## Tuesday,

May 4, 2010

Book 2 of 2 Books
Pages 23851–24362



# Part II



# Department of

Health and Human

Services

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, et al.

Medicare Program; Proposed Rule


### 23852 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

**DEPARTMENT OF HEALTH AND**

**HUMAN SERVICES**

**Centers for Medicare & Medicaid**

**Services**

**42 CFR Parts 412, 413, 440, 441, 482, 485, and 489** 

**[CMS–1498–P]**

**RIN 0938–AP80**

**Medicare Program; Proposed Changes to the Hospital Inpatient Prospective**  **Payment Systems for Acute Care Hospitals and the Long-Term Care**  **Hospital Prospective Payment System and Proposed Fiscal Year 2011 Rates;**  **Effective Date of Provider Agreements and Supplier Approvals; and Hospital**  **Conditions of Participation for Rehabilitation and Respiratory Care**  **Services Medicaid Program: Accreditation Requirements for**  **Providers of Inpatient Psychiatric Services for Individuals Under Age 21** 

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

**ACTION :**  Proposed rule.

**SUMMARY :**  We are proposing to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems. In addition, in the Addendum to this proposed rule, we describe the proposed changes to the

amounts and factors used to determine

the rates for Medicare acute care hospital inpatient services for operating costs and capital-related costs. These proposed changes would be applicable to discharges occurring on or after October 1, 2010. We also are settingforth the proposed update to the rate-ofincrease limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to theselimits. The proposed updated rate-ofincrease limits would be effective for cost reporting periods beginning on or after October 1, 2010.

We are proposing to update 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). In the Addendum to this proposed rule, we also set forth the proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS. These proposed changes would be applicable to discharges occurring on or after October 1, 2010.

We are proposing changes affecting the Medicare conditions of participation for hospitals relating to the types of practitioners who may provide rehabilitation services and respiratory

care services.

We are proposing changes affecting

the determination of the effective date of provider agreements and supplier approvals under Medicare.

Finally, we are proposing to offer psychiatric hospitals, hospitals with inpatient psychiatric programs, and psychiatric facilities that are not hospitals increased flexibility in obtaining accreditation to participate in the Medicaid program. Psychiatric hospitals would have the choice of meeting the existing regulatory requirements to participate in Medicare as a psychiatric hospital or to obtaining accreditation from a national accrediting organization whose psychiatric hospital accrediting program has been approved by CMS. Hospitals with inpatient psychiatric programs would have the choice of meeting the existing regulatory requirements for participation in Medicare as a hospital or obtaining accreditation from a national accrediting organization whose hospital accreditation program has been approved by CMS. In addition, psychiatric facilities that are not hospitals would be afforded 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.

**DATES :**  To be assured consideration, comments on this proposed rule must

be received at one of the addresses provided below, no later than 5 p.m. Eastern Daylight Time (E.D.T.) on June

18, 2010.

**ADDRESSES :**  When commenting on issues presented in this proposed rule, please refer to file code CMS–1498–P.

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–P to submit comments on this proposed 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– P, P.O. Box 8011, Baltimore, MD 21244–

1850.

Please allow sufficient time for mailed

comments to be received before the close of the comment period.

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS–1498–P, Mail Stop C4–26–05, 7500 Security Boulevard, Baltimore, MD

21244–1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (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), 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, andJudith Richter, (410) 786–2590, LongTerm Care Hospital Prospective Payment System and MS–LTC–DRG Relative Weights Issues.


### 23853 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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, Pub. L. 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, Pub. L.

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
HICAN Health Insurance Claims Account

Number HIPAA Health Insurance Portability and

Accountability Act of 1996, Pub. L. 104–

191 HIPC Health Information Policy Council HIS Health information system HIT Health information technology HMO Health maintenance organization HPMP Hospital Payment Monitoring

Program HSA Health savings account HSCRC [Maryland] Health Services Cost

Review Commission HSRV Hospital-specific relative value HSRVcc Hospital-specific relative value

cost center HQA Hospital Quality Alliance HQI Hospital Quality Initiative 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


### 23854 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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, Pub. L. 109–

432 MIPPA Medicare Improvements for Patients

and Providers Act of 2008, Pub. L. 110–275 MMA Medicare Prescription Drug,

Improvement, and Modernization Act of 2003, Pub. L. 108–173 MMSEA Medicare, Medicaid, and SCHIP

Extension Act of 2007, Pub. L. 110–173 MPN Medicare provider number MRHFP Medicare Rural Hospital Flexibility

Program
MRSA Methicillin-resistant Staphylococcus

aureus MSA Metropolitan Statistical AreaMS–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, Pub. L. 99–509 OES Occupational employment statistics OIG Office of the Inspector General OMB Executive Office of Management and

Budget OPM U.S. Office of Personnel Management 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, Pub. L. 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, Pub. L. 97–248 TEP Technical expert panel TMA TMA [Transitional Medical

Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Pub. L. 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), as Amended by the Health Care and

Education Reconciliation Act of 2010 (Pub. L. 111–152) C. Major Content of This Proposed Rule 1. Proposed Changes to MS–DRG

Classifications and Recalibrations of Relative Weights 2. Proposed Changes to the Hospital Wage

Index for Acute Care Hospitals 3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME

Costs 4. Proposed FY 2011 Policy Governing the

IPPS for Capital-Related Costs 5. Proposed Changes to the Payment Rates

for Certain Excluded Hospitals: Rate-ofIncrease Percentages 6. Proposed Changes to the LTCH PPS 7. Proposed Changes Relating to Effective

Date of Provider Agreements and Supplier Approvals 8. Proposed Changes to Medicare

Conditions of Participation Affecting Hospital Rehabilitation Services and Respiratory Care Services 9. Proposed Changes to the Accreditation

Requirements for Medicaid Providers of Inpatient Psychiatric Services for Individuals under Age 21 10. Determining Proposed Prospective

Payment Operating and Capital Rates

and Rate-of-Increase Limits for Acute Care Hospitals 11. Determining Proposed Prospective

Payments Rates for LTCHs 12. Impact Analysis 13. Recommendation of Update Factors for

Operating Cost Rates of Payment for Hospital Inpatient Services 14. Discussion of Medicare Payment

Advisory Commission Recommendations

E. Interim Final Rule With Comment

Period That Implemented Certain Provisions of the ARRA Relating to Payments to LTCHs and LTCH Satellite

Facilities II. Proposed Changes to Medicare Severity Diagnosis-Related 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 D. Proposed 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. Proposed Documentation and Coding

Adjustment to the Hospital-Specific


### 23855 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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. Proposed 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. Proposals for FY 2011 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. Proposed HAC Conditions for FY 2011 3. RTI Program Evaluation Summary a. Background b. Preliminary RTI Analysis on POA

Indicator Reporting Across Medicare Discharges c. Preliminary RTI Analysis on POA

Indicator Reporting of Current HACs d. Preliminary RTI Analysis of Frequency

of Discharges and POA Indicator Reporting for Current HACs e. Preliminary RTI Analysis of

Circumstances When Application of

HAC Provisions Would Not Result in MS–DRG Reassignment for Current

HACs f. Preliminary RTI Analysis of Coding

Changes for HAC–Associated Secondary Diagnoses for Current HACs g. Preliminary RTI Analysis of Estimated

Net Savings for Current HACs h. Previously Considered Candidate

HACs—Preliminary RTI Analysis of Frequency of Discharges and POA Indicator Reporting i. Current and Previously Considered

Candidate HACs—RTI Report on

Evidence-Based Guidelines j. Proposals Regarding Current HACs and

Previously Considered Candidate HACs G. Proposed 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. Proposed 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 H. Recalibration of MS–DRG Weights I. Proposed 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. CardioWest TM Temporary Total

Artificial Heart System (CardioWest TM TAH-t) 4. FY 2011 Applications for New

Technology Add-On Payments a. Auto Laser Interstitial Thermal Therapy

(AutoLITT TM ) System b. LipiScan TM Coronary Imaging System c. LipiScan TM Coronary Imaging System

With Intravascular Ultrasound (IVUS) III. Proposed 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

C. Core-Based Statistical Areas for the

Hospital Wage Index D. Proposed Occupational Mix Adjustment

to the Proposed FY 2011 Wage Index 1. Development of Data for the Proposed

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 Proposed

Occupational Mix Adjustment for FY

2011 E. Worksheet S–3 Wage Data for the

Proposed 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 Proposed FY

2011 Unadjusted Wage Index H. Analysis and Implementation of the

Proposed Occupational Mix Adjustment and the Proposed 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. Proposed 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 Proposed FY

2011 Wage Index IV. Other Decisions and Proposed 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


### 23856 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

c. Hospital Quality Data Reporting Under

Section 5001(a) of Public Law 109–171 2. Retirement of RHQDAPU Program

Measures a. Considerations in Retiring Quality

Measures From the RHQDAPU Program b. Proposed Retirement of Quality

Measures Under the RHQDAPU Program for the FY 2011 Payment Determination and Subsequent Years 3. Proposed 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. Proposed RHQDAPU Program Quality

Measures for the FY 2012 Payment

Determination c. Proposed RHQDAPU Program Quality

Measures for the FY 2013 Payment

Determination d. Proposed 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. Proposed RHQDAPU Program

Requirements for FY 2012, FY 2013, and

FY 2014 b. Additional Proposed RHQDAPU

Program Procedural Requirements for FY 2012, FY 2013, and FY 2014 Payment

Determinations 6. RHQDAPU Program Disaster Extensions

and Waivers 7. Proposed Chart Validation Requirements

for Chart-Abstracted Measures a. Proposed Chart Validation Requirements

and Methods for the FY 2012 Payment

Determination b. Proposed 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. Proposed Public Display Requirements

for the FY 2012 Payment Determination and Subsequent Years 10. Proposed Reconsideration and Appeal

Procedures for the FY 2011 Payment

Determination 11. Proposed RHQDAPU Program

Withdrawal Deadlines 12. Electronic Health Records (EHRs) a. Background b. EHR Testing of Quality Measures

Submission

c. HITECH Act EHR Provisions 13. Qualification of Registries for

RHQDAPU Data Submission B. Payment for Transfers of Cases From

Medicare Participating Acute Care Hospitals to Nonparticipating Hospitals

and CAHs 1. Background 2. Proposed Policy Change C. Technical Change to Regulations D. Medicare-Dependent, Small Rural

Hospitals (MDHs): Change to Criteria 1. Background 2. Medicare-Dependency: Counting Medicare Inpatients E. Rural Referral Centers (RRCs) 1. Case-Mix Index (CMI) 2. Discharges F. Indirect Medical Education (IME)

Adjustment 1. Background 2. IME Adjustment Factor for FY 2011 3. IME-Related Changes in Other Sections

of this Proposed Rule G. 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 6. Clarification of Language on Inclusion of

Medicare Advantage Days in the SSI

Fraction of the Medicare DSH

Calculation 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. Rural Community Hospital

Demonstration ProgramV. Proposed Changes to the IPPS for CapitalRelated Costs

A. Overview B. Exception Payments C. New Hospitals D. Hospitals Located in Puerto Rico E. Proposed 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 4. Proposed Prospective MS–DRG

Documentation and Coding Adjustment to the National Capital Federal Rate for FY 2011 and Subsequent Years 5. Proposed Documentation and Coding

Adjustment to the Puerto Rico-Specific Capital Rate F. Other Proposed Changes for FY 2011 VI. Proposed 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. Proposed Clarification of Payment Policy

for Provider Taxes VII. Proposed 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. Proposed 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. Proposed Changes to the MS–LTC–DRGs

for FY 2011 3. Development of the Proposed FY 2011

MS–LTC–DRG Relative Weights a. General Overview of the Development of

the MS–LTC–DRG Relative Weights b. Development of the Proposed MS–LTC–

DRG Relative Weights for FY 2011

c. Data d. Hospital-Specific Relative Value (HSRV)

Methodology e. Treatment of Severity Levels in

Developing the Proposed MS–LTC–DRG Relative Weights

f. Low-Volume MS–LTC–DRGs g. Steps for Determining the Proposed RY

2011 MS–LTC–DRG Relative Weights C. Proposed Changes to the LTCH Payment

Rates and Other Proposed 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. Market Basket Under the LTCH PPS for

FY 2011 c. Proposed Market Basket Update for

LTCHs for FY 2011 d. Proposed Labor-Related Share Under the

LTCH PPS for FY 2011 3. Proposed Adjustment for Changes in

LTCHs’ Case-Mix Due to Changes in Documentation and Coding Practices

That Occurred in a Prior Period a. Background

b. Evaluation of FY 2009 Claims Data c. Proposed FY 2011 Documentation and

Coding Adjustment D. Proposed Change in Terminology From

‘‘ Rate Year ’’ to ‘‘ Fiscal Year ’’ and Other Proposed Changes

VIII. Determination of Effective Date of Provider Agreements and Supplier Approvals


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A. Background B. Departmental Appeals Board Decision C. Proposed Revisions to Regulations IX. Proposed Changes to Medicare Conditions of Participation Affecting Hospital Rehabilitation Services and Respiratory Care Services X. Proposed Changes to the Accreditation Requirements for Medicaid Providers of Inpatient Psychiatric Services for Individuals Under Age 21 A. Background B. Proposed 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 (Proposed 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 C. Response to Comments

Regulation Text

Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2010

I. Summary and Background II. Proposed 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. Proposed Adjustments for Area Wage

Levels and Cost-of-Living C. Proposed MS–DRG Relative Weights D. Calculation of the Proposed Prospective

Payment Rates III. Proposed Changes to Payment Rates forAcute Care Hospital Inpatient CapitalRelated Costs for FY 2011 A. Determination of Federal Hospital

Inpatient Capital-Related Prospective Payment Rate Update B. Calculation of the Proposed Inpatient

Capital-Related Prospective Payments for

FY 2011 C. Capital Input Price Index IV. Proposed Changes to Payment Rates forCertain Excluded Hospitals: Rate-ofIncrease Percentages V. Proposed Changes to the Payment Rates

for the LTCH PPS for FY 2011 A. Proposed LTCH PPS Standard Federal

Rate for FY 2011 B. Proposed Adjustment for Area Wage

Levels Under the LTCH PPS for FY 2011 C. Proposed Adjustment for LTCH PPS

High-Cost Outlier (HCO) Cases D. Computing the Proposed Adjusted

LTCH PPS Federal Prospective Payments

for FY 2011

VI. Tables

Table 1A.—Proposed 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.—Proposed National Adjusted

Operating Standardized Amounts, Labor/ Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal to 1) Table 1C.—Proposed Adjusted Operating

Standardized Amounts for Puerto Rico,

Labor/Nonlabor Table 1D.—Proposed Capital Standard

Federal Payment Rate Table 1E.—Proposed LTCH Standard

Federal Prospective Payment Rate Table 2.—Acute Care Hospitals Case-Mix

Indexes for Discharges Occurring in Federal Fiscal Year 2009; Proposed 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.—Proposed Wage Index and

Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State—FY 2011 Table 4B.—Proposed Wage Index and

Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State—FY 2011 Table 4C.—Proposed 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.—Proposed Rural Floor Budget

Neutrality Factors for Acute Care Hospitals—FY 2011

Table 4D–2.—Urban Areas with Acute Care

Hospitals Receiving the Proposed 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.—Proposed Puerto Rico Wage

Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals by CBSA—FY 2011 Table 4J.—Proposed 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/ AcuteInpatientPPS/ ) 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—

December 2009 GROUPER V27.0 MS–

DRGs Table 7B.—Medicare Prospective Payment

System Selected Percentile Lengths of Stay: FY 2009 MedPAR Update—

December 2009 GROUPER V28.0 MS–

DRGs Table 8A.—Proposed Statewide Average

Operating Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—March 2009 Table 8B.—Proposed Statewide Average

Capital Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—March 2009 Table 8C.—Proposed Statewide Average

Total Cost-to-Charge Ratios (CCRs) for

LTCHs—March 2009 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)—March 2009 Table 11.—Proposed 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


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September 30, 2011 Under the LTCH

PPS Table 12A.—Proposed LTCH PPS Wage

Index for Urban Areas for Discharges Occurring from October 1, 2010 Through September 30, 2011 Table 12B.—Proposed 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 Proposed Policy Changes Under the IPPS for Operating Costs A. Basis and Methodology of Estimates B. Analysis of Table I C. Effects of the Proposed 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 Proposed Wage Index Changes

(Column 3) F. Application of the Wage Budget

Neutrality Factor (Column 4) G. Combined Effects of Proposed MS–DRG

and Wage Index Changes (Column 5)

H. Effects of MGCRB Reclassifications

(Column 6) I. Effects of the Proposed Rural Floor and

Imputed Floor, Including Application of Budget Neutrality at the State Level (Column 7) J. Effects of the Proposed Wage Index

Adjustment for Out-Migration (Column 8) K. Effects of All Proposed Changes Prior to

Documentation and Coding (Or CMI) Adjustment (Column 9) L. Effects of All Proposed Changes With

CMI Adjustment (Column 10) M. Effects of Proposed Policy on Payment

Adjustments for Low-Volume Hospitals N. Impact Analysis of Table II VII. Effects of Other Proposed Policy Changes

A. Effects of Proposed Policy on HACs,

Including Infections B. Effects of Proposed Policy Changes

Relating to New Medical Service and Technology Add-On Payments C. Effects of Proposed Requirements for

Hospital Reporting of Quality Data for Annual Hospital Payment Update D. Effects of Proposed Policy on Payment

for Transfer Cases From Medicare Participating Hospitals to Nonparticipating Hospitals and CAHs E. Effects of Proposed Change in Criteria

for MDHs F. Effects of Proposed Change Relating to

Payment Adjustment for Disproportionate Share Hospitals G. Effects of Proposed Changes Relating to

Payments for IME and Direct GME 1. Identifying ‘‘ Approved Medical

Residency Programs ’’

2. Submission of Electronic Affiliation

Agreements H. Effects of Proposed Changes Relating to

CRNA Services Furnished in Rural Hospitals and CAHs I. Effects of Implementation of Rural

Community Hospital Demonstration Program J. Effects of Proposed 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 Proposed Policy Relating to

Effective Date of Provider Agreements and Supplier Approvals L. Effects of Proposed Changes Relating to

Hospital Rehabilitation Services and Respiratory Care Services Conditions of Participation VIII. Effects of Proposed Changes in the Capital IPPS

A. General Considerations

B. Results IX. Effects of Proposed Payment Rate Changes and Proposed Policy Changes

Under the LTCH PPS

A. Introduction and General

Considerations B. Impact on Rural Hospitals C. Anticipated Effects of Proposed LTCH

PPS Payment Rate Change and Proposed Policy Changes D. Effect on the Medicare Program

E. Effect on Medicare Beneficiaries X. Effects of Proposed 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

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 wholeor in part based on their hospitalspecific rate based on their costs in a base year. For example, sole community


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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 andincluding 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, 2011, 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.

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), as Amended by 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 L. 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, affect 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 are unable to address those provisions in this proposed rule. Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new


### 23860 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

legislation. We plan to issue separate

documents in the Federal Register addressing the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for

FY 2011 under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions implementing the provisions of Public Law 111–148, as amended, that affect the policies and payment rates for FY 2010 under the

IPPS and for RY 2010 under the LTCH

PPS.

C. Major Content of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the MedicareIPPS for operating costs and for capitalrelated costs of acute care hospitals in FY 2011. We also are setting 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 this proposed rule, we are setting forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH

PPS for FY 2011. We note that because the annual update of payment rates for the LTCH PPS will now take place on

the same schedule and in the same publication as for the IPPS, for the sake of clarity, in section VII.D. of this proposed rule, we are proposing 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 this proposed rule, we are using the phrase ‘‘ fiscal year (FY) ’’ in referring to proposed updates and changes to the

LTCH PPS.

Below is a summary of the major changes that we are proposing to make:

1. Proposed Changes to MS–DRG

Classifications and Recalibrations of Relative Weights

In section II. of the preamble of this proposed rule, we included—

• Proposed changes to MS–DRG classifications based on our yearly

review.

• Proposed application of the documentation and coding adjustment to hospital-specific rates 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 conditions (HACs), including infections, that are subject to the statutorily required quality adjustment in MS–DRG payments for FY 2011.

We discuss the FY 2011 status of two new technologies approved for add-on 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).

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

In section III. of the preamble to this proposed rule, we are proposing revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed include the following:

• 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.

3. Other Decisions and Proposed Changes to the IPPS for Operating Costs

and GME Costs

In section IV. of the preamble of this proposed rule, we 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.

4. Proposed FY 2011 Policy Governing the IPPS for Capital-Related Costs

In section V. of the preamble to this 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.

5. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

In section VI. of the preamble of this proposed rule, we 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.

6. Proposed Changes to the LTCH PPS

In section VII. of the preamble of this proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 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 MS–DRG documentation and coding adjustment

for FY 2011.

7. Proposed Changes Relating to Effective Date of Provider Agreements and Supplier Approvals

In section VIII. of the preamble of this proposed rule, we set forth our proposed change in policies for


### 23861 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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.

8. Proposed Changes to Medicare Conditions of Participation Affecting Hospital Rehabilitation Services and Respiratory Care Services

In section IX. of the preamble of this proposed rule, we are proposing changes to the Medicare conditions of participation regarding which practitioners are allowed to order rehabilitation and respiratory care services in the hospital setting.

9. 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 this proposed rule, we are proposing 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, and psychiatric

rehabilitation treatment facilities would be afforded 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.

10. Determining Proposed Prospective Payment Operating and Capital Rates

and Rate-of-Increase Limits for Acute Care Hospitals

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2011 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We also are establishing the proposed threshold amounts for outlier cases. In addition, we address the proposed update factors for determining

the rate-of-increase limits for cost reporting periods beginning in FY 2011 for certain hospitals excluded from the

IPPS.

11. Determining Proposed Prospective Payment Rates for LTCHs

In the Addendum to this proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2011 prospective

standard Federal rate. We also are establishing the proposed adjustments for wage levels, the labor-related share,the cost-of-living adjustment, and highcost outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.

12. Impact Analysis

In Appendix A of this proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected acute care hospitals and

LTCHs.

13. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services

In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provide 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.

14. 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 address these recommendations in Appendix B of this 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. E. 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, Public Law 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. We will respond to the public comments that we received in a timely manner on this interim final rule with comment period and finalize the interim final rule with any necessary

modification in the final rule for this proposed rule.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, we pay 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


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1 Medicare Payment Advisory Commission: Report to the Congress, Physician-Owned Specialty Hospitals, March 2005, page viii. 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 proposed 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 proposed 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 ICM–10–PCS 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 are assigned to one of 746 MS–

DRGs in 25 MDCs. The table below lists

the 25 MDCs.



### M AJOR 

### D IAGNOSTIC 

### C ATEGORIES 

### (MDC S 

### )

1 .................. Diseases and Disorders of the Nervous System. 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. 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.


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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.



### P RE 

### -M AJOR 

### D IAGNOSTIC 

### C ATEGORIES 

### (P RE 

### -MDC S 

### )

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 NeckDiagnosis with Major O.R. MS–DRG 004 ... Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnos is 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 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 any 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 41500), we discussed a process for considering non-MedPAR data in the recalibration process. 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-MedPARdata 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 database should be submitted by early

December for consideration in conjunction with the next year’s proposed rule.


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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 2009 final rule was

based on data from the March 2008 update of the FY 2007 MedPAR file, which contained hospital bills received through March 31, 2008, for discharges occurring through September 30, 2007. For this proposed rule, for FY 2011, our MS–DRG analysis is based on data from the September 2009 update of the FY 2009 MedPAR file, which contains hospital bills received through September 30, 2009, 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 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 commenters regarding the proposal to adopt CS DRGs. We acknowledged the many 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 proposals 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 proposed 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


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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 concernin 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 report 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 to what extent 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 proposed rule for discussion of the issueof 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 proposing to make in this proposed 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).

D. Proposed 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 DRGs for FY 2010; there would be 747 DRGs in FY 2011, with our proposals in this proposed rule to delete one MS–DRG and to create two new MS–DRGs.) By increasing the number of MS–DRGs and more fully taking into account patients’ 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


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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.

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 patients’ 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


### 23867 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 CMS’ 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 cost-based weights, less use of ‘‘ not otherwise specified ’’ codes, and

increases in real case-mix due to health

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 the cases from each year and the GROUPER and relative weights applicable for each year. The results are shown in the following chart:



### O VERALL 

### C ASE 

### -M IX 

### I NCREASES FOR


### FY 2000 TO 

### FY 2007

Year Overall case-mix change from prior

year (in percent)

FY 2000 ........................

¥ 0.7

FY 2001 ........................

¥ 0.4

FY 2002 ........................ 1.0

FY 2003 ........................ 1.4

FY 2004 ........................ 1.0

FY 2005 ........................ 0.9

FY 2006 ........................ 1.2

FY 2007 ........................

¥ 0.2

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 those years was negative. For example, as discussed in that rule (74 FR 43769), we estimated a recent measurement effect of +0.3 percent. The overall case-mix growth of

¥ 0.2 percent in FY 2007 net of a measurement effect of +0.3 percent results in growth of +0.1 percent. A real case-mix growth of +1.2 percent in FY 2007, therefore, implies 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 commenter’s claimed average annual trend, 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, as shown in the chart presented above in this response.

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 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 the 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.

We then sought to corroborate this 5.4 percent estimate by examining the

increases in the within-base DRGs as compared to the increases in the across


### 23868 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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.

As reflected in the above chart, for short-term acute care hospitals, SCHs, and MDHs, there is an 8 percentage point increase in the discharge severity with MCCs from 20 percent to 28 percent, and a corresponding decrease of 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, coders are able to appropriately change the severity level of cases from the lowest level (non-CC) to a higher severity level (CC or MCC). 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 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.

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/
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, 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 119–90,


### 23869 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 rule 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 1.4 percentage points

the

¥ 0.9 percent prospective documentation and coding adjustment for FY 2009 applied under section 7(a)

of Public Law 100–90. We had the statutory authority to adjust the FY 2010 rates for this estimated 1.4 percentage point increase. However, given that Public Law 100–90 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 estimated

¥ 6.6 percent adjustment to the standardized

amount.

In the final FY 2010 IPPS/RY 2010 LTCH PPS 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 an 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.

Thus, 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 thencurrent estimates, 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, 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


### 23870 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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, we are proposing an adjustment under that section for FY 2011. Therefore, we believe it is appropriate to not implement any or all of the

¥ 3.9 percent prospective adjustment in FY 2011. Accordingly, we are not proposing a prospective adjustment under section 7(b)(1)(A) of Public Law 110–90 for FY 2011. We note 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.

We are seeking 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. We intend to update our analysis with FY 2009 data on claims paid through March 2009 for

the FY 2011 IPPS/LTCH PPS final rule.

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 codingthat 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

in the estimated

¥ 6.6 percent adjustment to the standardized amount.

The commenters asked CMS to seek


### 23871 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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. We intend to take into

account the need to reflect accumulated interest in proposing a recoupment adjustment under section (b)(1)(B) of

Public Law 110–90 for FY 2012. We will invite 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, we are proposing 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 wherever possible, we can anticipate that this 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, an advantage of our proposal for FY 2011 is that we anticipate removing this 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 are noting this anticipated effect of our FY 2011 proposal, we are not making a formal proposal for the further implementation of section 7(b)(1)(B) of

Public Law 110–90 in FY 2012 in this proposed rule.

We are seeking 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 intend to update our analysis with FY 2009 data on claims paid through

March 2009 for the FY 2011 IPPS/LTCH

PPS final rule.



### FY 2011 MS–DRG D OCUMENTATION AND 

### C ODING 

### A DJUSTMENT

Required prospective adjustment for FYs
2008–2009 Requiredrecoupment adjustment for FYs

2008–2009 Total adjustment Proposedrecoupment adjustment for FY
2011 Remaining adjustment

FY 2011 Proposal Amount of Adjustment .......

¥ 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


### 23872 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 application of the documentation andcoding 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 thathospitals 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 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 andcoding 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 foundevidence 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 andcoding 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. Proposed 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 toprospectively 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

¥ 2.5percent 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


### 23873 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 codingthat 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.

**BILLING CODE 4120–01–P**

**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 MDH and SCH both proportionally shifted from the


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without CC/MCC to with MCC category. Similarly, we found using a methodology consistent with our analysis of IPPS hospitals 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 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 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. 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 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, we are proposing 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 patients’ 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 are proposing 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 are not proposing to implement the entire adjustment that is warranted by our data (in this case, 5.4 percent) in one year. Second, we are maintaining 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 represents

somewhat over half of the of the entire adjustment that is appropriate for SCHs and MDHs, it allows 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 are proposing 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 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.

We are seeking public comment on the proposed

¥ 2.9 percent prospective adjustment to hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and addressing in future rule making cycles changes in FY 2008 and 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 2008 and FY 2009, noting that our current estimates of the remaining adjustment is

¥ 2.5 percent. We intend to update our analysis with FY 2009 data on claims paid through March 2009 for the FY

2011 IPPS/LTCH PPS final rule.

10. Background on the Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific

Standardized Amount

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 theAct 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 thatare 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 patients’ severity of illness. Consistent with the approach described for SCHs and


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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 foundevidence 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.

11. Proposed Documentation andCoding Adjustment to the Puerto RicoSpecific 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, wefound 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 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 thehospital-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 are 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 patients’ 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.


### 23876 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

In the above chart, consistent with our findings for IPPS hospitals, for Puerto Rico hospitals, there is a 4 percentage point increase in the discharge severity with MCCs from 22 percent to 26 percent, and a corresponding decrease of 4 percentage points in discharge severity without CC/MCC from 58
percent to 54 percent.

Using the same methodology we applied to estimate documentation andcoding changes under IPPS for nonPuerto Rico hospitals, as we have also discussed above, our best estimate, based on the most recently available data, is that a cumulative adjustment of

¥ 2.4 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

¥ 2.4 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 MD–DRG system was smaller for Puerto Rico hospitals as compared to IPPS hospitals and SCHs and MDHs. We therefore are proposing an adjustment of

¥ 2.4 percent in FY 2011 to 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 proposing 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 note that this proposed

¥ 2.4 percent prospective adjustment would eliminate

the full effect of the documentation and coding changes on the portion of future payments to Puerto Rico hospitals based on the Puerto Rico-specific rate. We believe that this proposed 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. One reason for proposing the full

¥ 2.4 percent adjustment for the Puerto Rico-specific rate in FY 2011 is to maintain equity as much as possible in the documentation and coding adjustments applied to various hospital rates in FY 2011. Because this proposed

¥ 2.4 percent adjustment represents the full adjustment that is warranted for the Puerto Rico-specific rate, we do not anticipate proposing any additional adjustments to the rate for documentation and coding effects.

We are seeking public comment on the proposed

¥ 2.4 percent prospective adjustment to Puerto Rico-specific standardized amount under section 1886(d)(5)(I)(i) of the Act. We intend to update our analysis with FY 2009 data on claim paid through March 2009 for

the FY 2011 IPPS/LTCH PPS final rule.

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


### 23877 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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

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 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 costitems and services. As a result, the costbased weights would undervalue highcost 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. Ingeneral, 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 accurateaccounting 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 CCRsare 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


### 23878 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 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. Proposals 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 55.01 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, even though CMS had not proposed to add these cost centers. The public comments on the July 2, 2009 Federal Register notice will be

addressed in detail in the Federal Register notice that will be issued to

finalize Form CMS–2525–10. We now plan to issue the revised draft of the hospital cost report Form CMS–2552– 10, which will include a standard cost center for Implantable Devices Charged to Patients, through a notice in the Federal Register , which will allow for a 30-day comment period, in the spring or summer of 2010. However, in part in this IPPS proposed rule, we are providing a summary of the public comments received on the July 2, 2009 notice that specifically related to the relative weights and responding to those comments. Our responses to the comments in this IPPS proposed rule constitute 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


### 23879 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 in payments that are too low for the high cost services. The commenter indicated that CMS should not only

create these new costs 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 A 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. At this time, we do not know the impact on CCRs and estimated costs of adopting standard cost centers specific to CT scanning and MRI. However, we believe that, because these areas constitute significant payment under both the IPPS

and OPPS and because these are common imaging services already widely reported by hospitals, we are proposing to adopt new standard cost centers for CT scanning and MRI. We agree 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. For these reasons, we are proposing to create standard cost centers for CT scanning, MRI, and

cardiac catheterization in Form CMS

2552–10.

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. 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, equipment, and supplies for diagnostic nuclear medicine services can be reported. 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


### 23880 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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.

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. We expect the data from the proposed standard cost centers for CT scans, MRI, and cardiac catheterization respectively, should they be finalized, to be available for possible use in calculating the relative weights not earlier than 3 years after Form CMS–

2552–10 becomes available. 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. If we decide to finalize these proposed new cost centers, the upcoming Federal Register notice that

will finalize Form CMS–2552–10 will provide more information regarding the addition of these proposed new standard cost centers for CT scans, MRI, and cardiac catheterization, including the instructions for completing these cost centers on the new cost report.

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 preventedthrough 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 258 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 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

In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public inputregarding conditions with evidencebased prevention guidelines that should be selected in implementing section 1886(d)(4)(D) of the Act. The public

comments we received were

summarized in the FY 2007 IPPS final rule (71 FR 48051 through 48053).

In the FY 2008 IPPS proposed rule (72 FR 24716 through 24726), we sought public comment on conditions that we proposed to select. In the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), we selected 8 categories to which the HAC payment provisions would apply.

In the FY 2009 IPPS proposed rule (73 FR 23547), we proposed several

additional candidate HACs as well as refinements to the previously selected HACs. In the FY 2009 IPPS final rule (73 FR 48471), we expanded and refined


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several of the previously selected HACs, and we selected 2 additional categories

of HACs.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106), we proposed the addition of ICD–9–CM codes 813.46 (Torus fracture of ulna) and 813.47 (Torus fracture of radius and ulna) to more precisely define the previously selected HAC category of

Falls and Trauma. In the FY 2010 IPPS/ RY 2010 LTCH PPS final rule (74 FR 43784), we finalized the addition of these codes. A complete list of the 10 current categories of HACs is included in section II.F.2. of this preamble. c. Collaborative Process

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 and Listening Sessions to receive 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 (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 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24104 through 24106), we did not propose to add or remove categories of HACs. However, as we indicated in that proposed rule, we continue to encourage public dialogue about refinements to the HAC list. During and after the December 18, 2008 Listening Session, we received many oral and

written stakeholder comments about both previously selected and potential candidate HACs. In response to the Listening Session, commenters strongly supported using information gathered from early experience with the HAC payment provision to inform

maintenance of the HAC list and consideration of future potential

candidate HACs. Commenters also emphasized the need for a robust program evaluation prior to modifying

the HAC list.

In response to the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106), commenters expressed strong support for a program evaluation prior to modifying the HAC list. We responded to these commenters and expressed our appreciation for the public’s support for our decision to undertake a program evaluation. We indicated that we planned to include updates and findings from the evaluation on CMS’ Hospital-Acquired

Conditions and Present on Admission

Indicator Web site available at: http:// www.cms.hhs.gov/HospitalAcqCond/. We also responded to commenters regarding POA indicator reporting as well as to comments addressing other topics related to HACs and POA reporting (74 FR 43785). 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. Through Change Request No. 5679 (released on June 20, 2007), we issued instructions requiring IPPS hospitals to submit POA indicator data for all diagnosis codes on Medicare claims. We also issued Change Request No. 6086 (released on June 13, 2008) regarding instructions for processing non-IPPS claims. Specific instructions

on how to select the correct POA indicator for each diagnosis code are

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. Additional information regarding POA indicator reporting and application of the POA reporting


### 23882 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

options is available on the CMS Web

site at: http://www.cms.hhs.gov/ HospitalAcqCond. 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 have been collaborating with the AHA to promote

the Coding Clinic for ICD–9–CM as the source for coding advice about the POA

indicator. 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 pr esent 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.

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.

Beginning on or after January 1, 2011, hospitals will begin reporting with the

5010 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 being used because of reporting

restrictions from the use of the 4010 format. Therefore, hospitals that begin 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 are planning to issue CMS instructions on this reporting change.

2. Proposed 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 will modify the list of selected HACs to reflect these changes. In Table 6A in the Addendum to this proposed rule, we have 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 are proposing to delete code 999.6 and form a new subcategory of 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 this proposed rule, we are proposing 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 designation

999.60 ................................. ABO incompatibility reaction, unspecified ............................................... ........................................ CC 999.61 ................................. ABO incompatibility with hemolytic transfusion reaction not specified as acute or delaye d ......... 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 are inviting 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. The following table lists the current HACs categories and the ICD–9–CM codes that identify the conditions that have been finalized through FY 2010. For FY 2011, we are proposing that these conditions continue to be subject to the HAC payment provision, with a proposed refinement to the codes to identify blood incompatibility as

described above.

HAC CC/MCC (ICD–9–CM code)

Foreign Object Retained After Surgery .......................................................................................... . 998.4 (CC) 998.7 (CC)

Air Embolism ................................................................................................................... ................ 999.1 (MCC) Blood Incompatibility .......................................................................................................... ............. 999.6 (CC) Pressure Ulcer Stages III & IV ................................................................................................. ....... 707.23 (MCC) 707.24 (MCC)

Falls and Trauma ............................................................................................................... ............. Codes within these ranges on the CC/MCC list:

—Fracture ...................................................................................................................... .......... 800–829

—Dislocation ................................................................................................................... ......... 830–839 —Intracranial Injury ........................................................................................................... ....... 850–854


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HAC CC/MCC (ICD–9–CM code)

—Crushing Injury ............................................................................................................... ...... 925–929

—Burn .......................................................................................................................... ............ 940–949
—Electric Shock ................................................................................................................ ....... 991–994 Catheter-Associated Urinary Tract Infection (UTI) .......................................................................... 996. 64 (CC) Also excludes the following from acting as a

CC/MCC: 112.2 (CC) 590.10 (CC) 590.11 (MCC) 590.2 (MCC) 590.3 (CC) 590.80 (CC) 590.81 (CC) 595.0 (CC) 597.0 (CC) 599.0 (CC)

Vascular Catheter-Associated Infection ......................................................................................... . 999.31 (CC) Manifestations of Poor Glycemic Control ........................................................................................ 250.10–250.13 (MCC) 250.20–250.23 (MCC) 251.0 (CC) 249.10–249.11 (MCC) 249.20–249.21 (MCC)

**Surgical Site Infections**

Surgical Site Infection, Mediastinitis, Following Coronary Artery Bypass Graft (CABG) ............... 519.2 (MCC) And one of the following procedure codes:

36.10–36.19 Surgical Site Infection Following Certain Orthopedic Procedures .................................................. 996.67 (CC) 998.59 (CC) And one of the following procedure codes:

81.01–81.08, 81.23–81.24, 81.31–81.38, 81.83, 81.85 Surgical Site Infection Following Bariatric Surgery for Obesity ...................................................... Principal Diagnosis —278.01 998.59 (CC) And one of the following procedure codes:

44.38, 44.39, or 44.95 Deep Vein Thrombosis and Pulmonary Embolism Following Certain Orthopedic Procedures ..... 415.11 (MCC) 415.19 (MCC) 453.40–453.42 (CC) And one of the following procedure codes:

00.85–00.87, 81.51–81.52, or 81.54

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 these HACs. We invite public comments on our proposal that these conditions continue to be subject to the HAC payment provision, with a proposed refinement of the codes to identify blood incompatibility as described

above.

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 will be complete prior to the publication date of this proposed rule. Below we summarize the analyses that are complete. 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. In the final rule, we intend to update our summary of these analyses with additional data

that have become available. b. Preliminary 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 mentioned previously, only IPPS hospitals are required to submit POA indicator data for all diagnosis codes onMedicare claims. Therefore, all nonIPPS hospitals were excluded, as well as providers in waiver States (Maryland)

and territories other than Puerto Rico.

Using MedPAR claims data from October 2008 through June 2009, RTI found a total of approximately 50.22 million secondary diagnoses across approximately 7.17 million discharges. As shown in Chart A below, the majority of all secondary diagnoses (83.52 percent) were reported with a

POA indicator of ‘‘ Y, ’’ meaning the

condition was POA.


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C HART 

### A—POA C ODE 

### D ISTRIBUTION 

### A CROSS 

### A LL 

### S ECONDARY 

### D IAGNOSES

Number Percentage

Total Discharges in Final File ................................................................................................. ................................. 7,175,139 ........................ Total Number of Secondary Diagnoses Across Total Discharges .................................................................... ...... 50,216,195 100.00

POA Indicator Description

Y ................................................................................... Condition present on admission ............. ...................... 41,938,234 83.52 W .................................................................................. Status cannot be clinically determined ...... ................... 12,547 0.02 N ................................................................................... Condition not present on admission ......... .................... 3,440,815 6.85 U ................................................................................... Documentation not adequate to determine if condition was present on admission. 110,771 0.22

1 .................................................................................... Exempted ICD–9–CM code .................... ...................... 4,713,828 9.39

**Source:** RTI Analysis of MedPAR IPPS Claims, October 2008 through June 2009.

c. Preliminary RTI Analysis on POA Indicator Reporting of Current HACs

Following the initial analysis of POA indicator reporting for all secondary diagnoses, RTI then evaluated POAindicator 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 7.17 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 132,666 HAC-associated diagnosis codes being reported for that HAC category. Of these 132,666 diagnoses, 4,081 reported a

POA indicator of ‘‘ N ’’ for not POA and 128,286 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 12 HAC-associated secondary diagnosis codes (and procedure codes) reported.



### C HART 

### B—POA S TATUS OF 

### C URRENT 

### HACS: O CTOBER 

### 2008 T HROUGH 

### J UNE 

### 2009

Selected HAC Frequencyas a Secondary Diagnosis Not Present on Admission Present on Admission

POA = N POA = U POA = Y POA = W

Number Percent Number Percent Number Percent Number Percent

1. Foreign Object Retained After

Surgery (CC) ............................ 378 172 45.5 0 0.0 206 54.5 0 0.0 2. Air Embolism (MCC) ................ 29 23 79.3 0 0.0 6 20.7 0 0.0 3. Blood Incompatibility (CC) ....... 23 8 34.8 0 0.0 15 65.2 0 0.0 4. Pressure Ulcer Stages III & IV

(MCC) ....................................... 80,190 944 1.2 56 0.1 79,165 98.7 25 0.0 5. Falls and Trauma (MCC & CC) 132,666 4,081 3.1 232 0.2 128,286 96.7 67 0.1 6. Catheter-Associated UTI (CC) 11,424 1,887 16.5 15 0.1 9,496 83.1 26 0.2

7. Vascular Catheter-Associated

Infection (CC) ........................... 5,470 2,091 38.2 19 0.3 3,348 61.2 12 0.2 8. Poor Glycemic Control (MCC) 11,070 344 3.1 9 0.1 10,711 96.8 6 0.19A. Surgical Site Infection Mediastinitis CABG (CC) ................. 29 21 72.4 0 0.0 8 27.6 0 0.09B. Surgical Site Infection Following Bariatric Surgery for Obesity (CC) ............................. 12 10 83.3 0 0.0 2 16.7 0 0.09B. Surgical Site Infection Following Certain Orthopedic Procedures (CC) ............................ 202 125 61.9 1 0.5 75 37.1 1 0.5 10. Pulmonary Embolism & DVT

Orthopedic (MCC) .................... 2,706 2,029 75.0 15 0.6 647 23.9 15 0.6

Total * .................................... 244,199 ................ ................ 347 ................ ................ ......... ....... 152 ................

* Discharges can appear in more than one row. The total figure is not adjusted for the 47 discharges with more than one HAC that appear as secondary diagnoses (15 of these discharges resulted in MS–DRG reassignment).


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We welcome public comments on these data that can provide insight into the accuracy of the data, using comparative data sets or analysis such as how aspects of the coding system might influence these data.

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 initial data

on a total of 347 HAC-associated secondary diagnoses reported with a

POA indicator of ‘‘ U ’’ . Of those diagnoses, 232 (0.2 percent) were assigned to the Falls and Trauma HAC
category.

We continue to believe that better

documentation will result in more accurate public health data. Because the RTI analysis is based on preliminary data, at this time we are not proposing 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. ’’

We encourage 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 detailed RTI report, readers can view that code 998.4 was reported 368 times and code 998.7 was reported 10 times, for a total of 378 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. Preliminary 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 29 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 29 reported discharges, 23 discharges (79.31 percent) had a POA

indicator of ‘‘ N ’’ or ‘‘ U ’’ and was identified as a HAC discharge. There were a total of 23 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 (52.17 percent of the 23 discharges with a POA indicator of

‘‘ N ’’ or ‘‘ U ’’ ). Thus, while there were 23 discharges (79.31 percent of the original 29) 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 (52.17 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 the216,764 discharges with a HACassociated diagnosis as a secondary diagnosis, 3,038 discharges ultimately resulted in MS–DRG reassignment. As will be discussed 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) Pressure Ulcer Stages III & IV; (3) Pulmonary Embolism and DVT Orthopedic (Orthopedic PE/DVT); 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 109,728 discharges. Of these 109,728 discharges, 3,852 (3.51 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 3,852 discharges within this HAC category that were not POA, 1,476 (38.32 percent) resulted in an MS–DRG reassignment.

Of the 216,764 total discharges reporting HAC-associated diagnoses as a secondary diagnosis, 2,494 discharges were coded with a secondary diagnosis of Orthopedic PE/DVT. Of these 2,494 discharges, 1,892 (75.86 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 1,892 discharges in this HAC category that were not POA, 845 discharges (44.66 percent) resulted in an MS–DRG reassignment.

The Pressure Ulcer Stages III & IV category had the second most frequently coded secondary diagnoses, with 76,014 discharges. Of these discharges, 960 (1.26 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 960 discharges in this HAC category that were not POA, 337 discharges (35.10 percent) resulted in an MS–DRG reassignment.

The Catheter-Associated UTI category had the third most frequently coded secondary diagnoses, with 11,434 discharges. Of these discharges, 1,896 (16.60 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 1,896 discharges in this HAC category that were not POA, 197 discharges (10.39 percent) resulted in a MS–DRG reassignment.

The remaining 6 HAC categories only had 183 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 23 of the 2,107 Vascular Catheter-Associated Infection secondary diagnoses that were coded as not POA and identified as HAC discharges resulted in a MS–DRG reassignment.


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There were a total of 277 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 (29 cases), Falls and Trauma (206 cases), Catheter-Associated UTI (6 cases), Vascular Catheter-Associated Infection (3 cases), and Manifestations of Poor Glycemic Control (33 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/

.

In summary, Chart C below

demonstrates that there were a total of 216,764 discharges with a reported HAC-associated secondary diagnosis. Of the total 216,764 discharges, 11,383 (5.25 percent) discharges were HACs reported with a POA indicator of ‘‘ N ’’ or

‘‘ U ’’ that were identified as a HAC discharge. Of these 11,383 discharges, the number of discharges resulting in MS–DRG reassignments was 3,038 (26.69 percent).

**BILLING CODE 4310–10–P**


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### 23888 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

**BILLING CODE 4120–01–C** An extremely small number of discharges had multiple HACs reported during the same stay. In reviewing the 7.17 million claims, RTI found 47 cases in which two HACs were reported on the same discharge. Chart D below

summarizes these cases. There were eight cases in which a Falls and Trauma HAC was reported in addition to a Pressure Ulcer Stages III & IV HAC. Eighteen of the cases with two HACs involved Pressure Ulcer Stages III & IV

and 15 cases involved Falls or Trauma. Other multiple HAC cases included 9

Catheter-Associated UTI cases and 5

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 47 claims, 32 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.f.(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.



### C HART 

### D—C LAIMS 

### W ITH 

### M ORE 

### T HAN 

### O NE 

### HAC S ECONDARY 

### D IAGNOSIS 

### O CTOBER 

### 2008 T HROUGH 

### J UNE 

### 2009

HAC 4. Pressure ulcer stages III & IV— MCC 5. Falls and

trauma— MCC & CC 6. Catheterassociated UTI—CC 7. Vascular
catheterassociated infection—CC

2. Air embolism—MCC .................................................................... ............................ 1 ..........

.................. ............................ 5. Falls and Trauma—MCC & CC ................................................... 8 ............................ ..................

.......... ............................ 6. Catheter-Associated UTI—CC .................................................... 2 3 ............................ ..............

.............. 7. Vascular Catheter-Associated Infection—CC .............................. 5 4 6 ............................ 8. Poor Glycemic Control—MCC ..................................................... 1 ............................ ................ ............ 19C. Surgical Site Infection Following Bariatric Surgery for Obesity—CC ....................................................................................... ............................ ..... ....................... 2 1 10. Pulmonary Embolism & DVT Orthopedic—MCC ...................... 2 7 1 3

Total .......................................................................................... 18 15 9 5

e. Preliminary 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 thefrequency of discharges where the HACassociated secondary diagnosis was


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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 83 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 6,074 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)

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 were the only secondary diagnosis reported, then 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 1,446 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 818 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 seven 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 assignmentdespite 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 (PercutaneousCardiovascular Procedure with DrugEluting Stent with MCC or 4+ Vessels/ Stents)

Column G in the chart below shows

that four of the seven cases that did not result in MS–DRG reassignment due to the MS–DRG logic were in the Catheter Associated UTI HAC category, one case was in the Foreign Body Retained after


### 23890 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

Surgery HAC Category, one case was in the Falls and Trauma HAC category, and

one case was in the Vascular CatheterAssociated Infection HAC Category. In conclusion, a total of 8,345 cases (6,074 + 1,446 + 818 + 7) did not have a change in MS–DRG assignment, regardless of the presence of a HAC. The reasons described above explain why only 3,038 cases had a change in MS– DRG assignment despite the fact that there were 11,383 HAC cases with a

POA of ‘‘ N ’’ or ‘‘ U. ’’

**BILLING CODE 4120–01–P**


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**BILLING CODE 4120–01–C**


### 23892 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

f. Preliminary RTI Analysis of Coding Changes for HAC-Associated Secondary Diagnoses for Current HACs

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. To provide consistency with the FY 2009 data studied, RTI examined claims using discharge dates from October 2006 through June 2007 (for FY 2007) and October 2007 through June 2008 (for FY 2008) and compared these data to the

FY 2009 data.

RTI’s analysis found that there was an 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 Falls and Trauma HAC category, with 108,397 discharges being reported in FY 2007, while 116,832 discharges were reported in FY 2008, an increase of

8,435 cases.

However, the analysis found thatthere was a decrease in reported HACassociated secondary diagnoses from FY 2008 to FY 2009. The most significant

decrease was in the Falls and Trauma HAC category, with 116,832 discharges being reported in FY 2008, while 109,246 discharges were reported in FY 2009, a decrease of 7,586 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 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. Preliminary RTI Analysis of Estimated Net Savings for Current HACs

RTI determined preliminary estimates of the net savings generated by the HAC payment policy based on MedPAR claims from October 2008 through June 2009 for the 9-month period.

(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/ AcuteInpatientPPS/IPPS2009/ . This file includes the wage index and geographic adjustment factors, plus the provider type variable to identify providersqualifying 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/ AcuteInpatientPPS/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 theapplicable operating and capital cost-tocharge ratios. An SAS version was

downloaded from the Web site at: http://www.cms.hhs.gov/ ProspMedicareFeeSvcPmtGen/

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: Re-run 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 FY2007 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. RTI’s first round of computations treated all claims as though paid under standard IPPS rules without adjusting for short-stay transfers

or HSP amounts.

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 FY2007 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. RTI’s first round of computations treated all claims as though paid under standardIPPS rules without adjusting for shortstay transfers or HSP amounts.

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


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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 2009, based on the methodology described above. Column A shows the number of discharges where an 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 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 4120–10–C**


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As shown in Chart F above, the total net savings calculated for the 9-month period from October 2008 through June 2009 was roughly $16.44 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 $15.10 million of net savings for the 9-month period. Estimated net savings for the 9-month period associated with the Falls and Trauma category were $7.58 million. Estimated net savings associated with Orthopedic PE/DVT for the 9-month period were $5.61 million. Estimated net savings for the 9-month period associated with Pressure Ulcer Stages III & IV were $1.87 million.

The mean net savings per discharge calculated for the 9-month period from October 2008 through June 2009 was roughly $5,456. 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 9-month period of FY 2009 analyzed by RTI had multiple HACs during the same stay. In reviewing our 7.17 million claims, RTI found 47 cases where two HACs were reported on the same admission as noted in section II.F.3.g.(2) of this preamble. Of these 47 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.



### C HART 

### G—C LAIMS 

### W ITH 

### M ORE 

### T HAN 

### O NE 

### HAC S ECONDARY 

### D IAGNOSIS 

### W HERE 

### MS–DRG R EASSIGNMENT 

### O CCURRED 

### O CTOBER 

### 2008 T HROUGH 

### J UNE 

### 2009

Selected HAC 4. Pressure ulcer stages III

& IV—MCC 5. Falls and trauma—MCC & CC 6. Catheterassociated UTI—CC

3. Blood Incompatibility—CC .................................................................................................... ... ........................ 1 ........................
5. Falls and Trauma—MCC & CC ............................................................................................... 5 ..

...................... ........................ 6. Catheter-Associated Urinary Tract Infection (UTI)—CC ......................................................... 1 1 ...........

............. 7. Vascular Catheter-Associated Infection—CC ......................................................................... .......... .............. 1 1 10. Pulmonary Embolism & DVT Orthopedic—MCC .................................................................. 1 4 ..............

..........

Total .......................................................................................................................... ............ 7 7 1

As we discuss in section II.F.1.b. of this preamble, implementation of this policy is the part of an array of Medicare VBP tools that we are using to promote increased quality and efficiency of care. We 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 would 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—Preliminary 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 7.17 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 66,502 secondary diagnoses codes being reported for that condition, of which 23,323 reported a POA indicator of ‘‘ N ’’ ; (2) Staphylococcus aureus Septicemia, with a total of 17,662 secondary diagnoses codes being reported for that condition, with 3,949 of those reporting a POA indicator of ‘‘ N ’’ ; and (3) Iatrogenic Pneumothorax, with a total of 16,765 secondary diagnoses codes being reported for that condition, with 14,604 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 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.


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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 66,502 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 66,502 discharges, 23,702 discharges (35.64 percent) had a POA indicator of ‘‘ N ’’ or

‘‘ U. ’’ Therefore, there were a total of 23,702 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 739 (3.12 percent). Thus, while there were 23,702 discharges with CDAD reported with a

POA indicator of ‘‘ N ’’ or ‘‘ U ’’ that could potentially have had an MS–DRG reassignment, the result was 739 (3.12 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 159,485 discharges with a previously considered candidate HAC reported as a secondary diagnosis. Of those, 47,010 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

2,932.

**BILLING CODE 4120–01–P**


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**BILLING CODE 4120–01–C**

i. Current and Previously Considered Candidate HACs—RTI Report on

Evidence-Based Guidelines

The RTI program evaluation includes a report that provides references for all evidence-based guidelines available for each of the selected and previously considered candidate HACs that provide recommendations for the prevention of the corresponding conditions. Guidelines were primarily identified using the AHRQ National Guidelines Clearing House (NGCH) and the CDC, along with relevant professional societies. Guidelines published in the United States were used, if available. In the absence of U.S. guidelines for a specific condition, international guidelines were included.

Evidence-based guidelines that included specific recommendations for the prevention of the condition were

identified for each of the 10 selected conditions. In addition, evidence-based guidelines were also found for the previously considered candidate

conditions.

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. Proposals Regarding Current HACs and Previously Considered Candidate

HACs

We believe that the 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, we are not proposing to add or remove categories of HACs at this time, although we note that we are proposing


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to revise the Blood Incompatibility HAC category as discussed in section II.F.2. of this preamble. (We also note that, as

discussed in section II.F.3.b. of this preamble, we are not proposing to change 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. Proposed Changes to Specific MS– DRG Classifications

We are inviting public comment on

each of the MS–DRG classification proposed changes described below, as well as our proposals to maintain certain existing MS–DRG classifications,

which are also discussed below. In some cases, we are proposing changes to the

MS–DRG classifications based on our analysis of claims data. In other cases, we are proposing to maintain the existing MS–DRG classification based on our analysis of claims data.

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). In addition, 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) under MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders).

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, we are proposing 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 are proposing to add diagnosis code 251.3 to the list of principal or secondary diagnosis codes assigned to MS–DRG 010 (Pancreas Transplant).

b. Bone Marrow Transplants

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 destroyed by high doses of chemotherapy and/or radiation treatment. Currently, all bone marrow transplants are assigned to MS– DRG 009 (Bone Marrow Transplant). 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 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:


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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, we are proposing 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).

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

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)

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 and 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] 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 than the next six MS–DRGs relating to brain injury in the hierarchy. 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. We

are now able to address the commenter’s

concern because we have been able to conduct an analysis of MedPAR claims data for this diagnosis code for this proposed rule.

For this proposed rule, we undertook an analysis of MedPAR claims data for FY 2009. For our analysis, we did not include claims for patient cases assigned to MS–DRGs 061, 062, or 063 because patients whose cases were assigned to these MS–DRGs would have been given the tPA at the initial hospital, 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; therefore, inclusion of code 99.10 on

their 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). Claims assigned to MS–DRGs 067, 068, and 069 are 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. The following table reflects the results of our analysis of the MedPAR data in which diagnosis code V45.88 was reported as a secondary diagnosis for FY 2009.

MS–DRG Number of

cases Average length of

stay Average cost

MS–DRG 064—All Cases ........................................................................................................... 65,884 6.80 $11,305 MS–DRG 064—Cases with secondary diagnosis code V45.88 ................................................. 249 7.00 12,285

MS–DRG 065—All Cases ........................................................................................................... 96,274 4.75 7,264 MS–DRG 065—Cases with secondary diagnosis code V45.88 ................................................. 448 5.06 8,732

MS–DRG 066—All Cases ........................................................................................................... 62,337 3.29 5,291


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MS–DRG Number of

cases Average length of

stay Average cost

MS–DRG 066—Cases with secondary diagnosis code V45.88 ................................................. 210 3.35 6,325

Based on our review of the data for all of the cases in MS–DRGs 064, 065, 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 is not

warranted. We determined that the differences in the average lengths of stay and the average costs are too small to warrant an assignment to the higher weighted MS–DRGs. Likewise, neither the lengths of stay nor the average costs are 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 are not proposing any change to MS–DRGs 061,
062, 063, 064, 065, or 066, or any change involving the assignment of diagnosis code V45.88.

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 FR43785 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 procedure code 88.59 to the ‘‘ Other

Cardiovascular MS–DRG ’’ s: 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 earlier, 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)

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


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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 6.5 4 19,305 236—Cases without procedure code 88.59 ................................................................................ 22,224 6. 37 23,436

MS–DRG Number of cases Average length of

stay Average cost

233—All cases .................................................................................................................. ........... 16,475 13.47 $42,662 233—Cases with procedure code 88.59 ..................................................................................... 58 12.1 2 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

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,

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, 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 are not proposing to make any MS–DRG modifications for 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.

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 are unable to evaluate any data, other than that for procedure code 88.59, as shown

in the tables above. We are not proposing to create a new MS–DRG in FY 2011 for coronary bypass with intraoperative angiography, by any

method.

c. New Procedure Codes

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 could submit a proposal for creating a new procedure code(s) to the ICD–9–CM

Coordination and Maintenance

Committee for its consideration. Therefore, this topic will be further evaluated through the ICD–9–CM

Coordination and Maintenance Committee meeting process.

d. MS–DRG Reassignment of Intraoperative Fluorescence Vascular Angiography (IFVA)

One requestor suggested reassigning 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.

We point 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


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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 are not proposing to reassign cases reporting procedure code 88.59 to MS–DRGs 228, 229, and 230 for

FY 2011.

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.

In response to the commenter’s request, we point 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.

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 2,011cases 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, we do not believe it is 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, 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 invite the public to submit comments on our proposal not to make any MS–DRG

modifications at this time to cases involving the use of gastrointestinal

stents for FY 2011.

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


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(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, 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 ofprocedure 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 are not proposing to reassign cases reporting procedure code 84.82 from

MS–DRG 490 to MS–DRG 460 for FY

2011.

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

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. ’’ 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 believe that the request has merit in identifying neonate cases appropriately. Therefore, for FY 2011, we are proposing to add discharge

status code 05 to the MS–DRG GROUPER logic for MS–DRG 789.

b. Vaccinations of Newborns

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 impacts the MS–DRG assignment for normal newborns cases being assigned

to MS–DRG 794.

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, 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 this proposed rule, for FY 2011, we are proposing to remove code V64.05 from

MS–DRG 794 and add this code to the only secondary diagnosis list for MS–

DRG 795.

7. Medicare Code Editor (MCE) Changes

As explained under section II.B.1. of the preamble of this proposed 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. For FY 2011, we intend to make the following changes to the MCE edits and invite public input on whether or

not we should do so:

a. Unacceptable Principal Diagnosis Edit: Addition of Code for Gastroparesis

It has been brought to our attention that code 536.3 (Gastroparesis) has a

‘‘ code first underlying disease ’’ note. This note indicates that code 536.3 should not be used as a principal diagnosis. Therefore, code 536.3 should

have been included on the list of unacceptable principal diagnoses in the

MCE.

We agree that code 536.3 should have

been included on the list of unacceptable principal diagnoses in the MCE. Therefore, for FY 2011, we intend

to add code 536.3 to that list.

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, for FY 2011, we intend to delete the entire Open Biopsy Check edit from the MCE, which means 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)


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• 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)

• 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)

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 this preamble, in which we are proposing to add code 251.3 (Postsurgical hypoinsulinemia) to those MS–DRGs, we intend to add procedure code 251.3 to the list of acceptable principal or secondary diagnosis codes in the MCE.

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 involvingmultiple 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


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2 See 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. if no other surgical class more closely related to the diagnoses in the MDC is appropriate.

A second example occurs when the difference between the average costs for two surgical classes is very small. We

have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average costs arelikely to shift such that the higherordered surgical class has a lower average costs than the class ordered

below it.

Based on the changes that we are proposing for FY 2011, as discussed in section II.C.2 of this preamble, we are proposing to revise 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 proposing to reorder proposed new MS–DRG 014 (Allogeneic Bone Marrow Transplant) above MS–DRG 007 (Lung Transplant); and proposed new MS–DRG 015 (Autologous Bone Marrow Transplant) above MS–DRG 010 (Pancreas Transplant).

In MDC 10, we are proposing to reorder 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).

9. Complications or Comorbidity (CC)

Exclusions List

a. Background

As indicated earlier in the preamble of this proposed 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. Proposed 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) Proposed Limited Revisions Based on Changes to the ICD–9–CM Diagnosis

Codes

For FY 2011, we are proposing to
make limited revisions to the CC

Exclusions List for FY 2011 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 proposed rule for a discussion of ICD– 9–CM changes.) We are proposing to make 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:


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• 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)

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)

We stated that we believed these comments were outside the scope of the proposal in the 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 thefollowing diagnosis codes from a nonCC to a CC:

• 278.00 (Obesity NOS)

• 278.01 (Morbid obesity)

• 278.02 (Overweight) 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 45,5 65 2.3843 278.01 .................... Morbid obesity ..................................................... 51,832 1.2619 106,169 1.9630 52,39 8 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, we are not proposing to change 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. 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 summaries 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 3.0 465


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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 at this time. 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. We are not recommending any change in the severity classification of diagnosis code V85.4. We are proposing to retain it as

a CC for FY 2011.

We welcome public comments on our proposal not to change the severity levels of the diagnosis codes mentioned

above. (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. 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 are not proposing 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.

(4) Proposed Change to the Severity Level for Acute Renal Failure, Unspecified Diagnosis Code

We received a request to reclassify diagnosis code 584.9 (Acute renal 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 (Acute renal failure, unspecified). 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 renal 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 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.

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 3.24 29

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 are proposing to change the severity level for diagnosis code 584.9 from a MCC to

a CC for FY 2011.

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 proposed 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 proposed 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/ AcuteInpatientPPS . Beginning with discharges on or after October 1, 2010, the indented diagnoses will not be 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 proposed rule, we are providing the following summaries of those MCC and CC changes.

There were no additions to the MS– DRG MCC List for FY 2011 (Table 6I.1).

**BILLING CODE 4120–01–P**


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3 The original list of the ICD–9–CM procedure codes for the procedures we consider nonextensive procedures, if performed with an unrelated principal diagnosis, was published in Table 6C in

section IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56 FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY 1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173), and the FY 1998 final rule (62 FR 45981), we moved several other procedures from DRG 468 to DRG 477, and some procedures from DRG 477 to DRG 468. No procedures were moved in FY 1999, as noted in the final rule (63 FR 40962); in 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). 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 will include the final FY 2011 MS–DRG changes, will be available on 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 are not proposing to change the procedures assigned among

these MS–DRGs.

a. Moving Procedure Codes From MS– DRGs 981 Through 983 or MS–DRGs 987 Through 989 Into MDCs

We annually conduct a review of procedures producing assignment to MS–DRGs 981 through 983 (Extensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS– DRGs 987 through 989 (Nonextensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these MS–DRGs into one of the surgical MS–DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each

MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS–DRGs for the MDC in which the diagnosis falls. 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 evident in MS–DRGs 987 through 989. There were a total of 1,601 cases across 17 MDCs and, again, the cases did not


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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 are not proposing to remove any procedures from MS–DRGs 981 through 983 or MS–DRGs 987 through 989 into one of the surgical MS–DRGs for the MDC into which the principal diagnosis is assigned.

b. Reassignment of Procedures Among MS–DRGs 981 Through 983, 984 Through 986, and 987 Through 989

We also annually review the list of ICD–9–CM procedures that, when in combination with their principal diagnosis code, result in assignment to MS–DRGs 981 through 983, 984 through 986 (Prostatic O.R. procedure unrelated to principal diagnosis with MCC, with CC, or without CC/MCC, respectively), and 987 through 989, to ascertain whether any of those procedures should be reassigned from one of these three

MS–DRGs to another of the three MS– DRGs based on average 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 are not proposing to move any procedure codes among these MS–DRGs.

c. Adding Diagnosis or Procedure Codes

to MDCs

Based on the review of cases in the

MDCs as described above in sections G.10.a. and b., we are not proposing to add any diagnosis or procedure codes to

MDCs for FY 2011.

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 proposed 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 proposed 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 this proposed rule will be included in Tables 6A through

6F of the final rule and will be marked with an asterisk (*).

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


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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 involvingdiagnosis 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 beaddressed 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 proposed 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 this proposed rule, we are soliciting comments on the proposed classification of these new codes, which

are shown in Tables 6A and 6B of the Addendum to this proposed rule.

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 proposed rule. New procedure codes are shown in

Table 6B in the Addendum to this proposed 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 proposed 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 proposed 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 proposed rule, which also includes the MS–DRG assignments

for these revised codes. Table 6F in the Addendum to this proposed 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 are finalized by May

2010 will be included in Tables 6A through 6F in the Addendum to the

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


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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 1, 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 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 this 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


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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,

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 this proposed rule, we are soliciting additional input on this subject, especially in light of the requirements on hospitals for meaningful use of electronic health records. We welcome 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 welcome 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.

We believe that this advance notice of a partial code freeze would provide 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.


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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.

H. Recalibration of MS–DRG Weights

In developing the proposed 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 proposed rule include discharges occurring on October 1, 2008, through September 30, 2009, based on bills received by CMS through December 31, 2009, from all hospitals subject to the IPPS and short-term, 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 11,004,046 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 December 31, 2009 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 proposed

rule. • The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS–DRGs 001, 002, 005, 006, and 007, respectively)

were limited to those 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.


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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 inAlaska 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

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 aMedicare-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 1.57461 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 proposed national average

CCRs for FY 2011 are as follows:

Group CCR

Routine Days ................................ 0.553 Intensive Days .............................. 0.480 Drugs ............................................ 0.200 Supplies & Equipment .................. 0.348 Therapy Services ......................... 0.415 Laboratory .................................... 0.163 Operating Room ........................... 0.282 Cardiology .................................... 0.181 Radiology ...................................... 0.161 Emergency Room ......................... 0.278

Blood and Blood Products ........... 0.424
Other Services .............................. 0.426 Labor & Delivery ........................... 0.462 Inhalation Therapy ........................ 0.201

Anesthesia .................................... 0.136

Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS–DRG grouping
system.

When we recalibrated the DRG weights for previous years, we set a

threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. In this FY 2011 proposed rule, we are proposing 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 low-volume 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 are proposing 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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Low-Volume MS– DRG MS–DRG title Crosswalk to MS–DRG

768 ..................... Vaginal Delivery with O.R. Procedure Except Sterilization

and/or D&C. FY 2010 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 789 ..................... Neonates, Died or Transferred to Another Acute Care Facility FY 2010 FR weight (adjusted by percent cha nge in average weight of the cases in other MS–DRGs). 790 ..................... Extreme Immaturity or Respiratory Distress Syndrome,

Neonate. FY 2010 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 791 ..................... Prematurity with Major Problems ............................................. FY 2010 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 792 ..................... Prematurity without Major Problems ........................................ FY 2010 FR weight (adjusted b y percent change in average weight of the cases in other MS–DRGs). 793 ..................... Full-Term Neonate with Major Problems ................................. FY 2010 FR weight (adjusted by pe rcent change in average weight of the cases in other MS–DRGs). 794 ..................... Neonate with Other Significant Problems ................................ FY 2010 FR weight (adjusted by p ercent change in average weight of the cases in other MS–DRGs). 795 ..................... Normal Newborn ...................................................................... FY 2010 FR weight ( adjusted by percent change in average weight of the cases in other MS–DRGs).

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

1. Background

Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies (sometimes collectively referred to in

this section as ‘‘ new technologies ’’ )

under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will

be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for new technology add-on payment if, ‘‘ based

on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate. ’’ We note that beginning with 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 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 proposed FY 2011 MS–DRG weights in this proposed 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 proposed 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


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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 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 final rule published in the Federal Register on August 27, 2009, contains the final thresholds that are being used to evaluate applications for new technology add-on payments for FY 2011 (74 FR 44173). We note that we plan to issue separate documents in the Federal Register addressing the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for FY 2011

under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions addressing the provisions of Public Law 111–148, as amended, that affect the policies and payment

rates for FY 2010 under the IPPS and

the LTCH PPS. At the time we issue those documents, we plan to update Table 10 that was published in the Federal Register on August 27, 2009
and Table 10 in the Addendum to this proposed rule.

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the 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 no longer requires covered entities to obtain consent from patients to use or disclose protected health information for treatment, payment, or health care operations, and expressly permits such entities to use or to disclose protected health information for any of these purposes. (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 on August 14, 2002, for a full discussion of changes in consent requirements.)

Under the third criterion, § 412.87(b)(1) of our existing regulations


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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 Clinical Standards and Quality (OCSQ)

and the Director of the Center for Medicare Management (CMM), who is also designated as the CTI’s Executive

Coordinator.

The specific processes for coverage, coding, and payment are implementedby CMM, 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 theagency-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 variousplaces 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


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site also will list the tracking forms completed by each applicant.

2. Public Input Before Publication of aNotice 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 this 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 this 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 this proposed rule.

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 this proposed rule.

Comment: One commenter, a medical technology association, recommended that CMS, in its consideration as to whether a new technology meets the substantial clinical improvement criterion, judge a diagnostic device on the basis of a diagnostic outcome (improved diagnosis) rather than a therapeutic outcome, recognizing that earlier and improved detection of disease often leads to improved patient

outcomes.

Response: We thank the commenter

for its comments on the substantial clinical improvement criterion. Similar

to our statements in the FY 2010 IPPS/ RY 2010 LTCH PPS final rule (74 FR 43817 through 43819), section 1886(d)(5)(K)(vi) of the Act authorizes the Secretary to establish through notice and comment rulemaking the criteria

that a new medical service or technology must meet in order to be eligible for the new technology add-on payment. Under this authority, in the September 7, 2001 final rule, we established three criteria through notice and comment rulemaking—the newness criterion, the cost criterion, and the substantial clinical improvement criterion (66 FR 46924). Specifically, § 412.87(b)(1) of the regulations provides that a new medical service or technology must ‘‘ represent an advance that substantially improves, relating to technologies previously available, the diagnosis or treatment of Medicare

beneficiaries. ’’

As we explained in the September 7, 2001 final rule, we consider a diagnostic technology to meet the substantial clinical improvement criterion if the technology not only ‘‘ 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, ’’ but also if ‘‘ use of the device to make a diagnosis affects the management of the patient ’’ (66 FR 46914). We believe that this evidence is necessary to determine whether the new technology affords a ‘‘ clear improvement over the use of previously available technologies. ’’ We do not consider any particular type of evidence to be dispositive; instead, we consider all information presented for each application to determine whether there is evidence to support a conclusion that

‘‘ use of the device to make a diagnosis affects the management of the patient ’’ (in the case of a diagnostic technology). Specifically, we consider whether the peer-reviewed medical literature supports or clinical studies indicate that the diagnostic device should generally be used by providers in guiding the management of their patients. In addition, we consider evidence demonstrating clinically accepted use of the device in a manner that actually affects the management of patients.

Under the commenter’s recommendation, a diagnostic technology effectively would only need to receive FDA approval and be the only technology approved for a particular diagnostic capability in order to be

deemed a ‘‘ substantial improvement ’’ for purposes of new technology add-on payments, regardless of its ability to positively affect patient management. This approach would deem a device

that led to the identification of new

information as a substantial improvement in diagnosis even if such

detection has not been ‘‘ demonstrated to represent a substantial improvement in caring for Medicare beneficiaries ’’ and was not linked to evidence-based, significant, and positive changes in the management of patients or, ultimately, to changes in clinical outcomes. We do

not believe this rationale is consistent with our prior statements regarding the substantial clinical improvement criterion of the new technology add-on payment provision.

Comment: One commenter, a medical device association, recommended that

CMS ‘‘ deem a device to satisfy the substantial clinical improvement criteria if it was granted a humanitarian device exemption or priority review based on the fact that it represents breakthrough technologies, which offer significant advantages over existing approved alternatives, for which no alternatives exist, or the availability of

which is in the best interests of the patients. ’’ In addition, the commenter


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remarked that this process would simplify CMS’ evaluation of applications for new technology add-on payments and would promote access to innovative treatments, as intended by Congress. Although the commenter also

made remarks that were unrelated to substantial clinical improvement, because the purpose of the town hall meeting was specifically to discuss substantial clinical improvement of pending new technology applications,

those comments are not summarized in this proposed rule.

Response: We thank the commenter

for its comments. We note that we have previously addressed the comment concerning automatically approving technologies that have a humanitarian device exemption (HDE) in the FY 2008 IPPS final rule (72 FR 47302). We refer readers to that rule for our response. A

further discussion of our evaluation of the applications and the documentation for new technology add-on payments submitted for FY 2011 approval is provided under the specified areas

under this section.

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 usedto 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 an 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 Institutional Review Board (IRB) 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 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. The Spiration ® IBV ® is 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.

However, 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), and we emphasized the need for appropriate patient selection accordingly. 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. 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.

b. CardioWest TM Temporary Total Artificial Heart System (CardioWest TM TAH-t)

SynCardia Systems, Inc. submitted an application for approval of the

CardioWest TM 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


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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

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 are proposing 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.

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 this proposed rule, we are not discussing these two applications in this proposed rule.

A discussion of the remaining three applications is presented below. At the time this proposed rule was developed, one of the technologies had not yet received FDA approval. Consequently, our discussion below of this application may be limited.

a. Auto Laser Interstitial Thermal Therapy (AutoLITT TM ) System

Monteris Medical submitted an application for new technology add-on payments for FY 2011 for the

AutoLITT TM . 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. AutoLITT TM is a minimally invasive, MRI-guided catheter tipped laser designed to destroy malignant

brain tumors with interstitial thermal energy causing immediate coagulation

and necrosis of diseased tissue. The applicant asserts that the AutoLITT TM 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 AutoLITT TM received a 510K FDA clearance in May

2009. The AutoLITT TM 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

AutoLITT TM may be used in patients with glioblastoma multiforme brain tumors. The applicant stated in its application and through supplemental information that, due to required


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4 RTI International, A Study of Charge Compression in Calculating DRG Relative Weights, RTI Project No. 0207964.012.008; January 2007. 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. We welcome public comments on this issue.

With regard to the newness criterion,

we are concerned that the AutoLITT TM 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; and (2) whether a product is assigned to the same of 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 brain. The applicant maintains that

AutoLITT TM ; 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. We welcome comments from the public regarding whether or not the

AutoLITT TM is substantially similar to

the Visual-ase and if it meets the

newness criteria.

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 were effective on October 1, 2009.

In an effort to demonstrate that

AutoLITT TM 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 AutoLITT TM 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 AutoLITT TM would map to

MS–DRG 25 in the near-term. As the technology becomes more widely available, clinicians will use the technology instead of performing a craniotomy for brain cancer and on 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 AutoLITT TM 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 with the AutoLITT TM have a better tool at removing more cancer and killing it more precisely and accessing 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 AutoLITT TM that was assigned one of the following ICD–9– CM 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 was $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 AutoLITT TM . 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

AutoLITT TM 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 AutoLITT TM (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, we are seeking 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 AutoLITT TM ).

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. Additionally, the applicant further explained that the total average standardized charge per

case would also exceed the cost thresholds established by CMS of $58,612 for MS–DRGs 26 and $47,053

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 AutoLITT TM would meet the cost criterion. We invite public comment on

whether or not the AutoLITT TM meets the cost criterion for a new technology add-on payment for FY 2011.


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With respect to the substantial clinical improvement criterion, the applicant maintains that it meets this criterion in its application. Specifically,the applicant stated that several nonAutoLITT TM 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 glioblastoma multiforme 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 or inability of these therapies to treat the brain tumor (due to tumor location, type, or size, among others). 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 AutoLITT TM meets the new technology criterion for substantial clinical improvement.

The applicant further asserts that

AutoLITT TM 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

AutoLITT TM 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).

We appreciate the applicant’s summary of why this technology represents a substantial clinical improvement. While we recognize the future potential of this interesting therapy, we have concerns that to date

the AutoLITT TM 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

AutoLITT TM 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. We welcome additional

clinical data to demonstrate whether the

AutoLITT TM meets the substantial clinical improvement criterion and invite public comment on whether or

not the AutoLITT TM meets the substantial clinical improvement

criterion.

We did not receive any written public comments regarding this application for new technology add-on payments concerning the new technology town hall meeting.

b. LipiScan TM Coronary Imaging System

InfraReDx, Inc. submitted an application for new technology add-on payments for FY 2011 for the LipiScan TM Coronary Imaging System (LipiScan TM ). 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 LipiScan TM 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. 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 LipiScan TM system collects approximately 1,000 measurements per 12.5 mm of pullback, with each measurement interrogating an area of 1

to 2 mm 2 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 LipiScan TM 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 Lipiscan TM device cleared by the FDA in 2008 is for a modified

indication. The modified indication specified that Lipiscan TM 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 Lipiscan TM 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 LipiScan TM 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.


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2006 NIRS device Marketed 2008 lipiScan

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 LipiScan TM device that was approved in 2006 were

addressed in the second device that was granted FDA approval in April 2008. The LipiScan TM 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 Lipiscan TM 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. We welcome public comment on whether Lipiscan TM meets the newness criterion.

We note that the Lipiscan TM 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 final rule After Outliers Removed (AOR) file (posted on the CMS Web site) to identify cases potentially eligible for Lipiscan TM

. The applicant believes that every case within MS–DRGs 246, 247, 248, 249, 250, and 251 is eligible for Lipiscan TM

. In addition, the applicant believes that Lipiscan TM 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 Lipiscan TM ; 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 Lipiscan TM , the applicant stated that the cost of the device is proprietary information. Based on a sampling of all 10 non-VA 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 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 $59,727 ($52,230 plus $7,497). Using the FY 2011 thresholds published in Table 10

of the FY 2010 IPPS/RY 2010 LTCH PPSfinal rule (74 FR 44173), the caseweighted threshold for MS–DRGs 246, 247, 248, 249, 250, and 251 is $56,487 (all calculations above were performed using unrounded numbers). Because theapplicant’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 Lipiscan TM 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 Lipiscan TM , 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 with the applicant’s assertion that the probability of use of Lipiscan TM
is the same in each of those six MS– DRGs. Using data from the FY 2010 AOR file, for MS–DRGs 246, 247, 248, 249, 250, and 251, there were 30,411, 147,952, 19,736, 67,964, 8,184, and 38,091 cases, respectively. Using this case distribution and the average standardized charge per case for MS– DRGs 246, 247, 248, 249, 250, and 251 from the application (that is, $67,531, $44,485, $62,936, $40,149, $59,416, and $38,864, respectively, as stated above), the case-weighted average standardized charge per case is $46,657. As theapplicant indicated above, the caseweighted average standardized charge per case does not include charges related to Lipiscan TM . Therefore, it is necessary to add the average charge of$7,497 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 $54,154 ($46,657 plus $7,497). Using the FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173) and the actual casedistribution from the AOR file, the caseweighted threshold for MS–DRGs 246, 247, 248, 249, 250, and 251 is $52,700 (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 also exceeds the case-weighted threshold amount, it appears that Lipiscan TM would meet the cost criterion. We invite public comment on


### 23932 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

whether or not Lipiscan TM meets the

cost criterion.

With regard to substantial clinical improvement, CMS determined that the FY 2010 new technology add-on payment application for Lipiscan TM 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, CMS found that there was

a lack of evidence that demonstrated that Lipiscan TM 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 Lipiscan TM 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 Lipiscan TM 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 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 Lipiscan TM 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

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.

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 Lipiscan TM 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 LipiScan TM 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 LipiScan TM 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 LipiScan TM 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 LipiScan TM

‘‘ 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 ofcases 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 LipiScan TM . 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 LipiScan TM findings in 20 to 50 percent of patients

in which the device has been used. According to the applicant, the most common use of LipiScan TM 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 Lipiscan TM 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 LipiScan TM by clinicians to select the length of artery to be stented and as anaid in selection of intensity of lipidaltering therapy, demonstrates that


### 23933 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

LipiScan TM affects the management of patients.

While we recognize that the identification of lipid-rich plaques in the coronary vasculature holds promise in the management of coronary artery disease, we are 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 Interventional Cardiologists (a group of clinicians who currently utilize the LipiScan TM 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 LipiScan TM 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 theidentification 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 applicantstated that the identification of lipidcore-containing plaques by LipiScan TM 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.

We welcome public comment regarding whether or not the LipiScan TM technology represents a substantial clinical improvement in the Medicare population.

We received approximately nine public comments during the town hall meeting public comment period on the LipiScan TM and LipiScan TM IVUS. The comments relating to LipiScan TM IVUS
are summarized at the end of the LipiScan TM IVUS application.

Comment: Several commenters supported approving the LipiScan TM device for new technology add-on payments. They stated (using nearly identical language) that LipiScan TM provided accurate information about the presence of lipid core plaques that was previously unavailable. They also stated

that the device ‘‘ permits the detection of an earlier stage of coronary artery

disease. ’’ The commenters also stated that, ‘‘ over the past year evidence has been obtained documenting that the presence of a lipid-core plaque at a stenotic site (as detected by LipiScan TM ) is an excellent predictor or peri-stenting myocardial infarction due to distal embolization of the lipid core following

balloon dilation. This valuable diagnostic information can be combined

with well-established treatments (prophylactic administration of vasodilators and/or direct stenting) as a means to reduce the stenting complication of peri-stenting MI. ’’

One commenter stated that ‘‘ the knowledge that a patient possesses lipid laden atheroma will markedly alter medical therapy in order to prevent

thrombotic events. These heretofore unrecognized (asymptomatic) patients identified to be at high risk by the Lipiscan chemogram will be treated with intensive antihyperlipdemic therapy and other medical strategies

that otherwise would not have been implemented to modify risk. ’’ Some
commenters indicated that other potential uses of LipiScan TM include

‘‘ determination of the length of the artery to be stented and selection of the intensity of lipid-altering therapy. ’’

Several commenters stated that the

‘‘ lack of specific reimbursement ’’ for the technology was an impediment to the use and development of it.

Response: We thank the commenters

for their comments. We have considered the comments concerning the town hall meeting in this proposed rule. As stated above, we invite additional public comment on objective data regarding the assertions made by the commenters. Specifically, we welcome additionalinformation (including specific casedescriptions) regarding how the use of the technology has affected the medical management of patients and how the changes in management have led to improved clinical outcomes for those patients (again, specific examples are welcomed).

In response to the comments concerning Medicare reimbursement for LipiScan TM , we note that LipiScan TM is currently covered by Medicare and

would thus be included in the MS–DRG payment made to the hospital. In general, the MS–DRG payment is

considered to cover all costs associated with the case including those of new technologies. As noted above, 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 use of the medical service or technology

are used to calculate the MS–DRG weights. In addition, Congress specified

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. ’’ While we agree with the commenter that at this time there is no specific reimbursement for Lipiscan TM within the MS–DRGs in the form of a new technology add-on payment, because Lipiscan TM has applied for new technology add-on payments, we will evaluate it to

determine whether it meets the criteria to receive new technology add-on payments in FY 2011. If the technologydoes not meet the new technology addon payment criteria, it will continue to be paid as part of the regular MS–DRG payment and once the lag of 2 to 3 years is over, the costs associated of Lipiscan TM will be fully reflected in the relative weights that are used to

recalibrate the MS–DRGs.

c. LipiScan TM Coronary Imaging System With Intravascular Ultrasound (IVUS)

InfraReDx, Inc. submitted an application for new technology add-on payments for FY 2011 for the LipiScan TM Coronary Imaging System
with Intravascular Ultrasound (LipiScan TM IVUS). The LipiScan TM 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 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


### 23934 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

device is intended to be used in patients already undergoing coronary stenting.

With respect to the newness criterion, we note that this device is not currently approved by the FDA, but the manufacturer anticipates that FDA approval will be granted in the second quarter of 2010. We also note that IVUS has existed for over 20 years. Therefore, IVUS, on its own, would not meet the newness criterion. The applicant asserts that one difference from the Lipiscan TM product, for which it has also submittedan 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 asserts that the single-use catheter for the combined technologies is only supplied by InfraRedX (the manufacturer of LipiScan TM ). However, we note that a physician could use LipiScan TM 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.

We welcome public comments regarding whether the combined LipiScan TM IVUS device should be

considered to be ‘‘ new ’’ as of the date of the existing LipiScan TM device received FDA approval or whether it should be considered new from the FDA approval date for LipiScan TM IVUS (should such an approval be granted). We also welcome public comments regarding whether LipiScan TM 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).

We note that the LipiScan TM 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).

In an effort to demonstrate that the technology meets the cost criterion, the applicant used the FY 2010 final rule After Outliers Removed (AOR) file (posted on the CMS Web site) to identify cases potentially eligible for Lipiscan TM IVUS. The applicant believes that every case within MS–DRGs 246, 247, 248, 249, 250, and 251 is eligible for Lipiscan TM IVUS. In addition, the applicant believes that Lipiscan TM 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 Lipiscan TM IVUS. Therefore, it is necessary to add the charges relatedto 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 Lipiscan TM 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 labs, the applicant determined the mean cost-to-charge ratio was 0.188 with a mark-up of 532 percent yielding a charge of $15,957 for Lipiscan TM IVUS. (We note that this estimate of charges related to the Lipiscan TM IVUS is significantly higher than the estimate of charges related to the Lipiscan TM device.) Adding the estimated averagecharge 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 $68,190 ($52,230 plus $15,960). Using the FY 2011 thresholds published in Table 10

of the FY 2011 IPPS/RY 2010 LTCH PPSfinal rule (74 FR 44173), the caseweighted threshold for MS–DRGs 246, 247, 248, 249, 250, and 251 is $56,487 (all calculations above were performed using unrounded numbers). Because theapplicant’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 Lipiscan TM 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 Lipiscan TM 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 with the applicant’s assertion that that the probability of use of Lipiscan TM is the

same in each of those six MS–DRGs. Using data from the FY 2010 AOR file, for MS–DRGs 246, 247, 248, 249, 250, and 251, there were 30,411, 147,952, 19,736, 67,964, 8,184, and 38,091 cases, respectively. Using this case distribution and the average standardized charge per case for MS–


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DRGs 246, 247, 248, 249, 250, and 251 from the application (that is, $67,531, $44,485, $62,936, $40,149, $59,416, and $38,864, respectively, as stated above), the case-weighted average standardized charge per case is $46,657. As theapplicant indicated above, the caseweighted average standardized charge per case does not include charges related to Lipiscan TM IVUS. Therefore, it is necessary to add the average charge of $15,960 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 caseweighted 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 $62,617 ($46,657 plus $15,960). Using the FY 2011 thresholds published in Table 10

of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173) and the actual case distribution from the AOR file, the case-weighted threshold for MS–DRGs 246, 247, 248, 249, 250, and 251 is $52,700 (all calculations above were performed using unrounded numbers).

Because this alternative calculation of total case-weighted average standardized charge per case for theapplicable MS–DRGs exceeds the caseweighted threshold amount, it appears that Lipiscan TM 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 Lipiscan TM 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 $46,141for 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 Lipiscan TM 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 Lipiscan TM IVUS per case, the applicant noted that the cost of the device was proprietary information.

Based on 2008 HCRIS data from the

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 Lipiscan TM IVUS. Assuming that the Lipiscan TM IVUS device was marked up 351 percent, the total case-weighted average standardized charge per case for cases involving the use of Lipiscan TM IVUS would be $56,507 ($45,964 plus $10,543) across MS–DRGs 246 through

251.

Using the FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173), the case-weighted threshold for MS–DRGs 246, 247, 248, 249, 250, and 251 is $52,692 (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 Lipiscan TM
IVUS meets the cost criterion. We invite public comment on whether or not Lipiscan TM IVUS meets the cost

criterion.

With regard to substantial clinical improvement, the applicant asserts that LipiScan TM IVUS lends all the same benefits of LipiScan TM by itself (see discussion of LipiScan TM with respect to clinical improvement in the above application analysis) and also gives added benefits of IVUS. Specifically, the applicant maintains that LipiScan TM 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 LipiScan TM 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 LipiScan TM signal is available immediately after the coronary pullback and does not require expert interpretation. ’’

The applicant also states that LipiScan TM 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 LipiScan TM 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% of cases due to 3 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 LipiScan TM IVUS. LipiScan TM 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 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 Lipiscan TM 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 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 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 LipiScan TM IVUS application, the applicant has generally repeated the statements made regarding use of LipiScan TM alone and has not provided

information that indicates that combined use of LipiScan TM plus IVUS

offers additional clinical benefit. Indeed, we note that most of the studies that were presented in an effort to support that LipiScan TM by itself was a substantial clinical improvement, were also included to support the LipiScan TM IVUS application. The applicant did not present any published peer-reviewed journal articles that were specifically

related to the clinical merits of the combined LipiScan TM IVUS device.

We welcome public comments on whether the LipiScan TM IVUS represents a substantial clinical improvement over existing technologies as well as public comments on what is the appropriate comparison for LipiScan TM IVUS.

As we noted at the end of the discussion of the LipiScan TM application, we received approximately nine public comments on both the LipiScan TM and the LipiScan TM IVUS applications.

Comment: Several commenters acknowledged that LipiScan TM IVUS is not yet approved by the FDA, but stated that they would support the LipiScan TM IVUS being approved for new technology add-on payments should FDA approval be granted. With regard to the clinical merits of LipiScan TM IVUS,
the commenters stated that the LipiScan TM IVUS afforded all the same diagnostic abilities of the LipiScan TM

, but also provided the added benefit of IVUS, which has ‘‘ been used in patients for over 20 years [and] is already supported by the [American College of Cardiologists and the American Hospital Association] for usage in stenting. ’’

One commenter stated that once the LipiScan TM IVUS becomes approved by the FDA, he plans to use it in all of his patients who need IVUS imaging

‘‘ because of the wealth of added information regarding the presence of lipid laden plaque, a harbinger of myocardial infarction and sudden

death. ’’

Response: We thank the commenters for their comments. However, we note that unless the technology is approved by the FDA by July 1, 2010, it cannot be approved for add-on payments in FY

2011 since it would not be considered

‘‘ new. ’’ Should the technology receive FDA approval by July 1, 2010, we will

take these comments into consideration in our review of the application for new technology add-on payments for FY

2011.

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

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary 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 proposed 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 theupdate 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 proposed adjustment for FY

2011 is discussed in section II.B. of the Addendum to this proposed 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 proposed budget neutrality adjustment for FY 2011 is

discussed in section II.A.4.b. of the Addendum to this proposed rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the occupational mix adjustment that we are proposing to apply beginning October 1, 2010 (the proposed 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 of Statistics (BLS) data or other data or methodologies to calculate relative wages for each geographic area.


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• Minimizing variations in wage index adjustments between and within

MSAs and statewide rural areas.

• 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 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 awage 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 are not proposing any additional changes regarding reforming the wage index for the FY

2011 IPPS. We welcome comments regarding the second part of Acumen’s final report.

2. FY 2009 Policy Changes in Response to Requirements Under Section 106(b)

of the MIEA–TRHCA

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 the following policy changes relating to the hospital wage index. (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 final rule (74 FR 43825), we reiterated these policy changes, especially as they related to the FY 2010

IPPS.

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 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 are 88 percent for urban and group reclassifications and 86 percent for rural hospitals (§§ 412.230, 412.232, and 412.234 of the regulations). As stated above, these policies were adopted in

the FY 2009 IPPS final rule and are reflected in the wage index in the Addendum to this proposed rule. We note that these criteria were recently changed by provisions of section 3137(c) of the PPACA (Pub. L. 111–148). We will address the changes made by Public Law 111–148 in a separate rulemaking document in the Federal Register

. 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


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wage index. The transition from the national budget neutrality adjustment to the State level budget neutrality adjustment was phased in over a 3-year period. In FY 2009, hospitals received a blended wage index that was 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, the blended wage index reflects 50 percent of the State level adjustment and 50 percent of the national adjustment. In FY 2011, as reflected in the IPPS wage index in this proposed rule, the adjustment will be completely

transitioned to the State level methodology.

In the FY 2009 IPPS final rule, we incorporated this policy in our regulation at § 412.64(e)(4). Specifically, the regulations specify 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, CMS would transition from a nationwide adjustment to a statewide adjustment, with a statewide adjustment fully in place by October 1, 2010.

As stated above, these policies for the rural and imputed floors were adopted

in the FY 2009 IPPS final rule and are reflected in the wage index in the Addendum to this proposed rule. However, these policies were recently changed by the provisions of section 3141 of the PPACA (Pub. L. 111–148). We will address the provisions of

section 3141 of Public Law 111–148 in a separate rulemaking document in the Federal Register

. 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 this FY 2011 proposed rule, we are proposing to provide that hospitals receive 100 percent of their wage index based upon the CBSA configurations. Specifically, for each hospital, we are proposing 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-RoundRock, 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 newprincipal 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 newprincipal city of the OrlandoKissimmee, FL CBSA. The new title is Orlando-Kissimmee-Sanford, FL CBSA.

• Glendale, AZ qualifies as a newprincipal 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 newprincipal 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 populousprincipal 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 Charlotte-Gastonia-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 populousprincipal 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 principalcity 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 ’’ . CMS will apply these changes to the IPPS beginning October

1, 2010.

D. Proposed Occupational Mix Adjustment to the Proposed 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


### 23939 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

than geographic differences in the costs

of labor.

1. Development of Data for the Proposed 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 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 proposed FY 2011 hospital wage index,

we used data from the 2007–2008 survey (including revised data for 45 hospitals) to compute the proposed 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 proposed FY 2011 wage index in this proposed 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.

3. Calculation of the Proposed Occupational Mix Adjustment for FY

2011

For FY 2011 (as we did for FY 2010), we are proposing to calculate 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


### 23940 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

salaries and wage-related costs for all other employees (from Step 7).

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 proposed FY 2011 occupational mix adjusted national average hourly wage is $34.9124. 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 proposed FY 2011 occupational mix adjusted Puerto Rico-specific average hourly wage is $14.7567.

The table below is an illustrative example of the occupational mix adjustment.

**BILLING CODE 4120–01–P**


### 23941 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules


### 23942 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

**BILLING CODE 4120–01–C**


### 23943 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

Because the occupational mix adjustment is required by statute, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the proposed FY 2011 wage index. For the FY 2007–2008 survey, the response rate
was 90.4 percent.

In computing the proposed 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. We believe this method had 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 proposed occupational mix adjustment, we applied the national occupational mix factor of 1.0000 in calculating the area’s proposed 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 0.9252 (CBSA 17780, College Station-Bryan, TX), to ahigh of 1.1199 (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 5 CBSAs (that include 5 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. (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.

To gain a better understanding of why some hospitals are not submitting the occupational mix data, beginning with the new 2010 occupational mix survey (discussed in section III.D.2. of this preamble), we will require hospitals that do not submit occupational mix data to provide an explanation for not complying with the submission requirements. We will instruct fiscal intermediaries/MACs to gather 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.

E. Worksheet S–3 Wage Data for the Proposed FY 2011 Wage Index

The proposed 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 proposed 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 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 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/ AcuteInpatientPPS/WIFN/itemdetail. asp?filterType=none&filterBy DID=0&sortByDID=3& sortOrder=descending&

itemID=CMS1231035& intNumPerPage=10.


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2. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2009, the wage

index for FY 2010 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 proposed FY 2011 wage index alsoexcludes the salaries, hours, and wagerelated 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). Inaddition, salaries, hours, and wagerelated 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 proposed 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 March 3, 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 intend 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. We believe

all unresolved data elements will be resolved by the date the final rule is

issued. The revised data will be

reflected in the FY 2011 IPPS final rule.

In constructing the proposed 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 proposed rule, we removed 8 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 proposed FY 2011 wage index is calculated based on 3,513 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 proposed FY 2011 wage index in this proposed 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 proposed rule.

G. Method for Computing the Proposed FY 2011 Unadjusted Wage Index

The method used to compute the proposed FY 2011 wage index without an occupational mix adjustment

follows:

Step 1 —As noted above, we are basing the proposed FY 2011 wage index on wage data reported on the FY 2007 Medicare cost reports. We gathered data from each of the non-Federal, short-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


### 23945 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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. Todetermine 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 indexcalculation 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) wemultiply the computed overhead wagerelated costs by the above excluded area hours ratio. Finally, we subtract thecomputed 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, 2003, through April 15, 2005, 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 proposing to make 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.


### 23946 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 proposed national average hourly wage (unadjusted for occupational mix) is
$34.9330.

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 proposed average hourly wage (unadjusted for occupational mix) of $14.7351 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 proposed

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.


### 23947 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

H. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the Proposed FY 2011 Occupational Mix Adjusted Wage Index

As discussed in section III.D. of this preamble, for FY 2011, we are proposing to apply the occupational mix adjustment to 100 percent of the proposed FY 2011 wage index. We calculated the proposed 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 proposed FY 2011 wage index results in a proposed national average hourly wage of $34.9124 and a proposed Puerto-Rico specific average hourly wage of $14.7567. 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 proposed FY 2011 wage index, we calculated the proposed FY 2011 wage index using the occupational mix survey data from 3,178 hospitals. Using the Worksheet S–3 cost report data of 3,513 hospitals and occupational mix survey data from 3,178 hospitals
represents a 90.4 percent survey response rate. The proposed 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:

Occupational mix nursing subcategory Average hourly

wage

National RN .................................................................................................................... ................................................................. 36.100857731 National LPN and Surgical Technician ........................................................................................... ................................................. 20.877391755 National Nurse Aide, Orderly, and Attendant .................................................................................... .............................................. 14.632232352

National Medical Assistant ..................................................................................................... ......................................................... 16.482939594 National Nurse Category

............................................................................................................................... .................................. 30.504184147

The proposed national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is $30.504184147. 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 44.32 percent, and the national percentage of hospital employees in the all other occupations category is 55.68 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 proposed FY 2011 occupational mix adjusted wage indices for each CBSA to the proposed unadjusted wage indices for each CBSA. As a result of applying the occupational mix adjustment to the wage data, the proposed wage index values for 203(51.9 percent) urban areas and 32 (68.1 percent) rural areas would increase. One hundred five (26.9 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 188 (48.1 percent) urban areas and 15 (31.9 percent) rural areas would decrease. Ninety (23.0 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 7.83 percent for an urban area and 2.87 percent for a rural area. The largest negative impacts are 3.98 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 (51.9 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 proposed 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 proposed rule include the proposed occupational mix adjustment.

Tables 3A and 3B in the Addendum to this proposed 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 proposed 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 proposed 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 proposed average hourly wages in Tables 2, 3A, and 3B in the Addendum to this proposed rule include the proposed occupational mix adjustment. The proposed wage index values in Tables 4A, 4B, 4C, and 4D–1 also include the proposed State-specific rural floor and imputed floor budget neutrality adjustments.

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


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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 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.

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 proposed rule was constructed, the MGCRB had completed

its review of FY 2011 reclassification requests. Based on such reviews, there were 311 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 258 hospitals approved for wage index

reclassifications in FY 2009 and 254 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 proposed rule, 832 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


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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 has to be received by the MGCRB within 45 days of the publication of the proposed rule. Hospitals may also cancel prior

reclassification withdrawals or

terminations in certain circumstances.
For further information 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 will be incorporated into the wage index values published in the 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, currently, this section of the regulations does not

address Administrator review of the MGCRB’s denial of a hospital’s request for termination; that is, ‘‘ terminations ’’ are not specified in the regulations at § 412.273(e).

We are proposing 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 believe 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. For example, we believe it would be helpful to clarify the

distinction between terminations and withdrawals by defining these terms in a new paragraph (a), which would also include the timing provisions now under existing paragraph (b)(1)(ii). To account for this new paragraph, we are proposing to redesignate the existing contents of paragraph (e) as paragraph (f) and also to revise the language to specify the ability of a hospital to appeal an MGCRB denial of a request for

‘‘ termination ’’ of an approved reclassification, as well as cancellation

of a withdrawal or termination. We also believe it would be helpful (1) to establish the introductory language of existing paragraph (a) as a general rule under new paragraph (b); (2) to establish a new paragraph (c) that addresses the timing provisions currently in paragraphs (a)(1), (a)(2), and (b)(1)(i); (3) to clarify the existing language of paragraphs (b)(2)(i), (b)(2)(ii), (b)(2)(iii), and (d) and incorporate it under new paragraph (d); and (4) to redesignate the existing contents of paragraph (c) as new paragraph (e).

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.

**BILLING CODE 4120–01–P**


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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 may 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 may

withdraw from an MGCRB reclassification within 45 days of the publication of this 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 policy adopted in the FY 2009 IPPS final rule (73 FR 48568 and 48569), beginning with reclassifications for the FY 2010 wage index, a Lugar hospital must also demonstrate that its average hourly wage is equal to at least 84 percent (for FY 2010 reclassifications) and 86 percent (for reclassifications for FY 2011 and subsequent fiscal years) 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 2009 IPPS final rule (73 FR 48588). The most recent extension of the 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. Because the section 124 extension of these provisions expired on September 30, 2009 (and, therefore, will not be applicable in FY 2011 unless there is intervening legislation to extend the provisions), we are not proposing to make any changes related to these provisions in this proposed rule for FY 2011.


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We note that section 508 and special exceptions reclassifications were recently extended again, through September 30, 2010, under section 10317 of the PPACA (Pub. L. 111–148). We intend to imminently issue instructions regarding implementation

of section 10317 of Public Law 111–148.

J. Proposed 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 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 theFY 2008 wage index, we use postreclassified wage indices when determining the out-migration adjustment (72 FR 47339).

For the proposed FY 2011 wage index, we are proposing to calculate 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 post-reclassifiedwage indices, to calculate the outmigration 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 will be deemed

to have chosen to retain their redesignation or reclassification. Section 1886(d)(10) hospitals that wish to receive the out-migration adjustment,

rather than their reclassification adjustment, should follow the termination/withdrawal procedures specified in 42 CFR 412.273 and section III.I.3. of the preamble of this proposed rule. Otherwise, they will be deemed to have waived the out-migration adjustment. Hospitals redesignated under section 1886(d)(8) of the Act will

be deemed to have waived the outmigration adjustment unless they explicitly notify CMS within 45 days from the publication of this proposed rule that they elect to receive the outmigration adjustment instead. These

notifications should be sent to the following address: Centers for Medicare and Medicaid Services, Center for Medicare Management, Attention: Wage Index Adjustment Waivers, Division of
Acute Care, Room C4–08–06, 7500 Security Boulevard, Baltimore, MD

21244–1850.

Table 4J in the Addendum to thisproposed rule lists the proposed outmigration 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 will automatically receive the listed adjustment. In accordance with the procedures discussed above, redesignated/reclassified hospitals will

be deemed to have waived the outmigration adjustment unless CMS is otherwise notified within the necessary timeframe. In addition, hospitals eligible to receive the out-migration wage index adjustment and that withdraw their application for reclassification will automatically receive the wage index adjustment listed in Table 4J in the Addendum to this proposed rule. The wage index is updated annually and, as such, hospitals wishing to waive their Lugar redesignation in order to receive theirhome area wage index plus the outmigration adjustment must request the waiver annually.

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/.


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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.

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 andthe 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 are 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 is April 21, 2010.

Hospitals should examine Table 2 in the Addendum to this proposed rule.

Table 2 in the Addendum to this proposed rule contains 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 note that the hospital average hourly wages shown in Table 2 only reflect changes made to a hospital’s

data and transmitted to CMS in March

2010.

We will release the final wage index data public use files by May 7, 2010 on

the Internet at http://www.cms.hhs.gov/ AcuteInpatientPPS/WIFN/ list.asp#TopOfPage . The May 2010 public use files are 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 believes that its wage or occupational

mix data are incorrect due to a fiscal intermediary/MAC or CMS error in the entry or tabulation of the final data, the hospital should send a letter to both its fiscal intermediary/MAC and CMS that outlines why the hospital believes an error exists and provide all supporting information, including relevant dates (for example, when it first became aware of the error). CMS and the fiscal intermediaries (or, if applicable, the MACs) must receive these requests no later than June 7, 2010.

Each request also must be sent to the fiscal intermediary/MAC. The fiscal intermediary/MAC will review requests upon receipt and contact 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 will only be 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 will approve the following types of requests:

• Requests for wage index data

corrections that were submitted too late

to be included in the data transmitted to CMS by 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) will be incorporated into the final wage index in the 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


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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, 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 calculates 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 thatit 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 Proposed 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 thatare 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 frequencyand 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 this proposed rule, we are not proposing to make any further changes to the national average proportion of operating costs that are attributable to wages and salaries, fringe benefits, contract labor, the labor-related portion of professional fees, administrative and businesssupport services, and all other laborrelated services (previously referred to

in the FY 2002-based IPPS market basket as labor-intensive). Therefore, weare proposing to continue to use a laborrelated share of 68.8 percent for discharges occurring on or after October 1, 2010. Tables 1A and 1B in the Addendum to this proposed rule reflects this proposed 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


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percent of the national standardized amount. For all IPPS hospitals whose wage indices are greater than 1.0000, weare 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 wage index for all Puerto Rico hospitals is less than 1.0. We are proposing to continue to use a

labor-related share for the Puerto Ricospecific standardized amounts of 62.1 percent for discharges occurring on or after October 1, 2010. This Puerto Rico labor-related 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 for determining the national labor-related share, we added the Puerto Rico-specific 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 labor-related 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 Rico-specific 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 perecent, 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 1.0will 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. The proposed

Puerto Rico labor-related share of 62.1 percent for FY 2011 is reflected in the

Table 1C of the Addendum to this proposed rule. V. Other Decisions and Proposed 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.
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).

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 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 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.

(1) 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


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5 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. 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. 5

Section 1886(b)(3)(B)(viii)(V) of the Act requires that, effective for payments beginning with FY 2008, 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, including consensus achieved during the measure development process, consensus shown through broad acceptance and use of measures, and consensus through public comment.

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 six 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 6AMPostoperative 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 one 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

two 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 chartabstracted 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 IPPS FY 2009 final rule at 73 FR

46809 and in the CY 2009 OPPS/ASC final rule with comment period at 73 FR

68781.

On December 31, 2008, CMS 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.

CMS 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 at 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 two 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, treatablecomplications); added two chartabstracted measures (SCIP-Infection-9: Postoperative Urinary Catheter Removalon Post Operative Day 1 or 2 and SCIPInfection-10: Perioperative Temperature Management); and added two 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


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we adopted for the FY 2011 payment

determination are:

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6 AHRQ. 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

. (2) 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.

(3) Public Display of Quality Measures

Section 1886(b)(3)(B)(viii)(VII) of the Act requires that the Secretary establish procedures for making quality data 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 structural measures, all of which are featured on

the Hospital Compare Web site. However, information that may not be salient 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.

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 set. 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, 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 email 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 invite commenters to submit suggestions for

additional measure retirement criteria

for CMS to consider.

b. Proposed 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 6 that this composite is ‘‘ not recommended for comparative reporting ’’ as specified due to significant evidence gaps, and that these significant evidence gaps are


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unlikely to be addressed with further development or validation work. This guidance is available at: http:// www.qualityindicators.ahrq.gov/ downloads/publications/ AHRQ%20QI%20Guide% 20to%20Comparative%20 Reporting%20v10.pdf

. For this reason, we are proposing to retire the Mortality for Selected Procedures Composite from the RHQDAPU program measure set 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 invite 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 invite commenters to submit suggestions and rationales for retirement of other RHQDAPU program measures.

Set out below are the RHQDAPU program quality measures for the FY 2011 payment determination reflecting our proposed retirement of one measure:

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7 A registry is a collection of clinical data for purposes of assessing clinical performance, quality of care, and opportunities for quality improvement. 3. Proposed 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, efficiencymeasures, and patients’ experience-ofcare measures; (b) expanding the scope of hospital services to which the measures apply; (c) considering theburden 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.

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 structural and claimsbased measures, we previously noted that registries 7 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 final rule (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 and we are proposing to collect such data for the FY 2013 payment determination.

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 proposed for retirement for the FY 2011 payment determination and subsequent payment determinations in this proposed 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 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. ’’ In particular,

we are concerned about the lack of progress in reducing the rates of

healthcare associated infections that was recently reported in the 2009 National Healthcare Quality Report ( http://www.ahrq.gov/qual/nhqr09/ nhqr09.pdf ). For example, the report found that rates of postoperative sepsis increased by 8 percent. It is evident that more attention needs to be paid to

ensure health care does not result in avoidable harm and that patients are informed about hospitals’ performance. We are soliciting comment on the option to include among our prioritization criteria quality measures that assess performance on healthcare associated infections. Also, while the current and proposed measures cover many aspects of healthcare associated infections, we are soliciting public

comment on additional measures that could be added to those hospitals would


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report and that CMS would make available to the public in order promote improvement in healthcare associated

infection rates.

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 the RHQDAPU program beyond those to be collected for the purpose of the next sequential payment

determination. In this FY 2011 rulemaking cycle, we are proposing an expansion to the RHQDAPU program that will take place over three payment years, and are proposing to add measures not only for the FY 2012 payment determination, but also for the 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 necessary to collect data on the measures and make payment

determinations.

Finally, in section V.A.5.(2) of this proposed rule, we discuss 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 invite public comment on the

measures and timeframe for their addition to the RHQDAPU program

measure set.

b. Proposed RHQDAPU Program Quality Measures for the FY 2012 Payment

Determination

(1) Proposed Retention of 45 Existing RHQDAPU Program Quality Measures for the FY 2012 Payment Determination

As noted above, we are proposing to retire the AHRQ Mortality for Selected Surgical Procedures Composite for the FY 2011 payment determination. We are proposing 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 are discussed in section V.A.5. of this proposed rule. We invite 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.

In proposing to retain 45 of the 46 FY 2011 measures, we recognize that we are not significantly reducing the burden for hospitals, since the one measure that we are proposing to remove is a measure that currently is calculated based on Medicare claims. At the same time, we are proposing to expand the measures for the FY 2012 and subsequent years’ payment determinations, which 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 finalrule 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 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 invite comments on the option to

retire one or more of these 11 measures that were suggested for retirement by

commenters to the FY 2010 IPPS proposed rule. We note that some of these measures were proposed for electronic reporting under the program for payment incentives for meaningful use of electronic health records (75 FR 1896).

In addition, we are 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 that we are considering would be to

retire 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 invite comments on this option to retire narrowly specified measures in order to accommodate more broadly specified measures on a given topic.

(2) Proposed New Claims-Based

Measures

We are proposing to add 10 claimsbased 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 would be calculated using up to three years’ of Medicare claims for discharges prior to January 1,

2011. These measures are discussed

below.


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8 http://www.qualityindicators.ahrq.gov/ downloads/publications/ AHRQ%20QI%20Guide%20to%20 Comparative%20Reporting%20v10.pdf

. (A) Proposed 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. In this proposed rule, we are proposing to retire 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 are proposing to adopt 2 additional Patient Safety Indicators developed by theAHRQ. These are: PSI–11: PostOperative 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 NQF-endorsed, 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 indicators may not be useful for comparative reporting purposes, and in

most cases the indicators have been NQF-endorsed. 8 The specific measuresthat we are proposing to add are NQFendorsed, 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 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 invite comment on our proposal to adopt these two AHRQ Patient Safety Indicators for the FY 2012 payment

determination.

(B) Proposed 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 proposed

rule for additional discussion and our proposals for 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 hospital Medicare claims and on the 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/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 are proposing to adopt as RHQDAPU measures for the FY 2012 payment determination eight (of 10)

current HACs defined in section II.F. of this proposed rule, six 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 Urinary Tract Infection (UTI)

• Manifestations of Poor Glycemic

Control

We do not believe that it is 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 are proposing 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 only

on Medicare beneficiaries.

We are proposing 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 this proposed rule 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 proposed updates for these eight HAC categories in this proposed rule. We are proposing 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 the FY 2011

IPPS/RY 2011 LTCH PPS final rule to


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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 andpublic 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 V.A.5. of this proposed rule. We invite comment on our proposal to adopt these eight HAC measures for the FY 2012 payment determination.

(3) Proposed All-Patient Volume Data

for Selected MS–DRGs

CMS currently displays 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 are proposing that hospitals begin submitting as data on measures selectedfor the RHQDAPU program the allpatient data elements discussed in section V.A.5. of this proposed rule for 55 MS–DRGs displayed on Hospital Compare that relate to adopted RHQDAPU program measures. The specific MS–DRGs are listed below. 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 invite comments on this proposal.

We also invite comment on analternative 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.

The proposed RHQDAPU measure set for the FY 2012 payment determination

is listed below:

**BILLING CODE 4120–01–P**


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### 23969 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules


### 23970 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

**BILLING CODE 4120–01–C**

We invite comment on these proposed measures for the FY 2012 payment

determination.

c. Proposed RHQDAPU Program Quality Measures for the FY 2013 Payment

Determination

(1) Proposed Retention of FY 2012 Payment Determination Measures for the FY 2013 Payment Determination

We generally propose to retain RHQDAPU program measures from one year to the next. Consistent with this approach, we are proposing to retain all of the proposed measures for the FY 2012 RHQDAPU payment determination, if finalized, for the FY 2013 payment determination. We invite public comment on this proposal.

(2) Proposed New Chart-Abstracted Measure for the FY 2013 Payment

Determination

We are proposing to add one new

chart-abstracted measure for the FY2013 payment determination—AMIstatin at discharge. This measure 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 has been asked to review whether

it should broaden the current endorsed measure specification to include the AMI population. This ad hoc review is occurring now and is expected to be completed prior to publication of the FY

2011 IPPS/LTCH PPS final rule. 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.
We will 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 RHQDAPU, 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 AMI-statin at discharge measure beginning with January 1, 2011 dischares for the RHQDAPU 2013 payment determination.

(3) Proposed New Healthcare Associated Infection (HAI) Measures for the FY 2013 Payment Determination

In the FY 2009 and FY 2010 IPPS rulemakings, we listed several Healthcare Associated Infection (HAI) measures as being under consideration for future adoption. Commenters to 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 CMS to consider others as well (74 FR 43876). For the measure set to be used for the FY 2013 payment determination, we are proposing to adopt two new measures of Healthcare Acquired Infections that are currently being collected by the CDC via the National Healthcare Safety Network (NHSN). These measures are: (1) Central

Line Associated Blood Stream Infection (NQF #0139) and (2) Surgical Site Infection (NQF #0299).

The NHSN is a secure, Internet-based surveillance system maintained and managed by the CDC, and can be


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9 http://www.cdc.gov/nhsn/.

10 McKibben 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. 11 Brown, 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.

12 Hammill S and Curtis J. Publicly Reporting Implantable Cardioverter Defibrillator Outcomes— Grading the Report Card. Circ Arrhythmia Electrophysiol. 2008;1:235–237).

13 Al-Khatib SM, Greiner MA, Peterson ED, Hernandez AF, Schulman KA, Curtis LH. Patient and Implanting Physician Factors Associated With Mortality and Complications After Implantable Cardioverter-Defibrillator Implantation, 2002–2005. Circ Arrhythmia Electrophysiol. 2008;1:240–249. 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. Currently, 21 States require hospitals to report HAIs using NHSN, and CDC supports more than 2000 hospitals that are using NHSN. 9

Both the Central Line Associated

Blood Stream Infection measure and the Surgical Site Infection measure are NQF-endorsed, and therefore meet the statutory requirement for measure selection of reflecting consensus among affected parties. 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. CDC estimates that as many as 2 million infections are acquired each year in hospitals and result in approximately 90,000 deaths per year. 10
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. Both of the measures we are proposing to add for the FY 2013 payment determination are NQF-endorsed, and are currently collected using the NHSN as part of State-mandated reporting and surveillance requirements for hospitals. NHSN data collection occurs via a Webbased tool hosted by CDC provided free of charge to hospitals. Additionally,

data submission for these measures through EHRs may be possible in the

near future.

(A) Central Line Associated Blood

Stream Infection

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.

(B) Surgical Site Infection

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 riskfactors. This measure was NQFendorsed in 2007 and was adopted by the HQA in 2008.

We invite 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 are proposing 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 V.A.5. of this proposed

rule.

(4) Proposed New Registry-Based

Measures

For the FY 2013 payment determination, we are proposing that hospitals choose one of the following four proposed measure topics: (1) Implantable Cardioverter Defibrillator (ICD) Complications; (2) CardiacSurgery; (3) Stroke; or (4) NursingSensitive Care. With respect to the proposed measure topic selected by a hospital, we are proposing 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 are proposing 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

before that date. In section V.A.13. ofthis proposed rule, we specify the selfnomination process we are proposing to use to qualify registries for each proposed registry-based measure topic. Proposed procedural and submissionrequirements for the proposed registrybased measures are discussed in section V.A.5. of this proposed rule. Below is adiscussion of the proposed registrybased measure topics and specific registry-based measures that fall within each topic that we are proposing to add to the RHQDAPU program for the FY 2013 payment determination.

(A) Proposed 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. 11 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, 12 which in turn increases its cost, the patient’s length of stay, and the patient’s risk of mortality. 13 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 ICD complications. This measure is a risk-adjusted 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


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under Phase 1 of a call for Patient

Outcome Measures initiated in Fall of 2009. We are proposing 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 anticipate that a final

endorsement decision will occur in the fall of 2010, after publication of the FY

2011 IPPS/LTCH PPS final rule. Therefore, the decision whether to

finalize this measure for the FY 2013 payment determination will be made in

the CY 2011OPPS/ASC final rule with comment period.

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 us 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, we require that hospitals submit data to the ACC–NCDR ICD registry for primary prevention patients only but do 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 are proposing that hospitals also submit to the qualified ICD complications registry

an additional 11 data elements not currently required under the NCD in

order for the measure to be calculated for RHQDAPU program purposes.

In sum, we are proposing 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 are proposing 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 are proposing to qualify one registry for this topic. Proposed registry qualification criteria are discussed in section V.A.13. of this proposed rule.

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 selfnominating to become a qualified registry for this proposed topic for the RHQDAPU program. Because the ICD complication measure is a risk adjusted measure, it 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-based topic.

(B) Proposed Stroke Registry-Based Topic and Measures

We 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 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 are proposing to include the following eight measures in the Stroke registry-based topic:



### P ROPOSED 

### M EASURES FOR 

### S TROKE 

### R EGISTRY 

### -B ASED 

### T OPIC

STK–1: Venous Thromboembolism (VTE) Prophylaxis for patients with ischemic or hemorrhagic stroke (NQF #0434). Patients with an ischemic stroke or a hemorrhagic stroke and who are non-ambulatory should start receiving DVT prophylaxis by end of hospital day two.

STK–2: Ischemic stroke patients discharged on

antithrombotic therapy. (NQF #0435). Patients with an ischemic stroke prescribed antithrombotic therapy at discharge.

STK–3: Anticoagulation therapy for atrial fibrillation/flutter. (NQF #0436). Patients with an ischemic stroke with atrial fibrillation discharged on anticoagulation therapy.


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P ROPOSED 

### M EASURES FOR 

### S TROKE 

### R EGISTRY 

### -B ASED 

### T OPIC 

### —Continued

STK–4: Thrombolytic Therapy for Acute

ischemic stroke patients. (NQF #0437). Acute ischemic stroke patients who arrive at the hospital within 120 minutes (2 hours) of time last known well and for whom IV t-PA was initiated at this hospital within 180 minutes (3 hours) of time last known well. STK–5: Antithrombotic therapy by the end of

hospital day two. (NQF #0438). Patients with ischemic stroke who receive antithrombotic therapy by the end of hospital day

two. STK–6: Discharged on statin medication. (NQF

#0439). 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. STK–8: Stroke education. (NQF #0440) ............ Patients with ischemic or hemorrhagic stroke or their caregivers who were given education or educational materials during the hospital stay addressing all of the following: personal risk factors for stroke, warning signs for stroke, activation of emergency.

STK–10: Assessed for rehabilitation services.

(NQF #0441). Patients with an ischemic stroke or hemorrhagic stroke who were assessed for rehabilitation

services.

We are proposing to add the stroke registry-based topic, which would include these eight registry-based stroke measures, to the RHQDAPU program 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 invite

comment on the measures as well as the timing of their addition to the RHQDAPU measure set.

(C) Proposed Nursing Sensitive Care Registry-Based 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 ofparticipation in a registry for nursingsensitive care, under which hospitals submit data directly to the QIO Clinical

Warehouse.

For the FY 2013 payment determination, we are proposing 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 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-basedmeasures to a qualified nursingsensitive care registry beginning with January 1, 2011 discharges. Hospitalswould continue reporting the nursingsensitive care structural measure previously adopted for the RHQDAPU program directly to the QIO Clinical

Warehouse.

We invite comment on the proposed addition of a nursing sensitive care registry-based topic, which would include 8 proposed nursing sensitive care measures, as well as the timing of this addition to the RHQDAPU program for the FY 2013 payment determination.



### P ROPOSED 

### M EASURES FOR 

### N URSING 

### S ENSITIVE 

### C ARE 

### R EGISTRY 

### -B ASED 

### T OPIC

Patient Falls: All documented falls with or without injury, experienced by patients on an eligible unit in a calendar month. (N QF #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).

(D) Proposed Cardiac Surgery RegistryBased 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. Therefore, if we adopt this proposed registry-based topic, a hospital would not face any additional data submission burden if it chooses this registry-based topic for purposes of the FY 2013 payment determination and the registry to which it already submits data is qualified for this proposed topic.

For the FY 2013 payment determination, we are proposing toinclude 15 cardiac surgery registrybased measures in the cardiac surgery registry-based 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. Hospitals would continue submitting data for the cardiac surgery structural measure previously adopted for the RHQDAPU program directly to the QIO Clinical Warehouse.


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P ROPOSED 

### M EASURES FOR 

### P ROPOSED 

### C ARDIAC 

### S URGERY 

### R EGISTRY 

### -B ASED 

### T OPIC

Post-operative Renal Failure (NQF# 0114). Surgical Re-exploration (NQF# 0115). Anti-Platelet Medication at Discharge (NQF# 0116). Beta Blockade at Discharge (NQF# 0117). Anti-Lipid Treatment Discharge (NQF# 0118). Risk-Adjusted Operative Mortality for Coronary Artery Bypass Graft CABG (NQF# 0119)*. Risk-Adjusted Operative Mortality for Aortic Valve Replacement (AVR) (NQF# 0120)*. Risk-Adjusted Operative Mortality for Mitral Valve Replacement/Repair (MVR) (NQF# 0121)*. Risk-Adjusted Operative Mortality MVR+CABG Surgery (NQF# 0122)*. Risk-Adjusted Operative Mortality for AVR+CABG (NQF# 0123)*. Pre-Operative Beta Blockade (NQF# 0127). Duration of Prophylaxis for Cardiac Surgery Patients (NQF# 0128). Prolonged Intubation (ventilation) (NQF# 0129). Deep Sternal Wound Infection Rate (NQF# 0130). Stroke/Cerebrovascular Accident (NQF# 0131).

* Requires risk adjustment.

Because these measures were endorsed by the NQF in May of 2007, they meet the statutory requirement of reflecting consensus among affected parties. 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. Therefore, the data needed to

calculate these measures must 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 invite comment on this proposal.

Set out below are the RHQDAPU program topics and quality measures we are proposing to adopt for the FY 2013 payment determination:

**BILLING CODE 4120–01–P**


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**BILLING CODE 4120–10–C**
d. Proposed RHQDAPU Program Quality Measures for the FY 2014 Payment

Determination

(1) Proposed Retention of FY 2013 Payment Determination Measures for the FY 2014 Payment Determination

We are proposing 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 invite comment on this proposal.

(2) Proposed New Chart-Abstracted Measures for the FY 2014 Payment

Determination

We also are proposing to add the following 4 new chart-abstracted measures to the RHQDAPU program measure set for the FY 2014 payment determination: (1) ED [Emergency Department]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 recognize that we are proposing to

increase the chart-abstraction burden on hospitals with respect to the RHQDAPU program. However, 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 V.A.2. of this proposed rule. 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.

(A) Emergency Department (ED)- Throughput Measures

The two ED-Throughput measures we are proposing for the FY 2014 payment determination are: (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) and adopted by HQA. Specifications for

these measures are available in the preview section of the current Specifications 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.

(B) Global Immunization Measures

For the FY 2014 payment determination, we are proposing 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 flu-related causes. Older adults are more vulnerable, and adults over 65 comprise about 90 percent of flu-related deaths. Vaccinations can significantly reduce

the number of flu related illnesses and deaths. The measures we are proposing were endorsed by the NQF as part of a


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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 for preview in the Specifications Manual published in April 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.

We are proposing to adopt these four

chart-abstracted measures into the RHQDAPU program measure set for the FY 2014 payment determination. Data

submission for these measures would begin with January 1, 2012 discharges. We invite comment on these proposed measures as well as the proposed timing of their addition to the RHQDAPU program for the FY 2014 payment determination. The complete list of proposed quality measures for the FY 2014 payment determination is set out

below.

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4. Possible New Quality Measures for

Future Years

We are inviting public comment on the following quality measures and topics set out below that we are considering for the future. We also are seeking suggestions and rationales to support the adoption of measures and topics that are not included in this list for the RHQDAPU program.


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**BILLING CODE 4120–01–C**
5. Form, Manner, and Timing of Quality

Data Submission

Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act 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. 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) ( https://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. Proposed 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 determination, we are proposing 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 identify below where we are proposing to modify a procedure.

• Register with QualityNet, before participating hospitals initially begin reporting data, regardless of the method used for submitting data.

• 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 are proposing 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.

(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


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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 are proposing 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 quality measure data for the four calendar year quarters of CY 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 are also proposing, beginning with the FY 2013 payment determination, to validate four discharge quarters, but the quarters will be the 4th calendar quarter of the calendar year that occurs two 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 theagency in implementing Hospital ValueBased Purchasing as authorized by the

Patient Protection and Affordable Care Act, Public Law 111–148, 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, the HCAHPS patient experience of care measure 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 will post a table outlining the discharge quarters that will 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 welcome comments on this proposal.

(3) Proposed HCAHPS Requirements for the FY 2012, FY 2013 and FY 2014 Payment Determinations

We are proposing 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 QIOClinical 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 are proposing 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 are proposing 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 are proposing 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


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and 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 are again encouraging hospitals to regularly check the HCAHPS Web site at http://www.hcahpsonline.org for program updates and information.

b. Additional Proposed RHQDAPU Program Procedural Requirements for the FY 2012, FY 2013 and FY 2014 Payment Determinations

(1) Chart-Abstracted Measures For Which Data Is 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 are proposing that hospitals must submit data for five calendar year discharge quarters as follows: 4Q CY 2009, 1Q CY 2010 (AMI, HF and PN only), 2Q CY 2010, 3Q CY 2010 and 4Q CY 2010. For the FY 2013 payment determination, we are proposing 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.

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 are proposing 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 are proposing 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 are proposing 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.

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 are proposing 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 a 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 note 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 4 c 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 August15, 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


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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.

(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. The QIO Clinical Warehouse is able to acceptsubmissions indicating zero HCAHPSeligible discharges in a month. A hospital with zero HCAHPS-eligible discharges in a month must submit a

zero as its total number of HCAHPSeligible cases to the QIO Clinical Warehouse for that month as part of its 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 exception may voluntarily submit this data. A hospital with five or fewer HCAHPS-eligible discharges must submit its number of HCAHPS-eligible cases to the QIO Clinical Warehouse for the month(s) in which it had five or fewer HCAHPS-eligible discharges as part of its quarterly HCAHPS data

submission.

(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**


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**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.CMS uses the existing Medicare fee-forservice claims to calculate the measures. For the FY 2012 payment determination, CMS 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 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, CMS 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.


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(4) Data Submission Requirements for

Structural Measures

• We are proposing 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 are proposing 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.

(5) Data Submission of All-Patient

Volume Data for Selected MS–DRGs Related to RHQDAPU Program

Measures

For submission of the all-patient volume data for selected MS–DRGs, we are proposing 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 Specifications Manual. Hospitals would begin submitting this data quarterly via QualityNet beginning with January 1, 2011 discharges.

We invite comment on an alternativethat hospitals submit hospital-level allpatient volume data based upon specific

ICD–9–CM codes that are related to the selected 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.

(6) Proposed Data Submission and Reporting Requirements for HAI Measures Reported via NHSN

We are proposing that hospitals participating in RHQDAPU 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 are proposing 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 are proposing 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 are proposing 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. CMS will access the reports in the NHSN and will compile the reports for RHQDAPU program and public reporting purposes.

We invite 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. (7) Data Submission Requirements for Registry-Based Measures

We are proposing 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 are proposing 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 HIPAA. The qualifiedregistry 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 HIPAA requirements for requesting, processing, storing, and transmitting data. For the FY 2013 RHQDAPU payment determination, hospitals would need tosubmit 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 will begin qualifying registries for the four proposed registry-based topics so that hospitals may begin submitting data for discharges beginning January 1, 2011. Proposed registry qualification criteria are discussed in a section V.A.13. of this proposed rule. We are proposing 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


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qualified to collect and report for the RHQDAPU program.

We anticipate 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 anticipate will be completed by December 31, 2010. Specific data submission requirements for the registry-based measures are

discussed below:

(A) Hospitals That Choose To Report the ICD Complications Measure

If the hospital chooses the ICD Complications measure, it would submit specified data elements for specified populations to the qualified ICD registry. We intend to establish criteria and begin qualifying registries for this topic 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 we have specified for the topic. These data elements and population definitions will be listed in the Specifications

Manual.

Hospitals must allow the qualifiedregistry 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, it would submit

data on the measures listed for these topics to a qualified registry for the topic. CMS intends 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. Additionally, 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.

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 welcomed 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 recognize that there are 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 are proposing 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 invite comment on this proposal.

7. Proposed 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/RY

2011 LTCH PPS final rule.

Specifically, we will:

• Randomly select on an annual basis 800 participating hospitals that


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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 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 note 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 this section, 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 the 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/ HospitalVBPPlanRTCFINAL SUBMITTED2007.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


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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 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 2010 payment update proposed in this proposed rule.

b. Proposed Supplements to the Chart

Validation Process for the FY 2013 Payment Determination and Subsequent

Years

For FY 2013 and future years, we are also proposing 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 are proposing 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 are proposing the following changes for FY

2013:

We are proposing to validate the data submitted by a hospital if the hospital failed the previous year’s RHQDAPU program validation. We are proposing 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 are proposing 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 are proposing the following changes to the FY 2012 RHQDAPU validation random sample approach:

Starting in FY 2013, we are proposing
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 are proposing 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 the FY 2013 payment determination, we are proposing 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 are proposing to randomly reallocate the extra sample cases to other topics with more than 3 submitted quarterly cases.


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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 are proposing 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 V.A.5.a.(2) of this proposed rule. 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 4 1 ⁄ 2 months after the end of each quarter,

and we need additional time to select hospitals and complete the validation

process.

We are also considering additional changes to our validation approach for future years. Beginning with the FY 2014 payment determination, we are considering adding two strata to the current RHQDAPU program validation sample of SCIP, AMI, HF, and PN cases. We are considering selecting 2 additional validation samples of 3 cases per selected hospital per quarter. One additional quarterly sample would

enable us to validate the Central Line

Associated Bloodstream Infection (CLABSI) and Surgical Site Infection (SSI) measures that we are proposing to add to the RHQDAPU 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 are proposing to add to the RHQDAPU measure set for the FY 2014 payment determination. Thus, we would be validating a total of 18 records per quarter per validated hospital in six 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 for the proposed Central Line Associated Blood

Stream Infection measure and the Surgical Site Infection 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 invite comment on our validation proposals

and considerations.

We note that we are considering proposing, beginning with the FY 2015 payment determination, 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 program hospitals

are selected for validation at least once every 4 years. We are considering this addition beginning with the FY 2015 payment determination because FY 2015 would be the fourth year that we will be using the random validation approach.

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 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 are proposing to require 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.

9. Proposed 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 making data submitted under the RHQDAPU program available to the public. As we noted in section V.A.1.c.(3) of this proposed 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.

10. Proposed 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 are proposing 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 are proposing 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—


### 23995 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 are proposing 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 V.A.6.b. of this proposed 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 are proposing that all hospitals submit a reconsideration request to CMS and receive a decision on that request prior to submitting a 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, then 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,


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Subpart R (a PRRB appeal). We are again soliciting 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.

11. Proposed RHQDAPU Program

Withdrawal Deadlines

We are proposing to accept RHQDAPU program withdrawal forms for the FY 2012 payment determination from hospitals until August 15, 2011. We are proposing 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.

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 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.

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 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 andinteroperability 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.

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 proposed rule do not implicate or implement any HITECH statutory provisions. Those provisions are the subject of separate rulemaking and public comment.


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13. Qualification of Registries for RHQDAPU Data Submission

In section V.A.3.c.(3) of this 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 measure data for the specified measures to CMS (via QualityNet) for RHQDAPU program purposes. The process and requirements that we are proposing to use to determine whether a registry is qualified to collect and submit quality

measure data are described below. We will 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 have 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 note, 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 are proposing 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 beingproposed 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 Specifications

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;

Æ The measure results

• The registry must agree to transmitquality measure data in a CMSapproved format. We expect that this CMS-specified record layout will 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-basedtopics, a registry must submit a selfnomination letter by October 15, 2010 to RHQDAPU

_ Registries@cms.hhs.gov containing the registry name, point of contact, the proposed registry-based measure topic for which qualification is being sought, and detailed information regarding how the registry satisfies the

criteria listed above.

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.


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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. Proposed 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. 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

included under the Medicare acute care transfer policy.

These policy changes are also being proposed 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 exists 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 this proposed rule, we are proposing 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.

Hospitals must 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 must continue to use patient

status code ‘‘ 02 ’’ (Discharged/

Transferred to a Short-Term General Hospital for Inpatient Care) on IPPS

claims. We note 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.

C. 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.


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We are proposing to make this confirming change.

D. Medicare-Dependent, Small Rural Hospitals (MDHs): Change to Criteria (§ 412.108)

1. Background

Under the IPPS, separate special payment protections are provided to a Medicare-dependent, small rural hospital (MDH). 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 that set forth the criteria that a hospital must

meet to be classified as an MDH are at

42 CFR 412.108.

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 perdischarge, 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 perdischarge, 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 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 hospital-specific 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.

2. Medicare-Dependency: Counting Medicare Inpatients

Currently, 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 (§ 412.108(a)(1)(iii) of the regulations).

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. Currently, for purposes of determining DSH payment adjustments under the IPPS, section 1886(d)(5)(F)(vi)(I) of the Act and our policy include, in the Medicare inpatient count, individuals entitled to Medicare Part A benefits, regardless of whether or not they have exhausted Medicare Part A coverage. This policy is discussed in the FY 2005 IPPS final rule (69 FR 49090 through 49099). 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 of the Act (Entitlement to Hospital Insurance Benefits).

Accordingly, we are proposing to revise the Medicare-dependency 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, that is, health maintenance organizations (HMOs) and competitive medical plans (CMPs). We note that, for inpatient care provided to Medicare Part

A 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.

E. 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.


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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 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 proposed national

median CMI value for FY 2011 includes data from all urban hospitals nationwide, and the proposed 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 proposed values are based on discharges occurring during FY 2009 (October 1, 2008 through September 30, 2009), and include bills posted to CMS’ records through

December 2009.

We are proposing that, in addition to meeting other criteria, if rural hospitals with fewer than 275 beds are to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 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.

The proposed median CMI values by region are set forth in the following

table:

The preceding numbers will be

revised in the FY 2011 IPPS final rule to the extent required to reflect the updated FY 2009 MedPAR file, which

will contain data from additional bills received through March 2010. 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


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numbers of discharges in each year’s annual notice of prospective payment rates for purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 discharges. We are proposing to update the regional standards based on discharges for urban hospitals’ cost reporting periods that began during FY 2008 (that is, October 1, 2007 through September 30, 2008), which are the latest cost report data available at the time this proposed rule was developed.

Therefore, we are proposing that, in addition to meeting other criteria, a hospital, if it is to qualify for initial RRC status for cost reporting periods beginning on or after October 1, 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, as indicated in the following table.

These numbers will be revised in the

FY 2011 IPPS final rule based on the latest available cost report data.

We note that the median number of discharges for hospitals in each census region is greater than the national standard of 5,000 discharges. Therefore, 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.

F. 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 FY 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


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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 Proposed Rule

We refer readers to section IV.H.2. and IV.H.3. of the preamble of this proposed rule for a discussion of proposed changes to the policies for identifying ‘‘ approved medical residency programs ’’ and the electronic

submission of Medicare GME affiliation
agreements.

G. 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 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

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


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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 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

‘‘ 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, we are proposing to use the same revised data matching process for calculating hospitals’ SSI fractions for FY 2011 and subsequent fiscal years. 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

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. 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.

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 are proposing to use in our revised match process is the SSI eligibility data file, which contains a unique SSN for every SSI record and would include as many

as 10 different historical Title II

numbers for the records related to one individual. We are proposing to use 10

as the maximum number of Title II numbers for a beneficiary because that


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is likewise the maximum number of HICANs that can be attributed to any one individual in our EDB. However, we note 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 are proposing to use in our revised match process is the MedPAR file. Hospitals submit claims to Medicare for inpatient services provided to Medicare

beneficiaries. These claims are eventually accumulated in the MedPAR database. It is important to note 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 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, we are proposing 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. Using the SSI eligibility data file provided by SSA, we are proposing 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 are proposing 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

will be included in our revised match process and compared to any and all HICANs in MedPAR. We note that by including this second step (that is, adding all Title II numbers not previously identified by Step 1), we are 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 a spouse’s earnings history and the spouse 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 are proposing 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 will attempt to match the beneficiary’s

HICAN in the MedPAR file. Specifically, we are proposing 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 are not proposing 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.

c. Timing of the Match

One of the district court’s findings in

the Baystate decision was that CMS did

not use the latest available SSI eligibility 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 eligible 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 eligibility 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 eligibility data during our completion of the revised match process in 2009. However, we believe that further consideration of the timing of both the SSI eligibility information that SSA provides to CMS and our proposed revised match process for FY 2011 and subsequent fiscal years is warranted.

At present, SSA provides an annual file to CMS with SSI eligibility 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 eligibility information we currently

use contains 6 to 18 months worth of retroactive SSI eligibility 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


### 24005 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

14 Teaching hospitals have an incentive to submit these claims because they receive an indirect medical education payment. 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 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. 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 eligibility information could actually be longer or shorter for some hospitals, depending on the hospital’s specific cost reporting period. We note that 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 spanned the hospital’s cost reporting period.

As we stated in the FY 2006 final IPPS 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. L. 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). Therefore, Medicare claims for hospital services furnished in

FY 2011 would have to be submitted no later than December 31, 2012. We note

that section 6404 of the Patient

Protection and Affordable Care Act (Pub. L. 111–148), as amended, 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.

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 after the end of the fiscal year. 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

included in that MedPAR file. The same may not be true for the ‘‘ information only ’’ or ‘‘ no pay ’’ claims that hospitalsare required to submit to their fee-forservice contractor for Medicare Advantage (MA) beneficiaries. Because claims for MA beneficiaries are paid by MA plans and not the fee-for-service contractor, hospitals may not have the

same incentive to file these claims as close as possible to the date of the patient’s discharge. 14 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. L. 100–04), all IPPS hospitals that do not qualify for IME payments, direct GME payments, or nursing and allied health (N&AH) payments are required to submit informational-only claims for all MA inpatients to ensure that data for MA

beneficiaries is included in the SSI fraction. Accordingly, we also are 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

lack of incentives that exist to submit these claims as soon as possible 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 are also proposing to use more recent SSI eligibility information from SSA and a more updated version of MedPAR 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 are proposing 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, 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 Public Law 111–148, 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.

The FY 2011 SSI fractions will 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


### 24006 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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, 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.



### E XAMPLE OF 

### T IMELINE 

### T O 

### C ALCULATE 

### FY 2011 SSI F RACTIONS 

### U NDER 

### C URRENT 

### P OLICY

Cost reports that
use the FY 2011 SSI ratios Deadline for timely filing of claims MedPAR file used SSI eligibility file
used Cost reports normally accepted Cost report final
settlement SSI fraction available

Cost reports beginning October 1, 2010 through September 30,

2011. December 2012 March 2012 update of FY 2011

MedPAR. March 2012 update of FY 2011 SSI eligibility. Generally between March

2012 and February 2013. Generally between March

2013 and February 2014. Summer 2012.



### E XAMPLE OF 

### T IMELINE 

### T O 

### C ALCULATE 

### FY 2011 SSI F RACTIONS 

### U NDER 

### P ROPOSED 

### R ULE

Cost reports that
use the FY 2011 SSI ratios Deadline for timely filing of claims MedPAR file used SSI eligibility file
used Cost reports normally accepted Cost report final
settlement SSI fraction
available

Cost reports beginning October 1, 2010 through September 30,

2011. December 2012 December 2012 update of FY

2011 MedPAR. December 2012 update of FY2011 SSI eligibility. Generally between

March 2012 and February 2013. Generally between

March 2013 and February 2014. Spring 2013.

5. CMS Ruling

The CMS Administrator has prepared a CMS 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 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.

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 our policy change to reflect the inclusion of 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 rule (72 FR 47384), we made a technical correction to amend the regulations at § 412.106(b)(2)(i) and to § 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.

We are aware that there might be some confusion about our policy to include MA days in the SSI fraction, specifically regarding whether we have


### 24007 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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, we are proposing to replace the word

‘‘ or ’’ with the word ‘‘ including ’’ in § 412.106(b)(2)(i)(B) and § 412.106 (b)(2)(iii)(B).

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 multiplyingthe 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 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 ’’

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. 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


### 24008 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 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


### 24009 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 moreappropriately 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 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 would also 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, we are proposing 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 are proposing

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 are proposing to make a similar conforming change to the definition of

‘‘ primary care resident ’’ at § 413.75(b). 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.

In summary, we are proposing to clarify 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,

should not be counted for IME and direct GME purposes. Such individuals should be treated as physicians, and

their services should be billed to Medicare for payment as physicians’ services. If an individual has already successfully completed at least one residency program and has met the 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 a subspecialty, the

individual should be treated and bill for services provided as a physician. We also are proposing 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 are proposing to make 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 internal medicine, general pediatrics, preventive medicine, geriatric medicine or osteopathic general practice. ’’ 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.

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 a Medicare GME affiliation group. Under those 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 each hospital’s caps


### 24010 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 if: (1) 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); (2) 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 as the sponsor

or 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, two or more 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 beginning July 1, 2009, through June 30, 2010, the 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.

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 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 proposing to change our policy to provide for electronic submission of the affiliation agreement that is required

to be sent to the CMS Central Office. 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 are proposing 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 are proposing that the electronic affiliation agreement

would need to be submitted either as a scanned copy or a Printer-Friendly Display (PDF) version of that hard copy agreement; we are proposing not to 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.

We believe that allowing an electronic submission of the affiliation agreement

to the CMS Central Office would assist us 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 would minimize the paperwork burden for hospitals.

I. Certified Registered Nurse Anesthetist (CRNA) Services Furnished in Rural Hospitals and CAHs

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 Public Law98–369 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 includinglanguage 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)(2)(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– 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/hospitals that have reclassified


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from urban to rural under the regulations at § 412.103 nor CAHs/ hospitals located in Lugar counties are eligible to receive pass-through payments for anesthesia services and related care furnished by qualified nonphysician anesthetists. We believe that because the statute, 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, it is appropriate for us to make the regulations consistent by permitting urban hospitals that have been reclassified as rural to qualify for these payments. Therefore, we are proposing 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.

We are not proposing 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,

we do not believe it would be consistent with the statute and our regulations to permit these facilities to be paid on a

reasonable cost basis for anesthesia services and related care furnished by qualified nonphysician anesthetists.

J. Rural Community Hospital Demonstration Program

Section 410A(a) of Public Law 108– 173 required the Secretary to establish a demonstration program to test the feasibility and advisability of establishing ‘‘ rural community hospitals ’’ to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospitals for such

services under a cost-based methodology for Medicare payment purposes for covered inpatient hospital

services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1), is a hospital that—

• Is located in a rural area (as defined in section 1886(d)(2)(D) of the Act) or is treated as being located in a rural area under section 1886(d)(8)(E) of the Act;

• Has fewer than 51 beds (excluding beds in a distinct part psychiatric or rehabilitation unit) as reported in its
most recent cost report;

• Provides 24-hour emergency care services; and

• Is not designated or eligible for designation as a CAH under section

1820 of the Act.

Section 410A(a)(4) of Public Law 108– 173 (MMA) specified that the Secretary was to select for participation no more than 15 rural community hospitals in rural areas of States that the Secretary identified as having low population densities. Using 2002 data from the U.S. Census Bureau, we identified the 10 States with the lowest population density in which rural community hospitals were to be located in order to participate in the demonstration: Alaska, Idaho, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of the United States: 2003).

CMS originally solicited applicants for the demonstration in May 2004; 13 hospitals began participation with cost report 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 originally participated 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.) There are currently 10 hospitals participating in the

demonstration.

Section 410A(a)(5) of Public Law 108– 173 required a 5-year demonstration period of participation. For the seven currently participating hospitals that began the demonstration during FY 2005, 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. A 5-year extension

of the demonstration was mandated in

the Patient Protection and Affordable Care Act (PPACA, Pub. L. 111–148). We note that this proposed rule does not address the relevant changes mandated by Public Law 111–148. Public Law 111–148 does affect our proposed FY 2011 policy with regard to the rural community hospital demonstration. However, we will address that provision of Public Law 111–148 and any revised policy proposals in a separate rulemaking document in the Federal Register

.

Section 410A of Public Law 108–173 required that, ‘‘ in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration program under this section was not implemented. ’’ This requirement is commonly referred to as

‘‘ budget neutrality. ’’

Generally, when CMS implements 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


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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 this 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), we believe that the language of the statutory budget neutrality requirements permits the agency to implement the budget neutrality provision in this manner.

In this proposed rule, in order to

ensure that the demonstration in FY 2007 is budget neutral, we are proposing to incorporate a component into the adjustment factor to the FY 2011

national IPPS rates that 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 final rule as the budget neutrality offset for FY 2007. Specifically, we are proposing the following methodology: (1) 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 in the

demonstration for each of the then participating hospitals); (2) 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 1; and (3) Calculate an adjustment factor for the standardized

amount for FY 2011 based on the dollar amount calculated in step 2 of this proposed methodology. This factor would represent the component of the proposed overall budget neutrality offset

amount for FY 2011 that accounts for

the difference between the cost of the

demonstration in FY 2007 and the amount of the budget neutrality adjustment published in the FY 2007

final rule. With respect to the first step of this proposed methodology, we note that we are proposing to use settled cost reports beginning in FY 2007 for hospitals participating in the demonstration during FY 2007 because we believe that these settled cost reports correspond most accurately to FY 2007 and because all such costs reports also began in FY 2007. Therefore, we believe they correctly represent FY 2007 inpatient costs for the demonstration during that period. In addition, in the process of making adjustments comparing the

demonstration’s costs to the amounts estimated annually for the budget neutrality offset over the demonstration’s entire period of performance, the cost amounts from these hospitals’ cost reports correspond most precisely to FY 2007. In addition, the settlement process for the demonstration hospitals’ third year cost reports, that is, cost reporting periods starting in FY 2007, has experienced a delay. Therefore, for this FY 2011 IPPS proposed rule, we are unable to

calculate the costs of the demonstration corresponding to FY 2007 and as a result are unable to propose the specific numeric adjustment that would be applied to the national IPPS rates. However, we expect cost reports beginning in FY 2007 for hospitals that participated in the demonstration during FY 2007 to be settled before the FY 2011 IPPS final rule is published. Therefore, for the FY 2011 IPPS final rule, we will be able to calculate the amount by which the costs corresponding to FY 2007 exceeded the amount offset by the budget neutrality adjustment for FY 2007.

V. Proposed Changes to the IPPS for Capital-Related 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 L. 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, affect 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 are unable to address those provisions in this proposed rule. Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new legislation. We plan to issue separate rulemaking documents in the Federal Register addressing the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for FY 2011 under the IPPS and LTCH PPS, as well as the provisions of Public Law 111–148, as amended, that affect the policies and payment rates for FY 2010 under the

IPPS and LTCH PPS.

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 IPPSfor 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 forMedicare 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 to extraordinary circumstances beyond the hospital’s control. This policy was


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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 computethe 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. Proposed 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 patients’ 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 would be 747 DRGs with our proposals in this proposed 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 patients’ 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 percent for FY 2009, and

¥ 1.8 percent


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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

¥ 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 Public Law 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 this proposed rule, we have 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. Specifically, as discussed in greater detail in section II.D.5. of the preamble of this proposed 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 have determined that the implementation of the MS–DRG systemresulted in a 5.4 percent change in casemix due to documentation and codingthat did not reflect real changes in casemix for discharges occurring during FY

2009.

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). 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. We intend to update our analysis with FY 2009 data on claims paid through March 2009 for the

FY 2011 IPPS/LTCH PPS final rule.

4. Proposed 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 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


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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 discussed in greater detail in section II.D.7. of this preamble, we explain that we are proposing a

¥ 2.9 percent adjustment for FY 2011 under the authority of section 7(b)(1)(B) of

Public Law 110–90. We refer readers to that section of the preamble for a

detailed discussion of the issue. In section II.D.6. of this preamble, we also discuss our retrospective evaluation of the FY 2009 claims, and our actuaries’ determination that implementation of the MS–DRG system resulted in a 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. 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 adjustment that has already been applied to the national capital Federal rate. Thus, 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. However, we are not proposing a prospective adjustment to the IPPS operating average standardized amounts under section 7(b)(1)(A) of

Public Law 110–90 for FY 2011.

As discussed above in this section, given the increase in payments that we

have determined is due to documentation and coding, we believe it is necessary and 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 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.

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, consistently 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 are proposing to apply to IPPS hospitals, we are proposing an adjustment of

¥ 2.9 percent in FY 2011 to the national capital Federal rate. We believe that this proposed adjustment allows us to moderate the effects to hospitals in one year and to maintain equity between hospitals paid on the basis of different prospective rates. We are seeking 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 for discharges 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. We intend to update our analysis with FY 2009 data on claim paid through March 2009 for the FY

2011 IPPS/LTCH PPS final rule.

Therefore, in this proposed rule, 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 are proposing to reduce the capital Federal rate in FY 2011 by

¥ 2.9 percent to account for the cumulative effect of the estimated changes in documentation and coding changes under the MS–DRG system in FYs 2008 and 2009 that did not reflect real changes in case-mix. Furthermore, consistent with our proposal for the hospital-specific rates under the operating IPPS, we are proposing to leave that proposed

¥ 2.9 percent adjustment in place for subsequent fiscal years to account for the effect in FY 2011 and subsequent years. As noted 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

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).

5. Proposed 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, 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


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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 through the notice and comment rulemaking

process.

As discussed in section II.D.9. of this preamble, when we performed a retrospective evaluation of the FY 2009 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 2.4 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 presented 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 this proposed rule, under the Secretary’s broad authority under section 1886(g) of the Act, we areproposing to adjust the Puerto Ricospecific 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 are proposing 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. We are proposing that the proposed

¥ 2.4 percent documentation and coding adjustment would beapplied to the capital Puerto Ricospecific rate that accounts for 25 percent of payments to hospitals located in Puerto Rico, with the remaining 75 percent based on the proposed national capital Federal rate, which we are proposing to adjust for documentation and coding as described above. Consequently, the proposed overall reduction to the FY 2011 payment rates for hospitals located in Puerto Rico to account for documentation and coding changes would be slightly less than the reduction for IPPS hospitals paid based on 100 percent of the national capital Federal rate. As noted 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 Proposed Changes for FY 2011

The proposed annual update to thecapital IPPS national and Puerto Ricospecific rates, as provided for at § 412.308(c), for FY 2011 is discussed in

section III. of the Addendum to this proposed rule.

VI. Proposed 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.)

For FY 2011, we are proposing that the rate-of-increase percentage to be applied to the target amount for cancer and children’s hospitals and RNHCIs would be 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. We are proposing to continue to use the IPPS 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.

We are proposing to use the revised

and rebased FY 2006-based IPPS operating market baskets to update the target amounts for children’s and cancer hospitals and RNHCIs for FY 2011. Based on IHS Global Insight, Inc.’s 2010 first quarter forecast, with historical data through the 2009 fourth quarter, we are estimating that the FY 2011 update to the IPPS operating market basket would be 2.4 percent (that is, the

current estimate of the market basket rate-of-increase).

We calculated the proposed rate-ofincrease in the IPPS operating market basket for FY 2011 using the most recent data available. However, if data that are

more recent become available for the final rule, we will use them to calculate the IPPS operating market basket update for FY 2011. Therefore, consistent with our proposal that the rate-of-increase percentage for cancer and children’s hospitals and RNHCIs would be the proposed percentage increase in the FY 2011 IPPS operating market basket, the proposed FY 2011 rate-of-increase percentage that would be applied to FY 2010 target amounts in order to calculate the FY 2011 target amounts for cancer and children’s hospitals and RNHCIs would be 2.4 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


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refer readers to section IV. of the Addendum to this proposed rule for the specific proposed update changes to the Federal payment rates for LTCHs under

the LTCH PPS for RY 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 made an election, under section 1834(g)(2) of the Act, to receive amounts that were equal

to the reasonable cost 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. ’’ 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 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. As stated earlier, the proposed policies and payment rates in this proposed rule do not reflect the provisions of the recently enacted Public Law 111–148, as amended by Public Law 111–152. We plan to address the provisions of Public Law 111–148, as amended, as they affect payments to CAHs in separate documents in the Federal Register or through further

instructions.

Accordingly, section 1834(g) of the Act currently 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 Medicare Physician Fee Schedule (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, under this optional method, the CAH receives 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.

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, 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, we are proposing 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 are proposing to revise the regulations to include a mechanism for CAHs that are being paid under the optional method to terminate that election. Specifically, we are proposing 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 is for cost reporting periods beginning on or after October 1, 2010, 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 are proposing 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 will have until December 1, 2010, to terminate their prior year election. The termination will

be effective for the entire FY 2011 cost reporting period. Thus, if a CAH with a cost reporting period beginning in


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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.

In summary, we are proposing to revise § 413.70(b)(3)(i) to specify, under paragraphs (A)( 1 ) and (A)( 2 ), 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 would no longer be required to

make an annual election in order to continue to be paid under the optional method in a subsequent year. If a CAH has not elected the optional method for its most recent cost reporting period beginning prior to October 1, 2010, and would like to be paid for outpatient services under the optional method for a cost reporting period beginning on or after October 1, 2010, consistent with our existing regulations, it would be required to provide its election in writing to its servicing fiscal intermediary or MAC at least 30 days prior to the start of the first cost reporting period for which the election is effective. In addition, we are proposing to revise 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. We are proposing 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, will have until December 1, 2010, to terminate their prior year election. The

termination would be effective for the entire FY 2011 cost reporting period. We also are proposing to make a conforming change to paragraph (b)(3)(i)(D).

3. 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 (PRM) for determining allowable

reasonable costs under Medicare. Specifically, section 2122 of the PRM 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 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 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. They are not, however, 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. Proposed Clarification of Payment Policy for Provider Taxes

We have learned that there is some confusion relating to the determination

of whether a tax is an allowable cost.

We believe that much of this confusion


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has arisen because it may be possible to

read sections 2122.1 and 2122.2 of the PRM 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 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.

In this proposed rule, we are proposing 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 are 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, this policy clarification could impact certain providers that are paid on the basis of their incurred reasonable costs, such as CAHs.

Therefore, we are proposing to clarify the policy set forth in sections 2122.1

and 2122.2 of the PRM to reflect our concerns set forth above regarding when certain provider taxes may be allowable costs under the Medicare program. We will modify the PRM consistent with these principles. We believe that the proposed revision would clarify that our

Medicare contractors will determine theallowability of provider taxes on a caseby-case basis, based on reasonable cost principles, and will determine if a reduction of the allowable tax expenses is proper to account for payments providers receive that are associated

with the assessed tax.

VII. Proposed Changes to the LongTerm 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). This system currently uses information from LTCH patient recordsto classify patients into distinct MSlong-term care diagnosis-related groups (MS–LTC–DRGs) based on clinical characteristics and expected resource needs. Payments are calculated for each MS–LTC–DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the Federal Register

.

The LTCH PPS replaced the reasonable cost-based payment system under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97–248) for payments for inpatient services provided by a LTCH with a cost reporting period beginning on or after October 1, 2002. (The regulations implementing the TEFRA reasonable cost-based payment provisions are located at 42 CFR Part 413.) With the implementation of the


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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. Foreach 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 section VIII.A.1. of the May 9, 2008 RY 2009 LTCH PPS final rule (73 FR 26788), 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 (73 FR 26797 through 26798).

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 Public Law 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) tochange 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 address 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 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


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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 Public Law 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 plan to address this public comment

and finalize the interim final rule with comment period in the FY 2011 IPPS/ LTCH PPS final rule, which is scheduled to be issued by August l,

2010.

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 L. 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, affect 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 are unable to address those provisions in this proposed rule. Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new legislation. We plan to issue separate

documents in the Federal Register addressing the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for

FY 2011 under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions implementing the provisions of Public Law 111–148, as amended, that affect the policies and payment rates for FY 2010 under the

IPPS and for RY 2010 under the LTCH

PPS.

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)) (Statewideall-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 at 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. Proposed Medicare Severity LongTerm 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 basingpayment under such a system [the longterm care hospital (LTCH) PPS] on the use of existing (or refined) hospital


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DRGs that have been modified to

account for different resource use of LTCH patients, as well as the use of the most recently available hospital discharge data. ’’

When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DRG patient classification system (that is, the CMS DRGs) that was utilized at that time under the IPPS. As a component of the LTCH PPS, we refer to this patient classification system as the ‘‘ long-term care diagnosis-related groups (LTC– DRGs). Although the patient classification systems 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 proposing 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 proposed rule. This would result 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 relativeweights 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 proposed rule, however, we are proposing that, for

claims submitted on the 5010 format beginning January 1, 2011, we would 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 proposed change.

Upon the discharge of the patient from a LTCH, the LTCH must assign


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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 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 PRICERprogram, 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. Proposed 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 proposed rule, we are proposing to modify and revise the MS–LTC–DRG classifications effective October 1, 2010, through September 30, 2011 (FY 2011) consistent with the proposed changes to specific MS–DRG classifications presented above in section II.G. of this proposed rule (that is, proposed GROUPER Version 28.0). Therefore, the MS–LTC–DRGs for FY 2011 presented in this proposed rule are the same as the proposed MS–DRGs that would be used under the IPPS for FY 2011. In addition, because the proposed MS–LTC–DRGs

for FY 2011 are the same as the proposed MS–DRGs for FY 2011, the other changes that would 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 proposed rule, including the proposed changes to the MCE software and proposed changes to the ICD–9–CM coding system, would also be applicable under the LTCH PPS

for FY 2011.

3. Development of the Proposed 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 proposed FY 2011 MS–LTC–DRG relative weights in this proposed 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


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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 cases in an MS–LTC–DRG with a weight

of 1.

b. Development of the Proposed 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 42 CFR 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 (May 11, 2007 LTCH PPS final rule, 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).) Thus, the proposed 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 this proposed rule, to calculate the proposed MS–LTC–DRG relative weights for FY 2011, we are proposing

to obtain total Medicare allowable charges from FY 2009 Medicare LTCH

bill data from the December 2009 update of the MedPAR file, which are the best available data at this time, and to use the proposed Version 28.0 of the GROUPER to classify LTCH cases (as discussed above). We also are proposing

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. Consistent with our historical methodology, we excluded the data

from LTCHs that are all-inclusive rate providers and LTCHs that are

reimbursed in accordance with demonstration projects authorized under section 402(a) of Public Law 90– 248 or section 222(a) of Public Law 92– 603. 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 are proposing 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 have 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). Accordingly, in the development of the proposed FY 2011 MS–LTC–DRG relative weights in this proposed rule, 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.

d. Hospital-Specific Relative Value (HSRV) Methodology

By nature, LTCHs often specialize incertain 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, we are proposing to continue to use a hospital-specific relative value (HSRV) methodology to calculate the proposed 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 are reducing the impact of the variation in charges across providers on any particular proposed MS–LTC–DRG relative weight by converting each LTCH’s charge for a case to a relative value based on that LTCH’s average charge. Under the HSRV methodology, we standardize charges for each LTCH by converting its charges for each case to hospital-specific relative charge values and then 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, 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 proposed 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 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.


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e. Treatment of Severity Levels in Developing the Proposed MS–LTC–DRG Relative Weights

For purposes of determining the proposed MS–LTC–DRG relative weights, 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 proposed relative weight; low-volume proposed MS–LTC–DRGs (that is, proposed MS–

LTC–DRGs that contain between 1 and 24 cases based on a given year’s claims data) are grouped into quintiles (as described below) and assigned the proposed relative weight of the quintile. No-volume proposed MS–LTC–DRGs (that is, no cases in the given year’s claims data were assigned to those proposed MS–LTC–DRGs) are crosswalked to other proposed MS–

LTC–DRGs based on the clinical similarities and assigned the relative weight of the crosswalked 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 proposed rule and for no-volume MS–LTC–DRGs, under Step 5 in section VII.B.3.g. of the preamble of this proposed 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, we are proposing to determine the proposed FY 2011 relative weights for the proposed MS–LTC–DRGs using the following steps: (1) If a proposed MS–LTC–DRG has at least 25 cases, it is assigned its own proposed relative weight; (2) if a proposed MS–LTC–DRG has between 1 and 24 cases, it is assigned to a quintile for which we compute a proposed relative weight for all of the proposed MS–LTC–DRGs assigned to that quintile; and (3) if a proposed MS–LTC– DRG has no cases, it is crosswalked to another proposed MS–LTC–DRG based upon clinical similarities to assign an appropriate proposed relative weight (as described below in detail in Step 5 of section VII.B.3.g. of this preamble). Furthermore, in determining the proposed FY 2011 MS–LTC–DRG relative weights, when necessary, we are proposing to make adjustments to account for nonmonotonicity, as discussed in greater detail below in Step 6 of section VII.B.3.g. of this preamble.

We refer readers to the discussion in the

FY 2010 IPPS/RY 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 proposed MS– LTC–DRGs with low volume (that is, with fewer than 25 LTCH cases), consistent with our existing methodology, for purposes of determining the MS–LTC–DRG relative weights, we are proposing to continue to employ this quintile methodology for low-volume proposed 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 proposed FY 2011 MS– LTC–DRG relative weights in this proposed rule, in cases where the initial assignment of a low-volume proposed MS–LTC–DRG to quintiles results in nonmonotonicity within a base-DRG, in order to ensure appropriate Medicare payments, consistent with our historical methodology, we are proposing to makeadjustments to the treatment of lowvolume proposed MS–LTC–DRGs to preserve monotonicity, as discussed in detail below in section VII.B.3.g. (Step 6) in this preamble.

In this proposed rule, using LTCH cases from the December 2009 update of the FY 2009 MedPAR file, we identified

283 MS–LTC–DRGs that contained

between 1 and 24 cases. This list of proposed MS–LTC–DRGs was then

divided into one of the 5 low-volume quintiles, each containing a minimum of 56 proposed MS–LTC–DRGs (283/5 = 56 with 3 proposed MS–LTC–DRG as the remainder). We are proposing to assign a low-volume proposed MS–LTC–DRG to a specific low-volume quintile by sorting the low-volume proposed MS– LTC–DRGs in ascending order by average charge in accordance with our established methodology. Furthermore, because the number of proposed 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 lowvolume quintiles would contain the 3 additional low-volume proposed MS– LTC–DRGs. Specifically, after sorting the 283 low-volume proposed MS–LTC– DRGs by ascending order by average charge, we are proposing to assign thefirst fifth (1st through 56th) of lowvolume proposed MS–LTC–DRGs (with the lowest average charge) into Quintile 1. The proposed MS–LTC–DRGs with the highest average charge cases would be assigned into Quintile 5. Because the average charge of the 113th low-volume proposed MS–LTC–DRG in the sorted list is closer to the average charge of the 112th low-volume proposed MS–LTC– DRG (assigned to Quintile 2) than to the average charge of the 114th low-volume MS–LTC–DRG (assigned to Quintile 3), we are proposing to place it into Quintile 2 (such that Quintile 2 would contain 57 low-volume proposed MS– LTC–DRGs before any adjustments for nonmonotonicity, as discussed below). This process was repeated through the remaining low-volume proposed MS–

LTC–DRGs so that 2 of the 5 lowvolume quintiles contain 56 MS–LTC– DRGs (Quintiles 1 and 4) and the other 3 low-volume quintiles contain 57 MS– LTC–DRGs (Quintiles 2, 3, and 5).

Accordingly, in order to determine the proposed FY 2011 relative weights for the proposed MS–LTC–DRGs with low volume, we are proposing to use the 5 low-volume quintiles described above.The composition of each of the 5 lowvolume quintiles shown in the chart below was used in determining the proposed FY 2011 MS–LTC–DRG relative weights (as shown in Table 11 of the Addendum to this proposed rule). We determined a proposed relative weight and (geometric) average length of stay for each of the 5 low-volume quintiles using the methodology that we applied to the proposed MS–LTC–DRGs (25 or more cases), as described in section VII.B.3.g. of the preamble of this proposed rule. We are proposing to assign the same proposed relative weight and average length of stay to each of the low-volume proposed 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

use the best available claims data in the MedPAR file to identify low-volume

MS–LTC–DRGs and to calculate the proposed 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 proposed MS–LTC–DRG relative weights result in appropriate payment

for such cases and do not result in an

unintended financial incentive for LTCHs to inappropriately admit these types of cases.

g. Steps for Determining the Proposed

FY 2011 MS–LTC–DRG Relative Weights

In general, we are proposing to

determine the FY 2011 MS–LTC–DRG relative weights based on our existing methodology. For additional information on the original development of this methodology, and modifications to it since the adoption of the MS–LTC–DRGs, we refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55995) and

the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43951 through 43966). In summary, for FY 2011, to determine the proposed FY 2011 MS– LTC–DRG relative weights, we are proposing to group LTCH cases to the appropriate proposed MS–LTC–DRG,while taking into account the lowvolume proposed MS–LTC–DRGs (as described above). After grouping the cases to the appropriate MS–LTC–DRG (or low-volume quintile), we calculate the proposed 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 adjust the number of cases in each proposed 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 are then used to

calculate ‘‘ relative adjusted weights ’’ foreach proposed MS–LTC–DRG (or lowvolume quintile) using the HSRV

method. Below we discuss in detail the steps for calculating the proposed FY 2011 MS–LTC–DRG relative weights. 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 proposed FY 2011 MS–LTC–DRG relative weights is to remove statistical

outlier cases. Consistent with our historical relative weight methodology, we are proposing to continue to define

statistical outliers as cases that are

outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day

for each MS–LTC–DRG. These statistical outliers are removed prior to calculating the proposed relative weights because we believe that they may represent

aberrations in the data that distort the measure of average resource use. Including those LTCH cases in the calculation of the proposed relative weights could result in an inaccurate


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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 proposed FY 2011 MS–LTC–DRG relative weights, the value of many proposed relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and

receive a full course of treatment at a LTCH by including data from these very short-stays. Therefore, consistent with our historical relative weight methodology, in determining the proposed FY 2011 MS–LTC–DRG relative weights, we are proposing to remove 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 in the calculation of the proposed FY 2011 MS–LTC–DRG relative weights,

consistent with our historical relative weight methodology, we are proposing to adjust each LTCH’s charges per discharge for those remaining cases for the effects of SSOs (as defined in § 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 proposed RY 2011 MS–LTC–DRG relative weights would lower the proposed 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, we are proposing to 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 proposed FY 2011 MS–LTC–DRG relative weights on

an iterative basis.

Consistent with our historical relative weight methodology, we are proposing to calculate the proposed FY 2011 MS– LTC–DRG relative weights using the HSRV methodology, which is an iterative process. First, for each LTCH case, we calculate a hospital-specific relative charge value by dividing the SSO adjusted charge per discharge (see Step 3) of the LTCH case (after removing the statistical outliers (see Step 1)) and LTCH cases with a length of stay of 7 days or less (see Step 2) by the average charge per discharge for the LTCH in which the case occurred. The resulting ratio is then multiplied by the LTCH’s case-mix index to produce an adjusted hospital-specific relative charge value

for the case. An initial case-mix index

value of 1.0 is used for each LTCH.

For each proposed MS–LTC–DRG, the proposed FY 2011 relative weight was calculated by dividing the average of the adjusted hospital-specific relative charge values (from above) for the proposed MS–LTC–DRG by the overall average hospital-specific relative charge

value across all cases for all LTCHs. Using these recalculated proposed MS– LTC–DRG relative weights, each LTCH’s average relative weight for all of its cases (that is, its case-mix) is calculated by dividing the sum of all the LTCH’s proposed MS–LTC–DRG relative weights by its total number of cases. The LTCHs’ hospital-specific relative charge values above is multiplied by these hospital-specific case-mix indexes. These hospital-specific case-mix adjusted relative charge values are then used to calculate a new set of proposed MS–LTC–DRG relative weights across all LTCHs. This iterative process was continued until there is convergence between the weights produced at adjacent steps, for example, when the

maximum difference is less than 0.0001.

Step 5 —Determine a proposed FY 2011 relative weight for MS–LTC–DRGs

with no LTCH cases.

As we stated above, we are proposing to determine the proposed FY 2011 relative weight for each proposed MS– LTC–DRG using total Medicare allowable charges reported in the best available LTCH claims data (that is, the December 2009 update of the FY 2009 MedPAR file for this proposed rule). Using these data, we identified a number of proposed MS–LTC–DRGs for

which there were no LTCH cases in the database, such that no patients who

would have been classified to those proposed MS–LTC–DRGs were treated in LTCHs during FY 2009 and, therefore, no charge data were available for these proposed MS–LTC–DRGs. Thus, in the process of determining the proposed MS–LTC–DRG relative weights, we were unable to calculate proposed relative weights for the proposed MS–LTC–DRGs with no LTCH cases using the methodology described in Steps 1 through 4 above. However, because patients with a number of the diagnoses under these proposed MS– LTC–DRGs may be treated at LTCHs,

consistent with our historical methodology, we are proposing to assign a proposed relative weight to each of the no-volume proposed MS– LTC–DRGs based on clinical similarity and relative costliness (with the exception of ‘‘ transplant ’’ proposed MS–

LTC–DRGs and ‘‘ error ’’ proposed MS– LTC–DRGs, as discussed below). (For additional information on this step of the relative weight methodology, we

refer readers to 67 FR 55991 and 74 FR 43959 through 43960.)

In general, we determined proposed FY 2011 relative weights for the proposed MS–LTC–DRGs with no LTCH

cases in the FY 2009 MedPAR file used in this proposed rule (that is, ‘‘ novolume ’’ proposed MS–LTC–DRGs) by crosswalking each no-volume proposed MS–LTC–DRG to another proposed MS– LTC–DRG with a calculated proposed relative weight (determined in accordance with the methodology described above). Then, the ‘‘ novolume ’’ proposed MS–LTC–DRG is assigned the same proposed relative weight (and average length of stay) of the proposed MS–LTC–DRG to which it was crosswalked (as described in greater detail below).

Of the 747 proposed MS–LTC–DRGs for FY 2011, we identified 223 proposed

MS–LTC–DRGs for which there were no LTCH cases in the database (including


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the 8 ‘‘ transplant ’’ proposed MS–LTC–

DRGs and 2 ‘‘ error ’’ proposed MS–LTC– DRGs). As stated above, we are proposing to assign proposed relative weights for each of the 213 no-volume proposed MS–LTC–DRGs (with the exception of the 8 ‘‘ transplant ’’ proposed

MS–LTC–DRGs and the 2 ‘‘ error ’’ proposed MS–LTC–DRGs, which are discussed below) based on clinical similarity and relative costliness to one of the remaining 524 (747—223 = 524) proposed MS–LTC–DRGs for which we were able to determine proposed relative weights based on FY 2009 LTCH claims data using the steps described above. (For the remainder of this discussion, we refer to the proposed

‘‘ crosswalked ’’ MS–LTC–DRGs as the proposed MS–LTC–DRGs to which we are proposing to crosswalk one of the

213 ‘‘ no volume ’’ proposed MS–LTC– DRGs for purposes of determining a proposed relative weight.) Then, we are proposing to assign the no-volume proposed MS–LTC–DRG the proposed relative weight of the proposed crosswalked MS–LTC–DRG. (As explained below in Step 6, when necessary, we made adjustments to account for nonmonotonicity.)

In this proposed rule, we are proposing to use the following methodology for determining the proposed FY 2011 relative weights for the no-volume proposed MS–LTC–

DRGs: We crosswalk the no-volume proposed MS–LTC–DRG to a proposed

MS–LTC–DRG for which there were LTCH cases in the FY 2009 MedPAR file and to which it is similar clinically in intensity of use of resources and relative costliness as determined by criteria such as care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, postoperative care, and length of stay. We evaluate the relative costliness in determining the applicable proposed MS–LTC–DRG to which a no-volume proposed MS–LTC– DRG was crosswalked in order to assign an appropriate proposed relative 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 proposed MS–LTC–DRGs in FY 2011, the proposed relative weights assigned based on the crosswalked proposed MS–

LTC–DRGs would result in an appropriate LTCH PPS payment because the proposed crosswalks, which are based on similar clinical similarity and relative costliness, generally require equivalent relative resource use.

We then assign the proposed relative weight of the crosswalked proposed MS–LTC–DRG as the proposed relative weight for the no-volume proposed MS–

LTC–DRG such that both of these MS– LTC–DRGs (that is, the no-volume proposed MS–LTC–DRG and the crosswalked proposed MS–LTC–DRG) would have the same proposed relative weight for FY 2011. We note that if the crosswalked proposed MS–LTC–DRG had 25 cases or more, its proposed relative weight, which is calculated using the methodology described in Steps 1 through 4 above, is assigned to the no-volume proposed MS–LTC–DRG as well. Similarly, if the MS–LTC–DRG to which the no-volume proposed MS–

LTC–DRG is crosswalked has 24 or less cases and, therefore, is designated to one of the low-volume quintiles for purposes of determining the proposed relative weights, we assign the proposedrelative weight of the applicable lowvolume quintile to the no-volume proposed MS–LTC–DRG such that both of these proposed MS–LTC–DRGs (that is, the no-volume proposed MS–LTC– DRG and the crosswalked proposed MS–LTC–DRG) have the same proposed relative weight for FY 2011. (As we noted above, in the infrequent casewhere nonmonotonicity involving a novolume proposed MS–LTC–DRG results,

additional measures as described in Step 6 are required in order to maintain monotonically increasing proposed relative weights.)

For this proposed rule, a list of the novolume MS–LTC–DRGs and the proposed MS–LTC–DRG to which it is crosswalked (that is, the crosswalked MS–LTC–DRG) for FY 2011 is shown in

the chart below.

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To illustrate this methodology for determining the proposed relative weights for the proposed FY 2011 MS– LTC–DRGs with no LTCH cases, we are providing the following example, which refers to the no-volume proposed 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 proposed rule for MS–LTC–DRG 61 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC). We determined that proposed 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 proposed relative weight of MS–LTC–DRG 70

of 0.9204 for FY 2011 to MS–LTC–DRG 61 (Table 11 of the Addendum to this proposed
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Furthermore, for FY 2011, consistent with our historical relative weight methodology, we are proposing to establish MS–LTC–DRG relative weights of 0.0000 for the following transplant proposed MS–LTC–DRGs: Heart Transplant or Implant of Heart Assist System with MCC (proposed MS–LTC– DRG 1); Heart Transplant or Implant of Heart Assist System without MCC (proposed MS–LTC–DRG 2); Liver Transplant with MCC or Intestinal Transplant (proposed MS–LTC–DRG 5); Liver Transplant without MCC (proposed MS–LTC–DRG 6); Lung Transplant (proposed MS–LTC–DRG 7); Simultaneous Pancreas/Kidney Transplant (proposed MS–LTC–DRG 8); Pancreas Transplant (proposed MS– LTC–DRG 10); and Kidney Transplant (proposed MS–LTC–DRG 652). This is because Medicare will only cover these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified. At the present time, we only 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).) Again, we note that, as this system is dynamic, it is entirely possible that the number of

MS–LTC–DRGs with no volume of LTCH cases based on the system will vary in the future. We used the most

recent available claims data in the MedPAR file to identify no-volume MS–

LTC–DRGs and to determine the proposed relative weights in this proposed rule.

Step 6 —Adjust the proposed 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

with CC/MCC and the without CC/MCC.Alternatively, the other type of twolevel subdivision may consist of the

MCC and 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 proposed FY 2011 MS–LTC–DRG relative weights in this proposed rule,

consistent with our historical methodology, we are proposing to combine MS–LTC–DRG severity levels

within a base 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 proposed FY 2011 MS–LTC–DRG relative weights in this proposed rule by applying this methodology are denoted

in Table 11 of the Addendum to this proposed rule.

Step 7 — Calculate the proposed 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 to update 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, we are proposing to update the proposed 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 proposed FY 2011 MS– LTC–DRG relative weights.

To ensure budget neutrality in the proposed update to the MS–LTC–DRG classifications and relative weights under § 412.517(b), we are proposing to continue to use our established two-step budget neutrality methodology. Specifically, in the first step of our MS– LTC–DRG budget neutrality methodology, we calculate and apply a normalization factor to the proposed 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 proposed MS–LTC–DRG relative weights (that is, the process itself)

neither increases nor decreases the average CMI.

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the following three steps: (1.a.) We use

the most recent available LTCH claims data (FY 2009) and group them using the proposed FY 2011 GROUPER (Version 28.0) and the proposed

recalibrated FY 2011 MS–LTC–DRG relative weights (determined in steps 1 through 6 of the Steps for Determining the Proposed FY 2011 MS–LTC–DRG Relative Weights above) to calculate the average CMI; (1.b.) we group the same LTCH claims data (FY 2009) using the FY 2010 GROUPER (Version 27.0) and FY 2010 MS–LTC–DRG relative weights and calculate the average CMI; and (1.c.) we compute 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 proposed MS–LTC–DRG relative weights for FY 2011, each recalibrated MS–LTC–DRG relative weight is multiplied by 1.10362 in the first step of the budget neutrality methodology, which produces

‘‘ normalized relative weights. ’’

In the second step of our MS–LTC– DRG budget neutrality methodology, we determine a budget neutrality factor to ensure that estimated aggregate LTCH PPS payments (based on the most recent available LTCH claims data) after reclassification and recalibration (that is, the proposed FY 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 are proposing to use 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 proposed FY 2011 MS–LTC–DRGs and relative weights. As noted above, the

most recent available LTCH claims data for this proposed rule are from the December 2009 update of the FY 2009

MedPAR file. Consistent with our historical policy of using the best available data, we are proposing to use the most recently available claims data for determining the budget neutrality adjustment factor in the final rule.

For this proposed rule, we determined the proposed FY 2011 budget neutrality adjustment factor rule using the following three steps: (2.a.) we simulate estimated total LTCH PPS payments using the normalized proposed relative weights for FY 2011 and GROUPER Version 28.0 (as described above); (2.b.)

we simulate 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 calculate

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 proposed FY 2011 GROUPER (Version 28.0) and the normalized proposed MS–LTC–DRG relative weights for FY 2011 (determined in Step 2.a.). In determining the proposed FY 2011 MS–LTC–DRG relative weights, each normalized proposed relative weight is multiplied by a budget neutrality factor of 0.987575 in the second step of the budget neutrality methodology to determine the proposed budget neutral FY 2011 relative weight

for each MS–LTC–DRG.

Accordingly, in determining the proposed FY 2011 MS–LTC–DRG relative weights in this proposed rule, consistent with our existing methodology, we are proposing to apply

a normalization factor of 1.10362 and a budget neutrality factor of 0.987575 (computed as described above).

Table 11 in the Addendum to this proposed rule lists the proposed MS– LTC–DRGs and their respective proposed relative weights, geometric mean length of stay, and five-sixths of the geometric mean length of stay (used in determining SSO payments under § 412.529) for FY 2011. The proposed FY 2011 MS–LTC–DRG relative weights

in Table 11 in the Addendum to this proposed rule reflect both the proposed

normalization factor of 1.10362 and the proposed budget neutrality factor of

0.987575.

C. Proposed 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 would be used to update the LTCH PPS

standard Federal rate for the FY 2011

that would be 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), and 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 proposed update to the LTCH PPS

standard Federal rate for FY 2011 is presented in section V.A. of the Addendum to this proposed rule. The two components of the proposed 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).


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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. Market Basket Under the LTCH PPS

for FY 2011

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 structurebetween 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, 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 addition, 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 reflect the cost structure of LTCHs. For the reasons explained above, in this proposed rule, we are proposing to continue to use the FY

2002-based RPL market basket under the LTCH PPS for FY 2011. We are hopeful that progress can be made in the nearfuture with respect to creating standalone 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.

c. Proposed 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. 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 is 2.4 percent. Consistent with our historical practice of using market basket

estimates based on the most recent available data, we are proposing that if

more recent data are available when we develop the final rule, we would use such data, if appropriate. (We note that

in section V. of the Addendum to this proposed rule, for FY 2011, we are proposing to update the LTCH PPS standard Federal rate by

¥ 0.1 percent. This proposed update reflects an adjustment based on the most recent market basket estimate (currently 2.4 percent, as discussed above) and a proposed adjustment to account for the increase in case-mix in the prior periods (FYs 2008 through 2009) that resulted from changes in documentation and coding practices rather than increases in patients’ severity of illness.)

d. Proposed Labor-Related Share Under

the LTCH PPS for FY 2011

As discussed in section V.B. of the Addendum to this proposed rule, under the authority of section 123 of the BBRA as amended by section 307(b) of the BIPA, we established an adjustment to the LTCH PPS payments to account for differences in LTCH area wage levels 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. 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 are proposing 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, for FY 2011, we are proposing to continue to define the

LTCH PPS labor-related share as the national average proportion of operating costs (wages and salaries, employee benefits, professional fees, and all otherlabor-intensive services) and a laborrelated portion of capital costs based on

the FY 2002-based RPL market basket. Consistent with our historical practice of using the best available data, we are proposing 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 are the most recent

available data.

The proposed labor-related share for

FY 2011 would be the sum of the proposed 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. The sum of the proposed relative importance for FY 2011 for operating costs (wages and salaries, employee benefits, professional fees, and all-other labor-intensive services) would be 71.537 percent, as shown in the chart below. 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 would be 8.414 percent of the FY 2002-based RPL market basket, we are proposing to take 46 percent of 8.414 percent to determine the proposed labor-related share of capital for FY

2011. The result would be 3.870 percent, which we are proposing to add to 71.537 percent for the operating cost amount to determine the total proposed


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labor-related share for FY 2011. Thus,

the labor-related share that we are proposing to use for LTCH PPS in FY 2011 would be 75.407 percent.

The chart below shows the proposedFY 2011 relative importance laborrelated share using the FY 2002-based

RPL market basket.



### P ROPOSED 

### FY 2011 L ABOR 

### -R ELATED 

### S HARE 

### B ASED ON THE 

### FY 2002–B ASED 

### RPL M ARKET 

### B ASKET

Cost category FY 2011 relative importance (percent)

Wages and Salaries ............................................................................................................. ............................................... 52.590 Employee Benefits .............................................................................................................. ................................................. 13.987

Professional Fees .............................................................................................................. .................................................. 2.848
All Other Labor-Intensive Services ............................................................................................. ......................................... 2.112

Subtotal ....................................................................................................................... .................................................. 71.537

Labor-Related Share of Capital Costs (46 percent × 8.414) .............................................................................................. 3.870

Total Labor-Related Share ...................................................................................................... ..................................... 75.407

Accordingly, under the authority set

forth in section 123 of the BBRA as amended by section 307(b) of the BIPA,we are proposing to establish a laborrelated share of 75.407 percent under

the LTCH PPS for the FY 2011. Furthermore, consistent with our historical practice of using the best data available, we also are proposing 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.

3. Proposed 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

2010IPPS/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 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 RY 2010 LTCH PPS proposed rule, we proposed to apply a cumulative adjustment for changes in 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/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 documentation and coding increase that occurred in FY 2007. However, 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 increases 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 this proposed rule, we have 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 changes in 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).)

We performed this analysis by first dividing the CMI obtained by grouping the FY 2009 LTCH claims through the FY 2009 GROUPER (Version 26.0) by the CMI obtained by grouping these same FY 2009 LTCH claims through the FY 2007 GROUPER (Version 24.0). This

resulted in a value of 1.0248. Because


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this CMI analysis is based on the same FY 2009 cases grouped using the

Versions 24.0 and 26.0 of the GROUPER, we attribute this increase in average CMI 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. Next, we

estimated the measurement effect from the calibration of the GROUPER by dividing the CMI obtained by grouping the FY 2007 LTCH claims through the FY 2009 GROUPER (Version 26.0) by the CMI obtained by grouping these same LTCH claims through the FY 2007 GROUPER (Version 24.0). This resulted

in a value of 0.9999. In order to isolate the documentation and coding effect,

we then divided the combined effect of the changes in documentation and coding measurement (1.0248) by the measurement effect (0.9999) to yield 1.025. Therefore, based on the results of this analysis, we estimate that the

cumulative effect of documentation and coding changes that occurred in FYs 2008 and 2009 was 2.5 percent. We note that, in applying the methodology we established for determining the effects of documentation and coding in the FY 2010 IPPS/RY 2010 LTCH PPS proposed and final rules, we applied such 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 (discussed in section II.D.5. of this preamble), 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 seek public comment on our proposal to

determine the cumulative effects of documentation and coding in FYs 2008 and 2009. (We note that the FY 2007 and FY 2009 (as well as FY 2008) MedPAR files are available to the public to allow independent analysis of the documentation and coding effect in FYs 2008 and 2009.)

c. Proposed FY 2011 Documentation and Coding Adjustment

Based on analysis of the most recent

available LTCH claims data as described above, we are proposing to apply a cumulative adjustment for changes in documentation and coding in a prior period (FYs 2008 and 2009) that do not reflect an increase in patients’ severity

of illness of

¥ 2.5 percent. Accordingly,

as discussed in section V.A.2. of the Addendum to this proposed rule, we are proposing to update the proposed FY

2011 LTCH PPS standard Federal rate by

¥ 0.1 percent, which is based on the

most recent estimate of the market basket increase (2.4 percent) and a proposed adjustment to account for changes in documentation and coding practices (

¥ 2.5 percent). We also are proposing that if more recent data are available for the final rule, we would use those data to establish a final update

to the FY 2011 LTCH PPS standard Federal rate, if applicable.

D. Proposed Change in Terminology

From ‘‘ Rate Year ’’ to ‘‘ Fiscal Year ’’ and Other Proposed Changes

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 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 Federal Register document. As a result, the updates to

the LTCH standard Federal rates and the MS–LTC–DRG relative weights are now effective on October 1 (on a Federal fiscal year schedule), and the annual updates to the LTCH standard Federal rates are no longer published with a July 1 effective date. 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 this proposed rule, we are proposing to change the terminology used under the LTCH PPS to designate the annual payment update and MS– DRG relative weight recalibration cycle

from ‘‘ 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. We believe that this proposed change is appropriate because both the yearly update cycle of the LTCH standard Federal rates (and associated factors) and the annual reclassification

and recalibration of the MS–LTC–DRG relative weights (which were always updated on October 1, consistent with the IPPS) are now concurrent with the IPPS update and implementation schedule of October 1 through September 30. Because the annual updates to both the LTCH standard Federal rates (and associated factors) and the MS–LTC–DRG relative weights

now occur at the same time as the annual updates under the IPPS, we believe we would eliminate any possible confusion that may be caused by continuing to identify the LTCH PPS update cycle as a ‘‘ rate year. ’’ We believe that changing the ‘‘ fiscal year ’’ terminology would provide important clarity for the LTCH provider community, particularly because both the proposed and final rules for the IPPS and the LTCH PPS are generally published in the same Federal Register document. Consequently, we are proposing to use the term ‘‘ fiscal year ’’ when referring to the annual updates for the LTCH standard Federal payment

rates and MS–LTC–DRG relative weights as well as to the publication cycle for rulemaking for the LTCH PPS,

consistent with the IPPS. We are proposing to revise our definition of

‘‘ rate year ’’ in the regulations at § 412.503 to reflect this proposed terminology change.

This proposed terminology revision

from ‘‘ rate year ’’ to ‘‘ fiscal year ’’ would clarify the fact that since October 1, 2003, when we implemented the LTCH PPS, at different times, we have used

the terms ‘‘ rate year ’’ and ‘‘ fiscal year ’’ when referring to the payment year under the LTCH PPS. In existing regulations at § 412.503, we specify the time periods during which each term was used. We also are proposing 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. This proposed 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 believe that creating this term would minimize confusion by keeping the regulation text as simple as possible because this term would apply to the

‘‘ long-term care hospital prospective
payment system rate year ’’ or to the

‘‘ long-term care hospital prospective payment system fiscal year. ’’ In this respect, existing regulation text (for example, § 412.525(a)) would not need to be revised to address the specific time periods during which the terms ‘‘ longVerDate Mar<15>2010 19:28 May 03, 2010 Jkt 220001 PO 00000 Frm 00196 Fmt 4701 Sfmt 4702 E:\FR\FM\04MYP2.SGM 04MYP2sroberts on DSKD5P82C1PROD with PROPOSALS

### 24047 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

term care hospital prospective payment
system rate year ’’ and ‘‘ long-term care hospital prospective payment system fiscal year ’’ are used.

In addition, as a conforming change, we are proposing 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 proposed change, which would reference the proposed new definition of the long-term care hospital prospective payment system payment year period at § 412.503, clearly 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 proposed changes present a straightforward way to provide additional clarity to our regulations in a circumstance that reflects changes in terminology but do not entail any change to the high-cost outlier policy. Furthermore, consistent with this proposal, for purposes of clarity, in this proposed rule, when discussing the annual update for the LTCH PPS, we employ ‘‘ FY ’’ rather than RY ’’ because it

is our intent that ‘‘ FY ’’ be used prospectively in all circumstances dealing with the LTCH PPS.

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 nationalaccreditation 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 staff, 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


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CMS-approved national accreditation organization also must not conduct a 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 health and safety 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, 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 determines 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, that is, the date determined by the CMS contractor, pursuant to its review and verification activities, to be the date when the applicant is in compliance with all enrollment requirements and the CMS contractor is prepared to convey Medicare billing privileges to the provider or supplier, unless 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. If there are other unsatisfied requirements, 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 incomplete or incorrect, 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 that policy, a buyer of a Medicare-participating facility that chooses not to assume the provider agreement or supplier approval

of the seller must be treated as an initial applicant to the Medicare program, with a necessary break in Medicare payments

for services furnished to beneficiaries during the period between the effective date of the change of ownership, and the

effective date of the new owner’s provider agreement or supplier approval. Assumption of the seller’s provider agreement or supplier approval includes assumption of the assets and

liabilities associated with that agreement or approval, which has proven to be an important tool in protecting the Medicare Trust Funds through continuity in the ability to recover outstanding overpayments. Any requirement to make payments retroactive to the date of a State survey or accreditation decision, despite the fact that all other Federal requirements 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


### 24049 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

not assume the seller’s active provider agreement could begin receiving Medicare payments (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. Proposed Revisions to Regulations

We are proposing to amend § 489.13

and make a technical amendment to § 489.1 in order to clarify our policy. Specifically, we are proposing 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 note 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 are proposing 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 are proposing 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 are proposing 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 are proposing to revise § 489.13(b) to include language concerning accredited facilities, to

assure that accredited and

nonaccredited facilities are treated in

the same manner.

We wish to further explain 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 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 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 are proposing 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 are proposing to revise this paragraph to include language concerning accredited facilities, to assure that accredited and

nonaccredited facilities are treated in

the same manner.

We are proposing to remove § 489.13(d), concerning the

determination of the effective date for

accredited facilities. We see 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 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 confusion among accredited providers and suppliers who incorrectly believe they are entitled to a retroactive

effective date.

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


### 24050 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 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, we believe it is 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 are proposing to make

several technical amendments to § 489.1. Specifically, we are proposing

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 nationalaccreditation organization under a CMSapproved accreditation program as having met the Medicare health and safety standards. We also are proposing 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. IX. Proposed Changes to Medicare Conditions of Participation Affecting Hospital 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 qualified, licensed practitioners (including 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. We

also found that most States limit the types of practitioners allowed to order rehabilitation services, respiratory care services, and other hospital services to physicians and other qualified, licensed practitioners such as NPs and PAs.

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 may be too open for interpretation and is not

consistent with various State laws that limit the ordering of hospital services (including diagnostic tests, drugs and biologicals, and inpatient treatment modalities) to qualified, licensed practitioners who are responsible for the care of the patient and who are, most importantly, working within a State’s delineated scope of practice for these types of practitioners. As this requirement is currently written, it would be conceivable for a hospital’s medical staff to grant ordering privileges for rehabilitation services to personnel who are responsible for providing such services, that is, physical therapists, occupational therapists, audiologists, and speech-language pathologists. Such a situation would not only constitute a conflict of interest (for example, a physical therapists ordering physical therapy services for a patient for which medical necessity has not been established), but it would also potentially compromise coordination of care and patient safety if the practitioners who are responsible for the care of patients (that is, doctors of medicine, doctors of osteopathy, NPs, and PAs) are unaware of which services have been ordered for their patients.

Conversely, the current requirement for respiratory care services at § 482.57(b)(3) explicitly states that these

services ‘‘ must be provided only on, and in accordance with, the orders of a doctor of medicine or osteopathy. ’’ Similar to our finding that the requirement for the ordering of

rehabilitation services is too broad in its parameters for determining which practitioners should be allowed to order those services, we find the parameters for the ordering of respiratory care

services to be 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 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 CoP with each other, we are proposing several revisions to the existing regulations. We are proposing to revise § 482.56 to clarify the types of practitioners who are

allowed to order rehabilitation services. Further, we are proposing 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 are proposing that these practitioners would

need to be authorized to order rehabilitation services by the hospital’s medical staff, in accordance with both


### 24051 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

hospital policies and procedures and

State laws.

In addition, we are proposing 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 Statelaws. Many States, under their scope-ofpractice laws and other regulations, allow qualified, licensed practitioners (including NPs and PAs) to order respiratory care services. We are proposing 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 are proposing that all orders for

these services be documented in accordance with the requirements at § 482.24, Medical records.

X. Proposed 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 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 of 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. Proposed Revision of Policy and Regulations

In response to the concerns described above, we are proposing to remove the requirement that psychiatric hospitals and hospitals with inpatient psychiatric programs providing inpatient psychiatric services to individuals under age 21 must 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 meeting 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. Hospitals with inpatient psychiatric programs would have the choice of meeting 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 are proposing 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 remove specific reference to national accrediting bodies to provide appropriate administrative flexibility to account for any changes in qualifying accrediting organizations. Accrediting bodies approved by CMS must have accrediting requirements for an entity comparable to the CMS requirements for the same entity, and must have survey procedures comparable to those of State survey agencies.

The regulations at 42 CFR 488.4 describe the procedures to be followed by accrediting organizations applying or reapplying for approval of deeming authority for Medicare requirements. The regulations at 42 CFR 488.5(b) and 488.6(b) allow providers and suppliers deemed eligible for Medicare by these accrediting organizations to be also deemed eligible for Medicaid participation in the absence of Medicaid regulations requiring adherence to a different standard. In addition, the regulations at 42 CFR 488.8 detail the procedures that CMS will follow in reviewing and approving national accreditation organizations. Nothing in this proposed rule would alter the implementation of these regulatory provisions.

We believe this flexibility in obtaining

accreditation would 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. While services may be provided in different settings, the requirements of 42 CFR 441.150 through 441.182 must be adhered to by any provider of services. We are inviting public comments on our suggestions for improving current protections for children.

To incorporate the proposed changes described above in our regulations, we are proposing 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. Psychiatric hospitals would have the choice of meeting 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. Hospitals with inpatient psychiatric programs would have the choice of meeting 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


### 24052 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

by CMS. We are proposing to revise § 440.160(b)(2) and § 441.151(a)(2)(ii) by removing an 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.

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 careful consideration in conjunction with the policies set forth in this proposed 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 proposed 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 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 proposed rule, our current estimate is that an aggregate adjustment of 9.7 percent would be necessary to satisfy these requirements.

We discuss 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 proposed rule for IPPS operating payments, in section V.E. of the preamble of this proposed rule for IPPS capital payments, and in section VII.C.3. of the preamble of this proposed 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

. Data files and the cost for each file, if applicable, are listed below. Anyone wishing to purchase data tapes, cartridges, or diskettes should submit a written request along with a company check or money order (payable to CMS– PUF) to cover the cost of the following

address: Centers for Medicare & Medicaid Services, Public Use Files, Accounting Division, P.O. Box 7520, Baltimore, MD 21207–0520, (410) 786– 3691. Files on the Internet may be downloaded without charge.

1. CMS Wage Data Public Use File

This file contains the hospital hours and salaries from Worksheet S–3, Parts

II and III from FY 2007 Medicare cost reports used to create the proposed FY 2011 prospective payment system wage index. Multiple versions of this file are created each year. For a complete

schedule on the release of different versions of this file, we refer readers to the wage index schedule in section III.K. of the preamble of this proposed rule.

Processing

year Wage data

year PPS Fiscal

year

2010 2007 2011

2009 2006 2010

2008 2005 2009

2007 2004 2008

Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ WIFN/list.asp#TopOfPage

.

Periods Available: FY 2007 through FY 2011 IPPS Update.

2. CMS Occupational Mix Data Public

Use File

This file contains the 2007–2008 occupational mix survey data to be used to compute the occupational mix adjustment wage indexes. Multiple

versions of this file are created each


### 24053 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

year. For a complete schedule on the release of different versions of this file, we refer readers to the wage index

schedule in section III.K. of the preamble of this proposed rule.

Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ WIFN/list.asp#TopOfPage

.

Period Available: FY 2011 IPPS Update.

3. Provider Occupational Mix Adjustment Factors for Each Occupational Category Public Use File

This file contains each hospital’s occupational mix adjustment factors by occupational category. Two versions of these files are created each year. They support the following:

• Notice of proposed rulemaking published in the Federal Register.

• Final rule published in the Federal Register.

Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ WIFN/list.asp#TopOfPage

.

Period Available: FY 2011 IPPS Update.

4. Other Wage Index Files

CMS releases other wage index analysis files after each proposed and

final rule.

Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ WIFN/list.asp#TopOfPage

.

Periods Available: FY 2007 through FY 2011 IPPS Update.

5. FY 2011 IPPS SSA/FIPS CBSA State and County Crosswalk

This file contains a crosswalk of State and county codes used by the Social Security Administration (SSA) and the Federal Information Processing Standards (FIPS), county name, and a historical list of Metropolitan Statistical Areas (MSAs).

Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ FFD/list.asp#TopOfPage

.

Period Available: FY 2011 IPPS Update.

6. HCRIS Cost Report Data

The data included in this file contain cost reports with fiscal years ending on or after September 30, 1996. These data files contain the highest level of cost
report status.

Media: Internet at: http:// www.cms.hhs.gov/CostReports/

02

_ HospitalCostReport.asp and Compact Disc (CD).

File Cost: $100.00 per year.

7. Provider-Specific File

This file is a component of the PRICER program used in the fiscal intermediary’s or the MAC’s system to compute DRG/MS–DRG payments for

individual bills. The file contains records for all prospective payment system eligible hospitals, including hospitals in waiver States, and data elements used in the prospective payment system recalibration processes and related activities. Beginning with December 1988, the individual records were enlarged to include pass-through per diems and other elements.

Media: Internet at: http:// www.cms.hhs.gov/ ProspMedicareFeeSvcPmtGen/

03

_ psf

_ text.asp

. Period Available: FY 2011 IPPS Update.

8. CMS Medicare Case-Mix Index File

This file contains the Medicare casemix index by provider number as published in each year’s update of the Medicare hospital inpatient prospective payment system. The case-mix index is

a measure of the costliness of cases treated by a hospital relative to the cost of the national average of all Medicare hospital cases, using DRG/MS–DRG weights as a measure of relative

costliness of cases. Two versions of this file are created each year. They support the following:

• Notice of proposed rulemaking published in the Federal Register.

• Final rule published in the Federal Register.

Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ FFD/list.asp#TopOfPage

.

Periods Available: FY 1985 through

FY 2011.

9. MS–DRG Relative Weights (Also Table 5—MS–DRGs)

This file contains a listing of MS– DRGs, MS–DRG narrative descriptions, relative weights, and geometric and arithmetic mean lengths of stay as published in the Federal Register. There are two versions of this file as published

in the Federal Register.

• Notice of proposed rulemaking.

• Final rule.
Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ FFD/list.asp#TopOfPage

.

Periods Available: FY 2006 through 2011 IPPS Update.

10. IPPS Payment Impact File

This file contains data used to estimate payments under Medicare’s hospital inpatient prospective payment systems for operating and capital-related

costs. The data are taken from various sources, including the Provider-Specific File, Minimum Data Sets, and prior impact files. The data set is abstracted from an internal file used for the impact analysis of the changes to the prospective payment systems published

in the Federal Register.

Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ FFD/list.asp#TopOfPage and http:// www.cms.hhs.gov/AcuteInpatientPPS/ HIF/list.asp#TopOfPage

.

Periods Available: FY 1994 through FY 2011 IPPS Update.

11. AOR/BOR Tables

This file contains data used to develop the MS–DRG relative weights. It
contains mean, maximum, minimum, standard deviation, and coefficient of variation statistics by MS–DRG for length of stay and standardized charges.

The BOR tables are ‘‘ Before Outliers

Removed ’’ and the AOR is ‘‘ After

Outliers Removed. ’’ (Outliers refer to statistical outliers, not payment outliers.)

Two versions of this file are created each year. They support the following:

• Notice of proposed rulemaking published in the Federal Register.

• Final rule published in the Federal Register.

Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ FFD/list.asp#TopOfPage

.

Periods Available: FY 2006 through FY 2011 IPPS Update.

12. Prospective Payment System (PPS) Standardizing File

This file contains information that standardizes the charges used to calculate relative weights to determine payments under the hospital inpatient operating and capital prospective payment systems. Variables include wage index, cost-of-living adjustment (COLA), case-mix index, indirect medical education (IME) adjustment,disproportionate share, and the Corebased Statistical Area (CBSA). The file supports the following:

• Notice of proposed rulemaking published in the Federal Register.

• Final rule published in the Federal Register.

Media: Internet at: http:// www.cms.hhs.gov/AcuteInpatientPPS/ FFD/list.asp#TopOfPage

.

Period Available: FY 2011 IPPS Update.

For further information concerning these data tapes, contact the CMS Public Use Files Hotline at (410) 786–3691.

Commenters interested in discussing any data used in constructing this proposed rule should contact Nisha Bhat at (410) 786–5320.


### 24054 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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.

We are soliciting public comment on each of these issues for the following

sections of this document that contain information collection requirements (ICRs).

2. Requirements in Regulation Text

a. ICRs Regarding Withdrawing an Application, Terminating an Approved 3-Year Reclassification, or Canceling a

Previous Withdrawal or Termination (Proposed Revised § 412.273)

Proposed 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. Proposed revised § 412.273(c) further specifies the timing requirements for the

withdrawal or termination requirements. Proposed § 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 associated with this requirement. Wecurrently 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).

Proposed 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. Wecurrently 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).

Proposed 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. Proposed revised § 412.273(d)(2) would require 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 case-by-case basis. We believe the associated burden is thereby exempt from the PRA as stipulated under 5 CFR 1320.3(h)(6).

Proposed § 412.273(d)(3) states that a hospital would 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.

Proposed § 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 to the PRA, the associated burden is exempt under

5 CFR 1320.4. The burden associated with collection of 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)

Proposed § 482.57(b)(4) imposes a recordkeeping requirement. This section would require all respiratory care

services orders to be documented in the patient’s medical record according to 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 proposed rule imposes collection of information requirements as outlined in the regulation text and specified above. However, this proposed 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 proposed rule discusses the POA


### 24055 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 proposed rule discusses add-on payments for new services and technologies. Specifically, this section states that applicants for add-on payments for new medical services or technologies for FY 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 V.A. of this proposed rule, the RHQDAPU program was originally established to implement section 501(b) of Public Law 108–173. 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 this FY 2011 IPPS/LTCH PPS proposed rule, we are proposing to

retire one measure for the FY 2011 payment determination. For the FY 2012 through FY 2014 payment determinations, we are proposing 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 have listed 28 new

measures that are under consideration for adoption in future years. We are proposing that beginning with CY 2011 discharges, hospitals submit some of the new measure data to a qualified registry. We are also soliciting 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 are proposing to
retire one measure for the FY 2011 annual payment update and seeking

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 are proposing 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 list 28 additional measures under consideration for adoption in future years which may increase these numbers if we propose and adopt them in future IPPS rulemaking. Finally, we are proposing 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. This proposal would require hospitals to report these data 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 V.A.10. of this proposed rule

addresses 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.

d. Proposed Occupational Mix Adjustment to the FY 2011 Index (Hospital Wage Index Occupational Mix Survey)

Section II.D. of the preamble of this proposed rule discusses the proposed occupational mix adjustment to the FY


### 24056 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 proposed 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 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 proposed rule, we are proposing to allow 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 proposed electronic submissionprocess would consist of either an email mailbox or a Web site where hospitals would submit their Medicare GME affiliation agreements to the CMS Central Office to a designated online mailbox. We are proposing that 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 are proposing that the electronic affiliation agreement

would need to be submitted either as a scanned copy or a Printer-Friendly Display (PDF) version of that hard copy agreement; we are proposing not to 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 proposal, hospitals would 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 would 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 it 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 x 125 agreements).

If you comment on these information collection and recordkeeping requirements, please do either of the following:

1. Submit your comments electronically as specified in the

**ADDRESSES** section of this proposed rule;

or 2. Submit your comments to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: CMS Desk Officer, CMS–1498–P; Fax: (202) 395–6974; or

E-mail: OIRA

_ submission@omb.eop.gov

. C. Response to 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 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 to that document.


### 24057 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 440

Grant program-health, Medicaid.

42 CFR Part 441

Family planning, Grant programhealth, Infants and children, Medicaid, Penalties, Prescription drugs, Reporting and recordkeeping requirements.

42 CFR Part 482

Grant program-health, Hospitals, Medicaid, Medicare, Reporting and rcordkeeping 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 proposed rule, the Centers for

Medicare & Medicaid Services is proposing to amend 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 Public Law 106–113 (113 Stat. 1501A–332).

2. Section 412.4 is amended by— a. Republishing the introductory language 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.

* * * * *

**§ 412.106 [Amended]**

3. 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]**

4. Amend § 412.108 (a)(1)(iii) introductory text by removing the word

‘‘ receiving ’’ and adding in its place the

words ‘‘ entitled to ’’

.

5. 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.

* * * * *

6. 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


### 24058 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 may 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.

7. 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.

* * * * *

8. Section 412.523 is amended by adding a new paragraph (c)(3)(vii) to

read as follows:

**§ 412.523 Methodology for calculating the Federal prospective payment rate.** 

* * * * *

(c) * * *

(3) * * *

(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

¥ 0.1 percent. The standard Federal rate is adjusted, as appropriate, as described in paragraph (d) of this section.

* * * * *

9. 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) Adjustments for high-cost outliers. (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 paymentplus 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.

* * * * * **PART 413—PRINCIPLES OF**

**REASONABLE COST REIMBURSEMENT; PAYMENT FOR** 

**END-STAGE RENAL DISEASE SERVICES; OPTIONAL** 

**PROSPECTIVELY DETERMINED**

**PAYMENT RATES FOR SKILLED**

**NURSING FACILITIES**

10. 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 Public Law 106–133 (113 Stat. 1501A–332).

11. 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).
The revisions 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. If a CAH had not, in its most recent cost reporting period, elected the method described in paragraphs (b)(3)(ii) and (b)(3)(iii) of this section and chooses to elect this method 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


### 24059 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

the CAH at least 30 days before the start of the next cost reporting period. For cost reporting periods beginning in October 2010 and November 2010, if a CAH wishes to terminate its election,

the CAH must submit a termination request to the fiscal intermediary or MAC servicing the CAH prior to December 1, 2010.

(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.

* * * * *

12. Section 413.75 is amended by revising the definitions of ‘‘ Primary care
resident ’’ and ‘‘ Resident ’’ under paragraph (b) 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, residen t 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.

* * * * *

**PART 440—SERVICES: GENERAL**

**PROVISIONS**

13. The authority citation for Part 440

continues to read as follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302).

18. Section 440.160 is amended by revising paragraphs (b)(1) and (b)(2) to

read as follows:

**§ 440.160 Inpatient psychiatric services for individuals under age 21.** 

* * * * *

(b) * * * (1) A psychiatric hospital that 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 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.

(2) A psychiatric facility that is not a hospital and is accredited 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.

* * * * *

**PART 441—SERVICES:**
**REQUIREMENTS AND LIMITS**

**APPLICABLE TO SPECIFIC SERVICES**

14. The authority citation for Part 441

continues to read as follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302).

15. Section 441.151 is amended by revising paragraphs (a)(2)(i) and (a)(2)(ii)

to read as follows:

**§ 441.151 General requirements.**

(a) * * * (2) * * * (i) A psychiatric hospital that 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 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.

(ii) A psychiatric facility that is not a hospital and is accredited 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.

* * * * *

**PART 482—CONDITIONS OF**

**PARTICIPATION FOR HOSPITALS**

16. 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)).

17. 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 according to 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.

18. Section 482.57 is amended by revising paragraph (b)(3) and 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


### 24060 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 according to the requirements at § 482.24.

**PART 485—CONDITIONS OF**

**PARTICIPATION: SPECIALIZED**

**PROVIDERS**

19. 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)).

20. 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**

21. 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).

22. 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.

23. 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 staff surveyors; or

(ii) Accreditation by an accreditation organization whose program has CMS approval 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.

(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 staff, or the CMS contractor survey (including the Life Safety Code survey, if applicable) is completed, or on the 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. The effective date of the agreement or approval may not be

earlier than the latest of the dates on which 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,


### 24061 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 isapproved); 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).

(C) 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: April 6, 2010.

Charlene Frizzera,
Acting Administrator, Centers for Medicare

& Medicaid Services.

Dated: April 16, 2010.

Kathleen Sebelius,

Secretary.

Editorial Note: The following Addendum and appendixes will not appear in the Code of Federal Regulations.]

Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2010

I. Summary and Background

In this Addendum, we are setting forth a description of the methods and data we used to determine the proposed prospective payment rates for Medicare hospital inpatient operating costs andMedicare hospital inpatient capitalrelated costs for FY 2011 for acute care hospitals. We note that on March 23, 2010, the Patient Protection and Affordable Care Act (PPACA), Pub. L. 111–148 was enacted. Following the enactment of Public Law 111–148, the Health Care and Education Reconciliation Act of 2010, Public L. 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, affect

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 are unable to address those provisions in this proposed rule. Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new legislation. We plan to issue separate documents in the Federal Register addressing the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for FY 2011

under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions implementing the provisions of Public Law 111–148, as amended, that affect the policies and payment rates for FY 2010 under the

IPPS and for RY 2010 under the LTCH

PPS.

We also are setting forth the proposed rate-of-increase percentages for updating the target amounts for certain hospitals

excluded from the IPPS for FY 2011. We note that, because certain hospitals excluded from the IPPS are paid on areasonable 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 proposed rule, we areproposing to establish 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 proposed

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 hospital-specific 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 and the updated hospital-specific rate based on FY 1982 or FY 1987 costs per discharge, whichever was higher. However, section 5003(a)(1) of Public Law 109–171 extended and modified the MDH special payment provision that was previously set to expire on October 1, 2006, to include discharges occurring on or after October 1, 2006, but before October 1, 2011. Under section 5003(b) of Public Law 109–171, if the change results in an increase to an MDH’s target amount, we must rebase an MDH’s hospital-specific rates based on its FY 2002 cost report. Section 5003(c) of Public Law 109–171 further required that MDHs be paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent of the difference between the Federal national rate and the updated hospital-specific rate. Further, based on the provisions of section 5003(d) of Public Law 109–171, MDHs are no longer subject to the 12-percent cap on their DSH payment adjustment factor.

For hospitals located in Puerto Rico, the payment per discharge is based on the sum of 25 percent of an updated Puerto Rico-specific rate based on average costs per case of Puerto Rico hospitals for the base year and 75 percent of the Federal national rate. (We

refer readers to section II.D.3. of this Addendum for a complete description.)

As discussed below in section II. of this Addendum, we are proposing to make changes in the determination of the prospective payment rates for Medicare inpatient operating costs for acute care hospitals for FY 2011. In section III. of this Addendum, we discuss our proposed policy changes for determining the prospective paymentrates for Medicare inpatient capitalrelated costs for FY 2011. In section IV. of this Addendum, we are setting forth our proposed changes for determining

the rate-of-increase limits for certain hospitals excluded from the IPPS for FY 2011. In section V. of this Addendum, we are proposing to make 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 proposed rule are presented in section VI. of this

Addendum.


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II. Proposed 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 proposed prospective payment rates for FY 2011.

In summary, the proposed

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, updated by the applicable percentage increase required under sections 1886(b)(3)(B)(i)(XX) and 1886(b)(3)(B)(viii) of the Act.

• The labor-related share that is applied to the standardized amounts and Puerto Rico-specific standardized amounts to give the hospital the highest payment, as provided for under sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of

the Act.

• Proposed updates of 2.4 percent for all areas (that is, the estimated full market basket percentage increase of 2.4 percent), as required by section 1886(b)(3)(B)(i)(XX) of the Act, as amended by section 5001(a)(1) of Public Law 109–171, 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.

• A proposed update of 2.4 percent to the Puerto Rico-specific standardizedamount (that is, the full estimated rateof-increase in the hospital market basket for IPPS hospitals), as provided for 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 labor-related 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 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 proposed 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 documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008

and FY 2009.

For FY 2011 (in the absence of the provisions of Public Law 111–148 as amended by Pub. L. 111–152), the requirement under section 410A of

Public Law 108–173 to conduct a rural community hospital demonstration program and under section 410A(c)(2) of Public Law 108–173 to adjust the

standardized amount to ensure the effects of the rural community hospital demonstration are budget neutral has expired. Therefore, for this proposed rule, there is no adjustment applied to

the standardized amount to ensure the effects of the rural community hospital demonstration are budget neutral.

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 proposing to continue 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 proposing to continue to apply the imputed floor budget neutrality adjustment to the wage indices. Consistent with the policy we

established in the FY 2009 IPPS final rule (in absence of the provisions of Pub. L. 111–148, as amended by Pub. L. 111–152), we also are proposing to continue to apply the budget neutrality adjustments for the rural floor and imputed rural floor at the State level

rather than the national level. For a complete discussion of the budget neutrality changes concerning the rural floor and the imputed floor, including the within-State budget neutrality adjustment, we refer readers to section III.B.2. of the preamble of the FY 2009 IPPS final rule and this proposed rule.

A. Calculation of the Adjusted

Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

In general, the national standardized amount is based on per discharge averages of adjusted hospital costs from a base period (section 1886(d)(2)(A) of the Act), updated and otherwise adjusted in accordance with the provisions of section 1886(d) of the Act. For Puerto Rico hospitals, the Puerto Rico-specific standardized amount is based on per discharge averages of adjusted target amounts from a base period (section 1886(d)(9)(B)(i) of the Act), updated and otherwise adjusted in accordance with the provisions of section 1886(d)(9) of the Act. The September 1, 1983 interim final rule (48 FR 39763) contained a detailed explanation of how base-year cost data (from cost reporting periods ending during FY 1981) were established for urban and rural hospitals in the initial development of standardized amounts for the IPPS. The September 1, 1987 final rule (52 FR 33043 and 33066) contains a detailed explanation of how the target amounts were determined and how they are used in computing the

Puerto Rico rates.

Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act require us to update base-year per discharge costs for

FY 1984 and then standardize the cost

data in order to remove the effects of certain sources of cost variations amonghospitals. These effects include casemix, differences in area wage levels, cost-of-living adjustments for Alaska and Hawaii, IME costs, and costs to hospitals serving a disproportionate share of low-income patients.

In accordance with section 1886(d)(3)(E) of the Act, the Secretary estimates, from time-to-time, the proportion of hospitals’ costs that are attributable to wages and wage-related costs. In general, the standardized


### 24063 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

amount is divided into labor-related and nonlabor-related amounts; only theproportion considered to be the laborrelated 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 proposing to

continue 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 areapplying the wage index to a laborrelated 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 proposed standardized amounts for operating costs appear in Table 1A, 1B, and 1C of the Addendum to this proposed 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 proposing to calculate 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(d)(3)(A)(iv)(II) of the Act, we are proposing to update the equalized standardized amount for FY 2011 by the full estimated market basket percentage increase for hospitals in all areas, as specified in section 1886(b)(3)(B)(i)(XX) of the Act, as amended by section 5001(a)(1) of Public Law 109–171. 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. The most recent forecast of the hospital market

basket increase for FY 2011 is 2.4 percent. Thus, for FY 2011, the proposed update to the average standardized amount is 2.4 percent for hospitals in all areas. The estimated market basket increase of 2.4 percent is based on IHS Global Insight, Inc.’s 2010 first quarter forecast of the hospital market basket increase (as discussed in Appendix B of this proposed rule).

Section 1886(b)(3)(B) of the Act specifies the mechanism to be 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 update percentage increase (also known as 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. The proposed 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. We are proposing to apply the full rate-of-increase in the hospital market basket for IPPS hospitals to the Puerto Rico-specific standardized amount. Therefore, the proposed update to the Puerto Rico-specific standardized amount is 2.4 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 proposed rule.

4. Other Adjustments to the Average

Standardized Amount

As in the past, we are proposing to adjust 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 proposed 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


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(other than the IPPS IME payment specified at § 412.105(g)). 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 relativeweights. We also computed a transferadjusted 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.

a. Proposed 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 proposed 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 proposing to make a budget neutrality adjustment to ensure that the requirement of section 1886(d)(4)(C)(iii) of the Act is met.

Section 1886(d)(3)(E)(i) of the Act requires us to update the hospital wage index on an annual basis beginning October 1, 1993. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. Section 1886(d)(3)(E)(i) of the Act requires that we implement the wage index adjustment in a budget neutral
manner. However, section 1886(d)(3)(E)(ii) of the Act sets the labor-related share at 62 percent for hospitals with a wage index less than or equal to 1.0, 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 orequal to 1.0 are paid using a laborrelated share of 62 percent. Consistent with current policy, for FY 2011, we are proposing to adjust 100 percent of the wage index factor for occupational mix. We describe the proposed occupational mix adjustment in section III.D. of the preamble of this proposed rule.

For FY 2011, to comply with the requirement that DRG reclassification and recalibration of the relative weights be budget neutral for the Puerto Ricostandardized amount and the hospitalspecific 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 relativeweights, and the FY 2010 prereclassified wage data to aggregatepayments using the FY 2010 laborrelated share percentages, the proposed FY 2011 relative weights, and the FY 2010 pre-reclassified wage data. Based on this comparison, we computed a proposed budget neutrality adjustment factor equal to 0.996963. As discussed in section IV. of this Addendum, we would also apply the proposed DRG reclassification and recalibration budget neutrality factor of 0.996856 to the hospital-specific rates that are to be effective for cost reporting periods beginning on or after October 1, 2010.

In order to meet the statutory requirements that we do not take into

account the labor-related share of 62 percent when computing wage indexbudget, it was necessary to use a threestep process to comply with the requirements that DRG reclassification and recalibration of the relative weights and the updated wage index and laborrelated share have no effect on aggregate payments for IPPS hospitals. We first determined a proposed DRG reclassification and recalibration budget neutrality factor of 0.996856 by using the same methodology described above to determine the proposed DRG reclassification and recalibration budget neutrality factor for the Puerto Ricostandardized amount and hospitalspecific rates. Secondly, to compute a budget neutrality factor for wage index and labor-related share changes, we used FY 2009 discharge data to simulate payments and compared aggregate payments using proposed FY 2011relative weights and FY 2010 prereclassified wage indices, and applied

the FY 2010 labor-related 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 proposed FY 2011 relative weights and the proposed 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 proposed 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 proposed budget neutrality factor of 1.000107 for changes to the wage index. Finally, we multiplied the proposed DRG reclassification and recalibration budget neutrality factor of 0.996856 (derived in the first step) by the proposed budget neutrality factor of 1.000107 for changes to the wage index (derived in the second step) to determine the proposed DRG

reclassification and recalibration and updated wage index budget neutrality

factor of 0.996963.

b. Reclassified Hospitals—Proposed 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


### 24065 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 proposed budget neutrality factor for FY 2011, we used FY 2009 discharge data to simulate payments and compared total IPPS payments with proposed FY 2011 relative weights, FY 2011 labor share percentages, and proposed 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 proposed FY 2011 relative weights, FY 2011 labor share percentages, and proposed FY 2011 wage data after such

reclassifications. Based on these simulations, we calculated a proposed adjustment factor of 0.991756 to ensure that the effects of these provisions are budget neutral, consistent with the

statute.

The proposed 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 proposed FY 2011 budget neutrality adjustment reflects proposed FY 2011 wage index reclassifications approved by the MGCRB or the Administrator. Furthermore, for this proposed rule, we note that the proposed FY 2011 wage index reclassifications approved by the

MGCRB or the Administrator are in the absence of the provisions of Public Law 111–148, as amended by Public Law

111–152.

c. Proposed Rural Floor and Imputed Floor Budget Neutrality Adjustment

CMS makes 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 FY 2009, hospitals received a blended wage index that was comprised of 20 percent of the wage index adjusted by applying the State-level rural and imputed floor budget neutrality adjustment and 80 percent of the wage index adjusted by applying the national budget neutrality adjustment. For FY 2010, the blended wage index was determined by adding 50 percent of the wage index adjusted by applying the State-level rural and imputed floor budget neutrality adjustment and 50 percent of the wage index adjusted by applying the national budget neutrality adjustment. In FY 2011 (in the absence of provisions of Pub. L. 111–148, as amended by Public Law 111–152), the proposed adjustment will be completely transitioned to the State-level methodology, such that the wage index will be determined by applying 100 percent of the State-level budget neutrality adjustment. As stated earlier, we note that the rural floor budget neutrality adjustment is applied to the wage index and not the standardized amount. However, because the 100 percent State-level rural and imputed floor budget neutrality adjustment is used in calculating the proposed FY 2011 outlier threshold (as discussed below), we are explaining our calculation of the proposed rural floor budget neutrality adjustments (in this section) below.

In order to compute a budget neutral wage index that is 100 percent of the wage index adjusted by the State-level rural and imputed floor budget neutrality adjustment, we used FY 2009 discharge data with proposed FY 2011 relative weights, proposed FY 2011 labor share percentages, and proposed FY 2011 post reclassified wage indices to simulate IPPS payments. To determine each State’s rural or imputed floor budget neutrality adjustment, we compared each State’s total simulated payments with and without the rural or imputed floor applied. These State-level rural and imputed floor budget neutrality factors were then applied tothe wage indices to produce a Statelevel rural and imputed floor budget neutral wage index, which was used in determining the FY 2011 wage indices. d. Proposed 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 Public Law 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 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


### 24066 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 codingthat do not reflect real changes in casemix 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 codingthat do not reflect real changes in casemix 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.in the preamble to this proposed 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. 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 proposed 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 proposing to make an adjustment 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 making a formal proposal for the further implementation of section 7(b)(1)(B) of Public Law 110– 90 in FY 2012 in this proposed rule.

(2) Proposed Adjustment to the FY 2011 Hospital-Specific Rates for SCHs and

MDHs

As discussed in section II.D. of the preamble of this proposed rule, because hospitals (SCHs and MDHs) paid basedin whole or in part on the hospitalspecific 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 thathospitals paid based on the hospitalspecific 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 andcoding 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.

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 toprospectively 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 proposed 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 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 proposed rule, our best estimate, based on the most recently available data, is that a cumulative adjustment of

¥ 5.4 percent


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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. Therefore, in order to maintain consistency as far as possible with the adjustments applied to IPPS hospitals, we are proposing an adjustment of

¥ 2.9 percent in FY 2011 to the hospital-specific rates paid to

SCHs and MDHs. We believe that this proposed 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) Proposed Adjustment to the FY 2011

Puerto Rico Standardized Amount

As stated in section II.D. of the preamble of this proposed 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 thatare 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 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 averagestandardized amounts and hospitalspecific 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 can 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 proposed rule, our best estimate, based on the most recently available data, is that a cumulative adjustment of

¥ 2.4 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 anyprevious adjustments to the hospitalspecific rates paid to Puerto Rico hospitals to account for documentation and coding changes. Therefore, the

entire

¥ 2.4 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 proposing an adjustment of

¥ 2.4 percent in FY 2011 to 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 are proposing 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 note that this proposed

¥ 2.4 percent prospective adjustment would eliminate

the full effect of the documentation and coding changes on future payments from the Puerto Rico-specific rate. We believe that this proposed 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. Proposed Outlier Payments

Section 1886(d)(5)(A) of the Act provides for payments in addition to the basic prospective payments for ‘‘ outlier ’’ cases involving extraordinarily high costs. To qualify for outlier payments, a case must have costs greater than the sum of the prospective payment rate for the DRG, any IME and DSH payments, any new technology add-on payments,

and the ‘‘ outlier threshold ’’ or ‘‘ fixedloss ’’ amount (a dollar amount by which

the costs of a case must exceed payments in order to qualify for an outlier payment). We refer to the sum of the prospective payment rate for the DRG, any IME and DSH payments, any new technology add-on payments, and

the outlier threshold as the outlier

‘‘ fixed-loss cost threshold. ’’ To
determine whether the costs of a case exceed the fixed-loss cost threshold, a hospital’s CCR is applied to the total covered charges for the case to convert the charges to estimated costs. Payments for eligible cases are then made based on a marginal cost factor, which is a percentage of the estimated costs above

the fixed-loss cost threshold. The marginal cost factor for FY 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


### 24068 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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) Proposed FY 2011 Outlier FixedLoss Cost Threshold

For FY 2011, we are proposing 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 are proposing 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 the proposed 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 are proposing 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 averageannualized rate-of-change in chargesper-case from the last quarter of FY 2008 in combination with the first quarter of FY 2008 (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 Provider-Specific File (PSF)—the most

recent available data at the time of this 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 are proposing 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 upate

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 (1.04). 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 1.04, 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 1.0360). 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, 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


### 24069 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

15 These figures represent 3.0 standard deviations from the mean of the log distribution of CCRs for all hospitals. 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 are proposing 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. 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 this proposed rule, we are using 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 currently

estimate that there will 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 are proposing 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 $23,970.

As we did in establishing the FY 2009 outlier threshold (73 FR 57891), in our projection of FY 2011 outlier payments, we are not proposing 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 are proposing not to make any assumptions about the effects of

reconciliation on the outlier threshold

calculation.

(2) Other Proposed Changes Concerning

Outliers

As stated in the FY 1994 IPPS final rule (58 FR 46348), we establish an outlier threshold that is applicable to both hospital inpatient operating costs and hospital inpatient capital-related

costs. When we modeled the combined operating and capital outlier payments, we found that using a common threshold resulted in a lower percentage of outlier payments for capital-related costs than for operating costs. We project that the thresholds for FY 2011 will result in outlier payments that will equal 5.1 percent of operating DRG payments and 5.8 percent of capital payments based on the Federal rate.

In accordance with section 1886(d)(3)(B) of the Act, we are proposing to reduce the FY 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 for the proposed FY 2011

outlier threshold are as follows:

Operating standardized

amounts Capital federal rate

National ................................................................................................................ 0.94899 9 0.942415

Puerto Rico .......................................................................................................... 0.951686 0 .924977

We are proposing to apply the outlier adjustment factors to the proposed FY 2011 rates after removing the effects of the FY 2010 outlier adjustment factors

on the standardized amount.

To determine whether a case qualifiesfor outlier payments, we apply hospitalspecific 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 1.176 or capital CCRs greater than 0.154, or hospitals for whom the fiscal intermediary or MAC is unable to calculate a CCR (as described at § 412.84(i)(3) of our regulations), we still use statewide average CCRs to determine whether a hospital qualifies for outlier payments. 15 Table 8A in this Addendum contains the proposed statewide average operating CCRs for urban hospitals and for rural hospitals for which the fiscal intermediary orMAC is unable to compute a hospitalspecific 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 proposed comparable statewide average capital CCRs. Again, the proposed 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 proposed statewide average total


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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 before 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 in setting the outlier policies for FY 2010. This estimate is based on simulations using the FY 2009 MedPAR file (discharge data for FY 2009 claims). We used these

data to calculate an estimate of the actual outlier percentage for FY 2010 by applying FY 2010 rates and policies, including an outlier threshold of $23,140 to available FY 2009 claims.

5. Proposed FY 2011 Standardized

Amount

The proposed adjusted standardized

amount is divided into labor-related and nonlabor-related portions. Tables 1A

and 1B of this Addendum contain the

national standardized amounts that we are proposing to apply to all hospitals, except hospitals located in Puerto Rico,for FY 2011. The proposed Puerto Ricospecific amounts are shown in Table 1C of this Addendum. The proposed

amounts shown in Tables 1A and 1B differ only in that the labor-related share applied to the standardized amounts in

Table 1A is 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 labor-related 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 proposed standardized amounts reflecting the proposed full 2.4 percent update for FY 2011, and the proposed standardized amounts reflecting the 2.0 percentage point reduction to the update (a 0.4 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 discharge-weighted average of the national large urban standardized amount (this proposed amount is setforth in Table 1A). The proposed laborrelated and nonlabor-related 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 proposed Puerto Rico standardized

amounts. The labor-related share applied to the Puerto Rico specific standardized amount is the proposed 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 PublicLaw 108–173, provides that the laborrelated share for hospitals located in Puerto Rico be 62 percent, unless the application of that percentage would result in lower payments to the hospital.)

The following table illustrates the proposed changes from the FY 2010

national standardized amount. The second column shows the proposed changes from the FY 2010 standardized amounts for hospitals that satisfy the quality data submission requirement for receiving the full update (2.4 percent). The third column shows the proposed changes for hospitals receiving the reduced update (0.4 percent). The first row of the table shows the proposed updated (through FY 2010) average standardized amount after restoring the FY 2010 offsets for outlier 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. Additionally, the documentation and coding adjustments for FY 2008 and FY 2009 are cumulative. Therefore, the FY 2008 and FY 2009 adjustment factors are not

removed from this table. We also have added separate rows to this table to

reflect the different labor-related shares that apply to hospitals.


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Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion of the Puerto Rico payment rate is based on the discharge-weighted average of the national standardized amount (as set forth in Table 1A of this Addendum).

The labor-related and nonlabor-related portions of the proposed national average standardized amounts for Puerto Rico hospitals are set forth in

Table 1C of this Addendum. This table also includes the proposed Puerto Rico

standardized amounts. The labor-related share applied to the proposed Puerto

Rico standardized amount is 62.1 percent, or 62 percent, depending on which results in 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 in Puerto Rico will be 62 percent, unless the application of that percentage would result in lower payments to the hospital.)

B. Proposed Adjustments for Area Wage Levels and Cost-of-Living

Tables 1A through 1C, as set forth inthis Addendum, contain the laborrelated and nonlabor-related shares that we are proposing to use to calculate the prospective payment rates for hospitals located in the 50 States, the District of Columbia, and Puerto Rico for FY 2011. This section addresses two types of adjustments to the standardized amounts that are made in determining the proposed prospective payment rates

as described in this Addendum.

1. Proposed Adjustment for Area Wage

Levels

Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require thatwe make an adjustment to the laborrelated 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 proposed rule, we discuss the data and methodology for the proposed FY 2011 wage index.

2. Proposed Adjustment for Cost-ofLiving 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 labor-related

costs for these two States are taken into account in the adjustment for area


### 24072 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

wages described above. For FY 2011, we are proposing to adjust 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 proposed 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. In addition, we are proposing that

if OPM releases revised COLA factors after publication of this proposed rule,

we would use the revised factors for the development of IPPS payments for FY 2011 and publish those revised COLA

factors in the final rule.



### T ABLE OF 

### C OST



### - OF 

### -L IVING 

### A DJUST



### MENT 

### F ACTORS 

### : A LASKA AND 

### H AWAII


### H OSPITALS

Area Cost of living adjustment

factor

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

Rest 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

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. Proposed MS–DRG Relative Weights

As discussed in section II.H. of the preamble of this proposed rule, we have developed proposed 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 proposed relative weights that we would apply to discharges occurring in FY 2011. These factors have been recalibrated as explained in section II. of the preamble of this proposed rule. D. Calculation of the Proposed Prospective Payment Rates

General Formula for Calculation of the Proposed 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 hospital-specific 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 hospital-specific 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 is adjusted by the budget neutrality adjustment factor 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.


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b. Updating the FY 1982, FY 1987, FY1996, FY 2002, and FY 2006 HospitalSpecific Rates for FY 2011

We are proposing to increase the hospital-specific rates by 2.4 percent (the hospital market basket percentage increase) for FY 2011 for those SCHs and MDHs that submit qualifying quality data and by 0.4 percent for SCHs and MDHs that fail to submit qualifying quality data. Section 1886(b)(3)(C)(iv) of the Act provides that the update factor applicable to the hospital-specific rates for SCHs is equal to the update factor provided under section 1886(b)(3)(B)(iv) of the Act, which, for SCHs in FY 2011, is the market basket percentage increase for hospitals that submit qualifying quality data and the market basket percentage increase minus 2 percentage points for hospitals that fail to submit qualifying quality data. Section 1886(b)(3)(D) of the Act provides that the update factor applicable to the hospital-specific rates for MDHs also equals the update factor provided for under section 1886(b)(3)(B)(iv) of the Act, which, for FY 2011, is the market basket percentage increase for hospitals that submit qualifying quality data and the market basket percentage increase minus 2 percentage points for hospitals that fail to submit qualifying 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. Proposed 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 Medicareacute care hospital inpatient capitalrelated costs from a reasonable costbased 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 are proposing to use to determine the capital Federal rate for FY 2011, which would 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


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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 Rico-specific 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 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 ablend of 25 percent of the Puerto Ricospecific capital rate and 75 percent of the national capital Federal rate for discharges occurring on or after October

1, 2004.

A. Determination of Proposed 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 the final capital Federal rate of $429.26 for FY 2010. In the discussion that follows, we explain the factors that we are proposing to use to determine the capital Federal rate for FY 2011. In particular, we explain why the proposed FY 2011 capital Federal rate would decrease approximately 1.9 percent, compared to the FY 2010 capital Federal rate. As discussed in the impact analysis, we estimate capital payments per discharge would decrease 0.2 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.

We note that on March 23, 2010, the

Patient Protection and Affordable Care Act, 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, affect the IPPS and the providers addressed in this proposed rule. However, due to the timing of the passage of the legislation, we are unable to implement those provisions in this proposed rule. Therefore, the proposed policies and payment rates in this section do not reflect the new legislation. We plan to issue separate rulemaking documents in

the Federal Register addressing the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for FY 2011 under the IPPS and LTCH PPS, as well as the provisions of Public Law 111– 148, as amended, that affect the policies and payment rates for FY 2010 under

the IPPS.

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 proposed update

factor for FY 2011 under that framework is 1.5 percent based on the best data available at this time. The proposed update factor under that framework is based on a projected 1.2 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 proposed rule, we are proposing to apply 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 are proposing to apply in the update

framework for FY 2011.


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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 ’’ casemix 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 casemix is the difference between the projected real increase in case-mix and the projected total increase in case-mix. Therefore, the proposed net adjustment for case-mix change in FY 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 retainbudget neutrality for all case-mix indexrelated 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 proposed update for FY 2011. To adjust for reclassification and recalibration effects, under our historical methodology, we run the FY 2009 cases through the FY 2008 GROUPER and through the FY 2009 GROUPER. The resulting ratio of the case-mix indices should equate to 1.0. If not, under our historical methodology, in the update framework for FY 2011, we would make 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 proposed 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 proposed rule, we are proposing to make an adjustment to the proposed capital Federal rate in 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, we are not adjusting for reclassification and

recalibration effects from FY 2009 in the update framework for FY 2011 because it is already accounted for in the proposed documentation and coding adjustment to the capital Federal rates for FY 2011. Consequently, we are proposing a 0.0 percent adjustment for

DRG reclassification and recalibration in the proposed 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 point 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 point. 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 are proposing to make 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 noncost-effective services. Our intensity measure is based
on a 5-year average.

Historically, we have calculated casemix 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

case-mix. Without reliable estimates of the proportions of the overall annual intensity increases that are due, respectively, to ineffective practicepatterns and the combination of qualityenhancing 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 DRGseverity and the adoption of qualityenhancing technology.

We have developed a Medicarespecific 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


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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 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, we are proposing to use 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, in this proposed rule, 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 proposed intensity adjustment for FY 2011, we have 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 are basing the intensity measure on a 5- year average. Therefore, the proposed 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 estimate 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 estimate intensity declined during that 5-year period, we believe that it is appropriate to continue apply a zero intensity adjustment for FY 2011. Therefore, we are proposing to make 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 proposed 1.5 percent capital update factor under the capital update

framework for FY 2011 as shown in the

table below.



### CMS FY 2011 P ROPOSED 

### U PDATE


### F ACTOR TO THE 

### C APITAL 

### F EDERAL


### R ATE

Capital Input Price Index Intensity: 1.2

0.0 Case-Mix Adjustment Factors:

Real Across DRG Change ..............

¥ 1.0 Projected Case-Mix Change ........... 1.0 

### CMS FY 2011 P ROPOSED 

### U PDATE


### F ACTOR TO THE 

### C APITAL 

### F EDERAL


### R ATE 

### —Continued

Subtotal ....................................... 1.2

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. Proposed Outlier Payment Adjustment Factor

Section 412.312(c) establishes a unified outlier payment methodology for inpatient operating and inpatient capital-related costs. A single set of thresholds is used to identify outlier cases for both inpatient operating and inpatient capital-related payments. Section 412.308(c)(2) provides that the standard Federal rate for inpatient capital-related costs be reduced by an adjustment factor equal to the estimated proportion of capital-related outlierpayments 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 5.35 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 wouldequal 5.76 percent for inpatient capitalrelated payments based on the proposed capital Federal rate in FY 2011. Therefore, we are proposing to apply an outlier adjustment factor of 0.9424 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


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to this proposed 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 proposed FY 2011 outlier adjustment of 0.9424 is a -0.54 percent change from the FY 2010 outlier adjustment of 0.9475. Therefore, the net change in the outlier adjustment to the proposed capital Federal rate for FY 2011 is 0.9946 (0.9424/0.9475). Thus, the proposed outlier adjustment decreases the proposed FY 2011 capital Federal rate by 0.54 percent compared with the FY 2010 outlier adjustment.

3. Proposed Budget Neutrality Adjustment Factor for Changes in DRG Classifications and Weights and the

GAF

Section 412.308(c)(4)(ii) requires that the capital Federal rate be adjusted so that aggregate payments for the fiscal year based on the capital Federal rate after any changes resulting from the

annual DRG reclassification and recalibration and changes in the GAF are projected to equal aggregate payments that would have been made on the basis of the capital Federal rate without such changes. Because we implemented a separate GAF for Puerto Rico, we apply separate budget neutrality adjustments for the national

GAF and the Puerto Rico GAF. We apply the same budget neutrality factor

for DRG reclassifications and recalibration nationally and for Puerto Rico. Separate adjustments were unnecessary for FY 1998 and earlier

because the GAF for Puerto Rico was implemented in FY 1998.

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 explain in section III.A. of this Addendum, beginning in FY 2002, an adjustment for regular exception payments is no longer necessary. Therefore, we no longer use the capital cost model. Instead, we are using historical data based on hospitals’ actual cost experiences to determine the exceptions payment adjustment factor for special exceptions payments.

To determine the proposed 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 proposed 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 are proposing to apply an incremental budget neutrality adjustment of 1.0007 for FY 2011 to the previous cumulative FY 2010 adjustment of 0.9907, yielding an adjustment of 0.9915, through FY 2011 (calculated with unrounded numbers). For the Puerto Rico GAFs, we are proposing to apply an incremental budget neutrality adjustment of 1.0004 for FY 2011 to the previous cumulative FY 2010 adjustment of 0.9969, yielding a cumulative adjustment of 0.9973 through FY 2011.

We then compared estimated aggregate capital Federal rate payments

based on the FY 2010 DRG relative weights and the proposed FY 2011 GAFs to estimated aggregate capital Federal rate payments based on the cumulative effects of the proposed FY

2011 MS–DRG classifications and relative weights and the proposed FY 2011 GAFs. The proposed incremental adjustment for DRG classifications and proposed changes in relative weights is 0.9992 both nationally and for Puerto Rico. The proposed cumulative adjustments for MS–DRG classifications and proposed changes in relative weights and for proposed changes in the GAFs through FY 2011 are 0.9907 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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**BILLING CODE 4120–01–C** The methodology used to determine the recalibration and geographic adjustment factor (DRG/GAF) budget neutrality adjustment is similar to the methodology used in establishing budget neutrality adjustments under the IPPS for operating costs. One difference is that, under the operating IPPS, the budget neutrality adjustments for the effect of geographic reclassifications are determined separately from the effects of other changes in the hospital wage index and the DRG relative weights. Under the capital IPPS, there is a single DRG/GAF budget neutrality adjustment factor (the national capital rate and the Puerto Rico capital rate are determined


### 24079 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

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 final GAF/DRG budget neutrality factor of 0.9990 (74 FR 44019). For FY 2011, we are proposing to establish a GAF/DRG budget neutrality factor of 1.0000. 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 proposed adjustment from

FY 2010 to FY 2011 is 1.0000. The cumulative change in the proposed capital Federal rate due to this adjustment is 0.9907 (the product of the incremental factors for FYs 1995 though 2010 and the proposed incremental factor of 1.0000 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 0.9907 for FY 2011.)

The proposed factor accounts for the proposed MS–DRG reclassifications and recalibration and for proposed changes in the GAFs. It also incorporates the effects on the proposed GAFs of FY 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 hospital-specific capital rates. An adjustment for regular exception payments is no longer necessary in determining the proposed 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 proposed 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 ending in 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 ending in FY 2008 from the December 2009 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 ending in FY 2008, this ratio is rounded to 0.0003, and we are proposing to make an adjustment of 0.0003. Because special exceptions are budget neutral, we are proposing to offset the capital Federal rate by 0.03 percent for special exceptions payments for FY 2011. Therefore, the proposed exceptions adjustment factor is equal to 0.9997 (1 ¥ 0.0003) to account for estimated special exceptions payments

in FY 2011.

In the FY 2010 IPPS 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 are proposing to apply an exceptions payment adjustment factor of 0.9997 to the proposed capital Federal rate for FY

2011 based on our estimate that exceptions payments in FY 2011 would equal 0.03 percent of aggregate payments based on the proposed FY 2011 capital Federal rate. The proposed 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 proposed exceptions adjustment factor used in determining the proposed FY 2011 capital Federal rate is 0.9999 (0.9997/0.9998).

5. Proposed Capital Standard Federal

Rate for FY 2011

For FY 2010, we established a final capital Federal rate of $429.26 (74 FR 51499). We are proposing to establish an update of 1.5 percent in determining the proposed FY 2011 capital Federal rate for all hospitals. However, as discussed in greater detail in section V.E. of the preamble of this proposed rule, under the statutory authority at 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 are proposing an additional 2.9 percent reduction to the national capital Federal payment rate in FY 2011. The proposed

¥ 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 thatdo not reflect real changes in the casemix in light of the adoption of MS– DRGs. Accordingly, we are proposing to apply a cumulative documentation and coding adjustment factor of 0.957 in determining the proposed FY 2011 capital Federal rate percent (that is, the


### 24080 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

existing

¥ 0.6 percent adjustment in FY 2008 plus the

¥ 0.9 percent adjustment in FY 2009 plus the proposed 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 proposed 1.5 percent update and other proposed budget neutrality factors discussed above, we are proposing to establish a national capital Federal rate of $420.99 for FY 2011. The proposed national capital Federal rate for FY 2011

was calculated as follows:

• The proposed FY 2011 update factor is 1.015, that is, the update is 1.5
percent.

• The proposed FY 2011 budget neutrality adjustment factor that is applied to the proposed capital standard Federal payment rate for proposed changes in the MS–DRG classifications and relative weights and proposed changes in the GAFs is 1.0000.

• The proposed FY 2011 outlier adjustment factor is 0.9424.

• The proposed FY 2011 (special) exceptions payment adjustment factor is

0.9997.

• The proposed cumulative adjustment factor for FY 2011 applied to the national capital Federal rate for changes in documentation and coding

under the MS–DRGs is 0.957.

Because the proposed capital Federal rate has already been adjusted fordifferences in case-mix, wages, cost-ofliving, indirect medical education costs, and payments to hospitals serving a disproportionate share of low-income patients, we are not proposing to make additional adjustments in the proposed capital standard Federal rate for these factors, other than the proposed budget neutrality factor for proposed changes in

the MS–DRG classifications and relative weights and for proposed changes in the

GAFs.

We are providing the following chart that shows how each of the proposed factors and adjustments for FY 2011 affects the computation of the proposed FY 2011 national capital Federal rate in comparison to the FY 2010 national capital Federal rate. The proposed FY 2011 update factor has the effect of increasing the proposed capital Federal rate by 1.5 percent compared to the FY 2010 capital Federal rate. The proposed GAF/DRG budget neutrality factor of 1.000 has no net effect on the proposed capital Federal rate. The proposed FY 2011 outlier adjustment factor has the effect of decreasing the proposed capital Federal rate by 0.54 percent compared to the FY 2010 capital Federal rate. The proposed FY 2011 exceptions payment adjustment factor has the effect of decreasing the proposed capital Federal rate by 0.01 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 proposed cumulative adjustment factor of 0.957 has the net effect of decreasing the proposed FY 2011 national capital Federal rate by 2.8 percent as compared to the FY 2010 national capital Federal rate. (As discussed in section VI.E.1. of the preamble of this proposed 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 adjustment to the capital Federal rate in FY 2010). The combined effect of all the proposed changes would decrease the proposed national capital Federal rate by approximately 1.93 percent compared to the FY 2010 national capital Federal rate.


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6. Proposed 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 capital-related costs. Accordingly, under the capital PPS, we
compute a separate payment rate specific to hospitals located in Puerto Rico using the same methodology used to compute the national Federal rate for capital-related costs. Under the broad authority of section 1886(g) of the Act,

as discussed in section V. of the preamble of this proposed 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 capital-blended rate and the national wage index to determine the GAF for the national part of the blended capital

rate.

Because we implemented a separate GAF for Puerto Rico in FY 1998, we also apply separate budget neutrality 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 proposed national GAF budget neutrality factor is 1.0004 and the proposed DRG adjustment is 0.9992, 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 Public Law 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 $203.56 (74 FR 51499). Consistent with our development of the FY 2010 Puerto Rico-specific 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 Rico-specific 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 proposed rule, consistent with our development of the Puerto Rico-specific operating standardized amount, we are proposing to apply a

¥ 2.4 percent adjustment to account for changes in documentation and coding that resulted from the adoption of the MS–DRGs in determining the proposed FY 2011 Puerto Rico-specific capital rate. With the changes we are proposing to make

to the other factors used to determine the capital rate, the proposed FY 2011 special capital rate for hospitals in
Puerto Rico is $199.43.

B. Calculation of the Proposed Inpatient Capital-Related 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) x (DRG weight) x (GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME Adjustment Factor, if applicable). The result is the adjusted capital Federal

rate.

Hospitals also may receive outlier payments for those cases that qualify

under the thresholds established for each fiscal year. Section 412.312(c) provides for a single set of thresholds to identify outlier cases for both inpatient operating and inpatient capital-related payments. The proposed outlier

thresholds for FY 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
$23,970.

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 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


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fixed-weight price index that measures the price changes associated with capital costs during a given year. The CIPI differs from the operating input price index in one important aspect— the CIPI reflects the vintage nature of capital, which is the acquisition and use of capital over time. Capital expenses in any given year are determined by the stock of capital in that year (that is, capital that remains on hand from all current and prior capital acquisitions). An index measuring capital price changes needs to reflect this vintage nature of capital. Therefore, the CIPI was developed to capture the vintagenature of capital by using a weightedaverage 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 final rule (74 FR44021), 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. (first quarter of 2010), we are forecasting the FY 2006- based CIPI to increase 1.2 percent in FY 2011. This reflects a projected 1.8 percent increase in vintage-weighted depreciation prices (building and fixed equipment, and movable equipment), and a 1.9 percent increase in other capital expense prices in FY 2011, partially offset by 1.9 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. Proposed Changes to Payment Ratesfor Excluded Hospitals: Rate-ofIncrease 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-of-increase 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-ofincrease 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 theIPPS continue to be subject to the rateof-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.)

We are proposing that the FY 2011 rate-of-increase percentage for updating the target amounts for cancer and children’s hospitals and RNHCIs be the estimated percentage increase in the FY 2011 IPPS operating market basket, estimated to be 2.4 percent, using the

most recent data available based on IHS Global Insight, Inc.’s first quarter 2010 forecast, with historical data through the 2009 fourth quarter. (We are proposing

to use more recent data when determining the estimated percentage increase for the FY 2011 IPPS operating market basket for the final rule, to the extent these data are available.)

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 proposed rule for the proposed update changes to the Federal payment rates for LTCHs under the

LTCH PPS for RY 2011. The annual updates for the IRF PPS and the IPF PPS are issued by the agency in separate Federal Register documents. V. Proposed Changes to the Payment

Rates for the LTCH PPS for FY 2011

A. Proposed LTCH PPS Standard Federal Rate for FY 2011

1. Background

In section VII. of the preamble of this proposed rule, we discuss our proposed changes to the payment rates, factors, and specific policies under the LTCH

PPS for FY 2011. We note that on March 23, 2010, the Patient Protection and Affordable Care Act, 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, affect

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 are unable to address those provisions in this proposed rule. Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new legislation. We plan to issue separate documents in the Federal Register addressing the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for FY 2011

under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions implementing the provisions of Public Law 111–148, as amended, that affect the policies and payment rates for FY 2010 under the

IPPS and 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 that 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. 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.


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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 changes in documentation and coding practices in a prior period that were unrelated to patient 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 is zero percent based on the

most recent estimate of the LTCH PPS market basket at the time, offset by an adjustment to account for changes in case-mix in prior periods due to changes in documentation and coding that were unrelated to patient severity of illness in FY 2004. For RYs 2008 through 2010, we also considered changes in documentation and coding practices that were unrelated to patient 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 RY 2010 LTCH PPS final rule, 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 (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 changes in documentation and coding practices unrelated to an increase in patient severity of illness (74 FR 44022)). 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.

2. Development of the Proposed 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 changes in documentation and coding practices that do not reflect increased patient 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 patient 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 changes in documentation and coding that do not reflect any real changes in case-mix during these years that we are implementing MS–LTC–DRGs. As noted 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 changes in 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 changes in documentation and coding on the increase in case-mix in FY 2008, in the 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, for this proposed rule as discussed in greater detail in section VII.C.3. of the preamble of this proposed rule, we performed a CMI 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 CMI of 2.5 percent due to changes in documentation and coding that did not reflect real changes in patient severity of illness for LTCH discharges occurring in FY 2008 and FY 2009. At this time, the most recent estimate of the increase in the proposed LTCH PPS market basket (that is, the FY 2002-based RPL market basket) for FY 2011 is 2.4 percent, as discussed in section VII.B.2. of the preamble of this proposed rule. Consistent with our historical practice, in this proposed rule, we are proposing to update the

LTCH PPS standard Federal rate for FY 2011 based on the full proposed LTCH

PPS market basket increase estimate of 2.4 percent and an adjustment to

account for the increase in case-mix in a prior period (FYs 2008 and 2009) that resulted from changes in documentation and coding practices of

¥ 2.5 percent. The proposed update factor to the

standard Federal rate for FY 2011 is

¥ 0.1 percent (that is, we are proposing to apply a factor of 0.999 in determining

the LTCH PPS standard Federal rate for FY 2011, calculated as 1.024 × 1 divided by 1.025 = 0.999 or

¥ 0.1 percent). Therefore, in this proposed rule, under the broad authority conferred upon the Secretary under the BBRA and the BIPA to determine appropriate updates under the LTCH PPS, we are proposing 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

¥ 0.1 percent. In determining the proposed standard Federal rate for FY 2011, we are applying the proposed 0.999 update

factor to the RY 2010 Federal rate of $39,896.65 (as established in the FY

2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44022)). Consequently, the proposed standard Federal rate for FY 2011 is $39,856.75. We also are proposing 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.

B. Proposed 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.


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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. Proposed 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 CBSAbased 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). 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 update our titles and definitions using the

Executive OMB’s bulletin. These changes are effective for discharges occurring on or after October 1, 2010.

Specifically, for FY 2011, the following CBSAs have new titles and new principal cities:

• San Marcos, TX qualifies as a new principal city of the Austin-RoundRock, TX CBSA. The new title is AustinRound Rock-San Marcos, TX CBSA (CBSA Code 12420).

• Delano, CA qualifies as a new principal city of the Bakersfield, CA

CBSA. The new title: BakersfieldDelano, 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 newprincipal city of the Bradenton-SarasotaVenice, FL CBSA (currently CBSA Code14600). The new title is North PortBradenton-Sarasota, FL CBSA. The new

code is CBSA 35840.

• Sanford, FL qualifies as a newprincipal city of the OrlandoKissimmee, FL CBSA (CBSA Code36740). The new title is OrlandoKissimmee-Sanford, FL CBSA.

• Glendale, AZ qualifies as a newprincipal 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 AntonioNew Braunfels, TX CBSA (CBSA Code 41700).

• Auburn, WA qualifies as a newprincipal city of the Seattle-TacomaBellevue, 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 populousprincipal city in the Bethesda-FrederickRockville, MD Metropolitan Division.

The new title is Bethesda-RockvilleFrederick, 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 CharlotteGastonia-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-Joliet-Naperville, IL Metropolitan Division (CBSA Code 16974).

• Crestview, FL replaces Fort Walton Beach, FL as the most populousprincipal city in the Fort Walton BeachCrestview-Destin, 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 principalcity in the Portland-VancouverBeaverton, OR-WA CBSA. The new titleis Portland-Vancouver-Hillsboro, ORWA 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 proposed FY 2011 LTCH PPS wage index values presented in Tables

12A and 12B in the Addendum of this proposed rule reflect the revisions to the

CBSA-based labor market area titles and

codes described above.


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3. Proposed LTCH PPS Labor-Related

Share

As noted above in this section, under the adjustment for difference in areawage levels at § 412.525(c), the laborrelated 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-relatedshare represents the sum of the laborrelated portion of operating costs (wages and salaries, employee benefits,professional fees, and all other laborintensive 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 27829through 27830), the LTCH PPS laborrelated share is based on the relative importance of the labor-related share of operating costs and capital costs of the rehabilitation psychiatric long-term 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 labor-related share

under the LTCH PPS and the development of the RPL market basket

can be found in the RY 2007 LTCH PPS final rule (71 FR 27810 through 27817 and 27829 through 27830) and the RY 2010 LTCH PPS final rule (74 FR 43968).)

As discussed in greater detail in section VII.C.2.d. of the preamble of this proposed rule, we are proposing 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 are the

most recent available data. The proposed labor-related share for FY 2011 would be the sum of the proposed 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. The sum of the proposed relative importance for FY 2011 for operating costs (wages and salaries, employee benefits,professional fees, and all-other laborintensive services) would be 71.537 percent and the labor-related share of capital costs would be 3.870 percent. Thus, the labor-related share that we are proposing to use for LTCH PPS in FY 2011 would be 75.407 percent (71.537 percent + 3.870 percent), as shown in

the chart in section VII.C.2.d. of the preamble of this proposed rule.

Accordingly, under the authority set

forth in section 123 of the BBRA as amended by section 307(b) of the BIPA,we are proposing to establish a laborrelated share of 75.407 percent under

the LTCH PPS for the FY 2011. Furthermore, consistent with our historical practice of using the best data available, we also are proposing 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.

4. Proposed 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.

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, consistent with our historical methodology, we are proposing 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 at

this time. 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 this 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).

The proposed FY 2011 LTCH PPS wage index values are computed

consistent with the urban and rural geographic classifications (labor market areas) discussed above in section V.B.2. of the Addendum of this proposed rule and consistent with the pre-reclassified IPPS wage index policy (that is, our historical policy of not taking into account IPPS geographic reclassifications in determining payments under the LTCH PPS). We also note that, 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 proposed rule). We also would continue to use our existing policy for determining wage index

values in areas where there are no IPPS wage data.

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 we are proposing 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 current FY 2007 IPPS wage data that we are proposing to use to determine the proposed FY 2011 LTCH PPS wage index values, there are no IPPS wage data for the urban area of Anderson, SC (CBSA 11340) and Hinesville-Fort Stewart, GA (CBSA 25980). Consistent with the methodology discussed above, we calculated the proposed FY 2011 wage

index value for CBSA 11340 as the average of the proposed wage index

values for all of the other urban areas within the State of South Carolina (that


### 24086 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

is, CBSAs 12260, 16700, 16740, 17900, 22500, 24860, 34820, 43900 and 44940) (reflected in Table 12A of the Addendum of this proposed rule). Similarly, for CBSA 25980 as the average of the proposed 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 of this proposed rule). (As noted above, there are currently no

LTCHs located in CBSA 11340 or CBSA 25980.) As discussed in the RY 2009 final rule (73 FR 26817), as IPPS wage data are dynamic, it is possible that urban areas without IPPS wage data will vary in the future.

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, there are no IPPS wage data for the rural area of Massachusetts (CBSA code 22). Consistent with the methodology discussed above, the proposed 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 proposed FY 2011 LTCH PPS wage

index value for rural Massachusetts is computed as the unweighted average of the proposed FY 2011 wage indexes for Barnstable County and Bristol County (reflected in Tables 12A and 12B in the Addendum of this proposed rule). (There are currently no LTCHs located in rural Massachusetts.) As discussed in the RY 2009 final rule (73 FR 26817), as IPPS wage data are dynamic, it is possible that rural areas without IPPS wage data will vary in the future.

The proposed FY 2011 LTCH wage index values that would 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 proposed rule. 5. Proposed 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 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.

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 proposing to apply a COLA to payments to LTCHs located in Alaska and Hawaii by multiplying the proposed standard Federal payment rate by the factors listed in the chart below because they are the most recent

available data at this time. These proposed factors were obtained from the U.S. Office of Personnel Management (OPM) and are also proposed to be used under the IPPS effective October 1, 2010 (section II.B.2. of the Addendum of this proposed rule). We note that there has been no change in the COLA factors

since the current factors were

established in the RY 2010 LTCH PPS final rule. In addition, we are proposing

that if OPM releases 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.



### P ROPOSED 

### C OST



### - OF 

### -L IVING 

### A DJUST



### MENT 

### F ACTORS FOR 

### A LASKA AND


### H AWAII 

### H OSPITALS FOR THE 

### LTCH

PPS FOR 

### FY 2011

Alaska:

City of Anchorage and 80-kilometer (50-mile) radius by

road ................................... 1.23City of Fairbanks and 80-kilometer (50-mile) radius by

road ................................... 1.23City 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 

### P ROPOSED 

### C OST



### - OF 

### -L IVING 

### A DJUST



### MENT 

### F ACTORS FOR 

### A LASKA AND


### H AWAII 

### H OSPITALS FOR THE 

### LTCH

PPS FOR 

### FY 2011—Continued

County of Maui and County

of Kalawao ......................... 1.25

C. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases

1. Background

Under the broad authority conferred upon the Secretary by section 123 of the BBRA as amended by section 307(b) of 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 fixed-loss 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


### 24087 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

covered charge by the hospital’s overall hospital cost-to-charge ratio (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 Provider Specific File (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 this proposed rule, 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 are proposing 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.

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 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 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 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 this proposed rule, using our established methodology for determining the LTCH statewide average CCRs, based on the most recent complete IPPS total CCR data from the December 2009 update of the PSF, we are proposing to establish LTCH PPS statewide average total CCRs for urban and rural hospitals that would be effective for discharges occurring on or after October 1, 2010, through


### 24088 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

September 30, 2011, in Table 8C of the Addendum to this proposed rule.

We also note that 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 proposed 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 aredesignated as rural, there are no shortterm acute care IPPS hospitals or LTCHs

located in those areas as of December 2009. Therefore, for this proposed rule, there is no rural statewide average total

CCR listed for rural Massachusetts in

Table 8C of the Addendum of this proposed rule.

In addition, as we established when we revised our methodology for determining the applicable LTCH statewide average CCRs in the FY 2007 IPPS final rule (71 FR 48120 through 48121), in determining the urban and rural statewide average total CCRs for Maryland LTCHs paid under the LTCH PPS, in this proposed 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 that same 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 Proposed 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 fixed-loss 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 this proposed rule, we are proposing 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 this 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 use the most

recent available LTCH claims data and CCR data. Specifically, for this proposed rule, 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 are proposing that if more recent LTCH claims data become available, wewill use them for determining the fixedloss amount for FY 2011 in the final rule. Furthermore, we are proposing todetermine the proposed FY 2011 fixedloss 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 (discussed in section VII.B. of the preamble of this proposed rule).

In this proposed rule, under the broad authority of section 123(a)(1) of the BBRA and section 307(b)(1) of BIPA, we are proposing to establish a fixed-loss amount of $18,692 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 $18,692).

The proposed fixed-loss amount for FY 2011 of $18,692 is slightly higher

than the RY 2010 fixed-loss amount of $18,425. Based on our payment simulations using the most recent available data, the proposed slight

increase in the fixed-loss amount for FY 2011 would be necessary to maintain the existing requirement that estimated outlier payments would equal 8 percent of estimated total LTCH PPS payments. (For further information on the existing 8 percent HCO ‘‘ target ’’ requirement, we refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 56022through 56024.) Maintaining the fixedloss 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 fixed-loss amount) would be larger. For these reasons, webelieve that proposing to raise the fixedloss amount is appropriate and necessary to maintain that estimated outlier payments would equal 8 percent


### 24089 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

of estimated total LTCH PPS payments as required under § 412.525(a).

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 proposed fixed-loss amount of $18,692 and the amount paid under the SSO policy as specified in § 412.529). D. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments for FY 2011

In accordance with § 412.525, the proposed standard Federal rate is adjusted to account for differences in area wages by multiplying the proposed labor-related share of the proposed standard Federal rate by the appropriate proposed LTCH PPS wage index (as

shown in Tables 12A and 12B of the Addendum of this proposed rule). The proposed standard Federal rate is also adjusted to account for the higher costs of hospitals in Alaska and Hawaii bymultiplying the proposed nonlaborrelated share of the proposed standardFederal rate by the appropriate cost-ofliving factor (shown in the chart in

section V.C.5. of the Addendum of this proposed rule). In this proposed rule, we are proposing to establish a standard Federal rate for FY 2011 of $39,856.75,

as discussed in section V.A.2. of the Addendum of this proposed rule. We illustrate the methodology to adjust the proposed 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 proposed FY 2011 LTCH PPS wage index value for CBSA 16974 is 1.0573 (Table 12A of the Addendum of this proposed rule). The Medicare patient is classified into MS–LTC–DRG 28 (Spinal Procedures with MCC), which has a proposed relative weight for FY 2011 of 1.0834 (Table 11 of the Addendum of this proposed rule).

To calculate the LTCH’s total adjusted Federal prospective payment for thisMedicare patient, we compute the wageadjusted proposed Federal prospective payment amount by multiplying the unadjusted proposed standard Federal rate ($39,856.75) by the proposed labor-related share (75.407 percent) and the proposedwage index value (1.0573). This wageadjusted amount is then added to the proposed nonlabor-related portion of the unadjusted proposed standard Federal rate (24.593 percent; adjusted for cost of living, if applicable) to determine the adjusted proposed Federal rate, which is then multiplied by the proposed MS–LTC–DRG relative weight (1.0834) to calculate the total adjusted proposed Federal LTCH PPS prospective payment for FY 2011 ($45,046.57). The table below illustrates the components of the calculations in this example.

VI. Tables

This section contains the tables referred to throughout the preamble to this proposed rule and in this Addendum. Tables 1A, 1B, 1C, 1D, 1E,
2, 3A, 3B, 4A, 4B, 4C, 4D–1, 4D–2, 4E, 4F, 4J, 5, 7A, 7B, 8A, 8B, 8C, 9A, 9C, 10, 11, 12A, and 12B are presented

below. Table 6G.—Additions to the CC Exclusions List, Table 6H.—Deletions from the CC Exclusions List, Table 6I.— Complete List of Complication and Comorbidity (CC) Exclusions, Table 6J.—Major Complication and Comorbidity (MCC) List, and Table 6K.—Complications and Comorbidity (CC) List are available only through the

Internet on the CMS Web site at: http:// www.cms.hhs.gov/AcuteInpatientPPS/.

We note that, because of the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for FY 2011 under the IPPS and the LTCH PPS, as well as the provisions of Public Law 111–148, as amended, that affect the policies and payment rates for FY 2010

under the IPPS and for RY 2010 under the LTCH PPS, tables 1A, 1B, 1C, 1D, 1E, 2, 4A, 4B, 4C, 4D–1, 4D–2, 4J, 9A, 10, and 11 will need to be updated to reflect these provisions. We plan to issue separate documents in the Federal Register and instructions to address these changes and to issue new tables that reflect these provisions.

The tables presented below are as

follows:

Table 1A.—Proposed 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.—Proposed National Adjusted

Operating Standardized Amounts,


### 24090 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules

Labor/Nonlabor (62 Percent Labor

Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal To 1) Table 1C.—Proposed Adjusted

Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor Table 1D.—Proposed Capital Standard

Federal Payment Rate Table 1E.—Proposed LTCH Standard

Federal Prospective Payment RateTable 2.—Acute Care Hospitals CaseMix Indexes for Discharges Occurring in Federal Fiscal Year 2009; Proposed 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.—Proposed Wage Index and

Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State—

FY 2011 Table 4B.—Proposed Wage Index and

Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State—

FY 2011 Table 4C.—Proposed 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.—Proposed Rural Floor

Budget Neutrality Factors for Acute Care Hospitals—FY 2011
Table 4D–2.—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.—Proposed Puerto Rico Wage

Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals by CBSA—FY 2011 Table 4J.—Proposed 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—December 2009 GROUPER

V27.0 MS–DRGs Table 7B.—Medicare Prospective

Payment System Selected Percentile Lengths of Stay: FY 2009 MedPAR Update—December 2009 GROUPER

V28.0 MS–DRGs Table 8A.—Proposed Statewide Average Operating Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—

March 2009 Table 8B.—Proposed Statewide Average

Capital Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—March 2009 Table 8C.—Proposed Statewide Average

Total Cost-to-Charge Ratios (CCRs) for

LTCHs—March 2009 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) —March 2009 Table 11.—Proposed 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.—Proposed LTCH PPS Wage

Index for Urban Areas for Discharges Occurring from October 1, 2010 through September 30, 2011 Table 12B.—Proposed LTCH PPS Wage

Index for Rural Areas for Discharges Occurring From October 1, 2010 through September 20, 2011

**BILLING CODE 4120–01–P**


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**BILLING CODE 4120–10–C**


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Appendix A: Regulatory Impact Analysis

Note: The impacts of the proposed FY 2011 policy changes and payment rates addressed in this Appendix do not reflect the provisions of the Patient Protection and Affordable Care Act (Pub. L. 111–148), as amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111–152). A number of the provisions of Public Law 111–148, as amended by Public Law 111– 152, affect 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 are unable to address those provisions in this proposed rule. Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new legislation. We plan to issue separate documents in the Federal Register addressing the provisions of Public Law 111– 148, as amended, that affect our proposed policies and payment rates for FY 2011 under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions implementing the provisions of Public Law 111–148, as amended, that affect the policies and payment rates for FY 2010 under the

IPPS and for RY 2010 under the LTCH PPS.

I. Overall Impact

We have examined the impacts of this proposed rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review) and 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 proposed rule is a major rule as defined in 5 U.S.C. 804(2). We estimate that the proposed changes for FY 2011 acute care hospital operating and capital payments will redistribute in excess of $100 million among different types of inpatient cases. The proposed market basket update to the IPPS rates required by the statute, in conjunction with other proposed payment changes in this proposed rule, would result in an estimated $142 million decrease in FY 2011 operating payments (or

¥ 0.1 percent increase), and an estimated $20 million decrease in FY 2011 capital payments (or

¥ 0.2 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 $41 million (or 0.8 percent).

Our operating impact estimate includes the proposed

¥ 2.9 percent documentation and coding adjustment applied to the hospital-specific rates, the proposed

¥ 2.4 percent documentation and coding adjustment applied to the Puerto Rico-specific rates and the proposed

¥ 2.9 percent adjustment for documentation and coding changes to the IPPS standardized amounts. In addition, our operating impact estimate includes the proposed 2.4 percent market basket update to the

standardized amount. 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/size/GC-SMALL-BUS-SIZESTANDARDS.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 proposed rule relating to acute care hospitals would have a significant impact on small entities as explained in this Appendix. Because we lack data on individual hospital receipts, we cannot

determine the number of small proprietary LTCHs. Therefore, we are assuming that all LTCHs are considered small entities for the purpose of the analysis in section 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 proposed rule constitutes our proposed regulatory flexibility analysis. Therefore, we are soliciting public comments on our estimates and analysis of the impact of this proposed rule on

those small entities.

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 proposed 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 proposed 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 proposed rule would not mandate any requirements for State,


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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 proposed 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 proposed rule is consistent with the regulatory philosophy and principles identified in Executive Order 12866, the RFA, and section 1102(b) of the Act. The proposed rule would affect payments to a substantial number of small rural hospitals, as well as other classes of hospitals, and the effects on some hospitals may be significant.

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 proposed changes in this proposed rule would further each of these goals while maintaining the financial viability of the hospital industry and ensuring access to high quality health care for Medicare beneficiaries. We expect that these proposed changes 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 proposed 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 variables as admissions, lengths of stay, or case-mix. However, in the FY

2008 IPPS final rule with comment period, we indicated that we believe that implementation of the MS–DRGs

would lead to increases in case-mix that

do not reflect actual increases in patients’ severity of illness as a result of more comprehensive documentation and coding. As explained in section II.D. of the preamble of this proposed rule, the FY 2008 IPPS final rule with comment period established a documentation and coding adjustment

of

¥ 1.2 percent for FY 2008,

¥ 1.8 percent for FY 2009, and

¥ 1.8 percent for FY 2010 to maintain budget neutrality for the transition to the MS– DRGs. Subsequently, Congress enacted

Public Law 110–90. Section 7 of Public

Law 110–90 reduced the IPPS documentation and coding adjustment

from

¥ 1.2 percent to

¥ 0.6 percent for

FY 2008 and from

¥ 1.8 percent to

¥ 0.9 percent for FY 2009. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43773), we postponed the documentation and coding adjustment to the average standardized amount until FY 2011 and did not apply the adjustment to the average standardized amount for FY 2010. An analysis of the

FY 2008 IPPS claims data and the FY

2009 IPPS claims data found that an estimated recoupment adjustment of

¥ 5.8 percent applied to the national standardized amount is required to

remove the full effects of documentation and coding due to the transition to MS– DRGs. Therefore, we are proposing to

reduce the national standardized amount for IPPS hospitals by 2.9 percent in FY 2011 with additional reductions in subsequent years.

Furthermore, we believe that hospitals that are paid under the hospital-specific payment rate, specifically SCHs and MDHs, experience similar increases in case-mix due to documentation and coding changes that do not reflect real changes

in case-mix. Our actuarial office estimates that hospitals paid under the hospital-specific rate experienced a 4.8 percent increase in payments due to documentation and coding changes in FY 2008 and FY 2009. We did not apply a documentation and coding adjustment to the hospital-specific rates when we first implemented the MS–DRG system.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43776), we postponed the documentation and coding adjustment to the hospital-specific payment rate until FY 2011 and did notapply the adjustment to hospitalspecific payment rate for FY 2010. We believe that SCHs and MDHs paid under the hospital-specific rate also shouldreceive an adjustment to the hospitalspecific rate due to changes in documentation and coding that do not reflect real changes in case-mix. Our best estimate, based on the most recently available data, is that a cumulative adjustment of

¥ 5.4 percent to the hospital-specific payment rate

would address the effect of the documentation and coding changes on future payments. Therefore, for FY 2011, we are proposing to apply a

¥ 2.9 percent documentation and coding adjustment to the hospital-specific
payment rate.

Our analysis, as described in section II.D. of the preamble of this proposed rule, shows that Puerto Rico hospitals experienced an increase in case-mix by 1.1 percent in FY 2008 due to changes in documentation and coding. We did not apply a documentation and coding adjustment to the Puerto Rico-specific rate when we first implemented the MS–DRG system. In the FY 2010 IPPS/ RY 2010 LTCH PPS final rule (74 FR 43777), consistent with our decision to postpone documentation and coding adjustments for the hospital-specific

rate and the Federal standardized amount, we also postponed the documentation and coding adjustment to the Puerto Rico-specific payment rate. Analysis of claims data from Puerto Rico hospitals found that a cumulative adjustment of

¥ 2.4 percent is required

to eliminate the full effect of the documentation and coding changes onfuture payments from the Puerto Ricospecific rate. Therefore, for FY 2011, we are proposing to apply a

¥ 2.4 percent adjustment to the Puerto Rico-specific rate to account for changes due to documentation and coding.

The impacts shown below illustrate the impact of the proposed FY 2011 IPPS changes on acute care hospital operating payments, including the proposed

¥ 2.9 percent FY 2011 documentation and coding adjustment

to the IPPS national standardized amount, the proposed

¥ 2.9 percent FY 2011 documentation and coding adjustment to the hospital-specific payment rates, and the proposed

¥ 2.4 percent FY 2011 documentation andcoding adjustment to the Puerto Ricospecific standardized amount. The proposed documentation and coding adjustment that would be applicable to

the Federal rate under the LTCH PPS for

FY 2011 is discussed in section IX. of this Appendix. As we have done in the previous rules, we are soliciting public

comments and information about the anticipated effects of the proposed changes on acute care hospitals and our methodology for estimating them.

IV. Hospitals Included in and Excluded

From the IPPS

The prospective payment systems forhospital inpatient operating and capitalrelated costs of acute care hospitals encompass most general short-term,


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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 March 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 are also approximately 1,338 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 proposed policy changes.) There are also 1,270 IPPS-excluded hospitals and 2,169 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 proposed rule. The impact of the proposed 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 March 2010, there were 3,439 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-of-increase ceiling under § 413.40. The remaining providers, 228 rehabilitation hospitals and 961 rehabilitation units, and 429 LTCHs, are paid the Federal prospective per discharge rate under the IRF PPS and the LTCH PPS, respectively, and 507 psychiatric hospitals and 1,208 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 in this proposed 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 first quarter forecast, with historical data through the 2009 fourth quarter, we are estimating that the proposed FY 2011 update to the IPPS operating market basket would be 2.4 percent (that is, the current estimate of the market basket rate-of-increase). In addition, in accordance with § 403.752(a) of the regulations, RNHCIs are paid under § 413.40. Therefore, for RNHCIs, the proposed update is the

same as for children’s and cancer hospitals, which is the percentage increase in the FY 2011 IPPS operating market basket increase, estimated to be
2.4 percent.

The impact of the proposed update in

the rate-of-increase limit on those excluded hospitals depends on the cumulative cost increases experienced by each excluded hospital since its applicable base period. For excluded hospitals that have maintained their

cost increases at a level below the rateof-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, whosecosts exceed 110 percent of its rate-ofincrease limit receives its rate-ofincrease 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 proposed rule, we are announcing proposed 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 0.1 percent compared to FY 2010, largely due to the documentation and coding adjustments and market basket update to the IPPS rates. This amount reflects the proposed FY 2011 documentation and coding adjustments

described above and in section II.D. of the preamble of this proposed rule:

¥ 2.9 percent for the IPPS national standardized amounts,

¥ 2.9 percent for the IPPS hospital-specific rates, and

¥ 2.4 percent for the IPPS Puerto Ricospecific 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 proposed changes to each system. This section deals with changes to the operating 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 proposed changes in this proposed rule. However, there are other proposed changes for which we do

not have data available that would allow us to estimate the payment impacts using this model. For those proposed changes, we have attempted to predict the payment impacts based upon our experience and other more limited data.

The data used in developing the quantitative analyses of 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 proposed changes to the operating PPS do not incorporate cost data, data from the most recently available hospital cost report 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


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components, it is very difficult to precisely quantify the impact associated with each change. Third, we use various sources for the data used 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 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.

The changes discussed separately below are the following:

• The effects of the proposed annual reclassification of diagnoses and procedures, full implementation of theMS–DRG system and 100 percent costbased MS–DRG relative weights.

• The effects of the proposed changes in hospitals’ wage index values reflecting wage 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 proposed 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 third year of the 3-year transition to apply rural floor budget neutrality adjustment at the State level. For purposes of this impact analysis, we assume that in FY 2011, hospitals will receive a wage index with the State level rural and imputed floor budget neutrality adjustment. However, we recognize that this policy was recently changed by the provisions of

section 3141 of Public Law 111–148 and will address the new impact in a separate document in the Federal Register

.

• 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 proposed FY 2011 policies relative to payments based on FY 2010 policies that include the proposed market basket update of 2.4
percent.

To illustrate the impacts of the proposed FY 2011 changes, our analysis begins with a FY 2010 baseline simulation model using: The proposed FY 2011 market basket update of 2.4 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, provides that, for FY 2007 and subsequent years, 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. 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 proposed 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-ofincrease 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 proposed change.

Our final comparison illustrates the proposed 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 proposing to update the standardized amounts for FY 2011 using the most recently forecasted hospital market

basket increase for FY 2011 of 2.4 percent. (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 2.4 percent to 0.4 percent.) Under section 1886(b)(3)(B)(iv) of the Act, the updates to the hospital-specific amounts for SCHs and for MDHs are also equal to the market basket percentage increase, or
2.4 percent.

A second significant factor that affects the changes in hospitals’ payments per

case from FY 2010 to FY 2011 is the change in a hospital’s 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 2011 will be 5.1 percent of total MS–DRG payments.

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 higher 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 proposed 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 2,502 hospitals located in urban areas included in our analysis. Among these, there are 1,365 hospitals located in large urban areas (populations over 1 million), and 1,137 hospitals in other urban areas (populations of 1 million or fewer). In addition, there are 970 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.

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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 section 1886(d)(8)(B) and section 1886(d)(8)(E) of the Act that have implications for capital payments) are 2,555, 1,403, 1,152 and 917, 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 2,434 nonteaching hospitals in our analysis, 798 teaching hospitals with fewer than 100 residents, and 240 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 183 RRCs, 340 SCHs, 187 MDHs, and 108 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.

The final category shows the impact of the proposed policy changes on the 19 cardiac hospitals in our analysis.

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C. Effects of the Proposed 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 proposed MS–DRG reclassifications, as discussed in section II. of the preamble to this proposed 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 the preamble of this proposed rule, the proposed 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 proposed relative weights and the reclassification changes

to the GROUPER are described in more detail in section II.H. of the preamble to this proposed rule. The proposed 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 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. In FY 2010, we began calculating a budget neutrality factor to account for changes in MS–DRGs and relative weights separately from the budget neutrality factor to account for changes in wage data. In addition, as described in section

II.A.4. of the Addendum to this proposed rule, we are including IME payments made on Medicare Advantage claims to IPPS hospitals in order to calculate budget neutrality.

The ‘‘ All Hospitals ’’ line in Column 1 indicates that proposed changes due to MS–DRGs and relative weights will increase payments by 0.3 percent before application of the budget neutrality factor. The proposed recalibration budget neutrality factor is 0.996856, 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 and rural hospitals will not experience a change in payments when recalibration budget neutrality is applied.

E. Effects of Proposed 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 proposed 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 onFY 2006 wage data, the current laborrelated share and having a 100-percent occupational mix adjustment applied, toa model using the FY 2011 prereclassification wage index with the labor-related 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 Middle Atlantic region, which experiences a 0.4 percent increase before applying an adjustment for budget neutrality. The largest decline from updating the wage data is seen in Urban East South Central (0.5 percent decrease).

In looking at the wage data itself, the national average hourly wage increased 1.2 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 1.2 percent increase in average hourly wage. Of the 3,442 hospitals with wage data for both FYs 2010 and 2011, 2,696, or 78.3 percent, experienced an average hourly wage increase of 1.2
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, 39 will experience an increase of more than 5 percent and less than 10 percent and 7 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, 938 rural hospitals will experience increases or decreases of less than 5 percent, while 2,415 urban hospitals will experience increases or decreases of less than 5 percent. Twenty-four 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 are illustrating 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 .................................................................................................. ............................. 7 0 Increase more than 5 percent and less than 10 percent .......................................................................... .............. 39 2 Increase or decrease less than 5 percent ....................................................................................... ........................ 2,415 938


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Percentage change in area wage index values Number of hospitals

Urban Rural

Decrease more than 5 percent and less than 10 percent .......................................................................... ............ 24 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 proposed labor-related share are budget neutral without regard to the lower labor-related share of 62 percent applied to hospitals with a wage index less than or equal to 1. In other words, the wage budget neutrality is calculated under the assumption that all hospitals receive the higher labor-related share of the standardized amount. Because the wage data changes did not change overall payments (displayed in Column 3), the wage budget neutrality factor is minimal at 1.000107, and the overall payment change is 0.0 percent.

G. Combined Effects of Proposed MS–DRG and Wage Index Changes (Column 5)

Section 1886(d)(4)(C)(iii) of the Act requires that changes to MS–DRG reclassifications and the relative weights cannot increase or decrease aggregate payments. In addition, section 1886(d)(3)(E) of the Act specifies that any updates or adjustments to the wage index are to be budget neutral. We computed a proposed wage budget neutrality factor of 1.000107, and a proposed recalibration budget neutrality factor of 0.996856 (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 proposed cumulative wage and recalibration budget neutrality adjustment is 0.996963, 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 proposed rule, we are estimating that the proposed changes in the MS–DRG, relative weights and updated wage data with wage and budget neutrality applied will result in a 0.0 change in payments. The estimated changes shown in this

column reflect the combined effects of the changes in Columns 2, 3, and 4 and the budget neutrality factors discussed previously.

We estimate that the combined impact of the proposed changes to the relative weights and MS–DRGs and the proposed 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 0.6 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 0.5 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.

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. This column reflects all MGCRB decisions, Administrator appeals and decisions of hospitals for FY 2011 geographic reclassifications.

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 0.991756 to ensure that the effects of the section 1886(d)(10) reclassifications are budget neutral (section II.A. of the Addendum to this proposed rule). Geographic reclassification generally benefits hospitals in rural areas. We estimate that geographic reclassification will increase payments to rural hospitals by an average of 1.6 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 0.1 percent increase in payments and rural hospitals in the East South Central region will experience a 2.4 percent increase in payments.

Table 9A of the Addendum to this proposed rule reflects the approved

reclassifications for FY 2011.

I. Effects of the Rural Floor and Imputed Floor, Including Application of Budget Neutrality at the State Level (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 proposed rule, section

4410 of Public Law 105–33 established the rural floor by requiring that the wage index for a hospital in any urban area cannot be less than the wage index received by rural hospitals in the same State. 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


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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, for purposes of this impact analysis, we assume application of the third year of the transitional period so that wage indices adjusted for the rural floor will have 100 percent of the wage index adjusted with a within-State rural budget neutrality factor. However, we recognize that this policy was recently changed by the provisions of section

3141 of Public Law 111–148.

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. Furthermore, as noted above, in that final rule we provided for a 3-year transition to the rural floor budget neutrality adjustment at the State level. Therefore, we also apply the imputed floor budget neutrality adjustment at the State level through a 3-year transition, so that, for FY 2011, wage indices adjusted for the imputed floor will have 100 percent of the wage index computed using the within-State rural and imputed budget neutrality adjustment.

Column 7 shows the projected impact of the rural floor and the imputed floor and the within-State rural and imputed floor budget neutrality. The columncompares the proposed 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, in prior years, all other hospitals (that is, all rural hospitals and those urban hospitals to which the adjustment is not made) had experienced a decrease in payments due to the budget neutrality adjustment applied nationally. However, because, for FY 2011, this

calculation assumes that the rural floor adjusted wage index is made budget neutral through a within-State budget neutrality factor, rural hospitals and urban hospitals located in States that do

not benefit from the rural floor will not experience a change in payments

attributable to the rural floor. Conversely, all hospitals in States with hospitals receiving a rural floor will have their wage indices downwardly adjusted to achieve budget neutrality

within the State.

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

located in States with a rural floor 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 within the State. 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 regions can expect 0 percent change in payments because within each state, the rural floor is budget neutral and increases in payments for providers receiving the rural floor re offset by the within-State budget neutrality factors applied to the wage index of the providers in States with a rural floor. Rural hospitals

located in the Pacific area will experience a 0.3 percent decrease in payments because of the rural floor budget neutrality factor in California downwardly adjusts the wage index by 2.4 percent. Rural hospitals located in the Middle Atlantic area will experience a 0.1 percent decrease in payments because of the imputed rural floor budget neutrality factor (0.97946) in New Jersey downwardly adjusts the wage index for rural hospitals by approximately 2 percent.

J. Effects of the Proposed Wage Index Adjustment for Out-Migration (Column 8)

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 areawith a higher wage index. With the outmigration adjustment, small rural DSH providers with less than 100 beds will experience a 0.5 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 $20 million.

K. Effects of All Proposed Changes Prior to Documentation and Coding (or CMI) Adjustment (Column 9)

Column 9 shows our estimate of the changes in payments per discharge from FY 2010 and FY 2011, resulting from all proposed changes reflected in this proposed rule for FY 2011 (including statutory changes), other than the proposed documentation and coding adjustment. Column 9 reflects the impact of all other FY 2011 changes relative to FY 2010, including those shown in Columns 1 through 8. The average increase in payments under the IPPS for all hospitals is approximately 2.8 percent. In addition, it reflects the estimated 0.5 percentage point difference between the projected outlier payments in FY 2010 (5.1 percent of total MS–DRG payments), 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 proposed rule.

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 9 may not equal the sum of the percentage changes described above.

L. Effects of All Proposed Changes With 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 proposed changes reflected in this proposed rule for FY 2011 (including statutory changes). This column includes the proposed FY 2011 documentation and coding adjustment

of

¥ 2.9 percent on the national standardized amount,

¥ 2.9 percent on the hospital-specific rates, and

¥ 2.4 percent on the Puerto Rico-specific standardized amount, which overall accounts for a 2.9 percent decrease in
payments.

Column 10 reflects the impact of all proposed FY 2011 changes relative to


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FY 2010, including those shown in Columns 1 through 9. The average decrease in payments under the IPPS for all hospitals is approximately

¥ 0.1 percent. As described in Column 9, this average decrease includes the effects of the 2.4 percent market basket update, the 0.5 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). 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.

The overall proposed change in payments per discharge for hospitals paid under the IPPS in FY 2011 is estimated to decrease by 0.1 percent. The payment decreases among the hospital categories are largely attributed to the proposed documentation and coding adjustments. Hospitals in urban areas would experience an estimated 0.1 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 0.5 percent in FY 2011 as compared to FY 2010. The decreases larger than the national average for rural areas are largely attributed to the differential impact of the MS–DRGs and wage data

and due to the

¥ 2.9 percent documentation and coding adjustment applied to the national standardized

amount and the

¥ 2.9 percent documentation and coding adjustment to the hospital-specific rate applied to SCHs and MDHs, which generally are classified as rural hospitals.

Among urban census divisions, the largest estimated payment decreases will be 0.9 percent in the New England region and 0.6 percent in the Middle Atlantic region, while urban hospitals in the Pacific will see the largest payment increases (0.5 percent). Among the rural regions, the providers in the New England region will experience the largest decrease in payments (1.6 percent) because of reductions due to

case-mix and the documentation and coding adjustments while rural hospitals in the West South Central region will experience an increase in payments by 0.4 percent due to increases in case-mix, wage data and

MGCRB reclassification.

Among special categories of rural hospitals, MDHs will receive an estimated payment decrease of 0.6 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 proposed 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 0.5 percent due to the proposed documentation and coding adjustments to the nationalstandardized amount and the hospitalspecific rates.

Rural hospitals reclassified for FY 2011 are anticipated to receive a 0.3 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 0.8 percent in FY 2011 relative to FY 2010 due to increases in payments attributable to changes in the MS–DRGs and relative weights.

M. Effects of Proposed Policy on Payment Adjustments for Low-Volume Hospitals

For FY 2011, we are proposing to continue to apply the volume adjustment criteria we specified in the FY 2005 IPPS final rule (69 FR 49099). We expect that three providers will receive the low-volume adjustment for

FY 2011. We estimate that low-volume hospitals will experience an increase of $114,000 in payments due to the low volume payment adjustment.

N. Impact Analysis of Table II

Table II presents the projected impact of the proposed 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 proposed payments per discharge for FY 2011, as calculated under our models. Thus, this table presents, in terms of the average dollar amounts paid per discharge, the combined effects of the proposed changes presented in Table I. The estimated percentage changes shown in the last column of Table II equal the estimated percentage changes in average payments per discharge from Column 10

of Table I.

**BILLING CODE 4120–01–P**


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**BILLING CODE 4120–01–C**
VII. Effects of Other Proposed Policy Changes

In addition to those proposed policy changes discussed above that we are able to model using our IPPS payment simulation model, we are proposing to make various other changes in this proposed rule. Generally, we have limited or no specific data available with which to estimate the impacts of these changes. Our estimates of the likely impacts associated with these other proposed changes are discussed

below.

A. Effects of Proposed Policy on HACs, Including Infections

In section II.F. of the preamble of this proposed rule, we discuss our implementation of section 1886(d)(4)(D) of the Act, which requires the Secretary to identify conditions that are: (1) High cost, high volume, or both; (2) result in the assignment of a case to an MS–DRG that has a higher payment when present as a secondary diagnosis; and (3) could reasonably have been prevented through application of evidence-based guidelines. For discharges occurring on or after October 1, 2008, hospitals will not receive additional payment for cases

in which one of the selected conditions was not present on admission, unless based on data and clinical judgment, it

cannot be determined at the time of

admission whether a condition is present. That is, the case will be paid as though the secondary diagnosis were not present. However, the statute also requires the Secretary to continue counting the condition as a secondary diagnosis that results in a higher IPPS payment when doing the budget neutrality calculations for MS–DRG

reclassifications and recalibration. Therefore, we will perform our budget neutrality calculations as though the payment provision did not apply, but Medicare will make a lower payment to the hospital for the specific case that includes the secondary diagnosis. Thus, the provision results in cost savings to the Medicare program.

We note that the provision will only apply when one or more of the selected conditions are the only secondary diagnosis or diagnoses present on the claim that will lead to higher payment. Medicare beneficiaries will generally have multiple secondary diagnoses during a hospital stay, such that beneficiaries having one MCC or CC will frequently have additional conditions that also will generate higher payment. Only a small percentage of the cases will have only one secondary diagnosis that would lead to a higher payment. Therefore, if at least one nonselected secondary diagnosis that leads to higher payment is on the claim, the case will continue to be assigned to the higher paying MS–DRG and there will be no Medicare savings from that case. In addition, as discussed in section II.F.3.e. of the preamble of this proposed rule, it is possible to have two severity levels

where the HAC does not affect the MS– DRG assignment or for an MS–DRG not to have severity levels. In either of these circumstances, the case will continue to be assigned to the higher paying MS–

DRG and there will be no Medicare savings from that case.

The HAC payment provision went into effect on October 1, 2008. Our savings estimates for the next 5 fiscal years are shown below:

Year Savings (in millions)

FY 2011 ................................ 23

FY 2012 ................................ 24

FY 2013 ................................ 25

FY 2014 ................................ 26

FY 2015 ................................ 26


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B. Effects of Proposed Policy Relating to New Medical Service and Technology Add-On Payments

In section II.I. of the preamble to this proposed rule, we discuss the 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. As discussed in section II.I.4. of the preamble of this proposed rule, we have yet to determine whether any of the three applications we received forconsideration for new technology addon payments for FY 2011 will meet the specified criteria. Consequently, it is premature to estimate the potential payment impact of any potential new technology add-on payments for FY 2011. We note that if any of the three applications are found to be eligible for new technology add-on payments for FY 2011, in the FY 2011 IPPS/LTCH PPS final rule, we would discuss the estimated payment impact for FY 2011

in that final rule.

However, we are proposing tocontinue to make new technology addon payments in FY 2011 for the

Cardiowest TM 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 topredict the actual new technology addon payment for each case, our estimate

below is based on the increase in addon 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 TAH-t will increase overall FY 2011 payments by $9.54 million. For FY 2010, the applicant estimated that approximately 2,286 Medicare beneficiaries would be eligible for the Spiration ® IBV ® 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. C. Effects of Proposed 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 proposed rule, we are proposing to retire one of the FY 2011 quality measures. We believe that this proposal would 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 the preamble of this proposed rule, we discuss our proposed requirements for hospitals to report quality data under the RHQDAPU program in order to receive the full payment update for FY 2012, FY 2013,

and FY 2014. We estimate that approximately 104 hospitals may not receive the full payment update in any fiscal year. We believe that most of these hospitals would be either small rural or small urban hospitals. However, at this time, information is not available to determine the hospitals that will not meet the requirements for the full hospital market basket increase for FY 2012, FY 2013, and FY 2014.

For the FY 2012 payment determination, hospitals would be required to submit all-patient volume

data for selected MS–DRGs that relate to RHQDAPU program measures. The submission of all-patient volume data will occur free of charge to hospitals. Therefore, the additional resource burden to hospitals for this requirement is expected to be minimal. For the FY 2013 payment determination, we have proposed that hospitals will choose one of four proposed registry-based topics for which there are currently a number of nationwide registries each individually collecting data from a significant proportion of IPPS hospitals. We have proposed that hospitals will submit data on proposed measuresincluded within the proposed registrybased topic to a registry that we qualify for this purpose.

For the proposed ICD Complications registry-based topic, currently, 100 percent of hospitals performing ICD implantation participate in theAmerican College of CardiologyNational Cardiovascular Data Registry’s (ACC–NCDR) ICD registry and 78 percent of those hospitals are already submitting the additional data elements and secondary population needed to calculate the ICD complication measure. For the proposed Cardiac Surgery registry-based topic, we have estimated that 80 to 90 percent of hospitals performing cardiac surgery currently participate in a cardiac surgery registry. Therefore, the number of additional hospitals not currently participating in a cardiac surgery registry that would choose this topic is expected to be minimal. For the proposed Stroke and Nursing Sensitive Care registry-based topics, there are a number of registries to which at least 25 percent of IPPS hospitals currently submit data. We currently do not know if hospitals

would choose one of these two proposed topics if they are not already submitting data to one of these registries. The AMI-statin at discharge measure, proposed for FY 2013 payment determination, would 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 proposed addition of

four chart-abstracted measures that require hospitals to submit data on all inpatients is expected to create an additional burden for hospitals. The information needed for the proposed ED–Throughput measures is captured as routine documentation, and therefore is not expected to impose much additional burden. The proposed Global Immunization measures would 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 would

need to be collected will increase.

We also note that, beginning with 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 the first quarter of CY 2010 through the third quarter of CY 2010. 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 would result in approximately 9,600 charts per quarter being submitted to CMS. We reimburse hospitals for the cost of


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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 we are proposing for the FY 2012 annual payment update, we

estimate that CMS would 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 12 charts per hospital per quarter represents a minimal burden to participating hospitals.

We have finalized a new validation methodology for FY 2012. We believe that these modifications will not change the number of hospitals that fail the validation requirement for FY 2012 from previous years. We are changing 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 will validate data for a smaller number of hospitals each year and we changed the validation threshold from 80 percent to 75 percent. In addition, we conducted analysis in FY 2010 of past validation data and found that at least 95 percent of sampled hospitals are expected to pass the 75 percent validation threshold starting in FY 2012. In combination, we believe that these proposed revisions

will counterbalance each other and result in no additional impact to the number of hospitals failing our validation requirement for 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, we are proposing that the hospital 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 40 hospitals would fail this requirement for FY 2012. We estimate that this proposal 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 program component of the annual payment update at risk. This proposed 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 proposed requirement would benefit hospitals seeking a reconsideration 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 would 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 stratum to the current RHQDAPU validation sample of SCIP, AMI, HF, and PN cases. We will consider selecting two additional samples of three cases per selected hospital per quarter to validate proposed surgical site infection, blood stream infection, ED-Throughput and

Global Immunization measures. If we later propose this requirement and adopt it as final through rulemaking, we would randomly select a total of 18 records per quarter per validated hospital in 6 strata (SCIP, AMI, HF, PN, CLABSI/SSI, and ED-Throughput/ Immunization measures). The requirement of an additional 6 charts per hospital submitted for validation would result in approximately 4,800 additional charts per quarter being

submitted to CMS. We reimburse hospitals for the cost of sending charts

to the 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, we would expend approximately $105,600 per quarter to collect the charts for the annual payment update for FY 2014 and future years. Given that

we reimburse for the data collection effort, we believe that a proposed requirement of the additional records in FY 2014 per hospital per quarter represents a minimal burden to the participating hospital. D. Effects of Proposed Policy on Payment for Transfer Cases From Medicare Participating Hospitals to Nonparticipating Hospitals and CAHs

In section IV.B. of the preamble of this proposed rule, we are proposing to expand the acute care transfer policy to transfers to nonparticipating acute care hospitals and to CAHs. This proposed 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 the any change in Medicare payments to hospitals associated with this proposed change would 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 proposed expansion of the acute care transfer policy would not have a material impact on Medicare payments to acute care hospitals.

E. Effects of Proposed Change in Criteria for MDHs

In section IV.D. of the preamble of this proposed rule, we discuss ourproposal to revise the existing Medicaredependency criterion for MDHs at § 412.108(a)(1)(iii) of the regulations (that is, ‘‘ 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 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 hospital inpatient coverage benefit.

Based on our analysis of data for cost reporting periods beginning in FYs 2007 and 2008, we estimate that the proposed change to the MDH definition of Medicare-dependency may allow 48 more IPPS hospitals to qualify as an MDH. We estimate that this proposed


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change would result in increased expenditure of $3.6 million in FY 2011. (We note that the PPACA (Pub. L. 111– 148) extended the sunset date for MDHs

from the end of FY 2011 to the end of FY 2012. We plan to issue a separate rulemaking document in the Federal Register to address this statutory provision.

F. Effects of Proposed Change Relating to Payment Adjustment for Disproportionate Share Hospitals

In section IV.E. of the preamble of this proposed rule, we are proposing to change, effective for FY 2011 and subsequent years, 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 now proposing to adopt the same revised data matching process for calculating hospitals’ DSH SSI fractions for FY 2011 and subsequent fiscal years. In addition, we are proposing to use, in the revised matching process, a later update of the MedPAR claims data file and the SSI eligibility data file. Specifically, we are proposing to 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 proposed revision to the 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 and facilitating administrative finality through the timely final settlement of Medicare cost reports.

We are not able to provide a detailed analysis of the potential impact of the proposed 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 proposed 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 would increase the number of inpatient claims for a given Federal fiscal year and, therefore, would

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 were for Medicare patients who were 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 were 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 would

increase while it would 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 mid1990’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 proposals that would change this policy,

we are unable to determine if this issue has any cost or savings for FY 2011 and subsequent years.

Finally, our proposed 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 were 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 would increase.

G. Effects of Proposed 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 proposed rule, we discuss our proposal to clarify our 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 proposed

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 will not provide them with knowledge or skills that could be applied for additional board certification in another subspecialty, nor do they need that training to satisfy requirements for board certification in the specialty program they already successfully completed. We also are proposing 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. ’’

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 proposed clarification of existing policy and is not a policy revision or addition of a new policy. The proposed policy change to the regulations might have some limited financial impact to the extent that a hospital previously included trainees


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who were not formally enrolled in an approved program in its FTE counts, and as a result of the proposed change to the regulations, would no longer be

able to include such trainees in its FTE count for IME and direct GME purposes. However, 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 proposed 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 proposed rule, we discuss our proposal 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 proposing to change our policy to provide for electronic submission of the affiliation agreement that is required

to be sent to the CMS Central Office. 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 are proposing 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 are proposing that the electronic affiliation agreement

would need to be submitted either as a scanned copy or a PDF version of that hard copy agreement. We are proposing not to 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.

We believe that allowing an electronic submission of the affiliation agreement

to the CMS Central Office would 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 would minimize the paperwork burden for hospitals.

H. Effects of Proposed Changes Relating

to CRNA Services Furnished in Rural Hospitals and CAHs

In section IV.I. of the preamble of this proposed rule, we discuss our proposal to amend 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 proposing to revise 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 proposing to revise the regulations to state that, effective for cost reporting periods beginning on or after October 1, 2010, hospitals and CAHs that have reclassified pursuant to section 1886(d)(8)(E) of the Act and § 412.103 of the regulations would be 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 proposed 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 would 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 would exceed this threshold. Therefore, while we believe the impact would be relatively minor, we are unable to quantify the impact of the proposed change.

I. Effects of Implementation of Rural Community Hospital Demonstration Program

In section IV.J. of the preamble of this proposed rule, we discuss our implementation of section 410A of Public Law 108–173, which requires the Secretary to establish a demonstration that will 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 IV.J. of the preamble of this proposed 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 proposing to adjust the national IPPS rates by an amount sufficient to account

for the added costs of this demonstration. In other words, we are proposing to apply budget neutrality across the payment system as a whole rather than 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


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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.

An extension of this demonstration has been mandated by the Patient

Protection and Affordable Care Act (Pub. L. 111–148). The provisions of

Public Law 111–148 will be addressed in a separate notice in the Federal Register . For this proposed rule, because the mandated period for the demonstration was scheduled to end by the end of FY 2010, we are proposing no additional payment offset for upcoming years of the demonstration. However, we are proposing to make an adjustment

in the FY 2011 IPPS final rule to the national IPPS rates 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. The specific numeric value associated with the proposed adjustment to the national

IPPS rates cannot be known until cost reports beginning in FY 2007 of the hospitals participating during FY 2007

in the demonstration are settled. We expect those cost reports to be settled prior to the publication of the FY 2011 IPPS final rule, and that we will be able to provide an estimated amount in the

FY 2011 IPPS final rule.

J. 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 proposed rule, we discuss our proposal to amend the regulations to permit a CAH to elect to be paid for outpatient services under the optional

method on a continuous basis. 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 proposing 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. 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 proposing that

these CAHs would have until December 1, 2010, to terminate their election. We anticipate that there would be no additional Medicare expenditure associated with this proposed change because we are not proposing any changes that govern payment rules for CAHs. Rather, we believe the regulatory changes we are proposing would 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. Consideration of Costs of Provider

Taxes as Allowable Costs for CAHs

In section VI.B.3. of the preamble of this proposed rule, we discuss our proposal to clarify our policy on the

determination of whether the costs of property taxes are allowable costs under Medicare, as described in sections

2212.1 and 2212.2 of the PRM. This is a clarification of our longstanding policy. Therefore, we have determined that there is no financial impact of the proposed change.

K. Effects of Proposed Policy Relating to Effective Date of Provider Agreements and Supplier Approvals

In section VIII. of the preamble of this proposed rule, we discuss our proposal to clarify 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, the proposed clarification would not change the process for providers and suppliers. Therefore, the impact of our proposed clarification is negligible.

L. Effects of Proposed Changes Relating to Hospital Rehabilitation Services and Respiratory Care Services Conditions of Participation

In section IX. of the preamble of this proposed rule, we discuss our proposed 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 this proposal would impose minimal additional costs on hospitals. In fact, hospitals may realize some minimal cost savings due to the regulatory flexibility of these proposed changes, which may allow for greater consistency with existing State laws and with hospital policies and procedures. The cost of implementing these proposed changes would 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 proposed 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 would be offset by the benefits derived from the overall intent of this proposed clarification 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 proposed changes would clarify existing hospital conditions of participation to make them more consistent not only with each other, but also with many State laws and with current practice. Therefore, while this proposal would impose a minimal burden on hospitals, we believe that, in sum, the changes proposed would greatly benefit hospitals overall.

VIII. Effects of Proposed Changes in the Capital IPPS

A. General Considerations

Fiscal year (FY) 2001 was the last year of the 10-year transition period established to phase in the PPS for hospital capital-related costs. During the transition period, hospitals were paid under one of two payment methodologies: fully prospective or hold harmless. Under the fully prospective methodology, hospitals were paid a blend of the capital Federal rate and their hospital-specific rate (§ 412.340). Under the hold-harmless methodology, unless a hospital elected payment based on 100 percent of the capital Federal rate, hospitals were paid 85 percent of reasonable costs for old capital costs (100 percent for SCHs) plus an amount for new capital costs based on a


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proportion of the capital Federal rate (§ 412.344). As we state in section V. of the preamble of this proposed rule, with the 10-year transition period ending with hospital cost reporting periods beginning on or after October 1, 2001 (FY 2002), beginning in FY 2002 capital prospective payment system payments for most hospitals are based solely on the capital Federal rate. Therefore, we no longer include information on obligated capital costs or projections of old capital costs and new capital costs,

which were factors needed to calculate payments during the transition period, for our impact analysis.

The basic 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.

The data used in developing the impact analysis presented below are taken from the December 2009 update of

the FY 2009 MedPAR file and theDecember 2009 update of the ProviderSpecific 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 December 2009 update of the most recently available hospital cost report data (FYs 2006 and 2007) to categorize hospitals. Our analysis has several qualifications. We use the best data available and make assumptions about case-mix and beneficiary enrollment as described below. In addition, as

discussed in section V.E. of the preamble of this proposed rule, we are proposing a

¥ 2.9 percent documentation and coding adjustment to the capital Federal 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 proposal results in a cumulative adjustment factor of 0.957 that we are proposing to apply to the capital Federal rate to account for improvements in documentation and coding under the MS–DRGs in FY 2011. We also are proposing to adjust the Puerto Rico-specific capital rate in FY 2011 by

¥ 2.4 percent 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, for individual hospitals, some miscategorizations are possible.

Using cases from the December 2009 update of the FY 2009 MedPAR file, we simulated payments under the capital

PPS for FY 2010 and FY 2011 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.

As we explain in section III.A.4. of the Addendum to this proposed rule, payments are no longer made under the regular exceptions provision under §§ 412.348(b) through (e). Therefore, we no longer use the actuarial capital cost model (described in Appendix B of the August 1, 2001 proposed rule (66 FR 40099)). 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 casemix index will increase by 1.0 percent

in both FYs 2010 and 2011.

• We estimate that the Medicare discharges will be approximately 11.8

million in FY 2010 and 12.1 million 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.1.a. of the Addendum to this proposed rule, the proposed FY 2011 update is 1.5 percent.

• In addition to the FY 2011 update factor, the proposed FY 2011 capital

Federal rate was calculated based on a proposed GAF/DRG budget neutrality factor of 1.0000, a proposed outlier adjustment factor of 0.9424, and a proposed (special) exceptions adjustment factor of 0.9997.

• For FY 2011, as discussed above and in section V.E. of the preamble to this proposed rule, we also are proposing to apply a 0.957 adjustment to the proposed FY 2011 capital Federal rate for changes in documentation and coding that are expected to increase

case-mix under the MS–DRGs.

B. Results

We used the actuarial model

described above to estimate the potential impact of our proposed 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 December 2009 update of the FY 2009 MedPAR file, the December 2009 update to the PSF, and the most recent cost report data from the December 2009 update of HCRIS. In Table III, we present a comparison of estimated total payments per case for FY 2010 compared to FY 2011 based on the proposed FY 2011 payment policies. Column 2 shows estimates of payments per case under our model for FY 2010. Column 3 shows estimates of payments per case under our model for FY 2011. Column 4 shows the total percentage change in payments from FY 2010 to FY 2011. The change represented in Column 4 includes the proposed 1.5 percent update to the capital Federal rate and other proposed changes in the adjustments to the capital Federal rate. The comparisons are provided by: (1) Geographic location; (2) region; and (3) payment classification.

The simulation results show that, on average, capital payments per case in FY 2011 are expected to decrease as compared to capital payments per case in FY 2010. The proposed capital

Federal rate for FY 2011 would increase 1.5 percent as compared to the FY 2010 capital rate. The proposed changes to the GAFs are expected to result, on average, in a slight decrease in capital payments, although, for rural areas, it is more of a contributing factor to the overall estimated decrease in capital payments than to urban areas mostly due to the application of the rural floor to the wage index. Our impact analysis includes actuarial assumptions of growth from FY 2010 to FY 2011 resulting in a slight increase in capital payments. The net result of these proposed changes is an estimated

¥ 0.2 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 are expected to experience a 0.2 percent decrease in capital IPPS payments per case in FY 2011 as compared to FY


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2010, while hospitals in large urban areas are expected to experience a 0.1 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 other regions are estimated to experience decreases in capital payments from FY 2010 to FY 2011. For the urban regions, changes in capital payments range from a

¥ 1.3 percent for the New England urban region to a 0.5 percent for the Pacific urban region. Estimates for two urban regions, East North Central and West North Central, show no change in total capital payments from FY 2010 to FY 2011. Estimates of changes for the rural regions from FY 2010 to FY 2011 range from a 2.3 percent decrease in capital payments in the New England rural region to a 0.6 percent increase for the West South Central rural region. These regional differences are primarily due to the proposed changes to the GAFs and

differences in the estimated increase in outlier payments from FY 2010 to FY

2011.

By type of ownership, proprietary hospitals are estimated to experience an increase of 0.1 percent in capital payments per case, and voluntary hospitals are estimated to experience a 0.3 percent decrease in capital payments per case from FY 2010 to FY 2011. We estimate no change in capital payments per case for government hospitals from

FY 2010 to FY 2011.

Section 1886(d)(10) of the Act

established the MGCRB. Before FY 2005, hospitals could apply to the MGCRB for reclassification for purposes of the standardized amount, wage index, or both. Section 401(c) of Public Law 108–173 equalized the standardized amounts under the operating IPPS. Therefore, beginning in FY 2005, there is no longer reclassification for the purposes of the standardized amounts; however, hospitals still 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.

All classifications of reclassified hospitals are expected to experience a decrease in capital payments per case in FY 2011 as compared to FY 2010. Urban

reclassified and rural reclassified hospitals are expected to have a decrease in capital payments of 0.2 percent and 0.3 percent, respectively. Capital payments for urban

nonreclassified are estimated to decrease 0.1 percent while rural nonreclassified hospitals are estimated to decrease 1.1 percent. Other reclassified hospitals (that is, hospitals reclassified under section 1886(d)(8)(B) of the Act) are expected to experience a decrease of 1.6 percent in capital payment from FY 2010 to FY 2011.

**BILLING CODE 4120–01–P**


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**BILLING CODE 4120–01–C**
IX. Effects of Proposed Payment Rate Changes and Policy Changes Under the

LTCH PPS

A. Introduction and General

Considerations

In section VII. of the preamble and

section V. of the Addendum of this proposed rule, we are setting forth the proposed annual update to the payment

rates for the LTCH PPS for FY 2011. In the preamble, we specify the statutory authority for the proposed provisions that are presented, identify those proposed policies where discretion has been exercised, and present rationale for

our decisions as well as alternatives that

were considered. In this section of Appendix A to this proposed rule, we discuss the impact of the proposed changes to the payment rates, factors, and other payment rate policies related to the LTCH PPS that are presented in the preamble of this proposed rule in terms of their estimated fiscal impact on the Medicare budget and on LTCHs.

On March 23, 2010, the Patient Protection and Affordable Care Act, 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, affect

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 are unable to address those provisions in this proposed rule. Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new legislation. We plan to issue separate documents in the Federal Register addressing the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for FY 2011

under the IPPS and the LTCH PPS. In addition, we plan to issue further instructions implementing the provisions of Public Law 111–148, as amended, that affect the policies and payment rates for FY 2010 under the

IPPS and for RY 2010 under the LTCH

PPS.

Currently, our database of 421 LTCHs includes the data for 77 nonprofit (voluntary ownership control) LTCHs and 301 proprietary LTCHs. Of the remaining 43 LTCHs, 12 LTCHs are government-owned and operated and the ownership type of the other 31 LTCHs is unknown. In the impact analysis, we are using the proposed rates, factors, and policies presented in this proposed rule, including proposed updated wage index values and 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 $39,896.65. As discussed in

section V.A.2. of the Addendum to this proposed rule, consistent with our historical practice, we are proposing to update the standard Federal rate for FY 2011 by

¥ 0.1 percent in order to establish the proposed FY 2011 standard Federal rate at $39,856.75. This includes a proposed market basket update of 2.4 percent and a proposed documentation and coding adjustment

of

¥ 2.5 percent to account for increases

in case-mix that do not reflect real changes in patients’ severity of illness associated with the adoption of the MS–

LTC–DRGs. Based on the best available data for the 421 LTCHs in our database, we estimate that the proposed update to

the standard Federal rate for FY 2011 (discussed in section VII.C. of the


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preamble of this proposed rule) and the proposed changes to the area wage adjustment (discussed in section V.B. of the Addendum to this proposed rule) for FY 2011, in addition to an estimated increase in HCO payments and an estimated increase in SSO payments,

will result in an increase in estimated payments from RY 2010 of approximately $41 million (or about 0.8 percent). Based on the 421 LTCHs in our database, we estimate FY 2011 LTCH PPS payments to be approximately $4.946 billion, an increase from RY 2010 LTCH PPS payments of approximately $4.905 billion. Because

the combined distributional effects and estimated changes to the Medicare program payments would be greater than $100 million, this proposed rule is considered a major economic rule, as

defined in this section. We note the approximately $41 million for the projected increase in estimated aggregate LTCH PPS payments from RY

2010 to FY 2011 does not reflectchanges in LTCH admissions or casemix intensity in estimated LTCH PPS payments, which also would affect overall payment changes.

The projected 0.8 percent increase in estimated payments per discharge from

RY 2010 to FY 2011 is attributable to several factors, including the proposed

¥ 0.1 percent decrease to the standard Federal rate, proposed changes in the wage index values (including the proposed change to the labor-related share) and projected increases in estimated HCO and SSO payments. As Table IV shows, the proposed change attributable solely to the standard Federal rate is projected to result in a decrease of 0.1 percent in estimated payments per discharge from RY 2010 to FY 2011, on average, for all LTCHs, while the proposed 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 V.B. of the Addendum to this proposed rule, we are proposing to update the wage index

values for FY 2011 based on the most recent available data. In addition, we are proposing to decrease the labor-related share slightly from 75.779 percent to 75.407 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 (discussed in section VII.C.2. of the preamble of this proposed rule). This proposed update to the wage

data and the labor-related share is expected to increase LTCH PPS payments by 0.1 percent. Table IV below shows the impact of the proposed payment rate and proposed policy changes on LTCH PPS payments for FY 2011 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 0.8 percent (shown in Column 8). This projected increase in payments is attributable to the impacts of the proposed change to the standard Federal rate (

¥ 0.1 percent in Column 6) and the proposed 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 (0.5 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 total estimated LTCH PPS payments in FY 2011. An analysis of the

most recent available LTCH PPS claims data (FY 2009 claims from the December 2009 update of the MedPAR files)

indicates that the RY 2010 HCO threshold of $18,425 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 7.5 percent of estimated total LTCH PPS payments in RY 2010. We estimate that the impact of the increase in HCO payments would result in approximately a 0.5 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 estimated total LTCH PPS payments, and estimated payments for HCO cases comprise approximately 8 percent of estimated total LTCH PPS payments. Payments for HCO cases are based on 80 percent of the estimated cost 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 proposed rule, based on the most recent available data, we believe that the provisions of this proposed 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 a Metropolitan Statistical Area and has

fewer than 100 beds. As shown in Table IV, we are projecting a 1.4 percent increase in estimated payments per discharge for FY 2011 as compared to

RY 2010 for rural LTCHs that would result from the proposed changes presented in this proposed rule (that is, the proposed update to the standard

Federal rate discussed in section V.A. of the Addendum to this proposed rule and the proposed changes to the area wage adjustment as discussed in section V.B. of the Addendum to this proposed rule) as well as the effect of estimated changes to HCO and SSO payments. This estimated impact is based on the

data for the 26 rural LTCHs in our database of 421 LTCHs, for which complete data were available.

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 proposed changes to the area wage adjustment and the proposed reduction

in the labor-related share from 75.779 to 75.407 percent, which results in an estimated 0.6 percent increase in payments. We believe that the proposed changes to the area wage adjustment presented in this proposed rule (that is, the proposed use of updated wage dataand the proposed change in the laborrelated share) would result in accurate and appropriate LTCH PPS payments in FY 2011 because they are based on the

most recent available data. Such updated data appropriately reflect national differences in area wage levels and appropriately identifies the portion

of the standard Federal rate that should be adjusted to account for such differences in area wages, thereby resulting in accurate and appropriate LTCH PPS payments.

C. Anticipated Effects of Proposed LTCH PPS Payment Rate Change and Policy Changes

We discuss the impact of the proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2011 (in terms of their estimated fiscal impact on the Medicare budget and on LTCHs) in section VII. of the preamble of this proposed rule.

1. Budgetary Impact

Section 123(a)(1) of the BBRA requires that the PPS developed for


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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 A, we project an increase in aggregate LTCH PPS payments in FY 2011 of approximately $41 million (or 0.8 percent) based on the 421 LTCHs in

our database.

2. 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 the basic MS–LTC–DRG payment (standard Federal rate multiplied by the MS–LTC– DRG relative weight), we make adjustments for differences in area wage levels, 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 proposed changes to the LTCH PPS payments presented in this proposed rule on different categories of LTCHs for FY 2011, it is necessary to estimate payments per discharge for RY 2010 using the rates and factors, including the FY 2010 GROUPER (Version 27.0) and relative weights, and policies

established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43945 through 43994 and 44021 through 44030). It is also necessary to estimate the payments per discharge that would be made under the proposed LTCH PPS rates, factors, policies, and GROUPER (Version 28.0) for FY 2011 (as discussed in VII. of the preamble and section V. of the Addendum to this proposed 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 2006 through FY 2007 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 421 LTCHs. We believe that the discharges based on

the FY 2009 MedPAR data for the 421 LTCHs in our database, which includes 301 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.

3. 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 applied the RY 2010 standard Federal rate (that is, $39,896.65, which is effective for LTCH discharges occurring on or after October 1, 2009, and through September 30, 2010). For modeling estimated LTCH PPS payments for FY 2011, we applied the proposed FY 2011 standard Federal rate of $39,856.75, which would 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 proposed 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 RY 2010

LTCH PPS labor-related 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 usingthe proposed LTCH PPS FY 2011 laborrelated share of 75.407 percent (section VII.C.2.d. of the preamble of this proposed rule), the FY 2011 proposed wage index values presented in Tables 12A and 12B of the Addendum to this proposed rule, and the FY 2011 COLA

factors shown in the table in section

V.B.5. of the Addendum to this proposed 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 V.C. of the Addendum to this proposed rule). In modeling proposed payments for SSO and HCO cases in RY 2010, we applied an inflation factor of 1.024 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 December 2009 update of the PSF. In modeling proposed payments for SSO and HCO cases in FY 2011, we applied an inflation factor of 1.049 (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 December 2009 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) and the proposed FY 2011 fixed loss amount of $18,692 (as discussed in

section V.C.3. of the Addendum of this proposed 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 proposed payment rates and policy changes presented in this proposed rule. Table IV illustrates the estimated aggregate impact of the LTCH PPS among various

classifications of LTCHs.

• The first column, LTCH Classification, identifies the type of

LTCH.

• The second column lists the

number of LTCHs of each classification
type.

• The third column identifies the

number of LTCH cases.

• The fourth column shows the estimated payment per discharge for 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 proposed changes to the standard Federal rate (as discussed in

section V.A. of the Addendum to this proposed rule).

• The seventh column shows the percentage change in estimated


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payments per discharge from RY 2010 to FY 2011 for proposed changes to the area wage adjustment at § 412.525(c) (as

discussed in section V.B. of the Addendum to this proposed rule). • The eighth column shows the percentage change in estimated payments per discharge from RY 2010 (Column 4) to FY 2011 (Column 5) for all proposed changes (and includes the effect of estimated changes to HCO and SSO payments).

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4. Results

Based on the most recent available data (as described previously for 421 LTCHs, we have prepared the following summary of the impact (as shown in Table IV) of the proposed LTCH PPS payment rate and policy changes presented in this proposed rule. The impact analysis in Table IV shows that estimated payments per discharge are expected to increase approximately 0.8 percent, on average, for all LTCHs from

RY 2010 to FY 2011 as a result of the proposed payment rate and policy changes presented in this proposed rule,

as well as estimated increases in HCO and SSO payments. We note that we are proposing a

¥ 0.1 percent decrease to the standard Federal rate for FY 2011,

based on the latest market basket estimate (2.4 percent) and the adjustment for the cumulative effect of changes in documentation and coding in FYs 2008 and 2009 (

¥ 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 proposed decrease of

¥ 0.1 percent to the standard Federal rate is projected to result in approximately a

¥ 0.1 percent decrease in estimated payments per discharge for all LTCHs from RY 2010 to FY 2011. 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 0.8 percent (as shown in Table IV) was determined by comparing estimated FY 2011 LTCH PPS payments (using the proposed rates and policies discussed in this proposed rule) to estimated RY 2010 LTCH PPS payments (as described above in section IX.C. of this Appendix A).

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 0.8 percent for all proposed changes. For rural LTCHs, the percent change for all proposed changes is estimated to be 1.4 percent, while for urban LTCHs, we estimate the increase to be 0.8 percent. Large urban LTCHs are projected to experience an increase of 0.9 percent in estimated payments per discharge from RY 2010 to FY 2011, while other urban LTCHs are projected to experience an increase of 0.7 percent in estimated 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 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 between October 1993 and September 2002, and are projected to experience nearly the average increase (0.7 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 Medicare before October 1983, LTCHs are projected to experience a higher than average percent increase (1.1 percent) in


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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 higher than average increase in estimated payments because of estimated increases in payments due to the proposed change to the area wage adjustment, the proposed changes in the

MS–LTC–DRG classifications and relative weights, and also because of

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 projected to experience a slightly above average increase (0.9 percent) in estimated payments from RY 2010 to FY 2011. LTCHs that began participating in Medicare after October 2002 currently represent approximately 38 percent of all LTCHs, and are projected to experience a slightly above average increase (0.9 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 (1.1 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 (71 percent) of LTCHs are identified as proprietary and these LTCHs are projected to experience an average increase (0.8 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 (1.3 percent) in estimated payments primarily due to a larger than the average increase in estimated HCO payments and increases under the proposed 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 New England and West South Central regions (1.1 percent, 1.0, respectively, as shown in Table IV). The estimated percent increase in payments per discharge from RY 2010 to FY 2011 for New England is largely attributable to the projected increase in estimated HCO and SSO payments (explained in greater detail above in section XV.B.4. of this Appendix A). The projected increase in estimated payments per discharge from RY 2010 to FY 2011 for LTCHs in the West South Central region is mostly due to the 43 percent of providers in this region that would receive a higher wage index in FY 2011 compared to RY 2010 and because all the providers have a proposed FY 2011 wage index less than 1, which results in an estimated payment increase because the proposed labor-related share (the portion of the rate adjusted by the wage index) is being reduced so their lower wage index adjusts a smaller portion of

the rate.

In contrast, LTCHs located in the East South Central region are projected to experience a lower than average increase in estimated payments per discharge from RY 2010 to FY 2011. The less than average estimated increase in payments of 0.5 percent for LTCHs in the East South Central region is primarily due to estimated decreases in payments associated with the proposed wage index because 50 percent of LTCHs located in this region will have a proposed FY 2011 wage index value that is less than their RY 2010 wage index value. Similarly, LTCHs in the

Middle Atlantic and South Atlantic are expected to experience a below average increase in payments of 0.6 percent primarily due to an estimated decrease in payment because of the proposed FY 2011 wage index changes.

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) will experience a 1.4 percent increase in payments due to increases in their wage index while large LTCHs (200+ beds) will experience smaller than average increase in payments of 0.6 percent. 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 (1.1 percent and 1.0 percent, respectively) primarily due to a larger than average estimated increase in payments from the proposed FY 2011 changes to the area wage adjustment.

D. Effect on the Medicare Program

As noted previously, we project that the provisions of this proposed rule will

result in an increase in estimated aggregate LTCH PPS payments in FY 2011 of approximately $41 million (or about 0.8 percent) for the 421 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 Proposed 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 proposed rule, we discuss our proposal to remove the Medicaid requirement for Joint Commission accreditation of psychiatric hospitals, hospitals with inpatient psychiatric programs, and PRTFs. Psychiatric hospitals would have the choice of meeting 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. Hospitals with inpatient psychiatric programs would have the choice of meeting 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. In addition, PRTFs would be afforded 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. This proposal would remove specific references to national accrediting bodies to provide appropriate administrative flexibility to account for any changes in qualifying accrediting organizations.

Ensuring access to services is a priority for CMS, and we believe that this proposal would result in psychiatric hospitals, hospitals with


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inpatient psychiatric programs, and PRTFs meeting comparable standards required in order to provide services. In addition, the proposed 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 proposal under the RFA because we have determined that the proposal would 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 proposal would 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 proposal would 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 proposal does not impose any costs on State or local governments, the requirements of Executive Order 13132 are not applicable.

XI. Alternatives Considered

This proposed rule contains a range of policies. The preamble of this proposed rule provides descriptions of the statutory provisions that are addressed, identifies implementing policies where discretion has been exercised, 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 proposed MS–DRG and wage index changes, and for the wage index reclassifications

under the MGCRB. Table I also shows an overall decrease of 0.1 percent in operating payments. We estimate that operating payments will decrease by approximately $142 million in FY 2011. In addition, this estimate includes the reporting of hospital quality data program costs of $2.4 million, and a savings of $21 million associated with the proposed HACs policies and all other proposed operating payment policies described in section VII. of this Appendix. We estimate that capital payments will experience

¥ 0.2 percent change in payments per case, as shown

in Table III of section VIII. of this Appendix. We estimate that capital payments will decrease by approximately $20 million in FY 2011 compared to FY 2010. The proposed cumulative operating and capital payments should result in a net
decrease of $181 million to IPPS providers. The discussions presented in the previous pages, in combination with the rest of this proposed rule, constitute a regulatory impact analysis.

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 proposed rates, factors, and policies presented in this proposed rule, including proposed updated wage index values and relative weights, and the best

available claims and CCR data to estimate the change in payments under

the LTCH PPS for FY 2011. Accordingly, based on the best available data for the 421 LTCHs in our database,

we estimate that FY 2011 LTCH PPS payments will increase approximately $41 million (or about 0.8 percent).

XIII. Accounting Statements

A. Acute Care Hospitals

As required by OMB Circular A–4 (available at http://www.whitehousegov/ omb/circulars/a004/a-4.pdf ), in Table V below, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of this proposed rule as they relate to acute care hospitals. This table provides our best estimate of the change in Medicare payments to providers as a result of the proposed changes to the IPPS presented in this proposed rule. All expenditures are classified as transfers to Medicare providers. 

### T ABLE 

### V—A CCOUNTING 

### S TATEMENT 

### : C LASSIFICATION OF 

### E STIMATED 

### E X



### PENDITURES 

### U NDER THE 

### IPPS

F ROM 

### FY 2010 TO 

### FY 2011

Category Transfers

Annualized Monetized

Transfers. ¥ $181 million.

From Whom to Whom Federal Government

to IPPS Medicare

Providers.

Total ...................

¥ $181 million.

B. LTCHs

As discussed in section IX. of this Appendix, the impact analysis for the proposed changes under the LTCH PPS for this proposed rule projects an increase in estimated aggregate payments of approximately $41 million (or about 0.8 percent) for the 421 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 proposed rule as they relate to changes to the LTCH PPS. Table VI provides our best estimate of the proposed increase in Medicare payments under the LTCH PPS as a result of the proposed provisions presented in this proposed rule based

on the data for the 421 LTCHs in our database. All expenditures are classified as transfers to Medicare providers (that is, LTCHs).



### T ABLE 

### VI—A CCOUNTING 

### S TATEMENT 

### : C LASSIFICATION OF 

### E STIMATED 

### E X



### PENDITURES 

### F ROM THE 

### 2010 LTCH

PPS R ATE 

### Y EAR TO THE 

### FY 2011
LTCH PPS

Category Transfers

Annualized Monetized

Transfers. Positive transfer—Estimated increase in expenditures: $41

million.

From Whom to Whom Federal Government

to LTCH PPS Medicare Providers.

Total ................... $41 million.

XIV. Executive Order 12866

In accordance with the provisions of Executive Order 12866, the Executive Office of Management and Budget reviewed this proposed rule.


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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-specificstandardized amount, the hospitalspecific 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

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 L. 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, affect 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 are unable to address those provisions in this proposed rule. Therefore, the proposed policies and payment rates in this proposed rule do not reflect the new legislation. We plan to issue separate

documents in the Federal Register addressing the provisions of Public Law 111–148, as amended, that affect our proposed policies and payment rates for FY 2011 under the IPPS and LTCH PPS, as well as the provisions of Public Law 111–148, as amended, that affect the policies and payment rates for FY 2010

under the IPPS and LTCH PPS.

Section 1886(b)(3)(B)(i)(XX) of the Act, as amended by section 5001(a) of Public Law 109–171, sets the FY 2011 percentage increase in the operating cost standardized amount equal to the rateof-increase in the hospital market basket for IPPS hospitals in all areas, 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. For hospitals that do not provide these data, the update is equal to the market basket percentage increase less 2.0 percentage points.

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 are estimating that the FY 2011 update to the standardized amount will be 2.4 percent (that is, the current

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 are estimating that the update

to the standardized amount will be 0.4 percent (that is, the current estimate of

the market basket rate-of-increase minus 2.0 percentage points).

Section 1886(d)(9)(C)(1) of the Act is the basis for determining the percentage increase to the Puerto Rico-specific standardized amount. For FY 2011, weare proposing to apply the full rate-ofincrease in the hospital market basketfor IPPS hospitals to the Puerto Ricospecific standardized amount. Therefore, the update to the Puerto Rico-specific standardized amount is estimated to be 2.4 percent.

Section 1886(b)(3)(B)(iv) of the Act sets the FY 2011 percentage increase in the hospital-specific rates applicable to SCHs and MDHs equal to the rate 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, or the rate-of-increase in the market basket). Therefore, the update to the hospital-specific rates applicable to

SCHs and MDHs is estimated to be 2.4 or 0.4 percent, depending upon whether the hospital submits quality data.

Section 1886(b)(3)(B)(ii) of the Act is used for purposes of determining thepercentage increase in the rate-ofincrease 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 thepercentage increase in the rate-ofincrease 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. We are proposing to provide our current estimate of the FY 2011 IPPS operating market basket percentage increase (2.4 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 proposed rule, we are proposing an update of

¥ 0.1 percent to the LTCH PPS standard Federal rate, which is based on a proposed market basket increase of 2.4 percent (based on IHS Global Insight, Inc.’s first quarter 2010 forecast of the

FY 2002-based RPL market basket increase for FY 2011) and an adjustment

of

¥ 2.5 percent to account for the increase in case-mix in a prior year that resulted from changes in coding practices rather than an increase in patient severity.

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.

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).

III. Secretary’s 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


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appropriate and necessary care of high quality. Consistent with the update factor in the President’s budget, 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. For FY 2011, weare proposing to apply the full rate-ofincrease in the hospital market basketfor IPPS hospitals to the Puerto Ricospecific standardized amount. Therefore, the update to the Puerto Rico-specific standardized amount is estimated to be 2.4 percent.

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 the proposal set forth in section VII. of the preamble of this proposed rule, we are recommending an update of

¥ 0.1 percent to the LTCH PPS standard Federal rate. In addition, based on IHS Global Insight, Inc.’s first quarter 2010

forecast of the RPL market basket increase, we are recommending an update of 2.4 percent to the IRF PPS Federal rate for FY 2011 and an update of 2.4 percent 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 proposed 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 proposed update to the capital rate is

discussed in section III. of the Addendum to this proposed rule.

[FR Doc. 2010–9163 Filed 4–19–10; 4:15 pm]

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