience when interacting with our programs. In combination with 
other efforts across the Department of Health and Human Services, we 
believe the IPFQR program helps to incentivize facilities to improve 
healthcare quality and value while giving patients and providers the 
tools and information needed to make the best decisions for them. 
Consistent with these goals, 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 primarily 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. When possible, we also seek to

[[Page 38462]]

incorporate measures that directly evaluate patient outcomes. 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.
(1) Measure Selection Process
    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 proposed for 
the IPFQR Program were included in a publicly available document: 
``List of Measures under Consideration for December 1, 2016'' available 
at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Downloads/Measures-under-Consideration-List-for-2016.pdf. 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 2017 recommendations for quality measures under consideration are 
captured in the following documents: ``Process and Approach for MAP 
Pre-Rulemaking Deliberations, 2016-2017,'' available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84455 and ``2016-2017 Spreadsheet 
of Final Recommendations to HHS and CMS'' available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84452. We considered the input and 
recommendations provided by the MAP in selecting all measures for the 
IPFQR Program, including those discussed below.
(2) Accounting for Social Risk Factors in the IPFQR Program
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20121), we 
discussed accounting for social risk factors in the IPFQR Program. We 
understand that social risk factors such as income, education, race and 
ethnicity, employment, disability, community resources, and social 
support (certain factors of which are also sometimes referred to as 
socioeconomic status (SES) factors or socio-demographic status (SDS) 
factors) play a major role in health. One of our core objectives is to 
improve beneficiary outcomes including reducing health disparities, and 
we want to ensure that all beneficiaries, including those with social 
risk factors, receive high quality care. In addition, we seek to ensure 
that the quality of care furnished by providers and suppliers is 
assessed as fairly as possible under our programs while ensuring that 
beneficiaries have adequate access to excellent care.
    We have been reviewing reports prepared by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) \458\ and the 
National Academies of Sciences, Engineering, and Medicine on the issue 
of measuring and accounting for social risk factors in CMS' value-based 
purchasing and quality reporting programs, and considering options on 
how to address the issue in these programs. On December 21, 2016, ASPE 
submitted a Report to Congress on a study it was required to conduct 
under section 2(d) of the Improving Medicare Post-Acute Care 
Transformation (IMPACT) Act of 2014. The study analyzed the effects of 
certain social risk factors in Medicare beneficiaries on quality 
measures and measures of resource use used in one or more of nine 
Medicare value-based purchasing programs.\459\ The report also included 
considerations for strategies to account for social risk factors in 
these programs. In a January 10, 2017 report released by the National 
Academies of Sciences, Engineering, and Medicine, that body provided 
various potential methods for measuring and accounting for social risk 
factors, including stratified public reporting.\460\
---------------------------------------------------------------------------

    \458\ Office of the Assistant Secretary for Planning and 
Evaluation. 2016. Report to Congress: Social Risk Factors and 
Performance Under Medicare's Value-Based Purchasing Programs. 
Available at: https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \459\ Office of the Assistant Secretary for Planning and 
Evaluation. 2016. Report to Congress: Social Risk Factors and 
Performance Under Medicare's Value-Based Purchasing Programs. 21 
Dec. 2016. Available at: https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \460\ National Academies of Sciences, Engineering, and Medicine. 
2017. Accounting for social risk factors in Medicare payment. 
Washington, DC: The National Academies Press.
---------------------------------------------------------------------------

    As noted in the FY 2017 IPPS/LTCH PPS final rule, the NQF undertook 
a 2-year trial period in which new measures, measures undergoing 
maintenance review, and measures endorsed with the condition that they 
enter the trial period could be assessed to determine whether risk 
adjustment for selected social risk factors is appropriate for these 
measures. This trial entailed temporarily allowing inclusion of social 
risk factors in the risk-adjustment approach for these measures. The 
trial period ended in April 2017 and a draft report is available at: 
http://www.qualityforum.org/SES_Trial_Period.aspx.
    As we continue to consider the analyses and recommendations from 
these reports and await the results of the NQF trial on risk adjustment 
for quality measures, we are continuing to work with stakeholders in 
this process. As we have previously communicated, we are concerned 
about holding providers to different standards for the outcomes of 
their patients with social risk factors because we do not want to mask 
potential disparities or minimize incentives to improve the outcomes 
for disadvantaged populations. Keeping this concern in mind, while we 
sought input on this topic previously, we continue to seek public 
comment on whether we should account for social risk factors in the 
IPFQR Program, and if so, what method or combination of methods would 
be most appropriate for accounting for social risk factors. Examples of 
methods include: Confidential reporting to providers of measure rates 
stratified by social risk factors; public reporting of stratified 
measure rates; and potential risk adjustment of a particular measure as 
appropriate based on data and evidence.
    In addition, in the proposed rule, we sought public comment on 
which social risk factors might be most appropriate for reporting 
stratified measure scores and/or potential risk adjustment of a 
particular measure. Examples of social risk factors include, but are 
not limited to, dual eligibility/low-income subsidy, race and 
ethnicity, and geographic area of residence. We also sought comments on 
which of these factors, including current data sources where this 
information would be available, could be used alone or in combination, 
and whether other data should be collected to better capture the 
effects of social risk. We will take commenters' input into 
consideration as we continue to assess the appropriateness and 
feasibility of accounting for social risk factors in the IPFQR Program. 
We note that any such changes would be proposed through future notice-
and-comment rulemaking.
    We look forward to working with stakeholders as we consider the 
issue of accounting for social risk factors and reducing health 
disparities in CMS programs. Of note, implementing any of the above 
methods would be taken into consideration in the context of how this 
and other CMS programs operate (for example, data submission methods, 
availability of data, statistical considerations relating to 
reliability of

[[Page 38463]]

data calculations, among others), so we also welcomed comment on 
operational considerations. CMS is committed to ensuring that its 
beneficiaries have access to and receive excellent care, and that the 
quality of care furnished by providers and suppliers is assessed fairly 
in CMS programs.
    Comment: Many commenters expressed support for the concept of 
accounting for social risk factors in the IPFQR Program; however, these 
commenters expressed concern that chart-abstracted process measures, 
with data submitted in aggregate, are inappropriate for risk adjustment 
or stratified reporting. These commenters observed that to properly 
risk-adjust or stratify data for the IPFQR Program, the program would 
benefit from collection of patient-level outcome measures data. One 
commenter cautioned that collecting information to stratify measures 
could increase burden on IPFs and reduce the amount of data publicly 
reported due to small sample sizes. Several commenters encouraged CMS 
to ensure that providers can confidentially view reports of measures 
data stratified by social risk factors.
    One commenter expressed appreciation that CMS is dedicating time 
and attention to this issue, but requested that CMS improve 
transparency of the process by developing a work plan and timeline. One 
commenter encouraged CMS to collaborate with Medicare Advantage and 
Medicaid health plans in understanding the impact of social risk 
factors.
    Many commenters expressed concern that incentives for reducing 
disparities could lead to a reduction in quality for patients who are 
not at risk, and recommended that CMS consider this or other unintended 
consequences in any program design.
    Several commenters urged CMS to ensure that data are publicized in 
a way that is meaningful to consumers, with some commenters 
specifically recommending that CMS convene consumer focus groups to 
provide input on the data presentation.
    Response: We will consider all suggestions as we continue to assess 
the feasibility of accounting for social risk factors and will actively 
perform additional research and monitor for trends to prevent 
unintended consequences. We intend to explore options including but not 
limited to measure stratification by social risk factors in a 
consistent manner across our quality reporting and value-based 
purchasing programs when appropriate. Future proposals would be made 
after further research and continued stakeholder engagement.
    We are committed to ensuring that CMS beneficiaries have access to 
and receive excellent care and the quality of care furnished by 
providers and suppliers is assessed fairly in CMS quality reporting and 
value-based purchasing programs. We thank the commenters, and we will 
consider their views as we develop further policy regarding social risk 
factors in the IPFQR Program.
(3) IPFQR Program Measures Adopted in Previous Payment Determinations
    The current IPFQR Program includes 18 mandatory measures. For more 
information on these measures, we refer readers to the following final 
rules:
     The FY 2013 IPPS/LTCH PPS final rule (77 FR 53646 through 
53652);
     The FY 2014 IPPS/LTCH PPS final rule (78 FR 50889 through 
50895);
     The FY 2015 IPF PPS final rule (79 FR 45963 through 
45974);
     The FY 2016 IPF PPS final rule (80 FR 46694 through 
46714); and
     The FY 2017 IPPS/LTCH PPS final rule (81 FR 57236 through 
57249).
2. Factors for Removal or Retention of IPFQR Program Measures
a. Background
    The Hospital IQR Program adopted formal policies regarding measure 
retention and removal in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50185). We believe that it is important to be consistent between 
programs to the extent possible. Therefore, to align with the policies 
adopted in this and other quality reporting programs, in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20122), we proposed to adopt similar 
policies within the IPFQR Program. In the past, we have retained 
measures from each previous year's IPFQR Program measure set for 
subsequent years' measure sets, except when we specifically proposed to 
remove or replace a measure. For example, we removed HBIPS-6 and HBIPS-
7 and replaced these measures with Transition Record with Specified 
Elements Received by Discharged Patients (NQF #0647) and Timely 
Transmission of Transition Record (NQF #0648) respectively in the FY 
2016 IPF PPS final rule (80 FR 46701 through 46709). In the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20122), we proposed factors to 
consider in removing or retaining measures effective upon finalization 
of the proposed rule, anticipated to be effective October 1, 2017 and 
for subsequent years.
    We will continue to use the notice-and-comment rulemaking process 
to propose measures for removal or replacement.
b. Considerations in Removing or Retaining Measures
    With respect to measure removal, we believe it is important to be 
transparent in identifying factors that we would take into 
consideration on a case-by-case basis as guidelines to evaluate a 
measure for potential removal from the IPFQR Program. We believe that 
these factors should be aligned between our programs whenever possible. 
Therefore, we refer readers to the Hospital IQR Program (80 FR 49641 
through 49642) factors we consider in removing or retaining measures. 
We intend to align our policies in the IPFQR Program with those in the 
Hospital IQR Program. Thus, in the proposed rule, we proposed: (1) 
Measure removal factors; (2) criteria for determining when a measure is 
``topped-out;'' and (3) measure retention factors. These proposals are 
discussed in more detail below.
    We proposed the following measure removal factors for the IPFQR 
Program:
     Measure performance among IPFs is so high and unvarying 
that meaningful distinctions and improvements in performance can no 
longer be made (``topped-out'' measures);
     Measure does not align with current clinical guidelines or 
practice;
     Measure can be replaced by a more broadly applicable 
measure (across settings or populations) or a measure that is more 
proximal in time to desired patient outcomes for the particular topic;
     Measure performance or improvement does not result in 
better patient outcomes;
     Measure can be replaced by a measure that is more strongly 
associated with desired patient outcomes for the particular topic;
     Measure collection or public reporting leads to negative 
unintended consequences other than patient harm; and
     Measure is not feasible to implement as specified.
    For the purposes of considering measures for removal from the 
program, we also proposed to align our criteria for determining that a 
measure is ``topped-out'' with the Hospital IQR Program's criteria (80 
FR 49642), which states that a measure is ``topped-out'' if there is 
statistically indistinguishable performance at the 75th and 90th 
percentiles and the truncated coefficient of variation is less than or 
equal to 0.10.
    Furthermore, we recognize that there may be times when measures may 
meet some of the outlined factors for removal,

[[Page 38464]]

but continue to bring value to the program. Therefore, we also proposed 
the following factors for consideration in determining whether to 
retain a measure in the IPFQR Program, which also are based on factors 
established in the Hospital IQR Program (80 FR 49641 through 49642):
     Measure aligns with other CMS and HHS policy goals, such 
as those delineated in the National Quality Strategy or CMS Quality 
Strategy;
     Measure aligns with other CMS programs, including other 
quality reporting programs; and
     Measure supports efforts to move IPFs towards reporting 
electronic measures.
    We reiterate that these removal and retention factors are 
considerations that we take into account in balancing the benefits and 
drawbacks of whether or not to remove measures on a case-by-case basis.
    We invited public comment on our proposals to adopt: (1) Measure 
removal factors; (2) criteria for determining when a measure is 
``topped out;'' and (3) measure retention factors as discussed above. 
These factors and criteria will become effective upon finalization of 
this rule, anticipated to be effective October 1, 2017 and for 
subsequent years; measures identified as appropriate for removal would 
be proposed through notice-and-comment rulemaking subsequent to that 
date.
    Comment: Many commenters supported CMS' proposal to adopt measure 
removal factors. Many of these commenters also expressed a desire to 
see measure performance data and for CMS to define and report on the 
outcomes that CMS believes are impacted by each process measure. One 
commenter supported the criteria for determining that a measure is 
``topped out.''
    Response: We thank the commenters for their support of our proposed 
measure removal factors. We publish data collected through the IPFQR 
Program on a publicly available CMS Web site (specifically, Hospital 
Compare--https://www.medicare.gov/hospitalcompare/psych-measures.html) 
to allow the public to make informed healthcare decisions; these data 
can also be used to assess national performance levels on specific 
measures. We also note that when we propose measures for the IPFQR 
Program, we provide explanations of how we believe these measures 
impact patient outcomes, we report these data to the extent possible 
(through our reporting on Hospital Compare), and we continue to be 
committed to adopting applicable outcomes measures into the IPFQR 
Program.
    Comment: One commenter requested that CMS add ``implementation puts 
patients at greater risk of harm'' and ``measure has not been specified 
or tested in the IPF setting'' to this list of removal factors.
    Response: While we agree with the commenter that the potential for 
increased patient harm requires removing a measure from the IPFQR 
Program, this was not included on the list because the list is for 
routine measure maintenance, and an increase in patient harm would most 
likely require immediate action. To clarify, if evidence suggests that 
a measure results in an increase in patient harm, we would take 
immediate action, as opposed to waiting for the notice and comment 
rulemaking cycle.
    We disagree with the commenter's assertion that measures must have 
been specified or tested in the IPF setting for adoption in the IPFQR 
Program. We believe that measures should address the overall care 
provided to patients while they are inpatients and that to accomplish 
this, for example, some measures which have been tested in general 
acute care facilities are appropriate for the IPF setting.
    Comment: Many commenters did not support CMS' proposed measure 
retention factors. These commenters believed that only measures 
specific to psychiatric care should be retained in the IPFQR Program. 
One commenter expressed that the measure retention factors do not 
appear to outweigh the benefit of removing measures that meet at least 
one removal factor.
    Response: We disagree with the commenters' assertion that only 
measures specific to psychiatric care should be included in the IPFQR 
Program. We believe IPFs should consider the overall health of the 
patient throughout the length of his/her episode of care, in addition 
to the patient's psychiatric condition. We also disagree with the 
assertion that the measure retention factors do not outweigh the 
measure removal factors. We believe that selecting measures for this or 
any of the CMS quality reporting program requires multiple 
considerations, which is why we have aligned these measure removal and 
retention factors with those in use in other programs which must also 
balance multiple considerations. We refer readers to the Hospital IQR 
Program (80 FR 49641 through 49642), the PCHQR Program (81 FR 57182 
through 57183), the Hospital OQR Program (79 FR 66942), and the ASCQR 
Program (79 FR 66968 through 66969) as examples of programs with 
similar needs to balance multiple considerations.
    Comment: Several commenters expressed concern that if CMS adopts 
measures that ``support efforts to move IPFs towards reporting 
electronic measures,'' it may require IPFs to make extensive 
infrastructure investments to participate in the IPFQR Program. Some 
commenters stated that measures should not be retained to support 
efforts to move IPFs toward reporting electronic measures.
    Response: We understand the commenters' concern regarding the 
adoption of infrastructure to support electronic measure reporting. We 
do believe that EHRs have a role in quality reporting programs, 
including the IPFQR Program and, as discussed in the FY 2013 IPPS/LTCH 
PPS final rule (77 FR 53660) and the 2014 IPPS/LTCH PPS final rule (78 
FR 50903) we are interested in increasing the use of EHRs for data 
collection in the future. However, we note that the only measure 
currently in the IPFQR Program that addresses the adoption of 
Electronic Health Records is the attestation measure ``Use of an 
Electronic Health Record,'' which does not require any infrastructure 
investment. We originally adopted this measure to assess the state of 
adoption of EHRs among IPFs because the use of EHRs for the collection, 
use, and transmission of medical information has been demonstrated to 
impact the quality of care. However, data collected from this measure 
also provides insight into the operational barriers to adopting future 
electronic clinical quality measures (eCQMs) as well as the potential 
burden posed by individual eCQMs. We would propose any future measures 
that address adoption of EHRs through the notice and comment rulemaking 
process which allows us to seek public comment on these measures.
    Comment: Several commenters requested that CMS evaluate the current 
measures using the proposed removal and retention factors. One 
commenter further encouraged CMS to evaluate the measures individually 
and as a set.
    Response: We will evaluate the effectiveness of the measures 
currently in the IPFQR Program, individually and as a set, using these 
factors for this evaluation upon finalization of this rule.
    Comment: One commenter recommended that CMS also identify a set of 
principles to use in selecting measures for inclusion in the IPFQR 
Program. The commenter recommended the following principles for 
selecting measures: (1) Measures improve the effectiveness and 
efficiency of patient care; (2) measures focus on indicators

[[Page 38465]]

that provide the most useful clinical and operational data possible; 
(3) measures focus on indicators that support actionable steps that 
fall within the scope of responsibility and accountability of the 
organization being measured; (4) measures provide value in the data 
generated that is in proportion to the intensity of the data-collection 
effort; and (5) measures have the potential for being used to 
measurably improve the processes, outcomes, efficiency, and patient 
experiences of the care being delivered.
    Response: We have previously described our considerations in the 
development and selection of measures, which include addressing the six 
priorities of the National Quality Strategy (NQS) while minimizing 
burden, publicly reporting on measures that are close to the patient 
centered outcome of interest, focusing on gaps of quality, reflecting 
important areas of service, weighing the importance of the measure 
versus the burden of collection, seeking measures which are endorsed by 
multistakeholder organizations, and supporting the HHS Strategic Plan. 
For a detailed discussion, we refer readers to section VIII.F.4.a. of 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53645 through 53646). 
However, we will take into consideration commenter's suggestions for 
the future.
    Comment: One commenter expressed concern that the definition of 
``topped out'' is not standardized across private and public payers. 
This commenter also expressed concern that removing ``topped out'' 
measures may worsen performance on the processes that these measures 
evaluate.
    Response: We seek to align definitions and criteria with other 
programs wherever possible. However, as the commenter noted there are 
multiple definitions of ``topped out'' across private and public 
payers. We wish to align definitions and criteria with other programs 
to the extent possible, however because of the non-standardization of 
the definition, it is not possible to align with all payers. We 
proposed ``topped out'' criteria that align with those in use in other 
CMS quality reporting programs to ensure our ability to continue to be 
in alignment with these programs. Such quality reporting programs 
include the Hospital IQR Program (80 FR 49641 through 49642), the PCHQR 
Program (81 FR 57182 through 57183), the Hospital OQR Program (79 FR 
66942), and the ASCQR Program (79 FR 66968 through 66969).
    We agree with the commenter that there may be times that retaining 
a ``topped out'' measure is beneficial, as the measure continues to 
encourage high levels of performance and we intend to evaluate each 
measure on a case-by-case basis in accordance with our removal and 
retention policy to address this concern.
    After consideration of the public comments we received, we are 
adopting the measure removal factors, ``topped-out'' criteria, and 
measure retention factors as proposed.
3. Proposal for New Quality Measure for the FY 2020 Payment 
Determination and Subsequent Years--Medication Continuation Following 
Inpatient Psychiatric Discharge (NQF #3205)
a. Background
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20122 through 
20126), we proposed one new measure, Medication Continuation Following 
Inpatient Psychiatric Discharge (NQF #3205), for the FY 2020 payment 
determination and subsequent years. The measure uses Medicare fee-for-
service (FFS) claims to identify whether patients admitted to IPFs with 
diagnoses of major depressive disorder (MDD), schizophrenia, or bipolar 
disorder had filled at least one evidence-based medication within 2 
days prior to discharge through 30 days post-discharge. We believe that 
medication continuation is important for patients discharged from the 
inpatient psychiatric setting with MDD, schizophrenia, or bipolar 
disorder because of significant negative outcomes associated with non-
adherence to medication regimens. For example, patients with MDD who do 
not remain on prescribed medications are more likely to have negative 
health outcomes such as relapse and readmission, decreased quality of 
life, and increased healthcare costs.\461\ \462\ Patients with 
schizophrenia who do not adhere to their medication regimen are more 
likely to be hospitalized, use emergency psychiatric services, be 
arrested, be victims of crimes, and consume alcohol or drugs compared 
to those who adhere to their medication regimen.\463\ Patients with 
bipolar disorder who do not adhere to their medications have increased 
suicide risk.\464\ For these reasons, guidelines from the American 
Psychiatric Association (APA) and the Department of Veterans Affairs/
Department of Defense (VA/DoD), which are based on extensive 
literature, recommend pharmacotherapy as the primary form of treatment 
for patients with these conditions.\465\ \466\ \467\ \468\ \469\
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    \461\ Geddes JR, Carney SM, Davies C, et al. Relapse prevention 
with antidepressant drug treatment in depressive disorders: a 
systematic review. Lancet. 2003;361(9358):653-661.
    \462\ Glue P, Donovan MR, Kolluri S, Emir B. Meta-analysis of 
relapse prevention antidepressant trials in depressive disorders. 
The Australian and New Zealand journal of psychiatry. 
2010;44(8):697-705.
    \463\ Gilmer TP, Dolder CR, Lacro JP, et al. Adherence to 
treatment with antipsychotic medication and health care costs among 
Medicaid beneficiaries with schizophrenia. The American journal of 
psychiatry. 2004;161(4):692-699.
    \464\ Gonzalez-Pinto A, Mosquera F, Alonso M, et al. Suicidal 
risk in bipolar I disorder patients and adherence to long-term 
lithium treatment. Bipolar disorders. 2006;8(5 Pt 2):618-624.
    \465\ American Psychiatric Association. (2002). Practice 
guideline for the treatment of patients with bipolar disorder, 
second edition. Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/bipolar.pdf.
    \466\ American Psychiatric Association. (2010). Practice 
guideline for the treatment of patients with major depressive 
disorder, 3rd ed. Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/mdd.pdf.
    \467\ American Psychiatric Association. (2010). Practice 
guideline for the treatment of patients with schizophrenia: 2nd ed. 
Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/schizophrenia.pdf.
    \468\ U.S. Department of Veterans Affairs, & U.S. Department of 
Defense. (2016). Management of major depressive disorder (MDD). 
Retrieved from: http://www.healthquality.va.gov/guidelines/MH/mdd/VADoDMDDCPGFINAL82916.pdf.
    \469\ U.S. Department of Veterans Affairs & U.S. Department of 
Defense. (2010) VA/DOD clinical practice guideline for management of 
bipolar disorder in adults. Retrieved from: http://www.healthquality.va.gov/guidelines/MH/bd/bd_305_full.pdf.
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    Interventions that can be applied in the inpatient setting that 
increase medication compliance and prevent the negative outcomes 
associated with nonadherence have been identified. These interventions 
include patient education, enhanced therapeutic relationships, shared 
decision-making, and text-message reminders, with multidimensional 
approaches resulting in the best 
outcomes.470 471 472 473 474 475 Furthermore, patients and 
caregivers interviewed during the development of this measure indicated 
the importance of the facility's role in communicating

[[Page 38466]]

information about medications to the patient, pharmacy, and outpatient 
providers.\476\
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    \470\ Douaihy AB, Kelly TM, Sullivan C. Medications for 
substance use disorders. Social work in public health. 2013;28(3-
4):264-278.
    \471\ Haddad PM, Brain C, Scott J. Nonadherence with 
antipsychotic medication in schizophrenia: challenges and management 
strategies. Patient related outcome measures. 2014;5:43-62.
    \472\ Hung CI. Factors predicting adherence to antidepressant 
treatment. Current opinion in psychiatry. 2014;27(5):344-349.
    \473\ Lanouette NM, Folsom DP, Sciolla A, Jeste DV. Psychotropic 
medication nonadherence among United States Latinos: a comprehensive 
literature review. Psychiatric services (Washington, DC). 
2009;60(2):157-174.
    \474\ Mitchell AJ. Understanding Medication Discontinuation in 
Depression. BMedSci Psychiatric Times. 2007;24(4).
    \475\ Sylvia LG, Hay A, Ostacher MJ, et al. Association between 
therapeutic alliance, care satisfaction, and pharmacological 
adherence in bipolar disorder. Journal of clinical 
psychopharmacology. 2013;33(3):343-350.
    \476\ Health Services Advisory Group. Final Methodology Report: 
Medication Continuation Following Inpatient Discharge. Tampa, FL; 
2016.
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b. Appropriateness for the IPFQR Program
    In compliance with section 1890A(a)(2) of the Act, this measure was 
included in a publicly available document: ``List of Measures under 
Consideration for December 1, 2016'' available at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Downloads/Measures-under-Consideration-List-for-2016.pdf. The MAP Hospital Workgroup concluded that the measure 
addressed a critical quality objective, was evidence-based, and would 
contribute to efficient use of resources.\477\ One Workgroup member 
commented that it was appropriate to hold IPFs accountable for patients 
filling a prescription for an evidence-based medication post-discharge, 
further remarking that the measure was moving in the right 
direction.\478\
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    \477\ MAP Hospital Workgroup, Preliminary Analysis Worksheet. 
December 2017.
    \478\ National Quality Forum, Measure Applications Partnership. 
Meeting Transcript, Day 1 of 2--In-Person Meeting. 2016.
---------------------------------------------------------------------------

    The MAP Hospital Workgroup classified the measure as ``Refine and 
Resubmit Prior to Rulemaking.'' \479\ The measure received this 
classification because the MAP recommended that measure testing be 
completed to demonstrate reliability and validity at the facility level 
in the hospital setting and that the measure be submitted to NQF for 
review and endorsement.\480\ The MAP also requested additional details 
on the measure, such as: (1) The definition of medication dispensation; 
(2) how the facility would know whether the medication was dispensed; 
and (3) how the measure would be impacted if Medicare Part D coverage 
is optional. The MAP also recommended that this measure be submitted to 
NQF for review and endorsement. The final methodology report includes 
the results of reliability and validity testing, and additional measure 
updates that occurred between the MAP review and NQF submission in 
December 2016.\481\ This methodology report also provides the 
additional details requested by MAP at the December meeting.
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    \479\ http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=84452.
    \480\ National Quality Forum, Measure Application Partnership. 
MAP 2017 Considerations for Implementing Measures in Federal 
Programs: Hospitals. 2017.
    \481\ Health Services Advisory Group. Final Methodology Report: 
Medication Continuation Following Inpatient Discharge. Tampa, FL; 
2016. https://www.cms.gov/medicare/Quality-Initiatives-Patient-
Assessment-Instruments/HospitalQualityInits/Measure-
Methodology.html. To access the report, click on the zip file titled 
``Inpatient Psychiatric Facility Medication Continuation Measure.''
---------------------------------------------------------------------------

    Reliability and validity testing completed in 2016 using the final 
measure specifications demonstrates that the measure, as specified, 
provides reliable and valid facility-level scores of medication 
continuation.\482\
---------------------------------------------------------------------------

    \482\ Health Services Advisory Group. Final Methodology Report: 
Medication Continuation Following Inpatient Discharge. Tampa, FL; 
2016.
---------------------------------------------------------------------------

    Reliability was established using a method of mean denominator and 
volume categories. Using that approach, a minimum denominator size of 
75 discharges was established to attain an overall reliability score of 
at least 0.7; this reliability score is within acceptable norms and 
indicates sufficient signal strength to discriminate performance 
between facilities.\483\ This means that it is possible to distinguish 
good performance from poor performance based on measure scores among 
facilities with at least 75 cases in the denominator.
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    \483\ Adams J. The reliability of provider profiling: a 
tutorial. Santa Monica, CA: RAND; 2009.
---------------------------------------------------------------------------

    Validity was established by evaluating the correlations of 
medication continuation scores with the conceptually related IPFQR 
Program measures. The medication continuation scores were moderately 
correlated with the scores for 7- and 30-day follow-up after 
hospitalization for mental illness scores as expected (rho = 0.35 and 
0.45, where rho is the Spearman's rank correlation coefficient). In 
other words, the positive correlation between scores of these two types 
of measures is expected because high follow-up rates with mental health 
providers and high follow-up rates of medication continuation both 
indicate a high-quality transition from the inpatient to the outpatient 
setting. The medication continuation scores were negatively correlated 
with readmission scores as expected (rho = -0.27). This negative 
correlation is expected because patients that do not continue their 
medications are more likely to relapse and be 
readmitted.484 485 486 All correlations are statistically 
significant at p-value <0.0001. After reviewing these results and the 
proposed measure specifications, all of the 10 TEP members who were 
present for the face validity vote agreed that the measure score had 
face validity.
---------------------------------------------------------------------------

    \484\ Glue P, Donovan MR, Kolluri S, Emir B. Meta-analysis of 
relapse prevention antidepressant trials in depressive disorders. 
The Australian and New Zealand journal of psychiatry. 
2010;44(8):697-705.
    \485\ Geddes JR, Carney SM, Davies C, et al. Relapse prevention 
with antidepressant drug treatment in depressive disorders: a 
systematic review. Lancet. 2003;361(9358):653-661.
    \486\ Gilmer TP, Dolder CR, Lacro JP, et al. Adherence to 
treatment with antipsychotic medication and health care costs among 
Medicaid beneficiaries with schizophrenia. The American journal of 
psychiatry. 2004;161(4):692-699.
---------------------------------------------------------------------------

    This measure was submitted to NQF for endorsement on December 16, 
2016, and the measure received endorsement from the NQF Consensus 
Standards Approval Committee (CSAC) following the June 21 CSAC meeting, 
pending a 30 day appeals process that closes on August 2, 2017.\487\ 
The new version of the specifications referenced on the NQF Web site is 
consistent with the version reviewed and approved by the CSAC. Under 
section 1886(s)(4)(D)(i) of the Act, measures selected for the IPFQR 
Program must have been endorsed by the entity with a contract under 
section 1890(a) of the Act. The NQF currently holds this contract. 
However, section 1886(s)(4)(D)(ii) of the Act provides that, in the 
case of a specified area or medical topic determined appropriate by the 
Secretary for which a feasible and practical measure has not been 
endorsed by the entity with a contract under section 1890(a) of the 
Act, the Secretary may specify a measure that is not so endorsed as 
long as due consideration is given to measures that have been endorsed 
or adopted by a consensus organization identified by the Secretary. We 
have reviewed NQF-endorsed measures related to medication continuation 
in this patient population and did not identify any equivalent 
measures. We believe this measure is consensus-based because of the 
extensive measure development process, including the solicitation of 
expert and patient opinion and public comments (discussed in more 
detail below).
---------------------------------------------------------------------------

    \487\ http://www.qualityforum.org/QPS/3205.
---------------------------------------------------------------------------

    In addition, this measure addresses several aspects of the CMS 
Quality Strategy goals and objectives. The measure supports the CMS 
Quality Strategy Goal to ``promote effective prevention and treatment 
of chronic disease,'' which includes an objective to improve behavioral 
health access and quality of care by using evidence-based 
practices.\488\ The measure also supports the CMS Quality Strategy Goal 
to

[[Page 38467]]

``promote effective communication and coordination of care.'' \489\ 
Specifically, the measure addresses three objectives within the goal of 
``promoting effective communication and coordination of care:'' (1) 
``to reduce admissions and readmissions'' \490\ as patients with these 
conditions who do not adhere to their medication regimens are at an 
increased risk of relapse and readmission; 491 492 493 (2) 
``to embed best practices to enable successful transitions between all 
settings of care,'' \494\ because ensuring medication continuation 
following discharge is a critical component of transitioning from the 
IPF to the home or home health care; and (3) ``to enable effective 
healthcare system navigation,'' \495\ as we believe that this measure 
will encourage IPFs to provide information to patients regarding the 
importance of medication continuation and guidance on how to fill 
prescriptions following discharge.
---------------------------------------------------------------------------

    \488\ Centers for Medicare & Medicaid Services. CMS Quality 
Strategy 2016. Baltimore, MD: U.S. Department of Health and Human 
Services; 2015. http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/CMS-Quality-Strategy.pdf.
    \489\ Centers for Medicare & Medicaid Services. CMS Quality 
Strategy 2016. Baltimore, MD: U.S. Department of Health and Human 
Services; 2015. http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/CMS-Quality-Strategy.pdf.
    \490\ Centers for Medicare & Medicaid Services. CMS Quality 
Strategy 2016. Baltimore, MD: U.S. Department of Health and Human 
Services; 2015. http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/CMS-Quality-Strategy.pdf.
    \491\ Glue P, Donovan MR, Kolluri S, Emir B. Meta-analysis of 
relapse prevention antidepressant trials in depressive disorders. 
The Australian and New Zealand journal of psychiatry. 
2010;44(8):697-705.
    \492\ Geddes JR, Carney SM, Davies C, et al. Relapse prevention 
with antidepressant drug treatment in depressive disorders: a 
systematic review. Lancet. 2003;361(9358):653-661.
    \493\ Gilmer TP, Dolder CR, Lacro JP, et al. Adherence to 
treatment with antipsychotic medication and health care costs among 
Medicaid beneficiaries with schizophrenia. The American journal of 
psychiatry. 2004;161(4):692-699.
    \494\ Centers for Medicare & Medicaid Services. CMS Quality 
Strategy 2016. Baltimore, MD: U.S. Department of Health and Human 
Services; 2015. http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/CMS-Quality-Strategy.pdf.
    \495\ Centers for Medicare & Medicaid Services. CMS Quality 
Strategy 2016. Baltimore, MD: U.S. Department of Health and Human 
Services; 2015. http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/CMS-Quality-Strategy.pdf.
---------------------------------------------------------------------------

    The measure would complement the portfolio of facility-level 
measures in the IPFQR Program that assess the transition from the 
inpatient to outpatient setting: Follow-Up After Hospitalization for 
Mental Illness; Thirty-day All Cause Unplanned Readmission Following 
Psychiatric Hospitalization in an Inpatient Psychiatric Facility; 
Transition Record with Specified Elements Received by Discharged 
Patients; and Timely Transmission of Transition Record.
    More 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/HospitalQualityInits/Measure-Methodology.html. 
To access the report, click on the zip file titled ``Inpatient 
Psychiatric Facility Medication Continuation Measure.''
c. Measure Calculation
    The measure is calculated by dividing the number of admissions that 
meet the numerator criteria (described below) by the number of 
admissions that meet the denominator criteria (also described below).
(1) Numerator
    The numerator for the measure includes discharges for patients with 
a principal diagnosis of MDD, schizophrenia, or bipolar disorder in the 
denominator who were dispensed at least one evidence-based outpatient 
medication within 2 days prior to discharge through 30 days post-
discharge. The evidence-based medications that define the numerator are 
based on the practice guidelines for each condition from the APA and 
VA/DoD.496 497 498 499 500 Furthermore, we sought to align 
the medications with evidence-based medications from existing quality 
measures including the Antidepressant Medication Management measure 
from the Healthcare Effectiveness Data and Information Set (HEDIS) 2015 
for MDD, the Adherence to Antipsychotic Medications for Individuals 
with Schizophrenia measure (NQF #1879) for schizophrenia, and the 
Adherence to Mood Stabilizers for Individuals with Bipolar I Disorder 
measure (NQF #1880) for bipolar disorder. Staff pharmacists reviewed 
these lists of medications for completeness and appropriateness in the 
IPF setting. The finalized lists of evidence-based medications are 
available in the measure methodology report at: https://www.cms.gov/
medicare/Quality-Initiatives-Patient-Assessment-Instruments/
HospitalQualityInits/Measure-Methodology.html. To access the report, 
click on the zip file titled ``Inpatient Psychiatric Facility 
Medication Continuation Measure.''
---------------------------------------------------------------------------

    \496\ American Psychiatric Association. (2010). Practice 
guideline for the treatment of patients with major depressive 
disorder, 3rd ed. Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/mdd.pdf.
    \497\ American Psychiatric Association. (2002). Practice 
guideline for the treatment of patients with bipolar disorder, 
second edition. Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/bipolar.pdf.
    \498\ American Psychiatric Association. (2010). Practice 
guideline for the treatment of patients with schizophrenia: 2nd ed. 
Retrieved from: http://psychiatryonline.org/pb/assets/raw/sitewide/practice_guidelines/guidelines/schizophrenia.pdf.
    \499\ U.S. Department of Veterans Affairs & U.S. Department of 
Defense. (2016). Management of major depressive disorder (MDD). 
Retrieved from: http://www.healthquality.va.gov/guidelines/MH/mdd/VADoDMDDCPGFINAL82916.pdf.
    \500\ U.S. Department of Veterans Affairs & U.S. Department of 
Defense. (2010) VA/DOD clinical practice guideline for management of 
bipolar disorder in adults. Retrieved from: http://www.healthquality.va.gov/guidelines/MH/bd/bd_305_full.pdf.
---------------------------------------------------------------------------

    We considered the appropriate number of days prior to discharge and 
post-discharge to include in the follow-up period for the numerator. 
Clinical experts noted that discharge planning may start as early as 2 
days prior to discharge and that some facilities may help patients fill 
their outpatient prescriptions prior to discharge. Therefore, the 
numerator includes outpatient medications filled up to 2 days prior to 
discharge (Day -2 through Day -1). The follow-up period extends 30 days 
post-discharge (Day 0 through Day 30) to align with other care 
coordination measures, such as the 30 day follow-up period in Follow-Up 
After Hospitalization for Mental Illness (FUH) (NQF #0576) which we 
finalized for the IPFQR Program in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50893 through 50895). To further support a 30-day follow-up 
period, we confirmed that over 93 percent of the evidence-based 
prescriptions filled prior to the admission were for a 30-day supply, 
which indicates that most patients would need to fill a medication 
within 30 days of discharge to avoid gaps in treatment even if they had 
some medications at home.
(2) Denominator
    The denominator for the measure includes Medicare FFS beneficiaries 
aged 18 years and older who were discharged from an IPF to home or home 
health care \501\ with a principal diagnosis of MDD, schizophrenia, or 
bipolar disorder. The denominator excludes discharges for patients who:
---------------------------------------------------------------------------

    \501\ The measure specifications, as submitted to the MAP, did 
not include home health care. For details of this addition, please 
see the measure methodology report: https://www.cms.gov/medicare/
Quality-Initiatives-Patient-Assessment-Instruments/
HospitalQualityInits/Measure-Methodology.html. To access the report, 
click on the zip file titled ``Inpatient Psychiatric Facility 
Medication Continuation Measure.''
---------------------------------------------------------------------------

     Received Electroconvulsive Therapy (ECT) during the 
inpatient stay or follow-up period because some patients who receive 
ECT during the inpatient stay or follow-up period may

[[Page 38468]]

have failed pharmacotherapy and would not fill an evidence-based 
prescription post-discharge;
     Received Transcranial Magnetic Stimulation (TMS) during 
the inpatient stay or follow-up period because some patients who 
receive TMS during the inpatient stay or follow-up period may have 
failed pharmacotherapy and would not fill an evidence-based 
prescription post-discharge;
     Were pregnant during the inpatient stay because some of 
the evidence-based medications for the treatment of MDD, schizophrenia, 
and bipolar disorder are contraindicated during pregnancy;
     Had a secondary diagnosis of delirium because some of the 
evidence-based medications for the treatment of MDD, schizophrenia, and 
bipolar disorder are contraindicated for patients with delirium; or
     Had a principal diagnosis of schizophrenia and secondary 
diagnosis of dementia because many FDA-approved medications for the 
treatment of schizophrenia have a Boxed Warning due to an increased 
risk of mortality in elderly patients with dementia-related psychosis 
treated with antipsychotic drugs.\502\
---------------------------------------------------------------------------

    \502\ U.S. Food and Drug Administration. Public Health Advisory: 
Deaths with Antipsychotics in Elderly Patients with Behavioral 
Disturbances. 2005. Accessed at: https://www.fda.gov/Drugs/DrugSafety/PostmarketDrugSafetyInformationforPatientsandProviders/ucm053171.htm.
---------------------------------------------------------------------------

    All patients in the measure denominator are enrolled in Medicare 
Parts A, B, and D during the measurement and follow-up periods. 
Therefore, these patients have prescription drug coverage for evidence-
based medications in the measure. While patients are responsible for 
some out-of-pocket medication costs after Part D has been applied, low 
income patients qualify for additional support through both Medicare 
and Medicaid to help mitigate the cost of prescriptions and ensure that 
patients do not face financial barriers to filling necessary 
medications.
    We refer readers to the measure specifications for more details 
about measure inclusions and exclusions at: https://www.cms.gov/
medicare/Quality-Initiatives-Patient-Assessment-Instruments/
HospitalQualityInits/Measure-Methodology.html. To access the report, 
click on the zip file titled ``Inpatient Psychiatric Facility 
Medication Continuation Measure.''
d. Data Sources
    The measure will be implemented using Medicare FFS Parts A, B, and 
D claims and enrollment data to calculate the measure results. Valid 
prescription drug claims from Medicare Parts B and D provide the data 
necessary to calculate this measure. Therefore, no data collection will 
be required from IPFs. The measure will be reported as a combined 
facility-level rate across all three conditions. The measurement period 
is 2 years to maximize the number of facilities with a minimum of 75 
discharges, which is necessary for calculation of reliable facility-
level scores.\503\ We will inform stakeholders of the claims data 
collection period through a subregulatory process, such as on a CMS Web 
site and/or on our applicable listservs.
---------------------------------------------------------------------------

    \503\ Health Services Advisory Group. Final Methodology Report: 
Medication Continuation Following Inpatient Discharge. Tampa, FL; 
2016.
---------------------------------------------------------------------------

e. Public Comment
    During the measure development process, we solicited public 
comments on the measure via the CMS Quality Measures Public Comment 
Page.\504\ We provided the draft measure information form \505\ and 
draft measure justification form \506\ to the public for review. We 
accepted public comments from August 25, 2016 through September 15, 
2016. Numerous commenters expressed support for the Medication 
Continuation Following Inpatient Psychiatric Discharge (NQF #3205) 
measure (with only 6 of 53 commenters expressing reluctance to support 
the measure) and commented on the importance of measuring medication 
continuation as this is an important component of care transitions and 
reduces the risk of readmissions. We received public comments about 
denominator specifications, numerator specifications, data collection, 
attribution of the measure to the IPF, and the relevance of the 
proposed measure. After review and evaluation of all the public 
comments received, we expanded the follow-up period from day of 
discharge (Day 0) through 30 days post discharge to include outpatient 
prescriptions filled up to 2 days prior to discharge as described 
above. For specific information regarding the comments we received, we 
refer readers to the public comment summary at: https://www.cms.gov/
medicare/Quality-Initiatives-Patient-Assessment-Instruments/
HospitalQualityInits/Measure-Methodology.html. To access the report, 
click on the zip file titled ``Inpatient Psychiatric Facility 
Medication Continuation Measure.''
---------------------------------------------------------------------------

    \504\ CMS Quality Measure Public Comment Page: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/MMS/CallforPublicComment.html#44 In the ``Downloads'' 
section of this page, please select ``Recently Archived Call for 
Public Comments Files.'' The information regarding the Medication 
Continuation following Inpatient Psychiatric Discharge information 
is available in the ``Inpatient-Psychiatric-Facility-IPF-Outcome-
and-Process-Measure-Development-and-Maintenance'' zip file.
    \505\ Ibid.
    \506\ Ibid.
---------------------------------------------------------------------------

    We believe this measure evaluates a process with a demonstrated 
quality gap and has the potential to benefit patients. For these 
reasons and the reasons stated above, we proposed the Medication 
Continuation Following Inpatient Psychiatric Discharge (NQF #3205) 
measure described in this section for the FY 2020 payment determination 
and subsequent years.
    In summary, we proposed one measure for the FY 2020 payment 
determination and subsequent years, as shown in the table below.

         Newly Proposed IPFQR Program Measure for the FY 2020 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
    National quality strategy priority           NQF #        Measure ID                   Measure
----------------------------------------------------------------------------------------------------------------
Communication/Care Coordination...........            3205             N/A  Medication Continuation Following
                                                                             Inpatient Psychiatric Discharge.
----------------------------------------------------------------------------------------------------------------

    We welcomed public comment on our proposal to adopt the Medication 
Continuation Following Inpatient Psychiatric Discharge (NQF #3205) 
measure.
    Comment: Several commenters supported adoption of the Medication 
Continuation Following Inpatient Psychiatric Discharge (NQF #3205) 
measure. Other commenters expressed appreciation for CMS developing 
claims-based measures to limit the burden on IPFs.
    Response: We thank these commenters for their input and appreciate 
this support.

[[Page 38469]]

    Comment: Many commenters expressed concerns that the Medication 
Continuation Following Inpatient Psychiatric Discharge (NQF #3205) 
measure will pose undue burden on facilities, which are still updating 
processes to account for previously adopted measures. Several 
commenters expressed the concern that IPFs have limited control of 
medication continuation once their patients are discharged. These 
commenters observed that patients may experience social or geographical 
barriers to filling medication prescriptions that are beyond the 
control of IPFs.
    Response: We recognize that there are factors external to the IPF 
that influence filling prescriptions post-discharge in the psychiatric 
population. While it may not be possible to achieve complete post-
discharge compliance with pharmacotherapy, there is evidence that 
improvements to the quality of care for patients in the IPF setting, 
including the discharge processes, can help to increase medication 
continuation rates. We discussed this evidence in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 20123). However, depending on a facility's 
current state of performance and the implicit requirements of this 
measure, process changes (such as updates to clinical procedures or 
adoption of new workflows) to achieve higher performance may be 
significant and sometimes require a considerable period after initial 
implementation to realize measurable improvement. This may particularly 
be true for a measure such as the Medication Continuation Following 
Inpatient Psychiatric Discharge (NQF #3205) measure, which assesses the 
degree to which facilities address a critical element of successful 
care transition following discharge, a component of quality care that 
some facilities have not traditionally attended to. We agree with 
commenters that updating processes to achieve high performance, which 
likely requires multiple and innovative efforts related to patient 
communication, and coordination and communication with outpatient 
providers, creates burden on IPFs. While we believe this is an 
important measure because of the clinical benefits of appropriate 
pharmacotherapy post discharge and the current performance gap on the 
measure, we would like to be sensitive to facilities, especially small, 
rural facilities, that may not have sufficient resources to meet the 
burden this measure could bring.
    To accommodate the need for facilities to develop and implement 
innovative efforts for this measure, we are not adopting it at this 
time. However, we will consider re-proposing this measure in future 
rulemaking.
    Comment: Many commenters expressed concerns that the NQF has not 
completed the endorsement review of the measure.
    Response: This measure was submitted to NQF for endorsement on 
December 16, 2016, and the measure received endorsement from the NQF 
Consensus Standards Approval Committee (CSAC) following the June 21 
CSAC meeting, pending a 30 day appeals process that closes on August 2, 
2017.
    Comment: Many commenters expressed concerns that limitation of the 
measure to patients enrolled in Medicare Parts A, B, and D may result 
in an impacted population that is both too small to be meaningful for 
public reporting and one that does not experience the same access to 
medications barriers as other inpatient psychiatric patients.
    Response: We thank the commenters for expressing their concerns, 
but we disagree with the commenters that limiting the measure to 
patients with Medicare Parts A, B, and D for use in the IFPQR program 
limits the utility of the measure. While we agree that the patients 
included in the measure may not experience the same barriers to access 
to medications that some other patients encounter because low income 
Medicare patients qualify for additional support to help pay for 
medications, we note that the evidence based interventions to improve 
medication adherence would apply to all patients. Further, considering 
that the Medicare population may have lower barriers to access, we 
would expect to see higher medication continuation rates and less 
variation in performance across facilities. As described in the measure 
technical report,\507\ the claims data from 1,694 IPFs demonstrated 
ample opportunity for improvement. The mean medication continuation 
rate was 79 percent across all facilities, with variation of 22 percent 
between the 10th and 90th percentile.
---------------------------------------------------------------------------

    \507\ Health Services Advisory Group. Final Methodology Report: 
Medication Continuation Following Inpatient Discharge. Tampa, FL; 
2016.
---------------------------------------------------------------------------

    Comment: Many commenters expressed concerns that IPFs may not 
receive feedback with sufficient time to improve processes prior to 
public reporting of the data since they will not be able to 
independently calculate measure results (as they do not have access to 
Part D claims).
    Response: We thank the commenters for providing these comments, and 
we will consider their views if we decide to propose this measure in 
the future.
    Comment: Some commenters believed that the link between measure 
performance and patient outcomes has not been adequately demonstrated. 
Commenters further expressed the belief that the measure may not 
generate information that is meaningful to consumers in making 
healthcare choices.
    Response: We thank the commenters for their comments, but disagree 
with them. We believe that information on medication continuation is 
important for patients discharged from the inpatient psychiatric 
setting with MDD, schizophrenia, or bipolar disorder because of 
significant negative outcomes associated with patients not adhering to 
recommended medication. We note that the MAP Hospital Workgroup 
concluded that the measure addressed a critical quality objective, was 
evidence-based, and would contribute to efficient use of resources. 
Further, performance on this measure in testing showed that improved 
performance on this measure was associated with reduced unplanned 
readmissions, indicating that performance on this measure is linked 
with patient outcomes.
    Comment: Many commenters expressed the concern that filling a 
prescription does not always indicate compliance to treatment. They 
suggested that patient compliance, not claims for prescriptions, should 
be the target of quality measurement.
    Response: We acknowledge that increasing patient compliance is the 
ultimate goal of quality improvement informed by the measure but 
disagree with the comment that a medication continuation measure 
assessed from prescription claims does not indicate gaps in compliance. 
The filling of a prescription is a critical step in improving 
compliance. We observed ample opportunity for improvement based on a 
mean medication continuation rate of 79 percent across 1,694 IPFs, with 
variation of 22 percent between the 10th and 90th percentile. 
Therefore, we know that at a minimum, approximately 20 percent of 
patients are not compliant because they are not in possession of their 
outpatient psychiatric medications following discharge. Measuring 
actual compliance would be burdensome for both facilities and patients 
and therefore is not feasible to measure.
    Comment: Some commenters expressed the belief that technical 
questions regarding denominator inclusion and exclusion criteria and 
measure calculation methods have not been sufficiently answered. 
Commenters

[[Page 38470]]

were specifically concerned regarding how prescriptions filled for 
patients without Part D would be identified, how free samples provided 
at or before discharge would be identified, and whether facilities 
without inpatient pharmacies would be at a disadvantage for this 
measure.
    Response: Patients who do not have Medicare Part D coverage are 
excluded from the denominator of this measure. We anticipate that few 
patients in the population for this measure would be eligible for 
samples because low income Medicare patients qualify for additional 
support to help pay for medication copays. Finally, this measure does 
not include medications filled at inpatient pharmacies in the measure 
numerator. This measure gives facilities the flexibility to determine 
which interventions are most appropriate for their patient populations, 
including filling prescriptions for patients prior to discharge through 
outpatient pharmacies. However, the measure does not encourage any 
particular intervention over another because interventions to improve 
medication continuation should be tailored to meet each patient's needs 
and circumstances.
    After consideration of the public comments we received, we are not 
finalizing adoption of the Medication Continuation Following Inpatient 
Psychiatric Discharge (NQF #3205) measure for the reasons discussed 
above. If we decide to propose this measure in the future, we will 
consider information and recommendations provided by commenters at that 
time.
4. Summary of Previously Finalized Measures for the FY 2020 Payment 
Determination and Subsequent Years
    The number of measures for the FY 2020 payment determination and 
subsequent years totals 18 as set forth in the table below.

 Previously Finalized Measures for the FY 2020 Payment Determination and
                            Subsequent Years
------------------------------------------------------------------------
             NQF #                  Measure ID            Measure
------------------------------------------------------------------------
640...........................  HBIPS-2..........  Hours of Physical
                                                    Restraint Use.
641...........................  HBIPS-3..........  Hours of Seclusion
                                                    Use.
560...........................  HBIPS-5..........  Patients Discharged
                                                    on Multiple
                                                    Antipsychotic
                                                    Medications with
                                                    Appropriate
                                                    Justification.
576...........................  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 SUB-2a Alcohol
                                                    Use Brief
                                                    Intervention.
1664..........................  SUB-3 and SUB-3a.  Alcohol and Other
                                                    Drug Use Disorder
                                                    Treatment Provided
                                                    or Offered at
                                                    Discharge and SUB-3a
                                                    Alcohol and Other
                                                    Drug Use Disorder
                                                    Treatment at
                                                    Discharge.
1651..........................  TOB-1............  Tobacco Use
                                                    Screening.
1654..........................  TOB-2 and TOB-2a.  Tobacco Use Treatment
                                                    Provided or Offered
                                                    and TOB-2a Tobacco
                                                    Use Treatment.
1656..........................  TOB-3 and TOB-3a.  Tobacco Use Treatment
                                                    Provided or Offered
                                                    at Discharge and Tob-
                                                    3a Tobacco Use
                                                    Treatment at
                                                    Discharge.
1659..........................  IMM-2............  Influenza
                                                    Immunization.
647...........................  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).
648...........................  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.
431...........................  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.
2860 *........................  N/A..............  Thirty-Day All-Cause
                                                    Unplanned
                                                    Readmission
                                                    Following
                                                    Psychiatric
                                                    Hospitalization in
                                                    an Inpatient
                                                    Psychiatric
                                                    Facility.
------------------------------------------------------------------------
* Since this measure was finalized in the FY 2017 IPPS/LTCH PPS final
  rule (57239 through 57246), NQF endorsement has been received.

5. Possible IPFQR Program Measures and Topics for Future Consideration
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20126 through 
20127), we discussed possible IPFQR Program measures and topics for 
future consideration. As we have previously indicated (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 development or 
adoption that will help further our goals of achieving better 
healthcare and improved health for individuals who obtain inpatient 
psychiatric services through the widespread dissemination and use of 
quality information. As noted on the ``List of Measures under 
Consideration for December 1, 2016'' \508\ published by the NQF on 
behalf of CMS, we are considering a measure of Medication 
Reconciliation on Admission and a measure of Identification of Opioid 
Use Disorder among Patients Admitted to Inpatient Psychiatric 
Facilities. We welcomed comments on these measure concepts for future 
inclusion in the IPFQR Program. In addition, we have identified several 
areas which we believe are important to stakeholders, but which are not 
currently sufficiently covered by IPFQR Program measures. These areas 
are:
---------------------------------------------------------------------------

    \508\ https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityMeasures/Downloads/Measures-under-Consideration-List-for-2016.pdf.
---------------------------------------------------------------------------

     Family and caregiver engagement;
     Patient experience of care;
     Opioid use and treatment;
     Access to care; and
     Inpatient assaults and violence.
    We welcomed public comments on possible new measures in these or 
other areas.
    Comment: Many commenters expressed support for measures in the 
areas of: (1) Family and caregiver engagement; (2) patient experience 
of care; (3) access to care; and (4) inpatient assaults and violence. 
These commenters further encouraged CMS to consider clinical outcomes 
measures. Finally, the commenters urged CMS to engage with stakeholders 
during

[[Page 38471]]

measure development and implementation.
    Response: We thank these commenters for their support of these 
measure topic areas and will continue to engage with stakeholders in 
measure development and implementation.
    Comment: Many commenters urged CMS to develop and implement a 
patient experience of care survey and measure specific to the inpatient 
psychiatric setting. One commenter further recommended that this survey 
include questions regarding the patient's understanding of diagnoses, 
treatment plans, and follow-up care.
    Response: We believe that patient experience of care is an 
important measure gap in the IPFQR Program and are actively evaluating 
ways to address this topic. We will take commenters' suggestions into 
consideration as we develop future program policy.
    Comment: Several commenters urged CMS to develop and implement 
measures that address suicide. Some of these commenters specifically 
recommended a measure to address hospital processes to help patients 
manage suicidal ideation in the hospital and post discharge.
    Response: We will consider this input as we develop and select 
measures for the IPFQR Program.
    Comment: Many commenters recommended that CMS develop and implement 
claims-based measures that evaluate clinical outcomes.
    Response: We believe that clinical outcomes measures are an 
important part of quality reporting, and that claims-based measures are 
effective for reducing reporting burden on facilities. We will take 
commenters' suggestions into consideration as we develop and select 
measures for the IPFQR Program.
    Comment: One commenter recommended that CMS adopt measures related 
to opioid treatment to determine if there are access issues associated 
with this treatment.
    Response: We believe that the current opioid epidemic is a 
significant public health issue, and we are striving to address it in 
the IPFQR Program to the extent possible, including adoption of the 
SUB-3 & 3a Measure (Alcohol and Other Drug Use Disorder Treatment 
Provided or Offered at Discharge and SUB-3a Alcohol and Other Drug Use 
Disorder Treatment at Discharge) in the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 57239 through 57241) and inclusion of Identification of 
Opioid Use Disorder among Patients Admitted to Inpatient Psychiatric 
Facilities on the List of Measures Under Consideration for December 1, 
2016. We will continue to consider ways to address this issue as we 
develop and select measures for the IPFQR Program.
    Comment: Many commenters recommended that CMS identify a method for 
data validation as part of the measure development and adoption 
process.
    Response: We will consider this input as we develop and select 
measures for the IPFQR Program. We are currently seeking to identify a 
means to implement data validation in the IPFQR Program.
    We thank the commenters and we will consider their views as we 
develop further measures for use in the IPFQR Program.
6. Public Display and Review Requirements
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53653 through 53654), in which we finalized that we would publicly 
display the submitted data on the CMS Web site beginning in the first 
quarter of the calendar year following the respective payment 
determination year. We also finalized that IPFs would have the 
opportunity to preview their data between September 20 and October 19 
of the respective payment determination year. In the FY 2014 IPPS/LTCH 
PPS final rule (78 FR 50897 through 50898), we finalized policies on 
public display and review of data stating that we would publicly 
display the data in April of the calendar year following the start of 
the payment determination year and that the preview period would be 30 
days approximately twelve weeks prior to the public display of the 
data. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57248 through 
57249), we finalized changes to how we specify the timeframes for the 
IPFQR Program, including that we would: (1) No longer specify the exact 
dates of the preview period or data publication in rulemaking; (2) make 
the data for the IPFQR Program available as soon as possible; (3) 
announce the exact timeframes through subregulatory guidance; and (4) 
continue our policy that the time period for review will be 
approximately 30 days. In the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 20127), we did not propose any changes to the public display and 
review policies.
7. Form, Manner, and Timing of Quality Data Submission for the FY 2019 
Payment Determination and Subsequent Years
a. Procedural Requirements for FY 2019 Payment Determination and 
Subsequent Years
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53654 through 77 FR 
53655), we finalized procedural requirements for the IPFQR Program, 
including the requirements that facilities must do the following to 
participate in the IPFQR Program:
     Register with QualityNet before the IPF begins reporting;
     Identify a QualityNet Administrator who follows the 
registration process listed on the QualityNet Web site;
     Complete a Notice of Participation (NOP) within a 
specified time period; and,
     Submit aggregate numerator and denominator data for all 
age groups, for all measures.
    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50901), we clarified 
that the policy we adopted for the FY 2016 payment determination also 
applies to the FY 2017 payment determination and subsequent years, 
unless we change it through future rulemaking. In the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 20127), we proposed to make changes related to 
the Notice of Participation (NOP) and withdrawals for the FY 2019 
payment determination and subsequent years.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53654 through 
53655), we finalized our policies that IPFs participating in the IPFQR 
Program must comply with several procedural requirements. In that rule, 
one of the policies we finalized was that the time frame for completing 
an online NOP form is between January 1 and August 15 before each 
respective payment determination year (for example, for the FY 2017 
payment determination year, IPFs would be required to submit an NOP 
between January 1, 2016 and August 15, 2016). Similarly, in the FY 2013 
IPPS/LTCH PPS final rule (77 FR 53654), we also finalized that 
withdrawals from the IPFQR Program will be accepted no later than 
August 15 before the beginning of each respective payment determination 
year.
    As described in section IX.D.7.b. of the preamble of this final 
rule, there have been times that we have updated the data submission 
period through subregulatory means; this has led to a data submission 
period that is not aligned with the submission period for the NOP or 
program withdrawal. To ensure these dates align, in the

[[Page 38472]]

proposed rule, we proposed to change the submission timeframes for both 
NOPs and withdrawals from between January 1 and August 15 before each 
respective payment determination year to prior to the end of the data 
submission period before each respective payment determination year. 
This means that we proposed to accept NOPs and withdrawals any time 
prior to the end of the data submission period before the payment 
determination year. For example, for the FY 2019 payment determination 
year, the end of the data submission period would be a date on or after 
June 15, 2018 (which we would announce via subregulatory means). This 
date will coincide with the deadline to submit an NOP or withdraw from 
the program. In addition, we proposed to provide precise dates that 
define the end of the data submission period/NOP/withdrawal submission 
deadline through subregulatory means, such as on a CMS Web site and/or 
on our applicable listservs, beginning with the FY 2019 payment 
determination.
    We invited public comment on our proposals to: (1) Change the 
submission timeframes for both NOPs and withdrawals to the end of the 
data submission period before each respective payment determination 
year; and (2) provide precise dates that define the end of the data 
submission period/NOP/withdrawal submission deadline through 
subregulatory means for the FY 2019 payment determination and 
subsequent years.
    Comment: Several commenters supported CMS' proposal to align the 
submission period for NOPs and withdrawals with the end of the data 
submission period, which will be provided through subregulatory means.
    Response: We thank the commenters for this support.
    After consideration of the public comments we received, we are 
finalizing our proposals to: (1) Change the submission timeframes for 
both NOPs and withdrawals to the end of the data submission period 
before each respective payment determination year; and (2) provide 
precise dates that define the end of the data submission period/NOP/
withdrawal submission deadline through subregulatory means for the FY 
2019 payment determination and subsequent years as proposed.
b. Data Submission Requirements for the FY 2019 Payment Determination 
and Subsequent Years
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53655 through 53656) and the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50901) for our previously finalized policies regarding quality data 
submission requirements. In the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 20127 through 20128), we proposed to make changes related to the 
data submission period for the FY 2019 payment determination and 
subsequent years.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53655 through 53657) 
we finalized our policies related to reporting periods and submission 
timelines for data required by the IPFQR Program. IPFs are required to 
submit their aggregated data on the measures on an annual basis, 
beginning in FY 2014 (77 FR 53655). In that rule, we specified that 
data must be submitted between July 1 and August 15 of the calendar 
year preceding a given payment determination year (for example, between 
July 1, 2015 and August 15, 2015 for the FY 2016 payment determination 
(77 FR 53655 through 53657)). In the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50899), we clarified that this policy applies to all future 
years of data submission for the IPFQR Program unless we change the 
policy through future rulemaking.
    Because there have been times that the submission period has been 
updated through the subregulatory process (for example, due to systems 
issues impacting data collection in the specified timeframe), in order 
to avoid contradictory guidance between dates established in the 
Federal Register and dates established through subregulatory guidance, 
in the proposed rule, we proposed to no longer specify the exact dates 
of the submission period through rulemaking. We proposed to provide 
these exact dates through a subregulatory process instead, beginning 
with the FY 2019 payment determination. We proposed to shift to a 45-
day submission period beginning at least 30 calendar days following the 
end of the data collection period. For example, for the FY 2019 payment 
determination, the latest reporting period for a measure for which IPFs 
must submit data through the QualityNet Secure Portal ends on March 31, 
2018 for the IMM-2 measure. In this example, the submission period 
would begin at least 30 days after March 31, 2018 (that is, no earlier 
than May 1, 2018). IPFs then would have 45 days from May 1 to submit 
their data, which would result in a June 15, 2018 submission deadline 
for this example. Because the exact dates could vary from year to year, 
for the FY 2019 payment determination and subsequent years, we also 
proposed to provide notification of the exact dates of the 45-day 
submission period through subregulatory means, such as on a CMS Web 
site and/or on our applicable listservs.
    We welcomed public comments on our proposals to: (1) Change the 
specification of the submission deadline from exact dates (that is, 
July 1-August 15) to a 45-day submission period beginning at least 30 
days following the end of the data collection period; and (2) provide 
notification of the exact dates of the 45-day submission period through 
subregulatory means for the FY 2019 payment determination and 
subsequent years.
    Comment: Several commenters supported CMS' proposal to change the 
specification of the submission deadline and provide notification of 
the exact dates through subregulatory means.
    Response: We thank these commenters for this support.
    Comment: One commenter asked for clarification whether this 
proposal pertains only to data submitted via the QualityNet Secure 
Portal, as opposed to through the NHSN Web site.
    Response: This proposal only applies to data submitted via the 
QualityNet Secure Portal.
    Comment: Many commenters expressed concerns that the data 
submission period, as proposed, may not allow adequate time to abstract 
and audit the data prior to submission. These commenters were also 
concerned that IPFs may have insufficient warning regarding the data 
submission timeframe for appropriate resource planning.
    Response: We recognize that IPFs must plan for appropriate 
resources for data collection and submission. We will strive to give as 
much notice as possible. It is our intent to continue the July 1 to 
August 15 data reporting period. However, because there are instances 
where adherence to these dates would not be possible, we wish to 
provide more flexibility and communicate the dates of reporting periods 
(or confirmation of the July 1 through August 15 timeframe) through 
subregulatory means. We expect that in most, if not all, cases, changes 
in the July 1 to August 15 reporting period will be to delay and/or 
extend the reporting period, rather than to move it forward.
    After consideration of the public comments we received, we are 
finalizing our proposals as proposed to: (1) change the specification 
of the submission deadline from exact dates (that is, July 1-August 15) 
to a 45-day submission period beginning at least 30 days following the 
end of the data collection period; and (2) provide notification of the 
exact dates of the 45-day submission period through subregulatory means 
for the FY 2019

[[Page 38473]]

payment determination and subsequent years
c. Reporting Requirements for the FY 2019 Payment Determination and 
Subsequent Years
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53655 through 53657), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50901 
through 50902), and the FY 2016 IPF PPS final rule (80 FR 46715 and 
46716), for information about data reporting periods. In the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20128) we did not propose any 
changes to these policies.
d. Population and Sampling
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53657 through 53658), the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50902), FY 2015 IPF PPS final rule (79 FR 45973), the FY 2016 IPF PPS 
final rule (80 FR 46717 through 46719), for information about 
population, sampling, and minimum case thresholds. In the FY 2018 IPPS/
LTCH PPS proposed rule (82 FR 20128), we did not propose any changes to 
the population and sampling methodology or to the minimum case 
thresholds.
e. Data Accuracy and Completeness Acknowledgement (DACA) Requirements
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20128), we did 
not propose any changes to the DACA requirements and refer readers to 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658) for more information 
on these requirements.
8. Reconsideration and Appeals Procedures
    We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53658 through 53660), FY 2014 IPPS/LTCH PPS final rule (78 FR 50953), 
and 42 CFR 412.434 for details on our reconsideration and appeals 
procedures. In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20128), 
we did not propose any changes to these policies.
9. Extraordinary Circumstances Exceptions (ECE) Policy for the IPFQR 
Program
a. Background
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53659 through 
53660), we finalized policies for facilities to request waivers, now 
called ``exceptions'' (79 FR 45978), from quality reporting 
requirements for the FY 2014 payment determination and subsequent 
years. We stated that in the event of extraordinary circumstances not 
within the control of IPFs, such as a natural disaster, IPFs may 
request a reporting extension or a complete waiver of the requirement 
to submit quality data for one or more quarters for the FY 2014 payment 
determination and subsequent years. In that rule, we also finalized 
that facilities would be required to submit a request form with the 
following information:
     The IPF's CMS Certification Number (CCN);
     The IPF's name;
     Contact information for the IPF's Chief Executive Officer 
(CEO) and any other designated personnel, including name, email 
address, telephone number, and mailing address (the address must be a 
physical address, not a post office box);
     The IPF's reason for requesting an extension or waiver;
     Evidence of the impact of extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
     A date when the IPF will again be able to submit IPFQR 
Program data, and a justification for the proposed date.
    In addition, we finalized that the form must be signed by the IPF's 
CEO and submitted within 30 days of the date that the extraordinary 
circumstance occurred. We also finalized that following the receipt of 
the request form, we would: (1) Provide a written acknowledgement, 
using the contact information provided in the request, to the CEO and 
any additional designated IPF personnel, notifying them that the IPF's 
request has been received; and (2) provide a formal response to the CEO 
and any designated IPF personnel, using the contact information 
provided in the request, notifying the IPF of our decision. 
Furthermore, in that rule, we discussed that the above policy does not 
preclude us from granting waivers or extensions to IPFs that have not 
requested them when we determine that an extraordinary circumstance has 
affected an entire region or locale. We stated that if we make the 
determination to grant such a waiver or extension, we would communicate 
this decision through routine communication channels (77 FR 53659). In 
the FY 2014 IPPS/LTCH PPS final rule, we did not make any changes to 
this policy (78 FR 50903).
    In the FY 2015 IPF PPS final rule (79 FR 45978), we clarified that 
the term ``exception'' is synonymous with the term ``waiver'' used in 
previous rules and renamed our policy to ``Extraordinary Circumstances 
Exception'' in order to align with similar exceptions in other CMS 
quality reporting programs. In that rule, we also finalized that that 
we may grant a waiver or extension to IPFs if we determine that a 
systemic problem with one of our data collection systems directly 
affects the ability of the IPFs to submit data. We stated that because 
we do not anticipate that these types of systemic errors will occur 
often, we do not anticipate granting a waiver or extension on this 
basis frequently (79 FR 45978). We noted that if we make the 
determination to grant a waiver or extension, we would communicate this 
decision through routine communication channels to IPFs, vendors, and 
quality improvement organizations (QIOs) by means of, for example, 
memoranda, emails, and notices on the QualityNet Web site (79 FR 
45978).
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20128 through 
20130), we proposed to modify aspects of our current ECE policy to 
align with those of other CMS quality reporting programs. Many of our 
quality reporting and value-based purchasing programs share common 
processes for requesting an exception from program reporting due to an 
extraordinary circumstance not within a provider's control. We refer 
readers to the Hospital IQR Program (76 FR 51651 through 51652, 78 FR 
50836 through 50837, 79 FR 50277, 81 FR 57181 through 57182, and 42 CFR 
412.140(c)(2)), Hospital OQR Program (77 FR 68489, 78 FR 75119 through 
75120, 79 FR 66966, and 80 FR 70524), and ASCQR Program (77 FR 53642 
through 53643 and 78 FR 75140 through 75141) as well as the HAC 
Reduction Program (80 FR 49579 through 49581), Hospital Readmissions 
Reduction Program (80 FR 49542 through 49543), and PCHQR Program (78 FR 
50848) for program specific information about extraordinary 
circumstances exceptions requests. In reviewing the policies for these 
programs, however, we found five areas in which these programs have 
variance: (1) Contact Information and Signature on ECE Form--there is 
inconsistency regarding whether the program requires contact 
information and a signature on the ECE form from the facility's or 
hospital's CEO versus CEO or designated personnel; (2) Submission 
deadline--there is inconsistency in requiring the form be submitted 
within 90 days following the date that the extraordinary circumstance 
occurred versus within 30 days following the date the extraordinary 
circumstance occurred; (3) CMS' response following an ECE request--
there is inconsistency regarding specification of a timeline for us to 
provide our formal response notifying the facility or hospital of our 
decision; (4) CMS system issues--there is

[[Page 38474]]

inconsistency regarding whether programs make explicit the ability to 
grant ECEs specific for systemic issues with CMS data collection 
systems that directly affect the ability of hospitals/facilities to 
submit data; and (5) Policy name--there is inconsistency in the names 
used to refer to the policy, with some programs using ``extraordinary 
circumstances extensions/exemptions'' and some using ``extraordinary 
circumstances exceptions.''
    We believe aligning these five areas across the programs will 
improve administrative efficiencies for affected facilities or 
hospitals. We note that, in the FY 2018 IPPS/LTCH PPS proposed rule, we 
also proposed to update ECE policies in the Hospital Readmissions 
Reduction Program (in section V.I.12. of the preamble of the proposed 
rule); the HAC Reduction Program (in section V.K.8. of the preamble of 
the proposed rule), Hospital IQR Program (in section IX.A.15. of the 
preamble of the proposed rule), and the PCHQR Program (in section 
IX.B.10. of the preamble of the proposed rule) in order to align 
policies. We refer readers to these sections for more details.
b. ECE Policy Modifications
    The IPFQR Program currently includes policies to: (1) Make explicit 
the ability to grant ECEs specific for systemic issues with CMS data 
collection systems that directly affect the ability of hospitals/
facilities to submit data; and (2) refer to the ECE policy as 
``extraordinary circumstances exceptions.'' Therefore did not make 
proposals related to these two items. However, to improve cross-program 
alignment, in the proposed rule, we proposed to update the IPFQR 
Program's ECE policy by: (1) Allowing designated personnel to sign the 
ECE request form that IPFs currently submit with contact information 
for the CEO and designated personnel and the signature from the CEO; 
(2) extending the deadline from 30 days following the date that the 
extraordinary circumstance occurred to 90 days following the date the 
extraordinary circumstance occurred; and (3) specifying that we will 
strive to provide our formal response to an ECE request notifying the 
IPF of our decision within 90 days of receipt of the IPF's request. We 
proposed that these policies would apply beginning with extraordinary 
circumstances that occur on or after the effective date of the 2018 
IPPS/LTCH PPS final rule, anticipated to be October 1, 2017. These 
proposals are discussed in more detail below.
(1) Signature of Either Designated Personnel or CEO
    As discussed above, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53659 through 53660) we finalized ECE requests for the IPFQR Program 
must submitted with contact information for the CEO and any designated 
personnel, and be signed by the IPF's CEO. However, we now believe that 
there may be circumstances in which it is not feasible for an IPF's CEO 
to sign the ECE request form, such as in cases where the CEO has become 
disabled or is deceased. Also, in the event that the CEO of a facility 
affected by an extraordinary circumstance, such as a natural disaster, 
is unavailable to sign the ECE request form, we believe that the 
affected facility should be able to submit ECE form despite the CEO's 
inability to sign. Therefore, we proposed that ECE forms may be signed 
by either the CEO or the designated personnel as listed on the ECE 
form.
(2) ECE Request Submission Deadline
    As discussed above, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53659 through 53660) we finalized that ECE requests for the IPFQR 
Program must be submitted within 30 days of the date that the 
extraordinary circumstance occurred. However, we believe that it may be 
difficult for some IPFs to timely evaluate the impact of a certain 
extraordinary circumstance within 30 calendar days. Therefore, we 
proposed to change the ECE request form submission deadline from within 
30 days of the date that the extraordinary circumstance occurred to 
within 90 days of the date that the extraordinary circumstance 
occurred.
    We believe that extending the deadline to 90 calendar days would 
allow IPFs more time to determine whether it is necessary and 
appropriate to submit an ECE request and to provide a more 
comprehensive account of the extraordinary circumstance in their ECE 
request form to CMS. As an example, if an IPF suffers damage due to a 
hurricane on October 1, 2017, it would have until December 30, 2017, 90 
calendar days after the hurricane, to submit an ECE form via the 
QualityNet Secure Portal, mail, email, or secure fax as instructed on 
the ECE form.
(3) Clarification of CMS Response Timeframe
    As stated above, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 
53659 through 53660), we finalized that following the receipt of the 
request form, we would provide: (1) A written acknowledgement, using 
the contact information provided in the request, to the CEO and any 
additional designated IPF personnel, notifying them that the IPF's ECE 
request has been received; and (2) a formal response to the CEO and any 
designated IPF personnel, using the contact information provided in the 
request, notifying the IPF of our decision. We believe that it is 
important for IPFs to receive timely feedback in a predictable time 
frame regarding the status of ECE requests. We strive to complete our 
review of each ECE request as quickly as possible. However, the number 
of requests we receive and the complexity of the information provided 
affect the timeframe that we need to make ECE determinations. 
Therefore, in an effort to provide facilities with a predictable 
timeframe, we are clarifying that we will strive to complete our review 
of ECE requests within 90 days of receipt, depending on the number of 
requests and the complexity of the information provided by facilities.
    We welcomed public comments on our proposals to: (1) Specify that 
ECE forms can be signed by either the CEO or the designated personnel 
as listed on the ECE form; and (2) change the ECE request form 
submission deadline to within 90 days of the date that the 
extraordinary circumstance occurred. We also invited public comments on 
our intent to clarify that we will strive to complete our review of ECE 
requests within 90 days of receipt.
    Comment: Several commenters supported CMS' proposals to update the 
ECE policies to align with other programs.
    Response: We thank these commenters for their support.
    After consideration of the public comments we received, we are 
finalizing our proposals as proposed to: (1) Specify that ECE forms can 
be signed by either the CEO or the designated personnel as listed on 
the ECE form; and (2) change the ECE request form submission deadline 
to within 90 days of the date that the extraordinary circumstance 
occurred.

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

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). Incentive 
payments under

[[Page 38475]]

Medicare were available to eligible hospitals and CAHs for certain 
payment years (as authorized under sections 1886(n) and 1814(l) of the 
Act, respectively) if they successfully demonstrated meaningful use of 
CEHRT, which includes reporting on clinical quality measures (CQMs or 
eCQMs) using CEHRT.
    Sections 1886(b)(3)(B)(ix) and 1814(l)(4) of the Act also establish 
downward payment adjustments under Medicare, beginning with FY 2015, 
for eligible hospitals and CAHs that do not successfully demonstrate 
meaningful use 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 1814(l)(3)(A), 1886(n)(3)(A), and 
1903(t)(6)(C)(i)(II) 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 and Medicaid EHR Incentive Programs.
2. Modifications to the CQM Reporting Requirements for the Medicare and 
Medicaid EHR Incentive Programs for CY 2017
a. Background
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57255), we stated 
the CQM reporting periods in CY 2017 for the Medicare and Medicaid EHR 
Incentive Programs as outlined below. For the Medicare EHR Incentive 
Program, we finalized the following submission periods for eligible 
hospitals and CAHs reporting CQMs by attestation and eligible hospitals 
and CAHs electronically reporting CQMs (81 FR 57255). In regard to the 
Medicaid EHR Incentive Program, we provided States with the flexibility 
to determine the submission periods for reporting CQMs.
     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 begins in late spring 2017 and continues 
through the 2 months following the close of the calendar year, ending 
February 28, 2018.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57251 through 
57255), we finalized the following reporting criteria regarding the 
number of CQMs eligible hospitals and CAHs are required to report for 
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, or participating in both the EHR Incentive Program 
and the Hospital IQR Program (81 FR 57150 through 57159), report on 8 
of the available CQMs.
    For further information on the policies applicable for CQM 
reporting for the EHR Incentive Program in 2017, we refer readers to 
the discussion in the FY 2017 IPPS/LTCH PPS final rule at 81 FR 57249 
through 57257.
    Since the publication of the FY 2017 IPPS/LTCH PPS final rule, we 
have continued to receive frequent feedback from hospitals and health 
IT vendors about the ongoing challenges of implementing CQM reporting 
capabilities. A summary of the main concerns identified by these data 
submitters is as follows:
     The timing of the transition to a new EHR system during 
2017 (system upgrades or new health IT vendor) may influence hospitals' 
ability to report in a timely manner;
     The current timeframe for the implementation of new EHR 
requirements presents challenges due to the varying 6 to 24-month 
cycles needed for vendors to code new measures, test and institute 
measure updates, train hospital staff, and rollout other upgraded 
features;
     Hospitals have had difficulty identifying applicable 
measures that reflect their patient population, given the reduction in 
the number of available CQMs (from 29 to 16) for CY 2017;
     Hospitals have had challenges with data mapping and 
workflow because of the need to collect CY 2017 data while still 
reporting CY 2016 data; and
     Hospitals have identified challenges in implementing 
annual updates and new editions of certified health IT because of 
significant impacts on workflow, staffing, and connected technology 
systems. (We note that this information was inadvertently omitted in 
the proposed rule at 82 FR 20130.)
    In addition, there have been other recent issues related to the CMS 
data receiving system not being able to process QRDA Category I files, 
and as a result, the system is not generating notifications confirming 
for providers that their files have been received and processed by the 
system. The aforementioned issues and challenges being experienced by 
hospitals and health IT vendors are impacting the capability of 
hospitals to meet the requirements for CY 2017. As a result, we 
proposed modifications to the CY 2017 final policies in the proposed 
rule, which would reduce CQM reporting requirements in order for 
hospitals and health IT vendors to address these issues.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20130 through 
20131), we proposed two modifications to our CY 2017 electronic CQM 
reporting policies for the Medicare and Medicaid EHR Incentive 
Programs. For eligible hospitals and CAHs reporting CQMs electronically 
in CY 2017, we proposed to: (1) Decrease the number of calendar 
quarters for which such hospitals are required to submit data; and (2) 
decrease the number of CQMs for which such hospitals must submit data 
(further discussion below). These proposals are made in conjunction 
with our proposals discussed in sections IX.A.8. and IX.A.10.d. of the 
preamble of this final rule to align requirements for the Medicare and 
Medicaid EHR Incentive Programs and the Hospital IQR Program. In making 
these proposals, we believe that eligible hospitals and CAHs would have 
additional time to upgrade their systems and processes in preparation 
for the transition to electronic reporting on additional CQMs for 
additional quarters in future years.
    As we continue to make strides with electronic reporting, we want 
to ensure we provide eligible hospitals and CAHs with a robust 
selection of CQMs. As noted above, hospitals have expressed concerns 
with identifying applicable measures that reflect their patient 
population; thus, we believe that the

[[Page 38476]]

addition of new CQMs in the future will offer more clinically relevant 
CQMs that facilitate reporting and help drive quality improvement. In 
section IX.A.9.d. of the preamble of the proposed rule, we discussed 
and sought feedback on future potential CQMs for the Hospital IQR 
Program and the Medicare and Medicaid EHR Incentive Programs for 
eligible hospitals and CAHs.
b. Changes to Policies Regarding Electronic Reporting of CQMs for CY 
2017
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20131), in 
response to concerns from stakeholders, we proposed to modify the CQM 
reporting period for eligible hospitals and CAHs reporting CQMs 
electronically for the Medicare and Medicaid EHR Incentive Programs in 
CY 2017--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 would be two self-selected 
quarters of CQM data in CY 2017.
    In addition, we proposed to modify the reporting criteria regarding 
the required number of CQMs for eligible hospitals and CAHs that are 
reporting electronically for the reporting periods in CY 2017 under the 
Medicare and Medicaid EHR Incentive Programs--if only participating in 
the EHR Incentive Program, or participating in both the EHR Incentive 
Program and the Hospital IQR Program, eligible hospitals and CAHs would 
report on at least 6 (self-selected) of the available CQMs. For a list 
of the available CQMs for reporting periods in CY 2017, we refer 
readers to the table in the FY 2017 IPPS/LTCH PPS final rule at 81 FR 
57255.
    It should be noted that we did not propose to modify any other 
aspects of the policies for reporting CQMs electronically for CY 2017, 
including the submission periods, nor did we propose any changes to our 
policies for reporting CQMs by attestation.
    Through our proposals for CY 2017, we intend to continue to 
maintain alignment between the Medicare and Medicaid EHR Incentive 
Programs and the Hospital IQR Program to reduce confusion and reporting 
burden among participants in the Medicare and Medicaid EHR Incentive 
Programs that also participate in the Hospital IQR Program. As noted 
above, we are retaining the submission period for reporting CQMs 
electronically under the Medicare EHR Incentive Program, in which such 
submission period begins in late spring 2017 and continues through the 
2 months following the close of the calendar year, ending February 28, 
2018. In addition, we are continuing to provide States with the 
flexibility to determine the submission periods for reporting CQMs 
under the Medicaid EHR Incentive Program. For more details on the 
aligned reporting requirements for the Hospital IQR and Medicare and 
Medicaid EHR Incentive Programs, we refer readers to section IX.A.10.d. 
of the preamble of this final rule.
    We believed that reducing the number of CQMs required to be 
electronically reported from 8 to 6 would ease the burden on data 
submitters, allowing them to shift resources to support system 
upgrades, map data, and train staff on CQMs. Similarly, we proposed 
reducing the number of data reporting periods to 2 quarters, rather 
than 4 quarters, and allowing eligible hospitals and CAHs to select 
which two quarters of CY 2017 to electronically report would offer 
greater reporting flexibility and allow eligible hospitals, CAHs, and 
health IT vendors more time to plan for reporting. We recognized that 
eligible hospitals and CAHs were concerned about their ability to meet 
the CY 2017 requirements established in the FY 2017 IPPS/LTCH PPS final 
rule and believed that the proposed modified reporting requirements for 
CY 2017 would account for the challenges stakeholders are experiencing 
while requiring the electronic reporting on a portion of CQMs, which is 
consistent with our goal to transition to electronic reporting (81 FR 
57254).
    We invited public comment on our proposals to modify the CY 2017 
CQM reporting requirements for the Medicare and Medicaid EHR Incentive 
Programs as described above.
    Comment: A majority of commenters supported CMS' proposals to 
reduce the number of CQMs required to be electronically reported from 8 
to 6 available CQMs and reduce the reporting period from one full 
calendar year of data to two, self-selected quarters of data for CY 
2017 electronic reporting. The commenters encouraged CMS to continue to 
take into account the operational implications of the electronic CQM 
submission requirements for smaller hospitals that have resource 
limitations. The commenters noted that as currently proposed, the 
requirements align with the CY 2017 Joint Commission reporting 
standards. A few commenters requested CMS to finalize requirements as 
proposed as soon as possible in order for hospitals to prepare and 
educate appropriate staff.
    Several commenters indicated that the modified reporting period 
from one full calendar year of data to two, self-selected quarters of 
data would provide eligible hospitals and CAHs with sufficient time to 
adequately transition their EHR systems and allow them to avoid a 
reporting period that overlaps with the quarter in which they 
transition EHR systems. One commenter indicated that even if facilities 
were already collecting data on 8 CQMs, the reduction in the number of 
CQMs required to electronically report and the reporting period would 
give facilities that have limited resources or difficulties reporting 
for an entire calendar year the opportunity to be more successful.
    Response: We thank the commenters for their support regarding our 
proposal to reduce the number of CQMs required to be electronically 
reported from 8 to 6 available CQMs and reduce the reporting period 
from one full calendar year of data to two, self-selected quarters of 
data for CY 2017 electronic reporting. CMS remains committed to 
engaging with stakeholders to address their concerns, including 
hospitals of varying sizes.
    Comment: Several commenters supported the proposed policies for CY 
2017 that reduce the reporting period from one full calendar year of 
data to two, self-selected quarters of data and the number of CQMs 
required to electronically report from 8 to 6, but recommended that CMS 
further reduce the CY 2017 requirements by retaining the CY 2016 
established policies that required the electronic reporting of 4 CQMs 
for one quarter of data. The commenters indicated that maintaining the 
CY 2016 CQM reporting requirements for electronic submission would 
provide certified health IT vendors and CMS with additional time to 
work on measure specification and data validation, while giving 
hospitals more time to focus on incorporating system upgrades, data 
mapping, staff training, planning for data processing for CMS reporting 
and other issues.
    In addition, some commenters expressed concern that the incremental 
increase in CQM electronic reporting requirements would impact the 
ability of eligible hospitals and CAHs to effectively meet current CQM 
reporting requirements and concurrently prepare for increased CQM 
electronic reporting requirements in the following program year. As a 
result, additional burden would be placed on hospitals by limiting 
available time for testing prior to production file submission. These 
commenters indicated that recent updates to measure specifications have

[[Page 38477]]

required labor-intensive updates to complete terminology mapping, which 
has limited the ability of hospitals to expand reporting on additional 
CQMs. The commenters noted that implementation of electronic CQM 
reporting is a multi-year, incremental process that requires 
significant capital and operating expenditure, and a significant 
investment of time and energy by staff.
    Response: We appreciate commenters' feedback regarding the 
challenges associated with the electronic reporting of CQMs. As 
previously noted, in response to hospital and health IT vendor 
concerns, we proposed to modify previously finalized policies by 
reducing CQM reporting requirements. Based upon continued feedback from 
commenters, we are finalizing a modification to our proposal which 
reduces the CQM reporting requirements for the CY 2017 reporting period 
further than initially proposed. For the CY 2017 reporting period, we 
are requiring eligible hospitals and CAHs to report one, self-selected 
calendar quarter of data for 4 self-selected, available CQMs, instead 
of reporting two, self-selected calendar quarters of data for 6 
available CQMs. We believe that these modified reporting requirements 
will provide eligible hospitals, CAHs, and health IT vendors with 
additional time to plan for data processing, report quality data to 
CMS, and focus on system upgrades, data mapping, staff training, and 
other issues, while also providing CMS with more time to address data 
validation. We will continue to monitor the progress of hospitals 
implementing the CQM reporting requirements and to engage hospitals 
regarding their experiences as we develop future CQM policy.
    In regard to the impact of the incremental increase in CQM 
electronic reporting requirements and recent updates to measure 
specifications on the ability of eligible hospitals and CAHs to meet 
current CQM reporting requirements and concurrently prepare for 
increased CQM reporting requirements in the following program year, we 
believe that the modified policies that we are finalizing will address 
these commenters' concerns. Specifically, we decided to finalize for CY 
2017 the same CQM reporting requirements established for CY 2016 (80 FR 
49757 and 49758) (eligible hospitals and CAHs will be required to 
report one, self-selected quarter of data (for CY 2016, either Q3 or 
Q4) for 4 self-selected, available CQMs), which we believe will provide 
eligible hospitals and CAHs additional experience reporting CQMs 
electronically, incorporating annual measure specification updates, and 
reviewing the results of CQM data collection efforts prior to an 
incremental increase in the CQM reporting requirements.
    For the CY 2017 reporting period, eligible hospitals and CAHs will 
be able to self-select 4 CQMs from the available 16 CQMs in the EHR 
Incentive Program measure set and meet the reporting requirements by 
submitting data via QRDA I files, zero denominator declaration, or case 
threshold exemption. In addition, we are continuing to allow manual 
aggregation of data for those eligible hospitals and CAHs experiencing 
issues with data aggregation in the process of upgrading EHR systems or 
changing health IT vendors. In order to provide eligible hospitals and 
CAHs with maximum flexibility, they may self-select which calendar 
quarter of data to report for the CY 2017 reporting period.
    We note that hospitals have reported data electronically for 
several years to both the Medicare EHR Incentive Program and the 
Hospital IQR Program (3 prior years of pilot reporting and 3 prior 
years of voluntary reporting) and believe that the majority of 
hospitals should be ready to successfully report on at least 4 
electronic CQMs beginning with the CY 2017 reporting period. However, 
we believe that the modification to our proposal regarding the CQM 
reporting requirements for CY 2017 that we are finalizing is responsive 
to stakeholder feedback, including feedback from small, rural, tribal, 
and Indian Health Service hospitals that have expressed the need for 
additional time and flexibility to successfully implement all of the 
CQM reporting requirements. Lastly, CMS is aligning the requirement for 
the reporting of one, self-selected calendar quarter of data for 4 CQMs 
between the Hospital IQR Program and the Medicare and Medicaid EHR 
Incentive Programs in order to streamline the electronic submission of 
quality data for hospitals.
    Although we are not finalizing our proposal to require the 
electronic reporting of 6 CQMs for two, self-selected calendar quarters 
of data in CY 2017, we encourage eligible hospitals and CAHs to 
continue refining their electronic reporting implementation activities 
in order to successfully achieve electronic data capture and reporting. 
In addition, we encourage early testing and the use of pre-submission 
testing tools to reduce errors and inaccurate data submissions in 
electronic CQM reporting. As time progresses, we expect that eligible 
hospitals and CAHs will continue to build and refine their EHR systems 
and gain more familiarity with electronic reporting of more CQM data, 
resulting in more accurate data submissions with fewer errors. It is 
critical that we maintain a balance between the pace of evolving 
electronic standards and the timing cycle for the regulatory adoption 
of standards when adopting policies for the Medicare and Medicare EHR 
Incentive Programs.
    Comment: One commenter believed that clinical staff may have 
difficulty inputting patient information into the appropriate 
structured fields during a patient encounter due to competing clinical 
demands.
    Response: An EHR may allow clinicians or administrative staff to 
update patient information at a later time if clinical staff cannot 
record patient information at the time of the encounter without 
compromising patient care, or if additional information needs to be 
added to the medical record. We recommend that eligible hospitals and 
CAHs and their health IT vendors work together to implement EHR 
functionalities that will successfully support clinical activities, 
documentation, and quality measure reporting and that are consistent 
with the policies and procedures of the eligible hospital or CAH. We 
believe that recording patient information in structured fields for the 
purpose of reporting CQMs electronically is more accurate and less 
prone to errors than using unstructured fields since it relies less on 
interpretation, and ultimately reduces burden on eligible hospitals and 
CAHs.
    Comment: A few commenters expressed concern that hospitals may be 
penalized more than once for failing to successfully report CQMs 
electronically in both the Hospital IQR and EHR Incentive Programs and 
as a result, a significant portion of their annual payment update 
hinges on the maturity of health IT vendor capabilities and the ability 
of the CMS QualityNet Secure Portal to manage and appropriately support 
the volume of incoming data submissions. Commenters noted that 
hospitals continue to report barriers to successfully submitting CQM 
data electronically, including health IT vendor failures during the 
submission of production data (which were not present during test 
submissions) and limitations of the QualityNet Secure Portal, such as: 
(1) An inability to accept QRDA I files over a certain size; (2) an 
inability to run reports verifying that data have been submitted to 
CMS; and (3) frequent periods when the system is down due to it not 
being able to accommodate more than a certain

[[Page 38478]]

number of users at one time. The commenters also expressed concern 
regarding CQM measure specification.
    Response: We disagree with commenters that failing to successfully 
report CQMs electronically in both the Hospital IQR and EHR Incentive 
Programs may result in duplicate payment adjustments for hospitals. 
Section 1886(n)(3)(B)(iii) of the Act encourages the coordination of 
reporting of information across CMS programs and specifically directs 
the Secretary to seek to avoid redundant or duplicative reporting with 
reporting otherwise required, including reporting under the Hospital 
IQR Program, in selecting measures and in establishing the form and 
manner for reporting measures for the EHR Incentive Program. Therefore, 
we have established policies that have enabled hospitals to satisfy the 
CQM reporting requirements of both the Medicare EHR Incentive Program 
and the Hospital IQR Program without duplicative reporting. In the 
event an eligible hospital or CAH is unable to meet the electronic CQM 
reporting requirements, for CY 2017, it would be able to report CQMs by 
attestation for purposes of the EHR Incentive Program, and if it 
satisfies all other program requirements, it would avoid the EHR 
Incentive Program downward payment adjustment under sections 
1886(b)(3)(B)(ix) and 1814(l)(4) of the Act. Also, we encourage 
eligible hospitals or CAHs that are unable to meet the electronic CQM 
reporting requirements under the EHR Incentive Program to review the 
EHR Incentive Program's hardship exception policy.
    Regarding the limitations of the QualityNet Secure Portal and QRDA 
I file submission difficulties that commenters described, we 
acknowledge that at certain times of high submission volume, some data 
submitters reported longer file processing times and an inability to 
timely run feedback reports. We are actively taking steps to improve 
the data submission experience for the CY 2017 reporting period, 
including working to increase system throughput and increase 
responsiveness should further issues arise. In addition, we are working 
to identify potential efficiencies in our EHR Incentive Program system 
source code which could reduce the time it takes to receive submission 
confirmation and run reports.
    We are finalizing a modified version of our proposals regarding the 
previously finalized CQM reporting requirements for the CY 2017 
reporting period, such that eligible hospitals and CAHs are required to 
electronically report on 4 self-selected available CQMs (instead of 8 
available CQMs) for one, self-selected calendar quarter of data 
(instead of a full calendar year (consisting of four quarterly data 
reporting periods)), whether reporting only for the EHR Incentive 
Program or reporting for both the Hospital IQR Program and the EHR 
Incentive Program.
    Comment: One commenter did not support CMS' proposal to reduce the 
number of CQMs required to be electronically reported from 8 to 6 and 
reduce the reporting period from one full calendar year of data to two, 
self-selected quarters of CY 2017, and recommended that the number of 
CQMs and the reporting period reflect the previously finalized CY 2017 
CQM reporting requirements for electronic reporting. The commenter 
indicated that capturing and exporting the data for a QRDA Category I 
file is part of the ONC EHR certification program and if a hospital is 
not capturing data in such a way that a QRDA I file can be generated, 
then this implies that either the EHR is violating its certification or 
the hospital is not using its EHR appropriately. Rather than modifying 
the CQM reporting requirements, the commenter suggested that the 
existing regulations be enforced and penalties be applied to health IT 
vendors with EHRs violating their certification. In addition, the 
commenter suggested that measure specifications could be published in 
advance to enable hospitals to view them before the reporting period 
begins. The commenter recognized the challenges some hospitals face, 
but indicated that these issues should be addressed directly rather 
than by changing the CQM reporting requirements.
    Response: We thank the commenter for their support regarding our 
previously finalized CY 2017 CQM reporting requirements. We have found 
that many hospitals are able to successfully meet the CQM electronic 
reporting requirements and would be capable of successfully reporting 
additional measures. However, we seek to be responsive to the concerns 
and challenges expressed by hospitals, particularly smaller hospitals 
with fewer resources. In the present case we are seeking balance 
between hospitals' requests for more time to improve their CQM 
electronic reporting capabilities and furthering our goal to expand 
electronic data reporting. We appreciate the commenter's suggestion 
that measure specifications could be published further in advance to 
enable hospitals to view them before the reporting period begins and 
note that measure specifications are typically published in the spring 
of the year prior to the start of the applicable reporting period.
    Comment: A few commenters recommended that CMS clarify the 
definitions used for the terms ``workflow'' and ``data submission,'' in 
the context of electronic measure reporting. Specifically, the 
commenters suggested that while ``workflow'' is related to technical 
challenges, the term is not appropriate in defining the process of data 
extraction and QRDA I submission.
    Response: We thank the commenters for their suggestions. Our 
references of the terms ``data submission'' and ``workflow'' depend on 
the context in which the terms are used, the parties exchanging data, 
and the purpose for which data is exchanged. In the context of the 
electronic reporting of CQMs, hospitals may experience challenges 
modifying their internal workflow for clinical care, corresponding 
documentation and data capture, such that clinical staff enter patient 
information into the appropriate fields of an EHR at the time of the 
patient encounter. A clinician, medical assistant, scribe, or other 
staff member entering data into an EHR may find it simpler to enter 
patient information in the ``free text'' section of the EHR, even 
though specific fields exist in the EHR to record data so it maps 
appropriately for CQM reporting purposes. In suggesting that hospitals 
may need to make changes to their internal workflow, we expected that 
hospitals would train the appropriate staff to effectively capture 
patient data correctly in the EHR and make such efforts a priority. We 
further encourage hospitals to innovate and design workflows that fit 
their unique needs to make the best use of both clinical and non-
clinical staff resources to maintain patient health information in the 
EHR. In addition, if clinical staff enter patient information in the 
``free text'' sections of an EHR, clinical or administrative staff 
could go back after a patient encounter has completed and enter that 
information into the appropriate fields. This could be considered part 
of the hospital's ``workflow'' under the definition provided by the 
commenter. Data submission in the context of eCQM reporting would refer 
to the sending and subsequent receiving of clinical data corresponding 
to eCQM specifications through the QualityNet Secure Portal for 
purposes of the Hospital IQR Program and EHR Incentive Program eCQM 
submissions.
    Comment: One commenter urged CMS to suspend all regulatory 
requirements regarding the electronic

[[Page 38479]]

reporting of CQMs, citing a lack of improvement in patient care despite 
the expenditure of significant time and resources to meet the CQM 
reporting requirements for the CY 2016 reporting period.
    Response: We disagree with the commenter that the electronic 
reporting of CQMs does not benefit patients. We do not believe that 
suspending all electronic reporting of CQMs would be an appropriate 
approach. We recognize the need to continue to improve the electronic 
reporting of CQMs and establish a more seamless process to minimize 
burden on eligible hospitals and CAHs in meeting CQM reporting 
requirements. We understand that eligible hospitals and CAHs have spent 
resources to refine certified EHR technology to meet the electronic CQM 
reporting requirements. However, we also believe that CQMs will promote 
better quality of care as eligible hospitals and CAHs and their health 
IT vendors continue to refine EHR systems and integrate them into the 
clinical work flow. This will lead to improved accuracy, reliability, 
and completeness of the CQM data and promote higher quality, improved 
health outcomes for patients, and lower costs, while ultimately 
decreasing reporting burden on hospitals, and the associated 
operational, administrative, and financial burdens.
    We will continue to monitor the progress of eligible hospitals and 
CAHs implementing CQM reporting requirements and encourage eligible 
hospitals and CAHs to continue sharing their experiences in meeting 
reporting requirements. In addition, we will routinely evaluate the 
CQMs available to report and consider new electronic measures as they 
become available for potential use in the Medicare and Medicaid EHR 
Incentive Programs and the Hospital IQR Program.
    After consideration of the public comments we received, we are 
finalizing modifications to our proposals regarding the previously 
finalized CY 2017 CQM reporting requirements for electronic reporting. 
For the CY 2017 reporting period, eligible hospitals and CAHs that 
choose to report CQMs electronically are required to report one, self-
selected calendar quarter of data for 4 self-selected CQMs of the 
available CQMs.
3. CQM Reporting for the Medicare and Medicaid EHR Incentive Programs 
in 2018
a. Background
    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 year (consisting of four 
quarterly data reporting periods) for the reporting of CQMs by eligible 
hospitals and CAHs participating in the Medicare and Medicaid EHR 
Incentive Programs, with an 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. In the FY 2017 IPPS/LTCH PPS final 
rule (81 FR 57250), we noted that one full calendar year of data will 
result in more complete and accurate data, and hospitals will be able 
to submit one full calendar year of data for both the Medicare and 
Medicaid EHR Incentive Programs and the Hospital IQR Program, thereby 
reducing the reporting burden.
    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57250 through 
57255), we removed 13 CQMs from the set of CQMs available for eligible 
hospitals and CAHs to report under the Medicare and Medicaid EHR 
Incentive Programs, beginning with the reporting periods in CY 2017. 
All 16 of the remaining measures listed in Table 10 of the EHR 
Incentive Program Stage 2 final rule (77 FR 54083 through 54087) are 
available for eligible hospitals and CAHs to report for the Medicare 
and Medicaid EHR Incentive Programs. The following table lists the 16 
CQMs available for eligible hospitals and CAHs to report for the 
Medicare and Medicaid EHR Incentive Programs beginning in CY 2017 (81 
FR 57255).

       CQMs for Eligible Hospitals and CAHs Beginning with CY 2017
------------------------------------------------------------------------
          Short name                  Measure name             NQF #
------------------------------------------------------------------------
              Electronic Clinical Quality Measures (eCQMs)
------------------------------------------------------------------------
AMI-8a.......................  Primary PCI Received                 0163
                                Within 90 Minutes of
                                Hospital Arrival.
ED-3.........................  Median Time from ED                  0496
                                Arrival to ED Departure
                                for Discharged ED
                                Patients.
CAC-3........................  Home Management Plan of                 +
                                Care Document Given to
                                Patient/Caregiver.
ED-1.........................  Median Time from ED                  0495
                                Arrival to ED Departure
                                for Admitted ED Patients.
ED-2.........................  Admit Decision Time to ED            0497
                                Departure Time for
                                Admitted Patients.
EHDI-1a......................  Hearing Screening Prior              1354
                                to Hospital Discharge.
PC-01........................  Elective Delivery                    0469
                                (Collected in aggregate,
                                submitted via web-based
                                tool or electronic
                                clinical quality
                                measure).
PC-05........................  Exclusive Breast Milk                0480
                                Feeding *.
STK-02.......................  Discharged on                        0435
                                Antithrombotic Therapy.
STK-03.......................  Anticoagulation Therapy              0436
                                for Atrial Fibrillation/
                                Flutter.
STK-05.......................  Antithrombotic Therapy by            0438
                                the End of Hospital Day
                                Two.
STK-06.......................  Discharged on Statin                 0439
                                Medication.
STK-08.......................  Stroke Education.........               +
STK-10.......................  Assessed for                         0441
                                Rehabilitation.
VTE-1........................  Venous Thromboembolism               0371
                                Prophylaxis.
VTE-2........................  Intensive Care Unit                  0372
                                Venous Thromboembolism
                                Prophylaxis.
------------------------------------------------------------------------
+ NQF endorsement has been removed.
* Measure name has been shortened. We refer readers to annually updated
  measure specifications on the CMS eCQI Resource Center Web page for
  further information: https://www.healthit.gov/newsroom/ecqi-resource-center center.

    For CY 2018 and future calendar years, we plan to continue to align 
the CQM reporting requirements for the Medicare and Medicaid EHR 
Incentive Programs and the Hospital IQR Program. As we expect to expand 
the current measures to align with the National Quality Strategy, the 
CMS Quality Strategy \509\ and incorporate updated

[[Page 38480]]

standards and terminology in current CQMs, including updating the 
electronic specifications for these CQMs, and creating de novo CQMs, we 
also 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.
---------------------------------------------------------------------------

    \509\ Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html.
---------------------------------------------------------------------------

b. CQM Reporting Period for the Medicare and Medicaid EHR Incentive 
Programs in CY 2018
(1) Background
    Our goal is to continue to move toward increased electronic 
reporting while also addressing stakeholder concerns. With the CY 2017 
final policies reducing electronic reporting requirements and providing 
additional time for eligible hospitals, CAHs, and health IT vendors to 
make EHR upgrades and system transitions in CY 2017, we believe that 
stakeholders will be able to address some of the issues and challenges 
they face prior to CY 2018, but recognize that certain challenges and 
issues (for example, EHR upgrade and system transition challenges 
associated with the development cycle of technology and the timeframe 
to develop and execute work flows and processes and train staff based 
on EHR upgrades and system transitions) may not be fully resolved and 
as a result, may persist in CY 2018. As established in the 2015 EHR 
Incentive Programs Final Rule (80 FR 62894), reporting CQMs by 
attestation will no longer be an option for eligible hospitals and CAHs 
starting with the reporting periods in CY 2018, except in circumstances 
in which electronic reporting is not feasible.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20132 and 20133), 
for CY 2018, we proposed the following CQM reporting period for the 
Medicare and Medicaid EHR Incentive Programs and the following 
submission period for the Medicare EHR Incentive Program--for eligible 
hospitals and CAHs reporting CQMs electronically that demonstrate 
meaningful use for the first time in 2018 or that have demonstrated 
meaningful use in any year prior to 2018, the reporting period would be 
the first 3 quarters of CY 2018, and the submission period would be the 
2 months following the close of the calendar year, ending February 28, 
2019.
    For eligible hospitals and CAHs that report CQMs by attestation 
under the Medicare EHR Incentive Program as a result of electronic 
reporting not being feasible, and for eligible hospitals and CAHs that 
report CQMs by attestation under their State's Medicaid EHR Incentive 
Program, we established a CQM reporting period of the full CY 2018 
(consisting of 4 quarterly data reporting periods) (80 FR 62893). We 
also established an exception to this full-year reporting period for 
eligible hospitals and CAHs demonstrating meaningful use for the first 
time under their State's Medicaid EHR Incentive Program; under this 
exception, the CQM reporting period is any continuous 90-day period 
within CY 2018 (80 FR 62893).
    In the FY 2018 IPPS/LTCH PPS proposed rule, we proposed the 
submission period for eligible hospitals and CAHs reporting CQMs by 
attestation under the Medicare EHR Incentive Program would be the 2 
months following the close of the CY 2018 CQM reporting period, ending 
February 28, 2019.
    In regard to the Medicaid EHR Incentive Program, we provide States 
with the flexibility to determine the method of reporting CQMs 
(attestation or electronic reporting) and the submission periods for 
reporting CQMs, subject to prior approval by CMS.
(2) CQM Reporting Criteria for the Medicare and Medicaid EHR Incentive 
Programs in CY 2018
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20132 through 
20133), we proposed the following reporting criteria under the Medicare 
and Medicaid EHR Incentive Program for eligible hospitals and CAHs 
reporting CQMs electronically for the reporting period in CY 2018--for 
eligible hospitals and CAHs participating only in the EHR Incentive 
Program, or participating in both the EHR Incentive Program and the 
Hospital IQR Program, report on at least six (self-selected) of the 
available CQMs from the table in the FY 2017 IPPS/LTCH PPS final rule 
at 81 FR 57255.
    We proposed the following reporting criteria for eligible hospitals 
and CAHs that report CQMs by attestation under the Medicare EHR 
Incentive Program because electronic reporting is not feasible, and for 
eligible hospitals and CAHs that report CQMs by attestation under their 
State's Medicaid EHR Incentive Program, for the reporting period in CY 
2018--report on all 16 available CQMs from the table in the FY 2017 
IPPS/LTCH PPS final rule at 81 FR 57255.
    In developing these proposals, we considered several alternatives. 
Specifically, we considered aligning the requirements for CY 2018 with 
the proposed requirements for CY 2017 outlined in the proposed rule, 
such that eligible hospitals and CAHs would report on 6 (self-selected) 
available CQMs for two self-selected quarters of data in both CY 2017 
and CY 2018. We also considered the final policy in the FY 2017 IPPS/
LTCH PPS final rule for the Hospital IQR Program (81 FR 57150 through 
57159), which would require hospitals to report one full calendar year 
of data for at least 8 (self-selected) CQMs out of the available CQMs 
for both the CY 2017 reporting period/FY 2019 payment determination and 
the CY 2018 reporting period/FY 2020 payment determination. However, we 
proposed changes to this previously adopted policy in the Hospital IQR 
Program and refer readers to section IX.A.8. of the preamble of this 
final rule for more details. Ultimately, we believed that our proposal 
balanced our goal to transition to more robust electronic reporting of 
quality measure data with concerns from stakeholders regarding an 
increased burden to meet CQM reporting requirements. We believe the 
electronic collection and reporting of quality data using health IT 
will ultimately simplify and streamline reporting for various CMS 
quality reporting programs, and hospitals will experience decreased 
financial and administrative burden as we continue to align program 
reporting requirements and adopt a more streamlined set of clinical 
quality measures with electronic specifications.
    In addition, the proposal provided eligible hospitals and CAHs the 
opportunity to have several years of experience reporting data 
electronically for the Hospital IQR and Medicare and Medicaid EHR 
Incentive Programs. Therefore, we believed that eligible hospitals and 
CAHs will be better prepared to submit an additional quarter of data 
for the CY 2018 reporting period compared to the number of quarters we 
proposed for the CY 2017 reporting period. This proposal was made in 
conjunction with our proposals discussed in section IX.A.10.d. of the 
preamble of the proposed rule to align requirements for the Medicare 
and Medicaid EHR Incentive Programs and the Hospital IQR Program.
    We invited public comment on our proposals regarding the CY 2018 
reporting requirements for eligible hospitals and CAHs reporting CQMs 
under the Medicare and Medicaid EHR Incentive Programs.

[[Page 38481]]

    Comment: A majority of commenters supported CMS' proposal to 
require eligible hospitals and CAHs to electronically report 6 CQMs for 
the first three calendar quarters of data for the CY 2018 reporting 
period. A few commenters requested CMS maintain the requirement to 
electronically report 6 CQMs beyond the CY 2018 reporting period while 
increasing the reporting period to one full calendar year and then 
gradually increasing the number of required CQMs to electronically 
report in future years. The commenters believed such approach would 
allow hospitals to adapt to the increased CQM reporting requirements.
    Response: We thank the commenters for their support, and will 
consider their comments in future policymaking.
    Comment: Many commenters supported requiring eligible hospitals and 
CAHs to electronically report 6 CQMs, but requested that CMS retain the 
proposed modified CY 2017 CQM reporting period for electronic 
reporting, which would require eligible hospitals and CAHs to report 
two, self-selected quarters of data for the CY 2018 reporting period 
instead of the first three calendar quarters of data for the CY 2018 
reporting period. Some commenters noted that smaller hospitals with 
fewer resources require more time to become proficient in all of the 
parameters (mapping, new work flows, staff education, etc.) associated 
with electronic reporting.
    A few commenters indicated that if hospitals would be able to 
continue to self-select two quarters of data for the CY 2018 reporting 
period, it would provide the necessary time for quality, health IT, and 
clinical teams to improve performance without significantly impairing 
CMS' ability to review and analyze data generated through CQM 
reporting.
    Response: We appreciate the support from commenters regarding our 
proposal to require eligible hospitals and CAHs to electronically 
report 6 available CQMs for the CY 2018 reporting period and their 
suggestion that we retain the proposed CY 2017 reporting period (two, 
self-selected quarters of data) for CY 2018.
    In response to stakeholder concerns regarding the burden associated 
with meeting the CQM reporting requirements (including updating EHR 
systems, data mapping, refining work flows, and staff education and 
training), we recognize that eligible hospitals and CAHs may require 
more time and flexibility to meet the electronic reporting 
requirements. Therefore, we are finalizing modifications to our 
proposals regarding the CQM reporting requirements for the CY 2018 
reporting period. Under the modified version of our proposals which we 
are finalizing for CY 2018, eligible hospitals and CAHs will be 
required to electronically report 4 self-selected CQMs of the available 
16 CQMs under the Medicare and Medicaid EHR Incentive Programs. In 
addition, under the modified version of our proposals which we are 
finalizing, for the CY 2018 reporting period, eligible hospitals and 
CAHs are required to report one, self-selected calendar quarter of data 
for the 4 self-selected available CQMs.
    By finalizing these modifications to our proposal, the CQM 
reporting requirements for electronic reporting for the CY 2018 
reporting period will be the same as the CQM reporting requirements 
finalized for the CY 2017 reporting period, as discussed above. We 
believe that having the same reporting requirements for three reporting 
years will offer the consistency requested by stakeholders and allow 
hospitals and their health IT vendors to improve CQM reporting 
capabilities. We intend to establish requirements for the CY 2019 
reporting period/FY 2021 payment determination and future years in 
future rulemaking.
    We will continue to monitor the progress of eligible hospitals and 
CAHs implementing CQM reporting requirements and encourage hospitals to 
continue sharing their experiences. In addition, we encourage early 
testing and the use of pre-submission testing tools to reduce errors 
and inaccurate data submissions in electronic CQM reporting. As time 
progresses, we expect that eligible hospitals and CAHs will continue to 
build and refine their EHR systems and gain more familiarity with 
electronic reporting of more CQM data, resulting in more accurate data 
submissions with fewer errors.
    Comment: Several commenters supported CMS' proposal to require 
eligible hospitals and CAHs to electronically report 6 CQMs for the CY 
2018 reporting period, but requested that CMS allow eligible hospitals 
and CAHs to self-select the three quarters of data for which they would 
report. The commenters noted implementing requirements that differ from 
one calendar year to the next is time consuming and cumbersome, which 
includes changes and updates to CQM logic definitions, vendor 
relations, schemas for running reports, and XML files. Some commenters 
indicated that they would support reporting data from the first quarter 
reporting period when the year-end process is more established and 
predictable.
    Response: We thank the commenters for their support of our proposal 
to require eligible hospitals and CAHs to electronically report 6 CQMs 
for the CY 2018 reporting period and suggestion to allow eligible 
hospitals and CAHs to self-select the three quarters of data for which 
they would report.
    However, with stakeholders expressing concerns regarding eligible 
hospitals and CAHs experiencing an increased burden in meeting CQM 
reporting requirements, we are finalizing modifications to our 
proposals regarding the CQM reporting requirements for the CY 2018 
reporting period. For CY 2018, eligible hospitals and CAHs are required 
to electronically report one, self-selected calendar quarter of data 
for 4 self-selected CQMs of the available 16 CQM under the Medicare and 
Medicaid EHR Incentive Programs. The CQM reporting requirements for CY 
2017 and CY 2018 are the same.
    Comment: Several commenters supported the proposed policies for CY 
2018 reporting period that would require eligible hospitals and CAHs to 
electronically report the first three quarters of data for 6 self-
selected available CQMs, but recommended that CMS further reduce the CY 
2018 requirements by retaining the CY 2016 established policies that 
required the electronic reporting of 4 CQMs for one quarter of data.
    In addition, some commenters expressed concern that the incremental 
increase in CQM electronic reporting requirements would impact the 
ability of eligible hospitals and CAHs to effectively meet current CQM 
electronic reporting requirements and concurrently prepare for 
increased CQM reporting requirements in the following program year. As 
a result, additional burden would be placed on hospitals by limiting 
available time for testing prior to production file submission. A few 
commenters expressed concern about the considerable burden required to 
map the necessary data elements from the EHR to the appropriate QRDA 
file format and noted that some health IT vendors are not properly 
equipped to collect and transmit such data through the CMS QualityNet 
Secure Portal. The commenters stated that until these issues are 
sufficiently addressed, CMS should not increase the required CQM 
reporting requirements for electronic reporting.
    Response: We appreciate commenters expressing their concerns 
regarding the challenges associated with the electronic reporting of 
CQMs. As previously noted, in response to hospital and health IT vendor 
feedback,

[[Page 38482]]

we are modifying our proposed CY 2018 reporting requirements by 
reducing CQM reporting requirements. For the CY 2018 reporting period, 
we are requiring eligible hospitals and CAHs to report one, self-
selected calendar quarter of data for 4 available CQMs. We believe that 
the modified, reduced reporting requirements will provide eligible 
hospitals, CAHs, and health IT vendors with additional time to plan for 
data processing, report quality data to CMS, and focus on system 
upgrades, data mapping, staff training, and other issues. We will 
continue to monitor the progress of hospitals in implementing CQM 
reporting requirements and engage in discussions with hospitals and 
health IT vendors regarding their experiences as we consider the 
establishment of CQM policies in future rulemaking.
    In response to concerns from commenters that the incremental 
increase in CQM electronic reporting requirements would impact the 
ability of eligible hospitals and CAHs to both effectively execute 
current CQM electronic reporting requirements and concurrently prepare 
for increased CQM reporting requirements in the following program year, 
we believe that the modifications to our proposals requiring eligible 
hospitals and CAHs to report one, self-selected calendar quarter of 
data for 4 available CQMs reduce reporting requirements and provide 
eligible hospitals and CAHs with additional time to prepare to meet CQM 
reporting requirements. We believe that modestly increasing the 
requirements for eligible hospitals and CAHs to report CQMs 
electronically is consistent with our goal to make progress toward more 
robust electronic reporting of CQMs in the EHR Incentive Program, but 
recognize that some eligible hospitals and CAHs may benefit from 
additional time to become proficient in all of the aspects associated 
with electronic reporting and improving upon CQM reporting capabilities 
prior to increasing the number of quarters of data and number of CQMs 
eligible hospitals and CAHs are required to report electronically. We 
believe the electronic collection and reporting of quality data using 
health IT will ultimately simplify and streamline reporting for various 
CMS quality reporting programs, and hospitals will experience decreased 
financial and administrative burden as we continue to align program 
reporting requirements and adopt a more streamlined set of clinical 
quality measures with electronic specifications.
    For the CY 2018 reporting period, eligible hospitals and CAHs will 
be able to self-select 4 CQMs from the available 16 CQMs in the EHR 
Incentive Program measure set and meet the reporting requirements by 
submitting data via QRDA I files, zero denominator declaration, or case 
threshold exemption. In addition, we are continuing to allow 
abstraction of data into structured fields since some eligible 
hospitals and CAHs are still in the process of upgrading EHR systems 
and changing health IT vendors. In an effort to provide eligible 
hospitals and CAHs with maximum flexibility, we are finalizing a policy 
which permits them to self-select the one calendar quarter of data they 
report for the CY 2018 reporting period.
    In considering what the reporting period and number of CQMs to 
report electronically should be, we decided to implement for CY 2018 
the same CQM reporting requirements established for CY 2016 (80 FR 
49757 and 49758) and finalized in this final rule for CY 2017 (eligible 
hospitals and CAHs will be required to report one, self-selected 
quarter of data (for CY 2016, either Q3 or Q4) for 4 available CQMs), 
which we believe will provide eligible hospitals and CAHs with 
additional time gaining experience reporting CQMs electronically and 
reviewing the results of CY 2016 CQM data collection prior to 
increasing the number of quarters of data and number of CQMs eligible 
hospitals and CAHs are required to report electronically. We note that 
hospitals have reported data electronically for several years to both 
the Medicare EHR Incentive Program and the Hospital IQR Program (3 
prior years of pilot reporting and 3 prior years of voluntary 
reporting) and believe that the majority of hospitals should be ready 
to successfully report on at least 4 electronic CQMs beginning with the 
CY 2018 reporting period. However, we believe that the finalized 
modification to our proposal regarding the CQM reporting requirements 
for CY 2018 is responsive to stakeholder feedback, including feedback 
from small, rural, tribal, and Indian Health Service hospitals that 
have expressed the need for additional time and flexibility to 
successfully implement all of the CQM reporting requirements.
    Comment: One commenter supported CMS' proposal that would require 
eligible hospitals and CAHs to electronically report 6 CQMs for the CY 
2018 reporting period, but suggested that CMS retain the requirement to 
report one full calendar year of data. Further, the commenter suggested 
gradually increasing the number of required CQMs in future years. The 
commenter believed that such approach would allow hospitals to adapt to 
the increased CQM requirements.
    Response: We thank the commenter for their support. For future 
years, we will consider requiring hospitals to report more quarters of 
data and to gradually increase the electronic reporting of quality 
measure data in the Medicare and Medicaid EHR Incentive Programs.
    Comment: One commenter recommended the submission deadline be moved 
to the end of the first quarter of 2019 instead of February 28, 2019, 
which would allow for final ICD-10 coding and corrections potentially 
needed after receiving final documentation from physicians.
    Response: We thank the commenter for the recommendation to adjust 
the CQM submission deadline for the Medicare EHR Incentive Program from 
February 28, 2019 to the end of the first quarter of 2019. We will take 
this suggestion into consideration; however, at this juncture, we are 
finalizing the submission deadline for the 2018 reporting period as 
proposed.
    After consideration of the public comments we received, we are 
finalizing the CY 2018 reporting requirements as proposed, except for 
our proposals pertaining to the electronic reporting of CQM reporting 
period and reporting criteria, which we are finalizing with 
modifications. For CY 2018, the CQM reporting period for the Medicare 
and Medicaid EHR Incentive Programs and the submission period for the 
Medicare EHR Incentive Program are as follows--for eligible hospitals 
and CAHs reporting CQMs electronically that demonstrate meaningful use 
for the first time in 2018 or that have demonstrated meaningful use in 
any year prior to 2018, the reporting period is one, self-selected 
calendar quarter of CY 2018 data, and the submission period is the 2 
months following the close of the calendar year, ending February 28, 
2019.
    For eligible hospitals and CAHs that report CQMs by attestation 
under the Medicare EHR Incentive Program as a result of electronic 
reporting not being feasible, and for eligible hospitals and CAHs that 
report CQMs by attestation under their State's Medicaid EHR Incentive 
Program, we established a CQM reporting period of the full CY 2018 
(consisting of 4 quarterly data reporting periods) (80 FR 62893). We 
also established an exception to this full-year reporting period for 
eligible hospitals and CAHs demonstrating meaningful use for the first 
time under their State's Medicaid EHR Incentive Program. Under this 
exception, the CQM reporting period is any continuous 90-day period 
within CY 2018 (80 FR 62893). The submission period for

[[Page 38483]]

eligible hospitals and CAHs reporting CQMs by attestation under the 
Medicare EHR Incentive Program is the 2 months following the close of 
the CY 2018 CQM reporting period, ending February 28, 2019. In regard 
to the Medicaid EHR Incentive Program, we provide States with the 
flexibility to determine the method of reporting CQMs (attestation or 
electronic reporting) and the submission periods for reporting CQMs, 
subject to prior approval by CMS.
    For the CY 2018 reporting period, the reporting criteria under the 
Medicare and Medicaid EHR Incentive Program for eligible hospitals and 
CAHs reporting CQMs electronically is as follows--for eligible 
hospitals and CAHs participating only in the EHR Incentive Program, or 
participating in both the EHR Incentive Program and the Hospital IQR 
Program, report on at least 4 self-selected CQMs of the available CQMs 
from the table in the FY 2017 IPPS/LTCH PPS final rule at 81 FR 57255, 
which is also in section IX.E.3.a. of the preamble to this final rule.
    The reporting criteria for eligible hospitals and CAHs that report 
CQMs by attestation under the Medicare EHR Incentive Program as a 
result of electronic reporting not being feasible, and for eligible 
hospitals and CAHs that report CQMs by attestation under their State's 
Medicaid EHR Incentive Program, for the reporting period in CY 2018--
report on all 16 available CQMs from the table in the FY 2017 IPPS/LTCH 
PPS final rule at 81 FR 57255.
c. CQM Reporting Form and Method for the Medicare EHR Incentive Program 
in 2018
    In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49759 through 
49760), 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 49760), States 
would continue to have the option, subject to our prior approval, to 
allow or require QRDA-III for CQM reporting.
    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 
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 at: https://ecqi.healthit.gov/. For 
further information on CQM reporting, we refer readers to the EHR 
Incentive Program Web site where guides and tip sheets are located at: 
http://www.cms.gov/ehrincentiveprograms. In the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20133), for the CY 2018 reporting period, we 
proposed the following for CQM submission under the Medicare EHR 
Incentive Program:
     Eligible hospital and CAH participating in the Medicare 
EHR Incentive Program (single program participation)--electronically 
report CQMs through QualityNet Portal.
     Eligible hospital and CAH options for electronic reporting 
for multiple programs (that is, EHR Incentive Program and Hospital IQR 
Program participation)--electronically report through QualityNet 
Portal.
    As noted in the 2015 EHR Incentive Programs Final Rule (80 FR 
62894), starting in 2018, eligible hospitals and CAHs participating in 
the Medicare EHR Incentive Program must electronically report CQMs 
where feasible; and attestation to CQMs will no longer be an option 
except in certain circumstances where electronic reporting is not 
feasible.
    For the Medicaid EHR Incentive Program, States 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.
    For CY 2018, we proposed to continue our policy regarding the 
electronic submission of CQMs, which would require the use of the most 
recent version of the CQM electronic specification for each CQM to 
which the EHR is certified. For the CY 2018 electronic reporting of 
CQMs, this means eligible hospitals and CAHs would be required to use 
the Spring 2017 version of the CQM electronic specifications and any 
applicable addenda available on the eCQI Resource Center Web page at: 
https://ecqi.healthit.gov/. In addition, we proposed to require that an 
eligible hospital or CAH would need to have its EHR technology 
certified to all 16 available CQMs from the table in the FY 2017 IPPS/
LTCH PPS final rule at 81 FR 57255 in order to meet the reporting 
requirements for CY 2018. In the 2015 EHR Incentive Programs Final Rule 
(80 FR 62767), we established that starting in CY 2018, eligible 
hospitals and CAHs are required to have EHR technology certified to the 
2015 Edition, although as discussed in section IX.G.4 of the preamble 
of this final rule, we are changing that requirement for the EHR 
reporting period in CY 2018.
    Starting in CY 2018, we proposed to require the use of EHR 
technology certified to the 2015 Edition for CQM reporting. 
Furthermore, we proposed that an EHR certified for CQMs under the 2015 
Edition certification criteria would not need to be recertified each 
time it is updated to a more recent version of the CQMs. We believe it 
is not necessary for an EHR certified for CQMs under the 2015 Edition 
certification criteria to be recertified each time it is updated to the 
most recent version of the CQMs because the EHR technology continues to 
meet the 2015 Edition certification criteria and any updates to the CQM 
specifications do not impact or change any elements regarding 
certification and thus, we proposed that recertification is not 
necessary. For further discussion regarding EHR certification 
requirements for 2018, we refer readers to section IX.G.4. of the 
preamble of this final rule. We invited public comment on these 
proposals.
    Comment: Many commenters did not support the proposal requiring EHR 
technology to be certified to the 2015 Edition for the CY 2018 
reporting period. Several commenters supported the options described in 
the FY 2018 IPPS/LTCH PPS proposed rule that would allow hospitals to 
use 2014 Edition CEHRT or a combination of 2014 and 2015 Edition CEHRT 
for the CY 2018 CQM reporting period.
    A few commenters recommended CMS delay the requirement for EHR 
technology to be certified to the 2015 Edition until the CY 2019 
reporting period. The commenters indicated that additional time is 
necessary since the certification requirements for the 2015 Edition are 
extensive and expensive, and noted that health IT vendors will continue 
to struggle with completing the

[[Page 38484]]

certification process by January 1, 2018. One commenter mentioned that 
turn over in the industry has caused a backlog in the certification 
process. Another commenter expressed concern that the slow pace of 
certification, the number of upgrades that need to be performed, and 
the number of trainings yet to be held makes it highly unlikely that 
health systems and medical practices will be prepared to submit CQMs 
using EHR technology certified to the 2015 Edition for the CY 2018 
reporting period. Another commenter noted that implementing the 2015 
Edition of CEHRT does not automatically create the ability to submit 
appropriate or complete quality data.
    Response: We recognize that there is burden associated with the 
development and deployment of each new edition of CEHRT, but we believe 
it is important to continue to encourage the use of the most recent 
edition of CEHRT, which incorporates updated standards and criteria, as 
it allows the collection of more relevant and accurate electronic data. 
We believe there are many benefits associated with upgrading to EHR 
technology certified to the 2015 Edition. Specifically, the 2015 
Edition health IT certification criteria enables health information 
exchange through new and enhanced certification criteria standards, and 
implementation specifications for interoperability while incorporating 
changes that are designed to spur innovation and provide more choices 
to health care providers and patients for the exchange of electronic 
health information including new application access (API) certification 
criteria.
    However, based on the comments we received that did not support our 
proposal, we are also finalizing a modified version of our proposal to 
require the use of EHR technology certified to the 2015 Edition for the 
CQM reporting period in CY 2018. For the CY 2018 CQM reporting period, 
eligible hospitals and CAHs will have the flexibility to use EHR 
technology certified to the 2014 Edition or 2015 Edition, or a 
combination of both Editions. We believe this provides sufficient time 
for eligible hospitals and CAHs to test and deploy the 2015 Edition of 
CEHRT in subsequent years. The utilization of the most recent version 
of CEHRT will provide the most relevant data, which is critical for 
eligible hospitals and CAHs to collect, use, and share data. We believe 
improved systems interoperability and use of the most current standards 
will facilitate more robust and accurate quality data reporting. One of 
the main purposes of the ONC 2015 Edition final rule (80 FR 62603) is 
to facilitate greater interoperability for several clinical health 
information purposes and enable health information exchange through new 
and enhanced certification criteria, standards, and implementation 
specifications. We note that we have worked closely with ONC to enhance 
testing and validation of certified technology's ability to capture, 
exchange, and report electronic patient data, such as improved testing 
and certification through the Cypress CQM testing and certification 
tool.
    In addition, in response to the concern regarding the burden 
associated with upgrading EHR technology certified to the 2015 Edition 
for the CY 2018 CQM reporting period, as discussed in this section of 
the preamble of this final rule, we are finalizing a modified version 
of our proposal regarding CQM reporting requirements for the CY 2018 
reporting period that require reporting on 4 self-selected CQMs for 
one, self-selected calendar quarter of data to reduce burden. By 
allowing eligible hospitals and CAHs to self-select the quarters of 
data they report, eligible hospitals and CAHs will have more 
flexibility to meet certification and EHR system upgrades, such as 
transitioning to the 2015 Edition.
    We are also finalizing a modified version of our proposal to 
require the use of EHR technology certified to the 2015 Edition for the 
CQM reporting period in CY 2018. For the CY 2018 CQM reporting period, 
eligible hospitals and CAHs will have the flexibility to use EHR 
technology certified to the 2014 Edition or 2015 Edition, or a 
combination of both Editions. We believe this provides sufficient time 
for eligible hospitals and CAHs to test and deploy the 2015 Edition of 
CEHRT in subsequent years.
    Comment: One commenter expressed concern that allowing the 
flexibility to use a combination of the 2014 and 2015 Editions of CEHRT 
for the CY 2018 reporting period may create more problems than it could 
potentially solve.
    Response: We acknowledge the concern from the commenter and note 
that we do not believe allowing hospitals to use a combination of EHR 
technology certified to the 2014 and 2015 Editions would make it more 
difficult for them to meet the CQM reporting requirements in CY 2018. 
We have allowed this flexibility for the CY 2016 and CY 2017 reporting 
periods and we are not aware of any specific issues in QRDA I file 
creation or submission. Based on the comments received, many eligible 
hospitals, CAHs, and health IT vendors would prefer to have greater 
time and flexibility to implement upgrades to the 2015 Edition.
    Comment: Several commenters supported the proposal to require EHR 
technology to be certified to all 16 CQMs for the CY 2018 reporting 
period since all 16 CQMs should be available for submission to allow 
for reporting flexibility to better reflect the populations served by 
hospitals.
    Response: We thank the commenters for their support regarding our 
proposal to require EHR technology to be certified to all 16 CQMs for 
the CY 2018 reporting period.
    Comment: Several commenters did not support the proposal to require 
that EHR technology be certified to all 16 CQMs for the CY 2018 
reporting period. A few of these commenters noted that there is not a 
requirement as a condition of ONC certification for EHR technology to 
support all CQM reporting options for hospitals, leaving each hospital 
or health system to work independently with health IT vendors in 
implementing their measures. The commenters expressed concern that 
these conditions may result in additional costs and hours of additional 
work for hospitals, and cause a tremendous waste of limited financial 
and personnel resources.
    In addition, some commenters expressed concern that the proposal to 
require EHR technology be certified to all 16 CQMs for the CY 2018 
reporting period inappropriately places the burden on hospitals, rather 
than health IT vendors, to meet the requirement, especially for 
hospitals transitioning to EHR technology certified to the 2015 Edition 
and preparing for long-planned system upgrades. These commenters urged 
CMS to work with ONC and health IT vendors to ensure that the 2015 
Edition CEHRT is capable of supporting hospital CQM reporting, 
including the reporting of any of the CQMs available to report in the 
Medicare and Medicaid EHR Incentive Programs.
    One commenter expressed concern that this policy eliminates the 
opportunity for a specialty product to focus on measures only 
applicable to its domain, such as a surgical suite product focusing on 
surgery measures. The commenter also noted its concern that this policy 
would reduce the availability of CEHRT for hospitals or lead to poorer 
workflows for capturing quality data.
    Response: We appreciate commenters expressing their concerns 
regarding the proposal to require EHR technology be certified to all 
available CQMs for the CY 2018 reporting period. We recognize the 
challenges associated with the electronic reporting of CQMs. We

[[Page 38485]]

believe that requiring EHR technology to be certified to all available 
CQMs is important in allowing us to collect the most relevant 
electronic data. Further, we believe that requiring EHR technology to 
be certified to all available CQMs would help streamline the electronic 
data extrapolation component of hospital workflow in the future. In 
addition, having EHR technology certified to all available CQMs will 
prevent hospitals from having to go back and consult their health IT 
vendors each time they want/need to report on a new or different CQM.
    We do not agree that the proposal places the burden on hospitals, 
rather than health IT vendors, to meet the requirement. We will 
continue to seek stakeholder input and collaborate with ONC to define 
standards for EHR organization and structure, which would allow for 
documentation to fit into the clinical workflow and to ensure our 
policies are responsive to evolving electronic standards to the 
greatest extent possible. We also seek to ensure that EHR technology 
certified to the 2015 Edition is capable of supporting hospital CQM 
reporting requirements, including the electronic reporting of any of 
the CQMs that are available to report under the Medicare and Medicaid 
EHR Incentive Programs. We encourage eligible hospitals and CAHs to 
work with their health IT vendors to continue refining their electronic 
reporting implementation activities to successfully achieve electronic 
data capture and reporting despite mapping and integration issues.
    With respect to the concern indicating that this policy eliminates 
the opportunity for a specialty product to focus on measures only 
applicable to its domain, such as a surgical suite product focusing on 
surgery measures and that it would reduce the availability of CEHRT for 
hospitals or lead to poorer workflows for capturing quality data, we 
believe focusing first on consistency and alignment across all measures 
and EHR systems will provide an opportunity for all specialties to 
report equally within the EHR technology. Focusing on unique and 
individual specialties is a consideration for future rules once the 
concept of electronic reporting is fully established. Therefore, 
requiring EHR technology to be certified to all available CQMs at this 
time outweighs the potential limitations on specialty products and any 
impact this might have on their workflow.
    After consideration of the public comments we received, we are 
finalizing the following policies regarding CQM reporting form and 
method as proposed. For CY 2018, we will continue our policy regarding 
the electronic submission of CQMs, which requires the use of the most 
recent version of the CQM electronic specification for each CQM to 
which the EHR is certified. For the CY 2018 electronic reporting of 
CQMs, this means eligible hospitals and CAHs are required to use the 
Spring 2017 version of the CQM electronic specifications and any 
applicable addenda available on the eCQI Resource Center Web page at: 
https://ecqi.healthit.gov/. In addition, we are requiring that an 
eligible hospital or CAH will need to have its EHR technology certified 
to all 16 available CQMs from the table in the FY 2017 IPPS/LTCH PPS 
final rule at 81 FR 57255 in order to meet the reporting requirements 
for CY 2018.
    In regard to the proposal requiring eligible hospitals and CAHs to 
utilize EHR technology certified to the 2015 Edition for CQM reporting 
in CY 2018, we are finalizing a modification to our proposal. As 
discussed above and in section IX.G.4 of the preamble of this final 
rule, for the CY 2018 CQM reporting period, eligible hospitals and CAHs 
will have the flexibility to use EHR technology certified to either the 
2014 Edition or 2015 Edition, or a combination of both Editions. We 
note that an EHR technology certified for CQMs under the 2014 or 2015 
Edition certification criteria will not need to be recertified each 
time it is updated to a more recent version of the CQMs.

F. Clinical Quality Measurement for Eligible Professionals (EPs) 
Participating in the Medicaid EHR Incentive Program in 2017

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20134 through 
20135), we discussed clinical quality measurement for eligible 
professionals (EPs) participating in the Medicaid EHR Incentive Program 
in 2017. We explained that the proposals in this section would apply 
only to EPs participating in the Medicaid EHR Incentive Program. They 
would not apply to eligible hospitals or CAHs, or to the Medicare EHR 
Incentive Program.
1. Modifications to the CQM Reporting Period for EPs in 2017
    In the 2015 EHR Incentive Programs Final Rule (80 FR 62762), we 
established for the Medicare and Medicaid EHR Incentive Programs a CQM 
reporting period of the full CY 2017 for EPs who have demonstrated 
meaningful use in a prior year and a CQM reporting period of any 
continuous 90 days within CY 2017 for EPs who are demonstrating 
meaningful use for the first time (80 FR 62891 through 62892). We also 
noted that we would continue to allow the States to determine the form 
and manner in which Medicaid EPs should report CQMs, subject to CMS 
approval (80 FR 62891, 62894).
    In the final rule with comment period titled Medicare Program; 
Merit-Based Incentive Payment System (MIPS) and Alternative Payment 
Model (APM) Incentive Under the Physician Fee Schedule, and Criteria 
for Physician-Focused Payment Models (81 FR 77008) (referred to as the 
``CY 2017 Quality Payment Program final rule with comment period''), we 
established at Sec.  414.1320(a), for the 2019 MIPS payment year, a 
minimum of a continuous 90-day performance period within CY 2017, up to 
and including the full CY 2017, for the quality performance category of 
the MIPS. We established at Sec.  414.1320(b), for the 2020 MIPS 
payment year, a performance period of the full CY 2018.
    Following the publication of that final rule with comment period, 
we received feedback from EPs observing that having CQM reporting or 
performance periods for Medicare professionals under MIPS that are 
different from the CQM reporting period for EPs under the Medicaid EHR 
Incentive Program would create administrative burdens for EPs who wish 
to participate in both programs and to report CQMs electronically. Our 
goal has always been to align Medicare and Medicaid reporting and 
quality improvement programs to the extent possible. In addition, while 
participation in MIPS is required for professionals who are considered 
``MIPS eligible clinicians,'' participation in the Medicaid EHR 
Incentive Program is not required. If the CQM reporting periods and 
MIPS performance periods are not aligned, we believe it is less likely 
that MIPS eligible clinicians will also participate as EPs in the 
remaining years of the Medicaid EHR Incentive Program.
    Therefore, in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20134), we proposed to change the CQM reporting period for EPs who 
report CQMs electronically in the Medicaid EHR Incentive Program to 
match the performance period established under MIPS in the quality 
performance category for MIPS eligible clinicians. We proposed a 
minimum of a continuous 90-day period during CY 2017 for EPs 
electronically reporting CQMs for the Medicaid EHR Incentive Program. 
We note that we consider the reporting periods established through 
rulemaking to be minimums and would encourage States to accept data 
from longer reporting periods. We proposed that the

[[Page 38486]]

reporting period for CQMs for EPs who choose to attest rather than 
report electronically, and who have demonstrated meaningful use in a 
previous program year under the EHR Incentive Program, would remain one 
full year (CY 2017), which is in alignment with the requirements for 
eligible hospitals and CAHs for the Medicare and Medicaid EHR Incentive 
Programs for 2017 (80 FR 62892 through 62893). We noted that reporting 
CQMs by attestation is not an option for eligible clinicians under 
MIPS, so the reason for proposing a shortened reporting period for EPs 
reporting CQMs electronically, which is to align this reporting period 
with the MIPS performance period, would not exist for EPs who choose 
not to report electronically. We explained that nothing in this 
proposal would change the CQM reporting period for EPs demonstrating 
meaningful use for the first time, which was established in the 2015 
EHR Incentive Programs Final Rule to be any continuous 90 day period 
regardless of the method of CQM submission (80 FR 62892).
    We further explained that the CQM reporting period for the Medicaid 
EHR Incentive Program in 2018 for EPs that have demonstrated meaningful 
use in a previous program year would remain 1 full year (CY 2018) to 
align with the corresponding performance period in MIPS for MIPS 
eligible clinicians. If changes are made to the MIPS performance period 
through future rulemaking, we will revisit the Medicaid EHR Incentive 
Program policies to continue our alignment goals.
    We explained that we intend to reduce EP burden and simplify the 
program through this proposal, which is intended to better align CQM 
reporting periods and CQM reporting for the Medicaid EHR Incentive 
Program with policies under MIPS. Overall, we believe the proposed 
alignment at the State attestation system and EP levels would both 
reduce burden associated with reporting on multiple CMS programs and 
enhance State and CMS operational efficiency.
    We invited public comment on this proposal, including on whether 
making the proposed change would create burdens for EPs or States.
    Comment: The majority of commenters supported our proposal to 
change the CQM reporting period to any continuous 90-day period during 
CY 2017 for EPs electronically reporting CQMs for the Medicaid EHR 
Incentive Program, which would align with the MIPS performance period. 
Commenters supported aligning the Medicaid EHR Incentive Program with 
MIPS when possible to reduce EP burden.
    Response: We appreciate these comments and will continue to look 
for ways to align the Medicaid EHR Incentive Program with MIPS when 
possible. Therefore, we are finalizing the proposal to change the CQM 
reporting period to any continuous 90-day period during CY 2017 for 
Medicaid EPs electronically reporting CQMs.
    Comment: Several commenters, including representatives of state 
Medicaid agencies, requested that CMS also change the CQM reporting 
period for Medicaid EPs who attest to CQMs rather than report 
electronically in CY 2017. These commenters noted that establishing a 
90-day reporting period for all CQM reporting, regardless of submission 
method, would further reduce EP burden and streamline the Medicaid EHR 
Incentive Program requirements.
    Response: We thank these commenters and agree that establishing a 
90-day CQM reporting period during CY 2017 for all Medicaid EPs, 
regardless of submission method, would reduce burden and streamline the 
program requirements. Due to the comments we received, the majority of 
which encouraged us to make this change to the proposed rule, we 
reconsidered the benefits to all EPs of a 90-day CQM reporting period 
in CY 2017. Therefore, we are establishing a CQM reporting period of 
any continuous 90-day period during CY 2017 for all Medicaid EPs, 
regardless of reporting method.
    After consideration of the public comments we received, we are 
finalizing a CQM reporting period for 2017 of any continuous 90-day 
period during CY 2017 for all Medicaid EPs, regardless of submission 
method.
2. Modifications to CQM Reporting Requirements for Medicaid EPs Under 
the Medicaid EHR Incentive Program
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20134 through 
20135), we also proposed to align the specific CQMs available to EPs 
participating in the Medicaid EHR Incentive Program with those 
available to clinicians participating in MIPS who submit CQMs through 
their EHR. In the final rule titled ``Medicare and Medicaid Programs; 
Electronic Health Record Incentive Program--Stage 2,'' we established 
(77 FR 54058) that EPs are required to report 9 CQMs covering at least 
3 of the National Quality Strategy (NQS) domains from a list of 64 CQMs 
(77 FR 54069, Table 8). Subsequently and in the following years, in 
general, there has been alignment between the CQMs selected for the 
Medicaid and Medicare EHR Incentive Programs for EPs and the electronic 
measures selected for the PQRS Program. Updates to the PQRS measure set 
were proposed and finalized in the annual Physician Fee Schedule (PFS) 
rule for purposes such as keeping specifications in line with industry 
standards and clinical guidelines.
    In the CY 2017 Quality Payment Program final rule with comment 
period (81 FR 77144), we revised the list of CQMs for the 2019 MIPS 
payment year, based on performance periods within CY 2017, to better 
reflect updated clinical standards and guidelines. Specifically, we 
removed a number of CQMs that had not been updated and were no longer 
clinically relevant (81 FR 77773, Appendix, Table F). In order to keep 
CQM specifications current, we proposed to align the CQMs for Medicaid 
EPs with those applicable for MIPS. Specifically, we proposed that the 
CQMs available for Medicaid EPs in 2017 would consist of the list of 
available CQMs for reporting from an EHR for MIPS in 2017, available in 
the Appendix of the CY 2017 Quality Payment Program final rule with 
comment period under Table A, which are denoted with a CMS e-Measure ID 
number.
    In the CY 2017 Quality Payment Program final rule with comment 
period (81 FR 77145), we noted that one commenter requested that we 
engage State Medicaid leaders to maximize measure alignment across 
Medicare and Medicaid. We responded that we intend to align quality 
measures among all CMS quality programs where possible, including 
Medicaid, and would take this comment into account in the future. In 
addition, States have requested alignment between the CQM set for MIPS 
and the CQM set for EPs in the Medicaid EHR Incentive Program for 
consistency and convenience, to reduce burden, and to avoid confusion. 
In addition, we believe it is more likely that professionals would 
participate in both programs if the CQM sets are aligned. While 
participation in MIPS is required for professionals who are considered 
``MIPS eligible clinicians,'' participation in the Medicaid EHR 
Incentive Program is not required. If the CQMs are not aligned across 
both programs, we believe it is less likely that MIPS eligible 
clinicians would also participate as EPs in the remaining years of the 
Medicaid EHR Incentive Program. Finally, as noted above, the CQMs that 
were removed from MIPS (81 FR 77773, Appendix, Table F) had not been 
updated and were no longer clinically relevant, and we believe that the 
revised list of CQMs would better reflect

[[Page 38487]]

updated clinical standards and guidelines (81 FR 77144).
    We noted in the proposed rule that we anticipate that this proposal 
would reduce burden for Medicaid EPs, and that the systems changes that 
would be needed to implement it would not be significant for either 
States or EPs. The set of 53 CQMs available to MIPS participants is a 
subset of the 64 CQMs currently available under the Medicaid EHR 
Incentive Program. In addition, we believe that if EPs also plan to 
participate in MIPS, they should already be prepared to report on the 
53 CQMs. However, we welcomed comments on whether any EPs might be 
negatively affected by the proposal; for example, on whether any EPs 
might have EHRs that do not measure enough of the 53 remaining CQMs 
because they were relying on some of the 11 CQMs that would be removed. 
We do not anticipate that this would be a common situation because 
these 11 CQMs are outdated, and the industry is moving away from them 
as EHRs are upgraded to meet the MIPS requirements.
    We also noted in the proposed rule that we anticipate that the 
proposal to reduce the number of available CQMs would have only a 
minimal impact on States, which would have to make minor adjustments to 
State systems to reduce the available measures from 64 to 53. It is our 
understanding that State systems can turn off or easily exclude CQMs 
from user visibility on the front end and still easily manage on the 
back end.
    The data submission criteria for the MIPS quality performance 
category at Sec.  414.1335(a)(1)(i) provide that individual MIPS 
eligible clinicians and groups who elect to submit data via claims, 
qualified registry, EHR or qualified clinical data registry must submit 
data on at least six quality measures, including at least one outcome 
measure (or, if an applicable outcome measure is not available, one 
other high priority measure). We refer readers to Sec.  414.1335(a)(2) 
and (3) for the data submission criteria that apply to individual MIPS 
eligible clinicians and groups who elect to submit data via other data 
submission mechanisms.
    Instead of requiring MIPS eligible clinicians to report on CQMs 
across a certain number of NQS domains, MIPS provides individual MIPS 
eligible clinicians and groups with a variety of alternatives for 
participating in MIPS, including a variety of data submission 
mechanisms and scoring criteria. We noted in the proposed rule that we 
believe that the burden on EPs and States of adopting all of these MIPS 
alternatives for the Medicaid EHR Incentive Program would outweigh any 
benefits gained. The alternative reporting options for MIPS are 
calibrated as part of an overall quality improvement program beyond 
what the Medicare and Medicaid EHR Incentive Programs are designed to 
be. We believe it would be inappropriate to apply all of these new 
requirements to the Medicaid EHR Incentive Program.
    We proposed to eliminate the requirement to report on CQMs across 3 
of the 6 NQS domains that existed in previous years of the Medicaid EHR 
Incentive Program, for improved alignment with the data submission 
criteria for the MIPS quality performance category. The removal of this 
requirement would provide EPs greater flexibility in selecting CQMs to 
report and would assure that they could report on the same CQMs from 
their EHR to both MIPS and the Medicaid EHR Incentive Program.
    We proposed that for 2017 Medicaid EPs would be required to report 
on any six measures that are relevant to the EP's scope of practice. 
This proposal would better align with the data submission criteria for 
the MIPS quality performance category in 2017.
    We noted that we would continue our policy on allowing zero 
denominators to be reported to allow EPs to meet the CQM reporting 
requirements of the EHR Incentive Programs (80 FR 62889). Future years' 
requirements for reporting CQMs in the Medicaid EHR Incentive Program 
will be established in future rulemaking, as the policies for MIPS are 
developed for 2018 and beyond. We will continue to align the quality 
reporting requirements, as logical and feasible, to reduce EP burden.
    We invited public comment on these proposals, specifically on 
whether making these proposed changes to CQM measures and measure 
reporting effective for 2017 would create burdens on EPs or States. If 
so, we stated we would consider making these proposed changes to the 
CQM reporting requirements effective beginning with the reporting 
period in 2018.
    Comment: The vast majority of commenters supported CMS' proposals 
to change the CQM reporting requirements for EPs participating in the 
Medicaid EHR Incentive Program to align with the MIPS requirements for 
eligible clinicians and groups reporting CQMs through their EHRs. Our 
proposal to reduce and simplify the reporting requirement, from nine 
CQMs across 3 NQS domains, to any six CQMs relevant to an EP's scope of 
practice, received significant support from commenters.
    Response: We appreciate the comments and are finalizing the 
proposals as proposed. In 2017, Medicaid EPs will report any six CQMs 
relevant to their scope of practice, regardless of whether they report 
via attestation or electronically.
    Comment: One provider group commented that removing CQMs from the 
list of available CQMs could be an issue for EPs who were expecting to 
report on the removed measures in 2017.
    Response: We did not receive any comments from providers 
affirmatively stating that this would be an issue. The majority of 
provider comments were very supportive of aligning the Medicaid EHR 
Incentive Program CQM reporting requirements with MIPS, stating that it 
would reduce reporting burden and allow providers to participate in 
both programs. Reducing the number of required CQMs from 9 to 6, and 
removing the domain requirements gives EPs greater flexibility to meet 
program requirements. We believe that all Medicaid EPs will be able to 
find six CQMs that are relevant to their scope of practice within the 
updated list of available CQMs. Also, we note our continued policy to 
allow ``zero denominator'' CQM submissions, which allows EPs to report 
on a CQM even if they have no data on that CQM in their EHR from the 
reporting period.
    After consideration of the public comments we received, we are 
finalizing the proposals without modification. For 2017, the CQMs 
available for Medicaid EPs will consist of the list of 53 available 
CQMs for reporting from an EHR for MIPS for 2017 performance periods. 
Also, for 2017, Medicaid EPs are required to report on any six measures 
that are relevant to the EP's scope of practice.

G. Changes to the Medicare and Medicaid EHR Incentive Programs

1. Summaries of Final Policies Included in This Final Rule
    In this final rule, we are adopting final policies based on 
proposals in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20135-
20139) to continue advancement of certified EHR technology utilization, 
focusing on interoperability and data sharing. For the reasons 
discussed in section IX.G.2. of the preamble of this final rule, we are 
finalizing an EHR reporting period of a minimum of any continuous 90-
day period in CY 2018 for new and returning participants attesting to 
CMS or their State Medicaid agency.
    As mandated by the 21st Century Cures Act (Pub. L. 114-255, enacted 
on December 13, 2016), we proposed an

[[Page 38488]]

exception from the Medicare payment adjustments for EPs, eligible 
hospitals, and CAHs who are unable to comply with the requirements for 
being a meaningful EHR user because their CEHRT has been decertified 
under ONC's Health IT certification program (82 FR 20136 through 
20138). For the reasons discussed in section IX.G.3. of the preamble of 
this final rule, we are finalizing the exception and application 
process for EPs, eligible hospitals and CAHs as proposed.
    As mandated by the 21st Century Cures Act, in the FY 2018 IPPS/LTCH 
PPS proposed rule (81 FR 20138 through 20139), we proposed to implement 
a policy in which no payment adjustments will be made in 2017 and 2018 
for eligible professionals who furnish ``substantially all'' of their 
covered professional services in an Ambulatory Surgical Center (ASC). 
We proposed to define an ASC-based EP under Sec.  495.4 as an EP who 
furnishes 75 percent or more (or alternatively, 90 percent or more) of 
his or her covered professional services in sites of service identified 
by the codes used in the HIPAA standard transaction as an ASC setting 
in the calendar year that is two years before the payment adjustment 
year. In addition, we proposed to use Place of Service (POS) Code 24 to 
identify services furnished in an ASC and requested public comment on 
whether other POS codes or mechanisms should be used to identify sites 
of service in addition to or in lieu of POS code 24. For the reasons 
discussed in section IX.G.4. of the preamble of this final rule, we are 
finalizing the definition of an ASC-based EP as an EP who furnishes 75 
percent or more of his or her covered professional services in sites of 
service identified by POS 24.
    In the proposed rule, we stated we were working in cooperation with 
our Federal partners at the ONC to monitor progress on the 2015 Edition 
upgrade. For the reasons discussed in section IX.G.5. of the preamble 
of this final rule, we are finalizing a policy to allow EPs, eligible 
hospitals, and CAHs the flexibility to use EHR technology certified to 
the 2014 Edition, 2015 Edition, or a combination of the 2014 and 2015 
Editions for an EHR reporting period in 2018.
    We also note that we received comments specific to the EHR 
Incentive Programs objectives and measures, audits for meaningful use, 
Merit-Based Incentive Payment System (MIPS) and allocation of grant 
funding for CEHRT which are out of scope for this rule.
2. Revisions to the EHR Reporting Period in 2018
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20136), we 
proposed to change the EHR reporting period in 2018 for new and 
returning participants attesting to CMS or their State Medicaid agency 
from the full year (CY 2018) to a minimum of any continuous 90-day 
period within CY 2018.
    Therefore, EPs, eligible hospitals and CAHs would attest to 
meaningful use for an EHR reporting period of a minimum of any 
continuous 90-day period from January 1, 2018 through December 31, 
2018. The applicable incentive payment year and payment adjustment 
years for the EHR reporting period in 2018, as well as the deadlines 
for attestation and other related program requirements, would remain 
the same as established in prior rulemaking. We proposed corresponding 
changes to the definition of ``EHR reporting period'' and ``EHR 
reporting period for a payment adjustment year'' at 42 CFR 495.4.
    We invited public comment on our proposal.
    Comment: Commenters overwhelmingly supported CMS' proposal to 
change the EHR reporting period to a minimum of any continuous 90-day 
period in CY 2018. Some commenters requested an extension of the 90-day 
EHR reporting period beyond CY 2018. Another commenter stated for the 
first year of any new ``Stage'' a reduced reporting period should be 
used. A few commenters stated CMS should adopt a 90-day reporting 
period for all programs, all submission methods, and all years.
    Response: We thank commenters for their support on this proposed 
policy. We disagree that a 90-day EHR reporting period should be 
established indefinitely for new and returning participants in the EHR 
Incentive Programs. We are finalizing a 90-day EHR reporting period in 
CY 2018 to allow participants additional time for testing and 
implementation of the 2015 Edition, including the new application 
programming interface (API) functionality requirement for Stage 3. We 
previously stated that we believe a full year EHR reporting period is 
the most effective way to ensure that all actions related to patient 
safety which leverage CEHRT are fully enabled for the duration of the 
year. This is one of the primary considerations of our continued push 
for a full year EHR reporting period. We will take commenters' 
suggestions under advisement for purposes of future rulemaking.
    Comment: A commenter requested CMS clearly define the EHR reporting 
period. A few commenters requested clarity on whether CMS intends to 
have a minimum of any continuous 90 days for reporting the meaningful 
use objectives and measures and the clinical quality measures.
    Response: The EHR reporting period is a minimum of any continuous 
90-day period within the 2018 calendar year for new and returning 
participants attesting to CMS or their State Medicaid agency. The EHR 
reporting period must occur between January 1, 2018 and December 31, 
2018. For information regarding the reporting period for clinical 
quality measures (CQMs) for 2018, we refer readers to section IX.E.3.b. 
of the preamble of this final rule.
    Comment: Several commenters requested clarification on when CEHRT 
needs to be implemented for the applicable EHR reporting period.
    Response: An EP, eligible hospital, or CAH may begin the EHR 
reporting period and implement their EHR technology before it is 
certified. Certification need only be obtained prior to the end of the 
EHR reporting period. We caution that if an EP, eligible hospital or 
CAH starts the EHR reporting period without the certification complete, 
it runs the risk of not being a meaningful EHR user for that EHR 
reporting period. See FAQ2893 (available at: https://questions.cms.gov/faq.php?isDept=0&search=FAQ2893&searchType=faqId&submitSearch=1&id=5005)
.
    After consideration of the public comments we received, we are 
finalizing for new and returning EPs, eligible hospitals, and CAHs 
attesting to CMS or their State Medicaid agency, an EHR reporting 
period in CY 2018 as a minimum of any continuous 90 days between 
January 1, 2018 through December 31, 2018, as proposed. The applicable 
incentive payment year and payment adjustment years for the EHR 
reporting period in 2018, as well as the deadlines for attestation and 
other related program requirements, will remain the same as established 
in prior rulemaking.
    We are finalizing corresponding changes to the definitions of ``EHR 
reporting period'' and ``EHR reporting period for a payment adjustment 
year'' in the regulations under 495.4.
3. Exception for Decertified EHR Technology for EPs, Eligible 
Hospitals, and CAHs Seeking To Avoid the Medicare Payment Adjustment
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20136 through 
20138), as mandated by sections

[[Page 38489]]

4002(b)(1)(A) and (b)(2) of the 21st Century Cures Act, we proposed to 
add a new exception for EPs, eligible hospitals and CAHs from the 
Medicare payment adjustments under sections 1848(a)(7)(A), 
1886(b)(3)(B)(ix)(I), and 1814(l)(4) of the Act, respectively, who 
demonstrate through an application process that compliance with the 
requirement for being a meaningful EHR user is not possible because the 
certified EHR technology used has been decertified under ONC's Health 
IT Certification Program.
    We proposed that to be considered for this exception, an EP, 
eligible hospital and CAH must submit an application in a form and 
manner specified by CMS and must demonstrate in its application and 
through supporting documentation if available that they intended to 
attest to meaningful use for a certain EHR reporting period and made a 
good faith effort to adopt and implement another CEHRT in advance of 
that EHR reporting period.
    We proposed an EP may qualify for this exception for the CY 2018 
payment adjustment year, which is the final year of the payment 
adjustment for EPs under section 1848(a)(7)(A) of the Act, if their 
certified EHR technology was decertified at any time during the 12-
month period preceding the applicable EHR reporting period for the CY 
2018 payment adjustment year or during the applicable EHR reporting 
period for the CY 2018 payment adjustment year, which under Sec.  495.4 
is any continuous 90-day period in CY 2016 or 2017, depending on 
whether the EP has successfully demonstrated meaningful use in a prior 
year.
    We proposed an EP seeking to qualify for this exception would 
submit an application in the form and manner specified by us by October 
1, 2017, or a later date specified by us. We proposed an eligible 
hospital may qualify for this exception beginning with the FY 2019 
payment adjustment year, if their certified EHR technology was 
decertified at any time during the 12-month period preceding the 
applicable EHR reporting period for the payment adjustment year, or 
during the applicable EHR reporting period for the payment adjustment 
year.
    We proposed an eligible hospital seeking to qualify for this 
exception would submit an application in the form and manner specified 
by us by July 1 of the year before the payment adjustment year (for 
example, for the FY 2019 payment adjustment year, by July 1, 2018), or 
a later date specified by us.
    We proposed a CAH may qualify for this exception beginning with the 
FY 2018 payment adjustment year if their certified EHR technology was 
decertified at any time during the 12-month period preceding the 
applicable EHR reporting period for the payment adjustment year, or 
during the applicable EHR reporting period for the payment adjustment 
year. We proposed a CAH seeking to qualify for this exception would 
submit an application in the form and manner specified by us by 
November 30 after the end of the applicable payment adjustment year 
(for example, for the FY 2018 payment adjustment year, by November 30, 
2018), or a later date specified by us.
    We noted in the proposed rule that sections 1848(a)(7)(B) and 
1886(b)(3)(B)(ix)(II) of the Act provide that in no case may an EP, 
eligible hospital, or CAH be granted an exemption from the payment 
adjustment based on significant hardship or decertified EHR technology 
for more than five years.
    We proposed to revise Sec.  495.102(d) for EPs, Sec.  412.64(d)(4) 
for eligible hospitals and Sec.  413.70(a)(6) for CAHs to codify this 
proposed new exception.
    We invited public comment on these proposals.
    Comment: Many commenters supported the proposed exception for CEHRT 
that have been decertified by the ONC Health IT Certification Program 
stating it would help to mitigate potential financial loss to 
participants.
    Response: We thank the commenters for their support. As we stated 
in the proposed rule (82 FR 20137), we believe participants in the 
Medicare EHR Incentive Program will benefit from this additional 
exception because there is a 6-step process that usually occurs with 
implementation of a certified EHR technology system. Health care 
providers would likely have to go through some phases of this cycle 
again, and we understand that it would be time consuming and may take 
up to a year to implement. In addition, we note that the 
decertification of a CEHRT by the ONC Health IT Certification Program 
would be outside of a health care provider's control, and we agree that 
additional burden would likely result from decertification. In 
implementing this new exception, we are attempting to reduce any 
potential burden while also continuing to further the goal of 
interoperability.
    Comment: To account for the CEHRT requests for proposals (RFP) and 
selection process, implementation, and a 90-day EHR reporting period, 
several commenters requested a period of two years rather than 12 
months, and one commenter suggested that CMS provide an additional 18-
month grace period.
    Another commenter believed there should be no requirements in 
moving to a new CEHRT product and that they should have at least three 
years to switch to a new EHR system.
    A commenter indicated that the use of a 12-month period preceding 
the applicable EHR reporting period is confusing, stating that CMS 
should consider applying the exception for decertification that 
occurred at any time within the full calendar year prior to the EHR 
reporting period for the payment adjustment year and during the EHR 
reporting period for the payment adjustment year.
    Response: We disagree that the exception should be extended beyond 
the 12-month period preceding the applicable EHR reporting period as 
suggested by the commenters. As we stated in the proposed rule at 82 FR 
20137, we believe a 12-month period preceding the applicable EHR 
reporting period for the payment adjustment year is reasonable because 
it should allow ample time for health care providers to procure and 
deploy new certified EHR technology. We believe this provides 
additional flexibilities and may partially alleviate any financial 
burden placed upon a health care provider for having to procure a new 
EHR system.
    Comment: Several commenters suggested that certain situations where 
a provider's CEHRT is decertified during the EHR reporting period would 
prevent them from being able to make a good faith effort to adopt and 
implement another CEHRT in advance of or during the remainder of the 
EHR reporting period, and requested clarification.
    Response: We agree that acquiring another CEHRT during the 
applicable EHR reporting period would be difficult. We disagree, 
however, that a health care provider necessarily would be unable to 
adopt and implement a new CEHRT during the remainder of the EHR 
reporting period. We believe a good faith effort is necessary in order 
to ensure the health care provider is diligently working towards 
adopting and implementing new CEHRT under the circumstances presented. 
Health care providers may apply for this exception before or during the 
applicable EHR reporting period, by the deadlines we establish.
    Comment: A commenter requested an extension of the application 
deadline to December 31st of the year of the EHR reporting period.
    Response: At this time it is not feasible to extend the application 
until December 31st. There are time constraints we must adhere to for 
system updates and changes, therefore

[[Page 38490]]

we are unable to modify the proposed deadlines for application 
submission as outlined in 82 FR 20137 through 20138.
    Comment: A commenter stated the application process was unclear and 
encouraged CMS to release timely guidance on the application.
    Response: We will provide additional guidance regarding the 
application process after the final rule is published.
    After consideration of the public comments we received, we are 
finalizing the policy as proposed.
    We are also finalizing as proposed the corresponding changes to 
Sec.  495.102(d) for EPs, Sec.  412.64(d)(4) for eligible hospitals and 
Sec.  413.70(a)(6) for CAHs.
4. Ambulatory Surgical Center (ASC)-Based Eligible Professionals (EPs)
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20138 through 
20139), as mandated by section 16003 of the 21st Century Cures Act, we 
proposed to implement a policy in which no payment adjustments would be 
made under section 1848(a)(7)(A) of the Act for 2017 and 2018 for 
eligible professionals who furnish ``substantially all'' of their 
covered professional services in an ambulatory surgical center (ASC). 
We proposed to define an ASC-based EP under Sec.  495.4 as an EP who 
furnishes 75 percent or more (or alternatively, 90 percent or more) of 
his or her covered professional services in sites of service identified 
by the codes used in the HIPAA standard transaction as an ASC setting 
in the calendar year that is two years before the payment adjustment 
year. The percentages of covered professional services in the primary 
and alternative proposals were based, respectively, on the percentages 
used in the definitions of a hospital-based MIPS eligible clinician 
under the Quality Payment Program (Sec.  414.1305 and 81 FR 77238 
through 77240) and the definition of a hospital-based EP under the EHR 
Incentive Programs (Sec.  495.4 and 75 FR 44439 through 44442). In 
addition, we proposed to use Place of Service (POS) code 24 to identify 
services furnished in an ASC and requested public comment on whether 
other POS codes or mechanisms to identify sites of service should be 
used in addition to or in lieu of POS code 24.
    We invited public comment on these proposals.
    Comment: The majority of commenters supported the proposal for an 
ASC-based EP using 75 percent or more to define eligible professionals 
who furnish ``substantially all'' of their covered professional 
services in an ambulatory surgical center. The commenters believe the 
exception from the payment adjustments for ASC-based EPs will 
significantly reduce burden and promote consistency between the EHR 
Incentive Program and MIPS, but also ensures EPs who have little 
control over EHR decisions in their practice are not subject to payment 
adjustments.
    One commenter stated that the definition of ASC-based EP should be 
as broad as possible.
    Response: We thank commenters for their support. We are finalizing 
the definition of ASC-based EP as proposed using 75 percent or more to 
define eligible professionals who furnish ``substantially all'' of 
their covered professional services in an ASC, which aligns with the 
hospital-based MIPS eligible clinician definition under the Quality 
Payment Program (Sec.  414.1305 and 81 FR 77238 through 77240). We also 
agree that this policy will result in a reduction in burden for ASC-
based EPs who have little control over the EHR decisions in the 
practice.
    Comment: A few commenters suggested using 50 percent as the 
threshold to define ``substantially all'' as some EPs provide more than 
50 percent, but less than 75 percent or 90 percent, of their services 
in an ASC.
    Response: The statutory definition of an ambulatory surgical 
center-based EP provides that to be considered an ambulatory surgical 
center-based EP, the EP must provide ``substantially all'' of his or 
her covered professional services in an ambulatory surgical center. 
Therefore, we must identify the minimum percentage of an EP's covered 
professional services that must be provided in an ambulatory surgical 
center in order for the EP to be considered as providing 
``substantially all'' of his or her covered professional services in an 
ASC setting. We do not believe that an EP who furnishes only slightly 
more than half of his or her covered professional services in an ASC 
setting is furnishing substantially all of such services in that 
setting. Based on the hospital-based MIPS eligible clinician definition 
we previously established under the Quality Payment Program, we believe 
that 75 percent is an appropriate minimum percentage of an EP's covered 
professional services.
    Comment: One commenter suggested that CMS should change 
``substantially all covered professional services'' to ``substantially 
all ASC covered services.'' The commenter believed that CMS should 
combine ASC services with all other Medicare Part B services when 
determining whether the professional is a meaningful user of CEHRT.
    Response: We are unable to adopt the commenter's suggestion because 
the statute refers to ``covered professional services'' furnished by 
the EP. When determining if an EP qualifies as an ASC-based EP, we 
would look at all of their Medicare services billed using POS 24, and 
from that we would be able to determine the percentage of covered 
professional services that were furnished in an ASC. In addition, we 
requested comments on whether additional place of service codes or 
mechanisms should be utilized in addition to or in lieu of POS 24, but 
did not receive any specific comments on this issue. We are finalizing 
the use of Place of Service (POS) code 24 to identify services 
furnished in an ASC.
    Comment: One commenter suggested a change in the proposed 
methodology of using claims for services furnished in the year that is 
two years before the payment adjustment year to be consistent with 
methodology used to determine a hospital-based EP.
    Response: We disagree with using the same methodology for hospital-
based and ASC-based determinations. We determine hospital-based status 
using claims data from the fiscal year before the year that is 1 year 
prior to the payment adjustment year and the fiscal year before the 
year that is 2 years prior to the payment adjustment year (77 FR 
54102). We adopted this methodology to ensure EPs are made aware of 
their hospital-based status in advance of the applicable EHR reporting 
period for the payment adjustment year, so they would have time to 
adopt and implement CEHRT and begin their EHR reporting period. In 
contrast, for ASC-based determinations, the applicable EHR reporting 
periods under Sec.  495.4 for the 2017 and 2018 payment adjustments 
years have already occurred or are currently underway in 2017, and thus 
it is not feasible to notify EPs of their ASC-based status in advance 
of the EHR reporting period. In addition, we believe our proposed 
methodology is clear and easy for EPs to understand.
    After consideration of the public comments we received, we are 
finalizing as proposed the definition of ASC-based EP using 75 percent 
or more to define eligible professionals who furnish ``substantially 
all'' of their covered professional services in an ASC. In addition, we 
are finalizing Place of Service (POS) code 24 to identify services 
furnished in an ASC. We are also finalizing the definition of ``ASC-
based EP'' in the regulations under Sec.  495.4.
5. Certification Requirements for 2018
    In the 2015 EHR Incentive Program final rule (80 FR 62871 through 
62875), we adopted a final policy regarding which Edition of CEHRT must 
be used

[[Page 38491]]

by EPs, eligible hospitals, and CAHs for the EHR Incentive Program, 
which is reflected in the definition of CEHRT Sec.  495.4.
    Starting with 2018, all EPs, eligible hospitals, and CAHs would be 
required to use technology certified to the 2015 Edition to demonstrate 
meaningful use for an EHR reporting period in 2018 and subsequent years 
(80 FR 62873 through 62875).
    We received feedback from EPs, eligible hospitals and hospital 
associations after the 2015 EHR Incentive Program final rule was 
published expressing concerns regarding the burden that will likely 
occur as a result of the new functionalities required in the 
implementation of the Stage 3 requirements.
    Based on our past experience with the transition from the 2011 
Edition to the 2014 Edition and concerns expressed by stakeholders, we 
understand that transitioning to technology certified to a new Edition 
can be complex and can require more resources and time than 
anticipated, including the time necessary to effectively deploy the 
upgraded system and make the necessary patient safety, staff training 
and workflow investments. In the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 20139), we stated that we understood and appreciated these 
concerns, and were working in cooperation with our Federal partners at 
ONC to monitor progress on the deployment and implementation status of 
EHR technology certified to the 2015 Edition. We further stated if we 
identified a change in the current trends and significant issues with 
the certification and deployment of the 2015 Edition, we would consider 
flexibility in 2018, for those EPs that attest directly to a State for 
the State's Medicaid EHR Incentive Program and eligible hospitals and 
CAHs attesting to CMS or the State's Medicaid EHR Incentive Program 
that are not able to implement 2015 Edition CEHRT to attest for an EHR 
reporting period in 2018. We indicated one possibility was the 
flexibility to use EHR technology certified to the 2014 Edition or 2015 
Edition, or a combination of EHR technologies certified to the 2014 and 
2015 Editions, for an EHR reporting period in 2018.
    In efforts to track certification readiness for the 2015 Edition, 
ONC considers the number of health care providers likely to be covered 
by the individual developers seeking certification under the ONC Health 
IT Certification Program in real time as the testing and certification 
process progresses. The ONC considers trends within the industry when 
projecting for 2015 Edition readiness. The market trend of 
consolidation was considered as part of the projection model and as of 
the close of the first quarter this analysis supported an estimate of 
greater than 85 percent of hospitals will be ready by the end of CY 
2017. However, ONC has continued to update this tracking as the testing 
and certification process continues and this tracking as of the end of 
the second quarter of 2017 indicates that overall progress is behind 
the first quarter projections. ONC has therefore updated the overall 
estimate to reflect an estimate of greater than 75 percent of hospitals 
will be ready by the end of CY 2017.
    This necessitates further consideration, both for adoption of a 90 
day reporting period as discussed in IX.G.2 of this final rule and for 
the adoption of flexibility for the 2018 calendar year in the 
requirement for eligible hospitals and CAHs to use only the 2015 
Edition in CY 2018. While the ONC estimates note that the majority of 
eligible hospitals and CAHs will be ready at the beginning of January 
2018, the tracking indicates that additional flexibility should be 
allowed for all hospitals to ensure that those hospitals with limited 
resources to implement upgrades and those hospitals that may face 
challenges in implementing appropriate and necessary workflows are 
provided adequate time to successfully implement the upgrade to 2015 
Edition.
    We invited public comment on options for offering flexibility in CY 
2018 with regard to EHR certification requirements.
    Comment: A majority of commenters supported the flexibility to use 
2014 Edition or 2015 Edition CEHRT in 2018 and stated the cost and 
administrative burden of upgrading the EHR technology is significant 
and delaying the requirement to use the 2015 Edition would reduce 
burden and improve patient-physician interactions.
    A commenter requested CMS not to move forward with Stage 3 until 
further progress is made toward achieving interoperability and health 
information exchange.
    Response: We thank commenters for their feedback and support of 
CEHRT flexibility in 2018. In an effort to grant more flexibility to 
health care providers who are experiencing 2015 Edition CEHRT product 
issues that impact the ability to be a meaningful EHR user in 2018, we 
are adopting a final policy to allow health care providers to use 
either 2014 Edition or 2015 Edition CEHRT, or a combination of 2014 
Edition and 2015 Edition CEHRT, for their EHR reporting period in 2018. 
We want to ensure that health care providers have adequate time to 
effectively deploy the 2015 Edition and make the updates necessary to 
improve patient safety, staff training, and workflow investments to be 
a meaningful user. We note that the Stage 3 objectives and measures are 
designed to promote interoperability with a focus on the advanced use 
of EHR technology and electronic standards, as well as the 
interoperable exchange of health information between systems. 
Therefore, we believe implementing Stage 3 is essential in achieving 
those goals.
    Comment: A few commenters requested CMS finalize a policy allowing 
for CEHRT flexibility by the end of calendar year 2017, in order to 
ensure that States have adequate time to update their systems without 
any delay.
    Response: We believe the final policy established in this final 
rule will provide flexibility with regard to which Edition of CEHRT may 
be used in 2018.
    Comment: Some commenters requested clarification on how CMS would 
implement flexibility in 2018 and whether providers would have the 
option to attest to Modified Stage 2 or Stage 3.
    Several commenters were confused on how to use a combination of the 
2014 and 2015 Editions for an EHR reporting period in 2018.
    Response: Under the final policy we are adopting, for an EHR 
reporting period in CY 2018, health care providers will have the option 
to attest to the Modified Stage 2 objectives and measures using 2014 
Edition CEHRT, 2015 Edition CEHRT, or a combination of 2014 and 2015 
Edition CEHRT, as long as the EHR technology they possess can support 
the objectives and measures to which they plan to attest. Similarly, 
health care providers will have the option to attest to the Stage 3 
objectives and measures using 2015 Edition CEHRT or a combination of 
2014 and 2015 Edition CEHRT, as long as their EHR technology can 
support the functionalities, objectives and measures for Stage 3.
    Upon attestation for an EHR reporting period in CY 2018, health 
care providers may select one of these options and attest to the 
applicable objectives and measures based on their Edition of CEHRT. The 
requirements for reporting of CQMs are found in section IX.E.3.b. of 
the preamble of this final rule.
    A health care provider utilizing 2015 Edition CEHRT in CY 2018 
could attest to the Stage 3 or the Modified Stage 2 objectives and 
measures depending on

[[Page 38492]]

their ability to fully implement all of the functionalities required of 
2015 Edition CEHRT, which may be limited by the timing of product 
installation, deployment of new processes and workflows, and employee 
training. A health care provider using a combination of 2014 and 2015 
Edition CEHRT could attest to the Stage 3 or the Modified Stage 2 
objectives and measures. Health care providers who choose to attest to 
Modified Stage 2 will attest to only the Modified Stage 2 objectives 
and measures at Sec.  495.22. Health care providers who choose to 
attest to Stage 3 will attest to only the Stage 3 objectives and 
measures at Sec.  495.24. Health care providers who are seeking to 
attest to Stage 3 in 2018 using a combination of 2014 and 2015 Editions 
of CEHRT cannot do so without the support of certain functions that are 
only available for certification as part of the 2015 Edition 
certification criteria.
    Comment: Several commenters requested that CMS not delay the 2015 
Edition CEHRT and believed that health IT vendors should be held 
accountable for upgrading to the 2015 Edition so there is no delay in 
getting certification from ONC. These commenters believed that the 
possible delay further hinders the health care providers' ability to 
adopt and demonstrate meaningful use. In addition the commenters stated 
they believed the 2015 Edition eases data sharing and offers increased 
interoperability.
    Response: We appreciate those stakeholders who were able to fully 
implement the 2015 Edition CEHRT. Moreover, we understand the 
challenges faced in accomplishing the upgrade and wish to recognize the 
tremendous amount of work from health care providers and health IT 
vendors in helping to move health IT forward. However, because Stage 3 
was optional for CY 2017 and individual circumstances may have 
prolonged the certification process, we believe that health IT vendors 
and providers should be given additional time to implement a product 
that functions as intended utilizing the standards and criteria set 
forth by the ONC. We received numerous comments that implementation of 
the 2015 Edition was met with delays related to functionality 
implementation (including APIs), was administratively burdensome and 
required more time and resources than anticipated. Our intent in 
considering these options to provide flexibility in 2018 was not to 
further complicate the program, or hinder the advancement of health 
information exchange or interoperability. Rather, we sought to be 
responsive to stakeholder concerns by considering options for health 
care providers who were unable to fully implement the 2015 Edition 
CEHRT for an EHR reporting period in 2018 because of issues related to 
time constraints, implementation of new functionalities and testing new 
workflows to support the technology, implementation and training 
challenges related to new functions and standards, and potential 
unforeseen delays or updates required throughout the process. For those 
reasons we considered introducing flexibility in the use of certified 
EHR technology.
    Comment: One commenter believed that CMS should eliminate the 
requirement for providers to upgrade to 2015 Edition CEHRT.
    Response: We disagree that CMS should eliminate this requirement 
entirely, and we will require use of 2015 Edition CEHRT beginning with 
the EHR reporting period in 2019. Vendors and health care providers 
have already invested time and energy in the 2015 Edition, and we 
believe it will lend to an interoperable nationwide health information 
infrastructure focusing on the advanced use of EHR technology and 
electronic standards. In addition, the 2015 Edition facilitates the 
accessibility and exchange of data and establishes a framework that 
makes the Health IT Certification Program open and accessible to more 
types of health IT that can support a variety of care and practice 
settings, various HHS programs, and public and private interests. We 
have also heard from many health care providers that they are prepared 
to move to Stage 3. While this is not the case for all health care 
providers, we want to give those who are able to successfully attest to 
the Stage 3 objectives and measures the opportunity to do so.
    Comment: One commenter believed that CEHRT requirements should be 
aligned across all programs where use of CEHRT is required, including 
the Quality Payment Program. Another commenter suggested that CMS 
should eliminate all certified EHR technology requirements.
    Response: We may not be able to align CEHRT requirements across all 
programs as each program has different statutory authority and 
requirements. However, in an effort to reduce burden and promote 
interoperability, we will continue to align the CEHRT requirements 
where feasible. We cannot eliminate all requirements of CEHRT as 
suggested by the commenter because the statute includes certain 
baseline requirements (see, for example, section 1848(o)(4) of the 
Act).
    Comment: One commenter requested more information on what CMS meant 
by a health care provider not being able to implement the 2015 Edition 
of CEHRT as they believed a wide variety of the 2015 Edition CEHRT 
products already exist.
    Another commenter requested clarification on how to implement the 
2015 Edition CEHRT and update to all new standards and functionalities 
for meeting the objectives and measures in Stage 3.
    Response: We do acknowledge that some health care providers have 
successfully updated to the 2015 Edition of CEHRT but this is not the 
case in every situation. We also note that ONC has advised us that 
there are some vendors that are delayed in receiving their 
certification for every EHR module. In addition, as stated above, we 
received comments indicating a lack of preparedness for the 2015 
Edition CEHRT in 2018. For these reasons, we believe that delaying the 
2015 Edition of CEHRT is necessary in order to provide additional time 
to implement those certain elements, such as the API function, that we 
believe are central to increasing interoperability. For more 
information about the implementation of the 2015 Edition of CEHRT we 
refer readers to the 2015 Edition Health Information Technology (Health 
IT) Certification Criteria, 2015 Edition Base Electronic Health Record 
(EHR) Definition, and ONC Health IT Program Modifications, Final Rule. 
80 FR 62602 through 62759.
    Comment: A commenter stated that CMS is too focused on modifying 
functional requirements and does not emphasize outcomes or 
interoperability. The commenter indicated that better infrastructure is 
needed to support interoperability for data management, and to exchange 
content in a more effective way. The commenter expressed concerns 
around the expensive workarounds necessary for certified products that 
do not always function accurately and expressed concern that burden has 
shifted to staff having to identify codes which they believe is more 
time consuming and mundane.
    Response: We disagree that we are too focused on modifying 
functional requirements and not enough on outcomes or interoperability. 
We believe the changes we are finalizing in this rule focus on 
increasing interoperability and ensure that we are reducing 
administrative burden in hopes of giving health care providers more 
time with their patients. In addition, we believe that as we move 
forward in increasing interoperability by focusing on certain 
objectives and measures we

[[Page 38493]]

will improve the delivery of services and improve patient outcomes. We 
understand the cost burden that some of the changes have on certain 
providers, but we believe there is greater benefit in having a truly 
integrated and interoperable health care system. We will continue to 
work with stakeholders.
    After consideration of the public comments we received, we are 
finalizing a policy to allow health care providers to use either 2014 
Edition or 2015 Edition CEHRT, or a combination of 2014 Edition and 
2015 Edition CEHRT, for an EHR reporting period in CY 2018. As 
discussed above and in section IX.E.3.c. of the preamble of this final 
rule, for the CY 2018 CQM reporting period, eligible hospitals and CAHs 
will have the flexibility to use EHR technology certified to either the 
2014 Edition or 2015 Edition, or a combination of both Editions.
    All new and returning participants attesting to CMS or their State 
Medicaid agency have the option to attest to the Modified Stage 2 
objectives and measures under Sec.  495.22 for the EHR reporting period 
in 2018 using 2014 Edition CEHRT, 2015 Edition CEHRT, or a combination 
of 2014 and 2015 Edition CEHRT, as long as the EHR technology they 
possess can support the objectives and measures to which they plan to 
attest.
    Similarly, all new and returning participants attesting to CMS or 
their State Medicaid agency have the option to attest to the Stage 3 
objectives and measures under Sec.  495.24 for the EHR reporting period 
in 2018 using 2015 Edition CEHRT or a combination of 2014 and 2015 
Edition CEHRT, as long as their EHR technology can support the 
functionalities, objectives and measures for Stage 3.
    Accordingly, we are revising the definition of ``Certified 
electronic health record technology (CEHRT)'' at Sec.  495.4, the 
meaningful use criteria at Sec.  495.22 and Sec.  495.24, and the 
requirements for demonstrating meaningful use under Sec.  495.40 to 
specify the flexible options for using CEHRT in 2018 and the objectives 
and associated measures to which health care providers using these 
options would attest.

X. Revisions of Medicare Cost Reporting and Provider Requirements

A. Electronic Signature and Submission of the Certification and 
Settlement Summary Page of the Medicare Cost Report

1. Background
    Sections 1815(a) and 1833(e) of the Act provide that no payments 
will be made to a provider unless it has furnished such information, as 
may be requested by the Secretary, to determine the amount of payments 
due the provider under the Medicare program. In general, providers 
submit this information through annual cost reports that cover a 12-
month period of time. Under the provisions of 42 CFR 413.20(b) and 
413.24(f), providers are required to submit cost reports annually, with 
the reporting period based on the provider's accounting year. For cost 
reporting periods beginning on or after October 1, 1989, section 
1886(f)(1) of the Act and Sec.  413.24(f)(4) of the regulations require 
hospitals to submit cost reports in a standardized electronic format, 
and the same requirement was later imposed for other types of 
providers.
    Currently, under Sec.  413.24(f)(4)(ii), hospitals, skilled nursing 
facilities, home health agencies, hospices, end-stage renal disease 
facilities, organ procurement organizations, histocompatibility 
laboratories, rural health clinics, Federally qualified health centers, 
and community mental health centers are required to file Medicare cost 
reports in a standardized electronic format. When preparing the cost 
report, the provider's electronic program must produce the CMS 
standardized output file in a form that can be read by the contractor's 
automated system. This electronic file, also known as the electronic 
cost report, is forwarded to the contractor for processing through its 
system. (42 CFR 413.24(f)(4)(ii) and (iii))
    Although the Medicare cost report is forwarded to the contractor in 
electronic format, certain hard copy portions must be separately 
submitted by the provider to its contractor. Specifically, under Sec.  
413.24(f)(4)(iv), the provider is required to submit a hard copy of the 
settlement summary, if applicable, which is a statement of certain 
worksheet totals, and a certification statement containing a signature 
by the provider's administrator or chief financial officer certifying 
the accuracy of the electronic file. The certification statement and 
the settlement summary both appear together on the ``Certification and 
Settlement Summary'' page of the Medicare cost report for all providers 
that are required to file a Medicare cost report. By signing the 
certification statement, the provider is certifying, among other 
things, to the accuracy of the electronic file, and also that it has 
read the statement that misrepresentation or falsification of 
information contained in the cost report may be punishable by criminal, 
civil or administrative action.
    This certification statement signed by the provider's administrator 
or chief financial officer was incorporated into Sec.  413.24(f)(4) of 
the regulations 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). Currently, this certification statement is required 
to have an original signature. This original signature requirement is 
also set forth in Chapter 1 of the Provider Reimbursement Manual (CMS 
Pub. 15-2), which explains that a facsimile or stamped copy of the 
signature is unacceptable.
    Due to the original signature requirement, the Certification and 
Settlement Summary page containing the original signature is required 
to be mailed by the provider to the contractor. As set forth in Sec.  
413.24(f)(4)(iv) and (5)(i) and (ii), an acceptable cost report 
submission must include the electronic cost report, along with a hard 
copy of the Certification and Settlement Summary page with an original 
signature, the Provider Cost Reimbursement Questionnaire, if 
applicable, and the supporting documentation required from teaching 
hospitals (the Intern and Resident Information System diskette).
2. Changes Relating to Electronic Signature on the Certification and 
Settlement Summary Page of the Medicare Cost Report
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20139 through 
20142), in lieu of requiring the provider to sign the certification 
statement with an original signature on a hard copy of the Medicare 
cost report's Certification and Settlement Summary page, we proposed to 
revise Sec.  413.24(f)(4)(iv) to allow providers to use an electronic 
signature. For Medicare cost reporting purposes, we proposed that this 
electronic signature be placed on the signature line of the 
certification statement and may be (1) any format of the original 
signature that contains the first and last name of the provider's 
administrator or chief financial officer (for example, photocopy or 
stamp) or (2) an electronic signature that must be the first and last 
name of the provider's administrator or chief financial officer entered 
in the provider's electronic program. An electronic signature for this 
purpose cannot be a symbol, numerical characters, or codes. We stated 
in the proposed rule that we believe allowing providers to utilize an 
electronic signature would afford providers greater flexibility in 
signing the certification statement and allow a faster and more 
efficient submission of the Medicare cost report.

[[Page 38494]]

    To indicate the provider's election to sign the certification 
statement with an electronic signature, we proposed to add an 
electronic signature checkbox placed immediately after the 
certification statement and above the signature line on the 
Certification and Settlement Summary page of the Medicare cost report. 
We stated that the checkbox electing the electronic signature would 
read: ``I have read and agree with the above certification statement. I 
certify that I intend my electronic signature on this certification 
statement to be the legally binding equivalent of my original 
signature.'' We proposed that the checkbox must be checked to signify 
that the certification statement has been read and that an electronic 
signature will be placed on the signature line by the provider.
    We proposed that only when the checkbox is checked would the 
signature line be accepted with an electronic signature. We stated in 
the proposed rule that completion of both the electronic signature 
checkbox and the electronic signature, placed on the signature line by 
the provider's administrator or chief financial officer under the 
certification statement, would together constitute an accepted 
electronic signature of the provider's administrator or chief financial 
officer on the certification statement. By signing the certification 
statement with an electronic signature on the Certification and 
Settlement Summary page, the signatory would be attesting that its 
electronic signature was executed with the intent to sign the 
certification statement, that the electronic signature is being 
submitted in lieu of an original signature, and additionally that the 
electronic signature has the same legal effect as an original 
signature. Because we proposed that it would be optional for providers 
to utilize an electronic signature on the certification statement, 
providers would continue to be able to sign the certification statement 
with an original signature on a hard copy of the Certification and 
Settlement Summary page.
    We invited public comments on our proposals.
    Comment: Many commenters supported the utilization of technology to 
allow for the electronic signature of the Certification and Settlement 
Summary page of the Medicare cost report and further stated that this 
has been long awaited in the industry. The commenters stated that 
allowing providers the option to electronically sign the Certification 
and Settlement Summary page will make the process easier, more 
efficient, and allow for fewer errors than the current paper process. 
Commenters also supported allowing facilities an option to continue 
using the current paper process to manually sign the Certification and 
Settlement Summary page.
    Response: We appreciate the commenters' support.
    Comment: One commenter suggested that CMS' proposal was to change 
the title of the signatory to the certification statement from the 
provider's administrator or ``officer'' to the provider's administrator 
or ``chief financial officer'' and disagreed with this alleged change, 
noting that many smaller providers do not have a chief financial 
officer.
    Response: We disagree with this commenter's characterization of our 
proposal. Our proposal to allow providers the option to electronically 
sign the certification statement on the Certification and Settlement 
Summary page of the Medicare cost report, did not include a proposal to 
change the title of the person required to sign the certification 
statement. Section 413.24(f)(4)(iv) of the regulations requires that 
the certification statement be signed by the ``provider's administrator 
or chief financial officer.'' We did not propose to change the title of 
the person required to sign the certification statement. The 
requirements pertaining to the title of the person required to sign the 
certification statement remain the same.
    Comment: One commenter suggested that CMS change the title of the 
person required to sign the certification statement on the 
Certification and Settlement Summary page of the Medicare cost report, 
citing that often the signor is someone other than the provider's 
administrator or chief financial officer.
    Response: We consider this comment to be outside the scope of the 
policies we proposed in the proposed rule. We note that Sec.  
413.24(f)(4)(iv) of the regulations requires that the certification 
statement be signed by the ``provider's administrator or chief 
financial officer.''
    After consideration of the public comments we received, for the 
reasons discussed above, we are finalizing our proposals discussed 
above without modification. As proposed, we are revising Sec.  
413.24(f)(4)(iv) to allow providers the option to use an electronic 
signature to sign the certification statement on the Certification and 
Settlement Summary page of the Medicare cost report. Under Sec.  
413.24(f)(4)(iv)(C)(1) as finalized in this rule, providers that are 
required to file an electronic cost report may elect to sign the 
certification statement with an electronic signature. As we proposed, 
this electronic signature must be placed on the signature line of the 
certification statement and may be (1) any format of the original 
signature that contains the first and last name of the provider's 
administrator or chief financial officer (for example, photocopy or 
stamp) or (2) an electronic signature that must be the first and last 
name of the provider's administrator or chief financial officer entered 
in the provider's electronic program. An electronic signature for this 
purpose cannot be a symbol, numerical characters, or codes. 
Furthermore, as we proposed, an electronic signature checkbox will be 
placed immediately after the certification statement and above the 
signature line on the Certification and Settlement Summary page of the 
Medicare cost report. The checkbox electing the electronic signature 
will read: ``I have read and agree with the above certification 
statement. I certify that I intend my electronic signature on this 
certification statement to be the legally binding equivalent of my 
original signature.'' The checkbox must be checked to signify that the 
certification statement has been read and that an electronic signature 
will be placed on the signature line by the provider. Completion of 
both the electronic signature checkbox and the electronic signature, 
placed on the signature line by the provider's administrator or chief 
financial officer under the certification statement, will together 
constitute an accepted electronic signature of the provider's 
administrator or chief financial officer on the certification 
statement. By signing the certification statement with an electronic 
signature on the Certification and Settlement Summary page, the 
signatory is attesting that its electronic signature was executed with 
the intent to sign the certification statement, that the electronic 
signature is being submitted in lieu of an original signature, and 
additionally that the electronic signature has the same legal effect as 
an original signature. Providers that are required to file an 
electronic cost report will still have the option under Sec.  
413.24(f)(4)(iv)(C)(2), as finalized in this rule, to sign the 
certification statement with an original signature and to submit a hard 
copy of the settlement summary, if applicable, and certification 
statement. In the proposed rule, we also proposed that these revisions 
would apply on a prospective only basis, to provider cost reporting 
periods that begin on or after October 1, 2017, the effective date of 
this final rule. However, after

[[Page 38495]]

consideration of the proposed effective date that would have delayed 
the period of time for the providers to electronically sign and submit 
the Certification and Settlement Summary page by almost one year and 
our desire to ease cost and burden upon providers, we have decided to 
allow providers the option to use an electronic signature to sign the 
certification statement on the Certification and Settlement Summary 
page of the Medicare cost report effective for cost reporting periods 
that end on or after December 31, 2017. This will allow providers to 
electronically sign and submit the Certification and Settlement Summary 
page much sooner, with their next cost reporting submission in 2018. 
Accordingly, these final revisions will apply, on a prospective only 
basis, to provider cost reporting periods ending on or after December 
31, 2017.
3. Changes Relating to Electronic Submission of the Certification and 
Settlement Summary Page of the Medicare Cost Report
    In section X.A.2. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20140), we proposed to allow providers to use an 
electronic signature on the certification statement of the 
Certification and Settlement Summary page of the Medicare cost report. 
We further proposed that if the provider signs the certification 
statement with an electronic signature in the manner proposed in 
section X.A.2. of the preamble of the proposed rule and checks the 
electronic signature checkbox, the provider also may submit the 
Certification and Settlement Summary page electronically to the 
contractor at the same time and in the same manner in which the 
Medicare cost report is submitted. For example, if the provider submits 
the electronic cost report file via electronic mail to the contractor, 
the provider may also include the Certification and Settlement Summary 
page signed with an electronic signature.
    Under our proposal, a provider could still choose to sign the 
certification statement with an original signature on a hard copy of 
the Certification and Settlement Summary page without checking the 
electronic signature box. However, if the provider chooses to do so, 
this page would have to be mailed to its contractor. We stated in the 
proposed rule that we believe this proposal to allow the electronic 
submission of the Certification and Settlement Summary page would 
reduce the need for and storage of paper documents. We stated that, 
under our proposal, providers would have the option to submit the 
entire cost report electronically, in lieu of the previous requirement 
to mail a hard copy of the Certification and Settlement Summary page of 
the Medicare cost report to the contractor. We stated that we believe 
this proposed option would improve the capability of providers to 
efficiently transmit the Medicare cost report and save providers an 
appreciable amount of time as well as the cost of separately mailing a 
hard copy of the Certification and Settlement Summary page of the 
Medicare cost report to the contractor.
    We invited public comments on this proposal.
    Comment: One commenter asked whether a provider's option to use an 
electronic signature on the certification statement of the 
Certification and Settlement Summary page of the Medicare cost report 
and submit this form electronically applied to outpatient facilities 
and to low or no utilization cost reports where the MAC is currently 
requiring a signed certification statement.
    Response: As set forth in the preamble of the proposed rule, (82 FR 
20141) and at Sec.  413.24(f)(4)(iv)(C) (as finalized in this rule), 
the option to use an electronic signature on the certification 
statement of the Certification and Settlement Summary page and to 
submit this form electronically applies to providers that are required 
to file an electronic Medicare cost report. These providers are 
specified in Sec.  413.24(f)(4)(ii). This includes providers with low 
or no utilization that submit a Certification with a Settlement 
Summary, if applicable.
    Comment: One commenter asked whether the cost report file and the 
electronically signed certification statement on the Certification and 
Settlement Summary page would be filed together and sent to the 
contractor or sent separately but using the same process.
    Response: This final rule allows the provider great flexibility to 
choose how it wishes to electronically sign the certification statement 
on the Certification and Settlement Summary page of the Medicare cost 
report and electronically submit this page. As set forth in section 
X.A.2. of the preamble of the proposed rule (82 FR 20140), if the 
provider chooses to sign the certification statement with an electronic 
signature, this signature must be placed on the signature line of the 
certification statement and may be (1) any format of the original 
signature that contains the first and last name of the provider's 
administrator or chief financial officer (for example, photocopy or 
stamp) or (2) an electronic signature that must be the first and last 
name of the provider's administrator or chief financial officer entered 
in the provider's electronic program. Regardless of which electronic 
signature method is selected by the provider, to indicate the 
provider's election to sign the certification statement with an 
electronic signature, the electronic signature checkbox placed 
immediately after the certification statement and above the signature 
line on the Certification and Settlement Summary page of the Medicare 
cost report must be checked to signify that the certification statement 
has been read and that an electronic signature will be placed on the 
signature line by the provider. As we stated earlier and in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20140), a provider may submit the 
Certification and Settlement Summary page electronically to the 
contractor at the same time and in the same manner in which the 
Medicare cost report is submitted. If the electronic signature is in 
the format specified ``(1)'' or ``(2)'' above (and in section X.A.2. of 
the preamble of the proposed rule), this electronic signature on the 
Certification and Settlement Summary page of the Medicare cost report 
can be submitted electronically with the electronic cost report to the 
provider's contractor. If the provider submits the Medicare cost report 
file to the contractor via email, the provider may elect to also send 
the electronically signed certification statement on the Certification 
and Settlement Summary page to the contractor via the same email or 
separately in a separate email. In addition, if the certification 
statement is signed with an electronic signature as in ``(1)'' or 
``(2)'' above (and in section X.A.2. of the preamble of the proposed 
rule), the Certification and Settlement Summary page of the Medicare 
cost report can also be submitted on paper to the contractor via 
regular mailing and would still be considered to have an electronic 
signature. We will provide further instructions through manual 
provisions and provider educational materials.
    After consideration of the public comments we received, for the 
reasons discussed above, we are finalizing our proposals without 
modification. As proposed, if the provider signs the certification 
statement with an electronic signature in the manner described in this 
final rule and checks the electronic signature checkbox, the provider 
also may submit the Certification and Settlement Summary page 
electronically to the contractor at the same time and in the same 
manner

[[Page 38496]]

in which the Medicare cost report is submitted. For example, if the 
provider submits the electronic cost report file via electronic mail to 
the contractor, the provider may also include the Certification and 
Settlement Summary page signed with an electronic signature. Thus, 
providers would have the option to submit the entire cost report 
electronically, in lieu of the previous requirement to mail a hard copy 
of the Certification and Settlement Summary page of the Medicare cost 
report to the contractor. We note that a provider could still choose to 
sign the certification statement with an original signature on the 
Certification and Settlement Summary page. However, if the provider 
chooses to do so, this page would have to be mailed to its contractor.
4. Clarifications Relating to the Items Required To Be Submitted by 
Providers With the Medicare Cost Report
a. Settlement Summary and Certification Statement
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20141), we 
clarified the portion of the language in Sec.  413.24(f)(4)(iv) that 
describes the items a provider is required to submit along with the 
electronically filed cost report. We stated that Sec.  413.24(f)(4)(iv) 
currently sets forth that a provider is required to 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. These items are contained on 
the Certification and Settlement Summary page of the Medicare cost 
report. As we stated in the proposed rule, we believe that the 
structure of the sentence in the regulation text describing these items 
may give rise to the impression that these are three separate items: 
(1) A ``settlement summary''; (2) a ``statement of certain worksheet 
totals found within the electronic file''; and (3) a ``statement signed 
by its administrator or chief financial officer certifying the accuracy 
of the electronic file or the manually prepared cost report,'' also 
known as the certification statement. In the proposed rule, we 
clarified that ``a statement of certain worksheet totals found within 
the electronic file'' is not a separate item but rather is intended as 
a descriptor of the ``settlement summary.'' The settlement summary is 
actually the list of ``certain worksheet totals found within the 
electronic file.'' Therefore, in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20141), we proposed to revise Sec.  413.24(f)(4)(iv) to 
clarify this.
    We did not receive any public comments on this proposal. Thus, for 
the reasons discussed above, we are finalizing, without modification, 
our proposed revisions to Sec.  413.24(f)(4)(iv) (as further discussed 
in section X.A.5. of this final rule).
b. Removal of the Transition Period Language
    Following the effective dates for which certain providers were 
required to submit cost reports in a standardized electronic format 
under Sec.  413.24(f)(4)(ii), a transition period was implemented when 
certain providers were required to submit a hard copy of the completed 
cost report forms in addition to the electronic file. In the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20141), we proposed to remove the 
language in Sec.  413.24(f)(4)(iv) which sets forth this expired 
transition period. Specifically, we proposed to remove the language 
that specifies that, 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, and community mental health centers), 
providers must submit a hard copy of the completed cost report forms in 
addition to the electronic file. We stated that because the transition 
period has expired and these providers are no longer required to submit 
a hard copy of the completed cost report forms in addition to the 
electronic file, this language in Sec.  413.24(f)(4)(iv) is no longer 
necessary. We did not receive any public comments on this proposal, and 
thus, for the reasons discussed above, we are finalizing without 
modification our proposal to remove this language (as further discussed 
below in section X.A.5. of the preamble of this final rule).
5. Revisions to 42 CFR 413.24(f)(4)(iv)
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20139 through 
20142), to reflect our proposals discussed earlier, we proposed to 
revise Sec.  413.24(f)(4)(iv) to specify that, effective for cost 
reporting periods beginning on or after October 1, 2017, providers that 
are required to file an electronic Medicare cost report may elect to 
electronically submit the settlement summary, if applicable, and the 
cost report's certification statement, found on the Certification and 
Settlement Summary page of the Medicare cost report, with an electronic 
signature of the provider's administrator or chief financial officer. 
We stated that a provider that elects to electronically sign and submit 
the Certification and Settlement Summary page would no longer be 
required to send this page in hard copy to its contractor with an 
original signature. We further proposed to revise Sec.  
413.24(f)(4)(iv) to specify that the provider must check the electronic 
signature checkbox that would be placed immediately after the 
certification statement and directly above the signature line of the 
certification statement. We proposed that this electronic signature 
checkbox would specify that the provider's administrator or chief 
financial officer has read and agrees with the certification statement, 
and certifies that he or she intends the electronic signature to be the 
legally binding equivalent of his or her original signature. We stated 
that the provider must check the electronic signature checkbox in order 
for the provider to sign the certification statement with an electronic 
signature and in order for the electronic signature to be accepted. We 
invited public comments on this proposal.
    After consideration of the public comments we received (as 
summarized in sections X.A.2. and in X.A.3. of the preamble of this 
final rule), we are finalizing our proposed revisions to Sec.  
413.24(f)(4)(iv) as discussed above with the following modification. As 
discussed in section X.A.2. of the preamble of this final rule, after 
consideration of the proposed effective date that would have delayed 
the period of time for the providers to electronically sign and submit 
the Certification and Settlement Summary page by almost a year and our 
desire to ease cost and burden upon providers sooner, we have decided 
to allow providers the option to use an electronic signature to sign 
the certification statement on the Certification and Settlement Summary 
page of the Medicare cost report and to electronically submit this page 
effective for cost reporting periods ending on or after December 31, 
2017. As such, effective for cost reporting periods ending on or after 
December 31, 2017, providers that are required to file an electronic 
Medicare cost report may elect to electronically submit the settlement 
summary, if applicable, and the cost report's certification statement, 
found on the Certification and Settlement Summary page of the Medicare 
cost report, with an electronic

[[Page 38497]]

signature of the provider's administrator or chief financial officer. A 
provider that elects to electronically sign and submit the 
Certification and Settlement Summary page is no longer required to send 
this page in hard copy to its contractor with an original signature. We 
are further revising Sec.  413.24(f)(4)(iv), as proposed, to specify 
that the provider must check the electronic signature checkbox that 
would be placed immediately after the certification statement and 
directly above the signature line of the certification statement. This 
electronic signature checkbox specifies that the provider's 
administrator or chief financial officer has read and agrees with the 
certification statement, and certifies that he or she intends the 
electronic signature to be the legally binding equivalent of his or her 
original signature. The provider must check the electronic signature 
checkbox in order for the provider to sign the certification statement 
with an electronic signature and in order for the electronic signature 
to be accepted.
    In addition, we proposed to revise the regulatory language under 
Sec.  413.24(f)(4)(iv) to reflect our clarification that the phrase ``a 
statement of certain worksheet totals found within the electronic 
file'' describes the settlement summary and does not denote a separate 
item. Specifically, we proposed to revise Sec.  413.24(f)(4)(iv) to 
state that a provider must submit a settlement summary, if applicable, 
which is a statement of certain worksheet totals found within the 
electronic file, and a certification statement signed by its 
administrator or chief financial officer certifying the accuracy of the 
electronic file or manually prepared cost report. We invited public 
comments on this proposal. We did not receive any public comments on 
our proposal. Therefore, for the reasons discussed above, we are 
finalizing, without modification, our proposal to revise the regulatory 
language under Sec.  413.24(f)(4)(iv) to reflect our clarification that 
the phrase ``a statement of certain worksheet totals found within the 
electronic file'' describes the settlement summary and does not denote 
a separate item.
    In addition, as indicated earlier, because the transition period 
during which certain providers were required to submit a hard copy of 
the completed cost report forms in addition to the electronic file has 
expired, we proposed to remove the transition period language in Sec.  
413.24(f)(4)(iv). We invited public comments on this proposal. We did 
not receive any public comments on this proposal, and therefore, for 
the reasons discussed above, we are finalizing, without modification, 
our proposal to remove the language in Sec.  413.24(f)(4)(iv) that 
describes this expired transition period.
    Finally, we proposed to revise the regulation text at Sec.  
413.24(f)(4)(iv) by adding the certification statement from the 
certification section of the Certification and Settlement Summary page 
of the Medicare cost report. This certification statement appeared in 
all caps in the proposed regulation text and stated as follows: 
``Misrepresentation or falsification of any information contained in 
this cost report may be punishable by criminal, civil and 
administrative action, fine and/or imprisonment under Federal law. 
Furthermore if services identified in this report were provided or 
procured through the payment directly or indirectly of a kickback or 
were otherwise illegal, criminal, civil and administrative action, 
fines, and/or imprisonment may result.'' This language has appeared on 
the Certification and Settlement Summary page for many years. We stated 
in the proposed rule that because the certification section of the 
Medicare cost report refers to it as having been read by the provider, 
incorporation of it into the regulation text would provide completeness 
and clarification of the certification statement.
    We invited public comments on this proposal. We did not receive any 
public comments on our proposal. Therefore, for the reasons discussed 
above, we are finalizing our proposal, without modification, to revise 
the regulation text at Sec.  413.24(f)(4)(iv) by adding the 
certification statement from the certification section of the 
Certification and Settlement Summary page of the Medicare cost report. 
This certification statement appears in all caps and informs the 
provider that ``Misrepresentation or falsification of any information 
contained in this cost report may be punishable by criminal, civil and 
administrative action, fine and/or imprisonment under Federal law. 
Furthermore if services identified in this report were provided or 
procured through the payment directly or indirectly of a kickback or 
were otherwise illegal, criminal, civil and administrative action, 
fines, and/or imprisonment may result.''

B. Clarification of Limitations on the Valuation of Depreciable Assets 
Disposed of on or After December 1, 1997

    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20142 through 
20143), we proposed revisions to the Medicare provider reimbursement 
regulations to clarify our longstanding policy pertaining to allowable 
costs and the limits on the valuation of a depreciable asset that may 
be recognized in establishing an appropriate allowance for depreciation 
for assets disposed of on or after December 1, 1997. Questions have 
arisen with regard to whether this limitation on the valuation of 
depreciable assets depends on the manner in which a provider disposes 
of an asset. In the proposed rule, we clarified that the elimination of 
the gain or loss for depreciable assets applies to assets a provider 
disposes of by sale or scrapping on or after December 1, 1997, 
regardless of whether the asset is scrapped, sold as an individual 
asset of a Medicare participating provider, or sold incident to a 
provider's change of ownership.
    Reasonable cost is defined at section 1861(v)(1)(A) of the Act and 
in the implementing regulations at 42 CFR part 413. Since the inception 
of the Medicare program, allowable costs under Medicare have included a 
provider's direct and indirect costs necessary for the provision of 
patient care, including the cost of using assets in patient care. 
Depreciation of these assets is an allowable cost under Medicare and 
the allowance is computed using the depreciable basis and estimated 
useful life of the assets (Sec.  413.134). Under Medicare's reasonable 
cost reimbursement system, the appropriate allowance for depreciation 
and for interest on capital indebtedness on buildings and equipment 
used in the provision of patient care is based in part on the 
historical cost of the asset (Sec.  413.134(a) and (b)). When an asset 
is disposed of, no further depreciation may be taken on it. Gains and 
losses on the disposition of depreciable assets may be includable, as 
applicable, either in computing allowable cost or in computing the 
adjustment to Medicare reimbursable cost, depending upon the manner of 
disposition of the asset, the date of the disposal, and the amount of 
the depreciation adjustment (Sec.  413.134 and Part 1, Chapter 1 of the 
Provider Reimbursement Manual (CMS Pub. 15-1)).
    Prior to the enactment of the Balanced Budget Act (BBA) of 1997 
(Pub. L. 105-33), when a Medicare certified provider's capital asset 
was disposed of through sale or scrapping, Medicare shared in any gain 
or loss from the transaction. In this regard, if a provider realized a 
gain or loss from the sale or scrapping of an asset, an adjustment to 
the provider's allowable costs was necessary so that Medicare paid its

[[Page 38498]]

share of the actual cost the provider incurred in using the asset for 
patient care. Generally, when a provider sold its depreciable assets at 
more than the net book value, Medicare shared in the gain. If the 
provider sold its depreciable assets at less than the net book value, 
Medicare shared in the loss. The amount of a gain was limited to the 
amount of depreciation previously included in Medicare allowable costs. 
The amount of a loss was limited to the undepreciated basis of the 
asset permitted under the program.
    In the BBA of 1997, Congress eliminated Medicare's recognition of 
gains or losses on a provider's disposition of assets on or after 
December 1, 1997. Section 4404 of the BBA of 1997 amended section 
1861(v)(1)(O)(i) of the Act to state that, in establishing an 
appropriate allowance for depreciation and for interest on capital 
indebtedness with respect to an asset of a provider of services which 
has undergone a change of ownership, such regulations shall provide, 
except as provided in clause (iii), that the valuation of the asset 
after such change of ownership shall be the historical cost of the 
asset, as recognized under the Medicare program, less depreciation 
allowed, to the owner of record as of August 5, 1997 (or, in the case 
of an asset not in existence as of August 5, 1997, the first owner of 
record of the asset after August 5, 1997).
    In enacting section 4404 of the BBA of 1997, Congress was concerned 
with providers that may have been ``creating specious `losses' '' on 
the disposition of assets ``in order to be eligible for additional 
Medicare payments'' (H. Rep. No. 105-149 (1997)). In addition, Congress 
cited the June 1997 OIG report, Medicare Losses on Hospital Sales (OEI-
03-96-00170), which indicated that there were substantial Medicare 
losses due to depreciation adjustments for hospitals that underwent 
changes of ownership. In a January 1998 final rule with comment period 
(63 FR 1379), we conformed the regulations at Sec.  413.134 to section 
1861(v)(1)(O) of the Act, as amended by section 4404 of the BBA of 
1997. In that rule, we stated that, under the provisions of section 
4404 of the BBA of 1997, ``when a depreciable asset of a provider 
undergoes a change of ownership, the valuation of the asset, for 
purposes of establishing a Medicare allowance for depreciation and 
interest, will be the historical cost of the asset to the owner of 
record, less depreciation allowed. Thus, when a depreciable asset is 
sold, the value of the asset to the seller will be the historical cost 
(as recognized under Medicare) to the owner of record as of August 5, 
1997, less depreciation allowed. In this case, there will be no 
adjustment for gain or loss on the sale. For the buyer, the value of 
the asset will also be the historical cost (as recognized under 
Medicare) to the owner of record as of August 5, 1997, less 
depreciation allowed. Accordingly, the new owner's allowance for 
depreciation and interest will be based on this value. Stated simply, 
the asset moves from the hands of the seller to the hands of the buyer 
at the asset's net book value defined in Sec.  413.134(b)(9)'' (63 FR 
1381).
    Our policy referenced the asset of a provider undergoing a change 
of ownership, meaning the asset itself changing owners, regardless of 
whether the provider changes ownership. In conforming the regulations 
to the new statutory provision, we revised the regulations at Sec.  
413.134(f)(1) to specify that ``[d]epreciable assets may be disposed of 
through sale, scrapping, trade-in, exchange, demolition, abandonment, 
condemnation, fire, theft, or other casualty. If disposal of a 
depreciable asset, including the sale or scrapping of an asset before 
December 1, 1997, results in a gain or loss, an adjustment is necessary 
in the provider's allowable cost. (No gain or loss is recognized on 
either the sale or the scrapping of an asset that occurs on or after 
December 1, 1997.) The amount of a gain included in the determination 
of allowable cost is limited to the amount of depreciation previously 
included in Medicare allowable costs. The amount of a loss to be 
included is limited to the undepreciated basis of the asset permitted 
under the program. The treatment of the gain or loss depends upon the 
manner of disposition of the asset, as specified in paragraphs (f)(2) 
through (6) of [Sec.  413.134]. The gain or loss on the disposition of 
depreciable assets has no retroactive effect on a proprietary 
provider's equity capital for years prior to the year of disposition.''
    In the January 1998 final rule with comment period, we added the 
parenthetical ``(No gain or loss is recognized on either the sale or 
the scrapping of an asset that occurs on or after December 1, 1997)'' 
to Sec.  413.134(f)(1). This parenthetical was intended to implement 
section 4404 of the BBA of 1997 by disallowing the gain or loss when a 
provider sells or scraps an asset.
    We believe that, under section 4404 of the BBA of 1997, Medicare's 
nonrecognition of a loss or gain with respect to an asset a provider 
disposes of by sale or scrapping applies, regardless of whether the 
sale of the asset occurs incident to a provider's change of ownership 
or whether the asset is otherwise sold or scrapped by a currently 
participating Medicare provider.
    We note that following the enactment of the Deficit Reduction Act 
of 1984 (Pub. L. 98-369, section 2314), in which Congress amended 
section 1861(v)(1) of the Act by adding new subparagraph (O) concerning 
the valuation and determination of historical costs of assets after 
July 18, 1984, we stated that the new provisions applied ``not only to 
the sale or purchase of groups of assets, but also to the sale or 
purchase of individual assets'' (57 FR 43913). Similarly, we believe 
section 4404 of the BBA of 1997 applies to a provider's disposition of 
assets through sale or scrapping, including the sale or scrapping of 
individual provider assets and assets sold or scrapped incident to a 
provider's change of ownership. Accordingly, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 20142 through 20143), we proposed to revise 
the regulation text at Sec.  413.134(f)(1) to clarify our longstanding 
policy that Medicare does not recognize a provider's gain or loss on 
the sale or scrapping of an asset that occurs on or after December 1, 
1997, regardless of whether the asset is sold incident to a provider's 
change of ownership or is otherwise sold or scrapped as an asset of a 
Medicare participating provider.
    We did not receive any public comments on our proposal. We are 
finalizing our proposal to revise the Medicare provider reimbursement 
regulations at Sec.  413.134(f)(1) to clarify our longstanding policy 
that Medicare does not recognize a provider's gain or loss on the sale 
or scrapping of an asset that occurs on or after December 1, 1997, 
regardless of whether the asset is sold incident to a provider's change 
of ownership or is otherwise sold or scrapped as an asset of a Medicare 
participating provider.

XI. Changes Relating to Survey and Certification Requirements

A. Revisions to the Application and Re-Application Procedures for 
National Accrediting Organizations (AOs), and Posting of Survey Reports 
and Acceptable Plans of Corrections (PoCs)

    In an effort to increase transparency, in the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20143), we proposed to require AOs with CMS-
approved accreditation programs to post final accreditation survey 
reports and PoCs on public facing Web site designated by the AO. All 
current AOs with CMS-approved accreditation programs have Web sites 
that inform the general public about their organization.

[[Page 38499]]

    We stated in the proposed rule that establishing the standard for 
posting both accredited and non-accredited provider and supplier survey 
reports, which would include initial and recertification surveys, and 
PoCs, would expand transparency even further. Disclosure of survey 
findings protects both patient health and safety, in which public 
disclosure of findings currently only shows the subset of complaint 
activity. Expanding these requirements through the posting of all 
survey reports and PoCs would allow for a more comprehensive way to 
show a provider's or supplier's compliance with all health and safety 
requirements.
    In the proposed rule, we proposed to revise Sec.  488.5 of the 
regulations to incorporate this proposed requirement. We further 
proposed to add a new standard at Sec.  488.5(a)(21) to require that 
each national AO applying or reapplying for CMS-approval of its 
Medicare provider or supplier accreditation program provide a statement 
acknowledging that it agreed to make all Medicare provider or supplier 
final accreditation survey reports (including statements of deficiency 
findings), as well as acceptable PoCs publicly available on its Web 
site within 90 days after such information is made available to those 
facilities for the most recent 3 years. This provision would include 
all triennial, full, follow-up, focused, and complaint surveys, whether 
they were performed onsite or offsite. We invited public comments on 
these proposals.
    After consideration of the public comments received, we are not 
finalizing our proposed changes to 42 CFR 488.5. Section 1865(b) of the 
Act prohibits CMS from disclosing survey reports or compelling the AOs 
to disclose their reports themselves. The suggestion by CMS to have the 
AOs post their survey reports may appear as if CMS was attempting to 
circumvent the provision of section 1865(b) of the Act. Therefore, this 
provision is effectively being withdrawn.

B. Changes to Termination Public Notice Requirements for Certain 
Providers and Suppliers

1. Background
    Under the provisions of sections 1866(b)(2) of the Act and 
implementing regulations at 42 CFR 489.53, the Secretary may terminate 
an agreement with a provider of services if it is determined that the 
provider is not in substantial compliance with applicable requirements 
governing provider agreements. For instance, CMS must determine that 
the provider:
     Is not complying substantially with the terms of the 
agreement, the provisions of title XVIII, or regulations promulgated 
thereunder;
     Has failed to supply information necessary to determine 
whether payments are or were due and the amounts of such payments;
     Refuses to permit examination of fiscal and other records 
(including medical records) necessary for the verification of 
information furnished as a basis for claiming payment under the 
Medicare program; or
     Refuses to permit photocopying of any records or other 
information necessary to determine or verify compliance with 
participation requirements.
    Sections 1866(b)(1) and (2) of the Act require reasonable public 
notice, as prescribed in regulations, of both voluntary and involuntary 
terminations of Medicare and Medicaid participating providers and 
suppliers. Various existing regulations specify the requirements of 
public notice for voluntary and involuntary terminations prior to 
termination of a provider or supplier agreement. Specifically, for 
voluntary terminations, providers at 42 CFR 489.52(c)(2), RHCs at 42 
CFR 405.2404(d), FQHCs at 42 CFR 405.2442, ASCs at 42 CFR 416.35(d), 
and OPOs at 42 CFR 486.312(e) are required to publish termination 
notices in the local public newspaper.
2. Basis for Changes
    The existing regulations requiring termination notices to be 
published in local newspapers have become outdated over time as the 
public and beneficiaries increasingly turn to the Internet and other 
electronic forums for information. Currently, rural health centers 
(RHCs), federally qualified health centers (FQHCs), ambulatory surgical 
centers (ASCs), and organ procurement organizations (OPOs) are required 
to publish public notices of voluntary and involuntary termination of 
participation in the Medicare and Medicaid programs in one or more 
local newspapers. Providers and suppliers that voluntarily terminate 
their participation agreement must give notice to the public at least 
15 days before the effective date of termination and the notice must be 
published in one or more local newspapers. The use of hard copy local 
newspaper through time has become less effective, as a large majority 
of the public uses alternate sources such as Web sites or other online 
news and resources.
    According to national studies, approximately 23 percent of the 
general public continues to read print newspapers.\510\ Many 
individuals have turned to digital platforms to read news rather than 
print news, which continues to decline on an annual basis, therefore, 
limiting the effectiveness of publishing termination notices in local 
newspapers. In light of the public's increased access to the Internet 
and other electronic forums for information and the decline of print 
newspaper readership, in this proposed rule, in the FY 2018 IPPS/LTCH 
PPS proposed rule (82 FR 20145 and 20146), we proposed changes in the 
existing regulations noted earlier regarding newspaper publication of 
termination notices to allow CMS Regional Offices and providers and 
suppliers more media platforms in which to publish termination notices, 
both voluntary and involuntary, with the intent of making these notices 
more visible and effective.
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    \510\ PewResearchCenter (2012) Number of Americans Who Read 
Print Newspapers Continues Decline. Available at: http://www.pewresearch.org/daily-number/number-of-americans-who-read-print-newspapers-continues-decline/.
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3. Changes to Regulations
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20145 and 20146), 
we proposed to remove the regulatory language specifying public notice 
of terminations for FQHCs, RHCs, ASCs, and OPOs to be exclusively in 
newspapers to allow for more flexibility for both the CMS Regional 
Offices and providers and suppliers. Specifically, we proposed changes 
to the regulations for RHCs at 42 CFR 405.2404(d), for FQHCs at 42 CFR 
405.2442(a) and (b), for ASCs at 42 CFR 416.35(d), and for OPOs at 42 
CFR 486.312(e) to remove the reference to publication in newspapers as 
the means for notifying the community of involuntary and voluntary 
terminations from participation in Medicare and Medicaid programs. This 
proposal for termination notices to the public for RHCs, FHQCs, ASCs, 
and OPOs would align with the termination notices CMS currently has set 
forth for all other providers and suppliers. For example, under 42 CFR 
488.456(c) (enforcement procedures for long-term care facilities), CMS 
must notify the public of a termination of a nursing home's provider 
agreement, but the regulation does not specify through which public 
forum this notice is to be given. Similarly, 42 CFR 489.53(d)(5) also 
does not specify the method of public notification required for 
terminations. Through this proposed change, RHCs, FQHCs, ASCs, and OPOs 
would have the same requirement for the notice to the public as under 
42 CFR 489.53(d)(5), where there is a termination by CMS in which 
public

[[Page 38500]]

notice is required but the method for these providers or suppliers for 
providing public notice is not specified, to allow for flexibility.
    In addition, we proposed to revise 42 CFR 489.52(c)(2) to remove 
the requirement to publish notice in one or more local newspapers in 
circumstances of the termination of a provider agreement by a provider 
and instead to allow providers to inform the community via public 
notice, without specifying the method used for public notice. We stated 
in the proposed rule that we believe that these proposed changes will 
ensure that the community continues to be aware of terminations of 
Medicare and Medicaid participating providers and suppliers.
    The method for delivering the required public notice is no longer 
being specified by removing the word ``newspaper'' from the regulations 
for RHCs, FQHCs, ASCs, and OPOs. Instead, we proposed to allow for 
flexibility for the CMS Regional Offices and the providers or suppliers 
to post public notices through a manner in which the maximum number of 
community individuals and beneficiaries would be informed. This may 
include, but is not limited to State Web site postings, facility Web 
sites, or local news and social media channels. It also would not 
preclude publication in local newspapers. Through the proposed rule, we 
will continue to fulfill the regulatory requirement to publically post 
involuntary termination notices. We are also operationally considering 
allowing voluntarily terminating providers and suppliers the same 
public notice platform used for involuntary notices in order to meet 
their regulatory public notice requirements. This could include media 
venues such as Web site postings and press releases through the use of 
CMS Regional press officers.
    We invited public comments on our proposals. In addition, we sought 
suggestions from the public on sufficient mechanisms to provide public 
information, other than local newspapers, for posting Medicare and 
Medicaid participating provider and supplier termination notices.
    Comment: Several commenters supported the proposal to eliminate the 
use of newspapers to provide public notice and agreed that the use of 
newspapers has become outdated. One commenter agreed with the proposal 
to allow CMS Regional Offices to use media platforms in which to 
publish termination notices, both voluntary and involuntary, in a more 
visible and effective manner.
    Response: We thank the commenter for its support.
    We are finalizing our proposal to remove the word ``newspaper'' 
from the regulations for RHCs, FQHCs, ASCs, and OPOs under the 
requirements for public notices for terminations of the provider 
agreement.

XII. MedPAC Recommendations

    Under section 1886(e)(4)(B) of the Act, the Secretary must consider 
MedPAC's recommendations regarding hospital inpatient payments. Under 
section 1886(e)(5) of the Act, the Secretary must publish in the annual 
proposed and final IPPS rules the Secretary's recommendations regarding 
MedPAC's recommendations. We have reviewed MedPAC's March 2017 ``Report 
to the Congress: Medicare Payment Policy'' and have given the 
recommendations in the report consideration in conjunction with the 
policies set forth in this final rule. MedPAC recommendations for the 
IPPS for FY 2018 are addressed in Appendix B to this final rule.
    For further information relating specifically to the MedPAC reports 
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226, 
or visit MedPAC's Web site at: http://www.medpac.gov.

XIII. Other Required Information

A. Requests for Data From the Public

    IPPS-related data are available on the Internet for public use. The 
data can be found on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. 
We listed the IPPS-related data files that are available in the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20146 through 20147).
    Commenters interested in discussing any data files used in 
construction of this final rule should contact Michael Treitel at (410) 
786-4552.

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments
    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20147 through 
20158), we solicited public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs).
2. ICRs for Temporary Exception to the LTCH PPS Site Neutral Payment 
Rate for Certain Spinal Cord Specialty Hospitals
    In section VIII.E. of the preamble of the proposed rule and this 
final rule, we discuss the proposed implementation of section 15009 of 
Public law 114-255, which provides for a temporary exception to the 
site neutral payment rate for certain spinal cord specialty hospitals 
under section 1886(m)(6)(F) of the Act. Under this provision, 
discharges occurring in cost reporting periods beginning during FY 2018 
and FY 2019 for LTCHs that meet the specified statutory criteria are 
excepted from the site neutral payment rate (that is, all discharges 
from such LTCHs during this period would be paid at the LTCH PPS 
standard Federal payment rate). In order for an LTCH to qualify for 
this temporary exception, the LTCH must, among other things, meet the 
``significant out-of-state admissions criterion'' at section 
1886(m)(6)(F)(iii) of the Act. To meet the significant out-of-state 
admissions criterion, an LTCH must have discharged inpatients 
(including both individuals entitled to, or enrolled for, Medicare Part 
A benefits and individuals not so entitled or enrolled) during FY 2014 
who had been admitted from at least 20 of the 50 States, determined by 
the States of residency of such inpatients and based on such data 
submitted by the hospital to the Secretary as the Secretary may 
require. The statute further provides authority for the Secretary to 
implement the significant out-of-state admissions criterion at section 
1886(m)(6)(F)(iii) of the Act by program instruction or otherwise, and 
exempts the policy initiatives from any information collection 
requirements under the Paperwork Reduction Act. As such, the burden 
associated with the data

[[Page 38501]]

submitted by the hospital to meet the significant out-of-State 
admissions criteria is not subject to the PRA. However, our estimate of 
the burden associated with this data submission is discussed in section 
I.J. of Appendix A of this final rule.
    We did not receive any public comments on this information 
collection.
3. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program
a. Background
    OMB has currently approved 3,681,023 hours of burden and 
approximately $121 million under OMB control number 0938-1022, 
accounting for burden experienced by 3,300 IPPS hospitals and 1,100 
non-IPPS hospitals for the FY 2019 payment determination. In section 
IX.A. of the preambles of the FY 2018 IPPS/LTCH PPS proposed rule (82 
FR 20031 through 20075) and this final rule, we discuss the policies 
that we expect to affect our burden estimates. We refer readers to 
section I.A.2.h. of the preamble of this final rule, where we summarize 
our finalized policies. The details about our finalized policies that 
impact information collection requirements for IPPS-hospitals are 
described below.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20149) and prior 
rules (81 FR 57260) and (80 FR 49763), we have estimated that reporting 
eCQMs for the Hospital IQR Program could be accomplished by staff with 
a median hourly wage of $16.42 per hour.\511\ We note that since the 
publication of the FY 2018 IPPS/LTCH PPS proposed rule, more recent 
wage data have become available, and we are updating the wage rate used 
in these calculations in this FY 2018 IPPS/LTCH PPS final rule. The 
most recent data from the Bureau of Labor Statistics reflects a median 
hourly wage of $18.29 per hour for a Medical Records and Health 
Information Technician professional.\512\ We calculated the cost of 
overhead, including fringe benefits, at 100 percent of the median 
hourly wage, consistent with previous years (81 FR 57260). 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, we believe that doubling the hourly wage rate ($18.29 x 2 
= $36.58) to estimate total cost is a reasonably accurate estimation 
method. Accordingly, we calculate cost burden to hospitals using a wage 
plus benefits estimate of $36.58 per hour throughout the discussion 
below for the Hospital IQR Program.
---------------------------------------------------------------------------

    \511\ Occupational Outlook Handbook. Available at: http://www.bls.gov/oes/2012/may/oes292071.htm.
    \512\ Occupational Employment and Wages, May 2016. Available at: 
https://www.bls.gov/oes/current/oes292071.htm.
---------------------------------------------------------------------------

b. Burden Estimates for the Modifications to the eCQM Reporting 
Requirements for the CY 2017 Reporting Period/FY 2019 Payment 
Determination and CY 2018 Reporting Period/FY 2020 Payment 
Determination
    In the FY 2017 IPPS/LTCH PPS final rule, we finalized policies to 
require hospitals to submit a full year (four quarters) of data (81 FR 
57159) for at least eight of the available eCQMs in the Hospital IQR 
Program measure set (81 FR 57157) for both the FY 2019 and FY 2020 
payment determinations. In section IX.A.8. of the preamble of this 
final rule, we are finalizing modified, reduced eCQM reporting 
requirements. For both the CY 2017 reporting period/FY 2019 payment 
determination and the CY 2018 reporting period/FY 2020 payment 
determination, hospitals will be required to report four eCQMs and to 
submit one, self-selected calendar quarter of data.
    As in previous years, we believe the total burden associated with 
eCQM reporting will be similar to that previously outlined in the 
Medicare EHR Incentive Program Stage 2 final rule (77 FR 54126 through 
54133). Under that program, the burden estimate for a hospital to 
report one eCQM is 10 minutes per record per quarter. We believe this 
estimate is accurate and appropriate to apply to the Hospital IQR 
Program because we align the eCQM reporting requirements between both 
programs. Therefore, using the estimate of 10 minutes per record per 
quarter, we anticipate our finalized policies to require: (1) Reporting 
on at least four of the available eCQMs; and (2) submission of one, 
self-selected quarter of eCQM data, will result in a burden reduction 
of 4.67 hours (280 minutes) per hospital for each of the FY 2019 and FY 
2020 payment determinations. This estimate was calculated by 
considering the burden difference between the updated eCQM reporting 
requirements finalized in section IX.A.8. of the preamble of this final 
rule for each of the FY 2019 and FY 2020 payment determinations, which 
are the same (10 minutes per record x 4 eCQMs x 1 quarter = 40 minutes 
for 1 quarter of reporting), and the eCQM reporting requirements 
previously finalized in the FY 2017 IPPS/LTCH PPS final rule for each 
of the CY 2017 and CY 2018 reporting periods (81 FR 57157 through 
57159) (10 minutes per record x 8 eCQMs x 4 quarters = 320 minutes for 
4 quarters of reporting). Through these calculations (40 minutes-320 
minutes), we arrived at a reduction of 280 minutes per hospital per 
year, or 4.67 hours per hospital per year, for each of the FY 2019 and 
FY 2020 payment determinations.
    In total, for each of the FY 2019 and FY 2020 payment 
determinations, we expect our finalized proposal to require hospitals 
to report one, self-selected calendar quarter of data for 4 eCQMs (as 
compared to our previously finalized requirements to report four 
quarters of data for 8 eCQMs) to represent an annual burden reduction 
of 15,400 hours across all 3,300 IPPS hospitals participating in the 
Hospital IQR Program (-280 minutes per hospital/60 minutes per hour x 
3,300 hospitals = -15,400 hours). Using the updated wage estimate 
described above, we expect this to represent a cost reduction of 
$563,332 ($36.58 hourly wage x 15,400 annual hours reduction) across 
all 3,300 IPPS hospitals participating in the Hospital IQR Program for 
each of the FY 2019 and FY 2020 payment determinations. In summary, we 
estimate a revised total burden of 2,200 hours (40 minutes per 
hospital/60 minutes per hour x 3,300 hospitals) and $80,476 (2,200 
hours across 3,300 hospitals x $36.58 per hour) across all hospitals 
associated with this finalized policy.
c. Burden Estimate for the Modifications to eCQM Certification 
Requirements for the FY 2019 and FY 2020 Payment Determinations
    In section IX.10.d. of the preamble of this final rule, we discuss 
changes we are finalizing to the Hospital IQR Program eCQM submission 
requirements to align them with the Medicare EHR Incentive Program for 
eligible hospitals and CAHs. Specifically, for both the CY 2017 
reporting period/FY 2019 payment determination and the CY 2018 
reporting period/FY 2020 payment determination, we are finalizing that: 
(1) A hospital using EHR technology certified to the 2014 Edition, 2015 
Edition, or a combination of both, but such EHR technology is not 
certified to all available eCQMs, will be required to have its EHR 
technology certified to all eCQMs that are available to report; and (2) 
EHR technology that is certified to all available eCQMs will not need 
to be recertified each time it is updated to a more recent version of 
the eCQM specifications. Further, we are finalizing that: (1) For the 
CY 2017 reporting period, hospitals will be required to use

[[Page 38502]]

the most recent version of the CQM electronic specifications (namely, 
the Spring 2016 version of the eCQM specifications and any applicable 
addenda); and (2) for the CY 2018 reporting period, hospitals be 
required to use the most recent version of the CQM electronic 
specifications (namely, the Spring 2017 version of the eCQM 
specifications and any applicable addenda). Because the use of 
certified EHR technology is already required for the Medicare EHR 
Incentive Program, we believe that harmonizing these finalized policies 
will create no additional burden for hospitals under the Hospital IQR 
Program. We refer readers to OMB control number 0938-1158 for a 
discussion of the burden associated with the requirements for the 
Medicare EHR Incentive Program.
d. Burden Estimates for the Modifications to the Existing Data 
Validation Processes
(1) Calculations for Modifications to the Validation of eCQM Data for 
the FY 2020 and FY 2021 Payment Determinations and Subsequent Years
    In section IX.A.11. of the preamble of this final rule, we discuss 
our finalized policies for the eCQM data validation process for the 
Hospital IQR Program data beginning with validation for the FY 2020 
payment determination. First, we are finalizing our proposal to require 
hospitals selected for eCQM data validation to submit 8 cases per 
quarter for eCQM validation for the FY 2020 payment determination and 
subsequent years. As applied with our finalized modified, reduced 
policy to require one, self-selected calendar quarter of data for each 
of the CY 2017 and CY 2018 eCQM reporting periods, hospitals will be 
required to submit 8 records (eight cases per quarter over one quarter) 
for each of the FY 2020 and FY 2021 payment determinations. Second, we 
are finalizing our proposal to add additional exclusion criteria to our 
hospital and case selection process for eCQM data validation for the FY 
2020 payment determination and subsequent years. Third, we are 
finalizing our proposal to continue our previously finalized medical 
record submission requirements (81 FR 57181), for the FY 2021 payment 
determination and subsequent years. We believe these additional 
exclusions and maintaining previously finalized medical record 
submission requirements will have no effect on burden for hospitals, 
because, while they influence which hospitals and cases will be 
selected, they will not change the number of hospitals that must 
participate in eCQM validation, the number of records that will be 
collected for validation, or the validation reporting requirements for 
the hospitals selected. We discuss the burden associated with the 
finalized eCQM data validation process in more detail below.
    In previous years (79 FR 50347), we estimated a burden of 16 hours 
(960 minutes) for the submission of 12 records, which will equal 1 hour 
and 20 minutes (or 80 minutes) per record (960 minutes / 12 records) 
for validation of eCQM data. Applying the time per individual 
submission of 1 hour and 20 minutes (or 80 minutes) per record for the 
8 records we are requiring hospitals selected for eCQM data validation 
to submit for each of the FY 2020 and FY 2021 payment determinations, 
we estimate a total burden of approximately 10.67 hours (80 minutes x 8 
records/60 minutes per hour) for each hospital selected for 
participation in eCQM data validation for the FY 2020 and FY 2021 
payment determinations. We estimate that the total burden will be 
approximately 2,133 hours across the 200 hospitals selected for eCQM 
validation (10.67 hours per hospital x 200 hospitals = 2,133 hours). As 
compared to our total burden estimate of 8,533 hours previously 
estimated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57261), this 
represents a burden reduction of approximately 6,400 hours across up to 
200 hospitals selected for eCQM validation (2,133 hours estimated in 
this final rule--8,533 hours estimated in the FY 2017 IPPS/LTCH PPS 
final rule = -6,400 hours). Using the estimated hourly labor cost of 
$36.58, we estimate an annual cost reduction of $234,112 (6,400 hours x 
$36.58 per hour) across the 200 hospitals selected for eCQM validation 
due to our finalized policy to decrease the number of records collected 
for validation from 32 records to 8 records for each of the FY 2020 and 
FY 2021 payment determinations. In summary, we estimate a revised total 
burden of 2,133 hours (10.67 hours x 200 hospitals) and $78,025 (2,133 
hours across 200 hospitals x $36.58 per hour) associated with this 
finalized policy.
(2) Calculations for Modifications to the eCQM Data Validation 
Exclusions for the FY 2020 Payment Determination and Subsequent Years
    In section IX.A.11.b. of the preamble of this final rule, we are 
finalizing our an additional eCQM data validation exclusion criterion. 
Specifically, hospitals that do not have at least five discharges for 
at least one reported eCQM (among the 4 required eCQMs finalized for 
each of the CY 2017 and CY 2018 eCQM reporting periods) included in 
their QRDA I file submissions will be excluded from the random sample 
of up to 200 hospitals selected for eCQM validation for the FY 2020 
payment determination and subsequent years. For the FY 2020 payment 
determination and subsequent years, hospitals meeting this newly 
finalized exclusion criterion discussed above and/or either of the two 
additional exclusion criteria previously finalized in the FY 2017 IPPS/
LTCH PPS final rule (81 FR 57178) will be excluded from the random 
sample of up to 200 hospitals selected for eCQM data validation. 
Lastly, we are finalizing our proposal that the three exclusion 
criteria will be applied before the random selection of 200 hospitals 
for eCQM validation, such that hospitals meeting any one of these 
exclusions will not be eligible for selection.
    In section IX.A.11.b. of the preamble of this final rule, we are 
finalizing our proposal to exclude the following cases from validation 
for those hospitals selected to participate in eCQM data validation: 
(1) Episodes of care that are longer than 120 days; and (2) cases with 
a zero denominator for each measure, for the FY 2020 payment 
determination and subsequent years. We do not believe that these 
finalized policies will affect the burden experienced by hospitals 
because, while they influence which hospitals and cases will be 
selected, they will not change the number of hospitals that must 
participate in eCQM validation, the number of records that will be 
collected for validation, or the validation reporting requirements for 
the hospitals selected.
e. Burden Estimate for Voluntary Reporting on the Hybrid Hospital-Wide 
30-Day Readmission Measure for the CY 2018 Reporting Period
    In section IX.A.7. of the preamble of this final rule, we are 
finalizing our proposal to begin voluntary reporting on the Hybrid 
Hospital-Wide 30-Day Readmission (HWR) measure for CY 2018 reporting 
period. This measure uses both claims-based data as well as a set of 13 
core clinical data elements from patient electronic health records 
(EHRs) and 6 linking variables. We do not expect any additional burden 
to hospitals to report the claims-based portion of this measure because 
these data are already reported to the Medicare program for payment 
purposes.
    As described in section IX.A.7.b. of the preamble of this final 
rule, we are finalizing our proposal that hospitals may voluntarily 
submit the 13 core clinical data elements and the six data

[[Page 38503]]

elements required for linking with claims data for this measure using 
the same submission process required for eCQM reporting, specifically, 
that these data be reported using QRDA I files submitted to the CMS 
data receiving system. Accordingly, we expect the burden associated 
with voluntary reporting of this measure to be similar to our estimates 
for eCQM reporting (that is 10 minutes per measure, per quarter). 
Consistent with estimates for previous voluntary reporting of quality 
measures, such as the eCQM reporting pilot, we anticipate that 
approximately 100 hospitals will voluntarily report the Hybrid HWR 
measure. Therefore, using the estimate of 10 minutes per measure per 
quarter, we estimate that our proposal will result in a burden increase 
of 0.67 hours (40 minutes) per participating hospital for the one year 
(4 quarters) during which this voluntary measure will take place (10 
minutes per record x 1 measure x 4 quarters / 60 minutes per hour = 
0.67 hours). In total, for the one year duration of voluntary reporting 
the Hybrid HWR measure, we estimate an annual burden increase of 67 
hours across up to 100 hospitals voluntarily participating (40 minutes 
per hospital / 60 minutes per hour x 100 hospitals = 67 hours). Using 
the updated wage estimate described above, we estimate this to 
represent a cost increase of $2,451 ($36.58 hourly wage x 67 annual 
hours) across up to 100 hospitals voluntarily participating in 
reporting for the Hybrid HWR measure. We note that the claims-based 
version of the Hospital-Wide All-Cause Unplanned Readmission measure is 
currently a part of the Hospital IQR Program measure set, as adopted in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53530).
f. Burden Estimate for the Refinement of the HCAHPS Survey Measure for 
the FY 2020 Payment Determination and Subsequent Years
    In section IX.A.6.a. of the preamble of this final rule, we are 
finalizing our proposal to update the HCAHPS survey measure (OMB 
control number 0938-0981) by replacing the current set of three Pain 
Management questions (HCAHPS Q12, Q13, and Q14) with new questions 
referred to collectively as the ``Communication About Pain'' composite 
measure beginning with the FY 2020 payment determination. There is no 
additional information collection burden associated with the refinement 
of these questions because we are rewording the existing questions and 
not changing the total number of questions.
g. Burden Estimate for the Refinement of the Hospital 30-Day, All-
Cause, Risk-Standardized Mortality Rate Following Acute Ischemic Stroke 
Measure for the FY 2023 Payment Determination and Subsequent Years
    In section IX.A.6.b. of the preamble of this final rule, we are 
finalizing our proposal to refine the Hospital 30-Day, All-Cause, Risk-
Standardized Mortality Rate Following Acute Ischemic Stroke measure to 
include the use of NIH stroke scale claims data for risk adjustment 
beginning with the FY 2023 payment determination. Because this 
refinement will result only in the inclusion of additional claims-based 
data that are already reported to the Medicare program for payment 
purposes, we believe no additional burden on hospitals will result from 
the update to the stroke mortality measure.
h. Burden Estimate for the Changes to the Hospital IQR Program 
Extraordinary Circumstances Exceptions (ECE) Policy for the FY 2020 
Payment Determination and Subsequent Years
    In section IX.A.15.b. of the preamble of this final rule we discuss 
our alignment of the naming of this exception policy and update to 42 
CFR 412.140 to reflect our current ECE policies. We also are clarifying 
the timing of CMS' response to ECE requests. Because we are not seeking 
any new or additional information in our ECE finalized proposals, we 
believe the updates will have no effect on burden for hospitals.
i. Summary of Burden Estimates for the Hospital IQR Program
    In summary, under OMB control number 0938-1022, we estimate: (1) A 
burden reduction of 15,400 hours (-15,400 hours due to the finalized 
modifications to the CY 2017 reporting period/FY 2019 payment 
determination eCQM reporting requirements) and a total cost reduction 
of $563,332 (-15,400 hours x $36.58 per hour) for the FY 2019 payment 
determination; (2) a burden reduction of 21,733 hours (-15,400 hours 
due to the finalized modifications to the CY 2018 eCQM reporting 
requirements for the CY 2018 reporting period/FY 2020 payment 
determination -6,400 hours due to the finalized modifications to the 
eCQM data validation process for the FY 2020 payment determination + 67 
hours for the voluntary reporting of the Hybrid HWR measure) and a 
total cost reduction of $794,993 (-21,733 hours x $36.58 per hour) for 
the FY 2020 payment determination; and (3) a burden reduction of 6,400 
hours (-6,400 hours due to the finalized modifications to eCQM 
validation process for the FY 2021 payment determination) and a total 
cost reduction of $234,112 (-6,400 hours x $36.58 per hour) for the FY 
2021 payment determination. We therefore estimate a total burden 
reduction of 43,533 hours and $1,592,437 across all hospitals as a 
result of the finalized proposals in this final rule. These are the 
burden estimate updates for which we are requesting OMB approval under 
OMB number 0938-1022.

                              Hospital IQR Program CY 2017 Reporting Period/FY 2019 Payment Determination Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Annual recordkeeping and reporting requirements under OMB control number 0938-1022 for CY 2017 reporting period/FY
                                                                                 2019 payment determination
                                  ----------------------------------------------------------------------------------------------------------------------
                                                                                     Average                      Newly        Previously        Net
             Activity                                       Number     Number of      number       Annual       finalized       finalized     difference
                                    Estimated time per    reporting       IPPS     records per     burden     annual burden   annual burden   in annual
                                     record (minutes)      quarters    hospitals     hospital   (hours) per  (hours) across  (hours) across     burden
                                                           per year    reporting   per quarter    hospital   IPPS hospitals  IPPS hospitals     hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reporting on 4 eCQMs for 1         40 (10 minutes x 4              1        3,300            1         0.67           2,200          17,600      -15,400
 Quarter.                           measures).
                                  ----------------------------------------------------------------------------------------------------------------------
                                                                           Total Change in Burden Hours: -15,400
                                              Total Cost Estimate: Updated Hourly Wage ($36.58) x Change in Burden Hours (-15,400) = -$563,332
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 38504]]


                              Hospital IQR Program CY 2018 Reporting Period/FY 2020 Payment Determination Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Annual recordkeeping and reporting requirements under OMB control number 0938-1022 for CY 2018 reporting period/FY
                                                                                 2020 payment determination
                                  ----------------------------------------------------------------------------------------------------------------------
                                                                                                                               Previously
             Activity                                       Number     Number of     Average       Annual         Newly         finalized        Net
                                    Estimated time per    reporting       IPPS        number       burden       finalized     annual burden   difference
                                     record (minutes)      quarters    hospitals   records per  (hours) per   annual burden      (hours)      in annual
                                                           per year    reporting     hospital     hospital   (hours) across    across IPPS      burden
                                                                                   per quarter               IPPS hospitals     hospitals       hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reporting on 4 eCQMs for 1         40 (10 minutes x 4              1        3,300            1         0.67           2,200          17,600      -15,400
 Quarter.                           measures).
FY 2020 eCQM Data Validation.....  80..................            1          200            8        10.67           2,133           8,533       -6,400
Hybrid Hospital-Wide 30-Day        10..................            4          100            1         0.67              67               0           67
 Readmission Measure Voluntary
 Reporting.
                                  ----------------------------------------------------------------------------------------------------------------------
                                                                           Total Change in Burden Hours: -21,733
                                              Total Cost Estimate: Updated Hourly Wage ($36.58) x Change in Burden Hours (-21,733) = -$794,993
--------------------------------------------------------------------------------------------------------------------------------------------------------


                              Hospital IQR Program CY 2019 Reporting Period/FY 2021 Payment Determination Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Annual recordkeeping and reporting requirements under OMB control number 0938-1022 for CY 2019 reporting period/FY
                                                                                 2021 payment determination
                                  ----------------------------------------------------------------------------------------------------------------------
                                                                                     Average                      Newly        Previously        Net
             Activity                                       Number     Number of      number       Annual       finalized       finalized     difference
                                    Estimated time per    reporting       IPPS     records per     burden     annual burden   annual burden   in annual
                                     record (minutes)      quarters    hospitals     hospital   (hours) per  (hours) across  (hours) across     burden
                                                           per year    reporting   per quarter    hospital   IPPS hospitals  IPPS hospitals     hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2021 eCQM Data Validation.....  80..................            1          200            8        10.67           2,133           8,533       -6,400
                                  ----------------------------------------------------------------------------------------------------------------------
                                                                            Total Change in Burden Hours: -6,400
                                              Total Cost Estimate: Updated Hourly Wage ($36.58) x Change in Burden Hours (-6,400) = -$234,112
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We received the following public comment regarding our burden 
estimates.
    Comment: One commenter objected to the notion that reporting eCQMs 
for the Hospital IQR Program measures could be accomplished by staff 
with a mean hourly wage of $16.42 per hour. The commenter encouraged 
CMS to reevaluate this calculation and utilize the salary surveys by 
professional organizations like the Health Information Management 
System Society (HIMSS).
    Response: As we noted in the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 20149), we acknowledge that more recent wage data have become 
available from the Bureau of Labor and Statistics (BLS),\513\ and we 
have updated the Hospital IQR Program wage estimate above using these 
updated data in this final rule. We believe the BLS is the most 
appropriate source of these data, because the BLS collects a far 
greater volume of employment and wage data through its surveys than 
other sources such as the HIMSS Compensation Survey.\514\ In addition, 
the HIMSS Compensation Survey is a proprietary tool intended to assist 
health information technology professionals compare salaries and 
compensation packages, whereas the BLS is intended to provide a large-
scale survey of national employment statistics. HIMSS does not suggest 
what level employee would likely be doing this work; we note that while 
the HIMSS Compensation Survey 2015 provides overall salary data, it 
does not explicitly state, or provide granular enough employee 
groupings to be able to determine which level of employee would likely 
be doing this work. We utilized data from the BLS since we could 
ascertain a specific wage rate for the associated position of a person 
doing this work. We will continue to evaluate the appropriateness of 
using the BLS wage rate in future years.
---------------------------------------------------------------------------

    \513\ Occupational Employment and Wages, May 2016. Available at: 
https://www.bls.gov/oes/current/oes292071.htm.
    \514\ 2015 HIMSS Salary Calculator & Compensation Survey. 
Available at: http://www.himss.org/compensationSurvey.
---------------------------------------------------------------------------

4. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    As discussed in sections IX.B. of the preambles of the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20075 through 20086) and this final 
rule, section 1866(k)(1) of the Act requires, for purposes of FY 2014 
and each subsequent fiscal year, that a hospital described in section 
1886(d)(1)(B)(v) of the Act (a PPS-exempt cancer hospital, or a PCH) 
submit data in accordance with section 1866(k)(2) of the Act with 
respect to such fiscal year. There is no financial impact to PCH 
Medicare reimbursement if a PCH does not participate.
    We refer readers to 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), the FY 2016 IPPS/LTCH PPS final rule (80 FR 49764), and 
the FY 2017 IPPS/LTCH PPS final rule (81 FR 57182), as well as to OMB 
Control Number 0938-1175, for a detailed discussion of the burden 
related to the program requirements that we have previously adopted. 
Below we discuss only changes in burden that will result from the 
policies we are finalizing in this final rule.
a. Estimated Hourly Labor Cost
    Previously, we used $66 as our hourly labor cost in calculating the 
burden associated with chart-abstraction activities in the PCHQR 
Program. However, our experience working with our data analysis 
contractors and those

[[Page 38505]]

performing chart abstraction indicates that this work is performed by a 
different labor category than we previously thought. In addition, our 
previous labor costs are different from those used in other quality 
reporting and value-based purchasing programs, and we do not believe 
there is a justification for these different values given the 
similarity in quality measures and required staff. Therefore, to align 
the estimated hourly labor costs (hourly wage plus fringe and overhead, 
as discussed below) used to calculate burden in the PCHQR Program with 
those used in other CMS quality reporting programs, including the 
Hospital IQR Program, we are finalizing our proposal to revise our 
hourly labor cost estimate to $36.58 ($32.84 \515\ with a modification) 
which incorporates hourly wage plus fringe benefits and overhead costs.
---------------------------------------------------------------------------

    \515\ https://www.bls.gov/oes/2012/may/oes292071.htm.
---------------------------------------------------------------------------

    This labor cost is based on the May 2016 BLS wage for a Medical 
Records and Health Information Technician. The BLS is ``the principal 
Federal agency responsible for measuring labor market activity, working 
conditions, and price changes in the economy.'' \516\ The BLS describes 
Medical Records and Health Information Technicians as those responsible 
for organizing and managing health information data; therefore, we 
believe it is reasonable to assume that these individuals will be 
tasked with abstracting clinical data for submission for the PCHQR 
Program. According to the BLS, the median pay for Medical Records and 
Health Information Technicians which we used in the proposed rule was 
$16.42 per hour, before inclusion of overhead and fringe benefits. 
However, we have learned that the BLS has updated the median pay for 
Medical Records and Health Information Technicians to $18.29 per hour, 
before inclusion of overhead and fringe benefits. We used this updated 
estimate for this final rule.
---------------------------------------------------------------------------

    \516\ http://www.bls.gov/bls/infohome.htm.
---------------------------------------------------------------------------

    Obtaining data on overhead costs is challenging because overhead 
costs vary across PCHs, and cost elements assigned as ``indirect'' or 
``overhead'' costs, as opposed to direct costs or employee wages, are 
subject to interpretation at the facility level. Therefore, we are 
finalizing our proposal to calculate the cost of overhead, including 
fringe benefits, at 100 percent of the median hourly wage, as is 
currently done in other CMS quality reporting programs.\517\ 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, we believe that doubling the updated hourly wage rate 
($18.29 x 2 = $36.58) to estimate total cost is a reasonably accurate 
estimation method. Accordingly, we are finalizing, with a modification 
to update the hourly labor cost, our proposal to use an hourly labor 
cost estimate of $36.58 ($18.29 base salary + $18.29 fringe and 
overhead) for calculation of burden forthwith. We again note that 
because more recent wage data has become available, we are updating the 
wage rate used in these calculations in this FY 2018 IPPS/LTCH PPS 
final rule.
---------------------------------------------------------------------------

    \517\ See, for example, FY 2016 IPPS/LTCH PPS final rule (80 FR 
49764 FN 153).
---------------------------------------------------------------------------

    We did not receive any public comments on this proposal.
b. Estimated Burden of PCHQR Program Finalized Proposals for the FY 
2020 Program Year
    In section IX.B.4. of the preamble of this final rule, we are 
finalizing our proposals to adopt four claims-based measures beginning 
with the FY 2020 program: (1) Proportion of Patients Who Died from 
Cancer Receiving Chemotherapy in the Last 14 Days of Life (NQF #0210); 
(2) Proportion of Patients Who Died from Cancer Admitted to the ICU in 
the Last 30 Days of Life (NQF #0213); (3) Proportion of Patients Who 
Died from Cancer Not Admitted to Hospice (NQF #0215); and (4) 
Proportion of Patients Who Died from Cancer Admitted to Hospice for 
Less Than Three Days (NQF #0216).
    In conjunction with these finalized policies, in section IX.B.3.b. 
of the preamble of this final rule, we are finalizing the removal of 
three existing chart-abstracted measures beginning with the FY 2020 
program--(1) 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 (PCH-01/NQF #0223); (2) 
Combination Chemotherapy is Considered or Administered Within 4 Months 
(120 Days) of Diagnosis for Women Under 70 with AJCC T1c, or Stage II 
or III Hormone Receptor Negative Breast Cancer (PCH-02/NQF #0559); and 
(3) Adjuvant Hormonal Therapy (PCH-03/NQF #0220)). Therefore, the PCHQR 
Program measure set will consist of 18 measures for the FY 2020 
program.
    Our finalized policy to remove the three chart-abstracted measures 
will reduce the burden associated with quality data reporting on PCHs. 
We relied on the estimates finalized in the FY 2013 IPPS/LTCH PPS final 
rule to estimate the reduction in burden because the measures we 
proposed to remove were adopted in the FY 2013 IPPS/LTCH PPS final 
rule, and the burden estimates for these chart-abstracted measures have 
not been amended since their introduction. The burden associated with 
these reporting requirements is currently under OMB Control Number 
0938-1175. Therefore, based on the FY 2013 IPPS/LTCH PPS final rule (77 
FR 53667) finalized estimates of the burden of collecting measure 
information, submitting measure information, and training personnel, we 
estimate the reduction in burden for collecting measure information, 
submitting measure information, and training personnel provided by the 
removal of the three measures to be approximately 3,776 hours per year 
for each PCH, or an average reduction in burden of 315 hours per month 
per PCH. Therefore, we estimate a reduction in hourly burden of chart 
abstraction and data submission of approximately 41,537 hours per year 
across the 11 PCHs.\518\
---------------------------------------------------------------------------

    \518\ In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53667), we 
originally calculated the burden for reporting the three chart-
abstracted cancer measures and two NHSN CDC measures (CLABSI and 
CAUTI) at approximately 6,293.5 hours annually for each PCH, or 
69,228.5 burden hours annually for all 11 PCHs. To calculate the 
reduction in burden achieved by removing three of these five 
measures, we multiplied the annual burden by 11 (the number of 
PCHs), divided by 5 (the total number of measures making up the 
burden estimate), and multiplied the result by 3 (the total number 
of measures being removed).
---------------------------------------------------------------------------

    We do not anticipate any increase in burden on the PCHs 
corresponding to our finalized policy to adopt four claims-based 
measures into the PCHQR Program beginning with the FY 2020 program 
year. The four measures are claims-based and therefore do not require 
facilities to report any additional data. Because these measures do not 
require facilities to submit any additional data, we do not believe 
that there is any increase in burden associated with this proposal.
    In summary, as a result of our finalized policies, we estimate a 
reduction of 41,537 hours of burden per year associated with the 
proposals above for all 11 PCHs beginning with the FY 2020 program. 
Coupled with our updated estimated salary costs, we estimate that these 
proposed changes will result in a reduction in annual labor costs of 
$1,519,427 (41,537.1 hours x $36.58 hourly labor cost) across the 11 
PCHs beginning with the FY 2020 PCHQR Program. The burden associated 
with these reporting requirements is currently under OMB Control Number

[[Page 38506]]

0938-1175. The information collection will be revised and submitted to 
OMB.
5. ICRs for the Hospital Value-Based Purchasing (VBP) Program
    In section V.J. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 19968 through 19986) and this final rule, we 
discuss proposed and newly finalized requirements for the Hospital VBP 
Program. Specifically, in this final rule, with respect to quality 
measures, we are finalizing our proposals to: (1) Remove the current 
Patient Safety for Selected Indicators (PSI 90) measure beginning with 
the FY 2019 program year; (2) adopt the Hospital-Level, Risk-
Standardized Payment Associated with a 30-Day Episode-of-Care for 
Pneumonia (PN Payment) measure beginning with the FY 2022 program year; 
and (3) adopt the Patient Safety and Adverse Events (Composite) (NQF 
#0531) (modified PSI 90) beginning with the FY 2023 program year.
    As required under section 1886(o)(2)(A) of the Act, Hospital VBP 
Program measures, including the finalized additional and updated 
measures, are used in 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 
and collected under the Hospital IQR Program. Therefore, the burden 
associated with these reporting requirements is currently approved 
under OMB Control Number 0938-1022.
6. ICRs for the Long-Term Care Hospital Quality Reporting Program (LTCH 
QRP)
    As discussed in section IX.C.7.a. of the preamble of this final 
rule, we are finalizing our proposals to replace the current pressure 
ulcer measure beginning with the FY 2020 LTCH QRP and adopt two new 
measures also beginning with the FY 2020 LTCH QRP.

 LTCH QRP Quality Measures Newly Finalized in This FY 2018 IPPS/LTCH PPS
             Final Rule Beginning With the FY 2020 LTCH QRP
------------------------------------------------------------------------
                              Measure title
-------------------------------------------------------------------------
Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/Injury.
Compliance with Spontaneous Breathing Trial (SBT) by Day 2 of the LTCH
 Stay.
Ventilator Liberation Rate.
------------------------------------------------------------------------

    The LTCH QRP measure set also currently includes claims-based 
measures that are calculated based on data that LTCHs are already 
required to report to the Medicare program for payment purposes. In 
this final rule, we are finalizing our proposal to remove the All-Cause 
Unplanned Readmission Measure for 30 Days Post-Discharge from LTCHs 
(NQF #2512) from the LTCH QRP measure set, beginning with the FY 2019 
LTCH QRP. However, because LTCHs will still be required to report data 
on this measure for payment purposes, we believe that the removal of 
this measure will not affect the burden estimate for the LTCH QRP.
    The LTCH CARE Data Set Version 3.00 was implemented April 1, 2016 
and is approved under OMB control number 0938-1163. The LTCH CARE Data 
Set Version 3.00 is available on the LTCH QRP Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-CARE-Data-Set-and-LTCH-QRP-Manual.html. For a discussion of burden related to LTCH CARE Data Set 
Version 3.00, we refer readers to the FY 2017 IPPS/LTCH PPS final rule 
(81 FR 57339 through 57341).
    The LTCH CARE Data Set Version 4.00 will be effective July 1, 2018, 
as discussed in section IX.C.11.d. of the preamble of the proposed 
rule. The associated burden for the Drug Regimen Review Conducted with 
Follow-Up for Identified Issues-PAC LTCH QRP quality measure was 
finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57219 through 
57223).
    In this final rule, we are finalizing our proposals to adopt three 
measures: Changes in Skin Integrity Post-Acute Care: Pressure Ulcer/
Injury; and two new measures related to ventilator weaning, Compliance 
with SBT by Day 2 of the LTCH Stay and Ventilator Liberation Rate.
    Adoption of the proposed pressure ulcer measure, Change in Skin 
Integrity Post-Acute Care: Pressure Ulcer Injury, to replace the 
current pressure ulcer measure, Percent of Residents or Patients with 
Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678), will 
result in the removal of some data elements related to pressure ulcer 
assessment that we believe are duplicative or no longer necessary. As a 
result, the estimated burden and cost for LTCHs to report the measure 
we are finalizing in this final rule will be reduced from the burden 
and cost to report the current measure. Specifically, we believe that 
there will be a 3-minute reduction in clinical staff time to report 
data. We estimate 146,592 discharges from 426 LTCHs annually. This 
equates to a decrease of 7,330 hours in burden for all LTCHs (0.05 
hours x 146,592 discharges). Given 3 minutes of RN time at $69.40 per 
hour completing an average of 344 sets of LTCH CARE Data Set 
assessments per provider per year, we estimated the total cost will be 
reduced by $1,194.07 per LTCH annually, or $508,674 for all LTCHs 
annually. This decrease in burden will be accounted for in the 
information collection under OMB control number (0938-1163).
    We estimate the additional data elements for the newly finalized 
Compliance with SBT by Day 2 of the LTCH Stay quality measure will take 
1.5 minutes of clinical staff time to report data on admission. We 
believe that the additional LTCH CARE Data Set items we are finalizing 
will be completed by registered nurses and respiratory therapists (RT). 
Individual LTCHs determine the staffing resources necessary. We 
estimate 146,592 discharges from 426 LTCHs annually. This equates to an 
increase of 3,665 hours in burden for all LTCHs (0.025 hours x 146,592 
discharges). Given 0.75 minutes of RN time at $69.40 per hour and 0.75 
minutes of RT time at $58.30 per hour completing an average of 344 sets 
of LTCH CARE Data Set assessments per provider per year, we estimated 
the total cost will be increased by $549.29 per LTCH annually, or 
$233,997 for all LTCHs annually. This increase in burden will be 
accounted for in the information collection under OMB control number 
(0938-1163).
    We estimate the additional elements for the newly finalized 
Ventilator Liberation Rate quality measure will take 2.7 minutes of 
clinical staff time to report data on admission and 0.3 minutes of 
clinical staff time to report data on discharge, for a total of 3 
minutes. We believe that the additional LTCH CARE Data Set items we are 
finalizing will be completed by registered nurses and respiratory 
therapists. Individual LTCHs determine the staffing resources 
necessary. We estimate 146,592 discharges from 426 LTCHs annually. This 
equates to an increase of 7,330 hours in burden for all LTCHs (0.05 
hours x 146,592 discharges). Given 2.85 minutes of RN time at $69.40 
per hour and 0.15 minutes of respiratory therapist (RT) time at $58.30 
per hour completing an average of 344 sets of LTCH CARE Data Set 
assessments per provider per year, we estimated the total cost will be 
increased by $1,184.52 per LTCH annually, or $504,606 for all LTCHs 
annually. This increase in burden will be accounted for in the 
information collection under OMB control number (0938-1163).

[[Page 38507]]

    We are finalizing our proposal to remove the program interruption 
items from the LTCH CARE Data Set. Specifically, we are finalizing our 
proposal to remove the following items: (1) A2500, Program 
Interruption(s); (2) A2510, Number of Program Interruptions During This 
Stay in This Facility; and (3) A2525, Program Interruption Dates, 
because we do not currently utilize this information nor do we have 
plans to utilize this information for the LTCH QRP. As a result, the 
estimated burden and cost for LTCHs will be reduced. Specifically, we 
believe that there will be a 3.6 minute reduction in clinical staff 
time to report data. We estimate 146,592 discharges from 426 LTCHs 
annually. This equates to a decrease of 8,796 hours in burden for all 
LTCHs (0.06 hours x 146,592 discharges). Given 3.6 minutes of RN time 
at $69.40 per hour completing an average of 344 sets of LTCH CARE Data 
Set assessments per provider per year, we estimated the total cost will 
be reduced by $1,432.89 per LTCH annually, or $610,409 for all LTCHs 
annually. This decrease in burden will be accounted for in the 
information collection under OMB control number (0938-1163).
    Also, in section IX.C.10. of the preamble of this final rule, we 
are finalizing standardized patient assessment data proposals with 
respect to the Functional Status and Medical Condition and Comorbidity 
categories. All of the data elements are already included on the LTCH 
CARE Data Set, and therefore our finalized proposal to characterize 
those data elements as standardized patient assessment data will not 
result in an additional reporting burden for LTCHs.
    We are not finalizing our proposals to adopt 25 new standardized 
patient assessment data elements with respect to LTCH admissions and 17 
new standardized patient assessment data elements with respect to LTCH 
discharges. In the FY 2018 IPPS/LTCH PPS proposed rule (81 FR 20225 
through 20226), we discussed that our burden estimates for these 
proposals were estimated at an additional $4,080.30 per LTCH annually, 
or $1,738,206 for all LTCHs annually. Because we are not finalizing the 
proposals, this results in a burden reduction from what was proposed.
    In summary, the 4.5-minute increase in burden for the two finalized 
ventilator weaning quality measures is offset by the 3 minute reduction 
in burden for the finalized pressure ulcer quality measure and the 3.6 
minute reduction in burden for the program interruption items. This 
results in a net reduction in burden of 2.1 minutes. Overall, this 
results in a net decrease in cost associated with the finalized changes 
to the LTCH QRP, which we estimate to be reduced by $893.14 per LTCH 
annually, or $380,480 for all LTCHs annually.
    The finalized LTCH CARE Data Set Version 4.00 is available on the 
LTCH QRP Web site at: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-CARE-Data-Set-and-LTCH-QRP-Manual.html.
    Under section 1899B(m) of the Act, the Paperwork Reduction Act does 
not apply to the specific changes to the collections of information 
described in this final rule. While the reporting of data on quality 
measures is an information collection, we believe that the burden 
associated with modifications to the LTCH CARE Data Set discussed in 
this final rule fall under the PRA exceptions provided in 1899B(m) of 
the Act because they are required to achieve the standardization of 
patient assessment data. Section 1899B(m) of the Act provides that the 
PRA does not apply to section 1899B and the sections referenced in 
section 1899B(a)(2)(B) of the Act that require modification to achieve 
the standardization of patient assessment data. We are, however, 
setting out the burden as a courtesy to advise interested parties of 
the proposed actions' time and costs and we also refer readers to 
section I.M. of Appendix A of the preamble of this final rule. The 
requirement and burden will be submitted to OMB for review and approval 
when the modifications to the LTCH CARE Data Set are not used to 
achieve standardization and are not exempt from the requirements under 
section 1899B(m) of the Act.
    For a discussion of the revised burden calculations related to LTCH 
CARE Data Set Version 4.00, and our discussion and response to public 
comments we received on these information collection requirements, we 
refer readers to section I.M. of Appendix A of the preamble of this 
final rule.
7. ICRs for the Inpatient Psychiatric Facility Quality Reporting 
(IPFQR) Program
    We refer readers to the FY 2015 IPF PPS final rule (79 FR 45978 
through 45980), the FY 2016 IPF PPS final rule (80 FR 46720 through 
46721), and the FY 2017 IPPS/LTCH PPS final rule (81 FR 57265 through 
57266) for a detailed discussion of the burden for the program 
requirements that we have previously adopted. Additional information on 
the full burden of existing requirements can also be found in the 
information collection approved under OMB Control number 0938-1171. In 
section IX.D. of the preambles of the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20120 through 20130) and this final rule, we discuss and 
finalize provisions that affect the FY 2019 payment determination 
(through procedural requirements that occur in FY 2018). We are not 
finalizing the adoption of the Medication Continuation following 
Inpatient Psychiatric Discharge measure for the FY 2020 payment 
determination and subsequent years. ICRs associated with finalized 
proposals for each period are discussed in more detail below.
a. Burden Associated With Finalized Procedural Proposals for the FY 
2019 Payment Determination and Subsequent Years
    In this final rule, we are finalizing: (1) Proposed updates to the 
Extraordinary Circumstances Exception (ECE) process (affecting 
submission of ECE requests in FY 2018, which will impact payment 
determination year FY 2019 and subsequent years); (2) proposals to 
adopt measure removal factors, including criteria for determining when 
a measure is ``topped-out,'' and measure retention factors (which will 
take effect immediately following the finalization of this rule for 
updates to be proposed through future rulemaking); and (3) changes 
associated with procedural deadlines (which affect the FY 2019 payment 
determination and subsequent years).
    First, for the ECE proposals, we are specifically finalizing our 
proposals to: (1) Specify that ECE forms may be signed by either the 
CEO or the designated personnel as listed in the contact information 
section of the form; (2) change the ECE request form submission 
deadline to within 90 days of the date that the extraordinary 
circumstance occurred; and (3) state that we will strive to complete 
our review of ECE requests within 90 days of receipt. These changes to 
the ECE process will not change data submission requirements for 
facilities requesting ECEs, but update procedural requirements related 
to ECE requests instead. Therefore, we do not expect any changes to 
burden associated with these proposals.
    Second, the finalized proposal to adopt measures removal and 
retention factors does not affect the data submission requirements. 
These factors are intended to improve transparency of our measure 
review and evaluation process.

[[Page 38508]]

    Third, for the procedural deadlines, we are finalizing our 
proposals to: (1) Change the submission deadline such that facilities 
have a 45-day submission period beginning at least 30 days following 
the end of the data collection period for a measure; (2) change the 
submission timeframes for both NOPs and withdrawals to the end of the 
data submission period before each respective payment determination 
year; and (3) provide exact dates that define the end of the data 
submission period/NOP/withdrawal submission deadline through 
subregulatory means. These finalized proposals do not affect the data 
that a facility must submit; instead, these proposals affect the 
specification of timeframes.
    Because none of the policies that we are finalizing for FY 2018 and 
subsequent years affects the data that IPFs are required to submit, we 
do not believe there will be any change in burden as compared to the 
burden finalized in prior rulemakings, which is described in more 
detail in the FY 2015 IPF PPS final rule (79 FR 45978 through 45980), 
the FY 2016 IPF PPS final rule (80 FR 46720 through 46721), and the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57265 through 57266) and in the 
information collection previously approved under OMB Control number 
0938-1171.
b. Burden Associated With the FY 2020 Payment Determination and 
Subsequent Years
    For FY 2020 and subsequent years, we are not finalizing our 
proposal to adopt one measure, Medication Continuation following 
Inpatient Psychiatric Discharge.
8. ICRs for the Electronic Health Record (EHR) Incentive Programs and 
Meaningful Use
    In section IX.E. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20130 through 20133) and this final rule, we 
discuss proposed and newly finalized policies for eligible hospitals 
and CAHs reporting CQMs electronically under the Medicare and Medicaid 
EHR Incentive Programs in 2017 and 2018. As outlined in this final 
rule, we are finalizing modifications to our proposals and making the 
following modifications to the CY 2017 final CQM policies: (1) Revise 
the CY 2017 reporting period for eligible hospitals and CAHs reporting 
CQMs electronically to require the submission of one self-selected 
quarter of data; and (2) revise the number of CQMs eligible hospitals 
and CAHs are required to report electronically for CY 2017 to 4 (self-
selected) available CQMs.
    In addition, we are finalizing modifications to our proposals that 
adopt the following CQM reporting requirements for CY 2018: (1) For 
eligible hospitals and CAHs reporting CQMs electronically that 
demonstrate meaningful use for the first time in 2018 or that have 
demonstrated meaningful use in any year prior to 2018, the reporting 
period will be one, self-selected quarter of data from CY 2018 with a 
submission period (Medicare EHR Incentive Program only) consisting of 
the 2 months following the close of the calendar year, ending on 
February 28, 2019; (2) eligible hospitals and CAHs reporting CQMs 
electronically are required to report at least 4 (self-selected) of the 
available CQMs; (3) eligible hospitals and CAHs that report CQMs by 
attestation under the Medicare EHR Incentive Program because electronic 
reporting is not feasible, and eligible hospitals and CAHs that report 
CQMs by attestation under their State's Medicaid EHR Incentive Program, 
will be required to report on all 16 available CQMs; and (4) eligible 
hospitals and CAHs reporting CQMs by attestation under the Medicare EHR 
Incentive Program will have a submission period that will be the 2 
months following the close of the CY 2018 CQM reporting period, ending 
February 28, 2019.
    Because the finalized reporting requirements for data collection 
regarding the reporting of CQMs electronically under the Medicare and 
Medicaid EHR Incentive Programs will align with the reporting 
requirements under the Hospital IQR Program, we do not believe that 
there is any additional burden for the collection of such information. 
We did not propose modifications for the CQMs reporting requirements by 
attestation in this section. Therefore, no change in burden associated 
with attestation of CQMs will result from this section.
    In section IX.F. of the preamble of this final rule, we discuss 
newly finalized policies regarding clinical quality measurement for EPs 
participating in the Medicaid EHR Incentive Program. We note that there 
may be costs incurred by States associated with systems development as 
a result of the newly finalized policies. State attestation systems 
will likely require minor updates, which may be eligible for support 
through enhanced Federal funding, subject to CMS prior approval, if 
outlined in an updated Implementation Advance Planning Document (IAPD). 
We anticipate that EPs may also face minor burden and incremental 
capital cost for updating clinical quality measures and reporting 
capabilities in the EHR. We intend to reduce EP burden and simplify the 
program through these newly finalized policies, which are intended to 
better align CQM reporting periods and CQM reporting for the Medicaid 
EHR Incentive Program with policies under MIPS. Overall, we believe the 
newly finalized CQM alignment at the State attestation system and EP 
levels will both reduce burden associated with reporting on multiple 
CMS programs and enhance state and CMS operational efficiency.
    In section IX.G.1. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20135 through 20136) and IX.G.2. of the preamble 
of this final rule, we discuss our proposed and newly finalized policy 
which changes the EHR reporting period in 2018 from the full CY 2018 to 
any continuous 90-day period within CY 2018 for all new and returning 
EPs, eligible hospitals and CAHs attesting to meaningful use in the 
Medicare and Medicaid EHR Incentive Programs. We do not believe that 
modifying the EHR reporting period for attestation will cause an 
increase in burden as the reporting requirements for a 90-day EHR 
reporting period are virtually the same as for a full calendar year EHR 
reporting period and the same objectives and measures will be used for 
attestation for a full calendar year EHR reporting period or a 90-day 
EHR reporting period.
    In section IX.G.2. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20136 through 20138) and IX.G.3. of the preamble 
of this final rule, as required by the 21st Century Cures Act (Pub. L. 
114-255), we discuss and finalize our proposal for an exemption from 
the payment adjustments under sections 1848(a)(7)(A), 
1886(b)(3)(B)(ix)(I), and 1814(l)(4) of the Act for EPs, eligible 
hospitals and CAHs, respectively, that demonstrate through an 
application process that compliance with the requirement for being a 
meaningful EHR user is not possible because their certified EHR 
technology has been decertified under ONC's Health IT Certification 
Program. The application process involves participants completing an 
application form for an exception. While the form is standardized, we 
believe it is exempt from the PRA. The form is structured as an 
attestation. Therefore, we believe it is exempt under 5 CFR 
1320.3(h)(1) of the implementing regulations of the PRA. The form is an 
attestation that imposes no burden beyond what is required to provide 
identifying information and to attest to the applicable information.
    In section IX.G.3. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20138 through 20139) and

[[Page 38509]]

IX.G.4. of the preamble of this final rule, as required by the 21st 
Century Cures Act, we discuss and finalize our proposal to exempt 
ambulatory surgical center-based EPs from the 2017 and 2018 payment 
adjustments under section 1848(a)(7)(A) of the Act if they furnish 
substantially all of their covered professional services in an 
ambulatory surgical center. We do not believe this requirement will 
cause an increase in burden as CMS will identify the EPs who might meet 
this requirement. We did not receive any public comments regarding this 
information collection. For the expected effects relating to the above 
proposals, we refer readers to section I.O. of Appendix A of this final 
rule.
9. ICRs Relating to Electronic Signature and Electronic Submission of 
the Certification and Settlement Summary Page of Medicare Cost Reports
    In section X.A. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20139 through 20142) and this final rule, we 
discuss and finalize our proposal to allow providers to use an 
electronic signature on the certification statement of the 
Certification and Settlement Summary page of the Medicare cost report 
and submit it electronically. The Certification and Settlement Summary 
page, which contains the required provider signature line, currently 
exists in the Medicare cost report and is mailed to the contractor from 
the provider. We are finalizing our proposal to allow providers the 
option to sign and submit this page electronically. The signature from 
the provider's administrator or chief financial officer is an existing 
data collection requirement. There will be no new data collection from 
providers resulting from our new policy. The policy, which allows 
providers to sign this page electronically, is not a substantive change 
to the existing data collection instrument and would have a minimal 
impact on providers to complete. As discussed in section I.P. of 
Appendix A of this final rule, we estimate that this finalized proposal 
will collectively save these providers approximately $362,000 in 
postage costs.
10. ICRs Relating to Changes in Public Notices of Terminations
    In section XI.B. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20145 through 20146) and this final rule, we 
discuss and finalize our proposal to no longer require the posting of 
voluntary and involuntary termination public notice in newspapers for 
RHCs, FQHCs, ASCs, and OPOs. These providers and suppliers will be 
permitted to use other methods of notification in light of the expanded 
use of information technology. In this final rule, we also are 
finalizing our proposal to change the regulations regarding termination 
of provider agreements by CMS (that is, involuntary termination) or 
providers or suppliers to remove the provision for public notice 
through ``newspapers'' to allow flexibility in the method of public 
notice.
    We believe none of the provisions would have a financial burden as 
we are only eliminating the specification which requires newspaper hard 
print to be the notice source. We refer readers to the economic impact 
provisions of section I.Q. of Appendix A of this final rule for 
additional information.

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 416

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

42 CFR Part 486

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

42 CFR Part 488

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

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 495

    Administrative practice and procedure, Electronic health records, 
Health facilities, Health professions, Health maintenance organizations 
(HMO), Medicaid, Medicare, Penalties, Privacy, Reporting and 
recordkeeping requirements.

    For the reasons set forth in the preamble of this final rule, the 
Centers for Medicare and Medicaid Services is amending 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 is revised to read as follows:

    Authority: Secs. 205(a), 1102, 1142, 1861, 1862(a), 1869, 1871, 
1874, 1881, and 1886(k) of the Social Security Act (42 U.S.C. 
405(a), 1302, 1320b-12, 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 405.2404 is amended by revising paragraph (d) introductory 
text to read as follows:


Sec.  405.2404   Termination of rural health clinic agreements.

* * * * *
    (d) Notice to the public. Prompt notice of the date and effect of 
termination must be given to the public by either of the following:
* * * * *


0
3. Section 405.2442 is amended by revising paragraph (a) introductory 
text and paragraph (b) to read as follows:


Sec.  405.2442   Notice to the public.

    (a) When the FQHC voluntarily terminates the agreement and an 
effective date is set for the termination, the FQHC must notify the 
public in the area serviced by the FQHC prior to a prospective 
effective date or on the actual day that business ceases, if no 
prospective date of termination has been set. The notice must include--
* * * * *
    (b) When CMS terminates the agreement, CMS will notify the public 
in the area serviced by the FQHC.

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
4. 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; sec. 112 of Pub. L. 113-93; 
sec. 231 of Pub. L. 114-113; and secs. 15004, 15006, 15007, 15008, 
15009, and 15010 of Pub. L. 114-255.

0
5. Section 412.22 is amended by revising paragraph (e) introductory 
text and paragraph (e)(1)(v) introductory text and adding paragraph (i) 
to read as follows:

[[Page 38510]]

Sec.  412.22   Excluded hospitals and hospital units: General rules.

* * * * *
    (e) Hospitals-within-hospitals. A hospital-within-a-hospital is a 
hospital that occupies space in a building also used by another 
hospital, or in one or more separate buildings located on the same 
campus as buildings used by another hospital. Prior to October 1, 2017, 
except as provided in paragraphs (e)(1)(vi) and (f) of this section, a 
hospital-within-a-hospital must meet the following criteria in order to 
be excluded from the prospective payment systems specified in Sec.  
412.1(a)(1). On or after October 1, 2017, except as provided in 
paragraphs (e)(1)(vi) and (f) of this section, a hospital-within-
hospital that is excluded from the prospective payment systems 
specified in Sec.  412.1(a)(1) that occupies space in a building also 
used by a hospital which is not excluded from the prospective payment 
systems specified in Sec.  412.1(a)(1), or in one or more separate 
buildings located on the same campus as buildings used by a hospital 
not excluded from the prospective payment systems specified in Sec.  
412.1(a)(1) must meet the following criteria in order to be excluded 
from the prospective payment systems specified in Sec.  412.1(a)(1).
    (1) * * *
    (v) Performance of basic hospital functions. Prior to October 1, 
2017, the hospital meets one of the following criteria:
* * * * *
    (i)(1) Requirements for extended neoplastic disease care hospitals. 
For cost reporting periods beginning on or after January 1, 2015, an 
extended neoplastic disease care hospital is a hospital that was first 
excluded from the prospective payment system under this section in 1986 
which has an average inpatient length of stay for all patients, 
including both Medicare and non-Medicare inpatients, of greater than 20 
days and demonstrates that at least 80 percent of its annual Medicare 
inpatient discharges in the 12-month cost reporting period ending in 
fiscal year 1997 have a principal diagnosis that reflects a finding of 
neoplastic disease as defined in paragraph (f)(1)(iv) of this section.
    (2) Payment to extended neoplastic disease care hospitals. Payment 
for inpatient operating costs for hospitals classified under paragraph 
(i)(1) of this section is made as set forth in Sec.  412.526(c)(3). 
Payment for capital costs for hospitals classified under paragraph 
(i)(1) of this section is made as set forth in Sec.  412.526(c)(4).

0
6. Section 412.23 is amended by revising paragraphs (e)(2)(ii), 
(e)(3)(vi), and (e)(7)(iii) to read as follows:


Sec.  412.23   Excluded hospitals: Classifications.

* * * * *
    (e) * * *
    (2) * * *
    (ii) For cost reporting periods beginning on or after August 5, 
1997 and on or before December 31, 2014, a hospital that was first 
excluded from the prospective payment system under this section in 1986 
meets the length-of-stay criterion if it has an average inpatient 
length of stay for all patients, including both Medicare and non-
Medicare inpatients, of greater than 20 days and demonstrates that at 
least 80 percent of its annual Medicare inpatient discharges in the 12-
month cost reporting period ending in fiscal year 1997 have a principal 
diagnosis that reflects a finding of neoplastic disease as defined in 
paragraph (f)(1)(iv) of this section.
    (3) * * *
    (vi) For cost reporting periods beginning on or after October 1, 
2015, the Medicare inpatient days and discharges that are paid at the 
site neutral payment rate specified at Sec.  412.522(c)(1) or paid 
under a Medicare Advantage plan (Medicare Part C) will not be included 
in the calculation of the Medicare inpatient average length of stay 
specified under paragraph (e)(2)(i) of this section.
* * * * *
    (7) * * *
    (iii) April 1, 2014 through September 30, 2017--The number of 
Medicare-certified beds in an existing long-term care hospital or an 
existing long-term care hospital satellite facility must not be 
increased beyond the number of Medicare-certified beds prior to April 
1, 2014, unless one of the exceptions specified in paragraph (e)(6)(ii) 
of this section is met.
* * * * *

0
7. Section 412.64 is amended by--
0
a. Revising paragraph (d)(1)(vii);
0
b. Adding paragraph (d)(4)(iii);
0
c. Revising paragraph (h)(4) introductory text and paragraph (h)(4)(vi) 
introductory text; and
0
c. Revising paragraph (i)(3)(iii).
    The revisions and addition 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 years 2017 and 2018, 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.
* * * * *
    (4) * * *
    (iii) Exception for decertified EHR technology. Beginning with the 
fiscal year 2019 payment adjustment year, the Secretary shall exempt an 
eligible hospital that is not a qualifying eligible hospital from the 
application of the reduction under paragraph (d)(3) of this section if 
the Secretary determines that compliance with the requirement for being 
a meaningful EHR user is not possible because the certified EHR 
technology used by the eligible hospital has been decertified under 
ONC's Health IT Certification Program. To be considered for an 
exception, an eligible hospital must submit an application, in the 
manner specified by CMS, demonstrating that the certified EHR 
technology was decertified during the 12-month period preceding the 
applicable EHR reporting period for the payment adjustment year, or 
during the applicable EHR reporting period for the payment adjustment 
year, and that the eligible hospital made a good faith effort to obtain 
another certified EHR technology for that EHR reporting period. (See 
Sec.  495.4 of this chapter for definitions of payment adjustment year, 
EHR reporting period, and meaningful EHR user.) Applications requesting 
this exception must be submitted by July 1 of the year before the 
applicable payment adjustment year, or a later date specified by CMS. 
This exception is subject to annual renewal, but in no case may an 
eligible hospital be granted an exception under paragraph (d)(4) of 
this section for more than 5 years.
* * * * *
    (h) * * *
    (4) For discharges on or after October 1, 2004 and before October 
1, 2018, 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, 2018, the 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:
* * * * *
    (i) * * *

[[Page 38511]]

    (3) * * *
    (iii) Any wage index adjustment made under this paragraph (i) is 
effective for a period of 3 fiscal years, except that hospitals in a 
qualifying county may elect to waive the application of the wage index 
adjustment. A hospital may waive the application of the wage index 
adjustment by notifying CMS in writing within 45 days of the date of 
public display of the annual notice of proposed rulemaking for the 
hospital inpatient prospective payment system at the Office of the 
Federal Register.
* * * * *

0
8. Section 412.87 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  412.87   Additional payment for new medical services and 
technologies: General provisions.

* * * * *
    (b) * * *
    (2) 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 inpatient hospital code (as defined in section 
1886(d)(5)(K)(iii) of the Social Security Act) assigned to the new 
service or technology (depending on when a new code is assigned and 
data on the new service or technology become available for DRG 
recalibration). After CMS has recalibrated the DRGs, based on available 
data, to reflect the costs of an otherwise new medical service or 
technology, the medical service or technology will no longer be 
considered ``new'' under the criterion of this section.
* * * * *

0
9. Section 412.90 is amended by revising paragraph (j) to read as 
follows:


Sec.  412.90   General rules.

* * * * *
    (j) Medicare-dependent, small rural hospitals. For cost reporting 
periods beginning on or after April 1, 1990, and before October 1, 
1994, and for discharges occurring on or after October 1, 1997 and 
before October 1, 2017, CMS adjusts the prospective payment rates for 
inpatient operating costs determined under subparts D and E of this 
part if a hospital is classified as a Medicare-dependent, small rural 
hospital.
* * * * *

0
10. Section 412.92 is amended by revising paragraph (e)(3) introductory 
text to read as follows:


Sec.  412.92   Special Treatment: Sole community hospitals.

* * * * *
    (e) * * *
    (3) Effective for cost reporting periods beginning before October 
1, 2017, the intermediary determines a lump sum adjustment amount not 
to exceed the difference between the hospital's Medicare inpatient 
operating costs and the hospital's total DRG revenue for inpatient 
operating costs based on DRG-adjusted prospective payment rates for 
inpatient operating costs (including outlier payments for inpatient 
operating costs determined under subpart F of this part and additional 
payments made for inpatient operating costs for hospitals that serve a 
disproportionate share of low-income patients as determined under Sec.  
412.106 and for indirect medical education costs as determined under 
Sec.  412.105). Effective for cost reporting periods beginning on or 
after October 1, 2017, the MAC determines a lump sum adjustment amount 
equal to the difference between the hospital's fixed Medicare inpatient 
operating costs and the hospital's total MS-DRG revenue based on MS-
DRG-adjusted prospective payment rates for inpatient operating costs 
(including outlier payments for inpatient operating costs determined 
under subpart F of this part and additional payments made for inpatient 
operating costs for hospitals that serve a disproportionate share of 
low-income patients as determined under Sec.  412.106 and for indirect 
medical education costs as determined under Sec.  412.105) multiplied 
by the ratio of the hospital's fixed inpatient operating costs to its 
total inpatient operating costs.
* * * * *

0
11. Section 412.101 is amended by revising paragraph (b)(2) 
introductory text and adding paragraph (e) to read as follows:


Sec.  412.101   Special treatment: Inpatient hospital payment 
adjustment for low-volume hospitals.

* * * * *
    (b) * * *
    (2) In order to qualify for this adjustment, a hospital must meet 
the following criteria, subject to the provisions of paragraph (e) of 
this section:
* * * * *
    (e) Special treatment regarding hospitals operated by the Indian 
Health Service (IHS) or a Tribe. For discharges occurring in FY 2018 
and subsequent fiscal years--
    (1) A hospital operated by the IHS or a Tribe will be considered to 
meet the applicable mileage criterion specified under paragraph (b)(2) 
of this section if it is located more than the specified number of road 
miles from the nearest subsection (d) hospital operated by the IHS or a 
Tribe.
    (2) A hospital, other than a hospital operated by the IHS or a 
Tribe, will be considered to meet the applicable mileage criterion 
specified under paragraph (b)(2) of this section if it is located more 
than the specified number of road miles from the nearest subsection (d) 
hospital other than a subsection (d) hospital operated by the IHS or a 
Tribe.

0
12. Section 412.106 is amended by adding paragraph (g)(1)(iii)(C)(4) to 
read as follows:


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

* * * * *
    (g) * * *
    (1) * * *
    (iii) * * *
    (C) * * *
    (4) For fiscal year 2018, 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 and 2013 cost reports from the most recent HCRIS 
database extract and 2012 cost report data submitted to CMS by IHS or 
Tribal 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 for hospitals other than Puerto 
Rico hospitals, IHS or Tribal hospitals, and all-inclusive rate 
providers, data on uncompensated care costs, defined as charity care 
costs plus non-Medicare bad debt costs from 2014 cost reports from the 
most recent HCRIS database extract.
* * * * *

0
13. Section 412.108 is amended by revising paragraph (d)(3) 
introductory text to read as follows:


Sec.  412.108  Special treatment: Medicare-dependent, small rural 
hospitals.

* * * * *
    (d) * * *
    (3) The intermediary determines a lump sum adjustment amount in 
accordance with the methodology set forth in Sec.  412.92(e)(3).
* * * * *

0
14. Section 412.140 is amended by revising paragraphs (c)(2) and (d)(2) 
to read as follows:

[[Page 38512]]

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

* * * * *
    (c) * * *
    (2) Extraordinary circumstances exceptions. CMS may grant an 
exception with respect to quality data reporting requirements in the 
event of extraordinary circumstances beyond the control of the 
hospital. CMS may grant an exception as follows:
    (i) For circumstances not relating to the reporting of electronic 
clinical quality measure data, a hospital participating in the Hospital 
IQR Program that wishes to request an exception with respect to quality 
data reporting requirements must submit its request to CMS within 90 
days of the date that the extraordinary circumstances occurred. For 
circumstances relating to the reporting of electronic clinical quality 
measures, a hospital participating in the Hospital IQR Program that 
wishes to request an exception must submit its request to CMS by April 
1 following the end of the reporting calendar year in which the 
extraordinary circumstances occurred. Specific requirements for 
submission of a request for an exception are available on 
QualityNet.org.
    (ii) CMS may grant an exception to one or more hospitals that have 
not requested an exception if: CMS determines that a systemic problem 
with CMS data collection systems directly affected the ability of the 
hospital to submit data; or if CMS determines that an extraordinary 
circumstance has affected an entire region or locale.
    (d) * * *
    (2)(i) 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.
    (ii) A hospital meets the eCQM validation requirement with respect 
to a fiscal year if it submits at least 75 percent of sampled eCQM 
measure medical records in a timely and complete manner, as determined 
by CMS.
* * * * *

0
15. Section 412.211 is amended by revising paragraph (f)(3)(iii) to 
read as follows:


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

* * * * *
    (f) * * *
    (3) * * *
    (iii) Any wage index adjustment made under this paragraph (f) is 
effective for a period of 3 fiscal years, except that hospitals in a 
qualifying county may elect to waive the application of the wage index 
adjustment. A hospital may waive the application of the wage index 
adjustment by notifying CMS in writing within 45 days of the date of 
public display of the annual notice of proposed rulemaking for the 
hospital inpatient prospective payment system at the Office of the 
Federal Register.
* * * * *

0
16. Section 412.230 is amended by revising paragraphs (a)(3) 
introductory text, (a)(3)(i) and (ii), and (d)(3) to read as follows:


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

    (a) * * *
    (3) Special rules for sole community hospitals and rural referral 
centers. To be redesignated under the special rules in this paragraph, 
a hospital must be approved as a sole community hospital or a rural 
referral center as of the date of the MGCRB's review.
    (i) A hospital that is approved as a rural referral center or a 
sole community hospital, or both, does not have to demonstrate a close 
proximity to the area to which it seeks redesignation.
    (ii) If a hospital that is approved as a rural referral center or a 
sole community hospital, or both, qualifies for urban redesignation, it 
is redesignated to the urban area that is closest to the hospital or to 
the hospital's geographic home area. If the hospital is closer to 
another rural area than to any urban area, it may seek redesignation to 
either the closest rural area or the closest urban area.
* * * * *
    (d) * * *
    (3) Rural referral center exceptions. (i) If a hospital was ever 
approved as a rural referral center, it does not have to demonstrate 
that it meets the average hourly wage criterion set forth in paragraph 
(d)(1)(iii) of this section.
    (ii) If a hospital was ever approved as a rural referral center, it 
is required to meet only the criterion that applies to rural hospitals 
under paragraph (d)(1)(iv) of this section, regardless of its actual 
location in an urban or rural area.
* * * * *

0
17. Section 412.273 is amended by revising paragraphs (c)(1)(ii) and 
(c)(2) to read as follows:


Sec.  412.273   Withdrawing an application, terminating an approved 3-
year reclassification, or cancelling a previous withdrawal or 
termination.

* * * * *
    (c) * * *
    (1) * * *
    (ii) After the MGCRB issues a decision, provided that the request 
for withdrawal is received by the MCGRB within 45 days of the date that 
CMS' annual notice of proposed rulemaking is issued in the Federal 
Register concerning changes to the inpatient hospital prospective 
payment system and proposed payment rates for the fiscal year for which 
the application has been filed.
    (2) A request for termination must be received by the MGCRB within 
45 days of the date that CMS' annual notice of proposed rulemaking is 
issued in the Federal Register concerning changes to the inpatient 
hospital prospective payment system and proposed payment rates for the 
fiscal year for which the termination is to apply.
* * * * *

0
18. Section 412.500 is amended by adding paragraphs (a)(7) and (8) to 
read as follows:


Sec.  412.500  Basis and scope of subpart.

    (a) * * *
    (7) Section 411 of Public Law 114-10 which revises the annual 
update to the LTCH PPS standard Federal payment rate in FY 2018.
    (8) Public Law 114-255 which at--
    (i) Section 15004 amended the moratorium on increasing beds in 
existing LTCHs and LTCH satellite facilities and amended high cost 
outlier payment requirements;
    (ii) Section 15006 amended moratoria on certain payment policies;
    (iii) Section 15007 amended the average length of stay 
requirements;
    (iv) Section 15009 temporally excepted certain spinal cord 
specialty hospitals from the site neutral payment rate; and
    (v) Section 15010 temporally excepted certain wound care discharges 
from certain LTCHs from the site neutral payment rate.
* * * * *

0
19. Section 412.522 is amended by adding paragraphs (b)(3) and (4) to 
read as follows:


Sec.  412.522   Application of site neutral payment rate.

* * * * *
    (b) * * *
    (3) Temporary exception for certain severe wound discharges.--(i) 
Definitions. For purposes of this paragraph (b)(3) the following 
definitions are applicable:
    Severe wound means a wound which is a stage 3 wound, stage 4 wound, 
unstageable wound, non-healing

[[Page 38513]]

surgical wound, fistula, as identified by the applicable code on the 
claim from the long-term care hospital.
    Wound means an injury, usually involving division of tissue or 
rupture of the integument or mucous membrane with exposure to the 
external environment.
    (ii) Discharges for severe wounds. A discharge that occurs in a 
cost reporting period beginning during fiscal year 2018 for a patient 
who was treated for a severe wound that meets all of the following 
criteria is excluded from the site neutral payment rate specified under 
this section:
    (A) The severe wound meets the definition specified in paragraph 
(b)(3)(i) of this section.
    (B) The discharge is from a long-term care hospital that is 
described in Sec.  412.23(e)(2)(i) and meets the criteria of Sec.  
412.22(f); and
    (C) The discharge is classified under MS-LTC-DRG 539, 540, 602, or 
603.
    (4) Temporary exception for certain spinal cord specialty 
hospitals. For discharges in cost reporting periods beginning in fiscal 
years 2018 and 2019, the site neutral payment rate specified under this 
section does not apply if such discharge is from a long-term care 
hospital that meets each of the following requirements:
    (i) The hospital was a not-for-profit long-term care hospital on 
June 1, 2014, as determined by cost report data;
    (ii) Of the discharges in calendar year 2013 from the long-term 
care hospital for which payment was made under subpart O, at least 50 
percent were classified under MS-LTC-DRGs 28, 29, 52, 57, 551, 573, and 
963; and
    (iii) The long-term care hospital discharged inpatients (including 
both individuals entitled to, or enrolled for, benefits under Medicare 
Part A and individuals not so entitled or enrolled) during fiscal year 
2014 who had been admitted from at least 20 of the 50 States determined 
by the States of residency of such inpatients.
* * * * *

0
20. Section 412.523 is amended by--
0
a. Adding paragraph (c)(3)(xiv);
0
b. Revising paragraph (d)(1); and
0
c. Adding paragraph (d)(5).
    The additions and revision read as follows:


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

* * * * *
    (c) * * *
    (3) * * *
    (xiv) For long-term care hospital prospective payment system fiscal 
year beginning October 1, 2017, and ending September 30, 2018. The LTCH 
PPS standard Federal payment rate for the long-term care hospital 
prospective payment system beginning October 1, 2017, and ending 
September 30, 2018, is the standard Federal payment rate for the 
previous long-term care hospital prospective payment system fiscal year 
updated by 1.0 percent and further adjusted, as appropriate, as 
described in paragraph (d) of this section.
* * * * *
    (d) * * *
    (1) Outlier payments. CMS adjusts the LTCH PPS standard Federal 
payment rate by a reduction factor of 8 percent, the estimated 
proportion of outlier payments under Sec.  412.525(a) payable for 
discharges described in Sec.  412.522(a)(2) (notwithstanding the 
provisions of Sec.  412.525(a)(2)(ii) for FY 2018 and subsequent years.
* * * * *
    (5) Adjustment for changes to the short-stay outlier policy. The 
standard Federal rate determined under paragraph (c)(3) of this section 
is permanently adjusted by a one-time factor so that estimated 
aggregate payments to LTCH PPS standard Federal rate cases in FY 2018 
are projected to equal estimated aggregate payments that would have 
been paid for such cases without regard to the change in the short-stay 
outlier policy for FY 2018 under Sec.  412.529(c)(4).
* * * * *

0
21. Section 412.525 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  412.525   Adjustments to the Federal prospective payment.

    (a) * * *
    (2)(i) The fixed loss-amount for discharges from a long-term care 
hospital described under Sec.  412.522(a)(2) is determined for the 
long-term care hospital prospective payment system payment year, using 
the LTC-DRG relative weights that are in effect at the start of the 
applicable long-term care hospital prospective payment system payment 
year.
    (ii) For FY 2018 and subsequent years, the fixed-loss amount for 
long-term care hospital discharges described under Sec.  412.522(a)(2) 
is determined such that the estimated proportion of outlier payments 
under paragraph (a) of this section payable for such discharges is 
projected to be equal to 99.6875 of 8 percent.
* * * * *

0
22. Section 412.529 is amended by--
0
a. Revising paragraph (c)(3) introductory text;
0
b. Adding paragraph (c)(4); and
0
c. Revising paragraph (f) introductory text.
    The revisions and addition read as follows:


Sec.  412.529   Special payment provision for short-stay outliers.

* * * * *
    (c) * * *
    (3) Discharges occurring on or after July 1, 2007 and before 
December 29, 2007 and discharges occurring on or after December 29, 
2012 and on or before September 30, 2017. For discharges from long-term 
care hospitals described under Sec.  412.23(e)(2)(i) occurring on or 
after July 1, 2007, and on or before December 29, 2007 and discharges 
occurring on or after December 29, 2012, and on or before September 30, 
2017, the LTCH prospective payment system adjusted payment amount for a 
short-stay outlier case is adjusted by either of the following:
* * * * *
    (4) Discharges occurring on or after October 1, 2017. For 
discharges occurring on or after October 1, 2017, short-stay outlier 
payments are determined according to paragraph (c)(2)(iv) of this 
section.
* * * * *
    (f) Reconciliation of short-stay payments. Payments for discharges 
occurring before October 1, 2017 are reconciled in accordance with one 
of the following:
* * * * *

0
23. Section 412.538 is amended by revising paragraph (a)(1) to read as 
follows:


Sec.  412.538   Limitation on long-term care hospital admissions from 
referring hospitals.

    (a) * * *
    (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), except as specified in paragraph (a)(2) 
of this section, effective for discharges occurring on or after October 
1, 2018.
* * * * *

0
24. Section 412.560 is amended by revising the section heading, 
paragraph (a), the paragraph (b) heading, paragraphs (b)(1), (c) 
introductory text, (c)(1), (c)(3)(vii), (c)(4)(ii), (d)(1), and 
(d)(2)(vii), and adding paragraph (f) to read as follows:


Sec.  412.560   Requirements under the Long-Term Care Hospital Quality 
Reporting Program (LTCH QRP).

    (a) Participation in the LTCH QRP. A long-term-care hospital must 
begin

[[Page 38514]]

submitting data on measures specified under sections 1886(m)(5)(D), 
1899B(c)(1), and 1899B(d)(1) of the Act, and standardized patient 
assessment data required under section 1899B(b)(1) of the Act, under 
the LTCH QRP by no later than the first day of the calendar quarter 
subsequent to 30 days after the date on its CMS Certification Number 
(CCN) notification letter.
    (b) Data submission requirements and payment impact. (1) Except as 
provided in paragraph (c) of this section, a long-term care hospital 
must submit to CMS data on measures specified under sections 
1886(m)(5)(D), 1899B(c)(1) and 1899B(d)(1) of the Act, and standardized 
patient assessment data required under section 1899B(b)(1) of the Act. 
Such data must be submitted in a form and manner, and at a time, 
specified by CMS.
* * * * *
    (c) Exception and extension request requirements. Upon request by a 
long-term care hospital, CMS may grant an exception or extension with 
respect to the measures data and standardized patient assessment data 
reporting requirements, for one or more quarters, in the event of 
certain extraordinary circumstances beyond the control of the long-term 
care hospital, subject to the following:
    (1) A long-term care hospital that wishes to request an exception 
or extension with respect to measures data and standardized patient 
assessment data reporting requirements must submit its request to CMS 
within 90 days of the date that the extraordinary circumstances 
occurred.
* * * * *
    (3) * * *
    (vii) The date on which the long-term care hospital will be able to 
again submit measures data and standardized patient assessment data 
under the LTCH QRP and a justification for the proposed date.
    (4) * * *
    (ii) A systemic problem with one of CMS' data collection systems 
directly affected the ability of the long-term care hospital to submit 
measures data and standardized patient assessment data.
* * * * *
    (d) * * *
    (1) Written notification of noncompliance decision. CMS will send a 
long-term care hospital written notification of a decision of 
noncompliance with the measures data and standardized patient 
assessment data reporting requirements for a particular fiscal year. 
CMS also will use the Quality Improvement and Evaluation system (QIES) 
Assessment Submission and Processing (ASAP) System to provide 
notification of noncompliance to the long-term care hospital.
    (2) * * *
    (vii) Accompanying documentation that demonstrates compliance of 
the long-term care hospital with the LTCH QRP requirements. This 
documentation must be submitted electronically at the same time as the 
reconsideration request as an attachment to the email.
* * * * *
    (f) Data completion thresholds. (1) Long-term care hospitals must 
meet or exceed two separate data completeness thresholds: One threshold 
set at 80 percent for completion of measures data and standardized 
patient assessment data collected using the LTCH CARE Data Set 
submitted through the QIES ASAP System; and a second threshold set at 
100 percent for measures data collected and submitted using the CDC 
NHSN.
    (2) The thresholds in paragraph (f)(1) of this section apply to all 
data that must be submitted under paragraph (b) of this section.
    (3) A long-term care hospital must meet or exceed both thresholds 
in paragraph (f)(1) of this section to avoid receiving a 2 percentage 
point reduction to its annual payment update for a given fiscal year, 
beginning with the FY 2019 LTCH QRP.

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

0
25. 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 
Public Law 106-113, 113 Stat. 1501A-332; sec. 3201 of Public Law 
112-96, 126 Stat. 156; sec. 632 of Public Law 112-240, 126 Stat. 
2354; sec. 217 of Public Law 113-93, 129 Stat. 1040; and sec. 204 of 
Public Law 113-295, 128 Stat. 4010; and sec. 808 of Public Law 114-
27, 129 Stat. 362.

0
26. Section 413.24 is amended by revising paragraph (f)(4)(iv) to read 
as follows:


Sec.  413.24   Adequate cost data and cost finding.

* * * * *
    (f) * * *
    (4) * * *
    (iv)(A) Effective as specified in paragraphs (f)(4)(iv)(A)(1) 
through (4) and except as provided in paragraph (f)(4)(iv)(C) of this 
section, a provider must submit a hard copy of a settlement summary, if 
applicable, which is a statement of certain worksheet totals found 
within the electronic file, and the certification statement described 
in paragraph (f)(4)(iv)(B) of this section signed by its administrator 
or chief financial officer certifying the accuracy of the electronic 
file or the manually prepared cost report.
    (1) For hospitals, effective for cost reporting periods ending on 
or after September 30, 1994;
    (2) For skilled nursing facilities and home health agencies, 
effective for cost reporting periods ending on or after February 1, 
1997;
    (3) For hospices and end-stage renal disease facilities, effective 
for cost reporting periods ending on or after December 31, 2004; and
    (4) For organ procurement organizations, histocompatibility 
laboratories, rural health clinics, Federally qualified health centers, 
and community mental health centers, effective for cost reporting 
periods ending on or after March 31, 2005.
    (B) The following certification statement must immediately precede 
the dated original signature, or electronic signature as set forth in 
paragraph (f)(4)(iv)(C)(1) of this section, of the provider's 
administrator or chief financial officer:
    MISREPRESENTATION OR FALSIFICATION OF ANY INFORMATION CONTAINED IN 
THIS COST REPORT MAY BE PUNISHABLE BY CRIMINAL, CIVIL AND 
ADMINISTRATIVE ACTION, FINE AND/OR IMPRISONMENT UNDER FEDERAL LAW. 
FURTHERMORE, IF SERVICES IDENTIFIED IN THIS REPORT WERE PROVIDED OR 
PROCURED THROUGH THE PAYMENT DIRECTLY OR INDIRECTLY OF A KICKBACK OR 
WERE OTHERWISE ILLEGAL, CRIMINAL, CIVIL AND ADMINISTRATIVE ACTION, 
FINES AND/OR IMPRISONMENT MAY RESULT.
    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

[[Page 38515]]

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.
    (C) Effective for cost reporting periods ending on or after 
December 31, 2017--(1) A provider that is required to file an 
electronic cost report may elect to electronically submit the 
settlement summary, if applicable, and the certification statement with 
an electronic signature of the provider's administrator or chief 
financial officer. The following checkbox for electronic signature and 
submission will immediately follow the certification statement as set 
forth in paragraph (f)(4)(iv)(B) of this section and must be checked if 
electronic signature and submission is elected.
    [squ] I have read and agree with the above certification statement. 
I certify that I intend my electronic signature on this certification 
statement to be the legally binding equivalent of my original 
signature.
    (2) A provider that is required to file an electronic cost report 
but does not elect to electronically submit the certification statement 
with an electronic signature, must submit a hard copy of the settlement 
summary, if applicable, and a certification statement with an original 
signature of the provider's administrator or chief financial officer as 
set forth in paragraphs (f)(4)(iv)(A) and (B) of this section.
* * * * *

0
 27. Section 413.65 is amended by revising paragraph (m) introductory 
text to read as follows:


Sec.  413.65   Requirements for a determination that a facility or an 
organization has provider-based status.

* * * * *
    (m) Status of Indian Health Service and Tribal facilities and 
organizations. Facilities and organizations operated by the Indian 
Health Services and Tribes will be considered to be departments of 
hospitals operated by the Indian Health Service or Tribes if they 
furnish only services that are billed, using the CCN of the main 
provider and with the consent of the main provider, as if they had been 
furnished by a department of a hospital operated by the Indian Health 
Service or a Tribe and they are:
* * * * *

0
28. Section 413.70 is amended by--
0
a. Redesignating paragraph (a)(6)(iii) as paragraph (a)(6)(iv);
0
b. Adding a new paragraph (a)(6)(iii) ; and
0
c. Revising newly redesignated paragraph (a)(6)(iv).
    The addition and revisionto read as follows:


Sec.  413.70   Payment for services of a CAH.

    (a) * * *
    (6) * * *
    (iii) Exception for decertified EHR technology. Beginning with the 
fiscal year 2018 payment adjustment year, the Secretary shall exempt a 
CAH that is not a qualifying CAH from the application of the payment 
adjustment under paragraph (a)(6)(i) of this section if the Secretary 
determines that compliance with the requirement for being a meaningful 
EHR user is not possible because the certified EHR technology used by 
the CAH has been decertified under ONC's Health IT Certification 
Program. In order to be considered for an exception, a CAH must submit 
an application, in the manner specified by CMS, demonstrating that the 
certified EHR technology was decertified during the 12-month period 
preceding the applicable EHR reporting period for the payment 
adjustment year, or during the applicable EHR reporting period for the 
payment adjustment year, and that the CAH made a good faith effort to 
obtain another certified EHR technology for that EHR reporting period. 
Applications requesting this exception must be submitted by November 30 
after the end of the applicable payment adjustment year, or a later 
date specified by CMS.
    (iv) Exceptions granted under paragraphs (a)(6)(ii) and (iii) of 
this section are subject to annual renewal, but in no case may a CAH be 
granted such an exception for more than 5 years.
* * * * *

0
29. Section 413.134 is amended by revising paragraph (f)(1) to read as 
follows:


Sec.  413.134   Depreciation: Allowance for deprecation based on asset 
costs.

* * * * *
    (f) * * *
    (1) General. Depreciable assets may be disposed of through sale, 
scrapping, trade-in, exchange, demolition, abandonment, condemnation, 
fire, theft, or other casualty.
    (i) Disposal of an asset before December 1, 1997. If disposal of a 
depreciable asset, including the sale or scrapping of an asset before 
December 1, 1997, results in a gain or loss, an adjustment is necessary 
in the provider's allowable cost.
    (A) The amount of a gain included in the determination of allowable 
cost is limited to the amount of depreciation previously included in 
Medicare allowable costs.
    (B) The amount of a loss to be included is limited to the 
undepreciated basis of the asset permitted under the program.
    (C) The treatment of the gain or loss depends upon the manner of 
disposition of the asset, as specified in paragraphs (f)(2) through (6) 
of this section.
    (D) The gain or loss on the disposition of depreciable assets has 
no retroactive effect on a proprietary provider's equity capital for 
years prior to the year of disposition.
    (ii) Disposal of an asset on or after December 1, 1997. No gain or 
loss is recognized on either the sale or scrapping of an asset that 
occurs on or after December 1, 1997, regardless of whether the asset is 
sold incident to a provider's change of ownership, or otherwise sold or 
scrapped as an asset of a Medicare participating provider. Gains or 
losses on dispositions other than sales or scrapping are recognized to 
the same extent as prior to December 1, 1997.
* * * * *

PART 416--AMBULATORY SURGICAL SERVICES

0
30. The authority citation for part 416 is revised to read as follows:

    Authority: Secs. 1102, 1138, and 1871 of the Social Security Act 
(42 U.S.C. 1302, 1320b-8, and 1395hh) and section 371 of the Public 
Health Service Act (42 U.S.C. 273).


0
31. Section 416.35 is amended by revising paragraph (d) introductory 
text to read as follows:


Sec.  416.35  Termination of agreement.

* * * * *
    (d) Notice to the public. Prompt notice of the date and effect of 
termination is given to the public by--
* * * * *

PART 486--CONDITIONS FOR COVERAGE OF SPECIALIZED SERVICES FURNISHED 
BY SUPPLIERS

0
32. The authority citation for part 486 continues to read as follows:

    Authority: Secs. 1102, 1138, and 1871 of the Social Security Act 
(42 U.S.C. 1302, 1320b-8, and 1395hh) and section 371 of the Public 
Health Service Act (42 U.S.C. 273).


0
33. Section 486.312 is amended by revising paragraph (e) to read as 
follows:


Sec.  486.312   De-certification.

* * * * *
    (e) Public notice. Once CMS approves the date for a voluntary 
termination, the OPO must provide prompt public notice

[[Page 38516]]

in the service area of the date of de-certification and such other 
information as CMS may require. In the case of involuntary termination 
or nonrenewal of an agreement, CMS also provides notice to the public 
in the service area of the date of de-certification. No payment under 
titles XVIII or XIX of the Act will be made with respect to organ 
procurement costs attributable to the OPO on or after the effective 
date of de-certification.

PART 488--SURVEY, CERTIFICATION, AND ENFORCEMENT PROCEDURES

0
34. The authority citation for part 488 is revised to read as follows:

    Authority: Secs. 1102, 1128l, 1864, 1865, 1871, and 1875 of the 
Social Security Act, unless otherwise noted (42 U.S.C. 1302, 1320a-
7, 1395aa, 1395bb, 1395hh, and 1395ll).


0
35. Section 488.5 is amended by adding paragraph (a)(21) to read as 
follows:


Sec.  488.5   Application and re-application procedures for national 
accrediting organizations.

    (a) * * *
    (21) A statement acknowledging that the organization agrees to make 
all Medicare cited deficiencies, both standard and condition level, 
immediate jeopardy situations, and dates of correction, for final 
accreditation survey reports publicly available on the organization's 
Web site within 90 days after the survey report is made available to 
those facilities for the most recent 3 years, on an ongoing basis in a 
manner specified by CMS. This acknowledgement includes all initial, 
triennial, full, follow-up, focused, and complaint surveys.
* * * * *

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

0
36. The authority citation for part 489 continues to read as follows:

    Authority: Secs. 1102 1819, 1820(E), 1861, 1864(M), 1866, 1869, 
and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x, 
1395aa(m), 1395cc, 1395ff, and 1395(hh)).


0
37. Section 489.52 is amended by revising paragraph (c)(2) introductory 
text to read as follows:


Sec.  489.52   Termination by the provider.

* * * * *
    (c) * * *
    (2) The notice must--
* * * * *

PART 495--STANDARDS FOR THE ELECTRONIC HEALTH RECORD TECHNOLOGY 
INCENTIVE PROGRAM

0
38. The authority citation for part 495 continues to read as follows:

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

0
39. Section 495.4 is amended by--
0
a. Adding in alphabetical order a definition of ``Ambulatory surgical 
center-based EP'';
0
b. In the definition of ``EHR reporting period,'' revising paragraph 
(1)(ii) introductory text, adding paragraph (1)(ii)(D), revising 
paragraph (1)(iii) introductory text, revising paragraph (2)(ii) 
introductory text, adding paragraph (2)(ii)(D) and revising paragraph 
(2)(iii) introductory text; and
0
c. In the definition of ``EHR reporting period for a payment adjustment 
year'', revising paragraph (2)(ii) introductory text, adding paragraph 
(2)(ii)(D), revising paragraph (2)(iii) introductory text, revising 
paragraph (3)(ii) introductory text, adding paragraph (3)(ii)(D), and 
revising paragraph (3)(iii) introductory text.
    The additions and revisions read as follows:


Sec.  495.4  Definitions.

* * * * *
    Ambulatory surgical center-based EP means an EP who furnishes 75 
percent or more of his or her covered professional services in sites of 
service identified by the codes used in the HIPAA standard transaction 
as an ASC setting in the calendar year that is 2 years before the 
payment adjustment year.
* * * * *
    EHR reporting period. * * *
    (1) * * *
    (ii) The following are applicable for 2015, 2016, 2017, and 2018:
* * * * *
    (D) For the CY 2018 payment year under the Medicaid EHR Incentive 
Program:
    (1) For the EP first demonstrating he or she is a meaningful EHR 
user, any continuous 90-day period within CY 2018.
    (2) For the EP who has successfully demonstrated he or she is a 
meaningful EHR user in any prior year, any continuous 90-day period 
within CY 2018.
    (iii) The following are applicable beginning with the CY 2019 
payment year under the Medicaid EHR Incentive Program:
* * * * *
    (2) * * *
    (ii) The following are applicable for 2015, 2016, 2017, and 2018:
* * * * *
    (D) For the FY 2018 payment year under the Medicaid EHR Incentive 
Program:
    (1) For the eligible hospital or CAH first demonstrating it is a 
meaningful EHR user, any continuous 90-day period within CY 2018.
    (2) For the eligible hospital or CAH that has successfully 
demonstrated it is a meaningful EHR user in any prior year, any 
continuous 90-day period within CY 2018.
    (iii) The following are applicable beginning with the FY 2019 
payment year under the Medicaid EHR Incentive Program:
* * * * *
    EHR reporting period for a payment adjustment year. * * *
    (2) * * *
    (ii) The following are applicable for 2015, 2016, 2017, and 2018:
* * * * *
    (D) In 2018 as follows:
    (1) If an eligible hospital has not successfully demonstrated it is 
a meaningful EHR user in a prior year, the EHR reporting period is any 
continuous 90-day period within CY 2018 and applies for the FY 2019 and 
2020 payment adjustment years. For the FY 2019 payment adjustment year, 
the EHR reporting period must end before and the eligible hospital must 
successfully register for and attest to meaningful use no later than 
October 1, 2018.
    (2) If in a prior year an eligible hospital has successfully 
demonstrated it is a meaningful EHR user, the EHR reporting period is 
any continuous 90-day period within CY 2018 and applies for the FY 2020 
payment adjustment year.
    (iii) The following are applicable beginning in 2019:
* * * * *
    (3) * * *
    (ii) The following are applicable for 2015, 2016, 2017, and 2018:
* * * * *
    (D) In 2018 as follows:
    (1) If a CAH has not successfully demonstrated it is a meaningful 
EHR user in a prior year, the EHR reporting period is any continuous 
90-day period within CY 2018 and applies for the FY 2018 payment 
adjustment year.
    (2) If in a prior year a CAH has successfully demonstrated it is a 
meaningful EHR user, the EHR reporting period is any continuous 90-day 
period within CY 2018 and applies for the FY 2018 payment adjustment 
year.

[[Page 38517]]

    (iii) The following are applicable beginning in 2019:
* * * * *

0
40. Section 495.22 is amended by--
0
a. Revising the section heading;
0
b. Revising paragraph (a);
0
c. Revising the paragraph (b) heading and the paragraph (b)(1) heading;
0
d. Revising the paragraph (c) heading and paragraph (c)(1);
0
e. Revising the paragraph (e) heading and paragraphs 
(e)(8)(i)(A)(2)(ii), (e)(8)(ii)(A)(2)(ii), and (e)(9)(ii)(A)(3); and
0
f. Revising the paragraph (f) heading.
    The revisions read as follows:


Sec.  495.22   Meaningful use objectives and measures for EPs, eligible 
hospitals, and CAHs for 2015 through 2018.

    (a) General rules. (1) Subject to the provisions of paragraph 
(a)(2) of this section, the criteria specified in this section are 
applicable for EPs, eligible hospitals, and CAHs for 2015 through 2018.
    (2) For 2017 and 2018, EPs, eligible hospitals, and CAHs that have 
successfully demonstrated meaningful use in a prior year have the 
option to use the criteria specified for 2019 in Sec.  495.24 instead 
of the criteria specified for 2017 and 2018 under paragraphs (e) and 
(f) of this section.
    (b) Criteria for EPs for 2015 through 2018--(1) General rule 
regarding criteria for meaningful use for 2015 through 2018 for EPs. * 
* *
    (c) Criteria for eligible hospitals and CAHs for 2015 through 
2018.--(1) General rule regarding criteria for meaningful use for 2015 
through 2018 for eligible hospitals and CAHs. Except as specified in 
paragraph (c)(2) of this section, eligible hospitals and CAHs attesting 
to CMS must meet all objectives and associated measures of the 
meaningful use criteria specified under paragraph (e) of this section 
to meet the definition of a meaningful EHR user in 2015 and 2016 and 
must meet all objectives and associated measures of the meaningful use 
criteria specified under paragraph (f) of this section to meet the 
definition of a meaningful EHR user in 2017 and 2018. Except as 
specified in paragraph (c)(2) of this section, eligible hospitals and 
CAHs attesting to a State for the Medicaid EHR Incentive Program must 
meet all objectives and associated measures of the meaningful use 
criteria specified under paragraph (e) of this section to meet the 
definition of a meaningful EHR user in 2015 through 2018.
* * * * *
    (e) Meaningful use objectives and measures for EPs for 2015 through 
2018, for eligible hospitals and CAHs attesting to CMS for 2015 and 
2016, and for eligible hospitals and CAHs attesting to a State for the 
Medicaid EHR Incentive Program for 2015 through 2018. * * *
    (8) * * *
    (i) * * *
    (A) * * *
    (2) * * *
    (ii) In 2017 and 2018, more than 5 percent of unique patients seen 
by the EP during the EHR reporting period (or their authorized 
representatives) views, downloads or transmits their health information 
to a third party during the EHR reporting period.
* * * * *
    (ii) * * *
    (A) * * *
    (2) * * *
    (ii) In 2017 and 2018, more than 5 percent of unique patients (or 
patient-authorized representatives) discharged from the inpatient or 
emergency department (POS 21 or POS 23) of an eligible hospital or CAH 
during the EHR reporting period view, download or transmit to a third 
party their health information during the EHR reporting period.
* * * * *
    (9) * * *
    (ii) * * *
    (A) * * *
    (3) In 2017 and 2018, for more than 5 percent of unique patients 
seen by the EP during the EHR reporting period, a secure message was 
sent using the electronic messaging function of CEHRT to the patient 
(or the patient-authorized representative), or in response to a secure 
message sent by the patient (or the patient-authorized representative) 
during the EHR reporting period.
* * * * *
    (f) Meaningful use objectives and measures for eligible hospitals 
and CAHs attesting to CMS for 2017 and 2018--* * *
* * * * *

0
41. Section 495.24 is amended by--
0
a. Revising the section heading;
0
b. Revising the introductory text;
0
c. Revising the paragraph (c) heading and
0
d. Revising the paragraph (d) heading and paragraphs (d)(6)(i)(B)(2)(i) 
and (ii), (d)(6)(ii)(B)(1)(iv), and (d)(6)(ii)(B)(2)(i) and (ii).
    The revisions read as follows:


Sec.  495.24   Stage 3 meaningful use objectives and measures for EPs, 
eligible hospitals and CAHs for 2019 and subsequent years.

    The criteria specified in paragraphs (c) and (d) of this section 
are optional for 2017 and 2018 for EPs, eligible hospitals, and CAHs 
that have successfully demonstrated meaningful use in a prior year. The 
criteria specified in paragraph (c) of this section are applicable for 
eligible hospitals and CAHs attesting to CMS for 2019. The criteria 
specified in paragraph (d) of this section are applicable for all EPs 
for 2019 and subsequent years, and for eligible hospitals and CAHs 
attesting to a State for the Medicaid EHR Incentive Program for 2019.
* * * * *
    (c) Stage 3 objectives and measures for eligible hospitals and CAHs 
attesting to CMS for 2019--* * *
    (d) Stage 3 objectives and measures for all EPs for 2019 and 
subsequent years, and for eligible hospitals and CAHs attesting to a 
State for the Medicaid EHR Incentive Program for 2019--* * *
    (6) * * *
    (i) * * *
    (B) * * *
    (2) * * *
    (i) For an EHR reporting period in 2017 and 2018, for more than 5 
percent of all unique patients seen by the EP during the EHR reporting 
period, a secure message was sent using the electronic messaging 
function of CEHRT to the patient (or their authorized representatives), 
or in response to a secure message sent by the patient; or
    (ii) For an EHR reporting period other than 2017 and 2018, for more 
than 25 percent of all unique patients seen by the EP during the EHR 
reporting period, a secure message was sent using the electronic 
messaging function of CEHRT to the patient (or their authorized 
representatives), or in response to a secure message sent by the 
patient.
* * * * *
    (ii) * * *
    (B) * * *
    (1) * * *
    (iv) For an EHR reporting period in 2017 and 2018, an eligible 
hospital or CAH may meet a threshold of 5 percent instead of 10 percent 
for the measure at paragraph (d)(6)(ii)(B)(1) of this section.
    (2) * * *
    (i) For an EHR reporting period in 2017 and 2018, for more than 5 
percent of all unique patients discharged from the eligible hospital or 
CAH inpatient or emergency department (POS 21 or 23) during the EHR 
reporting period, a secure message was sent using the electronic 
messaging function of CEHRT to the patient (or their authorized 
representatives), or in response to a secure message sent by the 
patient (or their authorized representatives).
    (ii) For an EHR reporting period other than 2017 and 2018, for more 
than 25

[[Page 38518]]

percent of all unique patients discharged from the eligible hospital or 
CAH inpatient or emergency department (POS 21 or 23) during the EHR 
reporting period, a secure message was sent using the electronic 
messaging function of CEHRT to the patient (or their authorized 
representatives), or in response to a secure message sent by the 
patient (or their authorized representatives).
* * * * *

0
42. Section 495.40 is amended by--
0
a. Amending paragraph (a)(2)(i)(F) by adding ``and CY 2018'' after 
``For CY 2017'';
0
b. Revising paragraph (a)(2)(i)(G); and
0
c. Revising paragraphs (b)(2)(i)(F) introductory text and (b)(2)(i)(G) 
introductory text.
    The revisions read as follows:


Sec.  495.40   Demonstration of meaningful use criteria.

    (a) * * *
    (2) * * *
    (i) * * *
    (G) For CY 2019 and subsequent years, satisfied the required 
objectives and associated measures under Sec.  495.24(d) for meaningful 
use.
* * * * *
    (b) * * *
    (2) * * *
    (i) * * *
    (F) For CY 2017 and CY 2018:
* * * * *
    (G) For CY 2019:
* * * * *

0
43. Section 495.102 is amended by redesignating paragraph (d)(5) as 
paragraph (d)(6) and adding new paragraphs (d)(5) and (7) to read as 
follows:


Sec.  495.102   Incentive payments to EPs.

* * * * *
    (d) * * *
    (5) Exception for decertified EHR technology. The Secretary shall 
exempt an EP from the application of the payment adjustment for CY 2018 
under paragraph (d)(1) of this section if the Secretary determines that 
compliance with the requirement for being a meaningful EHR user is not 
possible because the certified EHR technology used by the EP has been 
decertified under ONC's Health IT Certification Program. To be 
considered for an exception, an EP must submit, in the manner specified 
by CMS, an application demonstrating that the certified EHR technology 
was decertified during the 12-month period preceding the applicable EHR 
reporting period for the CY 2018 payment adjustment year, or during the 
applicable EHR reporting period for the CY 2018 payment adjustment 
year, and that the EP made a good faith effort to obtain another 
certified EHR technology for that EHR reporting period. Applications 
requesting this exception must be submitted no later than October 1, 
2017, or a later date specified by CMS.
* * * * *
    (7) Payment adjustments not applicable to ambulatory surgical 
center-based EPs. For the CY 2017 and CY 2018 payment adjustment years, 
no payment adjustment under paragraphs (d)(1) through (3) of this 
section may be made in the case of an ambulatory surgical center-based 
eligible professional, as defined in Sec.  495.4.

    Dated: July 26, 2017.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 27, 2017.
Thomas E. Price,
Secretary, Department of Health and Human Services.

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

Addendum--Schedule of Standardized Amounts, Update Factors, Rate-of-
Increase Percentages Effective with Cost Reporting Periods Beginning on 
or after October 1, 2017, and Payment Rates for LTCHs Effective for 
Discharges Occurring on or after October 1, 2017

I. Summary and Background

    In this Addendum, we are setting forth a description of the 
methods and data we used to determine the prospective payment rates 
for Medicare hospital inpatient operating costs and Medicare 
hospital inpatient capital-related costs for FY 2018 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 2018. We note that, because certain hospitals 
excluded from the IPPS are paid on a reasonable cost basis subject 
to a rate-of-increase ceiling (and not by the IPPS), these hospitals 
are not affected by the figures for the standardized amounts, 
offsets, and budget neutrality factors. Therefore, in this final 
rule, we are 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, 2017.
    In addition, we are setting forth a description of the methods 
and data we used to determine the standard Federal payment rate that 
will be applicable to Medicare LTCHs for FY 2018.
    In general, except for SCHs, for FY 2018, 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. We 
note that, under section 205 of the Medicare Access and CHIP 
Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10, enacted on 
April 16, 2015), the MDH program is set to expire at the end of FY 
2017. SCHs are paid based on whichever of the following rates yields 
the greatest aggregate payment: the Federal national rate 
(including, as discussed in section V.G. of the preamble of this 
final rule, uncompensated care payments under section 1886(r)(2) of 
the Act); the updated hospital-specific rate based on FY 1982 costs 
per discharge; the updated hospital-specific rate based on FY 1987 
costs per discharge; the updated hospital-specific rate based on FY 
1996 costs per discharge; or the updated hospital-specific rate 
based on FY 2006 costs per discharge. As noted, under current law, 
the MDH program is set to expire at the end of FY 2017.
    As discussed in section V.B. of the preamble of this final rule, 
in accordance with section 1886(d)(9)(E) of the Act as amended by 
section 601 of the Consolidated Appropriations Act, 2016 (Pub. L. 
114-113), for FY 2018, subsection (d) Puerto Rico hospitals will 
continue to be paid based on 100 percent of the national 
standardized amount. Because Puerto Rico hospitals are 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 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 making 
changes in the determination of the prospective payment rates for 
Medicare inpatient operating costs for acute care hospitals for FY 
2018. In section III. of this Addendum, we discuss our policy 
changes for determining the prospective payment rates for Medicare 
inpatient capital-related costs for FY 2018. 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 2018. In section V. of this Addendum, 
we discuss policy changes for determining the standard Federal rate 
for LTCHs paid under the LTCH PPS for FY 2018. The tables to which 
we refer in the preamble of this final rule are listed in section 
VI. of this Addendum and are available via the Internet on the CMS 
Web site.

II. Changes to Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2018

    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 used for determining the prospective payment rates for FY 2018.

[[Page 38519]]

    In summary, the standardized amounts set forth in Tables 1A, 1B, 
and 1C that are listed and published in section VI. of this Addendum 
(and available via the Internet 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 2018, 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 V.B. of the 
preamble of this final rule for a complete discussion on the FY 2018 
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 2018                         and is a      and is NOT a      and is a      and is NOT a
                                                  meaningful EHR  meaningful EHR  meaningful EHR  meaningful EHR
                                                       user            user            user            user
----------------------------------------------------------------------------------------------------------------
Market Basket Rate-of-Increase..................             2.7             2.7             2.7             2.7
Adjustment for Failure to Submit Quality Data                0.0             0.0          -0.675          -0.675
 under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR                0.0          -2.025             0.0          -2.025
 User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi)              -0.6            -0.6            -0.6            -0.6
 of the Act.....................................
Statutory Adjustment under Section                         -0.75           -0.75           -0.75           -0.75
 1886(b)(3)(B)(xii) of the Act..................
Applicable Percentage Increase Applied to                   1.35          -0.675           0.675           -1.35
 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 2018.
     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 and labor-
related share changes are budget neutral, as provided for under 
section 1886(d)(3)(E)(i) of the Act (as discussed in the FY 2006 
IPPS final rule (70 FR 47395) and the FY 2010 IPPS final rule (74 FR 
44005). 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 2017 budget neutrality 
factor and applying a revised factor.
     Removal of the adjustment in FY 2017 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).
     A single positive adjustment of 0.4588 in FY 2018 as 
required under section 15005 of the 21st Century Cures Act (Pub. L. 
114-255), which amended section 7(b)(1)(B) of the TMA, as amended by 
section 631 of the ATRA and section 414 of the MACRA, to reduce the 
adjustment for FY 2018 from 0.5 percentage point to 0.4588 
percentage point.
     An adjustment to remove the FY 2017 outlier offset and 
apply an offset for FY 2018, as provided for in section 
1886(d)(3)(B) of the Act.
     As discussed in section V.M. of the preamble of this 
final rule, a factor of (1/1.006) in the calculation of the FY 2018 
standardized amount. Specifically, in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 57058 through 57060), using our authority under 
section 1886(d)(5)(I)(i) of the Act, we finalized a policy 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 and to include a factor of (1/1.006) in the calculation of 
the FY 2018 standardized amount to remove the temporary one-time 
factor of 1.006 applied in FY 2017 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. Therefore, in this final rule, 
for FY 2018, we are removing the temporary one-time prospective 
increase to the FY 2017 standardized amount of 0.6 percent or a 
factor of 1.006.
    For FY 2018, 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 2018 wage index for the rural 
floor. We note that, in section III.H.2.b. of the preamble to this 
final rule, we are extending the imputed floor policy (both the 
original methodology and alternative methodology) for FY 2018. 
Therefore, for FY 2018, in this final rule, we are continuing to 
include the imputed floor (calculated under the original methodology 
and alternative methodology) in calculating the uniform, national 
rural floor budget neutrality adjustment, which is reflected in the 
FY 2018 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, were budget neutral 
as required under section 410A(c)(2) of Public Law 108-173. As 
discussed in section V.L.3. of the preamble to this final rule, 
section 15003 of Public Law 114-255 amended section 410A of Public 
Law 108-173 to provide for a 10-year extension of the demonstration 
(in place of the 5-year extension required by the Affordable Care 
Act) beginning on the date immediately following the last day of the 
initial 5-year period under section 410A(a)(5) of Public Law 108-
173. Therefore, section 15003 of Public Law 114-255 requires an 
additional 5-year extension of the demonstration. Regarding the 
costs of the demonstration specifically for FY 2018, as described in 
section V.L.3. of the preamble to this final rule, we proposed in 
the FY 2018 IPS/LTCH PPS proposed rule (82 FR 19994) that if the 
selection of additional hospitals pursuant to section 410A(g)(6) of 
Public Law 108-173 (as added by section 15003 of Pub. L. 114-255) 
was announced by June 2017, we would include in the FY 2018 IPPS/
LTCH PPS final rule an estimate of the costs of the demonstration 
for FY 2018 and the resulting budget neutrality offset amount for 
the newly selected hospitals (Cohort 3 hospitals) and for the 
previously participating hospitals

[[Page 38520]]

(Cohorts 1 and 2 hospitals). We stated that if the final selection 
of the additional hospitals is not announced by June 2017, we would 
not be able to include an estimate of the costs of the demonstration 
for any participating hospitals or an estimated budget neutrality 
adjustment for FY 2018 in the FY 2018 IPPS/LTCH PPS final rule. As 
of June 2017, we did not announce the final selection of the 
additional hospitals. Therefore, for this final rule, we are not 
able to include an estimate of the costs of the demonstration for 
any participating hospitals or an estimated budget neutrality 
adjustment for FY 2018. We refer readers to section V.L.3. of the 
preamble of this final rule for complete details on the Rural 
Community Hospital Demonstration Program and our methodology for 
calculating budget neutrality for this demonstration.

A. Calculation of the Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

    In general, the national standardized amount is based on per 
discharge averages of adjusted hospital costs from a base period 
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted 
in accordance with the provisions of section 1886(d) of the Act. 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 require us 
to update base-year per discharge costs for FY 1984 and then 
standardize the cost data in order to remove the effects of certain 
sources of cost variations among hospitals. These effects include 
case-mix, differences in area wage levels, cost-of-living 
adjustments for Alaska and Hawaii, IME costs, and costs to hospitals 
serving a disproportionate share of low-income patients.
    For FY 2018, we are rebasing and revising the national labor-
related and nonlabor-related shares (based on the 2014-based 
hospital market basket discussed in section IV. of the preamble of 
this final rule). 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 2018, as discussed in section 
IV.B.3. of the preamble of this final rule, we are applying a labor-
related share of 68.3 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 applying 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 standardized amounts for operating costs appear in Tables 
1A, 1B, and 1C that are listed and published in section VI. of the 
Addendum to this final rule and are available via the Internet on 
the CMS Web site.

2. Computing the National Average Standardized Amount

    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 calculated the FY 2018 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 final rule, we used 
the rebased and revised 2014-based IPPS operating and capital market 
baskets for FY 2018. As discussed in section V.B. of the preamble of 
this final rule, in accordance with section 1886(b)(3)(B) of the 
Act, as amended by section 3401(a) of the Affordable Care Act, we 
reduced the FY 2018 applicable percentage increase (which is based 
on IGI's second quarter 2017 forecast of the 2014-based IPPS market 
basket) by the MFP adjustment (the 10-year moving average of MFP for 
the period ending FY 2018) of 0.6 percentage point, which is also 
calculated based on IGI's second quarter 2017 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 further updated the standardized amount for FY 2018 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 
required as inputs to provide hospital inpatient services.
    Based on IGI's 2017 second quarter forecast of the hospital 
market basket increase (as discussed in Appendix B of this final 
rule), the forecast of the hospital market basket increase for FY 
2018 for this final rule is 2.7 percent. As discussed earlier, for 
FY 2018, 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 can be applied to the standardized amount. 
We refer readers to section V.B. of the preamble of this final rule 
for a complete discussion on the FY 2018 inpatient hospital update 
to the standardized amount. We also refer readers to the table above 
for the four possible applicable percentage increases that will be 
applied to update the national standardized amount. The standardized 
amounts shown in Tables 1A through 1C that are published in section 
VI. of this Addendum and that are available via the Internet on the 
CMS Web site reflect these differential amounts.
    Although the update factors for FY 2018 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 
2018 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 recommendations in the Federal Register for 
public comment. Our recommendation on the update factors is set 
forth in Appendix B of this final rule.

4. Methodology for Calculation of the Average Standardized Amount

    The methodology we used to calculate the FY 2018 standardized 
amount is as follows:
     To ensure we are only including hospitals paid under 
the IPPS in the 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 CAHs at the time of this final 
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 adjusted the FY 2018 standardized 
amount to remove the effects of the FY 2017 geographic 
reclassifications and outlier payments before applying the FY 2018 
updates. We then applied budget neutrality offsets for outliers and 
geographic reclassifications to the standardized amount based on FY 
2018 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

[[Page 38521]]

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).
     Consistent with our methodology established in the FY 
2017 IPPS/LTCH PPS final rule (81 FR 57277), in order to further 
ensure that we capture only FFS claims, we are excluding 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 2018, as we proposed, we are continuing to 
include all applicable data from subsection (d) hospitals 
participating in BPCI Models 1, 2, and 4 in our IPPS payment 
modeling and ratesetting calculations.
     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 4 fiscal years, for 
FY 2018 and subsequent years, we are continuing to apply the 
hospital readmissions payment adjustment and the hospital VBP 
payment adjustment on each side of the comparison, consistent with 
the methodology that we adopted in the FY 2013 IPPS/LTCH PPS final 
rule (77 FR 53687 through 53688). That is, we applied the 
readmissions payment adjustment factor and the hospital VBP payment 
adjustment factor on both sides of our comparison of aggregate 
payments when determining all budget neutrality factors described in 
section II.A.4. of this Addendum.
    For the proposed rule, for the purpose of calculating the FY 
2018 readmissions payment adjustment factors, we used excess 
readmission ratios and aggregate payments for excess readmissions 
based on admissions from the prior fiscal year's applicable period 
because, at that time, hospitals not yet had the opportunity to 
review and correct the 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 2018, in this final rule, we calculated 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 2018 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 final 
policy regarding the reporting of hospital-specific readmission 
rates for FY 2018 in section V.I.5. of the preamble of this final 
rule. (For additional information on our general policy for the 
reporting of hospital-specific readmission rates, consistent with 
section 1886(q)(6) of the Act, we refer readers to the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53399 through 53400).)
    In addition, for FY 2018, in this final rule, for the purpose of 
modeling aggregate payments when determining all budget neutrality 
factors, we used proxy hospital VBP payment adjustment factors for 
FY 2018 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 2018 performance period. (For 
additional information on our policy regarding the review and 
correction of hospital-specific measure rates under the Hospital VBP 
Program, consistent with section 1886(o)(10)(A)(ii) of the Act, we 
refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53578 
through 53581), the CY 2012 OPPS/ASC final rule with comment period 
(76 FR 74544 through 74547), and the Hospital Inpatient VBP final 
rule (76 FR 26534 through 26536).)
     The Affordable Care Act also established section 
1886(r) of the Act, which modifies the methodology for computing the 
Medicare DSH payment adjustment beginning in FY 2014. Beginning in 
FY 2014, IPPS hospitals receiving Medicare DSH payment adjustments 
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 2018 (as we did for the last 4 fiscal years), 
we included 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 considered 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

[[Page 38522]]

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 V.G. of the 
preamble to this final rule and below, we are continuing the FY 2014 
finalized methodology under which we take into consideration 
uncompensated care payments in the comparison of payments under the 
Federal rate and the hospital-specific rate for SCHs. Therefore, we 
included estimated uncompensated care payments in this comparison.
     We are including 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 2018. 
Similar to FY 2017, we included this adjustment based on data on the 
prior year's performance. Payments for hospitals will be estimated 
based on the applicable standardized amount in Tables 1A and 1B for 
discharges occurring in FY 2018.

a. 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 final rule, we normalized the 
recalibrated MS-DRG relative weights by an adjustment factor so that 
the average case relative weight after recalibration is equal to the 
average case relative weight prior to recalibration. However, 
equating the average case relative weight after recalibration to the 
average case relative weight before recalibration does not 
necessarily achieve budget neutrality with respect to aggregate 
payments to hospitals because payments to hospitals are affected by 
factors other than average case relative weight. Therefore, as we 
have done in past years, we are making a budget neutrality 
adjustment to ensure that the requirement of section 
1886(d)(4)(C)(iii) of the Act is met.
    For FY 2018, 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 2016 discharge data to simulate payments and compared the 
following:
     Aggregate payments using the FY 2017 labor-related 
share percentages, the FY 2017 relative weights, and the FY 2017 
pre-reclassified wage data, and applied the FY 2018 hospital 
readmissions payment adjustments and estimated FY 2018 hospital VBP 
payment adjustments; and
     Aggregate payments using the FY 2017 labor-related 
share percentages, the FY 2018 relative weights, and the FY 2017 
pre-reclassified wage data, and applied the same FY 2018 hospital 
readmissions payment adjustments and estimated FY 2018 hospital VBP 
payment adjustments applied above. (As discussed in section II.G. of 
the preamble of this final rule, in response to public comments, we 
are adopting a temporary measure for FY 2018 for MS-DRGs where the 
relative weight would have declined by more than 20 percent. 
Specifically, for these MS DRGs, the FY 2018 relative weight is set 
at 80 percent of the FY 2017 final relative weight, and it is these 
FY 2018 relative weights that are used to determine the MS-DRG 
reclassification and recalibration budget neutrality factor in this 
final rule.)
    Based on this comparison, we computed a budget neutrality 
adjustment factor equal to 0.997432 and applied this factor to the 
standardized amount. As discussed in section IV. of this Addendum, 
we also applied the MS-DRG reclassification and recalibration budget 
neutrality factor of 0.997432 to the hospital-specific rates that 
are effective for cost reporting periods beginning on or after 
October 1, 2017.

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 2018, we adjusted 
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 final rule.
    To compute a budget neutrality adjustment factor for wage index 
and labor-related share percentage changes, we used FY 2016 
discharge data to simulate payments and compared the following:
     Aggregate payments using the FY 2018 relative weights 
and the FY 2017 pre-reclassified wage indexes, applied the FY 2017 
labor-related share of 69.6 percent to all hospitals (regardless of 
whether the hospital's wage index was above or below 1.0000), and 
applied the FY 2018 hospital readmissions payment adjustment and the 
estimated FY 2018 hospital VBP payment adjustment; and
     Aggregate payments using the FY 2018 relative weights 
and the FY 2018 pre-reclassified wage indexes, applied the labor-
related share for FY 2018 of 68.3 percent to all hospitals 
(regardless of whether the hospital's wage index was above or below 
1.0000), and applied the same FY 2018 hospital readmissions payment 
adjustments and estimated FY 2018 hospital VBP payment adjustments 
applied above.
    In addition, we applied the MS-DRG reclassification and 
recalibration budget neutrality adjustment factor (derived in the 
first step) to the payment rates that were used to simulate payments 
for this comparison of aggregate payments from FY 2017 to FY 2018. 
By applying this methodology, we determined a budget neutrality 
adjustment factor of 1.001148 for changes to the wage index.

c. Reclassified Hospitals--Budget Neutrality Adjustment

    Section 1886(d)(8)(B) of the Act provides that certain rural 
hospitals are deemed urban. In addition, section 1886(d)(10) of the 
Act provides for the reclassification of hospitals based on 
determinations by the MGCRB. Under section 1886(d)(10) of the Act, a 
hospital may be reclassified for purposes of the wage index.
    Under section 1886(d)(8)(D) of the Act, the Secretary is 
required to adjust the standardized amount to ensure that aggregate 
payments under the IPPS after implementation of the provisions of 
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal 
to the aggregate prospective payments that would have been made 
absent these provisions. We note that the wage index adjustments 
provided for under section 1886(d)(13) of the Act are not budget 
neutral. Section 1886(d)(13)(H) of the Act provides that any 
increase in a wage index under section 1886(d)(13) shall not be 
taken into account in applying any budget neutrality adjustment with 
respect to such index under section 1886(d)(8)(D) of the Act. To 
calculate the budget neutrality adjustment factor for FY 2018, we 
used FY 2016 discharge data to simulate payments and compared the 
following:
     Aggregate payments using the FY 2018 labor-related 
share percentages, the FY 2018 relative weights, and the FY 2018 
wage data prior to any reclassifications under sections 
1886(d)(8)(B) and (C) and 1886(d)(10) of the Act, and applied the FY 
2018 hospital readmissions payment adjustments and the estimated FY 
2018 hospital VBP payment adjustments; and
     Aggregate payments using the FY 2018 labor-related 
share percentages, the FY 2018 relative weights, and the FY 2018 
wage data after such reclassifications, and applied the same FY 2018 
hospital readmissions payment adjustments and the estimated FY 2018 
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 final rule, which is available via the Internet on the CMS 
Web site. This table reflects reclassification crosswalks for FY 
2018, and apply the policies explained in section III. of the 
preamble to this final rule. Based on these simulations, we 
calculated a budget neutrality adjustment factor of 0.988008 to 
ensure that the effects of these provisions are budget neutral, 
consistent with the statute. The FY 2018 budget neutrality 
adjustment factor was applied to

[[Page 38523]]

the standardized amount after removing the effects of the FY 2017 
budget neutrality adjustment factor. We note that the FY 2018 budget 
neutrality adjustment reflects FY 2018 wage index reclassifications 
approved by the MGCRB or the Administrator at the time of 
development of this final rule.

d. 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 final 
rule and codified at Sec.  412.64(e)(4)(ii), the budget neutrality 
adjustment for the rural floor and 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 final rule, we are extending the imputed floor 
policy (both the original policy and alternative methodology) for FY 
2018. Therefore, in order to ensure that aggregate payments to 
hospitals are not affected, similar to prior years, for FY 2018 we 
follow our policy of including the imputed floor (calculated under 
the original and alternative methodologies) in the 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 2018, we calculated a 
national rural Puerto Rico wage index. Because there are no rural 
Puerto Rico hospitals with established wage data, our calculation of 
the FY 2018 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 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 OMB labor market area delineations, except 
for Arecibo, Puerto Rico (CBSA 11640), all other Puerto Rico urban 
areas are contiguous to a rural area. Therefore, based on our 
existing policy, the FY 2018 rural Puerto Rico wage index is 
calculated based on the average of the FY 2018 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 used FY 2016 discharge data to 
simulate payments and the post-reclassified national wage indexes 
and compared the following:
     National simulated payments without the national rural 
floor and imputed floor; and
     National simulated payments with the national rural 
floor and imputed floor.
    Based on this comparison, we determined a national rural floor 
and imputed floor budget neutrality adjustment factor of 0.993348. 
The national adjustment was applied to the national wage indexes to 
produce a national rural floor and imputed floor budget neutral wage 
index.

e. Adjustment for FY 2018 Required Under Section 414 of Public Law 114-
10 (MACRA) and Section 15005 of Public Law 114-255

    As stated in the FY 2017 IPPS/LTCH PPS final rule (81 FR 56785), 
once the recoupment required under section 631 of the ATRA 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, section 414 of the MACRA 
(which was 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. In the FY 
2017 rulemaking, we indicated that we would address the adjustments 
for FY 2018 and later fiscal years in future rulemaking. As noted 
previously, section 15005 of the 21st Century Cures Act (Public Law 
114-255), which was enacted December 13, 2016, amended section 
7(b)(1)(B) of the TMA, as amended by section 631 of the ATRA and 
section 414 of the MACRA, to reduce the adjustment for FY 2018 from 
0.5 percentage points to 0.4588 percentage points. Therefore, for FY 
2018, we are implementing the required +0.4588 percent adjustment to 
the standardized amount. This is a permanent adjustment to payment 
rates. In the FY 2018 IPPS/LTCH PPS proposed rule, we noted, that 
while we are not proposing future adjustments required under section 
414 of the MACRA and section 15005 of Public Law 114-255 at this 
time, we expect to propose positive 0.5 percent adjustments to the 
standardized amounts for FYs 2019 through 2023.

f. 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 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 2018 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) FY 2018 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 FY 2018 outlier 
threshold, we simulated payments by applying FY 2018 payment rates 
and policies using cases from the FY 2016 MedPAR file. Therefore, in 
order to determine the FY 2018 outlier threshold, we inflated the 
charges on the MedPAR claims by 2 years, from FY 2016 to FY 2018. 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. As finalized 
in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57282), we used the 
following methodology to calculate the charge inflation factor for 
FY 2018:
     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;

[[Page 38524]]

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 PPS final rule (80 FR 49779 through 
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 and 
2017, for FY 2018 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, 
2016, 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 and FY 2017, for FY 2018 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 2018 IPPS Proposed Rule Home 
Page''' and then click the link ``FY 2018Proposed Rule Data 
Files''') a more detailed summary table by provider with the monthly 
charges that were used to compute the charge inflation factor. In 
the proposed rule, we stated that we would 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.

----------------------------------------------------------------------------------------------------------------
                                                                 Cases                                 Cases
                                         Covered charges      (January 1,      Covered Charges      (January 1,
               Quarter                  (January 1, 2015,    2015, through    (January 1, 2016,    2016, through
                                      through December 31,   December 31,   through December 31,   December 31,
                                              2015)              2015)              2016)              2016)
----------------------------------------------------------------------------------------------------------------
1...................................      $134,654,491,108       2,550,009      $140,324,387,852       2,503,723
2...................................       128,043,608,047       2,432,111       134,274,423,481       2,401,159
3...................................       125,070,725,661       2,352,162       129,395,535,792       2,318,480
4...................................       130,224,314,081       2,386,486       104,063,409,952       1,850,535
                                     ---------------------------------------------------------------------------
    Total...........................        517,93,138,897       9,720,768       508,057,757,077       9,073,897
----------------------------------------------------------------------------------------------------------------

    Under this methodology, to compute the 1-year average annualized 
rate-of-change in charges per case for FY 2018, we compared the 
average covered charge per case of $53,287 ($517,993,138,897/
9,720,768) from the second quarter of FY 2015 through the first 
quarter of FY 2016 (January 1, 2015, through December 31, 2015) to 
the average covered charge per case of $55,991 ($508,057,757,077/
9,073,897) from the second quarter of FY 2016 through the first 
quarter of FY 2017 (January 1, 2016, through December 31, 2016). 
This rate-of-change was 5.1 percent (1.05074) or 10.4 percent 
(1.104055) over 2 years. The billed charges are obtained from the 
claim from the MedPAR file and inflated by the inflation factor 
specified above.
    Comment: Several commenters were concerned with what they stated 
was a lack of transparency with respect to the charge inflation 
component of the fixed-loss threshold calculation. One commenter 
requested that CMS not implement the increase in the outlier 
threshold from FY 2017 to FY 2018 until the agency provides data 
that can be independently validated to demonstrate the need for an 
increase in the outlier threshold.
    Another commenter stated that it was unable to match the figures 
in the table from the proposed rule with publicly available data 
sources and that CMS did not disclose the source of the data. The 
commenter further stated that CMS has not made the necessary data 
available, or any guidance that describes whether and how CMS edited 
such data to arrive at the total of quarterly charges and charges 
per case used to measure charge inflation. Consequently, the 
commenter stated that the table provided in the proposed rule was 
not useful in assessing the accuracy of the charge inflation figure 
that CMS used in the proposed rule to calculate the outlier 
threshold. The commenter noted that CMS provided a detailed summary 
table by provider with the monthly charges that were used to compute 
the charge inflation factor. The commenters appreciated the 
additional data, but still believed that CMS has not provided enough 
specific information and data to allow the underlying numbers used 
in CMS' calculation of the charge inflation factor to be replicated 
and/or tested for accuracy. The commenter concluded that, in the 
absence of more specific data and information about how the data 
were edited by CMS to arrive at the totals used in the charge 
inflation calculation, CMS has not provided adequate notice to allow 
for meaningful comment.
    Response: We responded to a similar comment in the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50375), FY 2016 IPPS/LTCH PPS final rule 
(80 FR 49779 through 49780) and FY 2017 IPPS/LTCH PPS final rule (81 
FR 57283) and refer readers to those final rules for our complete 
response. As previously noted in the FY 2015 IPPS/LTCH PPS final 
rule (79 FR 50375), we did not have sufficient time to restructure 
the files (such as ensuring that personal identification information 
is compliant with privacy regulations) prior to the publication of 
the proposed and this final rule. As we stated in last year's final 
rule, while the charge data may not be immediately available after 
the issuance of this final rule, we believe the data and supporting 
files we have provided will provide the commenters with additional 
information that can be verified once the charge data are available. 
We have produced the actual figures we used and disclosed our 
formula. We intend to post the actual charge data as soon as 
possible so that the public can verify the raw data with the figures 
we used in the calculation. As stated earlier and in the proposed 
rule, the charge data used to calculate the charge inflation factor 
are sourced from our MedPAR database.
    In addition, as stated in last year's final rule, for this final 
rule we continue to believe that it is optimal to use the most 
recent period of charge data available to measure charge inflation. 
Similar to last year, the commenters did not propose to use charge 
data from a different period to compute the charge inflation factor. 
If we computed the charge inflation factor using the latest data 
available to the public at the time of issuance of this final rule, 
we would need to compare charge data from FY 2015 (October 2014--
September 2015) to FY 2016 (October 2015--September 2016), data 
which would be at least 10 months old compared to the charge data we 
currently use that are 4 months old.
    Comment: One commenter requested that CMS add the claims data 
used to compute the charge inflation factor to the list of limited 
data set (LDS) files that can be ordered through the usual LDS data 
request process.
    Response: As we stated in response to a similar comment in last 
year's final rule,

[[Page 38525]]

there are limitations on how expeditiously we can add the charge 
data to the LDS. After consulting with our systems teams and privacy 
office, we do not anticipate being able to provide the charge data 
we currently use to calculate the charge inflation factor within the 
commenter's requested timeframe. We prefer using the latest data 
available at the time of the proposed and final rules to compute the 
charge inflation factor because we believe it leads to greater 
accuracy in the calculation of the fixed-loss cost outlier 
threshold. As noted earlier and in last year's final rule, we 
believe that using older data may not provide the same accuracy as 
the current data we use. We invite commenters to inform us if they 
believe their need to have complete access to the data we use in our 
methodology outweighs the greater accuracy provided by the use of 
more up-to-date data. As noted above, the data we currently use will 
eventually be publicly available for replication but not in the 
timeframe the commenter has requested. To summarize, we are 
confronted with a dilemma--either we use older data that commenters 
can access earlier, or we use the most up-to-date data which will be 
more accurate, but will not be available to the public until after 
publication of the proposed and final rules. For this final rule, we 
continue to believe the latter approach, using the best available 
data to produce a more accurate charge inflation factor, is 
preferable. However, for the FY 2019 IPPS/LTCH PPS proposed rule, we 
are considering using data that commenters can access earlier. As we 
have done in the past, in the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 20173), we proposed to establish the FY 2018 outlier 
threshold using hospital CCRs from the December 2016 update to the 
Provider-Specific File (PSF)--the most recent available data at the 
time of the development of the proposed rule. We proposed to 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 or whose CCRs exceed the 
ceilings described later in this section (3.0 standard deviations 
from the mean of the log distribution of CCRs for all hospitals). We 
do not apply the adjustment factors described below to hospitals 
assigned the statewide average CCR.
    For FY 2018, we proposed to continue to apply an adjustment 
factor to the CCRs to account for cost and charge inflation (as 
explained below). We proposed that, if more recent data became 
available, we would use that data to calculate the final FY 2018 
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 have done since FY 2014, we proposed to adjust 
the CCRs from the December 2016 update of the PSF by comparing the 
percentage change in the national average case-weighted operating 
CCR and capital CCR from the December 2015 update of the PSF to the 
national average case-weighted operating CCR and capital CCR from 
the December 2016 update of the PSF. We note that, in the proposed 
rule, we used total transfer-adjusted cases from FY 2016 to 
determine the national average case-weighted CCRs for both sides of 
the comparison. As stated in the FY 2014 IPPS/LTCH PPS final rule 
(78 FR 50979), we believe that it is appropriate to use the same 
case count on both sides of the comparison because this will produce 
the true percentage change in the average case-weighted operating 
and capital CCR from one year to the next without any effect from a 
change in case count on different sides of the comparison.
    Using the proposed methodology above, for the proposed rule, we 
calculated a December 2015 operating national average case-weighted 
CCR of 0.274139 and a December 2016 operating national average case-
weighted CCR of 0.26579. We then calculated the percentage change 
between the two national operating case-weighted CCRs by subtracting 
the December 2015 operating national average case-weighted CCR from 
the December 2016 operating national average case-weighted CCR and 
then dividing the result by the December 2015 national operating 
average case-weighted CCR. This resulted in a proposed national 
operating CCR adjustment factor of 0.979187.
    We used the same methodology proposed above to adjust the 
capital CCRs. Specifically, for the proposed rule, we calculated a 
December 2015 capital national average case-weighted CCR of 0.024047 
and a December 2016 capital national average case-weighted CCR of 
0.022967. We then calculated the percentage change between the two 
national capital case-weighted CCRs by subtracting the December 2015 
capital national average case-weighted CCR from the December 2016 
capital national average case-weighted CCR and then dividing the 
result by the December 2015 capital national average case-weighted 
CCR. This resulted in a proposed national capital CCR adjustment 
factor of 0.955068.
    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 the proposed rule and this final 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 were calculated and applied after rural 
floor budget neutrality adjustments were calculated for all labor 
market areas, in order to ensure that no hospital in a frontier 
State will receive a wage index less than 1.0000 due to the rural 
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 outlier threshold for FY 2018, it was 
necessary to adjust the wage index of those eligible hospitals in a 
frontier State when calculating the outlier threshold that results 
in outlier payments being 5.1 percent of total payments for FY 2018. 
If we did not take the above into account, our estimate of total FY 
2018 payments would be too low, and, as a result, our outlier 
threshold would be too high, such that estimated outlier payments 
would be less than our projected 5.1 percent of total payments.
    As we did in establishing the FY 2009 outlier threshold (73 FR 
57891), in our projection of FY 2018 outlier payments, we proposed 
not to make any adjustments for the possibility that hospitals' CCRs 
and outlier payments may be reconciled upon cost report settlement. 
We stated that we continue to believe that, due to the policy 
implemented in the June 9, 2003 Outlier Final Rule (68 FR 34494), 
CCRs will no longer fluctuate significantly and, therefore, few 
hospitals will actually have these ratios reconciled upon cost 
report settlement. In addition, it is difficult to predict the 
specific hospitals that will have CCRs and outlier payments 
reconciled in any given year. We 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 proposed not to make any 
assumptions regarding the effects of reconciliation on the outlier 
threshold calculation.
    Comment: Commenters were concerned with CMS' decision not to 
consider outlier reconciliation in developing the outlier threshold 
and stated that CMS did not provide objective data concerning the 
number of hospitals that have been subjected to reconciliation and 
the amounts recovered during this process.
    Response: The commenters' views were similar to comments 
received and responded to in the FY 2015 IPPS/LTCH PPS final rule 
(79 FR 50376 through 50377), and we refer readers to that rule for 
our response.
    As described in sections V.I. and V.J., respectively, of the 
preamble of this final rule, sections 1886(q) and 1886(o) of the Act 
establish the Hospital Readmissions Reduction Program and the 
Hospital VBP Program, respectively. We do not believe that it is 
appropriate to include the hospital VBP payment adjustments and the 
hospital readmissions payment adjustments in the outlier threshold 
calculation or the outlier offset to the standardized amount. 
Specifically, consistent with our definition of the base operating 
DRG payment amount for the Hospital Readmissions Reduction Program 
under Sec.  412.152 and the Hospital VBP Program under Sec.  
412.160, outlier payments under section 1886(d)(5)(A) of the

[[Page 38526]]

Act are not affected by these payment adjustments. Therefore, 
outlier payments will continue to be calculated based on the 
unadjusted base DRG payment amount (as opposed to using the base-
operating DRG payment amount adjusted by the hospital readmissions 
payment adjustment and the hospital VBP payment adjustment). 
Consequently, we proposed to exclude the hospital VBP payment 
adjustments and the hospital readmissions payment adjustments from 
the calculation of the outlier fixed-loss cost threshold.
    We 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 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, for FY 2018 we proposed 
allocating an estimated per-discharge uncompensated care payment 
amount to all cases for the hospitals eligible to receive the 
uncompensated care payment amount in the calculation of the outlier 
fixed-loss cost threshold methodology. We continue to believe that 
allocating an eligible hospital's estimated uncompensated care 
payment to all cases equally in the calculation of the outlier 
fixed-loss cost threshold would best approximate the amount we would 
pay in uncompensated care payments during the year because, when we 
make claim payments to a hospital eligible for such payments, we 
would be making estimated per-discharge uncompensated care payments 
to all cases equally. Furthermore, we continue to believe that using 
the estimated per-claim uncompensated care payment amount to 
determine outlier estimates provides predictability as to the amount 
of uncompensated care payments included in the calculation of 
outlier payments. Therefore, consistent with the methodology used 
since FY 2014 to calculate the outlier fixed-loss cost threshold, 
for FY 2018, we proposed to include estimated FY 2018 uncompensated 
care payments in the computation of the outlier fixed-loss cost 
threshold. Specifically, we proposed 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 proposed a threshold of 
$26,713 and calculated total operating Federal payments of 
$89,955,398,001 and total outlier payments of $4,587,838,750. 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 proposed an 
outlier fixed-loss cost threshold for FY 2018 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 $26,713.
    Comment: One commenter noted that dividing the total outlier 
payments of $4,587,838,750 by total operating Federal payments of 
$89,955,398,001 plus total outlier payments of $4,587,838,750 yields 
4.85 percent instead of 5.1 percent.
    Response: The commenter is correct. We inadvertently summed 
total operating Federal payments with total outlier payments in the 
number of $89,955,398,001 above. The corrected total operating 
Federal payments for the proposed rule is $85,367,559,251. Dividing 
the proposed total outlier payments of $4,587,838,750 by the 
corrected proposed total operating Federal payments of 
$85,367,559,251 plus proposed total outlier payments of 
$4,587,838,750 yields the 5.1 percent target. We thank the commenter 
for noting this error.
    Comment: One commenter believed that it is important that CMS 
accurately calculate prior year actual payment comparisons to the 
5.1 percent target. The commenter asserted that it is not possible 
for CMS to appropriately modify the methodology to achieve an 
accurate result if CMS is not aware of, or misinformed about, 
inaccuracies resulting from the prior year's methodology. The 
commenter cited the FY 2017 IPPS/LTCH PPS proposed rule as an 
example where CMS indicated that actual outlier payments for FY 2015 
were approximately 4.68 percent of overall payments. The commenter 
stated that it was concerned that CMS believed the agency would 
reach the 5.1 percent target for FY 2015 only to learn that the 
original estimate was overestimated and still raise the threshold 
for the subsequent year.
    The same commenter noted that the final outlier threshold 
established by CMS is always significantly lower than the threshold 
set forth in the proposed rule. The commenter believed the decline 
is most likely due to the use of updated CCRs or other data in 
calculating the final threshold. The commenter stated this 
emphasizes that CMS must use the most recent data available when the 
agency calculates the outlier threshold. The commenter cited as an 
example that, in the proposed rule, CMS used data from the December 
2016 PSF file, but at the time the proposed rule was issued, the 
March 2017 PSF file was available.
    Response: We responded to similar comments in the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50378 through 50379) and refer the reader 
to that rule for our response.
    Comment: One commenter asked if CMS used more updated data for 
the FY 2017 proposed rule than in prior years because the variance 
in the outlier fixed-loss cost threshold from the FY 2017 proposed 
rule ($23,681) to the FY 2017 final rule ($23,573) was much smaller 
than prior fiscal years (approximately $100 versus a variance of 
approximately $1,000 to $2,000 from FY 2009 through FY 2016).
    Response: Regarding the data used for the FY 2017 proposed and 
final rule, we used the same update of the MedPAR data as in prior 
fiscal years. Specifically, we use the December update of the MedPAR 
for the proposed rule and the March update of the MedPAR for the 
final rule.
    Comment: Some commenters believed that the outlier threshold 
should be further reduced because outlier payments this year are on 
target to fall below the 5.1 percent target. The commenter suggested 
that CMS consider calculating the threshold at the midpoint of the 
target (approximately 5.5 percent) in order to ensure that the final 
total of outlier payments is between the statutory requirements of 5 
to 6 percent of total payments.
    Some commenters recommended that the threshold be maintained at 
the FY 2017 outlier threshold because CMS has underpaid outlier 
payments in prior fiscal years with no adjustment to make up for the 
shortfalls. One commenter noted that CMS' estimate of FY 2016 
outlier payments in the proposed rule was 5.37 percent, which is 
above the 5.1 percent target. The commenter favored a simplified 
methodology and believed that by applying a 2-year charge inflation 
factor and a 1-year CCR factor that CMS is inadvertently compounding 
its charge increase with lower costs and overstating the outlier 
threshold. The commenter suggested that CMS apply the following 
formula to compute the FY 2018 outlier threshold: Step 1--FY 2016 
Difference = (FY 2016 estimate of 5.37 percent -5.1 percent target = 
0.27 percent) / 5.1 percent target = 5.29 percent; Step 2--Suggested 
FY 2018 Threshold = Threshold from FY 2017 of $23,570 * (100 + 5.29 
from Step 1 = 105.29 percent) = $24,817. The commenter concluded 
that the FY 2018 fixed-loss cost threshold should not exceed 
$24,817.
    Response: We responded to similar comments in the FY 2015 IPPS/
LTCH PPS final rule (79 FR 50379) and the FY 2016 IPPS/LTCH PPS 
final rule (80 FR 49783) and refer readers to those final rules for 
our complete responses.
    Comment: One commenter asked that CMS consider whether it is 
appropriate to include extreme cases when calculating the threshold. 
The commenter explained that high charge cases have a significant 
impact on the threshold. The commenter observed that the amount of 
cases with over $1.5 million in charges has increased significantly 
from FY 2011 (926 cases) to FY 2016 (1,733 cases). The commenter 
believed that the impact of these cases will cause the threshold to 
rise and recommended that CMS consider the removal of high charge 
cases from the calculation of the threshold.
    Response: We thank the commenter for its analysis. The 
methodology used to calculate the outlier threshold includes all 
claims in order to account for all different types of cases, 
including high charge cases, to ensure that CMS meets the 5.1 
percent target. As the commenter pointed out, the volume of these 
cases continues to rise, making their impact on the threshold 
significant. We believe excluding these cases would artificially 
lower the threshold. We believe it is important to include all cases 
in the calculation of the threshold no matter how high or low the 
charges. Including these

[[Page 38527]]

cases with high charges lends more accuracy to the threshold, as 
these cases have an impact on the threshold and continue to rise in 
volume. Therefore, we disagree with the commenter.
    After consideration of the public comments we received, we are 
not making any changes to our methodology in this final rule for FY 
2018. Therefore, we are using the same methodology we proposed to 
calculate the final outlier threshold. We note that, as stated 
above, we will consider for FY 2019 using data that commenters can 
access earlier to validate the charge inflation factor.
    Similar to the table provided in the proposed rule, for this 
final rule, we are providing the following table that displays 
covered charges and cases by quarter in the periods used to 
calculate the charge inflation factor based on the latest claims 
data from the MedPAR file.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Covered charges (April 1,                             Covered charges (April 1,
                   Quarter                     2015, through March 31,     Cases (April 1, 2015,     2016, through March 31,     Cases (April 1, 2016,
                                                        2016)             through March 31, 2016)             2017)             through March 31, 2017)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...........................................           $141,152,765,310                  2,511,643           $117,678,018,441                  2,041,566
2...........................................            128,006,070,168                  2,429,952            135,162,474,098                  2,412,323
3...........................................            125,050,723,246                  2,350,572            131,355,245,078                  2,344,249
4...........................................            130,279,257,188                  2,385,573            135,647,775,015                  2,374,373
                                             -----------------------------------------------------------------------------------------------------------
    Total...................................            524,488,815,912                  9,677,740            519,843,512,632                  9,172,511
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Under our current methodology, to compute the 1-year average 
annualized rate-of-change in charges per case for FY 2018, we 
compared the average covered charge per case of $54,195 
($524,488,815,912/9,677,740) from the third quarter of FY 2015 
through the second quarter of FY 2016 (April 1, 2015, through March 
31, 2016) to the average covered charge per case of $56,674 
($519,843,512,632/9,172,511) from the third quarter of FY 2016 
through the second quarter of FY 2017 (April 1, 2016, through March 
31, 2017). This rate-of-change is 4.6 percent (1.04574) or 9.4 
percent (1.09357) over 2 years. The billed charges are obtained from 
the claim from the MedPAR file and inflated by the inflation factor 
specified above.
    Similar to the proposed rule, for this final rule, we have made 
available a more detailed summary table by provider with the monthly 
charges that were used to compute the charge inflation factor 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 2018 IPPS Final Rule Home Page'' and then click 
the link ``FY 2018 Final Rule Data Files'').
    As we have done in the past, we are establishing the FY 2018 
outlier threshold using hospital CCRs from the March 2017 update to 
the Provider-Specific File (PSF)--the most recent available data at 
the time of the development of this final rule. For FY 2018, we also 
are continuing to apply an adjustment factor to the CCRs to account 
for cost and charge inflation (as explained below).
    Therefore, as we did for the last 4 fiscal years, we are 
adjusting the CCRs from the March 2017 update of the PSF by 
comparing the percentage change in the national average case-
weighted operating CCR and capital CCR from the March 2016 update of 
the PSF to the national average case-weighted operating CCR and 
capital CCR from the March 2017 update of the PSF. We note that we 
used total transfer-adjusted cases from FY 2016 to determine the 
national average case-weighted CCRs for both sides of the 
comparison.
    Using the methodology above, for this final rule, we calculated 
a March 2016 operating national average case-weighted CCR of 
0.269558 and a March 2017 operating national average case-weighted 
CCR of 0.265668. We then calculated the percentage change between 
the two national operating case-weighted CCRs by subtracting the 
March 2016 operating national average case-weighted CCR from the 
March 2017 operating national average case-weighted CCR and then 
dividing the result by the March 2016 national operating average 
case-weighted CCR. This resulted in a national operating CCR 
adjustment factor of 0.985569 (the factors used to determine this 
result were based on unrounded numbers).
    We used the same methodology above to adjust the capital CCRs. 
Specifically, for this final rule, we calculated a March 2016 
capital national average case-weighted CCR of 0.023751 and a March 
2017 capital national average case-weighted CCR of 0.22615. We then 
calculated the percentage change between the two national capital 
case-weighted CCRs by subtracting the March 2016 capital national 
average case-weighted CCR from the March 2017 capital national 
average case-weighted CCR and then dividing the result by the March 
2016 capital national average case-weighted CCR. This resulted in a 
national capital CCR adjustment factor of 0.952173 (the factors used 
to determine this result were based on unrounded numbers).
    As discussed above, similar to the proposed rule, for FY 2018 we 
applied the following policies (see discussion above for more 
details):
     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.
     As we did in establishing the FY 2009 outlier threshold 
(73 FR 57891), in our projection of FY 2018 outlier payments, we did 
not make any adjustments for the possibility that hospitals' CCRs 
and outlier payments may be reconciled upon cost report settlement.
     We excluded the hospital VBP payment adjustments and 
the hospital readmissions payment adjustments from the calculation 
of the outlier fixed-loss cost threshold.
     We used the estimated per-discharge uncompensated care 
payments to hospitals eligible for the uncompensated care payment 
for all cases in the calculation of the outlier fixed-loss cost 
threshold methodology.
    Using this methodology, we 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 calculated a 
threshold of $26,601 and calculated total operating Federal payments 
of $85,942,484,975 and total outlier payments of $4,618,707,285. 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 finalizing 
an outlier fixed-loss cost threshold for FY 2018 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 $26,601.

(2) Other Changes Concerning Outliers

    As stated in the FY 1994 IPPS final rule (58 FR 46348), we 
establish an outlier threshold that is applicable to both hospital 
inpatient operating costs and hospital inpatient capital-related 
costs. When we modeled the combined operating and capital outlier 
payments, we found that using a common threshold resulted in a lower 
percentage of outlier payments for capital-related costs than for 
operating costs. We project that the thresholds for FY 2018 will 
result in outlier payments that will equal 5.1 percent of operating 
DRG payments and 5.16 percent of capital payments based on the 
Federal rate.
    In accordance with section 1886(d)(3)(B) of the Act, we reduced 
the FY 2018 standardized amount by the same percentage to account 
for the projected proportion of payments paid as outliers.
    The outlier adjustment factors that were applied to the 
standardized amount based on the FY 2018 outlier threshold are as 
follows:

------------------------------------------------------------------------
                                             Operating
                                           standardized       Capital
                                              amounts      federal  rate
------------------------------------------------------------------------
National................................       0.948999        0.948400
------------------------------------------------------------------------

    We applied the outlier adjustment factors to the FY 2018 payment 
rates after removing the effects of the FY 2017 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

[[Page 38528]]

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 1.16 or capital CCRs greater than 0.155, 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 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. These statewide average ratios will be effective for 
discharges occurring on or after October 1, 2017 and will replace 
the statewide average ratios from the prior fiscal year. Table 8B 
listed in section VI. of this Addendum (and available via the 
Internet on the CMS Web site) contains the comparable statewide 
average capital CCRs. As previously stated, the CCRs in Tables 8A 
and 8B will be used during FY 2018 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 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 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 2016 Outlier Payments

    Our current estimate, using available FY 2016 claims data, is 
that actual outlier payments for FY 2016 were approximately 5.41 
percent of actual total MS-DRG payments. Therefore, the data 
indicate that, for FY 2016, the percentage of actual outlier 
payments relative to actual total payments is higher than we 
projected for FY 2016. 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 2016 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 statutory 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 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 
2017 will not be available until after September 30, 2017, we are 
unable to provide an estimate of actual outlier payments for FY 2017 
based on FY 2017 claims data in this final rule. We will provide an 
estimate of actual FY 2017 outlier payments in the FY 2019 IPPS/LTCH 
PPS proposed rule.
    Comment: One commenter noted that, in the proposed rule, CMS 
stated that actual outlier payments for FY 2016 were approximately 
5.37 percent of total MS-DRG payments. The commenter performed its 
own analysis and concluded that outlier payments for FY 2016 are 
approximately 5.27 percent of total MS-DRG payments. The commenter 
was concerned that CMS' estimate was overstated.
    Response: We thank the commenter for the comments. We reviewed 
our data to ensure the estimate provided is accurate. Therefore, we 
believe we have provided a reliable estimate of the outlier 
percentage for FY 2016. The commenter did not provide details 
regarding the discrepancy. We welcome additional suggestions from 
the public, including the commenter, to improve the accuracy of our 
estimate of actual outlier payments.

5. FY 2018 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 applying to all hospitals, except hospitals located in Puerto 
Rico, for FY 2018. The 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 amounts shown in Tables 1A and 1B differ only in that the labor-
related share applied to the standardized amounts in Table 1A is 
68.3 percent, and the labor-related share applied to the 
standardized amounts in Table 1B is 62 percent. In accordance with 
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act, we are 
applying a labor-related share of 62 percent, unless application of 
that percentage would result in lower payments to a hospital than 
would otherwise be made. In effect, the statutory provision means 
that we will apply a labor-related share of 62 percent for all 
hospitals whose wage indexes are less than or equal to 1.0000.
    In addition, Tables 1A and 1B include the standardized amounts 
reflecting the applicable percentage increases for FY 2018.
    The labor-related and nonlabor-related portions of the national 
average standardized amounts for Puerto Rico hospitals for FY 2018 
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 2017 
national standardized amount to the FY 2018 national standardized 
amount. The second through fifth columns display the changes from 
the FY 2017 standardized amounts for each applicable FY 2018 
standardized amount. The first row of the table shows the updated 
(through FY 2017) average standardized amount after restoring the FY 
2017 offsets for outlier payments, geographic reclassification 
budget neutrality, new labor market delineation wage index 
transition budget neutrality and removing the FY 2017 2-midnight 
rule one-time prospective increase. The MS-DRG reclassification and 
recalibration and wage index budget neutrality adjustment factors 
are cumulative. Therefore, those FY 2017 adjustment factors are not 
removed from this table.

[[Page 38529]]



                  Changes From FY 2017 Standardized Amounts to the FY 2018 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 2018 Base Rate after
 removing:
    1. FY 2017 Geographic         If Wage Index is    If Wage Index is    If Wage Index is    If Wage Index is
     Reclassification Budget       Greater Than        Greater Than        Greater Than        Greater Than
     Neutrality (0.988136).        1.0000:             1.0000:             1.0000:             1.0000:
    2. FY 2017 Operating Outlier     Labor (68.3%):      Labor (68.3%):      Labor (68.3%):      Labor (68.3%):
     Offset (0.948998).               $3,993.72.          $3,993.72.          $3,993.72.          $3,993.72.
    3. FY 2017 2-Midnight Rule       Nonlabor            Nonlabor            Nonlabor            Nonlabor
     One-Time Prospective             (30.4%):            (30.4%):            (30.4%):            (30.4%):
     Increase (1.006).                $1,853.60.          $1,853.60.          $1,853.60.          $1,853.60.
    4. FY 2017 Labor Market       If Wage Index is    If Wage Index is    If Wage Index is    If Wage Index is
     Delineation Wage Index        less Than or        less Than or        less Than or        less Than or
     Transition Budget             Equal to 1.0000:    Equal to 1.0000:    Equal to 1.0000:    Equal to 1.0000:
     Neutrality Factor
     (0.999997).
                                  Labor (62%):        Labor (62%):        Labor (62%):        Labor (62%):
                                   $3,625.34.          $3,625.34.          $3,625.34.          $3,625.34.
                                  Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):     Nonlabor (38%):
                                   $2,221.98.          $2,221.98.          $2,221.98.          $2,221.98.
FY 2018 Update Factor...........  1.0135............  0.99325...........  1.00675...........  0.9865.
FY 2018 MS[dash]DRG               0.997432..........  0.997432..........  0.997432..........  0.997432.
 Recalibration Budget Neutrality
 Factor.
FY 2018 Wage Index Budget         1.001148..........  1.001148..........  1.001148..........  1.001148.
 Neutrality Factor.
FY 2018 Reclassification Budget   0.988008..........  0.988008..........  0.988008..........  0.988008.
 Neutrality Factor.
FY 2018 Operating Outlier Factor  0.948999..........  0.948999..........  0.948999..........  0.98999.
Adjustment for FY 2018 Required   1.004588..........  1.004588..........  1.004588..........  1.004588.
 under Section 414 of Public Law
 114-10 (MACRA) and Section
 15005 of Public Law 114-255.
National Standardized Amount for  Labor: $3,807.12..  Labor: $3,731.05..  Labor: $3,781.76..  Labor: $3,705.70.
 FY 2018 if Wage Index is         Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Greater Than 1.0000; Labor/Non-   $1,766.99.          $1,731.69.          $1,755.22.          $1,719.92.
 Labor Share Percentage (68.3/
 31.7).
National Standardized Amount for  Labor: $3,455.95..  Labor: $3,386.90..  Labor: $3,432.93..  Labor: $3,363.88.
 FY 2018 if Wage Index is less    Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 Than or Equal to 1.0000; Labor/   $2,118.16.          $2,075.84.          $2,104.05.          $2,061.74.
 Non-Labor Share Percentage (62/
 38).
----------------------------------------------------------------------------------------------------------------

    We note that, in recent years, we have estimated the MS-DRG 
recalibration budget neutrality factor, wage index budget neutrality 
factor, reclassification budget neutrality factor and operating 
outlier factor to six decimal places. In the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20176), we stated that while we are not 
proposing to make any changes at this time, we were interested in 
receiving comments from the public as to the continued necessity of 
six decimal places for these four estimates or if fewer decimal 
places would be sufficient. We did not receive any public comments 
regarding the necessity of six decimals. We will consider the use of 
fewer decimals in future rulemaking.

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

    Tables 1A through 1C, as published in section VI. of this 
Addendum (and available via the Internet on the CMS Web site), 
contain the labor-related and nonlabor-related shares that we used 
to calculate the prospective payment rates for hospitals located in 
the 50 States, the District of Columbia, and Puerto Rico for FY 
2018. This section addresses two types of adjustments to the 
standardized amounts that are made in determining the prospective 
payment rates as described in this Addendum.

1. Adjustment for Area Wage Levels

    Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require 
that we make an adjustment to the labor-related portion of the 
national 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. For FY 2018, as discussed in section IV.B.3. of the 
preamble of this final rule, we will apply a labor-related share of 
68.3 percent for the national standardized amounts for all IPPS 
hospitals (including hospitals in Puerto Rico) that have a wage 
index value that is greater

[[Page 38530]]

than 1.0000. Consistent with section 1886(d)(3)(E) of the Act, we 
will 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. In section III. of the preamble of this final rule, 
we discuss the data and methodology for the FY 2018 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 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 in Alaska and Hawaii by an 
adjustment factor. For FY 2011 and in prior fiscal years, we used 
the most recent cost-of-living adjustment (COLA) factors obtained 
from the U.S. Office of Personnel Management (OPM) Web site at 
http://www.opm.gov/oca/cola/rates.asp to update this nonlabor 
portion.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51797), we 
explained that sections 1911 through 1919 of the Nonforeign Area 
Retirement Equity Assurance Act, as contained in subtitle B of title 
XIX of the National Defense Authorization Act (NDAA) for Fiscal Year 
2010 (Pub. L. 111-84, October 28, 2009), transitions the Alaska and 
Hawaii COLAs to locality pay. We finalized that, for FY 2012, as OPM 
transitioned away from COLAs, we would continue to use the same 
``frozen'' COLA factors (published by OPM) that we used to adjust 
payments in FY 2011 (which were based on OPM's 2009 COLA factors) to 
adjust the nonlabor-related portion of the standardized amount for 
hospitals located in Alaska and Hawaii. We refer readers to the FY 
2012 IPPS/LTCH PPS final rule for a more detailed discussion of our 
rationale for continuing to use the frozen COLAs in FY 2012.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53700 and 53701), 
for FY 2013, we continued to use the same COLA factors that were 
used to adjust payments in FY 2012 (as originally used to adjust 
payments in FY 2011, which were based on OPM's 2009 COLA factors). 
We also established a methodology to update the COLA factors 
published by OPM every 4 years (at the same time as the update of 
the labor-related share of the IPPS market basket), beginning in FY 
2014. We refer readers to the FY 2013 IPPS/LTCH PPS proposed rule 
(77 FR 28145 and 28146) for a detailed description of this 
methodology. For FY 2014, we updated the COLA factors for Alaska and 
Hawaii published by OPM for 2009 using the methodology finalized in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53700 and 53701).
    For FY 2018, we proposed to continue to update the COLA factors 
published by OPM for 2009 (as these are the last COLA factors OPM 
published prior to transitioning from COLAs to locality pay) using 
the methodology that we finalized in the FY 2013 IPPS/LTCH PPS final 
rule and implemented for the FY 2014 IPPS update. Specifically, we 
proposed to update the 2009 OPM COLA factors by a comparison of the 
growth in the Consumer Price Indices (CPIs) for Anchorage, AK, and 
Honolulu, HI, relative to the growth in the CPI for the average U.S. 
city as published by the Bureau of Labor Statistics (BLS). Because 
BLS publishes CPI data for only Anchorage and Honolulu, using the 
methodology we finalized in the FY 2013 IPPS/LTCH PPS final rule, we 
used the comparison of the growth in the overall CPI relative to the 
growth in the CPI for those cities to update the COLA factors for 
all areas in Alaska and Hawaii, respectively. We believe that the 
relative price differences between these cities and the United 
States (as measured by the CPIs mentioned above) are appropriate 
proxies for the relative price differences between the ``other 
areas'' of Alaska and Hawaii and the United States.
    BLS publishes the CPI for All Items for Anchorage, Honolulu, and 
for the average U.S. city. However, consistent with our methodology 
finalized in the FY 2013 IPPS/LTCH PPS final rule, we created 
reweighted CPIs for each of the respective areas to reflect the 
underlying composition of the IPPS market basket nonlabor-related 
share. The current composition of the CPI for All Items for all of 
the respective areas is approximately 40 percent commodities and 60 
percent services. However, the IPPS nonlabor-related share is 
comprised of a different mix of commodities and services. Therefore, 
we created reweighted indexes for Anchorage, Honolulu, and the 
average U.S. city using the respective CPI commodities index and CPI 
services index and using the approximate 55 percent commodities/45 
percent services shares obtained from the proposed 2014-based IPPS 
market basket, which is being finalized without modification as 
discussed in section IV. of the preamble of this final rule. We 
created reweighted indexes using BLS data for 2009 through 2016--the 
most recent data available at the time of this final rulemaking. In 
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50985 through 50987), we 
created reweighted indexes based on the FY 2010-based IPPS market 
basket (which was adopted for the FY 2014 IPPS update) and BLS data 
for 2009 through 2012 (the most recent BLS data at the time of the 
FY 2014 IPPS/LTCH PPS rulemaking).
    We continue to believe this methodology is appropriate because 
we continue to make a COLA for hospitals located in Alaska and 
Hawaii by multiplying the nonlabor-related portion of the 
standardized amount by a COLA factor. We note that OPM's COLA 
factors were calculated with a statutorily mandated cap of 25 
percent. As stated in the FY 2014 IPPS/LTCH PPS final rule (78 FR 
50985 through 50987), under the COLA update methodology we finalized 
in the FY 2013 IPPS/LTCH PPS final rule, we exercised our 
discretionary authority to adjust payments to hospitals in Alaska 
and Hawaii by incorporating this cap. In applying this finalized 
methodology for updating the COLA factors, for FY 2018, we proposed 
to continue to use such a cap, as our policy is based on OPM's COLA 
factors (updated by the methodology described above).
    Applying this methodology, the COLA factors that we proposed to 
establish for FY 2018 to adjust the nonlabor-related portion of the 
standardized amount for hospitals located in Alaska and Hawaii are 
shown in the table below. For comparison purposes, we also are 
showing the FY 2013 COLA factors (which were based on OPM's 
published COLA factors for 2009) and the FY 2014 COLA factors.
    Lastly, as we finalized in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53700 and 53701), we are updating the COLA factors based on 
our methodology every 4 years, at the same time as the update to the 
labor-related share of the IPPS market basket.

                         Cost-of-Living Adjustment Factors: Alaska and Hawaii Hospitals
----------------------------------------------------------------------------------------------------------------
                                                                                      FY 2014
                              Area                                    FY 2013       through FY      Proposed FY
                                                                                       2017            2018
----------------------------------------------------------------------------------------------------------------
Alaska:
    City of Anchorage and 80-kilometer (50-mile) radius by road.            1.23            1.23            1.25
    City of Fairbanks and 80-kilometer (50-mile) radius by road.            1.23            1.23            1.25
    City of Juneau and 80-kilometer (50-mile) radius by road....            1.23            1.23            1.25
    Rest of Alaska..............................................            1.25            1.25            1.25
Hawaii:
    City and County of Honolulu.................................            1.25            1.25            1.25
    County of Hawaii............................................            1.18            1.19            1.21
    County of Kauai.............................................            1.25            1.25            1.25
    County of Maui and County of Kalawao........................            1.25            1.25            1.25
----------------------------------------------------------------------------------------------------------------


[[Page 38531]]

    We note that the reweighted CPI for Honolulu, HI grew faster 
than the reweighted CPI for the average U.S. city over the 2009 to 
2016 time period, at 13.7 percent and 10.5 percent, respectively. As 
a result, for FY 2018, we calculated proposed COLA factors for the 
City and County of Honolulu, County of Kauai, County of Maui, and 
County of Kalawao to be 1.29 compared to the FY 2013 COLA factor of 
1.25 (which was based on OPM's published COLA factors for 2009, as 
described above). However, as stated above, we are applying our 
methodology as finalized in the FY 2013 IPPS/LTCH PPS final rule to 
incorporate a cap of 1.25 for these areas. In addition, the proposed 
COLA factor we calculated for the County of Hawaii for FY 2018 is 
1.21 compared to the FY 2013 COLA factor of 1.18. The COLA factors 
adopted in FY 2014 using this same methodology can be found in the 
table above.
    Similarly, the reweighted CPI for Anchorage, AK grew faster than 
the reweighted CPI for the average U.S. city over the 2009 to 2016 
time period, at 12.4 percent and 10.5 percent, respectively. As a 
result, for FY 2018, we calculated proposed COLA factors for the 
City of Anchorage, City of Fairbanks, and City of Juneau to be 1.25 
compared to the FY 2013 COLA factor of 1.23. For FY 2018, we 
calculated a proposed COLA factor of 1.27 for the rest of Alaska 
compared to the FY 2013 COLA factor of 1.25. However, as stated 
above, we are applying our methodology as finalized in the FY 2013 
IPPS/LTCH PPS final rule to incorporate a cap of 1.25 for the Rest 
of Alaska.
    As stated above, the COLA factors adopted in the FY 2014 IPPS/
LTCH PPS final rule were based on the same methodology we proposed 
to use to determine the FY 2018 COLA factors but utilizing BLS data 
from 2009 through 2012 (the most recent data available at the time 
of FY 2014 rulemaking) rather than through 2016 (the most recent 
data available at the time of this rulemaking). As we noted in the 
proposed rule, compared to the FY 2014 COLA factors, the proposed FY 
2018 COLA factors are higher--with all areas either reaching or 
exceeding the cap of 1.25 except the County of Hawaii.
    We did not receive any public comments on our proposal to 
continue to update the COLA factors published by OPM for 2009 using 
the methodology that we finalized in the FY 2013 IPPS/LTCH PPS final 
rule and implemented for the FY 2014 IPPS update. In this final 
rule, we are finalizing the COLA factors as proposed effective for 
FY 2018.

C. Calculation of the Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY 
2018

    In general, the operating prospective payment rate for all 
hospitals (including hospitals in Puerto Rico) paid under the IPPS, 
except SCHs, for FY 2018 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 V.G. of the preamble of this final rule, 
includes uncompensated care payments); the updated hospital-specific 
rate based on FY 1982 costs per discharge; the updated hospital-
specific rate based on FY 1987 costs per discharge; the updated 
hospital-specific rate based on FY 1996 costs per discharge; or the 
updated hospital-specific rate based on FY 2006 costs per discharge 
to determine the rate that yields the greatest aggregate payment.
    The prospective payment rate for SCHs for FY 2018 equals the 
higher of the applicable Federal rate, or the hospital-specific rate 
as described below.

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 
fiscal year. 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 fiscal 
year. 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 earlier).

    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 CCR)
--Capital Costs = (Billed Charges x Capital CCR).

    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 CCR to Total CCR = (Operating CCR)/(Operating CCR + 
Capital CCR)
--Operating Outlier Threshold = [Fixed Loss Threshold x ((Labor-
Related Portion x CBSA Wage Index) + Nonlabor-Related portion)] x 
Operating CCR to Total CCR + Federal Payment with IME, DSH + 
Uncompensated Care Payment + New Technology Add-On Payment Amount
--Capital CCR to Total CCR = (Capital CCR)/(Operating CCR + Capital 
CCR)
--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)

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, under section 205 of the Medicare Access and CHIP 
Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10, enacted on 
April 16, 2015), the MDH program is set to expire at the end of FY 
2017.
    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 2018

    Section 1886(b)(3)(B)(iv) of the Act provides that the 
applicable percentage increase applicable to the hospital-specific 
rates for SCHs equals the applicable percentage increase set forth 
in section 1886(b)(3)(B)(i) of the Act (that is, the same update 
factor as for all other hospitals subject

[[Page 38532]]

to the IPPS). Because the Act sets the update factor for SCHs equal 
to the update factor for all other IPPS hospitals, the update to the 
hospital-specific rates for SCHs is subject to the amendments to 
section 1886(b)(3)(B) of the Act made by sections 3401(a) and 
10319(a) of the Affordable Care Act. Accordingly, the applicable 
percentage increases to the hospital-specific rates applicable to 
SCHs are the following:

----------------------------------------------------------------------------------------------------------------
                                                     Hospital        Hospital      Hospital did    Hospital did
                                                     submitted       submitted      NOT submit      NOT submit
                                                   quality data    quality data    quality data    quality data
                     FY 2018                         and is a      and is NOT a      and is a      and is NOT a
                                                  meaningful EHR  meaningful EHR  meaningful EHR  meaningful EHR
                                                       user            user            user            user
----------------------------------------------------------------------------------------------------------------
Market Basket Rate-of-Increase..................             2.7             2.7             2.7             2.7
Adjustment for Failure to Submit Quality Data                0.0             0.0          -0.675          -0.675
 under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR                0.0          -2.025             0.0          -2.025
 User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi)              -0.6            -0.6            -0.6            -0.6
 of the Act.....................................
Statutory Adjustment under Section                         -0.75           -0.75           -0.75           -0.75
 1886(b)(3)(B)(xii) of the Act..................
Applicable Percentage Increase Applied to                   1.35          -0.675           0.675           -1.35
 Hospital-Specific Rate.........................
----------------------------------------------------------------------------------------------------------------

    For a complete discussion of the applicable percentage increase 
applied to the hospital-specific rates for SCHs, we refer readers to 
section V.B. of the preamble of this final rule.
    In addition, because SCHs use the same MS-DRGs as other 
hospitals when they are paid based in whole or in part on the 
hospital-specific rate, the hospital-specific rate is adjusted by a 
budget neutrality factor to ensure that changes to the MS-DRG 
classifications and the recalibration of the MS-DRG relative weights 
are made in a manner so that aggregate IPPS payments are unaffected. 
Therefore, the hospital-specific rate for an SCH is adjusted by the 
MS-DRG reclassification and recalibration budget neutrality factor 
of 0.997432, as discussed in section III. of this Addendum. The 
resulting rate is used in determining the payment rate that an SCH 
will receive for its discharges beginning on or after October 1, 
2017. We note that, in this final rule, for FY 2018, we are not 
making a documentation and coding adjustment to the hospital-
specific rate. We refer readers to section II.D. of the preamble of 
this final rule for a complete discussion regarding our policies and 
previously finalized policies (including our historical adjustments 
to the payment rates) relating to the effect of changes in 
documentation and coding that do not reflect real changes in case-
mix.
    Also, as discussed in section V.M. of the preamble of this final 
rule, we are including a factor of (1/1.006) in the calculation of 
the FY 2018 hospital-specific rates. Specifically, in the FY 2017 
IPPS/LTCH PPS final rule (81 FR 57058 through 57060), using our 
authority under section 1886(d)(5)(I)(i) of the Act, we finalized a 
policy 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 
hospital-specific rates and to include a factor of (1/1.006) in the 
calculation of the FY 2018 hospital-specific rates to remove the 
temporary one-time factor of 1.006 applied in FY 2017 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. Therefore, in 
this final rule, for FY 2018, we are removing the temporary one-time 
prospective increase to the FY 2017 hospital-specific rates of 0.6 
percent or a factor of 1.006.

III. Changes to Payment Rates for Acute Care Hospital Inpatient 
Capital-Related Costs for FY 2018

    The PPS for acute care hospital inpatient capital-related costs 
was implemented for cost reporting periods beginning on or after 
October 1, 1991. Effective with that cost reporting period, over a 
10-year transition period (which extended through FY 2001) the 
payment methodology for Medicare acute care hospital inpatient 
capital-related costs changed from a reasonable cost-based 
methodology to a prospective methodology (based fully on the Federal 
rate).
    The basic methodology for determining Federal capital 
prospective rates is set forth in the regulations at 42 CFR 412.308 
through 412.352. Below we discuss the factors that we used to 
determine the capital Federal rate for FY 2018, which will be 
effective for discharges occurring on or after October 1, 2017.
    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 payments to hospitals located in 
Puerto Rico under the IPPS for acute care hospital inpatient 
capital-related costs. In the FY 2017 IPPS/LTCH PPS final rule (81 
FR 57061 through 57062), we revised Sec.  412.374 to add paragraph 
(e) to provide that, effective with discharges on or after October 
1, 2016, capital IPPS payments to hospitals located in Puerto Rico 
are based on 100 percent of the Federal rate.

A. Determination of the Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update for FY 2018

    In the discussion that follows, we explain the factors that we 
used to determine the capital Federal rate for FY 2018. In 
particular, we explain why the FY 2018 capital Federal rate will 
increase approximately 1.61 percent, compared to the FY 2017 capital 
Federal rate. As discussed in the impact analysis in Appendix A to 
this final rule, we estimate that capital payments per discharge 
will increase approximately 2.5 percent during that same period. 
Because capital payments constitute approximately 10 percent of 
hospital payments, a 1-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 change as appropriate each year for case-mix 
index-related changes, for intensity, and

[[Page 38533]]

for errors in previous CIPI forecasts. The update factor for FY 2018 
under that framework is 1.3 percent based on a projected 1.3 percent 
increase in the 2014-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 0.0 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 2018 CIPI projection in that 
same section of this Addendum. Below we describe the policy 
adjustments that we are applying in the update framework for FY 
2018.
    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 2018, 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 2018. 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, 
the net adjustment for case-mix change in FY 2018 is 0.0 percentage 
point.
    The capital update framework also contains an adjustment for the 
effects of DRG reclassification and recalibration. This adjustment 
is intended to remove the effect on total payments of prior year's 
changes to the DRG classifications and relative weights, in order to 
retain budget neutrality for all case-mix index-related changes 
other than those due to patient severity of illness. Due to the lag 
time in the availability of data, there is a 2-year lag in data used 
to determine the adjustment for the effects of DRG reclassification 
and recalibration. For example, we have data available to evaluate 
the effects of the FY 2016 DRG reclassification and recalibration as 
part of our update for FY 2018. We assume, for purposes of this 
adjustment, that the estimate of FY 2016 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 making a 0.0 percentage point adjustment for 
reclassification and recalibration in the update framework for FY 
2018.
    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 0.2 percentage 
point was calculated for the FY 2016 update, for which there are 
historical data. That is, current historical data indicate that the 
forecasted FY 2016 CIPI (1.3 percent) used in calculating the FY 
2016 update factor was 0.2 percentage points higher than actual 
realized price increases (1.1 percent). However, as this does not 
exceed the 0.25 percentage point threshold, we are not making an 
adjustment for forecast error in the update for FY 2018.
    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 changes 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 change is due to each of these factors. The 
capital update framework thus provides an add-on to the input price 
index rate of increase of one-half of the estimated annual increase 
in intensity, to allow for increases within DRG severity and the 
adoption of quality-enhancing technology.
    In this final rule, we are continuing to use a Medicare-specific 
intensity measure that is based on a 5-year adjusted average of cost 
per discharge for FY 2018 (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 2018, 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 2011 and 
extending through FY 2015. Based on these data, we estimated that 
case-mix constant intensity declined during FYs 2011 through 2015. 
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 
will decline during that 5-year period, we believe it is appropriate 
to continue to apply a zero intensity adjustment for FY 2018. 
Therefore, we are making a 0.0 percentage point adjustment for 
intensity in the update for FY 2018.
    Above, we described the basis of the components we used to 
develop the 1.3 percent capital update factor under the capital 
update framework for FY 2018 as shown in the following table.

          CMS FY 2018 Update Factor To The Capital Federal Rate
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Capital Input Price Index *......................................    1.3
Intensity:.......................................................    0.0
Case-Mix Adjustment Factors:
    Real Across DRG Change.......................................    0.5
    Projected Case-Mix Change....................................    0.5
                                                                  ------
    Subtotal.....................................................    1.3
    Effect of FY 2016 Reclassification and Recalibration.........    0.0
    Forecast Error Correction....................................    0.0
                                                                  ------
    Total Update.................................................    1.3
------------------------------------------------------------------------
* The capital input price index represents the 2014-based CIPI.

b. Comparison of CMS and MedPAC Update Recommendation

    In its March 2017 Report to Congress, MedPAC did not make a 
specific update recommendation for capital IPPS payments for FY 
2018. (We refer readers to MedPAC's Report to the Congress: Medicare 
Payment Policy, March 2017, Chapter 3, available on the Web site at: 
http://www.medpac.gov.)

2. Outlier Payment Adjustment Factor

    Section 412.312(c) establishes a unified outlier payment 
methodology for inpatient operating and inpatient capital-related 
costs. A single set of thresholds is used to identify outlier cases 
for both inpatient operating and inpatient capital-related payments. 
Section 412.308(c)(2) provides that the standard Federal rate for 
inpatient capital-related costs be reduced by an adjustment factor 
equal to

[[Page 38534]]

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 2017, we estimated that outlier payments for capital 
would equal 6.14 percent of inpatient capital-related payments based 
on the capital Federal rate in FY 2017. Based on the thresholds as 
set forth in section II.A. of this Addendum, we estimate that 
outlier payments for capital-related costs will equal 5.16 percent 
for inpatient capital-related payments based on the capital Federal 
rate in FY 2018. Therefore, we are applying an outlier adjustment 
factor of 0.9484 in determining the capital Federal rate for FY 
2018. Thus, we estimate that the percentage of capital outlier 
payments to total capital Federal rate payments for FY 2018 will be 
lower than the percentage for FY 2017.
    The outlier reduction factors are not built permanently into the 
capital rates; that is, they are not applied cumulatively in 
determining the capital Federal rate. The FY 2018 outlier adjustment 
of 0.9484 is a 1.04 percent change from the FY 2017 outlier 
adjustment of 0.9386. Therefore, the net change in the outlier 
adjustment to the capital Federal rate for FY 2018 is 1.0104(0.9484/
0.9386). Thus, the outlier adjustment will increase the FY 2018 
capital Federal rate by 1.04 percent compared to the FY 2017 outlier 
adjustment.

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

    Section 412.308(c)(4)(ii) requires that the capital Federal rate 
be adjusted so that aggregate payments for the fiscal year based on 
the capital Federal rate after any changes resulting from the annual 
DRG reclassification and recalibration and changes in the GAF are 
projected to equal aggregate payments that would have been made on 
the basis of the capital Federal rate without such changes. 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 national capital rate factors for FY 2018, we 
compared estimated aggregate capital Federal rate payments based on 
the FY 2017 MS-DRG classifications and relative weights and the FY 
2017 GAF to estimated aggregate capital Federal rate payments based 
on the FY 2017 MS-DRG classifications and relative weights and the 
FY 2018 GAFs. To achieve budget neutrality for the changes in the 
national GAFs, based on calculations using updated data, we applied 
an incremental budget neutrality adjustment factor of 0.9994 for FY 
2018 to the previous cumulative FY 2017 adjustment factor of 0.9850, 
yielding an adjustment factor of 0.9844 through FY 2018.
    We then compared estimated aggregate capital Federal rate 
payments based on the FY 2017 MS-DRG relative weights and the FY 
2018 GAFs to estimated aggregate capital Federal rate payments based 
on the cumulative effects of the FY 2018 MS-DRG classifications and 
relative weights and the FY 2018 GAFs. The incremental adjustment 
factor for DRG classifications and changes in relative weights is 
0.9993. The cumulative adjustment factor for MS-DRG classifications 
and changes in relative weights and for changes in the GAFs through 
FY 2018 is 0.9837. (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 cumulative adjustment factor of 0.9986 (the product of the 
incremental national GAF budget neutrality adjustment factor of 
0.9994 and the incremental DRG budget neutrality adjustment factor 
of 0.9993) accounts for the MS-DRG reclassifications and 
recalibration and for changes in the GAFs. It also incorporates the 
effects on the GAFs of FY 2018 geographic reclassification decisions 
made by the MGCRB compared to FY 2017 decisions. However, it does 
not account for changes in payments due to changes in the DSH and 
IME adjustment factors.
    As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
57062), we made an adjustment of (1/0.998) to the 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 was consistent with the adjustment to the 
operating IPPS standardized amount and the hospital-specific payment 
rates. In addition, consistent with the approach for the operating 
IPPS standardized amount and hospital-specific payment rates and for 
the reasons discussed in the FY 2017 IPPS/LTCH PPS final rule, we 
made a one-time prospective adjustment of 1.006 in FY 2017 to the 
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. Furthermore, as provided for in 
the FY 2017 IPPS/LTCH PPS final rule (81 FR 57294) we are removing 
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 for the operating IPPS standardized amount and 
hospital-specific payment rates (as discussed in section V.M. of the 
preamble of this final rule). We refer readers to sections V.M. and 
VI.C. of the preamble of this final rule for a complete discussion 
of these issues.

4. Capital Federal Rate for FY 2018

    For FY 2017, we established a capital Federal rate of $446.79 
(81 FR 68947 through 68949 (Correction Notice)). We are establishing 
an update of 1.61 percent in determining the FY 2018 capital Federal 
rate for all hospitals. As a result of this update, the budget 
neutrality factors discussed earlier, and the adjustment to remove 
the one-time 0.6 percent adjustment made in FY 2017 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, as finalized in 
the FY 2017 IPPS/LTCH PPS final rule (81 FR 57294), we are 
establishing a national capital Federal rate of $453.97 for FY 2018. 
The national capital Federal rate for FY 2018 was calculated as 
follows:
     The FY 2018 update factor is 1.0130; that is, the 
update is 1.3 percent.
     The FY 2018 budget neutrality adjustment factor that is 
applied to the capital Federal rate for changes in the MS-DRG 
classifications and relative weights and changes in the GAFs is 
0.9986.
     The FY 2018 outlier adjustment factor is 0.9484.
     The 2-midnight policy adjustment to remove the one-time 
0.6 percent adjustment is 1/1.006.

    (We note that, as discussed in section VI.C. of the preamble of 
this final rule, we are not making an additional MS-DRG 
documentation and coding adjustment to the capital IPPS Federal rate 
for FY 2018.)
    Because the FY 2018 capital Federal rate has already been 
adjusted for differences in case-mix, wages, cost-of-living, 
indirect medical education costs, and payments to hospitals serving 
a disproportionate share of low-income patients, we are not making 
additional adjustments in the capital Federal rate for these 
factors, other than the budget neutrality factor for changes in the 
MS-DRG classifications and relative weights and for changes in the 
GAFs.
    We are providing the following chart that shows how each of the 
factors and adjustments for FY 2018 affects the computation of the 
FY 2018 national capital Federal rate in comparison to the FY 2017 
national capital Federal rate as presented in the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 57291 through 57295) as corrected in the 
Correction Notice published October 5, 2016 (81 FR 68954). The FY 
2018 update factor has the effect of increasing the capital Federal 
rate by 1.3 percent compared to the FY 2017 capital Federal rate. 
The GAF/DRG budget neutrality adjustment factor has the effect of 
decreasing the capital Federal rate by 0.14 percent. The FY 2018 
outlier adjustment factor has the effect of increasing the capital 
Federal rate by 1.04 percent compared to the FY 2017 capital Federal 
rate. The removal of

[[Page 38535]]

the one-time 0.6 percent adjustment for FY 2017 relating to the 2-
midnight policy has the effect of decreasing the capital Federal 
rate by 0.60 percent. The combined effect of all the changes will 
increase the national capital Federal rate by approximately 1.61 
percent compared to the FY 2017 national capital Federal rate.

      Comparison of Factors and Adjustments: FY 2017 Capital Federal Rate and FY 2018 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                                   FY 2017         FY 2018         Change        Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\............................          1.0090          1.0130          1.0130               1.30
GAF/DRG Adjustment Factor \1\................          0.9990          0.9986          0.9986              -0.14
Outlier Adjustment Factor \2\................          0.9386          0.9484          1.0104               1.04
Removal of One-Time 2-Midnight Policy                  1.0060         1/1.006          0.9940              -0.60
 Adjustment Factor...........................
Capital Federal Rate.........................         $446.79         $453.97          1.0161           \3\ 1.61
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality adjustment factors are built permanently into the
  capital Federal rates. Thus, for example, the incremental change from FY 2017 to FY 2018 resulting from the
  application of the 0.9986 GAF/DRG budget neutrality adjustment factor for FY 2018 is a net change of 0.9986
  (or -0.14 percent).
\2\ The outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is
  not applied cumulatively in determining the capital Federal rate. Thus, for example, the net change resulting
  from the application of the FY 2018 outlier adjustment factor is 0.9484/0.9386 or 1.0104 (or 1.04 percent).
\3\ Percent change may not sum due to rounding.

    In this final rule, we also are providing the following chart 
that shows how the final FY 2018 capital Federal rate differs from 
the proposed FY 2018 capital Federal rate as presented in the FY 
2018 IPPS/LTCH PPS proposed rule (82 FR 20179 through 20182).

 Comparison of Factors and Adjustments: Proposed FY 2018 Capital Federal Rate and Final FY 2018 Capital Federal
                                                      Rate
----------------------------------------------------------------------------------------------------------------
                                                 Proposed FY
                                                    2018        Final FY 2018      Change        Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\............................          1.0120          1.0130          1.0010               0.10
GAF/DRG Adjustment Factor \1\................          0.9992          0.9986          0.9994              -0.06
Outlier Adjustment Factor \2\................          0.9434          0.9484          1.0053               0.53
Removal of One-Time 2-Midnight Policy                 1/1.006         1/1.006          0.0000              -0.00
 Adjustment Factor...........................
Capital Federal Rate.........................         $451.37         $453.97          1.0458               0.58
----------------------------------------------------------------------------------------------------------------

B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2018

    For purposes of calculating payments for each discharge during 
FY 2018, the capital Federal rate is adjusted as follows: (Standard 
Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals located 
in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME Adjustment 
Factor, if applicable). The result is the adjusted capital Federal 
rate.
    Hospitals also may receive outlier payments for those cases that 
qualify under the thresholds established for each fiscal year. 
Section 412.312(c) provides for a single set of thresholds to 
identify outlier cases for both inpatient operating and inpatient 
capital-related payments. The outlier thresholds for FY 2018 are in 
section II.A. of this Addendum. For FY 2018, a case would qualify as 
a cost outlier if the cost for the case plus the (operating) IME and 
DSH payments (including both the empirically justified Medicare DSH 
payment and the estimated uncompensated care payment, as discussed 
in section II.A.4.g.(1) of this Addendum) is greater than the 
prospective payment rate for the MS-DRG plus the fixed-loss amount 
of $26,601.
    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. For this FY 2018 IPPS/
LTCH PPS final rule, we are rebasing and revising the IPPS operating 
and capital market baskets to reflect a 2014 base year. For a 
complete discussion of this rebasing, we refer readers to section 
IV. of the preamble of this final rule.

2. Forecast of the CIPI for FY 2018

    Based on IGI, Inc.'s second quarter 2017 forecast, for this 
final rule, we are forecasting the 2014-based CIPI to increase 1.3 
percent in FY 2018. This reflects a projected 1.6 percent increase 
in vintage-weighted depreciation prices (building and fixed 
equipment, and movable equipment), and a projected 3.5 percent 
increase in other capital expense prices in FY 2018, partially 
offset by a projected 1.3 percent decline in vintage-weighted 
interest expense prices in FY 2018. The weighted average of these 
three factors produces the forecasted 1.3 percent increase for the 
2014-based CIPI in FY 2018.

IV. Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase 
Percentages for FY 2018

    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 specified in Sec.  
413.40(c)(3). In addition, in the

[[Page 38536]]

FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20029), we proposed that, 
for cost reporting periods beginning during FY 2018, the annual 
update to the target amount for long-term care neoplastic disease 
hospitals (hospitals described under Sec.  412.23(j); now Sec.  
412.22(i) in this final rule) also would be the rate-of-increase 
percentage specified in Sec.  413.0(c)(3). (We note that, in 
accordance with Sec.  403.752(a), religious nonmedical health care 
institutions (RNHCIs) are also subject to the rate-of-increase 
limits established under Sec.  413.40 of the regulations.)
    As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
20003 and 20004), the proposed FY 2018 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 2018, in accordance with 
applicable regulations at Sec.  413.40. Based on IGI's 2016 fourth 
quarter forecast, we estimated that the proposed 2014-based IPPS 
operating market basket update for FY 2018 was 2.9 percent (that is, 
the estimate of the market basket rate-of-increase). However, we 
proposed that if more recent data became available for the final 
rule, we would use them to calculate the IPPS operating market 
basket update for FY 2018. For this final rule, based on IGI's 2017 
second quarter forecast (which is the most recent available data), 
we estimated that the 2014-based IPPS operating market basket update 
for FY 2018 is 2.7 percent (that is, the estimate of the market 
basket rate-of-increase). Therefore, 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), as well as long-term care 
neoplastic disease hospitals, which will now be called extended 
neoplastic disease care hospitals as discussed in section VII. of 
the preamble to this final rule, and RNHCIs, the FY 2018 rate-of-
increase percentage that will be applied to the FY 2017 target 
amounts in order to determine the FY 2018 target amounts is 2.7 
percent.
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. 
We refer readers to section VIII. of the preamble of this final rule 
and section V. of the Addendum to this final rule for the update 
changes to the Federal payment rates for LTCHs under the LTCH PPS 
for FY 2018. The annual updates for the IRF PPS and the IPF PPS are 
issued by the agency in separate Federal Register documents.

V. Changes to the Payment Rates for the LTCH PPS for FY 2018

A. LTCH PPS Standard Federal Payment Rate for 2018

1. Overview

    In section VIII. of the preamble of this final rule, we discuss 
our annual updates to the payment rates, factors, and specific 
policies under the LTCH PPS for FY 2018.
    Under Sec.  412.523(c)(3)(ii) of the regulations, for LTCH PPS 
rate years beginning with RY 2004 through RY 2006, we updated the 
standard Federal payment 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 payment rate 
because, at that time, we believed that was the most appropriate 
method for updating the 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 payment 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 payment 
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 payment 
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 
payment 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 payment rate 
as set forth in the regulations at Sec. Sec.  412.523(c)(3)(iv) 
through (c)(3)(vii). For FYs 2012 through 2017, we updated the 
standard Federal payment rate by the most recent estimate of the 
LTCH PPS market basket at that time, including additional statutory 
adjustments required by sections 1886(m)(3)(A)(i) (citing sections 
1886(b)(3)(B)(xi)(II), 1886(m)(3)(A)(ii), and 1886(m)(4) of the Act 
as set forth in the regulations at Sec. Sec.  412.523(c)(3)(viii) 
through (c)(3)(xiii)).
    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 
payment rate shall be reduced:
     For rate year 2010 through 2019, by the other 
adjustment specified in section 1886(m)(3)(A)(ii) and (m)(4) of the 
Act; and
     For rate year 2012 and each subsequent year, by the 
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) 
of the Act (which we refer to as ``the multifactor productivity 
(MFP) adjustment'') as discussed in section VIII.E.2. of the 
preamble of this final rule.
    Section 1886(m)(3)(B) of the Act provides that the application 
of paragraph (3) of section 1886(m) of the Act may result in the 
annual update being less than zero for a rate year, and may result 
in payment rates for a rate year being less than such payment rates 
for the preceding rate year. (As noted in section VIII.C.2.b. of the 
preamble of this final rule, the annual update to the LTCH PPS 
occurs on October 1 and we have adopted the term ``fiscal year'' 
(FY) rather than ``rate year'' (RY) under the LTCH PPS beginning 
October 1, 2010. Therefore, for purposes of clarity, when discussing 
the annual update for the LTCH PPS, including the provisions of the 
Affordable Care Act, we use the term ``fiscal year'' rather than 
``rate year'' for 2011 and subsequent years.) Notwithstanding those 
provisions, however, section 411(e) of Public Law 114-10 (the MACRA) 
requires a 1 percent update in FY 2018.
    For FY 2017, 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 2.8 
percent and the 1.05 percentage point reductions required by 
sections 1886(m)(3)(A)(i) and 1886(m)(3)(A)(ii) with 1886(m)(4)(F) 
of the Act. Accordingly, at Sec.  412.523(c)(3)(xiii) of the 
regulations, we established an annual update of 1.75 percent to the 
standard Federal payment rate for FY 2017 (81 FR 57296 through 
57297). In addition, as discussed in that same final rule, the 
annual update for FY 2017 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.
    Section 411(e) of the MACRA amended section 1886(m)(3) of the 
Act by providing an additional special rule for FY 2018. 
Specifically, as amended, section 1886(m)(3)(C) of the Act requires 
that the annual update for FY 2018, after applications of the 
reductions for the MFP adjustment and the ``other adjustment'' 
(under section 1886(m)(3)(A)) is 1 percent. (For additional details, 
refer to section VIII.C.2. of the preamble of this final rule.) 
Accordingly, in this final rule, we are providing an annual update 
to the LTCH PPS standard Federal payment rate of 1 percent for FY 
2018 as required by section 411(e)(2) of the MACRA. For LTCHs that 
fail to submit the required quality reporting data for FY 2017 in 
accordance with the LTCH QRP, the annual update is reduced by 2.0 
percentage points as required by section 1886(m)(5) of the Act. 
Accordingly, we are providing an annual update to the LTCH PPS 
standard Federal payment rate of -1.0 percent for LTCHs that fail to 
submit the required quality reporting data for FY 2018 (that is, the 
full update of 1 percent and less 2.0 percentage points for failure 
to submit quality reporting data as required by section 1886(m)(5) 
of the Act).

2. Development of the FY 2018 LTCH PPS Standard Federal Payment Rate

    Consistent with our historical practice, for FY 2018, we are 
applying 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 2018, we also are making

[[Page 38537]]

certain regulatory adjustments, consistent with past practices. 
Specifically, in determining the FY 2018 LTCH PPS standard Federal 
payment rate, we applied a budget neutrality adjustment factor for 
the changes related to the area wage adjustment (that is, changes to 
the wage data and labor-related share) in accordance with Sec.  
412.523(d)(4) and a budget neutrality adjustment factor for the 
change to the SSO payment methodology (discussed in VIII.D. of the 
preamble of this final rule).
    For FY 2017, we established an annual update to the LTCH PPS 
standard Federal payment rate of 1.75 percent based on the full 
estimated LTCH PPS market basket increase of 2.8 percent, less the 
MFP adjustment of 0.3 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. 
Accordingly, at Sec.  412.523(c)(3)(xiii), we established an annual 
update to the LTCH PPS standard Federal payment rate for FY 2017 of 
1.75 percent. That is, we applied an update factor of 1.0175 to the 
FY 2016 Federal rate of $41,762.85 to determine the FY 2017 LTCH PPS 
standard Federal payment rate. We also applied an area wage level 
budget neutrality factor for FY 2017 of 0.999593 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 an LTCH 
PPS standard Federal payment rate for FY 2017 of $42,476.41 
(calculated as $41,762.85 x 1.0175 x 0.999593) (81 FR 57297).
    In this final rule, as required by statute, we are establishing 
an annual update to the LTCH PPS standard Federal payment rate of 1 
percent for FY 2018 (as described above). Accordingly, under Sec.  
412.523(c)(3)(xiii), we are applying a factor of 1.01 to the FY 2017 
LTCH PPS standard Federal payment rate of $42,476.41 to determine 
the FY 2018 LTCH PPS standard Federal payment rate. Also, under 
finalized Sec.  412.523(c)(3)(iv), in conjunction with the 
provisions of Sec.  412.523(c)(4), we are applying an annual update 
to the LTCH PPS standard Federal payment rate of -1.0 percent (that 
is, a update factor of 0.99) for FY 2018 for LTCHs that fail to 
submit the required quality reporting data for FY 2018 as required 
under the LTCH QRP. Consistent with Sec.  412.523(d)(4), we also are 
applying an area wage level budget neutrality factor to the FY 2018 
LTCH PPS standard Federal payment rate of 1.0006434, based on the 
best available data at this time, to ensure that any changes to the 
area wage level adjustment (that is, the annual update of the wage 
index values and labor-related share) would not result in any change 
(increase or decrease) in estimated aggregate LTCH PPS standard 
Federal rate payments. Finally, we are applying a budget neutrality 
adjustment of 0.9651 for our changes to the SSO payment methodology 
(discussed in VIII.D. of the preamble of this final rule). 
Accordingly, we are establishing an LTCH PPS standard Federal 
payment rate of $41,430.56 (calculated as $42,476.41 x 1.01 x 
1.0006434 x 0.9651) for FY 2018. For LTCHs that fail to submit 
quality reporting data for FY 2018, in accordance with the 
requirements of the LTCHQRP under section 1886(m)(5) of the Act, we 
are establishing an LTCH PPS standard Federal payment rate of 
$40,610.16 (calculated as $42,476.41 x 0.99 x 1.0006434 x 0.9651) 
for FY 2018.

B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 2018

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. 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: https://obamawhitehouse.archives.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. As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 
FR 56913 through 56914), OMB issued OMB Bulletin No. 15-01 on July 
15, 2015 to update and supersede Bulletin No. 13-10. Bulletin No. 
15-01 and its attachment provide detailed information on the update 
to statistical areas since the February 28, 2013 release of Bulletin 
No. 13-10 and 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://obamawhitehouse.archives.gov/sites/default/files/omb/bulletins/2015/15-01.pdf.
    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 (81 FR 57298). Therefore, we are continuing to use 
the CSBA-based labor market area delineations adopted under the LTCH 
PPS, effective October 1, 2017 (as adopted in the FY 2017 IPPS/LTCH 
PPS final rule (81 FR 57298)). Moreover, the FY 2018 LTCH PPS wage 
index values in Tables 12A and 12B listed in section VI. of the 
Addendum of this final rule (which are available via the Internet on 
the CMS Web site) reflect the revisions to the CBSA-based labor 
market

[[Page 38538]]

area delineations described above. We note that, as discussed in 
section III.A.2. of the preamble of this final rule, the revisions 
to the CBSA-based delineations also were adopted under the IPPS, 
effective beginning October 1, 2016.

3. 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 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 rebased and revised 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 rebased and revised the 2009-based 
LTCH-specific market basket to reflect a 2013 base year. In 
conjunction with that policy, as discussed in section VIII.C. of the 
preamble of this final rule, we are establishing that the LTCH PPS 
labor-related share for FY 2018 is the sum of the FY 2018 relative 
importance of each labor-related cost category in the 2013-based 
LTCH market basket using the most recent available data. 
Specifically, we are establishing that the labor-related share for 
FY 2018 includes the sum of the labor-related portion of operating 
costs from the 2013-based LTCH market basket (that is, the sum of 
the FY 2018 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 2013-based LTCH PPS market 
basket. Based on IGI's second quarter 2017 forecast of the 2013-
based LTCH market basket, we are establishing a labor-related share 
under the LTCH PPS for FY 2018 of 66.2 percent. This 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, as we proposed, we used more recent 
data available to determine the final FY 2018 labor-related share in 
this final rule.
    The labor-related share for FY 2018 is the sum of the FY 2018 
relative importance of each labor-related cost category, and 
reflects the different rates of price change for these cost 
categories between the base year (2013) and FY 2018. The sum of the 
relative importance for FY 2018 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 62.0 percent. 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 policies is 9.2 percent of the 2013-based LTCH market 
basket in FY 2018, we are taking 46 percent of 9.2 percent to 
determine the labor-related share of capital-related costs for FY 
2018 (0.46 x 9.2). The result is 4.2 percent, which we added to 62.0 
percent for the operating cost amount to determine the total labor-
related share for FY 2018. Therefore, the labor-related share under 
the LTCH PPS for FY 2018 is 66.2 percent.

4. Wage Index for FY 2018 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 2017 IPPS/LTCH PPS final rule (81 FR 57299 through 
57301), we calculated the FY 2017 LTCH PPS area wage index values 
using the same data used for the FY 2017 acute care hospital IPPS 
(that is, data from 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, as these were the 
most recent complete data available at that time. In that same final 
rule, we indicated that we computed the FY 2017 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, as discussed in the 
FY 2018 IPPS/LTCH PPS proposed rule, to determine the applicable 
area wage index values for the FY 2018 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, as we proposed, we used 
wage data collected from cost reports submitted by IPPS hospitals 
for cost reporting periods beginning during FY 2014, 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 FY 2018 acute care hospital inpatient 
wage index, as discussed in section III. of the preamble of this 
final rule. We computed the FY 2018 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 updates, as previously discussed in 
section V.B. of this Addendum) and our historical policy of not 
taking into account IPPS geographic reclassifications under sections 
1886(d)(8) and 1886(d)(10) of the Act in determining payments under 
the LTCH PPS. As we also proposed, we are continuing to apportion 
wage data for multicampus hospitals with campuses located in 
different labor market areas to each CBSA where the campus or 
campuses are located, consistent with the IPPS policy. Lastly, 
consistent with our existing methodology for determining the LTCH 
PPS wage index values, for FY 2018, we are continuing 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 
will 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 will 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 2014 IPPS wage data that we used to determine 
the FY 2018 LTCH PPS standard Federal payment rate area wage index 
values in this final 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 FY 2018 wage index value for CBSA 
25980 as the average of the wage index values for all of the other 
urban areas within the State of Georgia (that is, CBSAs 10500, 
12020, 12060, 12260, 15260, 16860, 17980, 19140, 23580, 31420, 
40660, 42340, 46660 and 47580), as shown in Table 12A, which is 
listed in section VI. of the Addendum to this final rule and 
available via the Internet on the CMS Web site). We note that, as 
IPPS wage data are dynamic, it is possible that urban areas without 
IPPS wage data will vary in the future.
    Based on the FY 2014 IPPS wage data that we used to determine 
the FY 2018 LTCH PPS standard Federal payment rate area wage index 
values in this final rule, there are no rural areas without IPPS 
hospital wage data. Therefore, it is not necessary to use our 
established methodology to calculate a LTCH PPS standard Federal 
payment rate wage index value for proposed rural areas with no IPPS 
wage data for FY 2018. 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 FY 2018 LTCH PPS standard Federal 
payment

[[Page 38539]]

rate wage index values that will be applicable for LTCH PPS standard 
Federal payment rate discharges occurring on or after October 1, 
2017, through September 30, 2018, are presented in Table 12A (for 
urban areas) and Table 12B (for rural areas), which are listed in 
section VI. of the Addendum of this final rule and available via the 
Internet on the CMS Web site.

5. Budget Neutrality Adjustment for Changes to the 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 final rule, for FY 2018 LTCH PPS standard Federal 
payment rate cases, in accordance with Sec.  412.523(d)(4), as we 
proposed, we applied 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 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, as we proposed in 
the FY 2018 IPPS/LTCH PPS proposed rule, we determined an area wage 
level adjustment budget neutrality factor that will be applied to 
the LTCH PPS standard Federal payment rate under Sec.  412.523(d)(4) 
for FY 2018 using the following methodology:
    Step 1--We simulated estimated aggregate LTCH PPS standard 
Federal payment rate payments using the FY 2017 wage index values 
and the FY 2017 labor-related share of 66.5 percent (as established 
in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57099 and 57100)).
    Step 2--We simulated estimated aggregate LTCH PPS standard 
Federal payment rate payments using the FY 2018 wage index values 
(as shown in Tables 12A and 12B listed in the Addendum to this final 
rule and available via the Internet on the CMS Web site) and the FY 
2018 labor-related share of 66.2 percent (based on the latest 
available data as previously discussed 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 
2017 area wage level adjustments (calculated in Step 1) by the 
estimated total LTCH PPS standard Federal payment rate payments 
using the FY 2018 area wage level adjustments (calculated in Step 2) 
to determine the area wage level adjustment budget neutrality factor 
for FY 2018 LTCH PPS standard Federal payment rate payments.
    Step 4--We then applied the FY 2018 area wage level adjustment 
budget neutrality factor from Step 3 to determine the FY 2018 LTCH 
PPS standard Federal payment rate after the application of the FY 
2018 annual update (discussed previously in section V.A. of this 
Addendum).
    We note that, with the exception of cases subject to the 
transitional blend payment rate provisions in the first 2 years and 
certain temporary exemptions for certain spinal cord specialty 
hospitals and certain severe wound cases, 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 had been 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 final rule, using the steps in the methodology 
previously described, we determined a FY 2018 LTCH PPS standard 
Federal payment rate area wage level adjustment budget neutrality 
factor of 1.0006434. Accordingly, in section V.A. of the Addendum to 
this final rule, to determine the FY 2018 LTCH PPS standard Federal 
payment rate, we applied an area wage level adjustment budget 
neutrality factor of 1.0006434, in accordance with Sec.  
412.523(d)(4). The FY 2018 LTCH PPS standard Federal payment rate 
shown in Table 1E of the Addendum to this final rule reflects this 
adjustment factor.

C. 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 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. Under our current policy, we update the COLA factors using 
the methodology described above every 4 years; the first year began 
in FY 2014. For FY 2014, we updated the COLA factors for Alaska and 
Hawaii published by OPM for 2009 using the methodology finalized in 
FY 2013. (For additional details on our current methodology for 
updating the COLA factors for Alaska and Hawaii, we refer readers to 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 through 53482).) 
As discussed in the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20186 
through 20187) and this final rule, 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.
    For FY 2018, we are continuing to update the COLA factors 
published by OPM for 2009 (as these are the last COLA factors OPM 
published prior to transitioning from COLAs to locality pay) using 
the methodology that we finalized in the FY 2013 IPPS/LTCH PPS final 
rule and implemented for the FY 2014 IPPS update. Specifically, we 
are updating the 2009 OPM COLA factors by a comparison of the growth 
in the Consumer Price Indices (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). 
Because BLS publishes CPI data for only Anchorage and Honolulu, 
using the methodology we finalized in the FY 2013 IPPS/LTCH PPS 
final rule, we use the comparison of the growth in the overall CPI 
relative to the growth in the CPI for those cities to update the 
COLA factors for all areas in Alaska and Hawaii, respectively. We 
believe that the relative price differences between these cities and 
the U.S. (as measured by the CPIs mentioned above) are appropriate 
proxies for the relative price differences between the ``other 
areas'' of Alaska and Hawaii and the United States.
    BLS publishes the CPI for All Items for Anchorage, Honolulu, and 
for the average U.S. city. However, consistent with our methodology 
finalized in the FY 2013 IPPS/LTCH PPS final rule, we are creating 
reweighted CPIs for each of the respective areas to reflect the 
underlying composition of the IPPS market basket nonlabor-related 
share. The current composition of the CPI for All Items for all of 
the respective areas is approximately 40 percent commodities and 60 
percent services. However, the IPPS

[[Page 38540]]

nonlabor-related share is comprised of a different mix of 
commodities and services. Therefore, we create reweighted indexes 
for Anchorage, Honolulu, and the average U.S. city using the 
respective CPI commodities index and CPI services index using the 
approximate 55 percent commodities/45 percent services shares 
obtained from the proposed 2014-based IPPS market basket. We create 
reweighted indexes using BLS data for 2009 through 2016--the most 
recent data available at the time of this rulemaking. In the FY 2014 
IPPS/LTCH PPS final rule (78 FR 50985 through 50987), we created 
reweighted indexes based on the FY 2010-based IPPS market basket 
(which was adopted for the FY 2014 update) and BLS data for 2009 
through 2012 (the most recent BLS data at the time of the FY 2014 
IPPS/LTCH PPS rulemaking).
    We continue to believe this methodology is appropriate because 
we continue to make a COLA for LTCHs located in Alaska and Hawaii by 
multiplying the nonlabor-related portion of the LTCH PPS standard 
Federal rate by a COLA factor. We note that OPM's COLA factors were 
calculated with a statutorily mandated cap of 25 percent. As stated 
in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50987), when 
developing the COLA update methodology we finalized in the FY 2013 
IPPS/LTCH PPS final rule, we exercised our discretionary authority 
to adjust payments to LTCHs in Alaska and Hawaii by incorporating 
this cap. In applying this finalized methodology for updating the 
COLA factors, our policy for FY 2018 continues to use a 25-percent 
cap, as our policy is based on OPM's COLA factors (updated by the 
methodology described earlier).
    Applying this methodology, the COLA factors that we are 
establishing for FY 2018 to adjust the nonlabor related portion of 
the LTCH PPS standard Federal rate for LTCHs located in Alaska and 
Hawaii are shown in the table below. For comparison purposes, we 
also are showing the FY 2013 COLA factors (which were based on OPM's 
published COLA factors for 2009) and the COLA factors for FYs 2014 
through 2017.
    Lastly, as we finalized in the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53700 and 53701), we are updating the COLA factors based on 
our methodology every 4 years, at the same time as the update to the 
labor-related share of the IPPS market basket.

             Cost-of-Living Adjustment Factors for Alaska and Hawaii Under the LTCH PPS for FY 2018
----------------------------------------------------------------------------------------------------------------
                                                                                FY 2014 through
                             Area                                  FY 2013          FY 2017           FY 2018
----------------------------------------------------------------------------------------------------------------
Alaska:
    City of Anchorage and 80-kilometer (50-mile) radius by               1.23               1.23            1.25
     road....................................................
    City of Fairbanks and 80-kilometer (50-mile) radius by               1.23               1.23            1.25
     road....................................................
    City of Juneau and 80-kilometer (50-mile) radius by road.            1.23               1.23            1.25
    Rest of Alaska...........................................            1.25               1.25            1.25
Hawaii:
    City and County of Honolulu..............................            1.25               1.25            1.25
    County of Hawaii.........................................            1.18               1.19            1.21
    County of Kauai..........................................            1.25               1.25            1.25
    County of Maui and County of Kalawao.....................            1.25               1.25            1.25
----------------------------------------------------------------------------------------------------------------

    We note that the reweighted CPI for Honolulu, HI grew faster 
than the reweighted CPI for the average U.S. city over the 2009 to 
2016 time period at 13.7 percent and 10.5 percent, respectively. As 
a result, for FY 2018, we calculated a COLA factor of 1.29 for the 
City and County of Honolulu, County of Kauai, and County of Maui and 
County of Kalawao. However, as stated earlier, we are applying our 
methodology as finalized in the FY 2013 IPPS/LTCH PPS final rule to 
incorporate a cap of 1.25 for these areas and thus proposed a COLA 
factor of 1.25 for the City and County of Honolulu, the County of 
Kauai, and the County of Maui and County of Kalawao. In addition, 
the proposed COLA factor we calculated for the County of Hawaii for 
FY 2018 is 1.21 compared to the FY 2013 COLA factor of 1.18. The 
COLA factors adopted in FY 2014 using this same methodology can be 
found in the table above.
    Similarly, the reweighted CPI for Anchorage, AK grew faster than 
the reweighted CPI for the average U.S. city over the 2009 to 2016 
time period, at 12.4 percent and 10.5 percent, respectively. As a 
result, for FY 2018, we calculated COLA factors for the City of 
Anchorage, City of Fairbanks, and City of Juneau to be 1.25 compared 
to the FY 2013 COLA factor of 1.23. For FY 2018, we calculated a 
COLA factor of 1.27 for the Rest of Alaska compared to the FY 2013 
COLA factor of 1.25. However, as stated above, we are applying our 
methodology as finalized in the FY 2013 IPPS/LTCH PPS final rule to 
incorporate a cap of 1.25 for the rest of Alaska.
    As stated above, the COLA factors adopted in the FY 2014 IPPS/
LTCH PPS final rule were based on the same methodology used to 
determine the FY 2018 COLA factors but utilizing BLS data from 2009 
through 2012 (the most recent data available at the time of the FY 
2014 rulemaking) rather than through 2016 (the most recent data 
available at the time of this rulemaking). As we noted in the 
proposed rule, compared to the FY 2014 COLA factors, the proposed FY 
2018 COLA factors are higher--with all areas either reaching or 
exceeding the cap of 1.25 except the County of Hawaii.
    We did not receive any public comments in response to our 
discussion of the proposed FY 2018 COLA factors in the FY 2018 IPPS/
LTCH PPS proposed rule. In this final rule, we are finalizing the 
COLA factors as proposed, effective for FY 2018.

D. 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 the 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 that 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

[[Page 38541]]

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 regulations for 
further details.) We note that, during the 2-year transitional 
period, the site neutral payment rate HCO budget neutrality factor 
did 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 also are 
currently 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). However, we stated in 
the FY 2018 IPPS/LTCH PPS proposed rule that if our proposed SSO 
payment method is finalized, CCRs would no longer be used to 
determine the payment adjustment for SSO cases. Therefore, as we are 
finalizing our proposed SSO payment methodology, this discussion 
will only apply to HCO and site neutral payment rate calculations in 
FY 2018.
    As noted earlier, in determining HCO, SSO payments prior to FY 
2018, 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 under 
the current policy, 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

    Consistent with our historical practice, we used the most recent 
data to determine the LTCH total CCR ceiling for FY 2018 in this 
final rule. Specifically, in this final rule, using our established 
methodology for determining the LTCH total CCR ceiling based on IPPS 
total CCR data from the March 2017 update of the Provider Specific 
File (PSF), which is the most recent data available, we are 
establishing an LTCH total CCR ceiling of 1.280 under the LTCH PPS 
for FY 2018 in accordance with Sec.  412.525(a)(4)(iv)(C)(2) for HCO 
cases under either payment rate and Sec.  412.522(c)(1)(ii) for the 
site neutral payment rate. (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)(2), the current 
SSO policy at Sec.  412.529(f)(4)(iii)(B), 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 final rule, using our established 
methodology for determining the LTCH statewide average CCRs, based 
on the most recent complete IPPS ``total CCR'' data from the March 
2017 update of the PSF, we are establishing LTCH PPS statewide 
average total CCRs for urban and rural hospitals that will be 
effective for discharges occurring on or after October 1, 2017, 
through September 30, 2018, in Table 8C listed in section VI. of the 
Addendum to this final rule (and available via the Internet on the 
CMS Web site). Consistent with our historical practice, as we 
proposed, we used more recent data to determine the LTCH PPS 
statewide average total CCRs for FY 2018 in this 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 has 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 that area as of March 
2017.
    Therefore, consistent with our existing methodology, we used the 
national average total CCR for rural IPPS hospitals for rural 
Connecticut in Table 8C. While Massachusetts also has rural areas, 
the statewide average CCR for rural areas in Massachusetts is based 
on one provider whose CCR is an atypical 1.222. Because this is much 
higher than the statewide urban average and furthermore implies 
costs exceeded charges, as with Connecticut, we used the national 
average total CCR for rural hospitals for hospitals located in rural 
Massachusetts. 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 continued 
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 used 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 SSO cases prior to FY 2018 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. However, under our changes to 
the SSO payment methodology discussed in section VIII.D. of

[[Page 38542]]

the preamble of this final rule, we removed estimated cost as a 
consideration for payment to SSO cases. As such, consistent with our 
changes to the SSO payment methodology, SSO payments are no longer 
be subject to reconciliation. Specifically, as we proposed, we are 
revising paragraph (f) of Sec.  412.529 to specify that SSO payments 
will be reconciled only for discharges occurring before October 1, 
2017.
    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).

3. High-Cost Outlier Payments for LTCH PPS Standard Federal Payment 
Rate Cases

a. Changes to High-Cost Outlier Payments for LTCH PPS Standard Federal 
Payment Rate Cases

    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). Furthermore, Sec.  412.523(d)(1) requires 
the LTCH PPS standard Federal payment rate be adjusted by a 
reduction factor of 8 percent, the estimated proportion of outlier 
payments under Sec.  412.525(a) payable to LTCH PPS standard Federal 
payment rate cases. Section 15004(b) of the 21st Century Cures Act 
(Pub. L. 114-255) amended section 1886(m) of the Act by adding new 
paragraph (7), which specifies certain treatment of HCO payments for 
fiscal years beginning on or after October 1, 2017 (FY 2018). 
Specifically, section 1886(m)(7)(A) of the Act requires, beginning 
in FY 2018, that the LTCH PPS standard Federal payment rate be 
reduced as if estimated HCO payments for standard Federal payment 
rate cases would be equal to 8 percent of estimated aggregate 
payments for standard Federal payment rate cases for a given year. 
In other words, section 1886(m)(7)(A) of the Act makes our existing 
regulatory budget neutrality requirement at Sec.  412.523(d)(1) for 
the 8 percent HCO target for standard Federal payment rate cases a 
statutory requirement beginning in FY 2018. In addition, section 
1886(m)(7)(B) of the Act requires, beginning in FY 2018, that the 
fixed-loss amount for HCO payments for LTCH PPS standard Federal 
payment rate cases be determined so that the estimated aggregate 
amount of HCO payments for such cases in a given year are equal to 
99.6875 percent of the 8 percent estimated aggregate payments for 
standard Federal payment rate cases (that is, 7.975 percent). In 
other words, sections 1886(m)(7)(A) and (7)(B) require that we 
adjust the standard Federal payment rate each year to ensure budget 
neutrality for HCO payments as if estimated aggregate HCO payments 
made for standard Federal payment rate discharges remain at 8 
percent, while the fixed-loss amount for the HCO payments is set 
each year so that the estimated aggregate HCO payments for standard 
Federal payment rate cases are 7.975 percent of estimated aggregate 
payments for standard Federal payment rate cases.
    More specifically, section 1886(m)(7)(A) of the Act stipulates 
that, for fiscal years beginning on or after October 1, 2017, the 
Secretary shall reduce the standard Federal payment rate as if the 
estimated aggregate amount of HCO payments for standard Federal 
payment rate discharges for each such fiscal year would be equal to 
8 percent of estimated aggregate payments for standard Federal 
payment rate discharges for each such fiscal year; while section 
1886(m)(7)(B) of the Act states that the Secretary shall set the 
fixed loss amount for HCO payments such that the estimated aggregate 
amount of HCO payments made for standard Federal payment rate 
discharges for fiscal years beginning on or after October 1, 2017, 
shall be equal to 99.6875 percent of 8 percent of estimated 
aggregate payments for standard Federal payment rate discharges for 
each such fiscal year. Furthermore, section 1886(m)(7)(C) of the Act 
requires that any reduction in payments resulting from the 
application of paragraph (B) shall not be taken into account in 
applying any budget neutrality provision. Finally, section 
1886(m)(7)(D) of the Act provides there will be no effect on HCO 
payments to site neutral payment rate cases by this certain 
treatment of HCO payments by requiring that this paragraph shall not 
apply with respect to the computation of the applicable site neutral 
payment rate under section 1886(m)(6) of the Act.
    To codify the treatment of HCO payments provided by section 
15004(b) of the 21st Century Cures Act (discussed earlier), as we 
proposed, we are revising Sec.  412.525(a) by redesignating 
paragraph (2) as paragraph (2)(i) and adding paragraph (2)(ii) which 
would specify that, for FY 2018 and subsequent years, the fixed-loss 
amount for LTCH discharges described under Sec.  412.522(a)(2) is 
determined such that the estimated proportion of outlier payments 
under Sec.  412.522(a) that are payable for such discharges is 
projected to be equal to 99.6875 percent of 8 percent. We also are 
making conforming changes to Sec.  412.523(d)(1) to specify that the 
provisions under Sec.  412.525(a)(2)(ii) will not affect the 
reduction factor of 8 percent that is applied to the LTCH PPS 
standard Federal payment rate under Sec.  412.523(d)(1).

b. Establishment of the Fixed-Loss Amount for LTCH PPS Standard Federal 
Payment Rate Cases for FY 2018

    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, 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. Historically, 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 2018 and subsequent fiscal years, as we 
proposed, we are continuing to use the same general approach as in 
previous years, but the applicable fixed-loss amount for LTCH PPS 
standard Federal payment rate cases will be estimated so that total 
HCO payments are 7.975 percent (that is, 99.6875 percent of 8 
percent) of projected total LTCH PPS payments for LTCH PPS standard 
Federal payment rate cases, consistent with section 1886(m)(7)(B) of 
the Act (as discussed above).
    In the FY 2018 IPS/LTCH PPS proposed rule (82 FR 20189), we 
proposed to continue to use our current methodology to calculate an 
applicable fixed-loss amount for LTCH PPS standard Federal payment 
rate cases for FY 2018 using the best available data that would 
maintain estimated HCO payments at the projected 7.975 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 that proposed rule).
    Specifically, based on the most recent complete LTCH data 
available at that time (that is, LTCH claims data from the December 
2016 update of the FY 2016 MedPAR file and CCRs from the December 
2016 update of the PSF), we determined that a proposed fixed-loss 
amount for LTCH PPS standard Federal payment rate cases for FY 2018 
of $30,081 would result in estimated outlier payments projected to 
be equal to 7.975 percent of estimated FY 2018 payments for such 
cases. Under this 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 $30,081). We also noted that 
the proposed fixed-loss amount for HCO cases paid under the LTCH PPS 
standard Federal payment rate in FY 2018 of $30,081 is notably 
higher than the FY 2017 fixed-loss amount for LTCH PPS standard 
Federal payment rate cases of $21,943, and

[[Page 38543]]

explained that the increase is largely attributable to rate-of-
change in the Medicare allowable charges on the claims data in the 
MedPAR file.
    Based on the most recent available data at the time of the 
proposed rule, we found that the current FY 2017 HCO threshold of 
$21,943 results in estimated HCO payments for LTCH PPS standard 
Federal payment rate cases of approximately 8.6 percent of the 
estimated total LTCH PPS payments in FY 2016, which exceeds the 8 
percent target by 0.6 percentage points. We also noted that 
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. 
Therefore, we did not propose 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 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 2018. We stated our continued 
belief 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 stated that 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. Furthermore, we invited 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.
    Comment: A few commenters expressed concern with the increase in 
the proposed FY 2018 fixed-loss amount for LTCH PPS standard Federal 
payment rate cases as compared to the current fixed-loss amount for 
such cases. Some of these commenters expressed general support for 
using the required target amount of 7.975 percent for HCO payments 
for LTCH PPS standard Federal payment rate cases. Some commenters 
stated that they are concerned about the potential instability in 
the fixed-loss amount from year to year and requested that CMS 
continue to be transparent about the possible causes for such large 
year-to-year changes in the fixed-loss amount and how much of this 
variability may be attributable to the new dual rate LTCH PPS 
payment. In addition to using the most recent LTCH claims data and 
CCRs, some commenters suggested we consider whether the new dual 
rate LTCH PPS payment structure warrants the use of other relevant 
data or a change in the inflation factor for projecting the costs of 
each case when determining the fixed-loss amount, but did not make 
any specific recommendations for other data or factors.
    Response: We understand the commenters' concern with the 
proposed increase to the fixed-loss amount for LTCH PPS standard 
Federal payment rate cases for FY 2018, and we appreciate the 
commenters' support for our proposed use of a HCO target amount of 
7.975 percent for LTCH PPS standard Federal payment rate cases. As 
we discussed in the proposed rule, based on the best available data 
at that time and using our historical methodology, we estimate that 
the current FY 2017 HCO fixed-loss amount of $21,943 results in 
estimated HCO payments for LTCH PPS standard Federal payment rate 
cases in excess of the FY 2017 target of 8 percent by 0.6 percentage 
points. Additionally, we note that we invited public comment 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 but 
received no specific suggestions from comments.
    As discussed in the proposed rule, fluctuations in the fixed-
loss amount have occurred previously under LTCH PPS, due, in part, 
to the changes in LTCH behavior in response to the changes in 
Medicare payments and the lack of data and information available to 
predict how those changes affect the estimate costs of LTCH cases. 
As was the case when there were fluctuations in the fixed-loss 
amount in the early years of the LTCH PPS, we expect annual changes 
to the fixed-loss amount to generally stabilize as experience is 
gained under the new dual rate LTCH PPS payment structure. We intend 
to continue to monitor annual changes in the HCO fixed-loss amount, 
including factors that drive any such changes. We appreciate the 
general feedback commenters' noted for potential improvements to the 
determination of the fixed-loss amount for LTCH PPS standard Federal 
payment rate cases, including the use of other relevant data or a 
change in the inflation factor for projecting the costs of each case 
when determining the fixed-loss amount. As we indicated in the 
proposed rule, 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. For these reasons we continue to maintain our historical 
methodology and thus believe it is necessary and appropriate to 
increase to the fixed-loss amount for LTCH PPS standard Federal 
payment rate cases for FY 2017 to maintain estimated HCO payments 
would equal 8 percent of estimated total LTCH PPS payments for such 
cases as required under Sec.  412.525(a). We note, as in greater 
detail discussed below, the fixed-loss amount for FY 2018 for LTCH 
PPS standard Federal payment rate cases we are establishing in this 
final rule, after consideration of public comments and based on the 
most recent LTCH claims data from the MedPAR file and the latest 
CCRs from the PSF, does result in a fixed-loss amount for such cases 
that is lower than the proposed fixed-loss amount. We also note that 
based on the most recent available data for this final rule 
(discussed below), the current FY 2017 HCO threshold of $21,943 
results in estimated HCO payments for LTCH PPS standard Federal 
payment rate cases which exceeds the FY 2017 target of 8 percent 
target by 0.1 percentage points. (We also note the change in our 
estimate of FY 2017 HCO payments between the proposed and final rule 
decreased from 8.6 percent to 8.1 percent, and this change is 
largely attributable to updates to CCRs from the December 2016 
update of the PSF to the March 2017 update of the PSF.)
    After consideration of the public comments we received, for the 
reasons discussed above, we are finalizing our proposal to continue 
to use the current LTCH PPS HCO payment methodology for LTCH PPS 
standard Federal payment rate cases for FY 2018 without 
modification, as we proposed. Therefore, in this final rule, for FY 
2018, we determined 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 fixed-loss amount for LTCH PPS standard Federal 
payment rate cases will continue to be determined so that estimated 
HCO payments will be projected to equal 7.975 percent of estimated 
total LTCH PPS standard Federal payment rate cases. Furthermore, in 
accordance with Sec.  412.523(d)(1), a budget neutrality factor will 
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 cases will be budget neutral. Below we 
present our calculation of the fixed-loss amount for LTCH PPS 
standard Federal payment rate cases for FY 2018, which, except for 
the statutory changes to the HCO target from 8 percent to 7.975 
percent, is consistent with the methodology used to establish the FY 
2017 LTCH PPS fixed-loss amount, as we proposed.
    In this final rule, we are continuing to use our current 
methodology to calculate an applicable fixed-loss amount for LTCH 
PPS standard Federal payment rate cases for FY 2018 using the best 
available data that will maintain estimated HCO payments at the 
projected 7.975 percent of total estimated LTCH PPS payments for 
LTCH PPS standard Federal payment rate cases (based on the payment 
rates and policies for these cases presented in this final rule). 
Specifically, based on the most recent available data available 
(that is, LTCH claims data from the March 2017 update of the FY 2016 
MedPAR file and CCRs from the March 2017 update of the PSF), we 
determined a fixed-loss amount for LTCH PPS standard Federal payment 
rate cases for FY 2018 results that

[[Page 38544]]

will result in estimated outlier payments of 7.975 percent of 
estimated FY 2018 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 establishing a fixed-loss amount of $27,382 for LTCH PPS 
standard Federal payment rate cases for FY 2018. Under our policy, 
we will 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 $27,382).
    We note that the fixed-loss amount for HCO cases paid under the 
LTCH PPS standard Federal payment rate in FY 2018 of $27,382 is 
somewhat lower than proposed FY 2018 fixed-loss amount of $30,081 
but notably higher than the FY 2017 fixed-loss amount for LTCH PPS 
standard Federal payment rate cases of $21,943. However, based on 
the most recent available data at the time of this final rule, we 
found that the current FY 2017 HCO threshold of $21,943 results in 
estimated HCO payments for LTCH PPS standard Federal payment rate 
cases of approximately 8.1 percent of the estimated total LTCH PPS 
payments in FY 2017, which exceeds the 8 percent target by 0.1 
percentage points. We continue to believe, as discussed in detail in 
the FY 2017 IPPS/LTCH PPS proposed rule (81 FR 25287), this increase 
is largely attributable to rate-of-change (that is, increase) in the 
Medicare allowable charges on the claims data in the MedPAR file. In 
addition, using the historic 8-percent target for projected 
aggregate outlier payments (absent the required changes under the 
21st Century Cures Act for comparison purposes), the HCO threshold 
would be $27,240, which represents a 24-percent increase from the 
final FY 2017 HCO threshold of $21,943. This increase is in line 
with the 34 percent increase in the HCO threshold between FY 2016 
and FY 2017, and is consistent with our expectation that annual 
changes to the fixed-loss amount to generally stabilize as 
experience is gained under the new dual rate LTCH PPS payment 
structure. For these reasons, we continue to believe it is necessary 
and appropriate to increase the fixed-loss amount for LTCH PPS 
standard Federal payment rate cases for FY 2018 to maintain 
estimated HCO payments that would equal to 7.975 percent of 
estimated total LTCH PPS payments for such cases as required under 
Sec.  412.525(a)(2)(ii).

c. Application of the High-Cost Outlier Policy to Short Stay Outlier 
(SSO) Cases

    Under our implementation of the dual rate LTCH PPS payment 
structure required by statute, in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20190), we proposed that LTCH PPS standard Federal 
payment rate cases (that is, LTCH discharges that meet the criteria 
for exclusion from the site neutral payment rate) would continue to 
be paid based on the LTCH PPS standard Federal payment rate, and 
would 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. (We noted that, under our change to the SSO 
policy discussed in section VIII.D. of this final rule, SSO cases 
would still be eligible to qualify for an HCO payment.) Therefore, 
for an SSO case in FY 2018, as proposed, we are establishing that 
the HCO payment will be 80 percent of the difference between the 
estimated cost of the case and the outlier threshold (the sum of the 
fixed-loss amount of $27,382 and the amount paid under the SSO 
policy as specified in Sec.  412.529).

4. 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 FR 49618 
through 49629). In the following discussion, we note that 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. For FY 2018, 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 2018. 
Specifically, for a given LTCH, those site neutral payment rate 
cases discharged in FY 2018 and in a cost reporting period that 
begins before October 1, 2017 continue to be paid under the blended 
payment rate. However, site neutral payment rate cases discharged in 
FY 2018 during the LTCH's cost reporting period beginning on or 
after October 1, 2017 will no longer be paid under the blended 
payment rate and instead will be paid the site neutral payment rate 
amount as determined under Sec.  412.522(c)(1). As such, for FY 2018 
discharges paid under the transitional payment method, the 
discussion below pertains only to the site neutral rate portion in 
Sec.  412.522(c)(3)(i)) of the blended payment rate (as well as to 
FY 2018 discharges paid the site neutral payment rate amount 
determined under Sec.  412.522(c)(1)).
    When we implemented the application of the site neutral payment 
rate in FY 2016, 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 projections regarding how LTCHs will 
likely respond to our implementation of policies resulting from the 
statutory payment changes. We again relied on these considerations 
and actuarial projections in FY 2017 because the historical claims 
data available in FY 2017 predated the LTCH PPS dual rate payment 
system. Similarly, for FY 2018, we continue to rely on these 
considerations and actuarial projections because, due to the rolling 
effective date of the site neutral payment policy, not all claims in 
FY 2016 were subject to the site neutral payment system.
    For both FY 2016 and FY 2017, 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. 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. (We note, in 
section I.J.1 of the Regulatory Impact in Appendix A of this final 
rule, we summarize and respond to a comment that references to this 
actuarial assumption.) 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 49617 through 49619 
and 81 FR 57305 through 57307). For those reasons, we stated that we 
believed that the most appropriate fixed-loss amount for site 
neutral payment rate cases for both FY 2016 and FY 2017 would be 
equal to the IPPS fixed-loss amount for that year. Therefore, we 
established the fixed-loss amount for site neutral payment rate 
cases as the FY 2016 and FY 2017 IPPS fixed-loss amounts, in FY 2016 
and FY 2017 respectively. In particular,

[[Page 38545]]

in FY 2017, we established that the fixed-loss amount for site 
neutral payment rate cases is the FY 2017 IPPS fixed-loss amount of 
$23,570.
    As noted earlier, because not all claims in the data used for 
this final rule were subject to the site neutral payment rate 
system, we continue to rely on the same considerations and actuarial 
projections used in FY 2016 and FY 2017 when developing a fixed-loss 
amount for site neutral payment rate cases for FY 2018. Because our 
actuaries continue to project that site neutral payment rate cases 
in FY 2018 will continue to mirror an IPPS case paid under the same 
MS-DRG, we continue to believe that it would be inappropriate 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. More specifically, as with FY 2016 and FY 2017, 
our actuaries project that the costs and resource use for FY 2018 
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 will 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. (Based on the most recent FY 2016 LTCH claims data, 
approximately 58 percent of LTCH cases would have been paid the LTCH 
PPS standard Federal payment rate and approximately 42 percent of 
LTCH cases would have been paid the site neutral payment rate if 
those rates had been in effect at that time for all LTCH discharges 
occurring in FY 2016, regardless of LTCHs' cost reporting period 
beginning dates.)
    For these reasons, we continue to believe that the most 
appropriate fixed-loss amount for site neutral payment rate cases 
for FY 2018 is the IPPS fixed-loss amount for FY 2018. Therefore, 
consistent with past practice, in the FY 2018 IPPS/LTCH PPS proposed 
rule (82 FR 20191), for FY 2018, we proposed 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 proposed a fixed-loss amount for site neutral payment 
rate cases of $26,713, which was the same proposed FY 2018 IPPS 
fixed-loss amount discussed in section II.A.4.g.(1) of the Addendum 
to the proposed rule. We continue to believe that this policy would 
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, for FY 2018, 
we proposed to 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 proposed site neutral 
payment rate payment and the proposed fixed-loss amount for site 
neutral payment rate cases of $26,713).
    Comment: Some commenters expressed support for our proposal to 
continue to use the FY 2017 IPPS fixed-loss amount and 5.1 percent 
HCO target for LTCH discharges paid at the site neutral payment rate 
in FY 2018.
    Response: We appreciate the commenters support for our proposal 
to continue to use the FY 2018 IPPS fixed-loss amount and 5.1 
percent HCO target for LTCH discharges paid at the site neutral 
payment rate in FY 2018. Given the current expectation that cases 
paid at the site neutral payment rate would likely be similar to 
IPPS cases assigned to the same MS-DRG, we continue to believe the 
most appropriate fixed-loss amount for site neutral payment rate 
cases is the IPPS fixed-loss amount for that fiscal year. As we 
indicated in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49619), to 
the extent experience under the revised LTCH PPS indicates site 
neutral payment rate cases differ sufficiently from these 
expectations, we agree it would be appropriate to revisit in future 
rulemaking the most appropriate fixed-loss amount used to determine 
HCO payments for site neutral payment rate cases. As we discuss in 
greater detail in section I.J.1., the Regulatory Impact Analysis, in 
Appendix A of this final rule, given the rolling nature of the start 
of the transition to the site neutral payment rate, many LTCH claims 
from FY 2016 were not subject to the site neutral payment rate at 
all as many LTCHs did not begin their FY 2016 cost reporting period 
until the fourth quarter of that fiscal year. In addition, all 
claims which were subject to the site neutral payment rate in FY 
2016 were paid under the blended payment rate which included a 
payment based on 50 percent of the LTCH PPS standard Federal payment 
rate. As such, FY 2016 claims may not yet reflect the expected 
change in cost and resources once the payment for site neutral 
payment rate cases is fully based on the site neutral payment rate.
    After consideration of public comments we received, we are 
finalizing without modification, our proposals to use the FY 2018 
IPPS fixed-loss amount and 5.1 percent HCO target for LTCH 
discharges paid at the site neutral payment rate in FY 2018. 
Therefore, for FY 2018, as we proposed, we are establishing 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 establishing a fixed-loss amount for 
site neutral payment rate cases of $26,601, which is the same FY 
2018 IPPS fixed-loss amount discussed in section II.A.4.g.(1). of 
the Addendum to this final 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 policy, for FY 2018, we will 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 fixed loss 
amount for site neutral payment rate cases of $26,601).
    In establishing a HCO policy for site neutral payment rate 
cases, we established a budget neutrality adjustment under Sec.  
412.522(c)(2)(i). We established this requirement because we 
believed, and continue to 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.
    To ensure that estimated HCO payments payable to site neutral 
payment rate cases in FY 2018 would not result in any increase in 
estimated aggregate FY 2018 LTCH PPS payments, under the budget 
neutrality requirement at Sec.  412.522(c)(2)(i), it is necessary to 
reduce site neutral payment rate payments (or the portion of the 
blended payment rate payment for FY 2018 discharges occurring in 
LTCH cost reporting periods beginning before October 1, 2017) by 5.1 
percent to account for the estimated additional HCO payments payable 
to those cases in FY 2018. In order to achieve this, for FY 2018, in 
general, as we proposed, we are continuing to use the policy adopted 
for FY 2017.
    As discussed earlier, consistent with the IPPS HCO payment 
threshold, we expect a fixed-loss threshold of $26,601 results in 
HCO payments for site neutral payment rate cases equal to 5.1 
percent of the site neutral payment rate payments that are based on 
the IPPS comparable per diem amount. As such, to ensure estimated 
HCO payments payable for site neutral payment rate cases in FY 2018 
would not result in any increase in estimated aggregate FY 2018 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 amount paid under Sec.  412.522(c)(1)(i) by 5.1 percent to 
account for the estimated additional HCO payments payable for site 
neutral payment rate cases in FY 2018. In order to achieve this, for 
FY 2018, we proposed 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 for those site neutral payment rate cases paid under Sec.  
412.522(c)(1)(i). We noted that, consistent with the policy adopted 
for FY 2017, under this proposed policy the HCO budget neutrality 
adjustment would not be applied to the HCO portion of the site 
neutral payment rate amount (80 FR 57309).
    Comment: As was the case in the FY 2016 and FY 2017 rulemaking 
cycle, commenters again objected to the proposed site neutral 
payment rate HCO budget neutrality adjustment, claiming that it 
results in savings to the Medicare program instead of being budget 
neutral. The commenters' primary objection was again based on their 
belief that, because the IPPS base rates used in the IPPS comparable 
per diem amount calculation of the site neutral payment rate include 
a budget neutrality adjustment for IPPS HCO payments (that is, a 5.1 
percent adjustment on the operating IPPS standardized amount), an 
``additional'' budget neutrality factor is not necessary and is, in 
fact, duplicative.
    Response: We continue to disagree with the commenters that a 
budget neutrality adjustment for site neutral payment rate HCO 
payments is inappropriate, unnecessary, or duplicative. As we 
discussed in response to

[[Page 38546]]

similar comments (81 FR 57308 through 57309 and 80 FR 49621 through 
49622), we have the authority to adopt the site neutral payment rate 
HCO policy in a budget neutral manner. More importantly, we continue 
to believe this budget neutrality adjustment is appropriate for 
reasons outlined in our response to the nearly identical comments in 
the FY 2017 IPPS/LTCH PPS final rule (81 FR 57308 through 57309) and 
our response to similar comments in the FY 2016 IPPS/LTCH PPS final 
rule (80 FR 49621 through 49622).
    After consideration of the public comments we received, we are 
finalizing our proposal to apply a budget neutrality adjustment for 
HCO payments made to site neutral payment rate cases. Therefore, to 
ensure that estimated HCO payments payable to site neutral payment 
rate cases in FY 2018 will not result any increase in estimated 
aggregate FY 2018 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 2018. In order to achieve this, for FY 2018, in 
this final rule, to, as proposed, we are applying 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 (without any applicable HCO payment).

E. Update to the IPPS Comparable/Equivalent Amounts To Reflect the 
Statutory Changes to the IPPS DSH Payment Adjustment Methodology

    In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50766), we 
established a policy to reflect the changes to the Medicare IPPS DSH 
payment adjustment methodology made 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 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 Medicare 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 2018, as discussed in greater detail in section V.G.3. of 
the preamble of this final rule, based on the most recent data 
available, our estimate of 75 percent of the amount that would 
otherwise have been paid as Medicare DSH payments (under the 
methodology outlined in section 1886(r)(2) of the Act) is adjusted 
to 58.01 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 available to make uncompensated 
care payments to eligible IPPS hospitals in FY 2018. In other words, 
the amount of the Medicare DSH payments that would have been made 
prior to the amendments made by the Affordable Care Act will be 
adjusted to 43.51 percent (the product of 75 percent and 58.01 
percent) and the resulting amount will be used to calculate the 
uncompensated care payments to eligible hospitals. As a result, for 
FY 2018, we project that the reduction in the amount of Medicare DSH 
payments pursuant to section 1886(r)(1) of the Act, along with the 
payments for uncompensated care under section 1886(r)(2) of the Act, 
will result in overall Medicare DSH payments of 68.51 percent of the 
amount of Medicare DSH payments that would otherwise have been made 
in the absence of the amendments made by the Affordable Care Act 
(that is, 25 percent + 43.51 percent = 68.51 percent).
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20192), for FY 
2018, we proposed to establish that the calculation of the ``IPPS 
comparable amount'' under Sec.  412.529 and the ``IPPS equivalent 
amount'' under Sec.  412.538 would include an applicable operating 
Medicare DSH payment amount that is equal to 68.51 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 proposed that if more recent data 
became available, if appropriate, we would use that data to 
determine this factor in the final rule.
    We did not receive any public comments on our proposal. In 
addition, there is no more recent data available that would affect 
the calculations in the proposed rule. Therefore, we are finalizing 
our proposal that the calculation of the ``IPPS comparable amount'' 
under Sec.  412.529 and the ``IPPS equivalent amount'' under Sec.  
412.538 would include an applicable operating Medicare DSH payment 
amount that is equal to 68.51 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.

F. Computing the Adjusted LTCH PPS Federal Prospective Payments for 
FY 2018

    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 
proposed LTCH PPS standard Federal payment rate is adjusted to 
account for differences in area wages by multiplying the proposed 
labor-related share of the LTCH PPS standard Federal payment rate 
for a case by the applicable LTCH PPS wage index (the FY 2018 values 
are shown in Tables 12A through 12B listed in section VI. of the 
Addendum of this final rule and are available via the Internet on 
the CMS Web site). The LTCH PPS standard Federal payment rate is 
also adjusted to account for the higher costs of LTCHs located in 
Alaska and Hawaii by the applicable COLA factors (the FY 2018 
factors are shown in the chart in section V.C. of this Addendum) in 
accordance with Sec.  412.525(b). In this final rule, we are 
establishing an LTCH PPS standard Federal payment rate for FY 2018 
of $41,430.56, as discussed in section V.A. of the Addendum to this 
final rule. We illustrate the methodology to adjust the LTCH PPS 
standard Federal payment rate for FY 2018 in the following example:

Example

    During FY 2018, 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 2018 LTCH PPS wage index 
value for CBSA 16974 is 1.0547 (obtained from Table 12A listed in 
section VI. of the Addendum of this final rule and available via the 
Internet on the CMS Web site). The Medicare patient case is 
classified into MS-LTC-DRG 189 (Pulmonary Edema & Respiratory 
Failure), which has a relative weight for FY 2018 of 0.9655 
(obtained from Table 11 listed in section VI. of the Addendum of 
this final rule and available via the Internet on the CMS Web site). 
The LTCH

[[Page 38547]]

submitted quality reporting data for FY 2018 in accordance with the 
LTCHQRP under section 1886(m)(5) of the Act.
    To calculate the LTCH's total adjusted Federal prospective 
payment for this Medicare patient case in FY 2018, we computed the 
wage-adjusted proposed Federal prospective payment amount by 
multiplying the unadjusted FY 2018 LTCH PPS standard Federal payment 
rate ($41,430.56) by the labor-related share (66.2 percent) and the 
wage index value (1.0547). This wage-adjusted amount was then added 
to the nonlabor-related portion of the unadjusted LTCH PPS standard 
Federal payment rate (33.8 percent; adjusted for cost of living, if 
applicable) to determine the adjusted LTCH PPS standard Federal 
payment rate, which is then multiplied by the MS-LTC-DRG relative 
weight (0.9655) to calculate the total adjusted LTCH PPS standard 
Federal prospective payment for FY 2018 ($41,449.71). The table 
below illustrates the components of the calculations in this 
example.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Unadjusted LTCH PPS Standard Federal Prospective              $41,430.56
 Payment Rate.......................................
Labor-Related Share.................................             x 0.662
Labor-Related Portion of the LTCH PPS Standard              = $27,427.03
 Federal Payment Rate...............................
Wage Index (CBSA 16974).............................            x 1.0547
Wage-Adjusted Labor Share of LTCH PPS Standard              = $28,927.29
 Federal Payment Rate...............................
Nonlabor-Related Portion of the LTCH PPS Standard           + $14,003.53
 Federal Payment Rate ($41,430.56 x 0.338)..........
Adjusted LTCH PPS Standard Federal Payment Amount...        = $42,930.82
MS-LTC-DRG 189 Relative Weight......................            x 0.9655
Total Adjusted LTCH PPS Standard Federal Prospective        = $41,449.71
 Payment............................................
------------------------------------------------------------------------

VI. Tables Referenced in This Final Rule and Available Only Through the 
Internet on the CMS Web site

    This section lists the tables referred to throughout the 
preamble of this final rule and in this Addendum. In the past, a 
majority of these tables were published in the Federal Register as 
part of the annual proposed and final rules. However, similar to FYs 
2012 through 2017, for the FY 2018 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 
final rule, we developed the following ICD-10-CM and ICD-10-PCS code 
tables for FY 2018: Table 6A.--New Diagnosis Codes; Table 6B.--New 
Procedure Codes; Table 6C.--Invalid Diagnosis Codes; Table 6D.--
Invalid Procedure Codes; Table 6E.--Revised Diagnosis Code Titles; 
Table 6F.--Revised Procedure Code Titles; Table 6G.1.--Secondary 
Diagnosis Order Additions to the CC Exclusion List; Table 6G.2.--
Principal Diagnosis Order Additions to the CC Exclusion List; Table 
6H.1.--Secondary Diagnosis Order Deletions to the CC Exclusion List; 
Table 6H.2.--Principal Diagnosis Order Deletions to the CC Exclusion 
List; Table 6I.--Complete MCC List; Table 6I.1.--Additions to the 
MCC List; Table 6J.--Complete CC List; Table 6I.2.--Deletions to the 
MCC List; Table 6J.1.--Additions to the CC List; Table 6J.2--
Deletions to the CC List; Table 6K.--Complete List of CC Exclusions; 
Table 6L.--Principal Diagnosis Is Its Own MCC List--FY 2018; Table 
6M.--Principal Diagnosis Is Its Own CC List--FY 2018; and Table 
6P.--ICD-10-CM and ICD-10-PCS Code Designations, MCE and MS-DRG 
Changes. Table 6P contains multiple tables, 6P.1a through 6P.4p, 
that include the ICD-10-CM and ICD-10-PCS code lists relating to 
specific MCE and MS-DRG 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 V.I. of the preamble of this final rule, we are not 
providing the hospital-level data as a table associated with this 
final rule. The hospital-level data for the FY 2018 HAC Reduction 
Program will be made publicly available once it has undergone the 
review and corrections process.
    Finally, Table 18 associated with this final rule contains the 
Factor 3 for purposes of determining the FY 2018 uncompensated care 
payment for all hospitals and identifies whether or not a hospital 
is projected to receive Medicare DSH payments and, therefore, 
eligible to receive the additional payment for uncompensated care 
for FY 2018. A hospital's Factor 3 determines the proportion of the 
aggregate amount available for uncompensated care payments that a 
Medicare DSH eligible hospital will receive under section 3133 of 
the Affordable Care Act.
    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 2018 final rule are 
available only through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left side of 
the screen titled, ``FY 2018 IPPS Final Rule Home Page'' or ``Acute 
Inpatient--Files for Download.''

Table 2.--Case-Mix Index and Wage Index Table by CCN--FY 2018
Table 3.--Wage Index Table by CBSA--FY 2018
Table 5.--List of Medicare Severity Diagnosis-Related Groups (MS-
DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean 
Length of Stay--FY 2018
Table 6A.--New Diagnosis Codes--FY 2018
Table 6B.--New Procedure Codes--FY 2018
Table 6C.--Invalid Diagnosis Codes--FY 2018
Table 6D.--Invalid Procedure Codes--FY 2018
Table 6E.--Revised Diagnosis Code Titles--FY 2018
Table 6F.--Revised Procedure Code Titles--FY 2018
Table 6G.1.--Secondary Diagnosis Order Additions to the CC 
Exclusions List--FY 2018
Table 6G.2.--Principal Diagnosis Order Additions to the CC 
Exclusions List--FY 2018
Table 6H.1.--Secondary Diagnosis Order Deletions to the CC 
Exclusions List--FY 2018
Table 6H.2.--Principal Diagnosis Order Deletions to the CC 
Exclusions List--FY 2018
Table 6I.--Complete MCC List--FY 2018
Table 6I.1.--Additions to the MCC List--FY 2018
Table 6I.2.--Deletions to the MCC List--FY 2018
Table 6J.--Complete CC List--FY 2018
Table 6J.1.--Additions to the CC List--FY 2018
Table 6J.2.--Deletions to the CC List--FY 2018
Table 6K.--Complete List of CC Exclusions--FY 2018
Table 6L.--Principal Diagnosis Is Its Own MCC List--FY 2018
Table 6M.--Principal Diagnosis Is Its Own CC List--FY 2018
Table 6P.--ICD-10-CM and ICD-10-PCS Code Designations, MCE and MS-
DRG Changes--FY 2018
Table 7A.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2016 MedPAR Update--March 2017 GROUPER V34.0 MS-
DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2016 MedPAR Update--March 2017 GROUPER V35.0 MS-
DRGs
Table 8A.--FY 2018 Statewide Average Operating Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B.--FY 2018 Statewide Average Capital Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals

[[Page 38548]]

Table 10.--New Technology Add-On Payment Thresholds for Applications 
for FY 2019
Table 15.--FY 2018 Readmissions Adjustment Factors
Table 16A.--Proxy Hospital Value-Based Purchasing (VBP) Program 
Adjustment Factors for FY 2018
Table 18.--FY 2018 Uncompensated Care Payment Factor 3

    The following LTCH PPS tables for this FY 2018 final rule are 
available only through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for 
Regulation Number CMS-1677-F:

Table 8C.--FY 2018 Statewide Average Total Cost-to-Charge Ratios 
(CCRs) for LTCHs (Urban and Rural)
Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average Length 
of Stay, and Short-Stay Outlier (SSO) Threshold for LTCH PPS 
Discharges Occurring from October 1, 2017 through September 30, 2018
Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges 
Occurring from October 1, 2017 through September 30, 2018
Table 12B.--LTCH PPS Wage Index for Rural Areas for Discharges 
Occurring from October 1, 2017 through September 30, 2018
Table 13A.--Composition of Low Volume Quintiles for MS-LTC-DRGs--FY 
2018
Table 13B.--No Volume MS LTC-DRG Crosswalk for FY 2018

                                       Table 1A--National Adjusted Operating Standardized Amounts, Labor/Nonlabor
                            [(68.3 percent labor share/31.7 percent nonlabor share if wage index is greater than 1)--FY 2018]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hospital submitted quality data and is   Hospital submitted quality data and  Hospital did NOT submit quality data  Hospital did NOT submit quality data
 a meaningful EHR user (update = 1.35   is NOT a meaningful EHR user (update  and is a meaningful EHR User (update    and is NOT a meaningful EHR user
               percent)                           = -0.675 percent)                     = 0.675 percent)                  (update = -1.35 percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
       Labor             Nonlabor             Labor             Nonlabor            Labor             Nonlabor            Labor             Nonlabor
--------------------------------------------------------------------------------------------------------------------------------------------------------
       $3,807.12           $1,766.99          $3,731.05          $1,731.69          $3,781.76          $1,755.22          $3,705.70          $1,719.92
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                       Table 1B--National Adjusted Operating Standardized Amounts, Labor/Nonlabor
                         [(62 percent labor share/38 percent nonlabor share if wage index is less than or equal to 1)--FY 2018]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hospital submitted quality data and is   Hospital submitted quality data and  Hospital did NOT submit quality data  Hospital did NOT submit quality data
 a meaningful EHR user (update = 1.35   is NOT a meaningful EHR user (update  and is a meaningful EHR User (update    and is NOT a meaningful EHR user
               percent)                           = -0.675 percent)                     = 0.675 percent)                  (update = -1.35 percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
       Labor             Nonlabor             Labor             Nonlabor            Labor             Nonlabor            Labor             Nonlabor
--------------------------------------------------------------------------------------------------------------------------------------------------------
       $3,455.95           $2,118.16          $3,386.90          $2,075.84          $3,432.93          $2,104.05          $3,363.88          $2,061.74
--------------------------------------------------------------------------------------------------------------------------------------------------------


         Table 1C--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
                                                      2018]
----------------------------------------------------------------------------------------------------------------
                                        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.......       $3,455.95       $2,118.16
----------------------------------------------------------------------------------------------------------------
1 For FY 2018, there are no CBSAs in Puerto Rico with a national wage index greater than 1.


             Table 1D--Capital Standard Federal Payment Rate
                                [FY 2018]
------------------------------------------------------------------------
                                                               Rate
------------------------------------------------------------------------
National...............................................         $453.97
------------------------------------------------------------------------


            Table 1E--LTCH PPS Standard Federal Payment Rate
                                [FY 2018]
------------------------------------------------------------------------
                                                               Reduced
                                                Full update  update * (-
                                                (1 percent)      1.0
                                                               percent)
------------------------------------------------------------------------
Standard Federal Rate.........................  $41,430.56   $40,610.16
------------------------------------------------------------------------
* For LTCHs that fail to submit quality reporting data for FY 2018 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 final rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 
30, 1993), Executive Order 13563 on Improving Regulation and 
Regulatory Review (January 18, 2011), the Regulatory Flexibility Act 
(RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the 
Social Security Act, section 202 of the Unfunded Mandates Reform Act 
of 1995 (March 22, 1995; Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), the Congressional Review Act (5 U.S.C. 
804(2), and Executive Order 13771 on Reducing Regulation and 
Controlling Regulatory Costs (January 30, 2017).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). 
Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a rule: 
(1) (Having

[[Page 38549]]

an annual effect on the economy of $100 million or more in any 1 
year, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the Executive 
Order.
    We have determined that this final rule is a major rule as 
defined in 5 U.S.C. 804(2). We estimate that the changes for FY 2018 
acute care hospital operating and capital payments will redistribute 
amounts in excess of $100 million to acute care hospitals. The 
applicable percentage increase to the IPPS rates required by the 
statute, in conjunction with other payment changes in this final 
rule, will result in an estimated $2.4 billion increase in FY 2018 
payments, including a $1.7 billion increase in FY 2018 operating 
payments, a $0.8 billion increase in uncompensated care payments, a 
$0.2 billion increase in FY 2018 capital payments, and a $0.3 
billion decrease in low volume payments. These changes are relative 
to payments made in FY 2017. The impact analysis of the capital 
payments can be found in section I.I. of this Appendix. In addition, 
as described in section I.J. of this Appendix, LTCHs are expected to 
experience a decrease in payments by $110 million in FY 2018 
relative to FY 2017.
    Our operating impact estimate includes the 0.4588 percent 
adjustment required under section 15005 of the 21st Century Cures 
Act (Pub. L. 114-255) applied to the IPPS standardized amount, as 
discussed in section II.D. of the preamble of this final rule. In 
addition, our operating payment impact estimate includes the 1.35 
percent hospital update to the standardized amount (which includes 
the estimated 2.7 percent market basket update less 0.6 percentage 
point for the multifactor productivity adjustment and less 0.75 
percentage point required under the Affordable Care Act). Our 
operating payment impact estimate also includes an adjustment factor 
of (1/1.006) to the FY 2018 rates to remove the 1.006 temporary one-
time adjustment made in FY 2017 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 V.M. of the 
preamble of this final rule for an explanation of this adjustment). 
The estimates of IPPS operating payments to acute care hospitals do 
not reflect any changes in hospital admissions or real case-mix 
intensity, which will also affect overall payment changes.
    The analysis in this Appendix, in conjunction with the remainder 
of this document, demonstrates that this final rule is consistent 
with the regulatory philosophy and principles identified in 
Executive Orders 12866 and 13563, the RFA, and section 1102(b) of 
the Act. This final rule will affect payments to a substantial 
number of small rural hospitals, as well as other classes of 
hospitals, and the effects on some hospitals may be significant. 
Finally, in accordance with the provisions of Executive Order 12866, 
the Executive Office of Management and Budget has reviewed this 
final rule.

B. Statement of Need

    This final rule is necessary in order to make payment and policy 
changes under the Medicare IPPS for Medicare acute care hospital 
inpatient services for operating and capital-related costs as well 
as for certain hospitals and hospital units excluded from the IPPS. 
This final rule also is necessary to make payment and policy changes 
for Medicare hospitals under the LTCH PPS.

C. Objectives of the IPPS and the LTCH PPS

    The primary objective of the IPPS and the LTCH PPS is to create 
incentives for hospitals to operate efficiently and minimize 
unnecessary costs while at the same time ensuring that payments are 
sufficient to adequately compensate hospitals for their legitimate 
costs in delivering necessary care to Medicare beneficiaries. In 
addition, we share national goals of preserving the Medicare 
Hospital Insurance Trust Fund.
    We believe that the changes in this final rule will further each 
of these goals while maintaining the financial viability of the 
hospital industry and ensuring access to high quality health care 
for Medicare beneficiaries. We expect that these changes will ensure 
that the outcomes of the prospective payment systems are reasonable 
and equitable while avoiding or minimizing unintended adverse 
consequences.
    Because this final rule contains a range of policies, we refer 
readers to the section of the final rule where each policy is 
discussed. These sections include the rational for our decisions, 
including the need for the policy.

D. Limitations of Our Analysis

    The following quantitative analysis presents the projected 
effects of our policy changes, as well as statutory changes 
effective for FY 2018, on various hospital groups. We estimate the 
effects of individual policy changes by estimating payments per case 
while holding all other payment policies constant. We use the best 
data available, but, generally, we do not attempt to make 
adjustments for future changes in such variables as admissions, 
lengths of stay, or case-mix. In addition, we discuss limitations of 
our analysis for specific policies in the discussion of those 
policies as needed.

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 July 2017, there were 3,292 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 1,387 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, extended neoplastic disease care 
hospitals, and 5 short-term acute care hospitals located in the 
Virgin Islands, Guam, the Northern Mariana Islands, and American 
Samoa. With the exception of the IPFQR provisions presented in 
section IX.D. of the preamble of this final rule, 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 final rule. The impact of the update and policy 
changes to the LTCH PPS for FY 2018 is discussed in section I.J. of 
this Appendix.

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

    As of July 2017, 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, 1 
extended neoplastic disease care hospital, 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, 276 rehabilitation hospitals and 864 rehabilitation 
units, and approximately 419 LTCHs, are paid the Federal prospective 
per discharge rate under the IRF PPS and the LTCH PPS, respectively, 
and 517 psychiatric hospitals and 1,104 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 
final 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, extended neoplastic disease care hospitals, and RNHCIs, the 
update of the rate-of-increase limit (or target amount) is the 
estimated FY 2018 percentage increase in the 2014-based IPPS 
operating market basket, consistent with section 1886(b)(3)(B)(ii) 
of the Act, and Sec. Sec.  403.752(a) and 413.40 of the regulations. 
As discussed in section IV. of the preamble of this final rule, we 
are rebasing and revising the IPPS operating market

[[Page 38550]]

basket to a 2014 base year. Therefore, we used the percentage 
increase in the 2014-based IPPS operating market basket to update 
the target amounts for FY 2018 and subsequent years for children's 
hospitals, the 11 cancer hospitals, the 5 short-term acute care 
hospitals located in the U.S. Virgin Islands, Guam, the Northern 
Mariana Islands, and American Samoa, extended neoplastic disease 
care hospitals, and RNHCs that are paid based on reasonable costs 
subjects to the rate-of-increase limits. Consistent with current 
law, based on IGI's 2017 second quarter forecast of the 2014-based 
IPPS market basket increase, we are estimating the FY 2018 update to 
be 2.7 percent (that is, the estimate of the market basket rate-of-
increase). We used the most recent data available for this final 
rule to calculate the IPPS operating market basket update for FY 
2018. However, the Affordable Care Act requires an adjustment for 
multifactor productivity (currently 0.6 percentage point for FY 
2018) and a 0.75 percentage point reduction to the market basket 
update, resulting in a 1.35 percent applicable percentage increase 
for IPPS hospitals that submit quality data and are meaningful EHR 
users, as discussed in section V.B. of the preamble of this final 
rule. Children's hospitals, the 11 cancer hospitals, the 5 short-
term acute care hospitals located in the Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa, extended neoplastic 
disease care hospitals, 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 2014-based 
IPPS operating market basket for FY 2018, estimated at 2.7 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 Policy Changes Under the IPPS for 
Operating Costs

1. Basis and Methodology of Estimates

    In this final rule, we are announcing policy changes and payment 
rate updates for the IPPS for FY 2018 for operating costs of acute 
care hospitals. The FY 2018 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 2018 operating payments will increase by 1.3 percent compared to 
FY 2017. In addition to the applicable percentage increase, this 
amount reflects the FY 2018 adjustment required under section 15005 
of the 21st Century Cures Act described in section II.D. of the 
preamble of this final rule of 0.4588 percent to the IPPS national 
standardized amounts. This amount also reflects the adjustment 
factor of (1/1.006) to remove the 1.006 temporary one-time 
adjustment made in FY 2017 to address the effects of the 0.2 percent 
reduction in effect for FYs 2014 through 2016 related to the 2-
midnight policy, which is discussed in section V.M. of the preamble 
of this final rule. The impacts do not reflect changes in the number 
of hospital admissions or real case-mix intensity, which will also 
affect overall payment changes. We have prepared separate impact 
analyses of the changes to each system. This section deals with the 
changes to the operating inpatient prospective payment system for 
acute care hospitals. Our payment simulation model relies on the 
most recent available data to enable us to estimate the impacts on 
payments per case of certain changes in this final rule. However, 
there are other changes for which we do not have data available that 
would allow us to estimate the payment impacts using this model. For 
those changes, we have attempted to predict the payment impacts 
based upon our experience and other more limited data.
    The data used in developing the quantitative analyses of changes 
in payments per case presented in this section are taken from the FY 
2016 MedPAR file and the most current Provider-Specific File (PSF) 
that is used for payment purposes. Although the analyses of the 
changes to the operating PPS do not incorporate cost data, data from 
the most recently available hospital cost reports were used to 
categorize hospitals. Our analysis has several qualifications. 
First, in this analysis, we do not make adjustments for future 
changes in such variables as admissions, lengths of stay, or 
underlying growth in real case-mix. Second, due to the 
interdependent nature of the IPPS payment components, it is very 
difficult to precisely quantify the impact associated with each 
change. Third, we use various data sources to categorize hospitals 
in the tables. In some cases, particularly the number of beds, there 
is a fair degree of variation in the data from the different 
sources. We have attempted to construct these variables with the 
best available source overall. However, for individual hospitals, 
some miscategorizations are possible.
    Using cases from the FY 2016 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 
impact of payments under the capital IPPS, and 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 2018 are discussed in section I.I. of this Appendix.
    We discuss the following changes:
     The effects of the application of the adjustment 
required under section 15005 of the 21st Century Cures Act and the 
applicable percentage increase (including the market basket update, 
the multifactor productivity adjustment, and the applicable 
percentage reduction in accordance with the Affordable Care Act) to 
the standardized amount and hospital-specific rates.
     The effects of the adjustment of (1/1.006) to remove 
the 1.006 temporary one-time adjustment made in FY 2017 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 V.M. of the preamble of this final rule.
     The effects of the changes to the relative weights and 
MS-DRG GROUPER.
     The effects of the changes in hospitals' wage index 
values reflecting updated wage data from hospitals' cost reporting 
periods beginning during FY 2014, compared to the FY 2013 wage data, 
to calculate the FY 2018 wage index.
     The effects of the geographic reclassifications by the 
MGCRB (as of publication of this final rule) that will be effective 
for FY 2018.
     The effects of the rural floor and imputed floor with 
the application of the national budget neutrality factor to the wage 
index.
     The effects of the frontier State wage index adjustment 
under the statutory provision that requires 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 effects of the expiration of the special payment 
status for MDHs at the end of FY 2017 under current law as a result 
of which MDHs that currently receive the higher of payments made 
based on the Federal rate or the payments made based on the Federal 
rate plus 75 percent of the difference between payments based on the 
Federal rate and the hospital-specific rate will be paid based on 
the Federal rate starting in FY 2018.
     The total estimated change in payments based on the FY 
2018 policies relative to payments based on FY 2017 policies that 
include the applicable percentage increase of 1.35 percent (or 2.7 
percent market basket update with a reduction of 0.6 percentage 
point for the multifactor productivity

[[Page 38551]]

adjustment, and a 0.75 percentage point reduction, as required under 
the Affordable Care Act).
    To illustrate the impact of the FY 2018 changes, our analysis 
begins with a FY 2017 baseline simulation model using: The FY 2017 
applicable percentage increase of 1.65 percent and the documentation 
and coding adjustment of -1.5 percent to the Federal standardized 
amount; the adjustment of (1/0.998) to permanently 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 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; the FY 2017 MS-DRG GROUPER 
(Version 34); the FY 2017 CBSA designations for hospitals based on 
the OMB definitions from the 2010 Census; the FY 2017 wage index; 
and no MGCRB reclassifications. Outlier payments are set at 5.1 
percent of total operating MS-DRG and outlier payments for modeling 
purposes.
    Section 1886(b)(3)(B)(viii) of the Act, as added by section 
5001(a) of Public Law 109-171, as amended by section 4102(b)(1)(A) 
of the ARRA (Pub. L. 111-5) and by section 3401(a)(2) of the 
Affordable Care Act (Pub. L. 111-148), provides that, for FY 2007 
and each subsequent year through FY 2014, the update factor will 
include a reduction of 2.0 percentage points for any subsection (d) 
hospital that does not submit data on measures in a form and manner 
and at a time specified by the Secretary. Beginning in FY 2015, the 
reduction is one-quarter of such applicable percentage increase 
determined without regard to section 1886(b)(3)(B)(ix), (xi), or 
(xii) of the Act, or one-quarter of the market basket update. 
Therefore, for FY 2018, hospitals that do not submit quality 
information under rules established by the Secretary and that are 
meaningful EHR users under section 1886(b)(3)(B)(ix) of the Act will 
receive an applicable percentage increase of 0.675 percent. At the 
time that this impact was prepared, 82 hospitals are estimated to 
not receive the full market basket rate-of-increase for FY 2018 
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 payment 
changes for FY 2018 using a reduced update for these hospitals.
    For FY 2018, in accordance with section 1886(b)(3)(B)(ix) of the 
Act, a hospital that has been identified as not a meaningful EHR 
user will 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 
2018, hospitals that are identified as not meaningful EHR users and 
do submit quality information under section 1886(b)(3)(B)(viii) of 
the Act will receive an applicable percentage increase of -0.675 
percent. At the time that this impact analysis was prepared, 103 
hospitals are estimated to not receive the full market basket rate-
of-increase for FY 2018 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 payment changes 
for FY 2018 using a reduced update for these 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 will receive an 
applicable percentage increase of -1.35 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, 21 hospitals are estimated 
to not receive the full market basket rate-of-increase for FY 2018 
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 policy change, statutory or otherwise, is then added 
incrementally to this baseline, finally arriving at an FY 2018 model 
incorporating all of the changes. This simulation allows us to 
isolate the effects of each change.
    Our final comparison illustrates the percent change in payments 
per case from FY 2017 to FY 2018. Two factors not discussed 
separately have significant impacts here. The first factor is the 
update to the standardized amount. In accordance with section 
1886(b)(3)(B)(i) of the Act, we are updating the standardized 
amounts for FY 2018 using an applicable percentage increase of 1.35 
percent. This includes our forecasted IPPS operating hospital market 
basket increase of 2.7 percent with a 0.6 percentage point reduction 
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 will receive an update of 0.675 
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 will receive an update of -0.675 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 
will receive an update of -1.35 percent. Under section 
1886(b)(3)(B)(iv) of the Act, the update to the hospital-specific 
amounts for SCHs is also equal to the applicable percentage 
increase, or 1.35 percent if the hospital submits quality data and 
is a meaningful EHR user.
    A second significant factor that affects the changes in 
hospitals' payments per case from FY 2017 to FY 2018 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 2017 that are no longer reclassified in FY 2018. 
Conversely, payments may increase for hospitals not reclassified in 
FY 2017 that are reclassified in FY 2018.

2. Analysis of Table I

    Table I displays the results of our analysis of the changes for 
FY 2018. 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 3,292 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 2,492 
hospitals located in urban areas included in our analysis. Among 
these, there are 1,340 hospitals located in large urban areas 
(populations over 1 million), and 1,152 hospitals in other urban 
areas (populations of 1 million or fewer). In addition, there are 
800 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 2018 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 2,373, 
1,354, 1,019, and 919, respectively.
    The next three groupings examine the impacts of the changes on 
hospitals grouped by whether or not they have GME residency programs 
(teaching hospitals that receive an IME adjustment) or receive 
Medicare DSH payments, or some combination of these two adjustments. 
There are 2,204 nonteaching hospitals in our analysis, 839 teaching 
hospitals with fewer than 100 residents, and 249 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 changes on rural 
hospitals by special payment groups (SCHs, and RRCs). There were 263 
RRCs, 316 SCHs, and 131 hospitals that are both SCHs 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 2015 or FY 
2014 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 2018. The second grouping 
shows the MGCRB rural reclassifications.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

a. Effects of the Hospital Update, Adjustment Required Under Section 
15005 of the 21st Century Cures Act, and Other Adjustments (Column 1)

    As discussed in section V.B. of the preamble of this final rule, 
this column includes the hospital update, including the 2.7 percent 
market basket update, the reduction of 0.6 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 final rule, 
this column includes the FY 2018 adjustment of 0.4588 percent on the 
national standardized amount required under section 15005 of the 
21st Century Cures Act and, as discussed in section V.M. of the 
preamble of this final rule, the adjustment factor of (1/1.006) to 
remove the 1.006 temporary one-time adjustment made in FY 2017 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 making a 1.2 percent update to the national standardized amount. 
This column also includes the update to the hospital-specific rates 
which includes the 2.7 percent market basket update, the reduction 
of 0.6 percentage point for the multifactor productivity adjustment, 
and the 0.75 percentage point reduction in accordance with the 
Affordable Care Act and, as discussed in section V.M. of the 
preamble of this final rule, the adjustment factor of (1/1.006) to 
remove the 1.006 temporary one-time adjustment made in FY 2017 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 making a 0.75 percent update to the hospital-specific rates.
    Overall, hospitals will experience a 1.2 percent increase in 
payments primarily due to the combined effects of the hospital 
update and the 0.4588 percent adjustment on the national 
standardized amount and the hospital update to the hospital-specific 
rate as well as the adjustment factor of (1/1.006) to remove the 
1.006 temporary one-time adjustment made in FY 2017 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 will experience a 0.75 
percent increase in payments; therefore, hospital categories 
containing hospitals paid under the hospital-specific rate will 
experience a lower than average increase in payments.

b. Effects of the Changes to the MS-DRG Reclassifications and Relative 
Cost-Based Weights With Recalibration Budget Neutrality (Column 2)

    Column 2 shows the effects of the changes to the MS-DRGs and 
relative weights with the application of the recalibration budget 
neutrality factor to the standardized amounts. Section 
1886(d)(4)(C)(i) of the Act requires us annually to make appropriate 
classification changes in order to reflect changes in treatment 
patterns, technology, and any other factors that may change the 
relative use of hospital resources. Consistent with section 
1886(d)(4)(C)(iii) of the Act, we calculated a recalibration budget 
neutrality factor to account for the changes in MS-DRGs and relative 
weights to ensure that the overall payment impact is budget neutral.
    As discussed in section II.E. of the preamble of this final 
rule, the FY 2018 MS-DRG relative weights will be 100 percent cost-
based and 100 percent MS-DRGs. For FY 2018, the MS-DRGs are 
calculated using the FY 2016 MedPAR data grouped to the Version 35 
(FY 2018) 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 final rule.
    The ``All Hospitals'' line in Column 2 indicates that changes 
due to the MS-DRGs and relative weights will result in a 0.0 percent 
change in payments with the application of the recalibration budget 
neutrality factor of 0.997432 to the standardized amount. Hospital 
categories that generally treat more surgical cases than medical 
cases will experience a decrease in their payments under the 
relative weights for reasons that include the policies regarding 
operating room procedures described in section II.G. of the preamble 
of this final rule. Rural hospitals will experience a 0.2 percent 
increase in payments in part because rural hospitals tend to treat 
fewer surgical cases than medical cases, while teaching hospitals 
with more than 100 residents will experience a -0.2 percent decrease 
in payments in part because those hospitals treat more surgical 
cases than medical cases.

c. Effects of the Wage Index Changes (Column 3)

    Column 3 shows the impact of updated wage data using FY 2014 
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 2018 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), as updated in OMB 
Bulletin No. 15-01. (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, and to section III.A.2. of the preamble of the FY 2017 
IPPS/LTCH PPS final rule (81 FR 56913) for a discussion of our 
adoption of the CBSA updates in OMB Bulletin No. 15-01, which were 
effective beginning with the FY 2017 wage index.)
    Section 1886(d)(3)(E) of the Act requires that, beginning 
October 1, 1993, we annually update the wage data used to calculate 
the wage index. In accordance with this requirement, the wage index 
for acute care hospitals for FY 2018 is based on data submitted for 
hospital cost reporting periods beginning on or after October 1, 
2013 and before October 1, 2014. The estimated impact of the updated 
wage data using the FY 2014 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 2017 wage index, based 
on FY 2013 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 2018 pre-
reclassification wage index based on FY 2014 wage data with the 
labor-related share of 68.3 percent, under the OMB delineations, 
also having a 100-percent occupational mix adjustment applied, while 
holding other payment parameters such as use of the Version 35 MS-
DRG GROUPER constant. The FY 2018 occupational mix adjustment is 
based on the CY 2013 occupational mix survey.
    In addition, the column shows the impact of the application of 
the wage budget neutrality to the national standardized amount. In 
FY 2010, we began calculating separate wage budget neutrality and 
recalibration budget neutrality factors, in accordance with section 
1886(d)(3)(E) of the Act, which specifies that budget neutrality to 
account for wage index changes or updates made under that 
subparagraph must be made without regard to the 62 percent labor-
related share guaranteed under section 1886(d)(3)(E)(ii) of the Act. 
Therefore, for FY 2018, we calculated the wage budget neutrality 
factor to ensure that payments under updated wage data and the 
labor-related share of 68.3 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 FY 2018 wage budget neutrality factor is 
1.001148, and the overall payment change is 0.0 percent.
    Column 3 shows the impacts of updating the wage data using FY 
2014 cost reports. Overall, the new wage data and the labor-related 
share, combined with the wage budget neutrality adjustment, will 
lead to no change for all hospitals as shown in Column 3.
    In looking at the wage data itself, the national average hourly 
wage will increase 1.02 percent compared to FY 2017. Therefore, the 
only manner in which to maintain or exceed the previous year's wage 
index was to match or exceed the 1.02 percent increase in the 
national average hourly wage. Of the 3,298 hospitals with wage data 
for both FYs 2017 and 2018, 1,612 or 51.1 percent will experience an 
average hourly wage increase of 1.02 percent or more.
    The following chart compares the shifts in wage index values for 
hospitals due to changes in the average hourly wage data for FY 2018 
relative to FY 2017. Among urban hospitals, 4 will experience a 
decrease of 10 percent or more, and 4 urban hospitals will

[[Page 38556]]

experience an increase of 10 percent or more. Ninety-nine urban 
hospitals will experience an increase or decrease of at least 5 
percent or more but less than 10 percent. Among rural hospitals, 
none will experience an increase of at least 5 percent or more, but 
2 rural hospitals will experience a decrease of greater than or 
equal to 5 percent but less than 10 percent. Three rural hospitals 
will experience decreases of 10 percent or more. However, 787 rural 
hospitals will experience increases or decreases of less than 5 
percent, while 2,390 urban hospitals will experience increases or 
decreases of less than 5 percent. Nine urban hospitals and no rural 
hospitals experience no change to their wage index. These figures 
reflect changes in the ``pre-reclassified, occupational mix-adjusted 
wage index,'' that is, the wage index before the application of 
geographic reclassification, the rural and imputed floors, the out-
migration adjustment, and other wage index exceptions and 
adjustments. (We refer readers to sections III.G. through III.L. of 
the preamble of this final rule for a complete discussion of the 
exceptions and adjustments to the wage index.) We note that the 
``post-reclassified wage index'' or ``payment wage index,'' which is 
the wage index that includes all such exceptions and adjustments (as 
reflected in Tables 2 and 3 associated with this final rule, which 
are available via the Internet on the CMS Web site) is used to 
adjust the labor-related share of a hospital's standardized amount, 
either 68.3 percent or 62 percent, depending upon whether a 
hospital's wage index is greater than 1.0 or less than or equal to 
1.0. Therefore, the pre-reclassified wage index figures in the 
following chart may illustrate a somewhat larger or smaller change 
than will occur in a hospital's payment wage index and total 
payment.
    The following chart shows the projected impact of changes in the 
area wage index values for urban and rural hospitals.

------------------------------------------------------------------------
                                                Number of hospitals
 FY 2018 percentage change in area wage  -------------------------------
              index values                     Urban           Rural
------------------------------------------------------------------------
Increase 10 percent or more.............               4               0
Increase greater than or equal to 5                   50               0
 percent and less than 10 percent.......
Increase or decrease less than 5 percent           2,390             787
Decrease greater than or equal to 5                   49               2
 percent and less than 10 percent.......
Decrease 10 percent or more.............               4               3
Unchanged...............................               9               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 changes in Column 4 reflect the per 
case payment impact of moving from this baseline to a simulation 
incorporating the MGCRB decisions for FY 2018.
    By spring of each year, the MGCRB makes reclassification 
determinations that will be effective for the next fiscal year, 
which begins on October 1. The MGCRB may approve a hospital's 
reclassification request for the purpose of using another area's 
wage index value. Hospitals may appeal denials of MGCRB decisions to 
the CMS Administrator. Further, hospitals have 45 days from the date 
the IPPS proposed rule is issued in the Federal Register to decide 
whether to withdraw or terminate an approved geographic 
reclassification for the following year (we refer readers to the 
discussion of our clarification of this policy in section III.I.2. 
of the preamble to this final rule).
    The overall effect of geographic reclassification is required by 
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, 
for purposes of this impact analysis, we are applying an adjustment 
of 0.988008 to ensure that the effects of the reclassifications 
under section 1886(d)(10) of the Act are budget neutral (section 
II.A. of the Addendum to this final rule). Geographic 
reclassification generally benefits hospitals in rural areas. We 
estimate that the geographic reclassification will increase payments 
to rural hospitals by an average of 1.4 percent. By region, all the 
rural hospital categories will experience increases in payments due 
to MGCRB reclassifications.
    Table 2 listed in section VI. of the Addendum to this final rule 
and available via the Internet on the CMS Web site reflects the 
reclassifications for FY 2018.

e. Effects of the 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, and 2017 IPPS/LTCH PPS final 
rules, and this FY 2018 final rule, section 4410 of Pub. L. 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 and FY 2017, we extended 
the imputed floor for 1 year, as calculated under the original 
methodology and the alternative methodology, through September 30, 
2016 and September 30, 2017, respectively. For FY 2018, we are 
extending the imputed rural floor for 1 year, as calculated under 
the original methodology and the alternative methodology, through 
September 30, 2018. As a result, New Jersey, Rhode Island, and 
Delaware will be able to receive an imputed floor through September 
30, 2018. In New Jersey, 17 out of 64 hospitals will receive the 
imputed floor for FY 2018, 10 out of 11 hospitals in Rhode Island, 
and 6 out of 6 hospitals in Delaware.
    The Affordable Care Act requires that we apply one rural floor 
budget neutrality factor to the wage index nationally, and we 
include the imputed floor in the calculation of this budget 
neutrality factor. We have calculated an FY 2018 rural floor and 
imputed floor budget neutrality factor to be applied to the wage 
index of 0.993348, which reduces wage indexes by 0.67 percent.
    Column 5 shows the projected impact of the rural floor and 
imputed floor with the national rural floor and imputed floor budget 
neutrality factor applied to the wage index based on the OMB labor 
market area delineations. The column compares the post-
reclassification FY 2018 wage index of providers before the rural 
floor and imputed floor adjustment and the post-reclassification FY 
2018 wage index of providers with the 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) will experience a decrease in payments due 
to the budget neutrality adjustment that is applied nationally to 
their wage index.
    We estimate that 400 hospitals will receive the rural and 
imputed floors in FY 2018. All IPPS hospitals in our model will have 
their wage index reduced by the rural floor budget neutrality 
adjustment of 0.993348. We project that, in aggregate, rural 
hospitals will experience a 0.67 percent decrease in payments as a 
result of the application of the rural floor budget neutrality 
because the rural hospitals do not benefit from the rural floor, but 
have their wage indexes downwardly

[[Page 38557]]

adjusted to ensure that the application of the rural floor is budget 
neutral overall. We project hospitals located in urban areas will 
experience no change in payments because increases in payments by 
hospitals benefitting from the rural floor offset decreases in 
payments by nonrural floor urban hospitals whose wage index is 
downwardly adjusted by the rural floor budget neutrality factor. 
Urban hospitals in the New England region will experience a 1.4 
percent increase in payments primarily due to the application of the 
rural floor in Massachusetts and the imputed floor in Rhode Island. 
Thirty-six urban providers in Massachusetts are expected to receive 
the rural floor wage index value, including the rural floor budget 
neutrality adjustment, increasing payments overall to Massachusetts 
by an estimated $44 million. We estimate that Massachusetts 
hospitals will receive approximately a 1.3 percent increase in IPPS 
payments due to the application of the rural floor in FY 2018.
    Urban Puerto Rico hospitals are expected to experience a 0.2 
percent increase in payments as a result of the application of the 
rural floor.
    There are 17 hospitals out of the 64 hospitals in New Jersey 
that will benefit from the extension of the imputed floor and will 
receive the imputed floor wage index value under the OMB labor 
market area delineations. Overall, New Jersey will receive a net 
decrease of $4 million in payments (to the nearest million) taking 
into account the 17 hospitals that will benefit from the imputed 
floor and the application of the national rural floor and imputed 
floor budget neutrality adjustment to all hospitals in the state. 
There are 10 hospitals out of the 11 hospitals in Rhode Island that 
will benefit from the extension of the imputed floor and will 
receive the imputed floor wage index value. Overall, Rhode Island 
will receive a net increase of $19 million in payments (to the 
nearest million) taking into account the 10 hospitals that will 
benefit from the imputed floor and the application of the national 
rural floor and imputed floor budget neutrality adjustment to all 
hospitals in the State. All 6 hospitals in Delaware will benefit 
from the extension of the imputed floor and will receive the imputed 
floor wage index value. Overall, Delaware will receive a net 
increase of $8 million in payments (to the nearest million) taking 
into account the 6 hospitals that will benefit from the imputed 
floor and the application of the national rural floor and imputed 
floor budget neutrality adjustment to all hospitals in the State.
    In response to a public comment addressed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51593), we are providing the payment 
impact of the rural floor and imputed floor with budget neutrality 
at the State level. Column 1 of the following table displays the 
number of IPPS hospitals located in each State. Column 2 displays 
the number of hospitals in each State that will receive the rural or 
imputed floor wage index for FY 2018. Column 3 displays the 
percentage of total payments each State will receive or contribute 
to fund the rural floor and imputed floor with national budget 
neutrality. The column compares the post-reclassification FY 2018 
wage index of providers before the rural floor and imputed floor 
adjustment and the post-reclassification FY 2018 wage index of 
providers with the rural and imputed floor adjustment. Column 4 
displays the estimated payment amount that each State will gain or 
lose due to the application of the rural floor and imputed floor 
with national budget neutrality.

         FY 2018 IPPS Estimated Payments Due to Rural and Imputed Floor With National Budget Neutrality
----------------------------------------------------------------------------------------------------------------
                                                                                      Percent
                                                                                     change in
                                                                     Number of     payments due
                                                                  hospitals that  to application
                      State                          Number of      will receive      of rural    Difference (in
                                                     hospitals     the rural or     floor  and      $ millions)
                                                                   imputed floor  imputed  floor
                                                                                   with  budget
                                                                                    neutrality
                                                             (1)             (2)             (3)             (4)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................              84               3            -0.3              -5
Alaska..........................................               6               4             1.4               3
Arizona.........................................              57              38             0.4               7
Arkansas........................................              44               1            -0.3              -4
California......................................             299             177             1.2             134
Colorado........................................              47               4             0.4               5
Connecticut.....................................              30               7             0.1               2
Delaware........................................               6               6             1.8               8
Washington, D.C.................................               7               0            -0.4              -2
Florida.........................................             171              17            -0.2             -15
Georgia.........................................             103               0            -0.3              -9
Hawaii..........................................              12               0            -0.3              -1
Idaho...........................................              14               0            -0.2              -1
Illinois........................................             127               3            -0.4             -17
Indiana.........................................              85               0            -0.3              -8
Iowa............................................              34               0            -0.3              -3
Kansas..........................................              53               0            -0.3              -3
Kentucky........................................              66               0            -0.3              -5
Louisiana.......................................              94               2            -0.3              -5
Maine...........................................              17               0            -0.4              -2
Massachusetts...................................              57              36             1.3              44
Michigan........................................              94               0            -0.3             -14
Minnesota.......................................              49               0            -0.4              -8
Mississippi.....................................              60               0            -0.3              -4
Missouri........................................              74               0            -0.2              -6
Montana.........................................              13               4               0               0
Nebraska........................................              24               0            -0.3              -2
Nevada..........................................              23               0            -0.4              -3
New Hampshire...................................              13               9             3.7              20
New Jersey......................................              64              17            -0.1              -4
New Mexico......................................              25               0            -0.2              -1
New York........................................             154              11            -0.3             -23
North Carolina..................................              84               0            -0.3             -10
North Dakota....................................               6               0            -0.2              -1

[[Page 38558]]

 
Ohio............................................             128               6            -0.3             -12
Oklahoma........................................              84               4            -0.2              -3
Oregon..........................................              34               5            -0.3              -3
Pennsylvania....................................             150               3            -0.4             -17
Puerto Rico.....................................              52              10             0.2               0
Rhode Island....................................              11              10               5              19
South Carolina..................................              56               0            -0.3              -5
South Dakota....................................              17               0            -0.2              -1
Tennessee.......................................              91               3            -0.3              -8
Texas...........................................             310               4            -0.3             -21
Utah............................................              31               1            -0.3              -2
Vermont.........................................               6               0            -0.2               0
Virginia........................................              73               1            -0.3              -7
Washington......................................              48               3            -0.2              -5
West Virginia...................................              29               3            -0.1              -1
Wisconsin.......................................              66               8            -0.2              -3
Wyoming.........................................              10               0            -0.1               0
----------------------------------------------------------------------------------------------------------------

f. Effects of the Application of the 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 49 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 $65 million. Rural and urban 
hospitals located in the West North Central region will 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 267 providers that will receive the out-migration wage 
adjustment in FY 2018. Rural hospitals generally qualify for the 
adjustment, resulting in a 0.2 percent increase in payments. This 
provision appears to benefit section 401 hospitals and RRCs in that 
they will each experience a 0.3 percent increase in payments. This 
out-migration wage adjustment also is not budget neutral, and we 
estimate the impact of these providers receiving the out-migration 
increase will be approximately $42 million.

g. Effects of the Expiration of MDH Special Payment Status (Column 7)

    Column 7 shows our estimate of the changes in payments due to 
the expiration of MDH status, a nonbudget neutral payment provision. 
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). Therefore, 
under current law, the MDH program will expire at the end of FY 
2017. Hospitals that qualified to be MDHs receive the higher of 
payments made based on the Federal rate or the payments made based 
on the Federal rate amount plus 75 percent of the difference between 
payments based the Federal rate and payments based the hospital-
specific rate (a hospital-specific cost-based rate). Because this 
provision was not budget neutral, the expiration of this payment 
provision results in a 0.1 percent decrease in payments overall. 
There are currently 159 MDHs, of which we estimate 96 would have 
been paid under the blended payment based on the Federal rate and 
hospital-specific rate if the MDH program had not expired. Because 
those 96 MDHs will no longer receive the blended payment and will be 
paid only under the Federal rate in FY 2018, it is estimated that 
those hospitals will experience an overall decrease in payments of 
approximately $119 million.
    MDHs were generally rural hospitals, so the expiration of the 
MDH program will result in an overall decrease in payments to rural 
hospitals of 0.9 percent. Rural New England hospitals can expect a 
decrease in payments of 2.2 percent because 6 out of the 23 rural 
New England hospitals are MDHs that will lose this special payment 
status under the expiration of the program at the end of FY 2017. 
MDHs that would have been paid under the blended payment based on 
the Federal rate and hospital-specific rate can expect a decrease in 
payments of 12 percent.

h. Effects of All FY 2018 Changes (Column 8)

    Column 8 shows our estimate of the changes in payments per 
discharge from FY 2017 and FY 2018, resulting from all changes 
reflected in this final rule for FY 2018. It

[[Page 38559]]

includes combined effects of the year to year change of the previous 
columns in the table.
    The average increase in payments under the IPPS for all 
hospitals is approximately 1.3 percent for FY 2018 relative to FY 
2017 and for this row is primarily driven by the changes reflected 
in Column 1. Column 8 includes the annual hospital update of 1.35 
percent to the national standardized amount. This annual hospital 
update includes the 2.7 percent market basket update, the 0.6 
percentage point reduction 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 final rule, this column also includes the FY 
2018 adjustment of 0.4588 percent on the national standardized 
amount. In addition, this column includes the adjustment factor of 
(1/1.006) to remove the 1.006 temporary one-time adjustment made in 
FY 2017 to address the effects of the 0.2 percent reduction in 
effect for FYs 2014 through 2016 related to the 2-midnight policy, 
which is discussed in section V.M. of the preamble of this final 
rule. Hospitals paid under the hospital-specific rate will receive a 
0.75 percent hospital update. As described in Column 1, the annual 
hospital update with the adjustment of 0.4588 percent for hospitals 
paid under the national standardized amount, the adjustment of (1/
1.006) to remove the 1.006 temporary one-time adjustment made in FY 
2017 to address the effects of the 0.2 percent reduction in effect 
for FYs 2014 through 2016, which is discussed in section V.M. of the 
preamble of this final rule, combined with the annual hospital 
update for hospitals paid under the hospital-specific rates will 
result in a 1.3 percent increase in payments in FY 2018 relative to 
FY 2017. There are also interactive effects among the various 
factors comprising the payment system that we are not able to 
isolate which contribute to our estimate of the changes in payments 
per discharge from FY 2017 and FY 2018 in Column 8.
    Overall payments to hospitals paid under the IPPS due to the 
applicable percentage increase and changes to policies related to 
MS-DRGs, geographic adjustments, and outliers are estimated to 
increase by 1.3 percent for FY 2018. Hospitals in urban areas will 
experience a 1.4 percent increase in payments per discharge in FY 
2018 compared to FY 2017. Hospital payments per discharge in rural 
areas are estimated to increase by 0.2 percent in FY 2018.

3. Impact Analysis of Table II

    Table II presents the projected impact of the changes for FY 
2018 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 2017 with the estimated average 
payments per discharge for FY 2018, as calculated under our models. 
Therefore, this table presents, in terms of the average dollar 
amounts paid per discharge, the combined effects of the changes 
presented in Table I. The estimated percentage changes shown in the 
last column of Table II equal the estimated percentage changes in 
average payments per discharge from Column 8 of Table I.

    Table II--Impact Analysis of Changes for FY 2018 Acute Care Hospital Operating Prospective Payment System
                                            [Payments per Discharge]
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated       Estimated
                                                     Number of      average  FY     average  FY       FY 2018
                                                     hospitals     2017  payment   2018  payment      changes
                                                                  per  discharge  per  discharge
                                                             (1)             (2)             (3)             (4)
----------------------------------------------------------------------------------------------------------------
All Hospitals...................................           3,292          11,867          12,024             1.3
By Geographic Location:
    Urban hospitals.............................           2,492          12,207          12,380             1.4
    Large urban areas...........................           1,340          12,881          13,059             1.4
    Other urban areas...........................           1,152          11,477          11,644             1.5
    Rural hospitals.............................             800           8,911           8,931             0.2
Bed Size (Urban):
    0-99 beds...................................             648           9,730           9,814             0.9
    100-199 beds................................             763          10,248          10,404             1.5
    200-299 beds................................             441          11,079          11,244             1.5
    300-499 beds................................             426          12,366          12,536             1.4
    500 or more beds............................             214          15,011          15,228             1.5
Bed Size (Rural):
    0-49 beds...................................             318           7,523           7,490            -0.4
    50-99 beds..................................             282           8,487           8,373            -1.4
    100-149 beds................................             117           8,896           8,966             0.8
    150-199 beds................................              44           9,292           9,410             1.3
    200 or more beds............................              39          10,514          10,678             1.6
Urban by Region:
    New England.................................             114          13,125          13,302             1.4
    Middle Atlantic.............................             315          13,819          13,965             1.1
    South Atlantic..............................             404          10,783          10,949             1.5
    East North Central..........................             385          11,537          11,727             1.7
    East South Central..........................             147          10,245          10,374             1.3
    West North Central..........................             160          11,915          12,131             1.8
    West South Central..........................             378          10,948          11,133             1.7
    Mountain....................................             162          12,824          12,896             0.6
    Pacific.....................................             375          15,634          15,863             1.5
    Puerto Rico.................................              52           8,851           8,947             1.1
Rural by Region:
    New England.................................              20          12,091          12,164             0.6
    Middle Atlantic.............................              53           8,891           8,812            -0.9
    South Atlantic..............................             125           8,274           8,269            -0.1
    East North Central..........................             115           9,224           9,144            -0.9
    East South Central..........................             154           7,900           7,987             1.1
    West North Central..........................              97           9,736           9,798             0.6
    West South Central..........................             154           7,539           7,588             0.6
    Mountain....................................              58          10,620          10,719             0.9

[[Page 38560]]

 
    Pacific.....................................              24          12,466          12,516             0.4
By Payment Classification:
    Urban hospitals.............................           2,373          12,148          12,320             1.4
    Large urban areas...........................           1,354          12,867          13,046             1.4
    Other urban areas...........................           1,019          11,200          11,364             1.5
    Rural areas.................................             919          10,568          10,657             0.8
Teaching Status:
    Nonteaching.................................           2,204           9,850           9,967             1.2
    Fewer than 100 residents....................             839          11,372          11,534             1.4
    100 or more residents.......................             249          17,228          17,465             1.4
Urban DSH:
    Non-DSH.....................................             551          10,357          10,454             0.9
    100 or more beds............................           1,543          12,512          12,690             1.4
    Less than 100 beds..........................             370           8,960           9,107             1.6
Rural DSH:
    SCH.........................................             257           9,526           9,579             0.6
    RRC.........................................             293          11,384          11,569             1.6
    100 or more beds............................              34          10,297          10,338             0.4
    Less than 100 beds..........................             244           7,035           6,765            -3.8
Urban teaching and DSH:
    Both teaching and DSH.......................             863          13,579          13,767             1.4
    Teaching and no DSH.........................              92          11,410          11,520               1
    No teaching and DSH.........................           1,050          10,217          10,373             1.5
    No teaching and no DSH......................             368           9,854           9,999             1.5
Special Hospital Types:
    RRC.........................................             263          11,165          11,361             1.8
    SCH.........................................             316          10,774          10,861             0.8
    SCH and RRC.................................             131          11,265          11,362             0.9
Type of Ownership:
    Voluntary...................................           1,914          12,058          12,213             1.3
    Proprietary.................................             863          10,392          10,553             1.6
    Government..................................             513          12,810          12,978             1.3
Medicare Utilization as a Percent of Inpatient
 Days:
    0-25........................................             554          14,910          15,113             1.4
    25-50.......................................           2,149          11,728          11,891             1.4
    50-65.......................................             485           9,617           9,695             0.8
    Over 65.....................................             103           7,591           7,444            -1.9
FY 2018 Reclassifications by the Medicare
 Geographic Classification Review Board:
    All Reclassified Hospitals..................             858          11,661          11,830             1.5
    Non-Reclassified Hospitals..................           2,434          11,956          12,108             1.3
    Urban Hospitals Reclassified................             590          12,202          12,396             1.6
    Urban Nonreclassified Hospitals.............           1,858          12,210          12,382             1.4
    Rural Hospitals Reclassified................             268           9,339           9,399             0.6
    Rural Nonreclassified Hospitals.............             485           8,422           8,380            -0.5
    All Section 401 Reclassified Hospitals:.....             166          12,504          12,679             1.4
    Other Reclassified Hospitals (Section                     47           8,122           8,173             0.6
     1886(d)(8)(B)).............................
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Policy Changes

    In addition to those policy changes discussed previously that we 
are able to model using our IPPS payment simulation model, we are 
making various other changes in this final rule. Generally, we have 
limited or no specific data available with which to estimate the 
impacts of these changes. Our estimates of the likely impacts 
associated with these other changes are discussed in this section.

1. Effects of Policy Relating to New Medical Service and Technology 
Add-On Payments

    In section II.H. of the preamble to this final rule, we discuss 
three technologies for which we received applications for add-on 
payments for new medical services and technologies for FY 2018. We 
note that three applicants withdrew their applications prior to the 
issuance of the proposed rule, one applicant withdrew its 
application prior to the issuance of this final rule, and two 
applicants did not receive FDA approval for their technologies by 
the July 1 deadline. We also discuss the status of the new 
technologies that were approved to receive new technology add-on 
payments in FY 2017. As explained in the preamble to this final 
rule, add-on payments for new medical services and technologies 
under section 1886(d)(5)(K) of the Act are not required to be budget 
neutral.
    As discussed in section II.H.6. of the preamble of this final 
rule, we are approving three applications (Bezlotoxumab 
(ZinplavaTM), EDWARDS INTUITY EliteTM Valve 
System (INTUITY) and Liva Nova Perceval Valve (Perceval), and 
Ustekinumab

[[Page 38561]]

(Stelara[supreg])) for new technology add on payments for FY 2018. 
In addition, as we proposed, in this final rule, we are continuing 
to make new technology add-on payments for Defitelio[supreg] 
(Defibrotide), GORE[supreg] EXCLUDER[supreg] Iliac Branch 
Endoprosthesis (IBE), Idarucizumab and VistogardTM 
(Uridine Triacetate) in FY 2018 because these four 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 2018 as if every claim that would 
qualify for a new technology add-on payment would receive the 
maximum add-on payment. The following are estimates for FY 2018 for 
the four technologies that we are continuing to make new technology 
add-on payments in FY 2018.
     Based on the applicant's estimate from FY 2017, we 
currently estimate that new technology add-on payments for the 
Defitelio[supreg] will increase overall FY 2018 payments by 
$5,161,200 (maximum add-on payment of $75,900 * 68 patients).
     Based on the applicant's estimate for FY 2017, we 
currently estimate that new technology add-on payments for the 
GORE[supreg] EXCLUDER[supreg] IBE will increase overall FY 2018 
payments by $5,685,750 (maximum add-on payment of $5,250 * 1,083 
patients).
     Based on the applicant's estimate for FY 2017, we 
currently estimate that new technology add-on payments for 
Idarucizumab will increase overall FY 2018 payments by $14,766,500 
(maximum add-on payment of $1,750 * 8,438 patients).
     Based on the applicant's estimate for FY 2017, we 
currently estimate that new technology add-on payments for 
VistogardTM will increase overall FY 2018 payments by 
$3,009,750 (maximum add-on payment of $40,130 * 75 patients).
    The following are estimates for FY 2018 for the three 
technologies that we are approving for new technology add-on 
payments beginning with FY 2018.
     Based on the applicant's estimate for FY 2018, we 
currently estimate that new technology add-on payments for 
ZinplavaTM will increase overall FY 2018 payments by 
$2,857,600 (maximum add-on payment of $1,900 * 1,504 patients).
     Based on the estimates for INTUITY and Perceval for FY 
2018 and using a weighted average, we currently estimate that new 
technology add-on payments for INTUITY and Perceval will increase 
overall FY 2018 payments by $14,841,749 (maximum add-on payment of 
$6,110.23 * 2,429 patients).
     Based on the applicant's estimate for FY 2018, we 
currently estimate that new technology add-on payments for 
Stelara[supreg] will increase overall FY 2018 payments by $400,800 
(maximum add-on payment of $2,400 * 167 patients).

2. Effects of Changes to MS-DRGs Subject to the Postacute Care Transfer 
Policy and the MS-DRG Special Payment Policy

    In section V.A. of the preamble of this final rule, we discuss 
our changes to the list of MS-DRGs subject to the postacute care 
transfer policy and the MS-DRG special payment policy. As reflected 
in Table 5 listed in section VI. of the Addendum to this final rule 
(which is available via the Internet on the CMS Web site), using 
criteria set forth in regulations at 42 CFR 412.4, we evaluated MS-
DRG charge, discharge, and transfer data to determine which MS-DRGs 
qualify for the postacute care transfer and MS-DRG special payment 
policies. We note that we did not propose to make any changes in 
these payment policies in the FY 2018 IPPS/LTCH PPS proposed rule. 
As a result of finalization of our proposals to revise the MS-DRG 
classifications for FY 2018, which are discussed in section II.F. of 
the preamble of this final rule, we are adding three MS-DRGs to the 
list of MS-DRGs subject to the MS-DRG special payment policy. Column 
4 of Table I in this Appendix A shows the effects of the changes to 
the MS-DRGs and the relative payment weights and 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 DRG classification changes in order to reflect 
changes in treatment patterns, technology, and any other factors 
that may change the relative use of hospital resources. The analysis 
and methods for determining the changes due to the MS-DRGs and 
relative payment weights account for and include changes as a result 
of the changes to the MS-DRGs subject to the MS-DRG postacute care 
transfer and MS-DRG special payment policies. We refer readers to 
section I.G. of this Appendix A for a detailed discussion of payment 
impacts due to the MS-DRG reclassification policies for FY 2018.

3. Effects of the Changes to the Volume Decrease Adjustment for Sole 
Community Hospitals (SCHs)

    In section V.C. of the preamble of this final rule, we discuss 
our proposed and finalized policies to modify the methodology used 
to calculate volume decrease adjustments for SCHs. We are 
prospectively requiring that the MACs compare Medicare revenue 
allocable to fixed costs from the cost reporting period when the 
hospital experienced the volume decrease to the hospital's fixed 
costs from that same cost reporting period when calculating a volume 
decrease adjustment. We also are providing that the cap will no 
longer be applied to the volume decrease adjustment calculation 
methodology in future periods. In addition, we are prospectively 
modifying the volume decrease adjustment process to no longer 
require that a hospital explicitly demonstrate that it appropriately 
adjusted the number of staff in inpatient areas of the hospital 
based on the decrease in the number of inpatient days and to no 
longer require the MACs to adjust the volume decrease adjustment 
payment amount for excess staffing. We estimate that these changes 
to the volume decrease adjustment will increase aggregate volume 
decrease adjustment payments by a total of approximately $15 million 
for cost reporting periods beginning in FY 2018. Given that the 
volume decrease adjustment is only available to SCHs and is 
predicated on the unanticipated nature of the volume decrease, it is 
difficult to predict how many hospitals will qualify for the 
adjustment in FY 2018. We assumed 20 hospitals will qualify for the 
adjustment in FY 2018 and that the additional amount of the volume 
decrease adjustment payment based on our methodology will be 
$750,000 per hospital.

4. Effects of Changes to Low-Volume Hospital Payment Adjustment Policy

    In section V.E. of the preamble of this final rule, we discuss 
the expiration of the temporary changes to the low-volume hospital 
payment policy originally provided for by the Affordable Care Act 
and extended through FY 2017 by subsequent legislation. Effective 
for FY 2018 and subsequent years, qualifying hospitals must have 
less than 200 combined Medicare and non-Medicare discharges (instead 
of 1,600 Medicare discharges) and must be located more than 25 road 
miles from another subsection (d) hospital (instead of 15 road miles 
from another subsection (d) hospital). In this same section, we 
discuss our proposed and finalized parallel low-volume hospital 
payment adjustment regarding hospitals operated by the IHS or a 
Tribe. Under this finalized policy, an IHS hospital will be able to 
qualify for a low-volume hospital adjustment based on its distance 
to the nearest IHS hospital, and a non-IHS hospital will be able to 
qualify to receive a low-volume hospital adjustment based on its 
distance to the nearest non-IHS hospital. Based upon the best 
available data at this time, we estimate the expiration of the 
temporary changes to the low-volume hospital payment and the change 
to the low-volume payment adjustments will decrease aggregate low-
volume payment adjustments from $316 million in FY 2017 to $4 
million in FY 2018. This $312 million decrease in FY 2018 is based 
on an estimated $315 million decrease in payments from the 
expiration of the temporary changes to the low-volume hospital 
definition and payment adjustment methodology together with an 
estimated increase of $3 million in payments made to hospitals that 
are expected to qualify under our parallel low-volume hospital 
payment adjustment. These payment estimates were determined by 
identifying providers that, based on the best available data, are 
expected to qualify under the criteria that will apply in FY 2018 
(that is, are located at least 25 miles from the nearest subsection 
(d) hospital and have less than 200 total discharges), and were 
determined from the same data used in developing the quantitative 
analyses of changes in payments per case discussed previously in 
section I.G. of this Appendix A.

5. Effects of the Changes to Medicare DSH and Uncompensated Care 
Payments for FY 2018

    As discussed in section V.G. of the preamble of this final rule, 
under section 3133 of the Affordable Care Act, hospitals that are 
eligible to receive Medicare DSH payments will receive 25 percent of 
the

[[Page 38562]]

amount they previously would have received under the statutory 
formula for Medicare DSH payments under section 1886(d)(5)(F) of the 
Act. 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 uninsured 
individuals 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 2018, we are establishing a Factor 2 of 58.01 percent 
determined using the uninsured estimates produced by CMS' Office of 
the Actuary (OACT) as part of the development of the National Health 
Expenditure Accounts (NHEA). Although we are continuing to use low-
income insured patient days as a proxy for uncompensated care, for 
the first time, we are using these data in combination with data on 
uncompensated care costs from Worksheet S-10 in the calculation of 
Factor 3. The uncompensated care payment methodology has 
redistributive effects based on the proportion of a hospital's 
uncompensated care relative to the total uncompensated care for all 
hospitals eligible for Medicare DSH payments. The change to Medicare 
DSH payments under section 3133 of the Affordable Care Act is not 
budget neutral.
    In this final rule, we are establishing the amount to be 
distributed as uncompensated care payments to DSH eligible 
hospitals, which for FY 2018 is $6,766,695,163.56. This figure 
represents 75 percent of the amount that otherwise would have been 
paid for Medicare DSH payment adjustments adjusted by a Factor 2 of 
58.01 percent. For FY 2017, the amount available to be distributed 
for uncompensated care was $5,977,483,146.86, or 75 percent of the 
amount that otherwise would have been paid for Medicare DSH payment 
adjustments adjusted by a Factor 2 of 55.36 percent. To calculate 
Factor 3 for FY 2018, we used an average of data computed using 
Medicaid days from hospitals' 2012 and 2013 cost reports from the 
March 2017 update of the HCRIS database, uncompensated care costs 
from hospitals' 2014 cost reports from the same extract of HCRIS, 
Medicaid days from 2012 cost report data submitted to CMS by IHS 
hospitals, and SSI days from the FY 2014 and FY 2015 SSI ratios. For 
each eligible hospital, we calculated an individual Factor 3 for 
cost reporting years FYs 2012, 2013, and 2014. We then added the 
individual amounts and divided the sum by the number of cost 
reporting periods with data to calculate an average Factor 3 for FY 
2018. For purposes of this final rule, as we proposed, we used the 
most recent data from the March 2017 update of the HCRIS database 
for the Medicaid days component of the Factor 3 calculation as well 
as for the Worksheet S-10 uncompensated care cost component.
    The FY 2018 policy of using data from hospitals' FY 2012, FY 
2013, and FY 2014 cost reporting years to determine Factor 3 is 
based on our FY 2017 final policy (81 FR 56943 through 56973), which 
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 V.G.4.c. of the 
preamble of this final rule, we are making several additional 
modifications to the Factor 3 methodology: (1) To annualize Medicaid 
data and uncompensated care data if a hospital's cost report does 
not equal 12 months of data; (2) to apply a scaling factor to the 
uncompensated care payment amount calculated for each DSH eligible 
hospital so that total uncompensated care payments are consistent 
with the estimated amount available to make uncompensated care 
payments for FY 2018; (3) to apply statistical trims to the CCRs on 
Worksheet S-10 that are considered anomalies to ensure reasonable 
CCRs are used to convert charges to costs for purposes of 
determining uncompensated care costs; (4) to calculate Factor 3 for 
Puerto Rico hospitals, all-inclusive rate providers, and Indian 
Health Service and Tribal hospitals by substituting data regarding 
low-income insured days for FY 2013 for the Worksheet S-10 data on 
uncompensated care costs from FY 2014 cost reports, and (5) to 
determine the ratio of uncompensated care costs relative to total 
operating costs on the hospital's 2014 cost report (as of March 
2017), and in cases where the ratio of uncompensated care costs 
relative to total operating costs exceeds 50 percent, to determine 
the ratio of uncompensated care costs to total operating costs from 
the hospital's 2015 cost report (as of March 2017) and apply that 
ratio to the hospital's total operating costs from its 2014 cost 
report to determine uncompensated cast costs for FY 2014.
    We also are continuing the policies that were finalized in the 
FY 2015 IPPS/LTCH PPS final rule (79 FR 50020 through 50022) 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 2018 and subsequent years, as well as continuing the policies 
finalized in the FY 2017 IPPS/LTCH PPS final rule concerning the 
methodology for calculating each hospital's relative share of 
uncompensated care, such as combining data from multiple cost 
reports beginning in the same fiscal year and calculating Factor 3 
based on an average of the three individual Factor 3s for FYs 2012, 
2013, and 2014, determined by adding the Factor 3 values for these 
years, and dividing by the number of cost reporting periods with 
data.
    To estimate the impact of the combined effect of changes in 
Factors 1 and 2, as well as the changes to the data used in 
determining 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 2017 IPPS/LTCH PPS final rule to total DSH 
payments estimated in this FY 2018 IPPS/LTCH PPS final rule. For FY 
2017, 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 2017 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 55.36 percent and 
multiplied by a Factor 3 calculated as described in the FY 2017 
IPPS/LTCH PPS final rule. For FY 2018, we calculated the sum of: (1) 
25 percent of the estimated amount of what would be paid as Medicare 
DSH payments in FY 2018 absent section 3133 of the Affordable Care 
Act; and (2) 75 percent of the estimated amount of what would be 
paid as Medicare DSH payments absent section 3133 of the Affordable 
Care Act, adjusted by a Factor 2 of 58.01 percent and multiplied by 
a Factor 3 calculated using the methodology described above.
    Our analysis included 2,427 hospitals that are projected to be 
eligible for DSH in FY 2018. It did not include hospitals that had 
terminated their participation in the Medicare program as of July 1, 
2017, Maryland hospitals, and SCHs that are expected to be paid 
based on their hospital-specific rates. In addition, data from 
merged or acquired hospitals were combined under the surviving 
hospital's CCN, and the nonsurviving CCN was excluded from the 
analysis. The estimated impact of the changes to Factors 1, 2, and 3 
across all hospitals projected to be eligible for DSH payments in FY 
2018, by hospital characteristic, is presented in the following 
table.

[[Page 38563]]



          Modeled Disproportionate Share Hospital Payments for Estimated FY 2018 DSHs by Hospital Type:
                                Model DSH $ (in Millions) From FY 2017 to FY 2018
----------------------------------------------------------------------------------------------------------------
                                                   FY 2017 final   FY 2018 final      Dollar
                                     Number of    rule estimated  rule estimated  difference: FY      Percent
                                     estimated       DSH $  (in     DSH $  (in     2017-FY 2018      change **
                                       DSHs          millions)       millions)     (in millions)
                                             (1)             (2)             (3)             (4)             (5)
----------------------------------------------------------------------------------------------------------------
Total...........................           2,427          $9,553         $10,626          $1,073            11.2
By Geographic Location:
    Urban Hospitals.............           1,930           9,113          10,111             997            10.9
    Large Urban Areas...........           1,036           5,717           6,371             654            11.4
    Other Urban Areas...........             894           3,396           3,739             343            10.1
    Rural Hospitals.............             497             439             516              76            17.3
Bed Size (Urban):
    0 to 99 Beds................             336             185             236              51            27.7
    100 to 249 Beds.............             841           2,154           2,387             234            10.8
    250+ Beds...................             753           6,775           7,487             712            10.5
Bed Size (Rural):
    0 to 99 Beds................             369             190             235              44            23.3
    100 to 249 Beds.............             114             193             220              27            14.1
    250+ Beds...................              14              56              60               5             8.4
Urban by Region:
    New England.................              91             387             411              24             6.2
    Middle Atlantic.............             241           1,570           1,644              74             4.7
    South Atlantic..............             314           1,724           2,030             307            17.8
    East North Central..........             322           1,252           1,374             123             9.8
    East South Central..........             130             566             618              52             9.3
    West North Central..........             104             439             495              56            12.7
    West South Central..........             253           1,165           1,448             283            24.3
    Mountain....................             121             448             498              50            11.2
    Pacific.....................             314           1,448           1,463              16             1.1
    Puerto Rico.................              40             116             129              13            11.1
Rural by Region:
    New England.................              12              16              21               5            32.2
    Middle Atlantic.............              25              33              32              -1            -3.8
    South Atlantic..............              85              92             114              23            24.9
    East North Central..........              68              44              58              13            30.2
    East South Central..........             135             141             149               8             5.5
    West North Central..........              30              19              23               4            22.4
    West South Central..........             110              72              92              20            27.4
    Mountain....................              27              15              21               5            32.5
    Pacific.....................               5               7               6              -1           -11.2
By Payment Classification:
    Urban Hospitals.............           1,920           9,106          10,101             995            10.9
    Large Urban Areas...........           1,036           5,717           6,371             654            11.4
    Other Urban Areas...........             884           3,389           3,730             341            10.1
    Rural Hospitals.............             507             447             525              78            17.5
Teaching Status:
    Nonteaching.................           1,516           2,955           3,270             315            10.7
    Fewer than 100 residents....             667           3,213           3,496             282             8.8
    100 or more residents.......             244           3,384           3,860             476            14.1
Type of Ownership:
    Voluntary...................           1,431           5,971           6,543             573             9.6
    Proprietary.................             547           1,650           1,653               3             0.2
    Government..................             449           1,932           2,430             498            25.8
Medicare Utilization Percent:
    Missing or Unknown..........               4               1               1               1            88.5
    0 to 25.....................             425           2,972           3,369             397            13.4
    25 to 50....................           1,642           6,218           6,834             616             9.9
    50 to 65....................             310             352             409              57            16.3
    Greater than 65.............              46              11              13               2            17.7
----------------------------------------------------------------------------------------------------------------
Source: Dobson[hairsp][bond][hairsp]DaVanzo analysis of 2012-2014 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 $9,553 million in FY 2017 and $10,626 million in FY 2018.
** Percentage change is determined as the difference between Medicare DSH payments modeled for the FY 2018 IPPS/
  LTCH PPS final rule (column 3) and Medicare DSH payments modeled for the FY 2017 IPPS/LTCH PPS final rule
  (column 2) divided by Medicare DSH payments modeled for the FY 2017 final rule (column 2) 1 times 100 percent.

    Changes in projected FY 2018 DSH payments from DSH payments in 
FY 2017 are primarily driven by (1) changes to Factor 1, which 
increased from $10.797 billion to $11.665 billion; (2) changes to 
Factor 2, which increased from 55.36 percent to 58.01

[[Page 38564]]

percent; (3) changes to the data used to determine Factor 3; and (4) 
changes to the number of DSH-eligible hospitals within a given 
hospital type. The impact analysis found that, across all projected 
DSH eligible hospitals, FY 2018 DSH payments are estimated at 
approximately $10.626 billion, or an increase of approximately 11.2 
percent from FY 2017 DSH payments (approximately $9.553 billion). 
While these changes result in a net increase in the amount available 
to be distributed in uncompensated care payments, DSH payments to 
select hospital types are expected to decrease. This redistribution 
of DSH payments is caused by changes in the data used to determine 
Factor 3 and changes in the number of DSH-eligible hospitals within 
a given hospital type.
    As seen in the above table, percent changes in DSH payments of 
less than 11.2 percent indicate that hospitals within the specified 
category are projected to experience a smaller increase in DSH 
payments, on average, compared to the universe of projected FY 2018 
DSH hospitals. Conversely, percent changes in DSH payments that are 
greater than 11.2 percent indicate a hospital type is projected to 
have a larger increase than the overall percent change on average. 
The variation in the distribution of DSH payments by hospital 
characteristic is largely dependent on the change in a given 
hospital's number of Medicaid days and SSI days for purposes of the 
low-income insured days proxy between FY 2017 and FY 2018, as well 
as on its uncompensated care costs as reported on its FY 2014 
Worksheet S-10.
    Many rural hospitals, grouped by geographic location, payment 
classification, and bed size, are projected to experience a larger 
increase in DSH payments than their urban counterparts. Overall, 
urban hospitals are projected to receive a 10.9 percent increase in 
DSH payments, and rural hospitals are projected to receive a 17.3 
percent increase in DSH payments. However, only smaller and medium-
sized rural hospitals are projected to receive increases in DSH 
payments that are, on average, higher than the 11.2 percent change 
across all hospitals that are projected to be eligible for DSH in FY 
2018, with rural hospitals that have 0-99 beds projected to 
experience a 23.3 percent payment increase, those with 100-249 beds 
projected to receive a 14.1 percent increase, and larger rural 
hospitals with 250+ beds projected to experience an 8.4 percent 
payment increase. This trend is somewhat consistent with urban 
hospitals, in which the smallest urban hospitals (0- 99 beds) are 
projected to receive an increase in DSH payments of 27.7 percent. 
Medium-sized hospitals (100-250 beds) and larger hospitals (250+ 
beds) are projected to receive increases of 10.8 and 10.5 percent in 
DSH payments, respectively, which are relatively consistent with the 
overall average.
    By region, projected DSH payment increases for urban hospitals 
are smallest in the New England, Middle Atlantic, East North 
Central, and East South Central, and Pacific regions. The South 
Atlantic, West North Central, and West South Central region 
hospitals are projected to receive increases in DSH payments that 
are, on average, larger than the 11.2 percent change across all 
hospitals projected to be eligible for DSH in FY 2018. Increases in 
remaining urban hospital regions are generally consistent with the 
overall average percent increase of 11.2 percent. Regionally, rural 
hospitals are projected to receive a wider range of increases. Rural 
hospitals in the Middle Atlantic and Pacific regions are expected to 
receive a decrease in DSH payments, while increases that are, on 
average, smaller than the 11.2 overall percent change are projected 
for the East South Central region. Increases are projected to be 
substantially larger than the overall average in many regions, 
including New England, South Atlantic, East North Central, West 
North Central, West South Central, and Mountain.
    Teaching hospitals with 100 or more residents are projected to 
receive, on average, larger increases than the overall percent 
change of 11.2 percent, with a projected increase of 14.1 percent. 
Conversely, smaller teaching hospitals with fewer than 100 residents 
are projected to receive a smaller increase than the overall 
average, at 8.8 percent. Government hospitals are projected to 
receive a larger than average 25.8 percent increase, while voluntary 
hospitals are expected to receive increases somewhat smaller than 
the overall average (9.6 percent). Proprietary hospitals are 
expected to receive almost no change in DSH payments. Hospitals with 
25 to 50 percent Medicare utilization are projected to receive 
increases in DSH payments slightly below the overall average at 9.9 
percent, while all other hospitals are projected to receive larger 
increases.

6. Effects of Reduction Under the Hospital Readmissions Reduction 
Program

    In section V.I. of the preamble of this final rule, we discuss 
our finalized proposals for the FY 2018 Hospital Readmissions 
Reduction Program (established under section 3025 of the Affordable 
Care Act), which requires a reduction to a hospital's base operating 
MS-DRG payments to account for excess readmissions. In this final 
rule, we estimate that 2,577 hospitals would have their base 
operating MS-DRG payments reduced by their proposed proxy FY 2018 
hospital-specific readmissions adjustment. As a result, we estimate 
that the Hospital Readmissions Reduction Program would save 
approximately $556 million in FY 2018, an increase of $24 million 
over the estimated FY 2017 savings. This estimate is based on the 
same data used in developing the quantitative analyses of proposed 
changes in payments per case discussed previously in section I.G. of 
this Regulatory Impact Analysis, in conjunction with the FY 2017 
hospital-specific readmissions adjustment factors and the proxy FY 
2018 hospital-specific readmissions adjustment factors found in 
Table 15 of this final rule (available only through the Internet as 
described in section VI. of the Addendum to this final rule).
    The table and analysis below illustrate the estimate of the 
financial impact of the implementation methodology for the 
provisions of the 21st Century Cures Act, as outlined in this final 
rule. We are presenting the estimated impact of the finalized 
methodology on hospitals by hospital characteristic.
    The table presents results of hospitals stratified into 
quintiles based on the proportion of dual-eligible beneficiaries 
among Medicare FFS and managed care patients discharged between July 
1, 2013 and June 30, 2016. Hospital excess readmission ratios (ERRs) 
are assessed relative to their peer group median and a neutrality 
modifier is applied to the payment reduction to maintain budget 
neutrality. The table includes three penalty metrics: Average 
payment reduction, total Medicare savings, and share of payment 
adjustments as a percentage of total payments. The average payment 
reduction is the average reduction in Medicare DRG payments of 
hospitals with a specified characteristic. The total Medicare 
savings column shows the total estimated penalties borne by 
hospitals with that characteristic. The share of payment adjustments 
is total Medicare savings for all hospitals with that characteristic 
as a percentage of all DRG payments for FY 2016 (October 1, 2015 to 
September 30, 2016). Because the payment reduction is applied to 
hospitals' base DRG payments, hospitals with more discharges will 
contribute a larger amount of Medicare savings to the group total of 
Medicare savings. For example, under the finalized methodology, the 
share of payment adjustments as a percentage of all DRG payments for 
urban hospitals is 0.63 percent. This means that total penalties for 
all urban hospitals are 0.63 percent of total payments for urban 
hospitals (that is, the ratio of total penalties to total DRG 
payments is 0.63 percent). The metric allows us to compare the 
financial impact of the method for assessing penalties between 
hospitals with different numbers of beds even though larger 
hospitals tend to generate higher total Medicare savings since their 
payment reduction is applied to more DRG payments. Measuring the 
financial impact on hospitals as a proportion of total DRG payments 
allows us to account for differences in the amount of DRG payments 
for hospitals within the group when comparing the financial impact 
of the program on different groups of hospitals.

[[Page 38565]]



The Impact of the Finalized Changes to the Hospital Readmissions Reduction Program Payment Adjustment Formula by
                                             Hospital Characteristic
----------------------------------------------------------------------------------------------------------------
                                                                                                     Share of
                                                                                                      payment
                                                                                                  adjustments as
             Hospital characteristic                 Number of        Penalty     Total medicare   a percentage
                                                     hospitals     reduction (%)      savings       of all base
                                                                                                   operating DRG
                                                                                                   payments (%)
----------------------------------------------------------------------------------------------------------------
All Hospitals...................................           3,074            0.60    $565,847,690            0.63
By Geographic Location:
    Urban.......................................           2,295            0.63     523,183,133            0.63
    Rural.......................................             779            0.53      42,664,557            0.61
By Bed Size:
    1-99 beds...................................           1,099            0.51      40,264,581            0.58
    100-199 beds................................             881            0.68     123,751,723            0.71
    200-299 beds................................             452            0.71     122,943,199            0.71
    300-399 beds................................             279            0.61      89,688,666            0.63
    400-499 beds................................             152            0.53      54,484,491            0.53
    500 or more beds............................             211            0.55     134,715,029            0.57
By Teaching Status:
    Non-teaching................................           2,038            0.60     246,681,611            0.70
    Teaching....................................           1,036            0.60     319,166,078            0.59
        Fewer than 100 residents................             787            0.62     208,876,515            0.63
        100 or more residents...................             249            0.51     110,289,563            0.51
By Ownership Type:
    Government..................................             482            0.49      58,536,682            0.54
    Proprietary.................................             751            0.72     122,880,821            0.87
    Voluntary...................................           1,820            0.59     384,262,881            0.59
By Safety-net Status:
    Safety net hospitals........................             621            0.49      94,429,377            0.54
    Non-safety net hospitals....................           2,453            0.63     471,418,312            0.65
By DSH Payment Eligibility:
    Not eligible................................             460            0.64      59,681,863            0.65
    DSH payment eligible........................           2,614            0.60     506,165,827            0.63
By DSH Patient Percentage Quintile:
    First Quintile..............................             560            0.64      79,746,089            0.65
    Second Quintile.............................             632            0.66     132,231,066            0.72
    Third Quintile..............................             633            0.60     126,404,719            0.62
    Fourth Quintile.............................             628            0.63     133,036,439            0.63
    Fifth Quintile..............................             621            0.49      94,429,377            0.54
By Medicare Cost Report (MCR) Percent:
    0-24........................................             401            0.38      45,026,649            0.42
    25-49.......................................           2,071            0.62     433,616,692            0.64
    50 and over.................................             592            0.69      87,133,066            0.80
By Region:
    New England.................................             129            0.63      41,123,715            0.74
    Middle Atlantic.............................             352            0.78     108,046,217            0.81
    South Atlantic..............................             511            0.78     132,626,599            0.78
    East North Central..........................             480            0.58      85,657,162            0.60
    East South Central..........................             288            0.74      52,465,078            0.84
    West North Central..........................             250            0.44      26,564,022            0.39
    West South Central..........................             481            0.55      54,135,151            0.57
    Mountain....................................             219            0.47      22,147,627            0.44
    Pacific.....................................             364            0.35      43,082,119            0.36
----------------------------------------------------------------------------------------------------------------
Notes: Results based on July 1, 2013 through June 30, 2016 discharges among subsection (d) and Maryland
  hospitals only. Although data from all subsection (d) and Maryland hospitals are used in calculations of each
  hospital's ERR, this table does not include results for Maryland hospitals. This table only includes results
  for hospitals who are eligible for a penalty under the program on the basis of having at least 25 eligible
  discharges for at least one measure. Hospitals are stratified into quintiles based on the proportion of dual-
  eligible beneficiaries for the 3-year FY 2018 performance period. Hospital penalties are scaled by a
  neutrality modifier of 0.9481 to maintain budget neutrality. To calculate the payment adjustment as a
  proportion of total base operating DRG payments this analysis used MedPAR data to calculate the total base
  operating DRG payments from October 1, 2015 through September 30, 2016 (FY 2016). The group average share of
  payment adjustments as a percentage of all DRG payments is calculated as the sum of all Medicare savings for
  the group of hospitals divided by total FY 2016 base operating DRG payments for all hospitals in that group.
  Hospital characteristics from the FY 2018 Hospital Inpatient Prospective Payment System (IPPS) proposed rule
  impact file. Data on SSI ratio comes from FY 2014 SSI data file. The total number of hospitals with hospital
  characteristics data do not add up to the total number of hospitals included in the FY 2018 Hospital
  Readmissions Reduction Program because not all hospitals have data for all characteristics. A hospital is
  considered a teaching hospital if it has an IME adjustment factor for Operation PPS (TCHOP) greater than zero
  and is considered a DSH hospital if it has a DSH patient percentage greater than zero. A hospital is a safety-
  net hospital if they are in the top DSH quintile. MCR percent is the percentage of total inpatient stays from
  Medicare patients.

    The estimated impact of the finalized stratified methodology for 
the FY 2019 Hospital Readmissions Reduction Program compared to the 
current methodology according to this metric is shown in the table 
below. The table is based on results when

[[Page 38566]]

hospitals are stratified into quintiles based on the proportion of 
dual-eligible beneficiaries among Medicare fee-for-service and 
managed care patients discharged between July 1, 2013 through June 
30, 2016. The table shows the share of payment adjustments as a 
percentage of all DRG payments for each group of hospitals. The 
group share is calculated as the sum of penalties for all hospitals 
with that characteristic over the sum of all DRG payments for those 
hospitals between October 1, 2015 and September 30, 2016 (FY 2016).

Penalty as Share of Payment When Hospitals Are Stratified Into Quintiles
Using the 3-Year Dual Proportion Among FFS and Managed Care Patients, by
Hospital Characteristic for the Current and Finalized Payment Adjustment
                          Factor Methodologies
------------------------------------------------------------------------
                                              Current      Finalized  FY
                                           methodology:        2019
                                              FY 2018      methodology:
         Hospital characteristic             hospital       median plus
                                           readmissions     neutrality
                                             reduction    modifier (NM =
                                            program (%)     0.9481) (%)
------------------------------------------------------------------------
All Hospitals...........................            0.63            0.63
Urban Status:
    Urban...............................            0.63            0.63
    Rural...............................            0.64            0.61
Bed Size:
    1-99 beds...........................            0.57            0.58
    100-199 beds........................            0.72            0.71
    200-299 beds........................            0.71            0.71
    300-399 beds........................            0.64            0.63
    400-499 beds........................            0.52            0.53
    500 or more beds....................            0.57            0.57
Teaching Status:
    Non-teaching........................            0.69            0.70
    Teaching............................            0.59            0.59
        Fewer than 100 residents........            0.62            0.63
        100 or more residents...........            0.54            0.51
Ownership:
    Government..........................            0.55            0.54
    Proprietary.........................            0.88            0.87
    Voluntary...........................            0.59            0.59
Safety-net Status:
    Safety-net hospitals................            0.63            0.54
    Nonsafety-net hospitals.............            0.63            0.65
DSH Payment Eligible:
    Not eligible........................            0.59            0.65
    DSH payment eligible................            0.63            0.63
DSH Patient Percentage Quintile:
    First Quintile......................            0.59            0.65
    Second Quintile.....................            0.68            0.72
    Third Quintile......................            0.61            0.62
    Fourth Quintile.....................            0.64            0.63
    Fifth Quintile......................            0.63            0.54
MCR percentage:
    0-24................................            0.45            0.42
    25-49...............................            0.63            0.64
    50 or more..........................            0.79            0.80
Region:
    New England.........................            0.76            0.74
    Middle Atlantic.....................            0.84            0.81
    South Atlantic......................            0.76            0.78
    East North Central..................            0.60            0.60
    East South Central..................            0.81            0.84
    West North Central..................            0.37            0.39
    West South Central..................            0.55            0.57
    Mountain............................            0.41            0.44

[[Page 38567]]

 
    Pacific.............................            0.41            0.36
------------------------------------------------------------------------
Notes: Results based on July 1, 2013 through June 30, 2016 discharges
  among subsection (d) and Maryland hospitals only. Although data from
  all subsection (d) and Maryland hospitals are used in calculations of
  each hospital's ERR, this table does not include results for Maryland
  hospitals. This table only includes results for hospitals who are
  eligible for a penalty under the program on the basis of having at
  least 25 eligible discharges for at least one measure. Under the
  finalized methodology, hospitals are stratified into quintiles based
  on the proportion of FFS and managed care dual-eligible beneficiaries
  for the 3-year FY 2018 performance period. To calculate the payment
  adjustment as a proportion of total FY 2016 base operating DRG
  payments this analysis used MedPAR data to calculate the total base
  operating DRG payments from October 1, 2015 through September 30, 2016
  (FY 2016). The group average share of payment adjustments as a
  percentage of all DRG payments is calculated as the sum of all
  Medicare savings for the group of hospitals divided by total base
  operating DRG payments for all hospitals in that group. Hospital
  characteristics from the FY 2018 Hospital Inpatient Prospective
  Payment System (IPPS) proposed rule impact file. Data on SSI ratio
  comes from FY 2014 SSI data file. The total number of hospitals with
  hospital characteristics data do not add up to the total number of
  hospitals included in the FY 2018 Hospital Readmissions Reduction
  Program because not all hospitals have data for all characteristics. A
  hospital is considered a teaching hospital if it has an IME adjustment
  factor for Operation PPS (TCHOP) greater than zero and is considered a
  DSH hospital if it has a DSH patient percentage greater than zero. A
  hospital is a safety-net hospitals if they are in the top DSH
  quintile. MCR percent is the percentage of total inpatient stays from
  Medicare patients.

7. Effects of Changes Under the FY 2018 Hospital Value-Based Purchasing 
(VBP) Program

    In section V.J. of the preamble of this final 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 2018 through a 
reduction to the FY 2018 base operating DRG payment amounts for all 
discharges for participating hospitals for such fiscal year, as 
required by section 1886(o)(7)(B) of the Act. The applicable 
percentage for FY 2018 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 V.J.1.b. of the preamble of this final rule, we 
estimate the available pool of funds for value-based incentive 
payments in the FY 2018 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 $1.9 billion. 
This estimated available pool for FY 2018 is based on the historical 
pool of hospitals that were eligible to participate in the FY 2017 
program year and the payment information from the March 2017 update 
of the FY 2016 MedPAR file.
    The estimated impacts of the FY 2018 program year by hospital 
characteristic, found in the table below, are based on historical 
TPSs. We used the FY 2017 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 March 
2017 update to the FY 2016 MedPAR file. The proxy adjustment factors 
can be found in Table 16A associated with this final rule (available 
via the Internet on the CMS Web site at: http://www.cms.gov/
Medicare/Medicare-Fee-For-Service-Payment/AcuteInpatientPPS/
index.html).
    The impact analysis shows that, for the FY 2018 program year, 
the number of hospitals that would receive an increase in their base 
operating DRG payment amounts 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 amounts. Urban hospitals in the Middle Atlantic region 
would receive an average decrease in their base operating DRG 
payment amounts. Among rural hospitals, those in all geographic 
regions would have an increase, on average, in their base operating 
DRG payment amounts.
    On average, hospitals that receive a higher (over 65) percent of 
DSH payments would receive decreases in base operating DRG payment 
amounts. 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 amounts.
    Non-teaching hospitals would have an average increase, and 
teaching hospitals would experience an average decrease in base 
operating DRG payment amounts.

 Impact Analysis of Base Operating DRG Payment Amount Changes Resulting
                  From the FY 2018 Hospital VBP Program
------------------------------------------------------------------------
                                                              Average
                                             Number of      percentage
                                             hospitals        change
------------------------------------------------------------------------
By Geographic Location:
    All Hospitals.......................           2,955           0.183
    Large Urban.........................           1,215           0.092
    Other Urban.........................           1,060           0.154
    Rural Area..........................             680           0.392
    Urban hospitals.....................           2,275           0.121
        0-99 beds.......................             487           0.689
        100-199 beds....................             720           0.079
        200-299 beds....................             434          -0.038
        300-499 beds....................             423          -0.160
        500 or more beds................             211          -0.160

[[Page 38568]]

 
    Rural hospitals.....................             680           0.392
        0-49 beds.......................             209           0.608
        50-99 beds......................             275           0.400
        100-149 beds....................             112           0.243
        150-199 beds....................              45           0.054
        200 or more beds................              39          -0.009
By Region:
    Urban By Region.....................           2,275           0.121
        New England.....................             110           0.072
        Middle Atlantic.................             297          -0.119
        South Atlantic..................             387           0.026
        East North Central..............             364           0.217
        East South Central..............             135           0.010
        West North Central..............             152           0.451
        West South Central..............             320           0.194
        Mountain........................             156           0.058
        Pacific.........................             354           0.203
    Rural By Region.....................             680           0.392
        New England.....................              19           0.539
        Middle Atlantic.................              52           0.196
        South Atlantic..................             111           0.540
        East North Central..............             106           0.420
        East South Central..............             126           0.172
        West North Central..............              85           0.502
        West South Central..............             107           0.257
        Mountain........................              52           0.740
        Pacific.........................              22           0.504
By MCR Percent:
    0-25................................             420           0.121
    25-50...............................           2,022           0.167
    50-65...............................             468           0.279
    Over 65.............................              41           0.440
    Missing.............................               4           0.789
By DSH Percent:
    0-25................................           1,221           0.359
    25-50...............................           1,389           0.083
    50-65...............................             189           0.025
    Over 65.............................             156          -0.118
By Teaching Status:
    Non-Teaching........................           1,905           0.316
    Teaching............................           1,050          -0.059
------------------------------------------------------------------------

    Actual FY 2018 program year's TPSs will not be reviewed and 
corrected by hospitals until after the FY 2018 IPPS/LTCH PPS final 
rule has been published. Therefore, the same historical universe of 
eligible hospitals and corresponding TPSs from the FY 2017 program 
year are used for the updated impact analysis in this final rule.

8. Effects of Proposed Changes to the HAC Reduction Program for FY 2018

    The table and analysis below illustrate the estimated cumulative 
effect of the measures and scoring system for the Hospital-Acquired 
Condition (HAC) Reduction Program, as outlined in section V.K. of 
the preamble of this FY 2018 IPPS/LTCH PPS final rule. We are 
presenting the estimated impact of the FY 2018 HAC Reduction Program 
on hospitals by hospital characteristic.
    These FY 2018 HAC Reduction Program results were calculated 
using the Winsorized z-score methodology finalized in the FY 2017 
IPPS/LTCH PPS final rule (80 FR 57022 through 57025). Each 
hospital's Total HAC Score was calculated as the weighted average of 
the hospital's Domain 1 score (15 percent) and Domain 2 score (85 
percent). Non-Maryland hospitals with a Total HAC Score above the 
75th percentile Total HAC Score were identified as being in the 
worst-performing quartile. The table below presents the estimated 
proportion of hospitals in the worst-performing quartile of the 
Total HAC Scores by hospital characteristic. We are not providing 
hospital-level data or payment impact in conjunction with this final 
rule because scores will undergo a 30-day review and correction 
period that will not conclude until after the publication of this 
final rule.
    We used the modified Recalibrated Patient Safety Indicator (PSI) 
90 Composite measure results based on Medicare fee-for-service (FFS) 
discharges from July 1, 2014 through September 30, 2015 and 
recalibrated version 6.0.2 of the PSI software to estimate the 
impact of the FY 2018 HAC Reduction Program. For the CDC Central 
Line-Associated Bloodstream Infection (CLABSI), Catheter-Associated 
Urinary Tract Infection (CAUTI), Colon and Abdominal Hysterectomy 
Surgical Site Infection (SSI), Methicillin-resistant Staphylococcus 
aureus (MRSA) bacteremia, and Clostridium difficile Infection (CDI) 
measure results, we used standardized infection ratios (SIRs) 
calculated with hospital surveillance data reported to the National 
Healthcare Safety Network (NHSN) for infections occurring between 
January 1, 2015 and December 31, 2016.
    To analyze the results by hospital characteristic, we used the 
FY 2018 Proposed Rule Impact File. This table includes 3,233 non-
Maryland hospitals with a FY 2018 Total HAC Score. Of these, 3,215 
hospitals had information for geographic location, region, bed size, 
disproportionate share hospital (DSH) percent, and teaching status; 
3,184 had information for ownership; and 3,190 had information for 
Medicare utilization as a percent of inpatient days, which is also 
known as the Medicare Cost Report (MCR) percent. Maryland hospitals 
and hospitals

[[Page 38569]]

without a Total HAC Score are not included in the table below.
    The second column in the table indicates the total number of 
non-Maryland hospitals with available data for each characteristic 
that have a Total HAC Score for the FY 2018 HAC Reduction Program. 
For example, with regard to teaching status, 2,151 hospitals are 
characterized as non-teaching hospitals, 815 are characterized as 
teaching hospitals with fewer than 100 residents, and 249 are 
characterized as teaching hospitals with at least 100 residents. 
This only represents a total of 3,215 hospitals because the other 18 
hospitals have missing data for teaching status.
    The third column in the table indicates the number of hospitals 
for each characteristic that would be in the worst-performing 
quartile of Total HAC Scores. These hospitals would receive a 
payment reduction under the FY 2018 HAC Reduction Program. For 
example, with regard to teaching status, 500 hospitals out of 2,151 
hospitals characterized as non-teaching hospitals would be subject 
to a payment reduction. Among teaching hospitals, 189 out of 815 
hospitals with fewer than 100 residents and 103 out of 249 hospitals 
with 100 or more residents would be subject to a payment reduction.
    The fourth column in the table indicates the proportion of 
hospitals for each characteristic that would be in the worst-
performing quartile of Total HAC Scores and would receive a payment 
reduction under the FY 2018 HAC Reduction Program. For example, 23.2 
percent of the 2,151 hospitals characterized as non-teaching 
hospitals, 23.2 percent of the 815 teaching hospitals with fewer 
than 100 residents, and 41.4 percent of the 249 teaching hospitals 
with 100 or more residents would be subject to a payment reduction.

  Estimated Proportion of Hospitals in the Worst-Performing Quartile (>75th percentile) of the Total HAC Scores
                       for the FY 2018 HAC Reduction Program (by Hospital Characteristic)
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of      Percent of
                                                                                   hospitals in    hospitals in
                     Hospital characteristic                         Number of      the worst-      the worst-
                                                                     hospitals      performing      performing
                                                                                   quartile \a\    quartile \b\
----------------------------------------------------------------------------------------------------------------
Total \c\.......................................................           3,233             808            25.0
By Geographic Location: (n = 3,215) \d\
Urban hospitals.................................................           2,417             618            25.6
    1-99 beds...................................................             612             156            25.5
    100-199 beds................................................             732             175            23.9
    200-299 beds................................................             435              98            22.5
    300-399 beds................................................             276              74            26.8
    400-499 beds................................................             151              48            31.8
    500 or more beds............................................             211              67            31.8
Rural hospitals.................................................             798             174            21.8
    1-49 beds...................................................             309              69            22.3
    50-99 beds..................................................             287              59            20.6
    100-149 beds................................................             116              26            22.4
    150-199 beds................................................              46              11            23.9
    200 or more beds............................................              40               9            22.5
By Region:
    New England.................................................             133              35            26.3
    Mid-Atlantic................................................             362             122            33.7
    South Atlantic..............................................             519             142            27.4
    East North Central..........................................             497              97            19.5
    East South Central..........................................             299              80            26.8
    West North Central..........................................             260              45            17.3
    West South Central..........................................             517             109            21.1
    Mountain....................................................             229              56            24.5
    Pacific.....................................................             399             106            26.6
By DSH Percent \e\ (n = 3,215):
    0-24........................................................           1,362             315            23.1
    25-49.......................................................           1,465             342            23.3
    50-64.......................................................             207              66            31.9
    65 and over.................................................             181              69            38.1
By Teaching Status \f\ (n = 3,215):
    Non-teaching................................................           2,151             500            23.2
    Fewer than 100..............................................             815             189            23.2
    Residents...................................................
    100 or more residents.......................................             249             103            41.4
By Ownership \g\ (n = 3,184):
    Voluntary...................................................           1,875             446            23.8
    Proprietary.................................................             811             191            23.6
    Government..................................................             498             145            29.1
By MCR Percent \h\ (n =3,190):
    0-24........................................................             475             139            29.3
    25-49.......................................................           2,103             482            22.9
    50-64.......................................................             524             138            26.3
    65 and over.................................................              88              19            21.6
----------------------------------------------------------------------------------------------------------------
Source: FY 2018 HAC Reduction Program Final Rule Results are based on Recalibrated PSI 90 Composite data from
  July 2014 through September 2015 and CDC CLABSI, CAUTI, SSI, CDI, and MRSA results from January 2015 through
  December 2016. Hospital Characteristics are based on the FY 2018 Proposed Rule Impact File.
\a\ 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.
\b\ This column is the percent of non-Maryland 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.

[[Page 38570]]

 
\c\ The number of non-Maryland hospitals with a FY 2018 Total HAC Score (N = 3,233). Note that not all hospitals
  have data for all hospital characteristics.
\d\ The number of hospitals that had information for: geographic location including urban/rural, bed size, and
  region; Disproportionate Share Hospital (DSH); and teaching status (n = 3,215).
\e\ A hospital is considered a DSH hospital if it has a DSH patient percentage greater than zero.
\f\ A hospital is considered a teaching hospital if it has an IME adjustment factor for Operation PPS (TCHOP)
  greater than zero.
\g\ Not all hospitals had data for type of ownership (n = 3,184).
\h\ Not all hospitals had data for MCR percent (n = 3,190).

9. Effects of Implementation of the Additional 5-Year Extension of the 
Rural Community Hospital Demonstration Program

    In section V.L. of the preamble of this final rule, we discuss 
our implementation of section 410A of Public Law 108-173, as amended 
by sections 3123 and 10313 of Public Law 111-148, and more recently, 
by section 15003 of Public Law 114-255, which requires the Secretary 
to conduct a demonstration that tests the feasibility and 
advisability of establishing ``rural community'' hospitals to 
furnish covered inpatient hospital services to Medicare 
beneficiaries. The demonstration makes payments under a reasonable 
cost methodology for covered inpatient hospital services furnished 
to Medicare beneficiaries by up to 30 rural hospitals. Section 15003 
of Public Law 114-255, enacted December 13, 2016, requires a 10-year 
extension period (in place of the 5-year extension required by 
Public Law 111-148) for the demonstration. Therefore, the Secretary 
is required to conduct the demonstration for an additional 5-year 
period. Section 15003 of Public Law 114-255 also requires that, no 
later than 120 days after enactment of Public Law 114-255, the 
Secretary issue a solicitation for applications to select additional 
hospitals to participate in the demonstration program for the second 
5 years of the 10-year extension period so long as the maximum 
number of 30 hospitals stipulated by Public Law 111-148 is not 
exceeded. Section 410A(c)(2) of Public Law 108-173 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 (budget neutrality).
    In this FY 2018 IPPS/LTCH PPS final rule, we describe our 
proposed and finalized policies for implementation of the extension 
under section 15003 of Public Law 114-255, the budget neutrality 
methodology for the extension period authorized by the legislation, 
and the reconciliation of actual and estimated costs of the 
demonstration for previous years (2011, 2012, and 2013). Our 
proposal and final policy for budget neutrality adopted the general 
methodology used in previous years for the demonstration. As 
discussed in section V.L. of the preamble of the proposed rule, in 
the IPPS final rules from FYs 2005 through 2016, we 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 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.
    Section 15003 of Public Law 114-255 requires the Secretary to 
conduct the Rural Community Hospital Demonstration for a 10-year 
extension period (in place of the 5-year extension period required 
by the Affordable Care Act), beginning on the date immediately 
following the last day of the initial 5-year period under section 
410A(a)(5) of Public Law 108-173. Specifically, section 15003 of 
Public Law 114-255 amended section 410A(g)(4) of Public Law 108-173 
to require that, for hospitals participating in the demonstration as 
of the last day of the initial 5-year period, the Secretary shall 
provide for continued participation of such rural community 
hospitals in the demonstration during the 10-year extension period, 
unless the hospital makes an election to discontinue participation. 
Furthermore, section 15003 of Public Law 114-255 requires that, 
during the second 5 years of the 10-year extension period, the 
Secretary shall provide for participation under the demonstration 
during the second 5 years of the 10 year extension period for 
hospitals that are not described in subsection 410A(g)(4).
    In the FY 2018 IPPS/LTCH PPS proposed rule, we proposed to 
implement the second 5 years of the 10-year extension period in a 
way that recognizes a gap in participation for the previously 
participating hospitals between the end of the first 5 years and the 
start of the second 5 years of the extension period, and that 
provides for alignment of the periods of performance under the 
extension among all participating hospitals. Thus, for each 
previously participating hospital that decides to participate in the 
second 5 years of the 10-year extension period, we proposed that the 
start date for the period of performance under the second 5-year 
extension period would be the start of the first cost reporting 
period on or after October 1, 2017 following upon the announcement 
of the selection of the additional hospitals for the demonstration. 
Our goal was to finalize this selection by June 2017, in time to 
include in the FY 2018 IPPS final rule an estimate of the costs of 
the demonstration during FY 2018 and the resulting budget neutrality 
offset amount for these newly participating hospitals, as well as 
for those hospitals among the previously participating hospitals 
that decide to participate in the extension period.
    In the proposed rule, we proposed that if the selection of the 
additional hospitals under the solicitation were not to be announced 
by June 2017, we would include the estimated costs of the 
demonstration for all participating hospitals for FY 2018 in the 
budget neutrality offset amount to be calculated in the FY 2019 
IPPS/LTCH PPS proposed and final rules.
    In the preamble in section V.L. of the proposed rule, we also 
described an alternative implementation approach, according to which 
each previously participating hospital would begin the second 5 
years of the 10-year extension period on the date immediately after 
the date the period of performance under the first 5-year extension 
period ended. We also described the methodology that we considered 
for calculating the budget neutrality offset amount under this 
alternative approach.
    In response to public comments that indicated that our proposed 
implementation approach would cause financial hardship for some of 
the previously participating hospitals, we are adopting this 
alternative implementation approach in this FY 2018 IPPS/LTCH PPS 
final rule. We describe the method for calculating budget neutrality 
under this approach. Because we were unable to announce the 
selections of additional hospitals by June 2017, in time for 
including the estimates of the cost of the demonstration for both 
previously and newly participated hospitals in FY 2018 in this FY 
2018 final rule, we will include this estimate in the FY 2019 IPPS/
LTCH PPS proposed and final rules. In addition, we will determine 
the costs of the demonstration for the previously participating 
hospitals for the period from when their period of performance ended 
for the first 5-year extension period and the start of the cost 
report year in FY 2018 when finalized cost reports for this period 
are available. We will include these costs for the demonstration in 
future rulemaking.
    In previous years, we have incorporated a second component into 
the budget neutrality offset amounts identified in the final IPPS 
rules. As finalized cost reports became available, we 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. We have 
calculated this difference for FYs 2005 through 2010 between the 
actual costs of the demonstration 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.
    With the extension of the demonstration for another 5-year 
period, as authorized by section 15003 of Public Law 114-255, we

[[Page 38571]]

will continue this general procedure. Specifically, when finalized 
cost reports for FYs 2011, 2012, and 2013 are available, we will 
include this difference for these years in the budget neutrality 
offset adjustment to be applied to the national IPPS rates in a 
future final rule. We expect that this will occur in FY 2019. Also, 
when finalized cost reports for FYs 2014 through 2016 are available, 
we will include the difference between the actual costs as reflected 
on these cost reports and the amounts included in the budget 
neutrality offset amounts for these fiscal years in a future final 
rule.

10. Effects of Changes Relating to Provider-Based Status of Indian 
Health Service and Tribal Facilities and Organizations

    In section V.N. of the preamble of this final rule, we discuss 
our proposals and finalized policies relating to provider-based 
status of Indian Health Service (IHS) and tribal facilities and 
organizations. Regulations at Sec.  413.65(m) currently grandfather 
facilities from provider-based regulations if they meet certain 
criteria, including on or before April 7, 2000, having furnished 
only services that were billed as if they had been furnished by a 
department of a hospital operated by the IHS or a Tribe. We have 
also issued subregulatory guidance on circumstances that would or 
would not result in a facility or organization losing its 
grandfathered status. After consideration of the special and legally 
recognized relationship between Indian Tribes and the U.S. 
Government, as well as current IHS policies and procedures, as we 
proposed, we remove the date limitation in Sec.  413.65(m) that 
restricted the grandfathering provision to IHS or Tribal facilities 
and organizations furnishing services on or before April 7, 2000. We 
also made a technical change to make the regulation text more 
consistent with our current rules that require these facilities to 
comply with all applicable Medicare conditions of participation that 
apply to the main provider. We do not expect any significant payment 
impact because these finalized policies are in line with current 
guidance, and we believe that IHS policies and procedures regarding 
the planning, operation, and funding of such facilities are 
resulting in appropriate Medicare payments.

11. Effects of Changes Relating to Hospital-within-Hospital (HwH) 
Policy

    In section VII.B. of the preamble of this final rule, we discuss 
our proposal and finalized policy to revise the regulations 
applicable to HwHs so that the separateness and control requirements 
would only apply to IPPS-excluded HwHs that are co-located with IPPS 
hospitals beginning in FY 2018. This policy change is premised on 
the belief that the policy concerns that underlie our existing HwH 
regulations (that is, inappropriate patient shifting and hospitals 
acting as illegal de facto units) are sufficiently moderated in 
situations where IPPS-excluded hospitals are co-located with each 
other but not IPPS hospitals, in large part due to the payment 
system changes that have occurred over the intervening years for 
IPPS-excluded hospitals. In addition, we are revising the HwH 
requirements to no longer require the provisions that outline 
performance of basic hospital functions in order to maintain IPPS-
exclusion beginning in FY 2018. This revision will not result in a 
practical change to how HwHs are currently operated because the 
performance of basic hospital functions that are required under the 
HwH regulations are currently addressed under CMS' interpretative 
guidelines for the hospital conditions of participation. We do not 
expect any significant payment impact because these policies are 
primarily administrative in nature or in line with current guidance.

12. Effects of Continued Implementation of the Frontier Community 
Health Integration Project (FCHIP) Demonstration

    In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57064 through 
57065) we finalized, and in section VII.D.2. of the preamble of this 
final rule we discuss, the implementation of the FCHIP 
demonstration, which allows 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 States. 
Budget neutrality estimates for CAHs selected for the demonstration 
will be based on the demonstration period, August 1, 2016 through 
July 31, 2019. The demonstration includes three intervention prongs, 
under which specific waivers of Medicare payment rules will allow 
for enhanced payment: telehealth, skilled nursing facility/nursing 
facility, and ambulance services. These waivers are being 
implemented with the goal of increasing access to care with no net 
increase in costs.
    We have specified the payment enhancements for the demonstration 
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 adopted a contingency 
plan (81 FR 57064 through 57065) 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, show 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, CMS will 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 not be feasible to 
implement budget neutrality by reducing payments only to the 
participating CAH providers. Therefore we will 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 explained our belief 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 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.
    Given the 3-year period of performance of the FCHIP 
demonstration and the time needed to conduct the budget neutrality 
analysis, in the event the demonstration is found not to have been 
budget neutral, any excess costs will be recouped over a period of 
three cost reporting periods, beginning in CY 2020. Therefore, this 
policy will have no impact for any national payment system for FY 
2018.

I. Effects of Changes in the Capital IPPS

1. General Considerations

    For the impact analysis presented below, we used data from the 
March 2017 update of the FY 2016 MedPAR file and the March 2017 
update of the Provider-Specific File (PSF) that is used for payment 
purposes. Although the analyses of the changes to the capital 
prospective payment system do not incorporate cost data, we used the 
March 2017 update of the most recently available hospital cost 
report data (FYs 2014 and 2015) 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 March 2017 update of the FY 2016 MedPAR 
file, we simulated payments under the capital IPPS for FY 2017 and 
payments for FY 2018 for a comparison of total payments per case. 
Any short-term, acute care hospitals not paid under the general IPPS 
(for example, 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 
capital IPPS payments in FY 2018 is as follows:
    (Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for 
hospitals located in

[[Page 38572]]

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 2017 and 2018.
     We estimate that Medicare discharges will be 
approximately 11.0 million in FY 2017 and 11.1 million in FY 2018.
     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 rule, the update is 1.3 percent for FY 2018.
     In addition to the FY 2018 update factor, the FY 2018 
capital Federal rate was calculated based on a GAF/DRG budget 
neutrality adjustment factor of 0.9986, an outlier adjustment factor 
of 0.9484, and an adjustment to remove the one-time prospective 
adjustment of 1.006 made in FY 2017 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 relating to the 2-midnight policy. 
The 2-midnight adjustment that was finalized in the FY 2017 IPPS/
LTCH PPS final rule (81 FR 57294) is discussed in section V.C. of 
the preamble of this final rule as it relates to the capital Federal 
rate. As also discussed in section V.C. of the preamble of this 
final rule, we are not making an additional MS-DRG documentation and 
coding adjustment to the capital IPPS Federal rate for FY 2018.

2. Results

    We used the actuarial model previously described in section I.I. 
of Appendix A of this final rule to estimate the potential impact of 
our changes for FY 2018 on total capital payments per case, using a 
universe of 3,292 hospitals. As previously described, the individual 
hospital payment parameters are taken from the best available data, 
including the March 2017 update of the FY 2016 MedPAR file, the 
March 2017 update to the PSF, and the most recent cost report data 
from the March 2017 update of HCRIS. In Table III, we present a 
comparison of estimated total payments per case for FY 2017 and 
estimated total payments per case for FY 2018 based on the FY 2018 
payment policies. Column 2 shows estimates of payments per case 
under our model for FY 2017. Column 3 shows estimates of payments 
per case under our model for FY 2018. Column 4 shows the total 
percentage change in payments from FY 2017 to FY 2018. The change 
represented in Column 4 includes the 1.3 percent update to the 
capital Federal rate and other changes in the adjustments to the 
capital Federal rate. The comparisons are provided by: (1) 
Geographic location; (2) region; and (3) payment classification.
    The simulation results show that, on average, capital payments 
per case in FY 2018 are expected to increase as compared to capital 
payments per case in FY 2017. This expected increase overall is due 
to the approximately 1.3 percent update to the capital Federal rate 
for FY 2018, as well as the outlier adjustment of 0.9484 which is a 
1.04 percent change from the FY 2017 outlier adjustment of 0.9386. 
The change in the outlier adjustment is expected to increase capital 
payments per case for most hospitals to a lesser or greater extent. 
(For a discussion of the determination of the capital Federal rate 
and adjustments, we refer readers to section III.A. of the Addendum 
to this final rule.) Hospitals within both rural and urban regions 
may experience an increase or a decrease in capital payments per 
case due to changes in the GAFs. These regional effects of the 
changes to the GAFs on capital payments are consistent with the 
projected changes in payments due to changes in the wage index (and 
policies affecting the wage index) as shown in Table I in section 
I.G. of this Appendix A.
    The net impact of these changes is an estimated 2.5 percent 
change in capital payments per case from FY 2017 to FY 2018 for all 
hospitals (as shown in Table III).
    The geographic comparison shows that, on average, most hospitals 
in all classifications (urban and rural) will experience an increase 
in capital IPPS payments per case in FY 2018 as compared to FY 2017. 
Capital IPPS payments per case for hospitals in large urban areas as 
well as hospitals in rural areas, would increase by an estimated 2.9 
percent, from FY 2017 to FY 2018. Capital IPPS payments per case for 
other urban hospitals are estimated to increase 2.0 percent.
    The comparisons by region show that the estimated increases in 
capital payments per case from FY 2017 to FY 2018 in urban areas 
range from a 3.7 percent increase for the West South Central urban 
region to a 0.8 percent increase for the Mountain urban region. For 
rural regions, the New England rural region is projected to 
experience the largest increase in capital IPPS payments per case of 
5.2 percent, while the South Atlantic rural region is projected to 
experience an increase in capital IPPS payments per case of 1.9 
percent.
    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 2017 to FY 2018. The increase in capital payments for voluntary 
hospitals is estimated to be 2.3 percent. Government hospitals and 
proprietary hospitals, are expected to experience an increase in 
capital IPPS payments of 3.2 percent.
    Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
may apply for reclassification for purposes of the wage index for FY 
2018. 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 rule for FY 2018, we show the average capital 
payments per case for reclassified hospitals for FY 2018. Urban 
reclassified hospitals are expected to experience an increase in 
capital payments of 1.6 percent; urban nonreclassified hospitals are 
expected to experience an increase in capital payments of 2.9 
percent. The estimated percentage increase for rural reclassified 
hospitals as well as for rural nonreclassified hospitals is 2.8 
percent. Hospitals reclassified under section 401 are among the few 
groups of hospitals not expected to experience an increase in 
capital payments--it is expected that these hospitals would 
experience a decrease in capital payments of 1.6 percent, while 
capital payments for other reclassified hospitals are expected to 
increase an estimated 6.6 percent.

                                Table III--Comparison of Total Payments Per Case
                                 [FY 2017 payments compared to FY 2018 payments]
----------------------------------------------------------------------------------------------------------------
                                                                    Average  FY     Average  FY
                                                     Number of    2017  payments/ 2018  payments/     Change
                                                     hospitals         case            case
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All hospitals...............................           3,292             920             943             2.5
    Large urban areas (populations over 1                  1,340           1,007           1,036             2.9
     million)...................................
    Other urban areas (populations of 1 million            1,152             896             913             2.0
     of fewer)..................................
    Rural areas.................................             800             625             644             2.9
    Urban hospitals.............................           2,492             953             977             2.5
        0-99 beds...............................             648             768             798             3.9
        100-199 beds............................             763             825             850             3.0
        200-299 beds............................             441             877             897             2.2

[[Page 38573]]

 
        300-499 beds............................             426             965             988             2.4
        500 or more beds........................             214           1,142           1,168             2.3
    Rural hospitals.............................             800             625             644             2.9
        0-49 beds...............................             318             523             544             3.9
        50-99 beds..............................             282             584             599             2.5
        100-149 beds............................             117             625             642             2.7
        150-199 beds............................              44             663             687             3.6
        200 or more beds........................              39             749             771             2.9
By Region:
    Urban by Region.............................           2,492             953             977             2.5
        New England.............................             114           1,038           1,056             1.8
        Middle Atlantic.........................             315           1,054           1,074             1.9
        South Atlantic..........................             404             849             869             2.3
        East North Central......................             385             918             941             2.5
        East South Central......................             147             800             815             1.8
        West North Central......................             160             933             964             3.3
        West South Central......................             378             863             896             3.7
        Mountain................................             162           1,005           1,013             0.8
        Pacific.................................             375           1,209           1,249             3.3
        Puerto Rico.............................              52             437             451             3.1
    Rural by Region.............................             800             625             644             2.9
        New England.............................              20             860             905             5.2
        Middle Atlantic.........................              53             603             616             2.2
        South Atlantic..........................             125             584             595             1.9
        East North Central......................             115             645             661             2.5
        East South Central......................             154             574             591             3.0
        West North Central......................              97             667             690             3.4
        West South Central......................             154             555             574             3.4
        Mountain................................              58             695             716             3.1
        Pacific.................................              24             805             836             3.7
By Payment Classification:
    All hospitals...............................           3,292             920             943             2.5
    Large urban areas (populations over 1                  1,354           1,005           1,035             2.9
     million)...................................
    Other urban areas (populations of 1 million            1,019             883             908             2.9
     of fewer)..................................
    Rural areas.................................             919             768             771             0.3
Teaching Status:
    Non-teaching................................           2,204             779             802             2.9
    Fewer than 100 Residents....................             839             890             910             2.3
    100 or more Residents.......................             249           1,283           1,315             2.5
Urban DSH:
    100 or more beds............................           1,543             975           1,003             2.9
    Less than 100 beds..........................             370             697             727             4.2
Rural DSH:
    Sole Community (SCH/EACH)...................             257             622             632             1.6
    Referral Center (RRC/EACH)..................             293             833             834             0.1
Other Rural:
    100 or more beds............................              34             820             791            -3.5
    Less than 100 beds..........................             244             511             522             2.2
Urban teaching and DSH:
    Both teaching and DSH.......................             863           1,043           1,073             2.8
    Teaching and no DSH.........................              92             921             937             1.8
    No teaching and DSH.........................           1,050             823             847             3.0
    No teaching and no DSH......................             368             832             863             3.7
Rural Hospital Types:
    Nonspecial status hospitals.................           2,580             946             973             2.8
    RRC/EACH....................................             263             861             862             0.2
    SCH/EACH....................................             316             716             743             3.7
    SCH, RRC and EACH...........................             131             763             782             2.5
Hospitals Reclassified by the Medicare
 Geographic Classification Review Board:
    FY2018 Reclassifications:...................
        All Urban Reclassified..................             590             948             964             1.6
        All Urban Non-Reclassified..............           1,858             956             985             2.9
        All Rural Reclassified..................             268             660             679             2.8
        All Rural Non-Reclassified..............             485             580             596             2.8
    All Section 401 Reclassified Hospitals......             166             937             922            -1.6
    Other Reclassified Hospitals (Section                     41             604             644             6.6
     1886(d)(8)(B)).............................
Type of Ownership:
    Voluntary...................................           1,914             938             959             2.3

[[Page 38574]]

 
      Proprietary...............................             863             823             850             3.2
      Government................................             513             952             982             3.2
Medicare Utilization as a Percent of Inpatient
 Days:
    0-25........................................             554           1,072           1,100             2.6
    25-50.......................................           2,149             921             944             2.5
    50-65.......................................             485             754             774             2.7
    Over 65.....................................             103             589             656            11.4
----------------------------------------------------------------------------------------------------------------

J. Effects of Payment Rate Changes and Policy Changes Under the 
LTCH PPS

1. Introduction and General Considerations

    In section VIII. of the preamble of this final rule and section 
V. of the Addendum to this final rule, we set forth the annual 
update to the payment rates for the LTCH PPS for FY 2018. In the 
preamble of this final rule, we specify the statutory authority for 
the provisions that are presented, identify the proposed and 
finalized policies, and present rationales for our decisions as well 
as alternatives that were considered. In this section of Appendix A 
to this final rule, we discuss the impact of the changes to the 
payment rate, factors, and other payment rate policies related to 
the LTCH PPS that are presented in the preamble of this final rule 
in terms of their estimated fiscal impact on the Medicare budget and 
on LTCHs.
    There are 415 LTCHs included in this impacts analysis. We note 
that, although there are currently approximately 428 LTCHs, for 
purposes of this impact analysis, we excluded the data of all-
inclusive rate providers consistent with the development of the FY 
2018 MS-LTC-DRG relative weights (discussed in section VIII.B.3.c. 
of the preamble of this final rule. Moreover, in the claims data use 
for this final rule, two of these 415 LTCHs only have claims for 
site neutral payment rate cases and are thus not included in our 
impact analysis for LTCH PPS standard Federal payment rate cases.) 
In the impact analysis, we used the payment rate, factors, and 
policies presented in this final rule, which include the rolling end 
to transition to the site neutral payment rate required by section 
1886(m)(6)(A) of the Act (as described below), the 1.0 percent 
annual update to the LTCH PPS standard Federal payment rate required 
by section 411 of Pub. L. 114-10, the update to the MS-LTC-DRG 
classifications and relative weights, the update to the wage index 
values and labor-related share, the change to the SSO payment 
methodology (discussed in VIII.E. of the preamble of this final 
rule), our finalized policy to adopt a 1-year regulatory delay of 
the full implementation of the 25-percent threshold policy for FY 
2018, and our finalized policies to implement certain provisions of 
the 21st Century Cures Act, and the best available claims and CCR 
data to estimate the change in payments for FY 2018.
    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. For FY 2018, the applicability of this 
transitional payment method for site neutral payment rate cases is 
dependent upon both the discharge date and the start date of the 
LTCH's FY 2018 cost reporting period. Specifically, the transitional 
payment method only applies to those site neutral payment rate cases 
that occur in cost reporting periods that begin before October 1, 
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 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, while site neutral payment rate 
cases in cost reporting periods beginning on or after October 1, 
2017 are paid the site neutral payment rate amount determined under 
Sec.  412.522(c)(1).
    Comment: Several commenters requested that we extend the 
transition period to the site neutral payment rate under the LTCH 
PPS' dual payment rate structure.
    Response: Under Section 1886(m)(6)(B)(i)(II) of the Act, we are 
required to pay for discharges that do not to meet the statutory 
criteria for exclusion from the site neutral payment rate at the 
site neutral payment rate for discharges in cost reporting periods 
beginning in FY 2018 or later. The statute only provides for 
payments at the blended payment rate for discharges that do not to 
meet the statutory criteria for exclusion from the site neutral 
payment rate for those discharges that occur in cost reporting 
periods beginning during FY 2016 or FY 2017. Therefore, under 
Section 1886(m)(6)(B)(i)(II) of the Act, we lack the statutory 
authority to do as these commenters request.
    Comment: Several commenters objected to our expectation that the 
site neutral payment rate would not affect access to or quality of 
care for patients based on what they assert are incorrect actuarial 
assumptions. In support of this objection, some commenters analyzed 
FY 2016 claims data which they believe shows that site neutral 
payment rate cases have not matched our actuarial assumptions that 
the costs and resource use for cases paid at the site neutral 
payment rate will likely mirror the costs and resource use for IPPS 
cases assigned to the same MS-DRG. These commenters believe CMS' 
statements could mislead LTCHs and Medicare beneficiaries about the 
projected impact of the site neutral payment rate on access to or 
quality of care.
    Response: While we understand and share commenters' concerns 
about access to and quality of care for Medicare beneficiaries, we 
disagree that our stated expectation that the site neutral payment 
rate will not affect these is incorrect or misleading. To the extent 
that the data from FY 2016 appears to rebut our actuarial 
assumptions on the costs and resource of site neutral payment rate 
cases, we remind commenters that given the rolling nature of the 
start of the transition to the site neutral payment rate (discharges 
in cost reporting periods beginning on or after October 1, 2015), 
many LTCH claims from FY 2016 were not subject to the site neutral 
payment rate at all as many LTCHs did not begin their FY 2016 cost 
reporting period until the fourth quarter of that fiscal year. In 
addition, no LTCH is fully subject to the site neutral payment rate 
until its cost reporting period beginning in FY 2018 due to the 2-
year transition period provided by the statute (meaning that all 
claims which were subject to the site neutral payment rate in FY 
2016 were paid under the blended payment rate which included a 
payment based on 50 percent of the LTCH PPS standard Federal payment 
rate). Therefore, the analysis presented by commenters, based on FY 
2016 data, does not invalidate our assumptions about the costs and 
resource use for site neutral payment rate cases as the FY 2016 
claims appear to not yet reflect the expected change in cost and 
resources once the payment for site neutral payment rate cases is 
fully based on the site neutral payment rate. We will continue to 
monitor the data and review the assumptions as appropriate. However, 
we continue to believe that the

[[Page 38575]]

assumptions underlying our conclusion that the site neutral payment 
system will not negatively impact access to or quality of care are 
valid, as is the conclusion. As demonstrated in areas where there is 
little or no LTCH presence, general short-term acute care hospitals 
are effectively providing treatment for the same types of patients 
that are treated in LTCHs in areas where there is one or more LTCH 
present.
    Based on the best available data for the 415 LTCHs in our 
database that were considered in the analyses used for this final 
rule, we estimate that overall LTCH PPS payments in FY 2018 will 
decrease by approximately 4.2 percent (or approximately $195 
million) based on the rates and factors presented in section VIII. 
of the preamble and section V. of the Addendum to this final rule. 
(We note that this estimate does not reflect our finalized policy to 
adopt a 1-year regulatory delay of the full implementation of the 
25-percent threshold policy for FY 2018 and, with the exception of 
changes to the HCO payment policy, does not reflect our finalized 
policies regarding the implementation of certain provisions of the 
21st Century Cures Act. As discussed in greater detail below, our 
actuaries estimate these finalized policies will increase spending 
by approximately $85 million in FY 2018.) This projection takes into 
account estimated payments for LTCH cases in our database that met 
or 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 did not meet or 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 are either 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 2018 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 (and 2-
year transitional period) for a given LTCH is based on the date that 
LTCH's cost reporting period begins during FY 2018, we included an 
adjustment to account for this rolling effective date, consistent 
with the general 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 site neutral payment rate 
cases in FY 2018 that are in a LTCH's cost reporting period that 
begin before October 1, 2017 continue to be paid under the 
transitional payment method until the start of the LTCH's first cost 
reporting period beginning on or after October 1, 2017. Site neutral 
payment rate cases in a LTCH's cost reporting period beginning on or 
after October 1, 2017 will no longer be paid under the transitional 
payment method and will instead be paid the site neutral payment 
rate amount as determined by Sec.  412.522(c)(1).
    For purposes of this impact analysis, to estimate total FY 2018 
LTCH PPS payments for site neutral payment rate cases, we used the 
same general approach as was used in the FY 2016 IPPS/LTCH PPS final 
rule with modifications to account for the rolling end date to the 
transitional site neutral payment rate in FY 2018 instead of the 
rolling effective date for implementation of the transitional site 
neutral payment rate in FY 2016. In summary, under this approach, we 
grouped LTCHs based on the quarter their cost reporting periods will 
begin during FY 2018. For example, LTCHs with cost reporting periods 
that begin during October through December 2017 begin during the 
first quarter of FY 2018. For LTCHs grouped in each quarter of FY 
2018, we modeled those LTCHs' estimated FY 2018 site neutral payment 
rate payments under the transitional blended payment rate based on 
the quarter in which the LTCHs in each group would continue to be 
paid the transitional payment method for the site neutral payment 
rate cases.
    For purposes of this estimate, then, we assume the cost 
reporting period is the same for all LTCHs in each of the quarterly 
groups and that this cost reporting period begins on the first day 
of that quarter. (For example, our first group consists of 42 LTCHs 
whose cost reporting period will begin in the first quarter of FY 
2018 so that, for purposes of this estimate, we assume all 42 LTCHs 
will begin their FY 2018 cost reporting period on October 1, 2017.) 
Second, we estimated the proportion of FY 2018 site neutral payment 
rate cases in each of the quarterly groups, and we then assume this 
proportion is applicable for all four quarters of FY 2018. (For 
example, as discussed in more detail below, we estimate the first 
quarter group will discharge 6.6 percent of all FY 2018 site neutral 
payment rate cases and therefore, we estimate that group of LTCHs 
will discharge 6.6 percent of all FY 2018 site neutral payment rate 
cases in each quarter of FY 2018.) Then, we modeled estimated FY 
2018 payments on a quarterly basis under the LTCH PPS standard 
Federal payment rate based on the assumptions described above. We 
continue to believe that this approach is a reasonable means of 
taking the rolling effective date into account when estimating FY 
2018 payments.
    Based on the fiscal year begin date information in the March 
2017 update of the PSF and the LTCH claims from the March 2017 
update of the FY 2016 MedPAR files for the 415 LTCHs in our database 
used for this final rule, we found the following: 6.6 percent of 
site neutral payment rate cases are from 42 LTCHs whose cost 
reporting periods will begin during the first quarter of FY 2018; 
21.2 percent of site neutral payment rate cases are from 97 LTCHs 
whose cost reporting periods will begin in the second quarter of FY 
2018; 10.2 percent of site neutral payment rate cases are from 57 
LTCHs whose cost reporting periods will begin in the third quarter 
of FY 2018; and 62.1 percent of site neutral payment rate cases are 
from 219 LTCHs whose cost reporting periods will begin in the fourth 
quarter of FY 2018. Therefore, the following percentages apply in 
the approach described above:
     First Quarter FY 2018: 6.6 percent of site neutral 
payment rate cases (that is, the percentage of discharges from LTCHs 
whose FY 2018 cost reporting will begin in the first quarter of FY 
2018) are no longer eligible for the transitional payment method, 
while the remaining 93.4 percent of site neutral payment rate 
discharges are eligible to be paid under the transitional payment 
method.
     Second Quarter FY 2018: 27.7 percent of site neutral 
payment rate second quarter discharges (that is, the percentage of 
discharges from LTCHs whose FY 2018 cost reporting will begin in the 
first or second quarter of FY 2018) are no longer eligible for the 
transitional payment method while the remaining 72.3 percent of site 
neutral payment rate second quarter discharges are eligible to be 
paid under the transitional payment method.
     Third Quarter FY 2018: 37.9 percent of site neutral 
payment rate third quarter discharges (that is, the percentage of 
discharges from LTCHs whose FY 2018 cost reporting will begin in the 
first, second, or third quarter of FY 2018) are no longer eligible 
for the transitional payment method while the remaining 62.1 percent 
of site neutral payment rate third quarter discharges are eligible 
to be paid under the transitional payment method.
     Fourth Quarter FY 2018: 100.0 percent of site neutral 
payment rate fourth quarter discharges (that is, the percentage of 
discharges from LTCHs whose FY 2018 cost reporting will begin in the 
first, second, third, or fourth quarter of FY 2018) are no longer 
eligible for the transitional payment method so that no site neutral 
payment rate case discharges are eligible be paid under the 
transitional payment method.
    Based on the FY 2016 LTCH cases that were used for the analyses 
in this final rule, approximately 42 percent of those cases were or 
would have been classified as site neutral payment rate cases if the 
site neutral payment rate had been in effect at the time of the 
discharge (that is, 42 percent of LTCH cases did not or 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 2018 will not change significantly from the 
historical data. Taking into account the transitional blended 
payment rate and other changes that will apply to the site neutral 
payment rate cases in FY 2018, we estimate that aggregate LTCH PPS 
payments for these site neutral payment

[[Page 38576]]

rate cases will decrease by approximately 20 percent (or 
approximately $230 million).
    Approximately 58 percent of LTCH cases are expected to meet the 
patient-level criteria for exclusion from the site neutral payment 
rate in FY 2018, 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 2018 will increase approximately 1.0 percent (or approximately 
$35 million). This estimated increase in LTCH PPS payments for LTCH 
PPS standard Federal payment rate cases in FY 2018 is primarily due 
to the 1.0 percent annual update to the LTCH PPS standard Federal 
payment rate for FY 2018 required by section 411 of Public Law 114-
10 (discussed in section V.A. of the Addendum to this final rule). 
(We note that because our SSO payment methodology discussed in 
VIII.E. of the preamble of this final rule incorporates a budget 
neutrality adjustment, this policy does not increase or decrease 
aggregate payments, and therefore does not factor into the 1.0 
percent increase in aggregate payments.)
    Based on the 415 LTCHs that were represented in the FY 2016 LTCH 
cases that were used for the analyses in this final rule presented 
in this Appendix, we estimate that aggregate FY 2018 LTCH PPS 
payments will be approximately $4.418 billion, as compared to 
estimated aggregate FY 2017 LTCH PPS payments of approximately 
$4.612 billion, resulting in an estimated overall decrease in LTCH 
PPS payments of approximately $195 million. Furthermore, as 
discussed in more detail below, our Office of the Actuary is 
estimating an additional increase in aggregate FY 2018 LTCH PPS 
payments of approximately $85 million with $70 million resulting 
from our finalized policy to delay full implementation of the 25-
percent threshold policy for FY 2018 and another $15 million coming 
from our implementation of certain provisions of the 21st Century 
Cures Act. Therefore, in total, we project an overall decrease in 
LTCH PPS payments of approximately $110 million (-$195 million + $85 
million) or approximately a 2.4 percent decrease in LTCH PPS 
payments in FY 2018 as compared to FY 2017. Because the combined 
distributional effects and estimated payment changes exceed $100 
million, this final rule is a major economic rule. We note that the 
estimated $195 million decrease in LTCH PPS payments in FY 2018 
(which includes estimated payments for LTCH PPS standard Federal 
payment rate cases and site neutral payment rate cases, but does not 
include estimated payments for our finalized policy to delay full 
implementation of the 25-percent threshold policy for FY 2018 or the 
certain provisions of the 21st Century Cures Act) does not reflect 
changes in LTCH admissions or case-mix intensity, which will also 
affect the overall payment effects of the policies in this final 
rule.
    The LTCH PPS standard Federal payment rate for FY 2017 is 
$42,476.41. For FY 2018, we are establishing an LTCH PPS standard 
Federal payment rate of $41,430.56 which reflects the 1.0 percent 
annual update to the LTCH PPS standard Federal payment rate, the 
area wage budget neutrality factor of 1.0006434 to ensure that the 
changes in the wage indexes and labor-related share do not influence 
aggregate payments, and the budget neutrality adjustment of 0.9651 
to ensure that our changes to the SSO payment methodology (discussed 
in VIII.E. of the preamble of this final rule) 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 
establishing an LTCH PPS standard Federal payment rate of 
$40,610.16. This reduced LTCH PPS standard Federal payment rate 
reflects the updates and factors 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 FY 2018 LTCH PPS standard 
Federal payment rate are applied to the FY 2017 LTCH PPS standard 
Federal rate set forth under Sec.  412.523(c)(3)(xiv) (that is, 
$42,476.41).
    Table IV shows the estimated impact for LTCH PPS standard 
Federal payment rate cases. The estimated change attributable solely 
to the annual update of 1.0 percent to the LTCH PPS standard Federal 
payment rate is projected to result in an increase of 0.9 percent in 
payments per discharge for LTCH PPS standard Federal payment rate 
cases from FY 2017 to FY 2018, on average, for all LTCHs (Column 6). 
In addition to the annual update to the LTCH PPS standard Federal 
payment rate for FY 2018, the estimated increase of 0.9 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 annual update to the LTCH PPS standard Federal 
payment rate (without incorporating our SSO payment methodology as 
discussed in discussed in VIII.E. of the preamble of this final 
rule), as well as the reduction that is applied to the 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 
1.0 percent annual update for FY 2018 required under section 411 of 
Pub. L. 114-10.
    For FY 2018, we are updating the wage index values based on the 
most recent available data, and we are continuing to use labor 
market areas based on the OMB CBSA delineations (as discussed in 
section V.B. of the Addendum to this final rule). In addition, we 
reduced the labor-related share from 66.5 percent to 66.2 percent 
under the LTCH PPS for FY 2018, based on the most recent available 
data on the relative importance of the labor-related share of 
operating and capital costs of the 2013-based LTCH market basket. We 
also applied an area wage level budget neutrality factor of 
1.0006434 to ensure that the 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.
    As we discuss in VIII.E. of the preamble of this final rule, we 
are simplifying our SSO payment methodology in order to alleviate 
potential incentives to improperly hold patients beyond the SSO 
threshold. We also note we do not believe aggregate payments to 
LTCHs should increase or decrease as a result of our policy, and 
thus, we applied a budget neutrality factor of 0.9651 to ensure the 
changes to the SSO payment methodology does not result in a change 
in estimated aggregate LTCH PPS payments to LTCH PPS standard 
Federal payment rate cases.
    We currently estimate total HCO payments for LTCH PPS standard 
Federal payment rate cases will decrease from FY 2017 to FY 2018. 
Based on the FY 2016 LTCH cases that were used for the analyses in 
this final rule, we estimate that the FY 2017 HCO threshold of 
$21,943 (as established in the FY 2017 IPPS/LTCH PPS final rule) 
will result in estimated HCO payments for LTCH PPS standard Federal 
payment rate cases in FY 2017 that are above the estimated 8 percent 
target. Specifically, we currently estimate that HCO payments for 
LTCH PPS standard Federal payment rate cases will be approximately 
8.1 percent of the estimated total LTCH PPS standard Federal payment 
rate payments in FY 2017. Combined with our estimate that FY 2018 
HCO payments for LTCH PPS standard Federal payment rate cases will 
be 7.975 percent of estimated total LTCH PPS standard Federal 
payment rate payments in FY 2018 as required by section 15004 of the 
21st Century Cures Act, this will result in the estimated decrease 
in HCO payments of approximately 0.1 percent between FY 2017 and FY 
2018.
    In calculating these estimated HCO payments, we increased 
estimated costs by our actuaries' projected market basket percentage 
increase factor. Without the change to our SSO payment methodology, 
this increase in estimated costs will result in a projected increase 
in SSO payments in FY 2018 (because 100 percent of the estimated 
cost of the case is an option in the SSO payment formula (Sec.  
412.529)). We estimate that those increased SSO payments in FY 2018 
will increase total payments for LTCH PPS standard Federal payment 
rate cases by approximately 0.2 percent.
    Table IV shows the estimated impact of the payment rate and 
policy changes on LTCH PPS payments for LTCH PPS standard Federal 
payment rate cases for FY 2018 by comparing estimated FY 2017 LTCH 
PPS payments to estimated FY 2018 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 2017 
to FY 2018 for LTCH PPS standard Federal payment rate cases of 1.0 
percent is attributable to the impacts of the change to the LTCH PPS 
standard Federal payment rate (0.9 percent in Column 6) and the 
effect of the estimated decrease in HCO payments for LTCH PPS 
standard Federal payment cases (0.1 percent), and the estimated 
increase in payments for SSO cases (0.2 percent) prior to 
incorporation of our SSO payment methodology. We note that these 
impacts do not include LTCH PPS site neutral payment rate cases for 
the reasons discussed in section I.J.4. of this Appendix.
    As we discuss in detail throughout this final rule, based on the 
most recent available

[[Page 38577]]

data, we believe that the provisions of this final 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 will 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 0.1 percent decrease in estimated payments for LTCH PPS 
standard Federal payment rate cases. This estimated impact is based 
on the FY 2016 data for the 21 rural LTCHs (out of 415 LTCHs) that 
were used for the impact analyses shown in Table IV.

3. Impact of Other Changes Under the LTCH PPS for FY 2018

    Overall, our actuaries estimate the provisions of the 21st 
Century Cures Act that affect LTCH PPS payments will increase 
aggregate spending to LTCHs by approximately $15 million in FY 2018. 
Specifically, they estimate the provisions in section 15004, which 
provide for certain exceptions to the moratorium on an increase in 
beds in LTCH or LTCH satellite locations (discussed in section 
VIII.H of the preamble of this final rule) and a change in the 
treatment of HCO payments to LTCH PPS standard rate cases (discussed 
in section V.D. of the Addendum of this final rule) to result in an 
aggregate increase in Medicare spending of $10 million. The 
remaining estimated increase of $5 million in Medicare spending 
comes from the temporary exception to the site neutral payment rate 
for certain spinal cord hospitals provided for under section 15009 
(as discussed in section VIII.E. of the preamble of this final 
rule). Our actuaries estimate the remaining provisions of the 21st 
Century Cures Act applicable to LTCHs (that is, sections 15007, 
15008, and 15010, discussed in sections VIII.I., VIII.J., and 
VIII.F., respectively, of the preamble of this final rule) will have 
negligible impact on aggregate Medicare spending in FY 2018. (We 
note that section 15006, which provides for an additional delay in 
the full implementation of the 25-percent threshold policy 
(discussed in VIII.G. of the preamble of this final rule), does not 
impact FY 2018 LTCH PPS payments.) In addition, our actuaries 
estimate that our implementation of a further delay the full 
implementation of the 25-percent threshold policy for FY 2018 will 
increase aggregate Medicare spending by $70 million, up from our 
estimate of $50 million in the FY 2018 IPPS/LTCH PPS proposed rule 
(82 FR 20218). This increase is due to updating the estimate for 
consistency with the assumptions used to develop the Midsession 
Review of the President's Budget, in addition to refinements in 
modeling LTCH PPS payments under the new dual rate payment system.
    As discussed in section VIII.E. of the preamble of this final 
rule, section 15009 of the 21st Century Cures Act provides for a 
temporary exception to the site neutral payment rate for certain 
spinal cord specialty hospitals for discharges occurring in cost 
reporting periods beginning during FY 2018 and FY 2019. To qualify 
for this temporary exception, an LTCH must, among other things, meet 
the ``significant out-of-state admissions criterion'' at section 
1886(m)(6)(F)(iii) of the Act. The statute further provides 
authority for the Secretary to implement the significant out-of-
state admissions criterion at section 1886(m)(6)(F)(iii) of the Act 
by program instruction or otherwise, and exempts the policy 
initiatives from any information collection requirements under the 
Paperwork Reduction Act. Although exempt from these information 
collection requirements, we estimate that each application will 
require 2.5 hours of work from each LTCH (to review the billing 
addresses of the hospital's Medicare and non-Medicare inpatients). 
This information will be collected on a one-time basis. Based on the 
best information available to CMS, we estimate that only two 
hospitals meet the other requirements for this exception. Therefore, 
we estimate that the total number of hours associated with this 
request will be 5 (2.5 hours per hospital for 2 hospitals). We 
estimate a current, average salary of $29 per hour plus 100 percent 
for fringe benefits ($58 per hour). Therefore, we estimate the total 
costs associated with this information collection will be $290 (5 
hours at $58 per hour).

4. Anticipated Effects of LTCH PPS Payment Rate Changes and Policy 
Changes

a. Budgetary Impact

    Section 123(a)(1) of the BBRA requires that the PPS developed 
for LTCHs ``maintain budget neutrality.'' We believe that the 
statute's mandate for budget neutrality applies only to the first 
year of the implementation of the LTCH PPS (that is, FY 2003). 
Therefore, in calculating the FY 2003 standard Federal 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 
more detail in section I.J. of this Appendix, some LTCH discharges 
in FY 2018 will still be eligible to be paid based on the blended 
payment rate.
    As discussed in section I.J. of this Appendix, we project a 
decrease in aggregate LTCH PPS payments in FY 2018 of approximately 
$195 million. This estimated decrease in payments reflects the 
projected increase in payments to LTCH PPS standard Federal payment 
rate cases of approximately $35 million and the projected decrease 
in payments to site neutral payment rate cases of approximately $230 
million under the dual rate LTCH PPS payment rate structure required 
by the statute beginning in FY 2016. (As stated previously, this 
estimate does not include the estimated increase in aggregate FY 
2018 LTCH PPS payments for our finalized policy to delay full 
implementation of the 25-percent threshold policy or certain 
provisions of the 21st Century Cures Act, which are discussed in 
section I.J.3. of this Appendix.)
    As discussed in section V.D. of the Addendum of this final rule, 
our actuaries project cost and resource changes for site neutral 
payment rate cases due to the site 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 final rule to 
project estimated FY 2018 LTCH PPS payments (that is, FY 2016 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 proposed changes to LTCH PPS 
payments for LTCH PPS standard Federal payment rate cases. 
Therefore, Table IV only reflects changes in LTCH PPS payments for 
LTCH PPS standard Federal payment rate cases and, unless otherwise 
noted, the remaining discussion in section I.J.4. 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 whether or not the discharge meets

[[Page 38578]]

the patient-level criteria to be excluded from the site neutral 
payment rate. That is, 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 
(which, as discussed earlier, will continue to apply to certain 
discharges occurring during FY 2018).
    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 412.538. 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 (including our proposed SSO payment methodology). 
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 
final rule on different categories of LTCHs for FY 2018, it is 
necessary to estimate payments per discharge for FY 2017 using the 
rates, factors, and the policies established in the FY 2017 IPPS/
LTCH PPS final rule and estimate payments per discharge for FY 2018 
using the rates, factors, and the policies in this FY 2018 IPPS/LTCH 
PPS final rule (as discussed in section VIII. of the preamble of 
this final rule and section V. of the Addendum to this final rule). 
As discussed elsewhere in this final 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 HCO cases 
in each year. The resulting analyses can then be used to compare how 
our 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, 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 finalized policies on payments for 
LTCH PPS standard Federal payment rate cases, we simulated FY 2017 
and FY 2018 payments on a case-by-case basis using historical LTCH 
claims from the FY 2016 MedPAR files that met or 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 all cases in the FY 2016 MedPAR files. For modeling 
FY 2017 LTCH PPS payments, we used the FY 2017 standard Federal 
payment rate of $42,476.41 (or $41,641.49 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 2018 LTCH PPS 
standard Federal payment rate, we used the FY 2018 standard Federal 
payment rate of $41,430.56 (or $40,610.16 for LTCHs that failed to 
submit quality data as required under the requirements of the LTCH 
QRP). In each case, we applied the applicable adjustments for area 
wage levels and the COLA for LTCHs located in Alaska and Hawaii. 
Specifically, for modeling FY 2017 LTCH PPS payments, we used the 
current FY 2017 labor-related share (66.5 percent); the wage index 
values established in the Tables 12A and 12B listed in the Addendum 
to the FY 2017 IPPS/LTCH PPS final rule (which are available via the 
Internet on the CMS Web site); the FY 2017 HCO fixed-loss amount for 
LTCH PPS standard Federal payment rate cases of $21,943 (as 
discussed in section V.D. of the Addendum to that final rule) and 
the FY 2017 COLA factors (shown in the table in section V.C. of the 
Addendum to that final rule) to adjust the FY 2017 nonlabor-related 
share (33.5 percent) for LTCHs located in Alaska and Hawaii. 
Similarly, for modeling FY 2018 LTCH PPS payments, we used the FY 
2018 LTCH PPS labor-related share (66.2 percent), the FY 2018 wage 
index values from Tables 12A and 12B listed in section VI. of the 
Addendum to this final rule (which are available via the Internet on 
the CMS Web site), the FY 2018 fixed-loss amount for LTCH PPS 
standard Federal payment rate cases of $27,382 (as discussed in 
section V.D.3. of the Addendum to this final rule), and the FY 2018 
COLA factors (shown in the table in section V.C. of the Addendum to 
this final rule) to adjust the FY 2018 nonlabor-related share (33.8 
percent) for LTCHs located in Alaska and Hawaii.
    As previously discussed, our impact analysis reflects an 
estimated change in payments for SSO cases (including our changes to 
the SSO payment methodology), 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 payments for SSO cases prior to accounting for our SSO 
payment methodology and for HCO cases for LTCH PPS standard Federal 
payment rate cases, we applied an inflation factor of 5.5 percent 
(determined by the Office of the Actuary) to update the 2016 costs 
of each case.
    The impacts that follow reflect the estimated ``losses'' or 
``gains'' among the various classifications of LTCHs from FY 2017 to 
FY 2018 based on the payment rates and policy changes applicable to 
LTCH PPS standard Federal payment rate cases presented in this final 
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 2017 payment 
per discharge for LTCH cases expected to meet the LTCH PPS standard 
Federal payment rate criteria (as described previously).
     The fifth column shows the estimated FY 2018 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 2017 to FY 
2018 due to the annual update to the standard Federal rate (as 
discussed in section V.A.2. of the Addendum to this final rule).
     The seventh column shows the percentage change in 
estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases from FY 2017 to FY 2018 for changes to the area 
wage level adjustment (that is, the wage indexes and the labor-
related share), including the application of the area wage level 
budget neutrality factor (as discussed in section V.B. of the 
Addendum to this final rule).
     The eighth column shows the percentage change in 
estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases for changes resulting from our SSO payment 
methodology and associated budget neutral adjustment to the LTCH PPS 
standard Federal payment rate (column 7).
     The ninth column shows the percentage change in 
estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases from FY 2017 (Column 4) to FY 2018 (Column 5) for 
all changes (and includes the effect of estimated changes to HCO and 
SSO payments).

[[Page 38579]]



                  Table IV--Impact of Payment Rate and Policy Changes to LTCH PPS Payments for Standard Payment Rate Cases for FY 2018
                                           [Estimated FY 2017 payments compared to estimated FY 2018 payments]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Percent      Percent      Proposed
                                                                                                       change due   change due    percent
                                                                             Average FY   Average FY   to change    to changes   change due    Percent
                                                                Number of    2017 LTCH    2018 LTCH      to the      to area     to change    change due
                                                   Number of     LTCH PPS   PPS payment  PPS payment     annual        wage        to the       to all
               LTCH classification                   LTCHS       standard       per          per       update to    adjustment   short stay    standard
                                                                 payment      standard     standard       the       with wage     outlier      payment
                                                                rate cases    payment      payment      standard      budget      payment        rate
                                                                                rate       rate \1\     federal     neutrality  methodology  changes \5\
                                                                                                        rate \2\       \3\       change \4\
(1)                                                       (2)          (3)          (4)          (5)          (6)          (7)          (8)          (9)
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Providers...................................          415       73,915      $46,637      $47,108          0.9          0.0          0.0          1.0
By Location:
    Rural.......................................           21        2,223       38,004       37,971          0.9         -0.3         -0.3         -0.1
    Urban.......................................          394       71,692       46,905       47,392          0.9          0.0          0.0          1.0
        Large...................................          199       41,253       49,568       50,142          0.9          0.1          0.1          1.2
        Other...................................          195       30,439       43,294       43,665          0.9         -0.1         -0.2          0.9
By Participation Date:
    Before Oct. 1983............................           11        1,832       43,730       44,550          0.9         -0.6          0.7          1.9
    Oct. 1983-Sept. 1993........................           42        9,202       52,289       52,672          0.8         -0.1         -0.2          0.7
    Oct. 1993[vdash]Sept. 2002..................          167       27,657       46,363       46,846          0.9          0.1          0.1          1.0
    After October 2002..........................          195       35,224       45,527       45,994          0.9          0.0         -0.1          1.0
By Ownership Type:
    Voluntary...................................           72        9,636       48,980       49,288          0.9         -0.1         -0.3          0.6
    Proprietary.................................          329       62,783       46,105       46,619          0.9          0.0          0.1          1.1
    Government..................................           14        1,496       53,851       53,603          0.9         -0.2         -1.1         -0.5
By Region:
    New England.................................           12        2,757       43,309       44,407          0.9         -0.3          0.7          2.5
    Middle Atlantic.............................           25        5,896       51,862       52,196          0.9         -0.1          0.2          0.6
    South Atlantic..............................           66       13,333       46,700       47,211          0.9         -0.1          0.2          1.1
    East North Central..........................           68       11,540       46,371       46,732          0.9          0.0         -0.1          0.8
    East South Central..........................           34        5,276       43,787       44,299          0.9          0.0          0.5          1.2
    West North Central..........................           28        4,402       45,291       45,233          0.9          0.1         -1.3         -0.1
    West South Central..........................          126       18,529       41,578       41,922          0.9         0.01         -0.4          0.8
    Mountain....................................           31        4,279       48,360       48,775          0.9         -0.2         -0.1          0.9
    Pacific.....................................           25        7,903       57,760       58,809          0.8          0.0          0.5          1.8
By Bed Size:
    Beds: 0-24..................................           26        1,770       46,206       46,346          0.9          0.5         -0.7          0.3
    Beds: 25-49.................................          195       26,171       43,608       43,970          0.9         -0.1          0.0          0.8
    Beds: 50-74.................................          117       20,276       48,220       48,530          0.9         -0.1         -0.2          0.6
    Beds: 75-124................................           45       12,708       49,890       50,560          0.9          0.2          0.1          1.3
    Beds: 125-199...............................           23        8,079       47,633       48,228          0.9          0.0          0.0          1.2
    Beds: 200+..................................            9        4,911       46,341       47,462          0.8          0.0          0.8          2.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated FY 2018 LTCH PPS payments for LTCH PPS standard Federal payment rate criteria based on the payment rate and factor changes applicable to
  such cases presented in the preamble of and the Addendum to this final rule.
\2\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2017 to FY 2018 for the annual update to
  the LTCH PPS standard Federal payment rate.
\3\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2017 to FY 2018 for changes to the area
  wage level adjustment under Sec.   412.525(c) (as discussed in section V.B. of the Addendum to this final rule).
\4\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2017 to FY 2018 for change to the SSO
  payment methodology.
\5\ Percent change in estimated payments per discharge for LTCH PPS standard Federal payment rate cases from FY 2017 (shown in Column 4) to FY 2018
  (shown in Column 5), including all of the changes to the rates and factors applicable to such cases presented in the preamble and the Addendum to this
  final rule. We note that this column, which shows the percent change in estimated payments per discharge for all changes, does not equal the sum of
  the percent changes in estimated payments per discharge for the annual update to the LTCH PPS standard Federal payment rate (Column 6) and the changes
  to the area wage level adjustment with budget neutrality (Column 7) due to the effect of estimated changes in both estimated payments to SSO cases
  (prior to accounting for the change to the SSO payment methodology) 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 2016 LTCH cases (from 415 LTCHs) that were used 
for the analyses in this final rule, we have prepared the following 
summary of the impact (as shown in Table IV) of the LTCH PPS payment 
rate and policy changes for LTCH PPS standard Federal payment rate 
cases presented in this final rule. The impact analysis in Table IV 
shows that estimated payments per discharge for LTCH PPS standard 
Federal payment rate cases are projected to increase 1.0 percent, on 
average, for all LTCHs from FY 2017 to FY 2018 as a result of the 
payment rate and policy changes applicable to LTCH PPS standard 
Federal payment rate cases presented in this final rule. This 
estimated 1.0 percent increase in LTCH PPS payments per discharge 
was determined by comparing estimated FY 2018 LTCH PPS payments 
(using the payment rates and factors discussed in this final rule) 
to estimated FY 2017 LTCH PPS payments for LTCH discharges which 
will be LTCH PPS standard Federal payment rate cases if the dual 
rate LTCH PPS payment structure was or had been in effect at the 
time of the discharge (as described in section I.J.4. of this 
Appendix).
    As stated previously, we are updating the LTCH PPS standard 
Federal payment rate for FY 2018 by 1.0 percent as required by 
statute. 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 
annual update to the LTCH PPS standard Federal payment rate. 
Consistent with Sec.  412.523(d)(4), we also are applying an area 
wage level budget neutrality factor to the FY 2018 LTCH PPS standard 
Federal payment rate of 1.0006434, based on the best available data 
at this time, to ensure that any changes to the area wage level 
adjustment (that is, the annual update of the wage index values and 
labor-related share) will not result in any change (increase or 
decrease) in estimated aggregate LTCH PPS standard Federal payment 
rate payments. Finally, we are making a budget neutrality adjustment 
of 0.9651 for our changes to the SSO payment methodology (discussed 
in VIII.E.2.d. of the preamble of this final rule). As we also 
explained earlier in this section, for most categories of LTCHs (as 
shown in Table IV,

[[Page 38580]]

Column 6), the estimated payment increase due to the 1.0 percent 
annual update to the LTCH PPS standard Federal payment rate is 
projected to result in approximately a 0.9 percent increase in 
estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases for all LTCHs from FY 2017 to FY 2018. This is 
because our estimate of the changes in payments due to the 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 update to the LTCH PPS standard Federal 
payment rate (prior to accounting for the change to the SSO payment 
methodology). Consequently, for certain hospital categories, we 
estimate that payments to LTCH PPS standard Federal payment rate 
cases may increase by less than 1.0 percent due to the annual update 
to the LTCH PPS standard Federal payment rate for FY 2018.

(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 2017 to FY 2018 for all 
hospitals is 1.0 percent. However, for rural LTCHs, the overall 
percent change for LTCH PPS standard Federal payment rate cases is 
estimated to be a 0.1 percent decrease. This projected decrease is 
primarily driven by a projected decrease resulting from changes to 
the changes to the area wage index adjustment. For urban LTCHs, we 
estimate an increase of 1.0 percent from FY 2017 to FY 2018. Among 
the urban LTCHs, large urban LTCHs are projected to experience an 
increase of 1.2 percent in estimated payments per discharge for LTCH 
PPS standard Federal payment rate cases from FY 2017 to FY 2018, and 
the remaining urban LTCHs are projected to experience an increase of 
0.9 percent in estimated payments per discharge for LTCH PPS 
standard Federal payment rate cases from FY 2017 to FY 2018, 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 48 percent) are 
in LTCHs that began participating in the Medicare program after 
October 2002, and they are projected to experience a 1.0 percent 
increase in estimated payments per discharge for LTCH PPS standard 
Federal payment rate cases from FY 2017 to FY 2018, as shown in 
Table IV.
    Approximately 2.7 percent of LTCHs began participating in the 
Medicare program before October 1983, and these LTCHs are projected 
to experience an average percent increase of 1.9 percent in 
estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases from FY 2017 to FY 2018, as shown in Table IV 
with a large portion of this increase among this small group of 
LTCHs to be a projected 0.7 percent increase resulting from our SSO 
payment methodology. Approximately 10 percent of LTCHs began 
participating in the Medicare program between October 1983 and 
September 1993, and these LTCHs are projected to experience an 
increase of 0.7 percent in estimated payments for LTCH PPS standard 
Federal payment rate cases from FY 2017 to FY 2018. LTCHs that began 
participating in the Medicare program between October 1993 and 
October 1, 2002, which treat approximately 37 percent of all LTCH 
PPS standard Federal payment rate cases, are projected to experience 
a 1.0 percent increase in estimated payments from FY 2017 to FY 
2018.

(3) Ownership Control

    LTCHs are grouped into four categories based on ownership 
control type: voluntary, proprietary, government and unknown. Based 
on the most recent available data, approximately 17 percent of LTCHs 
are identified as voluntary (Table IV). The majority (approximately 
80 percent) of LTCHs are identified as proprietary, while government 
owned and operated LTCHs represent approximately 3 percent of LTCHs. 
Based on ownership type, voluntary LTCHs are expected to experience 
a 0.6 percent increase in payments to LTCH PPS standard Federal 
payment rate cases, while proprietary LTCHs are expected to 
experience an average increase of 1.1 percent in payments to LTCH 
PPS standard Federal payment rate cases. Government owned and 
operated LTCHs, meanwhile, are expected to experience a 0.5 percent 
decrease in payments to LTCH PPS standard Federal payment rate cases 
from FY 2017 to FY 2018.

(4) Census Region

    Estimated payments per discharge for LTCH PPS standard Federal 
payment rate cases for FY 2017 are projected to increase across 8 of 
the 9 census regions. LTCHs located in the West North Central region 
are projected to experience a slight decrease of 0.1 percent, while 
LTCHs located in all other regions are projected to experience an 
increase in estimated payments per discharge in comparison to FY 
2017. Of the 9 census regions, we project that the increase in 
estimated payments per discharge to LTCH PPS standard Federal 
payment rate cases will have the largest positive impact on LTCHs in 
the New England regions (2.5 percent, as shown in Table IV), which 
is largely attributable to changes to the SSO payment methodology. 
In contrast, LTCHs located in the Middle Atlantic region are 
projected to experience the smallest increase in estimated payments 
per discharge for LTCH PPS standard Federal payment rate cases from 
FY 2017 to FY 2018 (0.6 percent).

(5) Bed Size

    LTCHs are grouped into six categories based on bed size: 0-24 
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater 
than 200 beds. We project that LTCHs with 0-24 beds will experience 
an increase in payments for LTCH PPS standard Federal payment rate 
cases of 0.3 percent, and LTCHs with 25-49 beds will experience an 
increase in payments for LTCH PPS standard Federal payment rate 
cases of 0.8 percent. LTCHs with 50-74 beds will experience an 
increase in payments for LTCH PPS standard Federal payment rate 
cases of 0.6 percent. We project the largest increases in payments 
to occur in LTCHs with at least 75 beds. In particular, we project 
LTCHs with 75-124 beds will experience an increase in payments for 
LTCH PPS standard Federal payment rate cases of 1.3 percent while 
LTCHs with 125-199 beds will experience an increase in payments for 
LTCH PPS standard Federal payment rate cases of 1.2 percent. 
Finally, LTCHs with 200 or more beds will experience the largest 
increase in payments for LTCH PPS standard Federal payment rate 
cases of 2.4 percent mostly due to estimated increase in payments 
from changes to our SSO payment methodology.

4. Effect on the Medicare Program

    As stated previously, we project that the provisions of this 
final rule will result in an increase in estimated aggregate LTCH 
PPS payments to LTCH PPS standard Federal payment rate cases in FY 
2018 relative to FY 2017 of approximately 35 million (or 
approximately 1.0 percent) for the 415 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 final rule will result in a decrease in 
estimated aggregate LTCH PPS payments to site neutral payment rate 
cases in FY 2018 relative to FY 2017 of approximately $230 million 
(or approximately 20 percent) for the 415 LTCHs in our database. 
Therefore, we project that the provisions of this final rule will 
result in a decrease in estimated aggregate LTCH PPS payments to all 
LTCH cases in FY 2018 relative to FY 2017 of approximately $195 
million (or approximately 4.2 percent) for the 415 LTCHs in our 
database. Furthermore, as stated previously, our Office of the 
Actuary estimates an additional estimated increase in aggregate FY 
2018 LTCH PPS payments of approximately $85 million for our 
finalized policy to delay full implementation of the 25-percent 
threshold policy for FY 2018 and our implementation of certain 
provisions of the 21st Century Cures Act. Therefore, in total, we 
project an overall decrease in LTCH PPS payments of approximately 
$110 million ($195 million decrease + $85 million increase) or 
approximately a 2.4 percent decrease in LTCH PPS payments in FY 2018 
as compared to FY 2017.

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 final rule, but we 
continue to expect that paying prospectively for LTCH services will 
enhance the efficiency of the Medicare program. As

[[Page 38581]]

discussed above, we do not expect the continued implementation of 
the site neutral payment system to have a negative impact access to 
or quality of care, as demonstrated in areas where there is little 
or no LTCH presence, general short-term acute care hospitals are 
effectively providing treatment for the same types of patients that 
are treated in LTCHs.

K. Effects of Requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program

1. Background

    In section IX.A. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20031 through 20075) and this final rule, we 
discuss our requirements for hospitals to report quality data under 
the Hospital IQR Program in order to receive the full annual 
percentage increase for the FY 2020 payment determination.
    In this final rule, we are finalizing our policies to: (1) 
modify the previously finalized the electronic clinical quality 
measure (eCQM) reporting requirements for the FY 2019 and FY 2020 
payment determinations, such that hospitals submit one, self-
selected calendar quarter of data for 4 eCQMs; (2) update the eCQM 
certification requirements for the FY 2019 and FY 2020 payment 
determinations; (3) modify the previously finalized eCQM data 
validation process, whereby hospitals selected for eCQM data 
validation will be required to submit a reduced number of cases for 
eCQM data validation for the FY 2020 and FY 2021 payment 
determinations; (4) allow hospitals to use an educational review 
process to correct incorrect validation results for the first three 
quarters of validation for chart-abstracted measures beginning with 
the FY 2020 payment determination and for subsequent years; (5) 
begin voluntary reporting on the Hybrid Hospital-Wide 30-Day 
Readmission (HWR) measure for the CY 2018 reporting period; (6) 
refine the Hospital Consumer Assessment of Healthcare Providers and 
Systems (HCAHPS) survey measure to replace the questions on Pain 
Management for the FY 2020 payment determination and subsequent 
years; (7) refine the Hospital 30-Day Mortality Following Acute 
Ischemic Stroke Hospitalization measure to include the use of NIH 
Stroke Scale claims data for the FY 2023 payment determination and 
subsequent years; and (8) update the terminology used to refer to 
the Extraordinary Circumstances Exceptions (ECE) policy for the FY 
2020 payment determination and subsequent years.
    As further explained in section XIII.B.3. of the preamble of 
this final rule, we believe that there will be an overall decrease 
in burden for hospitals due to the finalized policies discussed 
above. We refer readers to section XIII.B.3. of the preamble of this 
final rule for a summary of our burden estimates.

2. Impact of the Updates to the eCQM Reporting Requirements for the CY 
2017 Reporting Period/FY 2019 and CY 2018 Reporting Period/FY 2020 
Payment Determinations

    In the FY 2017 IPPS/LTCH PPS final rule, we finalized policies 
to require hospitals to submit a full year (four quarters) of data 
(81 FR 57159) for at least eight eCQMs (81 FR 57157) for both the FY 
2019 and FY 2020 payment determinations. In section IX.A.8. of the 
preamble of this final rule, we are finalizing modifications to the 
eCQM reporting requirements we proposed in the FY 2018 IPPS/LTCH PPS 
proposed rule, such that, for the CY 2017 reporting period/FY 2019 
payment determination and CY 2018 reporting period/FY 2020 payment 
determination, hospitals must submit one, self-selected, calendar 
quarter of data for 4 eCQMs. As discussed in section XIII.B.3.b. of 
the preamble of this final rule, we believe the reduced number of 
eCQMs required for the CY 2017 and CY 2018 reporting periods will 
result in a reduction of 15,400 hours (-280 minutes per hospital per 
year/60 minutes per hours x 3,300 hospitals) and $563,332 (15,400 
hours x $36.58 per hour) for each of the FY 2019 and FY 2020 payment 
determinations.

3. Impact of the Modifications to the Existing Data Validation 
Processes for the FY 2020 Payment Determination and Subsequent Years

    In section IX.A.11. of the preamble of this final rule, we 
discuss our finalized policy to modify the existing eCQM data 
validation process for the Hospital IQR Program data beginning with 
validation for the FY 2020 payment determination. First, we are 
finalizing with modifications our proposal to require hospitals 
selected for eCQM data validation to submit eight cases per quarter 
for the FY 2020 payment determination and subsequent years.\519\ We 
are also finalizing our proposals to: (1) Add additional exclusion 
criteria to our hospital and case selection process for eCQM data 
validation for the FY 2020 payment determination and subsequent 
years; and (2) extend our previously finalized medical record 
submission requirements the accuracy of eCQM data submitted for 
validation will not affect a hospital's validation score for the FY 
2021 payment determination and subsequent years. As discussed in 
section XIII.B.3.d.(1) of the preamble of this final rule, we 
estimate our proposal to reduce the number of cases submitted by 
hospitals submitted by hospitals selected for eCQM data validation 
will result in an annual burden reduction of approximately 6,400 
hours (8,533 hours estimated in the FY 2017 IPPS/LTCH PPS final rule 
-2,133 hours estimated in this final rule) and $234,112 (6,400 hours 
x $36.58 per hour) across the 200 hospitals selected for eCQM 
validation.
---------------------------------------------------------------------------

    \519\ We are finalizing this requirement in conjunction with our 
finalized policy to require hospitals to report one, self-selected 
quarter of data for 4 eCQMs for each of the CY 2017 and CY 2018 eCQM 
reporting periods, as described above. Accordingly, we are 
finalizing our modified policy and will require the number of 
required case files for validation will be 8 records (eight cases 
for one quarter) for each of the FY 2020 and FY 2021 payment 
determinations.
---------------------------------------------------------------------------

4. Impact of the Voluntary Reporting on the Hybrid Hospital-Wide 30-Day 
Readmission Measure for the CY 2018 Reporting Period

    In section IX.A.7.b. of the preamble of this final rule, we are 
finalizing our proposal that hospitals may voluntarily submit the 13 
core clinical data elements and the 6 data elements required for 
linking with claims data for this measure using the same submission 
process required for eCQM reporting, specifically, that these data 
be reported using QRDA I files submitted to the CMS data receiving 
system. As discussed in section XIII.B.3.e., we expect the burden 
associated with voluntary reporting of this measure to be 
approximately 67 hours (40 minutes per hospital/60 minutes per hour 
x 100 hospitals = 67 hours) and $2,451 ($36.58 per hour x 67 hours 
annually) across up to 100 hospitals voluntarily participating in 
reporting for the Hybrid HWR measure.

5. Summary of Effects

    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 modified, reduced requirements 
for eCQM reporting that we are finalizing for the FY 2019 and FY 
2020 payment determinations, the number of hospitals not receiving 
the full annual percentage increase will not substantially increase 
due to this requirement of the program. If the number of hospitals 
failing to receive the full annual percentage increase does increase 
because of our modified requirements, we anticipate that, over the 
long run, this number will decline as hospitals gain more experience 
with these requirements.
    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 improving the quality 
of care and value for Medicare beneficiaries.

L. Effects of Requirements for the PPS-Exempt Cancer Hospital 
Quality Reporting (PCHQR) Program

    In section IX.B. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20075 through 20086) and this final rule, we 
discuss our policies for the quality data reporting program for PPS-
exempt cancer hospitals (PCHs), which we refer to as the PPS-Exempt 
Cancer Hospital Quality Reporting (PCHQR) Program. The PCHQR Program 
is authorized under section 1866(k) of the Act, which was added by 
section 3005 of the Affordable Care Act. There is no financial 
impact to PCH Medicare reimbursement if a PCH does not submit data.
    In section IX.B.4. of the preamble of this final rule, we are 
finalizing our proposals to adopt four claims-based measures 
beginning with the FY 2020 program: (1) Proportion of Patients Who 
Died from Cancer Receiving Chemotherapy in the Last 14 Days of Life 
(NQF #0210); (2) Proportion of Patients Who Died from Cancer 
Admitted to the ICU in the Last 30 Days of Life (NQF #0213); (3) 
Proportion of Patients Who Died from Cancer Not Admitted to Hospice 
(NQF #0215); and (4) Proportion of Patients Who Died from Cancer 
Admitted to Hospice for Less Than Three Days (NQF #0216)). In 
conjunction with our finalized proposal in section IX.B.3.b. of the 
preamble of this final rule to

[[Page 38582]]

remove three existing chart-abstracted measures beginning with the 
FY 2020 program--(1) 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 
(PCH-01/NQF #0223); (2) Combination Chemotherapy is Considered or 
Administered Within 4 Months (120 Days) of Diagnosis for Women Under 
70 with AJCC T1c, or Stage II or III Hormone Receptor Negative 
Breast Cancer (PCH-02/NQF #0559); and (3) Adjuvant Hormonal Therapy 
(PCH-03/NQF #0220)--the PCHQR Program measure set will consist of 18 
measures for the FY 2020 program.
    As further explained in section XIII.B.4. of the preamble of 
this final rule, we anticipate that these new requirements will 
reduce overall burden on participating PCHs. In the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53667), we estimated a burden of 30 
minutes for a PCH to perform chart abstraction of a single patient 
record and submit it to CMS. Using estimates from the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53667), we estimate the total annual 
hourly burden for each PCH for the collection and submission of 
measure information and the training of personnel for submitting 
quality measure data applicable to one (1) chart-abstracted measure 
is approximately 1,258.7 hours per year, or 104.9 hours per month 
(1,258.7 hours per year/12 months). We multiply this number by three 
(3) to obtain our estimated reduction in burden for collecting 
measure information, submitting measure information, and training 
personnel provided by the finalized removal of the three measures, 
which is approximately 3,776 hours per year for each PCH, or an 
average reduction in burden of 315 hours per month per PCH and a 
total of 41,536 hours across all 11 PCHs. Our finalized removal of 
three chart-abstracted measures will reduce the burden associated 
with quality data reporting on PCHs by reducing quality measure 
chart abstraction by approximately 16,364 cases across all 11 PCHs.
    We do not anticipate any increase in burden on the PCHs 
corresponding to our finalized adoption of four claims-based 
measures into the PCHQR Program beginning with the FY 2020 program 
year. These measures are claims-based and therefore do not require 
facilities to report any additional data. Because these measures do 
not require facilities to submit any additional data, we do not 
believe that there is any associated burden with this finalized 
policy.

M. Effects of Requirements for the Long-Term Care Hospital Quality 
Reporting Program (LTCH QRP)

    In section IX.C.1. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20086 through 20121) and this final rule, we 
discuss the implementation of the LTCH QRP. At the time that this 
analysis was prepared, 41, or approximately 9.7 percent, of 424 
eligible LTCHs were determined to be noncompliant and therefore 
received a 2 percentage point reduction to their FY 2017 annual 
payment update. We anticipate that fewer LTCHs will receive the 
reduction for FY 2018 as LTCHs become more familiar with the 
requirements as we believe that continued trainings, as well as 
utilization of new reports for LTCHs, will help LTCHs comply with 
the LTCH QRP requirements. Thus, we estimate that the proposals that 
we are finalizing in this final rule will have a negligible impact 
on overall LTCH payments for FY 2018.
    In section IX.C.7. of the preamble of this final rule, we are 
finalizing our proposal to replace the current pressure ulcer 
measure, Percent of Residents or Patients with Pressure Ulcers That 
Are New or Worsened (Short Stay) (NQF #0678), with a new modified 
version of the measure, Changes in Skin Integrity Post-Acute Care: 
Pressure Ulcer/Injury, beginning with the FY 2020 LTCH QRP. We are 
also finalizing our proposals to adopt two additional measures: 
Compliance with Spontaneous Breathing Trial (SBT) by Day 2 of the 
LTCH Stay; and Ventilator Liberation Rate, beginning with the FY 
2020 LTCH QRP. In addition, we are finalizing our proposals that 
data for these measures will be collected and reported using the 
LTCH CARE Data Set (LTCH CARE Data Set Version 4.00, which will be 
effective July 1, 2018). For more information regarding the LTCH 
CARE Data Set Version 4.00 implementation date, we refer readers to 
section IX.C.11. of the preamble of this final rule.
    We also are finalizing our proposal to remove the All-Cause 
Unplanned Readmission Measure for 30 Days Post-Discharge from LTCHs 
(NQF #2512). Because LTCHs will still be required to report data on 
this measure for payment purposes, we believe that the removal of 
this measure will not affect the burden estimate for the LTCH QRP.
    In addition, adoption of the pressure ulcer measure, Change in 
Skin Integrity Post-Acute Care: Pressure Ulcer Injury which will 
replace the current pressure ulcer measure, Percent of Residents or 
Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 
(NQF #0678), will result in the removal of some data elements 
related to pressure ulcer assessment that we believe are duplicative 
or no longer necessary. As a result, the estimated burden and cost 
for LTCHs to report the newly finalized measure will be reduced from 
the burden and cost to report the current measure.
    We also are finalizing our proposals to remove the program 
interruption items from the LTCH CARE Data Set. Specifically, we are 
finalizing our proposals to remove the following items: A2500, 
Program Interruption(s); A2510, Number of Program Interruptions 
During This Stay in This Facility; and A2525, Program Interruption 
Dates, because we do not currently utilize this information and do 
not have plans to utilize this information for the LTCH QRP. As a 
result, the estimated burden and cost for LTCHs will be reduced.
    In section IX.C.10. of the preamble of this final rule, we are 
finalizing standardized patient assessment data proposals with 
respect to the Functional Status and Medical Condition and 
Comorbidity categories. All of the data elements are already 
included on the LTCH CARE Data Set and therefore our finalized 
policy to characterize those data elements as standardized patient 
assessment data will not result in an additional reporting burden 
for LTCHs.
    We are not finalizing our proposals to require LTCHs to report 
25 new standardized patient assessment data elements with respect to 
LTCH admissions and 17 new standardized patient assessment data 
elements with respect to LTCH discharges. This results in a burden 
reduction from what we proposed. We refer readers to the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20225 through 20226), for a 
discussion of our burden estimates for these proposals.
    As described in section XIII.B.6. of the preamble of this final 
rule, the 4.5-minute increase in burden for the two finalized 
ventilator weaning quality measures is offset by the 3 minute 
reduction in burden for the finalized pressure ulcer quality measure 
and the 3.6 minute reduction in burden for the program interruption 
items. This results in a net reduction in burden of 2.1 minutes. 
Overall, this results in a net decrease in cost associated with the 
finalized changes to the LTCH QRP, which we estimate to be reduced 
by estimated at a reduction of $893.14 per LTCH annually, or 
$380,480 for all LTCHs annually.
    For additional discussion of information collection requirements 
related to our finalized proposals, we refer readers to section 
XIII.B.6 of the preamble of this final rule. We received public 
comments about the effects of requirements for the LTCH QRP, which 
we summarize and respond to below.
    Comment: Several commenters expressed views regarding the burden 
imposed by the proposed LTCH CARE Data Set Version 4.00. One 
commenter commended CMS for ensuring robust and accurate quality 
reporting, but noted that the absence of EHRs in the LTCH setting 
contributes to this burden and requires extra staff to collect, 
process, and transmit the necessary data. Another commenter noted 
the importance of assessing the value of new quality measures, and 
ensuring that they are not prematurely implemented.
    Response: We always considers provider burden, and we take this 
into account when developing quality measures or standardized 
patient assessment data elements for inclusion into our quality 
reporting programs. We assess the value of adopting new quality 
measures into the LTCH QRP and we consider overall clinical 
relevance and usability to support clinical decision-making, care 
transitions, and resource utilization.
    In response to the commenter's concern regarding EHRs, while we 
support the use of EHRs, we do not require that providers use EHRs 
to populate assessment data in the LCDS. We also disagree with the 
commenter's suggestion that we do not provide a mechanism for 
collecting, processing, and transmitting data, and we note that with 
each assessment release, we offer free software for LTCHs (LASER), 
allowing LTCHs to record and transmit the required LTCH CARE Data 
Set assessment based data. This free software, including 
instructions for installing and using the software, is located at: 
https://www.qtso.com/laser.html.

[[Page 38583]]

    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.
    As discussed in section IX.C.11.d. of the preamble of this final 
rule, after consideration of the public comments we received, we are 
moving the release date for the LTCH CARE Data Set Version 4.00 from 
April 1, 2018 to July 1, 2018. The LTCH CARE Data Set Version 4.00, 
which will be effective July 1, 2018, will contain additional data 
elements needed to calculate the Drug Regimen Review Conducted with 
Follow-Up for Identified Issues-PAC LTCH QRP quality measure, which 
was finalized in the FY 2017 IPPS/LTCH PPS final rule (81 FR 57219 
through 57223), as well as the data elements needed to calculate the 
measures we are adopting in this final rule.
    Comment: A few commenters stated that CMS' burden estimates were 
inaccurate, pointing out the need for additional staff, training, 
and expenses when items are added to the LTCH CARE Data Set.
    Response: Our burden estimates only capture the time needed to 
complete LTCH CARE Data Set data elements and do not include 
clinical time spent assessing the patient as this activity is 
already part of the healthcare providers standard of care.

N. Effects of Updates to the Inpatient Psychiatric Facility Quality 
Reporting (IPFQR) Program

    As discussed in section IX.D. of the preambles of the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20120 through 20130) and this 
final rule, and in accordance with section 1886(s)(4)(A) of the Act, 
we will implement a 2 percentage point reduction in the FY 2020 
market basket update for IPFs that have failed to comply with the 
IPFQR Program requirements for the FY 2020 payment determination. In 
section IX.D. of the preamble of this final rule, we discuss how the 
2 percentage point reduction will be applied. For the FY 2017, 
payment determination (that is, data collected during CY 2015 and 
submitted in CY 2016) of the 1,647 IPFs eligible for the IPFQR 
Program, 49 did not receive the full market basket update due to 
reasons specific to the IPFQR Program; 22 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 
2018 as IPFs become more familiar with the requirements. Thus, we 
estimate that the IPFQR Program will have a negligible impact on 
overall IPF payments for FY 2018.
    We intend to closely monitor the effects of this quality 
reporting program on IPFs and to help facilitate successful 
reporting outcomes through ongoing stakeholder education, national 
trainings, and a technical help desk.
    We are finalizing our proposals, without change, that impact the 
FY 2018 procedural requirements and subsequent years. We are not 
finalizing our proposal to adopt one claims-based measure for the FY 
2020 payment determinations and subsequent years. We refer readers 
to section XIII.B.7. of the preamble of this final rule for details 
discussing information collection requirements for the IPFQR 
Program.

O. Effects of Requirements Regarding the Electronic Health Record 
(EHR) Incentive Programs and Meaningful Use

    In section IX.E of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20130 through 20133) and this final rule, we 
discuss proposed and newly finalized policies for eligible hospitals 
and CAHs reporting CQMs electronically under the Medicare and 
Medicaid EHR Incentive Programs in 2017 and 2018. As outlined in 
this final rule, we are finalizing modifications to our proposals 
and making the following modifications to the CY 2017 final CQM 
policies: (1) Revising the CY 2017 reporting period for eligible 
hospitals and CAHs reporting CQMs electronically to require the 
submission of one, self-selected calendar quarter of data; and (2) 
revising the number of CQMs eligible hospitals and CAHs are required 
to report electronically for CY 2017 to 4 (self-selected) available 
CQMs.
    In addition, we are finalizing modifications to our proposals 
that adopt the following CQM reporting requirements for CY 2018: (1) 
For eligible hospitals and CAHs reporting CQMs electronically that 
demonstrate meaningful use for the first time in 2018 or that have 
demonstrated meaningful use in any year prior to 2018, the reporting 
period will be one, self-selected quarter of data from CY 2018 with 
a submission period (Medicare EHR Incentive Program only) consisting 
of the 2 months following the close of the calendar year, ending on 
February 28, 2019; (2) eligible hospitals and CAHs reporting CQMs 
electronically will be required to report at least 4 (self-selected) 
of the available CQMs; (3) eligible hospitals and CAHs that report 
CQMs by attestation under the Medicare EHR Incentive Program because 
electronic reporting is not feasible, and eligible hospitals and 
CAHs that report CQMs by attestation under their State's Medicaid 
EHR Incentive Program, will be required to report on all 16 
available CQMs; and (4) eligible hospitals and CAHs reporting CQMs 
by attestation under the Medicare EHR Incentive Program will have a 
submission period that will be the 2 months following the close of 
the CY 2018 CQM reporting period, ending February 28, 2019.
    Because the finalized reporting requirements for data collection 
regarding the reporting of CQMs electronically under the Medicare 
and Medicaid EHR Incentive Programs will align with the reporting 
requirements under the Hospital IQR Program, we do not believe that 
there is any additional burden for the collection of such 
information. We did not propose modifications for the CQMs reporting 
requirements by attestation in this section. Therefore, no change in 
burden associated with attestation of CQMs will result from this 
section.
    In section IX.F of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20134 through 20135) and this final rule, we 
discuss proposed and newly finalized policies regarding clinical 
quality measurement for EPs participating in the Medicaid EHR 
Incentive Program. We note that there may be costs incurred by 
States associated with systems development as a result of the newly 
finalized policies. State attestation systems will likely require 
minor updates, which may be eligible for support through enhanced 
Federal funding, subject to CMS prior approval, if outlined in an 
updated Implementation Advance Planning Document (IAPD). We 
anticipate that eligible professionals (EPs) may also face minor 
burden and incremental capital cost for updating clinical quality 
measures and reporting capabilities in the EHR. However, we intend 
to reduce EP burden and simplify the program through these newly 
finalized policies, which are intended to better align CQM reporting 
periods and CQM reporting for the Medicaid EHR Incentive Program 
with policies under MIPS. Overall, we believe the finalized CQM 
alignment at the State attestation system and EP levels will both 
reduce burden associated with reporting on multiple CMS programs and 
enhance State and CMS operational efficiency.
    In section IX.G.1. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20135 through 20136) and section IX.G.2. of the 
preamble of this final rule, we discuss our proposed and newly 
finalized policies to change the EHR reporting period in 2018 from 
the full CY 2018 to any continuous 90-day period within CY 2018 for 
all new and returning EPs, eligible hospitals and CAHs attesting to 
meaningful use in the Medicare and Medicaid EHR Incentive Programs. 
We do not believe that modifying the EHR reporting period for 
attestation will cause an increase in cost because the reporting 
requirements for a 90-day EHR reporting period are virtually the 
same as for a full calendar year EHR reporting period because the 
requirements for a full calendar year EHR reporting period and 90-
day EHR reporting period require the same number of objectives and 
measures to be met.
    In section IX.G.2. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20136 through 20138) and section IX.G.3. of the 
preamble of this final rule, as required by the 21st Century Cures 
Act (Pub. L. 114-255), we discuss and finalize our proposal for an 
exemption from the payment adjustments under sections 1848(a)(7)(A), 
1886(b)(3)(B)(ix)(I), and 1814(l)(4) of the Act for EPs, eligible 
hospitals and CAHs, respectively, that demonstrate through an 
application process that compliance with the requirements for being 
a meaningful EHR user is not possible because their certified EHR 
technology has been decertified under ONC's Health IT Certification 
Program. The application process involves participants completing an 
application form for an exception. While the form is standardized, 
we believe it is exempt from the PRA. The form is structured as an 
attestation. Therefore, we believe it is exempt under 5 CFR 
1320.3(h)(1) of the implementing regulations of the PRA. The form is 
an attestation that imposes no burden beyond what is required to 
provide identifying information and to attest to the applicable 
information.
    In section IX.G.3. of the preamble of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR

[[Page 38584]]

20138 through 20139) and IX.G.4. of the preamble of this final rule, 
as required by the 21st Century Cures Act, we discuss and finalize 
our proposal to exempt ambulatory surgical center-based EPs from the 
2017 and 2018 payment adjustments under section 1848(a)(7)(A) of the 
Act if they furnish substantially all of their covered professional 
services in an ambulatory surgical center. We do not believe this 
requirement will cause an increase in burden as CMS will identify 
the EPs who might meet this requirement.
    For the information collection requirements relating to the 
above finalized proposals, we refer readers to section XIII.B.8. of 
the preamble of this final rule.

P. Effects of Electronic Signature and Electronic Submission of the 
Certification and Settlement Summary Page of Medicare Cost Reports

    In section X.A. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20139 through 20142) and this final rule, we 
discuss and finalize our proposal to allow providers to use an 
electronic signature on the certification statement of the 
Certification and Settlement Summary page of the Medicare cost 
report and submit it electronically. This final policy will result 
in savings to providers.
    Using the most current data from Medicare's System for Tracking 
Audit and Reimbursement, approximately 51,000 providers file a 
Medicare cost report and, therefore, must currently mail the 
Certification and Settlement Summary page. Because most providers 
mail the Certification and Settlement Summary page via certified 
mail with return receipt (which includes delivery confirmation), at 
the current U.S. Postal Service price of $7.10, if all of these 
providers elect to electronically submit the Certification and 
Settlement Summary page with an electronic signature, this final 
policy will collectively save these providers approximately $362,000 
in postage costs. This is an underestimate as it does not include 
mailing costs when providers choose to mail the Certification and 
Settlement Summary page to their contractors via overnight mail at a 
significantly higher expense.

Q. Effects of Changes Relating to Survey and Certification 
Requirements

    In section XI.B. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20145 through 20146) and this final rule, we 
discuss and finalize our proposal to eliminate the term 
``newspaper'' from the requirement to publish public notice upon a 
provider's involuntary termination for RHCs, FQHCs, ASCs, and OPOs. 
Eliminating the term ``newspaper'' will allow greater flexibility 
for the CMS Regional Offices in publishing public notices and will 
also reduce burden on the CMS Regional Offices.
    The print newspaper advertisements for an involuntary 
termination are required to be purchased by the CMS Regional Office 
assigned to that provider or supplier. The advertisement is placed 
under the legal advertisement section of the local newspaper outlet. 
A single CMS Regional Office may incur an average annual cost of 
approximately $3,000 to $5,000 for the purchase of involuntary 
termination notices for the providers or suppliers assigned to its 
region. For example, from 2014 to 2016, the Dallas Regional Office 
spent $14,331.89 on the publication of termination notices in local 
newspapers, with costs of $3,949.45 in 2014, costs of $5,386.67 in 
2015, and costs of $4,998.77 in 2016. In same timeframe of 2014 to 
2016, the Philadelphia Regional Office spent a total of $7,114.75 
and the Kansas Regional Office spent a total of $11,121.40. The 
table below depicts the actual FY 2016 costs for all 10 CMS Regional 
Offices.

------------------------------------------------------------------------
                     Regional office                        2016 costs
------------------------------------------------------------------------
Boston..................................................          $4,766
New York................................................             645
Philadelphia............................................           3,570
Atlanta.................................................           6,712
Chicago.................................................          10.853
Dallas..................................................           4,252
Kansas City.............................................           3,098
Denver..................................................             910
San Francisco...........................................           1,507
Seattle.................................................             707
                                                         ---------------
  Total Cost............................................       37,020.00
------------------------------------------------------------------------

    If one CMS Regional Office spends approximately $5,000 annually, 
and there are 10 CMS Regional Offices, the average cost nationwide 
per annum for termination notices could be as high as $50,000.
    The cost associated with the involuntary termination notice is 
assessed only to the CMS Regional Offices. The provider or supplier 
is not required to post a notice for an involuntary termination. 
Therefore, there will be no associated costs for the provider or 
supplier.
    All CMS Regional Offices have Web sites available to the public, 
which are regularly maintained and updated. Creation of a subsite to 
reflect termination notices for providers will be at no cost to CMS. 
In addition, the use of Regional Press Officers to convey 
termination of a provider will be a minimal cost to CMS and absorbed 
through the Survey & Certification budget.

R. Effects of Clarification of Limitations on the Valuation of 
Depreciable Assets Disposed of on or after December 1, 1997

    In section X.B. of the preambles of the FY 2018 IPPS/LTCH PPS 
proposed rule (82 FR 20142 through 20143) and this final rule, we 
discuss and finalize our proposal to revise the Medicare provider 
reimbursement regulations to clarify our longstanding policy 
pertaining to allowable costs and the limits on the valuation of a 
depreciable asset that may be recognized in establishing an 
appropriate allowance for depreciation for assets disposed of on or 
after December 1, 1997. Specifically, we are clarifying that the 
elimination of the gain or loss for depreciable assets applies to 
assets a provider disposes of by sale or scrapping on or after 
December 1, 1997, regardless of whether the asset is scrapped, sold 
as an individual asset of a Medicare participating provider, or sold 
incident to a provider change of ownership. Because we are not 
making any change in policy, but rather are restating longstanding 
Medicare policy, there is no economic impact on providers resulting 
from this policy clarification.

S. Alternatives Considered

    This final rule contains a range of policies. It also provides 
descriptions of the statutory provisions that are addressed, 
identifies the finalized policies, and presents rationales for our 
decisions and, where relevant, alternatives that were considered.
    As discussed in section III.H. of the preamble of this final 
rule, we are extending the imputed floor policy for developing the 
hospital wage index for 1 additional year. We note that if the 
imputed floor policy had expired at the end of FY 2017, we estimate 
that IPPS payments would have decreased by approximately $12 million 
in New Jersey, $22 million in Rhode Island, and $12 million in 
Delaware. Because the imputed floor policy is budget neutral 
nationally, had the policy expired, these payments would have been 
redistributed to all IPPS hospitals nationally.

T. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, titled ``Reducing Regulation and 
Controlling Regulatory Costs,'' was issued on January 30, 2017. This 
final rule is considered an Executive Order 13771 regulatory action. 
In the table below, we provide a summation of the savings/costs 
delineated in the sections XIII.B of the preamble and section I. of 
Appendix A of this final rule. Additional details on the estimated 
costs of this rule can be found in the preceding and subsequent 
analyses.

 
------------------------------------------------------------------------
                                                             Amount of
     Section of the final rule           Description         costs or
                                                              savings
------------------------------------------------------------------------
Section XII.B.3. of the preamble..  ICRs for the            ($1,592,437)
                                     Hospital IQR
                                     Programs.
Section XII.B.4. of the preamble..  ICRs for the PCHQR       (1,519,427)
                                     Program.
Section I.M.of Appendix A.........  Effects of                 (380,480)
                                     Requirements for
                                     the LTCH QRP.

[[Page 38585]]

 
Section I.P.of Appendix A.........  Effects of                 (362,000)
                                     Electronic
                                     Signature and
                                     Electronic
                                     Submission of the
                                     Certification and
                                     Settlement Summary
                                     Page of Medicare
                                     Cost Reports for FY
                                     2018.
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total.........................  ....................     (3,854,344)
------------------------------------------------------------------------

U. Overall Conclusion

1. Acute Care Hospitals

    Table I of section I.G. of this Appendix demonstrates the 
estimated distributional impact of the IPPS budget neutrality 
requirements for the MS-DRG and wage index changes, and for the wage 
index reclassifications under the MGCRB. Table I also shows a 
projected overall increase of 1.3 percent in operating payments 
before accounting for the impact of the changes in Medicare DSH 
payments and uncompensated care payments. When combined with the 
impact of those changes, consistent with our policy discussed in 
section V.G. of the preamble of this final rule, we estimate that 
operating payments will increase by approximately 2.3 percent in FY 
2018, or approximately $2.5 billion. We also currently estimate that 
the changes in new technology add-on payments for FY 2018 will 
decrease spending by approximately $34 million and the changes to 
the volume decrease adjustment will increase spending by 
approximately $15 million. In addition, we estimate the change in 
low-volume hospital payments, including the statutory expiration of 
the temporary increase in the low-volume hospital payment adjustment 
in FY 2018 will decrease spending by approximately $312 million in 
FY 2018. These estimates, combined with our estimated increase in FY 
2018 operating payment of $2.5 billion, will result in an estimated 
increase of approximately $2.2 billion for FY 2018. We estimate that 
hospitals will experience a 2.7 percent increase in capital payments 
per case, as shown in Table III of section I.I. of this Appendix. We 
project that there will be a $226 million increase in capital 
payments in FY 2018 compared to FY 2017. The cumulative operating 
and capital payments will result in a net increase of approximately 
$2.4 billion to IPPS providers. The discussions presented in the 
previous pages, in combination with the rest of this final rule, 
constitute a regulatory impact analysis.

2. LTCHs

    Overall, LTCHs are projected to experience a decrease in 
estimated payments per discharge in FY 2018. In the impact analysis, 
we are using the rates, factors, and policies presented in this 
final rule based on the best available claims and CCR data to 
estimate the change in payments under the LTCH PPS for FY 2018. 
Accordingly, based on the best available data for the 415 LTCHs in 
our database, we estimate that FY 2018 LTCH PPS payments will 
decrease approximately $110 million relative to FY 2017 as a result 
of the payment rates and factors presented in this final rule.

V. Regulatory Review Costs

    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret a rule, we should 
estimate the cost associated with regulatory review. In the FY 2018 
IPPS/LTCH PPS proposed rule (82 FR 20228), due to the uncertainty 
involved with accurately quantifying the number of entities that 
would review the proposed rule, we assumed that the total number of 
timely pieces of correspondence on last year's proposed rule would 
be the number of reviewers of the proposed rule. We acknowledged 
that this assumption may understate or overstate the costs of 
reviewing the rule. It is possible that not all commenters reviewed 
last year's rule in detail, and it is also possible that some 
reviewers chose not to comment on the proposed rule. For those 
reasons, we decided that the number of past commenters would be a 
fair estimate of the number of reviewers of the proposed rule. We 
welcomed any public comments on the approach in estimating the 
number of entities that would review the proposed rule. We did not 
receive any public comments specific to our solicitation.
    We also recognized that different types of entities are in many 
cases affected by mutually exclusive sections of the proposed rule. 
Therefore, for the purposes of our estimate, we assumed that each 
reviewer read approximately 50 percent of the proposed rule. We 
sought public comments on this assumption. We did not receive any 
public comments specific to our solicitation.
    We have used the number of timely pieces of correspondence on 
the FY 2018 proposed rule as our estimate for the number of 
reviewers of this final rule. We continue to acknowledge the 
uncertainty involved with using this number, but we believe it is a 
fair estimate due to the variety of entities affected and the 
likelihood that some of them choose to rely (in full or in part) on 
press releases, newsletters, fact sheets, or other sources rather 
than the comprehensive review of preamble and regulatory text. Using 
the wage information from the BLS for medical and health service 
managers (Code 11-9111), we estimate that the cost of reviewing the 
final rule is $105.16 per hour, including overhead and fringe 
benefits (https://www.bls.gov/oes/current/oes_nat.htm). Assuming an 
average reading speed, we estimate that it will take approximately 
21 hours for the staff to review half of the final rule. For each 
IPPS hospital or LTCH that reviews the final rule, the estimated 
cost is $2,208.36 (21 hours x $105.16). Therefore, we estimate that 
the total cost of reviewing the final rule is $9,707,951 ($2,208.36 
x 4,396 reviewers).

II. Accounting Statements and Tables

A. Acute Care Hospitals

    As required by OMB Circular A-4 (available at https://obamawhitehouse.archives.gov/omb/circulars_a-004_a-4/ and https://georgewbush-whitehouse.archives.gov/omb/circulars/a004/a-4.html), in 
the following Table V., we have prepared an accounting statement 
showing the classification of the expenditures associated with the 
provisions of this final rule as they relate to acute care 
hospitals. This table provides our best estimate of the change in 
Medicare payments to providers as a result of the changes to the 
IPPS presented in this final rule. All expenditures are classified 
as transfers to Medicare providers.
    As shown below in Table V., the net costs to the Federal 
Government associated with the policies in this final rule are 
estimated at $2.4 billion.

 Table V--Accounting Statement: Classification of Estimated Expenditures
                 Under the IPPS From FY 2017 to FY 2018
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $2.4 billion.
From Whom to Whom......................  Federal Government to IPPS
                                          Medicare Providers.
------------------------------------------------------------------------


[[Page 38586]]

B. LTCHs

    As discussed in section I.J. of this Appendix, the impact 
analysis of the payment rates and factors presented in this final 
rule under the LTCH PPS is projected to result in a decrease in 
estimated aggregate LTCH PPS payments in FY 2018 relative to FY 2017 
of approximately $110 million based on the data for 415 LTCHs in our 
database that are subject to payment under the LTCH PPS. Therefore, 
as required by OMB Circular A-4 (available at https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/ and https://georgewbush-whitehouse.archives.gov/omb/circulars/a004/a-4.html), in 
Table VI., we have prepared an accounting statement showing the 
classification of the expenditures associated with the provisions of 
this final rule as they relate to the changes to the LTCH PPS. Table 
VI. provides our best estimate of the estimated change in Medicare 
payments under the LTCH PPS as a result of the payment rates and 
factors and other provisions presented in this final rule based on 
the data for the 415 LTCHs in our database.
    As shown in Table VI. below, the net savings to the Federal 
Government associated with the policies for LTCHs in this final rule 
are estimated at $110 million.

Table VI--Accounting Statement: Classification of Estimated Expenditures
            From the FY 2017 LTCH PPS to the FY 2018 LTCH PPS
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  -$110 million
From Whom to Whom......................  Federal Government to LTCH
                                          Medicare Providers
------------------------------------------------------------------------

C. Information Collection Requirements, Regulatory Impact Analyses, 
and Regulatory Familiarization Costs

    As noted in section I.T. of Appendix A of this final rule, the 
savings and costs reflected in the information collection 
requirements and regulatory impact analyses of this final rule is a 
savings of $3,854,344. Also, as noted in section I.V. of Appendix A 
of this final rule, the regulatory review cost for this final rule 
is $9,707,951.

 Table VII--ACcounting Statement: Savings From the Hospital IQR Program
                 and Cost of Regulation Familiarization
------------------------------------------------------------------------
                Category                              Cost *
------------------------------------------------------------------------
Cost (in millions).....................  $5.853607
------------------------------------------------------------------------
* Familiarization cost is one time and some of the savings associated
  with the Hospital IQR Program are annually.

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 final rule relating to acute 
care hospitals will have a significant impact on small entities as 
explained in this Appendix. For example, because all hospitals are 
considered to be small entities for purposes of the RFA, the 
hospital impacts described in this final rule are impacts on small 
entities. For example, we refer readers to ``Table I--Impact 
Analysis of Changes to the IPPS for Operating Costs for FY 2018.'' 
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 they do not meet the SBA 
definition of a small business. Because we acknowledge that many of 
the affected entities are small entities, the analysis discussed 
throughout the preamble of this final rule constitutes our 
regulatory flexibility analysis. This final rule contains a range of 
policies. It provides descriptions of the statutory provisions that 
are addressed, identifies the finalized policies, and presents 
rationales for our decisions and, where relevant, alternatives that 
were considered.
    In the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 20229), we 
solicited public comments on our estimates and analysis of the 
impact of our proposals on those small entities. Any public comments 
that we received and our responses are presented throughout this 
final rule.

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 604 of the RFA. With the 
exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of an urban area and 
has fewer than 100 beds. Section 601(g) of the Social Security 
Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain 
New England counties as belonging to the adjacent urban area. Thus, 
for purposes of the IPPS and the LTCH PPS, we continue to classify 
these hospitals as urban hospitals. (We refer readers to Table I in 
section I.G. of this Appendix for the quantitative effects of the 
policy changes under the IPPS for operating costs.)

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 2017, that threshold level is approximately $146 
million. This final rule will not mandate any requirements for 
State, local, or tribal governments, nor will it affect private 
sector costs.

VI. Executive Order 13175

    Executive Order 13175 directs agencies to consult with Tribal 
officials prior to the formal promulgation of regulations having 
tribal implications. This final rule contains provisions applicable 
to hospitals and facilities operated by the Indian Health Service or 
Tribes or Tribal organizations under the Indian Self-Determination 
and Education Assistance Act and, thus, has tribal implications. 
Therefore, in accordance with Executive Order 13175 and the CMS 
Tribal Consultation Policy (December 2015),

[[Page 38587]]

CMS has consulted with Tribal officials on these Indian-specific 
provisions of the proposed rule prior to the formal promulgation of 
this final rule.

VII. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, the 
Executive Office of Management and Budget reviewed this final rule.

Appendix B: Recommendation of Update Factors for Operating Cost Rates 
of Payment for Inpatient Hospital Services

I. Background

    Section 1886(e)(4)(A) of the Act requires that the Secretary, 
taking into consideration the recommendations of MedPAC, recommend 
update factors for inpatient hospital services for each fiscal year 
that take into account the amounts necessary for the efficient and 
effective delivery of medically appropriate and necessary care of 
high quality. Under section 1886(e)(5) of the Act, we are required 
to publish update factors recommended by the Secretary in the 
proposed and final IPPS rules, respectively. Accordingly, this 
Appendix provides the recommendations for the update factors for the 
IPPS national standardized amount, the hospital-specific rate for 
SCHs, and the rate-of-increase limits for certain hospitals excluded 
from the IPPS, as well as LTCHs. In prior years, we have made a 
recommendation in the IPPS proposed rule and final rule for the 
update factors for the payment rates for IRFs and IPFs. However, for 
FY 2018, consistent with approach for FY 2017, 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 2018

A. FY 2018 Inpatient Hospital Update

    As discussed in section V.B. of the preamble to this final rule, 
for FY 2018, 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 2018 
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 this 
final rule, we are replacing the FY 2010-based IPPS operating and 
capital market baskets with the rebased and revised 2014-based IPPS 
operating and capital market baskets for FY 2018.
    In the FY 2018 IPPS/LTCH PPS proposed rule, based on the most 
recent data available at that time, in accordance with section 
1886(b)(3)(B) of the Act, we proposed to establish the FY 2018 
market basket update used to determine the applicable percentage 
increase for the IPPS on the IGI's fourth quarter 2016 forecast of 
the proposed 2014-based IPPS market basket rate-of-increase with 
historical data through third quarter 2016, which was estimated to 
be 2.9 percent. Based on the most recent data available for this FY 
2018 IPPS/LTCH PPS final rule, in accordance with section 
1886(b)(3)(B) of the Act, we are establishing the FY 2018 market 
basket update used to determine the applicable percentage increase 
for the IPPS on IGI's second quarter 2017 forecast of the 2014-based 
IPPS market basket rate-of-increase with historical data through 
first quarter 2017, which is estimated to be 2.7 percent.
    In accordance with section 1886(b)(3)(B) of the Act, as amended 
by section 3401(a) of the Affordable Care Act, in section V.B. of 
the preamble of the FY 2018 IPPS/LTCH PPS proposed rule (82 FR 
19932), we proposed an MFP adjustment of 0.4 percent for FY 2018. 
Therefore, based on IGI's fourth quarter 2016 forecast of the 
proposed 2014-based IPPS market basket, depending on whether a 
hospital submits quality data under the rules established in 
accordance with section 1886(b)(3)(B)(viii) of the Act (hereafter 
referred to as a hospital that submits quality data) and is a 
meaningful EHR user under section 1886(b)(3)(B)(ix) of the Act 
(hereafter referred to as a hospital that is a meaningful EHR user), 
we presented in the proposed rule four possible applicable 
percentage increases that could be applied to the standardized 
amount. Based on the most recent data available for this FY 2018 
IPPS/LTCH PPS final rule, in accordance with section 1886(b)(3)(B) 
of the Act, as amended by section 3401(a) of the Affordable Care 
Act, in section V.B. of the preamble of this final rule, we are 
establishing a MFP adjustment (the 10-year moving average percent 
change of MFP for the period ending FY 2018) of 0.6 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 V.B. of 
the preamble of this final rule, we are establishing the applicable 
percentages increases for the FY 2018 updates based on IGI's second 
quarter 2017 forecast of the 2014-based IPPS market basket, 
depending on whether a hospital submits quality data under the rules 
established in accordance with section 1886(b)(3)(B)(viii) of the 
Act and is a meaningful EHR user under section 1886(b)(3)(B)(ix) of 
the Act as outlined in the table below.

 
----------------------------------------------------------------------------------------------------------------
                                                     Hospital        Hospital      Hospital  did   Hospital  did
                                                     submitted       submitted      NOT  submit     NOT  submit
                                                   quality data    quality data    quality data    quality data
                     FY 2018                         and is a      and is NOT a      and is a      and is NOT a
                                                    meaningful      meaningful      meaningful      meaningful
                                                     EHR user        EHR user        EHR user        EHR user
----------------------------------------------------------------------------------------------------------------
Market Basket Rate[dash]of[dash]Increase........             2.7             2.7             2.7             2.7
Adjustment for Failure to Submit Quality Data                0.0             0.0          -0.675          -0.675
 under Section 1886(b)(3)(B)(viii) of the Act...
Adjustment for Failure to be a Meaningful EHR                0.0          -2.025             0.0          -2.025
 User under Section 1886(b)(3)(B)(ix) of the Act
MFP Adjustment under Section 1886(b)(3)(B)(xi)              -0.6            -0.6            -0.6            -0.6
 of the Act.....................................
Statutory Adjustment under Section                         -0.75           -0.75           -0.75           -0.75
 1886(b)(3)(B)(xii) of the Act..................
Applicable Percentage Increase Applied to                   1.35          -0.675           0.675           -1.35
 Standardized Amount............................
----------------------------------------------------------------------------------------------------------------


[[Page 38588]]

B. Update for SCHs for FY 2018

    Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2018 
applicable percentage increase in the hospital-specific rate for 
SCHs equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for 
all other hospitals subject to the IPPS).
    (We note that, as discussed in section V.H. of the preamble of 
this final rule, 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). 
Therefore, under current law, the MDH program will expire at the end 
of FY 2017. However, as discussed in section V.H. of the preamble of 
this final rule, MDHs have the opportunity to apply for SCH status 
in advance of the expiration of the MDH program and be paid as such 
under certain conditions, as specified in the regulations at 42 CFR 
412.92(b)(2)(i) and (b)(2)(v).)
    As previously mentioned, the update to the hospital specific 
rate for SCHs is subject to section 1886(b)(3)(B)(i) of the Act, as 
amended by sections 3401(a) and 10319(a) of the Affordable Care Act. 
Accordingly, depending on whether a hospital submits quality data 
and is a meaningful EHR user, we are establishing the same four 
possible applicable percentage increases in the table above for the 
hospital-specific rate applicable to SCHs.

C. FY 2018 Puerto Rico Hospital Update

    As discussed in the FY 2017 IPPS/LTCH PPS final rule (81 FR 
56939), 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 make 
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 V.B.1. of the 
preamble of this final rule. Accordingly, for FY 2018, we are 
establishing an applicable percentage increase of 1.35 percent to 
the standardized amount for hospitals located in Puerto Rico.

D. Update for Hospitals Excluded from the IPPS for FY 2018

    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 discussed in section VII. of the preamble of this final 
rule, we are using the percentage increase in the 2014-based IPPS 
operating market basket to update the target amounts 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 FY 2018 and 
subsequent fiscal years. Accordingly, for FY 2018, the rate-of-
increase percentage to be applied to the target amount for these 
children's hospitals, cancer hospitals, RNHCIs, and short-term acute 
care hospitals located in the U.S. Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa would be the FY 2018 
percentage increase in the 2014-based IPPS operating market basket. 
For this final rule, the current estimate of the IPPS operating 
market basket percentage increase for FY 2018 is 2.7 percent.

E. Update for LTCHs for FY 2018

    Section 123 of Public Law 106-113, as amended by section 307(b) 
of Public Law 106-554 (and codified at section 1886(m)(1) of the 
Act), provides the statutory authority for updating payment rates 
under the LTCH PPS.
    As discussed in section V.A. of the Addendum to this final rule, 
we are establishing an update the LTCH PPS standard Federal payment 
rate by 1.0 percent for FY 2018, consistent with the amendments to 
section 1886(m)(3) of the Act provided by section 411 of MACRA. In 
accordance with the LTCHQR Program under section 1886(m)(5) of the 
Act, we are reducing the annual update to the LTCH PPS standard 
Federal rate by 2.0 percentage points for failure of a LTCH to 
submit the required quality data. Accordingly, we are establishing 
an update factor of 1.01 in determining the LTCH PPS standard 
Federal rate for FY 2018. For LTCHs that fail to submit quality data 
for FY 2018, we are establishing an annual update to the LTCH PPS 
standard Federal rate of -1.0 percent (that is, the annual update 
for FY 2018 of 1.0 percent less 2.0 percentage points for failure to 
submit the required quality data in accordance with section 
1886(m)(5)(C) of the Act and our rules) by applying an update factor 
of 0.99 in determining the LTCH PPS standard Federal rate for FY 
2018.
    For FY 2018, consistent with the amendments to section 
1886(m)(3) of the Act provided by section 411 of MACRA, for LTCHs 
that submit quality data, we are recommending an update of 1.0 
percent to the LTCH PPS standard Federal rate. For LTCHs that fail 
to submit quality data for FY 2018, we are recommending an annual 
update to the LTCH PPS standard Federal rate of -1.0 percent.

III. Secretary's Recommendations

    MedPAC is recommending an inpatient hospital update in the 
amount specified in current law for FY 2018. 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.
    In addition to making a recommendation for IPPS hospitals, in 
accordance with section 1886(e)(4)(A) of the Act, we are 
recommending update factors for certain other types of hospitals 
excluded from the IPPS. Consistent with our policies for these 
facilities, we are recommending an update to the target amounts for 
children's hospitals, cancer hospitals, RNHCIs, and short-term acute 
care hospitals located in the U.S. Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa of 2.7 percent.
    For FY 2018, consistent with the amendments to section 
1886(m)(3) of the Act provided by section 411 of MACRA, for LTCHs 
that submit quality data, we are recommending an update of 1.0 
percent to the LTCH PPS standard Federal rate. For LTCHs that fail 
to submit quality data for FY 2018, we are recommending an annual 
update to the LTCH PPS standard Federal rate of -1.0 percent.

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 
Payments in Traditional Medicare

    In its March 2017 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 2017 MedPAC report, which is 
available for download at www.medpac.gov for a complete discussion 
on this recommendation. MedPAC expects Medicare margins to decline 
from 2015 to 2017.
    Response: We agree with MedPAC, and consistent with current law, 
we are applying

[[Page 38589]]

an applicable percentage increase for FY 2018 of 1.35 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 
final rule.

[FR Doc. 2017-16434 Filed 8-2-17; 4:15 pm]
 BILLING CODE 4120-01-P