Monday, 

August 16, 2010 

Book 2 of 2 Books 

Pages 50041–50681 

Part II 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 412, 413, 415, et al. 

Medicare Program; Hospital Inpatient 

Prospective Payment Systems for Acute 

Care Hospitals and the Long Term Care 

Hospital Prospective Payment System 

Changes and FY2011 Rates; Provider 

Agreements and Supplier Approvals; and 

Hospital Conditions of Participation for 

Rehabilitation and Respiratory Care 

Services; Medicaid Program: Accreditation 

for Providers of Inpatient Psychiatric 

Services; Final Rule 

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50042 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 412, 413, 415, 424, 440, 

441, 482, 485, and 489 

[CMS–1498–Fand CMS–1498–IFC; CMS– 

1406–F] 

RIN 0938–AP80; RIN 0938–AP33 

Medicare Program; Hospital Inpatient 

Prospective Payment Systems for 

Acute Care Hospitals and the LongTerm Care Hospital Prospective 

Payment System Changes and FY2011 

Rates; Provider Agreements and 

Supplier Approvals; and Hospital 

Conditions of Participation for 

Rehabilitation and Respiratory Care 

Services; Medicaid Program: 

Accreditation for Providers of Inpatient 

Psychiatric Services 

AGENCY: Centers for Medicare and 

Medicaid Services (CMS), HHS. 

ACTION: Final rules and interim final 

rule with comment period. 

SUMMARY: We are revising the Medicare 

hospital inpatient prospective payment 

systems (IPPS) for operating and capitalrelated costs of acute care hospitals to 

implement changes arising from our 

continuing experience with these 

systems and to implement certain 

provisions of the Affordable Care Act 

and other legislation. In addition, we 

describe the changes to the amounts and 

factors used to determine the rates for 

Medicare acute care hospital inpatient 

services for operating costs and capitalrelated costs. We also are setting forth 

the update 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. 

We are updating the payment policy 

and the annual payment rates for the 

Medicare prospective payment system 

(PPS) for inpatient hospital services 

provided by long-term care hospitals 

(LTCHs) and setting forth the changes to 

the payment rates, factors, and other 

payment rate policies under the LTCH 

PPS. In addition, we are finalizing the 

provisions of the August 27, 2009 

interim final rule that implemented 

statutory provisions relating to 

payments to LTCHs and LTCH satellite 

facilities and increases in beds in 

existing LTCHs and LTCH satellite 

facilities under the LTCH PPS. 

We are making changes affecting the: 

Medicare conditions of participation for 

hospitals relating to the types of 

practitioners who may provide 

rehabilitation services and respiratory 

care services; and determination of the 

effective date of provider agreements 

and supplier approvals under Medicare. 

We are also setting forth provisions 

that offer psychiatric hospitals and 

hospitals with inpatient psychiatric 

programs increased flexibility in 

obtaining accreditation to participate in 

the Medicaid program. Psychiatric 

hospitals and hospitals with inpatient 

psychiatric programs will have the 

choice of undergoing a State survey or 

of obtaining accreditation from a 

national accrediting organization whose 

hospital accreditation program has been 

approved by CMS. 

We are also issuing an interim final 

rule with comment period to implement 

a provision of the Preservation of Access 

to Care for Medicare Beneficiaries and 

Pension Relief Act of 2010 relating to 

Medicare payments for outpatient 

services provided prior to a Medicare 

beneficiary’s inpatient admission. 

DATES: Effective Date: These rules are 

effective on October 1, 2010, except for 

amendments to § 412.2(c)(5) 

introductory text, (c)(5)(iii), and 

(c)(5)(iv); § 412.405; § 412.521(b)(1); 

§ 412.540; § 412.604(f); § 413.40(c)(2) 

introductory text, (c)(2)(iii), and 

(c)(2)(iv), that are effective on June 25, 

2010 and apply to services furnished on 

or after June 25, 2010. In accordance 

with sections 1871(e)(1)(A)(i) and (ii) of 

the Social Security Act, the Secretary 

has determined that retroactive 

application of these regulatory 

amendments is necessary to comply 

with the statute and that failure to apply 

the changes retroactively would be 

contrary to public interest: 

Comment Period: To be assured 

consideration, comments on the interim 

final rule with comment period (CMS– 

1498–IFC) that appears as section IV.M., 

of the preamble of this document and 

includes amendments to § 412.2(c)(5) 

introductory text, (c)(5)(iii), and 

(c)(5)(iv); § 412.405; § 412.521(b)(1); 

§ 412.540; § 412.604(f); § 413.40(c)(2) 

introductory text, (c)(2)(iii), and 

(c)(2)(iv) must be received at one of the 

addresses provided below, no later than 

5 p.m. EST on September 28, 2010. 

Comments on other sections of this 

document will not be considered. 

ADDRESSES: When commenting on 

issues presented in the interim final rule 

with comment period, please refer to 

file code CMS–1498–IFC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

at http://www.regulations.gov. Follow 

the instructions for ‘‘Comment or 

Submission’’ and enter the file code 

CMS–1498–IFC to submit comments on 

this interim final rule. 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS– 

1498–IFC, P.O. Box 8011, Baltimore, 

MD 21244–1850. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS– 

1406–IFC, Mail Stop C4–26–05, 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to either of the 

following addresses: 

a. Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

b. 7500 Security Boulevard, Baltimore, 

MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: Tzvi 

Hefter, (410) 786–4487, and Ing-Jye 

Cheng, (410) 786–4548, Operating 

Prospective Payment, MS–DRGs, 

Hospital Acquired Conditions (HAC), 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50043 

Wage Index, New Medical Service and 

Technology Add-On Payments, Hospital 

Geographic Reclassifications, Acute 

Care Transfers, Capital Prospective 

Payment, Excluded Hospitals, Direct 

and Indirect Graduate Medical 

Education Payments, Disproportionate 

Share Hospital (DSH), and Critical 

Access Hospital (CAH) Issues. 

Michele Hudson, (410) 786–4487, and 

Judith Richter, (410) 786–2590, LongTerm Care Hospital Prospective 

Payment System and MS–LTC–DRG 

Relative Weights Issues. 

Siddhartha Mazumdar, (410) 786– 

6673, Rural Community Hospital 

Demonstration Program Issues. 

James Poyer, (410) 786–2261, 

Reporting of Hospital Quality Data for 

Annual Payment Update—Program 

Administration, Validation, and 

Reconsideration Issues. 

Shaheen Halim (410) 786–0641, 

Reporting of Hospital Quality Data for 

Annual Payment Update—Measures 

Issues Except Hospital Consumer 

Assessment of Healthcare Providers and 

Systems 

Elizabeth Goldstein (410) 786–6665 

Reporting of Hospital Quality Data for 

Annual Payment Update—Hospital 

Consumer Assessment of Healthcare 

Providers and Systems Measures Issues. 

Marcia Newton, (410–786–5265) and 

CDR Scott Cooper (U.S. Public Health 

Service), (410) 786–9465, Hospital 

Conditions of Participation for 

Rehabilitation Services and Respiratory 

Therapy Care Issues. 

Marilyn Dahl, (410) 786–8665, 

Provider Agreement and Supplier 

Approval Issues. 

Melissa Harris, (410) 786–3397 or 

Adrienne Delozier, (410) 786–0278, 

Accreditation of Providers of Inpatient 

Psychiatric Services to Individuals 

under Age 21 Issues. 

SUPPLEMENTARY INFORMATION: Inspection 

of Public Comments: All comments 

received before the close of the 

comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://www.regulations.

gov. Follow the search instructions at 

that Web site to view public comments. 

Comments received timely will also 

be available for public inspection, 

generally beginning approximately 3 

weeks after publication of a document, 

at the headquarters of the Centers for 

Medicare & Medicaid Services, 7500 

Security Boulevard, Baltimore, 

Maryland 21244, Monday through 

Friday of each week from 8:30 a.m. to 

4 p.m. To schedule an appointment to 

view public comments, phone 1–800– 

743–3951. 

Electronic Access 

This Federal Register document is 

also available from the Federal Register 

online database through GPO Access, a 

service of the U.S. Government Printing 

Office. Free public access is available on 

a Wide Area Information Server (WAIS) 

through the Internet and via 

asynchronous dial-in. Internet users can 

access the database by using the World 

Wide Web, (the Superintendent of 

Documents’ home Web page address is 

http://www.gpoaccess.gov/), by using 

local WAIS client software, or by telnet 

to swais.access.gpo.gov, then login as 

guest (no password required). Dial-in 

users should use communications 

software and modem to call (202) 512– 

1661; type swais, then login as guest (no 

password required). 

Acronyms 

3M 3M Health Information System 

AAHKS American Association of Hip and 

Knee Surgeons 

AAMC Association of American Medical 

Colleges 

ACGME Accreditation Council for Graduate 

Medical Education 

AHA American Hospital Association 

AHIC American Health Information 

Community 

AHIMA American Health Information 

Management Association 

AHRQ Agency for Healthcare Research and 

Quality 

ALOS Average length of stay 

ALTHA Acute Long Term Hospital 

Association 

AMA American Medical Association 

AMGA American Medical Group 

Association 

AOA American Osteopathic Association 

APR DRG All Patient Refined Diagnosis 

Related Group System 

ARRA American Recovery and 

Reinvestment Act of 2009, Public Law 

111–5 

ASC Ambulatory surgical center 

ASCA Administrative Simplification 

Compliance Act of 2002, Public Law 107– 

105 

ASITN American Society of Interventional 

and Therapeutic Neuroradiology 

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 

BIC Beneficiary Identification Code 

BIPA Medicare, Medicaid, and SCHIP [State 

Children’s Health Insurance Program] 

Benefits Improvement and Protection Act 

of 2000, Public Law 106–554 

BLS Bureau of Labor Statistics 

CAH Critical access hospital 

CARE [Medicare] Continuity Assessment 

Record & Evaluation [Instrument] 

CART CMS Abstraction & Reporting Tool 

CBSAs Core-based statistical areas 

CC Complication or comorbidity 

CCR Cost-to-charge ratio 

CDAC [Medicare] Clinical Data Abstraction 

Center 

CDAD Clostridium difficile-associated 

disease 

CIPI Capital input price index 

CMI Case-mix index 

CMS Centers for Medicare & Medicaid 

Services 

CMSA Consolidated Metropolitan 

Statistical Area 

COBRA Consolidated Omnibus 

Reconciliation Act of 1985, Public Law 99– 

272 

COLA Cost-of-living adjustment 

CoP [Hospital] condition of participation 

CPI Consumer price index 

CRNA Certified Registered Nurse 

Anesthetist 

CY Calendar year 

DPP Disproportionate patient percentage 

DRA Deficit Reduction Act of 2005, Public 

Law 109–171 

DRG Diagnosis-related group 

DSH Disproportionate share hospital 

ECI Employment cost index 

EDB [Medicare] Enrollment Database 

EMR Electronic medical record 

FAH Federation of Hospitals 

FDA Food and Drug Administration 

FFY Federal fiscal year 

FHA Federal Health Architecture 

FIPS Federal information processing 

standards 

FQHC Federally qualified health center 

FTE Full-time equivalent 

FY Fiscal year 

GAAP Generally Accepted Accounting 

Principles 

GAF Geographic Adjustment Factor 

GME Graduate medical education 

HACs Hospital-acquired conditions 

HCAHPS Hospital Consumer Assessment of 

Healthcare Providers and Systems 

HCFA Health Care Financing 

Administration 

HCO High-cost outlier 

HCRIS Hospital Cost Report Information 

System 

HHA Home health agency 

HHS Department of Health and Human 

Services 

HICANHealth 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 

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50044 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

HwH Hospital-within-a-hospital 

ICD–9–CM International Classification of 

Diseases, Ninth Revision, Clinical 

Modification 

ICD–10–CM International Classification of 

Diseases, Tenth Revision, Clinical 

Modification 

ICD–10–PCS International Classification of 

Diseases, Tenth Revision, Procedure 

Coding System 

ICR Information collection requirement 

IHS Indian Health Service 

IME Indirect medical education 

I–O Input-Output 

IOM Institute of Medicine 

IPF Inpatient psychiatric facility 

IPPS [Acute care hospital] inpatient 

prospective payment system 

IRF Inpatient rehabilitation facility 

LAMCs Large area metropolitan counties 

LOS Length of stay 

LTC–DRG Long-term care diagnosis-related 

group 

LTCH Long-term care hospital 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MCC Major complication or comorbidity 

MCE Medicare Code Editor 

MCO Managed care organization 

MCV Major cardiovascular condition 

MDC Major diagnostic category 

MDH Medicare-dependent, small rural 

hospital 

MedPAC Medicare Payment Advisory 

Commission 

MedPAR Medicare Provider Analysis and 

Review File 

MEI Medicare Economic Index 

MGCRB Medicare Geographic Classification 

Review Board 

MIEA–TRHCA Medicare Improvements and 

Extension Act, Division B of the Tax Relief 

and Health Care Act of 2006, Public Law 

109–432 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008, Public Law 

110–275 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Public Law 108–173 

MMSEA Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110–173 

MPN Medicare provider number 

MRHFP Medicare Rural Hospital Flexibility 

Program 

MRSA Methicillin-resistant Staphylococcus 

aureus 

MSA Metropolitan Statistical Area 

MS–DRG Medicare severity diagnosisrelated group 

MS–LTC–DRG Medicare severity long-term 

care diagnosis-related group 

NAICS North American Industrial 

Classification System 

NALTH National Association of Long Term 

Hospitals 

NCD National coverage determination 

NCHS National Center for Health Statistics 

NCQA National Committee for Quality 

Assurance 

NCVHS National Committee on Vital and 

Health Statistics 

NECMA New England County Metropolitan 

Areas 

NP Nurse practitioner 

NQF National Quality Forum 

NTIS National Technical Information 

Service 

NTTAA National Technology Transfer and 

Advancement Act of 1991 (Pub. L. 104– 

113) 

NVHRI National Voluntary Hospital 

Reporting Initiative 

OACT [CMS’] Office of the Actuary 

OBRA 86 Omnibus Budget Reconciliation 

Act of 1996, Public Law 99–509 

OES Occupational employment statistics 

OIG Office of the Inspector General 

OMB Executive Office of Management and 

Budget 

OPM U.S. Office of Personnel Management 

O.R. Operating room 

OSCAR Online Survey Certification and 

Reporting [System] 

PA Physician assistant 

PIP Periodic interim payment 

PLI Professional liability insurance 

PMSAs Primary metropolitan statistical 

areas 

POA Present on admission 

PPACA Patient Protection and Affordable 

Care Act, Public Law 111–148 

PPI Producer price index 

PPS Prospective payment system 

PRM Provider Reimbursement Manual 

ProPAC Prospective Payment Assessment 

Commission 

PRRB Provider Reimbursement Review 

Board 

PRTFs Psychiatric residential treatment 

facilities 

PSF Provider-Specific File 

PS&R Provider Statistical and 

Reimbursement (System) 

QIG Quality Improvement Group, CMS 

QIO Quality Improvement Organization 

RCE Reasonable compensation equivalent 

RHC Rural health clinic 

RHQDAPU Reporting hospital quality data 

for annual payment update 

RNHCI Religious nonmedical health care 

institution 

RPL Rehabilitation psychiatric long-term 

care (hospital) 

RRC Rural referral center 

RTI Research Triangle Institute, 

International 

RUCAs Rural-urban commuting area codes 

RY Rate year 

SAF Standard Analytic File 

SCH Sole community hospital 

SFY State fiscal year 

SIC Standard Industrial Classification 

SNF Skilled nursing facility 

SOCs Standard occupational classifications 

SOM State Operations Manual 

SSN Social Security number 

SSO Short-stay outlier 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982, Public Law 97– 

248 

TEP Technical expert panel 

TMA TMA [Transitional Medical 

Assistance], Abstinence Education, and QI 

[Qualifying Individuals] Programs 

Extension Act of 2007, Public Law 110–90 

UHDDS Uniform hospital discharge data set 

Table of Contents 

I. Background 

A. 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) 

B. Provisions of the Patient Protection and 

Affordable Care Act (Pub. L. 111–148) 

and the Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152) 

C. Provisions of the Preservation of Access 

to Care for Medicare Beneficiaries and 

Pension Relief Act of 2010 (Pub. L. 111– 

192) 

D. Issuance of Two Notices of Proposed 

Rulemaking for FY 2011 

1. Issuance of May 4, 2010 IPPS/LTCH PPS 

Proposed Rule 

a. Proposed Changes to MS–DRG 

Classifications and Recalibrations of 

Relative Weights 

b. Proposed Changes to the Hospital Wage 

Index for Acute Care Hospitals 

c. Other Decisions and Proposed Changes 

to the IPPS for Operating Costs and GME 

Costs 

d. Proposed FY 2011 Policy Governing the 

IPPS for Capital-Related Costs 

e. Proposed Changes to the Payment Rates 

for Certain Excluded Hospitals: Rate-ofIncrease Percentages 

f. Proposed Changes to the LTCH PPS 

g. Proposed Changes Relating to Effective 

Date of Provider Agreements and 

Supplier Approvals 

h. Proposed Changes to Medicare 

Conditions of Participation Affecting 

Hospital Rehabilitation Services and 

Respiratory Care Services 

i. Proposed Changes to the Accreditation 

Requirements for Medicaid Providers of 

Inpatient Psychiatric Services for 

Individuals under Age 21 

j. Determining Proposed Prospective 

Payment Operating and Capital Rates 

and Rate-of-Increase Limits for Acute 

Care Hospitals 

k. Determining Proposed Prospective 

Payments Rates for LTCHs 

l. Impact Analysis 

m. Recommendation of Update Factors for 

Operating Cost Rates of Payment for 

Hospital Inpatient Services 

n. Discussion of Medicare Payment 

Advisory Commission Recommendations 

2. Issuance of June 2, 2010 IPPS/LTCH PPS 

Proposed Rule 

E. Public Comments Received on the FY 

2011 IPPS/LTCH Proposed Rule and 

Supplemental Proposed Rule 

F. Finalization of Interim Final Rule with 

Comment Period That Implemented 

Certain Provisions of the ARRA Relating 

to Payments to LTCHs and LTCH 

Satellite Facilities 

II. Changes to Medicare Severity DiagnosisRelated Group (MS–DRG) Classifications 

and Relative Weights 

A. Background 

B. MS–DRG Reclassifications 

1. General 

2. Yearly Review for Making MS–DRG 

Changes 

C. Adoption of the MS–DRGs in FY 2008 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50045 

D. FY 2011 MS–DRG Documentation and 

Coding Adjustment, Including the 

Applicability to the Hospital-Specific 

Rates and the Puerto Rico-Specific 

Standardized Amount 

1. Background on the Prospective MS–DRG 

Documentation and Coding Adjustments 

for FY 2008 and FY 2009 Authorized by 

Public Law 110–90 

2. Prospective Adjustment to the Average 

Standardized Amounts Required by 

Section 7(b)(1)(A) of Public Law 110–90 

3. Recoupment or Repayment Adjustments 

in FYs 2010 through 2012 Required by 

Public Law 110–90 

4. Retrospective Evaluation of FY 2008 

Claims Data 

5. Retrospective Analysis of FY 2009 

Claims Data 

6. Prospective Adjustment for FY 2010 and 

Subsequent Years Authorized by Section 

7(b)(1)(A) of Public Law 110–90 and 

Section 1886(d)(3)(vi) of the Act 

7. Recoupment or Repayment Adjustment 

for FY 2010 Authorized by Section 

7(b)(1)(B) of Public Law 110–90 

8. Background on the Application of the 

Documentation and Coding Adjustment 

to the Hospital-Specific Rates 

9. Documentation and Coding Adjustment 

to the Hospital-Specific Rates for FY 

2011 and Subsequent Fiscal Years 

10. Background on the Application of the 

Documentation and Coding Adjustment 

to the Puerto Rico-Specific Standardized 

Amount 

11. Documentation and Coding Adjustment 

to the Puerto Rico-Specific Standardized 

Amount 

E. Refinement of the MS–DRG Relative 

Weight Calculation 

1. Background 

a. Summary of FY 2009 Changes and 

Discussion for FY 2011 

b. Summary of the RAND Corporation 

Study of Alternative Relative Weight 

Methodologies 

2. FY 2011 Changes and Timeline for 

Changes to the Medicare Cost Report 

F. Preventable Hospital-Acquired 

Conditions (HACs), Including Infections 

1. Background 

a. Statutory Authority 

b. HAC Selection 

c. Collaborative Process 

d. Application of HAC Payment Policy to 

MS–DRG Classifications 

e. Public Input Regarding Selected and 

Potential Candidate HACs 

f. POA Indicator Reporting 

2. HAC Conditions for FY 2011 

3. RTI Program Evaluation Summary 

a. Background 

b. RTI Analysis on POA Indicator 

Reporting Across Medicare Discharges 

c. RTI Analysis on POA Indicator 

Reporting of Current HACs 

d. RTI Analysis of Frequency of Discharges 

and POA Indicator Reporting for Current 

HACs 

e. RTI Analysis of Circumstances When 

Application of HAC Provisions Would 

Not Result in MS–DRG Reassignment for 

Current HACs 

f. RTI Analysis of Coding Changes for 

HAC-Associated Secondary Diagnoses 

for Current HACs 

g. RTI Analysis of Estimated Net Savings 

for Current HACs 

h. Previously Considered Candidate 

HACs—RTI Analysis of Frequency of 

Discharges and POA Indicator Reporting 

i. Current and Previously Considered 

Candidate HACs—RTI Report on 

Evidence-Based Guidelines 

j. Current HACs and Previously Considered 

Candidate HACs 

G. Changes to Specific MS–DRG 

Classifications 

1. Pre-Major Diagnostic Categories (MDCs) 

a. Postsurgical Hypoinsulinemia (MS–DRG 

008 (Simultaneous Pancreas/Kidney 

Transplant)) 

b. Bone Marrow Transplants 

2. MDC 1 (Nervous System): 

Administration of Tissue Plasminogen 

Activator (tPA) (rtPA) 

3. MDC 5 (Diseases and Disorders of the 

Circulatory System): Intraoperative 

Fluorescence Vascular Angiography 

(IFVA) and X-Ray Coronary Angiography 

in Coronary Artery Bypass Graft Surgery 

a. New MS–DRGs for Intraoperative 

Fluorescence Vascular Angiography 

(IFVA) with CABG 

b. New MS–DRG for Intraoperative 

Angiography, by any Method, with 

CABG 

c. New Procedure Codes 

d. MS–DRG Reassignment of Intraoperative 

Fluorescence Vascular Angiography 

(IFVA) 

4. MDC 6 (Diseases and Disorders of the 

Digestive System): Gastrointestinal 

Stenting 

5. MDC 8 (Diseases and Disorders of the 

Musculoskeletal System and Connective 

Tissue): Pedicle-Based Dynamic 

Stabilization 

6. MDC 15 (Newborns and Other Neonates 

with Conditions Originating in the 

Perinatal Period) 

a. Discharges/Transfers of Neonates to a 

Designated Cancer Center or a Children’s 

Hospital 

b. Vaccination of Newborns 

7. Medicare Code Editor (MCE) Changes 

a. Unacceptable Principal Diagnosis Edit: 

Addition of Code for Gastroparesis 

b. Open Biopsy Check Edit 

c. Noncovered Procedure Edit 

8. Surgical Hierarchies 

9. Complication or Comorbidity (CC) 

Exclusions List 

a. Background 

b. CC Exclusions List for FY 2011 

10. Review of Procedure Codes in MS– 

DRGs 981 through 983, 984 through 986, 

and 987 through 989 

a. Moving Procedure Codes from MS–DRGs 

981 through 983 or MS–DRGs 987 

through 989 to MDCs 

b. Reassignment of Procedures among MS– 

DRGs 981 through 983, 984 through 986, 

and 987 through 989 

c. Adding Diagnosis or Procedure Codes to 

MDCs 

11. Changes to the ICD–9–CM Coding 

System, Including Discussion of the 

Replacement of the ICD–9–CM System 

with the ICD–10–CM and ICD–10–PCS 

Systems in FY 2014 

a. ICD–9–CM Coding System 

b. Code Freeze 

c. Processing of 25 Diagnosis Codes and 25 

Procedure Codes on Hospital Inpatient 

Claims 

12. Other Issues Not Addressed in the 

Proposed Rule 

a. Rechargeable Dual Array Deep Brain 

Stimulation System 

b. IntraOperative Electron RadioTherapy 

(IOERT) 

c. Brachytherapy 

d. Excisional Debridement 

H. Recalibration of MS–DRG Weights 

I. Add-On Payments for New Services and 

Technologies 

1. Background 

2. Public Input Before Publication of a 

Notice of Proposed Rulemaking on AddOn Payments 

3. FY 2011 Status of Technologies 

Approved for FY 2010 Add-On Payments 

a. Spiration® IBV® Valve System 

b. CardioWestTM Temporary Total 

Artificial Heart System (CardioWestTM

TAH-t) 

4. FY 2011 Applications for New 

Technology Add-On Payments 

a. Auto Laser Interstitial Thermal Therapy 

(AutoLITTTM) System 

b. LipiScanTM Coronary Imaging System 

c. LipiScanTM Coronary Imaging System 

with Intravascular Ultrasound (IVUS) 

III. Changes to the Hospital Wage Index for 

Acute Care Hospitals 

A. Background 

B. Wage Index Reform 

1. Wage Index Study Required under the 

MIEA–TRHCA 

a. Legislative Requirement 

b. Interim and Final Reports on Results of 

Acumen’s Study 

2. FY 2009 Policy Changes in Response to 

Requirements under Section 106(b) of 

the MIEA–TRHCA 

a. Reclassification Average Hourly Wage 

Comparison Criteria 

b. Budget Neutrality Adjustment for the 

Rural and Imputed Floors 

3. Floor for Area Wage Index for Hospitals 

in Frontier States 

4. Plan for Reforming the Wage Index 

under Section 3137(b) of Affordable Care 

Act 

C. Core-Based Statistical Areas for the 

Hospital Wage Index 

D. Occupational Mix Adjustment to the FY 

2011 Wage Index 

1. Development of Data for the FY 2011 

Occupational Mix Adjustment Based on 

the 2007–2008 Occupational Mix Survey 

2. New 2010 Occupational Mix Survey for 

the FY 2013 Wage Index 

3. Calculation of the Occupational Mix 

Adjustment for FY 2011 

E. Worksheet S–3 Wage Data for the FY 

2011 Wage Index 

1. Included Categories of Costs 

2. Excluded Categories of Costs 

3. Use of Wage Index Data by Providers 

Other Than Acute Care Hospitals under 

the IPPS 

F. Verification of Worksheet S–3 Wage 

Data 

G. Method for Computing the FY 2011 

Unadjusted Wage Index 

H. Analysis and Implementation of the 

Occupational Mix Adjustment and the 

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FY 2011 Occupational Mix Adjusted 

Wage Index 

I. Revisions to the Wage Index Based on 

Hospital Redesignations and 

Reclassifications 

1. General 

2. Effects of Reclassification/Redesignation 

3. FY 2011 MGCRB Reclassifications 

a. FY 2011 Reclassification Requirements 

and Approvals 

b. Applications for Reclassifications for FY 

2012 

c. Appeals of MGCRB Denials of 

Withdrawals and Terminations 

4. Redesignations of Hospitals under 

Section 1886(d)(8)(B) of the Act 

5. Reclassifications under Section 

1886(d)(8)(B) of the Act 

6. Reclassifications under Section 508 of 

Public Law 108–173 

J. FY 2011 Wage Index Adjustment Based 

on Commuting Patterns of Hospital 

Employees 

K. Process for Requests for Wage Index 

Data Corrections 

L. Labor-Market Share for the FY 2011 

Wage Index 

IV. Other Decisions and Changes to the IPPS 

for Operating Costs and GME Costs 

A. Reporting of Hospital Quality Data for 

Annual Hospital Payment Update 

1. Background 

a. Overview 

b. Hospital Quality Data Reporting under 

Section 501(b) of Public Law 108–173 

c. Hospital Quality Data Reporting under 

Section 5001(a) of Public Law 109–171 

d. Hospital Quality Data Reporting under 

Section 3001(a)(2) and 3401(a)(2) of 

Public Law 111–148 

e. Quality Measures 

f. Maintenance of Technical Specifications 

for Quality Measures 

g. Public Display of Quality Measures 

2. Retirement of RHQDAPU Program 

Measures 

a. Considerations in Retiring Quality 

Measures from the RHQDAPU Program 

b. Retirement of Quality Measures under 

the RHQDAPU Program for the FY 2011 

Payment Determination and Subsequent 

Years 

3. Expansion Plan for Quality Measures for 

the FY 2012, FY 2013, and FY 2014 

Payment Determinations 

a. Considerations in Expanding and 

Updating Quality Measures under the 

RHQDAPU Program 

b. RHQDAPU Program Quality Measures 

for the FY 2012 Payment Determination 

c. RHQDAPU Program Quality Measures 

for the FY 2013 Payment Determination 

d. RHQDAPU Program Quality Measures 

for the FY 2014 Payment Determination 

4. Possible New Quality Measures for 

Future Years 

5. Form, Manner, and Timing of Quality 

Data Submission 

a. RHQDAPU Program Requirements for 

FY 2012, FY 2013, and FY 2014 

b. Additional RHQDAPU Program 

Procedural Requirements for FY 2012, 

FY 2013, and FY 2014 Payment 

Determinations 

6. RHQDAPU Program Disaster Extensions 

and Waivers 

7. Chart Validation Requirements for 

Chart–Abstracted Measures 

a. Chart Validation Requirements and 

Methods for the FY 2012 Payment 

Determination 

b. Supplements to the Chart Validation 

Process for the FY 2013 Payment 

Determination and Subsequent Years 

8. Data Accuracy and Completeness 

Acknowledgement Requirements for the 

FY 2012 Payment Determination and 

Subsequent Years 

9. Public Display Requirements for the FY 

2012 Payment Determination and 

Subsequent Years 

10. Reconsideration and Appeal 

Procedures for the FY 2011 Payment 

Determination 

11. RHQDAPU Program Withdrawal 

Deadlines 

12. Electronic Health Records 

a. Background 

b. EHR Testing of Quality Measures 

Submission 

c. HITECH Act EHR Provisions 

13. Qualification of Registries for 

RHQDAPU Data Submission 

14. RHQDAPU and Hospital Value-Based 

Purchasing 

B. Payment for Transfers of Cases from 

Medicare Participating Acute Care 

Hospitals to Nonparticipating Hospitals 

and CAHs 

1. Background 

2. Policy Change 

C. Rural Referral Centers (RRCs) 

1. Case-Mix Index (CMI) 

2. Discharges 

D. Payment Adjustment for Low-Volume 

Hospitals 

1. Background 

2. Temporary Changes for FYs 2011 and 

2012 

E. Indirect Medical Education (IME) 

Adjustment 

1. Background 

2. IME Adjustment Factor for FY 2011 

3. IME-Related Changes in Other Sections 

of this Final Rule 

F. Payment Adjustment for Medicare 

Disproportionate Share Hospitals 

(DSHs): Supplemental Security Income 

(SSI) Fraction 

1. Background 

2. CMS’ Current Data Matching Process for 

the SSI Fraction 

3. Baystate Medical Center v. Leavitt Court 

Decision 

4. CMS’ Proposed Process for Matching 

Medicare and SSI Eligibility Data 

a. Inclusion of Stale Records and Forced 

Pay Records in the SSI Eligibility Data 

Files 

b. Use of SSNs in the Revised Match 

Process 

c. Timing of the Match 

5. CMS Ruling 1498–R 

6. Clarification of Language on Inclusion of 

Medicare Advantage Days in the SSI 

Fraction of the Medicare DSH 

Calculation 

G. Medicare-Dependent, Small Rural 

Hospitals (MDHs): Change to Criteria 

1. Background 

2. Medicare-Dependency: Counting 

Medicare Inpatients 

3. Extension of the MDH Program 

H. Payments for Direct Graduate Medical 

Education (GME) Costs 

1. Background 

2. Identifying ‘‘Approved Medical 

Residency Programs’’ 

a. Residents in Approved Medical 

Residency Programs 

b. Determining Whether an Individual Is a 

Resident or a Physician 

c. Formal Enrollment and Participation in 

a Program 

3. Electronic Submission of Affiliation 

Agreements 

I. Certified Registered Nurse Anesthetist 

(CRNA) Services Furnished in Rural 

Hospitals and CAHs 

J. Additional Payments for Qualifying 

Hospitals with Lowest Per Enrollee 

Medicare Spending 

1. Background 

2. Eligible Counties 

a. Development of Risk Adjustment Model 

b. Calculation of County Level Part A and 

Part B Spending 

3. Application of the Age/Sex/Race 

Adjustment to Part A and Part B County 

Spending 

4. Qualifying Hospitals and Annual 

Payment Amounts 

5. Payment Determination and Distribution 

6. Hospital Weighting Factors 

7. Results 

8. Finalization of Eligible Counties, 

Qualifying Hospitals and Qualifying 

Hospitals’ Weighting Factors 

K. Rural Community Hospital 

Demonstration Program 

L. Technical Change to Regulations 

M. Interim Final Rule with Comment 

Period: Bundling of Payments for 

Services Provided to Outpatients Who 

Later Are Admitted As Inpatients: 3–Day 

Payment Window 

1. Introduction 

2. Background for Policy 

3. Requirements of Section 102 of Public 

Law 111–192 

4. Application of the Provisions of Section 

102 of Public Law 111–192 

5. Waiver of Notice of Proposed 

Rulemaking 

6. Collection of Information Requirements 

7. Response to Public Comments 

8. Regulatory Impact Analysis 

N. Changes in the Inpatient Hospital 

Market Basket Update 

1. FY 2010 Inpatient Hospital Update 

2. FY 2011 Inpatient Hospital Update 

3. FY 2010 and FY 2011 Puerto Rico 

Hospital Update 

V. Changes to the IPPS for Capital-Related 

Costs 

A. Overview 

B. Exception Payments 

C. New Hospitals 

D. Hospitals Located in Puerto Rico 

E. Changes for FY 2011: MS–DRG 

Documentation and Coding Adjustment 

1. Background on the Prospective MS–DRG 

Documentation and Coding Adjustments 

for FY 2008 and FY 2009 

2. Retrospective Evaluation of FY 2008 

Claims Data 

3. Retrospective Analysis of FY 2009 

Claims Data 

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4. Prospective MS–DRG Documentation 

and Coding Adjustment to the National 

Capital Federal Rate for FY 2011 and 

Subsequent Years 

5. Documentation and Coding Adjustment 

to the Puerto Rico-Specific Capital Rate 

F. Other Changes for FY 2011 

VI. Changes for Hospitals Excluded from the 

IPPS 

A. Excluded Hospitals 

B. Critical Access Hospitals (CAHs) 

1. Background 

2. CAH Optional Method Election for 

Payment of Outpatient Services 

3. Costs of Provider Taxes as Allowable 

Costs for CAHs 

a. Background and Statutory Basis 

b. Clarification of Payment Policy for 

Provider Taxes 

C. Report of Adjustment (Exceptions) 

Payments 

VII. Changes to the Long-Term Care Hospital 

Prospective Payment System (LTCH PPS) 

for FY 2011 

A. Background of the LTCH PPS 

1. Legislative and Regulatory Authority 

2. Criteria for Classification as a LTCH 

a. Classification as a LTCH 

b. Hospitals Excluded from the LTCH PPS 

3. Limitation on Charges to Beneficiaries 

4. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and Accountability 

Act (HIPAA) Compliance 

B. Medicare Severity Long-Term Care 

Diagnosis-Related Group (MS–LTC– 

DRG) Classifications and Relative 

Weights 

1. Background 

2. Patient Classifications into MS–LTC– 

DRGs 

a. Background 

b. Changes to the MS–LTC–DRGs for FY 

2011 

3. Development of the FY 2011 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 2011 

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 RY 2011 MS– 

LTC–DRG Relative Weights 

C. Changes to the LTCH Payment Rates and 

Other Changes to the FY 2011 LTCH PPS 

1. Overview of Development of the LTCH 

Payment Rates 

2. Market Basket for LTCHs Reimbursed 

under the LTCH PPS 

a. Overview 

b. Revision of Certain Market Basket 

Updates as Required by the Affordable 

Care Act 

c. Changes to Reflect the Market Basket 

Update for LTCHs for RY 2010 

d. Market Basket under the LTCH PPS for 

FY 2011 

e. Market Basket Update for LTCHs for FY 

2011 

f. Labor-Related Share under the LTCH PPS 

for FY 2011 

3. Adjustment for Changes in LTCHs’ CaseMix Due to Changes in Documentation 

and Coding Practices That Occurred in a 

Prior Period 

a. Background 

b. Evaluation of FY 2009 Claims Data 

c. FY 2011 Documentation and Coding 

Adjustment 

D. Change in Terminology from ‘‘Rate Year’’ 

to ‘‘Fiscal Year’’ and Other Changes 

E. Finalization of Interim Final Rule with 

Comment Period Implementing Section 

4302 of the American Recovery and 

Reinvestment Act of 2009 (Pub. L. 111– 

5) Relating to Payments to LTCHs and 

LTCH Satellite Facilities 

1. Background 

2. Amendments Relating to Payment 

Adjustment to LTCHs and LTCH 

Satellite Facilities Made by Section 4302 

of the ARRA 

3. Amendment to the Moratorium on the 

Increase in Number of Beds in Existing 

LTCHs or LTCH Satellite Facilities Made 

by Section 4302 of the ARRA 

F. Extension of Certain Payment Rules for 

LTCH Services and Moratorium on the 

Establishment of Certain Hospitals and 

Facilities and the Increase in Number of 

Beds in Existing LTCHs and LTCH 

Satellite Facilities 

VIII. Determination of Effective Date of 

Provider Agreements and Supplier 

Approvals 

A. Background 

B. Departmental Appeals Board Decision 

C. Revisions to Regulations 

IX. Medicare Hospital Conditions of 

Participation Affecting Rehabilitation 

Services and Respiratory Care Services 

X. Changes to the Accreditation 

Requirements for Medicaid Providers of 

Inpatient Psychiatric Services for 

Individuals under Age 21 

A. Background 

B. Revision of Policy and Regulations 

XI. MedPAC Recommendations 

XII. Other Required Information 

A. Requests for Data from the Public 

B. Collection of Information Requirements 

1. Legislative Requirement for Solicitation 

of Comments 

2. Requirements in Regulation Text 

a. ICRs Regarding Withdrawing an 

Application, Terminating an Approved 3 

Year Reclassification, or Canceling a 

Previous Withdrawal or Termination 

(Revised § 412.273) 

b. ICRs Regarding Condition of 

Participation: Respiratory Care Services 

(§ 482.57) 

3. Additional Information Collection 

Requirements 

a. Present on Admission (POA) Indicator 

Reporting 

b. Add-On Payments for New Services and 

Technologies 

c. Reporting of Hospital Quality Data for 

Annual Hospital Payment Update 

d. Occupational Mix Adjustment to the FY 

2011 Index (Hospital Wage Index 

Occupational Mix Survey) 

e. Hospital Applications for Geographic 

Reclassifications by the MGCRB 

f. Direct GME Payments: General 

Requirements 

Regulation Text 

Addendum—Schedule of Standardized 

Amounts, Update Factors, and Rate-ofIncrease Percentages Effective with Cost 

Reporting Periods Beginning on or after 

October 1, 2010 

I. Summary and Background 

II. Changes to the Prospective Payment Rates 

for Hospital Inpatient Operating Costs for 

Acute Care Hospitals for FY 2011 

A. Calculation of the Adjusted 

Standardized Amount 

B. Adjustments for Area Wage Levels and 

Cost-of-Living 

C. MS–DRG Relative Weights 

D. Calculation of the Prospective Payment 

Rates 

III. Changes to Payment Rates for Acute Care 

Hospital Inpatient Capital-Related Costs 

for FY 2011 

A. Determination of Federal Hospital 

Inpatient Capital-Related Prospective 

Payment Rate Update 

B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY 

2011 

C. Capital Input Price Index 

IV. Changes to Payment Rates for Certain 

Excluded Hospitals: Rate-of-Increase 

Percentages 

V. Changes to the Payment Rates for the 

LTCH PPS for FY 2011 

A. LTCH PPS Standard Federal Rate for FY 

2011 

B. Adjustment for Area Wage Levels under 

the LTCH PPS for FY 2011 

C. Adjustment for LTCH PPS High-Cost 

Outlier (HCO) Cases 

D. Computing the Adjusted LTCH PPS 

Federal Prospective Payments for FY 

2011 

VI. Tables 

Table 1A—National Adjusted Operating 

Standardized Amounts, Labor/Nonlabor 

(68.8 Percent Labor Share/31.2 Percent 

Nonlabor Share If Wage Index Is Greater 

Than 1) 

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) 

Table 1C—Adjusted Operating 

Standardized Amounts for Puerto Rico, 

Labor/Nonlabor 

Table 1D—Capital Standard Federal 

Payment Rate 

Table 1E—LTCH Standard Federal 

Prospective Payment Rate 

Table 2—Acute Care Hospitals Case-Mix 

Indexes for Discharges Occurring in 

Federal Fiscal Year 2009; Hospital Wage 

Indexes for Federal Fiscal Year 2011; 

Hospital Average Hourly Wages for 

Federal Fiscal Years 2009 (2005 Wage 

Data), 2010 (2006 Wage Data), and 2011 

(2007 Wage Data); and 3-Year Average of 

Hospital Average Hourly Wages 

Table 3A—FY 2011 and 3-Year Average 

Hourly Wage for Acute Care Hospitals in 

Urban Areas by CBSA 

Table 3B—FY 2011 and 3-Year Average 

Hourly Wage for Acute Care Hospitals in 

Rural Areas by CBSA 

Table 4A.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

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Acute Care Hospitals in Urban Areas by 

CBSA and by State—FY 2011 

Table 4B.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Acute Care Hospitals in Rural Areas by 

CBSA and by State—FY 2011 

Table 4C.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Acute Care Hospitals That Are 

Reclassified by CBSA and by State—FY 

2011 

Table 4D–1 (This table is discontinued due 

to section 3141 of the Affordable Care 

Act returning the rural floor budget 

neutrality to a uniform national 

adjustment.) 

Table 4D–2.—States Designated as 

Frontier, with Acute Care Hospitals 

Receiving at a Minimum the Frontier 

State Floor Wage Index; Urban Areas 

with Acute Care Hospitals Receiving the 

Statewide Rural Floor or Imputed Floor 

Wage Index—FY 2011 

Table 4E.—Urban CBSAs and Constituent 

Counties for Acute Care Hospitals—FY 

2011 

Table 4F.—Puerto Rico Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals by 

CBSA—FY 2011 

Table 4J.—Out-Migration Adjustment for 

Acute Care Hospitals—FY 2011 

Table 5.—List of Medicare Severity 

Diagnosis-Related Groups (MS–DRGs), 

Relative Weighting Factors, and 

Geometric and Arithmetic Mean Length 

of Stay—FY 2011 

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.—Additions to the CC Exclusions 

List (Available through the Internet on 

the CMS Web site at: http://www.cms.

hhs.gov/AcuteInpatientPPS/) 

Table 6H.—Deletions from the CC 

Exclusions List (Available through the 

Internet on the CMS Web site at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS/) 

Table 6I.—Complete List of Complication 

and Comorbidity (CC) Exclusions 

(Available only through the Internet on 

the CMS Web site at: http://www.cms.

hhs.gov/AcuteInpatientPPS/) 

Table 6J.—Major Complication and 

Comorbidity (MCC) List (Available 

through the Internet on the CMS Web 

site at: http://www.cms.hhs.gov/Acute

InpatientPPS/) 

Table 6K.—Complication and Comorbidity 

(CC) List (Available through the Internet 

on the CMS Web site at: http://www.cms.

hhs.gov/AcuteInpatientPPS/) 

Table 7A.—Medicare Prospective Payment 

System Selected Percentile Lengths of 

Stay: FY 2009 MedPAR Update—March 

2010 GROUPER V27.0 MS–DRGs 

Table 7B.—Medicare Prospective Payment 

System Selected Percentile Lengths of 

Stay: FY 2009 MedPAR Update—March 

2010 GROUPER V28.0 MS–DRGs 

Table 8A.—Statewide Average Operating 

Cost-to-Charge Ratios (CCRs) for Acute 

Care Hospitals—July 2010 

Table 8B.—Statewide Average Capital 

Cost-to-Charge Ratios (CCRs) for Acute 

Care Hospitals—July 2010 

Table 8C.—Statewide Average Total Costto-Charge Ratios (CCRs) for LTCHs—July 

2010 

Table 9A.—Hospital Reclassifications and 

Redesignations—FY 2011 

Table 9C.—Hospitals Redesignated as 

Rural under Section 1886(d)(8)(E) of the 

Act—FY 2011 

Table 10.—Geometric Mean Plus the Lesser 

of .75 of the National Adjusted Operating 

Standardized Payment Amount 

(Increased To Reflect the Difference 

Between Costs and Charges) or .75 of 

One Standard Deviation of Mean Charges 

by Medicare Severity Diagnosis-Related 

Groups (MS–DRGs)—July 2010 

Table 11.—MS–LTC–DRGs, Relative 

Weights, Geometric Average Length of 

Stay, Short-Stay Outlier Threshold, and 

IPPS Comparable Threshold for 

Discharges Occurring from October 1, 

2010 through September 30, 2011 under 

the LTCH PPS 

Table 12A.—LTCH PPS Wage Index for 

Urban Areas for Discharges Occurring 

from October 1, 2010 through September 

30, 2011 

Table 12B.—LTCH PPS Wage Index for 

Rural Areas for Discharges Occurring 

from October 1, 2010 through September 

30, 2011 

Appendix A—Regulatory Impact Analysis 

I. Overall Impact 

II. Objectives of the IPPS 

III. Limitations of Our Analysis 

IV. Hospitals Included in and Excluded from 

the IPPS 

V. Effects on Hospitals and Hospital Units 

Excluded from the IPPS 

VI. Quantitative Effects of the Policy Changes 

under the IPPS for Operating Costs 

A. Basis and Methodology of Estimates 

B. Analysis of Table I 

C. Effects of the Changes to the MS–DRG 

Reclassifications and Relative Cost-Based 

Weights (Column 1) 

D. Effects of the Application of 

Recalibration Budget Neutrality (Column 

2) 

E. Effects of Wage Index Changes (Column 

3) 

F. Application of the Wage Budget 

Neutrality Factor (Column 4) 

G. Combined Effects of MS–DRG and Wage 

Index Changes (Column 5) 

H. Effects of MGCRB Reclassifications 

(Column 6) 

I. Effects of the Rural Floor and Imputed 

Floor, Including Application of Budget 

Neutrality at the State Level (Column 7) 

J. Effects of the Wage Index Adjustment for 

Out-Migration (Column 8) 

K. Effects of All Changes Prior to 

Documentation and Coding (Or CMI) 

Adjustment (Column 9) 

L. Effects of All Changes With CMI 

Adjustment (Column 10) 

M. Effects of Policy on Payment 

Adjustments for Low-Volume Hospitals 

N. Impact Analysis of Table II 

VII. Effects of Other Policy Changes 

A. Effects of Policy on HACs, Including 

Infections 

B. Effects of Policy Changes Relating to 

New Medical Service and Technology 

Add-On Payments 

C. Effects of Requirements for Hospital 

Reporting of Quality Data for Annual 

Hospital Payment Update 

D. Effects of Policy on Payment for 

Transfer Cases from Medicare 

Participating Hospitals to 

Nonparticipating Hospitals and CAHs 

E. Effects of Change in Criteria for MDHs 

F. Effects of Change Relating to Payment 

Adjustment for Disproportionate Share 

Hospitals 

G. Effects of Changes Relating to Payments 

for IME and Direct GME 

1. Background 

2. Identifying ‘‘Approved Medical 

Residency Programs’’ 

3. Submission of Electronic Affiliation 

Agreements 

4. Technical Correction to the Regulations 

Relating to the Cost of Approved Nursing 

and Allied Health Education Activities 

H. Effects of Changes Relating to CRNA 

Services Furnished in Rural Hospitals 

and CAHs 

I. Effects of Implementation of Rural 

Community Hospital Demonstration 

Program 

J. Effects of Changes Relating to CAHs 

1. CAH Optional Method of Payment for 

Outpatient Services 

2. Consideration of Costs of Provider Taxes 

as Allowable Costs for CAHs 

K. Effects of Policy Relating to Effective 

Date of Provider Agreements and 

Supplier Approvals 

L. Effects of Changes Relating to Hospital 

Rehabilitation Services and Respiratory 

Care Services Conditions of Participation 

VIII. Effects of Changes in the Capital IPPS 

A. General Considerations 

B. Results 

IX. Effects of Payment Rate Changes and 

Policy Changes under the LTCH PPS 

A. Introduction and General 

Considerations 

B. Impact on Rural Hospitals 

C. Anticipated Effects of LTCH PPS 

Payment Rate Change and Policy 

Changes 

D. Effect on the Medicare Program 

E. Effect on Medicare Beneficiaries 

X. Effects of Policy Changes Relating to 

Accreditation Requirements for 

Medicaid Providers of Inpatient 

Psychiatric Services to Individuals under 

Age 21 

XI. Alternatives Considered 

XII. Overall Conclusion 

A. Acute Care Hospitals 

B. LTCHs 

XIII. Accounting Statements 

A. Acute Care Hospitals 

B. LTCHs 

XIV. 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 2011 

III. Secretary’s Recommendation 

IV. MedPAC Recommendation for Assessing 

Payment Adequacy and Updating 

Payments in Traditional Medicare 

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I. Background 

A. 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 pay for the capital-related costs of 

hospital inpatient stays under a 

prospective payment system (PPS). 

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 laborrelated 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 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 may vary 

based on the outcome of the statutory 

calculations. 

If the hospital is an approved teaching 

hospital, it receives a percentage add-on 

payment for each case paid under the 

IPPS, known as the indirect medical 

education (IME) adjustment. This 

percentage varies, depending on the 

ratio of residents to beds. 

Additional payments may be made for 

cases that involve new technologies or 

medical services that have been 

approved for special add-on payments. 

To qualify, a new technology or medical 

service must demonstrate that it is a 

substantial clinical improvement over 

technologies or services otherwise 

available, and that, absent an add-on 

payment, it would be inadequately paid 

under the regular DRG payment. 

The costs incurred by the hospital for 

a case are evaluated to determine 

whether the hospital is eligible for an 

additional payment as an outlier case. 

This additional payment is designed to 

protect the hospital from large financial 

losses due to unusually expensive cases. 

Any eligible outlier payment is added to 

the DRG-adjusted base payment rate, 

plus any DSH, IME, and new technology 

or medical service add-on adjustments. 

Although payments to most hospitals 

under the IPPS are made on the basis of 

the standardized amounts, some 

categories of hospitals are paid in whole 

or in part based on their hospitalspecific rate based on their costs in a 

base year. For example, sole community 

hospitals (SCHs) receive the higher of a 

hospital-specific rate based on their 

costs in a base year (the highest of FY 

1982, FY 1987, FY 1996, or FY 2006) or 

the IPPS Federal rate based on the 

standardized amount. Through and 

including FY 2006, a Medicaredependent, small rural hospital (MDH) 

received the higher of the Federal rate 

or the Federal rate plus 50 percent of the 

amount by which the Federal rate is 

exceeded by the higher of its FY 1982 

or FY 1987 hospital-specific rate. As 

discussed below, for discharges 

occurring on or after October 1, 2007, 

but before October 1, 2012, an MDH will 

receive the higher of the Federal rate or 

the Federal rate plus 75 percent of the 

amount by which the Federal rate is 

exceeded by the highest of its FY 1982, 

FY 1987, or FY 2002 hospital-specific 

rate. SCHs are the sole source of care in 

their areas, and MDHs are a major 

source of care for Medicare beneficiaries 

in their areas. Specifically, section 

1886(d)(5)(D)(iii) of the Act defines an 

SCH as a hospital that is located more 

than 35 road miles from another 

hospital or that, by reason of factors 

such as isolated location, weather 

conditions, travel conditions, or absence 

of other like hospitals (as determined by 

the Secretary), is the sole source of 

hospital inpatient services reasonably 

available to Medicare beneficiaries. In 

addition, certain rural hospitals 

previously designated by the Secretary 

as essential access community hospitals 

are considered SCHs. Section 

1886(d)(5)(G)(iv) of the Act defines an 

MDH as a hospital that is located in a 

rural area, has not more than 100 beds, 

is not an SCH, and has a high 

percentage of Medicare discharges (not 

less than 60 percent of its inpatient days 

or discharges in its cost reporting year 

beginning in FY 1987 or in two of its 

three most recently settled Medicare 

cost reporting years). Both of these 

categories of hospitals are afforded this 

special payment protection in order to 

maintain access to services for 

beneficiaries. 

Section 1886(g) of the Act requires the 

Secretary to pay for the capital-related 

costs of inpatient hospital services ‘‘in 

accordance with a prospective payment 

system established by the Secretary.’’ 

The basic methodology for determining 

capital prospective payments is set forth 

in our regulations at 42 CFR 412.308 

and 412.312. Under the capital IPPS, 

payments are adjusted by the same DRG 

for the case as they are under the 

operating IPPS. Capital IPPS payments 

are also adjusted for IME and DSH, 

similar to the adjustments made under 

the operating IPPS. In addition, 

hospitals may receive outlier payments 

for those cases that have unusually high 

costs. 

The existing regulations governing 

payments to hospitals under the IPPS 

are located in 42 CFR part 412, subparts 

A through M. 

2. Hospitals and Hospital Units 

Excluded From the IPPS 

Under section 1886(d)(1)(B) of the 

Act, as amended, certain hospitals and 

hospital units are excluded from the 

IPPS. These hospitals and units are: 

Rehabilitation hospitals and units; longterm care hospitals (LTCHs); psychiatric 

hospitals and units; children’s hospitals; 

and cancer hospitals. Religious 

nonmedical health care institutions 

(RNHCIs) are also excluded from the 

IPPS. Various sections of the Balanced 

Budget Act of 1997 (BBA, Pub. L. 105– 

33), the Medicare, Medicaid and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement 

Act of 1999 (BBRA, Pub. L. 106–113), 

and the Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA, Pub. L. 106–554) 

provide for the implementation of PPSs 

for rehabilitation hospitals and units 

(referred to as inpatient rehabilitation 

facilities (IRFs)), LTCHs, and psychiatric 

hospitals and units (referred to as 

inpatient psychiatric facilities (IPFs)). 

(We note that the annual updates to the 

LTCH PPS are now included as part of 

the IPPS annual update document. 

Updates to the IRF PPS and IPF PPS are 

issued as separate documents.) 

Children’s hospitals, cancer hospitals, 

and RNHCIs continue to be paid solely 

under a reasonable cost-based system 

subject to a rate-of-increase ceiling on 

inpatient operating costs per discharge. 

The existing regulations governing 

payments to excluded hospitals and 

hospital units are located in 42 CFR 

parts 412 and 413. 

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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) effective for cost 

reporting periods beginning on or after 

October 1, 2002. The LTCH PPS was 

established under the authority of 

sections 123(a) and (c) of Public Law 

106–113 and section 307(b)(1) of Public 

Law 106–554 (as codified under section 

1886(m)(1) of the Act). During the 5-year 

(optional) transition period, a LTCH’s 

payment under the PPS was based on an 

increasing proportion of the LTCH 

Federal rate with a corresponding 

decreasing proportion based on 

reasonable cost principles. Effective for 

cost reporting periods beginning on or 

after October 1, 2006, all LTCHs are 

paid 100 percent of the Federal rate. The 

existing regulations governing payment 

under the LTCH PPS are located in 42 

CFR part 412, subpart O. Beginning 

October 1, 2009, we issue the annual 

updates to the LTCH PPS in the same 

documents that update the IPPS (73 FR 

26797 through 26798). 

4. Critical Access Hospitals (CAHs) 

Under sections 1814(l), 1820, and 

1834(g) of the Act, payments are made 

to critical access hospitals (CAHs) (that 

is, rural hospitals or facilities that meet 

certain statutory requirements) for 

inpatient and outpatient services are 

generally based on 101 percent of 

reasonable cost. Reasonable cost is 

determined under the provisions of 

section 1861(v)(1)(A) of the Act and 

existing regulations under 42 CFR parts 

413 and 415. 

5. Payments for Graduate Medical 

Education (GME) 

Under section 1886(a)(4) of the Act, 

costs of approved educational activities 

are excluded from the operating costs of 

inpatient hospital services. Hospitals 

with approved graduate medical 

education (GME) programs are paid for 

the direct costs of GME in accordance 

with section 1886(h) of the Act. The 

amount of payment for direct GME costs 

for a cost reporting period is based on 

the hospital’s number of residents in 

that period and the hospital’s costs per 

resident in a base year. The existing 

regulations governing payments to the 

various types of hospitals are located in 

42 CFR part 413. 

B. Provisions of the Patient Protection 

and Affordable Care Act (Pub. L. 111– 

148) and the Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152) 

On March 23, 2010, the Patient 

Protection and Affordable Care Act 

(PPACA), Public Law 111–148 was 

enacted. Following the enactment of 

Public Law 111–148, the Health Care 

and Education Reconciliation Act of 

2010, Public Law 111–152 (enacted on 

March 30, 2010), amended certain 

provisions of Public Law 111–148 and 

certain sections of the Social Security 

Act, and, in certain instances, included 

certain ‘‘freestanding’’ provisions that 

affect implementation of the IPPS and 

the LTCH PPS. (Pub. L. 111–148 and 

Pub. L. 111–152 are collectively referred 

to as the ‘‘Affordable Care Act.’’) A 

number of the provisions of the 

Affordable Care Act affected the updates 

to the IPPS and the LTCH PPS and the 

providers and suppliers that were 

addressed in the FY 2011 IPPS/LTCH 

PPS proposed rule that appeared in the 

Federal Register on May 4, 2010 (75 FR 

23852). However, due to the timing of 

the passage of the legislation, we were 

unable to address those provisions in 

the May 4, 2010 proposed rule. 

Therefore, on June 2, 2010, we issued in 

the Federal Register two additional 

documents: 

1. A supplemental proposed rule (75 

FR 30918) to the FY 2010 IPPS/LTCH 

PPS proposed rule published on May 4, 

2010, that proposed to implement 

certain provisions of the Affordable Care 

Act. These proposed provisions are 

outlined in section I.D.2. of this final 

rule, and are being finalized in the 

appropriate subject-matter sections of 

this final rule. 

2. A notice (75 FR 31118) that 

contained the final wage indices, 

hospital reclassifications, payment rates, 

impacts, and other related tables, 

effective for the FY 2010 IPPS and the 

RY 2010 LTCH PPS, that were required 

by or directly resulted from 

implementation of provisions of the 

Affordable Care Act. 

C. Provisions of the Preservation of 

Access To Care for Medicare 

Beneficiaries and Pension Relief Act of 

2010 (Pub. L. 111–192) 

On June 25, 2010, the Preservation of 

Access to Care for Medicare 

Beneficiaries and Pension Relief Act of 

2010 (Pub. L. 111–192) was enacted. 

Section 102 of Public Law 111–192 

amended section 1886(a)(4) and (d)(7) of 

the Act affecting Medicare payments for 

preadmission services furnished to 

outpatients who are later admitted as 

inpatients during a specified payment 

window. We are implementing this 

legislative provision as discussed under 

section IV.M. of the preamble of this 

document through an interim final rule 

with comment period. 

D. Issuance of Two Notices of Proposed 

Rulemaking for FY 2011 

1. Issuance of May 4, 2010 IPPS/LTCH 

PPS Proposed Rule 

On May 4, 2010, we issued in the 

Federal Register the FY 2011 IPPS/ 

LLTCH PPS proposed rule (75 FR 

23852). In that proposed rule, we set 

forth proposed changes to the Medicare 

IPPS for operating costs and for capitalrelated costs of acute care hospitals in 

FY 2011. We also set forth proposed 

changes relating to payments for IME 

costs and payments to certain hospitals 

and units that continue to be excluded 

from the IPPS and paid on a reasonable 

cost basis. 

In addition, in that proposed rule, we 

set forth proposed changes to the 

payment rates, factors, and other 

payment rate policies under the LTCH 

PPS for FY 2011. We note that because 

the annual update of payment rates for 

the LTCH PPS now takes place on the 

same schedule and in the same 

publication as for the IPPS, for the sake 

of clarity, in section VII.D. of the 

proposed rule, we proposed to use 

‘‘fiscal year (FY)’’ instead of ‘‘rate year 

(RY)’’ when referring to updates and 

changes to the LTCH PPS to be effective 

October 1, 2010. Therefore, throughout 

the proposed rule (and this final rule), 

we use the phrase ‘‘fiscal year (FY)’’ in 

referring to updates and changes to the 

LTCH PPS. 

Below is a summary of the major 

changes that we proposed to make in 

the May 4, 2010 proposed rule: 

a. Proposed Changes to MS–DRG 

Classifications and Recalibrations of 

Relative Weights 

In section II. of the preamble of the 

proposed rule, we included— 

• Proposed changes to MS–DRG 

classifications based on our yearly 

review. 

• Proposed application of the 

documentation and coding adjustment 

for FY 2011 resulting from 

implementation of the MS–DRG system. 

• A discussion of the Research 

Triangle International, Inc. (RTI) and 

RAND Corporation reports and 

recommendations relating to charge 

compression. 

• Proposed recalibrations of the MS– 

DRG relative weights. 

We also presented a listing and 

discussion of hospital-acquired 

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conditions (HACs), including infections, 

that are subject to the statutorily 

required quality adjustment in MS–DRG 

payments for FY 2011. 

We discussed the FY 2011 status of 

two new technologies approved for addon payments for FY 2010 and presented 

our evaluation and analysis of the FY 

2011 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). 

b. Proposed Changes to the Hospital 

Wage Index for Acute Care Hospitals 

In section III. of the preamble to the 

proposed rule, we proposed revisions to 

the wage index for acute care hospitals 

and the annual update of the wage data. 

Specific issues addressed included the 

following: 

• Budget neutrality for the rural floor 

and imputed floor. 

• Changes to titles and principal 

cities of CBSA designations. 

• The proposed FY 2011 wage index 

update using wage data from cost 

reporting periods beginning in FY 2007. 

• Analysis and implementation of the 

proposed FY 2011 occupational mix 

adjustment to the wage index for acute 

care hospitals, including discussion of 

the 2010 occupational mix survey. 

• Proposed revisions to the wage 

index for acute care hospitals based on 

hospital redesignations and 

reclassifications. 

• The proposed adjustment to the 

wage index for acute care hospitals for 

FY 2011 based on commuting patterns 

of hospital employees who reside in a 

county and work in a different area with 

a higher wage index. 

• The timetable for reviewing and 

verifying the wage data used to compute 

the proposed FY 2011 hospital wage 

index. 

• Determination of the labor-related 

share for the proposed FY 2011 wage 

index. 

c. Other Decisions and Proposed 

Changes to the IPPS for Operating Costs 

and GME Costs 

In section IV. of the preamble of the 

proposed rule, we discussed a number 

of the provisions of the regulations in 42 

CFR parts 412, 413, and 489, including 

the following: 

• The reporting of hospital quality 

data as a condition for receiving the full 

annual payment update increase. 

• Payment for transfer cases from 

Medicare participating hospitals to 

nonparticipating hospitals and CAHs. 

• A change to the definition criteria 

for MDHs. 

• The proposed updated national and 

regional case-mix values and discharges 

for purposes of determining RRC status. 

• The statutorily required IME 

adjustment factor for FY 2011. 

• The proposed policy change 

relating to the determination of the SSI 

ratio of the Medicare fraction in the 

formula for determining the payment 

adjustments for disproportionate share 

hospitals. 

• A proposed clarification of 

‘‘approved medical residency programs’’ 

policies relating to payment for IME and 

direct GME and our proposal to accept 

the electronic submission of Medicare 

GME affiliation agreements. 

• Proposed policy change for 

payments for services furnished by 

certified registered nurse anesthetists 

(CRNAs) in rural hospitals and CAHs. 

• Discussion of the status of the Rural 

Community Hospital Demonstration 

Program. 

d. Proposed FY 2011 Policy Governing 

the IPPS for Capital-Related Costs 

In section V. of the preamble to the 

proposed rule, we discussed the 

proposed payment policy requirements 

for capital-related costs and capital 

payments to hospitals for FY 2011 and 

the proposed MS–DRG documentation 

and coding adjustment for FY 2011. 

e. Proposed Changes to the Payment 

Rates for Certain Excluded Hospitals: 

Rate-of-Increase Percentages 

In section VI. of the preamble of the 

proposed rule, we discussed— 

• Proposed changes to payments to 

excluded hospitals. 

• Proposed changes relating to the 

election by CAHs of the optional 

method of payment for outpatient 

services 

• Proposed clarification of the 

policies on costs of provider taxes as 

allowable costs for CAHs. 

f. Proposed Changes to the LTCH PPS 

In section VII. of the preamble of the 

proposed rule, we set forth proposed 

changes to the payment rates, factors, 

and other payment rate policies under 

the LTCH PPS for FY 2011, including 

the annual update of the MS–LTC–DRG 

classifications and relative weights for 

use under the LTCH PPS for FY 2011 

and the proposed documentation and 

coding adjustment under the LTCH PPS 

for FY 2011. 

g. Proposed Changes Relating to 

Effective Date of Provider Agreements 

and Supplier Approvals 

In section VIII. of the preamble of the 

proposed rule, we set forth our 

proposed change in the provisions for 

determining the effective date of 

provider agreements and supplier 

approvals and to make changes to assure 

that accredited and nonaccredited 

facilities are treated in the same manner 

in determining this effective date. 

h. Proposed Changes to Medicare 

Conditions of Participation Affecting 

Hospital Rehabilitation Services and 

Respiratory Care Services 

In section IX. of the preamble of the 

proposed rule, we proposed changes to 

the Medicare conditions of participation 

regarding which practitioners are 

allowed to order rehabilitation and 

respiratory care services in the hospital 

setting. 

i. Proposed Changes to the 

Accreditation Requirements for 

Medicaid Providers of Inpatient 

Psychiatric Services for Individuals 

Under Age 21 

In section X. of the preamble of the 

proposed rule, we proposed to remove 

the requirement for accreditation by The 

Joint Commission of psychiatric 

hospitals and hospitals with inpatient 

psychiatric programs. Hospitals with 

inpatient psychiatric programs would be 

afforded the flexibility in obtaining 

accreditation by a national accrediting 

organization whose hospital accrediting 

program has been approved by CMS. 

(We note that we proposed a similar 

change for psychiatric rehabilitation 

treatment facilities, which we are not 

adopting in this final rule.) 

j. Determining Proposed Prospective 

Payment Operating and Capital Rates 

and Rate-of-Increase Limits for Acute 

Care Hospitals 

In the Addendum to the proposed 

rule, we set forth proposed changes to 

the amounts and factors for determining 

the proposed FY 2011 prospective 

payment rates for operating costs and 

capital-related costs for acute care 

hospitals. We also proposed to establish 

the threshold amounts for outlier cases. 

In addition, we addressed the proposed 

update factors for determining the rateof-increase limits for cost reporting 

periods beginning in FY 2011 for certain 

hospitals excluded from the IPPS. 

k. Determining Proposed 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 2011 prospective 

standard Federal rate. We also proposed 

to establish the proposed adjustments 

for wage levels, the labor-related share, 

the cost-of-living adjustment, and highcost outliers, including the fixed-loss 

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amount, and the LTCH cost-to-charge 

ratios (CCRs) under the LTCH PPS. 

l. 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 and 

LTCHs. 

m. 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 2011 for the 

following: 

• A single average standardized 

amount for all areas for hospital 

inpatient services paid under the IPPS 

for operating costs of acute care 

hospitals (and hospital-specific rates 

applicable to SCHs and MDHs). 

• Target rate-of-increase limits to the 

allowable operating costs of hospital 

inpatient services furnished by certain 

hospitals excluded from the IPPS. 

• The standard Federal rate for 

hospital inpatient services furnished by 

LTCHs. 

n. 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 1 of 

each year, in which MedPAC reviews 

and makes recommendations on 

Medicare payment policies. MedPAC’s 

March 2010 recommendations 

concerning hospital inpatient payment 

policies address the update factor for 

hospital inpatient operating costs and 

capital-related costs under the IPPS, for 

hospitals and distinct part hospital units 

excluded from the IPPS. We addressed 

these recommendations in Appendix B 

of the proposed rule. For further 

information relating specifically to the 

MedPAC March 2008 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. 

2. Issuance of June 2, 2010 Proposed 

Rule 

A number of the provisions of the 

Affordable Care Act affected the IPPS 

and the LTCH PPS and the applicable 

providers and suppliers. Due to the 

timing of the passage of the legislation, 

we were unable to address these 

provisions in the FY 2011 IPPS/LTCH 

PPS proposed rule that appeared in the 

May 4, 2010 Federal Register (75 FR 

23852). Therefore, various proposed 

policies and payment rates in that 

proposed rule did not reflect the new 

legislation. We noted in that proposed 

rule that we would issue separate 

Federal Register documents addressing 

the provisions of the Affordable Care 

Act that affected our proposed policies 

and payment rates for FY 2010 and FY 

2011 under the IPPS and for RY 2010 

and FY 2011 under the LTCH PPS. 

On June 2, 2010, we issued a 

supplemental proposed rule in the 

Federal Register (75 FR 30918) that 

addressed the following FY 2011 

policies and provisions of the 

Affordable Care Act: 

• Hospital wage index improvement 

related to geographic reclassification 

criteria for FY 2011 (section 3137 of 

Pub. L. 111–148). 

• National budget neutrality in the 

calculation of the rural floor for hospital 

wage index (section 3141 of Pub. L. 

111–148). 

• Protections for frontier States 

(section 10324 of Pub. L. 111–148). 

• Revisions of certain market basket 

updates (sections 3401 and 10319 of 

Pub. L. 111–148 and section 1105 of 

Pub. L. 111–152). 

• Temporary improvements to the 

low-volume hospital adjustment 

(sections 3125 and 10314 of Pub. L. 

111–148). 

• Extension of Medicare-dependent 

hospitals (MDHs) (section 3124 of Pub. 

L. 111–148). 

• Additional payments in FYs 2011 

and 2012 for qualifying hospitals in the 

lowest quartile of per capital Medicare 

spending (section 1109 of Pub. L. 111– 

152). 

• Extension of the rural community 

hospital demonstration (sections 3123 

and 10313 of Pub. L. 111–148). 

• Technical correction related to CAH 

services (section 3128 of Pub. L. 111– 

148). 

• Extension of certain payment rules 

for LTCH services and of moratorium on 

the establishment of certain hospitals 

and facilities and increases in beds in 

existing LTCHs or LTCH satellite 

facilities (sections 3106 and 10312 of 

Pub. L. 111–148). 

We also noted that we planned to 

issue further instructions implementing 

the provisions of the Affordable Care 

Act that affect the policies and payment 

rates for FY 2010 under the IPPS and for 

RY 2010 under the LTCH PPS in a 

separate document published elsewhere 

in June 2, 2010 Federal Register. 

In this final rule, we are finalizing 

both the provisions of the May 4, 2010 

proposed rule and the June 2, 2010 

supplemental proposed rule in one 

document. 

E. Public Comments Received on the FY 

2011 IPPS/LTCH PPS Proposed Rule 

and Supplemental Proposed Rule 

We received over 700 public 

comments on the May 4, 2010 FY 2011 

IPPS/LTCH PPS proposed rule and 

approximately 33 public comments on 

the June 2, 2010 FY 2011 IPPS/LTCH 

PPS supplemental proposed rule. One 

comment addressed the comment 

period for the supplemental proposed 

rule. 

Comment: One commenter objected to 

our decision to shorten the usual 60-day 

comment period for the supplemental 

proposed rule. The commenter did not 

believe that CMS had the authority to 

shorten the comment period and stated 

that the period allowed for comment on 

the policies in the supplemental 

proposed rule was insufficient. 

Response: We disagree with the 

commenter that the waiver of the full 

60-day comment period in the 

supplemental proposed rule was 

insufficient. As we explained in the 

supplemental proposed rule, due to the 

timing of the enactment of the 

Affordable Care Act, the policies and 

payment rates outlined in the FY 2011 

IPPS/LTCH proposed rule published in 

the Federal Register on May 4, 2010, 

did not reflect the changes made by that 

law to the IPPS and LTCH PPS. The 

supplemental proposed rule addressed 

the changes that affect our policies and 

payment rates for FY 2011 under the 

IPPS and the LTCH PPS. We refer 

readers to the waiver of 60-day 

comment period discussion in the 

supplemental proposed rule (75 FR 

30971), and we welcome the 

opportunity to provide additional 

details regarding our decision to waive 

the 60-day comment period. 

Our decision to shorten the customary 

60-day comment period is consistent 

with past agency practice (see, for 

example, 74 FR 26603 (June 3, 2009), 74 

FR 43952 (August 27, 2009), and 68 FR 

34772 (June 10, 2003)), as well as the 

language of section 1871(b)(2)(C) of the 

Act. We read section 1871(b)(2)(C) of the 

Act to permit a waiver of any or all of 

the procedures set forth in section 

1871(b)(1) of the Act, including the 60- 

day comment period, if good cause 

exists. 

We believe the commenter’s 

description of the period allowed for 

comment overstated the inconvenience 

that the shortened comment period may 

have created. We believe that the 

detailed and thoughtful comments that 

we received in response to the contents 

of the supplemental proposed rule 

support our position that there was time 

for meaningful public participation in 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50053 

1Medicare Payment Advisory Commission: 

Report to the Congress, Physician-Owned Specialty 

Hospitals, March 2005, page viii. 

the development of these policies. In 

addition, as the commenter admits, 

parties had 28 days from the posting of 

the supplemental proposed rule to 

submit comments to CMS, and a 

Listserv posting alerted outside parties 

to the posting of agency regulations. 

The FY 2011 IPPS/LTCH PSS final 

rule must be effective as of October 1, 

2010, the start of FY 2011. Given this 

statutory deadline, we believe it was 

necessary to shorten the time period, as 

permitted by section 1871(b)(2)(C) of the 

Act. As we explained in the waiver of 

60-day comment period discussion in 

the supplemental proposed rule, unless 

we shortened the comment period, there 

would have been no opportunity for the 

agency to appropriately consider the 

comments we received and resolve 

whether any of the proposed policies 

would be modified in light of comments 

received. The comment period set forth 

in the supplemental proposed rule 

provided the agency with the minimum 

time needed for a careful consideration 

of the public comments on both the FY 

2011 IPPS/LTCH PPS final rules. 

Moreover, a full 60-day comment period 

from the date of publication in the 

Federal Register, which is what the 

comment period would be if the 

commenter’s reading of section 

1871(b)(2)(C) of the Act were adopted by 

the agency, would have extended into 

August, which would have been 

impracticable, given the required 

effective date of October 1, 2010. 

The remaining public comments we 

received on the two proposed rules 

addressed issues on multiple topics in 

both of the proposed rules. We present 

a summary of the public comments and 

our responses to them in the applicable 

subject-matter sections of this final rule. 

F. Finalization of the Interim Final Rule 

With Comment Period That 

Implemented Certain Provisions of the 

ARRA Relating to Payments to LTCHs 

and LTCH Satellite Facilities 

Section 4302 of the American 

Recovery and Reinvestment Act of 2009 

(ARRA, Pub. L. 111–5) included several 

amendments to section 114 of Public 

Law 110–173 (MMSEA) relating to 

payments to LTCHs and LTCH satellite 

facilities that were discussed under 

section X. of the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43976 

through 43990). These amendments are 

effective as if they were enacted as part 

of section 114 of Public Law 110–173 

(MMSEA). We issued instructions to the 

fiscal intermediaries and Medicare 

administrative contractors (MACs) to 

interpret these amendments (Change 

Request 6444). In section XI. of the FY 

2010/RY 2010 LTCH PPS final rule (74 

FR 43990), we implemented the 

provisions of section 4302 of Public Law 

111–5 through an interim final rule with 

comment period. Sections 3106 and 

10312 of the Affordable Care Act added 

an additional 2 years to the 3-year 

implementation delay established by 

section 114(c) and (d)(1) of MMSEA. 

These provisions of the Affordable Care 

Act applicable to the LTCH PPS were 

discussed in the June 2, 2010 

supplemental proposed rule (75 FR 

30967). 

In section VII.E. of the preamble of 

this final rule, we respond to the public 

comment that we received in a timely 

manner on this interim final rule with 

comment period and finalize the interim 

final rule. 

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 

DRGs) for inpatient discharges and 

adjust payments under the IPPS based 

on appropriate weighting factors 

assigned to each DRG. Therefore, under 

the IPPS, Medicare pays for inpatient 

hospital services on a rate per discharge 

basis that varies according to the DRG 

to which a beneficiary’s stay is assigned. 

The formula used to calculate payment 

for a specific case multiplies an 

individual hospital’s payment rate per 

case by the weight of the DRG to which 

the case is assigned. Each DRG weight 

represents the average resources 

required to care for cases in that 

particular DRG, relative to the average 

resources used to treat cases in all 

DRGs. 

Congress recognized that it would be 

necessary to recalculate the DRG 

relative weights periodically to account 

for changes in resource consumption. 

Accordingly, section 1886(d)(4)(C) of 

the Act requires that the Secretary 

adjust the DRG classifications and 

relative weights at least annually. These 

adjustments are made to reflect changes 

in treatment patterns, technology, and 

any other factors that may change the 

relative use of hospital resources. 

B. MS–DRG Reclassifications 

1. General 

As discussed in the preamble to the 

FY 2008 IPPS final rule with comment 

period (72 FR 47138), we focused our 

efforts in FY 2008 on making significant 

reforms to the IPPS consistent with the 

recommendations made by MedPAC in 

its ‘‘Report to the Congress, PhysicianOwned Specialty Hospitals’’ in March 

2005. MedPAC recommended that the 

Secretary refine the entire DRG system 

by taking severity of illness into account 

and applying hospital-specific relative 

value (HSRV) weights to DRGs.1 We 

began this reform process by adopting 

cost-based weights over a 3-year 

transition period beginning in FY 2007 

and making interim changes to the DRG 

system for FY 2007 by creating 20 new 

CMS DRGs and modifying 32 other 

DRGs across 13 different clinical areas 

involving nearly 1.7 million cases. As 

described in more detail below, these 

refinements were intermediate steps 

towards comprehensive reform of both 

the relative weights and the DRG system 

as we undertook further study. For FY 

2008, we adopted 745 new Medicare 

Severity DRGs (MS–DRGs) to replace 

the CMS DRGs. We refer readers to 

section II.D. of the FY 2008 IPPS final 

rule with comment period for a full 

detailed discussion of how the MS–DRG 

system, based on severity levels of 

illness, was established (72 FR 47141). 

Currently, cases are classified into 

MS–DRGs for payment under the IPPS 

based on the following information 

reported by the hospital: the principal 

diagnosis, up to eight additional 

diagnoses, and up to six procedures 

performed during the stay. (We refer 

readers to section II.G.11.c. of this final 

rule for a discussion of our efforts to 

increase our internal systems capacity to 

process diagnosis and procedures on 

hospital claims to 25 diagnosis codes 

and 25 procedure codes prior to the use 

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, effective October 1, 

2013.) In a small number of MS–DRGs, 

classification is also based on the age, 

sex, and discharge status of the patient. 

The diagnosis and procedure 

information is reported by the hospital 

using codes from the International 

Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD–9– 

CM) prior to October 1, 2013. We refer 

readers to section II.G.11.b. of this final 

rule for a reference to the replacement 

of ICD–9–CM, Volumes 1 and 2, 

including the Official ICD–9–CM 

Guidelines for Coding and Reporting, 

Volume 3, with the ICD–10–CM and 

ICD–10–PCS, including the Official 

ICD–10–CM and ICD–10–PCS 

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Guidelines for Coding and Reporting, 

effective October 1, 2013 (FY 2014). 

The process of developing the MS– 

DRGs was begun by dividing all 

possible principal diagnoses into 

mutually exclusive principal diagnosis 

areas, referred to as Major Diagnostic 

Categories (MDCs). The MDCs were 

formulated by physician panels to 

ensure that the DRGs would be 

clinically coherent. The diagnoses in 

each MDC correspond to a single organ 

system or etiology and, in general, are 

associated with a particular medical 

specialty. Thus, in order to maintain the 

requirement of clinical coherence, no 

final MS–DRG could contain patients in 

different MDCs. For example, MDC 6 is 

Diseases and Disorders of the Digestive 

System. This approach is used because 

clinical care is generally organized in 

accordance with the organ system 

affected. However, some MDCs are not 

constructed on this basis because they 

involve multiple organ systems (for 

example, MDC 22 (Burns)). For FY 2010, 

cases were assigned to one of 746 MS– 

DRGs in 25 MDCs. For FY 2011, cases 

will be assigned to one of 747 MS–DRGs 

in 25 MDCs. The table below lists the 25 

MDCs. 

MAJOR DIAGNOSTIC CATEGORIES

(MDCS) 

1 .............. Diseases and Disorders of the 

Nervous System. 

MAJOR DIAGNOSTIC CATEGORIES

(MDCS)—Continued 

2 .............. Diseases and Disorders of the 

Eye. 

3 .............. Diseases and Disorders of the 

Ear, Nose, Mouth, and Throat. 

4 .............. Diseases and Disorders of the 

Respiratory System. 

5 .............. Diseases and Disorders of the 

Circulatory System. 

6 .............. Diseases and Disorders of the 

Digestive System. 

7 .............. Diseases and Disorders of the 

Hepatobiliary System and 

Pancreas. 

8 .............. Diseases and Disorders of the 

Musculoskeletal System and 

Connective Tissue. 

9 .............. Diseases and Disorders of the 

Skin, Subcutaneous Tissue 

and Breast. 

10 ............ Endocrine, Nutritional and Metabolic Diseases and Disorders. 

11 ............ Diseases and Disorders of the 

Kidney and Urinary Tract. 

12 ............ Diseases and Disorders of the 

Male Reproductive System. 

13 ............ Diseases and Disorders of the 

Female Reproductive System. 

14 ............ Pregnancy, Childbirth, and the 

Puerperium. 

15 ............ Newborns and Other Neonates 

with Conditions Originating in 

the Perinatal Period. 

16 ............ Diseases and Disorders of the 

Blood and Blood Forming Organs and Immunological Disorders. 

17 ............ Myeloproliferative Diseases and 

Disorders and Poorly Differentiated Neoplasms. 

MAJOR DIAGNOSTIC CATEGORIES

(MDCS)—Continued 

18 ............ Infectious and Parasitic Diseases (Systemic or Unspecified Sites). 

19 ............ Mental Diseases and Disorders. 

20 ............ Alcohol/Drug Use and Alcohol/ 

Drug Induced Organic Mental 

Disorders. 

21 ............ Injuries, Poisonings, and Toxic 

Effects of Drugs. 

22 ............ Burns. 

23 ............ Factors Influencing Health Status and Other Contacts with 

Health Services. 

24 ............ Multiple Significant Trauma. 

25 ............ Human Immunodeficiency Virus 

Infections. 

In general, cases are assigned to an 

MDC based on the patient’s principal 

diagnosis before assignment to an MS– 

DRG. However, under the most recent 

version of the Medicare GROUPER 

(Version 27.0), there are 13 MS–DRGs to 

which cases are directly assigned on the 

basis of ICD–9–CM procedure codes. 

These MS–DRGs are for heart transplant 

or implant of heart assist systems; liver 

and/or intestinal transplants; bone 

marrow transplants; lung transplants; 

simultaneous pancreas/kidney 

transplants; pancreas transplants; and 

tracheostomies. Cases are assigned to 

these MS–DRGs before they are 

classified to an MDC. The table below 

lists the 13 current pre-MDCs. 

PRE-MAJOR DIAGNOSTIC CATEGORIES (PRE-MDCS) 

MS–DRG 001 .. Heart Transplant or Implant of Heart Assist System with MCC. 

MS–DRG 002 .. Heart Transplant or Implant of Heart Assist System without MCC. 

MS–DRG 003 .. ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R. 

MS–DRG 004 .. Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis

with Major O.R. 

MS–DRG 005 .. Liver Transplant with MCC or Intestinal Transplant. 

MS–DRG 006 .. Liver Transplant without MCC. 

MS–DRG 007 .. Lung Transplant. 

MS–DRG 008 .. Simultaneous Pancreas/Kidney Transplant. 

MS–DRG 009 .. Bone Marrow Transplant. 

MS–DRG 010 .. Pancreas Transplant. 

MS–DRG 011 .. Tracheostomy for Face, Mouth, and Neck Diagnoses with MCC. 

MS–DRG 012 .. Tracheostomy for Face, Mouth, and Neck Diagnoses with CC. 

MS–DRG 013 .. Tracheostomy for Face, Mouth, and Neck Diagnoses without CC/MCC. 

Once the MDCs were defined, each 

MDC was evaluated to identify those 

additional patient characteristics that 

would have a consistent effect on 

hospital resource consumption. Because 

the presence of a surgical procedure that 

required the use of the operating room 

would have a significant effect on the 

type of hospital resources used by a 

patient, most MDCs were initially 

divided into surgical DRGs and medical 

DRGs. Surgical DRGs are based on a 

hierarchy that orders operating room 

(O.R.) procedures or groups of O.R. 

procedures by resource intensity. 

Medical DRGs generally are 

differentiated on the basis of diagnosis 

and age (0 to 17 years of age or greater 

than 17 years of age). Some surgical and 

medical DRGs are further differentiated 

based on the presence or absence of a 

complication or comorbidity (CC) or a 

major complication or comorbidity 

(MCC). 

Generally, nonsurgical procedures 

and minor surgical procedures that are 

not usually performed in an operating 

room are not treated as O.R. procedures. 

However, there are a few non-O.R. 

procedures that do affect MS–DRG 

assignment for certain principal 

diagnoses. An example is extracorporeal 

shock wave lithotripsy for patients with 

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a principal diagnosis of urinary stones. 

Lithotripsy procedures are not routinely 

performed in an operating room. 

Therefore, lithotripsy codes are not 

classified as O.R. procedures. However, 

our clinical advisors believe that 

patients with urinary stones who 

undergo extracorporeal shock wave 

lithotripsy should be considered similar 

to other patients who undergo O.R. 

procedures. Therefore, we treat this 

group of patients similar to patients 

undergoing O.R. procedures. 

Once the medical and surgical classes 

for an MDC were formed, each diagnosis 

class was evaluated to determine if 

complications or comorbidities would 

consistently affect hospital resource 

consumption. Each diagnosis was 

categorized into one of three severity 

levels. These three levels include a 

major complication or comorbidity 

(MCC), a complication or comorbidity 

(CC), or a non-CC. Physician panels 

classified each diagnosis code based on 

a highly iterative process involving a 

combination of statistical results from 

test data as well as clinical judgment. As 

stated earlier, we refer readers to section 

II.D. of the FY 2008 IPPS final rule with 

comment period for a full detailed 

discussion of how the MS–DRG system 

was established based on severity levels 

of illness (72 FR 47141). 

A patient’s diagnosis, procedure, 

discharge status, and demographic 

information is entered into the Medicare 

claims processing systems and subjected 

to a series of automated screens called 

the Medicare Code Editor (MCE). The 

MCE screens are designed to identify 

cases that require further review before 

classification into an MS–DRG. 

After patient information is screened 

through the MCE and further 

development of the claim is conducted, 

the cases are classified into the 

appropriate MS–DRG by the Medicare 

GROUPER software program. The 

GROUPER program was developed as a 

means of classifying each case into an 

MS–DRG on the basis of the diagnosis 

and procedure codes and, for a limited 

number of MS–DRGs, demographic 

information (that is, sex, age, and 

discharge status). 

After cases are screened through the 

MCE and assigned to an MS–DRG by the 

GROUPER, the PRICER software 

calculates a base MS–DRG payment. 

The PRICER calculates the payment for 

each case covered by the IPPS based on 

the MS–DRG relative weight and 

additional factors associated with each 

hospital, such as IME and DSH payment 

adjustments. These additional factors 

increase the payment amount to 

hospitals above the base MS–DRG 

payment. 

The records for all Medicare hospital 

inpatient discharges are maintained in 

the Medicare Provider Analysis and 

Review (MedPAR) file. The data in this 

file are used to evaluate possible MS– 

DRG classification changes and to 

recalibrate the MS–DRG weights. 

However, in the FY 2000 IPPS final rule 

(64 FR 41499 and 41500), we discussed 

a process for considering non-MedPAR 

data in the recalibration process. We 

stated that for use of non-MedPAR data 

to be feasible for purposes of DRG 

recalibration and reclassification, the 

data must, among other things: (1) Be 

independently verified; (2) reflect a 

complete set of cases (or a 

representative sample of cases); and (3) 

enable us to calculate appropriate DRG 

relative weights and ensure that cases 

are classified to the ‘‘correct’’ DRG, and 

to one DRG only, in the recalibration 

process. Further, in order for us to 

consider using particular non-MedPAR 

data, we must have sufficient time to 

evaluate and test the data. The time 

necessary to do so depends upon the 

nature and quality of the non-MedPAR 

data submitted. Generally, however, a 

significant sample of the non-MedPAR 

data should be submitted by midOctober for consideration in 

conjunction with the next year’s 

proposed rule. This date allows us time 

to test the data and make a preliminary 

assessment as to the feasibility of using 

the data. Subsequently, a complete nonMedPAR database should be submitted 

by early December for consideration in 

conjunction with the next year’s 

proposed rule. 

As we indicated above, for FY 2008, 

we made significant improvements in 

the DRG system to recognize severity of 

illness and resource usage by adopting 

MS–DRGs that were reflected in the FY 

2008 GROUPER, Version 25.0, and were 

effective for discharges occurring on or 

after October 1, 2007. Our MS–DRG 

analysis for the FY 2011 proposed rule 

was based on data from the September 

2009 update of the FY 2009 MedPAR 

file, which contained hospital bills 

received through September 30, 2009, 

for discharges occurring through 

September 30, 2009. For this FY 2011 

final rule, our MS–DRG analysis is 

based on data from the March 2010 

update of the FY 2009 MedPAR file, 

which contained hospital bills received 

through March 31, 2010, for discharges 

occurring through September 30, 2009. 

2. Yearly Review for Making MS–DRG 

Changes 

Many of the changes to the MS–DRG 

classifications we make annually are the 

result of specific issues brought to our 

attention by interested parties. We 

encourage individuals with comments 

about MS–DRG classifications to submit 

these comments no later than early 

December of each year so they can be 

carefully considered for possible 

inclusion in the annual proposed rule 

and, if included, may be subjected to 

public review and comment. Therefore, 

similar to the timetable for interested 

parties to submit non-MedPAR data for 

consideration in the MS–DRG 

recalibration process, comments about 

MS–DRG classification issues should be 

submitted no later than early December 

in order to be considered and possibly 

included in the next annual proposed 

rule updating the IPPS. 

The actual process of forming the 

MS–DRGs was, and will likely continue 

to be, highly iterative, involving a 

combination of statistical results from 

test data combined with clinical 

judgment. In the FY 2008 IPPS final rule 

(72 FR 47140 through 47189), we 

described in detail the process we used 

to develop the MS–DRGs that we 

adopted for FY 2008. In addition, in 

deciding whether to make further 

modification to the MS–DRGs for 

particular circumstances brought to our 

attention, we considered whether the 

resource consumption and clinical 

characteristics of the patients with a 

given set of conditions are significantly 

different than the remaining patients in 

the MS–DRG. We evaluated patient care 

costs using average charges and lengths 

of stay as proxies for costs and relied on 

the judgment of our medical advisors to 

decide whether patients are clinically 

distinct or similar to other patients in 

the MS–DRG. In evaluating resource 

costs, we considered both the absolute 

and percentage differences in average 

charges between the cases we selected 

for review and the remainder of cases in 

the MS–DRG. We also considered 

variation in charges within these 

groups; that is, whether observed 

average differences were consistent 

across patients or attributable to cases 

that were extreme in terms of charges or 

length of stay, or both. Further, we 

considered the number of patients who 

will have a given set of characteristics 

and generally preferred not to create a 

new MS–DRG unless it would include 

a substantial number of cases. 

C. Adoption of the MS–DRGs in FY 2008 

In the FY 2006, FY 2007, and FY 2008 

IPPS final rules, we discussed a number 

of recommendations made by MedPAC 

regarding revisions to the DRG system 

used under the IPPS (70 FR 47473 

through 47482; 71 FR 47881 through 

47939; and 72 FR 47140 through 47189). 

As we noted in the FY 2006 IPPS final 

rule, we had insufficient time to 

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complete a thorough evaluation of these 

recommendations for full 

implementation in FY 2006. However, 

we did adopt severity-weighted cardiac 

DRGs in FY 2006 to address public 

comments on this issue and the specific 

concerns of MedPAC regarding cardiac 

surgery DRGs. We also indicated that we 

planned to further consider all of 

MedPAC’s recommendations and 

thoroughly analyze options and their 

impacts on the various types of 

hospitals in the FY 2007 IPPS proposed 

rule. 

For FY 2007, we began this process. 

In the FY 2007 IPPS proposed rule, we 

proposed to adopt Consolidated 

Severity DRGs (CS DRGs) for FY 2008 (if 

not earlier). Based on public comments 

received on the FY 2007 IPPS proposed 

rule, we decided not to adopt the CS 

DRGs. In the FY 2007 IPPS final rule (71 

FR 47906 through 47912), we discussed 

several concerns raised by public 

commenters regarding the proposal to 

adopt CS DRGs. We acknowledged the 

many public comments suggesting the 

logic of Medicare’s DRG system should 

continue to remain in the public domain 

as it has since the inception of the PPS. 

We also acknowledged concerns about 

the impact on hospitals and software 

vendors of moving to a proprietary 

system. Several commenters suggested 

that CMS refine the existing DRG 

classification system to preserve the 

many policy decisions that were made 

over the last 20 years and were already 

incorporated into the DRG system, such 

as complexity of services and new 

device technologies. Consistent with the 

concerns expressed in the public 

comments, this option had the 

advantage of using the existing DRGs as 

a starting point (which was already 

familiar to the public) and retained the 

benefit of many DRG decisions that 

were made in recent years. We stated 

our belief that the suggested approach of 

incorporating severity measures into the 

existing DRG system was a viable option 

that would be evaluated. 

Therefore, we decided to make 

interim changes to the existing DRGs for 

FY 2007 by creating 20 new DRGs 

involving 13 different clinical areas that 

would significantly improve the CMS 

DRG system’s recognition of severity of 

illness. We also modified 32 DRGs to 

better capture differences in severity. 

The new and revised DRGs were 

selected from 40 existing CMS DRGs 

that contained 1,666,476 cases and 

represented a number of body systems. 

In creating these 20 new DRGs, we 

deleted 8 existing DRGs and modified 

32 existing DRGs. We indicated that 

these interim steps for FY 2007 were 

being taken as a prelude to more 

comprehensive changes to better 

account for severity in the DRG system 

by FY 2008. 

In the FY 2007 IPPS final rule (71 FR 

47898), we indicated our intent to 

pursue further DRG reform through two 

initiatives. First, we announced that we 

were in the process of engaging a 

contractor to assist us with evaluating 

alternative DRG systems that were 

raised as potential alternatives to the 

CMS DRGs in the public comments. 

Second, we indicated our intent to 

review over 13,000 ICD–9–CM diagnosis 

codes as part of making further 

refinements to the current CMS DRGs to 

better recognize severity of illness based 

on the work that CMS (then HCFA) did 

in the mid-1990’s in connection with 

adopting severity DRGs. We describe 

below the progress we have made on 

these two initiatives and our actions for 

FYs 2008, 2009, and 2010, and our 

proposed and final actions for FY 2011 

based on our continued analysis of 

reform of the DRG system. We note that 

the adoption of the MS–DRGs to better 

recognize severity of illness has 

implications for the outlier threshold, 

the application of the postacute care 

transfer policy, the measurement of real 

case-mix versus apparent case-mix, and 

the IME and DSH payment adjustments. 

We discuss these implications for FY 

2011 in other sections of this preamble 

and in the Addendum to this final rule. 

In the FY 2007 IPPS proposed rule, 

we discussed MedPAC’s 

recommendations to move to a costbased HSRV weighting methodology 

using HSRVs beginning with the FY 

2007 IPPS proposed rule for 

determining the DRG relative weights. 

Although we proposed to adopt the 

HSRV weighting methodology for FY 

2007, we decided not to adopt the 

proposed methodology in the final rule 

after considering the public comments 

we received on the proposal. Instead, in 

the FY 2007 IPPS final rule, we adopted 

a cost-based weighting methodology 

without the HSRV portion of the 

proposed methodology. The cost-based 

weights were adopted over a 3-year 

transition period in 1⁄3 increments 

between FY 2007 and FY 2009. In 

addition, in the FY 2007 IPPS final rule, 

we indicated our intent to further study 

the HSRV-based methodology as well as 

other issues brought to our attention 

related to the cost-based weighting 

methodology adopted in the FY 2007 

final rule. There was significant concern 

in the public comments that our costbased weighting methodology does not 

adequately account for charge 

compression—the practice of applying a 

higher percentage charge markup over 

costs to lower cost items and services 

and a lower percentage charge markup 

over costs to higher cost items and 

services. Further, public commenters 

expressed concern about potential 

inconsistencies between how costs and 

charges are reported on the Medicare 

cost reports and charges on the 

Medicare claims. In the FY 2007 IPPS 

final rule, we used costs and charges 

from the cost reports to determine 

departmental level cost-to-charge ratios 

(CCRs) which we then applied to 

charges on the Medicare claims to 

determine the cost-based weights. The 

commenters were concerned about 

potential distortions to the cost-based 

weights that would result from 

inconsistent reporting between the cost 

reports and the Medicare claims. After 

publication of the FY 2007 IPPS final 

rule, we entered into a contract with RTI 

International (RTI) to study both charge 

compression and the extent, if any, to 

which our methodology for calculating 

DRG relative weights is affected by 

inconsistencies between how hospitals 

report costs and charges on the cost 

reports and how hospitals report 

charges on individual claims. Further, 

as part of its study of alternative DRG 

systems, the RAND Corporation 

analyzed the HSRV cost-weighting 

methodology. We refer readers to 

section II.E. of the preamble of this final 

rule for a discussion of the issue of 

charge compression and the costweighting methodology for FY 2011. 

We believe that revisions to the DRG 

system to better recognize severity of 

illness and changes to the relative 

weights based on costs rather than 

charges are improving the accuracy of 

the payment rates in the IPPS. We agree 

with MedPAC that these refinements 

should be pursued. Although we 

continue to caution that any prospective 

payment system based on grouping 

cases will always present some 

opportunities for providers to specialize 

in cases they believe have higher 

margins, we believe that the changes we 

have adopted and the continuing 

reforms we are making in this final rule 

for FY 2011 will improve payment 

accuracy and reduce financial 

incentives to create specialty hospitals. 

We refer readers to section II.D. of the 

FY 2008 IPPS final rule with comment 

period for a full discussion of how the 

MS–DRG system was established based 

on severity levels of illness (72 FR 

47141). 

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D. FY 2011 MS–DRG Documentation 

and Coding Adjustment, Including the 

Applicability to the Hospital-Specific 

Rates and the Puerto Rico-Specific 

Standardized Amount 

1. Background on the Prospective MS– 

DRG Documentation and Coding 

Adjustments for FY 2008 and FY 2009 

Authorized by Public Law 110–90 

As we discussed earlier in this 

preamble, we adopted the MS–DRG 

patient classification system for the 

IPPS, effective October 1, 2007, to better 

recognize severity of illness in Medicare 

payment rates for acute care hospitals. 

The adoption of the MS–DRG system 

resulted in the expansion of the number 

of DRGs from 538 in FY 2007 to 745 in 

FY 2008. (Currently, there are 746 MS– 

DRGs for FY 2010; there will be 747 

MS–DRGs in FY 2011, with the deletion 

in this final rule of one MS–DRG and 

the creation of two new MS–DRGs.) By 

increasing the number of MS–DRGs and 

more fully taking into account patient 

severity of illness in Medicare payment 

rates for acute care hospitals, MS–DRGs 

encourage hospitals to improve their 

documentation and coding of patient 

diagnoses. In the FY 2008 IPPS final 

rule with comment period (72 FR 47175 

through 47186), we indicated that the 

adoption of the MS–DRGs had the 

potential to lead to increases in 

aggregate payments without a 

corresponding increase in actual patient 

severity of illness due to the incentives 

for additional documentation and 

coding. In that final rule with comment 

period, we exercised our authority 

under section 1886(d)(3)(A)(vi) of the 

Act, which authorizes us to maintain 

budget neutrality by adjusting the 

national standardized amount, to 

eliminate the estimated effect of changes 

in coding or classification that do not 

reflect real changes in case-mix. Our 

actuaries estimated that maintaining 

budget neutrality required an 

adjustment of ¥4.8 percent to the 

national standardized amount. We 

provided for phasing in this ¥4.8 

percent adjustment over 3 years. 

Specifically, we established prospective 

documentation and coding adjustments 

of ¥1.2 percent for FY 2008, ¥1.8 

percent for FY 2009, and ¥1.8 percent 

for FY 2010. 

On September 29, 2007, Congress 

enacted the TMA [Transitional Medical 

Assistance], Abstinence Education, and 

QI [Qualifying Individuals] Programs 

Extension Act of 2007, Public Law 110– 

90. Section 7(a) of Public Law 110–90 

reduced the documentation and coding 

adjustment made as a result of the MS– 

DRG system that we adopted in the FY 

2008 IPPS final rule with comment 

period to ¥0.6 percent for FY 2008 and 

¥0.9 percent for FY 2009. Section 7(a) 

of Public Law 110–90 did not adjust the 

FY 2010 ¥1.8 percent documentation 

and coding adjustment promulgated in 

the FY 2008 IPPS final rule with 

comment period. To comply with 

section 7(a) of Public Law 110–90, we 

promulgated a final rule on November 

27, 2007 (72 FR 66886) that modified 

the IPPS documentation and coding 

adjustment for FY 2008 to ¥0.6 percent, 

and revised the FY 2008 payment rates, 

factors, and thresholds accordingly. 

These revisions were effective on 

October 1, 2007. 

For FY 2009, section 7(a) of Public 

Law 110–90 required a documentation 

and coding adjustment of ¥0.9 percent 

instead of the ¥1.8 percent adjustment 

established in the FY 2008 IPPS final 

rule with comment period. As discussed 

in the FY 2009 IPPS final rule (73 FR 

48447) and required by statute, we 

applied a documentation and coding 

adjustment of ¥0.9 percent to the FY 

2009 IPPS national standardized 

amount. The documentation and coding 

adjustments established in the FY 2008 

IPPS final rule with comment period, as 

amended by Public Law 110–90, are 

cumulative. As a result, the ¥0.9 

percent documentation and coding 

adjustment for FY 2009 was in addition 

to the ¥0.6 percent adjustment for FY 

2008, yielding a combined effect of 

¥1.5 percent. 

2. Prospective Adjustment to the 

Average Standardized Amounts 

Required by Section 7(b)(1)(A) of Public 

Law 110–90 

Section 7(b)(1)(A) of Public Law 110– 

90 requires that, if the Secretary 

determines that implementation of the 

MS–DRG system resulted in changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 or 

FY 2009 that are different than the 

prospective documentation and coding 

adjustments applied under section 7(a) 

of Public Law 110–90, the Secretary 

shall make an appropriate adjustment 

under section 1886(d)(3)(A)(vi) of the 

Act. Section 1886(d)(3)(A)(vi) of the Act 

authorizes adjustments to the average 

standardized amounts for subsequent 

fiscal years in order to eliminate the 

effect of such coding or classification 

changes. These adjustments are 

intended to ensure that future annual 

aggregate IPPS payments are the same as 

the payments that otherwise would have 

been made had the prospective 

adjustments for documentation and 

coding applied in FY 2008 and FY 2009 

reflected the change that occurred in 

those years. 

3. Recoupment or Repayment 

Adjustments in FYs 2010 Through 2012 

Required by Public Law 110–90 

If, based on a retroactive evaluation of 

claims data, the Secretary determines 

that implementation of the MS–DRG 

system resulted in changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 or 

FY 2009 that are different from the 

prospective documentation and coding 

adjustments applied under section 7(a) 

of Public Law 110–90, section 7(b)(1)(B) 

of Public Law 110–90 requires the 

Secretary to make an additional 

adjustment to the standardized amounts 

under section 1886(d) of the Act. This 

adjustment must offset the estimated 

increase or decrease in aggregate 

payments for FYs 2008 and 2009 

(including interest) resulting from the 

difference between the estimated actual 

documentation and coding effect and 

the documentation and coding 

adjustment applied under section 7(a) of 

Public Law 110–90. This adjustment is 

in addition to making an appropriate 

adjustment to the standardized amounts 

under section 1886(d)(3)(A)(vi) of the 

Act as required by section 7(b)(1)(A) of 

Public Law 110–90. That is, these 

adjustments are intended to recoup (or 

repay) spending in excess of (or less 

than) spending that would have 

occurred had the prospective 

adjustments for changes in 

documentation and coding applied in 

FY 2008 and FY 2009 precisely matched 

the changes that occurred in those years. 

Public Law 110–90 requires that the 

Secretary make these recoupment or 

repayment adjustments for discharges 

occurring during FYs 2010, 2011, and 

2012. 

4. Retrospective Evaluation of FY 2008 

Claims Data 

In order to implement the 

requirements of section 7 of Public Law 

110–90, we indicated in the FY 2009 

IPPS final rule (73 FR 48450) that we 

planned a thorough retrospective 

evaluation of our claims data. We stated 

that the results of this evaluation would 

be used by our actuaries to determine 

any necessary payment adjustments to 

the standardized amounts under section 

1886(d) of the Act to ensure the budget 

neutrality of the MS–DRGs 

implementation for FY 2008 and FY 

2009, as required by law. In the FY 2009 

IPPS proposed rule (73 FR 23541 

through 23542), we described our 

preliminary plan for a retrospective 

analysis of inpatient hospital claims 

data and invited public input on our 

proposed methodology. 

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In that proposed rule, we indicated 

that we intended to measure and 

corroborate the extent of the overall 

national average changes in case-mix for 

FY 2008 and FY 2009. We expected that 

the two largest parts of this overall 

national average change would be 

attributable to underlying changes in 

actual patient severity of illness and to 

documentation and coding 

improvements under the MS–DRG 

system. In order to separate the two 

effects, we planned to isolate the effect 

of shifts in cases among base DRGs from 

the effect of shifts in the types of cases 

within-base DRGs. 

The MS–DRGs divide the base DRGs 

into three severity levels (with MCC, 

with CC, and without CC); the 

previously used CMS DRGs had only 

two severity levels (with CC and 

without CC). Under the CMS DRG 

system, the majority of hospital 

discharges had a secondary diagnosis 

which was on the CC list, which led to 

the higher severity level. The MS–DRGs 

significantly changed the code lists of 

what was classified as an MCC or a CC. 

Many codes that were previously 

classified as a CC are no longer included 

on the MS–DRG CC list because the data 

and clinical review showed these 

conditions did not lead to a significant 

increase in resource use. The addition of 

a new level of high severity conditions, 

the MCC list, also provided a new 

incentive to code more precisely in 

order to increase the severity level. We 

anticipated that hospitals would 

examine the MS–DRG MCC and CC 

code lists and then work with 

physicians and coders on 

documentation and coding practices so 

that coders could appropriately assign 

codes from the highest possible severity 

level. We note that there have been 

numerous seminars and training 

sessions on this particular coding issue. 

The topic of improving documentation 

practices in order to code conditions on 

the MCC list was also discussed 

extensively by participants at the March 

11–12, 2009 ICD–9–CM Coordination 

and Maintenance Committee meeting. 

Participants discussed their hospitals’ 

efforts to encourage physicians to 

provide more precise documentation so 

that coders could appropriately assign 

codes that would lead to a higher 

severity level. Because we expected 

most of the documentation and coding 

changes under the MS–DRG system 

would occur in the secondary 

diagnoses, we believed that the shifts 

among base DRGs were less likely to be 

the result of the MS–DRG system and 

the shifts within-base DRGs were more 

likely to be the result of the MS–DRG 

system. We also anticipated evaluating 

data to identify the specific MS–DRGs 

and diagnoses that contributed 

significantly to the documentation and 

coding payment effect and to quantify 

their impact. This step entailed analysis 

of the secondary diagnoses driving the 

shifts in severity within specific base 

DRGs. 

In that same proposed rule, we also 

stated that, while we believed that the 

data analysis plan described previously 

would produce an appropriate estimate 

of the extent of case-mix changes 

resulting from documentation and 

coding changes, we might decide, if 

feasible, to use historical data from our 

Hospital Payment Monitoring Program 

(HPMP) to corroborate the within-base 

DRG shift analysis. The HPMP is 

supported by the Medicare Clinical Data 

Abstraction Center (CDAC). 

In the FY 2009 IPPS proposed rule, 

we solicited public comments on the 

analysis plans described above, as well 

as suggestions on other possible 

approaches for performing a 

retrospective analysis to identify the 

amount of case-mix changes that 

occurred in FY 2008 and FY 2009 that 

did not reflect real increases in patient 

severity of illness. 

A few commenters, including 

MedPAC, expressed support for the 

analytic approach described in the FY 

2009 IPPS proposed rule. A number of 

other commenters expressed concerns 

about certain aspects of the approach 

and/or suggested alternate analyses or 

study designs. In addition, one 

commenter recommended that any 

determination or retrospective 

evaluation by the actuaries of the impact 

of the MS–DRGs on case-mix be open to 

public scrutiny prior to the 

implementation of the payment 

adjustments beginning in FY 2010. 

We took these comments into 

consideration as we developed our 

proposed analysis plan and in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24092 through 24101) 

solicited public comment on our 

methodology and analysis. For the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule, we performed a retrospective 

evaluation of the FY 2008 data for 

claims paid through December 2008. 

Based on this evaluation, our actuaries 

determined that implementation of the 

MS–DRG system resulted in a 2.5 

percent change due to documentation 

and coding that did not reflect real 

changes in case-mix for discharges 

occurring during FY 2008. 

In the analysis of data for that 

proposed rule, we found that the 

within-base DRG increases were almost 

entirely responsible for the case-mix 

change, supporting our conclusion that 

the 2.5 percent estimate was an accurate 

reflection of the FY 2008 effect of 

changes in documentation and coding 

under the MS–DRG system. In fact, 

almost every base DRG that was split 

into different severity levels under the 

MS–DRG system experienced increases 

in the within-base DRGs. We then 

further analyzed the changes in the 

within-base DRGs to determine which 

MS–DRGs had the highest contributions 

to this increase. The results of the 

analysis for the proposed rule provided 

additional support for our conclusion 

that the proposed 2.5 percent estimate 

accurately reflected the FY 2008 

increases in documentation and coding 

under the MS–DRG system. While we 

attempted to use the CDAC data to 

distinguish real increase in case-mix 

growth from documentation and coding 

in the overall case-mix number, we 

found aberrant data and significant 

variation across the FY 1999 through FY 

2007 analysis period. It was not possible 

to distinguish changes in 

documentation and coding from 

changes in real case-mix in the CDAC 

data. Therefore, we concluded that the 

CDAC data would not support analysis 

of real case-mix growth that could be 

used in our retrospective evaluation of 

the FY 2008 claims data. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43768 through 

43772), we responded to comments on 

our methodology for the retrospective 

evaluation of FY 2008 claims data. 

Commenters raised concerns that our 

estimate in the proposed rule did not 

fully consider other potential causes of 

increased case-mix, such as patients 

requiring less complex services 

receiving care in other settings and 

healthier patients enrolling in Medicare 

Advantage plans in increasing numbers. 

Other commenters indicated that factors 

such as the changes in the CC/MCC 

definitions, limitations on the number 

of codes used by CMS for payment and 

ratesetting, resequencing of secondary 

diagnoses, the transition to the costbased weights, less use of not otherwise 

specified codes, and increases in real 

case-mix due to health care reform 

efforts also resulted in an inaccurate 

documentation and coding analysis. 

One commenter indicated that, of the 

overall case-mix increase, 1.0 percent to 

1.5 percent is real case-mix increase, 

while 1.0 percent to 1.5 percent is due 

to documentation and coding or other 

increases. 

In considering these comments 

concerning historical real case-mix, in 

the FY 2010 final rule, we calculated 

overall increases in case-mix for the 

period from FY 2000 to FY 2007 using 

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the cases from each year and the 

GROUPER and the relative weights 

applicable for each year. The results 

ranged from ¥0.7 to +1.4 percent. 

Overall case-mix growth is 

predominately comprised of three 

factors: real case-mix growth; a 

documentation and coding effect; and a 

measurement effect. Under the 

reasonable assumption that there has 

been a relatively small measurement 

effect in those years, the assertion that 

there is a historical pattern of steady 

annual increases of 1.2 to 1.3 percent in 

real case-mix implies that the 

documentation and coding effect in 

many of the years in the FY 2000 to FY 

2007 time period was negative. For 

example, as discussed in that rule (74 

FR 43769), we estimated a recent 

measurement effect of +0.3 percent. 

There was an overall case-mix growth of 

¥0.2 percent in FY 2007. The overall 

case-mix growth of ¥0.2 percent net of 

a measurement effect of +0.3 percent 

results in growth of +0.1 percent. Had 

real case-mix growth been +1.2 percent 

in FY 2007, therefore, it would imply a 

negative documentation and coding 

effect of approximately ¥1.1 percent. It 

is not obvious why documentation and 

coding would have had such a large 

negative effect in FY 2007, or in any 

other year where the overall case-mix 

change is significantly less than the 

average annual trend claimed by the 

commenters, calling into question the 

assertion that real case-mix growth is a 

steady 1.2 to 1.3 percent per year. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43770 through 

43771), we indicated that our estimate 

of the overall case-mix growth for FY 

2008 based on more recent data than the 

data used in the FY 2010 proposed rule 

was 2.0 percent, still less than our 

actuaries’ estimate of a 2.5 percent 

documentation and coding increase. 

With respect to the concerns raised by 

commenters about our finding of 

negative real case-mix growth in FY 

2008, a finding of negative real case-mix 

growth is consistent with the fact that, 

in some years, overall case-mix growth 

has been negative. 

5. Retrospective Analysis of FY 2009 

Claims Data 

We performed the same analysis for 

FY 2009 claims data using the same 

methodology as we did for FY 2008 

claims in the FY 2010 final rule. We 

note that in the FY 2011 IPPS/LTCH 

PPS proposed rule, we performed this 

analysis using FY 2009 claims paid 

through December 2009. In this FY 2011 

IPPS/LTCH PPS final rule, we have 

updated the analysis with FY 2009 

claims paid through March 2010, as we 

discussed in the proposed rule. We note 

that, for non-Puerto Rico IPPS hospitals, 

the estimates are unchanged from those 

in the proposed rule. 

We first divided the case-mix index 

(CMI) obtained by grouping the FY 2009 

claims data through the FY 2009 

GROUPER (Version 26.0) by the CMI 

obtained by grouping these same FY 

2009 claims through the FY 2007 

GROUPER (Version 24.0). This resulted 

in a value of 1.056. Because these cases 

are the same FY 2009 cases grouped 

using Versions 24.0 and 26.0 of the 

GROUPER, we attribute this increase 

primarily to two factors: (1) The effect 

of changes in documentation and coding 

under the MS–DRG system; and (2) the 

measurement effect from the calibration 

of the GROUPER. We estimated the 

measurement effect from the calibration 

of the GROUPER by dividing the CMI 

obtained by grouping cases in the FY 

2007 claims data through the FY 2009 

GROUPER by the CMI obtained by 

grouping cases in these same claims 

through the FY 2007 GROUPER. This 

resulted in a value of 1.0019. In order 

to isolate the documentation and coding 

effect, we then divided the combined 

effect of the changes in documentation 

and coding and measurement (1.056) by 

the measurement effect (1.0019) to yield 

1.054. Therefore, our estimate of the 

documentation and coding increase that 

did not reflect real changes in case-mix 

for discharges was 5.4 percent. 

In parallel to our analysis in the 

proposed rule, we then sought to 

corroborate this 5.4 percent estimate by 

examining the increases in the withinbase DRGs as compared to the increases 

in the across base DRGs as described 

earlier in our analysis plan. In other 

words, we looked for improvements in 

code selection that would lead to a 

secondary diagnosis increasing the 

severity level to either a CC or an MCC 

level. We found that the within-base 

DRG increases were almost entirely 

responsible for the case mix change, 

supporting our conclusion that the 5.4 

percent estimate was an accurate 

reflection of the FY 2009 effect of 

changes in documentation and coding 

under the MS–DRG system. We then 

further analyzed the changes in the 

within-base DRGs to determine which 

MS–DRGs had the highest contributions 

to this increase. The results of the 

analysis for the proposed rule provided 

additional support for our conclusion 

that the proposed 5.4 percent estimate 

accurately reflected the FY 2009 

increases in documentation and coding 

under the MS–DRG system. 

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As reflected in the above chart, for 

short-term acute care hospitals, SCHs, 

and MDHs, there is approximately an 8 

percentage point increase in the 

discharge severity with MCCs from 20 

percent to 28 percent, and a 

corresponding decrease of 

approximately 8 percentage points in 

discharge severity without CC/MCC 

from 57 percent to 49 percent. 

Consistent with the expectations of 

our medical coding experts concerning 

areas with potential for documentation 

and coding improvements, the top 

contributors were heart failure, chronic 

obstructive pulmonary disease, and 

simple pneumonia and pleurisy. Heart 

failure is a very common secondary 

diagnosis among Medicare hospital 

admissions. The heart failure codes are 

assigned to all three severity levels. 

Some codes are classified as non-CCs, 

while other codes are on the CC and 

MCC lists. By changing physician 

documentation to more precisely 

identify the type of heart failure, 

hospitals are able to appropriately 

change the severity level of cases from 

the lowest level (non-CC) to a higher 

severity level (CC or MCC) through 

coding. This point was stressed 

repeatedly at the March 11–12, 2009 

ICD–9–CM Coordination and 

Maintenance Committee meeting as 

coders discussed their work with 

physicians on this coding issue. Many 

of the participants indicated that 

additional work was still needed with 

their physicians in order to document 

conditions in the medical record more 

precisely. 

The results of this analysis provided 

additional support for our conclusion 

that the proposed 5.4 percent estimate 

accurately reflected the FY 2009 

increases in documentation and coding 

under the MS–DRG system. 

As in prior years, the FY 2008 and FY 

2009 MedPAR files are available to the 

public to allow independent analysis of 

the FY 2008 and FY 2009 

documentation and coding effect. 

Interested individuals may still order 

these files through the Web site at: 

http://www.cms.hhs.gov/Limited

DataSets/ by clicking on MedPAR 

Limited Data Set (LDS)-Hospital 

(National). This Web page describes the 

file and provides directions and further 

detailed instructions for how to order. 

Persons placing an order must send 

the following: a Letter of Request, the 

LDS Data Use Agreement and Research 

Protocol (refer to the Web site for further 

instructions), the LDS Form, and a 

check for $3,655 to: 

Mailing address if using the U.S. 

Postal Service: Centers for Medicare & 

Medicaid Services, RDDC Account, 

Accounting Division, P.O. Box 7520, 

Baltimore, MD 21207–0520. 

Mailing address if using express mail: 

Centers for Medicare & Medicaid 

Services, OFM/Division of 

Accounting—RDDC, 7500 Security 

Boulevard, C3–07–11, Baltimore. MD 

21244–1850. 

6. Prospective Adjustment for FY 2010 

and Subsequent Years Authorized by 

Section 7(b)(1)(A) of Public Law 110–90 

and Section 1886(d)(3)(vi) of the Act 

Based on our evaluation of FY 2008 

Medicare claims data that were most 

current at the time of the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule, the 

estimated 2.5 percent change in FY 2008 

case-mix due to changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 

exceeded the ¥0.6 percent prospective 

documentation and coding adjustment 

applied under section 7(a) of Public Law 

110–90 by 1.9 percentage points. Under 

section 7(b)(1)(A) of Public Law 110–90, 

the Secretary is required to make an 

appropriate adjustment under section 

1886(d)(3)(A)(vi) of the Act to the 

average standardized amounts for 

subsequent fiscal years in order to 

eliminate the full effect of the 

documentation and coding changes on 

future payments. As we have 

consistently stated since the initial 

implementation of the MS–DRG system, 

we do not believe it is appropriate for 

expenditures to increase due to MS– 

DRG-related changes in documentation 

and coding that do not reflect real 

changes in case-mix. 

We also estimated in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed and 

final rules that the additional change in 

case-mix due to changes in 

documentation and coding that do not 

reflect real changes in case-mix for 

discharges occurring during FY 2009 

was 2.3 percent, which would exceed by 


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1.4 percentage points the ¥0.9 percent 

prospective documentation and coding 

adjustment for FY 2009 applied under 

section 7(a) of Public Law 110–90. We 

had the statutory authority to adjust the 

FY 2010 rates for this estimated 1.4 

percentage point increase. However, 

given that Public Law 110–90 requires 

a retrospective claims evaluation for the 

additional adjustments (as described in 

section II.D.3. of this preamble), we 

stated in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule and final rule 

(74 FR 24096 and 43772, respectively) 

that we believed our evaluation of the 

extent of the overall national average 

changes in case-mix for FY 2009 should 

also be based on a retrospective 

evaluation of all FY 2009 claims data. 

Because we did not receive all FY 2009 

claims data prior to publication of the 

FY 2010 final rule, we indicated we 

would address any difference between 

the additional increase in FY 2009 casemix due to changes in documentation 

and coding that did not reflect real 

changes in case-mix for discharges 

occurring during FY 2009 and the ¥0.9 

percent prospective documentation and 

coding adjustment applied under 

section 7(a) of Public Law 110–90 in the 

FY 2011 rulemaking cycle. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24096), we 

solicited public comment on the 

proposed ¥1.9 percent prospective 

adjustment to the standardized amounts 

under section 1886(d) of the Act to 

address the effects of documentation 

and coding changes unrelated to 

changes in real case-mix in FY 2008. In 

addition, we solicited public comments 

on addressing in the FY 2011 

rulemaking cycle any differences 

between the increase in FY 2009 casemix due to changes in documentation 

and coding changes that do not reflect 

real changes in case-mix for discharges 

occurring during FY 2009 and the ¥0.9 

percent prospective documentation and 

coding adjustment applied under 

section 7(a) of Public Law 110–90. In 

response to the proposed rule, MedPAC 

summarized its comments on when 

CMS should reduce payment rates to 

prevent further overpayments and to 

recover overpayments occurring in 2008 

and 2009 as follows: ‘‘We support CMS’s 

proposal to reduce IPPS payments in 

2010 by 1.9 percent to prevent further 

overpayments. While we and the CMS 

actuaries believe that a 1.9 percent 

reduction will not fully prevent 

overpayments from continuing in 2010, 

this is a reasonable first step toward 

reducing overpayments.’’ Most of the 

other commenters opposed the 

proposed ¥1.9 percent prospective FY 

2010 adjustment for FY 2008 

documentation and coding increases, 

but supported the proposal not to apply 

a FY 2010 prospective adjustment for 

estimated FY 2009 documentation and 

coding increases. Many commenters 

expressed concern over the financial 

impact of the proposed ¥1.9 percent 

adjustment and the methodology for 

calculating the adjustment. Other 

commenters recommended that CMS 

seek to extend the timeframe beyond 2 

years to phase in the then-estimated 

¥6.6 percent adjustment to the 

standardized amount. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule in response to these 

commenters, we indicated that we fully 

understood that our proposed 

adjustment of ¥1.9 percent would 

reduce the increase in payments that 

affected hospitals would have received 

in FY 2009 in the absence of the 

adjustment. We explained that, although 

we are required to make a prospective 

adjustment to eliminate the full effect of 

coding or classification changes that did 

not reflect real changes in case-mix for 

discharges occurring during FY 2008, 

we believed we had some discretion 

regarding when to implement this 

adjustment. Section 7(b)(1)(A) of Public 

Law 110–90 requires that if the 

Secretary determines that 

implementation of the MS–DRG system 

resulted in changes in documentation 

and coding that did not reflect real 

changes in case-mix for discharges 

occurring during FY 2008 or FY 2009 

that are different than the prospective 

documentation and coding adjustments 

applied under section 7(a) of Public Law 

110–90, the Secretary shall make an 

‘‘appropriate’’ adjustment under section 

1886(d)(3)(A)(vi) of the Act. 

Therefore, we determined that it 

would be appropriate to postpone 

adopting documentation and coding 

adjustments as authorized under section 

7(a) of Public Law 110–90 and section 

1886(d)(3)(A)(vi) of the Act until a full 

analysis of case-mix changes could be 

completed. We indicated that, while we 

had the statutory authority to make this 

¥1.9 percent prospective adjustment 

entirely in FY 2010, we believed it 

would be prudent to wait until we had 

completed data on the magnitude of the 

documentation and coding effect in FY 

2009. Specifically, we stated that if the 

documentation and coding effect were 

to be less in FY 2009 than our estimates 

at that time, it could lessen the 

anticipated adjustment that we had 

estimated we would have had to make 

for FY 2008 and FY 2009 combined. We 

indicated that, in future rulemaking, we 

would consider applying a prospective 

adjustment based upon a complete 

analysis of FY 2008 and FY 2009 claims 

data, beginning in FY 2011. We 

indicated that we intended to address 

any difference between the increase in 

FY 2009 case-mix due to changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2009 

and the ¥0.9 percent prospective 

documentation and coding adjustment 

applied under section 7(a) of Public Law 

110–90 in the FY 2011 rulemaking 

cycle. 

After analysis of the FY 2009 claims 

data for this FY 2011 IPPS/LTCH PPS 

final rule, we have found a total 

prospective documentation and coding 

effect of 1.054. After accounting for the 

¥0.6 percent and the ¥0.9 percent 

documentation and coding adjustments 

in FYs 2008 and 2009, we find a 

remaining documentation and coding 

effect of 3.9 percent. As we have 

discussed, an additional cumulative 

adjustment of ¥3.9 percent would be 

necessary to meet the requirements of 

section 7(b)(1)(A) of Public Law 110–90 

to make an adjustment to the average 

standardized amounts in order to 

eliminate the full effect of the 

documentation and coding changes on 

future payments. Unlike section 

7(b)(1)(B) of Public Law 110–90, section 

7(b)(1)(A) does not specify when we 

must apply the prospective adjustment, 

but merely requires us to make an 

‘‘appropriate’’ adjustment. Therefore, we 

believe we have some discretion as to 

the manner in which we apply the 

prospective adjustment of ¥3.9 percent. 

Applying the full prospective 

adjustment of ¥3.9 percent for FY 2011, 

in combination with the proposed 

recoupment adjustment of ¥2.9 

percent, discussed below, would require 

an aggregate adjustment of ¥6.8 

percent. As we discuss more fully 

below, it has been our practice to 

moderate payment adjustments when 

necessary to mitigate the effects of 

significant downward adjustments on 

hospitals, to avoid what could be 

widespread, disruptive effects of such 

adjustments on hospitals. As we also 

discuss below, we are required to 

implement the adjustment in section 

7(b)(1)(B) of Public Law 110–90 no later 

than FY 2012, and accordingly, in the 

FY 2011 proposed rule, we proposed an 

adjustment under that section for FY 

2011 (75 FR 23870–23871). Therefore, 

we believe it is appropriate to not 

implement any or all of the ¥3.9 

percent prospective adjustment in FY 

2011. Accordingly, we did not propose 

a prospective adjustment under section 

7(b)(1)(A) of Public Law 110–90 for FY 

2011 (75 FR 23868–23870). We note 

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that, as a result, payments in FY 2011 

(and in each future year until we 

implement the requisite adjustment) 

will be 3.9 percent higher than they 

would have been if we had 

implemented an adjustment under 

section 7(b)(1)(A) of Public Law 110–90. 

Our actuaries estimate that this 3.9 

percentage point increase will result in 

an aggregate payment of approximately 

$4 billion. We also note that payments 

in FY 2010 are expected to be 3.9 

percent higher than they would have 

been if we had implemented an 

adjustment under section 7(b)(1)(A) of 

Public Law 110–90, which our actuaries 

estimate will increase aggregate 

payments by approximately $4 billion 

in FY 2010. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we sought public 

comment on our proposal not to apply 

in FY 2011 the ¥3.9 percent 

prospective adjustment to the average 

standardized amounts required under 

section 7(b)(1)(A) of Public Law 110–90 

in order to eliminate the full effect of 

the documentation and coding changes 

on future payments. We note that this 

proposal would require us to apply the 

¥3.9 percent adjustment in future 

payment years, which may be applied 

all at once in a single year or phased in 

over more than one year. As noted 

earlier, we have updated our analysis 

with FY 2009 data on claims paid 

through March 2010 for this FY 2011 

IPPS/LTCH PPS final rule. 

MedPAC addressed the issue of 

providing for the required ¥3.9 percent 

prospective adjustment to the average 

standardized amounts required under 

section 7(b)(1)(A) of Public Law 110–90. 

We discuss its recommendation in the 

context of our proposal for a 

recoupment adjustment below. 

7. Recoupment or Repayment 

Adjustment for FY 2010 Authorized by 

Section 7(b)(1)(B) of Public Law 110–90 

As indicated in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

43773), we estimated a 2.5 percent 

change (estimated from analysis of more 

recent data for the FY 2010 final rule 

than the data used for that proposed 

rule) due to documentation and coding 

that did not reflect real changes in casemix for discharges occurring during FY 

2008, exceeding the ¥0.6 percent 

prospective documentation and coding 

adjustment applied under section 7(a) of 

Public Law 110–90 by 1.9 percentage 

points. We stated that our actuaries had 

estimated that this 1.9 percentage point 

increase resulted in an increase in 

aggregate payments of approximately 

$2.2 billion. As described earlier, 

section 7(b)(1)(B) of Public Law 110–90 

requires an adjustment for discharges 

occurring in FYs 2010, 2011, and/or 

2012 to offset the estimated amount of 

this increase in aggregate payments 

(including interest). Although section 

7(b)(1)(B) of Public Law 110–90 requires 

us to make this adjustment in FYs 2010, 

2011, and/or 2012, we have discretion 

as to when during this 3-year period we 

will apply the adjustment. 

We did not propose to make an 

adjustment to the FY 2010 average 

standardized amounts to offset, in 

whole or in part, the estimated increase 

in aggregate payments for discharges 

occurring in FY 2008, but stated in the 

proposed rule that we intended to 

address this issue in future rulemaking. 

That is, we stated that we would 

address recouping the additional 

expenditures that occurred in FY 2008 

as a result of the 1.9 percentage point 

difference between the actual changes in 

documentation and coding that do not 

reflect real changes in case-mix (2.5 

percent), and the ¥0.6 percent 

adjustment applied under Public Law 

110–90 in FY 2011 and/or FY 2012, as 

required by law. We indicated that, 

while we had the statutory authority to 

make this ¥1.9 percent recoupment 

adjustment entirely in FY 2010, we were 

delaying the adjustment until FY 2011 

and FY 2012 because we did not yet 

have any data on the magnitude of the 

documentation and coding effect in FY 

2009. We stated that as we have the 

authority to recoup the aggregate effect 

of this 1.9 percentage point difference in 

FY 2008 IPPS payments in FY 2011 or 

FY 2012 (with interest), delaying this 

adjustment would have no effect on 

Federal budget outlays. We indicated 

that we intended to wait until we have 

a complete year of data on the FY 2009 

documentation and coding effect before 

applying a recoupment adjustment for 

IPPS spending that occurred in FY 2008 

or we estimate will occur in FY 2009. 

As discussed above, section 7(b)(1)(B) 

of Public Law 110–90 requires the 

Secretary to make an adjustment to the 

standardized amounts under section 

1886(d) of the Act to offset the estimated 

increase or decrease in aggregate 

payments for FY 2009 (including 

interest) resulting from the difference 

between the estimated actual 

documentation and coding effect and 

the documentation and coding 

adjustments applied under section 7(a) 

of Public Law 110–90. This 

determination must be based on a 

retrospective evaluation of claims data. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43774), we stated that 

because we would not receive all FY 

2009 claims data prior to publication of 

the final rule, we would address any 

increase or decrease in FY 2009 

payments in future rulemaking for FY 

2011 and 2012 after we perform a 

retrospective evaluation of the FY 2009 

claims data. At that time, our actuaries 

estimated that this adjustment would be 

approximately ¥3.3 percent. This 

reflected the difference between the 

estimated 4.8 percent cumulative actual 

documentation and coding changes for 

FY 2009 (2.5 percent for FY 2008 and 

an additional 2.3 percent for FY 2009) 

and the cumulative ¥1.5 percent 

documentation and coding adjustments 

applied under section 7(a) of Public Law 

110–90 (¥0.6 percent in FY 2008 and 

¥0.9 percent in FY 2009). We noted 

that the actual adjustments were 

multiplicative and not additive. This 

estimated 4.8 percent cumulative actual 

documentation and coding changes for 

FY 2009 included the impact of the 

changes in documentation and coding 

first occurring in FY 2008 because we 

believed hospitals would continue these 

changes in documentation and coding 

in subsequent fiscal years. 

Consequently, we believed that these 

documentation and coding changes 

would continue to impact payments 

under the IPPS absent a prospective 

adjustment to account for the effect of 

these changes. 

We note that, unlike the adjustment to 

the standardized amounts under section 

7(b)(1)(A) of Public Law 110–90 

described earlier, any adjustment to the 

standardized amounts under section 

7(b)(1)(B) of Public Law 110–90 would 

not be cumulative, but would be 

removed for subsequent fiscal years 

once we have offset the increase in 

aggregate payments for discharges for 

FY 2008 expenditures and FY 2009 

expenditures, if any. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24096), we 

did not propose to offset the 1.9 percent 

increase in aggregate payments 

(including interest) for discharges 

occurring in FY 2008 resulting from the 

adoption of the MS–DRGs, but to 

instead address this issue in future 

rulemaking for FYs 2011 and 2012. 

In response to the FY 2010 proposed 

rule, MedPAC stated in its comments on 

the adjustment to the standardized 

amounts under section 7(b)(1)(B) of 

Public Law 110–90: ‘‘In addition, it 

would be desirable for CMS to minimize 

year-to-year changes in payment 

adjustments it must make to recover 

overpayments that were made in 2008 

and 2009. To achieve this goal, CMS 

should consider spreading the recovery 

of 2008 overpayments over 3 years, 

beginning in 2010.’’ Some commenters 

recommended that CMS seek to extend 

the timeframe beyond 2 years to phase 

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in the estimated ¥6.6 percent 

adjustment to the standardized amount. 

The commenters asked CMS to seek 

necessary legislative action to 

accommodate such a policy. Most 

commenters expressed concern with the 

significant negative financial impacts 

that would be incurred by providers if 

CMS adopted that proposed ¥1.9 

percent documentation and coding 

adjustment in FY 2010. The commenters 

cited providers’ already small or 

negative margins for Medicare 

payments, and requested that CMS not 

further reduce payments during the 

current period of economic instability 

and reduced State funding. Other 

commenters indicated that it would be 

appropriate to delay any adjustment to 

the standardized amounts under section 

7(b)(1)(B) of Public Law 110–90 until 

after CMS has the opportunity to fully 

examine the FY 2009 claims data. 

In response to these comments in FY 

2010, we indicated that we recognized 

that any adjustment to account for the 

documentation and coding effect 

observed in the FY 2008 and FY 2009 

claims data may result in significant 

future payment reductions for 

providers. However, we indicated that 

we are required under section 7(b)(1)(B) 

of Public Law 110–90 to recapture the 

difference of actual documentation and 

coding effect in FY 2008 and FY 2009 

that is greater than the prior 

adjustments. We agreed with the 

commenters who requested that CMS 

delay any adjustment and, for the 

reasons stated above, indicated that we 

expect to address this issue in this FY 

2011 rulemaking. 

As indicated in section II.D.4. of this 

preamble, the change due to 

documentation and coding that did not 

reflect real changes in case mix for 

discharges occurring during FY 2008 

and FY 2009 exceeded the ¥0.6 and 

¥0.9 percent prospective 

documentation and coding adjustment 

applied under section 7(a) of Public Law 

110–90 for those 2 years respectively by 

1.9 percentage points in FY 2008 and 

3.9 percentage points in FY 2009. In 

total, this change exceeded the 

cumulative prospective adjustments by 

5.8 percentage points. Our actuaries 

currently estimate that this 5.8 

percentage point increase resulted in an 

increase in aggregate payments of 

approximately $6.9 billion. We note that 

there may be a need to actuarially adjust 

the recoupment adjustment to 

accurately reflect accumulated interest. 

Therefore, an aggregate adjustment of 

¥5.8 percent in FYs 2011 and 2012, 

subject to actuarial adjustment to reflect 

accumulated interest, is necessary in 

order to meet the requirements of 

section 7(b)(1)(B) of Public Law 110–90 

to adjust the standardized amounts for 

discharges occurring in FYs 2010, 2011, 

and/or 2012 to offset the estimated 

amount of the increase in aggregate 

payments (including interest) in FYs 

2008 and 2009. In the FY 2011 proposed 

rule (75 FR 23871), we stated that we 

intend to take into account the need to 

reflect accumulated interest in 

proposing a recoupment adjustment 

under section 7(b)(1)(B) of Public Law 

110–90 for FY 2012. We indicated that 

we will invite public comments on our 

proposal at that time. 

It is often our practice to phase in rate 

adjustments over more than one year in 

order to moderate the effect on rates in 

any one year. Therefore, consistent with 

the policies we have adopted in many 

similar cases, in the FY 2011 proposed 

rule, we proposed to make an 

adjustment to the standardized amount 

of ¥2.9 percent, representing 

approximately half of the aggregate 

adjustment required under section 

7(b)(1)(B) of Public Law 110–90, for FY 

2011. An adjustment of this magnitude 

allows us to moderate the effects on 

hospitals in one year while 

simultaneously making it possible to 

implement the entire adjustment within 

the timeframe required under section 

7(b)(1)(B) of Public Law 110–90. As we 

have previously noted, unlike the 

prospective adjustment to the 

standardized amounts under section 

7(b)(1)(A) of Public Law 110–90 

described earlier, the recoupment or 

repayment adjustment to the 

standardized amounts under section 

7(b)(1)(B) of Public Law 110–90 is not 

cumulative, but would be removed for 

subsequent fiscal years once we have 

offset the increase in aggregate 

payments for discharges for FY 2008 

expenditures and FY 2009 expenditures. 

In keeping with our practice of 

moderating payment adjustments when 

necessary, we stated that we anticipated 

that the proposal will have an 

additional, and significant, moderating 

effect on implementing the 

requirements of section 7(b)(1)(B) of 

Public Law 110–90 for FY 2012. 

Specifically, we noted an advantage of 

the proposal for FY 2011 is that we 

anticipate removing the proposed FY 

2011 ¥2.9 percent adjustment from the 

rates in FY 2012, when it would also be 

necessary under current law to apply 

the remaining approximately ¥2.9 

percent adjustment required by section 

7(b)(1)(B) of Public Law 110–90. These 

two steps in FY 2012, restoring the FY 

2011 ¥2.9 percent adjustment, and 

applying the remaining adjustment of 

approximately ¥2.9 percent, would 

effectively cancel each other out. The 

result would be an aggregate adjustment 

of approximately 0.0 percent (subject to 

the need to account for accumulated 

interest, as discussed above) under 

section 7(b)(1)(B) of Public Law 110–90 

in FY 2012. However, while we noted 

this anticipated effect of the FY 2011 

proposal, we did not make a formal 

proposal for the further implementation 

of section 7(b)(1)(B) of Public Law 110– 

90 in FY 2012 in the FY 2011 proposed 

rule. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we sought public 

comment on our proposal to offset part 

of the total 5.8 percent increase in 

aggregate payments (including interest) 

for discharges occurring in FY 2008 and 

FY 2009 resulting from the adoption of 

the MS–DRGs in FY 2011, noting that 

this proposal would result in a ¥2.9 

percent adjustment to the standardized 

amount. We noted that we intended to 

update our analysis with FY 2009 data 

on claims paid through March 2009 (sic) 

for this FY 2011 IPPS/LTCH PPS final 

rule. (We note that the March 2009 

update date for claims data in the 

proposed rule should have been March 

2010.) As intended, we have updated 

our analysis with FY 2009 data on 

claims paid through March 2010 in this 

FY 2011 IPPS/LTCH PPS final rule. 

We received numerous comments on 

our proposal, especially from national 

and regional hospital associations, 

hospital systems, and individual 

hospitals. MedPAC also commented on 

our proposal. 

Comment: One commenter requested 

that CMS refrain from using ‘‘negative 

terminology’’ to refer the documentation 

and coding improvement practices that, 

in response to the introduction of MS– 

DRGs, resulted in overall case-mix 

increase. While CMS frequently refers to 

implementing negative payment 

adjustments to account for this case-mix 

increase, the commenter requested that 

CMS we refer to any such adjustment as 

a ‘‘budget-neutrality adjustment.’’ The 

commenter contended that referring to 

‘‘overpayments’’ and ‘‘negative payment 

adjustments’’ inaccurately portrays 

coding professionals in a poor manner, 

and is counterproductive to CMS’ goal 

of improving the quality and 

consistency of health care data. 

Response: When describing the MS– 

DRG documentation and coding 

adjustment, we have not intended to 

suggest that these adjustments are 

necessary because coders have acted 

inappropriately, unethically, or 

otherwise in bad faith by employing 

documentation and coding 

improvement practices associated with 

the adoption of the MS–DRG system. 

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Under the previous DRG definitions, it 

was possible for high-severity cases not 

to be paid more than cases with lower 

severity. The MS–DRGs were 

introduced as part of the effort to ensure 

that the relative Medicare payment rates 

that hospitals received more reasonably 

matched the resources that hospitals 

expended in furnishing care, and CMS 

encouraged hospitals to code as 

accurately as possible with that goal in 

mind. 

However, it is our finding that the 

systematic effect of changing 

documentation and coding in order to 

receive the fullest payment for 

providing care to beneficiaries under the 

MS–DRGs has led to an increase in 

aggregate payments that do not reflect 

real changes in case-mix severity, and 

the statute specifically requires that we 

adjust for and recover these associated 

overpayments due to such 

documentation and coding 

improvements. We believe our use of 

certain terminology (to which the 

commenter took exception) is the most 

accurate description of the specific 

statutorily required activities that CMS 

must pursue. 

Comment: Numerous commenters 

detailed the potentially severe negative 

fiscal impact that would be experienced 

by providers if the proposed 

documentation and coding 

improvement adjustment were to be 

implemented. Many commenters 

contended that their individual hospital 

documentation and coding practices 

were not specifically changed or did not 

change at the levels shown by our 

analysis with the introduction of MS– 

DRGs, and that they would be unfairly 

penalized by the payment adjustment. 

Some of these commenters provided 

examples that they believed supported 

their claims. Another commenter 

requested that CMS implement a more 

refined payment adjustment 

methodology that would not penalize 

hospitals with compliant and ethical 

documentation and coding standards. 

Response: We understand the 

concerns about possible financial 

disruption that may be caused by the 

proposed documentation and coding 

improvement payment adjustment. 

However, we are required by section 

7(b)(1)(B) of Public Law 110–90 to 

implement the appropriate recoupment 

or repayment adjustment based on our 

analysis no later FY 2012. These 

payment adjustments are necessary to 

correct past overpayments due to 

increases in aggregate payments that do 

not reflect real changes in case-mix 

severity, but instead are caused solely 

by documentation and coding 

improvements. We proposed a phase-in 

implementation of the required 

adjustments to allow hospitals time to 

adjust to future payment differences and 

to moderate the effect of this adjustment 

in any given year. We do not believe 

that it would prudent to postpone 

making any recoupment adjustment 

beyond FY 2011. A postponement 

would require us to make the entire 

¥5.8 percent adjustment that is 

warranted by our analysis in just one 

year (FY 2012) in order to meet the 

statutory requirement of section 

7(b)(1)(B) of Public Law 110–90. Such a 

delay in making the required adjustment 

would not be to the financial benefit of 

hospitals. 

Under Medicare’s prospective 

payment systems, it is neither feasible 

nor possible to quantify any amount of 

case-mix increase due to documentation 

and coding improvements by a specific 

hospital. Therefore, it is necessary for 

CMS to propose a national adjustment 

to meet the statutory requirement of 

section 7(b)(1)(B) of Public Law 110–90 

to calculate and recover any 

overpayments caused by documentation 

and coding improvements due to the 

introduction of the MS–DRG system. 

Comment: In its public comment, 

MedPAC describes the history and 

nature of the documentation and coding 

adjustment. MedPAC stated that ‘‘CMS 

adopted the MS–DRGs to improve the 

distribution of payments.’’ Specifically, 

it discussed how, under the DRG 

definitions used previously, highseverity cases may have been paid 

similarly to cases with low or moderate 

severity. MedPAC emphasized that ‘‘the 

shift to MS–DRGs was taken to improve 

the distribution of payments, not change 

the aggregate level of payments.’’ 

Further, MedPAC described the 

financial incentive for hospitals to 

improve documentation and coding 

under the MS–DRG system, and also the 

statutory requirement for CMS to ensure 

that changes in the DRGs and relative 

weights do not increase or decrease 

aggregate IPPS payments absent those 

changes, noting that Public Law 110–90 

provided for specific requirements 

related to payments for FYs 2008 and 

2009. MedPAC pointed out that, as a 

result of these combined legal 

requirements, our proposals ‘‘do not 

represent payment cuts, but rather offset 

unintended overpayments to hospitals.’’ 

MedPAC performed an independent 

analysis of claims data to determine the 

effect of documentation and coding in 

FYs 2008 and 2009. MedPAC stated, 

‘‘[i]n our judgment, CMS’s analytic 

methods are valid. Using similar 

methods, our analysis of Medicare 

hospital inpatient claims for 2007–2009 

confirms all of CMS’s findings.’’ (We 

note that, in line with our evaluation of 

claims data in for this final rule, 

MedPAC’s retrospective evaluation of 

the same claims data yielded nearly 

identical results.) 

MedPAC’s analysis demonstrated that 

the cumulative effect of documentation 

and coding in FY 2009 was 5.4 percent 

and the cumulative overpayment in FY 

2009 was 5.8 percent. Furthermore, 

because CMS has already implemented 

adjustments of ¥0.6 percent and ¥0.9 

percent in FYs 2008 and 2009 

respectively, MedPAC concurred that 

the necessary adjustment under section 

7(b)(1)(B) of Public Law 110–90 requires 

CMS to prospectively reduce payment 

rates by ¥3.9 percent to prevent further 

increases in aggregate spending due to 

the change to MS–DRGs. (As we discuss 

elsewhere in this section, unlike the 

recoupment adjustment, the statute does 

not prescribe a specific timeframe 

within which we must implement the 

prospective adjustment.) In fact, 

MedPAC concluded, ‘‘CMS correctly 

estimated the effect of documentation 

and coding on case mix and patients.’’ 

However, while acknowledging the 

concerns we expressed in opting to 

phase in implementing the full 

retrospective adjustment (¥5.8 percent) 

together with the prospective 

adjustment (¥3.9 percent), noting that 

this combined adjustment of ¥9.7 

percent ‘‘may be financially disruptive’’), 

MedPAC expressed concerns that our 

proposal to adjust rates by ¥2.9 

percent, which is half of the 

retrospective adjustment needed to 

address the cumulative overpayment in 

FY 2011, is insufficient to fully offset 

unintended overpayments to hospitals. 

Furthermore, MedPAC stated that such 

a delay in implementing offsets for the 

operating and capital IPPS will cause a 

progressive accumulation in 

overpayments, which cannot be 

recovered based upon current statutory 

authority. MedPAC stated plainly that 

‘‘CMS will not achieve budget neutrality 

unless Congress directs it to recover all 

overpayments.’’ 

As such, MedPAC recommended, for 

both the operating and capital IPPS, that 

‘‘overpayments should be stopped [and] 

all overpayment should be recovered.’’ 

In making that recommendation, 

MedPAC directed CMS to its March 

2010 Report to Congress where it 

recommended that Congress change the 

law to require CMS to recover all 

overpayments with interest. It noted 

that this would shift our focus to the 

prevention of future overpayments in 

the operating and capital IPPS. MedPAC 

further noted that such a shift might be 

implemented as prospective 

adjustments and would results in slower 

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accumulation of future overpayments. 

Specifically, it summarized its 

recommendations for both the operating 

and capital IPPS as: 

• MedPAC’s approach would reduce 

payments in increments of no more than 

2 percent for 3 years. 

• Hospitals would continue to receive 

their scheduled updates, which would 

offset much of their reduction. 

• After 3 years, hospitals would 

receive their scheduled updates without 

any additional offsets. 

• After roughly 6 years, overpayments 

would be fully recovered, and hospitals 

would see an increase in payments of 

roughly 2 percent in addition to their 

scheduled update. 

In the absence of the changes in law 

that would permit such an approach, 

MedPAC provided an alternative 

multiyear approach in its public 

comments in response to our request for 

comments on our proposal to offset part 

of the cumulative overpayment in FY 

2011 and our proposal not to apply the 

remaining prospective adjustment in FY 

2011. MedPAC recommended that CMS 

recover the FY 2008 and 2009 

overpayments as quickly as possible to 

mitigate the need for further and more 

drastic payment corrections. In FY 2012, 

MedPAC recommended completing the 

retrospective adjustment, with 

accumulated interest, to fulfill the 

requirements of section 7(b)(1)(B) of 

Public Law 110–90 and then making 

additional prospective adjustments in 

that year of ¥2.0 percent. The nature of 

the retrospective adjustment would 

moderate the impact of the total 

adjustment for FY 2012, and MedPAC 

estimated the net effect to be roughly 2.0 

percent. (As we discuss below, one 

reason for the moderating effect of the 

recoupment adjustment is that it is only 

a 1-year adjustment, rather than a 

permanent and cumulative adjustment. 

As a result, the FY 2011 recoupment 

adjustment would be removed from the 

FY 2012 rate before any new 

adjustments are applied. For example, 

in FY 2012, the ¥2.9 percent 

adjustment from FY 2011 would be 

removed by adding 2.9 percent to the 

FY 2012 rate before making any 

additional adjustments through 

rulemaking.) In FY 2013, MedPAC 

recommended completing the 

prospective adjustment for increases 

that occurred in FYs 2008 and 2009, 

noting that, again, in FY 2013, the 

impact of the prospective adjustment 

would be moderated by the expiration 

of the retrospective adjustment in the 

prior year. 

Response: We appreciate MedPAC’s 

independent validation and support of 

our methodology. We note that MedPAC 

stated that its estimate for the 

cumulative documentation and coding 

effect for FYs 2008 and 2009 net of 

measurement error is 5.4 percent. This 

estimate was derived using the same 

data sources and analogous 

methodologies as the analysis set forth 

by CMS in this FY 2011 IPPS/LTCH– 

PPS final rule and matches the CMS 

estimate in the prior discussion. 

Furthermore, we agree with 

MedPAC’s conclusions on the overall 

financial implications of implementing 

our proposed ¥2.9 percent payment 

rate adjustment. We share MedPAC’s 

concerns about delaying the prevention 

of future overpayments in both the 

capital and operating IPPS, but we 

appreciate its acknowledgment of CMS’ 

discretion regarding the timing of 

implementation of the prospective 

adjustment and of the potential 

financial disruption from 

implementation of the full prospective 

reduction in FY 2011 (¥3.9 percent) in 

addition to the proposed retroactive 

adjustment (¥2.9 percent). We also 

appreciate MedPAC’s concerns for 

prioritizing the recoupment of FYs 

2008–2009 overpayments for the 

operating IPPS because CMS lacks the 

statutory authority to adjust for further 

accumulation of these overpayments 

beyond FY 2012. MedPAC appropriately 

pointed out the moderating effect of the 

multiyear approach to implementing the 

retroactive adjustment to recover 

overpayments in FYs 2008 and 2009. 

The expiration of these adjustments in 

the following year mitigates any 

negative adjustments made in that 

following year. We thank MedPAC for 

its specificity in setting forth an 

approach for completing the 

adjustments prescribed under sections 

7(b) and (c) of Public Law 110–90 and 

will take these recommendations into 

consideration in future rulemaking. 

Finally, we concur with MedPAC’s 

statement that these adjustments 

associated with Public Law 110–90 and 

section 1886(d)(3)(vi) of the Act should 

not be seen as payment cuts, but as 

offsets to unintended overpayments to 

hospitals. 

Comment: Most commenters, 

including the AHA, agreed that there 

were documentation and classification 

increases that were in excess of the 

statutory 0.6 percent and 0.9 percent 

adjustments specified in Public Law 

110–90. However, as in prior 

rulemaking on this issue, most 

commenters again questioned the 

methodology employed by MedPAC and 

our actuaries to determine the 

magnitude of the excess. These 

comments were generally similar to or 

cited the comment from the AHA, 

which stated in summary: 

‘‘The AHA believes there is a 

fundamental flaw in CMS’ methodology 

for determining the effect of 

documentation and coding changes on 

the FY 2008 and FY 2009 CMIs. 

Specifically, in its analysis, CMS states 

that the increase in payments it found 

could not be due to real case-mix 

change because its analysis looks at only 

one year of patient claims. However, we 

assert that the increase cannot be 

deemed documentation and coding 

change either, because, again, the 

analysis looks at only one year of 

patient claims.’’ 

‘‘Our analysis, which used multiple 

years of patient claims, clearly shows 

that a significant portion of the change 

CMS found is actually the continuation 

of historical trends, rather than the 

effect of documentation and coding 

changes due to implementation of MS– 

DRGs. This analysis found a 

documentation and coding effect of 0.9 

percent for FYs 2008 and 2009.’’ 

The AHA also submitted trend 

analyses in support of its contention 

that real case-mix is increasing as 

corroboration of its alternative finding 

of a documentation and coding effect of 

0.9 percent. These materials included a 

trend analysis of the percentage of 

Medicare discharges involving the ICU, 

a trend analysis of data from the 

Medical Expenditure Panel Survey 

(MEPS), and a trend analysis of data 

from the Healthcare Cost and Utilization 

Project (HCUP). 

Some commenters, including the 

AHA, also stated that even without 

taking into account the alternative 

analyses presented by the AHA, the 

CMS methodology overstates the 

documentation and classification 

growth due to an understatement in the 

CMI value obtained when grouping the 

FY 2009 claims data through the FY 

2007 pre MS–DRG GROUPER. This 

assertion was also based on a trend 

analysis. 

Response: As stated earlier, we agree 

with MedPAC’s comment that ‘‘CMS 

correctly estimated the effect of DCI on 

case mix and payments * * * . In our 

judgment, CMS’s analytic methods are 

valid. Using similar methods, our 

analysis of Medicare hospital inpatient 

claims for 2007–2009 confirms all of 

CMS’s findings.’’ 

We also agree with the commenters, 

including the AHA, to the extent that 

they indicated that there were 

documentation and classification 

increases that were in excess of the 

statutory 0.6 percent and 0.9 percent 

adjustments specified in Public Law 

110–90. However, we disagree with the 

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commenters’ assertion that there is a 

fundamental flaw in the analytical 

approach used by our actuaries and 

MedPAC to determine the magnitude of 

the documentation and classification 

increase because our methodology 

primarily utilizes a single year (FY 

2009) of claims data. As stated in prior 

rulemaking, most recently in the FY 

2011 IPPS/LTCH PPS proposed rule (75 

FR 23867), overall case-mix growth is 

predominately comprised of three 

factors: Real case-mix growth; a 

documentation and classification effect; 

and a measurement effect. Section 

7(b)(1)(B) of Public Law 110–90 requires 

that the Secretary make appropriate 

adjustment following a determination 

that the implementation of the MS–DRG 

system ‘‘resulted in changes in coding 

and classification that did not reflect 

real changes in case mix.’’ Section 7 of 

Public Law 110–90 does not require that 

we use a specific methodology when 

conducting this analysis, and we believe 

that the use of the FY 2009 claims data 

allows us to directly remove real 

changes in case-mix from the 

calculation, consistent with the 

statutory requirement. Differences in 

case-mix calculated using the pre- and 

post-MS–DRG GROUPERs on the FY 

2009 data, as detailed previously in this 

final rule, cannot reflect real case-mix 

change, by definition, because the same 

set of patients and claims is being 

processed under the two GROUPERs. 

The corroborative analyses performed 

by MedPAC and our actuaries more 

directly examine shifts in cases from 

lower severity and cost MS–DRGs to 

higher severity and cost groups within 

the same base DRG than the alternative 

approach submitted by the commenters 

who asserted that real growth in case 

mix follows a historical trend line. The 

alternative approach does not 

disaggregate the overall growth in case 

mix into its three components as does 

the methodology we set forth that 

MedPAC corroborates. As MedPAC 

stated in its comment letter: 

‘‘The share of cases without a CC or 

MCC declined more than 6 percentage 

points in 2008 and an additional 2 

percentage points in 2009, while the 

shares of cases with a MCC increased by 

more than 6 and 3 percentage points, 

respectively * * * When we looked at 

all 259 base DRGs that are split in some 

fashion based on secondary diagnoses, 

we found that all but one had 

essentially the same pattern of shifts in 

2008 and 2009 toward the highest 

severity and cost MS–DRG and away 

from the lowest severity or cost MS– 

DRG. In 68 of these base DRGs, the 

cumulative shift from 2007 to 2009 in 

the share of cases toward the highestweighted MS–DRG was at least 10 

percentage points.’’ 

Nevertheless, despite our position 

that our methodology more directly 

measures the relevant increase, we did 

examine the alternative approach 

favored by commenters for calculating 

the documentation and classification 

increase. As a general statement, the 

approach of examining historical trends 

to estimate what case-mix would have 

been in the absence of the adoption of 

the MS–DRGs should not necessarily 

yield significantly different results from 

the analysis done by our actuaries and 

MedPAC if an appropriate historical 

trend can be determined. We have 

concerns about the determination of an 

appropriate historical trend. 

We believe that the determination of 

an appropriate historical trend is less 

straightforward than our methodology, 

which, as described above, simply 

removes real case-mix growth from the 

calculation. One issue with the trend 

analysis is the determination of the 

appropriate time period on which to 

base the trend. We note in our 

examination of the AHA approach that 

it begins with the case-mix change for 

FY 2001. MedPAC, in its comment 

letter, provided an analysis of the 

change in actual case-mix from FY 1998 

to FY 2009: 

‘‘We calculated the annual percent 

change in the national aggregate casemix index (CMI) for the period from 

1997 to 2009. These actual CMI values 

are based on the DRG version, relative 

weights, and transfer policies that were 

in effect for each year. To calculate the 

percent change for each year, we used 

national aggregate average CMIs for the 

cohort of hospitals paid under the IPPS 

in each pair of adjacent years. We also 

excluded all hospitals that had 

converted to critical access hospital 

status (CAH) by the end of 2009.’’ 

We created the following table 

summarizing the results of MedPAC’s 

analysis. 

CHANGES IN CASE MIX FOR IPPS 

HOSPITALS

Year Percent 

1998 ...................................... ¥0.5 

1999 ...................................... ¥0.7 

2000 ...................................... ¥0.8 

2001 ...................................... ¥0.7 

2002 ...................................... 0.7 

2003 ...................................... 1.0 

2994 ...................................... 0.9 

2005 ...................................... 0.6 

2006 ...................................... 0.4 

2007 ...................................... ¥0.2 

2008 ...................................... 2.0 

2009 ...................................... 2.6 

We note that the sustained negative 

changes in actual CMI from FY 1998 

through FY 2000 are not reflected in the 

AHA analysis. If included, they would 

significantly increase the AHA estimate 

of documentation and coding growth 

because the slope of the AHA trend line 

would be significantly less. 

A second critical issue with the AHA 

approach is the determination of the 

appropriate cohort of hospitals to 

include in the calculation. For example, 

if a hospital converts to CAH status, 

decisions with respect to the inclusion 

or exclusion of data from the time 

period before the conversion will 

influence the trend analysis. In FY 2000, 

there were approximately 300 CAHs, 

but, by FY 2007, there were 

approximately 1,300 CAHs. We note 

that MedPAC excluded all hospitals that 

had converted to CAH status by the end 

of 2009. It was not apparent how the 

data from these hospitals was treated in 

the AHA approach. CAHs tend to have 

lower than average case-mix values; 

therefore, including the data from one or 

more years before the conversion and 

then excluding the data after the 

conversion artificially increases the 

trend line and decreases the magnitude 

of the documentation and classification 

estimate. 

Given these concerns about the 

appropriateness of the AHA historical 

trend, it follows that we are concerned 

about extrapolating the AHA historical 

trend into FY 2009. AHA’s extrapolation 

assumes that changes in case-mix 

increase at a linear and, therefore, 

consistent rate, when, in fact, changes in 

case-mix do not necessarily follow a 

consistent pattern over time, as 

MedPAC’s case-mix analysis pointed 

out. 

After a careful review of the 

comments, we continue to find the 

methodology used by our actuaries and 

MedPAC to determine the magnitude of 

the changes in coding and classification 

that did not reflect real changes in case 

mix to be the most appropriate 

methodology because it directly 

removes real changes in case-mix from 

the calculation consistent with the 

statutory requirement. We also question 

the time period and cohort selections 

made by the AHA in its analysis and the 

appropriateness of extrapolating this 

AHA trend to FY 2009 when a much 

more straightforward methodology 

exists for estimating documentation and 

coding growth. 

Comment: One commenter, while 

supporting the proposed FY 2011 

adjustment of ¥2.9 percent, stated that 

CMS should not implement any further 

adjustment in FY 2012 without a more 

detailed quantification of the factors 

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contributing to case-mix growth so that 

CMS can separate the factors that 

should be included in the adjustment 

from the factors that should be 

excluded. For example, the commenter 

appears to believe that the effect of 

resequencing the diagnosis codes on a 

claim (as opposed to the addition of 

new or different diagnosis codes) should 

not be included in the section 7 

adjustments because the commenter 

believes this is not a documentation and 

coding change, even if the resequencing 

results in classification to a higher MS– 

DRG. Other factors cited by the 

commenter included new diagnosis 

codes and certain definitional changes 

to the base-DRGs. 

Response: Section 7 of Public Law 

110–90 requires us to adjust for changes 

in ‘‘coding and classification’’ that do 

not reflect real changes in case-mix. We 

believe that the reclassifications cited by 

the commenter are properly accounted 

for in the documentation and coding 

adjustment; these factors may affect the 

MS–DRG classification and affect 

payment without a corresponding real 

increase in patient severity of illness. 

For this reason, we believe that the 

effects of these factors are appropriately 

included in the section 7 adjustments, 

consistent with section 7(b)(1)(B) of 

Public Law 110–90, which requires 

adjustments to the extent that 

‘‘implementation’’ of the MS–DRG 

system results in ‘‘coding and 

classification that did not reflect real 

change in case-mix.’’ 

After consideration of the public 

comments we received, as well as 

MedPAC’s detailed analysis, we have 

decided to finalize our proposal to make 

an adjustment to the standardized 

amount of ¥2.9 percent, representing 

approximately half of the aggregate 

recoupment adjustment required under 

section 7(b)(1)(B) of Public Law 110–90, 

for FY 2011. We are persuaded by 

MedPAC’s analysis, and by our own 

review of the methodologies 

recommended by various commenters, 

that the methodology we have employed 

to determine the required recoupment 

adjustment is sound. We understand the 

concerns expressed by many 

commenters about the potential adverse 

financial effects on hospitals. However, 

we are required by the statute to 

implement this adjustment no later than 

FY 2012. We do not believe that it 

would be in the interest of hospitals to 

delay this required adjustment entirely 

until FY 2012. Rather, we have sought, 

as we commonly do, to moderate the 

potential impact on hospitals by 

phasing in the required adjustment over 

more than one year. The adjustment to 

the standardized amount of ¥2.9 

percent that we are finalizing represents 

approximately half of the aggregate 

adjustment required under section 

7(b)(1)(B) of Public Law 110–90 for FY 

2011. As we noted in making the 

proposal, there is a distinct advantage to 

phasing in the required adjustment in 

this manner. As we stated above, a 

major advantage of making the ¥2.9 

percent adjustment to the standardized 

amount in FY 2011 is that, because the 

required recoupment adjustment is not 

cumulative, we can anticipate removing 

the FY 2011 ¥2.9 percent adjustment 

from the rates in FY 2012, when it 

would also be necessary under current 

law to apply the remaining 

approximately ¥2.9 percent adjustment 

required by section 7(b)(1)(B) of Public 

Law 110–90. These two steps in FY 

2012, restoring the FY 2011 ¥2.9 

percent adjustment and then applying 

the remaining adjustment of 

approximately ¥2.9 percent, would 

effectively cancel each other out. The 

result would be an aggregate adjustment 

of approximately 0.0 percent (subject to 

the need to account for accumulated 

interest, as discussed above) under 

section 7(b)(1)(B) of Public Law 110–90 

in FY 2012. However, while we again 

note this anticipated effect of the FY 

2011 policy, we have not yet made a 

formal proposal for the further 

implementation of section 7(b)(1)(B) of 

Public Law 110–90 in FY 2012. 

Nevertheless, this anticipated 

consequence of adopting a ¥2.9 percent 

adjustment for FY 2011 should 

substantially reduce the potential 

financial impact of this required 

adjustment on hospitals. We believe that 

this is a reasonable and fair approach 

which satisfies the requirements of the 

statute while substantially moderating 

the impact on hospitals. 

FY 2011 MS–DRG DOCUMENTATION AND CODING ADJUSTMENT

Required prospective adjustment for 

FYs 2008– 

2009 

Required 

recoupment 

adjustment for 

FYs 2008– 

2009 

Total adjustment 

Recoupment 

adjustment to 

FY 2011 payments 

Remaining adjustment 

Level of adjustments ............................................................ ¥3.9% ¥5.8% ¥9.7% ¥2.9% ¥6.8% 

8. Background on the Application of the 

Documentation and Coding Adjustment 

to the Hospital-Specific Rates 

Under section 1886(d)(5)(D)(i) of the 

Act, 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. Under 

section 1886(d)(5)(G) of the Act, MDHs 

are paid based on the Federal national 

rate or, if higher, the Federal national 

rate plus 75 percent of the difference 

between the Federal national rate and 

the updated hospital-specific rate based 

on the greatest of the FY 1982, FY 1987, 

or FY 2002 costs per discharge. In the 

FY 2008 IPPS final rule with comment 

period (72 FR 47152 through 47188), we 

established a policy of applying the 

documentation and coding adjustment 

to the hospital-specific rates. In that 

final rule with comment period, we 

indicated that because SCHs and MDHs 

use the same DRG system as all other 

hospitals, we believe they should be 

equally subject to the budget neutrality 

adjustment that we are applying for 

adoption of the MS–DRGs to all other 

hospitals. In establishing this policy, we 

relied on section 1886(d)(3)(A)(vi) of the 

Act, which provides us with the 

authority to adjust ‘‘the standardized 

amount’’ to eliminate the effect of 

changes in coding or classification that 

do not reflect real change in case-mix. 

However, in the final rule that 

appeared in the Federal Register on 

November 27, 2007 (72 FR 66886), we 

rescinded the application of the 

documentation and coding adjustment 

to the hospital-specific rates retroactive 

to October 1, 2007. In that final rule, we 

indicated that, while we still believe it 

would be appropriate to apply the 

documentation and coding adjustment 

to the hospital-specific rates, upon 

further review, we decided that the 

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application of the documentation and 

coding adjustment to the hospitalspecific rates is not consistent with the 

plain meaning of section 

1886(d)(3)(A)(vi) of the Act, which only 

mentions adjusting ‘‘the standardized 

amount’’ under section 1886(d) of the 

Act and does not mention adjusting the 

hospital-specific rates. 

In the FY 2009 IPPS proposed rule (73 

FR 23540), we indicated that we 

continued to have concerns about this 

issue. Because hospitals paid based on 

the hospital-specific rate use the same 

MS–DRG system as other hospitals, we 

believe they have the potential to realize 

increased payments from 

documentation and coding changes that 

do not reflect real increases in patients’ 

severity of illness. In section 

1886(d)(3)(A)(vi) of the Act, Congress 

stipulated that hospitals paid based on 

the standardized amount should not 

receive additional payments based on 

the effect of documentation and coding 

changes that do not reflect real changes 

in case-mix. Similarly, we believe that 

hospitals paid based on the hospitalspecific rates should not have the 

potential to realize increased payments 

due to documentation and coding 

changes that do not reflect real increases 

in patient severity of illness. While we 

continue to believe that section 

1886(d)(3)(A)(vi) of the Act does not 

provide explicit authority for 

application of the documentation and 

coding adjustment to the hospitalspecific rates, we believe that we have 

the authority to apply the 

documentation and coding adjustment 

to the hospital-specific rates using our 

special exceptions and adjustment 

authority under section 1886(d)(5)(I)(i) 

of the Act. The special exceptions and 

adjustment provision authorizes us to 

provide ‘‘for such other exceptions and 

adjustments to [IPPS] payment amounts 

* * * as the Secretary deems 

appropriate.’’ In the FY 2009 IPPS final 

rule (73 FR 48448 through 48449), we 

indicated that, for the FY 2010 

rulemaking, we planned to examine our 

FY 2008 claims data for hospitals paid 

based on the hospital-specific rate. We 

further indicated that if we found 

evidence of significant increases in casemix for patients treated in these 

hospitals that do not reflect real changes 

in case-mix, we would consider 

proposing application of the 

documentation and coding adjustments 

to the FY 2010 hospital-specific rates 

under our authority in section 

1886(d)(5)(I)(i) of the Act. 

In response to public comments 

received on the FY 2009 IPPS proposed 

rule, we stated in the FY 2009 IPPS final 

rule that we would consider whether 

such a proposal is warranted for FY 

2010. To gather information to evaluate 

these considerations, we indicated that 

we planned to perform analyses on FY 

2008 claims data to examine whether 

there has been a significant increase in 

case-mix for hospitals paid based on the 

hospital-specific rate. If we found that 

application of the documentation and 

coding adjustment to the hospitalspecific rates for FY 2010 is warranted, 

we indicated that we would include a 

proposal to do so in the FY 2010 IPPS 

proposed rule. 

9. Documentation and Coding 

Adjustment to the Hospital-Specific 

Rates for FY 2011 and Subsequent 

Fiscal Years 

In the FY 2010 IPPS/RY 2010 LTCH 

proposed rule and final rule (74 FR 

24098 through 24100 and 74 FR 43775 

through 43776, respectively), we 

discussed our performance of a 

retrospective evaluation of the FY 2008 

claims data for SCHs and MDHs using 

the same methodology described earlier 

for other IPPS hospitals. We found that, 

independently for both SCHs and 

MDHs, the change due to 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 

slightly exceeded the proposed 2.5 

percent result discussed earlier, but did 

not significantly differ from that result. 

Again, for the FY 2010 proposed rule, 

we found that the within-base DRG 

increases were almost entirely 

responsible for the case-mix change. In 

that proposed rule, we presented two 

Figures to display our results. 

Therefore, consistent with our 

statements in prior IPPS rules, we 

proposed to use our authority under 

section 1886(d)(5)(I)(i) of the Act to 

prospectively adjust the hospitalspecific rates by the proposed ¥2.5 

percent in FY 2010 to account for our 

estimated documentation and coding 

effect in FY 2008 that does not reflect 

real changes in case-mix. We proposed 

to leave this adjustment in place for 

subsequent fiscal years in order to 

ensure that changes in documentation 

and coding resulting from the adoption 

of the MS–DRGs do not lead to an 

increase in aggregate payments for SCHs 

and MDHs not reflective of an increase 

in real case-mix. The proposed ¥2.5 

percent adjustment to the hospitalspecific rates exceeded the ¥1.9 percent 

adjustment to the national standardized 

amount under section 7(b)(1)(A) of 

Public Law 110–90 because, unlike the 

national standardized rates, the FY 2008 

hospital-specific rates were not 

previously reduced in order to account 

for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the 

MS–DRGs. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24100), we 

solicited public comment on the 

proposed ¥2.5 percent prospective 

adjustment to the hospital-specific rates 

under section 1886(d)(5)(I)(i) of the Act 

and our proposal to address in the FY 

2011 rulemaking cycle any changes in 

FY 2009 case-mix due to changes in 

documentation and coding that do not 

reflect real changes in case-mix for 

discharges occurring during FY 2009. 

We also indicated that we intended to 

update our analysis with FY 2008 data 

on claims paid through March 2008 [sic] 

for the FY 2010 IPPS final rule. (We 

note that the March 2008 update claims 

paid data date in the proposed rule 

should have been March 2009.) 

Consistent with our approach for IPPS 

hospitals discussed earlier, in the FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule, we also delayed adoption of a 

documentation and coding adjustment 

to the hospital-specific rate until FY 

2011. Similar to our approach for IPPS 

hospitals, we indicated that we would 

consider, through future rulemaking, 

phasing in the documentation and 

coding adjustment over an appropriate 

period. We also indicated that we would 

address, through future rulemaking, any 

changes in documentation and coding 

that do not reflect real changes in casemix for discharges occurring during FY 

2009. We noted that, unlike the national 

standardized rates, the FY 2009 

hospital-specific rates were not 

previously reduced in order to account 

for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the 

MS–DRGs. However, as we noted earlier 

with regard to IPPS hospitals, if the 

estimated documentation and coding 

effect determined based on a full 

analysis of FY 2009 claims data is more 

or less than our current estimates, it 

would change, possibly lessen, the 

anticipated cumulative adjustments that 

we currently estimate we would have to 

make for the FY 2008 and FY 2009 

combined adjustment. Therefore, we 

believed that it would be more prudent 

to delay implementation of the 

documentation and coding adjustment 

to allow for a more complete analysis of 

FY 2009 claims data for hospitals 

receiving hospital-specific rates. 

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BILLING CODE 4120–01–C 

Consistent with our analysis of IPPS 

hospitals, the two charts above show 

that we found after analysis of FY 2009 

discharge data that the distribution of 

severity discharges for MDHs and SCHs 

both proportionally shifted from the 

without CC/MCC to with MCC category. 

This analysis was updated to include 

data for FY 2009 claims paid through 

March 2010. Similarly, we found using 

a methodology consistent with our 

analysis of IPPS hospitals that the 

change due to documentation and 

coding that did not reflect real changes 

in case-mix for discharges occurring 

during FY 2009 slightly exceeded the 

proposed 2.5 percent result discussed 

earlier, but did not significantly differ 

from that result. 

As we have noted above, because 

SCHs and MDHs use the same MS–DRG 

system as all other hospitals, we believe 

they have the potential to realize 

increased payments from 

documentation and coding changes that 

do not reflect real increases in patient 

severity of illness. Therefore, we believe 

they should be equally subject to a 

prospective budget neutrality 

adjustment that we are applying for 

adoption of the MS–DRGs to all other 

hospitals. We believe the 

documentation and coding estimates for 

all subsection (d) hospitals should be 

the same. While the findings for the 

documentation and coding effect for all 

IPPS hospitals are similar to the effect 

for SCHs and slightly different to the 

effect for MDHs, we continue to believe 

that this is the appropriate policy so as 

to neither advantage or disadvantage 


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different types of providers. As we have 

also discussed above, our best estimate, 

based on the most recently available 

data, is that a cumulative adjustment of 

¥5.4 percent is required to eliminate 

the full effect of the documentation and 

coding changes on future payments. 

Unlike the case of standardized amounts 

paid to IPPS hospitals, we have not 

made any previous adjustments to the 

hospital-specific rates paid to SCHs and 

MDHs to account for documentation 

and coding changes. Therefore, the 

entire ¥5.4 percent adjustment remains 

to be implemented. 

As discussed above, in the FY 2011 

IPPS/LTCH PPS proposed rule, we 

proposed to make an adjustment to the 

standardized amount for IPPS hospitals 

of ¥2.9 percent under section 7(b)(1)(B) 

of Public Law 110–90, for FY 2011. As 

we also discussed above, it has been our 

practice to moderate payment 

adjustments when necessary to mitigate 

the effects of significant downward 

adjustments on hospitals, to avoid what 

could be widespread, disruptive effects 

of such adjustments on hospitals. 

Because payments for non-SCH and 

non-MDH IPPS hospitals and SCHs and 

MDHs are determined on the basis of 

the same MS–DRG system, SCHs and 

MDHs have the potential to realize 

increased payments from 

documentation and coding changes that 

do not reflect real increases in patient 

severity of illness. Therefore, in 

determining the level and pace of 

adjustments to account for such 

documentation and coding changes, we 

believe that it is important to maintain, 

as much as possible, both consistency 

and equity among these classes of 

hospitals. In addition, as in the case of 

the documentation and coding 

adjustment for non-SCH and non-MDH 

IPPS hospitals, we also believe that it is 

important to provide as much as 

possible for moderating the effects of 

adjustments on hospital payments. 

Therefore, we proposed an adjustment 

of ¥2.9 percent in FY 2011 to the 

hospital-specific rates paid to SCHs and 

MDHs. This proposal is consistent with 

our proposed adjustment for IPPS 

hospitals in two ways. First, as in the 

case of the IPPS adjustment, we did not 

propose to implement the entire 

adjustment that is warranted by our data 

(in this case, 5.4 percent) in one year. 

Second, we proposed to maintain 

consistency by proposing the same 

numerical level of adjustment for both 

groups of hospitals in FY 2011. While 

this proposed adjustment to the 

hospital-specific rates represented 

somewhat over half of the entire 

adjustment that is appropriate for SCHs 

and MDHs, it would allow us to 

maintain complete consistency, at least 

for FY 2011, in the effects on the 

relevant classes of hospitals. Although 

the proposed adjustment for SCHs and 

MDHs is cumulative and prospective, as 

opposed to the noncumulative 

recoupment adjustment we proposed for 

other IPPS hospitals, we believe that 

proposing equal numerical adjustments 

in this first year is the most appropriate 

means to maintain such consistency and 

equity at this time. We indicated in the 

proposed rule that we will continue, as 

much as possible, consistent with 

sections 7(b)(1) of Public Law 110–90 

and section 1886(d)(5)(I)(i) of the Act, to 

take such consistency and equity into 

account in developing future proposals 

for implementing documentation and 

coding adjustments. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we sought public 

comment on the proposed ¥2.9 percent 

prospective adjustment to hospitalspecific rates under section 

1886(d)(5)(I)(i) of the Act and 

addressing in future rulemaking cycles 

changes in FY 2008 and FY 2009 casemix due to changes in documentation 

and coding that do not reflect real 

changes in case-mix for discharges 

occurring during FY 2008 and FY 2009, 

noting that our current estimates of the 

remaining adjustment is ¥2.5 percent. 

We stated that we intended to update 

our analysis with FY 2009 data on 

claims paid through March 2009 (sic) 

for this FY 2011 IPPS/LTCH PPS final 

rule and have updated our analysis with 

FY 2009 data on claims paid through 

March 2010 in this FY 2011 IPPS/LTCH 

PPS final rule. (We note that the March 

2009 update date for claims paid data in 

the proposed rule should have been 

March 2010.) 

Comment: Numerous commenters 

requested that CMS withdraw its 

proposal to apply the documentation 

and coding adjustment to SCHs and 

MDHs and questioned CMS’ statutory 

authority to apply this adjustment to 

providers receiving a hospital-specific 

rate. The commenters argued that 

because section 1886(d)(3)(A)(vi) of the 

Act only authorizes application of a 

documentation and coding adjustment 

to the standardized amount, Congress’ 

specific instruction as to the 

applicability of this type of adjustment 

makes it impermissible for CMS to 

apply the adjustment to the hospitalspecific rates. Furthermore, commenters 

contend that, due to their critical role in 

isolated communities, any negative 

documentation and coding adjustment 

to SCHs and MDHs would endanger 

their ability to provide the type of care 

that Congress specifically sought to 

protect by establishing their special 

Medicare payment systems. 

Response: We continue to disagree 

with the commenters that the 

Secretary’s broad authority to make 

exceptions and adjustment to payment 

amounts under section 1886(d)(3)(A)(vi) 

of the Act cannot be applied in this 

instance. We have discussed the basis 

for applying such an adjustment in prior 

rules (in the FY 2009 proposed rule (73 

FR 23540), the FY 2009 final rule (73 FR 

48448), and the FY 2010 proposed rule 

(74 FR 24098)) and do not agree that the 

language in section 1886(d)(3)(A)(vi) of 

the Act limits our authority under 

section 1886(d)(5)(I)(i) of the Act to 

make such an adjustment. We recognize 

that SCHs and MDHs are entitled, 

through legislation, to receive the 

hospital-specific rate in order to 

compensate for their unique service 

requirements in the provider 

community. Similar to our approach 

with IPPS hospitals, we are 

implementing a phase-in of the 

documentation and coding adjustment 

over an appropriate period, beginning in 

FY 2011. We will continue to separately 

analyze SCH and MDH claims data to 

ensure than any future adjustment is 

appropriate for these provider types. 

Comment: MedPAC responded to our 

request for comments regarding the 

level of adjustment for special categories 

of hospitals, such as hospitals paid 

under the hospital-specific payment 

rate, by pointing out that these hospitals 

have the same financial incentives for 

documentation and coding 

improvements and the same ability to 

benefit from increased payments that do 

not reflect real changes in case-mix 

severity of illness levels. Therefore, 

MedPAC recommended that ‘‘all IPPS 

hospitals should be treated the same.’’ 

At the same time, MedPAC also stated 

that ‘‘delaying prevention of 

overpayments * * * creates a problem 

because overpayments will continue to 

accumulate in 2010 and later years until 

the effect of documentation and coding 

improvement is fully offset in the 

payment rates.’’ In setting forward its 

multiyear recommendation to CMS for 

complying with the requirements of 

section 7 of Public Law 110–90, 

MedPAC emphasized ‘‘minimizing the 

accumulation of overpayments.’’ 

Response: We thank MedPAC for its 

comments and agree that it is 

appropriate to conclude that hospitals 

paid under the hospital-specific rate 

have experienced a 5.4 percent increase 

in documentation and coding in FYs 

2008 and 2009, insofar as these 

hospitals had the same financial 

incentives to improve documentation 

and coding as other IPPS hospitals, as 

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confirmed by the analysis we have 

described above. We further agree with 

MedPAC that it is appropriate to focus 

on minimizing the accumulation of 

overpayments; we interpret this 

statement to mean that MedPAC 

recommends that CMS move forward as 

quickly as possible with appropriate 

prospective adjustments. We appreciate 

MedPAC’s guidance that ‘‘all hospitals 

be treated the same,’’ and we agree that 

it is important to treat various classes of 

similarly situated hospitals in our 

payment policy determinations in a 

consistent manner. 

Therefore, we are finalizing our 

proposal to apply an adjustment of ¥2.9 

percent in FY 2011 to the hospitalspecific rates paid to SCHs and MDHs. 

This adjustment is prospective in 

nature. We continue to believe that such 

an adjustment is appropriate because, as 

MedPAC noted, all hospitals have the 

same financial incentives for 

documentation and coding 

improvements, and the same ability to 

benefit from the resulting increase in 

aggregate payments that do not reflect 

real change in case-mix severity of 

illness levels. As we describe above, our 

analysis of claims data shows that the 

documentation and coding effect for all 

IPPS hospitals is similar to the effect for 

SCHs and slightly different to the effect 

for MDHs, and we believe the 

documentation and coding estimates for 

all subsection (d) hospitals should be 

the same. This adjustment also 

maintains, as much as possible, 

consistency in the treatment of various 

classes of hospitals that are similarly 

situated with respect to their ability to 

adjust their documentation and coding 

practices. Specifically, this adjustment 

is consistent with our adjustment for 

other IPPS hospitals in two ways. First, 

as in the case of the IPPS adjustment, 

we are not implementing the entire 

adjustment that is warranted by our data 

(in this case, 5.4 percent) in 1 year. 

Second, we are treating hospitals in a 

consistent manner by applying the same 

numerical level of adjustment for both 

groups of hospitals in FY 2011. While 

this adjustment to the hospital-specific 

rates represents somewhat over half of 

the entire adjustment that is appropriate 

for SCHs and MDHs, it would allow us 

to maintain complete consistency, at 

least for FY 2011, in the effects on the 

relevant classes of hospitals. Although 

the proposed adjustment for SCHs and 

MDHs is cumulative and prospective, as 

opposed to the noncumulative 

recoupment adjustment we proposed for 

other IPPS hospitals, we believe that 

applying equal numerical adjustments 

in this first year is the most appropriate 

means to maintain such consistency and 

equity at this time. As we indicated in 

the proposed rule, we will continue, as 

much as possible, consistent with 

sections 7(b)(1) of Public Law 110–90 

and section 1886(d)(5)(I)(i) of the Act, to 

take such consistency and equity into 

account in developing future proposals 

for implementing documentation and 

coding adjustments. 

10. Application of the Documentation 

and Coding Adjustment to the Puerto 

Rico-Specific Standardized Amount 

a. Background 

Puerto Rico hospitals are paid based 

on 75 percent of the national 

standardized amount and 25 percent of 

the Puerto Rico-specific standardized 

amount. As noted previously, the 

documentation and coding adjustment 

we adopted in the FY 2008 IPPS final 

rule with comment period relied upon 

our authority under section 

1886(d)(3)(A)(vi) of the Act, which 

provides the Secretary the authority to 

adjust ‘‘the standardized amounts 

computed under this paragraph’’ to 

eliminate the effect of changes in coding 

or classification that do not reflect real 

changes in case-mix. Section 

1886(d)(3)(A)(vi) of the Act applies to 

the national standardized amounts 

computed under section 1886(d)(3) of 

the Act, but does not apply to the Puerto 

Rico-specific standardized amount 

computed under section 1886(d)(9)(C) of 

the Act. In calculating the FY 2008 

payment rates, we made an inadvertent 

error and applied the FY 2008 ¥0.6 

percent documentation and coding 

adjustment to the Puerto Rico-specific 

standardized amount, relying on our 

authority under section 

1886(d)(3)(A)(vi) of the Act. However, 

section 1886(d)(3)(A)(vi) of the Act 

authorizes application of a 

documentation and coding adjustment 

to the national standardized amount and 

does not apply to the Puerto Rico 

specific standardized amount. In the FY 

2009 IPPS final rule (73 FR 48449), we 

corrected this inadvertent error by 

removing the ¥0.6 percent 

documentation and coding adjustment 

from the FY 2008 Puerto Rico-specific 

rates. 

While section 1886(d)(3)(A)(vi) of the 

Act is not applicable to the Puerto Ricospecific standardized amount, we 

believe that we have the authority to 

apply the documentation and coding 

adjustment to the Puerto Rico-specific 

standardized amount using our special 

exceptions and adjustment authority 

under section 1886(d)(5)(I)(i) of the Act. 

Similar to SCHs and MDHs that are paid 

based on the hospital-specific rate, we 

believe that Puerto Rico hospitals that 

are paid based on the Puerto Ricospecific standardized amount should 

not have the potential to realize 

increased payments due to 

documentation and coding changes that 

do not reflect real increases in patient 

severity of illness. Consistent with the 

approach described for SCHs and 

MDHs, in the FY 2009 IPPS final rule 

(73 FR 48449), we indicated that we 

planned to examine our FY 2008 claims 

data for hospitals in Puerto Rico. We 

indicated in the FY 2009 IPPS proposed 

rule (73 FR 23541) that if we found 

evidence of significant increases in casemix for patients treated in these 

hospitals, we would consider proposing 

application of the documentation and 

coding adjustments to the FY 2010 

Puerto Rico-specific standardized 

amount under our authority in section 

1886(d)(5)(I)(i) of the Act. 

b. Documentation and Coding 

Adjustment to the Puerto Rico-Specific 

Standardized Amount 

For the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we performed a 

retrospective evaluation of the FY 2008 

claims data for Puerto Rico hospitals 

using the same methodology described 

earlier for IPPS hospitals paid under the 

national standardized amounts under 

section 1886(d) of the Act. We found 

that, for Puerto Rico hospitals, the 

increase in payments for discharges 

occurring during FY 2008 due to 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 

was approximately 1.1 percent. When 

we calculated the within-base DRG 

changes and the across-base DRG 

changes for Puerto Rico hospitals, we 

found that responsibility for the casemix change between FY 2007 and FY 

2008 is much more evenly shared. 

Across-base DRG shifts accounted for 44 

percent of the changes, and within-base 

DRG shifts accounted for 56 percent. 

Thus, the change in the percentage of 

discharges with an MCC was not as 

large as that for other IPPS hospitals. In 

Figure 4 in the FY 2010 proposed rule, 

we showed that, for Puerto Rico 

hospitals, there was a 3 percentage point 

increase in the discharges with an MCC 

from 22 percent to 25 percent and a 

corresponding decrease of 3 percentage 

points from 58 percent to 55 percent in 

discharges without a CC or an MCC. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24101), we 

solicited public comment on the 

proposed ¥1.1 percent prospective 

adjustment to the hospital-specific rates 

under section 1886(d)(5)(I)(i) of the Act 

and our intent to address in the FY 2011 

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50072 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

rulemaking cycle any changes in FY 

2009 case-mix due to changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2009. 

We also stated that we intended to 

update our analysis with FY 2008 data 

on claims paid through March 2009 for 

the FY 2010 IPPS final rule. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43777), we 

indicated that, given these 

documentation and coding increases, 

consistent with our statements in prior 

IPPS rules, we would use our authority 

under section 1886(d)(5)(I)(i) of the Act 

to adjust the Puerto Rico-specific rate. 

However, in parallel to our decision to 

postpone adjustments to the Federal 

standardized amount, we indicated that 

we were adopting a similar policy for 

the Puerto Rico-specific rate for FY 2010 

and would consider the phase-in of this 

adjustment over an appropriate time 

period through future rulemaking. The 

adjustment would be applied to the 

Puerto Rico-specific rate that accounts 

for 25 percent of payments to Puerto 

Rico hospitals, with the remaining 75 

percent based on the national 

standardized amount. Consequently, the 

overall reduction to the payment rates 

for Puerto Rico hospitals to account for 

documentation and coding changes will 

be slightly less than the reduction for 

IPPS hospitals paid based on 100 

percent of the national standardized 

amount. We noted that, as with the 

hospital-specific rates, the Puerto Ricospecific standardized amount had not 

previously been reduced based on 

estimated changes in documentation 

and coding associated with the adoption 

of the MS–DRGs. However, as we note 

earlier for IPPS hospitals and hospitals 

receiving hospital-specific rates, if the 

estimated documentation and coding 

effect determined based on a full 

analysis of FY 2009 claims data is more 

or less than our current estimates, it 

would change, possibly lessen, the 

anticipated cumulative adjustments that 

we currently estimate we would have to 

make for the FY 2008 and FY 2009 

combined adjustment. Therefore, we 

believed that it would be more prudent 

to delay implementation of the 

documentation and coding adjustment 

to allow for a more complete analysis of 

FY 2009 claims data for Puerto Rico 

hospitals. 

Consistent with our approach for IPPS 

hospitals for FY 2010, we indicated that 

we would address in the FY 2011 

rulemaking cycle any change in FY 2009 

case-mix due to documentation and 

coding that did not reflect real changes 

in case-mix for discharges occurring 

during FY 2009. We noted that, unlike 

the national standardized rates, the FY 

2009 hospital-specific rates were not 

previously reduced in order to account 

for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the MS– 

DRGs. 

As we have noted above, similar to 

SCHs and MDHs, hospitals in Puerto 

Rico use the same MS–DRG system as 

all other hospitals and we believe they 

have the potential to realize increased 

payments from documentation and 

coding changes that do not reflect real 

increases in patient severity of illness. 

Therefore, we believe they should be 

equally subject to the prospective 

budget neutrality adjustment that we 

intend to apply to prospective payment 

rates for IPPS hospitals including SCHs 

and MDHs in order to eliminate the full 

effect of the documentation and coding 

changes associated with implementation 

of the MS–DRG system. 

In the above chart, consistent with our 

findings for IPPS hospitals, for Puerto 

Rico hospitals, there is a corresponding 

increase in the discharge severity with 

MCCs compared to a decrease in 

discharge severity in the without CC/ 

MCC category. This analysis reflects FY 

2009 claims paid through March 2010. 

Using the same methodology we 

applied to estimate documentation and 

coding changes under IPPS for nonPuerto Rico hospitals, as we have also 

discussed above, our best estimate, 

based on the most recently available 

data (FY 2009 claims paid through 

March 2010), is that a cumulative 

adjustment of ¥2.6 percent is required 

to eliminate the full effect of the 

documentation and coding changes on 

future payments from the Puerto RicoVerDate Mar<15>2010 17:02 Aug 13, 2010 Jkt 220001 PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 E:\FR\FM\16AUR2.SGM 16AUR2

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50073 

specific rate. Unlike the case of 

standardized amounts paid to IPPS 

hospitals, we have not made any 

previous adjustments to the hospitalspecific rates paid to Puerto Rico 

hospitals to account for documentation 

and coding changes. Therefore, the 

entire ¥2.6 percent adjustment remains 

to be implemented. 

As we stated above, we believe it 

important to maintain both consistency 

and equity among all hospitals paid on 

the basis of the same MS–DRG system. 

At the same time, however, we 

recognize that the estimated cumulative 

impact on aggregate payment rates 

resulting from implementation of the 

MS–DRG system was smaller for Puerto 

Rico hospitals as compared to IPPS 

hospitals and SCHs and MDHs. 

Therefore, in the FY 2011 IPPS LTCH 

PPS proposed rule (75 FR 23876), we 

proposed an adjustment of ¥2.4 percent 

in FY 2011 to Puerto Rico-specific rate 

that accounts for 25 percent of payments 

to Puerto Rico hospitals, with the 

remaining 75 percent based on the 

national standardized amount, which 

we proposed to adjust as described 

above. Consequently, the overall 

reduction to rates for Puerto Rico 

hospitals to account for the 

documentation and coding changes will 

be slightly less than the reduction for 

IPPS hospitals based on 100 percent of 

the national standardized amount. We 

noted that the proposed prospective 

adjustment would have eliminated the 

full effect of the documentation and 

coding changes (as estimated at the 

time) on the portion of future payments 

to Puerto Rico hospitals based on the 

Puerto Rico-specific rate. We believe 

that this a full prospective adjustment is 

the most appropriate means to take into 

full account the effect of documentation 

and coding changes on payments, and to 

maintain equity as much as possible 

between hospitals paid on the basis of 

different prospective rates. (As 

discussed below, the estimated ¥2.4 

percent adjustment that we calculated 

in the proposed rule no longer 

represents a ‘‘full prospective 

adjustment.’’) One reason for proposing 

the full prospective adjustment for the 

Puerto Rico-specific rate in FY 2011 was 

to maintain equity as much as possible 

in the documentation and coding 

adjustments applied to various hospital 

rates in FY 2011. Because our proposal 

was to make an adjustment that 

represents the full adjustment that is 

warranted for the Puerto Rico-specific 

rate, we indicated that we do not 

anticipate proposing any additional 

adjustments to the this rate for 

documentation and coding effects. 

In the FY 2011 proposed rule, we 

sought public comment on the proposed 

full prospective adjustment, which we 

estimated at that time to be ¥2.4 

percent, to the Puerto Rico-specific 

standardized amount under section 

1886(d)(5)(I)(i) of the Act. We stated that 

we intended to update our analysis with 

FY 2009 data on claim paid through 

March 2009 (sic) for this FY 2011 IPPS/ 

LTCH PPS final rule. (We note that the 

March 2009 update date for claims paid 

data in the proposed rule should have 

been March 2010.) We have updated our 

analysis, as planned, with FY 2009 data 

on claims paid through March 2010 in 

this FY 2011 IPPS/LTCH PPS final rule. 

This updated data analysis shows that a 

cumulative adjustment of ¥2.6 percent 

is required to eliminate the full effect of 

the document and coding changes on 

future payments from the Puerto Ricospecific rate. 

Comment: MedPAC responded to our 

request for comments regarding the 

level of adjustment for special categories 

of hospitals, such as Puerto Rico 

hospitals, by pointing out that these 

hospitals have the same financial 

incentives for documentation and 

coding improvements and the same 

ability to benefit from increased 

payments that do not reflect real change 

in case-mix severity of illness levels. 

Therefore, MedPAC recommended that 

‘‘all IPPS hospitals should be treated the 

same.’’ At the same time, MedPAC also 

stated that ‘‘delaying prevention of 

overpayments * * * creates a problem 

because overpayments will continue to 

accumulate in 2010 and later years until 

the effect of documentation and coding 

improvement is fully offset in the 

payment rates.’’ In setting forward its 

multiyear recommendation to CMS for 

complying with the requirements of 

section 7 of Public Law 110–90, 

MedPAC emphasizes ‘‘minimizing the 

accumulation of overpayments.’’ 

Response: We thank MedPAC for its 

comments and agree that Puerto Rico 

hospitals have had the same financial 

incentives to improve documentation 

and coding as other IPPS hospitals. We 

further agree with MedPAC that it is 

appropriate to focus on minimizing the 

accumulation of overpayments; we 

interpret this statement to mean that 

MedPAC recommends that CMS move 

forward as quickly as possible with 

appropriate prospective adjustments. 

We appreciate MedPAC’s guidance that 

‘‘all hospitals be treated the same,’’ and 

we agree that it is important for our 

payment policy determinations to treat 

various classes of hospitals that are 

similarly situated with respect to the 

ability to adjust their documentation 

and coding practices in as consistent a 

manner as possible. 

Therefore, we are finalizing our 

proposal to apply an adjustment to the 

Puerto Rico specific rate in FY 2011 

using our authority under section 

1886(d)(5)(I)(i) of the Act as proposed 

(that is, a full prospective adjustment). 

We note that our updated data analysis 

shows that this adjustment will be ¥2.6 

percent. We continue to believe that 

such an adjustment is appropriate 

because, as MedPAC found, all hospitals 

have the same financial incentives for 

documentation and coding 

improvements and the same ability to 

benefit from the resulting change in 

case-mix. As we indicated in the 

proposed rule, we will continue, as 

much as possible, consistent with 

sections 7(b)(1) of Public Law 110–90 

and section 1886(d)(5)(I)(i) of the Act, to 

take such consistency and equity into 

account in developing future proposals 

for implementing documentation and 

coding adjustments. 

E. Refinement of the MS–DRG Relative 

Weight Calculation 

1. Background 

In the FY 2009 IPPS final rule (73 FR 

48450), we continued to implement 

significant revisions to Medicare’s 

inpatient hospital rates by completing 

our 3-year transition from charge-based 

relative weights to cost-based relative 

weights. Beginning in FY 2007, we 

implemented relative weights based on 

cost report data instead of based on 

charge information. We had initially 

proposed to develop cost-based relative 

weights using the hospital-specific 

relative value cost center (HSRVcc) 

methodology as recommended by 

MedPAC. However, after considering 

concerns expressed in the public 

comments we received on the proposal, 

we modified MedPAC’s methodology to 

exclude the hospital-specific relative 

weight feature. Instead, we developed 

national CCRs based on distinct hospital 

departments and engaged a contractor to 

evaluate the HSRVcc methodology for 

future consideration. To mitigate 

payment instability due to the adoption 

of cost-based relative weights, we 

decided to transition cost-based weights 

over 3 years by blending them with 

charge-based weights beginning in FY 

2007. (We refer readers to the FY 2007 

IPPS final rule for details on the 

HSRVcc methodology and the 3-year 

transition blend from charge-based 

relative weights to cost-based relative 

weights (71 FR 47882 through 47898).) 

In FY 2008, we adopted severitybased MS–DRGs, which increased the 

number of DRGs from 538 to 745. Many 

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commenters raised concerns as to how 

the transition from charge-based weights 

to cost-based weights would continue 

with the introduction of new MS–DRGs. 

We decided to implement a 2-year 

transition for the MS–DRGs to coincide 

with the remainder of the transition to 

cost-based relative weights. In FY 2008, 

50 percent of the relative weight for 

each DRG was based on the CMS DRG 

relative weight and 50 percent was 

based on the MS–DRG relative weight. 

In FY 2009, the third and final year 

of the transition from charge-based 

weights to cost-based weights, we 

calculated the MS–DRG relative weights 

based on 100 percent of hospital costs. 

We refer readers to the FY 2007 IPPS 

final rule (71 FR 47882) for a more 

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. 

a. Summary of the RTI Study of Charge 

Compression and CCR Refinement 

As we transitioned to cost-based 

relative weights, some public 

commenters raised concerns about 

potential bias in the weights due to 

‘‘charge compression,’’ which is the 

practice of applying a higher percentage 

charge markup over costs to lower cost 

items and services, and a lower 

percentage charge markup over costs to 

higher cost items and services. As a 

result, the cost-based weights would 

undervalue high-cost items and 

overvalue low-cost items if a single CCR 

is applied to items of widely varying 

costs in the same cost center. To address 

this concern, in August 2006, we 

awarded a contract to RTI to study the 

effects of charge compression in 

calculating the relative weights and to 

consider methods to reduce the 

variation in the CCRs across services 

within cost centers. RTI issued an 

interim draft report in January 2007 

with its findings on charge compression 

(which was posted on the CMS Web site 

at: http://www.cms.hhs.gov/reports/

downloads/Dalton.pdf). In that report, 

RTI found that a number of factors 

contribute to charge compression and 

affect the accuracy of the relative 

weights. RTI’s findings demonstrated 

that charge compression exists in 

several CCRs, most notably in the 

Medical Supplies and Equipment CCR. 

In its interim draft report, RTI offered 

a number of recommendations to 

mitigate the effects of charge 

compression, including estimating 

regression-based CCRs to disaggregate 

the Medical Supplies Charged to 

Patients, Drugs Charged to Patients, and 

Radiology cost centers, and adding new 

cost centers to the Medicare cost report, 

such as adding a ‘‘Devices, Implants and 

Prosthetics’’ line under ‘‘Medical 

Supplies Charged to Patients’’ and a ‘‘CT 

Scanning and MRI’’ subscripted line 

under ‘‘Radiology-Diagnostics’’. Despite 

receiving public comments in support of 

the regression-based CCRs as a means to 

immediately resolve the problem of 

charge compression, particularly within 

the Medical Supplies and Equipment 

CCR, we did not adopt RTI’s 

recommendation to create additional 

regression-based CCRs. (For more 

details on RTI’s findings and 

recommendations, we refer readers to 

the FY 2009 IPPS final rule (73 FR 

48452).) RTI subsequently expanded its 

analysis of charge compression beyond 

inpatient services to include a 

reassessment of the regression-based 

CCR models using both outpatient and 

inpatient charge data. This interim 

report was made available in April 2008 

during the public comment period on 

the FY 2009 IPPS proposed rule and can 

be found on RTI’s Web site at: http:// 

www.rti.org/reports/cms/HHSM-500- 

2005-0029I/PDF/Refining_Cost_to_

Charge_Ratios_200804.pdf. The IPPSspecific chapters, which were separately 

displayed in the April 2008 interim 

report, as well as the more recent OPPS 

chapters, were included in the July 3, 

2008 RTI final report entitled, ‘‘Refining 

Cost-to-Charge Ratios for Calculating 

APC [Ambulatory Payment 

Classification] and DRG Relative 

Payment Weights,’’ that became 

available at the time of the development 

of the FY 2009 IPPS final rule. The RTI 

final report can be found on RTI’s Web 

site at: http://www.rti.org/reports/cms/

HHSM-500-2005-0029I/PDF/Refining_

Cost_to_Charge_Ratios_200807_

Final.pdf. 

RTI’s final report found that, under 

the IPPS and the OPPS, accounting 

improvements to the cost reporting data 

reduce some of the sources of 

aggregation bias without having to use 

regression-based adjustments. In 

general, with respect to the regressionbased adjustments, RTI confirmed the 

findings of its March 2007 report that 

regression models are a valid approach 

for diagnosing potential aggregation bias 

within selected services for the IPPS 

and found that regression models are 

equally valid for setting payments under 

the OPPS. 

RTI also noted that cost-based weights 

are only one component of a final 

prospective payment rate. There are 

other rate adjustments (wage index, 

IME, and DSH) to payments derived 

from the revised cost-based weights, and 

the cumulative effect of these 

components may not improve the ability 

of final payment to reflect resource cost. 

RTI endorsed short-term regressionbased adjustments, but also concluded 

that more refined and accurate 

accounting data are the preferred longterm solution to mitigate charge 

compression and related bias in hospital 

cost-based weights. For a more detailed 

summary of RTI’s findings, 

recommendations, and public 

comments we received on the report, we 

refer readers to the FY 2009 IPPS final 

rule (73 FR 48452 through 48453). 

b. Summary of the RAND Corporation 

Study of Alternative Relative Weight 

Methodologies 

One of the reasons that we did not 

implement regression-based CCRs at the 

time of the FY 2008 IPPS final rule with 

comment period was our inability to 

investigate how regression-based CCRs 

would interact with the implementation 

of MS–DRGs. In the FY 2008 final rule 

with comment period (72 FR 47197), we 

stated that we engaged the RAND 

Corporation as the contractor to evaluate 

the HSRV methodology in conjunction 

with regression-based CCRs, and that we 

would consider its analysis as we 

prepared for the FY 2009 IPPS 

rulemaking process. 

RAND evaluated six different 

methods that could be used to establish 

relative weights; CMS’ current relative 

weight methodology of 15 national 

CCRs and 5 alternatives, including a 

method in which the 15 national CCRs 

are disaggregated using the regressionbased methodology, and a method using 

hospital-specific CCRs for the 15 cost 

center groupings. In addition, RAND 

analyzed our standardization 

methodologies that account for 

systematic cost differences across 

hospitals. The purpose of 

standardization is to eliminate 

systematic facility-specific differences 

in cost so that these cost differences do 

not influence the relative weights. 

Overall, RAND found that none of the 

methods it studied of calculating the 

relative weights represented a marked 

improvement in payment accuracy over 

the current method, and there was little 

difference across methods in their 

ability to predict cost at either the 

discharge-level or the hospital-level. In 

their regression analysis, RAND found 

that, after controlling for hospital 

payment factors, the relative weights are 

compressed (that is, understated). 

However, RAND also found that the 

hospital payment factors are overstated 

and increase more rapidly than cost. 

Therefore, while the relative weights are 

compressed, these payment factors 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50075 

offset the compression such that total 

payments to hospitals increase more 

rapidly than hospitals’ costs. 

In the FY 2009 IPPS final rule (73 FR 

48453 through 48457), we provided a 

summary of the RAND report and the 

public comments we received in 

response to the FY 2009 IPPS proposed 

rule. The report may be found on 

RAND’s Web site at: http://www.rand.

org/pubs/working_papers/WR560/. 

2. Proposed and Final Policy Changes 

for FY 2011 and Timeline for Changes 

to the Medicare Cost Report 

In the FY 2009 IPPS final rule (73 FR 

48458 through 48467), in response to 

the RTI’s recommendations concerning 

cost report refinements, and because of 

RAND’s finding that regression-based 

adjustments to the CCRs do not 

significantly improve payment 

accuracy, we discussed our decision to 

pursue changes to the cost report to split 

the cost center for Medical Supplies 

Charged to Patients into one line for 

‘‘Medical Supplies Charged to Patients’’ 

and another line for ‘‘Implantable 

Devices Charged to Patients.’’ We 

acknowledged, as RTI had found, that 

charge compression occurs in several 

cost centers that exist on the Medicare 

cost report. However, as we stated in the 

final rule, we focused on the CCR for 

Medical Supplies and Equipment 

because RTI found that the largest 

impact on the MS–DRG relative weights 

could result from correcting charge 

compression for devices and implants. 

In determining what should be reported 

in these respective cost centers, we 

adopted the commenters’ 

recommendation that hospitals should 

use revenue codes established by AHA’s 

National Uniform Billing Committee to 

determine what should be reported in 

the ‘‘Medical Supplies Charged to 

Patients’’ and the ‘‘Implantable Devices 

Charged to Patients’’ cost centers. 

When we developed the FY 2009 IPPS 

final rule, we considered all of the 

public comments we received both for 

and against adopting regression-based 

CCRs. Also noteworthy is RAND’s belief 

that regression-based CCRs may not 

significantly improve payment 

accuracy, and that it is equally, if not 

more, important to consider revisions to 

the current IPPS hospital payment factor 

standardization method in order to 

improve payment accuracy. For FY 

2010, we solicited comments on 

improving the standardization process, 

although we did not make any changes 

to the standardization process for FY 

2010. We also stated that we continued 

to believe that, ultimately, improved 

and more precise cost reporting is the 

best way to minimize charge 

compression and improve the accuracy 

of the cost weights. Accordingly, a new 

subscripted line 55.30 for Implantable 

Devices Charged to Patients was created 

in July 2009 as part of CMS’ Transmittal 

20 update to the existing cost report 

Form CMS–2552–96. This new 

subscripted cost center is available for 

use for cost reporting periods beginning 

on or after May 1, 2009. 

With respect to the initiative to 

reform, update, and streamline the 

Medicare cost report, which has been 

the subject of many comments and our 

responses in the IPPS (and OPPS) 

Federal Register notices of rulemaking 

over the past several years, CMS is 

continuing to work on this project. The 

new draft hospital cost report Form 

CMS–2552–10 was published in the 

Federal Register on July 2, 2009, and 

was subject to a 60-day review and 

comment period, which ended August 

31, 2009. CMS received numerous 

comments on the draft hospital cost 

report Form CMS–2552–10, specifically 

regarding the creation of new cost 

centers from which data would be 

ultimately used in the relative weights 

calculation. The public comments on 

the July 2, 2009 Federal Register notice 

were incorporated in a Federal Register 

notice that was issued on April 30, 2010 

(75 FR 22810). We now plan to issue the 

final hospital cost report Form CMS– 

2552–10 later this summer. However, in 

part, in the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23878 through 

23880), we provided a summary of the 

public comments received on the July 2, 

2009 notice that specifically related to 

the relative weights and responded to 

those comments. Our responses to the 

comments in the FY 2011 IPPS/LTCH 

PPS proposed rule constituted our 

proposals for FY 2011 regarding the 

relative weights. 

Several commenters asked that CMS 

create cost centers to house the costs of 

magnetic resonance imaging (MRI), 

Computed Tomography (CT), nuclear 

medicine services, cardiac 

catheterization, drugs that require 

detailed coding, and 

magnetoencephalography (MEG). One 

commenter indicated, that in RTI’s July 

2008 report (http://www.rti.org/reports/

cms/), RTI made an argument that CMS 

should create new standard cost centers 

in which hospitals would report the 

costs of MRI scans, CT scans, cardiac 

catheterization, and drugs that require 

detailed coding, in addition to the new 

cost center for ‘‘Implantable Devices 

Charged to Patients.’’ The commenter 

stated that these additional lines are 

needed to distinguish items and services 

that hospitals tend to markup differently 

within existing revenue centers, citing 

RTI’s finding that CT scans have a 

significantly higher markup than most 

other radiology services. The 

commenter indicated that when CMS 

uses the overall radiology department 

CCR to convert charges for CT scans to 

costs, it overestimates the cost of these 

services, resulting in overstated relative 

weights for MS–DRGs under the IPPS 

and for APCs under the OPPS that 

incorporate CT scanning. The 

commenter argued that having a 

separate cost center for each of these 

services would resolve the problem. The 

commenter also stated that, while CMS 

has done something similar with the 

creation of the cost center for high cost 

medical devices, making cost center 

changes for some services, but not 

others, where such changes are 

warranted could create additional 

distortion in the relative weights. The 

commenter further argued that cost 

center changes should be made for all 

service areas with significant volume 

where services with sizable differences 

in markup are currently combined in a 

single cost center. The commenter 

asserted that creating these cost centers 

should not create reporting burden for 

hospitals because the RTI report 

indicated that roughly one-third of the 

hospitals are already reporting costs for 

CT scans, MRI scans, and cardiac 

catheterization under the specific 

nonstandard cost centers currently 

available in the cost report. 

Another commenter also 

recommended the creation of the cost 

centers for CT scans, MRI scans, and 

nuclear medicine services, but for 

different reasons than the first 

commenter. Specifically, this 

commenter believed these new cost 

centers are necessary in order for the 

high capital costs to be appropriately 

allocated to these services and to be 

correctly reflected in the CCRs that are 

used in the establishment of the MS– 

DRG and APC payment rates for the 

services. The commenter stated that, 

under the existing cost report structure, 

some providers are allocating high 

capital costs for these services in a 

single radiology line, diluting the high 

capital costs associated with CT scans, 

MRI scans, and nuclear medicine 

services across all radiology services, 

including low cost services. Therefore, 

the commenter concluded that the 

resulting radiology CCRs that CMS 

applies to charges for CT scans, MRI 

scans, and nuclear medicine services to 

arrive at the relative costs used to set 

payment rates for both the IPPS and 

OPPS understate the cost of high cost 

radiology services and overstate the cost 

of low cost radiology services, resulting 

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in payments that are too low for the 

high cost services. The commenter 

indicated that CMS should not only 

create these new cost centers but should 

also require all hospitals to use them, 

and should issue explicit instructions 

on how to report the costs of these 

services in the new standard cost 

centers. 

We agree that it is appropriate to 

create standard cost centers for CT 

scans, MRI scans, and cardiac 

catheterization and to require that 

hospitals report the costs and charges 

for these services under new cost 

centers on the revised Medicare cost 

report Form CMS 2552–10. As we 

discussed in the FY 2009 IPPS and CY 

2009 OPPS proposed and final rules, 

RTI found that the costs and charges of 

CT scans, MRI scans, and cardiac 

catheterization differ significantly from 

the costs and charges of other services 

included in the standard associated cost 

center. RTI also concluded that both the 

IPPS and OPPS relative weights would 

better estimate the costs of those 

services if CMS were to add standard 

costs centers for CT scanning, MRIs, and 

cardiac catheterization in order for 

hospitals to report separately the costs 

and charges for those services and in 

order for CMS to calculate unique CCRs 

to estimate the cost from charges on 

claims data. 

In its analysis, RTI concluded that the 

estimated costs for CT scanning and 

MRI scans would decline significantly 

and that the estimated cost for cardiac 

catheterization would increase modestly 

if specific standard cost centers were 

used. RTI found that cardiac 

catheterization has very different cost 

inputs from most cardiac testing (for 

example, electrocardiograms or cardiac 

stress testing) captured in the 5300 

‘‘Electrocardiology’’ cost center and that 

the accuracy of the CCR for both types 

of services, cardiac catheterization and 

other cardiac testing, would improve 

with creation of a standard cost center 

for cardiac catheterization. RTI also 

found that one-third of hospitals already 

report cardiac catheterization costs and 

charges separately through the available 

nonstandard cost center or through 

subscripted lines to the 

‘‘Electrocardiology’’ cost center. 

Similarly, RTI found that approximately 

one-third of hospitals already separately 

report the costs for CT scanning and 

MRI scans on their Medicare cost report 

through subscripted lines and the 

available nonstandard cost centers. We 

believe the current prevalence of 

reporting for the nonstandard cost 

centers for these three services suggests 

a modest hospital burden required to 

adopt these cost centers. 

We discussed the possibility of 

creating standard cost centers for these 

three different services in our CY 2009 

OPPS proposed and final rule with 

comment period (73 FR 41432 and 73 

FR 68525) and solicited general 

comments on RTI’s recommendations. 

The commenters who objected to the 

creation of the standard cost centers for 

CT scanning and MRI scans largely did 

so based on RTI projected lower 

estimated costs for these services if CMS 

created these cost centers. The 

commenters suggested that the current 

CCRs for advanced imaging may reflect 

a misallocation of capital costs and 

requested that CMS not adopt separate 

cost centers or statistical adjustment 

simulating lower CCRs for CT scanning 

and MRI until CMS could understand 

how providers are allocating the 

extensive capital costs for these services 

to the revenue producing cost centers. 

We also received comments suggesting 

that the accuracy of estimated costs 

would improve with better allocation, 

potentially increasing the CCR as more 

capital cost would be appropriately 

allocated to both CT scanning and MRI 

and not spread across all services in the 

radiology cost center. We noted in the 

CY 2009 OPPS/ASC final rule with 

comment period (73 FR 68525) that our 

recommended allocation of moveable 

equipment costs in Worksheet B of the 

Medicare cost report is based on dollar 

value, and that it would be important to 

encourage improved accuracy of capital 

allocation through dollar value or direct 

assignment if we were to make these 

cost centers standard cost centers. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23879), we stated 

that, at that time, we did not know the 

impact on CCRs and estimated costs of 

adopting standard cost centers specific 

to CT scanning and MRI. However, we 

stated our belief that these areas 

constitute significant payment under 

both the IPPS and OPPS and that these 

are common imaging services already 

widely reported by hospitals. Therefore, 

in the proposed rule, we proposed to 

adopt new standard cost centers for CT 

scanning and MRI. We agreed with 

those commenters who asserted that 

creation of standard cost centers for CT 

scanning and MRI would improve the 

accuracy of cost estimation for these 

services, in part by creating incentives 

for hospitals to more accurately allocate 

the capital and equipment associated 

with these services. 

With regard to cardiac catheterization, 

we received one comment on the CY 

2009 OPPS/ASC proposed rule 

suggesting that hospitals might find it 

difficult to allocate costs for these 

services to specific cost centers, 

especially for cardiac catheterization, 

and that allocated overhead costs 

would, in most cases, be an estimate (73 

FR 68527). However, given the number 

of hospitals already reporting the 

nonstandard cost center for cardiac 

catheterization and the number 

subscripting these costs and charges 

(approximately 50 percent, according to 

RTI’s July 2008 report (pages 71 and 72) 

at: http://www.rti.org/reports/cms/

HHSM-500-2005-0029I/PDF/Refining_

Cost_to_Charge_Ratios_200807

_Final.pdf), we believe that hospitals do 

allocate overhead costs to a cardiac 

catheterization-specific cost center. 

We also received public comments on 

the cost report notice urging us to create 

standard cost centers for nuclear 

medicine services, for drugs that require 

detailed coding, and for MEG. In the 

proposed rule, we indicated that we 

continue to believe that it is not 

appropriate to create standard cost 

centers for these three services. The 

Medicare cost report already contains 

standard cost center 4300 (Radioisotope) 

to capture the costs and charges for the 

radioisotopes used in nuclear medicine 

services, the items that may have 

significantly different costs and hospital 

markup than the supplies and 

equipment used in other radiology 

services. Moreover, the cost report 

already contains standard cost center 

4100 (Diagnostic Radiology) in which 

the costs of staff, minor equipment, and 

supplies for diagnostic nuclear 

medicine services can be reported. 

Major moveable equipment should be 

allocated to this cost center on 

Worksheet B unless the provider 

received approval from its contractor for 

direct assignment of the costs (Provider 

Reimbursement Manual (PRM), Part I, 

Section 2307). Therefore, we continue to 

believe that creating a new standard cost 

center for nuclear medicine services is 

not necessary. We also continue to 

believe that it is not appropriate to 

create a standard cost center for drugs 

that require detailed coding. We refer 

readers to the CY 2009 OPPS/ASC final 

rule with comment period (73 FR 

68655) for a detailed discussion on our 

final decision not to create this cost 

center. Finally, with respect to MEG 

services, the extremely low volume of 

claims for MEG services furnished to 

Medicare beneficiaries in the hospital 

outpatient setting and the extremely low 

number of hospitals that report these 

codes relative to the volumes we 

typically have considered in adding 

both standard and nonstandard cost 

centers to the cost report lead us to 

conclude that a specific cost center for 

MEG is not justified at this time. 

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Comment: Commenters both 

supported and opposed our proposal to 

establish standard cost centers for the 

reporting of costs for CT scanning and 

for MRI. Some commenters supported 

the proposal because they agree with 

RTI’s finding that there is aggregation 

bias in the radiology cost centers. RTI 

found that CT and MRI scans have a 

significantly higher markup in their 

respective nonstandard cost centers or 

subscripted standard cost center lines 

than most other radiology services. The 

commenters indicated that when CMS 

uses the overall radiology department 

CCR that ‘‘ignores’’ costs and charges 

reported in the CT and MRI 

nonstandard cost centers and other 

subscripted cost centers to convert 

charges to costs for CT and MRI scans, 

it overestimates the cost of these 

services, resulting in overstated relative 

weights for MS–DRGs under the IPPS 

and for APCs under the OPPS that 

incorporate CT scanning. These 

commenters believed that the creation 

of standard cost centers for CT scanning 

and MRI services will result in more 

accurate estimation of the cost of these 

services. 

Some commenters who objected to 

the proposal believed that it is 

premature to establish these new 

standard cost centers without 

understanding the payment 

implications of these changes on both 

IPPS relative weights and OPPS 

payments. The commenters were 

concerned that adoption of these cost 

centers would result in very low CCRs 

for these services, as already observed in 

the nonstandard cost centers and 

estimated by RTI in its July 2008 report. 

Some commenters stated that if the 

proposal were finalized, they believe 

that a chest CT scan would be paid at 

the same level as a routine chest X-ray 

under the OPPS. Commenters also were 

concerned that estimating costs on 

claims data using CCRs based on cost 

and charge data from standard cost 

centers for CT scanning and MRI 

services would adversely impact 

payment for the technical component of 

imaging services paid under the 

Medicare Physician Fee Schedule 

(MPFS), which is capped at the level 

paid under the OPPS fee schedule. 

Commenters suggested that CMS 

examine all the costs incorporated into 

CT scans and MRI services before 

accepting very low CCRs for these 

services. Some commenters suggested 

that CMS should analyze the CCR 

methodology by performing specific 

procedure cost comparisons of low 

value versus high value diagnostic 

imaging equipment for both inpatient 

and outpatient settings to ensure that 

the CCRs accurately reflect the cost of 

capital equipment used in the procedure 

cost. 

Response: After consideration of these 

comments, we continue to believe that 

the creation of standard cost centers for 

CT scanning and MRI services is 

necessary because of the potentially 

significant improvement in the accuracy 

of estimated costs, as recommended by 

RTI. We understand the commenters’ 

concerns that the final CCRs for CT 

scans and MRI maybe low in light of 

current cost report data findings and 

that this may result in lower payment 

for CT scans and MRI services. We do 

not believe that we can assess whether 

inappropriate payments would result 

with our current data and, for that 

reason, we believe that we should 

collect standard cost center cost and 

charge data for these areas, using those 

data to assess the resulting CCRs 

specific to CT scanning and MRI 

services as a means of eliminating 

aggregation bias for these and other 

radiology services in the IPPS and 

OPPS. Therefore, we are establishing 

standard cost centers for CT scanning 

and MRI services in hospital cost 

reports for cost report periods beginning 

on or after May 1, 2010. We believe that 

establishing these standard cost centers 

is necessary to improving the accuracy 

of estimating costs for imaging services 

and will allow us to perform the impact 

assessment that some commenters want 

us to do. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23880), we also 

noted that there is typically a 3-year lag 

between the availability of the cost 

report data that we use to calculate the 

relative weights both under the IPPS 

and the OPPS and a given fiscal or 

calendar year, and therefore, the data 

from the proposed standard cost centers 

for CT scans, MRI, and cardiac 

catheterization respectively, should they 

be finalized, would not even be 

available for possible use in calculating 

the relative weights earlier than 3 years 

after Form CMS–2552–10 becomes 

available. We stated that at that time, we 

would analyze the data and determine 

if it is appropriate to use those data to 

create distinct CCRs from these cost 

centers for use in the relative weights 

for the respective payment systems. 

Therefore, we wish to reassure the 

commenters that there is no need for 

immediate concern regarding possible 

negative payment impacts on MRI and 

CT scans under the IPPS and OPPS 

because the cost report data that would 

be used for the calculation of the 

relative weights is at least 3 years from 

being available. We will first thoroughly 

analyze and run impacts on the data and 

provide the public with the opportunity 

to comment, as usual, before distinct 

CCRs for MRI and CT scans would be 

finalized for use in the calculation of the 

relative weights. Our decision to finalize 

our proposal regarding cost centers for 

these services is only the first step to a 

longer process during which we will 

continue to consider public comment. 

In this final rule, we are finalizing our 

proposal to create standard cost centers 

for MRI and CT scans on the new 

Medicare cost report Form CMS–2552– 

10, and urge all hospitals to properly 

report their costs and charges for MRI, 

CT scans, and all other services so that, 

in several years’ time, we will have 

reliable data from all hospitals on which 

to base a decision as to whether to 

incorporate additional CCRs into the 

relative weight calculation. We note that 

the impact on physician payment for the 

technical component of these services 

that results from changes to payment to 

hospitals is not within scope of the 

proposed rule. 

Comment: Some commenters stated 

that the current reporting of the high 

cost of CT and MRI equipment results 

in inaccurate estimates of the cost of 

these services. Specifically, they 

asserted that some hospitals consider 

CT and MRI equipment costs to be 

capital costs, which are spread across 

various cost centers based on square 

footage or another allocation 

methodology, resulting in an 

underallocation of capital costs to the 

radiology department and CT and MRI 

nonstandard cost centers and 

inappropriately low CCRs for these 

services. In addition, the commenters 

believed that some hospitals report CT 

and MRI equipment costs as part of 

hospital fixtures and not as moveable 

equipment, allocating their direct 

capital costs across the whole hospital, 

rather than to the radiology cost center. 

One commenter stated the revised 

Medicare cost report Form 2552–10 

recommended using a simplified cost 

allocation methodology where movable 

equipment is allocated on a square 

footage basis, which appeared contrary 

to the IPPS proposed rule that discussed 

that a dollar value could be used as the 

statistical basis for cost allocation. 

Finally, some commenters stated that 

hospitals do not have an incentive to 

report these costs accurately in 

disaggregated cost centers, given the 

time and resources to do the cost 

allocation. They believed that hospitals 

have a modest incentive to spread their 

capital cost across all services rather 

than allocating imaging equipment costs 

in the imaging cost centers. One 

commenter argued that because many 

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non-Medicare third party payers 

continue to pay hospitals on the basis of 

a percentage of charges and, to the 

extent that specific allocation of 

equipment and other capital costs to 

MRI and CT scans reduces the charges 

for other services, hospital may have a 

financial disincentive to specifically 

allocate those costs. The commenter 

also pointed out that, in some States, 

cost reporting practices are required to 

conform to State regulatory 

requirements, which may be 

inconsistent with specific allocation of 

capital costs. 

Response: Section 104 of the PRM–1 

contains definitions of buildings 

(section 104.2), building equipment 

(section 104.3), major moveable 

equipment (section 104.4), and minor 

equipment (section 104.5) that apply for 

purposes of cost report completion. We 

believe that it is clear that CT and MRI 

equipment are ‘‘major moveable 

equipment’’ and are neither a building 

cost nor a building equipment cost. 

Specifically, section 104.4 of the PRM– 

1 defines ‘‘major moveable equipment’’ 

as follows: ‘‘The general characteristics 

of this equipment are: (a) A relatively 

fixed location in the building; (b) 

capable of being moved, as 

distinguished from building equipment; 

(c) a unit cost sufficient to justify ledger 

control; (d) sufficient size and identity 

to make control feasible by means of 

identification tags; and (e) a minimum 

life of approximately three years. Major 

moveable equipment includes such 

items as accounting machines, beds, 

wheelchairs, desks, vehicles, x-ray 

machines, etc.’’ In addition to this 

longstanding instruction, we believe 

that our view that CT scanning and MRI 

equipment are major moveable 

equipment is supported by the 2008 

edition of ‘‘Estimated Useful Lives of 

Depreciable Hospital Assets,’’ which 

states that the estimated useful life of a 

CT scanner is 5 years, an MRI is 5 years, 

and an X-ray unit is 7 years. Therefore, 

we believe that our longstanding policy 

makes it clear that CT scanning and MRI 

equipment is major moveable 

equipment and should be reported as 

such on the cost report. As major 

moveable equipment, the costs should 

be reported together with the rest of the 

hospital’s major moveable equipment 

cost in the ‘‘Capital Related Cost— 

Moveable Equipment’’ cost center(s) on 

Worksheet A (lines 2 and 4). The costs 

in this cost center are allocated to all the 

hospital’s cost centers that use major 

moveable equipment (including CT and 

MRI) using ‘‘dollar value’’ or ‘‘square 

feet’’ if the provider obtained the 

contractor’s approval under Provider 

Reimbursement Manual, Part II (PRM– 

II), Section 3617, to use the simplified 

cost allocation methodology. However, a 

hospital that is concerned that this 

method of allocation may result in 

inaccurate CCRs (on Worksheet C, Part 

I) for the CT scan, MRI, and other 

ancillary cost centers may request 

contractor approval under section 2307 

of the PRM–I to directly assign the cost 

of moveable equipment to all of the 

hospital’s cost centers that use moveable 

equipment, including CT scans and 

MRI. If the hospital meets all of the 

criteria in section 2307 of the PRM–I, 

the contractor may approve the direct 

assignment method. This would ensure 

that the high cost of the CT scanning 

and MRI equipment would be reflected 

in the CCR that would be calculated for 

those departments and that would be 

used to estimate the cost of CT scanning 

and MRI services. In any case, hospitals 

with accounting systems that include 

the cost of CT scanning and MRI 

equipment in the ‘‘Capital Related 

Costs—Building and Fixtures’’ cost 

center should correct their cost 

reporting practices to come into 

compliance with CMS longstanding 

policy in this regard. Reporting of costs 

and charges on the Medicare cost report 

must be compliant with Medicare cost 

reporting principles, regardless of 

differing payment structures and 

incentives of other payers or State 

reporting requirements. 

Comment: Commenters raised 

concerns about rural hospitals being 

unable to accurately report costs in CT 

scanning, MRI and cardiac 

catheterization cost centers. One 

commenter noted that rural hospitals, 

like CAHs, provide some of these 

radiology services internally or through 

arrangement, and that it is difficult for 

them to track the costs for these cost 

centers. The commenter requested that 

CAHs be exempt from the requirement 

to report their costs in the proposed 

standard cost centers. Other 

commenters noted that the proposed 

creation of a standard cardiac 

catheterization cost center would pose a 

significant burden to hospitals to change 

their cost reporting to allocate costs to 

this cost center. In particular, they 

stated that smaller hospitals may have 

fewer resources to be able to separate 

their costs and charges for these cost 

centers, which would pose a significant 

burden. The commenters indicated that, 

for example, while revenue code 481 

‘‘Cardiology-Catheterization Lab’’ 

contains cardiac catheterization charges, 

there are some revenue codes that 

contain other charges for cardiac 

catheterization, like revenue codes 360 

and 361, ‘‘Operating Room-General’’ and 

‘‘Operating Room-Minor,’’ respectively. 

Response: As we stated in the CY 

2009 OPPS final rule (73 FR 68522), 

with regard to creation of new cost 

centers, hospitals that do not currently 

maintain distinct departments or 

accounts in their internal accounting 

systems for CT scanning, MRI, or 

cardiac catheterization are not required 

to create distinct departments or 

accounts. We do not expect additional 

burden for reporting under these new 

standard cost centers to be significant 

because hospitals that provide these 

services and maintain a separate 

account for these services in their 

internal accounting records to capture 

the costs and charges are currently 

required in accordance with 

§ 413.53(a)(1) to report these cost 

centers in the cost report, even if CMS 

does not identify a cost center code for 

the department(s). Specifically, under 

those regulations defining the 

departmental method of cost 

apportionment, the hospital must 

separately apportion the cost of each 

ancillary department. CMS defines a 

cost center in PRM–I, Section 2302.8, as 

an organizational unit, generally a 

department or its subunit, having a 

common functional purpose for which 

direct and indirect costs are 

accumulated, allocated, and 

apportioned. With respect to the 

comments regarding the revenue codes 

for cardiac catheterization, if the 

hospital operates a separate department 

for cardiac catheterization and 

maintains a separate General Ledger 

account for this department, the 

hospital would be expected to report the 

costs and charges in the new cardiac 

catheterization standard cost center and 

ensure that the charges are billed under 

appropriate UB revenue codes. 

Comment: Some commenters 

supported the proposal to create a 

standard cost center for cardiac 

catheterization services. However, some 

commenters objected to the proposal to 

create a standard cost center for Cardiac 

Catheterization. Some commenters were 

uncertain whether it would have a 

significant impact on charge 

compression and believed that it may 

not be necessary to secure more accurate 

estimated costs. Commenters were 

concerned that RTI’s analysis of charge 

compression in the cardiology cost 

centers may be flawed; when RTI 

analyzed the costs and charges included 

in the current nonstandard cardiac 

catheterization cost center, RTI 

hypothesized that the nonstandard 

cardiac catheterization cost center 

contains costs from services that were 

not cardiac catheterization. As such, 

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commenters believed that hospitals may 

not be reporting their costs 

appropriately for this cost center. 

Response: We continue to believe that 

it is appropriate to create a standard cost 

center to capture the cost and charges of 

cardiac catheterization services in 

hospitals that maintain the cost of such 

services in distinct departments or 

accounts, and that standardizing where 

hospitals report their costs and charges 

for cardiac catheterization will improve 

the estimation of the cost of this high 

volume Medicare service for both the 

IPPS and the OPPS. Moreover, once the 

information from a standard cardiac 

catheterization cost center is available, 

we will carefully evaluate the effect on 

the CCRs that are derived from these 

data and will make the decision 

regarding whether to implement the 

resulting CCRs, as usual, through our 

public Federal Register proposed and 

final notice process. However, in this 

final rule, we are finalizing our proposal 

to add a standard cost center to the cost 

report for cardiac catheterization. 

Comment: Commenters opposed a 

regression-based approach for 

addressing charge compression in the 

relative weights where CMS would use 

regression-based CCRs in the relative 

weights methodology. The commenters 

preferred more accurate and uniform 

cost reporting, to mitigate charge 

compression in the cost-based relative 

weights. 

Response: We agree that more 

accurate cost reporting is a better means 

of mitigating charge compression than 

applying regression-based adjustments 

and, for this reason, have proposed to 

create certain cost centers that we 

believe will ultimately result in more 

refined CCRs, thereby leading to better 

estimates of hospital cost for MRI, CT 

scanning, and cardiac catheterization 

services about which the public has 

repeatedly raised concerns due to the 

hospital practice of setting charges for 

low cost services at a much higher 

percentage of cost than the percentage 

by which the charge for high cost 

services exceeds the cost of those 

services. 

Comment: One commenter stated that 

CMS should work closely with the 

hospital industry for comprehensive 

cost report reform rather than have 

piecemeal changes to the cost report. 

The commenter believed that CMS’ 

collaboration with the industry would 

promote cost report simplification. 

Response: We have just completed a 

major redesign of the hospital cost 

report in which the public had multiple 

opportunities to provide input to the 

specific proposed revisions. However, 

that larger redesign, reassessment, and 

revision effort does not negate the need 

to make additional targeted changes as 

appropriate to resolve particular 

identified problems, such as aggregation 

bias in the payment for devices, CT 

scanning, MRI services and cardiac 

catheterization. As discussed above, the 

proposal to create standard cost centers 

for CT scanning, MRI services and 

cardiac catheterization evolved from the 

findings of the RTI report of aggregation 

bias in the payment of several types of 

services paid under the IPPS and OPPS, 

including, but not limited to, high cost 

medical devices for which CMS created 

a standard cost center for cost report 

periods beginning on and after May 1, 

2009. We believe that the creation of 

standard cost centers for CT scanning, 

MRI services, and cardiac 

catheterization is both appropriate and 

that CMS has provided numerous 

opportunities for public input. 

Comment: One commenter 

recommended that CMS issue explicit, 

unambiguous guidance to hospitals on 

how to improve allocation of large 

capital costs to the radiology cost center. 

The commenter noted that the draft 

Medicare cost report Form 2552–10 did 

not provide any mandatory reporting 

guidance to hospitals on how to 

improve the accuracy of cost allocation 

for imaging equipment. 

Response: We believe that the current 

instructions on allocation of the cost of 

major moveable equipment needed to 

provide CT scans, MRIs, and other 

radiology services are clear. We refer 

readers to the regulations at 42 CFR 

413.24(b) and 413.24(f) and CMS 

instructions in Sections 2304 through 

2320 of the PRM–I and Sections 3617 

and 3618 of the PRM–II. 

Comment: One commenter raised a 

number of concerns about what CT and 

MRI information hospitals should report 

in these cost centers. Those concerns 

include whether equipment installation 

or de-installation or equipment 

maintenance costs are reported in this 

cost center and whether costs associated 

with supplies related to MRI and CT 

equipment (like diagnostic contrast 

agents) are reported in this cost center. 

The commenter speculated whether 

each new item of advanced diagnostic 

equipment warranted a new cost center. 

The commenter requested that CMS 

provide guidance to the hospital 

industry on what types of costs should 

be reported in these cost centers. 

Response: As with any other ancillary 

cost center, the providers would report 

the direct cost accumulated in the CT 

scanning or MRI departmental accounts 

that are reflected in the general ledger 

working trial balance. 

Comment: One commenter 

recommended that CMS work with the 

Medicare contractors to simplify the 

cost allocation process, which the 

commenter found to be lengthy and 

burdensome. The commenter stated that 

if hospitals want to change the order of 

allocation or their allocation statistics, 

they must make a written request to 

their fiscal intermediary or MAC 90 

days prior to the end of the cost 

reporting period. The commenter stated 

that the hospital must demonstrate that 

the change more accurately allocates 

costs and provide supporting 

documentation. The fiscal intermediary 

or MAC has 60 days to decide whether 

or not to approve or deny the request, 

while the provider must maintain both 

sets of cost allocation statistics in the 

meantime. The commenter requested 

that CMS simplify this process. 

Response: We believe that the current 

process provides Medicare contractors 

with the minimum time needed to 

evaluate a contractor request to change 

the order of allocation or their allocation 

statistics, given the importance of the 

decision and the need for the contractor 

to assess whether the change would 

result in a more valid determination of 

hospital costs. 

Comment: Commenters encouraged 

CMS to ensure that hospitals are 

appropriately allocating costs to the 

Implantable Devices Charged to Patients 

cost center, which was a standard cost 

center that we added for cost report 

periods beginning on and after May 1, 

2009, as a result of the findings of the 

RTI report that there is aggregation bias 

in our estimates of the cost of expensive 

medical devices. 

Response: Hospitals are expected to 

comply with our regulations at 42 CFR 

413.24(b)(1) and 413.24(f) and to follow 

the instructions in Sections 2304 

through 2320 of the PRM–I and Sections 

3617 and 3618 of the PRM–II, as well as 

all other related instructions when 

allocating cost to the Implantable 

Devices Charged to Patients cost center. 

Medicare contractors review how 

hospitals allocate costs on the Medicare 

cost report for all cost centers, including 

the Implantable Devices Charged to 

Patients cost center, in accordance with 

their audit plans. 

Comment: One commenter opposed 

the HSRV methodology for 

standardization of the relative weights. 

The commenter found this methodology 

to be inappropriate in a cost-based 

relative weight methodology and only 

appropriate for removing the effects of 

different markup practices in a chargebased relative weight methodology. 

Response: We appreciate the 

comment but note that we did not 

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50080 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

propose any changes with respect to the 

HSRV methodology for standardizing 

the relative weights. 

In summary, we are establishing 

standard cost centers for CT scanning, 

MRI services, and cardiac 

catheterization in hospital cost reports 

for cost report periods beginning on or 

after May 1, 2010. 

F. Preventable Hospital-Acquired 

Conditions (HACs), Including Infections 

1. Background 

a. Statutory Authority 

Section 1886(d)(4)(D) of the Act 

addresses certain hospital-acquired 

conditions (HACs), including infections. 

Section 1886(d)(4)(D) of the Act 

specifies that by October 1, 2007, the 

Secretary was required to select, in 

consultation with the Centers for 

Disease Control and Prevention (CDC), 

at least two conditions that: (a) Are high 

cost, high volume, or both; (b) are 

assigned to a higher paying MS–DRG 

when present as a secondary diagnosis 

(that is, conditions under the MS–DRG 

system that are CCs or MCCs); and (c) 

could reasonably have been prevented 

through the application of evidencebased guidelines. Section 1886(d)(4)(D) 

of the Act also specifies that the list of 

conditions may be revised, again in 

consultation with CDC, from time to 

time as long as the list contains at least 

two conditions. 

Section 1886(d)(4)(D)(iii) of the Act 

requires that hospitals, effective with 

discharges occurring on or after October 

1, 2007, submit information on 

Medicare claims specifying whether 

diagnoses were present on admission 

(POA). Section 1886(d)(4)(D)(i) of the 

Act specifies that effective for 

discharges occurring on or after October 

1, 2008, Medicare no longer assigns an 

inpatient hospital discharge to a higher 

paying MS–DRG if a selected condition 

is not POA. Thus, if a selected condition 

that was not POA manifests during the 

hospital stay, it is considered a HAC 

and the case is paid as though the 

secondary diagnosis was not present. 

However, even if a HAC manifests 

during the hospital stay, if any 

nonselected CC/MCC appears on the 

claim, the claim will be paid at the 

higher MS–DRG rate. Under the HAC 

payment policy, all CCs/MCCs on the 

claim must be HACs in order to generate 

a lower MS–DRG payment. In addition, 

Medicare continues to assign a 

discharge to a higher paying MS–DRG if 

a selected condition is POA. 

The POA indicator reporting 

requirement and the HAC payment 

provision apply to IPPS hospitals only. 

Non-IPPS hospitals, including CAHs, 

LTCHs, IRFs, IPFs, cancer hospitals, 

children’s hospitals, hospitals in 

Maryland operating under waivers, rural 

health clinics, federally qualified health 

centers, RNHCIs, and Department of 

Veterans Affairs/Department of Defense 

hospitals, are exempt from POA 

reporting and the HAC payment 

provision. Throughout this section, the 

term ‘‘hospital’’ refers to an IPPS 

hospital. 

The HAC provision found in section 

1886(d)(4)(D) of the Act is part of an 

array of Medicare value-based 

purchasing (VBP) tools that we are using 

to promote increased quality and 

efficiency of care. Those tools include 

measuring performance, using payment 

incentives, publicly reporting 

performance results, applying national 

and local coverage policy decisions, 

enforcing conditions of participation, 

and providing direct support for 

providers through Quality Improvement 

Organization (QIO) activities. The 

application of VBP tools, such as this 

HAC provision, is transforming 

Medicare from a passive payer to an 

active purchaser of higher value health 

care services. We are applying these 

strategies for inpatient hospital care and 

across the continuum of care for 

Medicare beneficiaries. 

These VBP tools are highly 

compatible with the underlying 

purposes as well as existing structural 

features of Medicare’s IPPS. Under the 

IPPS, hospitals are encouraged to treat 

patients efficiently because they receive 

the same DRG payment for stays that 

vary in length and in the services 

provided, which gives hospitals an 

incentive to avoid unnecessary costs in 

the delivery of care. In some cases, 

conditions acquired in the hospital do 

not generate higher payments than the 

hospital would otherwise receive for 

cases without these conditions. To this 

extent, the IPPS encourages hospitals to 

avoid complications. 

However, the treatment of certain 

conditions can generate higher Medicare 

payments in two ways. First, if a 

hospital incurs exceptionally high costs 

treating a patient, the hospital stay may 

generate an outlier payment. Because 

the outlier payment methodology 

requires that hospitals experience large 

losses on outlier cases before outlier 

payments are made, hospitals have an 

incentive to prevent outliers. Second, 

under the MS–DRGs system that took 

effect in FY 2008 and that has been 

refined through rulemaking in 

subsequent years, certain conditions can 

generate higher payments even if the 

outlier payment requirements are not 

met. Under the MS–DRG system, there 

are currently 259 sets of MS–DRGs that 

are split into 2 or 3 subgroups based on 

the presence or absence of a CC or an 

MCC. The presence of a CC or an MCC 

generally results in a higher payment. 

However, since we implemented the 

HAC provisions, if a secondary 

diagnosis acquired during a hospital 

stay is a HAC and no other CCs or MCCs 

are present, the hospital receives a 

payment under the MS–DRGs as if the 

HACs were not present. (We refer 

readers to section II.D. of the FY 2008 

IPPS final rule with comment period for 

a discussion of DRG reforms (72 FR 

47141).) 

b. HAC Selection 

Beginning in FY 2007, we have 

proposed, solicited, and responded to 

public comments and have 

implemented section 1886(d)(4)(D) of 

the Act through the IPPS annual 

rulemaking process. For specific 

policies addressed in each rulemaking 

cycle, we direct readers to the following 

publications: the FY 2007 IPPS 

proposed rule (71 FR 24100) and final 

rule (71 FR 48051 through 48053); the 

FY 2008 IPPS proposed rule (72 FR 

24716 through 24726) and final rule 

with comment period (72 FR 47200 

through 47218); the FY 2009 IPPS 

proposed rule (73 FR 23547), and final 

rule (73 FR 48471); and the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24106) and final rule (74 FR 

43782). A complete list of the 10 current 

categories of HACs is included in 

section II.F.2. of this preamble. 

In the FY 2011 IPPS/LTCH proposed 

rule (75 FR 23880 through 23898), we 

did not propose any additional HACs or 

changes to policies already established 

under the authority of section 

1886(d)(4)(D) of the Act. 

c. Collaborative Process 

As noted in the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 23881), in 

establishing the HAC payment policy 

under section 1886(d)(4)(D) of the Act, 

our experts have worked closely with 

public health and infectious disease 

professionals from across the 

Department of Health and Human 

Services, including CDC, the Agency for 

Healthcare Research and Quality 

(AHRQ), and the Office of Public Health 

and Science (OPHS), to identify the 

candidate preventable HACs, review 

comments, and select HACs. CMS and 

CDC have also collaborated on the 

process for hospitals to submit a POA 

indicator for each diagnosis listed on 

IPPS hospital Medicare claims and on 

the payment implications of the various 

POA reporting options. As discussed 

below, we have also used rulemaking 

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and Listening Sessions to obtain public 

input. 

d. Application of HAC Payment Policy 

to MS–DRG Classifications 

As described above, in certain cases 

application of the HAC payment policy 

provisions can result in MS–DRG 

reassignment to a lower paying MS– 

DRG. The following diagram portrays 

the logic of the HAC payment policy 

provision as adopted in the FY 2008 

IPPS final rule with comment period (72 

FR 47200) and in the FY 2009 IPPS final 

rule (73 FR 48471): 

e. Public Input Regarding Selected and 

Potential Candidate HACs 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23880 through 

23898), we did not propose to add or 

remove categories of HACs, nor did we 

propose any changes to previously 

established policies. 

Given the timeliness of the HAC 

discussion, particularly when 

considered within the context of recent 

legislative health care reform initiatives, 

however, we remain eager to engage in 

an ongoing public dialogue about the 

various aspects of this policy. We plan 

to continue to include updates and 

findings from the RTI evaluation on 

CMS’ Hospital-Acquired Conditions and 

Present on Admission Indicator Web 

site available at: http:// 

www.cms.hhs.gov/HospitalAcqCond/. 

f. POA Indicator Reporting 

Collection of POA indicator data is 

necessary to identify which conditions 

were acquired during hospitalization for 

the HAC payment provision as well as 

for broader public health uses of 

Medicare data. In the FY 2011 IPPS/ 

LTCH PPS proposed rule, we listed the 

instructions and change requests that 

were issued to IPPS hospitals and also 

to non-IPPS hospitals regarding the 

submission of POA indicator data for all 

diagnosis codes on Medicare claims and 

the processing of non-PPS claims (75 FR 

23381) We also indicated that specific 

instructions on how to select the correct 

POA indicator for each diagnosis code 

were included in the ICD–9–CM Official 

Guidelines for Coding and Reporting, 

available on the CDC Web site at: 

http://www.cdc.gov/nchs/data/icd9/

icdguide09.pdf. We reiterate that 

additional information regarding POA 

indicator reporting and application of 

the POA reporting options is available 

on the CMS Web site at: http://www.

cms.hhs.gov/HospitalAcqCond 

although, historically we have not 

provided coding advice. Rather, we 

collaborate with the American Hospital 

Association (AHA) through the Coding 

Clinic for ICD–9–CM. We continue to 

collaborate with the AHA to promote 

the Coding Clinic for ICD–9–CM as the 

source for coding advice about the POA 

indicator. 

As discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23882) 

as well as in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43784), 

there are five POA indicator reporting 

options, as defined by the ICD–9–CM 

Official Guidelines for Coding and 

Reporting: 

Indicator Descriptor 

Y ........................ Indicates that the condition was present on admission. 

W ....................... Affirms that the hospital has determined that, based on data and clinical judgment, it is not possible to document when the 

onset of the condition occurred. 

N ........................ Indicates that the condition was not present on admission. 

U ........................ Indicates that the documentation is insufficient to determine if the condition was present at the time of admission. 

1 ......................... Signifies exemption from POA reporting. CMS established this code as a workaround to blank reporting on the electronic 

4010A1. A list of exempt ICD–9–CM diagnosis codes is available in the ICD–9–CM Official Guidelines for Coding and Reporting. 


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In the FY 2009 IPPS final rule (73 FR 

48486 through 48487), we adopted final 

payment policies to: (1) Pay the CC/ 

MCC MS–DRGs for those HACs coded 

with ‘‘Y’’ and ‘‘W’’ indicators; and (2) not 

pay the CC/MCC MS–DRGs for those 

HACs coded with ‘‘N’’ and ‘‘U’’ 

indicators. 

On or after January 1, 2011, hospitals 

are required to begin reporting POA 

indicators using the 5010 electronic 

transmittal standards format. The 5010 

format removes the need to report a 

POA indicator of ‘‘1’’ for codes that are 

exempt from POA reporting. The POA 

indicator of ‘‘1’’ is currently being used 

because of reporting restrictions from 

the use of the 4010 electronic 

transmittal standards format. 

Comment: Several commenters 

supported CMS’ plans to no longer 

require a POA indicator of ‘‘1’’ for codes 

exempt from the POA reporting 

requirement with the implementation of 

the new 5010 electronic transaction 

standards. 

Response: We appreciate the 

commenters’ support of our efforts to 

move to the new 5010 electronic 

transaction standards format. We agree 

that the use of this format will prove 

beneficial for a number of reasons, 

including POA indicator reporting as 

well as facilitating the move to the use 

of ICD–10 coding systems. 

Hospitals reporting with the 5010 

format on and after January 1, 2011, will 

no longer report a POA indicator of ‘‘1’’ 

for POA exempt codes. The POA field 

will instead be left blank for codes 

exempt from POA reporting. We plan to 

issue CMS instructions on this reporting 

change. 

2. HAC Conditions for FY 2011 

As changes to diagnosis codes and 

new diagnosis codes are proposed and 

finalized for the list of CCs and MCCs, 

we modify the list of selected HACs to 

reflect these changes. In Table 6A in the 

Addendum to the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 24207), we 

listed the proposed addition of five new 

ICD–9–CM diagnosis codes to replace 

existing ICD–9–CM code 999.6 (ABO 

incompatibility reaction) for FY 2011. 

ICD–9–CM code 999.6 is currently the 

only code identified under the Blood 

Incompatibility HAC category. We 

proposed to delete code 999.6 and form 

a new subcategory of code 999.6 to 

identify new diagnoses relating to ABO 

incompatibility reaction due to 

transfusion of blood or blood products. 

These diagnoses meet the criteria for the 

Blood Incompatibility HAC category 

based on the predecessor code 999.6 

being a selected HAC. 

As shown in Table 6C in the 

Addendum to the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 24210), we 

proposed that code 999.6 become 

invalid as a diagnosis code in FY 2011 

with the creation of this new ICD–9–CM 

subcategory. This proposed new 

subcategory would allow room for 

expansion and the creation of the 

following new diagnosis codes: 

ICD–9–CM 

Code Code Descriptor 

Proposed 

CC/MCC 

esignation 

999.60 ............... ABO incompatibility reaction, unspecified ............................................................................................................ CC 

999.61 ............... ABO incompatibility with hemolytic transfusion reaction not specified as acute or delayed ............................... CC 

999.62 ............... ABO incompatibility with acute hemolytic transfusion reaction ............................................................................ CC 

999.63 ............... ABO incompatibility with delayed hemolytic transfusion reaction ........................................................................ CC 

999.69 ............... Other ABO incompatibility reaction ...................................................................................................................... CC 

We invited public comments on the 

proposed adoption of the five ICD–9– 

CM diagnosis codes as CCs that are 

listed above which, if finalized, would 

be added to the current HAC Blood 

Incompatibility category. 

Comment: Several commenters 

supported CMS’ proposal to add new 

ICD–9–CM codes 999.60, 999.61, 

999.62, 999.63, and 999.69, to replace 

code 999.6, to specify ABO 

incompatibility reaction for FY 2011 

and their classification as CCs. 

Response: We appreciate the support 

of the commenters. We are finalizing 

our proposal to make code 999.6 an 

invalid code and to add codes 999.60, 

999.61, 999.62, 999.63, and 999.69 as 

CCs to the HAC blood incompatibility 

category for FY 2011. 

Comment: Some commenters 

questioned why the five ICD–9–CM 

codes (999.60, 999.61, 999.62, 999.63, 

and 999.69) were being proposed to 

replace the existing code (999.6) to 

identify blood incompatibility when the 

analysis indicated that only an 

extremely low volume of discharges (23) 

reported this condition as a secondary 

diagnosis. 

Response: The five ICD–9–CM codes 

listed above were proposed and 

finalized through the ICD–9–CM 

Coordination and Maintenance 

Committee meeting process. Further 

information regarding the diagnosis 

coding proposal for Hemolytic 

Transfusion Reactions (HTR) from the 

September 17, 2009 meeting can be 

located at the following CDC Web site: 

http://www.cdc.gov/nchs/icd/icd9cm_

maintenance.htm. 

For the reasons set forth in the 

proposed rule, we are finalizing our 

proposal to make code 999.6 an invalid 

code and to add codes 999.60, 999.61, 

999.62, 999.63, and 999.69 as CCs to the 

HAC blood incompatibility category for 

FY 2011. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23882 and 23883), 

we also invited public comment on our 

proposal that the current list of HAC 

categories and the ICD–9–CM codes that 

had been finalized through FY 2010 

continue to be subject to the HAC 

payment provision for FY 2011. We also 

indicated that the final FY 2011 list of 

HAC conditions would include the 

proposed five new refinement codes to 

identify blood incompatibility as CCs if 

these codes were finalized. We received 

public comments on our proposal that 

the listed conditions continue to be 

subject to the HAC payment provisions 

which are summarized below. 

Comment: One commenter stated that 

the current HAC categories and codes 

finalized through FY 2010 are, for the 

most part, rational based on the 

statutory criteria that HACs must be 

high cost, high volume, or both and 

reasonably preventable through the 

application of evidence based 

guidelines. However, the commenter 

expressed reservations regarding the 

inclusion of deep vein thrombosis 

(DVT) and pulmonary embolism (PE) 

following certain orthopedic 

procedures. The commenter stated that 

the proportion of these events that can 

be prevented with evidence-based 

guidelines is unclear, given that there is 

uncertainty about the ideal length of 

time DVT prophylaxis should be 

continued postoperatively, differing 

practices and guidelines for DVT 

prophylaxis, and patient-specific factors 

(that is, thrombophilia) that can impact 

risk of postoperative venous 

thromboembolism. The commenter 

stated that an unintended consequence 

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of this HAC category could be excess 

bleeding occurrences from longer 

prescriptions of anticoagulation in 

attempts to comply with the measure. 

The commenter stated that, rather than 

including DVTs and PEs under the HAC 

provision, these conditions may be more 

appropriately managed as a measure 

under the RHQDAPU, as is being 

proposed for reducing avoidable 

readmissions. 

Response: We appreciate the 

commenter’s support for the current 

HAC categories. We also appreciate the 

commenter’s concern regarding whether 

DVTs and PEs following certain 

orthopedic procedures are reasonably 

preventable, given evidence-based 

guidelines. We are providing data on the 

frequency of our 10 categories of HACs 

for the first time in this year’s 

rulemaking. As the public reviews these 

data and evaluates the effectiveness of 

the HAC program, we will be soliciting 

recommendations for refinements to this 

list. As discussed earlier, section 

1886(d)(4)(D) of the Act specifies that 

the HAC list of conditions may be 

revised, in consultation with CDC, from 

time to time as long as the list contains 

at least two conditions. We did not 

propose any modification to the HAC 

list in the proposed rule. We instead 

shared data on the HACs, which we 

have discussed earlier. As we move 

forward, we will be working with the 

health care industry to refine and 

update the HAC list. Therefore, we will 

not remove DVTs and PEs following 

certain orthopedic procedures from the 

HAC list at this time. 

Comment: One commenter requested 

that CMS clarify how a hospital can 

appeal a decision under which a 

particular patient falls under the HAC 

policy and is ineligible for a higher DRG 

payment. The commenter believed that 

an appeals process is essential to ensure 

accountability. 

Response: As we explained in the FY 

2008 IPPS final rule (72 FR 47216), 

under 42 CFR 412.60(d), a hospital has 

60 days after the date of the notice of the 

initial assignment of a discharge to an 

MS–DRG to request a review of that 

assignment. The hospital may submit 

additional information as part of its 

request. A hospital that believes a 

discharge was assigned to the incorrect 

MS–DRG as a result of the payment 

adjustment for HACs may request 

review of the MS–DRG assignment by 

its fiscal intermediary or MAC 

consistent with § 412.60(d) of the 

regulations. 

As final policy for FY 2011, the 

following conditions will continue to be 

subject to the HAC payment provision: 

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BILLING CODE 4120–01–C 

We refer readers to section II.F.6. of 

the FY 2008 IPPS final rule with 

comment period (72 FR 47202 through 

47218) and to section II.F.7. of the FY 

2009 IPPS final rule (73 FR 48474 

through 48486) for detailed analyses 

supporting the selection of each of the 

HACs selected through FY 2010. 

3. RTI Program Evaluation Summary 

a. Background 

On September 30, 2009, a contract 

was awarded to Research Triangle 

Incorporated (RTI) to evaluate the 

impact of the Hospital-Acquired 

Condition-Present on Admission (HAC– 

POA) provisions on the changes in the 

incidence of selected conditions, effects 

on Medicare payments, impacts on 

coding accuracy, unintended 

consequences, and infection and event 

rates. This is an intra-agency project 

with funding and technical support 

coming from CMS, OPHS, AHRQ, and 

CDC. The evaluation will also examine 

the implementation of the program and 

evaluate additional conditions for future 

selection. 

RTI’s evaluation of the HAC–POA 

provisions is divided into several parts, 

only some of which were completed 

prior to the publication date of the FY 

2011 IPPS/LTCH PPS proposed rule. In 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 23883 through 23898), we 

summarized the analyses that were 

completed. RTI’s analyses of POA 

indicator reporting, frequencies and net 

savings associated with current HACs, 

and frequencies of previously 

considered candidate HACs reflect 

MedPAR claims from October 2008 

through June 2009. 

We received a number of public 

comments regarding the evaluation 

conducted by RTI, despite the fact that 

we did not propose any new policies or 

policy revisions based on the 

evaluation. Several of these public 

comments are addressed later in another 

section of this preamble, but we believe 

that it is appropriate to acknowledge the 

following issues here. 

Comment: Several commenters 

expressed concern that the RTI 

evaluation did not include an analysis 

on the costs of complying with the 

HAC–POA provision. According to the 

commenters, compliance with our 

HAC–POA policy results in additional 

costs to providers and individuals, as 

well as to the Medicare program by 

necessitating additional expensive 

preadmission screening tests in order to 

achieve more accurate admission 

documentation. The commenters also 

stated that the estimated savings to 

Medicare is not accurate if providers are 

utilizing additional resources to perform 

these expensive tests on their patients. 

Response: We understand the 

seriousness of this concern and refer to 

our original discussion of HAC–POA 

issues in the FY 2009 IPPS final rule (73 

FR 23547 through 23559) in which we 

included a comprehensive discussion of 

what we understood to be the full 

impact of this policy. We will continue 

to evaluate the financial costs of 

compliance with our HAC–POA 

program, as well as its impact on our 

overall goal of providing the highest 

quality of care for Medicare 

beneficiaries at the most reasonable 

costs. 

Comment: Several commenters 

commended CMS for making the early 

findings of the RTI study, as well as 

HAC–POA data, available to the public. 

The commenters encouraged CMS to 

continue to make additional findings 

available. 

Response: We agree with the 

commenters that it continues to be 

important to make HAC–POA data and 

findings available to the public prior to 

proposing any significant updates to the 

HAC list. As RTI continues its work, we 

will share the findings and additional 

HAC–POA data. 

Comment: Several commenters 

expressed interest in seeing data on the 

most common secondary diagnoses on 

the CC and MCC list that are reported 

along with an HAC code. 

Response: We have asked RTI to 

include a list of the most commonly 

reported secondary CC and MCC 

diagnoses and display this list along 

with the other HAC–POA data on its 

Web site at: http://www.rti.org/reports/

cms. 

In this final rule, we are updating our 

summary of the analyses with 

additional data that have become 

available since issuance of the proposed 

rule. 

b. RTI Analysis on POA Indicator 

Reporting Across Medicare Discharges 

To better understand the impact of 

HACs on the Medicare program, it is 

necessary to first examine the incidence 

of POA indicator reporting across all 

eligible Medicare discharges. As 


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mentioned previously, only IPPS 

hospitals are required to submit POA 

indicator data for all diagnosis codes on 

Medicare claims. Therefore, all nonIPPS hospitals were excluded, as well as 

providers in waiver States (Maryland) 

and territories other than Puerto Rico. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23880 through 

23898), we provided a preliminary 

analysis on claims data from October 

2008 through June 2009. Since 

publication of that proposed rule, an 

additional 3 months of data for FY 2009 

that include claims from July 2009 

through September 2009 have become 

available. Below we present the 

cumulative results of RTI’s findings for 

FY 2009. 

Using MedPAR claims data from 

October 2008 through September 2009, 

RTI found a total of approximately 65.22 

million secondary diagnoses across 

approximately 9.3 million discharges. 

As shown in Chart A below, the 

majority of all secondary diagnoses 

(83.69 percent) were reported with a 

POA indicator of ‘‘Y,’’ meaning the 

condition was POA. 

c. RTI Analysis on POA Indicator 

Reporting of Current HACs 

Following the initial analysis of POA 

indicator reporting for all secondary 

diagnoses, RTI then evaluated POA 

indicator reporting for specific HACassociated secondary diagnoses. The 

term ‘‘HAC-associated secondary 

diagnosis’’ refers to those diagnoses that 

are on the selected HAC list and were 

reported as a secondary diagnosis. Chart 

B below shows a summary of the HAC 

categories with the frequency in which 

each HAC was reported as a secondary 

diagnosis and the corresponding POA 

indicators assigned on the claims. It is 

important to note that, because more 

than one HAC-associated diagnosis code 

can be reported per discharge (that is, 

on a single claim), the frequency of 

HAC-associated diagnosis codes may be 

more than the actual number of 

discharges that have a HAC-associated 

diagnosis code reported as a secondary 

diagnosis. Below we discuss the 

frequency of each HAC-associated 

diagnosis code and the POA indicators 

assigned to those claims. 

RTI analyzed the frequency of each 

reported HAC-associated secondary 

diagnosis (across all 9.3 million 

discharges) and the POA indicator 

assigned to the claim. Chart B below 

shows that the most frequently reported 

conditions were in the Falls and Trauma 

HAC category, with a total of 153,284 

HAC-associated diagnosis codes being 

reported for that HAC category. Of these 

153,284 diagnoses, 5,684 reported a 

POA indicator of ‘‘N’’ for not POA and 

147,257 diagnoses reported a POA 

indicator of ‘‘Y’’ for POA. The lowest 

frequency appears in the Surgical Site 

Infection (SSI) Following Bariatric 

Surgery for Obesity HAC category with 

only 17 HAC-associated secondary 

diagnosis codes (and procedure codes) 

reported. It is important to note that the 

number of secondary diagnosis codes 

classified as POA is likely overstated 

due to coding practices, and, therefore, 

the number of HACs not POA are 

expected to be greater than indicated in 

Charts B and C. As a result, these data 

likely underestimate the number of 

complications some would consider 

acquired in the hospital or other health 

care setting. For example, the HACs 

listed as present on admission (POA = 

‘‘Y’’) include those instances where the 

HAC condition was present on 

admission from the emergency room or 

other outpatient settings within the 

admitting institution. The POA 

indicator of ‘‘Y’’ is also used to identify 

cases where a patient was discharged 

and then readmitted one calendar day or 

more after the date of discharge due to 

complications from a HAC. In addition, 

the POA indicator of ‘‘Y’’ may also 

include patient transfers to the acute 

care hospital from other health care 

facilities, like nursing homes, or from a 

home health setting, where the 

secondary diagnosis considered to be a 

HAC was initially acquired. Using 

current coding guidelines, all of the 

above scenarios can be correctly and 

appropriately classified as POA (where 

POA = ‘‘Y’’) on an inpatient claim, and 

CMS does not have data from which to 

determine where the condition 

described in the secondary diagnisos 

was acquired. Therefore, while a 

fraction of the HACs reported as POA 

were acquired outside the hospital prior 

to admission, some conditions could 

also have been acquired at the hospital 

in an outpatient setting or through a 

prior admission. 


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In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23885), we 

welcomed public comments on the data 

presented that could provide insight 

into the accuracy of those data, the use 

of comparative data sets or analysis, and 

how aspects of the coding system might 

influence these data. 

Comment: One commenter expressed 

its past and continuing support of the 

HAC–POA program. This commenter 

applauded CMS’ efforts to evaluate the 

payment and clinical impacts of the 

HAC–POA policy and for making the 

preliminary data available for public 

comment. However, the commenter 

reported that it found the preliminary 

published POA data for certain 

conditions interesting. Specifically, the 

commenter noted that the POA data for 

the catheter-associated urinary tract 

infection (CAUTI) condition was 

unexpected in that 85 percent of the 

cases reporting that condition as a 

secondary diagnosis were assigned a 

POA indicator of ‘‘Y’’ (meaning that the 

condition was present on admission). 

The commenter further noted that there 

were other conditions whose POA data 

analysis results were equally 

unexpected. This commenter stated it 

looked forward to reviewing further 


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analyses and understanding how the 

POA indicator is being documented and 

the accuracy of the documentation. 

Response: We appreciate and 

acknowledge the commenter’s support 

of the HAC–POA provision. As stated 

earlier, one aspect of the HAC–POA 

program evaluation is to examine the 

accuracy of coding, which includes a 

review of the POA indicator data. RTI 

will continue to study these data and, 

when they become available, we plan to 

publish the results. 

Comment: Commenters expressed 

concern about the accuracy of POA 

indicator reporting for the HACs related 

to intracranial injury with loss of 

consciousness. One commenter stated 

that it has come to the attention of the 

American Hospital Association’s Central 

Office on ICD–9–CM that there have 

been different interpretations of the 

POA coding guidelines for the reporting 

of the following ICD–9–CM code 

categories: 

• 850 Concussions; 

• 851 Cerebral laceration and 

contusion; 

• 852 Subarachnoid, subdural, and 

extradural hemorrhage, following 

injury; 

• 853 Other and unspecified 

intracranial hemorrhage following 

injury; and 

• 854 Intracranial injury of other and 

unspecified nature. 

The commenter pointed out that the 

above mentioned ICD–9–CM code 

categories require a fifth digit to specify 

whether there was a loss of 

consciousness, and the approximate 

length of time that the patient was 

unconscious. The commenter stated 

that, currently, the POA guidelines state 

to ‘‘assign ‘N’ if any part of the 

combination code was not present on 

admission.’’ The commenter further 

indicated that, in some instances, coders 

have assigned ‘‘N’’ to these codes if the 

patient lost consciousness after 

admission, even though the intracranial 

injury occurred prior to admission. The 

commenter stated that loss of 

consciousness is a component of 

intracranial injuries rather than a 

separate condition. The commenter 

believed that this guideline has resulted 

in data implying that the intracranial 

injuries were a result of trauma 

sustained after admission to the 

hospital, when the injury occurred prior 

to admission. 

The commenter stated that this POA 

guideline was discussed by the Editorial 

Advisory Board for Coding Clinic for 

ICD–9–CM. After review, the commenter 

stated that the Board determined that 

the POA guideline should be clarified so 

that coders will understand that these 

intracranial injury cases that have a loss 

of consciousness after admission should 

be assigned a POA indicator of ‘‘Y’’ 

rather than a ‘‘N.’’ The commenter stated 

that this advice will be provided in a 

future issue of Coding Clinic for ICD–9– 

CM. The commenter pointed out that 

CMS collaborated in this decision. 

Response: We agree that there appears 

to be inconsistency in how coders 

interpret and apply the official POA 

coding guideline for these combination 

codes that include loss of 

consciousness. CMS participated as a 

voting member of the American 

Hospital Association’s Editorial 

Advisory Board for Coding Clinic for 

ICD–9–CM to develop clarifications on 

the POA reporting for combination 

codes that involve loss of 

consciousness. We agree that this 

clarification will lead to greater 

consistency and accuracy in POA 

indicator reporting. CMS looks forward 

to continuing its efforts as part of the 

American Hospital Association’s 

Editorial Advisory Board for Coding 

Clinic for ICD–9–CM to provide 

guidance on accuracy of coding and the 

reporting of POA indicators. Hospitals 

look to this publication to provide 

detailed guidance on ICD–9–CM code 

and POA reporting. We encourage 

hospitals to send any other questions 

about ICD–9–CM codes or POA 

indicator selection to the American 

Hospital Association so that the 

Editorial Advisory Board can continue 

its role of providing instruction on the 

accurate selection and reporting of both 

ICD–9–CM codes and POA indicators. 

As described earlier, in the FY 2009 

IPPS final rule (73 FR 48486 through 

48487), we adopted as final our 

proposal to: (1) Pay the CC/MCC MS– 

DRGs for those HACs coded with ‘‘Y’’ 

and ‘‘W’’ indicators; and (2) not pay the 

CC/MCC MS–DRGs for those HACs 

coded with ‘‘N’’ and ‘‘U’’ indicators. We 

also discussed the comments we 

received urging CMS to strongly 

consider changing the policy and to pay 

for those HACs assigned a POA 

indicator of ‘‘U’’ (documentation is 

insufficient to determine if the 

condition was present at the time of 

admission). We stated we would 

monitor the extent to which and under 

what circumstances the ‘‘U’’ POA 

reporting option is used. In the FY 2010 

IPPS/RY 2010 LTCH PPS final rule, we 

also discussed and responded to 

comments regarding HACs coded with 

the ‘‘U’’ indicator (74 FR 43784 and 

43785). As shown in Chart B above, 

RTI’s analysis provides some data on a 

total of 404 HAC-associated secondary 

diagnoses reported with a POA 

indicator of ‘‘U.’’ Of those diagnoses, 270 

(0.2 percent) were assigned to the Falls 

and Trauma HAC category. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23885), we stated 

that we continue to believe that better 

documentation will result in more 

accurate public health data. Because the 

RTI analysis we summarized in the FY 

2011 IPPS/LTCH PPS proposed rule was 

based on preliminary data, we did not 

propose to change our policy under 

which CMS does not pay at the higher 

CC/MCC amount when a selected HAC 

diagnosis code is reported with a POA 

indicator of ‘‘U.’’ 

Comment: Several commenters asked 

CMS to change our policy under which 

we do not pay at the higher CC/MCC 

amount when a HAC code reported with 

a POA of ‘‘U.’’ (A POA indicator of ‘‘U’’ 

means that documentation was 

insufficient to determine if the 

condition was present at the time of the 

inpatient admission.) The commenters 

stated that while hospitals are 

continuing to work on coding and 

documentation improvement issues 

with physicians who practice in their 

facilities, in some cases, hospitals have 

not been successful in obtaining clear 

documentation to clarify whether or not 

a condition was present on admission. 

They added that when physicians do 

not provide clear documentation in the 

medical record, a POA indicator of ‘‘U’’ 

is assigned. The commenters asked that 

CMS allow these cases with poor 

documentation to result in a higher 

payment if the HAC code is reported 

with a ‘‘U.’’ 

Response: We are committed to 

improving the accuracy of health care 

data. Accurate and complete 

documentation within the health record 

is important for patient management, 

outcome measurement, and quality 

improvement, as well as payment 

accuracy. We believe that it would be 

inappropriate to pay a higher amount to 

hospitals based on incomplete or poor 

documentation. If accurate information 

is not available within the health record 

for a hospital to report a precise POA 

indicator, hospitals are encouraged to 

seek this additional documentation from 

their physicians and/or other hospitals 

if the hospital treated a patient who was 

transferred. For these reasons, we 

believe that reducing payment for 

conditions on the HAC list with poor 

documentation is appropriate. 

Therefore, we did not propose to change 

our approach to discounting the CC or 

MCC assignment for selected HACs 

reported with a POA indicator of ‘‘U.’’ 

We will maintain our existing policy 

and not allow HACs with a POA 

indicator of ‘‘U’’ to lead to the higher 

payment. 

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In the FY 2011 IPPS/LTCH PPS 

proposed rule, we encouraged readers to 

further review the RTI detailed report 

which demonstrates the frequency of 

each individual HAC-associated 

diagnosis code within the HAC 

categories. For example, in the Foreign 

Object Retained After Surgery HAC 

category, there are two unique ICD–9– 

CM diagnosis codes to identify that 

condition: code 998.4 (Foreign body 

accidentally left during a procedure) 

and code 998.7 (Acute reaction to 

foreign substance accidentally left 

during a procedure). In the updated 

detailed RTI report, readers can view 

that code 998.4 was reported 428 times 

and code 998.7 was reported 13 times, 

for a total of 441 times, as shown in 

Chart B above. The RTI detailed report 

is available at the following Web site: 

http://www.rti.org/reports/cms/. 

d. RTI Analysis of Frequency of 

Discharges and POA Indicator Reporting 

for Current HACs 

RTI further analyzed the effect of the 

HAC provision by studying the 

frequency in which a HAC-associated 

diagnosis was reported as a secondary 

diagnosis with a POA indicator of ‘‘N’’ 

or ‘‘U’’ and, of that number, how many 

resulted in MS–DRG reassignment. In 

Chart C below, Column A shows the 

number of discharges for each HAC 

category where the HAC-associated 

diagnosis was reported as a secondary 

diagnosis. For example, there were 33 

discharges that reported Air Embolism 

as a secondary diagnosis. Column C 

shows the number of discharges for each 

HAC reported with a POA indicator of 

‘‘N’’ or ‘‘U.’’ Continuing with the example 

of Air Embolism, the chart shows that, 

of the 33 reported discharges, 24 

discharges (72.73 percent) had a POA 

indicator of ‘‘N’’ or ‘‘U’’ and was 

identified as a HAC discharge. There 

were a total of 24 discharges to which 

the HAC policy applies and that could, 

therefore, have had an MS–DRG 

reassignment. Column E shows the 

number of discharges where an actual 

MS–DRG reassignment occurred. As 

shown in Column E, the number of 

discharges with an Air Embolism that 

resulted in actual MS–DRG 

reassignments is 12 (50 percent of the 24 

discharges with a POA indicator of ‘‘N’’ 

or ‘‘U’’). Thus, while there were 24 

discharges (72.73 percent of the original 

33) with an Air Embolism reported with 

a POA indicator of ‘‘N’’ or ‘‘U’’ identified 

as a HAC discharge that could have 

caused MS–DRG reassignment, the end 

result was 12 (50 percent) actual MS– 

DRG reassignments. There are a number 

of reasons why a selected HAC reported 

with a POA indicator of ‘‘N’’ or ‘‘U’’ will 

not result in MS–DRG reassignment. 

These reasons were illustrated with the 

diagram in section II.F.1.c. of this 

preamble and will be discussed in 

further detail in section II.F.3.e. of this 

preamble. 

Chart C below also shows that, of the 

264,810 discharges with a HACassociated diagnosis as a secondary 

diagnosis, 3,416 discharges ultimately 

resulted in MS–DRG reassignment. As 

we discuss below, there were 15 claims 

that resulted in MS–DRG reassignment 

where two HACs were reported on the 

same admission. The four HAC 

categories that had the most discharges 

resulting in MS–DRG reassignment 

were: (1) Falls and Trauma; (2) 

Pulmonary Embolism and DVT 

Orthopedic (Orthopedic PE/DVT); (3) 

Pressure Ulcer Stages III & IV; and (4) 

Catheter-Associated Urinary Tract 

Infection (UTI). Codes falling under the 

Falls and Trauma HAC category were 

the most frequently reported secondary 

diagnoses with 126,078 discharges. Of 

these 126,078 discharges, 5,312 (4.21 

percent) were coded as not POA and 

identified as HAC discharges. This 

category also contained the greatest 

number of discharges that resulted in an 

MS–DRG reassignment. Of the 5,312 

discharges within this HAC category 

that were not POA, 1,577 (29.69 

percent) resulted in an MS–DRG 

reassignment. 

Of the 264,810 total discharges 

reporting HAC-associated diagnoses as a 

secondary diagnosis, 3,110 discharges 

were coded with a secondary diagnosis 

of Orthopedic PE/DVT. Of these 3,110 

discharges, 2,335 (75.08 percent) were 

coded as not POA and identified as 

HAC discharges. This category 

contained the second greatest number of 

discharges resulting in an MS–DRG 

reassignment. Of the 2,335 discharges in 

this HAC category that were not POA, 

1,024 discharges (43.85 percent) 

resulted in an MS–DRG reassignment. 

The Pressure Ulcer Stages III & IV 

category had the second most frequently 

coded secondary diagnoses, with 99,656 

discharges. Of these discharges, 1,316 

(1.32 percent) were coded as not POA 

and identified as HAC discharges. This 

category contained the third greatest 

number of discharges resulting in an 

MS–DRG reassignment. Of the 1,316 

discharges in this HAC category that 

were not POA, 384 discharges (29.18 

percent) resulted in an MS–DRG 

reassignment. 

The Catheter-Associated UTI category 

had the third most frequently coded 

secondary diagnoses, with 14,089 

discharges. Of these discharges, 2,333 

(16.56 percent) were coded as not POA 

and identified as HAC discharges. This 

category contained the fourth greatest 

number of discharges resulting in an 

MS–DRG reassignment. Of the 2,333 

discharges in this HAC category that 

were not POA, 223 discharges (9.56 

percent) resulted in a MS–DRG 

reassignment. 

The remaining 6 HAC categories only 

had 208 discharges that ultimately 

resulted in MS–DRG reassignment. We 

note that, even in cases where a large 

number of HAC-associated secondary 

diagnoses were coded as not POA, this 

finding did not necessarily translate into 

a large number of discharges that 

resulted in MS–DRG reassignment. For 

example, only 26 of the 2,573 Vascular 

Catheter-Associated Infection secondary 

diagnoses that were coded as not POA 

and identified as HAC discharges 

resulted in a MS–DRG reassignment. 

There were a total of 417 discharges 

with a HAC-associated secondary 

diagnosis reporting a POA indicator of 

‘‘N’’ or ‘‘U’’ that were excluded from 

acting as a HAC discharge (subject to 

MS–DRG reassignment) due to the CC 

Exclusion List logic within the 

GROUPER. The CC Exclusion List 

identifies secondary diagnosis codes 

designated as a CC or MCC that are 

disregarded by the GROUPER logic 

when reported with certain principal 

diagnoses. For example, a claim with 

the principal diagnosis code of 250.83 

(Diabetes with other specified 

manifestations, type 1 [juvenile type], 

uncontrolled) and a secondary diagnosis 

code of 250.13 (Diabetes with 

ketoacidosis, type 1, [juvenile type], 

uncontrolled) with a POA indicator of 

‘‘N’’ would result in the HAC-associated 

secondary diagnosis code 250.13 being 

ignored as a CC. According to the CC 

Exclusion List, code 250.13 is excluded 

from acting as a CC when code 250.83 

is the principal diagnosis. As a result, 

the HAC logic would not be applicable 

to that case. For a detailed discussion on 

the CC Exclusion List, we refer readers 

to section II.G.9. of this preamble. 

Discharges where the HAC logic was 

not applicable due to the CC Exclusion 

List occurred among the following 4 

HAC categories: Pressure Ulcer Stages 

III and IV (44 cases), Falls and Trauma 

(311 cases), Catheter-Associated UTI (9 

cases), Vascular Catheter-Associated 

Infection (4 cases), and Manifestations 

of Poor Glycemic Control (49 cases). 

Further information regarding the 

specific number of cases that were 

excluded for each HAC-associated 

secondary diagnosis code within each of 

the above mentioned HAC categories is 

also available. We refer readers to the 

RTI detailed report at the following Web 

site: http://www.rti.org/reports/cms/. 

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In summary, Chart C below 

demonstrates that there were a total of 

264,810 discharges with a reported 

HAC-associated secondary diagnosis. Of 

the total 264,810 discharges, 14,681 

(5.68 percent) discharges included 

HACs that were reported with a POA 

indicator of ‘‘N’’ or ‘‘U’’ and were 

identified as a HAC discharge. Of these 

14,681 discharges, the number of 

discharges resulting in MS–DRG 

reassignments was 3,416 (22.72 

percent). 

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BILLING CODE 4120–01–C 

An extremely small number of 

discharges had multiple HACs reported 

during the same stay. In reviewing the 

9.3 million claims, RTI found 60 cases 

in which two HACs were reported on 

the same discharge. Chart D below 

summarizes these cases. There were 9 

cases in which a Falls and Trauma HAC 

was reported in addition to a Pressure 

Ulcer Stages III & IV HAC. Twenty of the 

cases with two HACs involved Pressure 

Ulcer Stages III & IV and 24 cases 

involved Falls or Trauma. Other 

multiple HAC cases included 10 

Catheter-Associated UTI cases and 6 

Vascular Catheter-Associated Infection 

cases. 

Some of these cases with multiple 

HACs reported had both HAC codes 

ignored in the MS–DRG assignment. Of 

these 60 claims, 15 did not receive 

higher payments based on the presence 

of one or both of these reported HACs 

and we describe these claims below in 

section II.F.3.g.(2) of this preamble. 

Depending on the MS–DRG to which 

the cases were originally assigned, 

ignoring the HAC codes would have led 

to a MS–DRG reassignment if there were 

no other MCCs or CCs reported, if the 

MS–DRG was subdivided into severity 

levels, and if the case were not already 

in the lowest severity level prior to 

ignoring the HAC codes. 


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e. RTI Analysis of Circumstances When 

Application of HAC Provisions Would 

Not Result in MS–DRG Reassignment 

for Current HACs 

As discussed in section II.F.1. and 

illustrated in the diagram in section 

II.F.1.c. of this preamble, there are 

instances when the MS–DRG 

assignment does not change even when 

a HAC-associated secondary diagnosis 

has a POA indicator of either ‘‘N’’ or ‘‘U.’’ 

In analyzing our claims data, RTI 

identified four main reasons why a MS– 

DRG assignment would not change 

despite the presence of a HAC. Those 

four reasons are described below and 

are shown in Chart E below. Column A 

shows the frequency of discharges that 

included a HAC-associated secondary 

diagnosis. Column B shows the 

frequency of discharges where the HACassociated secondary diagnosis was 

coded as not POA and identified as a 

HAC discharge. Column C shows the 

frequency of discharges in which the 

HAC-associated secondary diagnosis 

coded as not POA resulted in a change 

in MS–DRG. Columns D, E, F, and G 

show the frequency of discharges in 

which the HAC-associated secondary 

diagnosis coded as not POA did not 

result in a change in MS–DRG 

assignment. Columns D, E, F, and G are 

explained in more detail below. 

(1) Other MCCs/CCs Prevent 

Reassignment 

Column D (Other MCC/CCs that 

Prevent Reassignment) in Chart E below 

indicates the number of cases reporting 

a HAC-associated secondary diagnosis 

code that did not have a MS–DRG 

reassignment because of the presence of 

other secondary diagnoses on the MCC 

or CC list. A claim that is coded with 

a HAC-associated secondary diagnoses 

and a POA status of either ‘‘N’’ or ‘‘U’’ 

may have other secondary diagnoses 

that are classified as an MCC or a CC. 

In such cases, the presence of these 

other MCC and CC diagnoses will still 

lead to the assignment of a higher 

severity level, despite the fact that the 

GROUPER software is disregarding the 

ICD–9–CM code that identifies the 

selected HAC in making the MS–DRG 

assignment for that claim. For example, 

there were 96 cases in which the ICD– 

9–CM codes for the Foreign Object 

Retained After Surgery HAC category 

were present, but the presence of other 

secondary diagnoses that were MCCs or 

CCs resulted in no change to the MS– 

DRG assignment. Chart E shows that a 

total of 8,208 cases did not have a 

change in the MS–DRG assignment 

because of the presence of other 

reported MCCs and CCs. 

(2) Two Severity Levels Where HAC 

Does Not Impact MS–DRG Assignment 

Column E (Number of MS–DRGs with 

Two Severity Levels Where HAC Does 

Not Impact MS–DRG Assignment) 

shows the frequency with which 

discharges with a HAC as a secondary 

diagnosis coded as not POA did not 

result in an MS–DRG change because 

the MS–DRG is subdivided solely by the 

presence or absence of an MCC. A claim 

with a HAC and a POA indicator of 

either ‘‘N’’ or ‘‘U’’ may be assigned to an 

MS–DRG that is subdivided solely by 

the presence or absence of an MCC. In 

such cases, removing a HAC ICD–9–CM 

CC code will not lead to further changes 

in the MS–DRG assignment. Examples 

of these MS–DRG subdivisions are 

shown in the footnotes to the chart and 

include the following examples: 

• MS–DRGs 100 and 101 (Seizures 

with or without MCC, respectively) 

• MS–DRGs 102 and 103 (Headaches 

with or without MCC, respectively) 


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The codes that fall under the HAC 

category of Foreign Object Retained 

After Surgery are CCs. If this case were 

assigned to a MS–DRG with an MCC 

subdivision such as MS–DRGs 100 and 

101, the presence of the HAC code 

would not affect the MS–DRG severity 

level assignment. In other words, if the 

Foreign Object Retained After Surgery 

code was the only secondary diagnosis 

reported, the case would be assigned to 

MS–DRG 101. If the POA indicator was 

‘‘N,’’ the HAC Foreign Object Retained 

After Surgery code would be ignored in 

the MS–DRG assignment logic. Despite 

the fact that the code was ignored, the 

case would still be assigned to the same, 

lower severity level MS–DRG. 

Therefore, there would be no impact on 

the MS–DRG assignment. 

Column E in Chart E below shows 

that there were a total of 1,793 cases 

where the HAC code was ‘‘N’’ or ‘‘U’’ and 

the MS–DRG assignment did not change 

because the case was already assigned to 

the lowest severity level. 

(3) No Severity Levels 

Column F (Number of MS–DRGs with 

No Severity Levels) shows the frequency 

with which discharges with an HAC as 

a secondary diagnosis coded as not POA 

did not result in an MS–DRG change 

because the MS–DRG is not subdivided 

by severity levels. A claim with a HAC 

and a POA of ‘‘N’’ or ‘‘U’’ may be 

assigned to a MS–DRG with no severity 

levels. For instance, MS–DRG 311 

(Angina Pectoris) has no severity level 

subdivisions; this MS–DRG is not split 

based on the presence of an MCC or a 

CC. If a patient assigned to this MS– 

DRG develops a secondary diagnosis 

such as a Stage III pressure ulcer after 

admission, the condition would be 

considered to be a HAC. The code for 

the Stage III pressure ulcer would be 

ignored in the MS–DRG assignment 

because the condition developed after 

the admission (the POA indicator was 

‘‘N’’). Despite the fact that the ICD–9–CM 

code for the HAC Stage III pressure 

ulcer was ignored, the MS–DRG 

assignment would not change. The case 

would still be assigned to MS–DRG 311. 

Chart E below shows that 1,255 cases 

reporting a HAC-associated secondary 

diagnosis did not undergo a change in 

the MS–DRG assignment based on the 

fact that the case was assigned to a MS– 

DRG that had no severity subdivisions 

(that is, the MS–DRG is not subdivided 

based on the presence or absence of an 

MCC or a CC, rendering the presence of 

the HAC irrelevant for payment 

purposes). 

(4) MS–DRG Logic 

Column G (MS–DRG Logic Issues) 

shows the frequency with which a HAC 

as a secondary diagnosis coded as not 

POA did not result in an MS–DRG 

change because of MS–DRG assignment 

logic. There were nine discharges where 

the HAC criteria were met and the HAC 

logic was applied, however, due to the 

structure of the MS–DRG logic, these 

cases did not result in MS–DRG 

reassignment. These cases may appear 

similar to those discharges where the 

MS–DRG is subdivided into two 

severity levels by the presence or 

absence of an MCC and did not result 

in MS–DRG reassignment; however, 

these discharges differ slightly in that 

the MS–DRG logic also considers 

specific procedures that were reported 

on the claim. In other words, for certain 

MS–DRGs, a procedure may be 

considered the equivalent of an MCC or 

CC. The presence of the procedure code 

dictates the MS–DRG assignment 

despite the presence of the HACassociated secondary diagnosis code 

with a POA indicator of ‘‘N’’ or ‘‘U’’. 

For example, a claim with the 

principal diagnosis code of 441.1 

(Thoracic aneurysm, ruptured) with 

HAC-associated secondary diagnosis 

code of 996.64 (Infection and 

inflammatory reaction due to indwelling 

urinary catheter) and diagnosis code 

599.0 (Urinary tract infection, site not 

specified), having POA indicators of 

‘‘Y’’, ‘‘N’’, ‘‘N’’, respectively, and 

procedure code 39.73 (Endovascular 

implantation of graft in thoracic aorta), 

results in an assignment to MS–DRG 

237 (Major Cardiovascular Procedures 

with MCC or Thoracic Aortic Aneurysm 

Repair). In this case, the thoracic aortic 

aneurysm repair is what dictated the 

MS–DRG assignment and the presence 

of the HAC-associated secondary 

diagnosis code, 996.64, did not affect 

the MS–DRG assigned. Other examples 

of MS–DRGs that are subdivided in this 

same manner are as follows: 

• MS–DRG 029 (Spinal procedures 

with CC or Spinal Neurostimulators) 

• MS–DRG 129 (Major Head & Neck 

Procedures with CC/MCC or Major 

Device) 

• MS–DRG 246 (Percutaneous 

Cardiovascular Procedure with DrugEluting Stent with MCC or 4+ Vessels/ 

Stents) 

Column G in the chart below shows 

that four of the nine cases that did not 

result in MS–DRG reassignment due to 

the MS–DRG logic were in the Catheter 

Associated UTI HAC category, three 

cases were in the Falls and Trauma HAC 

category, one case was in the Foreign 

Body Retained After surgery HAC 

category, and one case was in the 

Vascular Catheter-Associated Infection 

HAC Category. 

In conclusion, a total of 11,265 cases 

(8,208 + 1,793 + 1,255 + 9) did not have 

a change in MS–DRG assignment, 

regardless of the presence of a HAC. The 

reasons described above explain why 

only 3,416 cases had a change in MS– 

DRG assignment despite the fact that 

there were 14,681 HAC cases with a 

POA of ‘‘N’’ or ‘‘U.’’ We refer readers to 

the RTI detailed report at the Web site: 

http://www.rti.org/reports/cms for 

further information. 

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BILLING CODE 4120–01–C 

f. RTI Analysis of Coding Changes for 

HAC-Associated Secondary Diagnoses 

for Current HACs 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23892), we 

discussed RTI’s preliminary analysis on 

coding changes using 9 months of 

claims data from October 2008 through 

June 2009. We noted that, in addition to 

studying claims from October 2008 

through June 2009, RTI evaluated claims 

data from 2 years prior to determine if 

there were significant changes in the 

number of discharges with a HAC being 

reported as a secondary diagnosis. For 

this FY 2011 IPPS/LTCH PPS final rule 

analysis, RTI examined an additional 3 

months of claims data for each fiscal 

year (FY 2007 and FY 2008), and 

compared these data to the updated FY 

2009 data. Below we summarize the 

results of the fiscal year to fiscal year 

comparison using 12 months of claims 

data. 

RTI’s analysis found that there was an 

overall increase in the reporting of 

secondary diagnoses that are currently 

designated as HACs from FY 2007 to FY 

2008. The most significant increase was 

in the Catheter-Associated UTI HAC 

category, with 12,459 discharges being 

reported in FY 2007, while 15,408 

discharges were reported in FY 2008, an 

increase of 2,949 cases. The next 

significant increase was in the Falls and 

Trauma HAC category with 151,321 

discharges being reported in FY 2007, 

while 153,600 discharges were reported 

in FY 2008, an increase of 2,279 cases. 

However, the analysis also found that 

there was an overwhelming decrease in 

the HAC-associated secondary 

diagnoses reported from FY 2008 to FY 

2009. The most significant decrease was 

in the Falls and Trauma HAC category, 

with 153,600 discharges being reported 

in FY 2008, while 125,505 discharges 

were reported in FY 2009, a decrease of 

28,095 cases. We point out that because 

diagnosis codes for the Pressure Ulcer 

Stages III & IV HAC did not become 

effective until October 1, 2008, there are 


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no data available for FY 2007 or FY 

2008. 

We refer readers to the RTI detailed 

report for all the conditions in each 

fiscal year (FY 2007 through FY 2009) 

as described above at the following Web 

site: http://www.rti.org/reports/cms/. 

g. RTI Analysis of Estimated Net 

Savings for Current HACs 

RTI estimated the net savings 

generated by the HAC payment policy 

based on 12 months of MedPAR claims 

from October 2008 through September 

2009. 

(1) Net Savings Estimation Methodology 

The payment impact of a HAC is the 

difference between the IPPS payment 

amount under the initially assigned 

MS–DRG and the amount under the 

reassigned MS–DRG. The amount for 

the reassigned MS–DRG appears on the 

MedPAR files. To construct this, RTI 

modeled the IPPS payments for each 

MS–DRG following the same approach 

that we use to model the impact of IPPS 

annual rule changes. Specifically, RTI 

replicated the payment computations 

carried out in the IPPS PRICER program 

using payment factors for IPPS 

providers as identified in various CMS 

downloaded files. The files used are as 

follows: 

• Version 26 of the Medicare Severity 

GROUPER software (applicable to 

discharges between October 1, 2008 and 

September 30, 2009). IPPS MedPAR 

claims were run through this file to 

obtain needed HAC–POA output 

variables. 

• The FY 2009 MS–DRG payment 

weight file. This file includes the 

weights, geometric mean length of stay 

(GLOS), and the postacute transfer 

payment indicators. 

• CMS standardized operating and 

capital rates. Tables 1A through 1C, as 

downloaded from the Web site at: 

http://www.cms.hhs.gov/

AcuteInpatientPPS/IPPS2009, include 

the full update and reduced update 

amounts, as well as the information 

needed to compute the blended amount 

for providers located in Puerto Rico. 

• The IPPS impact files for FY 2009, 

also as downloaded from the Web site 

at: http://www.cms.hhs.gov/Acute

InpatientPPS/IPPS2009/. This file 

includes the wage index and geographic 

adjustment factors, plus the provider 

type variable to identify providers 

qualifying for alternative hospitalspecific amounts and their respective 

HSP rates. 

• The IPPS impact files for FY 2010, 

as downloaded from the Web site at: 

http://www.cms.hhs.gov/AcuteInpatient

PPS/10FR/. This file includes indirect 

medical education (IME) and 

disproportionate share (DSH) percent 

adjustments that were in effect as of 

March 2009. 

• CMS historical provider-specific 

files (PSF). This includes the indicator 

to identify providers subject to the full 

or reduced standardized rates and the 

applicable operating and capital cost-tocharge ratios. A SAS version was 

downloaded from the Web site at: 

http://www.cms.hhs.gov/ProspMedicare

FeeSvcPmtGen/04_psf_SAS.asp. 

There were 50 providers with 

discharges in the final HAC analysis file 

that did not appear in the FY 2009 

impact file, of which 11 also did not 

appear in the FY 2010 impact file. For 

these providers, we identified the 

geographic CBSA from the historical 

PSF and assigned the wage index using 

values from Tables 4A and 4C as 

downloaded from the Web site at: 

http://www.cms.hhs.gov/ 

AcuteInpatientPPS/IPPS2009/. For 

providers in the FY 2010 file but not the 

FY 2009 file, we used IME and DSH 

rates from FY 2010. The 11 providers in 

neither impact file were identified as 

non-IME and non-DSH providers in the 

historical PSF file. 

The steps for estimating the HAC 

payment impact are as follows: 

Step 1: Rerun the Medicare Severity 

Grouper on all records in the analysis 

file. This is needed to obtain 

information on actual HAC-related MS– 

DRG reassignments in the file, and to 

identify the CCs and MCCs that 

contribute to each MS–DRG assignment. 

Step 2: Model the base payment and 

outlier amounts associated with the 

initial MS–DRG if the HAC were 

excluded using the computations laid 

out in the CMS file ‘‘Outlier Example FY 

2007 new.xls,’’ as downloaded from the 

Web site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/04_outlier.asp#

TopOfPage, and modified to 

accommodate FY 2009 factors. 

Step 3: Model the base payment and 

outlier amounts associated with the 

final MS–DRG where the HAC was 

excluded using the computations laid 

out in the CMS file ‘‘Outlier Example FY 

2007 new.xls,’’ as downloaded from the 

Web site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/04_outlier.asp#

TopOfPage and modified to 

accommodate FY 2009 factors. 

Step 4: Compute MS–DRG base 

savings as the difference between the 

nonoutlier payments for the initial and 

final MS–DRGs. Compute outlier 

amounts as the difference in outlier 

amounts due under the initial and final 

reassigned MS–DRG. Compute net 

savings due to HAC reassignment as the 

sum of base savings plus outlier 

amounts. 

Step 5: Adjust the model to 

incorporate short-stay transfer payment 

adjustments. 

Step 6: Adjust the model to 

incorporate hospital-specific payments 

for qualifying rural providers receiving 

the hospital-specific payment rates. 

It is important to mention that using 

the methods described above, the MS– 

DRG and outlier payments amounts that 

are modeled for the final assigned MS– 

DRG do not always match the DRG price 

and outlier amounts that appear in the 

MedPAR record. There are several 

reasons for this. Some discrepancies are 

caused by using single wage index, IME 

and DSH factors for the full period 

covered by the discharges, when in 

practice these payment factors can be 

adjusted for individual providers during 

the course of the fiscal year. In addition, 

RTI’s approach disregards any Part A 

coinsurance amounts owed by 

individual beneficiaries with greater 

than sixty covered days in a spell of 

illness. Five percent of all HAC 

discharges showed at least some Part A 

coinsurance amount due from the 

beneficiary, although less than two 

percent of reassigned discharges (55 

cases in the analysis file) showed Part 

A coinsurance amounts due. Any Part A 

coinsurance payments would reduce the 

actual savings incurred by the Medicare 

program. 

There are also a number of less 

common special IPPS payment 

situations that are not factored into 

RTI’s modeling. These could include 

new technology add-on payments, 

payments for blood clotting factors, 

reductions for replacement medical 

devices, adjustments to the capital rate 

for new providers, and adjustments to 

the capital rate for certain classes of 

providers who are subject to a minimum 

payment level relative to capital cost. 

(2) Net Savings Estimate 

Chart F below summarizes the 

estimated net savings of current HACs 

based on MedPAR claims from October 

2008 through September 2009, based on 

the methodology described above. 

Column A shows the number of 

discharges where a MS–DRG 

reassignment for each HAC category 

occurred. For example, there were 12 

discharges with an Air Embolism that 

resulted in an actual MS–DRG 

reassignment. Column B shows the total 

net savings caused by MS–DRG 

reassignments for each HAC category. 

Continuing with the example of Air 

Embolism, the chart shows that the 12 

discharges with an MS–DRG 

reassignment resulted in a total net 

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savings of $148,394. Column C shows 

the net savings per discharge for each 

HAC category. For the Air Embolism 

HAC category, the net savings per 

discharge is $12,366. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 

As shown in Chart F above, the total 

net savings calculated for the 12-month 

period from October 2008 through 

September 2009 was roughly $18.78 

million. The three HACs with the largest 

number of discharges resulting in MS– 

DRG reassignment, Falls and Trauma, 

Orthopedic PE/DVT, and Pressure Ulcer 

Stages III & IV, generated $17.17 million 

of net savings for the 12 month period. 

Estimated net savings for the 12-month 

period associated with the Falls and 

Trauma category were $8.09 million. 

Estimated net savings associated with 

Orthopedic PE/DVT for the 12-month 

period were $6.92 million. Estimated 

net savings for the 12-month period 

associated with Pressure Ulcer Stages III 

& IV were $2.16 million. 

The mean net savings per discharge 

calculated for the 12-month period from 

October 2008 through September 2009 

was roughly $5,522. The HAC categories 

of Air Embolism; SSI, Mediastinitis, 

Following Coronary Artery Bypass Graft 

(CABG); and SSI Following Certain 

Orthopedic Procedures had the highest 

net savings per discharge, but 

represented a small proportion of total 

net savings because the number of 

discharges that resulted in MS–DRG 

reassignment for these HACs was low. 

With the exception of Blood 

Incompatibility, where no savings 

occurred because no discharges resulted 

in MS–DRG reassignment, SSI 

Following Bariatric Surgery for Obesity 

and Catheter-Associated UTI had the 

lowest net savings per discharge. 

We refer readers to the RTI detailed 

report available at the following Web 

site: http://www.rti.org/reports/cms/. 

As mentioned previously, an 

extremely small number of cases in the 

12-month period of FY 2009 analyzed 

by RTI had multiple HACs during the 

same stay. In reviewing our 9.3 million 

claims, RTI found 60 cases where two 

HACs were reported on the same 

admission as noted in section II.F.3. d. 

of this preamble. Of these 60 claims, 15 

resulted in MS–DRG reassignment. 

Chart G below summarizes these cases. 

There were 15 cases that had two HACs 

not POA that resulted in an MS–DRG 

reassignment. Of these, 5 discharges 

involved Pressure Ulcer Stages III & IV 

and Falls and Trauma and 4 discharges 

involved Orthopedic PE/DVT and Falls 

and Trauma. 

As we discuss in section II.F.1.b. of 

this preamble, implementation of this 

policy is part of an array of Medicare 

VBP tools that we are using to promote 

increased quality and efficiency of care. 

We again point out that a decrease over 

time in the number of discharges where 

these conditions are not POA is a 

desired consequence. We recognize that 

estimated net savings should likely 

decline as the number of such 

discharges decline. However, we believe 

that the sentinel effect resulting from 

CMS identifying these conditions is 

critical. (We refer readers to section 

IV.A. of this preamble for a discussion 

of the inclusion of the incidence of 

these conditions in the RHQDAPU 

program.) It is our intention to continue 

to monitor trends associated with the 

frequency of these HACs and the 

estimated net payment impact through 

RTI’s program evaluation and possibly 

beyond. 

h. Previously Considered Candidate 

HACs—RTI Analysis of Frequency of 

Discharges and POA Indicator Reporting 

RTI evaluated the frequency of 

conditions previously considered, but 

not adopted as HACs in prior 

rulemaking, that were reported as 

secondary diagnoses (across all 9.3 

million discharges) as well as the POA 

indicator assignments for these 

conditions. Chart H below indicates that 

the three previously considered 

candidate conditions most frequently 

reported as a secondary diagnosis were: 

(1) Clostridium Difficile-Associated 

Disease (CDAD), which demonstrated 

the highest frequency, with a total of 

85,096 secondary diagnoses codes being 

reported for that condition, of which 

28,844 reported a POA indicator of ‘‘N’’; 

(2) Staphylococcus aureus Septicemia, 

with a total of 22,433 secondary 

diagnoses codes being reported for that 

condition, with 5,004 of those reporting 

a POA indicator of ‘‘N’’; and (3) 

Iatrogenic Pneumothorax, with a total of 

20,673 secondary diagnoses codes being 

reported for that condition, with 17,602 

of those reporting a POA indicator of 

‘‘N.’’ As these three conditions had the 

most significant impact for reporting a 

POA indicator of ‘‘N,’’ it is reasonable to 

believe that these same three conditions 

would have the greatest number of 

potential MS–DRG reassignments. The 

frequency of discharges for the 

previously considered HACs that could 

lead to potential changes in MS–DRG 

assignment is discussed in the next 

section. We take this opportunity to 

remind readers that because more than 


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one previously considered HAC 

diagnosis code can be reported per 

discharge (on a single claim) that the 

frequency of these diagnosis codes may 

be more than the actual number of 

discharges with a previously considered 

candidate condition reported as a 

secondary diagnosis. 

In Chart I below, Column A shows the 

number of discharges for each 

previously considered candidate HAC 

category when the condition was 

reported as a secondary diagnosis. For 

example, there were 85,096 discharges 

that reported CDAD as a secondary 

diagnosis. Previously considered 

candidate HACs reported with a POA 

indicator of ‘‘N’’ or ‘‘U’’ may cause MS– 

DRG reassignment (which would result 

in reduced payment to the facility). 

Column C shows the discharges for each 

previously considered candidate HAC 

reported with a POA indicator of ‘‘N’’ or 

‘‘U.’’ Continuing with the example of 

CDAD, Chart I shows that, of the 85,096 

discharges, 29,296 discharges (34.43 

percent) had a POA indicator of ‘‘N’’ or 

‘‘U.’’ Therefore, there were a total of 

29,296 discharges that could potentially 

have had an MS–DRG reassignment. 

Column E shows the number of 

discharges where an actual MS–DRG 

reassignment could have occurred; the 

number of discharges with CDAD that 

could have resulted in actual MS–DRG 

reassignments is 896 (3.06 percent). 

Thus, while there were 29,296 

discharges with CDAD reported with a 

POA indicator of ‘‘N’’ or ‘‘U’’ that could 

potentially have had an MS–DRG 

reassignment, the result was 896 (3.06 

percent) potential MS–DRG 

reassignments. As discussed above, 

there are a number of reasons why a 

condition reported with a POA indicator 

of ‘‘N’’ or ‘‘U’’ would not result in a MS– 

DRG reassignment. 

In summary, Chart I below 

demonstrates there were a total of 

203,844 discharges with a previously 

considered candidate HAC reported as a 

secondary diagnosis. Of those, 57,902 

discharges were reported with a POA 

indicator of ‘‘N’’ or ‘‘U.’’ The total 

number of discharges that could have 

resulted in MS–DRG reassignments is 

3,527. 


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i. Current and Previously Considered 

Candidate HACs—RTI Report on 

Evidence-Based Guidelines 

The RTI program evaluation includes 

an updated report that provides 

references for all evidence-based 

guidelines available for each of the 

selected and previously considered 

candidate HACs that provide 

recommendations for the prevention of 

the corresponding conditions. 

Guidelines were primarily identified 

using the AHRQ National Guidelines 

Clearing House (NGCH) and the CDC, 

along with relevant professional 

societies. Guidelines published in the 

United States were used, if available. In 

the absence of U.S. guidelines for a 

specific condition, international 

guidelines were included. 

Evidence-based guidelines that 

included specific recommendations for 

the prevention of the condition were 

identified for each of the 10 selected 

conditions. In addition, evidence-based 

guidelines were also found for the 

previously considered candidate 

conditions. 

Comment: Several commenters stated 

that CMS should not pay for HACs only 

when evidence-based guidelines 

indicate that the occurrence of an event 

can be reduced to zero, or near zero. The 

commenters stated that some patients, 

particularly high-risk, co-morbid 

individuals, may still develop 

conditions on the HAC list even though 

protocols have been strictly followed. 

Response: We thank the commenters 

for this comment. The statute requires 

that CMS only choose conditions to be 

selected HACs if they could 

‘‘reasonably’’ be prevented through the 

application of evidence-based 

guidelines. We noted in the FY 2008 

IPPS final rule that we only selected 

those conditions where, if hospital 

personnel are engaging in good medical 

practice, the additional costs of the 

hospital-acquired condition will, in 

most cases, be avoided (72 FR 47201). 

RTI prepared a final report to 

summarize its findings regarding 

evidence-based guidelines, which can 

be found on the Web site at: http:// 

www.rti.org/reports/cms. 

j. Final Policy Regarding Current HACs 

and Previously Considered Candidate 

HACs 

We believe that the updated RTI 

analysis summarized above does not 

provide additional information that 

would require us to change our previous 

determinations regarding either current 

HACs (as described in section II.F.2. of 

this preamble) or previously considered 

candidate HACs in the FY 2008 IPPS 

final rule with comment period and FY 

2009 IPPS final rule (72 FR 47200 

through 47218 and 73 FR 48471 through 

48491, respectively). Accordingly, in the 


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FY 2011 IPPS/LTCH PPS proposed rule, 

we did not propose to add or remove 

categories of HACs, although we 

proposed to revise the Blood 

Incompatibility HAC category as 

discussed and finalized in section II.F.2. 

of this preamble. We also note that in 

section II.F.3.b. of this preamble, we 

discuss our current policy regarding the 

treatment of the ‘‘U’’ POA indicator. 

However, we continue to encourage 

public dialogue about refinements to the 

HAC list. 

We refer readers to section II.F.6. of 

the FY 2008 IPPS final rule with 

comment period (72 FR 47202 through 

47218) and to section II.F.7. of the FY 

2009 IPPS final rule (73 FR 48474 

through 48491) for detailed discussion 

supporting our determination regarding 

each of these conditions. 

G. Changes to Specific MS–DRG 

Classifications 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23898 through 

23910), we invited public comment on 

each of the MS–DRG classification 

proposed changes described below, as 

well as our proposals to maintain 

certain existing MS–DRG classifications, 

which are also discussed below. In some 

cases, we proposed changes to the MS– 

DRG classifications based on our 

analysis of claims data. In other cases, 

we proposed to maintain the existing 

MS–DRG classification based on our 

analysis of claims data. Below, we also 

summarize the public comments that we 

received, if any, on our proposals, 

present our responses to these 

comments, and state our final policies. 

1. Pre-Major Diagnostic Categories 

(MDCs) 

a. Postsurgical Hypoinsulinemia (MS– 

DRG 008 (Simultaneous Pancreas/ 

Kidney Transplant)) 

Diabetes mellitus is a pancreatic 

disorder in which the pancreas fails to 

produce sufficient insulin, or in which 

the body cannot process insulin. Many 

patients with diabetes will eventually 

experience complications of the disease, 

including poor kidney function. When 

these patients show signs of advanced 

kidney disease, they are usually referred 

for transplant evaluation. Currently, 

many doctors recommend that 

individuals with diabetes being 

evaluated for kidney transplantation 

also be considered for pancreas 

transplantation. A successful pancreas 

transplant may prevent, stop, or reverse 

the complications of diabetes. 

Occasionally, secondary diabetes may 

be surgically induced following a 

pancreas transplant. This condition 

would be identified by using ICD–9–CM 

diagnosis code 251.3 (Postsurgical 

hypoinsulinemia). However, currently 

the list of principal diagnosis codes 

assigned to surgical MS–DRG 008 

(Simultaneous Pancreas/Kidney 

Transplant) does not include diagnosis 

code 251.3. Therefore, when diagnosis 

code 251.3 is assigned to a case as a 

principal diagnosis, the case is not 

assigned to MS–DRG 008. Instead, these 

cases are grouped to MS–DRG 652 

(Kidney Transplant) under MDC 11 

(Diseases and Disorders of the Kidney 

and Urinary Tract). The use of diagnosis 

code 251.3 as a principal diagnosis 

without a secondary diagnosis of 

diabetes mellitus and with a procedure 

code for pancreas transplant only during 

that admission results in assignment of 

the case to MS–DRG 628, 629, or 630 

(Other Endocrine, Nutritional & 

Metabolic Operating Room Procedures 

with MCC, with CC, and without CC/ 

MCC, respectively). These MS–DRGs are 

assigned to MDC 10 (Endocrine, 

Nutritional and Metabolic Diseases and 

Disorders). 

As we stated in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23898), 

we believe that the exclusion of 

diagnosis code 251.3 from the list of 

principal diagnosis codes assigned to 

surgical MS–DRG 008 is an error of 

omission. Therefore, in that proposed 

rule, we proposed to add diagnosis code 

251.3 to the list of principal or 

secondary diagnosis codes assigned to 

MS–DRG 008. As a conforming change, 

we also proposed to add diagnosis code 

251.3 to the list of principal or 

secondary diagnosis codes assigned to 

MS–DRG 010 (Pancreas Transplant). 

Comment: Commenters concurred 

with CMS’ proposal to add diagnosis 

code 251.3 to the list of principal or 

secondary diagnosis codes assigned to 

MS–DRG 008. In addition, the 

commenters concurred with the 

proposal to add diagnosis code 251.3 to 

the list of principal or secondary 

diagnosis codes assigned to MS–DRG 

010. 

Response: We appreciate the support 

for our proposals. 

We are adopting as final without 

modification our proposals to add 

diagnosis code 251.3 to the list of 

acceptable principal diagnoses in MS– 

DRG 008 and, as a conforming change, 

to add diagnosis code 251.3 to the list 

of acceptable principal or secondary 

diagnoses in MS–DRG 010. 

b. Bone Marrow Transplants 

As we discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23898), 

we received two requests to review 

whether cost differences between an 

autologous bone marrow transplant 

(where the patient’s own bone marrow 

or stem cells are used) and an allogeneic 

bone marrow transplant (where bone 

marrow or stem cells come from either 

a related or unrelated donor) necessitate 

the creation of separate MS–DRGs to 

more appropriately account for the 

clinical nature of the services being 

rendered as well as the costs. One of the 

requestors stated that there are dramatic 

differences in the costs between the two 

types of transplants where allogeneic 

cases are significantly more costly. 

Bone marrow transplantation and 

peripheral blood stem cell 

transplantation are used in the 

treatment of certain cancers and bone 

marrow diseases. These procedures 

restore stem cells that have been 

destroyed by high doses of 

chemotherapy and/or radiation 

treatment. Currently, all bone marrow 

transplants are assigned to MS–DRG 009 

(Bone Marrow Transplant). 

For the FY 2011 IPPS/LTCH PPS 

proposed rule, we performed an 

analysis of the FY 2009 MedPAR data 

and found 1,664 total cases assigned to 

MS–DRG 009 with average costs of 

approximately $43,877 and an average 

length of stay of approximately 21 days. 

Of these MS–DRG 009 cases, 395 of 

them were allogeneic bone marrow 

transplant cases reported with one of 

the following ICD–9–CM procedure 

codes: 41.02 (Allogeneic bone marrow 

transplant with purging); 41.03 

(Allogeneic bone marrow transplant 

without purging); 41.05 (Allogeneic 

hematopoietic stem cell transplant 

without purging); 41.06 (Cord blood 

stem cell transplant); or 41.08 

(Allogeneic hematopoietic stem cell 

transplant). The average costs of these 

allogeneic cases, approximately 

$64,845, were higher than the overall 

average costs of all cases in MS–DRG 

009, approximately $43,877. The 

average length of stay for the allogeneic 

cases, approximately 28 days, was 

slightly higher than the average length 

of stay for all cases assigned to MS–DRG 

009, approximately 21 days. 

We found 1,269 autologous bone 

marrow transplant cases reported with 

one of the following ICD–9–CM 

procedure codes: 41.00 (Bone marrow 

transplant, not otherwise specified); 

41.01 (Autologous bone marrow 

transplant without purging); 41.04 

(Autologous hematopoietic stem cell 

transplant without purging); 41.07 

(Autologous hematopoietic stem cell 

transplant with purging); or 41.09 

(Autologous bone marrow transplant 

with purging). The average costs of 

these cases, approximately $37,350, was 

less than the overall average costs of all 

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cases in MS–DRG 009 and the average 

costs associated with the allogeneic 

bone marrow transplant cases. The 

average length of stay, of approximately 

19 days, was less than the average 

lengths of stay for all the cases assigned 

to MS–DRG 009 and for the allogeneic 

bone marrow transplant cases. We 

included in our analysis of the 

autologous bone marrow transplants 

cases, 5 cases that were reported with 

procedure code 41.00 (Bone marrow 

transplant, not otherwise specified). 

These 5 cases had average costs of 

approximately $41,084 and an average 

length of stay of approximately 12 days, 

which was similar to the other 

autologous bone marrow transplant 

cases. 

The table below illustrates our 

findings: 

MS–DRG Number of 

cases 

Average 

length of stay Average cost 

009—All cases ............................................................................................................................. 1,664 21.22 $43,877 

009—Cases with allogeneic bone marrow transplants ............................................................... 395 27.7 64,845

009—Cases with autologous bone marrow transplants .............................................................. 1,269 19.1 37,350 

As a result of our analysis, the data 

support the requestor’s suggestion that 

there are cost differences associated 

with the autologous bone marrow 

transplants and allogeneic bone marrow 

transplants and warrants a separate MS– 

DRG for these procedures. Therefore, in 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 23898 and 23899), we 

proposed to delete MS–DRG 009 and 

create two new MS–DRGs: MS–DRG 014 

(Allogeneic Bone Marrow Transplant) 

and MS–DRG 015 (Autologous Bone 

Marrow Transplant). We proposed that 

proposed MS–DRG 014 would include 

cases reported with one of the following 

ICD–9–CM procedure codes: 

• 41.02, Allogeneic bone marrow 

transplant with purging 

• 41.03, Allogeneic bone marrow 

transplant without purging 

• 41.05, Allogeneic hematopoietic 

stem cell transplant without purging 

• 41.06, Cord blood stem cell 

transplant 

• 41.08, Allogeneic hematopoietic 

stem cell transplant 

We proposed that proposed MS–DRG 

015 would include cases reported with 

one of the following ICD–9–CM 

procedure codes: 

• 41.00 (Bone marrow transplant, not 

otherwise specified) 

• 41.01 (Autologous bone marrow 

transplant without purging) 

• 41.04 (Autologous hematopoietic 

stem cell transplant without purging) 

• 41.07 (Autologous hematopoietic 

stem cell transplant with purging) 

• 41.09 (Autologous bone marrow 

transplant with purging) 

Comment: Several commenters 

supported our proposed changes and 

stated that these proposed MS–DRGs 

more precisely recognize the substantial 

differences in clinical complexity and 

costs associated with allogeneic and 

autologous bone marrow transplants, 

allowing for more appropriate hospital 

reimbursement. 

Response: We appreciate the support 

of the commenters. 

Comment: Two commenters who 

supported the proposed reclassification 

of the proposed bone marrow transplant 

MS–DRGs requested further refinement 

to account for severity of illness. The 

commenters suggested a three-way split 

for each proposed MS–DRG: With MCC, 

with CC, and without MCC or CC. A few 

commenters stated that the clinical and 

cost differences between unrelated and 

related allogeneic transplants 

necessitate further reclassification of 

proposed MS–DRG 014. However, one 

of the commenters pointed out that 

there were no ICD–9–CM codes to 

classify allogeneic transplant cases by 

cell source. 

Response: As we outlined in our FY 

2008 IPPS/LTCH PPS final rule with 

comment period published in the 

Federal Register on August 22, 2007 (72 

FR 47169), in designating an MS–DRG 

as one that would be subdivided into 

subgroups based on the presence of a CC 

or an MCC, we developed a set of 

criteria to facilitate our decision-making 

process. In order to warrant creation of 

a CC or an MCC subgroup within a base 

MS–DRG, the subgroup must meet all of 

the following five criteria: 

• A reduction in variance of charges 

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 charges between 

subgroups. 

• There is a $4,000 difference in 

average charges between subgroups. 

We did not further subdivide 

proposed MS–DRG 014 and MS–DRG 

015 into severity levels as the 

commenters suggested because the 

proposed MS–DRGs did not meet our 

criteria for subdivision. With regard to 

the commenter who stated that there 

were no ICD–9–CM codes to classify 

allogeneic transplant cases by cell 

source, we note that, contrary to the 

commenter’s statement about the lack of 

being able to report the donor source, 

there are three ICD–9–CM procedure 

codes that identify the donor source of 

the transplant: 00.91 (Transplant from 

live related donor); 00.92 (Transplant 

from live non-related donor); and 00.93 

(Transplant from cadaver). We refer the 

commenter to section II.G.7. of this 

preamble for further information if the 

commenter is interested in submitting 

suggestions on coding issues. 

After consideration of the public 

comments we received, we are 

finalizing our proposal to delete MS– 

DRG 009, and to create two new MS– 

DRGs: MS–DRG 014 (Allogeneic Bone 

Marrow Transplant) and MS–DRG 015 

(Autologous Bone Marrow Transplant). 

New MS–DRG 014 will include cases 

reported with one of the following ICD– 

9–CM procedure codes: 41.02; 41.03; 

41.05; 41.06; or 41.08. 

New MS–DRG 015 will include cases 

reported with one of the following ICD– 

9–CM procedure codes: 41.00; 41.01; 

41.04; 41.07; or 41.09. 

2. MDC 1 (Nervous System): 

Administration of Tissue Plasminogen 

Activator (tPA) (rtPA) 

During the comment period for the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule, we received a public comment that 

had not been the subject of a proposal 

in that proposed rule. The commenter 

had requested that CMS conduct an 

analysis of diagnosis code V45.88 

(Status post administration of tPA (rtPA) 

in a different facility within the last 24 

hours prior to admission to current 

facility) under MDC 1 (Diseases and 

Disorders of the Nervous System). 

Diagnosis code V45.88 was created for 

use beginning October 1, 2008, to 

identify patients who are given tissue 

plasminogen activator (tPA) at one 

institution, then transferred and 

admitted to a comprehensive stroke 

center for further care. This situation is 

referred to as the ‘‘drip-and-ship’’ issue 

that was discussed at detail in the FY 

2009 IPPS final rule (73 FR 48493). 

According to the commenter, the 

concern at the receiving facilities is that 

the costs associated with [caring for] 

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more complex stroke patients that 

receive tPA are much higher than the 

cost of the drug, presumably because 

stroke patients initially needing tPA 

have more complicated strokes and 

outcomes. However, because these 

patients do not receive the tPA at the 

second or transfer hospital, the 

receiving hospital will not be assigned 

to one of the higher weighted tPA stroke 

MS–DRGs when it admits these patients 

whose care requires the use of intensive 

resources. The MS–DRGs that currently 

include codes for the use of tPA are: 061 

(Acute Ischemic Stroke with Use of 

Thrombolytic Agent with MCC); 062 

(Acute Ischemic Stroke with Use of 

Thrombolytic Agent with CC); and 063 

(Acute Ischemic Stroke with Use of 

Thrombolytic Agent without CC/MCC). 

These MS–DRGs have higher relative 

weights in the hierarchy than the next 

six MS–DRGs relating to brain injury. 

The commenter requested an analysis of 

the use of diagnosis code V45.88 

reflected in the MedPAR data for FY 

2009 and FY 2010. The commenter 

believed that the data would show that 

the use of this code could potentially 

result in a new MS–DRG or a new set 

of MS–DRGs in FY 2011. 

In addressing this public comment in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43798), we noted that 

the comment was out of scope for the 

FY 2010 proposed rule and reiterated 

that the deadline for requesting data 

review and potential MS–DRG changes 

had been the previous December. In the 

FY 2011 IPPS/LTCH PPS proposed rule 

(75 FR 23899), we indicated that we 

were then able to address the 

commenter’s concern because we had 

been able to conduct an analysis of 

MedPAR claims data for this diagnosis 

code for that proposed rule. 

For the FY 2011 proposed rule, we 

undertook an analysis of MedPAR 

claims data for FY 2009. Our analysis 

reflected the data study specifically 

asked for by the requestor, that is, a 

review of the analysis of the presence or 

absence of diagnosis code V45.88. For 

our analysis in the proposed rule, we 

did not include claims for patient cases 

assigned to MS–DRGs 061, 062, or 063. 

Patients whose cases were assigned to 

these MS–DRGs would have been given 

the tPA at the initial hospital, had they 

been admitted there, with assignment of 

procedure code 99.10 (Injection or 

infusion of thrombolytic agent), prior to 

their transfer to a comprehensive stroke 

center. The tPA should not have been 

given at the receiving hospital if it had 

already been administered at the 

transferring hospital; therefore, 

inclusion of procedure code 99.10 on 

the receiving hospital’s claims would 

constitute erroneous coding. Likewise, 

we did not include MS–DRGs 067 and 

068 (Nonspecific CVA & Precerebral 

Occlusion without Infarction with MCC, 

and without MCC, respectively), or MS– 

DRG 069 (Transient Ischemia). We 

believe that claims assigned to MS– 

DRGs 067, 068, and 069 were unlikely 

to contain cases in which tPA had been 

administered. 

Our data analysis included MS–DRGs 

064, 065, and 066 (Intracranial 

Hemorrhage or Cerebral Infarction with 

MCC, with CC, and without CC/MCC, 

respectively) because claims involving 

diagnosis code V45.88 would be 

properly reported in the data for these 

MS–DRGs for FY 2009. This analysis 

can be viewed in the FY 2011 IPPS/ 

LTCH PPS proposed rule published in 

the Federal Register on May 4, 2010 (75 

FR 23899 through 23900). Based on our 

review of the data for all cases in MS– 

DRGs 064, 064, and 066, compared to 

the subset of cases containing the 

V45.88 secondary diagnosis code, we 

concluded that the movement of cases 

with diagnosis code V45.88 as a 

secondary diagnosis from MS–DRGs 

064, 065, and 066 into MS–DRGs 061, 

062, and 063 was not warranted. 

We determined that the differences in 

the average lengths of stay and the 

average costs were too small to warrant 

an assignment to the higher weighted 

MS–DRGs. Likewise, neither the lengths 

of stay nor the average costs were 

deemed substantial enough to justify the 

creation of an additional MS–DRG for 

transferred tPA cases, or to create 

separate MS–DRGs that would mirror 

the MCC, CC or without CC/MCC 

severity levels. 

Therefore, for FY 2011, we did not 

propose any change to MS–DRGs 061, 

062, 063, 064, 065, or 066, or any 

change involving the assignment of 

diagnosis code V45.88. 

Comment: One commenter agreed 

with CMS’ proposal to not make any 

changes to this group of MS–DRGs. The 

commenter also suggested revisiting this 

topic and reviewing the data after CMS 

begins capturing 25 diagnosis codes and 

25 procedure codes in future claims 

data. Another commenter suggested that 

diagnosis code V45.88 may be 

underreported, or, even if reported, may 

appear in a position [on the claim] that 

is lower than the nine diagnosis codes 

currently processed by Medicare. 

Response: The HIPAA ASC X12 

Technical Reports Type 3, Version 

005010 (Version 5010) standards system 

update is discussed at length elsewhere 

in this preamble. Currently, CMS’ 

claims processing system recognizes up 

to nine diagnosis codes and up to six 

procedure codes for MS–DRG 

determination. The ability to process up 

to 16 additional diagnosis codes and up 

to 19 additional procedure codes will 

begin on January 1, 2011, according to 

the Version 5010 update. We will be 

interested to see the difference in our 

MedPAR data that results from the 

additional diagnosis and procedure 

codes, and we will continue to follow 

the tPA, ‘‘drip-and-ship,’’ and diagnosis 

code V45.88 topic in our annual 

analysis. 

Comment: One commenter requested 

that CMS continue to monitor the costs 

and lengths of stays for these patients 

identified by diagnosis code V45.88 in 

order to determine whether, with 

improved coding compliance and 

accurate cost reporting, there will be 

any change to the initial findings such 

that MS–DRG assignments for the care 

of these patients need to be changed. 

Response: We review MS–DRG 

assignments annually and will continue 

to monitor this category of patients in 

the future. 

Comment: One commenter believed 

that the CMS data reported in the FY 

2011 IPPS/LTCH PPS proposed rule (75 

FR 23899 through 23900) reflects that 

the V45.88 diagnosis code is being 

underused and that the numbers do not 

truly represent the much more common 

occurrence of stroke centers receiving 

stroke patients who already had tPA 

administered. With this underuse in 

mind, the commenter requested that 

CMS issue a transmittal or MLN Matters 

article that would inform physicians 

and coders alike about the existence of 

the code and simultaneously educate 

them on the proper use of the code. 

Response: While CMS is responsible 

for both changes to the ICD–9–CM 

procedure coding system through the 

ICD–9–CM Coordination and 

Maintenance Committee and the 

incorporation of the resulting diagnostic 

and procedure coding changes in CMS’ 

initiatives, we do not provide coding 

advice. CMS looks to our partners in the 

industry to fulfill this responsibility, 

specifically through the AHA in their 

publication Coding Clinic for ICD–9–CM 

and through the AHIMA in their coding 

training programs. 

In addition, we suggest that this 

commenter encourage its societies to 

educate their members through their 

newsletter or through coding and 

documentation presentations at society 

meetings. 

Comment: One commenter was 

concerned that the data analysis 

described above and displayed in the 

proposed rule did not properly compare 

certain patient populations. The 

commenter suggested that patients with 

ICD–9–CM codes associated with 

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ischemic stroke that have an 

accompanying V-code be compared to 

those ischemic stroke patients with the 

ICD–9–CM codes who were not treated 

with tPA. The commenter suggested 

limiting the MS–DRGs to 064, 065, and 

066, as well as 067 and 068, and further 

noted that the V-code should only be 

used for ischemic stroke patients who 

have received tPA at another hospital. 

The commenter believed that ischemic 

stroke patients who have not received 

tPA at another hospital should not be 

included in the V-code count. The 

commenter also recommended that 

cases in which hemorrhage is the cause 

of the stroke should not be included 

with cases of ischemic stroke since costs 

associated with these diseases are often 

different from each other. The 

commenter indicated that a more 

refined analysis of the data would show 

that these cases should be split into 

separate MS–DRGs, which would allow 

the cost differences to become apparent. 

Response: With regard to use of the 

V-code for ischemic stroke patients who 

have received tPA at another hospital, 

we point out that the correct use of 

V45.88 was created for that category of 

patients. Correct coding practice as well 

as the code title itself of V45.88 (Status 

post administration of tPA (rtPA) in a 

different facility within the last 24 hours 

prior to admission to current facility) 

precludes inclusion of this code by the 

sending hospital. 

With regard to the comment that 

ischemic stroke patients who have not 

received tPA at another hospital should 

not be included in the V-code count, we 

point out that these patients had not 

been included in the analysis published 

in the proposed rule; neither were they 

included in the analysis presented in 

this final rule. They would not appear 

in the data as having received tPA at 

another facility. Instead, if they had 

received tPA at the second or receiving 

hospital, that hospital would have 

coded those cases with ICD–9–CM 

procedure code 99.10 (Injection or 

infusion of thrombolytic agent), and the 

cases would have been assigned to MS– 

DRGs 061, 062, and 063 (Acute Ischemic 

Stroke with use of Thrombolytic Agent 

with MCC, with CC, or without CC/ 

MCC, respectively). 

In our original analysis for the 

proposed rule, we believe that we did 

address all of the commenter’s concerns. 

However, for this final rule, in response 

to the commenter’s request, we have 

arrayed the data from the original 

analysis in the following table in a 

manner that is divided into more 

categories. We also have included MS– 

DRGs 067 and 068 in the comparison as 

well, per the commenter’s request. 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C 

The analysis of MS–DRGs 067 and 

068 above does not include a 

breakdown for cases of hemorrhage. 

That is because the principal diagnoses 

contained in these two MS–DRGs 

describe occlusion without infarct, by 

arterial site, except for diagnosis code 

436 (Acute but ill-defined, 

cerebrovascular disease). The 

commenter believes diagnosis code 436 

is often interpreted to be a ‘‘stroke, not 

otherwise specified’’ code and has been 

used to describe stroke events without 

a clear etiology, and wanted the analysis 

included for that reason. 

When CMS created the MS–DRGs for 

use beginning October 1, 2007 (FY 

2008), our purpose was, and remains, to 

accurately stratify groups of Medicare 

patients with varying levels of severity. 

Two of our major goals were to create 

DRGs that would more accurately reflect 

the severity of the cases assigned to 

them and to create groups that would 

have sufficient volume so that 

meaningful and stable payment weights 

could be developed. In designating an 

MS–DRG as one that could be 

subdivided into subgroups based on the 

presence of a CC or MCC, we developed 

a set of five criteria to facilitate our 

decision making process. The subgroup 

must meet all of the five criteria in order 

for division into CC or MCC splits to be 

considered. The entire discussion 

surrounding this process can be found 

in the FY 2008 IPPS/LTCH PPS final 

rule with comment period (72 FR 

47169). 

Even with additional review of the 

data, we are unable to justify either 

moving the ‘‘drip-and-ship’’ cases to 

higher weighted MS–DRGs or to 

consider creation of unique MS–DRGs 

for these cases. There is a paucity of 

data to substantiate such a change, 

whether due to underreporting of 

diagnosis code V45.88, or whether the 

tPA administered in another hospital 

was not documented in the receiving 

hospital’s records, or whether the code 

was reported to CMS but was further 

down the list than the nine diagnosis 

codes considered for MS–DRG 

assignment. The differences in the 

average lengths of stay and the average 

costs represented in the above table are 

too small to warrant an assignment to 

the higher weighted MS–DRGs, and the 

differences in the length of stay and 

costs are not substantial enough to 

justify the creation of additional MS– 

DRGs. Therefore, for FY 2011, we are 

not making any changes to MS–DRGs 

061, 062, 063, 064, 065, 066, 067, and 

068; nor are we making changes to the 

MS–DRG assignment of diagnosis code 

V45.88. 

We will continue to monitor these 

MS–DRGs and diagnosis code V45.88 in 

upcoming annual reviews of the IPPS. 

3. MDC 5 (Diseases and Disorders of the 

Circulatory System): Intraoperative 

Fluorescence Vascular Angiography 

(IFVA) and X-Ray Coronary 

Angiography in Coronary Artery Bypass 

Graft Surgery 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43785 through 

43787), we discussed a request we 

received to reassign cases reporting the 

use of intraoperative fluorescence 

vascular angiography (IFVA) with 

coronary artery bypass graft (CABG) 

procedures from MS–DRGs 235 and 236 

(Coronary Bypass without Cardiac 

Catheterization with and without MCC, 

respectively) to MS–DRG 233 (Coronary 

Bypass with Cardiac Catheterization 

with MCC) and MS–DRG 234 (Coronary 

Bypass with Cardiac Catheterization 

without MCC). Effective October 1, 

2007, procedure code 88.59 

(Intraoperative fluorescence vascular 

angiography (IFVA)) was established to 

describe this technology. 

In addition, we also discussed 

receiving related requests (74 FR 43798 

through 43799) that were outside the 

scope of issues addressed for MDC 5 in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule. There were three 

components to these requests. The first 

component involved the creation of new 

MS–DRGs. One request was to create 

four new MS–DRGs that would 

differentiate the utilization of resources 

between intraoperative angiography and 

IFVA when utilized with CABG. A 

second request was to create only one 

new MS–DRG to separately identify the 

use of intraoperative angiography, by 

any method, in CABG surgery. The 

second component involved reviewing 

the ICD–9–CM procedure codes. 

Currently, the ICD–9–CM procedure 

codes do not distinguish between 

preoperative, intraoperative, and 

postoperative angiography. Procedure 

code 88.59 (Intraoperative fluorescence 

vascular angiography (IFVA)) is one 

intraoperative angiography technique 

that allows visualization of the coronary 

vasculature. The third component 

involved reassigning cases with 


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procedure code 88.59 to the ‘‘Other 

Cardiovascular MS–DRGs’’: MS–DRGs 

228, 229, and 230 (Other Cardiothoracic 

Procedures with MCC, CC, and without 

CC/MCC, respectively). We stated our 

intent to consider these requests during 

the FY 2011 rulemaking process. 

After publication of the FY 2010 

IPPS/RY 2010 LTCH PPS final rule, we 

were contacted by one of the requestors, 

the manufacturer of the IFVA 

technology. We met with the requestor 

in mid-November 2009 to discuss 

evaluating the data for IFVA (procedure 

code 88.59) again in consideration of a 

proposal to create new MS–DRGs and to 

discuss a request for a new procedure 

code(s). 

IFVA technology consists of a mobile 

device imaging system with software. It 

is used to test cardiac graft patency and 

technical adequacy at the time of 

coronary artery bypass grafting (CABG). 

While this system does not involve 

fluoroscopy or cardiac catheterization, it 

has been suggested that it yields results 

that are similar to those achieved with 

selective coronary arteriography and 

cardiac catheterization. Intraoperative 

coronary angiography provides 

information about the quality of the 

anastomosis, blood flow through the 

graft, distal perfusion, and durability. 

For additional information regarding 

IFVA technology, we refer readers to the 

September 28–29, 2006 ICD–9–CM 

Coordination and Maintenance 

Committee meeting handout at the 

following Web site: http://www.cms.

hhs.gov/ICD9ProviderDiagnosticCodes/

03_meetings.asp#TopOfPage. 

a. New MS–DRGs for Intraoperative 

Fluorescence Vascular Angiography 

(IFVA) With CABG 

As stated in the FY 2010 IPPS/LTCH 

PPS proposed rule (75 FR 23900), the 

manufacturer requested that we create 

four new MS–DRGs for CABG to 

distinguish CABG surgeries performed 

with IFVA and those performed without 

IFVA. According to the requestor, these 

four new MS–DRGs would correspond 

to the existing MS–DRG for CABG but 

would also include intraoperative 

angiography. The requestor proposed 

the following four new MS–DRGs: 

MS–DRG XXX (Coronary Bypass with 

Cardiac Catheterization with MCC with 

Intraoperative Angiography). 

MS–DRG XXX (Coronary Bypass with 

Cardiac Catheterization without MCC 

with Intraoperative Angiography). 

MS–DRG XXX (Coronary Bypass 

without Cardiac Catheterization with 

MCC with Intraoperative Angiography). 

MS–DRG XXX (Coronary Bypass 

without Cardiac Catheterization without 

MCC with Intraoperative Angiography). 

For the FY 2011 proposed rule, using 

claims data from the FY 2009 MedPAR 

file, we examined cases identified by 

procedure code 88.59 in MS–DRGs 233, 

234, 235, and 236. As shown in the table 

below, for both MS–DRGs 235 and 236, 

the cases utilizing IFVA technology 

(code 88.59) have a shorter length of 

stay and lower average costs compared 

to all cases in MS–DRGs 235 and 236. 

There were a total of 10,281 cases in 

MS–DRG 235 with an average length of 

stay of 10.61 days and average costs of 

$34,639. There were 114 cases 

identified by procedure code 88.59 with 

an average length of stay of 10.38 days 

with average costs of $28,238. In MS– 

DRG 236, there were a total of 22,410 

cases with an average length of stay of 

6.37 days and average costs of $23,402; 

and there were 186 cases identified by 

procedure code 88.59 with an average 

length of stay of 6.54 days and average 

costs of $19,305. Similar to the data 

reported last year, the data for FY 2009 

clearly demonstrate that the IFVA cases 

(identified by procedure code 88.59) are 

assigned appropriately to MS–DRGs 235 

and 236. We also examined cases 

identified by procedure code 88.59 in 

MS–DRGs 233 and 234. Likewise, in 

MS–DRGs 233 and 234 cases identified 

by code 88.59 reflect shorter lengths of 

stay and lower average costs compared 

to the remainder of the cases in those 

MS–DRGs; and there were a total of 

16,475 cases in MS–DRG 233 with an 

average length of stay of 13.47 days and 

average costs of $42,662. There were 58 

cases identified by procedure code 

88.59 with an average length of stay of 

12.12 days and average costs of $35,940. 

In MS–DRG 234, there were a total of 

23,478 cases with an average length of 

stay of 8.61 days and average costs of 

$29,615; and there were 67 cases 

identified by procedure code 88.59 with 

an average length of stay of 8.85 days 

and average costs of $25,379. The data 

clearly demonstrate the IFVA cases 

(identified by procedure code 88.59) are 

appropriately assigned to MS–DRGs 233 

and 234. 

MS–DRG Number of 

cases 

Average 

length of stay Average cost 

235—All cases ............................................................................................................................. 10,281 10.61 $34,639 

235—Cases with procedure code 88.59 ..................................................................................... 114 10.38 28,238 

235—Cases without procedure code 88.59 ................................................................................ 10,167 10.62 34,711 

236—All cases ............................................................................................................................. 22,410 6.37 23,402 

236—Cases with code procedure 88.59 ..................................................................................... 186 6.54 19,305 

236—Cases without procedure code 88.59 ................................................................................ 22,224 6.37 23,436 

233—All cases ............................................................................................................................. 16,475 13.47 42,662 

233—Cases with procedure code 88.59 ..................................................................................... 58 12.12 35,940 

233—Cases without procedure code 88.59 ................................................................................ 16,417 13.47 42,686 

234—All cases ............................................................................................................................. 23,478 8.61 29,615 

234—Cases with procedure code 88.59 ..................................................................................... 67 8.85 25,379 

234—Cases without procedure code 88.59 ................................................................................ 23,411 8.61 29,627 

We stated in the proposed rule that if 

the cases identified by procedure code 

88.59 were proposed to be reassigned 

from MS–DRGs 235 and 236 to MS– 

DRGs 233 and 234, they would be 

significantly overpaid. In addition, we 

indicated that because the cases in MS– 

DRGs 235 and 236 did not actually have 

a cardiac catheterization performed, a 

proposal to reassign cases identified by 

procedure code 88.59 would result in 

lowering the relative weights of MS– 

DRGs 233 and 234 where a cardiac 

catheterization is truly performed. 

In summary, in the proposed rule, we 

indicated that the data do not support 

moving IFVA cases (procedure code 

88.59) from MS–DRGs 235 and 236 to 

MS–DRGs 233 and 234. Therefore, we 

did not propose to make any MS–DRG 

modifications for cases reporting 

procedure code 88.59 for FY 2011. 

Comment: Several commenters agreed 

with CMS’ proposal to not make any 

MS–DRG modifications in FY 2011 for 

cases reporting procedure code 88.59. 

One commenter, the manufacturer, 

reported that they worked with a 

consulting group to conduct an analysis 

on a subset of MedPAR claims data that 

reported procedure code 88.59. 

According to the data presented, the 

consultant’s methodology for the 

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analysis involved examining only cases 

from the facilities that reported 

procedure code 88.59, in any procedure 

code sequencing position, in each one of 

the four MS–DRGs previously discussed 

(233, 234, 235, or 236). The 

manufacturer asserted that results of the 

consultant’s analysis varied 

significantly from the CMS data and that 

their data supported reassignment of 

cases reporting procedure code 88.59 

from MS–DRGs 235 and 236 to MS– 

DRGs 233 and 234. 

Response: We acknowledge the 

commenters who supported our 

proposal to not make any MS–DRG 

modifications for cases reporting 

procedure code 88.59 for FY 2011. In 

response to the manufacturer who 

worked with the consulting group, we 

point out that the process of evaluating 

MS–DRG reclassifications is not based 

on subsets of facility-specific data, but 

rather, as stated earlier in section II.B.2 

of the preamble to this final rule, in 

deciding whether to make modifications 

to the MS–DRGs we consider whether 

the resource consumption and clinical 

characteristics of the patients with a 

given set of conditions are significantly 

different than the remaining patients in 

the MS–DRG. In addition, 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. As the 

manufacturer noted, the consultant’s 

analysis submitted for consideration 

was based on a subset of facility-specific 

claims reporting code 88.59. Therefore, 

it is not comparable to the analysis 

conducted by CMS. While the 

consultant’s analysis included cases that 

reported procedure code 88.59, it did 

not reflect the differences in comparison 

to MedPAR claims data, as the CMS 

analysis did, that are representative of 

the remaining Medicare patients 

grouped in the above mentioned 

relevant MS–DRGs. 

In addition, the manufacturer also 

submitted the consultant’s summary of 

observations from the analysis which 

stated two key points: 

(1) The number of discharges they 

observed in the MedPAR data was 

slightly higher than the volumes 

reported in the proposed rule. They 

believed this may be the result of 

slightly different data files between 

what they examined and what CMS 

used. The volume differences are 

comparatively small. 

(2) They were unable to account for 

differences in their cost calculation for 

cases reporting procedure code 88.59 

and the CMS published results. Their 

hypothesis was that, because these 

represent a small number of cases, cost 

report differences may be playing a 

significant role in the calculation. 

Currently, CMS’ systems only process 

up to six procedure codes and, as the 

commenter stated, the consultant’s 

methodology considered procedure 

code 88.59 in any sequencing position. 

Therefore, it is unclear how many cases 

may have been reported after the sixth 

position. Effective January 1, 2011, the 

HIPAA ASC X12 Technical Reports 

Type 3, Version 005010 (Version 5010) 

standards system update will become 

effective. The version 5010 format will 

allow facilities to report up to 25 

diagnoses and 25 procedure codes, and 

CMS’ systems will begin to process all 

25 diagnosis and procedure codes. 

(Further detail regarding this issue is 

discussed in section II.G.11. of this final 

rule.). 

Lastly, the manufacturer concluded 

that ‘‘the cost data continue to be 

unreliable due to the sample size and 

inherent limitations of cost reporting.’’ 

We reiterate that the analysis conducted 

by the manufacturer and consultant 

were not comparable to the analysis 

conducted by CMS that examined cases 

reporting procedure code 88.59 against 

all cases in the specified MS–DRGs 

versus the consultant’s analysis that 

only provided data on those facilities 

that are using the technology and their 

associated costs. Therefore, we are 

finalizing our proposal to not reassign 

cases reporting procedure code 88.59 for 

FY 2011. 

b. New MS–DRG for Intraoperative 

Angiography, by Any Method, With 

CABG 

We also received a request to create a 

single MS–DRG for any type of 

intraoperative angiography utilized in 

CABG surgery. The requestor suggested 

the following title for the proposed new 

MS–DRG: XXX Coronary Bypass with 

Intraoperative Angiography, by any 

Method. 

As we indicated in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23901), 

currently, the only ICD–9–CM 

procedure code that identifies an 

intraoperative angiography is procedure 

code 88.59 (Intraoperative fluorescence 

vascular angiography), as described in 

the previous section. Due to the 

structure of the ICD–9–CM procedure 

classification system, it is not possible 

to distinguish when other types of 

angiography are performed 

intraoperatively. Therefore, we 

indicated that we were unable to 

evaluate any data, other than that for 

procedure code 88.59, as shown in the 

tables above. We did not propose to 

create a new MS–DRG in FY 2011 for 

coronary bypass with intraoperative 

angiography, by any method. 

Comment: Several commenters agreed 

with CMS’ proposal to not create a new 

MS–DRG in FY 2011 for coronary 

bypass with intraoperative angiography, 

by any method. Another commenter, the 

manufacturer, acknowledged the 

limitations of the ICD–9–CM coding 

structure and the ability to currently 

only identify one method of 

intraoperative angiography. The 

manufacturer stated that the creation of 

a new ICD–9–CM procedure code to 

identify intraoperative angiography by 

conventional X-ray angiography would 

allow CMS to obtain accurate data on 

intraoperative or completion 

angiography by either method. 

Response: We appreciate the 

commenter’s support of our proposal to 

not create a new MS–DRG in FY 2011 

for coronary bypass with intraoperative 

angiography, by any method. We also 

acknowledge the manufacturer’s 

concern regarding the inability to 

identify intraoperative angiography by 

conventional X-ray angiography. As 

discussed previously (75 FR 23901) and 

in further detail below, proposals for 

creating a new procedure code must be 

submitted to the ICD–9–CM 

Coordination and Maintenance 

Committee for consideration. 

c. New Procedure Codes 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23901), we 

indicated that, in response to our 

invitation to submit public comments 

regarding the proposal not to make any 

MS–DRG modifications for cases 

reporting procedure code 88.59 in the 

FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24106–24107), one 

requestor presented another option 

involving the creation of new ICD–9– 

CM procedure codes. According to the 

requestor, the purpose of these new 

codes would be to separately identify 

the two technologies used to perform 

intraoperative coronary angiography in 

CABG surgery: X-ray coronary 

angiography with cardiac 

catheterization and fluoroscopy versus 

intraoperative fluorescence coronary 

angiography (IFVA). The requestor 

stated that due to the structure of the 

current codes and MS–DRGs for CABG, 

it is difficult to identify when x-ray 

angiography is performed. 

X-ray angiography is commonly 

performed as a separate procedure in a 

catheterization laboratory. Currently, 

there are no procedure codes to 

distinguish if this angiography was 

performed preoperatively, 

intraoperatively, and/or postoperatively. 

We informed the requestor that they 

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could submit a proposal for creating a 

new procedure code(s) to the ICD–9–CM 

Coordination and Maintenance 

Committee for its consideration. 

Therefore, in the FY 2011 proposed 

rule, we indicated that this topic would 

be further evaluated through the ICD–9– 

CM Coordination and Maintenance 

Committee meeting process. 

Comment: Similar to comments made 

at the March 9–10, 2010 ICD–9–CM 

Coordination and Maintenance 

Committee meeting, one commenter, the 

manufacturer, stated that the resource 

utilization costs for a diagnostic cardiac 

catheterization, which is routinely 

performed in a catheterization 

laboratory may differ from those costs 

incurred for performing intraoperative 

completion angiography concomitant 

with a coronary artery bypass graft 

procedure in a surgical suite. However, 

the manufacturer noted that, regardless 

of the technology (IFVA or X-ray 

angiography), performance of 

intraoperative completion angiography 

in a surgical suite involves similar 

resources. The commenter further noted 

that an intraoperative completion 

angiography performed with X-ray 

angiography cannot be separately 

identified from a diagnostic cardiac 

catheterization due to the coding 

structure. According to the commenter, 

this scenario creates a payment 

incentive for physicians to select X-ray 

technology to perform a completion 

angiography, despite the known risks to 

patients associated with exposure to 

radiation because the code used to 

report X-ray angiography (cardiac 

catheterization) is recognized in the 

MS–DRG assignment. The commenter 

urged CMS to remove this incentive by 

ensuring that procedure code 88.59 will 

impact MS–DRG assignment in the same 

way that the code for X-ray angiography 

does. 

Response: As stated above, requests 

for updates and changes to the 

procedure coding system are discussed 

through the ICD–9–CM Coordination 

and Maintenance Committee meeting 

process. At the March 9–10, 2010 

meeting, a proposal was submitted by 

the manufacturer and presented. Details 

of the initial proposal regarding 

intraoperative angiography with 

coronary artery bypass graft discussed at 

the March 2010 ICD–9–CM 

Coordination and Maintenance 

Committee meeting along with the 

summary report of the meeting can be 

located at the following CMS Web site: 

http://www.cms.gov/ICD9Provider

DiagnosticCodes/03_meetings.asp. 

Currently, there is not a mechanism to 

analyze if both technologies utilize 

similar resources in the surgical suite as 

the manufacturer asserts since, as stated 

several times, the coding structure does 

not currently distinguish between 

intraoperative X-ray angiography and 

IFVA. Despite the inability to currently 

differentiate between the two 

technologies in an intraoperative 

setting, we disagree that physicians 

have a payment incentive to utilize Xray angiography over IFVA to perform a 

completion angiography. The current 

MS–DRG assignments are based on 

claims data for the purposes of 

maintaining clinically coherence, 

accounting for patient’s severity of 

illness, ensuring similar utilization of 

resources and complexity of services 

and are not formulated to provide 

incentives as the commenter indicated. 

We believe that physicians provide the 

most clinically appropriate, quality of 

care and make decisions with respect to 

the individual patient’s needs and not 

subject patients to inherent risk. 

In response to the manufacturer’s 

request urging CMS to ensure that IFVA 

impacts the MS–DRG assignment in the 

same way as a cardiac catheterization 

currently does, as stated in the FY 2010 

IPPS/LTCH PPS final rule (74 FR 

43787), it would be inappropriate to 

reassign cases reporting the use of IFVA 

to higher weighted MS–DRGs merely as 

an incentive for hospitals to invest in 

the IFVA technology. 

As stated earlier, at the March 2010 

meeting, an initial proposal was 

presented and, as a result, one aspect of 

the two-part proposal was finalized that 

involves an update to an existing code 

and the creation of a new code for IFVA. 

Effective October 1, 2010 (FY 2011), 

procedure code 88.59 has been revised 

to uniquely identify intraoperative 

coronary fluorescence vascular 

angiography and new code 17.71 has 

been created to identify noncoronary 

intraoperative fluorescence vascular 

angiography. We do not agree with the 

manufacturer’s comment that these new 

code changes for FY 2011 will facilitates 

the MS–DRG case reassignment that the 

commenter proposed for procedure code 

88.59 and believed was appropriate for 

policy. CMS does believe additional 

data are needed to fully evaluate the 

volume of cases and resources involved 

to perform intraoperative completion 

angiography using X-ray technology 

versus IFVA. Therefore, CMS is 

planning to discuss other options at a 

future ICD–9–CM Coordination and 

Maintenance Committee meeting. 

In summary, we are finalizing our 

proposal not to make any changes to 

MS–DRGs 233, 234, 235 or 236 for cases 

reporting the use of procedure code 

88.59. 

d. MS–DRG Reassignment of 

Intraoperative Fluorescence Vascular 

Angiography (IFVA) 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23901 and 23902), 

we indicated that we had received a 

request suggesting that we reassign 

procedure code 88.59 (Intraoperative 

Fluorescence Vascular Angiography), to 

the ‘‘Other Cardiovascular MS–DRGs’’: 

MS–DRGs 228, 229, and 230 (Other 

Cardiothoracic Procedures with MCC, 

CC, and without CC/MCC, respectively). 

The requestor noted that these MS– 

DRGs have three levels of severity and 

that other procedures assigned to these 

MS–DRGs (for example, 

transmyocardial revascularization) are 

frequently performed at the same time 

as a CABG. The requestor believed that 

reassigning cases that report IFVA 

(procedure code 88.59) to these MS– 

DRGs would not result in a significant 

overpayment to hospitals. 

In the FY 2011 proposed rule, we 

pointed out that, in the surgical 

hierarchy, MS–DRGs 228, 229, and 230 

rank higher than MS–DRGs 233, 234, 

235, and 236, which were evaluated in 

the above tables for CABG procedures 

performed with IFVA (procedure code 

88.59). The surgical hierarchy reflects 

the relative resource requirements of 

various surgical procedures. For 

example, if a CABG surgery were 

performed along with another procedure 

currently assigned to MS–DRGs 228, 

229, and 230, the case would be 

assigned to one of the ‘‘Other 

Cardiothoracic Procedures MS–DRGs’’ 

(228, 229, and 230) because patients 

with multiple procedures are assigned 

to the highest surgical hierarchy to 

which one of the procedures is assigned. 

Therefore, as the data shown above 

did not demonstrate that IFVA utilized 

an equivalent (or additional) amount of 

resources as a cardiac catheterization to 

warrant a proposal to reassign IFVA 

cases to MS–DRGs 233 and 234 and the 

fact that IFVA cases with CABG 

performed with a procedure assigned to 

MS–DRGs 228, 229, and 230 would 

already be grouped to those same MS– 

DRGs, we did not propose to reassign 

cases reporting procedure code 88.59 to 

MS–DRGs 228, 229, and 230 for FY 

2011. 

Comment: Several commenters 

supported the proposal not to reassign 

cases reporting procedure code 88.59 to 

MS–DRGs 228, 229, and 230. 

Response: We appreciate the 

commenters’ support. 

We are finalizing our proposal to not 

reassign cases reporting procedure code 

88.59 to MS–DRGs 228, 229, and 230 for 

FY 2011. 

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4. MDC 6 (Diseases and Disorders of the 

Digestive System): Gastrointestinal 

Stenting 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR43799), we 

discussed a request we received to 

create new MS–DRGs in FY 2011 to 

better identify patients who undergo the 

insertion of a gastrointestinal stent. The 

request was considered outside the 

scope of issues addressed in the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule; therefore, we stated our intent to 

consider this request during the FY 

2011 rulemaking process. 

Gastrointestinal stenting is performed 

by inserting a tube (stent) into the 

esophagus, duodenum, biliary tract or 

colon to reestablish or maintain patency 

of these structures and allow 

swallowing, drainage, or passage of 

waste. The commenter requested that 

the new MS–DRGs be subdivided into 

three severity levels (with MCC, with 

CC, and without CC/MCC) to better 

align payment rates with resource 

consumption and improve the clinical 

coherence of these cases. 

In its own analysis using FY 2008 

MedPAR data, the commenter identified 

gastrointestinal stenting cases using 

relevant diagnosis codes and a 

combination of procedure codes with 

revenue code 0278 in MS–DRGs 374, 

375, and 376 (Digestive Malignancy 

with MCC, with CC, and without CC/ 

MCC, respectively), MS–DRGs 391and 

392 (Esophagitis, Gastroenteritis and 

Miscellaneous Digestive Disorders with 

MCC and without MCC, respectively), 

and MS–DRGs 393, 394, and 395 (Other 

Digestive System Diagnoses with MCC, 

with CC, and without CC/MCC, 

respectively) in MDC 6 (Diseases and 

Disorders of the Digestive System); and 

MS–DRGs 435, 436, and 437 

(Malignancy of Hepatobiliary System or 

Pancreas with MCC, with CC, and 

without CC/MCC, respectively) in MDC 

7 (Diseases and Disorders of the 

Hepatobiliary System and Pancreas). 

As stated above, the commenter 

utilized a combination of procedure 

codes along with revenue code 0278 for 

its analysis. There were a total of six 

procedure codes included, of which, 

only three (procedure codes 42.81, 

51.87, and 52.93) actually describe the 

insertion of a stent. The complete list of 

procedure codes is as follows: 

• 42.81 (Insertion of permanent tube 

into esophagus) 

• 45.13 (Other endoscopy of small 

intestine) 

• 45.22 (Endoscopy of large intestine 

through artificial stoma) 

• 46.85 (Dilation of intestine) 

• 51.87 (Endoscopic insertion of stent 

(tube) into bile duct) 

• 52.93 (Endoscopic insertion of stent 

(tube) into pancreatic duct) 

The commenter aggregated the results 

by the previously mentioned MS–DRG 

groupings and did not present results 

for individual stenting procedures. 

According to the commenter, mean 

standardized charges for gastrointestinal 

stenting procedures were higher than 

those for nonstenting procedures across 

all levels of severity of illness. In 

addition, the commenter believed that 

the difference in charges was not simply 

related to the costs of the stents, but 

rather that the extent of the difference 

in charges reflected the severity of 

illness and resource intensity associated 

with gastrointestinal stenting 

procedures. 

As indicated in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23902), 

in response to the commenter’s request, 

we pointed out that we do not utilize 

revenue codes in our process to evaluate 

if new MS–DRGs are warranted. The use 

of revenue codes in the MS–DRG 

reclassification process would require a 

major structural change from the current 

process that has been utilized since the 

inception of the IPPS. In addition, the 

commenter included procedure codes in 

its analysis that do not identify the 

insertion of a stent; thereby, the data are 

unreliable. Furthermore, two procedure 

codes describing the insertion of a 

colonic stent were recently 

implemented, effective with discharges 

occurring on or after October 1, 2009— 

procedure code 46.86 (Endoscopic 

insertion of colonic stent(s)) and 

procedure code 46.87 (Other insertion of 

colonic stent(s)). However, we do not 

have data currently available on these 

two new procedure codes to include 

them in a comprehensive analysis. 

Lastly, as the commenter indicated, the 

differences between those procedures 

with and without stents is a reflection 

on the severity of illness and resource 

consumption associated with these 

types of procedures. The commenter 

also acknowledged that patients 

receiving a gastrointestinal stent who 

are severely debilitated due to 

prolonged illness are reflected by the 

fact that the majority of cases are 

assigned to MS–DRGs for patients with 

MCCs (major complications or 

comorbidities). Therefore, the medical 

MS–DRGs to which these procedures 

are currently assigned already account 

for the severity of illness and intensity 

of resources utilized. 

For the FY 2011 IPPS/LTCH PPS 

proposed rule, using FY 2009 MedPAR 

data, we analyzed the three procedure 

codes that truly identify and describe 

the insertion of a stent (procedure codes 

42.81, 51.87, and 52.93) within the MS– 

DRGs referenced above. Similar to the 

commenter’s findings, our analysis 

demonstrated a small volume of cases in 

which insertion of a gastrointestinal 

stent occurred in the specified MS– 

DRGs. Of the 411,390 total cases across 

the digestive system MS–DRGs the 

requestor identified, there were only 

2,011 cases that involved the actual 

insertion of a gastrointestinal stent. 

These cases had average costs ranging 

from a low of $5,846 to a high of 

$17,626. Based on these findings, in the 

proposed rule, we indicated that we did 

not believe it was appropriate to assign 

cases with such disparity in costs into 

a single, new MS–DRG. Furthermore, in 

applying the five criteria used to 

establish new MS–DRGs, we indicated 

that the data do not support the creation 

of new MS–DRGs with three severity 

levels (with MCC, with CC, and without 

CC/MCC). 

For the reasons stated above, we 

invited the public to submit comments 

on our proposal not to make any MS– 

DRG modifications to cases involving 

the use of gastrointestinal stents for FY 

2011. 

Comment: Several commenters in 

general supported CMS’ proposal not to 

make any MS–DRG modifications 

involving the use of gastrointestinal 

stents for FY 2011. One commenter 

expressed appreciation for CMS’ efforts 

to consider its request to create a new 

series of MS–DRGs for gastrointestinal 

stent placement cases. The commenter 

acknowledged the lack of specific ICD– 

9–CM procedure codes for colonic and 

duodenal stent placement in the data 

and CMS’ practice of not using revenue 

codes to help distinguish between 

different types of procedures. The 

commenter agreed that the lack of 

specific codes and not using revenue 

codes in the MS–DRG grouping logic 

precludes CMS’ ability to implement the 

requested MS–DRG modifications for 

gastrointestinal stents for FY 2011. The 

commenter indicated that it will 

continue to monitor these cases in 

future years and, if appropriate, request 

the creation of new MS–DRGs. 

Response: We agree with the 

commenters that our data and claims 

analysis support our proposal to not 

make any MS–DRG modifications to 

cases involving the use of 

gastrointestinal stents for FY 2011. 

Therefore, we are finalizing our 

proposal to not make any MS–DRG 

modifications to cases involving the use 

of gastrointestinal stents for FY 2011. 

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5. MDC 8 (Diseases and Disorders of the 

Musculoskeletal System and Connective 

Tissue): Pedicle-Based Dynamic 

Stabilization 

As we did for FY 2009 (73 FR 45820), 

we received a request from a 

manufacturer to reassign procedure 

code 84.82 (Insertion or replacement of 

pedicle-based dynamic stabilization 

device(s)), effective October 1, 2007, 

from MS–DRG 490 (Back and Neck 

Procedures Except Spinal Fusion with 

CC/MCC or Disc Device/ 

Neurostimulator) to MS–DRG 460 

(Spinal Fusion Except Cervical without 

MCC). According to the manufacturer, 

the technology that is identified by this 

procedure code, the Dynesys® Dynamic 

Stabilization System, is clinically 

similar to lumbar spinal fusion and 

requires similar utilization of resources. 

Dynamic stabilization is a concept 

that utilizes a flexible system to stabilize 

the spine without fusion. The primary 

goals of dynamic stabilization are to 

limit the amount of unnatural spinal 

motion and preserve as much of the 

patient’s natural anatomic structures as 

possible. The Dynesys® Dynamic 

Stabilization System is comprised of 

three components with specific 

functions: titanium alloy pedicle screws 

that anchor the system to the spine; a 

polyethylene-terephthalate (PET) cord 

that connects the Dynesys® screws; and 

a polycarbonate-urethane (PCU) spacer 

that runs over the cord between the 

Dynesys® screws. The system is placed 

under tension creating a dynamic 

interaction between the components. 

The MS–DRGs are comprised of 

clinically coherent groups of patients 

who consume similar utilization of 

resources and complexity of services. 

The insertion of a Dynesys® Dynamic 

Stabilization System is clinically not a 

lumbar fusion. As stated previously, 

dynamic stabilization is a concept that 

utilizes a flexible system to stabilize the 

spine without fusion. Therefore, in the 

FY 2011 IPPS/LTCH PPS proposed rule 

(75 FR 23903), we stated that it would 

be clinically inappropriate to reassign 

cases reporting procedure code 84.82 in 

the fusion MS–DRG. 

In conclusion, the Dynesys® Dynamic 

Stabilization System is currently FDA 

approved for use only as an adjunct to 

spinal fusion, there is uncertainty 

regarding the coding and reporting of 

procedure code 84.82, as well as offlabel use, and currently, all other 

similar nonfusion devices are assigned 

to MS–DRG 490. 

For the reasons listed above, we did 

not propose to reassign cases reporting 

procedure code 84.82 from MS–DRG 

490 to MS–DRG 460 for FY 2011. 

Comment: Several commenters 

supported CMS’ proposal not to reassign 

cases reporting procedure code 84.82 

from MS–DRG 490 to MS–DRG 460 for 

FY 2011. One commenter, the 

manufacturer, stated that they 

conducted a clinical comparison of 

Dynesys® as well as an analysis of 

charges and costs associated with MS– 

DRGs 490 and 460, specifically 

procedure codes 84.82 (Insertion or 

replacement of pedicle-based dynamic 

stabilization device(s)), and 81.08 

(Lumbar and lumbosacral fusion, 

posterior technique). According to the 

manufacturer, the analysis 

demonstrated that the resource 

utilization of Dynesys® as a nonfusion 

device is similar to that of fusion and is 

greater than that of other procedures 

grouped in MS–DRG 490. 

Response: We appreciate the 

manufacturer’s analysis. As stated 

previously, and as the manufacturer 

stated in its comments, the FDA has not 

yet approved the Post-Market Approval 

(PMA) application to expand the 

indication of Dynesys® for use as a nonfusion device. Dynesys® is currently 

approved as an adjunct to spinal fusion; 

therefore, when reported correctly, cases 

utilizing the Dynesys® technology are 

appropriately assigned to the fusion 

MS–DRGs. We will continue to monitor 

the resource utilization of procedure 

codes 84.82 and 81.08 to determine if 

future MS–DRG reassignments or new 

MS–DRGs are warranted. For FY 2011, 

we are finalizing our proposal not to 

reassign cases with procedure code 

84.82 from MS–DRG 490 to MS–DRG 

460. 

6. MDC 15 (Newborns and Other 

Neonates With Conditions Originating 

in the Perinatal Period) 

a. Discharges/Transfers of Neonates to a 

Designated Cancer Center or Children’s 

Hospital 

As discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23903), 

we received a request to add patient 

discharge status code 05 (Discharged/ 

transferred to a designated cancer center 

or children’s hospital) to the MS–DRG 

GROUPER logic for MS–DRG 789 

(Neonates, Died or Transferred to 

Another Acute Care Facility). Currently, 

neonate cases with the discharge status 

code 05 are being assigned to MS–DRG 

795 (Normal Newborn). 

The definition of discharge status 

code 05 was changed on April 1, 2008, 

from ‘‘discharged/transferred to another 

type of health care institution not 

defined elsewhere in this code list’’ to 

‘‘discharged/transferred to a designated 

cancer center or children’s hospital.’’ 

For the FY 2011 proposed rule, we 

examined cases in the FY 2009 MedPAR 

file but did not find any cases with the 

discharge status code 05 that were 

assigned to either MS–DRG 789 or MS– 

DRG 795. However, we indicated that 

we believed the request has merit in 

identifying neonate cases appropriately. 

Therefore, for FY 2011, we proposed to 

add discharge status code 05 to the MS– 

DRG GROUPER logic for MS–DRG 789. 

Comment: Some commenters 

supported the proposed change to the 

MS–DRG GROUPER logic for discharge 

status 05. A few commenters 

commended CMS for responding to 

industry requests related to MDC 15, 

especially in light of the limited impact 

on the Medicare population while 

acknowledging that other payers also 

utilize the MS–DRG classification 

system. One commenter recommended 

adding the logic for discharge status 

code 05 to the MS–DRG GROUPER logic 

for all newborn cases assigned to MS– 

DRGs: 790 (Extreme Immaturity or 

Respiratory Distress Syndrome, 

Neonate), 791 (Prematurity with Major 

Problems), 792 (Prematurity without 

Major Problems), 793 (Full Term 

Neonate with Major Problems), 794 

(Neonate with Other Significant 

Problems), and 795 so that these cases 

may be appropriately grouped to the 

MS–DRG 789 for transferred neonates. 

Response: We appreciate the support 

of the commenters. To clarify our 

proposed policy change, we are adding 

discharge status code 05 to the MS–DRG 

GROUPER logic for assigning cases to 

MS–DRG 789. This change will result in 

any case identified with discharge status 

05, which would have normally been 

assigned to MS–DRGs 790 through 795, 

being reassigned to MS–DRG 789, as the 

commenter recommended. 

After consideration of the public 

comments we received, we contend that 

this logic change has merit and, 

therefore, are adopting it as final for FY 

2011. All newborn cases assigned to 

MS–DRGs 790 through 795 and 

indentified with discharge status 05 will 

be reassigned to MS–DRG 789 for 

transferred neonates. 

b. Vaccinations of Newborns 

As discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23903), 

we received a request to examine the 

assignment of code V64.05 (Vaccination 

not carried out because of caregiver 

refusal) to MS–DRG 794 (Neonate with 

Other Significant Problems). Code 

V64.05 is currently being reported when 

a physician documents that a parent/ 

caregiver has refused immunization for 

a child. The reporting of this code as a 

principal or secondary diagnosis 

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impacts the MS–DRG assignment for 

normal newborns cases being assigned 

to MS–DRG 794. 

For the FY 2011 proposed rule, we 

examined cases in the FY 2009 MedPAR 

file but did not find any cases of code 

V64.05 assigned to MS–DRG 794. Our 

medical advisors agree that code V64.05 

should not be assigned to MS–DRG 794. 

We determined that the presence of 

code V64.05 does not indicate that there 

is a significant problem with the 

newborn and should not be assigned to 

MS–DRG 794. Therefore, as we 

indicated in the FY 2011 proposed rule, 

we believe that assignment of code 

V64.05 to MS–DRG 795 (Normal 

Newborn) would be more appropriate 

for this code because it does not identify 

a significant problem. 

The logic for MS–DRG 795 contains a 

list of principal diagnosis codes for 

normal newborn and no secondary 

diagnosis or a list of only secondary 

diagnosis codes. Therefore, in the 

proposed rule, for FY 2011, we 

proposed to remove code V64.05 from 

MS–DRG 794 and add this code to the 

only secondary diagnosis list for MS– 

DRG 795. 

Comment: Commenters supported 

this proposed change. 

Response: We appreciate the 

commenters support. As stated above, 

we believe that the assignment of code 

V64.05 to MS–DRG 795 is appropriate. 

After consideration of the public 

comments we received, we are adopting 

our proposal to remove code V64.05 

from MS–DRG 794 and to add it to the 

only secondary diagnosis list for MS– 

DRG 795 as final for FY 2011. 

7. Medicare Code Editor (MCE) Changes 

As explained under section II.B.1. of 

the preamble of this final rule, 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 a MS– 

DRG. In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23903), we 

indicated that we intended to make the 

following changes to the MCE edits and 

invited public input on whether or not 

we should do so: 

a. Unacceptable Principal Diagnosis 

Edit: Addition of Code for Gastroparesis 

It was brought to our attention that 

diagnosis code 536.3 (Gastroparesis) has 

a ‘‘code first underlying disease’’ note. 

This note indicates that diagnosis code 

536.3 should not be used as a principal 

diagnosis. Therefore, diagnosis code 

536.3 should have been included on the 

list of unacceptable principal diagnoses 

in the MCE. 

We agree that diagnosis code 536.3 

should have been included on the list of 

unacceptable principal diagnoses in the 

MCE. Therefore, in the proposed rule for 

FY 2011, we indicated that we intended 

to add diagnosis code 536.3 to that list 

in the MCE. 

Comment: A number of commenters 

opposed the proposed change because 

they believed that this sequencing 

change in the order of reported codes 

would eliminate Medicare coverage for 

the condition of gastroparesis. 

Response: The commenters 

erroneously believed that this 

sequencing change in the order of 

reported codes would eliminate 

Medicare coverage for the condition of 

gastroparesis. Therefore, we are taking 

the opportunity in this final rule to 

clarify that at no time did we intend to 

withdraw coverage for gastroparesis. We 

believe that many commenters 

mistakenly assumed that if diagnosis 

code 536.3 were not permitted to be in 

the principal diagnosis position, it 

would become a noncovered condition 

by Medicare. This is not CMS’ intent, 

nor would it have been the result of our 

proposed change. As one commenter 

stated: ‘‘The effect of the proposed edit 

would be that idiopathic gastroparesis 

* * * could not be sequenced as a 

principal diagnosis. We recognize that 

an inconsistency currently exists 

between the MCE and the ‘code first 

underlying disease’ associated with 

[code] 536.3. We understand the issue is 

not with the MCE, but rather the note.’’ 

We agree with the commenters and 

with the medical community that 

diagnosis code 536.3 should not be 

included in the MCE’s Unacceptable 

Principal Diagnosis Edit, and hereby 

withdraw our suggestion to put it on 

that list. Diagnosis code 536.3 will not 

be added to the MCE in FY 2011. 

We understand that the matter of the 

‘‘code first’’ note will be addressed by 

the ICD–9–CM Coordination & 

Maintenance Committee in September 

2010. 

b. Open Biopsy Check Edit 

The Open Biopsy Check edit in the 

MCE dates back to the early years of the 

IPPS when the surgical and medical 

DRGs were not as expansive as they are 

today. In the mid-1980s when the Open 

Biopsy Check edit was created, the ICD– 

9–CM codes did not have many biopsy 

procedure codes that clearly showed the 

approach, such as codes for open, 

percutaneous, and closed biopsies. 

Furthermore, under the current MS– 

DRGs, the open biopsy codes do not 

have as significant an impact as they did 

in the early versions of the DRGs. We 

believe that the Open Biopsy Check edit 

no longer serves a useful purpose. 

Therefore, in the FY 2011 proposed 

rule, we indicated that we intended to 

delete the entire Open Biopsy Check 

edit from the MCE, which meant 

removing the following 63 codes from 

the edit: 

• 01.11 (Closed [Percutaneous] 

[Needle] biopsy of cerebral meninges) 

• 01.12 (Open biopsy of cerebral 

meninges) 

• 01.13 (Closed [Percutaneous] 

[Needle] biopsy of brain) 

• 01.14 (Open biopsy of brain) 

• 04.11 (Closed [Percutaneous] 

[Needle] biopsy of cranial or peripheral 

nerve or ganglion) 

• 04.12 (Open biopsy of cranial or 

peripheral nerve or ganglion) 

• 06.11 (Closed [Percutaneous] 

[Needle] biopsy of thyroid gland) 

• 06.12 (Open biopsy of thyroid 

gland) 

• 07.11 (Closed [Percutaneous] 

[Needle] biopsy of adrenal gland) 

• 07.12 (Open biopsy of adrenal 

gland) 

• 22.11 (Closed [Endoscopic] [Needle] 

biopsy of nasal sinus) 

• 22.12 (Open biopsy of nasal sinus) 

• 25.01 (Closed [Needle] biopsy of 

tongue) 

• 25.02 (Open biopsy of tongue) 

• 26.11 (Closed [Needle] biopsy of 

salivary gland or duct) 

• 26.12 (Open biopsy of salivary 

gland or duct) 

• 31.43 (Closed [Endoscopic] biopsy 

of larynx) 

• 31.44 (Closed [Endoscopic] biopsy 

of trachea) 

• 31.45 (Open biopsy of larynx or 

trachea) 

• 33.24 (Closed [Endoscopic] biopsy 

of bronchus) 

• 33.25 (Open biopsy of bronchus) 

• 33.26 (Closed [Percutaneous] 

[Needle] biopsy of lung) 

• 33.28 (Open biopsy of lung) 

• 34.25 (Closed [Percutaneous] 

[Needle] biopsy of mediastinum) 

• 34.26 (Open mediastinal biopsy) 

• 41.32 (Closed [Aspiration] 

[Percutaneous] biopsy of spleen) 

• 41.33 (Open biopsy of spleen) 

• 42.24 (Closed [Endoscopic] biopsy 

of esophagus) 

• 42.25 (Open biopsy of esophagus) 

• 44.14 (Closed [Endoscopic] biopsy 

of stomach) 

• 44.15 (Open biopsy of stomach) 

• 45.14 (Closed [Endoscopic] biopsy 

of small intestine) 

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• 45.15 (Open biopsy of small 

intestine) 

• 45.25 (Closed [Endoscopic] biopsy 

of large intestine) 

• 45.26 (Open biopsy of large 

intestine) 

• 48.24 (Closed [Endoscopic] biopsy 

of rectum) 

• 48.25 (Open biopsy of rectum) 

• 50.11 (Closed (Percutaneous) 

[Needle] biopsy of liver) 

• 50.12 (Open biopsy of liver) 

• 51.12 (Percutaneous biopsy of 

gallbladder or bile ducts) 

• 51.13 (Open biopsy of gallbladder 

or bile ducts) 

• 52.11 (Closed [Aspiration] [Needle] 

[Percutaneous] biopsy of pancreas) 

• 52.12 (Open biopsy of pancreas) 

• 54.23 (Biopsy of peritoneum) 

• 54.24 (Closed [Percutaneous] 

[Needle] biopsy of intra-abdominal 

mass) 

• 55.23 (Closed [Percutaneous] 

[Needle] biopsy of kidney) 

• 55.24 (Open biopsy of kidney) 

• 56.32 (Closed percutaneous biopsy 

of ureter) 

• 56.34 (Open biopsy of ureter) 

• 57.33 (Closed [Transurethral] 

biopsy of bladder) 

• 57.34 (Open biopsy of bladder) 

• 60.11 (Closed [Percutaneous] 

[Needle] biopsy of prostate) 

• 60.12 (Open biopsy of prostate) 

• 60.13 (Closed [Percutaneous] biopsy 

of seminal vesicles) 

• 60.14 (Open biopsy of seminal 

vesicles) 

• 62.11 (Closed [Percutaneous] 

[Needle] biopsy of testis) 

• 62.12 (Open biopsy of testis) 

• 68.13 (Open biopsy of uterus) 

• 68.14 (Open biopsy of uterine 

ligaments) 

• 68.15 (Closed biopsy of uterine 

ligaments) 

• 68.16 (Closed biopsy of uterus) 

• 85.11 (Closed [Percutaneous] 

[Needle] biopsy of breast) 

• 85.12 (Open biopsy of breast) 

We did not receive any public 

comments regarding the proposal to 

delete the Open Biopsy Check edit from 

the MCE. Therefore, because there were 

no objections to the proposal, we are 

deleting the Open Biopsy Check edit 

from the MCE. The edit containing the 

codes listed above will be removed, 

effective for October 1, 2010 (FY 2011). 

c. Noncovered Procedure Edit 

The ICD–9–CM procedure codes 52.80 

(Pancreatic transplant, not otherwise 

specified) and 52.82 (Homotransplant of 

pancreas) alone (that is, without 

procedure code 55.69 (Other kidney 

transplantation)) are considered 

noncovered procedures, except when 

either one is combined with at least one 

specific principal or secondary 

diagnosis code. These specific diagnosis 

codes identify Type I diabetes mellitus, 

not stated as uncontrolled, or else 

identified as uncontrolled. 

To conform to the proposed change to 

Pre-MDC MS–DRGs 008 and 010 as 

discussed in section II.G.1. of the FY 

2011 IPPS/LTCH PPS proposed rule, in 

which we proposed to add code 251.3 

(Postsurgical hypoinsulinemia) to those 

MS–DRGs, we indicated in that FY 2011 

proposed rule that we intended to add 

procedure code 251.3 to the list of 

acceptable principal or secondary 

diagnosis codes in the MCE. 

We did not receive any public 

comments on our proposal to add 

procedure code 251.3 to the list of 

acceptable principal or secondary 

diagnosis codes in the MCE. Therefore, 

because there were no objections to this 

proposal, we are adding procedure code 

251.3 (Postsurgical hypoinsulinemia) to 

the MCE in the list of acceptable 

principal or secondary codes associated 

with procedure codes 52.80 (Pancreatic 

transplant, not otherwise specified) and 

52.82 (Homotransplant of pancreas). 

8. Surgical Hierarchies 

Some inpatient stays entail multiple 

surgical procedures, each one of which, 

occurring by itself, could result in 

assignment of the case to a different 

MS–DRG within the MDC to which the 

principal diagnosis is assigned. 

Therefore, it is necessary to have a 

decision rule within the GROUPER by 

which these cases are assigned to a 

single MS–DRG. The surgical hierarchy, 

an ordering of surgical classes from 

most resource-intensive to least 

resource-intensive, performs that 

function. Application of this hierarchy 

ensures that cases involving multiple 

surgical procedures are assigned to the 

MS–DRG associated with the most 

resource-intensive surgical class. 

Because the relative resource intensity 

of surgical classes can shift as a function 

of MS–DRG reclassification and 

recalibrations, 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 1 and 2 and surgical 

class B includes MS–DRGs 3, 4, and 5. 

Assume also that the average costs of 

MS–DRG 1 is higher than that of MS– 

DRG 3, but the average costs of MS– 

DRGs 4 and 5 are higher than the 

average costs of MS–DRG 2. To 

determine whether surgical class A 

should be higher or lower than surgical 

class B in the surgical hierarchy, we 

would weigh the average costs of each 

MS–DRG in the class by frequency (that 

is, by the number of cases in the MS– 

DRG) to determine average resource 

consumption for the surgical class. The 

surgical classes would then be ordered 

from the class with the highest average 

resource utilization to that with the 

lowest, with the exception of ‘‘other O.R. 

procedures’’ as discussed below. 

This methodology may occasionally 

result in assignment of a case involving 

multiple procedures to the lowerweighted 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 in 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 

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2See the FY 1989 final rule (53 FR 38485, 

September 30, 1988), for the revision made for the 

discharges occurring in FY 1989; the FY 1990 final 

rule (54 FR 36552, September 1, 1989), for the FY 

1990 revision; the FY 1991 final rule (55 FR 36126, 

September 4, 1990), for the FY 1991 revision; the 

FY 1992 final rule (56 FR 43209, August 30, 1991) 

for the FY 1992 revision; the FY 1993 final rule (57 

FR 39753, September 1, 1992), for the FY 1993 

revision; the FY 1994 final rule (58 FR 46278, 

September 1, 1993), for the FY 1994 revisions; the 

FY 1995 final rule (59 FR 45334, September 1, 

1994), for the FY 1995 revisions; the FY 1996 final 

rule (60 FR 45782, September 1, 1995), for the FY 

1996 revisions; the FY 1997 final rule (61 FR 46171, 

August 30, 1996), for the FY 1997 revisions; the FY 

1998 final rule (62 FR 45966, August 29, 1997) for 

the FY 1998 revisions; the FY 1999 final rule (63 

FR 40954, July 31, 1998), for the FY 1999 revisions; 

the FY 2001 final rule (65 FR 47064, August 1, 

2000), for the FY 2001 revisions; the FY 2002 final 

rule (66 FR 39851, August 1, 2001), for the FY 2002 

revisions; the FY 2003 final rule (67 FR 49998, 

August 1, 2002), for the FY 2003 revisions; the FY 

2004 final rule (68 FR 45364, August 1, 2003), for 

the FY 2004 revisions; the FY 2005 final rule (69 

FR 49848, August 11, 2004), for the FY 2005 

revisions; the FY 2006 final rule (70 FR 47640, 

August 12, 2005), for the FY 2006 revisions; the FY 

2007 final rule (71 FR 47870) for the FY 2007 

revisions; the FY 2008 final rule (72 FR 47130) for 

the FY 2008 revisions, the FY 2009 final rule (73 

FR 48510), and the FY 2010 final rule (74 FR 

43799). In the FY 2000 final rule (64 FR 41490, July 

30, 1999, we did not modify the CC Exclusions List 

because we did not make any changes to the ICD– 

9–CM codes for FY 2000. 

hierarchy change, the average costs are 

likely to shift such that the higherordered surgical class has a lower 

average costs than the class ordered 

below it. 

As we proposed, based on the changes 

that we are making for FY 2011, as 

discussed in section II.C.2. of this 

preamble, we are revising the surgical 

hierarchy for Pre-MDCs and MDC 10 

(Endocrine, Nutritional and Metabolic 

Diseases and Disorders) to reflect the 

resource intensiveness of the MS–DRGs, 

as follows: 

In Pre-MDCs, we are reordering new 

MS–DRG 014 (Allogeneic Bone Marrow 

Transplant) above MS–DRG 007 (Lung 

Transplant); and new MS–DRG 015 

(Autologous Bone Marrow Transplant) 

above MS–DRG 010 (Pancreas 

Transplant). 

In MDC 10, we are reordering MS– 

DRG 614 (Adrenal and Pituitary 

Procedures With CC/MCC) and MS– 

DRG 615 (Adrenal and Pituitary 

Procedures Without CC/MCC) above 

MS–DRG 625 (Thyroid, Parathyroid and 

Thyroglossal Procedures With MCC). 

Comment: Commenters generally 

supported our proposals without any 

objections. 

Response: Based on the test of the 

proposed revisions using the March 

2010 update of the FY 2009 MedPAR 

file and the revised GROUPER software, 

we found that the revisions are still 

supported by the data. Therefore, we are 

incorporating the proposed revisions to 

the surgical hierarchy as final for FY 

2011. 

9. Complications or Comorbidity (CC) 

Exclusions List 

a. Background 

As indicated earlier in the preamble 

of this final rule, 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. We 

refer readers to section 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 47121 through 47152). 

b. CC Exclusions List for FY 2011 

In the September 1, 1987 final notice 

(52 FR 33143) concerning changes to the 

DRG classification system, we modified 

the GROUPER logic so that certain 

diagnoses included on the standard list 

of CCs would not be considered valid 

CCs in combination with a particular 

principal diagnosis. We created the CC 

Exclusions List for the following 

reasons: (1) To preclude coding of CCs 

for closely related conditions; (2) to 

preclude duplicative or inconsistent 

coding from being treated as CCs; and 

(3) to ensure that cases are appropriately 

classified between the complicated and 

uncomplicated DRGs in a pair. As we 

indicated above, we developed a list of 

diagnoses, using physician panels, to 

include those diagnoses that, when 

present as a secondary condition, would 

be considered a substantial 

complication or comorbidity. In 

previous years, we have made changes 

to the list of CCs, either by adding new 

CCs or deleting CCs already on the list. 

In the May 19, 1987 proposed notice 

(52 FR 18877) and the September 1, 

1987 final notice (52 FR 33154), we 

explained that the excluded secondary 

diagnoses were established using the 

following five principles: 

• Chronic and acute manifestations of 

the same condition should not be 

considered CCs for one another. 

• Specific and nonspecific (that is, 

not otherwise specified (NOS)) 

diagnosis codes for the same condition 

should not be considered CCs for one 

another. 

• Codes for the same condition that 

cannot coexist, such as partial/total, 

unilateral/bilateral, obstructed/ 

unobstructed, and benign/malignant, 

should not be considered CCs for one 

another. 

• Codes for the same condition in 

anatomically proximal sites should not 

be considered CCs for one another. 

• 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.2

(1) Limited Revisions Based on Changes 

to the ICD–9–CM Diagnosis Codes 

For FY 2011, as we proposed, we are 

making limited revisions to the CC 

Exclusions List to take into account the 

changes made in the ICD–9–CM 

diagnosis coding system effective 

October 1, 2009. (We refer readers to 

section II.G.11. of the preamble of this 

final rule for a discussion of ICD–9–CM 

changes.) We are making these changes 

in accordance with the principles 

established when we created the CC 

Exclusions List in 1987. In addition, we 

are indicating on the CC Exclusions List 

some changes as a result of updates to 

the ICD–9–CM codes to reflect the 

exclusion of codes from being MCCs 

under the MS–DRG system that we 

adopted in FY 2008. 

(2) Suggested Changes to Severity Levels 

for Obesity-Related and Major Osseous 

Defect Diagnosis Codes 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43793 through 

43794), we indicated that several 

commenters on the FY 2010 IPPS 

proposed rule recommended that CMS 

consider making further adjustments to 

the MS–DRG assignments based on 

obesity and major osseous defects. The 

commenters stated that obesity, high 

Body Mass Index (BMI) ratings, and 

major osseous defects add to the 

complexity of care for patients such as 

those patients undergoing orthopedic 

procedures. The commenters 

recommended the following changes to 

the list of MCCs and CCs: 

Several commenters recommended 

that CMS add the following diagnosis 

codes, which are classified as non-CCs, 

to the CC or MCC list: 

• 731.3 (Major osseous defects) 

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• V85.35 (Body mass index 35.0–35.9, 

adult) 

• V85.36 (Body mass index 36.0–36.9, 

adult) 

• V85.37 (Body mass index 37.0–37.9, 

adult) 

• V85.38 (Body mass index 38.0–38.9, 

adult) 

• V85.39 (Body mass index 39.0–39.9, 

adult) 

Several commenters recommended 

that CMS add the following diagnosis 

code, which is on the CC list, to the 

MCC list: 

• V85.40 (Body mass index 40 and 

over, adult) 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule, we stated that we 

believed these comments were outside 

the scope of the proposals in the FY 

2010 proposed rule. We did not propose 

significant revisions to the MS–DRGs in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24091) for these 

codes. We stated that we were 

encouraging individuals with comments 

about MS–DRG classifications to submit 

these comments no later than early 

December of each year so they can be 

carefully considered for possible 

inclusion in the annual proposed rule 

and, if included, may be subjected to 

public review and comment. Therefore, 

we did not add these codes to the MCC 

list or the CC list for FY 2010. We stated 

that we would consider their 

appropriateness for inclusion in next 

year’s annual proposed rule. 

In addition to the diagnosis codes 

mentioned above, we also have received 

requests that we consider changing the 

following diagnosis codes from a nonCC to a CC: 

• 278.00 (Obesity NOS) 

• 278.01 (Morbid obesity) 

• 278.02 (Overweight) 

For the FY 2011 IPPS/LTCH PPS 

proposed rule, we analyzed claims data 

for the diagnosis codes mentioned above 

related to obesity and major osseous 

defects. We used the same approach we 

used in initially creating the MS–DRGs 

and classifying secondary diagnosis 

codes as non-CCs, CCs, or MCC. A 

detailed discussion of the process and 

criteria we used in this process is 

described in the FY 2008 IPPS final rule 

(72 FR 47158 through 47161). We refer 

the readers to this discussion for 

complete information on our approach 

to developing the non-CC, CC, and MCC 

lists. Each diagnosis for which Medicare 

data were available was 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 cost for each 

subset of cases was compared to the 

expected cost for cases in that subset. 

The following format was used to 

evaluate each diagnosis: 

Code Diagnosis Cnt1 C1 Cnt2 C2 Cnt3 C3 

Count (Cnt) is the number of patients 

in each subset. 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 cost 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 a MCC. The C3 

value reflects a patient with at least one 

other secondary diagnosis that is a MCC. 

A value close to 1.0 in the C1 field 

would suggest that the diagnosis code 

produces the same expected value as a 

non-CC. A value close to 2.0 suggests 

the condition is more like a CC than a 

non-CC but not as significant in 

resource usage as an MCC. A value close 

to 3.0 suggests the condition is expected 

to consume resources more similar to an 

MCC than a CC or non-CC. For 

additional details on this analysis, we 

refer readers to the FY 2008 IPPS final 

rule at 72 FR 47158 through 47161. 

The following chart shows the 

analysis for each of the obesity related 

and major osseous defect diagnosis 

codes that are currently classified as 

non-CCs. 

Code Diagnosis Cnt1 C1 Cnt2 C2 Cnt3 C3 

278.00 ......... Obesity NOS ................... 130,310 1.0755 116,304 1.7234 45,565 2.3843 

278.01 ......... Morbid obesity ................ 51,832 1.2619 106,169 1.9630 52,398 2.6787 

278.02 ......... Overweight ...................... 5,242 0.9948 3,594 1.7042 1,033 2.3471 

731.3 ........... Major osseous defects ... 215 1.3833 575 2.3390 186 2.7627 

V85.35 ........ BMI 35.0–35.9, adult ...... 2,621 0.9759 1,480 1.6932 499 2.3664 

V85.36 ........ BMI 36.0–36.9, adult ...... 2,359 0.9729 1,298 1.6536 466 2.3107 

V85.37 ........ BMI 37.0–37.9, adult ...... 2,305 0.9849 1,271 1.7225 473 2.4032 

V85.38 ........ BMI 38.0–38.9, adult ...... 2,152 0.9713 1,231 1.5964 432 2.2743 

V85.39 ........ BMI 39.0–39.9, adult ...... 2,253 0.9857 1,141 1.7741 445 2.4919 

The C1 findings do not support a 

reclassification of any of these diagnosis 

codes from a non-CC to a CC. As can be 

seen by the C1 findings, the codes range 

from a low of 0.9729 for code V85.35 to 

a high of 1.3833 for diagnosis code 

731.3. These findings are consistent 

with a classification as a non-CC. 

Therefore, for FY 2011, as we proposed, 

we are not changing the CC 

classification of any of the diagnosis 

codes mentioned in the chart above 

from a non-CC to a CC. Our clinical 

advisors agree with this 

recommendation. 

For the FY 2011 proposed rule, we 

also examined claims data for diagnosis 

code V85.4 (Body mass index 40 and 

over, adult), which is classified as a CC. 

We received a request to reclassify this 

code as a MCC. The following chart 

summarizes our findings for this 

diagnosis code: 

Code Diagnosis Cnt1 C1 Cnt2 C2 Cnt3 C3 

V85.4 .......... BMI 40 and over, adult ... 51,871 1.2323 59,941 2.1711 57,220 3.0465 

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We note that the C1 finding of 1.2323 

does not support a reclassification of 

this diagnosis code from a CC to a MCC. 

This finding is much more consistent 

with classifying the code as a non-CC. 

Our clinical advisors recommended that 

CMS not reclassify this diagnosis code 

from a CC to a non-CC for FY 2011. 

They recommended that CMS analyze 

data associated with this diagnosis code 

again in the future to determine if it 

continues to act like a non-CC. For the 

FY 2011 proposed rule, we did not 

recommend any change in the severity 

classification of diagnosis code V85.4. 

We proposed to retain it as a CC for FY 

2011. We welcomed public comments 

on our proposal not to change the 

severity levels of the diagnosis codes 

mentioned above. 

Comment: Several commenters in 

general supported the proposal not to 

change the following codes from a nonCC to a CC or MCC based on our data 

and clinical analysis: 278.00; 278.01; 

278.02; 731.3; V85.35; V85.36; V85.37; 

V85.38; and V85.39. 

The commenters also supported our 

proposal not to change code V85.40 

from a CC to an MCC. 

One commenter stated that it 

understood that the request to change 

the severity level for the obesity related 

codes was not supported by the current 

hospital claim data. The commenter 

expressed appreciation for CMS’ 

consideration of its recommendation. 

However, the commenter expressed 

concerns that hospitals may not be fully 

reporting codes that describe obesity, 

and, therefore, all resources associated 

with obesity related cases may not be 

included in the hospital claims data. 

The commenter requested that CMS 

actively encourage hospitals to report 

codes that more fully describe obesity 

and its related conditions. The 

commenter stated that if hospitals 

increased their reporting of obesity 

related conditions, our national data 

would be more accurate and would 

more fully reflect hospital resource use 

associated with these patients. 

Another commenter also 

acknowledged that the data did not 

support a change in the severity level 

for the obesity related codes. This 

commenter also expressed that hospitals 

may be underreporting obesity cases, 

and requested that hospitals be 

encouraged to more fully and accurately 

code and report these conditions. Once 

a more complete data set is available to 

describe these patients, the commenter 

recommended that the issue be 

reviewed again. 

Response: We agree with the 

commenters that our data and clinical 

analysis support our proposal not to 

change the severity level for the obesity 

related codes. We appreciate the 

commenters’ statement about our 

consideration and review of this issue. 

We agree that it is important to provide 

clear documentation and accurate 

coding for all patient diagnoses and 

conditions, including obesity related 

conditions. As discussed in section 

II.G.11.c. of this preamble, we are 

expanding the number of diagnosis and 

procedure codes processed so that more 

codes are available to describe each 

patient’s hospitalization. The clinical 

data and the comments received support 

our recommendation not to change the 

severity levels for the obesity related 

codes. Therefore, we are finalizing our 

proposal to continue classifying the 

following codes as non-CCs for FY 2011. 

• 278.00 (Obesity NOS) 

• 278.01 (Morbid obesity) 

• 278.02 (Overweight) 

• 731.3 (Major osseous defects) 

• V85.35 (Body mass index 35.0–35.9, 

adult) 

• V85.36 (Body mass index 36.0–36.9, 

adult) 

• V85.37 (Body mass index 37.0–37.9, 

adult) 

• V85.38 (Body mass index 38.0–38.9, 

adult) 

• V85.39 (Body mass index 39.0–39.9, 

adult) 

We are also finalizing our proposal to 

continue classifying the following code 

as a CC for FY 2011. 

• V85.40 (Body mass index 40 and 

over, adult) 

(3) Suggested Change to the Severity 

Level for Alzheimer’s Disease Diagnosis 

Code 

We received a request to change the 

severity classification for diagnosis code 

331.0 (Alzheimer’s disease). Currently, 

this diagnosis code is classified as a 

non-CC. For the FY 2011 IPPS/LTCH 

PPS proposed rule, we analyzed claims 

data for this diagnosis code. The 

following chart shows our findings: 

Code Diagnosis Cnt1 C1 Cnt2 C2 Cnt3 C3 

331.0 ........... Alzheimer’s disease ........ 83,743 1.1381 114,445 1.8890 77,841 2.4185 

The C1 finding of 1.1381 for 

Alzheimer’s disease supports the 

current classification of this diagnosis 

code as a non-CC. Our clinical advisors 

agree with this classification. Therefore, 

we did not propose to change the 

severity classification of diagnosis code 

331.0 from a non-CC to a CC for FY 

2011. We believe the code is 

appropriately classified as a non-CC. 

Comment: Several commenters in 

general supported CMS’ proposal not to 

change diagnosis code 331.0 from a nonCC to a CC for FY 2011. They stated that 

the data supported this decision. One 

commenter stated that the analysis 

provided by CMS supports the proposal 

that diagnosis code 331.0 should 

continue to be a non-CC. The 

commenter suggested that this issue be 

revisited after CMS begins processing 25 

codes instead of the current limitation 

of 9 diagnosis codes. 

Response: We agree with the 

commenters that our data support our 

proposal not to change diagnosis code 

331.0 from a non-CC to a CC for FY 

2011. Therefore, we are finalizing our 

proposal to continue classifying 

diagnosis code 331.0 as a non-CC for FY 

2011. We will revisit the severity level 

classification of diagnosis code 331.0 

once we begin processing claims using 

the increase in the number of diagnosis 

codes to 25. 

(4) Change to the Severity Level for 

Acute Renal Failure, Unspecified 

Diagnosis Code 

We received a request to reclassify the 

diagnosis code, which captures acute 

renal failure, 584.9 (Acute kidney 

failure, unspecified) from a MCC to a 

CC. The commenter stated that this code 

is being widely used to capture degrees 

of renal failure that range from that 

which is caused by mild dehydration 

with only minor laboratory 

abnormalities all the way through severe 

renal failure that requires dialysis. The 

commenter pointed out that there are no 

clinical criteria for assigning diagnosis 

code 584.9. The attending physician 

must simply document the presence of 

acute renal failure for the diagnosis code 

to be assigned. The concern is that the 

diagnosis code for acute kidney failure, 

unspecified (diagnosis code 584.9) is 

being assigned to patients with a low 

clinical severity level. 

We also point out that the Editorial 

Advisory Board of Coding Clinic for 

ICD–9–CM has received a number of 

requests to clarify the use of diagnosis 

code 584.9. Coders are observing the 

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terminology of ‘‘acute renal failure’’ 

being applied to patients who are 

simply dehydrated. These patients do 

not require renal dialysis, and they do 

not appear to be severely ill. Coders 

have stated that there appears to be an 

increase in the use of the terminology of 

acute renal failure for patients who were 

previously referred to as acute renal 

insufficiency. When acute renal 

insufficiency is documented, the ICD– 

9–CM index directs the use of code 

593.9 (Unspecified disorder of kidney 

and ureter). Diagnosis code 593.9 

includes acute renal insufficiency and is 

classified as a non-CC. The problem is 

further compounded by the fact that 

there is no consistent convention among 

clinicians for documenting acute renal 

insufficiency versus acute renal failure. 

For the FY 2011 IPPS/LTCH PPS 

proposed rule, we examined claims data 

on diagnosis code 584.9, and our 

findings are shown in the table below: 

Code Diagnosis Cnt1 C1 Cnt2 C2 Cnt3 C3 

584.9 ........... Acute kidney failure, unspecified.124,428 1.8364 411,667 2.6151 417,359 3.2429 

The C1 finding of 1.8364 is more 

consistent with a classification of a CC. 

Our clinical advisors agreed that cases 

captured by diagnosis code 584.9 are 

more appropriately classified as a CC. 

This unspecified type of kidney failure 

is clearly not capturing patients with a 

MCC severity level. Therefore, we 

proposed to change the severity level for 

diagnosis code 584.9 from a MCC to a 

CC for FY 2011. 

Comment: Most commenters opposed 

our proposal to change diagnosis code 

584.9 (Acute kidney failure, 

unspecified) from an MCC to a CC. 

However, one commenter supported the 

proposal to change the severity level 

classification of acute renal failure cases 

from an MCC to a CC. The commenter 

stated that there has been an increased 

reporting of acute renal failure which is 

primarily due to increased physician 

education by clinical documentation 

improvement programs. The commenter 

further stated that the statistical analysis 

offered in the proposed rule was 

sufficient to support this change. 

Response: We agree that the claims 

data support our proposal to change 

diagnosis code 584.9 from an MCC to a 

CC. We respond to the specific 

comments opposing our proposed 

changes in the following comments and 

responses. 

Comment: Several commenters 

suggested that the introduction of the 

terminology of acute kidney injury may 

have added to the inconsistent 

classification of the disease process. 

One commenter stated that, in 2004, the 

Acute Dialysis Quality Initiative work 

group provided a definition and 

classification system for acute renal 

failure, described by the acronym RIFLE 

(Risk of renal dysfunction, Injury to the 

kidney, Failure or Loss of kidney 

function, and End-stage kidney disease). 

The commenter stated that clinical 

researchers have since applied the 

RIFLE system to the clinical evaluation 

of acute kidney injury. Several 

commenters stated that the FY 2009 

update to the coding classification 

system, which classifies acute kidney 

injury and acute renal failure with the 

same code, may be diluting the patient 

mix. The commenters stated that 

inconsistency in the application of 

diagnosis code 584.9 results in dilution 

of the data and an inaccurate reflection 

of the severity level for acute renal 

failure. 

Another commenter stated that claims 

data on diagnosis code 584.9 may be 

flawed due to the variable terminology 

used by physicians and changes in the 

ICD–9–CM classification. This 

commenter stated that physicians often 

use the terms ‘‘acute renal insufficiency’’ 

and ‘‘acute renal failure’’ 

interchangeably, and that this results in 

cases of acute renal insufficiency being 

classified as acute renal failure. The 

commenter also stated that physicians 

often use the term ‘‘acute kidney injury’’ 

to mean either acute renal insufficiency 

or acute renal failure, and that the term 

‘‘acute kidney injury’’ is indexed in ICD– 

9–CM to diagnosis code 584.9. 

Therefore, the commenter stated that 

cases of acute kidney injury are also 

being classified as acute renal failure. 

The commenter stated that these 

inconsistencies result in diagnosis code 

584.9 capturing a mix of cases, 

including both acute renal insufficiency 

as well as true acute renal failure cases, 

and that this has diluted national data 

for diagnosis code 584.9 and is an 

inaccurate reflection of the severity 

level for acute renal failure. The 

commenters recommended that 

diagnosis code 584.9 remain an MCC 

while CMS works on ways to revise the 

codes or improve documentation 

guidelines. 

Response: We agree that diagnosis 

code 584.9 captures a range of severity 

levels. Patients are not consistently at 

the highest severity level as shown by 

our claims data. As discussed above, our 

claims data show that patients with this 

code as a secondary diagnosis are 

similar to those who are at a CC level. 

We do not believe it is appropriate to 

defer a decision on reclassification of 

the severity level of diagnosis code 

584.9 until future coding or guideline 

modifications can be considered 

because our claims data clearly support 

the proposed change. Should a new 

range of codes be developed, we will 

consider what severity levels should be 

applied to each new code and include 

this analysis as part of future 

rulemaking. 

Comment: One commenter stated that 

the definition of conditions assigned to 

diagnosis code 584.9 is inadequate as it 

encompasses patients with both small 

and large elevations of creatinine that 

still meet the definition of acute kidney 

injury. Furthermore, the commenter 

pointed out that diagnosis code 584.9 

does not identify severe cases of renal 

failure requiring dialysis. However, the 

commenter opposed changing diagnosis 

code 584.9 from an MCC to a CC as it 

would penalize those institutions 

treating more severe cases of renal 

failure. The commenter indicated its 

plans to contact the National Center for 

Health Statistics to request that fifth 

digits be added to diagnosis code 584.9 

to distinguish those in various stages of 

renal failure. Other commenters also 

agreed that diagnosis code 584.9 was 

vague and suggested that the code be 

subdivided to add additional 

information on the stages of the renal 

function. The commenters suggested 

using existing standards from the Acute 

Kidney Injury Network or the National 

Kidney Foundation to develop stages for 

kidney injury that could be captured 

with the new codes. 

Another commenter agreed that the 

diagnosis of acute renal failure should 

not be used to describe mild 

dehydration and renal insufficiency 

when only minor lab abnormalities are 

present. The commenter believed that 

criteria were needed to better define the 

stages of acute renal failure. The 

commenter stated that appropriate 

guidelines were needed for both 

physicians and coders who are 

attempting to differentiate between a 

mildly dehydrated patient and one with 

true acute renal failure. Until such time 

as these documentation guidelines are 

developed, the commenter asked that 

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diagnosis code 584.9 not be changed 

from an MCC to a CC. 

Response: We agree that diagnosis 

code 584.9 captures a wide range of 

severity levels. We also agree that the 

use of this code does not mean that the 

patient’s renal capacity is so impaired as 

to require renal dialysis. As stated 

earlier, our data indicate that most of 

these cases are at a CC severity level, not 

an MCC. As stated earlier, we do not 

believe it is appropriate to defer a 

decision on reclassification of the 

severity level of diagnosis code 584.9 

until future coding or guideline 

modifications can be considered. 

Should a new range of codes be 

developed, we will consider what 

severity levels should be applied to each 

new code and include this within future 

rulemaking. 

Comment: Several commenters 

objected to a change of severity levels 

for diagnosis code 584.9 from an MCC 

to a CC because of the financial impact 

the change would have on their 

hospitals. Several hospitals stated that 

this change would reduce their annual 

Medicare payments by $1.0 to $3.6 

million per year. Other commenters 

stated that this change could lead to a 

reduction of 2 percent or more in total 

Medicare payments to their facilities. 

The commenters acknowledged that the 

code does not consistently capture 

patients at the highest severity level and 

that there was no clear convention 

among clinicians for documenting acute 

renal insufficiency versus acute renal 

failure. The commenters asked that the 

change not be made because of the 

payment impact on their hospitals. 

Response: We agree that diagnosis 

code 584.9 captures patients who are 

not consistently at the highest severity 

level. Classifying these patients at the 

highest severity level greatly distorts our 

national data. It gives the impression 

that a large number of patients have an 

MCC severity level when they may in 

fact have only minor renal symptoms. 

Our data support that patients with 

diagnosis code 584.9 are more 

appropriately classified at the CC 

severity level. These acute renal failure 

patients captured with this code do not 

utilize the resources of other conditions 

on the MCC list. We believe the data 

support changing the code from an MCC 

to a CC. We believe our claims data 

show that this change will lead to more 

accurate payment, even if it does reduce 

some hospital payments. We do not 

believe it is appropriate to inflate 

payments for hospitals that report a 

higher incidence of this code, yet are 

treating patients with a lower severity 

level. 

Comment: Other commenters who 

disagreed with the proposed change 

from an MCC to a CC, acknowledged 

that this unspecified code captures a 

range of severity levels from those 

patients with only a minimal elevation 

in serum creatinine or simple 

dehydration to those patients who are 

actually in acute renal failure. Some of 

the commenters stated that, while the 

code may currently capture patients 

with low severity levels, the patients 

still need treatment and monitoring to 

prevent any worsening in their 

conditions. The commenters also 

acknowledged that there is no clear 

convention among clinicians for 

documenting acute renal insufficiency 

versus acute renal failure. The 

commenters stated that this has been a 

problematic area on which there have 

been consensus conferences and 

publications from a variety of quality 

and renal organizations. The 

commenters stated that additional work 

was needed to develop a clear 

consensus for documenting acute renal 

failure. The commenters urged CMS to 

pursue greater standardization for the 

clinical documentation of acute renal 

failure. Until such time as the clinical 

documentation improves, the 

commenters recommended that CMS 

continue to classify diagnosis code 

584.9 as an MCC. 

Response: We agree that there is not 

a consistent use of the term acute renal 

failure. As mentioned earlier, this term 

has been used to describe a wide range 

of severity levels. However, our claims 

data show that the term is being used 

predominately to describe those patients 

who are not at the highest severity level. 

The patients are more like others with 

a CC severity level. We do not believe 

that it is appropriate for CMS to wait for 

a consensus to build about how to use 

and document the term acute renal 

failure. We believe it is more 

appropriate to base our decision on 

current claims data and clinical review. 

Regardless of the different uses of the 

term ‘‘acute renal failure’’ and the 

inclusion of a wide range of severity 

levels, the current data show that the 

code is more properly a CC and not an 

MCC. As mentioned by a number of 

commenters, the term ‘‘acute renal 

failure’’ is being used for a wide variety 

of patients, most of which do not have 

a high severity level. We also point out 

that we proposed reclassifying only the 

unspecified acute renal failure code 

from an MCC to a CC. We are leaving 

the more precise acute renal failure 

codes as MCCs. For instance, these more 

precise acute renal failure codes will 

remain on the MCC list: 

• 584.5 (Acute kidney failure with 

lesion of tubular necrosis); 

• 584.6 (Acute kidney failure with 

lesion of renal cortical necrosis); 

• 584.7 (Acute kidney failure with 

lesion of renal medullary [papillary] 

necrosis); and 

• 584.8 (Acute kidney failure with 

other specified pathological lesion in 

kidney). 

We proposed to remove only the code 

for an unspecified type of acute kidney 

failure from the MCC list and to add it 

to the CC list. Our data support this 

reclassification. 

After consideration of the public 

comments we received, we are 

finalizing our proposal to change 

diagnosis code 584.9 (Acute kidney 

failure, unspecified) from an MCC to a 

CC. 

Comment: One commenter asked that 

CMS also examine whether the 

following encephalopathy codes should 

be removed from the MCC list. The 

commenter stated that claims analysis 

may show a justification for removing 

these codes from the MCC list. 

• 348.30 Encephalopathy, 

unspecified 

• 348.31 Metabolic encephalopathy 

• 348.39 Other encephalopathy 

• 349.82 Toxic encephalopathy 

Response: We believe this comment is 

outside the scope of the FY 2011 IPPS/ 

LTCH PPS proposed rule. We did not 

propose to change the severity level 

classification for any of the 

encephalopathy codes. We will examine 

this issue as part of next year’s proposed 

rule. Therefore, we are not making any 

changes to the severity level 

classifications of the encephalopathy 

codes mentions above. 

Tables 6G and 6H, Additions to and 

Deletions from the CC Exclusion List, 

respectively, which are effective for 

discharges occurring on or after October 

1, 2010, are not being published in the 

Addendum to this final rule because of 

the length of the two tables. Instead, we 

are making them available through the 

Internet on the CMS Web site at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS. 

Each of these principal diagnoses for 

which there is a CC exclusion is shown 

in Tables 6G and 6H in the Addendum 

to this final rule with an asterisk, and 

the conditions that will not count as a 

CC, are provided in an indented column 

immediately following the affected 

principal diagnosis. 

A complete updated MCC, CC, and 

Non-CC Exclusions List is also available 

through the Internet on the CMS Web 

site at: http://www.cms.hhs.gov/Acute

InpatientPPS. Beginning with 

discharges on or after October 1, 2010, 

the indented diagnoses will not be 

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recognized by the GROUPER as valid 

CCs for the asterisked principal 

diagnosis. 

To assist readers in identifying the 

changes to the MCC and CC lists that 

occurred as a result of updates to the 

ICD–9–CM codes, as described in Tables 

6A, 6C, and 6E of the Addendum to this 

final rule, we are providing the 

following summaries of those MCC and 

CC changes. 

BILLING CODE 4120–01–P 


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3The original list of the ICD–9–CM procedure 

codes for the procedures we consider nonextensive 

procedures, if performed with an unrelated 

principal diagnosis, was published in Table 6C in 

section IV. of the Addendum to the FY 1989 final 

rule (53 FR 38591). As part of the FY 1991 final rule 

(55 FR 36135), the FY 1992 final rule (56 FR 43212), 

the FY 1993 final rule (57 FR 23625), the FY 1994 

final rule (58 FR 46279), the FY 1995 final rule (59 

FR 45336), the FY 1996 final rule (60 FR 45783), 

the FY 1997 final rule (61 FR 46173), and the FY 

1998 final rule (62 FR 45981), we moved several 

other procedures from DRG 468 to DRG 477, and 

some procedures from DRG 477 to DRG 468. No 

procedures were moved in FY 1999, as noted in the 

final rule (63 FR 40962); in FY 2000 (64 FR 41496); 

in FY 2001 (65 FR 47064); or in FY 2002 (66 FR 

39852). In the FY 2003 final rule (67 FR 49999) we 

did not move any procedures from DRG 477. 

However, we did move procedure codes from DRG 

468 and placed them in more clinically coherent 

DRGs. In the FY 2004 final rule (68 FR 45365), we 

moved several procedures from DRG 468 to DRGs 

476 and 477 because the procedures are 

nonextensive. In the FY 2005 final rule (69 FR 

48950), we moved one procedure from DRG 468 to 

477. In addition, we added several existing 

procedures to DRGs 476 and 477. In the FY 2006 

(70 FR 47317), we moved one procedure from DRG 

468 and assigned it to DRG 477. In FY 2007, we 

moved one procedure from DRG 468 and assigned 

it to DRGs 479, 553, and 554. In FYs 2008, 2009, 

and FY 2010, no procedures were moved, as noted 

in the FY 2008 final rule with comment period (72 

FR 46241), the FY 2009 final rule (73 FR 48513), 

and the FY 2010 final rule (74 FR 43796). 

BILLING CODE 4120–01–C 

Alternatively, the complete 

documentation of the GROUPER logic, 

including the current CC Exclusions 

List, is available from 3M/Health 

Information Systems (HIS), which, 

under contract with CMS, is responsible 

for updating and maintaining the 

GROUPER program. The current MS– 

DRG Definitions Manual, Version 27.0, 

is available for $250.00, which includes 

shipping and handling. Version 27.0 of 

the manual is also available on a CD for 

$200.00; a combination hard copy and 

CD is available for $400.00. Version 28.0 

of this manual, which includes the final 

FY 2011 MS–DRG changes, will be 

available in CD only for $225.00. These 

manuals may be obtained by writing 

3M/HIS at the following address: 100 

Barnes Road, Wallingford, CT 06492; or 

by calling (203) 949–0303, or by 

obtaining an order form at the Web site: 

http://www.3MHIS.com. Please specify 

the revision or revisions requested. 

10. Review of Procedure Codes in MS 

DRGs 981 Through 983; 984 Through 

986; and 987 Through 989 

Each year, we review cases assigned 

to former CMS DRG 468 (Extensive O.R. 

Procedure Unrelated to Principal 

Diagnosis), CMS DRG 476 (Prostatic 

O.R. Procedure Unrelated to Principal 

Diagnosis), and CMS DRG 477 

(Nonextensive O.R. Procedure Unrelated 

to Principal Diagnosis) to determine 

whether it would be appropriate to 

change the procedures assigned among 

these CMS DRGs. Under the MS–DRGs 

that we adopted for FY 2008, CMS DRG 

468 was split three ways and became 

MS–DRGs 981, 982, and 983 (Extensive 

O.R. Procedure Unrelated to Principal 

Diagnosis with MCC, with CC, and 

without CC/MCC, respectively). CMS 

DRG 476 became MS–DRGs 984, 985, 

and 986 (Prostatic O.R. Procedure 

Unrelated to Principal Diagnosis with 

MCC, with CC, and without CC/MCC, 

respectively). CMS DRG 477 became 

MS–DRGs 987, 988, and 989 

(Nonextensive O.R. Procedure Unrelated 

to Principal Diagnosis with MCC, with 

CC, and without CC/MCC, respectively). 

MS–DRGs 981 through 983, 984 

through 986, and 987 through 989 

(formerly CMS DRGs 468, 476, and 477, 

respectively) are reserved for those cases 

in which none of the O.R. procedures 

performed are related to the principal 

diagnosis. These MS–DRGs are intended 

to capture atypical cases, that is, those 

cases not occurring with sufficient 

frequency to represent a distinct, 

recognizable clinical group. MS–DRGs 

984 through 986 (previously CMS DRG 

476) are assigned to those discharges in 

which one or more of the following 

prostatic procedures are performed and 

are unrelated to the principal diagnosis: 

• 60.0, Incision of prostate 

• 60.12, Open biopsy of prostate 

• 60.15, Biopsy of periprostatic tissue 

• 60.18, Other diagnostic procedures 

on prostate and periprostatic tissue 

• 60.21, Transurethral prostatectomy 

• 60.29, Other transurethral 

prostatectomy 

• 60.61, Local excision of lesion of 

prostate 

• 60.69, Prostatectomy, not elsewhere 

classified 

• 60.81, Incision of periprostatic 

tissue 

• 60.82, Excision of periprostatic 

tissue 

• 60.93, Repair of prostate 

• 60.94, Control of (postoperative) 

hemorrhage of prostate 

• 60.95, Transurethral balloon 

dilation of the prostatic urethra 

• 60.96, Transurethral destruction of 

prostate tissue by microwave 

thermotherapy 

• 60.97, Other transurethral 

destruction of prostate tissue by other 

thermotherapy 

• 60.99, Other operations on prostate 

All remaining O.R. procedures are 

assigned to MS–DRGs 981 through 983 

and 987 through 989, with MS–DRGs 

987 through 989 assigned to those 

discharges in which the only procedures 

performed are nonextensive procedures 

that are unrelated to the principal 

diagnosis.3

Our review of MedPAR claims data 

showed that there were 59 cases in 

which procedures related to the prostate 

were arrayed across 10 different MDCs. 

None of the 59 cases were cases that 

should logically be assigned to any of 

the other MDCs. For example, there 

were a total of 16 cases of other 

transurethral prostate surgery that 

occurred in MDC 5 (Diseases and 

Disorders of the Circulatory System). In 

addition, none of the cases had lengths 

of stay or average charges that would 

indicate that these cases were anything 

other than some of the expected 

irregularities of medical care. Therefore, 

for FY 2011, we did not propose to 

change the procedures assigned among 

these MS–DRGs. 

We did not receive any public 

comments on our proposal and, 

therefore, are adopting it as final. 

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. Our review of 

claims data showed that there were 

4,443 cases in MS–DRGs 981 through 

983. These 4,443 cases were arrayed 

across 18 MDCs. The single most 

common procedure was code 00.66 

(Percutaneous transluminal coronary 

angioplasty [PTCA] of coronary 

atherectomy), 21 cases, located in MDC 

1 (Diseases and Disorders of the 

Nervous System). These cases represent 

a very small volume of cases that are 

unlikely to indicate medical practice 

trends. In addition, from a clinical 

coherence standpoint, we do not believe 

it benefits the GROUPER system to add 

cardiac procedures to the nervous 

system MDC. The same situation was 

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evident in MS–DRGs 987 through 989. 

There were a total of 1,601 cases across 

17 MDCs and, again, the cases did not 

represent clinically coherent examples 

of medical care that warranted 

movement of procedure codes into 

additional MS–DRGs. Examples of cases 

that we reviewed included six cases of 

bone biopsies in MDC 21 (Injuries, 

Poisonings and Toxic Effects of Drugs) 

and one case of a destruction of a lesion 

of the knee in MDC 13 (Diseases and 

Disorders of the Female Reproductive 

System). Again, the volume of these 

cases is negligible, and clinical 

coherence is not demonstrated to the 

degree that a change in the MS–DRGs is 

warranted. Therefore, for FY 2011, we 

did not propose to remove any 

procedures from MS–DRGs 981 through 

983 or MS–DRGs 987 through 989 into 

one of the surgical MS–DRGs for the 

MDC into which the principal diagnosis 

is assigned. 

We did not receive any public 

comments on our proposal and, 

therefore, are adopting it as final. 

b. Reassignment of Procedures Among 

MS–DRGs 981 Through 983, 984 

Through 986, and 987 Through 989 

We also annually review the list of 

ICD–9–CM procedures that, when in 

combination with their principal 

diagnosis code, result in assignment to 

MS–DRGs 981 through 983, 984 through 

986 (Prostatic O.R. procedure unrelated 

to principal diagnosis with MCC, with 

CC, or without CC/MCC, respectively), 

and 987 through 989, to ascertain 

whether any of those procedures should 

be reassigned from one of these three 

MS–DRGs to another of the three MS– 

DRGs based on average charges 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. 

To reiterate, our review of claims data 

showed that 18 MDCs were represented 

in MS–DRGs 981 through 983, for a total 

of 4,443 cases. There were 10 MDCs 

represented in MS–DRGs 984 through 

986, which contained 59 cases. In 

addition, our review of claims data for 

MS–DRGs 987 through 989 showed 

1,601 cases across 17 MDCs. However, 

these cases represent such disparate 

situations as one case of a large bowel 

incision assigned to MDC 1 (Diseases 

and Disorders of the Nervous System) 

and one case of a revision of the femoral 

component of a hip replacement 

assigned to MDC 3 (Diseases and 

Disorders of the Ear, Nose, Mouth, and 

Throat). We do not believe that any of 

these cases represent shifts in either 

treatment practice or reporting practice. 

As these types of cases do not represent 

clinical coherence, we do not believe 

that the addition of these procedure 

codes identified in our review would 

positively benefit the overall MS–DRG 

logic. Therefore, for FY 2011, we did not 

propose to move any procedure codes 

among these MS–DRGs. 

We did not receive any public 

comments on our proposal and, 

therefore, are adopting it as final. 

c. Adding Diagnosis or Procedure Codes 

to MDCs 

Based on the review of cases in the 

MDCs as described above in sections 

G.10.a. and b., we did not propose to 

add any diagnosis or procedure codes to 

MDCs for FY 2011. 

We did not receive any public 

comments on our proposal and, 

therefore, are adopting it as final. 

11. Changes to the ICD–9–CM Coding 

System, Including Discussion of the 

Replacement of the ICD–9–CM Coding 

System With the ICD–10–CM and ICD– 

10–PCS Systems in FY 2014 

a. ICD–9–CM Coding System 

As described in section II.B.1. of the 

preamble of this final rule, the ICD–9– 

CM is a coding system currently used 

for the reporting of diagnoses and 

procedures performed on a patient. In 

September 1985, the ICD–9–CM 

Coordination and Maintenance 

Committee was formed. This is a 

Federal interdepartmental committee, 

co-chaired by the National Center for 

Health Statistics (NCHS), the Centers for 

Disease Control and Prevention, and 

CMS, charged with maintaining and 

updating the ICD–9–CM system. The 

Committee is jointly responsible for 

approving coding changes, and 

developing errata, addenda, and other 

modifications to the ICD–9–CM to 

reflect newly developed procedures and 

technologies and newly identified 

diseases. The Committee is also 

responsible for promoting the use of 

Federal and non-Federal educational 

programs and other communication 

techniques with a view toward 

standardizing coding applications and 

upgrading the quality of the 

classification system. 

The Official Version of the ICD–9–CM 

contains the list of valid diagnosis and 

procedure codes. (The Official Version 

of the ICD–9–CM is available from the 

Government Printing Office on CD– 

ROM for $19.00 by calling (202) 512– 

1800.) Complete information on 

ordering the CD–ROM is also available 

at: http://www.cms.hhs.gov/

ICD9ProviderDiagnosticCodes/

05_CDROM.asp#TopOfPage. The 

Official Version of the ICD–9–CM is no 

longer available in printed manual form 

from the Federal Government; it is only 

available on CD–ROM. Users who need 

a paper version are referred to one of the 

many products available from 

publishing houses. 

The NCHS has lead responsibility for 

the ICD–9–CM diagnosis codes included 

in the Tabular List and Alphabetic 

Index for Diseases, while CMS has lead 

responsibility for the ICD–9–CM 

procedure codes included in the 

Tabular List and Alphabetic Index for 

Procedures. 

The Committee encourages 

participation in the above process by 

health-related organizations. In this 

regard, the Committee holds public 

meetings for discussion of educational 

issues and proposed coding changes. 

These meetings provide an opportunity 

for representatives of recognized 

organizations in the coding field, such 

as the American Health Information 

Management Association (AHIMA), the 

American Hospital Association (AHA), 

and various physician specialty groups, 

as well as individual physicians, health 

information management professionals, 

and other members of the public, to 

contribute ideas on coding matters. 

After considering the opinions 

expressed at the public meetings and in 

writing, the Committee formulates 

recommendations, which then must be 

approved by the agencies. 

The Committee presented proposals 

for coding changes for implementation 

in FY 2011 at a public meeting held on 

September 16–17, 2009 and finalized 

the coding changes after consideration 

of comments received at the meetings 

and in writing by November 20, 2009. 

Those coding changes are announced in 

Tables 6A through 6F in the Addendum 

to this final rule. The Committee held 

its 2010 meeting on March 9–10, 2010. 

New codes for which there was a 

consensus of public support and for 

which complete tabular and indexing 

changes are made by May 2010 will be 

included in the October 1, 2010 update 

to ICD–9–CM. Code revisions that were 

discussed at the March 9–10, 2010 

Committee meeting but that could not 

be finalized in time to include them in 

the Addendum to the FY 2011 IPPS/ 

LTCH PPS proposed rule are included 

in Tables 6A through 6F of the 

Addendum to this final rule and are 

marked with an asterisk (*). 

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Copies of the minutes of the 

procedure codes discussions at the 

Committee’s September 16–17, 2009 

meeting and March 9–10, 2010 meeting 

can be obtained from the CMS Web site 

at: http://cms.hhs.gov/ 

ICD9ProviderDiagnosticCodes/ 

03_meetings.asp. The minutes of the 

diagnosis codes discussions at the 

September 16–17, 2009 meeting and 

March 9–10, 2010 meeting are found at: 

http://www.cdc.gov/nchs/icd.htm. 

These Web sites also provide detailed 

information about the Committee, 

including information on requesting a 

new code, attending a Committee 

meeting, and timeline requirements and 

meeting dates. 

We encourage commenters to address 

suggestions on coding issues involving 

diagnosis codes to: Donna Pickett, CoChairperson, ICD–9–CM Coordination 

and Maintenance Committee, NCHS, 

Room 2402, 3311 Toledo Road, 

Hyattsville, MD 20782. Comments may 

be sent by e-mail to: dfp4@cdc.gov. 

Questions and comments concerning 

the procedure codes should be 

addressed to: Patricia E. Brooks, CoChairperson, ICD–9–CM Coordination 

and Maintenance Committee, CMS, 

Center for Medicare Management, 

Hospital and Ambulatory Policy Group, 

Division of Acute Care, C4–08–06, 7500 

Security Boulevard, Baltimore, MD 

21244–1850. Comments may be sent by 

e-mail to: 

patricia.brooks2@cms.hhs.gov. 

The ICD–9–CM code changes that 

have been approved will become 

effective October 1, 2010. The new ICD– 

9–CM codes are listed, along with their 

MS–DRG classifications, in Tables 6A 

and 6B (New Diagnosis Codes and New 

Procedure Codes, respectively) in the 

Addendum to this final rule. As we 

stated above, the code numbers and 

their titles were presented for public 

comment at the ICD–9–CM 

Coordination and Maintenance 

Committee meetings. Both oral and 

written comments were considered 

before the codes were approved. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23911), we 

solicited comments on the proposed 

classification of these new codes, which 

were shown in Tables 6A and 6B of the 

Addendum to the proposed rule. 

Comment: A few commenters 

supported our proposals. One 

commenter, representing one of the 

national hospital associations, 

recommended that the new codes 

488.01 (Influenza due to identified 

avian influenza virus with pneumonia) 

and 488.11 (Influenza due to identified 

novel H1N1 influenza virus with 

pneumonia) be assigned to the 

pneumonia MS–DRGs to be consistent 

with the MS–DRG definitions and 

classification of diagnosis code 487.0 

(Influenza with pneumonia). 

Response: We agree with the 

commenters. Therefore, both codes 

488.01 and 488.11 will be assigned to 

MS–DRGs 193 through 195 (Simple 

Pneumonia with Pleurisy With MCC, 

Simple Pneumonia with Pleurisy With 

CC, and Simple Pneumonia with 

Pleurisy Without CC/MCC, respectively) 

as reflected in Table 6A of this final 

rule. 

Comment: The same commenter 

representing one of the hospital 

associations also questioned the CC 

designation for two new codes: 780.33 

(Post traumatic seizures) and 278.03 

(Obesity hypoventilation syndrome). In 

the proposed rule (75 FR 24207 through 

24208), both codes were listed as nonCCs in Table 6A. The commenter 

pointed out that specific seizures 

(convulsions) codes such as 780.31 

(Febrile convulsion (simple), 

unspecified) and 780.32 (Complex 

febrile convulsions) are classified as a 

CC and to be consistent within the 

classification system, code 780.33 

should also be classified as a CC. 

The commenter recommended further 

analysis for code 278.03 (Obesity 

hypoventilation syndrome) to determine 

if this condition meets the definition of 

a CC. The commenter pointed out that 

obesity hypoventilation syndrome is a 

condition where overweight patients 

cannot breathe appropriately resulting 

in low blood oxygen levels and high 

blood carbon dioxide levels. This 

condition puts a strain on the heart and 

lungs and may eventually lead to a more 

serious condition such as heart failure 

or respiratory failure. This condition 

would have to be closely monitored 

while the patient is in the hospital and 

may require respiratory treatment such 

as CPAP, BIPAP, or even mechanical 

ventilation depending on the severity of 

the condition. Such services involve 

intensive monitoring where, for 

example, in an intensive care unit, 

expensive and technically complex 

services or extensive care requiring a 

greater number of caregivers is required. 

Response: Our medical advisors agree 

with the commenter’s assessment that 

both codes should be classified as CCs. 

Therefore, we are amending the 

proposed non-CC designation for both 

codes 788.03 and 278.03 and classifying 

them as CCs in Table 6A. These changes 

are reflected in Table 6A in this final 

rule. 

Comment: Several commenters 

addressed the MS–DRG placement of 

new procedure code 35.97 

(Percutaneous mitral valve repair with 

implant) that was created for use 

beginning on October 1, 2010. The 

commenters urged CMS to assign this 

code to the same MS–DRG as open 

surgery so that higher payment would 

result. 

Response: In addition to the 

MitraClip® device not yet being FDA 

approved, we have no claims data on 

which to evaluate such a MS–DRG 

assignment. However, the most 

important concept for denying these 

requests is that the MitraClip® device is 

delivered percutaneously. To assign this 

percutaneous procedure to MS–DRGs 

utilizing an open approach would not 

conform to the structure of the MS– 

DRGs, and disregards the concept of 

clinical coherence. We have no 

evidence-based data with which to 

justify any other MS–DRG assignment 

than those where the current 

percutaneous valve procedures are now 

assigned. Therefore, procedure code 

35.97 is assigned to MS–DRGs 246, 247, 

248, 249, 250, and 251. 

Comment: Two comments urged CMS 

to assign new procedure code 37.37 

(Excision or destruction of other lesion 

or tissue of heart, thoracoscopic 

approach) to MS–DRGs 228, 229, and 

230 (Other Cardiothoracic Procedure 

with MCC, with CC, and without CC/ 

MCC, respectively). 

Response: CMS’ practice has been, 

where practicable, to assign new ICD–9– 

CM codes to the same MS–DRG(s) as 

their predecessor codes. For this reason, 

procedure code 37.37 has been assigned 

to MS–DRGs 228, 229, and 230, as 

described above. 

For codes that have been replaced by 

new or expanded codes, the 

corresponding new or expanded 

diagnosis codes are included in Table 

6A in the Addendum to this final rule. 

New procedure codes are shown in 

Table 6B in the Addendum to this final 

rule. Diagnosis codes that have been 

replaced by expanded codes or other 

codes or have been deleted are in Table 

6C (Invalid Diagnosis Codes) in the 

Addendum to this final rule. These 

invalid diagnosis codes will not be 

recognized by the GROUPER beginning 

with discharges occurring on or after 

October 1, 2010. Table 6D in the 

Addendum to this final rule contains 

invalid procedure codes. These invalid 

procedure codes will not be recognized 

by the GROUPER beginning with 

discharges occurring on or after October 

1, 2010. Revisions to diagnosis code 

titles are in Table 6E (Revised Diagnosis 

Code Titles) in the Addendum to this 

final rule, which also includes the MS– 

DRG assignments for these revised 

codes. Table 6F in the Addendum to 

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50124 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

this final rule includes revised 

procedure code titles for FY 2011. 

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. As 

stated previously, ICD–9–CM codes 

discussed at the March 9–10, 2010 

Committee meeting that receive 

consensus and that were finalized by 

May 2010 are included in Tables 6A 

through 6F in the Addendum to this 

final rule. 

Section 503(a) of Public Law 108–173 

included a requirement for updating 

ICD–9–CM codes twice a year instead of 

a single update on October 1 of each 

year. This requirement was included as 

part of the amendments to the Act 

relating to recognition of new 

technology under the IPPS. Section 

503(a) amended section 1886(d)(5)(K) of 

the Act by adding a clause (vii) which 

states that the ‘‘Secretary shall provide 

for the addition of new diagnosis and 

procedure codes on April 1 of each year, 

but the addition of such codes shall not 

require the Secretary to adjust the 

payment (or diagnosis-related group 

classification) * * * until the fiscal year 

that begins after such date.’’ This 

requirement improves the recognition of 

new technologies under the IPPS system 

by providing information on these new 

technologies at an earlier date. Data will 

be available 6 months earlier than 

would be possible with updates 

occurring only once a year on October 

1. 

While section 1886(d)(5)(K)(vii) of the 

Act states that the addition of new 

diagnosis and procedure codes on April 

1 of each year shall not require the 

Secretary to adjust the payment, or DRG 

classification, under section 1886(d) of 

the Act until the fiscal year that begins 

after such date, we have to update the 

DRG software and other systems in 

order to recognize and accept the new 

codes. We also publicize the code 

changes and the need for a mid-year 

systems update by providers to identify 

the new codes. Hospitals also have to 

obtain the new code books and encoder 

updates, and make other system changes 

in order to identify and report the new 

codes. 

The ICD–9–CM Coordination and 

Maintenance Committee holds its 

meetings in the spring and fall in order 

to update the codes and the applicable 

payment and reporting systems by 

October 1 of each year. Items are placed 

on the agenda for the ICD–9–CM 

Coordination and Maintenance 

Committee meeting if the request is 

received at least 2 months prior to the 

meeting. This requirement allows time 

for staff to review and research the 

coding issues and prepare material for 

discussion at the meeting. It also allows 

time for the topic to be publicized in 

meeting announcements in the Federal 

Register as well as on the CMS Web site. 

The public decides whether or not to 

attend the meeting based on the topics 

listed on the agenda. Final decisions on 

code title revisions are currently made 

by March 1 so that these titles can be 

included in the IPPS proposed rule. A 

complete addendum describing details 

of all changes to ICD–9–CM, both 

tabular and index, is published on the 

CMS and NCHS Web sites in May of 

each year. Publishers of coding books 

and software use this information to 

modify their products that are used by 

health care providers. This 5-month 

time period has proved to be necessary 

for hospitals and other providers to 

update their systems. 

A discussion of this timeline and the 

need for changes are included in the 

December 4–5, 2005 ICD–9–CM 

Coordination and Maintenance 

Committee minutes. The public agreed 

that there was a need to hold the fall 

meetings earlier, in September or 

October, in order to meet the new 

implementation dates. The public 

provided comment that additional time 

would be needed to update hospital 

systems and obtain new code books and 

coding software. There was considerable 

concern expressed about the impact this 

new April update would have on 

providers. 

In the FY 2005 IPPS final rule, we 

implemented section 1886(d)(5)(K)(vii) 

of the Act, as added by section 503(a) 

of Public Law 108–173, by developing a 

mechanism for approving, in time for 

the April update, diagnosis and 

procedure code revisions needed to 

describe new technologies and medical 

services for purposes of the new 

technology add-on payment process. We 

also established the following process 

for making these determinations. Topics 

considered during the Fall ICD–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, 2010 implementation of an ICD– 

9–CM code at the September 16–17, 

2009 Committee meeting. Therefore, 

there were no new ICD–9–CM codes 

implemented on April 1, 2010. 

Current addendum and code title 

information is published on the CMS 

Web site at: http://www.cms.hhs.gov/

icd9ProviderDiagnosticCodes/01_

overview.asp#TopofPage. Information 

on ICD–9–CM diagnosis codes, along 

with the Official ICD–9–CM Coding 

Guidelines, can be found on the Web 

site at: http://www.cdc.gov/nchs/

icd9.htm. Information on new, revised, 

and deleted ICD–9–CM codes is also 

provided to the AHA for publication in 

the Coding Clinic for ICD–9–CM. AHA 

also distributes information to 

publishers and software vendors. 

CMS also sends copies of all ICD–9– 

CM coding changes to its Medicare 

contractors for use in updating their 

systems and providing education to 

providers. 

These same means of disseminating 

information on new, revised, and 

deleted ICD–9–CM codes will be used to 

notify providers, publishers, software 

vendors, contractors, and others of any 

changes to the ICD–9–CM codes that are 

implemented in April. The code titles 

are adopted as part of the ICD–9–CM 

Coordination and Maintenance 

Committee process. Thus, although we 

publish the code titles in the IPPS 

proposed and final rules, they are not 

subject to comment in the proposed or 

final rules. We will continue to publish 

the October code updates in this manner 

within the IPPS proposed and final 

rules. For codes that are implemented in 

April, we will assign the new procedure 

code to the same MS–DRG in which its 

predecessor code was assigned so there 

will be no MS–DRG impact as far as 

MS–DRG assignment. Any midyear 

coding updates will be available 

through the Web sites indicated above 

and through the Coding Clinic for ICD– 

9–CM. Publishers and software vendors 

currently obtain code changes through 

these sources in order to update their 

code books and software systems. We 

will strive to have the April 1 updates 

available through these Web sites 5 

months prior to implementation (that is, 

early November of the previous year), as 

is the case for the October 1 updates. 

b. Code Freeze 

The International Classification of 

Diseases, 10th Revision (ICD–10) coding 

system applicable to hospital inpatient 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50125 

services will be implemented on 

October 1, 2013, as described in the 

Health Insurance Portability and 

Accountability Act (HIPAA) 

Administrative Simplification: 

Modifications to Medical Data code Set 

Standards to Adopt ICD–10–CM and 

ICD–10–PCS final rule (74 FR 3328 

through 3362, January 16, 2009). The 

ICD–10 coding system includes the 

International Classification of Diseases, 

10th Revision, Clinical Modification 

(ICD–10–CM) for diagnosis coding and 

the International Classification of 

Diseases, 10th Revision, Procedure 

Coding System (ICD–10–PCS) for 

inpatient hospital procedure coding, as 

well as the Official ICD–10–CM and 

ICM–10–PCS Guidelines for Coding and 

Reporting. In the January 16, 2009 ICD– 

10–CM and ICD–10–PCS final rule (74 

FR 3328 through 3362), there was a 

discussion of the need for a partial or 

total freeze in the annual updates to 

both ICD–9–CM and ICD–10–CM and 

ICD–10–PCS codes. The public 

comment addressed in that final rule 

stated that the annual code set updates 

should cease l year prior to the 

implementation of ICD–10. The 

commenters stated that this freeze of 

code updates would allow for 

instructional and/or coding software 

programs to be designed and purchased 

early, without concern that an upgrade 

would take place immediately before 

the compliance date, necessitating 

additional updates and purchases. 

We responded to comments in the 

ICD–10 final rule that the ICD–9–CM 

Coordination and Maintenance 

Committee has jurisdiction over any 

action impacting the ICD–9–CM and 

ICD–10 code sets. Therefore, the issue of 

consideration of a moratorium on 

updates to the ICD–9–CM, ICD–10–CM, 

and ICD–10–PCS code sets in 

anticipation of the adoption of ICD–10– 

CM and ICD–10–PCS would be 

addressed through the Committee at a 

future public meeting. 

At the March 11–12, 2009 ICD–9–CM 

Coordination and Maintenance 

Committee meeting, the public was 

notified that there would be a 

discussion of whether there was a need 

to freeze updates to ICD–9–CM and/or 

ICD–10–CM and ICD–10–PCS prior to 

the implementation of ICD–10. The 

audience was asked to consider this 

issue and be prepared to discuss the 

topic at the September 16–17, 2009 

ICD–9–CM Coordination and 

Maintenance Committee meeting. 

Advance written comments on this 

topic were welcomed. The first part of 

the meeting was devoted to this topic. 

CMS received comments in advance 

of the meeting. CMS staff summarized 

these advanced comments at the 

meeting as follows: 

No ICD–9–CM or ICD–10–CM/PCS 

updates beginning October 1, 2010 (36 

months for implementation activities 

without annual code updates). This 

approach involves updating ICD–9–CM 

and ICD–10 codes on October 1, 2010, 

and not updating them again until after 

ICD–10 implementation on October 1, 

2013. The commenters mentioned the 

extensive work needed to prepare for 

the transition to ICD–10 which will 

affect vendors, payers, providers, 

trainers, clearinghouses, and all claims 

handling organizations. The 

commenters stated that the 36 months 

between the last ICD–9–CM and ICD–10 

updates on October 1, 2010 and the 

implementation of ICD–10 on October 1, 

2013, were necessary to prepare and 

train for the transition. 

No ICD–9–CM or ICD–10–CM/PCS 

updates beginning October 1, 2011 (24 

months for implementation activities 

without annual code updates). This 

approach involves updating ICD–9–CM 

and ICD–10 codes on October 1, 2011, 

and not updating them again until after 

ICD–10 implementation on October 1, 

2013. The commenters raised similar 

concerns to those mentioned above. The 

commenters stated that, if codes 

continue to change, the changes would 

make it difficult for vendors, payers, 

and providers to be ready and for coder 

training to be successful. One 

commenter suggested that a provision 

be developed to perform limited annual 

updates to capture new technologies or 

new diagnoses. 

No ICD–10–CM/PCS updates 

beginning October 1, 2012 but continue 

annual updates to ICD–9–CM. This 

commenter supported annual updates to 

ICD–9–CM to capture advances in 

medical science. However, the 

commenter supported a freeze of ICD– 

10 beginning October 1, 2012, to give 

the industry time to update systems and 

prepare for ICD–10 implementation. 

No ICD–10 updates on October 1, 

2012, but update ICD–9–CM without 

interruption. (No period for 

implementation activities without 

annual code updates.) The commenter 

recommended no ICD–10 updates on 

October 1, 2012, but then updating ICD– 

10 again on October 1, 2013. The 

commenter recommended updating 

ICD–9–CM continuously through a final 

update on October 1, 2012. The 

commenter stated that having a two or 

three year gap between updating the 

code books would lead to a loss of data. 

The commenter stated that there is a 

need to retain the ability to update the 

code books to capture conditions such 

as Swine flu. 

Update both ICD–9–CM and ICD–10– 

CM/PCS annually through October 1, 

2013 (no period for implementation 

activities without annual code updates). 

The commenter stated that codes should 

not be frozen prior to the 

implementation of ICD–10. The 

commenter stated that freezing the 

updates would inhibit the recognition of 

new technologies. 

Many of the commenters suggested a 

resumption of updates to ICD–10–CM 

and ICD–10–PCS beginning on October 

1, 2014. However, one commenter 

suggested annual updates of ICD–10– 

CM and ICD–10–PCS without 

interruptions, including on October 1, 

2013. 

The topic was then opened for public 

discussion at the Committee meeting. 

CMS received a variety of comments 

from the participants that mirrored the 

advance written comments. These 

comments ranged from those supporting 

a complete freeze for both coding 

systems to those who recommended that 

both coding systems continue to be 

updated annually prior to ICD–10 

implementation. There were also many 

comments that supported a more 

limited update process beginning on 

October 1, 2011, or October 1, 2012, 

which would allow only a small number 

of new codes to capture new 

technologies or new diseases. A number 

of commenters pointed out that section 

503(a) of Public Law 108–173 included 

a requirement for updating ICD–9–CM 

codes twice a year to capture new 

technologies. The commenters stated 

that CMS must make a provision to 

capture new technologies despite any 

requests to freeze code updates. 

Commenters voiced concerns about 

the impact on vendors creating new 

ICD–10 products when both ICD–9–CM 

and ICD–10–CM and ICD–10–PCS codes 

were extensively updated on an annual 

basis. Commenters stated that vendors 

and educators were reluctant to begin 

ICD–10 products and training materials 

until there was a period of stability 

without extensive annual updates. Some 

commenters stated that it was important 

for physician offices to have time to 

prepare for the implementation of ICD– 

10. Reducing the annual ICD–9–CM and 

ICD–10 annual updates would be 

helpful to physician offices. 

Other commenters stated that it was 

important to update codes annually so 

that information on new diseases and 

technologies can be captured. These 

commenters stated that vendors, 

providers, system maintainers, and 

coders were used to annual code 

updates, and that they should continue. 

One commenter requested that ICD– 

10–CM codes be frozen on October 1, 

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2011 so that ICD–10–CM codes could be 

coordinated with the Diagnostic and 

Statistical Manual of Mental Disorders 

(DSM), Fifth Edition. The commenter 

stated that the American Psychiatric 

Association plans to publish the fifth 

edition in 2012. Updates to ICD–10–CM 

on or after October 1, 2011, would 

disrupt those plans. 

One commenter suggested an 

approach that would greatly reduce the 

number of updates and provide more 

stability in the coding systems during 

the implementation period. This 

commenter suggested that the large, 

regular code updates on ICD–9–CM be 

discontinued beginning on October 1, 

2011, or October 1, 2012. The 

commenter suggested that CMS and 

CDC raise the bar for new code requests 

at that time and only consider requests 

for new codes that clearly describe a 

new technology or a new disease. The 

commenter stated that this may lead to 

the creation of some new procedure 

codes which do not ultimately receive 

FDA approval, as is the case now. 

CMS and CDC have carefully 

reviewed the comments received at the 

ICD–9–CM Coordination and 

Maintenance Committee meeting as well 

as the written comments submitted. 

Most commenters proposed a limited 

freeze on code updates to both ICD–9– 

CM and ICD–10–CM and ICD–10–PCS 

code sets, with an exception made for 

adding codes for new technologies and 

diseases. Providing this exception 

would comply with section 503(a) of 

Public Law 108–173, which, as 

previously stated, includes a 

requirement for updating ICD–9–CM 

codes twice a year to capture new 

technologies. There was support for 

making the last regular update on 

October 1, 2011. The commenters 

recommended that the ICD–9–CM 

Coordination and Maintenance 

Committee continue to discuss any new 

code updates for both coding systems. 

However, new codes would only be 

added to ICD–9–CM or ICD–10 to 

capture new technologies, as required 

by section 503(a) of Public Law 108– 

173. Other coding issues raised would 

be held for consideration after ICD–10 is 

implemented. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23913), we 

solicited additional input on this 

subject, especially in light of the 

requirements on hospitals for 

meaningful use of electronic health 

records. We welcomed public comments 

that explore whether a freeze is needed 

to help with adoption of health IT, given 

other priorities such as achievement of 

meaningful use and implementation of 

ICD–10 by FY 2013. We welcomed 

input on having the last regular, annual 

update to both ICD–9–CM and ICD–10 

be made on October 1, 2011. On October 

1, 2012, there would be only limited 

code updates to both the ICD–9–CM and 

ICD–10 coding systems to capture new 

technologies and diseases. On October 

1, 2013, there would be only limited 

code updates to ICD–10 to capture new 

technologies and diagnoses. Any other 

issues raised would be considered for 

implementation in ICD 10 on October 1, 

2014, a year after ICD–10 is 

implemented. We agree with 

commenters that there is a need to 

provide the provider, payer, and vendor 

community time to prepare for the 

implementation of ICD–10 and the 

accompanying system and product 

updates. The vendor community is 

especially interested in providing a 

more stable code set for ICD–10 while 

they are developing new products. 

Comment: A number of commenters 

supported the recommendation that the 

last regular update to ICD–9–CM and 

ICD–10–CM/PCS be implemented on 

October 1, 2011, with only limited code 

updates to both ICD–9–CM and ICD–10– 

CM/PCS on October 1, 2012, to capture 

new technologies and procedures as 

well as new diseases. Commenters 

stated that successful implementation of 

ICD–10 will require significant 

planning, education, and systems 

modifications. Continuing regular 

updates to ICD–9–CM and ICD–10–CM/ 

PCS would make the implementation of 

these new coding systems more costly 

and complex. The commenters 

recommended that updates occurring on 

October 1, 2012, be limited to proposals 

for urgently needed codes. They stated 

that such proposals should make a 

‘‘clear and convincing’’ case to the ICD– 

9–CM Coordination and Maintenance 

Committee, including public comment 

as to why the proposal cannot wait for 

the next regularly scheduled updates. 

An example of the emergence of a new 

disease such as H1N1 influenzas was 

provided. 

Several commenters who supported 

the limited freeze stated that, by 

accommodating the process for the 

capture of new technologies and disease 

during this period, CMS is not only in 

compliance with section 503(a) of 

Public Law 108–173 requirements for 

new technology, but also anticipates 

that new diagnosis codes may be needed 

to capture new diseases, as we have 

seen with the Avian and H1N1 

influenzas. The commenters called this 

a thoughtful approach which should 

allow the freeze of code sets while still 

accommodating new codes for new 

technologies and procedures as well as 

urgent needs to capture new diseases. 

Several commenters also stated that 

most practicing physicians and their 

staff have not had sufficient opportunity 

to become familiar with ICD–10–CM. 

They believed that this freeze will allow 

physicians and physician specialty 

groups a better opportunity to become 

familiar with the codes common to their 

specialty prior to the implementation of 

ICD–10. Other comments who 

supported the recommendations for a 

limited code freeze recommended that 

CMS and CDC develop strict criteria 

that a code proposal must meet in order 

to qualify for the limited update during 

the freeze period. 

Several commenters recommended 

that there be no updates to ICD–10–CM/ 

PCS on October 1, 2013, unless 

absolutely necessary. They indicated 

that an example of an urgent need was 

that of a pandemic that could not be 

otherwise reported with existing codes. 

The commenters stated that they 

understood the statutory requirements 

for add-on payments for new technology 

under the inpatient payment system, 

and urged CMS to consider alternative 

solutions to recognize such new 

technologies. Other commenters 

opposed any ICD–10 code updates on 

October 1, 2013. The commenters stated 

that a total freeze was needed on 

October 1, 2013, to enable users of the 

classification system the opportunity to 

prepare for ICD–10. 

One commenter who strongly 

supported the limited freeze offered an 

example of the possible impact of not 

pursuing a code freeze would have on 

its organization. This organization is 

currently working with clients to 

complete the necessary software 

updates for the adoption of ICD–10 by 

early next year. Based on its analysis, 

the work is not confined to systems but 

also involves coding and billing 

activities for healthcare claims. The 

commenter stated that there would be 

an impact on physician documentation, 

problem lists, decision support, 

laboratory, emergency department, 

radiology, nursing, scheduling, 

registration management, and other 

internal systems. The commenter 

opined that, by continuing regular code 

updates without a freeze, they would 

have to rework activities and spend 

cycle time doing maintenance updates 

to software and content updates they 

had already performed to include 

additional annual code updates. The 

ICD–10 updates they make will need to 

be tested and maintenance activities 

performed to build the necessary 

reference data to support production 

adoption of ICD–10. 

One commenter strongly opposed the 

partial freeze for FY 2012. The 

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commenter stated that accurate, specific 

code assignment is a prerequisite for 

accurate physician and hospital 

profiling and value-based purchasing. 

The commenter stated that ICD–10–CM 

is an imperfect system and that 

refinements to ICD–9–CM should be 

carried over to ICD–10 prior to its 

implementation date of October 1, 2013. 

The commenter urged CMS to continue 

to work on refining ICD–10. Another 

commenter opposed any freeze of ICD– 

9–CM or ICD–10 codes. The commenter 

stated that codes should continue to be 

updated as usual each year so that 

physician and hospital efficiency can be 

more accurately measured with accurate 

codes. 

Several commenters supported the 

limited freeze, but requested that the 

last regular code updates be on October 

1, 2012, instead of 2011. The 

commenters stated that a 3-year freeze 

from October 1, 2011 through October 1, 

2014 was overly long. 

Response: We will review all 

comments received on the partial freeze 

as part of the ICD–9–CM Coordination 

and Maintenance Committee process as 

well as these additional comments 

received and summarized above. A final 

decision on whether or not there will be 

a partial code freeze will be announced 

at the September 15–16, 2010 ICD–9– 

CM Coordination and Maintenance 

Committee. An agenda for this meeting 

will be posted on the CMS Web site by 

mid-August 2010 at http://www.cms.

gov/ICD9ProviderDiagnosticCodes/03_

meetings.asp. 

We believe that this advance notice of 

a partial code freeze provides the health 

care industry ample time to request last 

major code updates to ICD–9–CM and 

ICD–10, which could be discussed at the 

September 15–16, 2010 and the March 

2011 ICD–9–CM Coordination and 

Maintenance Committee meeting. Codes 

discussed at these two meetings would 

be considered for the final major code 

updates on October 1, 2011. Any code 

issues raised after that time would be 

addressed at the ICD–9–CM 

Coordination and Maintenance 

Committee meetings in September 2011 

through March 2013 to determine if they 

represented new technologies or new 

diseases. Any new technologies and 

diseases would be added during the 

regular annual updates. Other code 

requests would be held for 

implementation on October 1, 2014. 

We welcome additional input on 

having the last regular code updates to 

ICD–9–CM and ICD–10 on October 1, 

2011, and to only add codes for new 

technologies and diseases on October 1, 

2012 and 2013. We also welcome 

additional input on having the next 

regular update to ICD–10 occur again on 

October 1, 2014. 

Information on ICD–10 can be found 

on the CMS Web site at: http://www.

cms.hhs.gov/ICD10. The final ICD–10 

version of MS–DRGs would be adopted 

under the formal rulemaking process as 

part of our annual IPPS updates. 

c. Processing of 25 Diagnosis Codes and 

25 Procedure Codes on Hospital 

Inpatient Claims 

We have received repeated requests 

from the hospital community to process 

all 25 diagnosis codes and 25 procedure 

codes submitted on electronic hospital 

inpatient claims. Hospitals can submit 

up to 25 diagnoses and 25 procedures; 

however, CMS’ current system 

limitations allow for the processing of 

only the first 9 diagnoses and 6 

procedures. While CMS accepts all 25 

diagnoses and 25 procedures submitted 

on the claims, we do not process all of 

the codes because of these system 

limitations. We recognize that much 

valuable information is lost by not 

processing the additional diagnosis and 

procedure codes that are reported by 

hospitals. 

We responded to hospitals’ requests 

that we process up to 25 diagnosis codes 

and 25 procedure codes in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 43798). In that final rule, we referred 

readers to the ICD–10 final rule (74 FR 

3328 through 3362) where we discuss 

the updating of Medicare systems prior 

to the implementation of ICD–10 on 

October 1, 2013. We mentioned that part 

of the system updates in preparation for 

ICD–10 is the ‘‘expansion of our ability 

to process more diagnosis and 

procedure codes.’’ In the FY 2009 IPPS 

final rule (73 FR 48433 through 48444), 

we also responded to multiple requests 

to increase the number of codes 

processed from 9 diagnosis and 6 

procedure codes to 25 diagnosis and 25 

procedure codes. 

CMS is currently undergoing 

extensive system updates as part of the 

move to 5010, which includes the 

ability to accept ICD–10 codes. This 

complicated transition involves 

converting many internal systems prior 

to October 1, 2013, when ICD–10 will be 

implemented. One important step in 

this planned conversion process is the 

expansion of our ability to process 

additional diagnosis and procedure 

codes. We are currently planning to 

complete the expansion of this internal 

system capability so that we are able to 

process up to 25 diagnoses and 25 

procedures on hospital inpatient claims 

as part of the HIPPA ASC X12 Technical 

Reports Type 3, Version 005010 

(Version 5010) standards system update. 

CMS will be able to process up to 25 

diagnosis codes and 25 procedure codes 

when received on the 5010 format 

starting on January 1, 2011. We 

recognize the value of the additional 

information provided by this coded data 

for multiple uses such as for payment, 

quality measures, outcome analysis, and 

other important uses. We will continue 

to pursue this additional processing 

capacity as aggressively as possible in 

response to the multiple requests from 

the hospital industry. We appreciate the 

support of the health care community 

for this extensive system update process 

that will allow us to process more of 

this important data. Therefore, for 

claims submitted on the 5010 format 

beginning January 1, 2011, we will 

increase the capacity to process 

diagnosis and procedure codes on 

hospital inpatient claims from the 

current 9 diagnoses and 6 procedures up 

to 25 diagnoses and 25 procedures. 

Comment: Several commenters 

commended CMS on its plans to accept 

and process up to 25 diagnoses and 25 

procedures on hospital inpatient claims 

submitted on the 5010 format beginning 

January 1, 2011. One commenter 

expressed appreciation for CMS’ 

recognition that a complete picture of 

patients’ clinical conditions and 

procedures is necessary in order to 

accurately measure quality, analyze 

outcomes, assess severity of illness, and 

determine reimbursement. 

Response: We appreciate the support 

for our plan to accept and process up to 

25 diagnoses and 25 procedures on 

hospital inpatient claims submitted on 

the 5010 format beginning January 1, 

2011. We will keep the providers 

updated on our progress in this activity. 

ICD–10 MS–DRGs 

We received comments on the 

creation of the ICD–10 version of the 

MS–DRGs, which will be implemented 

on October 1, 2013 (FY 2014) when we 

implement the reporting of ICD–10 

codes. While we did not propose an 

ICD–10 version of the MS–DRGs, CMS 

has been actively involved in converting 

our current MS–DRGs from ICD–9–CM 

codes to ICD–10 codes and sharing this 

information through the ICD–9–CM 

Coordination and Maintenance 

Committee. CMS undertook this early 

conversion project to assist other payers 

and providers in understanding how to 

go about their own conversion projects. 

We posted ICD–10 MS–DRGs based on 

V26.0 (FY 2009) of the MS–DRGs. We 

also posted a paper that describes how 

CMS went about completing this project 

and suggestions for others to follow. All 

of this information can be found on our 

Web site at: http://www.cms.gov/ICD10/ 

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17_ICD10_MS_DRG

_Conversion_Project.asp. We will 

continue to keep the public updated on 

our maintenance efforts for ICD–10–CM 

and ICD–10–PCS coding systems as well 

as the General Equivalence Mappings 

that assist in conversion through the 

ICD–9–CM Coordination and 

Maintenance Committee. Information on 

these committee meetings can be found 

at: http://www.cms.gov/ICD9Provider

DiagnosticCodes/03_meetings.asp. 

Comment: Several commenters 

recommended that the ICD–10 MS–DRG 

GROUPER logic be available no later 

than the FY 2013 rulemaking period, 

with an extended public comment 

period in order to allow providers 

sufficient time to analyze and model the 

proposed MS–DRG groupings prior to 

its implementation on October 1, 2013. 

Response: CMS initiated early efforts 

to convert the MS–DRGs from ICD–9– 

CM codes to ICD–10 codes. As 

discussed earlier, the public was 

informed of this project through the 

ICD–9–CM Coordination and 

Maintenance Committee. Summary 

reports of those meetings where this 

ICD–10 conversion of MS–DRGs took 

place can be found at http:// 

www.cms.gov/ICD9Provider

DiagnosticCodes/03_meetings.asp. 

Currently, we have Version 26.0 of the 

ICD–10 MS–DRGs posted for public 

review. During FY 2011, we will post 

Version 28.0 of the ICD–10 MS–DRGS 

based on the FY 2011 MS–DRGs 

(Version 28.0) that we are finalizing in 

this final rule. This ICD–10 MS–DRG 

Version 28.0 will also include the CC 

Exclusion List, which was not posted 

with Version 26.0. We will be 

discussing this update at the September 

15–16, 2010 ICD–9–CM Coordination 

and Maintenance Committee Meeting. A 

complete agenda for this meeting will be 

posted in mid-August 2010 at: http://

www.cms.gov/ICD9ProviderDiagnostic

Codes/03_meetings.asp. The registration 

site for the meeting will open on August 

13, 2010. We will continue to work with 

the public to explain how we are 

approaching the conversion of MS– 

DRGs to ICD–10 and will post drafts of 

updates as they are developed for public 

review. The final version of the ICD–10 

MS–DRGs to be implemented in FY 

2014 will be subject to notice and 

comment rulemaking. In the meantime, 

we will provide extensive and detailed 

information on this activity through the 

ICD–9–CM Coordination and 

Maintenance Committee. 

12. Other Issues Not Addressed in the 

Proposed Rule 

We received a number of public 

comments on issues that were not 

within the scope of the proposals in the 

FY 2011 IPPS/LTCH PPS proposed rule. 

a. Rechargeable Dual Array Deep Brain 

Stimulation System 

We received a public comment 

requesting that CMS assign the 

combination of procedure codes 

representing rechargeable systems for 

deep brain stimulation therapy, code 

02.93 (Implantation or replacement of 

intracranial neurostimulator lead(s)), 

and code 86.98 (Insertion or 

replacement of dual array rechargeable 

neurostimulator pulse generator) to MS– 

DRGs 023 and 024 (Craniotomy with 

Major Device Implant/Acute Complex 

CNS PDX with MCC or Chemo Implant 

and Craniotomy with Major Device 

Implant/Acute Complex CNS PDX 

without MCC, respectively). The 

commenter stated that this would allow 

all full system dual array deep brain 

stimulation cases to be appropriately 

grouped to the same MS–DRGs. The 

commenter stated that the procedures to 

implant the rechargeable and 

nonrechargeable dual array systems are 

similar clinically and with respect to 

resource utilization. Currently, codes 

02.93 and 86.98 are assigned to MS– 

DRGs 025 through 027 (Craniotomy and 

Endovascular Intracranial Procedures 

with MCC, Craniotomy and 

Endovascular Intracranial Procedures 

with CC, and Craniotomy and 

Endovascular Intracranial Procedures 

without MCC/CC, respectively). 

This comment is outside the scope of 

the FY 2011 IPPS/LTCH PPS proposed 

rule, as we did not propose any changes 

to MS–DRGs 023 and 024 for 

rechargeable systems for deep brain 

stimulation therapy. Therefore, we are 

not addressing this issue for FY 2011. 

As we stated in FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 23864), we 

encourage individuals with comments 

about MS–DRG classifications to submit 

these comments no later than early 

December of each year so they can be 

carefully considered for possible 

inclusion in the annual proposed rule 

and, if included, may be subject to 

public review and comment. 

b. IntraOperative Electron RadioTherapy 

(IOERT) 

We received a public comment 

requesting that CMS update the MS– 

DRG mapping assignments for 

procedure code 92.41 (Intra-operative 

electron radiation therapy) to ensure the 

cost of this technology is captured in 

each MS–DRG involving tumor removal 

in the rectum, head/neck, pancreas, 

lung, genitourinary, soft tissue, and 

breast. IntraOperative Electron 

RadioTherapy (IOERT) is the direct 

application of radiation to a tumor and/ 

or tumor bed while the patient is 

undergoing surgery for cancer. 

Currently, this code is not assigned to a 

specific MS–DRG. 

This comment is outside the scope of 

the FY 2011 IPPS/LTCH PPS proposed 

rule, as we did not propose any changes 

to the MS–DRG for IOERT. We refer the 

commenter to section II.B.2 of the 

proposed rule (75 FR 23864) where we 

discuss the timeline for submission of 

comments about MS–DRG 

classifications. 

c. Brachytherapy 

We received a public comment 

requesting that CMS assign procedure 

code 92.27 (Implantation or insertion of 

radioactive elements) to various MS– 

DRGs where the use of brachytherapy 

sources has been expanded. In addition, 

it was recommended that appropriate 

separate payment for the brachytherapy 

sources be allowed so that hospitals 

may be reimbursed appropriately for the 

unique source cost per patient. 

Brachytherapy, also called seed 

implantation, involves placing 

radioactive sources in or near the tumor 

either as a permanent or temporary 

implant. 

This comment is outside the scope of 

the FY 2011 IPPS/LTCH PPS proposed 

rule, as we did not propose any changes 

to the MS–DRG for brachytherapy. We 

refer the commenter to section II.B.2 of 

the proposed rule (75 FR 23864) where 

we discuss the timeline for submission 

of comments about MS–DRG 

classifications. 

d. Excisional Debridement 

We received a public comment 

recommending that procedure code 

86.22 (Excisional debridement of 

wound, infection, or burn) be 

reclassified from an OR procedure to a 

non-OR procedure. The commenter 

stated that many excisional 

debridements are not performed in the 

operating room setting, but instead are 

done in wound clinics, physician 

offices, and in patient rooms. The 

commenter interpreted the classification 

of code 86.22 to be that of a proxy for 

severity of illness before MS–DRGs were 

implemented. With the more serious 

pressure ulcers, Stages 3 and 4, being 

classified as MCCs, according to the 

commenter, the need to classify code 

86.22 as an OR is no longer necessary. 

This comment is outside the scope of 

the FY 2011 IPPS/LTCH PPS proposed 

rule, as we did not propose any changes 

for excisional debridement. We refer the 

commenter to section II.B.2 of the 

proposed rule (75 FR 23864) where we 

discuss the timeline for submission of 

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comments about MS–DRG 

classifications. 

H. Recalibration of MS–DRG Weights 

As we proposed, in developing the FY 

2011 system of weights, we used two 

data sources: Claims data and cost 

report data. As in previous years, the 

claims data source is the MedPAR file. 

This file is based on fully coded 

diagnostic and procedure data for all 

Medicare inpatient hospital bills. The 

FY 2009 MedPAR data used in this final 

rule include discharges occurring on 

October 1, 2008, through September 30, 

2009, based on bills received by CMS 

through March 31, 2010, from all 

hospitals subject to the IPPS and shortterm, acute care hospitals in Maryland 

(which are under a waiver from the IPPS 

under section 1814(b)(3) of the Act). The 

FY 2009 MedPAR file used in 

calculating the proposed relative 

weights includes data for approximately 

10,898,371 Medicare discharges from 

IPPS providers. Discharges for Medicare 

beneficiaries enrolled in a Medicare 

Advantage managed care plan are 

excluded from this analysis. The data 

exclude CAHs, including hospitals that 

subsequently became CAHs after the 

period from which the data were taken. 

The second data source used in the costbased relative weighting methodology is 

the FY 2008 Medicare cost report data 

files from HCRIS (that is, cost reports 

beginning on or after October 1, 2007, 

and before October 1, 2008), which 

represents the most recent full set of 

cost report data available. We used the 

March 31, 2010 update of the HCRIS 

cost report files for FY 2008 in setting 

the relative cost-based weights. 

The methodology we used to calculate 

the DRG cost-based relative weights 

from the FY 2009 MedPAR claims data 

and FY 2008 Medicare cost report data 

is as follows: 

• To the extent possible, all the 

claims were regrouped using the 

proposed FY 2011 MS–DRG 

classifications discussed in sections II.B. 

and G. of the preamble of this final rule. 

• The transplant cases that were used 

to establish the relative weights for heart 

and heart-lung, liver and/or intestinal, 

and lung transplants (MS–DRGs 001, 

002, 005, 006, and 007, respectively) 

were limited to those Medicareapproved transplant centers that have 

cases in the FY 2009 MedPAR file. 

(Medicare coverage for heart, heart-lung, 

liver and/or intestinal, and lung 

transplants is limited to those facilities 

that have received approval from CMS 

as transplant centers.) 

• Organ acquisition costs for kidney, 

heart, heart-lung, liver, lung, pancreas, 

and intestinal (or multivisceral organs) 

transplants continue to be paid on a 

reasonable cost basis. Because these 

acquisition costs are paid separately 

from the prospective payment rate, it is 

necessary to subtract the acquisition 

charges from the total charges on each 

transplant bill that showed acquisition 

charges before computing the average 

cost for each MS–DRG and before 

eliminating statistical outliers. 

• Claims with total charges or total 

lengths of stay less than or equal to zero 

were deleted. Claims that had an 

amount in the total charge field that 

differed by more than $10.00 from the 

sum of the routine day charges, 

intensive care charges, pharmacy 

charges, special equipment charges, 

therapy services charges, operating 

room charges, cardiology charges, 

laboratory charges, radiology charges, 

other service charges, labor and delivery 

charges, inhalation therapy charges, 

emergency room charges, blood charges, 

and anesthesia charges were also 

deleted. 

• At least 96.1 percent of the 

providers in the MedPAR file had 

charges for 10 of the 15 cost centers. 

Claims for providers that did not have 

charges greater than zero for at least 10 

of the 15 cost centers were deleted. 

• Statistical outliers were eliminated 

by removing all cases that were beyond 

3.0 standard deviations from the 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), then 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 HACs are 

likely to be higher as well. Thus, 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 a ‘‘N’’ or an 

‘‘U’’ in the POA field. This resetting 

‘‘forced’’ the more costly HAC claims 

into the higher severity MS–DRGs as 

appropriate, and the relative weights 

calculated for each MS–DRG more 

closely reflect the true costs of those 

cases. 

Once the MedPAR data were trimmed 

and the statistical outliers were 

removed, the charges for each of the 15 

cost groups for each claim were 

standardized to remove the effects of 

differences in area wage levels, IME and 

DSH payments, and for hospitals in 

Alaska and Hawaii, the applicable costof-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 15 cost groups so that each MS–DRG 

had 15 standardized charge totals. These 

charges were then adjusted to cost by 

applying the national average CCRs 

developed from the FY 2008 cost report 

data. 

The 15 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 

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we used to create the 15 national cost 

center CCRs. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 

We developed the national average 

CCRs as follows: 

Taking the FY 2008 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 as we are including 

their charges in our claims database. We 

then created CCRs for each provider for 

each cost center (see prior table for line 

items used in the calculations) and 

removed any CCRs that were greater 

than 10 or less than 0.01. We 

normalized the departmental CCRs by 

dividing the CCR for each department 

by the total CCR for the hospital for the 

purpose of trimming the data. We then 

took the logs of the normalized cost 

center CCRs and removed any cost 

center CCRs where the log of the cost 

center CCR was greater or less than the 

mean log plus/minus 3 times the 

standard deviation for the log of that 

cost center CCR. Once the cost report 

data were trimmed, we calculated a 

Medicare-specific CCR. The Medicarespecific CCR was determined by taking 

the Medicare charges for each line item 

from Worksheet D–4 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–4. 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 15 cost 

centers by the corresponding national 

average CCR, we summed the 15 ‘‘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 new cost-based relative weights 

were then normalized by an adjustment 

factor of 1.57489 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 15 national average CCRs for FY 

2011 are as follows: 

Group CCR 

Routine Days .................................. 0.539 

Intensive Days ................................ 0.473 

Drugs .............................................. 0.202 

Supplies & Equipment .................... 0.345 

Therapy Services ............................ 0.403 

Laboratory ....................................... 0.155 

Operating Room ............................. 0.272 

Cardiology ....................................... 0.169 

Radiology ........................................ 0.152 

Emergency Room ........................... 0.263 

Blood and Blood Products .............. 0.415 

Other Services ................................ 0.416 

Labor & Delivery ............................. 0.470 

Inhalation Therapy .......................... 0.200 

Anesthesia ...................................... 0.128 

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 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23922), 

we proposed to use that same case 

threshold in recalibrating the MS–DRG 

weights for FY 2011. Using the FY 2009 

MedPAR data set, there are 8 MS–DRGs 

that contain fewer than 10 cases. Under 

the MS–DRGs, we have fewer lowvolume DRGs than under the CMS DRGs 

because we no longer have separate 

DRGs for patients age 0 to 17 years. 

With the exception of newborns, we 

previously separated some DRGs based 

on whether the patient was age 0 to 17 

years or age 17 years and older. Other 

than the age split, cases grouping to 

these DRGs are identical. The DRGs for 

patients age 0 to 17 years generally have 

very low volumes because children are 

typically ineligible for Medicare. In the 

past, we have found that the low 

volume of cases for the pediatric DRGs 

could lead to significant year-to-year 

instability in their relative weights. 

Although we have always encouraged 

non-Medicare payers to develop weights 

applicable to their own patient 

populations, we have heard frequent 

complaints from providers about the use 

of the Medicare relative weights in the 

pediatric population. We believe that 

eliminating this age split in the MS– 

DRGs will provide more stable payment 

for pediatric cases by determining their 

payment using adult cases that are 

much higher in total volume. Newborns 

are unique and require separate MS– 

DRGs that are not mirrored in the adult 

population. Therefore, it remains 

necessary to retain separate MS–DRGs 

for newborns. All of the low-volume 

MS–DRGs listed below are for 

newborns. In FY 2011, because we do 

not have sufficient MedPAR data to set 

accurate and stable cost weights for 

these low-volume MS–DRGs, we 

proposed to compute weights for the 

low-volume MS–DRGs by adjusting 

their FY 2010 weights by the percentage 

change in the average weight of the 

cases in other MS–DRGs. The crosswalk 

table is shown below: 


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We did not receive any public 

comment on this section. Therefore, we 

are adopting the national average CCRs 

as proposed, with the MS–DRG weights 

recalibrated based on these CCRs. 

I. Add-On Payments for New Services 

and Technologies 

1. Background 

Sections 1886(d)(5)(K) and (L) of the 

Act establish a process of identifying 

and ensuring adequate payment for new 

medical services and technologies 

(sometimes collectively referred to in 

this section as ‘‘new technologies’’) 

under the IPPS. Section 

1886(d)(5)(K)(vi) of the Act specifies 

that a medical service or technology will 

be considered new if it meets criteria 

established by the Secretary after notice 

and opportunity for public comment. 

Section 1886(d)(5)(K)(ii)(I) of the Act 

specifies that a new medical service or 

technology may be considered for new 

technology add-on payment if, ‘‘based 

on the estimated costs incurred with 

respect to discharges involving such 

service or technology, the DRG 

prospective payment rate otherwise 

applicable to such discharges under this 

subsection is inadequate.’’ We note that 

beginning with FY 2008, CMS 

transitioned from CMS–DRGs to MS– 

DRGs. 

The regulations implementing these 

provisions 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. These 

three criteria are explained below in the 

ensuing paragraphs in further detail. 

Under the first criterion, as reflected 

in 42 CFR 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. 

Typically, there is a lag of 2 to 3 years 

from the point a new medical service or 

technology is first introduced on the 

market (generally on the date that the 

technology receives FDA approval/ 

clearance) and when data reflecting the 


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use of the medical service or technology 

are used to calculate the MS–DRG 

weights. For example, data from 

discharges occurring during FY 2009 are 

used to calculate the FY 2011 MS–DRG 

weights in this final rule. Section 

412.87(b)(2) of the regulations therefore 

provides 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 medical service or 

technology (depending on when a new 

code is assigned and data on the new 

medical service or technology become 

available for DRG recalibration). After 

CMS has recalibrated the MS–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 for 

this section.’’ 

The 2-year to 3-year period during 

which a medical service or technology 

can be considered new would ordinarily 

begin on the date on which the medical 

service or technology received FDA 

approval or clearance. (We note that, for 

purposes of this section of this final 

rule, we generally refer to both FDA 

approval and FDA clearance as FDA 

‘‘approval.’’) However, in some cases, 

there may be few to no Medicare data 

available for the new service or 

technology following FDA approval. For 

example, the newness period could 

extend beyond the 2-year to 3-year 

period after FDA approval is received in 

cases where the product initially was 

generally unavailable to Medicare 

patients following FDA approval, such 

as in cases of a national noncoverage 

determination or a documented delay in 

bringing the product onto the market 

after that approval (for instance, 

component production or drug 

production has been postponed 

following FDA approval due to shelf life 

concerns or manufacturing issues). After 

the MS–DRGs have been recalibrated to 

reflect the costs of an otherwise new 

medical service or technology, the 

medical service or technology is no 

longer eligible for special add-on 

payment for new medical services or 

technologies (as specified under 

§ 412.87(b)(2)). For example, an 

approved new technology that received 

FDA approval in October 2008 and 

entered the market at that time may be 

eligible to receive add-on payments as a 

new technology for discharges occurring 

before October 1, 2011 (the start of FY 

2012). Because the FY 2012 MS–DRG 

weights would be calculated using FY 

2010 MedPAR data, the costs of such a 

new technology would be fully reflected 

in the FY 2012 MS–DRG weights. 

Therefore, the new technology would no 

longer be eligible to receive add-on 

payments as a new technology for 

discharges occurring in FY 2012 and 

thereafter. 

We do not consider a service or 

technology to be new if it is 

substantially similar to one or more 

existing technologies. That is, even if a 

technology receives a new FDA 

approval, it may not necessarily be 

considered ‘‘new’’ for purposes of new 

technology add-on payments if it is 

‘‘substantially similar’’ to a technology 

that was approved by FDA and has been 

on the market for more than 2 to 3 years. 

In the FY 2006 IPPS final rule (70 FR 

47351), we explained our policy 

regarding substantial similarity in detail 

and its relevance for assessing if the 

hospital charge data used in the 

development of the relative weights for 

the relevant DRGs reflect the costs of the 

technology. In that final rule, we stated 

that, for determining substantial 

similarity, we consider (1) whether a 

product uses the same or a similar 

mechanism of action to achieve a 

therapeutic outcome, and (2) whether a 

product is assigned to the same or a 

different DRG. We indicated that both of 

the above criteria should be met in order 

for a technology to be considered 

‘‘substantially similar’’ to an existing 

technology. However, in that same final 

rule, we also noted that, due to the 

complexity of issues regarding the 

substantial similarity component of the 

newness criterion, it may be necessary 

to exercise flexibility when considering 

whether technologies are substantially 

similar to one another. Specifically, we 

stated that we may consider additional 

factors, depending on the circumstances 

specific to each application. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43813 and 43814), 

we noted that the discussion of 

substantial similarity in the FY 2006 

IPPS final rule related to comparing two 

separate technologies made by different 

manufacturers. Nevertheless, we stated 

that the criteria discussed in the FY 

2006 IPPS final rule also are relevant 

when comparing the similarity between 

a new use and existing uses of the same 

technology (or a very similar technology 

manufactured by the same 

manufacturer). In other words, we stated 

that it is necessary to establish that the 

new indication for which the 

technology has received FDA approval 

is not substantially similar to that of the 

prior indication. We explained that such 

a distinction is necessary to determine 

the appropriate start date of the newness 

period in evaluating whether the 

technology would qualify for add-on 

payments (that is, the date of the ‘‘new’’ 

FDA approval or that of the prior 

approval), or whether the technology 

could qualify for separate new 

technology add-on payments under each 

indication. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43814), we added 

a third factor of consideration to our 

analysis of whether a new technology is 

substantially similar to one or more 

existing technologies. Specifically, in 

making a determination of whether a 

technology is substantially similar to an 

existing technology, we will consider 

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 (74 FR 

24130), in addition to considering the 

already established factors described in 

the FY 2006 IPPS final rule (that is, (1) 

whether a product uses the same or a 

similar mechanism of action to achieve 

a therapeutic outcome; and (2) whether 

a product is assigned to the same or a 

different DRG). As we noted in the FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule, if all three components are present 

and the new use is deemed substantially 

similar to one or more of the existing 

uses of the technology (that is beyond 

the newness period), we would 

conclude that the technology is not new 

and, therefore, is not eligible for the new 

technology add-on payment. 

Under the second criterion, 

§ 412.87(b)(3) further provides that, to 

be eligible for the add-on payment for 

new medical services or technologies, 

the MS–DRG prospective payment rate 

otherwise applicable to the discharge 

involving the new medical services or 

technologies must be assessed for 

adequacy. Under the cost criterion, to 

assess the adequacy of payment for a 

new technology paid under the 

applicable MS–DRG prospective 

payment rate, we evaluate whether the 

charges for cases involving the new 

technology exceed certain threshold 

amounts. In the FY 2004 IPPS final rule 

(68 FR 45385), we established the 

threshold at the geometric mean 

standardized charge for all cases in the 

MS–DRG plus 75 percent of 1 standard 

deviation above the geometric mean 

standardized charge (based on the 

logarithmic values of the charges and 

converted back to charges) for all cases 

in the MS–DRG to which the new 

medical service or technology is 

assigned (or the case-weighted average 

of all relevant MS–DRGs, if the new 

medical service or technology occurs in 

more than one MS–DRG). 

However, section 503(b)(1) of Public 

Law 108–173 amended section 

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1886(d)(5)(K)(ii)(I) of the Act to provide 

that, beginning in FY 2005, CMS will 

apply ‘‘a threshold * * * that is the 

lesser of 75 percent of the standardized 

amount (increased to reflect the 

difference between cost and charges) or 

75 percent of one standard deviation for 

the diagnosis-related group involved.’’ 

(We refer readers to section IV.D. of the 

preamble to the FY 2005 IPPS final rule 

(69 FR 49084) for a discussion of the 

revision of the regulations to 

incorporate the change made by section 

503(b)(1) of Pub. L. 108–173.) Table 10 

that was included in the IPPS/LTCH 

PPS final rule published in the Federal 

Register on August 27, 2009, contained 

the final thresholds that we used to 

evaluate applications for new 

technology add-on payments for the 

proposed rule for FY 2011 (74 FR 

44173). However, we issued a 

supplemental proposed rule in the 

Federal Register on June 2, 2010 (75 FR 

30756) that addressed the provisions of 

the Affordable Care Act that affected our 

proposed policies and payment rates for 

FY 2011 under the IPPS and the LTCH 

PPS. In addition, we issued a Federal 

Register notice on June 2, 2010 (75 FR 

31118) and further instructions that 

addressed the provisions of the 

Affordable Care Act that affected the 

policies and payment rates for FY 2010 

under the IPPS and the LTCH PPS. In 

these documents, we updated Table 10 

that was published in the Federal 

Register on August 27, 2009 and Table 

10 in the Addendum to the FY 2011 

IPPS/LTCH PPS proposed rule to reflect 

the changes made by the Affordable 

Care Act. 

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 HIPAA Privacy Rule at 45 

CFR parts 160 and 164 applies to claims 

information that providers submit with 

applications for new technology add-on 

payments. Specifically, we explained 

that health plans, including Medicare, 

and providers that conduct certain 

transactions electronically, including 

the hospitals that would be receiving 

payment under the FY 2001 IPPS final 

rule, are required to comply with the 

HIPAA Privacy Rule. We further 

explained how such entities could meet 

the applicable HIPAA requirements by 

discussing how the HIPAA Privacy Rule 

permitted providers to share with health 

plans information needed to ensure 

correct payment, if they had obtained 

consent from the patient to use that 

patient’s data for treatment, payment, or 

health care operations. We also 

explained that, because the information 

to be provided within applications for 

new technology add-on payment would 

be needed to ensure correct payment, no 

additional consent would be required. 

The HHS Office for Civil Rights has 

since amended the HIPAA Privacy Rule, 

but the results remain. The HIPAA 

Privacy Rule does not require a covered 

entity to obtain consent from patients to 

use or disclose protected health 

information for the covered entity’s 

treatment, payment, or health care 

operations purposes, and expressly 

permits such entities to use or to 

disclose protected health information 

for these purposes and for the treatment 

purposes of another health care provider 

and the payment purposes of another 

covered entity or health care provider. 

(We refer readers to 45 CFR 

164.502(a)(1)(ii) and 164.506(c)(1) and 

(c)(3) and the Standards for Privacy of 

Individually Identifiable Health 

Information published in the Federal 

Register (67 FR 53208 through 53214) 

on August 14, 2002, for a full discussion 

of consent in the context of the HIPAA 

Privacy Rule.) 

Under the third criterion, 

§ 412.87(b)(1) of our existing regulations 

provides that a new technology is an 

appropriate candidate for an additional 

payment when it represents ‘‘an advance 

that substantially improves, relative to 

technologies previously available, the 

diagnosis or treatment of Medicare 

beneficiaries.’’ For example, a new 

technology represents a substantial 

clinical improvement when it reduces 

mortality, decreases the number of 

hospitalizations or physician visits, or 

reduces recovery time compared to the 

technologies previously available. (We 

refer readers to the September 7, 2001 

final rule for a complete 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 § 412.88, if 

the costs of the discharge (determined 

by applying cost to charge ratios 

(‘‘CCRs’’) as described in § 412.84(h)) 

exceed the full DRG payment (including 

payments for IME and DSH, but 

excluding outlier payments), Medicare 

will make an add-on payment equal to 

the lesser of: (1) 50 percent of the 

estimated costs of the new technology 

(if the estimated costs for the case 

including the new technology exceed 

Medicare’s payment); or (2) 50 percent 

of the difference between the full DRG 

payment and the hospital’s estimated 

cost for the case. Unless the discharge 

qualifies for an outlier payment, 

Medicare payment is limited to the full 

MS–DRG payment plus 50 percent of 

the estimated costs of the new 

technology. 

Section 1886(d)(4)(C)(iii) of the Act 

requires that the adjustments to annual 

MS–DRG classifications and relative 

weights must be made in a manner that 

ensures that aggregate payments to 

hospitals are not more or less than they 

were in the prior fiscal year (i.e., they 

are ‘‘budget neutral’’). Therefore, in the 

past, we accounted for projected 

payments under the new medical 

service and technology provision during 

the upcoming fiscal year, while at the 

same time estimating the payment effect 

of changes to the MS–DRG 

classifications and recalibration. The 

impact of additional payments under 

this provision was then included in the 

budget neutrality factor, which was 

applied to the standardized amounts 

and the hospital-specific amounts. 

However, 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 § 412.87 to codify our 

current practice of how CMS evaluates 

the eligibility criteria for new medical 

service or technology add-on payment 

applications. We also amended 

§ 412.87(c) to specify that all applicants 

for new technology add-on payments 

must have FDA approval for their new 

medical service or technology by July 1 

of each year prior to the beginning of the 

fiscal year that the application is being 

considered. 

The Council on Technology and 

Innovation (CTI) at CMS oversees the 

agency’s cross-cutting priority on 

coordinating coverage, coding and 

payment processes for Medicare with 

respect to new technologies and 

procedures, including new drug 

therapies, as well as promoting the 

exchange of information on new 

technologies between CMS and other 

entities. The CTI, composed of senior 

CMS staff and clinicians, was 

established under section 942(a) of 

Public Law 108–173. The Council is cochaired by the Director of the Office of 

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Clinical Standards and Quality (OCSQ) 

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, OCSQ, and the local claimspayment contractors (in the case of local 

coverage and payment decisions). The 

CTI supplements, rather than replaces, 

these processes by working to assure 

that all of these activities reflect the 

agency-wide priority to promote highquality, 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. 

CMS plans to continue its Open Door 

forums with stakeholders who are 

interested in CTI’s initiatives. In 

addition, 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 userfriendly format. This guide was 

published in August 2008 and is 

available on the CMS Web site at: 

http://www.cms.hhs.gov/ 

CouncilonTechInnov/Downloads/ 

InnovatorsGuide8_25_08.pdf. 

As we indicated in the FY 2009 IPPS 

final rule (73 FR 48554), we invite any 

product developers or manufacturers of 

new medical technologies to contact the 

agency early in the process of product 

development if they have questions or 

concerns about the evidence that would 

be needed later in the development 

process for the agency’s coverage 

decisions for Medicare. 

The CTI aims to provide useful 

information on its activities and 

initiatives to stakeholders, including 

Medicare beneficiaries, advocates, 

medical product manufacturers, 

providers, and health policy experts. 

Stakeholders with further questions 

about Medicare’s coverage, coding, and 

payment processes, or who want further 

guidance about how they can navigate 

these processes, can contact the CTI at 

CTI@cms.hhs.gov or from the ‘‘Contact 

Us’’ section of the CTI home page 

(http://www.cms.hhs.gov/ 

CouncilonTechInnov/). 

We note that applicants for add-on 

payments for new medical services or 

technologies for FY 2012 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 our 

Web site at: http://www.cms.hhs.gov/ 

AcuteInpatientPPS/08_newtech.asp. To 

allow interested parties to identify the 

new medical services or technologies 

under review before the publication of 

the proposed rule for FY 2012, the Web 

site also will list the tracking forms 

completed by each applicant. 

Comment: A number of commenters 

addressed topics relating to the 

substantial similarity criteria, marginal 

cost factor for the new technology addon payment, the potential 

implementation of ICD–10–CM, the use 

of external data in determining the cost 

threshold, paying new technology addon payments for 2 to 3 years, mapping 

new technologies to the appropriate 

MS–DRG, and the use of the date that 

a ICD–9–CM code is assigned to a 

technology or the FDA approval date 

(whichever is later) as the start of the 

newness period. 

Response: We did not request public 

comments nor propose to make any 

changes to any of the issues summarized 

above. Because these comments are 

outside of the scope of the provisions 

included in the proposed rule, we are 

not providing a complete summary of 

the comments or responding to them in 

this final rule. 

2. Public Input Before Publication of a 

Notice of Proposed Rulemaking on AddOn Payments 

Section 1886(d)(5)(K)(viii) of the Act, 

as amended by section 503(b)(2) of 

Public Law 108–173, provides for a 

mechanism for public input before 

publication of a notice of proposed 

rulemaking regarding whether a medical 

service or technology represents a 

substantial clinical improvement or 

advancement. The process for 

evaluating new medical service and 

technology applications requires the 

Secretary to— 

• Provide, before publication of a 

proposed rule, for public input 

regarding whether a new service or 

technology represents an advance in 

medical technology that substantially 

improves the diagnosis or treatment of 

Medicare beneficiaries; 

• Make public and periodically 

update a list of the services and 

technologies for which applications for 

add-on payments are pending; 

• Accept comments, 

recommendations, and data from the 

public regarding whether a service or 

technology represents a substantial 

clinical improvement; and 

• Provide, before publication of a 

proposed rule, for a meeting at which 

organizations representing hospitals, 

physicians, manufacturers, and any 

other interested party may present 

comments, recommendations, and data 

regarding whether a new medical 

service or technology represents a 

substantial clinical improvement to the 

clinical staff of CMS. 

In order to provide an opportunity for 

public input regarding add-on payments 

for new medical services and 

technologies for FY 2011 prior to 

publication of the FY 2011 IPPS/RY 

2011 LTCH PPS proposed rule, we 

published a notice in the Federal 

Register on November 27, 2009 (74 FR 

62339 through 62342), and held a town 

hall meeting at the CMS Headquarters 

Office in Baltimore, MD, on February 

19, 2010. In the announcement notice 

for the meeting, we stated that the 

opinions and alternatives provided 

during the meeting would assist us in 

our evaluations of applications by 

allowing public discussion of the 

substantial clinical improvement 

criterion for each of the FY 2011 new 

medical service and technology add-on 

payment applications before the 

publication of the FY 2011 proposed 

rule. 

Approximately 80 individuals 

registered to attend the town hall 

meeting in person, while additional 

individuals listened over an open 

telephone line. Each of the three FY 

2011 applicants presented information 

on its technology, including a 

discussion of data reflecting the 

substantial clinical improvement aspect 

of the technology. We considered each 

applicant’s presentation made at the 

town hall meeting, as well as written 

comments submitted on the 

applications, in our evaluation of the 

new technology add-on applications for 

FY 2011 in the FY 2011 proposed rule 

and this final rule. 

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In response to the published notice 

and the new technology town hall 

meeting, we received 11 written 

comments regarding applications for FY 

2011 new technology add-on payments. 

We summarized these comments or, if 

applicable, indicated that there were no 

comments received, at the end of each 

discussion of the individual 

applications in the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 23926 and 

23927). 

3. FY 2011 Status of Technologies 

Approved for FY 2010 Add-On 

Payments 

a. Spiration® IBV® Valve System 

Spiration, Inc. submitted an 

application for new technology add-on 

payments for the Spiration® IBV® Valve 

System (Spiration® IBV®). The 

Spiration® IBV® is a device that is used 

to place, via bronchoscopy, small, oneway valves into selected small airways 

in the lung in order to limit airflow into 

selected portions of lung tissue that 

have prolonged air leaks following 

surgery while still allowing mucus, 

fluids, and air to exit, thereby reducing 

the amount of air that enters the pleural 

space. The device is intended to control 

prolonged air leaks following three 

specific surgical procedures: lobectomy; 

segmentectomy; or lung volume 

reduction surgery (LVRS). According to 

the applicant, an air leak that is present 

on postoperative day 7 is considered 

‘‘prolonged’’ unless present only during 

forced exhalation or cough. In order to 

help prevent valve migration, there are 

five anchors with tips that secure the 

valve to the airway. The implanted 

valves are intended to be removed no 

later than 6 weeks after implantation. 

With regard to the newness criterion, 

the Spiration® IBV® received a HDE 

approval from the FDA on October 24, 

2008. We were unaware of any 

previously FDA-approved predicate 

devices, or otherwise similar devices, 

that could be considered substantially 

similar to the Spiration® IBV®. 

However, the applicant asserted that the 

FDA had precluded the device from 

being used in the treatment of any 

patients until the Institutional Review 

Board (IRB) granted approvals regarding 

its study sites. Therefore, the Spiration®

IBV® met the newness criterion once it 

obtained at least one IRB approval 

because the device would then be 

available on the market to treat 

Medicare beneficiaries. 

After evaluation of the newness, costs, 

and substantial clinical improvement 

criteria for new technology payments for 

the Spiration® IBV® and consideration 

of the public comments we received on 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, including the additional 

analysis of clinical data and supporting 

information submitted by the applicant, 

we approved the Spiration® IBV® for 

new technology add-on payments for FY 

2010. In that final rule, we noted that 

the Spiration® IBV® was the only device 

currently approved for the purpose of 

treating prolonged air leaks following 

lobectomy, segmentectomy, and LVRS 

patients in the United States. We stated 

that without the availability of this 

device, patients with prolonged air leaks 

(following lobectomy, segmentectomy, 

and LVRS) might otherwise remain 

inpatients in the hospital (and have a 

longer length of stay than they might 

otherwise have without the Spiration®

IBV®) or might even require additional 

invasive surgeries to resolve the air leak. 

We also noted that use of the Spiration®

IBV® may lead to more rapid beneficial 

resolution of prolonged air leaks and 

reduce recovery time following the three 

lung surgeries mentioned above. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43823), we 

indicated that we remained interested in 

seeing whether the clinical evidence 

continues to find it to be effective. This 

approval was on the basis of using the 

Spiration® IBV® consistent with the 

FDA approval (HDE). Accordingly, we 

emphasized the need for appropriate 

patient selection. Therefore, we limited 

the add-on payment to cases involving 

prolonged air leaks following 

lobectomy, segmentectomy, and LVRS 

in MS–DRGs 163, 164, and 165. In the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 43823), we stated that cases 

involving the Spiration® IBV® that are 

eligible for the new technology add-on 

payment are identified by assignment to 

MS–DRGs 163, 164, and 165 with 

procedure code 33.71 or 33.73 in 

combination with one of the following 

procedure codes: 32.22, 32.30, 32.39, 

32.41, or 32.49. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule, we stated that the 

average cost of the Spiration® IBV® is 

reported as $2,750. Based on data from 

the FY 2010 application, the average 

amount of valves per case is 2.5. 

Therefore, the total maximum cost for 

the Spiration® IBV® was expected to be 

$6,875 per case ($2,750 × 2.5). Under 

§ 412.88(a)(2) of our regulations, new 

technology add-on payments are limited 

to the lesser of 50 percent of the average 

cost of the device or 50 percent of the 

costs in excess of the MS–DRG payment 

for the case. As a result, we finalized a 

maximum add-on payment for a case 

involving the Spiration® IBV® as 

$3,437.50. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we did not propose any 

changes to the new technology add-on 

payments for the Spiration® IBV®. We 

did not receive any public comments on 

whether to continue or discontinue the 

new technology add-on payment for the 

Spiration® IBV® for FY 2011. Therefore, 

for FY 2011, we are continuing new 

technology add-on payments for cases 

involving the Spiration® IBV® in FY 

2011, with a maximum add-on payment 

of $3,437.50. However, we did receive 

one public comment on the MS–DRGs 

and codes used to identify which cases 

involving the Spiration® IBV® are 

eligible for the new technology add-on 

payment. 

Comment: One commenter, the 

manufacturer, explained that the coding 

requirements described above that 

identify cases of the Spiration® IBV® for 

new technology add-on payments do 

not account for all cases where a 

hospital may be using the device to treat 

patients with prolonged air leaks 

following lobectomy, segmentectomy, 

and LVRS consistent with the product’s 

HDE approval. These cases occur when 

the hospital inserting the Spiration®

IBV® did not perform the initial 

lobectomy, segmentectomy, or LVRS 

surgery; instead, the hospital inserting 

the device received the beneficiary as a 

transfer case. The commenter explained 

that there are instances when a hospital 

performs the initial surgery and then 

determines that treatment of the patient 

with the IBV® valve is appropriate but 

the hospital has not been approved to 

perform the IBV® valve insertion 

procedure under the HDE regulations. 

Therefore, the hospital must transfer the 

patient to an approved facility for 

treatment with the IBV® valve. If it were 

possible to consider this situation as one 

case, the commenter believed that, 

between the two hospitals, the new 

technology payment criteria as specified 

for FY 2010 (identified by assignment to 

MS–DRGs 163, 164, and 165 with 

procedure code 33.71 or 33.73 in 

combination with one of the following 

procedure codes: 32.22, 32.30, 32.39, 

32.41, or 32.49) would be met. However, 

because insertion of the IBV® valve is 

limited to approved facilities, the 

commenter believed that that the 

hospital receiving such a patient for 

treatment for prolonged air leak 

following lobectomy, segmentectomy, 

and LVRS likely reports the case under 

ICD–9–CM diagnosis code 512.1 

(Iatrogenic pneumothorax) as the 

principal diagnosis in the absence of a 

more specific code for prolonged air 

leak and because the second hospital 

did not perform the initial lobectomy, 

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segmentectomy, or LVRS surgery. Such 

cases would be assigned to MS–DRGs 

199, 200, or 201 (Pneumothorax with 

MCC, with CC, or with CC or MCC, 

respectively) based on the principal 

ICD–9–CM diagnosis code of 512.1 and 

are therefore ineligible for the new 

technology add-on payment based on 

the specifications finalized in FY 2010. 

In this situation, because the 

transferring hospital that performed the 

initial surgery did not insert the IBV®

valve, it would also be ineligible for the 

new technology add-on payment. The 

commenter recommended that CMS 

allow an add-on payment in such cases 

by linking transfer hospitalizations 

cases that had an IBV® valve inserted at 

the receiving hospital to a previous 

claim in the patient’s history to ensure 

that the patient had previously 

undergone a lobectomy, segmentectomy, 

or LVRS as reported by one of the 

following procedure codes: 32.22, 32.30, 

32.39, 32.41 or 32.49. This would 

ensure that the Spiration® IBV® is being 

used consistent with its FDA approved 

indication for the treatment of 

prolonged air leaks following 

lobectomy, segmentectomy, or LVRS. 

Response: We thank the commenter 

for the comments. We agree with the 

manufacturer that it is appropriate that 

all cases in which the Spiration® IBV®

Valve is inserted consistent with its 

HDE approval be eligible for the 

approved new technology add-on 

payment. For this reason, we are 

expanding the new technology add-on 

payment for the Spiration® IBV® Valve 

to cases that map to MS–DRGs 199, 200, 

and 201 with an assigned principal 

diagnosis code of 512.1. In accordance 

with the FDA HDE approval, only 

approved hospital centers with an 

Internal Review Board (IRB) may 

implant the device. According to the 

manufacturer, all sites must be 

approved before the device will be 

shipped for use. The approval process 

includes an evaluation of the facility, 

training of physicians, an institutional 

compliance agreement, IRB process and 

documentation, and a purchasing 

agreement. The IRB ensures that the 

patient had a lobectomy, 

segmentectomy, or LVRS and had a 

prolonged air leak and then approves 

the device to be implanted in the 

patient. Therefore, due to the strict 

requirements associated with the HDE 

approval of this technology, even if a 

patient was transferred to a hospital for 

device implantation and the lobectomy, 

segmentectomy, or LVRS was not 

performed at that hospital (and, 

therefore, the surgery is not billed on 

the same claim as the implantation of 

the device), we believe our concerns 

regarding patient selection are 

addressed and that the hospital 

implanting the device is doing so to 

treat prolonged post-surgical air leaks. 

The manufacturer asserted that, in this 

transfer situation, the beneficiary’s case 

would typically be assigned to diagnosis 

code 512.1, which maps to MS–DRGs 

199, 200, and 201. For this reason, we 

are expanding the new technology addon payment for the Spiration® IBV®

Valve to cases that map to these MS– 

DRGs. 

We performed an analysis to 

determine if the technology would still 

meet the cost criteria by adding these 

additional MS–DRGs to the applicant’s 

cost analysis in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

43820). The cases that map to MS–DRGs 

199, 200, and 201 are small in number 

and, therefore, have a minimal effect on 

the case-weighted average standardized 

per case and the case-weighted 

threshold published in the FY 2010/RY 

2010 LTCH PPS final rule. Therefore, 

the Spiration® IBV® would still meet 

the cost criteria with the inclusion of 

these additional MS–DRGs. 

For FY 2011, in addition to making 

new technology add-on payments for 

cases of the Spiration® IBV® that map 

to MS–DRGs 163, 164, and 165 (with 

procedure code 33.71 or 33.73 in 

combination with one of the following 

procedure codes: 32.22, 32.30, 32.39, 

32.41, or 32.49), we will make the new 

technology add-on payment for cases of 

the Spiration® IBV® that map to MS– 

DRGs 199, 200, and 201 with the 

presence of a diagnosis code of 512.1 in 

combination with procedure code 33.71 

and 33.73. This determination will 

ensure that the hospital implanting the 

device receives the new technology addon payment. We note that, in these 

cases, the transferring hospital 

performing the surgery will be subject to 

the transfer policy and would not 

receive the new technology add-on 

payment because it did not implant the 

device. 

b. CardioWestTM Temporary Total 

Artificial Heart System (CardioWestTM

TAH-t) 

SynCardia Systems, Inc. submitted an 

application for approval of the 

CardioWestTM temporary Total Artificial 

Heart system (TAH-t) in FY 2009. The 

TAH-t is a technology that is used as a 

bridge to heart transplant device for 

heart transplant-eligible patients with 

end-stage biventricular failure. The 

TAH-t pumps up to 9.5 liters of blood 

per minute. This high level of perfusion 

helps improve hemodynamic function 

in patients, thus making them better 

heart transplant candidates. 

The TAH-t was approved by the FDA 

on October 15, 2004, for use as a bridge 

to transplant device in cardiac 

transplant-eligible candidates at risk of 

imminent death from biventricular 

failure. The TAH-t is intended to be 

used in hospital inpatients. One of the 

FDA’s post-approval requirements is 

that the manufacturer agrees to provide 

a post-approval study demonstrating 

that success of the device at one center 

can be reproduced at other centers. The 

study was to include at least 50 patients 

who would be followed up to 1 year, 

including (but not limited to) the 

following endpoints: survival to 

transplant; adverse events; and device 

malfunction. 

In the past, Medicare did not cover 

artificial heart devices, including the 

TAH-t. However, on May 1, 2008, CMS 

issued a final national coverage 

determination (NCD) expanding 

Medicare coverage of artificial hearts 

when they are implanted as part of a 

study that is approved by the FDA and 

is determined by CMS to meet CMS’ 

Coverage with Evidence Development 

(CED) clinical research criteria. (The 

final NCD is available on the CMS Web 

site at: http://www.cms.hhs.gov/mcd/ 

viewdecisionmemo.asp?id=211.) 

We indicated in the FY 2009 IPPS/RY 

2009 LTCH PPS final rule (73 FR 48555) 

that, because Medicare’s previous 

coverage policy with respect to this 

device had precluded payment from 

Medicare, we did not expect the costs 

associated with this technology to be 

currently reflected in the data used to 

determine the relative weights of MS– 

DRGs. As we have indicated in the past, 

and as we discussed in the FY 2009 

IPPS/RY 2009 LTCH PPS final rule, 

although we generally believe that the 

newness period would begin on the date 

that FDA approval was granted, in cases 

where the applicant can demonstrate a 

documented delay in market availability 

subsequent to FDA approval, we would 

consider delaying the start of the 

newness period. This technology’s 

situation represented such a case. We 

also noted that section 

1886(d)(5)(K)(ii)(II) of the Act requires 

that we provide for the collection of cost 

data for a new medical service or 

technology for a period of at least 2 

years and no more than 3 years 

‘‘beginning on the date on which an 

inpatient hospital code is issued with 

respect to the service or technology.’’ 

Furthermore, the statute specifies that 

the term ‘‘inpatient hospital code’’ 

means any code that is used with 

respect to inpatient hospital services for 

which payment may be made under the 

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IPPS and includes ICD–9–CM codes and 

any subsequent revisions. Although the 

TAH-t has been described by the ICD– 

9–CM code(s) since the time of its FDA 

approval, because the TAH-t had not 

been covered under the Medicare 

program (and, therefore, no Medicare 

payment had been made for this 

technology), this code could not be 

‘‘used with respect to inpatient hospital 

services for which payment’’ is made 

under the IPPS, and thus we assumed 

that none of the costs associated with 

this technology would be reflected in 

the Medicare claims data used to 

recalibrate the MS–DRG relative weights 

for FY 2009. For this reason, as 

discussed in the FY 2009 IPPS/RY 2009 

LTCH PPS final rule, despite the FDA 

approval date of the technology, we 

determined that TAH-t would still be 

eligible to be considered ‘‘new’’ for 

purposes of the new technology add-on 

payment because the TAH-t met the 

newness criterion on the date that 

Medicare coverage began, consistent 

with issuance of the final NCD, effective 

on May 1, 2008. 

After evaluation of the newness, costs, 

and substantial clinical improvement 

criteria for new technology add-on 

payments for the TAH-t and 

consideration of the public comments 

we received in response to the FY 2009 

IPPS/RY 2009 LTCH PPS proposed rule, 

we approved the TAH-t for new 

technology add-on payments for FY 

2009 (73 FR 48557). We indicated that 

we believed the TAH-t offered a new 

treatment option that previously did not 

exist for patients with end-stage 

biventricular failure. However, we 

indicated that we recognized that 

Medicare coverage of the TAH-t is 

limited to approved clinical trial 

settings. The new technology add-on 

payment status does not negate the 

restrictions under the NCD nor does it 

obviate the need for continued 

monitoring of clinical evidence for the 

TAH-t. We remain interested in seeing 

whether the clinical evidence 

demonstrates that the TAH-t continues 

to be effective. If evidence is found that 

the TAH-t may no longer offer a 

substantial clinical improvement, we 

reserve the right to discontinue new 

technology add-on payments, even 

within the 2- to 3-year period that the 

device may still be considered to be 

new. We also continued to make new 

technology add-on payments for the 

TAH-t in FY 2010. We welcome public 

comment regarding whether there is 

new evidence that demonstrates that the 

TAH–T continues to be effective and 

whether it should still be considered to 

be a substantial clinical improvement 

for FY 2011. 

The new technology add-on payment 

for the TAH-t for FY 2010 is triggered 

by the presence of ICD–9–CM procedure 

code 37.52 (Implantation of total heart 

replacement system), condition code 30, 

and the diagnosis code reflecting 

clinical trial—V70.7 (Examination of 

participant in clinical trial). For FY 

2010, we finalized a maximum add-on 

payment of $53,000 (that is, 50 percent 

of the estimated operating costs of the 

device of $106,000) for cases that 

involve this technology. 

Our practice has been to begin and 

end new technology add-on payments 

on the basis of a fiscal year. In general, 

we extend add-on payments for an 

additional year only if the 3-year 

anniversary date of the product’s entry 

on the market occurs in the latter half 

of the fiscal year (70 FR 47362). The 

TAH-t is still eligible to be considered 

‘‘new’’ for purposes of the new 

technology add-on payment because the 

3-year anniversary date of the TAH-t 

entry on the market was in the second 

half of the fiscal year and the TAH-t met 

the newness criterion on the date that 

Medicare coverage began, consistent 

with issuance of the final NCD, effective 

on May 1, 2008. Therefore, for FY 2011, 

we proposed to continue new 

technology add-on payments for cases 

involving the TAH-t in FY 2011 with a 

maximum add-on payment of $53,000. 

Comment: Commenters supported our 

proposal to continue add-on payments 

for the TAH-t. The commenters believed 

that the TAH-t continues to represent a 

substantial clinical improvement for 

patients with biventricular heart failure 

in need of a heart transplant. One 

commenter, the manufacturer of the 

TAH-t, stated that the TAH-t continues 

to be the only biventricular replacement 

device that is available for patients, 

Medicare or otherwise, with 

biventricular failure. The commenter 

noted that the device is indicated for 

use as a ‘‘bridge to transplant’’ in cardiac 

transplant-eligible patients who are at 

risk of imminent death. The commenter 

stated that the device is approved by the 

FDA ‘‘* * * for use in-hospital, and, 

under a currently approved 

investigational device exemption (‘‘IDE’’) 

clinical study out of hospital as well.’’ 

The commenter stated that the TAH-t 

has been implanted in over 865 patients 

worldwide and that between January 1, 

2009 and June 11, 2010, there were 15 

TAH-t implants in the United States. Of 

these 15 patients, 10 were continuing on 

support, 4 received heart transplants, 

and 1 expired; the commenter stated 

that without the device, it is likely that 

all of the patients would have expired. 

The commenter asserted that it recently 

began to employ the use of a ‘‘* * * 

smaller, portable driver, known as the 

‘‘Freedom Driver’’ as part of the 

TAH-t system.’’ The commenter noted 

that the Freedom Driver allows 

increased patient mobility so that 

patients may leave the hospital while 

waiting for a donor heart and that the 

Freedom Driver further demonstrated 

that the TAH-t was a substantial clinical 

improvement. The commenter asserted 

that the new driver increased the 

operating cost of the device from 

$106,000 to $124,700 and requested that 

the new technology add-on payment be 

increased from $53,000 to $62,350, 

accordingly. 

Response: We agree with the 

commenters that, for patients with 

biventricular heart failure, the TAH-t 

continues to represent a substantial 

clinical improvement. With respect to 

the manufacturer’s request for an 

increase in the new technology add-on 

payment amount for FY 2011, we note 

that the version of the TAH-t that 

contains the Freedom Driver is not 

currently approved to be marketed by 

the FDA. Rather, the device is being 

studied in a clinical trial under an IDE. 

The IDE allows the investigational 

device to be used in a clinical study in 

order to collect safety and effectiveness 

data to support a Premarket Approval 

(PMA) application or a Premarket 

Notification [510(k)] submission to FDA. 

An approved IDE permits a device to be 

shipped lawfully for the purpose of 

conducting investigations of the device 

without complying with other 

requirements of the Federal Food, Drug, 

and Cosmetic Act that would apply to 

devices in commercial distribution. For 

example, sponsors are not required to 

have an approved PMA application or 

cleared Premarket Notification 510(k), 

register their establishment, or list the 

device while the device is under 

investigation. Sponsors of IDEs are also 

exempt from the Quality System (QS) 

Regulation except for the requirements 

for design control, if applicable (unless 

the sponsor states an intention to 

comply with these requirements). An 

IDE does not constitute FDA approval to 

market the device. Once the clinical 

trial conducted under an IDE has been 

completed, the device may receive FDA 

approval or clearance to be legally 

marketed. If the modified TAH-t device 

using the Freedom Driver does receive 

FDA approval, we would require that a 

new technology application be formally 

submitted for review for new technology 

add-on payments for the TAH-t device 

using the Freedom Driver at that time. 

Because we have not received such an 

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application and because the modified 

device is not yet approved by the FDA, 

we are unable to increase the new 

technology add-on payments for TAH– 

T for FY 2011. We would encourage the 

manufacturer to submit a new 

technology add-on payment application 

if and when it expects to receive FDA 

approval for the modified TAH-t with 

the Freedom Driver. 

Therefore, as we proposed, we are 

continuing new technology add-on 

payments for cases involving the TAHt in FY 2011 with a maximum add-on 

payment of $53,000. 

4. FY 2011 Applications for New 

Technology Add-On Payments 

We received five applications to be 

considered for new technology add-on 

payment for FY 2011. However, two 

applicants withdrew their applications: 

Nycomed Austria GmbH, which 

submitted an application for new 

technology add-on payments for FY 

2011 for TachoSil®; and Zimmer, which 

submitted an application for new 

technology add-on payments for FY 

2011 for the Dynesys Dynamic 

Stabilization System. Nycomed Austria 

GmbH withdrew its application from 

further review in January 2010, and 

Zimmer withdrew its application in 

February 2010. Because both 

applications were withdrawn prior to 

the town hall meeting and publication 

of the FY 2011 IPPS/LTCH PPS 

proposed rule, we are not discussing 

these two applications in this final rule. 

A discussion of the remaining three 

applications is presented below. At the 

time the proposed rule was developed, 

one of the technologies had not yet 

received FDA approval. Since that time, 

that technology, the LipiScanTM IVUS, 

has received FDA approval. 

a. Auto Laser Interstitial Thermal 

Therapy (AutoLITTTM) System 

Monteris Medical submitted an 

application for new technology add-on 

payments for FY 2011 for the 

AutoLITTTM. We note that the applicant 

submitted an application for new 

technology add-on payments for FY 

2010 but withdrew its application prior 

to the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule. AutoLITTTM is a minimally 

invasive, MRI-guided laser tipped 

catheter designed to destroy malignant 

brain tumors with interstitial thermal 

energy causing immediate coagulation 

and necrosis of diseased tissue. The 

technology can be identified by ICD–9– 

CM procedure codes 17.61 (Laser 

interstitial thermal therapy [LITT] of 

lesion or tissue of brain under 

guidance), and 17.62 (Laser interstitial 

thermal therapy [LITT] of lesion or 

tissue of head and neck under 

guidance), which became effective on 

October 1, 2009. 

The applicant asserts that the 

AutoLITTTM delivers laser energy to the 

lesion with a proprietary 3mm diameter 

probe that directs the energy radially 

(that is, at right angle to the axis of the 

probe, or side-firing) toward the targeted 

tumor tissue in a narrow beam profile 

and at the same time, a proprietary 

probe cooling system removes heat from 

tissue not directly in the path of the 

laser beam, ostensibly protecting it from 

thermal damage and enabling the 

physician to selectively ablate only 

targeted tissue. The AutoLITTTM

received a 510K FDA clearance in May 

2009. The AutoLITTTM is indicated for 

use to necrotize or coagulate soft tissue 

through interstitial irradiation or 

thermal therapy in medicine and 

surgery in the discipline of 

neurosurgery with 1064 nm lasers. The 

AutoLITTTM may be used in patients 

with glioblastoma multiforme brain 

(GBM) tumors. The applicant stated in 

its application and through 

supplemental information that, due to 

required updates, the technology was 

actually introduced to the market in 

December 2009. The applicant 

explained that it was necessary to 

reduce the thermal damage lines from 

three to one and complete International 

Electrotechnical Commission/ 

Underwriter Laboratory testing, which 

led to the introduction of the technology 

to the market in December 2009, 

although the technology was approved 

by FDA in May 2009. The applicant also 

stated through supplementary 

information to its application that the 

first sale of the product took place on 

March 19, 2010. However, because the 

product was already available for use in 

December 2009, it appears that the 

newness date would begin in December 

2009. In the FY 2011 IPPS/LTCH PPS 

proposed rule, we welcomed public 

comments on this issue. 

With regard to the newness criterion, 

in the FY 2011 IPPS/LTCH PPS 

proposed rule, we expressed concern 

that the AutoLITTTM may be 

substantially similar to the device that 

it listed as its predicate device in its 

application to the FDA for approval. 

Specifically, in making a determination 

of substantial similarity, we consider 

the following: (1) Whether a product 

uses the same or similar mechanism of 

action to achieve a therapeutic action; 

(2) whether a product is assigned to the 

same or different MS–DRG; and (3) 

whether the new use of a technology 

involves the treatment of the same or 

similar type of disease and the same or 

similar patient population. The 

applicant identified Visual-ase as its 

predicate device (which was approved 

by the FDA in 2006), which is also used 

to treat tumors of the head and neck. 

The applicant maintains that 

AutoLITTTM can be distinguished from 

the Visual-ase by its mechanism of 

action (that is, side-firing laser versus 

elliptical firing). Additionally, as 

mentioned above, the technology 

contains a proprietary probe cooling 

system that removes heat from tissue 

not directly in the path of the laser 

beam. In the FY 2011 IPPS/LTCH PPS 

proposed rule, we welcomed comments 

from the public regarding whether or 

not the AutoLITTTM is substantially 

similar to the Visual-ase and if it meets 

the newness criteria. 

Comment: One commenter described 

the components of the AutoLITTTM that 

should qualify the AutoLITTTM as 

‘‘new’’. Specifically, the commenter 

noted that the probe uses side-firing and 

has a gas-cooled tip. The commenter 

noted that probe drive is an MRIcompatible steering device and the 

software for the device provides thermal 

dose reporting in real time. In addition, 

the commenter explained that the 

software is designed to provide real time 

feedback to the surgeon and also to 

provide a discrete line of thermal dosage 

at the expanding boundary or isotherm. 

The commenter further explained that 

this isotherm is used by the surgeon to 

control treatment in comparison to the 

delineated pre-defined treatment or 

tumor boundary and also provides this 

information in a volume (that includes 

treatment and two axial planes) so that 

the surgeon can monitor and plan, in 

real time, the next heating cycle to 

complete the treatment regimen. 

Response: We thank the commenter 

for the additional information on the 

AutoLITTTM. After reviewing all of the 

information provided by the applicant 

and the public, we believe that the 

AutoLITTTM uses a different mechanism 

of action when compared to the Visualase. We agree with the applicant that the 

AutoLITTTM can be distinguished from 

the Visual-ase by its side-firing laser 

versus elliptical-firing. In addition, the 

AutoLITTTM contains a proprietary 

probe cooling system that removes heat 

from tissue not directly in the path of 

the laser beam, while the Visual-ase 

does not contain this cooling system. 

Therefore, we do not believe the 

AutoLITTTM is substantially similar to 

the Visual-ase. Because the AutoLITTTM

was available on the market beginning 

with December 2009 (and is not 

substantially similar to its predicate 

device), the technology is still within 

the 2 to 3 year newness period. 

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4RTI International, A Study of Charge 

Compression in Calculating DRG Relative Weights, 

RTI Project No. 0207964.012.008; January 2007. 

In an effort to demonstrate that 

AutoLITTTM meets the cost criterion, 

the applicant used 2007 Medicare data 

from the Healthcare Cost and Utilization 

Project (HCUP). We first note that the 

applicant believes that cases eligible for 

the AutoLITTTM will map to MS–DRG 

25 (Craniotomy and Endovascular 

Intracranial Procedures with MCC), MS– 

DRG 26 (Craniotomy and Endovascular 

Intracranial Procedures with CC), and 

MS–DRG 27 (Craniotomy and 

Endovascular Intracranial Procedures 

without CC or MCC). The applicant 

explained through supplemental 

information to its application that most 

cases of the AutoLITTTM would map to 

MS–DRG 25 in the near-term. As the 

technology becomes more widely 

available, the applicant asserted that 

clinicians will use the technology 

instead of performing a craniotomy for 

brain cancer. Additionally, the 

applicant asserted that clinicians will 

expand their use of the technology 

beyond GBM to other different types of 

brain cancers, including metastases, 

which would map to other MS–DRGs 

aside from MS–DRG 25. The applicant 

further stated that life expectancy with 

brain cancer is predicated on the 

removal of as much of the cancer as 

possible and asserted that over time the 

AutoLITTTM will do a better job of 

removing the majority of the cancer that 

is present within the brain tissue 

compared to other procedures. The 

applicant believes that physicians using 

the AutoLITTTM have a better tool to 

remove more cancer, necrotize it more 

precisely, and access parts of the brain 

that surgical resection cannot access. 

Lastly, the applicant believes that the 

minimally invasive nature of the 

procedure will also result in broader 

usage to other less complicated 

procedures (as clinical and patient 

awareness expands). 

The applicant searched HCUP 

hospital data for cases potentially 

eligible for the AutoLITTTM that was 

assigned one of the following ICD–9– 

CM primary diagnosis codes: A 

diagnosis code that begins with a prefix 

of 191 (Malignant neoplasm of brain); 

diagnosis code 225.0 (Benign neoplasm 

of brain and other parts of nervous 

system); or diagnosis code 239.6 

(Neoplasm of the brain of unspecified 

nature). The applicant found 41,021 

cases and weighted the standardized 

charge per case based on the number of 

cases found within each of the diagnosis 

codes listed above rather than the 

percentage of cases that would group to 

different MS–DRGs. Based on this 

analysis, the applicant calculated an 

average standardized charge per case of 

$57,511. While the applicant’s analysis 

established a case-weighted average 

charge per case in the aggregate, it did 

not provide a case-weighted average 

standardized charge per case by MS– 

DRG (as required by the application). 

The applicant also noted that their 

estimate of the case-weighted average 

standardized charge per case of $57,511 

did not include charges related to the 

AutoLITTTM. Therefore, it is necessary 

to add the charges related to the device 

to the case-weighted average 

standardized charge per case in 

evaluating the cost threshold criterion. 

Although the applicant submitted data 

related to the estimated cost of the 

AutoLITTTM per case, the applicant 

stated that the cost of the device was 

proprietary information. Based on a 

study of charge compression data by 

RTI 4 and charge master data from 

Stanford University and University of 

California, San Francisco, the applicant 

estimates $38,886 in charges related to 

the AutoLITTTM (we note that some of 

the data used a markup of 294 percent 

of the costs). Adding the estimated 

charges related to the device to the 

average standardized charge per case 

resulted in a total average standardized 

charge per case of $96,397 ($57,511 plus 

$38,886). We note, in the applicant’s 

discussion of substantial clinical 

improvement below, the applicant 

maintains that improved clinical 

outcomes using nonfocused LITT 

included reduced recovery time and a 

reduced rate of complications. 

Therefore, in the FY 2011 IPPS/LTCH 

PPS proposed rule, we sought public 

comment on how reduced recovery time 

and a reduced rate of complications 

would affect the total case-weighted 

average standardized charge per case 

and the average length of stay (for cases 

eligible for the AutoLITTTM). 

Comment: The applicant submitted 

supplemental information and noted 

that, compared to a craniotomy, surgery 

involving the AutoLITTTM requires an 

MRI and/or interventional MRI. The 

commenter indicated that the addition 

of the MRI requires additional 

resources, namely a MRI technician, at 

a minimum, and a radiologist, as 

needed, to review images. In total, these 

additions would increase the level of 

resources a hospital would use to treat 

these patients, both in terms of direct 

costs (for example, labor, contracted 

physician resources, etc.), and fixed and 

indirect costs (for example, MRI, use of 

radiology office space, etc.) The 

commenter further added that overall 

additional time for the procedure (also 

a cost) is currently required to conduct 

an AutoLITTTM case compared to the 

standard of care (that is, craniotomy as 

asserted by the applicant). The 

commenter reported that during the 

clinical trials, cases of AutoLITTTM

ranged from 10 to 12 hours (including 

OR, MRI, and Anesthesia time as 

opposed to 4 to 6 hours for a 

craniotomy). As efficiencies are gained 

in the hospitals working with the 

technology, the applicant predicts that 

this time will be reduced to 7 hours 

within the next year or so. In addition, 

the commenter believed that the 

updated HCUP analysis, which we 

discuss below, supports a standardized 

charge of $96,947. This supplemental 

data correlate to 2010 pricing 

information that the applicant received 

from two institutions demonstrating an 

approximate charge (not standardized) 

of $103,000 per case. 

Response: We thank the commenter 

for providing this information. We 

considered this information in our 

decision (indicated below) on whether 

the AutoLITTTM meets the cost 

criterion. 

As noted above, the applicant’s 

analysis established a case-weighted 

average charge per case in the aggregate, 

but it did not provide a case-weighted 

average standardized charge per case by 

MS–DRG. However, the applicant 

explained through supplemental 

information to its application that the 

total average standardized charge per 

case significantly exceeds the cost 

threshold established by CMS for FY 

2011 in Table 10 (74 FR 44173) of 

$84,185 for MS–DRG 25. As noted 

above, due to section 3401(a) of the 

Affordable Care Act which adjusted the 

FY 2010 applicable percentage increase 

(thus requiring CMS to revise the FY 

2010 standardized amounts), for this 

final rule, we used the revised FY 2011 

thresholds as published in the FY 2010 

IPPS/RY 2010 LTCH PPS notice issued 

in the Federal Register on June 2, 2010 

(75 FR 31213) to determine if the 

AutoLITTTM met the cost criterion. 

Therefore, using the revised FY 2011 

thresholds, the total average 

standardized charge per case would also 

exceed the cost thresholds established 

by CMS of $58,591 for MS–DRG 26 and 

$47,033 for MS–DRG 27. Because the 

total average standardized charge per 

case exceeds the threshold amount for 

each individual MS–DRG to which the 

technology would map (MS–DRGs 25, 

26, and 27), the applicant maintains that 

the AutoLITTTM would meet the cost 

criterion. In the FY 2011 IPPS/LTCH 

PPS proposed rule, we invited public 

comment on whether or not the 

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AutoLITTTM meets the cost criterion for 

a new technology add-on payment for 

FY 2011. 

Comment: In supplemental 

information provided to CMS, the 

applicant noted that, after further 

reviewing its cost analysis from the 

HCUP hospital data that was presented 

in the FY 2011 IPPS/LTCH PPS 

proposed rule, the applicant discovered 

that it inadvertently used discharges 

from all hospitals, including nonMedicare data, instead of only using 

Medicare data. Therefore, the applicant 

updated its analysis from the proposed 

rule and filtered the claims data in the 

HCUP database for Medicare claims 

with the same primary diagnosis codes 

listed above. Instead of the FY 2007 

MedPAR database, the applicant used 

the most recent updated MedPAR 

database on the HCUP Web site, which 

was the FY 2008 MedPAR file. The 

applicant found a total of 12,816 cases 

with an average standardized charge of 

$58,061. Similar to above, adding the 

estimated charges related to the device 

to the average standardized charge per 

case resulted in a total average 

standardized charge per case of $96,947 

($58,061 plus $38,886). As noted above, 

the analysis from the HCUP database 

established a case-weighted average 

charge per case in the aggregate, but it 

did not provide a case-weighted average 

standardized charge per case by MS– 

DRG. Similar to above, the applicant 

maintains that the total average 

standardized charge per case 

significantly exceeds the revised cost 

thresholds established by CMS for FY 

2011 in Table 10 (75 FR 31213) of 

$84,164 for MS–DRG 25. Additionally, 

the applicant maintains that the total 

average standardized charge per case 

would also exceed the cost thresholds 

established by CMS of $58,591 for MS– 

DRG 26 and $47,033 for MS–DRG 27. 

Response: Even with the applicant’s 

revised HCUP analysis, the applicant 

still did not establish a case-weighted 

average standardized charge per case by 

MS–DRG as required by 42 CFR 

412.87(b)(3). To determine whether the 

applicant met the cost criterion, we 

performed an analysis of MedPAR data. 

We searched the FY 2009 MedPAR file 

for cases with a primary diagnosis that 

begins with a prefix of 191; diagnosis 

code 225.0; or diagnosis code 239.6. We 

found 1,711 cases (or 34.2 percent of all 

cases) in MS–DRG 25, 1,587 cases (or 

31.7 percent of all cases) in MS–DRG 26, 

and 1,702 cases (or 34 percent of all 

cases) in MS–DRG 27. The average 

standardized charge per case was 

$86,678 for MS–DRG 25, $63,089 for 

MS–DRG 26, and $47,033 for MS–DRG 

27, equating to a case-weighted average 

standardized charge per case of $65,685. 

The average standardized charge per 

case does not include charges related to 

the AutoLITTTM; therefore, it is 

necessary next to add the charges 

related to the device to the average 

standardized charge per case to evaluate 

whether the cost threshold criterion is 

met. As noted above, the applicant 

estimates $38,886 in charges related to 

the AutoLITTTM. Adding the estimated 

charges related to the device to the 

average standardized charge per case 

(based on the case distribution from the 

FY 2009 MedPAR claims data analysis) 

resulted in a case-weighted average 

standardized charge per case of 

$104,571 ($65,685 plus $38,886). 

Although we have established a caseweighted average standardized charge 

per case, the case-weighted average 

standardized charge per case above does 

not take into consideration reduced 

recovery time and a reduced rate of 

complications that would affect the total 

case-weighted average standardized 

charge per case and the average length 

of stay. Both would decrease the costs 

associated with the AutoLITT device. 

Therefore, we made the following 

calculations, taking into consideration 

our concerns as stated above, in order to 

determine if the AutoLITTTM meets the 

cost criteria. The average length of stay 

for cases we found in the FY 2009 

MedPAR file was 7.4 days. This results 

in an average charge per day of $8,824 

(the case-weighted average standardized 

charge of $65,685 divided by 7.4 days). 

However, we note that the first day of 

an inpatient hospitalization is typically 

more expensive than subsequent days in 

the stay. Nonetheless, absent specific 

charge per day data, we are equally 

dividing charges for purposes of 

evaluating the decreased costs 

associated with the reduced length of 

stay using AutoLITTTM. This should 

provide us with a lower charge estimate 

than what it otherwise would be if we 

had actual charge data. That is, if the 

device meets the cost criterion based on 

the lower estimate, it should meet it 

based on the actual data, which would 

be higher. Based on data from the 

applicant’s clinical trial, the average 

length of stay for cases with the 

AutoLITTTM was 3.8 days. Using the 

difference of 3.6 days (7.4 days minus 

3.8 days) from cases in the FY 2009 

MedPAR file to the applicant’s clinical 

trial, we determined it is necessary to 

deduct a total of $32,154 in charges (3.6 

times $8,824) from the case-weighted 

average standardized charge per case of 

$65,685, as determined above. This 

resulted in a reduced case-weighted 

average standardized charge per case of 

$33,531. We then added the estimated 

charges related to the device to the 

reduced average standardized charge 

per case and determined a revised caseweighted average standardized charge 

per case of $72,417 ($33,531 plus 

$38,886 (charges related to the 

AutoLITTTM); all calculations above 

were performed using unrounded 

numbers). 

Using the revised FY 2010 thresholds 

published in Table 10 (75 FR 31213), 

the case-weighted threshold for MS– 

DRGs 25, 26, and 27 was $63,408 (again, 

all calculations above were performed 

using unrounded numbers). Based on 

this analysis, the revised case-weighted 

average standardized charge per case for 

the applicable MS–DRGs exceed the 

case-weighted threshold amount. 

Additionally, we also conducted a 

sensitivity test with a majority of cases 

mapping to MS–DRG 25 (because the 

applicant maintained that most patients’ 

conditions would be an MCC and the 

case would map to this MS–DRG and 

because patients with GBM are more 

likely to be more severely ill than 

patients with other types of tumors) and 

the remaining cases mapping to MS– 

DRGs 26 and 27. With a majority of 

cases mapping to MS–DRG 25, we used 

a higher percentage of charges from MS– 

DRG 25 to determine the case-weighted 

threshold and the case-weighted average 

standardized charge per case, which 

would make it more difficult for the 

case-weighted average standardized 

charge per case to exceed the caseweighted threshold (because the 

threshold for MS–DRG 25 is the highest 

of MS–DRGs 25, 26, and 27). The 

sensitivity test demonstrated that even 

with a majority of cases mapping to 

MS–DRG 25, the case-weighted 

standardized charge per case would 

exceed the case-weighted threshold. 

After reviewing all of the data 

summarized above, we believe the 

applicant has provided a sufficient 

explanation for the additional charges 

associated with the AutoLITTTM, even 

with a reduced recovery time and a 

reduced rate of complications. 

Additionally, our analysis of the FY 

2009 MedPAR data demonstrates that 

the average standardized charge per case 

(for cases eligible for the AutoLITTTM) 

does exceed the case-weighted cost 

threshold (even with a majority of cases 

mapping to a MS–DRG). Furthermore, 

the applicant did provide charge data 

from two centers verifying the expected 

high charges associated with the cases 

of the AutoLITTTM. Therefore, we 

believe that the AutoLITTTM meets the 

cost criterion. 

With respect to the substantial 

clinical improvement criterion, the 

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5Chang et al., J. Neurosurg., vol. 98, pp. 1175– 

1181, 2003. 

6Sneed, PK et al. (1998). Survival benefit of 

hyperthermia in a prospective randomized trial of 

brachytherapy boost + hyperthermia for 

glioblastoma multiforme. International J. Radiation 

Oncology Biol. Phys.; 1998: 287–295. 

applicant maintains that it meets this 

criterion in its application. Specifically, 

the applicant stated that several nonAutoLITTTM clinical trials have 

demonstrated that nonfocused LITT 

(and more recently, the use of LITT plus 

MRI) improved survival, quality of life, 

and recovery in patients with advanced 

GBM tumors and advanced metastatic 

brain tumors that cannot be effectively 

treated with surgery, radiosurgery, 

radiation, chemotherapy, or any 

currently available clinical procedure. 

In a number of these patients, 

nonfocused LITT was the treatment of 

last resort, due to either the 

unresponsiveness to or inability of these 

therapies to treat the brain tumor (due 

to tumor location, type, or size, among 

other reasons). The applicant also 

maintains that when compared to 

craniotomy, it offers improved clinical 

outcomes using nonfocused LITT, 

including reduced recovery time and a 

reduced rate of complications (that is, 

infection, brain edema). The applicant 

stated that these factors, as discussed in 

the FY 2001 final rule (66 FR 46914 

through 46915) demonstrate that the 

AutoLITTTM meets the new technology 

criterion for substantial clinical 

improvement. 

The applicant further asserts that 

AutoLITTTM would represent a 

substantial clinical improvement over 

existing standards of care for a number 

of reasons and should build upon less 

sophisticated, nonfocused LITT 

therapies. These clinical improvements 

cited by the applicant include: a less 

invasive method of tumor ablation, 

potentially leading to lower 

complication rates post procedure 

(infection, edema); an ability to employ 

multiple interventions over shorter 

periods of time and an ability to be used 

as a treatment of last resort 

(radiosurgery is limited due to radiation 

dosing and craniotomy is limited to 1 to 

2 procedures); an ability to be used in 

hard-to-reach brain tumors (the 

AutoLITTTM may be used as a treatment 

of last resort); and a shorter recovery 

time (the possibility for same day 

surgery, which has been demonstrated 

above with nonfocused LITT). 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we stated that, while we 

recognize the future potential of this 

interesting therapy, we have concerns 

that, to date, the AutoLITTTM has been 

used for the treatment of only a few 

patients as part of a safety evaluation 

with no comparative efficacy data and, 

therefore, there may not be sufficient 

objective clinical evidence to determine 

if the AutoLITTTM meets the substantial 

clinical improvement criteria. The 

applicant did note in its presentation at 

the new technology town hall meeting 

that it is currently conducting a clinical 

trial with a summary report expected in 

the near future. In the FY 2011 IPPS/ 

LTCH PPS proposed rule, we welcomed 

additional clinical data to demonstrate 

whether the AutoLITTTM meets the 

substantial clinical improvement 

criterion and invited public comment 

on whether or not the AutoLITTTM

meets the substantial clinical 

improvement criterion. 

Comment: A number of commenters 

who are physicians agreed with the 

applicant that the AutoLITTTM meets 

the substantial clinical improvement 

criterion. Two commenters (that 

conducted the clinical trial) described 

their experience with the AutoLITTTM

in the clinical trial for use in patients 

with recurrent GBM who were 

demonstrated to be refractory to other 

treatment options. (We note that this 

clinical trial is also discussed below in 

a separate comment from the 

manufacturer). The commenters treated 

10 patients with the AutoLITTTM and 

noted the following: (1) A short recovery 

time that allowed patient discharges 

within 2 to 3 days, compared to 3 to 5 

days following a craniotomy; (2) 

patients were able to ambulate more 

quickly, typically within 3 to 4 hours, 

compared to craniotomy which often 

takes 6 or more hours of recovery time 

prior to becoming ambulatory (The 

commenters noted that this is important 

in the prevention of venous thrombosis, 

commonly seen in patients with GBM.); 

and (3) adverse events have been 

minimal and do not exceed those 

published for first or second 

craniotomies for glioblastomas.5 The 

commenters noted that, over time, 

adverse events are likely to decrease as 

clinical experience is gained with the 

AutoLITTTM and will likely be less than 

those experienced with craniotomy, due 

to the less invasive nature of the 

AutoLITTTM. 

Other commenters who have 

reviewed the most recent clinical data 

on the AutoLITTTM expressed their 

support for the clinical benefits of the 

AutoLITTTM. One commenter stated it 

foresees using the AutoLITTTM on deep 

seated primary tumors for which total 

resection would risk a major insult to 

the brain and/or its functional 

structures. The commenter further 

stated that use of the AutoLITTTM

would minimize hospitalization, and 

possibly reduce complications, such as 

thromboembolic events, seen with other 

therapies. Another commenter added 

that there are many patients with 

metastases to the brain and more than 

10 percent of patients who receive 

Gamma Knife treatment for such brain 

metastases have recurrence of the 

metastasis at or near the original site. 

The commenter stated it would consider 

the AutoLITTTM as an alternative to 

Gamma Knife treatment in these cases 

because Gamma Knife treatment 

dramatically increases the risk of 

symptomatic radiation necrosis. All of 

these commenters stated that the 

AutoLITTTM offers additional quality of 

life in patients with GBM due to its 

reduced recovery time and its use as a 

less invasive alternative treatment to 

other available treatment options. 

Response: We appreciate these 

comments. Some commenters described 

their positive experiences using the 

AutoLITTTM which reduced recovery 

time for the patient. Other commenters 

noted that they would use the 

AutoLITTTM as an alternative to other 

available treatments because it is less 

invasive and provides an improved 

quality of life for the patient outside the 

hospital. We considered the comments 

above in our determination (indicated 

below) on whether the AutoLITTTM

represents a substantial clinical 

improvement. 

Comment: The manufacturer 

submitted two public comments that 

addressed the substantial clinical 

improvement criterion. The first 

comment reiterated that options 

available to treat patients with brain 

tumors are limited in general, and these 

limitations are magnified by the fact that 

many patients are refractory to currently 

available options such as surgical 

resection via craniotomy and 

radiotherapy. The comment further 

stated that the literature on AutoLITTTM

and LITT has demonstrated that the 

AutoLITTTM offers another clinically 

viable option to brain cancer patients, 

especially after other options have 

failed. 

Below we highlight some of the 

results of the clinical studies cited by 

the commenter: 

• Time to progression of disease and 

survival were longer for brachytherapy 

plus LITT compared to brachytherapy;6

• Survival time using LITT/MRI 

therapy was substantially longer than 

the natural history of the disease and 

longer than using chemotherapy alone. 

After a short surgeon learning curve, the 

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7Schwarzmaier, HJ et al. (2006). MR guided laserinduced interstitial thermotherapy of recurrent 

glioblastoma multiforme: Preliminary results in 16 

patients. Eur. J. Radiology; 59: 208–215. 

8Paleologos, TS et al. (2000). Clinical Utility and 

Cost-Effectiveness of Interactive Image Guided 

Craniotomy: Clinical Comparison between 

Conventional and Image Guided Meningioma 

Surgery. Neurosurgery; 47: 40–48. 

9Carpentier, A. et al. (2008). Real-Time Magnetic 

Resonance Guided Laser Thermal Therapy for Focal 

Metastatic Brain Tumors. Neurosurgery; 63: 

ONS21–ONS29. 

median survival time increase by up to 

a factor of 4× (p = 0.0267);7

• Use of MRI guidance in brain 

surgery alone has demonstrated a 

statistically significant reduction in 

major complications versus surgery 

without MRI guidance (p = 0.019);8 and 

• The combination of LITT and MRI 

guidance for treating metastatic 

intracranial tumors has been evaluated 

for safety and feasibility 9 in a study of 

four patients that were refractory to 

other treatments. The patients 

demonstrated on follow up that in all 

cases the procedure was well tolerated 

without secondary effect and patients 

were discharged within 14 hours after 

the procedure. Upon a 90-day follow up, 

tumor volume demonstrated a gradual 

and steady decrease, with no recurrence 

within the thermal ablation zones. 

The commenter concluded that it 

carefully reviewed the available 

literature on LITT and believes that the 

AutoLITTTM has demonstrated the 

following positive clinical benefits for 

patients: a robust and clinical validated 

integrated platform of clinically useful 

technologies (LITT, MRI guidance, real 

time MR monitoring of thermal energy 

applications) that works within the 

existing clinical frameworks available at 

major medical centers; effective 

abilation of targeted tumor tissue; short 

length of stay; ability to ambulate early; 

and minimally lasting or late developing 

side effects. As a result, the commenter 

believes that the AutoLITTTM represents 

a new, clinically viable option for brain 

cancer patients and meets the 

substantial clinical improvement 

criteria. 

The other comment from the 

manufacturer discussed the applicant’s 

clinical trial. Some of these data were 

discussed above in the comments we 

received from physicians in support of 

the AutoLITTTM. The manufacturer 

provided more detail about the design of 

the clinical study. The manufacturer 

stated that it conducted a clinical trial 

of 10 patients with tumors in locations 

that either made access to the tumor 

without risk of complications difficult 

or made total gross resection of the 

entire mass impossible or impractical 

without significant risk. All patients 

treated in the study had first or second 

GBM tumors with poor prognosis. The 

Karnofsky Performance Scale used to 

measure functional and mental status 

was assessed pre- and post-treatment 

and remained the same or improved 

during the post treatment interval. 

Finally, as also mentioned in the 

comments from the physicians in 

support of the AutoLITTTM, all patients 

in the clinical study were discharged 

within 2 to 7 days with a mean of 3.8 

days, which compares favorably to a 

12-day average length of stay for cases 

that map to MS–DRG 25. 

Response: We thank the applicant and 

all of the commenters for providing 

additional clinical data to demonstrate 

that the AutoLITTTM meets the 

substantial clinical improvement 

criteria. With respect to substantial 

clinical improvement, we considered all 

of the case-specific clinical information 

presented by the applicant and the 

public to determine whether there is 

evidence to support a conclusion that 

use of the AutoLITTTM represents a 

substantial clinical improvement. 

Specifically, we focused our review on 

the peer-reviewed medical literature 

and the results of the clinical studies. 

We remain concerned that no 

prospective comparative data exist to 

help understand the benefit of the 

technology compared to other 

modalities. 

However, we agree that the 

AutoLITTTM can improve clinical 

outcomes by providing an alternative 

treatment for brain tumors that 

potentially has a lower risk of adverse 

events and is less invasive compared to 

craniotomy. Also, the comments we 

received from the physicians and the 

manufacturer noted that the 

AutoLITTTM provides a new treatment 

option in cases where no existing 

treatment was available due to the risk 

of complications or total gross resection 

of the entire mass made impossible or 

impractical without significant risk. 

Lastly, we received positive comments 

from physicians who indicated that the 

AutoLITTTM is a less invasive treatment 

than other alternative treatments such as 

craniotomy and produced positive 

clinical outcomes by reducing average 

length of stay, quicker ambulation, and 

a reduction of other adverse events that 

occur in cases of first or second 

craniotomies for glioblastomas. 

Although we continue to believe that 

limited, anecdotal reports from 

physicians using a new technology are 

insufficient to demonstrate substantial 

clinical improvement over existing 

technologies, such information, when 

considered together with peer-reviewed 

medical literature and results of clinical 

studies, can help to inform our decision. 

Therefore, after reviewing the totality of 

the evidence, we have determined that 

the AutoLITTTM meets the substantial 

clinical improvement criterion. 

Accordingly, after consideration of 

the clinical evidence received, we are 

approving the AutoLITTTM for new 

technology add-on payments in FY 

2011. Consistent with the applicant’s 

clinical trial, the add-on payment is 

intended only for use of the device in 

cases of Glioblastoma Multiforme. 

Therefore, we intend to limit the new 

technology add-on payment to cases 

involving the AutoLITTTM in MS–DRGs 

25, 26, and 27. Cases involving the 

AutoLITTTM that are eligible for the new 

technology add-on payment will be 

identified by assignment to MS–DRGs 

25, 26, and 27 with a procedure code of 

17.61 in combination with a primary 

diagnosis codes that begins with a prefix 

of 191. We note that using the procedure 

and diagnosis codes above and 

restricting the add-on payment to cases 

that map to MS–DRGs 25, 26, and 27 is 

consistent with information provided by 

the applicant, which demonstrated that 

cases of the AutoLITTTM would only 

map to MS–DRGs 25, 26, and 27. 

Procedure code 17.62 does not map to 

MS–DRGs 25, 26, or 27 under the 

GROUPER software and, therefore, is 

ineligible for new technology add-on 

payment. 

The average cost of the AutoLITTTM is 

reported as $10,600 per case. Under 

§ 412.88(a)(2) of the regulations, new 

technology add-on payments are limited 

to the lesser of 50 percent of the average 

cost of the device or 50 percent of the 

costs in excess of the MS–DRG payment 

for the case. As a result, the maximum 

add-on payment for a case involving the 

AutoLITTTM is $5,300. 

b. LipiScanTM Coronary Imaging System 

InfraReDx, Inc. submitted an 

application for new technology add-on 

payments for FY 2011 for the 

LipiScanTM Coronary Imaging System 

(LipiScanTM). We note that an 

application was also submitted for FY 

2010, but the application was denied on 

the grounds that it did not meet the 

substantial clinical improvement 

criterion at that time. The application 

for FY 2011 contains some additional 

clinical and charge data that were not 

available at the time that the FY 2010 

new technology add-on payment 

decisions were made. 

The LipiScanTM device is a diagnostic 

tool that uses Intravascular Near 

Infrared Spectroscopy (INIRS) during an 

invasive coronary catheterization to 

scan the artery wall in order to 

determine coronary plaque composition. 

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The purpose of the device is to identify 

lipid-rich areas in the artery because 

such areas have been shown to be more 

prone to rupture. The procedure does 

not require flushing or occlusion of the 

artery. INIRS identifies the chemical 

content of plaque by focusing near 

infrared light at the vessel wall and 

measuring reflected light at different 

wavelengths (that is, spectroscopy). The 

LipiScanTM system collects 

approximately 1,000 measurements per 

12.5 mm of pullback, with each 

measurement interrogating an area of 1 

to 2 mm2 of lumen surface 

perpendicular to the longitudinal axis of 

the catheter. When the catheter is in 

position, the physician activates the 

pullback and rotation device and the 

scan is initiated providing 360 degree 

images of the length of the artery. The 

rapid acquisition speed for the image 

freezes the motion of the heart and 

permits scanning of the inside of the 

arterial wall in less than 2 minutes. 

When the catheter pullback is 

completed, the console displays the 

scan results, which are referred to as a 

‘‘chemogram’’ image. The chemogram 

image requires reading by a trained user, 

but, according to the applicant, was 

designed to be simple to interpret. 

With regard to the newness criterion, 

the LipiScanTM received a 510K FDA 

clearance for a new indication on April 

25, 2008, and was available on the 

market immediately thereafter. On June 

23, 2006, InfraReDx, Inc. was granted a 

510K FDA clearance for the ‘‘InfraReDx 

Near Infrared (NIR) Imaging System.’’ 

Both devices are under the common 

name of ‘‘Near Infrared Imaging System’’ 

according to the 510K summary 

document from the FDA. However, the 

InfraReDx NIR Imaging System device 

that was approved by the FDA in 2006 

was approved ‘‘for the near infrared 

imaging of the coronary arteries,’’ 

whereas the LipiscanTM device cleared 

by the FDA in 2008 is for a modified 

indication. The modified indication 

specified that LipiscanTM is ‘‘intended 

for the near-infrared examination of 

coronary arteries * * *, the detection of 

lipid-core-containing plaques of interest 

* * * [and] for the assessment of 

coronary artery lipid core burden.’’ In 

the FY 2010 IPPS/RY 201 LTCH PPS 

proposed rule (74 FR 24132 through 

24134), we noted that we had concerns 

with whether LipiscanTM was 

substantially similar to its predicate 

device that was approved by the FDA in 

2006. However, those concerns were 

addressed by the manufacturer during 

the comment period. Specifically, the 

manufacturer stated that there were 

technical problems with the original 

device and that LipiScanTM had to be 

modified in the following ways: 

2006 NIRS device Marketed 2008 LipiScan 

Console ................................ No display of results of scan .......................................... Results displayed immediately. 

Catheter ............................... Saline-filled with microbubble problem obscuring many 

scans.

Air-filled with no microbubble problem. 

Algorithm .............................. No algorithmic processing of NIR signals—no means of 

certifying that lipid core plaque is present.

Algorithm validated in over 1,000 autopsy measurements proving that NIRS can detect lipid core plaque, 

and providing diagnosis of lipid core plaque to the 

MD during the case. 

The problems with the LipiScanTM

device that was approved in 2006 were 

addressed in the second device that was 

granted FDA approval in April 2008. 

The LipiScanTM device was not 

marketed until after its second FDA 

clearance. Therefore, we no longer 

needed to make a determination as to 

whether the newer device was 

substantially similar to the predicate 

device and we determined in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43815) that LipiscanTM would be 

considered to be ‘‘new’’ to the market as 

of the date of its FDA approval in April 

2008. Because a technology may be 

considered new for a period of up to 3 

years if, during the third year, the 

technology is new for more than 6 

months of the fiscal year, it appears that 

the technology would still be in the 

newness period for FY 2011. In the FY 

2011 IPPS/LTCH PPS proposed rule, we 

welcomed public comment on whether 

LipiscanTM meets the newness criterion. 

Comment: One commenter, the 

manufacturer, stated that the 

LipiScanTM met the newness criterion 

based on its FDA approval date. 

Response: We agree that the 

LipiScanTM is new as of the date of its 

supplemental FDA approval, April 25, 

2008, because the manufacturer 

provided information to us to show that 

the device was not marketed until after 

the supplemental FDA approval. 

Accordingly, LipiscanTM meets the 

newness criterion. 

We note that the LipiscanTM

technology is identified by ICD–9–CM 

procedure code 38.23 (Intravascular 

spectroscopy), which became effective 

October 1, 2008, and cases involving the 

use of this device generally map to MS– 

DRG 246 (Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

with MCC or 4+ Vessels/Stents); MS– 

DRG 247 (Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

without MCC); MS–DRG 248 

(Percutaneous Cardiovascular 

Procedures with Non-Drug-Eluting 

Stent(s) with MCC or 4+ Vessels/Stents); 

MS–DRG 249 (Percutaneous 

Cardiovascular Procedures with NonDrug-Eluting Stent(s) without MCC); 

MS–DRG 250 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent with MCC); and 

MS–DRG 251 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent without MCC). 

In an effort to demonstrate that the 

technology meets the cost criterion, the 

applicant used the FY 2010 IPPS/RY 

2010 LTCH PPS final rule After Outliers 

Removed (AOR) file (posted on the CMS 

Web site) to identify cases potentially 

eligible for LipiscanTM. The applicant 

believes that every case within MS– 

DRGs 246, 247, 248, 249, 250, and 251 

is eligible for LipiscanTM. In addition, 

the applicant believes that LipiscanTM

will be evenly distributed across 

patients in each of those six MS–DRGs 

(16.7 percent within each MS–DRG). 

Using data from the AOR file, the 

applicant found the average 

standardized charge per case for MS– 

DRGs 246, 247, 248, 249, 250, and 251 

was $67,531, $44,485, $62,936, $40,149, 

$59,416, and $38,864, respectively, 

equating to a case-weighted average 

standardized charge per case of $52,230 

(calculation performed using unrounded 

numbers). The applicant indicated that 

the case-weighted average standardized 

charge per case does not include charges 

related to LipiscanTM; therefore, it is 

necessary to add the charges related to 

the device to the average case-weighted 

standardized charge per case to evaluate 

the cost threshold criterion. Although 

the applicant submitted data related to 

the estimated cost per case of 

LipiscanTM, the applicant stated that the 

cost of the device is proprietary 

information. Based on a sampling of all 

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hospitals that are actively using the 

device, the applicant determined that 

the average charge for the device was 

$7,497. Adding the estimated average 

charge related for the device to the caseweighted standardized charge per case 

(based on the case distribution from the 

applicant’s FY 2010 AOR analysis) 

results in a total case-weighted average 

standardized charge per case of $59,727 

($52,230 plus $7,497). In the FY 2011 

IPPS/LTCH PPS proposed rule, we used 

the FY 2011 thresholds published in 

Table 10 of the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44173) to 

determine if the LipiscanTM met the cost 

criterion. For this final rule, due to the 

provisions of section 3401(a) of the 

Affordable Care Act which adjusted the 

FY 2010 applicable percentage increase 

(thus requiring CMS to revise the FY 

2010 standardized amounts), we used 

the revised FY 2011 thresholds as 

published in the FY 2010 IPPS/RY 2010 

LTCH PPS notice issued in the Federal 

Register on June 2, 2010 (75 FR 31213) 

to determine if the LipiscanTM meet the 

cost criterion. Based on the revised FY 

2011 Table 10 thresholds, the caseweighted threshold for MS–DRGs 246, 

247, 248, 249, 250, and 251 is $56,466 

(all calculations above were performed 

using unrounded numbers). Because the 

applicant’s calculation of the total caseweighted average standardized charge 

per case for the applicable 

MS–DRGs exceeds the case-weighted 

threshold amount, the applicant 

maintains that LipiscanTM meets the 

cost criterion. 

We note that in the applicant’s 

analysis of the cost criterion, instead of 

determining the case-weighted average 

standardized charge per case and the 

case-weighted threshold amount based 

on the actual number of cases from the 

FY 2010 AOR file in the applicable MS– 

DRGs that are eligible for the 

LipiscanTM, the applicant’s analysis 

assumed an even distribution of patients 

in the applicable MS–DRGs. However, 

the data from the FY 2010 AOR file 

shows a varied distribution of cases in 

each of the applicable MS–DRGs. We 

believe the more appropriate way to 

determine the case-weighted average 

standardized charge per case and the 

case-weighted threshold amount for 

evaluating the cost criterion is to use the 

actual distribution of cases in the 

applicable MS–DRGs based on the 

number of cases from the AOR file 

because this would more accurately 

reflect the number and type of Medicare 

cases typically treated in the applicable 

MS–DRGs. Moreover, this would better 

conform to the applicant’s assertion that 

the probability of use of LipiscanTM is 

the same in each of those six MS–DRGs. 

Using data from the FY 2011 AOR file 

(in the proposed rule, we used the FY 

2010 AOR file; however, for this final 

rule, we used the most recent data 

available, which is the FY 2011 AOR 

file), for MS–DRGs 246, 247, 248, 249, 

250, and 251, there were 30,663, 

141,780, 14,281, 46,037, 7,591, and 

36,059 cases, respectively. Using this 

case distribution and the average 

standardized charge per case for MS– 

DRGs 246, 247, 248, 249, 250, and 251 

(that is, $73,006, $48,275, $67,954, 

$44,336, $65,238, and $44,504, 

respectively, as stated above), we 

calculated that the case-weighted 

average standardized charge per case is 

$51,353. As the applicant indicated 

above, the case-weighted average 

standardized charge per case does not 

include charges related to LipiscanTM. 

Therefore, it is necessary to add the 

average charge of $7,497 related to the 

device to the case-weighted 

standardized charge per case to evaluate 

the cost threshold criterion. Adding the 

estimated charges related to the device 

to the case-weighted average 

standardized charge per case (based on 

the case distribution from the FY 2011 

AOR final rule file) results in a total 

case-weighted average standardized 

charge per case of $58,850 ($51,353 plus 

$7,497). Using the revised FY 2011 

thresholds published in Table 10 of the 

FY 2010 IPPS/RY 2010 LTCH PPS 

notice (75 FR 31213) and the actual case 

distribution from the FY 2011 AOR file, 

the case-weighted threshold for MS– 

DRGs 246, 247, 248, 249, 250, and 251 

is $52,940 (all calculations above were 

performed using unrounded numbers). 

Because this alternative calculation of 

total case-weighted average 

standardized charge per case for the 

applicable MS–DRGs also exceeds the 

case-weighted threshold amount, it 

appears that LipiscanTM would meet the 

cost criterion. In the FY 2011 IPPS/ 

LTCH PPS proposed rule, we invited 

public comment on whether or not 

LipiscanTM meets the cost criterion. We 

did not receive any public comments on 

whether or not LipiscanTM meets the 

cost criterion. Therefore, for FY 2011, 

we have determined that LipiscanTM

meets the cost criterion. 

With regard to substantial clinical 

improvement, we determined that the 

FY 2010 new technology add-on 

payment application for LipiscanTM did 

not meet the substantial clinical 

improvement criterion because the 

evidence and information available at 

the time the new technology decisions 

were made did not allow CMS to 

determine that the application 

represented a substantial clinical 

improvement over existing technologies. 

Specifically, we found that there was a 

lack of evidence that demonstrated that 

LipiscanTM affected the medical 

management of patients in which the 

device was used. 

The applicant maintains that the 

device meets this criterion for the 

following reasons. The applicant noted 

that from November 2008 to 2009, the 

number of patients in whom LipiscanTM

has been used for clinical purposes has 

increased from 100 to 500 and during 

the same period, the number of 

hospitals using the product has 

increased from 6 to 16. In addition, the 

applicant asserts that ‘‘during the past 

year, two LipiscanTM publications 

demonstrate that dilation of a lipid core 

plaque is responsible for slow or no 

reflow and myocardial infarction during 

the procedure.’’ The applicant noted that 

this is important because ‘‘several 

treatments are available that could 

prevent this stenting complication.’’ The 

applicant referenced the ‘‘700 patient 

PROSPECT Study’’ which was presented 

at the Transcatheter Cardiovascular 

Therapeutics Conference in September 

2009 and found that 20.4 percent of 

patients experience a new event in the 

3.4 years following stenting. The 

applicant pointed to that finding as 

evidence that there is a need for 

improved safety and efficacy of stenting 

and maintained that LipiscanTM offers 

clinicians the ability to make decisions 

that result in such improvements. 

The PROSPECT (Providing Regional 

Observations to Study Predictors of 

Events in the Coronary Tree) study is a 

cohort study of patients with acute 

coronary syndrome who underwent 

percutaneous coronary angioplasty and 

stenting (percutaneous coronary 

intervention). Following the procedure, 

angiography and intravascular 

ultrasound (IVUS) were performed. If a 

patient had a subsequent event, a new 

angiogram and IVUS image were 

obtained and compared to the original 

results. The investigators reported that 

‘‘angiographically mild lesions with 

certain morphologic features on 

grayscale and IVUS present with a 3 

year cardiac event rate of 17%, versus 

other morphologies (indistinguishable 

by conventional angiograms) with three 

year event risks of less than 1%.’’ We are 

concerned that with this type of study 

design, it is not possible to determine 

whether the information for the IVUS 

image would have altered the 

angioplasty and stenting procedures 

since the images were collected after the 

procedure. The results are suggestive, 

but a prospective study is needed to 

determine the clinical utility of IVUS 

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and whether use of IVUS leads to 

changes in clinical practice or 

improvements in health outcomes. The 

PROSPECT study generated a 

hypothesis that use of IVUS may help 

determine which plaques are vulnerable 

to future events but further clinical 

research is needed to confirm this 

hypothesis. We note that the PROSPECT 

study was presented at the 

Transcatheter Cardiovascular 

Therapeutics Conference in September 

2009, but that the study results have yet 

to be published in a peer-reviewed 

journal. We also note that methods and 

conclusions from a study may change 

from what was verbally presented 

during the peer review process that is 

required to publish the study results. 

As it did in its prior application, the 

applicant noted that the September 1, 

2001 final rule states that one facet of 

the criterion for substantial clinical 

improvement is ‘‘the device offers the 

ability to diagnose a medical condition 

in a patient population where the 

medical condition is currently 

undetectable or offers the ability to 

diagnose a medical condition earlier in 

a patient population than allowed by 

currently available methods. There must 

also be evidence that use of the device 

to make a diagnosis affects the 

management of the patient’’ (66 FR 

46914). The applicant believes that 

LipiscanTM meets all facets of this 

criterion. The applicant asserted that the 

device is able to detect a condition that 

is not currently detectable. The 

applicant explained that LipiScanTM is 

the first device of its kind to be able to 

detect lipid-core-containing plaques of 

interest and to assess of coronary artery 

lipid core burden. The applicant further 

noted that FDA, in its approval 

documentation, has indicated that ‘‘This 

is the first device that can help assess 

the chemical makeup of coronary artery 

plaques and help doctors identify those 

of particular concern.’’ 

In addition, the applicant stated that 

the LipiScanTM chemogram permits a 

clinician to detect lipid-core-containing 

plaques in the coronary arteries 

compared to other currently available 

devices that do not have this ability. 

The applicant explained that the 

angiogram, the conventional test for 

coronary atherosclerosis, shows only 

minimal coronary narrowing. However, 

the applicant indicated that the 

LipiScanTM chemogram has the ability 

to reveal when an artery contains 

extensive lipid-core-containing plaque 

at an earlier stage. 

The applicant also noted that the 

device has the ability to make a 

diagnosis that better affects the 

management of the patient. Specifically, 

the applicant asserted that LipiScanTM

‘‘is currently used in the management of 

patients undergoing coronary stenting to 

improve the safety and efficacy of the 

procedure’’ and that while stenting has 

steadily improved, its results are not 

optimal in approximately 30 percent of 

cases due to 3 problems: (1) Peristenting MI due to embolization of lipid 

core contents and side branch 

occlusion; (2) major adverse coronary 

events (MACE) post stenting from 

difficulties at the stented site; and (3) 

MACE post stenting for non-stented 

vulnerable sites. We note that in order 

to demonstrate that the technology 

represents a substantial clinical 

improvement, there must be evidence 

that use of the device to make a 

diagnosis affects the medical 

management of the patient and leads to 

improved clinical outcomes. 

The applicant described three case 

studies where each of the above 

problems was addressed by use of the 

LipiScanTM. In addition, the applicant 

asserts that the chemogram results are 

available to the interventional 

cardiologist during the PCI procedure, 

and have been found to be useful in 

decision-making. According to the 

applicant, physicians have reported 

changes in therapy based on LipiScanTM

findings in 20 to 50 percent of patients 

in which the device has been used. 

According to the applicant, the most 

common use of LipiScanTM results has 

been by physicians for selection of the 

length of artery to be stented. In some 

cases a longer stent has been used when 

there is a lipid-core-containing plaque 

adjacent to the area that is being stented 

because a flow-limiting stenosis is 

present. The applicant also noted that, 

in some cases, physicians have chosen 

to use down-stream protective devices 

during stenting procedures on the basis 

of information gathered by use of 

LipiscanTM in several patients, and that 

this has directly impacted their outcome 

by capturing emboli and preventing 

further cardiac damage. Therefore, the 

applicant contends that the use of 

LipiScanTM by clinicians to select the 

length of artery to be stented and as an 

aid in selection of intensity of lipidaltering therapy, demonstrates that 

LipiScanTM affects the management of 

patients. 

In the proposed rule, we stated that 

while we recognized that the 

identification of lipid-rich plaques in 

the coronary vasculature holds promise 

in the management of coronary artery 

disease, we were concerned that 

statements in the FDA approval 

documents, as well as statements made 

by investigators in the literature, suggest 

that the clinical implications of 

identifying these lipid-rich plaques are 

not yet certain and that further studies 

need to be done to understand the 

clinical implications of obtaining this 

information. 

The applicant also submitted 

commentary from a group of 

interventional cardiologists who 

currently utilize the LipiScanTM device 

explaining the clinical benefits of the 

device. The applicant further noted that 

the device may have other potential 

uses that would be of clinical benefit, 

and studies are currently being 

conducted to investigate these other 

potential uses. The applicant explained 

that LipiScanTM offers promise as a 

means to enhance progress against the 

two leading problems in coronary 

disease management: (1) The high rate 

of second events that occur even after 

catheterization, revascularization, and 

the institution of optimal medical 

therapy; and (2) the failure to diagnose 

coronary disease early, which results in 

sudden death or MI being the first sign 

of the disease in most patients. The 

applicant further stated that the 

identification of coronary lipid-corecontaining plaques, which can most 

readily be done in those already 

undergoing catheterization, is likely to 

be of benefit in the prevention of second 

events. In the longer term, the applicant 

stated that the identification of lipidcore-containing plaques by LipiScanTM

may contribute to the important goal of 

primary prevention of coronary events, 

which, in the absence of adequate 

diagnostic methods, continue to cause 

extensive morbidity, mortality and 

health care expenditures in Medicare 

beneficiaries and the general 

population. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we welcomed public 

comment regarding whether or not the 

LipiScanTM technology represents a 

substantial clinical improvement for the 

Medicare population. 

Comment: One commenter, a trade 

association for interventional 

cardiologists, stated that it appreciated 

CMS’ clarification in the proposed rule 

that ‘‘a new diagnostic technology can 

meet the substantial clinical 

improvement criterion not just by 

demonstrating improvement in clinical 

outcomes, but also on the basis of 

evidence showing changes in the 

management of the patient.’’ This 

commenter stated that, in light of the 

‘‘clarification,’’ it supported the approval 

of the LipiScanTM for new technology 

add-on payments. 

Response: This comment 

mischaracterizes CMS’ position 

regarding the required showing for a 

diagnostic technology to meet the 

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substantial clinical improvement 

criterion. CMS has not stated that a new 

diagnostic technology can meet the 

substantial clinical improvement 

criterion not just by demonstrating 

improvement in clinical outcomes, but 

also on the basis of evidence showing 

changes in the management of the 

patient. As we stated in the September 

7, 2001 Federal Register, we follow 

certain guidelines to determine whether 

a technology represents a substantial 

clinical improvement. For a diagnostic 

technology, we make this determination 

by judging whether the technology 

‘‘offers the ability to diagnose a medical 

condition in a patient population where 

that medical condition is currently 

undetectable or offers the ability to 

diagnose a medical condition earlier in 

a patient population than allowed by 

currently available methods. There must 

also be evidence that use of the device 

to make a diagnosis affects the 

management of the patient.’’ (66 FR 

46914) 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43818), we further 

discussed what evidence an applicant 

must show in order to meet the 

substantial clinical improvement 

criterion for diagnostic technologies. We 

continue to believe that it would not be 

appropriate to provide additional 

payments for new diagnostic tools that 

fail to significantly change the 

management of patients, thereby 

improving clinical outcomes. 

Comment: Commenters supported 

deeming the LipiscanTM to be a 

substantial clinical improvement over 

currently available technologies. The 

manufacturer stated that the use of 

LipiScanTM increased from 100 cases in 

late 2008 to 900 cases by June 2010, and 

that the number of hospitals using the 

technology has increased from 16 to 22. 

Additionally, over 350 patients are 

enrolled in the manufacturer’s registry 

of cases involving LipiScanTM, COLOR. 

The manufacturer asserted that the data 

now available clearly identify three 

specific clinical implications of the 

detection of lipid core plaque: (1) To 

predict and minimize the occurrence of 

peri-stenting MI; (2) to identify the 

length of artery to be stented; and (3) to 

assist in selection of the intensity of 

pharmacologic therapy following 

stenting. 

The manufacturer submitted the 

chemogram images of 44 stabilized 

patients who were stented and in whom 

enzymes are available to determine if an 

MI occurred during stenting. Some of 

the 44 patients had the presence of large 

lipid core plaque; others did not. Eight 

of these patients were found to have 

experienced an MI during stenting (as 

identified by a cardiac enzyme elevation 

of greater than or equal to 3x ULN). 

With respect to LipiScanTM’s ability to 

predict and minimize the occurrence of 

peri-stenting MI, the manufacturer 

referenced a doctor who had used filters 

or embolic protection during stenting. 

That doctor’s summary is presented is 

the next paragraph. With respect to 

identifying the length of artery to be 

stented, the manufacturer stated that ‘‘a 

case has now been observed in which 

acute stent thrombosis occurred when a 

stent * * * ended in a lipid core 

plaque, as documented in vivo by 

LipiScanTM.’’ The manufacturer asserted 

that the evidence linking stent 

thrombosis to termination of a stent in 

a lipid core plaque has led physicians 

to use the image provided by 

LipiScanTM as a factor determining the 

length of artery to be stented. With 

respect to LipiScanTM assisting in the 

selection of the intensity of medical 

therapy post-stenting, the manufacturer 

maintained that ‘‘the development of 

[LipiScanTM] now makes it possible to 

perform in vivo assessment of the 

relationship between the presence of 

lipid core plaque and coronary event.’’ 

The manufacturer submitted before and 

after chemograms in which the baseline 

chemogram did not show lipid core 

plaque. In subsequent days, ranging 

from 42 to 316 days, the manufacturer 

added, the patients still had no lipid 

rich plaque. The manufacturer asserted 

that these cases ‘‘correctly predicted the 

continued patency of the artery and the 

absence of a coronary event related to 

that artery.’’ The manufacturer showed a 

baseline and 325 day follow-up of a 

patient who did have lipid rich plaque 

at baseline and had a re-stenosis of the 

lipid rich area 325 later. 

The commenters who supported this 

technology generally made anecdotal 

assertions in which the information 

provided by LipiScanTM was useful to 

them in managing their patients. One 

commenter, a physician, stated that he 

had used the identification of lipid core 

plaque (as identified by LipiScanTM) in 

an attempt to protect patient from the 

high risk of peri-stenting MI by ‘‘placing 

a distal protection filter beyond the 

lipid core stenosis to be dilated.’’ This 

commenter asserted that such filters are 

used in dilation of saphenous vein grafts 

which have rates of periprocedural MI 

that can be reduced by approximately 

40 percent if embolic protection is used. 

The commenter used protection devices 

before stenting in the native coronary 

arteries seven patients with large lipid 

core plaque as assessed by LipiScanTM. 

A filter was used in six patients and a 

proximal embolic protection was used 

in one patient. The commenter stated 

that he believed that the rate of 

infarction was lower in these seven 

patients than it would have been had 

embolic protection devices not been 

utilized, and that the two infarctions 

that did occur were smaller than they 

would have been if the full load of 

debris mobilized by balloon inflation— 

included the debris collected in the first 

basket—would have lodged in the distal 

vessels. 

Another physician stated that there 

‘‘have been anecdotal cases by multiple 

operators of the catastrophic no reflow 

phenomenon in patients who 

underwent angioplasty of a lipid rich 

stenosis [LipiScanTM] imaging may be 

able to identify these patients and 

hopefully prevent this catastrophic 

complication’’ The same commenter 

stated that the diagnostic information 

provided by the LipiScanTM chemogram 

‘‘can be combined with well-established 

treatments * * * as a means to reduce 

stenting complications and peri-stenting 

MI.’’ Some commenters believed they 

could reduce the incidence of heart 

attacks that occur during stenting by 

using a filter to remove the lipid-rich 

plaque. 

Another commenter stated that, 

although he does not perform 

interventional cardiology procedures, he 

was interested in how the information 

provided by LipiScanTM could 

contribute to the prevention of initial 

and secondary coronary events. He 

described an asymptomatic man who 

participated in a clinical research study 

designed to evaluate the noninvasive 

identification of patients at increased 

risk of coronary events. He stated that 

the patient had a ‘‘noninvasive CTA’’ 

and that positive results led to a cardiac 

catherization in which LipiScanTM was 

used. Based on the chemogram, which 

showed extensive lipid core plaque, the 

clinicians decided to treat this patient 

with intensive lipid altering therapy. 

The commenter did not describe any 

followup for that patient. 

Another commenter, a physician, 

stated that he performed approximately 

70 procedures with the LipiScanTM

since 2008. The commenter asserted 

that in roughly 75 percent of these 

procedures, the ‘‘lesion characterization 

information provided by the Lipiscan 

image affected [his] diagnosis of the 

patient’s condition.’’ In approximately 

50 percent of the procedures, the 

commenter stated that the imaging 

information affected his treatment of the 

patient’s condition. The commenter 

further stated that the most significant 

changes involved his decisions about 

which segments of the artery required 

treatment, the length of stent to employ, 

and the type of stent he chose to 

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employ. The commenter provided 

information on three specific cases in 

which he used LipiScanTM. In two of the 

cases, he indicated that he was better 

able to choose the length of stent and in 

one case, the use of LipiScanTM helped 

guide the selection of the type of stent 

to be used; although the patient did 

suffer a heart attack, the stenting was 

able to proceed. 

Response: In the case of LipiScanTM, 

we note that existing technologies may 

not be able to adequately identify lipidrich plaques. However, methods exist 

currently for diagnosing CAD, including 

intravascular ultrasound (IVUS) and 

optical coherence tomography (OCT). 

We also reiterate that such diagnostic 

capability must also be linked to 

‘‘evidence that use of the device to make 

a diagnosis affects the management of 

the patient.’’ In this case, the evidence 

currently available to CMS consists of 

anecdotal claims made by the applicant 

and one other commenter that the 

identification of such plaques affects the 

management of the patient. A review of 

the literature yielded no additional 

evidence base to support the applicant’s 

claim regarding the effect of this 

technology on patient management. 

Furthermore, as we stated last year, we 

continue to believe that the prognostic 

implications of detecting lipid-rich 

plaque are not yet sufficiently well 

understood and documented in the 

peer-reviewed evidence base to 

conclude that its identification will lead 

to widespread and evidence-based 

changes in the management of CAD. 

We believe that a diagnostic 

technology must necessarily have 

evidence-based, significant, and positive 

effects on the management of patients, 

thereby resulting in improved clinical 

outcomes generally accepted by 

clinicians, in order to meet the 

threshold of representing an advance 

that substantially improves, relative to 

technologies previously available, the 

diagnosis of Medicare beneficiaries. 

In response to the comments that the 

LipiScan, combined with a filter could 

reduce the incidence of peri-stenting 

MI, we note that use of such a filter in 

the coronary vasculature is not currently 

approved by the FDA and therefore is 

‘‘off-label’’ to the extent that it is already 

being employed by physicians. The 

most recent article submitted to us by 

the applicant (dated 2010), an ‘‘Imaging 

Vignette’’ which does not appear to have 

been published yet, concludes: 

‘‘Additional studies are needed to 

quantitate the ability of NIRS to predict 

the occurrence of peri-stenting 

infarction and to test, in a randomized 

trial, the strategy of NIRS guided use of 

a distal protection device’’ (Goldstein, et 

al). We agree with the commenters that 

use of such filter may ultimately reduce 

the incidence of peri-stenting MI to the 

extent that it aides the physician in 

placing the stent such that it does not 

cause the lipid core plaque to rupture. 

However, absent FDA approval for this 

indication, we do not believe it is 

appropriate to consider this use as part 

of our evaluation of substantial clinical 

improvement for the LipiScanTM. We 

also agree with the vignette’s conclusion 

that additional clinical studies are 

needed to evaluate this claim. 

Therefore, while we recognize that 

LipiscanTM provides the ability to detect 

lipid-rich plaque which is currently 

undetectable by any other means, we are 

nonetheless still concerned that there is 

significant uncertainty within the 

clinical community regarding the 

prognostic implications of obtaining this 

information. We believe the evidence 

supplied by the applicant and the 

commenters that the device is affecting 

the management of the patient is not 

able to be validated broadly and is still 

anecdotal. Further, the discussions of 

the technology in the scientific studies 

submitted by the applicant acknowledge 

the possible potential of the technology 

to affect treatment in the future, but all 

stated that additional studies are 

necessary to determine its actual 

clinical utility. Specifically, in an 

editorial published in 2008, the author 

wrote, ‘‘In conclusion, further studies 

are warranted to determine if detection 

of [lipid core plaque of interest] by [near 

infrared spectroscopy] imaging will 

contribute to enhanced prediction of 

outcomes in patients with known CAD’’ 

(Young, 2008). Also, in a letter to the 

editor in the Journal of the College of 

Cardiology, another author wrote about 

his experience with three patients over 

a period of three weeks to share his 

‘‘initial observations.’’ The author wrote 

that ‘‘* * * preliminary results suggest 

that intravascular investigation of 

chemical composition of a coronary 

plaque has become a clinical reality 

[but] it remains to be seen whether 

chemograms would perform better than 

the ultrasound of whether they will be 

able to predict adverse events and 

faciltate development of clinically 

effective strategies for management of 

vulnerable plaques before it is too late.’’ 

(Maini, 2008) (emphasis added). 

In addition, we are concerned that 

there continues to be relatively few 

cases in which LipiscanTM has been 

used relative to the patient population 

in which it could potentially be used. 

As we have previously explained, we do 

not consider merely anecdotal claims 

that a device affects the management of 

the patient as sufficient evidence to 

demonstrate that a new diagnostic 

device affects the management of the 

patient, particularly where the device 

could be used for a relatively large 

patient population. Specifically, the 

applicant claims that the device could 

potentially be used in every patient who 

undergoes coronary angiography. To 

date, the device is only in use in 22 

hospitals total and, as noted above, 

there has been no data published, or 

even reported, from the hospitals where 

the device has been used, to indicate 

that management of patients has 

changed and that patients who received 

LipiScanTM had better clinical outcomes 

than those who did not. 

We believe that the lack of 

comparative data from hospitals 

showing statistically valid improved 

outcomes for the patients who received 

LipiScanTM compared to those who did 

not receive the technology further 

supports our previously stated view that 

the prognostic implications of detecting 

lipid-rich plaque are still not well 

enough understood and therefore the 

detection of such plaque cannot be 

reasonably assumed to automatically 

lead to evidence-based, significant, and 

positive in the management of patients 

with CAD generally accepted by 

clinicians, much less lead to improved 

clinical outcomes. We agree with the 

commenters and applicant that the 

identification of lipid-rich plaques by 

LipiScanTM may potentially hold 

promise and ultimately lead to changes 

in the management of CAD and that 

LipiscanTM has the potential to provide 

additional benefits in clinical outcomes 

of patients with CAD. However, we do 

not believe the evidence and 

information available at this time allows 

us to determine that it meets the 

substantial clinical improvement 

criterion. 

Accordingly, we are not approving 

LipiscanTM for new technology add-on 

payments for FY 2011. 

c. LipiScanTM Coronary Imaging System 

With Intravascular Ultrasound (IVUS) 

InfraReDx, Inc. submitted an 

application for new technology add-on 

payments for FY 2011 for the 

LipiScanTM Coronary Imaging System 

with Intravascular Ultrasound 

(LipiScanTM IVUS). The LipiScanTM

IVUS device is a diagnostic device that 

uses Intravascular near infrared 

spectroscopy (INIRS) combined with 

intravascular ultrasound (IVUS) during 

an invasive coronary angiography to 

determine the chemical composition of 

coronary plaques, which is 

accomplished using near infrared 

spectroscopy (INIRS) and to visualize 

stents and the structural features of 

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coronary lesions, which is 

accomplished using IVUS. This new 

technology combines both capabilities 

in a single catheter. The IVUS part of 

the device utilizes sound to interrogate 

the artery and, according to the 

applicant, provides an image of the size 

of the plaque, the degree of stenosis 

produced by the plaque, the size of the 

artery and the degree of expansion of 

the stent. The device consists of a 

single-use catheter, a console and a 

‘‘single pullback with the artery.’’ The 

device is intended to be used in patients 

already undergoing coronary stenting. 

We note that the LipiScanTM IVUS 

device is identified by ICD–9–CM 

procedure codes 38.23 (Intravascular 

spectroscopy) and 00.24 (Intravascular 

imaging of coronary vessels). Cases 

involving the use of this device 

generally map to MS–DRG 246 

(Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

with MCC or 4+ Vessels/Stents); MS– 

DRG 247 (Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

without MCC); MS–DRG 248 

(Percutaneous Cardiovascular 

Procedures with Non-Drug-Eluting 

Stent(s) with MCC or 4+ Vessels/Stents); 

MS–DRG 249 (Percutaneous 

Cardiovascular Procedures with NonDrug-Eluting Stent(s) without MCC); 

MS–DRG 250 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent with MCC); and 

MS–DRG 251 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent without MCC). 

With respect to the newness criterion, 

we noted in the proposed rule that this 

device was not currently approved by 

the FDA, but the manufacturer 

anticipated that FDA approval will be 

granted in the second quarter of 2010. 

We also noted that IVUS has existed for 

over 20 years. Therefore, IVUS, on its 

own, would not meet the newness 

criterion. The applicant asserted that 

one difference from the LipiscanTM

product, for which it has also submitted 

an application for new technology addon payments, is that the catheter for the 

combined product is filled with saline 

(which is required for transmission of 

sound). The manufacturer has also 

stated that the combined device only 

requires the use of one catheter, as 

opposed to two separate ones. The 

manufacturer asserted that the singleuse catheter for the combined 

technologies is only supplied by 

InfraReDx (the manufacturer of 

LipiScanTM). However, we noted that a 

physician could use LipiScanTM and 

IVUS as two separate products in the 

same patient (through the use of two 

catheters) and still be able to obtain the 

INIRS image and the ultrasound that are 

achieved through the combined product 

albeit separately. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we welcomed public 

comments regarding whether the 

combined LipiScanTM IVUS device 

should be considered to be ‘‘new’’ as of 

the date of the existing LipiScanTM

device received FDA approval or 

whether it should be considered new 

from the FDA approval date for 

LipiScanTM IVUS (should such an 

approval be granted). We also welcomed 

public comments regarding whether 

LipiScanTM IVUS, as a combined 

technology, should be considered to be 

substantially similar to each individual 

technology separately as of the date that 

each separate technology received FDA 

approval (or the date that each 

technology became available on the 

market, if either technology was not 

available on the market until a date after 

FDA approval). 

As stated above, in making a 

determination of substantial similarity, 

we consider the following: (1) Whether 

a product uses the same or similar 

mechanism of action to achieve a 

therapeutic action; (2) whether a 

product is assigned to the same or a 

different DRG; and (3) whether new use 

of a technology involves treatment of 

the same or similar type of disease and 

the same or similar patient population. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule, we stated that ‘‘due to the 

complexity of issues regarding the 

substantial similarity component of the 

newness criterion, it may be necessary 

to exercise flexibility when considering 

whether technologies are substantially 

similar to one another’’ (74 FR 43813). 

Comment: One comment, the 

manufacturer, stated that it agreed with 

the proposed rule statement of ‘‘it 

appears that LipiScanTM IVUS meet the 

newness criterion.’’ Additionally, the 

commenter stated that should the 

LipiScanTM IVUS receive FDA approval, 

it should be considered new because 

LipiScanTM IVUS provides the 

individual benefits of both LipiScan and 

IVUS, ‘‘plus accurate co-registration, 

synergistic benefits, and enhanced 

safety and ease of use we believe that 

the LipiScanTM IVUS multimodality 

imaging catheter should be considered 

new if and when it receives clearance by 

the FDA and is marketed.’’ The 

commenter did not specifically address 

the three criteria considered under 

substantial similarity. 

Response: We note that the 

LipiScanTM IVUS received a 510(k) 

approval from the FDA on June 30, 

2010, prior to the July 1 deadline that 

applicants for new technology must 

meet in order to be evaluated under the 

newness criterion. The FDA approval 

letter did not provide information that 

would distinguish the LipiScanTM IVUS 

from its predicate devices. In addition, 

the manufacturer did not provide 

enough information for us to distinguish 

the LipiScanTM IVUS from the 

LipiScanTM, which is what we 

specifically questioned in the proposed 

rule. (Indeed, we note that the uses for 

both devices appear to be markedly 

similar.) Also, we did not state in the 

proposed rule that the technology meets 

the newness criterion, as the commenter 

suggested. We note that under FDA’s 

510(k) approval process, there must be 

at least one predicate device that is 

‘‘substantially equivalent.’’ However, as 

we have stated previously, we do not 

believe that a determination of 

substantial equivalence by FDA under 

the 510(k) approval process necessarily 

means that a technology is substantially 

similar to its predicate device(s) for 

purposes of the new technology add-on 

payment. 

Moreover, none of the public 

commenters specifically addressed 

whether the LipiScanTM IVUS was 

substantially similar to the LipiScanTM. 

Specifically, none of the public 

commenters, including the 

manufacturer, addressed: (1) Whether 

the products use the same or similar 

mechanism of action to achieve a 

therapeutic action; (2) whether the 

products are assigned to the same or a 

different DRG; and (3) whether new use 

of a technology involves treatment of 

the same or similar type of disease and 

the same or similar patient population. 

As a result, we do not believe that we 

have sufficient information to make an 

affirmative decision regarding whether 

the LipiScanTM IVUS is substantially 

similar to the LipiScanTM. Accordingly, 

we are not making a determination 

regarding whether the LipiScanTM IVUS 

is substantially similar to its predicate 

device or the LipiScanTM in this final 

rule. However, we note that whether or 

not LipiScanTM IVUS was substantially 

similar to LipiScanTM, the LipiScanTM

IVUS is still within its newness period 

for FY 2011 (because the LipiScanTM

was new as of April 2008 and is still 

within its ‘‘newness’’ window for FY 

2011). Accordingly, we believe that 

LipiScanTM IVUS meets the newness 

criterion for FY 2011, but we do not 

have sufficient information regarding 

whether or not the start of the newness 

period began in April 2008 or June 

2010. Therefore, we are not making a 

determination in this rulemaking 

regarding the start of the newness 

period. 

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In an effort to demonstrate that the 

technology meets the cost criterion, the 

applicant used the FY 2010 IPPS/RY 

2010 LTCH PPS final rule AOR file 

(posted on the CMS Web site) to identify 

cases potentially eligible for LipiscanTM

IVUS. The applicant believes that every 

case within MS–DRGs 246, 247, 248, 

249, 250, and 251 is eligible for 

LipiscanTM IVUS. In addition, the 

applicant believes that LipiscanTM IVUS 

will be evenly distributed across 

patients in each of those six MS–DRGs 

(16.7 percent within each MS–DRG). 

Using data from the AOR file, the 

applicant found the average 

standardized charge per case for MS– 

DRGs 246, 247, 248, 249, 250, and 251 

was $67,531, $44,485, $62,936, $40,149, 

$59,416, and $38,864 respectively, 

equating to a case-weighted average 

standardized charge per case of $52,230 

(calculation performed using unrounded 

numbers). The applicant indicated that 

the case-weighted average standardized 

charge per case does not include charges 

related to LipiscanTM IVUS. Therefore, it 

is necessary to add the charges related 

to the device to the average caseweighted standardized charge per case 

to evaluate the cost threshold criterion. 

Although the applicant submitted data 

related to the estimated cost per case of 

LipiscanTM IVUS, the applicant stated 

that the cost of the device is proprietary 

information. The applicant analyzed 

Hospital Cost Report Information 

System (HCRIS) data from 2008 to 

determine the charges related to the 

device. Specifically, the applicant 

searched for the 100 cardiac 

catheterization labs that had the highest 

volume of cases in the United States. 

Based on the HCRIS data from these 100 

laboratories, the applicant determined 

the mean CCR was 0.188 with a markup 

of 532 percent, yielding a charge of 

$15,960 for LipiscanTM IVUS. (We note 

that this estimate of charges related to 

the LipiscanTM IVUS is significantly 

higher than the estimate of charges 

related to the LipiscanTM device derived 

from a sample of hospitals.) Adding the 

estimated average charge related for the 

device to the case-weighted 

standardized charge per case (based on 

the case distribution from the 

applicant’s FY 2010 AOR analysis) 

results in a total case-weighted average 

standardized charge per case of $68,190 

($52,230 plus $15,960). In the FY 2011 

IPPS/LTCH PPS proposed rule, we used 

the FY 2011 thresholds published in 

Table 10 of the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44173) to 

determine if the LipiscanTM IVUS meets 

the cost criterion. For this final rule, due 

to the provisions of section 3401(a) of 

the Affordable Care Act which adjusted 

the FY 2010 applicable percentage 

increase (thus requiring CMS to revise 

the FY 2010 standardized amounts), we 

used the revised FY 2011 thresholds as 

published in the FY 2010 IPPS/RY 2010 

LTCH PPS notice that appeared in the 

Federal Register on June 2, 2010 (75 FR 

31213) to determine if the LipiscanTM

IVUS meets the cost criterion. Based on 

the revised FY 2011 Table 10 

thresholds, the case-weighted threshold 

for MS–DRGs 246, 247, 248, 249, 250, 

and 251 is $56,466 (all calculations 

above were performed using unrounded 

numbers). Because the applicant’s 

calculation of the total case-weighted 

average standardized charge per case for 

the applicable MS–DRGs exceeds the 

case-weighted threshold amount, the 

applicant maintains that LipiscanTM

IVUS meets the cost criterion. 

We note that in the applicant’s 

analysis of the cost criterion, instead of 

determining the case-weighted average 

standardized charge per case and the 

case-weighted threshold amount based 

on the actual number of cases from the 

FY 2010 AOR file in the applicable MS– 

DRGs that are eligible for the LipiscanTM

IVUS, the applicant’s analysis assumed 

an even distribution of patients in the 

applicable MS–DRGs. However, the data 

from the FY 2010 AOR file shows a 

varied distribution of cases in each of 

the applicable MS–DRGs. We believe 

the more appropriate way to determine 

the case-weighted average standardized 

charge per case and the case-weighted 

threshold amount for evaluating the cost 

criterion is to use the actual distribution 

of cases in the applicable MS–DRGs 

based on the number of cases from the 

AOR file because this would more 

accurately reflect the number and type 

of Medicare cases typically treated in 

the applicable MS–DRGs. Moreover, this 

would better conform to the applicant’s 

assertion that the probability of use of 

LipiscanTM IVUS is the same in each of 

those six MS–DRGs. Using data from the 

FY 2011 AOR file (in the proposed rule, 

we used the FY 2010 AOR file; however, 

for this final rule, we used the most 

recent data available, which are 

contained in the FY 2011 AOR file), for 

MS–DRGs 246, 247, 248, 249, 250, and 

251, there were 30,663, 141,780, 14,281, 

46,037, 7,591, and 36,059 cases 

respectively. Using this case 

distribution and the average 

standardized charge per case for MS– 

DRGs 246, 247, 248, 249, 250, and 251 

(that is, $73,006, $48,275, $67,954, 

$44,336, $65,238, and $44,504, 

respectively, as stated above), the caseweighted average standardized charge 

per case is $46,949. As the applicant 

indicated above, the case-weighted 

average standardized charge per case 

does not include charges related to 

LipiscanTM IVUS. Therefore, it is 

necessary to add the average charge of 

$15,960 related to the device to the caseweighted standardized charge per case 

to evaluate the cost threshold criterion. 

Adding the estimated charges related to 

the device to the case-weighted average 

standardized charge per case (based on 

the case distribution from the FY 2010 

AOR final rule file) results in a total 

case-weighted average standardized 

charge per case of $62,909 ($46,949 plus 

$15,960). Using the revised FY 2011 

thresholds published in Table 10 of the 

FY 2010 IPPS/RY 2010 LTCH PPS 

notice (75 FR 31215) and the actual case 

distribution from the AOR file, the caseweighted threshold for MS–DRGs 246, 

247, 248, 249, 250, and 251 is $52,940 

(all calculations above were performed 

using unrounded numbers). Because 

this alternative calculation of total caseweighted average standardized charge 

per case for the applicable MS–DRGs 

exceeds the case-weighted threshold 

amount, it appears that LipiscanTM

IVUS would meet the cost criterion. 

In addition to the analysis above, the 

applicant searched the FY 2008 

MedPAR file for cases potentially 

eligible for use of the LipiscanTM IVUS. 

Because the technology can potentially 

be used for all cases within MS–DRGs 

246 through 251, the applicant searched 

the FY 2008 MedPAR file for all cases 

within these MS–DRGs. The applicant 

found 30,265 cases (or 9.7 percent of all 

cases) in MS–DRG 246; 147,695 cases 

(or 47.4 percent of all cases) in MS–DRG 

247; 19,642 cases (or 6.3 percent of all 

cases) in MS–DRG 248; 67,840 cases (or 

21.8 percent of all cases) in MS–DRG 

249; 8,120 cases (or 2.6 percent of all 

cases) in MS–DRG 250; and 38,022 cases 

(or 12.2 percent of all cases) in MS–DRG 

251. The average standardized charge 

per case was $66,958 for MS–DRG 246, 

$50,192 for MS–DRG 247, $72,099 for 

MS–DRG 248, $45,086 for MS–DRG 249, 

$71,355 for MS–DRG 250, and $46,141 

for MS–DRG 251, equating to a caseweighted average standardized charge 

per case of $45,964. 

Similar to above, the average 

standardized charge per case does not 

include charges related to the 

LipiscanTM IVUS; therefore, it is 

necessary to add the charges related to 

the device to the average standardized 

charge per case in evaluating the cost 

threshold criterion. Although the 

applicant submitted data related to the 

estimated cost of LipiscanTM IVUS per 

case, the applicant noted that the cost of 

the device was proprietary information. 

Based on 2008 HCRIS data from the 

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cardiac catheterization laboratories for 

all IPPS hospitals, the applicant 

determined a mean cost-to-charge ratio 

of 0.246 with a markup of 351 percent, 

yielding a charge of $10,543 for 

LipiscanTM IVUS. Assuming that the 

LipiscanTM IVUS device was marked up 

351 percent, the total case-weighted 

average standardized charge per case for 

cases involving the use of LipiscanTM

IVUS would be $56,507 ($45,964 plus 

$10,543) across MS–DRGs 246 through 

251. 

Using the revised FY 2011 thresholds 

published in Table 10 of the FY 2010 

IPPS/RY 2010 LTCH PPS notice (75 FR 

31215), the case-weighted threshold for 

MS DRGs 246, 247, 248, 249, 250, and 

251 is $52,671 (all calculations above 

were performed using unrounded 

numbers). Because the applicant’s 

calculation of the total case-weighted 

average standardized charge per case for 

the applicable MS–DRGs exceeds the 

case-weighted threshold amount, the 

applicant maintains that LipiscanTM

IVUS meets the cost criterion. In the FY 

2011 IPPS/LTCH PPS proposed rule, we 

invited public comment on whether or 

not LipiscanTM IVUS meets the cost 

criterion. We did not receive any public 

comments in this regard. Accordingly, 

we find that for FY 2011 LipiscanTM

IVUS meets the cost criterion. 

With regard to substantial clinical 

improvement, the applicant asserts that 

LipiScanTM IVUS lends all the same 

benefits of LipiScanTM by itself (see 

discussion of LipiScanTM with respect 

to clinical improvement in the above 

application analysis) and also gives 

added benefits of IVUS. Specifically, the 

applicant maintains that LipiScanTM

IVUS is superior to perfusion imaging 

and coronary angiography because those 

procedures only provide information 

about the lumen, but not the wall of the 

vessel. The applicant asserts that it is 

superior to IVUS (by itself) because 

IVUS alone cannot identify plaque 

composition. The applicant further 

maintains that LipiScanTM IVUS 

provides a substantial clinical benefit 

over Optical Coherence Tomography 

(OCT) because OCT cannot be used if 

blood is present in the field of view and 

identification of lipid by OCT is ‘‘timeconsuming with a requirement for 

expert interpretation.’’ In contrast, ‘‘the 

LipiScanTM IVUS signal is available 

immediately after the coronary pullback 

and does not require expert 

interpretation.’’ 

The applicant also states that 

LipiScanTM IVUS makes it possible to 

find the lipid core plaques that are 

strongly associated with peri-stenting 

MI and adverse events post-MI that 

current methods of diagnosis fail to 

find. 

Finally, the applicant asserts that 

LipiScanTM IVUS affects the 

management of the patient by improving 

the safety and efficacy of stenting. 

Further, the applicant states that while 

stenting has steadily improved, its 

results are not optimal in approximately 

30 percent of cases due to three 

problems: (1) Peri-stenting MI due to 

embolization of lipid core contents and 

side branch occlusion; (2) major adverse 

coronary events (MACE) post stenting 

from difficulties at the stented site; and 

(3) MACE post stenting for non-stented 

vulnerable sites. 

The applicant described three case 

studies where each of the above 

problems were addressed by use of the 

LipiScanTM IVUS. LipiScanTM IVUS 

achieves its utility to differentiate lipid 

core plaque from fibrotic plaque, a 

differentiation that cannot be made by 

angiography or grayscale IVUS. 

The applicant referenced the ‘‘700 

patient PROSPECT Study’’ which was 

presented at the Transcatheter 

Cardiovascular Therapeutic Conference 

in September 2009 and found that 20.4 

percent of patients experience a new 

event in the 3.4 years following stenting. 

The applicant pointed to that finding as 

evidence that there is a need for 

improved safety and efficacy of stenting 

and maintained that LipiscanTM offers 

clinicians the ability to make decisions 

that result in such improvements. We 

note that the applicant did make this 

assertion with regard to LipiscanTM and 

not LipiscanTM IVUS. 

The PROSPECT (Providing Regional 

Observations to Study Predictors of 

Events in the Coronary Tree) study is a 

cohort study of patients with acute 

coronary syndrome who underwent 

percutaneous coronary angioplasty and 

stenting (percutaneous coronary 

intervention). Following the procedure, 

angiography and IVUS were performed. 

If a patient had a subsequent event, a 

new angiogram and IVUS image were 

obtained and compared to the original 

results. The investigators reported that 

‘‘angiographically mild lesions with 

certain morphologic features on 

grayscale and IVUS present with a 3 

year cardiac event rate of 17%, versus 

other morphologies (indistinguishable 

by conventional angiograms) with three 

year event risks of less than 1%.’’ We are 

concerned that with this type of study 

design, it is not possible to determine 

whether the information for the IVUS 

image would have altered the 

angioplasty and stenting procedures 

since the images were collected after the 

procedure. The results are suggestive, 

but a prospective study is needed to 

determine the clinical utility of 

LipiScanTM and whether use of IVUS 

leads to changes in clinical practice or 

improvements in health outcomes. The 

PROSPECT study generated a 

hypothesis that use of IVUS may help 

determine which plaques are vulnerable 

to future events but further clinical 

research is needed to confirm this 

hypothesis. We note that the PROSPECT 

study was presented at the 

Transcatheter Cardiovascular 

Therapeutics Conference in 2009, but 

that the study results have yet to be 

published in a peer-reviewed journal. 

We also note that methods and 

conclusions from a study may change 

from what was verbally presented 

during the peer review process that is 

required to publish the study results. 

We are concerned that, in the 

LipiScanTM IVUS application, the 

applicant has generally repeated the 

statements made regarding use of 

LipiScanTM alone and has not provided 

information that indicates that 

combined use of LipiScanTM plus IVUS 

offers additional clinical benefit, 

although the applicant did maintain that 

the use of one catheter to co-register of 

the near infrared (NIR) mirrors and the 

ultrasound transducer can enhance the 

accuracy of output and can have safety 

benefits. Indeed, we note that most of 

the studies that were presented in an 

effort to demonstrate that LipiScanTM by 

itself was a substantial clinical 

improvement were also included to 

support the LipiScanTM IVUS 

application. The applicant did not 

present any published peer-reviewed 

journal articles that were specifically 

related to the clinical merits of the 

combined LipiScanTM IVUS device. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we welcomed public 

comments on whether the LipiScanTM

IVUS represents a substantial clinical 

improvement over existing technologies 

as well as public comments on what is 

the appropriate comparison device for 

LipiScanTM IVUS. 

Comment: Many of the commenters 

who supported the LipiScanTM

application also stated that, should the 

LipiScanTM IVUS receive FDA approval, 

they believed that it would offer similar 

benefits to the LipiScanTM. For this 

reason, these commenters were 

supportive of LipiScanTM IVUS being 

approved for the new technology add-on 

payments. The manufacturer 

commented that the LipiScanTM IVUS 

‘‘has been constructed and used 

successfully in seven patients in 

Rotterdam, Netherlands’’ and that it was 

featured in a live case presentation at 

‘‘EuroPCR,’’ ‘‘the leading meeting of 

interventional cardiologists in Europe.’’ 

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The manufacturer also stated that 

LipiScanTM IVUS provides the benefits 

of LipiScanTM and IVUS plus several 

synergistic benefits. Specifically, the 

manufacturer noted the co-registration 

of the near infrared (NIR) mirrors and 

the ultrasound transducer enhances the 

accuracy of the output. The IVUS shows 

the location of the catheter in the artery 

while the NIR enhances the 

interpretation of the grayscale IVUS 

image. The manufacturer stated that 

‘‘once NIR has clearly shown that a lipid 

core is present, it is possible to reexamine the IVUS image for features 

such as an estimate of cap thickness.’’ 

The manufacturer also stated that there 

are safety benefits associated with using 

one catheter to obtain both the NIR 

image and the IVUS image and noted 

that with each insertion of a catheter 

comes the risk of an adverse event such 

as a stroke or myocardial infarction. 

Additionally, the manufacturer stated 

that combining both technologies into 

one catheter reduces procedure time, 

radiation exposure and contrast 

utilization. The manufacturer stated that 

a peer-reviewed manuscript has been 

published by Garg, et al. 

Response: According to the applicant, 

there have only been seven cases in 

which the LipiScanTM IVUS has been 

used, none of them in the United States 

(and, ostensibly, none on a Medicare 

beneficiary). Despite the applicant’s 

claims that the combined LipiScanTM

IVUS technology enhances the benefits 

of either LipiScanTM or IVUS alone as 

well as LipiScanTM and IVUS used 

simultaneously, but with two separate 

catheters, we do not believe that there 

is enough clinical evidence relating to 

this technology to support this claim or 

to demonstrate that the technology is a 

substantial clinical improvement over 

other existing diagnostic technologies. 

That is, the evidence available at this 

time does not support that the 

LipiScanTM IVUS affects the medical 

management of the patient which, in 

turn, leads to improved clinical 

outcomes. We also note that we did not 

believe that there was enough clinical 

evidence available at this time to 

substantiate the claims that LipiScanTM

by itself is a substantial clinical 

improvement. To the extent that the 

same information was submitted to 

support the applicant’s LipiScanTM

IVUS application, we also find, for the 

reasons discussed above, that the 

evidence is insufficient to demonstrate 

that the LipiScanTM IVUS represents a 

substantial clinical improvement over 

existing technologies. The manuscript 

that the applicant referred to simply 

describes what the technology does and 

how it is used; it does not provide any 

details as to how the technology affects 

the medical management of patients nor 

does it provide evidence that use of the 

LipiScanTM IVUS ultimately leads to 

improved clinical outcomes for patients. 

Although we recognize that the 

combination of these two existing 

technologies may ultimately lead to 

better clinical outcomes for patients 

undergoing coronary stenting, no data is 

available at this time to support that 

notion. 

Accordingly, we are not approving the 

LipiScanTM IVUS device for new 

technology add-on payments for FY 

2011. 

III. Changes to the Hospital Wage Index 

for Acute Care Hospitals 

A. Background 

Section 1886(d)(3)(E) of the Act 

requires that, as part of the methodology 

for determining prospective payments to 

hospitals, the Secretary 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.’’ In 

accordance with the broad discretion 

conferred under the Act, we currently 

define hospital labor market areas based 

on the definitions of statistical areas 

established by the Office of Management 

and Budget (OMB). A discussion of the 

FY 2011 hospital wage index based on 

the statistical areas, including OMB’s 

revised definitions of Metropolitan 

Areas, appears under section III.C. of 

this preamble. 

Beginning October 1, 1993, section 

1886(d)(3)(E) of the Act requires that we 

update the wage index annually. 

Furthermore, this section of the Act 

provides that the Secretary base the 

update on a survey of wages and wagerelated costs of short-term, acute care 

hospitals. The survey must exclude the 

wages and wage-related costs incurred 

in furnishing skilled nursing services. 

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. The adjustment for FY 2011 is 

discussed in section II.B. of the 

Addendum to this final rule. 

As discussed below in section III.I. of 

this preamble, we also take into account 

the geographic reclassification of 

hospitals in accordance with sections 

1886(d)(8)(B) and 1886(d)(10) of the Act 

when calculating IPPS payment 

amounts. Under section 1886(d)(8)(D) of 

the Act, the Secretary is required to 

adjust the standardized amounts so as to 

ensure that aggregate payments under 

the IPPS after implementation of the 

provisions of sections 1886(d)(8)(B) and 

(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 2011 is discussed in 

section II.A.4.b. of the Addendum to 

this final rule. 

Section 1886(d)(3)(E) of the Act also 

provides for the collection of data every 

3 years on the occupational mix of 

employees for short-term, acute care 

hospitals participating in the Medicare 

program, in order to construct an 

occupational mix adjustment to the 

wage index. A discussion of the 

occupational mix adjustment that we 

are applying beginning October 1, 2010 

(the FY 2011 wage index) appears under 

section III.D. of this preamble. 

B. Wage Index Reform 

1. Wage Index Study Required Under 

the MIEA–TRHCA 

a. Legislative Requirement 

Section 106(b)(1) of the MIEA– 

TRHCA (Pub. L. 109–432) required 

MedPAC to submit to Congress, not later 

than June 30, 2007, a report on the 

Medicare wage index classification 

system applied under the Medicare 

IPPS. Section 106(b) of MIEA–TRHCA 

required the report to include any 

alternatives that MedPAC recommends 

to the method to compute the wage 

index under section 1886(d)(3)(E) of the 

Act. 

In addition, section 106(b)(2) of the 

MIEA–TRHCA instructed the Secretary 

of Health and Human Services, taking 

into account MedPAC’s 

recommendations on the Medicare wage 

index classification system, to include 

in the FY 2009 IPPS proposed rule one 

or more proposals to revise the wage 

index adjustment applied under section 

1886(d)(3)(E) of the Act for purposes of 

the IPPS. The Secretary was also to 

consider each of the following: 

• Problems associated with the 

definition of labor markets for the wage 

index adjustment. 

• The modification or elimination of 

geographic reclassifications and other 

adjustments. 

• The use of Bureau of Labor 

Statistics (BLS) data or other data or 

methodologies to calculate relative 

wages for each geographic area. 

• Minimizing variations in wage 

index adjustments between and within 

MSAs and statewide rural areas. 

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• The feasibility of applying all 

components of CMS’ proposal to other 

settings. 

• Methods to minimize the volatility 

of wage index adjustments while 

maintaining the principle of budget 

neutrality. 

• The effect that the implementation 

of the proposal would have on health 

care providers and on each region of the 

country. 

• Methods for implementing the 

proposal(s), including methods to phase 

in such implementations. 

• Issues relating to occupational mix 

such as staffing practices and any 

evidence on quality of care and patient 

safety including any recommendation 

for alternative calculations to the 

occupational mix. 

In the FY 2009 IPPS final rule (73 FR 

48563 through 48567), we discussed the 

MedPAC’s study and recommendations, 

the CMS contract with Acumen, L.L.C. 

for assistance with impact analysis and 

study of wage index reform, and public 

comments we received on the MedPAC 

recommendations and the CMS/ 

Acumen study and analysis. 

b. Interim and Final Reports on Results 

of Acumen’s Study 

(1) Interim Report on Impact Analysis of 

Using MedPAC’s Recommended Wage 

Index 

In the FY 2009 IPPS final rule (73 FR 

48566 through 48567), we discussed the 

analysis conducted by Acumen 

comparing use of the MedPAC 

recommended wage indices to the 

current CMS wage index. We refer 

readers to section III.B.1.e. of that final 

rule for a full discussion of the impact 

analysis as well as to Acumen’s interim 

report available on the Web site: http:// 

www.acumenllc.com/reports/cms. 

(2) Acumen’s Final Report on Analysis 

of the Wage Index Data and 

Methodology 

Acumen’s final report addressing the 

issues in section 106(b)(2) of the MIEA– 

TRHCA is divided into two parts. In the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 43824), we provided a 

description of Acumen’s analyses for 

both parts. The first part of Acumen’s 

final report analyzed the strengths and 

weaknesses of the data sources used to 

construct the MedPAC and CMS 

indexes. The first part of the report was 

published on Acumen’s Web site after 

the publication of the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule. In its 

conclusion, Acumen suggested that 

MedPAC’s recommended methods for 

revising the wage index represented an 

improvement over the existing methods, 

and that the BLS data should be used so 

that the MedPAC approach can be 

implemented. 

The second part of Acumen’s final 

report focuses on the methodology of 

wage index construction and covers 

issues related to the definition of wage 

areas and methods of adjusting for 

differences among neighboring wage 

areas, as well as reasons for differential 

impacts of shifting to a new index. 

Acumen published the second part of its 

final report in March 2010 on its Web 

site at: http://www./acumenllc.com/ 

reports/cms. In particular, the report 

analyzes MedPAC’s recommended 

method of improving upon the 

definition of the wage areas used in the 

current wage index. MedPAC’s method 

first blends MSA and county-level 

wages and then implements a 

‘‘smoothing’’ step that limits differences 

in wage index values between adjacent 

counties to no more than 10 percent. 

Acumen found MedPAC’s method to be 

an improvement over the current wage 

index construct. However, although 

MedPAC’s method diminishes the size 

of differences between adjacent areas, 

Acumen suggested that MedPAC’s 

method does not guarantee an accurate 

representation of a hospital labor market 

and would not necessarily eliminate or 

reduce hospitals’ desire to reclassify for 

a higher wage index. Acumen 

recommended further exploration of 

labor market area definitions using a 

wage area framework based on hospitalspecific characteristics, such as 

commuting times from hospitals to 

population centers, to construct a more 

accurate hospital wage index. Acumen 

suggested that such an approach offers 

the greatest potential for replacing or 

greatly reducing the need for hospital 

reclassifications and exceptions. 

We indicated in the FY 2009 IPPS 

final rule (73 FR 48566) that, in 

developing any proposal(s) for 

additional wage index reform that may 

be included in the FY 2010 IPPS 

proposed rule, we would consider all of 

the public comments on the MedPAC 

recommendations that we had received 

in that proposed rulemaking cycle, 

along with the interim and final reports 

to be submitted to us by Acumen. As 

Acumen’s study was not complete at the 

time of issuance of the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule, we 

did not propose any additional changes 

to the hospital wage index for the FY 

2010 IPPS. We also did not propose any 

additional changes regarding reforming 

the wage index for the FY 2011 IPPS. 

We welcomed comments regarding the 

second part of Acumen’s final report. 

Comment: Several commenters 

addressed the data source for 

constructing the wage index. One 

commenter supported the use of BLS 

data and suggested that a simplified, 

standard dataset will eliminate 

unnecessary reclassifications and 

inconsistencies among Medicare 

contractors and create a more valid 

wage index calculation. Other 

commenters reiterated the concerns 

about the shortcomings of the BLS data 

that they expressed in public comments 

summarized in the FY 2009 IPPS final 

rule (73 FR 48564). One commenter 

suggested that CMS use data that reflect 

the price of labor rather than the cost of 

labor in constructing the wage index. 

The commenter also suggested that the 

wage index include data from SNFs and 

other postacute care settings because the 

wage index is also applied in those 

Medicare provider payment systems. 

Regarding the methodology for 

constructing the wage index, several 

commenters shared Acumen’s concern 

that MedPAC’s blending and smoothing 

methodology may not be well suited for 

the Medicare wage index because it may 

mask actual geographic variations in 

wage levels. However, the commenters 

supported MedPAC’s suggestion of 

varying wage indices by more refined 

areas, such as counties. Several 

commenters also expressed interest in 

Acumen’s suggestion for further 

exploration of labor market area 

definitions based on hospital specific 

characteristics, such as the commuting 

times from hospitals to population 

centers. 

One national hospital association 

recommended that CMS consider the 

following guiding principles as it 

evaluates options for improving the 

wage index system: 

‘‘Any new system should— 

• Be fair and accurately reflect the labor 

marketplace for hospitals, e.g., consider only 

hospital wage and benefit costs rather than 

broader labor market costs; 

• Provide predictable payments; 

• Be stable; 

• Be transparent so that the data may be 

examined and verified; 

• Minimize the administrative burden on 

hospitals; 

• Utilize the most current information 

possible; 

• Define boundaries that capture 

meaningful relationships between labor 

markets, to reduce the need for exceptions 

and reclassifications; 

• Due to the imperfection of any current 

labor market definition that we are aware of, 

provide an exception process for hospitals 

with labor costs atypical for areas to which 

they have been assigned; 

• Use consistent definitions, 

methodologies, rules, and interpretations 

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across the nation for the acquisition and 

application of data; 

• Include a transition from the old to the 

new system that is not disruptive; it should 

include a phased-in transition period if 

necessary to protect hospitals from abrupt 

reductions in payment levels; and 

• Not let perfection be the enemy of the 

better.’’ 

Commenters generally urged CMS to 

move forward cautiously and ensure a 

thorough process for evaluating changes 

to the existing wage index. 

Response: As discussed in section 

III.B.4. of the preamble in this final rule, 

section 3137(b) of the Affordable Care 

Act requires the Secretary of Health and 

Human Services to submit to Congress, 

not later than December 31, 2011, a 

report that includes a plan to reform the 

Medicare wage index applied under the 

Medicare IPPS. We will consider the 

MedPAC’s and Acumen’s reports and 

findings, along with all of the public 

comments and suggestions we have 

received, as we evaluate ways for 

improving the wage index. 

2. FY 2009 Policy Changes in Response 

to Requirements Under Section 106(b) 

of the MIEA–TRHCA and Subsequent 

Changes Under Sections 3137(c) and 

3141 of the Affordable Care Act 

To implement the requirements of 

section 106(b) of the MIEA–TRHCA and 

respond to MedPAC’s recommendations 

in its June 2007 report to Congress, in 

the FY 2009 IPPS final rule (73 FR 

48567 through 48574), we made policy 

changes to the wage index relating to 

geographic reclassification average 

hourly wage comparison criteria and 

rural and imputed floor budget 

neutrality. (We refer readers to the FY 

2009 IPPS final rule for a full discussion 

of the basis for the proposals, the public 

comments received, and the FY 2009 

final policy.) In the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

43825), we reiterated these policy 

changes, especially as they related to the 

FY 2010 IPPS. However, provisions of 

the Affordable Care Act recently 

changed the reclassification average 

hourly wage comparison criteria and 

rural and imputed floor budget 

neutrality policies that we adopted in 

FY 2009. 

a. Reclassification Average Hourly Wage 

Comparison Criteria 

In the FY 2009 IPPS final rule, we 

adopted the policy to adjust the 

reclassification average hourly wage 

standard, comparing a reclassifying 

hospital’s (or county hospital group’s) 

average hourly wage relative to the 

average hourly wage of the area to 

which it seeks reclassification. (We refer 

readers to the FY 2009 IPPS final rule 

for a full discussion of the basis for the 

proposals the public comments received 

and the FY 2009 final policies.) We 

provided for a phase-in of the 

adjustment over 2 years. For 

applications for reclassification for the 

first transitional year, FY 2010, the 

average hourly wage standards were set 

at 86 percent for urban hospitals and 

group reclassifications, and 84 percent 

for rural hospitals. For applications for 

reclassification for FY 2011 (for which 

the application deadline was September 

1, 2009) and for subsequent fiscal years, 

the average hourly wage standards were 

88 percent for urban and group 

reclassifications and 86 percent for rural 

hospitals. Sections 412.230, 412.232, 

and 412.234 of the regulations were 

revised accordingly. These policies were 

adopted in the FY 2009 IPPS final rule 

and were reflected in the wage index in 

the Addendum to the FY 2011 IPPS 

proposed rule, which appeared in the 

Federal Register on May 4, 2010. 

However, as we discussed in the 

supplemental proposed rule to the FY 

2011 IPPS/LTCH PPS proposed rule 

issued in the Federal Register on June 

2, 2010 (75 FR 30919), the provisions of 

section 3137(c) of the Affordable Care 

Act revised the average hourly wage 

standards. Specifically, section 3137(c) 

restored the average hourly wage 

standards that were in place for FY 2008 

(that is, 84 percent for urban hospitals, 

85 percent for group reclassifications, 

and 82 percent for rural hospitals) for 

applications for reclassification for FY 

2011 and for each subsequent fiscal year 

until the first fiscal year beginning on or 

after the date that is one year after the 

Secretary of Health and Human Services 

submits a report to Congress on a plan 

for reforming the wage index under 

section 3137(b) of the Affordable Care 

Act. Section 3137(c) of the Affordable 

Care Act also requires the revised 

average hourly wage standards to be 

applied in a budget neutral manner. We 

note that section 3137(c) of the 

Affordable Care Act does not provide for 

the revised average hourly wage 

standards to be applied retroactively, 

nor does it change the statutory 

deadline for applications for 

reclassification for FY 2011. 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 13 months 

prior to the start of the fiscal year for 

which reclassification is sought 

(generally by September 1). For 

reclassifications for the FY 2011 wage 

index, the deadline for applications was 

September 1, 2009 (74 FR 43838). 

As we discussed in the June 2, 2010 

FY 2011 supplemental proposed rule 

(75 FR 30919 and 30920), in our 

proposed implementation of section 

3137(c) of the Affordable Care Act, we 

requested the assistance of the MGCRB 

in determining, for applications 

received by September 1, 2009, whether 

additional hospitals would qualify for 

reclassification for FY 2011 based on the 

revised average hourly wage standards 

of 84 percent for urban hospitals, 85 

percent for group reclassifications, and 

82 percent for rural hospitals restored 

by section 3137(c). We determined that 

18 additional hospitals would qualify 

for reclassification for FY 2011. In 

addition, 5 hospitals, for which the 

MGCRB granted reclassifications to their 

secondary requested areas for FY 2011, 

would qualify for reclassifications 

instead to their primary requested areas 

because they now meet the average 

hourly wage criteria to reclassify to 

those areas. Therefore, in accordance 

with § 412.278 of the regulations, in 

which paragraph (c) provides the 

Administrator discretionary authority to 

review any final decision of the 

MGCRB, we submitted a letter to the 

Administrator requesting that she 

review and amend the MGCRB’s 

decision and grant the 23 hospitals their 

requested reclassifications (or primary 

reclassifications) for FY 2011. The 

proposed wage index in the Addendum 

to the June 2, 2010 supplemental 

proposed rule (75 FR 30984) reflected 

these changes in hospital 

reclassifications, although the 

Administrator had not issued all of her 

decisions by the issuance date of the 

supplemental proposed rule. We stated 

that any changes to the FY 2011 wage 

index, as a result of the Administrator’s 

actual decision issued under 

§ 412.278(c), or an amendment of the 

Administrator’s decision issued under 

§ 412.278(g), would be reflected in the 

FY 2011 IPPS final rule. As a result of 

her review, the Administrator amended 

the MGCRB’s decision for 22 of the 23 

hospitals for the FY 2011 wage index. 

One hospital had decided to withdraw 

its approved reclassification for FYs 

2011 through 2013 and, instead, ‘‘fall 

back’’ to its prior reclassification for FYs 

2010 through 2012. (We refer readers to 

42 CFR 412.273 and the discussion on 

withdrawals, terminations, and ‘‘fall 

back’’ reclassifications in section 

III.I.3.a. of the preamble in this final 

rule.) 

In the June 2, 2010 supplemental 

proposed rule (75 FR 30973), we 

proposed to amend §§ 412.230, 412.232, 

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and 412.234 to reflect the average 

hourly wage reclassification criteria 

restored by section 3137(c) of the 

Affordable Care Act. 

Comment: Several commenters urged 

CMS to use its administrative discretion 

to open an additional short window of 

opportunity for FY 2011 reclassification 

application. The commenters stated that 

some hospitals did not meet the average 

hourly wage criteria in effect as of the 

September 1, 2009 deadline, and, 

therefore, did not apply for 

reclassification for FY 2011; however, 

they meet the revised criteria and 

should be allowed a fair and equitable 

opportunity to reclassify. The 

commenters suggested that only a fairly 

limited number of hospitals would 

apply, so the workloads for CMS and 

the MGCRB should be manageable. 

Response: As we discussed above, the 

deadline for application for 

reclassification is established through 

statute, under section 1886(d)(10) of the 

Act. Therefore, we believe that if the 

Congress had intended for hospitals to 

be afforded another opportunity to 

apply for reclassification for FY 2011 

due to the revisions made by section 

3137(c) of the Affordable Care Act, the 

Congress also would have established 

such opportunity through a provision of 

the law. We also believe that the 

commenters may have underestimated 

the workload and time required for the 

suggested additional window of 

opportunity and that such opportunity, 

instead, would have been very 

disruptive to the development and 

publication of the IPPS proposed and 

final rates for FY 2011. Given the 

amount of time it would have taken 

after the March 23, 2010 enactment date 

of the law for CMS to (1) Establish and 

implement a process for the additional 

application period, (2) allow hospitals 

sufficient time to submit their 

applications to the MGCRB, and (3) 

allow a sufficient period of time for the 

MGCRB to review the applications and 

make its decisions, the additional 

reclassifications would not have been 

determined in time for inclusion in the 

FY 2011 IPPS/LTCH PPS proposed rule 

or the supplemental proposed rule, and 

there would not be sufficient time to 

gather and consider comments regarding 

the effects of this application period on 

other nonreclassified hospitals as well 

as the hospitals that were able to take 

advantage of the second window for 

application. 

We believe that our proposed 

implementation of section 3137(c) is the 

least disruptive and intended approach. 

Therefore, we are adopting our proposal 

as final in this FY 2011 IPPS/LTCH PPS 

final rule. The wage index in the 

Addendum to this final rule reflects the 

reclassifications that resulted from the 

Administrator’s reversal of the MGCRB’s 

decision for 22 hospitals that applied by 

September 1, 2009 and meet the revised 

average hourly wage criteria. In 

addition, we are adopting as final, 

without modification, the proposed 

revisions to §§ 412.230, 412.232, and 

412.234 of the regulations to codify the 

revised average hourly wage criteria. 

b. Budget Neutrality Adjustment for the 

Rural and Imputed Floors 

In the FY 2009 IPPS final rule (73 FR 

48574 through 48575), we adopted State 

level budget neutrality (rather than the 

national budget neutrality adjustment) 

for the rural and imputed floors, 

effective beginning with the FY 2009 

wage index and incorporated this policy 

in our regulation at § 412.64(e)(4). 

Specifically, the regulations specified 

that CMS makes an adjustment to the 

wage index to ensure that aggregate 

payments after implementation of the 

rural floor under section 4410 of the 

Balanced Budget Act of 1997 (Pub. L. 

105–33) and the imputed floor under 

§ 412.64(h)(4) are made in a manner that 

ensures that aggregate payments to 

hospitals are not affected and that, 

beginning October 1, 2008, we would 

transition from a nationwide adjustment 

to a statewide adjustment, with a 

statewide adjustment fully in place by 

October 1, 2010. 

These policies for the rural and 

imputed floors were adopted in the FY 

2009 IPPS final rule and were reflected 

in the proposed wage index in the 

Addendum to the FY 2011 IPPS/LTCH 

PPS proposed rule, published in the 

Federal Register on May 4, 2010 (75 FR 

23937 and 23938). However, as we 

discussed in the June 2, 2010 

supplemental FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 30920), these 

policies were recently changed by the 

provisions of section 3141 of the 

Affordable Care Act. Specifically, 

section 3141 of the Affordable Care Act 

rescinded our policy that established a 

statewide budget neutrality adjustment 

for the rural and imputed floors and, 

instead, restored a uniform, national 

adjustment to the area wage index, 

beginning with the FY 2011 wage index. 

In addition, we note that the imputed 

floor is set to expire on September 30, 

2011. As we indicated in the 

supplemental proposed rule, we are not 

reading the language of section 3141 of 

the Affordable Care Act as altering this 

expiration date. Section 3141 of the 

Affordable Care Act requires that the 

Secretary ‘‘administer subsection (b) of 

such section 4410 and paragraph (e) of 

* * * section 412.64 in the same 

manner as the Secretary administered 

such subsection (b) and paragraph (e) 

for discharges occurring during fiscal 

year 2008 (through a uniform, national 

adjustment to the area wage index).’’ 

Thus, section 3141 of the Affordable 

Care Act is governing how we apply 

budget neutrality, under the authorities 

of § 412.64(e) and section 4410(b) of the 

Balanced Budget Act, but it does not 

alter § 412.64(h) of our regulations 

(which includes the imputed floor and 

its expiration date). To the extent there 

is an imputed floor, section 3141 of the 

Affordable Care Act governs budget 

neutrality for that floor, but it does not 

continue the imputed floor beyond the 

expiration date already included in our 

regulations. 

In the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule issued in 

the Federal Register on June 2, 2010, we 

proposed to revised the regulations at 

§ 412.64(e) to reflect the changes made 

by section 3141 of the Affordable Care 

Act that restored a uniform, national 

adjustment to the area wage index, 

beginning with the FY 2011 wage index. 

We did not propose any other special 

rules or procedures for implementing 

the provisions of section 3141. 

Comment: A few commenters favored 

the provision of section 3141 to restore 

the national adjustment to the wage 

index; other commenters objected to the 

provision. 

Response: We appreciate the support 

of the commenters. Regarding the 

comment objecting to the provision, we 

are obligated to implement the 

provisions of the law. 

In accordance with the law, we are 

adopting as a final policy in this final 

rule, a uniform, national budget 

neutrality adjustment for the rural and 

imputed floors, which, for FY 2011, is 

a factor of 0.996641. The wage index in 

the Addendum to this final rule reflects 

this policy. In addition, we are adopting 

as final, without modification, the 

proposed changes to § 412.64(e) of the 

regulations to incorporate the 

restoration provisions of section 3141 of 

the Affordable Care Act. 

3. Floor for Area Wage Index for 

Hospitals in Frontier States 

Section 10324(a)(1) of the Affordable 

Care Act amended section 1886(d)(3)(E) 

of the Act by adding a provision under 

new subsection (iii) to establish an 

adjustment to create a wage index floor 

of 1.00 for all hospitals located in States 

determined to be ‘‘frontier States,’’ 

beginning in FY 2011. The new section 

1886(d)(3)(E)(iii)(II) of the Act defines a 

‘‘frontier State’’ as a State in which at 

least 50 percent of the counties in the 

State are determined to be ‘‘frontier 

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counties.’’ The new section 

1886(d)(3)(E)(iii)(III) of the Act defines a 

‘‘frontier county’’ as a county in which 

the population per square mile is less 

than 6 persons. The new section 

1886(d)(3)(E)(iii)(IV) of the Act specifies 

that this provision for the frontier State 

floor shall not apply to hospitals that are 

receiving a nonlabor-related share 

adjustment under section 1886(d)(5)(H) 

of the Act, that is, hospitals in Alaska 

or Hawaii. 

To implement the provision for the 

frontier State floor adjustment, in the FY 

2011 IPPS/LTCH PPS supplemental 

proposed rule published in the Federal 

Register on June 2, 2010 (75 FR 30920), 

we proposed to identify frontier 

Counties by analyzing population data 

and county definitions based upon the 

most recent annual Population 

Estimates published by the U.S. Census 

Bureau. We proposed to divide each 

county’s population total by each 

county’s reported land area (according 

to the decennial census) in square miles 

to establish population density. We also 

proposed to update this analysis from 

time to time, such as upon publication 

of a subsequent decennial census and, if 

necessary, add or remove qualifying 

States from the list of frontier States 

based on the updated analysis. 

In accordance with section 

1886(d)(3)(E)(iii) of the Act, as added by 

section 10324(a)(1) of the Affordable 

Care Act, all PPS hospitals located 

within a State that qualifies as a frontier 

State will receive either the higher of its 

post-reclassification wage index rate, or 

a wage index with a minimum value of 

1.00. In the June 2, 2010 supplemental 

proposed rule, we proposed that, for a 

hospital that is geographically located in 

a frontier State and is reclassified under 

section 1886(d)(10) of the Act to a CBSA 

in a non-frontier State, the hospital 

would receive a wage index that is the 

higher of the reclassified area wage 

index or the minimum wage index of 

1.00. In accordance with section 

10324(a)(2) of the Affordable Care Act, 

the frontier State adjustment will not be 

subject to budget neutrality under 

section 1886(d)(3)(E) of the Act, and 

will only be extended to hospitals 

geographically located within a Frontier 

State. In the June 2, 2010 supplemental 

proposed rule, we proposed to calculate 

and apply the frontier State floor 

adjustments after rural and imputed 

floor budget neutrality adjustments are 

calculated for all labor market areas, so 

as to ensure that no hospital in a 

Frontier State will receive a wage index 

of less than 1.00 due to the rural and 

imputed floor adjustment. We invited 

public comment on these proposals 

regarding our methods for determining 

frontier States, and for calculation and 

application of the adjustment. 

In the June 2, 2010 supplemental 

proposed rule (75 FR 30971), we 

proposed to establish a new paragraph 

(m) under § 412.64 to incorporate the 

provisions of section 1886(d)(3)(E)(iii) of 

the Act, as added by section 10324(a)(1) 

of the Affordable Care Act. 

Comment: Commenters supported the 

proposed methods for implementation 

of the frontier States floor adjustment to 

the area wage index provided for under 

section 1886(d)(3)(E)(iii) of the Act. 

Response: We appreciate the 

commenters’ support. 

In this final rule, we are 

implementing the frontier State floor 

adjustment using the criteria described 

above that we are finalizing in this final 

rule. For the final FY 2011 IPPS wage 

indices, based on the criteria described 

above, we identified the following 

frontier States that will receive the floor 

adjustment for FY 2011. These frontier 

States also are identified by a footnote 

in Table 4D–2 of the Addendum to this 

final rule. 

FRONTIER STATES IDENTIFIED FOR THE FY 2011 WAGE INDEX FLOOR ADJUSTMENT UNDER SECTION 10324(a) OF THE

AFFORDABLE CARE ACT

State Total 

counties 

Frontier 

counties 

Percent of 

counties 

identified as 

frontier 

Montana ................................................................................................................................................... 56 45 80 

Wyoming .................................................................................................................................................. 23 17 74 

North Dakota ............................................................................................................................................ 53 36 68 

Nevada ..................................................................................................................................................... 17 11 65 

South Dakota ........................................................................................................................................... 66 34 52 

Figures in table based on: 

—Population Data set available at: http://www.census.gov/popest/estimates.html (2009 County Total Population Estimates). 

—Land Area Dataset available at: http://factfinder.census.gov/ (Decennial Census Geographic Comparison Tables: ‘‘United States—County by 

State and for Puerto Rico’’). 

After consideration of the public 

comments we received, we are adopting 

as final, without modification, the 

proposed addition of new paragraph (m) 

under § 412.64 of the regulations to 

incorporate the provisions of section 

1886(d)(3)(E)(iii) of the Act, as added by 

section 10324(a)(1) of the Affordable 

Care Act, by specifying the criteria for 

adjusting the wage index to account for 

the frontier State floor adjustment, the 

amount of the wage index adjustment, 

and our process for determining and 

posting the wage index adjustments. 

4. Plan for Reforming the Wage Index 

Under Section 3137(b) of Affordable 

Care Act 

As we discussed in the June 2, 2010 

supplemental proposed rule (75 FR 

30919), section 3137(b) of the 

Affordable Care Act requires the 

Secretary of Health and Human Services 

to submit to Congress, not later than 

December 31, 2011, a report that 

includes a plan to reform the Medicare 

wage index applied under the Medicare 

IPPS. In developing the plan, the 

Secretary of Health and Human Services 

must take into consideration the goals 

for reforming the wage index that were 

set forth by MedPAC in its June 2007 

report entitled, ‘‘Report to Congress: 

Promoting Greater Efficiency in 

Medicare’’, including establishing a new 

system that— 

• Uses Bureau of Labor of Statistics 

(BLS) data, or other data or 

methodologies, to calculate relative 

wages for each geographic area; 

• Minimizes wage index adjustments 

between and within MSAs and 

statewide rural areas; 

• Includes methods to minimize the 

volatility of wage index adjustments 

while maintaining budget neutrality in 

applying such adjustments; 

• Takes into account the effect that 

implementation of the system would 

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have on health care providers and on 

each region of the country; 

• Addresses issues related to 

occupational mix, such as staffing 

practices and ratios, and any evidence 

on the effect on quality of care or patient 

safety as a result of the implementation 

of the system; and 

• Provides for a transition. 

In addition, section 3137(b)(3) of the 

Affordable Care Act requires the 

Secretary of Health and Human Services 

to consult with relevant affected parties 

in developing the plan. Although the 

provisions of section 3137(b) of the 

Affordable Care Act will not have an 

actual impact on the FY 2011 wage 

index, we notified the public of the 

provisions in the supplemental 

proposed rule so that they would have 

an opportunity to provide comments 

and suggestions on how they may 

participate in developing the plan. 

Comment: A few commenters 

encouraged CMS to involve the industry 

in the process. One commenter in 

particular suggested that CMS should 

adopt an advisory commission approach 

in addressing future changes to the wage 

index. 

Response: We will consider these 

suggestions in developing our plan for 

meeting the requirements of section 

3137(b) of the Affordable Care Act. 

C. Core-Based Statistical Areas for the 

Hospital Wage Index 

The wage index is calculated and 

assigned to hospitals on the basis of the 

labor market area in which the hospital 

is located. In accordance with the broad 

discretion under section 1886(d)(3)(E) of 

the Act, beginning with FY 2005, we 

define hospital labor market areas based 

on the Core-Based Statistical Areas 

(CBSAs) established by OMB and 

announced in December 2003 (69 FR 

49027). For a discussion of OMB’s 

revised definitions of CBSAs and our 

implementation of the CBSA 

definitions, we refer readers to the 

preamble of the FY 2005 IPPS final rule 

(69 FR 49026 through 49032). 

As with the FY 2010 final rule, in the 

FY 2011 proposed rule, we proposed to 

provide that hospitals receive 100 

percent of their wage index based upon 

the CBSA configurations. Specifically, 

for each hospital, we proposed to 

determine a wage index for FY 2011 

employing wage index data from 

hospital cost reports for cost reporting 

periods beginning during FY 2007 and 

using the CBSA labor market 

definitions. We consider CBSAs that are 

MSAs to be urban, and CBSAs that are 

Micropolitan Statistical Areas as well as 

areas outside of CBSAs to be rural. In 

addition, it has been our longstanding 

policy that where an MSA has been 

divided into Metropolitan Divisions, we 

consider the Metropolitan Division to 

comprise the labor market areas for 

purposes of calculating the wage index 

(69 FR 49029) (regulations at 

§ 412.64(b)(1)(ii)(A)). 

On December 1, 2009, OMB 

announced changes to the principal 

cities and, if applicable, titles of a 

number of CBSAs and Metropolitan 

Divisions (OMB Bulletin No. 10–2). The 

changes to the principal cities and titles 

are as follows: 

• San Marcos, TX qualifies as a new 

principal city of the Austin-Round 

Rock, TX CBSA. The new title is AustinRound Rock-San Marcos, TX CBSA. 

• Delano, CA qualifies as a new 

principal city of the Bakersfield, CA 

CBSA. The new title: BakersfieldDelano, CA CBSA. 

• Conroe, TX qualifies as a new 

principal city of the Houston-Sugar 

Land-Baytown, TX CBSA. The CBSA 

title is unchanged. 

• North Port, FL qualifies as a new 

principal city of the Bradenton-SarasotaVenice, FL CBSA. The new title is North 

Port-Bradenton-Sarasota, FL CBSA. The 

new code is CBSA 35840. 

• Sanford, FL qualifies as a new 

principal city of the OrlandoKissimmee, FL CBSA. The new title is 

Orlando-Kissimmee-Sanford, FL CBSA. 

• Glendale, AZ qualifies as a new 

principal city of the Phoenix-MesaScottsdale, AZ CBSA. The new title is 

Phoenix-Mesa-Glendale, AZ CBSA. 

• Palm Desert, CA qualifies as a new 

principal city of the Riverside-San 

Bernardino-Ontario, CA CBSA. The 

CBSA title is unchanged. 

• New Braunfels, TX qualifies as a 

new principal city of the San Antonio, 

TX CBSA. The new title is San AntonioNew Braunfels, TX CBSA. 

• Auburn, WA qualifies as a new 

principal city of the Seattle-TacomaBellevue, WA CBSA. The CBSA title is 

unchanged. 

The changes to titles resulting from 

changes to the order of principal cities 

based on population are as follows: 

• Rockville, MD replaces Frederick, 

MD as the second most populous 

principal city in the Bethesda-FrederickRockville, MD Metropolitan Division. 

The new title is Bethesda-RockvilleFrederick, MD Metropolitan Division. 

• Rock Hill, SC replaces Concord, NC 

as the third most populous principal 

city in the Charlotte-Gastonia-Concord, 

NC-SC CBSA. The new title is CharlotteGastonia-Rock Hill, NC-SC CBSA. 

• Joliet, IL replaces Naperville, IL as 

the second most populous principal city 

in the Chicago-Naperville-Joliet, IL 

Metropolitan Division. The new title is 

Chicago-Joliet-Naperville, IL 

Metropolitan Division. 

• Crestview, FL replaces Fort Walton 

Beach, FL as the most populous 

principal city in the Fort Walton BeachCrestview-Destin, FL CBSA. The new 

title is Crestview-Fort Walton BeachDestin, FL CBSA. The new code is 

18880. 

• Hillsboro, OR replaces Beaverton, 

OR as the third most populous principal 

city in the Portland-VancouverBeaverton, OR-WA CBSA. The new title 

is Portland-Vancouver-Hillsboro, 

OR-WA CBSA. 

• Steubenville, OH replaces Weirton, 

WV as the most populous principal city 

in the Weirton-Steubenville, WV-OH 

CBSA. The new title is SteubenvilleWeirton, OH-WV CBSA. The new CBSA 

code is 44600. 

The OMB bulletin is available on the 

OMB Web site at http:// 

www.whitehouse.gov/OMB—go to 

‘‘Agency Information’’ and click on 

‘‘Bulletins’’. 

We received one public comment on 

the proposed rule that commended CMS 

for continuing to incorporate OMB 

changes to the geographic area 

definitions used under the IPPS. CMS 

will apply these changes to the IPPS 

beginning October 1, 2010. 

D. Occupational Mix Adjustment to the 

FY 2011 Wage Index 

As stated earlier, section 1886(d)(3)(E) 

of the Act provides for the collection of 

data every 3 years on the occupational 

mix of employees for each short-term, 

acute care hospital participating in the 

Medicare program, in order to construct 

an occupational mix adjustment to the 

wage index, for application beginning 

October 1, 2004 (the FY 2005 wage 

index). The purpose of the occupational 

mix adjustment is to control for the 

effect of hospitals’ employment choices 

on the wage index. For example, 

hospitals may choose to employ 

different combinations of registered 

nurses, licensed practical nurses, 

nursing aides, and medical assistants for 

the purpose of providing nursing care to 

their patients. The varying labor costs 

associated with these choices reflect 

hospital management decisions rather 

than geographic differences in the costs 

of labor. 

1. Development of Data for the FY 2011 

Occupational Mix Adjustment Based on 

the 2007–2008 Occupational Mix 

Survey 

As provided for under section 

1886(d)(3)(E) of the Act, we collect data 

every 3 years on the occupational mix 

of employees for each short-term, acute 

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care hospital participating in the 

Medicare program. 

For the FY 2010 hospital wage index, 

we used occupational mix data 

collected on a revised 2007–2008 

Medicare Wage Index Occupational Mix 

Survey (the 2007–2008 survey) to 

compute the occupational mix 

adjustment for FY 2010. (We refer 

readers to the FY 2010 IPPS final rule 

(74 FR 43827) for a detailed discussion 

of the 2007–2008 survey.) Again, for the 

FY 2011 hospital wage index, we used 

data from the 2007–2008 survey 

(including revised data for 45 hospitals) 

to compute the FY 2011 adjustment. 

2. New 2010 Occupational Mix Survey 

for the FY 2013 Wage Index 

As stated earlier, section 304(c) of 

Public Law 106–554 amended section 

1886(d)(3)(E) of the Act to require CMS 

to collect data every 3 years on the 

occupational mix of employees for each 

short-term, acute care hospital 

participating in the Medicare program. 

We used occupational mix data 

collected on the 2007–2008 survey to 

compute the occupational mix 

adjustment for FY 2010 and the FY 2011 

wage index in this final rule. We also 

plan to use the 2007–2008 survey data 

for the FY 2012 wage index. Therefore, 

a new measurement of occupational mix 

will be required for FY 2013. 

Since we implemented the 2007–2008 

survey, we received several public 

comments suggesting further 

improvements to the occupational mix 

survey. Specifically, commenters 

recommended that CMS use the 

calendar year (that is, January 1 through 

December 31) as the 1-year reporting 

period instead of July 1 through June 30. 

Commenters also requested that CMS 

allow for a 6-month period after the end 

of the survey reporting period for 

hospitals to complete and submit their 

data to their Medicare fiscal 

intermediaries and MACs. The 

commenters suggested that these 

changes will allow hospitals more time 

to develop their occupational mix data 

before submitting the data to the 

Medicare contractors and CMS for use 

in development of the wage index. 

Based on these comments, we revised 

the occupational mix survey. The new 

2010 survey (Form CMS–10079 (2010)) 

will provide for the collection of 

hospital-specific wages and hours data 

for calendar year 2010 (that is, payroll 

periods ending between January 1, 2010 

and December 31, 2010) and will be 

applied beginning with the FY 2013 

wage index. 

On September 4, 2009, we published 

in the Federal Register a notice 

soliciting comments on the proposed 

2010 survey (74 FR 45860). The 

comment period for the notice ended on 

November 3, 2009. After considering the 

comments we received, we made a few 

minor editorial changes and published 

the final 2010 survey in the Federal 

Register on January 15, 2010 (75 FR 

2548). The survey was approved by 

OMB on February 26, 2010 (OMB 

control number 0938–0907) and is 

available on the CMS Web site at: 

http://www.cms.hhs.gov/

AcuteInpatientPPS/WIFN/ 

list.asp#TopOfPage, and through the 

fiscal intermediaries/MACs. Hospitals 

are required to submit their completed 

2010 surveys to their fiscal 

intermediaries/MACs by July 1, 2011. 

The preliminary, unaudited 2010 survey 

data will be released in early October 

2011, along with the FY 2009 Worksheet 

S–3 wage data, for the FY 2013 wage 

index review and correction process. 

Although, in the FY 2011 proposed 

rule, we did not propose any changes or 

solicit comments pertaining to the 2010 

occupational mix survey, we received 

one comment that commended CMS for 

its decision to provide for a calendar 

year reporting period and a submission 

deadline that is 6 months after the end 

of the reporting period. The commenter 

believed that this timeframe will 

increase both the survey’s accuracy and 

submission rate. 

3. Calculation of the Occupational Mix 

Adjustment for FY 2011 

For FY 2011 (as we did for FY 2010), 

we calculated the occupational mix 

adjustment factor using the following 

steps: 

Step 1—For each hospital, determine 

the percentage of the total nursing 

category attributable to a nursing 

subcategory by dividing the nursing 

subcategory hours by the total nursing 

category’s hours. Repeat this 

computation for each of the four nursing 

subcategories: Registered nurses; 

licensed practical nurses; nursing aides, 

orderlies, and attendants; and medical 

assistants. 

Step 2—Determine a national average 

hourly rate for each nursing subcategory 

by dividing a subcategory’s total salaries 

for all hospitals in the occupational mix 

survey database by the subcategory’s 

total hours for all hospitals in the 

occupational mix survey database. 

Step 3—For each hospital, determine 

an adjusted average hourly rate for each 

nursing subcategory by multiplying the 

percentage of the total nursing category 

(from Step 1) by the national average 

hourly rate for that nursing subcategory 

(from Step 2). Repeat this calculation for 

each of the four nursing subcategories. 

Step 4—For each hospital, determine 

the adjusted average hourly rate for the 

total nursing category by summing the 

adjusted average hourly rate (from Step 

3) for each of the nursing subcategories. 

Step 5—Determine the national 

average hourly rate for the total nursing 

category by dividing total nursing 

category salaries for all hospitals in the 

occupational mix survey database by 

total nursing category hours for all 

hospitals in the occupational mix 

survey database. 

Step 6—For each hospital, compute 

the occupational mix adjustment factor 

for the total nursing category by 

dividing the national average hourly 

rate for the total nursing category (from 

Step 5) by the hospital’s adjusted 

average hourly rate for the total nursing 

category (from Step 4). 

If the hospital’s adjusted average 

hourly rate is less than the national 

average hourly rate (indicating the 

hospital employs a less costly mix of 

nursing employees), the occupational 

mix adjustment factor is greater than 

1.0000. If the hospital’s adjusted average 

hourly rate is greater than the national 

average hourly rate, the occupational 

mix adjustment factor is less than 

1.0000. 

Step 7—For each hospital, calculate 

the occupational mix adjusted salaries 

and wage-related costs for the total 

nursing category by multiplying the 

hospital’s total salaries and wage-related 

costs (from Step 5 of the unadjusted 

wage index calculation in section III.G. 

of this preamble) by the percentage of 

the hospital’s total workers attributable 

to the total nursing category (using the 

occupational mix survey data, this 

percentage is determined by dividing 

the hospital’s total nursing category 

salaries by the hospital’s total salaries 

for ‘‘nursing and all other’’) and by the 

total nursing category’s occupational 

mix adjustment factor (from Step 6 

above). 

The remaining portion of the 

hospital’s total salaries and wage-related 

costs that is attributable to all other 

employees of the hospital is not 

adjusted by the occupational mix. A 

hospital’s all other portion is 

determined by subtracting the hospital’s 

nursing category percentage from 100 

percent. 

Step 8—For each hospital, calculate 

the total occupational mix adjusted 

salaries and wage-related costs for a 

hospital by summing the occupational 

mix adjusted salaries and wage-related 

costs for the total nursing category (from 

Step 7) and the portion of the hospital’s 

salaries and wage-related costs for all 

other employees (from Step 7). 

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50164 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

To compute a hospital’s occupational 

mix adjusted average hourly wage, 

divide the hospital’s total occupational 

mix adjusted salaries and wage-related 

costs by the hospital’s total hours (from 

Step 4 of the unadjusted wage index 

calculation in section III.G. of this 

preamble). 

Step 9—To compute the occupational 

mix adjusted average hourly wage for an 

urban or rural area, sum the total 

occupational mix adjusted salaries and 

wage-related costs for all hospitals in 

the area, then sum the total hours for all 

hospitals in the area. Next, divide the 

area’s occupational mix adjusted 

salaries and wage-related costs by the 

area’s hours. 

Step 10—To compute the national 

occupational mix adjusted average 

hourly wage, sum the total occupational 

mix adjusted salaries and wage-related 

costs for all hospitals in the Nation, then 

sum the total hours for all hospitals in 

the Nation. Next, divide the national 

occupational mix adjusted salaries and 

wage-related costs by the national 

hours. The FY 2011 occupational mix 

adjusted national average hourly wage is 

$34.9664. 

Step 11—To compute the 

occupational mix adjusted wage index, 

divide each area’s occupational mix 

adjusted average hourly wage (Step 9) 

by the national occupational mix 

adjusted average hourly wage (Step 10). 

Step 12—To compute the Puerto Rico 

specific occupational mix adjusted wage 

index, follow Steps 1 through 11 above. 

The FY 2011 occupational mix adjusted 

Puerto Rico-specific average hourly 

wage is $14.7620. 

The table below is an illustrative 

example of the occupational mix 

adjustment. 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C Because the occupational mix 

adjustment is required by statute, all 

hospitals that are subject to payments 

under the IPPS, or any hospital that 


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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 

2011 wage index. For the FY 2007–2008 

survey, the response rate was 91.1 

percent. 

In computing the FY 2011 wage 

index, if a hospital did not respond to 

the occupational mix survey, or if we 

determined that a hospital’s submitted 

data were too erroneous to include in 

the wage index, we assigned the 

hospital the average occupational mix 

adjustment for the labor market area. 

This method has the least impact on the 

wage index for other hospitals in the 

area. For areas where no hospital 

submitted data for purposes of 

calculating the occupational mix 

adjustment, we applied the national 

occupational mix factor of 1.0000 in 

calculating the area’s FY 2011 

occupational mix adjusted wage index. 

In addition, if a hospital submitted a 

survey, but that survey data could not 

be used because we determine it to be 

aberrant, we also assigned the hospital 

the average occupational mix 

adjustment for its labor market area. For 

example, if a hospital’s individual nurse 

category average hourly wages were out 

of range (that is, unusually high or low), 

and the hospital did not provide 

sufficient documentation to explain the 

aberrancy, or the hospital did not 

submit any registered nurse salaries or 

hours data, we assigned the hospital the 

average occupational mix adjustment for 

the labor market area in which it is 

located. 

In calculating the average 

occupational mix adjustment factor for 

a labor market area, we replicated Steps 

1 through 6 of the calculation for the 

occupational mix adjustment. However, 

instead of performing these steps at the 

hospital level, we aggregated the data at 

the labor market area level. In following 

these steps, for example, for CBSAs that 

contain providers that did not submit 

occupational mix survey data, the 

occupational mix adjustment factor 

ranged from a low of 0.9249 (CBSA 

17780, College Station-Bryan, TX), to a 

high of 1.1196 (CBSA 40980, SaginawSaginaw Township North, MI). Also, in 

computing a hospital’s occupational 

mix adjusted salaries and wage-related 

costs for nursing employees (Step 7 of 

the calculation), in the absence of 

occupational mix survey data, we 

multiplied the hospital’s total salaries 

and wage-related costs by the 

percentage of the area’s total workers 

attributable to the area’s total nursing 

category. For FY 2011, there are five 

CBSAs (that include six hospitals) for 

which we did not have occupational 

mix data for any of its hospitals. The 

CBSAs are: 

• CBSA 21940 Fajardo, PR (one 

hospital) 

• CBSA 22140 Farmington, NM (one 

hospital) 

• CBSA 36140 Ocean City, NJ (one 

hospital) 

• CBSA 41900 San German-Cabo 

Rojo, PR (two hospitals) 

• CBSA 49500 Yauco, PR (one 

hospital) 

Since the FY 2007 IPPS final rule, we 

have periodically discussed applying a 

hospital-specific penalty to hospitals 

that fail to submit occupational mix 

survey data. (See 71 FR 48013 through 

48014; 72 FR 47314 through 47315; 73 

FR 48580; and 74 FR 43832.) During the 

FY 2008 rulemaking cycle, some 

commenters suggested a penalty equal 

to a 1- to 2-percent reduction in the 

hospital’s wage index value or a set 

percentage of the standardized amount. 

During the FY 2009 and FY 2010 

rulemaking cycles, several commenters 

reiterated their view that full 

participation in the occupational mix 

survey is critical, and that CMS should 

develop a methodology that encourages 

hospitals to report occupational mix 

survey data but does not unfairly 

penalize neighboring hospitals. We 

indicated in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule that, while we 

were not proposing a penalty at that 

time, we would consider the public 

comments we previously received, as 

well as any public comments on the 

proposed rule, as we develop the 

proposed FY 2011 wage index. 

In the FY 2011 proposed rule, we 

stated that, in order to gain a better 

understanding of why some hospitals 

are not submitting the occupational mix 

data, we will require hospitals that do 

not submit occupational mix data to 

provide an explanation for not 

complying. This requirement will be 

effective beginning with the new 2010 

occupational mix survey (the 2010 

survey is discussed in section III.D.2. of 

this preamble). We will instruct fiscal 

intermediaries/MACs to begin gathering 

this information as part of the FY 2013 

wage index desk review process. We 

note that we reserve the right to apply 

a different approach in future years, 

including potentially penalizing 

nonresponsive hospitals. 

Comment: One commenter stated that 

it is unfair that some hospitals do not 

submit occupational mix data, while 

others consistently submit their data. 

The commenter also stated that there are 

presently no incentives for hospitals to 

submit occupational mix data, but 

praised CMS for beginning to take steps 

to address the issue by proposing to 

require hospitals that do not submit the 

data to provide an explanation for their 

noncompliance. The commenter 

suggested that CMS should still 

implement some kind of penalty in the 

form of a negative percentage 

adjustment to hospitals that do not 

submit occupational mix data, similar to 

what is done with hospitals that fail to 

submit quality data, in order to provide 

a greater motivation for hospitals to 

submit their occupational mix data. 

Response: We appreciate this 

comment and will consider it as we 

continue to monitor and assess how to 

address hospitals’ failure to submit 

occupational mix data for the wage 

index. 

E. Worksheet S–3 Wage Data for the FY 

2011 Wage Index 

The final FY 2011 wage index values 

are based on the data collected from the 

Medicare cost reports submitted by 

hospitals for cost reporting periods 

beginning in FY 2007 (the FY 2010 wage 

index was based on data from cost 

reporting periods beginning during FY 

2006). 

1. Included Categories of Costs 

The final FY 2011 wage index 

includes the following categories of data 

associated with costs paid under the 

IPPS (as well as outpatient costs): 

• Salaries and hours from short-term, 

acute care hospitals (including paid 

lunch hours and hours associated with 

military leave and jury duty) 

• Home office costs and hours 

• Certain contract labor costs and 

hours (which includes direct patient 

care, certain top management, 

pharmacy, laboratory, and nonteaching 

physician Part A services, and certain 

contract indirect patient care services 

(as discussed in the FY 2008 final rule 

with comment period (72 FR 47315)) 

• Wage-related costs, including 

pensions and other deferred 

compensation costs. We note that, for 

developing pension and deferred 

compensation costs for purposes of the 

wage index, CMS requires hospitals to 

comply with the requirements in 42 

CFR 413.100, the Provider 

Reimbursement Manual (PRM), Part I, 

Sections 2140, 2141, and 2142, and 

related Medicare program instructions, 

as discussed in the cost reporting 

instructions (PRM, Part II, section 

3605.2) for Worksheet S–3, Part II, Lines 

13 through 20, and in the FY 2006 IPPS 

final rule (70 FR 47369). On March 28, 

2008, CMS published Revision 436, a 

technical clarification to the PRM, Part 

I policies for pension and deferred 

compensation costs. In addition, in 

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November 2009, CMS released, through 

a Joint Signature Memorandum, 

instructions and a spreadsheet to assist 

hospitals and Medicare contractors in 

determining the annual allowable 

defined benefit pension cost for the FY 

2011 wage index (JSM/TDL–10061, 

11–20–09, December 3, 2009). These 

instructions and spreadsheet crosswalk 

the current interest, liability, and 

normal cost terminology found in the 

Medicare reimbursement policies under 

Section 2142 of the PRM, Part I to the 

new terminology applicable under the 

Pension Protection Act of 2006. The 

spreadsheet and instructions can be 

downloaded from the CMS Web site at 

http://www.cms.hhs.gov/AcuteInpatient

PPS/WIFN/itemdetail.asp?filterType=

none&filterByDID=0&sortByDID=3&

sortOrder=descending&itemID=

CMS1231035&intNumPerPage=10. 

2. Excluded Categories of Costs 

Consistent with the wage index 

methodology for FY 2010, the final wage 

index for FY 2011 also excludes the 

direct and overhead salaries and hours 

for services not subject to IPPS payment, 

such as SNF services, home health 

services, costs related to GME (teaching 

physicians and residents) and certified 

registered nurse anesthetists (CRNAs), 

and other subprovider components that 

are not paid under the IPPS. The final 

FY 2011 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). 

3. Use of Wage Index Data by Providers 

Other Than Acute Care Hospitals Under 

the IPPS 

Data collected for the IPPS wage 

index are also currently used to 

calculate wage indices applicable to 

other providers, such as SNFs, home 

health agencies (HHAs), and hospices. 

In addition, they are used for 

prospective payments to IRFs, IPFs, and 

LTCHs, and for hospital outpatient 

services. We note that, in the IPPS rules, 

we do not address comments pertaining 

to the wage indices for non-IPPS 

providers, other than for LTCHs. Such 

comments should be made in response 

to separate proposed rules for those 

providers. 

F. Verification of Worksheet S–3 Wage 

Data 

The wage data for the final FY 2011 

wage index were obtained from 

Worksheet S–3, Parts II and III of the 

Medicare cost report for cost reporting 

periods beginning on or after October 1, 

2006, and before October 1, 2007. For 

wage index purposes, we refer to cost 

reports during this period as the ‘‘FY 

2007 cost report,’’ the ‘‘FY 2007 wage 

data,’’ or the ‘‘FY 2007 data.’’ 

Instructions for completing Worksheet 

S–3, Parts II and III are in the Provider 

Reimbursement Manual (PRM), Part II, 

sections 3605.2 and 3605.3. The data 

file used to construct the wage index 

includes FY 2007 data submitted to us 

as of June 22, 2010. As in past years, we 

performed an intensive review of the 

wage data, mostly through the use of 

edits designed to identify aberrant data. 

We asked our fiscal intermediaries/ 

MACs to revise or verify data elements 

that resulted in specific edit failures. 

For the proposed FY 2011 wage index, 

we identified and excluded 14 providers 

with data that was too aberrant to 

include in the proposed wage index, 

although if data elements for some of 

these providers are corrected, we 

intended to include some of these 

providers in the FY 2011 final wage 

index. We instructed fiscal 

intermediaries/MACs to complete their 

data verification of questionable data 

elements and to transmit any changes to 

the wage data no later than April 14, 

2010. The data for none of the hospitals 

identified in the proposed rule were 

resolved. However, the data for three 

additional hospitals were identified as 

too aberrant to include in the final wage 

index. Therefore, we determined that 

the data for 17 hospitals (that is, 

14+3=17) should not be included in the 

FY 2011 final wage index. 

In constructing the final FY 2011 

wage index, we included the wage data 

for facilities that were IPPS hospitals in 

FY 2007, inclusive of those facilities 

that have since terminated their 

participation in the program as 

hospitals, as long as those data did not 

fail any of our edits for reasonableness. 

We believe that including the wage data 

for these hospitals is, in general, 

appropriate to reflect the economic 

conditions in the various labor market 

areas during the relevant past period 

and to ensure that the current wage 

index represents the labor market area’s 

current wages as compared to the 

national average of wages. However, we 

excluded the wage data for CAHs as 

discussed in the FY 2004 IPPS final rule 

(68 FR 45397). For this final rule, we 

removed 11 hospitals that converted to 

CAH status between February 16, 2009, 

the cut-off date for CAH exclusion from 

the FY 2010 wage index, and February 

15, 2010, the cut-off date for CAH 

exclusion from the FY 2011 wage index. 

After removing hospitals with aberrant 

data and hospitals that converted to 

CAH status, the final FY 2011 wage 

index is calculated based on 3,511 

hospitals. 

In the FY 2008 final rule with 

comment period (72 FR 47317) and the 

FY 2009 IPPS final rule (73 FR 48582), 

we discussed our policy for allocating a 

multicampus hospital’s wages and 

hours data, by full-time equivalent 

(FTE) staff, among the different labor 

market areas where its campuses are 

located. During the FY 2011 wage index 

desk review process, we requested fiscal 

intermediaries/MACs to contact 

multicampus hospitals that had 

campuses in different labor market areas 

to collect the data for the allocation. The 

FY 2011 wage index in this final rule 

includes separate wage data for 

campuses of three multicampus 

hospitals. 

For FY 2011, we are again allowing 

hospitals to use FTE or discharge data 

for the allocation of a multicampus 

hospital’s wage data among the different 

labor market areas where its campuses 

are located. The Medicare cost report 

was updated in May 2008 to provide for 

the reporting of FTE data by campus for 

multicampus hospitals. Because the 

data from cost reporting periods that 

begin in FY 2008 will not be used in 

calculating the wage index until FY 

2012, a multicampus hospital will still 

have the option, through the FY 2011 

wage index, to use either FTE or 

discharge data for allocating wage data 

among its campuses by providing the 

information from the applicable cost 

reporting period to CMS through its 

fiscal intermediary/MAC. Two of the 

three multicampus hospitals chose to 

have their wage data allocated by their 

Medicare discharge data for the FY 2011 

wage index. One of the hospitals 

provided FTE staff data for the 

allocation. The average hourly wage 

associated with each geographical 

location of a multicampus hospital is 

reflected in Table 2 of the Addendum to 

this final rule. 

G. Method for Computing the Final FY 

2011 Unadjusted Wage Index 

The method used to compute the FY 

2011 wage index without an 

occupational mix adjustment follows: 

Step 1—As noted above, we are 

basing the final FY 2011 wage index on 

wage data reported on the FY 2007 

Medicare cost reports. We gathered data 

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term, acute care hospitals for which data 

were reported on the Worksheet S–3, 

Parts II and III of the Medicare cost 

report for the hospital’s cost reporting 

period beginning on or after October 1, 

2006, and before October 1, 2007. In 

addition, we included data from some 

hospitals that had cost reporting periods 

beginning before October 2006 and 

reported a cost reporting period 

covering all of FY 2007. These data are 

included because no other data from 

these hospitals would be available for 

the cost reporting period described 

above, and because particular labor 

market areas might be affected due to 

the omission of these hospitals. 

However, we generally describe these 

wage data as FY 2007 data. We note 

that, if a hospital had more than one 

cost reporting period beginning during 

FY 2007 (for example, a hospital had 

two short cost reporting periods 

beginning on or after October 1, 2006, 

and before October 1, 2007), we 

included wage data from only one of the 

cost reporting periods, the longer, in the 

wage index calculation. If there was 

more than one cost reporting period and 

the periods were equal in length, we 

included the wage data from the later 

period in the wage index calculation. 

Step 2—Salaries—The method used to 

compute a hospital’s average hourly 

wage excludes certain costs that are not 

paid under the IPPS. (We note that, 

beginning with FY 2008 (72 FR 47315), 

we include Lines 22.01, 26.01, and 

27.01 of Worksheet S–3, Part II for 

overhead services in the wage index. 

However, we note that the wages and 

hours on these lines are not 

incorporated into Line 101, Column 1 of 

Worksheet A, which, through the 

electronic cost reporting software, flows 

directly to Line 1 of Worksheet S–3, Part 

II. Therefore, the first step in the wage 

index calculation for FY 2011 is to 

compute a ‘‘revised’’ Line 1, by adding 

to the Line 1 on Worksheet S–3, Part II 

(for wages and hours respectively) the 

amounts on Lines 22.01, 26.01, and 

27.01.) In calculating a hospital’s 

average salaries plus wage-related costs, 

we subtract from Line 1 (total salaries) 

the GME and CRNA costs reported on 

Lines 2, 4.01, 6, and 6.01, the Part B 

salaries reported on Lines 3, 5 and 5.01, 

home office salaries reported on Line 7, 

and exclude salaries reported on Lines 

8 and 8.01 (that is, direct salaries 

attributable to SNF services, home 

health services, and other subprovider 

components not subject to the IPPS). We 

also subtract from Line 1 the salaries for 

which no hours were reported. To 

determine total salaries plus wagerelated costs, we add to the net hospital 

salaries the costs of contract labor for 

direct patient care, certain top 

management, pharmacy, laboratory, and 

nonteaching physician Part A services 

(Lines 9 and 10), home office salaries 

and wage-related costs reported by the 

hospital on Lines 11 and 12, and 

nonexcluded area wage-related costs 

(Lines 13, 14, and 18). 

We note that contract labor and home 

office salaries for which no 

corresponding hours are reported are 

not included. In addition, wage-related 

costs for nonteaching physician Part A 

employees (Line 18) are excluded if no 

corresponding salaries are reported for 

those employees on Line 4. 

Step 3—Hours—With the exception of 

wage-related costs, for which there are 

no associated hours, we compute total 

hours using the same methods as 

described for salaries in Step 2. 

Step 4—For each hospital reporting 

both total overhead salaries and total 

overhead hours greater than zero, we 

then allocate overhead costs to areas of 

the hospital excluded from the wage 

index calculation. First, we determine 

the ratio of excluded area hours (sum of 

Lines 8 and 8.01 of Worksheet S–3, Part 

II) to revised total hours (Line 1 minus 

the sum of Part II, Lines 2, 3, 4.01, 5, 

5.01, 6, 6.01, 7, and Part III, Line 13 of 

Worksheet S–3). We then compute the 

amounts of overhead salaries and hours 

to be allocated to excluded areas by 

multiplying the above ratio by the total 

overhead salaries and hours reported on 

Line 13 of Worksheet S–3, Part III. Next, 

we compute the amounts of overhead 

wage-related costs to be allocated to 

excluded areas using three steps: (1) We 

determine the ratio of overhead hours 

(Part III, Line 13 minus the sum of lines 

22.01, 26.01, and 27.01) to revised hours 

excluding the sum of lines 22.01, 26.01, 

and 27.01 (Line 1 minus the sum of 

Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 

8.01, 22.01, 26.01, and 27.01). (We note 

that for the FY 2008 and subsequent 

wage index calculations, we are 

excluding the sum of lines 22.01, 26.01, 

and 27.01 from the determination of the 

ratio of overhead hours to revised hours 

because hospitals typically do not 

provide fringe benefits (wage-related 

costs) to contract personnel. Therefore, 

it is not necessary for the wage index 

calculation to exclude overhead wagerelated costs for contract personnel. 

Further, if a hospital does contribute to 

wage-related costs for contracted 

personnel, the instructions for Lines 

22.01, 26.01, and 27.01 require that 

associated wage-related costs be 

combined with wages on the respective 

contract labor lines.); (2) we compute 

overhead wage-related costs by 

multiplying the overhead hours ratio by 

wage-related costs reported on Part II, 

Lines 13, 14, and 18; and (3) we 

multiply the computed overhead wagerelated costs by the above excluded area 

hours ratio. Finally, we subtract the 

computed overhead salaries, wagerelated costs, and hours associated with 

excluded areas from the total salaries 

(plus wage-related costs) and hours 

derived in Steps 2 and 3. 

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, 2004, 

through April 15, 2006, for private 

industry hospital workers from the BLS’ 

Compensation and Working Conditions. 

We use the ECI because it reflects the 

price increase associated with total 

compensation (salaries plus fringes) 

rather than just the increase in salaries. 

In addition, the ECI includes managers 

as well as other hospital workers. This 

methodology to compute the monthly 

update factors uses actual quarterly ECI 

data and assures that the update factors 

match the actual quarterly and annual 

percent changes. We also note that, 

since April 2006 with the publication of 

March 2006 data, the BLS’ ECI uses a 

different classification system, the North 

American Industrial Classification 

System (NAICS), instead of the Standard 

Industrial Codes (SICs), which no longer 

exist. We have consistently used the ECI 

as the data source for our wages and 

salaries and other price proxies in the 

IPPS market basket, and we are not 

making any changes to the usage for FY 

2011. The factors used to adjust the 

hospital’s data were based on the 

midpoint of the cost reporting period, as 

indicated below. 

MIDPOINT OF COST REPORTING PERIOD

After Before Adjustment factor 

10/14/2006 11/15/2006 1.04377 

11/14/2006 12/15/2006 1.04077 

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MIDPOINT OF COST REPORTING PERIOD—Continued 

After Before Adjustment factor 

12/14/2006 01/15/2007 1.03786 

01/14/2007 02/15/2007 1.03508 

02/14/2007 03/15/2007 1.03243 

03/14/2007 04/15/2007 1.02981 

04/14/2007 05/15/2007 1.02709 

05/14/2007 06/15/2007 1.02430 

06/14/2007 07/15/2007 1.02153 

07/14/2007 08/15/2007 1.01891 

08/14/2007 09/15/2007 1.01643 

09/14/2007 10/15/2007 1.01394 

10/14/2007 11/15/2007 1.01127 

11/14/2007 12/15/2007 1.00844 

12/14/2007 01/15/2008 1.00556 

01/14/2008 02/15/2008 1.00275 

02/14/2008 03/15/2008 1.00000 

03/14/2008 04/15/2008 0.99732 

For example, the midpoint of a cost 

reporting period beginning January 1, 

2007, and ending December 31, 2007, is 

June 30, 2007. An adjustment factor of 

1.02153 would be applied to the wages 

of a hospital with such a cost reporting 

period. In addition, for the data for any 

cost reporting period that began in FY 

2007 and covered a period of less than 

360 days or more than 370 days, we 

annualize the data to reflect a 1-year 

cost report. Dividing the data by the 

number of days in the cost report and 

then multiplying the results by 365 

accomplishes annualization. 

Step 6—Each hospital is assigned to 

its appropriate urban or rural labor 

market area before any reclassifications 

under section 1886(d)(8)(B), section 

1886(d)(8)(E), or section 1886(d)(10) of 

the Act. Within each urban or rural 

labor market area, we add the total 

adjusted salaries plus wage-related costs 

obtained in Step 5 for all hospitals in 

that area to determine the total adjusted 

salaries plus wage-related costs for the 

labor market area. 

Step 7—We divide the total adjusted 

salaries plus wage-related costs obtained 

under both methods in Step 6 by the 

sum of the corresponding total hours 

(from Step 4) for all hospitals in each 

labor market area to determine an 

average hourly wage for the area. 

Step 8—We add the total adjusted 

salaries plus wage-related costs obtained 

in Step 5 for all hospitals in the Nation 

and then divide the sum by the national 

sum of total hours from Step 4 to arrive 

at a national average hourly wage. Using 

the data as described above, the final 

national average hourly wage 

(unadjusted for occupational mix) is 

$34.9895. 

Step 9—For each urban or rural labor 

market area, we calculate the hospital 

wage index value, unadjusted for 

occupational mix, by dividing the area 

average hourly wage obtained in Step 7 

by the national average hourly wage 

computed in Step 8. 

Step 10—Following the process set 

forth above, we develop a separate 

Puerto Rico-specific wage index for 

purposes of adjusting the Puerto Rico 

standardized amounts. (The national 

Puerto Rico standardized amount is 

adjusted by a wage index calculated for 

all Puerto Rico labor market areas based 

on the national average hourly wage as 

described above.) We add the total 

adjusted salaries plus wage-related costs 

(as calculated in Step 5) for all hospitals 

in Puerto Rico and divide the sum by 

the total hours for Puerto Rico (as 

calculated in Step 4) to arrive at an 

overall final average hourly wage 

(unadjusted for occupational mix) of 

$14.7404 for Puerto Rico. For each labor 

market area in Puerto Rico, we calculate 

the Puerto Rico-specific wage index 

value by dividing the area average 

hourly wage (as calculated in Step 7) by 

the overall Puerto Rico average hourly 

wage. 

Step 11—Section 4410 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. The areas affected by 

this provision are identified in Table 

4D–2 of the Addendum to this final 

rule. 

In the FY 2005 IPPS final rule (69 FR 

49109), we adopted the ‘‘imputed’’ floor 

as a temporary 3-year measure to 

address a concern by some individuals 

that hospitals in all-urban States were 

disadvantaged by the absence of rural 

hospitals to set a wage index floor in 

those States. The imputed floor was 

originally set to expire in FY 2007, but 

we extended it an additional year in the 

FY 2008 IPPS final rule with comment 

period (72 FR 47321). In the FY 2009 

IPPS final rule (73 FR 48570 through 

48574 and 48584), we extended the 

imputed floor for an additional 3 years, 

through FY 2011. 

H. Analysis and Implementation of the 

Final Occupational Mix Adjustment and 

the Final FY 2011 Occupational Mix 

Adjusted Wage Index 

As discussed in section III.D. of this 

preamble, for FY 2011, we are applying 

the occupational mix adjustment to 100 

percent of the final FY 2011 wage index. 

We calculated the final occupational 

mix adjustment using data from the 

2007–2008 occupational mix survey 

data, using the methodology described 

in section III.D.3. of this preamble. 

Using the occupational mix survey 

data and applying the occupational mix 

adjustment to 100 percent of the final 

FY 2011 wage index results in a final 

national average hourly wage of 

$34.9664 and a final Puerto Ricospecific average hourly wage of 

$14.7620. After excluding data of 

hospitals that either submitted aberrant 

data that failed critical edits, or that do 

not have FY 2007 Worksheet S–3 cost 

report data for use in calculating the 

final FY 2011 wage index, we calculated 

the final FY 2011 wage index using the 

occupational mix survey data from 

3,197 hospitals. Using the Worksheet 

S–3 cost report data of 3,511 hospitals 

and occupational mix survey data from 

3,197 hospitals represents a 91.1 percent 

survey response rate. The final FY 2011 

national average hourly wages for each 

occupational mix nursing subcategory 

as calculated in Step 2 of the 

occupational mix calculation are as 

follows: 

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Occupational mix nursing subcategory Average hourly 

wage 

National RN ................................................................................................................................................................................... $36 .073112086 

National LPN and Surgical Technician .......................................................................................................................................... 20 .866432497 

National Nurse Aide, Orderly, and Attendant ................................................................................................................................ 14 .619357374 

National Medical Assistant ............................................................................................................................................................ 16 .479254498 

National Nurse Category ............................................................................................................................................................... 30 .47379669 

The final national average hourly 

wage for the entire nurse category as 

computed in Step 5 of the occupational 

mix calculation is $30.47379669. 

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 2007–2008 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 44.29 

percent, and the national percentage of 

hospital employees in the all other 

occupations category is 55.71 percent. 

At the CBSA level, the percentage of 

hospital employees in the nurse 

category ranged from a low of 29.08 

percent in one CBSA, to a high of 70.76 

percent in another CBSA. 

We compared the final FY 2011 

occupational mix adjusted wage indices 

for each CBSA to the final unadjusted 

wage indices for each CBSA. As a result 

of applying the occupational mix 

adjustment to the wage data, the final 

wage index values for 206 (52.7 percent) 

urban areas and 32 (68.1 percent) rural 

areas would increase. One hundred six 

(27.1 percent) urban areas would 

increase by 1 percent or more, and 6 (1.5 

percent) urban areas would increase by 

5 percent or more. Eighteen (38.3 

percent) rural areas would increase by 

1 percent or more, and no rural areas 

would increase by 5 percent or more. 

However, the wage index values for 185 

(47.3 percent) urban areas and 15 (31.9 

percent) rural areas would decrease. 

Eighty nine (22.8 percent) urban areas 

would decrease by 1 percent or more, 

and no urban area would decrease by 

5 percent or more. Seven (14.9 percent) 

rural areas would decrease by 1 percent 

or more, and no rural areas will 

decrease by 5 percent or more. The 

largest positive impacts are 7.81 percent 

for an urban area and 2.97 percent for 

a rural area. The largest negative 

impacts are 3.97 percent for an urban 

area and 2.41 percent for a rural area. 

No urban or rural areas are unaffected. 

These results indicate that a larger 

percentage of rural areas (68.1 percent) 

benefit from the occupational mix 

adjustment than do urban areas (52.7 

percent). While these results are more 

positive overall for rural areas than 

under the previous occupational mix 

adjustment that used survey data from 

2006, approximately one-third (31.9 

percent) of rural CBSAs will still 

experience a decrease in their wage 

indices as a result of the occupational 

mix adjustment. 

The final wage index values for FY 

2011 (except those for hospitals 

receiving wage index adjustments under 

section 1886(d)(13) of the Act) included 

in Tables 4A, 4B, 4C, and 4F of the 

Addendum to this final rule include the 

final occupational mix adjustment. 

Tables 3A and 3B in the Addendum 

to this final rule list the 3-year average 

hourly wage for each labor market area 

before the redesignation or 

reclassification of hospitals based on 

FYs 2009, 2010, and 2011 cost reporting 

periods. Table 3A lists these data for 

urban areas and Table 3B lists these data 

for rural areas. In addition, Table 2 in 

the Addendum to this final rule 

includes the adjusted average hourly 

wage for each hospital from the FY 2005 

and FY 2006 cost reporting periods, as 

well as the FY 2007 period used to 

calculate the final FY 2011 wage index. 

The 3-year averages are calculated by 

dividing the sum of the dollars (adjusted 

to a common reporting period using the 

method described previously) across all 

3 years, by the sum of the hours. If a 

hospital is missing data for any of the 

previous years, its average hourly wage 

for the 3-year period is calculated based 

on the data available during that period. 

The final average hourly wages in 

Tables 2, 3A, and 3B in the Addendum 

to this final rule include the final 

occupational mix adjustment. The final 

wage index values in Tables 4A, 4B, and 

4C also include the final State-specific 

rural floor and imputed floor budget 

neutrality adjustments. (We note that 

Table 4D–1, Rural Floor Budget 

Neutrality Factors for Acute Care 

Hospitals, was included in the 

Addendum to the FY 2011 IPPS/LTCH 

PPS proposed rule. However, we are not 

including it in this final rule because 

section 3141 of the Affordable Care Act 

restores rural floor and imputed floor 

budget neutrality to a uniform national 

adjustment.) 

I. Revisions to the Wage Index Based on 

Hospital Redesignations and 

Reclassifications 

1. General 

Under section 1886(d)(10) of the Act, 

the MGCRB considers applications by 

hospitals for geographic reclassification 

for purposes of payment under the IPPS. 

Hospitals must apply to the MGCRB to 

reclassify 13 months prior to the start of 

the fiscal year for which reclassification 

is sought (generally by September 1). 

Generally, hospitals must be proximate 

to the labor market area to which they 

are seeking reclassification and must 

demonstrate characteristics similar to 

hospitals located in that area. The 

MGCRB issues its decisions by the end 

of February for reclassifications that 

become effective for the following fiscal 

year (beginning October 1). The 

regulations applicable to 

reclassifications by the MGCRB are 

located in 42 CFR 412.230 through 

412.280. 

Section 1886(d)(10)(D)(v) of the Act 

provides that, beginning with FY 2001, 

a MGCRB decision on a hospital 

reclassification for purposes of the wage 

index is effective for 3 fiscal years, 

unless the hospital elects to terminate 

the reclassification. Section 

1886(d)(10)(D)(vi) of the Act provides 

that the MGCRB must use average 

hourly wage data from the 3 most 

recently published hospital wage 

surveys in evaluating a hospital’s 

reclassification application for FY 2003 

and any succeeding fiscal year. 

Section 304(b) of Public Law 106–554 

provides that the Secretary must 

establish a mechanism under which a 

statewide entity may apply to have all 

of the geographic areas in the State 

treated as a single geographic area for 

purposes of computing and applying a 

single wage index, for reclassifications 

beginning in FY 2003. The 

implementing regulations for this 

provision are located at 42 CFR 412.235. 

Section 1886(d)(8)(B) of the Act 

requires the Secretary to treat a hospital 

located in a rural county adjacent to one 

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or more urban areas as being located in 

the labor market area to which the 

greatest number of workers in the 

county commute, if the rural county 

would otherwise be considered part of 

an urban area under the standards for 

designating MSAs and if the commuting 

rates used in determining outlying 

counties were determined on the basis 

of the aggregate number of resident 

workers who commute to (and, if 

applicable under the standards, from) 

the central county or counties of all 

contiguous MSAs. In light of the CBSA 

definitions and the Census 2000 data 

that we implemented for FY 2005 (69 

FR 49027), we undertook to identify 

those counties meeting these criteria. 

Eligible counties are discussed and 

identified under section III.I.5. of this 

preamble. 

2. Effects of Reclassification/ 

Redesignation 

Section 1886(d)(8)(C) of the Act 

provides that the application of the 

wage index to redesignated hospitals is 

dependent on the hypothetical impact 

that the wage data from these hospitals 

would have on the wage index value for 

the area to which they have been 

redesignated. These requirements for 

determining the wage index values for 

redesignated hospitals are applicable 

both to the hospitals deemed urban 

under section 1886(d)(8)(B) of the Act 

and hospitals that were reclassified as a 

result of the MGCRB decisions under 

section 1886(d)(10) of the Act. 

Therefore, as provided in section 

1886(d)(8)(C) of the Act, the wage index 

values were determined by considering 

the following: 

• If including the wage data for the 

redesignated hospitals would reduce the 

wage index value for the area to which 

the hospitals are redesignated by 1 

percentage point or less, the area wage 

index value determined exclusive of the 

wage data for the redesignated hospitals 

applies to the redesignated hospitals. 

• If including the wage data for the 

redesignated hospitals reduces the wage 

index value for the area to which the 

hospitals are redesignated by more than 

1 percentage point, the area wage index 

determined inclusive of the wage data 

for the redesignated hospitals (the 

combined wage index value) applies to 

the redesignated hospitals. 

• If including the wage data for the 

redesignated hospitals increases the 

wage index value for the urban area to 

which the hospitals are redesignated, 

both the area and the redesignated 

hospitals receive the combined wage 

index value. Otherwise, the hospitals 

located in the urban area receive a wage 

index excluding the wage data of 

hospitals redesignated into the area. 

Rural areas whose wage index values 

would be reduced by excluding the 

wage data for hospitals that have been 

redesignated to another area continue to 

have their wage index values calculated 

as if no redesignation had occurred 

(otherwise, redesignated rural hospitals 

are excluded from the calculation of the 

rural wage index). The wage index value 

for a redesignated rural hospital cannot 

be reduced below the wage index value 

for the rural areas of the State in which 

the hospital is located. 

CMS also has adopted the following 

policies: 

• The wage data for a reclassified 

urban hospital is included in both the 

wage index calculation of the urban area 

to which the hospital is reclassified 

(subject to the rules described above) 

and the wage index calculation of the 

urban area where the hospital is 

physically located. 

• In cases where hospitals have 

reclassified to rural areas, such as urban 

hospitals reclassifying to rural areas 

under 42 CFR 412.103, the hospital’s 

wage data are: (a) Included in the rural 

wage index calculation, unless doing so 

would reduce the rural wage index; and 

(b) included in the urban area where the 

hospital is physically located. The effect 

of this policy, in combination with the 

statutory requirement at section 

1886(d)(8)(C)(ii) of the Act, is that rural 

areas may receive a wage index based 

upon the highest of: (1) Wage data from 

hospitals geographically located in the 

rural area; (2) wage data from hospitals 

geographically located in the rural area, 

but excluding all data associated with 

hospitals reclassifying out of the rural 

area under section 1886(d)(8)(B) or 

section 1886(d)(10) of the Act; or (3) 

wage data associated with hospitals 

geographically located in the area plus 

all hospitals reclassified into the rural 

area. 

In addition, in accordance with the 

statutory language referring to 

‘‘hospitals’’ in the plural under sections 

1886(d)(8)(C)(i) and 1886(d)(8)(C)(ii) of 

the Act, our longstanding policy is to 

consider reclassified hospitals as a 

group when deciding whether to 

include or exclude them from both 

urban and rural wage index 

calculations. 

Comment: One commenter opposed 

CMS’ longstanding methodology for 

calculating the wage index for 

reclassified hospitals, and suggested 

that CMS calculate a separate 

reclassified wage index for those 

hospitals that meet the reclassification 

proximate requirement and another 

wage index for those hospitals that do 

not meet the requirement. In addition, 

the commenter suggested another option 

which would provide for calculation of 

the reclassified wage index based on the 

hospitals physically located in the 

CBSA and each individual hospital, 

instead of combining all reclassified 

hospitals as a group. 

Response: We did not include any 

proposals in the FY 2011 proposed rule 

to change our longstanding 

methodology for calculating the wage 

index for reclassified hospitals. We 

believe that this methodology continues 

to be appropriate in order to calculate 

the wage index for hospitals for 

Medicare payment purposes. 

3. FY 2011 MGCRB Reclassifications 

a. FY 2011 Reclassifications 

Requirements and Approvals 

Under section 1886(d)(10) of the Act, 

the MGCRB considers applications by 

hospitals for geographic reclassification 

for purposes of payment under the IPPS. 

The specific procedures and rules that 

apply to the geographic reclassification 

process are outlined in 42 CFR 412.230 

through 412.280. 

At the time this final rule was 

constructed, the MGCRB had completed 

its review of FY 2011 reclassification 

requests. Based on such reviews, there 

were 285 hospitals approved for wage 

index reclassifications by the MGCRB 

for FY 2011. Because MGCRB wage 

index reclassifications are effective for 3 

years, for FY 2011, hospitals reclassified 

during FY 2009 or FY 2010 are eligible 

to continue to be reclassified to a 

particular labor market area based on 

such prior reclassifications. There were 

247 hospitals approved for wage index 

reclassifications in FY 2009 and 251 

hospitals approved for wage index 

reclassifications in FY 2010. Of all of 

the hospitals approved for 

reclassification for FY 2009, FY 2010, 

and FY 2011, based upon the review at 

the time of this final rule, 823 hospitals 

are in a reclassification status for FY 

2011. 

Under 42 CFR 412.273, hospitals that 

have been reclassified by the MGCRB 

are permitted to withdraw their 

applications within 45 days of the 

publication of a proposed rule. 

Generally stated, the request for 

withdrawal of an application for 

reclassification or termination of an 

existing 3-year reclassification that 

would be effective in FY 2011 had to be 

received by the MGCRB within 45 days 

of the publication of the FY 2011 

proposed rule. Hospitals also could 

cancel prior reclassification 

withdrawals or terminations in certain 

circumstances. For further information 

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about withdrawing, terminating, or 

canceling a previous withdrawal or 

termination of a 3-year reclassification 

for wage index purposes, we refer the 

reader to 42 CFR 412.273, as well as the 

FY 2002 IPPS final rule (66 FR 39887) 

and the FY 2003 IPPS final rule (67 FR 

50065). 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 

2011 are incorporated into the wage 

index values published in this FY 2011 

IPPS/LTCH PPS final rule. These 

changes affect not only the wage index 

value for specific geographic areas, but 

also the wage index value redesignated/ 

reclassified hospitals receive; that is, 

whether they receive the wage index 

that includes the data for both the 

hospitals already in the area and the 

redesignated/reclassified hospitals. 

Further, the wage index value for the 

area from which the hospitals are 

redesignated/reclassified may be 

affected. 

b. Applications for Reclassifications for 

FY 2012 

Applications for FY 2012 

reclassifications are due to the MGCRB 

by September 1, 2010. We note that this 

is also the deadline for canceling a 

previous wage index reclassification 

withdrawal or termination under 42 

CFR 412.273(d). Applications and other 

information about MGCRB 

reclassifications may be obtained, 

beginning in mid-July 2010, via the 

CMS Internet Web site at: http:// 

cms.hhs.gov/MGCRB/ 

02_instructions_and_applications.asp, 

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. 

c. Appeals of MGCRB Denials of 

Withdrawals and Terminations 

Section 412.278 of the regulations 

permits a hospital or a group of 

hospitals dissatisfied with the MGCRB’s 

decision regarding its geographic 

designation to request the 

Administrator’s review of the decision. 

Section 412.273(e) permits a hospital to 

file an appeal to the Administrator 

regarding the MGCRB’s denial of the 

hospital’s request for withdrawal of an 

application. However, this section of the 

regulations did not address 

Administrator review of the MGCRB’s 

denial of a hospital’s request for 

termination; that is, ‘‘terminations’’ not 

specified in the regulations at 

§ 412.273(e). 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23949), we 

proposed to revise the regulations to 

specify the availability of Administrator 

review of MGCRB decisions regarding 

withdrawals and terminations, as well 

as cancellations of withdrawals or 

terminations. Because reclassifications 

are considered budget neutral actions, 

we stated our belief that these proposed 

revisions would have no impact on total 

IPPS payments. 

In addition, during our review of 

§ 412.273, we determined that some of 

the existing language in the section 

could be clarified to make it more easily 

understood and proposed to revise the 

provision accordingly. 

We did not receive any public 

comments regarding our proposed 

changes to the regulations at § 412.273. 

Therefore, in this final rule, we are 

adopting as final, without modification, 

the proposed changes to § 412.273. 

4. Redesignations of Hospitals Under 

Section 1886(d)(8)(B) of the Act 

Section 1886(d)(8)(B) of the Act 

requires us to treat a hospital located in 

a rural county adjacent to one or more 

urban areas as being located in the MSA 

if certain criteria are met. Effective 

beginning FY 2005, we use OMB’s 2000 

CBSA standards and the Census 2000 

data to identify counties in which 

hospitals qualify under section 

1886(d)(8)(B) of the Act to receive the 

wage index of the urban area. Hospitals 

located in these counties have been 

known as ‘‘Lugar’’ hospitals and the 

counties themselves are often referred to 

as ‘‘Lugar’’ counties. We provide the FY 

2011 chart below with the listing of the 

rural counties containing the hospitals 

designated as urban under section 

1886(d)(8)(B) of the Act. For discharges 

occurring on or after October 1, 2010, 

hospitals located in the rural county in 

the first column of this chart will be 

redesignated for purposes of using the 

wage index of the urban area listed in 

the second column. 

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BILLING CODE 4120–01–C 

As in the past, hospitals redesignated 

under section 1886(d)(8)(B) of the Act 

are also eligible to be reclassified to a 

different area by the MGCRB. Affected 

hospitals were permitted to compare the 

reclassified wage index for the labor 

market area in Table 4C in the 

Addendum to the proposed rule into 

which they would be reclassified by the 

MGCRB to the wage index for the area 

to which they are redesignated under 

section 1886(d)(8)(B) of the Act. 

Hospitals could have withdrawn from 

an MGCRB reclassification within 45 

days of the publication of the FY 2011 

proposed rule. 

5. Reclassifications Under Section 

1886(d)(8)(B) of the Act 

As discussed in the FY 2009 IPPS 

final rule (73 FR 48588), Lugar hospitals 

are treated like reclassified hospitals for 

purposes of determining their 

applicable wage index and receive the 

reclassified wage index for the urban 

area to which they have been 

redesignated. Because Lugar hospitals 

are treated like reclassified hospitals, 

when they are seeking reclassification 

by the MGCRB, they are subject to the 

rural reclassification rules set forth at 42 

CFR 412.230. The procedural rules set 

forth at § 412.230 list the criteria that a 

hospital must meet in order to reclassify 

as a rural hospital. Lugar hospitals are 

subject to the proximity criteria and 

payment thresholds that apply to rural 

hospitals. Specifically, the hospital 

must be no more than 35 miles from the 

area to which it seeks reclassification 

(§ 412.230(b)(1)); and the hospital must 

show 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 

(§ 412.230(d)(1)(iii)(C)). In accordance 

with the requirements of section 3137(c) 

of the Affordable Care Act, as discussed 

in section III.B.2.a of the preamble in 

this final rule, beginning with 

reclassifications for the FY 2011 wage 

index, a Lugar hospital must also 

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 

(§ 412.230(d)(1)(iv)(C)). 

Hospitals not located in a Lugar 

county seeking reclassification to the 

urban area where the Lugar hospitals 

have been redesignated are not 

permitted to measure to the Lugar 

county to demonstrate proximity (no 

more than 15 miles for an urban 

hospital, and no more than 35 miles for 

a rural hospital or the closest urban or 

rural area for RRCs or SCHs) in order to 

be reclassified to such urban area. These 

hospitals must measure to the urban 

area exclusive of the Lugar County to 

meet the proximity or nearest urban or 

rural area requirement. We treat New 

England deemed counties in a manner 

consistent with how we treat Lugar 

counties. (We refer readers to FY 2008 

IPPS final rule with comment period (72 

FR 47337) for a discussion of this 

policy.) 

6. Reclassifications Under Section 508 

of Public Law 108–173 

Section 508 of Public Law 108–173 

allowed certain qualifying hospitals to 

receive wage index reclassifications and 

assignments that they otherwise would 

not have been eligible to receive under 

the law. Although section 508 originally 

was scheduled to expire after a 3-year 

period, Congress extended the provision 

several times, as well as certain special 

exceptions that would have otherwise 

expired. For a discussion of the original 

section 508 provision and its various 

extensions, we refer readers to the FY 

2010 notice issued in the Federal 

Register on June 2, 2010 (75 FR 31118). 

Prior to the enactment of the Afforable 

Care Act, the extension of the 508 

provision was included in section 124 

of Public Law 110–275 (MIPPA). 

Section 124 extended, through FY 2009, 

section 508 reclassifications as well as 

certain special exceptions. The most 

recent extension of the provision was 

included in sections 3137(a) and 10317 

of Affordable Care Act, as amended. 

Section 3137(a) of the Affordable Care 

Act, as amended by section 10317, 

extended, through FY 2010, section 508 

reclassifications as well as certain 

special exceptions. Because the latest 

extension of these provisions expires on 

September 30, 2010, and will not be 

applicable in FY 2011, we are not 

making any changes related to these 

provisions in this final rule. 

J. FY 2011 Wage Index Adjustment 

Based on Commuting Patterns of 

Hospital Employees 

In accordance with the broad 

discretion under section 1886(d)(13) of 

the Act, as added by section 505 of 

Public Law 108–173, beginning with FY 

2005, we established a process to make 

adjustments to the hospital wage index 

based on commuting patterns of 

hospital employees (the ‘‘out-migration’’ 

adjustment). The process, outlined in 

the FY 2005 IPPS final rule (69 FR 

49061), provides for an increase in the 

wage index for hospitals located in 

certain counties that have a relatively 

high percentage of hospital employees 

who reside in the county but work in a 

different county (or counties) with a 

higher wage index. Such adjustments to 

the wage index are effective for 3 years, 

unless a hospital requests to waive the 

application of the adjustment. A county 

will not lose its status as a qualifying 

county due to wage index changes 

during the 3-year period, and counties 

will receive the same wage index 

increase for those 3 years. However, a 

county that qualifies in any given year 


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may no longer qualify after the 3-year 

period, or it may qualify but receive a 

different adjustment to the wage index 

level. Hospitals that receive this 

adjustment to their wage index are not 

eligible for reclassification under 

section 1886(d)(8) or section 1886(d)(10) 

of the Act. Adjustments under this 

provision are not subject to the budget 

neutrality requirements under section 

1886(d)(3)(E) of the Act. 

Hospitals located in counties that 

qualify for the wage index adjustment 

are to receive an increase in the wage 

index that is equal to the average of the 

differences between the wage indices of 

the labor market area(s) with higher 

wage indices and the wage index of the 

resident county, weighted by the overall 

percentage of hospital workers residing 

in the qualifying county who are 

employed in any labor market area with 

a higher wage index. Beginning with the 

FY 2008 wage index, we use postreclassified wage indices when 

determining the out-migration 

adjustment (72 FR 47339). 

For the final FY 2011 wage index, we 

calculated the out-migration adjustment 

using the same formula described in the 

FY 2005 IPPS final rule (69 FR 49064), 

with the addition of using the postreclassified wage indices, to calculate 

the out-migration adjustment. This 

adjustment is calculated as follows: 

Step 1—Subtract the wage index for 

the qualifying county from the wage 

index of each of the higher wage area(s) 

to which hospital workers commute. 

Step 2—Divide the number of hospital 

employees residing in the qualifying 

county who are employed in such 

higher wage index area by the total 

number of hospital employees residing 

in the qualifying county who are 

employed in any higher wage index 

area. For each of the higher wage index 

areas, multiply this result by the result 

obtained in Step 1. 

Step 3—Sum the products resulting 

from Step 2 (if the qualifying county has 

workers commuting to more than one 

higher wage index area). 

Step 4—Multiply the result from Step 

3 by the percentage of hospital 

employees who are residing in the 

qualifying county and who are 

employed in any higher wage index 

area. 

These adjustments will be effective 

for each county for a period of 3 fiscal 

years. For example, hospitals that 

received the adjustment for the first 

time in FY 2010 will be eligible to retain 

the adjustment for FY 2011. For 

hospitals in newly qualified counties, 

adjustments to the wage index are 

effective for 3 years, beginning with 

discharges occurring on or after October 

1, 2010. 

Hospitals receiving the wage index 

adjustment under section 1886(d)(13)(F) 

of the Act are not eligible for 

reclassification under sections 

1886(d)(8) or (d)(10) of the Act unless 

they waive the out-migration 

adjustment. Consistent with our FYs 

2005 through 2010 IPPS final rules, we 

are specifying that hospitals 

redesignated under section 1886(d)(8) of 

the Act or reclassified under section 

1886(d)(10) of the Act are deemed to 

have chosen to retain their 

redesignation or reclassification. Section 

1886(d)(10) hospitals that wished to 

receive the out-migration adjustment, 

rather than their reclassification 

adjustment, were instructed to follow 

the termination/withdrawal procedures 

specified in 42 CFR 412.273 and section 

III.I.3. of the preamble of the FY 2011 

proposed rule. Otherwise, they were 

deemed to have waived the outmigration adjustment. Hospitals 

redesignated under section 1886(d)(8) of 

the Act were deemed to have waived the 

out-migration adjustment unless they 

explicitly notified CMS within 45 days 

from the publication of the FY 2011 

proposed rule that they elected to 

receive the out-migration adjustment 

instead. 

Table 4J in the Addendum to this 

final rule lists the out-migration wage 

index adjustments for FY 2011. 

Hospitals that are not otherwise 

reclassified or redesignated under 

section 1886(d)(8) or section 1886(d)(10) 

of the Act automatically receive the 

listed adjustment. In accordance with 

the procedures discussed above, 

redesignated/reclassified hospitals were 

deemed to have waived the outmigration adjustment unless CMS was 

otherwise notified within the necessary 

timeframe. In addition, hospitals 

eligible to receive the out-migration 

wage index adjustment and that 

withdrew their application for 

reclassification will automatically 

receive the wage index adjustment 

listed in Table 4J in the Addendum to 

this final rule. The wage index is 

updated annually and, as such, 

hospitals that wish to waive their Lugar 

redesignation in order to receive their 

home area wage index plus the outmigration adjustment must request the 

waiver annually. 

Comment: A few commenters 

opposed our existing policy that 

hospitals waiving their Lugar 

redesignation in order to receive their 

home area wage index plus the outmigration adjustment must request such 

waiver annually. 

Response: We did not propose to 

change this policy and continue to 

believe the existing policy is 

appropriate for designation of the outmigration adjustment annually. We 

addressed this comment in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule and 

refer readers to that discussion (74 FR 

43840). 

K. Process for Requests for Wage Index 

Data Corrections 

The preliminary, unaudited 

Worksheet S–3 wage data and 

occupational mix survey data files for 

the proposed FY 2011 wage index were 

made available on October 5, 2009, 

through the Internet on the CMS Web 

site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/WIFN/

list.asp#TopOfPage. 

In the interest of meeting the data 

needs of the public, beginning with the 

proposed FY 2009 wage index, we post 

an additional public use file on our Web 

site that reflects the actual data that are 

used in computing the proposed wage 

index. The release of this new file does 

not alter the current wage index process 

or schedule. We notified 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 encouraged 

hospitals to sign up for automatic 

notifications of information about 

hospital issues and the scheduling of 

the Hospital Open Door forums at: 

http://www.cms.hhs.gov/

OpenDoorForums/. 

In a memorandum dated October 21, 

2009, we instructed all fiscal 

intermediaries/MACs to inform the IPPS 

hospitals they service of the availability 

of the wage index data files and the 

process and timeframe for requesting 

revisions (including the specific 

deadlines listed below). We also 

instructed the fiscal intermediaries/ 

MACs to advise hospitals that these data 

were also made available directly 

through their representative hospital 

organizations. 

If a hospital wished to request a 

change to its data as shown in the 

October 5, 2009 wage and occupational 

mix data files, the hospital was to 

submit corrections along with complete, 

detailed supporting documentation to 

its fiscal intermediary/MAC by 

December 7, 2009. Hospitals were 

notified of this deadline and of all other 

possible deadlines and requirements, 

including the requirement to review and 

verify their data as posted on the 

preliminary wage index data files on the 

Internet, through the October 21, 2009 

memorandum referenced above. 

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In the October 21, 2009 

memorandum, we also specified that a 

hospital requesting revisions to its 

occupational mix survey data was to 

copy its record(s) from the CY 2007– 

2008 occupational mix preliminary files 

posted to our Web site in October, 

highlight the revised cells on its 

spreadsheet, and submit its 

spreadsheet(s) and complete 

documentation to its fiscal 

intermediary/MAC no later than 

December 7, 2009. 

The fiscal intermediaries/MACs 

notified the hospitals by mid-February 

2010 of any changes to the wage index 

data as a result of the desk reviews and 

the resolution of the hospitals’ earlyDecember revision requests. The fiscal 

intermediaries/MACs also submitted the 

revised data to CMS by mid-February 

2010. CMS published the proposed 

wage index public use files that 

included hospitals’ revised wage index 

data on February 22, 2010. Hospitals 

had until March 8, 2010, to submit 

requests to the fiscal intermediaries/ 

MACs for reconsideration of 

adjustments made by the fiscal 

intermediaries/MACs as a result of the 

desk review, and to correct errors due to 

CMS’s or the fiscal intermediary’s (or, if 

applicable, the MAC’s) mishandling of 

the wage index data. Hospitals also were 

required to submit sufficient 

documentation to support their 

requests. 

After reviewing requested changes 

submitted by hospitals, fiscal 

intermediaries/MACs were required to 

transmit any additional revisions 

resulting from the hospitals’ 

reconsideration requests by April 14, 

2010. The deadline for a hospital to 

request CMS intervention in cases 

where the hospital disagrees with the 

fiscal intermediary’s (or, if applicable, 

the MAC’s) policy interpretations was 

April 21, 2010. 

Hospitals were given the opportunity 

to examine Table 2 in the Addendum to 

the proposed rule. Table 2 in the 

Addendum to the proposed rule 

contained each hospital’s adjusted 

average hourly wage used to construct 

the wage index values for the past 3 

years, including the FY 2007 data used 

to construct the proposed FY 2011 wage 

index. We noted that the hospital 

average hourly wages shown in Table 2 

only reflected changes made to a 

hospital’s data and transmitted to CMS 

by March 2010. 

We released the final wage index data 

public use files in early May 2010 on 

the Internet at http://www.cms.hhs.gov/ 

AcuteInpatientPPS/WIFN/ 

list.asp#TopOfPage. The May 2010 

public use files were made available 

solely for the limited purpose of 

identifying any potential errors made by 

CMS or the fiscal intermediary/MAC in 

the entry of the final wage index data 

that resulted from the correction process 

described above (revisions submitted to 

CMS by the fiscal intermediaries/MACs 

by April 14, 2010). If, after reviewing 

the May 2010 final files, a hospital 

believed that its wage or occupational 

mix data were incorrect due to a fiscal 

intermediary/MAC or CMS error in the 

entry or tabulation of the final data, the 

hospital had to send a letter to both its 

fiscal intermediary/MAC and CMS that 

outlined why the hospital believed an 

error exists and provided all supporting 

information, including relevant dates 

(for example, when it first became aware 

of the error). CMS and the fiscal 

intermediaries (or, if applicable, the 

MACs) had to receive these requests no 

later than June 7, 2010. 

Each request also had to be sent to the 

fiscal intermediary/MAC. The fiscal 

intermediary/MAC reviewed requests 

upon receipt and contacted CMS 

immediately to discuss any findings. 

At this point in the process, that is, 

after the release of the May 2010 wage 

index data files, changes to the wage 

and occupational mix data were only 

made in those very limited situations 

involving an error by the fiscal 

intermediary/MAC or CMS that the 

hospital could not have known about 

before its review of the final wage index 

data files. Specifically, neither the fiscal 

intermediary/MAC nor CMS approved 

the following types of requests: 

• Requests for wage index data 

corrections that were submitted too late 

to be included in the data transmitted to 

CMS by fiscal intermediaries or the 

MACs on or before April 21, 2010. 

• Requests for correction of errors 

that were not, but could have been, 

identified during the hospital’s review 

of the February 22, 2010 wage index 

public use files. 

• Requests to revisit factual 

determinations or policy interpretations 

made by the fiscal intermediary or the 

MAC or CMS during the wage index 

data correction process. 

Verified corrections to the wage index 

data received timely by CMS and the 

fiscal intermediaries or the MACs (that 

is, by June 7, 2010) were incorporated 

into the final wage index in this FY 

2011 IPPS/LTCH PPS final rule, which 

will be effective October 1, 2010. 

We created the processes described 

above to resolve all substantive wage 

index data correction disputes before we 

finalize the wage and occupational mix 

data for the FY 2011 payment rates. 

Accordingly, hospitals that did not meet 

the procedural deadlines set forth above 

will not be afforded a later opportunity 

to submit wage index data corrections or 

to dispute the fiscal intermediary’s (or, 

if applicable, the MAC’s) decision with 

respect to requested changes. 

Specifically, our policy is that hospitals 

that do not meet the procedural 

deadlines set forth above will not be 

permitted to challenge later, before the 

Provider Reimbursement Review Board, 

the failure of CMS to make a requested 

data revision. (See W. A. Foote 

Memorial Hospital v. Shalala, No. 99– 

CV–75202–DT (E.D. Mich. 2001) and 

Palisades General Hospital v. 

Thompson, No. 99–1230 (D.D.C. 2003).) 

We refer readers also to the FY 2000 

IPPS final rule (64 FR 41513) for a 

discussion of the parameters for 

appealing to the PRRB for wage index 

data corrections. 

Again, we believe the wage index data 

correction process described above 

provides hospitals with sufficient 

opportunity to bring errors in their wage 

and occupational mix data to the fiscal 

intermediary’s (or, if applicable, the 

MAC’s) attention. Moreover, because 

hospitals have access to the final wage 

index data by early May 2010, they have 

the opportunity to detect any data entry 

or tabulation errors made by the fiscal 

intermediary or the MAC or CMS before 

the development and publication of the 

final FY 2011 wage index by August 

2010, and the implementation of the FY 

2011 wage index on October 1, 2010. If 

hospitals availed themselves of the 

opportunities afforded to provide and 

make corrections to the wage and 

occupational mix data, the wage index 

implemented on October 1 should be 

accurate. Nevertheless, in the event that 

errors are identified by hospitals and 

brought to our attention after June 7, 

2010, we retain the right to make 

midyear changes to the wage index 

under very limited circumstances. 

Specifically, in accordance with 42 

CFR 412.64(k)(1) of our existing 

regulations, we make midyear 

corrections to the wage index for an area 

only if a hospital can show that: (1) The 

fiscal intermediary or the MAC or CMS 

made an error in tabulating its data; and 

(2) the requesting hospital could not 

have known about the error or did not 

have an opportunity to correct the error, 

before the beginning of the fiscal year. 

For purposes of this provision, ‘‘before 

the beginning of the fiscal year’’ means 

by the June 7 deadline for making 

corrections to the wage data for the 

following fiscal year’s 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, 

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because CMS makes the wage index 

data available to hospitals on the CMS 

Web site prior to publishing both the 

proposed and final IPPS rules, and the 

fiscal intermediaries or the MACs notify 

hospitals directly of any wage index 

data changes after completing their desk 

reviews, we do not expect that midyear 

corrections will be necessary. However, 

under our current policy, if the 

correction of a data error changes the 

wage index value for an area, the 

revised wage index value will be 

effective prospectively from the date the 

correction is made. 

In the FY 2006 IPPS final rule (70 FR 

47385), 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: (1) The fiscal intermediary (or, if 

applicable, the MAC) or CMS made an 

error in tabulating data used for the 

wage index calculation; (2) the hospital 

knew about the error and requested that 

the fiscal intermediary (or, if applicable, 

the MAC) and CMS correct the error 

using the established process and 

within the established schedule for 

requesting corrections to the wage index 

data, before the beginning of the fiscal 

year for the applicable IPPS update (that 

is, by the June 7, 2010 deadline for the 

FY 2011 wage index); and (3) CMS 

agreed that the fiscal intermediary (or, if 

applicable, the MAC) or CMS made an 

error in tabulating the hospital’s wage 

index data and the wage index should 

be corrected. 

In those circumstances where a 

hospital requested a correction to its 

wage index data before CMS calculated 

the final wage index (that is, by the June 

7, 2010 deadline), and CMS 

acknowledges that the error in the 

hospital’s wage index data was caused 

by CMS’ or the fiscal intermediary’s (or, 

if applicable, the MAC’s) mishandling of 

the data, we believe that the hospital 

should not be penalized by our delay in 

publishing or implementing the 

correction. As with our current policy, 

we indicated that the provision is not 

available to a hospital seeking to revise 

another hospital’s data. In addition, the 

provision cannot be used to correct 

prior years’ wage index data; and it can 

only be used for the current Federal 

fiscal year. In other situations where our 

policies would allow midyear 

corrections, we continue to believe that 

it is appropriate to make prospectiveonly 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 

judicial decision reverses a CMS denial 

of a hospital’s wage index data revision 

request. 

L. Labor-Related Share for the FY 2011 

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 wagerelated costs by a factor that reflects the 

relative differences in labor costs among 

geographic areas. It also directs the 

Secretary to estimate from time to time 

the proportion of hospital costs that are 

labor-related: ‘‘The Secretary shall adjust 

the proportion (as estimated by the 

Secretary from time to time) of 

hospitals’ costs which are attributable to 

wages and wage-related costs of the 

DRG prospective payment rates * * * ’’ 

We refer to the portion of hospital costs 

attributable to wages and wage-related 

costs as the labor-related share. The 

labor-related share of the prospective 

payment rate is adjusted by an index of 

relative labor costs, which is referred to 

as the wage index. 

Section 403 of Public Law 108–173 

amended section 1886(d)(3)(E) of the 

Act to provide that the Secretary must 

employ 62 percent as the labor-related 

share unless this ‘‘would result in lower 

payments to a hospital than would 

otherwise be made.’’ However, this 

provision of Public Law 108–173 did 

not change the legal requirement that 

the Secretary estimate ‘‘from time to 

time’’ the proportion of hospitals’ costs 

that are ‘‘attributable to wages and wagerelated costs.’’ We believe that this 

reflected Congressional intent that 

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 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43850 through 

43856), we rebased and revised the 

hospital market basket for operating 

costs. We established a FY–2006-based 

IPPS hospital market basket to replace 

the FY 2002-based IPPS hospital market 

basket, effective October 1, 2009. In that 

final rule, we presented our analysis 

and conclusions regarding the frequency 

and methodology for updating the laborrelated share for FY 2010. We also 

recalculated a labor-related share of 68.8 

percent, using the FY 2006-based IPPS 

market basket, for discharges occurring 

on or after October 1, 2009. In addition, 

we implemented this revised and 

rebased labor-related share in a budget 

neutral manner, but consistent with 

section 1886(d)(3)(E) of the Act, we did 

not take into account the additional 

payments that would be made as a 

result of hospitals with a wage index 

less than or equal to 1.0 being paid 

using a labor-related share lower than 

the labor-related share of hospitals with 

a wage index greater than 1.0. 

The labor-related share is used to 

determine the proportion of the national 

IPPS base payment rate to which the 

area wage index is applied. In the FY 

2011 IPPS/LTCH PPS proposed rule (75 

FR 23955), we did not propose to make 

any further changes to the national 

average proportion of operating costs 

that are attributable to wages and 

salaries, fringe benefits, contract labor, 

the labor-related portion of professional 

fees, administrative and business 

support services, and all other laborrelated services (previously referred to 

in the FY 2002-based IPPS market 

basket as labor-intensive). 

We did not receive any public 

comments on this policy. Therefore, for 

FY 2011, we are continuing to use a 

labor-related share of 68.8 percent for 

discharges occurring on or after October 

1, 2010. Tables 1A and 1B in the 

Addendum to this final rule reflects this 

labor-related share. 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 

this employment ‘‘would result in lower 

payments to a hospital than would 

otherwise be made.’’ Therefore, for all 

IPPS hospitals whose wage indices are 

less than 1.0000, we are applying the 

wage index to a labor-related share of 62 

percent of the national standardized 

amount. For all IPPS hospitals whose 

wage indices are greater than 1.0000, we 

are applying the wage index to a laborrelated share of 68.8 percent of the 

national standardized amount. 

For Puerto Rico hospitals, the national 

labor-related share will always be 62 

percent because the national wage index 

for all Puerto Rico hospitals is less than 

1.0. As we proposed, in this final rule, 

we are continuing to use a labor-related 

share for the Puerto Rico-specific 

standardized amounts of 62.1 percent 

for discharges occurring on or after 

October 1, 2010. This Puerto Rico laborrelated share of 62.1 percent was also 

adopted in the FY 2010 IPPS/LTCH PPS 

final rule (74 FR 43857) at the time the 

FY 2006-based hospital market basket 

was established, effective October 1, 

2009. Consistent with our methodology 

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related share, we added the Puerto Ricospecific relative weights for wages and 

salaries, fringe benefits, contract labor, 

the labor-related portion of professional 

fees, administrative and business 

support services, and all other laborrelated services (previously referred to 

in the FY 2002-based IPPS market 

basket as labor-intensive) to determine 

the labor-related share. Puerto Rico 

hospitals are paid based on 75 percent 

of the national standardized amounts 

and 25 percent of the Puerto Ricospecific standardized amounts. The 

labor-related share of a hospital’s Puerto 

Rico-specific rate will be either the 

Puerto Rico-specific labor-related share 

of 62.1 percent or 62 percent, depending 

on which results in higher payments to 

the hospital. If the hospital has a Puerto 

Rico-specific wage index of greater than 

1.0, we will set the hospital’s rates using 

a labor-related share of 62.1 percent for 

the 25 percent portion of the hospital’s 

payment determined by the Puerto Rico 

standardized amounts because this 

amount will result in higher payments. 

Conversely, a hospital with a Puerto 

Rico-specific wage index of less than 1.0 

will be paid using the Puerto Ricospecific labor-related share of 62 percent 

of the Puerto Rico-specific rates because 

the lower labor-related share will result 

in higher payments. We did not receive 

any public comments on the Puerto 

Rico-specific labor-related share. The 

Puerto Rico labor-related share of 62.1 

percent for FY 2011 is reflected in the 

Table 1C of the Addendum to this final 

rule. 

IV. Other Decisions and Changes to the 

IPPS for Operating Costs and GME 

Costs 

A. Reporting of Hospital Quality Data 

for Annual Hospital Payment Update 

1. Background 

a. Overview 

CMS is seeking to promote higher 

quality and more efficient health care 

for Medicare beneficiaries. This effort is 

supported by the adoption of an 

increasing number of widely-agreed 

upon quality measures. CMS has 

worked with relevant stakeholders to 

define measures of quality in almost 

every setting and currently measures 

some aspect of care for almost all 

Medicare beneficiaries. These measures 

assess structural aspects of care, clinical 

processes, patient experiences with 

care, and, increasingly, outcomes. 

CMS has implemented quality 

measure reporting programs for multiple 

settings of care. To measure the quality 

of hospital inpatient services, CMS 

implemented the Reporting Hospital 

Quality Data for Annual Payment 

Update (RHQDAPU) program. In 

addition, CMS has implemented quality 

reporting programs for hospital 

outpatient services, the Hospital 

Outpatient Quality Data Reporting 

Program (HOP QDRP), and for 

physicians and other eligible 

professionals, the Physician Quality 

Reporting Initiative (PQRI). CMS has 

also implemented quality reporting 

programs for home health agencies and 

skilled nursing facilities that are based 

on conditions of participation, and an 

end-stage renal disease quality reporting 

program that is based on conditions for 

coverage. In implementing RHQDAPU 

and other quality reporting programs, 

CMS has focused on measures that have 

high impact and support CMS and HHS 

priorities for improved quality and 

efficiency of care for Medicare 

beneficiaries. Our goal for the future is 

to align the clinical quality measure 

requirements of RHQDAPU and various 

other programs including HITECH so 

that burden for reporting would be 

reduced. 

Comment: Some commenters 

commended CMS’ commitment to raise 

quality, transparency, and efficiency in 

the health care world and applauded its 

efforts to integrate with other programs 

and initiatives. 

Response: We thank these comments 

regarding our implementation of the 

RHQDAPU program. 

Comment: A commenter noted that 

the proposed rule did not reference the 

quality-related provisions of the 

Affordable Care Act (Pub. L. 111–148) 

and the Health Care and Education 

Reconciliation Act of 2010 (HCERA) 

(Pub. L. 111–152). The Affordable Care 

Act requires the Secretary to establish a 

national quality strategy to include 

priorities and goals for quality 

improvement with input from 

stakeholders, such as the NQF. 

Response: The timing of the FY 2011 

IPPS/LTCH PPS proposed rule did not 

allow us to address the many qualityrelated provisions of the Affordable Care 

Act. The Affordable Care Act modified 

the RHQDAPU statutory provisions, 

authorized the Secretary to implement 

quality-related programs for various 

settings of care, and also added new 

requirements for collaborative goal 

setting regarding quality (as noted by 

the commenter). The focus of this 

specific section of this final rule is the 

RHQDAPU program, and we are 

addressing changes to the RHQDAPU 

program under the Affordable Care Act 

in this final rule. We plan to propose 

requirements for the Hospital ValueBased Purchasing (HVBP) program 

(section 3001 of Affordable Care Act) 

and other quality-related Affordable 

Care Act provisions through future 

rulemaking. Additionally, section 3011 

of the Affordable Care Act requires the 

Secretary to establish and update a 

national strategy to improve the delivery 

of health care services, patient health 

outcomes and population health. The 

initial submission of the national 

strategy to Congress must be no later 

than January 1, 2011. The national 

strategy as directed by section 3011 is 

broader in scope than hospital inpatient 

services, which are the focus of the 

RHQDAPU program. However, the 

national strategy may include guidance 

for future RHQDAPU program 

implementation. 

b. Hospital Quality Data Reporting 

Under Section 501(b) of Public Law 

108–173 

Section 501(b) of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA), 

Public Law 108–173, added section 

1886(b)(3)(B)(vii) to the Act. This 

section established the authority for the 

RHQDAPU program and revised the 

mechanism used to update the 

standardized payment amount for 

inpatient hospital operating costs. 

Specifically, section 1886(b)(3)(B)(vii)(I) 

of the Act, before it was amended by 

section 5001(a) of Public Law 109–171, 

provided for a reduction of 0.4 

percentage points to the update 

percentage increase (also known as the 

market basket update) for FY 2005 

through FY 2007 for any subsection (d) 

hospital that did not submit data on a 

set of 10 quality indicators established 

by the Secretary as of November 1, 2003. 

It also provides that any reduction 

would apply only to the fiscal year 

involved, and would not be taken into 

account in computing the applicable 

percentage increase for a subsequent 

fiscal year. The statute thereby 

established an incentive for IPPS 

hospitals to submit data on the quality 

measures established by the Secretary, 

and also built upon the previously 

established Voluntary Hospital Quality 

Data Reporting Program that we 

described in the FY 2009 IPPS final rule 

(73 FR 48598). 

We implemented section 

1886(b)(3)(B)(vii) of the Act in the FY 

2005 IPPS final rule (69 FR 49078) and 

codified the applicable percentage 

change in § 412.64(d) of our regulations. 

We adopted additional requirements 

under the RHQDAPU program in the FY 

2006 IPPS final rule (70 FR 47420). 

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10 Institute of Medicine, ‘‘Performance 

Measurement: Accelerating Improvement,’’ 

December 1, 2005, available at: http:// 

www.iom.edu/CMS/3809/19805/31310.aspx. IOM 

set forth these baseline measures in a November 

2005 report. However, the IOM report was not 

released until December 1, 2005 on the IOM Web 

site. 

c. Hospital Quality Data Reporting 

Under Section 5001(a) of Public Law 

109–171 

Section 5001(a) of the Deficit 

Reduction Act of 2005 (DRA), Public 

Law 109–171, further amended section 

1886(b)(3)(B) of the Act to revise the 

mechanism used to update the 

standardized payment amount for 

hospital inpatient operating costs, in 

particular, by adding new section 

1886(b)(3)(B)(viii) to the Act. 

Specifically, sections 

1886(b)(3)(B)(viii)(I) and (II) of the Act 

as added by the DRA provide that the 

payment update for FY 2007 and each 

subsequent fiscal year be reduced by 2.0 

percentage points for any subsection (d) 

hospital that does not submit quality 

data in a form and manner, and at a 

time, specified by the Secretary. 

(Section 4102(b)(1)(A) of the American 

Recovery and Reinvestment Act of 2009 

(Public Law 111–5) and section 

3401(a)(2) of the Affordable Care Act 

(Public Law 111–148) amended section 

1886(b)(3)(B)(viii)(I) of the Act to 

provide that, beginning in FY 2015, the 

reduction will be by one-quarter of such 

applicable percentage increase 

(determined without regard to 

reductions under sections 

1886(b)(3)(B)(ix), (xi), or (xii) of the 

Act).) Section 1886(b)(3)(B)(viii)(I) of the 

Act also provides that any reduction in 

a hospital’s payment update will apply 

only with respect to the fiscal year 

involved, and will not be taken into 

account for computing the applicable 

percentage increase for a subsequent 

fiscal year. In the FY 2007 IPPS final 

rule (71 FR 48045), we amended our 

regulations at § 412.64(d)(2) to reflect 

the 2.0 percentage point reduction in 

the payment update for FY 2007 and 

subsequent fiscal years for subsection 

(d) hospitals that do not comply with 

requirements for reporting quality data, 

as provided for under section 

1886(b)(3)(B)(viii) of the Act before it 

was amended by the American Recovery 

and Reinvestment Act and the 

Affordable Care Act. 

d. Hospital Quality Data Reporting 

Under Sections 3001(a)(2) and 

3401(a)(2) of Public Law 111–148 

Section 3001(a)(2) of the Affordable 

Care Act, Public Law 111–148, amended 

section 1886(b)(3)(B)(viii) of the Act. 

Specifically, section 3001(a)(2)(A) of the 

Affordable Care Act amended section 

1886(b)(3)(B)(viii)(II) of the Act to state 

that the Secretary may require hospitals 

to submit data on measures that are not 

used for the determination of valuebased incentive payments under the 

HVBP program. Section 3001(a)(2)(C) of 

the Affordable Care Act amended 

section 1886(b)(3)(B)(viii)(VII) of the Act 

to require that the Secretary establish 

procedures for making information 

regarding measures submitted (instead 

of data submitted) available to the 

public. In addition, section 3001(a)(2)(B) 

of the Affordable Care Act amended 

section 1886(b)(3)(B)(viii)(V) of the Act 

to limit the requirement that measures 

added by the Secretary reflect consensus 

among affected parties and, to the extent 

feasible and practicable, include 

measures set forth by one or more 

national consensus building entities to 

payments for FYs 2008 through 2012. 

Section 3001(a)(2)(D) of the 

Affordable Care Act added section 

1886(b)(3)(B)(viii)(IX) of the Act to 

require, for payments beginning with FY 

2013, each measure specified by the 

Secretary under section 

1886(b)(3)(B)(viii) of the Act to be 

endorsed by the entity with a contract 

under section 1890(a) regarding 

consensus entities (the ‘‘consensus 

entity’’) except, 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 consensus entity, 

the Secretary may specify a measure 

that is not endorsed so long as due 

consideration is given to measures that 

have been endorsed or adopted by a 

consensus organization identified by the 

Secretary. 

Section 3001(a)(2)(D) of the 

Affordable Care Act also added new 

sections 1886(b)(3)(B)(viii)(VIII), 

1886(b)(3)(B)(viii)(X) and 

1886(b)(3)(B)(viii)(XI) to the Act, which 

require the Secretary to do the 

following, respectively: (1) Provide for 

such risk adjustment as the Secretary 

determines appropriate to maintain 

incentives for hospitals to treat patients 

with severe illnesses or conditions with 

respect to quality measures for 

outcomes of care effective for payments 

beginning with FY 2013; (2) to the 

extent practicable and with input from 

consensus organizations and other 

stakeholders, take steps to ensure that 

the measures specified by the Secretary 

under 1886(b)(3)(B)(viii) of the Act are 

coordinated and aligned with quality 

measures applicable to physicians 

under section 1848(k) of the Act and 

other providers of services and 

suppliers under Medicare; and (3) 

establish a process to validate measures 

specified under section 

1886(b)(3)(B)(viii) of the Act, which 

includes the auditing of a number of 

randomly selected hospitals sufficient to 

ensure validity of the reporting program 

under this clause as a whole and shall 

provide a hospital with an opportunity 

to appeal the validation of measures 

reported by such hospital. 

Additionally, section 3401(a)(2) of the 

Affordable Care Act amended section 

1886(b)(3)(B)(viii)(I) of the Act by 

adding the phrase ‘‘of such applicable 

percentage increase (determined 

without regard to clause (ix), (xi), or 

(xii))’’ after the word ‘‘one-quarter’’ so 

that, beginning in FY 2015, the 

reduction under the RHQDAPU program 

will be by one-quarter of such 

applicable percentage increase 

determined without regard to other 

reductions in the annual payment 

update set forth in sections 

1886(b)(3)(B)](ix), (xi), or (xii) of the 

Act. 

e. Quality Measures 

Section 1886(b)(3)(B)(viii)(III) of the 

Act requires that the Secretary expand 

the ‘‘starter set’’ of 10 quality measures 

that was established by the Secretary as 

of November 1, 2003, as the Secretary 

determines to be appropriate for the 

measurement of the quality of care 

furnished by a hospital in inpatient 

settings. In expanding this set of 

measures, section 1886(b)(3)(B)(viii)(IV) 

of the Act requires that, effective for 

payments beginning with FY 2007, the 

Secretary begin to adopt the baseline set 

of performance measures as set forth in 

a report issued by the Institute of 

Medicine (IOM) of the National 

Academy of Sciences under section 

238(b) of Public Law 108–173.10

Section 1886(b)(3)(B)(viii)(V) of the 

Act, as amended by section 

3001(a)(2)(B) of the Affordable Care Act, 

requires that, effective for payments for 

FYs 2008 through 2012, the Secretary 

add other quality measures that reflect 

consensus among affected parties, and 

to the extent feasible and practicable, 

have been set forth by one or more 

national consensus building entities. 

The NQF is a voluntary consensus 

standard-setting organization with a 

diverse representation of consumer, 

purchaser, provider, academic, clinical, 

and other health care stakeholder 

organizations. The NQF was established 

to standardize health care quality 

measurement and reporting through its 

consensus development process. We 

have generally adopted NQF-endorsed 

measures. However, we believe that 

consensus among affected parties also 

can be reflected by other means, 

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including consensus achieved during 

the measure development process, 

consensus shown through broad 

acceptance and use of measures, and 

consensus through public comment. 

As discussed previously, section 

3001(a)(2) of the Affordable Care Act 

amended section 1886(b)(3)(B)(viii) of 

the Act to provide a different standard 

for quality measures included in the 

RHQDAPU program for payments 

beginning with FY 2013. Under section 

1886(b)(3)(B)(viii)(IX) of the Act, for 

payments beginning with FY 2013, each 

measure specified by the Secretary must 

be endorsed by a consensus entity, 

currently NQF, except in certain 

circumstances. Specifically, 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 

consensus entity, the Secretary may 

specify a measure that is not endorsed 

by the consensus entity if due 

consideration is given to measures that 

have been endorsed or adopted by a 

consensus organization identified by the 

Secretary. 

Section 1886(b)(3)(B)(viii)(VI) of the 

Act authorizes the Secretary to replace 

any quality measures or indicators in 

appropriate cases, such as where all 

hospitals are effectively in compliance 

with a measure, or the measures or 

indicators have been subsequently 

shown to not represent the best clinical 

practice. Thus, the Secretary is granted 

broad discretion to replace measures 

that are no longer appropriate for the 

RHQDAPU program. 

In the FY 2007 IPPS final rule, we 

began to expand the RHQDAPU 

program measures by adding 11 quality 

measures to the 10-measure starter set to 

establish an expanded set of 21 quality 

measures for the FY 2007 payment 

determination (71 FR 48033 through 

48037, 48045). 

In the CY 2007 OPPS/ASC final rule 

(71 FR 68201), we adopted 6 additional 

quality measures for the FY 2008 

payment determination, for a total of 27 

measures. Two of these measures (30- 

Day Risk Standardized Mortality Rates 

for Heart Failure and 30-Day Risk 

Standardized Mortality Rates for AMI) 

were calculated using existing 

administrative Medicare claims data; 

thus, no additional data submission by 

hospitals was required for these two 

measures. The measures used for the FY 

2008 payment determination included, 

for the first time, the HCAHPS patient 

experience of care survey. 

In the FY 2008 IPPS final rule (72 FR 

47348 through 47358) and the CY 2008 

OPPS/ASC final rule with comment 

period (72 FR 66875 through 66877), we 

added three additional process 

measures to the RHQDAPU program 

measure set. (These three measures are 

SCIP-Infection-4: Cardiac Surgery 

Patients with Controlled 6AM 

Postoperative Serum Glucose, SCIPInfection-6: Surgery Patients with 

Appropriate Hair Removal, and 

Pneumonia 30-day mortality (Medicare 

patients).) The addition of these 3 

measures brought the total number of 

RHQDAPU program measures to be 

used for the FY 2009 payment 

determination to 30 (72 FR 66876). The 

30 measures used for the FY 2009 

annual payment determination are 

listed in the FY 2009 IPPS final rule (73 

FR 48600 through 48601). 

For the FY 2010 payment 

determination, we added 15 new 

measures to the RHQDAPU program 

measure set and retired 1 measure from 

the program (PN–1: Oxygenation 

Assessment). Of the new measures, 13 

were adopted in the FY 2009 IPPS final 

rule (73 FR 48602 through 48611) and 

2 additional measures were finalized in 

the CY 2009 OPPS/ASC final rule with 

comment period (73 FR 68780 through 

68781). This resulted in an expansion of 

the RHQDAPU program measures from 

30 measures for the FY 2009 payment 

determination to 44 measures for the FY 

2010 payment determination. The 

RHQDAPU program measures for the FY 

2010 payment determination consist of: 

26 chart-abstracted process measures, 

which measure quality of care provided 

for Acute Myocardial Infarction (AMI), 

Heart Failure (HF), Pneumonia (PN), 

and Surgical Care Improvement (SCIP); 

6 claims-based measures, which 

evaluate 30-day mortality and 30-day 

readmission rates for AMI, HF, or PN; 9 

claims-based AHRQ patient safety 

indicators and inpatient quality 

indicators; 1 claims-based nursing 

sensitive measure; 1 structural measure 

that assesses participation in a 

systematic database for cardiac surgery; 

and the HCAHPS patient experience of 

care survey. The measures are listed in 

the FY 2009 IPPS final rule 

(73 FR 46809) and in the CY 2009 

OPPS/ASC final rule with comment 

period (73 FR 68781). 

On December 31, 2008, we advised 

hospitals that they would no longer be 

required to submit data for the 

RHQDAPU program measure AMI–6– 

Beta blocker at arrival, beginning with 

discharges occurring on April 1, 2009. 

This change was based on the evolving 

evidence regarding AMI patient care, as 

well as changes in the American College 

of Cardiology/American Heart 

Association (ACC/AHA) practice 

guidelines for ST-segment elevation 

myocardial infarction and non-ST 

segment elevation myocardial 

infarction, upon which AMI–6 is based. 

We took action to remove the measure 

from reporting initiatives based on the 

lack of support by the measure 

developer and the clinical and scientific 

considerations described in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43863). 

We had previously discussed 

considerations relating to retiring or 

replacing measures in the FY 2008 IPPS 

final rule with comment period and the 

FY 2009 IPPS final rule, including the 

‘‘topping out’’ of hospitals’ performance 

under a measure (72 FR 47358 through 

47359 and 73 FR 48603 through 48604, 

respectively). However, in this instance, 

the measure no longer ‘‘represent[s] the 

best clinical practice,’’ an additional 

basis under section 

1886(b)(3)(B)(viii)(VI) of the Act for 

retiring a measure. In the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule, we 

formally retired the AMI–6 measure 

from the RHQDAPU program for the FY 

2011 payment determination and 

subsequent payment determinations. 

For the FY 2011 payment 

determination, we retained 41 of the FY 

2010 quality measures; harmonized 2 

FY 2010 RHQDAPU program quality 

measures (combining PSI 04—Death 

among surgical patients with treatable 

serious complications; and Nursing 

Sensitive—Failure to rescue into a 

single measure (Death among surgical 

inpatients with serious, treatable 

complications); added 2chart-abstracted 

measures (SCIP-Infection-9: 

Postoperative Urinary Catheter Removal 

on Post Operative Day 1 or 2 and SCIPInfection-10: Perioperative Temperature 

Management); and added 2 structural 

measures: (1) Participation in a 

Systematic Clinical Database Registry 

for Stroke Care; and (2) Participation in 

a Systematic Clinical Database Registry 

for Nursing Sensitive Care) (74 FR 

43868 through 43873). The 46 measures 

we adopted for the FY 2011 payment 

determination are: 

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BILLING CODE 4120–01–C 

f. Maintenance of Technical 

Specifications for Quality Measures 

The technical specifications for the 

RHQDAPU program measures, or links 

to Web sites hosting technical 

specifications, are contained in the 

CMS/The Joint Commission 

Specifications Manual for National 

Hospital Inpatient Quality Measures 

(Specifications Manual). This 

Specifications Manual is posted on the 

CMS QualityNet Web site at https:// 

www.QualityNet.org/. We maintain the 

technical specifications by updating this 

Specifications Manual semiannually, or 

more frequently in unusual cases, and 

include detailed instructions and 

calculation algorithms for hospitals to 

use when collecting and submitting data 

on required measures. These 

semiannual updates are accompanied by 

notifications to users, providing 

sufficient time between the change and 

the effective date in order to allow users 

to incorporate changes and updates to 

the specifications into data collection 

systems. 

We did not receive any public 

comments on this section and we will 

continue to use this process to maintain 

the technical specifications for the 

RHQDAPU program measures. 

g. Public Display of Quality Measures 

Section 1886(b)(3)(B)(viii)(VII) of the 

Act, as amended by section 3001(a)(2) of 

the Affordable Care Act, requires that 

the Secretary establish procedures for 

making information regarding measures 

submitted available to the public after 

ensuring that a hospital has the 

opportunity to review its data before 

they are made public. To meet this 

requirement, data from the RHQDAPU 

program are typically displayed on CMS 

Web sites such as the Hospital Compare 

Web site, http:// 

www.hospitalcompare.hhs.gov after a 

30-day preview period. An interactive 

Web tool, this Web site assists 

beneficiaries by providing information 

on hospital quality of care to those who 

need to select a hospital. It further 

serves to encourage beneficiaries to 

work with their doctors and hospitals to 

discuss the quality of care hospitals 

provide to patients, thereby providing 

an additional incentive to hospitals to 

improve the quality of care that they 

furnish. The RHQDAPU program 

currently includes process of care 

measures, risk-adjusted outcome 

measures, the HCAHPS patient 

experience-of-care survey, and 


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structural measures, all of which are 

featured on the Hospital Compare Web 

site. 

However, information that may not be 

relevant to or understood by 

beneficiaries and information for which 

there are unresolved display issues or 

design considerations for inclusion on 

Hospital Compare may be made 

available on other CMS Web sites that 

are not intended to be used as an 

interactive Web tool, such as http:// 

www.cms.hhs.gov/HospitalQualityInits/. 

Publicly reporting the information in 

this manner, though not on the Hospital 

Compare Web site, allows CMS to meet 

the requirement under section 

1886(b)(3)(B)(viii)(VII) of the Act for 

establishing procedures to make quality 

data used for RHQDAPU payment 

determinations available to the public 

following a preview period. In such 

circumstances, affected parties are 

notified via CMS listservs, CMS e-mail 

blasts, national provider calls, and 

QualityNet announcements regarding 

the release of preview reports followed 

by the posting of data on a Web site 

other than Hospital Compare. 

Comment: One commenter supported 

CMS’ current policy of identifying 

quality measures rates based on fewer 

than 25 cases as potentially unreliable 

for judging a hospital’s performance 

when displaying data on Hospital 

Compare. The commenter indicated that 

this is currently accomplished by 

footnoting the data but it would be 

better to simply not display the rates 

that are based on fewer than 25 cases. 

Response: We thank the commenter 

for the suggestion. Although data 

display and Web site design issues are 

not subject to the rulemaking process, 

we will take this suggestion under 

consideration for future releases of the 

Hospital Compare Web site. 

Comment: One commenter requested 

that CMS describe in greater detail the 

rationale for publicly reporting 

measures on CMS Web sites other than 

Hospital Compare on a case-by-case 

basis. 

Response: Section 

1886(b)(3)(B)(viii)(VII) of the Act 

requires that the Secretary establish 

procedures for making information 

regarding measures submitted for the 

RHQDAPU payment determinations 

available to the public after ensuring 

that a hospital has the opportunity to 

review its data before they are made 

public. While we strive to make as 

much of this information available on 

the Hospital Compare Web site, there 

are instances where we need further 

time to develop a method of displaying 

the information so that it does not 

confuse or mislead consumers intending 

to use the data in healthcare decision 

making. To satisfy the statutory 

requirement for transparency of the 

information used to make RHQDAPU 

payment determinations available to the 

public, we would display the data on 

another CMS Web site such as http:// 

www.cms.gov, but not on the Hospital 

Compare Web site, which is meant to be 

a consumer oriented decision tool. Once 

an appropriate display mechanism has 

been determined, the information would 

be added to the Hospital Compare Web 

site. 

We will continue to use this public 

display process for the RHQDAPU 

program. 

2. Retirement of RHQDAPU Program 

Measures 

a. Considerations in Retiring Quality 

Measures From the RHQDAPU Program 

Unless stated otherwise, we generally 

retain measures from the current year’s 

RHQDAPU program measure set for 

subsequent years’ measure sets. We 

have previously retired one measure, 

PN–1: Oxygenation Assessment for 

Pneumonia, from the RHQDAPU 

program on the basis of high unvarying 

performance among hospitals, as 

measures with very high performance 

among hospitals present little 

opportunity for improvement, and do 

not provide meaningful distinctions in 

performance for consumers. We also 

have retired one measure from the 

program because it no longer 

‘‘represent[ed] the best clinical practice,’’ 

as stated under section 

1886(b)(3)(B)(viii)(VI) of the Act. In this 

latter situation, we stated that when 

there is reason to believe that the 

continued collection of a measure as it 

is currently specified raises potential 

patient safety concerns that it is 

appropriate for CMS to take immediate 

action to remove a measure from the 

RHQDAPU program and not wait for the 

annual rulemaking cycle. Therefore, in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43864 and 43865), we 

stated that we would promptly retire 

such measures followed by subsequent 

confirmation of the retirement in the 

next IPPS rulemaking. When we do so, 

we will notify hospitals and the public 

through the usual hospital and QIO 

communication channels used for the 

RHQDAPU program, which include 

memo and e-mail notification and 

QualityNet Web site articles and 

postings. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we invited public 

comment regarding additional 

RHQDAPU program measures that 

should be considered for retirement 

along with criteria that should be used 

for retiring measures. In the FY 2010 

IPPS/RY 2010 LTCH PPS final rule, 

commenters recommended 11 

RHQDAPU program measures for 

retirement for various reasons (74 FR 

43865). Among the criteria suggested by 

commenters that CMS should consider 

when determining whether to retire 

RHQDAPU program measures were: (1) 

Measure performance among hospitals 

is so high and unvarying that 

meaningful distinctions and 

improvements in performance can no 

longer be made; (2) performance or 

improvement on a measure does not 

result in better patient outcomes; (3) a 

measure does not align with current 

clinical guidelines or practice; (4) the 

availability of a more broadly applicable 

(across settings, populations, or 

conditions) quality measure for the 

topic; (5) the availability of a measure 

that is more proximal in time to desired 

patient outcomes for the particular 

topic; (6) the availability of a measure 

that is more strongly associated with 

desired patient outcomes for the 

particular topic; (7) collection and/or 

public reporting of a measure leads to 

negative unintended consequences 

other than patient harm. We agreed with 

commenters that these criteria should be 

among those considered in evaluating 

current RHQDAPU program measures 

for retirement. We again invited 

commenters to submit suggestions for 

additional measure retirement criteria 

for CMS to consider. 

Comment: One commenter asked for 

the CMS definition of ‘‘retirement’’ and 

the relationship of retired measures to 

the RHQDAPU program. 

Response: Retirement of a measure 

from the RHQDAPU program constitutes 

permanent removal of a measure from 

the RHQDAPU program measurement 

set for future payment determinations. 

Comment: Some commenters agreed 

with CMS’ quality measure retirement 

criteria including measures with 

consistent high performance (toppedout), measures not supported by 

evidence, measures that no longer 

represent the best clinical practice, and 

measures that have become a cause for 

potential patient safety concerns. A 

commenter recommended that CMS add 

the following two criteria to its list of 

criteria to be considered when 

determining whether to retire a 

RHQDAPU measure: (1) The measure 

should be modified or deleted if new 

clinical evidence exists that 

demonstrates that the measure should 

be modified or deleted; and (2) a 

previous process measure should be 

retired in favor of a new risk-adjusted 

outcomes measure. Some commenters 

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11AHRQ. Guidance on Using the AHRQ QI for 

Hospital-Level Comparative Reporting. June 2009. 

http://www.qualityindicators.ahrq.gov/downloads/

publications/AHRQ%20QI%20Guide%20to

%20Comparative%20Reporting%20v10.pdf. 

suggested CMS collaborate with 

organizations such as the NQF and the 

HQA in reviewing all current 

RHQDAPU quality measures for 

retirement determinations. 

A few commenters supported the 

retirement of topped-out measures but 

some commenters were concerned that 

the retirement of topped-out measures 

would lead to subsequent declining 

performance. The commenters further 

suggested that the process measures are 

also accountability measures and should 

not be retired just because they are 

topped-out. Some commenters 

recommended that CMS should 

continue data collection for topped out 

measures on a 3-year cycle, or consider 

incorporating the measure into a 

meaningful composite measure set. 

Another commenter recommended that 

CMS conduct demonstration projects to 

ascertain the impact of the proposed 

measures for retirement and assess the 

organizations’ ability to sustain 

improvement over time for measures 

that are considered to be taken out of 

the RHQDAPU program. The 

commenter believed that demonstration 

projects would enable the cycling of 

measures in and out of the RHQDAPU 

program as desired for public reporting 

and incentive payment programs. 

Response: We thank the commenters 

for sharing these suggestions and 

criteria for quality measure retirement. 

We will consider the commenters’ 

recommendations for evaluating current 

RHQDAPU program measures for 

retirement. We agree that changing 

scientific evidence should be 

considered in deciding whether to 

modify or retain a measure. We also 

agree that risk-adjusted outcome 

measures could potentially serve to 

replace process measures, although we 

believe other factors should be 

considered such as the performance on 

the process measures and the degree to 

which the measures address the same 

populations. While sustaining quality 

improvement gains for measures is 

important, it currently is not feasible for 

us to conduct continued surveillance on 

measures that have been retired from 

the RHQDAPU program. Further, we do 

not believe that the one measure that we 

have retired requires continued 

surveillance. This is because measuring 

oxygen saturation is part of ongoing 

monitoring functions built into 

equipment used for all hospitalized 

patients, and therefore would not suffer 

a decline in practice from lack of 

inclusion in this reporting program. We 

will consider the feasibility of the 

commenters’ suggestions to periodically 

monitor performance of measures that 

we may subsequently retire. As for 

collaboration with NQF and HQA, we 

consider changes in NQF endorsement 

status for measures adopted and 

considered for RHQDAPU, and as HQA 

members, we participate in HQA 

activities, which include reviewing 

measures which may be considered for 

retirement. We will consider the 

feasibility and appropriateness of the 

suggestion to use Medicare 

demonstrations as a potential 

mechanism to monitor measure 

performance for measures that may in 

the future be retired from the 

RHQDAPU program and suffer a decline 

in desired practices as a result of 

retirement. 

b. Retirement of Quality Measures 

Under the RHQDAPU Program for the 

FY 2011 Payment Determination and 

Subsequent Years 

In the FY 2009 IPPS final rule for the 

FY 2010 payment determination, we 

adopted nine measures that were 

developed by the Agency for Healthcare 

Research and Quality (AHRQ), and in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

we subsequently retained these 

measures for the FY 2011 payment 

determination. One of these measures 

was the AHRQ Mortality for Selected 

Surgical Procedures Composite, which 

is comprised of measures from the 

AHRQ Inpatient Quality Indicator (IQI) 

measure set. In late June of 2009, 

following an NQF steering committee 

evaluation of the AHRQ Mortality for 

Selected Surgical Procedures composite, 

the AHRQ issued guidance 11 that this 

composite is ‘‘not recommended for 

comparative reporting’’ as specified due 

to significant evidence gaps, and that 

these significant evidence gaps are 

unlikely to be addressed with further 

development or validation work. This 

guidance is available at: http://www.

qualityindicators.ahrq.gov/downloads/

publications/AHRQ%20QI%20

Guide%20to%20Comparative

%20Reporting%20v10.pdf. 

For this reason, we proposed to retire 

the Mortality for Selected Procedures 

Composite from the RHQDAPU program 

measure set for the FY 2011 payment 

determination and for subsequent 

payment determinations because the 

measure is not considered suitable for 

purposes of comparative reporting by 

the measure developer. We will neither 

calculate this measure for the FY 2011 

payment determination, nor display 

results for this measure on Hospital 

Compare. We invited comment on our 

proposal to retire this measure from the 

RHQDAPU program for the FY 2011 

payment determination and for 

subsequent payment determinations. 

We also invited commenters to submit 

suggestions and rationales for retirement 

of other RHQDAPU program measures. 

Comment: Commenters 

overwhelmingly supported the 

proposed retirement of the Mortality for 

Selected Procedures Composite from the 

RHQDAPU program measure set for the 

FY 2011 payment determination and for 

subsequent payment determinations due 

to its unsuitability for comparative 

reporting. 

Response: We thank the commenters 

for their support and we are finalizing 

the retirement of this measure for the FY 

2011 and subsequent payment 

determinations. 

Set out below are the 45 RHQDAPU 

program quality measures for the FY 

2011 payment determination reflecting 

our retirement of 1 measure: 

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BILLING CODE 4120–01–C 

3. Expansion Plan for Quality Measures 

for the FY 2012, FY 2013, and FY 2014 

Payment Determinations 

a. Considerations in Expanding and 

Updating Quality Measures Under the 

RHQDAPU Program 

In the FY 2009 IPPS final rule (73 FR 

48613) and the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43866 

through 43869), we acknowledged the 

data collection burden for hospitals 

participating in the RHQDAPU program, 

and reiterated our desire to expand the 

RHQDAPU program measure set while 

minimizing burden and seeking to 

provide alternative mechanisms for data 

submission for the RHQDAPU program. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule, we also stated that in future 

expansions and updates to the 

RHQDAPU program measure set, we 

would be taking into consideration 

several important goals. These goals 

include: (a) Expanding the types of 

measures beyond process of care 

measures to include an increased 

number of outcome measures, efficiency 

measures, and patients’ experience-ofcare measures; (b) expanding the scope 

of hospital services to which the 

measures apply; (c) considering the 

burden on hospitals in collecting chartabstracted data; (d) harmonizing the 

measures used in the RHQDAPU 

program with other CMS quality 

programs to align incentives and 

promote coordinated efforts to improve 

quality; (e) seeking to use measures 

based on alternative sources of data that 

do not require chart abstraction or that 

utilize data already being reported by 

many hospitals, such as data that 

hospitals report to clinical data 

registries, or all-payer claims data bases; 

and (f) weighing the relevance and 

utility of the measures compared to the 

burden on hospitals in submitting data 

under the RHQDAPU program. 

Specifically, we give priority to 

quality measures that assess 

performance on: (a) Conditions that 

result in the greatest mortality and 

morbidity in the Medicare population; 

(b) conditions that are high volume and 

high cost for the Medicare program; and 

(c) conditions for which wide cost and 

treatment variations have been reported, 

despite established clinical guidelines. 

We have used and continue to use these 

criteria to guide our decisions regarding 

what measures to add to the RHQDAPU 

program measure set. In addition, in 

selecting measures, we seek to address 

the six quality aims of effective, safe, 

timely, efficient, patient-centered, and 


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12A registry is a collection of clinical data for 

purposes of assessing clinical performance, quality 

of care, and opportunities for quality improvement. 

equitable healthcare. Current and long 

term priority topics include: prevention 

and population health; safety; chronic 

conditions; high cost and high volume 

conditions; elimination of health 

disparities; healthcare-associated 

infections and other adverse healthcare 

outcomes; improved care coordination; 

improved efficiency; improved patient 

and family experience of care; effective 

management of acute and chronic 

episodes of care; reduced unwarranted 

geographic variation in quality and 

efficiency; and adoption and use of 

interoperable health information 

technology. 

These criteria, priorities, and goals are 

consistent with section 

1886(b)(3)(B)(viii)(X) of the Act, as 

added by section 3001(a)(2)(D) of the 

Affordable Care Act, which requires the 

Secretary, to the extent practicable and 

with input from consensus 

organizations and other stakeholders, to 

take steps to ensure that the RHQDAPU 

measures are coordinated and aligned 

with quality measures applicable to 

physicians and other providers of 

services and suppliers under Medicare. 

RHQDAPU program measures were 

initially based solely on a hospital’s 

submission of chart-abstracted quality 

measure data. However, in recent years 

we have adopted measures that do not 

require chart abstraction, including 

structural and claims-based quality 

measures which we can calculate using 

other data sources. This supports our 

goal of expanding the measures for the 

RHQDAPU program while minimizing 

the burden on hospitals and, in 

particular, without significantly 

increasing the chart abstraction burden. 

In addition to claims-based and 

structural measures, we previously 

noted that registries 12 and electronic 

health records (EHRs) are potential 

alternative sources of hospital data for 

the RHQDAPU program. We observed 

that many hospitals already submit data 

to and participate in existing registries, 

and that registries often capture 

outcome information and provide 

ongoing quality improvement feedback 

to registry participants. We envisioned 

that instead of requiring hospitals to 

submit the same data to CMS that many 

hospitals are already submitting to 

registries, that we would collect the data 

directly from the registries. This could 

enable the expansion of the RHQDAPU 

program measure set without increasing 

the burden of data collection for those 

hospitals participating in the registries. 

We cited as examples of registries 

actively used by hospitals the Society of 

Thoracic Surgeons (STS) Cardiac 

Surgery Registry (with approximately 90 

percent participation by cardiac surgery 

programs), the AHA Stroke Registry 

(with approximately 1200 hospitals 

participating), and the American 

Nursing Association (ANA) Nursing 

Sensitive Measures Registry (with 

approximately 1400 hospitals 

participating). In the FY 2009 IPPS final 

rule (73 FR 48608 through 48609), we 

adopted the first RHQDAPU program 

measure related to registries: 

Participation in a Systematic Database 

for Cardiac Surgery. Subsequently, in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

(74 FR 43870 through 43872), we 

adopted two additional structural 

measures of registry participation for the 

topics of Stroke and Nursing Sensitive 

Care. We continue to evaluate the 

feasibility of leveraging registry-based 

data collection mechanisms for the 

RHQDAPU program. 

We also stated our intention to 

explore mechanisms for data 

submission using EHRs (73 FR 48614; 

74 FR 43866, 43892). Establishing such 

a system will require interoperability 

between EHRs and CMS data collection 

systems, additional infrastructure 

development on the part of hospitals 

and CMS, and the adoption of standards 

for the capturing, formatting, and 

transmission of data elements that make 

up the measures. However, once these 

activities are accomplished, the 

adoption of measures that rely on data 

obtained directly from EHRs will enable 

us to expand the RHQDAPU program 

measure set with less cost and burden 

to hospitals. 

In the FY 2009 IPPS final rule, we 

adopted nine AHRQ measures for the 

RHQDAPU program, one of which is 

now retired for the FY 2011 payment 

determination and subsequent payment 

determinations in this final rule. We 

stated that we would initially calculate 

the measures using Medicare claims 

data (73 FR 48608). However, we also 

stated that we remained interested in 

using all-payer claims data to calculate 

them and that we might propose to 

collect such data in the future. In the FY 

2010 IPPS/RY 2010 LTCH PPS proposed 

rule (74 FR 24169), we invited input 

and suggestions on how all-payer claims 

data can be collected and used by CMS 

to calculate these measures, as well as 

on additional AHRQ measures that we 

should consider adopting for future 

RHQDAPU program payment 

determinations. 

In summary, we noted in the FY 2011 

IPPS/LTCH PPS proposed rule that we 

will continue to pursue goals regarding 

the expansion and updating of quality 

measures under the RHQDAPU program 

while minimizing burden. We will take 

into account the public comments we 

receive on the possible uses of EHRs, 

registries, and all-payer claims data in 

the RHQDAPU program. We also will 

consider the measure selection criteria 

suggested by various commenters in 

prioritizing and selecting quality 

measures for the future. 

Comment: A few commenters 

supported the use of EHR-based data 

collection. One commenter was 

concerned that the clinical quality 

measures in the RHQDAPU program do 

not align with the electronic quality 

measure reporting requirements as part 

of the meaningful use criteria under the 

HITECH EHR incentive program rule. 

Response: We appreciate these 

supportive comments for EHR-based 

data collection as an alternative data 

source for quality measures. One of our 

priorities in the RHQDAPU program is 

to align clinical quality measures in the 

RHQDAPU program with the electronic 

quality measure reporting requirements 

under the meaningful use criteria under 

the HITECH EHR Incentive program in 

the future, and to specify current 

RHQDAPU measures for EHR-based 

collection. We note that some of the 

RHQDAPU program quality measures 

do not lend themselves to EHR 

reporting, for example HCAHPS 

experience of care measures. We are 

mindful of the need for alignment of the 

clinical measures used in the two 

programs as more measures are 

implemented in the future. 

Comment: Several commenters stated 

that CMS should delay the 

implementation of additional quality 

measures and spend time prioritizing 

future electronic quality measures 

during this transition to EHR. 

Response: Given the time that will be 

needed for building of infrastructure, 

interoperability, testing and 

development of e-specifications of 

measures, and the proposal and 

finalization of clinical quality measures, 

we believe we should not wait for the 

complete transition to EHR-based 

measure collection in order to move 

forward with the expansion of the 

RHQDAPU program. In determining 

whether to adopt new quality measures 

for the RHQDAPU program, we weigh 

the potential benefit of improvement 

that would result from reporting a given 

measure against the potential resource 

burden associated with reporting a 

measure. However, in the future, our 

intent is to develop and specify 

electronic measures of quality that will 

be aligned and meet the requirements 

for both programs. 

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Comment: One commenter questioned 

the value of claims-based and registrybased data collection when EHR data 

collection is fully implemented. 

Response: We believe that claims may 

still be needed to identify prior events 

and diagnoses for measures that require 

look-back periods, involving the 

matching of data for a single patient 

over long periods of time (for example, 

1 year of prior history) across multiple 

settings. EHR data provides a crosssectional snapshot of data, and such 

matching is not possible with a 

snapshot of data from a single provider 

or setting because it would not have all 

events and diagnoses for a particular 

patient outside of the particular setting 

or episode of care. This is possible, 

however, when claims for Medicare 

beneficiaries are utilized for such 

historical information across providers. 

Such data could be used to supplement 

cross-sectional clinical EHR data. 

Furthermore, registries provide services 

beyond data collection, such as quality 

improvement support, feedback and 

best practices. 

Comment: A commenter requested 

that CMS only implement measures that 

are aligned with identical technical 

specifications as other national data 

collection projects. For instance, the 

proposed Stroke registry measure has 

different population definitions from 

the Joint Commission stroke core 

measures, Disease certification program 

and designated Stroke Centers. 

Response: We agree that measures 

used in the RHQDAPU program should 

be based on a single set of harmonized 

population definitions and measure 

specifications. As discussed in later 

sections, we are not finalizing the 

registry-based submission mechanism 

proposal. 

Comment: One commenter asked for 

clarification on the requirements for 

measures that are calculated based on 

ICD–9 CM codes as well as the timeline 

and impact of transitioning to ICD–10– 

CM codes. 

Response: CMS has announced the 

transition to ICD–10–CM codes effective 

October 1, 2013, at the start of FY 2014. 

Prior to that date, we will be 

respecifying measures that are 

implemented in quality data reporting 

programs to incorporate ICD–10–CM 

codes. 

Comment: Several commenters noted 

that CMS’ intent to reduce burden by 

proposing different reporting 

mechanism may in fact create more 

burden on hospitals. Hospitals are most 

familiar with chart abstraction. 

Response: We agree with commenters 

that hospitals are most familiar with 

chart abstraction as a data collection 

method. However, we also recognize 

that this is a burdensome mechanism. 

Therefore, we believe, that it is desirable 

to leverage other collection 

mechanisms, especially where they are 

already actively being used by hospitals. 

We introduced two alternative reporting 

mechanisms in the proposed rule, the 

National Healthcare Safety Network 

(NHSN) and registry-based reporting. 

Although we are not adopting registrybased reporting, we envisioned that 

most hospitals would already be 

reporting one of the measures sets to at 

least one registry. Accordingly, we 

anticipated that in most cases there 

would be no new reporting required, 

only the selection of a registry to which 

hospitals were already reporting. 

With respect to the NHSN, many 

States are introducing requirements that 

hospitals report HAI data to the Centers 

for Disease Control and Prevention 

(CDC) via NHSN. Although we could 

have required that hospitals report HAI 

measures to CMS via chart abstraction, 

this would require duplicate effort on 

the part of hospitals submitting data 

through the NHSN on HAIs. Therefore, 

we proposed and are finalizing the CDC 

NHSN as the mechanism to submit data 

on HAI measures. In this way, we have 

aligned the CDC reporting efforts, and 

reporting mandated by many States. We 

believe that this is good policy and 

something commenters have urged. 

Comment: A number of commenters 

supported the use of registries as an 

alternative source of hospital-specific 

data on quality measures and as a means 

to reduce hospital burden. Several 

commenters indicated that the use of 

registries to collect hospital-level data 

would reduce administrative burden 

and ensure appropriate risk-adjustment 

for quality improvement and public 

reporting purposes, as well as other 

benefits, including broadening the 

information for quality improvement 

and Hospital Compare, but cautioned 

that registry data could weaken the 

validity and reliability of the 

information unless strict standards for 

data quality were imposed. A 

commenter suggested that CMS consider 

additional measures that could be 

compiled from registry data. 

Response: We thank the commenters 

for acknowledging the potential 

efficiencies and quality improvement 

support that could be gained through 

registry-based quality data reporting. We 

agree that standards for data quality 

would be necessary should CMS adopt 

registry-based measures for RHQDAPU 

in the future. The qualification criteria 

we proposed for registries were meant to 

establish standards for data quality for 

the measures we proposed to receive 

from registries. We will continue to 

pursue registry-based data submission 

as an alternative mechanism for 

receiving data for quality measures 

adopted into the RHQDAPU 

measurement set. 

Comment: Many commenters opposed 

the inclusion of quality measures that 

require participation in registries. 

Several commenters expressed concern 

regarding the possibility that they may 

be required to participate in proprietary 

registries in the future. These 

commenters saw registry-based data 

collection as costly and labor intensive 

because many of the measures collected 

by registries require chart abstraction. 

Some commenters recommended that 

CMS first standardize the data 

collection and submission process 

across registries to ensure data quality. 

One commenter asked for clarification 

on how would the registry-based 

measures which are only used by a 

subset of hospitals be utilized in a value 

based purchasing program. Some 

commenters encouraged CMS to 

promote the study of regional variation 

to enable comparisons within/across 

systems and among regional registries in 

order to give hospitals more options in 

data reporting. 

Response: We are not finalizing the 

registry-based submission proposal. 

Among other reasons for not finalizing 

this proposal, we agree that it would be 

difficult to use the measures for value 

based purchasing if only a subset of 

hospitals with such cases report the 

measures, as the commenter suggests. 

Regional registries may be appropriate 

for registry-based submission, so long as 

there are a sufficient number of other 

registries to allow submission 

nationwide. We agree with the 

importance of standardizing data 

collection and submission processes by 

registries. Many hospitals are currently 

participating in a number of registries 

that collect data on quality measures 

that are topics of interest to us. We did 

not intend to require hospitals to 

participate in a proprietary registry, but 

rather to leverage existing participation 

in registries as an efficient alternative 

source from which to collect the data. 

However, we acknowledge the 

commenters’ concern regarding the cost 

and labor associated with participation 

in certain registries which may make 

this alternative mechanism for data 

submission less feasible for some 

hospitals. 

In considering registry-based 

submission for the future, we will 

consider whether registry-based data 

collection should be one means, but not 

an exclusive means, of submitting data 

for RHQDAPU quality measures. 

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Comment: Some commenters 

encouraged CMS to look to the National 

Priorities Partnership goals as a 

framework for the types of measures 

that should be included in the 

RHQDAPU program. Another 

commenter suggested the RHQDAPU 

program should only include those 

quality measures that meet a high 

threshold of accountability criteria. 

Another commenter stated CMS should 

develop a core measure set for inclusion 

in the pay-for-performance program. 

Response: The National Priorities 

Partnership is a 28 member organization 

convened by the NQF for the purpose of 

identifying improvement goals and 

action steps for the U.S. healthcare 

system. We are a member of the 

National Priorities Partnership and 

participate in its framework-setting 

activity. Our measure selection activity 

and measure development activity takes 

into account the priorities established 

by this framework as well as other 

criteria described earlier. Since measure 

selection for the HVBP program is 

dependent upon the pool of measures 

that have been adopted for the 

RHQDAPU program, the measures to be 

selected for inclusion in the HVBP 

program would be guided by these same 

frameworks and criteria. 

Comment: Several commenters stated 

that measures selected for the 

RHQDAPU program should be both 

endorsed by the NQF and adopted by 

the HQA. Some commenters suggested 

that these steps were required by the 

Deficit Reduction Act of 2005 (DRA). 

Response: Section 

1886(b)(3)(B)(viii)(V) of the Act, as 

added by the DRA and prior to the 

amendment made by section 

3001(a)(2)(B) of the Affordable Care Act, 

requires that, effective for payments 

beginning with FY 2008, the Secretary 

add quality measures that reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

have been set forth by one or more 

national consensus building entities. 

This provision does not require that the 

measures we adopt for the RHQDAPU 

program be endorsed by any particular 

entity, and we believe that consensus 

among affected parties can be reflected 

by means other than endorsement by a 

voluntary consensus organization, 

including consensus achieved during 

the measure development process, 

consensus shown through broad 

acceptance and use of measures, and 

consensus through public comment (74 

FR 24165 through 24166). Nevertheless, 

we have stated on numerous occasions 

that we prefer quality measures that are 

endorsed by the NQF. The NQF uses a 

formal consensus development process. 

As the NQF notes on its Web site at: 

http://www.qualityforum.org/

Measuring_Performance/Consensus_

Development_Process.aspx, it has been 

recognized as a voluntary consensus 

standards-setting organization as 

defined by the National Technology 

Transfer and Advancement Act of 1995 

(Pub. L. 104–113) (NTTAA) and Office 

of Management and Budget Circular A– 

119. We are unaware of any other 

organizations that qualify as an NTTAA 

consensus organization for the 

endorsement of quality measures. 

We also take into consideration the 

measures adopted by the HQA as well 

as an array of input from the public. The 

HQA is a national public-private 

collaboration that is committed to 

making meaningful, relevant, and easily 

understood information about hospital 

performance accessible to the public 

and to informing and encouraging 

efforts to improve quality. We 

appreciate HQA’s integral efforts to 

improve hospital quality of care and its 

support of our public quality reporting 

programs. As discussed previously, 

section 3001(a)(2) of the Affordable Care 

Act amended section 

1886(b)(3)(B)(viii)(V) of the Act and 

limited its applicability effective for 

payments for FYs 2008 through 2012. 

However, section 3001(a)(2) of the 

Affordable Care Act added a new 

section 1886(b)(3)(B)(viii)(IX) to the Act. 

This provision requires, for payments 

beginning with FY 2013, that each 

measure specified by the Secretary be 

endorsed by a consensus entity, except 

in certain circumstances. 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 

consensus entity, the Secretary may 

specify a measure that is not endorsed 

by the consensus entity if due 

consideration is given to measures that 

have been endorsed or adopted by a 

consensus organization identified by the 

Secretary. 

In the past, we have proposed to add 

new RHQDAPU program measures for 

one year’s payment determination in a 

given rulemaking cycle. Although in 

prior years we have identified various 

measures for future consideration, we 

have not proposed or finalized measures 

for RHQDAPU beyond those to be 

collected for the purpose of the next 

sequential payment determination. In 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 23965), we proposed an 

expansion to the RHQDAPU program 

that will take place over 3 payment 

years, and proposed to add measures 

not only for the FY 2012 payment 

determination, but also for FY 2013 and 

FY 2014 payment determinations. To 

the extent we finalize some or all of 

these proposed measures this year, we 

believe that we will be providing greater 

certainty for hospitals to plan to meet 

future reporting requirements and 

implement related quality improvement 

efforts. We will also have more time to 

prepare, organize and implement the 

necessary infrastructure to collect data 

on the measures and make payment 

determinations. Finally, in section 

IV.A.5.a.(2) of the proposed rule (75 FR 

23985), we discussed a proposal to 

make RHQDAPU payment 

determinations beginning with FY 2013 

using, in part, a consecutive calendar 

year of quality measure data. This 

proposed approach, of synchronizing 

the quarters for which data on these 

measures must be submitted during 

each year with the quarters we will use 

to make payment determinations, would 

apply beginning with January 1, 2011 

discharges although it would not affect 

our payment determinations until FY 

2013. We invited public comment on 

the measures and timeframe for their 

addition to the RHQDAPU program 

measure set. 

Comment: Many commenters 

expressed support of our proposal to 

propose and finalize RHQDAPU quality 

measures for 3 years in a single 

rulemaking in order to provide hospitals 

with advanced notice for planning 

purpose. 

Response: We appreciate the 

commenters’ support of our proposal to 

finalize measures for 3 consecutive 

payment determinations. Although we 

will finalize measures for 3 consecutive 

years, we may add or remove measures 

for these years in future rulemaking 

cycles should we need to respond to 

agency and statutory changes. 

Comment: A few commenters urged 

CMS not to finalize the proposed 3-year 

RHQDAPU quality measure plan until 

the availability of adequate information 

to align RHQDAPU program quality 

measures with the upcoming health care 

priorities of the Affordable Care Act 

becomes available. A commenter stated 

it is crucial to assure data quality given 

the various data sources that CMS 

proposed. 

Response: We retain the ability to 

change or replace measures in future 

rulemaking, which could be based on 

the national strategy to be developed 

under the Affordable Care Act. The 

measures that we finalize reflect 

important HHS priorities. Establishing 

them as RHQDAPU measures allows 

hospitals, CMS, and the public to have 

a longer time to prepare for collection 

and quality improvement efforts related 

to the measure. We have also previously 

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stated that should agency priorities or 

legislative changes require us to alter 

the measures selected, we will do so 

through the rulemaking process. We 

intend to examine and assure data 

quality for new sources of data if 

adopted for RHQDAPU. 

Comment: Some commenters 

questioned CMS’ authority to add 

measures to the RHQDAPU program 

beyond the FY 2012 payment 

determination as section 3001(a)(2)(B) of 

the Affordable Care Act revises section 

1886(b)(3)(B)(viii)(V) of the Act. 

Response: We do not believe that the 

commenters are correctly reading the 

amendment to section 

1886(b)(3)(B)(viii)(V) of the Act made by 

section 3001(a)(2)(B) of the Affordable 

Care Act in conjunction with section 

1886(b)(3)(B)(viii)(III) of the Act. As 

amended, section 1886(b)(3)(B)(viii)(V) 

of the Act states that, for payments for 

FYs 2008 through 2012, the Secretary 

shall add other measures that reflect 

consensus among affected parties and, 

to the extent feasible and practicable, 

shall include measures set forth by one 

or more national consensus building 

entities. For payments for FY 2013 and 

beyond, the Secretary would be able to 

add measures because section 

1886(b)(3)(B)(viii)(III) of the Act 

provides the Secretary with the 

authority to expand the measures 

consistent with the succeeding statutory 

provisions. Section 

1886(b)(3)(B)(viii)(V) of the Act simply 

would not apply to payments for FYs 

2013 and beyond. 

In summary, we are finalizing our 

proposal to select measures for three 

consecutive payment years. As 

discussed in section IV.A.5.a.(2) of this 

final rule, where we respond to 

comments on synchronizing the 

quarterly submission of data, we are 

finalizing our proposal to synchronize 

the quarterly submission of data for 

RHQDAPU. We will continue to pursue 

goals regarding the expansion and 

updating of quality measures under the 

RHQDAPU program while minimizing 

burden. We will take into account the 

public comments we received on the 

possible uses of EHRs, registries, and 

all-payer claims data in the RHQDAPU 

program. We also will consider the 

measure selection criteria suggested by 

various commenters in prioritizing and 

selecting quality measures for the 

future. 

b. RHQDAPU Program Quality Measures 

for the FY 2012 Payment Determination 

(1) Retention of 45 Existing RHQDAPU 

Program Quality Measures for the FY 

2012 Payment Determination 

As noted above, we are retiring the 

AHRQ Mortality for Selected Surgical 

Procedures Composite for the FY 2011 

payment determination. We proposed 

that the remaining 45 of the 46 quality 

measures for the FY 2011 RHQDAPU 

program payment determination will be 

used for the FY 2012 RHQDAPU 

program payment determination. Details 

regarding data submission requirements 

were discussed in section IV.A.5. of the 

proposed rule. We invited comment on 

the proposal to include all FY 2011 

measures except for the AHRQ Mortality 

for Selected Surgical Procedures 

Composite in the FY 2012 RHQDAPU 

measure set. 

Comment: A commenter suggested 

CMS further discuss risk-adjustment, 

co-morbid conditions, exclusion 

criteria, and interpretation of the 

collected data before making decisions 

to retain the 45 measures as proposed. 

Response: In general, we retain 

measures from one payment 

determination to the next unless we 

specifically retire them. Currently, risk 

adjustment of comorbidities for outcome 

measures and exclusion criteria for all 

measures are maintained on an ongoing 

basis as part of routine measure 

maintenance, and are submitted every 3 

years to NQF for reevaluation. We do 

not address measure maintenance or 

data display and interpretation issues in 

annual rulemaking. These issues are 

addressed in sub-regulatory processes. 

Comment: Some commenters were 

concerned that the Pneumonia Measure 

PN·6 (including PN·6a and PN–6b) 

relating to the initial antibiotic selection 

for Community Acquired Bacterial 

Pneumonia (CABP) in immunecompetent patients is at risk of not 

representing the best clinical practice if 

its technical specifications are not 

updated in a timely manner. The 

commenters suggested that, for PN–6, 

CMS should clearly define the process 

for hospitals to prescribe newly 

approved antibiotics to treat CABP with 

flexibility. Furthermore, the 

commenters noted that CMS also should 

add Ceftaroline Fosamil to the 

Pneumonia Antibiotic Consensus 

Recommendations upon FDA approval. 

Response: As stated earlier, we 

maintain and update the technical 

specifications for RHQDAPU program 

measures regularly, which includes 

regular updating of drug lists to include 

new FDA approved medications, 

including antibiotics that could be used 

for patients included in the PN–6 

measure. Appropriate documentation 

for hospital prescribing practices for 

measures such as PN–6 is also 

maintained in the technical 

specifications. 

After consideration of the public 

comments we received, we are adopting 

as final our proposal to retain 45 

existing measures from the FY 2011 

RHQDAPU payment determinations as 

RHQDAPU quality measures for the FY 

2012 payment determination. 

In proposing to retain 45 of the 46 FY 

2011 measures, we recognized that we 

were not significantly reducing the 

burden for hospitals, since the 1 

measure that we proposed to remove is 

a measure that currently is calculated 

based on Medicare claims. At the same 

time, our proposal to expand the 

measures for FY 2012 and beyond may 

add additional reporting burdens and 

new focus areas for hospital quality 

improvement efforts. In view of our 

concern about the burden of reporting 

for hospitals, especially when it comes 

to reporting chart-abstracted measures, 

another option that we have considered 

to accommodate the expansion of the 

measure set is the retirement of 

additional measures. Specifically, we 

have considered retiring one or more of 

those measures suggested by various 

commenters that were listed in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43865). We noted in that final 

rule that 11 RHQDAPU program chartabstracted measures were recommended 

for retirement by commenters. Seven of 

these 11 measures were recommended 

for retirement based on their 

performance being uniformly high 

nationwide, with little variability among 

hospitals. Information on the 

performance rates for hospitals 

reporting is available at: http://www.

cms.hhs.gov/HospitalQualityInits/

downloads/

HospitalNationalLevelPerformance.pdf. 

These measures are: 

• AMI–1 Aspirin at arrival 

• AMI–3 ACEI/ARB for left 

ventricular systolic dysfunction 

• AMI–4 Adult smoking cessation 

advice/counseling 

• AMI–5 Beta-blocker prescribed at 

discharge 

• HF–4 Adult smoking cessation 

advice/counseling 

• PN–4 Adult smoking cessation 

advice/counseling 

• SCIP–Infection-6: Surgery patients 

with appropriate hair removal 

In addition to these ‘‘topped-out’’ 

measures, commenters recommended 

we retire four additional measures listed 

below for reasons unrelated to high 

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unvarying performance. These measures 

are: 

• HF–1 Discharge instructions 

• PN–3b Blood culture performed 

before first antibiotic received in 

hospital 

• SCIP–Infection-2: Prophylactic 

antibiotic selection for surgical patients 

• SCIP–Infection-4: Cardiac Surgery 

Patients with Controlled 6AM 

Postoperative Serum Glucose 

Reasons given by commenters 

included the following: (1) Care process 

measured has weak or no relationship to 

better outcomes, (2) collection burden of 

measure negates or outweighs the 

benefit of reporting the measure, and (3) 

measure perceived to be discordant with 

current guidelines. 

We invited comments on the option to 

retire 1 or more of these 11 measures 

that were suggested for retirement by 

commenters to the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule. We 

acknowledged that some of these 

measures were proposed for electronic 

reporting under the program for 

incentive payment for meaningful use of 

electronic health records (75 FR 1896). 

In addition, we stated that we were 

considering an option under which if 

we propose and finalize measures that 

are specified to more broadly address a 

clinical topic, and thus would require 

hospitals to submit the same data that 

they are already submitting on more 

narrowly specified measures that we 

previously adopted for the RHQDAPU 

program, we would propose to retire the 

more narrowly specified measures from 

the RHQDAPU measure set. An example 

of this option that we were considering 

would be retirement of the current 

Influenza and Pneumoccocal 

vaccination measures that apply only to 

the Pneumonia admission inpatient 

population (PN–2 Pneumococcal 

vaccination status; and PN–7 Influenza 

vaccination status) if we proposed and 

finalized measures of Influenza and 

Pneumoccocal vaccination that apply to 

all inpatients. We invited comments on 

this option to retire narrowly specified 

measures in order to accommodate more 

broadly specified measures on a given 

topic. 

Comment: A few commenters 

supported retiring narrowly specified 

measures such as the vaccination 

measures that are specific to Pneumonia 

inpatients, as a way to reduce burden, 

especially when broader measures are 

available. 

Response: We thank the commenters 

for their support of the concept of 

retiring narrowly specified measures 

and replacing them with measures that 

could be applied to a broader 

population. As we discuss below in 

section IV.A.3.d. of this final rule, we 

are using this strategy and retiring the 

pneumonia-specific immunization 

measures for the FY 2014 payment 

determination because we are adopting 

the global immunization measures. 

Comment: Some commenters 

supported the retirement of one or more 

of the measures listed. Others also 

suggested additional measures to 

consider for retirement including: PN–2 

Pneumococcal vaccination status and 

PN–7 Influenza vaccination status, and 

the AHRQ Abdominal Aortic Aneurysm 

(AAA) Mortality Rate (with or without 

volume) (IQI 11). 

Response: We appreciate the 

commenters’ specific suggestions 

regarding retirement of particular 

measures. As discussed in section 

IV.A.3.d. of this final rule, we are 

retiring PN–2 and PN–7 for the FY 2014 

payment determination because we are 

adopting the global immunization 

measures. 

Comment: A commenter pointed out 

that three of the measures listed (AM1– 

1, AMI–5, and SCIP–INF–2) for the FY 

2011 payment determination overlap 

with the HITECH EHR incentive 

program Stage 1 meaningful use criteria 

and, therefore, they should be retired for 

burden reduction purposes. The 

commenter recommended that when the 

retirement of overlapped measures 

occurs in one program, they should also 

be retired in other programs as well. 

Response: The final rule for the 

HITECH EHR incentive program (75 FR 

44314) did not include the AMI and 

SCIP measures identified by the 

commenter. Rather, the measures that 

were finalized for HITECH EHR program 

hospital reporting are not currently 

included in the RHQDAPU program. As 

discussed previously, an important 

objective for the RHQDAPU program is 

to align the reporting of quality 

measures by hospitals for both the 

RHQDQPU and HITECH EHR programs. 

However, this alignment must be 

consistent with the data needs for the 

RHQDAPU program. The HITECH EHR 

program does not require the 

submission of patient level data, as is 

the case for the RHQDAPU program. 

Therefore, in order to completely align 

the clinical quality measure reporting if 

RHQDAPU measures were required in 

Stage 2 HITECH, changes to HITECH 

requirements would need to be made 

through the rule making process and 

also standardize other processes such as 

technology platform standards and 

submission processes. In aligning the 

HITECH EHR and RHQDAPU program 

measures, we anticipate developing 

electronic specifications for all of the 

currently chart abstracted measures. 

This could provide an EHR reporting 

alternative for measures that are 

currently chart abstracted. However, in 

developing alternative data submission 

mechanisms, we will be mindful of the 

specific uses of data submitted for 

RHQDAPU measures, that go beyond 

uses for clinical quality measures under 

the HITECH EHR program. Specifically, 

section 1886(b)(3)(B)(viii)(VII) of the 

Act, unlike the HITECH provisions, 

requires the public reporting of 

information regarding measures 

submitted to the RHQDAPU program, 

and the Affordable Care Act requires 

that measures for the HVBP program be 

specified under the RHQDAPU program. 

In view of the specific uses for 

RHQDAPU data, we must be satisfied 

that the measures results are equivalent, 

whether the data upon which the results 

are based are submitted based on chart 

abstraction or through use of certified 

EHR technology. 

Comment: One commenter stated that, 

although the mortality measures 

exclude patients who have a history of 

Medicare hospice enrollment prior to or 

on admission, the measures do not take 

into account decisions made by the 

patient or family to withhold treatments 

and opt for comfort care later in the 

hospital course as part of end-of-life 

care. The commenter was concerned 

that hospitals would transfer these 

patients or over-treat patients to avoid 

penalty. The commenter suggested that 

CMS develop a mechanism, such as the 

POA flag, to accurately and properly 

report the care that they deliver to the 

patient. 

Response: We thank the commenter 

for the input. However, we do not use 

rulemaking to define the parameters of 

the measures, such as exclusions. 

Rather, we depend on the processes of 

measure development and, if applicable, 

the NQF endorsement review. In the 

case of this measure, the exclusions in 

the measure were considered in the 

original endorsement process and at a 

subsequent maintenance process 

conducted by NQF. During the 

maintenance process, the measure was 

only modified to exclude cases where 

the patient had been a prior hospice 

patient. 

(2) New Claims-Based Measures 

We proposed to add 10 claims-based 

measures to the RHQDAPU program 

measure set for the FY 2012 payment 

determination: 2 AHRQ Patient Safety 

Indicators and 8 Hospital Acquired 

Condition measures. These proposed 

measures address important HHS 

priorities of Patient Safety and 

healthcare associated infections. They 

would be calculated using up to 3 years 

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13http://www.qualityindicators.ahrq.gov/

downloads/publications/AHRQ%20QI%20Guide%

20to%20Comparative%20Reporting%20v10.pdf. 

of Medicare claims for discharges prior 

to January 1, 2011. These measures are 

discussed below. 

(A) AHRQ Patient Safety Indicators 

In the FY 2009 IPPS final rule, we 

adopted a number of AHRQ Patient 

Safety Indicators and Inpatient Quality 

Indicators for the RHQDAPU program to 

be calculated using Medicare claims. 

The addition of these measures to the 

RHQDAPU program allowed us to 

expand the RHQDAPU program 

measure set to include measures of 

patient safety, in-hospital mortality, 

adverse events and complications 

without increasing the data submission 

burden on hospitals. In the FY 2010 

IPPS/RY 2010 LTCH PPS final rule, we 

retained these measures for the FY 2011 

payment determination. As we 

proposed in the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 23960 and 

23961), we are retiring one of those 

measures (Mortality for Selected 

Surgical Procedures Composite) from 

the RHQDAPU program measure set for 

the FY 2011 payment determination. 

For the FY 2012 payment 

determination, we proposed to adopt 2 

additional Patient Safety Indicators 

developed by the AHRQ. These were: 

PSI–11: Post-Operative Respiratory 

Failure and PSI–12: Post-Operative 

Pulmonary Embolism (PE) or Deep Vein 

Thrombosis (DVT). Both measures 

address post-operative complications, a 

topic that is currently not well 

represented in the RHQDAPU program 

measure set. Both measures are NQFendorsed, and have a Tier 1 evidence 

rating by AHRQ, the measure developer. 

Indicators given this level of evidentiary 

rating by AHRQ have the strongest 

evidence base, with established 

evidence in several or most evidentiary 

areas established by AHRQ, no 

substantial evidence suggesting that the 

indicator may not be useful for 

comparative reporting purposes, and in 

most cases have been endorsed by the 

National Quality Forum (NQF).13 The 

specific measures that we proposed to 

add are NQF-endorsed, thus, reflecting 

consensus among affected parties, and 

are deemed appropriate for comparative 

public reporting by the measure 

developer. Like the current AHRQ 

measures in the RHQDAPU program, 

these indicators are both risk-adjusted 

outcome measures that can be 

calculated based on existing Medicare 

claims, placing no additional reporting 

burden on hospitals while allowing us 

to expand outcomes measurement in the 

RHQDAPU program. The specifications 

for these measures can be found at http: 

//www.qualityindicators.ahrq.gov/

TechnicalSpecs41.htm#PSI41. We 

invited comment on our proposal to 

adopt these two AHRQ Patient Safety 

Indicators for the FY 2012 payment 

determination. 

Comment: Some commenters believed 

that claims data are not an accurate 

source of quality measures compared to 

medically-abstracted data. One 

commenter was concerned about the 

limitation of the claim-based measures 

used in Hospital Compare because the 

claims used were for the Medicare feefor-service population only. 

Response: We believe that claims 

data/administrative data are an 

appropriate data source upon which 

quality measures selected by the 

Secretary may be based. We note that 

many NQF-endorsed evidence-based 

quality measures which have been 

found appropriate for public reporting 

and quality improvement rely upon 

claims and administrative data as data 

sources. Furthermore, the use of claimsbased measures reduces reliance upon 

chart abstraction and its associated 

burden for quality measurement. We 

acknowledge that all-payer claims/ 

administrative data would further 

enhance the claims-based measures 

shown on Hospital Compare. We plan to 

continue to explore mechanisms to 

collect all-payer claims/administrative 

data. 

Comment: Many commenters did not 

support the proposed inclusion of PSI– 

11 and PSI–12 measures because they 

have time-limited NQF-endorsement 

due to validation issues, and the delay 

in the AHRQ update hampers hospitals’ 

ability to monitor the PSI results timely. 

The commenters believed the PSI–11 

and PSI–12 measures need more 

refinement and testing before they can 

be used for public reporting. One 

commenter asked CMS to ensure that 

the PSI–12 measure is not reported 

twice as it is also currently reported as 

part of PSI–90. Some commenters felt 

that PSI–12 may be redundant with the 

SCIP VTE measure and the VTE 

measurement set listed under the future 

measure section. 

Response: NQF designates some 

measures as having a 2-year ‘‘timelimited’’ endorsement when additional 

information like testing results are 

needed. All other NQF-endorsed 

measures have a 3-year endorsement 

period. However, in both instances, the 

measures have a status of endorsed by 

NQF, and undergo re-evaluation at the 

end of the endorsement period. 

Therefore, we do not agree with the 

suggestion to treat endorsed measures 

with time limitations as not endorsed. 

We also note that PSI–11 is endorsed 

without time limitation. Further, both 

measures are recommended for public 

reporting by AHRQ. We also do not 

agree that PSI–12 is duplicative of SCIP 

VTE. The PSI–12 measure reflects the 

actual occurrence of DVT (outcome) 

following a broad set of procedures. The 

SCIP VTE and VTE measurement set 

covers processes of care intended to 

prevent DVT. 

We have carefully considered all 

comments received and we are 

finalizing the PSI–11 and PSI–12 

measures for the FY 2012 payment 

determination. These measures are 

NQF-endorsed and address adverse 

surgical outcomes, a high HHS priority 

and a topic area that is currently not 

represented in the RHQDAPU 

measurement set. We will calculate 

these measures using the same process 

used for other measures based on 

Medicare fee for service claims. 

(B) Hospital Acquired Condition (HAC) 

Measures 

Section 1886(d)(4)(D) of the Act 

required the Secretary to select, in 

consultation with the Centers for 

Disease Control and Prevention (CDC), 

at least two conditions that: (a) Are high 

cost, high volume, or both; (b) are 

assigned to a higher paying MS–DRG 

when present as a secondary diagnosis 

(that is, conditions under the MS–DRG 

system that are CCs or MCCs); and (c) 

could reasonably have been prevented 

through the application of evidence 

based guidelines. We currently have 10 

categories of Hospital Acquired 

Conditions (HACs). We refer readers to: 

section II.F. of the FY 2008 IPPS final 

rule with comment period (72 FR 47202 

through 47218); section II.F. of the FY 

2009 IPPS final rule with comment 

period (73 FR 48474 through 48486); 

and section II.F. of the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule (74 FR 

43782 through 43785) for detailed 

discussions regarding the selection of 

the current 10 HAC categories. We refer 

readers to section II.F. of this final rule 

for additional discussion and our HAC 

policy for FY 2011. 

We have worked collaboratively with 

public health and infectious disease 

professionals from across HHS, 

including CDC, AHRQ, and the Office of 

Public Health and Science, to identify 

and select preventable HACs with input 

and comment from affected parties. 

CMS and CDC have also collaborated on 

the process for hospitals to submit a 

present on admission (POA) indicator 

for each diagnosis listed on IPPS 

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payment implications for POA reporting 

(74 FR 43783). 

CMS, CDC and AHRQ held jointly 

sponsored HAC and POA Listening 

Sessions (December 17, 2007 and 

December 18, 2008) to receive input 

from affected parties, individuals, and 

organizations regarding the selection 

and definition of HACs. The adoption of 

HACs were informed and continue to be 

informed by feedback received during 

the listening sessions, as well as through 

public comment received during the 

IPPS rulemaking process. In addition to 

receiving comments regarding the 

selection of conditions and POA 

indicator reporting, in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 43785), commenters suggested that 

CMS consider making aggregate POA 

information publicly available, and 

providing comparative information as a 

means of facilitating improvements in 

preventing the incidence of HACs. 

We proposed to adopt as RHQDAPU 

measures for the FY 2012 payment 

determination 8 (of 10) current HACs 

defined in section II.F. of the FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

23966), 6 of which have been identified 

by NQF as serious reportable events, 

and to publicly report these measures as 

we do other RHQDAPU program 

measures. These measures are: 

• Foreign Object Retained After 

Surgery 

• Air Embolism 

• Blood Incompatibility 

• Pressure Ulcer Stages III & IV 

• Falls and Trauma: (Includes: 

Fracture, Dislocation, Intracranial 

Injury, Crushing, Injury, Burn, Electric 

Shock) 

• Vascular Catheter-Associated 

Infection 

• Catheter-Associated UTI 

• Manifestations of Poor Glycemic 

Control 

We did not believe that it was 

necessary to propose to adopt the other 

two current HAC categories as 

RHQDAPU measures because the topics 

that they deal with would substantially 

overlap with other RHQDAPU program 

measures discussed below that we 

proposed to adopt for future payment 

determinations as chart-abstracted 

measures (which allows us to collect 

data on all patients). By contrast, the 

eight proposed HAC measures are 

claims-based measures for which we 

can only (at this time) collect data on 

Medicare beneficiaries. 

We proposed to utilize Medicare 

claims data to calculate measure rates 

for these eight HACs using the ICD–9– 

CM codes in conjunction with POA 

coding of ‘‘N’’ or ‘‘U,’’ as defined in IPPS 

rulemaking. We refer readers to section 

II.F.6. of the FY 2008 IPPS final rule 

with comment period (72 FR 47202 

through 47218), section II.F.7. of the FY 

2009 IPPS final rule (73 FR 48474 

through 48486), section II.F.6. (74 FR 

43782 through 43785) of the FY 2010 

IPPS/RY 2010 LTCH PPS final rule, and 

section II.F. of the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 23880) for 

detailed discussions regarding the use of 

the POA indicator in conjunction with 

ICD–9–CM coding to determine the 

presence of HACs. We also refer readers 

to the current ICD–9–CM codes and 

updates for these eight HAC categories 

in this final rule. We proposed to use 

the ICD–9–CM codes in conjunction 

with the ‘‘N’’ and ‘‘U’’ POA indicators for 

the HAC categories that will be finalized 

in this FY 2011 IPPS/LTCH PPS final 

rule to calculate the eight HAC 

measures for the RHQDAPU program. 

We believe that these HAC measures 

reflect consensus among affected parties 

as required for RHQDAPU program 

measures by section 

1886(b)(3)(B)(viii)(V) of the Act. In 

addition to meeting the consensus 

requirement through rulemaking and 

public comment, Vascular CatheterAssociated Infection and CatheterAssociated UTI are the subject of a 

quality measure which gained NQF 

endorsement in August 2009. The 

remaining six HAC categories have been 

identified as serious reportable events 

through the NQF consensus process and 

have also been selected as HACs 

through rulemaking and public 

comment. Data reporting requirements 

for these measures are provided in 

section IV.A.5.b.(6) of the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23990). 

We invited comment on our proposal to 

adopt these eight HAC measures for the 

FY 2012 payment determination. 

Comment: Some commenters 

supported inclusion of the HACs as 

measures for the RHQDAPU program as 

public reporting would encourage 

improvement. Other commenters 

supported inclusion, but also stressed 

that appropriate risk adjustment, 

comprehensive exclusion criteria, and 

NQF endorsement should be pursued. 

Response: We agree that public 

reporting of the HACs on the Hospital 

Compare Web site would encourage 

improvement. We also note that section 

3008 of the Affordable Care Act contains 

a provision for the reporting of HACs on 

the Hospital Compare Web site as well. 

We intend to publish measure 

specifications for the rates (including 

numerators, denominators, and 

exclusion criteria) in the Specifications 

Manual. We agree risk-adjustment may 

be appropriate for some of the 

indicators, and intend to apply 

appropriate risk adjustment for those 

HACs that are not considered Never 

Events, and are considered outcome 

measures, such as infection-related 

HACs. We will also consider the 

suggestion that we pursue NQF 

endorsement. 

Comment: Many commenters opposed 

the inclusion of HACs in the RHQDAPU 

program for various reasons. Some 

commenters did not believe the HACs as 

currently defined by ICD–9–CM codes 

constitute measures as there are no 

measure specifications. Commenters 

believed that they are tied to variables 

which are indications of documentation 

and coding and may inadvertently cause 

unintended consequences. Other 

commenters also believed that present 

on admission (POA) reporting is in its 

infancy and since the HACs would rely 

upon POA coding, they are not reliable. 

Other commenters indicated that some 

of the HACs are too rare to be 

meaningful. Other commenters believed 

that NQF endorsement or HQA adoption 

would be necessary prior to adoption of 

the HACs. 

Response: As stated in the response to 

the previous comment, we intend to 

include measure specifications in the 

Specifications Manual. We also believe 

that the HACs reflect consensus among 

affected parties because they were 

refined during two public listening 

sessions and underwent public 

comment through rulemaking. 

Furthermore, six of the eight HACs 

proposed as measures for the FY 2012 

payment determination are also NQFendorsed ‘‘never events.’’ We 

acknowledge that the rates of never 

events may be rare. However, because 

these are considered events that should 

never happen, reporting their 

prevalence, though rare, is still 

meaningful. Although POA coding is 

relatively new, it is subject to the same 

level of monitoring and oversight as 

diagnoses and procedures reported on 

claims, and therefore, is accurate and 

reliable to the best of hospitals’ abilities. 

Comment: One commenter asked 

CMS to address perceived overlap in the 

proposed HAC measures, the proposed 

HAI measures, and the nursing sensitive 

measure set. 

Response: While two of the HACs 

topically address HAIs, they are not the 

same measures as the HAIs proposed for 

collection via NHSN. They have a close 

relationship but they are not identical. 

In our FY 2011 IPPS/LTCH PPS 

proposed rule, we proposed the 

addition of the CDC central line catheter 

associated bloodstream infection rate for 

ICU and high-risk nursery patients and 

Surgical Site Infection Rate measure for 

inclusion in the RHQDAPU program (75 

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FR 23970 and 23971). These measures 

align with the topic areas of the 

Vascular Catheter-Associated Infection 

and Surgical Site Infection HACs. The 

information for determining the HACs is 

derived from claims data, while the 

central line catheter associated 

bloodstream infection rate for ICU and 

high-risk nursery patients and SSI 

measures are derived from chart 

abstraction. The central line catheter 

associated bloodstream infection rate for 

ICU and high-risk nursery patients 

measure (NQF #0139) is part of the NQF 

Nursing Sensitive Set. Section 

1886(d)(4)(iv) of the Act requires the 

Secretary to select at least two 

conditions as HACs that are: (a) High 

cost or high volume or both, (b) result 

in the assignment of a case to a DRG that 

has a higher payment when present as 

a secondary diagnosis, and (c) could 

reasonably have been prevented through 

the application of evidence based 

guidelines. The Hospital Acquired 

Conditions are based on NQF’s Serious 

Reportable Events. 

After careful consideration of 

comments received, we are finalizing 

the adoption of the eight HAC measures 

into the RHQDAPU program for the FY 

2012 payment determination. We will 

calculate these rates using Medicare Part 

A fee for service claims, and we intend 

to publicly report these measures on 

Hospital Compare starting in the fall of 

2010 after an appropriate preview 

period. The data to be used for this 

initial calculation will include claims 

from Q4 2008, and at least Q1 and Q2 

of 2009. We also note that section 3008 

of the Affordable Care Act contains a 

provision for public reporting of the 

HACs on Hospital Compare and that 

initiation of public reporting of the 

HACs now will enable us to better fulfill 

the requirements of this section in the 

future. Since the RHQDAPU program 

requires hospitals to submit data for 

measures, hospitals have an obligation 

to accurately report the diagnosis and 

events defined for the HACs, including 

POA codes, on their claims, because 

their claims will be the source of data 

for these measures under the RHQDAPU 

program. 

(3) All-Patient Volume Data for Selected 

MS–DRGs 

We currently display volume data for 

70 MS–DRGs, 55 of which relate to 

RHQDAPU program measures on the 

Hospital Compare Web site. However, 

the volume data currently shown on 

Hospital Compare is based on Medicare 

claims only. Although we do not 

consider volume alone to be a quality 

measure unless volume has been 

determined to be an indicator of quality, 

we believe that to the extent all-patient 

volume data are related to the measures, 

as they provide context for the quality 

measures in the inpatient hospital 

setting, and may assist Hospital 

Compare users in understanding the 

measure calculations. In general, in 

implementing RHQDAPU program 

measures, we have sought where 

currently possible to measure the care 

rendered to all patients within a 

hospital, and not just Medicare patients. 

For this reason, the chart-abstracted 

process of care measures we collect and 

display on Hospital Compare are based 

on the entire inpatient population for 

the hospital. 

We proposed that hospitals begin 

submitting as data on measures selected 

for the RHQDAPU program the allpatient data elements discussed in 

section IV.A.5.b.(5) of the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23990) 

for 55 MS–DRGs displayed on Hospital 

Compare that relate to adopted 

RHQDAPU program measures (75 FR 

23967). The specific MS–DRGs were 

listed in the proposed rule (75 FR 

23970). As stated above, we believe that 

the addition of this data will enable us 

and Medicare beneficiaries to better 

understand and evaluate the quality of 

care provided by hospitals with respect 

to both the chart-abstracted and claimsbased measures. We intend to publicly 

display this volume data along with the 

corresponding measure results on 

Hospital Compare. Hospitals would 

begin reporting these data once annually 

beginning with January 1, 2011 

discharges by submitting the all-patient 

data elements needed to calculate MS– 

DRG volume to QualityNet so we can 

determine the volume of cases treated 

by a hospital for the 55 MS–DRGs 

currently displayed on Hospital 

Compare. Rather than require hospitals 

to group their all-patient claims data by 

MS–DRG category themselves, CMS 

would use the data to be submitted by 

hospitals to group the data. 

We invited comments on this 

proposal. We also invited comments on 

an alternative that hospitals submit allpatient volume data based upon specific 

ICD–9–CM codes related to the 

proposed MS–DRGs rather than all data 

necessary to calculate the MS–DRGs. 

Comment: Many commenters opposed 

the collection of all-patient volume data 

in the RHQDAPU program as proposed, 

and stated that: (1) Volume does not 

constitute a quality measure and, 

therefore, would not fall under the 

Secretary’s authority under the Act to 

select measures for the RHQDAPU 

program; (2) submitting all-patient 

volume would require the transmission 

of Protected Health Information or 

Patient Identifiable Information that is 

not related to either quality or 

reimbursement and therefore is not in 

compliance with the requirements of the 

Health Insurance Portability and 

Accountability Act of 1996 (HIPAA); (3) 

it is not clear how the collection of allpatient volume data would be helpful to 

Medicare beneficiaries; (4) there are 

concerns about whether CMS 

infrastructure can handle data collection 

of a large amount of additional data; and 

(5) there are concerns regarding how the 

data will be displayed on Hospital 

Compare and fear that CMS and the 

public will equate high volume with 

high quality. 

Response: We disagree with the 

commenters about our authority to 

collect all-patient volume data in 

relation to RHQDAPU quality measures. 

However, based on the public comment 

received, we are not finalizing this 

proposal because commenters indicated 

that, as proposed, the reporting 

requirement would be overly 

burdensome for hospitals. We plan to 

explore how all-patient volume may be 

collected in an efficient manner and 

reintroduce the proposal in a 

subsequent rulemaking. 

Comment: Some commenters argued 

that CMS has underestimated the 

potential burden on hospitals which 

have to group the cases into one of the 

55 MS–DRGs before sending the ICD–9 

codes and other related data such as 

procedure date, discharge status, 

admission date, to name a few. A 

commenter asked CMS to provide a 

MS–DRG to ICD–9–CM codes equivalent 

table to ensure no overlapping as well 

as specifics on the data submission 

process. Another commenter suggested 

CMS provide an alternate method which 

allows hospitals already grouping data 

internally into MS–DRGs to post the allpatient volumes for these 55 MS–DRGs 

onto QualityNet on an annual basis. A 

commenter recommended CMS explore 

the possibility of getting the all-payer 

information from the Joint 

Commission’s vendors, State healthcare 

organizations or AHRQ. 

Response: We agree with the 

commenters that submission of the 

required data that would be necessary to 

determine the MS–DRG would be 

burdensome. Further, we believe that 

the alternative of requiring volume 

based on diagnosis codes would provide 

substantially equivalent information, 

even though we could not relate the 

volume data to a specific MS–DRG. As 

a result, we are not adopting our 

proposal to require the submission of 

all-payer volume in this final rule. We 

expect to refine the requirements for allpatient volume data submission based 

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on diagnosis codes and reintroduce the 

proposal in a subsequent rulemaking. 

Comment: Some commenters 

supported the inclusion of all-patient 

volume data for selected MS–DRGs and 

considered the inclusion of these data a 

move in the right direction. 

Response: We appreciate the 

supportive comments. As discussed 

previously, we expect to reintroduce the 

proposal in a subsequent rulemaking. 

Comment: Many commenters asked 

CMS to provide more details about the 

all-patient volume data submission 

process. Specifically, the commenters 

inquired if ICD–9–CM codes have to be 

submitted; what data elements have to 

be submitted; the data formats and 

transmission methods; frequency of data 

submissions; and deadlines for data 

submission. 

Response: We expect to reintroduce 

the proposal in a subsequent rulemaking 

as discussed previously and we would 

provide more details for the data 

submission process at that time. 

After consideration of the public 

comments we received, we are not 

finalizing this proposal to collect allpatient volume data for selected MS– 

DRGs. We currently require hospitals to 

submit all-patient counts to assess the 

adequacy of sampling for the current 

RHQDAPU measures, and will examine 

whether this requirement can be 

expanded upon in the future for public 

reporting, and to accommodate future 

quality measures adopted into the 

RHQDAPU program. 

In summary, for the FY 2012 payment 

determination, we are retaining 45 

measures adopted for the FY 2011 

payment determination, and adding 10 

claims-based measures (2 AHRQ 

surgical outcome measures, and 8 HAC 

measures) for a total of 55 measures. 

The RHQDAPU measure set for the 

FY 2012 payment determination is 

listed below: 

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BILLING CODE 4120–01–C 

c. RHQDAPU Program Quality Measures 

for the FY 2013 Payment Determination 

(1) Retention of FY 2012 Payment 

Determination Measures for the FY 2013 

Payment Determination 

We generally propose to retain 

RHQDAPU program measures from 1 

year to the next. Consistent with this 

approach, we proposed to retain all of 

the proposed measures for the FY 2012 

RHQDAPU payment determination, if 

finalized, for the FY 2013 payment 

determination. We invited public 

comment on the proposal to retain the 

55 FY 2012 measures for the FY 2013 

payment determination. 

We did not receive any public 

comments for this section. We are 

finalizing the retention of the 55 FY 

2012 measures for the FY 2013 payment 

determination. We believe that all of the 

55 finalized FY 2012 measures meet the 

requirements for RHQDAPU program 

measure selection for FY 2013 and 

subsequent payment determinations 

under sections 1886(b)(3)(B)(viii)(VIII) 

and (IX) of the Act. As discussed 

previously, section 

1886(b)(3)(B)(viii)(VIII) of the Act 

requires the Secretary to provide for 

such risk adjustment as the Secretary 

determines appropriate to maintain 

incentives for hospitals to treat patients 

with severe illnesses or conditions with 

respect to quality measures for 

outcomes of care effective for payments 

beginning with FY 2013. Section 

1886(b)(3)(B)(viii)(IX) of the Act 

requires, for payments beginning with 

FY 2013, each measure specified by the 

Secretary to be endorsed by a consensus 

entity, currently NQF, except in certain 

circumstances. Specifically, 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 

consensus entity, the Secretary may 

specify a measure that is not endorsed 

by the consensus entity if due 

consideration is given to measures that 

have been endorsed or adopted by a 

consensus organization identified by the 

Secretary. 

The process of care measures for AMI, 

HF, PN, and SCIP, the three structural 

measures regarding participation in a 

registry, and the HCAHPS patient 

experience of care survey being retained 

for the FY 2013 payment determination 

are all NQF-endorsed. The outcome 

measures being retained for the FY 2013 

payment determination include the 30- 

day mortality and 30-day readmission 

measures for AMI, HF, and PN as well 

as the AHRQ PSIs and IQIs, the two 

AHRQ composite measures, and the 

Death among surgical inpatients for 

serious treatable complications measure 

that is both part of the AHRQ PSI 

measure set, and the Nursing Sensitive 

measure set. These measures are all 

NQF-endorsed and provide for such risk 

adjustment as the Secretary determines 

to be appropriate to maintain incentives 

for hospitals to treat patients with 

severe illnesses or conditions. 

The eight HAC measures adopted for 

the FY 2012 payment determination that 

are being retained for the FY 2013 

payment determination represent a 

specified area or medical topic 

determined appropriate by the Secretary 

(CDC, CMS, AHRQ) for which a feasible 

and practical measure has not been 

endorsed by the consensus entity, and 

due consideration was given to 

measures that have been endorsed or 

adopted by a consensus organization 

identified by the Secretary. In fact, six 

of the HACs are NQF Never Events. The 

remaining two HACs are claims-based 

measures of HAIs, and consideration 

was given to chart abstracted NQF 

endorsed measures prior to determining 

that they would not be feasible to 

implement for the FY 2012 payment 

determination. 

(2) New Chart-Abstracted Measure for 

the FY 2013 Payment Determination 

We proposed to add one new chartabstracted measure for the FY 2013 

payment determination—AMI-Statin 

prescribed at Discharge. This measure is 

NQF-endorsed (NQF # 0639), and is 

similar to the NQF-endorsed stroke 

measure ‘‘Ischemic stroke patients with 

LDL >/= 100 mg/dL, or LDL not 

measured, or, who were on cholesterol 

reducing therapy prior to 

hospitalization are discharged on a 

statin medication’’ (NQF #0439), only 

specified for the AMI population. 

Current scientific evidence supports the 

continuation of statins more strongly for 

AMI patients than for stroke patients. 

Several randomized clinical trials have 

proven the benefits of statin drugs (also 

known as HMG Co-A reductase 

inhibitors) in reducing the risk of death 

and recurrent cardiovascular events in a 

broad range of patients with established 

cardiovascular disease, including those 

with prior myocardial infarction. 

Current ACC/AHA guidelines place a 

strong emphasis on the initiation or 

maintenance of statin drugs for patients 

hospitalized with AMI, particularly 

those with LDL-cholesterol levels at or 

above 100 mg/dL. As a result of the 

strength of the evidence and guideline 

support, the ACC/AHA has developed a 

performance measure to assess this 

aspect of care for AMI patients. 

Because statins are generally welltolerated, most AMI patients are 

appropriate candidates for this therapy. 

As a result of this clinical evidence, the 

NQF was asked to review whether it 

should broaden the current endorsed 

measure specification to include the 

AMI population. Information on this 

project can be found at: http:// 

www.qualityforum.org/Projects/a-b/ 

Ad_Hoc_Reviews/Statin_Medication/ 

Ad_Hoc_Review__Discharged

_on_Statin.aspx. In the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23970), 

we stated that we would decide whether 

to finalize this measure based on 

whether it achieves NQF endorsement 

and public comments. We believe that 

minimal additional burden would result 

from adoption of this measure into the 

RHQDAPU program because the AMI 

population that is the focus of this 

measure is already part of data 

collection efforts for the RHQDAPU 

program, and very few additional data 

elements would be needed to be 

abstracted for the proposed new 

measure on this existing measurement 

population. We proposed that hospitals 

would begin submission of data for the 

measure AMI-Statin Prescribed at 

Discharge beginning with January 1, 

2011 discharges for the RHQDAPU 2013 

payment determination. 

Comment: The majority of the 

commenters supported the proposed 

addition of the AMI-Statin Prescribed at 

Discharge measure. Some commenters 

supported the addition of Statins at 

Discharge for AMI patients contingent 

on NQF endorsement. 

Response: We thank the commenters 

for their support of this proposed 

measure. We note that this measure was 

fully endorsed by the NQF on June 11, 

2010, thus meeting the requirement 

under section 1886(b)(3)(B)(viii)(IX) of 

the Act. 

After consideration of the public 

comments, we are finalizing the 

measure for Statins Prescribed at 

Discharge for AMI patients for the FY 

2013 payment determination. 

(3) New Healthcare Associated Infection 

(HAI) Measures for the FY 2013 

Payment Determination 

HHS has placed high priority on 

reducing Healthcare Associated 

Infections and adopted an action plan in 

January of 2009. The HHS action plan 

identified seven HAI measures and 

measure targets. One of these measures, 

SSI–2 (as identified in the HHS Action 

Plan), is currently included in the 

RHQDAPU program (identified as SCIP– 

1). In the FY 2009 and FY 2010 IPPS 

rulemakings, we listed several 

Healthcare Associated Infection (HAI) 

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14http://www.cdc.gov/nhsn/. 

15McKibben L, Horan T Guidance on public 

reporting of healthcare-associated infections: 

recommendations of the Healthcare Infection 

Control Practices Advisory Committee. AJIC 

2005;33:217–26. 

measures as being under consideration 

for future adoption. Commenters on the 

FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule supported the HAI 

measures that were listed as being under 

consideration for the future and 

encouraged us to consider others as well 

(74 FR 43876). For the measure set to be 

used for the FY 2013 payment 

determination, we proposed adopting 

two new HAI measures that are 

currently being collected by CDC via the 

National Healthcare Safety Network 

(NHSN). These measures are: (1) Central 

Line Associated Blood Stream Infection 

(CLABSI) (NQF #0139) and (2) Surgical 

Site Infection (SSI) (NQF #0299). 

The NHSN is a secure, Internet-based 

surveillance system maintained and 

managed by the CDC, and can be 

utilized by all types of healthcare 

facilities in the United States, including 

acute care hospitals, long term acute 

care hospitals, psychiatric hospitals, 

rehabilitation hospitals, outpatient 

dialysis centers, ambulatory surgery 

centers, and long term care facilities. 

The NHSN enables healthcare facilities 

to collect and use data about HAIs, 

adherence to clinical practices known to 

prevent HAIs, the incidence or 

prevalence of multidrug-resistant 

organisms within their organizations, 

and other adverse events. Some States 

use NHSN as a means for healthcare 

facilities to submit data on HAIs 

mandated through their specific State 

legislation. NHSN data collection occurs 

via a Web-based tool hosted by the CDC 

provided free of charge to hospitals. 

Additionally, the ability of CDC to 

receive NHSN measures data from EHRs 

may be possible in the near future. 

Currently, 21 States require hospitals to 

report HAIs using NHSN, and the CDC 

supports more than 2000 hospitals that 

are using NHSN.14

Both the Central Line Associated 

Blood Stream Infection measure and the 

Surgical Site Infection measure are 

NQF-endorsed, and therefore meet the 

statutory requirement under section 

1886(b)(3)(B)(viii)(IX) of the Act. The 

measures address HAIs, a topic area 

widely acknowledged by the HHS, IOM, 

the National Priorities Partnership and 

others as a high priority requiring 

measurement and improvement. HAIs 

are among the leading causes of death 

in the United States. The CDC estimates 

that as many as 2 million infections are 

acquired each year in hospitals and 

result in approximately 90,000 deaths 

per year.15 It is estimated that more 

Americans die each year from HAIs than 

from auto accidents and homicides 

combined. HAIs not only put the patient 

at risk, but also increase the days of 

hospitalization required for patients and 

add considerable health care costs. 

HAIs are largely preventable through 

interventions such as better hygiene and 

advanced scientifically tested 

techniques for surgical patients. 

Therefore, many health care consumers 

and organizations are calling for public 

disclosure of HAIs, arguing that public 

reporting of HAI rates provides the 

information health care consumers need 

to choose the safest hospitals, and gives 

hospitals an incentive to improve 

infection control efforts. We solicited 

comment on the inclusion of quality 

measures that assess performance on 

HAIs as a high priority topic. We also 

solicited public comment on additional 

measures that could be added to those 

proposed in the FY 2011 IPPS/LTCH 

PPS proposed rule for public reporting 

and quality improvement. 

Comment: Many commenters 

supported the proposed use of the CDC/ 

NHSN to collect HAI measures. 

However, some commenters stated that 

the NHSN data input process is 

burdensome and commenters 

questioned the CDC/NHSN’s readiness 

to handle the new enrollment of one 

fourth of the RHQDAPU participating 

hospitals. Many commenters 

recommended that CMS collaborate 

with the CDC to streamline and 

synchronize the data collection 

mechanism and measure specifications 

prior to implementation, and to limit 

the surgical procedures for inclusion in 

data reporting. Commenters 

recommended development of robust 

training and technical support for 

NHSN collection. Many commenters 

supported phasing in these measures in 

order to allow hospitals to adjust to the 

reporting requirement, adopting one 

measure for collection in FY 2011 and 

another for collection in FY 2012. 

Response: We thank the commenters 

for their support and suggestions. 

Concurrently with the development of 

the FY 2011 IPPS/LTCH PPS final rule, 

we have been in extensive discussions 

with the CDC regarding the 

development and enhancements to the 

existing NHSN and CMS infrastructure 

that would enable utilization of the 

NHSN to report one or more measures 

to CMS. These enhancements include 

improved user support and training 

materials as well as streamlined 

specifications for collection of required 

data needed to calculate the HAI 

measures adopted for RHQDAPU. In the 

future, we will also be working toward 

the ability to receive reports 

electronically from hospital EHRs. We 

agree that phasing in these measures 

will allow more time for hospitals to 

adjust to the reporting requirements of 

the NHSN and, as discussed below, are 

finalizing the CLABSI measure for the 

FY 2013 payment determination and the 

SSI measure for the FY 2014 payment 

determination. We intend to limit the 

data elements required for RHQDAPU 

reporting to the subset of data elements, 

populations and procedures needed to 

calculate the NQF-endorsed measures 

we have proposed. 

Comment: A few commenters asked 

CMS to clarify how the proposed HAI 

measures reported via NHSN would be 

validated and publicly reported. 

Specifically, the commenters requested 

clarification whether the data will be 

stratified by type of hospitals in 

Hospital Compare. 

Response: We are considering adding 

CDC/NHSN measures to our validation 

process, as outlined in section IV.A.7.b. 

of this final rule. We acknowledge the 

need for uniformity in the data that will 

be publicly reported and used in the 

HVBP program. We will examine the 

need to validate these data, and may 

propose validation requirements for 

these data in the future, should we 

determine a need. We plan to publicly 

report the data for HAI measures 

collected through the NHSN on the 

Hospital Compare Web site as we do for 

other RHQDAPU program measures. 

Currently, the NQF specification 

stratifies the measure by type of unit 

within a hospital. We note NQFendorsed measure specifications for 

measures adopted into the RHQDAPU 

program are subject to periodic revision, 

and such revisions will also be reflected 

in what we require hospitals to submit 

to the RHQDAPU program. 

Comment: Some commenters were 

concerned that publishing 

administrative data via the HAC list, 

hospitals reporting to NHSN, and 

collecting data in another format could 

cause confusion for stakeholders. 

Response: We will take steps to 

determine how best to display these 

data so that they do not cause confusion 

for viewers. 

(A) Central Line Associated Blood 

Stream Infection (CLABSI) 

This HAI measure assesses the rate of 

laboratory-confirmed cases of 

bloodstream infection or clinical sepsis 

among ICU patients. It was endorsed by 

the NQF in 2004 and was adopted by 

the HQA in 2007. The measure can be 

stratified by the type of ICU. 

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(B) Surgical Site Infection (SSI) 

This HAI measure assesses the 

number of NHSN-defined operative 

procedures with a surgical site infection 

(deep incisional or organ space) within 

30 days, or 1 year if an implant is in 

place. Infections are identified on 

original admission or upon readmission 

to the facility of original operative 

procedure within the relevant time 

frame (30 days for no implants; within 

1 year for implants). The measure can be 

stratified by procedure type or risk 

factors. This measure was NQFendorsed in 2007 (and adopted by the 

HQA in 2008). 

We invited comment on our proposal 

to adopt these two HAI measures into 

the RHQDAPU program for the FY 2013 

payment determination. Collection of 

these measures would begin with 

January 1, 2011 discharges for the FY 

2013 payment determination. We 

proposed that hospitals use the NHSN 

infrastructure to report the measures for 

RHQDAPU program purposes. The 

proposed reporting mechanism for these 

HAI measures is discussed in greater 

detail in section IV.A.5.b.(6) of the FY 

2011 IPPS/LTCH PPS proposed rule (75 

FR 23990). 

Comment: A few commenters 

supported the inclusion of CLABSI for 

the FY 2013 annual payment 

determination, stating that CLABSI is 

the only measure that can be adopted 

quickly to meet the statutory 

requirement for inclusion in the HVBP 

program without undue burden on 

hospitals. Some commenters indicated 

that a phased in approach starting with 

the inclusion of the CLABSI measure is 

appropriate. The commenters provided 

several suggestions to implement the 

CLABSI: (1) Provide clarification 

whether the CLABSI data collection is 

unit-based or hospital-based; (2) provide 

clarification whether any or all surgical 

procedures apply to specific 

populations like adult, pediatric or both; 

(3) limit the number of surgeries 

reported for the 1st year; and (4) States 

with existing HAI reporting mandates be 

deemed to meet the CMS reporting 

requirements by meeting their State 

mandate. 

Response: We agree that because more 

hospitals are submitting the CLABSI 

measure, this measure would be the 

most feasible of the two proposed 

measures for hospitals to implement 

quickly, and that a phased in approach 

to adopting the HAI measures is 

warranted. The CLABSI measure is the 

one that is most commonly required by 

States, and currently most commonly 

reported among the HAI measures 

collected through the NHSN system. 

The CLABSI measure is currently 

stratified by type of ICU unit within the 

hospital, but is aggregated to the 

hospital-level by the NHSN. For the 

RHQDAPU program, we would limit the 

required data elements, populations and 

procedures to only those needed to 

calculate the NQF-endorsed measure. 

For the NQF-endorsed measure, the 

procedures that apply are: Coronary 

artery bypass graft and other cardiac 

surgery, hip or knee arthroplasty, colon 

surgery, hysterectomy (abdominal and 

vaginal), and vascular surgery, and the 

populations that apply are both the 

adult and pediatric populations. These 

procedures also correspond to the 

procedure categories used in SCIP. 

Capturing SCIP process-of-care data and 

NHSN SSI data for the same procedure 

categories will provide process and 

outcome data for the same patient 

populations. Regarding the extent that a 

State requirement can be used to satisfy 

the RHQDAPU program requirement, if 

the data submission requirement 

overlaps 100 percent with the 

requirements for the RHQDAPU 

program, it will be possible to satisfy 

both requirements with one submission. 

However, a State may mandate 

additional requirements beyond what is 

required for RHQDAPU, for example 

States may also be requiring the release 

of information to the State for public 

reporting at the State level, which 

would of course be in addition to the 

RHQDAPU requirement for public 

reporting. If a State mandate requires 

fewer data elements than what is 

required for RHQDAPU, hospitals 

participating in RHQDAPU will be 

required to submit the additional data in 

order to satisfy the RHQDAPU 

requirement. 

Comment: Many commenters did not 

support the SSI measure for FY 2013, 

citing resource constraints, a lack of 

clarification in data collection 

procedure, the absence of riskadjustment for data presentation in 

Hospital Compare; and a lack of 

clarification in exemptions for small 

hospitals. 

Response: We are finalizing only one 

HAI measure for the FY 2013 payment 

determination, the CLABSI measure, in 

order to allow hospitals to gain more 

experience with these types of measures 

and the new collection mechanism. We 

are finalizing the SSI measure for the FY 

2014 payment determination. In our 

view, both measures are equally 

important. However, we believe this 

approach of phasing in the measures 

will minimize the additional reporting 

burden on hospitals that are in States 

that do not currently mandate reporting 

of infection data to the NHSN, and will 

also allow time to address any 

measurement issues, such as those 

raised by commenters, for the SSI 

measure. 

Comment: One commenter strongly 

urged CMS to incorporate all seven HAI 

metrics from the DHHS Action Plan into 

the RHQDAPU program to ensure the 

corresponding HVBP program HAI topic 

is developed and included in 

performance scoring by FY 2013. 

Another commenter suggested CMS 

address the execution of the HVBP 

program with respect to the targeted 

outcome metrics from HAIs as required 

by the Affordable Care Act. 

Response: We thank the commenters 

for their recommendations and will 

consider them in future rulemaking. 

This FY 2011 IPPS/LTCH PPS final rule 

does not directly address the HVBP 

program authorized by section 3001 of 

the Affordable Care Act. We refer 

readers to section IV.A.14. of this final 

rule where we discuss the relationship 

between the RHQDAPU and HVBP 

programs. 

After consideration of the public 

comments we received, we are 

finalizing the CLABSI measure for the 

FY 2013 payment determination. 

Collection for the CLABSI measure will 

begin with January 1, 2011 discharges. 

Also, based upon public comment, we 

are finalizing the SSI measure for the FY 

2014 payment determination with 

collection to begin with January 1, 2012 

discharges. We expect the CLABSI 

measure and the SSI measure to be riskadjusted consistent with section 

1886(b)(3)(B)(viii)(VIII) of the Act for the 

FY 2013 and FY 2014 payment 

determinations, respectively. 

(4) New Registry-Based Measures 

For the FY 2013 payment 

determination, we proposed that 

hospitals choose one of the following 

four proposed measure topics: (1) 

Implantable Cardioverter Defibrillator 

(ICD) Complications, (2) Cardiac 

Surgery, (3) Stroke, or (4) NursingSensitive Care. With respect to the 

proposed measure topic selected by a 

hospital, we proposed that the hospital 

report data on the proposed measure(s) 

applicable to the measure topic 

(discussed below) to a qualified registry 

for the specific topic, and direct the 

registry to both calculate the measure 

results for the hospital and release those 

results (along with the numerator/ 

denominator information and exclusion 

information) to CMS for the RHQDAPU 

program. We proposed that hospitals 

begin submitting data to the qualified 

registry of its choosing for discharges on 

or after January 1, 2011, and we intend 

to release a list of qualified registries 

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16Brown, D.W., Croft, J.B., et al. (2008). ‘‘Trends 

in Hospitalizations for the Implantation of 

Cardioverter-Defibrillators in the United States, 

1990–2005.’’ American Journal of Cardiology 101 

(12): 1753–1755. 

17Hammill S and Curtis J. Publicly Reporting 

Implantable Cardioverter Defibrillator Outcomes— 

Grading the Report Card. Circ Arrhythmia 

Electrophysiol. 2008;1:235–237). 

18Al-Khatib SM, Greiner MA, Peterson ED, 

Hernandez AF, Schulman KA, Curtis LH. Patient 

and Implanting Physician Factors Associated With 

Mortality and Complications 9After Implantable 

Cardioverter-Defibrillator Implantation, 2002–2005. 

Circ Arrhythmia Electrophysiol. 2008;1:240–249. 

before that date. In section IV.A.13. of 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 23997), we specified the 

self-nomination process we proposed to 

use to qualify registries for each 

proposed registry-based measure topic. 

Proposed submission requirements for 

the proposed registry-based measures 

were discussed in section IV.A.5.b.(7) of 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 23990 through 23991). 

Comment: Some commenters stated 

that the use of registries has the 

potential for inconsistent reporting on 

Hospital Compare and inaccurate 

comparisons across hospitals. Hospitals 

may cherry-pick the measures they do 

best on and yet the measures may not 

fully reflect the care they provide. One 

commenter stated that if registries are 

used, hospitals should be required to 

report to more than one registry so that 

they cannot just pick the registry in 

which they have the best data. 

Response: After consideration of the 

public comments received, we are 

persuaded that we should not finalize 

any registry-based measures at this time. 

As noted above, after consideration of 

public comments received, we are not 

finalizing any registry-based measures at 

this time. 

Below is a discussion of the four 

proposed registry-based measure topics 

and specific registry-based measures 

that fall within each topic that we 

proposed to add to the RHQDAPU 

program for the FY 2013 payment 

determination. 

(A) Implantable Cardioverter 

Defibrillator (ICD) Complications 

Registry-Based Topic and Measure 

Implantable Cardioverter 

Defibrillators (ICDs) reduce the risk of 

sudden cardiac death for select high risk 

patients, and the number of patients 

undergoing ICD implantation increased 

from 5,600 in 1990 to 108,680 by 

2005.16 ICD implantation is an 

expensive procedure performed on 

patients with advanced cardiovascular 

disease and, often, significant 

comorbidities. Despite improvements in 

technology and increasing experience 

with device implantation, the procedure 

carries a significant risk of 

complications, 17 which in turn 

increases its cost, the patient’s length of 

stay, and the patient’s risk of 

mortality.18 In the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 43873 

through 43875), our list of potential 

future quality measures under 

consideration included a measure of 

implantable cardioverter defibrillator 

(ICD) complications. This measure is a 

risk standardized complication and 

mortality rate following implantation of 

ICDs in Medicare Fee for Service (FFS) 

patients at least 65 years of age, with 

complication specific outcome time 

frames. The measure (NQF #OT1–007– 

09) is currently undergoing NQF review 

under Phase 1 of a call for Patient 

Outcome Measures initiated in fall of 

2009. We proposed to add the ICD 

complications topic and measure to the 

RHQDAPU measure set for collection 

beginning with January 1, 2011 

discharges for the FY 2013 RHQDAPU 

payment determination pending NQF 

endorsement. We anticipated a final 

endorsement decision in the fall of 2010 

after publication of this FY 2011 IPPS/ 

LTCH PPS final rule. 

The proposed ICD complications 

measure was developed based upon 

data submitted to the American College 

of Cardiology-National Cardiovascular 

Data Registry’s (ACC–NCDR) ICD 

registry, and data from that registry has 

been linked with CMS administrative 

claims data used to identify procedural 

complications. For this proposed 

measure, the measured outcome for 

each ICD index admission is one or 

more complications or mortality within 

30 or 90 days (depending on the 

complication) following ICD 

implantation. Complications are 

counted in the measure only if they 

occur during a hospital admission. 

Complications measured for 30 days 

include: (1) Pneumothorax or 

hemothorax plus a chest tube, (2) 

Hematoma plus a blood transfusion or 

evacuation, (3) Cardiac tamponade or 

pericardiocentesis, and (4) Death. 

Complications measured for 90 days 

include: (5) Mechanical complications 

requiring a system revision, (6) Device 

related infection and (7) Additional ICD 

implantation. 

To comply with a January 2005 

National Coverage Determination for 

ICDs for primary prevention, all 

hospitals in which ICD procedures are 

performed are currently submitting to 

the ACC–NCDR ICD registry patient 

information needed for CMS to 

determine whether the procedure was 

reasonable and necessary. This 

requirement is documented in section 

20.4 of the following Medicare National 

Coverage Determination Manual: http:// 

www.cms.hhs.gov/manuals/downloads/ 

ncd103c1_Part1.pdf. For purposes of the 

2005 National Coverage Determination, 

CMS requires that hospitals submit data 

to the ACC–NCDR ICD registry for 

primary prevention patients only and 

does not require hospitals to submit 

data on patients undergoing ICD 

implantation for secondary prevention. 

However, the ICD complication measure 

as submitted to the NQF for 

endorsement is specified such that it 

includes all ICD patients, regardless of 

whether they receive an ICD for the 

primary or secondary prevention of 

sudden cardiac death. 

Therefore, hospitals that choose this 

registry-based measure topic for the 

RHQDAPU program would submit data 

on the ICD complications measure for 

both primary and secondary prevention 

patients to the qualified registry. For 

risk adjustment, data matching, and 

secondary prevention population 

identification purposes, we proposed 

that hospitals also submit to the 

qualified ICD complications registry 11 

additional data elements not currently 

required under the NCD in order for the 

measure to be calculated for RHQDAPU 

program purposes. 

In summary, we proposed to add the 

ICD complications measure topic as one 

of four proposed measure topics that 

hospitals can choose from to submit 

required data elements to a qualified 

registry for the FY 2013 RHQDAPU 

payment determination. The only 

measure that we proposed to include in 

this proposed topic at this time would 

be the ICD complications measure. 

Because the ICD complications measure 

is a risk-adjusted outcome measure, it is 

necessary that all data for the measure 

be collected by a single qualified 

registry in order for that registry to be 

able to accurately calculate the risk 

adjustment model and subsequent 

measure results. Therefore, we proposed 

to qualify one registry for this topic. 

Proposed registry qualification criteria 

were discussed in section IV.A.13. of 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 23997). We note that the 

ACC–NCDR ICD registry has already 

been qualified to receive and transmit 

data to CMS for a Medicare National 

Coverage Determination, and is 

currently the only registry to which 

hospitals submit data for this NCD. 

However, this would not preclude 

another registry from self-nominating to 

become a qualified registry for this 

proposed topic for the RHQDAPU 

program. Because the ICD complication 

measure is a risk adjusted measure, it 

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requires that all data be collected at a 

single repository for calculation of the 

measure. Therefore, we anticipate 

qualifying a single registry to collect all 

of the data for the proposed ICD 

complications registry topic. 

Comment: Several commenters 

supported the inclusion of the ICD 

complications measure. One commenter 

was concerned with the quality of data 

collected by the ACC–NCDR ICD 

Registry and the STS Cardiac Surgery 

Registry, specifically related to data 

definition ambiguity and varying levels 

of expertise amongst abstractors across 

hospitals. One commenter pointed out 

the problem of lack of standardization of 

data and measure quality and data 

submission process across registries. 

One commenter suggested that CMS 

provide information on the impact of 

the ICD measure on hospital’s 

management of cardiac patients. 

Response: As stated previously, we 

have decided not to finalize any 

registry-based measures at this time. We 

understand the commenters’ concerns 

and will consider them in future 

rulemaking. 

Comment: One commenter suggested 

that CMS provide detailed data 

definitions to guide hospital coders to 

code complications in order to avoid 

over or under documentation of 

complications by physicians. 

Response: As stated previously, we 

have decided not to finalize any 

registry-based measures at this time. We 

will take this into consideration for 

future rulemaking. 

As stated previously, we are not 

finalizing any registry-based measures 

in this final rule. 

(B) Stroke Registry-Based Topic and 

Measures 

We previously proposed to add five 

stroke measures to the RHQDAPU 

measure set in the FY 2009 IPPS 

proposed rule (73 FR 23648). We 

indicated that we would again consider 

these measures once NQF reviewed and 

endorsed the measures. Since that time, 

eight stroke measures have received 

NQF endorsement in July of 2008, and 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule we included these measures in 

the list of potential future measures. We 

also included these measures in the 

preview section of the Specifications 

Manual, and have worked with the 

Office of the National Coordinator for 

Health Information Technology (ONC) 

and its partners to create a set of 

electronic specifications for these 

measures to facilitate collection through 

EHRs. 

We are also aware that a number of 

hospitals are already submitting these 

measures to registries, and in the FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule, we finalized a structural measure 

of participation in a systematic clinical 

database registry for stroke care. Stroke 

is a topic of great relevance to the 

Medicare population due to its impact 

on morbidity and mortality, and is an 

area of great potential improvement for 

hospitals. Commenters on the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

expressed support for these measures, 

indicating that they accurately measure 

evidence-based care of the stroke patient 

to minimize secondary strokes and other 

complications, are widely recognized, 

and have great potential for quality 

improvement (74 FR 43875). 

Therefore, we proposed to include the 

following eight measures in the Stroke 

registry-based topic: 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C 

We proposed to add the stroke 

registry-based topic, which would 

include these eight registry-based stroke 

measures, to the RHQDAPU measure set 

as one of the four proposed measure 

topics that hospitals can choose from to 

submit data to a qualified registry for 

the FY 2013 payment determination 

beginning with January 1, 2011 

discharges. We invited comment on the 

measures as well as the timing of their 

addition to the RHQDAPU measure set. 

Comment: Several commenters 

supported the stroke measures, and 

suggested the measures be accepted by 

conventional chart abstraction, EHRs or 

registry submission. 

Response: As stated previously, we 

have decided not to finalize any 

registry-based measures at this time. We 

thank the commenters for their support 

and suggestions and will take them into 

consideration in future rulemaking. 

Comment: Some commenters did not 

support the Stroke registry-based topic 

until the measure specifications are 

harmonized with the Get with the 

Guidelines stroke registry, the NHIQM 

Stroke specifications, and meaningful 

use requirements. A commenter 

recommended delaying the 

implementation of any stroke measure 

set until they can be obtained 

electronically. Another commenter 

requested CMS to allow the Joint 

Commission-accredited organizations to 

use ORYX® stroke measure data as a 

means for and in lieu of participating in 

a registry. One commenter asked that 

CMS add an exclusion to the Stroke 

thrombolytic therapy measure for 

patients who do not have an ER/ 

admitting diagnosis of stroke. 

Response: We thank the commenters 

for their support and suggestions. 

Because we are not finalizing registrybased measures at this time, we will 

consider these suggestions in future 

rulemaking. We intend to propose the 

Stroke measurement set for inclusion in 

a future payment determination. 

As stated previously, we are not 

finalizing any registry-based measures 

in this final rule. 

(C) Nursing Sensitive Care RegistryBased Topic and Measures 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule, we indicated that we 

were considering adopting a number of 

nursing-sensitive care measures for 

future RHQDAPU program payment 

determinations. Also in that rule, we 

adopted a structural measure of 

participation in a registry for nursingsensitive care, under which hospitals 

submit data directly to the QIO Clinical 

Warehouse. 

For the FY 2013 payment 

determination, we proposed to add a 

nursing sensitive care registry-based 

topic to the RHQDAPU measure set, 

which would include the eight nursingsensitive care measures listed below. All 


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of the proposed nursing sensitive 

measures are NQF endorsed. Hospitals 

selecting this topic would begin 

reporting data on the eight proposed 

nursing-sensitive care registry-based 

measures to a qualified nursingsensitive care registry beginning with 

January 1, 2011 discharges. Hospitals 

would continue reporting the nursingsensitive care structural measure 

previously adopted for the RHQDAPU 

program directly to the QIO Clinical 

Warehouse. 

We invited comment on the proposed 

addition of a nursing sensitive care 

registry-based topic, which would 

include eight proposed nursing 

sensitive care measures, as well as the 

timing of this addition to the RHQDAPU 

program for the FY 2013 payment 

determination. 

PROPOSED MEASURES FOR NURSING SENSITIVE CARE REGISTRY-BASED TOPIC

Patient Falls: All documented falls with or without injury, experienced by patients on an eligible unit in a calendar month. (NQF #0141) 

Falls with Injury: All documented patient falls with an injury level of minor or greater. (NQF #0202) 

Pressure Ulcer Prevalence (NQF #0201) 

Restraint Prevalence (vest and limb) (NQF #0203) 

Skill Mix: Percentage of hours worked by: RN, LPN/LVN, UAP, Contract/Agency (NQF #0204) 

Hours per patient day worked by RN, LPN, and UAP (NQF #0205) 

Practice Environment Scale-Nursing Work Index (NQF #0206) 

Voluntary turnover for RN, APN, LPN, UAP (NQF #0207) 

Comment: Many commenters 

supported the nursing sensitive care 

measures/measure set, but objected to 

registry-based submission of the 

measures for various reasons. 

Response: We thank the commenters 

for their support of the proposed 

measures. We will not be finalizing any 

of the registry-based measures in this 

final rule. 

Comment: One commenter did not 

support the inclusion of the eight 

Nursing Sensitive measures proposed 

earlier unless significant restructuring of 

the specifications were conducted and 

these specifications were made available 

to the public. Another commenter 

supported the proposed addition of 

Nursing Sensitive Care HAC measure 

and topic. 

Response: As stated earlier, we are not 

finalizing any of the registry-based 

measures in this final rule. We thank the 

commenters for their support and 

suggestions. We will consider these 

suggestions in future rulemaking. 

As stated earlier, we are not finalizing 

any of the registry-based measures in 

this final rule. 

(D) Cardiac Surgery Registry-Based 

Topic and Measures 

We have previously proposed to add 

several measures on the topic of cardiac 

surgery to the RHQDAPU measure set 

(73 FR 48608), and have also listed a set 

of NQF-endorsed cardiac surgery 

measures in prior rules as being under 

consideration for future adoption (74 FR 

43874). We also adopted a structural 

measure of cardiac surgery participation 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule. Cardiac surgery procedures 

carry a significant risk of morbidity and 

mortality. We believe that the 

nationwide public reporting of the 15 

proposed cardiac surgery registry-based 

measures would provide highly 

meaningful information for Medicare 

beneficiaries because they address 

procedures widely performed on 

Medicare beneficiaries. Analysis of the 

structural measure data we have 

received from hospitals indicates that 

nearly 90 percent of hospitals 

performing these procedures already 

report these data to clinical registries, 

which means that if they choose this 

registry-based topic for purposes of the 

FY 2013 payment determination and the 

registry to which they already submit 

data is qualified for this proposed topic, 

they will not face any additional data 

submission burden. 

For the FY 2013 payment 

determination, we proposed to include 

15 cardiac surgery registry-based 

measures in the cardiac surgery registrybased measure topic. These proposed 

registry-based measures are listed 

below, and hospitals would submit data 

on these measures to a qualified registry 

for the cardiac surgery registry-based 

topic. We did not propose to retire the 

structural measure for cardiac surgery 

participation. 

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These measures were endorsed by the 

NQF in May of 2007 and meet the 

statutory requirement of reflecting 

consensus among affected parties. We 

proposed that hospitals selecting this 

topic would begin submitting data on 

the proposed measures to a qualified 

cardiac surgery registry beginning with 

January 1, 2011 discharges. We note that 

five of these measures (indicated with 

an asterisk in the table above) must be 

risk adjusted in order to be calculated 

properly, which requires that the data 

needed to calculate these measures be 

collected by a single registry. While the 

remaining measures do not require risk 

adjustment, we believe it may be overly 

burdensome for hospitals to submit data 

for this topic to more than one registry. 

For this reason, we anticipate qualifying 

a single registry to collect all of the data 

for the proposed cardiac surgery 

registry-based topic. We invited public 

comment on this proposal. 

Comment: Many commenters 

supported the cardiac surgery measures/ 

measure set, but objected to registrybased submission of the measures. 

Response: We thank the commenters 

for their support of the proposed 

measures. As stated earlier, we are not 

finalizing any registry-based measures 

in this final rule. 

Comment: One commenter was 

concerned with the quality of data 

collected by the STS Cardiac Surgery 

Registry, specifically related to data 

definition ambiguity and varying levels 

of expertise amongst abstractors across 

hospitals. Another commenter 

recommended requiring all hospitals to 

participate in registries to report specific 

measures sets, and to phase in the 

measures sets starting with cardiac 

surgery and nursing sensitive measures. 

Response: We agree with the 

importance of cardiac surgery measures 

that include both processes of care and 

outcomes in view of the significance of 

such surgery and the benefit of having 

such measures publicly reported. 

Although we have decided not to adopt 

registry-based reporting in this final 

rule, we continue to believe that cardiac 

surgery measures are a priority for the 

RHQDAPU program. 

Comment: Some commenters stated 

that the use of registries has the 

potential for inconsistent reporting on 

Hospital Compare and inaccurate 

comparisons across hospitals. Hospitals 

may select to participate in registries for 

measures that they expect the best 

performance. Thus, allowing hospitals 

to report on only one registry-based 

measures set may not fully reflect the 

care the hospital provides. One 

commenter stated that if registries are 

used, hospitals should be required to 

report to more than one registry so that 

they cannot just pick the registry in 

which they have the best data. 

Response: We continue to believe that 

registry participation is very beneficial, 

providing ongoing measurement of 

quality of care, feedback to participants, 

and the ability to measure outcomes. We 

intend to continue considering how best 

to implement registry reporting as a 

means for data submission. In doing so, 

we will consider allowing registry-based 

reporting as an option, rather than a 

requirement, and to address the issues 

of data comparability. We agree that if 

the option to report measures by a 

registry is adopted, is important to 

assure that measures specifications are 

standardized. 

After consideration of public 

comments received, we will not finalize 

any registry-based measures at this time. 

In summary, based on the public 

comments received, for the FY 2013 

payment determination, we are 

retaining the 55 measures adopted for 

the FY 2012 payment determination, 

and are adding 1 chart abstracted 

measure (AMI–Statin at Discharge) and 

1 HAI measure to be collected via NHSN 

(Catheter Associated Bloodstream 

Infection) for the FY 2013 payment 

determination. Collection of these two 

new measures for the FY 2013 payment 

determination will begin with January 1, 

2011 discharges. We refer readers to 

section IV.A.5. of this final rule for 

further information about submission 

requirements. We are not finalizing our 

proposal for hospitals to pick one of 

four topics in which to initiate registrybased measure submission to a qualified 

registry. As discussed in section 

IV.A.13., we also are not finalizing our 

proposal to qualify registries for these 

four topics. In the future, we anticipate 

offering registry-based submission as a 

mechanism to submit data for 


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RHQDAPU measures, but not 

necessarily the sole mechanism to 

submit data for RHQDAPU measures. 

Set out below are the 57 RHQDAPU 

program quality measures to be used for 

the FY 2013 payment determination: 

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d. RHQDAPU Program Quality 

Measures for the FY 2014 Payment 

Determination 

(1) Retention of FY 2013 Payment 

Determination Measures for the FY 2014 

Payment Determination 

We proposed to retain all of the 

measures adopted for the FY 2013 

payment determination for the FY 2014 

payment determination. Collection of 

data for these measures would begin 

with January 1, 2012 discharges. We 

invited public comment on this 

proposal. We did not receive any 

specific comments on this proposal. As 

discussed below, in response to 

comments, we are retiring 2 FY 2013 

narrowly specified measures (PN–2 and 

PN–7) and adopting in their place 2 

global immunization measures. We are 

adopting as final our proposal to retain 

all of the measures adopted for the FY 

2013 payment determination for the FY 

2014 payment determination, as 

modified by our retirement of these FY 

2013 measures. 

(2) New Chart-Abstracted Measures for 

the FY 2014 Payment Determination 

We also proposed to add the 

following four new chart-abstracted 

measures to the RHQDAPU program 

measure set for the FY 2014 payment 

determination: (1) Emergency 

Department (ED) Throughput—Admit 

Decision Time to ED Departure Time for 

Admitted Patients (NQF #0497), (2) ED 

Throughput—Median time from 

emergency department arrival to ED 

departure for admitted patients (NQF 

#0495), (3) Global Flu Immunization, 

and (4) Global Pneumonia 

Immunization. In proposing to adopt 

these chart-abstracted measures, we 

recognized that we were proposing to 

increase the chart-abstraction burden on 

hospitals with respect to the RHQDAPU 

program. However, we stated that the 

burden associated with the proposed 

immunization measures for all 

inpatients could be counterbalanced by 

future retirement of the two current 

immunization measures that apply only 

to pneumonia inpatients. This measure 

retirement option is discussed earlier in 

section IV.A.2.b.(1) of the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23965). 

Furthermore, we note that the ED 

Throughput measures have been 

specified for EHR-based collection, 

which may also serve to reduce burden 

associated with these measures in the 

future. We proposed to adopt these four 

chart-abstracted measures into the 

RHQDAPU program measure set for the 

FY 2014 payment determination. We 

proposed that data submission for these 

measures would begin with January 1, 

2012 discharges. We invited comment 

on these proposed measures as well as 

on the proposed timing of their addition 

to the RHQDAPU program for the FY 

2014 payment determination. 

(A) Emergency Department (ED) 

Throughput Measures 

The two ED Throughput measures we 

proposed for the FY 2014 payment 

determination were: (1) Median time 

from admit decision time to time of 

departure from the emergency 

department for emergency department 

patients admitted to inpatient status, 

and (2) Median time from emergency 

department arrival to time of departure 

from the emergency room for patients 

admitted to the facility from the 

emergency department. 

The ED–Throughput measures reflect 

not only the processes of care that occur 

while the patient is in the emergency 

department, but also reflect the 

coordination of care, communication, 

and efficiency of service provision 

beyond the walls of the emergency 

department. These measures have been 

NQF-endorsed (NQF #0497 and #0495); 

thereby, meeting the requirement of 

section 1886(b)(3)(B)(viii)(IX) of the Act. 

They also have been adopted by HQA. 

Specifications for these measures are 

available in the preview section of the 

current Specification Manual available 

on QualityNet. 

These measures also address ED 

overcrowding, which the IOM identified 

as a major quality issue. Reducing the 

time patients remain in the ED can 

improve access to treatment and 

increase the quality of care, and 

capability of the hospital to provide 

adequate treatment to patients. ED 

overcrowding may result in delays in 

the administration of medication such 

as antibiotics for pneumonia and has 

been associated with perceptions of 

compromised emergency care. For 

patients with non-ST-segment-elevation 

myocardial infarction, long ED stays 

were associated with decreased use of 

guideline-recommended therapies and a 

higher risk of recurrent myocardial 

infarction. Overcrowding and heavy 

emergency resource demand have led to 

a number of problems, including 

ambulance refusals, prolonged patient 

waiting times, increased suffering for 

those who wait, rushed and unpleasant 

treatment environments, and potentially 

poor patient outcomes. Finally, when 

EDs are overwhelmed, their ability to 

respond to community emergencies and 

disasters may be compromised. 

Comment: Many commenters 

supported the inclusion of the proposed 

ED Throughput—Admit Decision Time 

to ED Departure Time for Admitted 

Patients (NQF #0497), and ED 

Throughput—Median time from 

emergency department arrival to ED 

departure for admitted patients (NQF 

#0495) measures. Some commenters 

supporting these measures agreed that 

the measures should reflect not only 

processes within the emergency 

department but also reflect coordination 

of care, communication and efficiency 

of provision beyond the walls of the 

emergency department. However, some 

of the commenters believed that the 

measures need to be refined, 

terminology needs to be clearly defined, 

and a percentile should be used to 

identify outliers. Some commenters 

stated that implementation of the ED 

measures should be contingent upon 

successful EHR testing by CMS so the 

measures can be reported electronically 

and not via manual chart abstraction. 

Several commenters opposed the 

proposed ED Throughput measures, 

stating there are multiple factors 

affecting the ED admit decision time to 

ED departure time for admitted patients 

as well as the median time from ED 

arrival to ED departure for admitted 

patients and the proposed measures 

cannot be adequately interpreted to 

evaluate quality. Commenters requested 

that CMS take into consideration timing 

factors that are outside the control of the 

ED, for example, bed availability and 

patient characteristics. 

Response: We appreciate the 

supportive comments as to the 

importance of the ED throughput 

measures. Specifications are handled 

through a sub-regulatory process 

previously described with specifications 

updated as needed. In order to gain 

experience prior to the date of required 

RHQDAPU submission, we encourage 

hospitals to take advantage of the 

voluntary submission process, which 

we plan to have available starting in 

October 2010. Although we believe that 

the measures are well specified, 

experience gained through the voluntary 

reporting mechanism will assist us to 

identify any needed refinements, prior 

to the beginning of required submission 

for the RHQDAPU program to begin 

with January 1, 2012 discharges. We 

will consider the suggestion regarding 

showing the percentile distribution to 

allow consumers to discern outliers 

when publicly reporting the measures. 

With regard to electronic submission, 

we are working to provide an optional 

mechanism for electronic submission 

for ED and other RHQDAPU chartabstracted measures. 

After consideration of the public 

comments received, we are finalizing 

the two ED–Throughput measures as 

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proposed for the FY 2014 payment 

determination. 

(B) Global Immunization Measures 

For the FY 2014 payment 

determination, we proposed to adopt 

two global immunization measures: (1) 

Pneumoccocal Immunization; and (2) 

Influenza Immunization. Increasing 

influenza (flu) and pneumonia 

vaccination could reduce unnecessary 

hospitalizations and secondary 

complications particularly among high 

risk populations such as the elderly. 

About 36,000 adults die annually and 

over 200,000 are hospitalized for flurelated causes. Older adults are more 

vulnerable, and adults over 65 comprise 

about 90 percent of deaths related to flu. 

Vaccinations can significantly reduce 

the number of flu related illnesses and 

deaths. The measures being proposed 

are currently endorsed by the NQF, 

which occurred as part of a consensus 

development project titled ‘‘National 

Voluntary Consensus Standards for 

Influenza and Pneumococcal 

Immunizations’’ which concluded in 

2008. This project resulted in the 

endorsement of immunization measures 

that reflect current consensus among 

affected parties that standard measure 

specifications for influenza and 

pneumonia immunization should be 

broadly applicable across conditions, 

populations, and care settings. The 

technical specifications for these global 

measures will be available in an 

upcoming release of the Specifications 

Manual to be published in October 

2010. The difference between these 

proposed immunization measures, and 

the two immunization measures that are 

currently part of the RHQDAPU 

program is that the current measures 

only apply to inpatients admitted for 

pneumonia, whereas the proposed 

measures apply to all inpatients 

regardless of admission diagnosis. 

Comment: Some commenters strongly 

supported the proposed addition of the 

Global Immunization measures ((1) 

Pneumoccocal Immunization; and (2) 

Influenza Immunization) to the 

RHQDAPU program. The commenters 

also recommended a measure threshold 

and exemptions, for example, in times 

of vaccine shortage. 

Response: We thank the commenters 

for supporting these measures. We will 

take into consideration these 

suggestions for exemptions during 

vaccine shortages. We are finalizing 

these measures for the FY 2014 payment 

determination. 

Comment: Some commenters 

expressed concerned that the proposed 

FY 2014 global immunization measures 

overlap with previously adopted 

immunization measures that are specific 

to the Pneumonia population (PN–2: 

Pneumoccocal Vaccination Status and 

PN–7: Influenza Vaccination Status). 

Commenters also recommended that we 

retire the two pneumonia-specific 

measures if we elect to adopt the global 

immunization measures into the 

RHQDAPU program. 

Response: We agree with the 

commenters and are retiring the PN–2 

and PN–7 measures from the RHQDAPU 

measure set for the FY 2014 payment 

determination because these measures 

overlap with the global immunization 

measures that we are adopting for the 

FY 2014 payment determination. 

Comment: Several commenters 

opposed the inclusion of the Global 

Influenza or Global Pneumococcal 

measures into the RHQDAPU program 

because of perceived burden of 

collection. In addition, some 

commenters stated that vaccination 

during the acute phase of illness treated 

in the hospital inpatient setting is not an 

optimum practice, and that 

miscommunication with patients’ 

primary care provider may lead to 

unnecessary vaccinations. 

Response: We understand the burden 

concern and have attempted to mitigate 

this by adopting the ED throughput and 

Global immunization measures 

concurrently as they utilize the same 

global population, and adopting the 

measures several years in advance. We 

believe that finalizing the global 

immunization measures for FY 2014 in 

this final rule will give hospitals 

adequate time to develop efficient 

collection plans for future collection. 

We agree with the commenters that the 

current RHQDAPU immunizations 

specified for the pneumonia inpatient 

population should be replaced in favor 

of these broadly applicable 

immunization measures. The NQF also 

recommends the use of the global 

immunization measures over the 

condition specific immunization 

measures that are currently in the 

program. Based on the public comments 

received, we are adopting the two global 

immunization measures for the FY 2014 

payment determination, and we are 

retiring the PN–2: Pneumoccocal 

Vaccination Status and PN–7: Influenza 

Vaccination Status measures for the FY 

2014 payment determination in order to 

accommodate these more broadly 

applicable immunization measures. 

As for the commenter’s point that a 

patient’s primary care provider would 

ordinarily be the locus for 

immunization, the current NQFendorsed measures recognize a role for 

the acute care setting to assess the 

vaccination status of and to intervene in 

the appropriate vaccination of acutely 

hospitalized patients against influenza 

and pneumonia. This is consistent with 

the indications for these vaccines which 

are global in nature in the sense that 

they are generally recommended for 

patients over a certain age, not those 

with only who have contracted 

pneumonia. We will provide 

specifications for these new measures in 

the upcoming Specifications Manual 

release. 

After consideration of the public 

comments received, we are finalizing all 

four chart-abstracted measures into the 

RHQDAPU program measure set for the 

FY 2014 payment determination. Also 

based upon public comments received, 

and discussed in section IV.A.3.c.(3) of 

this final rule, we are finalizing the 

adoption of the SSI measure to be 

collected via NHSN for the FY 2014 

payment determination. Data 

submission for these five measures 

would begin with January 1, 2012 

discharges. In addition, based on 

comments received regarding retirement 

of narrowly specified measures when 

broader measures are available, we are 

retiring the PN–2 and PN–7 measures 

for the FY 2014 and subsequent 

payment determinations, which will be 

replaced by the two global measures for 

influenza and pneumococcal 

vaccination beginning with January 1, 

2012 discharges. We will retain the 

remaining FY 2013 measures for the FY 

2014 payment determination. We expect 

the CLABSI measure and the SSI 

measure to be risk-adjusted consistent 

with section 1886(b)(3)(B)(viii)(VIII) of 

the Act for the FY 2013 and FY 2014 

payment determinations, respectively. 

The complete list of 60 quality 

measures to be used for the FY 2014 

payment determination is set out below. 

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4. Possible New Quality Measures for 

Future Years 

We invited public comment on the 

following quality measures and topics 

set out below that we are considering for 

the future. We also sought suggestions 

and rationales to support the adoption 

of measures and topics that were not 

included in this list for the RHQDAPU 

program. 


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• General comments 

Comment: A commenter 

recommended that any long-range 

planning must be consistent with the 

Secretary’s strategic plan and priorities 

which are unknown at this time for the 

future years. A commenter stated that 

CMS needs to have a more systematic 

quality measure strategy and framework 

to align measures in order to achieve the 

overall goals of quality improvement 

and attainment. Another commenter 

stated that hospitals should be allowed 

to prioritize measures based on risks of 

their populations and programs and 

questioned the reason why hospitals are 

not given the option as physicians to 

select from a list of measures to focus 

on their quality improvement efforts. 

The commenters suggested that we 

follow a more methodical framework to 

prioritize and integrate measures into 

the RHQDAPU program and the 

HITECH EHR incentive program with a 

long-term goal of transitioning from the 

RHQDAPU program to the meaningful 

use criteria under the HITECH EHR 

program. One commenter noted that in 

moving forward, CMS should focus on 

developing measures collected through 

EHRs rather than using manually 

intensive, chart-based measures through 

the RHQDAPU program. Several 

commenters believed that many of the 

proposed measures for future years 

overlap with the current RHQDAPU 

measures. Another commenter 

recommended that CMS focus reporting 

on a variety of aspects for fewer 

conditions rather than adding one or 

two measures in a particular medical 

condition or significantly increasing the 

overall number of conditions being 

measured at any one time. The 

commenter believed that the second 

approach would stretch hospital 

resources. Another commenter noted 

that it is unnecessary to put a single 

measure under different composite 

measures or under different reporting 

requirements. The commenter gave the 

PSI–4 measure as an example which is 

required in both the Nursing sensitive 

composite measure as well as in the 

AHRQ Patient Safety Indicators 

measurement set. A commenter 

suggested that CMS take a more 

aggressive approach and add more 

measures in high priority areas. 

Response: We have retained the 

ability to modify the measure set in the 

future in order to respond to changes in 

our priorities as well as changes in 

legislation. One of our goals is to align 

the quality measures across programs 

including the HITECH EHR program in 

order to reduce the burden on hospitals 

reporting quality measures to multiple 

programs. We generally try to adopt 

measures for the RHQDAPU program 

that are broadly applicable across IPPS 

hospitals, because RHQDAPU measures 

are made publicly available in 

comparative reporting tools, and will be 

the basis for measure selection for 

hospital value based purchasing in the 

future. Allowing hospitals to pick 

among measure sets may not be ideal for 

comparative public reporting and 

performance-based incentive programs. 

With respect to long-range planning 

and the Affordable Care Act required 

strategic plan and priorities, we agree 

that the RHQDAPU program priorities 

will be guided by this plan. Although 

this plan is yet to be developed, the 

measures that we include in this final 

rule represent established HHS 

priorities, which include some of the 

priorities selected by the NQF National 

Priorities Partners process. These 

include patient safety, population 

health, and care coordination. 

The new outcomes measures, the 

HACs and HAIs, the immunization 

measures, AMI statin at discharge, and 

ED throughput measures finalized in 

this final rule reflect these priorities as 

we discuss in the portions of this final 

rule dealing with those measures. To the 

extent that these or other measures are 

incompatible with any revision to HHS 

priorities and new strategic framework, 

the measures can be modified. Because 

IPPS hospitals provide a broad array of 

services, we believe that it is important 

have an array of measures that cover 

very substantially inpatient services. We 

also believe it is beneficial to consumers 

to measure and report many topics 

governing aspects of health care 

delivered in hospital settings, and thus, 

we have been systematically expanding 

the RHQDAPU program quality 

measures in scope and topic. Currently, 

AHRQ PSI–4 is in both the AHRQ 

Patient Safety Indicator measure set and 

the Nursing Sensitive Care measure set. 

We have not adopted the Nursing 

Sensitive Measure set at this time, but 

would address this overlap in the future 

should we propose to require this 

measure set of participating hospitals. 

We will also continue to assess the 

feasibility of alternative data sources for 

measures, such as registries and EHRs to 

lessen the data collection burden on 

hospitals. We agree with the importance 

of transitioning to EHR submission of 

RHQDAPU measures and plan to 

actively move toward implementation. 

However, we expect that, at least in the 

short term, it would not be practical to 

require all hospitals to report using EHR 

technology, but rather to provide this 

reporting method as an option. 

• Comment on Measure Topic: Atrial 

fibrillation 

Comment: A commenter indicated 

that atrial fibrillation measures is the 

root cause of several conditions upon 

which CMS has focused and that quality 

measures for atrial fibrillation help alert 

hospitals and clinicians to diagnose and 

manage the condition. 

Response: We agree and we did 

propose the STK–3: Anticoagulation 

therapy for atrial fibrillation/flutter 

(NQF #0436) in the FY 2011 IPPS/LTCH 

proposed rule under proposed measures 

for the Stroke registry-based topic. As 

discussed previously, we are not 

finalizing any registry-based measures 

in this final rule. We will take the 

commenter’s suggestion into 


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consideration in determining whether to 

adopt this measure for the RHQDAPU 

program in the future. 

• Comment on prioritization of 

Measure Topics 

Comment: One commenter 

recommended that CMS prioritize the 

cardiovascular-related conditions that 

are in the CMS top 20 based on root 

cause and prevention of subsequent 

conditions as follows: Diabetes, 

ischemic heart disease, atrial 

fibrillation, acute myocardial infarction, 

congestive heart failure, stroke, 

Alzheimer’s disease, and depression. 

Response: We thank the commenter 

for the suggestions and we will take the 

commenter’s suggestion into 

consideration in determining the 

priorities of the measures for the 

RHQDAPU program in the future. 

• Comments on Measure Topic: 

Cardiac rehabilitation referral for AMI, 

HF, and Cardiac Surgery 

Comment: A few commenters strongly 

endorsed the proposal to consider 

‘‘Cardiac Rehabilitation Referral for 

AMI, HF, and Cardiac Surgery’’ for 

possible RHQDAPU program futures 

measure and topics. 

Response: We thank the commenters 

for their support of the proposed 

measure. We will take that into 

consideration in determining whether to 

adopt this measure for the RHQDAPU 

program in the future. 

• Comments on Measure Topic: 

Percutaneous coronary intervention 

(PCI) 

Comment: A few commenters 

requested the addition of percutaneous 

coronary intervention (PCI) in the 

RHQDAPU measures for future years. 

Response: We thank the commenters 

for the suggestion and we will take it 

into consideration in determining 

whether to adopt this measure for the 

RHQDAPU program in the future. 

• Comment on Measure Topic: 

Participation in a systematic database 

for general thoracic surgery 

Comment: One commenter suggested 

the inclusion of participation in a 

systematic database for general thoracic 

surgery as a structural measure. 

Response: We thank the commenter 

for the suggestion and we will take it 

into consideration in determining 

whether to adopt this measure for the 

RHQDAPU program in the future. 

• Comments on Measure Topic: 30- 

day AMI and heart failure care 

transition composites 

Comment: A few commenters urged 

CMS not to include composite measures 

for 30-day AMI and heart failure care 

transition composites because they 

believed they do not accurately identify 

differences in performance that are due 

to failure to provide adequate care 

coordination and may penalize 

providers unfairly from serving 

disadvantaged population served or 

providing unrelated emergency 

department visits. One commenter 

recommended the inclusion of more 

AMI measures. 

Response: We acknowledge these 

concerns. These measures are currently 

undergoing NQF review and 

endorsement. We also thank the 

commenter that supported the addition 

of AMI measures. 

• Comment on Measure Topic: 

Initiation of statin therapy in patients 

with ischemic stroke or acute AMI prior 

to discharge 

Comment: One commenter 

recommended adding a measure for the 

initiation of statin therapy in patients 

with ischemic stroke or acute AMI prior 

to discharge when there is no 

contraindication. 

Response: We thank the commenter 

for the suggestion and we will consider 

it in future rulemaking. 

• Comment on Measure Topic: 

Smoking cessation screening, treatment, 

and post-discharge follow-up 

Comment: One commenter suggested 

the inclusion of measures like the 

smoking cessation screening, treatment, 

and post-discharge follow-up measures 

which are being pilot tested by the Joint 

Commission. 

Response: We thank the commenter 

for the suggestion and we will take it 

into consideration in determining 

whether to adopt this measure for the 

RHQDAPU program in the future. 

• Comment on Measure Topic: 30- 

Day PCI Readmission Measures 

Comment: One commenter supported 

the PCI mortality and readmission 

measures and urged CMS to reconsider 

delayed implementation of the measures 

after FY 2014 and consider 

implementing PSI–9 and/or other 

measures to track severe bleeding as a 

preventable readmission from PCI. One 

commenter opposed the PCI 

readmission measure. This commenter 

opposed the data quality (probability 

matching with CMS data), timeframe 

(30-day) and numerator (readmission for 

all-cause) of the measure and the 

validity of the risk adjustment model (as 

indicated by the low C-statistic). 

Response: The PCI readmission 

measure was developed using a 

probabilistic match to link the registry 

data with the Medicare data but would 

be implemented using direct patient 

identifiers. As to the time frame of the 

measures, we selected 30-day period of 

assessment based on empirical analysis 

of available data, clinical judgment and 

the advice of expert consultants. The 

consensus was that a 30-day time 

provided the correct balance by 

capturing the bulk of excess 

readmissions occurring after PCI and 

maintaining a high likelihood that the 

readmission was attributable to the 

hospital care. Moreover from a patient 

perspective, readmission for any reason 

is likely to be an undesirable outcome 

of care. Readmissions not associated 

with a cardiac diagnosis may be directly 

related to the care delivered during the 

index hospitalization. Finally in regard 

to the low C-statistic, two factors affect 

the C-statistic—patient factors and 

hospital care. Since the patient-level 

predictors included in the risk 

adjustment model for the PCI measure 

were robust based on registry clinical 

data, the C-statistic of 0.663 indicates 

that the quality of care delivered to 

patients by hospitals (that are not part 

of the model) plays a larger role. We 

will consider the comment regarding 

adoption of other companion measures, 

such as PSI–9, that may address 

preventability. 

Comment: One commenter supported 

the inclusion of Catheter-Associated 

UTI and VAP in FY 2014. 

Response: We thank the commenter 

for the support of the proposed measure. 

We will take it into consideration in 

determining whether to adopt these 

measures for the RHQDAPU program in 

a future rulemaking cycle. 

• Comment on Measure Topic: HACs 

Comment: One commenter 

recommended that CMS make a longterm goal to cultivate more global 

hospital-wide assessments of harm 

rather than targeting individual 

organisms or HACs. 

Response: We thank the commenter 

for the suggestion and we will take it 

into consideration in determining 

whether to adopt this kind of measure 

for the RHQDAPU program in the 

future. 

• Comments on Measure Topic: HAI 

Comment: One commenter 

recommended the inclusion of HAI— 

ventilator associated pneumonia, HAI— 

multidrug-resistant organism infection, 

and HAI—CDAD. Another commenter 

cautioned that for the possible inclusion 

of the VAP measures, the term ‘‘VAP’’ 

must be clearly defined so that trauma 

or immune-compromised patients can 

be diagnosed correctly for VAP and 

recommended that CMS take into 

consideration the inadvertent penalty of 

academic medical centers and hospitals 

that treat complex and critically-ill 

patients who are at risk for MDRO, and 

experience high volume of patient 

transfer. 

Response: We thank the commenters 

for their suggestion for other HAIs and 

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we will take this into consideration in 

determining whether to adopt the 

measures for the RHQDAPU program in 

the future. We plan to propose 

additional HAI measures in a future 

rulemaking cycle as they gain NQF 

endorsement. 

Comment: A commenter 

recommended that the HHS Action Plan 

to Prevent Healthcare-associated 

Infections must be assessed for whether 

the Plan’s metrics and targets have been 

met and to provide the results to the 

public at the hospital level, especially 

measures related to MRSA, CDAD, and 

UTI. A commenter urged CMS to add 

the Catheter-Associated UTI in FY 2012. 

The commenter suggested CMS and 

CDC collaborate to develop a workable 

guideline for identifying hospitalacquired VAP infections, moving 

surveillance and reporting of central 

line associated bloodstream infections 

beyond the ICU. The commenter did not 

recommend using NQF-endorsement 

alone as adoption criteria. Another 

commenter recommended that no 

further data submission plan be 

proposed for VAP, MRSA, and CDAD 

until after fall of 2010 when the HHS 

HAI Action Plan Review and Update is 

released. 

Response: We will take these 

comments into consideration for 

planning and measure selection. We 

appreciate the commenter’s suggestion 

that we add the Catheter-Associated UTI 

in FY 2012, but we have determined 

that we will consider it for future years. 

The HHS Action Plan is currently 

undergoing a process of 

interdepartmental review and update 

that will include an examination of the 

metrics and targets. We anticipate that 

this will be complete in October 2010. 

• Comments on Measure Topic: VTE 

Comment: One commenter suggested 

the inclusion of a thromboembolism 

(VTE) measure into the RHQDAPU 

program for future years. One 

commenter requested clarification for 

the documentation requirements for the 

VTE–1 VTE Prophylaxis and for the 

VTE–2 ICU VTE Prophylaxis. The 

commenter also agreed with the 

exclusion of patients with reasons for 

not administering mechanical and 

pharmacological prophylaxis. 

Response: We appreciate the 

suggestion and agree with the high 

importance of the VTE topic. With 

respect to specifications and 

documentation requirements these are 

handled through a sub-regulatory 

process. 

• Comment on Measure Topic: 

Surgical Safety 

Comment: One commenter supported 

the continued development of Surgical 

Safety measures. 

Response: We thank the commenter 

for the encouragement and we will take 

that into consideration in determining 

whether to adopt more of these types of 

measures for the RHQDAPU program in 

the future. 

• Comment on Measure Topic: NQFapproved serious reportable events. 

Comment: One commenter suggested 

that CMS adopt NQF-endorsed serious 

reportable events in future years. 

Response: We thank the commenter 

for the suggestion and we will take it 

into consideration in determining 

whether to adopt this measure for the 

RHQDAPU program in the future. 

• Comments on Measure Topic: 

Influenza vaccination of healthcare 

personnel 

Comment: Many commenters 

recommended the inclusion of Influenza 

vaccination of healthcare personnel. 

Response: We agree that Influenza 

vaccination of healthcare personnel is 

an important practice that may prevent 

the spread of influenza and we thank 

the commenters for their 

recommendation. We will take this into 

consideration in determining whether to 

adopt this measure for the RHQDAPU 

program in the future. 

• Comment on Measure Topic: 

Mortality measures 

Comment: A commenter strongly 

opposed the inclusion of mortality 

measures because they are inconsistent 

and unreliable indicators of the quality 

of patient care. Furthermore, the 

commenter stated that mortality 

measures do not take into account 

terminal, end-of-life issues, or withhold 

treatment decisions made by patients 

and families. 

Response: These comments were 

related to the prospect of inconsistent 

approaches to mortality measures 

resulting from inclusion of various 

registry-based measures sets. We have 

withdrawn the registry-based reporting 

proposal. We have added no additional 

mortality measures beyond the CMS 30- 

day mortality measures and the AHRQ 

PSI and IQI mortality measures. These 

measures and their underlying 

methodologies are all endorsed by NQF. 

We thank the commenters for all their 

suggestions for quality measures for the 

future years. We also note that, although 

we did not adopt the proposed registrybased measures: Stroke, Cardiac 

Surgery, and Nurse Sensitive measures 

for the FY 2013 payment determination 

in this final rule, we are still very 

interested in reconsidering them for 

future adoption. While the stroke 

measures were proposed only for 

registry-based participation in the 

proposed rule, and not finalized, these 

measures are currently specified for 

chart abstraction and electronically 

specified for EHR submission and 

included in the HITECH EHR incentive 

program for 2011 and 2012. We intend 

to propose to add these measures to the 

RHQDAPU program in future 

rulemaking. In addition, while we did 

not propose the VTE measures set in the 

FY 2011 IPPS/LTCH PPS proposed rule, 

which are also included in the HITECH 

EHR incentive program for 2011 and 

2012, we intend to propose to add these 

measures to the RHQDAPU program in 

future rulemaking. 

5. Form, Manner, and Timing of Quality 

Data Submission 

Sections 1886(b)(3)(B)(viii)(I) and (II) 

of the Act state that the payment update, 

for FY 2007 and each subsequent fiscal 

year, be reduced by 2.0 percentage 

points (or, beginning with FY 2015, by 

one-quarter of such applicable 

percentage increase (determined 

without regard to clause (ix), (xi), or 

(xii)) for any subsection (d) hospital that 

does not submit quality data in a form 

and manner, and at a time, specified by 

the Secretary. The data submission 

requirements, Specifications Manual, 

and submission deadlines are posted on 

the QualityNet Web site at: http:// 

www.QualityNet.org/. CMS requires that 

hospitals submit data in accordance 

with the specifications for the 

appropriate discharge periods. 

Hospitals submit quality data through 

the secure portion of the QualityNet 

Web site (formerly known as QualityNet 

Exchange) (http://www.QualityNet.org). 

This Web site meets or exceeds all 

current Health Insurance Portability and 

Accountability Act (HIPAA) 

requirements for security of protected 

health information. 

a. RHQDAPU Program Requirements for 

FY 2012, FY 2013 and FY 2014 

(1) Procedural Requirements for the FY 

2012, FY 2013 and FY 2014 Payment 

Determinations 

For the FY 2012, FY 2013, and FY 

2014 payment determinations, we 

proposed that the following procedures 

would apply to hospitals participating 

in the RHQDAPU program. These 

procedures are, for the most part, the 

same as the procedures that apply to the 

FY 2011 payment determination. We 

identified where we proposed to modify 

a procedure. 

• Register with QualityNet, before 

participating hospitals initially begin 

reporting data, regardless of the method 

used for submitting data. 

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• Identify a QualityNet Administrator 

who follows the registration process 

located on the QualityNet Web site 

(http://www.QualityNet.org). 

• Complete a Notice of Participation. 

New subsection (d) hospitals and 

existing hospitals that wish to 

participate in the RHQDAPU program 

for the first time must complete a 

revised ‘‘Reporting Hospital Quality 

Data for Annual Payment Update Notice 

of Participation’’ form (Notice of 

Participation form) that includes the 

name and address of each hospital 

campus that shares the same CMS 

Certification Number (CCN). We will 

revise the Notice of Participation form 

as needed and will provide appropriate 

notification of any revisions to hospitals 

and QIOs through the routine 

RHQDAPU communication channels 

which include memo and e-mail 

notification and QualityNet Web site 

articles and postings. 

We proposed that, consistent with our 

policy for the FY 2011 payment 

determination, any hospital that 

receives a new CCN on or after October 

15, 2009 (including new subsection (d) 

hospitals and hospitals that have 

merged) that wishes to participate in the 

RHQDAPU program and has not 

otherwise submitted a Notice of 

Participation form using the new CCN 

must submit a completed Notice of 

Participation form no later than 180 

days from the date identified as the 

open date (that is, the Medicare 

acceptance date) on the approved CMS 

Online System Certification and 

Reporting (OSCAR) system to 

participate in the RHQDAPU program 

for FY 2012 and future years. We 

believe that this deadline will give these 

hospitals a sufficient amount of time to 

get their operations up and running 

while simultaneously providing CMS 

with clarity regarding whether they 

intend to participate in the RHQDAPU 

program for FY 2012. 

We did not receive any public 

comments related to our proposal for 

procedural requirements for the FY 

2012, FY 2013 and FY 2014 payment 

determinations. We are adopting as final 

our proposal regarding the procedural 

requirements discussed above for the FY 

2012, FY 2013 and FY 2014 payment 

determinations. 

(2) Synchronization of RHQDAPU 

Program Data Submission and 

Validation Quarters With Quarters Used 

To Make Payment Determinations 

Currently, we determine, in part, 

whether a hospital has met the 

RHQDAPU program requirements for a 

given fiscal year by looking at whether 

the hospital properly submitted data 

with respect to a number of quarterly 

discharge periods. However, the 

quarters that we look at for HCAHPS 

data, chart-abstracted RHQDAPU 

program measures, and structural 

measures may not be the same for a 

single payment determination. For 

example, for the FY 2011 payment 

determination, we looked at discharge 

data submitted by hospitals from 4th 

quarter 2008 through 3rd quarter 2009 

for AMI, HF, and PN chart-abstracted 

RHQDAPU program measures, 1st 

quarter 2010 for the newly added SCIP 

Infection 9 and 10 measures, April 2008 

through March 2009 data for HCAHPS, 

and January 1, 2010 through June 30, 

2010 data for structural measures. 

This lack of synchronization has 

developed because we have generally 

made payment decisions using the four 

earliest occurring discharge quarters for 

each measure topic that we did not 

include in a previous year’s payment 

determination, and we have not 

synchronized when hospitals must 

begin reporting data on new measures. 

Starting with the FY 2013 payment 

determination, we proposed to 

determine whether the hospital meets 

the data submission requirement for 

quality measure data by looking at 

whether the hospital properly submitted 

data on the applicable measures during 

the same quarterly discharge periods. 

Specifically, the quarterly discharge 

periods that will apply to a particular 

payment determination will be the four 

quarters that occur within a calendar 

year. In other words, beginning with the 

FY 2013 payment determination, we 

will look at whether the hospital 

properly submitted data for HCAHPS, 

CDC NHSN, chart-abstracted measures, 

and structural measure quality measure 

data during the four calendar year 

quarters of FY 2011. 

With respect to our requirement that 

hospital data be successfully validated 

in order for the hospital to earn the full 

payment update for a given fiscal year, 

we also proposed, beginning with the 

FY 2013 payment determination, to 

validate four discharge quarters, but the 

quarters will be the 4th calendar quarter 

of the year that occurs 2 years before the 

payment determination and the first 3 

calendar quarters of the following 

calendar year. Thus, for the FY 2013 

payment determination, we will 

validate data from the 4th calendar 

quarter of 2010 through the 3rd calendar 

quarter of 2011. We believe this is 

appropriate given the time required for 

the validation abstraction and appeal 

process. 

This proposed synchronization will 

give us a more complete picture of the 

quality of care provided by a hospital 

during a given time period, thus 

enabling us to link that quality of care 

to the applicable RHQDAPU payment 

determination. In addition, this 

proposal will provide clarity to 

hospitals regarding what data we will 

look at to make payment determinations 

for a given fiscal year. We believe that 

this synchronization will also assist us 

to more effectively implement the 

RHQDAPU program because we will be 

able to achieve operational consistency 

regarding what data applies to what 

payment determination. Further, we 

believe that this proposal may assist the 

agency in implementing the Hospital 

Value-Based Purchasing Program as 

authorized by section 3001(a)(1) of the 

Affordable Care Act because it will 

improve the link between quality as 

measured during a single period of time 

and the payment amounts provided to 

hospitals. For example, under our 

proposal, HCAHPS patient experience 

of care measures and chart-abstracted 

measures for a single set of discharge 

quarters will be used together for a 

single payment determination. Finally, 

we believe that this proposal will 

improve hospitals’ ability to implement 

quality improvement strategies that 

affect RHQDAPU program measures and 

their quality of care. 

We would post a table outlining the 

discharge quarters that would be used to 

make each fiscal year payment 

determination no later than September 

15th annually on the QualityNet Web 

site (http://www.QualityNet.org). We 

invited public comment on this 

proposal. 

Comment: Many commenters 

supported the proposal to move all 

measures to a consistent timeframe, 

beginning with the FY 2013 payment 

determination, in anticipation of the 

transition to the HVBP program when 

all measures need to be calculated 

across a consistent timeframe. 

Commenters also indicated that the 

move provides clarity for the timeframe 

of data for each fiscal year. 

Response: We thank the commenters 

for their support of this proposal. 

Comment: Many commenters 

questioned CMS’ intent related to the 

HVBP program requirements under 

section 3001 of the Affordable Care Act. 

Response: We appreciate the 

comments and intend to propose 

regulations for the HVBP program 

consistent with the legislative mandates 

of section 3001 of the Affordable Care 

Act in the FY 2012 IPPS/LTCH PPS 

proposed rule. 

After consideration of the public 

comments we received, we are adopting 

as final our proposal for 

synchronization of RHQDAPU program 

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data submission and validation quarters 

with quarters used to make payment 

determinations. 

(3) HCAHPS Requirements for the FY 

2012, FY 2013 and FY 2014 Payment 

Determinations 

We proposed that, for the FY 2012, FY 

2013 and FY 2014 payment 

determinations, except as noted below, 

the RHQDAPU program HCAHPS 

requirements we adopted for FY 2011 

would continue to apply. Under these 

requirements, a hospital must 

continuously collect and submit 

HCAHPS data in accordance with the 

current HCAHPS Quality Assurance 

Guidelines and the quarterly data 

submission deadlines, both of which are 

posted at http://www.hcahpsonline.org. 

In order for a hospital to participate in 

the collection of HCAHPS data, a 

hospital must either: (1) Contract with 

an approved HCAHPS survey vendor 

that will conduct the survey and submit 

data on the hospital’s behalf to the QIO 

Clinical Warehouse; or (2) selfadminister the survey without using a 

survey vendor provided that the 

hospital attends HCAHPS training and 

meets Minimum Survey Requirements 

as specified on the Web site at: http:// 

www.hcahpsonline.org. A current list of 

approved HCAHPS survey vendors can 

be found on the HCAHPS Web site at: 

http://www.hcahpsonline.org. 

We proposed that the FY 2012 

payment determination for the 

RHQDAPU program for HCAHPS will 

be based on discharges from April 1, 

2010 through December 31, 2010. 

We proposed that the FY 2013 

payment determination for the 

RHQDAPU program for HCAHPS will 

be based on discharges from January 1, 

2011 through December 31, 2011. 

We proposed that the FY 2014 

payment determination for the 

RHQDAPU program for HCAHPS will 

be based on discharges from January 1, 

2012 through December 31, 2012. 

Every hospital choosing to contract 

with a survey vendor should provide 

the sample frame of HCAHPS-eligible 

discharges to its survey vendor with 

sufficient time to allow the survey 

vendor to begin contacting each 

sampled patient within 6 weeks of 

discharge from the hospital. (We refer 

readers to the Quality Assurance 

Guidelines located at http:// 

www.hcahpsonline.org for details about 

HCAHPS eligibility and sample frame 

creation.) In addition, the hospital must 

authorize the survey vendor to submit 

data via My QualityNet, the secure part 

of the QualityNet Web site, on the 

hospital’s behalf. 

After the survey vendor submits the 

data to the QIO Clinical Warehouse, we 

strongly recommend that hospitals 

employing a survey vendor promptly 

review the two HCAHPS Feedback 

Reports (the Provider Survey Status 

Summary Report and the Data 

Submission Detail Report) that are 

available. These reports enable a 

hospital to ensure that its survey vendor 

has submitted the data on time and the 

data has been accepted into the QIO 

Clinical Warehouse. 

Any hospital that has five or fewer 

HCAHPS-eligible discharges in any 

month is no longer required to submit 

HCAHPS surveys for that month, 

although the hospital may voluntarily 

choose to submit these data. However, 

the hospital still must submit its total 

number of HCAHPS-eligible cases for 

that month to the QIO Clinical 

Warehouse as part of its quarterly 

HCAHPS data submission. 

In order to ensure compliance with 

HCAHPS survey and administration 

protocols, hospitals and survey vendors 

must participate in all oversight 

activities. As part of the oversight 

process, during the onsite visits or 

conference calls, the HCAHPS Project 

Team will review the hospital’s or 

survey vendor’s survey systems and 

assess protocols based upon the most 

recent HCAHPS Quality Assurance 

Guidelines. All materials relevant to 

survey administration will be subject to 

review. The systems and program 

review includes, but is not limited to: 

(a) Survey management and data 

systems; (b) printing and mailing 

materials and facilities; (c) telephone 

and Interactive Voice Response (IVR) 

materials and facilities; (d) data receipt, 

entry and storage facilities; and (e) 

written documentation of survey 

processes. Organizations will be given a 

defined time period in which to correct 

any problems and provide follow-up 

documentation of corrections for 

review. As needed, hospitals and survey 

vendors will be subject to follow-up site 

visits or conference calls. If CMS 

determines that a hospital is not 

compliant with HCAHPS program 

requirements, CMS may determine that 

the hospital is not submitting HCAHPS 

data that meet the requirements of the 

RHQDAPU program. 

We continue to strongly recommend 

that each new hospital participate in an 

HCAHPS dry run, if feasible, prior to 

beginning to collect HCAHPS data on an 

ongoing basis to meet RHQDAPU 

program requirements. New hospitals 

can conduct a dry run in the last month 

of a calendar quarter. The dry run will 

give newly participating hospitals the 

opportunity to gain first-hand 

experience collecting and transmitting 

HCAHPS data without the public 

reporting of results. Using the official 

survey instrument and the approved 

modes of administration and data 

collection protocols, hospitals/survey 

vendors will collect HCAHPS dry-run 

data and submit the data to My 

QualityNet, the secure portion of 

QualityNet. 

We again encouraged hospitals to 

regularly check the HCAHPS Web site at 

http://www.hcahpsonline.org for 

program updates and information. 

Comment: Commenters expressed 

support for the use of the HCAHPS 

survey, but they suggested the 

development of additional survey 

domains. 

Response: We thank the commenters 

for their input and will take their 

suggestions into consideration in 

developing future rulemaking. 

After consideration of the public 

comments we received, we are adopting 

as final our proposed HCAHPS 

requirements for the FY 2012, FY 2013 

and FY 2014 payment determinations. 

b. Additional RHQDAPU Program 

Procedural Requirements for the FY 

2012, FY 2013 and FY 2014 Payment 

Determinations 

(1) Chart-Abstracted Measures for 

Which Data Are Submitted Directly to 

CMS (via QualityNet) 

Hospitals must begin submitting 

RHQDAPU program data starting with 

the first day of the quarter following the 

date when the hospital registers to 

participate in the program. For purposes 

of meeting this requirement, we 

interpret the registration date to be the 

date that the hospital submits a 

completed Notice of Participation form. 

As proposed previously in this section, 

hospitals must also register with 

QualityNet and identify a QualityNet 

Administrator who follows the 

QualityNet registration process before 

submitting RHQDAPU program data. 

Hospitals must continuously collect 

and report data to CMS (via QualityNet) 

for each of the quality measures under 

the topic areas that require chart 

abstraction (and are not registry-based 

topic areas). For the FY 2012 and FY 

2013 payment determinations, the 

proposed topic areas are AMI, HF, PN, 

and SCIP. For the FY 2014 payment 

determination, the proposed topic areas 

are AMI, HF, PN, SCIP, Emergency 

Department Throughput (EDT), and 

Global Immunization (GIM). 

For FY 2012, we proposed that 

hospitals must submit data for five 

calendar year discharge quarters as 

follows: 4Q CY 2009, 1Q CY 2010 (AMI, 

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HF and PN only), 2Q CY 2010, 3Q CY 

2010 and 4Q CY 2010. For the FY 2013 

payment determination, we proposed 

that hospitals must submit data for four 

consecutive calendar year discharge 

quarters as follows: 1Q CY 2011, 2Q CY 

2011, 3Q CY 2011 and 4Q CY 2011. For 

the FY 2014 payment determination, 

hospitals must submit data for four 

consecutive calendar year discharge 

quarters as follows: 1Q CY 2012, 2Q CY 

2012, 3Q CY 2012 and 4Q CY 2012. 

Hospitals must report these data by each 

quarterly deadline. 

We did not receive any public 

comments related to this proposal. We 

are adopting as final our proposal 

related to chart-abstracted measures for 

which data is submitted directly to CMS 

(via QualityNet). 

Hospitals must submit the data to the 

QIO Clinical Warehouse using the CMS 

Abstraction & Reporting Tool (CART), 

The Joint Commission ORYX® Core 

Measures Performance Measurement 

System, or another third-party vendor 

tool that meets the measurement 

specification requirements for data 

transmission to QualityNet. All 

submissions will be executed through 

My QualityNet, the secure part of the 

QualityNet Web site. Because the 

information in the QIO Clinical 

Warehouse is considered QIO 

information, it is subject to the stringent 

QIO confidentiality regulations in 42 

CFR part 480. The QIO Clinical 

Warehouse will submit the data to CMS 

on behalf of the hospitals. 

Hospitals must submit complete data 

for each quality measure that requires 

chart abstraction in accordance with the 

joint CMS/The Joint Commission 

sampling requirements located on the 

QualityNet Web site. These 

requirements specify that hospitals must 

submit a random sample or complete 

population of cases for each of the 

topics covered by the quality measures. 

Hospitals must meet the sampling 

requirements for these quality measures 

for discharges in each quarter. 

For the FY 2012 payment 

determination, we proposed that 

hospitals must submit population and 

sampling data for three consecutive 

calendar year discharge quarters as 

follows: 2Q CY 2010, 3Q CY 2010 and 

4Q CY 2010. 

For the FY 2013 payment 

determination, we proposed that 

hospitals must submit population and 

sampling data for four consecutive 

calendar year discharge quarters as 

follows: 1Q CY 2011, 2Q CY 2011, 3Q 

CY 2011 and 4Q CY 2011. 

For the FY 2014 payment 

determination, we proposed that 

hospitals must submit population and 

sampling data for four consecutive 

calendar year discharge quarters as 

follows: 1Q CY 2012, 2Q CY 2012, 3Q 

CY 2012 and 4Q CY 2012. 

We did not receive any public 

comments related to these proposals. 

We are adopting these proposals as 

final. 

Hospitals must submit to CMS on a 

quarterly basis aggregate population and 

sample size counts for Medicare and 

non-Medicare discharges for the topic 

areas for which chart-abstracted data 

must be submitted (currently AMI, HF, 

PN, and SCIP). For clarification, we 

proposed that hospitals are required to 

submit a numeric representation of their 

aggregate population and sample size 

count for each topic area even if the 

hospital has not treated patients in a 

specific topic area. For example, if a 

hospital has not treated AMI patients, 

the hospital is still required to submit a 

zero for its quarterly aggregate 

population and sample count for that 

topic in order to meet the requirement. 

In order to reduce the burden on 

hospitals that treat a low number of 

patients in an RHQDAPU program topic 

area, a hospital that has five or fewer 

discharges (Medicare and non-Medicare 

combined) in a topic area during a 

quarter in which data must be submitted 

is not required to submit patient-level 

data for that topic area for the quarter. 

The hospital must still submit its 

aggregate population and sample size 

counts for Medicare and non-Medicare 

discharges for the topic areas each 

quarter. We also noted that hospitals 

meeting the five or fewer patient 

discharge exception may voluntarily 

submit these data. 

The quarterly data submission 

deadline for hospitals to submit patient 

level data for the proposed measures 

that require chart abstraction is 41⁄2

months following the last discharge date 

in the calendar quarter. CMS will post 

the quarterly submission deadline 

schedule on the QualityNet Web site 

(http://www.QualityNet.org). Chartabstracted measures have not been 

added for the FY 2012 payment 

determination. The collection of new 

chart-abstracted measures proposed for 

the FY 2013 payment determination 

would begin with the 1st calendar 

quarter 2011 discharges, for which the 

submission deadline would be August 

15, 2011. The collection of new chartabstracted measures proposed for the FY 

2014 payment determination would 

begin with the 1st calendar quarter 2012 

discharges, for which the submission 

deadline would be August 15, 2012. 

Hospitals must comply with the 

discharge quarter submission deadlines 

in any fiscal year for each quarter for 

which data submission is required 

(Quarter 1—August 15th; Quarter 2— 

November 15th; Quarter 3—February 

15th; Quarter 4—May 15th). 

The data submission deadline for 

hospitals to submit aggregate population 

and sample size count data for the 

measures requiring chart abstraction is 

four months following the last discharge 

date in the calendar quarter. This 

requirement allows CMS to advise 

hospitals regarding their submission 

status in enough time for them to make 

appropriate revisions before the data 

submission deadline. We will post the 

aggregate population and sample size 

count data submission deadlines on the 

QualityNet Web site (http:// 

www.QualityNet.org). 

CMS strongly recommends that 

hospitals review the QIO Clinical 

Warehouse Feedback Reports and the 

RHQDAPU Program Provider 

Participation Reports that are available 

after patient level data are submitted to 

the QIO Clinical Warehouse. CMS 

generally updates these reports on a 

daily basis to provide accurate 

information to hospitals about their 

submissions. These reports enable 

hospitals to ensure that their data were 

submitted on time and accepted into the 

QIO Clinical Warehouse. 

We did not receive any public 

comments related to this proposal. We 

are adopting as final our proposal 

related to the submission of aggregate 

population and sampling data for AMI, 

HF, PN, and SCIP topics. 

(2) Data Submission Requirements for 

HCAHPS 

Hospitals must continuously collect 

and submit HCAHPS data in accordance 

with the current HCAHPS Quality 

Assurance Guidelines, which can be 

found on the HCAHPS Web site, 

http://www.hcahpsonline.org. If a 

hospital has zero HCAHPS-eligible 

discharges, the hospital must submit 

this information through the QIO 

Clinical Warehouse. The QIO Clinical 

Warehouse will accept zero HCAHPSeligible discharges. Hospitals with zero 

HCAHPS-eligible discharges must 

submit their total number of HCAHPSeligible cases to the QIO Clinical 

Warehouse for that month as part of 

their quarterly HCAHPS data 

submission. 

In order to reduce the burden on 

hospitals that treat a low number of 

patients that would be otherwise 

covered by the HCAHPS submission 

requirements, a hospital that has five or 

fewer HCAHPS-eligible discharges 

during a month is not required to 

submit HCAHPS surveys for that month. 

However, hospitals that meet this 

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exception may voluntarily submit this 

data. Hospitals with five or fewer 

HCAHPS-eligible discharges must 

submit their total number of HCAHPSeligible cases to the QIO Clinical 

Warehouse for that month as part of 

their quarterly HCAHPS data 

submission. 

We did not receive any public 

comments related to this proposal. We 

are adopting as final our proposal 

related to data submission requirements 

for HCAHPS. 

(3) Procedures for Claims-Based 

Measures 

Hospitals are encouraged to regularly 

check the QualityNet Web site, http:// 

www.QualityNet.org, for program 

updates and information. 

• The following RHQDAPU program 

claims-based measures would be 

calculated using Medicare claims: 

BILLING CODE 4120–01–P 

BILLING CODE 4120–01–C 

For the claims-based RHQDAPU 

program measures listed above, 

hospitals are not required to submit the 

data to the QIO Clinical Warehouse. We 

use the existing Medicare fee-for-service 

claims to calculate the measures. For the 

FY 2012 payment determination, we 

would use up to 3 years of discharges 

prior to January 1, 2011 (as appropriate 

for the measure), to calculate the 30-day 

mortality and 30-day readmission 


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measures AHRQ PSI, IQI and Composite 

measures (including the AHRQ PSI and 

Nursing Sensitive Care measure, Death 

among surgical inpatients with serious, 

treatable complications), and the 

proposed new HAC Measures. For the 

FY 2013 and FY 2014 payment 

determinations, we would use up to 3 

years of discharges (as appropriate for 

the measure) prior to January 1, 2012, 

and January 1, 2013, respectively. 

Hospitals are required to appropriately 

report the POA indicator in conjunction 

with ICD–9–CM coding to determine the 

presence of HACs so that the proposed 

HAC measures can be calculated for the 

RHQDAPU program using Medicare 

claims. 

We did not receive any public 

comments on this proposal. We are 

finalizing our proposal to use up to 3 

years of discharges (based on Medicare 

claims) to calculate the claims-based 

measures as appropriate. For the FY 

2012 payment determination, we would 

use up to 3 years of discharges prior to 

January 1, 2011 as appropriate for the 

measure. For the FY 2013 and FY 2014 

payment determinations, we would use 

up to 3 years of discharges as 

appropriate for the measure prior to 

January 1, 2012, and January 1, 2013, 

respectively. In addition, hospitals are 

required to appropriately report the 

POA indicator in conjunction with ICD– 

9–CM coding to determine the presence 

of HACs so that the proposed HAC 

measures can be calculated for the 

RHQDAPU program using Medicare 

claims. 

(4) Data Submission Requirements for 

Structural Measures 

• We proposed that for the FY 2012 

payment determination, hospitals 

submit the required registry 

participation information once for the 

structural measures via a Web-based 

collection tool between July 1, 2011– 

August 15, 2011 with respect to the time 

period of July 1, 2010 through December 

31, 2010. 

Below is the list of structural 

measures we proposed to adopt for the 

FY 2012 payment determination: 

Topic FY 2012 Payment determination: Proposed structural measures 

Cardiac Surgery .............................. • Participation in a Systematic Database for Cardiac Surgery. 

Stroke Care ..................................... • Participation in a Systematic Clinical Database Registry for Stroke Care. 

Nursing Sensitive Care ................... • Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care. 

We did not receive any public 

comments related to this proposal. We 

are adopting as final our proposal 

related to data submission requirements 

for structural measures. 

(5) Data Submission of All-Patient 

Volume Data for Selected DRGs Related 

to RHQDAPU Program Measures 

For submission of the all-patient 

volume data for selected DRGs, we 

proposed that hospitals submit patient 

level information needed for CMS to 

apply the MS–DRG GROUPER software 

to calculate the all-patient MS–DRG 

volumes, the data elements for which 

would be defined in the Hospital 

Measure Specification Manual. 

Hospitals would begin submitting this 

data quarterly via QualityNet beginning 

with January 1, 2011 discharges. 

We invited comment on an alternative 

that hospitals submit hospital-level allpatient volume data based upon specific 

ICD–9–CM codes that are related to the 

proposed MS–DRGs (rather than the 

patient-level data) necessary for CMS to 

calculate the MS–DRGs. Hospitals 

would begin submitting this data 

quarterly via QualityNet beginning with 

January 1, 2011 discharges. 

As we stated in our responses to 

comments on all-patient volume in 

section IV.A.3.b.(3) of this final rule, we 

are not finalizing the collection of allpatient volume data for selected MS– 

DRGs; therefore, we are not adopting the 

data submission requirements for allpatient volume data for selected MS– 

DRGs. 

(6) Data Submission and Reporting 

Requirements for HAI Measures 

Reported via NHSN 

We proposed that hospitals 

participating in the RHQDAPU program 

submit the data elements needed to 

calculate the Central Line Associated 

Blood Stream Infection and Surgical 

Site Infection measures to the NHSN 

using the standard procedures that have 

been set forth by CDC for NHSN 

participation in general and for 

submission of these two measures to 

NHSN in particular. This would include 

NHSN participation forms and 

indications to CDC allowing CMS to 

access data for these two measures for 

RHQDAPU program purposes, 

adherence to training requirements, use 

of standard CDC measure specifications, 

data element definitions, data collection 

requirements and instructions, and data 

reporting timeframes. Detailed 

requirements for NHSN participation, 

measure specifications, and data 

collection can be found at http:// 

www.cdc.gov/nhsn/. Hospitals must use 

the current specifications and data 

collection tools available on the CDC 

Web site to submit data for the Central 

Line Associated Bloodstream Infection 

and Surgical Site Infection measures. 

We proposed that hospitals would 

submit data for these two measures to 

CDC’s NHSN on a monthly basis for 

discharges occurring on or after January 

1, 2011. 

For the FY 2013 payment 

determination, we proposed that 

hospitals must submit HAI data via the 

NHSN for four consecutive calendar 

year discharge quarters as follows: 1Q 

CY 2011, 2Q CY 2011, 3Q CY 2011 and 

4Q CY 2011. 

For the FY 2014 payment 

determination, hospitals must submit 

HAI data for four consecutive calendar 

year discharge quarters as follows: 1Q 

CY 2012, 2Q CY 2012, 3Q CY 2012 and 

4Q CY 2012. 

We proposed that once quarterly each 

hospital would utilize an automated 

report function that will be made 

available to submitters in the NHSN, to 

generate a quarterly report containing 

hospital-level numerator, denominator, 

and exclusion counts for these two CDC 

measures specifically for the RHQDAPU 

program. The CDC will create this 

automated RHQDAPU report function 

and add it to NHSN’s reporting 

functionalities in the next few months. 

While hospitals may be reporting other 

data elements to CDC for other reporting 

programs (that is, State mandated 

surveillance programs), the quarterly 

RHQDAPU report that would be 

generated within NHSN would only 

contain those data elements needed to 

calculate the two measures currently 

being proposed for the RHQDAPU 

program. We will access the reports in 

the NHSN and will compile the reports 

for RHQDAPU program and public 

reporting purposes. 

We invited comment on the proposed 

mechanism for submitting data for the 

Central Line Associated Blood Stream 

Infection measure and the Surgical Site 

Infection measure for the RHQDAPU 

program beginning with the FY 2012 

payment determination. 

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We previously discussed public 

comments on these data submission and 

reporting requirements for HAI 

measures reported via NHSN in section 

IV.A.3.(c)(3) of this final rule. We are 

adopting the CLABSI HAI measure for 

the FY 2013 payment determination and 

the SSI HAI measure for the FY 2014 

payment determination. We are also 

finalizing the quarterly NHSN 

submission requirement. Requirements 

for NHSN participation, measure 

specifications, and data collection can 

be found at http://www.cdc.gov/nhsn/. 

Hospitals are encouraged to visit this 

Web site in order to enroll, and obtain 

the NHSN enrollment and reporting 

requirements. Training resources are 

also available there. 

The collection of the CLABSI measure 

via the NHSN will begin with January 

1, 2011 discharges, and the collection of 

the SSI measure will begin with January 

1, 2012 discharges. The data collection 

and submission timeframes for the 

CLABSI measure for the FY 2012 

payment determination are shown 

below. Hospitals must submit their 

quarterly data to NHSN for RHQDAPU 

purposes on or around the dates shown 

in the table below (updates to this will 

be posted on the QualityNet Web site). 

SUBMISSION TIMEFRAMES FOR CLABSI MEASURE FOR THE FY 2012 PAYMENT DETERMINATION

CY 2011 Discharge dates CDC–NHSN collection and quarterly report 

generation time frame 

Final submission deadline for RHQDAPU FY 

2012 payment determination 

Q1 (Jan–Mar 2011) ............................................ April 30–August 15th ........................................ August 15, 2011. 

Q2 (Apr–Jun 2011) ............................................ July 30–November 15th ................................... November 15, 2011. 

Q3 (Jul–Sep 2011) ............................................. September 30–Feb 15th .................................. February 15, 2012. 

Q4 (Oct–Dec 2011) ............................................ October 30th–May 15th ................................... May 15, 2012. 

Hospitals have until the RHQDAPU 

final submission deadline to submit 

their quarterly data to NHSN. After the 

final RHQDAPU submission deadline 

has occurred for each CY 2011 quarter, 

CMS will obtain the hospital-specific 

calculations that have been generated by 

the NHSN for the RHQDAPU program. 

Further details regarding data 

submission and reporting requirements 

for HAI measures specified for the 

RHQDAPU program to be reported via 

NHSN will be posted on CMS’ 

QualityNet Web site in the fall of 2010. 

(7) Data Submission Requirements for 

Registry-Based Measures 

We proposed that hospitals 

participating in RHQDAPU would be 

required to choose at least one of four 

registry based measure topics (ICD 

Complications, Stroke, Nursing 

Sensitive Care, or Cardiac Surgery), and 

would submit the data needed to 

calculate the measures included in the 

chosen registry-based topic to a 

qualified registry in order to meet the 

requirements to receive the full FY 2013 

annual payment update. 

We proposed that hospitals then 

would arrange to have the qualified 

registry calculate the measures and 

submit to the QIO Clinical Warehouse 

the results, as well as the numerator, 

denominator, and exclusions. Any 

arrangement reached between the 

hospital and the qualified registry must 

comply with the HIPAA. The qualified 

registry would also submit registryderived hospital-level measure 

calculations to the QIO Clinical 

Warehouse using a CMS-specified 

record layout and file format that we 

will make available. 

Our program and its data system must 

maintain compliance with the HIPAA 

requirements for requesting, processing, 

storing, and transmitting data. For the 

FY 2013 RHQDAPU payment 

determination, hospitals would need to 

submit data for the proposed registrybased measures to the qualified registry 

in the form and manner and by the 

deadline(s) specified by the registry. 

CMS proposed to begin qualifying 

registries for the four proposed registrybased topics so that hospitals may begin 

submitting data for discharges beginning 

January 1, 2011. Proposed registry 

qualification criteria were discussed in 

a section IV.A.13. of the FY 2011 IPPS/ 

LTCH PPS proposed rule. We proposed 

to post on the RHQDAPU program 

section of the QualityNet Web site 

http://www.qualitynet.org a list of 

qualified registries for the FY 2013 

RHQDAPU payment determination, 

including the registry name, contact 

information, and the measure(s) that the 

registry has been qualified to collect and 

report for the RHQDAPU program. 

We anticipated posting the list of 

qualified FY 2011 registries as soon as 

we have completed vetting the registries 

interested in participating in the FY 

2013 RHQDAPU program payment 

determination and identified the 

qualified registries for the FY 2013 

RHQDAPU program payment 

determination, which we anticipated 

would be completed by December 31, 

2010. 

(A) Hospitals That Choose To Report the 

ICD Complications Measure 

We proposed that if the hospital 

chooses the ICD Complications measure, 

it would submit specified data elements 

for specified populations to the 

qualified ICD registry, and that CMS 

intended to establish criteria and begin 

qualifying registries for this topic so that 

hospitals can begin submitting data for 

discharges beginning January 1, 2011. 

We proposed that the hospital would 

follow the standard participation and 

reporting procedures set by the registry 

regarding the submission of data 

elements for the particular measures 

CMS has specified for the topic. These 

data elements and population 

definitions will be listed in the 

Specifications Manual. 

Hospitals must allow the qualified 

registry it is using to report the patientlevel data to CMS in order to calculate 

the ICD complications measure. 

(B) Hospitals That Choose To Report 

Either the Stroke, Nursing Sensitive 

Care, or Cardiac Surgery Measures 

If a hospital chooses the Stroke, 

Nursing Sensitive Care, or Cardiac 

Surgery measure topics, we proposed 

that it would submit data on the 

measures listed for these topics to a 

qualified registry for the topic and that 

we intend to establish criteria and begin 

qualifying registries for these topics so 

that hospitals can begin submitting data 

for discharges beginning January 1, 

2011. The hospital would follow the 

standard participation and reporting 

procedures set by the registry regarding 

the submission of data elements for the 

particular measures CMS has specified 

for the topic. In addition, the hospital 

would agree to allow the registry to send 

calculations of the measures, numerator, 

denominator and exclusion counts to 

CMS for the RHQDAPU program. 

As we stated previously in section 

IV.A.3.(c) of this final rule, we are not 

finalizing the proposed registry-based 

measure topics. Therefore, we are not 

finalizing these proposed data 

submission requirements or the registry 

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qualification process discussed in 

section IV.A.13. of this final rule. 

6. RHQDAPU Program Disaster 

Extensions and Waivers 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24176), we 

solicited public comment about rules 

we could adopt that would enable 

hospitals to request either an extension 

or a waiver of various RHQDAPU 

program requirements in the event of a 

disaster (such as a hurricane that 

damages or destroys the hospital). 

Specifically, we solicited public 

comment on the following issues: 

• Recommendations for rules that we 

could follow when considering whether 

to grant an extension or waiver of 

RHQDAPU program requirements in the 

event of a disaster, including suggested 

criteria that we should take into account 

(for example, specific hospital 

infrastructure damage, hospital closure 

time period, degree of destruction of 

medical records, impact on data 

vendors, and long-term evacuation of 

discharged patients impacting HCAHPS 

survey participation). 

• The role that QIOs and QIO support 

contractors should play in the event of 

a disaster, including communicating 

with affected hospitals, communicating 

with State hospital associations, and 

collecting information directly from 

hospitals. 

• How CMS extension or waiver 

decisions should be communicated to 

affected hospitals. 

• Any other issues commenters deem 

relevant to a hospital’s request for an 

extension or waiver of RHQDAPU 

program requirements in the event of a 

disaster. 

We responded to public comments in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43881). We recognized 

that there were times when hospitals are 

unable to submit quality data due to 

extraordinary circumstances that are not 

within their control. It is our goal to not 

penalize hospitals for such 

circumstances and we do not want to 

unduly increase their burden during 

these times. 

Therefore, we proposed a process for 

hospitals to request and for CMS to 

grant extensions or waivers with respect 

to the reporting of required quality data 

when there are extraordinary 

circumstances beyond the control of the 

hospital. Under the proposed process, in 

the event of extraordinary 

circumstances not within the control of 

the hospital, for the hospital to receive 

consideration for an extension or waiver 

of the requirement to submit quality 

data for one or more quarters, a hospital 

must submit to the QIO in the hospital’s 

State a request form that will be made 

available on the QualityNet Web site. 

The following information should be 

noted on the form: 

• Hospital CCN; 

• Hospital Name; 

• CEO and any other designated 

personnel contact information, 

including name, e-mail address, 

telephone number, and mailing address 

(must include a physical address, a post 

office box address is not acceptable); 

• Hospital’s reason for requesting an 

extension or waiver; 

• Evidence of the impact of the 

extraordinary circumstances, including 

but not limited to photographs, 

newspaper and other media articles; and 

• A date when the hospital will again 

be able to submit RHQDAPU data, and 

a justification for the proposed date. 

The request form must be signed by 

the hospital’s CEO. A request form must 

be submitted within 45 days of the date 

that the extraordinary circumstance 

occurred. The QIO in the hospital’s state 

will forward the request form to CMS. 

Following receipt of the request form, 

CMS will: (1) Provide a written 

acknowledgement using the contact 

information provided in the request, to 

the CEO and any additional designated 

hospital personnel, notifying them that 

the hospital’s request has been received; 

and (2) provide a formal response to the 

CEO and any additional designated 

hospital personnel using the contact 

information provided in the request 

notifying them of our decision. 

This proposal does not preclude CMS 

from granting waivers or extensions to 

hospitals that have not requested them 

when we determine that an 

extraordinary circumstance, such as an 

act of nature (for example, hurricane), 

affects an entire region or locale. If CMS 

makes the determination to grant a 

waiver or extension to hospitals in a 

region or locale, CMS will communicate 

this decision through routine 

communication channels to hospitals, 

vendors and QIOs, including but not 

limited to issuing memos, e-mails and 

notices on the QualityNet Web site. We 

invited public comment on this 

proposal. 

Comment: A few commenters 

supported this proposal. 

Response: We thank the commenters 

for their support of this proposal. 

After consideration of the public 

comments we received, we are adopting 

as final our proposal related to 

RHQDAPU program disaster extensions 

and waivers. 

7. Chart Validation Requirements for 

Chart-Abstracted Measures 

a. Chart Validation Requirements and 

Methods for the FY 2012 Payment 

Determination 

For the FY 2012 payment 

determination, we will use the chart 

validation requirements and methods 

that we adopted for FY 2012 in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43884 through 43889). These 

requirements, as well as additional 

information on these requirements, will 

be posted on the QualityNet Web site 

after we issue the FY 2011 IPPS/LTCH 

PPS final rule. 

Specifically, we will: 

• Randomly select on an annual basis 

800 participating hospitals that 

submitted chart-abstracted data for at 

least 100 discharges combined in the 

measure topics to be validated. To 

determine whether a hospital meets this 

‘‘100-case threshold,’’ we will look to the 

discharge data submitted by the hospital 

during the calendar year three years 

prior to the fiscal year of the relevant 

payment determination. For example, if 

the 100-case threshold applied for the 

FY 2011 payment determination (which 

it will not), the applicable measure 

topics would be AMI, HF, PN, and SCIP, 

and we would choose 800 hospitals that 

submitted discharge data for at least 100 

cases combined in these topics during 

calendar year 2008. If a hospital did not 

submit discharge data for at least 100 

cases in these topics during CY 2008, 

we would not select the hospital for 

validation. We will announce the topic 

areas that apply for the FY 2012 

payment determination at a later date, 

and we plan to select the first 800 

hospitals in July 2010. We will select 

hospitals for the FY 2012 validation if 

they meet the 100-case threshold during 

CY 2009. We adopted this 100-case 

threshold because we believe that it 

strikes the appropriate balance between 

ensuring that the selected hospitals have 

a large enough patient population to be 

able to submit sufficient data to allow us 

to complete an accurate validation, 

while not requiring validation for 

hospitals with a low number of 

submitted quarterly cases and relatively 

unreliable measure estimates. Based on 

previously submitted data, we estimate 

that 98 percent of participating 

RHQDAPU program hospitals will meet 

this threshold and, thus, be eligible for 

validation. As noted below, we solicited 

comments and suggestions on how we 

might be able to target the remaining 2 

percent of hospitals for validation. 

• Validate for each of the 800 

hospitals a randomly selected stratified 

sample for each quarter of the validation 

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50226 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

period. Each quarterly sample will 

include 12 cases, with at least one but 

no more than three cases per topic for 

which chart-abstracted data was 

submitted by the hospital. However, we 

recognize that some selected hospitals 

might not have enough cases in all of 

the applicable topics to submit data (for 

example, if they have 5 or fewer 

discharges in a topic area in a quarter). 

For those hospitals, we will validate 

measures in only those topic areas for 

which they have submitted data. For the 

FY 2012 payment determination, we 

will validate 1st calendar quarter 2010 

through 3rd calendar quarter 2010 

discharge data. We will validate 3 

quarters of data for FY 2012 in order to 

provide hospitals with enough time to 

assess their medical record 

documentation and abstraction 

practices, and to take necessary 

corrective actions to improve these 

practices, before documenting their 1st 

calendar quarter 2010 discharges into 

medical records that may be sampled as 

part of this proposed validation process. 

The CDAC contractor will, each 

quarter that applies to the validation, 

ask each of the 800 selected hospitals to 

submit 12 randomly selected medical 

charts from which data was abstracted 

and submitted by the hospital to the 

QIO Clinical Warehouse. We noted that, 

under our current requirements, 

hospitals must begin submitting 

RHQDAPU program data starting with 

the first day of the quarter following the 

date when the hospital registers to 

participate in the program. For purposes 

of meeting this requirement, we 

interpret the registration date to be the 

date that the hospital submits a 

completed Notice of Participation form. 

As proposed previously in section 

IV.A.5.a. of the proposed rule, hospitals 

must also register with QualityNet and 

identify a QualityNet Administrator 

who follows the QualityNet registration 

process before submitting RHQDAPU 

program data. 

In addition, we will continue the 

following timeline with respect to 

CDAC contractor requests for paper 

medical records for the purpose of 

validating RHQDAPU program data. 

Beginning with CDAC contractor 

requests for second calendar quarter 

2009 paper medical records, the CDAC 

contractor will request paper copies of 

the randomly selected medical charts 

from each hospital via certified mail (or 

other trackable method that requires a 

hospital representative to sign for the 

letter), and the hospital will have 45 

days from the date of the request (as 

documented on the request letter) to 

submit the requested records to the 

CDAC contractor. If the hospital does 

not comply within 30 days, the CDAC 

contractor will send a second certified 

letter to the hospital, reminding the 

hospital that it must return paper copies 

of the requested medical records within 

45 calendar days following the date of 

the initial CDAC contractor medical 

record request. If the hospital still does 

not comply, then the CDAC contractor 

will assign a ‘‘zero’’ score to each 

measure in each missing record. The 

letter from the CDAC contractor is 

addressed to the hospital’s medical 

record staff identified by the hospital to 

their state Quality Improvement 

Organization (QIO). CMS recommends 

that hospitals routinely check with their 

State QIO to ensure the correct person 

is listed to receive the record request. If 

CMS has evidence from the CDAC 

contractor that the hospital received 

both letters requesting medical records 

(as determined by the tracking system 

used by CDAC contractor), the hospital 

is responsible for not returning their 

charts and will not be able to submit 

charts as part of their reconsideration 

request. 

Under the validation methodology, 

once the CDAC contractor receives the 

charts, it will re-abstract the same data 

submitted by the hospitals and calculate 

the percentage of matching RHQDAPU 

program measure numerators and 

denominators for each measure within 

each chart submitted by the hospital. 

Specifically, we will estimate the 

accuracy by calculating a match rate 

percent agreement for all of the 

variables submitted in all of the charts. 

For any selected record, a measure’s 

numerator and denominator can have 

two possible states, included or 

excluded, depending on whether the 

hospital accurately included the cases 

in the measure numerator(s) and 

denominator(s). We will count each 

measure in a selected record as a match 

if the hospital submitted measure 

numerator and denominator sets match 

the measure numerator and 

denominator states independently 

abstracted by our contractor. For 

example, one heart failure case from 

which data has been abstracted for four 

RHQDAPU program chart-abstracted 

measures (that is, HF–1, HF–2, HF–3, 

and HF–4) would receive a 75 percent 

match if three out of four of the 

hospital-reported heart failure measure 

numerator and denominator states 

matched the re-abstracted numerator 

and denominator states. This proposed 

scoring approach is the same as 

recommended in the CMS Hospital 

Value-Based Purchasing Report to 

Congress, and is illustrated in further 

detail using an example in pages 83–84 

of the report which can be found on our 

Web site at: http://www.cms.hhs.gov/

AcuteInpatientPPS/downloads/ 

HospitalVBPPl

anRTCFINALSUBMITTED2007.pdf. We 

believe that this approach is 

appropriate, and it was supported by 

many commenters when we requested 

comment in the FY 2009 and FY 2010 

IPPS final rules for input about the 

RHQDAPU program validation process 

(73 FR 48622 and 48623, 74 FR 43886 

and 43887). 

Under the validation methodology, 

we will: 

• Use, as we currently do, each 

selected case as a cluster comprising 

one or multiple measures utilized in a 

validation score estimate. Each selected 

case will have multiple measures 

included in the validation score (for 

example, for the FY 2011 payment 

determination, a heart failure record 

will include 4 heart failure measures). 

Specifically, we will continue using the 

design-specific estimate of the variance 

for the confidence interval calculation, 

which, in this case, is a stratified single 

stage cluster sample, with unequal 

cluster sizes. (For reference, see 

Cochran, William G.: Sampling 

Techniques, John Wiley & Sons, New 

York, chapter 3, section 3.12 (1977); and 

Kish, Leslie.: Survey Sampling, John 

Wiley & Sons, New York, chapter 3, 

section 3.3 (1964).) Each quarter and 

clinical topic is treated as a stratum for 

variance estimation purposes. 

We believe that the clustering 

approach is a statistically appropriate 

technique for calculating the annual 

validation confidence interval. Because 

we will not be validating all hospital 

records, we need to calculate a 

confidence interval that incorporates a 

potential sampling error. Our clustering 

approach incorporates the degree of 

correlation at the individual data record 

level, because our previous validation 

experience indicates that hospital data 

mismatch errors tend to be clustered in 

individual data records. We have used 

this clustering since the inception of the 

RHQDAPU program validation 

requirement to calculate variability 

estimates needed for calculating 

confidence intervals (70 FR 47423). 

• Use the upper bound of a one-tailed 

95 percent confidence interval to 

estimate the validation score; and 

• Require all RHQDAPU program 

participating hospitals selected for 

validation to attain at least a 75 percent 

validation score per quarter to pass the 

validation requirement. 

We believe that this modified 

validation methodology incorporates 

many of the principles supported by the 

vast majority of commenters in response 

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to our solicitation for public comments 

in the FY 2009 and FY 2010 IPPS 

proposed rule (73 FR 23658 through 

23659, 74 FR 43886 and 43887). 

Specifically, we believe that the 

increased annual sample size per 

hospital will provide more reliable 

estimates of validation accuracy. The 

sample size of 12 records per quarter 

would provide a total of 36 records 

across the three sampled quarters for the 

FY 2012 payment determination, and 48 

records in subsequent years. This 

estimate would improve the reliability 

of our validation estimate, as compared 

to the current RHQDAPU program 

annual validation sample of 20 cases per 

year. We also believe that modifying the 

validation score to reflect measure 

numerator and denominator accuracy 

will ensure that accurate data are posted 

on the Hospital Compare Web site. 

In addition, we believe that stratified 

quarterly samples by topic will improve 

the feedback provided to hospitals. CMS 

will provide validation feedback to 

hospitals about all sampled topics 

submitted by the hospitals each quarter. 

Because all relevant data elements 

submitted by the hospital must match 

the independently re-abstracted data 

elements to count as a match, we 

reduced the passing threshold from 80 

percent to 75 percent. We will use a 

one-tail confidence interval to calculate 

the validation score because we strongly 

believe that a one-tail test most 

appropriately reflects the pass or fail 

dichotomous nature of the statistical test 

regarding whether the confidence 

interval includes or is completely above 

the 75 percent passing validation score. 

We also will continue to allow 

hospitals that fail to meet the passing 

threshold for the quarterly validation an 

opportunity to appeal the validation 

results to their State QIO. QIOs are 

currently tasked by CMS to provide 

education and technical assistance 

about RHQDAPU program data 

abstraction and measures to hospitals, 

and the quarterly validation appeals 

process will provide hospitals with an 

opportunity to both appeal their 

quarterly results and receive education 

free of charge from their State QIO. This 

State QIO quarterly validation appeals 

process is independent of the proposed 

RHQDAPU program reconsideration 

procedures for hospital reconsideration 

requests involving validation for the FY 

2011 payment update adopted in this 

final rule. 

b. Supplements to the Chart Validation 

Process for the FY 2013 Payment 

Determination and Subsequent Years 

For FY 2013 and future years, we also 

proposed to adopt the same validation 

requirements that we adopted for the FY 

2012 payment determination, except as 

set forth below. For FY 2013 and future 

years, we proposed to modify our FY 

2012 criteria by adding a targeting 

criterion, refining our random sample 

approach, and changing our data 

discharge quarters validated as part of 

our proposed synchronization of 

RHQDAPU timelines. Specifically, we 

proposed the following changes for FY 

2013: 

We proposed to validate the data 

submitted by a hospital if the hospital 

failed the previous year’s RHQDAPU 

program validation. We proposed this 

targeting criterion to improve data 

accuracy for all hospitals failing our 

validation requirement in a previous 

year. We believe that this proposal is an 

appropriate method to ensure data 

accuracy, since it targets our resources 

on the hospitals with the least accurate 

data based on FY 2012 validation 

results. We also believe that these 

hospitals must correct the data 

inaccuracies identified in RHQDAPU 

validation for their internal quality 

improvement and RHQDAPU measures 

publicly reported on Hospital Compare. 

Our proposal allows CMS to assess the 

accuracy of these hospitals’ data and 

provide feedback to hospitals until they 

comply with our RHQDAPU validation 

requirement. 

Specifically, we proposed that all 

hospitals selected for validation for the 

FY 2012 payment determination and 

that fail the validation will be selected 

for validation for the FY 2013 payment 

determination. Based on data analysis of 

past validation results, we estimate that 

targeting these hospitals would add 

about 20 to 40 hospitals to our list of 

validated hospitals to be selected in the 

FY 2013 validation sample. 

For FY 2013, we also proposed the 

following changes to the FY 2012 

RHQDAPU validation random sample 

approach: 

Starting in FY 2013, we proposed to 

discontinue the 100 case minimum 

threshold for selection in the RHQDAPU 

800 hospital random sample. We believe 

that discontinuing this requirement 

would improve the robustness of the 

RHQDAPU program validation sample 

by including the smallest hospitals 

participating in the RHQDAPU program 

in the sample. All hospitals successfully 

submitting at least one RHQDAPU case 

for the third calendar quarter of the year 

two years prior to the year to which the 

validation applies would be eligible to 

be selected for validation. For example, 

for the FY 2013 payment determination, 

we would select the sample in early 

2011, and all hospitals that submitted at 

least one RHQDAPU case for third 

quarter 2010 discharges would be 

eligible to be selected. Starting in FY 

2013, we proposed this change to the 

RHQDAPU random validation sample, 

rather than including these hospitals in 

a targeted sample, to ensure that all 

RHQDAPU participating hospitals are 

equally likely to be selected in the 

random validation sample. 

For FY 2013, we proposed to modify 

the quarterly stratified sample selection 

by reallocating sample cases when a 

hospital has submitted fewer than three 

cases in a topic within a quarter. In 

these rare cases, we proposed to 

randomly reallocate the extra sample 

cases to other topics with more than 3 

submitted quarterly cases. This 

proposed modification is designed to 

ensure that CMS selects 12 cases for all 

hospitals in a quarter, including those 

hospitals specializing in only one topic. 

For example, an orthopedic specialty 

surgery hospital submitting only SCIP 

measure cases in a given quarter would 

have only SCIP measure cases randomly 

selected in the validation sample for 

that quarter. This would provide a more 

reliable estimate of abstraction and 

measure accuracy by maintaining the 

same 12 case total quarterly validation 

sample. 

For the FY 2013 payment 

determination, we also proposed to 

validate data from the 4th calendar 

quarter of 2010 through the 3rd calendar 

quarter of 2011 in accordance with our 

proposed synchronization of RHQDAPU 

data as outlined in section IV.A.5.a.(2) 

of the proposed rule (75 FR 23985 and 

23986). This lag between the time a 

hospital submits data and the time we 

can validate that data is necessary 

because data is not due to the QIO 

Clinical Warehouse until 41⁄2 months 

after the end of each quarter, and we 

need additional time to select hospitals 

and complete the validation process. 

Comment: One commenter was 

pleased that the proposed chart audit 

validation process takes into account all 

applicable chart-abstracted measures. 

Response: We appreciate the 

comment and agree that the proposed 

approach ensures validation of all 

submitted RHQDAPU chart-abstracted 

measures by sampled hospitals. 

Comment: One commenter 

recommended that all hospitals should 

be validated as opposed to a random 

sample to hold hospitals equally 

accountable. 

Response: We thank the commenter 

for the recommendation. We weighed 

burden to hospitals, reliability of 

hospital validation results in sample 

size, and cost to the taxpayers through 

validation expenses when proposing the 

random sample. The annual random 

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sampling approach ensures equal 

probability of selection for all hospitals 

submitting sufficient data each year. 

Our proposed targeting approach also 

ensures that all hospitals will be 

validation at least once every four years. 

This targeting approach will increase 

equity in accountability in the 

validation of all hospitals’ data over a 

four year period, while reducing burden 

to hospitals to copy and return 

validation records through random 

sampling. 

Comment: One commenter supported 

CMS’ proposal to implement the new 

validation process for FY 2012, as it 

minimizes burden for many hospitals 

and implements a more rigorous 

validation process compared to what is 

currently in place. 

Response: We appreciate and agree 

with the commenter. 

Comment: One commenter believed 

that CMS should understand specific, 

timely and frequent feedback from 

hospitals would prevent serial 

abstraction mistakes. The commenter 

gave an example of an abstractor who 

makes a mistake at the top of the 

algorithm and does not have any 

validation for 12–24 months. In this 

example, the commenter believed that 

serious validation mismatches could go 

unchecked for such long periods of time 

that a hospital could be put on the 

‘‘targeted list’’ for validation because of 

failing previous validations as CMS 

describes and that the potential for a 

longstanding mismatch is greater when 

a mistake is not corrected through the 

quarterly educational comments specific 

to each facility. The commenter did not 

agree with CMS that providing 

validation feedback to a group of 

hospitals that did not get validated will 

correct abstraction errors for all. 

Response: We appreciate the 

comment, but believe that the process 

we are finalizing starting in FY 2012 

will improve the reliability of 

RHQDAPU annual and quarterly 

validation scores through the increased 

sample size from 5 records per quarter 

to 12 records per quarter. In addition, 

sample stratification of measure topics 

will ensure that CMS validates all chartabstracted measures, thereby providing 

a more valid estimate of a hospital’s 

overall abstraction accuracy for chartabstracted RHQDAPU data. 

We believe that the improved 

precision and reliability of our random 

and targeted validation proposed 

approaches outweigh the benefit of 

providing hospital-specific feedback to 

all hospitals. Hospitals have generally 

improved in their RHQDAPU 

abstraction accuracy since the program’s 

inception, thereby lessening the need 

for regular quarterly hospital-specific 

feedback to all hospitals. In past several 

years, the vast majority of hospitals have 

submitted accurate data, as evidenced 

by 99.5 percent average percentage of 

hospitals passing our annual RHQDAPU 

validation requirement. 

Comment: A commenter stated that 

the timeline for turn-in of medical 

charts of 45 days is fair and appreciated 

that a certified letter follows-up when 

records have not been received in 30 

days by the CDAC. However, the 

commenter would like the opportunity 

to address when CDAC abstractions 

have missed key documentation that 

changes an answer. For example, the 

commenter had several cases where 

evidence of passing a measure on 

smoking cessation or CHF discharge 

instructions were in the chart, but the 

CDAC missed it. 

Response: The CDAC reabstraction 

process is an independent reabstraction 

of the hospital’s official medical record 

documentation. Additionally, hospitals 

may appeal quarterly scores below the 

passing threshold to their State QIO for 

an independent review. Hospitals that 

do not pass our annual RHQDAPU 

program validation requirement are 

eligible to appeal validation 

mismatched data elements reabstracted 

by CDAC for CMS reconsideration. 

Comment: A commenter believed that 

CMS should be accountable regarding 

their CDAC abstractors and should 

require attestation by the CDAC 

abstractors that they received 

appropriate training on the 

Specifications Manual and its proper 

interpretation. 

Response: Our abstractors receive 

extensive training from CDAC 

management and assisted by our 

contractors responsible for RHQDAPU 

measure maintenance and abstraction 

education to our QIOs. Additionally, we 

require our CDAC abstractors to pass 

inter-rater reliability tests relative to 

CDAC expert adjudicators. Historically, 

CDAC abstractor inter-rater reliability 

rates have averaged greater than 95 

percent. We recognize that CDAC 

abstractors are not 100 percent accurate 

in their reabstraction, and the CDAC 

adjudicates all potential mismatches. 

Additionally, hospitals are eligible to 

appeal quarterly scores below the 

passing threshold to their state QIO for 

an independent review. Hospitals that 

do not pass our annual RHQDAPU 

validation requirement are eligible to 

appeal validation mismatched data 

elements reabstracted by CDAC for CMS 

reconsideration. Collectively, we believe 

that the CDAC abstraction process is 

accurate, but do provide multiple 

independent methods of appeal for 

hospitals that believe their abstraction is 

correct as compared to the CDAC 

reabstraction. 

Comment: One commenter opposed 

modifying the quarterly stratified 

sample selection by reallocating sample 

cases when a hospital has submitted 

fewer than three cases in a topic within 

a quarter. 

Response: We believe that our 

approach provides a more reliable 

validation estimate to ensure that 

hospitals are submitting accurate quality 

measure information. Our approach 

prevents reduction in sample size and 

retains reliability by maintaining a total 

quarterly sample size of 12 cases across 

all topics. We believe that this approach 

creates equal and minimal burden for all 

sampled hospitals. 

Comment: A commenter disagreed 

with addition of two validation samples 

of three cases per hospital. The 

commenter believed that this process is 

very labor intensive as records have 

transitioned from paper to electronic 

records, requiring multiple queries 

within an electronic health record to 

obtain all of the necessary information. 

Response: We appreciate the 

comment, and will consider adding 

technology to accept electronic health 

records in the future to reduce 

validation burden to hospitals using 

electronic health records. We recognize 

that many more hospitals will transition 

their recordkeeping to EHRs, and we 

want to provide the public with 

accurate quality data and maintain 

alignment with hospital recordkeeping 

practices. We also believe that 

validating all RHQDAPU chartabstracted measures is one of many 

important elements to ensure accurate 

publicly reported RHQDAPU data. 

Comment: Some commenters were 

concerned about the lack of CDC/NHSN 

data validation process in place that is 

similar to the current RHQDAPU 

program validation process. The 

commenters recommended that, before 

any measure is included in public 

reporting, an adequate validation 

mechanism must be in place. 

Response: We agree with the 

commenter that CDC/NHSN should be 

validated. We are considering validating 

self-reported CDC/NHSN data by 

proposing two additional quarterly 

samples. One quarterly additional 

sample would validate NHSN measure 

data. We will solicit public comment 

when we propose improvements to our 

validation approach in future 

rulemaking. 

After considering the public 

comments we received, we are adopting 

as final our proposed supplements to 

the chart validation process for the FY 

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2013 payment determination and 

subsequent FYs. 

This RHQDAPU validation process 

meets the requirements set forth in 

section 1886(b)(3)(B)(viii)(XI) of the Act. 

This section states that: 

The Secretary shall establish a process to 

validate measures specified under this clause 

as appropriate. Such process shall include 

the auditing of a number of randomly 

selected hospitals sufficient to ensure 

validity of the reporting program under this 

clause as a whole and shall provide a 

hospital with an opportunity to appeal the 

validation of measures reported by such 

hospital. 

Starting with the FY 2012 payment 

determination and continuing in 

subsequent fiscal years, the chart 

validation process audits 800 randomly 

selected hospitals for the discharge 

quarters as outlined in this section. This 

sample size is sufficient to validate 

more than 22 percent of subsection (d) 

hospitals for FY 2012 and ensure 

validity of the reporting program. 

Currently, this process validates 27 

chart abstracted measures, including 7 

AMI measures (AMI 1 through 8a), 4 

Heart Failure measures (HF 1 through 

HF 4), 6 Pneumonia measures, and all 

10 SCIP measures. 

Validation of the HCAHPHS measure 

is conducted through our oversight 

activities. We provide oversight of all 

HCAHPS survey vendors and hospitals 

self-administering the survey in order to 

ensure that the data collection protocols 

are followed. We also provide oversight 

and validation through our review of 

Quality Assurance Plans, site visits, 

conference calls and detailed data 

analyses each quarter to ensure there are 

no anomalies found in the data. In 

particular, we use site visits to review 

all data collection activities, including 

data reviews tracking a discharged 

patient from sampling, survey 

administration and data submission. 

Information reported through claims 

for the 24 RHQDAPU program measures 

for FY 2012 as described in this rule is 

already validated for accuracy by 

Medicare Administrative Contractors 

(MACs) to ensure accurate Medicare 

payments. We are considering 

validation methodologies for structural 

measures and NHSN data and will 

propose validation methodologies as 

appropriate in the future. 

We believe that the validation 

processes described above ensures 

validity of measures used under the 

RHQDAPU reporting program. Our 

reconsideration process outlined in this 

section provides hospitals that do not 

meet our validation requirement with 

the opportunity to appeal mismatched 

data elements that result in mismatched 

measures. We believe that our 

reconsideration process provides 

hospitals with appeal opportunities 

when mismatched measures result in 

potential payment reduction. 

In the proposed rule, we state that we 

are also considering additional changes 

to our validation approach for future 

years. Starting in FY 2014, we are 

considering adding two strata to the 

current RHQDAPU program validation 

sample of SCIP, AMI, HF, and PN cases. 

We are considering selecting two 

additional validation samples of three 

cases per selected hospital per quarter. 

One additional quarterly sample would 

enable us to validate the CLABSI and 

SSI measures that we proposed to add 

to the RHQDAPU program measure set 

for the FY 2013 payment determination, 

and the second additional quarterly 

sample would enable us to validate the 

ED–Throughput and the Immunization 

for Influenza and Immunization for 

Pneumonia global measures that we 

proposed to add to the RHQDAPU 

measure set for FY 2014. Thus, we 

would be validating a total of 18 records 

per quarter per validated hospital in 6 

strata (1) SCIP, (2) AMI, (3) HF, (4) PN, 

(5) CLABSI/SSI, and (6) ED– 

Throughput/immunization measures). 

We are also considering requiring 

hospitals to sign a written form 

explicitly granting CMS access to their 

patient level data submitted to NHSN 

for the proposed CLABSI measure and 

the SSI measure. We believe that the 

CLABSI/SSI stratum is necessary to 

validate the data in the reports that we 

will access from NHSN for the 

RHQDAPU program. We invited public 

comment on our validation proposals 

and considerations. 

Comment: Regarding FY 2014, the 

commenter believed that the proposal to 

add 2 strata (increasing from 12–18 

records per quarter) to the current 

program validation sample did not add 

value, but rather adds busywork with 

more cases to validate. The commenter 

believed that this makes annual 

validation a potential of near 80–100 

records per validated facility and 

believed that this number was excessive 

and burdensome on the hospital to 

produce this volume in a short period 

of time. 

Response: We understand the 

commenter’s concern about burden, but 

must also consider accuracy of all chartabstracted measures. Our random 

sampling approach reduces this burden 

to the majority of hospitals, since not all 

hospitals’ data will be validated in a 

particular year. We will consider this 

comment in the future for future 

supplements to the RHQDAPU 

validation approach. 

We noted that, starting with the FY 

2015 payment determination, we are 

considering proposing to add hospitals 

to our validation sample if they were 

open under their current CCNs in FY 

2012 but not selected for validation in 

the three previous annual RHQDAPU 

validation samples. We are considering 

this addition to supplement our 

validation approach to ensure that all 

eligible RHQDAPU hospitals are 

selected for validation at least once 

every 4 years. We are considering this 

addition starting in FY 2015 because FY 

2015 would be the fourth year that CMS 

would use the random validation 

approach (which begins in FY 2012 as 

adopted in this final rule). 

We intend to propose this supplement 

starting with the FY 2015 payment 

determination to further improve the 

targeting criteria that we are adopting in 

this final rule beginning with FY 2013. 

8. Data Accuracy and Completeness 

Acknowledgement Requirements for the 

FY 2011 Payment Determination and 

Subsequent Years 

For the FY 2011 payment 

determination and subsequent years, in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24180), we 

proposed to require hospitals to 

electronically acknowledge on an 

annual basis the completeness and 

accuracy of the data submitted for the 

RHQDAPU program payment 

determination. Hospitals will be able to 

submit this acknowledgement on the 

same Web page that they use to submit 

data necessary to calculate the structural 

measures, and we believe that this Web 

page will provide a secure vehicle for 

hospitals to directly acknowledge that 

their information is complete and 

accurate to the best of their knowledge. 

A single annual electronic 

acknowledgement will provide us with 

explicit documentation acknowledging 

that the hospital’s data is accurate and 

complete, but will not unduly burden 

hospitals. We noted that commenters 

generally supported the idea of 

electronic attestation in the FY 2009 

IPPS final rule (73 FR 48625) at the 

point of data submission to the QIO 

Clinical Warehouse. 

In addition, the Government 

Accountability Office (GAO) 

recommended in a 2006 report (GAO– 

06–54) that hospitals self-report that 

their data are complete and accurate. 

Therefore, in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43890) for 

the FY 2010 payment determination, we 

required hospitals to electronically 

acknowledge their data accuracy and 

completeness once between July 1, 

2009, and August 15, 2009. Hospitals 

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will acknowledge that all information 

that is, or will be, submitted as required 

by the RHQDAPU program for the FY 

2010 payment determination is 

complete and accurate to the best of 

their knowledge. 

We proposed requiring hospitals to 

electronically acknowledge their data 

accuracy and completeness once 

between July 1, 2010 and August 15, 

2010 for data to be used for the FY 2012 

RHQDAPU program payment 

determination. 

Comment: A commenter stated that 

the July 1, 2010 through August 15, 

2010 period to report acknowledgement 

of data accuracy and completeness is 

over 1 year prior to the October 2011 

start of FY 2012. Much of the data 

reported by hospitals to CMS occurs 

following this date. 

Response: We agree with the 

commenter. Consistent with our FY 

2010 requirement (74 FR 43890), we 

believe that a more appropriate period 

to report FY 2012 data accuracy and 

completeness is July 1, 2011 through 

August 15, 2011, not 2010 as proposed 

in the FY 2011 IPPS/LTCH PPS 

proposed rule. We are modifying the 

reporting period from our original 

proposal to provide hospitals with time 

to report more data applicable to the FY 

2012 payment determination. We also 

intend to propose in the FY 2012 IPPS 

rule using the same July 1 through 

August 15 time reporting period in 

future payment years. 

After consideration of the public 

comments we received, we are adopting 

as final our data accuracy and 

completeness acknowledgement 

requirements for the FY 2012 payment 

determination and subsequent years. 

However, we are requiring hospitals to 

electronically acknowledge their data 

accuracy and completeness once 

between July 1, 2011 and August 15, 

2011 for data to be used for the FY 2012 

RHQDAPU program payment 

determination instead of the proposed 

July 1, 2010 through August 15, 2010 

timeframe. 

9. Public Display Requirements for the 

FY 2012 Payment Determination and 

Subsequent Years 

Section 1886(b)(3)(B)(viii)(VII) of the 

Act provides that the Secretary shall 

establish procedures for information 

regarding measures submitted under the 

RHQDAPU program available to the 

public. As we noted in section IV.A.1.g. 

of this final rule, the RHQDAPU 

program quality measures are typically 

reported on the Hospital Compare Web 

site (http:// 

www.hospitalcompare.hhs.gov), but on 

occasion are reported on other CMS 

Web sites. We require that hospitals sign 

a Notice of Participation form when 

they first register to participate in the 

RHQDAPU program. Once a hospital 

has submitted a form, the hospital is 

considered to be an active RHQDAPU 

program participant until such time as 

the hospital submits a withdrawal form 

to CMS (72 FR 47360). Hospitals signing 

this form agree that they will allow CMS 

to publicly report the quality measures 

included in the RHQDAPU program. 

We will continue to display quality 

information for public viewing as 

required by section 

1886(b)(3)(B)(viii)(VII) of the Act. Before 

we display this information, hospitals 

will be permitted to review their 

information as recorded in the QIO 

Clinical Warehouse. 

We did not receive any public 

comments on our proposal to continue 

using FY 2011 requirements for FY 2012 

and subsequent years. We adopt as final 

our proposal regarding public display 

requirements. 

10. Reconsideration and Appeal 

Procedures for the FY 2011 Payment 

Determination 

The general deadline for submitting a 

request for reconsideration in 

connection with the FY 2011 payment 

determination is November 1, 2010. As 

discussed more fully below, we 

proposed that all hospitals submit a 

request for reconsideration and receive 

a decision on that request before they 

can file an appeal with the Provider 

Reimbursement Review Board (PRRB). 

For the FY 2011 payment 

determination, we proposed to continue 

utilizing most of the same procedures 

that we utilized for the FY 2010 requests 

for reconsideration. Under these 

proposed procedures, the hospital 

must— 

Submit to CMS, via QualityNet, a 

Reconsideration Request form (available 

on the QualityNet Web site) containing 

the following information: 

—Hospital CMS Certification number 

(CCN). 

—Hospital Name. 

—CMS-identified reason for failure (as 

provided in the CMS notification of 

failure letter to the hospital). 

—Hospital basis for requesting 

reconsideration. This must identify 

the hospital’s specific reason(s) for 

believing it met the RHQDAPU 

program requirements and should 

receive the full FY 2011 IPPS annual 

payment update. 

—CEO contact information, including 

name, e-mail address, telephone 

number, and mailing address (must 

include the physical address, not just 

the post office box). We no longer 

require that the hospital’s CEO sign 

the RHQDAPU program 

reconsideration request. We have 

found that this requirement increases 

the burden for hospitals because it 

prevents them from electronically 

submitting the RHQDAPU program 

reconsideration request forms. In 

addition, to the extent that a hospital 

can submit a request for 

reconsideration on-line, the burden 

on our staff is reduced and, as a 

result, we can more quickly review 

the request. 

—QualityNet System Administrator 

contact information, including name, 

e-mail address, telephone number, 

and mailing address (must include the 

physical address, not just the post 

office box). 

—Paper medical record requirement for 

reconsideration requests involving 

validation. We proposed that if a 

hospital asks us to reconsider an 

adverse RHQDAPU program payment 

decision made because the hospital 

failed the validation requirement, the 

hospital must submit paper copies of 

all the medical records that it 

submitted to the CDAC contractor 

each quarter for purposes of the 

validation. Hospitals must submit this 

documentation to a CMS contractor. 

The contractor will be a QIO support 

contractor, which has authority to 

review patient level information 

under 42 CFR part 480. We will post 

the address where hospitals can ship 

the paper charts on the QualityNet 

Web site after we issue the FY 2011 

IPPS/LTCH PPS final rule. Hospitals 

submitting a RHQDAPU program 

validation reconsideration request 

will have all mismatched data 

reviewed by CMS, and not their State 

QIO. (As discussed in section 

IV.A.6.b. of this final rule, the State 

QIO is available to conduct a 

quarterly validation appeal if so 

requested by a hospital.) 

For the FY 2011 payment 

determination, the RHQDAPU program 

data that will be validated is 4th 

calendar quarter 2008 through 3rd 

quarter calendar year 2009 discharge 

data. Hospitals must provide a written 

justification for each appealed data 

element classified during the validation 

process as a mismatch. We will 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 

reconsideration request. As we 

mentioned above, we proposed that all 

hospitals submit a reconsideration 

request to CMS and receive a decision 

on that request prior to submitting a 

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PRRB appeal. We believe that the 

reconsideration process is less costly for 

both CMS and hospitals, and that this 

requirement will decrease the number of 

PRRB appeals by resolving issues earlier 

in the appeals process. 

Following receipt of a request for 

reconsideration, we will— 

• Provide an e-mail 

acknowledgement, using the contact 

information provided in the 

reconsideration request, to the CEO and 

the QualityNet Administrator that the 

request has been received. 

• Provide written notification to the 

hospital CEO, using the contact 

information provided in the 

reconsideration request, regarding our 

decision. We expect the process to take 

approximately 90 days from the 

reconsideration request due date of 

November 1, 2010. 

As we stated in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

43892), the scope of our review when a 

hospital requests reconsideration 

because it failed our validation 

requirements will be as follows: 

1. Hospital requests reconsideration 

for CDAC contractor-abstracted data 

elements classified as mismatches 

affecting validation scores. Hospitals 

must timely submit a copy of the entire 

requested medical record to the CDAC 

contractor during the quarterly 

validation process for the requested case 

to be eligible to be reconsidered on the 

basis of mismatched data elements. 

2. Hospital requests reconsideration 

for medical record copies submitted 

during the quarterly validation process 

and classified as invalid record 

selections. Invalid record selections are 

defined as medical records submitted by 

hospitals during the quarterly validation 

process that do not match the patient’s 

episode of care information as 

determined by the CDAC contractor (in 

other words, the contractor determines 

that the hospital returned a medical 

record that is different from that which 

was requested). If the CDAC contractor 

determines that the hospital has 

submitted an invalid record selection 

case, it awards a zero validation score 

for the case because the hospital did not 

submit the entire copy of the medical 

record for that requested case. During 

the reconsideration process, our review 

of invalid record selections will initially 

be limited to determining whether the 

record submitted to the CDAC 

contractor was actually an entire copy of 

the requested medical record. If we 

determine during reconsideration that 

the hospital did submit the entire copy 

of the requested medical record, then 

we would abstract data elements from 

the medical record submitted by the 

hospital. 

3. Hospital requests reconsideration 

for medical records not submitted to the 

CDAC contractor within the 45 calendar 

day deadline. Our review will initially 

be limited to determining whether the 

CDAC contractor received the requested 

record within 45 calendar days, and 

whether the hospital received the initial 

medical record request and reminder 

notice. If we determine during 

reconsideration that the CDAC 

contractor did receive a paper copy of 

the requested medical record within 45 

calendar days, then we would abstract 

data elements from the medical record 

submitted by the hospital. If we 

determine that the hospital received two 

letters requesting medical records and 

still did not submit the requested 

records within the 45 day period, CMS 

will not accept these records as part of 

the reconsideration. CMS will not 

abstract data from charts not received 

timely by the CDAC contractor. 

In sum, we are initially limiting the 

scope of our reconsideration reviews 

involving validation to information 

already submitted by the hospital 

during the quarterly validation process, 

and we will not abstract medical records 

that were not submitted to the CDAC 

contractor during the quarterly 

validation process. We will expand the 

scope of our review only if we find 

during the initial review that the 

hospital correctly and timely submitted 

the requested medical records. In that 

case, we would abstract data elements 

from the medical record submitted by 

the hospital as part of our review of its 

reconsideration request. 

If a hospital is dissatisfied with the 

result of a RHQDAPU program 

reconsideration decision, the hospital 

may file a claim under 42 CFR part 405, 

subpart R (a PRRB appeal). We solicited 

public comments on the extent to which 

these proposed procedures will be less 

costly for hospitals, and whether they 

will lead to fewer PRRB appeals. 

Comment: With respect to a hospital 

needing to receive a decision from CMS 

prior to submitting a PRRB appeal, some 

commenters requested that CMS 

consider the impact of 90 days without 

the annual payment update to a facility. 

Commenters stated that the wait for 

CMS’s decision and an appeal to the 

PRRB would delay the process of appeal 

by months if not half of the year. 

Response: We appreciate the 

commenters’ concern with the 

timeframe of our reconsideration 

process. Our goal is to provide a 

thorough technical and programmatic 

reconsideration of our initial RHQDAPU 

decision in a timely manner. Generally, 

our review requires 60 to 90 days, and 

hospitals granted their full payment 

update during this process would not 

need PRRB review. We are reviewing 

and standardizing our reconsideration 

process in an effort to reduce the wait 

time, but this wait time is largely 

dependent on the number of received 

requests. We hope to reduce the 90-day 

wait period in future years. 

Comment: A commenter disagreed 

with the proposed process to require 

hospitals to resubmit all paperwork 

submitted to the CDAC contractor for 

RHQDAPU reconsideration purposes, 

and instead proposed that the CDAC 

store all medical record documentation. 

Response: We appreciate the 

comment. We considered the relative 

cost to CMS and the taxpayers for 

storing all hospitals’ submitted 

validation records for an additional 12 

to 18 months, relative to the proposed 

process. We estimate from previous 

RHQDAPU results that the proposed 

process would impact 20 or fewer 

hospitals annually, and believe that this 

total burden to hospital is less than the 

extra storage cost to CMS and the 

taxpayers. 

After consideration of the public 

comments we received, we are adopting 

the proposed RHQDAPU 

reconsideration and appeals 

requirements without any changes. 

11. RHQDAPU Program Withdrawal 

Deadlines 

We proposed to accept RHQDAPU 

program withdrawal forms for the FY 

2012 payment determination from 

hospitals until August 15, 2011. We 

proposed this deadline so that we 

would have sufficient time to update the 

FY 2012 payment to hospitals starting 

on October 1, 2011. If a hospital 

withdraws from the program for the FY 

2012 payment determination, it will 

receive a 2.0 percentage point reduction 

in its FY 2012 annual payment update. 

We noted that once a hospital has 

submitted a Notice of Participation 

form, it is considered to be an active 

RHQDAPU program participant until 

such time as the hospital submits a 

withdrawal form to CMS. 

We did not receive any comments on 

our proposal. We are adopting as final 

our proposal regarding withdrawal 

deadlines without any changes. 

12. Electronic Health Records (EHRs) 

a. Background 

Starting with the FY 2006 IPPS final 

rule, we have encouraged hospitals to 

take steps toward the adoption of EHRs 

(also referred to in previous rulemaking 

documents as electronic medical 

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records) that will allow for reporting of 

clinical quality data from the EHRs 

directly to a CMS data repository (70 FR 

47420 through 47421). We encouraged 

hospitals that are implementing, 

upgrading, or developing EHR systems 

to ensure that the technology obtained, 

upgraded, or developed conforms to 

standards adopted by HHS. We 

suggested that hospitals also take due 

care and diligence to ensure that the 

EHR systems accurately capture quality 

data and that, ideally, such systems 

provide point-of-care decision support 

that promotes optimal levels of clinical 

performance. 

We also continue to work with 

standard setting organizations and other 

entities to explore processes through 

which EHRs could speed the collection 

of data and minimize the resources 

necessary for quality reporting as we 

have done in the past. 

We note that we have initiated work 

directed toward enabling EHR 

submission of quality measures through 

EHR standards development and 

adoption. We have sponsored the 

creation of electronic specifications for 

quality measures that are currently 

proposed for the RHQDAPU program 

and measures under future 

consideration. We look to continue this 

activity in the future. 

Comment: Many commenters 

applauded our work toward developing 

measure specifications for EHR-based 

data collection in the future. The 

commenters believed this approach 

would substantially reduce the 

reporting burden on hospitals. 

Commenters recommended that CMS 

adopt specifications that would limit 

inclusions to ADT, bed tracking, or ED 

tracking board tools for these data 

elements. 

Response: We thank the commenters 

for their encouragement of our efforts to 

integrate EHR technology with the 

RHQDAPU program. We will take these 

comments regarding specifications into 

consideration when we look to adopt 

measures that can be collected via EHRs 

in the future. 

Comment: Some commenters 

requested that CMS clarify whether 

becoming a meaningful user of EHR 

certified technology is a path to fulfill 

both the RHQDAPU participation 

requirement and the eligibility 

requirements for the HITECH incentive 

program for being a meaningful user of 

certified EHR technology. 

Response: As we have indicated, we 

are actively seeking to provide an 

alternative of EHR-based submission for 

RHQDAPU measures that otherwise 

would require chart or manual 

abstraction. Prior to accepting measures 

through EHRs for RHQDAPU, as 

commenters have suggested, it would be 

necessary to assure that data submitted 

and results calculated are equivalent to 

that from chart or manual abstraction so 

that results would be reliable and 

consistent. As we proceed with new 

measures development we would 

anticipate that testing during the 

measure development process and EHR 

certification process would become 

sufficiently standardized that additional 

implementation testing would not be 

needed. 

We note that some important 

RHQDAPU quality measures such as 

HCAHPS experience of care measures 

are based on survey data and do not 

lend themselves to EHR reporting. 

Similarly, certain outcome quality 

measures, such as the current 

RHQDAPU readmission measures, are 

based on claims rather than clinical 

data. Thus, not all RHQDAPU measures 

will necessarily be capable of being 

submitted through EHRs. As a 

consequence, not all RHQDAPU 

measures would necessarily be included 

in the HITECH EHR incentive program. 

b. EHR Testing of Quality Measures 

Submission 

As we have previously stated, we are 

interested in the reporting of quality 

measures using EHRs, and we continue 

to encourage hospitals to adopt and use 

EHRs that conform to the certification 

criteria as will be defined by the 

Secretary through the Office of the 

National Coordinator for Health 

Information Technology, HHS at 45 CFR 

Part 170. We believe that the testing of 

EHR submission is an important and 

necessary step to establish the ability of 

EHRs to report clinical quality measures 

and the capacity of CMS to receive such 

data. 

The electronic specifications and 

interoperability standards for EHRbased collection and transmission of the 

data elements for the ED Throughput, 

Stroke, and Venous Thromboembolism 

(VTE) measures have been finalized by 

the Health Information Technology 

Standards Panel (HITSP) and are 

available for review and testing at 

http://www.HITSP.org. We anticipate 

testing the components required for the 

submission of clinical quality data 

extracted from EHRs for these measures, 

and are exploring different mechanisms 

and formats that will aid the submission 

process, as well as ensure that the 

summary measure results extracted from 

the EHRs are reliable. 

We anticipate moving forward with 

testing CMS’ technical ability to accept 

data from EHRs for the ED, Stroke, and 

VTE measures as early as summer of 

2011. We anticipate building upon the 

work completed by the HITSP in both 

the Connectathon and Health 

Information Management Systems 

Society (HIMSS) Interoperability 

Showcase. This testing will encompass 

an ‘‘end to end’’ view of data 

transmission. Pursuant to the Paperwork 

Reduction Act, we have previously 

published a Federal Register notice and 

information collection request for CMS– 

10296 (74 FR 44366) seeking public 

comments on the process we intended 

to follow to select EHR vendors/ 

hospitals for testing CMS ability to 

accept EHR-based data submissions. We 

will notify interested parties of changes 

in the process and timeline for testing 

via the Inpatient EHR testing Web site 

at: http://www.cms.hhs.gov/ 

HospitalQualityInits/ 

15_HospitalInpatientEHRTesting.asp. 

The test measures described above are 

not currently required under the 

RHQDAPU program. In addition, the 

posting of the electronic specifications 

for any particular measure should not be 

interpreted as a signal that we intend to 

select the measure for inclusion in the 

RHQDAPU program measure set. 

Comment: A few commenters 

supported CMS in launching the EHR 

Testing of Inpatient Quality Measures 

voluntary pilot established in the FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule. The commenters suggested that the 

implementation of the electronic 

metrics effective January 1, 2012, should 

be contingent upon successful EHR 

testing by CMS so that the measures can 

be reported electronically and not via 

manual chart abstraction. A commenter 

stated that electronic-specified clinical 

quality measures should not be 

included in the RHQDAPU program 

until they are fully tested. The 

commenter cited the examples of the 

collection and transmission for the ED 

Throughput, Stroke and VTE measures 

which are undergoing HITSP and CMS 

testing. The commenter urged CMS to 

expedite its development and testing of 

eMeasures to no later than year end CY 

2010. The commenter asked for 

clarification on the possibility of 

retirement of the chart-abstracted 

specifications for these three measure 

sets once they can be collected and 

transmitted electronically. 

Response: As discussed previously, 

we agree with the commenter’s concern 

about the importance of testing the 

electronic specifications of the clinical 

quality measures prior to accepting 

submission for EHRs for the RHQDAPU 

program. We note that the January 2010 

Connectathon, and the 2010 Healthcare 

and Information Management Systems 

Society (HIMSS) Interoperability 

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Showcase conducted initial testing and 

demonstration of some of the 

Emergency Department (ED) 

Throughput, Venous Thromboembolism 

(VTE), and Stroke measures. It is our 

intent not to require duplicative 

reporting across programs. When the 

data collection and transmission can be 

achieved through certified EHR 

technology, we may be able to rely upon 

EHRs to transmit the data. However, 

whether chart abstraction remains an 

option as a data collection mechanism 

for a given measure set adopted for the 

RHQDAPU program will largely depend 

upon the prevalence of EHR adoption 

among RHQDAPU participating 

hospitals. 

As additional electronic specifications 

for clinical quality measures are 

developing, we plan to conduct testing 

of the electronically specified measures 

simultaneously. Also, we expect that 

vendors and providers will continue the 

testing for data collection and 

transmission. 

c. HITECH Act EHR Provisions 

The HITECH Act (Title IV of Division 

B of the ARRA, together with Title XIII 

of Division A of the ARRA) authorizes 

payment incentives under Medicare for 

the adoption and use of certified EHR 

technology beginning in FY 2011. 

Hospitals are eligible for these payment 

incentives if they meet requirements for 

meaningful use of certified EHR 

technology, which include reporting on 

quality measures using certified EHR 

technology. With respect to the 

selection of quality measures for this 

purpose, under section 1886(n)(3)(A)(ii) 

of the Act, as added by section 4102 of 

the HITECH Act, the Secretary shall 

select measures, including clinical 

quality measures, that hospitals must 

provide to CMS in order to be eligible 

for the EHR incentive payments. With 

respect to the clinical quality measures, 

section 1886(n)(3)(B)(i) of the Act 

requires the Secretary to give preference 

to those clinical quality measures that 

have been selected for the RHQDAPU 

program under section 

1886(b)(3)(B)(viii) of the Act or that 

have been endorsed by the entity with 

a contract with the Secretary under 

section 1890(a) of the Act. Any 

measures must be proposed for public 

comment prior to their selection, except 

in the case of measures previously 

selected for the RHQDAPU program 

under section 1886(b)(3)(B)(viii) of the 

Act. 

Thus, the RHQDAPU program and the 

HITECH Act have important areas of 

overlap and synergy with respect to the 

reporting of quality measures using 

EHRs. We believe the financial 

incentives under the HITECH Act for 

the adoption and meaningful use of 

certified EHR technology by hospitals 

will encourage the adoption and use of 

certified EHRs for the reporting of 

clinical quality measures under the 

RHQDAPU program. Further, these 

efforts to test the submission of quality 

data through EHRs may provide a 

foundation for establishing the capacity 

of hospitals to send, and for CMS to 

receive, quality measures via hospital 

EHRs for future RHQDAPU program 

measures. 

We again note that the provisions in 

this FY 2011 IPPS/LTCH PPS final rule 

do not implicate or implement any 

HITECH statutory provisions. Those 

provisions are the subject of separate 

rulemaking and public comment. 

Comment: One commenter noted that 

in moving forward, CMS should focus 

on developing measures collected 

through EHRs rather than using 

manually intensive, chart-based 

measures through the RHQDAPU 

program. The commenter suggested that 

we follow a more methodical framework 

to prioritize and integrate measures into 

the RHQDAPU and EHR incentive 

program with a long-term goal of 

transitioning from RHQDAPU to the 

meaningful use criteria under the 

HITECH EHR program. 

Response: We agree with the 

importance of developing electronic 

specifications for new measures that are 

developed. We expect over time that 

EHRs will be the primary source of 

quality measures data. To this end, we 

have spearheaded electronic refinement 

and standardization of data 

transmission and performance 

measures. 

Comment: A number of commenters 

requested that CMS address the 

potential duplication of clinical quality 

measures selected for use in the 

RHQDAPU program, and the clinical 

quality measures chosen for eligible 

professionals (EPs), eligible hospitals 

and critical access hospitals (CAHs) to 

demonstrate meaningful use of certified 

EHR technology under the HITECH EHR 

incentive program. The commenters 

urged CMS to avoid duplicative 

reporting burden by considering only 

clinical quality measures chosen for the 

RHQDAPU program for the meaningful 

use criteria in the EHR incentive 

program for eligible professionals, 

eligible hospitals and CAHs. 

Response: The rationale for the 

selection of the eligible hospital and 

CAH measure under HITECH Act are 

discussed in the HITECH EHR final rule 

(75 FR 44314). The 15 hospital and CAH 

measures were electronically specified 

for use in the RHQDAPU program, with 

anticipated implementation once the 

necessary development and 

infrastructure implementation had been 

completed. We have included two of the 

HITECH measures in this final rule for 

FY 2014 payment determination, based 

on chart abstraction. We anticipate that 

we will provide an option of electronic 

submission of these measures. 

Comment: Some commenters 

recommended that EPs, eligible 

hospitals and CAHs reporting to 

RHQDAPU program via a certified EHR 

should be deemed to have successfully 

reported in the EHR incentive program 

to satisfy the meaningful use criteria for 

clinical quality measures. 

Response: The HITECH Act requires 

the Secretary to strive to avoid 

duplicative and redundant reporting for 

HITECH with respect to the RHQDAPU 

program. However, as discussed 

previously, RHQDAPU and HITECH are 

established as separate incentive 

programs with separate requirements. 

The authorizing statutes do not provide 

that qualifying for one program should 

result in a hospital being deemed to 

have qualified for the other. As the two 

programs would have little overlap in 

measures as finalized in this rule, we do 

not believe it would be appropriate to 

deem participation in the RHQDAPU 

program as meeting the requirements for 

successful reporting in the EHR 

incentive program. However, where 

feasible, we intend to align the data 

submission requirements for measures 

included in each program. As HIT 

enabled clinical data will allow for new 

measures to be developed, we will 

consider aligning the requirements of 

the two programs. 

Comment: Many commenters 

suggested aligning clinical quality 

measure reporting across federal 

agencies such as with the Health 

Resources and Services Administration, 

and across programs, such as with the 

Children’s Health Insurance Program, to 

avoid duplicative and redundant quality 

performance reporting. 

Response: As discussed, we have 

always sought to avoid duplicative and 

redundant reporting across federal 

programs. We will seek to align more 

quality initiative programs in future 

rulemaking. 

13. Qualification of Registries for 

RHQDAPU Data Submission 

In section IV.A.3.c.(4) of the proposed 

rule, we proposed that hospitals would 

select at least one of four registry-based 

measure topics for which they will 

report data on proposed measures to a 

qualified registry beginning with 

January 1, 2011 discharges, and allow 

the registry to calculate and report 

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measure data for the specified measures 

to CMS (via QualityNet) for RHQDAPU 

program purposes. We are not adopting 

our proposal for the registry-based 

measure topics in this final rule. We 

also will not be pursuing the 

qualification of registries for these 

topics at this time. Below is the process 

and requirements that we had proposed 

to use to determine whether a registry 

is qualified to collect and submit quality 

measure data for RHQDAPU and the 

comments received on the process. 

We proposed to post on the 

RHQDAPU program section of the 

QualityNet Web site http:// 

www.qualitynet.org no later than 

December 31, 2010 a list of qualified 

registries for the FY 2013 RHQDAPU 

payment determination, including the 

registry name, contact information, and 

the measure(s) for which the registry is 

qualified and will report for the FY 2013 

RHQDAPU payment determination. We 

proposed measures for inclusion in each 

of the four registry-based topics, and a 

registry seeking to be qualified for a 

particular topic would have to agree to 

collect and report the measures 

included in the topic. The proposed 

measures support CMS and HHS 

priorities for improved quality and 

efficiency of care for Medicare 

beneficiaries (such as, prevention; 

chronic conditions; high cost and high 

volume conditions; elimination of 

health disparities; healthcare-associated 

infections and other conditions; and 

effective management of acute and 

chronic episodes of care). We noted, 

however, that none of the registries that 

we qualify for this purpose will be 

acting as a CMS contractor or agent. In 

other words, hospitals will still be 

responsible for making sure that the 

data it submits to the qualified registry 

is successfully processed and 

transmitted by the registry to CMS. 

We proposed to implement a selfnomination process for registries 

seeking to submit FY 2013 RHQDAPU 

program quality measures (including 

measure calculations, numerators, 

denominators, and exclusions) on behalf 

of hospitals beginning with January 1, 

2011 discharges. A registry would be 

able to self-nominate if it meets the 

following requirements: 

• The registry has been collecting 

data elements needed to calculate the 

particular measures that are being 

proposed for inclusion in the registrybased topic for which the registry is 

seeking qualification for at least 3 years 

prior to January 1, 2010. 

• As of January 1, 2010, the registry 

has been collecting such data from at 

least 750 hospitals. 

• The registry must have the 

capability to collect from hospitals all of 

the data elements which are included in 

the measure specifications and calculate 

the results for the specified measures. 

The measures are NQF-endorsed and 

will be listed in the Hospital Measure 

Specification Manual. 

• The registry must agree to report the 

hospital level measure data to CMS (via 

QualityNet). During the registry 

qualification process, CMS will inform 

the registries of the specified reporting 

format which will include: 

Æ The volume of eligible cases 

(reporting denominator); 

Æ The volume of numerator events for 

the quality measure (reporting 

numerator); 

Æ The number of cases excluded from 

the measure; and 

Æ The measure results. 

• The registry must agree to transmit 

quality measure data in a CMSapproved format. We expected that this 

CMS-specified record layout would be 

made available in late 2010; 

• The registry must be able to perform 

data quality validation checks on the 

data received from hospitals to 

determine if the data submitted by the 

hospitals are accurate and agree to 

submit an acceptable ‘‘validation 

strategy’’ to CMS by December 15, 2011. 

A validation strategy ascertains whether 

hospitals have submitted data 

accurately to the registry. An acceptable 

validation strategy may include such 

provisions as the registry being able to 

verify the accuracy of hospital data 

through random sampling or through 

the hospital’s adherence to a required 

sampling method; 

• The registry must agree to enter into 

and maintain with its participating 

hospitals an appropriate Business 

Associate agreement that complies with 

HIPAA. 

• The registry must obtain and keep 

on file signed documentation showing 

that each of its participating hospitals 

has authorized the registry to calculate 

and submit the quality measure 

hospital-level data specified by CMS to 

CMS. This documentation must be 

obtained at the time the hospital 

arranges to submit RHQDAPU program 

quality measure data to the registry; 

• The registry must agree to provide 

CMS with access (if requested) to review 

the data that the hospital submitted to 

it for purposes of the RHQDAPU 

program; 

• The registry must agree to indicate 

to CMS upon request whether a 

particular hospital has satisfied the 

registry’s participation requirements; 

• The registry must agree to provide 

CMS with a signed, written attestation 

statement via mail or e-mail which 

states that the quality measure data that 

the registry has submitted to CMS on 

behalf of its participating hospitals is 

accurate and complete. 

• The registry must agree to provide 

at least 1 feedback report per year to 

participating hospitals; 

• The registry must agree to provide 

on-going technical assistance to its 

participating hospitals with respect to 

the hospitals’ submission of RHQDAPU 

data; and 

• The registry must agree to 

participate in periodic RHQDAPU 

program support calls hosted by CMS. 

To apply to be a qualified registry for 

any of the four proposed registry-based 

topics, a registry must submit a selfnomination letter by October 15, 2010 to 

http://www.RHQDAPU_Registries@cms.

hhs.gov containing the registry name, 

point of contact, the proposed registrybased measure topic for which 

qualification is being sought, and 

detailed information regarding how the 

registry satisfies the criteria listed 

above. 

Comment: In general, while 

commenters agreed that the concept of 

registry qualification criteria would lead 

to more standardized collection and 

quality control of data collected by 

registries, they had numerous 

suggestions for improvement of the 

criteria listed, and believed that the 

proposed timeframe for qualification 

and subsequent implementation of data 

collection was overly ambitious. Some 

commenters recommended that any 

approved registry must have a robust, 

CMS-certified validation system that 

can test the data submitted and identify 

missing data. Some commenters 

suggested that there should be an 

alternative approach for data 

submission that does not mandate 

participation in a registry with an 

associated fee. Numerous commenters 

noted that the proposed requirement 

that as of January 1, 2010, the registry 

has been collecting such data from at 

least 750 hospitals is arbitrary and 

precludes smaller registries such as 

State and regional registries from 

participating. These commenters urged 

CMS to revise its criteria for the number 

of participating hospitals as of January 

1, 2010, or to not consider a number of 

participating hospitals at all. 

Commenters also stated that the one-day 

interval between the publication of a list 

of qualified registries and the starting 

date for the reporting of measures 

beginning with required discharges is 

unreasonable. One commenter was 

concerned that the proposed timeline 

for registries gives little advance notice 

to hospitals to research options, budget 

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resources and prepare for participation. 

Commenters recommended that the 

registry eligibility criteria include 

current performance, data integrity, and 

capacity to support hospitals to capture 

reliable and valid data, and suggested 

that of core measure vendors and other 

specialty registries such as the acute 

stroke care registry created by Congress 

be eligible to qualify (The Paul 

Coverdell National Acute Stroke 

Registry (PCNASR/CDC)). 

Response: We thank the commenters 

for their recommendations. We 

acknowledge the commenters’ concerns 

and intend to reexamine our criteria and 

timeline based upon the public 

comment received. We are not finalizing 

our proposal to qualify registries for 

data collection for the four topics listed 

earlier in this final rule for data 

collection beginning with January 1, 

2011 discharges. If we propose to 

qualify registries for RHQDAPU data 

collection in the future, we will take 

into considerations all of the comments 

we received. 

14. RHQDAPU and Hospital Value 

Based Purchasing Program 

CMS received many comments about 

the HVBP program under section 

3001(a)(1) of the Affordable Care Act, 

including the potential use of 

RHQDAPU measures and the 

infrastructure for the HVBP program. 

We address comments related to 

RHQDAPU measures in the appropriate 

RHQDAPU measures section 

categorized by payment year for the 

measure. We did not propose any 

requirements for implementation of 

section 3001(a)(1) of the Affordable Care 

Act in this rule. In the coming months, 

we plan to convene at least one listening 

session or Open Door Forum to listen to 

public feedback about the HVBP 

program. We will consider this feedback 

when proposing HVBP program 

requirements in the future. 

B. Payment for Transfers of Cases From 

Medicare Participating Acute Care 

Hospitals to Nonparticipating Hospitals 

and CAHs (§ 412.4) 

1. Background 

Existing regulations at § 412.4(a) 

provide that an inpatient is considered 

discharged from a hospital paid under 

the IPPS when the patient is either 

formally released from the hospital or 

dies in the hospital. Under certain 

circumstances, a discharge is considered 

a transfer for purposes of payment 

under the IPPS. Section 412.4(b) defines 

acute care transfers, and § 412.4(c) 

identifies those discharges considered a 

postacute care transfer. In accordance 

with § 412.4(f), 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 

the stay, not to exceed the full MS–DRG 

payment that would have been made if 

the patient had been discharged without 

being transferred. In the case of acute 

care transfers, the receiving hospital that 

ultimately discharges the transferred 

patient receives the full MS–DRG 

payment, regardless of whether the 

length of the patient’s inpatient stay 

exceeds the geometric mean length of 

stay for the applicable MS–DRG. 

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 5804), our policy generally 

provides for payment that is double the 

per diem amount for the first day, with 

each subsequent day paid at the per 

diem amount up to the full DRG 

payment (§ 412.4(f)(1)). Transfer cases 

also are eligible for outlier payments. In 

general, the outlier threshold for transfer 

cases, as described in § 412.80(b) of the 

regulations, is equal to the fixed-loss 

outlier threshold for nontransfer cases 

(adjusted for geographic variations in 

costs), divided by the geometric mean 

length of stay for the MS–DRG, and 

multiplied by the length of stay for the 

case plus one day. 

The transfer policy adjusts the 

payments of the transferring hospital to 

approximate the reduced costs of 

transfer cases. Medicare adopted its 

IPPS transfer policy because, if 

Medicare were to pay the full MS–DRG 

payment regardless of whether a patient 

is transferred or discharged, there would 

be a strong incentive for hospitals to 

transfer patients to another IPPS 

hospital early in their stay in order to 

minimize costs while still receiving the 

full MS–DRG payment. 

b. Policy Change 

The regulations at § 412.4(b) state that 

a discharge of a hospital inpatient is 

considered to be an acute care transfer 

when the patient is readmitted on the 

same day to another hospital that is paid 

under the IPPS, or to a hospital that is 

excluded from the IPPS because of 

participation in a statewide cost control 

program, unless the readmission is 

unrelated to the initial discharge. These 

regulations were developed under the 

authority granted in section 

1886(d)(5)(I)(ii) of the Act. Because a 

discharge is only considered an acute 

care transfer if the receiving hospital 

either is paid under IPPS or participates 

in a statewide cost control program, the 

current acute care transfer policy only 

applies to transfers between acute care 

hospitals that participate in the 

Medicare program (‘‘participating acute 

care hospitals’’); it does not currently 

apply to acute care hospitals that would 

otherwise be eligible to be paid under 

the IPPS, but do not have an agreement 

to participate in the Medicare program 

(‘‘nonparticipating acute care 

hospitals’’). The acute care transfer 

policy also does not currently apply to 

IPPS acute care hospital transfers to 

CAHs. 

As discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23997 

and 23998), the intent of the acute care 

transfer policy is to make payment to 

the transferring hospital commensurate 

with the resources it expends in treating 

Medicare beneficiaries. As stated above, 

a participating acute care hospital that 

admits a beneficiary from a transferring 

hospital receives a full MS–DRG 

payment, as long as the receiving 

hospital does not subsequently transfer 

the beneficiary prior to the geometric 

mean length of stay for that MS–DRG. 

The transferring hospital receives a 

reduced per diem payment amount. If 

the acute care transfer policy did not 

exist, Medicare would make separate 

full MS–DRG payments to each of the 

hospitals involved with the treatment of 

the beneficiary, even though the 

hospitals shared in one episode of care 

for the same beneficiary and neither 

provided the full spectrum of care for 

that beneficiary for that episode of care. 

Such a policy would inappropriately 

pay a ‘‘double’’ Medicare payment and 

would be inconsistent with the intent of 

the acute care transfer policy. 

Although a nonparticipating acute 

care hospital is generally ineligible to 

receive payments under Medicare, such 

a hospital may still treat Medicare 

patients. In addition, acute care 

hospitals that do participate in the 

Medicare program are not precluded 

from transferring a Medicare patient to 

a nonparticipating acute care hospital. 

We note that a hospital that transfers a 

patient early in the patient’s stay (that 

is, prior to the geometric mean length of 

stay of the patient’s MS–DRG) incurs 

reduced costs for that case, regardless of 

whether the patient is transferred to a 

Medicare participating acute care 

hospital or a nonparticipating acute care 

hospital. A hospital that sends such a 

transfer to a CAH incurs similarly 

reduced costs, despite the fact that 

transfers to CAHs are not currently 

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50236 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

included under the Medicare acute care 

transfer policy. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we proposed policy 

changes in order to avoid creating a 

financial incentive for an IPPS hospital 

to transfer cases to one type of provider 

versus another. A transfer decision 

should be made based on the clinical 

merits of the beneficiary’s situation and 

the transferring hospital’s capabilities. 

More pointedly, we want to avoid 

providing a Medicare participating 

acute care hospital with an incentive to 

transfer cases to a nonparticipating 

acute care hospital or a CAH. Without 

a policy change, these incentives still 

exist as payment issues relating to the 

IPPS transfer policy. With respect to 

nonparticipating acute care hospitals, it 

is frequently explained that the 

Medicare conditions of participation 

provide a certain minimum standard of 

care that beneficiaries can expect, and 

that Medicare does not make payments 

to nonparticipating acute care hospitals 

because these hospitals do not commit 

to adhering to these conditions of 

participation. As such, the lack of a 

policy with regard to transfers to 

nonparticipating acute care hospitals 

results in an inappropriate payment 

incentive. 

Accordingly, in order to further align 

the IPPS regulations relating to transfer 

of cases under § 412.4(b) with its 

original intent (that is, that a hospital’s 

payment should be commensurate with 

the resources it expends for the case), in 

the proposed rule (75 FR 23997 through 

23998), we proposed to add a new 

paragraph (b)(3) to § 412.4 to specify 

that an acute care hospital ‘‘transfer 

case’’ includes a transfer to an acute care 

hospital that would otherwise be 

eligible to be paid under the IPPS, but 

does not have an agreement to 

participate in the Medicare program, 

and a new paragraph (b)(4) to state that 

an acute care hospital ‘‘transfer’’ also 

includes a transfer to a CAH. 

We also stated that, under the 

proposed policy, hospitals would be 

required to use patient discharge status 

code ‘‘66’’ (Discharged/Transferred to a 

Critical Access Hospital) on IPPS claims 

to identify transfers to CAHs. For 

transfers to nonparticipating acute care 

hospitals, hospitals would be required 

to continue to use patient status code 

‘‘02’’ (Discharged/Transferred to a ShortTerm General Hospital for Inpatient 

Care) on IPPS claims. We noted that the 

National Uniform Billing Committee 

(NUBC) periodically updates or changes 

patient status codes; therefore, hospitals 

should check NUBC guidance 

periodically to determine whether there 

have been any changes to these codes. 

Comment: One commenter asked 

whether there was an exemption from 

the policy for an acute care discharge to 

a SNF that was unrelated to the acute 

care inpatient stay. 

Response: We did not propose to 

make any changes to the postacute 

transfer policy with respect to acute care 

discharges to SNFs. Therefore, we 

consider this comment to be outside the 

scope of the proposed rule. However, 

we note that the statute governing the 

postacute transfer policy does not 

provide for an exemption for unrelated 

discharges to SNFs. In other words, a 

case involving a patient who is 

transferred from an acute care hospital 

to a SNF for the provision of skilled 

nursing services would be covered 

under the postacute transfer policy 

whether or not the services provided at 

the SNF were related to the services 

provided in the acute care hospital. 

Because we did not receive any other 

public comments on this proposal, we 

are adopting it as final, without 

modification. Specifically, we are 

adding a new paragraph (b)(3) to § 412.4 

to specify that an acute care hospital 

‘‘transfer case’’ includes a transfer to an 

acute care hospital that would otherwise 

be eligible to be paid under the IPPS, 

but does not have an agreement to 

participate in the Medicare program, 

and a new paragraph (b)(4) to state that 

an acute care hospital ‘‘transfer’’ also 

includes a transfer to a CAH. 

C. Rural Referral Centers (RRCs) 

(§ 412.96) 

Under the authority of section 

1886(d)(5)(C)(i) of the Act, the 

regulations at § 412.96 set forth the 

criteria that a hospital must meet in 

order to qualify under the IPPS as an 

RRC. For discharges that occurred 

before October 1, 1994, RRCs received 

the benefit of payment based on the 

other urban standardized amount rather 

than the rural standardized amount (as 

discussed in the FY 1993 IPPS final rule 

(59 FR 45404 through 45409)). Although 

the other urban and rural standardized 

amounts are the same for discharges 

occurring on or after October 1, 1994, 

RRCs continue to receive special 

treatment under both the DSH payment 

adjustment and the criteria for 

geographic reclassification. 

Section 402 of Public Law 108–173 

raised the DSH adjustment for RRCs 

such that they are not subject to the 12- 

percent cap on DSH payments that is 

applicable to other rural hospitals. RRCs 

are also not subject to the proximity 

criteria when applying for geographic 

reclassification. In addition, they do not 

have to meet the requirement that a 

hospital’s average hourly wage must 

exceed, by a certain percentage, the 

average hourly wage of the labor market 

area where the hospital is located. 

Section 4202(b) of Public Law 105–33 

states, in part, ‘‘[a]ny hospital classified 

as an RRC by the Secretary * * * for 

fiscal year 1991 shall be classified as 

such an RRC for fiscal year 1998 and 

each subsequent year.’’ In the August 29, 

1997 IPPS final rule with comment 

period (62 FR 45999), CMS reinstated 

RRC status for all hospitals that lost the 

status due to triennial review or MGCRB 

reclassification. However, CMS did not 

reinstate the status of hospitals that lost 

RRC status because they were now 

urban for all purposes because of the 

OMB designation of their geographic 

area as urban. Subsequently, in the 

August 1, 2000 IPPS final rule (65 FR 

47089), we indicated that we were 

revisiting that decision. Specifically, we 

stated that we would permit hospitals 

that previously qualified as an RRC and 

lost their status due to OMB 

redesignation of the county in which 

they are located from rural to urban, to 

be reinstated as an RRC. Otherwise, a 

hospital seeking RRC status must satisfy 

all of the other applicable criteria. We 

use the definitions of ‘‘urban’’ and 

‘‘rural’’ specified in subpart D of 42 CFR 

part 412. One of the criteria under 

which a hospital may qualify as an RRC 

is to have 275 or more beds available for 

use (§ 412.96(b)(1)(ii)). A rural hospital 

that does not meet the bed size 

requirement can qualify as an RRC if the 

hospital meets two mandatory 

prerequisites (a minimum CMI and a 

minimum number of discharges), and at 

least one of three optional criteria 

(relating to specialty composition of 

medical staff, source of inpatients, or 

referral volume). (We refer readers to 

§ 412.96(c)(1) through (c)(5) and the 

September 30, 1988 Federal Register (53 

FR 38513).) With respect to the two 

mandatory prerequisites, a hospital may 

be classified as an RRC if— 

• The hospital’s CMI is at least equal 

to the lower of the median CMI for 

urban hospitals in its census region, 

excluding hospitals with approved 

teaching programs, or the median CMI 

for all urban hospitals nationally; and 

• The hospital’s number of discharges 

is at least 5,000 per year, or, if fewer, the 

median number of discharges for urban 

hospitals in the census region in which 

the hospital is located. (The number of 

discharges criterion for an osteopathic 

hospital is at least 3,000 discharges per 

year, as specified in section 

1886(d)(5)(C)(i) of the Act.) 

1. Case-Mix Index (CMI) 

Section 412.96(c)(1) provides that 

CMS establish updated national and 

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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 

§ 412.96(c)(1)(ii). The national median 

CMI value for FY 2011 includes data 

from all urban hospitals nationwide, 

and the regional values for FY 2011 are 

the median CMI values of urban 

hospitals within each census region, 

excluding those hospitals with 

approved teaching programs (that is, 

those hospitals that train residents in an 

approved GME program as provided in 

§ 413.75). These values are based on 

dischares occurring during FY 2009 

(October 1, 2008 through September 30, 

2009), and include bills posted to CMS’ 

records through March 2010. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24000), 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, 

2010, they must have a CMI value for 

FY 2009 that is at least— 

• 1.5127; or 

• The median CMI value (not 

transfer-adjusted) for urban hospitals 

(excluding hospitals with approved 

teaching programs as identified in 

§ 413.75) calculated by CMS for the 

census region in which the hospital is 

located. (We refer readers to the table set 

forth in the FY 2011 IPPS/LTCH PPS 

proposed rule at 75 FR 24000.) 

Based on the latest available data (FY 

2009 bills received through March 

2010), 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, 2010, 

they must have a CMI value for FY 2009 

that is at least— 

• 1.5136; or 

• The median CMI value (not 

transfer-adjusted) for urban hospitals 

(excluding hospitals with approved 

teaching programs as identified in 

§ 413.75) calculated by CMS for the 

census region in which the hospital is 

located. 

The final median CMI values by 

region are set forth in the following 

table: 

Region Case-Mix 

index value 

1. New England (CT, ME, MA, NH, RI, VT) ........................................................................................................................................ 1.2993 

2. Middle Atlantic (PA, NJ, NY) ........................................................................................................................................................... 1.3582 

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) ............................................................................................................... 1.4567 

4. East North Central (IL, IN, MI, OH, WI) .......................................................................................................................................... 1.4251 

5. East South Central (AL, KY, MS, TN) ............................................................................................................................................. 1.3771 

6. West North Central (IA, KS, MN, MO, NE, ND, SD) ...................................................................................................................... 1.4407 

7. West South Central (AR, LA, OK, TX) ............................................................................................................................................ 1.5240 

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) ............................................................................................................................... 1.6204 

9. Pacific (AK, CA, HI, OR, WA) ......................................................................................................................................................... 1.4861 

A hospital seeking to qualify as an 

RRC should obtain its hospital-specific 

CMI value (not transfer-adjusted) from 

its fiscal intermediary or MAC. Data are 

available on the Provider Statistical and 

Reimbursement (PS&R) System. In 

keeping with our policy on discharges, 

the CMI values are computed based on 

all Medicare patient discharges subject 

to the IPPS MS–DRG-based payment. 

2. Discharges 

Section 412.96(c)(2)(i) provides that 

CMS set forth the national and regional 

numbers of discharges in each year’s 

annual notice of prospective payment 

rates for purposes of determining RRC 

status. As specified in section 

1886(d)(5)(C)(ii) of the Act, the national 

standard is set at 5,000 discharges. In 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24000 and 24001), we 

proposed to update the regional 

standards based on discharges for urban 

hospitals’ cost reporting periods that 

began during FY 2008 (that is, October 

1, 2007 through September 30, 2008), 

which were the latest cost report data 

available at the time the proposed rule 

was developed. 

Therefore, in the FY 2011 IPPS/LTCH 

PPS proposed rule, we proposed that, in 

addition to meeting other criteria, a 

hospital, if it is to qualify for initial RRC 

status for cost reporting periods 

beginning on or after October 1, 2010, 

must have, as the number of discharges 

for its cost reporting period that began 

during FY 2008, 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 2011 IPPS/LTCH PPS proposed rule 

at 75 FR 24001.) 

Based on the latest discharge data 

available at this time, that is, for cost 

reporting periods that began during FY 

2008, the final median numbers of 

discharges for urban hospitals by census 

region are set forth in the following 

table: 

Region Number of 

discharges 

1. New England (CT, ME, MA, NH, RI, VT) ........................................................................................................................................ 7,713 

2. Middle Atlantic (PA, NJ, NY) ........................................................................................................................................................... 11,346 

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) ............................................................................................................... 11,393 

4. East North Central (IL, IN, MI, OH, WI) .......................................................................................................................................... 9,232 

5. East South Central (AL, KY, MS, TN) ............................................................................................................................................. 7,016 

6. West North Central (IA, KS, MN, MO, NE, ND, SD) ...................................................................................................................... 8,159 

7. West South Central (AR, LA, OK, TX) ............................................................................................................................................ 7,081 

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) ............................................................................................................................... 9,282 

9. Pacific (AK, CA, HI, OR, WA) ......................................................................................................................................................... 8,622 

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We note that the median number of 

discharges for hospitals in each census 

region is greater than the national 

standard of 5,000 discharges. Therefore, 

5,000 discharges is the minimum 

criterion for all hospitals. 

We reiterate that, if an osteopathic 

hospital is to qualify for RRC status for 

cost reporting periods beginning on or 

after October 1, 2010, the hospital 

would be required to have at least 3,000 

discharges for its cost reporting period 

that began during FY 2008. 

D. Payment Adjustment for Low-Volume 

Hospitals (§ 412.101) 

1. Background 

As discussed in the June 2, 2010 

supplemental proposed rule (75 FR 

309023 through 30925), 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 the 

definition of a low-volume hospital 

under section 1886(d)(12)(C) of the Act. 

Sections 3125 and 10314 of the 

Affordable Care Act also revised the 

methodology for calculating the 

payment adjustment for low-volume 

hospitals. 

Prior to the amendments made by the 

Affordable Care Act, section 

1886(d)(12)(C)(i) of the Act defined a 

low-volume hospital as ‘‘a subsection (d) 

hospital (as defined in paragraph (1)(B)) 

that the Secretary determines is located 

more than 25 road miles from another 

subsection (d) hospital and 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 Part A.’’ 

Therefore, the term ‘‘discharge’’ refers to 

total discharges, not merely Medicare 

discharges. Furthermore, under section 

406(a) of Public Law 108–173, which 

initially added subparagraph (12) to 

section 1886(d) of the Act, the provision 

requires the Secretary to determine an 

applicable percentage increase for these 

low-volume hospitals based on the 

‘‘empirical relationship’’ between ‘‘the 

standardized cost-per-case for such 

hospitals and the total number of 

discharges of such hospitals and the 

amount of the additional incremental 

costs (if any) that are associated with 

such number of discharges.’’ The statute 

thus mandates that the Secretary 

develop an empirically justifiable 

adjustment based on the relationship 

between costs and discharges for these 

low-volume hospitals. The statute also 

limits the 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 lowvolume 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 a 

multivariate analyses supported the 

existing low-volume adjustment 

implemented in FY 2005. Therefore, the 

low-volume adjustment of an additional 

25 percent would continue to be 

provided for qualifying hospitals with 

less than 200 discharges. 

2. Temporary Changes for FYs 2011 and 

2012 

As stated above, section 1886(d)(12) 

of the Act was amended by sections 

3125 and 10314 of the Affordable Care 

Act. The changes made by these 

sections of the Affordable Care Act are 

effective only for discharges occurring 

during FYs 2011 and 2012. Beginning 

with FY 2013, the preexisting lowvolume hospital payment adjustment 

and qualifying criteria, as implemented 

in FY 2005, will resume. 

Sections 3125(3) and 10314(1) of the 

Affordable Care Act amended the 

qualifying criteria for low-volume 

hospitals under section 1886(d)(12)(C)(i) 

of the Act to make it easier for hospitals 

to qualify for the low-volume 

adjustment. Specifically, the revised 

provision specifies that, for FYs 2011 

and 2012, a hospital qualifies as a lowvolume hospital if it is ‘‘more than 15 

road miles from another subsection (d) 

hospital and has less than 1,600 

discharges of individuals entitled to, or 

enrolled for, benefits under Part A 

during the fiscal year.’’ In addition, 

section 1886(d)(12)(D) of the Act, as 

added by section 3125(4) and amended 

by section 10314 of the Affordable Care 

Act, provides that the payment 

adjustment (the applicable percentage 

increase) is to be determined ‘‘using a 

continuous linear sliding scale ranging 

from 25 percent for low-volume 

hospitals with 200 or fewer discharges 

of individuals entitled to, or enrolled 

for, benefits under Part A in the fiscal 

year to 0 percent for low-volume 

hospitals with greater than 1,600 

discharges of such individuals in the 

fiscal year.’’ 

Section 3125(3)(A) of the Affordable 

Care Act revised the distance 

requirement for FYs 2011 and 2012 from 

‘‘25 road miles’’ to ‘‘15 road miles’’ such 

that a low-volume hospital is required 

to be only more than 15 road miles, 

rather than more than 25 road miles, 

from another subsection (d) hospital for 

purposes of qualifying for the lowvolume payment adjustment in FYs 

2011 and 2012. Therefore, in the June 2, 

2010 supplemental proposed rule, we 

proposed to revise our regulations at 42 

CFR 412.101(b)(2)(ii) to provide that, to 

qualify for the low-volume adjustment 

in FYs 2011 and 2012, a hospital must 

be located more than 15 road miles from 

the nearest subsection (d) hospital. The 

statute specifies the 15 mile distance in 

‘‘road miles.’’ The existing regulations at 

§ 412.101 also specify the current 25 

mile distance requirement in ‘‘road 

miles,’’ but do not provide a definition 

of the term ‘‘road miles.’’ In the June 2, 

2010 supplemental proposed rule, we 

proposed to define the term ‘‘road miles’’ 

consistent with the term ‘‘miles’’ as 

defined at § 412.92 for purposes of 

determining whether a hospital qualifies 

as a SCH. Specifically, § 412.92(c)(i) 

defines ‘‘miles’’ as ‘‘the shortest distance 

in miles measured over improved roads. 

An improved road for this purpose is 

any road that is maintained by a local, 

State, or Federal government entity and 

is available for use by the general 

public. An improved road includes the 

paved surface up to the front entrance 

of the hospital.’’ We noted that while the 

proposed change in the qualifying 

criteria from 25 to 15 road miles is 

applicable only for FYs 2011 and 2012, 

the proposed definition of ‘‘road miles’’ 

would continue to apply even after the 

distance requirement reverts to 25 road 

miles beginning in FY 2013. 

Sections 3125(3)(B) and 10314(1) of 

the Affordable Care Act revised the 

discharge requirement for FYs 2011 and 

2012 to less than 1,600 discharges of 

individuals entitled to, or enrolled for, 

benefis under Medicare Part A during a 

fiscal year. Prior to enactment of the 

Affordable Care Act, under section 

1886(d)(12) of the Act, as added by 

section 406(a) of Public Law 108–173, 

the discharge requirement to qualify as 

a low-volume hospital is less than 800 

total discharges annually, which 

includes discharges of both Medicare 

and non-Medicare patients. This 

discharge requirement will apply also 

for fiscal years after FY 2012. 

Section 226(a) of the Act provides that 

an individual is automatically ‘‘entitled’’ 

to Medicare Part A when the person 

reaches age 65 or becomes disabled, 

provided that the individual is entitled 

to Social Security benefits under section 

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202 of the Act. Once a person becomes 

entitled to Medicare Part A, the 

individual does not lose such 

entitlement simply because there is no 

Part A coverage of a specific inpatient 

stay. For example, a patient does not 

lose entitlement to Medicare Part A 

simply because the individual’s Part A 

hospital benefits have been exhausted; 

other items and services (for example, 

skilled nursing services) still might be 

covered under Part A, and the patient 

would qualify for an additional 90 days 

of Part A hospital benefits if at least 60 

days elapsed between the individual’s 

first and second hospital stay 

(§ 409.60(a) and (b)(1) and § 409.61(a)(1) 

and (c) of the regulations). 

In addition, beneficiaries who are 

enrolled in Medicare Advantage (MA) 

plans provided under Medicare Part C 

continue to meet all of the statutory 

criteria for entitlement to Part A benefits 

under section 226. First, in order to 

enroll in Medicare Part C, a beneficiary 

must be ‘‘entitled to benefits under Part 

A and enrolled under Part B’’ (section 

1852(a)(1)(B)(i) of the Act). There is 

nothing in the Act that suggests that 

beneficiaries who enroll in a Part C plan 

forfeit their entitlement to Part A 

benefits. Second, once a beneficiary 

enrolls in Part C, the MA plan must 

provide the beneficiary with the benefits 

to which the enrollee is entitled under 

Medicare Part A, even though it may 

also provide for additional 

supplemental benefits (section 

1852(a)(1)(A) of the Act). Third, under 

certain circumstances, Medicare Part A 

pays for care furnished to patients 

enrolled in Part C plans. For example, 

if, during the course of the year, the 

scope of benefits provided under 

Medicare Part A expands beyond a 

certain cost threshold due to 

Congressional action or a national 

coverage determination, Medicare Part 

A will pay the provider for the cost of 

those services directly (section 

1852(a)(5) of the Act). Similarly, 

Medicare Part A also pays for federally 

qualified health center services and 

hospice care furnished to MA patients 

(section 1853(a)(4) and (h)(2) of the Act). 

Thus, a patient enrolled in a Part C plan 

remains entitled to benefits under 

Medicare Part A. 

Accordingly, for purposes of 

determining the number of discharges 

for ‘‘individuals entitled to, or enrolled 

for, benefits under Part A,’’ we proposed 

to include all discharges associated with 

individuals entitled to Part A, including 

discharges of individuals whose 

inpatient benefits are exhausted or 

whose stay was not covered by 

Medicare and discharges of individuals 

enrolled in an MA plan under Medicare 

Part C. Because a hospital may only 

qualify for this adjustment if the 

hospital has fewer than 1,600 discharges 

for patients entitled to Part A, the 

hospital must submit a claim to 

Medicare on behalf of all Part A entitled 

individuals, including a no-pay claim 

for patients who are enrolled in Part C, 

in order for Medicare to assure that 

these discharges are included in the 

determination of whether the hospital 

has fewer than 1,600 discharges for 

patients entitled to Part A. 

Section 3125(4) of the Affordable Care 

Act added section 1886(d)(12)(D) to the 

Act, and section 10314(2) of the 

Affordable Care Act modified section 

1886(d)(12)(D) of the Act. Section 

1886(d)(12)(D) of the Act modified the 

methodology for calculating the 

payment adjustment under section 

1886(d)(12)(A) of the Act for lowvolume hospitals for discharges 

occurring in FYs 2011 and 2012. For FY 

2010 and prior fiscal years, and 

beginning again in FY 2013, sections 

1886(d)(12)(A) and (B) of the Act require 

the Secretary to determine an applicable 

percentage increase for 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 requires 

the Secretary to develop an empirically 

justifiable adjustment based on the 

relationship between costs and 

discharges for these low-volume 

hospitals. The statute also limits the 

adjustment to no more than 25 percent. 

Based on analyses we conducted for the 

FY 2005 IPPS final rule (69 FR 49099 

through 49102) and the FY 2006 IPPS 

final rule (70 FR 47432 through 47434), 

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 lowvolume hospitals where there is 

empirical evidence that higher 

incremental costs are associated with 

low numbers of total discharges. 

However, section 1886(d)(12)(D) of the 

Act, as added by the Affordable Care 

Act, provides that, for discharges 

occurring in FYs 2011 and 2012, the 

Secretary shall determine the applicable 

percentage increase using a continuous, 

linear sliding scale ranging from an 

additional 25 percent payment 

adjustment for hospitals with 200 or 

fewer Medicare discharges to 0 percent 

additional payment for hospitals with 

more than 1,600 Medicare discharges. In 

the June 2, 2010 supplemental proposed 

rule (75 FR 30925), we proposed to 

apply this payment adjustment based on 

increments of 100 discharges (beginning 

with more than 200 discharges), with 

the applicable percentage increase 

decreasing linearly in equal amounts by 

1.6667 percent for every additional 100 

Medicare discharges, with no payment 

adjustment for hospitals with more than 

1,599 Medicare discharges. We did not 

propose an adjustment for a hospital 

with exactly 1,600 discharges because, 

as specified in section 1886(d)(12)(C)(i) 

of the Act, as amended, a hospital must 

have ‘‘less than’’ 1,600 discharges in 

order to qualify as a low-volume 

hospital. Consistent with the statute, we 

proposed that hospitals with 200 or 

fewer Medicare discharges would 

receive an applicable percentage 

increase of 25 percent. We proposed 

that the payment adjustment would be 

as determined below: 

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50240 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

While we proposed to revise the 

qualifying criteria and the payment 

adjustment for low-volume hospitals for 

FYs 2011 and 2012, consistent with the 

amendments made by the Affordable 

Care Act, we noted that we did not 

propose to modify the process for 

requesting and obtaining the lowvolume hospital payment adjustment. In 

order to qualify, a hospital must provide 

to its fiscal intermediary or MAC 

sufficient evidence to document that it 

meets the number of Medicare 

discharges and distance requirements. 

The fiscal intermediary or MAC will 

determine, based on the most recent 

data available, if the hospital qualifies 

as a low-volume hospital, so that the 

hospital will know in advance whether 

or not it will receive a payment 

adjustment and, if so, the add-on 

percentage. The fiscal intermediary or 

MAC and CMS may review available 

data, in addition to the data the hospital 

submits with its request for low-volume 

status, in order to determine whether or 

not the hospital meets the qualifying 

criteria. In the June 2, 2010 

supplemental proposed rule (75 FR 

30925), we also noted that currently a 

prior cost reporting period is used to 

determine if the hospital meets the 

discharge criteria to receive the lowvolume payment adjustment in the 

current year. 

In the June 2, 2010 supplemental 

proposed rule (75 FR 30925), we also 

noted that as compared to the existing 

methodology for determining the 

payment adjustment for low-volume 

hospitals, no hospital would receive a 

lower payment adjustment under our 

proposed methodology for FYs 2011 and 

2012. Although the statute specifies 

that, for years other than FYs 2011 and 

2012, a hospital is a low-volume 

hospital if it has less than 800 

discharges, currently only hospitals 

with fewer than 200 discharges receive 

a payment adjustment, an additional 25 

percent, because the statute requires 

that the adjustment be empirically based 

to provide relief to low-volume 

hospitals where there is empirical 

evidence that higher incremental costs 

are associated with low numbers of total 

discharges. Consistent with section 

1886(d)(12)(D) of the Act, for FYs 2011 

and 2012, we indicated that under our 

proposal we would continue to pay 

hospitals with fewer than 200 

discharges a payment adjustment 

amount equal to an additional 25 

percent. 

We proposed to revise our regulations 

at § 412.101 to reflect our proposal 

outlined above. We also proposed a 

clarification to the existing regulations 

to indicate that a hospital must continue 

to qualify as a low-volume hospital in 

order to receive the payment adjustment 

in that year; that is, it is not based on 

a one-time qualification. Specifically, 

existing § 412.101(a)(3) states that ‘‘The 

fiscal intermediary makes the 

determination of the discharge count for 

purposes of determining a hospital’s 

qualification for the adjustment based 

on the hospital’s most recent submitted 

cost report.’’ This may mistakenly be 

interpreted to mean that once a hospital 

qualifies as a low-volume hospital, no 

further qualification is needed. 

Comment: Several commenters stated 

that the statute requires the low-volume 

payment adjustment to be made using a 

‘‘continuous linear sliding scale,’’ but 

that the proposed payment adjustments 

based on increments of 100 discharges 

are not continuous. The commenters 

requested the low-volume adjustment 

for FYs 2011 and 2012 be determined 

using a specific continuous, linear 

equation that they included in their 

comments. The commenters also stated 

that determining the payment 

adjustment using their submitted linear 

equation, rather than the proposed 100- 

discharge increments, would avoid a 

significant change in the payment 

adjustment for a hospital if the hospital 

experienced only a small change in its 

number of Medicare discharges from 

one year to the next. 

Response: We disagree with the 

commenters that our proposal to 

determine the low-volume payment 

adjustment for FYs 2011 and 2012 based 

on increments of 100 discharges does 

not meet the ‘‘continuous linear sliding 

scale’’ statutory requirement. Our 

proposed methodology provided for a 

continuous linearly decreasing 

adjustment in the amount of a fixed 

percentage for every additional 100 

Medicare discharges. However, after 

consideration of public comments 

regarding the ‘‘continuous linear sliding 

scale’’ specified by the statute for the 

low-volume payment adjustment for 

FYs 2011 and 2012, we agree that an 

adjustment based on the linear equation 

provided by the commenters would 

result in less fluctuation in the payment 

amount in situations in which the 

number of discharges varied slightly in 

both years. We believe this will assist 

hospitals in their annual fiscal planning. 

Therefore, in this final rule, we are 


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adopting the continuous linear sliding 

scale equation suggested by 

commenters, to determine the lowvolume payment adjustment for FYs 

2011 and 2012 for eligible low-volume 

hospitals with Medicare discharges of 

more than 200 and less than 1,600 (that 

is, from 201 to 1,599 Medicare 

discharges). Consistent with the statute 

and as we proposed, for FYs 2011 and 

2012 for eligible low-volume hospitals 

with 200 or fewer Medicare discharges, 

we are finalizing a low-volume payment 

adjustment of 25 percent. Therefore, 

under new § 412.101(c)(2), for FYs 2011 

and 2012, the low-volume adjustment 

will be determined as follows: 

• Low-volume hospitals with 200 or 

fewer Medicare discharges will receive 

a low-volume adjustment of an 

additional 25 percent for each 

discharge. 

• Low-volume hospitals with 

Medicare discharges of more than 200 

and fewer than 1,600 will receive for 

each discharge a low-volume 

adjustment of an additional percent 

calculated using the formula: [(4/ 

14)¥(Medicare discharges/5600)]. 

Commenters have suggested that the 

correct formula to apply the linear scale 

specified in section 1886(d)(12)(D) of 

the Act is (4/14)¥(Medicare discharges/ 

5600). This mathematical interpretation 

is consistent with the plain language of 

section 1886(d)(12)(D) of the Act. For 

qualifying hospitals with fewer than 

1,600 Medicare discharges but more 

than 200 Medicare discharges, the lowvolume add-on payment is calculated by 

subtracting from 25 percent the 

proportion of payments associated with 

the Medicare discharges in excess of 

200. That proportion is calculated by 

multiplying the Medicare discharges in 

excess of 200 by a fraction that is equal 

to the maximum available add-on 

payment (25 percent) divided by a 

number represented by the range of 

Medicare discharges for which this 

policy applies (1,600 minus 200, or 

1,400). 

In other words, for qualifying 

hospitals with fewer than 1,600 

Medicare discharges but more than 200 

Medicare discharges, the add-on 

payment is calculated using the 

following formula: 

Low volume add-on payment = 

0.25¥[(0.25/1400)*(Number of 

Medicare discharges¥200)] = (4/ 

14)¥(Medicare discharges/5600). 

Our proposal had been to apply this 

formula through use of a linear scale 

that represented this formula for every 

100 discharges. In light of the 

commenters’ suggestion, we will apply 

this formula for each discharge. We 

believe this is an equally appropriate 

application of the statutory provision 

and that it creates a more precise 

calculation for the add-on payment. 

As we proposed and described in 

greater detail above, in this final rule, 

we are revising the regulations to 

specify at § 412.101(a) that ‘‘Medicare 

discharges’’ means a discharge of 

inpatients entitled to Medicare Part A, 

including discharges associated with 

individuals whose inpatient benefits are 

exhausted or whose stay was not 

covered by Medicare and also 

discharges of individuals enrolled in a 

MA organization under Medicare Part C. 

As stated above, beginning with FY 

2013, that is, with discharges occurring 

on or after October 1, 2012, the existing 

low-volume hospital payment 

adjustment and qualifying criteria as 

implemented in FY 2005 will resume. 

Comment: A few commenters asked 

for clarification regarding what is 

required of the hospital in order to 

receive the low-volume adjustment for 

FYs 2011 and 2012, that is, what is the 

process, what documentation is 

required to verify Medicare discharges, 

which data will be used, and can the 

distance from comparable hospitals be 

documented with Web-based tools such 

as MapQuest. 

Response: In order to determine the 

low-volume adjustment for FYs 2011 

and 2012, CMS will determine the 

number of Medicare discharges from the 

most recent available Medicare 

discharge data from the MedPAR files. 

These data will provide the number of 

discharges for individuals that are 

entitled to or enrolled for Medicare Part 

A, as required by statute. As noted 

elsewhere in this final rule, the 

MedPAR discharge data now include 

discharges for individuals enrolled in a 

MA organization under Medicare Part C 

and discharges for patients who are 

entitled to Medicare Part A, but whose 

Part A inpatient benefits have been 

exhausted or whose stay was not 

covered by Medicare. Therefore, for FY 

2011, the low-volume payment 

adjustment will be determined using 

Medicare discharge data for FY 2009 

from the March 2010 update of the 

MedPAR files, as these are the most 

recent available data. (We expect to use 

Medicare claims data for FY 2010 to 

determine the low-volume payment 

adjustment for FY 2012, as these will be 

the most recent available data at that 

time.) 

Below we are providing a chart that 

lists the hospitals with fewer than 1,600 

Medicare discharges based on the March 

2010 update of the FY 2009 MedPAR 

files. Eligibility for the low-volume 

payment adjustment for FY 2011 and FY 

2012 is also dependent upon meeting 

the mileage criteria specified at 

§ 412.101(b)(2)(ii), as finalized in this 

final rule. 

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BILLING CODE 4120–01–C 

We note that this list of hospitals with 

fewer than 1,600 Medicare discharges 

does not reflect whether or not the 

hospital meets the mileage criterion, 

that is, the hospital also must be located 

more than 15 road miles from any other 

IPPS hospital. In order to receive the 

applicable low-volume percentage addon payment, a hospital must notify and 

provide documentation to its fiscal 

intermediary or MAC that it meets this 

mileage criterion. The use of a Webbased mapping tool, such as MapQuest, 

as part of documenting that the hospital 

meets the mileage criterion for lowvolume hospitals is acceptable. The 

fiscal intermediary or 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 

§ 412.101(a)) from the hospital 

requesting low-volume hospital status, 

is sufficient to document that it meets 

the mileage criterion. If not, the fiscal 

intermediary or MAC will follow up 

with the hospital in order to obtain 

additional necessary information to 

determine whether or not the hospital 

meets the low-volume mileage criterion. 

The fiscal intermediary or MAC will 

refer to the hospital’s Medicare 

discharge data determined by CMS (as 

shown in the chart above for FY 2011 

and posted on the CMS Web site at: 

http://www.cms.gov) to determine 

whether or not the hospital meets the 

discharge criterion, and the amount of 

the payment adjustment, once it is 

determined that both the mileage and 

discharge criteria are met. The Medicare 

discharge data shown in the chart 

above, as well as the Medicare discharge 

data for all hospitals with claims in the 

March 2010 update of the FY 2009 

MedPAR files, also will be available on 

the CMS Web site for hospitals to check 

their Medicare discharges to help them 

to decide whether or not to apply for 

low-volume hospital status. We are 

revising the regulations at § 412.101(b) 

to reflect the policy of basing the 

discharge criterion for FYs 2011 and 

2012 (using Medicare discharges) on the 

most recently available MedPAR data. 

We will continue to base the discharge 

criterion (using total discharges, 

Medicare and non-Medicare) on the 

hospital’s most recently submitted cost 

report data, as we do under the existing 

policy, for FY 2005 through FY 2010 

and FY 2013 and subsequent fiscal 

years. 

For FY 2011, the hospital should 

make its request for low-volume 

hospital status in writing to its fiscal 

intermediary or MAC by September 1, 

2010, so that the applicable low-volume 

percentage add-on will be applied to 

payments for its discharges beginning 

on or after October 1, 2010. For FY 

2012, a hospital that qualified for the 

low-volume adjustment in FY 2011 may 

continue to receive the add-on payment, 

without reapplying, if it continues to 


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meet the Medicare discharge criterion 

based on the latest available MedPAR 

data. However, the hospital must verify 

in writing to its fiscal intermediary or 

MAC that it continues to be more than 

15 miles from any other IPPS hospital. 

(As noted above, we expect Medicare 

claims data from FY 2010 to be available 

to determine the low-volume payment 

adjustment for FY 2012.) A hospital that 

was not a low-volume hospital in FY 

2011, and believes it meets the 

discharge and mileage criterion for FY 

2012, should make its request in 

writing, with documentation that it 

meets the mileage criterion, to its fiscal 

intermediary or MAC by September 1, 

2011, in order for the applicable lowvolume percentage add-on to be applied 

beginning with discharges on or after 

October 1, 2011. 

Comment: A few commenters 

requested clarification regarding the 

application of the low-volume payment 

adjustment at section 1886(d)(12) of the 

Act to SCHs and MDHs, given that these 

types of hospitals are also subsection (d) 

hospitals. These commenters also 

requested that CMS explicitly state that 

the applicable low-volume percentage 

add-on is applied to an SCH’s or a 

MDH’s payments at the Federal rate or 

the hospital-specific rate. 

Response: Section 1886(d)(12)(C)(i) 

defines a low-volume hospital, in part, 

as a ‘‘subsection (d) hospital.’’ SCHs and 

MDHs are ‘‘subsection (d) hospitals’’ 

although they can be paid under a 

hospital-specific rate instead of under 

the Federal standardized amount under 

the IPPS. As subsection (d) hospitals, 

SCHs and MDHs are eligible to receive 

the low-volume adjustment if the 

hospital meets the discharge and 

mileage criteria. Section 1886(d)(12)(A) 

states that the applicable low-volume 

percentage add-on payment will be ‘‘[i]n 

addition to any payments calculated 

[under section 1886]’’. For SCHs and 

MDHs, payment under section 1886 is 

determined using either the Federal rate 

or the hospital-specific rate, whichever 

results in a greater payment. 

After consideration of the public 

comments we received, we are adopting 

the continuous linear sliding scale 

equation set forth by commenters to 

determine the low-volume payment 

adjustment for FYs 2011 and 2012 for 

eligible low-volume hospitals with 

Medicare discharges of more than 200 

and less than 1,600 (that is, from 201 to 

1,599 Medicare discharges), and we 

have modified § 412.101(c)(2) of the 

regulations in this final rule 

accordingly. We are revising § 412.101 

to reflect the final changes as discussed 

above. In addition, we note that we are 

making structural changes to the final 

regulation text at § 412.101 as compared 

to the proposed regulation text at 

§ 412.101(for example, we are 

combining proposed paragraph 

(b)(2)(iii) into paragraph (b)(2)(i) to more 

concisely reflect the final policy that we 

are establishing in this final rule). 

E. Indirect Medical Education (IME) 

Adjustment (§ 412.105) 

1. Background 

Section 1886(d)(5)(B) of the Act 

provides for an additional payment 

amount under the IPPS for hospitals 

that have 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 regulations regarding the 

calculation of this additional payment, 

known as the indirect medical 

education (IME) adjustment, are located 

at § 412.105. 

Public Law 105–33 (BBA 1987) 

established a limit on the number of 

allopathic and osteopathic residents that 

a hospital may include in its full-time 

equivalent (FTE) resident count for 

direct GME and IME payment purposes. 

Under section 1886(h)(4)(F) of the Act, 

for cost reporting periods beginning on 

or after October 1, 1997, a hospital’s 

unweighted FTE count of residents for 

purposes of direct GME may not exceed 

the hospital’s unweighted FTE count for 

its most recent cost reporting period 

ending on or before December 31, 1996. 

Under section 1886(d)(5)(B)(v) of the 

Act, a similar limit on the FTE resident 

count for IME purposes is effective for 

discharges occurring on or after October 

1, 1997. 

2. IME Adjustment Factor for FY 2011 

The IME adjustment to the MS–DRG 

payment is based in part on the 

applicable IME adjustment factor. The 

IME adjustment factor is calculated by 

using a hospital’s ratio of residents to 

beds, which is represented as r, and a 

formula multiplier, which is 

represented as c, in the following 

equation: c × [{1 + r}.405 ¥ 1]. The 

formula is traditionally described in 

terms of a certain percentage increase in 

payment for every 10-percent increase 

in the resident-to-bed ratio. 

Section 502(a) of Public Law 108–173 

modified the formula multiplier (c) to be 

used in the calculation of the IME 

adjustment. Prior to the enactment of 

Public Law 108–173, the formula 

multiplier was fixed at 1.35 for 

discharges occurring during FY 2003 

and thereafter. In the FY 2005 IPPS final 

rule, we announced the schedule of 

formula multipliers to be used in the 

calculation of the IME adjustment and 

incorporated the schedule in our 

regulations at § 412.105(d)(3)(viii) 

through (d)(3)(xii). Section 502(a) 

modified the formula multiplier 

beginning midway through FY 2004 and 

provided for a new schedule of formula 

multipliers for FYs 2005 and thereafter 

as follows: 

• For discharges occurring on or after 

April 1, 2004, and before October 1, 

2004, the formula multiplier is 1.47. 

• For discharges occurring during FY 

2005, the formula multiplier is 1.42. 

• For discharges occurring during FY 

2006, the formula multiplier is 1.37. 

• For discharges occurring during FY 

2007, the formula multiplier is 1.32. 

• For discharges occurring during FY 

2008 and fiscal years thereafter, the 

formula multiplier is 1.35. 

Accordingly, for discharges occurring 

during FY 2011, the formula multiplier 

is 1.35. We estimate that application of 

this formula multiplier for the FY 2011 

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. 

3. IME-Related Changes in Other 

Sections of this Final Rule 

We refer readers to section IV.H.2. 

and IV.H.3. of the preamble of this final 

rule for a discussion of changes to the 

policies for identifying ‘‘approved 

medical residency programs’’ and the 

electronic submission of Medicare GME 

affiliation agreements. 

F. Payment Adjustment for Medicare 

Disproportionate Share Hospitals 

(DSHs): Supplemental Security Income 

(SSI) Fraction (§ 412.106) 

1. Background 

Section 1886(d)(5)(F) of the Act 

provides for additional Medicare 

payments to subsection (d) hospitals 

that serve a significantly 

disproportionate number of low-income 

patients. The Act specifies two methods 

by which a hospital may qualify for the 

Medicare disproportionate share 

hospital (DSH) adjustment. Under the 

first method, hospitals that are located 

in an urban area and have 100 or more 

beds may receive a Medicare DSH 

payment adjustment if the hospital can 

demonstrate that, during its cost 

reporting period, more than 30 percent 

of its net inpatient care revenues are 

derived from State and local 

government payments for care furnished 

to needy patients with low incomes. 

This method is commonly referred to as 

the ‘‘Pickle method.’’ 

The second method for qualifying for 

the DSH payment adjustment, which is 

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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 ‘‘Supplemental 

Security Income (SSI) fraction’’ and the 

‘‘Medicaid fraction.’’ The SSI fraction 

(also known as the ‘‘SSI ratio’’ or the 

‘‘Medicare fraction’’) 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 (including patients 

who are enrolled in a Medicare 

Advantage (Part C) plan) and SSI 

benefits by the hospital’s total number 

of patient days furnished to patients 

entitled to benefits under Medicare Part 

A (including patients who are enrolled 

in a Medicare Advantage (Part C) plan). 

The Medicaid fraction is computed by 

dividing the hospital’s number of 

inpatient days furnished to patients 

who, for such days, were eligible for 

Medicaid, but were not entitled to 

benefits under Medicare Part A, by the 

hospital’s total number of inpatient days 

in the same period. 

Because the DSH payment adjustment 

is part of the IPPS, the DSH statutory 

references (under section 1886(d)(5)(F) 

of the Act) to ‘‘days’’ apply only to 

hospital acute care inpatient days. 

Regulations located at 42 CFR 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 DSH payment adjustment. Under 

§ 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 § 412.105(b). 

2. CMS’ Current Data Matching Process 

for the SSI Fraction 

As we discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24002), 

from the inception of the Medicare DSH 

adjustment in 1986, CMS (formerly 

HCFA) has calculated the SSI fraction 

for each acute care hospital paid under 

the IPPS. This fraction, in combination 

with the Medicaid fraction, is used to 

determine whether the provider 

qualifies for a DSH payment adjustment 

and the amount of any such payment 

(51 FR 16772, 16777, May 6, 1986 

interim final rule). In determining the 

number of inpatient days for individuals 

entitled to both Medicare Part A and 

SSI, as required for calculation of the 

numerator of the SSI fraction, CMS 

matches the Medicare records and SSI 

eligibility records for each hospital’s 

patients during the Federal fiscal year, 

unless the provider requests calculation 

of the SSI fraction on a cost reporting 

period basis (in which case the provider 

would receive its SSI fraction based on 

its own cost reporting period). The data 

underlying the match process are drawn 

from: (a) The Medicare Provider 

Analysis and Review (MedPAR) data 

file; and (b) SSI eligibility data provided 

by the Social Security Administration 

(SSA). CMS has matched Medicare and 

SSI eligibility records using Title II 

numbers (included in the SSI records) 

and Health Insurance Claims Account 

Numbers (HICANs) (contained in the 

MedPAR file). Below we provide a more 

detailed description of both a Title II 

number and a HICAN. 

Title II Number: If a person qualifies 

for retirement or disability benefits 

under Title II of the Act (42 U.S.C. 401 

et seq.), SSA assigns a ‘‘Title II number’’ 

to the individual. If the Title II 

beneficiary’s own earnings history (or 

the individual’s disability) were the 

basis for such benefits, the person’s 

Social Security number (SSN) would 

constitute the ‘‘root’’ of the individual’s 

Title II number. However, if the person’s 

Title II benefits were based on the 

earnings history of another individual 

(for example, a spouse), that other 

person’s SSN would provide the root for 

the beneficiary’s Title II number. In 

addition to a root SSN, each Title II 

number ends with a Beneficiary 

Identification Code (BIC) that identifies 

the basis for an individual’s entitlement 

to benefits. For example, a person who 

becomes eligible for benefits under his 

or her own account would be described 

by his or her SSN followed by the BIC 

‘‘A’’ whereas a wife who becomes 

eligible for benefits under her husband’s 

account would be described by his SSN 

followed by the BIC ‘‘B.’’ Children who 

become eligible under a parent’s 

account would be described by the 

parent’s SSN followed by the BIC ‘‘C1,’’ 

‘‘C2,’’ etc. 

HICAN: When a person becomes 

entitled to Medicare benefits, he or she 

is assigned a HICAN for purposes of 

processing claims submitted on his or 

her behalf for Medicare services. A 

beneficiary’s HICAN (which may not 

necessarily contain his or her SSN) is 

included on the Medicare inpatient 

hospital claim. 

Each HICAN for a beneficiary should 

be identical, at the same point in time, 

to that individual’s Title II number. This 

is because HICANs and Title II numbers 

are both assigned on the basis of the 

same data source, the SSA-maintained 

Master Beneficiary Record, and by using 

the same rules (that is, the rules for 

determining which person’s SSN will 

serve as the root for an individual’s 

HICAN and Title II number and for 

determining the BIC for both types of 

numbers). 

We note that a person’s Title II 

number and HICAN can change over 

time. For example, if the individual’s 

entitlement to Title II and Medicare 

benefits was originally based on the 

earnings history of a first spouse, but the 

beneficiary later qualified for such 

benefits on the basis of a second 

spouse’s earnings history, the 

beneficiary’s HICAN and Title II number 

would change accordingly. Specifically, 

the first spouse’s SSN would be the root 

of the beneficiary’s original HICAN and 

Title II number; later, the second 

spouse’s SSN would become the root of 

the beneficiary’s second HICAN and 

Title II number. 

The SSI eligibility data that CMS 

receives from SSA contain monthly 

indicators to denote which month(s) 

each person was eligible for SSI benefits 

during a specific time period. The 

current matching process uses only one 

Title II number (which is included in 

the SSI file) and one HICAN (found in 

the MedPAR file) for each beneficiary. 

In the current matching process, CMS 

has used the HICAN because it is the 

patient identifier that is provided by 

hospitals on the Medicare claim. 

Because SSNs are not included on 

Medicare inpatient claims, CMS has not 

historically used SSNs in the match 

process. 

For a given fiscal year, CMS 

determines the numerator of the 

hospital’s SSI fraction (that is, the 

number of the hospital’s inpatient days 

for all of its patients who were 

simultaneously entitled to Medicare 

Part A benefits and SSI benefits) by 

calculating the sum of the number of the 

hospital’s inpatient days that are 

associated with all of the identical Title 

II numbers and HICANs for the 

hospital’s claims that are found through 

the data matching process. In turn, CMS 

determines the denominator of the 

hospital’s SSI fraction by calculating the 

sum of the number of the hospital’s 

inpatient days for patients entitled to 

benefits under Medicare Part A 

(regardless of SSI eligibility) that are 

included in the hospital’s inpatient 

claims for the period. 

3. Baystate Medical Center v. Leavitt 

Court Decision 

In Baystate Medical Center v. Leavitt, 

545 F. Supp. 2d 20, as amended, 587 F. 

Supp. 2d 37, 44 (D.D.C. 2008), the 

district court concluded that, in certain 

respects, CMS’ current matching process 

(as described above) did not use the 

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‘‘best available data’’ to match Medicare 

patient day information with SSI 

eligibility data when calculating the 

plaintiff’s SSI fractions for FYs 1993 

through 1996. Specifically, the court 

found that: 

• Stale SSI Records and Forced Pay 

SSI Records. For the earliest years in 

question in Baystate, the SSI eligibility 

data did not include ‘‘stale’’ records— 

that is, records for individuals whose 

SSI records were no longer active from 

SSA’s perspective. (We note that it is 

our understanding that, as of the year 

2000, SSA no longer differentiates 

between inactive and active records and 

therefore, no longer uses the ‘‘stale 

record’’ indicator in its databases.) The 

court also found that the SSI data file 

only included SSI eligibility 

information for SSI payments that were 

automated (as opposed to manual), 

thereby excluding those people who, for 

whatever reason, received manual or 

‘‘forced pay’’ payments. Baystate, 545 F. 

Supp. 2d at 44–46. 

• Match Based on Only One Title II 

Number and One HICAN. The court 

found fault with CMS’ use of only a 

single Title II number and one HICAN 

in the match process. As a beneficiary 

may receive SSI and Medicare Part A 

benefits under more than one Title II 

number and HICAN over a period of 

time, CMS would not have matched a 

beneficiary’s records if there had been a 

change in the person’s Title II number 

and HICAN between the time of an 

inpatient stay and when the match 

process was completed. Baystate, 545 F. 

Supp. 2d at 46–49. 

• Retroactive SSI Eligibility 

Determinations and Lifting of Payment 

Suspensions. The court found that the 

match process did not appropriately 

account for retroactive eligibility 

determinations of SSI eligibility and the 

lifting of payment suspensions because 

the match process used SSI eligibility 

data that did not include more recent 

retroactive determinations of SSI 

eligibility and the lifting of SSI payment 

suspensions. By not using more recent 

SSI eligibility information that was 

available to CMS at the time of the 

hospital’s cost report settlement, the 

court concluded that CMS did not use 

the ‘‘best available data’’ to calculate the 

provider’s SSI fraction. Baystate, 545 F. 

Supp. 2d at 42–44. 

CMS continues to believe that its 

current data matching process and the 

resultant SSI fraction and DSH 

payments were lawful. Nonetheless, the 

agency did not appeal the Baystate 

decision. Accordingly, CMS 

implemented the court’s decision by 

recalculating the plaintiff’s SSI fractions 

for 1993 through 1996. In recalculating 

the SSI fractions at issue in the Baystate 

case, we worked closely with SSA to 

ensure that stale and forced pay SSI 

records were included in the SSI 

eligibility data. Also, we used a revised 

data matching process (described in 

more detail below) that comports with 

the court’s decision. As the revised data 

matching process was completed using 

SSI eligibility data compiled between 13 

and 16 years beyond the fiscal years at 

issue in the Baystate case, we believe 

any issues associated with retroactive 

determinations of SSI eligibility and the 

lifting of payment suspensions had been 

long since resolved. Furthermore, 

because we believe that the revised 

match process used to implement the 

Baystate decision addressed all of the 

concerns found by the court, in the FY 

2011 IPPS/LTCH PPS proposed rule we 

proposed to use the same revised data 

matching process for calculating 

hospitals’ SSI fractions for FY 2011 and 

subsequent fiscal years. 

4. CMS’ Process for Matching Medicare 

and SSI Eligibility Data 

a. Inclusion of Stale Records and Forced 

Pay Records in the SSI Eligibility Data 

Files 

In recalculating the SSI fractions at 

issue in the Baystate case, stale records 

and forced pay records were included in 

the SSI eligibility data files that CMS 

used in the revised data match for the 

four fiscal years at issue. All SSI 

payment records, whether the payments 

were automated or manual or were for 

an individual whose record was active 

or stale, are now included in the data 

files provided by SSA and will continue 

to be included in the future. 

b. Use of SSNs in the Revised Match 

Process 

As indicated above, the current 

matching process only uses one Title II 

number and one HICAN in the data 

match process. As we discussed in the 

FY 2011 IPPS/LTCH PPS proposed rule, 

by contrast, our revised match process 

would make use of the Medicare 

Enrollment Database (EDB), which is 

CMS’ system of records for all 

individuals who have ever been 

enrolled in Medicare. The EDB includes 

SSNs as well as all of an individual’s 

HICANs. In our proposed revised match 

process, the individual’s SSN, contained 

in the SSI eligibility data file, would be 

compared to the SSNs in the Medicare 

EDB, and each matched SSN would 

then be ‘‘cross-walked’’ within the EDB 

to find any and all HICANs associated 

with the individual’s SSN. The resulting 

HICANs would then be matched against 

those HICANs contained in the MedPAR 

claims data files. 

As stated in the proposed rule, before 

explaining our proposed revised match 

process in more detail, we believe it is 

appropriate to provide some background 

regarding SSNs and the three databases 

that would be used in our proposed 

match process. An individual should 

have only one SSN, which should be 

unique to that individual. The SSN may 

be assigned by SSA when the individual 

begins gainful employment (if not 

earlier). However, if an applicant for SSI 

benefits does not already have a SSN, 

SSA then assigns a SSN to the person. 

Thus, in the SSI eligibility data that SSA 

provides to CMS, each individual 

identified in those data should have a 

unique SSN. 

The first database that we proposed to 

use in our revised match process was 

the SSI eligibility data file, which 

contains a unique SSN for every SSI 

record and could include as many as 10 

different historical Title II numbers for 

the records related to one individual. 

We proposed to use 10 as the maximum 

number of Title II numbers for a 

beneficiary because that is likewise the 

maximum number of HICANs that can 

be attributed to any one individual in 

our EDB. However, we noted that, as a 

practical matter, the greatest number of 

historical HICANs associated with any 

beneficiary appears to be 7. The SSI 

eligibility file serves as the system of 

record for whether or not SSA made a 

payment of SSI benefits to an individual 

who applied for SSI benefits. 

The second relevant database, the 

Medicare EDB, contains a SSN for 

virtually every record in the EDB. 

Furthermore, the EDB has the capacity 

to hold up to 10 historical HICANs for 

a specific Medicare enrollee. (It is 

important to note that, of the more than 

100 million records in the EDB, less 

than 0.07 percent (that is, fewer than 7 

of every 10,000 records) relate to 

individuals for whom the EDB does not 

include a SSN for the person. The EDB 

might not include a SSN for an 

individual if, for example, the person 

lives in another country but is entitled 

to Medicare benefits through his or her 

spouse.) 

The third relevant database that we 

proposed to use in our revised match 

process was the MedPAR file. Hospitals 

submit claims to Medicare for inpatient 

services provided to Medicare 

beneficiaries. These claims are 

eventually accumulated in the MedPAR 

database. We noted that the MedPAR 

database does not contain SSNs. The 

MedPAR database contains one HICAN 

number for each and every record of 

services provided to a Medicare 

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beneficiary who was admitted to a 

Medicare-certified hospital or skilled 

nursing facility. This database allows us 

to calculate the number of Medicare 

inpatient hospital days, which we use in 

determining each hospital’s DSH SSI 

fraction. 

Utilizing the steps set forth below, in 

the proposed rule, we proposed to use 

these three databases in a revised match 

process for FY 2011 and subsequent 

fiscal years: 

Step 1—Use SSNs to find any and all 

relevant HICANs. We proposed to use 

the SSI eligibility file provided by SSA 

to compare the individual SSNs in that 

file to the SSNs contained in the 

Medicare EDB. Each matched SSN 

would then be ‘‘cross-walked’’ (within 

the EDB) to find any and all HICANs 

associated with the individual’s SSN. 

The resulting HICANs would then be 

matched against those HICANs 

contained in the MedPAR claims data 

files. This process should identify all 

relevant SSI records in which a SSN is 

associated with an individual who is 

simultaneously enrolled in Medicare 

Part A and in the SSI program. 

Step 2—Utilize any and all Title II 

numbers. In order to provide further 

assurance that all of the Title II numbers 

and HICANs for SSI-eligible individuals 

have been identified, next we proposed 

to compare the complete list of Title II 

numbers from the SSI data file (up to 10 

Title II numbers for any one individual) 

to the list of HICANs generated through 

Step 1 above. If the SSI data file 

includes any Title II numbers that were 

not already identified in Step 1, the 

Title II number would be included in 

our revised match process and 

compared to any and all HICANs in 

MedPAR. We noted that by including 

this second step (that is, adding all Title 

II numbers not previously identified by 

Step 1), we were addressing the very 

small universe of individuals for whom 

the EDB does not include a SSN. If an 

individual is entitled to SSI benefits and 

Medicare benefits, the new format of the 

SSI eligibility file will contain up to 10 

Title II numbers and, if they have not 

already been captured, each of those 

numbers will be included in our revised 

match process. Even if an individual 

does not have a SSN in the EDB, this 

second step should ensure that our 

revised match process will include that 

individual. 

Step 3—Ensure consistency between 

the HICANs in the EDB, Title II 

numbers, and the HICANs in the 

MedPAR file. The EDB stores the 

beneficiary’s record at the most specific 

level of detail. For example, if the 

beneficiary’s Medicare eligibility was 

originally based on the earnings history 

of a spouse who subsequently dies, the 

beneficiary would have two HICANs. 

Both HICANs, which would have the 

same root, but different BICs, would be 

stored in the EDB. However, the 

inpatient claim in the MedPAR file will 

only have the individual’s HICAN at a 

more general level of detail; in the 

preceding example, the BIC would 

identify the beneficiary only as a spouse 

without specifying whether the spouse 

(that is, the ‘‘primary’’ beneficiary) was 

alive or deceased. This third step should 

ensure consistency between the HICANs 

from Step 1 and the Title II numbers 

from Step 2 by ‘‘equating’’ (or 

converting) the BIC identifiers to the 

identifiers that are on the inpatient 

claim that is included in the MedPAR 

file. In addition, we proposed that, for 

any SSI-eligible beneficiary who is 

receiving Medicare benefits based on his 

or her own account but whose records 

have not been matched already, we 

would attempt to match the 

beneficiary’s HICAN in the MedPAR 

file. Specifically, we proposed to simply 

add an ‘‘A’’ to all the SSNs in the SSI 

eligibility data file so that, if that 

individual was not captured by Steps 1 

and 2 above (for whatever unlikely 

reason) but MedPAR indicated that the 

person had received Medicare services, 

the individual would be included in the 

data match process by this third step. 

Step 4—Calculate the SSI fraction. We 

did not propose any changes with 

respect to the final step in determining 

the SSI fraction. To calculate the 

numerator of the SSI fraction, CMS 

would continue to sum a hospital’s 

Medicare inpatient days in the acute 

care part of the hospital (excluding 

IPPS-exempt units such as rehabilitation 

and psychiatric units) where the 

Medicare beneficiary was 

simultaneously entitled to SSI benefits. 

To calculate the denominator, CMS 

would continue to sum a hospital’s total 

Medicare inpatient days in the acute 

care part of the hospital. 

Comment: Many commenters 

supported the proposed data matching 

process and applauded CMS for 

working to refine the data matching 

process and for sharing details of the 

process in the proposed rule. Some 

commenters stated that it was difficult 

to determine the accuracy of the 

proposed data matching process without 

more details about the matching 

process, including more information on 

steps, testing, and validation processes 

or, alternatively, providing the 

underlying data files to the hospitals. 

Some commenters asked that CMS 

ensure that all HICANs included in the 

MedPAR file match to a HICAN in the 

EDB. The commenters requested that 

CMS exclude any HICANs from the 

MedPAR file that did not match to the 

EDB so that the SSI fractions would not 

be understated. Commenters also asked 

that CMS ensure that the proposed data 

matching process is consistent with 

Federal Information Processing 

Standards (FIPS). One commenter asked 

that CMS include SSI indicators in the 

EDB and give access to authorized 

parties so that hospitals can calculate 

their own SSI fractions and litigation 

over the SSI fractions would be reduced. 

Response: We appreciate the 

commenters’ support of our proposed 

data matching process. We believe that 

the proposed data matching process will 

produce more accurate SSI fractions. We 

also believe that we have shared all 

relevant details about the proposed 

revised data matching process in order 

to allow the public a meaningful 

opportunity to submit comments. 

Specifically, we have described the 

specific data files we intend to use, 

provided information and background 

about those data files along with a 

detailed, step-by-step description of 

how we intend to use those files for 

purposes of the data matching process, 

and provided specific information, 

including examples, of the specific 

timeframes in which we intend to 

conduct the various aspects of the data 

matching processes. However, per the 

commenters’ request, we are sharing 

additional details in this final rule about 

the testing and validation procedures 

we intend to use. Specifically, as part of 

our internal data validation processes, 

we will track certain summary statistics 

in an effort to minimize any errors or 

omissions of data that might lead to 

inaccurate SSI fractions. The summary 

statistics we produce when calculating 

each fiscal year’s SSI fractions for FY 

2011 and beyond will include the 

number of SSI records received from 

SSA and will include at least all of the 

following information about SSI records 

that ‘‘matched’’ to Medicare inpatient 

hospital claims using the revised data 

matching process: (1) The number of SSI 

records matched using the new data 

matching process; (2) the number of 

records indicating that the individual is 

deceased; and (3) the number of records 

where at least one SSI monthly 

indicator reflects that the individual 

was in forced pay or forced due status. 

Additionally, we will produce summary 

statistics relating to SSI records that did 

not match to a Medicare inpatient claim, 

and will include at least all of the 

following information: (1) The number 

of unmatched SSI records with no Title 

II numbers; (2) the number of 

unmatched SSI records with one or 

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more Title II numbers; and (3) the 

number of records in the EDB with a 

HICAN, but no SSN. As these data will 

be used as part of our internal data 

validation process, we do not intend to 

provide them to the public. 

In response to the comment 

requesting that we ensure that every 

HICAN on the MedPAR file match a 

HICAN in the EDB, we agree that every 

HICAN in the MedPAR file should 

match a HICAN in the EDB. We believe 

that this is necessarily the case because 

a Medicare claim must be submitted 

with a valid HICAN in order to populate 

the MedPAR database. As we stated in 

the proposed rule, the EDB is CMS’ 

system of records for all individuals 

who have ever been enrolled in 

Medicare and includes SSNs as well as 

all of an individual’s (current and 

historical) HICANs. The MedPAR file 

includes the HICAN under which the 

Medicare beneficiary received hospital 

benefits for a particular inpatient stay. 

Therefore, there should not be a HICAN 

in the MedPAR file that does not match 

to a HICAN in the EDB. Because there 

is no apparent reason for there to be a 

case where a HICAN in the MedPAR file 

did not match to a HICAN in the EDB, 

we did not propose to match HICANs in 

the MedPAR file to those in the EDB. 

We also note that ‘‘Step 3’’ of our 

proposed process should ensure 

consistency between the HICANs in the 

EDB and those in the MedPAR file by 

‘‘equating’’ (or converting) the BIC 

identifiers in the EDB to the identifiers 

that are on the inpatient claim that is 

included in the MedPAR file. We also 

proposed that, for any SSI-eligible 

beneficiary who is receiving Medicare 

benefits based on his or her own 

account but whose records have not 

been matched in steps 1 or 2 of the 

proposed data matching process, we 

would attempt to match directly to the 

beneficiary’s HICAN in the MedPAR 

file. Specifically, we proposed to add an 

‘‘A’’ to all the SSNs in the SSI eligibility 

data file so that, if that individual was 

not captured by Steps 1 and 2 above, but 

the MedPAR file indicated that the 

person had received Medicare services, 

the individual would be included in the 

data match process by this third step. 

We believe that this step further helps 

us to capture any SSI-entitled 

individual who is receiving Medicare 

benefits based on his or her own 

account. However, after consideration of 

this public comment, in an attempt to 

provide even more assurances that our 

data matching process will yield 

accurate SSI fractions and capture all 

Medicare beneficiaries who were 

entitled to SSI at the time of their 

inpatient hospital stay, we will add this 

step to our validation procedures when 

conducting the data matching process. 

That is, we will test the MedPAR data 

to determine whether each HICAN in 

the MedPAR file matches to a HICAN in 

the EDB. In the unlikely event that we 

find a HICAN in the MedPAR file that 

we are not able to locate in the EDB, we 

will investigate the record to determine 

whether the HICAN is valid (in which 

case we would include it in our data 

matching process). However, if we find 

that the HICAN is not valid, we are 

adopting a policy to exclude that record 

from the data matching process, and we 

also will exclude that invalid record 

from the calculation of both the 

numerator and the denominator of the 

SSI fraction. 

With respect to the comment about 

FIPS, we note that the data matching 

process is consistent with the FIPS, to 

the extent the data used in the data 

matching process are covered under 

FIPS. 

In response to the comment that we 

populate the EDB with the monthly SSI 

indicators and grant access to certain 

members of the public so that hospitals 

could calculate their own SSI fractions, 

we note that the EDB contains several 

elements of protected personally 

identifiable information and is the sole 

system of records for Medicare 

eligibility. As such, we may only 

provide access to the EDB to persons 

authorized under the Privacy Act or the 

HIPAA Privacy Rule. However, we agree 

that there are advantages to allowing 

hospitals to compute their own SSI 

fraction and provide supporting 

documentation for the amount of DSH 

claimed, consistent with the process 

under the regulations for computing the 

Medicaid fraction. We are open to 

suggestions from the public regarding 

how CMS and SSA could provide the 

data necessary for hospitals to compute 

their own SSI fractions without 

compromising protected personally 

identifiable information and other 

protected information. We also welcome 

suggestions describing how CMS or its 

contractors should verify the accuracy 

of the hospitals’ computations without 

significantly increasing administrative 

burden. 

Comment: A few commenters 

requested that CMS release each 

hospital’s detailed SSI fraction data or 

give hospitals access to patient-level 

detail data, including SSI eligibility 

information, so each hospital could 

determine the accuracy of its SSI 

fractions. One commenter asked that 

CMS publish both the Federal fiscal 

year SSI fractions and each hospital’s 

cost reporting period SSI fractions. 

Some commenters asked that CMS 

provide assurances that there are no 

other data errors or omissions in the SSI 

file or the data matching process and 

asked that CMS work collaboratively 

with SSA to ensure the accuracy of the 

SSI file and to obtain SSNs for records 

in the EDB that are missing an SSN. 

Response: Under the proposed data 

matching process for FY 2011 and 

beyond, CMS will continue to share 

certain detailed SSI fraction data used to 

calculate the hospital’s SSI fraction as 

long as the hospital has a valid data use 

agreement with CMS and submits a 

request for such data. More detail on 

obtaining these data may be found on 

our Web site at: 

http://www.cms.gov/PrivProtectedData/ 

07_DSHRateData.asp and the data use 

agreement application may be found on 

our Web site at: http://cmsnet.cms.hhs.

gov/hpages/oisnew/sysndata/access_to_

data/cms-DUA.pdf. As we stated in the 

proposed rule, we publish these data for 

every hospital based on the Federal 

fiscal year but, under the regulations at 

§ 412.106(b)(3), a hospital with a cost 

reporting period that differs from the 

Federal fiscal year may request a revised 

SSI fraction that is based on its own cost 

reporting period rather than the Federal 

fiscal year. In such a case, we would 

revise the hospital’s SSI fraction using 

SSI and Medicare data derived from the 

data match process for the two Federal 

fiscal years that spanned the hospital’s 

cost reporting period. We believe that 

the statute governing the SSI fraction 

(section 1886(d)(5)(F)(vi)(I) of the Act) 

requires that one SSI fraction be 

calculated and used for purposes of 

determining a hospital’s 

disproportionate patient percentage. We 

believe that allowing individual 

hospitals to request their own cost 

reporting period SSI fractions is 

sufficient and goes above and beyond 

what the statute requires. The current 

policy of calculating all hospitals’ SSI 

fractions based on the Federal fiscal 

year does not require that we maintain 

a list of each individual hospital’s cost 

reporting period, nor does it require that 

we perform multiple iterations of the 

data matching process. It would be 

administratively unwieldy to not only 

track every hospital’s cost reporting 

period, but to calculate SSI fractions 

based on the many different cost 

reporting periods that hospitals across 

the country may have. 

With respect to the comment 

requesting that CMS work with SSA to 

ensure accuracy of the SSI file, we note 

that CMS has worked collaboratively 

with SSA throughout the development 

of the data matching process that was 

described in the FY 2011 proposed rule. 

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19As a side note, we have used the phrase ‘‘SSIeligible’’ interchangeably with the term ‘‘SSIentitled’’ in the FY 2011 proposed rule as well as 

prior proposed and final rules, but the statute 

requires that we include individuals who were 

entitled to SSI benefits in the SSI fractions. 

Although we have used these terms 

interchangeably, we intended no different meaning, 

and our policy has always been to include only 

Medicare beneficiaries who are entitled to receive 

SSI benefits in the numerator of the SSI fraction. 

We are committed to continue working 

with SSA to ensure that the file we 

receive from SSA for the purposes of the 

SSI fraction data matching process is 

complete and comprehensive and 

includes all individuals who are 

entitled to SSI. To our knowledge, there 

are no omissions or data errors on the 

SSI file that we receive from SSA. If we 

become aware of any such omissions or 

errors, we will work with SSA to correct 

them as quickly as possible. With 

respect to obtaining an SSN for each 

record in the EBD that does not have an 

SSN, we remind the commenters that 

‘‘of the more than 100 million records in 

the EDB, less than 0.07 percent (that is, 

fewer than 7 of every 10,000 records) 

relate to individuals for whom the EDB 

does not include a SSN for the person.’’ 

There are valid reasons that a person in 

the EDB may not have an SSN. For 

example, as we noted in the proposed 

rule, a person could live in a country 

other than the United States, but be 

entitled to Medicare benefits through 

his or her spouse. Another example of 

a record in the EDB that may validly 

lack an SSN is if the person filed for a 

spouse’s or widow/er’s benefit prior to 

the 1980’s because SSA did not require 

that the person filing for benefits have 

an SSN at that time. There may be other 

valid reasons that a record in the EDB 

does not have an SSN, and as we 

previously stated, less than 0.07 percent 

of records in the EDB lack an SSN. We 

do not believe that it is possible to add 

an SSN for every record if the person 

became entitled to Title II or Medicare 

benefits without ever applying or 

receiving an SSN. However, we note 

that the EDB is populated by SSA on a 

frequent basis; to the extent that a 

record is added to the EDB, the SSN that 

SSA has on file for that person should 

be included in the EDB as well. 

Moreover, even if there were instances 

in which a record in the EDB was 

missing an SSN, the lack of an SSN for 

certain records in the EDB should have 

no effect on the data matching process 

because, in order to be entitled to SSI 

benefits, an individual must have an 

SSN. That is, a person who does not 

have an SSN, by definition, cannot be 

entitled to SSI. (We refer readers to the 

proposed rule language at 75 FR 24003 

that states: ‘‘However, if an applicant for 

SSI benefits does not already have a 

SSN, SSA then assigns a SSN to the 

person.’’) Thus, in the SSI eligibility 

data that SSA provides to CMS, each 

individual identified in those data 

should have a unique SSN. 

Additionally, as we stated under Step 2 

of the proposed data matching process, 

if an individual is entitled to SSI 

benefits and Medicare benefits, the new 

format of the SSI eligibility file will 

contain up to 10 Title II numbers and, 

if they have not already been captured, 

each of those numbers will be included 

in our revised match process. Even if an 

individual does not have a SSN in the 

EDB, this second step should ensure 

that our revised match process will 

include that individual. 

In response to the comment that CMS 

share the SSI file data with hospitals, 

the SSI program is under the authority 

of SSA and CMS is not authorized to 

share SSA data. Additionally, CMS is 

only permitted to use the SSI data for 

the sole purpose of conducting the data 

match process and calculating the SSI 

fractions. To the extent that a third party 

wishes to obtain direct access to the SSI 

file, it must contact SSA directly and 

meet SSA’s requirements to become an 

authorized user. 

Comment: One commenter stated that 

CMS uses total (that is, ‘‘paid and 

unpaid’’) Medicare days in the 

denominator of the SSI fraction, but 

uses paid SSI days in the numerator of 

the SSI fraction. The commenter 

requested that CMS interpret the word 

‘‘entitled’’ to mean ‘‘paid’’ for both SSIentitled days used for the numerator 

and Medicare-entitled days used in the 

denominator, or alternatively, that CMS 

include both paid and unpaid days for 

both SSI entitlement and Medicare 

entitlement such that there is 

consistency between the numerator and 

the denominator of the SSI fraction. The 

commenter stated that there were 

several SSI codes that represent 

individuals who were eligible for SSI, 

but not eligible for SSI payments, that 

should be included as SSI-entitled for 

purposes of the data matching process. 

Specifically, the commenter stated that 

at least the following codes should be 

considered to be SSI-entitlement: 

• E01 and E02 

• N06, N10, N11, N18, N35, N39, 

N42, N43, N46, N50, and N54 

• P01 

• S04, S05, S06, S07, S08, S09, S10, 

S20, S21, S90, and S91 

• T01, T20, T22, and T31 

Response: In response to the comment 

that we are incorrectly applying a 

different standard in interpreting the 

word ‘‘entitled’’ with respect to SSI 

entitlement versus Medicare 

entitlement, we disagree. The 

authorizing DSH statute at section 

1886(d)(5)(F)(vi)(I) of the Act limits the 

numerator to individuals entitled to 

Medicare benefits who are also ‘‘entitled 

to supplemental security income 

benefits (excluding any State 

supplementation)’’ (emphasis added).19

Consistent with this requirement, we 

have requested, and are using in the 

data matching process, those SSA codes 

that reflect ‘‘entitlement to’’ receive SSI 

benefits. Section 1602 of the Act 

provides that ‘‘[e]very aged, blind, or 

disabled individual who is determined 

under Part A to be eligible on the basis 

of his income and resources shall, in 

accordance with and subject to the 

provisions of this title, be paid benefits 

by the Commissioner of the Social 

Security’’ (emphasis added). However, 

eligibility for SSI benefits does not 

automatically mean that an individual 

will receive SSI benefits for a particular 

month. For example, section 1611(c)(7) 

of the Act provides that an application 

for SSI benefits becomes effective on the 

later of either the month following the 

filing of an application for SSI benefits 

or the month following eligibility for 

SSI benefits. 

On the other hand, section 226 of the 

Act provides that an individual is 

automatically ‘‘entitled’’ to Medicare 

Part A when the person reaches age 65 

and is entitled to Social Security 

benefits under section 202 of the Act (42 

U.S.C. 402) or becomes disabled and has 

been entitled to disability benefits under 

section 223 of the Act (42 U.S.C. 423) 

for 24 calendar months. Section 226A of 

the Act provides that qualifying 

individuals with end-stage renal disease 

shall be entitled to Medicare Part A. In 

addition, section 1818(a)(4) of the Act 

provides that, ‘‘unless otherwise 

provided, any reference to an individual 

entitled to benefits under [Part A] 

includes an individual entitled to 

benefits under [Part A] pursuant to 

enrollment under [section 1818] or 

section 1818A.’’ We believe that 

Congress used the phrase ‘‘entitled to 

benefits under part A’’ in section 

1886(d)(5)(F)(vi) of the Act to refer 

individuals who meet the criteria for 

entitlement under these sections. 

Moreover, unlike the SSI program (in 

which entitlement to receive SSI 

benefits is based on income and 

resources and, therefore, can vary from 

time to time), once a person becomes 

entitled to Medicare Part A, the 

individual does not lose such 

entitlement simply because there was 

no Medicare Part A coverage of a 

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specific inpatient stay. Entitlement to 

Medicare Part A reflects an individual’s 

entitlement to Medicare Part A benefits, 

not the hospital’s entitlement or right to 

receive payment for services provided to 

such individual. Such Medicare 

entitlement does not cease to exist 

simply because Medicare payment for 

an individual inpatient hospital claim is 

not made. Again, we are bound by 

section 1886(d)(5)(F)(vi)(I) of the Act, 

which defines the SSI fraction 

numerator as the number of SSI-entitled 

inpatient days for persons who were 

‘‘entitled to benefits under [P]art A,’’ and 

the denominator as the total number of 

inpatient days for individuals who were 

‘‘entitled’’ to Medicare Part A benefits. 

In response to the comment about 

specific SSI status codes, SSA has 

provided information regarding all of 

the SSI status codes mentioned by the 

commenter to assist in the 

determination of whether any of these 

codes represent individuals who were 

entitled to SSI benefits for the purposes 

of calculating the SSI fraction for 

Medicare DSH. With respect to the 

codes that begin with the letter ‘‘T,’’ SSA 

informed us that all of the codes 

represent individuals whose SSI 

entitlement was terminated. Code ‘‘T01’’ 

represents records that were terminated 

because of the death of the individual, 

but we confirmed that this code would 

not be used until the first full month 

after the death of the individual. That is, 

for example, if a Medicare individual 

was entitled to SSI during the month of 

October, was admitted to the hospital on 

October 1 and died in the hospital on 

October 15, the individual would show 

up as entitled to SSI for the entire 

month of October on the SSI file (code 

T01 would not be used on the SSI file 

until November) and 15 Medicare/SSI 

inpatient hospital days for that 

individual would be counted in the 

numerator and the denominator of the 

SSI fraction for that hospital. 

Codes beginning with the letter ‘‘S’’ 

reflect records that are in a ‘‘suspended’’ 

status and, according to SSA, do not 

represent individuals who are entitled 

to SSI benefits. 

SSA maintains that code ‘‘P01’’ is 

obsolete and has not been used since the 

mid-1980s. Therefore, it would not be 

used on any SSI files reflecting SSI 

entitlement for FY 2011 and beyond. 

Codes that begin with the letter ‘‘N’’ 

represent records on ‘‘nonpayment’’ and 

are not used for individuals who are 

entitled to SSI benefits. 

Code ‘‘E01’’ represents an individual 

who is a resident of a medical treatment 

facility and is subject to a $30 payment 

limit, but has countable income of $30 

or more. Such an individual is not 

entitled to receive SSI payment. 

Alternatively, an individual who is a 

resident of a medical treatment facility 

and is subject to a $30 payment limit, 

but does not have countable income of 

at least $30, would be reflected on the 

SSI file as a ‘‘C01’’ (which denotes SSI 

entitlement) for any month in which the 

requirements described in this sentence 

are met. Code ‘‘E02’’ is used to identify 

a person who is not entitled to SSI 

payments in the month in which that 

code is used pursuant to section 

1611(c)(7) of the Act, which provides 

that an application for SSI benefits shall 

be effective on the later of (1) the first 

day of the month following the date the 

application is filed, or (2) the first day 

of the month following the date the 

individual becomes eligible for SSI 

based on that application. Such an 

individual is not entitled to SSI benefits 

during the month that his or her 

application is filed or is determined to 

be eligible for SSI, but, for the following 

month, would be coded as a ‘‘C01’’ 

because he or she would then be 

entitled to SSI benefits. 

Therefore, both codes E01 and E02 

represent individuals who are not 

entitled to SSI benefits and are reflected 

accordingly on the SSI file. If the 

individual’s entitlement to SSI benefits 

is initiated the ensuing month, that 

individual would then be coded as a 

‘‘C01’’ on the SSI file and would be 

included as SSI-entitled for purposes of 

the data matching process. 

As we have described above, none of 

the SSI status codes that the commenter 

mentioned would be used to describe an 

individual who was entitled to receive 

SSI benefits during the month that one 

of those status codes was used. SSI 

entitlement can change from time to 

time, and we believe that including SSI 

codes of C01, M01, and M02 accurately 

captures all SSI-entitled individuals 

during the month(s) that they are 

entitled to receive SSI benefits. 

After consideration of the public 

comments we received, we are adopting 

the proposed data matching process for 

FY 2011 and beyond as final. The only 

modification we are making to the 

proposed data matching process is 

adopting a policy to exclude a record 

from the data matching process if we 

find a HICAN in the MedPAR file that 

we are not able to locate in the EDB, 

which is an extremely unlikely situation 

as noted in the prior discussion in this 

final rule. We are adopting this 

additional step in our validation process 

in response to public comments to 

provide even more assurances that our 

data matching process will yield 

accurate SSI fractions and capture all 

Medicare beneficiaries who were 

entitled to SSI at the time of their 

inpatient hospital stay. 

c. Timing of the Match 

One of the district court’s findings in 

the Baystate decision was that CMS did 

not use a more recent SSI entitlement 

file to calculate the provider’s SSI 

fractions. As a result, it might be 

possible that if a beneficiary treated at 

the hospital was later determined 

retroactively to be SSI entitled, or if a 

suspension of the individual’s SSI 

payments was later lifted, that inpatient 

stay might not be included in the 

numerator of the SSI fraction. We 

believe that, in our recalculation of the 

Baystate hospital’s SSI fractions and 

DSH payments, retroactive SSI 

entitlement determinations and the 

lifting of SSI payment suspensions were 

not an issue due to the long period of 

time that elapsed between the provider’s 

1993 through 1996 fiscal years and our 

use of updated SSI entitlement data 

during our completion of the revised 

match process in 2009. However, we 

stated our belief that further 

consideration of the timing of both the 

SSI entitlement information that SSA 

provides to CMS and our proposed 

revised match process for FY 2011 and 

subsequent fiscal years was warranted. 

At present, SSA provides an annual 

file to CMS with SSI entitlement 

information that is current through 

March 31, or 6 months after the end of 

the prior Federal fiscal year on 

September 30 (70 FR 47278, 47440, 

August 12, 2005). Based on this date, for 

a hospital with an October 1 to 

September 30 cost reporting period, the 

SSI entitlement information we 

currently use contains 6 to 18 months 

worth of retroactive SSI entitlement 

determinations and payment suspension 

closures—6 months from September 

(that is, the end of the cost reporting 

period), and 18 months from October 

(that is, the beginning of the cost 

reporting period). The time lag between 

the close of a hospital’s cost reporting 

period and the date that CMS receives 

SSI entitlement information could 

actually be longer or shorter for some 

hospitals, depending on the hospital’s 

specific cost reporting period. The SSI 

fractions are generally based on the 

Federal fiscal year; however, under the 

regulations at § 412.106(b)(3), a hospital 

with a cost reporting period that differs 

from the Federal fiscal year may request 

a revised SSI fraction that is based on 

its own cost reporting period rather than 

the Federal fiscal year. In such a case, 

we would revise the hospital’s SSI 

fraction using SSI and Medicare data 

derived from the data match process for 

the two Federal fiscal years that 

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20Teaching hospitals have an incentive to submit 

these claims as close as possible to the date of the 

patient’s discharge because these claims are used, 

in part, to compute those hospitals’ indirect 

graduate medical education payments. The claims 

are also used for a teaching hospital’s direct 

medical education payments. Non-teaching DSH 

hospitals do not have the same direct incentives to 

submit these claims as close as possible to the date 

of the patient’s discharge, but to the extent that the 

MA beneficiary is also SSI eligible, it would be to 

the hospital’s advantage to ensure these claims are 

included in the match process. However, 

nonteaching DSH hospitals are required to submit 

MA claims for all MA beneficiaries, regardless of 

whether the beneficiaries were eligible for SSI 

benefits. 

spanned the hospital’s cost reporting 

period. 

As we stated in the FY 2006 IPPS 

final rule, we believe that administrative 

finality with respect to the calculation 

of a hospital’s SSI fraction is important 

(70 FR 47440). We continue to believe 

that it is important to find an 

appropriate balance between 

administrative finality (that is, the final 

settlement of a hospital’s cost report) 

and the inclusion of retroactive SSI 

eligibility determinations and the lifting 

of SSI payment suspensions by using 

the best and latest available SSI 

eligibility data at the time of cost report 

settlement. Further, we believe it is 

important to account for the time period 

in which hospitals are allowed to 

submit timely Medicare claims in order 

to ensure that the point in time that we 

perform the match process includes as 

many timely submitted inpatient 

hospital claims as are administratively 

practicable. 

In accordance with the regulations at 

42 CFR 424.44 and the Medicare Claims 

Processing Manual (Pub. 100–04), 

Chapter 1, Section 70, a hospital must 

generally file a claim by December 31 of 

the following year (for services 

furnished during the first 9 months of a 

calendar year) and by December 31 of 

the second following year (for services 

provided during the last 3 months of the 

calendar year). Section 6404 of the 

Affordable Care Act recently changed 

these deadlines to no more than ‘‘1 

calendar year after the date of service’’ 

effective for services provided on or 

after January 1, 2010. Therefore, 

Medicare claims for hospital services 

furnished in FY 2011 would have to be 

submitted no later than September 30, 

2012. 

Generally speaking, providers have a 

financial incentive to submit fee-forservice claims as close as possible to the 

date of the patient’s discharge, and 

providers have no incentive to wait 

until the claims submission deadline. 

Thus, while conducting a data match 

with MedPAR files that were updated 6 

months after the end of the Federal 

fiscal year may not capture all of a 

provider’s Medicare inpatient claims, 

we believe that, in large part, the 

provider’s fee-for-service claims are very 

likely to be included in that MedPAR 

file. The same may not be true for the 

‘‘information only’’ or ‘‘no pay’’ claims 

that hospitals are required to submit to 

their fee-for-service contractor for 

Medicare Advantage (MA) beneficiaries. 

Because claims for MA beneficiaries are 

paid by MA plans and not the fee-forservice contractor, hospitals may not 

have the same incentive to file these 

claims as close as possible to the date 

of the patient’s discharge.20 However, in 

accordance with Transmittal 1396 

(issued December 14, 2007) and 

Transmittal 1695 (issued March 6, 

2009), which changed the instructions 

in the Medicare Claims Processing 

Manual (Pub. 100–04), all IPPS 

hospitals that do not qualify for IME 

payments, direct GME payments, or 

nursing and allied health (N&AH) 

payments are specifically directed to 

submit informational-only claims for all 

MA inpatients to ensure that all data for 

MA beneficiaries are included in the SSI 

fraction. Accordingly, we indicated that 

we also were considering changes to the 

timing of the data match process to 

ensure that all of a hospital’s MA claims 

are included in the revised matching 

process, given the current timing 

requirements for when hospitals must 

submit these claims after the time of the 

patient’s discharge. 

In addition, in matching eligibility 

records for Medicare beneficiaries and 

SSI recipients to calculate the SSI 

fractions for FY 2011 and future fiscal 

years, we proposed to use more recent 

SSI eligibility information from SSA 

and a more updated version of the 

MedPAR file that is likely to contain 

more claims data. We currently use SSI 

eligibility data and MedPAR claims data 

that are updated 6 months after the 

close of the Federal fiscal year. We 

proposed to use, for FY 2011 and 

subsequent years, SSI eligibility data 

files compiled by SSA and MedPAR 

claims information that are updated 15 

months after the close of each Federal 

fiscal year. This proposal would more 

closely align the timing of the match 

process with the timing of our 

requirements (described above) for the 

timely submission of claims. For 

example, under our proposal, to 

calculate the FY 2011 SSI fractions, we 

would use the December 2012 update of 

the FY 2011 MedPAR file (containing 

claims information for patient 

discharges between October 1, 2010 and 

September 30, 2011), and a December 

2012 SSI eligibility file (containing FY 

2011 SSI eligibility data updated 

through December 2012, with a lag time 

relative to the Federal fiscal year of 

between 15 and 27 months). We expect 

that the FY 2011 SSI fractions would be 

published around March 2013 and 

would be used to settle cost reports for 

cost reporting periods that began in FY 

2011. In addition, we would continue 

our practice of using each hospital’s 

latest available SSI fraction in 

determining IPPS interim payments 

from the time that the SSI fractions are 

published until the SSI fractions for the 

next fiscal year are published. 

Under current law as amended by 

section 6404 of the Affordable Care Act, 

Medicare inpatient claims for FY 2011 

can be submitted no later than 1 

calendar year from the date of service or 

by September 30, 2012, for claims with 

a September 30, 2011 date of service. 

Therefore, we believe that using the 

version of MedPAR that is updated 15 

months after the end of the fiscal year 

would contain more accurate and 

complete inpatient claims information, 

as we would be using claims data from 

3 months after the filing deadline for 

claims with a date of service occurring 

on the last day of the second preceding 

fiscal year. Furthermore, a later update 

of the SSI eligibility file would contain 

more accurate eligibility information 

and would account for all retroactive 

changes in SSI eligibility and the lifting 

of SSI payment suspensions through 

that date. 

We proposed that the FY 2011 SSI 

fractions would be used to determine 

the hospitals’ Medicare DSH payments 

for cost reporting periods beginning in 

FY 2011 (that is, October 1, 2010 

through September 30, 2011). The 

proposed timing of the data match for 

the SSI fractions, effective for FY 2011, 

would result in FY 2011 SSI fractions 

being published around March 2013 and 

would generally coincide with the final 

settlement of cost reports for cost 

reporting periods beginning in FY 2011. 

We believe that, by calculating SSI 

fractions on the basis of SSI eligibility 

data and MedPAR claims data that are 

updated 15 months after the end of the 

Federal fiscal year, we would be using 

the best data available to us, given the 

deadlines for the submission and final 

settlement of Medicare cost reports. Cost 

reports must be submitted to the 

Medicare fiscal intermediary or MAC no 

later than 5 months after the end of the 

provider’s cost reporting period; the 

fiscal intermediary or MAC must make 

a determination of cost report 

acceptability within 30 days of receipt 

of the provider’s cost report (42 CFR 

413.24(f)(2)(i) and 413.24(f)(5)(iii)). In 

accordance with the Medicare Financial 

Manual (Pub. 100–06), Chapter 8, 

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Section 90, the fiscal intermediary or 

MAC is expected to settle each cost 

report that is not scheduled for audit 

within 12 months of the contractor’s 

acceptance of the cost report. We 

believe that our proposed timing of the 

data match would achieve an 

appropriate balance between accounting 

for additional retroactive SSI eligibility 

determinations and the lifting of SSI 

payment suspensions using all timely 

submitted Part A inpatient claims, and 

facilitating administrative finality 

through the timely final settlement of 

Medicare cost reports. 

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BILLING CODE 4120–01–C 

Comment: Many commenters 

supported the proposed timing of the 

data matching process. Some 

commenters asked that CMS explain 

how cost report settlement would 

coincide with the proposed timing. 

Specifically, commenters asked whether 

contractors would issue Notices of 

Program Reimbursement prior to the 

availability of the SSI fractions. One 

commenter asked that CMS calculate an 

additional SSI fraction at the time of 

cost report audit for cost reports that are 

audited after the initial SSI fractions are 

published. One commenter noted that 

under the proposed timeline for 

calculating the SSI fractions, some 

hospitals would have already submitted 

their cost reports and had desk reviews 

and audits before the release of the SSI 

fractions. In particular, some 

commenters were concerned that 

hospitals with fiscal years beginning 

between October 1 and December 1 

would have their cost reports settled 

before the release of the SSI fractions. 

One commenter cited Medicare 

Financial Management Manual 

Publication 100–06, Chapter 8, Section 

90 that requires final settlement of cost 

reports within 12 months of acceptance. 

Commenters are concerned that the 12- 

month cost report settlement deadline 

may occur before the publication of the 

SSI fractions for certain cost reporting 

periods. Commenters questioned 

whether CMS will instruct Medicare 

contractors to hold the Notice of 

Program Reimbursement until the SSI 

fractions are released or will the 

contractors settle cost reports using the 

prior year’s SSI fraction. In addition, 

commenters questioned whether 

contractors would automatically re-open 

cost reports to use the current year’s SSI 

fractions if they were settled using the 

prior year’s SSI fraction before the 

publication of the current year’s SSI 

fractions. 

Response: We appreciate the support 

for our proposal to change the timing of 

our match and calculation of the SSI 

fractions from 6 months after the end of 

the Federal fiscal year to 15 months 

after the end of the Federal fiscal year. 

We believe that our proposal to conduct 

the SSI eligibility match and calculate 

the SSI fractions 15 months after the 

end of the Federal fiscal year will 

ensure that the SSI fractions are 

calculated with the best data available 

to us at that time. We note that the 15- 

month timeframe proposed is an 

approximation and subject to the data 

validation protocols as described 

previously in this final rule. We believe 

that the match will be conducted no 

sooner than 15 months after the end of 

the Federal fiscal year and the match 

process, including all appropriate 

validation steps as finalized, will be 

performed as efficiently as possible and 

in accordance with the production 

cycles of the required data files. 

Hospitals submit their cost reports 

based on their cost reporting period, 

which varies by hospital. Thus, it would 

be administratively unwieldy to 

conduct the SSI match in ‘‘real-time’’ 

and calculate an individual hospital’s 

SSI fraction whenever that hospital’s 

cost report needed to be settled. By 

calculating the SSI fractions 15 months 

after the end of the Federal fiscal year, 

we believe that we are striking an 

appropriate balance between the best 

data available to us at the time and the 

agency’s operational needs, using the 

best available data that does not unduly 

hinder the cost report settlement 

process. As we discussed in the 

proposed rule, hospital cost reports are 

submitted to the Medicare contractor no 

later than 5 months after the end of the 

provider’s cost reporting period. The 

Medicare contractor must accept the 

cost report within 30 days of receipt (in 

accordance with 42 CFR 413.24(f)(2)(i) 

and 413.24(f)(5)(iii)), and is expected to 

settle the cost reports that are not 

audited within 12 months of acceptance 

of the cost report (in accordance with 

Medicare Financial Management 

Manual Publication 100–06, Chapter 8, 

Section 90). Generally, hospital cost 

reports are not final settled without the 

SSI fraction that corresponds to the 

fiscal year in which the cost report 

began. Commenters raised concerns that 

hospitals with fiscal years beginning 

October 1, 2010 or December 1, 2010 

(thus, ending September 30, 2011 or 

November 30, 2011) would be settled 

before the release of the SSI fractions. 

Those cost reports would be submitted 

by the end of February 2012 or April 

2012; they would be accepted by March 

2012 or May 2012 and would need to be 

final settled no later than March 2013 or 

May 2013. We believe that under our 

proposal to calculate the SSI match 15 

months after the end of the Federal 

fiscal year, cost reports will be settled 

with the appropriate SSI fraction within 

the timeframe of cost report settlement 

and that cost reports will be final settled 

with the SSI fraction of the given year. 

In the case where a cost report is 

required to be settled before the SSI 

fractions are published, CMS may 

instruct that the contractors settle the 

cost report with the latest SSI fraction 

available and may reopen the cost report 

to issue a revised notice of program 

reimbursement once the appropriate SSI 

fraction is available, or we may instruct 

the contractors to wait to settle the cost 

report until the appropriate SSI 

fractions are published. We will 

continue to evaluate what would be the 

best approach in such a scenario. 

Comment: One commenter stated that 

the chart in the proposed rule that 

displayed the timeline for the revised 

match process indicated that, for FY 

2011, the timely filing of claims ends in 

December 2012 when it should be 

September 2012. The commenter asked 

that CMS correct the deadline for the 

timely filing of claims for FY 2011 to 

read September 2012. 

Response: We agree with the 

commenter. Under section 6404 of the 

Affordable Care Act, the deadline for 

timely filing of claims has been revised 

to be one year after the end of the 

Federal fiscal year, effective January 1, 

2010. Therefore, hospitals will have 

until September 2012 to file their FY 

2011 claims. The chart has been revised 

in this final rule to reflect this change. 

Although the deadline for the timely 

filing of claims is 12 months after the 

end of the Federal fiscal year, we are 

finalizing our proposal to conduct the 

data matching process and calculate SSI 

fractions approximately 15 months after 

the end of the Federal fiscal year to 

ensure we have captured all of the 

inpatient claims and to capture as many 

retroactive SSI entitlement 

determinations as possible. 

After consideration of the public 

comments that we received, we are 

adopting a policy to conduct the data 

matching process approximately 15 

months after the end of the Federal 

fiscal year. 

5. CMS Ruling 1498–R 

On April 28, 2010, the CMS 

Administrator issued a CMS Ruling, 

CMS–1498–R (Ruling), that addresses 

three Medicare DSH issues, including 

CMS’ process for matching Medicare 

and SSI eligibility data and calculating 

hospitals’ SSI fractions. With respect to 

the data matching process issue, the 

Ruling requires the Medicare 

administrative appeals tribunal (that is, 

the Administrator of CMS, the PRRB, 

the fiscal intermediary hearing officer, 

or the CMS reviewing official) to 

remand each qualifying appeal to the 

appropriate Medicare contractor. The 

Ruling also explains how, on remand, 

CMS and the contractor will recalculate 

the provider’s DSH payment adjustment 

and make any payment deemed owing. 

The Ruling further provides that CMS 

and the Medicare contractors will apply 

the provisions of the Ruling on the data 

matching process issue (and two other 

DSH issues, as applicable), in 

calculating the DSH payment 

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adjustment for each hospital cost 

reporting period where the contractor 

has not yet final settled the provider’s 

Medicare cost report through the 

issuance of an initial notice of program 

reimbursement (NPR) (42 CFR 

405.1801(a) and 405.1803). 

More specifically, the Ruling provides 

that, for qualifying appeals of the data 

matching issue and for cost reports not 

yet final settled by an initial NPR, CMS 

will apply any new data matching 

process that is adopted in the 

forthcoming FY 2011 IPPS final rule for 

each appeal that is subject to the Ruling. 

The data matching process provisions of 

the Ruling would apply to properly 

pending appeals and open cost reports 

for cost reporting periods beginning 

prior to October 1, 2010 (that is, those 

preceding the effective date of the FY 

2011 IPPS final rule). 

The Ruling further states that, if a new 

data matching process is not adopted in 

the forthcoming FY 2011 IPPS final rule, 

CMS would apply to claims subject to 

the Ruling the same data matching 

process as the agency used to 

implement the Baystate decision by 

recalculating that provider’s SSI 

fractions. As indicated above, we have 

adopted the proposed data matching 

process for FY 2011 and beyond as final. 

The only modification we are making to 

the proposed matching process is 

adopting a policy to exclude a record 

from the data matching process if we 

find a HICAN in the MedPAR file that 

we are not able to locate in the EDB, 

which is an extremely unlikely situation 

as noted in the prior discussion in this 

final rule. We are adopting this 

additional step in our validation process 

to respond to public comment and 

provide even more assurances that our 

data matching process will yield 

accurate SSI fractions and capture all 

Medicare beneficiaries who were 

entitled to SSI at the time of their 

inpatient hospital stay. The same data 

matching process will be used to 

calculate SSI fractions for cost reporting 

periods covered under the Ruling. 

Comment: Several commenters 

addressed a variety of issues related to 

the Ruling. 

Response: We note that Administrator 

Rulings are not subject to public 

comment and that we did not seek 

public comment on CMS Ruling 1498– 

R. Accordingly, we are not summarizing 

or providing responses to comments 

related to the Ruling in this final rule. 

6. Clarification of Language on Inclusion 

of Medicare Advantage Days in the SSI 

Fraction of the Medicare DSH 

Calculation 

In the FY 2005 IPPS final rule (69 FR 

49099), we discussed in the preamble 

the codification of our policy of 

including the days associated with 

Medicare + Choice (now Medicare 

Advantage (MA)) beneficiaries under 

Medicare Part C in the SSI fraction of 

the DSH calculation. In that rule, we 

indicated that we were revising the 

regulation text at § 412.106(b)(2)(i) to 

incorporate this policy. However, we 

inadvertently did not make a change in 

the regulation text to conform to the 

preamble language. We also 

inadvertently did not propose to change 

§ 412.106(b)(2)(iii) in the FY 2005 final 

rule, although we intended to do so. 

Accordingly, in the FY 2007 IPPS final 

rule (72 FR 47384), we made a technical 

correction to amend the regulations at 

§ 412.106(b)(2)(i) and § 412.106(b)(2)(iii) 

to make them consistent with the 

preamble language of the FY 2005 IPPS 

final rule and to conform to the policy 

implemented in that rule. Section 

412.106(b)(2)(i) of the regulations 

discusses the numerator of the SSI 

fraction of the Medicare 

disproportionate patient percentage 

(DPP) calculation, while 

§ 412.106(b)(2)(iii) of the regulations 

discusses the denominator of the SSI 

fraction of the Medicare DPP. 

In the proposed rule, we indicated 

that we were aware that there might be 

some confusion about our policy to 

include MA days in the SSI fraction, 

specifically regarding whether we have 

implied that MA beneficiaries are not 

actually ‘‘entitled to receive benefits 

under Part A’’ by using the word ‘‘or’’ in 

§ 412.106(b)(2)(i)(B) and § 412.106 

(b)(2)(iii)(B) with respect to MA days. 

We note that, in the FY 2005 final rule, 

we stated that we believed that 

Medicare + Choice (now MA) 

beneficiaries are patients who are 

entitled to benefits under Medicare Part 

A. With respect to the change to the 

regulatory text that we intended to make 

in the FY 2005 IPPS final rule, we stated 

‘‘* * * we are adopting a policy to 

include patient days for M+C 

beneficiaries in the Medicare fraction’’ 

(69 FR 49099) (emphasis added). In 

order to further clarify our policy that 

patients days associated with MA 

beneficiaries are to be included in the 

SSI fraction because they are still 

entitled to benefits under Medicare Part 

A, in the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24006 and 24007), 

we proposed to replace the word ‘‘or’’ 

with the word ‘‘including’’ in 

§ 412.106(b)(2)(i)(B) and 

§ 412.106(b)(2)(iii)(B). 

Comment: We did not receive any 

public comments on this specific 

proposal. However, several commenters 

urged CMS to reconsider its policy to 

include Medicare Advantage days and 

days for which a beneficiary exhausted 

his or her Medicare inpatient hospital 

benefits in the SSI fraction. The 

commenters stated that such days did 

not represent days that individuals were 

‘‘entitled to benefits under Medicare 

[P]art A’’ (because the patient days were 

not paid for under Medicare Part A) and 

as such, should not be included in 

either the numerator or denominator of 

the SSI fraction. The commenters stated 

that, to the extent that dually eligible 

(that is, simultaneously enrolled in 

Medicare and Medicaid) Medicare 

Advantage patients or exhausted 

benefits patients had an inpatient 

hospital stay, those days should be 

included in the Medicaid fraction. 

Additionally, a commenter stated that 

CMS did not have sufficient processes 

in place to assure that the agency is 

properly counting all of the days in the 

SSI fraction and ‘‘is not double counting 

any of them in both the numerator of the 

Medicaid fraction and the denominator 

of the SSI fraction.’’ The commenter 

asked that CMS address why it ‘‘* * * 

thinks it need not properly capture all 

of these days in the denominator of the 

SSI fraction or the precise steps that 

CMS has or will take to assure that the 

agency is capturing all of these days in 

that denominator.’’ 

Response: We did not propose any 

changes to the categories of Medicare 

days that we include in the SSI 

fractions. Specifically, the proposed rule 

states that ‘‘We did not propose any 

changes with respect to the final step in 

determining the SSI fraction. As we 

stated in the proposed rule, to calculate 

the numerator of the SSI fraction, CMS 

will continue to sum a hospital’s 

Medicare inpatient days in the acute 

care part of the hospital (excluding 

IPPS-exempt units such as rehabilitation 

and psychiatric units) where the 

Medicare beneficiary was 

simultaneously entitled to SSI benefits. 

To calculate the denominator, CMS will 

continue to sum a hospital’s total 

Medicare inpatient days in the acute 

care part of the hospital.’’ 

Accordingly, we are not responding to 

these comments in detail. However, we 

disagree that Medicare Advantage days 

and exhausted benefit days should be 

excluded from the SSI fraction. We 

believe that the days of all patients who 

are entitled to SSI and Medicare Part A 

should be included in the Medicare 

fraction. We adopted a policy to include 

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exhausted benefit and other noncovered 

days in the SSI fraction, after notice and 

comment rulemaking, in FY 2005 (69 FR 

49099). We adopted a policy to include 

Medicare health maintenance 

organization (HMO) days in the 

September 4, 1990 final IPPS rule (55 

FR 35994), and this longstanding policy 

has continued as Medicare HMOs have 

evolved, and these patient days have 

been included with every iteration of 

Medicare HMOs, including patient days 

for beneficiaries entitled to Medicare 

Part A but who elect to obtain their 

benefits through Medicare Advantage. 

As discussed above, we codified this 

policy in our regulations in the FY 2005 

IPPS final rule (69 FR 49099). 

As we have previously explained, we 

believe that, in the statutory section 

which sets forth the Medicare DSH 

fraction, the phrase ‘‘entitled to benefits 

under [P]art A’’ refers to individuals 

who are entitled to Part A benefits 

under Part A pursuant to section 226, 

section 226A, section 1818, or section 

1818A (42 U.S.C. 426, 42 U.S.C. 426–1, 

42 U.S.C. 1395i–2, or 42 U.S.C. 1395i– 

2(a), respectively). We note that the 

statute uses mandatory language, 

unambiguously stating that qualifying 

individuals ‘‘shall be entitled to benefits 

under [P]art A.’’ Patients who have 

exhausted their Part A hospital benefits 

or enrolled in Medicare Advantage still 

meet the statutory criteria for 

entitlement to Medicare Part A benefits, 

even though Medicare Part A does not 

directly pay for a particular inpatient 

day. 

With respect to exhausted benefit 

days, we note that a beneficiary’s right 

to have Medicare make a payment is 

subject to the limitations in Part A. The 

rule that Medicare will not pay for days 

after Part A hospital benefits are 

exhausted is an example of one of those 

restrictions. Thus, a patient remains 

entitled to benefits under Part A on days 

where Medicare does not make a 

payment because of those limitations, 

and consistent with section 

1886(d)(5)(F)(vi)(I) of the Act, these days 

should be included in the SSI fraction. 

With respect to the days of patients 

enrolled in Medicare Advantage plans, 

we believe that the sections of the Social 

Security Act which create Part C clearly 

demonstrate that Part C enrollees 

remain entitled to Medicare Part A 

benefits, and we do not believe that 

Congress intended to alter the 

calculation of the DSH payment 

adjustment when it enacted Medicare 

Part C. Moreover, we also believe that 

the commenters’ objections to including 

the days of patients enrolled in 

Medicare Advantage would be equally 

applicable to patients enrolled in 

section 1876 risk plans, but section 1876 

of the Act repeatedly makes clear that 

patients enrolled in section 1876 risk 

plans remain entitled to benefits under 

Medicare Part A. 

Finally, while the commenters suggest 

that patients who have exhausted their 

Part A hospital benefits or enrolled in 

Medicare Advantage should be counted 

in the Medicaid fraction, we note that 

not all patients who are entitled to SSI 

are also eligible for Medicaid. Thus, 

adopting the commenters’ proposal 

would result in some patients entitled to 

SSI and Medicare Part A not being 

counted in the numerator of either of 

the DSH fractions. We believe that this 

result would be contrary to 

Congressional intent. Consequently, we 

see no reason to revise our policy at this 

time. 

In response to the comment 

requesting that CMS assure that it is 

including all exhausted days and 

Medicare Advantage days in the SSI 

fraction and asserting that CMS does not 

have sufficient processes in place to 

assure accurate counting, we believe 

that we are properly counting these 

types of days, to the extent that 

hospitals comply with Medicare 

requirements and submit claims for 

those days. We do not believe it is 

necessary to go into further detail about 

our processes for capturing these types 

of days in this final rule because we did 

not make any proposal related to that 

issue. 

We are adopting our proposed 

revision of § 412.106(b)(2)(i)(B) and 

§ 412.106(b)(2)(iii)(B) as final, without 

modification. 

G. Medicare-Dependent, Small Rural 

Hospitals (MDHs) (§ 412.108) 

1. Background 

Under the IPPS, separate special 

payment protections are provided to a 

Medicare-dependent, small rural 

hospital (MDH). MDHs are paid based 

on the higher of the Federal rate for 

their hospital inpatient services or a 

blended rate based in part on the 

Federal rate and in part on the MDH’s 

hospital-specific rate. 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 either in its 

1987 cost reporting year or in two of its 

most recent three settled Medicare cost 

reporting years). The regulations at 42 

CFR 412.108 set forth the criteria that a 

hospital must meet to be classified as an 

MDH. 

Although MDHs are paid under an 

adjusted payment methodology, they are 

still IPPS hospitals paid under section 

1886(d) of the Act. Like all IPPS 

hospitals paid under section 1886(d) of 

the Act, MDHs are paid for their 

discharges based on the DRG weights 

calculated under section 1886(d)(4) of 

the Act. 

Through and including FY 2006, 

under section 1886(d)(5)(G) of the Act, 

MDHs are paid based on the Federal rate 

or, if higher, the Federal rate plus 50 

percent of the amount by which the 

Federal rate is exceeded by the updated 

hospital-specific rate based on the 

hospital’s FY 1982 or FY 1987 costs per 

discharge, whichever of these hospitalspecific rates is higher. Section 5003(b) 

of Public Law 109–171 (DRA 2005) 

amended section 1886(d)(5)(G) of the 

Act to provide that, for discharges 

occurring on or after October 1, 2006, 

MDHs are paid based on the Federal rate 

or, if higher, the Federal rate plus 75 

percent of the amount by which the 

Federal rate is exceeded by the updated 

hospital-specific rate based on FY 1982, 

FY 1987, or FY 2002 costs per 

discharge, whichever of these hospitalspecific rates is highest. 

For each cost reporting period, the 

fiscal intermediary or MAC determines 

which of the payment options will yield 

the highest aggregate payment. Interim 

payments are automatically made at the 

highest rate using the best data available 

at the time the fiscal intermediary or 

MAC makes the determination. 

However, it may not be possible for the 

fiscal intermediary or MAC to determine 

in advance precisely which of the rates 

will yield the highest aggregate payment 

by year’s end. In many instances, it is 

not possible to accurately forecast the 

outlier payments, the amount of the 

DSH adjustment or the IME adjustment, 

all of which are applicable only to 

payments based on the Federal rate and 

not to payments based on the hospitalspecific rate. The fiscal intermediary or 

MAC makes a final adjustment at the 

settlement of the cost report after it 

determines precisely which of the 

payment rates would yield the highest 

aggregate payment to the hospital. 

If a hospital disagrees with the fiscal 

intermediary’s or the MAC’s 

determination regarding the final 

amount of program payment to which it 

is entitled, it has the right to appeal the 

determination in accordance with the 

procedures set forth in 42 CFR part 405, 

subpart R, which govern provider 

payment determinations and appeals. 

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2. Medicare-Dependency: Counting 

Medicare Inpatients 

Currently, as specified in the 

regulations at § 412.108(a)(1)(iii), in 

order for an IPPS hospital to qualify as 

an MDH, at least 60 percent of its 

inpatient days or discharges must be 

attributable to individuals receiving 

Medicare Part A benefits. 

The MDH policy, as explained in the 

FY 1991 final rule (55 FR 35994 through 

35998), does not include in the count of 

Medicare inpatients those Medicare 

beneficiaries who have exhausted their 

Medicare Part A inpatient benefits. In 

addition, section 1886(d)(5)(G)(iv)(IV) of 

the Act specifies that a hospital is 

Medicare-dependent if ‘‘not less than 60 

percent of its inpatient days or 

discharges during the cost reporting 

period beginning in fiscal year 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 use of the 

word ‘‘entitled’’ in the statute would 

encompass individuals who are entitled 

to Medicare Part A even though they 

have exhausted their Part A hospital 

days. Individuals who have exhausted 

their Part A inpatient benefit coverage 

remain ‘‘entitled’’ to Medicare Part A 

because they retain the Medicare Part A 

insurance benefit coverage (for example, 

covered SNF days), and they continue to 

meet all statutory criteria for entitlement 

to Part A benefits under section 226, 

226A, 1818, or 1818A of the Act 

(Entitlement to Hospital Insurance 

Benefits). In fact, for purposes of 

determining DSH payment adjustments 

under the IPPS in accordance with 

section 1886(d)(5)(F)(vi)(I) of the Act, 

our policy includes, in the Medicare 

inpatient count, all individuals entitled 

to Medicare Part A benefits, including 

Medicare patients who have exhausted 

Medicare Part A coverage. This policy is 

discussed in the FY 2005 IPPS final rule 

(69 FR 49090 through 49099). 

Accordingly, in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 23999), 

we proposed to revise the Medicaredependency criterion at 

§ 412.108(a)(1)(iii) of the regulations to 

replace the term ‘‘receiving’’ with the 

phrase ‘‘entitled to.’’ As a result, we 

would include in the count of Medicare 

inpatient days or discharges all days or 

discharges attributable to individuals 

entitled to the Medicare Part A 

insurance benefit, including individuals 

who have exhausted their Medicare Part 

A inpatient hospital coverage benefit, as 

well as individuals enrolled in Medicare 

Advantage plans and section 1876 cost 

contracts (health maintenance 

organizations (HMOs) and competitive 

medical plans (CMPs)). We note that, for 

inpatient care provided to Medicare Part 

A entitled beneficiaries enrolled with an 

HMO or a CMP, we provided that the 

days and discharges for those stays are 

counted for purposes of determining 

Medicare-dependency for MDH 

purposes (55 FR 35995). This was the 

case when HMOs and CMPs were 

included under Medicare Part A, and 

continues to be the case since 1997 

when HMOs and CMPs were placed 

under Medicare Part C. 

Comment: Several commenters 

supported the proposed change to the 

MDH policy to include in the count of 

Medicare inpatient days or discharges 

individuals entitled to Medicare Part A, 

not just those receiving Medicare Part A 

benefits. Another commenter asked if 

the proposed change in policy would be 

effective October 1, 2010, applying to 

MDH status determinations from that 

date forward, or if the proposed change 

would be considered a clarification of 

current policy and, therefore, would 

apply retroactively. 

Response: The MDH proposal to 

better conform the regulations to the 

statute by including in the count of 

Medicare inpatient days or discharges 

individuals entitled to Medicare Part A 

even if they are not receiving Part A 

hospital inpatient benefits because they 

have exhausted these benefits is a 

proposed change in policy. Because we 

are finalizing the proposed change in 

this final rule, the final policy change 

will be effective beginning October 1, 

2010, at which time all Medicare days 

or discharges of patients entitled to 

Medicare Part A will be counted as 

Medicare days or discharges, affecting 

the determination of MDH status for 

hospitals from October 1, 2010 forward. 

After consideration of the public 

comments we received, we are adopting 

the proposed revision to the Medicaredependency criterion at 

§ 412.108(a)(1)(iii) as final. 

3. Extension of the MDH Program 

As we discussed in the June 2, 2010 

supplemental proposed rule to the FY 

2011 IPPS/LTCH PPS proposed rule (75 

FR 30926), section 3124 of the 

Affordable Care Act extended the MDH 

program from the end of FY 2011 (that 

is, for discharges occurring before 

October 1, 2011) to the end of FY 2012 

(that is, for discharges occurring before 

October 1, 2012). Under prior law, as 

specified in section 5003(a) of Public 

Law 109–171 (DRA 2005), the MDH 

program was to be in effect through the 

end of FY 2011 only. Section 3124(a) of 

the Affordable Care Act amended 

sections 1886(d)(5)(G)(i) and 

1886(d)(5)(G)(ii)(II) of the Act to extend 

the MDH program and payment 

methodology from the end of FY 2011 

to the end of FY 2012, by striking 

‘‘October 1, 2011’’ and inserting ‘‘October 

1, 2012’’. Section 3124(b) of the 

Affordable Care Act also made 

conforming amendments to sections 

1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of 

the Act. Section 3124(b)(2) of the 

Affordable Care Act also amended 

section 13501(e)(2) of OBRA 1993 to 

extend the provision permitting 

hospitals to decline reclassification as 

an MDH through FY 2012. We proposed 

to amend the regulations at 

§ 412.108(a)(1) and (c)(2)(iii) to reflect 

these legislative changes. 

Comment: One commenter supported 

the extension of the MDH program for 

an additional year, through FY 2012. 

Response: We appreciate the support 

of the commenter. 

We are adopting as final, without 

modification, the proposed changes to 

§ 412.108(a)(1) and (c)(2)(iii) to reflect 

the statutory extension of the MDH 

program for an additional year, through 

FY 2012. 

H. Payments for Direct Graduate 

Medical Education (GME) (§ 413.75) 

1. Background 

Under section 1886(a)(4) of the Act, 

costs of approved educational activities 

are excluded from the operating costs of 

hospital inpatient services. Section 

1886(h) of the Act, as implemented in 

regulations at § 413.75 through § 413.83, 

establishes a methodology for 

determining payments to hospitals for 

the direct costs of approved GME 

programs. Section 1886(h)(2) of the Act 

sets forth a methodology for the 

determination of a hospital-specific, 

base-period per resident amount (PRA) 

that is calculated by dividing a 

hospital’s allowable direct costs of GME 

for a base period by its number of 

residents in the base period. The base 

period is, for most hospitals, the 

hospital’s cost reporting period 

beginning in FY 1984 (that is, the period 

of October 1, 1983, through September 

30, 1984). Medicare direct GME 

payments are calculated by multiplying 

the PRA by the weighted number of fulltime equivalent (FTE) residents working 

in all areas of the hospital complex (and 

nonhospital sites, when applicable), and 

the hospital’s Medicare share of total 

inpatient days. The base year PRA is 

updated annually for inflation. 

Hospitals may receive direct GME and 

IME payments for residents in 

‘‘approved medical residency training 

programs.’’ Section 1886(h)(5)(A) of the 

Act defines an ‘‘approved medical 

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residency training program’’ as ‘‘a 

residency or other postgraduate medical 

training program participation in which 

may be counted toward certification in 

a specialty or subspecialty and includes 

formal postgraduate training programs 

in geriatric medicine approved by the 

Secretary.’’ Section 1886(h)(4)(F) of the 

Act established a limit on the number of 

allopathic and osteopathic FTE 

residents that a hospital may include in 

its FTE resident count for purposes of 

calculating direct GME payments. For 

most hospitals, the limit, or cap, is the 

unweighted number of allopathic and 

osteopathic FTE residents training in 

the hospital’s most recent cost reporting 

period ending on or before December 

31, 1996. 

2. Identifying ‘‘Approved Medical 

Residency Programs’’ 

As we discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24007), 

despite the fact that current policies 

regarding the counting of FTE residents 

for IME and direct GME purposes have 

been in effect since October 1985, we 

continue to receive questions as to 

whether certain residents are training in 

approved medical residency programs, 

and whether these residents should be 

included in the Medicare direct GME 

and IME FTE counts. Although the 

fundamental rules defining an approved 

medical residency training program 

seem straightforward, some confusion 

apparently exists regarding whether 

certain trainees in a teaching hospital 

should be included in the FTE count for 

IME and direct GME purposes, or 

whether certain trainees should be 

treated as physicians and should instead 

bill for their services under Medicare 

Part B. These questions arise most often 

with regard to subspecialty training and 

‘‘fellows.’’ It is important for hospitals to 

understand when each of these types of 

payment applies. 

a. Residents in Approved Medical 

Residency Programs 

As stated earlier, section 

1886(h)(5)(A) of the Act defines an 

‘‘approved medical residency training 

program’’ as ‘‘a residency or other 

postgraduate medical training program 

participation in which may be counted 

toward certification in a specialty or 

subspecialty and includes formal 

postgraduate training programs in 

geriatric medicine approved by the 

Secretary.’’ The regulations at 

§ 413.75(b) define an ‘‘approved medical 

residency program’’ as a program that 

meets one of the following criteria 

(emphasis added): 

(1) Is approved by one of the national 

organizations listed in § 415.152 of the 

regulations. 

(2) May count towards certification of 

the participant in a specialty or 

subspecialty listed in the current edition 

of either of the following publications: 

(i) The Directory of Graduate Medical 

Education Programs published by the 

American Medical Association; or 

(ii) The Annual Report and Reference 

Handbook published by the American 

Board of Medical Specialties. 

(3) Is approved by the Accreditation 

Council for Graduate Medical Education 

(ACGME) as a fellowship program in 

geriatric medicine. 

(4) Is a program that would be 

accredited except for the accrediting 

agency’s reliance upon an accreditation 

standard that requires an entity to 

perform an induced abortion or require, 

provide, or refer for training in the 

performance of induced abortions, or 

make arrangements for such training, 

regardless of whether the standard 

provides exceptions or exemptions. 

The regulations at § 415.152 define an 

‘‘approved graduate medical education 

program’’ as a residency program 

approved by one of the following 

national organizations (or their 

predecessors): The Accreditation 

Council for Graduate Medical Education 

(ACGME) of the American Medical 

Association, the American Osteopathic 

Association (AOA), the Commission on 

Dental Accreditation (CODA) of the 

American Dental Association, and the 

Council on Podiatric Medical Education 

(CPME) of the American Podiatric 

Medical Association. (We note that the 

ACGME is now a separate entity from 

the American Medical Association. 

Therefore, in this final rule, we are 

making a technical amendment to the 

regulations at § 415.152 to remove the 

words ‘‘of the American Medical 

Association.’’) The statutory basis for 

this regulation is at section 1861(b)(6) of 

the Act, which cites these accrediting 

bodies for residency programs. Thus, in 

general, under § 413.75(b), an 

‘‘approved’’ program can be a program 

that is accredited by one of these 

national organizations, or one that leads 

toward board certification by the 

American Board of Medical Specialties 

(ABMS). In the September 29, 1989 final 

rule (54 FR 40295), we explained that, 

in order to reconcile the two statutory 

definitions of approved programs at 

sections 1861(b)(6) and 1886(h)(5)(A) of 

the Act, we did not limit our regulatory 

definition of ‘‘approved medical 

residency program’’ to one that may 

count toward certification in a specialty, 

but added that a program is also 

‘‘approved’’ for purposes of IME and 

direct GME if it is approved by one of 

the national accrediting bodies. 

Furthermore, we understood that, 

especially with respect to subspecialty 

training, there historically were some 

formal programs for which none of the 

listed national accrediting bodies had 

established standards. However, the 

ABMS had established a national board 

examination for some of those 

unaccredited programs and, 

consequently, those programs do count 

toward certification. Accordingly, such 

programs also meet the definition of an 

‘‘approved medical residency training 

program.’’ 

b. Determining Whether an Individual Is 

a Resident or a Physician 

The statute and the regulations (in at 

least two places in the teaching context) 

define the term ‘‘resident.’’ Section 

1861(b)(6) of the Act refers to services 

provided in a hospital by an ‘‘intern or 

resident-in-training under a teaching 

program approved’’ by one of the listed 

accrediting bodies for residency 

programs. In addition, section 

1886(h)(5)(I) of the Act states that the 

term ‘‘resident’’ includes ‘‘an intern or 

other participant in an approved 

medical residency training program.’’ 

The regulations at § 413.75(b) state that 

the term resident means ‘‘an intern, 

resident, or fellow who participates in 

an approved medical residency 

program, including programs in 

osteopathy, dentistry, and podiatry, as 

required in order to become certified by 

the appropriate specialty board.’’ 

As discussed above, an ‘‘approved’’ 

program is one that is accredited by one 

of the listed national organizations, or 

one that may count towards board 

certification. Generally, residency 

programs today, whether they are core 

or subspecialty programs, are both 

accredited, and lead toward board 

certification through an explicit board 

examination for that field. Thus, in the 

typical instance, a resident is accepted 

into an accredited program in a 

particular specialty, completes that 

program over the course of what is 

typically 3 to 5 years, and then qualifies 

to take the board certifying examination 

in the particular specialty of that 

program. This resident may or may not 

train in an additional accredited 

subspecialty program, which would 

typically last for 1 to 3 years, and which 

would also lead to board certification 

through an additional board certifying 

examination which the individual 

would be qualified to take upon 

completion. 

We receive questions from time to 

time regarding whether individuals are 

considered to be trainees in approved 

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programs or whether they are 

considered to be physicians and should 

bill accordingly. These questions 

frequently involve programs of further 

training that certain senior and junior 

faculty at hospitals, typically at large 

academic medical centers, undertake on 

their own, not under the auspices of any 

accrediting body, and in an area of 

practice for which there is no board 

certification. Therefore, there is no 

actual standardized curriculum or 

formally organized ‘‘program’’ in which 

the individual trainee is participating. 

Another type of trainee about which we 

have received questions is one that has 

completed an accredited program in a 

certain specialty, but subsequently 

participates in additional training in 

that specialty that he or she could have 

participated in while still within the 

accredited program. Sometimes this 

individual may even train with 

residents who are actually still training 

in that accredited program (for example, 

an individual who has completed a 

dermatology residency may choose to 

do additional training with PGY4 

dermatology residents). In these 

scenarios, in order to decide whether an 

individual is considered a resident or a 

physician for purposes of Medicare 

payment, the pertinent questions are 

whether— 

(1) The individual actually needs the 

training in order to meet board 

certification requirements in that 

specialty; and 

(2) Whether the individual is formally 

participating in an organized, 

standardized, structured course of 

study. 

With regard to the junior faculty who 

are ‘‘training’’ with senior faculty to 

learn highly specialized skills, we 

believe that individuals participating in 

a course of training that one or more 

senior physicians creates absent the 

involvement and approval of an 

accrediting body, and for which there is 

no specific existing board certification 

examination, should not be considered 

‘‘residents’’ or counted for IME and 

direct GME purposes. Similarly, 

individuals that already completed an 

accredited residency program, but 

subsequently participate in additional 

training in that same specialty that they 

could have participated in while still 

within that accredited program, should 

also not be considered ‘‘residents’’ or be 

included in the IME and direct GME 

count. This is because these individuals 

have already completed accredited 

residency programs in a particular 

specialty or subspecialty, and do not 

need to complete the additional training 

in order to meet board certification 

requirements in that field in which they 

continue to ‘‘train.’’ The definition of 

‘‘resident’’ at § 413.75(b) is ‘‘an intern, 

resident, or fellow who participates in 

an approved medical residency 

program, including programs in 

osteopathy, dentistry, and podiatry, as 

required in order to become certified by 

the appropriate specialty board’’ 

(emphasis added). Accordingly, the 

individuals described in the scenarios 

above do not meet the definition of 

‘‘resident’’ at § 413.75(b) for IME and 

direct GME purposes. Instead, these 

individuals should be treated and 

receive payment as physicians. 

As we explained in the September 29, 

1989 Federal Register rule: ‘‘The costs 

relating to patient care services of 

licensed physicians who are classified 

as ‘‘fellows’’ but who are not in an 

identifiable formal program leading to 

certification as defined in section 

1886(h)(5) of the Act but remain at a 

teaching hospital/medical school 

complex to enhance their expertise in a 

field of study are payable on a Part B 

reasonable charge basis [now under the 

Medicare physician fee schedule] as 

physicians’ services’’ (54 FR 40295). 

Similarly, in the Provider 

Reimbursement Manual, Part I, section 

2405.3.F.2, we state, ‘‘Intermediaries 

must not count an individual in the 

indirect medical education adjustment 

if * * * [A]n individual designated as 

a ‘‘fellow’’ has elected to remain at a 

teaching hospital/university complex 

for additional work to gain expertise in 

a particular field but is no longer in a 

formally organized program to fulfill 

certification requirements. The services 

of such an individual are generally 

covered as physicians’ services payable 

on a reasonable charge basis’’ (emphasis 

added). (Note: Although we used the 

term ‘‘fellow,’’ which is defined 

synonymously with ‘‘resident’’ in the 

regulations at § 413.75, in these 

paragraphs in the September 29, 1989 

Federal Register and in the PRM–I, by 

stating that such ‘‘fellows’’ are not in 

identifiable, formally organized 

programs and their services should be 

billed under Part B as physician 

services, we clearly were indicating that 

these ‘‘fellows’’ are licensed physicians, 

not residents, and should not be 

included in the IME and direct GME 

FTE counts. Perhaps ‘‘junior faculty’’ 

would have been a more apt 

characterization of these individuals.) 

The passage from the September 29, 

1989 Federal Register also mentions an 

‘‘identifiable formal program leading to 

certification as defined in section 

1886(h)(5) of the Act’’ which refers to 

the statutory definition of ‘‘approved 

medical residency program.’’ The word 

‘‘approved’’ connotes formality; a 

planned, structured course of study 

with a curriculum based on national 

(rather than individual physician or 

hospital) standards with a standardized 

outcome based on standardized 

evaluations. Since the early days of 

Medicare, prior to the enactment of 

section 1886(h) of the Act, when 

hospitals received payment on a 

reasonable cost basis for ‘‘approved 

educational activities,’’ we defined such 

activities as ‘‘formally organized or 

planned programs of study operated or 

supported by an institution, as 

distinguished from ‘on-the-job,’ 

‘inservice,’ or similar work-learning 

programs’’ (emphasis added) (PRM–I, 

section 402.1). We believe the education 

that junior faculty receive when 

working closely with senior faculty to 

gain highly specialized skills is more 

appropriately characterized as on-thejob, or inservice training, rather than 

training in an ‘‘approved medical 

residency program.’’ 

In order for the training to be 

considered an ‘‘approved medical 

residency program,’’ the training must 

prepare the individual for certification 

in the particular specialty or 

subspecialty in which the individual is 

training. The mere possibility that the 

training could be construed as leading 

toward or counting toward certification 

in some existing board examination is 

insufficient. For example, an individual 

who is enrolled and participating in a 

two year accredited subspecialty 

program in allergy and immunology 

and, as part of that program, completes 

an elective in allergic reactions to insect 

stings is considered a resident during 

that elective, and may be included in 

the IME and direct GME FTE count 

(assuming all other requirements are 

met). However, if, after completion of 

the 2-year allergy and immunology 

subspecialty program, this individual 

decides to remain at the teaching 

hospital for a year to shadow a 

physician who has unique expertise in 

allergic reactions to insect stings, this 

individual would not be considered a 

resident, nor would this training be 

considered an approved program, 

because this individual is not formally 

enrolled in a planned, structured, 

standardized course of study, nor is this 

year of training required for any 

individual to qualify to take the board 

examination in allergy and 

immunology. This individual already 

completed the 2-year subspecialty 

program, and therefore, the extra year 

spent studying allergic reactions to 

insect stings is extraneous. Accordingly, 

this individual would not be viewed as 

a resident participating in an approved 

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medical residency training program. 

Rather, this individual is considered a 

physician and should bill Medicare for 

services furnished under the physician 

fee schedule. 

c. Formal Enrollment and Participation 

in a Program 

We understand that the participation 

of individuals in an approved medical 

residency program under which they 

would be considered residents as 

defined at § 413.75 is marked by a 

formal application, acceptance, and 

enrollment process. We believe that in 

order for an individual to be considered 

a resident for purposes of inclusion in 

the IME and direct GME counts, 

whether the individual is a graduate of 

an allopathic medical school, an 

osteopathic medical school, or a school 

of podiatry or dentistry, the individual 

must be: 

(1) Formally accepted and enrolled in 

the training program, and 

(2) Fully participating in that training 

(unless there is a documented 

arrangement for the resident to work 

part time). 

In general, we would expect formal 

acceptance to include an application 

process (for example, the national 

residency match process), and an 

enrollment process which would 

include letters or other official 

notifications from the hospital or 

program sponsor regarding the 

resident’s acceptance to train in a 

particular program. We also would 

expect the resident to have an 

employment contract with the 

institution(s) sponsoring the program 

and/or the institution(s) in which he or 

she is training. A hospital must be able 

to document that the individual’s 

participation in the particular course of 

training represents a definitive (not 

hypothetical) path for that individual’s 

certification, and that satisfactory 

completion of such training would 

fulfill all required elements in order for 

the individual to qualify to take a 

specific board examination. 

In order to make these rules clearer 

for the future, in the FY 2011 IPPS/ 

LTCH PPS proposed rule, we proposed 

to revise the definition of ‘‘resident’’ to 

specify that the trainee must be 

‘‘formally accepted and enrolled’’ in the 

approved program in order to be 

considered a resident for IME and direct 

GME purposes. Specifically, we 

proposed to revise the definition of 

‘‘resident’’ at § 413.75(b) to mean ‘‘an 

intern, resident, or fellow who is 

formally accepted, enrolled, and 

participating in an approved medical 

residency program, including programs 

in osteopathy, dentistry, and podiatry, 

as required in order to become certified 

by the appropriate specialty board.’’ We 

also proposed to make a similar 

conforming change to the definition of 

‘‘primary care resident’’ at § 413.75(b). 

We proposed that this change in the 

definitions of ‘‘resident’’ and ‘‘primary 

care resident’’ would be effective for 

IME and direct GME for cost reporting 

periods beginning on or after October 1, 

2010. 

Comment: Several commenters 

expressed appreciation for CMS’ 

clarifications regarding which programs 

are ‘‘approved medical residency 

training programs’’ and which 

individuals are residents or physicians. 

Other commenters indicated CMS’ 

clarification is consistent with their 

understanding of when an individual is 

treated as a resident or physician. 

Response: We appreciate the 

commenters’ support and understanding 

of our policy regarding approved 

medical residency training programs 

described in the proposed rule. 

Comment: Some commenters noted 

that CMS did not specifically address 

the applicability of existing Line 70 on 

Worksheet B, Part I of the Medicare cost 

report, which historically has been used 

to report the costs of interns and 

residents in unapproved programs, nor 

did CMS discuss the treatment of 

residents with limited medical licenses. 

The commenters requested that CMS 

clarify its position regarding these 

categories of residents in unapproved 

programs and hoped that CMS did not 

intend to eliminate the use of Line 70 

of Worksheet B, Part I. 

Another commenter noted that CMS 

clarified that residents and fellows only 

fall into two categories: (1) Residents 

and fellows in programs recognized as 

approved for GME purposes; and (2) 

residents and fellows in non-approved 

programs classified as physicians who 

would bill under the MPFS. The 

commenter noted that many residents, 

such as the residents in the transplant 

surgery program or other advanced but 

unaccredited training programs, would 

not fall under either category (1) or 

category (2) because they are not fully 

licensed. Another commenter noted that 

States also have different licensure laws, 

with some states requiring residents to 

have temporary licenses, while other 

States expect residents to be fully 

licensed by the second or third year of 

residency after completion of an 

internship (the first year of training after 

medical school), and taking Step III of 

the United States Medical Licensing 

Examination (USMLE). The commenter 

added that bylaws in academic medical 

centers differ, and that the trainees in 

unapproved programs cannot always 

bill for services provided because they 

may not be authorized under their 

institution’s bylaws to do so because 

they are ‘‘in a formal training program.’’ 

Response: The commenters are correct 

that the Medicare cost report does 

include a line (Line 70 on Worksheets 

A and B) for hospitals to receive 

payment for the services provided by 

residents who are not in approved 

programs. In the case of programs that 

are not either accredited or do not count 

toward board certification, in the 

September 29, 1989 final rule (54 FR 

40295), we explained that: 

‘‘Medicare would pay its share of the 

costs of residents not in approved 

programs as described in § 405.523 of 

our regulations regarding residents not 

in approved teaching programs. Under 

§ 405.523, hospitals are paid under Part 

B for up to 80 percent of the reasonable 

costs of services (that is, salaries and 

salary-related fringe benefits) of interns 

and residents who are not in approved 

programs, after payment of the Part B 

deductible by the Medicare beneficiary. 

No other educational program costs 

(that is, faculty compensation costs and 

other direct and indirect program 

expenses) in connection with such 

residents are payable. The Medicare 

beneficiary incurs the expense of 

deductible and coinsurance amounts as 

determined on the basis of the hospital’s 

charges under Part B of the Medicare 

program.’’ 

‘‘The costs relating to patient care 

services of licensed physicians who are 

classified as fellows but who are not in 

an identifiable formal program leading 

to certification as defined in section 

1886(h)(5) of the Act but remain at a 

teaching hospital/medical school 

complex to enhance their expertise in a 

field of study are payable on a Part B 

reasonable charge basis as physicians’ 

services.’’ 

(We note that the regulations that 

were previously located at § 405.523 are 

currently located at § 415.202.) 

The regulation at § 415.202(a) state, as 

a general rule, that ‘‘For services of a 

physician employed by a hospital who 

is authorized to practice only in a 

hospital setting and for the services of 

a resident who is not in any approved 

GME program, payment is made to the 

hospital on a Part B reasonable cost 

basis regardless of whether the services 

are furnished to hospital inpatients or 

outpatients.’’ 

We understand that there are 

advanced training programs that exist, 

such as those in transplant surgery and 

surgical oncology, which are not 

accredited by the ACGME, nor do they 

lead to board certification in those 

subspecialties, yet they are ‘‘accredited’’ 

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by their respective medical societies. As 

such, they are formally organized, 

planned, structured courses of study 

that are at least one year in duration. We 

also understand that, although the 

participants in these advanced training 

programs have already completed at 

least one residency, there may be 

reasons unique to them, their teaching 

institution, or state as to why these 

trainees are not always fully licensed. 

Therefore, we understand that some 

trainees who are not participating in an 

‘‘approved medical residency program’’ 

are not currently billing under the 

MPFS for the services they provide in 

the programs. 

We believe Part B reasonable cost 

payment under § 415.202 may be 

applicable only in the instance where 

the trainee is not fully licensed in the 

State in which he or she is participating 

in an unapproved program. Services 

provided by fully licensed physicians, 

for example, those who are shadowing 

an experienced senior physician but are 

not in a formally organized, planned, 

standard course of study, or who are 

gaining practice experience, would not 

be paid under § 415.202. However, we 

are contemplating future rulemaking 

that would revise the regulations at 

§ 415.202 to not allow Part B reasonable 

cost payment for the services of any 

individuals who have already 

completed one residency program, 

regardless of licensure status. 

Comment: Some commenters 

requested that fellowship programs that 

are approved by the American Society 

of Transplant Surgeons (ASTS) be 

considered approved programs for 

purposes of direct GME and IME 

payment, even though the ASTS is not 

listed currently as one of the accrediting 

agencies at § 413.75(b), nor is there any 

board certification examination. The 

commenters noted that the ASTS is a 

national accrediting body, the programs 

are ‘‘formally organized, standardized, 

structured courses of study,’’ and 

residents desiring to complete these 

programs participate in a formal match 

through the National Resident Matching 

Program (NRMP). A commenter also 

pointed out that training of these 

fellows occurs in ‘‘Medicare approved 

transplant programs’’ approved by CMS 

to receive Medicare payment. 

Another commenter asked that CMS 

clarify the proposed rule to state that an 

‘‘approved’’ program can be (1) one that 

is accredited by a national organization 

listed at § 415.152 or (2) one that leads 

to certification by its governing body or 

toward board certification by the ABMS. 

The commenter added that as medical 

training evolves over time, many 

specialties are not currently part of 

CMS’ ‘‘approved’’ list, even though they 

are recognized by national 

organizations, such as the ASTS. 

Another commenter added that the 

ACGME’s Green Book lists some 

subspecialty training programs 

approved by various specialty societies 

and academies, and that often this level 

of approval is the first step to becoming 

eventually accredited by the ACGME. 

The commenters requested that CMS 

update and expand the list of 

‘‘approved’’ accrediting agencies 

accordingly. 

Response: As we noted above, section 

1886(h)(5)(A) of the Act defines an 

approved medical residency training 

program as a ‘‘residency or other 

postgraduate medical training program 

participation in which may be counted 

toward certification in a specialty or 

subspecialty.’’ Our regulations at 

§ 415.152 define an ‘‘approved graduate 

medical education (GME) program’’ to 

include a residency program approved 

by one of the accrediting bodies 

identified at section 1861(b)(6) of the 

Act, or ‘‘a program otherwise recognized 

as an ‘approved medical residency 

program’ under § 413.75(b)’’ of our 

regulations. Section 1861(b)(6) of the 

Act lists only four accrediting bodies— 

the Council on Medical Education of the 

American Medical Association (now the 

ACGME), the Committee on Hospitals of 

the Bureau of Professional Education of 

the American Osteopathic Association 

(now the AOA), the Council on Dental 

Education of the American Dental 

Association (now known as CODA), and 

the Council on Podiatric Medical 

Education of the American Podiatric 

Association. The ASTS is not listed in 

the Act. We cannot update or expand 

this list without a change in the law. In 

addition, the regulation at § 413.75(b) 

defines an ‘‘approved medical residency 

program’’ as one that is either approved 

by one of the four national organizations 

noted above or one that ‘‘may count 

towards certification of the participant 

in a specialty or subspecialty listed in 

the current edition’’ of either the AMA 

or the ABMS directory. Because there is 

no board certification examination 

specifically for these transplant and 

other advanced training programs, they 

cannot be recognized as approved 

medical residency training programs for 

purposes of receiving direct GME and 

IME payments under Medicare under 

our current regulations. 

Comment: One commenter asked for 

clarification regarding participants in 

programs that are accredited by the 

ACGME and lead to receipt of a 

Certificate of Additional Qualifications 

(CAQs) from a specialty board. The 

commenter indicated that the 

participants in these programs, often 

referred to as ‘‘fellows,’’ already received 

board certification in the initial 

specialty. The commenter requested 

assurance that these fellows can still be 

counted as residents for GME purposes, 

even though they are not required to sit 

for an additional board examination, 

and indicated that completion of the 

fellowship is sufficient for receipt of the 

CAQ. 

Response: As we noted previously, 

there are numerous subspecialty 

programs that the ACGME accredits. 

Because these programs are accredited 

by the ACGME, which is one of the 

accrediting bodies specified at section 

1861(b)(6) of the Act and the regulations 

at § 415.152 for an approved medical 

residency training program, the 

participants in the program are 

considered to be residents for IME and 

direct GME payment purposes, even 

though they have already received an 

initial board certification. 

Comment: One commenter requested 

that CMS more clearly define what 

constitutes a ‘‘fellowship’’ for the direct 

GME and IME FTE counts. Another 

commenter also requested clarification 

regarding fellows, stating that there are 

four types of fellows: (1) Fellows in 

formal programs that qualify as 

Medicare approved programs; (2) 

fellows in formal programs that qualify 

as nonapproved programs; (3) junior 

faculty with a dual appointment as a 

fellow but who are not in a formal 

program at all; and (4) fellows solely 

engaged in research outside the scope of 

an approved program. The commenter 

stated that most major academic 

medical center bylaws distinguish 

between these individuals based on 

whether they have patient billing 

privileges. The commenter believed that 

the last two cited categories of fellows 

should be categorized as physicians, not 

residents. 

Response: The existing regulations at 

§ 413.75(b) define ‘‘resident’’ as an 

intern, resident, or fellow who 

participates in an approved medical 

residency program, including programs 

in osteopathy, dentistry, and podiatry, 

as required in order to become certified 

by the appropriate specialty board. In 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24009), we proposed to 

revise the definition of ‘‘resident’’ at 

§ 413.75(b) to mean ‘‘an intern, resident, 

or fellow who is formally accepted, 

enrolled, and participating in an 

approved medical residency program, 

including programs in osteopathy, 

dentistry, and podiatry, as required in 

order to become certified by the 

appropriate specialty board.’’ In both the 

existing and proposed revised 

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definitions, a ‘‘resident’’ is defined to 

include interns, fellows, and residents. 

In other words, regardless of the term 

used by the academic medical 

community, as long as the individual is 

participating in an ‘‘approved medical 

residency program,’’ the ‘‘fellow’’ is 

considered to be a ‘‘resident’’ for 

Medicare IME and direct GME payment 

purposes. 

To respond to the commenter that 

mentioned the four categories of 

fellows, as we have explained in 

response to other comments, we do not 

agree that ‘‘fellows’’ in formal but 

nonapproved programs, such as those 

recognized by specialty medical 

societies, should be categorized as 

residents for IME and direct GME 

purposes. However, we do agree with 

the commenter that junior faculty not in 

an approved or any training program, 

whether approved or nonapproved, and 

fellows engaged in research that is 

outside the scope of any approved 

residency program, should not be 

categorized as residents. 

Comment: One commenter disagreed 

with the statement in the proposed rule 

that additional training in the same 

specialty or subspecialty should not be 

counted for IME and direct GME 

payment purposes. The commenter 

believed that this type of training 

should be included if a board considers 

such training necessary to be admitted 

to the board. The commenter asserted 

that qualifying for an examination is 

based on skill level, rather than only 

completion of time requirements, and 

that most boards rely on the residency 

program director’s attestation about the 

individual physician’s readiness. For 

example, after a physician completes 

the minimum years of training, the 

program director may require additional 

formal training in one or more 

subspecialties to raise the resident’s 

skill level. The commenter noted that 

there is no rule that a candidate must 

apply for admission to an examination 

after he or she completes the minimum 

training required, and that the boards 

consider quality, not quantity, which 

can include a broad range of formal 

training. 

Response: As we stated in the 

proposed rule, in instances where an 

individual has already completed a 

residency program, and is continuing to 

participate in additional training, in 

order to decide whether an individual is 

considered a resident or a physician for 

purposes of Medicare payment, the 

pertinent considerations are: (1) 

Whether the individual actually needs 

the training in order to meet the 

generally applicable board certification 

requirements in that specialty; and (2) 

whether the individual is formally 

participating and enrolled in an 

organized, standardized, structured 

course of study. The commenter 

believed that additional training in the 

same specialty or subspecialty should 

be considered part of an approved 

program for IME and direct GME 

payment purposes if a board considers 

such training necessary for the 

individual to be admitted to the board. 

However, we do not agree that training 

in the specialty or subspecialty that is 

not part of the generally applicable 

requirements for board certification, but 

is supplemental training to raise the 

skill level of a particular individual, is 

considered to be participation in an 

approved program as required in order 

to become certified. The ACGME and 

the ABMS establish minimum, generally 

applicable standards for successful 

completion of training and 

qualifications for board certification. 

While certain individuals may need to 

pursue additional supplemental training 

in order to ensure their personal skill 

levels are sufficient prior to pursuing 

actual board certification, we do not 

believe such training would be part of 

the generally applicable requirements 

for taking a board examination. The 

ACGME and the ABMS are national 

organizations that establish and apply 

these minimum standards nationally 

across all programs, and not on a 

resident-by-resident basis. The 

regulations at § 413.75(b) state that the 

term resident means ‘‘an intern, 

resident, or fellow who participates in 

an approved medical residency 

program, including programs in 

osteopathy, dentistry, and podiatry, as 

required in order to become certified by 

the appropriate specialty board’’ 

(emphasis added). ‘‘As required’’ means 

nationally applicable standards, not 

requirements that are determined on an 

individual, case-by-case basis. Medicare 

is also a national program. It would be 

highly impractical for hospital 

administrators and the Medicare 

contractors to determine whether each 

individual trainee (particularly in large 

teaching hospitals where there could be 

many such individuals) is participating 

in training that may or may not be 

considered necessary for board 

certification for that specific individual. 

Accordingly, we believe that training 

that is only intended to enhance an 

individual’s skills beyond the minimum 

required level is not part of an approved 

medical residency program. While it is 

true that there is no rule that a 

candidate must apply for a board 

examination immediately after he or she 

completes the minimum amount of 

training, the completion of additional 

training is not part of the generally 

applicable requirements for the board 

examination. Therefore, an individual 

who undertakes such additional training 

is not considered a resident for IME and 

direct GME payment purposes. 

We recognize that a board may look 

favorably upon an individual’s 

additional training beyond the 

minimum requirements in the process 

of considering a particular individual 

for certification. While we understand 

that there could be some degree of 

personalized consideration when an 

individual applies to sit for a board 

examination, as stated in response to the 

previous comment, this does not mean 

that all of the training that the 

individual has completed is actually 

required. It could be true that, in certain 

cases, completion of the minimum 

training requirements does not 

guarantee admittance to a board 

examination. However, because the 

boards set forth national standards, in 

most cases, the minimum training 

requirements are sufficient. Further, we 

are not convinced that additional GME 

payments should be made with respect 

to trainees who choose a customized 

approach to their training (that is, one 

that differs from their colleagues in the 

same program), extending that training 

beyond the minimum requirements 

established by the ACGME and the 

ABMS. At the point where a trainee has 

completed the national standard 

minimum requirements for certification, 

and chooses to pursue additional 

training that is not generally required 

for board certification in that specialty, 

that individual should no longer be 

considered a resident for IME and direct 

GME purposes. 

Comment: One commenter believed 

that the proposed revision to § 413.75(b) 

that seeks to clarify which trainees are 

allowable for Medicare GME payment 

by including the terms ‘‘formally 

accepted, enrolled, and participating in’’ 

to the definition of a ‘‘resident’’ needs to 

be more comprehensive and more 

focused. The commenter stated that 

codifying that an approved program 

must be formally organized does not 

help to resolve questions regarding 

unaccredited programs, particularly for 

‘‘services of residents not in approved 

GME programs’’ (42 CFR 415.202) or 

attending or junior attending physicians 

participating in informal training or 

‘‘nontraining.’’ The commenter 

suggested that expansing the definition 

of an ‘‘approved program’’ would be 

more appropriate than expanding the 

definition of a ‘‘resident.’’ According to 

the commenter, the main issue is 

‘‘formal unaccredited programs,’’ and ‘‘it 

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would be more helpful to define what 

they are rather than focus on a few 

obvious examples of what they are not.’’ 

The commenter suggested the following 

expanded definition of an ‘‘approved 

residency program’’ that ‘‘may count 

toward certification of the participant in 

a specialty or subspecialty’’ (42 CFR 

413.75(b)): ‘‘A training program that 

‘may count toward certification’ would 

be one that is a formally organized 

unaccredited program and may be 

counted by individual ABMS boards 

when accepting a candidate’s admission 

to a board certification examination. 

Allowable training includes training 

considered by an individual board’s 

application process.’’ 

The commenter also referred to the 

original conference language 

accompanying the original Medicare 

legislation. The commenter quoted the 

following: ‘‘Medicare shares in the 

hospital’s training cost because it 

increases the quality of care in the 

institution’’ (Senate Finance Committee 

Report 89–404, June 30, 1965). The 

commenter was concerned that the 

proposed rule discussion appears to 

state that Medicare will not share in the 

hospital’s medical education costs for 

an individual training beyond the 

minimum requirements, but rather treat 

these costs as nonhospital costs to be 

paid under the MPFS. Yet, the 

commenter added, section 1832(a)(2) of 

the Act clearly states that residents are 

not paid as physicians. The distinction 

is that resident services are hospital 

costs because training involves a group 

of patients, whereas physicians’ services 

are billed professional fees for services 

to a specific patient. The commenter did 

not believe that it was the Congressional 

intent to change training activities of 

residents once they completed 

minimum accredited specialty and 

subspecialty requirements. 

Response: We disagree with the 

commenter’s assertion that our 

proposed revised definition of 

‘‘resident’’ at § 413.75(b) is not 

sufficiently comprehensive or focused. 

Rather, we believe our proposed revised 

definition of ‘‘resident’’ correctly 

characterizes what a resident is for IME 

and direct GME payment purposes. We 

do not believe that residents not in 

approved programs (as discussed at 

§ 415.202) should be counted as 

residents for IME and direct GME 

payment purposes. Perhaps the 

commenter is confused because 

‘‘resident’’ is defined in two places in the 

regulations, first at § 413.75(b) for 

purposes of direct GME and IME 

payment, and second at § 415.152 for 

purposes of payment for physician 

services in teaching settings. 

Furthermore, we do not believe that 

attending and junior attending 

physicians participating in informal 

training or nontraining should be 

counted as residents for IME and direct 

GME payment purposes either. We 

believe that formal unaccredited 

programs are easy to identify, in that 

they are not accredited by the ACGME 

or AOA. If there is no explicit board 

certification for these programs, the 

participants in these programs cannot be 

counted for IME and direct GME 

payment purposes. Therefore, we do not 

agree with the commenter’s 

recommended expanded definition of 

‘‘approved residency program.’’ 

With regard to the commenter’s 

reference to section 1832(a)(2) of the 

Act, section 1832 addresses the scope of 

benefits for which payment is made 

under Medicare Part B, including 

physician services. Section 1832(a)(2) 

specifically addresses services other 

than inpatient hospital services 

furnished by or under arrangements 

with a provider of services by residents 

of a hospital. We do not believe this 

refers to individuals who are licensed 

(in other words, those are physicians as 

defined at section 1861(r) of the Act) 

and are not in approved programs. 

Therefore, because the individuals are 

licensed and are not in approved 

programs, we believe they should be 

billing for their services under the 

MPFS. If an individual is in an 

approved program, he or she is a 

resident for purposes of a hospital’s IME 

and direct GME FTE count. Further, 

although the commenter is correct that 

Congress did not limit Medicare direct 

GME payment or IME payment to 

training only occurring within the 

initial residency period, the ACGME 

and the ABMS have established 

minimum standards required for 

successful completion of a particular 

specialty or subspecialty. If a physician 

is involved in training that is not part 

of the established requirements, 

payment for the services provided by 

that physician should be made under 

the MPFS, not as part of direct GME or 

IME. Further, we note that it is specious 

for the commenter to assert that it was 

not ‘‘Congressional intent to change 

training activities of residents once they 

completed minimum accredited 

specialty and subspecialty 

requirements.’’ In fact, as expressed in 

the conference report accompanying the 

original Medicare legislation, funding 

for GME activities was intended to be 

time limited. Specifically, the 

conference report stated, ‘‘Educational 

activities enhance the quality of care in 

an institution and it is intended, until 

the community undertakes to bear such 

education costs in some other way, that 

a part of the net cost of such activities 

(including stipends of trainees as well 

as compensation of teachers and other 

costs) should be considered as an 

element in the cost of patient care, to be 

borne to an appropriate extent by the 

hospital insurance program’’ (emphasis 

added) (S. Rep. No. 404, 89th Cong., 1st 

Sess. 36 (1965); H.R. No. 213, 89th 

Cong., 1st Sess. 32 (1965)). Accordingly, 

we believe that Medicare GME funding 

for trainees should be ‘‘time limited’’ 

and not be made in perpetuity for 

trainees that are not in an approved 

medical residency training program or 

for whom the training is not required in 

order to meet the standard requirements 

for board certification. 

Comment: One commenter read the 

proposed rule discussion to suggest that 

if all training must be necessary to meet 

board certification, formal training 

beyond the minimum amount specified 

in the board certification requirements 

should not be included for GME 

payment purposes. The commenter 

believed this statement contradicts 

policy expressed in the September 29, 

1989 Federal Register (54 FR 40306), 

which states, ‘‘If it is clear that these 

individuals are actually in formally 

approved programs, we believe that they 

should be counted as residents in 

approved programs even if the 

individual has completed the 

requirements for board certification.’’ 

The commenter believed that chief 

residents are enrolled in accredited 

programs and are eligible for inclusion 

in the IME and direct GME FTE counts, 

even though certain chief residencies 

extend beyond the minimum accredited 

length of the program. The commenter 

also noted that there are several 

instances, particularly in prestigious 

teaching institutions, where the ACGME 

allows a hospital to offer a program 

length that is longer than the typical 

minimum accredited length for that 

specialty. For example, a hospital may 

choose to operate a 6- or 7-year (as 

opposed to the usual 5-year) surgery 

program, wherein accreditation accrues 

to the entire program, candidates 

compete for slots through the National 

Residency Match Program, and sign 

formal contracts upon entering these 

programs. The commenter referred to a 

letter from CMS (then HCFA) written in 

1996 that acknowledged that, in some 

cases, a university’s formal program 

may be longer than the ACGME’s 

published accreditation length, and 

stated that the school length, rather than 

the accreditation length, would apply. 

The commenter urged CMS to clarify 

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that training beyond the accredited 

length of a formally organized program 

is included in the IME and direct GME 

FTE resident counts. 

Response: We made the statement in 

the September 29, 1989 Federal Register 

(54 FR 40305) that was referenced by 

the commenter in response to a 

comment we received from 

representatives of the specialties of 

internal medicine and family practice 

who requested clarification of the status 

of individuals who are spending a 

fourth year in internal medicine or 

family practice (both 3-year programs). 

The commenters noted that some 

programs add a fourth year for a variety 

of reasons, and in some instances, 

‘‘individuals who have completed their 

requirements for board certification 

spend a fourth year as a chief resident 

and are technically no longer in a 

program leading to certification in a 

specialty or subspecialty’’ (54 FR 40305). 

Our response was as follows: 

‘‘If it is clear that these individuals are 

actually in formally approved programs, 

we believe that they should be counted 

as residents in approved programs even 

if the individual has completed the 

requirements for board certification. The 

situation is not unlike those we 

discussed in the proposed rule 

concerning Transitional Year programs 

and General Dentistry programs, neither 

of which, in itself, lead to certification 

in a specialty or subspecialty. We do not 

believe that Congress enacted section 

1886(h) of the Act to reduce the types 

of programs recognized by Medicare. 

Thus, if the ACGME and other 

accrediting bodies recognize such 

individuals as residents in the General 

Internal Medicine or Family Practice 

program, we would count them for 

purposes of direct GME payment at .5 or 

1.0 FTE depending on whether they are 

still in their initial residency period. We 

would differentiate these individuals 

from those who have completed their 

residency but remain for an additional 

period of time with the academic 

settings to continue their training 

outside the context of a formally 

organized approved program. 

Individuals in the latter group should be 

paid as physicians.’’ (54 FR 40305 and 

40306) 

We recently consulted with the 

ACGME to determine what its policy is 

regarding individuals, such as ‘‘chief 

residents,’’ that, in certain programs, 

stay beyond the minimum accredited 

length of the program. We learned that 

in the surgical specialties and a few of 

the other hospital-based specialties, all 

fifth year (or final year of training) 

residents are considered ‘‘chief 

resident,’’ or in their chief resident year. 

This is the final year of the ACGMEaccredited program. Therefore, we 

consider ‘‘chief residents’’ in surgery 

programs to be residents for IME and 

direct GME payment purposes. 

However, we learned from the ACGME 

that in internal medicine and pediatrics, 

acting as a ‘‘chief resident’’ is not a 

requirement. There are only a select few 

‘‘chief residents’’ per program, and the 

chief residency is completed after the 

final year of the ACGME-accredited 

residency. According to the ACGME, it 

is not part of the accredited training. 

Therefore, although our policy in the 

September 29, 1989 Federal Register 

allowed chief residency years that were 

completed after the minimum 

requirements for board certification 

have been met to be considered part of 

an approved program for IME and direct 

GME payment purposes, effective for 

cost reporting periods beginning on or 

after October 1, 2010, we are revising 

our policy regarding chief residencies 

that occur after the accredited program 

is completed and when minimum 

requirements for board certification are 

already satisfied. That is, individuals 

that act as chief residents after they have 

completed the accredited program and 

have satisfied minimum requirements 

for board certification are no longer 

considered residents for IME and direct 

GME payment purposes. (We 

understand they would be considered 

junior faculty in many teaching 

hospitals.) This is consistent with our 

policy as expressed in the proposed 

rule, which states that in order to decide 

whether an individual is considered a 

resident or a physician for purposes of 

Medicare payment, the pertinent 

questions are (1) whether the individual 

actually needs the training in order to 

meet board certification requirements in 

that specialty; and (2) whether the 

individual is formally enrolled and 

participating in an organized, 

standardized, structured course of 

study. Because the chief residents in 

internal medicine and pediatrics do not 

need the training in order to meet board 

certification requirements, effective for 

cost reporting periods beginning on or 

after October, 1, 2010, we are not 

considering them to be residents for IME 

and direct GME payment purposes. 

With regard to the comment asserting 

that the ACGME allows a hospital to 

offer a program length that is longer 

than the typical minimum accredited 

length for that specialty, and that 

accreditation accrues to the entire 

program, we consulted with the ACGME 

on this point as well. We were informed 

that this additional time is not part of 

the accredited program, nor is the 

ACGME aware of when the situations 

described by the commenter occur. 

Therefore, individuals training in a 

hospital’s program that extend beyond 

the actual accredited length are not 

considered residents for IME and direct 

GME payment purposes because they 

are no longer training in an accredited 

program according to the ACGME. Thus, 

for example, an individual training in a 

6- or 7-year general surgery program 

would only be counted as a resident for 

IME and direct GME purposes in PGYs 

1 through 5. The commenter references 

a letter that CMS (then HCFA) wrote in 

1996 that addresses this point of 

hospitals that operate programs that 

extend beyond the minimum accredited 

length. CMS was asked ‘‘What are the 

criteria for determining [sic] approved 

program length for IME?’’ We 

responded, in part, as follows: 

‘‘* * * we do believe the length of an 

approved program may be of relevance 

in the intermediary’s IME 

determination. The question then is, 

what is to be considered the program’s 

recognized length? In your letter, you 

stated that BCCA’s (Blue Cross of 

California) position is that ‘the approved 

program length is the ACGME published 

accreditation length for the specific 

university.’ We generally agree with this 

position. However, we acknowledge that 

the ACGME published accreditation 

length may reflect only the minimum 

number of years and that in some cases, 

the university’s formal program may be 

longer. For the intermediary to 

recognize a program length that is 

longer than that published by the 

ACGME, the intermediary should expect 

to see that a majority of residents are in 

the program for the same length of time. 

This establishes a base by which 

aberrancies can be identified. There may 

be a legitimate reason for a full-time 

resident to be formally enrolled in an 

approved program for a length of time 

that is greater than the norm, but, again, 

this would need to be explained and 

documented by the provider. If 

residents are serving as fellows or chief 

residents, they must be doing so under 

an approved program to be counted.’’ 

In this response above, we were 

allowing participants in a program that 

extends beyond the minimum 

accredited length to be counted as 

residents for IME (and direct GME) 

purposes if the hospital could document 

to the intermediary that the majority of 

participants were training in the 

program for the same length of time. 

However, based on what we have 

recently learned from the ACGME, this 

position expressed in the 1996 letter is 

not consistent with the ACGME’s 

policy. That is, the time spent in a 

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program beyond the minimum 

accredited length is not recognized by 

the ACGME, even if the majority of the 

participants in the program are training 

beyond the accredited length for the 

same length of time. Accordingly, 

effective for cost reporting periods 

beginning on or after October 1, 2010, 

we are changing our policy regarding 

programs that hospitals operate for 

longer than the accredited (that is, the 

minimum) length. That is, individuals 

training in a program that extends 

beyond the actual accredited length are 

not considered residents for IME and 

direct GME payment purposes for the 

period of time extending beyond the 

minimum accredited length, because 

they are no longer training in an 

accredited program according to the 

ACGME. 

Comment: One commenter 

recommended that CMS adopt a policy 

that in order for a program to be 

approved, it should be at least a year in 

length. The commenter believed that 

this would distinguish formal programs 

from shorter continuing medical 

education and inservice training of 

physicians. 

Response: We are sympathetic to the 

commenter’s recommendation because 

it seems consistent with our existing 

policy regarding what an approved, 

formal, structured program is. As we 

indicated in the proposed rule, since the 

early days of Medicare, prior to the 

enactment of section 1886(h) of the Act, 

when hospitals received payment on a 

reasonable cost basis for ‘‘approved 

educational activities,’’ we defined such 

activities as ‘‘formally organized or 

planned programs of study operated or 

supported by an institution, as 

distinguished from ‘on-the-job,’ 

‘inservice,’ or similar work-learning 

programs’’ (emphasis added) (PRM–I, 

section 402.1). However, we do not 

believe we need to change the 

regulations text to specify that an 

approved program must be ‘‘at least 1 

year in length’’ because we believe that 

programs that meet the definition of 

‘‘approved’’ are 1 year in length. We may 

consider this recommendation for future 

rulemaking if we find that it is 

necessary. 

Comment: One commenter indicated 

that from its experience, certifying 

boards do allow unaccredited training 

as part of the required training, and the 

boards may not want to provide specific 

statements regarding the types of 

allowable unaccredited training in order 

to maintain flexibility in the 

requirements. The commenter 

mentioned that the requirements listed 

by the American Board of Radiology for 

certification in vascular and 

interventional radiology include one 

year of training in an ACGME accredited 

subspecialty program and ‘‘one year of 

practice or additional training (one-third 

of that time) in the subspecialty.’’ 

Accordingly, the commenter stated that 

a hospital may only be able to document 

that unaccredited training was accepted 

by a board after a resident achieved 

certification. 

Response: A distinction should be 

made between training that an 

individual pursues that is in addition to 

the minimum standards required for 

completion of the accredited program 

and for board certification, and 

unaccredited training that is actually 

required for board certification. As we 

stated in response to a previous 

comment, while we understand that 

there could be some degree of 

personalized consideration when an 

individual applies to sit for a board 

examination, this does not mean that all 

of the training that the individual has 

completed is actually required. 

Accordingly, GME payments should not 

be made with respect to training that 

extends beyond the minimum 

requirements. With regard to 

unaccredited training that is actually 

required for board certification, we 

understand that, in certain cases, a 

board may accept unaccredited training 

as fulfilling part of the requirements for 

certification. However, the board would 

not typically accept only unaccredited 

training, nor would a hospital or trainee 

know with certainty whether a 

particular ‘‘training’’ experience will 

ultimately be accepted, if, as the 

commenter mentioned (as in the case of 

vascular and interventional radiology), 

often the training, and its content and 

quality, must be verified by the program 

director and then reviewed by the 

board. Further, we do not believe it is 

prudent or practical to wait until after 

an individual’s training was accepted by 

a board to know if that individual 

should be included in the IME and 

direct GME resident counts. To 

encourage simplicity in administering a 

national program, it is not unreasonable 

for CMS to establish guidelines for 

determining whether an individual 

should be included in the FTE count. 

Therefore, in the absence of 

accreditation and foreknowledge as to 

whether unaccredited training would be 

accepted by a board, it is simpler and 

more practical for such an individual to 

be categorized as a physician, not a 

resident, even if the particular ‘‘training’’ 

is ultimately accepted by the board. 

In the case of vascular and 

interventional radiology subspecialty 

programs, the American Board of 

Radiology (ABR) states that the 

requirements for board certification in 

vascular and interventional radiology 

are (in part) as follows: ‘‘You must 

successfully complete one year of 

fellowship training (after residency) in a 

vascular and interventional radiology 

program accredited by the ACGME or by 

the RCPSC (Canada). You must also 

complete one year of practice or 

additional approved training, with onethird of that year spent in vascular and 

interventional radiology’’ (emphasis 

added). (http://www.theabr.org/ic/ 

ic_vir/ic_vir_req.html). The commenter 

excluded the word ‘‘approved’’ from its 

comment. We have spoken with the 

ABR and learned that ‘‘approved’’ means 

some kind of one year experience (July 

to June) that the ABR would approve, 

not before the training begins, but 

during or toward the end of the training 

year, when the individual registers with 

the ABR in order to schedule the 

examination in vascular and 

interventional radiology. Again, we 

believe that when it is not known with 

certainty at the time an individual 

begins a course of ‘‘training’’ whether the 

board will ultimately accept that 

training, that experience should not be 

counted as a residency for IME and 

direct GME payment purposes. 

A clear example of time that may be 

counted toward board certification but 

certainly should not be considered 

residency training for inclusion in the 

IME and direct GME resident counts is 

practice experience. Regarding the time 

spent in ‘‘one year of practice,’’ while the 

ABR clearly accepts such time as 

counting toward certification, we do not 

believe that during that time in which 

the individual is ‘‘practicing’’ that he or 

she is considered a resident, particularly 

not for IME and direct GME payment 

purposes. It is appropriate for an 

individual who is practicing to be 

billing under the MPFS. With regard to 

the DIRECT pathway (http:// 

www.theabr.org/ic/ic_vir/ 

ic_vir_direct.html), which is another 

method of attaining board certification 

in vascular and interventional 

radiology, PGYs 1 through 6 are training 

years that are accredited by the ACGME. 

Therefore, the trainee can be considered 

a resident during those 6 years. 

However, PGY7 is 12 months of clinical 

practice, and an individual would be 

considered a physician during this year 

and should bill under the MPFS 

accordingly. 

Comment: One commenter urged 

CMS to work with the ABMS to identify 

unaccredited training programs that the 

certifying boards accept toward meeting 

the requirements for board certification, 

so as to establish more clearcut 

guidelines for hospitals to use to 

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identify which programs would be 

considered residencies for GME 

payment purposes under Medicare. 

Response: We believe it is important 

to consult with the accrediting and 

certifying agencies to ensure that our 

policies are consistent with theirs, and 

we welcome communication with them 

now and in the future. However, for the 

purpose of this final rule, we are 

providing clear policy guidance to 

hospitals and Medicare contractors for 

purposes of determining whether an 

individual should be treated as a 

resident or a physician. Essentially, a 

resident for IME and direct GME 

payment purposes is an individual who, 

in accordance with our revised 

definition of ‘‘resident’’ at § 413.75(b), is 

formally accepted, enrolled, and 

participating in an approved medical 

residency program, including programs 

in osteopathy, dentistry, and podiatry, 

as required in order to become certified 

by the appropriate specialty board. The 

program would be ‘‘approved’’ if it is 

either accredited by one of the four 

recognized accrediting bodies, or if not 

accredited, the individual may be 

counted as a ‘‘resident’’ if the individual 

actually needs the training in order to 

meet the standard board certification 

requirements established for that 

specialty. 

Comment: One commenter noted that, 

in addition to clarifying whether an 

individual is a resident or a physician, 

CMS proposed to revise the definitions 

of ‘‘resident’’ and ‘‘primary care resident’’ 

effective for cost reporting periods 

beginning on or after October 1, 2010. 

The commenter asked whether these 

definitions reflect a clarification of 

existing policy, or, as the existence of a 

prospective effective date suggests, a 

change in policy. If it is a change in 

policy, the commenter asked what 

criteria should be applied for periods 

prior to October 1, 2010, in determining 

whether an individual is a resident 

because some contractors have been 

using criteria similar to those described 

in the proposed rule’s preamble to 

determine which individuals should be 

included in the IME and direct GME 

FTE counts. 

Response: In the recent past, we had 

been made aware of a situation at a 

hospital where graduates of allopathic 

medical schools were training in 

programs that were accredited by the 

AOA. The AOA has had a longstanding 

policy that only graduates of osteopathic 

schools may enroll and participate in 

osteopathic residency programs; 

graduates of allopathic medical schools 

may not be accepted and train in 

osteopathic programs. Nevertheless, 

despite this rule, a hospital did train 

allopathic individuals in an osteopathic 

accredited program and sought to count 

those allopathic FTEs in the IME and 

direct GME counts. Because the hospital 

was able to show that at least one of 

those allopathic individuals was able to 

use the osteopathic training toward 

fulfillment of the allopathic board’s 

requirements (and, in fact, successfully 

achieved allopathic board certification), 

the hospital argued that although the 

allopathic individuals were not formally 

enrolled in the AOA accredited program 

(since doing so was against AOA 

policy), the training did count toward 

board certification, as evidenced by the 

one trainee who did successfully sit for 

the allopathic board. Therefore, the 

hospital added, the training of these 

allopathic individuals in the osteopathic 

program was sufficient for all the 

allopathic individuals in the osteopathic 

program to be counted as residents for 

IME and direct GME purposes. 

Because the existing definition of 

‘‘resident’’ at § 413.75(b) states, 

‘‘Resident means an intern, resident, or 

fellow who participates in an approved 

medical residency program, including 

programs in osteopathy, dentistry, and 

podiatry, as required in order to become 

certified by the appropriate specialty 

board’’ (emphasis added), we were 

persuaded to allow the hospital to count 

as residents those allopathic individuals 

who trained in the AOA accredited 

program. We were persuaded because 

those individuals arguably did 

‘‘participate’’ in an otherwise AOAapproved medical residency program as 

required ‘‘in order to become certified by 

the appropriate specialty board.’’ (We 

understand that the hospital has since 

stopped training allopathic graduates in 

the osteopathic accredited program.) We 

note that, in part, the statutory and 

regulatory intent behind the definitions 

of ‘‘approved medical residency training 

program’’ and ‘‘resident’’ is to protect the 

‘‘approved’’ status of training in typical 

accredited programs for residents who 

may participate in the formal program 

but, on rare occasions, may not 

complete their course of training. We do 

not believe the definitions were 

intended to include a program such as 

the particular hospital’s program, 

which, from its inception, in its entirety, 

was not accredited by the AOA, and 

where only on rare occasions did 

participation in the osteopathic program 

count towards certification in an 

ACGME accredited program. However, 

the previous regulation could be read 

differently such that if even one trainee 

went on to become board certified on 

the basis of that training, all participants 

in that program could be counted as 

residents for IME and direct GME 

payment purposes. We believe that it is 

appropriate to close the loopholes that, 

for example, had previously allowed the 

allopathic graduates to be counted as 

residents while inappropriately training 

in an AOA program by clarifying that a 

resident must actually be formally 

enrolled and participating in an 

approved medical residency program. 

Therefore, we proposed to make a 

prospective change to the definition of 

‘‘resident,’’ effective for cost reporting 

periods beginning on or after October 1, 

2010, to emphasize that it is not 

sufficient for an individual to merely 

‘‘participate’’ in an otherwise approved 

medical residency program which may 

ultimately be counted toward board 

eligibility for his or her own 

certification, or the certification of any 

of the other trainees in the program. 

Rather, under the proposed revised 

definition of ‘‘resident’’ and ‘‘primary 

care resident’’ which we are finalizing in 

this final rule, the individual must be 

‘‘formally accepted, enrolled, and 

participating in an approved medical 

residency program, including programs 

in osteopathy, dentistry, and podiatry, 

as required in order to become certified 

by the appropriate specialty board.’’ We 

believe this addition to the definition of 

‘‘resident’’ that the individual must be 

formally accepted and enrolled in the 

program also will further ensure that 

junior faculty or other advanced trainees 

who merely ‘‘participate’’ in some 

training but are not actually formally 

accepted and enrolled in the program 

are not counted as FTEs for IME and 

direct GME purposes. 

To respond to the commenter’s 

specific question as to what criteria 

should be applied for periods prior to 

October 1, 2010, in determining whether 

an individual is a resident, because 

some contractors have been using 

criteria similar to those described in the 

preamble of the proposed rule to 

determine which individuals should be 

included in the IME and direct GME 

FTE counts, we believe that prior to 

October 1, 2010, the existing regulations 

text would be controlling. Thus, much 

of the policy prior to and after October 

1, 2010, is the same. However, as 

explained in response to a previous 

comment, we are changing our policy 

with respect to chief residencies and to 

programs that hospitals operate that 

extend beyond the accredited length. 

Prior to cost reporting periods beginning 

on or after October 1, 2010, according to 

the September 29, 1989 Federal Register 

(54 FR 40305), if it is clear that chief 

residents are actually in formally 

organized approved programs, they 

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could be counted as residents even if 

they have completed the requirements 

for board certification. However, 

effective for cost reporting periods 

beginning on or after October 1, 2010, 

we are changing our policy regarding 

chief residencies that occur after the 

accredited program is completed and 

when minimum requirements for board 

certification are already satisfied. That 

is, individuals that act as chief residents 

after they have completed the accredited 

program and have satisfied minimum 

requirements for board certification are 

not considered residents for IME and 

direct GME payment purposes. 

With regard to programs that are 

offered for longer than the minimum 

accredited length for that specialty, 

prior to cost reporting periods beginning 

on or after October 1, 2010, we are 

allowing participants in a program that 

extends beyond the minimum 

accredited length to be counted as 

residents for IME and direct GME 

purposes if the hospital could document 

to the fiscal intermediary or MAC that 

the majority of participants were 

training in the program for the same 

length of time. However, effective for 

cost reporting periods beginning on or 

after October 1, 2010, we are changing 

our policy regarding programs that 

hospitals extend beyond the minimum 

accredited program length for the 

specialty. That is, individuals training 

in a program that extends beyond the 

actual accredited length are not 

considered residents for IME and direct 

GME purposes for the time extending 

beyond the minimum accredited length 

because such training is not part of the 

accredited program according to the 

ACGME. We would expect that an 

individual who has trained in an 

accredited program for the number of 

years for which the program is 

accredited (for example, in a surgery 

program, this would be 5 years) would 

have satisfied the minimum 

requirements for board certification in 

that specialty. 

Comment: One commenter listed 

several examples of specialties where 

the boards for those specialties require 

unaccredited training for certification. 

The commenter pointed out that, in 

addition to some subspecialties of 

radiology, the American Board of 

Pathology used to require a 

‘‘credentialing’’ year in addition to 

ACGME-accredited training in 

pathology. In addition, in the late 1990s, 

the American Board of Pediatrics 

offered several new certificates in 

subspecialties such as Adolescent 

Medicine, Pediatric Emergency 

Medicine, Developmental-Behavioral 

Pediatrics, although ACGME 

accreditation for these subspecialties 

did not yet exist at that time. Between 

2005 to 2009, the Board of Psychology 

and Neurology allowed a 

‘‘grandfathering period’’ for certain 

fellows who did not participate in 

ACGME-accredited vascular neurology 

programs since 2003. Subspecialties of 

obstetrics and gynecology are currently 

not accredited by the ACGME, but it is 

well known that board certificates are 

available from the American Board of 

Obstetrics and Gynecology for these 

subspecialties. The commenter listed 

other examples of unaccredited training 

accepted by various boards, with the 

point being that CMS should allow 

participants in these programs to be 

counted in the IME and direct GME FTE 

counts. 

Response: We understand that, 

historically, it was not unusual for a 

particular board to begin offering 

certificates in a subspecialty prior to the 

ACGME’s establishment of accreditation 

standards for those programs. Training 

in a specialized area may go on for 

several years before it is recognized by 

ACGME as an accredited sub-specialty. 

We understand that the certifying 

boards, in certain instances, allow for 

individuals who have received 

applicable training prior to the existence 

of board certification in a subspecialty 

to be ‘‘grandfathered’’ and receive a 

board certificate even though there was 

no board examination in existence yet at 

the time of the individual’s training, and 

the training was not accredited by 

ACGME. However, this practice varies 

by board and subspecialty; there is no 

uniform policy. Regardless, for 

Medicare IME and direct GME purposes, 

if at the time of the individual’s 

training, there did not exist either 

ACGME accreditation or a specific 

board certificate in that subspecialty, 

those individuals could not be 

considered residents during their 

training, nor could a hospital 

subsequently request reopening of its 

contemporaneous cost reports to 

include those individuals in the FTE 

count after the fact once board 

certification or ACGME accreditation 

becomes available for that program. As 

we stated above, in the absence of 

accreditation and foreknowledge as to 

whether unaccredited training would be 

accepted by a board, the individual 

should be categorized as a resident for 

IME and direct GME purposes, even if 

the particular ‘‘training’’ is ultimately 

accepted by the board. 

With respect to subspecialties of 

obstetrics and gynecology, those 

subspecialties continue to not be 

accredited by the ACGME. It is widely 

known that the American Board of 

Obstetrics and Gynecology 

independently recognizes and offers 

certification to participants in those 

subspecialties. We believe that trainees 

in subspecialties of obstetrics and 

gynecology for which an explicit board 

certification is offered are considered 

residents, in accordance with the 

definition of ‘‘approved medical 

residency training program’’ at 

§ 413.75(b). 

We received some comments that 

were not within the scope of the 

proposals, such as funding for second 

year pharmacy residencies and what 

constitutes a new medical residency 

training program. We are not responding 

to these comments at this time. 

After consideration of the public 

comments we received, we are adopting 

as final, with some modification, our 

proposed revisions. Specifically, we are 

clarifying that individuals participating 

in a specialized course of training 

created by a senior physician, and not 

under the auspices of a national 

accrediting body, and for which there is 

no explicit existing board certification 

examination, may not be counted for 

IME and direct GME payment purposes. 

Such individuals should be treated as 

physicians (assuming full licensure) and 

their services billed to Medicare for 

payment as physicians’ services. If an 

individual has already successfully 

completed at least one residency 

program and has met the generally 

applicable requirements to be board 

eligible in a specialty (regardless of 

whether the individual has passed the 

board examination for that specialty), 

and is engaged in subsequent training 

that will not provide additional 

knowledge or skills that could be 

applied for board certification in 

another different subspecialty, the 

individual will be treated and bill for 

services provided as a physician 

(assuming full licensure). We are 

making a technical change to the 

definition of ‘‘approved medical 

residency program’’ under § 415.152 

relating to payment for physician 

services in teaching settings. We also are 

revising the definition of ‘‘resident’’ at 

§ 413.75(b) to mean ‘‘an intern, resident, 

or fellow who is formally accepted, 

enrolled, and participating in an 

approved medical residency program, 

including programs in osteopathy, 

dentistry, and podiatry, as required in 

order to become certified by the 

appropriate specialty board.’’ We are 

making a conforming change to the 

definition of ‘‘primary care resident’’ to 

mean ‘‘a resident who is formally 

accepted, enrolled, and participating in 

an approved medical residency training 

program in family medicine, general 

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internal medicine, general pediatrics, 

preventive medicine, geriatric medicine 

or osteopathic general practice.’’ These 

change in the definitions of ‘‘resident’’ 

and ‘‘primary care resident’’ are effective 

for IME and direct GME for cost 

reporting periods beginning on or after 

October 1, 2010. Essentially, a resident 

for IME and direct GME purposes is an 

individual who, in accordance with our 

revised definition of ‘‘resident’’ at 

§ 413.75(b), is formally accepted, 

enrolled, and participating in an 

approved medical residency program, 

including programs in osteopathy, 

dentistry, and podiatry, as required in 

order to become certified by the 

appropriate specialty board. The 

program would be an ‘‘approved 

program’’ if it is either accredited by one 

of the four recognized accrediting 

bodies, or if not accredited, the 

individual who is formally accepted, 

enrolled, and participating in the 

program actually needs the training in 

order to meet the established minimum 

standards for board certification 

requirements in that specialty. 

With regard to chief residencies, 

effective for cost reporting periods 

beginning on or after October 1, 2010, 

we are changing our policy to provide 

that individuals that act as chief 

residents after they have completed the 

accredited program and have satisfied 

minimum requirements for board 

certification are not considered 

residents for IME and direct GME 

payment purposes. With regard to 

programs that are extended by a hospital 

for longer than the minimum accredited 

length for that specialty, effective for 

cost reporting periods beginning on or 

after October 1, 2010, we are changing 

our policy to provide that such training 

is not part of an approved program. That 

is, individuals training in a program that 

extends beyond the actual accredited 

program length are not considered 

residents for IME and direct GME 

purposes because they are no longer 

training in an accredited program 

according to the ACGME. 

3. Electronic Submission of Affiliation 

Agreements 

Sections 1886(h)(4)(F) and 

1886(d)(5)(B)(v) of the Act establish 

limits on the number of allopathic and 

osteopathic FTE residents that hospitals 

may count for purposes of calculating 

direct GME payments and the IME 

adjustment. In addition, under the 

authority granted by section 

1886(h)(4)(H)(ii) of the Act, the 

Secretary issued regulations on May 12, 

1998 (63 FR 26358) to allow institutions 

that are members of the same Medicare 

GME affiliated group to elect to apply 

their direct GME and IME FTE resident 

caps based on the aggregate cap of all 

hospitals that are part of the Medicare 

GME affiliated group. Under the 

regulations, specified at § 413.79(f) for 

direct GME and at § 412.105(f)(1)(vi) for 

IME, hospitals that are part of the same 

Medicare GME affiliated group are 

permitted to adjust their caps to reflect 

the rotation of residents among affiliated 

hospitals during an academic year. 

Under § 413.75(b), a Medicare GME 

affiliated group may be formed by two 

or more hospitals (1) If the hospitals are 

located in the same urban or rural area 

or in a contiguous area and have a 

shared rotational arrangement as 

specified at § 413.79(f)(2); or (2) if the 

hospitals are not located in the same or 

in a contiguous area, but have a shared 

rotational arrangement and they are 

jointly listed as the sponsor, primary 

clinical site, or major participating 

institution for one or more programs as 

these terms are used in the most recent 

publication of the Graduate Medical 

Education Directory, or are jointly listed 

as the sponsor is listed under 

‘‘affiliations and outside rotations’’ for 

one or more programs in Opportunities, 

Directory of Osteopathic Post-doctoral 

Education Programs; or (3) effective 

beginning July 1, 2003, if the hospitals 

are under common ownership and have 

a shared rotational arrangement under 

§ 413.79(f)(2). 

The existing regulations at 

§ 413.79(f)(1) specify that each hospital 

in a Medicare GME affiliated group 

must submit a Medicare GME affiliation 

agreement (as defined under § 413.75(b)) 

to the CMS fiscal intermediary or MAC 

servicing the hospital and send a copy 

of the agreement to CMS’ Central Office 

no later than July 1 of the residency 

program year during which the 

Medicare GME affiliation agreement 

will be in effect. For example, in order 

for a hospital to receive a temporary 

adjustment to its FTE resident caps to 

reflect participation in a Medicare GME 

affiliated group for the academic year 

July 1, 2009–June 30, 2010, each 

hospital in the affiliated group had to 

submit a Medicare GME affiliation 

agreement to the fiscal intermediary or 

MAC servicing the hospital and send a 

copy of the agreement to CMS’ Central 

Office no later than July 1, 2009. 

As we discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule, over the last 

several years, we have received 

numerous inquiries regarding the 

possibility of submitting the Medicare 

GME affiliation agreement 

electronically. To date, CMS has only 

accepted signed hard copies of Medicare 

GME affiliation agreements. Facsimile 

(FAX) and other electronic submissions 

of affiliation agreements have not been 

acceptable means of transmission of 

affiliation agreements to CMS Central 

Office in order for a hospital to meet the 

requirements of §§ 413.79(f) and 

412.105(f)(1)(vi). 

The increasing frequency of these 

inquiries and our concerns regarding the 

environment and paperwork reduction 

have prompted us to reconsider our 

procedure for hospitals to submit 

Medicare GME affiliation agreements to 

the CMS Central Office. Accordingly, in 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24008) we proposed to 

change our policy to provide for 

electronic submission of the affiliation 

agreement that is required to be sent to 

the CMS Central Office. We indicated 

that this proposal would not affect the 

authority of the fiscal intermediary or 

MAC to continue to specify its 

requirements for submission for 

hospitals in its servicing area. 

We proposed an electronic 

submission process that would consist 

of either an e-mail mailbox or a Web site 

where hospitals would submit their 

Medicare GME affiliation agreements to 

the CMS Central Office. As part of this 

process, a copy of the Medicare GME 

affiliation agreement would need to be 

received through the electronic system 

no later than 11:59 p.m. on July 1 of 

each academic year. We proposed that 

the electronic affiliation agreement 

would need to be submitted either as a 

scanned copy or a Portable Document 

Format (PDF) version of that hard copy 

agreement or in another electronic 

format that cannot be subject to 

manipulation. This requirement will 

enable CMS to ensure that the 

agreements are signed and dated as 

required in the regulations at § 413.75. 

Comment: Commenters supported the 

proposal for the electronic submission 

process for affiliation agreements and 

stated that it would help reduce 

hospitals’ administrative burdens. Many 

commenters also stated that the 

proposed electronic process was a 

logical and more administratively 

simple method of submitting affiliation 

agreements. Several commenters 

suggested that CMS provide hospitals 

with documentation of the agency’s 

receipt of the electronic submissions of 

their affiliation agreements, due to the 

time sensitive nature of this policy. 

Response: We appreciate these 

commenters’ support for the proposed 

process. As we begin the development 

of the electronic submission system for 

affiliation agreements, we intend to 

include a mechanism within that system 

for acknowledging receipt of the 

agreements to hospitals upon the 

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submission of their agreements, as the 

commenters suggested. 

Comment: One commenter praised 

CMS’ efforts to ease the paperwork 

burden for hospitals, but also claimed 

that the proposal was not far-reaching 

enough toward that end. The 

commenter requested that CMS 

establish an electronic submission 

process that was easy to use and that 

fiscal intermediaries and MACs are 

required to use to receive affiliation 

agreements as well. The commenter also 

recommended that CMS ease the 

Medicare GME affiliation agreement 

criteria in general and allow affiliation 

agreements to become effective as of the 

date that the agreement is filed with the 

CMS Central Office. 

Response: We appreciate these 

comments, and we will take them into 

consideration for the future as we plan 

to implement the electronic submission 

system that will accept affiliation 

agreements. One of the goals in 

planning the development of the system 

is to make the system user-friendly as 

possible. 

The comments that we received 

regarding the criteria for affiliation 

agreements are not within the scope of 

the proposed rule. Therefore we are not 

addressing them in this final rule. We 

did not propose to make any additional 

changes to our policies regarding 

Medicare GME affiliation agreements for 

FY 2011. 

After consideration of the public 

comments we received, we are 

finalizing our proposed policy for 

accepting electronic submission of 

Medicare GME affiliation agreements. 

We believe that allowing the electronic 

submission of affiliation agreements to 

the CMS Central Office will assist CMS 

in more effectively tracking the groups 

of hospitals that affiliate as well as the 

numbers of FTE cap slots that are being 

transferred within those groups. In 

addition, we believe an electronic 

submission process will minimize the 

paperwork burden for hospitals. 

We are currently in the process of 

developing the electronic submission 

system for Medicare GME affiliation 

agreements. If a system is developed 

that is ready to receive affiliation 

agreements for the academic year 

beginning July 1, 2011, we will notify 

teaching hospitals by May 2011 of the 

electronic submission process in order 

to allow ample time for the preparation 

and electronic submission of affiliation 

agreements before the July 1, 2011 

deadline. We will continue to accept 

hard copies of affiliation agreements 

even if the electronic submission system 

is in operation for the academic year 

beginning July 1, 2011. Hard copies of 

affiliation agreements should continue 

to be sent to: Director, Division of Acute 

Care, Centers for Medicare and 

Medicaid Services, Attn: Tzvi Hefter, 

Mailstop C4–08–06, 7500 Security 

Boulevard, Baltimore, MD 21244. 

4. Technical Correction to the 

Regulations Relating to the Cost of 

Approved Nursing and Allied Health 

Education Activities 

Medicare has historically paid 

providers for the program’s share of the 

costs that providers incur in connection 

with approved educational activities, 

which can be divided into three 

categories: (1) The costs of approved 

GME programs in medicine, osteopathy, 

dentistry and podiatry; (2) approved 

nursing and allied health education 

activities operated by a provider; and (3) 

all other costs that can be categorized as 

educational programs and activities that 

are considered to be part of normal 

operating costs. Existing regulations on 

nursing and allied health education 

program costs are located at § 413.85. 

Costs of approved nursing and allied 

health education programs that are 

operated by a provider are excluded 

from the definition of inpatient hospital 

operating costs and are not included in 

the calculation of the payment rates for 

hospitals paid under the IPPS or in the 

calculation of the payments to hospitals 

and hospital units excluded from the 

IPPS. These costs are separately 

identified and ‘‘passed through’’ (that is, 

paid separately on a reasonable cost 

basis). 

We recently discovered that a passage 

in the January 12, 2001 Nursing and 

Allied Health Education final rule (66 

FR 3371) incorrectly states that passthrough payment for the time students 

train in hospital outpatient departments 

is not allowed. That is, the passage 

incorrectly indicates that pass-through 

payment is only allowed for training 

while providing care directly to hospital 

inpatients. The regulations in two 

places at § 413.85 also incorrectly limit 

the allowable costs to the inpatient areas 

of the hospital as follows: (1) ‘‘Approved 

educational activities’’ are defined at 

§ 413.85(c)(2), in part, as programs that 

‘‘Enhance the quality of inpatient care at 

the provider,’’ (emphasis added); and (2) 

under the general payment rules at 

§ 413.85(d)(1)(i)(C), payment for the net 

costs of nursing and allied health 

education activities is determined on a 

reasonable cost basis, if, in part, the 

approved medical education activity 

‘‘Enhances the quality of inpatient care 

at the provider’’ (emphasis added). 

However, we note that the Provider 

Reimbursement Manual, Part 1, section 

402.1.A, states that the ‘‘approved 

educational activity’’ must be ‘‘designed 

to enhance the quality of health care in 

the institution or to improve the 

administration of the institution’’ 

(emphasis added). The PRM expresses 

the correct longstanding policy, 

indicating that both inpatient and 

outpatient training costs are allowable 

for pass-through payment. We are 

correcting the regulations at 

§ 413.85(c)(2) and § 413.85(d)(1)(i)(C) to 

indicate that ‘‘approved educational 

activities’’ are those that ‘‘Enhance the 

quality of health care at the provider.’’ 

However, costs of training activities 

occurring in areas of the hospital other 

than the IPPS or OPPS areas or in 

nonprovider settings continue to not be 

allowed for pass-through payment. 

I. Certified Registered Nurse Anesthetist 

(CRNA) Services Furnished in Rural 

Hospitals and CAHs (§ 412.113) 

Section 2312 of the Deficit Reduction 

Act of 1984 (Pub. L. 98–369) provided 

for reimbursement to hospitals on a 

reasonable cost basis for the costs that 

hospitals incur in connection with the 

services of certified registered nurse 

anesthetists (CRNAs). Section 2312(c) 

provided that pass-through of CRNA 

costs was effective for cost reporting 

periods beginning on or after October 1, 

1984, and before October 1, 1987. 

Section 9320 of the Omnibus Budget 

Reconciliation Act of 1986 (Pub. L. 99– 

509) (which established a fee schedule 

for the services of nurse anesthetists) 

amended section 2312(c) of Pub. L. 98– 

369 by extending the CRNA passthrough provision through cost 

reporting periods beginning before 

January 1, 1989. In addition, Public Law 

99–509 amended section 1861 of the Act 

to add a new subsection (bb), which 

provides that CRNA services include 

anesthesia services and related care 

furnished by a CRNA. Section 608 of the 

Family Support Act of 1988 (Pub. L. 

100–485) extended pass-through 

payments for CRNA services through 

1991 and amended section 9320 of 

Public Law 99–509 by including 

language referring to eligibility for passthrough payments for CRNA services if 

the facility is ‘‘* * * a hospital located 

in a rural area (as defined for purposes 

of section 1886(d) of the Social Security 

Act). * * *’’ Reasonable cost-based 

payment for CRNA services was 

extended indefinitely by section 6132 of 

the Omnibus Budget Reconciliation Act 

of 1989 (Pub. L. 101–239). 

Section 1886(d) of the Act defines 

‘‘rural’’ as any area outside an urban 

area. This definition of ‘‘rural’’ was in 

effect when Public Law 100–485 was 

implemented. In 1999, the Balanced 

Budget Refinement Act (Pub. L. 106– 

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113) amended section 1886(d)(8) of the 

Act by adding a new subparagraph (E), 

which permits a hospital physically 

located in an urban area to apply for 

reclassification to be treated as rural. In 

addition, Public Law 106–113 made a 

corresponding change to section 

1820(c)(2)(B)(i) of the Act, which 

specifies the location requirements for 

CAH designation, by adding the phrase 

‘‘or is treated as being located in a rural 

area pursuant to section 1886(d)(8)(E).’’ 

The regulations implementing passthrough payments for anesthesia 

services and related care furnished by 

qualified nonphysician anesthetists 

employed by a hospital or CAH, 

including CRNAs, are located at 

§ 412.113(c). Section 412.113(c)(2)(i)(A) 

specifies the location requirement for 

facilities that furnish these services and 

are eligible to be paid based on 

reasonable cost for the services. The 

regulations require that the hospital or 

CAH be located in a rural area as 

defined at § 412.62(f) and not be deemed 

to be located in an urban area under the 

provisions of § 412.64(b)(3). The 

regulations at § 412.62(f) mirror section 

1886(d)(2)(D) of the Act and define a 

rural area as ‘‘* * * any area outside an 

urban area.’’ The regulations at 

§ 412.64(b)(3) implement section 

1886(d)(8)(B) of the Act, also known as 

the ‘‘Lugar’’ provision, which requires a 

hospital located in a rural county 

adjacent to one or more urban areas to 

be treated as being located in the urban 

metropolitan statistical area to which 

the greatest number of workers in the 

county commute. 

Under existing regulations, neither 

CAHs nor hospitals that have 

reclassified from urban to rural under 

the regulations at § 412.103 and neither 

CAHs nor hospitals located in Lugar 

counties are eligible to receive passthrough payments for anesthesia 

services and related care furnished by 

qualified nonphysician anesthetists. 

However, because the statute, as revised 

by section 608 of Public Law 100–485, 

allows reasonable cost payments for 

CRNA services if the facility is a 

hospital located in a rural area as 

defined for purposes of section 1886(d) 

of the Act, we believe our regulations 

should likewise permit urban hospitals 

that have been reclassified as rural 

under section 1886(d)(8)(E) of the Act to 

qualify for these payments. Therefore, in 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24010), we proposed to 

revise § 412.113(c)(2)(i)(A) to state that, 

effective for cost reporting periods 

beginning on or after October 1, 2010, 

CAHs and hospitals that have 

reclassified pursuant to section 

1886(d)(8)(E) of the Act and § 412.103 of 

the regulations also are rural for 

purposes of section 1886(d) of the Act 

and, therefore, are eligible to be paid 

based on reasonable cost for anesthesia 

services and related care furnished by a 

qualified nonphysician anesthetist. 

We did not propose to change our 

regulations to permit Lugar facilities to 

be paid based on reasonable cost for 

anesthesia services and related care 

furnished by qualified nonphysician 

anesthetists. As noted above, in order to 

be paid based on reasonable cost for 

anesthesia services and related care 

furnished by a qualified nonphysician 

anesthetist, a hospital or CAH must be 

considered rural for purposes of section 

1886(d) of the Act. Lugar facilities 

(facilities that have been reclassified 

under §§ 412.63(b)(3) and 412.64(b)(3)) 

are considered urban for purposes of 

section 1886(d) of the Act. As a result, 

in the proposed rule, we stated that we 

do not believe it would be consistent 

with the statute and our regulations to 

permit these facilities to also be paid on 

a reasonable cost basis for anesthesia 

services and related care furnished by 

qualified nonphysician anesthetists. 

Comment: Several commenters 

supported CMS’ proposal to provide for 

reasonable cost-based payment for 

anesthesia services and related care 

furnished by qualified nonphysician 

anesthetists in rural hospitals and CAHs 

that have reclassified under § 412.103. 

One commenter stated there are three 

facilities in its State that would now 

qualify for CRNA reasonable cost-based 

payments and that the State hospital 

association had been working with CMS 

and Congress for several years to 

address this issue. One commenter 

stated that the role of CRNAs in small 

rural CAHs includes, in addition to 

administering and maintaining 

anesthesia, airway management, IV 

starts, and other triage, trauma, and 

emergency services. The commenter 

stated that, at its facility, CRNAs take 

call 24 hours a day, 7 days a week and 

their clinical skills help to provide 

constant emergency and obstetric 

services. Another commenter in a large 

State noted that the proposed policy 

would increase access to essential 

anesthesia services in rural areas of the 

State, allowing CAHs and rural 

hospitals to provide continuous surgical 

and maternity coverage. One commenter 

stated the proposed policy would allow 

three CAHs in its State, which 

previously received CRNA reasonable 

cost-based payments and were excluded 

from such payment in 2005, to once 

again be paid based on reasonable cost 

for anesthesia services and related care 

furnished by qualified nonphysician 

anesthetists. 

Response: We appreciate the 

commenters’ support of CMS’ proposed 

policy to provide rural hospitals and 

CAHs that have reclassified under 

§ 412.103 with reasonable cost-based 

payments for anesthesia services and 

related care furnished by qualified 

nonphysician anesthetists. 

Comment: Although commenters 

supported the proposed policy 

regarding payment for services provided 

by qualified nonphysician anesthetists, 

the majority of commenters disagreed 

with CMS’ statement in the proposed 

rule that it was not proposing to change 

its policy to provide for reasonable costbased payment for services furnished by 

qualified nonphysician anesthetists in 

facilities located in Lugar counties (75 

FR 24011). Several commenters stated 

that, in the proposed rule, CMS 

proposed to revise the regulations, 

which limited reimbursement for CRNA 

services provided in CAHs to the 

Medicare Resource-Based Relative 

Value Scale, to allow for cost-based 

reimbursement for these services. The 

commenters stated that while the 

proposed rule would allow for 

reimbursement for CRNA services based 

on cost, the proposal does not include 

CAHs located in Lugar counties; 

instead, these facilities would continue 

to be reimbursed using the Medicare 

Physician Fee Schedule. The 

commenters stated that this policy 

approach is inappropriate. Commenters 

stated that they believed there may be 

some confusion that CAHs located in 

Lugar counties receive a financial 

advantage. These commenters stated 

that CAHs located in Lugar counties do 

not receive any benefit from being 

located in such counties because CAHs 

are reimbursed based on cost and not 

based on Medicare DRG payments. 

Commenters stated that CAHs located in 

Lugar counties are faced with ‘‘double 

jeopardy’’ because these CAHs do not 

receive the higher DRG payments that 

IPPS hospitals receive as a result of 

being located in a Lugar county, nor do 

they receive CRNA reasonable costbased payments. Commenters stated 

that very few CAHs are located in Lugar 

counties and therefore a change in CMS’ 

policy to enable these CAHs to receive 

CRNA reasonable cost-based payments 

would have a very small financial 

impact on the Medicare program. 

Another commenter stated that in its 

State, there are at least 13 CAHs that 

would be negatively affected by the 

proposed provision. 

Commenters referenced the FY 2006 

IPPS final rule (70 FR 47469), where 

CMS stated the Lugar provision does not 

apply in determining CAH status 

because the Lugar provision applies for 

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purposes of payment under the IPPS 

and CAHs are not subject to the IPPS. 

The commenters stated that as a result 

of the policy published in the FY 2006 

IPPS final rule, CAHs located in Lugar 

counties have not sought to reclassify as 

rural for purposes of CAH designation. 

Many commenters stated that it is 

inappropriate for CMS to state that 

Lugar designation does not apply to 

CAHs in one context, for determining 

CAH eligibility, but does apply for the 

purpose of determining whether a CAH 

will receive CRNA reasonable costbased payments. One commenter 

requested that if CMS does not change 

its policy with respect to CAHs located 

in Lugar counties and CRNA reasonable 

cost-based payment that ‘‘* * * the 

broad powers conferred upon the 

Secretary by Congress be used to resolve 

such conflict and correct this issue for 

CAHs located in Lugar counties.’’ One 

commenter stated that, in 2005–2006, 

CMS issued provisions allowing 

facilities already certified as CAHs, 

which were classified as urban, an 

opportunity to reclassify as rural based 

on either the CAH’s ability to comply 

with either the Federal or State 

definition of rural. The commenter 

referenced language included in an 

April 25, 2005 memorandum which 

referred to a proposal discussed in the 

FY 2006 IPPS proposed rule, in which 

CMS proposed to clarify that CAHs that 

were located in a county that, in FY 

2004, was not part of a Lugar county, 

but as of FY 2005 were included in such 

a county as a result of the labor market 

area definitions announced by OMB on 

June 6, 2003, had through September 30, 

2006, to reclassify as rural under 

§ 412.103 of the regulations. The 

commenter stated that the two CAHs in 

its State located in Lugar counties were 

reclassified as rural prior to October 

2006, and these facilities were able to 

maintain their CAH status. The 

commenter stated that ‘‘Excluding CAHs 

located in Lugar counties, because of 

lack of clarity with [the] definition and 

fear [that] Lugar county reimbursement 

is an advantage for CRNAs, is not 

accurate.’’ One commenter stated that 

CMS’ proposal not to permit CAHs 

located in Lugar counties to receive 

CRNA reasonable cost-based payments 

is not supported by section 

1886(d)(8)(B) of the Act. The commenter 

stated that the only basis for excluding 

rural CAHs such as its facility, is that 

CMS believes that section 1886(d)(8)(B) 

of the Act converts these CAHs into 

urban facilities if they are located in 

Lugar counties. The commenter quoted 

the statutory language at section 

1886(d)(8)(B) of the Act: ‘‘For purposes 

of this section, the Secretary shall treat 

a hospital located in a rural county 

adjacent to one or more urban areas as 

being located in the urban metropolitan 

statistical area * * *’’ (emphasis added 

by commenter). The commenter further 

referred to section 1861(e) of the Act, 

which states the ‘‘* * * term ‘hospital’ 

does not include, unless the context 

otherwise requires, a critical access 

hospital (as defined in section 

1861(mm)(1)).’’ The commenter stated 

that because section 1886(d)(8)(B) of the 

Act describes the geographic 

classification for subsection 1886(d) 

hospitals, which CAHs are not, ‘‘it is 

clear that the ‘context does not require’ 

incorporating CAHs into the definition 

of hospital for such purposes.’’ 

Therefore, the commenter believes 

section 1886(d)(8)(B) of the Act, does 

not change CAHs located in Lugar 

counties into urban facilities. The 

commenter stated that because CAHs in 

Lugar counties do not lose their rural 

status, they must remain eligible for 

CRNA reasonable cost-based payments 

despite being located in a Lugar county. 

The commenter stated that its facility 

did not apply for reclassification under 

§ 412.103 when it applied for CAH 

designation, which supports the claim 

that its facility (a CAH located in a 

Lugar county) is a rural facility. 

Response: We thank the commenters 

for their comments. In response to the 

commenters who stated that CMS 

proposed to revise a longstanding 

regulation that limited Medicare 

reimbursement for CRNA services 

provided in CAHs to the Medicare 

Resource-Based Relative Value Scale 

amounts in lieu of cost, we note that 

CAHs located in a rural area as defined 

at section 1886(d)(2)(D) of the Act were 

eligible to receive CRNA reasonable 

cost-based payments prior to this final 

rule. In response to the commenter who 

referred to a provision included in the 

FY 2006 IPPS proposed rule, where 

CMS proposed to clarify that CAHs 

located in Lugar counties as a result of 

the labor market areas definitions 

announced by OMB on June 6, 2003, 

could reclassify as rural through 

September 30, 2006, we note that, in the 

FY 2006 IPPS final rule, we adopted a 

policy that, for purposes of CAH 

participation, a CAH located in a Lugar 

county is considered to be located in a 

rural area. In response to the 

commenters who disagreed with our 

proposal not to extend reasonable costbased payments for nonphysician 

anesthesia services to facilities located 

in Lugar counties, we continue to 

believe, consistent with the plain 

language of the applicable statutory 

provisions, that it is appropriate to 

exclude hospitals and CAHs located in 

Lugar counties from reasonable costbased payment for anesthesia services 

and related care furnished by qualified 

nonphysician anesthetists. Section 608 

of the Family Support Act of 1988 (Pub. 

L. 100–485) amended section 9320 of 

the Omnibus Budget Reconciliation Act 

of 1986 (Pub. L. 99–509) to state: ‘‘* * * 

the amendments made by this section 

shall not apply during 1989, 1990, and 

1991 to a hospital located in a rural area 

(as defined for purposes of section 

1886(d) of the Social Security Act) 

***’’ (emphasis added). Section 

1886(d) of the Act includes both 

sections 1886(d)(8)(B), the Lugar 

provision, and section 1886(d)(8)(E), the 

reclassification provision. Section 

1886(d)(8)(B) of the Act treats facilities 

located in Lugar counties as urban 

facilities and section 1886(d)(8)(E), 

treats urban facilities that have 

reclassified under that section as rural 

facilities. Therefore, ‘‘as defined for 

purposes of section 1886(d) of the Social 

Security Act’’ clearly indicates that 

Lugar facilities are urban for purposes of 

receiving CRNA reasonable cost-based 

payment and those facilities that have 

reclassified under section 1886(d)(8)(E) 

of the Act are rural for purposes of 

receiving CRNA reasonable cost-based 

payments. 

In response to commenters who stated 

CMS’ position that facilities located in 

Lugar counties can be granted CAH 

status but these same facilities are not 

eligible to receive CRNA reasonable 

cost-based payments is inconsistent, 

CAH status and CRNA reasonable costbased payments are determined through 

the application of two separate and 

distinct provisions under the Act. 

Section 1820(c)(2)(B)(i) of the Act 

permits a facility to qualify for 

designation as a CAH only if it is 

located ‘‘in a rural area (as defined in 

section 1886(d)(2)(D)) or is being treated 

as being located in a rural area pursuant 

to section 1886(d)(8)(E). * * *’’ Because 

section 1820(c)(2)(B)(i) of the Act does 

not include any reference to the Lugar 

provision (section 1886(d)(8)(B) of the 

Act), we do not believe that the statute 

requires CMS to treat a facility as being 

in an urban area for purposes of CAH 

participation if it is in a Lugar county. 

That is, the specific omission of section 

1886(d)(8)(B) from section 

1820(c)(2)(B)(i) of the Act indicates that 

being located in a Lugar county may be 

considered irrelevant for purposes of 

CAH designation. Consistent with this 

reading of section 1820(c)(2)(B)(i) of the 

Act, in the FY 2006 IPPS final rule, we 

amended the CAH regulations at 

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§ 485.610(b)(1)(i) to remove all 

references to a facility being recognized 

as urban under the regulations 

implementing the Lugar provision. The 

effect of this change was that facilities 

in Lugar counties are now considered to 

be located in rural areas for purposes of 

CAH participation. In the FY 2006 IPPS 

final rule, we emphasized that this 

change was ‘‘effective only for purposes 

of CAH participation and will not 

otherwise affect the status of hospitals 

or CAHs in Lugar counties (70 FR 

47469). 

In contrast, in order to qualify for 

reasonable cost-based payments for 

CRNA services, a facility must be rural 

‘‘as defined for purposes of section 

1886(d) of the Social Security Act,’’ 

which we believe includes all of the 

designations at section 1886(d) of the 

Act, including sections 1886(d)(8)(B) 

and 1886(d)(8)(E). Because section 608 

of the Family Support Act of 1988 refers 

to all of section 1886(d) of the Act, we 

interpret this to encompass all of the 

area designations included in section 

1886(d) of the Act, including section 

1886(d)(8)(B). That is, because section 

608 of the Family Support Act 

referenced section 1886(d) of the Act 

and not just section 1886(d)(2)(D), we 

continue to believe it is appropriate to 

preclude CRNA reasonable cost-based 

payments to those hospitals and CAHs 

located in Lugar counties. In addition, 

we believe that if we recognize as rural 

the urban-to-rural hospitals that have 

reclassified under section 1886(d)(8)(E) 

of the Act, we should also recognize as 

urban the Lugar hospitals that are 

redesignated pursuant to section 

1886(d)(8)(B) of the Act. Both of these 

provisions are incorporated within 

subsection (d), and we believe it is most 

internally consistent to recognize both 

reclassifications, rather than recognizing 

one type of reclassification without 

recognizing the other. Finally, we note 

that hospitals and CAHs located in 

Lugar counties could apply to reclassify 

under § 412.103 of the regulations and 

thus become eligible to receive 

reasonable cost-based payments for 

anesthesia services and related care 

furnished by qualified nonphysician 

anesthetists. 

Comment: One commenter opposed 

CMS’ proposal to reimburse facilities 

that have reclassified under § 412.103 at 

100 percent of reasonable cost for 

anesthesia and related services provided 

by qualified nonphysician anesthetists. 

The commenter stated that, starting in 

2002, when the regulations were revised 

to increase the cap on surgical 

procedures from 500 to 800 to qualify 

for CRNA reasonable cost-based 

payments, the commenter requested that 

CMS review the law and its regulations 

to determine whether the regulations 

could be revised to include 

anesthesiologists in the same reasonable 

cost-based payments that other 

anesthesia providers receive. The 

commenter stated that not providing 

equitable payment to anesthesiologists 

who work in rural settings prohibits 

patients from receiving high-level 

anesthesia services, which CRNAs lack 

the training or licensure to provide. The 

commenter stated CMS’ current 

regulations regarding reasonable costbased payment for anesthesia services 

discourages rural hospitals from 

employing or contracting with 

anesthesiologists. The commenter stated 

that, due to the lack of anesthesiologists 

in rural hospitals, these hospitals are 

forced to transfer medically complex 

patients to large urban hospitals, which 

results in greater risk and inconvenience 

to the patient. The commenter urged 

CMS not to finalize its proposal until all 

anesthesia providers are eligible to be 

paid based on reasonable cost. The 

commenter stated that not finalizing 

CMS’ proposal is reasonable due to the 

uncertainty of how many facilities 

would be affected by the proposed 

change. The commenter urged CMS to 

extend reasonable cost-based payments 

to services provided by 

anesthesiologists in rural hospitals and 

CAHs, and if such a change cannot be 

made through regulations and CMS 

makes this determination publicly, that 

CMS recommend to Congress that the 

statute be amended to provide for 

reasonable cost-based payments for 

anesthesiologist services provided by 

anesthesiologists in rural hospitals and 

CAHs. The commenter requested if CMS 

cannot establish the current number of 

facilities that would be eligible for 

reasonable cost-based payments, prior to 

making any change which would 

expand the number of facilities that 

could be eligible for reasonable costbased payments, CMS should provide a 

list of hospitals or CAHs that would 

have been eligible to receive reasonable 

cost-based payments in previous years. 

Response: Reasonable cost-based 

payment for anesthesia services and 

related care does not apply to physician 

anesthesiologists under section 6132 of 

the Omnibus Budget Reconciliation Act 

of 1989 (Pub. L. 101–239) and prior 

applicable legislation. Physician 

anesthesiologists receive payment under 

the Medicare Physician Fee Schedule. 

Therefore, under current law, CMS does 

not have the authority to extend 

reasonable cost-based payment to rural 

hospitals and CAHs for anesthesia 

services and related care furnished by 

physician anesthesiologists. We 

appreciate the commenter’s concern that 

access to high-level anesthesia services 

may not be adequate in rural areas 

because there may be a limited number 

of physician anesthesiologists practicing 

in these areas. However, we believe that 

not finalizing our proposal to extend 

reasonable cost-based payments for 

services furnished by qualified 

nonphysician anesthetists in rural 

hospitals and CAHs that reclassified 

under § 412.103 would run counter to 

this very concern, that access to 

anesthesia services is limited in rural 

areas. That is, not extending reasonable 

cost-based payment for anesthesia 

services and related care furnished by 

qualified nonphysician anesthetists to 

rural hospitals and CAHs that reclassify 

under § 412.103 would, in fact, further 

limit access to anesthesia services. 

Comment: One commenter requested 

that the effective date of the proposed 

policy on payment for anesthesia 

services and related care for qualified 

nonphysician services be changed from 

cost reporting periods beginning on or 

after October 1, 2010 to calendar years 

beginning on or after January 1, 2011 

because the CRNA reasonable costbased payment elections are made on a 

calendar year basis rather than a cost 

reporting year basis. Another 

commenter stated CMS should not force 

rural hospitals and CAHs affected by 

this proposed provision to engage in 

appeals of this issue due to CMS’ 

unwillingness to revise the regulations 

as a result of the statute as revised by 

the Family Support Act of 1988. The 

commenter stated court cases such as 

Bayside Community Hospital v. Sebelius 

have considered this issue and have 

maintained ‘‘It is true that the physical 

location of the hospital does not change; 

however, Congress has directed that a 

hospital qualifying under 1886(d)(8)(E) 

be treated as if it were in a rural 

location. The purpose of this is to 

overcome the actual physical location 

and cause a hospital to qualify as rural. 

Thus, the deeming provision does 

impact the definition of rural at section 

1886(d). A regulation does not override 

a clearly stated statute.’’ The commenter 

stated that, to prevent litigation for all 

parties involved, it would be efficient if 

CMS modified the proposed provision 

as a clarification effective as of 1988 and 

direct that for all cost reports that have 

an appropriate pending appeal, all open 

cost reports, and all cost reports that are 

within three years of settlement, CAHs 

and hospitals that have reclassified 

under section 1886(d)(8)(E) of the Act 

are eligible to be paid on a reasonable 

cost basis for anesthesia services and 

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related care furnished by qualified 

nonphysician anesthetists. 

Response: The provisions published 

in the IPPS final rule for each respective 

year are generally effective October 1 of 

that respective year. Therefore, we 

proposed that this provision be effective 

for cost reporting periods beginning on 

or after October 1, 2010. Although the 

commenter requested that the proposal 

be amended to state that it would be 

effective for calendar years beginning on 

or after January 1, 2011, we do not 

believe this change is necessary because 

if the provision is effective for cost 

reporting periods beginning on or after 

October 1, 2010, it will also be in effect 

for the calendar year beginning January 

1, 2011. 

In response to the commenter who 

requested that the proposed provision 

be applied retroactively to the effective 

date of the Family Support Act of 1988, 

section 1871(e)(1)(A) of the Act 

generally prohibits the Secretary from 

making retroactive substantive changes 

in policy unless retroactive application 

of the change is necessary to comply 

with statutory requirements or failure to 

apply the change retroactively would be 

contrary to the public interest. We do 

not believe this provision meets such a 

threshold. 

Comment: Several commenters 

addressed issues regarding reasonable 

cost-based payment for on-call services 

provided by CRNAs as well as stand-by 

costs. In general, commenters requested 

that reasonable cost-based payments 

include on-call CRNA costs as allowable 

costs. One commenter requested that 

CMS consider amending the regulations 

to provide for an exception to the 

requirement that a hospital or CAH 

must have employed or contracted with 

a qualified nonphysician anesthetist as 

of January 1, 1988, as one of the 

requirements to be eligible for 

reasonable cost-based payments. 

Response: We consider these 

comments to be outside of the scope of 

the proposed rule and, therefore, are not 

responding to them in this final rule. 

Comment: One commenter requested 

that CMS change the CoPs to remove the 

requirement for physician supervision 

in CAHs. 

Response: We consider this comment 

to be outside of the scope of the 

proposed rule. Therefore we are not 

responding to the comment in this final 

rule. 

After consideration of the public 

comments that we received, we are 

adopting, as final without modification, 

our proposal to revise 

§ 412.113(c)(2)(i)(A) to state that, 

effective for cost reporting periods 

beginning on or after October 1, 2010, 

CAHs and hospitals that have 

reclassified pursuant to section 

1886(d)(8)(E) of the Act and § 412.103 of 

the regulations are also rural for 

purposes of section 1886(d) of the Act 

and, therefore, are eligible to be paid 

based on reasonable cost for anesthesia 

services and related care furnished by a 

qualified nonphysician anesthetist. 

J. Additional Payments for Qualifying 

Hospitals With Lowest Per Enrollee 

Medicare Spending 

1. Background 

Section 1109 of Public Law 111–152 

provides for additional payments for FY 

2011 and 2012 for ‘‘qualifying 

hospitals.’’ Section 1109(d) defines a 

‘‘qualifying hospital’’ as a ‘‘subsection (d) 

hospital * * * that is located in a 

county that ranks, based upon its 

ranking in age, sex and race adjusted 

spending for benefits under parts A and 

B * * * per enrollee within the lowest 

quartile of such counties in the United 

States.’’ Therefore, a ‘‘qualifying 

hospital’’ is one that meets the following 

conditions: (1) A ‘‘subsection (d) 

hospital’’ as defined in section 

1886(d)(1)(B) of the Act; and (2) located 

in a county that ranks within the lowest 

quartile of counties based upon its 

spending for benefits under Medicare 

Part A and Part B per enrollee adjusted 

for age, sex, and race. Section 1109(b) of 

Public Law 111–152 makes available 

$400 million to qualifying hospitals for 

FY 2011 and FY 2012. Section 1109(c) 

of Public Law 111–152 requires the 

$400 million to be divided among each 

qualifying hospital in proportion to the 

ratio of the individual qualifying 

hospital’s FY 2009 IPPS operating 

hospital payments to the sum of total FY 

2009 IPPS operating hospital payments 

made to all qualifying hospitals. 

2. Eligible Counties 

Section 1109 of Public Law 111–152 

provides $400 million for FYs 2011 and 

2012 for supplemental payments to 

qualifying hospitals located in counties 

that rank within the lowest quartile of 

counties in the United States for 

spending for benefits under Medicare 

Part A and Part B. The provision 

requires that the Medicare Part A and 

Part B county-level spending per 

enrollee be adjusted by age, sex and 

race. In the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule (75 FR 

30926 through 30960), we proposed our 

methodology for determining the bottom 

quartile of counties with the lowest 

Medicare Part A and Part B spending 

adjusted by age, sex, and race and 

invited public comment on the 

methodology we proposed to use to 

adjust for age, sex, and race described 

below. We further proposed that we 

would determine this bottom quartile of 

counties one time in this FY 2011 IPPS/ 

LTCH PPS final rule for the purpose of 

disbursing the $400 million as required 

by section 1109 of Public Law 111–152. 

We developed an adjustment model 

by age, sex, and race, as required under 

the provision. We then applied this 

adjustment to the county Medicare Part 

A and Part B spending data to account 

for the demographics of the Medicare 

beneficiaries in those counties. After 

those adjustments are applied, we 

determined the Medicare Part A and 

Part B spending by county per enrollee. 

Our proposed methodology to 

determine the Medicare Part A and Part 

B spending per enrollee by county 

adjusted for age, sex, and race is similar 

to how we calculate risk adjustment 

models for Medicare Advantage (MA) 

ratesetting. Risk adjustment for MA 

ratesetting is discussed in the annual 

announcement of calendar year MA 

capitation rates and MA and Part D 

payment policies. For more information 

on the methodology for risk adjustment 

used for MA ratesetting, we refer readers 

to the CMS Web site where we 

announce MA rates through our 45-day 

notice (http://www.cms.gov/ 

MedicareAdvtgSpecRateStats/ 

Downloads/Announcement2010.pdf). 

a. Development of Risk Adjustment 

Model 

As required by section 1109(d) of 

Public Law 111–152, we proposed a risk 

adjustment model that accounts for 

differentials in Medicare spending by 

age, sex, and race. Consistent with how 

we develop our risk adjustment models 

for MA ratesetting as described above, 

we developed a prospective risk 

adjustment model using 2006 data for 

beneficiary characteristics and 2007 

data for Part A and Part B spending. 

However, unlike the risk adjustment 

model used for MA which includes 

diseases and demographic factors, the 

only independent variables or 

prospective factors in the model for 

payments under section 1109 of Public 

Law 111–152 are age, sex and race, as 

required by the provision. The 

dependent variable was annualized 

Medicare Part A and B spending at the 

beneficiary level for 2007 as it is the 

most recent and complete data 

available. The categorization of age, sex, 

and race variables are described below. 

The age, sex, race (ASR) model(s) was 

estimated using 5-percent of the 

Standard Analytic Denominator File, a 

standard 5-percent sample from the 

2007 Denominator File which is also 

used to estimate CMS risk adjustment 

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models for payment to MA 

organizations. We chose to use the 5- 

percent Standard Analytic Denominator 

File from 2007 in order to optimize the 

amount of time after the timely claim 

submission deadlines and the latest 

available data; in other words, because 

it is the most complete data currently 

available. This file has the demographic 

and enrollment characteristics of all 

Medicare beneficiaries. The 

Denominator File is an abbreviated file 

of the Enrollment Data Base (EDB). The 

Denominator File contains data on all 

Medicare beneficiaries enrolled and/or 

entitled to be enrolled in Medicare in a 

given year while the EDB is the source 

of enrollment and entitlement 

information for all people who are or 

were ever entitled to Medicare. The 

model was estimated using all 

beneficiaries residing in the community 

and long-term care institutions. The 

sample had 1,603,998 beneficiaries. 

The Denominator File contains a sex 

variable where the beneficiaries can 

identify themselves as male or female. 

The file also contains an age variable 

which is defined as the beneficiary’s age 

at the end of the prior year. 

Beneficiaries with an age greater than 98 

are coded as age 98. The race 

demographic variable in the 

Denominator File is populated by data 

from the Social Security Administration 

(SSA). The SSA’s data for this race 

demographic variable are collected on 

Form SS–5. Prior to 1980, Form SS–5 

included three categories for race: 

White, Black or Other. Since that time, 

Form SS–5 instructed a beneficiary to 

voluntarily select one of the following 

five categories: (1) Asian, AsianAmerican or Pacific Islander; 

(2) Hispanic; (3) Black (Not Hispanic); 

(4) North American Indian or Alaskan 

Native; and (5) White (Not Hispanic). 

Form SS–5 is completed when an 

individual does the following: 

(1) Applies for a Social Security 

number; 

(2) requests a replacement of the Social 

Security card; or (3) requests changes to 

personal information on their record 

such as a name change. (We refer 

readers to the SSA Web site for 

instructions at: http://ssa.gov/online/ss5.pdf). Each January, CMS obtains data 

from SSA to update the EDB for 

beneficiaries who were added during 

the previous calendar year as well as all 

living beneficiaries whose race is 

identified as ‘‘Other’’ or ‘‘Unknown.’’ 

Discussed in the context of the ESRD 

payment system in the ESRD proposed 

rule on September 29, 2009 (74 FR 

49962), we noted concerns with using 

the EDB as a data source due to missing 

data, and that racial and ethnic 

categories are not well defined. 

However, we believe that the current 

EDB, particularly with respect to the 

more recent and ongoing updates we 

perform, remains a useful source of race 

and ethnicity data on 46 million 

Medicare beneficiaries. Additionally, 

because this is our only currently 

available data source on the racial and 

ethnic demographics of Medicare 

beneficiaries, we proposed to the use 

the EDB as our data source for 

beneficiary race so that we can fulfill 

the requirements of section 1109(d) of 

Public Law 111–152 to adjust county 

Medicare Part A and Part B spending by 

race. 

We used the MedPAR claims file as 

the source to determine Medicare 

inpatient spending. We used the 

National Claims History File to 

determine spending on DMEPOS and 

supplies. The other spending under 

Medicare Part A and Part B was 

determined using the Standard Analytic 

File. The Standard Analytic File and 

MedPAR claims file are subsets of the 

National Claims History File. These data 

files are also used in the MA ratesetting 

process and are our data source for 

Medicare spending stored at the 

beneficiary level. 

In order to determine annual 

spending (the dependent variable in the 

risk adjustment model), we annualized 

the Medicare Part A and Part B 

spending for beneficiaries with less than 

a full year of eligibility, and these 

amounts were weighted in the analysis 

by the fraction of the year they were in 

the data. 

We used a linear regression model to 

determine the demographic 

adjustments. This is consistent with 

how we model our risk adjustment for 

the MA rates. The linear regression used 

24 age-sex regression categories, 12 age 

categories each for males and females. 

The age categories are as follows; 0–34, 

35–44, 45–49, 50–54, 55–59, 60–64, 65– 

69, 70–74, 75–79, 80–84, 85–89, and 

90+. The age-sex coefficients displayed 

in the table below reflect the difference 

in Medicare Part A and Part B spending 

per enrollee in those age-sex categories 

relative to national average Part A and 

Part B spending based on our linear 

regression model. 

In addition, we used the same linear 

regression model to determine how to 

adjust Medicare Part A and Part B 

spending for race. In addition to the agesex regression categories described 

above, we included variables to adjust 

for race. We considered two methods to 

adjust for race in county spending 

because of the way that Form SS–5 

collects race information, which is then 

reported in the same format in the EDB. 

As discussed earlier, the EDB currently 

categorizes race by the following five 

categories, as reported by the Medicare 

beneficiary: (1) Asian, Asian-American 

or Pacific Islander; (2) Hispanic; 

(3) Black (Not Hispanic); (4) North 

American Indian or Alaskan Native; and 

(5) White (Not Hispanic). One method 

categorized race by White, Black, 

Hispanic, and Other (WBHO). The 

‘‘Other’’ category includes Asian/Pacific 

Islander, American Indian/Alaska 

Native, and all others. The second 

method categorized race by White, 

Black, and Other (WBO), where 

beneficiaries who identified themselves 

as Hispanic were categorized as Other. 

The race/ethnicity categories are 

mutually exclusive; if a beneficiary 

identified themselves as Hispanic he or 

she was not further classified as another 

category, such as White or Black. In our 

regression modeling, we used the largest 

group, White, as the reference group; the 

coefficients on the difference in 

spending by race, displayed in the table 

below, are additive to the reference 

group. In other words, the coefficients 

for each race category represent the 

difference in predicted Medicare Part A 

and Part B spending relative to our 

reference group. Where the coefficients 

are positive, this implies that the 

predicted spending for that category is 

higher than that of the reference group. 

Conversely, where the coefficients are 

negative, this implies that the predicted 

spending for that category is lower than 

that of the reference group. 

Below are two tables representing the 

coefficients used to adjust Medicare Part 

A and Part B spending by county. The 

first table shows the coefficients for 

each age and sex category. The second 

table shows the coefficients for race. 

These national coefficients are applied 

to each counties’ relative demographic 

for age, sex and race, so that each 

county has a risk score by age, sex and 

race. 

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We proposed to adjust for race using 

the WBHO method where we separately 

account for cost differences associated 

with Hispanic beneficiaries. The Office 

of Management and Budget (OMB) has 

promulgated standards for the 

classification of federal data on race and 

ethnicity. Under OMB’s classification 

standards, the category of Hispanic is 

treated as an ethnic category as opposed 

to a race category. The current OMB 

Standards of 1997 require collection of 

specific demographic data using a total 

of five race categories, plus other (62 FR 

58782 through 58790). The five race 

categories are—(1) American Indian or 

Alaska Native; (2) Asian; (3) Black or 

African American; (4) Native Hawaiian 

or Other Pacific Islander; and (5) White. 

In addition, OMB specified two separate 

ethnic categories—Hispanic or Latino, 

and not Hispanic or Latino. However, as 

explained above, Hispanic or Latino 

ethnicity is treated as a race category by 

EDB, and beneficiaries can self-identify 

as Hispanic among mutually exclusive 

racial categories. Despite the 

inconsistency in reporting by the OMB 

and the EDB, we proposed to treat the 

category of Hispanic as a separate 

category for purposes of the race 

adjustment required by section 1109 of 

Public Law 111–152. We found that the 

coefficient for the Hispanic category was 

statistically significant, suggesting that 

Medicare Part A and Part B spending 

associated with this category of 

beneficiaries is different from the 

spending for our reference group and 

that it should be a separate coefficient 

to adjust county spending. In addition, 

the EDB treats Hispanic as a separate 

racial classification, consistent with our 

WBHO method. Therefore, we believe 

that our proposal appropriately 

interpreted the required race 

adjustment. In the supplemental 

proposed rule, we proposed to adjust for 

race using the WBHO method. 

For purposes of the supplemental 

proposed rule, we also adjusted county 

spending using the WBO methodology 

to compare the two approaches. We 

found minimal difference in the county 

rankings under the two methodologies. 

We found that some counties would 

qualify as an eligible county only under 

the WBO methodology, and others 

would no longer qualify as an eligible 

county using this alternative. The 

decision to use the WBHO methodology 

affects whether nine subsection (d) 

hospitals, located in five counties, 

would be eligible to receive a payment 

under section 1109 of Public Law 111– 

152. In Table 3 of the supplemental 

proposed rule (75 FR 30949 through 

30958), we published the differences in 

counties, eligible hospitals, and 

payments by State under the two 

methodologies. This was the first time 

we had developed an adjustment for 

Medicare spending based on race, and 

we welcomed public comment on our 

proposal to use the WBHO methodology 

to adjust for race as required by section 

1109 of Public Law 111–152. We also 

welcomed public comment on the WBO 

methodology to adjust for race though 

we noted that we were not proposing 

this methodology at this time. 

b. Calculation of County Level Part A 

and Part B Spending 

In order to rank counties by Medicare 

Part A and B spending, we first 

calculated Medicare Part A and Part B 

county level spending for each county 

in the 50 States and the District of 

Columbia using a similar methodology 

used to establish county level fee-forservice rates for MA payments. Using a 

5-year average of each county’s actual 

spending (from 2002 to 2006), our 

actuaries calculated an average 

geographic adjuster (AGA), which 

reflects the county’s expenditure 

relative to the national expenditure. We 

believe a 5-year average is appropriate, 

as it accounts for fluctuations in year-toyear expenditures, which could distort 

the counties’ historic level of spending 

and is consistent with how MA rates are 

calculated. The AGA was then applied 

to the 2009 United States Per Capita 

Cost (USPCC) estimate, which is the 

national average cost per Medicare 

beneficiary, to determine 2009 Medicare 

Part A and Part B spending for each 

county. We welcomed public comment 

on this methodology to calculate 

county-level Medicare Part A and Part B 

spending. 

3. Application of the Age/Sex/Race 

Adjustment to Part A and Part B County 

Spending 

To estimate the county level risk 

scores for 2009, beneficiary enrollment 

information was first extracted from the 

EDB. We chose to calculate Medicare 

Part A and Part B county spending for 

2009 to be consistent with how we are 

required to determine qualifying 

hospitals’ payment amounts, under 

section 1109(c) of Public Law 111–152. 

That is, section 1109(c) of Public Law 

111–152 requires that qualifying 

hospitals located in the bottom quartile 


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of counties with the lowest Medicare 

Part A and Part B spending per enrollee 

will receive a portion of the allotted 

$400 million based on their FY 2009 

operating payments. Therefore, we 

proposed to calculate Medicare Part A 

and Part B county spending for 2009 as 

well. We only included beneficiaries 

enrolled in Medicare Part A and/or Part 

B, consistent with the language of 

section 1109(d) of Public Law 111–152, 

which refers to spending under 

Medicare Part A and Part B. Based on 

these criteria, there were 30,666,295 

beneficiaries included in the adjustment 

process. To determine the age, sex and 

race makeup of the Part A and/or Part 

B beneficiaries for each county, we used 

the EDB to identify date of birth, sex, 

race, and State/county of residence to 

create a person-level file with the data 

needed to run the ASR model. 

A county-level average risk score was 

developed for each county in the United 

States by applying the ASR model to 

each individual in the county enrolled 

in Medicare Part A and/or Part B, 

summing the resulting risk scores and 

dividing by the number of beneficiaries 

by county enrolled in Medicare Part A 

and/or Part B. The county-level 

Medicare Part A and/or Part B spending 

was adjusted by dividing the countylevel Medicare Part A and/or Part B 

spending by the county-level average 

risk score. The resulting spending 

distribution was then sorted lowest to 

highest dollars; the 786 counties in the 

lowest quartile of spending (that is, 

lowest adjusted spending per enrollee) 

were determined to be eligible counties 

under section 1109 of Public Law 111– 

152. 

We invited comment on our 

methodology for determining the age, 

sex, race adjustments for determining 

adjusted Medicare Part A and B 

spending by county for the purpose of 

determining eligible counties under 

section 1109 of Public Law 111–152. 

Comment: Some commenters 

supported the proposed methodology 

for determining the eligible counties, 

calculating the county rates, identifying 

the qualifying hospitals and allocating 

the allotted payments. 

Response: We appreciate the 

comments in support of our 

methodology. We are finalizing our 

proposed methodology, with a few 

adjustments in response to specific 

comments discussed below, in this final 

rule. 

Comment: Some commenters 

expressed disappointment that CMS did 

not provide data to determine which 

hospitals qualify for payments, 

including those used for the riskadjustment model, calculation of the 

county-level spending and application 

of the risk-adjustments to the Part A and 

Part B spending. Commenters requested 

that CMS publish the data used to 

calculate the ASR model, the county 

spending, and the FY 2009 IPPS 

operating payments for the qualifying 

hospitals. 

Response: As the commenters noted, 

several data sources were used to 

calculate our age-sex-race adjustments, 

the county-level Medicare Part A and 

Part B spending per enrollee, and our 

qualifying providers’ payment 

weighting factors. As discussed above, 

our data source to calculate the ASR 

model was the 2007 Standard Analytic 

File, which is a 5-percent sample of the 

Denominator File. In addition, to 

calculate spending for the ASR model, 

we used the MedPAR claims file to 

calculate inpatient spending, the 

National Claims History File to calculate 

DMEPOS and supplies spending, and 

the Standard Analytic File to calculate 

other Medicare Part A and Part B 

spending from 2007. The Standard 

Analytic File is available for purchase 

from CMS (as discussed in section 

IV.J.6. of this preamble). Additional 

information on this file can be found on 

the CMS Web site at: http:// 

www.cms.gov/LimitedDataSets/

12_StandardAnalyticalFiles.asp. 

As described above, to calculate the 

2009 unadjusted county spending, we 

used a 5-year average (from 2002 to 

2006) of each county’s Medicare Part A 

and Part B spending to calculate an 

AGA for each county and applied that 

to the 2009 USPCC. We calculated the 

county age-sex-race risk scores based on 

county demographics from the EDB 

from 2009 and applied the county agesex-race risk score to the unadjusted 

county spending to determine the 

Medicare Part A and Part B spending 

adjusted for age, sex and race. We 

divided this adjusted county-level 

spending by the number of Medicare 

Part A and Part B beneficiaries from 

2009 in each county. 

Soon after the publication of the FY 

2011 IPPS/LTCH PPS supplemental 

proposed rule, we published the 

proposed unadjusted county rates, the 

age-sex-race adjustments applied to the 

county rates, and the county rates 

adjusted for age-sex-race for the eligible 

counties on the CMS Web site at: 

http://www.cms.gov/ 

AcuteInpatientPPS/IPPS2010/ 

itemdetail.asp?filterType=none&filter

ByDID=-99&sortByDID=1&

sortOrder=ascending&

itemID=CMS1235590&

intNumPerPage=10. 

We are publishing the final 

unadjusted county rates, the age-sexrace adjustments applied to the county 

rates, and the county rates adjusted for 

age-sex-race for the eligible counties 

that are included in this final rule on 

the CMS Web site at: http:// 

www.cms.gov/AcuteInpatientPPS/

IPPS2011/list.asp#TopOfPage. 

To calculate the final payment 

weighting factors for the qualifying 

hospitals, we used the actual payments 

reported on the March 2010 update of 

the FY 2009 MedPAR file, which, as 

discussed in section IV.J.6. of this 

preamble, the public can purchase. As 

required by the statute, a hospital 

receives the proportion of the $400 

million based on its FY 2009 IPPS 

operating payments made under section 

1886(d) of the Act relative to the FY 

2009 IPPS operating payments made to 

all the qualifying hospitals under 

section 1886(d) of the Act. We defined 

IPPS operating payments to include 

DRG and wage-adjusted payments made 

under the IPPS standardized amount 

with add-on payments for operating 

DSH, operating IME, operating outliers 

and new technology. We excluded 

capital PPS payments. As we proposed, 

we also included IME MA payments 

made to IPPS hospitals because these 

payments are made under section 

1886(d) of the Act. We only included 

section 1886(d) IPPS operating 

payments for cases that occurred in 

IPPS acute care units of the qualifying 

hospitals. 

Comment: Some commenters opposed 

the proposed methodology to calculate 

the Medicare Part A and Part B county 

spending per enrollee adjusted for age, 

sex and race. Commenters believed that 

the methodology should include 

adjustments for poor health status, 

incidence of chronic disease or other 

factors that drive utilization and health 

care spending. 

Response: Section 1109(d) of the 

Public Law 111–152 specified that we 

are to calculate Medicare Part A and 

Part B spending per enrollee adjusted 

for age, sex and race by county. This 

specific statutory language did not 

provide us with any flexibility to 

include, as part of our adjustment, other 

factors that may influence Medicare 

spending. Therefore, we are finalizing 

our proposed model, which only adjusts 

Medicare Part A and Part B spending 

per enrollee at the county level for age, 

sex and race, as specified by the statute. 

Comment: Some commenters 

requested that CMS use a 3 year’s worth 

of spending data to calculate the AGA 

instead of our proposal to include 5 

years’ worth of Medicare spending data 

to reflect fluctuations in year-to-year 

spending. Some commenters also 

requested that CMS use the most recent 

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spending data through 2008 to calculate 

the AGA. 

Response: In the supplemental 

proposed rule (75 FR 30928), we 

discussed our rationale for using a 

5-year average of each county’s actual 

spending from 2002 to 2006 to calculate 

the average geographic adjuster, which 

reflects a county’s expenditure relative 

to the national expenditure. We believe 

that a 5-year average accounts for 

fluctuations in year-to-year spending 

that could distort counties’ level of 

spending. As explained in the 

supplemental proposed rule, in order to 

calculate county spending adjusted for 

age, sex and race, we followed a 

methodology similar to the development 

of the MA fee-for-service (FFS) rates 

under section 1853(c)(1)(D) of the Act. 

MA FFS ratesetting uses 5 years’ worth 

of Medicare spending data to calculate 

the fee-for-service county spending 

rates. Due to fluctuations in county 

spending that occur, particularly in 

counties with few Medicare 

beneficiaries, our actuaries used 5 years’ 

worth of county-level fee-for-service 

Medicare spending data to minimize 

variability for purposes of MA FFS 

ratesetting. We chose to apply a 

methodology consistent with MA FFS 

ratesetting because of our experience 

under MAFFS ratesetting in calculating 

Medicare Part A and Part B spending 

per enrollee at the county level and our 

experience under MA FFS ratesetting in 

adjusting for factors that can influence 

spending such as age and gender. We 

believe that, subject to the specific 

requirements of section 1109 of Public 

Law 111–152, we should use the same 

methodology that we use to develop the 

fee-for-service rates under section 

1853(c)(1)(D) of the Act in MA 

ratesetting. 

In response to the commenters’ 

suggestions that we use data through 

2008, we are not adopting these 

suggestions. Instead, we are using 2002 

to 2006 data to calculate the AGA to be 

consistent with how 2009 MA FFS rates 

were calculated for the reasons 

explained above. We note that the 

average geographic adjuster using 2002 

to 2006 data is then applied to 2009 

USPCC to calculate the 2009 spending 

rates, where the USPCC includes more 

recent spending data. 

After consideration of the public 

comments we received, we are 

finalizing, without change, our 

proposed methodology to calculate our 

Medicare Part A and Part B county 

spending per enrollee, which uses 5 

years’ worth of Medicare spending data 

from 2002 to 2006 to calculate the AGA 

and adjusts for age, sex, and race. 

4. Qualifying Hospitals and Annual 

Payment Amounts 

We have developed a methodology to 

identify the qualifying hospitals located 

in our list of eligible counties. 

Consistent with section 1109(d) of 

Public Law 111–152, a qualifying 

hospital is a ‘‘subsection (d) hospital’’ (as 

defined for purposes of section 1886(d) 

of the Act) that is ‘‘located in’’ an eligible 

county (as identified using the 

methodology we proposed and discuss 

in section IV.J.2. of this preamble). A 

subsection (d) hospital is defined in 

section 1886(d)(1)(B) of the Act, in part, 

as a ‘‘hospital located in one of the 50 

States or the District of Columbia’’. The 

term ‘‘subsection (d) hospital’’ does not 

include hospitals located in the 

territories or hospitals located in Puerto 

Rico. Section 1886(d)(9)(A) of the Act 

separately defines a ‘‘subsection (d) 

Puerto Rico hospital’’ as a hospital that 

is located in Puerto Rico and that 

‘‘would be a subsection (d) hospital 

* * * if it were located in one of the 50 

States.’’ Therefore, Puerto Rico hospitals 

are not eligible for these additional 

payments. Indian Health Services 

hospitals enrolled as Medicare 

providers meet the definition of a 

subsection (d) hospital and can qualify 

to receive this payment if they are 

located in an eligible county. In 

addition, hospitals that are MDHs and 

SCHs, although they can be paid under 

a hospital-specific rate instead of under 

the Federal standardized amount under 

the IPPS, are ‘‘subsection (d)’’ hospitals. 

The statutory definition of a ‘‘subsection 

(d)’’ hospital in section 1886(d)(1)(B) of 

the Act specifically excludes hospitals 

and hospital units excluded from the 

IPPS, such as psychiatric, rehabilitation, 

long term care, children’s, and cancer 

hospitals. In addition, CAHs are not 

considered qualifying hospitals because 

they do not meet the definition of a 

‘‘subsection (d) hospital’’ as they are 

paid under section 1814(l) of the Act. 

CAHs are not paid under the IPPS. 

Rather, they are paid under a reasonable 

cost methodology and, therefore, do not 

meet the definition of ‘‘qualifying 

hospital’’ under section 1109(d) of 

Public Law 111–152. 

For the purposes of section 1109 of 

Public Law 111–152, we proposed to 

identify ‘‘qualifying hospitals’’ based on 

their Medicare provider number or CMS 

certification number (CCN), because one 

of these numbers is also how hospitals 

identify themselves when they file their 

Medicare cost reports. We also proposed 

that, in order to meet the definition of 

a ‘‘qualifying hospital,’’ the hospital, as 

identified by the Medicare provider 

number or CCN, must: (1) Have existed 

as a subsection (d) hospital as of April 

1, 2010; (2) be geographically located in 

an eligible county; and (3) have received 

IPPS operating payments (in accordance 

with section 1886(d)) of the Act) under 

its Medicare provider number or CNN in 

FY 2009. We used the Online Survey, 

Certification and Reporting (OSCAR) 

database to determine a hospital’s 

county location associated with that 

Medicare provider number or CCN. 

County data in OSCAR is supplied by 

the U.S Postal Service and is 

crosswalked to the address reported by 

the provider. Under this proposal, the 

address listed for a hospital’s Medicare 

provider number must be currently 

located in a qualifying county in order 

for a hospital to meet the definition of 

a ‘‘qualifying hospital.’’ 

We published a list of the qualifying 

IPPS hospitals that we identified based 

on the factors described above in Table 

3 of the supplemental proposed rule. 

We invited comment on our 

methodology for identifying qualifying 

hospitals. We also invited comment on 

whether our list was accurate and 

whether any providers were missing 

from this list using the methodology 

described above. 

Comment: Several commenters 

identified specific providers that were 

located in an eligible county, but were 

not included in the listing of qualifying 

hospitals in Table 3 of the supplemental 

proposed rule. Commenters stated that 

Augusta Medical Center (provider 

number 490018) and Carilion New River 

Valley (provider number 490042) are 

located in eligible counties but were not 

listed in Table 3 as qualifying hospitals. 

Commenters requested that these 

providers be included as qualifying 

hospitals. 

Response: We have verified the 

locations of these providers and have 

found them to be located in eligible 

counties. These providers will receive a 

portion of the $400 million for FY 2011 

and FY 2012. We have included these 

providers in Table 2 of this final rule 

and have included a payment weighting 

factor for them. 

Comment: Commenters stated that the 

county locations of certain qualifying 

hospitals were mislabeled. Specifically, 

commenters stated that the county 

locations of Halifax Regional Hospital 

(provider number 490013), North 

Hawaii Community Hospital, Cibola 

General Hospital (provider number 

320037) and Acoma Canoncito Laquna 

PHS hospital (provider number 320070) 

were mislabeled. 

Response: We listed these providers 

as qualifying hospitals in the proposed 

rule, but had misidentified their SSA 

county location. (The SSA county 

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location is found in the OSCAR 

database used to identify hospitals 

located in eligible counties.) We have 

corrected the SSA county locations of 

these providers and they remain 

qualifying hospitals under section 1109 

of Public Law 111–152 because their 

correct SSA county locations are eligible 

counties. 

Comment: Several commenters stated 

that the names associated with the 

county codes in supplemental county 

data posted on the CMS Web site were 

incorrectly labeled. Specifically, 

commenters stated that the labels for 

both SSA county codes 06064 and 

06060 were listed as Boulder County, 

CO. In addition, commenters stated that 

the labels for both SSA county codes 

12020 and 12030 were listed as 

Honolulu County, HI. 

Response: We verified our SSA 

county code listing. We have 

determined that SSA county code 06064 

is Broomfield County, CO, and SSA 

county code 06060 is Boulder County, 

CO. We are finalizing that SSA county 

code 06064 (Broomfield County CO) is 

an eligible county, but SSA county code 

06060 (Boulder County CO) is not an 

eligible county. In addition, SSA county 

code 12020 has been corrected to be the 

sole county code for Honolulu County, 

HI, and SSA county code 12030 is 

corrected to indicate that it refers to 

Kalawao County, HI. Hawaii County, HI, 

with an SSA county code of 12030, is 

an eligible county, as proposed. 

Kalawao County, HI, with an SSA 

county code of 12030, is not an eligible 

county. Correcting the county names 

associated with these county codes does 

not impact the list of qualifying 

hospitals. We have corrected the 

supplemental county data that is posted 

on the CMS Web site. 

Comment: One commenter stated that 

CMS had failed to list several Colorado 

hospitals located in SSA county code 

06060, which the commenter believed 

to be an eligible county, and that these 

hospitals are qualifying hospitals under 

section 1109 of Public Law 111–152. In 

addition, the commenter stated that a 

hospital located in SSA county code 

06500 should be included as a 

qualifying hospital. 

Response: SSA county code 06060 is 

Boulder County, CO. In Table 2 of the 

supplemental proposed rule, we 

inadvertently labeled SSA county code 

06064 as Boulder County, CO, when, as 

the commenter stated, SSA county code 

06064 is Broomfield County, CO. As 

explained above, SSA county code 

06064 (Broomfield County CO) is an 

eligible county. However, SSA county 

code 06060 (Boulder County, CO) is not 

an eligible county. Therefore, Colorado 

hospitals located in SSA county code 

06060 (Boulder County, CO) are not 

qualifying hospitals under section 1109 

of Public Law 111–152 using the 

methodology we are finalizing in this 

final rule. In Table 1 below, we have 

corrected the information that appeared 

in Table 2 of the supplement proposed 

rule. 

We disagree that the hospital located 

in SSA county code 06500 (Pueblo 

County, CO) is a qualifying hospital. 

SSA county code 06500 (Pueblo County, 

CO) was not listed as an eligible county 

using the methodology we proposed in 

the supplemental proposed rule, and 

remains ineligible in this final rule. 

Therefore, IPPS hospitals located in that 

county are not qualifying hospitals 

under section 1109 of Public Law 

111–152. 

Comment: Commenters stated that 

SSA county code 43650 (Washabaugh 

County, SD) was incorrectly listed as a 

eligible county. Commenters stated that 

this county has been incorporated into 

county code 43350 (Jackson County, 

SD). Commenters also stated that SSA 

county code 49867 (South Boston City, 

VA) is incorporated into SSA county 

code 49410 (Halifax County, VA). 

Response: We verified our SSA 

county code listing and agree with the 

commenters that Washabaugh County, 

SD and Jackson County, SD should not 

be listed as separate counties. We have 

rerun the relevant calculations for 

determining an eligible county using the 

methodology finalized in this rule, 

treating Washabaugh County, SD and 

the Jackson County, SD as a single 

county; the result is that Jackson 

County, SD remains an eligible county 

as proposed. Therefore, we have 

removed Washabaugh County, SD from 

the eligible county list. In addition, 

when we reran the relevant calculations 

for determining an eligible county using 

the methodology finalized in this rule, 

treating Halifax County, VA and South 

Boston City, VA as a single county, 

Halifax County remains an eligible 

county as proposed. 

In the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule, we had 

stated that there were 3,144 counties 

nationwide, with 786 counties in the 

lowest quartile eligible to receive 

payments under section 1109 of the 

Public Law 111–152. With these 

changes, there are 3,142 counties, with 

the lowest quartile having 785.50 

eligible counties, which rounds to 786 

eligible counties. While the number of 

counties in the lowest quartile has 

remained the same, the removal of two 

counties has allowed two additional 

counties to be added. The additional 

counties added to the list are SSA 

county code 38060 (Crook County, OR) 

and SSA county code 35040 (Bottineu 

County, ND). We have not identified 

any qualifying IPPS hospitals located in 

Crook County, OR or in Bottineu 

County, ND. 

Because we have replaced two 

counties on our list of eligible counties, 

we are providing the public an 

opportunity to notify CMS whether 

there are any qualifying IPPS hospitals 

located in either of these two newly 

added counties. We note that the list of 

eligible counties and qualifying 

hospitals is otherwise finalized in this 

rule in Tables 2 and 3 in this section 

IV.J. We are soliciting public input until 

August 30, 2010, solely on the issue of 

whether there are any IPPS hospitals 

located in Crooks County, OR and 

Bottineu County, ND. The public may 

submit input via e-mail to Nisha Bhat at 

Nisha.Bhat@cms.hhs.gov. All 

information must be received by August 

30, 2010. If we add qualifying hospitals 

in these counties as a result of accurate 

notification from the public, we will 

publish a revised list of qualifying 

hospitals and their payment weighting 

factors on the CMS Web site at: http:// 

www.cms.gov/AcuteInpatientPPS/ 

IPPS2011/list.asp#TopOfPage. 

5. Payment Determination and 

Distribution 

As mentioned above, under section 

1109(b) of Public Law 111–152, the total 

pool of payments available to qualifying 

hospitals for FY 2011 and FY 2012 is 

$400 million. The statute is not specific 

as to the timing of these payments. 

Because Congress has allocated a set 

amount ($400 million) for hospitals for 

FYs 2011 and 2012 under this 

provision, we believe it is consistent 

with the statute to spread these 

payments over the 2-year period. In the 

supplemental proposed rule, we 

proposed to distribute $150 million for 

FY 2011 and $250 million for FY 2012. 

Because this is a new policy, we 

proposed to distribute a smaller amount 

of money for the first year, $150 million 

for FY 2011 and gave the public an 

opportunity to review our policy and 

notify us of any possible revisions to the 

list of qualifying hospitals, so that we 

could adjust payments for FY 2012. This 

would ensure that we correctly 

identified qualifying hospitals and their 

proper payment amounts without 

exceeding the program’s funding. We 

invited public comment to give 

hospitals the opportunity to request 

necessary changes to the qualifying 

hospital list for FY 2011 in order to 

ensure the accuracy of the qualifying 

hospital list based on the methodology 

that we proposed (and are finalizing in 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50309 

this final rule). However, we proposed 

to identify eligible counties, qualifying 

hospitals, and their payment amounts 

under section 1109 of Public Law 111– 

152 only once. Because Congress 

allocated a specific amount of money, 

we proposed to identify eligible 

counties, qualifying hospitals, and their 

payment amounts once to ensure that 

we do not exceed the fixed amount of 

money and to ensure predictability of 

payments. 

We proposed to distribute payments 

through the individual hospital’s 

Medicare contractor through an annual 

one-time payment during each of FY 

2011 and FY 2012. We believe that 

annual payments made by the fiscal 

intermediaries and MACs would be an 

expeditious way to give the qualifying 

hospitals the money allotted under 

section 1109 of Public Law 111–152. 

Alternatively, these payments could be 

distributed to qualifying hospitals at the 

time of cost report settlement for the 

qualifying providers’ fiscal year end FY 

2011 and FY 2012 cost reports. 

However, cost report settlement 

typically takes several years beyond a 

hospital’s fiscal year end. If we 

distributed these additional payments at 

the time of cost report settlement, it may 

take several years until hospitals receive 

these additional payments. Therefore, 

we believe our proposal to give 

hospitals their section 1109 payments as 

annual payments during FY 2011 and 

FY 2012 presents the most expedient 

method to distribute these payments to 

hospitals, and is in the spirit of the 

intent of Congress. We welcomed public 

comment on our proposal to distribute 

$150 million in FY 2011 and $250 

million in FY 2012 through an annual 

payment in each of those years made to 

the qualifying providers through their 

fiscal intermediary or MAC. 

We proposed that qualifying hospitals 

report these additional payments on 

their Medicare hospital cost report 

corresponding to the appropriate cost 

reporting period that the hospitals 

receive the payments. The Medicare 

hospital cost report, Form 2552, has an 

‘‘Other adjustment’’ line on Worksheet E, 

Part A, that can used by hospitals to 

report the payments received under 

section 1109 of Public Law 111–152. We 

plan to issue additional cost reporting 

instructions for qualifying hospitals to 

report these additional payments on a 

subscripted line of the ‘‘Other 

adjustment’’ line to identify this 

payment. We noted that we are 

requiring these payments be reported on 

the cost report for tracking purposes 

only. These additional payments will 

not be adjusted or settled by the fiscal 

intermediary or MAC on the cost report. 

Comment: One commenter suggested 

that, for the purposes of cost reporting, 

payments received under the provision 

of section 1109 of Public Law 111–152 

be reported on Worksheet S–2, instead 

of Worksheet E, Part A on the ‘‘other 

adjustment’’ line. The commenter 

recommended that these payments be 

reported on Worksheet S–2 so that the 

payments would not be mixed with the 

Medicare Part A settlement amounts. 

Response: We proposed that hospitals 

report this information on the ‘‘Other 

adjustment’’ line of Worksheet E, Part A, 

on the Medicare hospital cost report, 

Form 2552, because the funding from 

section 1109 has been allocated from the 

Federal Hospital Insurance Trust Fund. 

Funding from the Federal Hospital 

Insurance Trust Fund is generally 

reported on Worksheet E, Part A. 

Therefore, we do not believe that it is 

appropriate to report these payments on 

Worksheet S–2. The funding will not be 

reconciled through the Medicare cost 

report because payments will be 

distributed through a one-time payment 

made in FY 2011 and a one-time 

payment made in FY 2012 to the 

qualifying hospitals by the Medicare 

contractor. Rather, hospitals will report 

the payments received under this 

provision for tracking purposes. 

Comment: Several commenters 

disagreed with the proposal to distribute 

$150 million for FY 2011 and $250 

million for FY 2012 and, instead, 

recommended that funding be 

distributed in equal amounts of $200 

million for FY 2011 and $200 million 

for FY 2012. One commenter suggested 

that, due to the current economic 

conditions, $250 million be distributed 

for FY 2011 and $150 million for FY 

2012. Several commenters requested 

that if hospitals are left off the list of 

qualifying hospitals for FY 2011 and 

added for FY 2012, they should be given 

their full share of the $400 million 

allotted by Congress. 

Response: Section 1109(b) of the 

Public Law 111–152 makes available 

$400 million from the Federal Hospital 

Insurance Trust Fund to be allocated for 

FY 2011 and for FY 2012 for qualifying 

hospitals. We proposed to allocate $150 

million for FY 2011 and $250 million 

for FY 2012 because of concerns that we 

might need to revise our list of 

qualifying hospitals after the 

publication of FY 2011 IPPS/LTCH PPS 

final rule. If we determine that we need 

to revise the list, we also would need to 

ensure that we allocated the proper 

amount without exceeding the 

program’s funding. We invited public 

comment on the accuracy of our list of 

eligible counties and qualifying 

hospitals in those counties. As 

discussed earlier, based on the public 

comments that we received, we 

identified two additional qualifying 

hospitals. We also have added two 

additional eligible counties with no 

qualifying hospitals and are inviting 

public input as to whether there are 

qualifying hospitals located in those two 

new qualifying counties. Because we are 

allowing the public to notify us on the 

issue of whether our determination that 

there are no qualifying hospitals in the 

two additional eligible counties is 

accurate, and we want to ensure that we 

do not exceed the allotted amount of 

funding from the provision, we continue 

to believe it is prudent to disburse less 

funds in FY 2011. Therefore, we are 

finalizing our proposal to distribute 

$150 million for FY 2011 and $250 

million for FY 2012 through two annual 

payments made by the Medicare 

contractors. 

It was not our intention to allocate a 

lesser share of the $400 million to 

hospitals that were not on the qualifying 

list in this final rule, but later found to 

qualify. We are committed to ensuring 

that qualifying hospitals, regardless of 

when their qualification is confirmed, 

receive their appropriate share of the 

$400 million. As discussed in the 

supplemental proposed rule, because 

this is a new provision, we were 

uncertain as to whether we had 

correctly identified all of the qualifying 

hospitals in the eligible counties to 

receive money under section 1109 of the 

Public Law 111–152. However, based on 

the public comments, we believe we 

have been able to identify the qualifying 

hospitals. In the supplemental proposed 

rule, we proposed to make only one 

determination of eligible counties and 

qualifying hospitals for FY 2011 and FY 

2012. 

We have concluded that our comment 

period allowed the public the 

opportunity to comment on the 

accuracy of the list of eligible counties 

and qualifying hospitals. Therefore, 

after consideration of the comments we 

received, we are finalizing the list of the 

hospitals that qualify to receive their 

payments and their payment amounts in 

this final rule, with the caveat that we 

will accept additional public input on 

the limited issue of whether there are 

any qualifying hospitals in the two 

newly identified eligible counties. We 

also are finalizing our proposal to make 

only one determination of eligible 

counties and qualifying hospitals for FY 

2011 and FY 2012, also with the caveat 

that we will accept additional public 

input on the limited issue of whether 

there are any qualifying hospitals in the 

two newly identified eligible counties. 

We are finalizing our proposal to 

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distribute $150 million for FY 2011 and 

$250 million for FY 2012. To the extent 

that there are qualifying hospitals that 

were not identified in this final rule 

after we receive any additional public 

input, we will review that issue in 

future rulemaking, and those hospitals 

will be eligible for their allocation of the 

entire $400 million. 

6. Hospital Weighting Factors 

Section 1109(c) of Public Law 111– 

152 requires that the payment amount 

for a qualifying hospital shall be 

determined ‘‘in proportion to the portion 

of the amount of the aggregate payments 

under section 1886(d) of the Social 

Security Act to the hospital for fiscal 

year 2009 bears to the sum of all such 

payments to all qualifying hospitals for 

such fiscal year.’’ We proposed that the 

portion of a hospital’s payment under 

section 1109 is based on the proportion 

of its IPPS operating payments made in 

FY 2009 under section 1886(d) of the 

Act relative to the total IPPS operating 

payments made to all qualifying 

hospitals in FY 2009 under section 

1886(d) of the Act. These FY 2009 IPPS 

operating payments made under section 

1886(d) of the Act include DRG and 

wage-adjusted payments made under 

the IPPS standardized amount with addon payments for operating DSH, 

operating IME, operating outliers and 

new technology (collectively referred to 

in the proposed rule and this final rule 

as the IPPS operating payment amount). 

We proposed to include IME MA 

payments made to IPPS hospitals 

because these payments are made under 

section 1886(d) of the Act. Under 42 

CFR 412.105(g) of the regulations and as 

implemented in Transmittal A–98–21 

(Change Request 332), hospitals that are 

paid under the IPPS and train residents 

in approved GME programs may submit 

claims associated with MA enrollees to 

the fiscal intermediary or MAC for the 

purpose of receiving an IME payment. 

No IPPS operating payment or other 

add-on payment is made for these MA 

enrollees. This is consistent with how 

the IPPS includes these IME MA 

payments when adjusting for budget 

neutrality of the IPPS standardized 

amounts. 

In addition, we included in the FY 

2009 IPPS operating payment amount 

beneficiary liabilities (coinsurance, 

copayments, and deductibles) because 

the payments made under section 

1886(d) of the Act ‘‘are subject to the 

provisions of section 1813.’’ That is, the 

payment received by the hospital 

includes the amount paid by Medicare, 

as well as the amount for which the 

beneficiary is responsible, as set forth in 

section 1813 of the Act. We proposed to 

exclude IPPS capital payments because 

they are payments made under section 

1886(g) of the Act. We also proposed to 

exclude payments for organ acquisition 

costs because they are payments made 

under section 1881(d) of the Act. In 

addition, we proposed to exclude 

payments for blood clotting factor 

because they are payments made under 

section 1886(a)(4) of the Act. 

Consistent with our IPPS ratesetting 

process, we proposed to use the FY 

2009 MedPAR inpatient claims data to 

determine the FY 2009 IPPS operating 

payments made to qualifying hospitals 

in order to set the ratio for determining 

a qualifying hospital’s share of the $400 

million payment under section 1109 of 

Public Law 111–152. Although these 

claim payments may be later changed 

and adjusted at cost report settlement, 

this settlement generally occurs after FY 

2011 and FY 2012. Furthermore, we 

believe that the use of the FY 2009 

MedPAR inpatient claims data is 

consistent with our proposal to make 

the payments under section 1109 of 

Public Law 111–152 in two annual 

payments in FY 2011 and FY 2012 

instead of waiting for cost report 

settlement. Furthermore, we used 

MedPAR data in other areas of the IPPS, 

including calculating IPPS MS–DRG 

relative weights, budget neutrality 

factors, outlier thresholds, and the 

standardized amount. The FY 2009 

MedPAR data can be ordered to allow 

the public to verify qualifying hospitals’ 

FY 2009 IPPS operating payments. 

Interested individuals may order these 

files through the CMS Web site at: 

http://www.cms.hhs.gov/ 

LimitedDataSets/ by clicking on 

MedPAR Limited Data Set (LDS)— 

Hospital (National). This Web page 

describes the file and provides 

directions and further detailed 

instructions for how to order. 

Persons placing an order must send 

the following: a Letter of Request, the 

LDS Data Use Agreement and Research 

Protocol (refer to the Web site for further 

instructions), the LDS Form, and a 

check for $3,655 to: 

Mailing address if using the U.S. Postal 

Service: Centers for Medicare & 

Medicaid Services, RDDC Account, 

Accounting Division, P.O. Box 7520, 

Baltimore, MD 21207–0520. 

Mailing address if using express mail: 

Centers for Medicare & Medicaid 

Services, OFM/Division of 

Accounting—RDDC, Mailstop C3–07– 

11, 7500 Security Boulevard, 

Baltimore, MD 21244–1850. 

For the supplemental proposed rule, 

we used the December 2009 update to 

the FY 2009 MedPAR claims data file 

(which was the latest available update 

to the file at that time) to determine the 

proposed qualifying hospitals’ IPPS 

operating payment amounts. For this FY 

2011 IPPS/LTCH PPS final rule, we 

used the March 2010 update to the FY 

2009 MedPAR data to determine 

qualifying hospitals’ IPPS operating 

payment amounts, which is used to set 

the hospital weighting factors for FYs 

2011 and 2012. 

As discussed previously in section 

IV.J.3. of this preamble, qualifying 

hospitals can include SCHs and MDHs 

because they meet the definition of 

subsection (d) hospitals. SCHs are paid 

in the interim (prior to cost report 

settlement) on a claim-by-claim basis at 

the amount that is the higher of the 

payment based on the hospital-specific 

rate or the IPPS Federal rate based on 

the standardized amount. At cost report 

settlement, the fiscal intermediary or 

MAC determines if the hospital would 

receive higher IPPS payments in the 

aggregate using the hospital’s specific 

rate (on all claims) or the Federal rate 

(on all claims). The fiscal intermediary 

or MAC then assigns the hospital the 

higher payment amount (either the 

hospital specific rate for all claims or 

the Federal rate amount for all claims) 

for the cost reporting period. To 

determine the FY 2009 operating 

payment amount for SCHs that meet the 

definition of a qualifying hospital, we 

proposed to use the IPPS operating 

payment made on the Medicare IPPS 

claim in the FY 2009 MedPAR file 

rather than the SCH’s final payment rate 

that is determined at cost report 

settlement. We believe this approach is 

consistent with the treatment of other 

qualifying hospitals under our proposal, 

and again allows for the timely 

distribution of funds in two annual 

payments, as discussed above. MDHs 

are paid the sum of the Federal payment 

amount plus 75 percent of the amount 

by which the hospital-specific rate 

exceeds the Federal payment amount. 

This amount is considered their IPPS 

operating payment reported on their 

Medicare IPPS claims. 

In order to calculate payment 

amounts consistent with section 1109(c) 

of Public Law 111–152, we proposed to 

use a weighting factor for each 

qualifying hospital that is equal to the 

qualifying hospital’s FY 2009 IPPS 

operating payment amount (as described 

above) divided by the sum of FY 2009 

IPPS operating payment amounts for all 

qualifying hospitals. We believe this 

methodology is consistent with the 

requirement of section 1109(c) of Public 

Law 111–152, because a qualifying 

hospital with a larger proportion of 

operating payments would have a 

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proportionately higher weighting factor 

and would receive the proportionately 

larger share of the $400 million, while 

a hospital with a smaller proportion of 

operating payments would have a 

proportionately smaller weighting factor 

and would receive proportionately 

smaller shares of the $400 million. We 

welcomed public comment on our 

methodology to determine the amount 

of money distributed to qualifying 

hospitals consistent with the language 

in section 1109(c) of Public Law 111– 

152. 

Comment: One commenter suggested 

that payments made under reasonable 

cost contracts under section 1876 of the 

Act be included in the calculation of a 

qualifying hospital’s payment weighting 

factor. The commenter stated that there 

are a significant number of Medicare 

beneficiaries enrolled in these cost 

plans in Hawaii and that they comprise 

a large proportion of Hawaii hospitals’ 

payments. Payments to hospitals are 

made using the Medicare fee-for-service 

rate or the reasonable cost for treating 

inpatients in these cost plans. The 

commenter believed that, because these 

hospitals are paid at the Medicare feefor-service rate, those payments should 

be included in the qualifying hospitals’ 

payment weighting factors. 

Response: Section 1876 reasonable 

cost contracts are entered into with 

Medicare managed care cost plans 

(HMOs/CMPs) that cover Medicareeligible beneficiaries. The commenter 

suggested that inpatient hospital 

payments for Medicare enrollees in the 

section 1876 cost plans that directly pay 

for inpatient hospital benefits should be 

included in the qualifying hospital’s 

weighting factor. Section 1109(c) of 

Public Law 111–152 specifies that the 

proportion of the $400 million given to 

a qualifying hospital is based on the 

qualifying hospital’s payments under 

section 1886(d) of the Act for FY 2009 

relative to the total payments under 

section 1886(d) of the Act for all of the 

qualifying hospitals for FY 2009. 

Payments to hospitals that treat 

Medicare enrollees in these managed 

care cost plans that pay directly for 

inpatient hospital benefits are paid by 

the managed care cost plan under 

section 1876 of the Act; the payments 

are not under section 1886(d) of the Act. 

Therefore, we believe that these 

payments do not meet the requirement 

under section 1109(c) of Public Law 

111–152, and we are excluding 

inpatient hospital payments made under 

section 1876 of the Act from qualifying 

hospitals’ payment weighting factors. 

Additionally, we proposed to use the 

FY 2009 MedPAR inpatient claims data 

to determine the FY 2009 IPPS 

operating payments to calculate the 

qualifying hospitals’ payment weighting 

factors. IPPS hospitals submit these 

inpatient claims to receive IPPS 

operating payments under section 

1886(d) of the Act. Because Medicare 

beneficiaries enrolled in these managed 

care cost plans have their inpatient 

services paid for by their cost plan 

under section 1876 of the Act, the 

MedPAR file does not have their 

hospital inpatient payment information. 

Therefore, we believe that hospital 

payments received for beneficiaries in 

section 1876 reasonable cost plans 

should not qualify as a ‘‘payment[ ] 

under section 1886(d)’’ of the Act for 

purposes of section 1109(c) of Public 

Law 111–152. 

Comment: One commenter was 

concerned with the proposal to base 

payments on the FY 2009 MedPAR data 

for SCHs and MDHs. The commenter 

suggested that MedPAR would not 

accurately calculate payments for SCHs 

and MDHs, which are IPPS hospitals 

that are paid under the higher of the 

IPPS Federal rate or the hospitalspecific rate. The commenter stated that 

the MedPAR file assumes that a high 

level of outlier payments exists for most 

SCHs and MDHs, and therefore 

disproportionately understates their 

actual payment, which is determined at 

cost report settlement. The MedPAR file 

contains interim payments where 

outlier payments may be higher or lower 

than the actual outlier payment amount, 

which is reconciled at cost report 

settlement. The commenter requested 

that CMS use the cost report to 

determine SCH and MDH payment 

weighting factors because the cost report 

contains the final IPPS operating 

payment amounts. 

Response: We note that interim 

payments to SCH and MDHs are made 

on the basis of the best available data at 

the time and can include other interim 

payment amounts, such as DSH and 

IME. Interim payments can be adjusted 

and changed at cost report settlement. 

However, these interim payment 

changes are not limited to SCHs and 

MDHs, as IPPS hospitals that are not 

SCHs or MDHs receive interim 

payments for DSH and IME that are paid 

through the inpatient claim. Therefore, 

SCHs and MDHs are not necessarily 

more or less disadvantaged than other 

IPPS hospitals under our proposal to 

use inpatient claims in the MedPAR file 

as opposed to finalized cost reports to 

determine qualifying hospitals’ payment 

weighting factors. Additionally, section 

1109(a) of Public Law 111–152 requires 

the Secretary to make payments ‘‘to 

qualifying hospitals * * * for fiscal 

years 2011 and 2012,’’ and section 

1109(b) of Public Law 111–152 makes 

$400 million available for payments ‘‘for 

fiscal years 2011 and 2012’’ based on 

qualifying hospitals’ IPPS operating 

payments from FY 2009. It generally 

takes several years to finalize hospitals’ 

Medicare cost report. If we waited for 

cost report settlement to finalize interim 

values such as DSH, IME, and interim 

payment to SCHs and MDHs, we would 

be delaying making these additional 

payments well beyond FYs 2011 and 

2012. As we noted in the preamble to 

the supplemental proposed rule (75 FR 

30929), we proposed to make payments 

under section 1109 of Public Law 111– 

152 during FYs 2011 and 2012 based on 

available interim MedPAR data, because 

of this delay. Although waiting until 

cost reports are settled might yield 

somewhat more precise payment 

information for some qualifying 

hospitals receiving interim payments, 

including SCHs and MDHs, we believe 

it is in the interest of the hospitals to use 

the best available at this time to 

expedite disbursement of the funds in 

FY 2011 and FY 2012. We believe the 

FY 2009 MedPAR file contains the best 

data available, and using these data is 

the most expeditious method to 

determine a hospital’s weighting factor 

and is consistent with this decision to 

make payments in the relevant fiscal 

years. 

Comment: One commenter supported 

determining qualifying hospitals only 

once in FY 2011 for the purposes of 

making payments in FY 2011 and FY 

2012. The commenter stated that this 

approach provides certainty to 

qualifying hospitals to allow them to 

budget for the next 2 fiscal years. 

Response: We agree that finalizing the 

list of eligible counties and qualifying 

hospitals once will ease implementation 

of the provision and will allow hospitals 

to plan their budgets accordingly. As 

discussed earlier, we have modified our 

proposed approach because we have 

replaced two eligible counties and have 

not identified any qualifying IPPS 

hospitals located in those counties. We 

are allowing the public until August 30, 

2010 to give input via e-mail as to 

whether there are any qualifying 

hospitals located in those two 

additional eligible counties. If there are 

any changes to the list, we will 

republish that information on the CMS 

Web site. To the extent that there are 

any other issues that arise after the 

publication of this final rule, we would 

consider those issues in future 

rulemaking. 

We are finalizing our methodology to 

calculate the qualifying hospitals’ 

payment weighting factors as proposed 

using the March 2010 update of the FY 

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2009 MedPAR inpatient claims 

information. We are finalizing our 

proposal to distribute $150 million for 

FY 2011 and $250 million for FY 2012. 

7. Results 

In calculating county-level Medicare 

Part A and B spending and after 

consideration of the public comments 

we received, we have found that there 

are 3,142 counties in the United States. 

Therefore, there are 786 counties that 

rank in the lowest quartile of counties 

with regards to adjusted Medicare Part 

A and Part B spending per enrollee. Of 

those 786 eligible counties, there are 

only 273 counties in which qualifying 

hospitals are located, using the 

methodology we proposed in section 

II.E.3. of the preamble to the 

supplemental proposed rule and that we 

are finalizing in this final rule. Using 

Medicare provider numbers, we 

identified 416 IPPS hospitals that are 

currently located in those eligible 

counties and received IPPS operating 

payments in FY 2009. 

In accordance with our responses to 

the comments and our final 

methodology, we have set out the final 

list of eligible counties in Table 1 below. 

In addition, we have set out the final list 

of qualifying hospitals, location, and 

payment weighting factors (subject to 

our consideration of any comments we 

receive regarding whether there are any 

qualifying hospitals in the two newly 

added eligible counties) based on the 

March 2010 update of the FY 2009 

MedPAR in Table 2 below. Finally, we 

have set out the payments under section 

1109 by State for FY 2011 (again, subject 

to our consideration of any public input 

we receive regarding whether there are 

any qualifying hospitals in the two 

newly added eligible counties) in Table 

3 below. 

8. Finalization of Eligible Counties, 

Qualifying Hospitals and Qualifying 

Hospitals’ Weighting Factors 

We noted in the proposed rule that, 

based on public comments, it would be 

possible that we finalized a 

methodology to determine the list of 

eligible counties and hospitals that 

differs from our current proposal. A 

change in our methodology could, in 

turn, result in changes to the list of 

eligible counties or qualifying hospitals. 

We note again that we proposed to 

identify eligible counties, qualifying 

providers, and their payments under 

section 1109 of Public Law 111–152 

only once in the FY 2011 IPPS/LTCH 

PPS final rule, and we are finalizing this 

proposal in this final rule. As we 

proposed, the methodology for 

determining a final list of eligible 

counties produced the actual list of 

eligible counties that are being finalized 

in this FY 2011 IPPS/LTCH PPS final 

rule and will not be updated in a future 

fiscal year based on updated data. 

However, as discussed earlier, we 

replaced two counties in the eligible 

counties list and did not identify 

qualifying hospitals located in those 

new counties and we are seeking public 

input via e-mail by August 30, 2010, as 

to whether there are any qualifying 

hospitals located in those counties. If 

there are additional changes to our 

qualifying hospitals list, we will publish 

that information on the CMS Web site 

soon after August 30, 2010. 

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BILLING CODE 4120–01–C 

K. Rural Community Hospital 

Demonstration Program 

We note that we included a 

discussion of continued implementation 

of the rural community hospital 

demonstration program in the FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24011). We issued a supplemental 

proposed rule (75 FR 30961) to the FY 

2011 proposed rule (75 FR 23852) to 

address the provisions of the Affordable 

Care Act, which made changes to the 

demonstration program, and full 

implementation of the program for FY 

2011. The discussion below reflects the 

provisions of both the proposed rule 

and the supplemental proposed rule. 

1. Background 

Section 410A(a) of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA), 

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 for such services under a costbased 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) of MMA, 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, in conjunction with subsections (2) 

and (3) of section 410A(a), provided 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). 

We originally solicited applicants for 

the demonstration in May 2004; 13 

hospitals began participation with cost 

reporting years beginning on or after 

October 1, 2004. (Four of these 13 

hospitals withdrew from the program 

and became CAHs). In a notice 

published in the Federal Register on 

February 6, 2008 (73 FR 6971), 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 four 

additional hospitals began under the 

demonstration payment methodology 

with the hospital’s first cost reporting 

period starting on or after July 1, 2008. 

Three hospitals (2 of the hospitals were 

among the 13 hospitals that were 

original participants in the 

demonstration and 1 of the hospitals 

was among the 4 hospitals that began 

the demonstration in 2008) withdrew 

from the demonstration during CY 2009. 

(Two of these hospitals indicated that 

they will be paid more for Medicare 

inpatient services under the rebasing 

allowed under the SCH methodology 

allowed by the Medicare Improvement 

for Patients and Providers Act of 2008 

(Pub. L. 110–275). The other hospital 

restructured to become a CAH.) 

Section 410A(a)(5) of Public Law 108– 

173 originally required a 5-year 

demonstration period of participation. 

Prior to the enactment of the Affordable 

Care Act, for the seven currently 

participating hospitals that began the 

demonstration during FY 2005 

(‘‘originally participating hospitals’’), the 

demonstration was scheduled to end for 

each of these hospitals on the last day 

of its cost reporting period that ends in 

FY 2010. The end of the participation 

for the three participating hospitals that 

began the demonstration in CY 2008 

was scheduled to be September 30, 

2010. 

In addition, section 410A(c)(2) of 

Public Law 108–173 required that, ‘‘[i]n 

conducting the demonstration program 

under this section, the Secretary shall 

ensure that the aggregate payments 

made by the Secretary do not exceed the 

amount which the Secretary would have 

paid if the demonstration program 

under this section was not 


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implemented.’’ This requirement is 

commonly referred to as ‘‘budget 

neutrality.’’ 

Generally, when we implement a 

demonstration program on a budget 

neutral basis, the demonstration 

program is budget neutral in its own 

terms; in other words, the aggregate 

payments to the participating hospitals 

do not exceed the amount that would be 

paid to those same hospitals in the 

absence of the demonstration program. 

Typically, this form of budget neutrality 

is viable when, by changing payments 

or aligning incentives to improve overall 

efficiency, or both, a demonstration 

program may reduce the use of some 

services or eliminate the need for others, 

resulting in reduced expenditures for 

the demonstration program’s 

participants. These reduced 

expenditures offset increased payments 

elsewhere under the demonstration 

program, thus ensuring that the 

demonstration program as a whole is 

budget neutral or yields savings. 

However, the small scale of this 

demonstration program, in conjunction 

with the payment methodology, makes 

it extremely unlikely that this 

demonstration program could be viable 

under the usual form of budget 

neutrality. Specifically, cost-based 

payments to participating small rural 

hospitals are likely to increase Medicare 

outlays without producing any 

offsetting reduction in Medicare 

expenditures elsewhere. Therefore, a 

rural community hospital’s 

participation in this demonstration 

program is unlikely to yield benefits to 

the participant if budget neutrality were 

to be implemented by reducing other 

payments for these same hospitals. 

In the past six IPPS final regulations, 

spanning the period for which the 

demonstration has been implemented, 

we have adjusted the national inpatient 

PPS rates by an amount sufficient to 

account for the added costs of this 

demonstration program, thus applying 

budget neutrality across the payment 

system as a whole rather than merely 

across the participants in the 

demonstration program. As we 

discussed in the FY 2005, FY 2006, FY 

2007, FY 2008, FY 2009, and FY 2010 

IPPS final rules (69 FR 49183; 70 FR 

47462; 71 FR 48100; 72 FR 47392; 73 FR 

48670; and 74 FR 43922, respectively), 

we believe that the language of the 

statutory budget neutrality requirements 

permits the agency to implement the 

budget neutrality provision in this 

manner. 

In light of the statute’s budget 

neutrality requirement, we proposed in 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24012) a methodology to 

calculate a budget neutrality adjustment 

factor to the FY 2011 national IPPS 

rates. In the FY 2011 IPPS/LTCH PPS 

proposed rule, the only amount that was 

identified to be offset for the FY 2011 

IPPS/LTCH final rule was that by which 

the costs of the demonstration program, 

as indicated by settled cost reports 

beginning in FY 2007 for hospitals 

participating in the demonstration 

during FY 2007, exceeded the amount 

that was identified in the FY IPPS 2007 

final rule as the budget neutrality offset 

for FY 2007. No dollar amount was 

specified for purpose of this offset, 

because of a delay in the settlement 

process of FY 2007 cost reports. Due to 

the timing of the proposed rule in 

relation to the enactment of the 

Affordable Care Act, we were unable to 

include in the proposed budget 

neutrality adjustment factor to the FY 

2011 national IPPS rates an offset that 

would account for the estimated 

financial impact that the demonstration 

would have for certain timeframes 

under the extension required by the 

Affordable Care Act. 

2. Changes to the Demonstration 

Program Made by the Affordable Care 

Act 

Section 3123 of Public Law 111–148 

and section 10313 of Public Law 111– 

152 amended section 410A of Public 

Law 108–173 which established the 

rural community hospital 

demonstration program. Sections 3123 

and 10313 of the Affordable Care Act 

changed the rural community hospital 

demonstration program in several ways. 

First, the Secretary is required to 

conduct the demonstration program for 

an additional 5-year period that begins 

on the date immediately following the 

last day of the initial 5-year period 

under section 410A(a)(5) of Public Law 

108–173, as amended (section 

410A(g)(1) of Public Law 108–173, as 

added by section 3123(a) of the 

Affordable Care Act and further 

amended by section 10313 of such Act). 

Further, the Affordable Care Act 

requires that, in the case of a rural 

community hospital that is participating 

in the demonstration program as of the 

last day of the initial 5-year period, the 

Secretary shall provide for the 

continued participation of such rural 

hospital in the demonstration program 

during the 5-year extension, unless the 

hospital makes an election, in such form 

and manner as the Secretary may 

specify, to discontinue participation 

(section 410A(g)(4)(A) of Public Law 

108–173, as added by section 3123(a) of 

the Affordable Care Act and further 

amended by section 10313 of such Act). 

In addition, the Affordable Care Act 

provides that during the 5-year 

extension period, the Secretary shall 

expand the number of States with low 

population densities determined by the 

Secretary to 20 (section 410A(g)(2) of 

Public Law 108–173, as added by 

section 3123(a) and amended by section 

10313 of the Affordable Care Act). 

Further, the Secretary is required to use 

the same criteria and data that the 

Secretary used to determine the States 

under section 410A(a)(2) of Public Law 

108–173 for purposes of the initial 5- 

year period. The Affordable Care Act 

also allows not more than 30 rural 

community hospitals in such States to 

participate in the demonstration during 

the 5-year extension period (section 

410A(g)(3) of Public Law 108–173, as 

added by section 3123(a) of the 

Affordable Care Act and as further 

amended by section 10313 of such Act). 

Additionally, the Affordable Care Act 

provides that the amount of payment 

under the demonstration program for 

covered inpatient hospital services 

furnished in a rural community 

hospital, other than services furnished 

in a psychiatric or rehabilitation unit of 

the hospital that is a distinct part, 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 the 5-year 

extension period (section 410A(g)(4)(b) 

of Public Law 108–173, as added by 

section 3123(a) of the Affordable Care 

Act and as further amended by section 

10313 of such Act). For discharges 

occurring in a subsequent cost reporting 

period paid under the demonstration, 

the formula in section 410A(b)(1)(B) of 

Public Law 108–173, as amended, 

would apply. In addition, various other 

technical and conforming changes were 

made to section 410A of Public Law 

108–173 by section 3123(a) of the 

Affordable Care Act and as further 

amended by section 10313 of such Act. 

3. FY 2011 Budget Neutrality 

Adjustment 

In order to ensure that the 

demonstration is budget neutral as is 

required by the statute, in the June 2, 

2010 supplemental proposed rule, we 

proposed to adjust the national IPPS 

rates in the FY 2011 IPPS final rule to 

account for any added costs attributable 

to the demonstration. Specifically, the 

proposed budget neutrality adjustment 

would account for: (1) The estimated 

costs of the demonstration in FY 2011 

for the 10 currently participating 

hospitals; (2) the estimated FY 2010 

costs of the demonstration that were not 

accounted for in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule for the 7 

‘‘originally participating hospitals’’ 

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because we estimated those hospitals’ 

FY 2010 costs under the assumption 

that the demonstration would be 

concluding before the end of FY 2010 

for those hospitals; (3) the estimated FY 

2011 costs for up to 20 new hospitals 

selected to participate in the 

demonstration; and (4) the amount by 

which the costs of the demonstration 

program, as indicated by settled cost 

reports for cost reporting periods 

beginning in FY 2007 for hospitals 

participating in the demonstration 

during FY 2007, exceeded the amount 

that was identified in the FY 2007 IPPS 

final rule as the budget neutrality offset 

for FY 2007. 

a. Component of the FY 2011 Budget 

Neutrality Adjustment That Accounts 

for Estimated FY 2011 Costs of the 

Demonstration of the 10 Currently 

Participating Hospitals 

In the June 2, 2010 supplemental 

proposed rule (75 FR 30962 and 30963), 

we indicated that the component of the 

proposed FY 2011 budget neutrality 

adjustment to the national IPPS rates 

that accounts for the estimated cost of 

the demonstration in FY 2011 for the 10 

currently participating hospitals would 

be calculated by utilizing separate 

methodologies for the 7 hospitals that 

have participated in the demonstration 

since its inception and that we consider 

to be continuing to participate in the 

demonstration (‘‘originally participating 

hospitals’’), and the 3 hospitals that are 

currently participating in the 

demonstration that were among the 4 

hospitals that joined the demonstration 

in 2008. Different methods are used 

because fiscal intermediaries’ most 

recent final settlements of cost reports 

are for periods beginning in FY 2006 for 

the ‘‘originally participating hospitals,’’ 

whereas we relied on available 

submitted documentation for the 

hospitals that began participation in the 

demonstration in 2008. Because the 

hospitals that began the demonstration 

in 2008 have no settled cost reports for 

the demonstration, we proposed to use 

‘‘as submitted’’ cost reports. The 

proposed budget neutrality analysis was 

based on the assumption that all 10 of 

these hospitals would continue in the 

demonstration under the 5-year 

extension provided by the Affordable 

Care Act. We note that all 10 

participating hospitals, whether they 

began participation in 2005 or in 2008, 

have elected to continue participation in 

the extension period mandated by the 

Affordable Care Act. 

The estimate of the portion of the 

proposed budget neutrality adjustment 

that accounts for the estimated costs of 

the demonstration in FY 2011 for the 7 

‘‘originally participating hospitals’’ was 

based on data from their second year 

cost reports—that is, for cost reporting 

periods beginning in FY 2006. We 

proposed to use these cost reports 

because they were the most recent 

complete cost reports and, thus, we 

believed they enabled us to estimate FY 

2011 costs as accurately as possible. In 

addition, we estimated the cost of the 

demonstration in FY 2011 for 2 of the 

4 hospitals that joined the 

demonstration in 2008 based on data 

from each of their cost reporting periods 

beginning January 1, 2008. Similarly, we 

proposed to use these cost reports 

because they were the most recent cost 

reports and, thus, we believed they 

enabled us to estimate FY 2011 costs for 

these 2 hospitals as accurately as 

possible. Because 1 of the 4 hospitals 

that began in 2008 has withdrawn, there 

is 1 hospital remaining among those that 

began in that year. The remaining 

hospital of the 4 hospitals that began in 

2008 is an Indian Health Service 

provider. Historically, the hospital has 

not filed standard Medicare cost reports. 

Therefore, in order to estimate its costs, 

we proposed to use an analysis of 

Medicare inpatient costs and payments 

submitted by the hospital for the cost 

reporting period of October 1, 2005 

through September 30, 2006. In 

addition, we proposed that we may 

revise this estimate [that is, the 

estimated cost of the demonstration in 

FY 2011 for the 10 currently 

participating hospitals] for the final rule 

if updated cost report data became 

available. This is because we believe 

that updated data would enable us to 

estimate costs as accurately as possible. 

For this final rule, we are finalizing an 

estimate of the costs of the 

demonstration in FY 2011 for the 10 

currently participating hospitals. 

Consistent with our proposal, updated 

data have become available for this final 

rule, and we are using them to estimate 

the costs of the demonstration in FY 

2011. The finalized amount differs from 

that stated in the proposed rule in two 

respects: (1) A more recently available 

IPPS market basket update factor for FY 

2011 is applied to the difference 

between the dollar amount attributable 

to Medicare inpatient costs calculated 

under the applicable reasonable cost 

methodology in section 410A of Public 

Law 108–173, as amended, and what 

would have otherwise been paid under 

the IPPS. (An IPPS market basket update 

is applied for every year between the 

year of the respective cost report and 

2011.) (2) The updated cost report data 

have become available for the Indian 

Health Service provider because the 

provider has filed a full cost report for 

its cost reporting period ending 

September 30, 2009. 

For this final rule, the estimated costs 

under the demonstration for FY 2011 for 

the 10 currently participating hospitals 

is calculated as follows: Consistent with 

the proposed rule, in order to estimate 

the FY 2011 costs of the demonstration 

for the seven ‘‘originally participating 

hospitals,’’ for each hospital we 

subtracted the amount it would have 

been paid under the IPPS from the 

amount paid for FY 2006 under the 

applicable reasonable cost methodology 

in section 410A of Public Law 108–173 

as amended. We summed these 

differences for the seven hospitals and 

applied the IPPS market basket updates 

and a 2-percent annual volume 

adjustment for the years between 2006 

and 2011. As proposed, for this final 

rule for the two hospitals that began the 

demonstration in 2008, for each of these 

hospitals we subtracted the amount it 

would have been paid under the IPPS 

from the amount to be paid under the 

applicable reasonable cost methodology 

in section 410A of Public Law 108–173 

as amended for FY 2008 using as 

submitted 2008 cost reports. We 

summed these differences and applied 

the IPPS market basket updates and a 

2-percent annual volume adjustment for 

the years between 2008 and 2011. For 

the Indian Health Service provider, we 

used its as submitted cost report ending 

in September 2009 to estimate its FY 

2011 costs under the applicable 

reasonable cost methodology set forth in 

section 410A of Public Law 108–173 as 

amended and what its Medicare 

inpatient payment would have been 

absent the demonstration. We added the 

amounts for all 10 hospitals, resulting in 

an estimated amount of $21,331,721. 

b. Portion of the FY 2011 Budget 

Neutrality Adjustment That Accounts 

for Estimated FY 2010 Costs of the 

Demonstration That Were Not 

Accounted for in the FY 2010 IPPS/RY 

2010 LTCH PPS Final Rule for the 

Seven ‘‘Originally Participating 

Hospitals’’ 

As explained above, section 

410A(g)(4)(A) of Public Law 108–173, as 

added by section 3123(a) of the 

Affordable Care Act and further 

amended by section 10313 of such Act, 

provided for the continued participation 

of rural community hospitals that were 

participating in the demonstration as of 

the last day of the initial 5-year 

[demonstration] period. One of the 

effects of this extension is that the seven 

‘‘originally participating hospitals’’ 

(those hospitals that have participated 

in the demonstration since its inception 

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and that continue to participate in the 

demonstration or were participating in 

the demonstration as of the last day of 

their initial 5-year demonstration 

period, that is, the two rural community 

hospitals that concluded their initial 

period of performance in December 

2009) that were scheduled to end their 

participation in the demonstration 

before the end of FY 2010 would 

continue to participate for the 

remainder of FY 2010 and beyond, as 

applicable. However, we note that the 

portion of the FY 2010 budget neutrality 

adjustment to the national IPPS rates 

that was included in the FY 2010 IPPS 

final rule that accounted for the 

estimated costs of the demonstration in 

FY 2010 did not take into account costs 

of the demonstration for those hospitals 

beyond the anticipated end date of their 

initial demonstration period. (For 

example, for a hospital whose cost 

report ended in June 30, 2010, we 

counted only 9 months for the budget 

neutrality adjustment for the FY 2010 

IPPS/LTCH PPS final rule. Under our 

proposal, we would adjust the national 

IPPS rates to account for the estimated 

costs for this hospital for the remaining 

3 months of FY 2010.) Therefore, as 

proposed, in this final rule, we are 

including a component in the FY 2011 

budget neutrality adjustment to account 

for the estimated costs of the 

demonstration in FY 2010 that were not 

accounted for in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule for the seven 

‘‘originally participating hospitals’’ 

because we calculated the FY 2010 cost 

estimate for that year’s final rule 

assuming that the demonstration would 

end before the end of that fiscal year for 

those hospitals. As we proposed, we are 

using the following methodology to 

account for such estimated costs: 

• Step One. For each of the seven 

‘‘originally participating hospitals,’’ we 

divide the number of months that were 

not included in the estimate of the FY 

2010 demonstration costs included in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule by 12. This step is necessary 

to determine for each of the seven 

‘‘originally participating hospitals’’ the 

fraction of FY 2010 for which the 

estimate of the FY 2010 demonstration 

was not included. 

• Step Two. For each of the seven 

‘‘originally participating hospitals,’’ the 

percentage that results in step one is 

multiplied by the estimate of the cost 

attributable to the demonstration in FY 

2010 for the hospital. The estimate for 

the fraction of the hospital’s cost for FY 

2010 not included in the estimate in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule is arrived at by multiplying this 

fraction by the estimate of costs for the 

entire year. 

The estimate of the costs of the 

demonstration for FY 2010 for the seven 

‘‘originally participating’’ hospitals is 

derived from data found in their cost 

reports for cost reporting years 

beginning in FY 2006. These cost 

reports show dollar amounts for costs 

for Medicare inpatient services (that is, 

the Medicare payment amount in that 

cost reporting year for Medicare 

inpatient services that results from 

application of the applicable 

methodology set forth in section 410A 

of Pub. L. 108–173) and the dollar 

amount that would have been paid 

under the IPPS. Because these cost 

reporting years all ended during FY 

2007, this difference (that is, the 

difference between the Medicare 

payment amount in that cost reporting 

year for Medicare inpatient services that 

is calculated under the methodology set 

forth in section 410A of Pub. L. 108–173 

and the dollar amount that would have 

been paid under the IPPS), respective to 

each of the seven ‘‘originally 

participating hospitals,’’ is updated 

according to the market basket updates 

for inpatient hospital costs reported by 

the CMS Office of the Actuary for the 

years from FY 2008 through FY 2011. 

(We also have assumed an annual 2 

percent volume increase in accordance 

with guidance from the CMS Office of 

the Actuary.) The difference for each 

hospital is summed to arrive at the 

estimate of additional costs attributable 

to the demonstration in FY 2010 for 

such hospitals. (This calculation is not 

necessary for the hospitals that began 

participating in the demonstration in 

2008 because the portion of the FY 2010 

budget neutrality adjustment that 

accounts for estimated FY 2010 

demonstration costs in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule 

incorporates a cost estimate for each of 

these hospitals based on the entirety of 

the Federal fiscal year.) The estimate of 

additional costs attributable to the 

demonstration in FY 2010 for the seven 

‘‘originally participating hospitals’’ that 

were not accounted for in the FY 2010 

final rule is $6,488,221. 

c. Portion of the FY 2011 Budget 

Neutrality Adjustment That Accounts 

for Estimated FY 2011 Costs for 

Hospitals Newly Selected To Participate 

in the Demonstration 

Section 410A(g)(3) of Public Law 108– 

173, as added by section 3123 of the 

Affordable Care Act and as further 

amended by section 10313 of such Act, 

provides that ‘‘[n]otwithstanding 

subsection (a)(4), during the 5-year 

extension period, not more than 30 rural 

community hospitals may participate in 

the demonstration program under this 

section.’’ Consequently, up to 20 

additional hospitals may be added to 

the demonstration (30 hospitals minus 

the 10 currently participating hospitals). 

In order to ensure budget neutrality for 

20 new participating hospitals, as we 

proposed in the June 2, 2010 

supplemental proposed rule, we are 

including a component in the budget 

neutrality adjustment factor to the FY 

2011 national IPPS rates to account for 

the estimated FY 2011 costs of those 

new hospitals. As proposed, for this 

final rule, for purposes of estimating the 

FY 2011 costs of the demonstration for 

20 new hospitals, we are estimating 

such costs from the average annual cost 

per hospital derived from the estimate 

of the 10 currently participating 

hospitals’ costs attributable to the 

demonstration for FY 2011. Because the 

statute allows the potential for 20 

additional hospitals for the 

demonstration, we are basing this 

estimate on the assumption that 20 

hospitals will join. Our experience 

analyzing the cost reports so far for 

demonstration hospitals shows a wide 

variation in costs among the hospitals. 

Given the wide variation in cost profiles 

that might occur for additional 

hospitals, we believe that estimating the 

total demonstration cost for FY 2011 for 

20 additional hospitals from the average 

annual cost of the currently existing 

hospitals yields the most accurate 

prediction because it is reflective of the 

historical trend of participant behavior 

under the demonstration and should 

give an accurate as possible prediction 

of future participant behavior. We 

believe that, although there is variation 

in costs, formulating an estimate from 

the average costs of as many as 10 

hospitals gives as good as possible a 

prediction of what the demonstration 

costs for each of 20 additional hospitals 

would be. We are estimating the average 

cost for each of the 20 additional 

hospitals, not a range of costs. 

According to the estimate of this average 

cost per hospital, obtained by dividing 

$21,331,721, the cost amount for FY 

2011 identified for the 10 participating 

hospitals in IV.F.3.a. of this preamble, 

by 10 and then multiplying by 20, the 

estimate for costs attributable to the 

demonstration for 20 additional 

hospitals in FY 2011 is $42,663,442. (In 

the proposed rule, we neglected to state 

that the estimated costs attributable to 

the demonstration for 20 additional 

hospitals in FY 2011 was the average 

cost attributable to the demonstration 

per hospital for FY 2011 times 20, 

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although the estimated costs for such 

hospitals reflected this calculation). 

d. Portion of the FY 2011 Budget 

Neutrality Adjustment To Offset the 

Amount by Which the Costs of the 

Demonstration in FY 2007 Exceeded the 

Amount That Was Identified in the FY 

2007 IPPS Final Rule as the Budget 

Neutrality Offset for FY 2007 

In addition, in order to ensure that the 

demonstration in FY 2007 was budget 

neutral, in the June 2, 2010 

supplemental proposed rule (75 FR 

30964), we proposed to incorporate a 

component into the budget neutrality 

adjustment factor to the FY 2011 

national IPPS rates, which would offset 

the amount by which the costs of the 

demonstration program as indicated by 

settled cost reports beginning in FY 

2007 for hospitals participating in the 

demonstration during FY 2007 exceeded 

the amount that was identified in the FY 

2007 IPPS final rule as the budget 

neutrality offset for FY 2007. 

Specifically, we proposed the following 

methodology: 

• Step One: Calculate the FY 2007 

costs of the demonstration program 

according to the settled cost reports that 

began in FY 2007 for the then 

participating hospitals (which represent 

the third year of the demonstration for 

each of the then participating hospitals). 

(We proposed to use these settled cost 

reports, which represent the third year 

of the demonstration for each of the 

then participating hospitals, because 

they correspond most precisely to FY 

2007 and, therefore, we believe correctly 

represent FY 2007 inpatient costs for the 

demonstration during that period.) 

• Step Two: Subtract the amount that 

was offset by the budget neutrality 

adjustment for FY 2007 ($9,197,870) 

from the costs of the demonstration in 

FY 2007 as calculated in step one. 

• Step Three: The result of step two 

is a dollar amount, for which we would 

calculate a factor that would offset such 

amounts and would be incorporated 

into the overall budget neutrality 

adjustment to national IPPS rates for FY 

2011. This specific component to the 

overall budget neutrality adjustment for 

FY 2011 would account for the 

difference between the costs of the 

demonstration in FY 2007 and the 

amount of the budget neutrality 

adjustment published in the FY 2007 

IPPS final rule and, therefore, would 

ensure that the demonstration is budget 

neutral for FY 2007. 

Because the settlement process for the 

demonstration hospitals’ third year cost 

reports, that is, for cost reporting 

periods starting in FY 2007, had 

experienced a delay, for the FY 2011 

IPPS/LTCH PPS proposed rule and the 

supplemental propose rule, we were 

unable to state the costs of the 

demonstration corresponding to FY 

2007 and as a result were unable to 

propose the specific numeric 

adjustment representing this offsetting 

process that would be applied to the 

national IPPS rates. Due to operational 

issues in the cost report settlement 

process, settled cost reports for the 

hospitals that participate in the 

demonstration in FY 2007 are not 

available in time for this final rule 

either, although we expected them to be 

available. Therefore, the estimated 

adjustment to the national IPPS rates in 

this final rule cannot include a 

component to account for these costs. 

We anticipate that this information may 

be available for the FY 2012 IPPS/LTCH 

PPS proposed rule, at which time we 

would include a similar proposal. 

For this final FY 2011 IPPS/LTCH 

PPS final rule, the estimated amount for 

the adjustment to the national IPPS rates 

is the sum of the amounts specified in 

sections V.K.3.a. through c. of this final 

rule, which is $70,483,384. Section 

V.K.3.a. through c. of this final rule state 

dollar amounts, which represent 

estimated costs attributable to the 

demonstration for the respective 

component of the overall estimated 

calculation of the budget neutrality 

factor for FY 2011. This estimated 

amount is based on the specific 

assumptions identified, as well as from 

data sources that are used because they 

represent either the most recently 

finalized or, if as submitted, recent 

available cost reports. 

We did not receive any public 

comments on the proposed provisions 

for extension of the rural hospital 

community demonstration program. 

L. Technical Change to Regulations 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43939 through 

43940), in response to public comments 

we received on the FY 2010 proposed 

rule relating to the effects on CAH status 

arising from the redesignation by OMB 

of three Micropolitan Statistical Areas 

as MSAs, we amended our regulations 

at § 485.610 by adding a paragraph (b)(4) 

to provide for a transition period for the 

CAHs that are located in counties that 

are reclassified from rural to urban to 

obtain a rural redesignation. However, 

when we added the new paragraph 

(b)(4) to § 485.610, we inadvertently 

failed to make a conforming change to 

the introductory text of paragraph (b) to 

include a reference to paragraph (b)(4) 

as one of the requirements that the CAH 

must meet in order to satisfy the 

conditions of participation for CAHs. In 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 23998), we proposed to 

make this conforming change. We did 

not receive any public comments on our 

proposal. Therefore, we are adopting the 

proposed conforming change as final 

without modification. 

M. Interim Final Rule With Comment 

Period: Bundling of Payments for 

Services Provided to Outpatients Who 

Later Are Admitted as Inpatients: 3-Day 

Payment Window 

1. Introduction 

On June 25, 2010, the Preservation of 

Access to Care for Medicare 

Beneficiaries and Pension Relief Act of 

2010 (Pub. L. 111–192) was enacted. 

Section 102 of Public Law 111–192 

pertains to Medicare’s policy for 

payment of outpatient services provided 

on either the day of or during the 3 days 

(or, in the case of a hospital that is not 

a subsection (d) hospital, during the 1 

day) prior to a Medicare beneficiary’s 

inpatient admission. This policy is 

generally known as the ‘‘3-day payment 

window’’. Under the 3-day payment 

window, a hospital (or an entity that is 

wholly owned or wholly operated by 

the hospital) must include on the claim 

for a Medicare beneficiary’s inpatient 

stay, the charges for all outpatient 

diagnostic services and admissionrelated nondiagnostic services provided 

during the payment window. The new 

law makes the policy pertaining to 

admission-related nondiagnostic 

services more consistent with common 

hospital billing practices. Section 102 is 

effective for services furnished on or 

after the date of enactment, June 25, 

2010. 

2. Background for Policy 

Section 1886(a)(4) of the Act 

originally defined the operating costs of 

inpatient hospital services to include 

‘‘all routine operating costs, ancillary 

service operating costs, and special care 

unit operating costs with respect to 

inpatient hospital services as such costs 

are determined on an average per 

admission or per discharge basis.’’ On 

November 5, 1990, the Omnibus Budget 

Reconciliation Act of 1990 (Pub. L. 101– 

508) was enacted. Section 4003(a) of 

Public Law 101–508 amended the 

statutory definition of ‘‘operating costs 

of inpatient hospital services’’ to include 

the costs of certain services furnished 

prior to admission. These preadmission 

services are to be included on the 

Medicare Part A bill for the subsequent 

inpatient stay. As amended, section 

1886(a)(4) of the Act defines the 

operating costs of inpatient hospital 

services to include diagnostic services 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50347 

(including clinical diagnostic laboratory 

tests) or other services related to the 

admission (as defined by the Secretary) 

furnished by the hospital (or by an 

entity that is wholly owned or wholly 

operated by the hospital) to the patient 

during the 3 days prior to the date of the 

patient’s admission to the hospital. The 

provisions of section 4003(b) of Public 

Law 101–508 were fully implemented 

by October 1, 1991. 

On January 12, 1994, we published an 

interim final rule with comment period 

(59 FR 1654) regarding section 4003 of 

Public Law 101–508. In that final rule 

with comment period, we revised the 

regulations at 42 CFR 412.2 relating to 

hospitals paid under the IPPS (also 

referred to as ‘‘subsection (d) hospitals’’) 

and 42 CFR 413.40(c) relating to 

hospitals excluded from the IPPS (also 

referred to as ‘‘non-subsection (d) 

hospitals’’). Specifically, we added 

§ 412.2 (c)(5) and revised § 413.40(c) to 

provide that a hospital is considered the 

sole operator of an entity if the hospital 

has exclusive responsibility for 

conducting or overseeing the entity’s 

routine operations, regardless of 

whether the hospital also has 

policymaking authority over the entity. 

In addition, we stated that ambulance 

services are excluded from 

preadmission services subject to the 

payment window and defined ‘‘services 

related to the admission’’ as those 

nondiagnostic services that are 

furnished in connection with the 

principal diagnosis that requires the 

beneficiary to be admitted as an 

inpatient. 

Section 1886(a)(4) of the Act was 

further amended by section 110 of the 

Social Security Amendments of 1994 

(Pub. L. 103–432, enacted on October 

31, 1994). That provision revised the 

payment window for hospitals that are 

excluded from the IPPS to include only 

those services furnished by the hospital 

or an entity wholly owned or operated 

by the hospital during the 1 day (not 3 

days) prior to a patient’s hospital 

inpatient admission. In a September 1, 

1995 final rule (60 FR 45840), we 

revised § 413.40(c)(2) of the regulations 

to provide for the 1-day payment 

window for hospitals and hospital units 

excluded from the IPPS. The hospitals 

and hospital units excluded from the 

IPPS and affected by this policy are 

psychiatric hospitals and units, 

inpatient rehabilitation hospitals and 

units, long-term care hospitals (LTCHs), 

children’s hospitals, and cancer 

hospitals. CMS also noted that the term 

‘‘day’’ refers to the entire calendar day 

immediately preceding the date of 

admission, not the 24-hour time period 

that immediately precedes the hour of 

admission. 

On February 11, 1998, we published 

a final rule (63 FR 6864) that responded 

to public comments received on the 

January 12, 1994 interim final rule with 

comment period. In that final rule, CMS 

stated again that ambulance services are 

excluded from the payment window 

provision and also stated that chronic 

maintenance renal dialysis are 

excluded, as reflected in 

§§ 412.2(c)(5)(iii) and §§ 413.40(c)(2)(iii) 

of the regulations. We also clarified in 

that final rule that the payment window 

applies to outpatient services that are 

otherwise billable under Part B and does 

not apply to nonhospital services that 

are generally covered under Part A 

(such as home health, skilled nursing 

facility, and hospice). In addition, we 

further clarified the terms ‘‘admissionrelated’’ and ‘‘wholly owned or 

operated.’’ 

In an April 2006 update to the 

Medicare Claims Processing Manual 

(Pub. 100–4), Chapter 3, section 40.3 

(Change Request 4089, Transmittal 714), 

we revised the manual instructions to 

clarify that the 3-day (or 1-day) payment 

window policy also applies to 

outpatient services provided on the date 

of a beneficiary’s admission, consistent 

with Medicare’s longstanding 

administrative policy for treating 

preadmission outpatient services as 

inpatient. We also clarified that critical 

access hospitals (CAHs) are not subject 

to the 3-day (nor 1-day) payment 

window. 

3. Requirements of Section 102 of Public 

Law 111–192 

Section 102(a)(1) of Public Law 111– 

192 added a provision to section 

1886(a)(4) of the Act to specify that the 

term ‘‘other services related to the 

admission’’ includes ‘‘all services that 

are not diagnostic services (other than 

ambulance and maintenance renal 

dialysis services) for which payment 

may be made under this title [Title 

XVIII] that are provided by a hospital (or 

an entity wholly owned or wholly 

operated by the hospital) to a patient— 

(A) on the date of the patient’s inpatient 

admission; or (B) during the 3 days (or, 

in the case of a hospital that is not a 

subsection (d) hospital, during the 1 

day) immediately preceding the date of 

admission unless the hospital 

demonstrates (in a form and manner, 

and at a time, specified by the Secretary) 

that such services are not related (as 

determined by the Secretary) to such 

admission.’’ 

Section 102(b) specifies that the 

amendments made by section 102(a) of 

the law apply ‘‘to services furnished on 

or after the date of the enactment’’ (that 

is, June 25, 2010). 

The law makes no changes to the 

billing of ‘‘diagnostic services’’ furnished 

during this period, which are included 

in the ‘‘operating costs of inpatient 

hospital services’’ pursuant to section 

1886(a)(4) of the Act (which we discuss 

in our regulations and in section 

40.3(B), Chapter 3, of the Medicare 

Claims Processing Manual). All 

diagnostic services provided to a 

Medicare beneficiary by a hospital (or 

an entity wholly owned or operated by 

the hospital) on the date of the 

beneficiary’s inpatient admission and 

during the 3 calendar days (1 calendar 

day for a nonsubsection (d) hospital) 

immediately preceding the date of 

admission would continue to be 

required to be included on the bill for 

the inpatient stay. 

Section 102(c) of Public Law 111–192 

also prohibits Medicare from reopening 

a claim, adjusting a claim, or making 

payments pursuant to any request for 

payment under Title 18, submitted by 

an entity (including a hospital or an 

entity wholly owned or operated by the 

hospital), for services (as described in 

section 102(c)(2) of Pub. L. 111–192), for 

purposes of treating, as unrelated to a 

patient’s inpatient admission, services 

provided during the 3 days (or, in the 

case of a hospital that is not a 

subsection (d) hospital, during the 

1 day) immediately preceding the date 

of the patient’s inpatient admission. 

Services described in section 102(c)(2) 

of Public Law 111–192 are other 

services related to the admission which 

were previously included on a claim or 

request for payment submitted under 

part A of Title XVIII for which a 

reopening, adjustment, or request for 

payment under part B of Title XVIII, 

was not submitted prior to June 25, 2010 

for purposes of treating, as unrelated to 

a patient’s inpatient admission. 

4. Application of the Provisions of 

Section 102 of Public Law 111–192 

In accordance with section 1886(a)(4) 

of the Act, outpatient nondiagnostic 

services that are related to an inpatient 

admission must be bundled with the 

billing for the inpatient stay. An 

outpatient service is related to the 

admission if it is clinically associated 

with the reason for a patient’s inpatient 

admission. In accordance with section 

102 of Public Law 111–192, for 

outpatient services furnished on or after 

June 25, 2010, all nondiagnostic 

services, other than ambulance and 

maintenance renal dialysis services, 

provided by the hospital (or an entity 

wholly owned or wholly operated by 

the hospital) on the date of a 

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beneficiary’s inpatient admission are 

deemed related to the admission and, 

therefore, must be billed with the 

inpatient stay. In addition, outpatient 

nondiagnostic services, other than 

ambulance and maintenance renal 

dialysis services, provided by the 

hospital (or an entity wholly owned or 

wholly operated by the hospital) on the 

first, second, and third calendar days 

(first calendar day for nonsubsection (d) 

hospitals) preceding the date of a 

beneficiary’s admission are deemed 

related to the admission and, therefore, 

must be billed with the inpatient stay, 

unless the hospital attests to certain 

nondiagnostic services as unrelated to 

the hospital claim (that is, the 

preadmission services are clinically 

distinct or independent from the reason 

for the beneficiary’s admission). 

Outpatient nondiagnostic services 

provided during the applicable payment 

window that are unrelated to the 

admission, and are covered by Medicare 

Part B, should be separately billed to 

Medicare Part B. 

We intend to establish a process for 

hospitals to attest to nondiagnostic 

services as being unrelated to the 

hospital claim when a hospital submits 

an outpatient claim. As part of the 

process, hospitals would be required to 

maintain documentation in the 

beneficiary’s medical record to support 

their claim that the outpatient 

nondiagnostic services are unrelated to 

the beneficiary’s inpatient admission. 

We note that hospitals have experience 

with making similar attestations on the 

outpatient or inpatient claim. For 

example, under Medicare’s current 

policy, when a patient is discharged or 

transferred from an acute care 

prospective payment system (PPS) 

hospital, and is readmitted to the same 

acute care PPS hospital on the same day 

for symptoms related to the prior stay, 

the second stay is bundled into payment 

for the first stay and not separately paid. 

However, when a patient is discharged 

or transferred from an acute care PPS 

hospital and is readmitted to the same 

acute care PPS hospital on the same day 

for symptoms unrelated to the prior 

stay, hospitals can place condition code 

(CC) B4 on the inpatient claim that 

contains an admission date equal to the 

prior admissions discharge date that 

would allow the second stay to be paid 

separately. If the condition code is not 

included on the claim for a same day 

readmission, edits will bundle the claim 

for the second admission into the first 

one and Medicare will only pay for one 

inpatient discharge. (We refer readers to 

section 40.2.5, Chapter 3 of the 

Medicare Claims Processing Manual and 

the FY 2003 IPPS final rule (68 FR 

45404–06) for further details of 

Medicare’s policy on this issue.) We 

plan to develop a similar process using 

a condition code, modifier, or some 

other indicator for the 3-day (1-day) 

payment window. 

In accordance with the requirements 

of section 1886(a)(4) of the Act, as 

amended by section 102(a) of Public 

Law 111–192, we are modifying the 

Medicare regulations at § 412.2 by 

revising paragraph (c)(5) and adding a 

new paragraph (c)(5)(iv) to specify that 

all nondiagnostic services provided on 

or after June 25, 2010, other than 

ambulance and maintenance renal 

dialysis services, provided by a 

subsection (d) hospital (or by an entity 

wholly owned or operated by the 

subsection (d) hospital) on the date of a 

beneficiary’s inpatient admission are 

deemed related to and, therefore, part of 

the beneficiary’s inpatient stay. In 

addition, outpatient nondiagnostic 

services provided on the first, second, 

and third calendar day prior to 

admission by a subsection (d) hospital 

are also deemed related to and, 

therefore, part of the beneficiary’s 

inpatient stay, unless a hospital attests 

that specific nondiagnostic services are 

clinically unrelated to the inpatient 

admission (that is, the preadmission 

services are distinct or independent 

from the admission) when the hospital 

submits an outpatient claim. 

For nonsubsection (d) hospitals, in 

accordance with section 1886(a)(4) of 

the Act, the payment window is 1 day. 

Therefore, in this interim final rule with 

comment period, we are amending 

§ 413.40 by revising paragraph (c)(2) and 

(c)(2)(iii) and adding a new paragraph 

(c)(2)(iv) to provide that all 

nondiagnostic services provided on or 

after June 25, 2010 (other than 

ambulance and maintenance renal 

dialysis services) that are provided on 

the date of a beneficiary’s admission by 

a nonsubsection (d) hospital (or by an 

entity wholly owned or operated by the 

nonsubsection (d) hospital) are deemed 

related to and, thus, part of the 

beneficiary’s inpatient stay at that 

nonsubsection (d) hospital. In addition, 

nondiagnostic services provided by a 

nonsubsection (d) hospital (or by an 

entity wholly owned or operated by the 

nonsubsection (d) hospital) during the 

1 calendar day immediately preceding 

the date of admission to that 

nonsubsection (d) hospital are deemed 

related to and, thus, part of the inpatient 

stay, unless the hospital attests that 

specific nondiagnostic services are 

clinically unrelated to the inpatient 

admission when the hospital submits an 

outpatient claim. 

In this interim final rule with 

comment period, we also are codifying 

the same statutory requirements of the 

payment window for IPFs, LTCHs, and 

IRFs by adding a new § 412.405 

applicable to payments to IPFs for 

treating preadmission services as 

inpatient operating costs under the IPF 

prospective payment system, a new 

§ 412.540 applicable to payments to 

LTCHs for treating preadmission 

services as inpatient operating costs 

under the LTCH prospective payment 

system, and a new paragraph (f) 

(existing paragraph (f) is redesignated as 

paragraph (g)) to § 412.604 to be 

applicable to payments to IRFs for 

treating preadmission services as 

inpatient operating costs under the IRF 

PPS. 

In addition, we are making a technical 

correction to our existing regulation at 

§ 412.521(b)(1), which sets forth our 

policy under the LTCH PPS for what 

constitutes payment in full to providers 

for covered operating costs for inpatient 

services. This is a conforming change 

that is necessary to recognize the 

addition of § 412.540 described 

previously. Consequently, we are 

amending the cross-reference at 

§ 412.521(b) to read instead 

‘‘§ 412.2(c)(1) through (c)(4) of this Part 

and § 412.540.’’ This correction results 

in an accurate description of the policy 

under the LTCH PPS for determining 

Medicare payment in full for inpatient 

operating costs. 

Section 102(c) of Public Law 111–192 

also prohibits Medicare from reopening 

a claim, adjusting a claim, or making 

payments pursuant to any request for 

payment under Title XVIII, submitted 

by an entity (including a hospital or an 

entity wholly owned or operated by the 

hospital), for services (as described 

under section 102(c)(2) of Pub. L. 111– 

192) for purposes of treating, as 

unrelated to a patient’s inpatient 

admission, services provided during the 

3 days (or, in the case of a hospital that 

is not a subsection (d) hospital, during 

the 1 day) immediately preceding the 

date of the patient’s inpatient 

admission. Services described in section 

102(c)(2) of Public Law 111–192 are 

other services related to the admission 

which were previously included on a 

claim or request for payment submitted 

under Part A of Title XVIII for which a 

reopening, adjustment, or request for 

payment under Part B of Title XVIII, 

was not submitted prior to June 25, 2010 

for purposes of treating, as unrelated to 

a patient’s inpatient admission. 

For example, if a beneficiary 

presented with chest pain at the 

emergency department of a subsection 

(d) hospital on June 1, 2010, was 

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retained for observation until admitted 

as an inpatient on June 3, 2010 (with a 

principal diagnosis of myocardial 

infarction), was released from the 

hospital on June 7, 2010, and the 

hospital billed Medicare Part A on June 

10, 2010, for the beneficiary’s entire stay 

(bundling all of the outpatient charges 

and procedures on the inpatient stay 

bill), Medicare will make no payment to 

the hospital for any Part A adjustment 

claims submitted on or after June 25, 

2010, to remove unrelated outpatient 

nondiagnostic services, nor for any new 

Part B claims submitted on or after June 

25, 2010, to separately bill Medicare for 

unrelated outpatient nondiagnostic 

services, that the hospital had 

previously included on its June 10, 2010 

bill for services furnished to the 

beneficiary. 

In the near future, we also expect to 

update the instructions in the Medicare 

Claims Processing Manual, Chapter 3, 

section 40.3, to conform to the 

requirements of section 102 of Public 

Law 111–192. Even before the final 

regulations, instructions, and process 

for attesting to certain services as being 

unrelated to an admission are in place, 

hospitals are required by law to comply 

with the requirements of section 102 of 

Public Law 111–192. That is, hospitals 

must include on a Medicare claim for a 

beneficiary’s inpatient stay the 

diagnoses, procedures, and charges for 

all outpatient preadmission diagnostic 

services and all outpatient preadmission 

nondiagnostic services that meet the 

requirements of section 1886(a)(4) of the 

Act, as amended by section 102 of 

Public Law 111–192. If a hospital 

believes that outpatient nondiagnostic 

services provided during the first, 

second, and third calendar days (first 

calendar day for a nonsubsection (d) 

hospital) preceding the date of a 

beneficiary’s admission are unrelated to 

the inpatient admission, the hospital 

may separately bill for the service to 

Medicare Part B, provided that the 

hospital can document, and maintain 

such documentation as part of the 

beneficiary’s medical record to support 

its belief, that the service is unrelated to 

the admission. Such separately billed 

outpatient preadmission services may 

be subject to subsequent CMS review. 

5. Waiver of Notice of Proposed 

Rulemaking 

In section IV.M. of this document, we 

are implementing section 102 of Pub. L. 

111–192, which addresses Medicare 

payment for outpatient services 

provided prior to a Medicare 

beneficiary’s inpatient admission, 

through an interim final rule with 

comment period. We ordinarily publish 

a notice of proposed rulemaking in the 

Federal Register to provide for public 

comment before the provisions of a rule 

take effect, in accordance with section 

553(b) of the Administrative Procedure 

Act (APA) and section 1871 of the Act. 

This process may be waived, however, 

if an agency finds good cause that a 

notice and comment procedure is 

impracticable, unnecessary, or contrary 

to the public interest. In such cases, the 

agency must incorporate a statement of 

this finding and its reasons in the rule, 

or explain that the agency is 

promulgating interpretive rules, general 

statements of policy, or rules of agency 

procedure or practice outside the scope 

of notice and comment rulemaking. 

We believe that there is good cause to 

implement the requirements of section 

102 of Public Law 111–192 through an 

interim final rule with comment period. 

Notice and comment rulemaking would 

be unnecessary and contrary to the 

public interest in this case. The 

provisions of section 102 are selfimplementing; we are conforming our 

regulations to specific statutory 

requirements contained in that section 

or that directly result from those 

statutory requirements and informing 

the public of the procedures and 

practices the agency will follow to 

ensure compliance with those statutory 

provisions. Moreover, section 102 of 

Public Law 111–192 was effective on 

June 25, 2010, and it is imperative that 

the regulatory provisions be set forth as 

soon as possible to deliver the guidance 

necessary for providers to comply with 

requirements that are already in place. 

In addition, the requirements of 

section 102 of Public Law 111–192 may 

be implemented as an interim final rule 

with comment period because they fall 

under the exception to notice and 

comment rulemaking contained in 

section 1871(b)(1)(B) of the Act. Section 

1871(b)(1)(B) of the Act provides that 

the Secretary is not required to issue a 

notice of proposed rulemaking before 

issuing a final rule if ‘‘a statute 

establishes a specific deadline for the 

implementation of a provision and the 

deadline is less than 150 days after the 

date of the enactment of the statute in 

which the deadline is contained.’’ 

Section 102 of Public Law 111–192 was 

effective on the date of enactment, 

thereby meeting this requirement. 

Section 553(d) of the APA and section 

1871(e)(1)(B)(i) of the Act ordinarily 

require that a regulation be effective no 

earlier than 30 days after publication. 

Under section 553(d)(3), this 

requirement can be waived for good 

cause, and under section 

1871(e)(1)(B)(ii) of the Act, this 

requirement can be waived if necessary 

to comply with statutory requirements, 

or if a delay is contrary to the public 

interest. As noted above, section 102 of 

Public Law 111–192 is required by 

statute to be in effect on the date of 

enactment. For the reasons identified 

above for waiving notice and comment 

procedures under the APA and the Act, 

we find good cause to waive the 30-day 

delay in effective date that would 

otherwise apply. 

In addition, 5 U.S.C. 801 generally 

requires that agencies submit major 

rules to the Congress 60 days before the 

rules are scheduled to become effective. 

This delay does not apply, however, 

when there has been a finding of good 

cause for waiver of prior notice and 

comment as set forth above. 

6. Collection of Information 

Requirements 

This document does not impose any 

new information collection and 

recordkeeping requirements. 

Consequently, it need not be reviewed 

by the Office of Management and 

Budget under the authority of the 

Paperwork Reduction Act of 1995. 

7. Response to Public Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

public comments we receive by the date 

and time specified in the DATES section 

of this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble of that document. 

8. Regulatory Impact Analysis 

We have examined the impacts of this 

final rule as required by Executive 

Order 12866 (September 1993, 

Regulatory Planning and Review), the 

Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104–4), Executive 

Order 13132 on Federalism, and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 directs 

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). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). 

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50350 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

As discussed earlier in this interim 

final rule with comment period, section 

1886(a)(4) of the Act defines the 

operating costs of inpatient hospital 

services to include diagnostic services 

(including clinical diagnostic laboratory 

tests) or other services related to the 

admission (as defined by the Secretary) 

furnished by the hospital (or by an 

entity that is wholly owned or wholly 

operated by the hospital) to the patient 

during the 3 days (or, in the case of a 

hospital that is not a subsection (d) 

hospital, during the 1 day) prior to the 

date of the patient’s admission to the 

hospital. This policy is generally known 

as the ‘‘3-day payment window.’’ Section 

102(a)(1) of Public Law 111–192, 

enacted June 25, 2010, added a 

provision to section 1886(a)(4) of the 

Act to specify that the term ‘‘other 

services related to the admission’’ 

includes ‘‘all services that are not 

diagnostic services (other than 

ambulance and maintenance renal 

dialysis services) for which payment 

may be made under this title [Title 

XVIII] that are provided by a hospital (or 

an entity wholly owned or wholly 

operated by the hospital) to a patient (A) 

on the date of the patient’s inpatient 

admission; or (B) during the 3 days (or, 

in the case of a hospital that is not a 

subsection (d) hospital, during the 

1 day) immediately preceding the date 

of admission unless the hospital 

demonstrates (in a form and manner, 

and at a time, specified by the Secretary) 

that such services are not related (as 

determined by the Secretary) to such 

admission.’’ Section 102(b) specifies that 

the amendments made by section 102(a) 

of Public Law 111–192 apply ‘‘to 

services furnished on or after the date of 

the enactment’’ (that is, June 25, 2010). 

The law makes no changes to the 

existing policy regarding billing of 

‘‘diagnostic services’’ furnished during 

this period, which are included in the 

‘‘operating costs of inpatient hospital 

services’’ pursuant to section 1886(a)(4) 

(which we discuss in our regulations 

and in section 40.3(B), Chapter 3, of the 

MCPM). All diagnostic services 

provided to a Medicare beneficiary by a 

hospital (or an entity wholly owned or 

operated by the hospital) on the date of 

the beneficiary’s inpatient admission 

and during the 3 calendar days 

(1 calendar day for a nonsubsection (d) 

hospital) immediately preceding the 

date of admission would continue to be 

required to be included on the bill for 

the inpatient stay. 

Section 102(c) of Public Law 111–192 

also prohibits Medicare from reopening 

a claim, adjusting a claim, or making 

payments pursuant to any request for 

payment under Title 18, submitted by 

an entity (including a hospital or an 

entity wholly owned or operated by the 

hospital), for services (as described in 

section 102(c)(2) of Public Law 111– 

192), for purposes of treating, as 

unrelated to a patient’s inpatient 

admission, services provided during the 

3 days (or, in the case of a hospital that 

is not a subsection (d) hospital, during 

the 1 day) immediately preceding the 

date of the patient’s inpatient 

admission. Services described in section 

102(c)(2) of Public Law 111–192 are 

other services related to the admission 

which were previously included on a 

claim or request for payment submitted 

under part A of Title 18 for which a 

reopening, adjustment, or request for 

payment under part B of Title 18, was 

not submitted prior to June 25, 2010 for 

purposes of treating the services as 

unrelated to a patient’s inpatient 

admission. 

We note that, in a final rule published 

on February 11, 1998 (63 FR 6864), we 

had defined ‘‘other services’’ as being 

‘‘related to the admission’’ only when 

there was an exact match (for all 5 

digits, if applicable) between the 

principal (or primary) ICD–9–CM 

diagnosis codes assigned for both the 

preadmission services (provided by the 

admitting hospital or by an entity that 

is wholly owned or operated by the 

admitting hospital) and the inpatient 

stay. If hospitals, prior to the June 25, 

2010 effective date of section 102 of 

Public Law 111–192, were applying the 

definition of ‘‘related’’ as adopted in that 

final rule, we estimate that the impact 

of the provisions of section 102 of 

Public Law 111–192, for FY 2011, 

would be a savings of approximately 

$2.6 billion to Medicare Part B, and the 

impact on Medicare Part A would be 

negligible. In addition, we estimate that 

the impact on beneficiaries would be a 

savings of about $0.5 billion for FY 

2011. However, we were informed by 

many hospitals, Medicare contractors, 

and others in the hospital community 

that the policy established in 1998 was 

generally unknown to hospitals and that 

the policy being enacted under section 

102(a) is more consistent with hospitals’ 

longstanding billing practices. The 

hospitals and others asserted that, for 

the most part, hospitals have been 

treating virtually all outpatient services 

furnished to a patient during the 

payment window as admission-related 

and bundling the services onto the Part 

A claim for the patient’s inpatient stay, 

particularly when a patient is admitted 

as an inpatient directly from an 

outpatient department of the hospital, 

such as the emergency department. If 

this assertion is correct, then the impact 

of the provisions of section 102 of 

Public Law 111–192 for FY 2011 on the 

Medicare program and its beneficiaries 

would be negligible. 

In addition, section 1102(b) of the 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 now 

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 LTCH PPS, we continue 

to classify these hospitals as urban 

hospitals. We believe that this rule will 

not have a significant impact on small 

rural hospitals. Accordingly, the 

Secretary certifies that this interim final 

rule with comment period would not 

have a significant economic impact on 

the operations of a substantial number 

of small rural hospitals. 

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. That threshold 

level is currently approximately $133 

million. This interim final rule with 

comment period would not mandate 

any requirements for State, local, or 

tribal governments, nor would it affect 

private sector costs. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

Because this interim final rule with 

comment period does not impose any 

costs on State or local government, the 

requirements of Executive Order 13132 

are not applicable. 

In accordance with the provisions of 

Executive Order 12866, this interim 

final rule with comment period was 

reviewed by the Office of Management 

and Budget. 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50351 

N. Changes in the Inpatient Hospital 

Market Basket Update 

Below we discuss the adjustments to 

the FY 2010 and FY 2011 market basket 

as required by the Affordable Care Act 

and our incorporation of the statutory 

provisions in the Medicare regulations. 

In this final rule, we are not addressing 

the provisions of section 3401 of the 

Affordable Care Act that provide for a 

productivity adjustment for FY 2012 

and subsequent fiscal years. This 

statutory change will be addressed in 

future rulemaking. 

1. FY 2010 Inpatient Hospital Update 

In accordance with section 

1886(b)(3)(B)(i) of the Act, each year we 

update the national standardized 

amount for inpatient operating costs by 

a factor called the ‘‘applicable 

percentage increase.’’ Prior to enactment 

of the Affordable Care Act, section 

1886(b)(3)(B)(i)(XX) of the Act set the 

applicable percentage increase equal to 

the rate-of-increase in the hospital 

market basket for IPPS hospitals in all 

areas, subject to the hospital submitting 

quality data information under rules 

established by the Secretary in 

accordance with section 

1886(b)(3)(B)(viii) of the Act. For 

hospitals that do not provide these 

quality data, the update is equal to the 

market basket percentage increase less 

an additional 2.0 percentage points. In 

accordance with these statutory 

provisions, in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

43850), we finalized an applicable 

percentage increase equal to the full 

market basket update of 2.1 percent 

based on IHS Global Insight, Inc.’s 

second quarter 2009 forecast of the FY 

2010 market basket increase, provided 

the hospital submits quality data in 

accordance with our rules. For hospitals 

that do not submit quality data, in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule, we finalized an applicable 

percentage increase equal to 0.1 percent 

(that is, the FY 2010 estimate of the 

market basket rate-of-increase minus 2.0 

percentage points). 

Sections 3401(a) and 10319 of the 

Affordable Care Act amended section 

1886(b)(3)(B)(i) of the Act. As amended, 

section 1886(b)(3)(B)(i) sets the FY 2010 

applicable percentage increase for IPPS 

hospitals equal to the rate-of-increase in 

the hospital market basket for IPPS 

hospitals in all areas minus a 0.25 

percentage point, subject to the hospital 

submitting quality data under rules 

established by the Secretary in 

accordance with section 

1886(b)(3)(B)(viii) of the Act. For 

hospitals that do not provide these data, 

the update is equal to the market basket 

percentage increase minus 0.25 

percentage point less an additional 2.0 

percentage points. Section 3401(a)(4) of 

the Affordable Care Act further states 

that these amendments may result in the 

applicable percentage increase being 

less than zero. Although these 

amendments modify the applicable 

percentage increase applicable to the FY 

2010 rates under the IPPS, section 

3401(p) of the Affordable Care Act states 

that the amendments do not apply to 

discharges occurring prior to April 1, 

2010. In other words, for discharges 

occurring on or after October 1, 2009 

and prior to April 1, 2010, the rate for 

a hospital’s inpatient operating costs 

under the IPPS will be based on the 

applicable percentage increase set forth 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule. 

In the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule (75 FR 

30922), we proposed to revise the 

regulations at 42 CFR 412.64(d) to 

reflect current law. Specifically, 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 proposed to revise 

§ 412.64(d) to state that, for the first half 

of FY 2010 (that is, discharges on or 

after October 1, 2009 through March 30, 

2010), the applicable percentage change 

equals the market basket index for IPPS 

hospitals (which is defined under 

§ 413.40(a)) in all areas for hospitals that 

submit quality data in accordance with 

our rules, and the market basket index 

for IPPS hospitals in all areas less 2.0 

percentage points for hospitals that fail 

to submit quality data in accordance 

with our rules. As noted above, in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule, we calculated that the full market 

basket update equals 2.1 percent based 

on IHS Global Insight, Inc.’s second 

quarter 2009 forecast of the FY 2010 

market basket increase. In addition, in 

the supplemental proposed rule, we 

proposed to revise § 412.64(d) to state 

that, for the second half of FY 2010 

(discharges on or after April 1, 2010 

through September 30, 2010), in 

accordance with section 3401(a) of the 

Affordable Care Act, the applicable 

percentage change equal to the market 

basket index for IPPS hospitals in all 

areas reduced by 0.25 percentage points 

for hospitals that submit quality data in 

accordance with our rules. For those 

hospitals that fail to submit quality data, 

in accordance with our rules, we 

proposed to specify that the market 

basket index for IPPS hospitals is 

reduced by an additional 2.0 percentage 

points (which is in addition to the 0.25 

percentage point reduction required by 

section 1886(b)(3)(B)(i) of the Act as 

amended by section 3401(a) of the 

Affordable Care Act and as further 

amended by section 10319(a) of that 

Act). Based on IHS Global Insight, Inc.’s 

second quarter 2009 forecast of the FY 

2010 market basket increase, the FY 

2010 applicable percentage change that 

applies to rates for inpatient hospital 

operating costs under the IPPS for 

discharges occurring in the second half 

of FY 2010 is 1.85 percent (that is, the 

FY 2010 estimate of the market basket 

rate-of-increase of 2.1 percent minus 

0.25 percentage points) for hospitals in 

all areas, provided the hospital submits 

quality data in accordance with our 

rules. For hospitals that do not submit 

quality data, the payment update to the 

operating standardized amount is ¥0.15 

percent (that is, the adjusted FY 2010 

estimate of the market basket rate-ofincrease of 1.85 percent minus 2.0 

percentage points). We received one 

public comment which we respond to 

below on our proposal to revise 

§ 412.64(d) to reflect current law. 

However, due to the statutory 

requirement, in this final rule, we are 

adopting as final, without modification, 

the proposed changes to § 412.64(d). 

Section 1886(b)(3)(B)(iv) of the Act 

provides that the applicable percentage 

increase applicable to the hospitalspecific rates for SCHs and MDHs 

equals the applicable percentage 

increase set forth in section 

1886(b)(3)(B)(i) of the Act (that is, the 

same update factor as for all other 

hospitals subject to the IPPS). Because 

the Act sets the update factor for SCHs 

and MDHs equal to the update factor for 

all other IPPS hospitals, the update to 

the hospital specific rates for SCHs and 

MDHs is also subject to the amendments 

to section 1886(b)(3)(B)(i) made by 

section 3401(a) of the Affordable Care 

Act. Accordingly, for hospitals paid for 

their inpatient operating costs on the 

basis of a hospital-specific rate, the rates 

paid to such hospitals for discharges 

occurring during the first half of FY 

2010 are based on an annual update 

estimated to be 2.1 percent for hospitals 

submitting quality data or 0.1 percent 

for hospitals that fail to submit quality 

data; and the rates paid to such 

hospitals for the second half of FY 2010 

are based on an update that is estimated 

to be 1.85 percent for hospitals 

submitting quality data or ¥0.15 

percent for hospitals that fail to submit 

quality data. In the FY 2011 IPPS/LTCH 

PPS supplemental proposed rule, we 

proposed to revise §§ 412.73(c)(15), 

412.75(d), 412.77(e), 412.78(e), and 

412.79(d) to reflect current law. We did 

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not receive any public comments on this 

proposal. Therefore, in this final rule, 

we are adopting as final, without 

modification, the proposed changes to 

§§ 412.73(c)(15), 412.75(d), 412.77(e), 

412.78(e), and 412.79(d). 

2. FY 2011 Inpatient Hospital Update 

As with the FY 2010 applicable 

percentage increase, sections 3401(a) 

and 10319(a) of the Affordable Care Act 

amended section 1886(b)(3)(B)(i) of the 

Act to provide that the FY 2011 

applicable percentage increase for IPPS 

hospitals equals the rate-of-increase in 

the hospital market basket for IPPS 

hospitals in all areas reduced by 0.25 

percentage point, subject to the hospital 

submitting quality data under rules 

established by the Secretary in 

accordance with section 

1886(b)(3)(B)(viii) of the Act. For 

hospitals that do not provide these data, 

the update is equal to the market basket 

percentage increase minus a 0.25 

percentage point less an additional 2.0 

percentage points. Section 3401(a)(4) of 

the Affordable Care Act further states 

that this amendment may result in the 

applicable percentage increase being 

less than zero. 

In Appendix B of the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24321), 

we announced that due to the timing of 

the passage of the Affordable Care Act, 

we were unable to address those 

provisions in the proposed rule. In that 

proposed rule, consistent with current 

law, based on IHS Global Insight, Inc.’s 

first quarter 2010 forecast, with 

historical data through the 2009 fourth 

quarter, of the FY 2011 IPPS market 

basket increase, we estimated that the 

FY 2011 update to the operating 

standardized amount would be 2.4 

percent (that is, the current estimate of 

the market basket rate-of-increase) for 

hospitals in all areas, provided the 

hospital submits quality data in 

accordance with our rules. For hospitals 

that do not submit quality data, we 

estimated that the update to the 

operating standardized amount would 

be 0.4 percent (that is, the current 

estimate of the market basket rate-ofincrease minus 2.0 percentage points). 

In the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule (75 FR 

30923), we stated that, consistent with 

the amendments to section 

1886(b)(3)(B)(i) of the Act made by 

section 3401 of the Affordable Care Act, 

for FY 2011 we are required to reduce 

the hospital market basket update by a 

0.25 percentage point. Therefore, based 

on IHS Global Insight, Inc.’s first quarter 

2010 forecast of the FY 2011 market 

basket increase, the estimated update to 

the FY 2011 operating standardized 

amount was 2.15 percent (that is, the FY 

2011 estimate of the market basket rateof-increase of 2.4 percent minus 0.25 

percentage point) for hospitals in all 

areas, provided the hospital submits 

quality data in accordance with our 

rules. For hospitals that do not submit 

quality data, the estimated update to the 

operating standardized amount is 0.15 

percent (that is, the adjusted FY 2011 

estimate of the market basket rate-ofincrease of 2.15 percent minus 2.0 

percentage points). Since publication of 

the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule, our 

estimate of the market basket for FY 

2011 has been updated based on more 

recently available data. Therefore, based 

on IHS Global Insight, Inc.’s second 

quarter 2010 forecast of the FY 2011 

market basket increase, the update to 

the FY 2011 operating standardized 

amount is 2.35 percent (that is, the FY 

2011 estimate of the market basket rateof-increase of 2.6 percent minus 0.25 

percentage point) for hospitals in all 

areas, provided the hospital submits 

quality data in accordance with our 

rules. For hospitals that do not submit 

quality data, the update to the operating 

standardized amount is 0.35 percent 

(that is, the adjusted FY 2011 market 

basket rate-of-increase of 2.35 percent 

minus 2.0 percentage points). In the FY 

2011 IPPS/LTCH PPS supplemental 

proposed rule, we proposed to revise 

§ 412.64(d) to reflect the provisions of 

section 3401(a) of the Affordable Care 

Act for FY 2011. 

Comment: Some commenters opposed 

the reduction to the market basket by 

0.25 percentage point for updating the 

operating standardized amounts for FY 

2010 and FY 2011 that was mandated by 

the Affordable Care Act. The 

commenters believed that the reduction 

of payments due to the reduction of the 

market basket would cause serious harm 

to hospitals. 

Response: As stated above, the 

reduction to the market basket for 

updating the operating standardized 

amounts is a statutory requirement that 

must be implemented for FY 2010 and 

FY 2011. Therefore, in this final rule, 

we are adopting as final, without 

modification, the proposed changes to 

§ 412.64(d) to reflect current law. 

Section 1886(b)(3)(B)(iv) of the Act 

provides that the FY 2011 applicable 

percentage increase in the hospitalspecific rates for SCHs and MDHs 

equals the applicable percentage 

increase set forth in section 

1886(b)(3)(B)(i) of the Act (that is, the 

same update factor as for all other 

hospitals subject to the IPPS). Similar to 

the FY 2010 applicable percentage 

increase in the hospital-specific rates, 

because the Act requires us to apply to 

the hospital-specific rates the update 

factor for all other IPPS hospitals, the 

update to the hospital-specific rates for 

SCHs and MDHs is also subject to 

section 1886(b)(3)(B)(i) of the Act, as 

amended by the Affordable Care Act. 

Accordingly, the update to the hospitalspecific rates applicable to SCHs and 

MDHs for FY 2011 is 2.35 percent for 

hospitals that submit quality data or 

0.35 percent for hospitals that fail to 

submit quality data. In the FY 2010 

IPPS/LTCH PPS supplemental proposed 

rule (75 FR 30923), we proposed to 

revise §§ 412.73(c)(15), 412.75(d), 

412.77(e), 412.78(e), and 412.79(d) to 

incorporate these provisions. 

We did not receive any public 

comments on this proposal. Therefore, 

we are adopting as final, without 

modification, the proposed changes to 

§§ 412.73(c)(15), 412.75(d), 412.77(e), 

412.78(e), and 412.79(d). 

3. FY 2010 and FY 2011 Puerto Rico 

Hospital Update 

Puerto Rico hospitals are paid a 

blended rate for their inpatient 

operating costs based on 75 percent of 

the national standardized amount and 

25 percent of the Puerto Rico-specific 

standardized amount. Section 

1886(d)(9)(C)(i) of the Act is the basis 

for determining the applicable 

percentage increase applied to the 

Puerto Rico-specific standardized 

amount. Section 1886(d)(9)(C)(i) of the 

Act provides that the Puerto Rico 

standardized amount shall be adjusted 

in accordance with the final 

determination of the Secretary under 

section 1886(d)(4) of the Act. Section 

1886(e)(4)(1) of the Act in turn directs 

the Secretary to recommend an 

appropriate change factor for Puerto 

Rico hospitals taking in to account 

amounts necessary for the efficient and 

effective delivery of medically 

appropriate and necessary care of high 

quality, as well as the recommendations 

of MedPAC. In order to maintain 

consistency between the portion of the 

rates paid to Puerto Rico hospitals 

under the IPPS based on the national 

standardized amount and the portion 

based on the Puerto Rico-specific 

standardized rate, beginning in FY 2004 

we have set the update to the Puerto 

Rico-specific operating standardized 

amount equal to the update to the 

national operating standardized amount 

for all IPPS hospitals. This policy is 

reflected in our regulations at 42 CFR 

412.211. 

The amendments made to section 

1886(b)(3)(B)(i) of the Act by sections 

3401(a) and 10319(a) of the Affordable 

Care Act affected only the update factor 

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applicable to the national standardized 

rate for IPPS hospitals and the hospitalspecific rates; they do not mandate any 

revisions to the update factor applicable 

to the Puerto Rico-specific standardized 

amount. Rather, as noted above, sections 

1886(d)(9)(C)(i) and (e)(4) of the Act 

direct us to adopt an appropriate change 

factor for the FY 2010 Puerto Ricospecific standardized amount, which we 

did in the FY 2010 IPPS/LTCH PPS final 

rule after notice and consideration of 

public comments. Therefore, as we 

indicated in the FY 2011 IPPS/LTCH 

PPS supplemental proposed rule, we do 

not believe we have the authority to set 

the FY 2010 update factor for the Puerto 

Rico-specific operating standardized 

amount for the second half of FY 2010 

equal to the update factor applicable to 

the national standardized amount or the 

hospital-specific rates (that is the market 

basket minus a 0.25 percentage point). 

Accordingly, the FY 2010 update to the 

Puerto Rico-specific operating 

standardized amount is 2.1 percent (that 

is, the FY 2010 estimate of the market 

basket rate-of-increase) for the entire 

FY 2010. 

For FY 2011, consistent with our past 

practice of applying the same update 

factor to the Puerto Rico-specific 

standardized amount as applied to the 

national standardized amount, in the FY 

2011 IPPS/LTCH PPS supplemental 

proposed rule (75 FR 30923), we 

proposed to revise § 412.211(c) to set the 

update factor for FY 2011 for the Puerto 

Rico-specific operating standardized 

amount equal to the update factor 

applied to the national standardized 

amount for all IPPS hospitals. We 

proposed an update factor for the Puerto 

Rico-specific standardized amount 

equal to the FY 2011 IPPS operating 

market basket rate-of-increase, which at 

that time was estimated to be 2.4 

percent minus 0.25 percentage points, 

or 2.15 percent, for FY 2011. Since 

publication of the FY 2011 IPPS/LTCH 

PPS supplemental proposed rule, the 

estimate of the market basket for FY 

2011 has been updated based on more 

recently available data. Therefore, based 

on the current estimate of the IPPS 

operating market basket rate-of-increase, 

the update factor for the Puerto Ricospecific standardized amount is 2.6 

percent minus 0.25 percentage point, or 

2.35 percent, for FY 2011. We did not 

receive any public comments on our 

proposal to revise § 412.211(c) to set the 

update factor for FY 2011 for the Puerto 

Rico-specific operating standardized 

amount equal to the update factor 

applied to the national standardized 

amount for all IPPS hospitals. Therefore, 

we are adopting as final, without 

modification, the proposed changes to 

§ 412.211(c). 

V. Changes to the IPPS for CapitalRelated Costs 

On March 23, 2010, the Patient 

Protection and Affordable Care Act 

(PPACA), Public Law 111–148 was 

enacted. Following the enactment of 

Public Law 111–148, the Health Care 

and Education Reconciliation Act of 

2010, Public Law 111–152 (enacted on 

March 30, 2010), amended certain 

provisions of Public Law 111–148. A 

number of the provisions of Public Law 

111–148, as amended by Public Law 

111–152 (collectively referred to as the 

Affordable Care Act) affected the IPPS 

and the LTCH PPS and the providers 

and suppliers addressed in this 

proposed rule. However, due to the 

timing of the passage of the legislation, 

we were unable to address those 

provisions in the FY 2011 IPPS/LTCH 

PPS proposed rule issued in the Federal 

Register on May 4, 2010 (75 FR 23852). 

On June 2, 2010, we issued a 

supplemental proposed rule to the FY 

2011 IPPS/LTCH PPS proposed rule 

(75 FR 30918) that included proposed 

policies and payment rates to 

implement certain provisions of the 

Affordable Care Act. 

Although the provisions of the 

Affordable Care Act do not directly 

affect the payment rates and policies for 

the IPPS for capital-related costs, in 

section II. of the Addendum of the June 

2, 2010 supplemental proposed rule, we 

proposed revised capital IPPS standard 

Federal rates for FY 2011. This was 

necessary because the wage index 

changes required by the provisions of 

the Affordable Care Act (discussed in 

section III. of this preamble) affected the 

proposed budget neutrality adjustment 

factor for changes in DRG classifications 

and weights and the geographic 

adjustment factor (GAF) (that were 

issued in the FY 2011 IPPS/LTCH PPS 

proposed rule) because the GAF values 

are derived from the wage index values 

(§ 412.316(a)). In addition, certain 

provisions of the Affordable Care Act 

also necessitated a revision to the 

proposed outlier payment adjustment 

factor that were issued in the FY 2011 

IPPS/LTCH PPS proposed rule because 

a single set of thresholds is used to 

identify outlier cases for both inpatient 

operating and inpatient capital-related 

payments (§ 412.312(c)). The outlier 

thresholds are set so that operating 

outlier payments are projected to be 

5.1 percent of total operating IPPS DRG 

payments. Section 412.308(c)(2) 

provides that the standard Federal rate 

for inpatient capital-related costs be 

reduced by an adjustment factor equal 

to the estimated proportion of capitalrelated outlier payments to total 

inpatient capital-related PPS payments. 

The revised proposed capital IPPS 

standard Federal rates for FY 2011 were 

discussed in section II. of the 

Addendum to the June 2, 2010 

supplemental proposed rule and are 

discussed and being finalized in section 

III. of the Addendum to this final rule. 

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 capitalrelated costs. We initially implemented 

the IPPS for capital-related costs in the 

Federal fiscal year (FY) 1992 IPPS final 

rule (56 FR 43358), in which we 

established a 10-year transition period 

to change the payment methodology for 

Medicare hospital inpatient capitalrelated costs from a reasonable costbased methodology to a prospective 

methodology (based fully on the Federal 

rate). 

FY 2001 was the last year of the 

10-year transition period established to 

phase in the IPPS for hospital inpatient 

capital-related costs. For cost reporting 

periods beginning in FY 2002, capital 

IPPS payments are based solely on the 

Federal rate for almost all acute care 

hospitals (other than hospitals receiving 

certain exception payments and certain 

new hospitals). (We refer readers to the 

FY 2002 IPPS final rule (66 FR 39910 

through 39914) for additional 

information on the methodology used to 

determine capital IPPS payments to 

hospitals both during and after the 

transition period.) The basic 

methodology for determining capital 

prospective payments using the Federal 

rate is set forth in § 412.312 of the 

regulations. For the purpose of 

calculating payments for each discharge, 

currently the standard Federal rate is 

adjusted as follows: 

(Standard Federal Rate) × (DRG 

Weight) × (Geographic Adjustment 

Factor (GAF)) × (COLA for hospitals 

located in Alaska and Hawaii) × (1 + 

Capital DSH Adjustment Factor + 

Capital IME Adjustment Factor, if 

applicable). 

B. Exception Payments 

The regulations at § 412.348(f) 

provide that a hospital may request an 

additional payment if the hospital 

incurs unanticipated capital 

expenditures in excess of $5 million due 

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to extraordinary circumstances beyond 

the hospital’s control. This policy was 

originally established for hospitals 

during the 10-year transition period, but 

as we discussed in the FY 2003 IPPS 

final rule (67 FR 50102), we revised the 

regulations at § 412.312 to specify that 

payments for extraordinary 

circumstances are also made for cost 

reporting periods after the transition 

period (that is, cost reporting periods 

beginning on or after October 1, 2001). 

Additional information on the exception 

payment for extraordinary 

circumstances in § 412.348(f) can be 

found in the FY 2005 IPPS final rule (69 

FR 49185 and 49186). 

During the transition period, under 

§§ 412.348(b) through (e), eligible 

hospitals could receive regular 

exception payments. These exception 

payments guaranteed a hospital a 

minimum payment percentage of its 

Medicare allowable capital-related costs 

depending on the class of the hospital 

(§ 412.348(c)), but were available only 

during the 10-year transition period. 

After the end of the transition period, 

eligible hospitals can no longer receive 

this exception payment. However, even 

after the transition period, eligible 

hospitals receive additional payments 

under the special exceptions provisions 

at § 412.348(g), which guarantees all 

eligible hospitals a minimum payment 

of 70 percent of its Medicare allowable 

capital-related costs provided that 

special exceptions payments do not 

exceed 10 percent of total capital IPPS 

payments. Special exceptions payments 

may be made only for the 10 years from 

the cost reporting year in which the 

hospital completes its qualifying 

project, and the hospital must have 

completed the project no later than the 

hospital’s cost reporting period 

beginning before October 1, 2001. Thus, 

an eligible hospital may receive special 

exceptions payments for up to 10 years 

beyond the end of the capital IPPS 

transition period. Hospitals eligible for 

special exceptions payments are 

required to submit documentation to the 

fiscal intermediary or MAC indicating 

the completion date of their project. (For 

more detailed information regarding the 

special exceptions policy under 

§ 412.348(g), we refer readers to the FY 

2002 IPPS final rule (66 FR 39911 

through 39914) and the FY 2003 IPPS 

final rule (67 FR 50102).) 

C. New Hospitals 

Under the IPPS for capital-related 

costs, § 412.300(b) of the regulations 

defines a new hospital as a hospital that 

has operated (under current or previous 

ownership) for less than 2 years. For 

example, the following hospitals are not 

considered new hospitals: (1) A hospital 

that builds new or replacement facilities 

at the same or another location, even if 

coincidental with a change of 

ownership, a change in management, or 

a lease arrangement; (2) a hospital that 

closes and subsequently reopens; (3) a 

hospital that has been in operation for 

more than 2 years but has participated 

in the Medicare program for less than 2 

years; and (4) a hospital that changes its 

status from a hospital that is excluded 

from the IPPS to a hospital that is 

subject to the capital IPPS. For more 

detailed information, we refer readers to 

the FY 1992 IPPS final rule (56 FR 

43418). During the 10-year transition 

period, a new hospital was exempt from 

the capital IPPS for its first 2 years of 

operation and was paid 85 percent of its 

reasonable costs during that period. 

Originally, this provision was effective 

only through the transition period and, 

therefore, ended with cost reporting 

periods beginning in FY 2002. Because, 

as discussed in the FY 2003 IPPS final 

rule (67 FR 50101), we believe that 

special protection to new hospitals is 

also appropriate even after the transition 

period, we revised the regulations at 

§ 412.304(c)(2) to provide that, for cost 

reporting periods beginning on or after 

October 1, 2002, a new hospital (defined 

under § 412.300(b)) is paid 85 percent of 

its Medicare allowable 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 

2003 IPPS final rule (67 FR 50101 

through 50102) for a detailed discussion 

of the special payment provisions for 

new hospitals under the capital IPPS 

after the 10-year transition period.) 

D. Hospitals Located in Puerto Rico 

Section 412.374 of the regulations 

provides for the use of a blended 

payment amount for prospective 

payments for capital-related costs to 

hospitals located in Puerto Rico. 

Accordingly, under the capital IPPS, we 

compute a separate payment rate 

specific to Puerto Rico hospitals using 

the same methodology used to compute 

the national Federal rate for capitalrelated costs. In general, hospitals 

located in Puerto Rico are paid a blend 

of the applicable capital IPPS Puerto 

Rico rate and the applicable capital IPPS 

Federal rate. 

Prior to FY 1998, hospitals in Puerto 

Rico were paid a blended capital IPPS 

rate that consisted of 75 percent of the 

capital IPPS Puerto Rico specific rate 

and 25 percent of the capital IPPS 

Federal rate. However, effective October 

1, 1997 (FY 1998), in conjunction with 

the change to the operating IPPS blend 

percentage for hospitals located in 

Puerto Rico required by section 4406 of 

Public Law 105–33, we revised the 

methodology for computing capital IPPS 

payments to hospitals in Puerto Rico to 

be based on a blend of 50 percent of the 

capital IPPS Puerto Rico rate and 50 

percent of the capital IPPS Federal rate. 

Similarly, in conjunction with the 

change in operating IPPS payments to 

hospitals located in Puerto Rico for FY 

2005 required by section 504 of Public 

Law 108–173, we again revised the 

methodology for computing capital IPPS 

payments to hospitals located in Puerto 

Rico to be based on a blend of 25 

percent of the capital IPPS Puerto Rico 

rate and 75 percent of the capital IPPS 

Federal rate effective for discharges 

occurring on or after October 1, 2004. 

E. Changes for FY 2011: MS–DRG 

Documentation and Coding Adjustment 

1. Background on the Prospective MS– 

DRG Documentation and Coding 

Adjustments for FY 2008 and FY 2009 

In the FY 2008 IPPS final rule with 

comment period (72 FR 47175 through 

47186), we adopted the MS–DRG 

patient classification system for the 

IPPS, effective October 1, 2007, to better 

recognize patient severity of illness in 

Medicare payment rates. Adoption of 

the MS–DRGs resulted in the expansion 

of the number of DRGs from 538 in FY 

2007 to 745 in FY 2008. (Currently, 

there are 746 MS–DRGs, including one 

additional MS–DRG created in FY 2009. 

For FY 2011, there are 747 DRGs with 

the finalization of our proposal in this 

final rule to delete one MS–DRG and to 

create two new MS–DRGs.) By 

increasing the number of DRGs and 

more fully taking into account patient 

severity of illness in Medicare payment 

rates, the MS–DRGs encourage hospitals 

to change their documentation and 

coding of patient diagnoses. In that 

same final rule with comment period 

(72 FR 47183), we indicated that we 

believe 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 changes in documentation and 

coding. Accordingly, we established 

adjustments to both the national 

operating standardized amount and the 

national capital Federal rate to eliminate 

the estimated effect of changes in 

documentation and coding resulting 

from the adoption of the MS–DRGs that 

do not reflect real changes in case-mix. 

Specifically, we established prospective 

documentation and coding adjustments 

of ¥1.2 percent for FY 2008, ¥1.8 

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percent for FY 2009, and ¥1.8 percent 

for FY 2010. However, to comply with 

section 7(a) of Public Law 110–90, 

enacted on September 29, 2007, in a 

final rule published in the Federal 

Register on November 27, 2007 (72 FR 

66886 through 66888), we modified the 

documentation and coding adjustment 

for FY 2008 to ¥0.6 percent, and 

consequently revised the FY 2008 IPPS 

operating and capital payment rates, 

factors, and thresholds accordingly, 

with these revisions effective October 1, 

2007. 

For FY 2009, section 7(a) of Public 

Law 110–90 required a documentation 

and coding adjustment of ¥0.9 percent 

instead of the ¥1.8 percent adjustment 

established in the FY 2008 IPPS final 

rule with comment period. As discussed 

in the FY 2008 IPPS final rule with 

comment period (72 FR 48447 and 

48733 through 48774), we applied a 

documentation and coding adjustment 

of 7¥0.9 percent to the FY 2009 IPPS 

national standardized amounts and the 

capital Federal rate. The documentation 

and coding adjustments established in 

the FY 2009 IPPS final rule, as amended 

by Pub. L. 110–90, are cumulative. As 

a result, the ¥0.9 percent 

documentation and coding adjustment 

in FY 2009 was in addition to the ¥0.6 

percent adjustment in FY 2008, yielding 

a combined effect of ¥1.5 percent. (For 

additional details on the development 

and implementation of the 

documentation and coding adjustments 

for FY 2008 and FY 2009, we refer 

readers to section II.D. of this preamble 

and the following rules published in the 

Federal Register: August 22, 2007 (72 

FR 47175 through 47186 and 47431 

through 47432); November 27, 2007 (72 

FR 66886 through 66888); and August 

19, 2008 (73 FR 48447 through 48450 

and 48773 through 48775).) 

2. Retrospective Evaluation of FY 2008 

Claims Data 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we presented the 

results of a retrospective evaluation of 

the FY 2008 data for claims paid 

through December 2008. Based on this 

evaluation, our actuaries determined 

that implementation of the MS–DRG 

system resulted in a 2.5 percent change 

due to documentation and coding that 

did not reflect real changes in case-mix 

for discharges occurring during FY 2008 

(74 FR 24092 through 24101). We also 

sought public comment on our 

methodology and analysis and the 

proposed ¥1.9 percent prospective 

adjustment to address the effect of 

documentation and coding changes 

unrelated to changes in real case-mix in 

FY 2008 (that is, the estimated ¥2.5 

percent documentation and coding 

effect for FY 2008 minus the ¥0.6 

percent documentation and coding 

adjustment that was applied to the 

national capital Federal rate for FY 

2008). In addition, we sought public 

comment on addressing in the FY 2011 

rulemaking cycle any differences 

between the increase in FY 2009 casemix due to documentation and coding 

changes that do not reflect real changes 

in case-mix for discharges occurring 

during FY 2009 and the ¥0.9 percent 

prospective documentation and coding 

adjustment applied in determining the 

FY 2009 capital Federal rate established 

in the FY 2009 IPPS final rule. However, 

after consideration of the public 

comments received on the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

consistent with the application of the 

documentation and coding adjustment 

to the operating IPPS standardized 

amounts, we determined that it would 

be appropriate to postpone the adoption 

of any additional documentation and 

coding adjustments to the capital IPPS 

rates until a full analysis of FY 2009 

case-mix changes could be completed. 

We stated that although we only 

proposed to make a ¥1.9 percent 

adjustment to account for the portion of 

the estimated 2.5 percent change in FY 

2008 case-mix due to documentation 

and coding changes that exceeds the 

¥0.6 percent prospective 

documentation and coding adjustment 

applied to the FY 2008 capital Federal 

rate (that is, ¥2.5 percent minus ¥0.6 

percent = ¥1.9 percent), our then 

current estimate of the MS–DRG 

documentation and coding effect for FY 

2009 was 2.3 percent (that is, the 4.8 

percent total increase minus the 2.5 

percent increase from FY 2008). We 

indicated that if the estimated 

documentation and coding effect 

determined based on a full analysis of 

FY 2009 claims data is more or less than 

our then current estimates, it would 

change the anticipated cumulative 

adjustments that we then estimated we 

would have to make for FY 2008 and FY 

2009 combined. We indicated that, in 

future rulemaking, we would consider 

applying a prospective documentation 

and coding adjustment to the capital 

IPPS rates based on a complete analysis 

of FY 2008 and FY 2009 claims data (74 

FR 43926 through 43928). 

3. Retrospective Analysis of FY 2009 

Claims Data 

For the FY 2011 IPPS/LTCH PPS 

proposed rule, we performed a thorough 

retrospective evaluation of the most 

recent available claims data, and the 

results of this evaluation were used by 

our actuaries to determine any 

necessary payment adjustments beyond 

the cumulative ¥1.5 percent adjustment 

that has already been applied to the 

national capital Federal rate to ensure 

budget neutrality for the 

implementation of MS–DRGs (75 FR 

24014). Specifically, as discussed in 

greater detail in section II.D.5. of the 

preamble of the proposed rule and this 

final rule, we performed a retrospective 

evaluation of the FY 2009 claims data 

updated through December 2009 using 

the same analysis methodology as we 

did for FY 2008 claims in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed and 

final rules. Based on this evaluation, our 

actuaries determined that the 

implementation of the MS–DRG system 

resulted in a 5.4 percent change in casemix due to documentation and coding 

that did not reflect real changes in casemix for discharges occurring during FY 

2009. We also noted our intent to 

update our analysis with FY 2009 data 

on claims paid through March 2009 (sic) 

for this FY 2011 IPPS/LTCH PPS final 

rule. (We note that the March 2009 

update date for claims paid data in the 

proposed rule should have been March 

2010.) As intended, we have updated 

our analysis with FY 2009 data on 

claims paid through March 2010 in this 

FY 2011 IPPS/LTCH PPS final rule. 

For this final rule, applying the same 

analysis methodology as we did for the 

proposed rule to an FY 2009 claims data 

updated through March 2010 verified 

the 5.4 percent change in case-mix due 

to documentation and coding that did 

not reflect real changes in case-mix for 

discharges occurring during FY 2009. 

As we discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24014), 

the 5.4 percent estimate of the 

cumulative effect of changes in 

documentation and coding under the 

MS–DRG system that did not reflect real 

changes in case-mix for FYs 2008 and 

2009 exceeds the cumulative ¥1.5 

percent prospective documentation and 

coding adjustment that has already been 

applied to the national capital Federal 

rate by 3.9 percentage points (5.4 

percent minus 1.5 percent). We 

indicated that an additional cumulative 

adjustment of ¥3.9 percent to the 

national capital Federal rate would be 

necessary to eliminate the full effect of 

the documentation and coding changes 

due to the adoption of the MS–DRGs on 

future payments. 

4. Prospective MS–DRG Documentation 

and Coding Adjustment to the National 

Capital Federal Rate for FY 2011 and 

Subsequent Years 

We continue to believe that it is 

appropriate to make adjustments to the 

capital IPPS rates to eliminate the effect 

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of any documentation and coding 

changes as a result of the 

implementation of the MS–DRGs. These 

adjustments are intended to ensure that 

future annual aggregate IPPS payments 

are the same as payments that otherwise 

would have been made had the 

prospective adjustments for 

documentation and coding applied in 

FY 2008 and FY 2009 accurately 

reflected the change due to 

documentation and coding that 

occurred in those years. As noted in 

section V.A. of this preamble, under 

section 1886(g) of the Act, the Secretary 

has broad authority in establishing and 

implementing the IPPS for acute care 

hospital inpatient capital-related costs 

(that is, the capital IPPS). We have 

consistently stated since the initial 

implementation of the MS–DRG system 

that we do not believe it is appropriate 

for Medicare expenditures under the 

capital IPPS to increase due to MS–DRG 

related changes in documentation and 

coding. Accordingly, we believe that it 

is appropriate under the Secretary’s 

broad authority under section 1886(g) of 

the Act, in conjunction with section 

1886(d)(3)(A)(vi) of the Act and section 

7(b) of Public Law 110–90, to make 

adjustments to the capital Federal rate 

to eliminate the full effect of the 

documentation and coding changes 

resulting from the adoption of the 

MS–DRGs. We believe that this is 

appropriate because, in absence of such 

adjustments, the effect of the 

documentation and coding changes 

resulting from the adoption of the 

MS–DRGs results in inappropriately 

high capital IPPS payments because that 

portion of the increase in aggregate 

payments is not due to an increase in 

patient severity of illness (and costs). 

As we discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24014) 

and as noted above, based on our 

retrospective evaluation of the FY 2009 

claims, our actuaries’ determined that 

implementation of the MS–DRG system 

resulted in a 5.4 percent change in casemix due to documentation and coding 

that did not reflect real changes in casemix for discharges occurring during FY 

2009. The estimated 5.4 percent 

cumulative documentation and coding 

effect for FYs 2008 and 2009 exceeds 

the cumulative 1.5 percent prospective 

documentation and coding reduction 

that has already been applied to the 

national capital Federal rate. In that 

same proposed rule, we also discussed 

that for FY 2011, we proposed a 

retrospective adjustment of ¥2.9 

percent under the authority of section 

7(b)(1)(B) of Public Law 110–90. Under 

that proposal, although an additional 

cumulative adjustment of ¥3.9 percent 

would be necessary to meet the 

requirements of section 7(b)(1)(A) of 

Public Law 110–90 to make an 

appropriate prospective adjustment to 

the IPPS operating average standardized 

amounts in order to eliminate the full 

effect of the documentation and coding 

changes on future payments, we did not 

proposed a prospective adjustment to 

the IPPS operating average standardized 

amounts under section 7(b)(1)(A) of 

Public Law 110–90 for FY 2011. 

Given the increase in IPPS payments 

that we have determined is due to 

documentation and coding (discussed 

above in this section), in the FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24014), we explained that we believe it 

is necessary and appropriate under the 

Secretary’s broad authority under 

section 1886(g) of the Act, consistent 

with section 1886(d)(3)(A)(vi) of the Act 

and section 7(b) of Public Law 110–90, 

to make further adjustments to the 

capital Federal rate to eliminate the full 

effect of the documentation and coding 

changes resulting from the adoption of 

the MS–DRGs. We also discussed that it 

is often our practice to phase in rate 

adjustments over more than one year in 

order to moderate the effect on rates in 

any one year. Therefore, consistent with 

transitional policies we have adopted in 

many similar cases and in order to 

maintain consistency as far as possible 

with the adjustments that we proposed 

to apply to IPPS hospitals, under the 

Secretary’s broad authority under 

section 1886(g) of the Act, in 

conjunction with section 

1886(d)(3)(A)(vi) of the Act and section 

7(b) of Public Law 110–90, we proposed 

an adjustment of ¥2.9 percent in FY 

2011 to the national capital Federal rate 

to account for a portion of the 

cumulative effect of the estimated 

changes in documentation and coding 

changes under the MS–DRG system 

through FY 2009 that did not reflect real 

changes in case-mix. We stated that we 

believe that this proposed adjustment 

would allow us to moderate the effects 

to hospitals in one year and to maintain 

equity between hospitals paid on the 

basis of different prospective rates. 

Furthermore, consistent with our 

proposal for the hospital-specific rates 

under the operating IPPS, we proposed 

to leave that proposed ¥2.9 percent 

adjustment in place for subsequent 

fiscal years to account for the effect of 

that documentation and coding change 

in subsequent years. We also sought 

public comment on the proposed ¥2.9 

percent prospective adjustment to the 

national capital Federal rate for FY 2011 

and our plans to address in future 

rulemaking cycles the cumulative effect 

of changes in case-mix due to changes 

in documentation and coding that do 

not reflect real changes in case-mix 

based on an analysis of occurring during 

FY 2008 and FY 2009, noting that our 

current estimates of the remaining 

adjustment to the national capital 

Federal rate is ¥1.0 percent (that is, the 

estimated cumulative effect of 

documentation and coding changes 

under the MS–DRG system for FYs 2008 

and 2009 of ¥5.4 percent minus the 

existing ¥0.6 percent and ¥0.9 

adjustments and the proposed FY 2011 

of ¥2.9 percent adjustment). 

Comment: Several commenters 

opposed the proposed ¥2.9 percent 

prospective adjustment to the national 

capital Federal rate for FY 2011 to 

partially account for the cumulative 

effect of the estimated changes in 

documentation and coding changes 

under the MS–DRG system that did not 

reflect real changes in case-mix. Most of 

these commenters cited the potentially 

severe negative fiscal impact that would 

be experienced by providers if the 

proposed documentation and coding 

adjustment were to be implemented. 

Response: We understand 

commenters’ concern about the possible 

financial disruption that may be caused 

by the proposed documentation and 

coding improvement payment 

adjustment. However, as discussed in 

the FY 2011 IPPS/LTCH PPS proposed 

rule and reiterated above, given the 

increase in IPPS payments that we have 

determined is due to changes in 

documentation and coding under the 

MS–DRG system, we believe it is 

necessary and appropriate under the 

Secretary’s broad authority under 

section 1886(g) of the Act, consistent 

with section 1886(d)(3)(A)(vi) of the Act 

and section 7(b) of Public Law 110–90, 

to make further adjustments to the 

capital Federal rate to eliminate the full 

effect of the documentation and coding 

changes resulting from the adoption of 

the MS–DRGs which have resulted in an 

inappropriate increase in IPPS 

payments. These payment adjustments 

are necessary to correct these past 

overpayments due to increases in 

aggregate payments that do not reflect 

real change in case-mix severity of 

illness levels, but instead are caused 

solely by documentation and coding 

improvements. In addition, we 

proposed a transitional implementation 

of the full adjustment to provide 

hospitals with time to adjust to future 

payment differences and to moderate 

the effect of this adjustment in any 

given year. 

Comment: In its public comments, 

MedPAC discussed that ‘‘the shift to 

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MS–DRGs was taken to improve the 

distribution of payments, not change the 

aggregate level of payments.’’ MedPAC 

performed an independent analysis of 

claims data to determine the effect of 

documentation and coding in FYs 2008 

and 2009. MedPAC stated, ‘‘In our 

judgment, CMS’s analytic methods are 

valid. Using similar methods, our 

analysis of Medicare hospital inpatient 

claims for 2007–2009 confirms all of 

CMS’s findings.’’ Consistent with our 

analysis, MedPAC’s analysis 

demonstrated that the cumulative effect 

of documentation and coding in FY 

2009 is 5.4 percent and they recommend 

for both the operating and capital IPPS 

that ‘‘overpayments should be stopped 

[and] all overpayment should be 

recovered.’’ In making that 

recommendation, MedPAC directed 

CMS to its March 2010 Report to 

Congress where it recommended that 

Congress change the law to require CMS 

to recover all overpayments with 

interest. MedPAC noted that this would 

shift CMS’ focus to the prevention of 

future overpayments in the operating 

and capital IPPS. Such a shift might be 

implemented as prospective 

adjustments and would result in slower 

accumulation of future overpayments. A 

detailed summary of MedPAC’s 

comment on our proposed 

documentation and coding adjustments 

for FY 2011 for all hospitals paid under 

the operating and capital IPPS and our 

full response can be found in section 

II.D.7. of the preamble of this final rule. 

Response: We appreciate MedPAC’s 

independent validation and support of 

our methodology, which corroborates 

our estimate of the cumulative 

documentation and coding effect net of 

measurement error of 5.4 percent. 

Furthermore, we agree with MedPAC’s 

conclusions on the overall financial 

implications of implementing our 

proposed ¥2.9 percent payment rate 

adjustment. We share MedPAC’s 

concerns about delaying the prevention 

of future overpayments in both the 

capital and operating IPPS, but we 

appreciate its acknowledgment of CMS’ 

discretion on this policy and of the 

potential financial disruption from 

implementation of the full prospective 

reduction in FY 2011 (¥3.9 percent). 

As discussed in section II.D.7. of the 

preamble of this final rule, after 

considering the public comments we 

received, as well as MedPAC’s detailed 

analysis, we believe that the 

methodology we have employed to 

determine the cumulative effect of 

documentation and coding changes is 

sound. Therefore, we have decided to 

finalize our proposal to make an 

adjustment to the national capital 

Federal rate of ¥2.9 percent, which 

represents a portion of the remaining 

prospective adjustment of 3.9 percent 

(5.4 percent documentation and coding 

effect minus the 1.5 percent adjustment 

already applied the national capital 

Federal rate). The adjustment we are 

finalizing in this final rule is consistent 

with the magnitude of the retrospective 

adjustment of ¥2.9 percent that we are 

applying under section 7(b)(1)(B) of 

Public Law 110–90 to the operating 

IPPS standardized amount for FY 2011 

(discussed in section II.D.7. of this 

preamble). As discussed above, while 

we are sympathetic to the concerns 

expressed by many commenters about 

the potential adverse financial effects on 

hospitals, given the increase in IPPS 

payments that we have determined is 

due to changes in documentation and 

coding under the MS–DRG system, as 

we proposed, we believe it is necessary 

and appropriate to make further 

adjustments to the capital Federal rate 

to eliminate the full effect of the 

documentation and coding changes 

resulting from the adoption of the MS– 

DRGs. We also believe the proposed 

transitional approach is a reasonable 

and fair way to accomplish the 

elimination of the full effect of these 

documentation and coding changes 

while moderating the fiscal impact on 

hospitals. 

Therefore, in this final rule, under the 

Secretary’s broad authority under 

section 1886(g) of the Act, consistent 

with section 1886(d)(3)(A)(vi) of the Act 

and section 7(b) of Public Law 110–90, 

as we proposed, in FY 2011 we are 

implementing an adjustment to the 

capital Federal rate of ¥2.9 percent to 

account for the effect of the estimated 

changes in documentation and coding 

changes under the MS–DRG system that 

occurred in FYs 2008 and 2009 that did 

not reflect real changes in case-mix. 

Furthermore, consistent with our 

proposal and the policy we are adopting 

in this final rule for the hospital-specific 

rates under the operating IPPS, we will 

leave the ¥2.9 percent adjustment in 

place for subsequent fiscal years to 

account for the effect of that 

documentation and coding change in 

subsequent years. As discussed in the 

FY 2011 IPPS/LTCH PPS proposed rule 

and reiterated above, we intend to 

address in future rulemaking cycles the 

remaining estimated adjustment to the 

national capital Federal rate of ¥1.0 

percent (that is, the estimated effect of 

documentation and coding changes 

under the MS–DRG system of ¥5.4 

percent minus the existing ¥0.6 percent 

and ¥0.9 percent adjustments and the 

¥2.9 percent adjustment for FY 2011). 

5. Documentation and Coding 

Adjustment to the Puerto Rico-Specific 

Capital Rate 

Under § 412.74, Puerto Rico hospitals 

are currently paid based on 75 percent 

of the national capital Federal rate and 

25 percent of the Puerto Rico-specific 

capital rate. In the FY 2009 IPPS final 

rule (73 FR 48775), consistent with our 

development of the FY 2009 Puerto 

Rico-specific operating standardized 

amount, we did not apply the additional 

¥0.9 percent documentation and 

coding adjustment (or the cumulative 

¥1.5 percent adjustment) to the FY 

2009 Puerto Rico-specific capital rate. 

However, the statute gives broad 

authority to the Secretary under section 

1886(g) of the Act, with respect to the 

development of and adjustments to a 

capital PPS, and therefore we would not 

be outside the authority of section 

1886(g) of the Act in applying the 

documentation and coding adjustment 

to the Puerto Rico-specific portion of the 

capital payment rate. To date, we had 

not applied a documentation and coding 

adjustment to the Puerto Rico-specific 

capital rate because we have historically 

made changes to the capital IPPS 

consistent with those changes made to 

the operating IPPS. We stated that we 

may propose to apply such an 

adjustment to the Puerto Rico capital 

rates in the future. 

As discussed in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

43928), when we performed a 

retrospective evaluation of the FY 2008 

claims data of hospitals located in 

Puerto Rico using the same 

methodology discussed above, we found 

that the change in case-mix due to 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 

from hospitals located in Puerto Rico 

was approximately 1.3 percent. Given 

this case-mix increase due to changes in 

documentation and coding under the 

MS–DRGs, we had proposed to adjust 

the Puerto Rico-specific capital rate by 

¥1.3 percent in FY 2010 for the FY 

2008 increase in case-mix due to 

changes in documentation and coding 

under the MS–DRGs. However, in that 

same final rule, we postponed the 

adoption of any documentation and 

coding adjustments to the capital IPPS 

rates until a full analysis of FY 2009 

case-mix changes could be completed. 

We indicated that any future 

documentation and coding adjustment 

to the capital Puerto Rico-specific IPPS 

rates based on a complete analysis of FY 

2008 and FY 2009 claims data for Puerto 

Rico hospitals would be established 

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through the notice and comment 

rulemaking process. 

As discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24015), 

when we performed a retrospective 

evaluation of the FY 2009 claims data 

from the December 2009 update of the 

MedPAR file of hospitals located in 

Puerto Rico using the same 

methodology to estimate documentation 

and coding changes under IPPS for nonPuerto Rico hospitals, we found that the 

change in case-mix due to 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FYs 2008 

and 2009 from hospitals located in 

Puerto Rico was approximately 2.4 

percent. (As discussed in section 

II.D.10.b. of this preamble, our updated 

analysis of FY 2009 claims paid through 

March 2010 using the same 

methodology as the one used for the 

proposed rule, shows that the change in 

case-mix due to documentation and 

coding that did not reflect real changes 

in case-mix for discharges occurring 

during FYs 2008 and 2009 from 

hospitals located in Puerto Rico is 

approximately 2.6 percent.) Given this 

case-mix increase due to changes in 

documentation and coding under the 

MS–DRGs, consistent with our proposal 

to adjust the FY 2011 capital Federal 

rate (discussed above) and consistent 

with our proposed adjustment to the FY 

2011 Puerto Rico-specific standardized 

amount discussed in section II.D.9. of 

the preamble of that same proposed 

rule, under the Secretary’s broad 

authority under section 1886(g) of the 

Act, we proposed to adjust the Puerto 

Rico-specific capital rate by ¥2.4 

percent in FY 2011 for the cumulative 

increase in case-mix due to changes in 

documentation and coding under the 

MS–DRGs for FYs 2008 and 2009. In 

addition, consistent with our other 

proposals concerning prospective 

MS–DRG documentation and coding 

adjustments to the capital Federal rate 

and operating IPPS standardized 

amounts presented in this proposed 

rule, we proposed to leave that 

proposed ¥2.4 percent adjustment in 

place for subsequent fiscal years in 

order to ensure that changes in 

documentation and coding resulting 

from the adoption of the MS–DRGs do 

not lead to an increase in aggregate 

payments not reflective of an increase in 

real case-mix. 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we sought public 

comment on the proposed prospective 

adjustment of ¥2.4 percent to Puerto 

Rico-specific standardized amount and 

the Puerto Rico-specific capital rate. We 

noted our intent to update our analysis 

with FY 2009 data on ‘‘claims paid 

through March 2009’’ (sic) for this FY 

2011 IPPS/LTCH PPS final rule. (We 

note that the March 2009 update date 

for claims paid data in the proposed 

rule should have been March 2010.) As 

intended, we have updated our analysis 

with FY 2009 data on claims paid 

through March 2010 in this FY 2011 

IPPS/LTCH PPS final rule, as discussed 

below. 

As described section II.D.10.b. of this 

preamble, MedPAC responded to our 

request for comments regarding the 

level of adjustment for special categories 

of hospitals, such as Puerto Rico 

hospitals, by pointing out that these 

hospitals have the same financial 

incentives for documentation and 

coding improvements and the same 

ability to benefit from increased 

payments that do not reflect real change 

in case-mix. Therefore, MedPAC 

recommended that ‘‘all IPPS hospitals 

should be treated the same.’’ At the same 

time, MedPAC also stateds that 

‘‘delaying prevention of overpayments 

* * * creates a problem because 

overpayments will continue to 

accumulate in 2010 and later years until 

the effect of documentation and coding 

improvement is fully offset in the 

payment rates.’’ 

We agree with MedPAC that Puerto 

Rico hospitals have had the same 

financial incentives to improve 

documentation and coding as other IPPS 

hospitals. We further agree with 

MedPAC that it is appropriate to focus 

on minimizing the accumulation of 

overpayments; we interpret this 

statement to mean that MedPAC 

recommends that CMS should move 

forward as quickly as possible with 

appropriate prospective adjustments. 

We appreciate MedPAC’s guidance that 

‘‘all hospitals be treated the same,’’ and 

we agree that it is important to treat 

various classes of hospitals that are 

similarly situated with respect to their 

ability to adjust their documentation 

and coding changes consistently in our 

payment policy determinations. 

Therefore, consistent with the policy 

we are implementing to adjust the FY 

2011 capital Federal rate (discussed 

above) and consistent with the 

adjustment we are establishing in FY 

2011 Puerto Rico-specific standardized 

amount (discussed in section II.D.10.b. 

of this preamble), under the Secretary’s 

broad authority under section 1886(g) of 

the Act, we are finalizing our proposal 

to adjust the Puerto Rico-specific capital 

rate in FY 2011 for the increase in casemix due to changes in documentation 

and coding under the MS–DRGs through 

FY 2009. As discussed in section 

II.D.10.b. of this preamble and as noted 

above, our updated analysis of FY 2009 

claims paid through March 2010 using 

the same methodology as the one used 

for the proposed rule, shows that the 

change in case-mix due to 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2009 

from hospitals located in Puerto Rico is 

approximately 2.6 percent. Accordingly, 

in this final rule, we are establishing an 

adjustment of ¥2.6 percent to the 

Puerto Rico-specific capital rate in FY 

2011 to account for changes in case-mix 

due to documentation and coding that 

did not reflect real changes in case-mix. 

As we proposed, we will leave this 

¥2.6 percent adjustment in place for 

subsequent fiscal years in order to 

ensure that changes in documentation 

and coding resulting from the adoption 

of the MS–DRGs do not lead to an 

increase in aggregate payments not 

reflective of an increase in real casemix. We continue to believe that such 

an adjustment is appropriate because, as 

MedPAC noted, all hospitals have the 

same financial incentives for 

documentation and coding 

improvements, and the same ability to 

benefit from the resulting increase in 

aggregate payments that do not reflect 

real changes in case-mix. 

As we proposed, the ¥2.6 percent 

documentation and coding adjustment 

that we are establishing in this final rule 

applies to the Puerto Rico-specific 

capital rate that accounts for 25 percent 

of capital IPPS payments to hospitals 

located in Puerto Rico, with the 

remaining 75 percent based on the 

national capital Federal rate, which is 

being further adjusted for the effects of 

documentation and coding as described 

above. Consequently, the overall 

reduction to the FY 2011 payment rates 

for hospitals located in Puerto Rico to 

account for documentation and coding 

changes is slightly less than the 

reduction for IPPS hospitals paid based 

on 100 percent of the national capital 

Federal rate. As discussed above, the 

Puerto Rico-specific capital rate was not 

adjusted for the cumulative effects of 

documentation and coding changes in 

FY 2008 or FY 2009 as is the case with 

the national capital Federal rate. 

F. Other Changes for FY 2011 

The final annual update to the capital 

IPPS national Federal and Puerto Ricospecific rates, as provided for at 

§ 412.308(c), for FY 2011 is discussed in 

section III. of the Addendum to this 

final rule. 

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VI. Changes for Hospitals Excluded 

From the IPPS 

A. Excluded Hospitals 

Historically, hospitals and hospital 

units excluded from the prospective 

payment system received payment for 

inpatient hospital services they 

furnished on the basis of reasonable 

costs, subject to a rate-of-increase 

ceiling. A per discharge limit (the target 

amount as defined in § 413.40(a)) was 

set for each hospital or hospital unit 

based on the hospital’s own cost 

experience in its base year, and updated 

annually by a rate-of-increase 

percentage. The updated target amount 

was multiplied by total Medicare 

discharges during that period and 

applied as an aggregate upper limit (the 

ceiling as defined in § 413.40(a)) on total 

inpatient operating costs for a hospital’s 

cost reporting period. Prior to October 1, 

1997, these payment provisions applied 

consistently to all categories of excluded 

providers, which included 

rehabilitation hospitals and units (now 

referred to as IRFs), psychiatric 

hospitals and units (now referred to as 

IPFs), LTCHs, children’s hospitals, and 

cancer hospitals. 

Payment to children’s hospitals and 

cancer hospitals that are excluded from 

the IPPS continues to be subject to the 

rate-of-increase ceiling based on the 

hospital’s own historical cost 

experience. (We note that, in accordance 

with § 403.752(a) of the regulations, 

RNHCIs are also subject to the rate-ofincrease limits established under 

§ 413.40 of the regulations.) 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24016), we 

proposed that the rate-of-increase 

percentage to be applied to the target 

amount for cancer and children’s 

hospitals and RNHCIs was the proposed 

FY 2011 percentage increase in the IPPS 

operating market basket. Beginning with 

FY 2006, we have used the percentage 

increase in the IPPS operating market 

basket to update the target amounts for 

children’s and cancer hospitals. As 

explained in the FY 2006 IPPS final rule 

(70 FR 47396 through 47398), with IRFs, 

IPFs, and LTCHs being paid under their 

own PPS, the remaining number of 

providers being paid based on 

reasonable cost subject to a ceiling (that 

is, children’s and cancer hospitals and 

RNHCIs) is too small and the cost report 

data are too limited to be able to create 

a market basket solely for these 

hospitals. For FY 2011, we proposed to 

continue to use the IPPS operating 

market basket to update the target 

amounts for children’s and cancer 

hospitals and RNHCIs for the reasons 

discussed in the FY 2006 IPPS final 

rule. 

In the FY 2011 IPPS/LTCH PPS we 

proposed to use the revised and rebased 

FY 2006-based IPPS operating market 

basket to update the target amounts for 

children’s and cancer hospitals and 

RNHCIs for FY 2011. Therefore, based 

on IHS Global Insight, Inc.’s 2010 first 

quarter forecast, with historical data 

through the 2009 fourth quarter, we 

estimated that the FY 2011 update to the 

IPPS operating market basket would be 

2.4 percent (that is, the estimate of the 

market basket rate-of-increase). 

Consistent with our historical 

approach, we calculated the proposed 

rate-of-increase in the IPPS operating 

market basket for FY 2011 using the 

most recent data available. 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 

2011. Therefore, based on IHS Global 

Insight’s 2010 second quarter forecast, 

with historical data through the 2010 

first quarter, the final IPPS operating 

market basket update factor for FY 2011 

is 2.6 percent. Moreover, consistent 

with our proposal that the percentage 

increase in the rate-of-increase limits for 

cancer and children’s hospitals and 

RNHCIs would be the percentage 

increase in the FY 2011 IPPS operating 

market basket, the FY 2011 rate-ofincrease percentage that is applied to 

the FY 2010 target amounts in order to 

calculate the final FY 2011 target 

amounts for cancer and children’s 

hospitals and RNHCIs is 2.6 percent, in 

accordance with the applicable 

regulations in 42 CFR 413.40. 

We note that IRFs, IPFs, and LTCHs, 

which were paid previously under the 

reasonable cost methodology, now 

receive payment under their own 

prospective payment systems, in 

accordance with changes made to the 

statute. In general, the prospective 

payment systems for IRFs, IPFs, and 

LTCHs provided transition periods of 

varying lengths during which time a 

portion of the prospective payment was 

based on cost-based reimbursement 

rules under part 413. (However, certain 

providers do not receive a transition 

period or may elect to bypass the 

transition period as applicable under 42 

CFR part 412, subparts N, O, and P.) We 

note that the various transition periods 

provided for under the IRF PPS, the IPF 

PPS, and the LTCH PPS have ended. 

The IRF PPS, the IPF PPS, and the 

LTCH PPS are updated annually. We 

refer readers to section IV. of the 

Addendum to this final rule for the 

specific proposed update changes to the 

Federal payment rates for LTCHs under 

the LTCH PPS for FY 2011. The annual 

updates for the IRF PPS and the IPF PPS 

are issued by the agency in separate 

Federal Register documents. 

B. Critical Access Hospitals (CAHs) 

1. Background 

Section 1820 of the Act provides for 

the establishment of Medicare Rural 

Hospital Flexibility Programs (MRHFPs) 

under which individual States may 

designate certain facilities as critical 

access hospitals (CAHs). Facilities that 

are so designated and that 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. CAH Optional Method Election for 

Payment of Outpatient Services 

Section 1834(g) of the Act establishes 

the payment rules for outpatient 

services furnished by a CAH. Section 

403(d) of Public Law 106–113 (BBRA) 

amended section 1834(g) of the Act to 

provide for two methods of payment for 

outpatient services furnished by a CAH. 

Specifically, section 1834(g)(1) of the 

Act, as amended by Public Law 106– 

113, provided that the amount of 

payment for outpatient services 

furnished by a CAH is equal to the 

reasonable cost of providing such 

services (unless the CAH makes an 

election, under section 1834(g)(2) of the 

Act). The physician or other practitioner 

providing the professional service 

receives payment under the Medicare 

Physician Fee Schedule (MPFS). In the 

alternative, the CAH may make an 

election under section 1834(g)(2) of the 

Act to receive amounts that are equal to 

the ‘‘reasonable costs’’ of the CAH for 

facility services, plus, with respect to 

the professional services, the amount 

otherwise paid for professional services 

under Medicare, less the applicable 

Medicare deductible and coinsurance 

amount. The election made under 

section 1834(g)(2) of the Act is 

sometimes referred to as ‘‘method II’’ or 

‘‘the optional method.’’ Throughout this 

section of this preamble, we refer to this 

election as the ‘‘optional method.’’ 

Section 202 of Public Law 106–554 

(BIPA) amended section 1834(g)(2)(B) of 

the Act to increase the payment for 

professional services under the optional 

method to 115 percent of the amount 

otherwise paid for professional services 

under Medicare. In addition, section 

405(a)(1) of Pub. L. 108–173 (MMA) 

amended section 1834(g)(l) of the Act by 

inserting the phrase ‘‘equal to 101 

percent of’’ before the phrase ‘‘the 

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reasonable costs.’’ However, the MMA 

made no changes to the amount of 

reasonable cost payment under the 

optional method at section 1834(g)(2)(A) 

of the Act. 

Accordingly, section 1834(g) of the 

Act provides for two methods of 

payment for outpatient CAH services. 

Under the method specified at section 

1834(g)(1) of the Act, facility services 

are paid at 101 percent of reasonable 

costs to the CAH through the Medicare 

fiscal intermediary or the Medicare Part 

A/B MAC, while payments for 

physician and other professional 

services are made to the physician or 

other practitioner under the MPFS 

through the Medicare carriers. Under 

section 1834(g)(2) of the Act (the 

optional method), a CAH submits bills 

for both the facility and the professional 

services to its Medicare fiscal 

intermediary or its Medicare Part A/B 

MAC. If a CAH chooses this optional 

method for outpatient services, the 

physician or other practitioner must 

reassign his or her billing rights to the 

CAH to bill the Medicare program for 

those services. In accordance with 

section 1834(g)(2) of the Act in effect 

prior to implementation of section 3128 

of the Affordable Care Act, under this 

optional method, the CAH received 

reasonable cost payment for its facility 

costs and, with respect to the 

professional services, 115 percent of the 

amount otherwise paid for professional 

services under Medicare. (We refer 

readers to section VI.B.3. of this 

preamble for a discussion of the policy 

changes to payments for outpatient 

facility services made by section 3128 of 

the Affordable Care Act.) 

The existing regulations at 

§ 413.70(b)(3)(i)(A) require that if a CAH 

wishes to elect the optional method, 

that election must be made in writing, 

made on an annual basis, and delivered 

to the fiscal intermediary servicing the 

CAH at least 30 days before the start of 

the cost reporting period for which the 

election is made. The regulations at 

§ 413.70(b)(3)(i)(B) specify that once an 

election is made for a cost reporting 

period, that election remains in effect 

for all of that period. Therefore, under 

the existing regulations, a CAH that is 

being paid under the optional method is 

required to submit an election on an 

annual basis if it wishes to continue to 

be paid under the optional method for 

a subsequent cost reporting period. 

We have been informed that, in past 

years, there have been instances where 

some CAHs have submitted their 

elections several days late, which has 

caused these CAHs to lose their optional 

method election for the entire cost 

reporting year and has resulted in 

financial hardship for these providers. 

Such untimely submission of the 

optional method election may be due to 

staffing turnovers at the CAH as well as 

a change in fiscal intermediary or MAC 

assignments because, in the past, some 

CAHs received correspondence from 

their fiscal intermediaries or MACs 

reminding them to elect the optional 

method on an annual basis. Due to the 

significant consequences if a CAH fails 

to make a timely election, in the FY 

2011 IPPS/LTCH PPS proposed rule (75 

FR 24017), we proposed to amend the 

regulations at § 413.70(b)(3)(i) to state 

that, effective for CAH cost reporting 

periods beginning on or after October 1, 

2010, if a CAH has elected the optional 

method for its most recent cost reporting 

period beginning prior to October 1, 

2010 or chooses to elect the optional 

method for its upcoming cost reporting 

period, that election will remain in 

place until it is terminated. 

We believe that removing the annual 

election requirement will reduce any 

perceived burden associated with the 

election process and make it easier for 

CAHs to maintain their election if they 

experience administrative staffing 

changes. If a CAH is being paid under 

the traditional method and wishes to 

elect the optional method, it must 

submit its election in writing to its 

servicing fiscal intermediary or MAC at 

least 30 days prior to the first cost 

reporting period for which the election 

is effective. Once that initial election is 

made, it will remain in place until it is 

terminated. 

We proposed to revise the regulations 

to include a mechanism for CAHs that 

are being paid under the optional 

method to terminate that election. 

Specifically, we proposed that if a CAH 

is being paid under the optional method 

and wishes to terminate that election, it 

must submit its termination request to 

the fiscal intermediary or MAC 

servicing the CAH at least 30 days prior 

to the start of the next cost reporting 

period. Because the proposed effective 

date for this provision was for cost 

reporting periods beginning on or after 

October 1, 2010, we acknowledged that 

CAHs that have cost reporting periods 

beginning in October 2010 or November 

2010 may not have sufficient time to 

terminate their optional method election 

at least 30 days prior to the start of the 

cost reporting period. Therefore, we 

proposed that CAHs that have cost 

reporting periods beginning in October 

2010 or November 2010 and elected the 

optional method in 2009 that wish to 

terminate that election would have until 

December 1, 2010, to terminate their 

prior year election. The termination 

would be effective for the entire FY 

2011 cost reporting period. Thus, if a 

CAH with a cost reporting period 

beginning in October 2010 or November 

2010 terminates its optional method 

election after the beginning of its cost 

reporting period but before December 1, 

2010, the fiscal intermediary or MAC 

would be instructed to reprocess any 

payments made under the optional 

method for services provided during 

that period, as efficiently as possible. 

Section 1834(g)(2)(B) of the Act 

provides that if a CAH elects the 

optional method, it is not required that 

each physician or other practitioner 

providing professional services in the 

CAH must reassign billing rights with 

respect to the services. Rather, the 

reassignment of billing rights is 

physician/practitioner specific. For this 

reason, the optional payment method 

should not apply to the computation of 

payments to the CAH for its facility 

services in conjunction with services 

furnished by physicians and 

practitioners who have not reassigned 

such billing rights. Accordingly, if a 

physician or practitioner has not 

reassigned his or her billing rights to the 

CAH, the CAH will be paid for its 

facility services at 101 percent of 

reasonable cost, as specified at 

§ 413.70(b)(2)(i) of the regulations. If a 

CAH experiences changes in its 

physician or practitioner staffing, there 

may be a change in which physicians or 

practitioners choose to reassign their 

billing rights in order to permit the CAH 

to bill for their professional services. In 

order to ensure appropriate payments, 

and specifically, in order to ensure that 

there is no duplicate billing for a 

physician’s or practitioner’s 

professional services by the CAH to the 

fiscal intermediary or MAC and by the 

physician or practitioner providing the 

service to the carrier, a CAH must 

continue to notify its fiscal intermediary 

or MAC when changes in reassignment 

occur. 

Comment: Many commenters 

supported the proposal that, effective 

for cost reporting periods beginning on 

or after October 1, 2010, if a CAH has 

elected the optional method for its most 

recent cost reporting period beginning 

prior to October 1, 2010, or chooses to 

elect the optional method for its 

upcoming cost reporting period, that 

election will remain in place until it is 

terminated. The commenters stated the 

proposed change would reduce CAHs’ 

administrative burdens and ensure 

continued access to payment under the 

optional method. One commenter stated 

its State has 77 CAHs and the proposed 

change would help provide continued 

access to the optional method. Another 

commenter stated that most CAHs in its 

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State have elected the optional method 

and the proposed change would save 

staff time and help prevent billing 

errors. One commenter stated 

approximately 72 out of 82 CAHs in its 

State have elected the optional method 

and the proposed change will help 

eliminate an annual administrative 

burden. Another commenter stated the 

proposed change would help ensure 

continued access to care in rural areas 

of its State. 

Response: We thank the commenters 

for their support of the proposed 

provision, which we are adopting as 

final in this final rule. 

Comment: One commenter stated that 

because physician bills under the 

traditional method (the method 

specified at section 1834(g)(1) of the 

Act) are paid by the carrier instead of by 

the fiscal intermediary or the MAC, the 

CAH should be required to inform the 

carrier, in addition to the fiscal 

intermediary or the MAC, of any billing 

assignment changes. 

Response: In the proposed rule, we 

stated that in order to ensure there is no 

duplicate billing and that appropriate 

payments are made, a CAH must 

continue to notify its fiscal intermediary 

or MAC when changes in reassignment 

occur. We agree with the commenter 

that the carrier should be notified of any 

billing reassignment changes. Therefore, 

if a physician/practitioner reassignment 

changes such that there is a change in 

which physician/practitioner bills 

would be paid by the carrier, in addition 

to notifying the fiscal intermediary or 

MAC, the CAH must also notify the 

carrier. We believe this practice will 

help ensure appropriate payments are 

made to the CAH and the physician/ 

practitioner. 

Comment: Several commenters 

requested that CMS apply the same 

policy as it proposed for the CAH 

optional method election to hospitals 

redesignated under section 

1886(d)(8)(B) of the Act. 

Response: We did not propose any 

changes to the redesignation 

requirements. Therefore, these requests 

are not within the scope of this final 

rule. We will consider these comments 

as we develop future rulemaking. 

Accordingly, after consideration of 

the public comments we received, we 

are adopting our proposal as final, as 

follows: We are adopting as final, with 

some technical revisions discussed 

below, the proposed revision of 

§ 413.70(b)(3)(i) to specify that for CAH 

cost reporting periods beginning on or 

after October 1, 2010, once a CAH elects 

the optional method, including an 

election made for its most recent cost 

reporting period beginning prior to 

October 1, 2010, its election will remain 

in place until it is terminated. That is, 

CAHs will no longer be required to 

make an annual election in order to 

continue to be paid under the optional 

method in a subsequent year. However, 

we are making some technical revisions 

to the proposed language of 

§ 413.70(b)(3)(i)(A)(2) in order to state 

more clearly that if a CAH did not elect 

the optional method in its most recent 

preceding cost reporting period and 

chooses to be paid under the optional 

method for a cost reporting period 

beginning on or after October 1, 2010, it 

must submit a request in writing to the 

fiscal intermediary or MAC at least 30 

days prior to the start of the cost 

reporting period for which the election 

is to be effective. Finally, we are 

adopting as final our revision of the 

regulations to specify that if a CAH 

wishes to terminate its optional method 

election, it must submit its termination 

request to the fiscal intermediary or 

MAC servicing the CAH at least 30 days 

prior to the start of the next cost 

reporting period. CAHs will have until 

December 1, 2010, to terminate their 

prior year election if they have cost 

reporting periods beginning in October 

2010 or November 2010, had elected the 

optional method in 2009, and wish to 

terminate that election in 2010. The 

termination will be effective for the 

entire FY 2011 cost reporting period. 

We also are adopting as final the 

conforming change to § 413.70 

(b)(3)(i)(D). 

3. Changes in Payments to CAHs Made 

by the Affordable Care Act 

As stated earlier in this preamble, 

section 1834(g) of the Act establishes 

the payment rules for outpatient 

services furnished by a CAH. Section 

403(d) of Public Law 106–113 (BBRA) 

amended section 1834(g) of the Act to 

provide for two methods of payment for 

outpatient services furnished by a CAH. 

Section 1834(g)(1) of the Act, as 

amended by Public Law 106–113, 

provided that the amount of payment 

for outpatient services furnished by a 

CAH is equal to the reasonable costs of 

the CAH in providing such services. 

Under the optional method, described 

under section 1834(g)(2) of the Act, the 

CAH may make an election to receive 

amounts that are equal to ‘‘the 

reasonable costs’’ of the CAH for facility 

services plus, with respect to 

professional services, the amount 

otherwise paid for professional services 

under Medicare, less the applicable 

Medicare deductible and coinsurance 

amount. Section 202 of Public Law 

106–554 (BIPA) amended section 

1834(g)(2)(B) of the Act to increase the 

payment for professional services under 

the optional method to 115 percent of 

the amount otherwise paid for 

professional services under Medicare. In 

addition, section 405(a)(1) of Public Law 

108–173 (MMA) amended section 

1834(g)(l) of the Act by inserting the 

phrase ‘‘equal to 101 percent of’’ before 

the phrase ‘‘the reasonable costs.’’ 

However, the MMA made no changes to 

the amount of payment under the 

optional method at section 1834(g)(2)(A) 

of the Act. 

Section 1834(l)(8), as added by 

section 205 of Public Law 106–554, 

establishes the payment methodology 

for ambulance services furnished by a 

CAH or by an entity that is owned and 

operated by a CAH. This provision 

states that payment is made based on 

the reasonable costs incurred in 

furnishing ambulance services if such 

services are furnished by a CAH (as 

defined in section 1861(mm)(1) of the 

Act), or by an entity that is owned and 

operated by a CAH, but only if the CAH 

or entity is the only provider or supplier 

of ambulance services that is located 

within a 35-mile drive of such CAH. 

Section 3128(a) of the Affordable Care 

Act amended sections 1834(g)(2)(A) and 

1834(l)(8) of the Act by inserting ‘‘101 

percent of’’ before ‘‘the reasonable costs.’’ 

As such, section 3128(a) increases 

payment for outpatient facility services 

under the optional method and payment 

for ambulance services furnished by a 

CAH or an entity owned and operated 

by a CAH, to 101 percent of reasonable 

costs. Section 3128(b) of the Affordable 

Care Act states that the amendments 

made under section 3128(a) shall take 

effect as if they were included in the 

enactment of section 405(a) of Public 

Law 108–173. Section 405(a) of Public 

Law 108–173 provided that, in general, 

inpatient, outpatient, and covered SNF 

services provided by a CAH would be 

reimbursed at 101 percent of reasonable 

costs, and was applicable to payments 

for services furnished during cost 

reporting periods beginning on or after 

January 1, 2004. 

Because of the date of enactment of 

the Affordable Care Act, we were unable 

to include these provisions in the FY 

2011 IPPS/LTCH PPS proposed rule. 

Therefore, in a separate supplemental 

proposed rule which appeared in the 

Federal Register on June 2, 2010 (75 FR 

30965), we included proposals to 

implement the changes made by section 

3128. The final policies discussed below 

take into consideration public 

comments that we received on the 

supplemental proposed rule. 

In order to implement section 3128 of 

the Affordable Care Act, in the 

supplemental proposed rule, we 

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proposed to amend the regulations at 

§ 413.70(b)(3)(ii)(A) to state that, 

effective for cost reporting periods 

beginning on or after January 1, 2004, 

under the optional method, payment for 

facility services will be made at 101 

percent of reasonable costs. 

Accordingly, regardless of whether a 

physician or practitioner has reassigned 

his or her billing rights to the CAH, 

payment for CAH facility services 

would be made at 101 percent of 

reasonable costs. In addition, we 

proposed to implement the change in 

payment for ambulance services 

provided by section 3128 of the 

Affordable Care Act by amending the 

regulations at § 413.70(b)(5)(i) to state 

that, effective for cost reporting periods 

beginning on or after January 1, 2004, 

payment for ambulance services 

furnished by a CAH or an entity that is 

owned and operated by a CAH is 101 

percent of the reasonable costs of the 

CAH or the entity in furnishing those 

services, but only if the CAH or the 

entity is the only provider or supplier of 

ambulance services located within a 

35-mile drive of the CAH or the entity. 

Comment: Several commenters 

supported the proposed provisions 

implementing section 3128 of the 

Affordable Care Act. One commenter 

stated that, in Iowa, there are 82 CAHs 

and 72 of them have elected to be paid 

under the optional method. The 

commenter stated the proposed 

provision will have a positive impact on 

these small hospitals. 

Another commenter disagreed with 

CMS’ finalized policy in the FY 2010 

IPPS/LTCH PPS final rule, which 

reduced payment for CAH facility 

services under the optional method to 

100 percent of reasonable costs. The 

commenter had requested CMS ‘‘* * * 

to reference the MMA conference report 

which clearly indicated that Congress 

intended to set all CAH outpatient 

reimbursement at 101 percent of 

reasonable cost.’’ The commenter further 

stated that, as part of the supplemental 

proposed rule, ‘‘CMS proposed to restore 

101 percent of cost-based 

reimbursement for CAHs election 

Method II billing, and is proposing to 

extend this change retroactively to FFY 

2010.’’ 

Response: We appreciate the 

commenters’ support of the proposed 

implementation of the provision to 

increase payment for CAH outpatient 

facility services paid under the optional 

method and increase payment for CAH 

ambulance services to 101 percent of 

reasonable costs. In the response to the 

commenter who stated we were 

proposing to extend this change 

retroactively to FY 2010, we note that 

we proposed to make this change in 

payment to 101 percent of reasonable 

costs effective for cost reporting periods 

beginning on or after January 1, 2004, to 

conform to the requirements of section 

3128(b) of the Affordable Care Act. 

After consideration of the public 

comments we received, we are adopting 

our proposed revisions to the 

regulations at §§ 413.70(b)(3)(ii)(A) and 

413.70(b)(5)(i) as final, without 

modification. Accordingly, effective for 

cost reporting periods beginning on or 

after January 1, 2004, CAHs that are 

paid under the optional method will be 

paid based on 101 percent of reasonable 

costs for outpatient facility services and 

all CAHs will be paid based on 101 

percent of reasonable cost for 

ambulance services. We note that, as we 

indicated in the proposed rule, we do 

not believe these revisions will result in 

additional payments to CAHs for prior 

periods because we believe, in fact, that 

CMS has paid CAHs for these services 

at 101 percent of reasonable costs 

during these prior periods. 

4. Costs of Provider Taxes as Allowable 

Costs for CAHs 

a. Background and Statutory Basis 

Currently, certain taxes assessed 

against a provider may be allowable 

costs under Medicare to the extent that 

such taxes are related to the reasonable 

and necessary cost of providing patient 

care and represent costs actually 

incurred. Reasonable cost 

reimbursement is addressed in section 

1861(v)(1)(A) of the Act. Section 

1861(v)(1)(A) of the Act defines 

‘‘reasonable cost,’’ in part, as the cost 

actually incurred, excluding costs found 

to be unnecessary in the efficient 

delivery of needed health services and 

are determined in accordance with 

regulations establishing the method or 

methods to be used and the items to be 

included. Section 1861(v)(1)(A) of the 

Act does not specifically address the 

determination of reasonable costs, but 

authorizes the Secretary to promulgate 

regulations and principles to be applied 

in determining reasonable costs. 

We have issued regulations 

implementing this provision of the Act, 

including 42 CFR 413.9(a), which 

provide that the determination of 

reasonable cost ‘‘must be based on the 

reasonable cost of services covered 

under Medicare and related to the care 

of beneficiaries.’’ In addition, § 413.9(c) 

requires that the provision for payment 

of reasonable cost of services is 

intended to meet the actual costs 

incurred in providing services. 

Therefore, in accordance with the 

statute, the regulations include two 

principles that help guide the 

determination of which expenses may 

be considered allowable reasonable 

costs that can be paid under Medicare; 

that is, such costs must be ‘‘related’’ to 

the care of Medicare beneficiaries, and 

such costs must actually be ‘‘incurred.’’ 

Consistent with these provisions, we 

also have issued policy instructions in 

the Provider Reimbursement Manual, 

Part 1 (PRM–1) for determining 

allowable reasonable costs under 

Medicare. Specifically, section 2122 of 

the PRM–1 sets forth Medicare policy 

on determining when taxes levied on 

providers are allowable costs and 

provides a list of taxes that are 

considered unallowable costs. 

Specifically, section 2122.1 (General 

Rule) of the PRM–1 states: ‘‘The general 

rule is that taxes assessed against the 

provider, in accordance with the levying 

enactments of the several States and 

lower levels of government and for 

which the provider is liable for 

payment, are allowable costs. Tax 

expenses should not include fines and 

penalties.’’ Section 2122.2 (Taxes Not 

Allowable as Costs) of the PRM–1 lists 

certain taxes that are levied on 

providers that are not allowable costs. 

The listed taxes are: 

• Federal income and excess profit 

taxes, including any interest or penalties 

paid thereon (A). 

• State or local income and excess 

profit taxes (B). 

• Taxes in connection with financing, 

refinancing, or refunding operations, 

such as taxes on the issuance of bonds, 

property transfers, issuance or transfer 

of stocks, etc. Generally, these costs are 

either amortized over the life of the 

securities or depreciated over the life of 

the asset. However, they are not 

recognized as tax expense. (C) 

• Taxes from which exemptions are 

available to the provider. (D) 

• Special assessments on land which 

represent capital improvements such as 

sewers, water, and pavements should be 

capitalized and depreciated over their 

estimated useful lives. (E) 

• Taxes on property which is not 

used in the rendition of covered 

services. (F) 

• Taxes, such as sales taxes, levied 

against the patient and collected and 

remitted by the provider. (G) 

• Self-employment (FICA) taxes 

applicable to individual proprietors, 

partners, members of a joint venture, 

etc. (H) 

b. Clarification of Payment Policy for 

Provider Taxes 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24019), we stated 

that we have learned that there is some 

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confusion relating to the determination 

of whether a tax is an allowable cost. 

We believe that much of this confusion 

has arisen because it may be possible to 

read sections 2122.1 and 2122.2 of the 

PRM–1 as permitting all taxes assessed 

on a provider by a State that are not 

specifically listed in section 2122.2 to 

be treated as allowable costs. Section 

2122 of the PRM–1 was last updated in 

1979 when States typically raised 

revenue only from income, sales, and 

property taxes. The list in section 

2212.2 is incomplete now, as it does not 

reflect the variety of provider taxes 

imposed by States. In addition, we are 

concerned that, even if a particular tax 

may be an allowable cost that is related 

to the care of Medicare beneficiaries, 

providers may not, in fact, ‘‘incur’’ the 

entire amount of these assessed taxes. 

For example, in accordance with the 

Medicaid statute and regulations, some 

States levy tax assessments on hospitals. 

The assessed taxes may be paid by the 

hospitals into a fund that includes all 

taxes paid, all Federal matching monies, 

and any penalties for nonpayment. The 

State is then authorized to disburse 

monies from the fund to the hospitals. 

We believe that these types of 

subsequent disbursements to providers 

are associated with the assessed taxes 

and may, in fact, offset some, if not all, 

of the taxes originally paid by the 

hospitals. 

We believe that the treatment of these 

types of payments on the Medicare cost 

report should be analogous to the 

adjustments described at § 413.98 of the 

regulations. Specifically, § 413.98(d) 

provides that the ‘‘true cost of the goods 

or services is the net amount actually 

paid for them.’’ Section 413.98 

specifically addresses the purchase of 

goods and services and reflects the 

statutory mandate that a provider’s 

allowable costs are the net expenses it 

incurs for items and services. In 

situations in which payments that are 

associated with the assessed tax are 

made to providers specifically to make 

the provider whole or partly whole for 

the tax expenses, Medicare should 

similarly recognize only the net expense 

incurred by the provider. Thus, while a 

tax may be an allowable Medicare cost 

in that it is related to beneficiary care, 

the provider may only treat as a 

reasonable cost the net tax expense; that 

is, the tax paid by the provider, reduced 

by payments the provider received that 

are associated with the assessed tax. In 

addition, we do not believe that 

determinations made regarding whether 

the structure of specific taxes and 

subsequent reimbursements are 

consistent with Medicaid ‘‘hold 

harmless’’ provisions necessarily require 

the Medicare program to find that the 

same tax is an allowable cost. The 

Medicare statute and regulations set 

forth a different standard that requires a 

determination of how much of the 

allowable tax expense is actually 

‘‘incurred’’ by the provider. 

Therefore, in the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 24018), we 

proposed to clarify our policy 

concerning when provider taxes may be 

considered allowable costs under 

Medicare. As stated above, section 2122 

of the PRM was last updated in 1979, 

and it no longer reflects the variety of 

provider taxes that may be imposed by 

States. Although some of the more 

recently enacted provider taxes may be 

allowable costs, we were concerned that 

some of these taxes may not be ‘‘related 

to the care of beneficiaries’’ and that 

some, if not all, of the costs of these 

taxes might not be actually ‘‘incurred’’ 

by the providers. This payment policy 

may not directly affect providers that 

are paid under a Medicare prospective 

payment system unless a cost-based 

prospective payment system is rebased 

on more current reported reasonable 

costs. However, we stated that this 

policy clarification could impact certain 

providers that are paid on the basis of 

their incurred reasonable costs, such as 

CAHs. Therefore, we proposed to clarify 

the policy set forth in sections 2122.1 

and 2122.2 of the PRM–1 to reflect our 

concerns set forth above regarding when 

certain provider taxes may be allowable 

costs under the Medicare program. 

Comment: Commenters disagreed 

with our statement that the provision in 

the proposed rule was a clarification in 

policy. They expressed concern that the 

provision was a policy change that 

could be applied retroactively and could 

potentially have serious negative fiscal 

impact. A number of commenters also 

raised concern that the language in the 

proposed rule did not clearly articulate 

the revisions to the PRM and is vague 

regarding when certain provider taxes 

may be allowable. Specifically, the 

commenters were concerned that 

Medicare would not reimburse the cost 

of these taxes. Specifically, the 

commenters were concerned that the 

payment of the net expense of a 

provider tax, as reported on a CAH’s 

Medicare cost report, would have a 

negative financial impact on the CAH. 

Response: We believe that this 

provision, as articulated in the proposed 

rule, is a clarification of our current, 

longstanding policy which requires that 

‘‘reasonable costs’’ claimed by providers 

must be ‘‘actually incurred.’’ Currently, 

CMS and its Medicare contractors apply 

the longstanding reasonable cost 

principles at section 1861(v)(1)(A) of the 

Act and at 42 CFR 413.9 of the 

regulations to determine if a particular 

expense is an allowable cost under 

Medicare. One such principle, as 

discussed above, is that a ‘‘reasonable 

cost’’ must be ‘‘actually incurred.’’ 

We disagree that sections 2122.1 and 

2122.2 of the PRM–1 take a contrary 

position. The discussion of taxes and 

allowable costs in the PRM–1 does not 

specifically address the requirement 

that costs must be ‘‘actually incurred.’’ 

However, the discussion of provider 

taxes in the PRM–1 should be 

considered in conjunction with the 

reasonable costs requirements set forth 

in the statute and regulations. To the 

extent that providers considered the list 

in section 2122.2 of the PRM–1 to 

permit a facility from counting, as part 

of its allowable costs, all but the listed 

provider taxes, regardless of whether the 

taxes listed were ‘‘actually incurred,’’ we 

are now clarifying that this approach is 

inconsistent with reasonable cost 

principles. 

We believe that it is consistent with 

the current and longstanding principles 

of cost reimbursement, as set forth in 

the statute and regulations, to remind 

both providers and our contractors, that 

although a particular tax may be an 

allowable cost, the amount of that tax 

that providers may claim for reasonable 

cost purposes, must reflect the amount 

of these assessed taxes that are actually 

incurred. Thus, in accordance with the 

Medicare statute, regulations, and PRM 

policies, Medicare contractors will 

continue to apply the current reasonable 

cost principles to determine if a 

provider tax incurred is an allowable 

cost and how much of that allowable 

cost is actually incurred to determine 

reimbursement. 

As stated in the proposed rule, we 

intended to address the potential 

confusion that arises when providers 

interpret sections of the PRM–1 to allow 

taxes assessed against a provider that 

are not specifically listed in section 

2122.2, regardless of whether those 

costs are actually incurred. We believe 

that clarifying the PRM–1 to explain 

that the list of taxes is only an example 

of the enumerated taxes is consistent 

with the current and longstanding 

reasonable cost principles. Moreover, to 

the extent that a particular tax might be 

an allowable expense, it still must be 

‘‘actually incurred.’’ 

This clarification will not have an 

effect of disallowing any particular tax 

but rather make clear that our Medicare 

contractors will continue to make a 

determination of whether a provider tax 

is allowable, on a case-by-case basis, 

using our current and longstanding 

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reasonable cost principles. In addition, 

the Medicare contractors will continue 

to determine if an adjustment to the 

amount of allowable provider taxes is 

warranted to account for payments a 

provider receives that are associated 

with the assessed tax. 

After consideration of the public 

comments we received, we are adopting 

our proposed clarification, as final, 

without modification. We will modify 

section 2122 of the PRM–1 to 

specifically reference our current, 

longstanding reasonable cost principles. 

C. Report of 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 or an excluded unit of a 

hospital must file its cost report for a 

fiscal year in accordance with 

§ 413.24(f)(2). The fiscal intermediary or 

MAC reviews the cost report and issues 

a notice of program reimbursement 

(NPR). Once the hospital receives the 

NPR, if its operating costs are in excess 

of the ceiling, the hospital or hospital 

unit may file a request for an adjustment 

payment. After the fiscal intermediary 

or MAC receives the hospital’s or 

hospital unit’s request in accordance 

with applicable regulations, the fiscal 

intermediary or MAC or CMS, 

depending on the type of adjustment 

requested, reviews the request and 

determines if an adjustment payment is 

warranted. This determination is 

sometimes not made until more than 6 

months after the date the request is filed 

because there are times when the 

applications are incomplete and 

additional information must be 

requested in order to have a completed 

application. However, in an attempt to 

provide interested parties with data on 

the most recent adjustments for which 

we do have data, we are publishing data 

on adjustment payments that were 

processed by the fiscal intermediary or 

MAC or CMS during FY 2009. 

The table below includes the most 

recent data available from the fiscal 

intermediaries or MACs and CMS on 

adjustment payments that were 

adjudicated during FY 2009. As 

indicated above, the adjustments made 

during FY 2009 only pertain to cost 

reporting periods ending in years prior 

to FY 2008. Total adjustment payments 

given to excluded hospitals and hospital 

units during FY 2009 are $7,824,339. 

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. 

Class of hospital Number Excess cost 

over ceiling 

Adjustment 

payments 

Psychiatric .................................................................................................................................... 4 $2,878,357 $1,396,564 

Children’s ..................................................................................................................................... 3 1,414,635 902,889 

Cancer ......................................................................................................................................... 2 12,949,901 4,753,072 

Religious Nonmedical Health Care Institution (RNHCI) .............................................................. 7 1,570,555 771,814 

Total ...................................................................................................................................... ........................ ........................ 7,824,339 

VII. Changes to the Long-Term Care 

Hospital Prospective Payment System 

(LTCH PPS) for FY 2011 

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 Social Security 

Act (the Act), effective for cost reporting 

periods beginning on or after October 1, 

2002. 

Section 1886(d)(1)(B)(iv)(I) of the Act 

defines a LTCH as ‘‘a hospital which has 

an average inpatient length of stay (as 

determined by the Secretary) of greater 

than 25 days.’’ Section 

1886(d)(1)(B)(iv)(II) of the Act also 

provides an alternative definition of 

LTCHs: specifically, a hospital that first 

received payment under section 1886(d) 

of the Act in 1986 and has an average 

inpatient length of stay (LOS) (as 

determined by the Secretary of Health 

and Human Services (the Secretary)) of 

greater than 20 days and has 80 percent 

or more of its annual Medicare inpatient 

discharges with a principal diagnosis 

that reflects a finding of neoplastic 

disease in the 12-month cost reporting 

period ending in FY 1997. 

Section 123 of the BBRA requires the 

PPS for LTCHs to be a ‘‘per discharge’’ 

system with a diagnosis-related group 

(DRG) based patient classification 

system that reflects the differences in 

patient resources and costs in LTCHs. 

Section 307(b)(1) of the BIPA, among 

other things, mandates that the 

Secretary shall examine, and may 

provide for, adjustments to payments 

under the LTCH PPS, including 

adjustments to DRG weights, area wage 

adjustments, geographic reclassification, 

outliers, updates, and a disproportionate 

share adjustment. 

In the August 30, 2002 Federal 

Register, we issued a final rule that 

implemented the LTCH PPS authorized 

under the BBRA and BIPA (67 FR 

55954). For the initial implementation 

of the LTCH PPS (FYs 2003) through FY 

2007, the system used information from 

LTCH patient records to classify 

patients into distinct long-term care 

diagnosis-related groups (LTC–DRGs) 

based on clinical characteristics and 

expected resource needs. Beginning in 

FY 2008, we adopted the Medicare 

Severity-long-term care diagnosisrelated groups (MS–LTC–DRGs) as the 

patient classification system used under 

the LTCH PPS. Payments are calculated 

for each MS–LTC–DRG and provisions 

are made for appropriate payment 

adjustments. Payment rates under the 

LTCH PPS are updated annually and 

published in the Federal Register. 

The LTCH PPS replaced the 

reasonable cost-based payment system 

under the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA) 

(Pub. L. 97–248) for payments for 

inpatient services provided by a LTCH 

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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 hospitalspecific ceiling on payments was 

determined by multiplying the 

hospital’s updated target amount by the 

number of total current year Medicare 

discharges. (Generally, in section VIII. of 

this preamble, when we refer to 

discharges, the intent is to 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. 

During this 5-year transition period, a 

LTCH’s total payment under the PPS 

was based on an increasing percentage 

of the Federal rate with a corresponding 

decrease in the percentage of the LTCH 

PPS payment that is based on 

reasonable cost concepts. However, 

effective for cost reporting periods 

beginning on or after October 1, 2006, 

total LTCH PPS payments are based on 

100 percent of the Federal rate. 

In addition, in the August 30, 2002 

final rule, we presented an in-depth 

discussion of the LTCH PPS, including 

the patient classification system, 

relative weights, payment rates, 

additional payments, and the budget 

neutrality requirements mandated by 

section 123 of the BBRA. The same final 

rule that established regulations for the 

LTCH PPS under 42 CFR part 412, 

subpart O also contained LTCH 

provisions related to covered inpatient 

services, limitation on charges to 

beneficiaries, medical review 

requirements, furnishing of inpatient 

hospital services directly or under 

arrangement, and reporting and 

recordkeeping requirements. We refer 

readers to the August 30, 2002 final rule 

for a comprehensive discussion of the 

research and data that supported the 

establishment of the LTCH PPS (67 FR 

55954). 

In the June 6, 2003 Federal Register, 

we published a final rule that set forth 

the FY 2004 annual update of the 

payment rates for the Medicare PPS for 

inpatient hospital services furnished by 

LTCHs (68 FR 34122). It also changed 

the annual period for which the 

payment rates were to be effective, such 

that the annual updated rates were 

effective from July 1 through June 30 

instead of from October 1 through 

September 30. We referred to the July 

through June time period as a ‘‘long-term 

care hospital rate year’’ (LTCH PPS rate 

year). In addition, we changed the 

publication schedule for the annual 

update to allow for an effective date of 

July 1. The payment amounts and 

factors used to determine the annual 

update of the LTCH PPS Federal rate are 

based on a LTCH PPS rate year. In the 

past, while the LTCH payment rate 

updates were effective July 1, the annual 

update of the DRG classifications and 

relative weights for LTCHs continued to 

be linked to the annual adjustments of 

the acute care hospital inpatient DRGs 

and were effective each October 1. 

As discussed in detail in the RY 2009 

LTCH PPS final rule (73 FR 26797 

through 26798), we again changed the 

schedule for the annual updates of the 

LTCH PPS Federal payment rates 

beginning with RY 2010. We 

consolidated the rulemaking cycle for 

the annual update of the LTCH PPS 

Federal payment rates and description 

of the methodology and data used to 

calculate these payment rates with the 

annual update of the MS–LTC–DRG 

classifications and associated weighting 

factors for LTCHs so that the updates to 

the rates and the weights now occur on 

the same schedule and appear in the 

same publication. As a result, the 

updates to the rates and the weights are 

now effective on October 1 (on a Federal 

fiscal year schedule), and the annual 

updates to the LTCH PPS Federal rates 

are no longer published with a July 1 

effective date. 

Public Law 110–173 (MMSEA), 

enacted on December 29, 2007, included 

provisions that have various effects on 

the LTCH PPS. In addition to amending 

section 1861 of the Act to add a 

subsection (ccc) which provided an 

additional definition of LTCHs, Public 

Law 110–173 also required the Secretary 

to submit, no later than 18 months after 

the date of enactment of the law, a 

report to Congress on a study of national 

long-term care hospital facility and 

patient criteria that included 

‘‘recommendations for such legislation 

and administrative actions, including 

timelines for the implementation of 

LTCH patient criteria or other actions, 

as the Secretary determines 

appropriate.’’ The payment policy 

provisions under sections 114(c)(1) and 

114(c)(2) of Pub. L. 110–173 focused on 

providing 3 years of relief for certain 

LTCHs from the percentage threshold 

payment adjustment policy at 42 CFR 

412.534 and 412.536. However, because 

of the original implementation schedule 

of those sections of the regulations, the 

payment provisions had varying 

timeframes of applicability (73 FR 

29701 through 29704). In addition, 

section 114(c)(3) of Public Law 110–173 

provided that the Secretary shall not 

apply, for the 3-year period beginning 

on the date of enactment of the Act the 

revision to the short-stay outlier (SSO) 

policy that was finalized in the RY 2008 

LTCH PPS final rule (72 FR 26904 and 

26992). In addition, section 114(c)(4) of 

Public Law 110–173 provided that the 

Secretary shall not, for the 3-year period 

beginning on the date of enactment of 

the Act, make the one-time adjustment 

to the payment rates provided for in 

§ 412.523(d)(3) or any similar provision 

(73 FR 26800 through 26804). The 

statute also provided that the base rate 

for RY 2008 be the same as the base rate 

for RY 2007 (the revised base rate, 

however, does not apply to discharges 

occurring on or after July 1, 2007, and 

before April 1, 2008) (73 FR 24875 

through 24877). Section 114(d) of Public 

Law 110–173 established a 3-year 

moratorium (with specified exceptions) 

on the establishment and classification 

of new LTCHs, LTCH satellites, and on 

the increase in the number of LTCH 

beds in existing LTCHs or satellite 

facilities. Finally, section 114(f) of 

Public Law 110–173 provided for an 

expanded review of medical necessity 

for admission and continued stay at 

LTCHs. 

In the RY 2009 LTCH PPS final rule 

(73 FR 26804 through 26812), we 

established the applicable Federal rates 

for RY 2009, consistent with section 

1886(m)(2) of the Act as amended by 

Public Law 110–173. We also revised 

the regulations at § 412.523(d)(3) to 

change the methodology for the onetime budget neutrality adjustment and 

to comply with section 114(c)(4) of 

Public Law 110–173. Other policy 

revisions that were necessary as a result 

of the statutory changes of Public Law 

110–173 were addressed in separate 

interim final rules with comment period 

(73 FR 24871 and 73 FR 29699). In the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 43976 through 43990), we 

addressed all of the public comments 

received and finalized these two interim 

final rules with comment period. 

Section 4302 of the ARRA, Public 

Law 111–5, enacted on February 17, 

2009, included several amendments to 

the provisions set forth in section 114 of 

Public Law 110–173. Specifically, 

section 4302(a) modified the effective 

dates of the provisions of section 114(c) 

of Public Law 110–173, described 

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above, and added an additional category 

of LTCHs or satellite facilities that 

would not be subject to the percentage 

threshold payment adjustment at 

§ 412.536 for a 3-year period. In 

addition, section 4302(a)(2)(A) of Public 

Law 111–5 added ‘‘grandfathered’’ 

satellites (specified in § 412.22(h)(3)(i) 

of the regulations) to those ‘‘applicable’’ 

LTCHs (specified in § 412.534(g) of the 

regulations) originally granted relief 

under section 114(c) of Pub. L. 110–173. 

We issued instructions to the fiscal 

intermediaries and MACs interpreting 

the provisions of section 4302 of Public 

Law 111–5 (Change Request 6444). In 

addition, in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (43990 through 

43992), we implemented the provisions 

of section 4302 of Public Law 111–5 

through an interim final rule with 

comment period. We received one piece 

of timely correspondence regarding the 

provisions of section 4302 of Public Law 

111–5 that were implemented through 

the interim final rule with comment 

period that was included in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule. We 

address this public comment and 

finalize the interim final rule with 

comment period in section VII.F. of the 

preamble of this final rule. 

As discussed in section I.C. of this 

preamble, a number of the provisions of 

the Affordable Care Act affected the 

policies, payment rates and factors 

under the LTCH PPS. Due to the timing 

of the passage of the legislation, we 

were unable to address those provisions 

in the May 4, 2010 FY 2011 IPPS/LTCH 

PPS proposed rule, and some of the 

proposed policies and payment rates in 

that proposed rule did not reflect the 

new legislation. On June 2, 2010, we 

issued a FY 2011 IPPS/LTCH PPS 

supplemental proposed rule that 

addressed the provisions of the 

Affordable Care Act that affected our 

proposed policies and payment rates for 

FY 2011 under the LTCH PPS. In this 

final rule, we address both the 

provisions of the May 4, 2010 proposed 

rule and the June 2, 2010 supplemental 

proposed rule and respond to public 

comments received. 

2. Criteria for Classification as a LTCH 

a. Classification as a LTCH 

Under the existing regulations at 

§ 412.23(e)(1) and (e)(2)(i), which 

implement section 1886(d)(1)(B)(iv)(I) of 

the Act, to qualify to be paid under the 

LTCH PPS, a hospital must have a 

provider agreement with Medicare and 

must have an average Medicare 

inpatient length of stay (LOS) of greater 

than 25 days. Alternatively, 

§ 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 nonMedicare inpatients, of greater than 20 

days. 

b. Hospitals Excluded From the LTCH 

PPS 

The following hospitals are paid 

under special payment provisions, as 

described in § 412.22(c), and therefore, 

are not subject to the LTCH PPS rules: 

• Veterans Administration hospitals. 

• Hospitals that are reimbursed under 

State cost control systems approved 

under 42 CFR Part 403. 

• Hospitals that are reimbursed in 

accordance with demonstration projects 

authorized under section 402(a) of the 

Social Security Amendments of 1967 

(Pub. L. 90–248) (42 U.S.C. 1395b–1) or 

section 222(a) of the Social Security 

Amendments of 1972 (Pub. L. 92–603) 

(42 U.S.C. 1395b–1 (note)) (Statewide 

all-payer systems, subject to the rate-ofincrease test at section 1814(b) of the 

Act). 

• Nonparticipating hospitals 

furnishing emergency services to 

Medicare beneficiaries. 

3. Limitation on Charges to Beneficiaries 

In the August 30, 2002 final rule, we 

presented an in-depth discussion of 

beneficiary liability under the LTCH 

PPS (67 FR 55974 through 55975). In the 

RY 2005 LTCH PPS final rule (69 FR 

25676), we clarified that the discussion 

of beneficiary liability in the August 30, 

2002 final rule was not meant to 

establish rates or payments for, or define 

Medicare-eligible expenses. Under 

§ 412.507, if the Medicare payment to 

the LTCH is the full LTC–DRG payment 

amount, as consistent with other 

established hospital prospective 

payment systems, a LTCH may not bill 

a Medicare beneficiary for more than the 

deductible and coinsurance amounts as 

specified under § 409.82, § 409.83, and 

§ 409.87 and for items and services as 

specified under § 489.30(a). However, 

under the LTCH PPS, Medicare will 

only pay for days for which the 

beneficiary has coverage until the SSO 

threshold is exceeded. Therefore, if the 

Medicare payment was for a SSO case 

(§ 412.529) that was less than the full 

LTC–DRG payment amount because the 

beneficiary had insufficient remaining 

Medicare days, the LTCH could also 

charge the beneficiary for services 

delivered on those uncovered days 

(§ 412.507). 

4. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and 

Accountability Act (HIPAA) 

Compliance 

Claims submitted to Medicare must 

comply with both the Administrative 

Simplification Compliance Act (ASCA) 

(Pub. L. 107–105), and the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA) 

(Pub. L. 104–191). Section 3 of the 

ASCA requires that the Medicare 

Program deny payment under Part A or 

Part B for any expenses incurred for 

items or services ‘‘for which a claim is 

submitted other than in an electronic 

form specified by the Secretary.’’ Section 

1862(h) of the Act (as added by section 

3(a) of the ASCA) provides that the 

Secretary shall waive such denial in two 

specific types of cases and may also 

waive such denial ‘‘in such unusual 

cases as the Secretary finds appropriate’’ 

(68 FR 48805). Section 3 of the ASCA 

operates in the context of the HIPAA 

regulations, which include, among other 

provisions, the transactions and code 

sets standards requirements codified as 

45 CFR parts 160 and 162, subparts A 

and I through R (generally known as the 

Transactions Rule). The Transactions 

Rule requires covered entities, including 

covered health care providers, to 

conduct certain electronic healthcare 

transactions according to the applicable 

transactions and code sets standards. 

B. Medicare Severity Long-Term Care 

Diagnosis-Related Group (MS–LTC– 

DRG) Classifications and Relative 

Weights 

1. Background 

Section 123 of the BBRA requires that 

the Secretary implement a PPS for 

LTCHs (that is, a per discharge system 

with a diagnosis-related group (DRG)- 

based patient classification system 

reflecting the differences in patient 

resources and costs). Section 307(b)(1) 

of the BIPA modified the requirements 

of section 123 of the BBRA by requiring 

that the Secretary examine ‘‘the 

feasibility and the impact of basing 

payment under such a system [the longterm care hospital (LTCH) PPS] on the 

use of existing (or refined) hospital 

DRGs that have been modified to 

account for different resource use of 

LTCH patients, as well as the use of the 

most recently available hospital 

discharge data.’’ 

When the LTCH PPS was 

implemented for cost reporting periods 

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beginning on or after October 1, 2002, 

we adopted the same DRG patient 

classification system (that is, the CMS 

DRGs) that was utilized at that time 

under the IPPS. As a component of the 

LTCH PPS, we refer to this patient 

classification system as the ‘‘long-term 

care diagnosis-related groups (LTC– 

DRGs).’’ Although the patient 

classification system used under both 

the LTCH PPS and the IPPS are the 

same, the relative weights are different. 

The established relative weight 

methodology and data used under the 

LTCH PPS result in relative weights 

under the LTCH PPS that reflect ‘‘the 

differences in patient resource use 

***’’ of LTCH patients (section 

123(a)(1) of the BBRA (Pub. L. 106– 

113)). 

As part of our efforts to better 

recognize severity of illness among 

patients, in the FY 2008 IPPS final rule 

with comment period (72 FR 47130), the 

MS–DRGs and the Medicare severity 

long-term care diagnosis-related groups 

(MS–LTC–DRGs) were adopted under 

the IPPS and the LTCH PPS, 

respectively, effective beginning 

October 1, 2007 (FY 2008). For a full 

description of the development and 

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 § 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.) We believe the MS–DRGs (and by 

extension, the MS–LTC–DRGs) 

represent a substantial improvement 

over the previous CMS DRGs in their 

ability to differentiate cases based on 

severity of illness and resource 

consumption. 

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). In FY 2009, an additional 

MS–DRG was adopted for a total of 746 

distinct groupings (73 FR 48497). For 

FY 2011, we are finalizing our proposal 

to delete one MS–DRG and create two 

new MS–DRGs, for a net gain of one 

MS–DRG, as noted in section II. of the 

preamble of this final rule. This results 

in 747 distinct MS–DRG groupings for 

FY 2011. Consistent with section 123 of 

the BBRA, as amended by section 

307(b)(1) of the BIPA, and § 412.515, 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 a departure from the IPPS, and as 

discussed in greater detail below in 

section VII.B.3.f. of this preamble, we 

use low-volume MS–LTC–DRGs (that is, 

MS–LTC–DRGs with less than 25 LTCH 

cases) in determining the MS–LTC–DRG 

relative weights because LTCHs do not 

typically treat the full range of 

diagnoses as do acute care hospitals. For 

purposes of determining the relative 

weights for the large number of lowvolume MS–LTC–DRGs, we group all of 

the low-volume MS–LTC–DRGs into 

five quintiles based on average charge 

per discharge. (A detailed discussion of 

the initial development and application 

of the quintile methodology appears in 

the August 30, 2002 LTCH PPS final 

rule (67 FR 55978).) We also account for 

adjustments to payments for short-stay 

outlier (SSO) cases (that is, cases where 

the covered LOS at the LTCH is less 

than or equal to five-sixths of the 

geometric ALOS for the MS–LTC–DRG). 

Furthermore, we make adjustments to 

account for nonmonotonically 

increasing weights, when necessary. 

That is, theoretically, cases under the 

MS–LTC–DRG system that are more 

severe require greater expenditure of 

medical care resources and will result in 

higher average charges such that, in the 

severity levels within a base MS–LTC– 

DRG, the weights should increase 

monotonically with severity from the 

lowest to highest severity level. (We 

discuss nonmonotonicity in greater 

detail and our methodology to adjust the 

RY 2010 MS–LTC–DRG relative weights 

to account for nonmonotonically 

increasing relative weights in section 

VII.B.3.g. (Step 6) of this preamble). 

2. Patient Classifications Into MS–LTC– 

DRGs 

a. Background 

The MS–DRGs (used under the IPPS) 

and the MS–LTC–DRGs (used under the 

LTCH PPS) are based on the CMS DRG 

structure. As noted above in this 

section, we refer to the DRGs under the 

LTCH PPS as MS–LTC–DRGs although 

they are structurally identical to the 

MS–DRGs used under the IPPS. 

The MS–DRGs are organized into 25 

major diagnostic categories (MDCs), 

most of which are based on a particular 

organ system of the body; the remainder 

involve multiple organ systems (such as 

MDC 22, Burns). Within most MDCs, 

cases are then divided into surgical 

DRGs and medical DRGs. Surgical DRGs 

are assigned based on a surgical 

hierarchy that orders operating room 

(O.R.) procedures or groups of O.R. 

procedures by resource intensity. The 

GROUPER software program does not 

recognize all ICD–9–CM procedure 

codes as procedures affecting DRG 

assignment. That is, procedures that are 

not surgical (for example, EKG), or 

minor surgical procedures (for example, 

biopsy of skin and subcutaneous tissue 

(procedure code 86.11)) do not affect the 

MS–LTC–DRG assignment based on 

their presence on the claim. 

Generally, under the LTCH PPS, a 

Medicare payment is made at a 

predetermined specific rate for each 

discharge and that payment varies by 

the MS–LTC–DRG to which a 

beneficiary’s stay is assigned. Cases are 

classified into MS–LTC–DRGs for 

payment based on the following six data 

elements: 

• Principal diagnosis; 

• Additional or secondary diagnoses; 

• Surgical procedures; 

• Age; 

• Sex; and 

• Discharge status of the patient. 

Through FY 2010, the number of 

secondary or additional diagnoses and 

the number of surgical procedures 

considered for MS–DRG assignment was 

limited to eight and six, respectively. 

Elsewhere in this final rule, however, as 

proposed, we are establishing that, for 

claims submitted on the 5010 format 

beginning January 1, 2011, we will 

increase the capacity to process 

diagnosis and procedure codes up to 25 

diagnoses and 25 procedures. This will 

include one principal diagnosis and up 

to 24 secondary diagnoses for severity of 

illness determinations. We refer readers 

to section II.G.11.c. of this preamble for 

a complete discussion of this change. 

Upon the discharge of the patient 

from a LTCH, the LTCH must assign 

appropriate diagnosis and procedure 

codes from the most current version of 

the International Classification of 

Diseases, Ninth Revision, Clinical 

Modification (ICD–9–CM). HIPAA 

Transactions and Code Sets Standards 

regulations at 45 CFR parts 160 and 162 

require that no later than October 16, 

2003, all covered entities must comply 

with the applicable requirements of 

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Subparts A and I through R of Part 162. 

Among other requirements, those 

provisions direct covered entities to use 

the ASC X12N 837 Health Care Claim: 

Institutional, Volumes 1 and 2, Version 

4010, and the applicable standard 

medical data code sets for the 

institutional health care claim or 

equivalent encounter information 

transaction (45 CFR 162.1002 and 45 

CFR 162.1102). For additional 

information on the ICD–9–CM Coding 

System, we refer readers to the FY 2008 

IPPS final rule with comment period (72 

FR 47241 through 47243 and 47277 

through 47281). We also refer readers to 

the detailed discussion on correct 

coding practices in the August 30, 2002 

LTCH PPS final rule (67 FR 55981 

through 55983). Additional coding 

instructions and examples are published 

in the Coding Clinic for ICD–9–CM, a 

product of the American Hospital 

Association. (We refer readers to section 

II.G.11. of this preamble for additional 

information on the annual revisions to 

the ICD–9–CM codes.) 

With respect to the ICD–9–CM coding 

system, we have been discussing the 

conversion to the ICD–10–CM and the 

ICD–10–PCS coding systems for many 

years. As is discussed in detail in 

section II.G.11. of this preamble, the 

ICD–10 coding systems applicable to 

hospital inpatient services will be 

implemented on October 1, 2013. In 

order for the industry to make the 

necessary conversions from ICD–9–CM 

to ICD–10–CM and ICD–10–PCS, we 

proposed, through the ICD–9–CM 

Coordination and Maintenance 

Committee, to consider a moratorium on 

updates to the ICD–9–CM and ICD–10 

coding sets. We refer readers to section 

II.G.11. of this preamble for additional 

information on the adoption of ICD–10– 

CM and ICD–10–PCS. 

To create the MS–DRGs (and by 

extension, the MS–LTC–DRGs), 

individual DRGs were subdivided 

according to the presence of specific 

secondary diagnoses designated as 

complications or comorbidities (CCs) 

into three, two, or one level, 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 and comorbidity (MCC). 

We refer readers to section II.D. of the 

FY 2008 IPPS final rule with comment 

period for a detailed discussion about 

the creation of MS–DRGs based on 

severity of illness levels (72 FR 47141 

through 47175). 

Medicare contractors (that is, fiscal 

intermediaries and MACs) enter the 

clinical and demographic information 

submitted by LTCHs into their claims 

processing systems and subject this 

information to a series of automated 

screening processes called the Medicare 

Code Editor (MCE). These screens are 

designed to identify cases that require 

further review before assignment into a 

MS–LTC–DRG can be made. During this 

process, certain cases are selected for 

further development (74 FR 43949). 

After screening through the MCE, 

each claim is classified into the 

appropriate MS–LTC–DRG by the 

Medicare LTCH GROUPER software on 

the basis of diagnosis and procedure 

codes and other demographic 

information (age, sex, and discharge 

status). The GROUPER software used 

under the LTCH PPS is the same 

GROUPER software program used under 

the IPPS. Following the MS–LTC–DRG 

assignment, the Medicare contractor 

determines the prospective payment 

amount by using the Medicare PRICER 

program, which accounts for hospitalspecific adjustments. Under the LTCH 

PPS, we provide an opportunity for 

LTCHs to review the MS–LTC–DRG 

assignments made by the Medicare 

contractor and to submit additional 

information within a specified 

timeframe as provided in § 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 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 

(§ 412.60(e)) and the LTCH PPS 

(§ 412.517), respectively. 

b. Changes to the MS–LTC–DRGs for 

FY 2011 

As specified by our regulations at 

§ 412.517(a), which requires that the 

LTC–MS–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 this 

final rule, as was proposed we are 

updating the MS–LTC–DRG 

classifications effective October 1, 2010, 

through September 30, 2011 (FY 2011) 

consistent with the changes to specific 

MS–DRG classifications presented 

above in section II.G. of this final rule 

(that is, GROUPER Version 28.0). 

Therefore, the MS–LTC–DRGs for FY 

2011 presented in this final rule are the 

same as the MS–DRGs that will be used 

under the IPPS for FY 2011. In addition, 

because the MS–LTC–DRGs for FY 2011 

are the same as the MS–DRGs for FY 

2011, the other changes that affect MS– 

DRG (and by extension MS–LTC–DRG) 

assignments under Version 28.0 of the 

GROUPER discussed in section II.G. of 

the preamble of this final rule, including 

the changes to the MCE software and 

changes to the ICD–9–CM coding 

system, are also applicable under the 

LTCH PPS for FY 2011. 

3. Development of the FY 2011 

MS–LTC–DRG Relative Weights 

a. General Overview of the Development 

of the MS–LTC–DRG Relative Weights 

As we stated in the August 30, 2002 

LTCH PPS final rule (67 FR 55984), 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. To accomplish these goals, we 

have annually adjusted the LTCH PPS 

standard Federal prospective payment 

system rate by the applicable relative 

weight in determining payment to 

LTCHs for each case. 

Although the adoption of the 

MS–LTC–DRGs resulted in some 

modifications of existing procedures for 

assigning weights in cases of zero 

volume and/or nonmonotonicity (as 

discussed in 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)), 

the basic methodology for developing 

the FY 2011 MS–LTC–DRG relative 

weights in this final rule continues to be 

determined in accordance with the 

general methodology established in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 55989 through 55991). 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 (§ 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 will, on 

average, cost twice as much to treat as 

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cases in an MS–LTC–DRG with a 

relative weight of 1. 

b. Development of the MS–LTC–DRG 

Relative Weights for FY 2011 

Beginning with the FY 2008 update, 

we established a budget neutral 

requirement for the annual update to the 

MS–LTC–DRG classifications and 

relative weights at § 412.517(b) (in 

conjunction with § 412.503), such that 

estimated aggregate LTCH PPS 

payments would be unaffected, that is, 

would be neither greater than nor less 

than the estimated aggregate LTCH PPS 

payments that would have been made 

without the classification and relative 

weight changes (RY 2008 LTCH PPS 

final rule (May 11, 2007; 72 FR 26882 

through 26884)). Consistent with 

§ 412.517(b), we apply a two-step 

budget neutrality methodology, which is 

based on the current year MS–LTC–DRG 

classifications and relative weights. 

(For additional information on the 

established two-step budget neutrality 

methodology, we refer readers to the FY 

2008 IPPS final rule (72 FR 47295 

through 47296).) As was proposed, for 

this final rule the annual update to the 

MS–LTC–DRG classifications and 

relative weights for FY 2011 is based on 

the FY 2010 MS–LTC–DRG 

classifications and relative weights. 

c. Data 

In both the May 4, 2010 FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24023 through 24043) and the June 2, 

2010 FY 2011 IPPS/LTCH PPS 

supplemental proposed rule (75 FR 

30970 and 30971), we proposed to 

calculate the proposed MS–LTC–DRG 

relative weights for FY 2011 using total 

charges from FY 2009 Medicare LTCH 

bill data from the December 2009 

update of the FY 2009 MedPAR file, 

which were the best available data at 

that time, and to use the proposed 

Version 28.0 of the GROUPER to classify 

LTCH cases. We also proposed that if 

more recent data become available, we 

would use those data and the finalized 

Version 28.0 of the GROUPER in 

establishing the FY 2011 MS–LTC–DRG 

relative weights in the final rule. 

In this final rule, to calculate the MS– 

LTC–DRG relative weights for FY 2011, 

we obtained total charges from FY 2009 

Medicare LTCH bill data from the 

March 2010 update of the MedPAR file, 

which are the best available data at this 

time, and used the final Version 28.0 of 

the GROUPER to classify LTCH cases. 

Consistent with our historical 

methodology, we proposed to exclude 

the data from LTCHs that are allinclusive rate providers and LTCHs that 

are reimbursed in accordance with 

demonstration projects authorized 

under section 402(a) of Public Law 90– 

248 or section 222(a) of Public Law 92– 

603. In addition, as is the case with the 

IPPS, Medicare Advantage (Part C) 

claims are now included in the MedPAR 

files (74 FR 43808). Consistent with 

IPPS policy, we proposed to exclude 

such claims in the calculations for the 

relative weights under the LTCH PPS 

that are used to determine payments for 

fee-for-service Medicare claims. 

Specifically, we added an edit to the 

relative weight calculation to remove 

any claims from the MedPAR files that 

have a GHO Paid indicator value of ‘‘1,’’ 

which effectively removes Medicare 

Advantage claims from the relative 

weight calculations (73 FR 48532). We 

received one comment on these 

proposals. Therefore, in the 

development of the FY 2011 MS–LTC– 

DRG relative weights in this final rule, 

as we proposed, we excluded the data 

of 13 all-inclusive rate providers and the 

2 LTCHs that are paid in accordance 

with demonstration projects that had 

claims in the FY 2009 MedPAR file, as 

well as any Medicare Advantage claims. 

Comment: One commenter expressed 

concern that the proposed FY 2011 

MS–LTC–DRG relative weights were 

computed using covered charges instead 

of total charges. The commenter 

requested that CMS explain the 

rationale if it changed its methodology 

for computing the MS–LTC–DRG 

relative weights using covered charges. 

Response: When we implemented the 

LTCH PPS in the FY 2003 LTCH PPS 

final rule (67 FR 55984), we established 

a policy of determining the LTC–DRG 

relative weights and average length of 

stay based on total charges and total 

days. Consistent with our established 

policy, in the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24024), we 

proposed to calculate the proposed MS– 

LTC–DRG relative weights for FY 2011 

using ‘‘total’’ charges from FY 2009 

Medicare LTCH bill data from the 

MedPAR file. We did not change our 

methodology and we have verified that 

the proposed FY 2011 MS–LTC–DRG 

relative weights were calculated using 

total charges, not covered charges. 

Furthermore, as stated above, the FY 

2011 MS–LTC–DRG relative weights 

established in this final rule were 

calculated using total charges. 

d. Hospital-Specific Relative Value 

(HSRV) Methodology 

By nature, LTCHs often specialize in 

certain areas, such as ventilatordependent patients and rehabilitation 

and wound care. Some case types 

(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, as we proposed, we continue to 

use a hospital-specific relative value 

(HSRV) methodology to calculate the 

MS–LTC–DRG relative weights. We 

believe this method removes this 

hospital-specific source of bias in 

measuring LTCH average charges (67 FR 

55985). Specifically, we reduce the 

impact of the variation in charges across 

providers on any particular MS–LTC– 

DRG relative weight by converting each 

LTCH’s charge for a case to a relative 

value based on that LTCH’s average 

charge. 

Under the HSRV methodology, we 

standardize charges for each LTCH by 

converting its charges for each case to 

hospital-specific relative charge values 

and then adjust those values for the 

LTCH’s case-mix. The adjustment for 

case-mix is needed to rescale the 

hospital-specific relative charge values 

(which, by definition, average 1.0 for 

each LTCH). The average relative weight 

for a LTCH is its case-mix, so it is 

reasonable to scale each LTCH’s average 

relative charge value by its case-mix. In 

this way, each LTCH’s relative charge 

value is adjusted by its case-mix to an 

average that reflects the complexity of 

the cases it treats relative to the 

complexity of the cases treated by all 

other LTCHs (the average case-mix of all 

LTCHs). 

In accordance with our established 

methodology, as we proposed, we 

continue to standardize charges for each 

case by first dividing the adjusted 

charge for the case (adjusted for SSOs 

under § 412.529 as described in section 

VII.B.3.g. (step 3) of the preamble of this 

final rule) by the average adjusted 

charge for all cases at the LTCH in 

which the case was treated. SSO cases 

are cases with a length of stay that is 

less than or equal to five-sixths the 

average length of stay of the MS–LTC– 

DRG (§ 412.529 and § 412.503). The 

average adjusted charge reflects the 

average intensity of the health care 

services delivered by a particular LTCH 

and the average cost level of that LTCH. 

The resulting ratio is multiplied by that 

LTCH’s case-mix index to determine the 

standardized charge for the case. (67 FR 

55989) 

Multiplying by the LTCH’s case-mix 

index accounts for the fact that the same 

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relative charges are given greater weight 

at a LTCH with higher average costs 

than they would at a LTCH with low 

average costs, which is needed to adjust 

each LTCH’s relative charge value to 

reflect its case-mix relative to the 

average case-mix for all LTCHs. Because 

we standardize charges in this manner, 

we count charges for a Medicare patient 

at a LTCH with high average charges as 

less resource intensive than they would 

be at a LTCH with low average charges. 

For example, a $10,000 charge for a case 

at a LTCH with an average adjusted 

charge of $17,500 reflects a higher level 

of relative resource use than a $10,000 

charge for a case at a LTCH with the 

same case-mix, but an average adjusted 

charge of $35,000. We believe that the 

adjusted charge of an individual case 

more accurately reflects actual resource 

use for an individual LTCH because the 

variation in charges due to systematic 

differences in the markup of charges 

among LTCHs is taken into account. 

e. Treatment of Severity Levels in 

Developing the MS–LTC–DRG Relative 

Weights 

For purposes of determining the MS– 

LTC–DRG relative weights, there are 

three different categories of DRGs based 

on volume of cases within specific MS– 

LTC–DRGs. MS–LTC–DRGs with at least 

25 cases are each assigned a unique 

relative weight; low-volume MS–LTC– 

DRGs (that is, MS–LTC–DRGs that 

contain between 1 and 24 cases based 

on a given year’s claims data) are 

grouped into quintiles (as described 

below) and assigned the relative weight 

of the quintile. No-volume MS–LTC– 

DRGs (that is, no cases in the given 

year’s claims data were assigned to 

those MS–LTC–DRGs) are cross-walked 

to other MS–LTC–DRGs based on the 

clinical similarities and assigned the 

relative weight of the cross-walked MS– 

LTC–DRG (as described in greater detail 

below). (We provide in-depth 

discussions of our policy regarding 

weight-setting for low-volume MS– 

LTC–DRGs in section VII.B.3.f. of the 

preamble of this final rule and for novolume MS–LTC–DRGs, under Step 5 in 

section VII.B.3.g. of the preamble of this 

final rule.) 

As also noted above, while the LTCH 

PPS and the IPPS use the same patient 

classification system, the methodology 

that is used to set the DRG relative 

weights for use in each payment system 

differs because the overall volume of 

cases in the LTCH PPS is much less 

than in the IPPS. In general, consistent 

with our existing methodology, as we 

proposed, we used the following steps 

to determine the FY 2011 MS–LTC–DRG 

relative weights: (1) If a MS–LTC–DRG 

has at least 25 cases, it is assigned its 

own relative weight; (2) if a MS–LTC– 

DRG has between 1 and 24 cases, it is 

assigned to a quintile for which we 

compute a relative weight for all of the 

MS–LTC–DRGs assigned to that 

quintile; and (3) if a MS–LTC–DRG has 

no cases, it is cross-walked to another 

MS–LTC–DRG based upon clinical 

similarities to assign an appropriate 

relative weight (as described below in 

detail in Step 5 of section VII.B.3.g. of 

this preamble). Furthermore, in 

determining the FY 2011 MS–LTC–DRG 

relative weights, when necessary, as we 

proposed, we made adjustments to 

account for nonmonotonicity, as 

discussed in greater detail below in Step 

6 of section VII.B.3.g. of this preamble. 

We refer readers to the discussion in the 

FY 2010 IPPS/RY LTCH PPS final rule 

for our rationale for including an 

adjustment for nonmonotonicity (74 FR 

43953 through 43954). 

f. Low-Volume MS–LTC–DRGs 

In order to account for MS–LTC– 

DRGs with low volume (that is, with 

fewer than 25 LTCH cases), consistent 

with our existing methodology and as 

we proposed, for purposes of 

determining the MS–LTC–DRG relative 

weights, we continue to employ the 

quintile methodology for low-volume 

MS–LTC–DRGs, such that we group 

those ‘‘low-volume MS–LTC–DRGs’’ 

(that is, MS–LTC–DRGs that contained 

between 1 and 24 cases annually) into 

one of five categories (quintiles) based 

on average charges (67 FR 55984 

through 55995 and 72 FR 47283 through 

47288). In determining the FY 2011 

MS–LTC–DRG relative weights in this 

final rule, in cases where the initial 

assignment of a low-volume MS–LTC– 

DRG to quintiles resulted in 

nonmonotonicity within a base-DRG, in 

order to ensure appropriate Medicare 

payments, consistent with our historical 

methodology and as we proposed, we 

made adjustments to the treatment of 

low-volume MS–LTC–DRGs to preserve 

monotonicity, as discussed in detail 

below in section VII.B.3.g. (Step 6) in 

this preamble. 

In this final rule, using LTCH cases 

from the March 2010 update of the FY 

2009 MedPAR file, we identified 283 

MS–LTC–DRGs that contained between 

1 and 24 cases. This list of MS–LTC– 

DRGs was then divided into one of the 

5 low-volume quintiles, each containing 

a minimum of 56 MS–LTC–DRGs (283/ 

5 = 56 with 3 MS–LTC–DRG as the 

remainder). We assigned a low-volume 

MS–LTC–DRG to a specific low-volume 

quintile by sorting the low-volume MS– 

LTC–DRGs in ascending order by 

average charge in accordance with our 

established methodology. Furthermore, 

because the number of MS–LTC–DRGs 

with less than 25 cases was not evenly 

divisible by 5, the average charge of the 

low-volume quintile was used to 

determine which of the low-volume 

quintiles would contain the 3 additional 

low-volume MS–LTC–DRGs. 

Specifically, after organizing the MS– 

LTC–DRGs by ascending order by 

average charge, we assigned the first 

fifth (1st through 56th) of low-volume 

MS–LTC–DRGs (with the lowest average 

charge) into Quintile 1. The MS–LTC– 

DRGs with the highest average charge 

cases are assigned into Quintile 5. 

Because the average charge of the 57th 

low-volume MS–LTC–DRG in the sorted 

list is closer to the average charge of the 

56th low-volume MS–LTC–DRG 

(assigned to Quintile 1) than to the 

average charge of the 58th low-volume 

MS–LTC–DRG (assigned to Quintile 2), 

we assigned it to Quintile 1 (such that 

Quintile 1 contains 57 low-volume MS– 

LTC–DRGs before any adjustments for 

nonmonotonicity, as discussed below). 

This process was repeated through the 

remaining low-volume MS–LTC–DRGs 

so that 2 of the 5 low-volume quintiles 

contain 56 MS–LTC–DRGs (Quintiles 4 

and 5) and the other 3 low-volume 

quintiles contain 57 MS–LTC–DRGs 

(Quintiles 1, 2, and 3). 

Accordingly, in order to determine 

the FY 2011 relative weights for the 

MS–LTC–DRGs with low volume, we 

used the 5 low-volume quintiles 

described above. The composition of 

each of the 5 low-volume quintiles 

shown in the chart below was used in 

determining the FY 2011 MS–LTC–DRG 

relative weights (as shown in Table 11 

of the Addendum to this final rule). We 

determined a relative weight and 

(geometric) average length of stay for 

each of the 5 low-volume quintiles 

using the methodology that we applied 

to the MS–LTC–DRGs (25 or more 

cases), as described in section VII.B.3.g. 

of the preamble of this final rule. We 

assigned the same relative weight and 

average length of stay to each of the lowvolume MS–LTC–DRGs that make up an 

individual low-volume quintile. We 

note that, as this system is dynamic, it 

is possible that the number and specific 

type of MS–LTC–DRGs with a low 

volume of LTCH cases will vary in the 

future. We used the best available 

claims data in the MedPAR file to 

identify low-volume MS–LTC–DRGs 

and to calculate the relative weights 

based on our methodology. 

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We note that we will continue to 

monitor the volume (that is, the number 

of LTCH cases) in the low-volume 

quintiles to ensure that our quintile 

assignments used in determining the 

MS–LTC–DRG relative weights result in 

appropriate payment for such cases and 

do not result in an unintended financial 

incentive for LTCHs to inappropriately 

admit these types of cases. 

g. Steps for Determining the FY 2011 

MS–LTC–DRG Relative Weights 

In the FY 2011 IPPS/LTCH PPS 

proposed and supplemental proposed 

rules, we proposed, in general, to 

determine the FY 2011 MS–LTC–DRG 

relative weights based on our existing 

methodology. We received no comment 

on this proposal and are adopting it as 

final in this final rule. For additional 

information on the original 

development of this methodology, and 

modifications to it since the adoption of 

the MS–LTC–DRGs, we refer readers to 

the August 30, 2002 LTCH PPS final 

rule (67 FR 55989 through 55995) and 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43951 through 43966). 

In summary, for FY 2011, to 

determine the FY 2011 MS–LTC–DRG 

relative weights, we grouped LTCH 

cases to the appropriate MS–LTC–DRG, 

while taking into account the lowvolume MS–LTC–DRGs (as described 

above). After grouping the cases to the 

appropriate MS–LTC–DRG (or lowvolume quintile), we calculated the FY 

2011 relative weights by first removing 

statistical outliers and cases with a 

length of stay of 7 days or less (as 

discussed in greater detail below). Next, 

we adjusted the number of cases in each 

MS–LTC–DRG (or low-volume quintile) 

for the effect of SSO cases (step 3 

below). After removing statistical 

outliers (step 1 below) and cases with a 

length of stay of less than 8 days (step 

2 below), the SSO adjusted discharges 

and corresponding charges were then 

used to calculate ‘‘relative adjusted 

weights’’ for each MS–LTC–DRG (or 

low-volume quintile) using the HSRV 

method. 

Below we discuss in detail the steps 

for calculating the FY 2011 MS–LTC– 

DRG relative weights. We received no 

comments on our proposed steps for 

calculating the FY 2011 MS–LTC–DRG 

relative weights. Therefore, for the 

reasons described above, we are 

employing our proposed methodology 

to calculate the FY 2011 MS–LTC–DRG 

relative weights discussed below. We 

note that, as we stated in section 

VII.B.3.c. of this preamble, we excluded 

the data of all-inclusive rate LTCHs, 

LTCHs that are paid in accordance with 

demonstration projects, and any 

Medicare Advantage claims in the FY 

2009 MedPAR file. 

Step 1—Remove statistical outliers. 

The first step in the calculation of the 

FY 2011 MS–LTC–DRG relative weights 

is to remove statistical outlier cases. 

Consistent with our historical relative 

weight methodology, we continue to 

define statistical outliers as cases that 

are outside of 3.0 standard deviations 

from the mean of the log distribution of 

both charges per case and the charges 

per day for each MS–LTC–DRG. These 

statistical outliers are removed prior to 

calculating the relative weights because 

we believe that they may represent 

aberrations in the data that distort the 

measure of average resource use. 

Including those LTCH cases in the 

calculation of the relative weights could 

result in an inaccurate relative weight 

that does not truly reflect relative 

resource use among the MS–LTC–DRGs. 

(For additional information on this step 

of the relative weight methodology, we 

refer readers to 67 FR 55989 and 74 FR 

43959.) 

Step 2—Remove cases with a length 

of stay of 7 days or less. 

The MS–LTC–DRG relative weights 

reflect the average of resources used on 

representative cases of a specific type. 

Generally, cases with a length of stay of 

7 days or less do not belong in a LTCH 

because these stays do not fully receive 

or benefit from treatment that is typical 

in a LTCH stay, and full resources are 

often not used in the earlier stages of 

admission to a LTCH. If we were to 

include stays of 7 days or less in the 

computation of the FY 2011 MS–LTC– 

DRG relative weights, the value of many 

relative weights would decrease and, 

therefore, payments would decrease to a 

level that may no longer be appropriate. 

We do not believe that it would be 

appropriate to compromise the integrity 

of the payment determination for those 

LTCH cases that actually benefit from 

and receive a full course of treatment at 

a LTCH by including data from these 

very short-stays. Therefore, consistent 

with our historical relative weight 

methodology, in determining the FY 

2011 MS–LTC–DRG relative weights, as 

proposed, we removed LTCH cases with 

a length of stay of 7 days or less. (For 

additional information on this step of 

the relative weight methodology, we 

refer readers to 67 FR 55989 and 74 FR 

43959.) 

Step 3—Adjust charges for the effects 

of SSOs. 

After removing cases with a length of 

stay of 7 days or less, we are left with 

cases that have a length of stay of greater 

than or equal to 8 days. As the next step 


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in the calculation of the FY 2011 MS– 

LTC–DRG relative weights, consistent 

with our historical relative weight 

methodology, as proposed, we adjusted 

each LTCH’s charges per discharge for 

those remaining cases for the effects of 

SSOs (as defined in § 412.529(a) in 

conjunction with § 412.503). 

We make this adjustment by counting 

an SSO case as a fraction of a discharge 

based on the ratio of the length of stay 

of the case to the average length of stay 

for the MS–LTC–DRG for non-SSO 

cases. This has the effect of 

proportionately reducing the impact of 

the lower charges for the SSO cases in 

calculating the average charge for the 

MS–LTC–DRG. This process produces 

the same result as if the actual charges 

per discharge of an SSO case were 

adjusted to what they would have been 

had the patient’s length of stay been 

equal to the average length of stay of the 

MS–LTC–DRG. 

Counting SSO cases as full discharges 

with no adjustment in determining the 

RY 2011 MS–LTC–DRG relative weights 

would lower the FY 2011 MS–LTC–DRG 

relative weight for affected MS–LTC– 

DRGs because the relatively lower 

charges of the SSO cases would bring 

down the average charge for all cases 

within an MS–LTC–DRG. This would 

result in an ‘‘underpayment’’ for nonSSO cases and an ‘‘overpayment’’ for 

SSO cases. Therefore, as proposed, we 

adjust for SSO cases under § 412.529 in 

this manner because it results in more 

appropriate payments for all LTCH 

cases. (For additional information on 

this step of the relative weight 

methodology, we refer readers to 67 FR 

55989 and 74 FR 43959.) 

Step 4—Calculate the FY 2011 MS– 

LTC–DRG relative weights on an 

iterative basis. 

Consistent with our historical relative 

weight methodology, we calculate the 

FY 2011 MS–LTC–DRG relative weights 

using the HSRV methodology, which is 

an iterative process. First, for each 

LTCH case, we calculate a hospitalspecific relative charge value by 

dividing the SSO adjusted charge per 

discharge (see Step 3) of the LTCH case 

(after removing the statistical outliers 

(see Step 1)) and LTCH cases with a 

length of stay of 7 days or less (see Step 

2) by the average charge per discharge 

for the LTCH in which the case 

occurred. The resulting ratio is then 

multiplied by the LTCH’s case-mix 

index to produce an adjusted hospitalspecific relative charge value for the 

case. An initial case-mix index value of 

1.0 is used for each LTCH. 

As proposed, for each MS–LTC–DRG, 

the FY 2011 relative weight was 

calculated by dividing the average of the 

adjusted hospital-specific relative 

charge values (from above) for the MS– 

LTC–DRG by the overall average 

hospital-specific relative charge value 

across all cases for all LTCHs. Using 

these recalculated MS–LTC–DRG 

relative weights, each LTCH’s average 

relative weight for all of its cases (that 

is, its case-mix) was calculated by 

dividing the sum of all the LTCH’s MS– 

LTC–DRG relative weights by its total 

number of cases. The LTCHs’ hospitalspecific relative charge values above 

were multiplied by these hospitalspecific case-mix indexes. These 

hospital-specific case-mix adjusted 

relative charge values were then used to 

calculate a new set of MS–LTC–DRG 

relative weights across all LTCHs. This 

iterative process was continued until 

there was convergence between the 

weights produced at adjacent steps, for 

example, when the maximum difference 

was less than 0.0001. 

Step 5—Determine a FY 2011 relative 

weight for MS–LTC–DRGs with no 

LTCH cases. 

As we stated above, as proposed, we 

determined the FY 2011 relative weight 

for each MS–LTC–DRG using total 

Medicare allowable total charges 

reported in the best available LTCH 

claims data (that is, the March 2010 

update of the FY 2009 MedPAR file for 

this final rule). Using these data, we 

identified a number of MS–LTC–DRGs 

for which there were no LTCH cases in 

the database, such that no patients who 

would have been classified to those 

MS–LTC–DRGs were treated in LTCHs 

during FY 2009 and, therefore, no 

charge data were available for these 

MS–LTC–DRGs. Thus, in the process of 

determining the MS–LTC–DRG relative 

weights, we were unable to calculate 

relative weights for the MS–LTC–DRGs 

with no LTCH cases using the 

methodology described in Steps 1 

through 4 above. However, because 

patients with a number of the diagnoses 

under these MS–LTC–DRGs may be 

treated at LTCHs, consistent with our 

historical methodology, as proposed, we 

assigned a relative weight to each of the 

no-volume MS–LTC–DRGs based on 

clinical similarity and relative costliness 

(with the exception of ‘‘transplant’’ MS– 

LTC–DRGs and ‘‘error’’ MS–LTC–DRGs, 

as discussed below). (For additional 

information on this step of the relative 

weight methodology, we refer readers to 

67 FR 55991 and 74 FR 43959 through 

43960.) 

In general, we determined FY 2011 

relative weights for the MS–LTC–DRGs 

with no LTCH cases in the FY 2009 

MedPAR file used in this final rule (that 

is, ‘‘no-volume’’ MS–LTC–DRGs) by 

cross-walking each no-volume MS– 

LTC–DRG to another MS–LTC–DRG 

with a calculated relative weight 

(determined in accordance with the 

methodology described above). Then, 

the ‘‘no-volume’’ MS–LTC–DRG was 

assigned the same relative weight (and 

average length of stay) of the MS–LTC– 

DRG to which it was cross-walked (as 

described in greater detail below). 

Of the 747 MS–LTC–DRGs for FY 

2011, we identified 223 MS–LTC–DRGs 

for which there were no LTCH cases in 

the database (including the 8 

‘‘transplant’’ MS–LTC–DRGs and 2 

‘‘error’’ MS–LTC–DRGs). As stated 

above, as proposed, for this final rule we 

assigned relative weights for each of the 

213 no-volume MS–LTC–DRGs (with 

the exception of the 8 ‘‘transplant’’ MS– 

LTC–DRGs and the 2 ‘‘error’’ MS–LTC– 

DRGs, which are discussed below) 

based on clinical similarity and relative 

costliness to one of the remaining 524 

(747¥223 = 524) MS–LTC–DRGs for 

which we were able to determine 

relative weights based on FY 2009 

LTCH claims data using the steps 

described above. (For the remainder of 

this discussion, we refer to the ‘‘crosswalked’’ MS–LTC–DRGs as the MS– 

LTC–DRGs to which we crosswalk one 

of the 213 ‘‘no volume’’ MS–LTC–DRGs 

for purposes of determining a relative 

weight.) Then, we assigned the novolume MS–LTC–DRG the relative 

weight of the cross-walked MS–LTC– 

DRG. (As explained below in Step 6, 

when necessary, we made adjustments 

to account for nonmonotonicity.) 

For this final rule, there are the same 

213 ‘‘no volume’’ MS–LTC–DRGs that 

there were in the May 4, 2010 FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24036 through 24041). We did not 

receive any public comments on our 

proposed methodology for determining 

FY 2011 relative weights for these novolume MS–LTC–DRGs and, therefore, 

for the reasons described above, we are 

adopting it as final. For reference, below 

we describe the methodology that was 

used to determine FY 2011 relative 

weights for the no-volume MS–LTC– 

DRGs. We crosswalked the no-volume 

MS–LTC–DRG to a MS–LTC–DRG for 

which there were LTCH cases in the FY 

2009 MedPAR file and to which it was 

similar clinically in intensity of use of 

resources and relative costliness as 

determined by criteria such as care 

provided during the period of time 

surrounding surgery, surgical approach 

(if applicable), length of time of surgical 

procedure, postoperative care, and 

length of stay. We evaluated the relative 

costliness in determining the applicable 

MS–LTC–DRG to which a no-volume 

MS–LTC–DRG was cross-walked in 

order to assign an appropriate relative 

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weight for the no-volume MS–LTC– 

DRGs in FY 2011. (For more detail 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 2011, the relative 

weights assigned based on the crosswalked MS–LTC–DRGs would result in 

an appropriate LTCH PPS payment 

because the crosswalks, which are based 

on similar clinical similarity and 

relative costliness, generally require 

equivalent relative resource use. 

We then assigned the relative weight 

of the cross-walked MS–LTC–DRG as 

the relative weight for the no-volume 

MS–LTC–DRG such that both of these 

MS–LTC–DRGs (that is, the no-volume 

MS–LTC–DRG and the cross-walked 

MS–LTC–DRG) have the same relative 

weight for FY 2011. We note that if the 

cross-walked MS–LTC–DRG had 25 

cases or more, its relative weight, which 

was calculated using the methodology 

described in Steps 1 through 4 above, 

was assigned to the no-volume MS– 

LTC–DRG as well. Similarly, if the MS– 

LTC–DRG to which the no-volume MS– 

LTC–DRG is cross-walked had 24 or less 

cases and, therefore, was designated to 

one of the low-volume quintiles for 

purposes of determining the relative 

weights, we assigned the relative weight 

of the applicable low-volume quintile to 

the no-volume MS–LTC–DRG such that 

both of these MS–LTC–DRGs (that is, 

the no-volume MS–LTC–DRG and the 

cross-walked MS–LTC–DRG) have the 

same relative weight for FY 2011. (As 

we noted above, in the infrequent case 

where nonmonotonicity involving a novolume MS–LTC–DRG results, 

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 novolume MS–LTC–DRGs and the MS– 

LTC–DRG to which it is cross-walked 

(that is, the cross-walked MS–LTC– 

DRG) for FY 2011 is shown in the chart 

below. 

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To illustrate this methodology for 

determining the relative weights for the 

FY 2011 MS–LTC–DRGs with no LTCH 

cases, we are providing the following 

example, which refers to the no-volume 

MS–LTC–DRGs crosswalk information 

for FY 2011 provided in the chart above. 

Example: There were no cases in the 

FY 2009 MedPAR file used for this final 

rule for MS–LTC–DRG 61 (Acute 

Ischemic Stroke with Use of 

Thrombolytic Agent with MCC). We 

determined that MS–LTC–DRG 70 

(Nonspecific Cebrovascular Disorders 

with MCC) was similar clinically and 

based on resource use to MS–LTC–DRG 

61. Therefore, we assigned the same 

relative weight of MS–LTC–DRG 70 of 

0.9165 for FY 2011 to MS–LTC–DRG 61 

(Table 11 of the Addendum to this final 

rule). 

Again, we note that, as this system is 

dynamic, it is entirely possible that the 


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number of MS–LTC–DRGs with no 

volume of LTCH cases based on the 

system will vary in the future. We used 

the most recent available claims data in 

the MedPAR file to identify no-volume 

MS–LTC–DRGs and to determine the 

relative weights in this final rule. 

Furthermore, for FY 2011, consistent 

with our historical relative weight 

methodology and as we proposed, we 

established MS–LTC–DRG relative 

weights of 0.0000 for the following 

transplant MS–LTC–DRGs: Heart 

Transplant or Implant of Heart Assist 

System with MCC (MS–LTC–DRG 1); 

Heart Transplant or Implant of Heart 

Assist System without MCC (MS–LTC– 

DRG 2); Liver Transplant with MCC or 

Intestinal Transplant (MS–LTC–DRG 5); 

Liver Transplant without MCC (MS– 

LTC–DRG 6); Lung Transplant (MS– 

LTC–DRG 7); Simultaneous Pancreas/ 

Kidney Transplant (MS–LTC–DRG 8); 

Pancreas Transplant (MS–LTC–DRG 10); 

and Kidney Transplant (MS–LTC–DRG 

652). This is because Medicare will only 

cover these procedures if they are 

performed at a hospital that has been 

certified for the specific procedures by 

Medicare and presently no LTCH has 

been so certified. At the present time, 

we include these eight transplant MS– 

LTC–DRGs in the GROUPER program 

for administrative purposes only. 

Because we use the same GROUPER 

program for LTCHs as is used under the 

IPPS, removing these MS–LTC–DRGs 

would be administratively burdensome. 

(For additional information regarding 

our treatment of transplant MS–LTC– 

DRGs, we refer readers to the RY 2010 

LTCH PPS final rule (74 FR 43964).) 

Step 6—Adjust the FY 2011 MS–LTC– 

DRG relative weights to account for 

nonmonotonically increasing relative 

weights. 

As discussed earlier in this section, 

the MS–DRGs contain base DRGs that 

have been subdivided into one, two, or 

three severity of illness levels. Where 

there are three severity levels, the most 

severe level has at least one 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 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 DRG is 

subdivided into either two levels or the 

base DRG is not subdivided. The twolevel subdivisions could consist of the 

DRG with CC/MCC and the DRG 

without CC/MCC. Alternatively, the 

other type of two-level subdivision may 

consist of the DRG with MCC and the 

DRG without MCC. 

In those base MS–LTC–DRGs that are 

split into either two or three severity 

levels, cases classified into the ‘‘without 

CC/MCC’’ MS–LTC–DRG are expected to 

have a lower resource use (and lower 

costs) than the ‘‘with CC/MCC’’ MS– 

LTC–DRG (in the case of a two-level 

split) or both the ‘‘with CC’’ and the 

‘‘with MCC’’ MS–LTC–DRGs (in the case 

of a three-level split). That is, 

theoretically, cases that are more severe 

typically require greater expenditure of 

medical care resources and will result in 

higher average charges. Therefore, in the 

three severity levels, relative weights 

should increase by severity, from lowest 

to highest. If the relative weights 

decrease as severity decreased (that is, 

if within a base MS–LTC–DRG, an MS– 

LTC–DRG with CC has a higher relative 

weight than one with MCC, or the MS– 

LTC–DRG without CC/MCC has a higher 

relative weight than either of the 

others), they are nonmonotonic. We 

continue to believe that utilizing 

nonmonotonic relative weights to adjust 

Medicare payments would result in 

inappropriate payments because the 

payment for the cases in the higher 

severity level in a base MS–LTC–DRG 

(which are generally expected to have 

higher resource use and costs) would be 

lower than the payment for cases in a 

lower severity level within the same 

base MS–LTC–DRG (which are generally 

expected to have lower resource use and 

costs). Consequently, in determining the 

FY 2011 MS–LTC–DRG relative weights 

in this rule, consistent with our 

historical methodology and as we 

proposed, we combined MS–LTC–DRG 

severity levels within a base MS–LTC– 

DRG for the purpose of computing a 

relative weight when necessary to 

ensure that monotonicity 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 

2011 MS–LTC–DRG relative weights in 

this final rule by applying this 

methodology are denoted in Table 11 of 

the Addendum to this final rule. 

Step 7—Calculate the FY 2011 budget 

neutrality factor. 

As we established in the RY 2008 

LTCH PPS final rule (72 FR 26882), 

under the broad authority conferred 

upon the Secretary to develop the LTCH 

PPS under section 123 of Public Law 

106–113, as amended by section 307(b) 

of Public Law 106–554, beginning with 

the MS–LTC–DRG update for FY 2008, 

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 

(§ 412.517(b) in conjunction with 

§ 412.503). (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).) 

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 (§ 412.517(a) 

in accordance with § 412.503). Under 

the budget neutrality requirement at 

§ 412.517(b), for each annual update, the 

MS–LTC–DRG relative weights are 

uniformly adjusted to ensure that 

estimated aggregate payments under the 

LTCH PPS would not be affected (that 

is, decreased or increased). Consistent 

with that provision, in both the May 4, 

2010 FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24042 through 24043) and 

the June 2, 2010 FY 2011 IPPS/LTCH 

PPS supplemental proposed rule (75 FR 

30970 through 30971), we proposed to 

update the MS–LTC–DRG classifications 

and relative weights for FY 2011 based 

on the most recent available LTCH data, 

and to apply a budget neutrality 

adjustment in determining the FY 2011 

MS–LTC–DRG relative weights. 

Comment: One commenter objected to 

the budget neutrality requirement for 

the annual update to the MS–LTC–DRG 

relative weights. The commenter 

asserted that LTCHs with high acuity 

patients are being penalized because of 

the growth in lower acuity cases, and 

that CMS’ budget neutrality 

methodology dilutes the LTCH aggregate 

case-mix from year-to-year. 

Response: We disagree with the 

commenter that our budget neutrality 

methodology dilutes a LTCH’s case-mix 

or that LTCHs with more resourceintensive cases are being penalized 

because of the growth in lower resourceintensive cases. By definition, the MS– 

LTC–DRG relative weights ‘‘reflect the 

estimated relative cost of hospital 

resources used with that group 

compared to discharges classified 

within other groups’’ (§ 412.515). Thus, 

the relative weights themselves are not 

intended to increase or decrease 

aggregate payments under the LTCH 

PPS. If in fact there is growth in less 

intensive, lower acuity cases, then our 

established budget neutrality 

methodology would act to increase the 

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relative weights for all MS–LTC–DRGs. 

This is because under our established 

budget neutrality methodology, each MS 

LTC DRG relative weight is uniformly 

adjusted to ensure that estimated 

aggregate payments under the LTCH 

PPS would not be affected. As we 

discussed when we established the 

budget neutrality requirement for the 

annual update of the MS–LTC–DRG 

classifications and relative weights, we 

believe the LTC–DRG relative weights 

should reflect the true costs of treating 

LTCH patients and should be updated 

annually, based on the latest available 

data, to reflect relative LTCH resource 

without affecting aggregate LTCH PPS 

(72 FR 26881 through 26883). For these 

reasons, we continue to believe that it 

is appropriate to update the MS–LTC– 

DRG classifications and relative weights 

in a budget neutral manner, and are not 

modifying our existing budget neutrality 

requirement or methodology in this 

final rule. 

As noted above, in section VII.A.1. of 

this preamble, a number of the 

provisions of the Affordable Care Act 

affected the policies, payment rates and 

factors under the LTCH PPS. Due to the 

timing of the passage of the legislation, 

we were unable to address those 

provisions in the May 4, 2010 FY 2011 

IPPS/LTCH PPS proposed rule, and the 

proposed policies and payment rates in 

that proposed rule did not reflect the 

new legislation. On June 2, 2010, we 

issued a FY 2011 IPPS/LTCH PPS 

supplemental proposed rule that 

addressed the provisions of the 

Affordable Care Act that affected our 

proposed policies and payment rates for 

FY 2011 under the LTCH PPS. In that 

supplemental proposed rule, we 

proposed a standard Federal rate for FY 

2011 that incorporates the ‘‘other 

adjustment’’ required in section 

1886(m)(3)(A)(ii) as amended and 

described in section 1886(m)(4) as 

amended. This revision to the proposed 

standard Federal rate for FY 2011 also 

required us to revise the proposed 

relative weights for the MS–LTC–DRGs 

for FY 2011 since our established 

methodology for updating the annual 

update to the MS–LTC–DRG 

classifications and relative weights in a 

budget neutral manner requires that 

estimated aggregate LTCH PPS 

payments would be unaffected. That is, 

under the budget neutrality requirement 

estimated aggregate LTCH PPS 

payments 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. (75 FR 30970) 

To ensure budget neutrality in the 

update to the MS–LTC–DRG 

classifications and relative weights 

under § 412.517(b), in both the May 4, 

2010 FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24042 through 24043) and 

the June 2, 2010 FY 2011 IPPS/LTCH 

PPS supplemental proposed rule (75 FR 

30970 through 30971), we proposed to 

continue to use our established two-step 

budget neutrality methodology. We 

received no specific comments on our 

proposal to continue to apply our 

established two-step budget neutrality 

methodology in determining the FY 

2011 MS–LTC–DRG relative weights. 

Therefore, we are adopting it in this 

final rule. In this final rule, in the first 

step of our MS–LTC–DRG budget 

neutrality methodology, we calculated 

and applied a normalization factor to 

the recalibrated relative weights (the 

result of Steps 1 through 6 above) to 

ensure that estimated payments are not 

influenced by changes in the 

composition of case types or the 

changes to the classification system. 

That is, the normalization adjustment is 

intended to ensure that the recalibration 

of the MS–LTC–DRG relative weights 

(that is, the process itself) neither 

increases nor decreases the average CMI. 

To calculate the normalization factor 

for FY 2011 (the first step of our budget 

neutrality methodology), we used the 

following three steps: (1.a.) We used the 

most recent available LTCH claims data 

(FY 2009) and grouped them using the 

FY 2011 GROUPER (Version 28.0) and 

the recalibrated FY 2011 MS–LTC–DRG 

relative weights (determined in steps 1 

through 6 of the Steps for Determining 

the FY 2011 MS–LTC–DRG Relative 

Weights above) to calculate the average 

CMI; (1.b.) we grouped the same LTCH 

claims data (FY 2009) using the FY 2010 

GROUPER (Version 27.0) and FY 2010 

MS–LTC–DRG relative weights and 

calculated the average CMI; and (1.c) we 

computed the ratio of these average 

CMIs by dividing the average CMI for 

FY 2010 (determined in Step 1.b.) by the 

average CMI for FY 2011 (determined in 

step 1.a.). In determining the MS–LTC– 

DRG relative weights for FY 2011, each 

recalibrated MS–LTC–DRG relative 

weight was multiplied by 1.10382 in the 

first step of the budget neutrality 

methodology, which produced 

‘‘normalized relative weights.’’ 

In this final rule, in the second step 

of our MS–LTC–DRG budget neutrality 

methodology, we determined a budget 

neutrality factor to ensure that estimated 

aggregate LTCH PPS payments (based 

on the most recent available LTCH 

claims data) after reclassification and 

recalibration (that is, the FY 2011 MS– 

LTC–DRG classifications and relative 

weights) are equal to estimated 

aggregate LTCH PPS payments before 

reclassification and recalibration (that 

is, the FY 2010 MS–LTC–DRG 

classifications and relative weights). 

Accordingly, consistent with our 

existing methodology, we used FY 2009 

discharge data to simulate payments 

and compare estimated aggregate LTCH 

PPS payments using the FY 2010 MS– 

LTC–DRGs and relative weights to 

estimate aggregate LTCH PPS payments 

using the FY 2011 MS–LTC–DRGs and 

relative weights. Furthermore, 

consistent with our historical policy of 

using the best available data, we used 

the most recently available claims data 

for determining the budget neutrality 

adjustment factor in the final rule, that 

is, data from the March 2010 update of 

the FY 2009 MedPAR file. 

For this final rule, we determined the 

FY 2011 budget neutrality adjustment 

factor using the following three steps: 

(2.a.) We simulated estimated total 

LTCH PPS payments using the 

normalized relative weights for FY 2011 

and GROUPER Version 28.0 (as 

described above); (2.b.) we simulated 

estimated total LTCH PPS payments 

using the FY 2010 GROUPER (Version 

27.0) and the FY 2010 MS–LTC–DRG 

relative weights shown in Table 11 of 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44183 through 44192); 

and (2.c.) we calculated the ratio of 

these estimated total LTCH PPS 

payments by dividing the estimated 

total LTCH PPS payments using the FY 

2010 GROUPER (Version 27.0) and the 

FY 2010 MS–LTC–DRG relative weights 

(determined in step 2.b.) by the 

estimated total LTCH PPS payments 

using the FY 2011 GROUPER (Version 

28.0) and the normalized MS–LTC–DRG 

relative weights for FY 2011 

(determined in Step 2.a.). In 

determining the FY 2011 MS–LTC–DRG 

relative weights, each normalized 

relative weight was multiplied by a 

budget neutrality factor of 0.988124 in 

the second step of the budget neutrality 

methodology to determine the budget 

neutral FY 2011 relative weight for each 

MS–LTC–DRG. 

Accordingly, in determining the FY 

2011 MS–LTC–DRG relative weights in 

this final rule, consistent with our 

existing methodology and as we 

proposed, we applied a normalization 

factor of 1.10382 and a budget neutrality 

factor of 0.988124 (computed as 

described above). Table 11 in the 

Addendum to this final rule 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 in 

determining SSO payments under 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50387 

§ 412.529) for FY 2011. The FY 2011 

MS–LTC–DRG relative weights in Table 

11 in the Addendum to this final rule 

reflect both the normalization factor of 

1.10382 and the budget neutrality factor 

of 0.988124. 

C. Changes to the LTCH Payment Rates 

and Other Changes to the FY 2011 

LTCH PPS 

1. Overview of Development of the 

LTCH Payment Rates 

The LTCH PPS was effective 

beginning with a LTCH’s first cost 

reporting period beginning on or after 

October 1, 2002. Effective beginning 

with that cost reporting period, LTCHs 

were paid, during a 5-year transition 

period, a total LTCH prospective 

payment that was comprised of an 

increasing proportion of the LTCH PPS 

Federal rate and a decreasing proportion 

based on reasonable cost-based 

principles, unless the hospital made a 

one-time election to receive payment 

based on 100 percent of the Federal rate, 

as specified in § 412.533. New LTCHs 

(as defined at § 412.23(e)(4)) are paid 

based on 100 percent of the Federal rate, 

with no phase-in transition payments. 

The basic methodology for 

determining LTCH PPS Federal 

prospective payment rates is set forth at 

§ 412.515 through § 412.536. In this 

section, we discuss the factors that will 

be used to update the LTCH PPS 

standard Federal rate for FY 2011, that 

is, effective for LTCH discharges 

occurring on or after October 1, 2010 

through September 30, 2011. 

For further details on the 

development of the FY 2003 standard 

Federal rate, we refer readers to the 

August 30, 2002 LTCH PPS final rule 

(67 FR 56027 through 56037). For 

subsequent updates to the LTCH PPS 

Federal rate, 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 

(69 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), and RY 2010 LTCH PPS final 

rule (74 FR 44021 through 44030). The 

update to the LTCH PPS standard 

Federal rate for FY 2011 is presented in 

section V.A. of the Addendum to this 

final rule. The two components of the 

update to the LTCH PPS standard 

Federal rate for FY 2011 are discussed 

below. 

2. Market Basket for LTCHs Reimbursed 

Under the LTCH PPS 

a. Overview 

Historically, the Medicare program 

has used a market basket to account for 

price increases in the services furnished 

by providers. The market basket used 

for the LTCH PPS includes both 

operating and capital-related costs of 

LTCHs because the LTCH PPS uses a 

single payment rate for both operating 

and capital-related costs. With the 

initial implementation of the LTCH PPS 

for FY 2003, we established the use of 

the excluded hospital with capital 

market basket as the LTCH PPS market 

basket (67 FR 56016 through 56017). 

The development of the initial LTCH 

PPS standard Federal rate for FY 2003, 

using the excluded hospital with capital 

market basket, is discussed in further 

detail in the August 30, 2002 LTCH PPS 

final rule (67 FR 56027 through 56033). 

For further details on the development 

of the excluded hospital with capital 

market basket, we refer readers to the 

RY 2004 LTCH PPS final rule (68 FR 

34134 through 34137). 

Beginning in RY 2007, we adopted the 

rehabilitation, psychiatric, long-term 

care (RPL) hospital market basket based 

on FY 2002 data as the appropriate 

market basket of goods and services 

under the LTCH PPS for discharges 

occurring on or after July 1, 2006. As 

discussed in the RY 2007 LTCH PPS 

final rule (71 FR 27810), based on our 

research, we did not develop a market 

basket specific to LTCH services. We 

were unable to create a separate market 

basket specifically for LTCHs at that 

time due to the small number of 

facilities and the limited amount of data 

that was reported. 

For further details on the 

development of the FY 2002-based RPL 

market basket, we refer readers to the 

RY 2007 LTCH PPS final rule (71 FR 

27810 through 27817). 

b. Revision of Certain Market Basket 

Updates as Required by the Affordable 

Care Act 

As discussed in the FY 2011 IPPS/ 

LTCH PPS supplemental proposed rule 

issued on June 2, 2010 (75 FR 30965 

through 30971), several provisions of 

the Affordable Care Act affected the 

policies and payment rates for RY 2010 

and FY 2011 under the LTCH PPS. 

Section 1886(m)(3)(A)(ii) of the Act, as 

added by section 3401(c) of the 

Affordable Care Act, specifies that for 

each of rate years 2010 through 2019, 

any annual update to the standard 

Federal rate shall be reduced by the 

other adjustment specified in new 

section 1886(m)(4) of the Act. 

Furthermore, section 1886(m)(3)(A)(i) of 

the Act specifies that, for rate year 2012 

and subsequent rate years, any annual 

update to the standard Federal rate shall 

be reduced by the productivity 

adjustment described in section 

1886(b)(3)(B)(xi)(II) of the Act. Section 

1886(m)(3)(A)(ii) and sections 

1886(m)(4)(A) and (B) of the Act require 

a 0.25 percentage point reduction for 

rate year 2010 and a 0.50 percentage 

point reduction for rate year 2011. 

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. Furthermore, 

section 3401(p) of the Affordable Care 

Act specifies that the amendments made 

by section 3401(c) of such Act shall not 

apply to discharges occurring before 

April 1, 2010. (75 FR 30968 through 

30971) 

We note that in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24026 

through 24027), since the annual update 

to the LTCH PPS policies, rates and 

factors now occurs on October 1, we 

proposed to adopt 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. 

Consequently, in that proposed rule and 

in the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule, for 

purposes of clarity, when discussing the 

annual update for the LTCH PPS, we 

employed ‘‘fiscal year’’ rather than ‘‘rate 

year’’ because it is our intent that the 

phrase ‘‘fiscal year’’ be used 

prospectively in all circumstances 

dealing with the LTCH PPS. Similarly, 

although the language of section 3401(c) 

and section 10319 and section 1105(b) 

of the Affordable Care Act refer to years 

2010 and thereafter under the LTCH 

PPS as ‘‘rate year,’’ consistent with our 

proposal to change the terminology used 

under the LTCH PPS from ‘‘rate year’’ to 

‘‘fiscal year,’’ for purposes of clarity, in 

both the FY 2011 IPPS/LTCH PPS 

proposed and supplemental proposed 

rules, when discussing the annual 

update for the LTCH PPS, including the 

provisions of the Affordable Care Act, 

we employed ‘‘fiscal year’’ rather than 

‘‘rate year’’ for 2011 and subsequent 

years because it is our intent that ‘‘fiscal 

year’’ be used prospectively in all 

circumstances dealing with the LTCH 

PPS. (As discussed below in VII.D. of 

this preamble, we are finalizing our 

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50388 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

proposal to adopt the term ‘‘fiscal year’’ 

(FY) rather than ‘‘rate year’’ (RY) under 

the LTCH PPS beginning October 1, 

2010. Therefore, in this final rule, we 

employ ‘‘fiscal year’’ rather than ‘‘rate 

year’’ for 2011 and subsequent years in 

all circumstances dealing with the 

LTCH PPS.) 

c. Change to Reflect the Market Basket 

Update for LTCHs for RY 2010 

(§ 412.523(c)(3)(vi)) 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule appearing in the Federal 

Register on August 27, 2009 (74 FR 

43754), we established policies, 

payment rates and factors for 

determining payments under the LTCH 

PPS for RY 2010 (October 1, 2009 

through September 30, 2010). Several 

provisions of the Affordable Care Act 

affected some of the policies, payment 

rates, and factors for determining 

payments under the LTCH PPS for RY 

2010. In a notice issued on June 2, 2010 

in the Federal Register (75 FR 31128 

through 31130), we established revised 

RY 2010 LTCH PPS rates and factors 

consistent with the provisions of 

sections 1886(m)(3) and (4) of the Act, 

as added and amended by sections 

3401(c), 3401(p), 10319(b), and 1105(b) 

of the Affordable Care Act. Section 

1886(m)(3)(A)(ii) of the Act provides for 

each of RYs 2010 through 2019, the 

annual update to the standard Federal 

rate is reduced by the ‘‘other 

adjustment’’ described in section 

1886(m)(4) of the Act. Specifically, 

sections 1886(m)(3)(A)(ii) and (m)(4)(A) 

of the Act require a 0.25 percentage 

point reduction to the annual update to 

the standard Federal rate for RY 2010. 

Section 1886(m)(3)(A) of the Act, on its 

face, explicitly provides for a revised 

annual update to the standard Federal 

rate beginning RY 2010, thus resulting 

in a single revised RY 2010 standard 

Federal rate. Section 3401(p) of the 

Affordable Care Act provides that, 

notwithstanding the previous provisions 

of this section, the amendments made 

by subsections (a), (c) and (d) shall not 

apply to discharges occurring before 

April 1, 2010. When read in 

conjunction, we believe section 

1886(m)(3)(A) of the Act and section 

3401(p) of the Affordable Care Act 

provide for a single revised RY 2010 

standard Federal rate. However, for 

payment purposes, discharges occurring 

on or after October 1, 2009 and before 

April 1, 2010, simply will not be based 

on the revised RY 2010 standard Federal 

rate. 

As discussed in the June 2, 2010 

Federal Register notice (75 FR 31128 

through 31129), consistent with our 

historical practice and the methodology 

used in the FY 2010 IPPS/RY 2010 final 

rule, we announced an update to the 

LTCH PPS standard Federal rate for RY 

2010 of 1.74 percent. This annual 

update for RY 2010 is based on the full 

forecasted estimated increase in the 

LTCH PPS market basket for RY 2010 of 

2.5 percent, adjusted by the 0.25 

percentage point reduction required by 

sections 1886(m)(3)(A)(ii) and (m)(4)(A) 

of the Act, and an adjustment to account 

for the increase in case-mix in a prior 

period (FY 2007) resulting from changes 

in documentation and coding practices 

of ¥0.5 percent. In the FY 2011 IPPS/ 

LTCH PPS supplemental proposed rule 

(75 FR 30969), under the authority of 

sections 1886(m)(3)(A)(ii) and (m)(4)(A) 

of the Act, we proposed to amend 

§ 412.523(c)(3)(vi) to specify that the 

standard Federal rate for the LTCH PPS 

rate year beginning October 1, 2009 and 

ending September 30, 2010, is the 

standard Federal rate for the previous 

rate year updated by 1.74 percent. 

Furthermore, in that same supplemental 

proposed rule, consistent with section 

3401(p) of the Affordable Care Act, we 

also proposed to revise 

§ 412.523(c)(3)(vi) to specify that, with 

respect to discharges occurring on or 

after October 1, 2009 and before April 

1, 2010, payments are based on the 

standard Federal rate specified under 

§ 412.523(c)(3)(v) updated by 2.0 

percent (that is, a standard Federal rate 

of $39,896.65 (74 FR 44022)). We also 

noted that the provisions of the law that 

add sections 1886(m)(3) and (m)(4) of 

the Act are self-implementing, and in 

the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule, we 

proposed to incorporate existing law 

regarding the 0.25 percentage point 

reduction to the annual update to the 

standard Federal rate for RY 2010 

(including the application of the revised 

standard Federal rate that reflects that 

0.25 percentage point reduction in 

making payments for discharges on or 

after April 1, 2010) into the regulations 

at § 412.529(c)(3)(vi) to reflect this 

required policy change. 

Comment: One commenter on the 

June 2, 2010 notice stated that the 

methodology CMS used to apply the 

market basket adjustment required by 

the Affordable Care Act appears to be a 

departure from what is intended by the 

statute and questions why CMS did not 

simply subtract the required 0.25 

percentage point reduction for RY 2010 

from the previously established RY 2010 

update (implemented in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule). 

The commenter believed that the 

required market basket reduction should 

be implemented by subtraction and 

requested that CMS explain its method 

for implementing the required 0.25 

percentage point reduction for RY 2010. 

Response: We disagree with the 

commenter that our implementation of 

the required market basket reduction for 

RY 2010 required by the Affordable Care 

Act is inconsistent with the intent of 

that statutory provision. As we stated in 

the notice that implemented the 

required 0.25 percentage point 

reduction for RY 2010, ‘‘consistent with 

sections 1886(m)(3)(A)(ii) and (m)(4)(A) 

of the Act, the market basket update 

under the LTCH PPS for RY 2010 is 2.25 

percent (that is, the second quarter 2009 

forecast estimate of the RY 2010 LTCH 

PPS market basket increase of 2.5 

percent minus the 0.25 percentage point 

required by sections 1886(m)(3)(A)(ii) 

and (m)(4)(A) of the Act.)’’ (emphasis 

added; 75 FR 31128). Thus, we 

implemented the statutorily required 

market basket reduction (0.25 

percentage point for RY 2010) by 

subtraction from the full market basket 

update (2.5 percent) that was 

established in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (2.5 percent 

minus 0.25 percentage point = 2.25 

percent). 

However, in addition to the full 

market basket update, in determining 

the update for the standard Federal rate 

for RY 2010, we applied an adjustment 

to account for the increase in case-mix 

due to changes in documentation and 

coding in a prior period that do not 

reflect increased severity of illness. 

Specifically, in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 

43972), we established a ¥0.5 percent 

adjustment to account for the increase 

in case-mix due to changes in 

documentation and coding in a prior 

period (FY 2007) that do not reflect 

increased severity of illness. Therefore, 

consistent with our methodology for 

determining the update to the standard 

Federal rate for RY 2010 (74 FR 44022), 

in the June 2, 2010 notice (75 FR 31128), 

we established an update factor to the 

standard Federal rate for RY 2010 of 

1.74 percent calculated as 1.0225 × (1 

divided by 1.005) = 1.0174 or 1.74 

percent. For the reasons explained 

above, we believe the determination of 

the 1.74 percent update for RY 2010 

based on the market basket update of 

2.25 percent (computed as the full RY 

2010 market basket increase of 2.5 

percent minus the 0.25 percentage point 

required by sections 1886(m)(3)(A)(ii) 

and (m)(4)(A) of the Act) and an 

adjustment of ¥0.5 percent to account 

for the increase in case-mix due to 

changes in documentation and coding 

in a prior period that do not reflect 

increased severity of illness is 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50389 

consistent with the provisions of the 

Affordable Care Act. 

In this final rule, we are adopting as 

final the proposed changes to the update 

for RY 2010 to the standard Federal rate 

at § 412.523(c)(3)(vi) to reflect the 

provisions of the Affordable Care Act. 

Accordingly, under the authority of 

sections 1886(m)(3)(A)(ii) and (m)(4)(A) 

of the Act, we are revising 

§ 412.523(c)(3)(vi) to specify that the 

standard Federal rate for the LTCH PPS 

rate year beginning October 1, 2009 and 

ending September 30, 2010, is the 

standard Federal rate for the previous 

rate year updated by 1.74 percent. 

Furthermore, consistent with section 

3401(p) of the Affordable Care Act, we 

also are revising § 412.523(c)(3)(vi) to 

specify that, with respect to discharges 

occurring on or after October 1, 2009 

and before April 1, 2010, payments are 

based on the standard Federal rate in 

§ 412.523(c)(3)(v) updated by 2.0 

percent. 

d. Market Basket Under the LTCH PPS 

for FY 2011 

As discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24044), 

when we initially created the FY 2002- 

based RPL market basket, we were 

unable to create a separate market 

basket specifically for LTCHs due, in 

part, to the small number of facilities 

and the limited data that were provided 

in the Medicare cost reports. Over the 

last several years, however, the number 

of LTCH facilities submitting valid 

Medicare cost report data has increased. 

Based on this development, as well as 

our desire to move from one RPL market 

basket to three stand-alone and 

provider-specific market baskets (for 

IRFs, IPFs, and LTCHs, respectively), we 

plan to begin exploring the viability of 

creating these market baskets for future 

use. However, as we discussed in the 

RY 2010 LTCH PPS final rule (74 FR 

43967 through 43968), we are 

conducting further research to assist us 

in understanding the reasons for the 

variations in costs and cost structure 

between freestanding IRFs and hospitalbased IRFs. We also are researching the 

reasons for similar variations in costs 

and cost structure between freestanding 

IPFs and hospital-based IPFs. Therefore, 

as we continue to explore the 

development of stand-alone market 

baskets for LTCHs, IRFs and IPFs, 

respectively, as we stated in the FY 

2011 IPPS/LTCH PPS proposed rule, we 

believe that it is appropriate to continue 

to use the FY 2002-based RPL market 

basket for LTCHs, IRFs and IPFs under 

their respective PPSs. 

As we also stated in the FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24044), for the reasons discussed when 

we adopted the RPL market basket for 

use under the LTCH PPS in the RY 2007 

LTCH PPS final rule (71 FR 27810 

through 27817), we continue to believe 

that the RPL market basket 

appropriately reflects the cost structure 

of LTCHs. For the reasons explained 

above, in that same proposed rule, we 

proposed to continue to use the FY 

2002-based RPL market basket under the 

LTCH PPS for FY 2011. We also stated 

that we are hopeful that progress can be 

made in the near future with respect to 

creating stand-alone market baskets for 

LTCHs, IRFs, and IPFs and, as a result, 

may propose to rebase the appropriate 

market basket(s) for subsequent updates 

in the future. 

Comment: One commenter stated that 

there are sufficient LTCHs now to 

support the development of a separate 

LTCH market basket. The commenter 

stated that in order for the LTCH PPS to 

accurately reflect the costs of providing 

services in an LTCH, CMS should adopt 

a market basket that is limited to LTCH 

goods and services. 

Response: As stated in the FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24044), we continue to explore the 

possibility of implementing three 

separate, stand-alone market baskets for 

hospitals excluded from the IPPS, rather 

than use a single RPL market basket for 

IRFs, IPFs, and LTCHs. We addressed a 

similar comment in the FY 2010 IPPS/ 

LTCH PPS final rule (74 FR 43968) 

where we stated that while the number 

of LTCHs submitting cost report data 

has increased, we believe further 

research is required to determine the 

feasibility of developing stand-alone 

market baskets for LTCHs, IRFs, and 

IPFs. Furthermore, we stated that we 

will be exploring the viability and 

technical appropriateness of a standalone market basket. At this time, we are 

still conducting further research to 

assist us in understanding the reasons 

for the variations in costs and cost 

structure between freestanding and 

hospital based providers, specifically 

IRFs and IPFs. Therefore, as we 

continue to explore the development of 

stand-alone market baskets for LTCHs, 

IRFs and IPFs, respectively, we believe 

that it is appropriate to continue to use 

the FY 2002-based RPL market basket 

for LTCHs, IRFs and IPFs under their 

respective PPSs. 

In this final rule, under the authority 

of section 123 of the BBRA as amended 

by section 307(b) of the BIPA, we are 

establishing the continued use of the FY 

2002-based RPL market basket under the 

LTCH PPS for FY 2011. For the reasons 

explained above in this section, we 

continue to believe that the RPL market 

basket appropriately reflects the cost 

structure of LTCHs. 

e. Market Basket Update for LTCHs for 

FY 2011 

Consistent with our historical 

practice, we estimate the RPL market 

basket update based on IHS Global 

Insight, Inc.’s forecast using the most 

recent available data. IHS Global 

Insight, Inc. is a nationally recognized 

economic and financial forecasting firm 

that contracts with CMS to forecast the 

components of the hospital market 

baskets. In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24044), based on 

IHS Global Insight Inc.’s first quarter 

2010 forecast, the proposed FY 2011 

market basket estimate for the LTCH 

PPS using the FY 2002-based RPL 

market basket was 2.4 percent, as this 

was the best available data at that time. 

In addition, consistent with our 

historical practice of using market 

basket estimates based on the most 

recent available data, we proposed that 

if more recent data are available when 

we develop the final rule, we would use 

such data, if appropriate. 

Section 1886(m)(3)(A)(ii) of the Act as 

added by section 3401(c) of the 

Affordable Care Act specifies that, for 

each of RYs 2010 through 2019, any 

annual update to the standard Federal 

rate shall be reduced by the other 

adjustment specified in new section 

1886(m)(4) of the Act. Furthermore, 

section 1886(m)(3)(A)(i) of the Act 

specifies that, for rate year 2012 and 

each subsequent rate year, any annual 

update to the standard Federal rate shall 

be reduced by the productivity 

adjustment described in section 

1886(b)(3)(B)(xi)(II) of the Act. 

As discussed in the FY 2011 IPPS/ 

LTCH PPS supplemental proposed rule 

(75 FR 30969 through 30970), for FY 

2011, section 1886(m)(4)(B) of the Act, 

as added and amended by sections 

3401(c), 10319(b), and 1105(b) of the 

Affordable Care Act, requires a 0.50 

percentage point reduction to the 

annual update to the standard Federal 

rate for rate year 2011. Therefore in that 

same supplemental proposed rule, we 

proposed a market basket update under 

the LTCH PPS for FY 2011 of 1.9 

percent (that is, the most recent estimate 

of the LTCH PPS market basket update 

at that time of 2.4 percent minus the 

0.50 percentage point required in 

section 1886(m)(4)(B) of the Act. Again, 

consistent with our historical practice of 

using market basket estimates based on 

the most recent available data, we 

proposed that if more recent data are 

available when we develop the final 

rule, we would use such data, if 

appropriate, in determining the final 

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market basket update under the LTCH 

PPS for FY 2011. (We note that in the 

FY 2011 IPPS/LTCH PPS supplemental 

proposed rule (75 FR 30969 through 

30970), we proposed to update the 

LTCH PPS standard Federal rate by 

¥0.59 percent for FY 2011, which 

reflected the proposed market basket 

update of 1.9 percent (discussed above) 

and a proposed adjustment to account 

for the increase in case-mix in the prior 

periods that resulted from changes in 

documentation and coding practices 

rather than increases in patients’ 

severity of illness (discussed in the FY 

2011 IPPS/LTCH PPS proposed rule (75 

FR 24045 through 24046)). 

We did not receive any public 

comments on our proposed market 

basket update under the LTCH PPS for 

FY 2011 of 1.9 percent. However, we 

received a few comments that stated 

that the market basket update for FY 

2011 should not be adjusted to account 

for the increase in case-mix in the prior 

periods that resulted from changes in 

documentation and coding practices 

rather than increases in patients’ 

severity of illness. We summarize and 

respond to these comments below in 

section VII.C.3. of this preamble. 

In this final rule, as proposed and 

consistent with our historical practice, 

we estimate the RPL market basket 

update based on IHS Global Insight, 

Inc.’s forecast using the most recent 

available data. IHS Global Insight, Inc. 

is a nationally recognized economic and 

financial forecasting firm that contracts 

with CMS to forecast the components of 

the hospital market baskets. Based on 

IHS Global Insight, Inc.’s second quarter 

2010 forecast, the FY 2011 market 

basket estimate for the LTCH PPS using 

the FY 2002-based RPL market basket is 

2.5 percent. 

As discussed above, for FY 2011, 

section 1886(m)(4)(B) of the Act as 

added and amended by sections 3401(c), 

10319 and 1105(b) of the Affordable 

Care Act, requires a 0.50 percentage 

point reduction to the annual update to 

the standard Federal rate for rate year 

2011. Therefore, in this final rule, we 

are establishing a market basket update 

under the LTCH PPS for FY 2011 of 2.0 

percent (that is, the most recent estimate 

of the LTCH PPS market basket of 2.5 

percent minus the 0.50 percentage point 

required in section 1886(m)(4)(B) of the 

Act. (We note that in section III.A. of the 

Addendum to this final rule, for FY 

2011, we are establishing an update to 

the LTCH PPS standard Federal rate of 

¥0.49 percent, based on the market 

basket update for FY 2011 of 2.0 percent 

(discussed above) and an adjustment of 

¥2.5 percent to account for the increase 

in case-mix in the prior periods that 

resulted from changes in documentation 

and coding practices rather than 

increases in patient severity of illness 

(discussed below in section VII.C.3. of 

this preamble).) 

f. Labor-Related Share Under the LTCH 

PPS for FY 2011 

As discussed in section V.B. of the 

Addendum to this final rule, under the 

authority of section 123 of the BBRA as 

amended by section 307(b) of the BIPA, 

we established an adjustment to the 

LTCH PPS payments to account for 

differences in LTCH area wage levels at 

§ 412.525(c). The labor-related portion 

of the LTCH PPS Federal rate, hereafter 

referred to as the labor-related share, is 

adjusted to account for geographic 

differences in area wage levels by 

applying the applicable LTCH PPS wage 

index. 

The labor-related share is determined 

by identifying the national average 

proportion of operating and capital costs 

that are related to, influenced by, or 

vary with the local labor market. We 

continue to classify a cost category as 

labor-related if the costs are laborintensive and vary with the local labor 

market. In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24044), consistent 

with our proposal to continue to use the 

FY 2002-based RPL market basket under 

the LTCH PPS for FY 2011 discussed 

above, we proposed to continue to 

define the labor-related share as the 

national average proportion of operating 

costs that are attributable to wages and 

salaries, employee benefits, contract 

labor, professional fees, labor-intensive 

services, and a labor-related portion of 

capital based on the FY 2002-based RPL 

market basket. (Additional information 

on the development of the FY 2002- 

based RPL market basket used under the 

LTCH PPS can be found in the RY 2007 

LTCH PPS final rule (71 FR 27809 

through 27818).) Furthermore, 

consistent with our historical practice of 

using the best available data, in the FY 

2011 IPPS/LTCH PPS proposed rule, we 

proposed to use IHS Global Insight, 

Inc.’s first quarter 2010 forecast of the 

FY 2002-based RPL market basket for 

FY 2011 to determine the proposed 

labor-related share for the LTCH PPS for 

FY 2011 that would be effective for 

discharges occurring on or after October 

1, 2010, and through September 30, 

2011, as these were the most recent 

available data at that time. Consistent 

with our historical practice of using the 

best data available, we also proposed 

that if more recent data are available to 

determine the labor-related share used 

under the LTCH PPS for FY 2011, we 

would use these data for determining 

the FY 2011 LTCH PPS labor-related 

share in the final rule. 

As discussed in the FY 2011 IPPS/ 

LTCH PPS proposed rule, the laborrelated share for FY 2011 would 

continue to be determined as the sum of 

the FY 2011 relative importance of each 

labor-related cost category, and would 

reflect the different rates of price change 

for these cost categories between the 

base year (FY 2002) and FY 2011. Using 

the best available data at that time and 

our proposed methodology, we 

proposed a labor-related share of 75.407 

percent for use under the LTCH PPS in 

FY 2011. We did not receive any public 

comments on our proposed labor-related 

share for FY 2011. Therefore, we are 

adopting our proposed methodology for 

determining the labor-related share as 

final and applying it to the best 

available data consistent with our 

historical practice in this final rule. 

In this final rule, as we proposed, for 

FY 2011 we continue to define the 

labor-related share as the national 

average proportion of operating costs 

that are attributable to wages and 

salaries, employee benefits, contract 

labor, professional fees, labor-intensive 

services, and a labor-related portion of 

capital based on the FY 2002-based RPL 

market basket. Consistent with our 

historical practice of using the best 

available data, for this final rule, we are 

using IHS Global Insight, Inc.’s second 

quarter 2010 forecast of the FY 2002- 

based RPL market basket for FY 2011 to 

determine the labor-related share under 

the LTCH PPS for FY 2011 that will be 

effective for discharges occurring on or 

after October 1, 2010, and through 

September 30, 2011, as these are the 

most recent available data. 

Based on IHS Global Insight, Inc.’s 

second quarter 2010 forecast of the FY 

2002-based RPL market based basket for 

FY 2011, which is currently the best 

available data, the sum of the relative 

importance for FY 2011 for operating 

costs (wages and salaries, employee 

benefits, professional fees, and all-other 

labor-intensive services) is 71.384 

percent, as shown in the chart below. As 

stated in the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24044), the 

portion of capital that is influenced by 

the local labor market is estimated to be 

46 percent. Because the relative 

importance for capital in FY 2011 is 

8.450 percent of the FY 2002-based RPL 

market basket, we are taking 46 percent 

of 8.450 percent to determine the laborrelated share of capital for FY 2011. The 

result is 3.887 percent, which we added 

to 71.384 percent for the operating cost 

amount to determine the total laborrelated share for FY 2011. Accordingly, 

under the authority set forth in section 

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123 of the BBRA as amended by section 

307(b) of the BIPA, we are establishing 

a labor-related share of 75.271 percent 

under the LTCH PPS for the FY 2011. 

The chart below shows the FY 2011 

relative importance labor-related share 

using the FY 2002-based RPL market 

basket. 

FY 2011 LABOR-RELATED SHARE

BASED ON THE FY 2002-BASED

RPL MARKET BASKET

Cost category 

FY 2011 

relative 

importance 

(percent) 

Wages and Salaries ................. 52.449 

Employee Benefits .................... 13.971 

Professional Fees ..................... 2.855 

All Other Labor-Intensive Services ........................................ 2.109 

Subtotal ............................. 71.384 

Labor-Related Share of Capital 

Costs (46 percent × 8.450) ... 3.887 

Total Labor-Related Share 75.271 

3. Adjustment for Changes in LTCHs’ 

Case-Mix Due to Changes in 

Documentation and Coding Practices 

That Occurred in a Prior Period 

a. Background 

Beginning in RY 2007, in updating the 

standard Federal rate for the LTCH PPS, 

we have accounted for increases in 

payments from a past period that were 

due to changes in case-mix due to 

changes in documentation and coding 

practices. For additional information on 

the adjustments established for changes 

in LTCHs’ case-mix due to changes in 

documentation and coding practices 

that occurred in a prior period, we refer 

readers to the following final rules 

published in the Federal Register: the 

RY 2007 LTCH PPS final rule (71 FR 

27820); the RY 2008 LTCH PPS final 

rule (72 FR 26880 through 26890); the 

RY 2009 LTCH PPS final rule (73 FR 

26805 through 26812); and the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 43969 through 43970). 

For RY 2010, we performed an 

analysis of LTCHs’ case-mix index 

(CMI) changes in the prior periods (FY 

2007 and FY 2008) and established a 

methodology to determine if an 

adjustment to account for changes in 

documentation and coding practices 

was applicable (74 FR 43969 through 

43970). This methodology is consistent 

with the methodology established for 

case-mix analysis under the IPPS. In 

general, under our established 

methodology, in order to isolate the 

documentation and coding effect, we 

divided the combined effect of the 

changes in documentation and coding 

and measurement by the measurement 

effect (74 FR 43970). 

For the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule, we performed a 

retrospective evaluation of the FY 2007 

and FY 2008 data for LTCH claims paid 

through December 2008. Based on this 

evaluation, our actuaries determined 

that case-mix increased 0.5 percent in 

FY 2007 and 1.3 percent in FY 2008 due 

to documentation and coding that did 

not reflect real changes in case-mix. In 

light of this analysis, in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

we proposed to apply a cumulative 

adjustment for the effect of 

documentation and coding that do not 

reflect an increase in patients’ severity 

of illness of ¥1.8 percent (that is, ¥0.5 

percent for FY 2007 plus ¥1.3 percent 

for FY 2008). We also invited public 

comment on our proposed methodology 

and analysis. (For additional 

information on our methodology and 

the results of the retrospective 

evaluation, we refer reader to sections 

VIII.C.3. of the preamble of the FY 2010 

IPPS/RY 2010 LTCH PPS proposed and 

final rules (74 FR 24229 through 24230 

and 74 FR 43970 through 43972, 

respectively).) 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule, we responded to 

comments on our methodology for the 

retrospective evaluation of FY 2007 and 

FY 2008 claims data, as well as our 

proposed ¥1.8 percent documentation 

and coding adjustment for RY 2010. In 

that same final rule, we finalized our 

proposal and established an adjustment 

of ¥0.5 percent to account for the effect 

of documentation and coding increase 

that occurred in FY 2007. After 

consideration of public comments, and 

consistent with the decision to postpone 

the application of the prospective 

adjustment for estimated FY 2008 

documentation and coding effect under 

the IPPS, we delayed the application of 

the FY 2008 documentation and coding 

adjustment of ¥1.3 percent that was 

proposed under the LTCH PPS for RY 

2010. We also stated our intent to 

address any future documentation and 

coding adjustment to the LTCH PPS 

standard Federal rate based on our 

analysis of the FY 2008 LTCH claims 

data in the FY 2011 rulemaking cycle 

through the notice-and-comment 

rulemaking process. (74 FR 43970 

through 43972) 

b. Evaluation of FY 2009 Claims Data 

For the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24045 through 

24046), we performed a thorough 

retrospective evaluation of the most 

recent available claims data (that is, FY 

2009 claims updated through December 

2009) using the methodology that was 

adopted in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule and that was used 

to assess whether an adjustment for RY 

2010 to account for the effect of 

documentation and coding practices 

that occurred in a prior period was 

appropriate. (We refer readers to the 

explanation of our rationale for adopting 

this methodology as well as its intended 

purpose in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43970 

through 43972).) Based on the results of 

this analysis, we estimated that the 

effect of documentation and coding 

changes that occurred in FYs 2008 and 

2009 was 2.5 percent. (We refer readers 

to the discussion in the FY 2011 IPPS/ 

LTCH PPS proposed rule (74 FR 24045 

through 24046) for additional details on 

the methodology and results of the 

retrospective evaluation of the FY 2009 

claims updated through December 

2009.) We also noted in the FY 2010 

IPPS/RY 2010 LTCH PPS proposed and 

final rules that we applied our 

methodology separately to FY 2007 and 

FY 2008 LTCH claims data because 

those data were generated under 

different patient classification systems 

(that is, FY 2007 was the last year under 

the CMS LTC–DRGs and FY 2008 was 

the first year under the MS–LTC–DRGs). 

Because the same patient classification 

system was in effect for both FY 2008 

and FY 2009 (that is, the MS–LTC– 

DRGs), consistent with the application 

of this methodology under the IPPS, in 

the FY 2011 IPPS/LTCH PPS proposed 

rule, we explained that we believe it is 

appropriate to propose to apply our 

established methodology for 

determining the cumulative effects of 

documentation and coding for FYs 2008 

and 2009, rather than proposing to 

applying the methodology separately to 

FY 2008 and FY 2009 LTCH claims 

data. We sought public comment on this 

proposal. We did not receive any public 

comments on the proposal to apply our 

established methodology for 

determining the cumulative effects of 

documentation and coding for FYs 2008 

and 2009. Therefore, we are adopting 

this proposal as final in this final rule. 

For this final rule, consistent with our 

historical practice and as we proposed, 

we updated our analysis using FY 2010 

claims updated through March 2010 and 

the same methodology employed in the 

FY 2011 IPPS/LTCH PPS proposed rule. 

This analysis also resulted in an 

estimated effect of documentation and 

coding in FYs 2008 and 2009 of 2.5 

percent. We received several comments 

on our proposed methodology for 

estimating the effect of documentation 

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and coding in FYs 2008 and 2009 and 

our proposal to apply an adjustment for 

the effect of documentation and coding 

in a prior period (FYs 2008 and 2009) 

that do not reflect an increase in 

severity of illness of ¥2.5 percent 

(discussed below), especially from 

national LTCH associations, hospital 

systems, and individual hospitals. 

MedPAC also commented on these 

proposals. A summary of these 

comments and our responses are 

presented below in the section VII.C.3.c. 

of this preamble. 

c. FY 2011 Documentation and Coding 

Adjustment 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24046), based on 

retrospective analysis of FY 2009 LTCH 

claims data (discussed above), we 

proposed to apply an adjustment for 

changes in documentation and coding 

in a prior period (FYs 2008 and 2009) 

that do not reflect an increase in 

severity of illness of ¥2.5 percent. 

Accordingly, we proposed to update the 

standard Federal rate for FY 2011 based 

on the most recent estimate of the 

market basket increase, including the 

required percentage point reduction and 

a proposed adjustment to account for 

changes in documentation and coding 

practices of ¥2.5 percent. We received 

the following public comments on that 

proposal: 

Comment: MedPAC concurred with 

CMS’ methodology used to estimate the 

documentation and coding effect for 

LTCH and CMS’ proposal to reduce 

LTCH payment rates by 2.5 percent, 

noting that the implementation of MS– 

LTC–DRGs in 2008 gave LTCHs a 

financial incentive to improve 

documentation and coding to more fully 

account for each patient’s severity of 

illness and that there was a need for 

‘‘counterbalancing adjustments to LTCH 

payments to offset the effects of casemix increases due to changes in 

documentation and coding practice.’’ 

Response: We appreciate MedPAC’s 

independent validation and support of 

our methodology, and its support of our 

proposal to reduce LTCH payment rates 

by 2.5 percent to prevent overpayments 

under the LTCH PPS. 

Comment: Most commenters 

questioned our proposed methodology 

for determining the magnitude of the 

effect of documentation and coding due 

to the adoption of the MS–LTC–DRGs. 

As commenters have argued in response 

to prior rulemaking, most of these 

commenters again asserted that our 

proposed methodology made 

assumptions about the cause of the casemix increase that were unsupported and 

that failed to consider ‘‘other 

explanations’’ for those case-mix 

changes, in particular whether actual 

patient severity of illness (that is, ‘‘real’’ 

case-mix) has increased or whether the 

adoption of a more refined patient 

classification system (that is, the MS– 

LTC–DRGs) by its design reflects 

increased case-mix. 

Response: We disagree that the 

methodology employed by our actuaries 

to determine the effect of 

documentation and coding due to the 

adoption of the MS–LTC–DRGs is based 

on unsupported assumptions. As 

discussed in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43971), 

overall case-mix change is 

predominately comprised of three 

factors: ‘‘real’’ case-mix change; a 

documentation and coding effect 

(‘‘apparent’’ change); and a measurement 

effect. Because our proposed 

methodology uses the same year of 

claims data, it is not necessary to 

account for ‘‘real’’ case-mix-growth. This 

is because there can be no real case-mix 

growth measured if the same claims are 

used since the same set of patients (that 

is, the same claims data) is being used 

under the two GROUPERs 

classifications and relative weights. 

We agree that the MS–LTC–DRGs 

were designed to better recognize 

severity of illness among patients and 

may reflect case-mix increase. However, 

consistent with the budget neutrality 

requirement that was established 

concurrent with the adoption of the 

MS–LTC–DRG patient classification 

system in FY 2008, the annual update 

to the classifications and weights should 

not increase or decrease aggregate LTCH 

PPS payments. In other words, these 

changes were intended to be done in a 

budget neutral manner. Therefore, to the 

extent that the adoption of the MS– 

LTC–DRGs themselves reflects a change 

in case-mix that results in an increase or 

decrease in aggregate LTCH PPS 

payments, it is appropriate to make an 

adjustment to account for such changes. 

In other words, a documentation and 

coding adjustment is now necessary 

because the changes in the 

classifications and weights associated 

with the adoption of the MS–LTC–DRGs 

should not increase or decrease the 

aggregate LTCH PPS payments. 

Furthermore, as summarized above, in 

its public comments on our proposal, 

MedPAC concurred with our proposed 

methodology to estimate the 

documentation and coding effect for 

LTCH and independently verified our 

results that the effect is 2.5 percent. 

MedPAC also noted that the 

implementation of MS–LTC–DRGs in 

2008 gave LTCHs a financial incentive 

to improve documentation and coding 

to more fully account for each patient’s 

severity of illness. 

Accordingly, we continue to find the 

methodology used by our actuaries and 

endorsed by MedPAC to determine the 

magnitude of the increase in case-mix 

due to the changes in documentation 

and coding in FYs 2008 and 2009 that 

do not reflect patient severity of illness 

to be the most appropriate methodology. 

Comment: Most commenters opposed 

the proposed ¥2.5 percent adjustment 

to account for the increase in case-mix 

due to the effects of documentation and 

coding in FYs 2008 and 2009 that do not 

reflect severity of illness. As in prior 

rulemaking on this issue, most 

commenters again questioned the 

methodology used by our actuaries and 

endorsed by MedPAC to estimate LTCH 

case-mix increase due to the effects of 

documentation and coding that do not 

reflect increased severity of illness. 

Many of these comments were similar to 

or referenced the comment by NALTH, 

which in summary stated: ‘‘NALTH 

takes issue with the proposed 

adjustment of ¥2.5 percent to the 

update factor for changes in 

documentation and coding practices 

that CMS claims occurred between FYs 

2007 through 2009. * * * In summary, 

we have made findings that CMS’ 

methodology does not result in an 

accurate identification of ‘apparent’ as 

differentiated from ‘real’ case-mix 

severity change from FY 2007 to FY 

2009.’’ 

NALTH asserted that this conclusion 

is supported by a number of factors. 

First, NALTH stated that changes in the 

law have led to changes in the 

distribution of patients admitted to 

LTCHs between FY 2007 and FY 2009. 

Second, NALTH asserted that, under 

our methodology, a finding of no 

increase in case-mix due to 

documentation and coding changes 

‘‘could only occur by pure chance’’ and 

that the adoption of the ‘‘decompressed’’ 

MS–LTC–DRG GROUPER results in a 

more accurate measurement of severity 

for high acuity patients. Third, NALTH 

indicated that changes between primary 

and secondary diagnosis codes led to a 

decrease, not increase, in case-mix. 

Fourth, NALTH used a regression 

analysis to compare the actual and 

predicted prevalence of diagnoses and 

procedure codes for FY 2009 LTCH 

discharges. Fifth, NALTH cited 

standards of ethical coding applied by 

coding professionals that prevent 

changing a primary diagnosis to a 

secondary diagnosis to maximize 

reimbursement. Sixth, NALTH cited 

‘‘resequencing guidelines’’ that have 

been in effect since 2005 and the SSO 

policy, under which NALTH believes 

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that 50 percent to 60 percent of all 

LTCH cases are typically paid less than 

a full MS–LTC–DRG payment, as 

reasons that there is no evidence to 

conclude that documentation and 

coding practices contribute significantly 

to case-mix changes. Lastly, NALTH 

stated that approximately 60 percent of 

the change in FY 2009 GROUPER casemix from FY 2007 to FY 2009 is due to 

a redistribution in case-mix from FY 

2007 through FY 2009 and 

approximately 25 percent of the casemix growth is due to an increase in the 

comorbidities of certain high volume 

ICD–9–CM codes from FY 2007 through 

FY 2009. NALTH stated that the 

remaining 15 percent could be due to an 

‘‘apparent’’ increase in case-mix and, 

therefore, believed that, at most, the 

proposed coding adjustment should be 

¥0.8 percent. 

Response: Both the adoption of the 

severity-adjusted MS–LTC–DRGs as the 

patient classification system under the 

LTCH PPS and the establishment of the 

budget neutrality requirement for the 

annual update to the MS–LTC–DRG 

classifications and relative weights were 

effective beginning in FY 2008. The 

changes in the classifications and 

relative weights associated with FY 

2008 and FY 2009 MS–LTC–DRGs were 

established to improve the accuracy of 

the distribution of payments among 

LTCH patients, not to increase or 

decrease aggregate LTCH PPS payments. 

In other words, these changes were 

intended to be done in a budget neutral 

manner. A retrospective review of LTCH 

claims data allows a determination to be 

made as to the extent to which these 

changes resulted in an increase or 

decrease in aggregate LTCH PPS 

payments, so an offsetting budget 

neutrality adjustment can be made. 

Specifically, a retrospective analysis of 

the LTCH claims data can examine the 

change in the average case-mix under 

the old (for example, FY 2007) and new 

(for example, FY 2009) classifications 

and weights. As stated above in our 

discussion of the documentation and 

classification adjustment for IPPS 

hospitals in section II.D. of this 

preamble and also in prior rulemaking 

(74 FR 43771 and 43971), overall casemix change is predominately comprised 

of three factors: ‘‘real’’ case-mix change; 

a documentation and coding effect 

(‘‘apparent’’ change); and a measurement 

effect. Because year-to-year changes in 

real case-mix are not intended to be 

budget neutral, this must be accounted 

for in the analysis of case-mix change. 

The simplest and most straightforward 

way to account for changes in real casemix is to directly remove them from the 

calculation. This is exactly what the 

proposed methodology employed by our 

actuaries and endorsed by MedPAC 

does. Our actuaries compare the casemix calculated using the same FY 2009 

cases grouped using the FY 2009 MS– 

LTC–DRG classifications and relative 

weights and the FY 2007 LTC–DRG 

classifications and relative weights to 

determine the combined effect of 

documentation and coding changes and 

measurement. An adjustment is then 

made to net out the measurement effect. 

Therefore, differences in case-mix 

calculated using the FY 2007 and FY 

2009 classifications and relative weights 

on the FY 2009 data are not affected by 

real case-mix change, by definition, 

because the same set of patients (that is, 

the same claims data) is being used 

under the two GROUPERs 

classifications and relative weights. This 

simple fact refutes the NALTH assertion 

that our methodology ‘‘does not result in 

an accurate identification of ‘apparent’ 

as differentiated from ‘real’ case mix 

severity change from FY 2007 to FY 

2009.’’ 

Furthermore, none of the supporting 

factors listed by NALTH refute our 

methodology. The first factor, changes 

in the distribution of patients admitted 

to LTCHs between FY 2007 and FY 

2009, and the portion of the seventh 

factor involving increases in patient 

acuity, would influence the change in 

real case-mix. As explained above, our 

methodology directly removes the 

changes in real case-mix from the 

determination of the increase in casemix due to the effects of documentation 

and coding in FYs 2008 and 2009 that 

do not reflect increased severity of 

illness. 

A number of the remaining factors 

(specifically, factors two, three, four and 

seven) listed by NALTH involve 

differences in the distribution of cases 

between FY 2007 and FY 2009. Again, 

the purpose of the proposed 

documentation and coding adjustment 

is to ensure that the changes in the 

classification and relative weights 

associated with FY 2008 and FY 2009 

MS–LTC–DRGs do not increase or 

decrease the aggregate LTCH PPS 

payments. We agree that there is a 

difference between the distribution of 

cases in FY 2007 and the distribution of 

cases in FY 2009. However, this is not 

a refutation of our methodology. In fact, 

it supports the necessity of our 

proposed documentation and coding 

adjustment. Had we known the actual 

distribution of FY 2009 cases when we 

initially determined the FY 2009 budget 

neutral update to the MS–LTC–DRG 

classifications and relative weights back 

in 2008, we would have used this 

information at that time and no further 

adjustment would now be necessary to 

ensure that the FY 2009 update did not 

increase or decrease the aggregate LTCH 

PPS payments. As this information was 

unknown in 2008, we used the most 

recent full year of LTCH claims data 

available to us to update the MS–LTC– 

DRG classifications and relative weights 

for FY 2009 in a budget neutrality 

manner. A finding that the actual 

distribution of cases differs from the 

distribution used in determining the 

initial budget neutral relative weights is 

precisely the reason that an additional 

adjustment is now necessary: we do not 

want changes in the classifications and 

weights associated with FY 2008 and FY 

2009 MS–LTC–DRGs to increase or 

decrease the aggregate LTCH PPS 

payments. 

In response to the assertion that the 

standards of ethical coding applied by 

coding professionals prevent changing a 

primary diagnosis to a secondary 

diagnosis to maximize reimbursement, 

we have never asserted that any party 

acted inappropriately, unethically, or 

otherwise in bad faith by employing 

documentation and coding 

improvement practices associated with 

the adoption the MS–LTC–DRG system. 

Under the previous DRG definitions, it 

was possible for high-severity cases to 

be paid the same as cases with lower 

severity if they grouped to the same 

DRG. The MS–LTC–DRGs were 

introduced as part of the effort to ensure 

that the relative Medicare payment rates 

that hospitals received more reasonably 

matched the resources hospitals 

expended in furnishing care, and CMS 

encouraged hospitals to code as 

accurately as possible with that goal in 

mind. However, it is our finding that the 

systematic effect of changing 

documentation and coding practices has 

led to an increase in LTCHs’ overall 

case-mix that does not reflect a 

commensurate increase in LTCH patient 

severity of illness, and as we discuss in 

greater detail below, it is appropriate to 

adjust the LTCH PPS payment rates to 

account for the increased level of LTCH 

PPS payments due to such 

documentation and coding. 

The sixth factor noted by NALTH, 

which contends that ‘‘resequencing 

guidelines’’ that have been effective 

since April 2005 and the SSO policy 

may result in a decrease in payment 

upon the adoption of the MS–LTC– 

DRGs, is not evidence that changes in 

documentation and coding practices do 

not contribute significantly to case-mix 

changes. We agree that, in some cases, 

the ICD–9–CM coding guidelines may 

result in a case being grouped to a MS– 

LTC–DRG with a lower weight 

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compared to an alternative sequencing 

of ICD–9–CM codes for that case and, 

therefore, will receive a lower payment. 

However, in other instances, the ICD–9– 

CM coding guidelines may result in a 

case being grouped to a MS–LTC–DRG 

with a higher weight and, therefore, will 

receive a higher payment. This fact 

demonstrates that documentation and 

coding practices have an impact on 

case-mix and, therefore, also on 

aggregate LTCH PPS payments. As we 

have discussed above, we believe it is 

appropriate to make an adjustment to 

the LTCH PPS payment rates to account 

for any changes in aggregate LTCH PPS 

payments due to such documentation 

and coding under the MS–LTC–DRGs as 

compared to the effect of the CMS LTC– 

DRGs (that were in effect prior to the 

adoption of the MS–LTC–DRGs) on 

LTCHs’ case-mix. 

Similarly, with regard to the SSO 

policy, we agree that when a case is 

grouped to a higher weighted MS–LTC– 

DRG for FY 2009 (relative to the weight 

of the FY 2007 LTC–DRG to which it 

groups), it may become a SSO case (and 

receive a payment that is less than the 

full LTC–DRG payment). This is the 

case because the average length of stay 

for the ‘‘higher weighted’’ FY 2009 MS 

LTC–DRG is based on the data for 

higher severity, more resource intensive 

cases, which generally have a relatively 

longer length of stay. However, it is also 

true that the cases in a ‘‘lower weighted’’ 

FY 2009 MS–LTC–DRGs will generally 

have a relatively shorter length of stay 

under the MS–LTC–DRGs, as compared 

to the FY 2007 LTC–DRGs, because the 

lower weighted MS–LTC–DRG will 

require less resources. Therefore, a case 

that would have been a SSO under the 

FY 2007 LTC–DRG classifications may 

no longer be a SSO case under the FY 

2009 MS–LTC–DRGs (and is paid a full 

MS–LTC–DRG payment). 

As discussed above, under our budget 

neutrality requirement for the annual 

update to the MS–LTC–DRGs, we 

believe it is appropriate to make an 

adjustment to the LTCH PPS payment 

rates to account for any changes in 

aggregate LTCH PPS payments as a 

result of the transition from the LTC– 

DRGs to the MS–LTC–DRGs. 

Furthermore, we disagree with the 

commenter that 50 percent to 60 percent 

of all LTCH cases are typically paid less 

than a full MS–LTC–DRG payment 

under the SSO policy. Historically, 

approximately 30 to 35 percent of all 

LTCH cases are typically paid under the 

SSO policy. Specifically, an analysis of 

FY 2009 LTCH claims data shows that 

approximately 31 percent of all LTCH 

cases were paid under the SSO policy 

(and received less than a full MS–LTC– 

DRG payment). Moreover, of those cases 

paid under the SSO policy, the payment 

for approximately 40 percent of those 

SSO cases is determined in part based 

on the MS–LTC–DRG relative weight for 

the case. Thus, the LTCH PPS payment 

to the vast majority of LTCH cases is 

determined based on the MS–LTC–DRG 

relative weight. Therefore, 

documentation and coding under the FY 

2009 MS–LTC–DRGs that results in the 

aggregate grouping to a higher weighted 

MS–LTC–DRG do affect aggregate LTCH 

PPS payments. To the extent this 

occurs, as discussed in greater detail 

above, it is appropriate to make an 

adjustment to the LTCH PPS payment 

rates to account for any changes in 

aggregate LTCH PPS payments. 

After consideration of these public 

comments, we continue to find the 

methodology used by our actuaries and 

endorsed by MedPAC to determine the 

magnitude of the increase in case-mix 

due to the effects of documentation and 

coding resulting from the adoption of 

the MS–LTC–DRGs in FYs 2008 and 

2009 that do not reflect increased 

severity of illness to be the most 

appropriate methodology because it 

directly removes real changes in casemix from the calculation. The 

distributional analyses submitted by 

NALTH also indicate that the 

classifications and relative weights 

associated with FY 2008 and FY 2009 

MS–LTC–DRGs increased aggregate 

LTCH PPS payments and support the 

need for a documentation and coding 

adjustment. 

Comment: In addition to challenging 

the proposed methodology for 

determining the proposed ¥2.5 percent 

documentation and coding adjustment, 

some commenters argued, as they have 

in response to past rulemaking, that 

there is no statutory authority to apply 

the proposed ¥2.5 percent 

documentation and coding adjustment. 

Again, these commenters stated that 

Public Law 110–90 contains explicit 

authority to make a documentation and 

coding adjustment to IPPS hospitals, but 

does not extend that authority to 

hospitals paid under the LTCH PPS. 

One commenter argues that the 

Secretary lacks the authority to make a 

documentation and coding adjustment 

under the LTCH PPS based on the 

statutory construct, wherein the LTCH 

PPS is explicitly omitted from the 

requirements of Public Law 110–90. The 

commenter also asserted that the 

Secretary’s ‘‘broad authority’’ under 

section 123 of the BBRA, as amended by 

section 307(b) of the BIPA, is 

‘‘misplaced,’’ given such a statutory 

construct. 

Response: We continue to disagree 

with commenters that the Secretary’s 

broad authority under section 123 of the 

BBRA, as amended by section 307(b) of 

the BIPA, ‘‘to provide for appropriate 

adjustments,’’ including updates, is 

misplaced and cannot be applied in this 

instance. We have discussed the basis 

for applying an adjustment for the 

effects of documentation and coding 

that do not reflect increased severity of 

illness in prior rules (most recently in 

the FY 2010 IPPS/RY 2010 LTCH final 

rule (74 FR 43970)) and do not agree 

that the omission of the applicability of 

the requirements of Pub. L. 110–90 to 

the LTCH PPS limits our authority 

under section 123 of the BBRA, as 

amended by section 307(b) of the BIPA, 

to make such an adjustment. 

Comment: Some commenters believed 

that, in proposing a ¥2.5 percent 

adjustment to account for ‘‘apparent’’ 

case-mix increases from prior years, 

CMS is not appropriately applying the 

market basket update, whose purpose is 

to account for the expected increase in 

the prices of goods and services for the 

upcoming year. The commenters stated 

that CMS provides no data that prices in 

FY 2011 will increase less than the full 

market basket estimate, nor does CMS 

explain how case-mix changes relate to 

the changes in the price of inputs 

measured by the market basket. A few 

commenters also argued that there is no 

basis in the existing regulations to 

adjust for changes in case-mix in 

determining an appropriate market 

basket increase. The commenters stated 

that CMS should update the standard 

Federal rate by ‘‘the full market basket 

update’’ for FY 2011. 

Response: In the May 4, 2010 FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24046), we proposed to update to the 

standard Federal rate for FY 2011 based 

on the most recent estimate of the full 

market basket increase at that time and 

based on a proposed adjustment to 

account for changes in documentation 

and coding practices. As noted above, 

due to the timing of the passage of the 

Affordable Care Act, we were unable to 

address those provisions in the May 4, 

2010 FY 2011 IPPS/LTCH PPS proposed 

rule, and the proposed policies and 

payment rates in that proposed rule did 

not reflect the new legislation. 

Consequently, in the June 2, 2010 FY 

2011 IPPS/LTCH PPS supplemental 

proposed rule (75 FR 30968 through 

30970), we revised our proposed update 

to the standard Federal rate for FY 2011, 

consistent with the provisions of the 

Affordable Care Act, which added 

sections 1886(m)(3)(A)(ii) and 

1886(m)(4)(B) to the Act that require a 

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0.50 percentage point reduction to the 

annual update for rate year 2011. 

Consistent with this requirement, in 

that same supplemental proposed rule, 

we proposed an update to the standard 

Federal rate for FY 2011 based on the 

most recent estimate of the full market 

basket increase at that time minus the 

0.50 percentage point required in 

section 1886(m)(4)(B) of the Act and 

based on a proposed adjustment to 

account for changes in documentation 

and coding practices. Therefore, we 

disagree with the commenters that we 

did not appropriately apply the market 

basket update because our proposed 

update did include the full market 

basket increase to account for the 

expected increase in prices for FY 2011, 

adjusted by the statutorily required 0.50 

percentage point reduction. However, 

the full market basket increase 

(including the required statutory 

reduction) is not the only factor used in 

determining our proposed update for FY 

2011. As discussed above, the Secretary 

has broad authority under the statute to 

determine appropriate updates under 

the LTCH PPS, and we believe it is 

appropriate that the update to the 

standard Federal rate reflect an 

adjustment to account for changes in 

case-mix due to the effects of 

documentation and coding that do not 

reflect increased patient severity of 

illness and costs (‘‘apparent’’ case-mix 

changes). 

The component of our proposed 

update to the standard Federal rate for 

FY 2011 to account for ‘‘apparent’’ casemix changes is not intended to adjust 

for the expected changes in the price of 

inputs for the upcoming year, FY 2011 

(as measured by the market basket), but 

to prospectively adjust the rate so that 

the increased level of payments that 

occurred due to the effects of 

documentation and coding that do not 

reflect increased patient severity of 

illness do not continue into future years. 

As MedPAC stated in its public 

comment, LTCH payment rates should 

be reduced by the proposed adjustment 

for the effects of documentation and 

coding in FYs 2008 and 2009 that do not 

reflect increased severity of illness ‘‘to 

prevent further overpayments.’’ 

We disagree that prior annual updates 

to the LTCH PPS have addressed the 

effects of documentation and coding 

practices in FYs 2008 and 2009. 

Although we have made adjustments for 

the effects of documentation and coding 

practices that do not reflect increased 

patient severity of illness in establishing 

an update to the standard Federal rate 

for the past 4 years (RYs 2007 through 

2010), those adjustments were based on 

LTCH claims data from FYs 2004 

through 2007, respectively. To date, we 

have never based any adjustment based 

on the change in case-mix identified in 

FYs 2008 or FY 2009 claims data. 

Specifically, in the FY 2008 and FY 

2009 final rules, we explained that we 

believe that the adoption of the MS– 

LTC–DRGs would create a risk of 

increased aggregate levels of payment as 

a result of changes in documentation 

and coding practices. However, we did 

not establish any prospective 

adjustment to account for the effect of 

documentation and coding for FY 2008 

or FY 2009 resulting from the adoption 

of the MS–LTC–DRG system because, at 

the time, we had not been able to 

determine an appropriate adjustment 

factor for LTCHs and because we had an 

established mechanism to adjust LTCH 

PPS payments to account for the effects 

of documentation and coding practices 

in a prior period based on actual LTCH 

data. Instead, we indicated that we 

would continue to monitor the LTCH 

payment system, and should we find 

any ‘‘apparent’’ case-mix increase due to 

the adoption of the MS–LTC–DRG 

classification system, we would propose 

appropriate adjustments to account for 

that case-mix increase that is not due to 

increased severity of illness. We also 

discussed our intended future 

evaluation of LTCH claims data and 

resulting case-mix growth from the 

implementation of the MS–LTC–DRG 

system, similar to the evaluation that we 

intended for the MS–DRG system under 

the IPPS, and stated that the analysis, 

findings, and any resulting proposals to 

adjust payments to offset the estimated 

amount of increase or decrease in 

aggregate payments that occurred in FY 

2008 and FY 2009 for LTCHs as a result 

of the effect of documentation and 

coding, will be discussed in future 

years’ proposed rules, which would be 

open for public comment. ((72 FR 47297 

through 47299) and (73 FR 26809)) 

With respect to the comment that 

there is no basis in the existing 

regulations to adjust for changes in casemix in determining an appropriate 

market basket increase, as we discuss 

above, we are not accounting for casemix changes in determining an 

appropriate market basket increase. 

Rather, as explained above, our 

proposed update to the standard Federal 

rate for FY 2011 is based on the full 

market increase (including the required 

statutory reduction) and a separate 

component to adjust for the effect of 

case-mix changes in a prior period (FYs 

2008 and 2009). Furthermore, we point 

out that the existing regulations in 42 

CFR part 412, subpart 0 (the subpart 

governing the LTCH PPS) do not 

address future updates to the standard 

Federal rate, including the update for 

FY 2011. 

Comment: Many of the commenters 

expressed concern that many of the 

proposals affecting the LTCH PPS 

payment rates for FY 2011, including 

the proposed decrease to the standard 

Federal rate and the proposed increase 

to the fixed-loss amount, violates the 

premise that the Medicare program will 

adequately reimburse LTCHs for the 

costs of treating Medicare beneficiaries 

and will result in payments that are 

below the costs incurred for treating 

these patients. The commenters 

contended that CMS did not consider all 

of its payment rate and policy changes 

in developing its proposals for FY 2011, 

especially the impact of the proposed 

increase in the high-cost outlier 

threshold, nor did CMS consider the 

combined impact of the proposed ¥2.5 

percent documentation and coding 

adjustment and the reductions to the 

market basket update mandated by the 

Affordable Care Act. 

Response: We understand the 

commenters’ concern regarding the 

possible financial impact that may be 

caused by the proposed changes to the 

LTCH payment rates and factors for FY 

2011. However, we disagree that we did 

not consider the overall impact of all 

proposed policy changes in developing 

our proposals for FY 2011 under the 

LTCH PPS. As we discussed in greater 

detail above in this preamble and in 

section V. of the Addendum of this final 

rule, we believe that the changes we 

proposed (and are finalizing) to the 

payment rates and factors for FY 2011 

will result in an appropriate level of 

payments under the LTCH PPS. 

Specifically, with regard to the update 

to the standard Federal rate, which 

includes the reductions to the market 

basket update mandated by the 

Affordable Care Act (discussed in V. of 

the Addendum to this final rule), we 

agree with MedPAC that it is 

appropriate to focus on minimizing the 

accumulation of overpayments resulting 

from the effects of documentation and 

coding practices that do not reflect 

increased severity of illness (and costs) 

and should not further delay making the 

¥2.5 percent adjustment to account for 

changes in documentation and coding 

practices in FYs 2008 and 2009 that do 

not reflect patient severity of illness. 

With regard to the increase to the highcost outlier fixed-loss amount, as 

discussed in section V. C. of the 

Addendum of this final rule, based on 

the latest available data and payment 

rate changes we are establishing in this 

final rule, it is necessary to increase the 

fixed-loss amount for FY 2011 in order 

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to maintain the regulatory requirement 

that estimated high-cost outlier 

payments would be equal to 8 percent 

of estimated aggregate LTCH PPS 

payments. 

Comment: Some commenters 

contended that the proposed ¥2.5 

percent adjustment to account for the 

increase in case-mix due to the effects 

of documentation and coding practices 

that do not reflect increased severity of 

illness is ‘‘punitive,’’ ‘‘excessive’’ and 

‘‘unprecedented,’’ stating that ‘‘the size, 

scope and timing of the proposed 

adjustment will have a severe impact on 

LTCHs.’’ The commenters pointed out 

that CMS has never imposed an 

adjustment for the effect of 

documentation and coding practices 

that reduced the standard Federal rate to 

a level that falls below the rate of the 

prior year. The commenters stated 

further that CMS has never 

implemented a single adjustment based 

on multiple years of data, and asserted 

that adopting a reduction to the rates in 

a single fiscal year to reflect changes in 

case-mix that occurred over a 2-year 

period will have a significant financial 

impact on LTCHs. Although disagreeing 

that the proposed ¥2.5 percent 

adjustment to account for the increase 

case-mix due to the effects of 

documentation and coding practices 

that do not reflect increased severity of 

illness is warranted, the commenters 

recommended that, to mitigate the 

financial impact, CMS maintain the RY 

2010 standard Federal rate or phase-in 

the proposed 2.5 percent reduction over 

a 3-year period. 

Response: We understand the 

commenters’ concern regarding the 

possible financial impact that may be 

caused by the proposed changes to the 

LTCH payment rates and factors for FY 

2011. However, we disagree that we did 

not consider the overall impact of all 

proposed policy changes in developing 

our proposals for FY 2011 under the 

LTCH PPS. As we discussed in the 

regulatory impact analysis of the June 2, 

2010 supplemental proposed rule, 

which reflected the provisions of the 

Affordable Care Act as well as other 

proposed rate and policy, we believe 

that the changes we proposed to the 

payment rates and factors for FY 2011 

will result in an appropriate level of 

payments under the LTCH PPS. In that 

impact analysis, we projected an 

average 0.3 percent increase in aggregate 

LTCH PPS payments in FY 2011 as 

compared to RY 2010. In this final rule, 

we projected an average 0.5 percent 

increase in aggregate LTCH PPS 

payments in FY 2011, as compared to 

RY 2010. 

It is true that we never implemented 

an adjustment for the effect of 

documentation and coding practices 

that reduced the standard Federal rate to 

a level below the rate that is currently 

in effect. It is also true that we 

previously have not implemented a 

single adjustment based on multiple 

years of data. However, as we have 

discussed in great detail in this section, 

we believe that documentation and 

coding adjustments to LTCH payments 

is necessary to offset the effects of casemix increases due to documentation and 

coding practices under the MS–LTC– 

DRGs. We have consistently stated since 

the adoption of the MS–LTC–DRGs 

beginning in FY 2008 that we believe 

that the adoption of the MS–LTC–DRGs 

would create a risk of increased 

aggregate levels of payment as a result 

of the effects of documentation and 

coding practices. However, we did not 

establish any prospective adjustment to 

account for improved coding practices 

for FY 2008 or FY 2009 resulting from 

the adoption of the MS–LTC–DRG 

system because, at the time, we had not 

been able to determine an appropriate 

adjustment factor for LTCHs and 

because we had an established 

mechanism to adjust LTCH PPS 

payments to account for the effects in 

documentation and coding practices in 

a prior period based on actual LTCH 

data. Furthermore, as stated above, we 

agree with MedPAC that it is 

appropriate to focus on minimizing the 

accumulation of overpayments resulting 

from the effects of documentation and 

coding practices that do not reflect 

increased severity of illness (and costs) 

and should not further delay making the 

¥2.5 percent adjustment to account for 

the effects of documentation and coding 

practices in FYs 2008 and 2009 that do 

not reflect severity of illness. Therefore, 

we are not adopting the commenters’ 

suggestion to limit the adjustment so 

that the standard Federal rate remains at 

its current level or to phase-in the 

adjustment over more than one year. 

Accordingly, for the reasons discussed 

above, in this final rule, we are 

finalizing our proposal to apply a ¥2.5 

percent adjustment to account for the 

effect of documentation and coding 

practices that do not reflect an increase 

in severity of illness due to the adoption 

of the MS–LTC–DRGs. 

Therefore, in this final rule, under the 

Secretary’s broad authority under 

section 123 of the BBRA, as amended by 

section 307(b) of the BIPA, to provide 

for appropriate adjustments, including 

updates, we are applying an adjustment 

for the effect of documentation and 

coding in a prior period (FYs 2008 and 

2009) that do not reflect an increase in 

patient severity of illness of ¥2.5 

percent. Accordingly, as discussed in 

section V. of the Addendum to this final 

rule, the update to the standard Federal 

rate for FY 2011 is ¥0.49 percent, 

which is based on the most recent 

estimate of the market basket increase, 

including the required percentage point 

reduction, of 2.0 percent and an 

adjustment to account for the effect of 

documentation and coding practices of 

¥2.5 percent. 

D. Change in Terminology From ‘‘Rate 

Year’’ to ‘‘Fiscal Year’’ 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24046), we made 

several proposals that were designed to 

promote clarity regarding the changes 

that have been made to the schedule 

and terminology associated with the 

annual update for the LTCH standard 

Federal payment rates and the MS– 

LTC–DRG relative weights as well as the 

publication cycle for rulemaking for the 

LTCH PPS. A historical review of these 

changes is as follows: 

• Initially, the standard Federal rates 

and the LTC–DRG classification and 

relative weights were established on a 

Federal Fiscal year (FY) cycle of October 

1 through September, beginning October 

1, 2002 (FY 2003). 

• In the June 6, 2003 Federal Register 

(68 FR 34125), the LTCH PPS final rule 

changed the annual update of the 

standard Federal rate to a July 1 to June 

30 cycle (the LTCH PPS rate year (RY)) 

while it continued to provide for an 

update of the LTC–DRG classification 

and relative weights on the FY 

schedule, effective from October 1 

through September 30 in conformity 

with the IPPS. 

• Beginning with the annual update 

to the LTCH PPS that took effect on 

October 1, 2009, we consolidated the 

rulemaking cycle for the annual update 

of the LTCH PPS Federal payment rates 

with the annual update of the MS–LTC– 

DRG classifications and weights for 

LTCHs so that the updates to the rates 

and factors have an October 1 effective 

date and occur on the same schedule 

and appear in the same Federal Register 

document. To reflect this change to the 

annual payment rate update cycle, we 

revised the regulations at § 412.503 to 

specify that, beginning on or after 

October 1, 2009, the LTCH PPS rate year 

is defined as October 1 through 

September 30 (73 FR 26797 through 

26798 and 26838). 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24046 and 24047), 

we proposed to change the terminology 

used under the LTCH PPS with respect 

to the annual update to the standard 

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Federal rate and the MS–LTC–DRG 

relative weight recalibration cycle. 

Specifically, we proposed to change 

from using the term ‘‘rate year’’ to ‘‘fiscal 

year,’’ in order to conform with the 

standard definition of the Federal fiscal 

year (October 1 through September 30) 

used by the IPPS. Because the annual 

updates to both the LTCH PPS standard 

Federal rate (and associated factors) and 

the MS–LTC–DRG classifications and 

relative weights now occur at the same 

time as the annual updates under the 

IPPS, we believe this change eliminates 

any possible confusion that may be 

caused by continuing to identify the 

LTCH update cycle as a ‘‘rate year.’’ 

Therefore, we proposed to use the term 

‘‘fiscal year’’ when referring to the 

annual updates for the LTCH standard 

Federal payment rates and the MS– 

LTC–DRG relative weights as well as to 

the publication cycle for rulemaking for 

the LTCH PPS. We proposed to add a 

definition of ‘‘long-term care hospital 

prospective payment system fiscal year’’ 

at § 412.503 (75 FR 24058). We also 

proposed to revise our definition of 

‘‘long-term care hospital prospective 

payment system rate year’’ in the 

regulations at § 412.503 to reflect that 

such term does not apply to time 

periods after September 30, 2010 (75 FR 

24046 and 24058). 

For a detailed description of our 

rationale regarding the above-described 

proposed changes, we refer the reader to 

the discussion in the FY 2011 IPPS/ 

LTCH PPS proposed rule (75 FR 24046 

and 24047). 

In addition, we proposed to add a 

definition of ‘‘long-term care hospital 

prospective payment system payment 

year’’ to § 412.503 in order to encompass 

both the long-term care hospital 

prospective payment system rate year 

and the long-term care hospital 

prospective payment system fiscal year. 

It is our intent that this term would be 

used when describing ongoing policy 

features of the LTCH PPS for which, 

depending upon the time period, either 

the term ‘‘long-term care hospital 

prospective payment system rate year’’ 

or ‘‘long-term care hospital prospective 

payment system fiscal year’’ would be 

applicable. We refer readers to the FY 

2011 IPPS/LTCH PPS proposed rule (75 

FR 24046) for a discussion of our 

rationale for this change. Also, as a 

conforming change, we proposed to 

change the terminology in 

§ 412.525(a)(1) and (a)(2), which 

describes the high-cost outlier policy 

(an ongoing feature of the LTCH PPS 

from its inception), from ‘‘long-term care 

hospital prospective payment system 

rate year’’ to ‘‘long-term care hospital 

prospective payment system payment 

year.’’ We believe that this change, 

which would reference the proposed 

new definition of the long-term care 

hospital prospective payment system 

payment year period at § 412.503, 

reflects the application of the high-cost 

outlier policy for the period 

encompassed by both the current ‘‘rate 

year’’ terminology and the proposed 

change to ‘‘fiscal year’’ terminology, 

described above. We believe that these 

changes present a straightforward way 

to provide additional clarity to our 

regulations in a circumstance that 

reflects changes in terminology but does 

not entail any change to the high-cost 

outlier policy. 

We received several comments on this 

proposed clarification and revision of 

terminology, all of them strongly in 

favor of the proposed changes. 

Therefore, for the reasons set forth in 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24046 through 24047) and 

in light of the public’s support for our 

proposals, we are adopting as final 

without modification the proposed 

change in terminology from LTCH PPS 

‘‘rate year’’ to LTCH PPS ‘‘fiscal year’’ 

beginning October 1, 2010 (FY 2011) 

and the proposed changes to § 412.503 

with the addition of the definition of 

‘‘long-term care hospital prospective 

payment system fiscal year’’ and the 

modification of the definition of ‘‘longterm care hospital prospective payment 

system rate year.’’ We also are finalizing 

the addition of the term ‘‘long-term care 

hospital prospective payment system 

payment year’’ at § 412.503 and the 

conforming regulation text changes at 

§ 412.525(a)(1) and (a)(2) to capture this 

new term. 

E. Finalization of Interim Final Rule 

With Comment Period Implementing 

Section 4302 of the American Recovery 

and Reinvestment Act of 2009 (Pub. L. 

111–5) Relating to Payments to LTCHs 

and LTCH Satellite Facilities 

1. Background 

On August 27, 2009, we published in 

the Federal Register (74 FR 43990 

through 43992), an interim final rule 

with comment period to implement 

certain provisions of section 4302 of the 

American Recovery and Reinvestment 

Act of 2009 (ARRA) (Pub. L. 111–5). 

Section 4302 of the ARRA amended 

several provisions of section 114 of the 

MMSEA relating to LTCHs. Specifically, 

section 4302(a) amended sections 

114(c)(1) and (c)(2) of the MMSEA, and 

section 4302(b) amended section 

114(d)(3)(A) of the MMSEA. In both 

cases, these ARRA provisions were to be 

effective and applicable as if the 

amendments had been included in the 

MMSEA. (The enactment of the 

Affordable Care Act amended certain 

provisions of the MMSEA which had 

been amended by the ARRA.) Below we 

briefly review the amendments made to 

sections 114(c)(1) and (c)(2) and section 

114(d) of the MMSEA by section 4302(a) 

and (b), respectively, of the ARRA, 

respond to the one public comment that 

we received on the August 27, 2009 

interim final rule with comment period, 

and finalize the policies as described 

below. (We note that the timeframes in 

these provisions were subsequently 

amended by the provisions of the 

Affordable Care Act as discussed below 

in section VII.F. of this preamble.) 

2. Amendments Relating to Payment 

Adjustment to LTCHs and LTCH 

Satellite Facilities Made by Section 

4302 of the ARRA 

Section 114(c)(1)(A) and (B) of the 

MMSEA established a 3-year delay, for 

cost reporting periods beginning on or 

after December 29, 2007, for 

freestanding LTCHs (defined at 

§ 412.23(e)(5)) and ‘‘grandfathered’’ longterm care hospitals-within-hospitals 

(HwHs), from the application of the 

percentage threshold payment 

adjustment established under § 412.536 

or § 412.534, respectively, or any similar 

provision. Section 4302(a)(1) of the 

ARRA amended the provisions of 

sections 114(c)(1)(A) and (B) of the 

MMSEA as follows: 

First, under section 4302(a)(1)(A) of 

the ARRA, the heading of section 

114(c)(1) is changed to ‘‘Delay in 

Application of 25 Percent Patient 

Threshold Payment Adjustment’’ from 

the original ‘‘No Application of 25 

Percent Patient Threshold Payment 

Adjustment to Freestanding and 

Grandfathered LTCHs.’’ 

Second, under section 4302(a)(1)(B) of 

the ARRA, the effective date of the delay 

in application of the 25-percent patient 

threshold payment adjustment found in 

section 114(c)(1) of the MMSEA is 

changed from the date of enactment of 

the MMSEA (that is, December 29, 2007) 

to July 1, 2007. As a result, for a 

‘‘grandfathered’’ long-term care HwH or 

a ‘‘freestanding’’ LTCH with a cost 

reporting period beginning before 

December 29, 2007, the applicable 

payment adjustments at § 412.534(h) 

and § 412.536 would be delayed 3 years. 

This is the case because our regulations 

at § 412.534(h), with respect to 

‘‘grandfathered’’ LTCHs, and § 412.536 

with respect to all LTCHs, were to be 

effective beginning with cost reporting 

periods beginning on or after July 1, 

2007. Therefore, the amendment made 

by section 4302(a)(1)(B) of the ARRA to 

section 114(c)(1) of the MMSEA results 

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in a uniform application of the statutory 

3-year relief from the 25 percentage 

threshold payment adjustment. 

Third, section 4302(a)(1)(C) of the 

ARRA added, for 3 years, a third 

category of LTCHs that will not be 

subject to §§ 412.534 and 412.536, or 

any similar provisions of the regulations 

for a 3-year period for cost reporting 

periods beginning on or after July 1, 

2007. Specifically, section 4302(a)(1)(C) 

of the ARRA extended the 3-year 

exemption from the percentage 

threshold payment adjustments at 

§§ 412.534 and 412.536 to include 

‘‘* * * a long-term care hospital, or 

satellite facility, that as of December 29, 

2007, was co-located with an entity that 

is a provider-based, off-campus location 

of a subsection (d) hospital which did 

not provide services payable under 

section 1886(d) of the Social Security 

Act at the off-campus location * * *.’’ 

Therefore, no percentage threshold (and 

therefore, no payment adjustment) will 

be applied for patients discharged from 

an acute care hospital who are admitted 

to a LTCH or LTCH satellite facility that 

is co-located with an entity that is a 

provider-based, off-campus location of 

an acute care hospital (as set forth in our 

regulations at § 413.65) as long as there 

are no inpatient acute care hospital 

services payable under section 1886(d) 

of the Act offered at that off-campus 

location. For example, this would apply 

to a situation where an acute care 

hospital, that Medicare pays under the 

IPPS, is located on the main campus of 

a multicampus entity and, on a second 

campus of that acute care hospital, the 

LTCH shares a building with an IRF unit 

or an outpatient clinic that is providerbased to the acute care hospital as long 

as there are no services payable under 

the IPPS hospital provided at that 

second campus. 

Section 114(c)(2) of the MMSEA 

provided, for a 3-year period, increases 

in the percentage thresholds (‘‘payment 

adjustments’’) established under 

§ 412.534 for ‘‘applicable’’ LTCHs or 

satellite facilities for cost reporting 

periods beginning on or after December 

29, 2007. Specifically, if the threshold 

percentage would have been 25 percent, 

for 3 years it will increase to 50 percent; 

and if the threshold would have been 50 

percent prior to the enactment of the 

MMSEA, it will increase to 75 percent. 

The term ‘‘applicable’’ was defined as 

‘‘* * * a hospital or satellite facility that 

is subject to the transition rules under 

section 412.534(g) of title 42 of the Code 

of Federal Regulations.’’ The revisions 

made by section 114(c)(2) of the 

MMSEA were limited to a hospital or a 

satellite subject to the transition rules at 

§ 412.534(g) of the regulations. 

However, because ‘‘grandfathered’’ 

LTCH satellite facilities are subject to 

the transition at § 412.534(h) of the 

regulations, not at § 412.534(g), the 

percentage increase resulting from the 

application of section 114(c)(2) did not 

apply to them (73 FR 29703). 

Section 4302(a)(2)(A) of the ARRA 

modified the definition of ‘‘applicable 

long-term care hospital or satellite 

facility.’’ This provision amended 

section 114(c)(2)(B)(ii) of the MMSEA 

by specifying that those ‘‘grandfathered 

satellites’’ described in § 412.22(h)(3)(i) 

of the regulations were to be included 

in the definition. (Under 

§ 412.22(h)(3)(i), ‘‘grandfathered’’ 

satellites were exempted from 

compliance with the ‘‘separateness and 

control’’ rules specified in § 412.22(h) if 

they had been structured as a satellite 

facility on or before September 30, 

1999.) However, we note that 

‘‘grandfathered satellites’’ under 

§ 412.22(h)(3) continue to be subject to 

the applicable percentage thresholds 

outlined in § 412.536 for patients 

admitted from any individual hospital 

with which they were not co-located 

because there were no exceptions for 

such entities for purposes of payment as 

provided in § 412.536. Section 

4302(a)(1)(C) of the ARRA provided that 

grandfathered satellite facilities under 

§ 412.22(h)(3) will not be subject to 

§§ 412.534 and 412.536, or any similar 

provision of the regulations, for a 3-year 

period for cost reporting periods 

beginning on or after July 1, 2007. 

Specifically, under section 4302(a)(1)(C) 

of the ARRA that amended section 

114(c)(1) of the MMSEA, no percentage 

threshold (and, therefore, no payment 

adjustment) will be applied for patients 

discharged from an acute care hospital 

who are admitted to a LTCH or LTCH 

satellite facility that, as of December 29, 

2007, was co-located with an entity that 

is a provider-based, off-campus location 

of an acute care hospital (as set forth in 

the regulations at § 413.65) as long as 

there are no inpatient acute care 

hospital services payable under section 

1886(d) of the Act provided at that offcampus location. 

Section 114(c)(2)(C) of the MMSEA 

applied the 3-year increase in the 

percentage thresholds at § 412.534 of the 

regulations for cost reporting periods 

beginning on or after the date of 

enactment of the MMSEA (December 29, 

2007). Section 4302(a)(2)(B) of the 

ARRA revised the effective date of the 

MMSEA provisions to cost reporting 

periods beginning on or after October 1, 

2007, for LTCHs and LTCH satellite 

facilities that were subject to the 

transition rules under § 412.534(g) and 

also established the effective date as 

cost reporting periods beginning on or 

after July 1, 2007, ‘‘* * * in the case of 

a satellite facility described in section 

412.22(h)(3)(i) of title 42 of the Code of 

Federal Regulations.’’ (Different dates 

are applicable because the effective date 

for the 25 percent threshold payment 

adjustment policy for LTCHs and LTCH 

satellite facilities governed under 

§ 412.534(g) was October 1, 2005, while 

the percent threshold for 

‘‘grandfathered’’ LTCH satellite facilities 

policy was effective for cost reporting 

periods beginning on or after July 1, 

2007.) 

The result of this modification in the 

effective date of the 3-year increase in 

the percentage threshold for 

‘‘applicable’’ LTCHs and LTCH satellite 

facilities (now including ‘‘grandfathered 

satellites’’) is that LTCHs and LTCH 

satellite facilities will not have the fully 

phased-in 25 percentage threshold 

payment adjustment applied for cost 

reporting periods beginning on or after 

October 1, 2007, and ‘‘grandfathered’’ 

satellite facilities will not be subject to 

the transition to the 25 percentage 

threshold for cost reporting periods 

beginning on or after July 1, 2007. 

To implement the provisions of 

section 4302 of the ARRA, in the August 

27, 2009 interim final rule with 

comment period, we revised the 

regulations at §§ 412.534 and 412.536 to 

reflect the statutory revisions described 

above. 

Comment: One commenter stated that 

CMS had failed to specify that a 

‘‘grandfathered’’ LTCH satellite facility 

that met the description of the third 

category of LTCHs and LTCH satellite 

facilities included in the amendment to 

section 114(c)(1) of the MMSEA by 

section 4302(a)(1)(C) of the ARRA (that 

is, ‘‘* * * a long-term care hospital, or 

satellite facility, that as of December 29, 

2007, was co-located with an entity that 

is a provider-based, off-campus location 

of a subsection (d) hospital which did 

not provide services payable under 

section 1886(d) of the Social Security 

Act at the off-campus location’’) was 

also exempt from compliance with the 

25-percent policy for 3 years. 

Response: We agree all those LTCH 

satellite facilities described above are 

exempt from the 25-percent policy at 

§ 412.536 for 3 years. 

In this final rule, we are finalizing the 

provisions of the August 27, 2009 

interim final rule with comment period 

which revised the regulations at 

§§ 412.534 and 412.536 to reflect the 

ARRA statutory revisions. 

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3. Amendment to the Moratorium on the 

Increase in Number of Beds in Existing 

LTCHs or LTCH Satellite Facilities 

Made by Section 4302 of the ARRA 

Section 114(d) of the MMSEA 

provided a 3-year moratorium on any 

increase in the number of hospital beds 

in existing LTCHs and LTCH satellite 

facilities. (The definition of an existing 

LTCH and LTCH satellite facility for 

purposes of this policy is codified at 

§ 412.23(e)(7)(i).) Section 114(d) of the 

MMSEA included an exception to the 

moratorium on the increase in hospital 

beds in existing LTCHs and LTCH 

satellite facilities. Specifically, section 

114(d)(3)(A) of the MMSEA provided 

that the moratorium on the increase in 

beds in an existing LTCH or LTCH 

satellite facility would not apply to an 

increase in beds if an existing LTCH or 

LTCH satellite facility is ‘‘located in a 

State where there is only one other longterm care hospital; and requests an 

increase in beds following the closure or 

the decrease in the number of beds of 

another long-term care hospital in the 

State.’’ 

Section 4302(b) of the ARRA added 

an additional exception to the bedincrease moratorium in an existing 

LTCH or LTCH satellite facility ‘‘* * * 

if the hospital or facility obtained a 

certificate of need for an increase in 

beds that is in a State for which such 

certificate of need is required and that 

was issued on or after April 1, 2005, and 

before December 29, 2007.’’ 

Accordingly, in the August 27, 2009 

interim final rule with comment period, 

we revised our regulations at 

§ 412.23(e)(7)(ii)(B) to include the new 

exception to the moratorium on an 

increase in the number of beds in 

existence in an existing LTCH or LTCH 

satellite facility beyond those in 

existence on December 29, 2007. 

Section 4302(c) of the ARRA specifies 

that the ‘‘* * * effective date of the 

amendments made by this section shall 

be effective and apply as if included in 

the enactment of the Medicare, 

Medicaid, and SCHIP Extension Act of 

2007’’ (Pub. L. 110–173). 

We did not receive any public 

comments on this provision in the 

August 27, 2009 interim final rule with 

comment period. Therefore, we are 

finalizing, without modification, our 

revision of § 412.23(e)(7)(ii)(B) to 

include the new exception to the 

moratorium on an increase in the 

number of beds in existence in an 

existing LTCH or LTCH satellite facility 

beyond those in existence on December 

29, 2007. 

F. Extension of Certain Payment Rules 

for LTCH Services and Moratorium on 

the Establishment of Certain Hospitals 

and Facilities and the Increase in 

Number of Beds in Existing LTCHs or 

LTCH Satellite Facilities 

1. Background 

As explained in the June 2, 2010 FY 

2011 IPPS/LTCH PPS supplemental 

proposed rule, sections 114(c) and (d) of 

MMSEA (Pub. L. 110–173, enacted 

December 29, 2007), made various 

changes to certain LTCH PPS policies. 

These changes were implemented in 

two interim final rules published in 

May 2008 (73 FR 24871 and 73 FR 

29699). The ARRA (Pub. L. 111–5) was 

enacted on February 17, 2009, and 

section 4302 of the ARRA amended 

sections 114(c) and (d) of the MMSEA. 

These changes were implemented in an 

interim final rule with comment period, 

which was published with the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 43990 through 43994). In that same 

rule, the MMSEA provisions that were 

not affected by the passage of ARRA 

were finalized. (For a more complete 

description of the MMSEA, as amended 

by ARRA changes to LTCH PPS policies, 

we refer readers to the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 43976 

through 43990). 

Subsequent to the passage of the 

ARRA, the Patient Protection and 

Affordable Care Act and the Health Care 

Education Reconciliation Act of 2010 

(collectively referred to as the 

Affordable Care Act) was passed. 

Sections 3106 and 10312 of the 

Affordable Care Act together provide for 

a 2-year extension to the payment 

policies applicable to LTCHs and LTCH 

satellite facilities set forth in sections 

114(c) and (d)(1) of the MMSEA, as 

amended by the ARRA. Specifically, 

sections 3106 and 10312 of the 

Affordable Care Act together result in 

the phrase ‘‘3-year period’’ being 

replaced with the phrase ‘‘5-year period’’ 

each place it appears in sections 114(c) 

and (d)(1) of MMSEA, as amended by 

the ARRA. (The ARRA amendments, 

which were implemented in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43990 through 43994) are 

finalized in section VII. E. of this final 

rule.) We note that the changes required 

by sections 3106 and 10312 of the 

Affordable Care Act are selfimplementing and were announced in 

the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule. In that 

same proposed rule, we also proposed 

to revise the regulation text to 

incorporate such existing law. 

Sections 3106 and 10312 of the 

Affordable Care Act, which amended 

sections 114(c) and (d)(1) of the 

MMSEA, as amended by the ARRA, 

result in the following: 

• An additional 2-year delay in the 

application of the SSO payment 

adjustment, which would have applied 

the additional payment option of an 

‘‘IPPS comparable’’ payment to LTCHs 

for certain SSO cases where the covered 

length of stay is less than or equal to the 

‘‘IPPS comparable threshold’’ (75 FR 

30966 and 72 FR 26904 through 26918). 

Therefore, the Secretary will not apply 

this SSO payment adjustment for the 

5-year period beginning on the date of 

enactment of MMSEA (December 29, 

2007). As proposed, in this final rule the 

regulations at § 412.529(c)(2) and (c)(3) 

are revised to incorporate this 

additional 2-year delay provided for 

under the Affordable Care Act. 

• An additional 2-year delay in the 

one-time prospective budget neutrality 

adjustment to the standard Federal rate 

(§ 412.523(d)(3)). Thus, the Secretary is 

precluded from making the one-time 

adjustment to standard Federal rate 

until December 29, 2012. For a detailed 

description of this change, we refer 

readers to the discussion in the FY 2011 

IPPS/LTCH PPS supplemental proposed 

rule (75 FR 30966). As proposed, in this 

final rule the regulations at 

§ 412.523(d)(3) are revised to 

incorporate this additional 2-year delay. 

• An increase from 3 years to 5 years 

to the timeframes set forth in section 

114(c) of the MMSEA as amended by 

the ARRA, thereby extending for an 

additional 2 years the delay in the 

application of the 25-percent payment 

threshold policy for certain LTCHs and 

LTCH satellite facilities (§§ 412.534 and 

412.536), and extending for an 

additional 2 years, the increased 

percentage thresholds outlined at 

section 114(c)(2) of the MMSEA as 

amended by the ARRA (which is 

discussed in detail in section VII. E. of 

this final rule). As proposed, in this 

final rule we are amending the 

regulations at § 412.534(c)(1) through 

(c)(3), (d)(1) through (d)(3), (e)(1) 

through (e)(3), (h)(4) through (h)(5) and 

§ 412.536(a)(2) to incorporate the 2-year 

delay and extension, as applicable, 

provided for under the Affordable Care 

Act. For a detailed description of 

sections 114(c)(1) and (c)(2) of the 

MMSEA as amended by the ARRA and 

the regulations implementing those 

provisions, we refer readers to the LTCH 

PPS interim final rule with comment 

period at 73 FR 29701 through 29704, 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule at 74 FR 43980 through 43984, 

and section VII. E. of this final rule 

where we finalize the interim final rule 

with comment period implementing 

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50400 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

section 4302 of the ARRA, which we 

published in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43990 

through 43993). 

• Additional 2-year extensions of the 

moratorium on the establishment of new 

LTCHs and LTCH satellite facilities and 

the moratorium on the increase of LTCH 

beds in existing LTCHs or satellite 

facilities as provided by section 114(d) 

of the MMSEA as amended by the 

ARRA. In general, section 114(d) of the 

MMSEA as amended by the ARRA 

precluded the establishment and 

classification of new LTCHs or LTCH 

satellite facilities or additional beds 

from being added to existing LTCHs or 

LTCH satellite facilities unless one of 

the specified exceptions to the 

particular moratorium was met. For a 

detailed description of the moratoriums, 

we refer readers to the discussions at 73 

FR 29704 through 29707, 74 FR 43985 

through 43992, and 75 FR 30968. As 

proposed, in this final rule we are 

amending the regulations at 

§ 412.23(e)(6)(i) and (e)(7)(ii) to 

incorporate the additional 2-year 

extension of the moratoriums, discussed 

above. 

We did not receive any public 

comments on the provisions as 

presented in the June 2, 2010 

supplemental proposed rule, and 

therefore, in this final rule, we are 

finalizing these provisions as presented. 

VIII. Effective Date of Provider 

Agreements and Supplier Approvals 

A. Background 

Section 1866 of the Act states that any 

provider of services as defined under 

section 1861(u) of the Act (except a fund 

designated for purposes of sections 

1814(g) and 1835(e) of the Act) shall be 

qualified to participate in the Medicare 

program and shall be eligible for 

Medicare payments if it files with the 

Secretary a Medicare provider 

agreement and abides by the 

requirements applicable to Medicare 

provider agreements. These 

requirements are incorporated into our 

regulations in 42 CFR part 489, subparts 

A and B. Section 1866(b)(2) of the Act 

provides that the Secretary may refuse 

to enter into, or may terminate, an 

agreement with a provider for various 

reasons, including the provider’s failure 

to comply with the provisions of the 

agreement and if it has been determined 

that the provider fails to meet the 

applicable provisions of section 1861 of 

the Act, including health and safety 

standards. Certain suppliers are also 

required under the Act to meet health 

and safety standards specified by the 

Secretary: Section 1861(aa)(2)(K), with 

respect to rural health clinics; section 

1832(a)(2)(F)(i), with respect to 

ambulatory surgical centers; and section 

1881(b)(1)(A), with respect to providers 

of renal dialysis services. 

Under section 1864(a) of the Act, the 

Secretary enters into agreements with 

State agencies to determine if providers 

and suppliers meet the requisite 

Medicare requirements. Section 1865 of 

the Act permits CMS to ‘‘deem’’ facilities 

that have been accredited by a national 

accreditation organization under a CMSapproved accreditation program as 

having met the Medicare health and 

safety standards. Section 1871 of the Act 

authorizes the Secretary to adopt such 

regulations as may be necessary to carry 

out the requirements of Title XVIII of 

the Act. 

On August 18, 1997, we adopted 

regulations, effective September 17, 

1997 (1997 final rule), establishing 

uniform criteria for determining the 

effective dates of provider agreements 

and supplier approvals in the Medicare 

and Medicaid programs (62 FR 43931). 

Included in these regulations was 42 

CFR 489.13, governing the 

determination of the effective date of a 

Medicare provider agreement or 

supplier approval for health care 

facilities that are subject to survey and 

certification. Facilities subject to survey 

and certification are those that must 

comply with Medicare health and safety 

standards, that is, the conditions of 

participation (CoPs), long-term care 

requirements, conditions for coverage 

(CfC), or conditions for certification, 

depending on the type of facility. (The 

regulations exempt clinical laboratories, 

community mental health centers, and 

federally qualified health centers from 

its general provisions, establishing 

alternative requirements for these 

entities.) Compliance with the 

applicable health and safety standards is 

determined through an onsite survey by 

a State survey agency, CMS, or a CMS 

contractor, or, in accordance with 

section 1865 of the Act, CMS may 

‘‘deem’’ an entity to have satisfied these 

requirements if it has been accredited by 

a national accreditation program 

approved by CMS. Currently, we have 

approved 15 accreditation programs 

offered by 7 national accreditation 

organizations for the following types of 

providers or suppliers: Hospitals, CAHs, 

HHAs, hospices, and ambulatory 

surgical centers. 

Under § 489.13(b) of the regulations, 

the date the survey is completed is the 

effective date of the provider agreement 

or supplier approval, if all applicable 

Federal requirements have been met on 

that date. Similarly, § 489.13(d) 

provides that the effective date for a 

provider or supplier accredited by a 

national accreditation organization 

under a CMS-approved program, and 

which is subject to additional 

requirements not contained in the 

approved program, is the date on which 

all Federal requirements have been met, 

including the additional requirements. 

We have interpreted these provisions to 

mean not only that the survey/ 

accreditation decision must show that 

the prospective provider or supplier is 

in compliance with all of the applicable 

health and safety standards, but also 

that all other Federal requirements 

related to the prospective provider’s or 

supplier’s participation in the Medicare 

program have been met. 

Other Federal requirements include, 

but are not limited to, the submission of 

an application to enroll in the Medicare 

program that has been reviewed by our 

legacy fiscal intermediaries, legacy 

carriers, or MACs, as applicable, and 

has been found to meet the enrollment 

requirements established in 42 CFR part 

424, subpart P. Other Federal 

requirements also include, for 

providers, compliance with Office for 

Civil Rights requirements. There also 

are additional Federal requirements 

specific to certain provider types, such 

as IPPS exclusion requirements for 

certain types of hospitals, capitalization 

and surety bond requirements for home 

health agencies, among others. 

Under our current process, section 

2003B of the State Operations Manual 

(SOM) (Publication No. 100–07) states 

that: ‘‘The SA [State Survey agency] 

should not perform a survey of a new 

facility until it has received notice from 

the FI [fiscal intermediary] or carrier 

that the information provided on the 

enrollment application has been 

verified.’’ Section 2005 of the SOM 

further states: ‘‘The MAC/legacy FI will 

process the Form CMS–855A and the 

MAC/legacy Carrier will process the 

Form CMS–855B, depending on which 

contractor is responsible for processing 

bills or claims for the provider/supplier. 

* * * The State Survey Agency will be 

responsible for surveying initial 

applicants following the contractor’s 

recommendation for approval, and 

providing the initial certification 

package.’’ (Emphasis added.) 

In accordance with § 488.8(a)(2) of the 

regulations, one of the requirements for 

our approval of a national accreditation 

program is the comparability of its 

survey process to that of State survey 

agencies. Consistent with this 

requirement, in Survey and Certification 

Policy Memorandum S&C–09–08, dated 

October 17, 2008, we indicated that a 

CMS-approved national accreditation 

organization also must not conduct a 

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survey of a facility seeking a Medicare 

provider agreement or supplier approval 

until after the MAC, the legacy fiscal 

intermediary, or the legacy carrier has 

completed its review of the enrollment 

application and notified the applicant 

that its review has been completed and 

a recommendation has been made to 

CMS. 

Therefore, historically, in the normal 

course of events, the survey (including 

the Life Safety Code survey, if 

applicable) of a prospective provider or 

supplier has usually occurred after it 

has demonstrated that it meets the 

Medicare enrollment requirements (that 

is, CMS contractor processing of the 

Form CMS–855 application), and, as a 

result, the effective date of a provider 

agreement or supplier approval is 

generally later than the date when the 

contractor has verified that all 

enrollment requirements have been met. 

However, on occasion, a survey can take 

place before the CMS contractor has 

verified that enrollment requirements 

have been met. This has tended to 

happen more frequently in the case of 

facilities that seek to satisfy Medicare 

participation requirements through 

accreditation by a CMS-approved 

accreditation program, because the 

accreditation organization relies upon 

the facility to advise it when it has 

received notice of completion of the 

review of its enrollment application. 

This can result in the date of an 

accreditation decision preceding the 

date when the CMS contractor 

determination has occurred. In addition, 

in order to prevent fraud and abuse, 

there may be other situations in which 

the CMS contractor performs additional 

enrollment verification activities even 

after a health and safety survey has been 

performed. 

In cases where the CMS contractor 

finds that the prospective provider’s or 

supplier’s compliance with enrollment 

requirements did not occur until after a 

survey by the State survey agency or 

after the accreditation survey and 

accreditation decision take place, it is 

our policy, consistent with our 

interpretation of § 489.13(b), to make the 

effective date of the provider agreement 

or supplier approval the date when the 

enrollment requirements are considered 

to have been met. Specifically, the 

effective date would be the date that 

CMS determines, pursuant to its 

contractor review and verification 

activities, that the applicant is in 

compliance with all enrollment 

requirements and CMS is prepared to 

convey Medicare billing privileges to 

the provider or supplier. However, if 

there are still other Federal 

requirements that remain to be satisfied, 

such as submission of required civil 

rights compliance documentation or 

satisfaction of the specialized 

requirements governing IPPS-excluded 

hospitals, the effective date would be 

the date when the last requirement has 

been satisfied, as determined by CMS. 

B. Departmental Appeals Board 

Decision 

In a decision dated September 28, 

2009, the Appellate Division of the 

Departmental Appeals Board (DAB), in 

the case of Renal CarePartners of Delray 

Beach, LLC v. Centers for Medicare and 

Medicaid Services (DAB Decision No. 

2271), rejected our longstanding 

interpretation of § 489.13(b). In this 

case, a State survey agency completed 

an initial certification survey on July 6, 

2007, of an end-stage renal disease 

supplier, Renal CarePartners, prior to 

the CMS contractor’s November 21, 

2007 recommendation of approval of the 

supplier’s enrollment application. The 

DAB concluded that there was no basis 

in regulation or policy issuances for our 

position that CMS contractor approval is 

a requirement a supplier must satisfy 

‘‘before it may furnish services for which 

it will be reimbursed under Medicare 

once it is enrolled and obtains billing 

privileges’’ (DAB Decision No. 2271, 

page 2). The DAB further characterized 

the issue as ‘‘* * * not whether the 

effective date may be earlier than the 

date Renal CarePartners complied with 

a prerequisite it was required to meet in 

order to enroll, but whether the effective 

date must be delayed until the date the 

Medicare contractor notified CMS that 

the requirements were met’’ (DAB 

Decision No. 2271, page 5) (emphasis in 

original). The DAB agreed with Renal 

CarePartners that the requirement for 

the Medicare contractor to verify and 

determine whether an application 

should be approved is not a requirement 

for the supplier to meet, but a 

requirement for Medicare contractor 

action (DAB Decision No. 2271, page 5). 

The DAB further cited the provisions of 

§ 489.13(d), concerning accredited 

facilities, as an example to bolster its 

contention that there is precedent for 

providers or suppliers to be 

retroactively reimbursed for services 

provided before the date of approval of 

the supplier or provider agreement 

(DAB Decision No. 2271, page 7). 

We disagree with the DAB’s reading 

of our existing regulations. We believe 

that the intent of the existing regulations 

is to require that all applicable Federal 

requirements, including a determination 

of whether the enrollment requirements 

have been satisfied, must be met before 

a provider agreement or supplier 

approval may be effective. Any other 

reading of the regulations could result 

in a provider or supplier being 

permitted to bill the Medicare program 

for services provided at a time when its 

compliance with Medicare’s 

requirements is unknown and possibly 

deficient. For example, in the event a 

State survey precedes the CMS 

contractor’s review of the enrollment 

application of a prospective provider or 

supplier, it might be possible that the 

application originally submitted to the 

CMS contractor is not complete or 

accurate, or both, and the applicant 

must provide additional information to 

the CMS contractor to demonstrate 

compliance with the enrollment 

requirements. It would not be consistent 

with our duty to protect the Medicare 

Trust Funds from unsupported claims 

against it to permit payment for services 

furnished by a health care facility after 

it has passed a State survey or been 

accredited, but before it has satisfied all 

other Medicare participation 

requirements, including enrollment 

requirements. 

Such a reading also might undermine 

the incentives inherent in our 

longstanding policy, affirmed in the 

June 1, 1994 decision of the U.S. Court 

of Appeals for the Fifth Circuit in U.S. 

v. Vernon Home Health, Inc. (21 F. 3d 

693 (5th Cir. 1994), cert. denied, 115 

S.Ct. 575 (1994)). 

Under CMS regulations at 42 CFR 

489.18(c), a ‘‘change of ownership’’ 

includes accepting assignment of the 

seller’s existing provider agreement or 

supplier approval. Section 489.18(d) 

states that the provider or supplier 

continues to be subject to the same 

statutes and regulations, and to the 

terms and conditions under which it 

was originally issued. This means that 

the new owner receives the assets and 

liabilities associated with that 

agreement or approval. This has proven 

to be an important tool in protecting the 

Medicare Trust Funds through 

continuity in the ability to recover 

outstanding overpayments. 

Under that policy, if a buyer of a 

Medicare-participating facility chooses 

not to accept assignment of the provider 

agreement or supplier approval, the 

provider agreement or supplier approval 

terminates. Then, the new owner must 

be treated as an initial applicant to the 

Medicare program. In this situation, 

Medicare will not reimburse the 

provider or supplier for services it 

provides before the date on which the 

provider or supplier qualifies as an 

initial applicant. 

Any requirement to make payments 

retroactive to the date of a State survey 

or accreditation decision, despite the 

fact that all other Federal requirements 

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may not yet have been met, could 

provide an incentive for more buyers to 

refuse assumption of the seller’s 

provider agreement or supplier 

approval, because there would 

potentially be no break in payments. 

Therefore, effectively, a buyer who does 

not accept assignment of the seller’s 

active provider agreement could 

potentially begin receiving Medicare 

payments immediately (assuming it 

meets all the requirements), but not be 

responsible for any existing liabilities of 

the provider agreement. This would also 

be an incentive for existing providers or 

suppliers with civil money penalties or 

overpayments to sell their facilities in 

order to escape any financial 

responsibility to the Medicare program. 

C. Revisions to Regulations 

In the FY 2011 IPPS/LTCH proposed 

rule (75 FR 24047), we proposed to 

amend § 489.13 and make a technical 

amendment to § 489.1 in order to clarify 

our policy. Specifically, we proposed to 

revise § 489.13(a) to make it clearer that 

it is only CMS that determines whether 

health care facilities have satisfied the 

requirements for participation in the 

Medicare program, not State survey 

agencies or national accreditation 

organizations. We noted that, although 

this CMS determination is sometimes 

referred to as a ‘‘certification,’’ or 

‘‘certification decision,’’ § 488.1 defines 

‘‘certification’’ as ‘‘a recommendation 

made by the State survey agency on the 

compliance of providers and suppliers 

with the conditions of participation, 

requirements (for SNFs and NFs), and 

conditions of coverage.’’ Further, 

§ 488.12 provides that CMS makes the 

determination on whether a provider or 

supplier is eligible to participate in or 

be covered by the Medicare program, 

based on the State survey agency’s 

recommendation, or on the facility’s 

accreditation. 

We also proposed to add language to 

§ 489.13(a) in order to clarify that 

surveys of nonaccredited facilities may 

be conducted not only by State survey 

agencies, but also by CMS staff or 

contractors, as appropriate. We have 

used contractors to conduct certain 

types of surveys, such as life safety 

code, transplant program and 

psychiatric hospital special conditions 

surveys, and may continue to do so in 

the future. In addition, certain types of 

facilities, such as Indian Health Services 

(IHS) facilities and RNHCIs, have 

traditionally been surveyed by CMS 

employees rather than State survey 

agencies. 

We proposed to revise § 489.13(b) to 

make explicit that the effective date of 

a provider agreement or supplier 

approval may not be earlier than the 

latest of the dates on which each 

applicable Federal requirement is 

determined to be met. We also proposed 

to state explicitly that ‘‘Federal 

requirements’’ include, but are not 

limited to, the enrollment requirements 

established in 42 CFR part 424, subpart 

P, that have been determined by CMS to 

have been met. In addition, we 

proposed to revise § 489.13(b) to include 

language concerning accredited 

facilities, to assure that accredited and 

nonaccredited facilities are treated in 

the same manner. 

In the proposed rule, we further 

explained the rationale behind the 

proposed change to § 489.13(b), 

particularly with respect to the 

requirements in the provider/supplier 

enrollment process. 

A CMS contractor will review and 

conduct an initial assessment of a 

prospective provider’s or supplier’s 

enrollment. If the contractor finds that 

a prospective provider or supplier meets 

the basic enrollment requirements to 

participate in the Medicare program for 

its identified certified provider or 

supplier type, the contractor will notify 

the appropriate CMS Regional Office. 

Essentially, the contractor’s initial 

assessment means that it has concluded 

its preliminary review of the enrollment 

application and has concluded that the 

survey and certification process can be 

initiated, and, consequently, it issues a 

recommendation of approval. In order to 

help ensure compliance with 

enrollment requirements throughout 

this process, the contractor may 

continue to perform a number of 

enrollment verification tasks even after 

it has issued a recommendation for 

approval. These include, but are not 

limited to, conducting onsite visits of 

the prospective provider or supplier to 

ensure that it is still operational; 

verifying an HHA applicant’s 

compliance with the capitalization 

provisions in 42 CFR 489.28; and 

requesting the provider or supplier 

applicant to reaffirm the accuracy of the 

information it furnished on its initial 

enrollment application. Given the 

potentially significant length of time 

between when the contractor issues its 

recommendation of approval after its 

initial assessment and when the health 

and safety survey (or accreditation) and 

certification process is completed, we 

believe that it is essential for the 

contractor to verify that a provider or 

supplier applicant continues to meet 

enrollment requirements prior to the 

issuance of a Medicare provider 

agreement or supplier approval and the 

issuance of Medicare billing privileges. 

To that end, we believe that the CMS 

contractor should verify that a provider 

or supplier is in compliance with all 

enrollment requirements when an 

enrollment application is submitted, 

during the period in which a provider 

or supplier is undergoing the health and 

safety survey and certification process 

and before the issuance of a Medicare 

provider agreement or supplier approval 

and billing privileges. If a provider or 

supplier is determined to be in 

compliance with all Medicare 

requirements, including the enrollment 

requirements, the enrollment and initial 

certification process will be completed, 

and the Medicare provider agreement or 

supplier approval and billing privileges 

will be issued to the applicant. 

However, if a provider or supplier is 

determined to be out of compliance 

with Medicare enrollment requirements 

prior to the issuance of a Medicare 

provider agreement or supplier approval 

and billing privileges to the applicant, 

we believe that CMS must deny 

Medicare billing privileges using the 

applicable denial reason found in 42 

CFR 424.530 and afford the applicant 

with the applicable Medicare appeal 

rights. 

We proposed to revise § 489.13(c) to 

make clear that this paragraph addresses 

those situations in which a facility has 

met all other Federal requirements but, 

upon survey, has been found to not 

meet all applicable CoPs, long-term care 

requirements, CfCs, or conditions for 

certification. We also proposed to revise 

this paragraph to include language 

concerning accredited facilities, to 

assure that accredited and 

nonaccredited facilities are treated in 

the same manner. 

We proposed to remove § 489.13(d), 

concerning the determination of the 

effective date for accredited facilities. 

We indicated that we saw no reason for 

differential treatment of accredited and 

nonaccredited facilities with respect to 

the determination of their effective date, 

and, in practice, we have not treated 

them differentially. In particular, as a 

matter of policy, we noted that we have 

not exercised the discretion permitted 

under § 489.13(d)(2) to grant accredited 

facilities an effective date retroactive up 

to 1 year prior to what otherwise would 

be their effective date. Permitting such 

retroactive payment would provide 

accredited facilities an unwarranted 

advantage when compared to 

nonaccredited facilities. It would also 

seriously undermine our policy 

concerning change of ownership 

without assumption of the seller’s 

provider agreement or supplier 

approval. However, the existence of this 

discretionary provision appears to cause 

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confusion among accredited providers 

and suppliers who incorrectly believe 

they are entitled to a retroactive 

effective date. 

In the proposed rule, we explained 

that this discretionary provision was 

included in the 1997 final rule as a 

result of public comments that 

concerned the Medicaid program. The 

commenters were concerned that the 

proposed rule would not have allowed 

for a retroactive agreement for a facility 

that was already accredited and cited 

two Medicaid program scenarios to 

illustrate their concern. In one scenario, 

a facility participates in its own State’s 

Medicaid program and provides services 

to a Medicaid recipient from another 

State. In the other scenario, a facility 

does not participate in Medicaid but 

provides services to a Medicaid 

recipient before learning of the 

individual’s Medicaid status. Neither of 

these scenarios is pertinent to the 

Medicare program because Medicare 

beneficiary enrollment is managed 

nationally. However, the stated intent of 

the 1997 final rule was to use a standard 

approach for both Medicare and 

Medicaid to determine the effective date 

of a provider agreement and a supplier 

approval, and, as a result, the provisions 

of § 489.13(d)(2) are identical to those at 

§ 431.108(d)(2) for the Medicaid 

program. 

Upon further consideration, we 

believe it is important to recognize the 

significant differences resulting from a 

State-based versus national system of 

beneficiary enrollment, and to ensure 

that the provisions of § 489.13 are 

tailored to the requirements of the 

Medicare program. As stated, as a matter 

of longstanding policy, reflected in 

issuances dating back at least as far as 

1994, we have required new owners 

who do not accept the seller’s Medicare 

provider agreement or supplier approval 

to be treated as initial applicants to the 

Medicare program. In a 1999 issuance, 

reaffirmed in several subsequent 

issuances, including the 2004 

publication of the online version of the 

SOM and in Survey and Certification 

Memorandum S&C–09–08 issued on 

October 17, 2008, we explicitly state 

that this policy applies to accredited 

facilities as well. Therefore, in the 

proposed rule, we stated that we 

believed it was appropriate to remove 

§ 489.13(d), and to instead make 

appropriate reference to the situation of 

accredited facilities in §§ 489.13(b) 

and (c). 

Finally, we proposed to make several 

technical amendments to § 489.1. 

Specifically, we proposed to revise that 

section to add a reference to section 

1865 of the Act, which permits CMS to 

‘‘deem’’ facilities that have been 

accredited by a national accreditation 

organization under a CMS-approved 

accreditation program as having met the 

Medicare health and safety standards. 

We also proposed to revise and 

renumber the existing provision of 

§ 489.1 and to add references to ‘‘the 

Act’’ where the section refers to a 

provision of the Social Security Act. 

Comment: One commenter expressed 

concern that the new post-survey 

reviews by the contractor [that is, the 

Medicare Administrative Contractor 

(MAC) or legacy fiscal intermediary or 

carrier] will significantly delay the 

effective date of new provider 

agreements, particularly for home health 

agencies that must meet certain 

capitalization requirements. The 

commenter recommended that CMS 

direct its contractors to perform all 

possible tasks in the pre-survey 

timeframe and to limit the post-survey 

tasks. The commenter also called for the 

contractor in the post-survey review of 

a home health agency application to 

merely require certification that the 

provider retains capitalization for the 

first 3 months of operation. The 

commenter further recommended that 

CMS establish processing timeframes for 

the post-survey activities of its 

contractors, and also require the 

contractors to notify the applicant’s 

accreditation organization when the 

contractor recommends approval of 

enrollment. Finally, the commenter 

recommended that CMS require the 

accreditation organization to notify the 

contractor and the CMS Regional Office 

when a provider applicant has satisfied 

accreditation requirements. 

Response: CMS has the regulatory 

authority to verify the information on an 

enrollment application at any time, 

including post-survey or postaccreditation. Further, the regulatory 

requirements in § 489.13 can 

accommodate whatever contractor 

(MAC or legacy fiscal intermediary/ 

carrier) verification processes for 

providers and suppliers that CMS 

employs; such contractor verification 

processes are governed by the 

regulations under 42 CFR part 424 and 

associated policy instructions issued by 

CMS. In the proposed rule at 

§ 489.13(b)(1), it states that CMS 

determines the date on which the 

completeness and accuracy of the 

enrollment application has been verified 

by the CMS contractor. However, we 

note that a second contractor review 

that takes place after the survey will 

only delay the effective date of a 

provider agreement or supplier approval 

if that review identifies noncompliance 

with any Federal requirements. If a 

provider or supplier that is subject to 

§ 489.13 is found upon a post-survey 

second contractor review to continue to 

meet all requirements, there would be 

no change in the compliance 

determination date previously provided 

by the contractor to the CMS Regional 

Office or State survey agency. On the 

other hand, if the provider or supplier 

does not meet all Federal requirements, 

there would be a delay in the effective 

date of any provider agreement or 

supplier approval that might eventually 

be issued to the applicant. 

The issues of processing timeframes 

or the criteria to be used in the case of 

a post-survey review of a home health 

agency applicant by the contractor, such 

as for capitalization, as well as the issue 

of notices to or from accreditation 

organizations are matters that are 

specified through manual and policy 

instructions by CMS rather than through 

regulation. However, with respect to the 

accreditation organizations, we note that 

they are already required to provide 

notice of their survey results and 

accreditation decisions to the CMS 

Regional Office. Further, the contractor 

is already required to notify the 

applicant when it has completed its presurvey review of an enrollment 

application, and CMS instructs 

accreditation organizations not to 

conduct a survey related to an initial 

application for Medicare participation 

until the applicant provides evidence to 

the accreditation organization of the 

notice from the contractor. 

Comment: One commenter expressed 

concern in response to our statement in 

the proposal that other Federal 

requirements that must be satisfied 

before a provider agreement could be 

effective included compliance with 

Office of Civil Rights (OCR) 

requirements. The commenter stated 

that the proposal to include OCR 

clearance before the provider agreement 

is made effective will significantly delay 

the effective date of the agreement for 

all but the largest entities that have a 

Corporate Agreement with OCR. The 

commenter noted that currently the 

provider agreement is made effective 

while OCR performs its compliance 

review. The commenter recommended 

that the State survey agencies and 

accreditation organizations review the 

provider’s civil rights policies and 

procedures as part of the survey process. 

The commenter referred to the 

requirements at 42 CFR 484.12 for home 

health agencies and 42 CFR 418.116 for 

hospices as evidence of the commenter’s 

view that State survey agencies and 

accreditation organizations already 

perform assessments of compliance with 

OCR requirements. 

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Response: We do not intend to change 

our current policy related to OCR 

compliance. Currently, in the 

transmittal letter sent to a prospective 

provider or supplier informing that a 

provider agreement (including its 

effective date) is being issued, it states 

that the applicant’s Medicare 

participation is contingent upon 

compliance with all civil rights 

requirements, as determined by OCR, 

usually at a date later than the effective 

date of the provider agreement. Thus, 

the commenter’s concern that we are 

changing this policy, with the result that 

the effective date of a provider 

agreement would be delayed until OCR 

completes its review, is unfounded; 

therefore, it is not necessary to consider 

adopting the commenter’s 

recommendation concerning how to 

ameliorate the impact of a change by 

having State survey agency or 

accreditation organization assessment of 

OCR compliance. In our proposal, we 

referred to ‘‘submission of required civil 

rights compliance documentation’’ as an 

example of other Federal requirements 

that must be met. There are occasions 

where an applicant’s required 

documentation of assurance of 

compliance with civil rights laws and 

regulations, Form HHS–690, and related 

documents, are not submitted until after 

a survey is conducted. In such cases, the 

effective date of the provider agreement 

may not be prior to the date when the 

complete required civil rights 

compliance documentation was 

received by CMS. 

Although it is not necessary to 

consider the commenter’s 

recommendation of State or 

accreditation organization assessment of 

compliance with OCR requirements in 

view of there being no change in our 

current practice concerning OCR 

compliance determinations, we do note 

that the commenter’s assumption 

concerning who makes such compliance 

determinations is not correct. OCR has 

the authority to determine compliance 

with Federal civil rights requirements; 

CMS does not have such authority. 

Although there generally are 

requirements in the various CMS 

regulations for providers, including 

home health and hospice agencies, to 

comply with applicable Federal, State, 

and local law, such requirements do not 

mean that CMS has in all, or even most, 

cases the authority to determine 

compliance with such law. Where CMS 

does not have such authority, CMS and 

the State survey agencies and 

accreditation organizations must rely 

upon the determinations of the agencies 

that do have such authority before they 

find a provider to be noncompliant with 

a CMS provision requiring compliance 

with other laws. 

Comment: Two commenters 

expressed concern with the proposal to 

remove the provisions of § 489.13(d)(2), 

which gives CMS the discretion to make 

the effective date of a provider 

agreement or supplier approval 

retroactive up to 1 year. One commenter 

stated that this would remove an 

important flexibility in how the 

effective date is established, resulting in 

unnecessary delays in enrollment, and 

may inadvertently limit access to 

Medicare services or inappropriately 

shift the costs of caring for Medicare 

beneficiaries to providers. This 

commenter indicated that CMS 

provided no analysis of how this change 

would reduce fraud and abuse. Another 

commenter stated that a ‘‘snafu’’ in an 

accreditation organization may result in 

excessive delay in its issuing its 

accreditation decision, and 

recommended that CMS retain its 

authority for retroactive effective dates 

for deemed accredited facilities and 

specify in the regulation that such 

authority will be exercised only when 

equity so requires and when the 

accrediting determination delay was 

due to no fault of the provider or 

supplier. 

Response: The commenters’ concerns 

that removal of § 489.13(d)(2) would 

eliminate a current flexibility and, 

therefore, would result in unnecessary 

delays in Medicare enrollment are not 

warranted because we have not 

exercised the discretion afforded to us 

in this provision. This was a 

discretionary provision that we have not 

utilized for the reasons noted in the 

preamble to the proposed rule. Further, 

we do not believe that the accreditation 

of a facility should afford the facility 

preferential treatment in its provider 

agreement or supplier approval effective 

date determination compared to a 

nonaccredited facility that chooses to be 

surveyed by the State agency or CMS. 

With respect to the rationale for 

deleting this provision in order to 

protect the Medicare Trust Funds, as we 

stated in the proposed rule, exercising 

the discretion to permit such retroactive 

effective dates for accredited facilities 

would seriously undermine our policy 

concerning accepting assignment of the 

seller’s provider agreement or supplier 

approval. As a matter of longstanding 

policy reflected in issuances dating as 

far back as 1994, new owners of existing 

providers or suppliers who do not 

accept the seller’s existing Medicare 

provider agreement or supplier approval 

and who intend to continue Medicare 

participation are treated as new 

applicants to the Medicare program and 

must submit to the same process as any 

new provider or supplier. This process 

necessarily entails a break in Medicare 

payment for services provided during 

the period between the termination of 

the seller’s provider agreement and the 

issuance of a new provider agreement to 

the new owner. As a result, new owners 

of a Medicare participating facility must 

carefully weigh the costs and benefits of 

their decision of whether or not to 

assume the seller’s existing Medicare 

provider agreement. Thus, the Medicare 

Trust Funds are better protected because 

new owners generally decide to assume 

the seller’s provider agreement, 

including outstanding liabilities (such 

as any overpayments or money 

penalties) owed to the Medicare 

program. In some cases, this would also 

result in the new owner receiving any 

outstanding Medicare underpayments 

owed under the existing agreement. In 

the State Operations Manual (Pub. 100– 

07) and in the October 17, 2008 Survey 

and Certification Memorandum S&C– 

09–08, we explicitly stated that 

accredited facilities also are subject to 

the policy requiring new owners who 

reject assignment of the seller’s existing 

provider agreement to be treated as an 

initial applicant to the Medicare 

program, with the break in coverage that 

this entails. If, on the other hand, a new 

owner of an accredited provider who 

chooses not to accept assignment of the 

seller’s existing Medicare provider 

agreement could be issued a new 

provider agreement on the basis of 

deemed status with a retroactive 

effective date that bridged the coverage 

gap since the termination of the seller’s 

provider agreement, then this would 

provide a strong incentive for new 

owners to routinely refuse to accept 

assignment of the seller’s provider 

agreement. The resulting impact on the 

Medicare Trust Funds would be 

negative, in terms of both any 

outstanding liabilities owed to the 

Medicare program under the seller’s 

terminated provider agreement or 

supplier approval and the cost of paying 

for services provided by a new applicant 

prior to the date when that applicant 

satisfies all Federal requirements. 

Finally, delay in issuance of an 

accreditation decision due solely to 

internal administrative issues within the 

accreditation organization should not, 

contrary to the commenter’s concern, 

delay the effective date of the 

accreditation decision, and thus the 

effective date of the applicant’s provider 

agreement or supplier approval. The 

standard practice expected for 

Medicare-approved accreditation 

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programs is for the accreditation 

organizations to make their 

accreditation decision effective as of the 

date that all accreditation program 

requirements were met, regardless of 

when the decision is actually issued. 

We are revising the regulatory text upon 

adoption to make this clearer. In view 

of this standard practice and in light of 

the fact that the retroactive effective 

date provision for accredited providers 

and suppliers has not been utilized by 

us, we do not believe there is need to 

retain the ability to make retroactive 

provider agreement or supplier approval 

effective date determinations in the case 

of accredited facilities. 

Comment: One commenter stated that 

it was not clear whether CMS intended 

§ 489.13 to apply to durable medical 

equipment, prosthetics, orthotics, and 

supplies (DMEPOS) applicants, but 

indicated that the issues presented in 

the proposed rule do not apply to 

DMEPOS supplier enrollment. 

Response: We did not propose any 

changes with respect to the entities that 

are covered by the provisions of 

§ 489.13. Generally, these provisions do 

not apply to DMEPOS applicants 

because they are not subject to our 

survey and certification process. 

However, because there are now 

Medicare accreditation requirements for 

certain types of suppliers that are not 

subject to the survey and certification 

process, we understand why the 

commenter was unclear about this 

application. As a result, we have revised 

the final regulatory text at 

§ 489.13(a)(1)(ii) to indicate that this 

provision applies to providers and 

suppliers that are subject to survey by 

a State survey agency or CMS, or, in lieu 

of such survey, are accredited by an 

accreditation organization whose 

program has CMS approval in 

accordance with section 1865 of the Act 

at the time of the accreditation survey 

and accreditation decision. Because 

accreditation requirements for certain 

Medicare suppliers, such as DMEPOS 

and imaging services suppliers, are 

established under sections 1834(a) and 

(e) of the Act rather than section 1865 

of the Act, this revision to the regulation 

makes it clear that the provisions of 

§ 489.13 do not apply to these other 

supplier types. 

After consideration of the public 

comments we received, we are adopting 

as final our proposed revisions of 

§ 489.13(a), (b), and (c), removal of 

existing § 489.13(d), and technical 

amendments to § 489.1, with the 

following modifications and technical 

corrections: 

We have revised § 489.13(a)(1)(i) to 

delete the word ‘‘staff’’ after ‘‘CMS’’. This 

word was inadvertently included in the 

proposed text, but, as we stated in the 

preamble to the proposed rule, the 

intent is to cover surveys conducted by 

CMS staff or contractors. 

We have revised § 489.13(a)(1)(ii) to 

add a reference to accreditation 

programs approved in accordance with 

section 1865 of the Act, thus making it 

clear that § 489.13 is applicable only to 

providers and suppliers that are subject 

to CMS or State survey or, in lieu of 

such survey, are accredited by an 

accreditation organization whose 

program has CMS approval in 

accordance with section 1865 of the Act. 

Also, we are adding the word ‘‘survey’’ 

in paragraph (a)(1)(ii) so that it states 

‘‘State survey agency’’; this change will 

make this paragraph consistent with 

§ 489.13(a)(1)(i). 

We have revised § 489.13(b) to add 

the word ‘‘effective’’ prior to ‘‘date of the 

accreditation decision’’ in order to make 

clear our intent that we are referring to 

the date an accreditation organization 

indicates its accreditation was effective. 

We have revised § 489.13(c) to reword 

the final sentence of the introductory 

text as follows: ‘‘However, if other 

Federal requirements remain to be 

satisfied, notwithstanding the 

provisions of paragraphs (c)(1) through 

(c)(3) of this section, the effective date 

of the agreement or approval may not be 

earlier than the latest of the dates on 

which CMS determines that each 

applicable Federal requirement is met’’ 

We added the phrase ‘‘CMS determines 

that’’ prior to ‘‘each applicable Federal 

requirement is met’’ to correct an 

inadvertent omission that could have 

created ambiguity as to our intent and 

makes the language in paragraph (c) 

match that employed in § 489.13(b) for 

the same purpose. We also added the 

above language to make it clear that the 

provisions in paragraphs (c)(1) through 

(c)(3) apply when all other Federal 

requirements have been met, but where 

this is not the case, the effective date 

would be the latest date. 

We have renumbered proposed 

§ 489.13(c)(2)(ii)(C) as final 

§ 489.13(c)(3), which was our original 

intent; this paragraph is a logically 

distinct provision from other provisions 

contained in § 489.13(c)(2). 

We have made conforming changes to 

§ 424.510(c) and § 424.520(a) by 

removing the cross-reference to 

paragraph (d) of § 489.13. 

IX. Medicare Hospital Conditions of 

Participation Affecting Rehabilitation 

Services and Respiratory Care Services 

Recently, CMS received several public 

requests for clarification of the Medicare 

conditions of participation (CoPs) for 

hospitals relating to rehabilitation 

services at § 482.56 and respiratory care 

services at § 482.57. The questions 

concerning these conditions have been 

in the context of apparent 

inconsistencies between the two CoPs 

themselves, and between the two CoPs 

and many State laws, regarding which 

practitioners are allowed to order 

rehabilitation and respiratory care 

services in the hospital setting. 

Many States, under their scope-ofpractice laws and other regulations, 

allow only specific qualified, licensed 

practitioners (including physicians, 

nurse practitioners (NPs), and physician 

assistants (PAs)) to order rehabilitation 

services and respiratory care services, in 

addition to other common hospital 

services such as dietary and social work 

services. However, the current standard 

at § 482.56(b) (Delivery of services) 

requires only that hospital rehabilitation 

services (for example, physical therapy, 

occupational therapy, audiology, and 

speech-pathology services) be ordered 

by ‘‘practitioners who are authorized by 

the medical staff to order the services.’’ 

We believe that this requirement is too 

open to interpretation and does not 

explicitly acknowledge various State 

laws that limit the ordering of hospital 

services (including diagnostic tests, 

drugs and biologicals, and inpatient 

treatment modalities) to specific 

qualified, licensed practitioners who are 

responsible for the care of the patient. 

By contrast, the current requirement 

for respiratory care services at 

§ 482.57(b)(3), which explicitly states 

that these services ‘‘must be provided 

only on, and in accordance with, the 

orders of a doctor of medicine or 

osteopathy,’’ is too narrow. While 

doctors of medicine or doctors of 

osteopathy have the option of delegating 

this task to NPs and PAs, this delegation 

requires physicians to countersign all 

orders by NPs or PAs for respiratory 

care services. We have not found any 

evidence that indicates that the ordering 

of respiratory care services should be 

kept to a different, and possibly higher, 

standard than rehabilitation and other 

hospital services. Nor have we found 

any documented studies indicating that 

qualified, licensed practitioners such as 

NPs and PAs should be restricted from 

ordering these necessary services for 

their patients. Further, we believe that 

the process of physician 

countersignature of orders written by 

qualified, licensed NPs and PAs, 

specifically for common hospital 

services such as rehabilitation and 

respiratory care services, is burdensome 

to practitioners (physicians as well as 

NPs and PAs) and the hospitals that 

they serve. In addition, we believe that 

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this process also runs counter to what 

many States have already decided for 

NPs and PAs in their individual State 

regulations and scope-of-practice laws. 

As a result of our analysis of the 

issues surrounding conflict of the 

Medicare CoPs with State laws, and 

conflict of the Medicare CoPs with each 

other, in the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24050), we 

proposed several revisions to the 

existing regulations. We proposed to 

revise § 482.56 to clarify the types of 

practitioners that are allowed to order 

rehabilitation services. Further, we 

proposed to limit those types of 

individuals to qualified, licensed 

practitioners who are responsible for the 

care of the patient and who are acting 

within the scope of practice under State 

law. We also proposed that these 

practitioners would need to be 

authorized to order rehabilitation 

services by the hospital’s medical staff, 

in accordance with both hospital 

policies and procedures and State laws. 

In addition, we proposed changes to 

the existing requirements for the 

ordering of respiratory care services at 

§ 482.57. Existing requirements only 

allow for services to be provided on the 

orders of a doctor of medicine or 

osteopathy. As stated above, we recently 

received several public requests 

(including requests from various 

hospitals as well as from The Joint 

Commission) for clarification of this 

requirement in the context of what is 

currently allowed under many State 

laws. Many States, under their scope-ofpractice laws and other regulations, 

allow qualified, licensed practitioners 

(including NPs and PAs) to order 

respiratory care services. We proposed 

to revise the existing requirements at 

§ 482.57 to allow these practitioners, in 

addition to physicians as currently 

allowed, to order these services as long 

as such privileges are authorized by the 

medical staff and are in accordance with 

both hospital policies and procedures 

and State laws. As is required under the 

CoPs for all patient orders, the ordering 

practitioner must also be an individual 

who is responsible for the care of the 

patient. 

In both of the CoPs for rehabilitation 

services and respiratory care services, 

we also proposed that all orders for 

these services be documented in 

accordance with the requirements at 

§ 482.24, Medical records. 

Comment: The majority of 

commenters supported the proposed 

changes for the CoPs for rehabilitation 

services and respiratory care services. 

Some of the commenters commended 

CMS for proposing changes that they 

believed accurately reflected current 

standards of practice. Many of the 

commenters supported the proposed 

changes focused exclusively on the 

proposed requirements for respiratory 

care services. 

Response: We appreciate the 

commenters’ support for the proposed 

changes. We believe that many of the 

commenters focused exclusively on the 

proposed revisions to the respiratory 

care services CoP because these 

revisions would allow for qualified, 

licensed practitioners, such as NPs and 

PAs, to order respiratory care services in 

addition to physicians, that is, doctors 

of medicine and doctors of osteopathy, 

as is currently allowed under the 

requirements. While we believe that the 

proposed change to the rehabilitation 

services CoP is more of a clarification of 

which types of practitioners (as 

delineated by State law, hospital policy, 

and medical staff authorization) would 

be allowed to order such services, we 

believe that the proposed revision to the 

respiratory care services CoP represents 

a regulatory recognition of the 

qualifications that nonphysician 

practitioners, such as NPs and PAs, 

bring to hospital patient care and that 

this recognition accounts for many of 

the commenters focusing exclusively on 

the change to this CoP. 

Comment: Several commenters 

questioned what they saw as an 

exclusion from the proposed rule of 

other types of advanced practice 

registered nurses (APRNs) (for example, 

clinical nurse specialists (CNSs), 

certified registered nurse anesthetists 

(CRNAs), and certified nurse midwives 

(CNMs)), as well as rehabilitation 

professionals such as physical therapists 

(PTs) and speech-language pathologists 

(SLPs). 

Response: Our intention was not to 

exclude other types of nonphysician 

practitioners such as APRNs, PTs, SLPs, 

or other types of rehabilitation 

professionals from the proposed rule 

provisions. We recognize the important 

role that these practitioners and 

professionals play in the delivery of 

quality care to hospital patients. We 

point out that the proposed regulatory 

language does not specifically mention 

any ‘‘type ‘‘of practitioner, including 

NPs and PAs. Instead, the proposed 

revisions to both CoPs would require 

that services be provided only under the 

orders of a qualified, licensed 

practitioner, responsible for the care of 

the patient, acting within his or her 

scope of practice, and authorized by the 

medical staff to order the services in 

accordance with hospital policies and 

procedures and all State laws. Although 

NPs and PAs were the only examples of 

practitioner types that we used in our 

discussion of the proposed changes in 

the preamble of the proposed rule, our 

intention, as reflected in the proposed 

regulation text, is to include those 

qualified, licensed practitioners who 

meet the parameters of the proposed 

requirements discussed above. 

Comment: A few commenters took 

exception to our discussion in the 

preamble of conflict of interest and 

coordination of care issues in the 

context of rehabilitation professionals 

(such as PTs and SLPs) who might order 

their own rehabilitation services for a 

hospital patient without the knowledge 

of the attending physician or of the 

practitioner responsible for the overall 

care of the patient (such as APRNs and 

PAs). They questioned ‘‘why CMS 

would conclude that these problems 

[conflict of interest and coordination of 

care] would occur in the outpatient 

hospital setting when patients receive 

rehabilitation services,’’ and asked that 

the final rule not adopt language that 

would exclude rehabilitation 

professionals from acting within their 

individual State’s scope of practice. One 

commenter suggested that language 

distinguishing between hospital 

inpatient and outpatient rehabilitation 

services be added to the proposed 

requirement at § 482.56(b). 

Response: The proposed requirements 

would apply to both inpatient and 

outpatient hospital services. Because the 

language allows for the ordering of 

rehabilitation services based on (and in 

deference to) State laws and scope-ofpractice acts, medical staff 

authorization, and hospital policies and 

procedures, we firmly believe that 

nothing in our proposed requirement 

would preclude a hospital rehabilitation 

professional from acting within the 

scope of practice under State law. For 

this reason also, we disagree that the 

requirement needs to make distinctions 

between inpatients and outpatients. 

Comment: A few commenters 

correctly pointed out that the hospital 

CoPs apply to both inpatient and 

outpatient services. With regard to this 

application of the hospital CoPs to the 

outpatient services of a hospital, they 

commented that the proposed changes 

would be in direct conflict with both 

CMS payment policy, which they state 

allows for rehabilitation professionals to 

order their own services for hospital 

outpatients without physician referral, 

and the regulations of some States, 

which they state allow for ‘‘direct 

access’’ to rehabilitation services for 

hospital outpatients. 

Response: As we have previously 

stated, we do not believe that the 

proposed changes would conflict with 

either CMS payment policy or State 

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regulations. In fact, we have drafted the 

regulatory text in a way that would not 

only defer to hospital policy and 

medical staff authority in granting 

ordering privileges for these services to 

qualified, licensed practitioners, but 

also to State laws and scope-of-practice 

acts. We believe that these proposed 

regulations would give hospitals and 

their medical staffs as much flexibility 

in determining which types of 

practitioners could order these services 

as they would choose to exercise within 

the constraints of their own State laws 

and regulations. 

Comment: One commenter noted that 

as many as 35 States have some form of 

regulatory language that states, in effect, 

that hospital respiratory care services 

orders must be ‘‘written by a licensed 

physician only.’’ 

Response: As stated in our previous 

response, the proposed regulations are 

written in such a way as to avoid the 

preemption of State law and regulation. 

We expect hospitals to apply the laws 

of their respective States to their policy 

regarding which types of practitioners 

would be allowed to order respiratory 

care services. For those States that allow 

APRNs and PAs to order respiratory 

care services without the need for a 

physician co-signature, we expect 

hospitals in those States to determine 

which types of practitioners would be 

authorized by the medical staff to write 

these orders in accordance with State 

law. We also expect that practitioners 

will act within the limitations of their 

individual State laws and hospitals’ 

policies. 

Comment: One commenter requested 

that changes similar to the ones 

proposed be made to other hospital 

CoPs, such as nuclear medicine and 

dietary services, and their interpretive 

guidelines, and also specifically 

proposed changes to § 482.25(b)(6) to 

require that ‘‘drug administration errors, 

adverse drug reactions, and 

incompatibilities be immediately 

reported to the ordering practitioner.’’ In 

addition, the commenter recommended 

that the interpretative guidelines issued 

for § 482.24(c)(1) be revised. 

Response: While we appreciate the 

input from the commenter regarding the 

other hospital CoPs and the 

interpretative guidelines, changes to 

other CoPs are outside the scope of this 

final rule. Any revisions to the 

interpretative guidelines are outside the 

purview of the rulemaking process. 

Comment: A few commenters, in 

addition to voicing full support for the 

proposed changes, encouraged CMS to 

revise the CoPs and interpretative 

guidelines regarding the administration 

of propofol (a rapidly acting, short 

duration, intravenous hypnotic 

anesthetic induction agent used as a 

general anesthetic or as an adjunct to 

anesthesia) by an anesthesiologist or 

CRNA in the context of recognition of 

State laws addressing this issue. 

Response: As we stated in our 

previous response, while we appreciate 

the input from commenters, we cannot 

address it at this time because the issues 

are outside the scope of this rule. 

Furthermore, any revision of the 

interpretative guidelines would be 

outside the purview of the rulemaking 

process. 

After consideration of the public 

comments we received, we are adopting 

as final without modification, our 

proposals to revise § 482.56 and 

§ 482.57 to clarify the types of 

practitioners who are allowed to order 

rehabilitation services and respiratory 

care services, respectively in accordance 

with both hospital policies and 

procedures and State laws; and to 

provide that all orders for these services 

be documented in accordance with 

existing requirements at § 482.24. 

X. Changes to the Accreditation 

Requirements for Medicaid Providers of 

Inpatient Psychiatric Services for 

Individuals Under Age 21 

A. Background 

Inpatient psychiatric services 

provided to individuals under the age of 

21 were authorized as part of the 

Medicaid program by the Social 

Security Amendments of 1972 (Pub. L. 

92–603). At that time, these services 

were only permitted to be provided by 

psychiatric hospitals accredited by the 

Joint Commission on Accreditation of 

Hospitals (later renamed as the Joint 

Commission on Accreditation of 

Healthcare Organizations and now 

named The Joint Commission). In 1984, 

Congress eliminated the requirement 

that such hospitals be accredited 

exclusively by The Joint Commission 

(section 2340(b) of Pub. L. 98–369). 

Through statutory and regulatory 

amendments, inpatient psychiatric 

services provided to individuals under 

the age of 21 were also authorized to be 

provided in inpatient psychiatric 

programs within hospitals and in 

psychiatric facilities other than 

hospitals, called psychiatric residential 

treatment facilities (PRTFs). While 

PRTFs were given flexibility through 

rulemaking in 1998 to obtain 

accreditation from several specific 

accrediting organizations, or any other 

accrediting body with comparable 

standards recognized by the State, 

accreditation by The Joint Commission 

has remained a Federal regulatory 

requirement for psychiatric hospitals 

and inpatient psychiatric programs 

within hospitals. 

We have been contacted by several 

psychiatric hospitals and hospitals with 

inpatient psychiatric programs asking 

for relief from The Joint Commission 

accreditation requirement. In addition, 

The Joint Commission has previously 

expressed concern with the mandate for 

Joint Commission accreditation 

contained in existing regulation, as its 

policy is for facilities to seek 

accreditation voluntarily. 

B. Revision of Policy and Regulations 

In response to the concerns described 

above, in the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24051), we 

proposed to remove the requirement 

that psychiatric hospitals and hospitals 

with inpatient psychiatric programs 

providing inpatient psychiatric services 

to individuals under age 21 obtain 

accreditation from The Joint 

Commission in order to provide these 

services under the Medicaid program. 

Under our proposed policy change, 

psychiatric hospitals would have the 

choice of undergoing a State survey to 

determine whether the hospital meets 

the requirements to participate in 

Medicare as a psychiatric hospital under 

42 CFR 482.60 or obtaining 

accreditation from a national accrediting 

organization whose psychiatric hospital 

accrediting program has been approved 

by CMS. Likewise, hospitals with 

inpatient psychiatric programs would 

have the choice of undergoing a State 

survey to determine whether the 

hospital meets the requirements for 

participation in Medicare as a hospital 

as specified in 42 CFR Part 482 or 

obtaining accreditation from a national 

accrediting organization whose hospital 

accreditation program has been 

approved by CMS. These national 

accreditation bodies must provide 

reasonable assurance to CMS that their 

hospital accrediting programs require 

adherence to requirements that are at 

least as stringent as the Medicare 

requirements. 

In addition, we proposed to revise the 

accreditation requirements for PRTFs by 

removing any specific references to 

accreditation organizations, to afford 

them flexibility in obtaining 

accreditation by a national accrediting 

organization whose program has been 

approved by CMS, or by any other 

accrediting organization with 

comparable standards that is recognized 

by the State. This proposed revision 

would have removed specific reference 

to national accrediting bodies to provide 

appropriate administrative flexibility to 

account for any changes in qualifying 

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accrediting organizations. Accrediting 

bodies approved by CMS must have 

accrediting requirements for a provider 

or supplier type that are comparable to 

the CMS requirements for the type of 

provider or supplier, and must have 

survey procedures comparable to those 

of State survey agencies. For the reasons 

described below, we are not finalizing 

this proposed change to the PRTF 

accreditation requirements, and will 

retain the language currently set out at 

42 CFR 440.160 (b)(2) and 

441.151(a)(2)(ii). 

To incorporate the proposed changes 

described above in our regulations, we 

proposed to revise § 440.160(b)(1) and 

§ 441.151(a)(2)(i) by removing the 

requirement for accreditation by The 

Joint Commission of psychiatric 

hospitals and hospitals with inpatient 

psychiatric programs. We also proposed 

to revise § 440.160(b)(2) and 

§ 441.151(a)(2)(ii) by removing 

references to specific accreditation 

organizations. 

Comment: Several commenters 

supported the proposed revisions. These 

commenters agreed with CMS’ 

assessment that allowing increased 

flexibility for psychiatric hospitals and 

inpatient psychiatric programs within 

general hospitals to either obtain 

accreditation from a CMS-approved 

accrediting organization or adhere to 

Medicare standards would not 

negatively impact the quality of service 

provision. Most of these commenters 

were silent regarding the proposed 

changes to the PRTF language, which 

would have removed reference to 

specific accrediting organizations. 

However, one commenter expressed 

support for this proposed change as 

well. 

Response: We appreciate the 

commenters’ support. However, we are 

not finalizing the proposed changes to 

the PRTF accreditation requirements. 

We have decided that changes to these 

provisions are unnecessary because our 

regulations already permit a PRTF to be 

accredited by a variety of accrediting 

bodies. Our current provisions are not 

proscriptive. The Joint Commission on 

Accreditation of Healthcare 

Organizations, the Council on 

Accreditation of Services for Families 

and Children, and the Commission on 

Accreditation of Rehabilitation 

Facilities will remain available to 

accredit PRTFS, as will any other 

accrediting organizations with 

comparable standards that are 

recognized by the States. 

Comment: One comment indicated 

that ‘‘CMS must remain the sole 

accreditation agency for psychiatric 

facilities as well as emergency rooms 

(ERs)’’. The commenter further stated 

that third party accreditation would not 

maintain the same level of adherence to 

the restraint and seclusion regulatory 

requirement. 

Response: We have never been the 

‘‘sole accreditation agency’’ for these 

providers. CMS approves third party 

accrediting organizations to perform the 

accreditation reviews. The restraint and 

seclusion CoP is a requirement that is 

surveyed by CMS and/or the 

accreditation organizations, as 

applicable. 

Comment: One commenter offered 

suggestions to improve the care 

provided to individuals in psychiatric 

settings. The commenter’s suggestions 

included telling patients the names of 

all medications being given; developing 

a written treatment plan; keeping 

patients clean; and utilizing a ‘‘comfort 

room’’ for patients who are in critical 

condition. 

Response: Although we appreciate 

these suggestions, they fall outside the 

scope of the proposed rule. We did 

solicit public comments on our 

proposed accreditation revisions for 

inpatient psychiatric services provided 

to children. However, these comments 

appear to address the overall care 

furnished in psychiatric settings. 

Existing regulations governing 

psychiatric hospitals, general hospitals, 

and PRTFs currently require that the 

beneficiary receive care based upon an 

individualized treatment plan. We do 

not anticipate that patients in critical 

condition (life-threatening medical 

situations) would be maintained in the 

psychiatric inpatient setting, but rather 

would be transferred to a medically 

appropriate facility. We encourage all 

providers, including those furnishing 

inpatient psychiatric services to 

individuals under age 21, to bring an 

attitude of respect to the treatment 

process, caring for patients in a way that 

maximizes information sharing and 

comprehensive care. However, we are 

not modifying the regulations for this 

specific service to include these 

suggestions. 

After consideration of the public 

comments we received, we are adopting 

as final, without modification, our 

proposed revision of § 440.160(b)(1) and 

§ 441.151(a)(2)(i) by removing the 

requirement for accreditation by The 

Joint Commission of psychiatric 

hospitals and hospitals with inpatient 

psychiatric programs. Under the final 

regulations, psychiatric hospitals will 

have the choice of undergoing a State 

survey to determine whether the 

hospital meets the requirements to 

participate in Medicare as a psychiatric 

hospital under 42 CFR 482.60 or 

obtaining accreditation from a national 

accrediting organization whose 

psychiatric hospital accrediting program 

has been approved by CMS. Likewise, 

hospitals with inpatient psychiatric 

programs will have the choice of 

undergoing a State survey to determine 

whether the hospital meets the 

requirements for participation in 

Medicare as a hospital as specified in 42 

CFR part 482 or obtaining accreditation 

by a national accrediting organization 

whose hospital accrediting program has 

been approved by CMS. 

As described above, we are not 

finalizing our proposed revision of 

§ 440.160(b)(2) and § 441.151(a)(2)(ii) to 

remove specific references to 

accreditation organizations to afford 

PRTFs the flexibility in obtaining 

accreditation by a national accrediting 

organization whose program has been 

approved by CMS, or by any other 

accrediting organization with 

comparable standards that is recognized 

by the State. The language currently 

specified in § 440.160(b)(2) and 

§ 441.151(a)(2)(ii) is being retained. 

XI. 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 2010 

‘‘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’s Recommendation 2A–1 

states that ‘‘The Congress should 

increase payment rates for the acute 

inpatient and outpatient prospective 

payment systems in 2011 by the 

projected rate of increase in the hospital 

market basket index, concurrent with 

implementation of a quality incentive 

payment program.’’ This 

recommendation for the IPPS is 

discussed in Appendix B to this final 

rule. 

MedPAC’s Recommendation 2A–2 

states that ‘‘To restore budget neutrality, 

the Congress should require the 

Secretary to fully offset increases in 

inpatient payments due to hospitals’ 

documentation and coding 

improvements. To accomplish this goal, 

the Secretary must reduce payment rates 

in the inpatient prospective payment 

system by the same percentage (not to 

exceed 2 percentage points) each year in 

2011, 2012, and 2013. The lower rates 

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would remain in place until 

overpayments are fully recovered.’’ 

Response to Recommendation 2A–2: 

Beginning in FY 2008, CMS adopted the 

new MS–DRG patient classification 

system for the IPPS to better recognize 

severity of illness in Medicare payment 

rates. Adoption of the MS–DRGs 

resulted in the expansion of the number 

of DRGs from 538 in FY 2007 to 745 in 

FY 2008. The increase in the number of 

DRGs provides incentives for hospitals 

to change documentation and coding 

that can increase Medicare expenditures 

without any corresponding increase in 

underlying patient severity. Consistent 

with the statutory requirement to 

maintain budget neutrality, we 

established prospective documentation 

and coding adjustments of ¥1.2 percent 

for FY 2008, ¥1.8 percent for FY 2009, 

and ¥1.8 percent for FY 2010 when the 

new MS–DRG system was implemented 

in FY 2008. Subsequent to issuance of 

the FY 2008 IPPS final rule, section 7 of 

the TMA of 2007 (Pub. L. 110–90) 

divided in half the documentation and 

coding adjustments for the MS–DRG 

system that we adopted in the FY 2008 

IPPS final rule to ¥0.6 percent for FY 

2008 and ¥0.9 percent for FY 2009. 

Section 7 requires that, if the 

implementation of the new MS–DRG 

payment system resulted in actual 

changes in documentation and coding 

in FY 2008 or FY 2009, or both years, 

that are different from those reflected in 

the ¥0.6 percent and ¥0.9 percent 

documentation and coding adjustments 

applied to payment rates in FY 2008 

and FY 2009, respectively, the Secretary 

further adjust operating IPPS rates. This 

further adjustment must offset the 

estimated amount of the increase or 

decrease in aggregate payments for 

discharges occurring during FY 2008 

and FY 2009, and must be made during 

FY 2010, FY 2011, and/or FY 2012. 

These adjustments are referred to as the 

recoupment adjustments and apply only 

to acute IPPS operating payments. In 

addition, the law requires that the 

Secretary eliminate the effect of all 

actual documentation and coding 

changes occurring in FY 2008 and FY 

2009 incorporated into FY 2010 IPPS 

operating rates not already accounted 

for beyond the ¥0.6 and ¥0.9 percent 

adjustments. These adjustments are 

referred to as the prospective 

adjustments. As discussed in section 

II.D. of the preamble of this final rule, 

our current estimate is that an aggregate 

adjustment of 9.7 percent (in addition to 

the ¥0.6 percent adjustment and the 

¥0.9 percent adjustment previously 

made in FY 2008 and FY 2009, 

respectively) is necessary to satisfy 

these requirements. 

We discuss the public comments we 

received on the FY 2011 IPPS/LTCH 

PPS proposed rule, and our responses, 

regarding our proposed adjustments to 

correct for the effects of improved 

documentation and coding on Medicare 

payments to hospitals in section II.D. of 

the preamble of this final rule for IPPS 

operating payments, in section V.E. of 

the preamble of this final rule for IPPS 

capital payments, and in section VII.C.3. 

of the preamble of this final rule for 

LTCH PPS payments. In this context, we 

note that, in considering whether to 

adopt MedPAC’s recommendation, we 

took into consideration the statutory 

requirement that the adjustment must 

offset the estimated amount of the 

increase or decrease in aggregate 

payments for discharges occurring 

during FY 2008 and FY 2009 must be 

made during FY 2010, FY 2011, and/or 

FY 2012. 

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. 

XII. Other Required Information 

A. Requests for Data From the Public 

In order to respond promptly to 

public requests for data related to the 

prospective payment system, we have 

established a process under which 

commenters can gain access to raw data 

on an expedited basis. Generally, the 

data are now available on compact disc 

(CD) format. However, many of the files 

are available on the Internet at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS. 

We listed the data files and the cost for 

each file, if applicable, in the FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

24052 and 24053). 

Commenters interested in discussing 

any data used in constructing this final 

rule should contact Nisha Bhat at (410) 

786–5320. 

B. Collection of Information 

Requirements 

1. Legislative 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. 

2. Requirements in Regulation Text 

In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24054 through 

24056), we solicited public comment on 

each of these issues listed in section 

XII.B.1. of this preamble for the 

following sections of this document that 

contain information collection 

requirements (ICRs). We discuss and 

respond to any public comments we 

received in each individual section. 

a. ICRs Regarding Withdrawing an 

Application, Terminating an Approved 

3-Year Reclassification, or Canceling a 

Previous Withdrawal or Termination 

(Revised § 412.273) 

We have revised much of § 412.273 to 

make the provisions clearer and more 

easily understood. Although the 

majority of the information collections 

under this section exist under current 

law, as we are modifying the provision, 

in this section we discuss the 

information collections that will exist 

under the revised § 412.273. 

As discussed in section III.I. of this 

preamble, revised § 412.273(b) states 

that the MGCRB allows a hospital, or 

group of hospitals, to withdraw its 

application or to terminate an already 

existing 3-year reclassification. Revised 

§ 412.273(c) further specifies the timing 

requirements for the withdrawal or 

termination requirements. Revised 

§ 412.273(c)(1) provides that a request 

for withdrawal must be received by the 

MGCRB at any time before the MGCRB 

issues a decision on the application; or 

after the MGCRB issues a decision, 

provided that the request for withdrawal 

is received by the MGCRB within 45 

days of publication of CMS’ annual 

notice of proposed rulemaking 

concerning changes to the IPPS and 

proposed payment rates for the fiscal 

year for which the application has been 

filed. 

The burden associated with this 

requirement is the time and effort 

necessary for a hospital to submit a 

written withdrawal request to the 

MGCRB. While this requirement is 

subject to the PRA, we cannot 

accurately quantify the burden 

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associated with this requirement. We 

currently review each request on a caseby-case basis. We believe the associated 

burden is thereby exempt from the PRA 

as stipulated under 5 CFR 1320.3(h)(6). 

Revised § 412.273(c)(2) provides that 

a request for termination must be 

received by the MGCRB within 45 days 

of the publication of CMS’ annual notice 

of proposed rulemaking concerning 

changes to the IPPS and proposed 

payment rates for the fiscal year for 

which the termination is to apply. The 

burden associated with this requirement 

is the time and effort necessary for a 

hospital to submit a written termination 

request to the MGCRB. While this 

requirement is subject to the PRA, we 

cannot accurately quantify the burden 

associated with this requirement. We 

currently review each request on a caseby-case basis. We believe the associated 

burden is thereby exempt from the PRA 

as stipulated under 5 CFR 1320.3(h)(6). 

Revised § 412.273(d)(1) states that a 

hospital (or group of hospitals) may 

cancel a withdrawal or termination in a 

subsequent year and request the MGCRB 

to reinstate the wage index 

reclassification for the remaining fiscal 

year(s) of the 3-year period. Revised 

§ 412.273(d)(2) requires that 

cancellation requests be received in 

writing by the MGCRB no later than the 

deadline for submitting reclassification 

applications for the following fiscal 

year, as specified in § 412.256(a)(2). The 

burden associated with this requirement 

is the time and effort necessary for a 

hospital to submit a written request to 

the MGCRB, requesting that the current 

withdrawal or termination request be 

cancelled. While this requirement is 

subject to the PRA, we cannot 

accurately quantify the burden 

associated with this requirement. We 

currently review each request on a caseby-case basis. We believe the associated 

burden is thereby exempt from the PRA 

as stipulated under 5 CFR 1320.3(h)(6). 

Section 412.273(d)(3) states that a 

hospital will be able to apply for 

reclassification to a different area (that 

is, an area different from the one to 

which it was originally reclassified for 

the 3-year period). If the application is 

approved, the reclassification will be 

effective for 3 years. Once a 3-year 

reclassification becomes effective, a 

hospital may no longer cancel a 

withdrawal or termination of another 

3-year reclassification, regardless of 

whether the withdrawal or termination 

request is made within 3 years from the 

date of the withdrawal or termination. 

The burden associated with the 

reapplication requirement is the time 

and effort necessary for a hospital to 

submit a reclassification request to the 

MGCRB. While this requirement is 

subject to the PRA, the associated 

burden is approved under OMB control 

number 0938–0573, with an expiration 

date of December 31, 2011. 

Section 412.273(f)(1) states that a 

hospital may file an appeal of the 

MGCRB’s denial of its request for 

withdrawal or termination, or of the 

MGCRB’s denial of its request for a 

cancellation of such withdrawal or 

termination, to the Administrator. The 

appeal must be received within 15 days 

of the date of the notice of the denial. 

The burden associated with this 

requirement is the time and effort 

necessary for a hospital to file a written 

appeal of the MGCRB’s denial. While 

this requirement is subject the PRA, the 

associated burden is exempt under 5 

CFR 1320.4. The burden associated with 

collection information as part of or 

subsequent to an administrative action 

is not subject to the PRA. 

b. ICRs Regarding Condition of 

Participation: Respiratory Care Services 

(§ 482.57) 

Section IX. of this preamble discusses 

the revisions to § 482.57(b)(4), which 

impose a recordkeeping requirement. 

Section 482.57(b)(4) requires all 

respiratory care services orders to be 

documented in the patient’s medical 

record in accordance with the 

requirements at § 482.24. The burden 

associated with this requirement is the 

time and effort necessary for hospital 

staff to document and maintain the 

respiratory care services orders in a 

patient’s medical record. While these 

requirements are subject to the PRA, the 

associated burden is exempt from the 

PRA under 5 CFR 1320.3(b)(2). We 

believe hospitals will not incur any 

burden above and beyond that 

associated with the usual and customary 

business practice of maintaining 

detailed patient medical records. 

3. Additional Information Collection 

Requirements 

This final rule imposes collection of 

information requirements as outlined in 

the regulation text and specified above. 

However, this final rule also makes 

reference to several associated 

information collections that are not 

discussed in the regulation text 

contained in this document. The 

following is a discussion of these 

information collections, some of which 

have already received OMB approval. 

a. Present on Admission (POA) 

Indicator Reporting 

Section II.F.6. of the preamble of this 

final rule discusses the POA indicator 

reporting program. As stated earlier, 

collection of POA indicator data is 

necessary to identify which conditions 

were acquired during hospitalization for 

the HAC payment provision and for 

broader public health uses of Medicare 

data. Through Change Request 5499 

dated May 11, 2007, CMS issued 

instructions that require IPPS hospitals 

to submit POA indicator data for all 

diagnosis codes on Medicare claims. 

The burden associated with this 

requirement is the time and effort 

necessary to place the appropriate POA 

indicator codes on Medicare claims. 

This requirement is subject to the PRA; 

however, the associated burden is 

currently approved under OMB control 

number 0938–0997, with an expiration 

date of October 31, 2012. 

b. Add-On Payments for New Services 

and Technologies 

Section II.I.1. of the preamble of this 

final rule discusses add-on payments for 

new services and technologies. 

Specifically, this section states that 

applicants for add-on payments for new 

medical services or technologies for FY 

2011 must submit a formal request. A 

formal request includes a full 

description of the clinical applications 

of the medical service or technology and 

the results of any clinical evaluations 

demonstrating that the new medical 

service or technology represents a 

substantial clinical improvement. In 

addition, the request must contain a 

significant sample of the data to 

demonstrate that the medical service or 

technology meets the high-cost 

threshold. We detailed the burden 

associated with this requirement in the 

September 7, 2001, IPPS final rule (66 

FR 46902). As stated in that final rule, 

collection of the information for this 

requirement is conducted on an 

individual case-by-case basis. We 

believe the associated burden is thereby 

exempt from the PRA as stipulated 

under 5 CFR 1320.3(h)(6). Similarly, we 

also believe the burden associated with 

this requirement is exempt from the 

PRA under 5 CFR 1320.3(c), which 

defines the agency collection of 

information subject to the requirements 

of the PRA as information collection 

imposed on 10 or more persons within 

any 12-month period. This information 

collection does not impact 10 or more 

entities in a 12-month period. In FYs 

2008, 2009, 2010, and 2011, we received 

1, 4, 5, and 3 applications, respectively. 

c. Reporting of Hospital Quality Data for 

Annual Hospital Payment Update 

As discussed in section IV.A. of this 

final rule, the RHQDAPU program was 

originally established to implement 

section 501(b) of Public Law 108–173. 

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The RHQDAPU program originally 

consisted of a ‘‘starter set’’ of 10 quality 

measures. OMB approved the collection 

of data associated with the original 

starter set of quality measures under 

OMB control number 0938–0918, with a 

current expiration date of January 31, 

2011. 

As part of our implementation of 

section 5001(a) of the DRA, we 

expanded the number of quality 

measures reported in the RHQDAPU 

program. Specifically, section 

1886(b)(3)(B)(viii)(III) of the Act, added 

by section 5001(a) of the DRA, requires 

that the Secretary expand the ‘‘starter 

set’’ of 10 quality measures that were 

established by the Secretary as of 

November 1, 2003, to include measures 

‘‘that the Secretary determines to be 

appropriate for the measurement of the 

quality of care (including medication 

errors) furnished by hospitals in 

inpatient settings.’’ Under this 

provision, we established additional 

program measures to bring the total 

number of measures to 30. The burden 

associated with these reporting 

requirements is currently approved 

under OMB control number 0938–1022, 

with a current expiration date of June 

30, 2011. 

In the FY 2010 IPPS proposed rule 

(74 FR 24168), we solicited public 

comments on several considerations for 

expanding and updating quality 

measures. We responded to the public 

comments received in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43866 through 43868). We also 

expanded and finalized the RHQDAPU 

program measure set for the FY 2011 

payment determination. As part of the 

expansion effort, we finalized 46 

measures in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43872). 

In the FY 2011 IPPS/LTCH PPS 

proposed rule, we proposed to retire one 

measure for the FY 2011 payment 

determination (75 FR 23961). For the FY 

2012 through FY 2014 payment 

determinations, we proposed to retain 

the remaining 45 of the 46 current 

measures; and for FY 2012, to add 10 

new measures and to require all-patient 

volume data for selected MS–DRGs that 

relate to RHQDAPU program measures; 

for FY 2013, to retain the FY 2012 

measures and add 35 new measures; 

and for FY 2014, to retain the FY 2013 

measures and to add 4 new measures. In 

addition, we listed 28 new measures 

that are under consideration for 

adoption in future years. We proposed 

that, beginning with CY 2011 

discharges, hospitals submit some of the 

new measure data to a qualified registry. 

We also solicited public comments on 

retiring one or more of the 11 additional 

measures suggested by commenters in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule based on topped out 

performance and other rationales. 

In summary, we proposed to retire 

one measure for the FY 2011 annual 

payment update and sought comments 

on whether to retire 11 additional 

measures suggested by commenters in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule. In addition, we proposed to 

expand the RHQDAPU program 

measure set to: 55 measures for the FY 

2012 annual payment update (taking 

into account our proposal to retire one 

measure for the FY 2011 annual 

payment update); 90 measures for the 

FY 2013 annual payment update, and 94 

measures for the FY 2014 annual 

payment update. We also proposed 28 

possible measures and topics for future 

years. Finally, we proposed that, 

beginning with the FY 2012 annual 

payment update, hospitals that 

participate in the RHQDAPU program 

submit all-patient volume data for 

selected MS–DRGs that relate to 

RHQDAPU program measures beginning 

with CY 2011 discharges. 

We submitted a revised version of the 

information collection request approved 

under OMB control number 0938–1022, 

to obtain approval for the proposed new 

measures. 

Section IV.A.10. of the FY 2011 IPPS/ 

LTCH PPS proposed rule addressed the 

reconsideration and appeal procedures 

for a hospital that we believe did not 

meet the RHQDAPU program 

requirements. If a hospital disagrees 

with our determination, it may submit 

a written request to CMS to reconsider 

our decision. The hospital’s request for 

reconsideration must explain the 

reasons why it believes it satisfied the 

RHQDAPU program requirements. 

While this is a reporting requirement, 

the burden associated with it is not 

subject to the PRA under 5 CFR 

1320.4(a)(2). The burden associated 

with information collection 

requirements imposed subsequent to an 

administrative action is not subject to 

the PRA. 

For the FY 2011 annual payment 

update, we are retiring the AHRQ 

mortality for selected surgical 

procedures composite measure. We refer 

readers to section IV.A.3. of this final 

rule for the list of RHQDAPU measures 

that we are adopting as final for FY 2012 

through FY 2014. Over the three year 

period, we are retiring 2 additional 

measures from the measurement set 

(PN–2, and PN–7) and adding 17 new 

measures to the measure set, for a total 

of 60 measures. We are not adopting any 

of our proposed registry-based 

measures, or our proposal for all-patient 

volume reporting. 

In summary, after consideration of the 

public comments we received, we are: 

• Retiring one measure for the FY 

2011 annual payment update. 

• Retaining the measures used for the 

FY 2011 annual payment update (except 

for the 1 we are retiring) and adopting 

10 additional claims—based measures 

for reporting in 2011 that will be used 

to determine the FY 2012 annual 

payment update. 

• Retaining the measures used for the 

FY 2012 annual payment update and 

adopting an additional 1 chartabstracted measure and 1 HAI measure 

(to be reported through the NHSN) for 

reporting in 2011 that will be used to 

determine the FY 2013 annual payment 

update. 

• Retaining the measures used for the 

FY 2013 annual payment update (except 

for 2 measures we are retiring) and 

adopting 5 additional measures for 

reporting in 2012 that will be used to 

determine the FY 2014 annual payment 

update. 

d. Occupational Mix Adjustment to the 

FY 2011 Index (Hospital Wage Index 

Occupational Mix Survey) 

Section II.D. of the preamble of this 

final rule discusses the occupational 

mix adjustment to the FY 2011 wage 

index. While the preamble does not 

contain any new ICRs, it is important to 

note that there is an OMB approved 

information collection request 

associated with the hospital wage index. 

Section 304(c) of Public Law 106–554 

amended section 1886(d)(3)(E) of the 

Act to require CMS to collect data at 

least once every 3 years on the 

occupational mix of employees for each 

short-term, acute care hospital 

participating in the Medicare program 

in order to construct an occupational 

mix adjustment to the wage index. We 

collect the data via the occupational mix 

survey. 

The burden associated with this 

information collection requirement is 

the time and effort required to collect 

and submit the data in the Hospital 

Wage Index Occupational Mix Survey to 

CMS. The aforementioned burden is 

subject to the PRA; however, it is 

currently approved under OMB control 

number 0938–0907, with an expiration 

date of February 28, 2013. 

e. Hospital Applications for Geographic 

Reclassifications by the MGCRB 

Section III.I.3. of the preamble of this 

final rule discusses revisions to the 

wage index based on hospital 

redesignations. As stated in that section, 

under section 1886(d)(10) of the Act, the 

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MGCRB has the authority to accept 

short-term IPPS hospital applications 

requesting geographic reclassification 

for wage index or standardized payment 

amounts and to issue decisions on these 

requests by hospitals for geographic 

reclassification for purposes of payment 

under the IPPS. 

The burden associated with this 

application process is the time and 

effort necessary for an IPPS hospital to 

complete and submit an application for 

reclassification to the MGCRB. While 

this requirement is subject to the PRA, 

the associated burden is currently 

approved under OMB control number 

0938–0573, with an expiration date of 

December 31, 2011. 

f. Direct GME Payments: General 

Requirements 

Existing regulations at § 413.75(b) 

permit hospitals that share residents to 

elect to form a Medicare GME affiliated 

group if they are in the same or 

contiguous urban or rural areas, if they 

are under common ownership, or if they 

are jointly listed as program sponsors or 

major participating institutions in the 

same program. The purpose of a 

Medicare GME affiliated group is to 

provide flexibility to hospitals in 

structuring rotations under an aggregate 

FTE resident cap when they share 

residents. The existing regulations at 

§ 413.79(f)(1) specify that each hospital 

in a Medicare GME affiliated group 

must submit a Medicare GME affiliation 

agreement (as defined under § 413.75(b)) 

to the Medicare fiscal intermediary or 

MAC servicing the hospital and send a 

copy to CMS’ Central Office no later 

than July 1 of the residency program 

year during which the Medicare GME 

affiliation agreement will be in effect. 

In section V.H.3. of the preamble of 

this final rule, as we proposed, we are 

allowing hospitals to electronically 

submit the copy of the affiliation 

agreement that is required to be sent to 

the CMS Central Office. As stated earlier 

in the preamble, the electronic 

submission process will consist of either 

an e-mail mailbox or a Web site where 

hospitals will submit their Medicare 

GME affiliation agreements to the CMS 

Central Office to a designated online 

mailbox. We are providing that a copy 

of the Medicare GME affiliation 

agreement will need to be received 

through the electronic system no later 

than 11:59 p.m. on July 1 of each 

academic year. We are specifying that 

the electronic affiliation agreement will 

need to be submitted either as a scanned 

copy or a Portable Document Format 

(PDF) version of that hard copy 

agreement; we will not accept an 

agreement in any electronic format that 

could be subject to manipulation. The 

scanned and/or PDF format will enable 

CMS to ensure that the agreements are 

signed and dated as required in the 

regulations at § 413.75. Under this 

policy, hospitals will have the option to 

continue to submit a hard copy of its 

affiliation agreement to the CMS Central 

Office. In addition, each fiscal 

intermediary or MAC will continue to 

have the authority to specify its 

requirements for submittal of the 

Medicare GME affiliation agreement by 

hospitals that are part of the affiliation. 

The burden associated with this 

requirement is the time and effort it 

would take for the new hospital to 

develop and submit the Medicare GME 

affiliation agreement, to submit the 

agreement to its fiscal intermediary or 

MAC, and to submit a copy to CMS. In 

the proposed and final rules that 

published on May 22, 2009 (74 FR 

24080) and August 27, 2009 (74 FR 

43754), we stated that it was difficult for 

us to estimate the annual burden 

associated with this requirement 

because we cannot estimate the 

additional number of hospitals that will 

be permitted to submit Medicare GME 

affiliation agreements in any given year 

as a result of the change. However, we 

now have better data available to 

quantify the burden associated with the 

existing requirement for hospitals to 

submit GME affiliation agreements to 

the fiscal intermediary or MAC 

servicing the hospital and new 

requirement for the electronic 

submission of a copy of the affiliation 

agreement to CMS. We are submitting a 

new information collection request to 

OMB for review and approval of the 

associated burden. 

We anticipate receiving between 100 

and 150 GME affiliation agreements 

annually. For the purposes of our 

information collection request, we 

estimate that we will receive 125 

agreements annually. CMS provides a 

two-page sample agreement for 

hospitals; however, some facilities may 

submit additional information that is 

not required. We estimate that it will 

take 1 hour for a hospital to develop a 

GME affiliation agreement or to follow 

the format provided by CMS. Similarly, 

we estimate that it will take each 

hospital 15 minutes to submit a hard 

copy of the affiliation agreement to its 

fiscal intermediary or MAC. Finally, we 

estimate that it will take each hospital 

5 minutes to submit an electronic copy 

of its GME affiliation agreement to CMS. 

The total annual burden associated with 

developing the affiliation agreement is 

125 hours. The total annual burden 

associated with submitting a hard copy 

of the affiliation agreement is 31 hours. 

The total annual burden associated with 

submitting the agreement electronically 

is 10 hours. The total annual burden 

associated with all of the requirements 

in this section is 166 hours. The total 

cost associated with this requirement is 

$5,000 ($40.00 × 125 agreements). 

List of Subjects 

42 CFR Part 412 

Administrative practice and 

procedure, Health facilities, Medicare, 

Puerto Rico, Reporting and 

recordkeeping requirements. 

42 CFR Part 413 

Health facilities, Kidney diseases, 

Medicare, Puerto Rico, Reporting and 

recordkeeping requirements. 

42 CFR Part 415 

Health facilities, Health professions, 

Medicare and Reporting and 

recordkeeping requirements. 

42 CFR Part 424 

Conditions for Medicare payment. 

42 CFR Part 440 

Grant program—health, Medicaid. 

42 CFR Part 441 

Family planning, Grant program— 

health, Infants and children, Medicaid, 

Penalties, Prescription drugs, Reporting 

and recordkeeping requirements. 

42 CFR Part 482 

Grant program—health, Hospitals, 

Medicaid, Medicare, Reporting and 

recordkeeping requirements. 

42 CFR Part 485 

Grant programs—health, Health 

facilities, Medicaid, Medicare, 

Reporting and recordkeeping 

requirements. 

42 CFR Part 489 

Health facilities, Medicare, Reporting 

and recordkeeping requirements. 

■ For the reasons stated in the preamble 

of this final rule, the Centers for 

Medicare & Medicaid Services is 

amending 42 CFR chapter IV as follows: 

PART 412—PROSPECTIVE PAYMENT 

SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

■ 1. The authority citation for part 412 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh), and sec. 124 of Pub. L. 106–113 

(113 Stat. 1501A–332). 

■ 2. Section 412.2 is amended by— 

■ a. Revising paragraph (c)(5) 

introductory text. 

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■ b. Revising paragraph (c)(5)(iii). 

■ c. Adding a new paragraph (c)(5)(iv). 

The revision and addition read as 

follows: 

§ 412.2 Basis of payment. 

* * * * * 

(c) * * * 

(5) Preadmission services otherwise 

payable under Medicare Part B 

furnished to a beneficiary on the date of 

the beneficiary’s admission to the 

hospital and during the 3 calendar days 

immediately preceding the date of the 

beneficiary’s admission to the hospital 

that meet the condition specified in 

paragraph (c)(5)(i) of this section and at 

least one of the conditions specified in 

paragraphs (c)(5)(ii) through (c)(5)(iv). 

* * * * * 

(iii) For services furnished on or after 

October 1, 1991, through June 24, 2010, 

the services are furnished in connection 

with the principal diagnosis that 

requires the beneficiary to be admitted 

as an inpatient and are not the 

following: 

(A) Ambulance services. 

(B) Maintenance renal dialysis. 

(iv) Nondiagnostic services furnished 

on or after June 25, 2010, other than 

ambulance services and maintenance 

renal dialysis services, that are 

furnished on the date of the 

beneficiary’s inpatient admission or on 

the first, second, or third calendar day 

immediately preceding the date of the 

beneficiary’s inpatient admission and 

the hospital does not attest that such 

services are unrelated to the 

beneficiary’s inpatient admission. 

■ 3. Section 412.4 is amended by— 

■ a. Republishing the introductory text 

of paragraph (b). 

■ b. Removing the word ‘‘or’’ at the end 

of paragraph (b)(1). 

■ c. Removing the period at the end of 

paragraph (b)(2) and adding in its place 

a semicolon. 

■ d. Adding new paragraphs (b)(3) and 

(b)(4). 

The additions read as follows: 

§ 412.4 Discharges and transfers. 

* * * * * 

(b) Acute care transfers. A discharge 

of a hospital inpatient is considered to 

be a transfer for purposes of payment 

under this part if the patient is 

readmitted the same day (unless the 

readmission is unrelated to the initial 

discharge) to another hospital that is— 

* * * * * 

(3) An acute care hospital that would 

otherwise be eligible to be paid under 

the IPPS, but does not have an 

agreement to participate in the Medicare 

program; or 

(4) A critical access hospital. 

* * * * * 

§ 412.23 [Amended] 

■ 4. In § 412.23, paragraphs (e)(6)(i) and 

(e)(7)(ii) are amended by removing the 

date ‘‘December 28, 2010’’ and adding 

the date ‘‘December 28, 2012’’ in its 

place. 

■ 5. Section 412.64 is amended by— 

■ a. Revising paragraphs (d)(1) and 

(e)(4). 

■ b. Adding a new paragraph (m). 

§ 412.64 Federal rates for inpatient 

operating costs for Federal fiscal year 2005 

and subsequent fiscal years. 

* * * * * 

(d) * * * 

(1) Subject to the provisions of 

paragraph (d)(2) of this section, the 

applicable percentage change for 

updating the standardized amount is— 

(i) For fiscal year 2005 through fiscal 

year 2009, the percentage increase in the 

market basket index for prospective 

payment hospitals (as defined in 

§ 413.40(a) of this subchapter) for 

hospitals in all areas. 

(ii) For fiscal year 2010, for 

discharges— 

(A) On or after October 1, 2009 and 

before April 1, 2010, the percentage 

increase in the market basket index for 

prospective payment hospitals (as 

defined in § 413.40(a) of this 

subchapter) for hospitals in all areas; 

and 

(B) On or after April 1, 2010 and 

before October 1, 2010, the percentage 

increase in the market basket index 

minus 0.25 percentage points for 

prospective payment hospitals (as 

defined in § 413.40(a) of this 

subchapter) for hospitals in all areas. 

(iii) For fiscal year 2011, the 

percentage increase in the market basket 

index minus 0.25 percentage points for 

prospective payment hospitals (as 

defined in § 413.40(a) of this 

subchapter) for hospitals in all areas. 

* * * * * 

(e) * * * 

(4) CMS makes an adjustment to the 

wage index to ensure that aggregate 

payments after implementation of the 

rural floor under section 4410 of the 

Balanced Budget Act of 1997 (Pub. L. 

105–33) and the imputed floor under 

paragraph (h)(4) of this section are equal 

to the aggregate prospective payments 

that would have been made in the 

absence of such provisions as follows: 

(i) Beginning October 1, 2008, such 

adjustment is transitioned from a 

nationwide to a statewide adjustment as 

follows: 

(A) From October 1, 2008 through 

September 30, 2009, the wage index is 

a blend of 20 percent of a wage index 

with a statewide adjustment and 80 

percent of a wage index with a 

nationwide adjustment. 

(B) From October 1, 2009 through 

September 30, 2010, the wage index is 

a blend of 50 percent of a wage index 

with a statewide adjustment and 50 

percent of a wage index with a 

nationwide adjustment. 

(ii) Beginning October 1, 2010, such 

adjustment is a full nationwide 

adjustment. 

* * * * * 

(m) Adjusting the wage index to 

account for the Frontier State floor. 

(1) General criteria. For discharges 

occurring on or after October 1, 2010, 

CMS adjusts the hospital wage index for 

hospitals located in qualifying States to 

recognize the wage index floor 

established for frontier States. A 

qualifying frontier State meets both of 

the following criteria: 

(i) At least 50 percent of counties 

located within the State have a reported 

population density less than 6 persons 

per square mile. 

(ii) The State does not receive a 

nonlabor-related share adjustment 

determined by the Secretary to take into 

account the unique circumstances of 

hospitals located in Alaska and Hawaii. 

(2) Amount of wage index adjustment. 

A hospital located in a qualifying State 

will receive a wage index value not less 

than 1.00. 

(3) Process for determining and 

posting wage index adjustments. (i) 

CMS uses the most recent Population 

Estimate data published by the U.S. 

Census Bureau to determine county 

definitions and population density. This 

analysis will be periodically revised, 

such as for updates to the decennial 

census data. 

(ii) CMS will include a listing of 

qualifying frontier States and denote the 

hospitals receiving a wage index 

increase attributable to this provision in 

its annual updates to the hospital 

inpatient prospective payment system 

published in the Federal Register. 

■ 6. Section 412.73 is amended by— 

■ a. Revising paragraph (c)(15). 

■ b. Adding a new paragraph (c)(16). 

The revision and addition read as 

follows: 

§ 412.73 Determination of the hospitalspecific rate based on a Federal fiscal year 

1982 base period. 

* * * * * 

(c) * * * 

(15) For Federal fiscal year 2003 

through Federal fiscal year 2009. For 

Federal fiscal year 2003 through Federal 

fiscal year 2009, the update factor is the 

percentage increase in the market basket 

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index for prospective payment hospitals 

(as defined in § 413.40(a) of this 

chapter). 

(16) For Federal fiscal year 2010 and 

subsequent years. For Federal fiscal year 

2010 and subsequent years, the update 

factor is the percentage increase 

specified in § 412.64(d). 

* * * * * 

§ 412.75 [Amended] 

■ 7. In § 412.75, paragraph (d) is 

amended by removing the citation 

‘‘§ 412.73(c)(15)’’ and adding the citation 

‘‘§ 412.73(c)(15) and § 412.73(c)(16)’’ in 

its place. 

§ 412.77 [Amended] 

■ 8. In § 412.77, paragraph (e) is 

amended by removing the reference 

‘‘(c)(15)’’ and adding the reference 

‘‘(c)(16)’’ in its place. 

§ 412.78 [Amended] 

■ 9. In § 412.78, paragraph (e) is 

amended by removing the citation 

‘‘§ 412.73(c)(15)’’ and adding the citation 

‘‘§ 412.73(c)(15) and § 412.73(c)(16)’’ in 

its place. 

§ 412.79 [Amended] 

■ 10. In § 412.79, paragraph (d) is 

amended by removing the phrase ‘‘and 

(c)(15)’’ and adding the phrase ‘‘through 

(c)(16)’’ in its place. 

■ 11. Section 412.101 is revised to read 

as follows: 

§ 412.101 Special treatment: Inpatient 

hospital payment adjustment for lowvolume hospitals. 

(a) Definitions. Beginning in FY 2011, 

the terms used in this section are 

defined as follows: 

Medicare discharges means discharge 

of inpatients entitled to Medicare Part 

A, including discharges associated with 

individuals whose inpatient benefits are 

exhausted or whose stay was not 

covered by Medicare and also 

discharges of individuals enrolled in a 

MA organization under Medicare Part C. 

Road miles means ‘‘miles’’ as defined 

in § 412.92(c)(1). 

(b) General considerations. (1) CMS 

provides an additional payment to a 

qualifying hospital for the higher 

incremental costs associated with a low 

volume of discharges. The amount of 

any additional payment for a qualifying 

hospital is calculated in accordance 

with paragraph (c) of this section. 

(2) In order to qualify for this 

adjustment, a hospital must meet the 

following criteria: 

(i) For FY 2005 through FY 2010 and 

FY 2013 and subsequent fiscal years, a 

hospital must have fewer than 200 total 

discharges, which includes Medicare 

and non-Medicare discharges, during 

the fiscal year, based on the hospital’s 

most recently submitted cost report, and 

be located more than 25 road miles (as 

defined in paragraph (a) of this section) 

from the nearest ‘‘subsection (d)’’ 

(section 1886(d) of the Act) hospital. 

(ii) For FY 2011 and FY 2012, a 

hospital must have fewer than 1,600 

Medicare discharges, as defined in 

paragraph (a) of this section, during the 

fiscal year, based on the hospital’s 

Medicare discharges from the most 

recently available MedPAR data as 

determined by CMS, and be located 

more than 15 road miles, as defined in 

paragraph (a) of this section, from the 

nearest ‘‘subsection (d)’’ (section 1886(d) 

of the Act) hospital. 

(3) In order to qualify for the 

adjustment, a hospital must provide its 

fiscal intermediary or Medicare 

administrative contractor with sufficient 

evidence that it meets the distance 

requirement specified under paragraph 

(b)(2) of this section. The fiscal 

intermediary or Medicare administrative 

contractor will base its determination of 

whether the distance requirement is 

satisfied upon the evidence presented 

by the hospital and other relevant 

evidence, such as maps, mapping 

software, and inquiries to State and 

local police, transportation officials, or 

other government officials. 

(c) Determination of the adjustment 

amount. The low-volume adjustment for 

hospitals that qualify under paragraph 

(b) of this section is as follows for the 

applicable fiscal year: 

(1) For FY 2005 through FY 2010 and 

FY 2013 and subsequent fiscal years, the 

adjustment is an additional 25 percent 

for each Medicare discharge. 

(2) For FY 2011 and FY 2012, the 

adjustment is as follows: 

(i) For low-volume hospitals with 200 

or fewer Medicare discharges (as 

defined in paragraph (a) of this section), 

the adjustment is an additional 25 

percent for each Medicare discharge. 

(ii) For low-volume hospitals with 

Medicare discharges (as defined in 

paragraph (a) of this section) of more 

than 200 and fewer than 1,600, the 

adjustment for each Medicare discharge 

is an additional percent calculated using 

the formula [(4/14)—(number of 

Medicare discharges/5600)]. The 

‘‘number of Medicare discharges’’ is 

determined as described in paragraph 

(b)(2)(ii) of this section. 

(d) Eligibility of new hospitals for the 

adjustment. For FYs 2005 through 2010 

and FY 2013 and subsequent fiscal 

years, a new hospital will be eligible for 

a low-volume adjustment under this 

section once it has submitted a cost 

report for a cost reporting period that 

indicates that it meets discharge 

requirements during the applicable 

fiscal year and has provided its fiscal 

intermediary or Medicare administrative 

contractor with sufficient evidence that 

it meets the distance requirement, as 

specified under paragraph (b)(2) of this 

section. 

§ 412.106 [Amended] 

■ 12. Section 412.106 is amended by— 

■ a. In paragraph (b)(2)(i)(B), removing 

the word ‘‘or’’ and adding in its place the 

word ‘‘including’’. 

■ b. In paragraph (b)(2)(iii)(B), removing 

the word ‘‘or’’ and adding in its place the 

word ‘‘including’’. 

§ 412.108 [Amended] 

■ 13. Section 412.108 is amended as 

follows: 

■ a. In paragraph (a)(1) introductory 

text, the phrase ‘‘before October 1, 2011’’ 

is removed and the phrase ‘‘before 

October 1, 2012’’ is added in its place. 

■ b. In paragraph (a)(1)(iii) introductory 

text, the word ‘‘receiving’’ is removed 

and the phrase ‘‘entitled to’’ is added in 

its place. 

■ c. In paragraph (c)(2)(iii) introductory 

text, the phrase ‘‘before October 1, 2011’’ 

is removed and the phrase ‘‘before 

October 1, 2012’’ is added in its place. 

■ 14. Section 412.113 is amended by 

revising paragraph (c)(2)(i)(A) to read as 

follows: 

§ 412.113 Other payments. 

* * * * * 

(c) * * * 

(2)(i) * * * 

(A) The hospital or CAH is located in 

a rural area as defined in § 412.62(f) and 

is not deemed to be located in an urban 

area under the provisions of 

§ 412.64(b)(3). For cost reporting periods 

beginning on or after October 1, 2010, 

the hospital or CAH is either located in 

a rural area as defined in § 412.62(f) and 

is not deemed to be located in an urban 

area under the provisions of 

§ 412.64(b)(3) or the hospital or CAH 

has reclassified as rural under the 

provisions at § 412.103. 

* * * * * 

■ 15. Section 412.211 is amended by 

revising paragraph (c) to read as follows: 

§ 412.211 Puerto Rico rates for Federal 

fiscal year 2004 and subsequent fiscal 

years. 

* * * * * 

(c) Computing the standardized 

amount. CMS computes a Puerto Rico 

standardized amount that is applicable 

to all hospitals located in all areas. The 

applicable percentage change for 

updating the Puerto Rico specific 

standardized amount is as follows: 

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(1) For fiscal year 2004 through fiscal 

year 2009, increased by the applicable 

percentage change specified in 

§ 412.64(d)(1)(ii)(A). 

(2) For fiscal year 2010, increased by 

the market basket index for prospective 

payment hospitals (as defined in 

§ 413.40(a) of this subchapter) for 

hospitals in all areas. 

(3) For fiscal year 2011, increased by 

the applicable percentage change 

specified in § 412.64(d)(1)(iii). 

* * * * * 

§ 412.230 [Amended] 

■ 16. In § 412.230 paragraph (d)(1)(iv)(E) 

is amended by removing the figures ‘‘86’’ 

and ‘‘88’’ adding the figures ‘‘82’’ and 

‘‘84’’ in their place, respectively. 

§ 412.232 [Amended] 

■ 17. In § 412.232, paragraph (c)(3) is 

amended by removing the figure ‘‘88’’ 

and adding the figure ‘‘85’’ in its place. 

§ 412.234 [Amended] 

■ 18. In § 412.234, paragraph (b)(3) is 

amended by removing the figure ‘‘88’’ 

and adding the figure ‘‘85’’ in its place. 

■ 19. Section 412.273 is revised to read 

as follows: 

§ 412.273 Withdrawing an application, 

terminating an approved 3-year 

reclassification, or canceling a previous 

withdrawal or termination. 

(a) Definitions. For purposes of this 

section, the following definitions apply. 

Termination refers to the termination 

of an already existing 3-year MGCRB 

reclassification where such 

reclassification has already been in 

effect for 1 or 2 years, and there are 1 

or 2 years remaining on the 3-year 

reclassification. A termination is 

effective only for the full fiscal year(s) 

remaining in the 3-year period at the 

time the request is received. Requests 

for terminations for part of a fiscal year 

are not considered. 

Withdrawal refers to the withdrawal 

of a 3-year MGCRB reclassification that 

has not yet gone into effect or where the 

MGCRB has not yet issued a decision on 

the application. 

(b) General rule. The MGCRB allows 

a hospital, or group of hospitals, to 

withdraw its application or to terminate 

an already existing 3-year 

reclassification, in accordance with this 

section. 

(c) Timing. (1) A request for 

withdrawal must be received by the 

MGCRB— 

(i) At any time before the MGCRB 

issues a decision on the application; or 

(ii) After the MGCRB issues a 

decision, provided that the request for 

withdrawal is 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 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 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 termination is to 

apply. 

(d) Reapplication within the approved 

3-year period, cancellations of 

terminations and withdrawals, and 

prohibition on overlapping 

reclassification approvals. (1) 

Cancellation of terminations or 

withdrawals. Subject to the provisions 

of this section, a hospital (or group of 

hospitals) may cancel a withdrawal or 

termination in a subsequent year and 

request the MGCRB to reinstate the 

wage index reclassification for the 

remaining fiscal year(s) of the 3-year 

period. (Withdrawals may be cancelled 

only in cases where the MGCRB issued 

a decision on the geographic 

reclassification request.) 

(2) Timing and process of cancellation 

request. Cancellation requests must be 

received in writing by the MGCRB no 

later than the deadline for submitting 

reclassification applications for the 

following fiscal year, as specified in 

§ 412.256(a)(2). 

(3) Reapplications. A hospital may 

apply for reclassification to a different 

area (that is, an area different from the 

one to which it was originally 

reclassified for the 3-year period). If the 

application is approved, the 

reclassification will be effective for 3 

years. Once a 3-year reclassification 

becomes effective, a hospital may no 

longer cancel a withdrawal or 

termination of another 3-year 

reclassification, regardless of whether 

the withdrawal or termination request is 

made within 3 years from the date of the 

withdrawal or termination. 

(4) Termination of existing 3-year 

reclassification. In a case in which a 

hospital with an existing 3-year wage 

index reclassification applies to be 

reclassified to another area, its existing 

3-year reclassification will be 

terminated when a second 3-year wage 

index reclassification goes into effect for 

payments for discharges on or after the 

following October 1. 

(e) Written request only. A request to 

withdraw an application must be made 

in writing to the MGCRB by all hospitals 

that are party to the application. A 

request to terminate an approved 

reclassification must be made in writing 

to the MGCRB by an individual hospital 

or by an individual hospital that is party 

to a group classification. 

(f) Appeal of the MGCRB’s denial of 

a hospital’s request for withdrawal or 

termination, or for cancellation of a 

withdrawal or termination. (1) A 

hospital may file an appeal of the 

MGCRB’s denial of its request for 

withdrawal or termination, or of the 

MGCRB’s denial of its request for a 

cancellation of such withdrawal or 

termination, to the Administrator. The 

appeal must be received within 15 days 

of the date of the notice of the denial. 

(2) Within 20 days of receipt of the 

hospital’s request for appeal, the 

Administrator affirms or reverses the 

denial. 

■ 20. A new § 412.405 is added to read 

as follows: 

§ 412.405 Preadmission services as 

inpatient operating costs under the 

inpatient psychiatric facility prospective 

payment system. 

The prospective payment system 

includes payment for inpatient 

operating costs of preadmission services 

if the inpatient operating costs are for— 

(a) Preadmission services otherwise 

payable under Medicare Part B 

furnished to a beneficiary on the date of 

the beneficiary’s inpatient admission, 

and during the calendar day 

immediately preceding the date of the 

beneficiary’s inpatient admission, to the 

inpatient psychiatric facility that meet 

the following conditions: 

(1) The services are furnished by the 

inpatient psychiatric facility or by an 

entity wholly owned or wholly operated 

by the inpatient psychiatric facility. An 

entity is wholly owned by the inpatient 

psychiatric facility if the inpatient 

psychiatric facility is the sole owner of 

the entity. An entity is wholly operated 

by an inpatient psychiatric facility if the 

inpatient psychiatric facility has 

exclusive responsibility for conducting 

and overseeing the entity’s routine 

operations, regardless of whether the 

inpatient psychiatric facility also has 

policymaking authority over the entity. 

(2) The services are diagnostic 

(including clinical diagnostic laboratory 

tests). 

(3) The services are nondiagnostic 

when furnished on the date of the 

beneficiary’s inpatient admission, the 

services are nondiagnostic when 

furnished on the calendar day preceding 

the date of the beneficiary’s inpatient 

admission and the hospital does not 

demonstrate that such services are 

unrelated to the beneficiary’s inpatient 

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admission, and are not one of the 

following: 

(i) Ambulance services. 

(ii) Maintenance renal dialysis 

services. 

(b) The preadmission services are 

furnished on or after June 25, 2010. 

■ 21. Section 412.503 is amended by— 

■ a. Adding a definition of ‘‘Long-term 

care hospital prospective payment 

system fiscal year’’. 

■ b. Adding a definition of ‘‘Long-term 

care hospital prospective payment 

system payment year’’. 

■ c. Revising paragraph (3) of the 

definition of ‘‘Long-term care hospital 

prospective payment system rate year’’. 

The additions and revision read as 

follows: 

§ 412.503 Definitions. 

* * * * * 

Long-term care hospital prospective 

payment system fiscal year means, 

beginning October 1, 2010, the 12- 

month period of October 1 through 

September 30. 

Long-term care hospital prospective 

payment system payment year means 

the general term that encompasses both 

the definition of ‘‘long-term care 

hospital prospective payment system 

rate year’’ and ‘‘long-term care hospital 

prospective payment system fiscal year’’ 

specified in this section. 

Long-term care hospital prospective 

payment system rate year means— 

* * * * * 

(3) From October 1, 2009 through 

September 30, 2010, the 12-month 

period of October 1 through September 

30. 

* * * * * 

§ 412.521 [Amended] 

■ 22. In paragraph (b)(1) of § 412.521, 

remove the reference ‘‘§ 412.2(c)’’ and 

add in its place the reference 

‘‘§§ 412.2(c)(1) through (c)(4) of this Part 

and § 412.540’’. 

■ 23. Section 412.523 is amended by— 

■ a. Revising paragraph (c)(3)(vi). 

■ b. Adding paragraph (c)(3)(vii). 

■ c. In paragraph (d)(3), removing the 

phrase ‘‘December 29, 2010, and by no 

later than October 1, 2012’’ and adding 

the phrase ‘‘December 29, 2012,’’ in its 

place. 

The revision and addition read as 

follows: 

§ 412.523 Methodology for calculating the 

Federal prospective payment rates. 

* * * * * 

(c) * * * 

(3) * * * 

(vi) For long-term care hospital 

prospective payment system rate year 

beginning October 1, 2009 and ending 

September 30, 2010. (A) The standard 

Federal rate for long-term care hospital 

prospective payment system rate year 

beginning October 1, 2009 and ending 

September 30, 2010 is the standard 

Federal rate for the previous long-term 

care hospital prospective payment 

system rate year updated by 1.74 

percent. The standard Federal rate is 

adjusted, as appropriate, as described in 

paragraph (d) of this section. 

(B) With respect to discharges 

occurring on or after October 1, 2009 

and before April 1, 2010, payments are 

based on the standard Federal rate in 

paragraph (c)(3)(v) of this section 

updated by 2.0 percent. 

(vii) For long-term care hospital 

prospective payment system fiscal year 

beginning October 1, 2010, and ending 

September 30, 2011. The standard 

Federal rate for the long-term care 

hospital prospective payment system 

fiscal year beginning October 1, 2010, 

and ending September 30, 2011, is the 

standard Federal rate for the previous 

long-term care hospital prospective 

payment system rate year updated by 

¥0.49 percent. The standard Federal 

rate is adjusted, as appropriate, as 

described in paragraph (d) of this 

section. 

* * * * * 

■ 24. Section 412.525 is amended by 

revising paragraphs (a)(1) and (a)(2) to 

read as follows: 

§ 412.525 Adjustments to the Federal 

prospective payment. 

(a) * * * 

(1) CMS provides for an additional 

payment to a long-term care hospital if 

its estimated costs for a patient exceed 

the adjusted LTC–MS–DRG payment 

plus a fixed-loss amount. For each longterm care hospital prospective payment 

system payment year, as described in 

§ 412.503, CMS determines a fixed-loss 

amount that is the maximum loss that 

a hospital can incur under the 

prospective payment system for a case 

with unusually high costs. 

(2) The fixed-loss amount is 

determined for the long-term care 

hospital prospective payment system 

payment year, as defined in § 412.503, 

using the LTC–MS–DRG relative 

weights that are in effect at the start of 

the applicable long-term care hospital 

prospective payment system payment 

year, as defined in § 412.503. 

* * * * * 

§ 412.529 [Amended] 

■ 25. In § 412.529, paragraphs (c)(2) 

introductory text and (c)(3) introductory 

text are amended by removing the date 

‘‘December 29, 2010’’ and adding in its 

place the date ‘‘December 29, 2012’’ each 

time it appears. 

§ 412.534 [Amended] 

■ 26. Section 412.534 is amended as 

follows: 

■ a. Paragraphs (c)(1) introductory text, 

(c)(1)(i), (c)(1)(ii), (c)(2) introductory 

text, (d)(1) introductory text, (d)(1)(i), 

(d)(2) introductory text, (e)(1) 

introductory text, (e)(1)(i), and (e)(2) 

introductory text are amended by 

removing the date ‘‘October 1, 2010’’ and 

adding in its place the date ‘‘October 1, 

2012’’ each time it appears. 

■ b. Paragraphs (c)(3), (d)(3), (e)(3), 

(h)(4), and (h)(5) are amended by 

removing the date ‘‘July 1, 2010’’ and 

adding in its place the date ‘‘July 1, 

2012’’ each time it appears. 

§ 412.536 [Amended] 

■ 27. In § 412.536, paragraph (a)(2) 

introductory text is amended by 

removing the date ‘‘July 1, 2010’’ and 

adding in its place the date ‘‘July 1, 

2012’’ in its place. 

■ 28. A new § 412.540 is added to read 

as follows: 

§ 412.540 Method of payment for 

preadmission services under the long-term 

care hospital prospective payment system. 

The prospective payment system 

includes payment for inpatient 

operating costs of preadmission services 

that are— 

(a) Otherwise payable under Medicare 

Part B; 

(b) Furnished to a beneficiary on the 

date of the beneficiary’s inpatient 

admission, and during the calendar day 

immediately preceding the date of the 

beneficiary’s inpatient admission, to the 

long-term care hospital, or to an entity 

wholly owned or wholly operated by 

the long-term care hospital; and 

(1) An entity is wholly owned by the 

long-term care hospital if the long-term 

care hospital is the sole owner of the 

entity. 

(2) An entity is wholly operated by a 

long-term care hospital if the long-term 

care hospital has exclusive 

responsibility for conducting and 

overseeing the entity’s routine 

operations, regardless of whether the 

long-term care hospital also has 

policymaking authority over the entity. 

(c) Related to the inpatient stay. A 

preadmission service is related if— 

(1) It is diagnostic (including clinical 

diagnostic laboratory tests); or 

(2) It is nondiagnostic when furnished 

on the date of the beneficiary’s inpatient 

admission; or 

(3) On or after June 25, 2010, it is 

nondiagnostic when furnished on the 

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calendar day preceding the date of the 

beneficiary’s inpatient admission and 

the hospital does not attest that such 

service is unrelated to the beneficiary’s 

inpatient admission. 

(d) Not one of the following— 

(1) Ambulance services. 

(2) Maintenance renal dialysis 

services. 

■ 29. Section 412.604 is amended by— 

■ a. Redesignating paragraph (f) as 

paragraph (g). 

■ b. Adding a new paragraph (f). 

The addition reads as follows: 

§ 412.604 Conditions for payment under 

the prospective payment system for 

inpatient rehabilitation services. 

* * * * * 

(f) The prospective payment system 

includes payment for inpatient 

operating costs of preadmission services 

that are— 

(1) Otherwise payable under Medicare 

Part B; 

(2) Furnished to a beneficiary on the 

date of the beneficiary’s inpatient 

admission, and during the calendar day 

immediately preceding the date of the 

beneficiary’s inpatient admission, to the 

inpatient rehabilitation facility, or to an 

entity wholly owned or wholly operated 

by the inpatient rehabilitation facility; 

and 

(i) An entity is wholly owned by the 

inpatient rehabilitation facility if the 

inpatient rehabilitation facility is the 

sole owner of the entity. 

(ii) An entity is wholly operated by an 

inpatient rehabilitation facility if the 

inpatient rehabilitation facility has 

exclusive responsibility for conducting 

and overseeing the entity’s routine 

operations, regardless of whether the 

inpatient rehabilitation facility also has 

policymaking authority over the entity. 

(3) Related to the inpatient stay. A 

preadmission service is related if— 

(i) It is diagnostic (including clinical 

diagnostic laboratory tests); or 

(ii) It is nondiagnostic when furnished 

on the date of the beneficiary’s inpatient 

admission; or 

(iii) On or after June 25,, 2010, it is 

nondiagnostic when furnished on the 

calendar day preceding the date of the 

beneficiary’s inpatient admission and 

the hospital does not attest that such 

service is unrelated to the beneficiary’s 

inpatient admission. 

(4) Not one of the following— 

(i) Ambulance services. 

(ii) Maintenance renal dialysis 

services. 

* * * * * 

PART 413—PRINCIPLES OF 

REASONABLE COST 

REIMBURSEMENT; PAYMENT FOR 

END-STAGE RENAL DISEASE 

SERVICES; OPTIONAL 

PROSPECTIVELY DETERMINED 

PAYMENT RATES FOR SKILLED 

NURSING FACILITIES 

■ 30. The authority citation for part 413 

continues to read as follows: 

Authority: Secs. 1102, 1812(d), 1814(b), 

1815, 1833(a), (i), and (n), 1861(v), 1871, 

1881, 1883, and 1886 of the Social Security 

Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 

1395g, 1395l(a), (i), and (n), 1395x(v), 

1395hh, 1395rr, 1395tt, and 1395ww); and 

sec. 124 of Pub. L. 106–133 (113 Stat. 1501A– 

332). 

■ 31. Section 413.40 is amended by— 

■ a. Revising paragraph (c)(2) 

introductory text. 

■ b. Revising paragraph (c)(2)(iii). 

■ c. Adding a new paragraph (c)(2)(iv). 

The revision and addition read as 

follows: 

§ 413.40 Ceiling on the rate of increase in 

hospital inpatient costs. 

* * * * * 

(c) * * * 

(2) Preadmission services otherwise 

payable under Medicare Part B 

furnished to a beneficiary on the date of 

the beneficiary’s admission to the 

hospital and during the calendar day 

immediately preceding the date of the 

beneficiary’s admission to the hospital 

that meet the condition specified in 

paragraph (c)(2)(i) of this section and at 

least one of the conditions specified in 

paragraphs (c)(2)(ii) through (c)(2)(iv): 

* * * * * 

(iii) For services furnished on or after 

October 1, 1991 through June 24, 2010, 

the services are furnished in connection 

with the principal diagnosis that 

requires the beneficiary to be admitted 

as an inpatient and are not the 

following: 

(A) Ambulance services. 

(B) Maintenance renal dialysis 

services. 

(iv) Nondiagnostic services furnished 

on or after June 25, 2010, other than 

ambulance services and maintenance 

renal dialysis services, that are 

furnished on the date of the 

beneficiary’s inpatient admission or on 

the calendar day immediately preceding 

the date of the beneficiary’s inpatient 

admission and the hospital does not 

attest that such services are unrelated to 

the beneficiary’s inpatient admission. 

* * * * * 

■ 32. Section 413.70 is amended by— 

■ a. Revising paragraph (b)(3)(i)(A). 

■ b. Revising paragraph (b)(3)(i)(B). 

■ c. Revising paragraph (b)(3)(i)(D). 

■ d. Revise paragraph (b)(3)(ii)(A). 

■ e. Redesignate paragraph (b)(5)(i) as 

(b)(5)(i)(A). 

■ f. In newly redesignated paragraph 

(b)(5)(i)(A), the phrase ‘‘on or after 

December 21, 2000,’’ is removed and the 

phrase ‘‘on or after December 21, 2000 

and on or before December 31, 2003,’’ is 

added in its place. 

■ g. Add a new paragraph (b)(5)(i)(B). 

The revision and addition read as 

follows: 

§ 413.70 Payment for services of a CAH. 

* * * * * 

(b) * * * 

(3) * * * 

(i) * * * 

(A)(1) For cost reporting periods 

beginning before October 1, 2010. The 

election must be made in writing, made 

on an annual basis, and delivered to the 

fiscal intermediary or MAC servicing 

the CAH at least 30 days before the start 

of the cost reporting period for which 

the election is made. An election, once 

made for a cost reporting period, 

remains in effect for all of that period. 

(2) For cost reporting periods 

beginning on or after October 1, 2010. If 

a CAH had elected the method specified 

in paragraph (b)(3)(i) of this section in 

its most recent cost reporting period 

beginning prior to October 1, 2010, that 

election remains in effect for all of that 

period and for all subsequent cost 

reporting periods, unless the CAH 

submits a termination request to the 

fiscal intermediary or MAC servicing 

the CAH at least 30 days before the start 

of the next cost reporting period. 

However, for cost reporting periods 

beginning in October 2010 and 

November 2010, if a CAH wishes to 

terminate its previous election, the CAH 

must submit a termination request to the 

fiscal intermediary or MAC servicing 

the CAH prior to December 1, 2010. If 

a CAH had no election in effect in its 

most recent preceding cost reporting 

period and chooses to elect the method 

specified in paragraph (b)(3)(i) of this 

section on or after October 1, 2010, the 

election must be made in writing and 

delivered to the fiscal intermediary or 

MAC servicing the CAH at least 30 days 

before the start of the first cost reporting 

period for which the election is made. 

Once the election is made, it remains in 

effect for all of that period and for all 

subsequent cost reporting periods 

unless the CAH submits a termination 

request to the fiscal intermediary or 

MAC servicing the CAH at least 30 days 

before the start of the next cost reporting 

period. 

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50418 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

(B) An election of the payment 

method specified under paragraph 

(b)(3)(i) of this section applies to all 

services furnished to outpatients by a 

physician or other practitioner who has 

reassigned his or her rights to bill for 

those services to the CAH in accordance 

with subpart F of part 424 of this 

chapter. If a physician or other 

practitioner does not reassign his or her 

billing rights to the CAH in accordance 

with subpart F of Part 424 of this 

chapter, payment for the physician’s or 

practitioner’s services furnished to CAH 

outpatients will be made on a fee 

schedule or other applicable basis as 

specified in subpart B of part 414 of this 

subchapter. 

* * * * * 

(D) An election made under paragraph 

(b)(3)(i) of this section is effective as 

provided for under paragraph 

(b)(3)(i)(A) or paragraph (b)(3)(i)(C) of 

this section and does not apply to an 

election that was terminated prior to the 

start of the cost reporting period for 

which it would otherwise apply. 

(ii) * * * 

(A) Effective for cost reporting periods 

beginning on or after January 1, 2004, 

for facility services not including any 

services for which payment may be 

made under paragraph (b)(3)(ii)(B) of 

this section, 101 percent of the 

reasonable costs of the services as 

determined under paragraph (b)(2)(i) of 

this section; and 

* * * * * 

(5) * * * 

(i) * * * 

(B) Effective for cost reporting periods 

beginning on or after January 1, 2004, 

payment for ambulance services 

furnished by a CAH or an entity that is 

owned and operated by a CAH is 101 

percent of the reasonable costs of the 

CAH or the entity in furnishing those 

services, but only if the CAH or the 

entity is the only provider or supplier of 

ambulance services located within a 35- 

mile drive of the CAH or the entity. 

* * * * * 

■ 33. Section 413.75(b) is amended by 

revising the definitions of ‘‘Primary care 

resident’’, and ‘‘Resident’’ to read as 

follows: 

§ 413.75 Direct GME payments: General 

requirements. 

* * * * * 

(b) * * * 

Primary care resident is a resident 

who is enrolled in an approved medical 

residency training program in family 

medicine, general internal medicine, 

general pediatrics, preventive medicine, 

geriatric medicine or osteopathic 

general practice. Effective for cost 

reporting periods beginning on or after 

October 1, 2010, primary care resident 

is a resident who is formally accepted, 

enrolled, and participating in an 

approved medical residency training 

program in family medicine, general 

internal medicine, general pediatrics, 

preventive medicine, geriatric medicine 

or osteopathic general practice. 

* * * * * 

Resident means an intern, resident, or 

fellow who participates in an approved 

medical residency program, including 

programs in osteopathy, dentistry, and 

podiatry, as required in order to become 

certified by the appropriate specialty 

board. Effective for cost reporting 

periods beginning on or after October 1, 

2010, resident means an intern, 

resident, or fellow who is formally 

accepted, enrolled, and participating in 

an approved medical residency 

program, including programs in 

osteopathy, dentistry, and podiatry, as 

required in order to become certified by 

the appropriate specialty board. 

* * * * * 

■ 34. Section 413.85 is amended by— 

■ a. Revising paragraph (c)(2). 

■ b. Revising paragraph (d)(1)(i)(C). 

The revisions read as follows: 

§ 413.85 Cost of approved nursing and 

allied health education activities. 

* * * * * 

(c) * * * 

(2) Enhance the quality of health care 

at the provider; and 

* * * * * 

(d) * * * 

(1) * * * 

(i) * * * 

(C) Enhance the quality of health care 

at the provider. 

* * * * * 

PART 415—SERVICES FURNISHED BY 

PHYSICIANS IN PROVIDERS, 

SUPERVISING PHYSICIANS IN 

TEACHING SETTINGS, AND 

RESIDENTS IN CERTAIN SETTINGS 

■ 35. The authority citation for Part 415 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

■ 36. In § 415.152, the definition of 

‘‘Approved graduate medical education’’ 

is amended by revising paragraph (1) to 

read as follows: 

§ 415.152 Definitions. 

* * * * * 

Approved graduate medical 

education program means one of the 

following: 

(1) A residency program approved by 

the Accreditation Council for Graduate 

Medical Education, by the American 

Osteopathic Association, by the 

Commission on Dental Accreditation of 

the American Dental Association, or by 

the Council on Podiatric Medical 

Education of the American Podiatric 

Medical Association. 

* * * * * 

PART 424—CONDITIONS FOR 

MEDICARE PAYMENT 

■ 37. The authority citation for part 424 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

§ 424.510 [Amended] 

■ 38. In 424.510, paragraph (c), remove 

the reference ‘‘§ 489.13(d)’’ and add the 

reference ‘‘§ 489.13’’ in its place. 

§ 424.520 [Amended] 

■ 39. In 424.520, paragraph (a), remove 

the reference ‘‘§ 489.13(d)’’ and add the 

reference ‘‘§ 489.13’’ in its place. 

PART 440—SERVICES: GENERAL 

PROVISIONS 

■ 40. The authority citation for part 440 

continues to read as follows: 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

■ 41. Section 440.160 is amended by 

revising paragraph (b)(1) to read as 

follows: 

§ 440.160 Inpatient psychiatric services for 

individuals under age 21. 

* * * * * 

(b) * * * 

(1) A psychiatric hospital that 

undergoes a State survey to determine 

whether the hospital meets the 

requirements for participation in 

Medicare as a psychiatric hospital as 

specified in § 482.60 of this chapter, or 

is accredited by a national organization 

whose psychiatric hospital accrediting 

program has been approved by CMS; or 

a hospital with an inpatient psychiatric 

program that undergoes a State survey 

to determine whether the hospital meets 

the requirements for participation in 

Medicare as a hospital, as specified in 

part 482 of this chapter, or is accredited 

by a national accrediting organization 

whose hospital accrediting program has 

been approved by CMS. 

* * * * * 

PART 441—SERVICES: 

REQUIREMENTS AND LIMITS 

APPLICABLE TO SPECIFIC SERVICES 

■ 42. The authority citation for part 441 

continues to read as follows: 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50419 

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

■ 43. Section 441.151 is amended by 

revising paragraph (a)(2)(i) to read as 

follows: 

§ 441.151 General requirements. 

(a) * * * 

(2) * * * 

(i) A psychiatric hospital that 

undergoes a State survey to determine 

whether the hospital meets the 

requirements for participation in 

Medicare as a psychiatric hospital as 

specified in § 482.60 of this chapter, or 

is accredited by a national organization 

whose psychiatric hospital accrediting 

program has been approved by CMS; or 

a hospital with an inpatient psychiatric 

program that undergoes a State survey 

to determine whether the hospital meets 

the requirements for participation in 

Medicare as a hospital, as specified in 

part 482 of this chapter, or is accredited 

by a national accrediting organization 

whose hospital accrediting program has 

been approved by CMS. 

* * * * * 

PART 482—CONDITIONS OF 

PARTICIPATION FOR HOSPITALS 

■ 44. The authority citation for part 482 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395(hh)). 

■ 45. Section 482.56 is amended by 

revising paragraph (b) to read as follows: 

§ 482.56 Condition of participation: 

Rehabilitation services. 

* * * * * 

(b) Standard: Delivery of services. 

Services must only be provided under 

the orders of a qualified and licensed 

practitioner who is responsible for the 

care of the patient, acting within his or 

her scope of practice under State law, 

and who is authorized by the hospital’s 

medical staff to order the services in 

accordance with hospital policies and 

procedures and State laws. 

(1) All rehabilitation services orders 

must be documented in the patient’s 

medical record in accordance with the 

requirements at § 482.24. 

(2) The provision of care and the 

personnel qualifications must be in 

accordance with national acceptable 

standards of practice and must also 

meet the requirements of § 409.17 of this 

chapter. 

■ 46. Section 482.57 is amended by 

revising paragraph (b)(3) and by adding 

paragraph (b)(4) to read as follows: 

§ 482.57 Condition of participation: 

Respiratory care services. 

* * * * * 

(b) * * * 

(3) Services must only be provided 

under the orders of a qualified and 

licensed practitioner who is responsible 

for the care of the patient, acting within 

his or her scope of practice under State 

law, and who is authorized by the 

hospital’s medical staff to order the 

services in accordance with hospital 

policies and procedures and State laws. 

(4) All respiratory care services orders 

must be documented in the patient’s 

medical record in accordance with the 

requirements at § 482.24. 

PART 485—CONDITIONS OF 

PARTICIPATION: SPECIALIZED 

PROVIDERS 

■ 47. The authority citation for part 485 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395(hh)). 

■ 48. Section 485.610 is amended by 

revising the introductory text of 

paragraph (b) to read as follows: 

§ 485.610 Condition of participation: 

Status and location. 

* * * * * 

(b) Standard: Location in a rural area 

or treatment as rural. The CAH meets 

the requirements of either paragraph 

(b)(1) or (b)(2) of this section or the 

requirements of either (b)(3) or (b)(4) of 

this section. 

* * * * * 

PART 489—PROVIDER AGREEMENTS 

AND SUPPLIER APPROVAL 

■ 49. 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 1395hh). 

■ 50. Section 489.1 is revised to read as 

follows: 

§ 489.1 Statutory basis. 

(a) This part implements section 1866 

of the Social Security Act (the Act). 

Section 1866 of the Act specifies the 

terms of provider agreements, the 

grounds for terminating a provider 

agreement, the circumstances under 

which payment for new admissions may 

be denied, and the circumstances under 

which payment may be withheld for 

failure to make timely utilization 

review. The sections of the Act specified 

in paragraphs (a)(1) through (a)(4) of this 

section are also pertinent. 

(1) Section 1861 of the Act defines the 

services covered under Medicare and 

the providers that may be reimbursed 

for furnishing those services. 

(2) Section 1864 of the Act provides 

for the use of State survey agencies to 

ascertain whether certain entities meet 

the conditions of participation. 

(3) Section 1865(a)(1) of the Act 

provides that an entity accredited by a 

national accreditation body found by 

the Secretary to satisfy the Medicare 

conditions of participation, conditions 

for coverage, or conditions of 

certification or requirements for 

participation shall be treated as meeting 

those requirements. Section 1865(a)(2) 

of the Act requires the Secretary to 

consider when making such a finding, 

among other things, the national 

accreditation body’s accreditation 

requirements and survey procedures. 

(4) Section 1871 of the Act authorizes 

the Secretary to prescribe regulations for 

the administration of the Medicare 

program. 

(b) Although section 1866 of the Act 

speaks only to providers and provider 

agreements, the effective date rules in 

this part are made applicable also to the 

approval of suppliers that meet the 

requirements specified in § 489.13. 

(c) Section 1861(o)(7) of the Act 

requires each HHA to provide CMS with 

a surety bond. 

■ 52. Section 489.13 is revised to read 

as follows: 

§ 489.13 Effective date of agreement or 

approval. 

(a) Applicability—(1) General rule. 

Except as provided in paragraph (a)(2) 

of this section, this section applies to 

Medicare provider agreements with, and 

supplier approval of, entities that, as a 

basis for participation in Medicare are 

subject to a determination by CMS on 

the basis of— 

(i) A survey conducted by the State 

survey agency or CMS surveyors; or 

(ii) In lieu of such State survey agency 

or CMS conducted survey, accreditation 

by an accreditation organization whose 

program has CMS approval in 

accordance with section 1865 of the Act 

at the time of the accreditation survey 

and accreditation decision. 

(2) Exceptions. (i) For an agreement 

with a community mental health center 

(CMHC) or a federally qualified health 

center (FQHC), the effective date is the 

date on which CMS accepts a signed 

agreement which assures that the CMHC 

or FQHC meets all Federal 

requirements. 

(ii) A Medicare supplier approval of a 

laboratory is effective only while the 

laboratory has in effect a valid CLIA 

certificate issued under part 493 of this 

chapter, and only for the specialty and 

subspecialty tests it is authorized to 

perform. 

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50420 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

(b) All health and safety standards are 

met on the date of survey. The 

agreement or approval is effective on the 

date the State agency, CMS, or the CMS 

contractor survey (including the Life 

Safety Code survey, if applicable) is 

completed, or on the effective date of 

the accreditation decision, as 

applicable, if on that date the provider 

or supplier meets all applicable Federal 

requirements as set forth in this chapter. 

(If the agreement or approval is timelimited, the new agreement or approval 

is effective on the day following the 

expiration of the current agreement or 

approval.) However, the effective date of 

the agreement or approval may not be 

earlier than the latest of the dates on 

which CMS determines that each 

applicable Federal requirement is met. 

Federal requirements include, but are 

not limited to— 

(1) Enrollment requirements 

established in part 424, subpart P, of 

this chapter. CMS determines, based 

upon its review and verification of the 

prospective provider’s or supplier’s 

enrollment application, the date on 

which enrollment requirements have 

been met; 

(2) The requirements identified in 

§§ 489.10 and 489.12; and 

(3) The applicable Medicare health 

and safety standards, such as the 

applicable conditions of participation, 

the requirements for participation, the 

conditions for coverage, or the 

conditions for certification. 

(c) All health and safety standards are 

not met on the date of survey. If, on the 

date the survey is completed, the 

provider or supplier has failed to meet 

any one of the applicable health and 

safety standards, the following rules 

apply for determining the effective date 

of the provider agreement or supplier 

approval, assuming that no other 

Federal requirements remain to be 

satisfied. However, if other Federal 

requirements remain to be satisfied, 

notwithstanding the provisions of 

paragraphs (c)(1) through (c)(3) of this 

section, the effective date of the 

agreement or approval may not be 

earlier than the latest of the dates on 

which CMS determines that each 

applicable Federal requirement is met. 

(1) For an agreement with an SNF, the 

effective date is the date on which— 

(i) The SNF is in substantial 

compliance (as defined in § 488.301 of 

this chapter) with the requirements for 

participation; and 

(ii) CMS or the State survey agency 

receives from the SNF, if applicable, an 

approvable waiver request. 

(2) For an agreement with, or an 

approval of, any other provider or 

supplier, (except those specified in 

paragraph (a)(2) of this section), the 

effective date is the earlier of the 

following: 

(i) The date on which the provider or 

supplier meets all applicable conditions 

of participation, conditions for coverage, 

or conditions for certification; or, if 

applicable, the date of a CMS-approved 

accreditation organization program’s 

positive accreditation decision, issued 

after the accreditation organization has 

determined that the provider or supplier 

meets all applicable conditions. 

(ii) The date on which a provider or 

supplier is found to meet all conditions 

of participation, conditions for coverage, 

or conditions for certification, but has 

lower-level deficiencies, and— 

(A) CMS or the State survey agency 

receives an acceptable plan of correction 

for the lower-level deficiencies (the date 

of receipt is the effective date regardless 

of when the plan of correction is 

approved); or, if applicable, a CMSapproved accreditation organization 

program issues a positive accreditation 

decision after it receives an acceptable 

plan of correction for the lower-level 

deficiencies; or 

(B) CMS receives an approvable 

waiver request (the date of receipt is the 

effective date regardless of when CMS 

approves the waiver request). 

(3) For an agreement with any other 

provider or an approval of any other 

supplier (except those specified in 

paragraph (a)(2) of this section) that is 

found to meet all conditions of 

participation, conditions for coverage, 

or conditions for certification, but has 

lower-level deficiencies and has 

submitted both an approvable plan of 

correction/positive accreditation 

decision and an approvable waiver 

request, the effective date is the later of 

the dates that result when calculated in 

accordance with paragraph (c)(2)(ii)(A) 

or (c)(2)(ii)(B) of this section. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; Program No. 93.774, Medicare— 

Supplementary Medical Insurance Program; 

and Program No. 93.778, Medical Assistance) 

Dated: July 23, 2010. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: July 28, 2010 

Kathleen Sebelius, 

Secretary. 

Note: The following Addendum will not 

appear in the Code of Federal Regulations. 

Addendum—Schedule of Standardized 

Amounts, Update Factors, and Rate-ofIncrease Percentages Effective With 

Cost Reporting Periods Beginning on or 

After October 1, 2010 

I. Summary and Background 

Several provisions of the Affordable Care 

Act affect the hospital inpatient update for 

both FYs 2010 and 2011. However, due to the 

timing of the passage of the legislation, we 

were unable to address those provisions in 

the FY 2011 IPPS/LTCH PPS proposed rule 

issued in the Federal Register on May 4, 

2010 (75 FR 23852). On June 2, 2010, we 

issued a supplemental proposed rule to the 

FY 2011 IPPS/LTCH PPS proposed rule (75 

FR 30756) to address these provisions. The 

discussion below reflects both the provisions 

of the initial FY 2011 proposed rule and the 

supplemental proposed rule relative to the 

FY 2011 payment rates and factors and any 

public comments that we received on both 

documents. 

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 capitalrelated costs for FY 2011 for acute care 

hospitals. In this final rule, we also are 

setting forth the final rate-of-increase 

percentages for updating the target amounts 

for certain hospitals excluded from the IPPS 

for FY 2011. We note that, because certain 

hospitals excluded from the IPPS are paid on 

a reasonable cost basis subject to a rate-ofincrease 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 finalizing the rate-ofincrease percentages for updating the target 

amounts for certain hospitals excluded from 

the IPPS that are effective for cost reporting 

periods beginning on or after October 1, 

2010. 

In addition, we are setting forth a 

description of the methods and data we used 

to determine the final standard Federal rate 

that will be applicable to Medicare LTCHs for 

FY 2011. 

In general, except for SCHs, MDHs, and 

hospitals located in Puerto Rico, 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. 

Currently, SCHs are paid based on 

whichever of the following rates yields the 

greatest aggregate payment: the Federal 

national 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 hospitalspecific rate based on the FY 2006 costs per 

discharge. 

Under section 1886(d)(5)(G) of the Act, 

MDHs historically have been paid based on 

the Federal national rate or, if higher, the 

Federal national rate plus 50 percent of the 

difference between the Federal national rate 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50421 

and the updated hospital-specific rate based 

on FY 1982 or FY 1987 costs per discharge, 

whichever was higher. However, section 

5003(a)(1) of Public Law 109–171 extended 

and modified the MDH special payment 

provision that was previously set to expire on 

October 1, 2006, to include discharges 

occurring on or after October 1, 2006, but 

before October 1, 2011. Section 3124(a) of the 

Affordable Care Act amended sections 

1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of 

the Act to extend the MDH program and 

payment methodology from the end of FY 

2011 to the end of FY 2012, by striking 

‘‘October 1, 2011’’ and inserting ‘‘October 1, 

2012’’. Section 3124(b) of the Affordable Care 

Act also made conforming amendments to 

sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) 

of the Act. Section 3124(b)(2) of the 

Affordable Care Act also amended section 

13501(e)(2) of OBRA 1993 to extend the 

provision permitting hospitals to decline 

reclassification as an MDH through FY 2012. 

In section IV.G.2. of the preamble to this final 

rule, we are adopting as final the proposed 

changes to § 412.108(a)(1) and (c)(2)(iii) to 

reflect the legislative extension of the MDH 

program for an additional year, through FY 

2012. Under section 5003(b) of Pub. L. 109– 

171, if the change results in an increase to 

an MDH’s target amount, we must rebase an 

MDH’s hospital-specific rates based on its FY 

2002 cost report. Section 5003(c) of Public 

Law 109–171 further required that MDHs be 

paid based on the Federal national rate or, if 

higher, the Federal national rate plus 75 

percent of the difference between the Federal 

national rate and the updated hospitalspecific rate. Further, based on the provisions 

of section 5003(d) of Public Law 109–171, 

MDHs are no longer subject to the 12-percent 

cap on their DSH payment adjustment factor. 

For hospitals located in Puerto Rico, the 

payment per discharge is based on the sum 

of 25 percent of an updated Puerto Ricospecific rate based on average costs per case 

of Puerto Rico hospitals for the base year and 

75 percent of the Federal national rate. (We 

refer readers to section II.D.3. of this 

Addendum for a complete description.) 

As discussed below in section II. of this 

Addendum, we are making changes in the 

determination of the prospective payment 

rates for Medicare inpatient operating costs 

for acute care hospitals for FY 2011. 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 2011. In 

section IV. of this Addendum, we are setting 

forth our changes for determining the rate-ofincrease limits for certain hospitals excluded 

from the IPPS for FY 2011. In section V. of 

this Addendum, we are making changes in 

the determination of the standard Federal 

rate for LTCHs under the LTCH PPS for FY 

2011. The tables to which we refer in the 

preamble of this final rule are presented in 

section VI. of this Addendum. 

II. Changes to Prospective Payment Rates for 

Hospital Inpatient Operating Costs for Acute 

Care Hospitals for FY 2011 

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 at § 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 at §§ 412.211 and 412.212. Below 

we discuss the factors used for determining 

the prospective payment rates for FY 2011. 

In summary, the standardized amounts set 

forth in Tables 1A, 1B, and 1C of section VI. 

of this Addendum reflect— 

• Equalization of the standardized 

amounts for urban and other areas at the 

level computed for large urban hospitals 

during FY 2004 and onward, as provided for 

under section 1886(d)(3)(A)(iv)(II) of the Act. 

• The labor-related share that is applied to 

the standardized amounts and Puerto Ricospecific 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. 

• Updates of 2.35 percent for all areas (that 

is, the estimated full market basket 

percentage increase of 2.6 percent minus 0.25 

percentage points), as required by section 

1886(b)(3)(B)(i) of the Act, as amended by 

sections 3401(a) and10319(a) of the 

Affordable Care Act, and reflecting the 

requirements of section 1886(b)(3)(B)(viii) of 

the Act, as added by section 5001(a)(3) of 

Public Law 109–171, to reduce the applicable 

percentage increase by 2.0 percentage points 

for a hospital that fails to submit data, in a 

form and manner, and at the time specified 

by the Secretary, relating to the quality of 

inpatient care furnished by the hospital. 

• An update of 2.35 percent to the Puerto 

Rico-specific standardized amount (that is, 

the estimated full market basket percentage 

increase of 2.6 percent minus 0.25 percentage 

point), as finalized in the preamble of this 

final rule under § 412.211(c), which states 

that we update the Puerto Rico-specific 

standardized amount using the percentage 

increase specified in § 412.64(d)(1), or the 

percentage increase in the market basket 

index for prospective payment hospitals for 

all areas. 

• An adjustment to the standardized 

amount to ensure budget neutrality for DRG 

recalibration and reclassification, as provided 

for under section 1886(d)(4)(C)(iii) of the Act. 

• An adjustment to ensure the wage index 

changes are budget neutral, as provided for 

under section 1886(d)(3)(E)(i) of the Act. We 

note that section 1886(d)(3)(E)(i) of the Act 

requires that we do not consider the laborrelated share of 62 percent to compute wage 

index budget neutrality. 

• An adjustment to ensure the effects of 

geographic reclassification are budget 

neutral, as provided for in section 

1886(d)(8)(D) of the Act, by removing the FY 

2010 budget neutrality factor and applying a 

revised factor. 

• An adjustment to ensure the effects of 

the rural community hospital demonstration 

required under section 410A of Public Law 

108–173 as amended by sections 3123 and 

10313 of Public Law 111–148 which extends 

the demonstration for an additional 5 years 

are budget neutral, as required under section 

410A (c)(2) of Public Law 108–173. 

• An adjustment to remove the FY 2010 

outlier offset and apply an offset for FY 2011, 

as provided for in section 1886(d)(3)(B) of the 

Act. 

• As discussed below and in section II.D. 

of the preamble to this final rule, an 

adjustment to meet the requirements of 

section 7(b)(1)(B) of Public Law 110–90 to 

adjust the standardized amounts to offset the 

estimated amount of the increase in aggregate 

payments (including interest) due to the 

effect of documentation and coding that did 

not reflect real changes in case-mix for 

discharges occurring during FY 2008 and FY 

2009. 

We note that, beginning in FY 2008, we 

applied the budget neutrality adjustment for 

the rural floor to the hospital wage indices 

rather than the standardized amount. As we 

did for FY 2010, for FY 2011, we are 

continuing to apply the rural floor budget 

neutrality adjustment to hospital wage 

indices rather than the standardized amount. 

In addition, instead of applying the budget 

neutrality adjustment for the imputed floor 

adopted under section 1886(d)(3)(E) of the 

Act to the standardized amount, for FY 2011, 

we are continuing to apply the imputed floor 

budget neutrality adjustment to the wage 

indices. For this final rule, consistent with 

section 3141 of the Affordable Care Act, 

instead of applying a State level rural floor 

budget neutrality adjustment on the wage 

index, we are restoring the budget neutrality 

adjustment for the rural and imputed floors 

to a uniform, national adjustment, beginning 

with the FY 2011 wage index. 

A. Calculation of the Adjusted Standardized 

Amount 

1. Standardization of Base-Year Costs or 

Target Amounts 

In general, the national standardized 

amount is based on per discharge averages of 

adjusted hospital costs from a base period 

(section 1886(d)(2)(A) of the Act), updated 

and otherwise adjusted in accordance with 

the provisions of section 1886(d) of the Act. 

For Puerto Rico hospitals, the Puerto Ricospecific standardized amount is based on per 

discharge averages of adjusted target amounts 

from a base period (section 1886(d)(9)(B)(i) of 

the Act), updated and otherwise adjusted in 

accordance with the provisions of section 

1886(d)(9) of the Act. The September 1, 1983 

interim final rule (48 FR 39763) contained a 

detailed explanation of how base-year cost 

data (from cost reporting periods ending 

during FY 1981) were established for urban 

and rural hospitals in the initial development 

of standardized amounts for the IPPS. The 

September 1, 1987 final rule (52 FR 33043 

and 33066) contains a detailed explanation of 

how the target amounts were determined and 

how they are used in computing the Puerto 

Rico rates. 

Sections 1886(d)(2)(B) and 1886(d)(2)(C) of 

the Act require us to update base-year per 

discharge costs for FY 1984 and then 

standardize the cost data in order to remove 

the effects of certain sources of cost 

variations among hospitals. These effects 

include case-mix, differences in area wage 

levels, cost-of-living adjustments for Alaska 

and Hawaii, IME costs, and costs to hospitals 

serving a disproportionate share of lowincome patients. 

In accordance with section 1886(d)(3)(E) of 

the Act, the Secretary estimates, from timemstockstill on DSKH9S0YB1PROD with RULES2

50422 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

to-time, the proportion of hospitals’ costs that 

are attributable to wages and wage-related 

costs. In general, the standardized amount is 

divided into labor-related and nonlaborrelated amounts; only the proportion 

considered to be the labor-related amount is 

adjusted by the wage index. Section 

1886(d)(3)(E) of the Act requires that 62 

percent of the standardized amount be 

adjusted by the wage index, unless doing so 

would result in lower payments to a hospital 

than would otherwise be made. (Section 

1886(d)(9)(C)(iv)(II) of the Act extends this 

provision to the labor-related share for 

hospitals located in Puerto Rico.) 

For FY 2011, we are continuing to use a 

labor-related share of 68.8 percent for 

discharges occurring on or after October 1, 

2010 for the national standardized amounts 

and 62.1 percent for the Puerto Rico-specific 

standardized amount. Consistent with 

section 1886(d)(3)(E) of the Act, we are 

applying the wage index to a labor-related 

share of 62 percent for all IPPS hospitals 

whose wage index values are less than or 

equal to 1.0000. For all IPPS hospitals whose 

wage indices are greater than 1.0000, we are 

applying the wage index to a labor-related 

share of 68.8 percent of the national 

standardized amount. For FY 2011, all Puerto 

Rico hospitals have a wage index less than 

1.0. Therefore, the national labor-related 

share will always be 62 percent because the 

wage index for all Puerto Rico hospitals is 

less than 1.0. 

For hospitals located in Puerto Rico, we are 

applying a labor-related share of 62.1 percent 

if its Puerto Rico-specific wage index is 

greater than 1.0000. For hospitals located in 

Puerto Rico whose Puerto-Rico specific wage 

index values are less than or equal to 1.0000, 

we are applying a labor share of 62 percent. 

The standardized amounts for operating 

costs appear in Table 1A, 1B, and 1C of the 

Addendum to this final rule. 

2. Computing the Average Standardized 

Amount 

Section 1886(d)(3)(A)(iv)(II) of the Act 

requires that, beginning with FY 2004 and 

thereafter, an equal standardized amount be 

computed for all hospitals at the level 

computed for large urban hospitals during FY 

2003, updated by the applicable percentage 

update. Section 1886(d)(9)(A)(ii)(II) of the 

Act equalizes the Puerto Rico-specific urban 

and rural area rates. Accordingly, we are 

calculating the FY 2011 national and Puerto 

Rico standardized amounts irrespective of 

whether a hospital is located in an urban or 

rural location. 

3. Updating the Average Standardized 

Amount 

In accordance with section 1886(b)(3)(B)(i) 

of the Act, as amended by sections 3401(a) 

and 10319(a) of the Affordable Care Act, we 

are updating the standardized amount for FY 

2011 by the estimated market basket 

percentage increase minus 0.25 percentage 

points for hospitals in all areas. Section 

3401(a)(4) of Pub. L. 111–148 further states 

that this amendment may result in the 

applicable percentage increase being less 

than zero. The percentage increase in the 

market basket reflects the average change in 

the price of goods and services comprising 

routine, ancillary, and special care unit 

hospital inpatient services. Based on IHS 

Global Insight, Inc.’s 2010 second quarter 

forecast of the hospital market basket 

increase (as discussed in Appendix B of this 

final rule), the most recent forecast of the 

hospital market basket increase for FY 2011 

is 2.6 percent. Thus, for FY 2011, the update 

to the average standardized amount is 2.35 

percent for hospitals in all areas (that is, the 

estimated full market basket percentage 

increase of 2.6 percent minus 0.25 percentage 

point). 

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. Section 

1886(b)(3)(B)(viii) of the Act, as added by 

section 5001(a)(3) of Public Law 109–171, 

provides for a reduction of 2.0 percentage 

points from the applicable percentage 

increase (the market basket update) for FY 

2007 and each subsequent fiscal year for any 

‘‘subsection (d) hospital’’ that does not submit 

quality data, as discussed in section V.A. of 

the preamble of this final rule. Thus, for 

hospitals that do not submit quality data, the 

estimated update to the operating 

standardized amount is 0.35 percent (that is, 

the adjusted FY 2011 estimate of the market 

basket rate-of-increase of 2.35 percent minus 

2.0 percentage points). The standardized 

amounts in Tables 1A through 1C of section 

VI. of this Addendum reflect these 

differential amounts. 

Section 412.211(c) states that we update 

the Puerto Rico-specific standardized amount 

using the percentage increase specified in 

§ 412.64(d)(1), or the percentage increase in 

the market basket index for prospective 

payment hospitals for all areas. As finalized 

in the preamble to this final rule, we are 

applying the full rate-of-increase in the 

hospital market basket minus 0.25 percentage 

point to the Puerto Rico-specific 

standardized amount. Therefore, the update 

to the Puerto Rico-specific standardized 

amount is also 2.35 percent. 

Although the update factors for FY 2011 

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 2011 for 

both IPPS hospitals and hospitals and 

hospital units excluded from the IPPS. 

Section 1886(e)(5)(A) of the Act requires that 

we publish our proposed recommendations 

in the Federal Register for public comment. 

Our recommendation on the update factors is 

set forth in Appendix B of this final rule. 

4. Other Adjustments to the Average 

Standardized Amount 

As in the past, we are adjusting the FY 

2011 standardized amount to remove the 

effects of the FY 2010 geographic 

reclassifications and outlier payments before 

applying the FY 2011 updates. We then 

apply budget neutrality offsets for outliers 

and geographic reclassifications to the 

standardized amount based on FY 2011 

payment policies. 

We do not remove the prior year’s budget 

neutrality adjustments for reclassification 

and recalibration of the DRG 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 

DRG classifications, recalibration of the 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. 

Similar to last year, because IME Medicare 

Advantage payments are made to IPPS 

hospitals under section 1886(d) of the Act, 

we believe these payments must be part of 

these budget neutrality calculations. 

However, we note that it is not necessary to 

include Medicare Advantage IME payments 

in the outlier threshold calculation or the 

outlier offset to the standardized amount 

because the statute requires that outlier 

payments be not less than 5 percent nor more 

than 6 percent of total ‘‘operating DRG 

payments,’’ which does not include IME and 

DSH payments. In order to account for these 

Medicare Advantage IME payments in 

determining the budget neutrality 

adjustments for this final rule, we identified 

Medicare Advantage claims from IPPS 

teaching hospitals in the MedPAR data. The 

GHO Paid indicator with a value of ‘‘1’’ on the 

MedPAR file indicates that the claim was 

paid by a Medicare Advantage plan (other 

than the IPPS IME payment specified at 

§ 412.105(g)). We note that we also modified 

our method for identifying MA claims from 

IPPS teaching hospitals in the MedPAR data 

pursuant to public comment. We describe 

this modification below in our response to 

that comment. For these Medicare Advantage 

claims from IPPS teaching hospitals, we 

computed a transfer-adjusted CMI by 

provider based on the FY 2009 MS–DRG 

GROUPER Version 27.0 assignment and 

relative weights. We also computed a 

transfer-adjusted CMI for these Medicare 

Advantage claims from IPPS teaching 

hospitals based on the FY 2010 MS–DRG 

GROUPER Version 28.0 assignments and 

relative weights. These transfer-adjusted 

CMIs (and corresponding case counts) were 

used to calculate an IME teaching add-on 

payment in accordance with § 412.105(g). 

The total Medicare Advantage IME payment 

amount was then added to the total Federal 

payment amount for each provider (where 

applicable) in order to account for the 

Medicare Advantage IME payment in 

determining the budget neutrality 

adjustments. We note that we did not include 

Medicare Advantage IME claims when 

estimating outlier payments for providers 

because Medicare Advantage claims are not 

eligible for outlier payments under the IPPS. 

Comment: Commenters noted that it 

appeared CMS had inadvertently included 

approximately 74,000 MA claims submitted 

by teaching hospitals as regular IPPS claims 

instead of identifying these claims as MA 

claims. The commenter explained that these 

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claims lacked an ‘‘HMO Paid’’ designation but 

the only payment made on the claim was the 

IME payment. Therefore, in the commenters 

opinion these claims should have been 

considered MA IME claims for the purpose 

of our calculations. 

Response: We examined the MedPAR file 

and have determined that there are claims 

that do not have a GHO Paid indicator with 

a value of ‘‘1’’ but the IME payment field is 

equal to the DRG payment field. We agree 

with the commenter and included these 

claims in our determination of the total 

Medicare Advantage IME payment amount. 

Specifically, we first searched the MedPAR 

file for all claims with an IME payment 

greater than zero. We then filtered these 

claims for a subset of claims with a GHO Paid 

indicator with a value of ‘‘1’’ or with the IME 

payment field equal to the DRG payment 

field. As mentioned above, we then added 

the total Medicare Advantage IME payment 

amount to the total Federal payment amount 

for each provider (where applicable) in order 

to account for the Medicare Advantage IME 

payment in determining the budget neutrality 

adjustments. 

Comment: Commenters also noted that it is 

likely that CMS included charges for anti 

hemophilic blood factor for the budget 

neutrality adjustments. 

Response: With respect to charges for anti 

hemophilic blood factor, we examined the 

MedPAR and have removed pharmacy 

charges 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 since organ acquisition is a pass 

through payment not paid under the IPPS. 

We finally note that on June 2, 2010, we 

issued a notice that contains the final wage 

indices, hospital reclassifications, payment 

rates, impacts, and other related tables 

effective for the FY 2010 IPPS and RY 2010 

LTCH PPS. The rates, tables, and impacts 

included in the FY 2010 IPPS/LTCH PPS 

notice reflect changes required by or 

resulting from the implementation of several 

provisions from the Affordable Care Act. 

Specifically, sections 3401(a) and 10319(a) of 

the Affordable Care Act amended section 

1886(b)(3)(B)(i) of the Act to set the FY 2010 

applicable percentage increase for IPPS 

hospitals equal to the rate-of-increase in the 

hospital market basket for IPPS hospitals in 

all areas minus a 0.25 percentage point, 

subject to the hospital submitting quality 

information under rules established by the 

Secretary in accordance with section 

1886(b)(3)(B)(viii) of the Act. Section 

1886(b)(3)(B)(i) of the Act establishes the 

applicable percentage increase used for 

annual updates to the Federal rates. Section 

1886(b)(3)(B)(xii)(I) explicitly adjusts the 

applicable percentage for the FY 2010 

Federal rates. Section 3401(p) of the 

Affordable Care Act provides that, 

notwithstanding the previous provisions of 

this section, the amendments made by 

subsections (a), (c) and (d) shall not apply to 

discharges occurring before April 1, 2010. 

When read together, we believe sections 

1886(b)(3)(B)(i) and 1886(b)(3)(B)(xii) of the 

Act and section 3401(p) of the Affordable 

Care Act provide for revised FY 2010 Federal 

rates for the entire fiscal year; however, 

discharges occurring on or after October 1, 

2009 and before April 1, 2010, are not paid 

be based on the updated FY 2010 standard 

Federal rate. When we refer to FY 2010 

payments in the discussion below, these 

payments are modeled for the entire FY 2010 

based on the revised rates consistent with the 

Affordable Care Act. Also, because there 

were no updates to the pre-reclassified wage 

file for FY 2010, when we refer below to the 

pre-reclassified wage data for FY 2010, this 

is the same pre reclassified wage data from 

the FY 2010 IPPS/LTCH PPS final rule. 

a. Recalibration of DRG Weights and Updated 

Wage Index—Budget Neutrality Adjustment 

Section 1886(d)(4)(C)(iii) of the Act 

specifies that, beginning in FY 1991, the 

annual DRG reclassification and recalibration 

of the relative weights must be made in a 

manner that ensures that aggregate payments 

to hospitals are not affected. As discussed in 

section II. of the preamble of this final rule, 

we normalized the recalibrated DRG weights 

by an adjustment factor so that the average 

case weight after recalibration is equal to the 

average case weight prior to recalibration. 

However, equating the average case weight 

after recalibration to the average case weight 

before recalibration does not necessarily 

achieve budget neutrality with respect to 

aggregate payments to hospitals because 

payments to hospitals are affected by factors 

other than average case weight. Therefore, as 

we have done in past years, we are making 

a budget neutrality adjustment to ensure that 

the requirement of section 1886(d)(4)(C)(iii) 

of the Act is met. 

Section 1886(d)(3)(E)(i) of the Act requires 

us to update the hospital wage index on an 

annual basis beginning October 1, 1993. This 

provision also requires us to make any 

updates or adjustments to the wage index in 

a manner that ensures that aggregate 

payments to hospitals are not affected by the 

change in the wage index. Section 

1886(d)(3)(E)(i) of the Act requires that we 

implement the wage index adjustment in a 

budget neutral manner. However, section 

1886(d)(3)(E)(ii) of the Act sets the laborrelated share at 62 percent for hospitals with 

a wage index less than or equal to 1.0, and 

section 1886(d)(3)(E)(i) of the Act provides 

that the Secretary shall calculate the budget 

neutrality adjustment for the adjustments or 

updates made under that provision as if 

section 1886(d)(3)(E)(ii) of the Act had not 

been enacted. In other words, this section of 

the statute requires that we implement the 

updates to the wage index in a budget neutral 

manner, but that our budget neutrality 

adjustment should not take into account the 

requirement that we set the labor-related 

share for hospitals with indices less than or 

equal to 1.0 at the more advantageous level 

of 62 percent. Therefore, for purposes of this 

budget neutrality adjustment, section 

1886(d)(3)(E)(i) of the Act prohibits us from 

taking into account the fact that hospitals 

with a wage index less than or equal to 1.0 

are paid using a labor-related share of 62 

percent. Consistent with current policy, for 

FY 2011, we are adjusting 100 percent of the 

wage index factor for occupational mix. We 

describe the occupational mix adjustment in 

section III.D. of the preamble of this final 

rule. 

For FY 2011, to comply with the 

requirement that DRG reclassification and 

recalibration of the relative weights be budget 

neutral for the Puerto Rico standardized 

amount and the hospital-specific rates, we 

used FY 2009 discharge data to simulate 

payments and compared aggregate payments 

using the FY 2010 labor-related share 

percentages, the FY 2010 relative weights, 

and the FY 2010 pre-reclassified wage data 

to aggregate payments using the FY 2010 

labor-related share percentages, the FY 2011 

relative weights, and the FY 2010 prereclassified wage data. Based on this 

comparison, we computed a budget 

neutrality adjustment factor equal to 

0.996731. As discussed in section IV. of this 

Addendum, we apply the DRG 

reclassification and recalibration budget 

neutrality factor of 0.996731 to the hospitalspecific rates that are to be effective for cost 

reporting periods beginning on or after 

October 1, 2010. 

Comment: One commenter commented 

that CMS’ current methodology for 

reclassifying and recalibrating the DRGs does 

not comport with the statutory requirement 

in section 1886(d)(4)(C)(iii) of the Act. The 

commenter noted that CMS attempts to 

achieve budget neutrality by calculating a 

separate, subsequent budget neutrality factor, 

which it then applies to the standardized 

amount and the HSP, rather than to the DRG 

weights. The commenter further noted that 

CMS has broad discretion in implementing 

the technical details of the Medicare 

program, and the commenter understood the 

rationale for CMS’s methodology. However, 

the commenter maintains that this 

methodology fails to satisfy the express 

directive set forth in section 1886(d)(4)(C)(iii) 

of the Act. The commenter explained that 

section 1886(d)(4)(C)(iii) of the Act provides 

that the annual adjustments to DRG 

classifications and weighting factors must ‘‘be 

made in a manner that assures’’ budget 

neutrality. The commenter believes that the 

statute directs that the budget neutrality 

adjustment and the reclassifications and 

recalibrations themselves are the subject of 

the budget neutrality requirement (instead of 

applying an adjustment factor to the payment 

rates). The commenter asserts that this 

meaning is evident on the face of the statute. 

Response: As stated above, 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. In order to ensure 

budget neutrality, we normalize the 

recalibrated DRG weights by an adjustment 

factor so that the average case weight after 

recalibration is equal to the average case 

weight prior to recalibration. However, 

equating the average case weight after 

recalibration to the average case weight 

before recalibration does not necessarily 

achieve budget neutrality with respect to 

aggregate payments to hospitals because 

payments to hospitals are affected by factors 

other than average case weight. Therefore, we 

make a budget neutrality adjustment to the 

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payment rates to ensure that the requirement 

of section 1886(d)(4)(C)(iii) of the Act is met. 

We believe our methodology of applying the 

DRG reclassification and recalibration budget 

neutrality adjustment to the payment rates is 

the correct interpretation of the statute since 

this ensures that ‘‘aggregate payments to 

hospitals’’ are not affected, which is 

consistent with the statute in section 

1886(d)(4)(C)(iii) of the Act. 

In order to meet the statutory requirements 

that we do not take into account the laborrelated share of 62 percent when computing 

wage index budget neutrality, it was 

necessary to use a three-step process to 

comply with the requirements that DRG 

reclassification and recalibration of the 

relative weights and the updated wage index 

and labor-related share have no effect on 

aggregate payments for IPPS hospitals. We 

first determined a DRG reclassification and 

recalibration budget neutrality factor of 

0.996731 by using the same methodology 

described above to determine the DRG 

reclassification and recalibration budget 

neutrality factor for the Puerto Rico 

standardized amount and hospital-specific 

rates. Secondly, to compute a budget 

neutrality factor for wage index and laborrelated share changes, we used FY 2009 

discharge data to simulate payments and 

compared aggregate payments using FY 2011 

relative weights and FY 2010 pre-reclassified 

wage indices, and applied the FY 2010 laborrelated share of 68.8 percent to all hospitals 

(regardless of whether the hospital’s wage 

index was above or below 1.0) to aggregate 

payments using the FY 2011 relative weights 

and the FY 2011 pre-reclassified wage 

indices, and applied the labor-related share 

for FY 2011 of 68.8 percent to all hospitals 

(regardless of whether the hospital’s wage 

index was above or below 1.0). In addition, 

we applied the DRG reclassification and 

recalibration budget neutrality factor (derived 

in the first step) to the rates that were used 

to simulate payments for this comparison of 

aggregate payments from FY 2010 to FY 

2011. By applying this methodology, we 

determined a budget neutrality factor of 

1.000013 for changes to the wage index. 

Finally, we multiplied the DRG 

reclassification and recalibration budget 

neutrality factor of 0.996731 (derived in the 

first step) by the budget neutrality factor of 

1.000013 for changes to the wage index 

(derived in the second step) to determine the 

DRG reclassification and recalibration and 

updated wage index budget neutrality factor 

of 0.996744. 

b. Reclassified Hospitals—Budget Neutrality 

Adjustment 

Section 1886(d)(8)(B) of the Act provides 

that, effective with discharges occurring on 

or after October 1, 1988, 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 under section 

1886(d)(13) of the Act are not budget neutral. 

Section 1886(d)(13)(H) of the Act provides 

that any increase in a wage index under 

section 1886(d)(13) shall not be taken into 

account ‘‘in applying any budget neutrality 

adjustment with respect to such index’’ under 

section 1886(d)(8)(D) of the Act. To calculate 

the budget neutrality factor for FY 2011, we 

used FY 2009 discharge data to simulate 

payments and compared total IPPS payments 

with FY 2011 relative weights, FY 2011 labor 

share percentages, and FY 2011 wage data 

prior to any reclassifications under sections 

1886(d)(8)(B) and (C) and 1886(d)(10) of the 

Act to total IPPS payments with FY 2011 

relative weights, FY 2011 labor share 

percentages, and FY 2011 wage data after 

such reclassifications. Based on these 

simulations, we calculated an adjustment 

factor of 0.991264 to ensure that the effects 

of these provisions are budget neutral, 

consistent with the statute. 

The FY 2011 budget neutrality adjustment 

factor is applied to the standardized amount 

after removing the effects of the FY 2010 

budget neutrality adjustment factor. We note 

that the FY 2011 budget neutrality 

adjustment reflects FY 2011 wage index 

reclassifications approved by the MGCRB or 

the Administrator. We note that for this final 

rule, as discussed in section III.B. of the 

preamble to this final rule, section 3137(c) of 

Public Law 111–148 resulted in some 

additional hospitals receiving 

reclassifications, or some hospitals receiving 

reclassifications to a different area. These 

reclassifications are included in the 

calculation of reclassification budget 

neutrality. 

c. Rural Floor and Imputed Floor Budget 

Neutrality Adjustment 

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 § 412.64(h)(4) of the 

regulations are made in a manner that 

ensures that aggregate payments to hospitals 

are not affected. As discussed in section III.B. 

of the preamble of the FY 2009 IPPS final 

rule (73 FR 48570 through 48574), we 

adopted as final State level budget neutrality 

for the rural and imputed floors, effective 

beginning with the FY 2009 wage index. In 

response to the public’s concerns and taking 

into account the potentially significant 

payment cuts that could occur to hospitals in 

some States if we implemented this change 

with no transition, we decided to phase in, 

over a 3-year period, the transition from the 

national rural floor budget neutrality 

adjustment on the wage index to the State 

level rural floor budget neutrality adjustment 

on the wage index. In the FY 2011 IPPS/ 

LTCH PPS proposed rule, in the absence of 

provisions of Public Law 111–148, the 

proposed adjustment would have been 

completely transitioned to the State level 

methodology, such that the wage index that 

was proposed in the FY 2011 IPPS/LTCH 

PPS proposed rule was determined by 

applying 100 percent of the State level 

budget neutrality adjustment. However, 

section 3141 of Public Law 111–148 restores 

the budget neutrality adjustment for the rural 

and imputed floors to a uniform, national 

adjustment, beginning with the FY 2011 

wage index. 

Using the same methodology in prior final 

rules to calculate the national rural and 

imputed floor budget neutrality adjustment 

factor (which was part of the methodology to 

calculate the blended rural and imputed floor 

budget neutrality adjustment factors), to 

determine the wage index adjusted by the 

national rural and imputed floor budget 

neutrality adjustment, we used FY 2009 

discharge data and FY 2011 wage indices to 

simulate IPPS payments. First, we compared 

the national simulated payments without the 

rural and imputed floors applied to national 

simulated payments with the rural and 

imputed floors applied to determine the 

national rural and imputed floor budget 

neutrality adjustment factor of 0.996641. This 

national adjustment was then applied to the 

wage indices to produce a national rural and 

imputed floor budget neutral wage index. 

d. Case-Mix Budget Neutrality Adjustment 

(1) Adjustment to the FY 2011 IPPS 

Standardized Amount 

As stated earlier, beginning in FY 2008, we 

adopted the MS–DRG patient classification 

system for the IPPS to better recognize 

patients’ severity of illness in Medicare 

payment rates. In the FY 2008 IPPS final rule 

with comment period (73 FR 47175 through 

47186), we indicated that we believe 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 changes in documentation and 

coding. In that final rule, using the 

Secretary’s authority under section 

1886(d)(3)(A)(vi) of the Act to maintain 

budget neutrality by adjusting the national 

standardized amounts to eliminate the effect 

of changes in documentation and coding that 

do not reflect real change in case-mix, we 

established prospective documentation and 

coding adjustments of ¥1.2 percent for FY 

2008, ¥1.8 percent for FY 2009, and ¥1.8 

percent for FY 2010 (for a total adjustment 

of ¥4.8 percent). On September 29, 2007, 

Public Law 110–90 was enacted. Section 7 of 

Public Law 110–90 included a provision that 

reduces the documentation and coding 

adjustment for the MS–DRG system that we 

adopted in the FY 2008 IPPS final rule with 

comment period to ¥0.6 percent for FY 2008 

and ¥0.9 percent for FY 2009. To comply 

with the provision of section 7(a) of Pub. L. 

110–90, in a final rule that appeared in the 

Federal Register on November 27, 2007 (72 

FR 66886), we changed the IPPS 

documentation and coding adjustment for FY 

2008 to ¥0.6 percent, and revised the FY 

2008 national standardized amounts (as well 

as other payment factors and thresholds) 

accordingly, with these revisions being 

effective as of October 1, 2007. For FY 2009, 

section 7(a) of Public Law 110–90 required a 

documentation and coding adjustment of 

¥0.9 percent instead of the ¥1.8 percent 

adjustment specified in the FY 2008 IPPS 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50425 

final rule with comment period. As required 

by statute, we applied a documentation and 

coding adjustment of ¥0.9 percent to the FY 

2009 IPPS national standardized amounts. 

The documentation and coding adjustments 

established in the FY 2008 IPPS final rule 

with comment period are cumulative. As a 

result, the ¥0.9 percent documentation and 

coding adjustment in FY 2009 was in 

addition to the ¥0.6 percent adjustment in 

FY 2008, yielding a combined effect of ¥1.5 

percent. 

In the FY 2010 IPPS proposed and final 

rules, we discussed our analysis of FY 2008 

claims data which showed an increase in 

case-mix of 2.5 percent due to changes in 

documentation and coding that do not reflect 

real changes in case-mix for discharges 

occurring during FY 2008. For FY 2010, we 

proposed to reduce the average standardized 

amounts under section 1886(d) of the Act in 

FY 2010 by ¥1.9 percent, which represents 

the difference between changes in 

documentation and coding that do not reflect 

real changes in case-mix for discharges 

occurring during FY 2008 and the 

prospective adjustment applied under Public 

Law 110–90. As discussed in section II.D. of 

the preamble of the FY 2010 IPPS final rule, 

after consideration of the public comments 

we received on our analysis and proposals 

presented in the proposed rule, we decided 

to postpone adopting documentation and 

coding adjustments as authorized under 

section 7(a) of Public Law 110–90 and 

section 1886(d)(3)(A)(vi) of the Act until a 

full analysis of FY 2009 case-mix changes 

could be completed. Accordingly, in the FY 

2010 IPPS final rule, for FY 2010, we did not 

apply any additional documentation and 

coding adjustments to the average 

standardized amounts under section 1886(d) 

of the Act. 

As indicated in section II.D.4 in the 

preamble to this final rule, the change due to 

documentation and coding that did not 

reflect real changes in case mix for discharges 

occurring during FY 2008 and FY 2009 

exceeded the ¥0.6 and ¥0.9 percent 

prospective documentation and coding 

adjustment applied under section 7(a) of 

Public Law 110–90 for those 2 years 

respectively by 1.9 percentage points in FY 

2008 and 3.9 percentage points in FY 2009. 

In total, this change exceeded the cumulative 

prospective adjustments by 5.8 percentage 

points. Our actuaries currently estimate that 

this 5.8 percentage point increase resulted in 

an increase in aggregate payments of 

approximately $6.9 billion. We note that 

there may be a need to actuarially adjust the 

recoupment adjustment in FY 2012 to 

accurately reflect accumulated interest. 

Therefore, an aggregate adjustment of ¥5.8 

percent in FYs 2011 and 2012, subject to 

actuarial adjustment to reflect accumulated 

interest, is necessary in order to meet the 

requirements of section 7(b)(1)(B) of Public 

Law 110–90 to adjust the standardized 

amounts for discharges occurring in FYs 

2010, 2011, and/or 2012 to offset the 

estimated amount of the cumulative increase 

in aggregate payments (including interest) in 

FYs 2008 and 2009. We refer the reader to 

section II.D. of the preamble to this final rule 

for more discussion. 

It is often our practice to phase in rate 

adjustments over more than one year in order 

to moderate the effect on rates in any one 

year. Therefore, we are making an adjustment 

in FY 2011 to the standardized amount of 

¥2.9 percent, representing half of the 

aggregate adjustment required under section 

7(b)(1)(B) of Public Law 110–90, for FY 2011. 

As we have previously noted, unlike the 

prospective adjustment to the standardized 

amounts under section 7(b)(1)(A) of Public 

Law 110–90 described earlier, the 

recoupment or repayment adjustment to the 

standardized amounts under section 

7(b)(1)(B) of Public Law 110–90 is not 

cumulative, but would be removed for 

subsequent fiscal years once we have offset 

the increase in aggregate payments for 

discharges for FY 2008 expenditures and FY 

2009 expenditures. We note that we are not 

establishing an adjustment for the further 

implementation of section 7(b)(1)(B) of 

Public Law 110–90 in FY 2012 in this final 

rule. 

(2) Adjustment to the FY 2011 HospitalSpecific Rates for SCHs and MDHs 

As discussed in section II.D. of the 

preamble of this final rule, because hospitals 

(SCHs and MDHs) paid based in whole or in 

part on the hospital-specific rate use the 

same MS–DRG system as other hospitals, we 

believe they have the potential to realize 

increased payments from documentation and 

coding changes that do not reflect real 

increases in patients’ severity of illness. 

Under section 1886(d)(3)(A)(vi) of the Act, 

Congress stipulated that hospitals paid based 

on the standardized amount should not 

receive additional payments based on the 

effect of documentation and coding changes 

that do not reflect real changes in case-mix. 

Similarly, we believe that hospitals paid 

based on the hospital-specific rate should not 

have the potential to realize increased 

payments due to documentation and coding 

changes that do not reflect real increases in 

patients’ severity of illness. While we 

continue to believe that section 

1886(d)(3)(A)(vi) of the Act does not provide 

explicit authority for application of the 

documentation and coding adjustment to the 

hospital-specific rates, we believe that we 

have the authority to apply the 

documentation and coding adjustment to the 

hospital-specific rates using our special 

exceptions and adjustment authority under 

section 1886(d)(5)(I)(i) of the Act. 

As discussed in the FY 2010 IPPS/RY 2010 

LTCH PPS proposed rule, based on our 

analysis of FY 2008 claims data, we found 

that, independently for both SCHs and 

MDHs, the change due to documentation and 

coding that did not reflect real changes in 

case-mix for discharges occurring during FY 

2008 slightly exceeded the 2.5 percent result 

discussed earlier, but did not significantly 

differ from that result. 

Therefore, in FY 2010, we proposed to use 

our authority under section 1886(d)(5)(I)(i) of 

the Act to prospectively adjust the hospitalspecific rates by ¥2.5 percent in FY 2011 for 

our estimated documentation and coding 

effect in FY 2008 that does not reflect real 

changes in case-mix. We also noted that, 

unlike the national standardized rates, the FY 

2010 hospital-specific rates were not 

previously reduced in order to account for 

anticipated changes in documentation and 

coding that do not reflect real changes in 

case-mix resulting from the adoption of the 

MS–DRGs. 

Consistent with our approach for 

determining the national average 

standardized amounts discussed earlier, after 

consideration of the public comments we 

received on our analysis and proposals 

presented in the FY 2010 IPPS proposed rule, 

for FY 2010, we also postponed adoption of 

a documentation and coding adjustment to 

the hospital-specific rate until a full analysis 

of FY 2009 case-mix changes could be 

completed. Accordingly, for FY 2010, we did 

not apply a documentation and coding 

adjustment to the hospital-specific rates. 

As we discuss in section II.D. of the 

preamble of this final rule, because SCHs and 

MDHs use the same DRG system as all other 

hospitals, we believe they have the potential 

to realize increased payments from 

documentation and coding changes that do 

not reflect real increases in patients’ severity 

of illness. Therefore, we believe they should 

be equally subject to a prospective budget 

neutrality adjustment that we are applying 

for adoption of the MS–DRGs to all other 

hospitals. While the findings of the effects of 

documentation and coding are different for 

SCHs/MDHs and other IPPS hospitals, we 

continue to believe that the documentation 

and coding adjustments for all subsection (d) 

hospitals should be the same. We continue to 

believe that this is the appropriate policy so 

as to neither advantage nor disadvantage 

different types of providers. 

As we have also discussed in section II.D 

of the preamble to this final rule, our best 

estimate, based on the most recently 

available data, is that a cumulative 

adjustment of ¥5.4 percent is required to 

eliminate the full effect of the documentation 

and coding changes on future payments. 

Unlike the case of standardized amounts paid 

to IPPS hospitals, we have not made any 

previous adjustments to the hospital specific 

rates paid to SCHs and MDHs to account for 

documentation and coding changes. 

Therefore, the entire ¥5.4 percent 

adjustment remains to be implemented. 

Consequently, in order to maintain 

consistency as far as possible with the 

adjustments applied to IPPS hospitals, we are 

making an adjustment of ¥2.9 percent in FY 

2011 to the hospital-specific rates paid to 

SCHs and MDHs. We believe that this 

adjustment is the most appropriate means to 

take into full account the effect of 

documentation and coding changes on 

payments, and to maintain equity between 

hospitals paid on the basis of different 

prospective rates. 

(3) Adjustment to the FY 2011 Puerto Rico 

Standardized Amount 

As stated in section II.D. of the preamble 

of this final rule, we believe that we have the 

authority to apply the documentation and 

coding adjustment to the Puerto Rico-specific 

standardized amount using our special 

exceptions and adjustment authority under 

section 1886(d)(5)(I)(i) of the Act. Similar to 

SCHs and MDHs that are paid based on the 

hospital-specific rate, we believe that Puerto 

Rico hospitals that are paid based on the 

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Puerto Rico-specific standardized amount 

should not have the potential to realize 

increased payments due to documentation 

and coding changes that do not reflect real 

increases in patients’ severity of illness. In 

the FY 2010 IPPS proposed rule, we 

discussed our analysis of FY 2008 claims 

data for Puerto Rico hospitals, which showed 

that, for Puerto Rico hospitals, the increase 

in payments for discharges occurring during 

FY 2008 due to documentation and coding 

changes that did not reflect real changes in 

case-mix for discharges occurring during FY 

2008 was approximately 1.1 percent. We 

noted that, unlike the national standardized 

rates, the FY 2009 Puerto Rico-specific 

standardized amount was not previously 

reduced in order to account for anticipated 

changes in documentation and coding that do 

not reflect real changes in case-mix resulting 

from the adoption of the MS–DRGs. 

Therefore, for FY 2010, we proposed to use 

our authority under section 1886(d)(5)(I)(i) of 

the Act to adjust the Puerto Rico-specific 

standardized amount by ¥1.1 percent in FY 

2010 to account for the FY 2008 

documentation and coding changes that are 

not due to changes in real case-mix and to 

leave that adjustment in place for subsequent 

fiscal years. 

Consistent with our approach for 

determining the national average 

standardized amounts and hospital-specific 

rates of SCHs and MDHs discussed above, 

after consideration of the public comments 

we received on our analysis and proposals 

presented in the FY 2010 IPPS proposed rule, 

for FY 2010, we also postponed adoption of 

a documentation and coding adjustment to 

the Puerto Rico-specific rates until a full 

analysis of FY 2009 case-mix changes could 

be completed. Accordingly, in the FY 2010 

IPPS final rule, for FY 2010, we did not apply 

a documentation and coding adjustment to 

the Puerto Rico-specific rates. 

As we have noted above, similar to SCHs 

and MDHs, hospitals in Puerto Rico use the 

same DRG system as all other hospitals and 

we believe they have the potential to realize 

increased payments from documentation and 

coding changes that do not reflect real 

increases in patients’ severity of illness. 

Therefore, we believe they should be equally 

subject to a prospective budget neutrality 

adjustment that we are applying for adoption 

of the MS–DRGs to all other hospitals. 

As we have discussed in section II.D. of the 

preamble of this final rule, our best estimate, 

based on the most recently available data, is 

that a cumulative adjustment of ¥2.6 percent 

is required to eliminate the full effect of the 

documentation and coding changes on future 

payments from the Puerto Rico-specific rate. 

Unlike the case of standardized amounts paid 

to IPPS hospitals, we have not made any 

previous adjustments to the hospital-specific 

rates paid to Puerto Rico hospitals to account 

for documentation and coding changes. 

Therefore, the entire ¥2.6 percent 

adjustment remains to be implemented. In 

order to maintain consistency as far as 

possible with the adjustments applied to 

IPPS hospitals but to take into consideration 

the fact that the cumulative impact was 

smaller in Puerto Rico hospitals, we are 

therefore making an adjustment of ¥2.6 

percent in FY 2011 to the Puerto Ricospecific rate that accounts for 25 percent of 

payments to Puerto Rico hospitals, with the 

remaining 75 percent based on the national 

standardized amount, which we are adjusting 

as described above. Consequently, the overall 

reduction to rates for Puerto Rico hospitals to 

account for the documentation and coding 

changes will be slightly less than the 

reduction for IPPS hospitals based on 100 

percent of the national standardized amount. 

We note that this ¥2.6 percent prospective 

adjustment would eliminate the full effect of 

the documentation and coding changes on 

future payments from the Puerto Ricospecific rate. We believe that this adjustment 

is the most appropriate means to take into 

full account the effect of documentation and 

coding changes on payments, and to 

maintain equity between hospitals paid on 

the basis of different prospective rates. 

e. Rural Community Hospital Demonstration 

Program Adjustment 

As discussed in section IV.K. of the 

preamble to this final rule, section 410A of 

Public Law 108–173 originally required the 

Secretary to establish a demonstration that 

modifes reimbursement for inpatient services 

for up to 15 small rural hospitals. Section 

410A(c)(2) of Public Law 108–173 requires 

that ‘‘[i]n conducting the demonstration 

program under this section, the Secretary 

shall ensure that the aggregate payments 

made by the Secretary do not exceed the 

amount which the Secretary would have paid 

if the demonstration program under this 

section was not implemented.’’ In the May 4, 

2010 FY 2011 IPPS/LTCH PPS proposed rule, 

although we proposed to apply an 

adjustment to the IPPS rates to account for 

the amount by which the costs of the 

demonstration as indicated by the settled 

cost reports beginning in FY 2007 for 

hospitals participating in the demonstration 

during FY 2007 exceeded the amount that 

was identified in the FY 2007 IPPS final rule 

as the budget neutrality offset for 2007, we 

were unable to calculate a numeric 

adjustment to the standardized amount to 

ensure the effects of the rural community 

hospital demonstration are budget neutral. 

This is because we were waiting for settled 

cost reports. In addition, we noted that the 

proposed rule did not account for changes to 

the demonstration required by the Affordable 

Care Act. Specifically, among other things, 

sections 3123 and 10313 of the Affordable 

Care Act extended the demonstration for an 

additional 5 year period, and allow not more 

than 30 hospitals to participate in 20 States 

with low population densities determined by 

the Secretary. (In determining which States 

to include in the expansion, the Secretary is 

required to use the same criteria and data 

that the Secretary used to determine the 

States for purposes of the initial 5-year 

period.) In the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule, we proposed to 

adjust the IPPS rate by an amount sufficient 

to account for the added costs of this 

demonstration. We proposed an adjustment 

factor to account for the added costs 

associated with the demonstration for certain 

time periods as a result of the Affordable 

Care Act, as explained at 75 FR 30961 

through 30965, as well as proposed to offset 

the IPPS standardized rate for the added 

costs of the demonstration in FY 2007, 

although we were unable to propose a 

specific numeric adjustment to correspond to 

FY 2007 in the supplemental proposed rule. 

In order to achieve budget neutrality, as 

proposed (except as indicated later in this 

section and elsewhere in the preamble of this 

final rule), we are making an adjustment to 

the national IPPS rates by an amount 

sufficient to account for the added costs of 

this demonstration as described in section 

IV.K of this final rule. In other words, we are 

applying budget neutrality across the 

payment system as a whole rather than 

merely across the participants of this 

demonstration, consistent with past practice. 

We believe that the language of the statutory 

budget neutrality requirement permits the 

agency to implement the budget neutrality 

provision in this manner. The statutory 

language requires that ‘‘aggregate payments 

made by the Secretary do not exceed the 

amount which the Secretary would have paid 

if the demonstration * * * was not 

implemented,’’ but does not identify the 

range across which aggregate payments must 

be held equal. As mentioned in section IV.K 

of the preamble to this final rule, the 

estimated amount for the adjustment to the 

national IPPS rates for FY 2011 is 

$70,483,384. Accordingly, to account for the 

changes to the demonstration required by the 

Affordable Care Act for specific time periods 

as explained in detail in section IV.K of this 

final rule, for FY 2011 we computed a factor 

of 0.999302 for the rural community hospital 

demonstration program adjustment that will 

be applied to the IPPS standardized rate. We 

note that because the settlement process for 

the demonstration hospitals’ third year cost 

reports, that is, for cost reporting periods 

starting in FY 2007, has experienced a delay, 

for the FY 2011 IPPS/LTCH PPS proposed 

rule and the supplemental proposed rule, we 

were unable to state the costs of the 

demonstration corresponding to FY 2007 and 

as a result were unable to propose the 

specific numeric adjustment representing 

this offsetting process that would be applied 

to the national IPPS rates. Due to operational 

issues in the cost report settlement process, 

settled cost reports for the hospitals that 

participated in the demonstration in FY 2007 

are not available in time for this final rule 

either although we expected them to be 

available. Therefore, the estimated 

adjustment to the national IPPS rate in this 

final rule cannot include a component to 

account for these costs. We anticipate that 

this information may be available for the FY 

2012 IPPS/LTCH PPS proposed rule, at 

which time we would include a similar 

proposal. 

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 DRG, any 

IME and DSH payments, any new technology 

add-on payments, and the ‘‘outlier threshold’’ 

or ‘‘fixed-loss’’ amount (a dollar amount by 

which the costs of a case must exceed 

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payments in order to qualify for an outlier 

payment). We refer to the sum of the 

prospective payment rate for the DRG, any 

IME and DSH payments, any new technology 

add-on payments, and the outlier threshold 

as the outlier ‘‘fixed-loss cost threshold.’’ To 

determine whether the costs of a case exceed 

the fixed-loss cost threshold, a hospital’s CCR 

is applied to the total covered charges for the 

case to convert the charges to estimated costs. 

Payments for eligible cases are then made 

based on a marginal cost factor, which is a 

percentage of the estimated costs above the 

fixed-loss cost threshold. The marginal cost 

factor for FY 2011 is 80 percent, the same 

marginal cost factor we have used since FY 

1995 (59 FR 45367). 

In accordance with section 

1886(d)(5)(A)(iv) of the Act, outlier payments 

for any year are projected to be not less than 

5 percent nor more than 6 percent of total 

operating DRG payments plus outlier 

payments. We note that the statute requires 

outlier payments to be not less than 5 percent 

nor more than 6 percent of total ‘‘operating 

DRG payments’’ (which does not include IME 

and DSH payments) plus outlier payments. 

When setting the outlier threshold, we 

compute the 5.1 percent target by dividing 

the total operating outlier payments by the 

total operating DRG payments plus outlier 

payments. We do not include any other 

payments such as IME and DSH within the 

outlier target amount. Therefore, it is not 

necessary to include Medicare Advantage 

IME payments in the outlier threshold 

calculation. Section 1886(d)(3)(B) of the Act 

requires the Secretary to reduce the average 

standardized amount by a factor to account 

for the estimated proportion of total DRG 

payments made to outlier cases. Similarly, 

section 1886(d)(9)(B)(iv) of the Act requires 

the Secretary to reduce the average 

standardized amount applicable to hospitals 

located in Puerto Rico to account for the 

estimated proportion of total DRG payments 

made to outlier cases. More information on 

outlier payments may be found on the CMS 

Web site at http://www.cms.hhs.gov/ 

AcuteInpatientPPS/ 

04_outlier.asp#TopOfPage. 

(1) FY 2011 Outlier Fixed-Loss Cost 

Threshold 

The FY 2011 IPPS/LTCH PPS 

supplemental proposed rule contained a 

summary of the provisions from the 

Affordable Care Act that affected the initial 

FY 2011 proposed outlier threshold and then 

specified our proposed revised FY 2011 

outlier threshold (74 FR 30975). The revised 

FY 2011 proposed outlier threshold used the 

same methodology as the initial FY 2011 

proposed outlier threshold but did not repeat 

the entire methodology that was discussed in 

the FY 2011 IPPS/LTCH PPS proposed rule 

(74 FR 24068 through 24069). Below we 

discuss in full the methodology used to 

compute the revised FY 2011 proposed 

outlier threshold. 

For FY 2011, we proposed to continue to 

use the same methodology used for FY 2009 

(73 FR 48763 through 48766) to calculate the 

outlier threshold. Similar to the methodology 

used in the FY 2009 IPPS final rule, for FY 

2011, we proposed to apply an adjustment 

factor to the CCRs to account for cost and 

charge inflation (as explained below). As we 

have done in the past, to calculate the 

proposed FY 2011 outlier threshold, we 

simulated payments by applying FY 2011 

rates and policies using cases from the FY 

2009 MedPAR files. Therefore, in order to 

determine the proposed FY 2011 outlier 

threshold, we inflated the charges on the 

MedPAR claims by 2 years, from FY 2009 to 

FY 2011. 

We proposed to continue to use a refined 

methodology that takes into account the 

lower inflation in hospital charges that are 

occurring as a result of the outlier final rule 

(68 FR 34494), which changed our 

methodology for determining outlier 

payments by implementing the use of more 

current CCRs. Our refined methodology uses 

more recent data that reflect the rate-ofchange in hospital charges under the new 

outlier policy. 

Using the most recent data available, we 

calculated the 1-year average annualized rateof-change in charges-per-case from the last 

quarter of FY 2008 in combination with the 

first quarter of FY 2009 (July 1, 2008 through 

December 31, 2008) to the last quarter of FY 

2009 in combination with the first quarter of 

FY 2010 (July 1, 2009 through December 31, 

2009). This rate of change was 5.16 percent 

(1.0516) or 10.59 percent (1.1059) over 2 

years. 

As we have done in the past, we 

established the proposed FY 2011 outlier 

threshold using hospital CCRs from the 

December 2009 update to the ProviderSpecific File (PSF)—the most recent available 

data at the time of the proposed rule. This 

file includes CCRs that reflect 

implementation of the changes to the policy 

for determining the applicable CCRs that 

became effective August 8, 2003 (68 FR 

34494). 

As discussed in the FY 2007 IPPS final rule 

(71 FR 48150), we worked with the Office of 

Actuary to derive the methodology described 

below to develop the CCR adjustment factor. 

For FY 2011, we proposed to continue to use 

the same methodology to calculate the CCR 

adjustment by using the FY 2009 operating 

cost per discharge increase in combination 

with the actual FY 2009 operating market 

basket percentage increase determined by 

IHS Global Insight, Inc., as well as the charge 

inflation factor described above to estimate 

the adjustment to the CCRs. (We note that the 

FY 2009 actual (otherwise referred to as 

‘‘final’’) operating market basket percentage 

increase reflects historical data, whereas the 

published FY 2009 operating market basket 

update factor was based on IHS Global 

Insight, Inc.’s 2008 second quarter forecast 

with historical data through the first quarter 

of 2008. We also note that while the FY 2009 

published operating market basket update 

was based on the FY 2002-based IPPS market 

basket, the actual or ‘‘final’’ market basket 

percentage increase is based on the FY 2006- 

based IPPS market basket. Similarly, the FY 

2009 published capital market basket update 

factor was based on the FY 2002-based 

capital market basket and the actual or ‘‘final’’ 

capital market basket percentage increase is 

based on the FY 2006-based capital market 

basket.) By using the operating market basket 

percentage increase and the increase in the 

average cost per discharge from hospital cost 

reports, we are using two different measures 

of cost inflation. For FY 2011, we determined 

the adjustment by taking the percentage 

increase in the operating costs per discharge 

from FY 2007 to FY 2008 (1.0513) from the 

cost report and dividing it by the final 

operating market basket percentage increase 

from FY 2008 (1.040). This operation 

removes the measure of pure price increase 

(the market basket) from the percentage 

increase in operating cost per discharge, 

leaving the nonprice factors in the cost 

increase (for example, quantity and changes 

in the mix of goods and services). We 

repeated this calculation for 2 prior years to 

determine the 3-year average of the rate of 

adjusted change in costs between the 

operating market basket percentage increase 

and the increase in cost per case from the 

cost report (the FY 2005 to FY 2006 

percentage increase of operating costs per 

discharge of 1.0577 divided by the FY 2006 

final operating market basket percentage 

increase of 1.040, the FY 2006 to FY 2007 

percentage increase of operating costs per 

discharge of 1.0466 divided by FY 2007 final 

operating market basket percentage increase 

of 1.036). For FY 2011, we averaged the 

differentials calculated for FY 2006, FY 2007, 

and FY 2008, which resulted in a mean ratio 

of 1.0127. We multiplied the 3-year average 

of 1.0127 by the FY 2009 final operating 

market basket percentage increase of 1.027, 

which resulted in an operating cost inflation 

factor of 4.00 percent or 1.0400. We then 

divided the operating cost inflation factor by 

the 1-year average change in charges (1.0515) 

and applied an adjustment factor of 0.989016 

to the operating CCRs from the PSF 

(calculation performed on unrounded 

numbers). 

As stated in the FY 2009 IPPS final rule 

(73 FR 48763), we continue to believe it is 

appropriate to apply only a 1-year adjustment 

factor to the CCRs. On average, it takes 

approximately 9 months for a fiscal 

intermediary or MAC to tentatively settle a 

cost report from the fiscal year end of a 

hospital’s cost reporting period. The average 

‘‘age’’ of hospitals’ CCRs from the time the 

fiscal intermediary or the MAC inserts the 

CCR in the PSF until the beginning of FY 

2009 is approximately 1 year. Therefore, as 

stated above, we believe a 1-year adjustment 

factor to the CCRs is appropriate. 

We used the same methodology for the 

capital CCRs and determined the adjustment 

by taking the percentage increase in the 

capital costs per discharge from FY 2007 to 

FY 2008 (1.0800) from the cost report and 

dividing it by the final capital market basket 

percentage increase from FY 2008 (1.015). 

We repeated this calculation for 2 prior years 

to determine the 3-year average of the rate of 

adjusted change in costs between the capital 

market basket percentage increase and the 

increase in cost per case from the cost report 

(the FY 2005 to FY 2006 percentage increase 

of capital costs per discharge of 1.0464 

divided by the FY 2006 final capital market 

basket percentage increase of 1.011, the FY 

2006 to FY 2007 percentage increase of 

capital costs per discharge of 1.0512 divided 

by the FY 2007 final capital market basket 

percentage increase of 1.012). For FY 2011, 

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we averaged the differentials calculated for 

FY 2006, FY 2007, and FY 2008, which 

resulted in a mean ratio of 1.0459. We 

multiplied the 3-year average of 1.0459 by 

the FY 2009 final capital market basket 

percentage increase of 1.014, which resulted 

in a capital cost inflation factor of 6.06 

percent or 1.0606. We then divided the 

capital cost inflation factor by the 1-year 

average change in charges (1.0516) and 

applied an adjustment factor of 1.008534 to 

the capital CCRs from the PSF (calculation 

performed on unrounded numbers). We 

proposed to use the same charge inflation 

factor for the capital CCRs that was used for 

the operating CCRs. The charge inflation 

factor is based on the overall billed charges. 

Therefore, we believe it is appropriate to 

apply the charge factor to both the operating 

and capital CCRs. 

As stated above, for FY 2011, we applied 

the proposed FY 2011 rates and policies 

using cases from the FY 2009 MedPAR files 

in calculating the proposed outlier threshold. 

As discussed in section II.A. of the preamble 

to the FY 2011 IPPS/LTCH PPS supplemental 

proposed rule (75 FR 30975), in accordance 

with section 10324(a) of Public Law 111–148, 

beginning in FY 2011, we created a wage 

index floor of 1.00 for all hospitals located 

in States determined to be frontier States. We 

noted that the frontier State floor adjustments 

will be calculated and applied after rural and 

imputed floor budget neutrality adjustments 

are calculated for all labor market areas, so 

as to ensure that no hospital in a frontier 

State will receive a wage index lesser than 

1.00 due to the rural and imputed floor 

adjustment. In accordance with section 

10324(a) of the Affordable Care Act, the 

frontier State adjustment will not be subject 

to budget neutrality, and will only be 

extended to hospitals geographically located 

within a frontier State. However, for 

purposes of estimating the proposed outlier 

threshold for FY 2011, it was necessary to 

apply this provision by adjusting the wage 

index of those eligible hospitals in a Frontier 

State when calculating the outlier threshold 

that results in outlier payments being 5.1 

percent of total payments for FY 2011. If we 

did not take into account this provision, our 

estimate of total FY 2011 payments would be 

too low, and as a result, our proposed outlier 

threshold would be too high, such that 

estimated outlier payments would be less 

than our projected 5.1 percent of total 

payments. 

Also, in FY 2010, for purposes of 

estimating the proposed outlier threshold, we 

took into account the remaining projected 

case-mix growth when calculating the outlier 

threshold that results in outlier payments 

being 5.1 percent of total payments for FY 

2010. As explained in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 44008), for 

the FY 2010 analysis, we inflated the FY 

2008 claims data by an additional 1.6 percent 

for the additional case-mix growth projected 

to have occurred since FY 2008. If we did not 

take into account the remaining 1.6 percent 

projected case-mix growth, our estimate of 

total FY 2010 payments would have been too 

low, and, as a result, the FY 2010 final outlier 

threshold would have been too high, such 

that estimated outlier payments would be 

less than our projected 5.1 percent of total 

payments. For the proposed rule, we used the 

FY 2009 claims data to calculate the FY 2011 

proposed outlier threshold. Our estimate of 

the cumulative effect of changes in 

documentation and coding due to the 

adoption of the MS–DRGs through FY 2009 

is 5.4 percent, which is already included 

within the claims data (FY 2009 MedPAR 

files) used to calculate the proposed FY 2011 

outlier threshold. Furthermore, we estimated 

that there would be no continued changes in 

documentation and coding in FYs 2010 and 

2011. Therefore, the cumulative effect of 

documentation and coding that has occurred 

is already reflected within the FY 2009 

MedPAR claims data, and we do not believe 

there is any need to inflate FY 2009 claims 

data for any additional case-mix growth 

projected to have occurred since FY 2009. 

Using this methodology, in the 

supplemental proposed rule, we proposed an 

outlier fixed-loss cost threshold for FY 2011 

equal to the prospective payment rate for the 

DRG, plus any IME and DSH payments, and 

any add-on payments for new technology, 

plus $24,165. 

As we did in establishing the FY 2009 

outlier threshold (73 FR 57891), in our 

projection of FY 2011 outlier payments, we 

did not propose to make any adjustments for 

the possibility that hospitals’ CCRs and 

outlier payments may be reconciled upon 

cost report settlement. We continue to 

believe that, due to the policy implemented 

in the June 9, 2003 outlier final rule (68 FR 

34494), CCRs will no longer fluctuate 

significantly and, therefore, few hospitals 

will actually have these ratios reconciled 

upon cost report settlement. In addition, it is 

difficult to predict the specific hospitals that 

will have CCRs and outlier payments 

reconciled in any given year. We also noted 

that reconciliation occurs because hospitals’ 

actual CCRs for the cost reporting period are 

different than the interim CCRs used to 

calculate outlier payments when a bill is 

processed. Our simulations assume that CCRs 

accurately measure hospital costs based on 

information available to us at the time we set 

the outlier threshold. For these reasons, we 

proposed not to make any assumptions about 

the effects of reconciliation on the outlier 

threshold calculation. 

Comment: Many commenters, including 

major hospital associations, noted that CMS 

currently estimates outlier payments in FY 

2010 at 4.7 percent of total payments. The 

commenters commended CMS for making 

refinements such as applying an adjustment 

factor to CCRs when computing the outlier 

threshold but noted that, because CMS is still 

not reaching the 5.1 percent target, there is 

still room for improvement. The commenters 

further stated that although CMS currently 

projects outlier payments in FY 2010 to be 

estimated at 4.7 percent of total payments, 

which is lower than the 5.1 percent target, 

this estimate is based on discharges from a 

prior year (2009) and will likely not reflect 

the actual result. The commenters noted that 

in prior years when CMS provided its 

projected estimate of outlier payments for a 

given fiscal year, once the actual claims were 

available to determine the actual outlier 

payment (in the following fiscal year), the 

estimate declined between 0.2 percent and 

0.3 percent from the projection. 

The commenters also suggested that the 

methodology developed by the CMS Office of 

the Actuary to determine a cost adjustment 

factor to the CCRs (which is then divided by 

the charge adjustment factor) is unnecessarily 

complicated and does not lead to a more 

accurate result. The commenters urged CMS 

to adopt a methodology that uses recent 

historical industry wide average rate of 

change, similar to the methodology used to 

develop the charge inflation factor. Further, 

in addition to recommending that CMS apply 

a cost adjustment to the CCRs based on 

historical data, the commenters suggested 

that the charge adjustment to the CCRs be 

projected over different periods of time, some 

less or more than one year, based on 

variations in hospital fiscal year ends. The 

commenters opposed CMS’s use of the 

December 2009 update of the PSF without 

projecting CCRs over different periods of 

time for purposes of estimating FY 2010 

outlier payments and asserted that CMS’s 

methodology is oversimplified. The 

commenters believed that their methodology 

would more accurately project the decline in 

CCRs. 

The commenters also suggested that if CMS 

did not incorporate their recommended 

changes to the methodology for estimating 

outlier payments, that they would 

recommend incorporating an ‘‘estimate 

adjustment factor’’ into the outlier 

projections. The commenters explained that 

outlier payments have been underpaid in 

every year since 2004. Based on actual 

payments, the commenters estimate that 

underpayment has exceeded 0.24 percent in 

all years. The commenters recommended that 

CMS maintain the outlier threshold at 5.1 

percent but should apply an estimate 

adjustment factor when projecting the outlier 

threshold. The commenters provided an 

example and computed this factor for FY 

2008 and FY 2009 by taking the average 

variance in the actual payment (from the 

annual estimate of maintaining outliers at 5.1 

percent) for FY 2008 and FY 2009 which was 

0.385 percent. Based on this factor, the 

commenters suggest CMS would model the 

threshold to a level of 5.485 percent (5.1 plus 

.385 percent). If CMS were to overpay 

outliers in a specific year, then the 

adjustment would be become negative. The 

commenters stated that this would fulfill the 

statutory requirement in section 

1886(d)(5)(A) of the Act that requires that 

CMS establish thresholds such that outlier 

payments will be projected to achieve at least 

5.1 percent of DRG payments and would 

more closely achieve a result that is fully 

consistent with the statute. 

Response: Commenters to previous rules 

have raised similar concerns regarding our 

estimates of outlier payments. We refer 

readers to a similar discussion in the FY 2008 

final rule (72 FR 47418). As we have 

mentioned in the past, in response to the 

comment that CCRs should be projected over 

different periods of time, it is possible that 

some of the CCRs in the March PSF will be 

used in FY 2009 for actual outlier payments, 

while other CCRs may be one year old. 

Therefore, we apply a 1-year adjustment to 

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the CCRs. With respect to the comment on 

our methodology used to adjust the CCRs, as 

we stated in the FY 2008 IPPS final rule with 

comment period (72 FR 47418), we continue 

to believe this calculation of an adjustment 

to the CCRs is more accurate and stable than 

the commenter’s methodology because it 

takes into account the costs per discharge 

and the market basket percentage increase 

when determining a cost adjustment factor. 

There are times where the market basket and 

the cost per discharge will be constant, while 

other times these values will differ from each 

other, depending on the fiscal year. 

Therefore, as mentioned above, using the 

market basket in conjunction with the cost 

per discharge takes into account two sources 

that measure potential cost inflation and 

ensures a more accurate and stable cost 

adjustment factor. Therefore, we continue to 

believe that our methodology for adjusting 

the cost-to-charge ratios is an appropriate 

method for use in determining the outlier 

threshold. We also note that with respect to 

FY 2009 calculations, we are currently 

projecting FY 2009 payments at an estimate 

of 5.4 percent of overall payments. The 

commenter noted that once actual data is 

available to determine the outlier payment, 

the outlier estimate tends to decline by 0.2 

percent or 0.3 percent. If this trend stays 

constant, it appears the FY 2009 threshold 

would result in an outlier payout very close 

to 5.1 percent according to the commenters. 

With respect to the comment of computing 

an ‘‘estimate adjustment factor’’, our outlier 

policy is intended to reimburse hospitals for 

treating extraordinarily costly cases and, 

under the statute, outlier payments are 

intended to approximate the marginal cost of 

providing care above the outlier fixed-loss 

cost threshold. Any ‘‘estimate adjustment 

factor’’ to the outlier threshold or 

standardized amount in a given year to 

account for ‘‘overpayments’’ or 

‘‘underpayments’’ of outliers in other years 

would result in us making outlier payments 

that were not directly related to the cost of 

furnishing care in extraordinarily costly 

cases. Additionally, when we conduct our 

modeling to determine the outlier threshold, 

we factor all in all payments and policies that 

would affect actual payments for the fiscal 

year at hand (as discussed above, including 

the frontier wage index for FY 2011 and the 

cumulative effect of documentation and 

coding that has occurred that is already 

reflected within the FY 2009 MedPAR claims 

data) in order to ensure accuracy when 

determining outlier payments that are 5.1 

percent of total DRG payments. Including an 

‘‘estimate adjustment factor’’ that is not 

relative to the current fiscal year does not 

lend greater accuracy to the estimate of 

payments that are 5.1 percent of total DRG 

payments. Finally, 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 in a past year are equal to 5.1 

percent of total DRG payments. In short, we 

believe our outlier policies are consistent 

with the statute and the goals of the 

prospective payment system. 

Comment: One commenter was concerned 

that CMS did not include outlier 

reconciliations in developing the outlier 

threshold. The commenter requested that 

CMS disclose in the final rule and future 

proposed and final IPPS rules the amount of 

money it has recovered through 

reconciliation. The commenter explained 

that this information will allow others to 

comment specifically on how this provision 

would impact the threshold. 

Response: We thank the commenter for 

their concern regarding not including outlier 

reconciliation within the development of the 

outlier threshold. However, as stated above, 

we continue to believe that, due to the policy 

implemented in the June 9, 2003 outlier final 

rule (68 FR 34494), CCRs will no longer 

fluctuate significantly and, therefore, few 

hospitals will actually have these ratios 

reconciled upon cost report settlement. In 

addition, it is difficult to predict the specific 

hospitals that will have CCRs and outlier 

payments reconciled in any given year. We 

also noted that reconciliation occurs because 

hospitals’ actual CCRs for the cost reporting 

period are different than the interim CCRs 

used to calculate outlier payments when a 

bill is processed. Our simulations assume 

that CCRs accurately measure hospital costs 

based on information available to us at the 

time we set the outlier threshold. For these 

reasons, we proposed and are finalizing our 

policy not to make any assumptions about 

the effects of reconciliation on the outlier 

threshold calculation. 

Comment: Commenters noted that it 

appears CMS has inadvertently included 

approximately 74,000 MA claims submitted 

by teaching hospitals, which appear in the 

MedPAR file when hospitals submit no-pay 

bills for purposes of IME payment. The 

commenter explained that these claims 

lacked an ‘‘HMO Paid’’ designation but the 

only payment made on the claim was the 

IME payment. The commenter recommended 

that CMS exclude these claims from the 

outlier threshold calculation since they are 

not paid under the IPPS. 

Commenters also noted that it is likely that 

CMS included charges for anti hemophilic 

blood factor, which are paid separately under 

the IPPS. The commenter further noted that 

in the FY 2010 IPPS/LTCH PPS final rule, 

CMS agreed that the clotting factor issue was 

a problem and CMS stated it would seek a 

solution in future years. The commenter 

requested that CMS disclose if a solution has 

been determined. 

Response: We examined the MedPAR file 

and have determined that there are claims 

that do not have a GHO Paid indicator with 

a value of ‘‘1’’ but the IME payment field is 

equal to the DRG payment field. We agree 

with the commenter and have excluded 

claims from the outlier calculation that have 

a GHO Paid indicator with a value of ‘‘1’’ or 

do not have a GHO Paid indicator with a 

value of ‘‘1’’ but do have an IMEPAY filed 

equal to the DRGPAY field since these are 

probably MA claims that are likely not paid 

under the IPPS and therefore would not incur 

an outlier payment. 

With respect to charges for anti hemophilic 

blood factor, we examined the MedPAR and 

have removed pharmacy charges 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 since organ acquisition is a pass through 

payment not paid under the IPPS. 

Because we are not making any changes to 

our methodology for this final rule, for FY 

2011, we are using the same methodology we 

proposed to calculate the outlier threshold. 

Using the most recent data available, we 

calculated the 1-year average annualized rateof-change in charges-per-case from the first 

quarter of FY 2009 in combination with the 

second quarter of FY 2009 (October 1, 2008 

through March 31, 2009) to the first quarter 

of FY 2010 in combination with the second 

quarter of FY 2010 (October 1, 2009 through 

March 31, 2010). This rate of change was 

4.8257 percent (1.048257) or 9.8843 percent 

(1.098843) over 2 years. 

As we have done in the past, we 

established the final FY 2011 outlier 

threshold using hospital CCRs from the 

March 2010 update to the Provider-Specific 

File (PSF)—the most recent available data at 

the time of this final rule. This file includes 

CCRs that reflect implementation of the 

changes to the policy for determining the 

applicable CCRs that became effective August 

8, 2003 (68 FR 34494). 

For FY 2010, we calculated the CCR 

adjustment by using the operating cost per 

discharge increase in combination with the 

actual FY 2009 operating market basket 

percentage increase determined by IHS 

Global Insight, Inc., as well as the charge 

inflation factor described above to estimate 

the adjustment to the CCRs. (We note that the 

FY 2009 actual—otherwise referred to as 

‘‘final’’—operating market basket percentage 

increase reflects historical data, whereas the 

published FY 2009 operating market basket 

update factor was based on IHS Global 

Insight, Inc.’s 2008 second quarter forecast 

with historical data through the first quarter 

of 2008. We also note that while the FY 2009 

published operating market basket update 

was based on the FY 2002-based IPPS market 

basket, the actual or ‘‘final’’ market basket 

percentage increase is based on the FY 2006- 

based IPPS market basket. Similarly, the FY 

2009 published capital market basket update 

factor was based on the FY 2002-based 

capital market basket and the actual or ‘‘final’’ 

capital market basket percentage increase is 

based on the FY 2006-based capital market 

basket.) By using the operating market basket 

percentage increase and the increase in the 

average cost per discharge from hospital cost 

reports, we are using two different measures 

of cost inflation. For FY 2011, we determined 

the adjustment by taking the percentage 

increase in the operating costs per discharge 

from FY 2007 to FY 2008 (1.0511) from the 

cost report and dividing it by the final 

operating market basket percentage increase 

from FY 2008 (1.040). This operation 

removes the measure of pure price increase 

(the market basket) from the percentage 

increase in operating cost per discharge, 

leaving the nonprice factors in the cost 

increase (for example, quantity and changes 

in the mix of goods and services). We 

repeated this calculation for 2 prior years to 

determine the 3-year average of the rate of 

adjusted change in costs between the 

operating market basket percentage increase 

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50430 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

21These figures represent 3.0 standard deviations 

from the mean of the log distribution of CCRs for 

all hospitals. 

and the increase in cost per case from the 

cost report (the FY 2005 to FY 2006 

percentage increase of operating costs per 

discharge of 1.0574 divided by the FY 2006 

final operating market basket percentage 

increase of 1.040, the FY 2006 to FY 2007 

percentage increase of operating costs per 

discharge of 1.0464 divided by FY 2007 final 

operating market basket percentage increase 

of 1.036). For FY 2011, we averaged the 

differentials calculated for FY 2006, FY 2007, 

and FY 2008, which resulted in a mean ratio 

of 1.0125. We multiplied the 3-year average 

of 1.0125 by the FY 2009 final operating 

market basket percentage increase of 1.026, 

which resulted in an operating cost inflation 

factor of 3.88 percent or 1.0388. We then 

divided the operating cost inflation factor by 

the 1-year average change in charges 

(1.048257) and applied an adjustment factor 

of 0.990983 to the operating CCRs from the 

PSF (calculation performed on unrounded 

numbers). 

We used the same methodology for the 

capital CCRs and determined the adjustment 

by taking the percentage increase in the 

capital costs per discharge from FY 2007 to 

FY 2008 (1.0813) from the cost report and 

dividing it by the final capital market basket 

percentage increase from FY 2008 (1.015). 

We repeated this calculation for 2 prior years 

to determine the 3-year average of the rate of 

adjusted change in costs between the capital 

market basket percentage increase and the 

increase in cost per case from the cost report 

(the FY 2005 to FY 2006 percentage increase 

of capital costs per discharge of 1.0470 

divided by the FY 2006 final capital market 

basket percentage increase of 1.011, the FY 

2006 to FY 2007 percentage increase of 

capital costs per discharge of 1.0504 divided 

by the FY 2007 final capital market basket 

percentage increase of 1.013). For FY 2011, 

we averaged the differentials calculated for 

FY 2006, FY 2007, and FY 2008, which 

resulted in a mean ratio of 1.0459. We 

multiplied the 3-year average of 1.0459 by 

the FY 2009 final capital market basket 

percentage increase of 1.014, which resulted 

in a capital cost inflation factor of 6.06 

percent or 1.0606. We then divided the 

capital cost inflation factor by the 1-year 

average change in charges (1.048257) and 

applied an adjustment factor of 1.011768 to 

the capital CCRs from the PSF (calculation 

performed on unrounded numbers). We are 

using the same charge inflation factor for the 

capital CCRs that was used for the operating 

CCRs. The charge inflation factor is based on 

the overall billed charges. Therefore, we 

believe it is appropriate to apply the charge 

factor to both the operating and capital CCRs. 

As stated above, for FY 2011, we applied 

the FY 2011 rates and policies using cases 

from the FY 2009 MedPAR files in 

calculating the final outlier threshold. As 

discussed in section II.B.3. of the preamble 

to this final rule, in accordance with section 

10324(a) of Public Law 111–148, beginning 

in FY 2011, we created a wage index floor 

of 1.00 for all hospitals located in States 

determined to be Frontier States. We noted 

that the Frontier State floor adjustments will 

be calculated and applied after rural and 

imputed floor budget neutrality adjustments 

are calculated for all labor market areas, so 

as to ensure that no hospital in a Frontier 

State will receive a wage index lesser than 

1.00 due to the rural and imputed floor 

adjustment. In accordance with section 

10324(a) of the Affordable Care Act, the 

frontier State adjustment will not be subject 

to budget neutrality, and will only be 

extended to hospitals geographically located 

within a frontier State. However, for 

purposes of estimating the final outlier 

threshold for FY 2011, it was necessary to 

apply this provision by adjusting the wage 

index of those eligible hospitals in a Frontier 

State when calculating the outlier threshold 

that results in outlier payments being 5.1 

percent of total payments for FY 2011. If we 

did not take into account this provision, our 

estimate of total FY 2011 payments would be 

too low, and as a result, our final outlier 

threshold would be too high, such that 

estimated outlier payments would be less 

than our projected 5.1 percent of total 

payments. 

Also, in FY 2010, for purposes of 

estimating the final outlier threshold, we 

took into account the remaining projected 

case-mix growth when calculating the outlier 

threshold that results in outlier payments 

being 5.1 percent of total payments for FY 

2010. As explained in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 44008), for 

the FY 2010 analysis, we inflated the FY 

2008 claims data by an additional 1.6 percent 

for the additional case-mix growth projected 

to have occurred since FY 2008. If we did not 

take into account the remaining 1.6 percent 

projected case-mix growth, our estimate of 

total FY 2010 payments would have been too 

low, and, as a result, the FY 2010 final outlier 

threshold would have been too high, such 

that estimated outlier payments would be 

less than our projected 5.1 percent of total 

payments. For the final rule, we used the FY 

2009 claims data to calculate the FY 2011 

final outlier threshold. Our estimate of the 

cumulative effect of changes in 

documentation and coding due to the 

adoption of the MS–DRGs through FY 2009 

is 5.4 percent, which is already included 

within the claims data (FY 2009 MedPAR 

files) used to calculate the final FY 2011 

outlier threshold. Furthermore, we estimate 

that there would be no continued changes in 

documentation and coding in FYs 2010 and 

2011. Therefore, the cumulative effect of 

documentation and coding that has occurred 

is already reflected within the FY 2009 

MedPAR claims data, and we do not believe 

there is any need to inflate FY 2009 claims 

data for any additional case-mix growth 

projected to have occurred since FY 2009. 

Using this methodology, we calculated a 

final outlier fixed-loss cost threshold for FY 

2011 equal to the prospective payment rate 

for the DRG, plus any IME and DSH 

payments, and any add-on payments for new 

technology, plus $23,075. 

We note that the final threshold is lower 

than the proposed outlier threshold in the FY 

2011 IPPS/LTCH PPS supplemental proposed 

rule (and is similar to the estimate of the 

outlier threshold calculated by the 

commenters above). We believe that the 

increase in the market basket from 2.15 

percent in the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule (that is, the 

estimated full market basket percentage 

increase of 2.4 percent minus 0.25 percentage 

point) to 2.35 percent for this final rule (that 

is, the estimated full market basket 

percentage increase of 2.6 percent minus 0.25 

percentage point) contributed to a lower final 

fixed loss outlier threshold for FY 2011. 

Specifically, adding an extra 0.2 percent to 

the standardized amount increases funds to 

typical cases and requires that we lower the 

outlier threshold to increase the amount of 

atypical cases in order to reach the 5.1 

percent target. 

(2) Other Changes Concerning Outliers 

As stated in the FY 1994 IPPS final rule (58 

FR 46348), we establish an outlier threshold 

that is applicable to both hospital inpatient 

operating costs and hospital inpatient 

capital-related costs. When we modeled the 

combined operating and capital outlier 

payments, we found that using a common 

threshold resulted in a lower percentage of 

outlier payments for capital-related costs 

than for operating costs. We project that the 

thresholds for FY 2011 will result in outlier 

payments that will equal 5.1 percent of 

operating DRG payments and 5.96 percent of 

capital payments based on the Federal rate. 

In accordance with section 1886(d)(3)(B) of 

the Act, we are reducing the FY 2011 

standardized amount by the same percentage 

to account for the projected proportion of 

payments paid as outliers. 

The outlier adjustment factors that would 

be applied to the standardized amount based 

on the FY 2011 outlier threshold are as 

follows: 

Operating 

standardized 

amounts 

Capital 

Federal 

rate 

National ............. 0.948999 0.940415 

Puerto Rico ....... 0.948079 0.918951 

We are applying apply the outlier 

adjustment factors to the FY 2011 rates after 

removing the effects of the FY 2010 outlier 

adjustment factors on the standardized 

amount. 

To determine whether a case qualifies for 

outlier payments, we apply hospital-specific 

CCRs to the total covered charges for the 

case. Estimated operating and capital costs 

for the case are calculated separately by 

applying separate operating and capital 

CCRs. These costs are then combined and 

compared with the outlier fixed-loss cost 

threshold. 

Under our current policy at § 412.84, for 

hospitals for which the fiscal intermediary or 

MAC computes operating CCRs greater than 

1.175 or capital CCRs greater than 0.159, or 

hospitals for which the fiscal intermediary or 

MAC is unable to calculate a CCR (as 

described at § 412.84(i)(3) of our regulations), 

we use statewide average CCRs to determine 

whether a hospital qualifies for outlier 

payments.21 Table 8A in this Addendum 

contains the statewide average operating 

CCRs for urban hospitals and for rural 

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hospitals for which the fiscal intermediary or 

MAC is unable to compute a hospital-specific 

CCR within the above range. Effective for 

discharges occurring on or after October 1, 

2010, these statewide average ratios would 

replace the ratios published in the IPPS final 

rule for FY 2010 (74 FR 44159). Table 8B in 

this Addendum contains the comparable 

statewide average capital CCRs. Again, the 

CCRs in Tables 8A and 8B would be used 

during FY 2011 when hospital-specific CCRs 

based on the latest settled cost report are 

either not available or are outside the range 

noted above. Table 8C contains the statewide 

average total CCRs used under the LTCH PPS 

as discussed in section V. of this Addendum. 

We finally note that we published a 

manual update (Change Request 3966) to our 

outlier policy on October 12, 2005, which 

updated Chapter 3, Section 20.1.2 of the 

Medicare Claims Processing Manual. The 

manual update covered an array of topics, 

including CCRs, reconciliation, and the time 

value of money. We encourage hospitals that 

are assigned the statewide average operating 

and/or capital CCRs to work with their fiscal 

intermediary or MAC on a possible 

alternative operating and/or capital CCR as 

explained in Change Request 3966. Use of an 

alternative CCR developed by the hospital in 

conjunction with the fiscal intermediary or 

MAC can avoid possible overpayments or 

underpayments at cost report settlement, 

thus ensuring better accuracy when making 

outlier payments and negating the need for 

outlier reconciliation. We also note that a 

hospital may request an alternative operating 

or capital CCR ratio at any time as long as 

the guidelines of Change Request 3966 are 

followed. To download and view the manual 

instructions on outlier and CCRs, we refer 

readers to CMS Web site: http:// 

www.cms.hhs.gov/manuals/downloads/ 

clm104c03.pdf. 

(3) FY 2009 and FY 2010 Outlier Payments 

In the FY 2010 IPPS final rule (74 FR 

44012), we stated that, based on available 

data, we estimated that actual FY 2009 

outlier payments would be approximately 5.4 

percent of actual total DRG payments. This 

estimate was computed based on simulations 

using the FY 2008 MedPAR file (discharge 

data for FY 2008 claims). That is, the 

estimate of actual outlier payments did not 

reflect actual FY 2009 claims, but instead 

reflected the application of FY 2009 rates and 

policies to available FY 2008 claims. 

Our current estimate, using available FY 

2009 claims data, is that actual outlier 

payments for FY 2009 were approximately 

5.3 percent of actual total DRG payments. 

Thus, the data indicate that, for FY 2009, the 

percentage of actual outlier payments relative 

to actual total payments is higher than we 

projected for FY 2009. Consistent with the 

policy and statutory interpretation we have 

maintained since the inception of the IPPS, 

we do not plan to make retroactive 

adjustments to outlier payments to ensure 

that total outlier payments for FY 2009 are 

equal to 5.1 percent of total DRG payments. 

We currently estimate that actual outlier 

payments for FY 2010 will be approximately 

4.7 percent of actual total DRG payments, 

approximately 0.4 percentage points lower 

than the 5.1 percent we projected when 

setting the outlier policies for FY 2010. This 

estimate of 4.7 percent is based on 

simulations using the FY 2009 MedPAR file 

(discharge data for FY 2009 claims). 

Comment: Commenters requested that 

CMS clarify and review how the actual 

outlier payments for FY 2009, as reported in 

the proposed rule, were calculated. The 

commenters noted that in the proposed rule, 

CMS indicated that the actual outlier 

payments for FY 2009 will be 5.3 percent of 

actual DRG payments. However, the 

commenter performed their own analysis 

using payment information in the MedPAR 

and concluded that actual outlier payments 

for FY 2009 would be 4.9 percent of actual 

DRG payments. The commenter 

recommended that CMS determine the FY 

2009 outlier payment percentage using a data 

element that they asserted represented actual 

payments rather than using a modeled 

estimate of actual payments. The commenter 

also noted that, while they differed on the FY 

2009 estimate, they were able to match the 

FY 2010 and FY 2011 outlier percentages we 

published in the proposed rule. 

Response: We believe that modeling the 

estimated actual payments for FY 2009 is a 

reasonable approach to approximating the 

outlier payment percentage for FY 2009. In 

modeling the FY 2009 payments we use the 

same programming approach used in 

determining the FY 2010 and FY 2011 outlier 

payment percentages. We continue to believe 

that our modeling approach is sound; we 

note that the commenters were able to match 

our published percentages for FY 2010 and 

2011 using their own models,. In calculating 

the estimated FY 2009 outlier payment 

percentage we use the FY 2009 payment 

rates, rules and factors and the latest update 

of the FY 2009 MedPAR file. This is 

consistent with our approach for the rate 

setting for FY 2011 (which also models the 

FY 2010 payments for use in the FY 2011 rate 

setting). Although the MedPAR file contains 

a field labeled the DRG PRICE that represents 

the actual amounts paid to hospitals by 

claim, we believe that modeling enhances the 

completeness and the accuracy of our 

estimates of actual payments. While accurate 

at the time the MedPAR file is constructed, 

claims can be cancelled, edited and 

resubmitted to NCH after the MedPAR file is 

built, and therefore the payment field shown 

on MedPAR is subject to change and does not 

necessarily represent the final payment on 

that claim. Additionally, various payment 

exceptions under the IPPS such as the 

hospital specific rate payment adjustment for 

Sole Community Hospitals and Medicare 

Dependant Hospitals complicate the use of 

the payment field shown on the MedPAR 

file. PRICER, the IPPS payment software, 

calculates payments on a claim by claim 

basis and consequently claims may be paid 

on either the federal rate or the hospital 

specific rate depending on which produces a 

greater payment; the payments to these 

hospitals are not finalized until the cost 

report settlement and at that time must either 

be based on one hundred percent of either 

the hospital specific amount or the federal 

amount. Due to these additional concerns, 

the DRG PRICE field would also only 

generate an estimate, rather than an actual, 

amount of outlier payments. For these 

reasons, we continue to believe that 

modeling is an acceptable and accurate 

approach to estimating the outlier payment 

percentage in a given year. We also note that 

our model has been replicated by the 

commenters. 

5. FY 2011 Standardized Amount 

The adjusted standardized amount is 

divided into labor-related and nonlaborrelated portions. Tables 1A and 1B of this 

Addendum contain the national standardized 

amounts that we are applying to all hospitals, 

except hospitals located in Puerto Rico, for 

FY 2011. The Puerto Rico-specific amounts 

are shown in Table 1C of this Addendum. 

The amounts shown in Tables 1A and 1B 

differ only in that the labor-related share 

applied to the standardized amounts in Table 

1A is the labor-related share of 68.8 percent, 

and Table 1B is 62 percent. In accordance 

with sections 1886(d)(3)(E) and 

1886(d)(9)(C)(iv) of the Act, we are applying 

a labor-related share of 62 percent, unless 

application of that percentage would result in 

lower payments to a hospital than would 

otherwise be made. In effect, the statutory 

provision means that we will apply a laborrelated share of 62 percent for all hospitals 

(other than those in Puerto Rico) whose wage 

indices are less than or equal to 1.0000. 

In addition, Tables 1A and 1B include the 

standardized amounts reflecting the 

applicable percentage increase of 2.35 

percent update for FY 2011, and 

standardized amounts reflecting the 2.0 

percentage point reduction to that update 

(a 0.35 percent update) applicable for 

hospitals that fail to submit quality data 

consistent with section 1886(b)(3)(B)(viii) of 

the Act. 

Under section 1886(d)(9)(A)(ii) of the Act, 

the Federal portion of the Puerto Rico 

payment rate is based on the dischargeweighted average of the national large urban 

standardized amount (this amount is set forth 

in Table 1A). The labor-related and nonlaborrelated portions of the national average 

standardized amounts for Puerto Rico 

hospitals for FY 2011 are set forth in Table 

1C of this Addendum. This table also 

includes the Puerto Rico standardized 

amounts. The labor-related share applied to 

the Puerto Rico specific standardized amount 

is the labor-related share of 62.1 percent, or 

62 percent, depending on which provides 

higher payments to the hospital. (Section 

1886(d)(9)(C)(iv) of the Act, as amended by 

section 403(b) of Public Law 108–173, 

provides that the labor-related share for 

hospitals located in Puerto Rico be 62 

percent, unless the application of that 

percentage would result in lower payments 

to the hospital.) 

The following table illustrates the changes 

from the FY 2010 national standardized 

amount. The second column shows the 

changes from the FY 2010 standardized 

amounts for hospitals that satisfy the quality 

data submission requirement for receiving 

the update of 2.35 percent. The third column 

shows the changes for hospitals receiving the 

reduced update of 0.35 percent. The first row 

of the table shows the updated (through FY 

2010) average standardized amount after 

restoring the FY 2010 offsets for outlier 

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50432 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

payments, demonstration budget neutrality 

and the geographic reclassification budget 

neutrality. The DRG reclassification and 

recalibration wage index budget neutrality factors are cumulative. Therefore, the FY 

2010 factor is not removed from this table. 

BILLING CODE 4120–01–P 

BILLING CODE 4120–01–C 

B. Adjustments for Area Wage Levels and 

Cost-of-Living 

Tables 1A through 1C, as set forth in this 

Addendum, contain the labor-related and 

nonlabor-related shares that we are using to 

calculate the prospective payment rates for 

hospitals located in the 50 States, the District 

of Columbia, and Puerto Rico for FY 2011. 

This section addresses two types of 

adjustments to the standardized amounts that 

are made in determining the prospective 

payment rates as described in this 

Addendum. 

1. Adjustment for Area Wage Levels 

Sections 1886(d)(3)(E) and 

1886(d)(9)(C)(iv) of the Act require that we 

make an adjustment to the labor-related 

portion of the national and Puerto Rico 

prospective payment rates, respectively, to 

account for area differences in hospital wage 

levels. This adjustment is made by 

multiplying the labor-related portion of the 

adjusted standardized amounts by the 

appropriate wage index for the area in which 

the hospital is located. In section III. of the 

preamble of this final rule, we discuss the 

data and methodology for the FY 2011 wage 

index. 

2. Adjustment for Cost-of-Living in Alaska 

and Hawaii 

Section 1886(d)(5)(H) of the Act authorizes 

the Secretary to make an adjustment to take 

into account the unique circumstances of 

hospitals in Alaska and Hawaii. Higher laborrelated costs for these two States are taken 

into account in the adjustment for area wages 

described above. For FY 2011, we are 

adjusting the payments for hospitals in 

Alaska and Hawaii by multiplying the 

nonlabor-related portion of the standardized 

amount by the applicable adjustment factor 

contained in the table below. These factors 

were obtained from the U.S. Office of 

Personnel Management (OPM) and are the 

same as the factors currently in use under the 

IPPS for FY 2010. 


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(The above factors are based on data obtained 

from the U.S. Office of Personnel 

Management Web site at: http:// 

www.opm.gov/oca/cola/rates.asp.) 

C. MS–DRG Relative Weights 

As discussed in section II.H. of the 

preamble of this final rule, we have 

developed relative weights for each MS–DRG 

that reflect the resource utilization of cases 

in each MS–DRG relative to Medicare cases 

in other MS–DRGs. Table 5 of this 

Addendum contains the relative weights that 

we are applying to discharges occurring in 

FY 2011. These factors have been 

recalibrated as explained in section II. of the 

preamble of this final rule. 

D. Calculation of the Prospective Payment 

Rates 

General Formula for Calculation of the 

Prospective Payment Rates for FY 2011 

In general, the operating prospective 

payment rate for all hospitals paid under the 

IPPS located outside of Puerto Rico, except 

SCHs and MDHs, for FY 2011 equals the 

Federal rate. 

Currently, SCHs are paid based on 

whichever of the following rates yields the 

greatest aggregate payment: The Federal 

national 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 hospitalspecific rate based on the FY 2006 costs per 

discharge to determine the rate that yields 

the greatest aggregate payment. 

The prospective payment rate for SCHs for 

FY 2011 equals the higher of the applicable 

Federal rate, or the hospital-specific rate as 

described below. The prospective payment 

rate for MDHs for FY 2011 equals the higher 

of the Federal rate, or the Federal rate plus 

75 percent of the difference between the 

Federal rate and the hospital-specific rate as 

described below. For MDHs, the updated 

hospital-specific rate is based on FY 1982, FY 

1987 or FY 2002 costs per discharge, 

whichever yields the greatest aggregate 

payment. 

The prospective payment rate for hospitals 

located in Puerto Rico for FY 2011 equals 25 

percent of the Puerto Rico rate plus 75 

percent of the applicable national rate. 

1. Federal Rate 

The Federal rate is determined as follows: 

Step 1—Select the applicable average 

standardized amount depending on whether 

the hospital submitted qualifying quality data 

(full update for qualifying hospitals, update 

minus 2.0 percentage points for 

nonqualifying hospitals). 

Step 2—Multiply the labor-related portion 

of the standardized amount by the applicable 

wage index for the geographic area in which 

the hospital is located or the area to which 

the hospital is reclassified. 

Step 3—For hospitals in Alaska and 

Hawaii, multiply the nonlabor-related 

portion of the standardized amount by the 

applicable cost-of-living adjustment factor. 

Step 4—Add the amount from Step 2 and 

the nonlabor-related portion of the 

standardized amount (adjusted, if applicable, 

under Step 3). 

Step 5—Multiply the final amount from 

Step 4 by the relative weight corresponding 

to the applicable MS–DRG (see Table 5 of 

this Addendum). 

The Federal rate as determined in Step 5 

may then be further adjusted if the hospital 

qualifies for either the IME or DSH 

adjustment. In addition, for hospitals that 

qualify for a low-volume payment adjustment 

under section 1886(d)(12) of the Act and 42 

CFR 412.101(b), the payment in Step 5 would 

be increased by 25 percent. 

2. Hospital-Specific Rate (Applicable Only to 

SCHs and MDHs) 

a. Calculation of Hospital-Specific Rate 

Section 1886(b)(3)(C) of the Act provides 

that currently 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 

the FY 2006 costs per discharge to determine 

the rate that yields the greatest aggregate 

payment. 

As discussed previously, currently MDHs 

are paid based on the Federal national rate 

or, if higher, the Federal national rate plus 75 

percent of the difference between the Federal 

national rate and the greater of the updated 

hospital-specific rates based on either FY 

1982, FY 1987 or FY 2002 costs per 

discharge. 

Hospital-specific rates have been 

determined for each of these hospitals based 

on the FY 1982 costs per discharge, the FY 

1987 costs per discharge, or, for SCHs, the FY 

1996 costs per discharge or the FY 2006 costs 

per discharge, and for MDHs, the FY 2002 

cost per discharge. For a more detailed 

discussion of the calculation of the hospitalspecific rates, we refer the reader 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). In addition, for both 

SCHs and MDHs, the hospital-specific rate 

effective is adjusted by the DRG 

reclassification and recalibration budget 

neutrality factor of 0.996731 as discussed in 

section III. of this Addendum. The resulting 

rate will be used in determining the payment 

rate an SCH or MDH will receive for its 

discharges beginning on or after October 1, 

2010. 

b. Updating the FY 1982, FY 1987, FY 1996, 

FY 2002, and FY 2006 Hospital-Specific 

Rates for FY 2011 

Section 1886(b)(3)(B)(iv) of the Act 

provides that the applicable percentage 

increase applicable to the hospital-specific 

rates for SCHs and MDHs equals the 

applicable percentage increase set forth in 

section 1886(b)(3)(B)(i) of the Act (that is, the 

same update factor as for all other hospitals 

subject to the IPPS). Because the Act sets the 

update factor for SCHs and MDHs equal to 

the update factor for all other IPPS hospitals, 


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the update to the hospital specific rates for 

SCHs and MDHs is subject to the 

amendments to section 1886(b)(3)(B)(i) of the 

Act made by section 3401(a) of the 

Affordable Care Act. Accordingly, the 

applicable percentage increase to the 

hospital-specific rates applicable to SCHs 

and MDHs is 2.35 percent (that is, the FY 

2011 estimate of the market basket rate-ofincrease of 2.6 percent minus 0.25 percentage 

points) for hospitals that submit quality data 

or 0.35 percent (that is, the FY 2011 

applicable percentage increase of 2.35 

percent minus 2.0 percentage points) for 

hospitals that fail to submit quality data. 

3. General Formula for Calculation of 

Prospective Payment Rates for Hospitals 

Located in Puerto Rico Beginning On or After 

October 1, 2010, and Before October 1, 2011 

Section 1886(d)(9)(E)(iv) of the Act 

provides that, effective for discharges 

occurring on or after October 1, 2004, 

hospitals located in Puerto Rico are paid 

based on a blend of 75 percent of the national 

prospective payment rate and 25 percent of 

the Puerto Rico-specific rate. 

a. Puerto Rico Rate 

The Puerto Rico prospective payment rate 

is determined as follows: 

Step 1—Select the applicable average 

standardized amount considering the 

applicable wage index (Table 1C of this 

Addendum). 

Step 2—Multiply the labor-related portion 

of the standardized amount by the applicable 

Puerto Rico-specific wage index. 

Step 3—Add the amount from Step 2 and 

the nonlabor-related portion of the 

standardized amount. 

Step 4—Multiply the amount from Step 3 

by the applicable MS–DRG relative weight 

(Table 5 of this Addendum). 

Step 5—Multiply the result in Step 4 by 25 

percent. 

b. National Rate 

The national prospective payment rate is 

determined as follows: 

Step 1—Select the applicable average 

standardized amount. 

Step 2—Multiply the labor-related portion 

of the standardized amount by the applicable 

wage index for the geographic area in which 

the hospital is located or the area to which 

the hospital is reclassified. 

Step 3—Add the amount from Step 2 and 

the nonlabor-related portion of the national 

average standardized amount. 

Step 4—Multiply the amount from Step 3 

by the applicable MS–DRG relative weight 

(Table 5 of this Addendum). 

Step 5—Multiply the result in Step 4 by 75 

percent. 

The sum of the Puerto Rico rate and the 

national rate computed above equals the 

prospective payment for a given discharge for 

a hospital located in Puerto Rico. This rate 

would then be further adjusted if the hospital 

qualifies for either the IME or DSH 

adjustment. 

III. Changes to Payment Rates for Acute Care 

Hospital Inpatient Capital-Related Costs for 

FY 2011 

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, hospitals were paid during 

a 10-year transition period (which extended 

through FY 2001) to change the payment 

methodology for Medicare acute care hospital 

inpatient capital-related costs 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 2011, which will be effective for 

discharges occurring on or after October 1, 

2010. 

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 § 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 § 412.308(c)(1), to account for 

capital input price increases and other 

factors. The regulations at § 412.308(c)(2) 

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, § 412.308(c)(3) requires that the 

capital Federal rate be reduced by an 

adjustment factor equal to the estimated 

proportion of payments for (regular and 

special) exceptions under § 412.348. 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. 

For FYs 1992 through 1995, § 412.352 

required that the capital Federal rate also be 

adjusted by a budget neutrality factor so that 

aggregate payments for inpatient hospital 

capital costs were projected to equal 90 

percent of the payments that would have 

been made for capital-related costs on a 

reasonable cost basis during the respective 

fiscal year. That provision expired in FY 

1996. Section 412.308(b)(2) describes the 7.4 

percent reduction to the capital Federal rate 

that was made in FY 1994, and 

§ 412.308(b)(3) describes the 0.28 percent 

reduction to the capital Federal rate made in 

FY 1996 as a result of the revised policy for 

paying for transfers. In FY 1998, we 

implemented section 4402 of Public Law 

105–33, which required that, for discharges 

occurring on or after October 1, 1997, the 

budget neutrality adjustment factor in effect 

as of September 30, 1995, be applied to the 

unadjusted capital standard Federal rate and 

the unadjusted hospital-specific rate. That 

factor was 0.8432, which was equivalent to 

a 15.68 percent reduction to the unadjusted 

capital payment rates. An additional 2.1 

percent reduction to the rates was effective 

from October 1, 1997 through September 30, 

2002, making the total reduction 17.78 

percent. As we discussed in the FY 2003 

IPPS final rule (67 FR 50102) and 

implemented in § 412.308(b)(6), the 2.1 

percent reduction was restored to the 

unadjusted capital payment rates effective 

October 1, 2002. 

To determine the appropriate budget 

neutrality adjustment factor and the regular 

exceptions payment adjustment during the 

10-year transition period, we developed a 

dynamic model of Medicare inpatient 

capital-related costs; that is, a model that 

projected changes in Medicare inpatient 

capital-related costs over time. With the 

expiration of the budget neutrality provision, 

the capital cost model was only used to 

estimate the regular exceptions payment 

adjustment and other factors during the 

transition period. As we explained in the FY 

2002 IPPS final rule (66 FR 39911), beginning 

in FY 2002, an adjustment for regular 

exception payments is no longer necessary 

because regular exception payments were 

only made for cost reporting periods 

beginning on or after October 1, 1991, and 

before October 1, 2001 (see § 412.348(b)). 

Because payments are no longer made under 

the regular exception policy effective with 

cost reporting periods beginning in FY 2002, 

we discontinued use of the capital cost 

model. The capital cost model and its 

application during the transition period are 

described in Appendix B of the FY 2002 IPPS 

final rule (66 FR 40099). 

Section 412.374 provides for blended 

payments to hospitals located in Puerto Rico 

under the IPPS for acute care hospital 

inpatient capital-related costs. Accordingly, 

under the capital PPS, we compute a separate 

payment rate specific to hospitals located in 

Puerto Rico using the same methodology 

used to compute the national Federal rate for 

capital-related costs. In accordance with 

section 1886(d)(9)(A) of the Act, under the 

IPPS for acute care hospital operating costs, 

hospitals located in Puerto Rico are paid for 

operating costs under a special payment 

formula. Prior to FY 1998, hospitals located 

in Puerto Rico were paid a blended operating 

rate that consisted of 75 percent of the 

applicable standardized amount specific to 

Puerto Rico hospitals and 25 percent of the 

applicable national average standardized 

amount. Similarly, prior to FY 1998, 

hospitals located in Puerto Rico were paid a 

blended capital rate that consisted of 75 

percent of the applicable capital Puerto Ricospecific rate and 25 percent of the applicable 

capital Federal rate. However, effective 

October 1, 1997, in accordance with section 

4406 of Public Law 105–33, the methodology 

for operating payments made to hospitals 

located in Puerto Rico under the IPPS was 

revised to make payments based on a blend 

of 50 percent of the applicable standardized 

amount specific to Puerto Rico hospitals and 

50 percent of the applicable national average 

standardized amount. In conjunction with 

this change to the operating blend 

percentage, effective with discharges 

occurring on or after October 1, 1997, we also 

revised the methodology for computing 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50435 

capital payments to hospitals located in 

Puerto Rico to be based on a blend of 50 

percent of the Puerto Rico capital rate and 50 

percent of the national capital Federal rate. 

As we discussed in the FY 2005 IPPS final 

rule (69 FR 49185), section 504 of Public Law 

108–173 increased the national portion of the 

operating IPPS payments for hospitals 

located in Puerto Rico from 50 percent to 

62.5 percent and decreased the Puerto Rico 

portion of the operating IPPS payments from 

50 percent to 37.5 percent for discharges 

occurring on or after April 1, 2004 through 

September 30, 2004 (refer to the March 26, 

2004 One-Time Notification (Change Request 

3158)). In addition, section 504 of Public Law 

108–173 provided that the national portion of 

operating IPPS payments for hospitals 

located in Puerto Rico is equal to 75 percent 

and the Puerto Rico-specific portion of 

operating IPPS payments is equal to 25 

percent for discharges occurring on or after 

October 1, 2004. Consistent with that change 

in operating IPPS payments to hospitals 

located in Puerto Rico, for FY 2005 (as we 

discussed in the FY 2005 IPPS final rule), we 

revised the methodology for computing 

capital payments to hospitals located in 

Puerto Rico to be based on a blend of 25 

percent of the Puerto Rico-specific capital 

rate and 75 percent of the national capital 

Federal rate for discharges occurring on or 

after October 1, 2004. 

A. Determination of Federal Hospital 

Inpatient Capital-Related Prospective 

Payment Rate Update 

In the correction notice to the FY 2010 

IPPS/RY 2010 LTCH PPS final rule published 

on October 7, 2009 (74 FR 51499), we 

established a capital Federal rate of $429.26 

for FY 2010. However, as discussed earlier in 

this final rule, in the June 2, 2010 Federal 

Register, we announced the revised policies 

and payment rates for FY 2010 under the 

IPPS that reflected the provisions of the 

Affordable Care Act. Specifically, in the FY 

2010 IPPS/RY 2010 LTCH PPS final notice 

(75 FR 31127), we established a capital 

Federal rate of $429.56 for FY 2010. For 

comparison purposes, the payment rates and 

factors in this section are based on the 

revised FY 2010 rates and factors announced 

in that final notice published in Federal 

Register on June 2, 2010. 

As also discussed previously in this final 

rule, several provisions of the Affordable 

Care Act affected our proposed IPPS policies 

and payment rates for FY 2011. However, 

due to the timing of the passage of that 

legislation we were unable to address those 

provisions in the May 4, 2010 FY 2011 IPPS/ 

LTCH PPS proposed rule, and the proposed 

policies and payment rates in that proposed 

rule did not reflect the new legislation. 

Although the provisions of the Affordable 

Care Act do not directly affect capital IPPS 

payment rates and factors, we revised our 

proposed FY 2011 capital rates and factors in 

the June 2, 2010 FY 2011 IPPS/LTCH PPS 

supplemental proposed rule (75 FR 30977 

through 30972) due to the effect of certain 

provisions of the Affordable Care Act. 

In the discussion that follows, we explain 

the factors that we used to determine the 

capital Federal rate for FY 2011. In 

particular, we explain why the FY 2011 

capital Federal rate will decrease 

approximately 2.27 percent, compared to the 

FY 2010 capital Federal rate. As discussed in 

the impact analysis in Appendix A of this 

final rule, we estimate that capital payments 

per discharge will decrease 0.5 percent 

during that same period. Because capital 

payments constitute about 10 percent of 

hospital payments, a 1-percent change in the 

capital Federal rate yields only about a 0.1 

percent change in actual payments to 

hospitals. 

1. Projected Capital Standard Federal Rate 

Update 

a. Description of the Update Framework 

Under § 412.308(c)(1), the capital standard 

Federal rate is updated on the basis of an 

analytical framework that takes into account 

changes in a capital input price index (CIPI) 

and several other policy adjustment factors. 

Specifically, we adjust the projected CIPI 

rate-of-increase as appropriate each year for 

case-mix index-related changes, for intensity, 

and for errors in previous CIPI forecasts. The 

update factor for FY 2011 under that 

framework is 1.5 percent based on the best 

data available at this time. The update factor 

under that framework is based on a projected 

1.2 percent increase in the CIPI, a 0.0 percent 

adjustment for intensity, a 0.0 percent 

adjustment for case-mix, a 0.0 percent 

adjustment for the FY 2009 DRG 

reclassification and recalibration, and a 

forecast error correction of 0.3 percent. As 

discussed below in section III.C. of this 

Addendum, we continue to believe that the 

CIPI is the most appropriate input price 

index for capital costs to measure capital 

price changes in a given year. We also 

explain the basis for the FY 2011 CIPI 

projection in that same section of this 

Addendum. We note, as discussed in section 

VI.E.1. of the preamble of this final rule, we 

applied a ¥2.9 percent adjustment to the 

capital rate in FY 2011 to account for the 

cumulative effect of changes in 

documentation and coding under the MS– 

DRGs that do not correspond to changes in 

real increases in patients’ severity of illness. 

Below we describe the policy adjustments 

that we applied in the update framework for 

FY 2011. 

The case-mix index is the measure of the 

average DRG weight for cases paid under the 

IPPS. Because the DRG weight determines 

the prospective payment for each case, any 

percentage increase in the case-mix index 

corresponds to an equal percentage increase 

in hospital payments. 

The case-mix index can change for any of 

several reasons: 

• The average resource use of Medicare 

patients changes (‘‘real’’ case-mix change); 

• Changes in hospital documentation and 

coding of patient records result in higher 

weight 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 in the FY 2006 IPPS 

final rule (70 FR 47707).) 

Absent any increase in case-mix resulting 

from changes in documentation and coding 

due to the adoption of the MS–DRGs, for FY 

2011, we are projecting a 1.0 percent total 

increase in the case-mix index. We estimated 

that the real case-mix increase will also equal 

1.0 percent for FY 2011. The net adjustment 

for change in case-mix is the difference 

between the projected real increase in casemix and the projected total increase in casemix. Therefore, the net adjustment for casemix change in FY 2011 is 0.0 percentage 

points. 

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. 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 2009 DRG 

reclassification and recalibration as part of 

our update for FY 2011. To adjust for 

reclassification and recalibration effects, 

under our historical methodology, we ran the 

FY 2009 cases through the FY 2008 

GROUPER and through the FY 2009 

GROUPER. The resulting ratio of the casemix indices equated to 1.0. If the resulting 

ratio of the case-mix indices had not equated 

to 1.0 under our historical methodology, in 

the update framework for FY 2011 we would 

have made an adjustment to adjust for the 

reclassification and recalibration effects in 

FY 2009. As discussed in detail in section 

II.B. of the preamble of this final rule, 

however, when we adopted the MS–DRGs 

beginning in FY 2008 to better recognize 

severity of illness in Medicare payment rates, 

we also recognized that changes in 

documentation and coding could potentially 

lead to increases in aggregate payments 

without a corresponding increase in patients’ 

severity of illness (that is, increased case-mix 

index other than real case-mix index 

increase). To maintain budget neutrality for 

the adoption of the MS–DRGs, as discussed 

in greater detail in section V.E. of the 

preamble of this final rule, we made an 

adjustment to the capital Federal rate for FY 

2011 based on actuarial estimates of the 

cumulative effects of documentation and 

coding changes that occurred in FYs 2008 

and 2009 (based on FYs 2008 and 2009 

claims data). Therefore, as we proposed, we 

did not adjust for reclassification and 

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50436 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

recalibration effects from FY 2009 in the 

update framework for FY 2011 because it is 

already accounted for in the documentation 

and coding adjustment to the capital Federal 

rates for FY 2011. Consequently, there is a 

0.0 percent adjustment for DRG 

reclassification and recalibration in the FY 

2011 update framework. 

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 points or more. There is a 2-year 

lag between the forecast and the availability 

of data to develop a measurement of the 

forecast error. A forecast error of 0.3 

percentage points was calculated for the FY 

2011 update. That is, current historical data 

indicate that the forecasted FY 2009 CIPI (1.4 

percent) used in calculating the FY 2009 

update factor slightly understated the actual 

realized price increases (1.7 percent) by 0.3 

percentage points. This is due to the prices 

associated with both the depreciation and 

interest cost categories growing faster than 

anticipated. Historically, when the 

estimation of the change in the CIPI is greater 

than 0.25 percentage points, it is reflected in 

the update recommended under this 

framework. Therefore, we made a 0.3 percent 

adjustment for forecast error in the update for 

FY 2011. 

Under the capital IPPS update framework, 

we also make an adjustment for changes in 

intensity. Historically, we have 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 

reflects 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 non-cost-effective 

services. Our intensity measure is based on 

a 5-year average. 

Historically, we have calculated case-mix 

constant intensity as the change in total 

charges per admission, adjusted for price 

level changes (the CIPI for hospital and 

related services) and changes in real casemix. Without reliable estimates of the 

proportions of the overall annual intensity 

increases that are due, respectively, to 

ineffective practice patterns and the 

combination of quality-enhancing new 

technologies and complexity within the DRG 

system, we assume that one-half of the 

annual increase is due to each of these 

factors. The capital update framework thus 

provides an add-on to the input price index 

rate of increase of one-half of the estimated 

annual increase in intensity, to allow for 

increases within DRG severity and the 

adoption of quality-enhancing technology. 

We have developed a Medicare-specific 

intensity measure based on a 5-year average. 

Past studies of case-mix change by the RAND 

Corporation (Has DRG Creep Crept Up? 

Decomposing the Case Mix Index Change 

Between 1987 and 1988 by G.M. Carter, J.P. 

Newhouse, and D.A. Relles, R–4098–HCFA/ 

ProPAC (1991)) suggest that real case-mix 

change was not dependent on total change, 

but was usually a fairly steady increase of 1.0 

to 1.5 percent per year. However, we used 1.4 

percent as the upper bound because the 

RAND study did not take into account that 

hospitals may have induced doctors to 

document medical records more completely 

in order to improve payment. 

As we noted above, in accordance with 

§ 412.308(c)(1)(ii), we began updating the 

capital standard Federal rate in FY 1996 

using an update framework that takes into 

account, among other things, allowable 

changes in the intensity of hospital services. 

For FYs 1996 through 2001, we found that 

case-mix constant intensity was declining, 

and we established a 0.0 percent adjustment 

for intensity in each of those years. For FYs 

2002 and 2003, we found that case-mix 

constant intensity was increasing, and we 

established a 0.3 percent adjustment and a 

1.0 percent adjustment for intensity, 

respectively. For FYs 2004 and 2005, we 

found that the charge data appeared to be 

skewed as a result of hospitals attempting to 

maximize outlier payments, while lessening 

costs, and we established a 0.0 percent 

adjustment in each of those years. 

Furthermore, we stated that we would 

continue to apply a 0.0 percent adjustment 

for intensity until any increase in charges can 

be tied to intensity rather than attempts to 

maximize outlier payments. For FYs 2006 

through 2010, we continued to apply a 0.0 

percent adjustment for intensity in the 

capital update framework. 

In an effort to further refine the intensity 

adjustment and more accurately reflect 

allowable changes in hospital intensity, as 

we proposed, we used changes in hospital 

costs per discharge over a 5-year average 

rather than changes in hospital charges, 

which have been the basis of the intensity 

adjustment in prior years. The unique nature 

of capital—how and when it is purchased, its 

longevity, and how it is financed—creates a 

greater degree of variance in capital cost 

among hospitals than does operating cost. We 

believe that using changes in capital costs per 

discharge as the basis for the intensity 

adjustment in lieu of changes in charges will 

decrease some of the variability of this 

adjustment. A case in point is the charge data 

over much of the last decade: The annual 

change in hospital charges has fluctuated 

erratically from as little as 3 percent to as 

large as 16 percent. As we have discussed for 

several years in past rulemaking, we believe 

the effects of hospitals’ charge practices prior 

to the implementation of the outlier policy 

revisions established in the June 9, 2003 final 

rule were the main cause of the variability 

and large annual increases in hospital 

charges for much of the past decade. 

However, even after the outlier policy was 

implemented, we continued to see evidence 

of these charge practices in the data, as it 

may have taken hospitals some time to adopt 

changes in their behavior in response to the 

new outlier policy. Thus, we believe that the 

charge data for much of the past decade was 

skewed because if hospitals were treating 

new or different types of cases, which would 

result in an appropriate increase in charges 

per discharge, we would expect hospitals’ 

case-mix to increase proportionally, and it 

did not. 

Therefore, for the reasons discussed above, 

we believe it would be more appropriate to 

use our intensity adjustment based on the 

change in capital cost per discharge. To 

determine the intensity adjustment for FY 

2011, and as we proposed, we replaced 

charge data with capital cost per discharge 

data. As expected, there are significantly 

smaller increases in cost per discharge over 

this time period and less fluctuation from 

year to year. As we did when using charge 

data, we based the intensity measure on a 

5-year average. Therefore, the intensity 

measure for FY 2011 is based on an average 

of cost per discharge data from the 5-year 

period beginning with FY 2004 and 

extending through FY 2008. Based on these 

data, we estimated that case-mix constant 

intensity declined during FYs 2004 through 

2008. In the past (FYs 1996 through 2001) 

when we found intensity to be declining, we 

believed a zero (rather than negative) 

intensity adjustment was appropriate. 

Because we estimated that intensity declined 

during that 5-year period, we believe that it 

is appropriate to continue to apply a zero 

intensity adjustment for FY 2011. Therefore, 

we made a 0.0 percent adjustment for 

intensity in the update for FY 2011. 

Above, we described the basis of the 

components used to develop the 1.5 percent 

capital update factor under the capital update 

framework for FY 2011 as shown in the table 

below. 

CMS FY 2011 UPDATE FACTOR TO THE CAPITAL FEDERAL RATE

Capital Input Price Index ............................................................................................................................................................................. 1.2 

Intensity ........................................................................................................................................................................................................ 0.0 

Case-Mix Adjustment Factors: 

Real Across DRG Change ................................................................................................................................................................... ¥1.0 

Projected Case-Mix Change ................................................................................................................................................................ 1.0 

Subtotal ......................................................................................................................................................................................... 1.2 

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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50437 

CMS FY 2011 UPDATE FACTOR TO THE CAPITAL FEDERAL RATE—Continued 

Effect of FY 2009 Reclassification and Recalibration ................................................................................................................................. 0.0 

Forecast Error Correction ..................................................................................................................................................................... 0.3 

Total Update ......................................................................................................................................................................................... 1.5 

b. Comparison of CMS and MedPAC Update 

Recommendation 

In its March 2010 Report to Congress, 

MedPAC did not make a specific update 

recommendation for capital IPPS payments 

for FY 2011. (MedPAC’s Report to the 

Congress: Medicare Payment Policy, March 

2010, Section 2A.) 

2. Outlier Payment Adjustment Factor 

Section 412.312(c) establishes a unified 

outlier payment methodology for inpatient 

operating and inpatient capital-related costs. 

A single set of thresholds is used to identify 

outlier cases for both inpatient operating and 

inpatient capital-related payments. Section 

412.308(c)(2) provides that the standard 

Federal rate for inpatient capital-related costs 

be reduced by an adjustment factor equal to 

the estimated proportion of capital-related 

outlier payments to total inpatient capitalrelated 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 2010, we estimated that outlier 

payments for capital would equal 5.22 

percent of inpatient capital-related payments 

based on the capital Federal rate in FY 2010. 

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 5.96 percent for inpatient capitalrelated payments based on the capital 

Federal rate in FY 2011. Therefore, we 

applied an outlier adjustment factor of 0.9404 

in determining the capital Federal rate. Thus, 

we estimate that the percentage of capital 

outlier payments to total capital standard 

payments for FY 2011 would be higher than 

the percentage for FY 2010. This increase in 

capital outlier payments is primarily due to 

the estimated decrease in capital IPPS 

payments per discharge. That is, because 

capital payments per discharge are projected 

to be slightly lower in FY 2011 compared to 

FY 2010, as shown in Table III. in section 

VIII. of Appendix A to this final rule, more 

cases would qualify for outlier payments. 

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 

2011 outlier adjustment of 0.9404 is a ¥0.78 

percent change from the FY 2010 outlier 

adjustment of 0.9478. Therefore, the net 

change in the outlier adjustment to the 

capital Federal rate for FY 2011 is 0.9922 

(0.9404/0.9478). Thus, the outlier adjustment 

decreases the FY 2011 capital Federal rate by 

0.78 percent compared with the FY 2010 

outlier adjustment. 

3. Budget Neutrality Adjustment Factor for 

Changes in DRG Classifications and Weights 

and the GAF 

Section 412.308(c)(4)(ii) requires that the 

capital Federal rate be adjusted so that 

aggregate payments for the fiscal year based 

on the capital Federal rate after any changes 

resulting from the annual DRG 

reclassification and recalibration and changes 

in the GAF are projected to equal aggregate 

payments that would have been made on the 

basis of the capital Federal rate without such 

changes. Because we implemented a separate 

GAF for Puerto Rico, we apply separate 

budget neutrality adjustments for the 

national GAF and the Puerto Rico GAF. We 

apply the same budget neutrality factor for 

DRG reclassifications and recalibration 

nationally and for Puerto Rico. Separate 

adjustments were unnecessary for FY 1998 

and earlier because the GAF for Puerto Rico 

was implemented in FY 1998. 

In the past, we used the actuarial capital 

cost model (described in Appendix B of the 

FY 2002 IPPS final rule (66 FR 40099)) to 

estimate the aggregate payments that would 

have been made on the basis of the capital 

Federal rate with and without changes in the 

DRG classifications and weights and in the 

GAF to compute the adjustment required to 

maintain budget neutrality for changes in 

DRG weights and in the GAF. During the 

transition period, the capital cost model was 

also used to estimate the regular exception 

payment adjustment factor. As we explained 

in section III.A. of this Addendum, beginning 

in FY 2002, an adjustment for regular 

exception payments was no longer necessary. 

Therefore, we no longer use the capital cost 

model. Instead, we use historical data based 

on hospitals’ actual cost experiences to 

determine the exceptions payment 

adjustment factor for special exceptions 

payments. 

To determine the factors for FY 2011, we 

compared (separately for the national capital 

rate and the Puerto Rico capital rate) 

estimated aggregate capital Federal rate 

payments based on the FY 2010 MS–DRG 

classifications and relative weights and the 

FY 2010 GAF to estimated aggregate capital 

Federal rate payments based on the FY 2010 

MS–DRG classifications and relative weights 

and the FY 2011 GAFs. In making the 

comparison, we set the exceptions reduction 

factor to 1.00. To achieve budget neutrality 

for the changes in the national GAFs, based 

on calculations using updated data, we 

applied an incremental budget neutrality 

adjustment of 0.9999 for FY 2011 to the 

previous cumulative FY 2010 adjustment of 

0.9911, yielding an adjustment of 0.9910, 

through FY 2011 (calculated with unrounded 

numbers). For the Puerto Rico GAFs, we 

applied an incremental budget neutrality 

adjustment of 1.0005 for FY 2011 to the 

previous cumulative FY 2010 adjustment of 

0.9969, yielding a cumulative adjustment of 

0.9974 through FY 2011. 

We then compared estimated aggregate 

capital Federal rate payments based on the 

FY 2010 DRG relative weights and the FY 

2011 GAFs to estimated aggregate capital 

Federal rate payments based on the 

cumulative effects of the FY 2011 MS–DRG 

classifications and relative weights and the 

FY 2011 GAFs. The incremental adjustment 

for DRG classifications and changes in 

relative weights is 0.9991 both nationally and 

for Puerto Rico. The cumulative adjustments 

for MS–DRG classifications and changes in 

relative weights and for changes in the GAFs 

through FY 2011 are 0.9902 nationally and 

0.9965 for Puerto Rico. The following table 

summarizes the adjustment factors for each 

fiscal year: 

BILLING CODE 4120–01–P 

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50438 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

BILLING CODE 4120–01–C The methodology used to determine the 

recalibration and geographic adjustment 

factor (GAF/DRG) budget neutrality 

adjustment is similar to the methodology 


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Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50439 

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 DRG relative 

weights. Under the capital IPPS, there is a 

single GAF/DRG budget neutrality 

adjustment factor (the national capital rate 

and the Puerto Rico capital rate are 

determined separately) for changes in the 

GAF (including geographic reclassification) 

and the 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. 

For FY 2010, we calculated a revised final 

GAF/DRG budget neutrality factor of 0.9994 

(75 FR 31125). For FY 2011, we established 

a GAF/DRG budget neutrality factor of 

0.9990. The GAF/DRG budget neutrality 

factors are built permanently into the capital 

rates; that is, they are applied cumulatively 

in determining the capital Federal rate. This 

follows the requirement 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 incremental change in the adjustment 

from FY 2010 to FY 2011 is 0.9990. The 

cumulative change in the capital Federal rate 

due to this adjustment is 0.9902 (the product 

of the incremental factors for FYs 1995 

though 2010 and the incremental factor of 

0.9990 for FY 2011). (We note that averages 

of the incremental factors that were in effect 

during FYs 2005 and 2006, respectively, were 

used in the calculation of the cumulative 

adjustment of 0.9902 for FY 2011.) 

The factor accounts for the MS–DRG 

reclassifications and recalibration and for 

changes in the GAFs. It also incorporates the 

effects on the GAFs of FY 2011 geographic 

reclassification decisions made by the 

MGCRB compared to FY 2010 decisions. 

However, it does not account for changes in 

payments due to changes in the DSH and 

IME adjustment factors. 

4. Exceptions Payment Adjustment Factor 

Section 412.308(c)(3) of our regulations 

requires that the capital standard Federal rate 

be reduced by an adjustment factor equal to 

the estimated proportion of additional 

payments for both regular exceptions and 

special exceptions under § 412.348 relative to 

total capital PPS payments. In estimating the 

proportion of regular exception payments to 

total capital PPS payments during the 

transition period, we used the actuarial 

capital cost model originally developed for 

determining budget neutrality (described in 

Appendix B of the FY 2002 IPPS final rule 

(66 FR 40099)) to determine the exceptions 

payment adjustment factor, which was 

applied to both the Federal and hospitalspecific capital rates. 

An adjustment for regular exception 

payments is no longer necessary in 

determining the FY 2011 capital Federal rate 

because, in accordance with § 412.348(b), 

regular exception payments were only made 

for cost reporting periods beginning on or 

after October 1, 1991 and before October 1, 

2001. Accordingly, as we explained in the FY 

2002 IPPS final rule (66 FR 39949), in FY 

2002 and subsequent fiscal years, no 

payments are made under the regular 

exceptions provision. However, in 

accordance with § 412.308(c), we still need to 

compute a budget neutrality adjustment for 

special exception payments under 

§ 412.348(g). We describe our methodology 

for determining the exceptions adjustment 

used in calculating the FY 2011 capital 

Federal rate below. 

Under the special exceptions provision 

specified at § 412.348(g)(1), eligible hospitals 

include SCHs, urban hospitals with at least 

100 beds that have a disproportionate share 

percentage of at least 20.2 percent or qualify 

for DSH payments under § 412.106(c)(2), and 

hospitals with a combined Medicare and 

Medicaid inpatient utilization of at least 70 

percent. An eligible hospital may receive 

special exceptions payments if it meets the 

following criteria: (1) A project need 

requirement as described at § 412.348(g)(2), 

which, in the case of certain urban hospitals, 

includes an excess capacity test as described 

at § 412.348(g)(4); (2) an age of assets test as 

described at § 412.348(g)(3); and (3) a project 

size requirement as described at 

§ 412.348(g)(5). 

Based on information compiled from our 

fiscal intermediaries and MACs, six hospitals 

have qualified for special exceptions 

payments under § 412.348(g). One of these 

hospitals closed in May 2005. Because we 

have cost reports covering FY 2008 for four 

of these five hospitals, we calculated the 

adjustment based on actual cost experience. 

(We note that the one hospital for which we 

do not have FY 2008 cost report data has had 

zero special exception payments for all 

available past cost reports. Consequently, we 

expect that this hospital would not have any 

special exceptions payments in FY 2008, and 

the lack of this hospital’s FY 2008 cost report 

data would not distort the calculation of the 

adjustment.) Using data from cost reports 

covering FY 2008 from the March 2010 

update of the HCRIS data, we divided the 

capital special exceptions payment amounts 

for the four available hospitals that qualified 

for special exceptions by the total capital PPS 

payment amounts (including special 

exception payments) for all hospitals. Based 

on the data from cost reports covering FY 

2008, this ratio rounds to 0.0004, and we 

made an adjustment of 0.0004. Because 

special exceptions are budget neutral, we 

offset the capital Federal rate by 0.04 percent 

for special exceptions payments for FY 2011. 

Therefore, the exceptions adjustment factor is 

equal to 0.9996 (1 ¥ 0.0004) to account for 

special exceptions payments in FY 2011. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44019), we estimated that 

total (special) exceptions payments for FY 

2010 would equal 0.02 percent of aggregate 

payments based on the capital Federal rate. 

Therefore, we applied an exceptions 

adjustment factor of 0.9998 (1 ¥ 0.0002) to 

determine the FY 2010 capital Federal rate. 

As we stated above, we applied an 

exceptions payment adjustment factor of 

0.9996 (1 ¥ 0.0004) to the capital Federal 

rate for FY 2011 based on our estimate that 

exceptions payments in FY 2011 would equal 

0.04 percent of aggregate payments based on 

the FY 2011 capital Federal rate. The 

exceptions reduction factors are not built 

permanently into the capital rates; that is, the 

factors are not applied cumulatively in 

determining the capital Federal rate. 

Therefore, the net change in the exceptions 

adjustment factor used in determining the FY 

2011 capital Federal rate is 0.9998 (0.9996/ 

0.9998). 

5. Capital Standard Federal Rate for FY 2011 

For FY 2010, we established a final capital 

Federal rate of $429.56. Consistent with 

section 3401(p) of Public Law 111–148, this 

rate is applicable to discharges occurring on 

or after April 1, 2010 (75 FR 31127). We 

established an update of 1.5 percent in 

determining the FY 2011 capital Federal rate 

for all hospitals. However, as discussed in 

greater detail in section V.E. of the preamble 

of this final rule, under the statutory 

authority at section 1886(g) of the Act, 

consistent with section 1886(d)(3)(A)(vi) of 

the Act and section 7(b) of Public Law 110– 

90, we are making an additional 2.9 percent 

reduction to the national capital Federal 

payment rate in FY 2011. The ¥2.9 percent 

adjustment is based on our actuary’s analysis 

of the effect of changes in case-mix resulting 

from documentation and coding changes that 

do not reflect real changes in the case-mix in 

light of the adoption of MS–DRGs. 

Accordingly, we applied a cumulative 

documentation and coding adjustment factor 

of 0.9574 in determining the FY 2011 capital 

Federal rate (that is, the existing ¥0.6 

percent adjustment in FY 2008 plus the ¥0.9 

percent adjustment in FY 2009 plus the 

additional ¥2.9 percent adjustment, 

computed as 1 divided by (1.006 × 1.009 × 

1.029). (We note that we did not apply a 

documentation and coding adjustment to the 

capital Federal rate in FY 2010 (74 FR 

43927).) As a result of the 1.5 percent update 

and other budget neutrality factors discussed 

above, we established a national capital 

Federal rate of $420.01 for FY 2011. The 

national capital Federal rate for FY 2011 was 

calculated as follows: 

• The FY 2011 update factor is 1.015, that 

is, the update is 1.5 percent. 

• The FY 2011 budget neutrality 

adjustment factor that is applied to the 

capital standard Federal payment rate for 

changes in the MS–DRG classifications and 

relative weights and changes in the GAFs is 

0.9990. 

• The FY 2011 outlier adjustment factor is 

0.9404. 

• The FY 2011 (special) exceptions 

payment adjustment factor is 0.9996. 

• The cumulative adjustment factor for FY 

2011 applied to the national capital Federal 

rate for changes in documentation and 

coding under the MS–DRGs is 0.9574. 

Because the capital Federal rate has 

already been adjusted for differences in casemix, wages, cost-of-living, indirect medical 

education costs, and payments to hospitals 

serving a disproportionate share of lowincome patients, we did not make additional 

adjustments in the capital standard Federal 

rate for these factors, other than the budget 

neutrality factor for changes in the MS–DRG 

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50440 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 

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 2011 affects the 

computation of the FY 2011 national capital 

Federal rate in comparison to the FY 2010 

national capital Federal rate. The FY 2011 

update factor has the effect of increasing the 

capital Federal rate by 1.5 percent compared 

to the FY 2010 capital Federal rate. The GAF/ 

DRG budget neutrality factor of 0.9990 has 

the effect of decreasing the capital Federal 

rate by 0.10 percent. The FY 2011 outlier 

adjustment factor has the effect of decreasing 

the capital Federal rate by 0.78 percent 

compared to the FY 2010 capital Federal rate. 

The FY 2011 exceptions payment adjustment 

factor has the effect of decreasing the capital 

Federal rate by 0.02 percent compared to the 

FY 2010 capital Federal rate. Furthermore, as 

shown in the chart below, the resulting 

cumulative adjustment for changes in 

documentation and coding that do not reflect 

real changes in patients’ severity of illness 

(that is, the cumulative adjustment factor of 

0.9574 has the net effect of decreasing the FY 

2011 national capital Federal rate by 2.80 

percent as compared to the FY 2010 national 

capital Federal rate. (As discussed in section 

VI.E.1. of the preamble of this final rule, a 

cumulative adjustment of ¥1.5 percent (that 

is, the ¥0.6 percent in FY 2008 and ¥0.9 

percent in FY 2009) or a cumulative 

adjustment factor of 0.985 has already been 

applied to the FY 2010 capital Federal rate 

for changes in documentation and coding 

that do not reflect real changes in patients’ 

severity of illness. We did not apply any 

additional documentation and coding 

adjustments to the capital Federal rate in FY 

2010). The combined effect of all the changes 

will decrease the national capital Federal rate 

by approximately 2.2 percent compared to 

the FY 2010 national capital Federal rate. 

We also are providing the following chart 

that shows how the final FY 2011 capital 

Federal rate differs from the proposed FY 

2011 capital Federal rate as presented in the 

June 2, 2010 FY 2011 IPPS/LTCH PPS 

supplemental proposed rule. 


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6. Special Capital Rate for Puerto Rico 

Hospitals 

Section 412.374 provides for the use of a 

blended payment system for payments to 

hospitals located in Puerto Rico under the 

PPS for acute care hospital inpatient capitalrelated costs. Accordingly, under the capital 

PPS, we compute a separate payment rate 

specific to hospitals located in Puerto Rico 

using the same methodology used to compute 

the national Federal rate for capital-related 

costs. Under the broad authority of section 

1886(g) of the Act, as discussed in section V. 

of the preamble of this final rule, beginning 

with discharges occurring on or after October 

1, 2004, capital payments to hospitals located 

in Puerto Rico are based on a blend of 25 

percent of the Puerto Rico capital rate and 75 

percent of the capital Federal rate. The 

Puerto Rico capital rate is derived from the 

costs of Puerto Rico hospitals only, while the 

capital Federal rate is derived from the costs 

of all acute care hospitals participating in the 

IPPS (including Puerto Rico). 

To adjust hospitals’ capital payments for 

geographic variations in capital costs, we 

apply a GAF to both portions of the blended 

capital rate. The GAF is calculated using the 

operating IPPS wage index, and varies 

depending on the labor market area or rural 

area in which the hospital is located. We use 

the Puerto Rico wage index to determine the 

GAF for the Puerto Rico part of the capitalblended rate and the national wage index to 

determine the GAF for the national part of 

the blended capital rate. 

Because we implemented a separate GAF 

for Puerto Rico in FY 1998, we also apply 

separate budget neutrality adjustments for 

the national GAF and for the Puerto Rico 

GAF. However, we apply the same budget 

neutrality factor for DRG reclassifications and 

recalibration nationally and for Puerto Rico. 

The national GAF budget neutrality factor is 

1.0005 and the DRG adjustment is 0.9991, for 

a combined cumulative adjustment of 0.9965. 

In computing the payment for a particular 

Puerto Rico hospital, the Puerto Rico portion 

of the capital rate (25 percent) is multiplied 

by the Puerto Rico-specific GAF for the labor 

market area in which the hospital is located, 

and the national portion of the capital rate 

(75 percent) is multiplied by the national 

GAF for the labor market area in which the 

hospital is located (which is computed from 

national data for all hospitals in the United 

States and Puerto Rico). In FY 1998, we 

implemented a 17.78 percent reduction to the 

Puerto Rico capital rate as a result of Pub. L. 

105–33. In FY 2003, a small part of that 

reduction was restored. 

For FY 2010, the special capital rate for 

hospitals located in Puerto Rico was $203.57 

(75 FR 31128). Consistent with our 

development of the FY 2010 Puerto Ricospecific operating standardized amount, we 

have not applied the ¥0.6 percent 

adjustment in FY 2008 or the ¥0.9 percent 

documentation and coding adjustment in FY 

2009 (that is, the cumulative ¥1.5 percent 

adjustment) that was applied to the national 

capital Federal rate to the Puerto Ricospecific capital rate. However, we noted in 

the FY 2009 IPPS final rule (73 FR 48449 

through 48550) that we may propose to apply 

such an adjustment to the Puerto Rico 

operating and capital rates in the future. 

As noted above and discussed in greater 

detail in section V.E.4. of the preamble of this 

final rule, consistent with our development 

of the Puerto Rico-specific operating 

standardized amount, we applied a ¥2.6 

percent adjustment to account for changes in 

documentation and coding that resulted from 

the adoption of the MS–DRGs in determining 

the FY 2011 Puerto Rico-specific capital rate. 

With the changes we made to the other 

factors used to determine the capital rate, the 

FY 2011 special capital rate for hospitals in 

Puerto Rico is $197.66. 

B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY 2011 

Because the 10-year capital PPS transition 

period ended in FY 2001, all hospitals 

(except ‘‘new’’ hospitals under § 412.324(b) 

and under § 412.304(c)(2)) are paid based on 

100 percent of the capital Federal rate in FY 

2011. 

For purposes of calculating payments for 

each discharge during FY 2011, the capital 

standard Federal rate is adjusted as follows: 

(Standard Federal Rate) × (DRG weight) × 

(GAF) × (COLA for hospitals located in 

Alaska and Hawaii) × (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 2011 are in section II.A. of 

this Addendum. For FY 2011, a case would 

qualify as a cost outlier if the cost for the case 

plus the (operating) IME and DSH payments 

is greater than the prospective payment rate 

for the MS–DRG plus the fixed-loss amount 

of $23,075. 

An eligible hospital may also qualify for a 

special exceptions payment under 

§ 412.348(g) up through the 10th year beyond 

the end of the capital transition period if it 

meets the following criteria: (1) A project 

need requirement described at 

§ 412.348(g)(2), which in the case of certain 

urban hospitals includes an excess capacity 

test as described at § 412.348(g)(4); and (2) a 

project size requirement as described at 

§ 412.348(g)(5). Eligible hospitals include 

SCHs, urban hospitals with at least 100 beds 

that have a DSH patient percentage of at least 

20.2 percent or qualify for DSH payments 

under § 412.106(c)(2), and hospitals that have 

a combined Medicare and Medicaid inpatient 

utilization of at least 70 percent. Under 

§ 412.348(g)(8), the amount of a special 

exceptions payment is determined by 

comparing the cumulative payments made to 

the hospital under the capital PPS to the 

cumulative minimum payment level. This 

amount is offset by: (1) Any amount by 

which a hospital’s cumulative capital 

payments exceed its cumulative minimum 

payment levels applicable under the regular 

exceptions process for cost reporting periods 

beginning during which the hospital has 

been subject to the capital PPS; and (2) any 

amount by which a hospital’s current year 

operating and capital payments (excluding 75 

percent of operating DSH payments) exceed 

its operating and capital costs. Under 

§ 412.348(g)(6), the minimum payment level 

is 70 percent for all eligible hospitals. We 

note that this was a 10-year provision. 

Therefore, FY 2012 is the final year hospitals 


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will be eligible for the special exceptions 

payment. 

Currently, as provided in § 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 fixedweight price index that measures the price 

changes associated with capital costs during 

a given year. The CIPI differs from the 

operating input price index in one important 

aspect—the CIPI reflects the vintage nature of 

capital, which is the acquisition and use of 

capital over time. Capital expenses in any 

given year are determined by the stock of 

capital in that year (that is, capital that 

remains on hand from all current and prior 

capital acquisitions). An index measuring 

capital price changes needs to reflect this 

vintage nature of capital. Therefore, the CIPI 

was developed to capture the vintage nature 

of capital by using a weighted-average of past 

capital purchase prices up to and including 

the current year. 

We periodically update the base year for 

the operating and capital input price indexes 

to reflect the changing composition of inputs 

for operating and capital expenses. In the FY 

2010 IPPS/RY 2010 LTCH PPS final rule (74 

FR 44021), we rebased and revised the CIPI 

to a FY 2006 base year to reflect the more 

current structure of capital costs in hospitals. 

A complete discussion of this rebasing is 

provided in section IV. of the preamble of 

that final rule. 

2. Forecast of the CIPI for FY 2011 

Based on the latest forecast by IHS Global 

Insight, Inc. (second quarter of 2010), we are 

forecasting the FY 2006-based CIPI to 

increase 1.2 percent in FY 2011. This reflects 

a projected 1.7 percent increase in vintageweighted depreciation prices (building and 

fixed equipment, and movable equipment), 

and a 1.6 percent increase in other capital 

expense prices in FY 2011, partially offset by 

2.1 percent decline in vintage-weighted 

interest expenses in FY 2011. The weighted 

average of these three factors produces the 

1.2 percent increase for the FY 2006-based 

CIPI as a whole in FY 2011. 

IV. Changes to Payment Rates for Excluded 

Hospitals: Rate-of-Increase Percentages 

Historically, hospitals and hospital units 

excluded from the prospective payment 

system received payment for inpatient 

hospital services they furnished on the basis 

of reasonable costs, subject to a rate-ofincrease ceiling. An annual per discharge 

limit (the target amount as defined in 

§ 413.40(a)) was set for each hospital or 

hospital unit based on the hospital’s own 

cost experience in its base year, and updated 

annually by a rate-of-increase percentage. 

The updated target amount for that period 

was multiplied by the Medicare discharges 

during that period and applied as an 

aggregate upper limit (the ceiling as defined 

in § 413.40(a)) on total inpatient operating 

costs for a hospital’s cost reporting period. 

Prior to October 1, 1997, these payment 

provisions applied consistently to all 

categories of excluded providers 

(rehabilitation hospitals and units (now 

referred to as IRFs), psychiatric hospitals and 

units (now referred to as IPFs), LTCHs, 

children’s hospitals, and cancer hospitals). 

Payments for services furnished in 

children’s hospitals and cancer hospitals that 

are excluded from the IPPS continue to be 

subject to the rate-of-increase ceiling based 

on the hospital’s own historical cost 

experience. (We note that, in accordance 

with § 403.752(a), RNHCIs are also subject to 

the rate-of-increase limits established under 

§ 413.40 of the regulations.) 

In the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24016 and 24082), we proposed 

that the FY 2011 rate-of-increase percentage 

for updating the target amounts for cancer 

and children’s hospitals and RNHCIs was the 

estimated percentage increase in the FY 2011 

IPPS operating market basket, estimated to be 

2.4 percent, in accordance with applicable 

regulations at § 413.40. We also proposed to 

use the most recent data when determining 

the estimated percentage increase for the FY 

2011 IPPS market basket for the final rule, to 

the extent these data were available. For this 

final rule, we are using the most recent data 

available to determine the FY 2011 IPPS 

operating market basket. Based on IHS Global 

Insight, Inc.’s second quarter 2010 forecast, 

with historical data through the 2010 first 

quarter, the IPPS operating market basket is 

2.6 percent for FY 2011. Therefore, for cancer 

and children’s hospitals and RNHCIs, the FY 

2011 rate-of-increase percentage that is 

applied to the FY 2010 target amounts in 

order to determine the FY 2011 target amount 

is 2.6 percent. 

IRFs, IPFs, and LTCHs were previously 

paid under the reasonable cost methodology. 

However, the statute was amended to provide 

for the implementation of prospective 

payment systems for IRFs, IPFs, and LTCHs. 

In general, the prospective payment systems 

for IRFs, IPFs, and LTCHs provide 

transitioning periods of varying lengths of 

time during which a portion of the 

prospective payment is based on cost-based 

reimbursement rules under 42 CFR part 413 

(certain providers do not receive a 

transitioning period or may elect to bypass 

the transition as applicable under 42 CFR 

part 412, subparts N, O, and P.) We note that 

all of the various transitioning periods 

provided for under the IRF PPS, the IPF PPS, 

and the LTCH PPS have ended. 

The IRF PPS, the IPF PPS, and the LTCH 

PPS are updated annually. We refer readers 

to section VII. of the preamble 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 2011. 

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 Rate for the 

LTCH PPS for FY 2011 

A. LTCH PPS Standard Federal Rate for FY 

2011 

1. Background 

In section VII. of the preamble of this final 

rule, we discuss our changes to the payment 

rates, factors, and specific policies under the 

LTCH PPS for FY 2011. As discussed earlier, 

we note that the Affordable Care Act made 

a number of changes that affected the LTCH 

PPS for FY 2010 and FY 2011. Because we 

were unable to incorporate the provisions of 

the Affordable Care Act in the FY 2011 IPPS/ 

LTCH PPS proposed rule that appeared in the 

Federal Register on May 4, 2010 due to the 

timing of enactment of the Affordable Care 

Act, we issued in the Federal Register on 

June 2, 2010, a supplemental proposed rule 

that proposed to implement the provisions of 

the Affordable Care Act affecting the IPPS 

and LTCH PPS for FY 2011. The final 

policies and payment rates in this final rule 

reflect the applicable provisions of this new 

legislation and address the public comments 

that we received on both the May 4, 2010 

proposed rule and the June 2, 2010 

supplemental proposed rule. We also note 

that we issued a final notice in the Federal 

Register on June 2, 2010, to implement the 

provisions of the Affordable Care Act that 

affect the policies and payment rates for RY 

2010 under the LTCH PPS. 

At § 412.523(c)(3)(ii) of the regulations, for 

LTCH PPS rate years beginning RY 2004 

through RY 2006, we updated the standard 

Federal rate 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 a policy 

of annually updating the standard Federal 

rate because, at that time, we believed that 

was the most appropriate method for 

updating the LTCH PPS standard Federal rate 

annually for years after the initial 

implementation of the LTCH PPS in FY 2003. 

Thus, under § 412.523(c)(3)(ii), for RYs 2004 

through 2006, the annual update to the LTCH 

PPS standard Federal rate was equal to the 

previous rate year’s Federal rate updated by 

the most recent estimate of increases in the 

appropriate market basket of goods and 

services included in covered inpatient LTCH 

services. 

In determining the annual update to the 

standard Federal rate for RY 2007, based on 

our ongoing monitoring activity, we believed 

that, rather than solely using the most recent 

estimate of the LTCH PPS market basket as 

the basis of the update factor, it was 

appropriate to adjust the standard Federal 

rate to account for the effect of 

documentation and coding in a prior period 

that was unrelated to patients’ severity of 

illness (71 FR 27818). Accordingly, we 

established regulations at § 412.523(c)(3)(iii) 

to specify that the update to the standard 

Federal rate for RY 2007 was zero percent 

based on the most recent estimate of the 

LTCH PPS market basket at that time, offset 

by an adjustment to account for changes in 

case-mix in prior periods due to the effect of 

documentation and coding that were 

unrelated to patients’ severity of illness in FY 

2004. For RYs 2008 through 2010, we also 

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considered the effect of documentation and 

coding that was unrelated to patients’ 

severity of illness in establishing the annual 

update to the standard Federal rate as set 

forth in the regulations at §§ 412.523(c)(3)(iv) 

through (c)(3)(vi). (We note that section 

114(e)(1) of Public Law 110–173 provided 

that the standard Federal rate for RY 2008 

shall be the same as the standard Federal rate 

for RY 2007. In addition, section 114(e)(2) of 

Public Law 110–173 specified that the 

revised standard Federal rate provided for 

under section 114(e)(1) ‘‘shall not apply to 

discharges occurring on or after July 1, 2007, 

and before April 1, 2008,’’ effectively 

resulting in a delay of the application of the 

updated standard Federal rate for RY 2007 

established in the RY 2008 LTCH PPS final 

rule (72 FR 26890).) 

Consistent with our historical practice, in 

the FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 44022), we established an annual 

update to the standard Federal rate for RY 

2010 based on the most recent estimate of the 

increase in the LTCH PPS market basket at 

that time of 2.5 percent and an adjustment of 

¥0.5 percent to account for the increase in 

case-mix in a prior period (FY 2007) due to 

the effect of documentation and coding 

unrelated to an increase in patients’ severity 

of illness. Accordingly, we established 

regulations at § 412.523(c)(3)(vi) to specify 

that the update to the standard Federal rate 

for RY 2010 is 2.0 percent. However, as noted 

above, the Affordable Care Act revised the 

update to the standard Federal rate for RY 

2010. Newly added section 1886(m)(3)(A)(ii) 

of the Act provides that, for each of RYs 2010 

through 2019, any annual update to the 

standard Federal rate is reduced by the ‘‘other 

adjustment’’ described in section 1886(m)(4) 

of the Act. Specifically, newly added sections 

1886(m)(3)(A)(ii) and (m)(4)(A) of the Act 

require a 0.25 percentage point reduction to 

the annual update to the standard Federal 

rate for RY 2010. Section 1886(m)(3)(A) of 

the Act, on its face, explicitly provides for a 

revised annual update to the standard 

Federal rate beginning RY 2010, thus 

resulting in a single revised RY 2010 

standard Federal rate. Section 3401(p) of 

Public Law 111–148 provides that, 

notwithstanding the previous provisions of 

this section, the amendments made by 

subsections (a), (c) and (d) shall not apply to 

discharges occurring before April 1, 2010. 

When read in conjunction, we believe section 

1886(m)(3)(A) of the Act and section 3401(p) 

of Public Law 111–148 provide for a single 

revised RY 2010 standard Federal rate. 

However, for payment purposes, discharges 

occurring on or after October 1, 2009, and 

before April 1, 2010, simply will not be paid 

based on the revised RY 2010 standard 

Federal rate (and will be paid based on the 

standard Federal rate of $39,896.65 as 

established in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44022)). 

Accordingly, in the June 2, 2010 FY 2010 

IPPS/RY 2010 LTCH PPS notice (75 FR 

31128), we established an update to the 

LTCH PPS standard Federal rate for RY 2010 

of 1.74 percent, based on the full forecasted 

estimated increase in the LTCH PPS market 

basket (2.5 percent), adjusted by the 0.25 

percentage point reduction required by 

sections 1886(m)(3)(A)(ii) and (m)(4)(A) of 

the Act, and an adjustment to account for the 

increase in case-mix in a prior period (FY 

2007) resulting from the effect of 

documentation and coding of ¥0.5 percent. 

As discussed in section VII.C.2.c. of the 

preamble of this final rule, we are finalizing 

the proposal contained in the June 2, 2010 

FY 2011 IPPS/LTCH PPS supplemental 

proposed rule (75 FR 30969) to revise 

§ 412.523(c)(3)(vi) to specify that the 

standard Federal rate for the LTCH PPS rate 

year beginning October 1, 2009 and ending 

September 30, 2010, is the standard Federal 

rate for the previous rate year updated by 

1.74 percent. Furthermore, consistent with 

section 3401(p) of Public Law 111–148, in 

this final rule, we also are finalizing our 

proposal to revise § 412.523(c)(3)(vi) to 

specify that with respect to discharges 

occurring on or after October 1, 2009 and 

before April 1, 2010, payments are based on 

the standard Federal rate in § 412.523(c)(3)(v) 

updated by 2.0 percent (75 FR 30969). 

2. Development of the FY 2011 LTCH PPS 

Standard Federal Rate 

While we continue to believe that an 

update to the LTCH PPS standard Federal 

rate should be based on the most recent 

estimate of the increase in the LTCH PPS 

market basket, we also believe it is 

appropriate that the standard Federal rate be 

offset by an adjustment to account for any 

effect of documentation and coding practices 

that does not reflect increased severity of 

illness. Such an adjustment protects the 

integrity of the Medicare Trust Funds by 

ensuring that the LTCH PPS payment rates 

better reflect the true costs of treating LTCH 

patients. Furthermore, as we discussed most 

recently in the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 44022), we did not 

establish a case-mix budget neutrality factor 

(that is, a documentation and coding 

adjustment for changes in case-mix that are 

not due to changes in patients’ severity of 

illness) for the adoption of the severity 

adjusted MS–LTC–DRG patient classification 

system. Rather, we noted that, consistent 

with past LTCH payment policy, we would 

continue to monitor LTCH data, and we 

could propose to make adjustments when 

updating the LTCH PPS standard Federal rate 

in the future to account for the effect of 

documentation and coding that does not 

reflect any real changes in case-mix during 

these years that we are implementing MS– 

LTC–DRGs. As described above, in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule, we 

applied a ¥0.5 percent adjustment to 

account for the effect of documentation and 

coding on the increase in case-mix in FY 

2007. Although we proposed a ¥1.3 percent 

adjustment to account for the effect of 

documentation and coding on the increase in 

case-mix in FY 2008, in that same final rule 

after consideration of public comments and 

consistent with IPPS policy, we delayed the 

application of that adjustment (74 FR 43970 

through 43972). 

For FY 2011, as discussed in the May 4, 

2010 FY 2011 IPPS/LTCH PPS proposed rule 

(75 FR 24045 through 24047), we performed 

a case-mix analysis using the most recent 

available LTCH claims data (FY 2009) under 

both the current MS–LTC–DRG and the 

former CMS LTC–DRG patient classification 

systems. Based on this evaluation, we 

determined that there was a cumulative 

increase in LTCH case-mix of 2.5 percent due 

to the effect of documentation and coding 

that did not reflect real changes in severity 

of illness for LTCH discharges occurring in 

FY 2008 and FY 2009. Consistent with our 

historical practice, in that same proposed 

rule, we proposed to update the LTCH PPS 

standard Federal rate for FY 2011 based on 

the full proposed LTCH PPS market basket 

increase estimate at that time (2.4 percent) 

and a proposed adjustment to account for the 

increase in case-mix in prior periods (FYs 

2008 and 2009) that resulted from the effect 

of documentation and coding practices of 

¥2.5 percent. As noted above in this section, 

although a number of the provisions of the 

Affordable Care Act affect the LTCH PPS, due 

to the timing of the passage of that 

legislation, we were unable to address those 

provisions in the May 4, 2010 FY 2011 IPPS/ 

LTCH PPS proposed rule. Therefore, the 

proposed policies and payment rates in that 

proposed rule did not reflect the new 

legislation. We addressed the provisions of 

the Affordable Care Act that affected our 

proposed policies and payment rates for FY 

2011 under the LTCH PPS in the June 2, 2010 

IPPS/LTCH PPS supplemental proposed rule 

(75 FR 30918). 

As discussed in the June 2, 2010 FY 2010 

IPPS/LTCH PPS supplemental proposed rule 

(75 FR 30969), section 1886(m)(3)(A)(ii) of 

the Act provides that, for each of RYs 2010 

through 2019, any annual update to the 

standard Federal rate is reduced by the ‘‘other 

adjustment’’ described in section 1886(m)(4) 

of the Act. Specifically, sections 

1886(m)(3)(A)(ii) and (m)(4)(B) of the Act 

require a 0.50 percentage point reduction to 

the annual update to the standard Federal 

rate for FY 2011. Consistent with our 

historical practice, in that same supplemental 

proposed rule, we proposed to update the 

LTCH PPS standard Federal rate for FY 2011 

based on the full proposed LTCH PPS market 

basket increase estimate at that time (2.4 

percent), adjusted by the 0.50 percentage 

point reduction required by sections 

1886(m)(3)(A)(ii) and (m)(4)(B) of the Act, 

and a proposed adjustment to account for the 

increase in case-mix in prior periods (FYs 

2008 and 2009) that resulted from the effect 

of documentation and coding practices (¥2.5 

percent). Consequently, we proposed an 

update factor to the standard Federal rate for 

FY 2011 of ¥0.59 percent (that is, we 

proposed to apply a factor of 0.9941 in 

determining the LTCH PPS standard Federal 

rate for FY 2011, calculated as 1.019 × 1 

divided by 1.025 = 0.9941 or ¥0.59 percent 

(0.9941 minus 1 equals 0.59 percent)). 

Consistent with our historical practice of 

updating the standard Federal rate for the 

previous rate year, we applied the proposed 

update factor of 0.9941 to the revised RY 

2010 standard Federal rate that was 

established in accordance with the 

provisions of sections 1886(m)(3)(A)(ii) and 

(m)(4)(A) of the Act (that is, $39,794.95 as 

established in the FY 2010 IPPS/RY 2010 

LTCH PPS final notice (75 FR 31128 through 

31129). Consequently, the proposed standard 

Federal rate for FY 2011 was $39,560.16. 

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Furthermore, in the June 2, 2010 FY 2010 

IPPS/LTCH PPS supplemental proposed rule 

(75 FR 30971), we proposed to amend 

§ 412.523 to add a new paragraph (c)(3)(vii) 

to specify that the standard Federal rate for 

discharges occurring on or after October 1, 

2010 through September 30, 2011, is the 

standard Federal rate for the previous rate 

year updated by ¥0.59 percent. We also 

proposed that if more recent data become 

available, we would use those data, if 

appropriate, to determine the update to the 

standard Federal rate for FY 2011 in the final 

rule, and, thus, the standard Federal rate 

update specified in the proposed regulation 

text at § 412.523(c)(3)(vii) could change 

accordingly. 

In this final rule, as discussed in greater 

detail in section VII.C.3. of the preamble of 

this final rule, we are finalizing our proposal 

to apply a ¥2.5 percent adjustment to the 

standard Federal rate to account for the effect 

of documentation and coding that did not 

reflect real changes in patient severity of 

illness for LTCH discharges that occurred in 

FYs 2008 and 2009 based on our case-mix 

analysis using the most recent available 

LTCH claims data (FY 2009) under both the 

current MS–LTC–DRG and the former CMS 

LTC–DRG patient classification systems. At 

this time, as discussed in section VII.C.2. of 

the preamble of this final rule, the most 

recent estimate of the increase in the LTCH 

PPS market basket (that is, the FY 2002-based 

RPL market basket) for FY 2011 is 2.5 

percent. Consistent with our historical 

practice and as we proposed, in this final 

rule, we are establishing an update to the 

LTCH PPS standard Federal rate for FY 2011 

based on the full LTCH PPS market basket 

increase estimate, including the statutorily 

required 0.50 percentage point reduction, of 

2.0 percent and an adjustment to account for 

the increase in case-mix in prior periods (FYs 

2008 and 2009) that resulted from the effect 

of documentation and coding practices of 

¥2.5 percent. Accordingly, the update factor 

to the standard Federal rate for FY 2011 is 

¥0.49 percent (that is, we are applying a 

factor of 0.9951 in determining the LTCH 

PPS standard Federal rate for FY 2011, 

calculated as 1.020 × 1 divided by 1.025 = 

0.9951 or ¥0.49 percent). 

Therefore, in this final rule, under the 

broad authority conferred upon the Secretary 

under the BBRA and the BIPA to determine 

appropriate updates under the LTCH PPS 

and under the authority of sections 

1886(m)(3)(A)(ii) and (m)(4)(B) of the Act, 

consistent with our proposal, we are revising 

§ 412.523 to add a new paragraph (c)(3)(vii) 

to specify that the standard Federal rate for 

discharges occurring on or after October 1, 

2010 through September 30, 2011, is the 

standard Federal rate for the previous rate 

year updated by ¥0.49 percent. Consistent 

with our historical practice, and as we 

proposed, in determining the standard 

Federal rate for FY 2011, we are applying the 

update factor of 0.9951 to the RY 2010 

Federal rate of $39,794.95 (as established in 

the June 2, 2010 FY 2010 IPPS/RY 2010 

LTCH PPS notice (75 FR 31128 through 

31129)). Consequently, in this final rule, we 

are establishing a standard Federal rate for 

FY 2011 of $39,599.95, which will apply to 

LTCH PPS discharges occurring on or after 

October 1, 2010 through September 30, 2011. 

B. Adjustment for Area Wage Levels Under 

the LTCH PPS for FY 2011 

1. Background 

Under the authority of section 123 of the 

BBRA as amended by section 307(b) of the 

BIPA, we established an adjustment to the 

LTCH PPS standard Federal rate to account 

for differences in LTCH area wage levels at 

§ 412.525(c). The labor-related share of the 

LTCH PPS standard Federal rate is adjusted 

to account for geographic differences in area 

wage levels by applying the applicable LTCH 

PPS wage index. The applicable LTCH PPS 

wage index is computed using wage data 

from inpatient acute care hospitals without 

regard to reclassification under section 

1886(d)(8) or section 1886(d)(10) of the Act. 

As we discussed in the August 30, 2002 

LTCH PPS final rule (67 FR 56015), when we 

implemented the LTCH PPS, we established 

a 5-year transition to the full wage index 

adjustment. The wage index adjustment was 

completely phased in for cost reporting 

periods beginning in FY 2007. Therefore, for 

cost reporting periods beginning on or after 

October 1, 2006, the applicable LTCH wage 

index values are the full (five-fifths) LTCH 

PPS wage index values calculated based on 

acute care hospital inpatient wage index data 

without taking into account geographic 

reclassification under section 1886(d)(8) and 

section 1886(d)(10) of the Act. For additional 

information on the phase-in of the wage 

index adjustment under the LTCH PPS, we 

refer readers to the August 30, 2002 LTCH 

PPS final rule (67 FR 56017 through 56019) 

and the RY 2008 LTCH PPS final rule (72 FR 

26891). 

2. Updates to the Geographic Classifications/ 

Labor Market Area Definitions 

a. Background 

As discussed in the August 30, 2002 LTCH 

PPS final rule, which implemented the LTCH 

PPS (67 FR 56015 through 56019), in 

establishing an adjustment for area wage 

levels, the labor-related portion of a LTCH’s 

Federal prospective payment is adjusted by 

using an appropriate wage index based on 

the labor market area in which the LTCH is 

located. Specifically, the application of the 

LTCH PPS wage index adjustment at 

§ 412.525(c) is made on the basis of the 

location of the LTCH in either an urban area 

or a rural area as defined in § 412.503. 

Currently under the LTCH PPS at § 412.503, 

an ‘‘urban area’’ is defined as a Metropolitan 

Statistical Area (which would include a 

metropolitan division, where applicable) as 

defined by the Executive OMB and a ‘‘rural 

area’’ is defined as any area outside of an 

urban area. 

In the RY 2006 LTCH PPS final rule (70 FR 

24184 through 24185), in regulations at 

§ 412.525(c), we revised the labor market area 

definitions used under the LTCH PPS 

effective for discharges occurring on or after 

July 1, 2005, based on the Executive OMB’s 

CBSA designations, which are based on 2000 

Census data. We made this revision because 

we believe that the CBSA-based labor market 

area definitions will ensure that the LTCH 

PPS wage index adjustment most 

appropriately accounts for and reflects the 

relative hospital wage levels in the 

geographic area of the hospital as compared 

to the national average hospital wage level. 

We note that these are the same CBSA-based 

designations implemented for acute care 

hospitals under the IPPS at § 412.64(b), 

effective October 1, 2004 (69 FR 49026 

through 49034). (For further discussion of the 

CBSA-based labor market area (geographic 

classification) definitions currently used 

under the LTCH PPS, we refer readers to the 

RY 2006 LTCH PPS final rule (70 FR 24182 

through 24191).) We have updated the LTCH 

PPS CBSA-based labor market area 

definitions annually since they were adopted 

for RY 2006 (73 FR 26812 through 26814, and 

74 FR 44023 through 44204). 

b. Update to the CBSA-Based Labor Market 

Area Titles and Principal Cities 

On December 1, 2009, the Executive OMB 

announced changes to the principal cities 

and titles of a number of CBSAs and 

Metropolitan Divisions (OMB Bulletin No. 

10–02). In the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 24084), under the broad 

authority conferred upon the Secretary by 

section 123 of the BBRA, as amended by 

section 307(b) of BIPA, to determine 

appropriate adjustments under the LTCH 

PPS, we presented the following update to 

our titles and definitions using the Executive 

OMB’s bulletin, which is effective for 

discharges occurring on or after October 1, 

2010. We did not receive any public 

comments on our update to the CBSA titles 

and definitions for FY 2011. 

For FY 2011, as presented in the FY 2011 

IPPS/LTCH PPS proposed rule, the following 

CBSAs have new titles and new principal 

cities: 

• San Marcos, TX qualifies as a new 

principal city of the Austin-Round Rock, TX 

CBSA. The new title is Austin-Round RockSan Marcos, TX CBSA (CBSA Code 12420). 

• Delano, CA qualifies as a new principal 

city of the Bakersfield, CA CBSA. The new 

title: Bakersfield-Delano, CA CBSA (CBSA 

Code 12540). 

• Conroe, TX qualifies as a new principal 

city of the Houston-Sugar Land-Baytown, TX 

CBSA (CBSA Code 26420). The CBSA title is 

unchanged. 

• North Port, FL qualifies as a new 

principal city of the Bradenton-SarasotaVenice, FL CBSA (currently CBSA Code 

14600). The new title is North PortBradenton-Sarasota, FL CBSA. The new code 

is CBSA 35840. 

• Sanford, FL qualifies as a new principal 

city of the Orlando-Kissimmee, FL CBSA 

(CBSA Code 36740). The new title is 

Orlando-Kissimmee-Sanford, FL CBSA. 

• Glendale, AZ qualifies as a new 

principal city of the Phoenix-MesaScottsdale, AZ CBSA. The new title is 

Phoenix-Mesa-Glendale, AZ CBSA (CBSA 

Code 38060). 

• Palm Desert, CA qualifies as a new 

principal city of the Riverside-San 

Bernardino-Ontario, CA CBSA (CBSA Code 

40140). The CBSA title is unchanged. 

• New Braunfels, TX qualifies as a new 

principal city of the San Antonio, TX CBSA. 

The new title is San Antonio-New Braunfels, 

TX CBSA (CBSA Code 41700). 

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• Auburn, WA qualifies as a new principal 

city of the Seattle-Tacoma-Bellevue, WA 

CBSA (CBSA Code 42644). The CBSA title is 

unchanged. 

In addition, the following CBSAs have new 

titles as a result of changes to the order of 

principal cities based on population: 

• Rockville, MD replaces Frederick, MD as 

the second most populous principal city in 

the Bethesda-Frederick-Rockville, MD 

Metropolitan Division. The new title is 

Bethesda-Rockville-Frederick, MD 

Metropolitan Division (CBSA Code 13644). 

• Rock Hill, SC replaces Concord, NC as 

the third most populous principal city in the 

Charlotte-Gastonia-Concord, NC-SC CBSA. 

The new title is Charlotte-Gastonia-Rock Hill, 

NC-SC CBSA (CBSA Code 16740). 

• Joliet, IL replaces Naperville, IL as the 

second most populous principal city in the 

Chicago-Naperville-Joliet, IL Metropolitan 

Division. The new title is Chicago-JolietNaperville, IL Metropolitan Division (CBSA 

Code 16974). 

• Crestview, FL replaces Fort Walton 

Beach, FL as the most populous principal 

city in the Fort Walton Beach-CrestviewDestin, FL CBSA (currently CBSA Code 

23020). The new title is Crestview-Fort 

Walton Beach-Destin, FL CBSA. The new 

code is 18880. 

• Hillsboro, OR replaces Beaverton, OR as 

the third most populous principal city in the 

Portland-Vancouver-Beaverton, OR-WA 

CBSA. The new title is Portland-VancouverHillsboro, OR-WA CBSA (CBSA Code 38900). 

• Steubenville, OH replaces Weirton, WV 

as the most populous principal city in the 

Weirton-Steubenville, WV-OH CBSA 

(currently CBSA Code 48260). The new title 

is Steubenville-Weirton, OH-WV CBSA. The 

new CBSA code is 44600. 

OMB Bulletin No. 10–02 is available on the 

OMB Web site at http://www.whitehouse.gov/ 

OMB—go to ‘‘Bulletins’’ or ‘‘Statistical 

Programs and Standards.’’ 

The FY 2011 LTCH PPS wage index values 

presented in Tables 12A and 12B in the 

Addendum of this final rule reflect the 

updates to the CBSA-based labor market area 

titles and codes described above. 

3. LTCH PPS Labor-Related Share 

As noted above in this section, under the 

adjustment for difference in area wage levels 

at § 412.525(c), the labor-related share of a 

LTCH’s PPS Federal prospective payment is 

adjusted by the applicable wage index for the 

labor market area in which the LTCH is 

located. The LTCH PPS labor-related share 

represents the sum of the labor-related 

portion of operating costs (wages and 

salaries, employee benefits, professional fees, 

and all other labor-intensive services) and a 

labor-related portion of capital costs using 

the applicable LTCH PPS market basket. 

Currently, as established in the RY 2007 

LTCH PPS final rule (71 FR 27829 through 

27830), the LTCH PPS labor-related share is 

based on the relative importance of the laborrelated share of operating costs and capital 

costs of the rehabilitation psychiatric longterm care (hospital) (RPL) market basket 

based on FY 2002 data, as they are the best 

available data that reflect the cost structure 

of LTCHs. For the past 3 years (RYs 2008, 

2009, and 2010), we updated the LTCH PPS 

labor-related share annually based on the 

latest available data for the RPL market 

basket. For RY 2010, the labor-related share 

is 75.779 percent, as established in the RY 

2010 LTCH PPS final rule (74 FR 43968 and 

44024). (Additional background information 

on the historical development of the laborrelated share under the LTCH PPS and the 

development of the RPL market basket can be 

found in the RY 2007 LTCH PPS final rule 

(71 FR 27810 through 27817 and 27829 

through 27830) and the RY 2010 LTCH PPS 

final rule (74 FR 43968).) 

In the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24085), we proposed a laborrelated share under the LTCH PPS for FY 

2011 of 75.407 percent based on IHS Global 

Insight, Inc.’s first quarter 2010 forecast of 

the FY 2002-based RPL market basket for FY 

2011, as these were the most recent available 

data at that time. Consistent with our 

historical practice of using the best data 

available, we also proposed that if more 

recent data were available to determine the 

labor-related share used under the LTCH PPS 

for FY 2011, we would use these data for 

determining the FY 2011 LTCH PPS laborrelated share in the final rule. We did not 

receive any public comments on our 

proposed update to the labor-related share for 

FY 2011. 

As discussed in greater detail in section 

VII.C.2.d. of the preamble of this final rule, 

we are using IHS Global Insight, Inc.’s second 

quarter 2010 forecast of the FY 2002-based 

RPL market basket for FY 2011 to determine 

the labor-related share for the LTCH PPS for 

FY 2011 that will be effective for discharges 

occurring on or after October 1, 2010, and 

through September 30, 2011, as these are the 

most recent available data. As we proposed, 

the labor-related share for FY 2011 is the sum 

of the FY 2011 relative importance of each 

labor-related cost category, and reflects the 

different rates of price change for these cost 

categories between the base year (FY 2002) 

and FY 2011. The sum of the relative 

importance for FY 2011 for operating costs 

(wages and salaries, employee benefits, 

professional fees, and all-other laborintensive services) is 71.384 percent and the 

labor-related share of capital costs is 3.887 

percent. Thus, under the authority set forth 

in section 123 of the BBRA as amended by 

section 307(b) of the BIPA, we are 

establishing a labor-related share of 75.271 

percent (71.384 percent + 3.887 percent) 

under the LTCH PPS for the FY 2011, as 

shown in the chart in section VII.C.2.d. of the 

preamble of this final rule. 

4. LTCH PPS Wage Index for FY 2011 

Historically, under the LTCH PPS, we have 

established LTCH PPS wage index values 

calculated from acute care IPPS hospital 

wage data without taking into account 

geographic reclassification under sections 

1886(d)(8) and 1886(d)(10) of the Act (67 FR 

56019). The wage adjustment established 

under the LTCH PPS is based on a LTCH’s 

actual location without regard to the urban or 

rural designation of any related or affiliated 

provider. 

In the RY 2010 LTCH PPS final rule (74 FR 

44024 through 44026), we calculated the 

LTCH PPS wage indices using the same data 

used for the FY 2010 acute care hospital IPPS 

(that is, data from cost reporting periods 

beginning during FY 2006), without taking 

into account geographic reclassification 

under sections 1886(d)(8) and 1886(d)(10) of 

the Act. 

In the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24085 through 24086), to 

determine the applicable wage index values 

under the LTCH PPS for FY 2011, consistent 

with our historical methodology, we 

proposed to use wage data collected from 

cost reports submitted by IPPS hospitals for 

cost reporting periods beginning during FY 

2007, without taking into account geographic 

reclassification under sections 1886(d)(8) and 

1886(d)(10) of the Act, because these data 

(FY 2007) are the most recent complete data 

available. These are the same data used to 

compute the proposed FY 2011 acute care 

hospital inpatient wage index, as discussed 

in section III. of the preamble of that 

proposed rule. (For our rationale for using 

IPPS hospital wage data as a proxy for 

determining the wage index values used 

under the LTCH PPS, we refer readers to the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 44024 through 44025).) In that same 

proposed rule, we proposed to compute the 

FY 2011 LTCH PPS wage index values 

consistent with the urban and rural 

geographic classifications (labor market 

areas) and consistent with the prereclassified IPPS wage index policy (that is, 

our historical policy of not taking into 

account IPPS geographic reclassifications in 

determining payments under the LTCH PPS). 

We also proposed to continue to use our 

existing policy for determining wage index 

values in areas where there are no IPPS wage 

data. We received no comments on our 

proposed wage index for FY 2011, and are 

adopting our proposed methodology as final 

in this final rule, which is described below. 

For this final rule, consistent with our 

historical methodology and as we proposed, 

to determine the applicable wage index 

values under the LTCH PPS for FY 2011, 

under the broad authority conferred upon the 

Secretary by section 123 of the BBRA, as 

amended by section 307(b) of BIPA, to 

determine appropriate adjustments under the 

LTCH PPS, we are using wage data collected 

from cost reports submitted by IPPS hospitals 

for cost reporting periods beginning during 

FY 2007, without taking into account 

geographic reclassification under sections 

1886(d)(8) and 1886(d)(10) of the Act. We are 

using FY 2007 data because these data are the 

most recent complete data available. These 

are the same data used to compute the FY 

2011 acute care hospital inpatient wage 

index, as discussed in section III. of the 

preamble of this final rule. (As noted above, 

for our rationale for using IPPS hospital wage 

data as a proxy for determining the wage 

index values used under the LTCH PPS, we 

refer readers to the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44024 through 

44025).) 

As we proposed, the FY 2011 LTCH PPS 

wage index values we are establishing in this 

final rule are computed consistent with the 

urban and rural geographic classifications 

(labor market areas) discussed above in 

section V.B.2. of the Addendum to this final 

rule and consistent with the pre-reclassified 

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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 we noted 

in the proposed rule, as with the IPPS wage 

data, 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 (discussed in section III.C. of the 

preamble of this final rule). Furthermore, as 

we proposed, in determining the FY 2011 

LTCH PPS wage index values in this final 

rule, we continued to use our existing policy 

for determining wage index values in areas 

where there are no IPPS wage data. 

As discussed in the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 2408), we 

established a methodology for determining a 

LTCH PPS wage index values for areas that 

have no IPPS wage data in the RY 2009 LTCH 

PPS final rule, and as we proposed, we 

continued to use this methodology for FY 

2011. (We refer readers to 73 FR 26817 

through 26818 for an explanation of and 

rationale for our policy.) Under this 

methodology, the LTCH PPS wage index 

value for urban CBSAs with no IPPS wage 

data is determined by using an average of all 

of the urban areas within the State. As was 

the case in RY 2010, there are currently no 

LTCHs located in labor areas without IPPS 

hospital wage data (or IPPS hospitals) for FY 

2011. However, we calculate LTCH PPS wage 

index values for these areas using our 

established methodology in the event that, in 

the future, a LTCH should open in one of 

those areas. 

Based on the FY 2007 IPPS wage data that 

we are using to determine the FY 2011 LTCH 

PPS wage index values in this final rule, 

there are no IPPS wage data for the urban 

area Hinesville-Fort Stewart, GA (CBSA 

25980). (We note, based on the data used for 

the proposed rule, there were no IPPS wage 

data for the urban area of Anderson, SC 

(CBSA 11340). However, based on the 

updated IPPS wage data used for this final 

rule, there is now data to compute a wage 

index value for CBSA 11340; therefore, it is 

no longer necessary to use our established 

methodology for determining a wage index 

value for areas that have no IPPS wage data 

for CBSA 11340 for FY 2011 in this final 

rule.) Consistent with the methodology 

discussed above, as proposed, we calculated 

the FY 2011 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) (reflected in Table 12A of the 

Addendum to this final rule). (As noted 

above, there are currently no LTCHs located 

in CBSA 25980.) As noted in the proposed 

rule, as IPPS wage data are dynamic, it is 

possible that urban areas without IPPS wage 

data will vary in the future. 

As we proposed, in this final rule for FY 

2011, using our established methodology, we 

calculated a LTCH PPS wage index value for 

rural areas with no IPPS wage data using the 

unweighted average of the wage indices from 

all of the CBSAs that are contiguous to the 

rural counties of the State (for an explanation 

of this policy, we refer readers to 73 FR 

26818). For this purpose, we define 

‘‘contiguous’’ as sharing a border. Based on 

the FY 2007 IPPS wage data that we are using 

to determine the FY 2011 LTCH PPS wage 

index values in this final rule, there are no 

IPPS wage data for the rural area of 

Massachusetts (CBSA code 22). Consistent 

with the methodology discussed above, as 

proposed, the FY 2011 wage index value for 

rural Massachusetts is computed using the 

unweighted average of the wage indices from 

all of the CBSAs contiguous to the rural 

counties in that State. Specifically, the entire 

Massachusetts rural area consists of Dukes 

and Nantucket counties. The borders of 

Dukes and Nantucket counties are 

‘‘contiguous’’ with Barnstable County, MA, 

and Bristol County, MA. Therefore, the FY 

2011 LTCH PPS wage index value for rural 

Massachusetts is computed as the 

unweighted average of the FY 2011 wage 

indexes for Barnstable County and Bristol 

County (reflected in Tables 12A and 12B in 

the Addendum to this final rule). (There are 

currently no LTCHs located in rural 

Massachusetts.) As noted above, as IPPS 

wage data are dynamic, it is possible that 

rural areas without IPPS wage data will vary 

in the future. 

The FY 2011 LTCH wage index values that 

will be applicable for LTCH discharges 

occurring on or after October 1, 2010, 

through September 30, 2011, are presented in 

Table 12A (for urban areas) and Table 12B 

(for rural areas) in the Addendum of this 

final rule. 

5. LTCH PPS Cost-of-Living Adjustment for 

LTCHs Located in Alaska and Hawaii 

In the August 30, 2002 final rule (67 FR 

56022), we established, under § 412.525(b), a 

cost-of-living adjustment (COLA) for LTCHs 

located in Alaska and Hawaii to account for 

the higher costs incurred in those States. In 

the FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 44026) (under the broad authority 

conferred upon the Secretary by section 123 

of the BBRA as amended by section 307(b) 

of BIPA to determine appropriate 

adjustments under the LTCH PPS), for RY 

2010, we applied a COLA to payments to 

LTCHs located in Alaska and Hawaii by 

multiplying the standard Federal payment 

rate by the factors listed in Table III of that 

same rule. 

In the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24086), for FY 2011, consistent 

with our current policy, we proposed to 

apply a COLA to payments to LTCHs located 

in Alaska and Hawaii by multiplying the 

standard Federal payment rate by the factors 

listed in the chart in section V.B.5. of the 

Addendum to the proposed rule because 

those factors were the most recent available 

data at that time. The proposed factors were 

obtained from the U.S. Office of Personnel 

Management (OPM) and were also proposed 

to be used under the IPPS, effective October 

1, 2010 (section II.B.2. of the Addendum to 

the proposed rule). We also noted that there 

had been no change in the COLA factors 

since the current factors were established in 

the FY 2010 IPPS/RY 2010 LTCH PPS final 

rule. Furthermore, we proposed that if OPM 

released revised COLA factors before 

publication of the final rule, we would use 

the revised factors for the development of 

LTCH PPS payments for FY 2011 and publish 

those revised COLA factors in the final rule. 

We did not receive any public comments on 

our proposed COLA to payments to LTCHs 

located in Alaska and Hawaii for FY 2011. 

We note OPM has not released revised COLA 

factors since the publication of the proposed 

rule. 

In this final rule, for FY 2011, under the 

broad authority conferred upon the Secretary 

by section 123 of the BBRA, as amended by 

section 307(b) of BIPA, to determine 

appropriate adjustments under the LTCH 

PPS, consistent with our current policy, we 

will apply a COLA to payments to LTCHs 

located in Alaska and Hawaii by multiplying 

the standard Federal payment rate by the 

factors listed in the chart below because they 

are the most recent available data at this 

time. These factors were obtained from the 

U.S. Office of Personnel Management (OPM) 

and will also be used under the IPPS, 

effective October 1, 2010 (section II.B.2. of 

the Addendum to this final rule). As noted 

above, there has been no change in the COLA 

factors since the current factors were 

established in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule. 

COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND HAWAII HOSPITALS FOR THE LTCH PPS FOR FY 2011 

Alaska: 

City of Anchorage and 80-kilometer (50-mile) radius by road ......................................................................................................... 1.23 

City of Fairbanks and 80-kilometer (50-mile) radius by road .......................................................................................................... 1.23 

City of Juneau and 80-kilometer (50-mile) radius by road .............................................................................................................. 1.23 

All other areas of Alaska .................................................................................................................................................................. 1.25 

Hawaii: 

City and County of Honolulu ............................................................................................................................................................ 1.25 

County of Hawaii .............................................................................................................................................................................. 1.18 

County of Kauai ................................................................................................................................................................................ 1.25 

County of Maui and County of Kalawao .......................................................................................................................................... 1.25 

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C. Adjustment for LTCH PPS High-Cost 

Outlier (HCO) Cases 

1. Background 

Under the broad authority conferred upon 

the Secretary by section 123 of the BBRA as 

amended by section 307(b) of BIPA, in the 

regulations at § 412.525(a), we established an 

adjustment for additional payments for 

outlier cases that have extraordinarily high 

costs relative to the costs of most discharges. 

We refer to these cases as high cost outliers 

(HCOs). Providing additional payments for 

outliers strongly improves the accuracy of the 

LTCH PPS in determining resource costs at 

the patient and hospital level. These 

additional payments reduce the financial 

losses that would otherwise be incurred 

when treating patients who require more 

costly care and, therefore, reduce the 

incentives to underserve these patients. We 

set the outlier threshold before the beginning 

of the applicable rate year so that total 

estimated outlier payments are projected to 

equal 8 percent of total estimated payments 

under the LTCH PPS. 

Under § 412.525(a) in the regulations (in 

conjunction with § 412.503), we make outlier 

payments for any discharges if the estimated 

cost of a case exceeds the adjusted LTCH PPS 

payment for the MS–LTC–DRG plus a fixedloss amount. Specifically, in accordance with 

§ 412.525(a)(3) (in conjunction with 

§ 412.503), we pay outlier cases 80 percent of 

the difference between the estimated cost of 

the patient case and the outlier threshold, 

which is the sum of the adjusted Federal 

prospective payment for the MS–LTC–DRG 

and the fixed-loss amount. The fixed-loss 

amount is the amount used to limit the loss 

that a hospital will incur under the outlier 

policy for a case with unusually high costs. 

This results in Medicare and the LTCH 

sharing financial risk in the treatment of 

extraordinarily costly cases. Under the LTCH 

PPS HCO policy, the LTCH’s loss is limited 

to the fixed-loss amount and a fixed 

percentage of costs above the outlier 

threshold (MS–LTC–DRG payment plus the 

fixed-loss amount). The fixed percentage of 

costs is called the marginal cost factor. We 

calculate the estimated cost of a case by 

multiplying the Medicare allowable covered 

charge by the hospital’s overall hospital CCR. 

Under the LTCH PPS, we determine a 

fixed-loss amount, that is, the maximum loss 

that a LTCH can incur under the LTCH PPS 

for a case with unusually high costs before 

the LTCH will receive any additional 

payments. We calculate the fixed-loss 

amount by estimating aggregate payments 

with and without an outlier policy. The 

fixed-loss amount results in estimated total 

outlier payments being projected to be equal 

to 8 percent of projected total LTCH PPS 

payments. Currently, MedPAR claims data 

and CCRs based on data from the most recent 

Provider-Specific File (PSF) (or from the 

applicable statewide average CCR if a LTCH’s 

CCR data are faulty or unavailable) are used 

to establish a fixed-loss threshold amount 

under the LTCH PPS. 

2. Determining LTCH CCRs Under the LTCH 

PPS 

a. Background 

The following is a discussion of CCRs that 

are used in determining payments for HCO 

and SSO cases under the LTCH PPS, at 

§ 412.525(a) and § 412.529, respectively. 

Although this section is specific to HCO 

cases, because CCRs and the policies and 

methodologies pertaining to them are used in 

determining payments for both HCO and SSO 

cases (to determine the estimated cost of the 

case at § 412.529(d)(2)), we are discussing the 

determination of CCRs under the LTCH PPS 

for both of these types of cases 

simultaneously. 

In determining both HCO payments (at 

§ 412.525(a)) and SSO payments (at 

§ 412.529), we calculate the estimated cost of 

the case by multiplying the LTCH’s overall 

CCR by the Medicare allowable charges for 

the case. In general, we use the LTCH’s 

overall CCR, which is computed based on 

either the most recently settled cost report or 

the most recent tentatively settled cost report, 

whichever is from the latest cost reporting 

period, in accordance with 

§ 412.525(a)(4)(iv)(B) and § 412.529(f)(4)(ii) 

for HCOs and SSOs, respectively. (We note 

that, in some instances, we use an alternative 

CCR, such as the statewide average CCR in 

accordance with the regulations at 

§ 412.525(a)(4)(iv)(C) and § 412.529(f)(4)(iii), 

or a CCR that is specified by CMS or that is 

requested by the hospital under the 

provisions of the regulations at 

§ 412.525(a)(4)(iv)(A) and § 412.529(f)(4)(i).) 

Under the LTCH PPS, a single prospective 

payment per discharge is made for both 

inpatient operating and capital-related costs. 

Therefore, we compute a single ‘‘overall’’ or 

‘‘total’’ LTCH-specific CCR based on the sum 

of LTCH operating and capital costs (as 

described in Section 150.24, Chapter 3, of the 

Medicare Claims Processing Manual (Pub. 

100–4)) as compared to total charges. 

Specifically, a LTCH’s CCR is calculated by 

dividing a LTCH’s total Medicare costs (that 

is, the sum of its operating and capital 

inpatient routine and ancillary costs) by its 

total Medicare charges (that is, the sum of its 

operating and capital inpatient routine and 

ancillary charges). 

b. LTCH Total CCR Ceiling 

Generally, a LTCH is assigned the 

applicable statewide average CCR if, among 

other things, a LTCH’s CCR is found to be in 

excess of the applicable maximum CCR 

threshold (that is, the LTCH CCR ceiling). 

This is because CCRs above this threshold are 

most likely due to faulty data reporting or 

entry, and, therefore, CCRs based on 

erroneous data should not be used to identify 

and make payments for outlier cases. Thus, 

under our established policy, generally, if a 

LTCH’s calculated CCR is above the 

applicable ceiling, the applicable LTCH PPS 

statewide average CCR is assigned to the 

LTCH instead of the CCR computed from its 

most recent (settled or tentatively settled) 

cost report data. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44027), in accordance with 

§ 412.525(a)(4)(iv)(C)(2) for HCOs and 

§ 412.529(f)(4)(iii)(B) for SSOs, using our 

established methodology for determining the 

LTCH total CCR ceiling, based on IPPS total 

CCR data from the March 2009 update of the 

PSF, we established a total CCR ceiling of 

1.232 under the LTCH PPS, effective October 

1, 2009, through September 30, 2010. (For 

further detail on our current methodology for 

annually determining the LTCH total CCR 

ceiling, we refer readers to the FY 2007 IPPS 

final rule (71 FR 48119 through 48121).) 

In the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24087), in accordance with 

§ 412.525(a)(4)(iv)(C)(2) for HCOs and 

§ 412.529(f)(4)(iii)(B) for SSOs, using our 

established methodology for determining the 

LTCH total CCR ceiling (described above), 

based on IPPS total CCR data from the 

December 2009 update of the PSF, we 

proposed to establish a total CCR ceiling of 

1.230 under the LTCH PPS that would be 

effective for discharges occurring on or after 

October 1, 2010, through September 30, 2011. 

In this final rule, in accordance with 

§ 412.525(a)(4)(iv)(C)(2) for HCOs and 

§ 412.529(f)(4)(iii)(B) for SSOs, consistent 

with our policy of using the best available 

data and using our established methodology 

for determining the LTCH total CCR ceiling 

(described above), based on IPPS total CCR 

data from the March 2010 update of the PSF, 

we are establishing a total CCR ceiling of 

1.231 under the LTCH PPS that will be 

effective for discharges occurring on or after 

October 1, 2010, through September 30, 2011. 

c. LTCH Statewide Average CCRs 

Our general methodology established for 

determining the statewide average CCRs used 

under the LTCH PPS is similar to our 

established methodology for determining the 

LTCH total CCR ceiling (described above) 

because it is based on ‘‘total’’ IPPS CCR data. 

Under the LTCH PPS HCO policy at 

§ 412.525(a)(4)(iv)(C) and the SSO policy at 

§ 412.529(f)(4)(iii), the fiscal intermediary or 

MAC may use a statewide average CCR, 

which is established annually by CMS, if it 

is unable to determine an accurate CCR for 

a LTCH in one of the following 

circumstances: (1) new LTCHs that have not 

yet submitted their first Medicare cost report 

(for this purpose, consistent with current 

policy, a new LTCH is defined as an entity 

that has not accepted assignment of an 

existing hospital’s provider agreement in 

accordance with § 489.18); (2) LTCHs whose 

CCR is in excess of the LTCH CCR ceiling; 

and (3) other LTCHs for whom data with 

which to calculate a CCR are not available 

(for example, missing or faulty data). (Other 

sources of data that the fiscal intermediary or 

MAC may consider in determining a 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 a 

LTCH (that is, the period of at least 6 months 

that it was paid as a short-term acute care 

hospital), or data from other comparable 

LTCHs, such as LTCHs in the same chain or 

in the same region.) 

In Table 8C of the Addendum to the FY 

2010 IPPS/RY 2010 LTCH PPS final rule (74 

FR 44160 through 44161), in accordance with 

the regulations at § 412.525(a)(4)(iv)(C) for 

HCOs and § 412.529(f)(4)(iii) for SSOs, using 

our established methodology for determining 

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the LTCH statewide average CCRs, based on 

using the most recent complete IPPS total 

CCR data from the March 2009 update of the 

PSF, we established the LTCH PPS statewide 

average total CCRs for urban and rural 

hospitals effective for discharges occurring 

on or after October 1, 2009, through 

September 30, 2010. (For further detail on 

our current methodology for annually 

determining the LTCH statewide average 

CCRs, we refer readers to the FY 2007 IPPS 

final rule (71 FR 48119 through 48121).) 

In the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24087), using our established 

methodology for determining the LTCH 

statewide average CCRs, based on the most 

recent complete IPPS total CCR data from the 

December 2009 update of the PSF, we 

proposed to establish LTCH PPS statewide 

average total CCRs for urban and rural 

hospitals that would be effective for 

discharges occurring on or after October 1, 

2010, through September 30, 2011, in Table 

8C of the Addendum to that proposed rule. 

In this final rule, consistent with our 

historical practice of using the best available 

data and using our established methodology 

for determining the LTCH statewide average 

CCRs, based on the most recent complete 

IPPS total CCR data from the March 2010 

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, 

2010, through September 30, 2011, in Table 

8C of the Addendum to this final rule. 

As we noted in the FY 2011 IPPS/LTCH 

PPS proposed rule (75 FR 24088), all areas 

in the District of Columbia, New Jersey, 

Puerto Rico, and Rhode Island are classified 

as urban. Therefore, there are no rural 

statewide average total CCRs listed for those 

jurisdictions in Table 8C of the Addendum 

to this final rule. 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 

Massachusetts has areas that are designated 

as rural, there are no short-term acute care 

IPPS hospitals or LTCHs located in those 

areas as of March 2010. Therefore, there is no 

rural statewide average total CCR listed for 

rural Massachusetts in Table 8C of the 

Addendum to this final rule. 

In addition, as we discussed in the FY 

2011 IPPS/LTCH PPS proposed rule (75 FR 

24088), consistent with our existing 

methodology, in determining the urban and 

rural statewide average total CCRs for 

Maryland LTCHs paid under the LTCH PPS, 

in this final rule, we use, as a proxy, the 

national average total CCR for urban IPPS 

hospitals and the national average total CCR 

for rural IPPS hospitals, respectively. We use 

this proxy because we believe that the CCR 

data on the PSF for Maryland hospitals may 

not be entirely accurate (as discussed in 

greater detail in the FY 2007 IPPS final rule 

(71 FR 48120)). 

d. Reconciliation of LTCH HCO and SSO 

Payments 

We note that under the LTCH PPS HCO 

policy at § 412.525(a)(4)(iv)(D) and the LTCH 

PPS SSO policy at § 412.529(f)(4)(iv), the 

payments for HCO and SSO cases, 

respectively, are subject to reconciliation. 

Specifically, any reconciliation of outlier 

payments is based on the CCR that is 

calculated based on a ratio of CCRs computed 

from the relevant cost report and charge data 

determined at the time the cost report 

coinciding with the discharge is settled. For 

additional information, we refer readers to 

the RY 2009 LTCH PPS final rule (73 FR 

26820 through 26821). 

3. Establishment of the LTCH PPS Fixed-Loss 

Amount for FY 2011 

When we implemented the LTCH PPS, as 

discussed in the August 30, 2002 LTCH PPS 

final rule (67 FR 56022 through 56026), 

under the broad authority of section 123 of 

the BBRA as amended by section 307(b) of 

BIPA, we established a fixed-loss amount so 

that total estimated outlier payments are 

projected to equal 8 percent of total estimated 

payments under the LTCH PPS. To determine 

the fixed-loss amount, we estimate outlier 

payments and total LTCH PPS payments for 

each case using claims data from the 

MedPAR files. Specifically, to determine the 

outlier payment for each case, we estimate 

the cost of the case by multiplying the 

Medicare covered charges from the claim by 

the applicable CCR. Under § 412.525(a)(3) (in 

conjunction with § 412.503), if the estimated 

cost of the case exceeds the outlier threshold 

(the sum of the adjusted Federal prospective 

payment for the MS–LTC–DRG and the fixedloss amount), we pay an outlier payment 

equal to 80 percent of the difference between 

the estimated cost of the case and the outlier 

threshold (the sum of the adjusted Federal 

prospective payment for the MS–LTC–DRG 

and the fixed-loss amount). 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44028), we used our existing 

methodology to calculate the fixed-loss 

amount for RY 2010 in order to maintain 

estimated HCO payments at the projected 8 

percent of total estimated LTCH PPS 

payments. Specifically, we used LTCH 

claims data from the March 2009 update of 

the FY 2008 MedPAR files and CCRs from 

the March 2009 update of the PSF to 

determine a fixed-loss amount that would 

result in estimated outlier payments 

projected to be equal to 8 percent of total 

estimated payments in RY 2010 because 

those data were the most recent complete 

LTCH data available at that time. In that same 

final rule, we established a fixed-loss amount 

of $18,425 for RY 2010. 

In the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24088), we proposed to continue 

to use our existing methodology to calculate 

the proposed fixed-loss amount for FY 2011 

(based on updated data and the proposed 

rates and policies presented in that proposed 

rule) in order to maintain estimated HCO 

payments at the projected 8 percent of total 

estimated LTCH PPS payments. (For an 

explanation of our rationale for establishing 

an HCO payment ‘‘target’’ of 8 percent of total 

estimated LTCH payments, we refer readers 

to the August 30, 2002 LTCH PPS final rule 

(67 FR 56022 through 56024).) Consistent 

with our historical practice of using the best 

data available, in determining the proposed 

fixed-loss amount for FY 2011, we used the 

most recent available LTCH claims data and 

CCR data at that time. Specifically, we used 

LTCH claims data from the December 2009 

update of the FY 2009 MedPAR files and 

CCRs from the December 2009 update of the 

PSF to determine a fixed-loss amount that 

would result in estimated outlier payments 

projected to be equal to 8 percent of total 

estimated payments in FY 2011 because 

these data are the most recent complete 

LTCH data currently available. Consistent 

with the historical practice of using the best 

available data, we also proposed that if more 

recent LTCH claims data become available, 

we would use them for determining the 

fixed-loss amount for FY 2011 in the final 

rule. Furthermore, we proposed to determine 

the FY 2011 fixed-loss amount based on the 

MS–LTC–DRG classifications and relative 

weights from the version of the GROUPER 

that will be in effect as of the beginning of 

FY 2011, that is, proposed Version 28.0 of the 

GROUPER. 

As noted above in section V.A. of this 

Addendum, although a number of the 

provisions of the Affordable Care Act affected 

the LTCH PPS, due to the timing of the 

passage of the legislation, we were unable to 

address those provisions in the May 4, 2010 

FY 2011 IPPS/LTCH PPS proposed rule, and 

therefore, the proposed policies and payment 

rates in that proposed rule did not reflect the 

new legislation. We addressed the provisions 

of the Affordable Care Act that affected our 

proposed policies and payment rates for FY 

2011 under the LTCH PPS in the June 2, 2010 

FY 2010 IPPS/LTCH PPS supplemental 

proposed rule (75 FR 30918). In that 

supplemental proposed rule (75 FR 30980 

through 30981), we proposed a revised 

standard Federal rate for FY 2011 that was 

developed consistent with the provisions of 

newly added sections 1886(m)(3)(A)(ii) and 

(m)(4)(B) of the Act. This revision to the 

proposed standard Federal rate for FY 2011 

also required us to revise the proposed HCO 

fixed-loss amount for FY 2011. This was 

necessary in order to maintain the 

requirement that the fixed-loss amount 

results in estimated total outlier payments 

being projected to be equal to 8 percent of 

projected total LTCH PPS payments. 

In the June 2, 2010 FY 2010 IPPS/LTCH 

PPS supplemental proposed rule (75 FR 

30981), under the broad authority of section 

123(a)(1) of the BBRA and section 307(b)(1) 

of BIPA, we proposed to establish a fixed-loss 

amount of $19,254 for FY 2011. Thus, we 

would pay an outlier case 80 percent of the 

difference between the estimated cost of the 

case and the outlier threshold (the sum of the 

adjusted Federal LTCH payment for the MS– 

LTC–DRG and the fixed-loss amount of 

$19,254). We also discussed that the 

proposed fixed-loss amount of $19,254 for FY 

2011 is slightly higher than the revised RY 

2010 fixed-loss amount of $18,615 

(established in the June 2, 2010 FY 2010 

IPPS/RY 2010 LTCH PPS notice (75 FR 

31130)). Based on our payment simulations 

using the most recent available data at that 

time and the proposed 0.59 percent reduction 

to the standard Federal rate for FY 2011, the 

proposed increase in the fixed-loss amount 

for FY 2011 would be necessary to maintain 

the existing requirement that estimated 

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outlier payments would equal 8 percent of 

estimated total LTCH PPS payments. (For 

further information on the existing 8 percent 

HCO ‘‘target’’ requirement, as noted above, we 

refer readers to the August 30, 2002 LTCH 

PPS final rule (67 FR 56022 through 56024.) 

Maintaining the fixed-loss amount at the 

current level would result in HCO payments 

that are greater than the current regulatory 

requirement 8 percent requirement because a 

higher fixed-loss amount would result in 

fewer cases qualifying as outlier cases as well 

as decreases the amount of the additional 

payment for a HCO case because the 

maximum loss that a LTCH must incur before 

receiving an HCO payment (that is, the fixedloss amount) would be larger. For these 

reasons, we believed that proposing to raise 

the fixed-loss amount was appropriate and 

necessary to maintain that estimated outlier 

payments would equal 8 percent of estimated 

total LTCH PPS payments as required under 

§ 412.525(a). 

Comment: One commenter expressed 

concern that CMS erred in its calculation or 

changed its methodology for determining the 

proposed fixed-loss amount of $19,254 for FY 

2011, and requested that CMS review its 

calculation of the FY 2011 fixed-loss amount 

for the final rule. The commenter stated that 

its calculation of the fixed-loss amount for 

FY 2011 was ‘‘significantly lower’’ than the 

proposed fixed-loss amount of $19,254. The 

commenter suggested that CMS may have 

failed to account for cost inflation when 

using the FY 2009 LTCH claims data or that 

CMS may have incorrectly computed the 

‘‘blend’’ for SSO cases (that is, the SSO 

payment option at § 412.529(c)(2)(iv)) that are 

also eligible for HCO payments. 

Response: We reviewed our calculation of 

the proposed FY 2011 fixed-loss amount of 

$19,254 from the FY 2011 IPPS/LTCH PPS 

proposed rule, and we have found no errors 

or misapplication of our stated methodology. 

Specifically, we have ensured that our 

calculation accounts for cost inflation when 

using the FY 2009 claims data to estimate 

HCO and SSO payments for FY 2011 as we 

noted in the FY 2011 IPPS/LTCH PPS 

proposed rule. Consistent with our historical 

practice, we stated in the FY 2011 IPPS/ 

LTCH PPS proposed rule that to model HCO 

and SSO payments for FY 2011 we applied 

an inflation factor of 1.049 (determined by 

our actuaries) to the estimated costs of each 

case determined from the charges reported on 

the claims in the FY 2009 MedPAR files and 

the best available CCRs from the December 

2009 update of the PSF (75 FR 31113). We 

also reviewed our calculations to ensure that 

we were correctly determining SSO 

payments, especially for those SSO cases that 

are eligible for HCO payments, and found no 

miscalculations. As noted below, generally it 

is only in rare circumstances that a LTCH 

case qualifies as both a SSO case and a HCO 

case. In fact, SSO cases that are eligible for 

HCO payments typically represent less than 

1 percent of all LTCH cases and, therefore, 

have little effect on the derivation of the 

fixed-loss amount. Therefore, we are 

adopting our proposed methodology as final 

and consistent with our proposal, we applied 

that methodology to the latest available data 

to determine the FY 2011 fixed-loss amount 

in this final rule. 

For FY 2011, in this final rule, as proposed, 

we continue to use our existing methodology 

to calculate the fixed-loss amount (based on 

updated data and the rates and policies 

presented in this final rule) in order to 

maintain estimated HCO payments at the 

projected 8 percent of total estimated LTCH 

PPS payments. (For an explanation of our 

rationale for establishing an HCO payment 

‘‘target’’ of 8 percent of total estimated LTCH 

PPS payments, we refer readers to the August 

30, 2002 LTCH PPS final rule (67 FR 56022 

through 56024).) Consistent with our 

historical practice of using the best data 

available, as we proposed, in determining the 

fixed-loss amount for FY 2011, we use the 

most recent available LTCH claims data and 

CCR data. Specifically, for this final rule, we 

used LTCH claims data from the March 2010 

update of the FY 2009 MedPAR files and 

CCRs from the March 2010 update of the PSF 

to determine a fixed-loss amount that would 

result in estimated outlier payments 

projected to be equal to 8 percent of total 

estimated payments in FY 2011 because 

these data are the most recent complete 

LTCH data currently available. Furthermore, 

as we proposed, we determined the FY 2011 

fixed-loss amount based on the MS–LTC– 

DRG classifications and relative weights from 

the version of the GROUPER that will be in 

effect as of the beginning of FY 2011, that is, 

Version 28.0 of the GROUPER (discussed in 

section VII.B. of the preamble of this final 

rule). 

In this final rule, under the broad authority 

of section 123(a)(1) of the BBRA and section 

307(b)(1) of BIPA, we are establishing a fixedloss amount of $18,785 for FY 2011. Thus, 

we will pay an outlier case 80 percent of the 

difference between the estimated cost of the 

case and the outlier threshold (the sum of the 

adjusted Federal LTCH payment for the MS– 

LTC–DRG and the fixed-loss amount of 

$18,785). 

The fixed-loss amount for FY 2011 of 

$18,785 is slightly higher than the RY 2010 

fixed-loss amount of $18,425. As discussed 

in the FY 2011 IPPS/LTCH PPS supplemental 

proposed rule (75 FR 30981) and as reiterated 

above, we believe that increasing the fixedloss amount is appropriate and necessary to 

maintain that estimated outlier payments 

would equal 8 percent of estimated total 

LTCH PPS payments as required under 

§ 412.525(a). We also note that the FY 2011 

fixed-loss amount of $18,785 is slightly less 

than the proposed FY 2011 fixed-loss amount 

of $19,254. We believe that the increase in 

the LTCH PPS FY 2011 market basket 

estimate from 1.9 percent in the FY 2011 

IPPS/LTCH PPS supplemental proposed rule 

(that is, the estimated full market basket 

percentage increase of 2.4 percent minus 0.50 

percentage point) to 2.0 percent for this final 

rule (that is, the estimated full market basket 

percentage increase of 2.5 percent minus 0.50 

percentage point) contributed to a slightly 

lower final HCO fixed-loss amount for FY 

2011. Specifically, the additional 0.1 

percentage point increase to the standard 

federal rate increases payments to all cases, 

which reduces the amount of HCO payments 

for ‘‘unusually costly’’ cases, and therefore 

requires that we establish a lower fixed-loss 

amount for FY 2011 (as compared to the 

proposed FY 2011 fixed-loss amount) to 

increase HCO payments in order to maintain 

the established HCO payment ‘‘target’’ of 8 

percent of total estimated LTCH PPS 

payments. 

4. Application of Outlier Policy to SSO Cases 

As we discussed in the August 30, 2002 

final rule (67 FR 56026), under some rare 

circumstances, a LTCH discharge could 

qualify as a SSO case (as defined in the 

regulations at § 412.529 in conjunction with 

§ 412.503) and also as a HCO case. In this 

scenario, a patient could be hospitalized for 

less than five-sixths of the geometric average 

length of stay for the specific MS–LTC–DRG, 

and yet incur extraordinarily high treatment 

costs. If the costs exceeded the HCO 

threshold (that is, the SSO payment plus the 

fixed-loss amount), the discharge is eligible 

for payment as a HCO. Thus, for a SSO case 

in FY 2011, the HCO payment would be 80 

percent of the difference between the 

estimated cost of the case and the outlier 

threshold (the sum of the fixed-loss amount 

of $18,785 and the amount paid under the 

SSO policy as specified in § 412.529). 

D. Computing the Adjusted LTCH PPS 

Federal Prospective Payments for FY 2011 

In accordance with § 412.525, the standard 

Federal rate is adjusted to account for 

differences in area wages by multiplying the 

labor-related share of the standard Federal 

rate by the appropriate LTCH PPS wage 

index (as shown in Tables 12A and 12B of 

the Addendum of this final rule). The 

standard Federal rate is also adjusted to 

account for the higher costs of hospitals in 

Alaska and Hawaii by multiplying the 

nonlabor-related share of the standard 

Federal rate by the appropriate cost-of-living 

factor (shown in the chart in section V.C.5. 

of the Addendum of this final rule). In this 

final rule, we are establishing a standard 

Federal rate for FY 2011 of $39,599.95, as 

discussed in section VII.C.2. of the 

Addendum of this final rule. We illustrate 

the methodology to adjust the LTCH PPS 

Federal rate for FY 2011 in the following 

example: 

Example: 

During FY 2011, a Medicare patient is in 

a LTCH located in Chicago, Illinois (CBSA 

16974). The FY 2011 LTCH PPS wage index 

value for CBSA 16974 is 1.0593 (Table 12A 

of the Addendum of this final rule). The 

Medicare patient is classified into MS–LTC– 

DRG 28 (Spinal Procedures with MCC), 

which has a relative weight for FY 2011 of 

1.0928 (Table 11 of the Addendum of this 

final rule). 

To calculate the LTCH’s total adjusted 

Federal prospective payment for this 

Medicare patient, we compute the wageadjusted Federal prospective payment 

amount by multiplying the unadjusted 

standard Federal rate ($39,599.05) by the 

labor-related share (75.271 percent) and the 

wage index value (1.0593). This wageadjusted amount is then added to the 

nonlabor-related portion of the unadjusted 

standard Federal rate (24.729 percent; 

adjusted for cost of living, if applicable) to 

determine the adjusted Federal rate, which is 

then multiplied by the MS–LTC–DRG 

relative weight (1.0928) to calculate the total 

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adjusted Federal LTCH PPS prospective 

payment for FY 2011 ($45,206.43). The table 

below illustrates the components of the 

calculations in this example. 

Unadjusted Standard Federal Prospective Payment Rate ..................................... $39,599.95 

Labor-Related Share ............................................................................................... × 0.75271 

Labor-Related Portion of the Federal Rate ............................................................. = $29,807.28 

Wage Index (CBSA 16974) ..................................................................................... × 1.0593 

Wage-Adjusted Labor Share of Federal Rate ......................................................... = $31,574.85 

Nonlabor-Related Portion of the Federal Rate ($39,599.95 × 0.24729) ................. + $9,792.67 

Adjusted Federal Rate Amount ............................................................................... = $41,367.52 

MS–LTC–DRG 28 Relative Weight ......................................................................... × 1.0928 

Total Adjusted Federal Prospective Payment .................................................. = $45,206.43 

VI. Tables 

This section contains the tables referred to 

throughout the preamble to this final rule 

and in this Addendum. Tables 1A, 1B, 1C, 

1D, 1E, 2, 3A, 3B, 4A, 4B, 4C, 4D–2, 4E, 4F, 

4J, 5, 7A, 7B, 8A, 8B, 8C, 9A, 9C, 10, 11, 12A, 

and 12B are presented below. The following 

tables are available only through the Internet 

on the CMS Web site at http:// 

www.cms.hhs.gov/AcuteInpatientPPS/: 

Table 6G.—Additions to the CC Exclusions 

List 

Table 6H.—Deletions From the CC 

Exclusions List 

Table 6I.—Complete MCC List 

Table 6I.1.—Additions to the MCC List 

Table 6I.2.—Deletions to the MCC List 

Table 6J.—Complete CC List 

Table 6J.1.—Additions to the CC List 

Table 6J.2.—Deletions to the CC List 

Table 6K.—Complete List of CC Exclusions 

The tables presented below are as follows: 

Table 1A.—National Adjusted Operating 

Standardized Amounts, Labor/Nonlabor 

(68.8 Percent Labor Share/31.2 Percent 

Nonlabor Share If Wage Index Is Greater 

Than 1) 

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) 

Table 1C.—Adjusted Operating Standardized 

Amounts for Puerto Rico, Labor/Nonlabor 

Table 1D.—Capital Standard Federal 

Payment Rate 

Table 1E.—LTCH Standard Federal 

Prospective Payment Rate 

Table 2.—Acute Care Hospitals Case-Mix 

Indexes for Discharges Occurring in 

Federal Fiscal Year 2009; Hospital Wage 

Indexes for Federal Fiscal Year 2011; 

Hospital Average Hourly Wages for Federal 

Fiscal Years 2009 (2005 Wage Data), 2010 

(2006 Wage Data), and 2011 (2007 Wage 

Data); and 3-Year Average of Hospital 

Average Hourly Wages 

Table 3A.—FY 2011 and 3-Year Average 

Hourly Wage for Acute Care Hospitals in 

Urban Areas by CBSA 

Table 3B.—FY 2011 and 3-Year Average 

Hourly Wage for Acute Care Hospitals in 

Rural Areas by CBSA 

Table 4A.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Acute Care Hospitals in Urban Areas by 

CBSA and by State—FY 2011 

Table 4B.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Acute Care Hospitals in Rural Areas by 

CBSA and by State—FY 2011 

Table 4C.—Wage Index and Capital 

Geographic Adjustment Factor (GAF) for 

Acute Care Hospitals That Are Reclassified 

by CBSA and by State—FY 2011 

Table 4D–2.—States Designated as Frontier, 

with Acute Care Hospitals Receiving at a 

Minimum the Frontier State Floor Wage 

Index; Urban Areas With Acute Care 

Hospitals Receiving the Statewide Rural 

Floor or Imputed Floor Wage Index—FY 

2011 

Table 4E.—Urban CBSAs and Constituent 

Counties for Acute Care Hospitals—FY 

2011 

Table 4F.—Puerto Rico Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals by CBSA— 

FY 2011 

Table 4J.—Out-Migration Adjustment for 

Acute Care Hospitals—FY 2011 

Table 5.—List of Medicare Severity 

Diagnosis-Related Groups (MS–DRGs), 

Relative Weighting Factors, and Geometric 

and Arithmetic Mean Length of Stay 

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 7A.—Medicare Prospective Payment 

System Selected Percentile Lengths of Stay: 

FY 2009 MedPAR Update—March 2010 

GROUPER V27.0 MS–DRGs 

Table 7B.—Medicare Prospective Payment 

System Selected Percentile Lengths of Stay: 

FY 2009 MedPAR Update—March 2010 

GROUPER V28.0 MS–DRGs 

Table 8A.—Statewide Average Operating 

Cost-to-Charge Ratios (CCRs) for Acute 

Care Hospitals—July 2010 

Table 8B.—Statewide Average Capital Costto-Charge Ratios (CCRs) for Acute Care 

Hospitals— July 2010 

Table 8C.—Statewide Average Total Cost-toCharge Ratios (CCRs) for LTCHs— July 

2010 

Table 9A.—Hospital Reclassifications and 

Redesignations—FY 2011 

Table 9C.—Hospitals Redesignated as Rural 

Under Section 1886(d)(8)(E) of the Act—FY 

2011 

Table 10.—Geometric Mean Plus the Lesser 

of .75 of the National Adjusted Operating 

Standardized Payment Amount (Increased 

to Reflect the Difference Between Costs and 

Charges) or .75 of One Standard Deviation 

of Mean Charges by Medicare Severity 

Diagnosis-Related Group (MS–DRG)—July 

2010 

Table 11.—MS–LTC–DRGs, Relative Weights, 

Geometric Average Length of Stay, and 

Short-Stay Outlier (SSO) Threshold for 

Discharges Occurring From October 1, 

2010 through September 30, 2011 Under 

the LTCH PPS 

Table 12A.—LTCH PPS Wage Index for 

Urban Areas for Discharges Occurring from 

October 1, 2010 Through September 30, 

2011 

Table 12B.—LTCH PPS Wage Index for Rural 

Areas for Discharges Occurring From 

October 1, 2010 Through September 20, 

2011 

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mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.156</GPH>
50474 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.157</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50475 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.158</GPH>
50476 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.159</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50477 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.160</GPH>
50478 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.161</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50479 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.162</GPH>
50480 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.163</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50481 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.164</GPH>
50482 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.165</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50483 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.166</GPH>
50484 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.167</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50485 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.168</GPH>
50486 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.169</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50487 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.170</GPH>
50488 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.171</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50489 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.172</GPH>
50490 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.173</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50491 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.174</GPH>
50492 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.175</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50493 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.176</GPH>
50494 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.177</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50495 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.178</GPH>
50496 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.179</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50497 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.180</GPH>
50498 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.181</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50499 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.182</GPH>
50500 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.183</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50501 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.184</GPH>
50502 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.185</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50503 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.186</GPH>
50504 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.187</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50505 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.188</GPH>
50506 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.189</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50507 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.190</GPH>
50508 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.191</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50509 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.192</GPH>
50510 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.193</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50511 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.194</GPH>
50512 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.195</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50513 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.196</GPH>
50514 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.197</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50515 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.198</GPH>
50516 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.199</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50517 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.200</GPH>
50518 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.201</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50519 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.202</GPH>
50520 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.203</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50521 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.204</GPH>
50522 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.205</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50523 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.206</GPH>
50524 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.207</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50525 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.208</GPH>
50526 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.209</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50527 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.210</GPH>
50528 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.211</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50529 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.212</GPH>
50530 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.213</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50531 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.214</GPH>
50532 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.215</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50533 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.216</GPH>
50534 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.217</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50535 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.218</GPH>
50536 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.219</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50537 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.220</GPH>
50538 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.221</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50539 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.222</GPH>
50540 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.223</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50541 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.224</GPH>
50542 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.225</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50543 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.226</GPH>
50544 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.227</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50545 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.228</GPH>
50546 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.229</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50547 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.230</GPH>
50548 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.231</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50549 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.232</GPH>
50550 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.233</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50551 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.234</GPH>
50552 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.235</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50553 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.236</GPH>
50554 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.237</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50555 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.238</GPH>
50556 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.239</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50557 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.240</GPH>
50558 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.241</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50559 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.242</GPH>
50560 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.243</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50561 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.244</GPH>
50562 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.245</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50563 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.246</GPH>
50564 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.247</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50565 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.248</GPH>
50566 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.249</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50567 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.250</GPH>
50568 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.251</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50569 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.252</GPH>
50570 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.253</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50571 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.254</GPH>
50572 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.255</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50573 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.256</GPH>
50574 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.257</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50575 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.258</GPH>
50576 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.259</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50577 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.260</GPH>
50578 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.261</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50579 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.262</GPH>
50580 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.263</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50581 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.264</GPH>
50582 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.265</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50583 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.266</GPH>
50584 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.267</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50585 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.268</GPH>
50586 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.269</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50587 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.270</GPH>
50588 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.271</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50589 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.272</GPH>
50590 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.273</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50591 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.274</GPH>
50592 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.275</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50593 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.276</GPH>
50594 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.277</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50595 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.278</GPH>
50596 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.279</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50597 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.280</GPH>
50598 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.281</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50599 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.282</GPH>
50600 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.283</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50601 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.284</GPH>
50602 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.285</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50603 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.286</GPH>
50604 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.287</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50605 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.288</GPH>
50606 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.289</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50607 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.290</GPH>
50608 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.291</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50609 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.292</GPH>
50610 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.293</GPH>
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 50611 


mstockstill on DSKH9S0YB1PROD with RULES2ER16AU10.294</GPH>
50612 Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations 


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BILLING CODE 4120–01–C 

Note: The following Appendices will not 

appear in the Code of Federal Regulations. 

Appendix A: Regulatory Impact 

Analysis 

I. Overall Impact 

We have examined the impacts of this final 

rule as required by Executive Order 12866 

(September 1993, Regulatory Planning and 

Review), the Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), section 

1102(b) of the Social Security Act, the 

Unfunded Mandates Reform Act of 1995 

(Pub. L. 104–4), Executive Order 13132 on 

Federalism, and the Congressional Review 

Act (5 U.S.C. 804(2)). 

Executive Order 12866 directs 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). A regulatory impact 

analysis (RIA) must be prepared for major 

rules with economically significant effects 

($100 million or more in any 1 year). 

We have determined that this final rule is 

a major rule as defined in 5 U.S.C. 804(2). We 

estimate that the final changes for FY 2011 

acute care hospital operating and capital 

payments will redistribute amounts in excess 

of $100 million among different types of 

inpatient cases. The final applicable 

percentage increase to the IPPS rates required 

by the statute, in conjunction with other final 

payment changes in this final rule, will result 

in an estimated $440 million decrease in FY 

2011 operating payments (or ¥0.4 percent 

decrease) and an estimated $21 million 

decrease in FY 2011 capital payments (or 

¥0.5 percent change). The impact analysis of 

the capital payments can be found in section 

VIII. of this Appendix. In addition, as 

described in section IX. of this Appendix, 

LTCHs are expected to experience an 

increase in payments by $22.3 million (or 0.5 

percent). 

Our operating impact estimate includes the 

final ¥2.9 percent documentation and 

coding adjustment applied to the hospitalspecific rates, the final ¥2.6 percent 

documentation and coding adjustment 

applied to the Puerto Rico-specific rates and 

the final ¥2.9 percent adjustment for 

documentation and coding changes to the 

IPPS standardized amounts. In addition, our 

operating impact estimate includes the final 

2.35 percent market basket update to the 

standardized amount (which includes the 

final 2.6 percent update with the 0.25 

percentage point reduction required under 

the Affordable Care Act). The estimates of 

IPPS operating payments to acute care 

hospitals do not reflect any changes in 

hospital admissions or real case-mix 

intensity, which would also affect overall 

payment changes. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, small 

entities include small businesses, nonprofit 

organizations, and small government 

jurisdictions. Most hospitals and most other 

providers and suppliers are considered to be 

small entities, either by being nonprofit 

organizations or by meeting the Small 

Business Administration definition of a small 

business (having revenues of $34.5 million or 

less in any 1 year). (For details on the latest 

standards for health care providers, we refer 

readers to the Table of Small Business Size 

Standards for NAIC 622 found on the Small 

Business Administration Office of Size 

Standards Web site at: http://www.sba.gov/ 

contractingopportunities/officials/table/ 

index.html.) For purposes of the RFA, all 

hospitals and other providers and suppliers 

are considered to be small entities. 

Individuals and States are not included in 

the definition of a small entity. We believe 

that the provisions of this final rule relating 

to acute care hospitals would have a 

significant impact on small entities as 

explained in this Appendix. Because we lack 

data on individual hospital receipts, we 

cannot determine the number of small 

proprietary LTCHs. Therefore, we are 

assuming that all LTCHs are considered 

small entities for the purpose of the analysis 

in section IX. of this Appendix. Medicare 

fiscal intermediaries and MACs are not 

considered to be small entities. Because we 

acknowledge that many of the affected 

entities are small entities, the analysis 

discussed throughout the preamble of this 

final rule constitutes our final regulatory 

flexibility analysis. Therefore, in the FY 2011 

IPPS/LTCH PPS proposed rule and the 

supplemental proposed rule (75 FR 24287 

and 31093, respectively), we solicited public 

comments on our estimates and analysis of 

the impact of our proposals on those small 

entities. We address any public comments 

that we received on the impact of the changes 

that we are finalizing in the applicable 

sections of this Appendix. 

The Small Business Regulatory 

Enforcement Fairness Act of 1996 (SBREFA), 

Public Law 104–121, as amended by section 

8302 of Public Law 110–28, requires an 

agency to provide compliance guides for each 

rule or group of related rules for which an 

agency is required to prepare a final 

regulatory flexibility analysis. The 

compliance guides associated with this final 

rule are available on the CMS IPPS Web page 

at http://www.cms.hhs.gov/ 

AcuteInpatientPPS/01_overview.asp. We also 

note that the Hospital Center Web page at 

http://www.cms.hhs.gov/center/hospital.asp 

was developed to assist hospitals in 

understanding and adapting to changes in 

Medicare regulations and in billing and 

payment procedures. This Web page provides 

hospitals with substantial downloadable 

explanatory materials. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory impact 

analysis for any proposed or final rule that 

may have a significant impact on the 

operations of a substantial number of small 

rural hospitals. This analysis must conform 

to the provisions of section 603 of the RFA. 

With the exception of hospitals located in 

certain New England counties, for purposes 

of section 1102(b) of the Act, we now 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 1 and section VI. of this 

Appendix for the quantitative effects of the 

final policy changes under the IPPS for 

operating costs.) 

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. That threshold level is 

currently approximately $133 million. This 

final rule would not mandate any 

requirements for State, local, or tribal 

governments, nor would it affect private 

sector costs. 

Executive Order 13132 establishes certain 

requirements that an agency must meet when 

it promulgates a proposed rule (and 

subsequent final rule) that imposes 

substantial direct requirement costs on State 

and local governments, preempts State law, 

or otherwise has Federalism implications. As 

stated above, this final rule would not have 

a substantial effect on State and local 

governments. 

The following analysis, in conjunction 

with the remainder of this document, 

demonstrates that this final rule is consistent 

with the regulatory philosophy and 

principles identified in Executive Order 

12866, the RFA, and section 1102(b) of the 

Act. The final rule would affect payments to 

a substantial number of small rural hospitals, 

as well as other classes of hospitals, and the 

effects on some hospitals may be significant. 

II. Objectives of the IPPS 

The primary objective of the IPPS is to 

create incentives for hospitals to operate 

efficiently and minimize unnecessary costs 

while at the same time ensuring that 

payments are sufficient to adequately 

compensate hospitals for their legitimate 

costs. In addition, we share national goals of 

preserving the Medicare Hospital Insurance 

Trust Fund. 

We believe the changes in this final rule 

would further each of these goals while 

maintaining the financial viability of the 

hospital industry and ensuring access to high 

quality health care for Medicare 

beneficiaries. We expect that these finalized 

changes would ensure that the outcomes of 

the prospective payment systems are 

reasonable and equitable while avoiding or 

minimizing unintended adverse 

consequences. 

III. Limitations of Our Analysis 

The following quantitative analysis 

presents the projected effects of our finalized 

policy changes, as well as statutory changes 

effective for FY 2011, 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 

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variables as admissions, lengths of stay, or 

case-mix. 

IV. Hospitals Included in and Excluded 

From the IPPS 

The prospective payment systems for 

hospital inpatient operating and capitalrelated costs of acute care hospitals 

encompass most general short-term, acute 

care hospitals that participate in the 

Medicare program. There were 33 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, 

only the 46 such hospitals in Maryland 

remain excluded from the IPPS pursuant to 

the waiver under section 1814(b)(3) of the 

Act. 

As of June 2010, there are 3,472 IPPS acute 

care hospitals to be included in our analysis. 

This represents about 64 percent of all 

Medicare-participating hospitals. The 

majority of this impact analysis focuses on 

this set of hospitals. There also are 

approximately 1,317 CAHs. These small, 

limited service hospitals are paid on the basis 

of reasonable costs rather than under the 

IPPS. (We refer readers to section VII. of this 

Appendix for a further description of the 

impact of CAH-related final policy changes.) 

There are also 1,260 IPPS-excluded hospitals 

and 2,150 IPPS-excluded hospital units. 

These IPPS-excluded hospitals and units 

include IPFs, IRFs, LTCHs, RNHCIs, 

children’s hospitals, and cancer hospitals, 

which are paid under separate payment 

systems. Changes in the prospective payment 

systems for IPFs and IRFs are made through 

separate rulemaking. Payment impacts for 

these IPPS-excluded hospitals and units are 

not included in this final rule. The impact of 

the final update and policy changes to the 

LTCH PPS for FY 2011 are discussed in 

section IX. of this Appendix. 

V. Effects on Hospitals and Hospital Units 

Excluded From the IPPS 

As of June 2010, there were 3,415 hospitals 

and hospital units excluded from the IPPS. 

Of these, 78 children’s hospitals, 11 cancer 

hospitals, and 17 RNHCIs are being paid on 

a reasonable cost basis subject to the rate-ofincrease ceiling under § 413.40. The 

remaining providers, 230 rehabilitation 

hospitals and 953 rehabilitation units, and 

433 LTCHs, are paid the Federal prospective 

per discharge rate under the IRF PPS and the 

LTCH PPS, respectively, and 507 psychiatric 

hospitals and 1,197 psychiatric units are paid 

the Federal per diem amount under the IPF 

PPS. As stated above, IRFs and IPFs are not 

affected by rate updates discussed in this 

final rule. The impacts of the changes to 

LTCHs are discussed in section IX. of this 

Appendix. 

In the past, certain hospitals and units 

excluded from the IPPS have been paid based 

on their reasonable costs subject to limits as 

established by the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA). Cancer 

and children’s hospitals continue to be paid 

on a reasonable cost basis subject to TEFRA 

limits for FY 2011. For these hospitals 

(cancer and children’s hospitals), consistent 

with the authority provided in section 

1886(b)(3)(B)(ii) of the Act, the update is the 

percentage increase in the FY 2011 IPPS 

operating market basket. In compliance with 

section 404 of the MMA, in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 FR 

43930), we replaced the FY 2002-based IPPS 

operating and capital market baskets with the 

revised and rebased FY 2006-based IPPS 

operating and capital market baskets. 

Therefore, consistent with current law, based 

on IHS Global Insight, Inc.’s 2010 second 

quarter forecast, with historical data through 

the 2010 first quarter, the final FY 2011 

update to the IPPS operating market basket 

is 2.6 percent (that is, the current estimate of 

the market basket rate-of-increase). However, 

the Affordable Care Act requires a 0.25 

percentage point reduction to the market 

basket update resulting in a final 2.35 percent 

applicable percentage increase for IPPS 

hospitals. RNCHIs, children’s hospitals and 

cancer hospitals are not subject to the 

reduction in the applicable percentage 

increase required under the Affordable Care 

Act. In accordance with § 403.752(a) of the 

regulations, RNHCIs are paid under § 413.40. 

Therefore, for RNHCIs, the final update is the 

same as for children’s and cancer hospitals, 

which is the percentage increase in the FY 

2011 IPPS operating market basket, estimated 

to be 2.6 percent, without the reductions 

required under the Affordable Care Act. 

The impact of the final update in the rateof-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 per-case cost 

increases above the cumulative update in 

their rate-of-increase limits, the major effect 

is the amount of excess costs that will not be 

reimbursed. 

We note that, under § 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 

50 percent of the difference between its 

reasonable costs and 110 percent of the limit, 

not to exceed 110 percent of its limit. In 

addition, under the various provisions set 

forth in § 413.40, cancer and children’s 

hospitals can obtain payment adjustments for 

justifiable increases in operating costs that 

exceed the limit. 

VI. Quantitative Effects of the Policy 

Changes Under the IPPS for Operating Costs 

A. Basis and Methodology of Estimates 

In this final rule, we are announcing final 

policy changes and payment rate updates for 

the IPPS for operating costs of acute care 

hospitals. Updates to the capital payments to 

acute care hospitals are discussed in section 

VIII. of this Appendix. Based on the overall 

percentage change in payments per case 

estimated using our payment simulation 

model, we estimate that total FY 2011 

operating payments would decrease by 0.4 

percent compared to FY 2010, largely due to 

the documentation and coding adjustments 

and the applicable percentage increase 

applied to the IPPS rates. This amount 

reflects the FY 2011 documentation and 

coding adjustments described in Section X of 

this final rule: ¥2.9 percent for the IPPS 

national standardized amounts, ¥2.9 percent 

for the IPPS hospital-specific rates, and ¥2.6 

percent for the IPPS Puerto Rico-specific 

standardized amount. The impacts do not 

illustrate changes in hospital admissions or 

real case-mix intensity, which will also affect 

overall payment changes. 

We have prepared separate impact analyses 

of the finalized changes to each system. This 

section deals with 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 finalized 

changes for which we do not have data 

available that would allow us to estimate the 

payment impacts using this model. For those 

finalized changes, we have attempted to 

predict the payment impacts based upon our 

experience and other more limited data. 

The data used in developing the 

quantitative analyses of changes in payments 

per case presented below are taken from the 

FY 2009 MedPAR file and the most current 

Provider-Specific File that is used for 

payment purposes. Although the analyses of 

the final 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 2009 MedPAR 

file, we simulated payments under the 

operating IPPS given various combinations of 

payment parameters. Any short-term, acute 

care hospitals not paid under the IPPS 

(Indian Health Service hospitals and 

hospitals in Maryland) were excluded from 

the simulations. The impact of payments 

under the capital IPPS, or the impact of 

payments for costs other than inpatient 

operating costs, are not analyzed in this 

section. Estimated payment impacts of the 

capital IPPS for FY 2011 are discussed in 

section VIII. of this Appendix. 

We discuss the following changes below: 

• The effects of the annual reclassification 

of diagnoses and procedures, full 

implementation of the MS–DRG system and 

100 percent cost-based MS–DRG relative 

weights. 

• The effects of the changes in hospitals’ 

wage index values reflecting updated wage 

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data from hospitals’ cost reporting periods 

beginning during FY 2007, compared to the 

FY 2006 wage data. 

• The effects of the recalibration of the 

MS–DRG relative weights as required by 

section 1886(d)(4)(C) of the Act, including 

the wage and recalibration budget neutrality 

factors. 

• The effects of geographic 

reclassifications by the MGCRB that will be 

effective in FY 2011. 

• The effects of the frontier wage index 

provision that requires that hospitals located 

in States that qualify as frontier states cannot 

have a wage index less than 1.0. This 

provision is not budget neutral. 

• The effects of the rural floor and imputed 

floor with a national budget neutrality 

applied to the wage index, as required by the 

Affordable Care Act. 

• The effects of section 505 of Public Law 

108–173, which provides for an increase in 

a hospital’s wage index if the hospital 

qualifies by meeting a threshold percentage 

of residents of the county where the hospital 

is located who commute to work at hospitals 

in counties with higher wage indexes. 

• The total estimated change in payments 

based on the FY 2011 policies relative to 

payments based on FY 2010 policies that 

include the applicable percentage increase of 

2.35 percent (or 2.6 percent market basket 

with a 0.25 percentage point reduction, as 

required under the Affordable Care Act). The 

FY 2010 operating payments also account for 

provisions under the Affordable Care Act that 

were effective for FY 2010. 

To illustrate the impact of the FY 2011 

changes, our analysis begins with a FY 2010 

baseline simulation model using: The FY 

2011 applicable percentage increase of 2.35 

percent; the FY 2010 MS–DRG GROUPER 

(Version 27.0); the most current CBSA 

designations for hospitals based on OMB’s 

MSA definitions; the FY 2010 wage index; 

and no MGCRB reclassifications. Outlier 

payments are set at 5.1 percent of total 

operating MS–DRG and outlier payments. 

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 through 

FY 2014, the update factor will be reduced 

by 2.0 percentage points for any hospital that 

does not submit quality data in a form and 

manner and at a time specified by the 

Secretary. (Beginning in FY 2015, the 

reduction is one-quarter of such applicable 

percentage increase determined without 

regard to section 1886(b)(3)(B)(ix), (xi), or 

(xii) of the Act.) At the time that this impact 

was prepared, 104 hospitals did not receive 

the full market basket rate-of-increase for FY 

2010 because they failed the quality data 

submission process or did not choose to 

participate. For purposes of the simulations 

shown below, we modeled the payment 

changes for FY 2011 using a reduced update 

for these 104 hospitals. However, we do not 

have enough information at this time to 

determine which hospitals will not receive 

the full market basket rate-of-increase for FY 

2011. 

Each policy change, statutory or otherwise, 

is then added incrementally to this baseline, 

finally arriving at an FY 2011 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 

2010 to FY 2011. Three factors not discussed 

separately have significant impacts here. The 

first factor is the update to the standardized 

amount. In accordance with section 

1886(b)(3)(B)(i) of the Act, we are updating 

the standardized amounts for FY 2011 using 

an applicable percentage increase of 2.35 

percent. This includes our forecasted 

hospital market basket increase of 2.6 percent 

with a 0.25 percentage point reduction as 

required under the Affordable Care Act. 

(Hospitals that fail to comply with the quality 

data submission requirements to receive the 

full update will receive an update reduced by 

2.0 percentage points from 2.35 percent to 

0.35 percent.) Under section 1886(b)(3)(B)(iv) 

of the Act, the updates to the hospitalspecific amounts for SCHs and for MDHs are 

also equal to the market basket percentage 

increase, or 2.35 percent. In addition, we are 

updating the Puerto Rico specific amount by 

an applicable percentage increase of 2.35 

percent. 

A second significant factor that affects the 

changes in hospitals’ payments per case from 

FY 2010 to FY 2011 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 2010 that are no longer reclassified in FY 

2011. Conversely, payments may increase for 

hospitals not reclassified in FY 2010 that are 

reclassified in FY 2011. 

A third significant factor is that we 

currently estimate that actual outlier 

payments during FY 2010 will be 4.7 percent 

of total MS–DRG payments. Our updated FY 

2010 outlier estimate accounts for changes to 

the FY 2010 IPPS payments required under 

the Affordable Care Act. When the FY 2010 

final rule was published, we projected FY 

2010 outlier payments would be 5.1 percent 

of total MS–DRG plus outlier payments; the 

average standardized amounts were offset 

correspondingly. The effects of the lower 

than expected outlier payments during FY 

2010 (as discussed in the Addendum to this 

proposed rule) are reflected in the analyses 

below comparing our current estimates of FY 

2010 payments per case to estimated FY 2011 

payments per case (with outlier payments 

projected to equal 5.1 percent of total MS– 

DRG payments). 

B. Analysis of Table I 

Table I displays the results of our analysis 

of the final changes for FY 2011. 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 3,472 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 2,494 hospitals 

located in urban areas included in our 

analysis. Among these, there are 1,362 

hospitals located in large urban areas 

(populations over 1 million), and 1,132 

hospitals in other urban areas (populations of 

1 million or fewer). In addition, there are 978 

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 2011 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 2,551; 

1,404; 1,147; and 921, 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 DSH payments, or 

some combination of these two adjustments. 

There are 2,429 nonteaching hospitals in our 

analysis, 805 teaching hospitals with fewer 

than 100 residents, and 238 teaching 

hospitals with 100 or more residents. 

In the DSH categories, hospitals are 

grouped according to their DSH payment 

status, and whether they are considered 

urban or rural for DSH purposes. The next 

category groups together hospitals considered 

urban or rural, in terms of whether they 

receive the IME adjustment, the DSH 

adjustment, both, or neither. 

The next five rows examine the impacts of 

the changes on rural hospitals by special 

payment groups (SCHs, RRCs, and MDHs). 

There were 180 RRCs, 332 SCHs, 194 MDHs, 

and 117 hospitals that are both SCHs and 

RRCs, and 13 hospitals that are both an MDH 

and an RRC. 

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 2008 or FY 2007 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 2011. The second grouping 

shows the MGCRB rural reclassifications. 

These groupings account for the change in 

the MGCRB reclassification policy as 

required under the Affordable Care Act. 

The final category shows the impact of the 

policy changes on the 19 cardiac hospitals in 

our analysis. 

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BILLING CODE 4120–01–C 

C. Effects of the Changes to the MS–DRG 

Reclassifications and Relative Cost-Based 

Weights (Column 1) 

In Column 1 of Table I, we present the 

effects of the final MS–DRG reclassifications, 

as discussed in section II. of the preamble to 

this final rule. 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. 

As discussed in section II.E. of the 

preamble of this final rule, the FY 2011 MS– 

DRG relative weights will be 100 percent 

cost-based and 100 percent MS–DRGs. For 

FY 2011, the MS–DRGs are calculated using 

the FY 2009 MedPAR data grouped to the 

Version 28.0 (FY 2011) MS–DRGs. The 

methods of calculating the relative weights 

and the reclassification changes to the 

GROUPER are described in more detail in 

section II.H. of this final rule. The changes 

to the relative weights and MS–DRGs shown 

in Column 2 are prior to any offset for budget 

neutrality. Overall, hospitals will experience 

a 0.3 percent increase and a 0.4 percent 

increase, respectively, in payments due to the 

changes in the MS–DRGs and relative 

weights prior to budget neutrality. Urban 

hospitals and rural hospitals will experience 

a 0.3 percent increase in payments under the 

updates to the relative weights and MS– 

DRGs. 

D. Effects of the Application of 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. 

Consistent with section 1886(d)(4)(C)(iii) of 

the Act, we are calculating a recalibration 

budget neutrality factor to account for the 

changes in MS–DRGs and relative weights to 

ensure that the overall payment impact is 

budget neutral. 

The ‘‘All Hospitals’’ line in Column 1 

indicates that changes due to MS–DRGs and 

relative weights will increase payments by 

0.3 percent before application of the budget 

neutrality factor. The recalibration budget 

neutrality factor is 0.996731, which is 

applied to the standardized amount. Thus, 

the impact after accounting only for budget 

neutrality for changes to the MS–DRG 

relative weights and classification is 

somewhat lower than the figures shown in 

Column 1 (approximately 0.3 percent). 

Consequentially, urban hospitals will not 

experience a change in payments, while rural 

hospitals will experience a 0.1 percent 

increase in payments when recalibration 

budget neutrality is applied. 

E. Effects of Wage Index Changes (Column 3) 

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 2011 is based on data 

submitted for hospital cost reporting periods 

beginning on or after October 1, 2006 and 

before October 1, 2007. The estimated impact 

of the updated wage data and labor share 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 2010 

wage index, based on FY 2006 wage data, the 

current labor-related share and having a 100- 

percent occupational mix adjustment 

applied, to a model using the FY 2011 prereclassification wage index with the laborrelated share, also having a 100-percent 

occupational mix adjustment applied, based 

on FY 2007 wage data (while holding other 

payment parameters such as use of the 

Version 28.0 MS–DRG GROUPER constant). 

The occupational mix adjustment is based on 

the FY 2008/2009 occupational mix survey. 

Column 3 shows the impacts of updating 

the wage data using FY 2007 cost reports. 

Overall, the new wage data will lead to a 0.0 

percent change for all hospitals before being 

combined with the wage budget neutrality 

adjustment shown in Column 5. Among the 

regions, the largest increase is in the rural 

New England region, which experiences a 0.5 

percent increase before applying an 

adjustment for budget neutrality. The largest 

decline from updating the wage data is seen 

in the urban New England region (0.5 percent 

decrease). 

In looking at the wage data itself, the 

national average hourly wage increased 4.3 

percent compared to FY 2010. Therefore, the 

only manner in which to maintain or exceed 

the previous year’s wage index was to match 

or exceed the national 4.3 percent increase in 

average hourly wage. Of the 3,441 hospitals 

with wage data for both FYs 2010 and 2011, 

1,621, or 47.1 percent, experienced an 

average hourly wage increase of 4.3 percent 

or more. 

The following chart compares the shifts in 

proposed wage index values for hospitals for 

FY 2011 relative to FY 2010. Among urban 

hospitals, 38 will experience an increase of 

more than 5 percent and less than 10 percent 

and 8 will experience an increase of more 

than 10 percent. Among rural hospitals, 2 

will experience an increase of more than 5 

percent and less than 10 percent, and none 

will experience an increase of more than 10 

percent. However, 939 rural hospitals will 

experience increases or decreases of less than 

5 percent, while 2,424 urban hospitals will 

experience increases or decreases of less than 

5 percent. Thirteen urban hospitals will 

experience decreases in their wage index 

values of more than 5 percent and less than 

10 percent. Sixteen urban hospitals will 

experience decreases in their wage index 

values of greater than 10 percent. One rural 

hospital will experience a decrease of more 

than 10 percent. These figures reflect changes 

in the wage index which is an adjustment to 

either 68.8 percent or 62 percent of a 

hospital’s standardized amount, depending 

upon whether its wage index is greater than 

1.0 or less than or equal to 1.0. Therefore, 

these figures illustrate a somewhat larger 

change in the wage index than will occur to 

the hospital’s total payment. 

The following chart shows the projected 

impact for urban and rural hospitals. 

Percentage change in area wage index values 

Number of hospitals 

Urban Rural 

Increase more than 10 percent ....................................................................................................................................... 8 0 

Increase more than 5 percent and less than 10 percent ................................................................................................ 38 2 

Increase or decrease less than 5 percent ....................................................................................................................... 2,424 939 

Decrease more than 5 percent and less than 10 percent .............................................................................................. 13 0 

Decrease more than 10 percent ...................................................................................................................................... 16 1 

F. Application of the Wage Budget Neutrality 

Factor (Column 4) 

Column 4 shows the impact of the new 

wage data with the application of the wage 

budget neutrality factor. In FY 2010, we 

began calculating separate wage budget 

neutrality and recalibration budget neutrality 

factors, in accordance with section 

1886(d)(3)(E) of the Act, which specifies that 

budget neutrality to account for wage 

changes or updates made under that 

subparagraph must be made without regard 

to the 62 percent labor-related share 

guaranteed under section 1886(d)(3)(E)(ii) of 

the Act. Therefore, for FY 2011, we are 

calculating the wage budget neutrality factor 

to ensure that payments under updated wage 

data and the labor-related share are budget 

neutral without regard to the lower laborrelated share of 62 percent applied to 

hospitals with a wage index less than or 

equal to 1. In other words, the wage budget 

neutrality is calculated under the assumption 

that all hospitals receive the higher laborrelated share of the standardized amount. 

Because the wage data changes did not 

change overall payments (displayed in 

Column 3), the revised wage budget 

neutrality factor is 1.000013, and the overall 

payment change is 0.0 percent. 

G. Combined Effects of the MS–DRG and 

Wage Index Changes (Column 5) 

Section 1886(d)(4)(C)(iii) of the Act 

requires that changes to MS–DRG 

reclassifications and the relative weights 

cannot increase or decrease aggregate 

payments. In addition, section 1886(d)(3)(E) 

of the Act specifies that any updates or 

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adjustments to the wage index are to be 

budget neutral. We computed a wage budget 

neutrality factor of 1.000013, and a 

recalibration budget neutrality factor of 

0.996731 (which is applied to the Puerto 

Rico-specific standardized amount and the 

hospital-specific rates). The product of the 

two budget neutrality factors is the 

cumulative wage and recalibration budget 

neutrality factor. The cumulative wage and 

recalibration budget neutrality adjustment is 

0.996744, or approximately ¥0.3 percent, 

which is applied to the national standardized 

amounts. Because the wage budget neutrality 

and the recalibration budget neutrality are 

calculated under different methodologies 

according to the statute, when the two budget 

neutralities are combined and applied to the 

standardized amount, the overall payment 

impact is not necessarily budget neutral. 

However, in this rule, we are estimating that 

the changes in the MS–DRG relative weights 

and updated wage data with wage and budget 

neutrality applied will result in a 0.0 change 

in payments. 

We estimate that the combined impact of 

the changes to the relative weights and MS– 

DRGs and the updated wage data with budget 

neutrality applied will result in no change in 

payments for urban or rural hospitals. Urban 

New England would experience a 0.7 

decrease in payments due to reductions in 

their case-mix and wages compared to the 

national average, while the urban Pacific area 

would experience a 0.6 percent increase in 

payments because of above average increases 

in wages and case-mix. Among the rural 

hospital categories, rural South Atlantic 

hospitals would experience the greatest 

decline in payment (¥0.9 percent) primarily 

due to the changes to MS–DRGs and the 

relative cost weights, while the rural West 

South Central area would experience a 0.8 

percent increase in payments. 

H. Effects of MGCRB Reclassifications 

(Column 6) 

Our impact analysis to this point has 

assumed acute care hospitals are paid on the 

basis of their actual geographic location (with 

the exception of ongoing policies that 

provide that certain hospitals receive 

payments on other bases than where they are 

geographically located). The changes in 

Column 6 reflect the per case payment 

impact of moving from this baseline to a 

simulation incorporating the MGCRB 

decisions for FY 2011 which affect hospitals’ 

wage index area assignments. 

By spring of each year, the MGCRB makes 

reclassification determinations that will be 

effective for the next fiscal year, which 

begins on October 1. The MGCRB may 

approve a hospital’s reclassification request 

for the purpose of using another area’s wage 

index value. Hospitals may appeal denials of 

MGCRB decisions to the CMS Administrator. 

Further, hospitals have 45 days from 

publication of the IPPS rule in the Federal 

Register to decide whether to withdraw or 

terminate an approved geographic 

reclassification for the following year. 

Provisions in the Affordable Care Act 

required us to revert to FY 2008 average 

hourly wage reclassification criteria for 

reclassifications effective in FY 2011. 

Therefore, additional hospitals qualify for 

MGCRB reclassification. 

The overall effect of geographic 

reclassification is required by section 

1886(d)(8)(D) of the Act to be budget neutral. 

Therefore, for the purposes of this impact 

analysis, we are applying an adjustment of 

0.991264 to ensure that the effects of the 

section 1886(d)(10) reclassifications are 

budget neutral (section II.A. of the 

Addendum to this final rule). Geographic 

reclassification generally benefits hospitals in 

rural areas. We estimate that geographic 

reclassification will increase payments to 

rural hospitals by an average of 1.7 percent. 

By region, all the rural hospital categories 

will experience increases in payments due to 

MGCRB reclassification where rural hospitals 

in the Mountain region will experience a 0.4 

percent increase in payments and rural 

hospitals in the New England region will 

experience a 2.5 percent increase in 

payments. 

Table 9A of the Addendum to this final 

rule reflects the approved reclassifications for 

FY 2011. 

I. Effects of the Rural Floor and Imputed 

Floor, Including Application of National 

Budget Neutrality (Column 7) 

As discussed in section III.B. of the 

preamble of the FY 2009 IPPS final rule, the 

FY 2010 IPPS/RY 2010 LTCH final rule and 

this final rule, section 4410 of Public Law 

105–33 established the rural floor by 

requiring that the wage index for a hospital 

in any urban area cannot be less than the 

wage index received by rural hospitals in the 

same State. In FY 2008, we changed how we 

applied budget neutrality to the rural floor. 

Rather than applying a budget neutrality 

adjustment to the standardized amount, a 

uniform budget neutrality adjustment is 

applied to the wage index. In the FY 2009 

final rule, we finalized the policy to apply 

the rural floor budget neutrality at the State 

level with a 3-year transition. In FY 2009, 

hospitals received a blended wage index that 

is 20 percent of a wage index with the State 

level rural and imputed floor budget 

neutrality adjustment and 80 percent of a 

wage index with the national budget 

neutrality adjustment. In FY 2010, hospitals 

received a blended wage index that is 50 

percent of a wage index with the State level 

rural and imputed floor budget neutrality and 

50 percent of a wage index with the national 

budget neutrality adjustment. For FY 2011, 

the Affordable Care Act requires that we 

apply one rural floor budget neutrality factor 

to the wage index, nationally. The FY 2011 

rural floor budget neutrality factor applied to 

the wage index is 0.996641. 

Furthermore, the FY 2005 IPPS final rule 

(69 FR 49109) established a temporary 

imputed floor for all urban States from FY 

2005 to FY 2007. The rural floor requires that 

an urban wage index cannot be lower than 

the wage index for any rural hospital in that 

State. Therefore, an imputed floor was 

established for States that do not have rural 

areas or rural IPPS hospitals. In the FY 2008 

IPPS final rule with comment period (72 FR 

47321), we finalized our proposal to extend 

the imputed floor for 1 additional year. In the 

FY 2009 IPPS final rule (73 FR 48573), we 

extended the imputed floor for an additional 

3 years through FY 2011. The Affordable 

Care Act requires that, effective for FY 2011, 

we apply rural floor and imputed floor 

budget neutrality at the national level, as we 

did in FY 2008. 

Column 7 shows the projected impact of 

the rural floor and the imputed floor with the 

national rural and imputed floor budget 

neutrality factor applied to the wage index. 

The column compares the postreclassification FY 2011 wage index of 

providers before the rural floor adjustment 

and the post-reclassification FY 2011 wage 

index of providers with the rural floor and 

imputed floor adjustment. Only urban 

hospitals can benefit from the rural floor 

provision. 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) experience a 

decrease in payments due to the budget 

neutrality adjustment applied nationally to 

their wage index. 

We project that, in aggregate, rural 

hospitals will experience a 0.1 percent 

decrease in payments as a result of the 

application of rural floor budget neutrality 

because the rural hospitals do not benefit 

from the rural floor, but have their wage 

indexes downwardly adjusted to ensure that 

the application of the rural floor is budget 

neutral overall. We project hospitals located 

in other urban areas (populations of 1 million 

or fewer) will experience a 0.1 percent 

increase in payments because those providers 

benefit from the rural floor. Urban hospitals 

in the New England region can expect 0.8 

percent increase in payments because a large 

percentage of hospitals in this region receive 

the rural floor. Urban hospitals in the Middle 

Atlantic can expect a 0.2 percent increase in 

payments because New Jersey hospitals 

benefit from the imputed floor. Rural 

hospitals in most regions can expect a 0.1 to 

0.2 percent decrease in payments because the 

rural and imputed floors only benefit urban 

hospitals. 

J. Effects of the Application of the Frontier 

Wage Index (Column 8) 

Section 10324(a) of Affordable Care Act 

requires that we establish a minimum postreclassified wage-index of 1.00 for all 

hospitals located in ‘‘frontier States.’’ 

‘‘Frontier States’’ is defined in the statute as 

a State in which at least 50 percent of its 

counties have a population density lesser 

than 6 persons per square mile. Based on 

these criteria, five states (Montana, North 

Dakota, Nevada, South Dakota, and 

Wyoming) are considered frontier States and 

51 hospitals located in those States will 

receive a frontier wage index of 1.0. This 

provision is not budget neutral and is 

estimated to increase IPPS operating 

payments by approximately $50 million. 

Urban hospitals located in the West North 

Central region and urban hospitals located in 

the Mountain region will experience an 

increase in payments by 0.5 percent and 0.3 

percent, respectively because many of the 

hospitals located in this region are frontier 

hospitals. Similarly, rural hospitals located 

in the Mountain region and rural hospitals in 

the West North Central region will 

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experience an increase in payments by 0.5 

and 0.1, respectively. 

K. Effects of the Wage Index Adjustment for 

Out-Migration (Column 9) 

Section 1886(d)(13) of the Act, as added by 

section 505 of Public Law 108–173, provides 

for an increase in the wage index for 

hospitals located in certain counties that 

have a relatively high percentage of hospital 

employees who reside in the county, but 

work in a different area with a higher wage 

index. Hospitals located in counties that 

qualify for the payment adjustment are to 

receive an increase in the wage index that is 

equal to a weighted average of the difference 

between the wage index of the resident 

county, post-reclassification and the higher 

wage index work area(s), weighted by the 

overall percentage of workers who are 

employed in an area with a higher wage 

index. With the out-migration adjustment, 

small rural providers with less than 100 beds 

will experience a 0.4 percent increase in 

payments in FY 2011 relative to no 

adjustment at all. We included these 

additional payments to providers in the 

impact table shown above, and we estimate 

the impact of these providers receiving the 

out-migration increase to be approximately 

$30 million. 

L. Effects of All Changes Prior to 

Documentation and Coding (or CMI) 

Adjustment (Column 10) 

Column 10 shows our estimate of the 

changes in payments per discharge from FY 

2010 and FY 2011, resulting from all changes 

reflected in this final rule, other than the 

documentation and coding adjustment. 

Column 10 reflects the impact of all other FY 

2011 changes relative to FY 2010, including 

those shown in Columns 1 through 9. We 

note that our baseline FY 2010 operating 

estimates account for the provisions under 

the Affordable Care Act that affected the FY 

2010 operating payments. The average 

increase in payments under the IPPS for all 

hospitals is approximately 2.5 percent. This 

includes the 2.35 percent applicable 

percentage increase (including the ¥0.25 

reduction to the market basket increase 

required under the Affordable Care Act). The 

application of ¥0.25 percentage point 

reduction to the FY 2010 required by the 

Affordable Care Act only affected payments 

for discharges on or after April 1, 2010, 

reducing payments by 0.1 percent in FY 

2010. However, the 0.25 percentage point 

reduction for FY 2011 required under the 

Affordable Care Act was a cumulative 

reduction on the FY 2010 reduction, 

resulting in an additional 0.1 percent 

decrease in payments in FY 2011. In 

addition, it reflects the estimated 0.4 

percentage point difference between the 

projected outlier payments in FY 2010 (5.1 

percent of total MS–DRG payments) and the 

current estimate of the percentage of actual 

outlier payments in FY 2010 (4.7 percent), as 

described in the introduction to this 

Appendix and the Addendum to this final 

rule. It accounts for the non-budget neutral 

wage index provisions, including the frontier 

State wage index and the Section 505 outcommuting adjustment that increases 

payments by 0.1 percent. Finally, it accounts 

for ¥0.1 percent decrease in payments due 

to the expiration of section 508 

reclassifications that had been extended for 

FY 2010 under the Affordable Care Act. 

There might also be interactive effects 

among the various factors comprising the 

payment system that we are not able to 

isolate. For these reasons, the values in 

Column 10 may not equal the sum of the 

percentage changes described above. 

M. Effects of All FY 2011 Changes With CMI 

Adjustment (Column 11) 

Column 11 shows our estimate of the 

changes in payments per discharge from FY 

2010 and FY 2011, resulting from all changes 

reflected in this final rule for FY 2011. The 

FY 2010 baseline estimates account for the 

provisions under the Affordable Care Act that 

affected the FY 2010 operating payments. 

Specifically, the FY 2010 baseline payment 

estimates account for the additional ¥0.25 

reduction in the applicable percentage 

increase (hospitals are paid based on the 

updated FY 2010 rate for discharges 

occurring on or after April 1, 2010), and 

accounts for the extension of section 508 

reclassifications for FY 2010. As discussed in 

section II.D. of the preamble of this final rule, 

this column includes the FY 2011 

documentation and coding adjustment of 

¥2.9 percent on the national standardized 

amount, ¥2.9 percent on the hospitalspecific rates, and ¥2.6 percent on the 

Puerto Rico-specific standardized amount, 

which overall accounts for a 2.9 percent 

decrease in payments. 

The average decrease in payments under 

the IPPS for all hospitals is approximately 

¥0.4 percent. As described in Column 10, 

this average decrease includes the effects of 

the 2.35 percent applicable increase 

(including the 0.25 percentage point 

reduction) to the market basket update 

required under the Affordable Care Act), the 

0.4 percentage point difference between the 

projected outlier payments in FY 2011 (5.1 

percent of total MS–DRG payments), and the 

current estimate of the percentage of actual 

outlier payments in FY 2010 (4.7 percent). In 

addition, it includes a ¥0.1 percent decrease 

in payments due to the expiration of section 

508 reclassifications that had been extended 

for FY 2010 under the Affordable Care Act. 

Section 508 reclassification was not a budgetneutral provision. There might also be 

interactive effects among the various factors 

comprising the payment system that we are 

not able to isolate. For these reasons, the 

values in Column 11 may not equal the sum 

of the percentage changes described above. 

The overall change in payments per 

discharge for hospitals paid under the IPPS 

in FY 2011 is estimated to decrease by 0.4 

percent. The payment decreases among the 

hospital categories are largely attributed to 

the documentation and coding adjustments. 

Hospitals in urban areas would experience an 

estimated 0.4 percent decrease in payments 

per discharge in FY 2011 compared to FY 

2010. Hospital payments per discharge in 

rural areas are estimated to decrease by 0.4 

percent in FY 2011 as compared to FY 2010. 

Among urban census divisions, the largest 

estimated payment decreases will be 0.9 

percent in the Middle Atlantic region 

because many of the urban providers in this 

region had benefited from section 508 

reclassifications in FY 2010 that has expired 

for FY 2011. Urban hospitals in the Pacific 

will see the largest payment increases (0.4 

percent) because urban providers in this 

region will experience increases in their 

wage index above the national average. 

Among the rural regions, the providers in the 

Middle Atlantic and South Atlantic region 

will experience the largest decrease in 

payments (1.2 percent) while rural hospitals 

in the Mountain region will experience an 

increase in payments by 0.3 percent because 

the rural providers in this region benefit from 

MGCRB reclassification and the frontier State 

wage index provision, implemented under 

the Affordable Care Act. 

Among special categories of rural 

hospitals, MDHs will receive an estimated 

payment decrease 0.8 percent. MDHs are 

paid the higher of the IPPS rate based on the 

national standardized amount, that is, the 

Federal rate, or, if the hospital-specific rate 

exceeds the Federal rate, the Federal rate 

plus 75 percent of the difference between the 

Federal rate and the hospital-specific rate. 

MDHs will experience a decrease in 

payments because of the documentation and 

coding adjustments applied to both the 

hospital-specific rate and the Federal rate. 

SCHs are also paid the higher of their 

hospital-specific rate or the Federal rate. 

Overall, SCHs will experience an estimated 

decrease in payments by 0.6 percent due to 

the documentation and coding adjustments 

to the national standardized amount and the 

hospital-specific rates. 

Rural hospitals reclassified for FY 2011 are 

anticipated to receive a 0.1 percent payment 

decrease, and rural hospitals that are not 

reclassifying are estimated to receive a 

payment decrease of 0.7 percent. 

Cardiac hospitals are expected to 

experience a payment increase of 0.3 percent 

in FY 2011 relative to FY 2010 due to 

increases in payments attributable to changes 

in the MS–DRGs and relative weights. 

N. Impact Analysis of Table II 

Table II presents the projected impact of 

the changes for FY 2011 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 2010 with the payments per discharge for 

FY 2011, as calculated under our models. 

The estimated FY 2010 payments per 

discharge incorporate the provisions in the 

Affordable Care Act. Thus, 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 11 of 

Table I. 

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BILLING CODE 4120–01–C 

VII. Effects of Other Policy Changes 

In addition to those policy changes 

discussed above that we are able to model 

using our IPPS payment simulation model, 

we are making various other changes in this 

final rule. Generally, we have limited or no 

specific data available with which to estimate 

the impacts of these changes. Our estimates 

of the likely impacts associated with these 

other changes are discussed below. 

A. Effects of Proposed Policy on HACs, 

Including Infections 

In section II.F. of the preamble of this final 

rule, we discuss our implementation of 

section 1886(d)(4)(D) of the Act, which 

requires the Secretary to identify conditions 

that are: (1) High cost, high volume, or both; 

(2) result in the assignment of a case to an 

MS–DRG that has a higher payment when 

present as a secondary diagnosis; and 

(3) could reasonably have been prevented 

through application of evidence-based 

guidelines. For discharges occurring on or 

after October 1, 2008, hospitals will not 

receive additional payment for cases in 

which one of the selected conditions was not 

present on admission, unless, based on data 

and clinical judgment, it cannot be 

determined at the time of admission whether 

a condition is present. That is, the case will 

be paid as though the secondary diagnosis 

were not present. However, the statute also 

requires the Secretary to continue counting 

the condition as a secondary diagnosis that 

results in a higher IPPS payment when doing 

the budget neutrality calculations for MS– 

DRG reclassifications and recalibration. 

Therefore, we will perform our budget 

neutrality calculations as though the 

payment provision did not apply, but 

Medicare will make a lower payment to the 

hospital for the specific case that includes 

the secondary diagnosis. Thus, the provision 

results in cost savings to the Medicare 

program. 

We note that the provision will only apply 

when one or more of the selected conditions 

are the only secondary diagnosis or diagnoses 

present on the claim that will lead to higher 

payment. Medicare beneficiaries will 

generally have multiple secondary diagnoses 

during a hospital stay, such that beneficiaries 

having one MCC or CC will frequently have 

additional conditions that also will generate 

higher payment. Only a small percentage of 

the cases will have only one secondary 

diagnosis that would lead to a higher 

payment. Therefore, if at least one 

nonselected secondary diagnosis that leads to 

higher payment is on the claim, the case will 

continue to be assigned to the higher paying 

MS–DRG and there will be no Medicare 

savings from that case. In addition, as 

discussed in section II.F.3.e. of the preamble 

of this final rule, it is possible to have two 

severity levels where the HAC does not affect 

the MS–DRG assignment or for an MS–DRG 

not to have severity levels. In either of these 

circumstances, the case will continue to be 

assigned to the higher paying MS–DRG and 

there will be no Medicare savings from that 

case. 

The HAC payment provision went into 

effect on October 1, 2008. Our savings 

estimates for the next 5 fiscal years are 

shown below: 

Year Savings 

(in millions) 

FY 2011 .................................... $20 

FY 2012 .................................... 22 

FY 2013 .................................... 23 

FY 2014 .................................... 25 

FY 2015 .................................... 27 

B. Effects of Policy Relating to New Medical 

Service and Technology Add-On Payments 

In section II.I. of the preamble to this final 

rule, we discuss the three applications for 

add-on payments for new medical services 

and technologies for FY 2011, as well as the 

status of the new technologies that were 

approved to receive new technology add-on 

payments in FY 2010. As explained in that 

section, add-on payments for new technology 

under section 1886(d)(5)(K) of the Act are not 

required to be budget neutral. However, we 

are providing an estimate of additional 

payments for new technology add-on 

payments because such payments will have 

an impact on total operating IPPS payments 

in FY 2010. 

We are continuing to make new technology 

add-on payments in FY 2011 for the 

CardiowestTM Temporary Total Artificial 

Heart System (TAH-t) and the Spiration®

IBV® Valve System. Therefore, we are 

providing an estimate of total payments for 

these technologies in FY 2011. We note that 

new technology add-on payments per case 

are limited to the lesser of: (1) 50 percent of 

the costs of the new technology; or (2) 50 

percent of the amount by which the costs of 

the case exceed the standard MS–DRG 

payment for the case. Because it is difficult 

to predict the actual new technology add-on 

payment for each case, our estimate below is 

based on the increase in add-on payments for 

FY 2011 as if every claim that would qualify 

for a new technology add-on payments 

would receive the maximum add-on 

payment. Therefore, we currently estimate 

that payments for the CardiowestTM

Temporary Total Artificial Heart System 

(TAH-t) will increase overall FY 2011 

payments by $9.54 million. For FY 2010, the 

applicant, Spiration, Inc., estimated that 

approximately 2,286 Medicare beneficiaries 

would be eligible for the Spiration® IBV®


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Valve System. Therefore, based on the 

applicant’s estimate from FY 2010, we 

currently estimate that payments for the 

Spiration® IBV® Valve System will increase 

overall FY 2011 payments by $7.80 million. 

In addition to continuing to make new 

technology add-on payments in FY 2011 for 

the CardiowestTM Temporary Total Artificial 

Heart System (TAH-t) and the Spiration®

IBV® Valve System, as discussed in section 

II.I. of the preamble to this final rule, we are 

approving the AutoLITTTM for new 

technology add-on payments for FY 2011. 

The applicant, Monteris Medical, estimates 

that approximately 170 Medicare 

beneficiaries would be eligible for the 

AutoLITTTM. Therefore, based on the 

applicant’s estimate and 50 percent of the 

estimated operating cost per case ($5,300), 

we currently estimate that payments for the 

AutoLITTTM will increase overall FY 2011 

payments by $900,000. 

C. Effects of Requirements for Hospital 

Reporting of Quality Data for Annual 

Hospital Payment Update 

In Appendix A, section VII.C. of the FY 

2010 IPPS/RY 2010 LTCH PPS final rule (74 

FR 44224), we discussed the impact of the FY 

2011 RHQDAPU program requirements. In 

this final rule, we are retiring one of the FY 

2011 quality measures. We believe that this 

will not have a significant effect on our 

previous analysis. We note that, in that final 

rule, we estimated that 96 hospitals would 

not receive the full payment update in FY 

2010 and that 96 hospitals would not receive 

the full payment update in FY 2011. As 

noted above, at the time this analysis was 

prepared, 104 hospitals did not receive the 

full payment update in FY 2010. 

In section IV.A. of this final rule, we 

discuss our requirements for hospitals to 

report quality data in order to receive the full 

annual payment update for FY 2011, FY 

2012, FY 2013, and FY 2014. We estimate 

that approximately 95 hospitals may not 

receive the full annual payment update in 

any fiscal year. Most of these hospitals are 

either small rural or small urban hospitals. 

However, at this time, information is not 

available to determine the number of 

hospitals that will not meet the requirements 

for the full payment update for FY 2011, FY 

2012, FY 2013, and FY 2014. 

For the FY 2012 payment determination, 

we did not adopt our proposal to require 

hospitals to submit all-patient volume data 

for selected MS–DRGs that relate to 

RHQDAPU program measures. 

For the FY 2013 payment determination, 

we did not adopt our proposal that hospitals 

would choose one of four proposed registrybased topics for which there are currently a 

number of nationwide registries each 

individually collecting data from a 

significant proportion of IPPS hospitals. We 

believe that the AMI-statin at discharge 

measure, which we adopted for FY 2013 

payment determination, will create minimal 

additional burden as hospitals can collect the 

data elements from the same charts already 

being pulled for existing RHQDAPU program 

AMI measures. 

For the FY 2014 payment determination, 

the addition of four chart-abstracted 

measures and the one measure collected via 

NHSN that require hospitals to submit data 

on all inpatients is expected to create an 

additional burden for hospitals. The 

information needed for the 2 ED-Throughput 

measures is captured as routine 

documentation, and therefore is not expected 

to impose much additional burden. The 2 

Global Immunization measures will require 

hospitals to collect information on all 

inpatients regarding flu and pneumonia 

vaccinations that they are currently only 

collecting for patients admitted for 

pneumonia. Therefore, the number of 

patients for which these data need to be 

collected will increase. However, this 

additional burden will be offset to some 

extent by our decision to retire two measures 

(PN–2 and PN–7). The information needed 

for the fifth measure, an SSI measure to be 

collected via NHSN, is structured to keep 

additional burden to a minimum, since 

hospitals in 21 States are already using 

NHSN and CDC supports more than 2000 

hospitals that are already using NHSN. 

We discussed the validation requirements 

for the FY 2011 annual payment update in 

the FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 43883 through 43884). In the FY 

2011 IPPS/LTCH PPS proposed rule, we 

noted that for the FY 2012 payment update, 

hospitals must pass our validation 

requirement of a minimum of 75 percent 

reliability, based upon our chart-audit 

validation process, for three quarters of data 

from first quarter CY 2010 through third 

quarter CY 2010 (75 FR 23991 through 

23993). These data are due to the QIO 

Clinical Warehouse by August 15, 2010 (first 

quarter CY 2010 discharges), November 15, 

2010 (second quarter CY 2010 discharges), 

and February 15, 2011 (third quarter CY 2010 

discharges). We have continued our efforts to 

ensure that QIOs provide assistance to all 

hospitals that wish to participate in the 

RHQDAPU program. The requirement of 12 

charts per hospital submitted for validation 

will result in approximately 9,600 charts per 

quarter being submitted to CMS. 

We reimburse hospitals for the cost of 

sending charts to the Clinical Data 

Abstraction Center (CDAC) contractor at the 

rate of 12 cents per page for copying and 

approximately $4.00 per chart for postage. 

Our experience shows that the average chart 

received by the CDAC contractor is 

approximately 150 pages. Thus as a result of 

the validation requirements effective for the 

FY 2012 annual payment update, CMS will 

have expenditures of approximately $212,000 

per quarter, which is a reduction from the 

$597,600 per quarter to collect the charts for 

the FY 2010 and FY 2011 annual payment 

updates. Given that we reimburse for the data 

collection effort, we believe that a 

requirement for twelve charts per hospital 

per quarter represents a minimal burden to 

the participating hospital. 

We are adopting as final our proposal to 

modify our validation process for FY 2012. 

We believe that our FY 2012 policy, which 

will only validate data submitted by 800 

hospitals for the FY 2012 RHQDAPU 

payment determination (as compared with 

our previous policy under which we 

validated data submitted by all hospitals 

participating in the RHQDAPU program), 

will not change the number of hospitals that 

fail the validation requirement for FY 2012 

from previous years. We have changed the 

way we calculate the validation matches (that 

is, all relevant data elements submitted by 

the hospital must match the independently 

re-abstracted data elements to count as a 

match), which will make it more difficult for 

hospitals to satisfy the validation 

requirement. However, we also are adopting 

as final our proposal to validate data for a 

smaller number of hospitals each year. In 

combination, we believe that these two 

proposed revisions will counterbalance each 

other and result in no additional impact to 

the number of hospitals failing our validation 

requirement for FY 2012. In addition, CMS 

conducted analysis in FY 2010 of past 

validation data which indicates that at least 

95 percent of sampled hospitals are expected 

to pass the current 75 percent validation 

threshold starting in FY 2012. 

If we determine that a hospital is not 

entitled to receive the full FY 2012 payment 

update because it failed to satisfy the 

validation requirement, and the hospital asks 

for a reconsideration of that decision, the 

hospital must submit complete copies of the 

medical records that it submitted to the 

CDAC contractor for purposes of the 

validation for which the hospital incurs the 

cost. We estimate that no greater than 20 

hospitals would fail this requirement for 

FY 2012. We estimate that this requirement 

would cost hospitals approximately 12 cents 

per page for copying and approximately 

$4.00 per chart for postage. We have found 

based on experience that an average sized 

medical chart is approximately 150 pages. 

Hospitals would be required to return all 36 

sampled medical records for the three 

quarters of data from FY 2010. We estimate 

that the total cost to the 40 impacted 

hospitals would be approximately $17,600, 

or $440 per hospital. We believe that this cost 

is minimal, compared with the 2.0 percent 

RHQDAPU component of the annual 

payment update at risk. This requirement is 

necessary so that CMS has all the information 

it needs to fairly and timely make a decision 

on the hospital’s reconsideration request. We 

also anticipate that this requirement will 

benefit hospitals seeking reconsiderations 

because it will enable us to resolve potential 

issues earlier in the appeals process, 

obviating the need for a hearing before the 

Provider Reimbursement Review Board 

(PRRB). We believe that this benefit will 

greatly outweigh the burden of copying and 

mailing the requested records. 

We note that beginning with FY 2014 and 

future years, we are considering adding two 

strata to the current RHQDAPU validation 

sample of SCIP, AMI, HF, and PN cases. We 

will consider selecting 2 additional samples 

of 3 cases per selected hospital per quarter 

to validate proposed surgical site infection, 

blood stream infection, ED-Throughput and 

global immunization measures, If proposed 

and adopted as final through a later 

rulemaking, CMS would randomly select a 

total of 18 records per quarter per validated 

hospital in six strata (SCIP, AMI, HF, PN, 

CDC/NHSN measures and ED-Throughput/ 

Global Immunization). The requirement of an 

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additional 6 charts per hospital submitted for 

validation will result in approximately 4800 

additional charts per quarter being submitted 

to CMS. We reimburse hospitals for the cost 

of sending charts to the Clinical Data 

Abstraction Center (CDAC) contractor at the 

rate of 12 cents per page for copying and 

approximately $4.00 per chart for postage. 

Our experience shows that the average chart 

received by the CDAC contractor is 

approximately 150 pages. Thus, as a result of 

the validation requirements effective for the 

FY 2014 annual payment update, CMS will 

have expenditures of approximately $105,600 

per quarter to collect the charts for the FY 

2014 and future years annual payment 

update. Given that we reimburse for the data 

collection effort, we believe that a 

requirement of the additional records in FY 

2014 per hospital per quarter represents a 

minimal burden to the participating hospital. 

D. Effects of Policy on Payment for Transfer 

Cases From Medicare Participating Hospitals 

to Nonparticipating Hospitals and CAHs 

In section IV.B. of the preamble of this 

final rule, we are expanding the acute care 

transfer policy to transfers to 

nonparticipating acute care hospitals and to 

CAHs. This expansion of the acute care 

transfer policy aims to further align the 

policy with its original intent, that is, to pay 

a hospital commensurate with the resources 

it expends in treating a Medicare beneficiary 

who is transferred. However, the impacts of 

this change are not possible to measure, 

although we believe that any change in 

Medicare payments to hospitals associated 

with this change will be negligible. 

Specifically, because there are relatively few 

nonparticipating acute care hospitals, we 

expect that there would be few, if any, 

transfers to nonparticipating hospitals in a 

given period. In addition, based on the 

capped inpatient bed size of CAHs (that is, 

not more than 25 inpatient beds) and the 

CAH distance requirements (that is, a CAH 

must generally be located at least 35 miles 

from another hospital), we believe that 

transfers from an IPPS acute care hospital to 

a CAH occur very infrequently. Therefore, we 

estimate that this expansion of the acute care 

transfer policy will not have a material 

impact on Medicare payments to acute care 

hospitals. 

E. Effects of the Low-Volume Hospital 

Payment Adjustment: Changes for FYs 2011 

and 2012 

As discussed in section IV.D. of the 

preamble to this final rule, the low-volume 

hospital payment adjustment changes for FYs 

2011 and 2012 expand eligibility for the lowvolume hospital payment adjustment to 

hospitals with less than 1,600 Medicare 

discharges (instead of the prior requirement 

of less than 800 total, Medicare and nonMedicare, discharges) and more than 15 

miles from other IPPS hospitals (rather than 

the prior requirement of more than 25 miles). 

The payment adjustment is changed also 

from an empirically determined additional 

25-percent payment adjustment to qualifying 

hospitals with less than 200 total discharges 

(69 FR 49099 through 49102 and 70 FR 47432 

through 47434), to a continuous, linear 

sliding scale adjustment ranging from an 

additional 25 percent payment adjustment to 

qualifying hospitals with 200 or fewer 

Medicare discharges to no additional 

payment to hospitals with 1,600 or more 

Medicare discharges. 

We estimate, based on FY 2009 claims data 

(March 2010 update of the MedPAR file), an 

additional 1,444 hospitals would meet the 

Medicare discharges criterion to qualify as a 

low-volume hospital. However, we are not 

able to estimate the number of these 1,444 

hospitals that would also meet the distance 

criterion. The actual number of hospitals that 

would also meet the distance criterion to 

qualify as a low-volume hospital would be 

less, very likely much less, than the 

estimated 1,444 maximum number of 

potential low-volume hospitals for FY 2011. 

If all 1,444 hospitals that meet the Medicare 

discharge requirement also meet the distance 

requirement, an additional estimated $835 

million would be required for FY 2011, based 

on each hospital’s number of Medicare 

discharges and the corresponding payment 

adjustment amount. At this time, we are not 

able to estimate the impact of the change for 

FY 2012. 

Our actuaries chose a 40-percent factor to 

estimate the percentage of hospitals that 

would meet the distance requirement, in 

addition to the discharge requirement, to be 

a low-volume hospital. For FY 2011, our 

actuaries estimate that there will be an 

additional cost of $380 million; for FY 2012, 

$450 million; and an additional $50 million 

being paid in FY 2013, for hospital stays at 

the end of FY 2012 that are paid at the 

beginning of FY 2013. 

F. Effects of Change Relating to Payment 

Adjustment for Disproportionate Share 

Hospitals 

In section IV.F. of the preamble of this final 

rule, we discuss the change, effective for FY 

2011 and subsequent years, to the data 

matching process used to calculate the SSI 

fraction for the Medicare DSH payment 

adjustment. The SSI fraction is part of the 

formula used to determine whether a 

subsection (d) hospital qualifies for a DSH 

payment adjustment and the amount of any 

DSH payment. 

The numerator of a hospital’s DSH SSI 

fraction is the number of inpatient days for 

the provider’s patients who were entitled to 

both Medicare Part A and SSI benefits. The 

denominator of the hospital’s SSI fraction is 

the total number of inpatient days for the 

provider’s patients who were entitled to Part 

A benefits. In order to calculate the 

numerator of a hospital’s DSH SSI fraction, 

CMS matches certain Medicare data files 

with SSI eligibility data files that are 

furnished by SSA. In Baystate Medical Center 

v. Leavitt (545 F. Supp. 2d 20, as amended, 

587 F. Supp. 2d 37, 44 (D.D.C. 2008)), the 

district court concluded that, in certain 

respects, CMS’ current matching process did 

not use the ‘‘best available data’’ to match 

Medicare patient day information with SSI 

eligibility data. In implementing the Baystate 

decision, CMS recalculated the plaintiff’s SSI 

fractions and DSH payments for its FYs 1993 

through 1996 by using a revised data 

matching process that comports with the 

district court’s decision. 

We are adopting a similar revised data 

matching process for calculating hospitals’ 

DSH SSI fractions for FY 2011 and 

subsequent fiscal years. In addition, we will 

use, in the revised matching process, a later 

update of the MedPAR claims data file and 

the SSI eligibility data file. Specifically, we 

will use MedPAR claims files and SSI 

eligibility data that are updated 15 months 

after the end of the Federal fiscal year, rather 

than continue with our current practice of 

using data updated 6 months after the end of 

the Federal fiscal year. We believe that our 

revision to the timing of the data match 

achieves an appropriate balance between 

accounting for additional retroactive SSI 

eligibility determinations and the lifting of 

SSI payment suspensions and facilitating 

administrative finality through the timely 

final settlement of Medicare cost reports. 

We are not able to provide a detailed 

analysis of the impact of the revised data 

matching process. That is, it is not possible 

to determine whether Medicare DSH 

adjustment payments to hospitals will 

generally increase or decrease, because 

hospitals’ SSI fractions will vary depending 

on various factors, including the use of a 

more updated MedPAR claims data file, use 

of a more updated SSI eligibility data file, 

and the other features of our revised data 

matching process. 

With respect to the use of a more updated 

MedPAR claims data file, we expect that 

using a later version of the MedPAR claims 

file will increase the number of inpatient 

claims for a given Federal fiscal year and, 

therefore, will increase the number of 

Medicare inpatient days included in the 

denominator of the SSI fraction. Depending 

on whether or not the additional claims in 

the MedPAR file are for Medicare patients 

who are also eligible for SSI during the 

inpatient stay, the numerator of the SSI 

fraction might increase or decrease. 

As for the use of an updated SSI eligibility 

file, we note that retroactive SSI eligibility 

determinations include both the granting and 

the denial of SSI benefits. Therefore, 

assuming that some of the retroactive SSI 

eligibility determinations are for Medicare 

patients, the use of an updated SSI eligibility 

file also could increase or decrease the 

numerator of the SSI fraction. We expect that, 

as a result of using an updated SSI eligibility 

file, the SSI fraction for some hospitals will 

increase while it will decrease for other 

hospitals. 

We also note that, in the Baystate decision, 

the district court found that certain records 

(for example, ‘‘stale records’’ and ‘‘forced pay 

records’’) were not included in the SSI 

eligibility data that SSA gave to CMS for use 

in the data matching process. However, the 

SSI eligibility data files began to include 

certain of these records in the mid-1990’s, 

and stale records and forced pay records 

were included in the SSI eligibility data files 

that CMS used in recalculating the specific 

SSI fractions and DSH adjustment payments 

at issue in the Baystate case. As certain of 

these records are already included in the data 

matching process and we are making no 

change to this policy, we are unable to 

determine if this issue has any cost or savings 

for FY 2011 and subsequent years. 

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Finally, our revised data matching process 

includes the use of SSNs and a greater 

number of Title II numbers and HICANs. As 

a result, we might be able to identify some 

individuals who are entitled to both Part A 

and SSI benefits that our current data 

matching process might not have identified. 

Therefore, we would expect an increase in 

the SSI fraction for certain providers, but we 

are unable to determine the extent to which 

DSH adjustment payments will increase. 

We did not receive any specific public 

comments on this impact section. 

G. Effects of Change in Policy Relating to 

MDHs 

1. Medicare Dependency: Counting Medicare 

Inpatients 

In section IV.G.2. of the preamble of this 

final rule, we discuss our revision of the 

existing Medicare-dependency criterion for 

MDHs at § 412.108(a)(1)(iii) of the regulations 

which specify that ‘‘At least 60 percent of the 

hospital’s inpatient days or discharges were 

attributable to individuals receiving 

Medicare Part A benefits during the 

hospital’s cost reporting period * * * ’’, by 

replacing the word ‘‘receiving’’ with the 

phrase ‘‘entitled to.’’ As a result, we will 

include in the count of Medicare inpatient 

days or discharges, all days or discharges 

attributable to individuals entitled to 

Medicare Part A benefits, including 

individuals who have exhausted their 

Medicare Part A hospital inpatient coverage 

benefit. 

Based on our analysis of data for cost 

reporting periods beginning in FYs 2007 and 

2008, we estimate that this change to the 

MDH definition of Medicare dependency 

may allow 48 more IPPS hospitals to qualify 

as an MDH. We estimate that this change will 

result in increased expenditure of $3.6 

million in FY 2011. 

2. Extension of the MDH Program 

In section IV.G.3. of the preamble to this 

final rule, we discuss section 3124 of the 

Affordable Care Act, which extended the 

MDH program for 1 additional year, from the 

end of FY 2011 (that is, for discharges before 

October 1, 2011) to the end of FY 2012 (that 

is, for discharges before October 1, 2012). The 

extension of the MDH program has no impact 

for FY 2011. For FY 2012, the extension 

allows the continuation of MDH status and 

the payment methodology for an MDH to be 

paid its hospital-specific rate, based on its FY 

1982, 1987, or 2002 costs per discharge, 

rather than the Federal rate, if this results in 

a greater aggregate payment. Therefore, the 

impact of the MDH program extension is 1 

additional year of updated hospital-specific 

rate payments for each MDH, if this results 

in a greater aggregate payment than Federal 

rate payments, rather than Federal rate 

payments for IPPS hospitals without special 

treatment as MDHs. Our actuaries estimate 

that this 1-year extension of the MDH 

program through FY 2012 will cost an 

additional $110 million. 

H. Effects of Changes Relating to Payments 

for IME and Direct GME 

1. Identifying ‘‘Approved Medical Residency 

Programs’’ 

In section IV.H.2. of the preamble of this 

final rule, we discuss our clarification of 

policy regarding whether an individual is 

considered to be training in an approved 

medical residency program such that the 

individual’s time should be included in the 

FTE count for IME and direct GME purposes, 

or whether that individual should be treated 

and bill as a physician. Specifically, our 

clarification states that individuals should be 

treated as and bill as physicians if they have 

already successfully completed at least one 

residency program (regardless of whether 

they have passed the board examination for 

that specialty program), and are engaged in 

subsequent training that is not required for 

additional board certification in another 

subspecialty. We also are revising the 

definition of ‘‘resident’’ at § 413.75(b) to mean 

‘‘an intern, resident, or fellow who is formally 

accepted, enrolled, and participating in an 

approved medical residency program, 

including programs in osteopathy, dentistry, 

and podiatry, as required in order to become 

certified by the appropriate specialty board.’’ 

With respect to the policy regarding the 

treatment of trainees that have already 

successfully completed at least one residency 

program, there is no financial impact on the 

Medicare program because this is a 

clarification of existing policy and is not a 

policy revision or addition of a new policy. 

The policy change to the regulations might 

have some limited financial impact to the 

extent that a hospital previously included 

trainees who were not formally enrolled in 

an approved program in its FTE counts, and 

as a result of the change to the regulations, 

will no longer be able to include such 

trainees in its FTE count for IME and direct 

GME purposes. We believe it would be rare 

for a hospital to have included in its FTE 

count trainees who are not formally enrolled 

in a residency program in the typical fashion. 

Further, we believe that it would be rare for 

such a hospital to have sufficient room under 

its IME and direct GME FTE resident caps to 

include any such ‘‘informally enrolled’’ 

residents in addition to the typically enrolled 

residents. Thus, the financial impact of the 

change in the regulatory definition of 

‘‘resident’’ would be insignificant. 

2. Submission of Electronic Affiliation 

Agreements 

In section IV.H.3. of the preamble of this 

final rule, we discuss our finalized policy to 

allow hospitals to submit Medicare GME 

affiliation agreements to the CMS Central 

Office by electronic submission. Over the last 

several years, we have received numerous 

inquiries regarding the possibility of 

submitting the Medicare GME affiliation 

agreement electronically. To date, CMS has 

only accepted signed hard copies of Medicare 

GME affiliation agreements that are received 

through the mail. Facsimile (FAX) and other 

electronic submissions of affiliation 

agreements have not been an acceptable 

means of transmission of affiliation 

agreements to CMS Central Office in order for 

a hospital to meet the requirements of 

§§ 413.79(f) and 412.105(f)(1)(vi). 

The increasing frequency of these inquiries 

and our concerns regarding environmental 

and paperwork reduction have prompted us 

to reconsider our procedure for hospitals to 

submit Medicare GME affiliation agreements 

to the CMS Central Office. Accordingly, we 

are changing our policy to provide for 

electronic submission of the affiliation 

agreement that is required to be sent to the 

CMS Central Office. This policy change will 

not affect the authority of the fiscal 

intermediary or MAC to continue to specify 

its requirements for submission for hospitals 

in its servicing area. 

We are establishing an electronic 

submission process that will consist of either 

an e-mail mailbox or a Web site where 

hospitals will be able to submit their 

Medicare GME affiliation agreements to the 

CMS Central Office. As part of this process, 

a copy of the Medicare GME affiliation 

agreement must be received through the 

electronic system no later than 11:59 p.m. on 

July 1 of each academic year. We are requring 

that the electronic affiliation agreement must 

be submitted either as a scanned copy, a 

Portable Document Format (PDF) version of 

that hard copy agreement, or in another 

electronic format that cannot be subject to 

manipulation. This requirement will ensure 

that the agreements are signed and dated as 

required in the regulations at § 413.75. 

We believe that allowing an electronic 

submission of the affiliation agreement to the 

CMS Central Office will assist us in more 

effectively tracking the groups of hospitals 

that become an affiliation as well as the 

numbers of FTE cap slots that are being 

transferred within those groups. In addition, 

we believe an electronic submission process 

will minimize the paperwork burden for 

hospitals. 

I. Effects of Changes Relating to CRNA 

Services Furnished in Rural Hospitals and 

CAHs 

In section IV.I. of the preamble of this final 

rule, we discuss our amendment to the 

regulations at § 412.113(c)(2)(i)(A) to state 

that, effective for cost reporting periods 

beginning on or after October 1, 2010, 

hospitals and CAHs that have reclassified 

under section 1886(d)(8)(E) of the Act and 

§ 412.103 are eligible to be paid based on 

reasonable cost for anesthesia and related 

care furnished by qualified nonphysician 

anesthetists. Under existing regulations, a 

hospital or CAH is not eligible to be paid 

based on reasonable cost for anesthesia and 

related care furnished by qualified 

nonphysician anesthetists if the hospital or 

CAH has been granted rural status under 

§ 412.103. However, because the Act, as 

revised by section 608 of Public Law 100– 

485, allows for reasonable cost payments for 

CRNA services if the facility is a hospital 

located in a rural area as defined for purposes 

of section 1886(d) of the Act, we are revising 

the regulations to permit urban hospitals that 

have been reclassified as rural, in accordance 

with section 1886(d)(8)(E) of the Act, to 

qualify for these payments. We are revising 

the regulations to state that, effective for cost 

reporting periods beginning on or after 

October 1, 2010, hospitals and CAHs that 

have reclassified as rural pursuant to section 

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1886(d)(8)(E) of the Act and § 412.103 of the 

regulations are eligible to be paid based on 

reasonable cost for anesthesia services and 

related care provided by qualified 

nonphysician anesthetists. 

We believe it is difficult to quantify the 

payment impact of this change because, in 

order to qualify for reasonable cost-based 

payment for anesthesia and related services 

provided by qualified nonphysician 

anesthetists, a rural hospital or CAH cannot 

exceed an annual limit of 800 surgical 

procedures requiring anesthesia. We cannot 

establish the number of facilities that will 

meet this threshold. In addition, although a 

hospital or CAH may contract with more than 

one qualified nonphysician anesthetist and 

be paid based on reasonable cost for 

anesthesia and related services performed by 

these nonphysician anesthetists, the total 

number of hours of service furnished by the 

nonphysician anesthetists may not exceed 

2,080 hours annually. We also cannot 

determine the number of facilities that will 

exceed this threshold. Therefore, while we 

believe the impact will be relatively minor, 

we are unable to quantify the impact of the 

change. 

J. Effect of the Additional Payments to 

Qualifying Hospitals in Low Medicare 

Spending Counties 

Under section 1109 of Public Law 111–152, 

Congress allocated $400 million to be spent 

for FYs 2011 and 2012 to qualifying hospitals 

located in the bottom quartile of counties 

with the lowest Medicare Part A and Part B 

spending per enrollee. In section IV.J. of the 

preamble to this final rule, we have 

identified the list of eligible counties and the 

qualifying hospitals located in those counties 

that will receive the $400 million. We are 

finalizing our proposal to spend $150 million 

in FY 2011 and $250 million in FY 2012. 

This money will be given to the qualifying 

hospitals by the fiscal intermediaries or MAC 

through a one-time annual payment. In 

section IV.J. of the preamble to this final rule, 

Table 1 lists the distribution of payments 

among the list of qualifying hospitals. In 

addition, Table 2 in section IV.J. of the 

preamble to this final rule lists the 

distribution of payment by State for FY 2011. 

K. Effects of Implementation of Rural 

Community Hospital Demonstration Program 

In section IV.K of the preamble of this final 

rule, we discuss our implementation of 

section 410A of Public Law 108–173, which 

required the Secretary to establish a 

demonstration that would modify 

reimbursement for inpatient services for up 

to 15 small rural hospitals. Section 

410A(c)(2) requires that ‘‘[i]n conducting the 

demonstration program under this section, 

the Secretary shall ensure that the aggregate 

payments made by the Secretary do not 

exceed the amount which the Secretary 

would have paid if the demonstration 

program under this section was not 

implemented.’’ As discussed in section V.K. 

of the preamble of this final rule, in the IPPS 

final rule for each of the previous 6 fiscal 

years, we have estimated the additional 

payments as a result of the demonstration for 

each of the participating hospitals. In order 

to achieve budget neutrality, we are adjusting 

the national IPPS rates by an amount 

sufficient to account for the added costs of 

this demonstration. In other words, we are 

applying budget neutrality across the 

payment system as a whole rather than 

merely across the participants of this 

demonstration. We believe that the language 

of the statutory budget neutrality requirement 

permits the agency to implement the budget 

neutrality provision in this manner. The 

statutory language requires that ‘‘aggregate 

payments made by the Secretary do not 

exceed the amount which the Secretary 

would have paid if the demonstration * * * 

was not implemented’’ but does not identify 

the range across which aggregate payments 

must be held equal. 

In addition, an extension of this 

demonstration was mandated by the 

Affordable Care Act. The demonstration is 

extended for an additional 5 years and will 

be expanded to up to 30 hospitals. We are 

making an adjustment in this final rule of 

$70,483,384 to the national IPPS rates. This 

amount accounts for an estimate of the 

demonstration cost for FY 2011 for the 10 

hospitals that are currently participating in 

the demonstration, and an estimate of the 

cost of the continuation of the 7 hospitals 

that have participated in the demonstration 

since its inception and that are still 

participating. This amount accounts for the 

portions of their cost reporting periods in FY 

2010 that were not covered in the estimated 

cost of the demonstration in the FY 2010 

IPPS final rule because we formulated these 

estimates under the assumption that the 

demonstration would end in FY 2010. The 

adjustment for this final rule also includes an 

estimate of the cost of participation in the 

demonstration for 20 additional hospitals in 

FY 2011. In addition, for this final rule, we 

had proposed in the May 4, 2010 proposed 

rule to account for any differences between 

the cost of the demonstration program for 

hospitals participating in the demonstration 

during FY 2007, represented by their cost 

reports beginning in FY 2007, and the 

amount that was offset by the budget 

neutrality adjustment for FY 2007. However, 

this final rule does not contain this 

adjustment because the specific numeric 

value associated with this component of the 

adjustment to the national IPPS rates cannot 

be known because settled cost reports 

beginning in FY 2007 of the hospitals 

participating during FY 2007 in the 

demonstration are not available yet. We 

anticipate that those settled cost reports may 

be available prior to the publication of the FY 

2012 IPPS proposed rule, at which time we 

would include a similar proposal. 

L. Effects of Proposed Changes Relating to 

CAHs 

1. CAH Optional Method of Payment for 

Outpatient Services 

In section VI.B.2. of the preamble of this 

final rule, we discuss our amendment to the 

regulations to permit a CAH’s election to be 

paid for outpatient services under the 

optional method to stay in effect until it is 

terminated. Under existing regulations, if a 

CAH wishes to be paid under the optional 

method for outpatient services on a 

continuous basis, it must submit an annual 

election to the fiscal intermediary or MAC 

servicing the CAH at least 30 days prior to 

the cost reporting period for which the 

election is made. Due to the significant 

consequences that result if a CAH fails to 

make a timely election, we are amending the 

regulations at § 413.70(b)(3)(i) to state that, 

effective for CAH cost reporting periods 

beginning on or after October 1, 2010, if a 

CAH has elected the optional method for its 

most recent cost reporting period beginning 

prior to October 1, 2010, or chooses to elect 

the optional method for its upcoming cost 

reporting period, that election will remain in 

place until it is terminated. If a CAH chooses 

to terminate its election, it must submit a 

termination request to the fiscal intermediary 

or MAC servicing the CAH at least 30 days 

prior to the start of the next cost reporting 

period. In order to provide CAHs that have 

cost reporting periods beginning in October 

or November 2010 time to choose to 

terminate an existing election of the optional 

method, we are specifying that these CAHs 

will have until December 1, 2010, to 

terminate their election. We anticipate that 

there will be no additional Medicare 

expenditure associated with this change 

because we are not making any changes that 

govern payment rules for CAHs. Rather, we 

believe the regulatory changes will reduce 

any perceived burden associated with the 

election process and make it easier for CAHs 

to maintain their election of the optional 

method on a continuous basis. 

2. Effects of the Payment for CAH Outpatient 

Services and Ambulance Services 

In section VII.B.3. of the preamble of this 

final rule, we discuss our implementation of 

section 3128 of Public Law 111–148, which 

amends the regulations at 

§ 413.70(b)(3)(ii)(A) to state that, effective for 

cost reporting periods beginning on or after 

January 1, 2004, payment for outpatient 

facility services under the optional method 

will be made at 101 percent of reasonable 

costs. We also are amending the regulations 

at § 413.70(b)(5)(i) to state that, effective for 

cost reporting periods beginning on or after 

January 1, 2004, payment for ambulance 

services furnished by a CAH or an entity that 

is owned and operated by a CAH is 101 

percent of the reasonable costs of the CAH or 

the entity in furnishing those services, but 

only if the CAH or the entity is the only 

provider or supplier of ambulance services 

located within a 35-mile drive of the CAH or 

the entity. We do not believe these 

amendments will result in additional 

payments to CAHs for prior periods because 

we believe that, in fact, we have paid CAHs 

for these services at 101 percent of reasonable 

costs during these prior periods. 

3. Consideration of Costs of Provider Taxes 

as Allowable Costs for CAHs 

In section VI.B.4. of the preamble of this 

final rule, we discuss our clarification of our 

policy regarding the extent to which certain 

provider taxes may be considered allowable 

costs under Medicare, as described in 

sections 2212.1 and 2212.2 of the PRM–1. 

This is a clarification of our longstanding 

policy. Therefore, we have determined that 

there is no financial impact of the change. 

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M. Effects of Policy Relating to Effective Date 

of Provider Agreements and Supplier 

Approvals 

In section VIII. of the preamble of this final 

rule, we discuss our clarification of the 

requirements supporting the existing process 

for assignment of an effective date for a 

provider agreement or supplier approval. 

Approximately 54,500 Medicare providers 

and suppliers are subject to survey and 

certification requirements under this 

proposal. However, this clarification will not 

change the process for providers and 

suppliers. Therefore, we believe that the 

impact of our clarification is negligible. 

N. Effects of Changes Relating to Hospital 

Rehabilitation Services and Respiratory Care 

Services Conditions of Participation 

In section IX. of the preamble of this final 

rule, we discuss our changes to the 

conditions of participation for hospital 

rehabilitation services and respiratory care 

services to clarify the categories of 

practitioners allowed to order rehabilitation 

services and respiratory care services. We 

believe that these changes will impose 

minimal additional costs on hospitals. In 

fact, hospitals may realize some minimal cost 

savings due to the regulatory flexibility of 

these changes, which may allow for greater 

consistency with existing State laws and with 

hospital policies and procedures. The cost of 

implementing these changes will largely be 

limited to the one-time cost related to the 

revision of a hospital’s medical staff bylaws 

and its policies and procedures as they relate 

to the requirements for the categories of 

practitioners allowed to order rehabilitation 

and respiratory care services. There also may 

be some minimal cost associated with 

communicating these changes to affected 

hospital staff. However, we believe that these 

costs will be offset by the benefits derived 

from the overall intent of these changes to 

allow qualified, licensed practitioners, who 

are authorized by the medical staff, to order 

these services as long as they are responsible 

for the care of the patient for whom they are 

ordering the services and as long as such 

privileges are in accordance with hospital 

policies and applicable State laws and 

regulations. Furthermore, the changes will 

clarify existing hospital CoPs to make them 

more consistent not only with each other, but 

also with many State laws and with current 

practice. Therefore, no burden is being 

assessed as a result of the revisions of these 

CoPs, or on the communication of these 

revisions to staff that will be required by this 

final rule, as these practices are usual and 

customary business practices. 

VIII. Effects of Changes in the Capital IPPS 

A. General Considerations 

Provisions of the Affordable Care Act 

necessitated revising the May 4, 2010 FY 

2011 IPPS/LTCH PPS proposed rule. While 

the IPPS payment rates for capital-related 

costs were not directly affected by provisions 

of the Affordable Care Act, changes to the 

wage index as well as to the outlier payment 

adjustment factor were required by the law. 

Changes to the wage index affect the 

geographic adjustment factor (GAF) under 

the capital IPPS which is used in conjunction 

with a factor for changes in DRG 

classifications and weights to determine a 

budget neutrality adjustment factor in 

calculating the capital IPPS rate. A revision 

of the outlier payment adjustment factor was 

required because both inpatient operating 

and inpatient capital-related payments use a 

single set of thresholds to identify outlier 

cases. Changes resulting from the provisions 

of the Affordable Care Act are discussed in 

more detail in section II.A. of the preamble 

of the FY 2011 IPPS//LTCH PPS 

supplemental proposed rule published in the 

Federal Register on June 2, 2010. 

For the impact analysis presented below, 

we used data from the March 2010 update of 

the FY 2009 MedPAR file and the March 

2010 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 

2010 update of the most recently available 

hospital cost report data (FYs 2007 and 2008) 

to categorize hospitals. Our analysis has 

several qualifications. We use the best data 

available and make assumptions about casemix and beneficiary enrollment as described 

below. In addition, as discussed in section 

V.E. of the preamble to this final rule, we 

made a ¥2.9 percent documentation and 

coding adjustment to the national capital rate 

for FY 2011 in addition to the ¥0.6 percent 

adjustment established for FY 2008, and the 

¥0.9 percent adjustment for FY 2009. This 

results in a cumulative adjustment factor of 

0.9574 that we applied to the national capital 

rate to account for improvements in 

documentation and coding that do not reflect 

real changes in case mix under the MS–DRGs 

in FY 2011. We also adjusted the Puerto 

Rico-specific capital rate in FY 2011 to 

account for changes in documentation and 

coding resulting from the adoption of the 

MS–DRGs. 

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 2010 update of 

the FY 2009 MedPAR file, we simulated 

payments under the capital IPPS for revised 

FY 2010 and revised FY 2011 (both years 

have been revised to account for provisions 

in the Affordable Care Act that required 

changes to the wage index and outlier 

threshold, as discussed above in this section) 

for a comparison of total payments per case. 

Any short-term, acute care hospitals not paid 

under the general IPPS (Indian Health 

Service hospitals and hospitals in Maryland) 

are excluded from the simulations. 

The methodology for determining a capital 

IPPS payment is set forth at § 412.312. The 

basic methodology for calculating capital 

IPPS payments in FY 2011 is as follows: 

(Standard Federal Rate) × (DRG weight) × 

(GAF) × (COLA for hospitals located in 

Alaska and Hawaii) × (1 + DSH Adjustment 

Factor + IME adjustment factor, if 

applicable). 

In addition to the other adjustments, 

hospitals may also receive outlier payments 

for those cases that qualify under the 

threshold established for each fiscal year. We 

modeled payments for each hospital by 

multiplying the capital Federal rate by the 

GAF and the hospital’s case-mix. We then 

added estimated payments for indirect 

medical education, disproportionate share, 

and outliers, if applicable. For purposes of 

this impact analysis, the model includes the 

following assumptions: 

• We estimate that the Medicare case-mix 

index will increase by 1.0 percent in both 

FYs 2010 and 2011. 

• We estimate that the Medicare 

discharges will be approximately 11.3 

million in FY 2010 and 11.5 million in FY 

2011. 

• 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 this final 

rule, the update is 1.5 percent for FY 2011. 

• In addition to the FY 2011 update factor, 

the FY 2011 capital Federal rate was 

calculated based on a GAF/DRG budget 

neutrality factor of 0.9990, an outlier 

adjustment factor of 0.9404, and a (special) 

exceptions adjustment factor of 0.9996. 

• For FY 2011, as discussed above and in 

section V.E. of the preamble to this final rule, 

we applied a 0.9574 adjustment to the FY 

2011 national capital rate for changes in 

documentation and coding that are expected 

to increase case-mix under the MS–DRGs but 

do not reflect real case-mix change. 

B. Results 

We used the actuarial model described 

above to estimate the potential impact of our 

changes for FY 2011 on total capital 

payments per case, using a universe of 3,472 

hospitals. As described above, the individual 

hospital payment parameters are taken from 

the best available data, including the March 

2010 update of the FY 2009 MedPAR file, the 

March 2010 update to the PSF, and the most 

recent cost report data from the March 2010 

update of HCRIS. In Table III, we present a 

comparison of estimated total payments per 

case for FY 2010, as revised per the 

Affordable Care Act, compared to FY 2011 

based on the FY 2011 payment policies. 

Column 2 shows estimates of payments per 

case under our model for FY 2010 (as 

revised). Column 3 shows estimates of 

payments per case under our model for FY 

2011. Column 4 shows the total percentage 

change in payments from revised FY 2010 to 

FY 2011. The change represented in Column 

4 includes the 1.5 percent update to the 

capital Federal rate and other changes in the 

adjustments to the capital Federal rate. The 

comparisons are provided by: (1) Geographic 

location; (2) region; and (3) payment 

classification. 

The simulation results show that, on 

average, capital payments per case in FY 

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2011 are expected to decrease as compared 

to capital payments per case in FY 2010. The 

capital rate for FY 2011 will increase 1.5 

percent as compared to the FY 2010 capital 

rate. The changes to the GAFs are expected 

to result, on average, in a slight decrease in 

capital payments, although, for rural regions, 

it is more of a contributing factor to the 

overall decrease in capital payments than to 

urban areas, mostly due to the application of 

the rural floor to the wage index. We also are 

estimating an increase in outlier payments 

from FY 2010 to FY 2011 due primarily to 

an estimated decrease in capital IPPS 

payments per discharge. Since capital 

payments per discharge are projected to be 

slightly lower in FY 2011 compared to FY 

2010, more cases would qualify for outlier 

payments. The net impact of these changes 

is an estimated ¥0.5 percent change in 

capital payments per discharge from FY 2010 

to FY 2011 for all hospitals (as shown below 

in Table III). 

The geographic comparison shows that, on 

average, all urban hospitals, as well as 

hospitals in large urban areas, are expected 

to experience a 0.5 percent decrease in 

capital IPPS payments per case in FY 2011 

as compared to FY 2010. Capital IPPS 

payments per case for rural hospitals are 

expected to decrease 0.7 percent. 

The change comparisons by regions show 

some regions experiencing slight increases in 

total capital payments, while most other 

regions are estimated to experience slight 

decreases in capital payments from FY 2010 

to FY 2011. For the urban regions, changes 

in capital payments range from a ¥1.0 

percent in both the New England region and 

Middle Atlantic region to an increase of 0.2 

percent for the Pacific region. The rural 

regions show estimates of a 1.7 percent 

change in capital payments from FY 2010 to 

FY 2011 in the Middle Atlantic region and 

Pacific region to a 1.9 percent increase for the 

Mountain region. 

By type of ownership, proprietary and 

government hospitals are estimated to 

experience a 0.3 percent decrease in capital 

payments, while voluntary hospitals are 

estimated to experience a 0.6 percent 

decrease in capital payments per case from 

FY 2010 to FY 2011. 

Section 1886(d)(10) of the Act established 

the MGCRB. Hospitals may apply for 

reclassification for purposes of the wage 

index for FY 2011. 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 for FY 2011, we show the average 

capital payments per case for reclassified 

hospitals for FY 2010, as revised per the 

Affordable Care Act. All reclassified and nonreclassified hospitals are expected to 

experience a decrease in capital payments in 

FY 2011 as compared to FY 2010. Urban 

reclassified and rural reclassified hospitals 

are expected to have a decrease in capital 

payments of 0.6 percent and 0.5 percent, 

respectively. For non-reclassified hospitals, 

the estimated decrease in capital payments is 

0.4 percent for urban non-reclassified 

hospitals, and 0.9 percent for rural nonreclassified hospitals. Other reclassified 

hospitals (that is, hospitals reclassified under 

section 1886(d)(8)(B) of the Act) are expected 

to experience a decrease of 1.2 percent in 

capital payments from FY 2010 to FY 2011. 

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BILLING CODE 4120–01–C 

IX. Effects of Payment Rate Changes and 

Policy Changes Under the LTCH PPS 

A. Introduction and General Considerations 

In section VII. of the preamble and section 

VII. of the Addendum to this final rule, we 

set forth the annual update to the payment 

rates for the LTCH PPS for FY 2011. In the 

preamble, we specify the statutory authority 

for the provisions that are presented, identify 

the policies and rationales for our decisions 

as well as alternatives that were considered. 

In this section IX. of Appendix A. to this 

final rule, we discuss the impact of the final 

changes to the payment rates, 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. 

A number of the provisions of the 

Affordable Care Act affected the LTCH PPS. 

The provisions of the Affordable Care Act 

that affected LTCH payments for FY 2011 are 

reflected in this impact analysis. 

Currently, our database of 423 LTCHs 

includes the data for 78 nonprofit (voluntary 

ownership control) LTCHs and 306 

proprietary LTCHs. Of the remaining 39 

LTCHs, 13 LTCHs are government-owned 

and operated and the ownership type of the 

other 26 LTCHs is unknown. In the impact 

analysis, we used the final rates, factors, and 

policies presented in this final rule, 

including the 0.50 percentage point 

reduction to the market basket update 

required by sections 1886(m)(3) and (m)(4) of 

the Act and the updated wage index values 

and the labor-related share, and the best 

available claims and CCR data to estimate the 

change in payments for FY 2011. The 

standard Federal rate for RY 2010 is 

$39,794.95, which reflects the 0.25 

percentage point reduction applied to the RY 

2010 market basket update required under 

sections 1886(m)(3) and (m)(4) of the Act (as 

established in the FY 2010 IPPS/LTCH PPS 

notice published in the Federal Register on 

June 2, 2010). Discharges in RY 2010 

occurring on or after April 1, 2010 are paid 

under the revised RY 2010 standard Federal 

rate consistent with section 3401(p) of the 

Affordable Care Act. Discharges in RY 2010 

occurring on or after October 1, 2009, and on 

or before March 31, 2010, are paid under the 

standard Federal rate of $39,896.65 (74 FR 

44022). As discussed in section VII.A.2. of 

the Addendum to this final rule, consistent 

with our historical practice, we are finalizing 

an update to the standard Federal rate for FY 

2011 by ¥0.49 percent and establishing a 

standard Federal rate of $39,599.95 for FY 

2011. This includes a market basket update 

of 2.5 percent with a 0.50 percentage point 

reduction as required under sections 

1886(m)(3) and (m)(4) of the Act, and the 

documentation and coding adjustment of 

¥2.5 percent to account for increases in casemix associated with the adoption of the MS– 

LTC–DRGs. Based on the best available data 

for the 423 LTCHs in our database, we 

estimate that the update to the standard 

Federal rate for FY 2011 (discussed in section 

VII.A.2. of the Addendum to this final rule) 

and the changes to the area wage adjustment 

for FY 2011 (discussed in section VII.B. of 

the Addendum to this final rule), in addition 

to an estimated increase in HCO payments 

and an estimated increase in SSO payments, 

would result in an increase in estimated 

payments from RY 2010 of approximately 

$22.3 million (or about 0.5 percent). Based on 

the 423 LTCHs in our database, we estimate 

FY 2011 LTCH PPS payments to be 

approximately $4.932 billion, an increase 

from RY 2010 LTCH PPS payments of 

approximately $4.909 billion. Because the 

combined distributional effects and 

estimated changes to the Medicare program 

payments would be greater than $100 

million, this final rule is considered a major 

economic rule, as defined in this section. We 

note the approximately $22.3 million 

projected increase in estimated aggregate 

LTCH PPS payments from RY 2010 to FY 

2011 does not reflect changes in LTCH 

admissions or case-mix intensity in estimated 

LTCH PPS payments, which also would 

affect overall payment changes. 

The projected 0.5 percent increase in 

estimated payments per discharge from RY 

2010 to FY 2011 is attributable to several 

factors, including the ¥0.49 percent decrease 

to the standard Federal rate, changes in the 


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wage index values (including the change to 

the labor-related share) presented in section 

VII.B. of the Addendum to this final rule and 

projected increases in estimated HCO and 

SSO payments. As Table IV shows, the 

change attributable solely to the standard 

Federal rate is projected to result in an 

decrease of 0.4 percent in estimated 

payments per discharge from RY 2010 to FY 

2011, on average, for all LTCHs, while the 

changes to the area wage adjustment are 

projected to result in an increase in estimated 

payments of 0.1 percent, on average, for all 

LTCHs. 

As discussed in section VII.B. of this final 

rule, we are updating the wage index values 

for FY 2011 based on the most recent 

available data. In addition, we are finalizing 

a slight decrease in the labor-related share 

from 75.779 percent to 75.271 percent under 

the LTCH PPS for FY 2011 based on the most 

recent available data on the relative 

importance of the labor-related share of 

operating and capital costs of the RPL market 

basket. The wage data and the labor-related 

share are expected to increase LTCH PPS 

payments by 0.1 percent. 

Table IV below shows the impact of the 

final payment rate and final policy changes 

on LTCH PPS payments for FY 2011 

presented in this final rule by comparing RY 

2010 estimated payments to FY 2011 

estimated payments. The projected increase 

in payments per discharge from RY 2010 to 

FY 2011 is 0.5 percent (shown in Column 8). 

This projected increase in payments is 

attributable to the impacts of the change to 

the standard Federal rate (¥0.4 percent in 

Column 6) and the change due to the area 

wage adjustment (0.1 percent in Column 7), 

as well as the effect of the estimated increase 

in payments for HCO cases and SSO cases in 

FY 2011 as compared to RY 2010 (0.6 percent 

and 0.3 percent, respectively). That is, 

estimated total HCO payments are projected 

to increase from RY 2010 to FY 2011 in order 

to ensure that estimated HCO payments will 

be 8 percent of the total estimated LTCH PPS 

payments in FY 2011. An analysis of the 

most recent available LTCH PPS claims data 

(that is, FY 2009 claims data from the March 

2010 update of the MedPAR file) indicates 

that the RY 2010 HCO threshold of $18,615 

(as announced in the June 2, 2010 FY 2010 

IPPS/LTCH PPS notice) may result in HCO 

payments in RY 2010 that fall below the 

estimated 8 percent. Specifically, we 

currently estimate that HCO payments will 

be approximately 7.4 percent of the estimated 

total LTCH PPS payments in RY 2010. We 

note that the RY 2010 outlier payment 

estimate in this impact analysis takes into 

account for the revised RY 2010 rate and 

outlier threshold determined consistent with 

sections 1886(m)(3) and (4) of the Act and 

section 3401(p) of the Affordable Care Act 

that are used to make payments for 

discharges in RY 2010 that occur on or after 

April 1, 2010. We estimate that the impact of 

the increase in HCO payments would result 

in approximately a 0.6 percent increase in 

estimated payments from RY 2010 to FY 

2011, on average, for all LTCHs. Furthermore, 

in calculating the estimated increase in 

payments from RY 2010 to FY 2011 for HCO 

and SSO cases, we increased estimated costs 

by the applicable market basket percentage 

increase as projected by our actuaries, which 

increases payments by 0.3 percent relative to 

last year. We note that estimated payments 

for all SSO cases comprise approximately 14 

percent of the estimated total LTCH PPS 

payments, and estimated payments for HCO 

cases comprise approximately 8 percent of 

the estimated total LTCH PPS payments. 

Payments for HCO cases are based on 80 

percent of the estimated cost of the case 

above the HCO threshold, while the majority 

of the payments for SSO cases (over 65 

percent) are based on the estimated cost of 

the SSO case. 

As we discuss in detail throughout this 

final rule, based on the most recent available 

data, we believe that the provisions of this 

final rule relating to the LTCH PPS will result 

in an increase in estimated aggregate LTCH 

PPS payments and that the resulting LTCH 

PPS payment amounts result in appropriate 

Medicare payments. 

B. Impact on Rural Hospitals 

For purposes of section 1102(b) of the Act, 

we define a small rural hospital as a hospital 

that is located outside of an urban area and 

has fewer than 100 beds. As shown in Table 

IV, we are projecting a 0.9 percent increase 

in estimated payments per discharge for FY 

2011 as compared to RY 2010 for rural 

LTCHs that will result from the changes 

presented in this final rule, as well as the 

effect of estimated changes to HCO and SSO 

payments. This estimated impact is based on 

the data for the 26 rural LTCHs in our 

database (out of 423 LTCHs), for which 

complete data were available. The RY 2010 

average payment per case in Table IV 

accounts for the changes required by sections 

1886(m)(3) and (4) of the Act and section 

3401(p) of the Affordable Care Act, which 

affects payments for discharges occurring on 

or after April 1, 2010, as described below in 

section IX.C.3. of the Appendix to this final 

rule. 

The estimated increase in LTCH PPS 

payments from RY 2010 to FY 2011 for rural 

LTCHs is primarily due to the higher than 

average impacts from the changes to the area 

wage adjustment and the reduction in the 

labor-related share from 75.779 to 75.271, 

which results in an estimated 0.6 percent 

increase in payments. 

C. Anticipated Effects of LTCH PPS Payment 

Rate Change and Policy Changes 

1. Budgetary Impact 

Section 123(a)(1) of the BBRA requires that 

the PPS developed for LTCHs ‘‘maintain 

budget neutrality.’’ We believe that the 

statute’s mandate for budget neutrality 

applies only to the first year of the 

implementation of the LTCH PPS (that is, FY 

2003). Therefore, in calculating the FY 2003 

standard Federal rate under § 412.523(d)(2), 

we set total estimated payments for FY 2003 

under the LTCH PPS so that estimated 

aggregate payments under the LTCH PPS 

were estimated to equal the amount that 

would have been paid if the LTCH PPS had 

not been implemented. 

As discussed in section IX.A. of this 

Appendix, we project an increase in 

aggregate LTCH PPS payments in FY 2011 of 

approximately $22.3 million (or 0.5 percent) 

based on the 423 LTCHs in our database. 

2. Impact of Moratorium and Other 

Provisions 

Section 114(c) and (d) of the Medicare, 

Medicaid, and SCHIP Extension Act of 2007 

(MMSEA), as amended by section 4302 of the 

American Recovery and Reinvestment Act of 

2009 (ARRA), provided for a 3-year delay in 

certain payment policies relating to LTCHs 

and LTCH satellite facilities. Sections 3106 

and 10312 of the Affordable Care Act 

together provide for a 2-year extension of the 

3-year delay in implementation of certain 

payment policies relating to certain LTCHs 

and LTCH satellite facilities. Specifically, 

these provisions affect payment adjustments 

for ‘‘very’’ short stay outliers (SSOs), the onetime adjustment to the standard Federal rate, 

the 25 percent payment threshold policy, and 

the moratorium on the establishment of new 

LTCHs and LTCH satellite facilities and the 

moratorium on the increase in LTCH beds in 

existing LTCHs or satellite facilities. 

Sections 3106 and 10312 of the Affordable 

Care Act together provide for a 2-year 

extension of the 3-year delay in 

implementation of the revision to the SSO 

policy at § 412.529(c)(3)(i) that was finalized 

in the RY 2008 final rule. We estimate that 

the extension of the SSO provision will result 

in a projected increase in estimated aggregate 

LTCH PPS payments of approximately $20 

million in FY 2011. Sections 3106 and 10312 

of the Affordable Care Act together provide 

for a 2-year extension to several 

modifications to the regulations at § 412.534 

and § 412.536 required by section 114(c) of 

MMSEA, as amended by section 4302 of the 

ARRA, which addressed the percentage 

thresholds between referring hospitals and 

LTCHs and satellites of LTCHs. We estimate 

that the implementation of this extension of 

the MMSEA provisions, as amended by the 

ARRA, pertaining to § 412.534 and § 412.536 

will result in a projected increase in 

estimated aggregate LTCH PPS payments of 

approximately $20 million for FY 2011. 

Regarding the 2-year extension of the 

moratorium on the development of new 

LTCHs and LTCH satellites and on the 

increase in beds in existing LTCHs and LTCH 

satellites, as we noted in the May 22, 2008 

interim final rule with comment period when 

the original 3-year delay required by section 

114(d) of the MMSEA, as amended by the 

ARRA, was implemented, we are unable to 

quantify the impact of the additional 2-year 

moratorium on the establishment of LTCHs, 

LTCH satellite facilities, and on the increase 

of LTCH beds in existing LTCHs or satellite 

facilities with limited exceptions. We are 

unable to provide an estimate of the impact 

of the 2-year extension of this provision 

because we have no way of determining how 

many LTCHs would have opened in the 

absence of the moratorium, nor do we have 

sufficient information at this time to 

determine how many new LTCHs will meet 

the criteria for an exception described in the 

statute. 

3. Impact on Providers 

The basic methodology for determining a 

per discharge LTCH PPS payment is set forth 

in § 412.515 through § 412.536. In addition to 

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the basic MS–LTC–DRG payment (the 

standard Federal rate multiplied by the 

MS–LTC–DRG relative weight), we make 

adjustments for differences in area wage 

levels, the COLA for Alaska and Hawaii, and 

SSOs. Furthermore, LTCHs may also receive 

HCO payments for those cases that qualify 

based on the threshold established each year. 

To understand the impact of the changes 

to the LTCH PPS payments presented in this 

final rule on different categories of LTCHs for 

FY 2011, it is necessary to estimate payments 

per discharge for RY 2010 using the rates, 

factors (including the FY 2010 GROUPER 

(Version 27.0), and relative weights and the 

policies established in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 43945 

through 43994 and 44021 through 44030) and 

to include any changes to payments due to 

the provisions under sections 1886(m)(3) and 

(4) of the Act and section 3401(p) of the 

Affordable Care Act, which affects payments 

for discharges occurring on or after April 1, 

2010 in RY 2010 (as announced in the June 

2, 2010 FY 2010 IPPS/LTCH PPS notice). It 

is also necessary to estimate the payments 

per discharge that would be made under the 

final LTCH PPS rates, factors, policies, and 

GROUPER (Version 28.0) for FY 2011 (as 

discussed in III. of the preamble and section 

VII. of the Addendum to this final rule). 

These estimates of RY 2010 and FY 2011 

LTCH PPS payments are based on the best 

available LTCH claims data and other factors, 

such as the application of inflation factors to 

estimate costs for SSO and HCO cases in each 

year. We also evaluated the change in 

estimated RY 2010 payments to estimated FY 

2011 payments (on a per discharge basis) for 

each category of LTCHs. 

Hospital groups were based on 

characteristics provided in the OSCAR data, 

FY 2007 through FY 2008 cost report data in 

HCRIS, and PSF data. Hospitals with 

incomplete characteristics were grouped into 

the ‘‘unknown’’ category. Hospital groups 

include the following: 

• Location: large urban/other urban/rural. 

• Participation date. 

• Ownership control. 

• Census region. 

• Bed size. 

To estimate the impacts of the payment rates 

and policy changes among the various 

categories of existing providers, we used 

LTCH cases from the FY 2009 MedPAR file 

to estimate payments for RY 2010 and to 

estimate payments for FY 2011 for 423 

LTCHs. We believe that the discharges based 

on the FY 2009 MedPAR data for the 423 

LTCHs in our database, which includes 306 

proprietary LTCHs, provide sufficient 

representation in the MS–LTC–DRGs 

containing discharges for patients who 

received LTCH care for the most commonly 

treated LTCH patients’ diagnoses. 

4. Calculation of Prospective Payments 

For purposes of this impact analysis, to 

estimate per discharge payments under the 

LTCH PPS, we simulated payments on a 

case-by-case basis using LTCH claims from 

the FY 2009 MedPAR files. For modeling 

estimated LTCH PPS payments for RY 2010, 

we calculated a blended RY 2010 payment to 

account for changes in the rate in accordance 

with sections 1886(m)(3) and (m)(4) of the 

Act and section 3401(p) of the Affordable 

Care Act. Specifically, we applied the RY 

2010 standard Federal rate (that is, 

$39,896.65, under which LTCH discharges 

occurring on or after October 1, 2009, and 

through March 31, 2010 are paid, and 

$39,794.95, under which LTCH discharges 

occurring on or after April 1, 2010 and 

through September 30, 2010 are paid). For 

modeling estimated LTCH PPS payments for 

FY 2011, we applied the FY 2011 standard 

Federal rate of $39,599.95, which will be 

effective for LTCH discharges occurring on or 

after October 1, 2010, and through September 

30, 2011. 

Furthermore, in modeling estimated LTCH 

PPS payments for both RY 2010 and FY 2011 

in this impact analysis, we applied the RY 

2010 and the FY 2011 adjustments for area 

wage differences and the COLA for Alaska 

and Hawaii. Specifically, we adjusted for 

area wage differences for estimated RY 2010 

payments using the current LTCH PPS laborrelated share of 75.779 percent (74 FR 

43968), the wage index values established in 

the Tables 12A and 12B of the Addendum to 

the FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 44192 through 44213) and the RY 

2010 COLA factors shown in the table in 

section V. of the Addendum to that final rule 

(74 FR 44026). Similarly, we adjusted for area 

wage differences for estimated FY 2011 

payments using the finalized LTCH PPS FY 

2011 labor-related share of 75.271 percent, 

the FY 2011 wage index values presented in 

Tables 12A and 12B of the Addendum to this 

final rule, and the FY 2011 COLA factors 

shown in the table in section VII.B.5. of the 

Addendum to the final rule. 

As discussed above, our impact analysis 

reflects an estimated change in payments for 

SSO cases, as well as an estimated increase 

in payments for HCO cases (as described in 

section VII.C. of the Addendum to this final 

rule). In modeling payments for SSO and 

HCO cases in RY 2010, we applied an 

inflation factor of 1.025 percent (determined 

by OACT) to the estimated costs of each case 

determined from the charges reported on the 

claims in the FY 2009 MedPAR files and the 

best available CCRs from the March 2010 

update of the PSF. In modeling payments for 

SSO and HCO cases in FY 2011, we applied 

an inflation factor of 1.050 (determined by 

OACT) to the estimated costs of each case 

determined from the charges reported on the 

claims in the FY 2009 MedPAR files and the 

best available CCRs from the March 2010 

update of the PSF. Furthermore, in modeling 

estimated LTCH PPS payments for both RY 

2010 and FY 2011 in this impact analysis, we 

applied the RY 2010 HCO fixed-loss amount 

of $18,425 (74 FR 44029) for the first half of 

RY 2010, the revised RY 2010 HCO fixed-loss 

amount of $18,615 established in conjunction 

with implementing the provisions of sections 

1886(m)(3) and (m)(4) of the Act and section 

3401(p) of the Affordable Care Act for the 

second half of RY 2010, and the FY 2011 

fixed loss amount of $18,785 (as discussed in 

section VII.C. of the Addendum to this final 

rule). 

These impacts reflect the estimated 

‘‘losses’’ or ‘‘gains’’ among the various 

classifications of LTCHs from the RY 2010 to 

FY 2011 based on the payment rates and 

policy changes presented in this final rule. 

Table IV illustrates the estimated aggregate 

impact of the LTCH PPS among various 

classifications of LTCHs. 

• The first column, LTCH Classification, 

identifies the type of LTCH. 

• The second column lists the number of 

LTCHs of each classification type. 

• The third column identifies the number 

of LTCH cases. 

• The fourth column shows the estimated 

payment per discharge for RY 2010 (as 

described above). 

• The fifth column shows the estimated 

payment per discharge for FY 2011 (as 

described above). 

• The sixth column shows the percentage 

change in estimated payments per discharge 

from RY 2010 to FY 2011 for changes to the 

standard Federal rate (as discussed in section 

VII.A.2. of the Addendum to this final rule). 

• The seventh column shows the 

percentage change in estimated payments per 

discharge from RY 2010 to FY 2011 for 

changes to the area wage adjustment at 

§ 412.525(c) (as discussed in section VII.B. of 

the Addendum to the final rule). 

• The eighth column shows the percentage 

change in estimated payments per discharge 

from RY 2010 (Column 4) to FY 2011 

(Column 5) for all finalized and statutory 

changes (and includes the effect of estimated 

changes to HCO and SSO payments). 

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BILLING CODE 4120–01–C 

5. Results 

Based on the most recent available data for 

423 LTCHs, we have prepared the following 

summary of the impact (as shown in Table 

IV) of the LTCH PPS payment rate and policy 

changes presented in this final rule. The 

impact analysis in Table IV shows that 

estimated payments per discharge are 

expected to increase approximately 0.5 

percent, on average, for all LTCHs from RY 

2010 to FY 2011 as a result of the finalized 

payment rate and policy changes presented 

in this final rule, as well as estimated 

increases in HCO and SSO payments. We 

note that we applied a ¥0.49 percent update 

to the standard Federal rate for FY 2011, 

based on the latest market basket estimate 

(2.5 percent), the ¥0.50 percentage point 

reduction required under sections 1886(m)(3) 

and (m)(4) of the Act, and the adjustment for 

the effect of changes in documentation and 

coding in FY 2008 and FY 2009 of ¥2.5 

percent. We noted earlier in this section that 

for most categories of LTCHs, as shown in 

Table IV (Column 6), the impact of the 

decrease of approximately ¥0.5 percent to 

the standard Federal rate is projected to 

result in approximately a ¥0.4 percent 

change in estimated payments per discharge 

for all LTCHs from RY 2010 to FY 2011. 

Because payments to cost-based SSO cases 

and a portion of payments to SSO cases that 

are paid based on the ‘‘blend’’ option of the 

SSO payment formula at § 412.529(c)(2)(iv) 

are not affected by the update to the standard 

Federal rate, we estimate that the effect of the 

0.49 percent reduction to the standard 

Federal rate would result in a 0.4 percent 

reduction on estimated aggregate LTCH PPS 

payments to all LTCH PPS cases, including 

SSO cases. Furthermore, as discussed 

previously in this regulatory impact analysis, 

the average increase in estimated payments 

per discharge from the RY 2010 to FY 2011 

for all LTCHs of approximately 0.5 percent 

(as shown in Table IV) was determined by 

comparing estimated FY 2011 LTCH PPS 

payments (using the final rates, final policies 

and statutory changes discussed in this final 

rule) to estimated RY 2010 LTCH PPS 

payments (as described above in section 

IX.C.3. of this Appendix). 

a. Location 

Based on the most recent available data, 

the vast majority of LTCHs are located in 

urban areas. Only approximately 6 percent of 

the LTCHs are identified as being located in 

a rural area, and approximately 4 percent of 

all LTCH cases are treated in these rural 

hospitals. The impact analysis presented in 

Table IV shows that the average percent 

increase in estimated payments per discharge 

from RY 2010 to FY 2011 for all hospitals is 

0.5 percent for all changes. For rural LTCHs, 

the percent change for all changes is 

estimated to be 0.9 percent, while for urban 

LTCHs, we estimate the increase to be 0.4 

percent. Large urban LTCHs are projected to 

experience an increase of 0.5 percent in 

payments per discharge from RY 2010 to FY 

2011, while other urban LTCHs are projected 

to experience an increase of 0.3 percent in 

payments per discharge from RY 2010 to FY 

2011, as shown in Table IV. 

b. Participation Date 

LTCHs are grouped by participation date 

into four categories: (1) Before October 1983; 

(2) between October 1983 and September 


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1993; (3) between October 1993 and 

September 2002; and (4) after October 2002. 

Based on the most recent available data, the 

majority (approximately 49 percent) of the 

LTCH cases are in hospitals that began 

participating in the Medicare program 

between October 1993 and September 2002. 

These hospitals are projected to experience 

nearly the average increase (0.3 percent) in 

estimated payments per discharge from RY 

2010 to FY 2011, as shown in Table IV. 

In the participation category where LTCHs 

began participating in the Medicare program 

before October 1983, LTCHs are projected to 

experience a higher than average percent 

increase (0.6 percent) in estimated payments 

per discharge from RY 2010 to FY 2011, as 

shown in Table IV. Approximately 4 percent 

of LTCHs began participating in Medicare 

before October 1983. The LTCHs in this 

category are projected to experience a slightly 

higher than average increase in estimated 

payments because of increases in their wage 

data, increase under the MS–LTC–DRG 

GROUPER (Version 28) and relative weights, 

and estimated increases in their SSO 

payments relative to last year. Approximately 

10 percent of LTCHs began participating in 

Medicare between October 1983 and 

September 1993. These LTCHs are also 

projected to experience a slightly higher than 

average increase (0.6 percent) in estimated 

payments from RY 2010 to FY 2011. LTCHs 

that began participating in Medicare after 

October 2002 currently represent 

approximately 39 percent of all LTCHs, and 

are projected to experience an average 

increase (0.5 percent) in estimated payments 

from RY 2010 to FY 2011. 

c. Ownership Control 

Other than LTCHs whose ownership 

control type is unknown, LTCHs are grouped 

into three categories based on ownership 

control type: Voluntary, proprietary, and 

government. Based on the most recent 

available data, approximately 18 percent of 

LTCHs are identified as voluntary (Table IV). 

We expect that, for these LTCHs in the 

voluntary category, estimated FY 2011 LTCH 

payments per discharge will increase higher 

than the average (0.8 percent) in comparison 

to estimated payments in RY 2010 primarily 

because we project an increase in estimated 

HCO payments and SSO payments to be 

higher than the average for these LTCHs. The 

majority (72 percent) of LTCHs are identified 

as proprietary and these LTCHs are projected 

to experience an average increase (0.4 

percent) in estimated payments per discharge 

from RY 2010 to FY 2011. Finally, 

government-owned and operated LTCHs (3 

percent) are expected to experience a higher 

than the average increase (1.0 percent) in 

estimated payments primarily due to a larger 

than the average increase in estimated HCO 

payments and increases under the MS–LTC– 

DRG GROUPER (Version 28) and relative 

weights. 

d. Census Region 

Estimated payments per discharge for FY 

2011 are projected to increase for LTCHs 

located in all regions in comparison to RY 

2010. Of the 9 census regions, we project that 

the increase in estimated payments per 

discharge will have the largest positive 

impact on LTCHs in the Pacific region (0.7 

percent, as shown in Table IV). The 

estimated percent increase in payments per 

discharge from RY 2010 to FY 2011 for the 

Pacific is largely attributable to the projected 

increase in estimated HCO and SSO 

payments and changes in their wage 

adjustment. 

In contrast, LTCHs located in the Middle 

Atlantic region are projected to experience 

the smallest increase in estimated payments 

per discharge from RY 2010 to FY 2011. The 

average estimated increase in payments of 0.2 

percent for LTCHs in the Middle Atlantic 

region is primarily due to estimated 

decreases in payments associated with the 

wage index because 50 percent of LTCHs 

located in this region will have a FY 2011 

wage index value that is less than their RY 

2010 wage index value. 

e. Bed Size 

LTCHs were 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 

payments for small LTCHs (0–24 beds) would 

experience a 1.0 percent increase in 

payments due to increases in their wage 

index while large LTCHs (200+ beds) would 

experience a 0.2 percent increase in 

payments. LTCHs with between 75 and 124 

beds and between 125 and 199 beds are 

expected to experience an above average 

increase in payments per discharge from RY 

2010 to FY 2011 (0.8 percent and 0.6 percent, 

respectively) primarily due to a larger than 

average estimated increase in payments from 

the FY 2011 changes to the area wage 

adjustment. 

D. Effect on the Medicare Program 

As noted previously, we project that the 

provisions of this final rule would result in 

an increase in estimated aggregate LTCH PPS 

payments in FY 2011 of approximately $22.3 

million (or about 0.5 percent) for the 423 

LTCHs in our database. 

E. Effect on Medicare Beneficiaries 

Under the LTCH PPS, hospitals receive 

payment based on the average resources 

consumed by patients for each diagnosis. We 

do not expect any changes in the quality of 

care or access to services for Medicare 

beneficiaries under the LTCH PPS, but we 

expect that paying prospectively for LTCH 

services would enhance the efficiency of the 

Medicare program. 

X. Effects of Policy Changes Regarding 

Accreditation Requirements for Medicaid 

Providers of Inpatient Psychiatric Services 

for Individuals Under Age 21 

In section X. of the preamble of this final 

rule, we discuss the removal of the Medicaid 

requirement for Joint Commission 

accreditation of psychiatric hospitals and 

hospitals with inpatient psychiatric 

programs. Psychiatric hospitals will have the 

choice of undergoing a State survey to 

determine whether the hospital meets the 

requirements to participate in Medicare as a 

psychiatric hospital under 42 CFR 482.60, or 

obtaining accreditation from a national 

accrediting organization whose psychiatric 

hospital accrediting program has been 

approved by CMS. Likewise, hospitals with 

inpatient psychiatric programs will have the 

choice of undergoing a State survey to 

determine whether the hospital meets the 

requirements for participation in Medicare as 

a hospital as specified in 42 CFR part 482 or 

obtaining accreditation from a national 

accrediting organization whose hospital 

accreditation program has been approved by 

CMS. 

Ensuring access to services is a priority for 

CMS, and we believe that this revision to the 

regulations will result in an increased 

number of psychiatric hospitals and hospitals 

with inpatient psychiatric programs being 

able to provide services. In addition, the 

revision to the accreditation requirement 

aligns Medicaid standards with existing 

standards in the Medicare program. We 

believe that this flexibility in obtaining 

accreditation will facilitate the provision of 

medically necessary, Medicaid-reimbursable 

psychiatric services to vulnerable children, 

while maintaining the high quality of care 

demanded by the Medicaid program. 

We are not preparing an analysis for this 

policy under the RFA because we have 

determined that the policy will not have a 

significant economic impact on a substantial 

number of small entities. 

We are not preparing an analysis for 

section 1102(b) of the Act because this policy 

will not have a significant impact on the 

operations of a substantial number of small 

rural hospitals. 

Section 202 of the Unfunded Mandates 

Reform Act of 1995 also requires that 

agencies assess anticipated costs and benefits 

before issuing any rule that may result in 

expenditure in any one year of $100 million 

in 1995 dollars, updated annually for 

inflation. That threshold level is currently 

approximately $135 million. This policy will 

not result in an impact of $135 million or 

more on State, local or tribal governments, in 

the aggregate, or on the private sector. 

Executive Order 13132 establishes certain 

requirements that an agency must meet when 

it promulgates a proposed rule (and 

subsequent final rule) that imposes 

substantial direct requirement costs on State 

and local governments, preempts State law, 

or otherwise has Federalism implications. 

Because this policy does not impose any 

costs on State or local governments, the 

requirements of Executive Order 13132 are 

not applicable. 

XI. Alternatives Considered 

This final rule contains a range of policies. 

The preamble of this final rule provides 

descriptions of the statutory provisions that 

are addressed, identifies policies and 

presents rationales for our decisions and, 

where relevant, alternatives that were 

considered. 

XII. Overall Conclusion 

A. Acute Care Hospitals 

Table I of section VI. of this Appendix 

demonstrates the estimated distributional 

impact of the IPPS budget neutrality 

requirements for the final MS–DRG and wage 

index changes, and for the wage index 

reclassifications under the MGCRB. Table I 

also shows an overall decrease of 0.4 percent 

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in operating payments. We estimate that 

operating payments will decrease by 

approximately $440 million in FY 2011. In 

addition, we estimates the reporting of 

hospital quality data program costs at $2.4 

million, a savings of $20 million associated 

with the HACs policies, an additional 

spending of $18.2 million for new technology 

add-on payments, an additional $150 million 

to hospitals that qualify for an additional 

payment as provided under section 1109 of 

Public Law 111–152, and all other operating 

payment policies described in section VII. of 

this Appendix. These estimates, added to our 

FY 2011 operating estimate of ¥$440 

million, result in a decrease of $290 million 

for FY 2011. We estimate that capital 

payments will experience ¥0.5 percent 

change in payments per case, as shown in 

Table III of section VIII. of this Appendix. We 

project that there will be a $21 million 

decrease in capital payments in FY 2011 

compared to FY 2010. The cumulative 

operating and capital payments should result 

in a net decrease of $311 million to IPPS 

providers. The discussions presented in the 

previous pages, in combination with the rest 

of this final rule constitute a regulatory 

impact analysis. 

B. LTCHs 

Overall, LTCHs are projected to experience 

an increase in estimated payments per 

discharge in FY 2011. In the impact analysis, 

we are using the final rates, factors, and 

policies presented in this final rule, 

including final updated wage index values 

and relative weights, and the best available 

claims and CCR data to estimate the change 

in payments under the LTCH PPS for FY 

2011. Accordingly, based on the best 

available data for the 423 LTCHs in our 

database, we estimate that FY 2011 LTCH 

PPS payments will increase approximately 

$22 million (or about 0.5 percent). 

XIII. Accounting Statements 

A. Acute Care Hospitals 

As required by OMB Circular A–4 

(available at http://www.whitehouse.gov/ 

omb/circulars/a004/a-4.pdf), in Table V 

below, we have prepared an accounting 

statement showing the classification of the 

expenditures associated with the provisions 

of this final rule as they relate to acute care 

hospitals. This table provides our best 

estimate of the change in Medicare payments 

to providers as a result of the finalized 

changes to the IPPS presented in this final 

rule. All expenditures are classified as 

transfers to Medicare providers. 

TABLE V—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES UNDER THE IPPS 

FROM FY 2010 TO FY 2011 

Category Transfers 

Annualized Monetized 

Transfers.

¥$311 million. 

From Whom to Whom Federal Government 

to IPPS Medicare 

Providers. 

TABLE V—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES UNDER THE IPPS 

FROM FY 2010 TO FY 2011—Continued 

Category Transfers 

Total ................... ¥$311 million. 

B. LTCHs 

As discussed in section IX. of this 

Appendix, the impact analysis for the 

finalized changes under the LTCH PPS for 

this final rule projects an increase in 

estimated aggregate payments of 

approximately $22 million (or about 0.5 

percent) for the 423 LTCHs in our database 

that are subject to payment under the LTCH 

PPS. Therefore, as required by OMB Circular 

A–4 (available at http://www.whitehouse.gov/ 

omb/circulars/a004/a-4.pdf), in Table VI 

below, we have prepared an accounting 

statement showing the classification of the 

expenditures associated with the provisions 

of this final rule as they relate to changes to 

the LTCH PPS. Table VI provides our best 

estimate of the estimated increase in 

Medicare payments under the LTCH PPS as 

a result of the finalized provisions presented 

in this final rule based on the data for the 423 

LTCHs in our database. All expenditures are 

classified as transfers to Medicare providers 

(that is, LTCHs). 

TABLE VI—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES FROM THE 2010 LTCH 

PPS RATE YEAR TO THE FY 2011 

LTCH PPS 

Category Transfers 

Annualized Monetized 

Transfers. 

Positive transfer—Estimated increase in 

expenditures: $22 

million. 

From Whom to Whom Federal Government 

to LTCH PPS Medicare Providers. 

Total ................... $22 million. 

XIV. 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 the MedPAC, 

recommend update factors for inpatient 

hospital services for each fiscal year that take 

into account the amounts necessary for the 

efficient and effective delivery of medically 

appropriate and necessary care of high 

quality. Under section 1886(e)(5) of the Act, 

we are required to publish update factors 

recommended by the Secretary in the 

proposed and final IPPS rules, respectively. 

Accordingly, this Appendix provides the 

recommendations for the update factors for 

the IPPS national standardized amount, the 

Puerto Rico-specific standardized amount, 

the hospital-specific rates for SCHs and 

MDHs, and the rate-of-increase limits for 

certain hospitals excluded from the IPPS, as 

well as LTCHs, IPFs, and IRFs. We also 

discuss our response to MedPAC’s 

recommended update factors for inpatient 

hospital services. 

II. Inpatient Hospital Update for FY 2011 

Several provisions of the Affordable Care 

Act (Pub. L. 111–148 and Pub. L. 111–152, 

collectively) affected the hospital inpatient 

update for both FYs 2010 and 2011. 

However, due to the timing of the passage of 

the legislation, we were unable to address 

those provisions in the FY 2011 IPPS/LTCH 

PPS proposed rule issued in the Federal 

Register on May 4, 2010 (75 FR 30756). On 

June 2, 2010, we issued a supplemental 

proposed rule (75 FR 30918) to the FY 2011 

IPPS/LTCH PPS proposed rule to address 

these provisions. The discussion below 

reflects both the provisions of the initial FY 

2011 proposed rule and the supplemental 

proposed rule relative to the FY 2011 

hospital inpatient update and any public 

comments that we received on both 

documents. We note that, in the June 2, 2010 

supplemental proposed rule, we did not 

propose to address the provisions of section 

3401 of the Affordable Care Act, which 

provided for a productivity adjustment for 

FY 2012 and subsequent fiscal years. Rather, 

we indicated that the provisions of section 

3401 that affect FY 2012 would be addressed 

in future rulemaking. 

A. FY 2011 Inpatient Hospital Update 

Section 3401(a) of the Affordable Care Act 

amended section 1886(b)(3)(B)(i) of the Act to 

provide that the FY 2011 applicable 

percentage increase for IPPS hospitals equals 

the rate-of-increase in the hospital market 

basket for IPPS hospitals in all areas is 

reduced by 0.25 percentage point, subject to 

the hospital submitting quality data under 

rules established by the Secretary in 

accordance with section 1886(b)(3)(B)(viii) of 

the Act. For hospitals that do not provide 

quality data, the update is equal to the 

market basket percentage increase minus a 

0.25 percentage point less an additional 2.0 

percentage points. Section 3401(a)(4) of the 

Affordable Care Act further states that this 

amendment may result in the applicable 

percentage increase being less than zero. 

In the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24321 and 24322), we announced 

that, due to the timing of the passage of the 

Affordable Care Act, we were unable to 

address those statutory provisions in that 

proposed rule. In that proposed rule, 

consistent with current law, based on IHS 

Global Insight, Inc.’s first quarter 2010 

forecast, with historical data through the 

2009 fourth quarter, of the FY 2011 IPPS 

market basket increase, we estimated that the 

FY 2011 update to the operating standardized 

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amount would be 2.4 percent (that is, the 

then estimate of the market basket rate-ofincrease) for hospitals in all areas, provided 

the hospital submits quality data in 

accordance with our rules. For hospitals that 

do not submit quality data, we estimated that 

the update to the operating standardized 

amount would be 0.4 percent (that is, the 

then current estimate of the market basket 

rate-of-increase minus 2.0 percentage points). 

In the FY 2011 IPPS/LTCH PPS 

supplemental proposed rule (75 FR 30921 

through 30923), we stated that, consistent 

with the amendments to section 

1886(b)(3)(B)(i) of the Act made by section 

3401 of the Affordable Care Act, for FY 2011, 

we are required to reduce the hospital market 

basket update by 0.25 percentage points. 

Therefore, based on IHS Global Insight, Inc.’s 

first quarter 2010 forecast of the FY 2011 

market basket increase, the estimated update 

to the FY 2011 operating standardized 

amount was 2.15 percent (that is, the FY 

2011 estimate of the market basket rate-ofincrease of 2.4 percent minus 0.25 percentage 

points) for hospitals in all areas, provided the 

hospital submits quality data in accordance 

with our rules. For hospitals that do not 

submit quality data, the estimated update to 

the operating standardized amount was 0.15 

percent (that is, the adjusted FY 2011 

estimate of the market basket rate-of-increase 

of 2.15 percent minus 2.0 percentage points). 

Since publication of the FY 2011 IPPS/ 

LTCH PPS supplemental proposed rule, our 

estimate of the market basket for FY 2011 has 

changed. Therefore, we are adopting in this 

final rule, based on IHS Global Insight, Inc.’s 

second quarter 2010 forecast of the FY 2011 

market basket increase, with historical data 

through the 2010 first quarter, an applicable 

percentage increase for FY 2011 of 2.35 

percent (that is, the current FY 2011 estimate 

of the market basket rate-of-increase of 2.6 

percent minus 0.25 percentage point) for 

hospitals in all areas, provided the hospital 

submits quality data in accordance with our 

rules. For hospitals that do not submit 

quality data, the update to the operating 

standardized amount is 0.35 percent (that is, 

the FY 2011 applicable percentage increase 

of 2.35 percent minus 2.0 percentage points). 

As discussed in section IV.N. of the preamble 

to this final rule, we are adopting as final, 

without modification, our proposed changes 

to § 412.64(d) to reflect current law. 

B. Update for SCHs and MDHs for FY 2011 

Section 1886(b)(3)(B)(iv) of the Act 

provides that the applicable percentage 

increase applicable to the hospital-specific 

rates for SCHs and MDHs equals the 

applicable percentage increase set forth in 

section 1886(b)(3)(B)(i) of the Act (that is, the 

same update factor as for all other hospitals 

subject to the IPPS). Because the Act sets the 

update factor for SCHs and MDHs equal to 

the update factor for all other IPPS hospitals, 

the update to the hospital specific rates for 

SCHs and MDHs is also subject to the 

amendments to section 1886(b)(3)(B)(i) of the 

Act made by section 3401(a) of the 

Affordable Care Act. Because the Act requires 

us to apply to the hospital-specific rates the 

update factor for all other IPPS hospitals, the 

update to the hospital specific rates for FY 

2011 for SCHs and MDHs is also subject to 

section 1886(b)(3)(B)(i) of the Act, as 

amended by the Affordable Care Act. 

Accordingly, the FY 2011 update to the 

hospital-specific rates applicable to SCHs 

and MDHs is 2.35 percent for hospitals that 

submit quality data or 0.35 percent for 

hospitals that fail to submit quality data. As 

discussed in section IV.N. of the preamble to 

this final rule, we are adopting as final our 

proposed changes to the regulations at 

§§ 412.73(c)(15), 412.75(d), 412.77(e), 

412.78(e), and 412.79(d) to implement the 

statutory reduction to the FY 2011 market 

basket. 

C. FY 2011 Puerto Rico Hospital Update 

Section 1886(d)(9)(C)(i) of the Act is the 

basis for determining the applicable 

percentage increase applied to the Puerto 

Rico-specific standardized amount. Section 

1886(d)(9)(C)(i) of the Act provides that the 

Puerto Rico standardized amount shall be 

adjusted in accordance with the final 

determination of the Secretary under section 

1886(d)(4) of the Act. Section 1886(e)(4)(1) of 

the Act in turn directs the Secretary to 

recommend an appropriate change factor for 

Puerto Rico hospitals taking into account 

amounts necessary for the efficient and 

effective delivery of medically appropriate 

and necessary care of high quality, as well as 

the recommendations of MedPAC. In order to 

maintain consistency between the portion of 

the rates paid to Puerto Rico hospitals under 

the IPPS based on the national standardized 

amount and the portion based on the Puerto 

Rico-specific standardized rate, beginning in 

FY 2004, we have set the update to the 

Puerto Rico-specific operating standardized 

amount equal to the update to the national 

operating standardized amount for all IPPS 

hospitals. 

As discussed in the preamble to this final 

rule, the amendments to section 

1886(b)(3)(B)(i) of the Act by sections 3401(a) 

and 10319(a) of the Affordable Care Act 

affected only the update factor applicable to 

the national standardized rate for IPPS 

hospitals and the hospital-specific rates; they 

do not mandate any revisions to the update 

factor applicable to the Puerto Rico-specific 

standardized amount. Rather, as noted above, 

sections 1886(d)(9)(C)(i) and (e)(4) of the Act 

direct us to adopt an appropriate change 

factor for the FY 2010 Puerto Rico-specific 

standardized amount, which we did in the 

FY 2010 IPPS/LTCH PPS final rule after 

notice and consideration of public 

comments. Therefore, we do not believe we 

have the authority to adjust the FY 2010 

update factor for the Puerto Rico-specific 

operating standardized amount for the 

second half of FY 2010 equal to the update 

factor applicable to the national standardized 

amount or the hospital-specific rates (that is 

the market basket minus 0.25 percentage 

points). Accordingly, the FY 2010 update to 

the Puerto Rico-specific operating 

standardized amount is 2.1 percent (that is, 

the FY 2010 estimate of the market basket 

rate-of-increase) for the entire FY 2010. 

In the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 24321), for FY 2011, consistent 

with our past practice, we proposed to apply 

the full rate-of-increase in the hospital 

market basket for IPPS hospitals to the Puerto 

Rico-specific standardized amount. In the 

June 2, 2010 supplemental proposed rule (75 

FR 30923), consistent with our past practice 

of applying the same update factor to the 

Puerto Rico-specific standardized amount as 

applied to the national standardized amount 

(and to conform to the changes to calculation 

of the national standardized amount made by 

the Affordable Care Act), for FY 2011, we 

proposed to revise the regulations at 

§ 412.211(c) to set the update factor for the 

Puerto Rico-specific operating standardized 

amount equal to the update factor applied to 

the national standardized amount for all IPPS 

hospitals. We did not receive any public 

comments on our proposal. Therefore, in the 

preamble of this final rule, we adopted as 

final, without modification, the proposed 

changes to revise § 412.211(c). Consequently, 

we are applying an update factor for the 

Puerto Rico-specific standardized amount 

equal to the FY 2011 IPPS applicable 

percentage increase (the market basket rateof-increase of 2.6 percent minus 0.25 

percentage point, or 2.35 percent), for FY 

2011. 

D. Update for Hospitals Excluded From the 

IPPS 

Section 1886(b)(3)(B)(ii) of the Act is used 

for purposes of determining the percentage 

increase in the rate-of-increase limits for 

children’s and cancer hospitals. Section 

1886(b)(3)(B)(ii) of the Act sets the 

percentage increase in the rate-of-increase 

limits equal to the market basket percentage 

increase. In accordance with § 403.752(a) of 

the regulations, RNHCIs are paid under 

§ 413.40, which also uses section 

1886(b)(3)(B)(ii) of the Act to update the 

percentage increase in the rate-of-increase 

limits. Section 1886(j)(3)(C) of the Act 

addresses the increase factor for the Federal 

prospective payment rate of IRFs. Section 

123 of Public Law 106–113, as amended by 

section 307(b) of Public Law 106–554, 

provides the statutory authority for updating 

payment rates under the LTCH PPS. In 

addition, section 124 of Public Law 106–113 

provides the statutory authority for updating 

all aspects of the payment rates for IPFs. 

Currently, children’s hospitals, cancer 

hospitals, and RNHCIs are the remaining 

three types of hospitals still reimbursed 

under the reasonable cost methodology. As 

we proposed, we are providing our current 

estimate of the FY 2011 IPPS operating 

market basket percentage increase (2.6 

percent) to update the target limits for 

children’s hospitals, cancer hospitals, and 

RNHCIs. 

For FY 2011, as discussed in section VII. 

of the preamble to this final rule, we are 

establishing an update to the LTCH PPS 

standard Federal rate for FY 2011 based on 

the full LTCH PPS market basket increase 

estimate (2.5 percent), including the 

requirement that we reduce the LTCH PPS 

market basket increase by 0.50 percentage 

point reduction in accordance with sections 

3401(c), 10319(b) and 1105(b) of the 

Affordable Care Act which amended section 

1886(m) of the Act, of 2.0 percent and an 

adjustment to account for the increase in 

case-mix in prior periods (FYs 2008 and 

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2009) that resulted from changes in 

documentation and coding practices of ¥2.5 

percent. Accordingly, the update factor to the 

standard Federal rate for FY 2011 is ¥0.49 

percent (that is, we are applying a factor of 

0.9951 in determining the LTCH PPS 

standard Federal rate for FY 2011, calculated 

as 1.020 × 1 divided by 1.025 = 0.9951 or 

¥0.49 percent). 

Effective for cost reporting periods 

beginning on or after January 1, 2005, IPFs 

are paid under the IPF PPS. IPF PPS 

payments are based on a Federal per diem 

rate that is derived from the sum of the 

average routine operating, ancillary, and 

capital costs for each patient day of 

psychiatric care in an IPF, adjusted for 

budget neutrality. Section 1886(s)(3)(A) of 

the Act, which was added by section 3401(f) 

of the Affordable Care Act, as further 

amended by section 10319(e) and by section 

1105 of such Act, requires the application of 

an ‘‘Other Adjustment’’ that reduces any 

update to the IPF PPS base rate by 0.25 

percentage point for the rate year beginning 

in 2010. Therefore, as announced in the IPF 

RY 2011 notice (75 FR 23109), we reduced 

the update to the IPF PPS base rate of 2.4 

percent (based on the FY 2002-based RPL 

market basket and IHS Global Insight, Inc.’s 

first quarter 2010 forecast) by 0.25 percentage 

point for RY 2011. 

IRFs are paid under the IRF PPS for cost 

reporting periods beginning on or after 

January 1, 2002. For cost reporting periods 

beginning on or after October 1, 2002 (FY 

2003), and thereafter, the Federal prospective 

payments to IRFs are based on 100 percent 

of the adjusted Federal IRF prospective 

payment amount, updated annually (69 FR 

45721). Section 1886(j)(3)(D) of the Act, 

which was added by Section 3401(d) of the 

Affordable Care Act, as further amended by 

section 10319 and by section 1105 of such 

Act, requires the Secretary to reduce the 

market basket factor by 0.25 percentage point 

for FY 2011. Therefore, as announced in the 

IRF FY 2011 notice (75 FR 42848 and 42849), 

we reduced the update to the IRF PPS 

Federal rate of 2.5 percent (based on the FY 

2002-based RPL market basket and IHS 

Global Insight, Inc.’s second quarter 2010 

forecast) by 0.25 percentage point for FY 

2011. Thus, the adjusted RPL market basket 

increase factor is 2.25 percent for FY 2011. 

III. Secretary’s Final Recommendations 

MedPAC is recommending an inpatient 

hospital update equal to the market basket 

rate of increase for FY 2011. 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 the 

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 the update 

factor in the President’s budget (and prior to 

other adjustments required under the 

statute), we are recommending an update to 

the standardized amount of 2.9 percent. We 

are recommending that this same update 

factor apply to SCHs and MDHs. 

Section 1886(d)(9)(C)(i) of the Act is the 

basis for determining the percentage increase 

to the Puerto Rico-specific standardized 

amount. As discussed above, we finalized 

our proposal to revise § 412.211(c) to set the 

update factor for the Puerto Rico-specific 

operating standardized amount equal to the 

update factor applied to the national 

standardized amount for all IPPS hospitals. 

Therefore, we are applying an update factor 

for the Puerto Rico-specific standardized 

amount equal to the FY 2011 IPPS applicable 

percentage increase (the market basket rateof-increase of 2.6 percent minus 0.25 

percentage points), or 2.35 percent, for FY 

2011. 

In addition to making a recommendation 

for IPPS hospitals, in accordance with 

section 1886(e)(4)(A) of the Act, we also are 

recommending update factors for all other 

types of hospitals. Consistent with the update 

factor in the President’s budget, we are 

recommending an update for children’s 

hospitals, cancer hospitals, and RNHCIs of 

2.9 percent. 

For FY 2011, consistent with policy set 

forth in section VII. of the preamble of this 

final rule, we are recommending an update 

of ¥0.49 percent to the LTCH PPS standard 

Federal rate. In addition, consistent with the 

update specified in the FY 2011 IRF PPS 

notice (as described above), we are 

recommending an update of 2.25 percent to 

the IRF PPS Federal rate for FY 2011. Finally, 

consistent with the update specified in the 

FY 2011 IPF PPS notice (as described above), 

we are recommending an update of 2.4 

percent reduced by 0.25 percentage point to 

the IPF PPS Federal rate for RY 2011 for the 

Federal per diem payment amount. 

IV. MedPAC Recommendation for Assessing 

Payment Adequacy and Updating Payments 

in Traditional Medicare 

In its March 2010 Report to Congress, 

MedPAC assessed the adequacy of current 

payments and costs, and the relationship 

between payments and an appropriate cost 

base. MedPAC recommended an update to 

the hospital inpatient rates equal to the 

increase in the hospital market basket in FY 

2011, concurrent with implementation of a 

quality incentive program. MedPAC’s 

reasoning is that under a quality program, an 

individual hospital’s quality performance 

should determine whether its net increase in 

payments is above or below the market 

basket increase. MedPAC noted the 

importance of hospitals to control their costs 

rather than accommodate the current rate of 

cost growth. 

MedPAC also noted that indicators of 

payment adequacy are positive. MedPAC 

expects Medicare margins to remain low in 

2011. At the same time though, MedPAC’s 

analysis finds that high-performing hospitals 

have been able to maintain relatively low 

costs while maintaining a relatively high 

quality of care. In addition, roughly half of 

these providers are generating a profit on 

their Medicare business. 

Response: Similar to our response last year, 

we agree with MedPAC that hospitals should 

control costs rather than have Medicare 

accommodate the current rate of growth. As 

MedPAC noted, the lack of financial pressure 

at certain hospitals can lead to higher costs 

and in turn bring down the overall Medicare 

margin for the industry. 

In addition to the quality data that 

hospitals are required to submit to CMS, as 

discussed in section II. of the preamble of 

this final rule, CMS implemented the MS– 

DRGs in FY 2008 to better account for 

severity of illness under the IPPS and is 

basing the DRG weights on costs rather than 

charges. We continue to believe that these 

refinements will better match Medicare 

payment of the cost of care and provide 

incentives for hospitals to be more efficient 

in controlling costs. 

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. 

We did not receive any public comments 

on MedPAC’s recommendation. 

[FR Doc. 2010–19092 Filed 7–30–10; 4:15 pm] 

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