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 


sroberts on DSKD5P82C1PROD with PROPOSALS
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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 setting 

forth 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 these 

limits. 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, and 

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

Payment System and MS–LTC–DRG 

Relative Weights Issues. 


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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 


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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 Area 

MS–DRG Medicare severity diagnosisrelated group 

MS–LTC–DRG Medicare severity long-term 

care diagnosis-related group 

NAICS North American Industrial 

Classification System 

NALTH National Association of Long Term 

Hospitals 

NCD National coverage determination 

NCHS National Center for Health Statistics 

NCQA National Committee for Quality 

Assurance 

NCVHS National Committee on Vital and 

Health Statistics 

NECMA New England County Metropolitan 

Areas 

NP Nurse practitioner 

NQF National Quality Forum 

NTIS National Technical Information 

Service 

NTTAA National Technology Transfer and 

Advancement Act of 1991 (Pub. L. 104– 

113) 

NVHRI National Voluntary Hospital 

Reporting Initiative 

OACT [CMS’] Office of the Actuary 

OBRA 86 Omnibus Budget Reconciliation 

Act of 1996, 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 


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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. CardioWestTM Temporary Total 

Artificial Heart System (CardioWestTM

TAH-t) 

4. FY 2011 Applications for New 

Technology Add-On Payments 

a. Auto Laser Interstitial Thermal Therapy 

(AutoLITTTM) System 

b. LipiScanTM Coronary Imaging System 

c. LipiScanTM Coronary Imaging System 

With Intravascular Ultrasound (IVUS) 

III. 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 


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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 Program 

V. 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 for 

Acute 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 for 

Certain 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 whole 

or 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 and 

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

received the higher of the Federal rate 

or the Federal rate plus 50 percent of the 

amount by which the Federal rate is 

exceeded by the higher of its FY 1982 

or FY 1987 hospital-specific rate. As 

discussed below, for discharges 

occurring on or after October 1, 2007, 

but before October 1, 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 


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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 Medicare 

IPPS 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 


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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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1Medicare 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. 

MAJOR DIAGNOSTIC CATEGORIES (MDCS) 

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. 

PRE-MAJOR DIAGNOSTIC CATEGORIES (PRE-MDCS) 

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

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

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

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

Major O.R. 

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

MS–DRG 006 ... Liver Transplant without MCC. 

MS–DRG 007 ... Lung Transplant. 

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

MS–DRG 009 ... Bone Marrow Transplant. 

MS–DRG 010 ... Pancreas Transplant. 

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

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

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

Once the MDCs were defined, each 

MDC was evaluated to identify those 

additional patient characteristics that 

would have a consistent effect on 

hospital resource consumption. Because 

the presence of a surgical procedure that 

required the use of the operating room 

would have a significant effect on the 

type of hospital resources used by a 

patient, most MDCs were initially 

divided into surgical DRGs and medical 

DRGs. Surgical DRGs are based on a 

hierarchy that orders operating room 

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

procedures by resource intensity. 

Medical DRGs generally are 

differentiated on the basis of diagnosis 

and age (0 to 17 years of age or greater 

than 17 years of age). Some surgical and 

medical DRGs are further differentiated 

based on the presence or absence of a 

complication or comorbidity (CC) or a 

major complication or comorbidity 

(MCC). 

Generally, nonsurgical procedures 

and minor surgical procedures that are 

not usually performed in an operating 

room are not treated as O.R. procedures. 

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

procedures that do affect MS–DRG 

assignment for certain principal 

diagnoses. An example is extracorporeal 

shock wave lithotripsy for patients with 

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-MedPAR 

data should be submitted by midOctober for consideration in 

conjunction with the next year’s 

proposed rule. This date allows us time 

to test the data and make a preliminary 

assessment as to the feasibility of using 

the data. Subsequently, a complete 

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 concern 

in the public comments that our costbased weighting methodology does not 

adequately account for charge 

compression—the practice of applying a 

higher percentage charge markup over 

costs to lower cost items and services 

and a lower percentage charge markup 

over costs to higher cost items and 

services. Further, public commenters 

expressed concern about potential 

inconsistencies between how costs and 

charges are reported on the Medicare 

cost reports and charges on the 

Medicare claims. In the FY 2007 IPPS 

final rule, we used costs and charges 

from the cost 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 issue 

of charge compression and the costweighting methodology for FY 2011. 

We believe that revisions to the DRG 

system to better recognize severity of 

illness and changes to the relative 

weights based on costs rather than 

charges are improving the accuracy of 

the payment rates in the IPPS. We agree 

with MedPAC that these refinements 

should be pursued. Although we 

continue to caution that any prospective 

payment system based on grouping 

cases will always present some 

opportunities for providers to specialize 

in cases they believe have higher 

margins, we believe that the changes we 

have adopted and the continuing 

reforms we are 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 


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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: 

OVERALL CASE-MIX INCREASES 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 


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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, 


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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 


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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 coding 

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

2008, exceeding the ¥0.6 percent 

prospective documentation and coding 

adjustment applied under section 7(a) of 

Public Law 110–90 by 1.9 percentage 

points. We stated that our actuaries had 

estimated that this 1.9 percentage point 

increase resulted in an increase in 

aggregate payments of approximately 

$2.2 billion. As described earlier, 

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

requires an adjustment for discharges 

occurring in FYs 2010, 2011, and/or 

2012 to offset the estimated amount of 

this increase in aggregate payments 

(including interest). Although section 

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

us to make this adjustment in FYs 2010, 

2011, and/or 2012, we have discretion 

as to when during this 3 year period we 

will apply the adjustment. 

We did not propose to make an 

adjustment to the FY 2010 average 

standardized amounts to offset, in 

whole or in part, the estimated increase 

in aggregate payments for discharges 

occurring in FY 2008, but stated in the 

proposed rule that we intended to 

address this issue in future rulemaking. 

That is, we stated that we would 

address recouping the additional 

expenditures that occurred in FY 2008 

as a result of the 1.9 percentage point 

difference between the actual changes in 

documentation and coding that do not 

reflect real changes in case-mix (2.5 

percent), and the ¥0.6 percent 

adjustment applied under Public Law 

110–90 in FY 2011 and/or FY 2012, as 

required by law. We indicated that, 

while we had the statutory authority to 

make this ¥1.9 percent recoupment 

adjustment entirely in FY 2010, we were 

delaying the adjustment until FY 2011 

and FY 2012 because we did not yet 

have any data on the magnitude of the 

documentation and coding effect in FY 

2009. We stated that as we have the 

authority to recoup the aggregate effect 

of this 1.9 percentage point difference in 

FY 2008 IPPS payments in FY 2011 or 

FY 2012 (with interest), delaying this 

adjustment would have no effect on 

Federal budget outlays. We indicated 

that we intended to wait until we have 

a complete year of data on the FY 2009 

documentation and coding effect before 

applying a recoupment adjustment for 

IPPS spending that occurred in FY 2008 

or we estimate will occur in FY 2009. 

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

of Public Law 110–90 requires the 

Secretary to make an adjustment to the 

standardized amounts under section 

1886(d) of the Act to offset the estimated 

increase or decrease in aggregate 

payments for FY 2009 (including 

interest) resulting from the difference 

between the estimated actual 

documentation and coding effect and 

the documentation and coding 

adjustments applied under section 7(a) 

of Public Law 110–90. This 

determination must be based on a 

retrospective evaluation of claims data. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43774), we stated that 

because we would not receive all FY 

2009 claims data prior to publication of 

the final rule, we would address any 

increase or decrease in FY 2009 

payments in future rulemaking for FY 

2011 and 2012 after we perform a 

retrospective evaluation of the FY 2009 

claims data. At that time, our actuaries 

estimated that this adjustment would be 

approximately ¥3.3 percent. This 

reflected the difference between the 

estimated 4.8 percent cumulative actual 

documentation and coding changes for 

FY 2009 (2.5 percent for FY 2008 and 

an additional 2.3 percent for FY 2009) 

and the cumulative ¥1.5 percent 

documentation and coding adjustments 

applied under section 7(a) of Public Law 

110–90 (¥0.6 percent in FY 2008 and 

¥0.9 percent in FY 2009). We noted 

that the actual adjustments were 

multiplicative and not additive. This 

estimated 4.8 percent cumulative actual 

documentation and coding changes for 

FY 2009 included the impact of the 

changes in documentation and coding 

first occurring in FY 2008 because we 

believed hospitals would continue these 

changes in documentation and coding 

in subsequent fiscal years. 

Consequently, we believed that these 

documentation and coding changes 

would continue to impact payments 

under the IPPS absent a prospective 

adjustment to account for the effect of 

these changes. 

We note that, unlike the adjustment to 

the standardized amounts under section 

7(b)(1)(A) of Public Law 110–90 

described earlier, any adjustment to the 

standardized amounts under section 

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

not be cumulative, but would be 

removed for subsequent fiscal years 

once we have offset the increase in 

aggregate payments for discharges for 

FY 2008 expenditures and FY 2009 

expenditures, if any. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24096), we 

did not propose to offset the 1.9 percent 

increase in aggregate payments 

(including interest) for discharges 

occurring in FY 2008 resulting from the 

adoption of the MS–DRGs, but to 

instead address this issue in future 

rulemaking for FYs 2011 and 2012. 

In response to the FY 2010 proposed 

rule, MedPAC stated in its comments on 

the adjustment to the standardized 

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

Public Law 110–90: ‘‘In addition, it 

would be desirable for CMS to minimize 

year-to-year changes in payment 

adjustments it must make to recover 

overpayments that were made in 2008 

and 2009. To achieve this goal, CMS 

should consider spreading the recovery 

of 2008 overpayments over 3 years, 

beginning in 2010.’’ Some commenters 

recommended that CMS seek to extend 

the timeframe beyond 2 years to phase 

in the estimated ¥6.6 percent 

adjustment to the standardized amount. 

The commenters asked CMS to seek 


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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 DOCUMENTATION AND CODING ADJUSTMENT

Required prospective adjustment for FYs 

2008–2009 

Required 

recoupment adjustment for FYs 

2008–2009 

Total adjustment 

Proposed 

recoupment 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 


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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 and 

coding adjustment to the hospitalspecific rates is not consistent with the 

plain meaning of section 

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

mentions adjusting ‘‘the standardized 

amount’’ under section 1886(d) of the 

Act and does not mention adjusting the 

hospital-specific rates. 

In the FY 2009 IPPS proposed rule (73 

FR 23540), we indicated that we 

continued to have concerns about this 

issue. Because hospitals paid based on 

the hospital-specific rate use the same 

MS–DRG system as other hospitals, we 

believe they have the potential to realize 

increased payments from 

documentation and coding changes that 

do not reflect real increases in patients’ 

severity of illness. In section 

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

stipulated that hospitals paid based on 

the standardized amount should not 

receive additional payments based on 

the effect of documentation and coding 

changes that do not reflect real changes 

in case-mix. Similarly, we believe that 

hospitals paid based on the hospitalspecific rates should not have the 

potential to realize increased payments 

due to documentation and coding 

changes that do not reflect real increases 

in patients’ severity of illness. While we 

continue to believe that section 

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

provide explicit authority for 

application of the documentation and 

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

the authority to apply the 

documentation and coding adjustment 

to the hospital-specific rates using our 

special exceptions and adjustment 

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

of the Act. The special exceptions and 

adjustment provision authorizes us to 

provide ‘‘for such other exceptions and 

adjustments to [IPPS] payment amounts 

* * * as the Secretary deems 

appropriate.’’ In the FY 2009 IPPS final 

rule (73 FR 48448 through 48449), we 

indicated that, for the FY 2010 

rulemaking, we planned to examine our 

FY 2008 claims data for hospitals paid 

based on the hospital-specific rate. We 

further indicated that if we found 

evidence of significant increases in casemix for patients treated in these 

hospitals that do not reflect real changes 

in case-mix, we would consider 

proposing application of the 

documentation and coding adjustments 

to the FY 2010 hospital-specific rates 

under our authority in section 

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

In response to public comments 

received on the FY 2009 IPPS proposed 

rule, we stated in the FY 2009 IPPS final 

rule that we would consider whether 

such a proposal is warranted for FY 

2010. To gather information to evaluate 

these considerations, we indicated that 

we planned to perform analyses on FY 

2008 claims data to examine whether 

there has been a significant increase in 

case-mix for hospitals paid based on the 

hospital-specific rate. If we found that 

application of the documentation and 

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

we indicated that we would include a 

proposal to do so in the FY 2010 IPPS 

proposed rule. 

9. 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 to 

prospectively adjust the hospitalspecific rates by the proposed ¥2.5 

percent in FY 2010 to account for our 

estimated documentation and coding 

effect in FY 2008 that does not reflect 

real changes in case-mix. We proposed 

to leave this adjustment in place for 

subsequent fiscal years in order to 

ensure that changes in documentation 

and coding resulting from the adoption 

of the MS–DRGs do not lead to an 

increase in aggregate payments for SCHs 

and MDHs not reflective of an increase 

in real case-mix. The proposed ¥2.5 

percent adjustment to the hospitalspecific rates exceeded the ¥1.9 percent 

adjustment to the national standardized 

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

Public Law 110–90 because, unlike the 

national standardized rates, the FY 2008 

hospital-specific rates were not 

previously reduced in order to account 

for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the MS– 

DRGs. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24100), we 

solicited public comment on the 

proposed ¥2.5 percent prospective 

adjustment to the hospital-specific rates 

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

and our proposal to address in the FY 

2011 rulemaking cycle any changes in 

FY 2009 case-mix due to changes in 

documentation and coding that do not 

reflect real changes in case-mix for 

discharges occurring during FY 2009. 

We also indicated that we intended to 

update our analysis with FY 2008 data 

on claims paid through March 2008 [sic] 

for the FY 2010 IPPS final rule. (We 

note that the March 2008 update claims 

paid data date in the proposed rule 

should have been March 2009.) 

Consistent with our approach for IPPS 

hospitals discussed earlier, in the FY 

2010 IPPS/RY 2010 LTCH PPS final 

rule, we also delayed adoption of a 

documentation and coding adjustment 

to the hospital-specific rate until FY 

2011. Similar to our approach for IPPS 


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hospitals, we indicated that we would 

consider, through future rulemaking, 

phasing in the documentation and 

coding adjustment over an appropriate 

period. We also indicated that we would 

address, through future rulemaking, any 

changes in documentation and coding 

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

2009. We noted that, unlike the national 

standardized rates, the FY 2009 

hospital-specific rates were not 

previously reduced in order to account 

for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the MS– 

DRGs. However, as we noted earlier 

with regard to IPPS hospitals, if the 

estimated documentation and coding 

effect determined based on a full 

analysis of FY 2009 claims data is more 

or less than our current estimates, it 

would change, possibly lessen, the 

anticipated cumulative adjustments that 

we currently estimate we would have to 

make for the FY 2008 and FY 2009 

combined adjustment. Therefore, we 

believed that it would be more prudent 

to delay implementation of the 

documentation and coding adjustment 

to allow for a more complete analysis of 

FY 2009 claims data for hospitals 

receiving hospital-specific rates. 

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 the 

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

believe that we have the authority to 

apply the documentation and coding 

adjustment to the Puerto Rico-specific 

standardized amount using our special 

exceptions and adjustment authority 

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

Similar to SCHs and MDHs that are paid 

based on the hospital-specific rate, we 

believe that Puerto Rico hospitals that 

are paid based on the Puerto Ricospecific standardized amount should 

not have the potential to realize 

increased payments due to 

documentation and coding changes that 

do not reflect real increases in 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 found 

evidence of significant increases in casemix for patients treated in these 

hospitals, we would consider proposing 

application of the documentation and 

coding adjustments to the FY 2010 

Puerto Rico-specific standardized 

amount under our authority in section 

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

11. Proposed Documentation and 

Coding 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, we 

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

2008 is much more evenly shared. 

Across-base DRG shifts accounted for 44 

percent of the changes, and within-base 

DRG shifts accounted for 56 percent. 

Thus, the change in the percentage of 

discharges with an MCC was not as 

large as that for other IPPS hospitals. In 

Figure 4 in the FY 2010 proposed rule, 

we showed that, for Puerto Rico 

hospitals, there was a 3 percentage point 

increase in the discharges with an MCC 

from 22 percent to 25 percent and a 

corresponding decrease of 3 percentage 

points from 58 percent to 55 percent in 

discharges without a CC or an MCC. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS proposed rule (74 FR 24101), we 

solicited public comment on the 

proposed ¥1.1 percent prospective 

adjustment to the hospital-specific rates 

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

and our intent to address in the FY 2011 

rulemaking cycle any changes in FY 

2009 case-mix due to changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2009. 

We also stated that we intended to 

update our analysis with FY 2008 data 

on claims paid through March 2009 for 

the FY 2010 IPPS final rule. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43777), we 

indicated that, given these 

documentation and coding increases, 

consistent with our statements in prior 

IPPS rules, we would use our authority 

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

to adjust the Puerto Rico-specific rate. 

However, in parallel to our decision to 

postpone adjustments to the Federal 

standardized amount, we indicated that 

we were adopting a similar policy for 

the Puerto Rico-specific rate for FY 2010 

and would consider the phase-in of this 

adjustment over an appropriate time 

period through future rulemaking. The 

adjustment would be applied to the 

Puerto Rico-specific rate that accounts 

for 25 percent of payments to Puerto 

Rico hospitals, with the remaining 75 

percent based on the national 

standardized amount. Consequently, the 

overall reduction to the payment rates 

for Puerto Rico hospitals to account for 

documentation and coding changes will 

be slightly less than the reduction for 

IPPS hospitals paid based on 100 

percent of the national standardized 

amount. We noted that, as with the 

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

previously been reduced based on 

estimated changes in documentation 

and coding associated with the adoption 

of the MS–DRGs. However, as we note 

earlier for IPPS hospitals and hospitals 

receiving hospital-specific rates, if the 

estimated documentation and coding 

effect 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. 


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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 and 

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

discussed above, our best estimate, 

based on the most recently available 

data, 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 


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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 cost 

items 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. In 

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

findings of its March 2007 report that 

regression models are a valid approach 

for diagnosing potential aggregation bias 

within selected services for the IPPS 

and found that regression models are 

equally valid for setting payments under 

the OPPS. 

RTI also noted that cost-based weights 

are only one component of a final 

prospective payment rate. There are 

other rate adjustments (wage index, 

IME, and DSH) to payments derived 

from the revised cost-based weights, and 

the cumulative effect of these 

components may not improve the ability 

of final payment to reflect resource cost. 

RTI endorsed short-term regressionbased adjustments, but also concluded 

that more refined and accurate 

accounting data are the preferred longterm solution to mitigate charge 

compression and related bias in hospital 

cost-based weights. For a more detailed 

summary of RTI’s findings, 

recommendations, and public 

comments we received on the report, we 

refer readers to the FY 2009 IPPS final 

rule (73 FR 48452 through 48453). 

b. Summary of the RAND Corporation 

Study of Alternative Relative Weight 

Methodologies 

One of the reasons that we did not 

implement regression-based CCRs at the 

time of the FY 2008 IPPS final rule with 

comment period was our inability to 

investigate how regression-based CCRs 

would interact with the implementation 

of MS–DRGs. In the FY 2008 final rule 

with comment period (72 FR 47197), we 

stated that we engaged the RAND 

Corporation as the contractor to evaluate 

the HSRV methodology in conjunction 

with regression-based CCRs, and that we 

would consider its analysis as we 

prepared for the FY 2009 IPPS 

rulemaking process. 

RAND evaluated six different 

methods that could be used to establish 

relative weights; CMS’ current relative 

weight methodology of 15 national 

CCRs and 5 alternatives, including a 

method in which the 15 national CCRs 

are disaggregated using the regressionbased methodology, and a method using 

hospital-specific CCRs for the 15 cost 

center groupings. In addition, RAND 

analyzed our standardization 

methodologies that account for 

systematic cost differences across 

hospitals. The purpose of 

standardization is to eliminate 

systematic facility-specific differences 

in cost so that these cost differences do 

not influence the relative weights. 

Overall, RAND found that none of the 

methods it studied of calculating the 

relative weights represented a marked 

improvement in payment accuracy over 

the current method, and there was little 

difference across methods in their 

ability to predict cost at either the 

discharge-level or the hospital-level. In 

their regression analysis, RAND found 


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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 


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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 


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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 prevented 

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

of the Act also specifies that the list of 

conditions may be revised, again in 

consultation with CDC, from time to 

time as long as the list contains at least 

two conditions. 

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

requires that hospitals, effective with 

discharges occurring on or after October 

1, 2007, submit information on 

Medicare claims specifying whether 

diagnoses were present on admission 

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

Act specifies that effective for 

discharges occurring on or after October 

1, 2008, Medicare no longer assigns an 

inpatient hospital discharge to a higher 

paying MS–DRG if a selected condition 

is not POA. Thus, if a selected condition 

that was not POA manifests during the 

hospital stay, it is considered a HAC 

and the case is paid as though the 

secondary diagnosis was not present. 

However, even if a HAC manifests 

during the hospital stay, if any 

nonselected CC/MCC appears on the 

claim, the claim will be paid at the 

higher MS–DRG rate. Under the HAC 

payment policy, all CCs/MCCs on the 

claim must be HACs in order to generate 

a lower MS–DRG payment. In addition, 

Medicare continues to assign a 

discharge to a higher paying MS–DRG if 

a selected condition is POA. 

The POA indicator reporting 

requirement and the HAC payment 

provision apply to IPPS hospitals only. 

Non-IPPS hospitals, including CAHs, 

LTCHs, IRFs, IPFs, cancer hospitals, 

children’s hospitals, hospitals in 

Maryland operating under waivers, rural 

health clinics, federally qualified health 

centers, RNHCIs, and Department of 

Veterans Affairs/Department of Defense 

hospitals, are exempt from POA 

reporting and the HAC payment 

provision. Throughout this section, the 

term ‘‘hospital’’ refers to an IPPS 

hospital. 

The HAC provision found in section 

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

array of Medicare value-based 

purchasing (VBP) tools that we are using 

to promote increased quality and 

efficiency of care. Those tools include 

measuring performance, using payment 

incentives, publicly reporting 

performance results, applying national 

and local coverage policy decisions, 

enforcing conditions of participation, 

and providing direct support for 

providers through Quality Improvement 

Organization (QIO) activities. The 

application of VBP tools, such as this 

HAC provision, is transforming 

Medicare from a passive payer to an 

active purchaser of higher value health 

care services. We are applying these 

strategies for inpatient hospital care and 

across the continuum of care for 

Medicare beneficiaries. 

These VBP tools are highly 

compatible with the underlying 

purposes as well as existing structural 

features of Medicare’s IPPS. Under the 

IPPS, hospitals are encouraged to treat 

patients efficiently because they receive 

the same DRG payment for stays that 

vary in length and in the services 

provided, which gives hospitals an 

incentive to avoid unnecessary costs in 

the delivery of care. In some cases, 

conditions acquired in the hospital do 

not generate higher payments than the 

hospital would otherwise receive for 

cases without these conditions. To this 

extent, the IPPS encourages hospitals to 

avoid complications. 

However, the treatment of certain 

conditions can generate higher Medicare 

payments in two ways. First, if a 

hospital incurs exceptionally high costs 

treating a patient, the hospital stay may 

generate an outlier payment. Because 

the outlier payment methodology 

requires that hospitals experience large 

losses on outlier cases before outlier 

payments are made, hospitals have an 

incentive to prevent outliers. Second, 

under the MS–DRGs system that took 

effect in FY 2008 and that has been 

refined through rulemaking in 

subsequent years, certain conditions can 

generate higher payments even if the 

outlier payment requirements are not 

met. Under the MS–DRG system, there 

are currently 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 input 

regarding 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 


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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 present at the time of admission. 

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

electronic 4010A1. A list of exempt ICD–9–CM diagnosis codes is available in the ICD–9–CM Official Guidelines 

for Coding and Reporting. 

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 delayed ......... CC 

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

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

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

We 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 on 

Medicare 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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CHART A—POA CODE DISTRIBUTION ACROSS ALL SECONDARY DIAGNOSES

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 POA 

indicator reporting for specific HACassociated secondary diagnoses. The 

term ‘‘HAC-associated secondary 

diagnosis’’ refers to those diagnoses that 

are on the selected HAC list and were 

reported as a secondary diagnosis. Chart 

B below shows a summary of the HAC 

categories with the frequency in which 

each HAC was reported as a secondary 

diagnosis and the corresponding POA 

indicators assigned on the claims. It is 

important to note that, because more 

than one HAC-associated diagnosis code 

can be reported per discharge (that is, 

on a single claim), the frequency of 

HAC-associated diagnosis codes may be 

more than the actual number of 

discharges that have a HAC-associated 

diagnosis code reported as a secondary 

diagnosis. Below we discuss the 

frequency of each HAC-associated 

diagnosis code and the POA indicators 

assigned to those claims. 

RTI analyzed the frequency of each 

reported HAC-associated secondary 

diagnosis (across all 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. 

CHART B—POA STATUS OF CURRENT HACS: OCTOBER 2008 THROUGH JUNE 2009 

Selected HAC 

Frequency 

as 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 0.1 

9A. Surgical Site Infection Mediastinitis CABG (CC) ................. 29 21 72.4 0 0.0 8 27.6 0 0.0 

9B. Surgical Site Infection Following Bariatric Surgery for 

Obesity (CC) ............................. 12 10 83.3 0 0.0 2 16.7 0 0.0 

9B. 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 the 

216,764 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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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. 

CHART D—CLAIMS WITH MORE THAN ONE HAC SECONDARY DIAGNOSIS OCTOBER 2008 THROUGH JUNE 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 ............................ ............................ 1 

9C. 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 the 

frequency 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 assignment 

despite the presence of the HACassociated secondary diagnosis code 

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

For example, a claim with the 

principal diagnosis code of 441.1 

(Thoracic aneurysm, ruptured) with 

HAC-associated secondary diagnosis 

code of 996.64 (Infection and 

inflammatory reaction due to indwelling 

urinary catheter) and diagnosis code 

599.0 (Urinary tract infection, site not 

specified), having POA indicators of 

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

procedure code 39.73 (Endovascular 

implantation of graft in thoracic aorta) 

results in an assignment to MS–DRG 

237 (Major Cardiovascular Procedures 

with MCC or Thoracic Aortic Aneurysm 

Repair). In this case, the thoracic aortic 

aneurysm repair is what dictated the 

MS–DRG assignment and the presence 

of the HAC-associated secondary 

diagnosis code, 996.64, did not affect 

the MS–DRG assigned. Other examples 

of MS–DRGs that are subdivided in this 

same manner are as follows: 

• MS–DRG 029 (Spinal procedures 

with CC or Spinal Neurostimulators) 

• MS–DRG 129 (Major Head & Neck 

Procedures with CC/MCC or Major 

Device) 

• MS–DRG 246 (Percutaneous 

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

Stents) 

Column G in the chart below shows 

that four of the 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 


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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.’’ 

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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 that 

there 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 providers 

qualifying for alternative hospitalspecific amounts and their respective 

HSP rates. 

• The IPPS impact files for FY 2010, 

as downloaded from the Web site at: 

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

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 the 

applicable 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 standard 

IPPS 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. 

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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. 

CHART G—CLAIMS WITH MORE THAN ONE HAC SECONDARY DIAGNOSIS WHERE MS–DRG REASSIGNMENT OCCURRED

OCTOBER 2008 THROUGH JUNE 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 

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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. 

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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 6.54 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 12.12 35,940 

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

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

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

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

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 of 

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

similar nonfusion devices are assigned 

to MS–DRG 490. 

For the reasons listed above, we 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 involving 

multiple procedures to the lowerweighted MS–DRG (in the highest, most 

resource-intensive surgical class) of the 

available alternatives. However, given 

that the logic underlying the surgical 

hierarchy provides that the GROUPER 

search for the procedure in the most 

resource-intensive surgical class, in 

cases involving multiple procedures, 

this result is sometimes unavoidable. 

We note that, notwithstanding the 

foregoing discussion, there are a few 

instances when a surgical class with a 

lower average cost is ordered above a 

surgical class with a higher average cost. 

For example, the ‘‘other O.R. 

procedures’’ surgical class is uniformly 

ordered last in the surgical hierarchy of 

each MDC in which it occurs, regardless 

of the fact that the average costs for the 

MS–DRG or MS–DRGs in that surgical 

class may be higher than those for other 

surgical classes in the MDC. The ‘‘other 

O.R. procedures’’ class is a group of 

procedures that are only infrequently 

related to the diagnoses in the MDC, but 

are still occasionally performed on 

patients in the MDC with these 

diagnoses. Therefore, assignment to 

these surgical classes should only occur 


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

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

discharges occurring in FY 1989; the FY 1990 final 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

because we did not make any changes to the ICD– 

9–CM codes for FY 2000. 

if no other surgical class more closely 

related to the diagnoses in the MDC is 

appropriate. 

A second example occurs when the 

difference between the average costs for 

two surgical classes is very small. We 

have found that small differences 

generally do not warrant reordering of 

the hierarchy because, as a result of 

reassigning cases on the basis of the 

hierarchy change, the average costs are 

likely to shift such that the 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 the 

following 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 45,565 2.3843 

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

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

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

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

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

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

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

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

The C1 findings do not support a 

reclassification of any of these diagnosis 

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

seen by the C1 findings, the codes range 

from a low of 0.9729 for code V85.35 to 

a high of 1.3833 for diagnosis code 

731.3. These findings are consistent 

with a classification as a non-CC. 

Therefore, for FY 2011, 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 3.0465 


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We note that the C1 finding of 1.2323 

does not support a reclassification of 

this diagnosis code from a CC to a MCC. 

This finding is much more consistent 

with classifying the code as a non-CC. 

Our clinical advisors recommended that 

CMS not reclassify this diagnosis code 

from a CC to a non-CC 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 3.2429 

The C1 finding of 1.8364 is more 

consistent with a classification of a CC. 

Our clinical advisors agreed that cases 

captured by diagnosis code 584.9 are 

more appropriately classified as a CC. 

This unspecified type of kidney failure 

is clearly not capturing patients with a 

MCC severity level. Therefore, we 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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3The original list of the ICD–9–CM procedure 

codes for the procedures we consider nonextensive 

procedures, if performed with an unrelated 

principal diagnosis, was published in Table 6C in 

section IV. of the Addendum to the FY 1989 final 

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

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

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

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

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

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

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

other procedures from DRG 468 to DRG 477, and 

some procedures from DRG 477 to DRG 468. No 

procedures were moved in FY 1999, as noted in the 

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

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

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

did not move any procedures from DRG 477. 

However, we did move procedure codes from DRG 

468 and placed them in more clinically coherent 

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

moved several procedures from DRG 468 to DRGs 

476 and 477 because the procedures are 

nonextensive. In the FY 2005 final rule (69 FR 

48950), we moved one procedure from DRG 468 to 

477. In addition, we added several existing 

procedures to DRGs 476 and 477. In the FY 2006 

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

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

moved one procedure from DRG 468 and assigned 

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

and FY 2010, no procedures were moved, as noted 

in the FY 2008 final rule with comment period (72 

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

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

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 involving 

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

and Maintenance Committee, NCHS, 

Room 2402, 3311 Toledo Road, 

Hyattsville, MD 20782. Comments may 

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

Questions and comments concerning 

the procedure codes should be 

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

and Maintenance Committee, CMS, 

Center for Medicare Management, 

Hospital and Ambulatory Policy Group, 

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

Security Boulevard, Baltimore, MD 

21244–1850. Comments may be sent by 

e-mail to: 

patricia.brooks2@cms.hhs.gov. 

The ICD–9–CM code changes that 

have been approved will become 

effective October 1, 2010. The new ICD– 

9–CM codes are listed, along with their 

MS–DRG classifications, in Tables 6A 

and 6B (New Diagnosis Codes and New 

Procedure Codes, respectively) in the 

Addendum to this 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 

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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 in 

Alaska and Hawaii, the applicable costof-living adjustment. Because hospital 

charges include charges for both 

operating and capital costs, we 

standardized total charges to remove the 

effects of differences in geographic 

adjustment factors, cost-of-living 

adjustments, and DSH payments under 

the capital IPPS as well. Charges were 

then summed by MS–DRG for each of 

the 15 cost groups so that each MS–DRG 

had 15 standardized charge totals. These 

charges were then adjusted to cost by 

applying the national average CCRs 

developed from the FY 2008 cost report 

data. 

The 15 cost centers that we used in 

the relative weight calculation are 

shown in the following table. The table 

shows the lines on the cost report and 

the corresponding revenue codes that 

we used to create the 15 national cost 

center CCRs. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 

We developed the national average 

CCRs as follows: 

Taking the FY 2008 cost report data, 

we removed CAHs, Indian Health 

Service hospitals, all-inclusive rate 

hospitals, and cost reports that 

represented time periods of less than 1 

year (365 days). We included hospitals 

located in Maryland as we are including 

their charges in our claims database. We 

then created CCRs for each provider for 

each cost center (see prior table for line 

items used in the calculations) and 

removed any CCRs that were greater 

than 10 or less than 0.01. We 

normalized the departmental CCRs by 

dividing the CCR for each department 

by the total CCR for the hospital for the 

purpose of trimming the data. We then 

took the logs of the normalized cost 

center CCRs and removed any cost 

center CCRs where the log of the cost 

center CCR was greater or less than the 

mean log plus/minus 3 times the 

standard deviation for the log of that 

cost center CCR. Once the cost report 

data were trimmed, we calculated a 

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

the Medicare charges for each line item 

from Worksheet D–4 and deriving the 

Medicare-specific costs by applying the 

hospital-specific departmental CCRs to 

the Medicare-specific charges for each 

line item from Worksheet D–4. Once 

each hospital’s Medicare-specific costs 

were established, we summed the total 

Medicare-specific costs and divided by 

the sum of the total Medicare-specific 

charges to produce national average, 

charge-weighted CCRs. 

After we multiplied the total charges 

for each MS–DRG in each of the 15 cost 

centers by the corresponding national 

average CCR, we summed the 15 ‘‘costs’’ 

across each MS–DRG to produce a total 

standardized cost for the MS–DRG. The 

average standardized cost for each MS– 

DRG was then computed as the total 

standardized cost for the MS–DRG 

divided by the transfer-adjusted case 

count for the MS–DRG. The average cost 

for each MS–DRG was then divided by 

the national average standardized cost 

per case to determine the relative 

weight. 

The new cost-based relative weights 

were then normalized by an adjustment 

factor of 1.57461 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 change 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 by 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 percent change in average 

weight of the cases in other MS–DRGs). 

794 ..................... Neonate with Other Significant Problems ................................ FY 2010 FR weight (adjusted by percent 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 implemented 

by 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 the 

agency-wide priority to promote highquality, innovative care. At the same 

time, the CTI also works to streamline, 

accelerate, and improve coordination of 

these processes to ensure that they 

remain up to date as new issues arise. 

To achieve its goals, the CTI works to 

streamline and create a more 

transparent coding and payment 

process, improve the quality of medical 

decisions, and speed patient access to 

effective new treatments. It is also 

dedicated to supporting better decisions 

by patients and doctors in using 

Medicare-covered services through the 

promotion of better evidence 

development, which is critical for 

improving the quality of care for 

Medicare beneficiaries. 

CMS plans to continue its Open Door 

forums with stakeholders who are 

interested in CTI’s initiatives. In 

addition, to improve the understanding 

of CMS’ processes for coverage, coding, 

and payment and how to access them, 

the CTI has developed an ‘‘innovator’s 

guide’’ to these processes. The intent is 

to consolidate this information, much of 

which is already available in a variety 

of CMS documents and in various 

places on the CMS Web site, in a userfriendly format. This guide was 

published in August 2008 and is 

available on the CMS Web site at: 

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

CouncilonTechInnov/Downloads/ 

InnovatorsGuide8_25_08.pdf. 

As we indicated in the FY 2009 IPPS 

final rule (73 FR 48554), we invite any 

product developers or manufacturers of 

new medical technologies to contact the 

agency early in the process of product 

development if they have questions or 

concerns about the evidence that would 

be needed later in the development 

process for the agency’s coverage 

decisions for Medicare. 

The CTI aims to provide useful 

information on its activities and 

initiatives to stakeholders, including 

Medicare beneficiaries, advocates, 

medical product manufacturers, 

providers, and health policy experts. 

Stakeholders with further questions 

about Medicare’s coverage, coding, and 

payment processes, or who want further 

guidance about how they can navigate 

these processes, can contact the CTI at 

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

Us’’ section of the CTI home page (http: 

//www.cms.hhs.gov/ 

CouncilonTechInnov/). 

We note that applicants for add-on 

payments for new medical services or 

technologies for FY 2012 must submit a 

formal request, including a full 

description of the clinical applications 

of the medical service or technology and 

the results of any clinical evaluations 

demonstrating that the new medical 

service or technology represents a 

substantial clinical improvement, along 

with a significant sample of data to 

demonstrate that the medical service or 

technology meets the high-cost 

threshold. Complete application 

information, along with final deadlines 

for submitting a full application, will be 

posted as it becomes available on our 

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

AcuteInpatientPPS/08_newtech.asp. To 

allow interested parties to identify the 

new medical services or technologies 

under review before the publication of 

the proposed rule for FY 2012, the Web 


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site also will list the tracking forms 

completed by each applicant. 

2. Public Input Before Publication of a 

Notice of Proposed Rulemaking on AddOn Payments 

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

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

Public Law 108–173, provides for a 

mechanism for public input before 

publication of a notice of proposed 

rulemaking regarding whether a medical 

service or technology represents a 

substantial clinical improvement or 

advancement. The process for 

evaluating new medical service and 

technology applications requires the 

Secretary to— 

• Provide, before publication of a 

proposed rule, for public input 

regarding whether a new service or 

technology represents an advance in 

medical technology that substantially 

improves the diagnosis or treatment of 

Medicare beneficiaries; 

• Make public and periodically 

update a list of the services and 

technologies for which applications for 

add-on payments are pending; 

• Accept comments, 

recommendations, and data from the 

public regarding whether a service or 

technology represents a substantial 

clinical improvement; and 

• Provide, before publication of a 

proposed rule, for a meeting at which 

organizations representing hospitals, 

physicians, manufacturers, and any 

other interested party may present 

comments, recommendations, and data 

regarding whether a new medical 

service or technology represents a 

substantial clinical improvement to the 

clinical staff of CMS. 

In order to provide an opportunity for 

public input regarding add-on payments 

for new medical services and 

technologies for FY 2011 prior to 

publication of 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 used 

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

in the lung in order to limit airflow into 

selected portions of lung tissue that 

have prolonged air leaks following 

surgery while still allowing mucus, 

fluids, and air to exit, thereby reducing 

the amount of air that enters the pleural 

space. The device is intended to control 

prolonged air leaks following three 

specific surgical procedures: lobectomy; 

segmentectomy; or lung volume 

reduction surgery (LVRS). According to 

the applicant, an air leak that is present 

on postoperative day 7 is considered 

‘‘prolonged’’ unless present only during 

forced exhalation or cough. In order to 

help prevent valve migration, there are 

five anchors with tips that secure the 

valve to the airway. The implanted 

valves are intended to be removed no 

later than 6 weeks after implantation. 

With regard to the newness criterion, 

the Spiration® IBV® received 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. CardioWestTM Temporary Total 

Artificial Heart System (CardioWestTM

TAH-t) 

SynCardia Systems, Inc. submitted an 

application for approval of the 

CardioWestTM temporary Total Artificial 

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

TAH-t is a technology that is used as a 

bridge to heart transplant device for 

heart transplant-eligible patients with 

end-stage biventricular failure. The 

TAH-t pumps up to 9.5 liters of blood 

per minute. This high level of perfusion 

helps improve hemodynamic function 

in patients, thus making them better 

heart transplant candidates. 

The TAH-t was approved by the FDA 

on October 15, 2004, for use as a bridge 

to transplant device in cardiac 

transplant-eligible candidates at risk of 

imminent death from biventricular 

failure. The TAH-t is intended to be 

used in hospital inpatients. One of the 

FDA’s post-approval requirements is 

that the manufacturer agrees to provide 

a post-approval study demonstrating 

that success of the device at one center 

can be reproduced at other centers. The 

study was to include at least 50 patients 

who would be followed up to 1 year, 

including (but not limited to) the 

following endpoints: survival to 

transplant; adverse events; and device 

malfunction. 

In the past, Medicare did not cover 

artificial heart devices, including the 

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

issued a final national coverage 

determination (NCD) expanding 

Medicare coverage of artificial hearts 

when they are implanted as part of a 

study that is approved by the FDA and 

is determined by CMS to meet CMS’ 

Coverage with Evidence Development 

(CED) clinical research criteria. (The 

final NCD is available on the CMS Web 

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

viewdecisionmemo.asp?id=211.) 

We indicated in the FY 2009 IPPS/RY 

2009 LTCH PPS final rule (73 FR 48555) 

that, because Medicare’s previous 

coverage policy with respect to this 

device had precluded payment from 

Medicare, we did not expect the costs 

associated with this technology to be 


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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 (AutoLITTTM) System 

Monteris Medical submitted an 

application for new technology add-on 

payments for FY 2011 for the 

AutoLITTTM. We note that the applicant 

submitted an application for new 

technology add-on payments for FY 

2010 but withdrew its application prior 

to the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule. AutoLITTTM is a minimally 

invasive, MRI-guided 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 AutoLITTTM

delivers laser energy to the lesion with 

a proprietary 3mm diameter probe that 

directs the energy radially (that is, at 

right angle to the axis of the probe, or 

side-firing) toward the targeted tumor 

tissue in a narrow beam profile and at 

the same time, a proprietary probe 

cooling system removes heat from tissue 

not directly in the path of the laser 

beam, ostensibly protecting it from 

thermal damage and enabling the 

physician to selectively ablate only 

targeted tissue. The AutoLITTTM

received a 510K FDA clearance in May 

2009. The AutoLITTTM is indicated for 

use to necrotize or coagulate soft tissue 

through interstitial irradiation or 

thermal therapy in medicine and 

surgery in the discipline of 

neurosurgery with 1064 nm lasers. The 

AutoLITTTM may be used in patients 

with glioblastoma multiforme brain 

tumors. The applicant stated in its 

application and through supplemental 

information that, due to required 


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4RTI 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 AutoLITTTM

may be substantially similar to the 

device that it listed as its predicate 

device in its application to the FDA for 

approval. Specifically, in making a 

determination of substantial similarity, 

we consider the following: (1) Whether 

a product uses the same or similar 

mechanism of action to achieve a 

therapeutic action; 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 

AutoLITTTM; can be distinguished from 

the Visual-ase by its mechanism of 

action (that is, side-firing laser versus 

elliptical firing). Additionally, as 

mentioned above, the technology 

contains a proprietary probe cooling 

system that removes heat from tissue 

not directly in the path of the laser 

beam. We welcome comments from the 

public regarding whether or not the 

AutoLITTTM 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 

AutoLITTTM meets the cost criterion, 

the applicant used 2007 Medicare data 

from the Healthcare Cost and Utilization 

Project (HCUP). We first note that the 

applicant believes that cases eligible for 

the AutoLITTTM will map to MS–DRG 

25 (Craniotomy and Endovascular 

Intracranial Procedures with MCC), MS– 

DRG 26 (Craniotomy and Endovascular 

Intracranial Procedures with CC), and 

MS–DRG 27 (Craniotomy and 

Endovascular Intracranial Procedures 

without CC or MCC). The applicant 

explained through supplemental 

information to its application that most 

cases of the AutoLITTTM would map to 

MS–DRG 25 in the near-term. As the 

technology becomes more widely 

available, 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 AutoLITTTM will do a 

better job of removing the majority of 

the cancer that is present within the 

brain tissue compared to other 

procedures. The applicant believes that 

physicians with the AutoLITTTM 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 AutoLITTTM 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 

AutoLITTTM. Therefore, it is necessary 

to add the charges related to the device 

to the case-weighted average 

standardized charge per case in 

evaluating the cost threshold criterion. 

Although the applicant submitted data 

related to the estimated cost of the 

AutoLITTTM per case, the applicant 

stated that the cost of the device was 

proprietary information. Based on a 

study of charge compression data by 

RTI 4 and charge master data from 

Stanford University and University of 

California, San Francisco, the applicant 

estimates $38,886 in charges related to 

the AutoLITTTM (we note that some of 

the data used a markup of 294 percent 

of the costs). Adding the estimated 

charges related to the device to the 

average standardized charge per case 

resulted in a total average standardized 

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

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

discussion of substantial clinical 

improvement below, the applicant 

maintains that improved clinical 

outcomes using nonfocused LITT 

included reduced recovery time and a 

reduced rate of complications. 

Therefore, 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 AutoLITTTM). 

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 AutoLITTTM would meet the cost 

criterion. We invite public comment on 

whether or not the AutoLITTTM 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 nonAutoLITTTM clinical trials have 

demonstrated that nonfocused LITT 

(and more recently, the use of LITT plus 

MRI) improved survival, quality of life, 

and recovery in patients with advanced 

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 AutoLITTTM meets 

the new technology criterion for 

substantial clinical improvement. 

The applicant further asserts that 

AutoLITTTM would represent a 

substantial clinical improvement over 

existing standards of care for a number 

of reasons and should build upon less 

sophisticated, nonfocused LITT 

therapies. These clinical improvements 

cited by the applicant include: A less 

invasive method of tumor ablation, 

potentially leading to lower 

complication rates post procedure 

(infection, edema); an ability to employ 

multiple interventions over shorter 

periods of time and an ability to be used 

as a treatment of last resort 

(radiosurgery is limited due to radiation 

dosing and craniotomy is limited to 1 to 

2 procedures); an ability to be used in 

hard-to-reach brain tumors (the 

AutoLITTTM may be used as a treatment 

of last resort); and a shorter recovery 

time (the possibility for same day 

surgery, which has been demonstrated 

above with nonfocused LITT). 

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 AutoLITTTM has been used for the 

treatment of only a few patients as part 

of a safety evaluation with no 

comparative efficacy data and, therefore, 

there may not be sufficient objective 

clinical evidence to determine if the 

AutoLITTTM meets the substantial 

clinical improvement criteria. The 

applicant did note in its presentation at 

the new technology town hall meeting 

that it is currently conducting a clinical 

trial with a summary report expected in 

the near future. We welcome additional 

clinical data to demonstrate whether the 

AutoLITTTM meets the substantial 

clinical improvement criterion and 

invite public comment on whether or 

not the AutoLITTTM 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. LipiScanTM Coronary Imaging System 

InfraReDx, Inc. submitted an 

application for new technology add-on 

payments for FY 2011 for the 

LipiScanTM Coronary Imaging System 

(LipiScanTM). We note that an 

application was also submitted for FY 

2010, but the application was denied on 

the grounds that it did not meet the 

substantial clinical improvement 

criterion at that time. The application 

for FY 2011 contains some additional 

clinical and charge data that were not 

available at the time that the FY 2010 

new technology add-on payment 

decisions were made. 

The LipiScanTM device is a diagnostic 

tool that uses Intravascular Near 

Infrared Spectroscopy (INIRS) during an 

invasive coronary catheterization to 

scan the artery wall in order to 

determine coronary plaque composition. 

The purpose of the device is to identify 

lipid-rich areas in the artery because 

such areas have been shown to be more 

prone to rupture. The procedure does 

not require flushing or occlusion of the 

artery. INIRS identifies the chemical 

content of plaque by focusing near 

infrared light at the vessel wall and 

measuring reflected light at different 

wavelengths (that is, spectroscopy). The 

LipiScanTM system collects 

approximately 1,000 measurements per 

12.5 mm of pullback, with each 

measurement interrogating an area of 1 

to 2 mm2 of lumen surface 

perpendicular to the longitudinal axis of 

the catheter. When the catheter is in 

position, the physician activates the 

pullback and rotation device and the 

scan is initiated providing 360 degree 

images of the length of the artery. The 

rapid acquisition speed for the image 

freezes the motion of the heart and 

permits scanning of the inside of the 

arterial wall in less than 2 minutes. 

When the catheter pullback is 

completed, the console displays the 

scan results, which are referred to as a 

‘‘chemogram’’ image. The chemogram 

image requires reading by a trained user, 

but, according to the applicant was 

designed to be simple to interpret. 

With regard to the newness criterion, 

the LipiScanTM received a 510K FDA 

clearance for a new indication on April 

25, 2008, and was available on the 

market immediately thereafter. On June 

23, 2006, InfraReDx, Inc. was granted a 

510K FDA clearance for the ‘‘InfraReDx 

Near Infrared (NIR) Imaging System.’’ 

Both devices are under the common 

name of ‘‘Near Infrared Imaging System’’ 

according to the 510K summary 

document from the FDA. However, the 

InfraReDx NIR Imaging System device 

that was approved by the FDA in 2006 

was approved ‘‘for the near infrared 

imaging of the coronary arteries,’’ 

whereas the LipiscanTM device cleared 

by the FDA in 2008 is for a modified 

indication. The modified indication 

specified that LipiscanTM is ‘‘intended 

for the near-infrared examination of 

coronary arteries* * *, the detection of 

lipid-core-containing plaques of 

interest* * *[and] for the assessment of 

coronary artery lipid core burden.’’ In 

the FY 2010 IPPS/RY 201 LTCH PPS 

proposed rule (74 FR 24132 through 

24134), we noted that we had concerns 

with whether LipiscanTM was 

substantially similar to its predicate 

device that was approved by the FDA in 

2006. However, those concerns were 

addressed by the manufacturer during 

the comment period. Specifically, the 

manufacturer stated that there were 

technical problems with the original 

device and that LipiScanTM had to be 

modified in the following ways: 

2006 NIRS device Marketed 2008 lipiScan 

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

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

scans.

Air-filled with no microbubble problem. 


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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 LipiScanTM

device that was approved in 2006 were 

addressed in the second device that was 

granted FDA approval in April 2008. 

The LipiScanTM device was not 

marketed until after its second FDA 

clearance. Therefore, we no longer 

needed to make a determination as to 

whether the newer device was 

substantially similar to the predicate 

device and we determined in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43815) that LipiscanTM would be 

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

of the date of its FDA approval in April 

2008. Because a technology may be 

considered new for a period of up to 3 

years if, during the third year, the 

technology is new for more than 6 

months of the fiscal year, it appears that 

the technology would still be in the 

newness period for FY 2011. We 

welcome public comment on whether 

LipiscanTM meets the newness criterion. 

We note that the LipiscanTM

technology is identified by ICD–9–CM 

procedure code 38.23 (Intravascular 

spectroscopy), which became effective 

October 1, 2008, and cases involving the 

use of this device generally map to MS– 

DRG 246 (Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

with MCC or 4+ Vessels/Stents); MS– 

DRG 247 (Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

without MCC); MS–DRG 248 

(Percutaneous Cardiovascular 

Procedures with Non-Drug-Eluting 

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

MS–DRG 249 (Percutaneous 

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

MS–DRG 250 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent with MCC); and 

MS–DRG 251 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent without MCC). 

In an effort to demonstrate that the 

technology meets the cost criterion, the 

applicant used the FY 2010 final rule 

After Outliers Removed (AOR) file 

(posted on the CMS Web site) to identify 

cases potentially eligible for LipiscanTM. 

The applicant believes that every case 

within MS–DRGs 246, 247, 248, 249, 

250, and 251 is eligible for LipiscanTM. 

In addition, the applicant believes that 

LipiscanTM will be evenly distributed 

across patients in each of those six MS– 

DRGs (16.7 percent within each MS– 

DRG). Using data from the AOR file, the 

applicant found the average 

standardized charge per case for MS– 

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

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

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

equating to a case-weighted average 

standardized charge per case of $52,230 

(calculation performed using unrounded 

numbers). The applicant indicated that 

the case-weighted average standardized 

charge per case does not include charges 

related to LipiscanTM; therefore, it is 

necessary to add the charges related to 

the device to the average case-weighted 

standardized charge per case to evaluate 

the cost threshold criterion. Although 

the applicant submitted data related to 

the estimated cost per case of 

LipiscanTM, the applicant stated that the 

cost of the device is proprietary 

information. Based on a sampling of all 

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 PPS 

final 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 the 

applicant’s calculation of the total caseweighted average standardized charge 

per case for the applicable MS–DRGs 

exceeds the case-weighted threshold 

amount, the applicant maintains that 

LipiscanTM meets the cost criterion. 

We note that in the applicant’s 

analysis of the cost criterion, instead of 

determining the case-weighted average 

standardized charge per case and the 

case-weighted threshold amount based 

on the actual number of cases from the 

FY 2010 AOR file in the applicable MS– 

DRGs that are eligible for the 

LipiscanTM, the applicant’s analysis 

assumed an even distribution of patients 

in the applicable MS–DRGs. However, 

the data from the FY 2010 AOR file 

shows a varied distribution of cases in 

each of the applicable MS–DRGs. We 

believe the more appropriate way to 

determine the case-weighted average 

standardized charge per case and the 

case-weighted threshold amount for 

evaluating the cost criterion is to use the 

actual distribution of cases in the 

applicable MS–DRGs based on the 

number of cases from the AOR file 

because this would more accurately 

reflect the number and type of Medicare 

cases typically treated in the applicable 

MS–DRGs. Moreover, this would better 

conform with the applicant’s assertion 

that the probability of use of LipiscanTM

is the same in each of those six MS– 

DRGs. Using data from the FY 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 the 

applicant indicated above, the caseweighted average standardized charge 

per case does not include charges 

related to LipiscanTM. Therefore, it is 

necessary to add the average charge of 

$7,497 related to the device to the 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 case 

distribution 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 

LipiscanTM would meet the cost 

criterion. We invite public comment on 


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

whether or not LipiscanTM meets the 

cost criterion. 

With regard to substantial clinical 

improvement, CMS determined that the 

FY 2010 new technology add-on 

payment application for LipiscanTM did 

not meet the substantial clinical 

improvement criterion because the 

evidence and information available at 

the time the new technology decisions 

were made did not allow CMS to 

determine that the application 

represented a substantial clinical 

improvement over existing technologies. 

Specifically, CMS found that there was 

a lack of evidence that demonstrated 

that LipiscanTM affected the medical 

management of patients in which the 

device was used. 

The applicant maintains that the 

device meets this criterion for the 

following reasons. The applicant noted 

that from November 2008 to 2009, the 

number of patients in whom LipiscanTM

has been used for clinical purposes has 

increased from 100 to 500 and during 

the same period, the number of 

hospitals using the product has 

increased from 6 to 16. In addition, the 

applicant asserts that ‘‘during the past 

year, two LipiscanTM publications 

demonstrate that dilation of a lipid core 

plaque is responsible for slow or no 

reflow and myocardial infarction during 

the procedure.’’ The applicant noted that 

this is important because ‘‘several 

treatments are available that could 

prevent this stenting complication.’’ The 

applicant referenced the ‘‘700 patient 

PROSPECT Study’’ which was presented 

at Transcatheter Cardiovascular 

Therapeutics Conference in September 

2009 and found that 20.4 percent of 

patients experience a new event in the 

3.4 years following stenting. The 

applicant pointed to that finding as 

evidence that there is a need for 

improved safety and efficacy of stenting 

and maintained that LipiscanTM offers 

clinicians the ability to make decisions 

that result in such improvements. 

The PROSPECT (Providing Regional 

Observations to Study Predictors of 

Events in the Coronary Tree) study is a 

cohort study of patients with acute 

coronary syndrome who underwent 

percutaneous coronary angioplasty and 

stenting (percutaneous coronary 

intervention). Following the procedure, 

angiography and intravascular 

ultrasound (IVUS) were performed. If a 

patient had a subsequent event, a new 

angiogram and IVUS image were 

obtained and compared to the original 

results. The investigators reported that 

‘‘angiographically mild lesions with 

certain morphologic features on 

grayscale and IVUS present with a 3 

year cardiac event rate of 17%, versus 

other morphologies (indistinguishable 

by conventional angiograms) with three 

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

concerned that with this type of study 

design, it is not possible to determine 

whether the information for the IVUS 

image would have altered the 

angioplasty and stenting procedures 

since the images were collected after the 

procedure. The results are suggestive, 

but a prospective study is needed to 

determine the clinical utility of IVUS 

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 

LipiscanTM meets all facets of this 

criterion. The applicant asserted that the 

device is able to detect a condition that 

is not currently detectable. The 

applicant explained that LipiScanTM is 

the first device of its kind to be able to 

detect lipid-core-containing plaques of 

interest and to assess of coronary artery 

lipid core burden. The applicant further 

noted that FDA, in its approval 

documentation, has indicated that ‘‘This 

is the first device that can help assess 

the chemical makeup of coronary artery 

plaques and help doctors identify those 

of particular concern.’’ 

In addition, the applicant stated that 

the LipiScanTM chemogram permits a 

clinician to detect lipid-core-containing 

plaques in the coronary arteries 

compared to other currently available 

devices that do not have this ability. 

The applicant explained that the 

angiogram, the conventional test for 

coronary atherosclerosis, shows only 

minimal coronary narrowing. However, 

the applicant indicated that the 

LipiScanTM chemogram has the ability 

to reveal when an artery contains 

extensive lipid-core-containing plaque 

at an earlier stage. 

The applicant also noted that the 

device has the ability to make a 

diagnosis that better affects the 

management of the patient. Specifically, 

the applicant asserted that LipiScanTM

‘‘is currently used in the management of 

patients undergoing coronary stenting to 

improve the safety and efficacy of the 

procedure’’ and that while stenting has 

steadily improved, its results are not 

optimal in approximately 30 percent of 

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

core contents and side branch 

occlusion; (2) major adverse coronary 

events (MACE) post stenting from 

difficulties at the stented site; and (3) 

MACE post stenting for non-stented 

vulnerable sites. We note that in order 

to demonstrate that the technology 

represents a substantial clinical 

improvement, there must be evidence 

that use of the device to make a 

diagnosis affects the medical 

management of the patient and leads to 

improved clinical outcomes. 

The applicant described three case 

studies where each of the above 

problems was addressed by use of the 

LipiScanTM. In addition, the applicant 

asserts that the chemogram results are 

available to the interventional 

cardiologist during the PCI procedure, 

and have been found to be useful in 

decision-making. According to the 

applicant, physicians have reported 

changes in therapy based on LipiScanTM

findings in 20 to 50 percent of patients 

in which the device has been used. 

According to the applicant, the most 

common use of LipiScanTM results has 

been by physicians for selection of the 

length of artery to be stented. In some 

cases a longer stent has been used when 

there is a lipid-core-containing plaque 

adjacent to the area that is being stented 

because a flow-limiting stenosis is 

present. The applicant also noted that, 

in some cases, physicians have chosen 

to use down-stream protective devices 

during stenting procedures on the basis 

of information gathered by use of 

LipiscanTM in several patients, and that 

this has directly impacted their outcome 

by capturing emboli and preventing 

further cardiac damage. Therefore, the 

applicant contends that the use of 

LipiScanTM by clinicians to select the 

length of artery to be stented and as an 

aid in selection of intensity of lipidaltering therapy, demonstrates that 


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

LipiScanTM 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 LipiScanTM device) 

explaining the clinical benefits of the 

device. The applicant further noted that 

the device may have other potential 

uses that would be of clinical benefit, 

and studies are currently being 

conducted to investigate these other 

potential uses. The applicant explained 

that LipiScanTM offers promise as a 

means to enhance progress against the 

two leading problems in coronary 

disease management: (1) The high rate 

of second events that occur even after 

catheterization, revascularization, and 

the institution of optimal medical 

therapy; and (2) the failure to diagnose 

coronary disease early, which results in 

sudden death or MI being the first sign 

of the disease in most patients. The 

applicant further stated that the 

identification of coronary lipid-corecontaining plaques, which can most 

readily be done in those already 

undergoing catheterization, is likely to 

be of benefit in the prevention of second 

events. In the longer term, the applicant 

stated that the identification of lipidcore-containing plaques by LipiScanTM

may contribute to the important goal of 

primary prevention of coronary events, 

which, in the absence of adequate 

diagnostic methods, continue to cause 

extensive morbidity, mortality and 

health care expenditures in Medicare 

beneficiaries and the general 

population. 

We welcome public comment 

regarding whether or not the LipiScanTM

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 

LipiScanTM and LipiScanTM IVUS. The 

comments relating to LipiScanTM IVUS 

are summarized at the end of the 

LipiScanTM IVUS application. 

Comment: Several commenters 

supported approving the LipiScanTM

device for new technology add-on 

payments. They stated (using nearly 

identical language) that LipiScanTM

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 LipiScanTM) 

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 LipiScanTM 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 additional 

information (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 

LipiScanTM, we note that LipiScanTM 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 LipiscanTM within the MS–DRGs in 

the form of a new technology add-on 

payment, because LipiscanTM 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 technology 

does 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 

LipiscanTM will be fully reflected in the 

relative weights that are used to 

recalibrate the MS–DRGs. 

c. LipiScanTM Coronary Imaging 

System With Intravascular Ultrasound 

(IVUS) 

InfraReDx, Inc. submitted an 

application for new technology add-on 

payments for FY 2011 for the 

LipiScanTM Coronary Imaging System 

with Intravascular Ultrasound 

(LipiScanTM IVUS). The LipiScanTM

IVUS device is a diagnostic device that 

uses Intravascular near infrared 

spectroscopy (INIRS) combined with 

intravascular ultrasound (IVUS) during 

an invasive coronary angiography to 

determine the chemical composition of 

coronary plaques, which is 

accomplished using near infrared 

spectroscopy (INIRS) and to visualize 

stents and the structural features of 

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 


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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 LipiscanTM

product, for which it has also submitted 

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

combined product is filled with saline 

(which is required for transmission of 

sound). The manufacturer has also 

stated that the combined device only 

requires the use of one catheter, as 

opposed to two separate ones. The 

manufacturer asserts that the single-use 

catheter for the combined technologies 

is only supplied by InfraRedX (the 

manufacturer of LipiScanTM). However, 

we note that a physician could use 

LipiScanTM and IVUS as two separate 

products in the same patient (through 

the use of two catheters) and still be 

able to obtain the INIRS image and the 

ultrasound that are achieved through 

the combined product albeit separately. 

We welcome public comments 

regarding whether the combined 

LipiScanTM IVUS device should be 

considered to be ‘‘new’’ as of the date of 

the existing LipiScanTM device received 

FDA approval or whether it should be 

considered new from the FDA approval 

date for LipiScanTM IVUS (should such 

an approval be granted). We also 

welcome public comments regarding 

whether LipiScanTM IVUS, as a 

combined technology, should be 

considered to be substantially similar to 

each individual technology separately 

as of the date that each separate 

technology received FDA approval (or 

the date that each technology became 

available on the market, if either 

technology was not available on the 

market until a date after FDA approval). 

As stated above, in making a 

determination of substantial similarity, 

we consider the following: (1) Whether 

a product uses the same or similar 

mechanism of action to achieve a 

therapeutic action; (2) whether a 

product is assigned to the same or a 

different DRG; and (3) whether new use 

of a technology involves treatment of 

the same or similar type of disease and 

the same or similar patient population. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule, we stated that ‘‘due to the 

complexity of issues regarding the 

substantial similarity component of the 

newness criterion, it may be necessary 

to exercise flexibility when considering 

whether technologies are substantially 

similar to one another (74 FR 43813). 

We note that the LipiScanTM IVUS 

device is identified by ICD–9–CM 

procedure codes 38.23 (Intravascular 

spectroscopy) and 00.24 (Intravascular 

imaging of coronary vessels). Cases 

involving the use of this device 

generally map to MS–DRG 246 

(Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

with MCC or 4+ Vessels/Stents); MS– 

DRG 247 (Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent(s) 

without MCC); MS–DRG 248 

(Percutaneous Cardiovascular 

Procedures with Non-Drug-Eluting 

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

MS–DRG 249 (Percutaneous 

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

MS–DRG 250 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent with MCC); and 

MS–DRG 251 (Percutaneous 

Cardiovascular Procedures without 

Coronary Artery Stent without MCC). 

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 LipiscanTM

IVUS. The applicant believes that every 

case within MS–DRGs 246, 247, 248, 

249, 250, and 251 is eligible for 

LipiscanTM IVUS. In addition, the 

applicant believes that LipiscanTM IVUS 

will be evenly distributed across 

patients in each of those six MS–DRGs 

(16.7 percent within each MS–DRG). 

Using data from the AOR file, the 

applicant found the average 

standardized charge per case for MS– 

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

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

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

equating to a case-weighted average 

standardized charge per case of $52,230 

(calculation performed using unrounded 

numbers). The applicant indicated that 

the case-weighted average standardized 

charge per case does not include charges 

related to LipiscanTM IVUS. Therefore, it 

is necessary to add the charges related 

to the device to the average caseweighted standardized charge per case 

to evaluate the cost threshold criterion. 

Although the applicant submitted data 

related to the estimated cost per case of 

LipiscanTM IVUS, the applicant stated 

that the cost of the device is proprietary 

information. The applicant analyzed 

Hospital Cost Report Information 

System (‘‘HCRIS’’) data from 2008 to 

determine the charges related to the 

device. Specifically, the applicant 

searched for the 100 cardiac 

catheterization labs that had the highest 

volume of cases in the United States. 

Based on the HCRIS data from these 100 

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 LipiscanTM IVUS. 

(We note that this estimate of charges 

related to the LipiscanTM IVUS is 

significantly higher than the estimate of 

charges related to the LipiscanTM

device.) Adding the estimated average 

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

(based on the case distribution from the 

applicant’s FY 2010 AOR analysis) 

results in a total case-weighted average 

standardized charge per case of $68,190 

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

2011 thresholds published in Table 10 

of the FY 2011 IPPS/RY 2010 LTCH PPS 

final 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 the 

applicant’s calculation of the total caseweighted average standardized charge 

per case for the applicable MS–DRGs 

exceeds the case-weighted threshold 

amount, the applicant maintains that 

LipiscanTM IVUS meets the cost 

criterion. 

We note that in the applicant’s 

analysis of the cost criterion, instead of 

determining the case-weighted average 

standardized charge per case and the 

case-weighted threshold amount based 

on the actual number of cases from the 

FY 2010 AOR file in the applicable MS– 

DRGs that are eligible for the LipiscanTM

IVUS, the applicant’s analysis assumed 

an even distribution of patients in the 

applicable MS–DRGs. However, the data 

from the FY 2010 AOR file shows a 

varied distribution of cases in each of 

the applicable MS–DRGs. We believe 

the more appropriate way to determine 

the case-weighted average standardized 

charge per case and the case-weighted 

threshold amount for evaluating the cost 

criterion is to use the actual distribution 

of cases in the applicable MS–DRGs 

based on the number of cases from the 

AOR file because this would more 

accurately reflect the number and type 

of Medicare cases typically treated in 

the applicable MS–DRGs. Moreover, this 

would better conform with the 

applicant’s assertion that that the 

probability of use of LipiscanTM 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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Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 23935 

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 the 

applicant indicated above, the caseweighted average standardized charge 

per case does not include charges 

related to LipiscanTM IVUS. Therefore, it 

is necessary to add the average charge 

of $15,960 related to the device to the 

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 the 

applicable MS–DRGs exceeds the caseweighted threshold amount, it appears 

that LipiscanTM IVUS would meet the 

cost criterion. 

In addition to the analysis above, the 

applicant searched the FY 2008 

MedPAR file for cases potentially 

eligible for use of the LipiscanTM IVUS. 

Because the technology can potentially 

be used for all cases within MS–DRGs 

246 through 251, the applicant searched 

the FY 2008 MedPAR file for all cases 

within these MS–DRGs. The applicant 

found 30,265 cases (or 9.7 percent of all 

cases) in MS–DRG 246; 147,695 cases 

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

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

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

21.8 percent of all cases) in MS–DRG 

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

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

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

251. The average standardized charge 

per case was $66,958 for MS–DRG 246, 

$50,192 for MS–DRG 247, $72,099 for 

MS–DRG 248, $45,086 for MS–DRG 249, 

$71,355 for MS–DRG 250, and $46,141 

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

per case of $45,964. 

Similar to above, the average 

standardized charge per case does not 

include charges related to the 

LipiscanTM IVUS; therefore, it is 

necessary to add the charges related to 

the device to the average standardized 

charge per case in evaluating the cost 

threshold criterion. Although the 

applicant submitted data related to the 

estimated cost of LipiscanTM IVUS per 

case, the applicant noted that the cost of 

the device was proprietary information. 

Based on 2008 HCRIS data from the 

cardiac catheterization laboratories for 

all IPPS hospitals, the applicant 

determined a mean cost-to-charge ratio 

of 0.246 with a markup of 351 percent, 

yielding a charge of $10,543 for 

LipiscanTM IVUS. Assuming that the 

LipiscanTM IVUS device was marked up 

351 percent, the total case-weighted 

average standardized charge per case for 

cases involving the use of LipiscanTM

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

$10,543) across MS–DRGs 246 through 

251. 

Using the 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 LipiscanTM

IVUS meets the cost criterion. We invite 

public comment on whether or not 

LipiscanTM IVUS meets the cost 

criterion. 

With regard to substantial clinical 

improvement, the applicant asserts that 

LipiScanTM IVUS lends all the same 

benefits of LipiScanTM by itself (see 

discussion of LipiScanTM with respect 

to clinical improvement in the above 

application analysis) and also gives 

added benefits of IVUS. Specifically, the 

applicant maintains that LipiScanTM

IVUS is superior to perfusion imaging 

and coronary angiography because those 

procedures only provide information 

about the lumen, but not the wall of the 

vessel. The applicant asserts that it is 

superior to IVUS (by itself) because 

IVUS alone cannot identify plaque 

composition. The applicant further 

maintains that LipiScanTM IVUS 

provides a substantial clinical benefit 

over Optical Coherence Tomography 

(OCT) because OCT cannot be used if 

blood is present in the field of view and 

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

expert interpretation.’’ In contrast, ‘‘the 

LipiScanTM signal is available 

immediately after the coronary pullback 

and does not require expert 

interpretation.’’ 

The applicant also states that 

LipiScanTM IVUS makes it possible to 

find the lipid core plaques that are 

strongly associated with peri-stenting 

MI and adverse events post MI that 

current methods of diagnosis fail to 

find. 

Finally, the applicant asserts that 

LipiScanTM IVUS affects the 

management of the patient by improving 

the safety and efficacy of stenting. 

Further, the applicant states that while 

stenting has steadily improved, its 

results are not optimal in approximately 

30% 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 

LipiScanTM IVUS. LipiScanTM IVUS 

achieves its utility to differentiate lipid 

core plaque from fibrotic plaque, a 

differentiation that cannot be made by 

angiography or grayscale IVUS. 

The applicant referenced the ‘‘700 

patient PROSPECT Study’’ which was 

presented at Transcatheter 

Cardiovascular Therapeutic Conference 

in September 2009 and found that 20.4 

percent of patients experience a new 

event in the 3.4 years following stenting. 

The applicant pointed to that finding as 

evidence that there is a need for 

improved safety and efficacy of stenting 

and maintained that LipiscanTM offers 

clinicians the ability to make decisions 

that result in such improvements. 

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 

LipiScanTM IVUS application, the 

applicant has generally repeated the 

statements made regarding use of 

LipiScanTM alone and has not provided 

information that indicates that 

combined use of LipiScanTM plus IVUS 

offers additional clinical benefit. 

Indeed, we note that most of the studies 

that were presented in an effort to 

support that LipiScanTM by itself was a 

substantial clinical improvement, were 

also included to support the LipiScanTM

IVUS application. The applicant did not 

present any published peer-reviewed 

journal articles that were specifically 

related to the clinical merits of the 

combined LipiScanTM IVUS device. 

We welcome public comments on 

whether the LipiScanTM IVUS 

represents a substantial clinical 

improvement over existing technologies 

as well as public comments on what is 

the appropriate comparison for 

LipiScanTM IVUS. 

As we noted at the end of the 

discussion of the LipiScanTM

application, we received approximately 

nine public comments on both the 

LipiScanTM and the LipiScanTM IVUS 

applications. 

Comment: Several commenters 

acknowledged that LipiScanTM IVUS is 

not yet approved by the FDA, but stated 

that they would support the LipiScanTM

IVUS being approved for new 

technology add-on payments should 

FDA approval be granted. With regard to 

the clinical merits of LipiScanTM IVUS, 

the commenters stated that the 

LipiScanTM IVUS afforded all the same 

diagnostic abilities of the LipiScanTM, 

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 

LipiScanTM 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 the 

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

hospitals. The survey must exclude the 

wages and wage-related costs incurred 

in furnishing skilled nursing services. 

This provision also requires us to make 

any updates or adjustments to the wage 

index in a manner that ensures that 

aggregate payments to hospitals are not 

affected by the change in the wage 

index. The 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 a 

wage area framework based on hospitalspecific characteristics, such as 

commuting times from hospitals to 

population centers, to construct a more 

accurate hospital wage index. Acumen 

suggested that such an approach offers 

the greatest potential for replacing or 

greatly reducing the need for hospital 

reclassifications and exceptions. 

We indicated in the FY 2009 IPPS 

final rule (73 FR 48566) that, in 

developing any proposal(s) for 

additional wage index reform that may 

be included in the FY 2010 IPPS 

proposed rule, we would consider all of 

the public comments on the MedPAC 

recommendations that we had received 

in that proposed rulemaking cycle, 

along with the interim and final reports 

to be submitted to us by Acumen. As 

Acumen’s study was not complete at the 

time of issuance of the FY 2010 IPPS/ 

RY 2010 LTCH PPS proposed rule, we 

did not propose any additional changes 

to the hospital wage index for the FY 

2010 IPPS. We also 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-Round 

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

• Delano, CA qualifies as a new 

principal city of the Bakersfield, CA 

CBSA. The new title: BakersfieldDelano, CA CBSA. 

• Conroe, TX qualifies as a new 

principal city of the Houston-Sugar 

Land-Baytown, TX CBSA. The CBSA 

title is unchanged. 

• North Port, FL qualifies as a new 

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

Port-Bradenton-Sarasota, FL CBSA. The 

new code is CBSA 35840. 

• Sanford, FL qualifies as a new 

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

Orlando-Kissimmee-Sanford, FL CBSA. 

• Glendale, AZ qualifies as a new 

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

Phoenix-Mesa-Glendale, AZ CBSA. 

• Palm Desert, CA qualifies as a new 

principal city of the Riverside-San 

Bernardino-Ontario, CA CBSA. The 

CBSA title is unchanged. 

• New Braunfels, TX qualifies as a 

new principal city of the San Antonio, 

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

• Auburn, WA qualifies as a new 

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

unchanged. 

The changes to titles resulting from 

changes to the order of principal cities 

based on population are as follows: 

• Rockville, MD replaces Frederick, 

MD as the second most populous 

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

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

• Rock Hill, SC replaces Concord, NC 

as the third most populous principal 

city in the Charlotte-Gastonia-Concord, 

NC–SC CBSA. The new title is 

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 populous 

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

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

18880. 

• Hillsboro, OR replaces Beaverton, 

OR as the third most populous principal 

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

is Portland-Vancouver-Hillsboro, OR– 

WA CBSA. 

• Steubenville, OH replaces Weirton, 

WV as the most populous principal city 

in the Weirton-Steubenville, WV–OH 

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

code is 44600. 

The OMB bulletin is available on the 

OMB Web site at http:// 

www.whitehouse.gov/OMB—go to 

‘‘Agency Information’’ and click on 

‘‘Bulletins’’. 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 


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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 


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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 


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BILLING CODE 4120–01–C 


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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 a 

high 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 also 

excludes 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). In 

addition, 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 

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the periods were equal in length, we 

included the wage data from the later 

period in the wage index calculation. 

Step 2—Salaries—The method used to 

compute a hospital’s average hourly 

wage excludes certain costs that are not 

paid under the IPPS. (We note that, 

beginning with FY 2008 (72 FR 47315), 

we include Lines 22.01, 26.01, and 

27.01 of Worksheet S–3, Part II for 

overhead services in the wage index. 

However, we note that the wages and 

hours on these lines are not 

incorporated into Line 101, Column 1 of 

Worksheet A, which, through the 

electronic cost reporting software, flows 

directly to Line 1 of Worksheet S–3, Part 

II. Therefore, the first step in the wage 

index calculation for FY 2011 is to 

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

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

(for wages and hours respectively) the 

amounts on Lines 22.01, 26.01, and 

27.01.) In calculating a hospital’s 

average salaries plus wage-related costs, 

we subtract from Line 1 (total salaries) 

the GME and CRNA costs reported on 

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

salaries reported on Lines 3, 5 and 5.01, 

home office salaries reported on Line 7, 

and exclude salaries reported on Lines 

8 and 8.01 (that is, direct salaries 

attributable to SNF services, home 

health services, and other subprovider 

components not subject to the IPPS). We 

also subtract from Line 1 the salaries for 

which no hours were reported. To 

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

salaries the costs of contract labor for 

direct patient care, certain top 

management, pharmacy, laboratory, and 

nonteaching physician Part A services 

(Lines 9 and 10), home office salaries 

and wage-related costs reported by the 

hospital on Lines 11 and 12, and 

nonexcluded area wage-related costs 

(Lines 13, 14, and 18). 

We note that contract labor and home 

office salaries for which no 

corresponding hours are reported are 

not included. In addition, wage-related 

costs for nonteaching physician Part A 

employees (Line 18) are excluded if no 

corresponding salaries are reported for 

those employees on Line 4. 

Step 3—Hours—With the exception of 

wage-related costs, for which there are 

no associated hours, we compute total 

hours using the same methods as 

described for salaries in Step 2. 

Step 4—For each hospital reporting 

both total overhead salaries and total 

overhead hours greater than zero, we 

then allocate overhead costs to areas of 

the hospital excluded from the wage 

index calculation. First, we determine 

the ratio of excluded area hours (sum of 

Lines 8 and 8.01 of Worksheet S–3, Part 

II) to revised total hours (Line 1 minus 

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

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

Worksheet S–3). We then compute the 

amounts of overhead salaries and hours 

to be allocated to excluded areas by 

multiplying the above ratio by the total 

overhead salaries and hours reported on 

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

we compute the amounts of overhead 

wage-related costs to be allocated to 

excluded areas using three steps: (1) We 

determine the ratio of overhead hours 

(Part III, Line 13 minus the sum of lines 

22.01, 26.01, and 27.01) to revised hours 

excluding the sum of lines 22.01, 26.01, 

and 27.01 (Line 1 minus the sum of 

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

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

that for the FY 2008 and subsequent 

wage index calculations, we are 

excluding the sum of lines 22.01, 26.01, 

and 27.01 from the determination of the 

ratio of overhead hours to revised hours 

because hospitals typically do not 

provide fringe benefits (wage-related 

costs) to contract personnel. Therefore, 

it is not necessary for the wage index 

calculation to exclude overhead wagerelated costs for contract personnel. 

Further, if a hospital does contribute to 

wage-related costs for contracted 

personnel, the instructions for Lines 

22.01, 26.01, and 27.01 require that 

associated wage-related costs be 

combined with wages on the respective 

contract labor lines.); (2) we compute 

overhead wage-related costs by 

multiplying the overhead hours ratio by 

wage-related costs reported on Part II, 

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

multiply the computed overhead wagerelated costs by the above excluded area 

hours ratio. Finally, we subtract the 

computed overhead salaries, wagerelated costs, and hours associated with 

excluded areas from the total salaries 

(plus wage-related costs) and hours 

derived in Steps 2 and 3. 

Step 5—For each hospital, we adjust 

the total salaries plus wage-related costs 

to a common period to determine total 

adjusted salaries plus wage-related 

costs. To make the wage adjustment, we 

estimate the percentage change in the 

employment cost index (ECI) for 

compensation for each 30-day 

increment from October 14, 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. 


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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. 


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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. 

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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 the 

FY 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-reclassified 

wage 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 this 

proposed 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 their 

home 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 and 

the resolution of the hospitals’ earlyDecember revision requests. The fiscal 

intermediaries/MACs also submitted the 

revised data to CMS by mid-February 

2010. CMS published the proposed 

wage index public use files that 

included hospitals’ revised wage index 

data on February 22, 2010. Hospitals 

had until March 8, 2010, to submit 

requests to the fiscal intermediaries/ 

MACs for reconsideration of 

adjustments made by the fiscal 

intermediaries/MACs as a result of the 

desk review, and to correct errors due to 

CMS’s or the fiscal intermediary’s (or, if 

applicable, the MAC’s) mishandling of 

the wage index data. Hospitals also were 

required to submit sufficient 

documentation to support their 

requests. 

After reviewing requested changes 

submitted by hospitals, fiscal 

intermediaries/MACs 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 that 

it is appropriate to make prospectiveonly corrections to the wage index. 

We note that, as with prospective 

changes to the wage index, the final 

retroactive correction will be made 

irrespective of whether the change 

increases or decreases a hospital’s 

payment rate. In addition, we note that 

the policy of retroactive adjustment will 

still apply in those instances where a 

judicial decision reverses a CMS denial 

of a hospital’s wage index data revision 

request. 

L. Labor-Related Share for the 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 that 

are attributable to wages and wagerelated costs by a factor that reflects the 

relative differences in labor costs among 

geographic areas. It also directs the 

Secretary to estimate from time to time 

the proportion of hospital costs that are 

labor-related: ‘‘The Secretary shall adjust 

the proportion (as estimated by the 

Secretary from time to time) of 

hospitals’ costs which are attributable to 

wages and wage-related costs of the 

DRG prospective payment rates 

***’’ We refer to the portion of 

hospital costs attributable to wages and 

wage-related costs as the labor-related 

share. The labor-related share of the 

prospective payment rate is adjusted by 

an index of relative labor costs, which 

is referred to as the wage index. 

Section 403 of Public Law 108–173 

amended section 1886(d)(3)(E) of the 

Act to provide that the Secretary must 

employ 62 percent as the labor-related 

share unless this ‘‘would result in lower 

payments to a hospital than would 

otherwise be made.’’ However, this 

provision of Public Law 108–173 did 

not change the legal requirement that 

the Secretary estimate ‘‘from time to 

time’’ the proportion of hospitals’ costs 

that are ‘‘attributable to wages and wagerelated costs.’’ We believe that this 

reflected Congressional intent that 

hospitals receive payment based on 

either a 62-percent labor-related share, 

or the labor-related share estimated from 

time to time by the Secretary, depending 

on which labor-related share resulted in 

a higher payment. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43850 through 

43856), we rebased and revised the 

hospital market basket for operating 

costs. We established a FY 2006-based 

IPPS hospital market basket to replace 

the FY 2002-based IPPS hospital market 

basket, effective October 1, 2009. In that 

final rule, we presented our analysis 

and conclusions regarding the frequency 

and methodology for updating the laborrelated share for FY 2010. We also 

recalculated a labor-related share of 68.8 

percent, using the FY 2006-based IPPS 

market basket, for discharges occurring 

on or after October 1, 2009. In addition, 

we implemented this revised and 

rebased labor-related share in a budget 

neutral manner, but consistent with 

section 1886(d)(3)(E) of the Act, we did 

not take into account the additional 

payments that would be made as a 

result of hospitals with a wage index 

less than or equal to 1.0 being paid 

using a labor-related share lower than 

the labor-related share of hospitals with 

a wage index greater than 1.0. 

The labor-related share is used to 

determine the proportion of the national 

IPPS base payment rate to which the 

area wage index is applied. In 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 business 

support services, and all other laborrelated services (previously referred to 

in the FY 2002-based IPPS market 

basket as labor-intensive). Therefore, we 

are 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, we 

are applying the wage index to a laborrelated share of 68.8 percent of the 

national standardized amount. 

For Puerto Rico hospitals, the national 

labor-related share will always be 62 

percent because the 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 1.0 

will be paid using the Puerto Ricospecific labor-related share of 62 percent 

of the Puerto Rico-specific rates because 

the lower labor-related share will result 

in higher payments. 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 6AM 

Postoperative Serum Glucose, SCIPInfection-6: Surgery Patients with 

Appropriate Hair Removal, and 

Pneumonia 30-day mortality (Medicare 

patients).) The addition of these 3 

measures brought the total number of 

RHQDAPU program measures to be 

used for the FY 2009 payment 

determination to 30 (72 FR 66876). The 

30 measures used for the FY 2009 

annual payment determination are 

listed in the FY 2009 IPPS final rule (73 

FR 48600 through 48601). 

For the FY 2010 payment 

determination, we added 15 new 

measures to the RHQDAPU program 

measure set and retired 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, treatable 

complications); added two chartabstracted measures (SCIP-Infection-9: 

Postoperative Urinary Catheter Removal 

on 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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6AHRQ. 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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7A 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, efficiency 

measures, and patients’ experience-ofcare measures; (b) expanding the scope 

of hospital services to which the 

measures apply; (c) considering the 

burden on hospitals in collecting chartabstracted data; (d) harmonizing the 

measures used in the RHQDAPU 

program with other CMS quality 

programs to align incentives and 

promote coordinated efforts to improve 

quality; (e) seeking to use measures 

based on alternative sources of data that 

do not require chart abstraction or that 

utilize data already being reported by 

many hospitals, such as data that 

hospitals report to clinical data 

registries, or all-payer claims data bases; 

and (f) weighing the relevance and 

utility of the measures compared to the 

burden on hospitals in submitting data 

under the RHQDAPU program. 

Specifically, we give priority to quality 

measures that assess performance on: (a) 

Conditions that result in the greatest 

mortality and morbidity in the Medicare 

population; (b) conditions that are high 

volume and high cost for the Medicare 

program; and (c) conditions for which 

wide cost and treatment variations have 

been reported, despite established 

clinical guidelines. We have used and 

continue to use these criteria to guide 

our decisions regarding what measures 

to add to the RHQDAPU program 

measure set. 

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 final 

rule that 11 RHQDAPU program chartabstracted measures were recommended 

for retirement by commenters. Seven of 

these 11 measures were recommended 

for retirement based on their 

performance being uniformly high 

nationwide, with little variability among 

hospitals. Information on the 

performance rates for hospitals 

reporting is available at: http:// 

www.cms.hhs.gov/HospitalQualityInits/ 

downloads/ 

HospitalNationalLevelPerformance.pdf. 

These measures are: 

• AMI–1 Aspirin at arrival 

• AMI–3 ACEI/ARB for left 

ventricular systolic dysfunction 

• AMI–4 Adult smoking cessation 

advice/counseling 

• AMI–5 Beta-blocker prescribed at 

discharge 

• HF–4 Adult smoking cessation 

advice/counseling 

• PN–4 Adult smoking cessation 

advice/counseling 

• SCIP-Infection-6: Surgery patients 

with appropriate hair removal 

In addition to these ‘‘topped out’’ 

measures, commenters recommended 

we retire four additional measures listed 

below for reasons unrelated to high 

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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8http://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 the 

AHRQ. 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 measures 

that 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 and 

public comment, Vascular CatheterAssociated Infection and CatheterAssociated UTI are the subject of a 

quality measure which gained NQF 

endorsement in August 2009. The 

remaining six HAC categories have been 

identified as serious reportable events 

through the NQF consensus process and 

have also been selected as HACs 

through rulemaking and public 

comment. Data reporting requirements 

for these measures are provided in 

section 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 selected 

for 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 an 

alternative that hospitals submit allpatient volume data based upon specific 

ICD–9–CM codes related to the 

proposed MS–DRGs rather than all data 

necessary to calculate the MS–DRGs. 

The proposed RHQDAPU measure set 

for the FY 2012 payment determination 

is listed below: 

BILLING CODE 4120–01–P 


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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 FY 

2013 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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9http://www.cdc.gov/nhsn/. 

10McKibben 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. 

11Brown, 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. 

12Hammill S and Curtis J. Publicly Reporting 

Implantable Cardioverter Defibrillator Outcomes— 

Grading the Report Card. Circ Arrhythmia 

Electrophysiol. 2008;1:235–237). 

13Al-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 risk 

factors. 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) Cardiac 

Surgery; (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. of 

this 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 submission 

requirements for the proposed registrybased measures are discussed in section 

V.A.5. of this proposed rule. Below is a 

discussion 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: 

PROPOSED MEASURES FOR STROKE REGISTRY-BASED TOPIC

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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PROPOSED MEASURES FOR STROKE REGISTRY-BASED TOPIC—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 of 

participation in a registry for nursingsensitive care, under which hospitals 

submit data directly to the QIO Clinical 

Warehouse. 

For the FY 2013 payment 

determination, we 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-based 

measures to a qualified nursingsensitive care registry beginning with 

January 1, 2011 discharges. Hospitals 

would continue reporting the nursingsensitive care structural measure 

previously adopted for the RHQDAPU 

program directly to the QIO Clinical 

Warehouse. 

We 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. 

PROPOSED MEASURES FOR NURSING SENSITIVE CARE REGISTRY-BASED TOPIC

Patient Falls: All documented falls with or without injury, experienced by patients on an eligible unit in a calendar month. (NQF #0141). 

Falls with Injury: All documented patient falls with an injury level of minor or greater. (NQF #0202). 

Pressure Ulcer Prevalence (NQF #0201). 

Restraint Prevalence (vest and limb) (NQF #0203). 

Skill Mix: Percentage of hours worked by: RN, LPN/LVN, UAP, Contract/Agency (NQF #0204). 

Hours per patient day worked by RN, LPN, and UAP (NQF #0205). 

Practice Environment Scale-Nursing Work Index (NQF #0206). 

Voluntary turnover for RN, APN, LPN, UAP (NQF #0207). 

(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 to 

include 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 

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PROPOSED MEASURES FOR PROPOSED CARDIAC SURGERY REGISTRY-BASED TOPIC

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: 

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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 the 

agency 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 QIO 

Clinical Warehouse; or (2) selfadminister the survey without using a 

survey vendor provided that the 

hospital attends HCAHPS training and 

meets Minimum Survey Requirements 

as specified on the Web site at: http:// 

www.hcahpsonline.org. A current list of 

approved HCAHPS survey vendors can 

be found on the HCAHPS Web site at: 

http://www.hcahpsonline.org. 

We 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 

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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 4c 

months following the last discharge date 

in the calendar quarter. CMS will post 

the quarterly submission deadline 

schedule on the QualityNet Web site 

(http://www.QualityNet.org). Chartabstracted measures have not been 

added for the FY 2012 payment 

determination. The collection of new 

chart-abstracted measures proposed for 

the FY 2013 payment determination 

would begin with the 1st calendar 

quarter 2011 discharges, for which the 

submission deadline would be August 

15, 2011. The collection of new chartabstracted measures proposed for the FY 

2014 payment determination would 

begin with the 1st calendar quarter 2012 

discharges, for which the submission 

deadline would be August 15, 2012. 

Hospitals must comply with the 


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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 accept 

submissions 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 alternative 

that 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 qualified 

registry would also submit registryderived hospital-level measure 

calculations to the QIO Clinical 

Warehouse using a CMS-specified 

record layout and file format that we 

will make available. 

Our program and its data system must 

maintain compliance with HIPAA 

requirements for requesting, processing, 

storing, and transmitting data. For the 

FY 2013 RHQDAPU payment 

determination, hospitals would need to 

submit data for the proposed registrybased measures to the qualified registry 

in the form and manner and by the 

deadline(s) specified by the registry. 

CMS 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 qualified 

registry it is using to report the patientlevel data to CMS in order to calculate 

the ICD complications measure. 

(B) Hospitals That Choose To Report 

Either the Stroke, Nursing Sensitive 

Care, or Cardiac Surgery Measures 

If a hospital chooses the Stroke, 

Nursing Sensitive Care, or Cardiac 

Surgery measure topics, 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 41⁄2

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— 


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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 and 

interoperability standards for EHRbased collection and transmission of the 

data elements for the ED Throughput, 

Stroke, and Venous Thromboembolism 

(VTE) measures have been finalized by 

the Health Information Technology 

Standards Panel (HITSP) and are 

available for review and testing at http// 

www.HITSP.org. We anticipate testing 

the components required for the 

submission of clinical quality data 

extracted from EHRs for these measures, 

and are exploring different mechanisms 

and formats that will aid the submission 

process, as well as ensure that the 

summary measure results extracted from 

the EHRs are reliable. 

We anticipate moving forward with 

testing CMS’ technical ability to accept 

data from EHRs for the ED, Stroke, and 

VTE measures as early as summer of 

2011. We anticipate building upon the 

work completed by the HITSP in both 

the Connectathon and Health 

Information Management Systems 

Society (HIMSS) Interoperability 

Showcase. This testing will encompass 

an ‘‘end to end’’ view of data 

transmission. Pursuant to the Paperwork 

Reduction Act, we have previously 

published a Federal Register notice and 

information collection request for CMS– 

10296 (74 FR 44366) seeking public 

comments on the process we intended 

to follow to select EHR vendors/ 

hospitals for testing CMS ability to 

accept EHR-based data submissions. We 

will notify interested parties of changes 

in the process and timeline for testing 

via the Inpatient EHR testing Web site 

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

HospitalQualityInits/ 

15_HospitalInpatientEHRTesting.asp. 

The test measures described above are 

not currently required under the 

RHQDAPU program. In addition, the 

posting of the electronic specifications 

for any particular measure should not be 

interpreted as a signal that we intend to 

select the measure for inclusion in the 

RHQDAPU program measure set. 

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 being 

proposed for inclusion in the registrybased topic for which the registry is 

seeking qualification for at least 3 years 

prior to January 1, 2010. 

• As of January 1, 2010, the registry 

has been collecting such data from at 

least 750 hospitals. 

• The registry must have the 

capability to collect from hospitals all of 

the data elements which are included in 

the measure specifications and calculate 

the results for the specified measures. 

The measures are NQF-endorsed and 

will be listed in the 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 transmit 

quality 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-based 

topics, 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 per 

discharge, whichever of these hospitalspecific rates is higher. Section 5003(b) 

of Public Law 109–171 (DRA 2005) 

amended section 1886(d)(5)(G) of the 

Act to provide that, for discharges 

occurring on or after October 1, 2006, 

MDHs are paid based on the Federal rate 

or, if higher, the Federal rate plus 75 

percent of the amount by which the 

Federal rate is exceeded by the updated 

hospital-specific rate based on FY 1982, 

FY 1987, or FY 2002 costs per 

discharge, whichever of these hospitalspecific rates is highest. 

For each cost reporting period, the 

fiscal intermediary or MAC determines 

which of the payment options will yield 

the highest aggregate payment. Interim 

payments are automatically made at the 

highest rate using the best data available 

at the time the fiscal intermediary or 

MAC makes the determination. 

However, it may not be possible for the 

fiscal intermediary or MAC to determine 

in advance precisely which of the rates 

will yield the highest aggregate payment 

by year’s end. In many instances, it is 

not possible to 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 


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14Teaching 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 hospitals 

are 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 


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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. 

EXAMPLE OF TIMELINE TO CALCULATE FY 2011 SSI FRACTIONS UNDER CURRENT POLICY

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. 

EXAMPLE OF TIMELINE TO CALCULATE FY 2011 SSI FRACTIONS UNDER PROPOSED RULE

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 FY 

2011 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 


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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 multiplying 

the PRA by the weighted number of fulltime equivalent (FTE) residents working 

in all areas of the hospital complex (and 

nonhospital sites, when applicable), and 

the hospital’s Medicare share of total 

inpatient days. The base year PRA is 

updated annually for inflation. 

Hospitals may receive direct GME and 

IME payments for residents in 

‘‘approved medical residency training 

programs.’’ Section 1886(h)(5)(A) of the 

Act defines an ‘‘approved medical 

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 


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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 


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supported by an institution, as 

distinguished from ‘on-the-job,’ 

‘inservice,’ or similar work-learning 

programs’’ (emphasis added) (PRM–I, 

section 402.1). We believe the education 

that junior faculty receive when 

working closely with senior faculty to 

gain highly specialized skills is more 

appropriately characterized as on-thejob, or inservice training, rather than 

training in an ‘‘approved medical 

residency program.’’ 

In order for the training to be 

considered an ‘‘approved medical 

residency program,’’ the training must 

prepare the individual for certification 

in the particular specialty or 

subspecialty in which the individual is 

training. The mere possibility that the 

training could be construed as leading 

toward or counting toward certification 

in some existing board examination is 

insufficient. For example, an individual 

who is enrolled and participating in a 

two year accredited subspecialty 

program in allergy and immunology 

and, as part of that program, completes 

an elective in allergic reactions to insect 

stings is considered a resident during 

that elective, and may be included in 

the IME and direct GME FTE count 

(assuming all other requirements are 

met). However, if, after completion of 

the 2-year allergy and immunology 

subspecialty program, this individual 

decides to remain at the teaching 

hospital for a year to shadow a 

physician who has unique expertise in 

allergic reactions to insect stings, this 

individual would not be considered a 

resident, nor would this training be 

considered an approved program, 

because this individual is not formally 

enrolled in a planned, structured, 

standardized course of study, nor is this 

year of training required for any 

individual to qualify to take the board 

examination in allergy and 

immunology. This individual already 

completed the 2-year subspecialty 

program, and therefore, the extra year 

spent studying allergic reactions to 

insect stings is extraneous. Accordingly, 

this individual would not be viewed as 

a resident participating in an approved 

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 


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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 Law 

98–369 by extending the CRNA passthrough provision through cost 

reporting periods beginning before 

January 1, 1989. In addition, Public Law 

99–509 amended section 1861 of the Act 

to add a new subsection (bb), which 

provides that CRNA services include 

anesthesia services and related care 

furnished by a CRNA. Section 608 of the 

Family Support Act of 1988 (Pub. L. 

100–485) extended pass-through 

payments for CRNA services through 

1991 and amended section 9320 of 

Public Law 99–509 by including 

language referring to eligibility for passthrough payments for CRNA services if 

the facility is ‘‘* * * a hospital located 

in a rural area (as defined for purposes 

of section 1886(d) of the Social Security 

Act) * * *.’’ Reasonable cost-based 

payment for CRNA services was 

extended indefinitely by section 6132 of 

the Omnibus Budget Reconciliation Act 

of 1989 (Pub. L. 101–239). 

Section 1886(d)(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 IPPS 

for acute care hospital inpatient capitalrelated costs. We initially implemented 

the IPPS for capital-related costs in the 

Federal fiscal year (FY) 1992 IPPS final 

rule (56 FR 43358), in which we 

established a 10-year transition period 

to change the payment methodology for 

Medicare hospital inpatient capitalrelated costs from a reasonable costbased methodology to a prospective 

methodology (based fully on the Federal 

rate). 

FY 2001 was the last year of the 10- 

year transition period established to 

phase in the IPPS for hospital inpatient 

capital-related costs. For cost reporting 

periods beginning in FY 2002, capital 

IPPS payments are based solely on the 

Federal rate for almost all acute care 

hospitals (other than hospitals receiving 

certain exception payments and certain 

new hospitals). (We refer readers to the 

FY 2002 IPPS final rule (66 FR 39910 

through 39914) for additional 

information on the methodology used to 

determine capital IPPS payments to 

hospitals both during and after the 

transition period.) The basic 

methodology for determining capital 

prospective payments using the Federal 

rate is set forth in § 412.312 of the 

regulations. For the purpose of 

calculating payments for each discharge, 

currently the standard Federal rate is 

adjusted as follows: 

(Standard Federal Rate) × (DRG 

Weight) × (Geographic Adjustment 

Factor (GAF)) × (COLA for hospitals 

located in Alaska and Hawaii) × (1 + 

Capital DSH Adjustment Factor + 

Capital IME Adjustment Factor, if 

applicable). 

B. Exception Payments 

The regulations at § 412.348(f) 

provide that a hospital may request an 

additional payment if the hospital 

incurs unanticipated capital 

expenditures in excess of $5 million due 

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 compute 

the national Federal rate for capitalrelated costs. In general, hospitals 

located in Puerto Rico are paid a blend 

of the applicable capital IPPS Puerto 

Rico rate and the applicable capital IPPS 

Federal rate. 

Prior to FY 1998, hospitals in Puerto 

Rico were paid a blended capital IPPS 

rate that consisted of 75 percent of the 

capital IPPS Puerto Rico specific rate 

and 25 percent of the capital IPPS 

Federal rate. However, effective October 

1, 1997 (FY 1998), in conjunction with 

the change to the operating IPPS blend 

percentage for hospitals located in 

Puerto Rico required by section 4406 of 

Public Law 105–33, we revised the 

methodology for computing capital IPPS 

payments to hospitals in Puerto Rico to 

be based on a blend of 50 percent of the 

capital IPPS Puerto Rico rate and 50 

percent of the capital IPPS Federal rate. 

Similarly, in conjunction with the 

change in operating IPPS payments to 

hospitals located in Puerto Rico for FY 

2005 required by section 504 of Public 

Law 108–173, we again revised the 

methodology for computing capital IPPS 

payments to hospitals located in Puerto 

Rico to be based on a blend of 25 

percent of the capital IPPS Puerto Rico 

rate and 75 percent of the capital IPPS 

Federal rate effective for discharges 

occurring on or after October 1, 2004. 

E. 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 system 

resulted in a 5.4 percent change in casemix due to documentation and coding 

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

2009. 

The 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 are 

proposing 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 be 

applied 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 the 

capital 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 the 

allowability 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 records 

to 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. For 

each cost reporting period, a hospitalspecific ceiling on payments was 

determined by multiplying the 

hospital’s updated target amount by the 

number of total current year Medicare 

discharges. (Generally, in section VIII. of 

this preamble, when we refer to 

discharges, the intent is to describe 

Medicare discharges.) The August 30, 

2002 final rule further details the 

payment policy under the TEFRA 

system (67 FR 55954). 

In the August 30, 2002 final rule, we 

provided for a 5-year transition period. 

During this 5-year transition period, a 

LTCH’s total payment under the PPS 

was based on an increasing percentage 

of the Federal rate with a corresponding 

decrease in the percentage of the LTCH 

PPS payment that is based on 

reasonable cost concepts. However, 

effective for cost reporting periods 

beginning on or after October 1, 2006, 

total LTCH PPS payments are based on 

100 percent of the Federal rate. 

In addition, in the August 30, 2002 

final rule, we presented an in-depth 

discussion of the LTCH PPS, including 

the patient classification system, 

relative weights, payment rates, 

additional payments, and the budget 

neutrality requirements mandated by 

section 123 of the BBRA. The same final 

rule that established regulations for the 

LTCH PPS under 42 CFR part 412, 

Subpart O also contained LTCH 

provisions related to covered inpatient 

services, limitation on charges to 

beneficiaries, medical review 

requirements, furnishing of inpatient 

hospital services directly or under 

arrangement, and reporting and 

recordkeeping requirements. We refer 

readers to the August 30, 2002 final rule 

for a comprehensive discussion of the 

research and data that supported the 

establishment of the LTCH PPS (67 FR 

55954). 

In the June 6, 2003 Federal Register, 

we published a final rule that set forth 

the FY 2004 annual update of the 

payment rates for the Medicare PPS for 

inpatient hospital services furnished by 

LTCHs (68 FR 34122). It also changed 

the annual period for which the 

payment rates were to be effective, such 

that the annual updated rates were 

effective from July 1 through June 30 

instead of from October 1 through 

September 30. We referred to the July 

through June time period as a ‘‘long-term 

care hospital rate year’’ (LTCH PPS rate 

year). In addition, we changed the 

publication schedule for the annual 

update to allow for an effective date of 

July 1. The payment amounts and 

factors used to determine the annual 

update of the LTCH PPS Federal rate are 

based on a LTCH PPS rate year. In the 

past, while the LTCH payment rate 

updates were effective July 1, the annual 

update of the DRG classifications and 

relative weights for LTCHs continued to 

be linked to the annual adjustments of 

the acute care hospital inpatient DRGs 

and were effective each October 1. 

As discussed in detail in 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) to 

change the methodology for the onetime budget neutrality adjustment and 

to comply with section 114(c)(4) of 

Public Law 110–173. Other policy 

revisions that were necessary as a result 

of the statutory changes of Public Law 

110–173 were addressed in separate 

interim final rules with comment period 

(73 FR 24871 and 73 FR 29699). In the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 43976 through 43990), we 

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)) (Statewide 

all-payer systems, subject to the rate-ofincrease test at section 1814(b) of the 

Act). 

• Nonparticipating hospitals 

furnishing emergency services to 

Medicare beneficiaries. 

3. Limitation on Charges to Beneficiaries 

In the August 30, 2002 final rule, we 

presented an in-depth discussion of 

beneficiary liability under the LTCH 

PPS (67 FR 55974 through 55975). In the 

RY 2005 LTCH PPS final rule (69 FR 

25676), we clarified that the discussion 

of beneficiary liability in the August 30, 

2002 final rule was not meant to 

establish rates or payments for, or define 

Medicare-eligible expenses. Under 

§ 412.507, if the Medicare payment to 

the LTCH is the full LTC–DRG payment 

amount, as consistent with other 

established hospital prospective 

payment systems, a LTCH may not bill 

a Medicare beneficiary for more than the 

deductible and coinsurance amounts as 

specified under § 409.82, § 409.83, and 

§ 409.87 and for items and services as 

specified under § 489.30(a). However, 

under the LTCH PPS, Medicare will 

only pay for days for which the 

beneficiary has coverage until the SSO 

threshold is exceeded. Therefore, if the 

Medicare payment was for a SSO case 

(§ 412.529) that was less than the full 

LTC–DRG payment amount because the 

beneficiary had insufficient remaining 

Medicare days, the LTCH could also 

charge the beneficiary for services 

delivered on those uncovered days 

(§ 412.507). 

4. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and 

Accountability Act (HIPAA) 

Compliance 

Claims submitted to Medicare must 

comply with both the Administrative 

Simplification Compliance Act (ASCA) 

(Pub. L. 107–105), and the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA) 

(Pub. L. 104–191). Section 3 of the 

ASCA requires that the Medicare 

Program deny payment under Part A or 

Part B for any expenses incurred for 

items or services ‘‘for which a claim is 

submitted other than in an electronic 

form specified by the Secretary.’’ Section 

1862(h) of the Act (as added by section 

3(a) of the ASCA) provides that the 

Secretary shall waive such denial in two 

specific types of cases and may also 

waive such denial ‘‘in such unusual 

cases as the Secretary finds appropriate’’ 

(68 FR 48805). Section 3 of the ASCA 

operates in the context of the HIPAA 

regulations, which include, among other 

provisions, the transactions and code 

sets standards requirements codified 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 basing 

payment 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 relative 

weights for the large number of lowvolume MS–LTC–DRGs, we group all of 

the low-volume MS–LTC–DRGs into 

five quintiles based on average charge 

per discharge. (A detailed discussion of 

the initial development and application 

of the quintile methodology appears in 

the August 30, 2002 LTCH PPS final 

rule (67 FR 55978).) We also account for 

adjustments to payments for short-stay 

outlier (SSO) cases (that is, cases where 

the covered LOS at the LTCH is less 

than or equal to five-sixths of the 

geometric ALOS for the MS–LTC–DRG). 

Furthermore, we make adjustments to 

account for nonmonotonically 

increasing weights, when necessary. 

That is, theoretically, cases under the 

MS–LTC–DRG system that are more 

severe require greater expenditure of 

medical care resources and will result in 

higher average charges such that, in the 

severity levels within a base MS–LTC– 

DRG, the weights should increase 

monotonically with severity from the 

lowest to highest severity level. (We 

discuss nonmonotonicity in greater 

detail and our methodology to adjust the 

RY 2010 MS–LTC–DRG relative weights 

to account for nonmonotonically 

increasing relative weights in section 

VII.B.3.g. (Step 6) of this preamble.) 

2. Patient Classifications Into MS–LTC– 

DRGs 

a. Background 

The MS–DRGs (used under the IPPS) 

and the MS–LTC–DRGs (used under the 

LTCH PPS) are based on the CMS DRG 

structure. As noted above in this 

section, we refer to the DRGs under the 

LTCH PPS as MS–LTC–DRGs although 

they are structurally identical to the 

MS–DRGs used under the IPPS. 

The MS–DRGs are organized into 25 

major diagnostic categories (MDCs), 

most of which are based on a particular 

organ system of the body; the remainder 

involve multiple organ systems (such as 

MDC 22, Burns). Within most MDCs, 

cases are then divided into surgical 

DRGs and medical DRGs. Surgical DRGs 

are assigned based on a surgical 

hierarchy that orders operating room 

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

procedures by resource intensity. The 

GROUPER software program does not 

recognize all ICD–9–CM procedure 

codes as procedures affecting DRG 

assignment. That is, procedures that are 

not surgical (for example, EKG), or 

minor surgical procedures (for example, 

biopsy of skin and subcutaneous tissue 

(procedure code 86.11)) do not affect the 

MS–LTC–DRG assignment based on 

their presence on the claim. 

Generally, under the LTCH PPS, a 

Medicare payment is made at a 

predetermined specific rate for each 

discharge and that payment varies by 

the MS–LTC–DRG to which a 

beneficiary’s stay is assigned. Cases are 

classified into MS–LTC–DRGs for 

payment based on the following six data 

elements: 

• Principal diagnosis; 

• Additional or secondary diagnoses; 

• Surgical procedures; 

• Age; 

• Sex; and 

• Discharge status of the patient. 

Through FY 2010, the number of 

secondary or additional diagnoses and 

the number of surgical procedures 

considered for MS–DRG assignment was 

limited to eight and six, respectively. 

Elsewhere in this 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 PRICER 

program, which accounts for hospitalspecific adjustments. Under the LTCH 

PPS, we provide an opportunity for 

LTCHs to review the MS–LTC–DRG 

assignments made by the Medicare 

contractor and to submit additional 

information within a specified 

timeframe as provided in § 412.513(c). 

The GROUPER software is used both 

to classify past cases to measure relative 

hospital resource consumption to 

establish the MS–LTC–DRG weights and 

to classify current cases for purposes of 

determining payment. The records for 

all Medicare hospital inpatient 

discharges are maintained in the 

MedPAR file. The data in this file are 

used to evaluate possible MS–DRG and 

MS–LTC–DRG classification changes 

and to recalibrate the MS–DRG and MS– 

LTC–DRG relative weights during our 

annual update under both the IPPS 

(§ 412.60(e)) and the LTCH PPS 

(§ 412.517), respectively. 

b. 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 in 

certain areas, such as ventilatordependent patients and rehabilitation 

and wound care. Some case types 

(DRGs) may be treated, to a large extent, 

in hospitals that have, from a 

perspective of charges, relatively high 

(or low) charges. This nonrandom 

distribution of cases with relatively high 

(or low) charges in specific MS–LTC– 

DRGs has the potential to 

inappropriately distort the measure of 

average charges. To account for the fact 

that cases may not be randomly 

distributed across LTCHs, consistent 

with the methodology we have used 

since the implementation of the LTCH 

PPS, 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 make 

adjustments 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 the 

first 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’’ for 

each 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 proposed 

relative 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 case 

where 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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BILLING CODE 4120–01–C 

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 

rule). 


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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. 

To calculate the proposed 

normalization factor for FY 2011 (the 

first step of our budget neutrality 

methodology), we are proposing to use 


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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 structure 

between freestanding IRFs and hospitalbased IRFs. We also are researching the 

reasons for similar variations in costs 

and cost structure between freestanding 

IPFs and hospital-based IPFs. Therefore, 

as we continue to explore the 

development of stand-alone market 

baskets for LTCHs, IRFs and IPFs, 

respectively, 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 near 

future 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 other 

labor-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 proposed 

FY 2011 relative importance laborrelated share using the FY 2002-based 

RPL market basket. 

PROPOSED FY 2011 LABOR-RELATED SHARE BASED ON THE FY 2002–BASED RPL MARKET BASKET

Cost category FY 2011 relative 

importance (percent) 

Wages and Salaries ............................................................................................................................................................ 52.590 

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 04MYP2

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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 national 

accreditation organization under a CMSapproved accreditation program as 

having met the Medicare health and 

safety standards. Section 1871 of the Act 

authorizes the Secretary to adopt such 

regulations as may be necessary to carry 

out the requirements of Title XVIII of 

the Act. 

On August 18, 1997, we adopted 

regulations, effective September 17, 

1997 (1997 final rule), establishing 

uniform criteria for determining the 

effective dates of provider agreements 

and supplier approvals in the Medicare 

and Medicaid programs (62 FR 43931). 

Included in these regulations was 42 

CFR 489.13, governing the 

determination of the effective date of a 

Medicare provider agreement or 

supplier approval for health care 

facilities that are subject to survey and 

certification. Facilities subject to survey 

and certification are those that must 

comply with Medicare health and safety 

standards, that is, the conditions of 

participation (CoPs), long-term care 

requirements, conditions for coverage 

(CfC), or conditions for certification, 

depending on the type of facility. (The 

regulations exempt clinical laboratories, 

community mental health centers, and 

federally qualified health centers from 

its general provisions, establishing 

alternative requirements for these 

entities.) Compliance with the 

applicable health and safety standards is 

determined through an onsite survey by 

a State survey agency, CMS 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 


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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 


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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 national 

accreditation 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 


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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 State 

laws. Many States, under their scope-ofpractice laws and other regulations, 

allow qualified, licensed practitioners 

(including NPs and PAs) to order 

respiratory care services. We 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 


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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 


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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. 


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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. We 

currently review each request on a caseby-case basis. We believe the associated 

burden is thereby exempt from the PRA 

as stipulated under 5 CFR 1320.3(h)(6). 

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. We 

currently review each request on a caseby-case basis. We believe the associated 

burden is thereby exempt from the PRA 

as stipulated under 5 CFR 1320.3(h)(6). 

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 


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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 


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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 submission 

process 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. 


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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 


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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 payment 

plus a fixed-loss amount. For each longterm care hospital prospective payment 

system payment year, as described in 

§ 412.503, CMS determines a fixed-loss 

amount that is the maximum loss that 

a hospital can incur under the 

prospective payment system for a case 

with unusually high costs. 

(2) The fixed-loss amount is 

determined for the long-term care 

hospital prospective payment system 

payment year, as defined in § 412.503, 

using the LTC–MS–DRG relative 

weights that are in effect at the start of 

the applicable long-term care hospital 

prospective payment system payment 

year, as defined in § 412.503. 

* * * * * 

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 


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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, resident means an intern, 

resident, or fellow who is formally 

accepted, enrolled, and participating in 

an approved medical residency 

program, including programs in 

osteopathy, dentistry, and podiatry, as 

required in order to become certified by 

the appropriate specialty board. 

* * * * * 

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 


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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, 


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or conditions for certification, but has 

lower-level deficiencies, and— 

(A) CMS or the State survey agency 

receives an acceptable plan of correction 

for the lower-level deficiencies (the date 

of receipt is the effective date regardless 

of when the plan of correction is 

approved); or, if applicable, a CMSapproved accreditation organization 

program issues a positive accreditation 

decision after it receives an acceptable 

plan of correction for the lower-level 

deficiencies; or 

(B) CMS receives an approvable 

waiver request (the date of receipt is the 

effective date regardless of when CMS 

approves the waiver request). 

(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 and 

Medicare 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 a 

reasonable cost basis subject to a rate-ofincrease ceiling (and not by the IPPS), 

these hospitals are not affected by the 

figures for the standardized amounts, 

offsets, and budget neutrality factors. 

Therefore, in this proposed rule, we are 

proposing 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 payment 

rates 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 standardized 

amount (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 among 

hospitals. 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 


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amount is divided into labor-related and 

nonlabor-related amounts; only the 

proportion 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 are 

applying 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 relative 

weights. 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 or 

equal 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 Rico 

standardized 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 relative 

weights, and the FY 2010 prereclassified wage data to aggregate 

payments 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 index 

budget, 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 Rico 

standardized 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 2011 

relative 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 


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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 to 

the 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 


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in FY 2008, yielding a combined effect 

of ¥1.5 percent. 

In the FY 2010 IPPS proposed and 

final rules, we discussed our analysis of 

FY 2008 claims data which showed an 

increase in case-mix of 2.5 percent due 

to changes in documentation and coding 

that do not reflect real changes in 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 coding 

that 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 based 

in 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 that 

hospitals 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 and 

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

the authority to apply the 

documentation and coding adjustment 

to the hospital-specific rates using our 

special exceptions and adjustment 

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

of the Act. 

As discussed in the FY 2010 IPPS/RY 

2010 LTCH PPS proposed rule, based on 

our analysis of FY 2008 claims data, we 

found that, independently for both 

SCHs and MDHs, the change due to 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 

slightly exceeded the 2.5 percent result 

discussed earlier, but did not 

significantly differ from that result. 

Therefore, in FY 2010, we proposed to 

use our authority under section 

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

prospectively adjust the hospitalspecific rates by ¥2.5 percent in FY 

2011 for our estimated documentation 

and coding effect in FY 2008 that does 

not reflect real changes in case-mix. We 

also noted that, unlike the national 

standardized rates, the FY 2010 

hospital-specific rates were not 

previously reduced in order to account 

for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the MS– 

DRGs. 

Consistent with our approach for 

determining the national average 

standardized amounts discussed earlier, 

after consideration of the public 

comments we received on our analysis 

and proposals presented in the FY 2010 

IPPS proposed rule, for FY 2010, we 

also postponed adoption of a 

documentation and coding adjustment 

to the hospital-specific rate until a full 

analysis of FY 2009 case-mix changes 

could be completed. Accordingly, for 

FY 2010, we did not apply a 

documentation and coding adjustment 

to the hospital-specific rates. 

As we discuss in section II.D. of the 

preamble of this 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 that 

are paid based on the Puerto Ricospecific standardized amount should 

not have the potential to realize 

increased payments due to 

documentation and coding changes that 

do not reflect real increases in patients’ 

severity of illness. In the FY 2010 IPPS 

proposed rule, we discussed our 

analysis of FY 2008 claims data for 

Puerto Rico hospitals, which showed 

that, for Puerto Rico hospitals, the 

increase in payments for discharges 

occurring during FY 2008 due to 

documentation and coding changes that 

did not reflect real changes in case-mix 

for discharges occurring during FY 2008 

was approximately 1.1 percent. We 

noted that, unlike the national 

standardized rates, the FY 2009 Puerto 

Rico-specific standardized amount was 

not previously reduced in order to 

account for anticipated changes in 

documentation and coding that do not 

reflect real changes in case-mix 

resulting from the adoption of the MS– 

DRGs. Therefore, for FY 2010, we 

proposed to use our authority under 

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

adjust the Puerto Rico-specific 

standardized amount by ¥1.1 percent 

in FY 2010 to account for the FY 2008 

documentation and coding changes that 

are not due to changes in real case-mix 

and to leave that adjustment in place for 

subsequent fiscal years. 

Consistent with our approach for 

determining the national average 

standardized amounts and 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 any 

previous 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 


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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 average 

annualized 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 


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15These 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 ................................................................................................................ 0.948999 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 qualifies 

for 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 or 

MAC 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 set 

forth 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 Public 

Law 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 in 

this 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 that 

we 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 


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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. 

TABLE OF COST-OF-LIVING ADJUSTMENT FACTORS: ALASKA AND HAWAII

HOSPITALS

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, FY 

1996, 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 Medicare 

acute 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 a 

blend 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 retain 

budget 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 practice 

patterns 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 DRG 

severity 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 PROPOSED UPDATE

FACTOR TO THE CAPITAL FEDERAL

RATE

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 PROPOSED UPDATE

FACTOR TO THE CAPITAL FEDERAL

RATE—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 outlier 

payments to total inpatient capitalrelated PPS payments. The outlier 

thresholds are set so that operating 

outlier payments are projected to be 5.1 

percent of total operating IPPS DRG 

payments. 

For FY 2010, we estimated that outlier 

payments for capital would equal 5.35 

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 would 

equal 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 


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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 that 

do 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 


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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 for 

differences 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 vintage 

nature 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 Rates 

for 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 the 

IPPS 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-Round 

Rock, 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 new 

principal city of the Bradenton-SarasotaVenice, FL CBSA (currently CBSA Code 

14600). The new title is North PortBradenton-Sarasota, FL CBSA. The new 

code is CBSA 35840. 

• Sanford, FL qualifies as a new 

principal city of the OrlandoKissimmee, FL CBSA (CBSA Code 

36740). The new title is OrlandoKissimmee-Sanford, FL CBSA. 

• Glendale, AZ qualifies as a new 

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

Phoenix-Mesa-Glendale, AZ CBSA 

(CBSA Code 38060). 

• Palm Desert, CA qualifies as a new 

principal city of the Riverside-San 

Bernardino-Ontario, CA CBSA (CBSA 

Code 40140). The CBSA title is 

unchanged. 

• New Braunfels, TX qualifies as a 

new principal city of the San Antonio, 

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

41700). 

• Auburn, WA qualifies as a new 

principal 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 populous 

principal 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 populous 

principal 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 principal 

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

is 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 area 

wage 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-related 

share 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 27829 

through 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 


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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. 

PROPOSED COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND

HAWAII HOSPITALS FOR THE LTCH 

PPS FOR FY 2011 

Alaska: 

City of Anchorage and 80-kilometer (50-mile) radius by 

road ................................... 1.23 

City of Fairbanks and 80-kilometer (50-mile) radius by 

road ................................... 1.23 

City of Juneau and 80-kilometer (50-mile) radius by 

road ................................... 1.23 

All other areas of Alaska ...... 1.25 

Hawaii: 

City and County of Honolulu 1.25 

County of Hawaii ................... 1.18 

County of Kauai .................... 1.25 

PROPOSED COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND

HAWAII HOSPITALS 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 


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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 


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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 are 

designated 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, we 

will use them for determining the fixedloss amount for FY 2011 in the final 

rule. Furthermore, we are proposing to 

determine 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 56022 

through 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, we 

believe that proposing to raise the fixedloss amount is appropriate and 

necessary to maintain that estimated 

outlier payments would equal 8 percent 


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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 by 

multiplying the proposed nonlaborrelated share of the proposed standard 

Federal 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 this 

Medicare 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 proposed 

wage 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, 


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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 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 


sroberts on DSKD5P82C1PROD with PROPOSALS
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24091 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.065</GPH>
24092 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.066</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24093 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.067</GPH>
24094 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.068</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24095 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.069</GPH>
24096 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.070</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24097 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.071</GPH>
24098 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.072</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24099 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.073</GPH>
24100 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.074</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24101 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.075</GPH>
24102 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.076</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24103 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.077</GPH>
24104 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.078</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24105 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.079</GPH>
24106 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.080</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24107 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.081</GPH>
24108 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.082</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24109 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.083</GPH>
24110 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.084</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24111 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.085</GPH>
24112 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.086</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24113 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.087</GPH>
24114 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.088</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24115 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.089</GPH>
24116 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.090</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24117 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.091</GPH>
24118 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.092</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24119 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.093</GPH>
24120 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.094</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24121 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.095</GPH>
24122 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.096</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24123 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.097</GPH>
24124 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.098</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24125 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.099</GPH>
24126 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.100</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24127 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.101</GPH>
24128 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.102</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24129 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.103</GPH>
24130 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.104</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24131 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.105</GPH>
24132 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.106</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24133 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.107</GPH>
24134 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.108</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24135 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.109</GPH>
24136 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.110</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24137 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.111</GPH>
24138 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.112</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24139 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.113</GPH>
24140 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.114</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24141 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.115</GPH>
24142 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.116</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24143 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.117</GPH>
24144 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.118</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24145 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.119</GPH>
24146 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.120</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24147 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.121</GPH>
24148 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.122</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24149 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.123</GPH>
24150 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.124</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24151 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.125</GPH>
24152 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.126</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24153 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.127</GPH>
24154 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.128</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24155 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.129</GPH>
24156 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.130</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24157 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.131</GPH>
24158 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.132</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24159 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.133</GPH>
24160 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.134</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24161 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.135</GPH>
24162 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.136</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24163 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.137</GPH>
24164 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.138</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24165 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.139</GPH>
24166 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.140</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24167 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.141</GPH>
24168 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.142</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24169 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.143</GPH>
24170 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.144</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24171 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.145</GPH>
24172 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.146</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24173 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.147</GPH>
24174 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.148</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24175 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.149</GPH>
24176 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.150</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24177 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.151</GPH>
24178 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.152</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24179 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.153</GPH>
24180 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.154</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24181 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.155</GPH>
24182 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.156</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24183 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.157</GPH>
24184 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.158</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24185 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.159</GPH>
24186 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.160</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24187 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.161</GPH>
24188 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.162</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24189 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.163</GPH>
24190 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.164</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24191 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.165</GPH>
24192 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.166</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24193 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.167</GPH>
24194 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.168</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24195 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.169</GPH>
24196 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.170</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24197 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.171</GPH>
24198 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.172</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24199 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.173</GPH>
24200 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.174</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24201 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.175</GPH>
24202 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.176</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24203 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.177</GPH>
24204 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.178</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24205 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.179</GPH>
24206 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.180</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24207 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.181</GPH>
24208 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.182</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24209 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.183</GPH>
24210 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.184</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24211 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.185</GPH>
24212 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.186</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24213 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.187</GPH>
24214 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.188</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24215 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.189</GPH>
24216 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.190</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24217 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.191</GPH>
24218 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.192</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24219 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.193</GPH>
24220 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.194</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24221 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.195</GPH>
24222 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.196</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24223 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.197</GPH>
24224 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.198</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24225 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.199</GPH>
24226 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.200</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24227 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.201</GPH>
24228 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.202</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24229 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.203</GPH>
24230 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.204</GPH>
Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 24231 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.205</GPH>
24232 Federal Register / Vol. 75, No. 85 / Tuesday, May 4, 2010 / Proposed Rules 


sroberts on DSKD5P82C1PROD with PROPOSALSEP04MY10.206</GPH>
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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 not 

apply the adjustment to hospitalspecific payment rate for FY 2010. We 

believe that SCHs and MDHs paid under 

the hospital-specific rate also should 

receive 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 on 

future 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 and 

coding 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 for 

hospital 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, whose 

costs 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 the 

MS–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. 

The second part of Table I shows 

hospital groups based on hospitals’ FY 

2011 payment classifications, including 

any reclassifications under section 


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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 on 

FY 2006 wage data, the current laborrelated share and having a 100-percent 

occupational mix adjustment applied, to 

a 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 column 

compares 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 area 

with 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 national 

standardized 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. 

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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 for 

consideration 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 to 

continue to make new technology addon payments in FY 2011 for the 

CardiowestTM Temporary Total 

Artificial Heart System (TAH-t) and the 

Spiration® IBV® Valve System. 

Therefore, we are providing an estimate 

of total payments for these technologies 

in FY 2011. We note that new 

technology add-on payments per case 

are limited to the lesser of: (1) 50 

percent of the costs of the new 

technology; or (2) 50 percent of the 

amount by which the costs of the case 

exceed the standard MS–DRG payment 

for the case. Because it is difficult to 

predict the actual new technology 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 measures 

included 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 the 

American 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 our 

proposal 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 the 

December 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 reflect 

changes 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 data 

and 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 using 

the 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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BILLING CODE 4120–01–C 

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. 

TABLE V—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES UNDER THE IPPS 

FROM 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). 

TABLE VI—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES FROM THE 2010 LTCH 

PPS RATE YEAR TO THE FY 2011 

LTCH PPS 

Category Transfers 

Annualized Monetized 

Transfers.

Positive transfer—Estimated increase in 

expenditures: $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-specific 

standardized 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, we 

are proposing to apply the full rate-ofincrease in the hospital market basket 

for 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 the 

percentage 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 the 

percentage 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, we 

are proposing to apply the full rate-ofincrease in the hospital market basket 

for 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] 

BILLING CODE 4120–01–P 


sroberts on DSKD5P82C1PROD with PROPOSALS