This document is scheduled to be published in the

Federal Register on 05/10/2013 and available online at

http://federalregister.gov/a/2013-10234, and on FDsys.gov

DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

42 CFR Parts 412, 482, 485, and 489 

[CMS-1599-P] 

RIN 0938-AR53 

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute 

Care Hospitals and the Long-Term Care Hospital Prospective Payment System and 

Proposed Fiscal Year 2014 Rates; Quality Reporting Requirements for Specific 

Providers; Hospital Conditions of Participation 

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. Some of 

the proposed changes implement certain statutory provisions contained in the Patient 

Protection and Affordable Care Act and the Health Care and Education Reconciliation 

Act of 2010 (collectively known as the Affordable Care Act) and other legislation. These 

proposed changes would be applicable to discharges occurring on or after 

October 1, 2013, unless otherwise specified in this proposed rule. We also are proposing 

to update the rate-of-increase limits for certain hospitals excluded from the IPPS that are 

paid on a reasonable cost basis subject to these limits. The proposed updated 

rate-of-increase limits would be effective for cost reporting periods beginning on or after 

October 1, 2013. 
 2 

 We are proposing to update the payment policies and the annual payment rates for 

the Medicare prospective payment system (PPS) for inpatient hospital services provided 

by long-term care hospitals (LTCHs) and implement certain statutory changes made by 

the Affordable Care Act. Generally, these proposed changes would be applicable to 

discharges occurring on or after October 1, 2013, unless otherwise specified in this 

proposed rule. 

 In addition, we are proposing a number of changes relating to direct graduate 

medical education (GME) and indirect medical education (IME) payments. We are 

proposing to establish new requirements or revised requirements for quality reporting by 

specific providers (acute care hospitals, PPS-exempt cancer hospitals, LTCHs, and 

inpatient psychiatric facilities (IPFs)) that are participating in Medicare. 

We are proposing to update policies relating to the Hospital Value-Based 

Purchasing (VBP) Program and the Hospital Readmissions Reduction Program. In 

addition, we are proposing to revise the conditions of participation (CoPs) for hospitals 

relating to the administration of vaccines by nursing staff as well as the CoPs for critical 

access hospitals relating to the provision of acute care inpatient services. 

DATES: Comment Period: To be assured consideration, comments must be received at 

one of the addresses provided below, no later than 5 p.m. EDT on June 25, 2013. 

 Application Deadline for GME FTE Resident Slots from Closed Hospital. 

Applications from hospitals to receive GME FTE resident slots from a hospital’s closure 

as described in section V.J.3.c. of the preamble of this proposed rule must be received, 

not postmarked, by 5 p.m. EST on July 25, 2013. 
 3 

ADDRESSES: When commenting, please refer to file code CMS-1599-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-1599-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-1599-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-1599-P, 
 4 

 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. 
 5 

 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, Graduate Medical Education, Capital Prospective Payment, Excluded 

Hospitals, Medicare Disproportionate Share Hospital (DSH), and Postacute Care Transfer 

Issues. 

 Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, 

Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative 

Weights Issues. 

 Mollie Knight, (410) 786-7948 and Bridget Dickensheets, (410) 786-8670, 

Market Basket for IPPS Hospitals and LTCHs Issues. 

 Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 

Demonstration Program Issues. 

 James Poyer, (410) 786-2261, Hospital Inpatient Quality Reporting and Hospital 

Value-Based Purchasing--Program Administration, Validation, and Reconsideration 

Issues. 

 Shaheen Halim, (410) 786-0641, Hospital Inpatient Quality Reporting--Measures 

Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems 

Issues; and Readmission Measures for Hospitals Issues. 
 6 

 Elizabeth Goldstein, (410) 786-6665, Hospital Inpatient Quality Reporting--

Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues. 

 Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues. 

 Kim Spalding Bush, (410) 786-3232, Hospital Value-Based Purchasing 

Efficiency Measures Issues. 

 James Poyer, (410) 786-2261, PPS-Exempt Cancer Hospital Quality Reporting 

Issues. 

 Allison Lee, (410) 786-8691 and Jeffrey Buck, (410) 786-0407, Inpatient 

Psychiatric Facility Quality Reporting Issues. 

 Sarah Fahrendorf, (410) 786-3112, Conditions of Participation (CoPs) for CAHs 

Issues 

 Commander Scott Cooper, USPHS, (410) 786-9465, Hospital Conditions of 

Participation (CoPs)—Pneumococcal Vaccine Issues 

 Jennifer Dupee, (410) 786-6537, and Jennifer Phillips, (410) 786-1023, Medical 

Review Criteria for Hospital Inpatient Services under Medicare Part A 

 Ann Marshall, (410) 786-3059, Requirement for Physician Order for Payment of 

Hospital Inpatient Services under Medicare Part A 

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 
 7 

as soon as possible after they have been received: http://www.regulations.gov. Follow 

the search instructions on that Web site to view public comments. 

 Comments received timely also will be available for public inspection, generally 

beginning approximately 3 weeks after publication of the rule, at the headquarters of the 

Centers for Medicare and Medicaid Services, 7500 Security Boulevard, Baltimore, MD 

21244, on Monday through Friday of each week from 8:30 a.m. to 4 p.m. EST. 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 Federal Digital System (FDsys), a service of the U.S. 

Government Printing Office. This database can be accessed via the Internet at: 

http://www.gpo.gov/fdsys. 

Tables Available Only through the Internet on the CMS Web Site 

In the past, a majority of the tables referred to throughout this preamble and in the 

Addendum to this proposed rule and the final rule were published in the Federal 

Register as part of the annual proposed and final rules. However, beginning in FY 2012, 

some of the IPPS tables and LTCH PPS tables are no longer published in the Federal 

Register. Instead, these tables will be available only through the Internet. The IPPS 

tables for this proposed rule are available only through the Internet on the CMS Web site 

at: http://www.cms.hhs.gov/Medicare/medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html. Click on the link on the left side of the screen 

titled, “FY 2014 IPPS Proposed Rule Home Page” or “Acute Inpatient – Files for 
 8 

Download”. The LTCH PPS tables for this FY 2014 proposed rule are available only 

through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for 

Regulation Number CMS-1599-P. For complete details on the availability of the tables 

referenced in this proposed rule, we refer readers to section VI. of the Addendum to this 

proposed rule.

Readers who experience any problems accessing any of the tables that are posted 

on the CMS Web sites identified above should contact Michael Treitel at (410) 786-4552.

Acronyms 

3M 3M Health Information System 

AAMC Association of American Medical Colleges 

ACGME Accreditation Council for Graduate Medical Education 

ACoS American College of Surgeons 

AHA American Hospital Association 

AHIC American Health Information Community 

AHIMA American Health Information Management Association 

AHRQ Agency for Healthcare Research and Quality 

ALOS Average length of stay 

ALTHA Acute Long Term Hospital Association 

AMA American Medical Association 

AMGA American Medical Group Association 

AOA American Osteopathic Association 
 9 

APR DRG All Patient Refined Diagnosis Related Group System 

APRN Advanced practice registered nurse 

ARRA American Recovery and Reinvestment Act of 2009, Pub. L. 111-5 

ASCA Administrative Simplification Compliance Act of 2002, Pub. L. 107-105 

ASITN American Society of Interventional and Therapeutic Neuroradiology 

ATRA American Taxpayer Relief Act of 2012, Pub. L. 112-240 

BBA Balanced Budget Act of 1997, Pub. L. 105-33 

BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance 

 Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113 

BIPA Medicare, Medicaid, and SCHIP [State Children’s Health Insurance 

Program] Benefits Improvement and Protection Act of 2000, 

Pub. L. 106-554 

BLS Bureau of Labor Statistics 

CAH Critical access hospital 

CARE [Medicare] Continuity Assessment Record & Evaluation [Instrument] 

CART CMS Abstraction & Reporting Tool 

CAUTI Catheter-associated urinary tract infection 

CBSAs Core-based statistical areas 

CC Complication or comorbidity 

CCN CMS Certification Number 

CCR Cost-to-charge ratio 

CDAC [Medicare] Clinical Data Abstraction Center 
 10 

CDAD Clostridium difficile-associated disease 

CDC Center for Disease Control and Prevention 

CERT Comprehensive error rate testing 

CDI Clostridium difficile

CFR Code of Federal Regulations 

CLABSI Central line-associated bloodstream infection 

CIPI Capital input price index 

CMI Case-mix index 

CMS Centers for Medicare & Medicaid Services 

CMSA Consolidated Metropolitan Statistical Area 

COBRA Consolidated Omnibus Reconciliation Act of 1985, 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 

DACA Data Accuracy and Completeness Acknowledgement 

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 
 11 

EDB [Medicare] Enrollment Database 

EHR Electronic health record 

EMR Electronic medical record 

FAH Federation of American Hospitals 

FDA Food and Drug Administration 

FFY Federal fiscal year 

FPL Federal poverty line 

FQHC Federally qualified health center 

FR Federal Register 

FTE Full-time equivalent 

FY Fiscal year 

GAAP Generally Accepted Accounting Principles 

GAF Geographic Adjustment Factor 

GME Graduate medical education 

HAC Hospital-acquired condition 

HAI Healthcare-associated infection 

HBIPS Hospital-based inpatient psychiatric services 

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 
 12 

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 

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 
 13 

IGI IHS Global Insight, Inc. 

IHS Indian Health Service 

IME Indirect medical education 

I-O Input-Output 

IOM Institute of Medicine 

IPF Inpatient psychiatric facility 

IPFQR Inpatient Psychiatric Facility Quality Reporting [Program] 

IPPS [Acute care hospital] inpatient prospective payment system 

IRF Inpatient rehabilitation facility 

IQR Inpatient Quality Reporting 

IVR Interactive voice response 

LAMCs Large area metropolitan counties 

LOS Length of stay 

LTC-DRG Long-term care diagnosis-related group 

LTCH Long-term care hospital 

LTCHQR Long-Term Care Hospital Quality Reporting 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MAP Measure Application Partnership 

MCC Major complication or comorbidity 

MCE Medicare Code Editor 

MCO Managed care organization 
 14 

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 

MMEA Medicare and Medicaid Extenders Act of 2010, Pub. L. 111-309 

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 110-173 

MRHFP Medicare Rural Hospital Flexibility Program 

MRSA Methicillin-resistant Staphylococcus aureus

MSA Metropolitan Statistical Area 

MS-DRG Medicare severity diagnosis-related group 

MS-LTC-DRG Medicare severity long-term care diagnosis-related group 

NAICS North American Industrial Classification System 

NALTH National Association of Long Term Hospitals 
 15 

NCD National coverage determination 

NCHS National Center for Health Statistics 

NCQA National Committee for Quality Assurance 

NCVHS National Committee on Vital and Health Statistics 

NECMA New England County Metropolitan Areas 

NHSN National Healthcare Safety Network 

NOP Notice of Participation 

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 1986, 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 

OQR [Hospital] Outpatient Quality Reporting 

O.R. Operating room 

OSCAR Online Survey Certification and Reporting [System] 

PCH PPS-exempt cancer hospital 
 16 

PCHQR PPS-exempt cancer hospital quality reporting 

PMSAs Primary metropolitan statistical areas 

POA Present on admission 

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] 

PQRS Physician Quality Reporting 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 
 17 

RY Rate year 

SAF Standard Analytic File 

SCH Sole community hospital 

SCIP Surgical Care Improvement Project 

SFY State fiscal year 

SIC Standard Industrial Classification 

SNF Skilled nursing facility 

SOCs Standard occupational classifications 

SOM State Operations Manual 

SSI Surgical site infection 

SSI Supplemental Security Income 

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 

TPS Total Performance Score 

UHDDS Uniform hospital discharge data set 

VBP [Hospital] Value Based Purchasing [Program] 

VTE Venous thromboembolism 

Table of Contents 

I. Executive Summary and Background 
 18 

 A. Executive Summary 

 1. Purpose and Legal Authority 

 2. Summary of the Major Provisions 

 3. Summary of Costs and Benefits 

 B. Summary 

 1. Acute Care Hospital Inpatient Prospective Payment System (IPPS) 

 2. Hospitals and Hospital Units Excluded from the IPPS 

 3. Long-Term Care Hospital Prospective Payment System (LTCH PPS) 

 4. Critical Access Hospitals (CAHs) 

 5. Payments for Graduate Medical Education (GME) 

 C. Provisions of the Patient Protection and Affordable Care Act 

(Pub. L. 111-148), the Health Care and Education Reconciliation Act of 2010 

(Pub. L. 111-152), and the American Taxpayer Relief Act of 2012 (Pub. L. 112-240) 

 D. Summary of Provisions of This Proposed Rule 

 II. Proposed Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 

Classifications and Relative Weights 

 A. Background 

 B. MS-DRG Reclassifications 

 C. Adoption of the MS-DRGs in FY 2008 

 D. Proposed FY 2014 MS-DRG Documentation and Coding Adjustment 

 1. Background on the Prospective MS-DRG Documentation and Coding 

Adjustments for FY 2008 and FY 2009 Authorized by Pub. L. 110-90 
 19 

 2. Adjustment to the Average Standardized Amounts Required by Pub. L. 110-90 

 a. Prospective Adjustment Required by Section 7(b)(1)(A) of Pub. L. 110-90 

 b. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required 

by Section 7(b)(1)(B) Pub. L. 110-90 

 3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data 

 4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 

7(b)(1)(A) of Pub. L. 110-90 

 5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) of 

Pub. L. 110-90 

 6. Recoupment or Repayment Adjustment Authorized by Section 631 of the 

American Taxpayer Relief Act of 2012 (ATRA). 

 7. Additional Prospective Adjustments for the MS-DRG Documentation and 

Coding Effect through FY 2010 Authorized under Section 1886(d)(3)(A)(vi) of the Act 

 E. Proposed Refinement of the MS-DRG Relative Weight Calculation 

 1. Background 

 2. Discussion and Proposal for FY 2014 

 F. Adjustment to MS-DRGs for Preventable Hospital-Acquired Conditions 

(HACs), Including Infections 

 1. Background 

 2. HAC Selection 

3. Present on Admission (POA) Indicator Reporting 

 4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS 
 20 

 5. Proposal Regarding Current HACs and Previously Considered Candidate 

HACs 

 6. RTI Program Evaluation 

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

Evidence-Based Guidelines 

 G. Proposed Changes to Specific MS-DRG Classifications 

 1. Pre-Major Diagnostic Categories (Pre-MDCs): Heart Transplants and Liver 

Transplants 

 2. MDC 1(Diseases and Disorders of the Nervous System): Tissue Plasminogen 

Activator (tPA) (rtPA) Administration within 24 Hours Prior to Admission 

 3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat) 

 a. Endoscopic Placement of a Bronchial Valve 

 b. Pulmonary Thromboendarterectomy (PTE) with Full Circulatory Arrest 

 4. MDC 5 (Diseases and Disorders of the Circulatory System) 

 a. Discharge/Transfer to Designated Disaster Alternative Care Site 

 b. Discharges/Transfers with a Planned Acute Care Hospital Inpatient 

Readmission 

 5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 

Connective Tissue) 

 a. Reverse Shoulder Procedures 

 b. Total Ankle Replacement Procedures 
 21 

 6. MDC 15 (Newborns and Other Neonates with Conditions Originating in the 

Perinatal Period) 

 a. Persons Encountering Health Services for Specific Procedures, Not Carried 

Out 

 b. Discharges/Transfers of Neonates with a Planned Acute Care Hospital 

Inpatient Readmission 

 7. Proposed Medicare Code Editor (MCE) Changes 

 a. Age Conflict Edit 

 b. Discharge Status Code Updates 

 8. Surgical Hierarchies 

 9. Complications or Comorbidity (CC) Exclusions List 

 a. Background of the CC List and the CC Exclusion List 

 b. Proposed CC Exclusions List for FY 2014 

 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 into 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 
 22 

 11. Proposed 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 

 d. ICD-10 MS-DRGs 

 H. Recalibration of Proposed FY 2014 MS-DRG Relative Weights 

 1. Data Sources for Developing the Proposed Relative Weights 

 2. Methodology for Calculation of the Proposed Relative Weights 

 3. Development of National Average CCRs 

 4. Bundled Payments for Care Improvement (BPCI) Initiative 

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

 1. Background 

 2. Public Input Before Publication of a Notice of Proposed Rulemaking on 

Add-On Payments 

 3. FY 2014 Status of Technology Approved for FY 2013 Add-On Payments 

 a. AutoLaser Interstitial Therapy (Auto LITTTM) System 

 b. Glucarpidase (Trade Brand Voraxaze®) 

 c. DIFICIDTM (Fidaxomicin) Tablets 

 d. Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft 
 23 

 4. FY 2014 Applications for New Technology Add-On Payments 

 a. KcentraTM 

 b. Argus® II Retinal Prosthesis System 

 c. Responsive Neurostimulator (RNS) System 

 d. Zilver® PTX® Drug Eluting Stent 

 e. MitraClip® System 

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

 A. Background 

 B. Core-Based Statistical Areas for the Hospital Wage Index 

 C. Worksheet S-3 Wage Data for the Proposed FY 2014 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 

 D. Verification of Worksheet S-3 Wage Data 

 E. Method for Computing the Proposed FY 2014 Unadjusted Wage Index 

 F. Proposed Occupational Mix Adjustment to the Proposed FY 2014 Wage Index 

 1. Development of Data for the Proposed FY 2014 Occupational Mix Adjustment 

Based on the 2010 Occupational Mix Survey 

 2. New 2013 Occupational Mix Survey for the FY 2016 Wage Index 

 3. Calculation of the Proposed Occupational Mix Adjustment for FY 2014 
 24 

 G. Analysis and Implementation of the Proposed Occupational Mix Adjustment 

and the Proposed FY 2014 Occupational Mix Adjusted Wage Index 

 1. Analysis of the Proposed Occupational Mix Adjustment and the Proposed 

Occupational Mix Adjusted Wage Index 

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

 a. Proposed Rural Floor 

 b. Proposed Imputed Floor 

 c. Proposed Frontier Floor 

 3. Proposed FY 2014 Wage Index Tables 

 H. Revisions to the Wage Index Based on Hospital Redesignations and 

Reclassifications 

 1. General Policies and Effects of Reclassification/Redesignation 

 2. FY 2014 MGCRB Reclassifications 

 a. FY 2014 Reclassification Requirements and Approvals 

 b. Applications for Reclassifications for FY 2015 

 3. Redesignations of Hospitals under Section 1886(d)(8)(B) of the Act 

 4. Reclassifications under Section 1886(d)(8)(B) of the Act seeking 

Reclassification by the MGCRB 

 5. Waiving Lugar Redesignation for the Out-Migration Adjustment 

 I. Proposed FY 2014 Wage Index Adjustment Based on Commuting Patterns of 

Hospital Employees 

 J. Process for Requests for Wage Index Data Corrections 
 25 

 K. Proposed Labor-Related Share for the Proposed FY 2014 Wage Index 

 IV. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute 

Care Hospitals 

 A. Background 

 B. Rebasing and Revising the IPPS Market Basket 

 1. Development of Cost Categories and Weights 

 2. Cost Category Computation 

 3. Selection of Price Proxies 

 4. Labor-Related Share 

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

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

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

Medical Education (GME) Costs 

 A. Proposed Inpatient Hospital Updates for FY 2014 (§§ 412.64(d) and 

412.211(c)) 

 1. Proposed FY 2014 Inpatient Hospital Update 

 2. Proposed FY 2014 Puerto Rico Hospital Update 

 B. Rural Referral Centers (RRCs): Annual Update to Case-Mix Index (CMI) and 

Discharge Criteria (§ 412.96) 

 1. Case-Mix Index (CMI) 

 2. Discharges 

 C. Proposed Payment Adjustment for Low-Volume Hospitals (§ 412.101) 
 26 

 1. Background 

 a. Original Implementation of the Low-Volume Hospital Payment Adjustment 

 b. Affordable Care Act Provisions for FYs 2011 and 2012 

 2. Provisions of the ATRA for FY 2013 

 a. Background 

 b. Proposed Conforming Regulatory Changes 

 3. Proposed Low-Volume Hospital Definition and Payment Adjustment for 

FY 2014 and Subsequent Years 

 D. Indirect Medical Education (IME) Adjustment (§ 412.105) 

1. IME Adjustment Factor for FY 2014 

 2. Other Proposed Policy Changes Affecting GME 

 E. Proposed Payment Adjustment for Medicare Disproportionate Share Hospitals 

(DSHs) § 412.106) 

 1. Background 

2. Counting of Patient Days Associated with Patients Enrolled in Medicare 

Advantage Plans in the Medicare and Medicaid Fractions of the Disproportionate Share 

Patient Percentage (DPP) Calculation 

 3. New Payment Adjustment Methodology for Medicare DSH under Section 

3133 of the Affordable Care Act 

 F. Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108) 

 1. Background 

 2. Provisions of the ATRA for FY 2013 
 27 

 a. Background 

 b. Proposed Conforming Regulatory Changes 

 c. Expiration of the MDH Program 

 G. Hospital Readmissions Reduction Program: Proposed Changes (§§ 412.150 

through 412.154) 

1. Statutory Basis for the Hospital Readmissions Reduction Program 

 2. Overview 

3. FY 2014 Proposals for the Hospital Readmissions Reduction Program 

 a. Overview 

b. Proposed Refinement of the Readmission Measures and Related Methodology 

for FY 2014 and Subsequent Years Payment Determinations 

c. Proposed Expansion of the Applicable Conditions for FY 2015 

d. Proposals for Hospitals Paid under Section 1814(b)(3) of the Act, Including 

the Process to be Exempt from the Hospital Readmissions Reduction Program and 

Definition of “Base Operating DRG Payment Amount” for Such Hospitals (§ 412.152 

and § 412.154(d)) 

e. Proposed Floor Adjustment Factor for FY 2014 (§ 412.154(c)(2)) 

f. Proposed Applicable Period for FY 2014 

g. Proposed Refinements of the Methodology to Calculate the Aggregate 

Payments for Excess Readmissions 

h. Clarification of Reporting Hospital-Specific Information, Including 

Opportunity to Review and Submit Corrections 
 28 

 H. Hospital Value-Based Purchasing Program (§§ 412.160 through 412.165) 

1. Statutory Background 

2. Overview of the FY 2013 Hospital VBP Program 

 3. FY 2014 Payment Details 

 4. FY 2014 Hospital VBP Program Measures 

 5. FY 2015 Hospital VBP Program Measures 

 6. FY 2016 Hospital VBP Program Measures 

 a. Measures Previously Adopted and Proposal to Remove AMI-8a, PN-3b, and 

HF-1 

 b. Proposed New Measures for the FY 2016 Hospital VBP Program 

c. Future Measures for the Efficiency Domain 

 7. Proposed Performance Periods and Baseline Periods 

 a. Background 

b. Proposed Clinical Process of Care Domain Performance Period and Baseline 

Periods for the FY 2016 Hospital VBP Program 

c. Proposed Experience of Care Domain Performance Period and Baseline Period 

for the FY 2016 Hospital VBP Program 

d. Proposed Efficiency Domain Measure Performance Period and Baseline 

Period for the FY 2016 Hospital VBP Program 

e. Proposed Outcome Domain Performance Periods and Baseline Periods for the 

FY 2017 through FY 2019 Hospital VBP Programs 

8. Proposed Performance Standards for the Hospital VBP Program 
 29 

 a. Background 

b. Performance Standards for the FY 2016 Hospital VBP Program Measures

c. Certain Performance Standards for the FY 2017, FY 2018, and FY 2019 

Hospital VBP Programs 

9. Proposed FY 2016 Hospital VBP Program Scoring Methodology 

 a. Proposed General Hospital VBP Program Scoring Methodology 

b. Proposed Domain Weighting for the FY 2016 Hospital VBP Program for 

Hospitals That Receive a Score on All Domains 

c. Proposed Domain Weighting for the FY 2016 Hospital VBP Program for 

Hospitals Receiving Scores on Fewer than Four Domains 

 d. Proposed Domain Reclassification and Domain Weighting for the FY 2017 

Hospital VBP Prrogram 

e. Proposed Disaster/Extraordinary Circumstance Waivers under the Hospital 

VBP Program 

10. Applicability of the Hospital VBP Program to Hospitals 

 a. Background 

b. Proposed Minimum Numbers of Cases and Measures for the FY 2016 Hospital 

VBP Program Outcome Domain 

c. Hospitals Paid under Section 1814(b)(3) of the Act 

 I. Hospital-Acquired Condition (HAC) Reduction Program 

 1. Background 

 2. Statutory Basis for the HAC Reduction Program 
 30 

 3. Proposals to Implement the HAC Reduction Program 

 a. Proposed Definitions 

 b. Proposed Payment Adjustment under the HAC Reduction Program, Including 

Exemptions 

 c. Proposed Measure Selection and Conditions, Including a Proposed 

Risk-Adjustment and Scoring Methodology 

 d. Criteria for Applicable Hospitals and Performance Scoring 

 e. Reporting Hospital-Specific Information, Including the Review and Correction 

of Information 

 f. Limitation on Administrative and Judicial Review 

 J. Payment for Graduate Medical Education (GME) and Indirect Medical 

Education (IME) Costs (§§ 412.105, 413.75 through 413.83) 

 1. Background 

 2. Proposed Inclusion of Labor and Delivery Days in the Calculation of Medicare 

Utilization for Direct GME Payment Purposes and for Other Medicare Inpatient Days 

Policy 

 3. Notice of Closure of Teaching Hospital and Opportunity to Apply for 

Available Slots 

 4. Payments for Residents Training in Approved Residency Programs at CAHs 

 a. Background 

 b. Residents in Approved Medical Residency Training Programs That Train at 

CAHs 
 31 

 5. Expiration of Inflation Update Freeze for High Per Resident Amounts (PRAs) 

 K. Rural Community Hospital Demonstration Program 

 1. Background 

 2. Proposed FY 2014 Budget Neutrality Offset Amount 

 L. Hospital Emergency Services under EMTALA: Technical Change 

(§§ 4189.24(f)) 

 M. Hospital Services Furnished under Arrangements 

 N. Policy Proposal on Admission and Medical Review Criteria for Hospital 

Inpatient Services under Medicare Part A 

 1. Background 

 2. Requirements for Physician Orders 

 3. Proposed Inpatient Admission Guidelines 

 a. Background 

 b. Correct Coding Reviews 

 c. Complete and Accurate Documentation 

 d. Medical Necessity Reviews 

 4. Proposed Payment Adjustment 

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

 A. Overview 

 B. Additional Provisions 

 1. Exception Payments 
 32 

 2. New Hospitals 

 3. Hospitals Located in Puerto Rico 

 C. Other Proposed Changes for FY 2014 - Proposed Adjustment to Offset the 

Cost of the Policy Proposal on Admission and Medical Review Criteria for Hospital 

Inpatient Services under Medicare Part A 

 D. Proposed Annual Update for FY 2014 

VII. Proposed Changes for Hospitals Excluded from the IPPS 

 A. Proposed Rate-of-Increase in Payments to Excluded Hospitals for FY 2014 

 B. Critical Access Hospitals (CAHs): Proposed Changes to Conditions of 

Participation (CoPs) Relating to Furnishing of Acute Care Inpatient Services 

 1. Background 

 2. Proposed Policy Changes 

VIII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System 

(LTCH PPS) for FY 2014 

 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 
 33 

 B. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group 

(MS-LTC-DRG) Classifications and Relative Weights for FY 2014 

 1. Background 

 2. Patient Classifications into MS-LTC-DRGs 

 a. Background 

 b. Proposed Changes to the MS-LTC-DRGs for FY 2014 

 3. Development of the Proposed FY 2014 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 2014 

 c. Data 

 d. Hospital-Specific Relative Value (HSRV) Methodology 

 e. Proposed Treatment of Severity Levels in Developing the MS-LTC-DRG 

Relative Weights 

 f. Proposed Low-Volume MS-LTC-DRGs 

 g. Steps for Determining the Proposed FY 2014 MS-LTC-DRG Relative Weights 

 C. Proposed LTCH PPS Payment Rates for FY 2014 

 1. Overview of Development of the Proposed LTCH Payment Rates 

 2. Proposed FY 2014 LTCH PPS Annual Market Basket Increase 

 a. Overview 

 b. Revision of Certain Market Basket Updates as Required by the Affordable 

Care Act 
 34 

 c. Adjustment to the Annual Update to the LTCH PPS Standard Federal Rate 

under the Long-Term Care Hospital Quality Reporting (LTCHQR) Program 

 1. Background 

 2. Proposed Reduction to the Annual Update to the LTCH PPS Standard Federal 

Rate under the LTCHQR Program 

 d. Proposed Market Basket Under the LTCH PPS for FY 2014 

 e. Proposed Annual Market Basket Update for LTCHs for FY 2014 

 3. Proposed Adjustment for the Second Year of the Phase-In of the One-Time 

Prospective Adjustment to the Standard Federal Rate under § 412.523(d)(3) 

 D. Expiration of Certain Payment Rules for LTCH Services - The 25-Percent 

Threshold Payment Adjustment 

 E. Research on the Development of a Patient Criteria-Based Payment Adjustment 

under the LTCH PPS 

 1. Overview 

 2. MedPAC’s 2004 Report to Congress 

 3. LTCHs in the Medicare Program 

 4. CMS’ Research: The RTI Report 

 5. CMS’ Report to Congress: Determining Medical Necessity and 

Appropriateness of Care for Medicare Long-Term Care Hospitals 

 6. Current Practices in LTCHs 

 7. Identification of Chronically Critically Ill/Medically Complex (CCI/MC) 

Patients 
 35 

 8. LTCH PPS Payments for CCI/MC Patients 

IX. Proposed Quality Data Reporting Requirements for Specific Providers and Suppliers 

 A. Hospital Inpatient Quality Reporting (IQR) Program 

 1. Background 

 a. History of Measures Adopted for the Hospital IQR Program 

 b. Maintenance of Technical Specifications for Quality Measures 

 c. Proposed Public Display of Quality Measures 

 2. Removal and Suspension of Hospital IQR Program Measures 

 a. Considerations in Removing Quality Measures from the Hospital IQR Program 

 b. Hospital IQR Program Measures Removed in Previous Rulemaking 

 c. Proposed Removal of Hospital IQR Program Measures for the FY 2016 

Payment Determination and Subsequent Years 

 d. Suspension of Data Collection for the FY 2014 Payment Determination and 

Subsequent Years 

 3. Process for Retaining Previously Adopted Hospital IQR Program Measures for 

Subsequent Payment Determinations 

 4. Additional Considerations in Expanding and Updating Quality Measures under 

the Hospital IQR Program 

 5. Proposed Changes to Hospital IQR Program Measures Previously Adopted for 

the FY 2015 and FY 2016 Payment Determinations and Subsequent Years 

 a. Previously Adopted Hospital IQR Program Measures for the FY 2015 Payment 

Determination and Subsequent Years 
 36 

 b. Proposed Refinements to Existing Measures in the Hospital IQR Program 

 6. Proposed Additional Hospital IQR Program Measures for the FY 2016 

Payment Determination and Subsequent Years 

 a. Proposed Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate 

(RSRR) Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization 

Measure (NQF #1891) 

 b. Proposed Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 

(RSMR) Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization 

Measure (NQF #1893) 

 c. Proposed Hospital 30-day, All-Cause Risk-Standardized Rate of Readmission 

Following Acute Ischemic Stroke (Stroke Readmission) Measure 

 d. Proposed Hospital 30-Day, All-Cause Risk-Standardized Rate of Mortality 

Following an Admission for Acute Ischemic Stroke (Stroke Mortality) Measure 

 e. Proposed Hospital Risk-Standardized Payment Associated with a 30-day 

Episode of Care for Acute Myocardial Infarction (AMI) Measure 

 7. Electronic Clinical Quality Measures 

 8. Possible New Quality Measures and Measure Topics for Future Years 

 9. Form, Manner, and Timing of Quality Data Submission 

 a. Background 

 b. Procedural Requirements for the FY 2016 Payment Determination and 

Subsequent Years 

 c. Proposed Data Submission Requirements for Chart-Abstracted Measures 
 37 

 d. Proposed Data Submission Requirements for Quality Measures That May be 

Voluntarily Electronically Reported for the FY 2016 Payment Determination 

 e. Sampling and Case Thresholds for the FY 2016 Payment Determination and 

Subsequent Years 

 f. Proposed HCAHPS Requirements for the FY 2017 Payment Determination and 

Subsequent Years 

 g. Proposed Data Submission Requirements for Structural Measures for the FY 

2015 and FY 2016 Payment Determinations 

 h. Proposed Data Submission and Reporting Requirements for HealthcareAssociated Infection (HAI) Measures Reported via NHSN 

 10. Proposed Modifications to the Validation Process for Chart-Abstracted 

Measures under the Hospital IQR Program 

 a. Proposed Timing and Number of Quarters Included in Validation 

 b. Proposed Selection of Measures and Sampling of Charts to be Included in 

Validation 

 c. Proposed Procedures for Scoring Records for Validation 

 d. Proposed Procedures to Select Hospitals for Validation 

 e. Proposed Procedures for Submitting Records for Validation 

 11. Proposed Data Accuracy and Completeness Acknowledgement Requirements 

for the FY 2015 Payment Determination and Subsequent Years 

 12. Public Display Requirements for the FY 2016 Payment Determination and 

Subsequent Years 
 38 

 13. Proposed Reconsideration and Appeal Procedures for the FY 2015 Payment 

Determination and Subsequent Years 

 14. Hospital IQR Program Extraordinary Circumstances Extensions or Waivers 

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

 1. Statutory Authority 

 2. Covered Entities 

 3. Previously Finalized Quality Measures for PCHs Beginning with the FY 2014 

Program 

 4. Considerations in the Selection of the Quality Measures 

 5 Proposed New Quality Measures 

 a. Proposed New Measure Beginning with FY 2015 - NHSN HealthcareAssociated Infection (HAI) Measure: Surgical Site Infection (SSI) (NQF #0753) 

 b. Proposed New Measures Beginning with the FY 2016 PQHQR Program 

 6. Possible New Quality Measure Topics for Future Years 

 7. Maintenance of Technical Specifications for Quality Measures 

 8. Public Display Requirements Beginning with FY 2015 Program Year 

 9. Form, Manner, and Timing of Data Submission Beginning with FY 2015 

Program Year 

 a. Background 

 b. Proposed Waivers from Program Requirements 

 c. Proposed Reporting Periods and Submission Timelines for the Proposed SSI 

Measure 
 39 

 d. Proposed Exceptions to Reporting and Data Submission for HAI Measures 

(CAUTI, CLABSI, and Proposed SSI) 

 e. Proposed Reporting and Data Submission Requirements for the Proposed 

Clincial Process/Oncology Care Measures 

 f. Proposed Reporting and Data Submission Requirements for the Proposed SCIP 

Measures 

 g. Proposed HCAHPS Requirements 

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

 1. Statutory History 

 2. General Consideratons Used for Selection of Quality Measures for the 

LTCHQR Program 

 3. Process for Retention of LTCHQR Program Measures Adopted in Previous 

Payment Determinations 

 4. Process for Adopting Changes to LTCHQR Program Measures 

 5. Previously Adopted Quality Measures for the FY 2014 and FY 2015 Payment 

Determinations and Subsequent Payment Determinations 

 6. Previously Adopted Quality Measures for the FY 2016 Payment Determination 

and Subsequent Payment Determinations 

 7. Proposed Revisions to Previously Adopted Quality Measures 

 a. Proposed Revisions for Influenza Vaccination Coverage among Health Care 

Personnel (NQF #0431) 
 40 

 b. Proposed Revisions for Percent of Residents or Patients Who Were Assessed 

and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680) 

 c. Proposed Revisions for Percent of Residents or Patients with Pressure Ulcers 

That Are New or Worsened (Short-Stay) (NQF #0678) 

 8. Proposed New LTCHQR Program Quality Measures Affecting the FY 2017 an 

FY 2018 Payment Determinations and Subsequent Payment Determinations 

 a. Considerations in Updating and Expanding Quality Measures under the 

LTCHQR Program for the FY 2017 Payment Determination and Subsequent Payment 

Determinations 

 b. Proposed New LTCHQR Program Quality Measures for the FY 2017 Payment 

Determination and Subsequent Payment Determinations 

 c. Proposed New LTCHQR Program Quality Measure for the FY 2018 Payment 

Determination and Subsequent Payment Determinations 

 d. LTCHQR Program Quality Measures and Concepts under Consideration for 

Future Years Payment Determinations 

 9. Form, Manner, and Timing of Quality Data Submission for the FY 2016 

Payment Determination and Subsequent Payment Determinations 

 a. Background 

 b. Finalized Timeline for Data Submission under the LTCHQR Program for the 

FY 2016 Payment Determination 
 41 

 c. Proposed Timeline for Data Submission for the NQF #0431 Influenza 

Vaccination Coverage Among Healthcare Personnel Measure for the FY 2016 Payment 

Determination and Subsequent Payment Determinations 

 d. Proposed Timeline for Data Submission for the NQF #0680 Percent of 

Residents or Patients Who Were Assessed and Appropriately Given the Seasonal 

Influenza Vaccine (Short Stay) Measure for the FY 2016 Payment Determination and 

Subsequent Payment Determinations 

 e. Proposed Timeline for Data Submission under the LTCHQR Program for the 

FY 2017 Payment Determination and Subsequent Program Determinations 

 f. Proposed Timeline for Data Submission under the LTCHQR Program for the 

FY 2018 Payment Determination and Subsequent Payment Determinations 

 10. Public Display of Data Quality Measures for the LTCHQR Program 

 11. Proposed LTCHQR Program Submission Waiver Requirements for the 

FY 2015 Payment Determination and Subsequent Payment Determinations 

 12. Proposed LTCHQR Program Reconsideration and Appeals for the FY 2015 

Payment Determination and Subsequent Payment Determinations 

 D. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program 

 1. Statutory Authority 

 2. Application of the Payment Update Reduction for Failure to Report for the 

FY 2014 Payment Determination and Subsequent Years 

 3. Covered Entities 
 42 

 4. Considerations in Selecting Quality Measures 

 5. Proposed Quality Measures for the FY 2015 Payment Determination and 

Subsequent Years 

 a. Background 

 b. Proposed New Quality Measures Beginning with the FY 2016 Payment 

Determination and Subsequent Years 

 c. Maintenance of Technical Specifications for Quality Measures 

 6. Proposed Request for Voluntary Information – Facility Assessment of Patient 

Experience of Care 

 7. Request for Recommendations for New Quality Measures for Future Years 

 8. Proposed Public Display Requirements for the FY 2014 Payment 

Determination and Subsequent Years 

 9. Form, Manner, and Timing of Quality Data Submission for the FY 2014 

Payment Determination and Subsequent Years 

 a. Background 

 b. Procedural Requirements 

 c. Proposed Submission Requirements for the FY 2016 Payment Determination 

and Subsequent Years 

 d. Reporting Requirements for the FY 2016 Payment Determination and 

Subsequent Years 

 e. Proposed Population, Sampling, and Minimum Case Threshold for the 

FY 2016 Payment Determination and Subsequent Years 
 43 

 f. Data Accuracy and Completeness Acknowledgement (DACA) Requirements 

 10. Reconsideration and Appeals Procedures for the FY 2014 Payment 

Determination and Subsequent Years 

 11. Waivers from Quality Reporting Requirements for the FY 2014 Payment 

Determination and Subsequent Years 

 12. Electronic Health Records (EHRs) 

 E. Electronic Health Records (EHRs) Incentive Program and Meaningful Use 

(MU) 

 1. Background 

 2. Proposed Expanded Electronic Submission Period for CQMs 

 3. Quality Reporting Data Architecture Category III (QRDA-III) Option in 2014 

 4. Case Number Threshold Exemption—Proposed Requirements Regarding Data 

Submission 

X. Proposed Change to the Medicare Hospital Conditions of Participation (CoPs) 

Relating to the Administration of Pneumococcal Vaccines 

XI. MedPAC Recommendations 

XII. Other Required Information 

 A. Requests for Data from the Public 

 B. Collection of Information Requirements 

 1. Statutory Requirement for Solicitation of Comments 

 2. ICRs for Add-On Payments for New Services and Technologies 
 44 

 3. ICRs for the Proposed Occupational Mix Adjustment to the Proposed FY 2014 

Wage Index (Hospital Wage Index Occupational Mix Survey) 

 4. Hospital Applications for Geographic Reclassifications by the MGCRB 

 5. ICRs for Application for GME Resident Slots 

 6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program 

 7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program 

 8. ICRs for Hospital Value-Based Purchasing (VBP) Program 

 9. ICRs for the Long-Term Care Hospital Quality Reporting (LTCHQR) Program 

 10. ICRs for the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) 

Program 

 C. Response to Public Comments 

Regulation Text 

Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and 

Rate-of-Increase Percentages Effective with Cost Reporting Periods Beginning on or 

after October 1, 2013 and Payment Rates for LTCHs Effective with Discharges 

Occurring on or after October 1, 2013 

I. Summary and Background 

II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating 

Costs for Acute Care Hospitals for FY 2014 

 A. Calculation of the Proposed Adjusted Standardized Amount 

 B. Proposed Adjustments for Area Wage Levels and Cost-of-Living 

 C. Calculation of the Proposed Prospective Payment Rates 
 45 

III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient 

Capital-Related Costs for FY 2014 

 A. Determination of Federal Hospital Inpatient Capital-Related Prospective 

Payment Rate Update 

 B. Calculation of the Proposed Inpatient Capital-Related Prospective Payments 

for FY 2014 

 C. Capital Input Price Index 

IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase 

Percentages for FY 2014 

V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 2014 

 A. Proposed LTCH PPS Standard Federal Rate for FY 2014 

 B. Proposed Adjustment for Area Wage Levels under the LTCH PPS for 

FY 2014 

 1. Background 

 2. Proposed Geographic Classifications/Labor Market Area Definitions 

 3. Proposed LTCH PPS Labor-Related Share 

 4. Proposed LTCH PPS Wage Index for FY 2014 

 5. Proposed Budget Neutrality Adjustment for Changes to the Area Wage Level 

Adjustment 

 C. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located 

in Alaska and Hawaii 

 D. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases 
 46 

 E. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments 

for FY 2014 

VI. Tables Referenced in this Proposed Rulemaking and Available through the Internet 

on the CMS Web Site 

Appendix A--Economic Analyses

I. Regulatory Impact Analysis 

 A. Introduction 

 B. Need 

 C. Objectives of the IPPS 

 D. Limitations of Our Analysis 

 E. Hospitals Included in and Excluded from the IPPS 

 F. Effects on Hospitals and Hospital Units Excluded from the IPPS 

 G. Quantitative Effects of the Proposed Policy Changes under the IPPS for 

Operating Costs 

 1. Basis and Methodology of Estimates 

 2. Analysis of Table I 

 3. Impact Analysis of Table II 

 H. Effects of Other Proposed Policy Changes 

 1. Effects of Proposed Policy on MS-DRGs for Preventable HACs, Including 

Infections 

 2. Effects of Proposed Policy Relating to New Medical Service and Technology 

Add-On Payments 
 47 

 3. Effects of Proposed Payment Adjustment for Low-Volume Hospitals for 

FY 2014 

 4. Effects of Extension of the MDH Program 

 5. Effects of Changes under the FY 2014 Hospital Value-Based Purchasing 

(VBP) Program 

 6. Effects of the Implementation of the HAC Reduction Program 

 7. Effects of Proposed Policy Changes Relating to Payments for Direct GME and 

IME Costs 

 8. Effects of Implementation of Rural Community Hospital Demonstration 

Program 

 9. Effects of the Extended Effective Date for Policy on Hospital Services 

Furnished under Arrangements 

 I. Effects of Proposal Relating to the Furnishing of Acute Care Inpatient Services 

by CAHs 

 J. Effects of Proposed Changes to the COPs for Hospitals Relating to the 

Administration of Pneumococcal Vaccines 

 K. Effects of Proposed Changes in the Capital IPPS 

 1. General Considerations 

 2. Results 

 L. Effects of Proposed Payment Rate Changes and Policy Changes under the 

LTCH PPS 

 1. Introduction and General Considerations 
 48 

 2. Impact on Rural Hospitals 

 3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes and Policy 

Changes 

 4. Effect on the Medicare Program 

 5. Effect on Medicare Beneficiaries 

 M. Effects of Proposed Requirements for Hospital Inpatient Quality Reporting 

(IQR) Program 

 N. Effects of Proposed Changes in the PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program 

 O. Effects of Proposed Changes in the LTCH Quality Reporting (LTCHQR) 

Program 

 P. Effects of Proposed Changes in the Requirements for the Inpatient Psychiatric 

Facilities Quality Reporting (IPFQR) Program 

II. Alternatives Considered 

III. Overall Conclusion 

 1. Acute Care Hospitals 

 2. LTCHs 

IV. Accounting Statements and Tables 

 A. Acute Care Hospitals 

 B. LTCHs 

V. Regulatory Flexibility Act (RFA) Analysis 

VI. Impact on Small Rural Hospitals 
 49 

VII. Unfunded Mandate Reform Act (UMRA) Analysis 

VIII. 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 2014 

 A. Proposed FY 2014 Inpatient Hospital Update 

 B. Proposed Update for SCHs for FY 2014 

 C. Proposed FY 2014 Puerto Rico Hospital Update 

 D. Proposed Update for Hospitals Excluded from the IPPS 

 E. Proposed Update for LTCHs for FY 2014 

 III. Secretary’s Recommendation 

 IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 

Payments in Traditional Medicare 

I. Executive Summary and Background 

A. Executive Summary

1. Purpose and Legal Authority 

 This proposed rule would make payment and policy changes under the 

Medicare inpatient prospective payment systems (IPPS) for operating and 

capital-related costs of acute care hospitals as well as for certain hospitals and 

hospital units excluded from the IPPS. In addition, it would make payment and 

policy changes for inpatient hospital services provided by long-term care 
 50 

hospitals (LTCHs) under the long-term care hospital prospective payment system 

(LTCH PPS). It also would make policy changes to programs associated with 

Medicare IPPS hospitals, IPPS-excluded hospitals, and LTCHs. 

 Under various statutory authorities, we are proposing to make changes to 

the Medicare IPPS, to the LTCH PPS, and to other related payment 

methodologies and programs for FY 2014 and subsequent fiscal years. These 

statutory authorities include, but are not limited to, the following: 

• Section 1886(d) of the Social Security Act (the Act), which sets forth a system 

of payment for the operating costs of acute care hospital inpatient stays under Medicare 

Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act 

requires that, instead of paying for capital-related costs of inpatient hospital services on a 

reasonable cost basis, the Secretary use a prospective payment system (PPS). 

• Section 1886(d)(1)(B) of the Act, which specifies that certain hospitals and 

hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation 

hospitals and units; LTCHs; psychiatric hospitals and units; children's hospitals; and 

cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also 

excluded from the IPPS. 

• Sections 123(a) and (c) of Pub. L. 106-113 and section 307(b)(1) of 

Pub. L. 106-554 (as codified under section 1886(m)(1) of the Act), which provide for the 

development and implementation of a prospective payment system for payment for 

inpatient hospital services of long-term care hospitals (LTCHs) described in section 

1886(d)(1)(B)(iv) of the Act. 
 51 

• Sections 1814(l), 1820, and 1834(g) of the Act, which specifies that payments 

are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet 

certain statutory requirements) for inpatient and outpatient services and that these 

payments are generally based on 101 percent of reasonable cost. 

• Section 1866(k) of the Act, as added by section 3005 of the Affordable Care 

Act, which establishes a quality reporting program for hospitals described in section 

1886(d)(1)(B)(v) of the Act, referred to as “PPS-Exempt Cancer Hospitals.” 

• Section 1886(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. 

• Section 1886(d)(4)(D) of the Act, which 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 

evidence-based 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 
 52 

(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. 

• Section 1886(a)(4) of the Act, which specifies that costs of approved 

educational activities are excluded from the operating costs of inpatient hospital services. 

Hospitals with approved graduate medical education (GME) programs are paid for the 

direct costs of GME in accordance with section 1886(h) of the Act. 

• Section 1886(b)(3)(B)(viii) of the Act, which requires the Secretary to reduce 

the applicable percentage increase in payments to a subsection (d) hospital for a fiscal 

year if the hospital does not submit data on measures in a form and manner, and at a time, 

specified by the Secretary. 

• Section 1886(o) of the Act, which requires the Secretary to establish a Hospital 

Value-Based Purchasing (VBP) Program under which value-based incentive payments 

are made in a fiscal year to hospitals meeting performance standards established for a 

performance period for such fiscal year. 

• Section 1886(p) of the Act, as added by section 3008 of the Affordable Care 

Act, which establishes an adjustment to hospital payments for hospital-acquired 

conditions (HACs), or a Hospital-Acquired Condition (HAC) Reduction Program, under 

which payments to applicable hospitals are adjusted to provide an incentive to reduce 

hospital-acquired conditions, effective for discharges beginning on October 1, 2014. 

• Section 1886(q) of the Act, as added by section 3025 of the Affordable Care 

Act and amended by section 10309 of the Affordable Care Act, which establishes the 
 53 

“Hospital Readmissions Reduction Program” effective for discharges from an “applicable 

hospital” beginning on or after October 1, 2012, under which payments to those hospitals 

under section 1886(d) of the Act will be reduced to account for certain excess 

readmissions. 

• Section 1886(r) of the Act), as added by section 3313 of the Affordable Care 

Act, which provides for a reduction to disproportionate share payments under section 

1886(d)(5)(f) of the Act and for a new uncompensated care payment to eligible hospitals. 

Specifically, section 1886(r) of the Act now requires that, for “fiscal year 2014 and each 

subsequent fiscal year,” “subsection (d) hospitals” that would otherwise receive a 

“disproportionate share payment... made under subsection (d)(5)(F)” will receive two 

separate payments: (1) 25 percent of the amount they previously would have received 

under subsection (d)(5)(F)for DSH (“the empirically justified amount”), and (2) an 

additional payment for the DSH hospital’s proportion of uncompensated care, determined 

as the product of three factors. These three factors are: (1) 75 percent of the payments 

that would otherwise be made under subsection (d)(5)(F); (2) 1 minus the percent change 

in the percent of individuals under the age of 65 who are uninsured (minus 0.1 percentage 

points for FY 2014, and minus 0.2 percentage points for FY 2015 through FY 2017); and 

(3) a hospital’s uncompensated care amount relative to the uncompensated care amount 

of all DSH hospitals expressed as a percentage. 

● Section 1886(s)(4) of the Act, as added and amended by section 3401(f) and 

10322(a) of the Affordable Care Act, respectively, which requires the Secretary to 

implement a quality reporting program for inpatient psychiatric hospitals and psychiatric 
 54 

units. Under this program, known as the Inpatient Psychiatric Facility Quality Reporting 

(IPFQR) Program, beginning with FY 2014, the Secretary must reduce any annual update 

to a standard Federal rate for discharges occurring during a fiscal year by 2.0 percentage 

points for any inpatient psychiatric hospital or psychiatric unit that does not comply with 

quality data submission requirements with respect to an applicable fiscal year. 

2. Summary of the Major Provisions 

a. MS-DRG Documentation and Coding Adjustment 

 Section 631 of the American Taxpayer Relief Act (ATRA, Pub. L. 112-240) 

amended section 7(b)(1)(B) of Pub. L. 110-90 to require the Secretary to make a 

recoupment adjustment to the standardized amount of Medicare payments to acute care 

hospitals to account for changes in MS-DRG documentation and coding that do not 

reflect real changes in case-mix, totaling $11 billion over a 4-year period of FYs 2014, 

2015, 2016, and 2017. This adjustment represents the amount of the increase in 

aggregate payments as a result of not completing the prospective adjustment authorized 

under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. Prior to the ATRA, this 

amount could not have been recovered under Pub. L. 110-90. 

 While our actuaries estimate that a -9.3 percent adjustment to the standardized 

amount would be necessary if CMS were to fully recover the $11 billion recoupment 

required by section 631 of the ATRA in FY 2014, it is often our practice to delay or 

phase in rate adjustments over more than one year, in order to moderate the effects on 

rates in any one year. Therefore, consistent with the policies that we have adopted in 

many similar cases, we are proposing a -0.8 percent recoupment adjustment to the 
 55 

standardized amount in FY 2014. Although we are not proposing an additional 

prospective adjustment in FY 2014 for the cumulative MS-DRG documentation and 

coding effects through FY 2010, we are soliciting public comments as to whether any 

portion of the proposed -0.8 percent recoupment adjustment to the operating IPPS 

standardized amount should be reduced and instead applied as a prospective adjustment 

to the operating IPPS standardized amount (and hospital-specific rates) for the 

cumulative MS-DRG documentation and coding effect through FY 2010. 

b. Proposed Refinement of the MS-DRG Relative Weight Calculation 

 Beginning in FY 2007, we implemented relative weights for DRGs based on cost 

report data instead of charge information. To address the issue of charge compression 

(the hospital practice of applying higher charges to lower cost items and applying lesser 

charges to higher cost items) when using cost report data to set the MS-DRG relative 

weights, in FYs 2009 and 2010, we created additional cost centers on the Medicare cost 

report to distinguish implantable devices from other medical supplies, MRIs and CT 

scans, respectively, from other radiology services, and cardiac catheterization from other 

cardiology services. As compared to previous years, we currently have a significant 

volume of hospitals completing all, or some, of these new cost centers on the Medicare 

cost report. In section II.E. of the preamble of this proposed rule, we provide various 

data analyses based on comparison of the FY 2014 relative weights computed using 15 

cost-to-charge ratios (CCRs), as we have done in the past, and the FY 2014 relative 

weights computed using 19 CCRs, with distinct CCRs for implantable devices, MRIs, CT 

scans, and cardiac catheterization. 
 56 

 We believe that the analytic findings described in section II.E. of the preamble of 

this proposed rule support our original decision to break out and create new cost centers 

for implantable devices, MRIs, CT scans, and cardiac catheterization. Therefore, 

beginning in FY 2014, we are proposing to calculate the MS-DRG relative weights using 

19 CCRs, creating distinct CCRs from cost report data for implantable devices, MRIs, CT 

scans, and cardiac catheterization. 

c. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care 

Hospitals 

 In section IV. of the preamble of this proposed rule, we are proposing to rebase 

and revise the acute care hospital operating and capital market baskets used to update 

IPPS payment rates. For both market baskets, we are proposing to update the base year 

cost weights from a FY 2006 base year to a FY 2010 base year. We also are proposing to 

recalculate the labor-related share using the proposed FY 2010-based hospital market 

basket, for discharges occurring on or after October 1, 2013. We would use the FY 2010-

based market basket in developing the FY 2014 update factor for the operating and 

capital prospective payment rates and the FY 2014 update factor for the excluded hospital 

rate-of-increase limits. We also are setting forth the data sources used to determine the 

proposed revised market basket relative weights. 

d. Reduction of Hospital Payments for Excess Readmissions 

 We are proposing a number of changes in policies to implement section 1886(q) 

of the Act, as added by section 3025 of the Affordable Care Act, which establishes the 

Hospital Readmissions Reduction Program. The Hospital Readmissions Reduction 
 57 

Program requires a reduction to a hospital’s base operating DRG payment to account for 

excess readmissions of selected applicable conditions. These conditions are acute 

myocardial infarction, heart failure, and pneumonia. For FY 2014, we are proposing 

additional exclusions to the three existing readmission measures (that is, the excess 

readmission ratio) that account for planned readmissions. We also are proposing 

additional readmission measures to be used in the payment determination for FY 2015. 

In addition, we are proposing that the readmissions payment adjustment factors for 

FY 2014 can be no more than a 2-percent reduction (there is a 1-percent cap in FY 2013), 

consistent with the statute. We are proposing a change in the methodology we use to 

calculate the readmissions payment adjustment factors to make it more consistent with 

the calculation of the excess readmission ratio. 

e. Hospital Value-Based Purchasing (VBP) Program 

 Section 1886(o) of the Act requires the Secretary to establish a Hospital 

Value-Based Purchasing (VBP) Program under which value-based incentive payments 

are made in a fiscal year to hospitals meeting performance standards established for a 

performance period for such fiscal year. Both the performance standards and the 

performance period for a fiscal year are to be established by the Secretary. 

 In this proposed rule, we are outlining payment details for the FY 2014 Hospital 

VBP Program. In addition, we are proposing numerous policies for the FY 2016 Hospital 

VBP Program, including measures, performance standards, and performance and baseline 

periods. We also are proposing a disaster/extraordinary circumstances waiver process, 

domain reclassification and weighting based on CMS’ National Quality Strategy for the 
 58 

FY 2017 Hospital VBP Program, and certain measures, performance and baseline 

periods, and performance standards for the FY 2017 through FY 2019 Programs. 

f. Hospital-Acquired Condition (HAC) Reduction Program 

 In this proposed rule, we are proposing measures, scoring, and risk adjustment 

methodology to implement the FY 2015 payment adjustment under the HAC Reduction 

Program. Section 1886(p) of the Act, as added under section 3008(a) of the Affordable 

Care Act, establishes an adjustment to hospital payments for HACs, or a HAC Reduction 

program, under which payments to applicable hospitals are adjusted to provide an 

incentive to reduce HACs, effective for discharges beginning on October 1, 2014 and for 

subsequent program years. The amount of payment shall be equal to 99 percent of the 

amount of payment that would otherwise apply to such discharges under section 1886(d) 

or 1814(b)(3) of the Act, as applicable. 

g. Counting of Inpatient Days for Medicare Payment or Eligibility Purposes 

 In response to a comment we received on the FY 2013 IPPS/LTCH PPS final rule 

and consistent with the inpatient day counting rules for DSH as clarified in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule, we are proposing that patient days associated with 

maternity patients who were admitted as inpatients and were receiving ancillary labor and 

delivery services at the time the inpatient routine census is taken, regardless of whether 

the patient actually occupied a routine bed prior to occupying an ancillary labor and 

delivery bed and regardless of whether the patient occupies a “maternity suite” in which 

labor, delivery recovery, and postpartum care all take place in the same room, would be 

included in the Medicare utilization calculation. We understand that including labor and 
 59 

delivery inpatient days in the Medicare utilization calculation invariably would reduce 

direct GME payments because direct GME payments are based, in part, on a hospital’s 

Medicare utilization ratio and the denominator of that ratio, which includes the hospital’s 

total inpatient days, would increase at a higher rate than the numerator of the ratio, which 

includes the hospital’s Medicare inpatient days. However, because the Medicare 

utilization ratio is a comparison of a hospital’s total Medicare inpatient days to its total

inpatient days, we believe that revising the ratio to include labor and delivery days is 

appropriate because they are inpatient days and therefore should be counted as such. We 

are proposing to include labor and delivery days as inpatient days in the Medicare 

utilization calculation effective for cost reporting periods beginning on or after 

October 1, 2013. 

h. Proposed Changes to the DSH Payment Adjustment and the Provision of Additional 

Payment for Uncompensated Care 

 Section 3133 of the Affordable Care Act modified the Medicare disproportionate 

share hospital (DSH) payment methodology beginning in FY 2014. Currently, Medicare 

DSHs qualify for a DSH payment adjustment under a statutory formula that considers 

their Medicare utilization due to beneficiaries who also receive Supplemental Security 

Income benefits and their Medicaid utilization. Under section 1886(r) of the Act, which 

was added by section 3133 of the Affordable Care Act, starting in FY 2014, DSHs will 

receive 25 percent of the amount they previously would have received under the current 

statutory formula for Medicare DSH payments. The remaining amount, equal to 75 

percent of what otherwise would have been paid as Medicare DSH payments, will be 
 60 

paid as additional payments after the amount is reduced for changes in the percentage of 

individuals that are uninsured. Each Medicare DSH will receive its additional amount 

based on its share of the total amount of uncompensated care for all Medicare DSH 

hospitals for a given time period. In this proposed rule, we are proposing to implement 

these statutory changes. 

i. Proposal Relating to Admission and Medical Review Criteria for Hospital Inpatient 

Services under Medicare Part A 

 To reduce uncertainty regarding the requirements for payments to hospitals and 

CAHs under Medicare Part A related to when a Medicare beneficiary should be 

admitted as a hospital inpatient, in this proposed rule, we are proposing to clarify the 

rules governing physician orders of hospital inpatient admissions for payment under 

Medicare Part A. We are proposing to clarify and specify in the regulations that an 

individual becomes an inpatient of a hospital, including a critical access hospital, 

pursuant to an order for inpatient admission by a physician or other qualified 

practitioner and, therefore, the order is required for payment of hospital inpatient 

services under Medicare Part A. We are proposing that hospital inpatient admissions 

spanning 2 midnights in the hospital would generally qualify as appropriate for 

payment under Medicare Part A. This would revise our guidance to hospitals and 

physicians relating to when hospital inpatient admissions are determined reasonable 

and necessary for payment under Part A. We also are proposing to use our exceptions 

and adjustments authority under section 1886(d)(5)(I)(i) of the Act to offset the 

additional IPPS expenditures under this proposal by reducing the standardized amount, 
 61 

the hospital-specific amount, and the Puerto Rico-specific standardized amount by 0.2 

percent.

j. Proposed LTCH PPS Standard Federal Rate 

 In section VIII.A. of the preamble of this proposed rule, we present the proposed 

LTCH PPS standard Federal rate for FY 2014, which includes a proposed adjustment 

factor of 0.98734 for the second year of the 3-year phase-in of the permanent one-time 

adjustment to the standard Federal rate. In addition, under the LTCH Quality Reporting 

(LTCHQR) Program, the proposed annual update to the standard Federal rate will be 

reduced by 2 percentage points for LTCHs that fail to submit data for FY 2014 on 

specific measures under section 3004 of the Affordable Care Act. 

k. Expiration of Certain Payment Rules for LTCH Services and Research on the 

Development of a Patient Criteria-Based Payment Adjustment under the LTCH PPS 

 In section VIII.D. of the preamble of this proposed rule, we note the expiration of 

the moratorium on the full implementation of the “25 percent threshold” payment 

adjustment to LTCHs under the LTCH PPS for cost reporting periods beginning on or 

after October 1, 2013. 

 In section VIII.E. of the preamble of this proposed rule, we describe the results of 

research being done by a CMS contractor, Kennell and Associates (Kennell) and its 

subcontractor, Research Triangle Institute, International (RTI), on the development of a 

payment adjustment under the LTCH PPS based on the establishment of LTCH patient 

criteria. 

l. Hospital Inpatient Quality Reporting (IQR) Program 
 62 

 Under section 1886(b)(3)(B)(viii) of the Act, hospitals are required to report data 

on measures selected by the Secretary for the Hospital IQR Program in order to receive 

the full annual percentage increase. In past rules, we have established measures for 

reporting and the process for submittal and validation of the data. 

 In this proposed rule, we are proposing to make several changes to: (1) the 

measure set, including the removal of some measures, the refinement of some measures, 

and the adoption of several new measures; (2) the administrative processes; and (3) the 

validation methodologies. We also are proposing to allow hospitals the option of 

reporting the measures in four measure sets electronically for the FY 2016 payment 

determination. These proposed changes would improve the timeliness and efficiency of 

the Hospital IQR Program and begin the process of incorporating electronic reporting 

into the Hospital IQR Program. 

3. Summary of Costs and Benefits 

● Proposed Adjustment for MS-DRG Documentation and Coding 

Changes. We are proposing a -0.8 percent recoupment adjustment to the standardized 

amount for FY 2014 to implement, in part, the requirement of section 631 of the ATRA 

that the Secretary make an adjustment totaling $11 billion over a 4-year period of FYs 

2014, 2015, 2016, and 2017. This recoupment adjustment represents the amount of the 

increase in aggregate payments as a result of not completing the prospective adjustment 

authorized under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. Prior to the ATRA, 

this amount could not have been recovered under Public L. 110-90. 
 63 

 While our actuaries estimate that a -9.3 percent recoupment adjustment to the 

standardized amount would be necessary if CMS were to fully recover the $11 billion 

recoupment required by section 631 of the ATRA in FY 2014, it is often our practice to 

delay or phase in rate adjustments over more than one year, in order to moderate the 

effects on rates in any one year. Therefore, consistent with the policies that we have 

adopted in many similar cases, we are proposing a -0.8 percent recoupment adjustment to 

the standardized amount in FY 2014. We estimate that this level of adjustment would 

recover $0.96 billion in FY 2014, with approximately $10.4 billion remaining to be 

addressed. We are not proposing any future adjustments at this time but note that if 

recoupment adjustments of approximately -0.8 percent are implemented in FYs 2014, 

2015, 2016, and 2017, we estimate that the entire $11 billion will be recovered by the end 

of the statutory 4-year timeline.

● Proposed Refinement of the MS-DRG Relative Weight Calculation. We 

refer readers to section VI.C. of Appendix A of this proposed rule for the overall IPPS 

operating impact, which includes the impact for the proposed refinement of the 

MS-DRG relative weight calculation. This proposed impact models payments to 

various hospital types using relative weights developed from 19 CCRs as compared to 

15 CCRs. As with other proposed changes to the MS-DRGs, these proposed changes 

are to be implemented in a budget neutral manner. 

● Proposed Rebasing and Revision of the Hospital Market Baskets for Acute 

Care Hospitals.
 64 

 The proposed FY 2010-based IPPS market basket update (as measured by 

percentage increase) for FY 2014 is currently forecasted to be the same as the market 

basket update based on the FY 2006-based IPPS market basket at 2.5 percent 

(currently used under the IPPS). Therefore, we are projecting that there would be no 

fiscal impact on the IPPS operating payment rates in FY 2014 as a result of the 

proposed rebasing and revision of the IPPS market basket. 

 The proposed FY 2010-based IPPS capital input price index update (as 

measured by percentage increase) for FY 2014 is currently forecasted to be 1.2 

percent, 0.2 percentage points lower than the update based on the FY 2006-based 

capital input price index. Therefore, we are projecting that there would be a fiscal 

impact of -$16 million to the IPPS capital payments in FY 2014 as a result of this 

proposal (0.2 percentage points * annual capital IPPS payments of approximately 

$8 billion). 

 In addition, we are proposing to update the labor-related share under the IPPS 

for FY 2014 based on the proposed FY 2010-based IPPS market basket, which would 

result in a labor-related share of 69.6 percent (compared to the FY 2013 labor-related 

share of 68.8) or 62 percent, depending on which results in higher payments to the 

hospital. For FY 2014, the proposed labor-related share for the Puerto Rico-specific 

standardized amount would be either 63.2 percent or 62 percent, depending on which 

results in higher payments to the hospital. We are projecting that there would be no 

impact on aggregate IPPS payments as a result of this proposal due to the statutory 
 65 

requirement that any changes to the IPPS area wage adjustment (including the 

labor-related share) are adopted in a budget neutral manner. 

● Reduction to Hospital Payments for Excess Readmissions. The 

provisions of section 1886(q) of the Act which establishes the Hospital Readmissions 

Reduction Program are not budget neutral. For FY 2014, a hospital’s readmissions 

payment adjustment factor is the higher of a ratio of a hospital’s aggregate payments 

for excess readmissions to its aggregate payments for all discharges, or 0.98 (that is, or 

a 2-percent reduction). In this proposed rule, we estimate that the reduction to a 

hospital’s base operating DRG payment amount to account for excess readmissions of 

selected applicable conditions under the Hospital Readmissions Reduction Program 

will result in a 0.2 percent decrease, or approximately -$175 million, in payments to 

hospitals for FY 2014. 

● Value-Based Incentive Payments under the Hospital Value-Based 

Purchasing (VBP) Program. We estimate that there will be no net financial impact 

to the Hospital VBP Program for FY 2014 in the aggregate because, by law, the 

amount available for value-based incentive payments under the program in a given 

fiscal year must be equal to the total amount of base operating DRG payment amount 

reductions for that year, as estimated by the Secretary. The estimated amount of base 

operating DRG payment amount reductions for FY 2014, and therefore the estimated 

amount available for value-based incentive payments for FY 2014 discharges, is 

approximately $1.1 billion. We believe that the program’s benefits will be seen in 

improved patient outcomes, safety, and in the patient’s experience of care. We intend 
 66 

to provide an updated analysis of the program’s estimated dollar impact for the 

FY 2014 program year in the FY 2014 IPPS/LTCH PPS final rule. However, we 

cannot estimate these benefits in actual dollar and patient terms. 

● Implementation of the HAC Reduction Program for FY 2014. We note 

that there is no payment impact for FY 2014 for implementing the HAC Reduction 

Program. For FY 2015, we are presenting the overall impact of the HAC Reduction 

Program provision along with other IPPS payment provision impacts in section I.G. of 

Appendix A of this proposed rule.

● Counting of Inpatient Days in the Medicare Utilization Calculation. We 

believe our proposal to include labor and delivery days as inpatient days in the Medicare 

utilization calculation would result in a savings of approximately $15 million for 

FY 2014. 

● Changes to the Medicare DSH Payment Adjustment and Provision of 

Additional Payment for Uncompensated Care. Under section 1886(r) of the Act (as 

added by section 3313 of the Affordable Care Act), disproportionate share payments to 

hospitals under section 1886(d)(5)(F) of the Act are reduced and an additional payment to 

eligible hospitals will be made beginning in FY 2014. Hospitals that receive Medicare 

DSH payments will receive 25 percent of the amount they previously would have 

received under the current statutory formula for Medicare DSH payments. The 

remainder, equal to 75 percent of what otherwise would have been paid as Medicare DSH 

payments, will be the basis for additional payments after the amount is reduced for 

changes in the percentage of individuals that are uninsured and additional statutory 
 67 

adjustments. Each hospital that receives Medicare DSH payments will receive an 

additonal payment based on its share of the total uncompensated care amount reported by 

Medicare DSHs. The reduction to Medicare DSH payments is not budget neutral. 

 We are proposing that 75 percent of what otherwise would have been paid for 

Medicare DSH payments is adjusted to 88.8 percent of that amount for changes in the 

percentage of individuals that are uninsured and additional statutory adjustments. In 

other words, Medicare DSH payments prior to the application of section 3133 are 

adjusted to 66.6 percent (the product of 75 percent and 88.8 percent) and that resulting 

payment amount is used to create an additional payment for a hospital’s relative 

uncompensated care. As a result, we project that the reduction of Medicare DSH 

payments and the inclusion of the additional payments will reduce payments overall by 

0.9 percent as compared to Medicare DSH payments prior to the implementation of 

section 3133. The proposed additional payment costs have redistributive effects based on 

a hospital’s uncompensated care amount relative to the uncompensated care amount for 

all hospitals that are estimated to receive Medicare DSH payments, and the payment 

amount is not tied to a hospital’s discharges.

● Proposal Relating to Admission and Medical Review Criteria for 

Hospital Inpatient Services under Medicare Part A. In this proposed rule, we are 

making a proposal relating to admission and medical review criteria for hospital 

inpatient admissions under Medicare Part A. One aspect of this proposal is that 

hospital inpatient admissions spanning 2 midnights in the hospital would generally 

qualify as appropriate for payment under Medicare Part A. Our actuaries estimate that 
 68 

the proposal would increase IPPS expenditures by approximately $220 million due to 

an expected net increase in inpatient encounters. We are proposing to use our 

exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to make 

a reduction of 0.2 percent to the standardized amount, the Puerto Rico standardized 

amount, and the hospital-specific payment rate to offset this estimated $220 million in 

additional IPPS expenditures. We also are proposing to apply that 0.2 percent 

reduction to the capital Federal rates using our authority under section 1886(g) of the 

Act. 

● Hospital Inpatient Quality Reporting (IQR) Program. We are proposing 

that hospitals participating in the Hospital IQR Program will have the option to report a 

subset of measures electronically in CY 2014 for the FY 2016 payment determination. 

Under this proposal, hospitals may choose to report the measures in four measure sets 

electronically or as chart-abstracted measures in CY 2014. For the FY 2016 payment 

determination, we also are proposing to remove seven chart-abstracted measures and one 

structural measure. We also are proposing to adopt five new claims-based measures for 

the FY 2016 payment determination and subsequent years. We are proposing, for the 

FY 2016 payment determination and subsequent years, to validate two additional 

chartabstracted HAI measures: MRSA bacteremia, and C. difficile. We also are 

proposing to reduce the number of records used for HAI validation from 48 records per 

year to 36 records per year beginning with the FY 2015 payment determination. Finally, 

we are proposing to allow hospitals to submit patient charts for purposes of validation 

either in paper form or by means of electronic transmission. We believe the proposed 
 69 

changes to the measure set, processes, and validation methodologies, the proposal for 

electronic submission of records for validation, as well as the proposal to allow 

hospitals to report certain measures electronically for the FY 2016 payment 

determination will result in improved program efficiency and begin the process of 

incorporating electronic reporting into the program. We estimate that the combination 

of these proposed changes and the reduction in measures mentioned above will reduce

burden hours by 700,000 hours annually.

● Proposed Update to the LTCH PPS Standard Federal Rate and Other 

Payment Factors. Based on the best available data for the 423 LTCHs in our 

database, we estimate that the proposed changes we are presenting in the preamble and 

Addendum of this proposed rule, including the proposed update to the standard Federal 

rate for FY 2014, the proposed changes to the area wage adjustment for FY 2014, and 

the proposed changes to short-stay outliers and high-cost outliers, would result in an 

increase in estimated payments from FY 2013 of approximately $62 million (or 1.1 

percent). Although we generally project an increase in proposed payments for all 

LTCHs in FY 2014 as compared to FY 2013, we expect rural LTCHs to experience 

slightly lower increases than the national average due to decreases in their wage index for 

FY 2014 compared to FY 2013. In addition, under current law, our moratoria on the full 

implementation of the “25-percent threshold” payment adjustment policy will expire for 

certain LTCHs for cost reporting periods beginning on or after October 1, 2013. These 

regulatory moratoria extended, for an additional year, the 5-year statutory moratorium on 

the application of the “25-percent threshold” payment adjustment policy as provided by 
 70 

section 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA and sections 

3106(a) and 10312(a) of the Affordable Care Act, which expired for cost reporting 

periods beginning on or after October 1, 2012 (“October LTCHs”), and for other LTCHs 

and LTCH satellite facilities for cost reporting periods beginning on or after July 1, 2012 

(“July LTCHs”) (77 FR 53483 through 53484, as amended by the FY 2013 IPPS/LTCH 

PPS correcting amendment (77 FR 63751 through 63753)), as explained in section 

VIII.D. of the preamble of this proposed rule. We estimate that the expiration of the 

regulatory moratoria will result in a reduction in payments of $190 million to LTCHs. 

Overall, we estimate that the effect of the changes we are proposing for FY 2014 in 

conjunction with the expiration of the regulatory moratoria would result in a decrease 

in aggregate LTCH PPS payments in FY 2014 relative to FY 2013 of approximately 

-$128 million (that is, the estimated increase of $62 million plus the estimated 

reduction of $190 million, as described above). 

B. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS) 

 Section 1886(d) of the Social Security Act (the Act) sets forth a system of 

payment for the operating costs of acute care hospital inpatient stays under Medicare 

Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act 

requires the Secretary to use a prospective payment system (PPS) to pay for the 

capital-related costs of inpatient hospital services for these “subsection (d) hospitals.” 

Under these PPSs, Medicare payment for hospital inpatient operating and capital-related 
 71 

costs is made at predetermined, specific rates for each hospital discharge. Discharges are 

classified according to a list of diagnosis-related groups (DRGs). 

 The base payment rate is comprised of a standardized amount that is divided into 

a labor-related share and a nonlabor-related share. The labor-related share is adjusted by 

the wage index applicable to the area where the hospital is located. If the hospital is 

located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living 

adjustment factor. This base payment rate is multiplied by the DRG relative weight. 

 If the hospital treats a high percentage of certain low-income patients, it receives a 

percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on 

payment, known as the disproportionate share hospital (DSH) adjustment, provides for a 

percentage increase in Medicare payments to hospitals that qualify under either of two 

statutory formulas designed to identify hospitals that serve a disproportionate share of 

low-income patients. For qualifying hospitals, the amount of this adjustment varies based 

on the outcome of the statutory calculations. 

 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. 
 72 

 The costs incurred by the hospital for a case are evaluated to determine whether 

the hospital is eligible for an additional payment as an outlier case. This additional 

payment is designed to protect the hospital from large financial losses due to unusually 

expensive cases. Any eligible outlier payment is added to the DRG-adjusted base 

payment rate, plus any DSH, IME, and new technology or medical service add-on 

adjustments. 

 Although payments to most hospitals under the IPPS are made on the basis of the 

standardized amounts, some categories of hospitals are paid in whole or in part based on 

their hospital-specific rate, which is determined from their costs in a base year. For 

example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate 

based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or 

FY 2006) or the IPPS Federal rate based on the standardized amount. Through and 

including FY 2006, a Medicare-dependent, 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, 2013, 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. (We note that the statutory 

provision for payments to MDHs expires at the end of FY 2013, that is, on 

September 30, 2013.) 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 
 73 

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. 
 74 

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; long-term care hospitals (LTCHs); psychiatric hospitals and units; 

children's hospitals; and cancer hospitals. Religious nonmedical health care institutions 

(RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget 

Act of 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. 

 The existing regulations governing payments to excluded hospitals and hospital 

units are located in 42 CFR Parts 412 and 413. 

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS) 

 The Medicare prospective payment system (PPS) for LTCHs applies to hospitals 

described in section 1886(d)(1)(B)(iv) of the Act effective for cost reporting periods 
 75 

beginning on or after October 1, 2002. The LTCH PPS was established under the 

authority of sections 123 of the BBRA and section 307(b) of the BIPA (as codified under 

section 1886(m)(1) of the Act). During the 5-year (optional) transition period, a LTCH’s 

payment under the PPS was based on an increasing proportion of the LTCH Federal rate 

with a corresponding decreasing proportion based on reasonable cost principles. 

Effective for cost reporting periods beginning on or after October 1, 2006, all LTCHs are 

paid 100 percent of the Federal rate. The existing regulations governing payment under 

the LTCH PPS are located in 42 CFR Part 412, Subpart O. Beginning October 1, 2009, 

we issue the annual updates to the LTCH PPS in the same documents that update the 

IPPS (73 FR 26797 through 26798). 

4. Critical Access Hospitals (CAHs) 

 Under sections 1814(l), 1820, and 1834(g) of the Act, payments made to critical 

access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory 

requirements) for inpatient and outpatient services are generally based on 101 percent of 

reasonable cost. Reasonable cost is determined under the provisions of section 

1861(v)(1)(A) of the Act and existing regulations under 42 CFR Parts 413 and 415. 

5. Payments for Graduate Medical Education (GME) 

 Under section 1886(a)(4) of the Act, costs of approved educational activities are 

excluded from the operating costs of inpatient hospital services. Hospitals with approved 

graduate medical education (GME) programs are paid for the direct costs of GME in 

accordance with section 1886(h) of the Act. The amount of payment for direct GME 

costs for a cost reporting period is based on the hospital's number of residents in that 
 76 

period and the hospital’s costs per resident in a base year. The existing regulations 

governing payments to the various types of hospitals are located in 42 CFR Part 413. 

C. Provisions of the Patient Protection and Affordable Care Act (Pub. L. 111-148), the 

Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), and the 

American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)

 The Patient Protection and Affordable Care Act (Pub. L. 111-148), enacted on 

March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 

111-152), enacted on March 30, 2010, made a number of changes that affect the IPPS and 

the LTCH PPS. (Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as the 

“Affordable Care Act.”) A number of the provisions of the Affordable Care Act affect 

the updates to the IPPS and the LTCH PPS and providers and suppliers. The provisions 

of the Affordable Care Act that were applicable to the IPPS and the LTCH PPS for 

FYs 2010, 2011, and 2012 were implemented in the June 2, 2010 Federal Register

notice (75 FR 31118), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50042) and the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51476). 

 The American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), enacted 

on January 2, 2013, also made a number of changes that affect the IPPS. We announced 

changes related to certain IPPS provisions for FY 2013 pursuant to sections 605 and 606 

of Pub. L. 112-240 in a notice issued in the Federal Register on March 7, 2013 

(78 FR 14689). 

1. The Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care 

and Education Reconciliation Act of 2010 (Pub. L. 111-152) 
 77 

 In this proposed rule, we are proposing to implement, or continue in FY 2014 to 

implement, the following provisions (or portions of the following provisions) of the 

Affordable Care Act that are applicable to the IPPS, the LTCH PPS, and PPS-exempt 

cancer hospitals: 

● Section 3001(a) of Pub. L. 111-148, which requires the establishment of a 

hospital inpatient value-based purchasing program under which value-based incentive 

payments are made in a fiscal year to hospitals that meet performance standards for the 

performance period for that fiscal year. 

● Section 3004 of Pub. L. 111-148, which provides for the submission of quality 

data by LTCHs in order for them to receive the full annual update to the payment rates 

beginning with the FY 2014 rate year. 

● Section 3005 of Pub. L. 111-148, which provides for the establishment of a 

quality reporting program for PPS-exempt cancer hospitals beginning with FY 2014, and 

for subsequent program years. 

● Section 3008 of Pub. L. 111-148, which establishes the Hospital-Acquired 

Condition (HAC) Reduction Program and requires the Secretary to make an adjustment 

to hospital payments for applicable hospitals, effective for discharges beginning on 

October 1, 2014, and for subsequent program years. 

● Section 3025 of Pub. L. 111-148, which establishes a hospital readmissions 

reduction program and requires the Secretary to reduce payments to applicable hospitals 

with excess readmissions effective for discharges beginning on or after October 1, 2012. 
 78 

● Section 3133 of Pub. L. 111-148, which modifies the methodologies for 

determining Medicare DSH payments and creates a new additional payment for 

uncompensated care. 

● Section 3401 of Pub. L. 111-148, which provides for the incorporation of 

productivity adjustments into the market basket updates for IPPS hospitals and LTCHs. 

● Section 10324 of Pub. L. 111-148, which provides for a wage adjustment for 

hospitals located in frontier States. 

● Sections 3401 and 10319 of Pub. L. 111-148 and section 1105 of Pub. L. 

111-152, which revise certain market basket update percentages for IPPS and LTCH PPS 

payment rates for FY 2014. 

● Section 5506 of Pub. L. 111-148, which added a provision to the Act that 

instructs the Secretary to establish a process by regulation under which, in the event a 

teaching hospital closes, the Secretary will permanently increase the FTE resident caps 

for hospitals that meet certain criteria up to the number of the closed hospital’s FTE 

resident caps. The Secretary is directed to ensure that the aggregate number of FTE 

resident cap slots distributed is equal to the amount of slots in the closed hospital’s direct 

GME and IME FTE resident caps, respectively. 

2. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240) 

 In this proposed rule, we are proposing to implement or to make conforming 

changes to regulation text in accordance with the following provisions (or portions of the 

following provisions) of the American Taxpayer Relief Act of 2012 that are applicable to 

the IPPS: 
 79 

● Section 605, which amended sections 1886(d)(12)(B), (C)(i), and (D) of the 

Act to extend changes to the payment methodology for the Medicare inpatient hospital 

payment adjustment for low-volume hospitals through September 30, 2013 (FY 2013). 

Beginning with FY 2014, the preexisting low-volume hospital qualifying criteria and 

payment adjustment, as implemented in FY 2005, will resume. 

● Section 606(a), which amended sections 1886(d)(5)(G)(i) and (ii)(II) of the Act 

to extend the MDH program through September 30, 2013 (FY 2013), and section 606(b), 

which made conforming amendments to sections 1886(b)(3)(D)(i) and (iv) of the Act and 

amended section 13501(e)(2) of the Omnibus Budget Reconciliation Act of 1993 to 

permit hospitals to decline reclassification through FY 2013. 

● Section 631, which amended section 7(b)(1)(B) of Pub. L. 110-90 and requires 

a recoupment adjustment to the standardized amounts under section 1886(d) of the Act 

based upon the Secretary’s estimates for discharges occurring in FY 2014 through 

FY 2017 to fully offset $11 billion (which represents the amount of the increase in 

aggregate payments from FYs 2008 through 2013 for which an adjustment was not 

previously applied). 

D. Summary of the Provisions of This Proposed Rule

 In this proposed rule, we are setting forth proposed changes to the Medicare IPPS 

for operating costs and for capital-related costs of acute care hospitals in FY 2014. We 

also are setting forth proposed changes relating to payments for IME costs and payments 

to certain hospitals that continue to be excluded from the IPPS and paid on a reasonable 

cost basis. In addition, in this proposed rule, we are setting forth proposed changes to the 
 80 

payment rates, factors, and other payment rate policies under the LTCH PPS for 

FY 2014. 

 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 include-- 

● Proposed changes to MS-DRG classifications based on our yearly review. 

● Proposed application of the documentation and coding adjustment for FY 2014 

resulting from implementation of the MS-DRG system. 

● A discussion of the Research Triangle Institute, International (RTI) reports and 

recommendations relating to charge compression, including the proposal to calculate the 

MS-DRG relative weights using 19 CCRs. 

● Proposed recalibrations of the MS-DRG relative weights. 

● Proposed changes to hospital-acquired conditions (HACs) and a listing and 

discussion of HACs, including infections, that would be subject to the statutorily required 

adjustment in MS-DRG payments for FY 2014. 

● A discussion of the FY 2014 status of new technologies approved for add-on 

payments for FY 2013 and a presentation of our evaluation and analysis of the FY 2014 

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). 
 81 

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: 

● The proposed FY 2014 wage index update using wage data from cost reporting 

periods beginning in FY 2010. 

● Analysis and implementation of the proposed FY 2014 occupational mix 

adjustment to the wage index for acute care hospitals, including the proposed application 

of the rural floor, the imputed rural floor calculated under the original and alternative 

methodologies, and the frontier State floor. 

● 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 2014 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 2014 hospital wage index. 

● Determination of the labor-related share for the proposed FY 2014 wage index. 

3. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care 

Hospitals 

 In section IV. of the preamble of this proposed rule, we are proposing to rebase 

and revise the acute care hospital operating and capital market baskets to be used in 
 82 

developing the FY 2014 update factor for the operating and capital prospective payment 

rates and the FY 2014 update factor for the excluded hospital rate-of-increase limits. We 

also are setting forth the data sources used to determine the proposed revised market 

basket relative weights. 

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

Costs 

 In section V. of the preamble of this proposed rule, we discuss proposed changes 

or clarifications of a number of the provisions of the regulations in 42 CFR Parts 412 and 

413, including the following: 

● Proposed changes to the inpatient hospital update for FY 2014, including 

incorporation of a productivity adjustment. 

● The proposed updated national and regional case-mix values and discharges for 

purposes of determining RRC status. 

● Proposed payment adjustment for low-volume hospitals for FY 2014. 

● The statutorily required IME adjustment factor for FY 2014. 

● Proposed changes to the methodologies for determining Medicare DSH 

payments and proposals to implement the new additional payments for uncompensated 

care. 

● Discussion of the extension of the MDH program through FY 2013. 

● Proposed changes to the rules for payment adjustments under the Hospital 

Readmissions Reduction Program based on hospital readmission measures and the 

process for hospital review and correction of those rates. 
 83 

● Proposed changes to the requirements and provision of value-based incentive 

payments under the Hospital Value-Based Purchasing Program. 

● Proposed requirements for payment adjustments to hospitals under the HAC 

Reduction Program. 

● Proposal for counting labor and delivery inpatient days in the calculation of 

Medicare utilization for direct GME purposes and for other inpatient days policy for 

payments and eligibility. 

● Announcement of an additional closed hospital and redistribution of resident 

cap slots relating to direct GME and IME payments. 

● Proposed clarifications of policies on payments for residents training in 

approved residency programs at CAHs. 

● Announcement of the expiration of the inflation update freeze for high per 

resident amounts (PRAs). 

● Discussion of the Rural Community Hospital Demonstration Program and a 

proposal for making a budget neutrality adjustment for the demonstration program. 

● Extending the effective date of policies relating to hospital services furnished 

under arrangements. 

● Proposed policy that medical review of inpatient admissions will include a 

presumption that hospital inpatient admissions are reasonable and necessary for 

beneficiaries who require more than 1 Medicare utilization day (defined by encounters 

crossing 2 midnights) in the hospital receiving medically necessary services. 

5. Proposed FY 2014 Policy Governing the IPPS for Capital-Related Costs 
 84 

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

payment policy requirements for capital-related costs and capital payments to hospitals 

for FY 2014 and other related proposed policy changes. 

6. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: 

Rate-of-Increase Percentages 

 In section VII. of the preamble of this proposed rule, we discuss— 

● Proposed changes to payments to certain excluded hospitals for FY 2014. 

● Proposed changes to the conditions of participation (CoPs) relating to 

administration of pneumococcal vaccine and CAH payment for acute care inpatient 

services. 

7. Proposed Changes to the LTCH PPS 

 In section VIII. 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 2014. We also note that the moratorium on the full implementation of the 

“25-percent threshold” payment adjustment will expire for certain cost reporting periods 

beginning on or after October 1, 2013. In addition, in this section, we describe the results 

of research being done by Kennell and Associates (Kennell) and its subcontractor, 

Research Triangle Institute, International (RTI), under a contract with CMS on the 

development of a payment adjustment under the LTCH PPS based on the establishment 

of LTCH patient criteria. 

8. Proposed Changes Relating to Quality Data Reporting for Specific Providers and 

Suppliers 
 85 

 In section IX. of the preamble of this proposed rule, we address— 

● Proposed requirements for the Hospital Inpatient Quality Reporting (IQR) 

Program as a condition for receiving the full applicable percentage increase. 

● Proposed changes to the requirements for the quality reporting program for 

PPS-exempt cancer hospitals (PCHQR Program). 

● Proposed changes to the requirements under the LTCH Quality Reporting 

(LTCHQR) Program. 

● Proposed changes to the requirements under the Inpatient Psychiatric Facility 

Quality Reporting (IPFQR) Program. 

9. 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 2014 prospective payment rates for 

operating costs and capital-related costs for acute care hospitals. We are proposing to 

establish the threshold amounts for outlier cases. In addition, we address the proposed 

update factors for determining the rate-of-increase limits for cost reporting periods 

beginning in FY 2014 for certain hospitals excluded from the IPPS. 

10. 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 2014 prospective standard Federal 

rate. We are proposing to establish the adjustments for wage levels, the labor-related 
 86 

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

amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS. 

11. 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, LTCHs, PCHs, and 

IPFs. 

12. 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 2014 for the following: 

● A single average standardized amount for all areas for hospital inpatient 

services paid under the IPPS for operating costs of acute care hospitals (and 

hospital-specific rates applicable to SCHs). 

● Target rate-of-increase limits to the allowable operating costs of hospital 

inpatient services furnished by certain hospitals excluded from the IPPS. 

● The standard Federal rate for hospital inpatient services furnished by LTCHs. 

13. Discussion of Medicare Payment Advisory Commission Recommendations 

 Under section 1805(b) of the Act, MedPAC is required to submit a report to 

Congress, no later than March 15 of each year, in which MedPAC reviews and makes 

recommendations on Medicare payment policies. MedPAC’s March 2013 

recommendations concerning hospital inpatient payment policies address the update 
 87 

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 2013 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.
 88 

II. Proposed Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 

Classifications and Relative Weights 

A. Background

 Section 1886(d) of the Act specifies that the Secretary shall establish a 

classification system (referred to as diagnosis-related groups (DRGs)) for inpatient 

discharges and adjust payments under the IPPS based on appropriate weighting factors 

assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital 

services on a rate per discharge basis that varies according to the DRG to which a 

beneficiary’s stay is assigned. The formula used to calculate payment for a specific case 

multiplies an individual hospital’s payment rate per case by the weight of the DRG to 

which the case is assigned. Each DRG weight represents the average resources required 

to care for cases in that particular DRG, relative to the average resources used to treat 

cases in all DRGs. 

 Congress recognized that it would be necessary to recalculate the DRG relative 

weights periodically to account for changes in resource consumption. Accordingly, 

section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG 

classifications and relative weights at least annually. These adjustments are made to 

reflect changes in treatment patterns, technology, and any other factors that may change 

the relative use of hospital resources. 

B. MS-DRG Reclassifications

 For general information about the MS-DRG system, including yearly reviews and 

changes to the MS-DRGs, we refer readers to the previous discussions in the FY 2010 
 89 

IPPS/RY 2010 LTCH PPS final rule (74 FR 43764 through 43766), the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50053 through 50055), the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51485 through 51487), and the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53273). 

C. Adoption of the MS-DRGs in FY 2008

 For information on the adoption of the MS-DRGs in FY 2008, we refer readers to 

the FY 2008 IPPS final rule with comment period (72 FR 47140 through 47189). 

D. Proposed FY 2014 MS-DRG Documentation and Coding Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for 

FY 2008 and FY 2009 Authorized by Pub. L. 110-90 

 In the FY 2008 IPPS final rule with comment period (72 FR 47140 through 

47189), we adopted the MS-DRG patient classification system for the IPPS, effective 

October 1, 2007, to better recognize severity of illness in Medicare payment rates for 

acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of 

the number of DRGs from 538 in FY 2007 to 745 in FY 2008. (Currently, there are 751 

MS-DRGs.) By increasing the number of MS-DRGs and more fully taking into account 

patient severity of illness in Medicare payment rates for acute care hospitals, MS-DRGs 

encourage hospitals to improve their documentation and coding of patient diagnoses. 

 In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 

47186), we indicated that the adoption of the MS-DRGs had the potential to lead to 

increases in aggregate payments without a corresponding increase in actual patient 

severity of illness due to the incentives for additional documentation and coding. In that 
 90 

final rule with comment period, we exercised our authority under 

section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality 

by adjusting the national standardized amount, to eliminate the estimated effect of 

changes in coding or classification that do not reflect real changes in case-mix. Our 

actuaries estimated that maintaining budget neutrality required an adjustment of 

-4.8 percent to the national standardized amount. We provided for phasing in this 

-4.8 percent adjustment over 3 years. Specifically, we established prospective 

documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 percent for 

FY 2009, and -1.8 percent for FY 2010. 

 On September 29, 2007, Congress enacted the TMA [Transitional Medical 

Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension 

Act of 2007, Pub. L. 110-90. Section 7(a) of Pub. L. 110-90 reduced the documentation 

and coding adjustment made as a result of the MS-DRG system that we adopted in the 

FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 and 

-0.9 percent for FY 2009, and we finalized the FY 2008 adjustment through rulemaking, 

effective October 1, 2007 (72 FR 66886). 

 For FY 2009, section 7(a) of Pub. L. 110-90 required a documentation and coding 

adjustment of -0.9 percent, and we finalized that adjustment through rulemaking 

(73 FR 48447). The documentation and coding adjustments established in the FY 2008 

IPPS final rule with comment period, which reflected the amendments made by 

Pub. L. 110-90, are cumulative. As a result, the -0.9 percent documentation and coding 
 91 

adjustment for FY 2009 was in addition to the -0.6 percent adjustment for FY 2008, 

yielding a combined effect of -1.5 percent. 

2. Adjustment to the Average Standardized Amounts Required by Pub. L. 110-90 

a. Prospective Adjustment Required by Section 7(b)(1)(A) of Pub. L. 110-90 

 Section 7(b)(1)(A) of Pub. L. 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 Pub. L. 110-90, the Secretary shall make an 

appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act. 

Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized 

amounts for subsequent fiscal years in order to eliminate the effect of such coding or 

classification changes. These adjustments are intended to ensure that future annual 

aggregate IPPS payments are the same as the payments that otherwise would have been 

made had the prospective adjustments for documentation and coding applied in FY 2008 

and FY 2009 reflected the change that occurred in those years. 

b. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by 

Section 7(b)(1)(B) Pub. L. 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 
 92 

applied under section 7(a) of Pub. L. 110-90, section 7(b)(1)(B) of Pub. L. 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 Pub. L. 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 

Pub. L. 110-90. That is, these adjustments are intended to recoup (or repay, in the case of 

underpayments) spending in excess of (or less than) spending that would have occurred 

had the prospective adjustments for changes in documentation and coding applied in 

FY 2008 and FY 2009 precisely matched the changes that occurred in those years. 

Pub. L. 110-90 requires that the Secretary only make these recoupment or repayment 

adjustments for discharges occurring during FYs 2010, 2011, and 2012. 

3. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data 

 In order to implement the requirements of section 7 of Pub. L. 110-90, we 

performed a retrospective evaluation of the FY 2008 data for claims paid through 

December 2008 using the methodology first described in the FY 2009 IPPS/LTCH PPS 

final rule (73 FR 43768 and 43775) and later discussed in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43768 through 43772). We performed the same analysis for 

FY 2009 claims data using the same methodology as we did for FY 2008 claims 

(75 FR 50057 through 50068). The results of the analysis for the FY 2011 proposed and 
 93 

final rules, and subsequent evaluations in FY 2012, supported that the 5.4 percent 

estimate accurately reflected the FY 2009 increases in documentation and coding under 

the MS-DRG system. We were persuaded by both MedPAC’s analysis (as discussed in 

the FY 2011 IPPS/LTCH PPS final rule (75 FR 50064 through 50065)) and our own 

review of the methodologies recommended by various commenters that the methodology 

we employed to determine the required documentation and coding adjustments was 

sound. 

 As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files are 

available to the public to allow independent analysis of the FY 2008 and FY 2009 

documentation and coding effects. Interested individuals may still order these files 

through the Web site at: http://www.cms.gov/Research-Statistics-Data-andSystems/Files-for-Order/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: 
 94 

 Centers for Medicare & Medicaid Services, 

 OFM/Division of Accounting – RDDC, 

 7500 Security Boulevard, C3-07-11, 

 Baltimore, MD 21244-1850. 

4. Prospective Adjustments for FY 2008 and FY 2009 Authorized by Section 7(b)(1)(A) 

of Pub. L. 110-90 

 In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 

43777), we opted to delay the implementation of any documentation and coding 

adjustment until a full analysis of case-mix changes based on FY 2009 claims data could 

be completed. We refer readers to the FY 2010 IPPS/RY LTCH PPS final rule for a 

detailed description of our proposal, responses to comments, and finalized policy. After 

analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH PPS final rule 

(75 FR 50057 through 50073), we found a total prospective documentation and coding 

effect of 1.054 percent. After accounting for the -0.6 percent and the -0.9 percent 

documentation and coding adjustments in FYs 2008 and 2009, we found a remaining 

documentation and coding effect of 3.9 percent. As we have discussed, an additional 

cumulative adjustment of -3.9 percent would be necessary to meet the requirements of 

section 7(b)(1)(A) of Pub. L. 110-90 to make an adjustment to the average standardized 

amounts in order to eliminate the full effect of the documentation and coding changes 

that do not reflect real changes in case-mix on future payments. Unlike section 

7(b)(1)(B) of Pub. L. 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. 
 95 

Therefore, as we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50061), we 

believe the law provided some discretion as to the manner in which we applied the 

prospective adjustment of -3.9 percent. As we discussed extensively in the FY 2011 

IPPS/LTCH PPS final rule, it has been our practice to moderate payment adjustments 

when necessary to mitigate the effects of significant downward adjustments on hospitals, 

to avoid what could be widespread, disruptive effects of such adjustments on hospitals. 

Therefore, we stated that we believed it was appropriate to not implement the -3.9 percent 

prospective adjustment in FY 2011 because we finalized a -2.9 percent recoupment 

adjustment for that year. Accordingly, we did not propose a prospective adjustment 

under section 7(b)(1)(A) of Pub. L. 110-90 for FY 2011 (75 FR 23868 through 23870). 

We note that, as a result, payments in FY 2011 (and in each future year until we 

implemented the requisite adjustment) would be higher than they would have been if we 

had implemented an adjustment under section 7(b)(1)(A) of Pub. L. 110-90. 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we 

indicated that because further delay of this prospective adjustment will result in a 

continued accrual of unrecoverable overpayments, it was imperative that we implement a 

prospective adjustment for FY 2012, while recognizing CMS’ continued desire to 

mitigate the effects of any significant downward adjustments to hospitals. Therefore, we 

implemented a -2.0 percent prospective adjustment to the standardized amount to 

partially eliminate the full effect of the documentation and coding changes that do not 

reflect real changes in case-mix on future payments. 
 96 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53274 through 53276), we 

completed the prospective portion of the adjustment required under section 7(b)(1)(A) of 

Pub. L. 110-90 by finalizing a -1.9 percent adjustment to the standardized amount for 

FY 2013. We stated that this adjustment would remove the remaining effect of the 

documentation and coding changes that do not reflect real changes in case-mix that 

occurred in FY 2008 and FY 2009. We believe it was imperative to implement the full 

remaining adjustment, as any further delay would result in an overstated standardized 

amount in FY 2013 and any future years until a full adjustment is made. 

 We note again that delaying full implementation of the prospective portion of the 

adjustment required under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013 resulted in 

payments in FY 2010 through FY 2012 being overstated. These overpayments could not 

be recovered by CMS as section 7(b)(1)(B) of Pub. L. 110-90 limited recoupments to 

overpayments made in FY 2008 and FY 2009. 

5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) of 

Pub. L. 110-90 

 As discussed in section II.D.3. of this preamble, section 7(b)(1)(B) of 

Pub. L. 110-90 requires the Secretary to make an adjustment to the standardized amounts 

under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate 

payments for FY 2008 and FY 2009 (including interest) resulting from the difference 

between the estimated actual documentation and coding effect and the documentation and 

coding adjustments applied under section 7(a) of Pub. L. 110-90. This determination 

must be based on a retrospective evaluation of claims data. Our actuaries estimated that 
 97 

this 5.8 percentage point increase resulted in an increase in aggregate payments of 

approximately $6.9 billion. Therefore, as discussed in the FY 2011 IPPS/LTCH PPS 

final rule (75 FR 50062 through 50067), we determined that an aggregate adjustment of 

-5.8 percent in FYs 2011 and 2012 would be necessary in order to meet the requirements 

of section 7(b)(1)(B) of Pub. L. 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. 

 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 that we have adopted in many similar cases, in the FY 2011 IPPS/LTCH PPS 

final rule, we made an adjustment to the standardized amount of -2.9 percent, 

representing approximately half of the aggregate adjustment required under section 

7(b)(1)(B) of Pub. L. 110-90, for FY 2011. An adjustment of this magnitude allowed us 

to moderate the effects on hospitals in one year while simultaneously making it possible 

to implement the entire adjustment within the timeframe required under section 

7(b)(1)(B) of Pub. L. 110-90 (that is, no later than FY 2012). For FY 2012, in 

accordance with the timeframes set forth by section 7(b)(1)(B) of Pub. L. 110-90, and 

consistent with the discussion in the FY 2011 IPPS/LTCH PPS final rule, we completed 

the recoupment adjustment by implementing the remaining -2.9 percent adjustment, in 

addition to removing the effect of the -2.9 percent adjustment to the standardized amount 

finalized for FY 2011 (76 FR 51489 and 51498). Because these adjustments, in effect, 

balanced out, there was no year-to-year change in the standardized amount due to this 
 98 

recoupment adjustment for FY 2012. In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53276), we made a final +2.9 percent adjustment to the standardized amount, 

completing the recoupment portion of section 7(b)(1)(B) of Pub. L. 110-90. We note that 

with this positive adjustment, according to our estimates, all overpayments made in 

FY 2008 and FY 2009 have been fully recaptured with appropriate interest, and the 

standardized amount has been returned to the appropriate baseline. 

6. Recoupment or Repayment Adjustment Authorized by Section 631 of the American 

Taxpayer Relief Act of 2012 (ATRA) 

 Section 631 of the ATRA amended section 7(b)(1)(B) of Pub. L. 110-90 to 

require the Secretary to make a recoupment adjustment or adjustments totaling 

$11 billion by FY 2017. This adjustment represents the amount of the increase in 

aggregate payments as a result of not completing the prospective adjustment authorized 

under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. As discussed earlier, this 

delay in implementation resulted in overstated payment rates in FYs 2010, 2011, and 

2012. The resulting overpayments could not have been recovered under Pub. L. 110-90. 

 Similar to the adjustments authorized under section 7(b)(1)(B) of Pub. L. 110-90, 

the adjustment required under section 631 of the ATRA is a one-time recoupment of a 

prior overpayment, not a permanent reduction to payment rates. Therefore, any 

adjustment made to reduce rates in one year would eventually be offset by a positive 

adjustment, once the necessary amount of overpayment is recovered. 

 Our actuaries estimate that a -9.3 percent adjustment to the standardized amount 

would be necessary if CMS were to fully recover the $11 billion recoupment required by 
 99 

section 631 of the ATRA in FY 2014. In its March 2013 “Report to Congress: Medicare 

Payment Policy,” MedPAC estimates that a -2.4 percent adjustment made in FY 2014, 

and not removed until FY 2018, also would recover the required recoupment amount. It 

is often our practice to delay or 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 that we have adopted in many similar cases, we are proposing a -0.8 percent 

recoupment adjustment to the standardized amount in FY 2014. We estimate that this 

level of adjustment will recover up to $0.96 billion in FY 2014, with at least $10.04 

billion remaining to be recovered by FY 2017. If adjustments of approximately -0.8 

percent are implemented in FYs 2014, 2015, 2016, and 2017, using standard inflation 

factors, we estimate that the entire $11 billion will be accounted for by the end of the 

statutory 4-year timeline. As estimates of any future adjustments are subject to slight 

variations in total savings, we are not proposing specific adjustments for FYs 2015, 2016, 

or 2017 at this time. We believe that this level of adjustment for FY 2014 is a reasonable 

and fair approach that satisfies the requirements of the statute while mitigating extreme 

annual fluctuations in payment rates. We again note that this -0.8 percent recoupment 

adjustment, and future adjustments under this authority, will be eventually offset by an 

equivalent positive adjustment once the full $11 billion recoupment requirement has been 

realized. 

7. Additional Prospective Adjustments for the MS-DRG Documentation and Coding 

Effect through FY 2010 Authorized under Section 1886(d)(3)(A)(vi) of the Act 
 100 

 Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average 

standardized amounts if the Secretary determines such adjustments to be necessary for 

any subsequent fiscal years in order to eliminate the effect of coding or classification 

changes that do not reflect real changes in case-mix. After review of comments and 

recommendations received in a FY 2012 public comment letter from MedPAC (available 

on the Internet at: 

http://www.medpac.gov/documents/06172011_FY12IPPS_MedPAC_COMMENT.pdf), 

we analyzed claims data in FY 2010 to determine whether any additional adjustment 

would be appropriate to ensure that the introduction of MS-DRGs was implemented in a 

budget neutral manner. We analyzed FY 2010 data on claims paid through 

December 2011 using the same claims-based methodology as described in previous 

rulemaking (73 FR 43768 and 43775). We determined a total additional prospective 

documentation and coding effect of 0.8 percent through FY 2010 and found that this 

effect was present for both IPPS hospitals paid with the standardized amount and IPPS 

hospitals paid using their hospital-specific payment rates. 

 In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27890), we proposed an 

additional -0.8 percent prospective adjustment to the standardized amount to account for 

this effect. We indicated that this additional prospective adjustment of -0.8 percent, when 

combined with the other prospective MS-DRG documentation and coding adjustments 

already made or proposed would eliminate the future effect of MS-DRG documentation 

and coding that did not reflect real changes in case-mix for discharges occurring through 

FY 2010. As discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53278 through 
 101 

53280), numerous commenters objected to the CMS proposal to make an adjustment to 

account for payment increases due to MS-DRG documentation and coding that did not 

reflect real changes in case-mix for discharges occurring through FY 2010. Many 

commenters continued to assert that our estimates of documentation and coding were 

overstated, and could be explained by other factors. These commenters also focused on 

part of the analysis provided by MedPAC in its FY 2012 public comment letter indicating 

that a slightly smaller additional prospective adjusment of -0.55 percent rather than 

-0.8 percent might be required to offset the cumulative MS-DRG documentation and 

coding effect through FY 2010. Specifically, while MedPAC supported the overall 

methodology, it suggested that it was possible that changes in documentation and coding 

to optimize payments under the MS-DRG GROUPERs and weights may have resulted in 

slightly less than optimal payments under the FY 2007 GROUPER and weights (the 

denominator of the documentation and coding change estimate). Many commenters 

requested that, given the MedPAC analysis, if CMS were to apply an additional 

prospective adjustment to the MS-DRG documentation and coding effect through 

FY 2010, it should subtract 0.25 percentage points from its estimate, for an adjustment of 

-0.55 percent. 

 After considering the public comments, we recognized that the issue of the 

estimate to use for the cumulative MS-DRG documentation and coding effect through 

FY 2010 may merit further consideration. Therefore, as discussed in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53278 through 53280), we decided not to finalize the 
 102 

proposed -0.8 percent adjustment to the standardized amount and the hospital-specific 

rate until more analysis could be completed. 

 CMS is continuing to consider whether MedPAC’s recommendation that an 

adjustment to offset the cumulative documentation and coding effects through FY 2010 

under section 1886(d)(3)(A)(vi) of the Act is appropriate and supported by a review of 

the claims data. After further consideration of the MedPAC analysis and the request by 

many public commenters, if we were to apply an additional prospective adjustment for 

the cumulative MS-DRG documentation and coding effect through FY 2010, we believe 

the most appropriate additional adjustment is -0.55 percent. 

 It is often our practice to delay or phase-in adjustments to mitigate negative 

financial impacts. Because we are proposing a -0.8 percent recoupment adjustment, as 

discussed in section II.D.6. of the preamble of this proposed rule, we are not proposing a 

prospective adjustment in FY 2014 for the cumulative MS-DRG documentation and 

coding effect through FY 2010. However, we are soliciting public comments as to 

whether any portion of the proposed -0.8 percent recoupment adjustment should be 

reduced and instead applied to a prospective adjustment for the cumulative MS-DRG 

documentation and coding effect through FY 2010. For example, we could apply a -0.25 

percent recoupment adjustment, and a -0.55 prospective adjustment, for a total FY 2014 

adjustment of -0.8 percent. Reducing the recoupment adjustment in FY 2014 would 

require relatively larger adjustments for FYs 2015, 2016, and/or 2017, but making a 

prospective adjustment of -0.55 percent would eliminate future payment increases due to 

MS-DRG documentation and coding that did not reflect real changes in case-mix for 
 103 

discharges occurring through FY 2010. As we discuss above, because the documentation 

and coding effect through FY 2010 was found for both IPPS hospitals paid with the 

standardized amount and IPPS hospitals paid under their hospital-specific payment rate, 

if we were to apply a prospective adjustment to remove this effect, we also would apply 

such an adjustment to the hospital-specific payment rate, using the Secretary’s broad 

authority under section 1886(d)(5)(I)(i) of the Act (77 FR 53276 through 53277). 

Therefore, if we attribute a portion of the -0.8 percent adjustment for FY 2014 to the 

prospective adjustment, we also would make appropriate adjustments to the hospitalspecific payment rates. Puerto Rico-specific rates would not be affected, as we 

previously found no significant additional MS-DRG documentation and coding effect for 

FY 2010 that would warrant any additional adjustment to the Puerto Rico-specific rate 

(77 FR 53279). 

E. Proposed Refinement of the MS-DRG Relative Weight Calculation

1. Background 

 Beginning in FY 2007, we implemented relative weights for DRGs based on cost 

report data instead of charge information. We refer readers to the FY 2007 IPPS final 

rule (71 FR 47882) for a detailed discussion of our final policy for calculating the 

cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment 

period (72 FR 47199) for information on how we blended relative weights based on the 

CMS DRGs and MS-DRGs. 

 As we implemented cost-based relative weights, some public commenters raised 

concerns about potential bias in the weights due to “charge compression,” which is the 
 104 

practice of applying a higher percentage charge markup over costs to lower cost items 

and services, and a lower percentage charge markup over costs to higher cost items and 

services. As a result, the cost-based weights would undervalue high-cost items and 

overvalue low-cost items if a single CCR is applied to items of widely varying costs in 

the same cost center. To address this concern, in August 2006, we awarded a contract to 

the Research Triangle Institute, International (RTI) to study the effects of charge 

compression in calculating the relative weights and to consider methods to reduce the 

variation in the cost-to-charge ratios (CCRs) across services within cost centers. For a 

detailed summary of RTI’s findings, recommendations, and public comments that we 

received on the report, we refer readers to the FY 2009 IPPS/LTCH PPS final rule 

(73 FR 48452 through 48453). In addition, we refer readers to RTI’s July 2008 final 

report titled “Refining Cost to Charge Ratios for Calculating APC and MS-DRG Relative 

Payment Weights” (http://www.rti.org/reports/cms/HHSM-500-2005-

0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf). 

 In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48458 through 48467), in 

response to the RTI’s recommendations concerning cost report refinements, we discussed 

our decision to pursue changes to the cost report to split the cost center for Medical 

Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” 

and another line for “Implantable Devices Charged to Patients.” We acknowledged, as 

RTI had found, that charge compression occurs in several cost centers that exist on the 

Medicare cost report. However, as we stated in the FY 2009 IPPS/LTCH PPS final rule, 

we focused on the CCR for Medical Supplies and Equipment because RTI found that the 
 105 

largest impact on the MS-DRG relative weights could result from correcting charge 

compression for devices and implants. In determining the items that should be reported 

in these respective cost centers, we adopted the commenters’ recommendations that 

hospitals should use revenue codes established by the AHA’s National Uniform Billing 

Committee to determine the items that should be reported in the “Medical Supplies 

Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers. 

Accordingly, a new subscripted line for “Implantable Devices Charged to Patients” was 

created in July 2009. This new subscripted cost center has been available for use for cost 

reporting periods beginning on or after May 1, 2009. 

 As we discussed in the FY 2009 IPPS final rule (73 FR 48458) and in the 

CY 2009 OPPS/ASC final rule with comment period (73 FR 68519 through 68527), in 

addition to the findings regarding implantable devices, RTI also found that the costs and 

charges of computed tomography (CT) scans, magnetic resonance imaging (MRI), and 

cardiac catheterization differ significantly from the costs and charges of other services 

included in the standard associated cost center. RTI also concluded that both the IPPS 

and the OPPS relative weights would better estimate the costs of those services if CMS 

were to add standard cost centers for CT scans, MRIs, and cardiac catheterization in order 

for hospitals to report separately the costs and charges for those services and in order for 

CMS to calculate unique CCRs to estimate the costs from charges on claims data. In the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our 

proposal to create standard cost centers for CT scans, MRIs, and cardiac catheterization, 

and to require that hospitals report the costs and charges for these services under new cost 
 106 

centers on the revised Medicare cost report Form CMS-2552-10. (We refer readers to the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a detailed 

discussion of the reasons for the creation of standard cost centers for CT scans, MRIs, 

and cardiac catheterization.) The new standard cost centers for CT scans, MRIs, and 

cardiac catheterization are effective for cost report periods beginning on or after 

May 1, 2010, on the revised cost report Form CMS-2552-10. 

 In the FY 2009 IPPS final rule (73 FR 48468), we stated that, due to what is 

typically a 3-year lag between the reporting of cost report data and the availability for use 

in ratesetting, we anticipated that we might be able to use data from the new “Implantable 

Devices Charged to Patients” cost center to develop a CCR for “Implantable Devices 

Charged to Patients” in the FY 2012 or FY 2013 IPPS rulemaking cycle. However, as 

noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782), due to delays 

in the issuance of the revised cost report Form CMS 2552-10, we determined that a new 

CCR for “Implantable Devices Charged to Patients” might not be available before 

FY 2013. Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS 

final rule to add new cost centers for CT scans, MRIs, and cardiac catheterization, we 

explained that data from any new cost centers that may be created will not be available 

until at least 3 years after they are first used (75 FR 50077). In preparation for the 

FY 2012 IPPS rulemaking, we checked the availability of data in the “Implantable 

Devices Charged to Patients” cost center on the FY 2009 cost reports, but we did not 

believe that there was a sufficient amount of data from which to generate a meaningful 

analysis in this particular situation. Therefore, we did not propose to use data from the 
 107 

“Implantable Devices Charged to Patients” cost center to create a distinct CCR for 

“Implantable Devices Charged to Patients” for use in calculating the MS-DRG relative 

weights for FY 2012. We indicated that we would reassess the availability of data for the 

“Implantable Devices Charged to Patients” cost center for the FY 2013 IPPS/LTCH PPS 

rulemaking cycle and, if appropriate, we would propose to create a distinct CCR at that 

time. 

 During the development of the FY 2013 IPPS/LTCH PPS proposed and final 

rules, hospitals were still in the process of transitioning from the previous cost report 

Form CMS-2552-96 to the new cost report Form CMS-2552-10. Therefore, we were 

able to access only those cost reports in the FY 2010 HCRIS with fiscal year begin dates 

on or after October 1, 2009, and before May 1, 2010; that is, those cost reports on Form 

CMS-2552-96. Data from the Form CMS-2552-10 cost reports were not available 

because cost reports filed on the Form CMS-2552-10 were not accessible in the HCRIS. 

Further complicating matters was that, due to additional unforeseen technical difficulties, 

the corresponding information regarding charges for implantable devices on hospital 

claims was not yet available to us in the MedPAR file. Without the breakout in the 

MedPAR file of charges associated with implantable devices to correspond to the costs of 

implantable devices on the cost report, we believed that we had no choice but to continue 

computing the relative weights with the current CCR that combines the costs and charges 

for supplies and implantable devices. We stated in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53281 through 53283) that when we do have the necessary data for supplies 

and implantable devices on the claims in the MedPAR file to create distinct CCRs for the 
 108 

respective cost centers for supplies and implantable devices, we hoped that we would also 

have data for an analysis of creating distinct CCRs for CT scans, MRIs, and cardiac 

catheterization, which could then be finalized through rulemaking. 

2. Discussion and Proposal for FY 2014 

 To calculate the proposed FY 2014 MS-DRG relative weights, we are proposing 

to continue our current methodology of using the two most recent data sources: the 

December 2012 update of the FY 2012 MedPAR file as the claims data source and the 

December 2012 update of FY 2011 HCRIS as the cost data source. We currently have a 

substantial number of hospitals completing all, or some, of these new cost centers on the 

FY 2011 Medicare cost reports, compared to prior years. Specifically, using the 

December 2012 update of FY 2011 HCRIS, we were able to calculate a valid implantable 

device CCR for 2,285 IPPS hospitals, a valid MRI CCR for 1,402 IPPS hospitals, a valid 

CT scan CCR for 1,470 IPPS hospitals, and a valid cardiac catheterization CCR for 1,022 

IPPS hospitals. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53281), we stated that 

prior to proposing to create these CCRs, we would first thoroughly analyze and determine 

the impacts of the data, and that distinct CCRs for these new cost centers would be used 

in the calculation of the relative weights only if they were first finalized through 

rulemaking. 

 We believe that there is a sufficient amount of data in the FY 2011 cost reports 

from which to generate a meaningful analysis of using distinct CCRs for implantable 

devices, MRIs, CT scans, and cardiac catheterization. In addition, the corresponding 

charge data on hospital claims for implantable devices, MRIs, CT scans, and cardiac 
 109 

catheterization are available in the FY 2012 MedPAR file. Therefore, we are providing 

various data analyses below based on comparison of the FY 2014 relative weights 

computed using 15 CCRs, as we have done in the past, and the FY 2014 relative weights 

computed using 19 CCRs, with distinct CCRs for implantable devices, MRIs, CT scans, 

and cardiac catheterization. Specifically, rather than having a single CCR for “Supplies 

and Equipment” which includes low-cost supplies and high-cost implantable devices, a 

distinct CCR would be carved out of the “Supplies and Equipment” CCR, leaving one 

CCR for “Supplies” and one CCR for “Implantable Devices.” Regarding the Radiology 

CCR, which currently is comprised of general radiology ancillary services and MRIs and 

CT scans, the costs for MRIs and CT scans would be separated from general radiology, 

creating two distinct CCRs, one for MRIs and one for CT scans, respectively. Finally, by 

separating the costs of cardiac catheterization out of the CCR for general cardiology, a 

distinct CCR would be created for cardiac catheterization. Thus, by breaking out these 4 

additional CCRs, the number of CCRs used to calculate the relative weights would 

increase from 15 to 19. 

 For comparison purposes, the following table shows the final FY 2013 CCRs, the 

potential FY 2014 CCRs computed with the existing 15 cost centers, and the potential 

FY 2014 CCRs computed with 19 cost centers, with 4 new CCRs for implantable 

devices, MRIs, CT scans, and cardiac catheterization. 

Group 

Final 

FY 2013 

15 CCRs 

Potential 

FY 2014 

15 CCRs 

Potential 

FY 2014 

19 CCRs 

Routine days 0.514 0.502 0.502

Intensive days 0.442 0.423 0.423
 110 

Group 

Final 

FY 2013 

15 CCRs 

Potential 

FY 2014 

15 CCRs 

Potential 

FY 2014 

19 CCRs 

Drugs 0.199 0.193 0.193

Supplies & Equipment 0.335 0.327 0.293

Implantable Devices n/a n/a 0.361

Therapy Services 0.370 0.355 0.355

Laboratory 0.143 0.133 0.133

Operating Room 0.238 0.225 0.225

Cardiology 0.145 0.134 0.132

Cardiac Catheterization n/a n/a 0.135

Radiology 0.136 0.128 0.170

MRI n/a n/a 0.091

CT Scans n/a n/a 0.045

Emergency Room 0.226 0.207 0.207

Blood 0.389 0.371 0.371

Other Services 0.397 0.399 0.399

Labor & Delivery 0.450 0.445 0.445

Inhalation Therapy 0.189 0.187 0.187

Anesthesia 0.109 0.120 0.120

 In order to model the effects on the relative weights in medical MS-DRGs versus 

surgical MS-DRGs, we compared a set of relative weights calculated with 15 CCRs and 

19 CCRs. Overall, if 19 CCRs are used to calculate the relative weights for FY 2014, 

relative weights for medical MS-DRGs would be expected to decrease by approximately 

1.1 percent, and those for surgical MS-DRGs would be expected to increase by 

approximately 1.2 percent. In addition, as shown in the table below, at the MDC level, 

payments would increase by approximately 0.64 percent (0.39 + 0.25) within orthopedic 

and cardiac MDCs, with most of the reductions in payment resulting to the medical MSDRGs in the nervous system, digestive system, and respiratory system MDCs. 
 111 

MDC Description 

Estimated 

Percentage 

Change 

within MDC 

08 

Musculoskeletal System And Connective 

Tissue 0.39% 

05 Circulatory System 0.25% 

01 Nervous System -0.16% 

06 Digestive System -0.10% 

04 Respiratory System -0.08% 

 The largest estimated increase in MS-DRG relative weights would likely occur 

for MS-DRGs associated with cardiac catheterization and implantable cardiac devices. 

The largest estimated reductions in MS-DRG relative weights would likely occur for 

MS-DRGs associated with traumatic head injury and concussion, which are high users of 

CT scanning and MRI services. We are including in the table below the top 10 (nonlabor 

and delivery) MS-DRGs that we predict would experience the largest increases and 

decreases in relative weights if 19 CCRs would be used as compared to 15 CCRs. 

MS-DRGS THAT WOULD EXPERIENCE THE LARGEST DECREASE 

 IN RELATIVE WEIGHT 

MSDRG Type Title 

Potential 

Relative 

Weight 

with 15 

CCRs 

Potential 

Relative 

Weights 

with 19 

CCRs 

Percentage 

Change 

090 MED Concussion without CC/MCC 0.7614 0.7013 -7.9%

084 MED 

Traumatic Stupor & Coma, 

Coma >1 Hour without 

CC/MCC 0.9137 0.8516 -6.8%

087 MED 

Traumatic Stupor & Coma, 

Coma <1 Hour without 

CC/MCC 0.7899 0.7369 -6.7% 

965 MED 

Other Multiple Significant 

Trauma without CC/MCC 1.0450 0.980 -6.1% 
 112 

185 MED 

Major Chest Trauma without 

CC/MCC 0.7281 0.6845 -6.0% 

089 MED Concussion with CC 0.9959 0.9366 -6.0% 

123 MED Neurological Eye Disorder 0.7355 0.6920 -5.9% 

343 SURG 

Appendectomy without 

Complicated Principal 

Diagnosis without CC/MCC 0.9880 0.9517 -5.7% 

053 MED 

Spinal Disorders & Injuries 

without CC/MCC 0.9355 0.8825 -5.7% 

066 MED 

Intracranial Hemorrhage or 

Cerebral Infarction without 

CC/MCC 0.8034 0.7579 -5.7% 

MS-DRGS THAT WOULD EXPERIENCE THE LARGEST INCREASE 

IN RELATIVE WEIGHT

454 SURG 

Combined Anterior/Posterior 

Spinal Fusion with CC 7.6399 8.0563 5.5%

455 SURG 

Combined Anterior/Posterior 

Spinal Fusion Without 

CC/MCC 5.9862 6.3133 5.5% 

484 SURG 

Major Joint & Limb 

Reattachment Procedure of 

Upper Extremity without 

CC/MCC 2.1211 2.2380 5.5% 

225 SURG 

Cardiac Defibrillator Implant 

with Cardiac Catheterization 

without AMI/HF/Shock 

without MCC 5.6298 5.9530 5.7% 

223 SURG 

Cardiac Defibrillator Implant 

with Cardiac Catheterization 

with AMI/HF/Shock without 

MCC 6.0956 6.4482 5.8% 

458 SURG 

Spinal Fusion Except Cervical 

with Spinal 

Curve/Malignant/Infection 

OR 9+ Fusion without 

CC/MCC 4.8794 5.1630 5.8% 

245 SURG AICD Generator Procedures 4.4627 4.7320 6.0% 

849 MED Radiotherapy 1.3423 1.4258 6.2% 

946 MED 

Rehabilitation without 

CC/MCC 1.1295 1.2024 6.5% 

227 SURG 

Cardiac Defibrillator Implant 

without Cardiac 

Catheterization without MCC 5.2193 5.5714 6.7% 
 113 

 After computing the analyses described above by comparing both sets of 

MS-DRG relative weights computed with FY 2011 cost report data, we revisited RTI’s 

July 2008 final report. We note that the impacts on relative weight and at the MDC level 

are generally consistent with those estimated by RTI in its modeling. RTI found that 

disaggregating the CCRs for medical supplies and devices would have the most impact 

on reducing charge compression, and that the largest impact was for MS-DRG 227. 

Similarly, as shown in the chart above, we estimate that the potential relative weight for 

MS-DRG 227 would experience the largest increase, 6.7 percent. Cardiac implants and 

spinal fusion procedures accounted for most of the 10 MS-DRGs with the largest 

incremental increases. In addition, RTI’s July 2008 final report (pages 103 through 107) 

indicates that among the largest expected reductions are the MS-DRG relative weights for 

MS-DRGs associated with traumatic head injury and concussion, which are high users of 

CT scanning and MRI services. RTI’s analyses were highly predictive for many of the 

MS-DRGs most sensitive to the effects of charge compression. 

 As we have stated in prior rulemaking (77 FR 53281 through 53283), once we 

determined that cost report data were available for analysis, we would propose, if 

appropriate, to use the distinct CCRs described above in the calculation of the MS-DRG 

relative weights. We believe that the analytic findings described above using the 

FY 2011 cost report data and FY 2012 claims data support our original decision to break 

out and create new cost centers for implantable devices, MRIs, CT scans, and cardiac 

catheterization, and we see no reason to further delay proposing to implement the CCRs 

of each of these cost centers. Therefore, beginning in FY 2014, we are proposing to 
 114 

calculate the MS-DRG relative weights using 19 CCRs, creating distinct CCRs from cost 

report data for implantable devices, MRIs, CT scans, and cardiac catheterization. We 

welcome public comments on this proposal and the impacts that it may have. We refer 

readers to section VI.C. of Appendix A of this proposed rule for the overall IPPS 

operating impact of this proposal, which models payments to various hospital types using 

relative weights developed from 19 CCRs as compared to 15 CCRs. In addition, each 

year, as part of the IPPS proposed rule and final rule, we issue Table 5, which lists all of 

the MS-DRGs and their relative weights. As part of this FY 2014 IPPS/LTCH PPS 

proposed rule, in addition to providing Table 5, which lists the proposed MS-DRGs and 

their relative weights using 19 CCRs (available on the CMS Web site at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp; click on the link on the 

left side of the screen titled “FY 2014 IPPS Proposed Rule Home Page” or “Acute 

Inpatient—Files for Download”), we are providing a separate table that lists all 

MS-DRGs and their relative weights if computed using 15 CCRs (available at the same 

CMS Web site cited above). These two formats will allow readers to compare our 

proposal to calculate the MS-DRG relative weights using 19 CCRs with the relative 

weights of MS-DRGs if computed using 15 CCRs.
 115 

F. Adjustment to MS-DRGs for Preventable Hospital-Acquired Conditions (HACs), 

Including Infections

1. Background 

 Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions 

(HACs), including infections. This provision is part of an array of Medicare tools that we 

are using to promote increased quality and efficiency of care. 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-DRG 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 261 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence 
 116 

or absence of a CC or an MCC. The presence of a CC or an MCC generally results in a 

higher payment. 

 Section 1886(d)(4)(D) 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 evidence-based 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. 

 Effective for discharges occurring on or after October 1, 2008, pursuant to the 

authority of section 1886(d)(4)(D) of the Act, Medicare no longer assigns an inpatient 

hospital discharge to a higher paying MS-DRG if a selected condition is not present on 

admission (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. In addition, Medicare continues to assign a discharge to a higher paying 

MS-DRG if a selected condition is POA. When a HAC is not POA, payment can be 

affected in a manner shown in the diagram below. 
 117 

All Medicare Discharges

Discharges with HAC 

codes as secondary 

diagnoses

Discharges with no

HAC codes as 

secondary diagnoses

Discharges with HAC 

codes present on 

admission (POA)

Discharges with HAC 

codes not present on 

admission (POA)

Discharges where MSDRG is re-assignedDischarges where MSDRG does not change

MS-DRG splits into 2 severity 

levels and HAC does not affect 

severity

MS-DRG does not split by 

severity

CC Exclusion 

List

MS-DRG

logic 

Other CCs/MCCs 

prevent reassignment

2. HAC Selection 

 Beginning in FY 2007, we have set forth proposals, and solicited and responded 

to public comments, to implement section 1886(d)(4)(D) of the Act through the IPPS 

annual rulemaking process. For specific policies addressed in each rulemaking cycle, 

including a detailed discussion of the collaborative interdepartmental process and public 

input regarding selected and potential candidate HACs, we refer readers to the following 

rules: the FY 2007 IPPS proposed rule (71 FR 24100) and final rule (71 FR 48051 

through 48053); the FY 2008 IPPS proposed rule (72 FR 24716 through 24726) and final 

rule with comment period (72 FR 47200 through 47218); the FY 2009 IPPS proposed 

rule (73 FR 23547) and final rule (73 FR 48471); the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24106) and final rule (74 FR 43782); the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23880) and final rule (75 FR 50080); the FY 2012 IPPS/LTCH PPS 
 118 

proposed rule (76 FR 25810 through 25816) and final rule (76 FR 51504 through 51522); 

and the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898) and final 

rule (77 FR 53283 through 53303). A complete list of the 11 current categories of HACs 

is included on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html. 

3. Present on Admission (POA) Indicator Reporting 

Collection of POA indicator data is necessary to identify which conditions were 

acquired during hospitalization for the HAC payment provision as well as for broader 

public health uses of Medicare data. In previous rulemaking, we provided both CMS and 

CDC Web site resources that are available to hospitals for assistance in this reporting 

effort. For detailed information regarding these sites and materials, including the 

application and use of POA indicators, we refer the reader to the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51506 through 51507). 

 Currently, as we discussed in the prior rulemaking cited above, the POA indicator 

reporting requirement only applies to IPPS hospitals because they are subject to this HAC 

provision. Non-IPPS hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, 

children’s hospitals, hospitals in Maryland operating under waivers, RNHCIs, and the 

Department of Veterans Affairs/Department of Defense hospitals, are exempt from POA 

reporting. We note that hospitals in Maryland operating under their waiver are not paid 

under the IPPS but rather are paid under the provisions of section 1814(b)(3) of the Act. 

This waiver applies to the amount paid to providers of services, and does not extend to 

billing requirements and other reporting requirements. In fact, hospitals in Maryland are 
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required to submit Medicare claims for Medicare payment and also to submit the same 

information on their Medicare claims as hospitals in other parts of the country paid under 

the IPPS. Therefore, we believe it is inappropriate to continue to exempt hospitals in 

Maryland from the POA indicator reporting requirement. Under current policy, hospitals 

in Maryland will continue to be exempt from the application of this HAC provision so 

long as they are not paid under the IPPS. However, we believe it is appropriate to require 

them to use POA indicator reporting on their claims so that we can include their data and 

have as complete a dataset as possible when we analyze trends and make further payment 

policy determinations, such as those authorized under section 1886(p) of the Act. (We 

refer readers to section V.I. of the preamble to this proposed rule for a discussion of our 

proposals to implement section 1886(p) of the Act.) Therefore, we are proposing that 

hospitals in Maryland operating under their waiver under section 1814(b)(3) of the Act 

will no longer be exempted from the POA indicator reporting requirement beginning with 

claims submitted on or after October 1, 2013, including all claims for discharges on or 

after October 1, 2013. We are inviting public comment regarding this proposal. 

 As discussed in previous IPPS proposed and final rules, there are five POA 

indicator reporting options, as defined by the ICD-9-CM Official Guidelines for Coding 

and Reporting. Under the HAC policy, we treat HACs coded with “Y” and “W” 

indicators as POA and allow the condition on its own to cause an increased payment at 

the CC/MCC level. We treat HACs coded with “N” and “U” indicators as Not Present on 

Admission (NPOA) and do not allow the condition on its own to cause an increased 

payment at the CC/MCC level. We refer readers to the following rules for a detailed 
 120 

discussion: the FY 2009 IPPS proposed rule (73 FR 23559) and final rule (73 FR 48486 

through 48487); the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) 

and final rule (74 FR 43784 through 43785); the FY 2011 IPPS/LTCH PPS proposed rule 

(75 FR 23881 through 23882) and final rule (75 FR 50081 through 50082); the FY 2012 

IPPS/LTCH PPS proposed rule (76 FR 25812 through 25813) and final rule 

(76 FR 51506 through 51507); and the FY 2013 IPPS/LTCH PPS proposed rule 

(77 FR 27893 through 27894) and final rule (77 FR 53284 through 53285). 

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. 

 Beginning on or after January 1, 2011, hospitals were required to begin reporting 

POA indicators using the 5010 electronic transmittal standards format. The 5010 format 

removes the need to report a POA indicator of “1” for codes that are exempt from POA 

reporting. We have issued CMS instructions on this reporting change as a One-Time 

Notification, Pub. No. 100-20, Transmittal No. 756, Change Request 7024, effective on 

August 13, 2010, which can be located at the following link on the CMS Web site: 

http://www.cms.gov/manuals/downloads/Pub100_20.pdf. 
 121 

 In addition, as discussed elsewhere in section III.G.10. of the preamble of this 

proposed rule, the 5010 format allows the reporting and effective January 1, 2011, the 

processing of up to 25 diagnoses and 25 procedure codes. As such, it is necessary to 

report a valid POA indicator for each diagnosis code, including the principal and all 

secondary diagnoses up to 25. 

4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS 

 As we stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 and 

51507), in preparation for the transition to the ICD-10-CM and ICD-10-PCS code sets, 

further information regarding the use of the POA indicator with the 

ICD-10-CM/ICD-10-PCS classifications as they pertain to the HAC policy will be 

discussed in future rulemaking. 

 At the March 5, 2012 and the September 19, 2012 meetings of the ICD-9-CM 

Coordination and Maintenance Committee, an announcement was made with regard to 

the availability of the ICD-9-CM HAC list translation to ICD-10-CM and ICD-10-PCS 

code sets. Participants were informed that the list of the current ICD-9-CM selected 

HACs has been translated into codes using the ICD-10-CM and ICD-10-PCS 

classification system. It was recommended that the public review this list of 

ICD-10-CM/ICD-10-PCS code translations of the current selected HACs available on the 

CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. The translations can be found under the link titled “ICD-10-

CM/PCS MS-DRG v30 Definitions Manual Table of Contents - Full Titles - HTML 

Version in Appendix I - Hospital Acquired Conditions (HACs).” The above CMS Web 
 122 

site regarding the ICD-10-MS-DRG Conversion Project is also available on the CMS 

Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/icd10_hacs.html. We encourage the public to submit 

comments on these translations through the HACs Web page using the CMS 

ICD-10-CM/PCS HAC Translation Feedback Mailbox that has been set up for this 

purpose under the Related Links section titled “CMS HAC Feedback.” The final HAC 

list translation from ICD-9-CM to ICD-10-CM/ICD-10-PCS will be subject to formal 

rulemaking. 

 In the meantime, we continue to encourage readers to review the educational 

materials and draft code sets currently available for ICD-10-CM/ICD-10-PCS on the 

CMS Web site at: http://www.cms.gov/ICD10/. In addition, the draft 

ICD-10-CM/ICD-10-PCS coding guidelines can be viewed on the CDC Web site at: 

http://www.cdc.gov/nchs/icd/icd10cm.htm. 

5. Proposals Regarding Current HACs and Previously Considered Candidate HACs 

 We are not proposing to add or remove categories of HACs at this time. 

However, we continue to encourage public dialogue about refinements to the HAC list by 

written stakeholder comments about both previously selected and potential candidate 

HACs. 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 48774 through 48491) for detailed discussion supporting our determination 

regarding each of these conditions. We also refer readers to section III.F.5. of the 

FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27892 through 27898) and the FY 2013 
 123 

IPPS/LTCH PPS final rule (77 FR 53285 through 53292) for the HAC policy for 

FY 2013. In addition, readers may find updated information on evidence-based 

guidelines on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html. 

6. RTI Program Evaluation 

 On September 30, 2009, a contract was awarded to 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 was an 

intra-agency project with funding and technical support from CMS, OPHS, AHRQ, and 

CDC. The evaluation also examined the implementation of the program and evaluated 

additional conditions for future selection. The contract with RTI ended on November 30, 

2012. Summary reports of RTI’s analysis of the FYs 2009, 2010, and 2011 MedPAR 

data files for the HAC-POA program evaluation were included in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50085 through 50101), the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51512 through 51522), and the FY 2013 IPPS/LTCH PPS final rule (77 

FR 53292 through 53302). Summary and detailed data also were made publicly available 

on the CMS Web site at: http://www.cms.gov/HospitalAcqCond/01_Overview .asp and 

the RTI Web site at: http://www.rti.org/reports/cms/. 

 In addition to the evaluation of HAC and POA MedPAR claims data, RTI also 

conducted analyses on readmissions due to HACs, the incremental costs of HACs to the 

healthcare system, a study of spillover effects and unintended consequences, as well as an 
 124 

updated analysis of the evidence-based guidelines for selected and previously considered 

HACs. Reports on these analyses have been made publicly available on the CMS Web 

site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/index.html. 

7. 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 selected conditions. In 

addition, evidence-based guidelines also were found for the previously considered 

candidate conditions. RTI prepared a final report to summarize its findings regarding 

evidence-based guidelines. This report can be found on the CMS Web site at: 

http:www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/Hospital-Acquired_Conditions.html. Subsequent to this final 

report, RTI has been awarded an FY 2014 Evidence-Based Guidelines Monitoring 

contract. Under the contract, RTI will provide a summary report of all evidence-based 
 125 

guidelines available for each of the selected and previously considered candidate HACs 

that provide recommendations for the prevention of the corresponding conditions. 

Updates to the guidelines will be made available to the public.
 126 

G. Proposed Changes to Specific MS-DRG Classifications

 In this FY 2014 IPPS/LTCH PPS proposed rule, 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 also are 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. 

 CMS encourages input from our stakeholders concerning the annual IPPS updates 

when that input is made available to us by early December of the year prior to the next 

annual proposed rule update. For example, to be considered for any updates or changes 

in FY 2014, comments and suggestions should have been submitted by early 

December 2012. The comments that were submitted in a timely manner are discussed 

below in this section. 

1. Pre-Major Diagnostic Categories (Pre-MDCs): Heart Transplants and Liver 

Transplants 

 We received a request from an organization that represents transplant surgeons to 

eliminate the severity levels for the heart and liver transplants MS-DRGs. The 

MS-DRGs for heart transplants are: MS-DRG 001 (Heart Transplant or Implant of Heart 

Assist System with MCC) and MS-DRG 002 (Heart Transplant or Implant of Heart 

Assist System without MCC). The MS-DRGs for liver transplants are: MS-DRG 005 

(Liver Transplant with MCC or Intestinal Transplant) and MS-DRG 006 (Liver 

Transplant without MCC). We received this comment during the comment period for the 
 127 

FY 2013 IPPS/LTCH PPS proposed rule. We referred to this comment briefly in the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53325), but we did not address the issue 

because we considered this comment outside of the scope of the proposed rule. However, 

we are addressing this issue in this FY 2014 proposed rule. 

 The commenter stated that there are no “uncomplicated” heart transplants or liver 

transplants, and indicated that all of these transplant procedures are highly complex, 

involving numerous complicating conditions, only some of which may be recognized by 

the MS-DRGs. The commenter expressed concern that the continued bifurcation of the 

MS-DRGs for heart and liver transplants will result in unsustainable payment for these 

cases that are assigned to the “without MCC” MS-DRGs 002 and 006. According to the 

commenter, in light of the relatively small number of Medicare patients involved and the 

significant cost variation involved, it would be preferable to eliminate the bifurcation of 

these procedures, thereby increasing the stability of the DRG weights for these 

procedures. 

 We examined claims data from the FY 2012 MedPAR file for heart and liver 

transplant cases assigned to MS-DRGs 001, 002, 005, and 006. The following table 

illustrates our findings: 

MS-DRGs Number of 

Cases 

Average 

Length of 

Stay 

Average Costs 

MS-DRG 001 1,247 33.27 $158,556

MS-DRG 002 284 18 $97,932

MS-DRGs 001 and 002 - All cases 1,531 30.4 $147,310

MS-DRG 005 828 19 $66,746

MS-DRG 006 282 8.75 $30,873
 128 

MS-DRGs Number of 

Cases 

Average 

Length of 

Stay 

Average Costs 

MS-DRGs 005 and 006 - All cases 1,110 16.3 $57,632

 The data showed that the majority of the heart transplant cases, a total of 1,247, 

are assigned to MS-DRG 001, with average costs of approximately $158,556 and an 

average length of stay of approximately 33.27 days. There were 284 cases assigned to 

MS-DRG 002, with average costs of approximately $97,932 and an average length of 

stay of approximately 18 days. 

 This table shows that there are significant differences in average lengths of stay 

and average costs for the severity level for the heart transplant MS-DRGs that justify the 

existing split in MS-DRGs 001 and 002. If we were to combine the heart transplant cases 

in MS-DRGs 001 and 002 as suggested by the commenter, the payment for the majority 

of cases with an MCC would be lower. 

 The majority of the liver transplant cases, 828 cases, were assigned to MS-DRG 

005, with average costs of approximately $66,746 and an average length of stay of 

approximately 19 days. There were 282 cases assigned to MS-DRG 006, with average 

costs of approximately $30,873 and an average length of stay of approximately 8.75 days. 

The data showed that there are significant differences in average costs and average 

lengths of stay in the severity levels for the liver transplant MS-DRGs. Again, if we were 

to combine all the liver transplant cases into one MS-DRG as requested by the 

commenter, the majority of the cases would receive lower payment. 
 129 

 Based on these findings, we believe that it would not be prudent to eliminate the 

severity levels for the heart and liver transplant MS-DRGs. Our clinical advisors concur 

with this analysis that two severity levels are justified for the heart and liver transplant 

MS-DRGs. Therefore, for FY 2014, we are not proposing to make any changes to the 

severity levels for heart and liver transplant MS-DRGs 001, 002, 005, and 006. 

 We are inviting public comments on this issue. 

2. MDC 1 (Diseases and Disorders of the Nervous System): Tissue Plasminogen 

Activator (tPA) (rtPA) Administration Within 24 Hours Prior to Admission 

 During the comment period for the FY 2013 IPPS/ LTCH PPS proposed rule, we 

received a public comment that we considered to be outside the scope of that proposed 

rule. We stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53325) that we would 

consider this issue in future rulemaking as part of our annual review process. The 

commenter 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). 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 has been referred to as the “drip-and-ship” issue and was 

discussed at length in the FY 2009 IPPS proposed rule (73 FR 23563 through 23564) and 

final rule (73 FR 48493 through 48495), as well as the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23899 through 23900) and final rule (75 FR 50102 through 50106). 
 130 

We refer readers to these previous discussions for detailed background information 

regarding this topic. 

 Similar to previous requests, 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 able to assign the case 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 the diagnosis code for the use 

of tPA are: MS-DRG 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with 

MCC); MS-DRG 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with CC); 

and MS-DRG 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent without 

CC/MCC). These MS-DRGs have higher relative weights than the other MS-DRGs 

relating to stroke or cerebral infarction. The commenter requested an analysis of 

diagnosis code V45.88 to determine whether new claims data warrant any change in the 

MS-DRG structure. 

 For this proposed rule, we analyzed MedPAR claims data from FY 2012. We 

included claims for patient cases assigned to the following MS-DRGs: 

● 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC) 

● 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with CC) 
 131 

● 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent without 

CC/MCC) 

● 064 (Intracranial Hemorrhage or Cerebral Infarction with MCC) 

● 065 (Intracranial Hemorrhage or Cerebral Infarction with CC) 

● 066 (Intracranial Hemorrhage or Cerebral Infarction without CC/ MCC). 

 Our data analysis included MS-DRGs 064, 065, and 066 because claims involving 

diagnosis code V45.88 also would be properly reported in the data for these MS-DRGs. 

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 2012. 

MS-DRG Number of 

Cases

Average 

Length of 

Stay

Average

Costs

MS-DRG 061 - All cases 3,369 7.48 $18,556

MS-DRG 061 - Cases with secondary diagnosis 

code V45.88 140 7.51 $19,008

MS-DRG 062 - All cases 5,277 4.92 $12,935

MS-DRG 062 - Cases with secondary diagnosis 

code V45.88 179 5.03 $13,317

MS-DRG 063 - All cases 1,709 3.45 $10,363

MS-DRG 063 - Cases with secondary diagnosis 

code V45.88 48 3.15 $9,372

MS-DRG 064 - All cases 64,095 6.30 $11,654

MS-DRG 064 - Cases with secondary diagnosis 

code V45.88 955 7.06 $14,432

MS-DRG 065 – All cases 101,011 4.29 $7,414

MS-DRG 065 - Cases with secondary diagnosis 

code V45.88 1,259 4.91 $9,471

MS-DRG 066 – All cases 56,620 2.92 $5,414

MS-DRG 066 - Cases with secondary diagnosis 

code V45.88 493 3.28 $6,682

 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 diagnosis code V45.88 as the secondary 
 132 

diagnosis, we again concluded that the movement of cases with diagnosis code V45.88 as 

a secondary diagnosis from MS-DRGs 064, 065, and 066 to 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. 

 However, the data does reflect that the average costs for cases reporting diagnosis 

code V45.88 as a secondary diagnosis in MS-DRG 066 are more similar to the average 

costs of higher severity level cases in MS-DRG 065. Therefore, for FY 2014, we are 

proposing to move cases with diagnosis code V45.88 from MS-DRG 066 to MS-DRG 

065, and to revise the title of MS-DRG 065 to reflect the patients status post tPA 

administration within 24 hours. The proposed revised MS-DRG title would be: MSDRG 065 (Intracranial Hemorrhage or Cerebral Infarction with CC or tPA in 24 Hours). 

 We are inviting public comments on our proposal. 

3. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat) 

a. Endoscopic Placement of a Bronchial Value 

 In response to the FY 2013 IPPS/LTCH PPS proposed rule, we received a request 

to modify the MS-DRG assignment for bronchial valve(s) insertion, which we considered 

to be outside of the scope of that proposed rule (77 FR 53325 through 53326). The 

requestor asked that cases in MS-DRGs 190, 191, and 192 (Chronic Obstructive 

Pulmonary Disease with MCC, with CC, and without MCC/CC, respectively) that 

involve insertion of a bronchial valve be assigned instead to MS-DRGs 163, 164, and 165 

(Major Chest Procedures with MCC, with CC, and without MCC/CC, respectively). The 
 133 

procedures are captured by procedure codes 33.71 (Endoscopic insertion or replacement 

of bronchial valve(s), single lobe) and 33.73 (Endoscopic insertion or replacement of 

bronchial valve(s), multiple lobes), which are considered nonoperating procedures and do 

not affect the MS-DRG assignment. When reported without any other operating room 

(OR) procedure code, the admission would be assigned to a medical MS-DRG. 

 The Spiration® IBV Valve System device, a bronchial valve, was approved for 

new technology add-on payments in the FY 2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43819 through 43823) with a maximum payment rate of $3,437.50. In the 

FY 2012 IPPS/LTCH PPS final rule, the new technology add-on payments were 

discontinued for FY 2012 (76 FR 51575 through 51576). The bronchial valve device is 

used to place, via bronchoscopy, small, one-way 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, and 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 Spiration®, 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. 

 New technology add-on payments were limited to cases involving prolonged air 

leaks following lobectomy, segmentectomy, and LVRS in MS-DRGs 163, 164, and 165 
 134 

in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43823). This limitation was 

based on the indications for use approved by the FDA in the FDA Humanitarian Device 

Exemption (HDE) approval process set forth in section 520(m) of the Federal Food, Drug 

& Cosmetic Act. A humanitarian use device (HUD) is a device that is intended to benefit 

patients by treating or diagnosing a disease or condition that affects or is manifested in 

fewer than 4,000 individuals in the United States per year. Devices that receive HUD 

designation may be eligible for marketing approval, subject to certain restrictions, under 

an HDE application. To obtain marketing approval for an HUD, an HDE application 

must be submitted to the FDA. An HDE application is a premarket approval (PMA) 

application submitted to the FDA under 21 CFR 814.104 that seeks exemption from the 

PMA requirement under 21 CFR 814.20 demonstrating a reasonable assurance of 

effectiveness. A device that has received HUD designation may receive HDE approval 

if, among other things, the FDA determines that the device will not expose patients to an 

unreasonable or significant risk of illness or injury and the probable benefit to health 

from use of the device outweighs the risk of injury or illness from its use, taking into 

account the probable risks and benefits of currently available devices or alternative forms 

of treatment. In addition, the applicant must demonstrate that no comparable devices are 

available to treat or diagnose the disease or condition (other than another device approved 

under an HDE application or a device under an approved Investigational Device 

Exemption), and that the device would not otherwise be available unless an HDE is 

granted. An approved HDE authorizes marketing of the HUD. However, an HUD 
 135 

generally may be used in facilities only after prior approval by an Institutional Review 

Board (IRB). 

 FDA’s approval of the HDE application limited the use of the Spiration® IBV 

Valve System device to cases involving prolonged air leaks following lobectomy, 

segmentectomy, or LVRS. 

 The requested MS-DRG change would initiate the same payment for chronic 

obstructive pulmonary disease (COPD) cases with a bronchial valve inserted without a 

major chest procedure as for cases where both a major chest procedure and a bronchial 

valve insertion were performed. The following table shows the COPD cases that 

involved the insertion of a bronchial valve as well as data on cases assigned to MS-DRGs 

163, 164, and 165. 

MS-DRGs Number of 

Cases 

Average 

Length of 

Stay 

Average 

Costs 

COPD Cases 

MS-DRG 190 – All cases 133,566 5.07 $7,815

MS-DRG 190 – Cases with procedure 

code 33.71 0 0 0

MS-DRG 190 – Cases with procedure 

code 33.73 2 14.0 $47,034

MS-DRG 191 – All cases 129,231 4.18 $6,245

MS-DRG 191 – Cases with procedure 

code 33.71 0 0 0

MS-DRG 191 – Cases with procedure 

code 33.73 0 0 0

MS-DRG 192 – All cases 93,507 3.32 $4,776

MS-DRG 192 – Cases with procedure 

code 33.71 0 0 0

MS-DRG 192 – Cases with procedure 

code 33.73 0 0 0

Major Chest Procedures 
 136 

MS-DRGs Number of 

Cases 

Average 

Length of 

Stay 

Average 

Costs 

MS-DRG 163 – All cases 11,287 13.33 $32,728

MS-DRG 164 – All cases 16,113 6.69 $17,494

MS-DRG 165 – All cases 9,280 3.94 $12,209

 There were only two COPD cases that had bronchial valves inserted in MS-DRGs 

190, 191, and 192. While the charges were high, these cases were assigned to the highest 

severity level MS-DRG (MS-DRG 190 with MCC). Given the small number of cases, it 

is not possible to determine if the high average costs were due to the bronchial valve 

insertion or to other factors such as other secondary diagnoses. The average length of 

stay for these two cases was approximately 14 days compared to approximately 5.07 days 

for all other cases within MS-DRG 190. Because the additional 10 days cannot be 

clinically attributed to the bronchial valve insertion, our clinical advisors have determined 

that other factors must have impacted these two cases. 

 Cases in MS-DRGs 163, 164, and 165 include those cases with a major chest 

procedure and those cases with both a major chest procedure as well as a bronchial valve 

insertion as discussed above. Our clinical advisors do not support moving COPD cases 

that have only a bronchial valve insertion and no other major chest procedure from 

MS-DRGs 190, 191, and 192 to MS-DRGs 163, 164, and 165. They do not believe the 

bronchial valve procedures are clinically similar to other major chest procedures that 

require significantly more resources to perform. Our clinical advisors point out that the 

limited circumstances where this procedure would be used led the sponsor to seek HDE 

approval from the FDA rather than a standard PMA. The indications for use approved by 
 137 

the FDA are still limited to post-surgery. Our clinical advisors recommended that we not 

modify the MS-DRG logic so that COPD cases with bronchial valve insertions would be 

assigned to MS-DRGs 163, 164, and 165. 

 Given the limited number of cases for this procedure and the advice from our 

clinical advisors, we are not proposing any MS-DRG changes for bronchial valve(s) 

insertion for FY 2014. We also are not proposing to change the MS-DRG assignment for 

procedures involving bronchial valve(s) insertion (procedure codes 33.71 and 33.73) 

within MS-DRGs 190, 191, and 192. 

 We are inviting public comment on this issue. 

b. Pulmonary Thromboendarterectomy (PTE) with Full Circulatory Arrest 

 We received a request from a university medical center to create a new MS-DRG 

or to reassign cases reporting a unique approach to pulmonary thromboendarterectomy 

(PTE) surgery performed with full cardiac arrest and hypothermia. The requestor asked 

that we move cases from MS-DRGs 163, 164, and 165 (Major Chest Procedures with 

MCC, with CC, and without CC/MCC, respectively) to MS-DRGs 228, 229, and 230 

(Other Cardiothoracic Procedures with MCC, with CC, and without CC/MCC, 

respectively). Currently, MS-DRGs 163, 164, and 165 are grouped within MDC 4 

(Diseases and Disorders of the Respiratory System) while MS-DRGs 228, 229, and 230 

are grouped within MDC 5 (Diseases and Disorders of the Circulatory System). 

 The requestor identified two conditions for which a pulmonary endarterectomy 

procedure is typically performed. These conditions are identified by ICD-9-CM 

diagnosis codes 415.19 (Other pulmonary embolism and infarction) and 416.2 (Chronic 
 138 

pulmonary embolism). However, the requestor noted that diagnosis code 415.19 is 

usually associated with traditional PTE for acute pulmonary embolism while diagnosis 

code 416.2 is associated with the medical center’s unique approach to PTE performed 

with full cardiac arrest and hypothermia. 

 Currently, there is not a specific ICD-9-CM procedure code to accurately describe 

PTE surgery performed with full cardiac arrest and hypothermia. Rather, a subset of 

existing ICD-9-CM procedure codes may be used to identify the various components 

involved in this unique approach to PTE surgery; for example, ICD-9-CM procedure 

codes 38.15 (Endarterectomy, other thoracic vessels); 39.61 (Extracorporeal circulation 

auxiliary to open heart surgery); 39.62 (Hypothermia (systemic) incidental to open heart 

surgery); and 39.63 (Cardioplegia). However, it is not clear if the requestor reports any 

of these codes or a combination of these codes to identify its unique approach to the 

procedure. 

 According to the requestor, its approach to PTE surgery is significantly different 

from traditional pulmonary endarterectomy procedures in terms of complexity, resource 

use, and the population for which the procedure is performed. The requestor noted that 

the surgery is “conducted under profound hypothermia and circulatory arrest which 

involves placing the patient on cardiopulmonary bypass and cooling the body to 20 

degrees centigrade or lower.” In addition, the requestor explained that “during this 

period of cooling and cardiac arrest, the heart is arrested and all of the patient’s blood is 

removed from the body.” Following this, circulation is stopped completely allowing for 

“optimal and extensive dissection of the pulmonary arteries and identification of an 
 139 

endarterectomy plane which can be delicately incised into the deepest pulmonary 

vasculature.” The requestor further noted that “due to the complexity of the surgical 

technique, a very high degree of skill is required and the procedure is currently only 

performed by a handful of surgeons world-wide.” Lastly, the requestor stated the average 

operating time for a traditional PTE is approximately 3 to 4 hours compared to the 

university medical center’s approach to PTE, which averages approximately 10 to 12 

hours. 

 We analyzed claims data from the FY 2012 MedPAR file for cases reporting a 

principal diagnosis code of 415.19 or a principal diagnosis code of 416.2 along with 

procedure codes 38.15, 39.61, 39.62, and 39.63. As displayed in the table below, there 

were a total of 11,287 cases in MS-DRG 163 with an average length of stay of 

approximately 13.33 days and average costs of approximately $32,728. Using the 

combination of diagnosis and procedure codes as described above, the total number of 

cases found in MS-DRG 163 was 12, with average costs ranging from approximately 

$46, 959 to $53,048 and an average length of stay ranging from approximately 13.50 

days to 16.20 days. We acknowledge that the average length of stay and average costs 

for these cases are somewhat higher in comparison to the average lengths of stay and 

average costs of all the other cases in MS-DRG 163. However, the volume of cases was 

very low. The data reflect similar results for MS-DRG 164. Only 4 cases were identified 

in the analysis, with average costs ranging from approximately $21,669 to $37,447 and 

average lengths of stay ranging from approximately 7 days to 10 days. 
 140 

 In total, there were only 16 cases reflected in the data using the combination of 

diagnosis codes and proxy procedure codes. We believe there may be other factors 

contributing to the increased lengths of stay and costs. (We note that, there were no cases 

found for a principal diagnosis code of 415.19 with procedure code 38.15 only. There 

also were no cases found in MS-DRG 165 using the combination of diagnosis and 

procedure codes.) 

MS-DRG Number of 

Cases 

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 163 - All cases 11,287 13.33 $32,728

MS-DRG 163 - Cases with principal diagnosis code 

415.19 with procedure code 38.15 and 39.61 or 39.62 

or 39.63 4 13.50 $46,959

MS-DRG 163 – Cases with principal diagnosis code 

416.2 with procedure code 38.15 only 3 14.33 $53,048

MS-DRG 163 – Cases with principal diagnosis code 

416.2 with procedure code 38.15 and 39.61 or 39.62 

or 39.63 5 16.20 $50,393

MS-DRG 164 – All cases 16,113 6.69 $17,494

MS-DRG 164 - Cases with principal diagnosis code 

415.19 with procedure code 38.15 with 39.61 or 39.62 

or 39.63 2 10.00 $37,447

MS-DRG 164 - Cases with principal diagnosis code 

416.2 with procedure code 38.15 only 0 0 0

MS-DRG 164 - Cases with principal diagnosis code 

416.2 with procedure code 38.15 and 39.61 or 39.62 

or 39.63 2 7.00 $21,669

 As stated in previous rulemaking discussion, the MS-DRG classification system 

on which the IPPS is based comprises a system of averages. As such, it is understood 

that, in any particular MS-DRG, it is not unusual for a small number of cases to 

demonstrate higher than average costs, nor is it unusual for a small number of cases to 
 141 

demonstrate lower than average costs. Upon review of the MedPAR data, our clinical 

advisors agree that the current MS-DRG assignment for this unique procedure is 

appropriate. 

 We also analyzed claims data from the FY 2012 MedPAR file for MS-DRGs 228, 

229, and 230 as illustrated below. 

MS-DRG 

Number of 

Cases 

Average 

Length of 

Stay 

Average 

Costs 

MS-DRG 228 - Other cardiothoracic procedures 

with MCC 1,643 13.26 $46,758

MS-DRG 229 - Other cardiothoracic procedures 

with CC 1,841 7.77 $30,432

MS-DRG 230 - Other cardiothoracic procedures 

without CC/MCC 506 5.08 $25,068

 ICD-9-CM procedure code 38.15 is designated as an operating room (OR) 

procedure code and currently groups to MS-DRGs 163, 164, and 165 in MDC 4 when 

either diagnosis code 415.19 or 416.2 are reported as the principal diagnosis. As 

diagnosis codes can only be assigned to one MDC within the GROUPER logic, it is not 

possible for a patient to have diagnosis code 415.19 or diagnosis code 416.2 reported 

along with procedure code 38.15 and grouped to MDC 5, which is where MS-DRGs 228, 

229, and 230 are assigned. 

 Therefore, another aspect of this MS-DRG request involved the evaluation of 

moving ICD-9-CM diagnosis code 416.2 from MDC 4 to MDC 5. Our clinical advisors 

do not support moving diagnosis code 416.2 from MDC 4 to MDC 5 in order to 

accommodate this rare procedure performed by only a small number of physicians 
 142 

worldwide. They pointed out that a basic change such as moving diagnosis code 416.2 

from MDC 4 to MDC 5 would impact a large number of patients who do not undergo this 

procedure. It also would disrupt trend data from over 30 years of DRG and MS-DRG 

reporting. Given the very small number of potential cases, and the advice of our clinical 

advisors, we do not believe a MS-DRG modification is warranted at this time. 

 Therefore, we are not proposing to create a new MS-DRG or to reassign cases 

reporting this university medical center’s approach to pulmonary 

thromboendarterectomy. We are inviting public comments on this issue. 

4. MDC 5 (Diseases and Disorders of the Circulatory System) 

a. Discharge/Transfer to Designated Disaster Alternative Care Site 

 We are proposing to add new patient discharge status code 69 

(Discharged/transferred to a designated disaster alternative care site) to the MS-DRG 

GROUPER logic for MS-DRGs 280 (Acute Myocardial Infarction Discharged Alive with 

MCC), 281 (Acute Myocardial Infarction Discharged Alive with CC), and 282 (Acute 

Myocardial Infarction Discharged Alive without CC/MCC) to identify patients who are 

discharged or transferred to an alternative site that will provide basic patient care during a 

disaster response. As discussed in section II.G.7. of the preamble of this proposed rule, 

this new discharge status code is also being added to the Medicare Code Editor (MCE) 

software. We are inviting public comments on this proposal. 

b. Discharges/Transfers With a Planned Acute Care Hospital Inpatient Readmission 

 We also are proposing to add 15 new discharge status codes to the MS-DRG 

GROUPER logic for MS-DRGs 280, 281, and 282 that will identify patients who are 

discharged with a planned acute care hospital inpatient readmission. As discussed in 
 143 

section II.G.7. of the preamble of this proposed rule, these new discharge status codes are 

being proposed for addition to the MCE as well. 

 Shown in the table below are the current discharge status codes that are assigned 

to the GROUPER logic for MS-DRGs 280, 281, and 282, along with the proposed new 

discharge status codes and their titles. 

Current 

Code 

New 

Code 

Title 

01 81 Discharged to home or self care with a planned acute care hospital 

inpatient readmission 

02 82 Discharged/transferred to a short term general hospital for inpatient care 

with a planned acute care hospital inpatient readmission 

03 83 Discharged/transferred to a skilled nursing facility (SNF) with Medicare 

certification with a planned acute care hospital inpatient readmission 

04 84 Discharged/transferred to a facility that provides custodial or supportive 

care with a planned acute care hospital inpatient readmission 

05 85 Discharged/transferred to a designated cancer center or children’s hospital 

with a planned acute care hospital inpatient readmission 

06 86 Discharged/transferred to home under care of organized home health 

service organization with a planned acute care hospital inpatient 

readmission 

21 87 Discharged/transferred to court/law enforcement with a planned acute care 

hospital inpatient readmission 

43 88 Discharged/transferred to a federal health care facility with a planned acute 

care hospital inpatient readmission 

61 89 Discharged/transferred to a hospital-based Medicare approved swing bed 

with a planned acute care hospital inpatient readmission 

62 90 Discharged/transferred to an inpatient rehabilitation facility (IRF) 

including rehabilitation distinct part units of a hospital with a planned 
 144 

Current 

Code 

New 

Code 

Title 

acute care hospital inpatient readmission 

63 91 Discharged/transferred to a Medicare certified long term care hospital 

(LTCH) with a planned acute care hospital inpatient readmission 

64 92 Discharged/transferred to a nursing facility certified under Medicaid but 

not certified under Medicare with a planned acute care hospital inpatient 

readmission 

65 93 Discharged/transferred to a psychiatric distinct part unit of a hospital with 

a planned acute care hospital inpatient readmission 

66 94 Discharged/transferred to a critical access hospital (CAH) with a planned 

acute care hospital inpatient readmission 

70 95 Discharged/transferred to another type of health care institution not defined 

elsewhere in this code list with a planned acute care hospital inpatient 

readmission 

We are inviting public comments on our proposal to add the above listed new discharge 

status codes to the GROUPER logic for MS-DRGs 280, 281, and 282. 

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective 

Tissue) 

a. Reverse Shoulder Procedures 

 We received a request to change the MS-DRG assignment for reverse shoulder 

replacement procedures which is captured with procedure code 81.88 (Reverse total 

shoulder replacement). The requestor did not suggest a specific new MS-DRG 

assignment, but requested that reverse shoulder replacement procedures be reassigned 

from MS-DRGs 483 and 484 (Major Joint/Limb Reattachment Procedure of, Upper 
 145 

Extremities with CC/MCC and without CC/MCC, respectively) or that we create a new 

MS-DRG for reverse shoulder replacement procedures. 

 Biomechanically, the reverse shoulder devices move the center of rotation of the 

arm laterally and change the direction of the pull of the deltoid muscle, allowing the 

deltoid muscle to elevate the arm without functioning rotator cuff tendons. The requestor 

stated that the use of traditional total shoulder devices in patients with a nonfunctioning 

rotator cuff frequently leads to long-term complications and unsatisfactory functional 

results. Patients with damaged rotator cuffs or rotator cuff syndrome have poor outcomes 

with traditional shoulder replacement devices. The reverse shoulder replacement 

procedure was created to address the clinical needs for patients who would have poor 

outcomes with a traditional shoulder replacement. The requestor stated that reverse 

shoulder replacement devices were designed to provide a superior functionality and 

outcomes for patients with damaged rotator cuffs. 

 The requestor stated that the reverse shoulder replacement procedure is 

technically more complex and requires a higher level of expertise than traditional 

shoulder procedures and involves several issues that make the surgery more complex. 

Patients who have had prior rotator cuff surgery have anchors and scar tissue that must be 

surgically addressed. Often, there also are severe deformities that must be addressed in 

order to establish stability. 

 The requestor acknowledged that the reverse shoulder replacement procedure is 

an upper extremity procedure like other procedures assigned to MS-DRGs 483 and 484. 

These MS-DRGs include the longstanding total shoulder replacement procedures as well 
 146 

as partial shoulder replacements. While the procedure is similar to other procedures in 

MS-DRGs 483 and 484, the requestor stated there are significant differences between the 

technical complexity and indications for usage from the other procedures. The requestor 

stated there are significant differences in resource usage and clinical coherence between 

longstanding approaches to shoulder replacement and other procedures assigned to 

MS-DRGs 483 and 484 and the reverse shoulder replacement procedure. The requestor 

stated not only was the resource consumption significantly higher, the individual supply 

costs for reserve shoulder replacement procedures were higher than the costs of other 

procedures assigned to MS-DRGs 483 and 484. 

 MS-DRGs 483 and 484 contain the following procedures: 

● 81.73 (Total wrist replacement) 

● 81.80 (Other total shoulder replacement) 

● 81.81 (Partial shoulder replacement) 

● 81.84 (Total elbow replacement) 

● 81.88 (Reverse total shoulder replacement) 

● 84.23 (Forearm, wrist, or hand reattachment) 

● 84.24 (Upper arm reattachment). 

 As can be seen from this list, MS-DRGs 483 and 484 contain total and partial 

shoulder replacements, as well as replacement and attachment procedures on the wrist 

and upper arm. Both the newer shoulder replacement techniques as well as the 

longstanding shoulder replacement techniques are included in these MS-DRGs. 
 147 

MS-DRG 

Number of 

Cases 

Average 

Length 

of Stay 

Average 

Costs 

MS-DRG 483 – All cases 13,113 3.33 $17,039

MS-DRG 483 – Cases with procedure code 

81.88 5,690 3.30 $19,023

MS-DRG 484 – All cases 21,073 2.01 $14,448

MS-DRG 484 – Cases with procedure code 

81.88 7,505 2.08 $16,890

 As the above table illustrates, the average costs for reverse total shoulder 

replacement are approximately $2,000 higher than the average costs for all other 

procedures within MS-DRGs 483 and 484 and have similar average lengths of stays. 

While the average costs were higher, each MS-DRG has some cases that are higher and 

some cases that are lower than the average costs for the entire MS-DRG. We believe the 

average costs for the reverse shoulder replacement procedures are not inappropriately 

high compared to other procedures grouped within MS-DRGs 483 and 484. Therefore, 

the claims data do not support reassigning these cases or creating a new MS-DRG. 

 Our clinical advisors reviewed this issue and determined that the cases are 

appropriately assigned to MS-DRGs 483 and 484. As stated earlier, MS-DRGs 483 and 

484 contain other types of shoulder replacements. Our clinical advisors believe it is 

appropriate to have all total shoulder replacement procedures within the same set of 

MS-DRGs. They do not believe it is appropriate to reassign those that use a different 

technique to accomplish the same goal, a total shoulder replacement. Therefore, our 

clinical advisors determined that this is an appropriate assignment for reverse shoulder 

replacement procedures from a clinical perspective. They also do not believe it is 

appropriate to move these cases to any other surgical, orthopedic MS-DRGs because of 
 148 

differences in the clinical makeup of the other surgical orthopedic MS-DRGs. Our 

clinical advisors recommended not creating a new MS-DRG for reverse shoulder 

replacement procedures because they believe the procedures are appropriately assigned to 

MS-DRGs 483 and 484. Therefore, based on claims data and clinical analysis, we are not 

proposing to reassign these cases to any other MS-DRGs or to create a new MS-DRG. 

 Based on the claims data and our clinical analysis, we are not proposing to 

reassign cases reporting procedure code 81.88 from their current assignment to 

MS-DRGs 483 and 484 or to create a new MS-DRG. We are inviting public comments 

on this issue. 

b. Total Ankle Replacement Procedures 

 In response to the FY 2013 IPPS/LTCH PPS proposed rule, we received a request 

to develop a new MS-DRG for total ankle replacements, which we considered to be 

outside the scope of that proposed rule (77 FR 53325). We are addressing this request as 

part of this FY 2014 IPPS/LTCH PPS proposed rule. The cases are captured by 

procedure code 81.56 (Total ankle replacement) and are assigned to MS-DRGs 469 and 

470 (Major Joint Replacement or Reattachment of Lower Extremity with MCC and 

without MCC, respectively). 

 The commenter stated that total ankle procedures are much more clinically 

complex than total hip or total knee replacement procedures, which have their own 

distinct MS-DRGs. The commenter also stated that total ankle replacement is surgery 

that involves the replacement of the damaged parts of the three bones that make up the 

ankle joint, as compared to two bones in most other total joint procedures such as hip or 
 149 

knee replacement. The commenter stated that average costs of total ankle replacements 

are higher than those for total knee and hip replacements. Therefore, a new MS-DRG 

should be created for total ankle replacements. As an alternative, the commenter 

suggested that these cases be reassigned to MS-DRG 469 even if the cases do not have an 

MCC as a secondary diagnosis. 

 MS-DRGs 469 and 470 include a variety of procedures of the lower extremities 

including the procedures listed below. This group of lower extremity joint replacement 

and reattachment procedures was developed because they were considered to be 

clinically cohesive and to have similar resource consumptions. 

● 00.85 (Resurfacing hip, total, acetabulum and femoral head) 

● 00.86 (Resurfacing hip, partial, femoral head) 

● 00.87 (Resurfacing hip, partial, acetabulum) 

● 81.51 (Total hip replacement) 

● 81.52 (Partial hip replacement) 

● 81.54 (Total knee replacement) 

● 81.56 (Total ankle replacement) 

● 84.26 (Foot reattachment) 

● 84.27 (Lower leg or ankle reattachment) 

● 84.28 (Thigh reattachment) 

 As the table below shows, there were 1,275 cases reporting total ankle 

replacements with 21 cases in MS-DRG 469 and 1,254 cases in MS-DRG 470. The 

1,254 cases in MS-DRG 470 have higher costs than other cases in MS-DRG 470 
 150 

(approximately $17,242 compared to approximately $13,984). The 21 cases in MS-DRG 

469 had average costs of approximately $23,360 compared to approximately $21,186 in 

average costs for all cases within MS-DRG 469. While these procedures are higher in 

average costs than other procedures within the MS-DRGs, we point out that cases are 

grouped together based on similar clinical and resource criteria. Some cases will have 

average costs higher than the overall average costs for the MS-DRG, while other cases 

will have lower average costs. Total ankle replacements represent 0.3 percent of the total 

number of cases within MS-DRGs 469 and 470. 

MS-DRGs 

Number of 

Cases 

Average 

Length of 

Stay 

Average 

Costs 

MS-DRG 469 – All cases 25,618 7.33 $21,186

MS-DRG 469 – Cases with procedure code 81.56 21 6.81 $23,360

MS-DRG 470 – All cases 390,518 3.37 $13,984

MS-DRG 470 – Cases with procedure code 81.56 1,254 2.19 $17,242

Total – All cases 416,136

Total – Cases with procedure code 81.56 1,275

 Our clinical advisors reviewed this issue and determined that the total ankle 

replacements are appropriately classified within MS-DRGs 469 and 470. They do not 

support the commenter’s contention that these cases are significantly more complex than 

knee and hip replacements. They believe that total ankle replacements are clinically 

consistent with other types of lower extremity joint replacements within MS-DRGs 469 

and 470. Our clinical advisors do not support creating a new MS-DRG for total ankle 

replacements. After considering the results of examination of the claims data, the 

recommendations from our clinical advisors, and the small number of total ankle 

replacements, we are not proposing to create a new MS-DRG at this time. 
 151 

 We also examined the request to move all total ankle replacements to the highest 

severity level, MS-DRG 469, even when no secondary diagnosis on the MCC list was 

reported. Moving all total ankle replacements to MS-DRG 469 would lead to 

overpayments of approximately $3,944 per case because the average costs of total ankle 

replacements in MS-DRG 470 was approximately $17,242, while the average costs of all 

cases in MS-DRG 469 was approximately $21,186. After considering the claims data as 

well as the input from our clinical advisors, we are not proposing that all total ankle 

procedures be assigned to MS-DRG 469 even when the case does not have an MCC 

reported as a secondary diagnosis. We believe the current MS-DRGs are appropriate for 

total ankle replacements. 

 We are not proposing to create a new total ankle replacement MS-DRG or to 

reassign all total ankle replacements to MS-DRG 469. We are proposing to maintain the 

current MS-DRG assignments for total ankle replacements. We are inviting public 

comment on our proposal. 

6. MDC 15 (Newborns and Neonates with Conditions Originating in the Neonatal 

Period) 

a. Persons Encountering Health Services for Specific Procedures, Not Carried Out 

 We received a request to evaluate the MS-DRG assignment of ICD-9-CM 

diagnosis codes V64.00 through V64.04, and V64.06 through V64.43 in MS-DRG 794 

(Neonate with Other Significant Problems) under MDC 15. The requestor noted that the 

assignment of diagnosis code V64.05 (Vaccination not carried out because of caregiver 

refusal) was addressed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50111 through 
 152 

50112). We removed diagnosis code V64.05 from MS-DRG 794 and added it to the 

“only secondary diagnosis” list for MS-DRG 795 (Normal Newborn). The requestor 

asked that we consider the reassignment of these diagnosis codes from MS-DRG 794 to 

MS-DRG 795. The codes under existing MS-DRG 794 include: 

● V64.00 (Vaccination not carried out, unspecified reason) 

● V64.01 (Vaccination not carried out because of acute illness) 

● V64.02 (Vaccination not carried out because of chronic illness or condition) 

● V64.03 (Vaccination not carried out because of immune compromised state) 

● V64.04 (Vaccination not carried out because of allergy to vaccine or 

component) 

● V64.06 (Vaccination not carried out because of patient refusal) 

● V64.07 (Vaccination not carried out for religious reasons) 

● V64.08 (Vaccination not carried out because patient had disease being 

vaccinated against) 

● V64.09 (Vaccination not carried out for other reason) 

● V64.1 (Surgical or other procedure not carried out because of contraindication) 

● V64.2 (Surgical or other procedure not carried out because of patient’s 

decision) 

● V64.3 (Procedure not carried out for other reasons) 

● V64.41 (Laparoscopic surgical procedure converted to open procedure) 

● V64.42 (Thoracoscopic surgical procedure converted to open procedure) 

● V64.43 (Arthroscopic surgical procedure converted to open procedure). 
 153 

 In a newborn case with one of these diagnosis codes reported as a secondary 

diagnosis, the case would be assigned to MS-DRG 794. The commenter believed that 

these diagnosis codes, when reported as a secondary diagnosis for a newborn case, should 

be assigned to MS-DRG 795 instead of MS-DRG 794. 

 Our clinical advisors reviewed this request and concur with the commenter that 

diagnosis codes V64.00 through V64.04, and V64.06 through V64.3 should not continue 

to be assigned to MS-DRG 794, as there is no clinically usable information reported in 

those codes identifying significant problems. However, our clinical advisors recommend 

that diagnosis codes V64.41, V64.42, and V64.43, which identify that a surgical 

procedure converted to an open procedure, continue to be assigned to MS-DRG 794. 

These diagnosis codes may indicate a more significant encounter that required a surgical 

intervention. 

 Therefore, for FY 2014, we are proposing to reassign diagnosis codes V64.00 

through V64.04, and V64.06 through V64.3 from MS-DRG 794 to MS-DRG 795. 

Diagnosis codes V64.00 through V64.04, and V64.06 through V64.3 would be added to 

the “only secondary diagnosis” list for MS-DRG 795. Diagnosis codes V64.41, V64.42, 

and V64.43 would continue to be assigned to MS-DRG 794. We are inviting public 

comments on this proposal. 

b. Discharges/Transfers of Neonates with a Planned Acute Care Hospital Inpatient 

Readmission 

 We are proposing to add the patient discharge status codes shown in the table 

below to the MS-DRG GROUPER logic for MS-DRG 789 (Neonates, Died or 
 154 

Transferred to Another Acute Care Facility) to identify neonates that are transferred to a 

designated facility with a planned acute care hospital inpatient readmission. 
 155 

New 

Code 

Title 

82 Discharged/transferred to a short term general hospital for inpatient care 

with a planned acute care hospital inpatient readmission 

85 Discharged/transferred to a designated cancer center or children’s 

hospital with a planned acute care hospital inpatient readmission 

94 Discharged/transferred to a critical access hospital (CAH) with a planned 

acute care hospital inpatient readmission 

 Currently, the GROUPER logic for MS-DRG 789 contains discharge status codes 

02 (Discharged/transferred to a short term general hospital for inpatient care), 05 

(Discharged/transferred to a designated cancer center or children’s hospital), and 66 

(Discharged/transferred to a critical access hospital (CAH)). 

 As discussed in section II.G.7. of the preamble of this proposed rule, these new 

discharge status codes are also being proposed for addition to the Medicare Code Editor 

(MCE). We are inviting public comments on our proposal. 

7. Proposed Medicare Code Editor (MCE) Changes 

 The Medicare Code Editor (MCE) is a software program that detects and reports 

errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and 

demographic information are entered into the Medicare claims processing systems and 

are subjected to a series of automated screens. The MCE screens are designed to identify 

cases that require further review before classification into an MS-DRG. 

a. Age Conflict Edit
 156 

We received a request to review three ICD-9-CM diagnosis codes currently listed 

under the age conflict edit within the MCE. The age conflict edit detects inconsistencies 

between a patient’s age and any diagnosis on the patient’s record. Specifically, the 

requestor recommended that CMS consider the removal of diagnosis codes 751.1 (Atresia 

and stenosis of small intestine), 751.2 (Atresia and stenosis of large intestine, rectum, and 

anal canal), and 751.61 (Biliary atresia) from the pediatric age conflict edit. Generally, 

diagnoses included in the list for the pediatric age conflict edit are applicable for ages 0 

through 17.

The requestor noted that diagnosis code 751.1 was removed from the Integrated 

Outpatient Code Editor (IOCE) effective January 1, 2006. Our clinical advisors agree 

that patients described with any one of the above listed codes, although congenital 

anomalies, may require a revision procedure in adulthood. Therefore, we believe that the 

removal of these codes appears appropriate and also would be consistent with the IOCE.

 We are inviting public comments on our proposal to remove diagnosis codes 

751.1, 751.2, and 751.61 from the pediatric age conflict edit effective October 1, 2013. 

b. Discharge Status Code Updates 

 To reflect changes in the UB-04 code set maintained by the National Uniform 

Billing Committee (NUBC), we are proposing to add the following new discharge status 

codes to the CMS GROUPER and the MCE logic effective October 1, 2013. 

 One of the new discharge status codes corresponds to an alternative care site. 

This alternative care site discharge status code is intended to identify patients being 

discharged or transferred to an alternative site that will provide basic patient care during a 
 157 

disaster response. The new discharge status code is 69 (Discharged/transferred to a 

designated disaster alternative care site). 

 In addition, 15 new discharge status codes correspond with identifying planned 

acute care hospital inpatient readmissions. Shown below are the existing “base” 

discharge status codes and the new codes that will better identify patients who are 

discharged with a planned readmission. 

Base 

Code 

New 

Code Title 

01 81 Discharged to home or self care with a planned acute care hospital 

inpatient readmission 

02 82 Discharged/transferred to a short term general hospital for inpatient 

care 

03 83 Discharged/transferred to a skilled nursing facility (SNF) with 

Medicare certification with a planned acute care hospital inpatient 

readmission 

04 84 Discharged/transferred to a facility that provides custodial or 

supportive care with a planned acute care hospital inpatient 

readmission 

05 85 Discharged/transferred to a designated cancer center or children’s 

hospital with a planned acute care hospital inpatient readmission 

06 86 Discharged/transferred to home under care of organized home health 

service organization with planned acute care hospital inpatient 

readmission 

21 87 Discharged/transferred to court/law enforcement with a planned acute 

care hospital inpatient readmission 

43 88 Discharged/transferred to federal health care facility with a planned 

acute care hospital inpatient readmission 

61 89 Discharged/transferred to a hospital-based Medicare approved swing 

bed with a planned acute care hospital inpatient readmission 

62 90 Discharged/transferred to an inpatient rehabilitation facility (IRF) 

including rehabilitation distinct part units of a hospital with a planned 

acute care hospital inpatient readmission 

63 91 Discharged/transferred to a Medicare certified long term care hospital 

(LTCH) with a planned acute care hospital inpatient readmission 

64 92 Discharged/transferred to a nursing facility certified under Medicaid 

but not certified under Medicare with a planned acute care hospital 
 158 

Base 

Code 

New 

Code Title 

inpatient readmission 

65 93 Discharged/transferred to a psychiatric distinct part unit of a hospital 

with a planned acute care hospital inpatient readmission 

66 94 Discharged/transferred to a critical access hospital (CAH) with a 

planned acute care hospital inpatient readmission 

70 95 Discharged/transferred to another type of health care institution not 

defined elsewhere in this code list with a planned acute care hospital 

inpatient readmission 

 We are inviting public comments on our proposal to add the above listed new 

discharge status codes to the GROUPER and the MCE logic effective October 1, 2013 

(FY 2014). 

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, for FY 2014, 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. 
 159 

 A surgical class can be composed of one or more MS-DRGs. For example, in 

MDC 11, the surgical class “kidney transplant” consists of a single MS-DRG (MS-DRG 

652) and the class “major bladder procedures” consists of three MS-DRGs (MS-DRGs 

653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact 

on more than one MS-DRG. The methodology for determining the most 

resource-intensive surgical class involves weighting the average resources for each 

MS-DRG by frequency to determine the weighted average resources for each surgical 

class. For example, assume surgical class A includes MS-DRGs 001 and 002 and 

surgical class B includes MS-DRGs 003, 004, and 005. Assume also that the average 

costs of MS-DRG 001 are higher than that of MS-DRG 003, but the average costs of 

MS-DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To determine 

whether surgical class A should be higher or lower than surgical class B in the surgical 

hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency 

(that is, by the number of cases in the MS-DRG) to determine average resource 

consumption for the surgical class. The surgical classes would then be ordered from the 

class with the highest average resource utilization to that with the lowest, with the 

exception of “other O.R. procedures” as discussed below. 

 This methodology may occasionally result in assignment of a case involving 

multiple procedures to the lower-weighted MS-DRG (in the highest, most 

resource-intensive surgical class) of the available alternatives. However, given that the 

logic underlying the surgical hierarchy provides that the GROUPER search for the 
 160 

procedure in the most resource-intensive surgical class, in cases involving multiple 

procedures, this result is sometimes unavoidable. 

 We note that, notwithstanding the foregoing discussion, there are a few instances 

when a surgical class with a lower average cost is ordered above a surgical class with a 

higher average cost. For example, the “other O.R. procedures” surgical class is 

uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, 

regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that 

surgical class may be higher than those for other surgical classes in the MDC. The “other 

O.R. procedures” class is a group of procedures that are only infrequently related to the 

diagnoses in the MDC, but are still occasionally performed on patients with cases 

assigned to the MDC with these diagnoses. Therefore, assignment to these surgical 

classes should only occur if no other surgical class more closely related to the diagnoses 

in the MDC is appropriate. 

 A second example occurs when the difference between the average costs for two 

surgical classes is very small. We have found that small differences generally do not 

warrant reordering of the hierarchy because, as a result of reassigning cases on the basis 

of the hierarchy change, the average costs are likely to shift such that the higher-ordered 

surgical class has lower average costs than the class ordered below it. 

 In this proposed rule, we are proposing limited changes to the MS-DRG 

classifications for FY 2014, as discussed in sections II.G.2. and 5. of this preamble. In 

our review of these proposed changes, we did not identify any needed changes to the 
 161 

surgical hierarchy. Therefore, in this proposed rule, we are not proposing any changes to 

the surgical hierarchy for Pre-MDCs and MDCs for FY 2014. 

9. Complications or Comorbidity (CC) Exclusions List 

a. Background of the CC List and the CC Exclusions List 

 Under the IPPS MS-DRG classification system, we have developed a standard list 

of diagnoses that are considered CCs. Historically, we developed this list using physician 

panels that classified each diagnosis code based on whether the diagnosis, when present 

as a secondary condition, would be considered a substantial complication or comorbidity. 

A substantial complication or comorbidity was defined as a condition that, because of its 

presence with a specific principal diagnosis, would cause an increase in the length of stay 

by at least 1 day in at least 75 percent of the patients. However, depending on the 

principal diagnosis of the patient, some diagnoses on the basic list of complications and 

comorbidities may be excluded if they are closely related to the principal diagnosis. In 

FY 2008, we evaluated each diagnosis code to determine its impact on resource use and 

to determine the most appropriate CC subclassification (non-CC, CC, or MCC) 

assignment. We refer readers to sections II.D.2. and 3. of the preamble of the FY 2008 

IPPS final rule with comment period for a discussion of the refinement of CCs in relation 

to the MS-DRGs we adopted for FY 2008 (72 FR 47152 through 47171). 

b. Proposed CC Exclusions List for FY 2014 

 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 
 162 

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; and 

● Closely related conditions should not be considered CCs for one another. 
 163 

 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.1

(1) No Proposed Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for 

FY 2014 

 For FY 2014, there were no changes made to the ICD-9-CM coding system 

effective October 1, 2013, due to the partial code freeze. (We refer readers to section 

II.G.10. of the preamble of this proposed rule for a discussion of the ICD-9-CM coding 

system.) 

(2) Suggested Changes to the MS-DRG Diagnosis Codes for FY 2014 

(A) Coronary Atherosclerosis Due to Calcified Coronary Lesion 

 We received a request that we consider changing the severity levels for the 

following ICD-9-CM diagnosis code: 414.4 (Coronary atherosclerosis due to calcified 

coronary lesion). The requestor suggested that we change the severity level for diagnosis 

code 414.4 from a non-CC to an MCC. 

 

1 We refer readers to 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); the FY 2010 final rule (74 FR 43799); the FY 2011 

final rule (75 FR 50114); the FY 2012 final rule (76 FR 51542); and the FY 2013 final rule (77 FR 53315). 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.
 164 

 The following chart shows the analysis of the MedPAR claims data for FY 2012 

for ICD-9-CM diagnosis code 414.4. 

Code Diagnosis 

Description 

CC Level Cnt 1 Cnt 1 

Impact 

Cnt 2 Cnt 2 

Impact 

Cnt 3 Cnt 3 

Impact 

414.4 Coronary 

atherosclerosis 

due to 

calcified 

lesion 

Non-CC 1,390 1.58 2,174 2.31 2,001 3.11 

 

We ran the above data as described in the FY 2008 IPPS final rule with comment 

period (72 FR 47158 through 47161). The C1 value reflects a patient with no other 

secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 

value reflects a patient with at least one other secondary diagnosis that is a CC, but none 

that is an MCC. The C3 value reflects a patient with at least one other secondary 

diagnosis that is an MCC. 

 The chart above shows that the C1 finding is 1.58. A value close to 1.0 in the C1 

field suggests that the diagnosis 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 a non-CC. 

 The C2 finding was 2.31. A C2 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 when there 

is at least one other secondary diagnosis that is a CC but none that is an MCC. 

 While the C1 value of 1.58 is above the 1.0 value for a non-CC, it does not 

support reclassification to an MCC. As stated earlier, a value close to 3.0 suggests the 

condition is expected to consume resources more similar to an MCC than a CC or a non-
 165 

CC. The C2 finding of 2.31 also does not support reclassifying this diagnosis code to an 

MCC. We also considered reclassifying the severity level of diagnosis code 414.4 to a 

CC; however, the C1 finding of 1.58 also does not support reclassifying the severity level 

to a CC. Our clinical advisors reviewed the data and evaluated this condition. They 

recommended that we not change the severity level of diagnosis code 414.4 from a nonCC to an MCC or a CC. They do not believe that this diagnosis would increase the 

severity level of patients. They pointed out that a similar code, diagnosis code 414.2 

(Chronic total occlusion of coronary artery), is a non-CC. Our clinical advisors believe 

that diagnosis code 414.4 represents patients who are less severe than diagnosis code 

414.2. Considering the C1 and C2 ratings and the input from our clinical advisors, we 

are not proposing to reclassify diagnosis code 414.4 to an MCC; the diagnosis code 

would continue to be considered a non-CC. 

 Therefore, based on the data and clinical analysis, we are proposing to maintain 

diagnosis code 414.4 as a non-CC. We are inviting public comment on our proposal. 

(B) Acute Cholecystitis Diagnosis Code 

 We received a comment recommending that we add diagnosis code 575.0 (Acute 

cholecystitis) to the CC Exclusion List when reported as a secondary diagnosis code with 

a principal diagnosis code 574.00 (Calculus of gallbladder with acute cholecystitis 

without mention of obstruction). We note that, there is an “excludes note” under 

diagnosis code 575.0 which excludes “that with cholelithiasis (574.00)”. Therefore, 

diagnosis codes 575.0 and 574.00 should not be reported on the same claim. However, 

the commenter stated that there may be double reporting. 
 166 

 Our clinical advisors agree with the commenter that diagnosis codes 575.0 and 

574.00 capture the same clinical context. Therefore, we are proposing to add diagnosis 

code 575.0 to the CC Exclusion List when reported as a secondary diagnosis code with a 

principal diagnosis code 574.00. We are inviting public comments on our proposal. 

(C) Chronic Total Occlusion (CTO) of Artery of the Extremities Diagnosis Code 

 We received a request to consider removing atherosclerosis and aneurysm codes 

from the CC Exclusion List for diagnosis code 440.4 (Chronic total occlusion of artery of 

the extremities). For FY 2013, we changed the designation of diagnosis code 440.4 from 

a non-CC level to a CC level. The CC Exclusion List for diagnosis code 440.4 includes 

the following diagnosis codes: 

Diagnosis 

Code Code Description 

440.20 Atherosclerosis of native arteries of the extremities, unspecified 

440.21 Atherosclerosis of native arteries of the extremities with intermittent 

claudication 

440.22 Atherosclerosis of native arteries of the extremities with rest pain 

440.23 Atherosclerosis of native arteries of the extremities with ulceration 

440.24 Atherosclerosis of native arteries of the extremities with gangrene 

440.29 Other atherosclerosis of native arteries of the extremities 

440.30 Atherosclerosis of unspecified bypass graft of the extremities 

440.31 Atherosclerosis of autologous vein bypass graft of the extremities 

440.32 Atherosclerosis of nonautologous biological bypass graft of the 

extremities 

440.4 Chronic total occlusion of artery of the extremities 

441.00 Dissection of aorta, unspecified site 

441.01 Dissection of aorta, thoracic 

441.02 Dissection of aorta, abdominal 

441.03 Dissection of aorta, thoracoabdominal 

441.1 Thoracic aneurysm, ruptured 

441.2 Thoracic aneurysm without mention of rupture 

441.3 Abdominal aneurysm, ruptured 

441.4 Abdominal aneurysm without mention of rupture 
 167 

Diagnosis 

Code Code Description 

441.5 Aortic aneurysm of unspecified site, ruptured 

441.6 Thoracoabdominal aneurysm, ruptured 

441.7 Thoracoabdominal aneurysm, without mention of rupture 

441.9 Aortic aneurysm of unspecified site without mention of rupture 

442.0 Aneurysm of artery of upper extremity 

442.2 Aneurysm of iliac artery 

442.3 Aneurysm of artery of lower extremity 

442.9 Aneurysm of unspecified site 

443.22 Dissection of iliac artery 

443.29 Dissection of other artery 

443.81 Peripheral angiopathy in diseases classified elsewhere 

443.82 Erythromelalgia 

443.89 Other specified peripheral vascular diseases 

443.9 Peripheral vascular disease, unspecified 

444.01 Saddle embolus of abdominal aorta 

444.09 Other arterial embolism and thrombosis of abdominal aorta 

444.1 Embolism and thrombosis of thoracic aorta 

444.21 Arterial embolism and thrombosis of upper extremity 

444.22 Arterial embolism and thrombosis of lower extremity 

444.81 Embolism and thrombosis of iliac artery 

444.89 Embolism and thrombosis of other specified artery 

444.9 Embolism and thrombosis of unspecified artery 

445.01 Atheroembolism of upper extremity 

445.02 Atheroembolism of lower extremity 

445.81 Atheroembolism of kidney 

445.89 Atheroembolism of other site 

447.0 Arteriovenous fistula, acquired 

447.1 Stricture of artery 

447.2 Rupture of artery 

447.5 Necrosis of artery 

447.6 Arteritis, unspecified 

447.70 Aortic ectasia, unspecified site 

447.71 Thoracic aortic ectasia 

447.72 Abdominal aortic ectasia 

447.73 Thoracoabdominal aortic ectasia 

449 Septic arterial embolism 
 168 

 Diagnosis code 440.4 is a CC except if one of the diagnosis codes listed above is 

reported as a principal diagnosis. If one of the diagnosis codes listed above is reported on 

a claim as a principal diagnosis and code 440.4 is reported as a secondary diagnosis, code 

440.4 would not be counted as a CC. The commenter requested that we remove 

atherosclerosis codes 440.20 through 440.32, 443.22, 443.29, 443.81 through 443.9, and 

aneurysm codes 441.00 through 441.03, 441.1 through 441.7, 441.9, 442.0, 442.2, 442.3, 

and 442.9 from the CC Exclusion List for diagnosis code 440.4. 

 According to the commenter, aneurysm diagnoses are not closely related 

clinically to peripheral CTOs. Aneurysm physiology, clinical symptomology, and patient 

risk profile are fundamentally different than CTOs. Aneurysms result from the 

weakening of an artery wall and manifest in an out-pouched pocket of the lumen. 

Conversely, patients with CTOs present with extended segments of diseased and 

narrowed vessels and in most cases, complex lesions containing fibro-calcified plaques. 

The commenter stated that CTOs represent a high severity complication, which is not 

closely related to basic atherosclerosis. 

 Our clinical advisors agree with the commenter that the aneurysm and most of the 

atherosclerosis codes should be removed from the CC Exclusion List for diagnosis code 

440.4. A case with a principal diagnosis of aneurysm with CTO adds substantial 

complexity and does not necessarily have the same immediate cause. A case with a 

principal diagnosis of atherosclerosis with CTO reported represents a more severe form 

of the disease and, therefore, is more complex. Our clinical advisors do not agree with 

the commenter that diagnosis codes 443.81 through 443.9 (Other and unspecified 
 169 

peripheral vascular diseases) should be removed from the CC Exclusion List. These 

cases are more likely related to CTO and meet one of the principles for exclusion that we 

previously outlined above. 

 Therefore, for FY 2014, we are proposing to remove the following diagnosis 

codes from the CC Exclusion List for diagnosis code 440.4: atherosclerosis codes 440.20 

through 440.32, 443.22, and 443.29, and aneurysm codes 441.00 through 441.03, 441.1 

through 441.7, 441.9, 442.0, 442.2, 442.3, and 442.9. Diagnosis codes 443.81 through 

443.9 would remain on the CC Exclusion List for diagnosis code 440.4. We are inviting 

public comments on this proposal. 

 For FY 2014, we are proposing changes to Table 6G (Additions to the CC 

Exclusion List) and Table 6H (Deletions from the CC Exclusion List). As we discussed 

earlier, we are not proposing changes to the severity level for diagnosis code 414.4. 

These tables, which contain codes that are effective for discharges occurring on or after 

October 1, 2013, 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/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/index.html. Each of these principal diagnosis codes 

for which there is a CC exclusion is shown in Tables 6G and 6H 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 available through 

the Internet on the CMS Web site at: http://www.cms.hhs.gov/Medicare/Medicare-Fee-
 170 

for-Service-Payment/AcuteInpatientPPS/index.html. Beginning with discharges on or 

after October 1 of each fiscal year, the indented diagnoses are not recognized by the 

GROUPER as valid CCs for the asterisked principal diagnosis. 

 There are no new, revised, or deleted diagnosis codes for FY 2014. Therefore, 

there are no Tables 6A, 6C, and 6E published for FY 2014. 

There are no proposed additions or deletions to the MS-DRG MCC List for 

FY 2014. There also are no proposed additions or deletions to the MS-DRG CC List for 

FY 2014. Therefore, there are no Tables 6I.1 through 6I.2 and 6J.1 through 6J.2 

published for FY 2014. 

 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 30.0, is 

available on a CD for $225.00. Version 31.0 of this manual, which will include the final 

FY 2014 MS-DRG changes, will be available on a CD 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 
 171 

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) 
 172 

● 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 
 173 

the only procedures performed are nonextensive procedures that are unrelated to the 

principal diagnosis.2

 Our review of MedPAR claims data showed that there were no cases that merited 

movement or should logically be assigned to any of the other MDCs. Therefore, for 

FY 2014, 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 

 

2

The original list of the ICD-9-CM procedure codes for the procedures we consider nonextensive 

procedures, if performed with an unrelated principal diagnosis, was published in Table 6C in section IV. of 

the Addendum to the FY 1989 final rule (53 FR 38591). As part of the FY 1991 final rule (55 FR 36135), 

the FY 1992 final rule (56 FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final rule 

(58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY 1996 final rule (60 FR 45783), the FY 1997 

final rule (61 FR 46173), and the FY 1998 final rule (62 FR 45981), we moved several other procedures 

from DRG 468 to DRG 477, and some procedures from DRG 477 to DRG 468. No procedures were 

moved in FY 1999, as noted in the final rule (63 FR 40962), in the FY 2000 (64 FR 41496), in the FY 2001 

(65 FR 47064), or in the 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 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, 2010, 2011, 2012, and 2013, no procedures were 

moved, as noted in the FY 2008 final rule with comment period (72 FR 46241), in the FY 2009 final rule 

(73 FR 48513), in the FY 2010 final rule (74 FR 43796), in the FY 2011 final rule (75 FR 50122), in the 

FY 2012 final rule (76 FR 51549), and in the FY 2013 final rule (77 FR 53321). 
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MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in 

two ways for comparison purposes. We look at a frequency count of each major 

operative procedure code. We also compare procedures across MDCs by volume of 

procedure codes within each MDC. 

 We identify those procedures occurring in conjunction with certain principal 

diagnoses with sufficient frequency to justify adding them to one of the surgical 

MS-DRGs for the MDC in which the diagnosis falls. As noted above, there were no 

cases that merited movement or that should logically be assigned to any of the other 

MDCs. Therefore, for FY 2014, 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 costs and the length of 

stay. We look at the data for trends such as shifts in treatment practice or reporting 

practice that would make the resulting MS-DRG assignment illogical. If we find these 

shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to 
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provide payment for the cases in a similar manner. Generally, we move only those 

procedures for which we have an adequate number of discharges to analyze the data. 

 There were no cases representing shifts in treatment practice or reporting practice 

that would make the resulting MS-DRG assignment illogical, or that merited movement 

so that cases should logically be assigned to any of the other MDCs. Therefore, for 

FY 2014, 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 II.G.1. 

through 6. of this preamble, we are not proposing to add any diagnosis or procedure 

codes to MDCs for FY 2014. 

11. Proposed 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 

 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 
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also responsible for promoting the use of Federal and non-Federal educational programs 

and other communication techniques with a view toward standardizing coding 

applications and upgrading the quality of the classification system. 

 The Official list of valid ICD-9-CM diagnosis and procedure codes can be found 

on the CMS Web site at: 

http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/codes.html. 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 2014 at a public meeting held on September 19, 2012, and finalized the coding 
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changes after consideration of comments received at the meetings and in writing by 

November 16, 2012. There were no changes to the ICD-9-CM coding system for 

FY 2014. There were no new, revised or deleted diagnosis or procedure codes for 

FY 2014. 

 The Committee held its 2013 meeting on March 5, 2013. Any new codes for 

which there was consensus of public support and for which complete tabular and 

indexing changes will be made by May 2013 will be included in the October 1, 2013 

update to ICD-9-CM. Any code revisions that were discussed at the March 5, 2013 

Committee meeting but that could not be finalized in time to include them in the tables 

listed in section VI. of the Addendum to this proposed rule will be included in Table 6B, 

which is listed in section VI. of the Addendum to the final rule and available via the 

Internet on the CMS Web site, and will be marked with an asterisk (*). 

 For FY 2014, there were no changes to the ICD-9-CM coding system due to the 

partial code freeze or for new technology. Therefore, there are no new, revised, or 

deleted diagnosis codes and no new, revised, or deleted procedure codes that are usually 

announced in Tables 6A (New Diagnosis Codes), 6B (New Procedure Codes), 6C 

(Invalid Diagnosis Codes), 6D (Invalid Procedure Codes), 6E (Revised Diagnosis Code 

Titles), and 6F (Revised Procedure Codes). Therefore, there are no Tables 6A through 

6F published as part of this proposed rule for FY 2014. We note that, there may be 

ICD-9-CM coding changes finalized after this proposed rule based on public comments 

that we receive after the March 5, 2013 ICD-9-CM Coordination and Maintenance 

Committee meeting. If there are changes, we will include these changes in the final rule. 
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 Copies of the minutes of the procedure codes discussions at the Committee’s 

September 19, 2012 meeting and March 5, 2013 meeting can be obtained from the CMS 

Web site at: 

http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect

=/icd9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes 

discussions at the September 19, 2012 meeting and March 5, 2013 meeting are found at: 

http://www.cdc.gov/nchs/icd.htm. These Web sites also provide detailed information 

about the Committee, including information on requesting a new code, attending a 

Committee meeting, and timeline requirements and meeting dates. 

 We encourage commenters to address suggestions on coding issues involving 

diagnosis codes to: Donna Pickett, Co-Chairperson, 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, Co-Chairperson, 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. 

 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. 
 179 

 Section 503(a) of Pub. L. 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 
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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 Meeting 

minutes. The public agreed that there was a need to hold the fall meetings earlier, in 

September or October, in order to meet the new implementation dates. The public 

provided comment that additional time would be needed to update hospital systems and 

obtain new code books and coding software. There was considerable concern expressed 

about the impact this new April update would have on providers. 

 In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the 

Act, as added by section 503(a) of Pub. L. 108-173, by developing a mechanism for 

approving, in time for the April update, diagnosis and procedure code revisions needed to 
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describe new technologies and medical services for purposes of the new technology 

add-on payment process. We also established the following process for making these 

determinations. Topics considered during the Fall ICD-9-CM Coordination and 

Maintenance Committee meeting are considered for an April 1 update if a strong and 

convincing case is made by the requester at the Committee's public meeting. The request 

must identify the reason why a new code is needed in April for purposes of the new 

technology process. The participants at the meeting and those reviewing the Committee 

meeting summary report are provided the opportunity to comment on this expedited 

request. All other topics are considered for the October 1 update. Participants at the 

Committee meeting are encouraged to comment on all such requests. There were no 

requests approved for an expedited April l, 2013 implementation of an ICD-9-CM code at 

the September 19, 2012 Committee meeting. Therefore, there were no new ICD-9-CM 

codes implemented on April 1, 2013. 

 Current addendum and code title information is published on the CMS Web site 

at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?re

direct=/icd9ProviderDiagnosticCodes/01overview.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. 
 182 

 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. Therefore, although we publish the code titles in the 

IPPS proposed and final rules, they are not subject to comment in the proposed or final 

rules. We 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 was to be implemented on 

October 1, 2013, as described in the Health Insurance Portability and Accountability Act 
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of 1996 (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). However, the Secretary of Health and Human Services issued a 

final rule that delays, from October 1, 2013, to October 1, 2014, the compliance date for 

the International Classification of Diseases, 10th Edition diagnosis and procedure codes 

(ICD-10). The final rule, CMS-0040-F, was published in the Federal Register on 

September 5, 2012 (77 FR 54664) and is available for viewing on the Internet at: 

http://www.gpo.gov/fdsys/pkg/FR-2012-09-05/pdf/2012-21238.pdf. 

 The ICD-10 coding system includes the International Classification of Diseases, 

10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the 

International Classification of Diseases, 10th Revision, Procedure Coding System 

(ICD-10-PCS) for inpatient hospital procedure coding, as well as the Official 

ICD-10-CM and ICM-10-PCS Guidelines for Coding and Reporting. In the 

January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362), 

there was a discussion of the need for a partial or total freeze in the annual updates to 

both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The public comment 

addressed in that final rule stated that the annual code set updates should cease l year 

prior to the implementation of ICD-10. The commenters stated that this freeze of code 

updates would allow for instructional and/or coding software programs to be designed 

and purchased early, without concern that an upgrade would take place immediately 

before the compliance date, necessitating additional updates and purchases. 
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 HHS responded to comments in the ICD-10 final rule that the ICD-9-CM 

Coordination and Maintenance Committee has jurisdiction over any action impacting the 

ICD-9-CM and ICD-10 code sets. Therefore, HHS indicated that the issue of 

consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM, and 

ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM and ICD-10-PCS 

would be addressed through the Committee at a future public meeting. 

 The code freeze was discussed at multiple meetings of the ICD-9-CM 

Coordination and Maintenance Committee and public comment was actively solicited. 

The Committee evaluated all comments from participants attending the Committee 

meetings as well as written comments that were received. The Committee also 

considered the delay in implementation of ICD-10 until October 1, 2014. There was an 

announcement at the September 19, 2012 ICD-9-CM Coordination and Maintenance 

Committee meeting that a partial freeze of both ICD-9-CM and ICD-10 codes will be 

implemented as follows: 

● The last regular annual update to both ICD-9-CM and ICD-10 code sets was 

made on October 1, 2011. 

● On October 1, 2012 and October 1, 2013, there will be only limited code 

updates to both ICD-9-CM and ICD-10 code sets to capture new technology and new 

diseases. 

● On October 1, 2014, there were to be only limited code updates to ICD-10 code 

sets to capture new technology and diagnoses as required by section 503(a) of 

Pub. L. 108-173. There were to be no updates to ICD-9-CM on October 1, 2014, as the 
 185 

system would no longer be a HIPAA standard and, therefore, no longer be used for 

reporting. 

● On October 1, 2015, one year after the implementation of ICD-10, regular 

updates to ICD-10 will begin. 

 The ICD-9-CM Coordination and Maintenance Committee announced that it 

would continue to meet twice a year during the freeze. At these meetings, the public will 

be encouraged to comment on whether or not requests for new diagnosis and procedure 

codes should be created based on the need to capture new technology and new diseases. 

Any code requests that do not meet the criteria will be evaluated for implementation 

within ICD-10 on or after October 1, 2015, once the partial freeze is ended. 

 Complete information on the partial code freeze and discussions of the issues at 

the Committee meetings can be found on the ICD-9-CM Coordination and Maintenance 

Committee Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/meetings.html

. A summary of the September 19, 2012 Committee meeting, along with both written and 

audio transcripts of this meeting, are posted on the Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials-Items/2012-09-19-MeetingMaterials.html. 

c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital Inpatient 

Claims 

 CMS is currently processing all 25 diagnosis codes and 25 procedure codes 

submitted on electronic hospital inpatient claims. Prior to January 1, 2011, hospitals 
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could submit up to 25 diagnoses and 25 procedures. However, CMS’ system limitations 

allowed for the processing of only the first 9 diagnosis codes and 6 procedure codes. We 

discussed this change in processing claims in the FY 2011 IPPS/LTCH PPS final rule 

(75 FR 50127), in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25843), in a 

correction notice issued in the Federal Register on June 14, 2011 (76 FR 24633), and in 

the FY 2012 IPPS/LTCH PPS final rule (76 FR 51553). As discussed in these prior rules, 

CMS undertook an expansion of our 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 

HIPAA ASC X12 Technical Reports Type 3, Version 005010 (Version 5010) standards 

system update. 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 process up to 25 diagnosis codes and 25 

procedure codes when received on the 5010 format. 

d. ICD-10 MS-DRGs 

 In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received 

comments on the creation of the ICD-10 version of the MS-DRGs, which will be 

implemented at the same time as ICD-10 (75 FR 50127 and 50128). As we stated earlier, 

the Secretary of Health and Human Services has delayed the compliance date of ICD-10 

from October 1, 2013 to October 1, 2014 (77 FR 54664). While we did not propose an 

ICD-10 version of the MS DRGs in the FY 2011 IPPS/LTCH PPS proposed rule, we 

noted that we have been actively involved in converting our current MS-DRGs from 

ICD-9-CM codes to ICD-10 codes and sharing this information through the ICD-9-CM 
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Coordination and Maintenance Committee. We undertook this early conversion project 

to assist other payers and providers in understanding how to go about their own 

conversion projects. We posted ICD-10 MS-DRGs based on Version 26.0 (FY 2009) of 

the MS-DRGs. We also posted a paper that describes how CMS went about completing 

this project and suggestions for others to follow. All of this information can be found on 

the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. We have continued to keep the public updated on our 

maintenance efforts for ICD-10-CM and ICD 10-PCS coding systems, as well as the 

General Equivalence Mappings that assist in conversion through the ICD-9-CM 

Coordination and Maintenance Committee. Information on these committee meetings 

can be found on the CMS Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.

 During FY 2011, we developed and posted Version 28.0 of the ICD-10 MS-DRGs 

based on the FY 2011 MS-DRGs (Version 28.0) that we finalized in the FY 2011 

IPPS/LTCH PPS final rule on the CMS Web site. This ICD-10 MS-DRGs Version 28.0 

also included the CC Exclusion List and the ICD-10 version of the hospital-acquired 

conditions (HACs), which was not posted with Version 26.0. We also discussed this 

update at the September 15-16, 2010 and the March 9-10, 2011 meetings of the 

ICD-9-CM Coordination and Maintenance Committee. The minutes of these two 

meetings are posted on the CMS Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.
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 We reviewed comments on the ICD-10 MS-DRGs Version 28.0 and made 

updates as a result of these comments. We called the updated version the ICD-10 MS 

DRGs Version 28 R1. We posted a Definitions Manual of ICD-10 MS-DRGs Version 28 

R1 on our ICD-10 MS-DRG Conversion Project Web site at: 

http://cms.hhs.gov/Medicare/Coding/ICD10/ICD10-MS-DRG-Conversion-Project.html. 

To make the review of Version 28 R1 updates easier for the public, we also made 

available pilot software on a CD ROM that could be ordered through the National 

Technical Information Service (NTIS). A link to the NTIS ordering page was provided 

on the CMS ICD-10 MS-DRG Web page. We stated that we believed that, by providing 

the ICD-10 MS-DRG Version 28 R1 Pilot Software (distributed on CD ROM), the public 

would be able to more easily review and provide feedback on updates to the ICD-10 

MS-DRGs. We discussed the updated ICD-10 MS-DRGs Version 28 R1 at the 

September 14, 2011 ICD-9-CM Coordination and Maintenance Committee meeting. We 

encouraged the public to continue to review and provide comments on the ICD-10 MSDRGs so that CMS could continue to update the system. 

 In FY 2012, we prepared the ICD-10 MS-DRGs Version 29.0, based on the 

FY 2012 MS-DRGs (Version 29.0) that we finalized in the FY 2012 IPPS/LTCH PPS 

final rule. We posted a Definitions Manual of ICD-10 MS-DRGs Version 29.0 on our 

ICD-10 MS-DRG Conversion Project Web site. We also prepared a document that 

describes changes made from Version 28.0 to Version 29.0 to facilitate a review. The 

ICD-10 MS-DRGs Version 29.0 was discussed at the ICD-9-CM Coordination and 

Maintenance Committee meeting on March 5, 2012. Information was provided on the 
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types of updates made. Once again the public was encouraged to review and comment on 

the most recent update to the ICD-10 MS-DRGs. 

 CMS prepared the ICD-10 MS-DRGs Version 30.0 based on the FY 2013 

MS-DRGs (Version 30.0) that we finalized in the FY 2013 IPPS/LTCH PPS final rule. 

We posted a Definitions Manual of the ICD-10 MS-DRGs Version 30.0 on our ICD-10 

MS-DRG Conversion Project Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html. We also prepared a document that describes changes made from Version 

29.0 to Version 30.0 to facilitate a review. We produced mainframe and computer 

software for Version 30.0, which was made available to the public in February 2013. 

Information on ordering the mainframe and computer software through NTIS can be 

found on the CMS Web site at: http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-

MS-DRG-Conversion-Project.html under the “Related Links” section. This ICD-10 MSDRGs Version 30.0 computer software should facilitate additional review of the ICD-10 

MS-DRGs conversion. 

 We provided information on a study conducted on the impact on converting 

MS-DRGs to ICD-10. Information on this study is summarized in a paper entitled 

“Impact of the Transition to ICD-10 on Medicare Inpatient Hospital Payments.” This 

paper was posted on the CMS ICD-10 MS-DRGs Conversion Project Web site and was 

distributed and discussed at the September 15, 2010 ICD-9-CM Coordination and 

Maintenance Committee meeting. The paper described CMS’ approach to the conversion 

of the MS-DRGs from ICD-9-CM codes to ICD-10 codes. The study was undertaken 
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using the ICD-9-CM MS-DRGs Version 27.0 (FY 2010) and converted to the ICD-10 

MS-DRGs Version 27.0. The study estimated the impact on aggregate payment to 

hospitals and the distribution of payments across hospitals. The impact of the conversion 

from ICD-9-CM to ICD-10 on Medicare MS-DRG hospital payments was estimated 

using 2009 Medicare data. The study found a hospital payment increase of 0.05 percent 

using the ICD-10 MS-DRGs Version 27.0. 

 CMS provided an overview of this hospital payment impact study at the 

March 5, 2012 ICD-9-CM Coordination and Maintenance Committee meeting. This 

presentation followed presentations on the creation of ICD-10 MS-DRGs Version 29.0. 

A summary report of this meeting can be found on the CMS Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. 

At this March 2012 meeting, CMS announced that it would produce an update on this 

impact study based on an updated version of the ICD 10 MS-DRGs. This update of the 

impact study was presented at the March 5, 2013 ICD-9-CM Coordination and 

Maintenance Committee meeting. The updated paper is posted on CMS’ Web site at: 

http://cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html

under the “Downloads” section. Information on the March 5, 2013 ICD-9-CM 

Coordination and Maintenance Committee meeting can be found on the CMS Web site 

at: http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html. This update of the impact paper and the ICD-10 MSDRG Version 30.0 software will provide additional information to the public who are 

evaluating the conversion of the MS-DRGs to ICD-10 MS-DRG. 
 191 

 We will continue to work with the public to explain how we are approaching the 

conversion of MS-DRGs to ICD-10 and will post drafts of updates as they are developed 

for public review. The final version of the ICD-10 MS-DRGs will be implemented at the 

same time as ICD-10 and will be subject to notice and comment rulemaking. In the 

meantime, we will provide extensive and detailed information on this activity through the 

ICD-9-CM Coordination and Maintenance Committee. 

H. Recalibration of the Proposed FY 2014 MS-DRG Relative Weights

1. Data Sources for Developing the Proposed Relative Weights 

 In developing the proposed FY 2014 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 2012 MedPAR data used in this proposed rule 

include discharges occurring on October 1, 2011, through September 30, 2012, based on 

bills received by CMS through December 31, 2012, 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 2012 MedPAR file used in calculating the 

proposed relative weights includes data for approximately 10,364,125 Medicare 

discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a 

Medicare Advantage managed care plan are excluded from this analysis. These 

discharges are excluded when the MedPAR “GHO Paid” indicator field on the claim 

record is equal to “1” or when the MedPAR DRG payment field, which represents the 

total payment for the claim, is equal to the MedPAR “Indirect Medical Education (IME)” 
 192 

payment field, indicating that the claim was an “IME only” claim submitted by a teaching 

hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. 

In addition, the December 31, 2012 update of the FY 2012 MedPAR file complies with 

version 5010 of the X12 HIPAA Transaction and Code Set Standards, and includes a 

variable called “claim type.” Claim type “60” indicates that the claim was an inpatient 

claim paid as fee-for-service. Claim types “61,” “62,” “63,” and “64” relate to encounter 

claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, the 

calculation of the proposed relative weights for FY 2014 also excludes claims with claim 

type values not equal to “60.” The data exclude CAHs, including hospitals that 

subsequently became CAHs after the period from which the data were taken. The second 

data source used in the cost-based relative weighting methodology is the Medicare cost 

report data files from the HCRIS. Normally, we use the HCRIS dataset that is 3 years 

prior to the IPPS fiscal year. Specifically, we used cost report data from the December 

31, 2012 update of the FY 2011 HCRIS for calculating the proposed FY 2014 cost-based 

relative weights. 

2. Methodology for Calculation of the Proposed Relative Weights 

 As we explain in section II.E.2. of the preamble of this proposed rule, we are 

proposing to calculate the relative weights based on 19 CCRs, instead of the 15 CCRs 

previously used. The methodology we used to calculate the proposed FY 2014 MS-DRG 

cost-based relative weights based on claims data in the FY 2012 MedPAR file and data 

from the FY 2011 Medicare cost reports is as follows: 
 193 

● To the extent possible, all the claims were regrouped using the proposed 

FY 2014 MS-DRG classifications discussed in sections II.B. and II.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 Medicare-approved transplant centers 

that have cases in the FY 2011 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. 
 194 

● At least 92.7 percent of the providers in the MedPAR file had charges for 14 of 

the 19 cost centers. All claims of providers that did not have charges greater than zero 

for at least 14 of the 19 cost centers were deleted. In other words, a provider must have 

no more than five blank cost centers. If a provider did not have charges greater than zero 

in more than five cost centers, the claims for the provider were deleted. For FY 2014, as 

explained in section II.E.2. of the preamble of this proposed rule, we are proposing to 

calculate the relative weights using 19 cost centers instead of the 15 cost centers 

previously used in calculating the FY 2013 relative weights. In calculating the FY 2014 

relative weights, we also are proposing to continue to remove claims of providers with 

more than five blank cost centers from the dataset used to calculate the relative weights. 

(We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53326) for the edit 

threshold related to FY 2013 and prior fiscal years). In recent years, this trim kept 

approximately 96 percent of IPPS providers in the MedPAR file upon which we base our 

relative weight calculations. (For examples of our FYs 2012 and 2013 relative weight 

calculations, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51558) 

and the FY 2013 IPPS/LTCH PPS final rule 77 FR 53326).) However, under the 

proposal presented in this proposed rule to add 4 cost centers to the relative weight 

calculations, this trim kept approximately 92.7 percent of the IPPS providers in the 

MedPAR file upon which we base our proposed FY 2014 relative weight calculations. 

 Although this trim is now removing a greater percentage of providers’ claims 

from the relative weight calculations than were previously removed, we believe that it is 

appropriate to propose to continue to remove providers’claims that do not have charges 
 195 

greater than zero in more than five cost centers. We believe that this proposal is 

appropriate because we are not introducing new costs into the relative weight calculation; 

we are only proposing to make use of more refined, granular costs by breaking out 

implantable devices from the Supplies and Equipment CCR, MRIs and CT scans from the 

Radiology CCR, and cardiac catheterization from the Cardiology CCR. Furthermore, 

because we are proposing to make use of more refined cost report data for these cost 

centers, we believe that it is also appropriate to edit the claims with a more refined 

threshold. We are inviting public comments on the proposal to trim the data used in our 

relative weight calculations. 

● Statistical outliers were eliminated by removing all cases that were beyond 

3.0 standard deviations from the geometric mean of the log distribution of both the total 

charges per case and the total charges per day for each MS-DRG. 

● Effective October 1, 2008, because hospital inpatient claims include a POA 

indicator field for each diagnosis present on the claim, only for purposes of relative 

weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that 

otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the 

condition was present at the time of inpatient admission) in the POA field. 

 Under current payment policy, the presence of specific HAC codes, as indicated 

by the POA field values, can generate a lower payment for the claim. Specifically, if the 

particular condition is present on admission (that is, a “Y” indicator is associated with the 

diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity 

(and, therefore, the higher weighted MS-DRG). If the particular condition is not present 
 196 

on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and 

there are no other complicating conditions, the DRG GROUPER assigns the claim to a 

lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a 

Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of 

encouraging quality care and generates program savings, it presents an issue for the 

relative weight-setting process. Because cases identified as HACs are likely to be more 

complex than similar cases that are not identified as HACs, the charges associated with 

HAC cases are likely to be higher as well. Therefore, if the higher charges of these HAC 

claims are grouped into lower severity MS-DRGs prior to the relative weight-setting 

process, the relative weights of these particular MS-DRGs would become artificially 

inflated, potentially skewing the relative weights. In addition, we want to protect the 

integrity of the budget neutrality process by ensuring that, in estimating payments, no 

increase to the standardized amount occurs as a result of lower overall payments in a 

previous year that stem from using weights and case-mix that are based on lower severity 

MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC 

policy would be lost. 

 To avoid these problems, we reset the POA indicator field to “Y” only for relative 

weight-setting purposes for all claims that otherwise have an “N” or a “U” in the POA 

field. This resetting “forced” the more costly HAC claims into the higher severity 

MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more 

closely reflect the true costs of those cases. 
 197 

 Once the MedPAR data were trimmed and the statistical outliers were removed, 

the charges for each of the 19 cost groups for each claim were standardized to remove the 

effects of differences in area wage levels, IME and DSH payments, and for hospitals 

located in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital 

charges include charges for both operating and capital costs, we standardized total 

charges to remove the effects of differences in geographic adjustment factors, cost-ofliving adjustments, and DSH payments under the capital IPPS as well. Charges were 

then summed by MS-DRG for each of the 19 cost groups so that each MS-DRG had 19 

standardized charge totals. These charges were then adjusted to cost by applying the 

national average CCRs developed from the FY 2011 cost report data. 

 The 19 cost centers that we used in the proposed relative weight calculation are 

shown in the following table. The table shows the lines on the cost report and the 

corresponding revenue codes that we used to create the 19 national cost center CCRs. 

(We note that we have made several changes to the table, most importantly, to remove 

the columns listing the cost centers from the CMS Form 2552-96 cost reports. Because 

we are proposing to use data from FY 2011 cost reports, which were filed on the CMS 

Form 2552-10, the columns referencing the CMS Form 2552-96 cost report are no longer 

relevant. We also have updated and refined the table to reflect the proposed19 CCRs, 

instead of the current 15, and we have made some minor corrections to revenue codes and 

cost report cost centers that are grouped with each CCR.)
 198 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Routine Days 

Private Room Charges 

011X and 014X 

Adults & Pediatrics (General Routine Care) C_1_C5_30 C_1_C6_30 D3_H

Semi-Private Room Charges 

012X, 013X and 016X-019X 

Ward Charges 015X 

Intensive Days 

Intensive Care Charges 020X 

Intensive Care Unit C_1_C5_31 C_1_C6_31 D3_H
 199 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Coronary Care Charges 021X 

Coronary Care Unit C_1_C5_32 C_1_C6_32 D3_HBurn Intensive Care Unit C_1_C5_33 C_1_C6_33 D3_HSurgical Intensive Care Unit C_1_C5_34 C_1_C6_34 D3_HOther Special Care Unit C_1_C5_35 C_1_C6_35 D3_H
 200 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Drugs 

Pharmacy Charges 

025X, 026X and 063X 

Intravenous Therapy C_1_C5_64 C_1_C6_64 D3_H

 C_1_C7_64 

Drugs Charged To Patient C_1_C5_73 C_1_C6_73 D3_H

 C_1_C7_73 
 201 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Supplies and Equipment 

Medical/Surgical Supply Charges 

0270, 0271, 0272, 0273, 0274, 0277, and 0621, 0622, 0623 

Medical Supplies Charged to Patients C_1_C5_71 C_1_C6_71 D3_H

 C_1_C7_71 

Durable Medical Equipment Charges 

0290, 0291, 0292 and 0294-0299 DME-Rented C_1_C5_96 C_1_C6_96 D3_H

 C_1_C7_96 

Used Durable Medical Charges 0293 DME-Sold C_1_C5_67 C_1_C6_97 D3_H

 C_1_C7_97 
 202 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Implantable Devices 

0275, 0276, 0278, 0624 

Implantable Devices Charged to Patients C_1_C5_72 C_1_C6_72 D3_H

 C_1_C7_72 

Therapy Services 

Physical Therapy Charges 042X 

Physical Therapy C_1_C5_66 C_1_C6_66 D3_H

 C_1_C7_66 

Occupational Therapy Charges 043X 

Occupational Therapy C_1_C5_67 C_1_C6_67 D3_H
 203 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 C_1_C7_67 

Speech Pathology Charges 

044X and 047X 

Speech Pathology C_1_C5_68 C_1_C6_68 D3_H

 C_1_C7_68 

Inhalation Therapy 

Inhalation Therapy Charges 

041X and 046X 

Respiratory Therapy C_1_C5_65 C_1_C6_65 D3_H

 C_1_C7_65 
 204 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Operating Room 

Operating Room Charges 036X 

Operating Room C_1_C5_50 C_1_C6_50 D3_H

 C_1_C7_50 

 071X 

Recovery Room C_1_C5_51 C_1_C6_51 D3_H

 C_1_C7_51 

Labor & Delivery 

Operating Room Charges 072X 

Delivery Room and Labor Room C_1_C5_52 C_1_C6_52 D3_H

C_1_C7_52 
 205 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Anesthesia 

Anesthesia Charges 037X 

Anesthesiology C_1_C5_53 C_1_C6_53 D3_H

 C_1_C7_53 

Cardiology 

Cardiology Charges 

048X and 073X 

Electrocardiology C_1_C5_69 C_1_C6_69 D3_H

 C_1_C7_69 

Cardiac Catheterization 0481 Cardiac Catheterization C_1_C5_59 C_1_C6_59 D3_H
 206 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 C_1_C7_59 

Laboratory 

Laboratory Charges 

030X, 031X, and 075X Laboratory C_1_C5_60 C_1_C6_60 D3_H

 C_1_C7_60 

PBP Clinic Laboratory Services C_1_C5_61 C_1_C6_61 D3_H

 C_1_C7_61 

 074X, 086X 

Electroencephalography C_1_C5_70 C_1_C6_70 D3_H
 207 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 C_1_C7_70 

Radiology 

Radiology Charges 032X, 040X 

Radiology - Diagnostic C_1_C5_54 C_1_C6_54 D3_H

 C_1_C7_54 

028x, 0331, 0332, 0333, 0335, 0339, 0342 

Radiology - Therapeutic C_1_C5_55 C_1_C6_55 D3_H

0343 and 344 Radioisotope C_1_C5_56 C_1_C6_56 D3_H

 C_1_C7_56 
 208 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Computed Tomography (CT) Scan 

CT Scan Charges 035X 

Computed Tomography (CT) Scan C_1_C5_57 C_1_C6_57 D3_H

 C_1_C7_57 

Magnetic Resonance Imaging (MRI) MRI Charges 061X 

Magnetic Resonance Imaging (MRI) C_1_C5_58 C_1_C6_58 D3_H

 C_1_C7_58 Emergency Room 

Emergency Room Charges 045x Emergency C_1_C5_91 C_1_C6_91 D3_H
 209 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 C_1_C7_91 

Blood and Blood Products 

Blood Charges 038x 

Whole Blood & Packed Red Blood Cells C_1_C5_62 C_1_C6_62 D3_H

 C_1_C7_62 

Blood Storage / Processing 039x 

Blood Storing, Processing, & Transfusing C_1_C5_63 C_1_C6_63 D3_H

 C_1_C7_63 
 210 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 Other Services 

Other Service Charge 

0002-0099, 022X, 023X, 024X,052X,053X 055X-060X, 064X-070X, 076X-078X, 090X-095X and 099X 

Renal Dialysis 0800X Renal Dialysis C_1_C5_74 C_1_C6_74 D3_HESRD Revenue Setting Charges 

080X and 082X-088X C_1_C7_74 

Home Program Dialysis C_1_C5_94 C_1_C6_94 D3_H
 211 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 C_1_C7_94 

Outpatient Service Charges 049X 

ASC (Non Distinct Part) C_1_C5_75 C_1_C6_75 D3_H

Lithotripsy Charge 079X C_1_C7_75 

Other Ancillary C_1_C5_76 C_1_C6_76 D3_H

 C_1_C7_76 

Clinic Visit Charges 051X Clinic C_1_C5_90 C_1_C6_90 D3_H

C_1_C7_90 
 212 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

Observation beds 

C_1_C5_92.01 

C_1_C6_92.01 

D3_H.01 

C_1_C7_92.01 

Professional Fees Charges 

096X, 097X, and 098X 

Other Outpatient Services C_1_C5_93 C_1_C6_93 D3_H

C_1_C7_93 

Ambulance Charges 054X Ambulance C_1_C5_95 C_1_C6_95 D3_H

 C_1_C7_95 

Rural Health Clinic C_1_C5_88 C_1_C6_88 D3_H
 213 

Cost Center Group Name (19 total) 

MedPAR Charge Field 

Revenue Codes contained in MedPAR Charge Field 

Cost Report Line Description 

Cost from HCRIS (Worksheet C, Part 1, Column 5 and line number) Form CMS2552-10 

Charges from HCRIS (Worksheet C, Part 1, Column 6 & 7 and line number) Form CMS2552-10 

MedCharHCR(WoColunumForm 2552

 C_1_C7_88  FQHC C_1_C5_89 C_1_C6_89 D3_H C_1_C7_89 
 214 

3. Development of National Average CCRs 

 We developed the national average CCRs as follows: 

 Using the FY 2011 cost report data, we removed CAHs, Indian Health Service 

hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of 

less than 1 year (365 days). We included hospitals located in Maryland because we 

include their charges in our claims database. We then created CCRs for each provider for 

each cost center (see prior table for line items used in the calculations) and removed any 

CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs 

by dividing the CCR for each department by the total CCR for the hospital for the 

purpose of trimming the data. We then took the logs of the normalized cost center CCRs 

and removed any cost center CCRs where the log of the cost center CCR was greater or 

less than the mean log plus/minus 3 times the standard deviation for the log of that cost 

center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific 

CCR. The Medicare-specific CCR was determined by taking the Medicare charges for 

each line item from Worksheet D-3 and deriving the Medicare-specific costs by applying 

the hospital-specific departmental CCRs to the Medicare-specific charges for each line 

item from Worksheet D-3. Once each hospital’s Medicare-specific costs were 

established, we summed the total Medicare-specific costs and divided by the sum of the 

total Medicare-specific charges to produce national average, charge-weighted CCRs. 

 After we multiplied the total charges for each MS-DRG in each of the 19 cost 

centers by the corresponding national average CCR, we summed the 19 “costs” across 

each MS-DRG to produce a total standardized cost for the MS-DRG. The average 
 215 

standardized cost for each MS-DRG was then computed as the total standardized cost for 

the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average 

cost for each MS-DRG was then divided by the national average standardized cost per 

case to determine the relative weight. 

 The proposed FY 2014 cost-based relative weights were then normalized by an 

adjustment factor of 1.6122128377 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 proposed 19 national average CCRs for FY 2014 are as follows: 

Group CCR 

Routine Days 0.502 

Intensive Days 0.423 

Drugs 0.193 

Supplies & Equipment 0.293 

Implantable Devices 0.361 

Therapy Services 0.355 

Laboratory 0.133 

Operating Room 0.225 

Cardiology 0.132 

Cardiac Catheterization 0.135 

Radiology 0.170 

MRIs 0.091 

CT Scans 0.045 

Emergency Room 0.207 

Blood and Blood Products 0.371 

Other Services 0.399 

Labor & Delivery 0.445 

Inhalation Therapy 0.187 

Anesthesia 0.120 

 Since FY 2009, the relative weights have been based on 100 percent cost weights 

based on our MS-DRG grouping system. 
 216 

 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 2014 proposed rule, we are proposing to use that same case threshold in 

recalibrating the proposed MS-DRG weights for FY 2014. Using data from the FY 2012 

MedPAR file, there were 7 MS-DRGs that contain fewer than 10 cases. Under the 

MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no 

longer have separate DRGs for patients aged 0 to 17 years. With the exception of 

newborns, we previously separated some DRGs based on whether the patient was age 0 

to 17 years or age 17 years and older. Other than the age split, cases grouping to these 

DRGs are identical. The DRGs for patients aged 0 to 17 years generally have very low 

volumes because children are typically ineligible for Medicare. In the past, we have 

found that the low volume of cases for the pediatric DRGs could lead to significant 

year-to-year instability in their relative weights. Although we have always encouraged 

non-Medicare payers to develop weights applicable to their own patient populations, we 

have received frequent complaints from providers about the use of the Medicare relative 

weights in the pediatric population. We believe that eliminating this age split in the 

MS-DRGs will provide more stable payment for pediatric cases by determining their 

payment using adult cases that are much higher in total volume. Newborns are unique 

and require separate MS-DRGs that are not mirrored in the adult population. Therefore, 

it remains necessary to retain separate MS-DRGs for newborns. All of the low-volume 

MS-DRGs listed below are for newborns. In FY 2014, because we do not have sufficient 

MedPAR data to set accurate and stable cost weights for these low-volume MS-DRGs, 
 217 

we are proposing to compute weights for the low-volume MS-DRGs by adjusting their 

FY 2013 weights by the percentage change in the average weight of the cases in other 

MS-DRGs. The crosswalk table is shown below: 

Low-Volume 

MS-DRG MS-DRG Title Crosswalk to MS-DRG 

789 Neonates, Died or Transferred to 

Another Acute Care Facility 

FY 2013 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 2013 FR weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 

791 Prematurity with Major Problems FY 2013 FR weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 

792 Prematurity without Major 

Problems 

FY 2013 FR weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 

793 Full-Term Neonate with Major 

Problems 

FY 2013 FR weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 

794 Neonate with Other Significant 

Problems 

FY 2013 FR weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 

795 Normal Newborn FY 2013 FR weight 

(adjusted by percent change 

in average weight of the 

cases in other MS-DRGs) 

4. Bundled Payments for Care Improvement (BPCI) Initiative 

 The Bundled Payments for Care Improvement (BPCI) initiative, developed under 

the authority of section 3021 of the Affordable Care Act (codified at section 1115A of the 
 218 

Act), is comprised of four broadly defined models of care, which link payments for 

multiple services beneficiaries receive during an episode of care. Under the BPCI 

initiative, organizations enter into payment arrangements that include financial and 

performance accountability for episodes of care. On January 31, 2013, CMS announced 

the health care organizations selected to participate in the BPCI initiative. For additional 

information on the BPCI initiative, we refer readers to the CMS’ Center for Medicare and 

Medicaid Innovation’s Web site at http://innovation.cms.gov/initiatives/BundledPayments/index.html and to section IV.H.4. of the preamble of the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53341 through 53343) for a discussion on the BPCI initiative. 

 In the FY 2013 IPPS/LTCH PPS final rule, for FY 2013 and subsequent fiscal 

years, we finalized a policy to treat hospitals that participate in the BPCI initiative the 

same as prior fiscal years for the IPPS payment modeling and ratesetting process without 

regard to a hospital’s participation within these bundled payment models (that is, as if a 

hospital were not participating in those models under the BPCI initiative). Therefore, for 

FY 2014, we are proposing to continue to include all applicable data from subsection (d) 

hospitals participating in BPCI Models 1, 2, and 4 in our IPPS payment modeling and 

ratesetting calculations. We refer readers to the FY 2013 IPPS/LTCH PPS final rule for a 

complete discussion on our final policy for the treatment of hospitals participating in the 

BPCI initiative in our ratesetting process.
 219 

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 

discharges occurring in FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs. 

 The regulations at 42 CFR 412.87 implement these provisions and specify three 

criteria for a new medical service or technology to receive the additional payment: (1) 

the medical service or technology must be new; (2) the medical service or technology 

must be costly such that the DRG rate otherwise applicable to discharges involving the 

medical service or technology is determined to be inadequate; and (3) the service or 

technology must demonstrate a substantial clinical improvement over existing services or 

technologies. Below we highlight some of the major statutory and regulatory provisions 

relevant to the new technology add-on payment criteria as well as other information. For 
 220 

a complete discussion on the new technology add-on payment criteria, we refer readers to 

the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574). 

 Under the first criterion, as reflected in § 412.87(b)(2), a specific medical service 

or technology will be considered “new” for purposes of new medical service or 

technology add-on payments until such time as Medicare data are available to fully 

reflect the cost of the technology in the MS-DRG weights through recalibration. We note 

that we do not consider a service or technology to be new if it is substantially similar to 

one or more existing technologies. That is, even if a technology receives a new FDA 

approval, it may not necessarily be considered “new” for purposes of new technology 

add-on payments if it is “substantially similar” to a technology that was approved by 

FDA and has been on the market for more than 2 to 3 years. In the FY 2006 IPPS final 

rule (70 FR 47351) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 

and 43814), we explained our policy regarding substantial similarity in detail. 

 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. Table 10 that was released with the 

FY 2013 IPPS/LTCH PPS final rule contains the final thresholds that will be used to 

evaluate applications for new technology add-on payments for FY 2014. We refer 
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readers to the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/FY-2013-IPPS-Final-Rule-Home-Page.html for a 

complete viewing of Table 10 from the FY 2013 IPPS/LTCH PPS final 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 Health 

Insurance Portability and Accountability Act (HIPAA) Privacy Rule at 45 CFR Parts 160 

and 164 applies to claims information that providers submit with applications for new 

technology add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51573) for complete information on this issue. 

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

new technology is an appropriate candidate for an additional payment when it represents 

“an advance that substantially improves, relative to technologies previously available, the 

diagnosis or treatment of Medicare beneficiaries.” For example, a new technology 

represents a substantial clinical improvement when it reduces mortality, decreases the 

number of hospitalizations or physician visits, or reduces recovery time compared to the 

technologies previously available. (We refer readers to the September 7, 2001 final rule 

for a more detailed discussion of this criterion (66 FR 46902).) 

 The new medical service or technology add-on payment policy under the IPPS 

provides additional payments for cases with relatively high costs involving eligible new 

medical services or technologies while preserving some of the incentives inherent under 

an average-based prospective payment system. The payment mechanism is based on the 

cost to hospitals for the new medical service or technology. Under § 412.88, if the costs 
 222 

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, the additional Medicare 

payment is limited to the full MS-DRG payment plus 50 percent of the estimated costs of 

the new technology. 

 Section 503(d)(2) of Pub. L. 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 

Pub. L. 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 longstanding practice of how CMS evaluates the 

eligibility criteria for new medical service or technology add-on payment applications. 

That is, we first determine whether a medical service or technology meets the newness 

criteria, and only if so, do we then make a determination as to whether the technology 

meets the cost threshold and represents a substantial clinical improvement over existing 

medical services or technologies. We also amended § 412.87(c) to specify that all 

applicants for new technology add-on payments must have FDA approval or clearance 
 223 

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 Pub. L. 108-173. The Council is co-chaired by the Director of 

the Center for Clinical Standards and Quality (CCSQ) and the Director of the Center for 

Medicare (CM), who is also designated as the CTI's Executive Coordinator. 

 The specific processes for coverage, coding, and payment are implemented by 

CM, CCSQ, and the local claims-payment contractors (in the case of local coverage and 

payment decisions). The CTI supplements, rather than replaces, these processes by 

working to assure that all of these activities reflect the agency-wide priority to promote 

high-quality, innovative care. At the same time, the CTI also works to streamline, 

accelerate, and improve coordination of these processes to ensure that they remain up to 

date as new issues arise. To achieve its goals, the CTI works to streamline and create a 

more transparent coding and payment process, improve the quality of medical 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. 
 224 

 To improve the understanding of CMS’ processes for coverage, coding, and 

payment and how to access them, the CTI has developed an “Innovator's Guide” to these 

processes. The intent is to consolidate this information, much of which is already 

available in a variety of CMS documents and in various places on the CMS Web site, in a 

user-friendly format. This guide was published in August 2008 and is available on the 

CMS Web site at: 

http://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf. 

 As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we invite any 

product developers or manufacturers of new medical 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. 

 We note that applicants for add-on payments for new medical services or 

technologies for FY 2015 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 
 225 

that the medical service or technology meets the high-cost threshold. Complete 

application information, along with final deadlines for submitting a full application, will 

be posted as it becomes available on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/newtech.html . To allow interested parties to identify the 

new medical services or technologies under review before the publication of the proposed 

rule for FY 2015, the Web site also will post the tracking forms completed by each 

applicant. 

2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On 

Payments 

 Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of 

Pub. L. 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 
 226 

● 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 2014 prior to publication of this FY 2014 

IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on 

November 23, 2012 (77 FR 70163 through 70165), and held a town hall meeting at the 

CMS Headquarters Office in Baltimore, MD, on February 5, 2013. 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 2014 new medical 

service and technology add-on payment applications before the publication of this 

FY 2014 proposed rule. 

 Approximately 60 individuals registered to attend the town hall meeting in 

person, while additional individuals listened over an open telephone line. We also 

live-streamed the town hall meeting over the Internet and received very positive feedback 

from the public on use of this option. We are considering no longer holding an in-person 

town hall meeting in Baltimore, MD, and instead holding a virtual town hall meeting that 

would be live-streamed on the Internet. We are inviting public comments on the 

possibility of holding a virtual town hall meeting instead of an in-person town hall 
 227 

meeting in Baltimore, MD. Four of the five FY 2014 applicants presented information on 

their technologies, 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 

that were received by the due date of February 26, 2013, in our evaluation of the new 

technology add-on payment applications for FY 2014 in this proposed rule. 

 In response to the published notice and the new technology town hall meeting, we 

received written comments regarding applications for FY 2014 new technology add-on 

payments. We summarize these comments below or, if applicable, indicate that there 

were no comments received, at the end of each discussion of the individual applications 

in this proposed rule. 

 A number of attendees at the new technology town hall meeting provided 

comments that were unrelated to “substantial clinical improvement.” As explained above 

and in the Federal Register notice announcing the new technology town hall meeting 

(77 FR 70163 through 70165), the purpose of the new technology town hall meeting was 

specifically to discuss the substantial clinical improvement criterion in regard to pending 

new technology applications for FY 2014. Therefore, we are not summarizing those 

comments in this proposed rule. Commenters are welcome to resubmit these comments 

in response to proposals presented in this proposed rule. 
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3. FY 2014 Status of Technologies Approved for FY 2013 Add-On Payments 

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. AutoLITTTM is a minimally invasive, MRI-guided 

laser tipped catheter designed to destroy malignant brain tumors with interstitial thermal 

energy causing immediate coagulation and necrosis of diseased tissue. The technology 

can be identified by ICD-9-CM procedure codes 17.61 (Laser interstitial thermal therapy 

[LITT] of lesion or tissue of brain under guidance), and 17.62 (Laser interstitial thermal 

therapy [LITT] of lesion or tissue of head and neck under guidance), which became 

effective on October 1, 2009. 

 The AutoLITTTM received a 510(k) 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 updates, the technology was actually 

introduced to the market in December 2009. After evaluation of the newness, costs, and 

substantial clinical improvement criteria for new technology add-on payments for the 

AutoLITTTM and consideration of the public comments we received in response to the 

FY 2011 IPPS/LTCH PPS proposed rule, including the additional analysis of clinical data 

and supporting information submitted by the applicant, we approved the AutoLITTTM for 

new technology add-on payments for FY 2011. In the FY 2013 IPPS/LTCH PPS 
 229 

proposed rule (77 FR 27935 through 27936), based on the original information provided 

by the applicant, we believed that the newness date for the AutoLITTTM began in 

December 2009. However, as summarized in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53345 through 53346), the applicant submitted a public comment (in response to 

the FY 2013 proposed rule) demonstrating that the AutoLITTTM was first available on 

May 11, 2010. The manufacturer explained that some of the sterile disposable products 

were not released from quarantine until May 11, 2010, which prevented the AutoLITTTM 

from being used prior to May 11, 2010. Therefore, the manufacturer asserted that the 

first time the AutoLITTTM was available on the market was May 11, 2010. As a result of 

this information, we continued to make new technology add-on payments for the 

AutoLITTTM in FY 2013. (We refer readers to the FY 2013 IPPS/LTCH PPS final rule 

for a complete discussion on this issue). 

 Consistent with the applicant’s clinical trial, the add-on payment is intended only 

for use of the device in cases of glioblastoma multiforme. Therefore, we limited the new 

technology add-on payment to cases involving the AutoLITTTM in MS-DRGs 025 

(Craniotomy and Endovascular Intracranial Procedures with Major Complications or 

Comorbidities (MCC)), 026 (Craniotomy and Endovascular Intracranial Procedures with 

Complications or Comorbidities (CC)), and 027 (Craniotomy and Endovascular 

Intracranial Procedures without CC or MCC). Cases involving the AutoLITTTM that are 

eligible for the new technology add-on payment are identified by assignment to 

MS-DRGs 025, 026, and 027 with a procedure code of 17.61 (Laser interstitial 

thermotherapy of lesion or tissue of brain under guidance) in combination with a 
 230 

principal diagnosis code that begins with a prefix of 191 (Malignant neoplasm of brain). 

We note that using the procedure and diagnosis codes above and restricting the add-on 

payment to cases that map to MS-DRGs 025, 026, and 027 is consistent with information 

provided by the applicant, which demonstrated that cases of the AutoLITTTM would only 

map to MS-DRGs 025, 026, and 027. Procedure code 17.62 (Laser interstitial 

thermotherapy of lesion or tissue of head and neck under guidance) does not map to 

MS-DRGs 025, 026, or 027 under the GROUPER software and, therefore, is ineligible 

for new technology add-on payment. 

 The average cost of the AutoLITTTM is reported as $10,600 per case. Under 

§ 412.88(a)(2) of the regulations, new technology add-on payments are limited to the 

lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess 

of the MS-DRG payment for the case. As a result, the maximum add-on payment for a 

case involving the AutoLITTTM is $5,300. 

 The new technology add-on payment regulations provide that “a medical service 

or technology may be considered new within 2 or 3 years after the point at which data 

begin to become available reflecting the ICD-9-CM code assigned to the new service or 

technology” (§ 412.87(b)(2)). Our practice has been to begin and end new technology 

add-on payments on the basis of a fiscal year, and we have generally followed a guideline 

that uses a 6-month window before and after the start of the fiscal year to determine 

whether to extend the new technology add-on payment for an additional fiscal year. In 

general, we extend add-on payments for an additional year only if the 3-year anniversary 

date of the product’s entry on the market occurs in the latter half of the fiscal year 
 231 

(70 FR 47362). With regard to the newness criterion for the AutoLITTTM, as stated 

above, we consider the beginning of the newness period for the device to commence 

when the AutoLITTTM was first available on May 11, 2010. Because the 3-year 

anniversary date of the AutoLITTTM entry onto the market will expire May 11, 2013, 

which is prior to the beginning of FY 2014, we are proposing to discontinue new 

technology add-on payments for the AutoLITTTM for FY 2014. We are inviting public 

comments on this proposal. 

b. Glucarpidase (Trade Brand Voraxaze®) 

 BTG International, Inc. submitted an application for new technology add-on 

payments for Glucarpidase (trade brand Voraxaze®) for FY 2013. Glucarpidase is used 

in the treatment of patients who have been diagnosed with toxic methotrexate (MTX) 

concentrations as of result of renal impairment. The administration of Glucarpidase 

causes a rapid and sustained reduction of toxic MTX concentrations. 

 Voraxaze® was approved by the FDA on January 17, 2012. Beginning in 1993, 

certain patients could obtain expanded access for treatment use to Voraxaze® as an 

investigational drug. Since 2007, the applicant has been authorized to recover the costs 

of making Voraxaze® available through its expanded access program. We describe 

expanded access for treatment use of investigational drugs and authorization to recover 

certain costs of investigational drugs in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53346 through 53350). Voraxaze® was available on the market in the United 

States as a commercial product to the larger population as of April 30, 2012. In the 

FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27936 through 27939), we expressed 
 232 

concerns about whether Voraxaze® could be considered new for FY 2013. After 

consideration of all of the public comments received, in the FY 2013 IPPS/LTCH PPS 

final rule, we stated that we considered Voraxaze® to be “new” as of April 30, 2012, 

which is the date of market availability. 

 After evaluation of the newness, costs, and substantial clinical improvement 

criteria for new technology payments for Voraxaze® and consideration of the public 

comments we received in response to the FY 2013 IPPS/ LTCH PPS proposed rule, we 

approved Voraxaze® for new technology add-on payments for FY 2013. Cases of 

Voraxaze® are identified with ICD-9-CM procedure code 00.95 (Injection or infusion of 

glucarpidase). The cost of Voraxaze® is $22,500 per vial. The applicant stated that an 

average of four vials is used per Medicare beneficiary. Therefore, the average cost per 

case for Voraxaze® is $90,000 ($22,500 x 4). Under § 412.88(a)(2), new technology addon payments are limited to the lesser of 50 percent of the average cost of the technology 

or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the 

maximum new technology add-on payment for Voraxaze® is $45,000 per case. 

 As stated above, the new technology add-on payment regulations provide that “a 

medical service or technology may be considered new within 2 or 3 years after the point 

at which data begin to become available reflecting the ICD-9-CM code assigned to the 

new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for 

Voraxaze®, as stated above, we consider the beginning of the newness period to 

commence when Voraxaze® was first available on the market on April 30, 2012. 

Because Voraxaze® is still within the 3-year newness period, we are proposing to 
 233 

continue new technology add-on payments for this technology for FY 2014. We are 

inviting public comments on this proposal. 

c. DIFICIDTM (Fidaxomicin) Tablets 

 Optimer Pharmaceuticals, Inc. submitted an application for new technology addon payments for FY 2013 for the use of DIFICIDTM tablets. As indicated on the labeling 

submitted to the FDA, the applicant noted that Fidaxomicin is taken twice a day as a 

daily dosage (200 mg tablet twice daily = 400 mg per day) as an oral antibiotic. The 

applicant asserted that Fidaxomicin provides potent bactericidal activity against C. Diff.,

and moderate bactericidal activity against certain other gram-positive organisms, such as 

enterococcus and staphylococcus. Unlike other antibiotics used to treat CDAD, the 

applicant noted that the effects of Fidaxomicin preserve bacteroides organisms in the 

fecal flora. These are markers of normal anaerobic microflora. The applicant asserted 

that this helps prevent pathogen introduction or persistence, which potentially inhibits the 

re-emergence of C. Diff., and reduces the likelihood of overgrowths as a result of 

vancomycin-resistant Enterococcus (VRE). Because of this narrow spectrum of activity, 

the applicant asserted that Fidaxomicin does not alter this native intestinal microflora. 

 In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27939 through 27941), we 

expressed concern that DIFICIDTM may not be eligible for new technology add-on 

payments because eligibility is limited to new technologies associated with procedures 

described by ICD-9-CM codes. We further stated that drugs that are only taken orally 

(such as DIFICIDTM) may not be eligible for consideration for new technology add-on 

payments because there is no procedure associated with these drugs and, therefore, no 
 234 

ICD-9-CM code(s). In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53350 through 

53358), after consideration of the public comments received, we revised our policy to 

allow the use of National Drug Codes (NDCs) to identify oral medications that have no 

inpatient procedure for the purposes of new technology add-on payments. The revised 

policy is effective for payments for discharges occurring on or after October 1, 2012. We 

refer readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on this 

issue.

 With regard to the newness criterion, Fidaxomicin was approved by the FDA on 

May 27, 2011, for the treatment of CDAD in adult patients, 18 years of age and older. In 

the FY 2013 IPPS/LTCH PPS final rule, we established that the beginning of the newness 

period for this technology is its FDA approval date of May 27, 2011. 

 After evaluation of the newness, costs, and substantial clinical improvement 

criteria for new technology add-on payments for DIFICIDTM and consideration of the 

public comments we received in response to the FY 2013 IPPS/ LTCH PPS proposed 

rule, we approved DIFICIDTM for new technology add-on payments for FY 2013. Cases 

of DIFICIDTM are identified with ICD-9-CM diagnosis code 008.45 (Intestinal infection 

due to Clostridium difficile) in combination with NDC code 52015-0080-01. Providers 

must report the NDC on the 837i Health Care Claim Institutional form (in combination 

with ICD-9-CM diagnosis code 008.45) in order to receive the new technology add-on 

payment. According to the applicant, the cost of DIFICIDTM is $2,800 for a 10-day 

dosage. The average cost per day for DIFICIDTM is $280 ($2,800/10). Cases of 

DIFICIDTM within the inpatient setting typically incur an average dosage of 6.2 days, 
 235 

which results in an average cost per case for DIFICIDTM of $1,736 ($280 x 6.2). Under 

§ 412.88(a)(2), new technology add-on payments are limited to the lesser of 50 percent of 

the average cost of the technology or 50 percent of the costs in excess of the MS-DRG 

payment for the case. As a result, the maximum new technology add-on payment for 

FY 2013 for DIFICIDTM is $868. 

 As stated above, the new technology add-on payment regulations provide that “a 

medical service or technology may be considered new within 2 or 3 years after the point 

at which data begin to become available reflecting the ICD-9-CM code assigned to the 

new service or technology” (§ 412.87(b)(2)). Our practice has been to begin and end new 

technology add-on payments on the basis of a fiscal year, and we have generally followed 

a guideline that uses a 6-month window before and after the start of the fiscal year to 

determine whether to extend the new technology add-on payment for an additional fiscal 

year. In general, we extend add-on payments for an additional year only if the 3-year 

anniversary date of the product’s entry on the market occurs in the latter half of the fiscal 

year (70 FR 47362). With regard to the newness criterion for DIFICIDTM, as stated 

above, we consider the beginning of the newness period to commence when DIFICIDTM 

was first approved by the FDA on May 27, 2011. Because the 3-year anniversary date of 

DIFICIDTM will occur in the second half of the fiscal year (after April 1, 2014), we are 

proposing to continue new technology add-on payments for DIFICIDTM for FY 2014. 

We are inviting public comments on this proposal. 
 236 

d. Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft 

 Cook® Medical submitted an application for new technology add-on payments for 

the Zenith® Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft 

(Zenith® F. Graft) for FY 2013. The applicant stated that the current treatment for 

patients who have had an AAA is an endovascular graft. The applicant explained that the 

Zenith® F. Graft is an implantable device designed to treat patients who have an AAA 

and who are anatomically unsuitable for treatment with currently approved AAA 

endovascular grafts because of the length of the infrarenal aortic neck. The applicant 

noted that, currently, an AAA is treated through an open surgical repair or medical 

management for those patients not eligible for currently approved AAA endovascular 

grafts. 

 With respect to newness, the applicant stated that FDA approval for the use of the 

Zenith® F. Graft was granted on April 4, 2012. In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53360 through 53365), we stated that because the Zenith® F. Graft was 

approved by the FDA on April 4, 2012, we believed that the Zenith® F. Graft met the 

newness criterion as of that date. 

 After evaluation of the newness, costs, and substantial clinical improvement 

criteria for new technology add-on payments for the Zenith® F. Graft and consideration 

of the public comments we received in response to the FY 2013 IPPS/LTCH PPS 

proposed rule, we approved the Zenith® F. Graft for new technology add-on payments for 

FY 2013. Cases involving the Zenith® F. Graft that are eligible for new technology addon payments are identified by ICD-9-CM procedure code 39.78 (Endovascular 
 237 

implantation of branching or fenestrated graft(s) in aorta). In the application, the 

applicant provided a breakdown of the costs of the Zenith® F. Graft. The total cost of the 

Zenith® F. Graft utilizing bare metal (renal) alignment stents was $17,264. Of the 

$17,264 in costs for the Zenith® F. Graft, $921 are for components that are used in a 

standard Zenith AAA Endovascular Graft procedure. Because the costs for these 

components are already reflected within the MS-DRGs (and are no longer “new”), in the 

FY 2013 IPPS/LTCH PPS final rule, we stated that we do not believe it is appropriate to 

include these costs in our calculation of the maximum cost to determine the maximum 

add-on payment for the Zenith® F. Graft. Therefore, the total maximum cost for the 

Zenith® F. Graft is $16,343 ($17,264 - $921). Under § 412.88(a)(2), new technology 

add-on payments are limited to the lesser of 50 percent of the average cost of the device 

or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the 

maximum add-on payment for a case involving the Zenith® F. Graft is $8,171.50. 

 As stated above, the new technology add-on payment regulations provide that “a 

medical service or technology may be considered new within 2 or 3 years after the point 

at which data begin to become available reflecting the ICD-9-CM code assigned to the 

new service or technology” (§ 412.87(b)(2)). With regard to the newness criterion for the 

Zenith® F. Graft, as stated above, we consider the beginning of the newness period to 

commence when the Zenith® F. Graft was approved by the FDA on April 4, 2012. 

Because the Zenith® F. Graft is still within the 3-year newness period, we are proposing 

to continue new technology add-on payments for this technology for FY 2014. We are 

inviting public comments on this proposal. 
 238 

4. FY 2014 Applications for New Technology Add-On Payments 

 We received five applications for new technology add-on payments for FY 2014. 

a. KcentraTM 

 CSL Behring submitted an application for new technology add-on payments for 

KcentraTM for FY 2014. KcentraTM is a replacement therapy for fresh frozen plasma 

(FFP) for patients with an acquired coagulation factor deficiency due to warfarin and who 

are experiencing a severe bleed. KcentraTM contains the Vitamin K dependent 

coagulation factors II, VII, IX and X, together known as the prothrombin complex, and 

antithrombotic proteins C and S. Factor IX is the lead factor for the potency of the 

preparation. The product is a heat-treated, non-activated, virus filtered and lyophilized 

plasma protein concentrate made from pooled human plasma. KcentraTM is available as a 

lyophilized powder that needs to be reconstituted with sterile water prior to 

administration via intravenous infusion. The product is dosed based on Factor IX units. 

Concurrent Vitamin K treatment is recommended to maintain blood clotting factor levels 

once the effects of KcentraTM have diminished. 

 The applicant expects to receive FDA approval for KcentraTM in the second 

quarter of 2013. The technology is not described by any current ICD-9-CM procedure 

codes. The applicant applied for a new ICD-9-CM procedure code for consideration at 

the March 5, 2013 ICD-9-CM Coordination and Maintenance Committee Meeting. More 

information on this request can be found on the CMS Web site at: 

http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-MMeeting-Materials-Items/2013-03-05-MeetingMaterials.html. We note that any final 
 239 

decisions on new codes approved at the March 5, 2013 ICD-9-CM Coordination and 

Maintenance Committee meeting will be included in the ICD-9-CM code addendum 

posted on the CMS Web site in June 2013 at: 

http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum.html. In 

addition, code revisions that were discussed at the March 5, 2013 ICD-9-CM 

Coordination and Maintenance Committee meeting but that could not be finalized in time 

to include them in the tables for this proposed rule will be included in the appropriate 

table for the final rule (the tables for both the proposed rule and the final rule are 

available via the Internet on the CMS Web site). 

 We note that we are concerned that KcentraTM may be substantially similar to FFP 

and/or Vitamin K therapy. If so, KcentraTM would not meet the newness criterion 

because costs associated with FFP and/or Vitamin K therapy are already reflected within 

the MS-DRGs. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 

through 43814), we established criteria for evaluating whether a new technology is 

substantial similar to an existing technology, specifically: (1) whether a product uses the 

same or a similar mechanism of action to achieve a therapeutic outcome; (2) whether a 

product is assigned to the same or a different MS-DRG; and (3) whether the new use of 

the technology involves the treatment of the same or similar type of disease and the same 

or similar patient population. If a technology meets all three of the criteria above, it 

would be considered substantially similar to an existing technology and would not be 

considered “new” for purposes of new technology add-on payments. 
 240 

 In evaluating the first criterion, we believe that both FFP and KcentraTM use the 

same mechanism of action of Vitamin K dependent coagulation to reverse the anticoagulation effects of warfarin. With respect to the second criterion, we believe that 

cases involving both FFP and KcentraTM would be assigned to the same MS-DRGs. 

Finally, with respect to the third criterion, we believe that both technologies treat the 

same disease and patient population. Specifically, the patient population for both 

KcentraTM and FFP are patients with an acquired coagulation factor deficiency due to 

warfarin and who are experiencing a severe bleed. Delay of treatment of these patients 

can lead to an increase in complications as well as an increase of the severity of the bleed. 

Although FFP needs to thaw for a couple of hours before it can be administered (thus 

delaying treatment) compared to KcentraTM, which can be used instantly, we believe that 

both KcentraTM and FFP treat the same patient population. Based on evaluation of the 

similarity criteria, it appears that KcentraTM is substantially similar to FFP. Therefore, 

KcentraTM may not be considered “new” for purposes of new technology add-on 

payments. We are inviting public comments regarding whether KcentraTM is 

substantially similar to existing technologies and whether KcentraTM meets the newness 

criterion. 

 According to the applicant, the technology is eligible to be used across all 

MS-DRGs. To demonstrate that it meets the cost criterion, the applicant searched the 

FY 2011 MedPAR file (across all MS DRGs) for cases reporting a primary or secondary 

diagnosis of E934.2 (Adverse events due to anticoagulants), V58.61 (Long term (current) 

use of anticoagulants), or 964.2 (Poisoning by anticoagulants) in combination with 
 241 

procedure code 99.07 (Transfusion of the serum). The applicant believed that this 

combination identified cases that suggest the use of a Vitamin K antagonist therapy as 

well as a major bleed. 

 The applicant found 66,749 cases across all MS-DRGs and noted that 18 percent 

of all cases would map to MS-DRGs 377 (Gastrointestinal Hemorrhage with MCC), 378 

(Gastrointestinal Hemorrhage with CC), and 379 (Gastrointestinal Hemorrhage without 

CC/MCC), while the top 20 MS-DRGs would account for 41 percent of all cases. The 

applicant standardized charges (for all 66,749 cases) and removed charges for FFP 

therapy, which equated to a case-weighted average standardized charge per case of 

$49,748. The applicant calculated a case-weighted threshold of $46,068 across all 

MS-DRGs. The applicant asserted that the average case-weighted standardized charge 

per case without including charges for KcentraTM exceeded the case-weighted threshold 

of $46,068. Therefore, the applicant maintained that it meets the cost criterion. We are 

inviting public comments regarding whether KcentraTM meets the cost criterion, 

particularly with regard to the assumptions and methodology used in the applicant’s 

analysis. 

 With regard to substantial clinical improvement, according to the applicant, 

KcentraTM is the first prothrombin complex concentrate (PCC) that will be FDAapproved for rapid warfarin reversal in patients experiencing an acute major bleed. The 

manufacturer maintained that KcentraTM represents a substantial clinical improvement in 

the treatment of patients with acute severe bleeding who require immediate reversal of 

their Vitamin K antagonist (VKA) therapy by (1) providing a rapid, beneficial resolution 
 242 

of the patient’s blood clotting factor deficiency, (2) decreasing the risk of exposure to 

blood borne pathogens, and (3) reducing the rate of transfusion-associated complications. 

 The applicant cited its pivotal study (a noninferior, randomized clinical trial)3 and 

noted that KcentraTM was able to reverse the effects of warfarin to a target International 

Normalized Ratio (INR) of less than or equal to 1.3 within 30 minutes in 62 percent of 

patients compared to less than 10 percent success for plasma. Also, serum levels of the 

key coagulant and anti-thrombotic proteins were normalized in less than an hour with 

KcentraTM, but remained depressed with plasma for hours. 

 The applicant also explained that KcentraTM undergoes a dedicated pathogen 

removal process and plasma does not. The applicant asserted that this drastically reduces 

the risk of transmitting both known and unknown blood borne pathogens. The applicant 

cited a retrospective analysis of scientific publications4

 on the use of KcentraTM in the 

European Union (EU), including the pharmacovigilance database from 1996 through 

2008. The applicant noted that an estimated 350,000 patients have been treated with 

KcentraTM (known as Beriplex in the EU) with no cases of viral transmission. 

 The applicant also stated that, in the United States, blood suppliers follow a strict 

set of regulations for screening and testing the blood supply, but these tests and donor 

questionnaires do not account for emerging pathogens that could contaminate the blood 

supply. The applicant explained that parasitic infections and diseases (such as babesiosis 

 

3

 Sarode R, et al., Efficacy and Safety of a Four Factor Prothrombin Complex Concentrate in Patients on 

Vitamin K Antagonists Presenting with Major Bleeding: A Randomized, Plasma Controlled, Phase IIIb 

Study. Circulation. Submitted October 31, 2012. Copy to be provided upon acceptance. 4

 Hanke A, et al., Efficacy and Long-Term Safety of a Pasteurized Nanofiltrated Prothrombin Complex 

Concentrate (BERIPLEX® P/N), 2009, J Thromb Haemost, Vol. 7 (Suppl.2) PP-WE-697. 
 243 

and Chaga’s disease) have already been documented in U.S. patients as a result of 

transfusion. However, there is no screening test to date for some of these parasitic 

infections and diseases. The applicant believed that the multi-step manufacturing process 

for KcentraTM, including heat treatment and nanofiltration, reduces the risk of 

transmitting such infections and diseases. 

 The applicant also noted that another benefit of KcentraTM is the ability to rapidly 

prepare and administer the product in an emergency situation. In addition to the benefit 

of room temperature storage, KcentraTM can be rapidly reconstituted. In the clinical 

study, the applicant found that the average administration time for KcentraTM was less 

than 30 minutes. However, the applicant stated, other treatments such as FFP and 

intravenous Vitamin K therapies act slowly, and FFP can be difficult to use. The 

applicant explained that FFP therapy requires blood-type matching, usually requires 

thawing, and is often located away from the point of care. The applicant also cited a 

study5

 that demonstrated the median time from time of diagnosis to plasma infusion was 

90 minutes, which did not include time to infuse the plasma which can take hours. 

 The applicant further noted that essential blood coagulation factors in one vial of 

KcentraTM are approximately 25 times more concentrated than the equivalent plasma 

dose. According to the applicant, this translated to an infusion volume that was 87 

percent greater in the plasma group of patients as seen in the pivotal study. The applicant 

explained that high transfusion volumes of treatments such as FFP therapy can lead to 

transfusion-associated circulator overload (TACO). According to the applicant, when 

 

5

 Goldstein, Joshua N., et al., Timing of Fresh Frozen Plasma Administration and Rapid 

Correction of Coagulopathy in Warfarin-Related Intracerebral Hemorrhage, Stroke 37.1 (2006):151-155. 
 244 

TACO occurs, acute left ventricular failure may occur resulting in shortness of breath, 

tachypnea (rapid breathing), and other harmful effects. 

 Finally, the applicant noted that KcentraTM is the standard of care in the new 

guidelines issued by the American College of Chest Physicians (ACCP). In addition, the 

applicant noted that the American Association of Blood Banks (AABB) stated that 

plasma should no longer be used to reverse warfarin in bleeding patients when specific 

factor concentrates are available. 

 In conclusion, the applicant maintained that KcentraTM represents a substantial 

clinical improvement over existing technologies. We are inviting public comments 

regarding whether KcentraTM meets the substantial clinical improvement criterion. 

 We note, if KcentraTM were to be approved for new technology add-on payments, 

we do not believe such payments would be available with respect to discharges for which 

the hospital receives an add-on payment for blood clotting factor administered to a 

Medicare beneficiary with hemophilia who is a hospital inpatient. Under section 

1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective payment rate is “the 

amount of the payment with respect to the operating costs of inpatient hospital services 

(as defined in subsection (a)(4) of this section)” for discharges on or after April 1, 1988. 

Section 1886(a)(4) of the Act excludes from the term “operating costs of inpatient 

hospital services” the costs with respect to administering blood clotting factors to 

individuals with hemophilia. The costs of administering blood clotting factor to 

Medicare beneficiaries who have hemophilia and are hospital inpatients are paid 

separately from the IPPS. (For information on how the clotting factor add-on payment is 
 245 

made, we refer readers to section 20.7.3 of Chapter Three of the Medicare Claims 

Processing Manual, which can be downloaded from the CMS Web site at: 

http://cms.gov/Regulations-andGuidance/Guidance/Manuals/Downloads/clm104c03.pdf.) If KcentraTM is approved by 

FDA as a blood clotting factor, we believe that it may be eligible for clotting factor 

add-on payments when administered to Medicare beneficiaries with hemophilia. CMS 

would make an add-on payment for KcentraTM for such discharges in accordance with our 

policy for payment of blood clotting factor, and it would be excluded from the operating 

costs of inpatient hospital services as set forth in section 1886(a)(4) of the Act. 

 Section 1886(d)(5)(K)(i) of the Act requires the Secretary to “establish a 

mechanism to recognize the costs of new medical services and technologies under the 

payment system established under this subsection” beginning with discharges on or after 

October 1, 2001. We believe it is reasonable to interpret this requirement to mean that 

the payment mechanism established by the Secretary recognizes only costs for those 

items that would otherwise be paid based on the prospective payment system (that is, “the 

payment system established under this subsection”). As noted above, under section 

1886(d)(1)(A)(iii) of the Act, the national adjusted DRG prospective payment rate is the 

amount of payment for the operating costs of inpatient hospital services, as defined in 

section 1886(a)(4) of the Act, for discharges on or after April 1, 1988. We understand 

this to mean that a new medical service or technology must be an operating cost of 

inpatient hospital services paid based on the prospective payment system, and not 

excluded from such costs, in order to be eligible for the new technology add-on payment. 
 246 

We point out that new technology add-on payments are based on the operating costs per 

case relative to the prospective payment rate as described in 42 CFR 412.88. Therefore, 

we believe that new technology add-on payments are appropriate only when the new 

technology is an operating cost of inpatient hospital services and are not appropriate 

when the new technology is excluded from such costs. 

 If KcentraTM were to be approved for new technology add-on payments, we 

believe that hospitals may only receive that add-on payment for discharges where 

KcentraTM is an operating cost of inpatient hospital services. In other words, we do not 

believe a hospital could be eligible to receive the new technology add-on payment when 

it is administering KcentraTM in treating a Medicare beneficiary who has hemophilia. In 

those instances, KcentraTM is specifically excluded from the operating costs of inpatient 

hospital services in accordance with section 1886(a)(4) of the Act and paid separately 

from the IPPS. However, when a hospital administers KcentraTM to a Medicare 

beneficiary who does not have hemophilia, the hospital could be eligible for a new 

technology add-on payment because KcentraTM would not be excluded from the operating 

costs of inpatient hospital services. Therefore, we do not believe that discharges where 

the hospital receives a clotting factor add-on payment are eligible for a new technology 

add-on payment for the blood clotting factor. 

 To summarize, we believe it would be inappropriate to make an add-on payment 

for new technology for a blood clotting factor when a blood clotting factor add-on 

payment has been made. We welcome public comment on our proposal to only make 

new technology add-on payments for KcentraTM in cases when it is included in the 
 247 

operating costs of inpatient hospital services (that is, when no add-on payment is made 

for clotting factor). 

b. Argus® II Retinal Prosthesis System 

 Second Sight Medical Products, Inc. submitted an application for new technology 

add-on payments for the Argus® II Retinal Prosthesis System (Argus® II System) for 

FY 2014. The Argus® II System is an active implantable medical device that is intended 

to provide electrical stimulation of the retina to induce visual perception in patients who 

are profoundly blind due to retinitis pigmentosa (RP). These patients have bare or no 

light perception in both eyes. The system employs electrical signals to bypass dead 

photo-receptor cells and stimulate the overlying neurons according to a real-time video 

signal that is wirelessly transmitted from an externally worn video camera. The Argus®

II implant is intended to be implanted in a single eye, typically the worse-seeing eye. 

Currently, bilateral implants are not intended for this technology. According to the 

applicant, the surgical implant procedure takes approximately 4 hours and is performed 

under general anesthesia. 

 The Argus® II System consists of three primary components: (1) an implant 

which is an epiretinal prosthesis that is fully implanted on and in the eye (that is, there are 

no percutaneous leads); (2) external components worn by the user; and (3) a “fitting” 

system for the clinician that is periodically used to perform diagnostic tests with the 

system and to custom-program the external unit for use by the patient. We describe these 

components more fully below. 
 248 

● Implant: The retinal prosthesis implant is responsible for receiving information 

from the external components of the system and electrically stimulating the retina to 

induce visual perception. The retinal implant consists of: (a) a receiving coil for 

receiving information and power from the external components of the Argus® II System; 

(b) electronics to drive stimulation of the electrodes; and (c) an electrode array. The 

receiving coil and electronics are secured to the outside of the eye using a standard scleral 

band and sutures, while the electrode array is secured to the surface of the retina inside 

the eye by a retinal tack. A cable, which passes through the eye wall, connects the 

electronics to the electrode array. A pericardial graft is placed over the extra-ocular 

portion on the outside of the eye. 

● External Components: The implant receives power and data commands 

wirelessly from an external unit of components, which include the Argus II Glasses and 

Video Processing Unit (VPU). A small lightweight video camera and transmitting coil 

are mounted on the glasses. The telemetry coils and radio-frequency system are mounted 

on the temple arm of the glasses for transmitting data from the VPU to the implant. The 

glasses are connected to the VPU by a cable. This VPU is worn by the patient, typically 

on a belt or a strap, and is used to process the images from the video camera and convert 

the images into electrical stimulation commands, which are transmitted wirelessly to the 

implant. 

● “Fitting System”: To be able to use the Argus® II System, a patient’s VPU 

needs to be custom-programmed. This process, which the applicant called “fitting”, 

occurs in the hospital/clinic shortly after the implant surgery and then periodically 
 249 

thereafter as needed. The clinician/physician also uses the “Fitting System” to run 

diagnostic tests (for example, to obtain electrode and impedance waveform 

measurements or to check the radio-frequency link between the implant and external 

unit). This “Fitting System” can also be connected to a “Psychophysical Test System” to 

evaluate patients’ performance with the Argus® II System on an ongoing basis. 

 These three components work together to stimulate the retina and allow a patient 

to perceive phosphenes (spots of light), which they then need to learn to interpret. While 

using the Argus® II System, the video camera on the patient-worn glasses captures a 

video image. The video camera signal is sent to the VPU, which processes the video 

camera image and transforms it into electrical stimulation patterns. The electrical 

stimulation data are then sent to a transmitter coil mounted on the glasses. The 

transmitter coil sends both data and power via radio-frequency (RF) telemetry to the 

implanted retinal prosthesis. The implant receives the RF commands and delivers 

stimulation to the retina via an array of electrodes that is secured to the retina with a 

retinal tack. 

 In patients with RP, the photoreceptor cells in the retina, which normally 

transduce incoming light into an electro-chemical signal, have lost most of their function. 

The stimulation pulses delivered to the retina via the electrode array of the Argus® II 

Retinal Prosthesis System are intended to mimic the function of these degenerated 

photoreceptors cells. These pulses induce cellular responses in the remaining, viable 

retinal nerve cells that travel through the optic nerve to the visual cortex where they are 
 250 

perceived as phosphenes (spots of light). Patients learn to interpret the visual patterns 

produced by these phosphenes. 

 With respect to the newness criterion, according to the applicant, the FDA 

designated the Argus® II System a Humanitarian Use Device in May 2009 (HUD 

designation #09-0216). The applicant submitted a Humanitarian Device Exemption 

(HDE) application (#H110002) to the FDA in May 2011 to obtain market approval for 

the Argus® II System. The HDE was referred to the Ophthalmic Devices Panel of the 

FDA’s Medical Devices Advisory Committee for review and recommendation. At the 

Panel’s meeting held on September 28, 2012, the Panel voted 19 to 0 that the probable 

benefits of the Argus® II System outweigh the risks of the system for the proposed 

indication for use. The applicant received the HDE approval from the FDA on 

February 14, 2013. Currently there are no other approved treatments for patients with 

severe to profound RP. The Argus® II System has an IDE number of G050001 and is a 

Class III device. There are no existing ICD-9-CM or ICD-10-CMS/PCS codes for the 

implantation of a retina prosthesis. The applicant applied for three new ICD-9-CM 

procedure codes for consideration at the March 5, 2013 ICD-9-CM Coordination and 

Maintenance Committee meeting. More information on this request can be found on the 

CMS Web site at: http://cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD9-CM-C-and-M-Meeting-Materials-Items/2013-03-05-MeetingMaterials.html. We note 

that any final decisions on new codes approved at the March 5, 2013 Coordination and 

Maintenance Committee meeting will be included in the ICD-9-CM code addendum 

posted on the CMS Web site in June 2013 at: 
 251 

http://cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum.html. In 

addition, code revisions that were discussed at the March 5, 2013 Committee meeting but 

that could not be finalized in time to include them in the tables for this proposed rule will 

be included in the appropriate table in the final rule (the tables for both the proposed rule 

and the final rule are made available via the Internet on the CMS Web site). We are 

inviting public comments on whether the Argus® II System meets the newness criterion. 

 With regard to the cost criterion, the applicant identified all discharges from 

claims in the FY 2011 MedPAR file for MS-DRGs 116 (Intraocular Procedures with 

CC/MCC) and 117 (Intraocular Procedures without CC/MCC) with the presence of ICD9-CM procedure code 14.73 (Anterior vitrectomy), or 14.74 (Posterior vitrectomy). (We 

note that because no procedure code exists for this technology, these cases would include 

patients that are not eligible for or would not otherwise receive this technology.) The 

applicant found 199 cases (47.6 percent of all cases) in MS-DRG 116 and 219 cases (52.3 

percent of all cases) in MS-DRG 117. This resulted in an average charge per case of 

$40,957 for MS-DRG 116 and $20,621 for MS-DRG 117, equating to a case-weighted 

average charge per case of $24,011. 

 The applicant then standardized the charges using the FY 2011 final rule impact 

file and converted the cost of the device to a charge by dividing the operating costs by a 

CCR of 0.50 (which equates to a 100 percent markup). Although the applicant submitted 

data related to the estimated cost of the Argus® II System, the applicant noted that the 

cost of the technology was proprietary information. The applicant then added the charges 

related to the device to the case-weighted average standardized charge per case and 
 252 

determined a final case-weighted average standardized charge per case of $311,180. 

Using the FY 2014 Table 10 thresholds, the case-weighted threshold for MS-DRGs 116 

and 117 was $30,328 (all calculations above were performed using unrounded numbers). 

Because the final case-weighted average standardized charge per case for the applicable 

MS-DRGs exceed the case-weighted threshold amount, the applicant maintained that the 

Argus® II System would meet the cost criterion. 

 We note that, although we cannot disclose the cost of the technology, the device is 

very costly. Because of its high costs, the technology would easily exceed the 

case-weighted threshold. In addition, because of the high cost of the device it is likely 

that claims with the device would receive an outlier payment. The applicant anticipates 

that approximately 65 Argus® II Systems will be sold in FY 2014, of which 

approximately 50 systems would be provided to Medicare patients. The target disease 

population is extremely limited as required and supported by the HDE application. Most 

patients for whom this technology is indicated may be eligible for Medicare based on 

their age or a disability that is associated with profound blindness. 

 We also note that these types of procedures are often performed in the outpatient 

setting. We are concerned that if new technology add-on payments were to be approved, 

this would serve as a financial incentive to inappropriately shift utilization from an 

outpatient to an inpatient setting, although medical review may result in very few of these 

cases being paid as inpatient hospital services if the patient can be appropriately treated 

as an outpatient. We continue to emphasize that it is critical that physicians use their 

clinical judgment in determining the medical necessity of an inpatient admission and 
 253 

stress that care should be provided in the appropriate setting. We are inviting public 

comments on whether the Argus® II System meets the cost criterion, particularly based 

on the assumptions and methodology used in the applicant’s analysis. We also have 

general concerns relating to the descriptions of the medical necessity of performing this 

procedure on an inpatient basis. Therefore, we are inviting public comments to further 

our understanding regarding whether approving new technology add-on payments for the 

Argus® II System would create a financial incentive that would shift utilization 

inappropriately from an outpatient to an inpatient setting. 

 With regard to the substantial clinical improvement criterion, the Argus® II 

System is intended to provide electrical stimulation of the retina to induce visual 

perception in blind patients with the indication of severe to profound RP with bare or no 

light perception in both eyes. According to the applicant, an estimated 1 in 3,037 

Americans suffers from RP, and the incidence of people with severe to profound RP is 

significantly lower. According to the applicant, the need for treatments for RP is high, 

given the impact of loss of vision. 

 According to the applicant, numerous experimental research programs are 

currently underway to slow, stop, or reverse the progress of RP, including gene therapy, 

tissue and cell transplants, and some pharmacologic neuroprotection therapies. However, 

these approaches so far have had fairly limited success in treating RP patients, and some 

approaches are intended for an extremely small segment of the RP population. Currently 

there are no other approved treatments for patients with severe to profound RP. 
 254 

Therefore, the Argus® II device treats a patient population that has no other treatment 

options. 

 The applicant submitted the results of a clinical trial to demonstrate substantial 

clinical improvement. This clinical trial enrolled 30 patients. The median age of patients 

was 57.9 years at the time of implantation and the range was 28 to 77 years of age. 

Thirty percent of the patients were female, and 70 percent were male. All of the patients 

had bare or no light perception in both eyes. Fourteen of the patients were Medicare 

eligible. As part of the methods for the study, the applicant stated that while working 

within the framework of clinical trials for other ophthalmic devices, the manufacturer and 

its team of scientific advisors selected or designed several tests that would address the 

main elements of the system that should be assessed for these types of devices--visual 

function (that is, how the eye as an organ works [for example, visual acuity]), functional 

vision (that is, how the patient performs in vision-related activities of daily living), and 

quality of life. The endpoints that were selected provided a mixture of objective and 

subjective data. The study design was strengthened by the fact that controlled 

observations could be obtained by performing assessments with the Argus® II System 

“on” and “off” (that is, control was available at each time point). 

 According to the applicant, there were no unexpected adverse events. Nonserious adverse events represented the majority of events. The safety review concluded 

that the Argus® II System has a reasonable safety profile for an ophthalmic device that 

requires vitreoretinal surgery to implant. In addition, the applicant noted that the device 

can be extracted and is reversible. The Argus® II System provided all 30 patients with 
 255 

benefit as measured by high-contrast visual function tests. The applicant stated that the 

degree of benefit varied from patient to patient and provided the following results: 

● All subjects were able to see visual percepts when the Argus® II System was 

electrically activated. 

● On the Square Localization Test (that is, object localization), patients (on 

average) performed better with the system “on” rather than “off” at all follow-up time 

points. At 24 months, on average, patients missed the target by approximately 50 pixels 

with the system “on” versus approximately 250 pixels with the system “off”. 

● On the Direction of Motion Test, which tested the patients’ ability to determine 

the direction of a moving bar, patients had higher mean accuracy with the system “on” 

than they did with the system “off” at all follow-up time points, indicating that the 

Argus® II System improved their performance on a spatial vision task. At 24 months, the 

mean response error was approximately 60o with the system “on” versus more than 80o

with the system “off”. According to the applicant, this is nearly the error expected by 

chance. 

● On the Grating Visual Acuity Test, which assessed the patients’ visual acuity 

using the principles of acuity charts designed for extremely low vision patients, 27 

percent of the patients were able to score on the scale (between 1.6 and 2.9 log MAR) at 

least once with the system “on”, while none of the Argus® II patients were able to score 

on the scale with the system “off.” 

● A large number of patients were able to recognize large letters and numbers 

with the system “on” (but not with the system “off”), and some of the patients were able 
 256 

to read short words. The median percent correct with the system “on” was approximately 

50 percent higher than with the system “off.” 

● The trial also measured objectively-scored functional vision tests. The patients 

performed better with the Argus® II System “on” versus “off” on orientation and mobility 

tests (finding a door and following a line) and on functional vision tasks (sorting white, 

black, and grey socks, following an outdoor sidewalk, and determining the direction of a 

person walking by). 

● Analysis of the Functional Low-vision Observer Rated Assessment (FLORA) 

results showed that three-quarters of the patients received a positive benefit in terms of 

well-being and/or functional vision, while none of the patients experienced a negative 

effect. 

 We note that we are concerned that the study did not have pre-specified endpoints 

and changed measurements mid trial. In addition, we are concerned about the reliability 

of the measures used for the tests and the inconsistency of the results across different 

patients, which lead us to question the long-term benefits associated with this device. We 

are inviting public comments on whether the Argus® II System meets the substantial 

clinical improvement criterion, specifically in regard to the measures used in the study 

and the lack of pre-specified endpoints. 

 We received two comments on the Argus®II System during the town hall 

meeting’s public comment period. These comments are summarized below. 

 Comment: Several commenters supported approving the Argus® II System for 

new technology add-on payments. One commenter, a society of retina specialists, stated 
 257 

that the Argus® II System is the first and only approved treatment in the United States for 

patients suffering from severe to profound cases of retinitis pigmentosa with bare or no 

light perception in both eyes. The commenter explained that while the Argus® II System 

does not restore vision, it provides visual information that can range, depending on the 

patient, from light detection to form detection. The commenter asserted that, for patients 

with bare or no light perception, even limited restoration of vision can make a substantial 

difference, restoring a patient’s ability to visually connect and interact with others and 

providing greater independence. 

 Another commenter, a foundation for supporting blindness, stated that it is 

essential that CMS is progressive in making therapies like the Argus® II System 

accessible for these patients who have no other treatment alternatives. The commenter 

recommended approving the Argus® II System for new technology add-on payments. 

The commenter noted that for patients with rare retinal diseases like retinitis pigmentosa, 

the Argus® II System represents the first approved breakthrough to help restore sight and 

improve quality of life. 

 Response: We appreciate the commenters’ support. We considered these 

comments presented during the town hall meeting’s public comment period in the 

development of this proposed rule. As stated above, we are inviting additional public 

comments on whether the Argus® II System meets the substantial clinical improvement 

criterion, specifically in regard to the measures used in the study and the lack of 

pre-specified endpoints. 

c. Responsive Neurostimulator (RNS®) System 
 258 

 NeuroPace, Inc. submitted an application for new technology add-on payments 

for FY 2014 for the use of the RNS® System. Seizures occur when brain function is 

disrupted by abnormal electrical activity. Epilepsy is a brain disorder characterized by 

recurrent, unprovoked seizures. According to the applicant, the RNS® System is the first 

implantable medical device (developed by NeuroPace, Inc.) for treating persons with 

epilepsy whose partial onset seizures have not been adequately controlled with 

antiepileptic medications. The applicant further stated that the RNS® System is the first 

closed loop, responsive system to treat partial onset seizures. Responsive electrical 

stimulation is delivered directly to the seizure focus in the brain when abnormal brain 

activity is detected. A cranially implanted programmable neurostimulator senses and 

records brain activity through one or two electrode-containing leads that are placed at the 

patient’s seizure focus/foci. The neurostimulator detects electrographic patterns 

previously identified by the physician as abnormal, and then provides brief pulses of 

electrical stimulation through the leads to interrupt those patterns. Stimulation is 

delivered only when abnormal electrocorticographic activity is detected. The typical 

patient is treated with a total of 5 minutes of stimulation a day. The RNS® incorporates 

remote monitoring, which allows patients to share information with their physicians 

remotely. 

 With respect to the newness criterion, the applicant stated that some patients with 

partial onset seizures that cannot be controlled with antiepileptic medications may be 

candidates for the vagus nerve stimulator (VNS) or for surgical removal of the seizure 

focus. According to the applicant, these treatments are not appropriate or helpful for all 
 259 

patients. Therefore, the applicant believed that there is an unmet clinical need for 

additional therapies for partial onset seizures. The applicant further stated that the RNS®

System addresses this unmet clinical need by providing a novel treatment option for 

treating persons with medically intractable partial onset seizures. The applicant 

anticipates FDA premarket approval of the RNS® System in the second quarter of 2013. 

 The following ICD‐9‐CM procedure codes are used to identify this technology: 

01.20 (Cranial implantation or replacement of neurostimulator pulse generator); 01.29 

(Removal of cranial neurostimulator pulse generator); and 02.93 (Implantation or 

replacement of intracranial neurostimulator lead(s)). We are inviting public comments on 

whether the technology meets the newness criterion. 

 With regard to the cost criterion, the applicant stated that cases eligible for the 

RNS® System would map to MS-DRG 024 (Craniotomy with Major Device 

Implant/Acute Complex Central Nervous System Principal Diagnosis without MCC). 

The applicant further stated that while it was possible for cases to occur in MS-DRG 023 

(Craniotomy with Major Device Implant/Acute Complex Central Nervous System 

Principal Diagnosis with MCC or Chemotherapy Implant), it would be extremely rare 

because the applicant believed that these major complications and/or comorbidities would 

probably preclude a patient from receiving the technology because the technology is an 

elective procedure. 
 260 

 The applicant submitted two analyses to demonstrate that it meets the cost 

criterion. For the first analysis, the applicant used clinical trial claims data collected in 

the RNS® System Pivotal Clinical Investigation to calculate the anticipated average 

standardized charge. The applicant maintained that this analysis best represents the 

anticipated charges for the technology because it is based on actual cases treated with this 

technology. The applicant analyzed 163 claims from 28 hospitals participating in the 

clinical trial. Five claims from one site were excluded because no hospital-specific 

information regarding standardization was available. The resulting 158 claims included 

dates of service ranging from May 2006 through May 2009. The average charge per case 

for these 158 claims was $54,961. 

 The applicant then standardized the charges for each claim. The applicant noted 

that it was not necessary to remove any charges from these claims because the technology 

was provided at no charge in the trial. After standardizing the charges, the applicant 

inflated each claim using the Consumer Price Index for Inpatient Hospital Services 

(CPI-IP) to inflate the data to the same period. Specifically, because the publicly 

available FY 2011 MedPAR data do not identify the month of the discharge on inpatient 

claims but identify the calendar quarter, the applicant used a mid-month convention to 

determine the relevant monthly CPI-IP for each calendar quarter. The applicant then 

calculated the percentage change from the relevant quarter to the quarter of the most 

recently available CPI-IP, which was the August 2012 CPI-IP. Specifically, the applicant 

used the following assumptions: 
 261 

FY 2011 Calendar 

Quarter 

Midpoint of 

Quarter 

CPI IP Percent Change to 

August 2012 

Q4 2010 Nov-10 227.186 9.54%

Q1 2011 Feb-11 232.933 6.84%

Q2 2011 May-11 235.567 5.64%

Q3 2011 Aug-11 237.219 4.91%

 

Most recent as of 

application 

Aug-12 248.856 

Source as cited by applicant: Bureau of Labor Statistics’ Web site, accessed October 15, 2012; Base Period: 

 December 1996 = 100. 

 After inflating the charges, the applicant estimated charges for the RNS® System 

by multiplying the device cost to the hospital by an anticipated hospital markup of 100 

percent, or conversely by dividing the device cost by a CCR of 0.50. The applicant based 

its estimated CCR on four analyses. First, the applicant reviewed the 2007 and 2008 

reports prepared by RTI for CMS on charge compression, which found that the national 

aggregate CCR for devices and implants was 0.43 and 0.467 in the respective reports. 

Second, the applicant queried hospitals participating in the RNS® System Pivotal trial, 

and these queries yielded a mean and median CCR for implantable devices of 0.37 and 

0.36, respectively. Third, the applicant reviewed data from the (all payor) Premier 

database for cases performed in 2000 through 2010 that reported ICD-9 CM procedure 

codes 02.93 and/or 86.95 on a claim and calculated a mean and median CCR for 

implanted leads and neurostimulators of 0.50 and 0.44, respectively. The applicant then 

reviewed other discussions of past new technology add-on payment applications 

published in the Federal Register and noted that other applicants used lower CCRs 

(higher markups) for implanted devices than the 0.50 CCR used in the applicant’s 

analyses. 
 262 

 Using this approach, the applicant added the anticipated hospital charge for the 

implantable RNS® System to the inflated average standardized charge per case and 

determined a final inflated average standardized charge per case of $121,990. Although 

the applicant submitted data related to the estimated cost of the RNS® System, the 

applicant noted that the cost of the technology was proprietary information. Using the 

FY 2014 Table 10 thresholds, the threshold for MS-DRG 024 is $78,039. Because the 

final inflated average standardized charge per case of $121,990 for MS-DRG 024 

exceeds the threshold amount, the applicant maintained that the RNS® System would 

meet the cost criterion. 

 In the second analysis, which the applicant characterizes as supplementary, the 

applicant searched the FY 2011 MedPAR file for cases reporting the combination of 

ICD-9-CM procedures codes 02.93 (Implantation or replacement of intracranial 

neurostimulator lead(s)) and 86.95 (Insertion or replacement of multiple array 

neurostimulator pulse generator, not specified as rechargeable), or the combination of 

ICD-9-CM procedures codes 02.93 (Implantation or replacement of intracranial 

neurostimulator lead(s)) and 01.20 (Cranial implantation or replacement of 

neurostimulator pulse generator) that mapped to MS-DRG 024. 

 The applicant found 565 claims reporting the combination of ICD-9-CM 

procedures codes 02.93 and 01.20, and pointed out that these cases were coded with 

procedure code 01.20 in error because no new RNS® System implantations occurred after 

May 2009. The applicant analyzed these 565 claims and found that more than 90 percent 

of these cases had a primary or secondary diagnosis of Parkinson’s disease, essential 
 263 

tremor, or dystonia. These diagnoses are FDA-approved indications for deep brain 

stimulation (DBS). In addition, the applicant noted that the total covered charges for 

these cases were less than the estimated charges for a full DBS system and hypothesized 

that these cases did not represent implantation of a full DBS system but implementation 

of leads only. The applicant contacted two hospitals that reported claims where total 

covered charges were less than the charges for a full DBS system, and the hospitals 

confirmed that their claims represented lead implantation alone. Therefore, for this 

second analysis, the applicant included all of the cases in MS-DRG 024 reported with a 

combination of ICD-9-CM procedures codes 02.93 and 86.95 and all of the cases in 

MS-DRG 024 reported with ICD-9-CM procedures codes 02.93 and 01.20 where the 

covered charges were greater than or equal to the estimated charges of a full DBS system. 

The applicant maintained that 485 claims from 130 providers met these criteria and that 

these data represented claims from the fourth calendar quarter of 2010 through the third 

calendar quarter of 2011, or FY 2011. Based on this assumption, the applicant calculated 

an average charge per case of $60,955. The applicant then removed DBS charges from 

the average charge per case. The applicant estimated charges for DBS and maintained 

that the average cost for a DBS system was $25,979. Similar to its first analysis, the 

applicant assumed a CCR of 0.50, or 100 percent markup, which resulted in estimated 

charges for DBS of $51,958. After removing DBS charges, the applicant standardized 

charges and then inflated the charges to the current period using the same methodology in 

the first analysis. The applicant then added charges for the RNS® System and determined 

a final inflated average standardized charge per case of $118,408. As noted above, 
 264 

although the applicant submitted data that related to the estimated cost of the RNS®

System, the applicant noted that the cost of the technology was proprietary information. 

Using the FY 2014 Table 10 thresholds, the threshold for MS-DRG 024 is $78,039. 

Because the final inflated average standardized charge per case of $118,408 for MS-DRG 

024 exceeds the threshold amount, the applicant maintained that the RNS® System would 

meet the cost criterion. 

 Under either analysis, the applicant maintained that the final inflated average 

standardized charge per case would exceed the case-weighted threshold. We are inviting 

public comments on whether the RNS® System meets the cost criterion, particularly 

based on the assumptions and methodology used in the applicant’s analyses. 

 With regard to substantial clinical improvement, as previously stated, some 

patients with partial onset seizures may not be able to control their seizures with 

antiepileptic medications, VNS, or with surgical removal of the seizure focus. The 

applicant stated that the RNS® System provides treatment for those patients who fail 

treatment with antiepileptic medications, or fail VNS therapy and are ineligible for 

respective surgery due to the extent and/or location of the seizure, or patients who do not 

elect surgery. According to the applicant, the RNS® System clinical trials provide Class I 

evidence that treatment with the RNS® System substantially reduces disabling seizures in 

patients with severe epilepsy who have tried and failed treatment with antiepileptic 

medications, and in many cases VNS or epilepsy surgery. The applicant maintained that 

the results from their clinical trials demonstrate significant and sustained improvements 

in health outcomes over the controlled period and over the long term. 
 265 

 The applicant stated that their pivotal trial met its primary effectiveness endpoint 

by proving that there was a statistically significant greater reduction in seizures in the 

treatment group compared to the control group (p = 0.012). Significant improvements at 

1 and 2 years post‐implant included: 

● A significant reduction in disabling seizures of 44 percent and 53 percent at 1 

and 2 years, respectively; and 

● Significant improvements in overall quality of life as well as individual quality 

of life measures including memory, language, attention, concentration and medication 

effects. 

 The applicant asserted that there was no negative effect of treatment with the 

RNS® System on neuropsychological function (including verbal functioning, visualspatial processing, and memory) or mood. The applicant concluded that the RNS®

System Pivotal trial provides Class I evidence that responsive cortical stimulation is 

effective in significantly reducing seizure frequency in adults with 1 or 2 seizure foci who 

have failed 2 or more antiepileptic medication trials. The applicant stated that experience 

across all of the RNS® System trials demonstrates the reduction in seizure frequency of 

disabling partial seizures improves over time. In addition, the applicant noted that 

sustained improvements were also seen in quality of life. Finally, the applicant noted that 
 266 

safety and tolerability compares favorably to alternative treatments such as antiepileptic 

medications, VNS, and epilepsy surgery. 

 With regard to the substantial clinical improvement criterion, we are concerned 

that the average age of patients in the applicant’s study was 35 years. Although the 

applicant maintained that 31 percent of the patients enrolled in the pivotal trial were 

Medicare beneficiaries, we are unsure of the extent to which this technology would be 

used by Medicare beneficiaries due to the relatively young age of the majority of patients 

enrolled in the pivotal trial. We also are concerned that further clarification on how the 

RNS® System compares to other neurostimulation treatments was not provided by the 

applicant. The applicant did provide the following comparison of VNS to the RNS®

System: 

Key Differences Between the RNS® System and DBS and VNS Systems 

RNS® System Deep Brain

Stimulator 

Vagus Nerve

Stimulator 

Type of stimulation Closed loop: responsive Open loop: scheduled 

Stimulation time/day About 5 minutes 

Stimulation target Cortical; varies according to 

seizure focus Deep brain nuclei Ascending vagus nerve 

Neurostimulator Cranially implanted Subcutaneously (pectorally) implanted 

Programming changes According to clinical and 

electrographic response According to clinical response 

Information from 

device 

Device data, detections, 

stimulations and 

electrocorticograms

Device data 
 267 

RNS® System Deep Brain

Stimulator 

Vagus Nerve

Stimulator 

Physician data review 

At time of programming as

well as online access to 

stored data 

At time of programming 

 Because the applicant included claims with DBS in one of its cost analyses, we 

believe that the similarities and differences between DBS and the RNS® System may also 

be relevant under the substantial clinical improvement criterion. In addition, we are 

concerned that the time period in the clinical trial may not be sufficient to confirm 

durability. In the RNS® System Pivotal Clinical Investigation, the primary effectiveness 

endpoint considered seizure frequency over the last 3 months of the blinded period of the 

trial. We note that the applicant is currently conducting a 5-year study. We are inviting 

public comments on whether the RNS® System meets the substantial clinical 

improvement criterion, particularly in regard to the degree in which the technology would 

be used by Medicare beneficiaries, the comparison to other neurostimulation treatments, 

and its durability. 

 We received two comments on the RNS® System during the town hall meeting’s 

public comment period. These comments are summarized below. 

 Comment: One commenter stated that it looked forward to the RNS® System’s 

commercial availability and encouraged CMS to approve the RNS® System for new 

technology add-on payments. The commenter noted that the benefits of the RNS®

System therapy include a significant reduction in seizure frequency and severity, and for 

some patients, extended periods of seizure freedom. The commenter asserted that this 

reduction in seizure frequency improves over time and is sustained over several years of 
 268 

follow-up, and can result in improved cognition and a better quality of life. The 

commenter added that, most impressively, these positive results were achieved with no 

chronic side effects from stimulation. The commenter also noted that a significant 

number of these individuals are eligible for Medicare due to their disability. 

 Another commenter stated that the pivotal trial findings, in both the blinded 

period and the open-label period, have provided compelling support for what had 

previously been an only theoretical concept for non-ablative intervention. The 

commenter explained that those patients with seizure foci in eloquent areas or with 

hi-hippocampal seizure onset, the most difficult patient cohort to address, have been 

well-suited to RNS and often substantially benefited from this intervention. The 

commenter noted that in the functional and stereotactic neurosurgical community, the 

most exciting and compelling advances have arisen from those non-resective strategies 

by which maladaptive pathophysiology and its symptoms have been ameliorated by 

targeted electrical stimulation and neural function preserved with the NeuroPace 

experience--the most compelling in epilepsy. 

The commenter concluded with the following: the RNS® System has had a 

remarkable and reassuring safety track record; the surgery for its implementation is 

comparable to that of deep brain stimulation system placement; the permanent and 

serious morbidity have been extremely low and the serious and life-threatening risks

associated with medically intractable epilepsy, in comparison, are generally 

underappreciated and substantially higher. 
 269 

Response: We appreciate the commenters’ support. We considered these 

comments presented during the town hall meeting’s public comment period in the 

development of this proposed rule. As stated above, we are inviting additional public 

comments on whether the RNS® System meets the substantial clinical improvement 

criterion, particularly in regard to the degree in which the technology would be used by 

Medicare beneficiaries, the comparison to other neurostimulation treatments, and its 

durability. 

d. Zilver® PTX® Drug Eluting Peripheral Stent 

 Cook® Medical submitted an application for new technology add-on payments for 

the Zilver® PTX® Drug Eluting Peripheral Stent (Zilver® PTX®) for FY 2014. The 

Zilver® PTX® is intended for use in the treatment of peripheral artery disease (PAD) of 

the above–the-knee femoropopliteal arteries (superficial femoral arteries). According to 

the applicant, the stent is percutaneously inserted into the artery(s), usually by accessing 

the common femoral artery in the groin. The applicant stated that an introducer catheter 

is inserted over the wire guide and into the target vessel where the lesion will first be 

treated with an angioplasty balloon to prepare the vessel for stenting. The applicant 

indicated that the stent is self-expanding, made of nitinol (nickel titanium), and is coated 

with the drug Paclitaxel. Paclitaxel is a drug approved for use as an anticancer agent and 

for use with coronary stents to reduce the risk of renarrowing of the coronary arteries 

after stenting procedures. 

 The applicant received FDA approval on November 15, 2012, for the Zilver®

PTX®. The applicant maintains that the Zilver® PTX® is the first drug-eluting stent used 
 270 

for superficial femoral arteries. The technology is currently described by ICD-9-CM 

procedure code 00.60 (Insertion of drug-eluting stent(s) of the superficial femoral artery). 

We are inviting public comments regarding how the Zilver® PTX® meets the newness 

criterion. 

 With regard to the cost criterion, the applicant believed that cases of superficial 

femoral arteries typically map to MS-DRGs 252 (Other Vascular Procedures with MCC), 

253 (Other Vascular Procedures with CC), and 254 (Other Vascular Procedures without 

CC/MCC). The applicant searched the FY 2010 MedPAR file for cases reporting 

procedure code of 39.90 (Insertion of non-drug-eluting peripheral vessel stents) in 

combination with a diagnosis code of 440.20 (Atherosclerosis of the extremities, 

unspecified), 440.21 (Atherosclerosis of the extremities, with intermittent claudication), 

440.22 (Atherosclerosis of the extremities with rest pain), 440.23 (Atherosclerosis of the 

extremities with ulceration), or 440.24 (Atherosclerosis of the extremities with gangrene). 

The applicant noted that the Zilver® PTX® is available in an 80 mm size and is approved 

for lesions in native vascular disease of the above-the-knee femoropopliteal arteries 

having reference vessel diameter from 4 mm to 9 mm and total lesion lengths up to 140 

mm per limb. The applicant further noted that bare metal stents typically are available up 

to lengths of 200 mm. Therefore, in order to target cases eligible for the Zilver® PTX®, 

the applicant believed it was only appropriate to target those cases with one or two bare 

metal stents. The applicant was able to identify the amount of stents used per claim by 

searching for ICD-9-CM procedure codes 00.45 (Insertion of one vascular stent) and 

00.46 (Insertion of two vascular stents). The applicant submitted two methodologies: one 
 271 

with cases that received one bare metal stent and the other with cases that received one or 

two bare metal stents. 

 Under the first methodology (one bare metal stent), the applicant found 2,062 

cases (or 19.7 percent of all cases) in MS-DRG 252, 3,385 cases (or 32.3 percent of all 

cases) in MS-DRG 253, and 5,019 cases (or 48 percent of all cases) in MS-DRG 254. 

The average charge per case was $89,194 for MS-DRG 252, $67,965 for MS-DRG 253, 

and $46,539 for MS-DRG 254, equating to a case-weighted average charge per case of 

$60,855. 

 The case-weighted average charge per case above does not include charges 

related to the Zilver® PTX®. Therefore, it is first necessary to remove the amount of 

charges related to the non-drug-eluting peripheral vessel stent and replace them with 

charges related to the Zilver® PTX®. The applicant multiplied the use of the single stent 

used per case by the average market price for non-drug-eluting peripheral vessel stents 

and then converted the cost of the stents used per case to a charge by dividing the results 

by the hospital-specific CCR (from the FY 2010 IPPS impact file). The applicant 

removed the appropriate amount of charges per case and then standardized the charges 

per case. 

 Because the applicant used FY 2010 MedPAR data, it was necessary to inflate the 

charges from FY 2010 to FY 2013. Using data from the Bureau of Labor Statistics 

Consumer Price Index, the applicant inflated the average standardized charge per case 

with an inflation factor of 7 percent. To determine the amount of Zilver® PTX® stents 

per case, instead of using the amount of stents used per case based on the ICD-9-CM 
 272 

codes above, the applicant used an average of 1.9 stents per case based on the Zilver®

PTX® Global Registry Clinical Study6. The applicant believed that it is appropriate to 

use data from the clinical study (to determine the average amount of stents used per case) 

rather than the actual data from the claims because the length of a non-drug-eluting 

peripheral vessel stent typically ranges from 80mm to 120 mm, while the length of the 

Zilver® PTX® is 80 mm (which could cause a variance in the actual amount of stents used 

per case when using the Zilver® PTX®). The applicant then multiplied the average of 1.9 

stents used per case by the future market price for the Zilver® PTX® and then converted 

the cost of the stents used per claim to a charge by dividing the results by the 

hospital-specific CCR (from the FY 2010 IPPS impact file). The applicant then added 

the amount of charges related to the Zilver® PTX® to the inflated average standardized 

charge per case and determined a final inflated case-weighted average standardized 

charge per case of $58,419. Although the applicant submitted data that related to the 

estimated cost of the Zilver® PTX®, the applicant noted that the cost of the technology 

was proprietary information. Using the FY 2014 Table 10 thresholds, the case-weighted 

threshold for MS-DRGs 252, 253, and 254 was $54,547 (all calculations above were 

performed using unrounded numbers). Because the final inflated case-weighted average 

standardized charge per case for the applicable MS-DRGs exceeded the case-weighted 

threshold amount, the applicant maintained that the Zilver® PTX® would meet the cost 

criterion. 

 

6 Dake, M.D., Ansel, G.M., Jaff, M.R., Ohki, T., Saxon, R.R., Smouse, H.B., Zeller, T., Roubin, G.S., 

Burket, M.W., Khatib, Y., Snyder, S.A., Ragheb, A.O., White, J.K., Machan, L.S.(2011), Paclitaxeleluting stents show superiority to balloon angioplasty and bare metal stents in femoropopliteal disease: 

twelve-month zilver PTX randomized study results. Circulation Cardiovascular Interventions, published 

online September 27, 2011, 495-504. 
 273 

 The applicant used the same methodology above to demonstrate that it meets the 

cost criterion with the only difference being that it included cases that used one or two 

bare metal stents instead of just one bare metal stent. Using this methodology, the 

applicant determined a final inflated case-weighted average standardized charge per case 

of $62,455. Using the FY 2014 Table 10 thresholds, the case-weighted threshold for 

MS-DRGs 252, 253, and 254 was $54,474 (all calculations above were performed using 

unrounded numbers). Because the final inflated case-weighted average standardized 

charge per case for the applicable MS-DRGs exceeded the case-weighted threshold 

amount, the applicant maintained that the Zilver® PTX® would meet the cost criterion. 

 We are inviting public comments on whether or not the Zilver® PTX® meets the 

cost criterion. In addition, we are inviting public comments on the methodologies used by 

the applicant in its analysis, including its assumptions regarding the types of cases in 

which this technology could potentially be used and the number of stents required for 

each case. 

 In an effort to demonstrate that the technology meets the substantial clinical 

improvement criterion, the applicant shared several findings from the clinical trial data. 

The applicant stated that current treatment options for patients who have been diagnosed 

with PAD includes angioplasty, bare metal stenting, bypass graft, and endarterectomy. 

The applicant asserted that the Zilver® PTX® meets the substantial clinical improvement 

criterion because it decreases the recurrence of symptoms arising from restenotic SFA 

lesions, the rate of subsequent diagnostic or therapeutic interventions required to address 

restenotic lesions, and the number of future hospitalizations. 
 274 

 The applicant cited a 479-patient, multicenter, multinational randomized 

controlled trial that compared the Zilver® PTX® to balloon angioplasty7; an additional 

component of the study allowed a direct comparison of the Zilver® PTX® to a bare 

(uncoated) metal Zilver® stent. Patients were randomized to treatment with the Zilver®

PTX® stent (treatment group) or with PTA (control group). Recognizing that balloon 

angioplasty may not be successful acutely, the trial design mandated provisional stent 

placement immediately after failure of balloon angioplasty in instances of acute PTA 

failure. Therefore, patients with suboptimal (failed) PTA underwent a secondary 

randomization to stenting with either Zilver® PTX® or bare Zilver stents. This secondary 

randomization allows evaluation of the Zilver® PTX® stent compared to a bare metal 

stent. The primary safety endpoint of the randomized controlled study was “Event-Free 

Survival” (EFS), defined as “freedom from the major adverse events of death, target 

lesion revascularization, target limb ischemia requiring surgical intervention or surgical 

repair of the target vessel, and freedom of worsening systems as described by the 

Rutherford classification by 2 classes or to class 5 or 6.” The primary effectiveness 

endpoint was primary patency (defined as a less than 50 percent re-narrowing). We note 

that we are concerned that other endpoints such as walking, walking speed, and climbing 

were not considered as primary endpoints to demonstrate the effectiveness of the Zilver® 

PTX®. 

 

7

 Dake, M.D., Ansel, G.M., Jaff, M.R., Ohki, T., Saxon, R.R., Smouse, H.B., Zeller, T., Roubin, G.S.,Burket, M.W., 

Khatib, Y., Snyder, S.A., Ragheb, A.O., White, J.K., Machan, L.S.(2011), Paclitaxeleluting stents show superiority to 

balloon angioplasty and bare metal stents in femoropopliteal disease: twelve-month zilver PTX randomized study 

results. Circulation Cardiovascular Interventions, published online September 27, 2011, 495-504 
 275 

 According to the applicant, the Zilver® PTX® had an EFS of 90.4 percent 

compared to balloon angioplasty, which had an EFS of 83.9 percent, at 12 months 

demonstrating that the Zilver® PTX® is as safe or safer than balloon angioplasty. The 

applicant further stated that this benefit was maintained at 24 months. In addition, the 

applicant noted that the Zilver® PTX® demonstrated a 50-percent reduction in restenosis 

rates compared to angioplasty and a 20-percent reduction compared to bare metal stents. 

The 12-month patency rate for the Zilver® PTX® was 82.7 percent, which compared 

favorably to the balloon angioplasty patency rate of 32.7 percent. In the provisional 

stenting arm of the study, which allowed a direct comparison of the Zilver® PTX® and a 

bare metal stent, the Zilver® PTX® primary patency exceeded the bare metal stent 

patency by nearly 20 percent (87.3 percent versus 72.3 percent at 12 months). The 

applicant stated that these differences are significant, as they result in a substantial 

clinical improvement compared to angioplasty and bare metal stenting, with patients 

being spared a recurrence of their leg pain and the need to be admitted to the hospital for 

repeat procedures on these treated lesions. The applicant also submitted 3 years of 

follow-up data, which the applicant maintained support that the Zilver® PTX® is more 

effective in maintaining primary patency.8

 The applicant also cited a prospective, multicenter, multinational, 787-patient 

single arm study on the Zilver® PTX® that demonstrated similar safety and effectiveness 

results consistent with those from the pivotal randomized controlled study above. The 

applicant cited an EFS for the Zilver® PTX® of 89.0 percent and an 86.2 percent primary 

patency rate. According to the applicant, these results confirm the safety and 

 

8 Dake, MD., VIVA 2012, October 10, 2012; Las Vegas, Nevada. 
 276 

effectiveness of the Zilver® PTX®, and compare favorably to current results for 

angioplasty and bare metal stenting. The applicant further stated that these results also 

demonstrate a 67 to 81 percent relative reduction in Target Lesion Revascularization (the 

need to retreat an already treated lesion that has restenosed, resulting in a recurrence of 

symptoms) rates compared to recently published results of contemporary bare metal 

stents.9

 We also are concerned that on April 24, 2013, the FDA announced that, based on 

its investigation into a small number of complaints that the delivery system of the device 

had separated at the tip of the inner catheter, Cook Medical has initiated a 

nationwide/global voluntary recall of its Zilver® PTX® Drug Eluting Peripheral Stent. 

We refer readers to 

http://www.fda.gov/Safety/Recalls/ucm349421.htm?source=govdelivery for more 

information regarding this announcement. 

 We are inviting public comments regarding whether the Zilver® PTX® meets the 

substantial clinical improvement criterion. We note that we did not receive any public 

comments on the Zilver® PTX® during the new technology town hall meeting’s public 

comment period. 

 

9

 Dake, M. D., Scheinert, D., Tepe, G., Tessarek, J., Fanelli, F., Bosiers, M., et al., (2011). Nitinol stents with polymerfree paclitaxel coating for lesions in the superficial femoral and popliteal arteries above the knee: Twelve-month safety 

and effectiveness results from the Zilver PTX single-arm clinical study. Journal of Endovascular Therapy, 18(5), 613-

623. 
 277 

e. MitraClip® System 

 Abbott Vascular submitted an application for new technology add-on payments 

for the MitraClip® System for FY 2014. The MitraClip® System is a transcatheter mitral 

valve system that includes a MitraClip® device implant, a Steerable Guide Catheter, and a 

Clip Delivery System. It is designed to perform reconstruction of the insufficient mitral 

valve for high risk patients who are not candidates for conventional open mitral valve 

surgery. 

 Mitral regurgitation (MR), also referred to as mitral insufficiency or mitral 

incompetence, occurs when the mitral valve fails to close completely causing the blood to 

leak or flow backwards (regurgitate) into the mitral valve as the heart contracts. If the 

amount of blood that leaks back into the mitral valve is minimal then intervention is 

usually not necessary. However, if the amount of blood becomes significant this can 

cause the left ventricle to work harder to meet the body’s need for oxygenated blood. 

Severity levels of MR can range from grade 1+ through grade 4+. If left untreated, 

severe mitral regurgitation can lead to heart failure and death. The American College of 

Cardiology (ACC) and the American Heart Association (AHA) issued practice guidelines 

in 2006 recommending intervention for moderate-severe or severe MR (3+ to 4+). The 

applicant stated that the MitraClip® System is intended “for patients with symptomatic, 

significant mitral regurgitation who have been determined by a cardiac surgeon to be too 

high risk for open mitral valve surgery and in whom existing co-morbidities would not 

preclude the expected benefit from correction of the mitral regurgitation.” 
 278 

 The MitraClip® System performs percutaneous mitral valve repair. The applicant 

noted that the MitraClip® mitral valve repair procedure is based on the double-orifice 

surgical repair technique that has been used as a surgical technique in open chest, 

arrested-heart surgery for the treatment of MR since the early 1990s.10,11,12,13,14 

According to the applicant, in utilizing the double-orifice technique, a portion of the 

anterior leaflet is sutured to the corresponding portion of the posterior leaflet using 

standard techniques and forceps and suture, creating a point of permanent coaptation 

(“approximation”) of the two leaflets. As a result, when the suture is placed in the middle 

of the valve, the valve will have a functional double orifice during diastole, thus the 

alternate name for the procedure “Double Orifice Repair.” 

With regard to the newness criterion, the manufacturer submitted a Premarket 

Approval (PMA) application in support of obtaining FDA approval for the MitraClip®

System. Effective October 1, 2010, ICD-9-CM procedure code 35.97 (Percutaneous 

mitral valve repair with implant) was created to identify and describe the MitraClip®

technology. On March 20, 2013, a meeting was held by the Circulatory System Devices 

Panel of the Medical Devices Advisory Committee of the FDA to discuss, make 

recommendations, and vote on information related to the PMA application for the 

MitraClip® System. Specifically, the Committee was charged with determining if the 

 

10Maisano, F., et al., The double-orifice technique as a standardized approach to treat mitral regurgitation 

due to severe myxomatous disease: surgical technique, Eur J Cardiothorac Surg, 2000, 17(3): p. 201-5. 

11 Maisano, F., et al., The edge-to-edge technique: a simplified method to correct mitral insufficiency, Eur J 

Cardiothorac Surg, 1998, 13(3): p. 240-5; discussion 245-6. 

12 Totaro, P., et al., Mitral valve repair for isolated prolapse of the anterior leaflet: an 11-year follow-up, 

Eur J Cardiothorac Surg, 1999, 15(2): p. 119-26. 

13 Umana, J.P., et al., "Bow-tie" mitral valve repair: an adjuvant technique for ischemic mitral regurgitation, 

Ann Thorac Surg, 1998, 66(5): p. 1640-6. 

14 Alfieri, O. and F. Maisano, An effective technique to correct anterior mitral leaflet prolapse, J Card Surg, 

1999, 14(6): p. 468-70. 
 279 

data presented by the applicant demonstrated a reasonable assurance of safety and 

effectiveness. We refer readers to the following FDA Web site for additional detailed 

information and meeting materials regarding the MitraClip® System 

http://www.fda.gov/AdvisoryCommittees/Calendar/ucm339809.htm. In addition, a 

summary of the March 20, 2013 meeting can be located on the following FDA Web site 

http://www.fda.gov/downloads/AdvisoryCommittees/CommitteesMeetingMaterials/Medi

calDevices/MedicalDevicesAdvisoryCommittee/CirculatorySystemDevicesPanel/UCM3

45235.pdf. We are inviting public comments regarding how the MitraClip® System 

meets the newness criterion. 

 With regard to the cost criterion, the applicant conducted four separate analyses. 

The applicant noted that while ICD-9-CM procedure code 35.97 groups to MS–DRGs

246 (Percutaneous Cardiovascular Procedure with Drug- Eluting Stent with Major 

Complication or Comorbidity (MCC) or 4+ Vessels/Stents), 247 (Percutaneous 

Cardiovascular Procedure with Drug-Eluting Stent without MCC), 248 (Percutaneous 

Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 

249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without 

MCC), 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or 

AMI with MCC), and 251 (Percutaneous Cardiovascular Procedure without Coronary 

Artery Stent or AMI without MCC), clinical experience with the MitraClip® has 

demonstrated that it is extremely rare for a patient to receive stents concurrently with the 

MitraClip® procedure. The applicant further cited the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 55308) which stated, “According to the Food and Drug Administration’s 
 280 

(FDA’s) terms of the clinical trial for MitraClipTM, the device is to be implanted in 

patients without any additional surgeries performed. Therefore, based on these terms, we 

stated that while the procedure code is assigned to MS-DRGs 246 through 251, the most 

likely MS-DRG assignments would be MS-DRGs 250 and 251.” As a result, the 

applicant stated that it conducted its analyses solely for MS-DRGs 250 and 251 to 

demonstrate that the cases involving MitraClip® meet the incremental cost thresholds 

provided in Table 10 for those MS-DRGs. 

 The applicant included two analyses that utilize the FY 2011 MedPAR file and 

two analyses of hospital UB-04 claims data from the EVEREST II Continued Access 

Study that were collected during FY 2012. Below is a summary of the applicant’s four 

data analyses, including the methodology and the findings for each. 

● Analysis 1: The applicant searched the FY 2011 MedPAR file for cases 

reporting procedure code 35.97 that mapped to MS-DRGs 250 and 251. According to the 

applicant, this search yielded actual MitraClip® procedures that were performed in an 

IDE study setting where hospitals obtained the MitraClip® System at a reduced 

investigational price; the applicant stated that it is likely that hospitals did not bill at all 

for the investigational device or submitted billed charges that were significantly less than 

the actual device acquisition costs (we refer readers to the explanation below). The 

applicant found 39 cases in MS-DRG 250 (29 percent of all cases), and 94 cases in 

MS-DRG 251 (71 percent of all cases), which resulted in a case-weighted average charge 

per case of $97,918. The applicant then standardized the charges using the FY 2011 final 

rule impact file and inflated the standardized charges using two different inflation factors. 
 281 

The first approach used a factor of 4.6 percent, which was based on data from the U.S. 

Department of Labor’s Bureau of Labor Statistics non-seasonally adjusted Consumer 

Price Index for All Urban Consumers between January 2011 and January 2013. This 

resulted in an inflated case-weighted average standardized charge per case of $79,346. 

The second approach used a factor of 18.6 percent based on the growth in charges 

between 2009 and 2011 in MS-DRGs 250 and 251 and adjusting for case-mix year over 

year. This resulted in an inflated case-weighted average standardized charge per case of 

$89,986. The applicant noted that both approaches used to determine the inflated 

case-weighted average standardized charge per case were calculated without any 

adjustments to reflect the reduced investigational price or inadequate hospital billing. 

 In order to determine if hospitals adequately billed for the device, the applicant 

analyzed the cost of the device on each claim by summing the charges that map to the 15 

CMS IPPS cost centers (77 FR 53340). The applicant then calculated the standardized 

cost for this subset of charges by multiplying the standardized charges in each cost center 

by the CMS national CCR for each cost center in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53340). The applicant asserted that, whereas all hospitals in the study were 

charged a uniform investigational price for the MitraClip® System, this analysis 

confirmed that some hospitals did not bill at all for the device or charged substantially 

less than the actual hospital acquisition cost, which is likely due to the investigational 

status of the technology. The applicant explained that the mean total standardized costs 

in the “Supplies and Equipment” cost center in the FY 2011 MedPAR file for MitraClip®

cases were remarkably low for MS-DRGs 250 and 251, respectively. According to the 
 282 

applicant, the mean total standardized costs in the “Supplies and Equipment” cost center 

reflect only 50 percent of the actual MitraClip® System costs not inclusive of other 

supply and equipment costs associated with the MitraClip® procedure and hospital stay. 

Therefore, the applicant believed that Analysis 1 severely underestimated the actual 

hospital costs. 

 Using the FY 2014 Table 10 thresholds, the case-weighted threshold for 

MS-DRGs 250 and 251 was $63,097 (all calculations above were performed using 

unrounded numbers). Because the inflated case-weighted average standardized charge 

per case for the applicable MS-DRGs for both approaches discussed above exceeds the 

case-weighted threshold amount, the applicant maintained that the MitraClip® System 

would meet the cost criterion. 

● Analysis 2: The second analysis is identical to the first analysis (the applicant 

searched the FY 2011 MedPAR file for cases reporting procedure code 35.97 that 

mapped to MS-DRGs 250 and 251) except that the applicant excluded hospital claims 

that either did not include any charge for the device-dependent procedure or included a 

charge that was significantly less than the actual device acquisition cost. The applicant 

believed that these exclusions would provide more accurate data on the costs associated 

with the MitraClip® procedure in the IDE study when hospitals obtained the MitraClip®

System at a reduced investigational price. The applicant explained that it included only 

those cases where the standardized charge for the “Supplies and Equipment” cost center, 

reduced by each hospital’s average hospital-wide CCR (rather than using CMS national 

CCRs for each cost center), was greater than $10,000, which is lower than the acquisition 
 283 

cost for the MitraClip® System. The applicant stated that this analysis reflects a 

conservative but more appropriate estimate of the actual costs incurred by the hospitals 

during the clinical trial than the first analysis. 

 Using the methodology above, the applicant found 12 cases in MS-DRG 250 

(22 percent of all cases) and 43 cases in MS-DRG 251 (78 percent of all cases), which 

resulted in a case-weighted average charge per case of $112,434. The applicant then 

standardized the charges using the FY 2011 final rule impact file and inflated the 

standardized charges using two different inflation factors. The first approach used a 

factor of 4.6 percent, which was based on data from the U.S. Department of Labor’s 

Bureau of Labor Statistics non-seasonally adjusted Consumer Price Index for All Urban 

Consumers between January 2011 and January 2013. This resulted in an inflated 

case-weighted average standardized charge per case of $97,289. The second approach 

used a factor of 18.6 percent based on the growth in charges between 2009 and 2011 in 

MS-DRGs 250 and 251 and adjusting for case-mix year over year. This resulted in an 

inflated case-weighted average standardized charge per case of $110,335. 

 Using the FY 2014 Table 10 thresholds, the case-weighted threshold for 

MS-DRGs 250 and 251 was $61,896 (all calculations above were performed using 

unrounded numbers). Because the inflated case-weighted average standardized charge 

per case for the applicable MS-DRGs for both charge inflation approaches discussed 

above exceeds the case-weighted threshold amount, the applicant maintained that the 

MitraClip® System would meet the cost criterion. 
 284 

● Analysis 3: Because the first two analyses sought only to estimate 

standardized charges for the MitraClip® procedure in an investigational setting with a 

reduced price for the device, the applicant submitted two additional analyses using 

hospital charges in a commercial setting and a commercial device price. Rather than 

using MedPAR data, the applicant utilized hospital UB-04 claims collected from the 

ongoing EVEREST II Continued Access Study in addition to claims from 

compassionate-use cases. The applicant stated that patient characteristics and charges for 

both of these cases were not significantly different. 

 The applicant analyzed 98 claims from 21 sites (for discharges on or after 

October 1, 2011 through discharges on or before September 30, 2012 (FY 2012 claims 

data)) and excluded 18 cases because the cases either did not map to MS-DRGs 250 or 

251, or the patient was below the age of 65 years. Of these remaining 80 cases, 17 

mapped to MS-DRG 250 (21.3 percent of all cases) and 63 mapped to MS-DRG 251 

(78.8 percent of all cases), which resulted in a case-weighted average charge per case of 

$112,509. The case-weighted average charge per case above includes clinical trial 

charges related to the MitraClip® System, which does not reflect the full commercial 

charge for the MitraClip® System. Therefore, the applicant removed the amount of 

clinical trial charges related to the MitraClip® System. The applicant then standardized 

the charges using the FY 2012 final rule impact file and inflated the standardized charges 

using the two different approaches described in the first and second analyses (an inflation 

factor of 4.6 percent and 18.6 percent, respectively). 
 285 

 The applicant then added commercial charges for the device to the inflated 

standardized charges (for both charge inflation approaches). Although the applicant 

submitted data that related to the estimated cost of the MitraClip® System, the applicant 

noted that the cost of the technology was proprietary information. To compute the 

commercial charges for the MitraClip® System, the applicant took the European 

commercial price of the MitraClip® System, converted the cost to U.S. dollars by 

multiplying the amount by an exchange rate of 1.38, and then divided the result by the 

“Supplies and Equipment” cost center CCR (in the FY 2013 IPPS/LTCH PPS final rule) 

of 0.335. This resulted in an inflated case-weighted average standardized charge per case 

of $129,019 and $132,372 under the first and second charge inflation approaches, 

respectively. 

 Using the FY 2014 Table 10 thresholds, the case-weighted threshold for 

MS-DRGs 250 and 251 was $61,805 (all calculations above were performed using 

unrounded numbers). Because the inflated case-weighted average standardized charge 

per case for the applicable MS-DRGs for both charge inflation approaches exceeds the 

case-weighted threshold amount, the applicant maintained that the MitraClip® System 

would meet the cost criterion. 

● Analysis 4: The fourth analysis was similar to the third analysis. However, 

instead of basing commercial charges on the European commercial price, the applicant 

used the anticipated U.S. commercial price to determine the commercial charges for the 

device. Similar to above, the applicant determined a case-weighted average charge per 

case of $112,509. The applicant then removed the clinical trial charges related to the 
 286 

MitraClip® System (for each claim), standardized the charges using the FY 2012 final 

rule impact file, and inflated the standardized charges using both charge inflation 

approaches discussed above. 

 The applicant then added commercial charges for the device to the inflated 

standardized charges (for both charge inflation approaches). As mentioned above, 

although the applicant submitted data that related to the estimated cost of the MitraClip®

System, the applicant noted that the cost of the technology was proprietary information. 

To compute the commercial charges for the MitraClip® System, the applicant used the 

anticipated U.S. commercial price of the MitraClip® System and divided the amount by 

the “Supplies and Equipment” cost center CCR (in the FY 2013 IPPS/LTCH PPS final 

rule) of 0.335. This resulted in an inflated case-weighted average standardized charge 

per case of $136,183 and $139,535 under the first and second charge inflation 

approaches, respectively. 

 Using the FY 2014 Table 10 thresholds, the case-weighted threshold for 

MS-DRGs 250 and 251 was $61,805 (all calculations above were performed using 

unrounded numbers). Because the inflated case-weighted average standardized charge 

per case for the applicable MS-DRGs for both charge inflation approaches exceeds the 

case-weighted threshold amount, the applicant maintained that the MitraClip® System 

would meet the cost criterion. 

 We are inviting public comments on whether or not the MitraClip® System meets 

the cost criterion. In addition, we are inviting public comments on the methodologies 

used by the applicant in its four analyses. 
 287 

 The applicant asserted that the MitraClip® System meets the substantial clinical 

improvement criterion. The applicant explained that studies have indicated that a 

significant proportion of patients are not eligible for mitral valve repair and/or 

replacement surgery because of risk factors including reduced left ventricular function, 

significant comorbidities, and advanced age. As a result, the applicant stated that there is 

a significant unmet clinical need for patients with severe MR who are too high risk for 

surgery and receiving palliative medical management. 

 The applicant further stated that although many of the patients who are refused 

surgery die in the intervening months to years, the economic burden to the healthcare 

system of mitral regurgitation in elderly patients not deemed suitable for conventional 

open chest surgery is considerable. The applicant noted that the vast majority of such 

patients are repeatedly hospitalized, often with prolonged lengths of in-hospital stays, 

and, even when returned to the community, they consume additional resources from the 

primary care and social services. The applicant asserted that the quality of life enjoyed 

by these patients is also poor and their mortality rates are high. The applicant cited the 

2012 European Society of Cardiology (ESC) and European Association for CardioThoracic Surgery (EACTS) clinical practice guideline for valvular heart disease, which 

recommended that the MitraClip® procedure be considered in high surgical risk patients 

with symptomatic severe secondary MR. 

 The applicant also stated that it would meet the substantial clinical improvement 

criterion based on clinical studies that have consistently shown that the MitraClip®

procedure leads to a significant reduction of MR, improvements in left ventricular (LV) 
 288 

function including LV volumes and dimensions, improved patient outcomes as measured 

by improvements in New York Heart Association (NYHA) functional class, healthrelated quality of life and reductions in heart-failure related hospitalizations, and 

significantly lower mortality than predicted surgical mortality. 

 The applicant cited clinical data from the EVEREST II High Risk Study15 and 

from the EVEREST II Continued Access Study/Registry (REALISIM)16. The applicant 

also cited clinical data from a high risk cohort of patients (EVEREST II High Risk 

Cohort), which is an integrated analysis of the following: (1) patients within the 

EVEREST II High Risk Study who met eligibility criteria for being too high risk to 

undergo mitral valve surgery; and (2) patients within the EVEREST II Continued Access 

Study/Registry who were too high risk for surgery using identical eligibility inclusion 

criteria. 

 In addition to the published clinical experience from the EVEREST studies, the 

applicant cited data on the use of the MitraClip® device in a “real-world” setting 

published recently by a select number of European centers as part of their individual 

and/or multi-center commercial experience or enrollment in the MitraClip® device group 

of the ACCESS-EU post-approval clinical trial in Europe. The European use of the 

MitraClip® device is focused on patients who are too high risk for surgery and patients 

are selected for therapy using a multi-disciplinary “heart team” approach. 

 The applicant stated that published reports of the MitraClip® procedure have 

consistently demonstrated a significant reduction in MR that is durable out to 1, 2, and 3 

 

15 Whitlow et al., Acute and 12-Month Results With Catheter-Based Mitral Valve Leaflet Repair: The 

EVEREST II (Endovascular Valve Edge-to-Edge Repair) High Risk Study. JACC 2012;59:130-139. 

16 Feldman et al., Percutaneous Repair or Surgery for Mitral Regurgitation. NEJM 2011;364:1395-1406. 
 289 

years. The applicant cited the EVEREST II High Risk Study, which demonstrated that 

the MitraClip® procedure successfully reduced MR for high-risk patients with results 

durable out to 2 years. The applicant also noted that the proportion of patients with 

significant MR (MR grade ≥ 3+) was reduced from 99 percent at baseline to 22 percent at 

1 year follow-up (p<0.0001). The applicant further noted that reduction of MR was also 

associated with significant improvements in left ventricular dimensions including LV end 

diastolic and systolic volumes (p<0.0001) consistent with positive ventricular 

remodeling. 

 According to the applicant, the most recent available data from the EVEREST II 

High Risk Cohort submitted to the FDA for high-risk patients demonstrated a significant 

reduction in severe MR from 86 percent at baseline to 13 percent at 2 years (p<0.0001), 

improvements in LV dimensions and volumes sustained at 2 years, and a 48-percent 

reduction in rates of heart failure-related hospitalizations between the baseline and the 

12-month follow-up period after the MitraClip® procedure (p<0.0001). 

 The applicant noted that patients treated with MitraClip® reported substantial 

clinical improvements in NYHA functional class from baseline at both 1 and 2 year 

followup. The applicant explained that the NYHA classification system assigns patients 

into one of four categories representing the extent of heart failure based on how much 

they are limited during physical activity. In the EVEREST II High-Risk Cohort, the 

applicant stated that the proportion of patients with NYHA class III/IV representing 

marked or severe limitations in activity was significantly reduced from 82 percent at 
 290 

baseline to 17 percent at 1 year (p<0.0001). The applicant noted that these results also 

have been consistently shown in multiple other published studies. 

 Based on data from the EVEREST II High Risk Cohort, the applicant cited 

additional data demonstrating that the MitraClip® treatment is associated with clinically 

and statistically significant improvements in general health-related quality of life. The 

applicant explained that the RAND SF-36 health survey, a quality of life instrument, 

demonstrated similar physical and mental component scores after 30 days and 1 year. In 

addition, the applicant stated that the MitraClip® is associated with lower than predicted 

mortality rates at 30 days as measured by the Society for Thoracic Surgery (STS) 

Mortality Risk Score. Also, mortality at 1 year is favorable when (1) comparing the 

MitraClip® to published literature17,18,19,20,21,22,23 and (2) comparing MitraClip® mortality 

to a high-risk concurrent control group of patients treated with medical management. 

 

17 Mirabel M, Iung B, Baron G, et al. What are the characteristics of patients with severe, symptomatic, 

mitral regurgitation who are denied surgery? Eur Heart J. 2007 Jun;28(11):1358-65.

18 Patel JB, Borgeson DD, Barnes ME, Rihal CS, Daly RC, Redfield MM.: Mitral regurgitation in patients 

with advanced systolic heart failure. J Card Fail. 2004 Aug;10(4):285-91.

19 Trichon BH, Felker GM, Shaw LK, Cabell CH, O'Connor CM: Relation of frequency and severity of 

mitral regurgitation to survival among patients with left ventricular systolic dysfunction and heart failure, 

Am J Cardiol. 2003 Mar 1. 91(5):538-43.

20 Bursi F, Enriquez-Sarano M, Nkomo VT, Jacobsen SJ, Weston SA, Meverden RA, Roger VL: Heart 

failure and death after myocardial infarction in the community: the emerging role of mitral regurgitation. 

Circulation. 2005 Jan 25;111(3):295-301.34.

21 Grigioni F, Enriquez-Sarano M, Zehr KJ, Bailey KR, Tajik AJ: Ischemic mitral regurgitation: long-term 

outcome and prognostic implications with quantitative Doppler assessment. Circulation. 2001 Apr 

3;103(13):1759-64.

22 Koelling TM, Aaronson KD, Cody RJ, Bach DS, Armstrong WF: Prognostic significance of mitral 

regurgitation and tricuspid regurgitation in patients with left ventricular systolic dysfunction, Am Heart J. 

2002 Sep;144(3):524-9.

23 Cioffi G, Tarantini L, De Feo S, Pulignano G, Del Sindaco D, Stefenelli C, Di Lenarda A, Opasich 

C.:Functional mitral regurgitation predicts 1-year mortality in elderly patients with systolic chronic heart 

failure. Eur J Heart Fail. 2005 Dec;7(7):1112-7. 
 291 

 In conclusion, the applicant cited data from the ACCESS-EU study as presented 

at the European Society of Cardiology Congress in August 2012, which demonstrated 

improvement in disease-specific quality of life measures including the Minnesota Living 

with Heart Failure Questionnaire and Six Minute Walk Test. 

 We note that, similar to the FDA, as referenced above, we are concerned that the 

applicant performed post hoc analyses on a different patient population and revised the 

initial indication for use for the MitraClip® after learning that the FDA expressed concern 

regarding the PMA based on insufficient data resulting from the initial indication for use 

and patient population in the EVEREST II RCT. As we discuss below, data results from 

2 years of the EVEREST II RCT also demonstrated that surgery reduced mitral 

regurgitation more than the percutaneous MitraClip® System. However, both the surgical 

patients and the MitraClip® patients showed comparable results for improved left 

ventricular function, NYHA functional class, and quality of life. Subsequent to this trial, 

the applicant conducted a retrospective review of registry data to support the revised 

indication for use. This retrospective analysis involved pooling two registry data sets (the 

EVEREST II High Risk Registry (HRR) and the REALISM HRR Continued Access 

Protocol (CAP)) in a post hoc manner, which resulted in major design flaws and data 

interpretation limitations. The pooled registry data sets were referred to as the Integrated 

High Surgical Risk Cohort. 

 We note that, the EVEREST II HRR and the REALISM HRR CAP were not 

intended to be used as pivotal data sets. The applicant was previously informed by the 

FDA that without positive pivotal trial results, the PMA application could not be 
 292 

approved based on the data results of the EVEREST II RCT by itself. Therefore, the 

FDA suggested the additional studies (the EVEREST II HRR and the REALISM HRR 

CAP) to complement the randomized study and, therefore, could be considered 

adjunctive to the EVEREST II RCT. 

 In our review of the clinical trials’ data, we agree with the FDA regarding the 

following key points: 

● Post hoc analyses of pooled data sets retain all of the individual shortcomings 

of the individual data sets; 

● Pooling does not enhance the utility and scientific value of uncontrolled single 

arm registries with no comparators; and 

● Inappropriate pooling introduces additional confounders. 

 It is also unclear what the appropriate target population for the MitraClip® System 

is because clinical trials conducted by the applicant included patients with both functional 

and degenerative mitral regurgitation, which makes it difficult to determine which group 

of patients may benefit more or less from the technology. For example, in a subgroup 

analysis of the EVEREST II RCT, authors concluded that older patients and those 

patients with functional mitral regurgitation or abnormal left ventricular function had 

results more comparable to surgical repair. Data results from 2 years of the EVEREST II 

RCT also demonstrated that surgery reduced mitral regurgitation more than the 

percutaneous MitraClip® System. However, both the surgical patients and the MitraClip®

System’s patients showed comparable results for improved left ventricular function, 

NYHA functional class, and quality of life. 
 293 

 We are inviting public comments on whether this technology meets the 

substantial clinical improvement criterion, particularly in comparison to other surgical 

therapies such as mitral valve repair or replacement, and also with regard to the 

appropriate target population for this technology. 

 We received nine comments on the MitraClip® System during the town hall 

meeting’s public comment period. These comments are summarized below. 

 Comment: Several commenters expressed support for new technology add-on 

payments for the MitraClip® System and recommended that the technology be reassigned 

from MS-DRGs 250 and 251 (Percutaneous Cardiovascular Procedure without Coronary 

Artery Stent or AMI with and without MCC, respectively) to MS-DRGs 216, 217, 218, 

219, 220, and 221 (Cardiac Valve and Other Major Cardiothoracic Procedure with and 

without Cardiac Catheterization with MCC, CC, and without CC/MCC, respectively). 

 Response: We appreciate the commenters’ support. However, we note that we 

did not request public comments nor propose to make any changes to the MS-DRG 

classification for the MitraClip® System. Because these comments are outside the scope 

of the new technology add-on payment application included in this proposed rule, we are 

not providing a complete summary of and response to these comments. We encourage 

the commenters to review the process for submitting comments regarding MS-DRG 

classifications as outlined in section II.G. of the preamble of this proposed rule. 

 Comment: Several commenters stated that they supported the application for new 

technology add-on payments for the MitraClip® System because it is a novel technology 

utilizing the transcatheter approach to repair the mitral valve and has demonstrated 
 294 

substantial clinical improvement. According to the commenters, the technology is 

intended to be used for high-risk patients who do not have other treatment options 

available due to the severity of their mitral regurgitation and other comorbidities, such as 

heart failure. The commenters noted that the percutaneous MitraClip® System results in 

significant improvement in quality of life for this group of patients for whom 

conventional surgery is contraindicated. 

 One commenter stated that another benefit of the MitraClip® System is that it 

offers patients with all forms of mitral regurgitation the opportunity to receive treatment 

much earlier, thereby resulting in improved cardiac function, reduced heart failure, and 

increased savings to the healthcare system. 

 Another commenter expressed support for the MitraClip® System and noted that 

surgery for this high-risk patient population is not a viable alternative and neither are the 

currently available medical therapy options, as evidenced by the readmission rates for 

congestive heart failure exacerbations in this group of patients. This commenter also 

noted that the MitraClip® device has proven to reduce the degree of mitral regurgitation 

as shown in a number of high-risk patient registries and clinical trials. The commenter 

further noted that savings could be realized with the reductions in readmissions for heart 

failure exacerbations for this group of patients. 

 One commenter indicated that the MitraClip® System meets the substantial 

clinical improvement criterion because it offers nonoperative patients a device that could 

“potentially revolutionize management of nonsurgical patients with severe mitral 

regurgitation.” Another commenter stated that the MitraClip® System “represents a 
 295 

landmark in our ability to perform mitral valve surgeries with less risk.” This commenter 

further stated that the “MitraClip® joins TAVR (Transcatheter aortic valve replacement) 

and TPVI (Transcatheter pulmonary valve implantation) as new percutaneous surgical 

therapies for patients with valvular heart disease who are not candidates for traditional 

valve replacement or repair.” 

 Another commenter noted that the MitraClip® System has shown substantial 

clinical improvement in patients considered too high risk for surgery as demonstrated by 

the EVEREST II cohort, including improvement in patients NYHA functional class, 

reduced hospitalizations, and improved left ventricular function. 

 Response: We appreciate the commenters’ support. We have considered these 

comments received during the town hall meeting’s public comment period in this 

proposed rule. As stated above, we are inviting additional public comments on whether 

the MitraClip® System meets the substantial clinical improvement criterion, particularly 

in comparison to other surgical therapies such as mitral valve repair or replacement, and 

also with regard to the appropriate target population for this technology.
 296 

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.” We currently define hospital 

labor market areas based on the delineations of statistical areas established by the Office 

of Management and Budget (OMB). A discussion of the proposed FY 2014 hospital 

wage index based on the statistical areas appears under section III.B. of the preamble of 

this proposed rule. 

 Section 1886(d)(3)(E) of the Act requires the Secretary to update the wage index 

annually and to base the update on a survey of wages and wage-related costs of 

short-term, acute care hospitals. This provision also requires that any updates or 

adjustments to the wage index be made in a manner that ensures that aggregate payments 

to hospitals are not affected by the change in the wage index. The proposed adjustment 

for FY 2014 is discussed in section II.B. of the Addendum to this proposed rule. 

 As discussed below in section III.H. 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 
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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 2014 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, 2013 (the FY 2014 wage index) appears 

under section III.F. of the preamble of this proposed rule. 

B. 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. 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. The current statistical areas are based on 

OMB standards published on December 27, 2000 (65 FR 82228) and Census 2000 data 

and Census Bureau population estimates for 2007 and 2008 (OMB Bulletin No. 10-02). 

For a discussion of OMB’s delineations 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). We also discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 

51582) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53365) that, in 2013, OMB 

plans to announce new area delineations based on new standards adopted in 2010 
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(75 FR 37246) and the 2010 Census of Population and Housing data. On 

February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised 

delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and 

Combined Statistical Areas, and provides guidance on the use of the delineations of these 

statistical areas. A copy of this bulletin may be obtained at 

http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. 

According to OMB, “[t]his bulletin provides the delineations of all Metropolitan 

Statistical Areas, Metropolitan Divisions, Micropolitan Statistical Areas, Combined 

Statistical Areas, and New England City and Town Areas in the United States and Puerto 

Rico based on the standards published on June 28, 2010, in the Federal Register

(75 FR 37246-37252) and Census Bureau data.” 

 In order to implement these changes for the IPPS, it is necessary to identify the 

new area designation for each county and hospital in the country. While the revisions 

OMB published on February 28, 2013 are not as sweeping as the changes OMB 

announced in 2003, the February 28, 2013 bulletin does contain a number of significant 

changes. For example, there are new CBSAs, urban counties that become rural, rural 

counties that become urban, and existing CBSAs that have been split apart. In addition, 

the effect of the new designations on various hospital reclassifications, the outmigration 

adjustment (established by section 505 of Pub. L. 108-173), and treatment of hospitals 

located in certain rural counties (that is, “Lugar” hospitals) provided for under section 

1886(d)(8)(B) of the Act must be considered. These are just a few of the many issues 
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that need to be considereed regarding the effects of the new designations prior to 

proposing and establishing policies. 

 However, because the bulletin was not issued until February 28, 2013, with 

supporting data not available until later, and because the changes made by the bulletin 

and their ramifications must be extensively reviewed and verified, we were unable to 

undertake such a lengthy process before publication of this FY 2014 proposed rule. By 

the time the bulletin was issued, the FY 2014 IPPS proposed rule was in the advanced 

stages of development. We had already developed the FY 2014 proposed wage index 

based on the previous OMB definitions. We note that, in June 2003, OMB announced 

changes resulting from the 2000 Census, and at that time, CMS proposed and 

implemented the changes during the following year’s rulemaking cycle for FY 2005. 

Although OMB published the data earlier than June this year, we still are in essentially 

the same situation as we were in 2003 because the data are not available in time to be 

incorporated into this year’s rulemaking cycle. To allow for sufficient time to assess the 

new changes and their ramifications, we intend to propose changes to the wage index 

based on the newest CBSA changes in the FY 2015 proposed rule. We refer readers to 

the FY 2005 IPPS final rule (69 FR 49026 through 49034) for those interested in learning 

about the issues we may need to address next year in proposing to implement the latest 

OMB update for FY 2015, and some of the policy decisions that we may consider 

making. 
 300 

C. Worksheet S-3 Wage Data for the Proposed FY 2014 Wage Index

 The proposed FY 2014 wage index values are based on the data collected from 

the Medicare cost reports submitted by hospitals for cost reporting periods beginning in 

FY 2010 (the FY 2013 wage indices were based on data from cost reporting periods 

beginning during FY 2009). 

1. Included Categories of Costs 

 The proposed FY 2014 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 through 47318)); and 

 • Wage-related costs, including pension costs (based on policies adopted in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590)) and other deferred 

compensation costs. 

2. Excluded Categories of Costs 

 Consistent with the wage index methodology for FY 2013, the proposed wage 

index for FY 2014 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 
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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 2014 wage index also excludes the salaries, hours, and wage-related costs 

of hospital-based rural health clinics (RHCs), and Federally qualified health centers 

(FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 45395). In 

addition, salaries, hours, and wage-related costs of CAHs are excluded from the wage 

index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397 through 

45398). 

3. Use of Wage Index Data by 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. 

D. Verification of Worksheet S-3 Wage Data

 The wage data for the proposed FY 2014 wage index were obtained from 

Worksheet S-3 of the Medicare cost report for cost reporting periods beginning on or 

after October 1, 2009, and before October 1, 2010. For wage index purposes, we refer to 

cost reports during this period as the “FY 2010 cost report,” the “FY 2010 wage data,” or 
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the “FY 2010 data.” Instructions for completing the wage index sections of Worksheet 

S-3 are included in the Provider Reimbursement Manual (PRM), Part 2 (Pub. No. 15-2), 

Chapter 36, Sections 3605.2 and 3605.3 for Form CMS-2552-96 and Chapter 40, 

Sections 4005.2 through 4005.4 for Form CMS-2552-10. Hospitals with cost reporting 

periods beginning on or after October 1, 2009 and before May 1, 2010 reported FY 2010 

data on Form CMS-2552-96. Hospitals with cost reporting periods beginning on or after 

May 1, 2010 and before October 1, 2010 reported FY 2010 data on the new Form CMS2552-10. The data file used to construct the wage index includes FY 2010 data submitted 

to us as of March 1, 2013. As in past years, we performed an extensive review of the 

wage data, mostly through the use of edits designed to identify aberrant data. 

 We asked our fiscal intermediaries/MACs to revise or verify data elements that 

result in specific edit failures. For the proposed FY 2014 wage index, we identified and 

excluded 44 providers with data that were 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 final FY 2014 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 10, 2013. We intend that 

all unresolved data elements will be resolved by the date the FY 2014 final rule is issued. 

The revised data will be reflected in the FY 2014 IPPS final rule. 

 In constructing the proposed FY 2014 wage index, we included the wage data for 

facilities that were IPPS hospitals in FY 2010, inclusive of those facilities that have since 

terminated their participation in the program as hospitals, as long as those data did not 
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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 through 45398). For this proposed rule, we 

removed 4 hospitals that converted to CAH status on or after February 14, 2012, the 

cut-off date for CAH exclusion from the FY 2013 wage index, and through and including 

February 14, 2013, the cut-off date for CAH exclusion from the FY 2014 wage index. 

After removing hospitals with aberrant data and hospitals that converted to CAH status, 

the proposed FY 2014 wage index is calculated based on 3,427 hospitals. 

 For the proposed FY 2014 wage index, we allotted the wages and hours data for a 

multicampus hospital among the different labor market areas where its campuses are 

located in the same manner that we allotted such hospitals’ data in the FY 2013 wage 

index (77 FR 53366). Table 2 containing the proposed FY 2014 wage index associated 

with this proposed rule (available on the CMS Web site) includes separate wage data for 

the campuses of six multicampus hospitals (two additional multicampus hospitals have 

been added to the wage index calculation for FY 2014). 

E. Method for Computing the Proposed FY 2014 Unadjusted Wage Index

 The method used to compute the proposed FY 2014 wage index without an 

occupational mix adjustment follows the same methodology that we used to compute the 

FY 2012 final wage index without an occupational mix adjustment (76 FR 51591 through 
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51593) and which we discussed and used for the FY 2013 final wage index without an 

occupational mix adjustment (77 FR 53366 through 53367). 

 As discussed in the FY 2012 final rule, in “Step 5,” for each hospital, we adjust 

the total salaries plus wage-related costs to a common period to determine total adjusted 

salaries plus wage-related costs. To make the wage adjustment, we estimate the 

percentage change in the employment cost index (ECI) for compensation for each 30-day 

increment from October 14, 2009, through April 15, 2011, for private industry hospital 

workers from the BLS’ Compensation and Working Conditions. We have consistently 

used the ECI as the data source for our wages and salaries and other price proxies in the 

IPPS market basket, and we are not proposing any changes to the usage for FY 2014. 

The factors used to adjust the hospital’s data were based on the midpoint of the cost 

reporting period, as indicated below. 

MIDPOINT OF COST REPORTING PERIOD 

After Before Adjustment Factor 

10/14/2009 11/15/2009 1.02682 

11/14/2009 12/15/2009 1.02490 

12/14/2009 01/15/2010 1.02299 

01/14/2010 02/15/2010 1.02116 

02/14/2010 03/15/2010 1.01941 

03/14/2010 04/15/2010 1.01768 

04/14/2010 05/15/2010 1.01591 

05/14/2010 06/15/2010 1.01412 

06/14/2010 07/15/2010 1.01235 

07/14/2010 08/15/2010 1.01064 

08/14/2010 09/15/2010 1.00898 

09/14/2010 10/15/2010 1.00738 

10/14/2010 11/15/2010 1.00584 

11/14/2010 12/15/2010 1.00434 

12/14/2010 01/15/2011 1.00288 

01/14/2011 02/15/2011 1.00143 
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After Before Adjustment Factor 

02/14/2011 03/15/2011 1.00000 

03/14/2011 04/15/2011 0.99860 

 For example, the midpoint of a cost reporting period beginning January 1, 2010, 

and ending December 31, 2010, is June 30, 2010. An adjustment factor of 1.01235 

would be applied to the wages of a hospital with such a cost reporting period. 

 Using the data as described above and in the FY 2013 IPPS/LTCH PPS final rule, 

the proposed FY 2014 national average hourly wage (unadjusted for occupational mix) is 

$38.2384. The proposed FY 2014 Puerto Rico overall average hourly wage (unadjusted 

for occupational mix) is $16.4873. 

F. Proposed Occupational Mix Adjustment to the Proposed FY 2014 Wage Index

 As stated earlier, section 1886(d)(3)(E) of the Act provides for the collection of 

data every 3 years on the occupational mix of employees for each short-term, acute care 

hospital participating in the Medicare program, in order to construct an occupational mix 

adjustment to the wage index, for application beginning October 1, 2004 (the FY 2005 

wage index). The purpose of the occupational mix adjustment is to control for the effect 

of hospitals’ employment choices on the wage index. For example, hospitals may choose 

to employ different combinations of registered nurses, licensed practical nurses, nursing 

aides, and medical assistants for the purpose of providing nursing care to their patients. 

The varying labor costs associated with these choices reflect hospital management 

decisions rather than geographic differences in the costs of labor. 

1. Development of Data for the Proposed FY 2014 Occupational Mix Adjustment Based 

on the 2010 Occupational Mix Survey 
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 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. 

 As discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53367 through 

53368), the occupational mix adjustment to the FY 2013 wage index was based on data 

collected on the 2010 Medicare Wage Index Occupational Mix Survey (Form 

CMS-10079 (2010)). For the FY 2014 wage index, we are proposing to again use 

occupational mix data collected on the 2010 survey to compute the occupational mix 

adjustment for FY 2014. We are including data for 3,188 hospitals that also have wage 

data included in the proposed FY 2014 wage index. 

2. New 2013 Occupational Mix Survey for the FY 2016 Wage Index 

As stated earlier, section 304(c) of Pub. L. 106-554 amended section 

1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational 

mix of employees for each short-term, acute care hospital participating in the Medicare 

program. We used occupational mix data collected on the 2010 survey to compute the 

occupational mix adjustment for FY 2013 and the proposed FY 2014 wage index 

associated with this proposed rule. We also plan to use the 2010 survey data for the 

FY 2015 wage index. Therefore, a new measurement of occupational mix will be 

required for FY 2016. 

 On December 7, 2012, we published in the Federal Register a notice soliciting 

comments on the proposed 2013 Medicare Wage Index Occupational Mix Survey 

(77 FR 73032 through 73033). The new 2013 survey includes the same data elements 
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and definitions as the 2010 survey and provides for the collection of hospital-specific 

wages and hours data for nursing employees for calendar year 2013 (that is, payroll 

periods ending between January 1, 2013 and December 31, 2013). The comment period 

for the notice ended on February 5, 2013. After considering the public comments that we 

received on the December 2012 notice, we made a few minor editorial changes and 

published the 2013 survey in the Federal Register on February 28, 2013 (78 FR 13679). 

This survey is pending OMB review, and is available on the CMS Web site at: 

http://www.cms.hhs.gov/PaperworkReductionActof1995 by clicking on “PRA Listings.” 

(The OMB control number for this collection of information is 0938-0907.) Hospitals are 

required to submit their completed 2013 surveys to their fiscal intermediaries/MACs by 

July 1, 2014. The preliminary, unaudited 2013 survey data will be released afterward, 

along with the FY 2012 Worksheet S-3 wage data, for the FY 2016 wage index review 

and correction process. 

3. Calculation of the Proposed Occupational Mix Adjustment for FY 2014 

 For FY 2014, we are proposing to calculate the occupational mix adjustment 

factor using the same methodology that we used for the FY 2012 and FY 2013 wage 

indices (76 FR 51582 through 51586, and 77 FR 53367 through 53368, respectively). As 

a result of applying this methodology, the proposed FY 2014 occupational mix adjusted 

national average hourly wage is $38.2094. The proposed FY 2014 occupational mix 

adjusted Puerto Rico-specific average hourly wage is $16.5300. 

 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 
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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 2014 wage 

index. For the FY 2010 survey, the response rate was 91.7 percent. In the proposed 

FY 2014 wage index established in this proposed rule, we applied proxy data for 

noncompliant hospitals, new hospitals, or hospitals that submitted erroneous or aberrant 

data in the same manner that we applied proxy data for such hospitals in the FY 2012 

wage index occupational mix adjustment (76 FR 51586). 

 In the FY 2011 IPPS/LTCH PPS proposed rule and final rule (75 FR 23943 and 

75 FR 50167, respectively), we stated that, in order to gain a better understanding of why 

some hospitals are not submitting the occupational mix data, we will require hospitals 

that do not submit occupational mix data to provide an explanation for not complying. 

This requirement was effective beginning with the 2010 occupational mix survey. We 

instructed fiscal intermediaries/MACs to continue gathering this information as part of 

the FY 2014 wage index desk review process. We will review these data for future 

analysis and consideration of potential penalties for noncompliant hospitals. 
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G. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the 

Proposed FY 2014 Occupational Mix Adjusted Wage Index

1. Analysis of the Proposed Occupational Mix Adjustment and the Proposed 

Occupational Mix Adjusted Wage Index 

 As discussed in section III.F. of this preamble, for FY 2014, we are proposing to 

apply the proposed occupational mix adjustment to 100 percent of the proposed FY 2014 

wage index. We calculated the proposed occupational mix adjustment using data from 

the 2010 occupational mix survey data, using the methodology described in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51582 through 51586). 

 Using the occupational mix survey data and applying the occupational mix 

adjustment to 100 percent of the proposed FY 2014 wage index results in a proposed 

national average hourly wage of $38.2094 and a proposed Puerto-Rico specific average 

hourly wage of $16.5300. After excluding data of hospitals that either submitted aberrant 

data that failed critical edits, or that do not have FY 2010 Worksheet S-3, Parts II and III, 

cost report data for use in calculating the proposed FY 2014 wage index, we calculated 

the proposed FY 2014 wage index using the occupational mix survey data from 3,188 

hospitals. Using the Worksheet S-3, Parts II and III, cost report data of 3,427 hospitals 

and occupational mix survey data from 3,188 hospitals represents a 93.0 percent survey 

response rate. The proposed FY 2014 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 Proposed Average 

Hourly Wage 
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Occupational Mix Nursing Subcategory Proposed Average 

Hourly Wage 

National RN 37.432120148

National LPN and Surgical Technician 21.773706724

National Nurse Aide, Orderly, and Attendant 15.327583858

National Medical Assistant 17.213605923

National Nurse Category 31.811167234

 The proposed national average hourly wage for the entire nurse category as 

computed in Step 5 of the occupational mix calculation is $31.811167234. 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 2010 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 43.44 percent, and the national percentage of hospital employees in the 

all other occupations category is 56.56 percent. At the CBSA level, the percentage of 

hospital employees in the nurse category ranged from a low of 21.9 percent in one 

CBSA, to a high of 62.0 percent in another CBSA. 

 We compared the proposed FY 2014 occupational mix adjusted wage indices for 

each CBSA to the proposed unadjusted wage indices for each CBSA. As a result of 

applying the proposed occupational mix adjustment to the wage data, the proposed wage 

index values for 204 (52.2 percent) urban areas and 32 (66.7 percent) rural areas would 
 311 

increase. One hundred and eighteen (30.2 percent) urban areas would increase by 1 

percent or more, and 4 (1.02 percent) urban areas would increase by 5 percent or more. 

Thirteen (27.1 percent) rural areas would increase by 1 percent or more, and no rural 

areas would increase by 5 percent or more. However, the proposed wage index values 

for 186 (47.6 percent) urban areas and 16 (33.3 percent) rural areas would decrease. 

Seventy-nine (20.2 percent) urban areas would decrease by 1 percent or more, and 1 

urban area would decrease by 5 percent or more (0.26 percent). Seven (14.6 percent) 

rural areas would decrease by 1 percent or more, and no rural areas would decrease by 5 

percent or more. The largest positive impacts are 6.61 percent for an urban area and 2.66 

percent for a rural area. The largest negative impacts are 5.28 percent for an urban area 

and 3.17 percent for a rural area. One urban area’s wage index, but no rural area wage 

indices, would remain unchanged by application of the proposed occupational mix 

adjustment. These results indicate that a larger percentage of rural areas (66.7 percent) 

would benefit from the proposed occupational mix adjustment than would urban areas 

(52.2 percent). However, approximately one-third (33.3 percent) of rural CBSAs would 

still experience a decrease in their proposed wage indices as a result of the proposed 

occupational mix adjustment. 

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

a. Proposed Rural Floor 

 Section 4410(a) of Pub. L. 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 
 312 

rural areas in that State. This provision is referred to as the “rural floor.” Section 3141 of 

Pub. L. 111-148 also requires that a national budget neutrality adjustment be applied in 

implementing the rural floor. In the proposed FY 2014 wage index associated with this 

proposed rule and available on the CMS Web site, we estimated that 434 hospitals would 

receive an increase in their FY 2014 proposed wage index due to the application of the 

rural floor. 

b. Proposed Imputed Floor 

 In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we adopted the 

“imputed floor” policy as a temporary 3-year regulatory measure to address concerns 

from hospitals in all-urban States that have argued that they are disadvantaged by the 

absence of rural hospitals to set a wage index floor for those States. Since its initial 

implementation, we have extended the imputed floor policy three times, the last of which 

was adopted in the FY 2013 IPPS/LTCH PPS final rule and is set to expire on 

September 30, 2014 (we refer readers to the discussion in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53368 through 53369) and to our regulations at 42 CFR 412.64(h)(4)). 

There are currently two all-urban States, New Jersey and Rhode Island, that have a range 

of wage indices assigned to hospitals in the State, including through reclassification or 

redesignation (we refer readers to discussions of geographic reclassifications and 

redesignations in section III.H. of this preamble). However, as we explain below, the 

method as of FY 2012 for computing the imputed floor, which we will refer to as the 

original methodology, benefitted only New Jersey, and not Rhode Island. 
 313 

 In computing the imputed floor for an all-urban State under the original 

methodology, we calculated the ratio of the lowest-to-highest CBSA wage index for each 

all-urban State (that is, New Jersey and Rhode Island) as well as the average of the ratios 

of lowest-to-highest CBSA wage indices of those all-urban States. We compared the 

State’s own ratio to the average ratio for all-urban States and whichever is higher was 

multiplied by the highest CBSA wage index value in the State--the product of which 

established the imputed floor for the State. Rhode Island has only one CBSA 

(Providence-New Bedford-Fall River, RI-MA); therefore, Rhode Island’s own ratio 

equals 1.0, and its imputed floor was equal to its original CBSA wage index value. 

Conversely, New Jersey has 10 CBSAs. Because the average ratio of New Jersey and 

Rhode Island was higher than New Jersey’s own ratio, the original methodology provided 

a benefit for New Jersey, but not for Rhode Island. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 53369), for the 

FY 2013 wage index, the final year of the extension of the imputed floor policy under 

§ 412.64(h)(4), we did not make any changes to the original methodology and we 

finalized a proposed alternative, temporary methodology for computing the imputed floor 

wage index to address the concern that the then-current imputed floor methodology 

guaranteed a benefit for one all-urban State with multiple wage indices but could not 

benefit the other. The alternative methodology for calculating the imputed floor was 

established using data from the application of the rural floor policy for FY 2013. We first 

determined the average percentage difference between the post-reclassified, pre-floor 

area wage index and the post-reclassified, rural floor wage index (without rural floor 
 314 

budget neutrality applied) for all CBSAs receiving the rural floor. (Table 4D associated 

with the FY 2013 rule, which is available on the CMS Web site, included the CBSAs 

receiving a State’s rural floor wage index.) The lowest post-reclassified wage index 

assigned to a hospital in an all-urban State having a range of such values would then be 

increased by this factor, the result of which established the State’s alternative imputed 

floor. We refer to this methodology as the alternative methodology. We also adopted a 

policy that, for discharges on or after October 1, 2012, and before October 1, 2013, the 

minimum wage index value for the State is the higher of the value determined under the 

original methodology or the value computed using the alternative methodology. We 

amended § 412.64(h)(4) of the regulations to add new paragraph (vi) to incorporate the 

finalized alternative methodology policies, and to make conforming references in 

paragraph (v). 

 We stated that we intended to further evaluate the need, applicability, and 

methodology for the imputed floor before the September 30, 2013 expiration of the 

imputed floor policy and address these issues in the FY 2014 proposed rule. For 

FY 2014, we are proposing to extend the imputed floor policy (both the original 

methodology and the alternative methodology) for one additional year, through 

September 30, 2014, while we continue to explore potential wage index reforms. We are 

proposing to revise the regulations at § 412.64(h)(4) to reflect the proposed 1-year 

extension. We are inviting public comments regarding the 1-year extension of the 

imputed floor. 
 315 

 The wage index and impact tables associated with this FY 2014 proposed rule that 

are available on the CMS Web site include the application of the proposed imputed floor 

policy at § 412.64(h)(4) and a proposed national budget neutrality adjustment for the 

proposed rural floor (which includes the proposed imputed floor). There are 35 hospitals 

in New Jersey that would receive an increase in their FY 2014 wage index due to the 

imputed floor policy. The proposed wage index and impact tables for this proposed rule 

also reflect the application of the alternative methodology for computing the imputed 

floor, which will benefit four hospitals in Rhode Island. 

c. Proposed Frontier Floor 

 Section 10324 of Pub. L. 111-148 requires that hospitals in frontier States cannot 

be assigned a wage index of less than 1.0000 (we refer readers to regulations at 

42 CFR 412.64(m) and to a discussion of the implementation of this provision in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50160 through 50161). Forty-six hospitals 

would receive the frontier floor value of 1.0000 for their proposed FY 2014 wage index 

in this proposed rule. These hospitals are located in Montana, North Dakota, South 

Dakota, and Wyoming. Although Nevada is also defined as a frontier State, its proposed 

FY 2014 rural floor value of 1.1503 is greater than 1.0000, and therefore no Nevada 

hospitals would receive a frontier floor value for their proposed FY 2014 wage index. 

 The areas affected by the proposed rural, imputed, and frontier floor policies for 

the proposed FY 2014 wage index are identified in Table 4D associated with this 

proposed rule and available on the CMS Web site. 
 316 

3. Proposed FY 2014 Wage Index Tables 

 The proposed wage index values for FY 2014 (except those for hospitals 

receiving wage index adjustments under section 1886(d)(13) of the Act), included in 

Tables 4A, 4B, 4C, and 4F, available on the CMS Web site, include the proposed 

occupational mix adjustment, geographic reclassification or redesignation as discussed in 

section III.H. of the preamble of this proposed rule, and the application of the rural, 

imputed, and frontier State floors as discussed in section III.G.2. of the preamble of this 

proposed rule. 

 Tables 3A and 3B, available on the CMS Web site, list the 3-year average hourly 

wage for each labor market area before the redesignation or reclassification of hospitals 

based on FYs 2008, 2009, and 2010 cost reporting periods. Table 3A lists these data for 

urban areas, and Table 3B lists these data for rural areas. In addition, Table 2, which is 

available on the CMS Web site, includes the adjusted average hourly wage for each 

hospital from the FY 2008 and FY 2009 cost reporting periods, as well as the FY 2010 

period used to calculate the proposed FY 2014 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, which are available on the CMS Web site, 

include the proposed occupational mix adjustment. The proposed wage index values in 

Tables 4A, 4B, 4C, and 4D also include the proposed national rural floor budget 
 317 

neutrality adjustment (which includes the proposed imputed floor). The proposed wage 

index values in Table 2 also include the proposed out-migration adjustment for eligible 

hospitals. 

H. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications

1. General Policies and Effects of Reclassification and Redesignation 

 Under section 1886(d)(10) of the Act, the MGCRB considers applications by 

hospitals for geographic reclassification for purposes of payment under the IPPS. 

Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the 

start of the fiscal year for which reclassification is sought (generally by September 1). 

Generally, hospitals must be proximate to the labor market area to which they are seeking 

reclassification and must demonstrate characteristics similar to hospitals located in that 

area. The MGCRB issues its decisions by the end of February for reclassifications that 

become effective for the following fiscal year (beginning October 1). The regulations 

applicable to reclassifications by the MGCRB are located in 42 CFR 412.230 through 

412.280. (We refer readers to a discussion in the FY 2002 IPPS final rule (66 FR 39874 

and 39875) regarding how the MGCRB defines mileage for purposes of the proximity 

requirements.) The general policies for reclassifications and redesignations that we are 

proposing for FY 2014, and the policies for the effects of hospitals’ reclassifications and 

redesignations on the wage index, are the same as those discussed in the FY 2012 

IPPS/LTCH PPS final rule for the FY 2012 final wage index (76 FR 51595 and 51596). 

Also, in the FY 2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage 

index of urban hospitals reclassifying to rural areas under 42 CFR 412.103. Hospitals 
 318 

that are geographically located in States without any rural areas are ineligible to apply for 

rural reclassification pursuant to 42 CFR 412.103. 

2. FY 2014 MGCRB Reclassifications 

a. FY 2014 Reclassification Requirements and Approvals 

 Under section 1886(d)(10) of the Act, the MGCRB considers applications by 

hospitals for geographic reclassification for purposes of payment under the IPPS. The 

specific procedures and rules that apply to the geographic reclassification process are 

outlined in regulations under 42 CFR 412.230 through 412.280. 

 At the time this proposed rule was developed, the MGCRB had completed its 

review of FY 2014 reclassification requests. Based on such reviews, there were 332 

hospitals approved for wage index reclassifications by the MGCRB for FY 2014. 

Because MGCRB wage index reclassifications are effective for 3 years, for FY 2014, 

hospitals reclassified during FY 2012 or FY 2013 are eligible to continue to be 

reclassified to a particular labor market area based on such prior reclassifications. There 

were 249 hospitals approved for wage index reclassifications in FY 2012, and 192 

hospitals approved for wage index reclassifications in FY 2013. Of all the hospitals 

approved for reclassification for FY 2012, FY 2013, and FY 2014, based upon the review 

at the time of this proposed rule, 773 hospitals are in a reclassification status for FY 2014. 

 Under the regulations at 42 CFR 412.273, hospitals that have been reclassified by 

the MGCRB are permitted to withdraw their applications within 45 days of the 

publication of a proposed rule. For information about withdrawing, terminating, or 

canceling a previous withdrawal or termination of a 3-year reclassification for wage 
 319 

index purposes, we refer readers to 42 CFR 412.273, as well as the FY 2002 IPPS final 

rule (66 FR 39887 through 39888) and the FY 2003 IPPS final rule (67 FR 50065 

through 50066). Additional discussion on withdrawals and terminations, and 

clarifications regarding reinstating reclassifications and “fallback” reclassifications, were 

included in the FY 2008 IPPS final rule (72 FR 47333). 

 Changes to the wage index that result from withdrawals of requests for 

reclassification, terminations, wage index corrections, appeals, and the Administrator’s 

review process for FY 2014 will be incorporated into the wage index values published in 

the FY 2014 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 2015 

 Applications for FY 2015 reclassifications are due to the MGCRB by 

September 3, 2013 (the first working day of September 2013). We note that this is also 

the deadline for canceling a previous wage index reclassification withdrawal or 

termination under 42 CFR 412.273(d). As mentioned in section III.B. of the preamble of 

this proposed rule, although OMB has issued revisions on February 28, 2013 to its area 

delineations, we are not proposing to adopt those revisions for the FY 2014 wage index, 

and we will not be adopting the revisions before the September 3, 2013 deadline for 
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applications for the FY 2015 wage index. Therefore, hospitals must apply for 

reclassifications based on the delineations we are using for FY 2014. Applications and 

other information about MGCRB reclassifications may be obtained, beginning in 

mid-July 2013, via the Internet on the CMS Web site at: 

http://www.cms.gov/Regulations-and-Guidance/ReviewBoards/MGCRB/index.html?redirect=/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. 

3. 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. (We note 

that, as mentioned in section III.B. of the preamble of this proposed rule, although OMB 

has issued revisions on February 28, 2013, to its area delineations based on 2010 census 

data, we are not proposing to adopt these revisions for the FY 2014 wage index.) 

Hospitals located in these counties have been known as “Lugar” hospitals and the 

counties themselves are often referred to as “Lugar” counties. The FY 2014 chart with 

the listing of the rural counties containing the hospitals designated as urban under 

section 1886(d)(8)(B) of the Act is available via the Internet on the CMS Web site. 
 321 

4. Hospitals Redesignated under Section 1886(d)(8)(B) of the Act Seeking 

Reclassification by the MGCRB 

 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. Using Table 4C 

associated with this proposed rule (which is available via the Internet on the CMS Web 

site), affected hospitals may compare the reclassified wage index for the labor market 

area into which they would be reclassified by the MGCRB to the reclassified 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 FY 2014 proposed rule. (We refer readers to the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51598 through 51599) for the procedural rules and requirements for 

a hospital that is redesignated under section 1886(d)(8)(B) of the Act and seeking 

reclassification under the MGCRB, as well as our policy of measuring the urban area, 

exclusive of the Lugar County, for purposes of meeting proximity requirements.) We 

treat New England deemed counties in a manner consistent with how we treat Lugar 

counties. (We refer readers to the FY 2008 IPPS final rule with comment period 

(72 FR 47337 through 47338) for a discussion of this policy.) 

5. Waiving Lugar Redesignation for the Out-Migration Adjustment 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 51600), we 

adopted the policy that, beginning with FY 2012, an eligible hospital that waives its 

Lugar status in order to receive the out-migration adjustment has effectively waived its 

deemed urban status and, thus, is rural for all purposes under the IPPS, including being 
 322 

considered rural for the DSH payment adjustment, effective for the fiscal year in which 

the hospital receives the out-migration adjustment. (We refer readers to a discussion of 

DSH payment adjustment under section V.E. of the preamble of this proposed rule.) 

 In addition, we adopted a minor procedural change that would allow a Lugar 

hospital that qualifies for and accepts the out-migration adjustment (through written 

notification to CMS within the requisite number of days from the publication of the 

proposed rule24) to automatically waive its urban status for the 3-year period for which its 

out-migration adjustment is effective. That is, such a Lugar hospital would no longer be 

required during the second and third years of eligibility for the out-migration adjustment 

to advise us annually that it prefers to continue being treated as rural and receive the 

adjustment. Thus, under the procedural change, a Lugar hospital that requests to waive 

its urban status in order to receive the rural wage index in addition to the out-migration 

adjustment would be deemed to have accepted the out-migration adjustment and agrees to 

be treated as rural for the duration of its 3-year eligibility period, unless, prior to its 

second or third year of eligibility, the hospital explicitly notifies CMS in writing, within 

the required period (generally 45 days from the publication of the proposed rule), that it 

instead elects to return to its deemed urban status and no longer wishes to accept the 

out-migration adjustment. 

 We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 

through 51600) for a detailed discussion of the policy and process for waiving Lugar 

status for the out-migration adjustment. 

 

24 Hospitals generally have 45 days from publication of the proposed rule to request an out-migration 

adjustment in lieu of the section 1886(d)(8) deemed urban status. 
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I. Proposed FY 2014 Wage Index Adjustment Based on Commuting Patterns of Hospital 

Employees

 In accordance with the broad discretion granted to the Secretary under section 

1886(d)(13) of the Act, as added by section 505 of Pub. L. 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. The proposed FY 2014 out-migration adjustment 

is based on the same policies, procedures, and computation that were used for the 

FY 2012 out-migration adjustment. (We refer readers to a full discussion of the 

adjustment, including rules on deeming hospitals reclassified under section 1886(d)(8) or 

section 1886(d)(10) of the Act to have waived the out-migration adjustment, in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51601 through 51602).) Table 4J, which is 

available via the Internet on the CMS Web site, lists the proposed out-migration 

adjustments for the proposed FY 2014 wage index. 
 324 

J. 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 2014 wage index were made available on 

October 3, 2012, through the Internet on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-FilesItems/FY_2014_Wage_Index_Home_Page.html. 

 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 notify the 

hospital community of the availability of these data as we do with the current public use 

wage data files through our Hospital Open Door forum. We encourage hospitals to sign 

up for automatic notifications of information about hospital issues and the scheduling of 

the Hospital Open Door forums at the CMS Web site at: http://www.cms.gov/Outreachand-Education/Outreach/OpenDoorForums/index.html. 

 In a memorandum dated October 19, 2012, 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. 
 325 

 If a hospital wished to request a change to its data as shown in the 

October 3, 2012 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 10, 2012. (We note that this date was originally 

December 3, 2012. However, in a memorandum dated October 25, 2012, we instructed 

all fiscal intermediaries/MACs to inform the IPPS hospitals they service that we extended 

the deadline to December 10, 2012.) Hospitals were notified of this deadline and of all 

other deadlines and requirements, including the requirement to review and verify their 

data as posted in the preliminary wage index data files on the Internet, through the 

October 19, 2012 memorandum referenced above. 

 In the October 19, 2012 memorandum, we also specified that a hospital requesting 

revisions to its occupational mix survey data was to copy its record(s) from the CY 2010 

occupational mix preliminary files posted to the CMS 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 10, 2012. 

 The fiscal intermediaries/MACs notified the hospitals by mid-February 2013 of 

any changes to the wage index data as a result of the desk reviews and the resolution of 

the hospitals’ early-December revision requests. The fiscal intermediaries/MACs also 

submitted the revised data to CMS by mid-February 2013. CMS published the proposed 

wage index public use files that included hospitals’ revised wage index data on 

February 21, 2013. Hospitals had until March 4, 2013, to submit requests to the fiscal 

intermediaries/MACs for reconsideration of adjustments made by the fiscal 
 326 

intermediaries/MACs as a result of the desk review, and to correct errors due to CMS’ or 

the fiscal intermediary’s (or, if applicable, the MAC’s) mishandling of the wage index 

data. Hospitals also were required to submit sufficient documentation to support their 

requests. 

 After reviewing requested changes submitted by hospitals, fiscal 

intermediaries/MACs were required to transmit any additional revisions resulting from 

the hospitals’ reconsideration requests by April 10, 2013. The deadline for a hospital to 

request CMS intervention in cases where the hospital disagreed with the fiscal 

intermediary’s (or, if applicable, the MAC’s) policy interpretations was April 17, 2013. 

 Hospitals should examine Table 2, which is listed in section VI. of the Addendum 

to this proposed rule and available via the Internet on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-FilesItems/FY_2014_Wage_Index_Home_Page.html. Table 2 contains each hospital’s 

adjusted average hourly wage used to construct the wage index values for the past 

3 years, including the FY 2010 data used to construct the proposed FY 2014 wage index. 

We note that the hospital average hourly wages shown in Table 2 only reflect changes 

made to a hospital’s data that were transmitted to CMS by March 4, 2013. 

 We will release the final wage index data public use files in early May 2013 on 

the Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-FilesItems/FY_2014_Wage_Index_Home_Page.html. The May 2013 public use files are 
 327 

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 10, 2013). If, after reviewing the May 2013 final 

public use 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 3, 2013. 

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. 

 After the release of the May 2013 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 10, 2013. 
 328 

● Requests for correction of errors that were not, but could have been, identified 

during the hospital’s review of the February 21, 2013 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 3, 2013) will be incorporated into the final 

wage index in the FY 2014 IPPS/LTCH PPS final rule, which will be effective 

October 1, 2013. 

 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 2014 payment rates. Accordingly, hospitals that do not meet the procedural deadlines 

set forth above will not be afforded a later opportunity to submit wage index data 

corrections or to dispute the 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. We refer readers also to the FY 2000 IPPS final rule 

(64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index 

data corrections. 

 Again, we believe the wage index data correction process described 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) 
 329 

attention. Moreover, because hospitals have access to the final wage index data by early 

May 2013, 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 2014 wage index by August 2013, and the implementation of the FY 2014 

wage index on October 1, 2013. If hospitals avail themselves of the opportunities 

afforded to provide and make corrections to the wage and occupational mix data, the 

wage index implemented on October 1 should be accurate. Nevertheless, in the event 

that errors are identified by hospitals and brought to our attention after June 3, 2013, 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 3 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 
 330 

after completing their desk reviews, we do not expect that midyear corrections will be 

necessary. However, under our current policy, if the correction of a data error changes 

the wage index value for an area, the revised wage index value will be effective 

prospectively from the date the correction is made. 

 In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and 47485), we 

revised 42 CFR 412.64(k)(2) to specify that, effective on October 1, 2005, that is, 

beginning with the FY 2006 wage index, a change to the wage index can be made 

retroactive to the beginning of the Federal fiscal year only when CMS determines all of 

the following: (1) the 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 3, 2013 deadline for the FY 2014 wage 

index); and (3) CMS agreed before October 1 that the fiscal intermediary (or, if 

applicable, the MAC) or CMS made an error in tabulating the hospital’s wage index data 

and the wage index should be corrected. 

 In those circumstances where a hospital requested a correction to its wage index 

data before CMS calculated the final wage index (that is, by the June 3, 2013 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 
 331 

implementing the correction. As with our current policy, we indicated that the provision 

is not available to a hospital seeking to revise another hospital’s data. In addition, the 

provision cannot be used to correct prior years’ wage index data; and it can only be used 

for the current Federal fiscal year. In situations where our policies would allow midyear 

corrections other than those specified in 42 CFR 412.64(k)(2)(ii), we continue to believe 

that it is appropriate to make prospective-only corrections to the wage index. 

 We note that, as with prospective changes to the wage index, the final retroactive 

correction will be made irrespective of whether the change increases or decreases a 

hospital’s payment rate. In addition, we note that the policy of retroactive adjustment 

will still apply in those instances where a judicial decision reverses a CMS denial of a 

hospital’s wage index data revision request. 

K. Labor-Related Share for the Proposed FY 2014 Wage Index

 Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of 

the national prospective payment system base payment rates that are attributable to wages 

and wage-related costs by a factor that reflects the relative differences in labor costs 

among geographic areas. It also directs the Secretary to estimate from time to time the 

proportion of hospital costs that are labor-related: “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. 
 332 

 Section 403 of Pub. L. 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 Pub. L. 108-173 did not change the legal requirement that the Secretary 

estimate “from time to time” the proportion of hospitals’ costs that are “attributable to 

wages and wage-related costs.” Thus, hospitals receive payment based on either a 

62-percent labor-related share, or the labor-related share estimated from time to time by 

the Secretary, depending on which labor-related share results in a higher payment. 

 In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 through 

43857), we rebased and revised the IPPS market basket and the labor-related share, using 

FY 2006 as the base year. The labor-related share for FY 2010 through FY 2013 is 68.8 

percent. 

 For FY 2014, as described in section IV. of the preamble of this proposed rule, we 

are proposing to rebase and revise the IPPS market basket using FY 2010 as the base 

year. Using the proposed FY 2010-based IPPS market basket, we also are proposing to 

recalculate the labor-related share for discharges occurring on or after October 1, 2013. 

As discussed in Appendix A of this proposed rule, we are proposing this revised and 

rebased labor-related share in a budget neutral manner. However, consistent with section 

1886(d)(3)(E) of the Act, we are not taking 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. 
 333 

 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. As described in section IV. of 

the preamble of this proposed rule, we are proposing to include in the labor-related share 

the national average proportion of operating costs that are attributable to wages and 

salaries, employee benefits, contract labor, the labor-related portion of professional fees, 

administrative and facilities support services, and all other labor-related services as 

measured in the proposed IPPS market basket, as based on FY 2010. Therefore, for 

FY 2014, we are proposing to use a labor-related share of 69.6 percent for discharges 

occurring on or after October 1, 2013. Tables 1A and 1B, which are published in section 

VI. of the Addendum to this proposed rule and are available via the Internet, reflect this 

proposed labor-related share. We note that section 403 of Pub. L. 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 FY 2014, 

for all IPPS hospitals whose wage indices are less than 1.0000, we are proposing to apply 

the wage index to a labor-related share of 62 percent of the national standardized amount. 

For all IPPS hospitals whose wage indices are greater than 1.0000, for FY 2014, we are 

proposing to apply the wage index to a labor-related share of 69.6 percent of the national 

standardized amount. We note that, for Puerto Rico hospitals, the national labor-related 

share is 62 percent because the national wage index for all Puerto Rico hospitals is less 

than 1.0. 
 334 

 In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 through 

43856), we also rebased and revised the labor-related share for the Puerto Rico-specific 

standardized amounts using FY 2006 as a base year. We finalized a labor-related share 

for the Puerto Rico-specific standardized amounts for FY 2010 through FY 2013 of 62.1 

percent. As described in section IV. of the preamble of this proposed rule, for FY 2014, 

we also are proposing to rebase and revise the labor-related share for the Puerto 

Rico-specific standardized amounts using FY 2010 as a base year. For FY 2014, we are 

proposing a labor-related share for the Puerto Rico-specific standardized amounts of 63.2 

percent for discharges occurring on or after October 1, 2013. Consistent with our 

methodology for determining the national labor-related share, we added the Puerto 

Rico-specific relative weights for wages and salaries, employee benefits, contract labor, 

with the national proportion of costs for the labor-related portion of professional fees, 

administrative and facilities support services, and all other labor-related services 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. For FY 2014, we are proposing that the labor-related share of a 

hospital's Puerto Rico-specific rate will be either the Puerto Rico-specific labor-related 

share of 63.2 percent or 62 percent, depending on which results in higher payments to the 

hospital. If the hospital has a Puerto Rico-specific wage index of greater than 1.0 for 

FY 2014, we will set the hospital’s rates using a labor-related share of 63.2 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 
 335 

hospital with a Puerto Rico-specific wage index of less than 1.0 for FY 2014 will be paid 

using the Puerto Rico-specific 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 63.2 percent for FY 2014 is reflected in 

Table 1C, which is published in section VI. of the Addendum to this proposed rule and 

available via the Internet.
 336 

IV. Proposed Rebasing and Revision of the Hospital Market Baskets for Acute Care 

Hospitals 

A. Background

 Effective for cost reporting periods beginning on or after July 1, 1979, we 

developed and adopted a hospital input price index (that is, the hospital market basket for 

operating costs). Although “market basket” technically describes the mix of goods and 

services used in providing hospital care, this term is also commonly used to denote the 

input price index (that is, cost category weights and price proxies combined) derived 

from that market basket. Accordingly, the term “market basket” as used in this document 

refers to the hospital input price index. 

 The percentage change in the market basket reflects the average change in the 

price of goods and services hospitals purchase in order to provide inpatient care. We first 

used the market basket to adjust hospital cost limits by an amount that reflected the 

average increase in the prices of the goods and services used to provide hospital inpatient 

care. This approach linked the increase in the cost limits to the efficient utilization of 

resources. 

 Since the inception of the IPPS, the projected change in the hospital market basket 

has been the integral component of the update factor by which the prospective payment 

rates are updated every year. An explanation of the hospital market basket used to 

develop the prospective payment rates was published in the Federal Register on 

September 1, 1983 (48 FR 39764). We also refer readers to the FY 2010 IPPS/RY 2010 
 337 

LTCH PPS final rule (74 FR 43843) in which we discussed the most recent previous 

rebasing of the hospital input price index. 

 The hospital market basket is a fixed-weight, Laspeyres-type price index. A 

Laspeyres-type price index measures the change in price, over time, of the same mix of 

goods and services purchased in the base period. Any changes in the quantity or mix of 

goods and services (that is, intensity) purchased over time are not measured. 

 The index itself is constructed in three steps. First, a base period is selected (in 

this proposed rule, we are proposing to use FY 2010 as the base period) and total base 

period expenditures are estimated for a set of mutually exclusive and exhaustive spending 

categories, with the proportion of total costs that each category represents being 

calculated. These proportions are called “cost weights” or “expenditure weights.” 

Second, each expenditure category is matched to an appropriate price or wage variable, 

referred to as a “price proxy.” In almost every instance, these price proxies are derived 

from publicly available statistical series that are published on a consistent schedule 

(preferably at least on a quarterly basis). Finally, the expenditure weight for each cost 

category is multiplied by the level of its respective price proxy. The sum of these 

products (that is, the expenditure weights multiplied by their price index levels) for all 

cost categories yields the composite index level of the market basket in a given period. 

Repeating this step for other periods produces a series of market basket levels over time. 

Dividing an index level for a given period by an index level for an earlier period produces 

a rate of growth in the input price index over that timeframe. 
 338 

 As noted above, the market basket is described as a fixed-weight index because it 

represents the change in price over time of a constant mix (quantity and intensity) of 

goods and services needed to provide hospital services. The effects on total expenditures 

resulting from changes in the mix of goods and services purchased subsequent to the base 

period are not measured. For example, a hospital hiring more nurses to accommodate the 

needs of patients would increase the volume of goods and services purchased by the 

hospital, but would not be factored into the price change measured by a fixed-weight 

hospital market basket. Only when the index is rebased would changes in the quantity 

and intensity be captured, with those changes being reflected in the cost weights. 

Therefore, we rebase the market basket periodically so that the cost weights reflect recent 

changes in the mix of goods and services that hospitals purchase (hospital inputs) to 

furnish inpatient care between base periods. We last rebased the hospital market basket 

cost weights effective for FY 2010 (74 FR 43843), with FY 2006 data used as the base 

period for the construction of the market basket cost weights. 

B. Rebasing and Revising the IPPS Market Basket

 The terms “rebasing” and “revising,” while often used interchangeably, actually 

denote different activities. “Rebasing” means moving the base year for the structure of 

costs of an input price index (for example, in this proposed rule, we are proposing to shift 

the base year cost structure for the IPPS hospital index from FY 2006 to FY 2010). 

“Revising” means changing data sources, or price proxies, used in the input price index. 

As published in the FY 2006 IPPS final rule (70 FR 47387), in accordance with section 

404 of Pub. L. 108-173, CMS determined a new frequency for rebasing the hospital 
 339 

market basket. We established a rebasing frequency of every 4 years and, therefore, for 

the FY 2014 IPPS update, we are proposing to rebase and revise the IPPS market basket. 

We are inviting public comments on our proposed methodology discussed below. 

1. Development of Cost Categories and Weights 

a. Medicare Cost Reports 

 The major source of expenditure data for developing the rebased and revised 

hospital market basket cost weights is the FY 2010 Medicare cost reports. These 

FY 2010 Medicare cost reports are for cost reporting periods beginning on and after 

October 1, 2009 and before October 1, 2010. We are proposing to use FY 2010 as the 

base year because we believe that the FY 2010 Medicare cost reports represent the most 

recent, complete set of Medicare cost report data available for IPPS hospitals. As was 

done in previous rebasings, these cost reports are from IPPS hospitals only (hospitals 

excluded from the IPPS and CAHs are not included) and are based on IPPS 

Medicare-allowable operating costs. IPPS Medicare-allowable operating costs are costs 

that are eligible to be paid for under the IPPS. For example, the IPPS market basket 

excludes home health agency (HHA) costs as these costs would be paid under the HHA 

PPS and, therefore, these costs are not IPPS Medicare-allowable costs. 

 We are proposing to obtain seven major expenditures or cost categories for the 

FY 2010 IPPS market basket from the Medicare cost reports--the same as in the 

FY 2006-based hospital market basket: wages and salaries, employee benefits, contract 

labor, pharmaceuticals, professional liability insurance (malpractice), blood and blood 

products, and a residual “all other.” The proposed cost weights that were obtained 
 340 

directly from the Medicare cost reports are reported in Table IV01. We are proposing to 

then supplement these Medicare cost report cost weights with information obtained from 

other data sources to derive the proposed IPPS market basket cost weights. 

Table IV01.--Major Cost Categories and Their Respective Cost Weights As 

Calculated Directly from the Medicare Cost Reports 

Major Cost Categories 

FY 2006-Based 

Market Basket 

Proposed FY 2010-Based

Market Basket 

Wages and salaries 45.156 45.819 

Employee benefits 11.873 12.713 

Contract labor 2.598 1.806 

Professional Liability Insurance 

(Malpractice) 1.661 1.330 

Pharmaceuticals 5.380 5.402 

Blood and blood products 1.078 1.069 

All other 32.254 31.861 

 From FY 2006 to FY 2010, the wages and salaries and employee benefits cost 

weights as calculated directly from the Medicare cost reports increased by approximately 

0.7 and 0.8 percentage point, respectively, while the contract labor cost weight decreased 

by 0.8 percentage point. As we did for the FY 2006-based IPPS market basket 

(74 FR 43847), we are proposing to allocate contract labor costs to the wages and salaries 

and employee benefits cost weights based on their relative proportions for employed 

labor under the assumption that contract labor costs are comprised of both wages and 

salaries and employee benefits. The contract labor allocation proportion for wages and 

salaries is equal to the wages and salaries cost weight as a percent of the sum of the 

wages and salaries cost weight and the employee benefits cost weight. Using the FY 

2010 Medicare cost report data, this percentage is 78.3 percent; therefore, we are 

proposing to allocate approximately 78.3 percent of the contract labor cost weight to the 
 341 

wages and salaries cost weight. Table IV02 shows the wages and salaries and employee 

benefit cost weights after contract labor allocation for both the FY 2006-based IPPS 

market basket and the proposed FY 2010-based IPPS market basket. 

Table IV02.--Wages and Salaries and Employee Benefits Cost Weights After 

Contract Labor Allocation 

Major Cost Categories 

FY 2006-Based 

Market Basket 

Proposed 

FY 2010-Based 

Market Basket 

Wages and salaries 47.213 47.233 

Employee benefits 12.414 13.105 

 After the allocation of contract labor, the proposed FY 2010-based wages and 

salaries cost weight is relatively similar to the FY 2006-based wages and salaries cost 

weight while the proposed FY 2010-based employee benefits cost weight increased 

0.7 percentage point. This is primarily a result of an increase in benefits costs relative to 

wages and salaries costs from the Medicare cost report data for employed workers; in 

2006, the ratio of the employee benefits cost weight to the wages and salaries cost weight 

was 26.3 percent while in 2010, this ratio increased to 27.8 percent. 

b. Other Data Sources 

 In addition to the data from the Medicare cost reports, the other data source we 

are proposing to use to develop the FY 2010-based IPPS market basket cost weights is 

the 2002 Benchmark Input-Output (I-O) Tables created by the Bureau of Economic 

Analysis (BEA), U.S. Department of Commerce. We are proposing to use the 2002 BEA 

Benchmark I-O data to disaggregate the “all other” (residual) cost category 

(31.861 percent) into more detailed hospital expenditure category shares. The BEA 
 342 

Benchmark I–O accounts provide the most detailed information on the goods and 

services purchased by an industry, which allows for a more detailed disaggregation of 

expenses in the market basket for which we can then proxy the appropriate price 

inflation. 

 The BEA Benchmark I-O data are generally scheduled for publication every 

5 years. The most recent data available are for 2002. BEA also produces Annual I-O 

estimates; however, the 2002 Benchmark I-O data represent a much more comprehensive 

and detailed set of data that are derived from the 2002 Economic Census. In the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 FR 43845), we used the 2002 Benchmark I-O 

data (aged to FY 2006) for the FY 2006-based IPPS market basket, to be effective for 

FY 2010. Because BEA has not yet released new Benchmark I–O data, and we believe 

the data to be comprehensive and complete as indicated above, we are currently 

proposing to use the 2002 Benchmark I–O data in the FY 2010-based IPPS market 

basket. 

 Therefore, instead of using the less detailed, less accurate Annual I-O data, we are 

proposing to age the 2002 Benchmark I-O data forward to FY 2010. The methodology 

we are proposing to use to age the data forward involves applying the annual price 

changes from the respective price proxies to the appropriate cost categories. We repeat 

this practice for each year. We also are proposing that, if more recent BEA benchmark 

I-O data for 2007 is released between the proposed and final rule with sufficient time to 

incorporate such data into the final rule, we would incorporate these data into the FY 
 343 

2010-based IPPS market basket for the final rule. The 2007 BEA I-O data is expected to 

be released in the summer of 2013. 

 The “all other” cost category expenditure shares are determined as being equal to 

each category’s proportion to total “all other” expenditures based on the aged 2002 

Benchmark I–O data. For instance, if the cost for telephone services represented 10 

percent of the sum of the ‘‘all other’’ Benchmark I–O hospital expenditures, telephone 

services would represent 10 percent of the ‘‘all other’’ cost category of the proposed 

IPPS market basket. 

 Following publication of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, 

and in an effort to provide greater transparency, we posted on the CMS market basket 

Web page at: http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html an 

illustrative spreadsheet that shows how the detailed cost weights in the proposed rule 

(that is, those not calculated using Medicare cost reports) were determined using the 

2002 Benchmark I-O data. As stated above, we are proposing to use the 

2007 Benchmark BEA I-O data if available before the final rule with sufficient time to 

incorporate such data into the final rule. We would use the same methodology as 

described above in determining the detailed weights in the “all other” cost weight. 

2. Cost Category Computation 

 As stated previously, for the proposed FY 2010-based market basket we are 

proposing to use data from the Medicare cost reports to derive seven major cost 

categories. We are proposing the same detailed cost categories as the FY 2006-based 
 344 

IPPS market basket. Also, we are not proposing to change our definition of the 

labor-related share. As discussed in more detail below and similar to the previous 

rebasing, we classify a cost category as labor-related and include it in the labor-related 

share if the cost category is defined as being labor-intensive and its cost varies with the 

local labor market. 

3. Selection of Price Proxies 

 After computing the FY 2010 cost weights for the proposed IPPS market basket, 

it was necessary to select appropriate wage and price proxies to reflect the rate of price 

change for each expenditure category. We are proposing to use the same price proxies 

that were used in the FY 2006-based IPPS market basket. A discussion of our rationale 

for selecting these price proxies can be found in the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43845). 

 With the exception of the proxy for professional liability insurance (PLI), all the 

proxies we are proposing are based on Bureau of Labor Statistics (BLS) data and are 

grouped into one of the following BLS categories: 

● Producer Price Indexes--Producer Price Indexes (PPIs) measure price changes 

for goods sold in markets other than the retail market. PPIs are preferable price proxies 

for goods and services that hospitals purchase as inputs because PPIs better reflect the 

actual price changes encountered by hospitals. For example, we are proposing to use a 

PPI for prescription drugs, rather than the Consumer Price Index (CPI) for prescription 

drugs, because hospitals generally purchase drugs directly from a wholesaler. The PPIs 

that we are proposing to use measure price changes at the final stage of production. 
 345 

● Consumer Price Indexes--Consumer Price Indexes (CPIs) measure change in 

the prices of final goods and services bought by the typical consumer. Because they may 

not represent the price faced by a producer, we are proposing to use CPIs only if an 

appropriate PPI is not available, or if the expenditures are more like those faced by retail 

consumers in general rather than by purchasers of goods at the wholesale level. For 

example, the CPI for food purchased away from home is proposed to be used as a proxy 

for contracted food services. 

● Employment Cost Indexes--Employment Cost Indexes (ECIs) measure the rate 

of change in employee wage rates and employer costs for employee benefits per hour 

worked. These indexes are fixed-weight indexes and strictly measure the change in wage 

rates and employee benefits per hour. Appropriately, they are not affected by shifts in 

employment mix. 

 We evaluated the price proxies using the criteria of reliability, timeliness, 

availability, and relevance. Reliability indicates that the index is based on valid statistical 

methods and has low sampling variability. Timeliness implies that the proxy is published 

regularly, preferably at least once a quarter. Availability means that the proxy is publicly 

available. Finally, relevance means that the proxy is applicable and representative of the 

cost category weight to which it is applied. We believe the proposed PPIs, CPIs, and 

ECIs selected meet these criteria. 

 Table IV03 below sets forth the proposed FY 2010-based IPPS market basket, 

including the cost categories and their respective weights and price proxies. For 
 346 

comparison purposes, the corresponding FY 2006-based IPPS market basket cost weights 

also are listed. A summary outlining the choice of the various proxies follows the table. 

Table IV03.—Proposed FY 2010-Based IPPS Hospital Market Basket Cost 

Categories, Cost Weights, and Price Proxies Compared to FY 2006-Based IPPS 

Market Basket Cost Weights 

Cost Categories 

FY 2006-Based 

Hospital Market 

Basket Cost 

Weights 

Proposed 

FY 2010-Based 

Hospital Market 

Basket Cost 

Weights 

Proposed 

FY 2010-Based 

Hospital Market 

Basket Price Proxies 

1. Compensation 59.627 60.338 -- 

A. Wages and 

 Salaries1

47.213 47.233 ECI for Wages and 

Salaries, Civilian 

Hospital Workers 

B. Employee 

Benefits1

12.414 13.105 ECI for Benefits, 

Civilian Hospital 

Workers 

2. Utilities 2.180 2.246 -- 

 A. Fuel, Oil, and 

 Gasoline 

0.418 0.447 PPI for Petroleum 

Refineries 

 B. Electricity 1.645 1.666 PPI for Commercial 

Electric Power 

 C. Water and 

Sewage 

0.117 0.133 CPI-U for Water & 

Sewerage Maintenance 

3. Professional Liability 

 Insurance 

1.661 1.330 CMS Professional 

Liability Insurance 

Premium Index 

4. All Other 36.533 36.086 -- 

 A. All Other 

Products 

19.473 19.458 -- 

 (1.) Pharmaceuticals 5.380 5.402 PPI for 

Pharmaceuticals for 

Human Use, 

Prescription 

 (2.) Food: Direct 

Purchases 

3.982 4.206 PPI for Processed 

Foods & Feeds 
 347 

Cost Categories 

FY 2006-Based 

Hospital Market 

Basket Cost 

Weights 

Proposed 

FY 2010-Based 

Hospital Market 

Basket Cost 

Weights 

Proposed 

FY 2010-Based 

Hospital Market 

Basket Price Proxies 

 (3.) Food: Contract 

Services 

0.575 0.578 CPI-U for Food Away 

From Home 

 (4.) Chemicals2 1.538 1.529 Blend of Chemical 

PPIs 

 (5.) Blood and 

Blood 

 Products 

1.078 1.069 PPI for Blood and 

Organ Banks 

 (6.) Medical 

 Instruments 

2.762 2.577 PPI for Medical, 

Surgical, and Personal 

Aid Devices 

 (7.) Rubber and 

Plastics 

1.659 1.637 PPI for Rubber & 

Plastic Products 

 (8.) Paper and 

Printing 

 Products 

1.492 1.507 PPI for Converted 

Paper & Paperboard 

Products 

 (9.) Apparel 0.325 0.299 PPI for Apparel 

 (10.) Machinery and 

 Equipment 

0.163 0.151 PPI for Machinery & 

Equipment 

 (11.) Miscellaneous 

 Products 

0.519 0.503 PPI for Finished Goods 

less Food and Energy 

 B. Labor-related 

 Services 

9.175 9.249 -- 

 (1.) Professional 

Fees: 

 Labor-related 

5.356 5.500 ECI for Compensation 

for Professional and 

Related Occupations 

 (2.) Administrative 

and 

 Facilities 

Support 

 Services3

0.626 0.619 ECI for Compensation 

for Office and 

Administrative 

Services 

 (3.) All Other: 

 Labor-Related 

 Services 

3.193 3.130 ECI for Compensation 

for Private Service 

Occupations 
 348 

Cost Categories 

FY 2006-Based 

Hospital Market 

Basket Cost 

Weights 

Proposed 

FY 2010-Based 

Hospital Market 

Basket Cost 

Weights 

Proposed 

FY 2010-Based 

Hospital Market 

Basket Price Proxies 

 C. Nonlabor- 

 Related Services 

7.885 7.379 -- 

 (1.) Professional 

 Fees: Nonlabor- 

 Related 

4.074 3.687 ECI for Compensation 

for Professional and 

Related Occupations 

 (2.) Financial 

Services 

1.281 1.239 ECI for Compensation 

for Financial Activities 

 (3.) Telephone 

Services 

0.627 0.597 CPI-U for Telephone 

Services 

 (4.) Postage 0.963 0.956 CPI-U for Postage 

 (5.) All Other: 

 NonlaborRelated 

 Services 

0.940 0.900 CPI-U for All Items 

less Food and Energy 

Total 100.000 100.000 -- 

Note: Detail may not add to total due to rounding. 

1

Contract labor is distributed to wages and salaries and employee benefits based on the share of total 

compensation that each category represents. 2

To proxy the “chemicals” cost category, we used a blended PPI composed of the PPI for industrial gas 

manufacturing, the PPI for other basic inorganic chemical manufacturing, the PPI for other basic organic 

chemical manufacturing, and the PPI for soap and cleaning compound manufacturing. For more detail 

about this proxy, see the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43845). 

3

We note that this cost category in the FY 2006-based IPPS market basket was “Administrative and 

Business Support Services.” We changed the name slightly to be more clear what type of costs are 

included in this cost category, but we did not change the classification of which costs are included in the 

category. 

 As stated above, we are proposing to use the same price proxies used in the 

FY 2006-based IPPS market basket. A rationale for selecting these price proxies can be 

found in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43845). The price 

proxies we are proposing were selected to most closely match the costs included in each 

of the cost categories of the proposed FY 2010-based IPPS market basket. As discussed 
 349 

above, we are proposing that, if the 2007 Benchmark I-O data become available between 

the proposed and final rule with sufficient time to incorporate such data into the final 

rule, we would incorporate this data into the FY 2010-based IPPS market basket for the 

final rule. As a result, to the extent the incorporation of the 2007 Benchmark I-O data 

results in a different composition of costs included in a particular cost category, we are 

proposing that we may choose to revise that specific price proxy to ensure that the costs 

included in each detailed cost category are best aligned with the associated price proxy. 

Below is a list of the price proxies we are proposing for the FY 2010-based IPPS market 

basket. 

a. Wages and Salaries 

 We are proposing to use the ECI for Wages and Salaries for Hospital Workers 

(All Civilian) (BLS series code CIU1026220000000I) to measure the price growth of this 

cost category. 

b. Employee Benefits 

 We are proposing to use the ECI for Employee Benefits for Hospital Workers (All 

Civilian) to measure the price growth of this cost category. 

c. Fuel, Oil, and Gasoline 

 We are proposing to use the PPI for Petroleum Refineries (BLS series code 

PCU324110324110) to measure the price growth of this cost category. 

d. Electricity 

 We are proposing to use the PPI for Commercial Electric Power (BLS series code 

WPU0542) to measure the price growth of this cost category. 
 350 

e. Water and Sewage 

 We are proposing to use the CPI for Water and Sewerage Maintenance (All Urban 

Consumers) (BLS series code CUUR0000SEHG01) to measure the price growth of this 

cost category. 

f. Professional Liability Insurance 

 We are proposing to proxy price changes in hospital professional liability 

insurance premiums (PLI) using percentage changes as estimated by the CMS Hospital 

Professional Liability Insurance Premium Index. To generate these estimates, we collect 

commercial insurance premiums for a fixed level of coverage while holding nonprice 

factors constant (such as a change in the level of coverage). This method is also used to 

proxy PLI price changes in the Medicare Economic Index (75 FR 73268). 

g. Pharmaceuticals 

 We are proposing to use the PPI for Pharmaceuticals for Human Use, Prescription 

(BLS series code WPUSI07003) to measure the price growth of this cost category. This 

is the same proxy that was used in the FY 2006-based IPPS market basket, although BLS 

since changed the naming convention for this series. 

h. Food: Direct Purchases 

 We are proposing to use the PPI for Processed Foods and Feeds (BLS series code 

WPU02) to measure the price growth of this cost category. 
 351 

i. Food: Contract Services 

 We are proposing to use the CPI for Food Away From Home (All Urban 

Consumers) (BLS series code CUUR0000SEFV) to measure the price growth of this cost 

category. 

j. Chemicals 

 We are proposing to use a blended PPI composed of the PPI for Industrial Gas 

Manufacturing (NAICS 325120) (BLS series code PCU325120325120P), the PPI for 

Other Basic Inorganic Chemical Manufacturing (NAICS 325180) (BLS series code 

PCU32518–32518–), the PPI for Other Basic Organic Chemical Manufacturing (NAICS 

325190) (BLS series code PCU32519–32519), and the PPI for Soap and Cleaning 

Compound Manufacturing (NAICS 325610) (BLS series code PCU32561–32561–). 

k. Blood and Blood Products 

 We are proposing to use the PPI for Blood and Organ Banks (BLS series code 

PCU621991621991) to measure the price growth of this cost category. 

l. Medical Instruments 

 We are proposing to use the PPI for Medical, Surgical, and Personal Aid Devices 

(BLS series code WPU156) to measure the price growth of this cost category. 

m. Rubber and Plastics 

 We are proposing to use the PPI for Rubber and Plastic Products (BLS series code 

WPU07) to measure price growth of this cost category. 
 352 

n. Paper and Printing Products 

 We are proposing to use the PPI for Converted Paper and Paperboard Products 

(BLS series code WPU0915) to measure the price growth of this cost category. 

o. Apparel 

 We are proposing to use the PPI for Apparel (BLS series code WPU0381) to 

measure the price growth of this cost category. 

p. Machinery and Equipment 

 We are proposing to use the PPI for Machinery and Equipment (BLS series code 

WPU11) to measure the price growth of this cost category. 

q. Miscellaneous Products 

 We are proposing to use the PPI for Finished Goods Less Food and Energy (BLS 

series code WPUSOP3500) to measure the price growth of this cost category. 

r. Professional Fees: Labor-Related and Professional Fees: Nonlabor-Related 

 We are proposing to use the ECI for Compensation for Professional and Related 

Occupations (Private Industry) (BLS series code CIU2010000120000I) to measure the 

price growth of these cost categories. 
 353 

s. Administrative and Facilities Support Services 

 We are proposing to use the ECI for Compensation for Office and Administrative 

Support Services (Private Industry) (BLS series code CIU2010000220000I) to measure 

the price growth of this category. 

t. All Other: Labor-Related Services 

 We are proposing to use the ECI for Compensation for Service Occupations 

(Private Industry) (BLS series code CIU2010000300000I) to measure the price growth of 

this cost category. 

u. Financial Services 

 We are proposing to use the ECI for Compensation for Financial Activities 

(Private Industry) (BLS series code CIU201520A000000I) to measure the price growth 

of this cost category. 

v. Telephone Services 

 We are proposing to use the CPI for Telephone Services (BLS series code 

CUUR0000SEED) to measure the price growth of this cost category. 

w. Postage 

 We are proposing to use the CPI for Postage (BLS series code 

CUUR0000SEEC01) to measure the price growth of this cost category. 

x. All Other: Nonlabor-Related Services 

 We are proposing to use the CPI for All Items Less Food and Energy (BLS series 

code CUUR0000SA0L1E) to measure the price growth of this cost category. 
 354 

 Table IV04 compares both the historical and forecasted percent changes in the 

FY 2006-based IPPS market basket and the proposed FY 2010-based IPPS market 

basket. 

Table IV04.--FY 2006-Based and Proposed FY 2010-Based Prospective 

Payment Hospital Operating Index Percent Change, FY 2008 through FY 2016 

Fiscal Year (FY) 

FY 2006-Based IPPS 

Market Basket 

Operating Index Percent 

Change 

Proposed FY 2010-Based 

IPPS Market Basket 

Operating Index Percent 

Change 

Historical data: 

 FY 2008 4.0 4.0 

 FY 2009 2.6 2.6 

 FY 2010 2.1 2.1 

 FY 2011 2.7 2.7 

 FY 2012 2.2 2.2 

 Average FYs 2008-2012 2.7 2.7 

Forecast: 

 FY 2013 2.2 2.2 

 FY 2014 2.5 2.5 

 FY 2015 2.7 2.7 

 FY 2016 3.0 3.0 

 Average FYs 2013-2016 2.6 2.6 

Source: IHS Global Insight, Inc., 1st Quarter 2013. 

 The differences between the FY 2006-based and the proposed FY 2010-based 

IPPS market basket increases are minimal. While the percent changes differ slightly, 

when rounded to the nearest tenth, the updates based on the FY 2006-based and the 

proposed FY 2010-based IPPS market baskets are the same. 

4. Labor-Related Share 

 Under section 1886(d)(3)(E) of the Act, the Secretary estimates from time to time 

the proportion of payments that are labor-related. “The Secretary shall adjust the 

proportion, (as estimated by the Secretary from time to time) of hospitals' costs which are 
 355 

attributable to wages and wage-related costs, of the DRG prospective payment rates . . . .” 

We refer to the proportion of hospitals’ costs that are attributable to wages and 

wage-related costs as the “labor-related share.” 

 The labor-related share is used to determine the proportion of the national PPS 

base payment rate to which the area wage index is applied. We include a cost category in 

the labor-related share if the costs are labor intensive and vary with the local labor 

market. Because of this approach, we are proposing to include in the labor-related share 

the national average proportion of operating costs that are attributable to wages and 

salaries, employee benefits, contract labor, the labor-related portion of professional fees, 

administrative and facilities support services, and all other: labor-related services, as we 

did in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850). Consistent with 

previous rebasings, the "all other: labor-related services" cost category is mostly 

comprised of building maintenance and security services (including, but not limited to, 

commercial and industrial machinery and equipment repair, nonresidential maintenance 

and repair, and investigation and security services). Because these services tend to be 

labor-intensive and are mostly performed at the hospital facility (and, therefore, unlikely 

to be purchased in the national market), we believe that they meet our definition of 

labor-related services. 

 Similar to the FY 2006-based IPPS market basket, we are proposing that the 

professional fees: labor-related cost category includes expenses associated with 

advertising and a proportion of legal services, accounting and auditing, engineering, 

management consulting, and management of companies and enterprises expenses. As 
 356 

was done in the FY 2006-based IPPS market basket rebasing, we are proposing to 

determine the proportion of legal, accounting and auditing, engineering, and management 

consulting services that meet our definition of labor-related services based on a survey of 

hospitals conducted by CMS in 2008. We notified the public of our intent to conduct this 

survey on December 9, 2005 (70 FR 73250) and received no comments (71 FR 8588). 

 With approval from the OMB, we contacted the industry and received responses 

to our survey from 108 hospitals. Using data on FTEs to allocate responding hospitals 

across strata (region of the country and urban/rural status), we calculated 

poststratification weights. A more thorough discussion of the composition of the survey 

and poststratification can be found in the FY 2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43850 through 43856). Based on the weighted results of the survey, we 

determined that hospitals purchase, on average, the following portions of contracted 

professional services outside of their local labor market: 

● 34 percent of accounting and auditing services; 

● 30 percent of engineering services; 

● 33 percent of legal services; and 

● 42 percent of management consulting services. 

 We are proposing to apply each of these percentages to its respective Benchmark 

I-O cost category underlying the professional fees cost category. This is the methodology 

that we used to separate the FY 2006-based IPPS market basket professional fees 

category into professional fees: labor-related and professional fees: nonlabor-related 

cost categories. We are proposing to use the same methodology and survey results to 
 357 

separate the FY 2010-based IPPS market basket professional fees category into 

professional fees: labor-related and professional fees: nonlabor-related cost categories. 

We believe these survey results are appropriate to use for the FY 2010-based IPPS 

market basket rebasing as they empirically determine the proportion of contracted 

professional services purchased by the industry that is attributable to local firms and the 

proportion that is purchased from national firms. 

 In the proposed FY 2010-based IPPS market basket, nonmedical professional fees 

that were subject to allocation based on the survey results represent 2.059 percent of total 

costs (and are limited to those fees related to Accounting & Auditing, Legal, Engineering, 

and Management Consulting services). Based on our survey results, we are apportioning 

1.301 percentage points of the 2.059 percentage point figure into the labor-related share 

and designating the remaining 0.758 percentage point as nonlabor-related. 

 In addition to the professional services listed above, we also classify a proportion 

of the expenses under NAICS 55, Management of Companies and Enterprises, into the 

professional fees: labor-related cost category as was done in the previous rebasing. The 

NAICS 55 data are mostly comprised of corporate, subsidiary, and regional managing 

offices, or otherwise referred to as home offices. As was done for the FY 2006-based 

IPPS market basket we are proposing to include only a portion of the home office costs in 

the labor related share as not all hospitals are located in the same geographic area as their 

home office. 

 Our proposed methodology is based on data from the Medicare cost reports, as 

well as a CMS database of Home Office Medicare Records (HOMER) (a database that 
 358 

provides city and State information (addresses) for home offices). The Medicare cost 

report requires hospitals to report their home office provider numbers and locations. 

Using the data reported on the Medicare Cost Report as well as the HOMER database to 

determine the home office location for each home office provider number, we compared 

the location of the hospital with the location of the hospital’s home office. We 

determined the proportion of costs that should be allocated to the labor-related share 

based on the percent of total hospital home office compensation costs for those hospitals 

that had home offices located in their respective local labor markets--defined as being in 

the same Metropolitan Statistical Area (MSA). We primarily determined a hospital’s and 

home office’s MSAs using their zip code information from the Medicare cost report. For 

any home offices for which we could not identify a MSA from the Medicare cost report, 

we used the Medicare HOMER database to identify the home office’s city and State. 

 We are proposing to determine the proportion of costs that should be allocated to 

the labor-related share based on the percent of hospital home office compensation as 

reported in Worksheet S-3, part II. Using this proposed methodology, we determined that 

62 percent of hospitals’ home office compensation costs were for home offices located in 

their respective local labor markets, and therefore, we are proposing to allocate 62 

percent of NAICS 55 expenses to the labor-related share. 

 In the proposed FY 2010-based IPPS market basket, NAICS 55 expenses that 

were subject to allocation based on the home office allocation methodology represent 

5.650 percent of the total operating costs. Based on the home office results, we are 

apportioning 3.503 percentage points of the 5.650 percentage points figure into the labor-
 359 

related share and designating the remaining 2.147 percentage points as nonlabor-related. 

In sum, based on the two proposed allocations mentioned above, we are proposing to 

apportion 4.804 percentage points into the labor-related share. This amount is added to 

the 0.696 percentage point of professional fees that we already identified as labor-related, 

resulting in a proposed professional fees: labor-related cost weight of 5.500 percent. 

 Below is a table comparing the proposed FY 2010-based labor-related share and 

the FY 2006-based labor-related share. As discussed in section IV.B.3. of the preamble 

of this proposed rule, the wages and salaries and employee benefits cost weight reflect 

contract labor costs. 

Table IV05.--Comparison of the Proposed FY 2010-Based Labor-Related Share and 

the FY 2006-Based Labor-Related Share 

FY 2006-Based 

Market Basket 

Cost Weights 

Proposed 

FY 2010-Based 

Market Basket 

Cost Weights 

 Wages and Salaries 47.213 47.233 

 Employee Benefits 12.414 13.105 

 Professional Fees: Labor-Related 5.356 5.500 

 Administrative and Facilities 

 Support Services 0.626 0.619 

 All Other: Labor-Related Services 3.193 3.130 

Total Labor-Related Share 68.802 69.587 

 Using the cost category weights from the proposed FY 2010-based IPPS market 

basket, we calculated a labor-related share of 69.587 percent, approximately 

0.8 percentage point higher than the current labor-related share of 68.802. 

 We continue to believe, as we have stated in the past, that these operating cost 

categories are related to, influenced by, or vary with the local markets. Therefore, our 
 360 

definition of the labor-related share continues to be consistent with section 1886(d)(3) of 

the Act. 

 Using the proposed cost category weights that we determined in section IV.B.1. 

of the preamble of this proposed rule, we calculated a proposed labor-related share of 

69.587 percent, using the proposed FY 2010-based IPPS market basket. Accordingly, we 

are proposing to implement a labor-related share of 69.6 percent for discharges occurring 

on or after October 1, 2013. We note that section 403 of Pub. L. 108-173 amended 

sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary 

must employ 62 percent as the labor-related share unless 62 percent “would result in 

lower payments to a hospital than would otherwise be made.” 

 We also are proposing to update the labor-related share for Puerto Rico. 

Consistent with our methodology for determining the national labor-related share, we 

calculate the Puerto Rico-specific relative weights for wages and salaries, employee 

benefits, and contract labor using FY 2010 Medicare cost report data for IPPS hospitals 

located in Puerto-Rico. Because there are no Puerto Rico-specific relative weights for 

professional fees and labor intensive services, we use the national weights as shown in 

Table IV05. This is the same methodology we used to determine the FY 2006-based 

Puerto Rico-specific labor-related share derived during the FY 2006-based IPPS market 

basket rebasing (74 FR 43856). 

 Below is a table comparing the proposed FY 2010-based Puerto Rico-specific 

labor-related share and the FY 2006-based Puerto Rico-specific labor-related share. 
 361 

Table IV06.--Comparison of the Proposed FY 2010-Based Puerto Rico-Specific 

Labor-Related Share and FY 2006-Based Puerto Rico-Specific Labor-Related Share 

FY 2006-Based 

Market Basket Cost 

Weights 

Proposed FY 2010-

Based Market 

Basket Cost Weights

Wages and Salaries 44.221 44.918 

Benefits 8.691 8.990 

Professional Fees: Labor-Related 5.356 5.500 

Administrative and Facilities 

Support Services 0.626 0.619 

All Other: Labor-Related Services 3.193 3.130 

Total Labor-Related Share 62.087 63.157 

 Using the proposed FY 2010-based Puerto Rico cost category weights, we 

calculated a labor-related share of 63.157 percent, approximately 1.1 percentage points 

higher than the current Puerto-Rico specific labor-related share of 62.087. Accordingly, 

we are proposing to adopt an updated Puerto Rico labor-related share of 63.2 percent. 

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

 In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857), we adopted 

the use of the FY 2006-based IPPS operating market basket percentage increase to update 

the target amounts for children’s hospitals, PPS-excluded cancer hospitals and religious 

nonmedical health care institutions (RNHCIs). Children’s hospitals and PPS-excluded 

cancer hospitals and RNHCIs are still reimbursed solely under the reasonable cost-based 

system, subject to the rate-of-increase limits. Under these limits, an annual target amount 

(expressed in terms of the inpatient operating cost per discharge) is set for each hospital 

based on the hospital’s own historical cost experience trended forward by the applicable 

rate-of-increase percentages. 
 362 

 Under the broad authority in sections 1886(b)(3)(A) and (B), 1886(b)(3)(E), and 

1871 of the Act and section 4454 of the BBA, consistent with our use of the IPPS 

operating market basket percentage increase to update target amounts, we are proposing 

to use the FY 2010-based IPPS operating market basket percentage increase to update the 

target amounts for children’s hospitals, 11 PPS-excluded cancer hospitals, and RNHCIs 

that are paid on the basis of reasonable cost subject to the rate-of-increase limits under 

§ 413.40. 

 Due to the small number of children’s and cancer hospitals and RNHCIs that 

receive, in total, less than 1 percent of all Medicare payments to hospitals and because 

these hospitals provide limited Medicare cost report data, we are unable to create a 

separate market basket specifically for these hospitals. Due to the limited cost report data 

available, we believe that the proposed FY 2010-based IPPS operating market basket 

most closely represents the cost structure of children’s hospitals, PPS-excluded cancer 

hospitals, and RNHCIs. We believe this is appropriate as the IPPS operating market 

basket would reflect the input price growth for providing inpatient hospital services 

(similar to the services provided by the above excluded hospitals) based on the specific 

mix of goods and services required. Therefore, we believe that the percentage change in 

the proposed FY 2010-based IPPS operating market basket is the best available measure 

of the average increase in the prices of the goods and services purchased by the 11 cancer 

hospitals, children’s hospitals, and RNHCIs in order to provide care. 
 363 

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

 The CIPI was originally described in the FY 1993 IPPS final rule (57 FR 40016). 

There have been subsequent discussions of the CIPI presented in the IPPS proposed and 

final payment rules. The FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43857) 

discussed the most recent rebasing and revision of the CIPI to a FY 2006 base year, 

which reflected the capital cost structure of the hospital industry in that year. 

 For the FY 2014 IPPS update, we are proposing to rebase and revise the CIPI to a 

FY 2010 base year to reflect the more current structure of capital costs in hospitals. As 

with the FY 2006-based index, we developed two sets of weights in order to calculate the 

proposed FY 2010-based CIPI. The first set of weights identifies the proportion of 

hospital capital expenditures attributable to each expenditure category, while the second 

set of weights is a set of relative vintage weights for depreciation and interest. The set of 

vintage weights is used to identify the proportion of capital expenditures within a cost 

category that is attributable to each year over the useful life of the capital assets in that 

category. A more thorough discussion of vintage weights is provided later in this section. 

 Both sets of weights are developed using the best data sources available. In 

reviewing source data, we determined that the Medicare cost reports provided accurate 

data for all capital expenditure cost categories. We used the FY 2010 Medicare cost 

reports for IPPS hospitals to determine weights for all three cost categories: depreciation, 

interest, and other capital expenses. 

 Lease expenses are unique in that they are not broken out as a separate cost 

category in the CIPI, but rather are proportionally distributed among the cost categories 
 364 

of Depreciation, Interest, and Other, reflecting the assumption that the underlying cost 

structure and price movement of leases is similar to that of capital costs in general. As 

was done in previous rebasings of the CIPI, we first assumed 10 percent of lease 

expenses represents overhead and assigned those costs to the Other category accordingly. 

The remaining lease expenses were distributed across the three cost categories based on 

the respective weights of Depreciation, Interest, and Other not including lease expenses. 

 Depreciation contains two subcategories: (1) Building and Fixed equipment; and 

(2) Movable Equipment. The proposed apportionment between building and fixed 

equipment and movable equipment was determined using the Medicare cost reports. This 

methodology was also used to compute the apportionment used in the FY 2006-based 

index. 

 The total Interest cost category is split between government/nonprofit interest and 

for-profit interest. The FY 2006-based CIPI allocated 85 percent of the total interest cost 

weight to government/nonprofit interest and proxied that category by the average yield on 

domestic municipal bonds. The remaining 15 percent of the interest cost weight was 

allocated to for-profit interest and was proxied by the average yield on Moody's Aaa 

bonds (74 FR 43857). 

 For the FY 2010-based CIPI, we are proposing to derive the split using the 

relative FY 2010 Medicare cost report data on interest expenses for government/nonprofit 

and for-profit hospitals. Based on these data, we calculated an 89/11 split between 

government/nonprofit and for-profit interest. We believe it is important that this split 

reflects the latest relative cost structure of interest expenses. 
 365 

 Table IV07 presents a comparison of the proposed FY 2010-based CIPI cost 

weights and the FY 2006-based CIPI cost weights. 

Table IV07.—Proposed FY 2010-Based CIPI Cost Categories, Weights, and Price 

Proxies with FY 2006-Based CIPI Included for Comparison 

Cost Categories FY 2006

Weights 

Proposed 

FY 2010 

Weights 

Price Proxy 

Total 100.00 100.00 

 Total depreciation 75.154 74.011 

 Building and fixed 

equipment 

depreciation 

35.789 36.153 BEA chained price index for 

nonresidential construction for 

hospitals and special care facilities--

vintage-weighted (26 years) 

 Movable equipment 

depreciation 

39.365 37.858 PPI for machinery and equipment--

vintage-weighted (12 years) 

 Total interest 17.651 19.157 

Government/nonprofit 

interest 

15.076 17.051 Average yield on domestic municipal 

bonds (Bond Buyer 20 bonds)—

vintage-weighted (26 years) 

For-profit interest 2.575 2.106 Average yield on Moody's Aaa 

bonds—vintage-weighted (26 years) 

Other 7.195 6.832 CPI-U for residential rent 

 Because capital is acquired and paid for over time, capital expenses in any given 

year are determined by both past and present purchases of physical and financial capital. 

The vintage-weighted CIPI is intended to capture the long-term consumption of capital, 

using vintage weights for depreciation (physical capital) and interest (financial capital). 

These vintage weights reflect the proportion of capital purchases attributable to each year 

of the expected life of building and fixed equipment, movable equipment, and interest. 

We used the vintage weights to compute vintage-weighted price changes associated with 

depreciation and interest expense. Following publication of the FY 2010 IPPS/RY 2010 
 366 

LTCH PPS proposed rule, and in order to provide greater transparency, we posted on the 

CMS market basket Web page at: http://www.cms.gov/Research-Statistics-Data-andSystems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html

an illustrative spreadsheet that contains an example of how the vintage-weighted price 

indexes are calculated. 

 Vintage weights are an integral part of the CIPI. Capital costs are inherently 

complicated and are determined by complex capital purchasing decisions, over time, 

based on such factors as interest rates and debt financing. In addition, capital is 

depreciated over time instead of being consumed in the same period it is purchased. The 

CIPI accurately reflects the annual price changes associated with capital costs, and is a 

useful simplification of the actual capital investment process. By accounting for the 

vintage nature of capital, we are able to provide an accurate, stable annual measure of 

price changes. Annual nonvintage price changes for capital are unstable due to the 

volatility of interest rate changes and, therefore, do not reflect the actual annual price 

changes for Medicare capital-related costs. The CIPI reflects the underlying stability of 

the capital acquisition process and provides hospitals with the ability to plan for changes 

in capital payments. 

 To calculate the vintage weights for depreciation and interest expenses, we 

needed a time series of capital purchases for building and fixed equipment and movable 

equipment. We found no single source that provides a uniquely best time series of capital 

purchases by hospitals for all of the above components of capital purchases. The early 

Medicare cost reports did not have sufficient capital data to meet this need. Data we 

obtained from the American Hospital Association (AHA) do not include annual capital 
 367 

purchases. However, AHA does provide a consistent database back to 1963. We used 

data from the AHA Panel Survey and the AHA Annual Survey to obtain a time series of 

total expenses for hospitals. We then used data from the AHA Panel Survey 

supplemented with the ratio of depreciation to total hospital expenses obtained from the 

Medicare cost reports to derive a trend of annual depreciation expenses for 1963 through 

2010. 

 In order to estimate capital purchases using data on depreciation expenses, the 

expected life for each cost category (building and fixed equipment, movable equipment, 

and interest) is needed to calculate vintage weights. We used FY 2010 Medicare cost 

reports to determine the expected life of building and fixed equipment and of movable 

equipment. The expected life of any piece of equipment can be determined by dividing 

the value of the asset (excluding fully depreciated assets) by its current year depreciation 

amount. This calculation yields the estimated useful life of an asset if depreciation were 

to continue at current year levels, assuming straight-line depreciation. From the FY 2010 

Medicare cost reports, the proposed expected life of building and fixed equipment was 

determined to be 26 years, and the proposed expected life of movable equipment was 

determined to be 12 years. The FY 2006-based CIPI was based on an expected life of 

building and fixed equipment of 25 years and 12 years as the expected life for movable 

equipment. 

 We are proposing to use the building and fixed equipment and movable 

equipment weights derived from FY 2010 Medicare cost reports to separate the 

depreciation expenses into annual amounts of building and fixed equipment depreciation 
 368 

and movable equipment depreciation. Year-end asset costs for building and fixed 

equipment and movable equipment were determined by multiplying the annual 

depreciation amounts by the expected life calculations from the FY 2010 Medicare cost 

reports. We then calculated a time series back to 1963 of annual capital purchases by 

subtracting the previous year asset costs from the current year asset costs. From this 

capital purchase time series, we were able to calculate the vintage weights for building 

and fixed equipment and for movable equipment. Each of these sets of vintage weights is 

explained in more detail below. 

 For building and fixed equipment vintage weights, we used the real annual capital 

purchase amounts for building and fixed equipment to capture the actual amount of the 

physical acquisition, net of the effect of price inflation. This real annual purchase amount 

for building and fixed equipment was produced by deflating the nominal annual purchase 

amount by the building and fixed equipment price proxy, BEA's chained price index for 

nonresidential construction for hospitals and special care facilities. Because building and 

fixed equipment have an expected life of 26 years, the vintage weights for building and 

fixed equipment are deemed to represent the average purchase pattern of building and 

fixed equipment over 26-year periods. With real building and fixed equipment purchase 

estimates available back to 1963, we averaged twenty-two 26-year periods to determine 

the average vintage weights for building and fixed equipment that are representative of 

average building and fixed equipment purchase patterns over time. Vintage weights for 

each 26-year period are calculated by dividing the real building and fixed capital 

purchase amount in any given year by the total amount of purchases in the 26-year 
 369 

period. This calculation is done for each year in the 26-year period, and for each of the 

twenty-two 26-year periods. We used the average of each year across the twenty-two 26-

year periods to determine the average building and fixed equipment vintage weights for 

the proposed FY 2010-based CIPI. 

 For movable equipment vintage weights, the real annual capital purchase amounts 

for movable equipment were used to capture the actual amount of the physical 

acquisition, net of price inflation. This real annual purchase amount for movable 

equipment was calculated by deflating the nominal annual purchase amounts by the 

movable equipment price proxy, the PPI for machinery and equipment. Based on our 

determination that movable equipment has an expected life of 12 years, the vintage 

weights for movable equipment represent the average expenditure for movable equipment 

over a 12-year period. With real movable equipment purchase estimates available back 

to 1963, thirty-six 12-year periods were averaged to determine the average vintage 

weights for movable equipment that are representative of average movable equipment 

purchase patterns over time. Vintage weights for each 12-year period are calculated by 

dividing the real movable capital purchase amount for any given year by the total amount 

of purchases in the 12-year period. This calculation was done for each year in the 

12-year period and for each of the thirty-six 12-year periods. We used the average of 

each year across the thirty-six 12-year periods to determine the average movable 

equipment vintage weights for the proposed FY 2010-based CIPI. 

 For interest vintage weights, the nominal annual capital purchase amounts for 

total equipment (building and fixed, and movable) were used to capture the value of the 
 370 

debt instrument. Because we have determined that hospital debt instruments have an 

expected life of 26 years, the vintage weights for interest are deemed to represent the 

average purchase pattern of total equipment over 26-year periods. With nominal total 

equipment purchase estimates available back to 1963, twenty-two 26-year periods were 

averaged to determine the average vintage weights for interest that are representative of 

average capital purchase patterns over time. Vintage weights for each 26-year period are 

calculated by dividing the nominal total capital purchase amount for any given year by 

the total amount of purchases in the 26-year period. This calculation is done for each 

year in the 26-year period and for each of the twenty-two 26-year periods. We used the 

average of each year across the twenty-two 26-year periods to determine the average 

interest vintage weights for the proposed FY 2010-based CIPI. 

 The vintage weights for the FY 2006-based CIPI and the proposed FY 2010-based 

CIPI are presented in Table IV08. 

Table IV08.--FY 2006 Vintage Weights and Proposed FY 2010 Vintage Weights for 

Capital-Related Price Proxies 

Building and Fixed 

Equipment 

Movable Equipment Interest 

Year1

FY 2006 

25 years 

FY 2010 

26 years 

FY 2006 

12 years 

FY 2010 

12 years 

FY 2006 

25 years 

FY 2010 

26 years 

1 0.021 0.023 0.063 0.064 0.010 0.012 

2 0.023 0.024 0.067 0.068 0.012 0.013 

3 0.025 0.026 0.071 0.071 0.014 0.015 

4 0.027 0.028 0.075 0.073 0.016 0.017 

5 0.029 0.029 0.079 0.076 0.018 0.018 

6 0.031 0.031 0.082 0.078 0.020 0.021 

7 0.032 0.032 0.085 0.084 0.023 0.023 

8 0.033 0.034 0.086 0.088 0.025 0.025 

9 0.036 0.036 0.090 0.092 0.028 0.028 

10 0.038 0.038 0.093 0.098 0.031 0.030 

11 0.040 0.040 0.102 0.103 0.034 0.033 
 371 

Building and Fixed 

Equipment 

Movable Equipment Interest 

Year1

FY 2006 

25 years 

FY 2010 

26 years 

FY 2006 

12 years 

FY 2010 

12 years 

FY 2006 

25 years 

FY 2010 

26 years 

12 0.042 0.041 0.106 0.106 0.038 0.036 

13 0.044 0.042 -- -- 0.041 0.038 

14 0.045 0.042 -- -- 0.044 0.040 

15 0.046 0.043 -- -- 0.047 0.043 

16 0.047 0.044 -- -- 0.050 0.045 

17 0.048 0.044 -- -- 0.053 0.047 

18 0.050 0.044 -- -- 0.057 0.048 

19 0.050 0.044 -- -- 0.059 0.051 

20 0.050 0.044 -- -- 0.060 0.052 

21 0.048 0.045 -- -- 0.060 0.056 

22 0.048 0.045 -- -- 0.062 0.057 

23 0.047 0.045 -- -- 0.063 0.060 

24 0.049 0.046 0.068 0.062 

25 0.048 0.045 0.069 0.064 

26 0.045 0.066 

Total 1.000 1.000 1.000 1.000 1.000 1.000 

Note: Detail may not add to total due to rounding. 

1 Year 1 represents the vintage weight applied to the farthest year while the vintage weight for year 26, for 

example, would apply to the most recent year. 

 After the capital cost category weights were computed, it was necessary to select 

appropriate price proxies to reflect the rate-of-increase for each expenditure category. 

We are proposing to use the same price proxies for the FY 2010-based CIPI that were 

used in the FY 2006-based CIPI. The rationale for selecting the price proxies was 

explained more fully in the FY 1997 IPPS final rule (61 FR 46196) and the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 FR 43857). These proposed price proxies are 

presented in Table IV07. 

 Table IV09 below compares both the historical and forecasted percent changes in 

the FY 2006-based CIPI and the proposed FY 2010-based CIPI. 
 372 

Table IV09.--Comparison of FY 2006-Based and Proposed FY 2010-Based Capital 

Input Price Index, Percent Change, FY 2008 through FY 2016 

Fiscal Year CIPI, 

FY 2006-Based

Proposed 

CIPI, 

FY 2010-Based 

FY 2008 1.5 1.1 

FY 2009 1.5 1.2 

FY 2010 1.0 0.7 

FY 2011 1.2 0.9 

FY 2012 1.2 1.0 

Forecast: 

FY 2013 1.2 1.0 

FY 2014 1.4 1.2 

FY 2015 1.5 1.3 

FY 2016 1.7 1.5 

Average: 

FYs 2008-2012 1.3 1.0 

FYs 2013-2016 1.5 1.3 

Source: IHS Global Insight, Inc., 1st Quarter 2013 forecast. 

 IHS Global Insight, Inc. forecasts a 1.2 percent increase in the FY 2010-based 

CIPI for FY 2014, as shown in Table IV09. The underlying vintage-weighted price 

increases for depreciation (including building and fixed equipment and movable 

equipment) and interest (including government/nonprofit and for-profit) are included in 

Table IV10. 

Table IV10.--CMS Capital Input Price Index Percent 

 Changes, Total and Depreciation and Interest Components-- 

FYs 2008 through 2016 

Fiscal 

Year Total Depreciation Interest 

FY 2008 1.1 2.0 -3.1 

FY 2009 1.2 2.0 -2.0 

FY 2010 0.7 1.7 -2.8 

FY 2011 0.9 1.7 -2.3 

FY 2012 1.0 1.7 -2.7 
 373 

Fiscal 

Year Total Depreciation Interest 

Forecast: 

FY 2013 1.0 1.7 -2.8 

FY 2014 1.2 1.8 -2.3 

FY 2015 1.3 1.9 -1.7 

FY 2016 1.5 1.9 -0.7 

Source: IHS Global Insight, Inc., 1st Quarter 2013 forecast 

 Rebasing the CIPI from FY 2006 to FY 2010 decreased the percent change in the 

forecasted update for FY 2014 by 0.2 percentage point, from 1.4 percent to 1.2 percent, 

as shown in Table IV09. The difference in the forecasted market basket update for 

FY 2014 is primarily due to the rebasing of the index to FY 2010 and revising the base 

year cost weights to incorporate the FY 2010 Medicare cost report data.
 374 

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

GME Costs 

A. Proposed Changes in the Inpatient Hospital Update for FY 2014 (§§ 412.64(d) and 

412.211(c))

1. Proposed FY 2014 Inpatient Hospital Update 

 In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the 

national standardized amount for inpatient operating costs by a factor called the 

“applicable percentage increase.” Section 1886(b)(3)(B) of the Act, as amended by 

sections 3401(a) and 10319(a) of the Affordable Care Act, sets the applicable percentage 

increase under the IPPS for FY 2014 as equal to the rate-of-increase in the hospital 

market basket for IPPS hospitals in all areas, subject to a reduction of 2.0 percentage 

points if the hospital fails to submit quality information under rules established by the 

Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act, and then subject to 

an adjustment based on changes in economy-wide productivity (the multifactor 

productivity (MFP) adjustment), and an additional reduction of 0.3 percentage point. 

Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by section 3401(a) of 

the Affordable Care Act, state that application of the MFP adjustment and the additional 

FY 2014 adjustment of 0.3 percentage point may result in the applicable percentage 

increase being less than zero. 

 We note, in compliance with section 404 of the MMA, in this proposed rule, we 

are proposing to replace the FY 2006-based IPPS operating and capital market baskets 
 375 

with the revised and rebased FY 2010-based IPPS operating and capital market baskets 

for FY 2014. 

 We also are proposing to rebase the labor-related share to reflect the more recent 

base year. The current labor-related share, which is based on the FY 2006-based IPPS 

market basket, is 68.8 percent. We are proposing a labor-related share of 69.6 percent, 

which is based on the proposed rebased and revised FY 2010-based IPPS market basket. 

For a complete discussion on the rebasing of the market basket and labor-related share, 

we refer readers to section IV. of the preamble of this proposed rule. 

 Based on the most recent data available for this proposed rule, in accordance with 

section 1886(b)(3)(B) of the Act, we are proposing to base the proposed FY 2014 market 

basket update used to determine the applicable percentage increase for the IPPS on the 

IHS Global Insight, Inc. (IGI’s) first quarter 2013 forecast of the FY 2010-based IPPS 

market basket rate-of-increase, which is estimated to be 2.5 percent. In the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51689 through 51692), we finalized our methodology 

for calculating and applying the MFP adjustment. For FY 2014, we are not proposing 

any change in our methodology for calculating and applying the MFP adjustment. 

However, for this proposed rule, we are using the most recent data available to compute 

the MFP adjustment. Using the methodology that we finalized in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51690), the proposed FY 2014 market basket update, 

subject to the hospital submitting quality data under rules established by the Secretary in 

accordance with section 1886(b)(3)(B)(viii) of the Act, is then reduced by the most recent 

estimate of the MFP adjustment (the 10-year moving average of MFP for the period 
 376 

ending FY 2014) of 0.4 percent. Following application of the MFP adjustment, the 

applicable percentage increase is then reduced by 0.3 percentage point, as required by 

section 1886(b)(3)(B)(xii) of the Act (as discussed in section I. of the Addendum to this 

proposed rule). 

 Consistent with current law, and based on IGI’s first quarter 2013 forecast of the 

FY 2014 market basket increase, we are proposing an applicable percentage increase to 

the FY 2014 operating standardized amount of 1.8 percent (that is, the FY 2014 estimate 

of the market basket rate-of-increase of 2.5 percent less an adjustment of 0.4 percentage 

point for economy-wide productivity (that is, the MFP adjustment) and less 0.3 

percentage point) for hospitals in all areas, provided the hospital submits quality data 

under rules established in accordance with section 1886(b)(3)(B)(viii) of the Act. For 

hospitals that do not submit these quality data, we are proposing an applicable percentage 

increase to the operating standardized amount of -0.2 percent (that is, the FY 2014 

estimate of the market basket rate-of-increase of 2.5 percent, less 2.0 percentage points 

for failure to submit quality data, less an adjustment of 0.4 percentage point for the MFP 

adjustment, and less an additional adjustment of 0.3 percentage point). Lastly, we also 

are proposing that if more recent data become subsequently available (for example, a 

more recent estimate of the market basket and MFP adjustment), we would use such data, 

if appropriate, to determine the FY 2014 market basket update and MFP adjustment in 

the final rule. 

 We are proposing to revise the existing regulations at 42 CFR 412.64(d) to reflect 

the current law for the FY 2014 update. Specifically, in accordance with section 
 377 

1886(b)(3)(B) of the Act, we are proposing to add a new paragraph (v) to § 412.64(d)(1) 

to reflect the applicable percentage increase to the FY 2014 operating standardized 

amount as the percentage increase in the market basket index less an MFP adjustment and 

less an additional reduction of 0.3 percentage point. 

 Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage 

increase to the hospital-specific rates for SCHs equals the applicable percentage increase 

set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all 

other hospitals subject to the IPPS). Therefore, the update to the hospital-specific rates 

for SCHs is also subject to section 1886(b)(3)(B)(i) of the Act, as amended by sections 

3401(a) and 10319(a) of the Affordable Care Act. Accordingly, we are proposing an 

update to the hospital-specific rates applicable to SCHs of 1.8 percent for hospitals that 

submit quality data or -0.2 percent for hospitals that fail to submit quality data. For 

FY 2014, the existing regulations in §§ 412.73(c)(16), 412.75(d), 412.77(e) and 412.78(e) 

contain provisions that set the update factor for SCHs equal to the update factor applied 

to the national standardized amount for all IPPS hospitals. Therefore, we are not 

proposing to make any further changes to these four regulatory provisions to reflect the 

FY 2014 update factor for the hospital-specific rates of SCHs. 

 We note that, as discussed in section V.F. of this preamble, section 606 of the 

American Taxpayer Relief Act of 2012 extended the MDH program from the end of 

FY 2012 (that is, for discharges occurring before October 1, 2012) to the end of FY 2013 

(that is, for discharges occurring before October 1, 2013). Under prior law, the MDH 

program was to be in effect through the end of FY 2012 only. Absent additional 
 378 

legislation further extending the MDH program, the MDH program will expire for 

discharges beginning in FY 2014. Accordingly, we are not including MDHs in our 

proposal to update the hospital-specific rates for FY 2014. 

2. Proposed FY 2014 Puerto Rico Hospital Update 

 Puerto Rico hospitals are paid a blended rate for their inpatient operating costs 

based on 75 percent of the national standardized amount and 25 percent of the Puerto 

Rico-specific standardized amount. Section 1886(d)(9)(C)(i) of the Act is the basis for 

determining the applicable percentage increase applied to the Puerto Rico-specific 

standardized amount. Section 401(c) of Pub. L. 108-173 amended section 

1886(d)(9)(C)(i) of the Act, which states that, for discharges occurring in a fiscal year 

(beginning with FY 2004), the Secretary shall compute an average standardized amount 

for hospitals located in any area of Puerto Rico that is equal to the average standardized 

amount computed under subclause (I) for fiscal year 2003 for hospitals in a large urban 

area (or, beginning with FY 2005, for all hospitals in the previous fiscal year) increased 

by the applicable percentage increase under subsection (b)(3)(B) for the fiscal year 

involved. Therefore, the update to the Puerto Rico-specific operating standardized 

amount equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of 

the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act (that 

is, the same update factor as for all other hospitals subject to the IPPS). Accordingly, we 

are proposing an applicable percentage increase to the Puerto Rico-specific operating 

standardized amount of 1.8 percent for FY 2014. The regulations at § 412.211(c) 

currently set the update factor for the Puerto Rico-specific operating standardized amount 
 379 

equal to the update factor applied to the national standardized amount for all IPPS 

hospitals. Therefore, it is not necessary to propose any changes to the existing regulatory 

text. 

B. Rural Referral Centers (RRCs): Proposed Annual Update to Case-Mix Index and 

Discharge Criteria (§ 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 a rural referral center (RRC). RRCs receive some special treatment under both the 

DSH payment adjustment and the criteria for geographic reclassification. 

 Section 402 of Pub. L. 108-173 raised the DSH payment adjustment for RRCs 

such that they are not subject to the 12-percent cap on DSH payments that is applicable to 

other rural hospitals. RRCs are also not subject to the proximity criteria when applying 

for geographic reclassification. In addition, they do not have to meet the requirement that 

a hospital's average hourly wage must exceed, by a certain percentage, the average hourly 

wage of the labor market area where the hospital is located. 

 Section 4202(b) of Pub. L. 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. 
 380 

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.) 
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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 2014 includes data from all urban hospitals 

nationwide, and the proposed regional values for FY 2014 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 2012 (October 1, 2011 through September 30, 2012), and include 

bills posted to CMS’ records through December 2012. 

 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, 2013, they must have a CMI value for FY 2012 that is at 

least-- 

● 1.5526; 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 CMI values by region are set forth in the following table: 

Region 

Case-Mix 

Index Value 
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Region 

Case-Mix 

Index Value 

1. New England (CT, ME, MA, NH, RI, VT) 1.3319

2. Middle Atlantic (PA, NJ, NY) 1.4025

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 1.4799

4. East North Central (IL, IN, MI, OH, WI) 1.4542

5. East South Central (AL, KY, MS, TN) 1.4266

6. West North Central (IA, KS, MN, MO, NE, ND, SD) 1.5311

7. West South Central (AR, LA, OK, TX) 1.5811

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) 1.6393

9. Pacific (AK, CA, HI, OR, WA) 1.5568

 We intend to update the preceding numbers in the FY 2014 final rule to reflect the 

updated FY 2012 MedPAR file, which would contain data from additional bills received 

through March 2013. 

 A hospital seeking to qualify as an RRC should obtain its hospital-specific CMI 

value (not transfer-adjusted) from its fiscal intermediary or MAC. Data are available on 

the Provider Statistical and Reimbursement (PS&R) System. In keeping with our policy 

on discharges, the CMI values are computed based on all Medicare patient discharges 

subject to the IPPS MS-DRG-based payment. 

2. Discharges 

 Section 412.96(c)(2)(i) provides that CMS set forth the national and regional 

numbers of discharges in each year’s annual notice of prospective payment rates for 

purposes of determining RRC status. As specified in section 1886(d)(5)(C)(ii) of the Act, 

the national standard is set at 5,000 discharges. We would normally propose to update 

the regional standards based on discharges for urban hospitals’ cost reporting periods that 
 383 

began during FY 2011 (that is, October 1, 2010 through September 30, 2011), which 

would normally be the latest cost report data available at the time of the development of 

this proposed rule. However, due to a transition in our data system, in lieu of a full year 

of FY 2011 cost report data, we are proposing to use a combination of FY 2010 and 

FY 2011 cost report data in order to create a full fiscal year of cost report data for this 

analysis. Due to CMS’ transition to a new cost reporting form effective for cost reporting 

periods beginning on or after May 1, 2010, some FY 2011 cost reports were not yet in 

our system for analysis at the time of the development of this proposed rule. Therefore, 

in order to have a complete fiscal year of cost report data, we utilized FY 2011 cost report 

data if available, and for those providers whose FY 2011 cost report data was not yet in 

our system, we utilized their FY 2010 cost report data. This is similar to the process we 

used to establish the median number of discharges for urban hospitals in the census 

region for FY 2013, where we utilized FY 2009 and 2010 cost report data (77 FR 53406). 

 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, 2013, must have, as the number of discharges for its cost reporting period that 

began during FY 2011 (based on a combination of FY 2010 and FY 2011 cost report data 

as explained in the preceding paragraph), 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: 
 384 

Region 

Number of 

Discharges 

1. New England (CT, ME, MA, NH, RI, VT) 7,825

2. Middle Atlantic (PA, NJ, NY) 10,891

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 11,566

4. East North Central (IL, IN, MI, OH, WI) 8,360

5. East South Central (AL, KY, MS, TN) 7,378

6. West North Central (IA, KS, MN, MO, NE, ND, SD) 7,747

7. West South Central (AR, LA, OK, TX) 5,147

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) 9,125

9. Pacific (AK, CA, HI, OR, WA) 8,525

 We intend to update these numbers in the FY 2014 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 

would be the minimum criterion for all hospitals under this proposed rule. 

 We reiterate that, if an osteopathic hospital is to qualify for RRC status for cost 

reporting periods beginning on or after October 1, 2013, the hospital would be required to 

have at least 3,000 discharges for its cost reporting period that began during FY 2011 

(based on a combination of FY 2010 and FY 2011 cost report data as explained earlier in 

this section). 

C. Proposed Payment Adjustment for Low-Volume Hospitals (§ 412.101)

1. Background 

 Section 1886(d)(12) of the Act provides for an additional payment to each 

qualifying low-volume hospital under the IPPS beginning in FY 2005. Section 
 385 

1886(d)(12) of the Act sets forth the qualifying criteria for a qualifying low-volume 

hospital and the methodology for determining the low-volume hospital payment 

adjustment. 

 Sections 3125 and 10314 of the Affordable Care Act provided for a temporary 

change in the low-volume hospital payment policy for FYs 2011 and 2012 by expanding 

the definition of a low-volume hospital and modifying the methodology for determining 

the payment adjustment for hospitals meeting the definition. Therefore, prior to the 

enactment of the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240) on 

January 2, 2013, beginning with FY 2013, the low-volume hospital qualifying criteria 

and payment adjustment requirements would have reverted to the statutory requirements 

under section 1886(d)(12) of the Act that were in effect prior to FY 2011. Section 605 of 

the ATRA extended for an additional year, through FY 2013, the temporary changes in 

the low-volume hospital definition and methodology for determining the payment 

adjustment made by the Affordable Care Act for FYs 2011 and 2012. Beginning with 

FY 2014, the low-volume hospital qualifying criteria and payment adjustment will revert 

to the statutory requirements that were in effect prior to the amendments made by the 

Affordable Care Act and the ATRA. In section V.D.3. of this preamble, we discuss the 

proposed low-volume hospital payment adjustment policies for FY 2014. 

a. Original Implementation of the Low-Volume Hospital Payment Adjustment 

 Section 1886(d)(12) of the Act, as added by section 406(a) of Pub. L. 108-173, 

provides for a payment adjustment to account for the higher costs per discharge for 

low-volume hospitals under the IPPS, effective beginning FY 2005. The additional 
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payment adjustment to a low-volume hospital provided for under section 1886(d)(12) of 

the Act is “[i]n addition to any payment calculated under this section.” Therefore, the 

additional payment adjustment is based on the per discharge amount paid to the 

qualifying hospital under section 1886 of the Act. In other words, the low-volume 

hospital payment adjustment is based on total per discharge payments made under section 

1886 of the Act, including capital, DSH, IME, and outlier payments. For SCHs and MDHs, 

the low-volume hospital payment adjustment is based in part on either the Federal rate or the 

hospital-specific rate, whichever results in a greater operating IPPS payment.

 Section 1886(d)(12)(C)(i) of the Act defined a low-volume hospital as “a 

subsection (d) hospital (as defined in paragraph (1)(B)) that the Secretary determines is 

located more than 25 road miles from another subsection (d) hospital and has less than 

800 discharges during the fiscal year.” Section 1886(d)(12)(C)(ii) of the Act further 

stipulates that the term “discharge” means “an inpatient acute care discharge of an 

individual regardless of whether the individual is entitled to benefits under Part A.” 

Therefore, the term “discharge” refers to total discharges, regardless of payer (that is, not 

only Medicare discharges). Furthermore, under section 406(a) of Pub. L. 108-173, which 

initially added subparagraph (12) to section 1886(d) of the Act, the provision requires the 

Secretary to determine an applicable percentage increase for these low-volume hospitals 

based on the “empirical relationship” between “the standardized cost-per-case for such 

hospitals and the total number of discharges of such hospitals and the amount of the 

additional incremental costs (if any) that are associated with such number of discharges.” 

The statute thus mandates that the Secretary develop an empirically justifiable adjustment 

based on the relationship between costs and discharges for these low-volume hospitals. 
 387 

Section 1886(d)(12)(B)(iii) of the Act limits the applicable percentage increase 

adjustment to no more than 25 percent. 

 Based on an analysis we conducted for the FY 2005 IPPS final rule (69 FR 49099 

through 49102), a 25-percent low-volume hospital payment adjustment to all qualifying 

hospitals with less than 200 discharges was found to be most consistent with the statutory 

requirement to provide relief to low-volume hospitals where there is empirical evidence 

that higher incremental costs are associated with low numbers of total discharges. In the 

FY 2006 IPPS final rule (70 FR 47432 through 47434), we stated that multivariate 

analyses supported the existing low-volume hospital payment adjustment implemented in 

FY 2005. Therefore, the low-volume hospital payment adjustment of an additional 25 

percent continued to be provided for qualifying hospitals with less than 200 discharges. 

b. Affordable Care Act Provisions for FYs 2011 and 2012 

 For FYs 2011 and 2012, sections 3125 and 10314 of the Affordable Care Act 

expanded the definition of low-volume hospital and modified the methodology for 

determining the payment adjustment for hospitals meeting that definition. Specifically, 

those provisions of the Affordable Care Act amended the qualifying criteria for 

low-volume hospitals under section 1886(d)(12)(C)(i) of the Act to specify that, for 

FYs 2011 and 2012, a subsection (d) hospital qualifies as a low-volume hospital if it is 

more than 15 road miles from another subsection (d) hospital and has less than 1,600 

discharges of individuals entitled to, or enrolled for, benefits under Part A during the 

fiscal year. In addition, section 1886(d)(12)(D) of the Act, as added by the Affordable 

Care Act, provides that the low-volume hospital payment adjustment (that is, the 
 388 

percentage increase) is to be determined “using a continuous linear sliding scale ranging 

from 25 percent for low-volume hospitals with 200 or fewer discharges of individuals 

entitled to, or enrolled for, benefits under Part A in the fiscal year to zero percent for 

low-volume hospitals with greater than 1,600 discharges of such individuals in the fiscal 

year.” 

 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 

50414), we revised the regulations at 42 CFR 412.101 to reflect the changes to the 

qualifying criteria and the payment adjustment for low-volume hospitals made by 

sections 3125 and 10314 of the Affordable Care Act. In addition, we defined, at 

§ 412.101(a), the term “road miles”' to mean “miles” as defined at § 412.92(c)(1), and 

clarified the existing regulations to indicate that a hospital must continue to qualify as a 

low-volume hospital in order to receive the payment adjustment in that year (that is, it is 

not based on a one-time qualification). Furthermore, in that same final rule, we discussed 

the process for requesting and obtaining the low-volume hospital payment adjustment for 

FY 2011 (75 FR 50240). For the second year of the changes to the low-volume hospital 

payment adjustment provided for by section 3125 and 10314 of the Affordable Care Act 

(that is, FY 2012), consistent with the regulations at § 412.101(b)(2)(ii), in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51677 through 51680), we updated the discharge data 

source used to identify qualifying low-volume hospitals and calculate the payment 

adjustment (percentage increase). Under § 412.101(b)(2)(ii), for FYs 2011 and 2012, a 

hospital’s Medicare discharges from the most recently available MedPAR data, as 

determined by CMS, are used to determine if the hospital meets the discharge criteria to 
 389 

receive the low-volume hospital payment adjustment in the current year. In that same 

final rule, we established that, for FY 2012, qualifying low-volume hospitals and their 

payment adjustment are determined using Medicare discharge data from the March 2011 

update of the FY 2010 MedPAR file, as these data were the most recent data available at 

that time. In addition, we noted that eligibility for the low-volume hospital payment 

adjustment for FY 2012 was also dependent upon meeting (if the hospital was qualifying 

for the low-volume hospital payment adjustment for the first time in FY 2012), or 

continuing to meet (if the hospital qualified in FY 2011), the mileage criterion specified 

at § 412.101(b)(2)(ii). Furthermore, we established a procedure for a hospital to request 

low-volume hospital status for FY 2012 (which was consistent with the process we 

employed for the low-volume hospital payment adjustment for FY 2011). 

2. Provisions of the ATRA for FY 2013 

a. Background 

 Section 605 of the ATRA amended sections 1886(d)(12)(B), (C)(i), and (D) of the 

Act to extend, for FY 2013, the temporary changes in the low-volume hospital payment 

adjustment policy provided for in FYs 2011 and 2012 by the Affordable Care Act. As we 

have noted previously, prior to the enactment of section 605 of the ATRA, beginning 

with FY 2013, the low-volume hospital definition and payment adjustment methodology 

would have reverted to the policy established under statutory requirements that were in 

effect prior to the amendments made by the Affordable Care Act. 

 Prior to the enactment of the ATRA, in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53406 through 53409), we discussed the low-volume hospital payment 
 390 

adjustment for FY 2013 and subsequent fiscal years. Specifically, we discussed that in 

accordance with section 1886(d)(12) of the Act, beginning with FY 2013, the 

low-volume hospital definition and payment adjustment methodology would revert back 

to the statutory requirements that were in effect prior to the amendments made by the 

Affordable Care Act. Therefore, we explained, as specified under the existing 

regulations at § 412.101, effective for FY 2013 and subsequent years, that in order to 

qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road 

miles from another subsection (d) hospital and have less than 200 discharges (that is, less 

than 200 total discharges, including both Medicare and non-Medicare discharges) during 

the fiscal year. We also established a procedure for hospitals to request low-volume 

hospital status for FY 2013 (which was consistent with our previously established 

procedures for FYs 2011 and 2012). 

 In a Federal Register notice published on March 7, 2013 (78 FR 14689) 

(hereinafter referred to as the FY 2013 IPPS notice), we announced the extension of the 

Affordable Care Act amendments to the low-volume hospital payment adjustment 

requirements under section 1886(d)(12) of the Act for FY 2013 pursuant to section 605 of 

the ATRA. The applicable low-volume hospital percentage increase provided for by the 

provisions of the Affordable Care Act and the ATRA is determined using a continuous 

linear sliding scale equation that results in a low-volume hospital payment adjustment 

ranging from an additional 25 percent for hospitals with 200 or fewer Medicare 

discharges to a zero percent additional payment adjustment for hospitals with 1,600 or 

more Medicare discharges. 
 391 

 In the FY 2013 IPPS notice (78 FR 14689 through 14694), to implement the 

extension of the temporary change in the low-volume hospital payment adjustment policy 

for FY 2013 provided for by the ATRA, we updated the discharge data source used to 

identify qualifying low-volume hospitals and calculate the payment adjustment 

(percentage increase). Consistent with our implementation of the low-volume hospital 

payment adjustment policy for FYs 2011 and 2012 as set forth at existing 

§ 412.101(b)(2)(ii), we established that, for FY 2013, qualifying low-volume hospitals 

and their payment adjustments are determined using Medicare discharge data from the 

March 2012 update of the FY 2011 MedPAR file, as these data were the most recent data 

available at the time of the development of the FY 2013 payment rates and factors 

established in the FY 2013 IPPS/LTCH PPS final rule. In addition, we noted that 

eligibility for the low-volume hospital payment adjustment for FY 2013 is also dependent 

upon meeting (in the case of a hospital that did not qualify for the low-volume hospital 

payment adjustment in FY 2012), or continuing to meet (in the case of a hospital that did 

qualify for the low-volume hospital payment adjustment in FY 2012), the mileage 

criterion specified at existing § 412.101(b)(2)(ii). We also established a procedure for a 

hospital to request low-volume hospital status for FY 2013 (which is consistent with the 

process for the low-volume hospital payment adjustment for FYs 2011 and 2012). 

Furthermore, we noted our intent to make conforming changes to the regulations text at 

§ 412.101 to reflect the changes to the qualifying criteria and the payment adjustment for 

low-volume hospitals in accordance with the amendments made by section 605 of the 

ATRA in future rulemaking. (We refer readers to the FY 2013 IPPS notice (78 FR 14689 
 392 

through 14694) for additional information on the extension of the Affordable Care Act 

amendments to the low-volume hospital payment adjustment requirements under section 

1886(d)(12) of the Act through FY 2013 in accordance with section 605 of the ATRA.) 

b. Proposed Conforming Regulatory Changes 

 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 and 

50414), we amended the regulations at § 412.101 to specify that, beginning with 

FY 2013, the low-volume hospital definition and payment adjustment methodology 

reverted to the policy established under statutory requirements that were in effect prior to 

the amendments made by the Affordable Care Act. In this proposed rule, we are 

proposing to make conforming changes to the existing regulations text at § 412.101 to 

reflect the extension of the changes to the qualifying criteria and the payment adjustment 

methodology for low-volume hospitals through FY 2013 in accordance with section 605 

of the ATRA, as announced in the FY 2013 IPPS notice (as discussed above). 

Specifically, we are proposing to revise paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), (c)(2), and 

(d). Under these proposed changes to § 412.101, beginning with FY 2014, consistent 

with section 1886(d)(12) of the Act, as amended, the low-volume hospital qualifying 

criteria and payment adjustment methodology would revert to that which was in effect 

prior to the amendments made by the Affordable Care Act and the ATRA (that is, the 

low-volume hospital payment adjustment policy in effect for FYs 2005 through 2010). 

3. Proposed Low-Volume Hospital Definition and Payment Adjustment for FY 2014 and 

Subsequent Fiscal Years 
 393 

 In accordance with section 1886(d)(12) of the Act, as amended, beginning with 

FY 2014, the low-volume hospital definition and payment adjustment methodology will 

revert back to the statutory requirements that were in effect prior to the amendments 

made by the Affordable Care Act and the ATRA. Therefore, consistent with section 

1886(d)(12) of the Act, as amended, under the proposed conforming changes to 

§ 412.101(b)(2), effective for FY 2014 and subsequent years, in order to qualify as a 

low-volume hospital, a subsection (d) hospital must be more than 25 road miles from 

another subsection (d) hospital and have less than 200 discharges (that is, less than 200 

discharges total, including both Medicare and non-Medicare discharges) during the fiscal 

year. Under our existing policy, effective for FY 2014 and subsequent years, qualifying 

hospitals would receive the low-volume hospital payment adjustment of an additional 25 

percent for discharges occurring during the fiscal year. 

 As described above, for FYs 2005 through 2010 and FY 2014 and subsequent 

fiscal years, the discharge determination would be made based on the hospital’s number 

of total discharges, that is, Medicare and non-Medicare discharges. The hospital’s most 

recently submitted cost report is used to determine if the hospital meets the discharge 

criterion to receive the low-volume hospital payment adjustment in the current year 

(proposed § 412.101(b)(2)(i)). We use cost report data to determine if a hospital meets 

the discharge criterion because this is the best available data source that includes 

information on both Medicare and non-Medicare discharges. We note that, for FYs 2011, 

2012, and 2013, we used the most recently available MedPAR data to determine the 

hospital’s Medicare discharges because only Medicare discharges were used to determine 
 394 

if a hospital met the discharge criterion for those years. In addition to a discharge 

criterion, the eligibility for the low-volume hospital payment adjustment also would be 

dependent upon the hospital meeting the mileage criterion specified at proposed 

§ 412.101(b)(2)(i). Specifically, to meet the mileage criterion to qualify for the 

low-volume hospital payment adjustment for FY 2014 and subsequent fiscal years, a 

hospital must be located more than 25 road miles from the nearest subsection (d) hospital. 

 For FY 2014, we would continue to use the established process for requesting and 

obtaining the low-volume hospital payment adjustment. That is, in order to receive a 

low-volume hospital payment adjustment under § 412.101, a hospital must notify and 

provide documentation to its fiscal intermediary or MAC that it meets the discharge and 

distance requirements. The fiscal intermediary or MAC will determine, based on the 

most recent data available, if the hospital qualifies as a low-volume hospital, so that the 

hospital will know in advance whether or not it will receive a payment adjustment. The 

fiscal intermediary or MAC and CMS may review available data, in addition to the data 

the hospital submits with its request for low-volume hospital status, in order to determine 

whether or not the hospital meets the qualifying criteria. (For additional details on our 

established process for the low-volume hospital payment adjustment, we refer readers to 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53408).) 

 Consistent with our previously established procedure, for FY 2014, a hospital 

must make its request for low-volume hospital status in writing to its fiscal intermediary 

or MAC by September 1, 2013, in order for the 25-percent low-volume hospital payment 

adjustment to be applied to payments for its discharges beginning on or after 
 395 

October 1, 2013 (through September 30, 2014). If a hospital’s request for low-volume 

hospital status for FY 2014 is received after September 1, 2013, and if the fiscal 

intermediary or MAC determines the hospital meets the criteria to qualify as a 

low-volume hospital, the fiscal intermediary or MAC will apply the 25-percent 

low-volume hospital payment adjustment to determine the payment for the hospital’s 

FY 2014 discharges, effective prospectively within 30 days of the date of the fiscal 

intermediary’s or MAC’s low-volume hospital status determination. 

 As we discussed in section V.C.2.b. of the preamble of this proposed rule, we are 

proposing to make conforming changes to the regulatory text at § 412.101 to reflect the 

extension of the changes to the qualifying criteria and the payment adjustment 

methodology for low-volume hospitals through FY 2013 made by section 605 of the 

ATRA. We are proposing changes to § 412.101 to conform the regulations to the 

statutory requirements that, beginning with FY 2014, the low-volume hospital qualifying 

criteria and payment adjustment methodology revert to that which was in effect prior to 

the amendments made by the Affordable Care Act and the ATRA (that is, the lowvolume hospital payment adjustment policy in effect for FYs 2005 through 2010). 

Therefore, the low-volume hospital payment adjustment policy in effect prior for FYs 

2005 through 2010 would apply for FY 2014 and subsequent years. 

D. Indirect Medical Education (IME) Payment Adjustment (§ 412.105)

1. IME Adjustment Factor for FY 2014 

 Under the IPPS, an additional payment amount is made to hospitals that have 

residents in an approved graduate medical education (GME) program in order to reflect 
 396 

the higher indirect patient care costs of teaching hospitals relative to nonteaching 

hospitals. The payment amount is determined by use of a statutorily specified adjustment 

factor. The regulations regarding the calculation of this additional payment, known as 

the IME adjustment, are located at § 412.105. We refer readers to the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51680) for a full discussion of the IME adjustment and 

IME adjustment factor. Section 1886(d)(5)(B) of the Act states that, for discharges 

occurring during FY 2008 and fiscal years thereafter, the IME formula multiplier is 1.35. 

Accordingly, for discharges occurring during FY 2014, the formula multiplier is 1.35. 

We estimate that application of this formula multiplier for the FY 2014 IME adjustment 

will result in an increase in IPPS payment of 5.5 percent for every approximately 10 

percent increase in the hospital’s resident to bed ratio. 

2. Other Proposed Policy Changes Affecting GME 

 In sections IV.J. of the preamble of this proposed rule, we present other proposed 

policy changes relating to GME payment. We refer readers to that section of the 

preamble of this proposed rule where we present the proposed policies. 
 397 

E. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) 

(§ 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 “Medicare fraction” and the “Medicaid fraction.” The Medicare 

fraction (also known as the “SSI fraction” or “SSI ratio”) is computed by dividing the 

number of the hospital’s inpatient days that are furnished to patients who were entitled to 

both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital’s 

total number of patient days furnished to patients entitled to benefits under Medicare Part 

A. The Medicaid fraction is computed by dividing the hospital’s number of inpatient 
 398 

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 § 412.106 govern the Medicare DSH payment 

adjustment and specify how the DPP is calculated as well as how beds and patient days 

are counted in determining the Medicare DSH payment adjustment. Under 

§ 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. Counting of Patient Days Associated with Patients Enrolled in Medicare Advantage 

Plans in the Medicare and Medicaid Fractions of the Disproportionate Patient Percentage 

(DPP) Calculation 

 The regulation at 42 CFR 422.2 defines Medicare Advantage (MA) plan to mean 

“health benefits coverage offered under a policy or contract by an MA organization that 

includes a specific set of health benefits offered at a uniform premium and uniform level 

of cost-sharing to all Medicare beneficiaries residing in the service area of the MA 

plan . . . .” Generally, each MA plan must at least provide coverage of all services that 

are covered by Medicare Part A and Part B, but also may provide for Medicare Part D 

benefits and/or additional supplemental benefits. However, certain items and services, 

such as hospice benefits, continue to be covered under Medicare fee-for-service (FFS). 
 399 

We note that, under § 422.50 of the regulations, an individual is eligible to elect an MA 

plan if he or she is entitled to Medicare Part A and enrolled in Medicare Part B. Dual 

eligible beneficiaries (individuals entitled to Medicare and eligible for Medicaid) also 

may choose to enroll in a MA plan, and, as an additional supplemental benefit, the MA 

plan may pay for Medicare cost-sharing not covered by Medicaid. 

 In the FY 2004 IPPS proposed rule (68 FR 27208) in response to questions about 

whether the patient days associated with patients enrolled in a Medicare + Choice (M+C) 

plan [now Medicare Advantage (MA) plan under Medicare Part C ] should be counted in 

the Medicare fraction or the Medicaid fraction of the disproportionate patient percentage 

(DPP) calculation, we proposed that once a beneficiary enrolls in an M+C plan, those 

patient days attributable to the beneficiary would not be included in the Medicare fraction 

of the DPP. Instead, those patient days would be included in the numerator of the 

Medicaid fraction, if the patient also were eligible for Medicaid. In the FY 2004 IPPS 

final rule (68 FR 45422), we did not respond to public comments on this proposal, due to 

the volume and nature of the public comments we received, and we indicated that we 

would address those comments later in a separate document. In the FY 2005 IPPS 

proposed rule (69 FR 28286), we stated that we planned to address the FY 2004 

comments regarding M+C days in the IPPS final rule for FY 2005. In the FY 2005 IPPS 

final rule (69 FR 49099), we determined that, under § 412.106(b)(2)(i) of the regulations, 

MA patient days should be counted in the Medicare fraction of the DPP calculation. We 

explained that, even where Medicare beneficiaries elect Medicare Part C coverage, they 

are still entitled to benefits under Medicare Part A. Therefore, we noted that if a 
 400 

Medicare M+C beneficiary is also an SSI recipient, the patient days for that beneficiary 

will be included in the numerator of the Medicare fraction (as well as in the denominator) 

and not in the numerator of the Medicaid fraction. We note that, despite our explicit 

statement in the final rule that the regulations also would be revised, due to a clerical 

error, the corresponding regulation at § 412.106(b)(2)(i) was not amended to explicitly 

reflect this policy until 2007 (72 FR 47384). 

 On November 15, 2012, in a ruling in the case of Allina Health Services, et al., v. 

Sebelius (Allina), the Federal District Court for the District of Columbia (the court) held 

that the final policy of putting MA patient days in the Medicare fraction adopted in the 

FY 2005 IPPS final rule was not a logical outgrowth of the FY 2004 IPPS proposed rule. 

The court held that interested parties had not been put on notice that the Secretary might 

adopt a final policy of counting the days in the Medicare fraction and were not provided 

an adequate further opportunity for public comment. 

 We continue to believe that individuals enrolled in MA plans are “entitled to 

benefits under part A” as the phrase is used in the DSH provisions at section 

1886(d)(5)(F)(vi)(I) of the Act. Section 226(a) of the Act provides that an individual is 

automatically “entitled” to Medicare Part A when the person reaches age 65 or becomes 

disabled, provided that the individual is entitled to Social Security benefits under section 

202 of the Act. Beneficiaries who are enrolled in MA plans provided under Medicare 

Part C continue to meet all of the statutory criteria for entitlement to Medicare Part A 

benefits under section 226 of the Act. First, in order to enroll in Medicare Part C, a 

beneficiary must be “entitled to benefits under Part A and enrolled under Part B” (section 
 401 

1852(a)(1)(B)(i) of the Act). There is nothing in the Act that suggests that beneficiaries 

who enroll in a Medicare Part C plan forfeit their entitlement to Medicare Part A benefits. 

Second, once a beneficiary enrolls in Medicare Part C, the MA plan must provide the 

beneficiary with the benefits to which he or she is entitled under Medicare Part A, even 

though it may also provide for additional supplemental benefits (section 1852(a)(1)(A) of 

the Act). Third, under certain circumstances, Medicare Part A pays for care furnished to 

patients enrolled in Medicare Part C plans. For example, if, during the course of the year, 

the scope of benefits provided under Medicare Part A expands beyond a certain cost 

threshold due to Congressional action or a national coverage determination, Medicare 

Part A will pay the provider for the cost of those services directly (section 1852(a)(5) of 

the Act). Similarly, Medicare Part A also pays for federally qualified health center 

services and hospice care furnished to MA patients (section 1853(a)(4) and (h)(2) of the 

Act, respectively). Thus, we continue to believe that a patient enrolled in an MA plan 

remains entitled to benefits under Medicare Part A, and should be counted in the 

Medicare fraction of the DPP, and not the Medicaid fraction. 

 We also believe that our policy of counting patients enrolled in MA plans in the 

Medicare fraction was a logical outgrowth of the FY 2004 IPPS proposed rule, and, 

accordingly, have filed an appeal in the Allina case. However, in an abundance of 

caution and for the reasons discussed above, in this proposed rule, we are proposing to 

readopt the policy of counting the days of patients enrolled in MA plans in the Medicare 

fraction of the DPP. We are seeking public comments from interested parties that may 

support or oppose the proposal to include the MA patient days in the Medicare fraction of 
 402 

the DPP calculation for FY 2014 and subsequent years. We will evaluate these public 

comments and consider whether a further change in policy is warranted, and will include 

our final determination in the FY 2014 IPPS final rule. We are not proposing any change 

to the regulation text at this time, because the current text reflects the policy being 

proposed. 

3. New Payment Adjustment Methodology for Medicare Disproportionate Share 

Hospitals (DSHs) under Section 3133 of the Affordable Care Act (§ 412.106) 

a. General Discussion and Legislative Change 

 Section 3133 of the Patient Protection and Affordable Care Act (PPACA), as 

amended by section 10316 of PPACA and section 1104 of the Health Care and Education 

Reconciliation Act (Pub. L. 111-152), added a new section 1886(r) to the Act that 

modifies the methodology for computing the Medicare DSH payment adjustment 

beginning in FY 2014. For purposes of this proposed rule, we will refer to these 

provisions collectively as Section 3133 of the Affordable Care Act. 

 Currently, Medicare DSH adjustment payments are calculated under a statutory 

formula that considers the hospital’s Medicare utilization attributable to beneficiaries 

who also receive Supplemental Security Income (SSI) benefits and the hospital’s 

Medicaid utilization. Beginning for discharges in FY 2014, hospitals that qualify for 

Medicare DSH payments under section 1886(d)(5)(F) will receive 25 percent of the 

amount they previously would have received under the current statutory formula for 

Medicare DSH payments. This provision applies equally to hospitals that qualify for 

DSH payments under section 1886(d)(5)(F)(i)(II) of the Act, the so-called Pickle 
 403 

hospitals. Pursuant to new section 1886(r), Pickle hospitals would receive 25 percent of 

the 35 percent add-on adjustment for which they would otherwise qualify under section 

1886(d)(5)(F)(i)(II). The remaining amount, equal to an estimate of 75 percent of what 

otherwise would have been paid as Medicare DSH payments, reduced to reflect changes 

in the percentage of individuals under age 65 who are uninsured, will become available to 

make additional payments to each hospital that qualifies for Medicare DSH payments and 

that has uncompensated care. The payments to each hospital for a fiscal year will be 

based on the hospital’s amount of uncompensated care for a given time period relative to 

the total amount of uncompensated care for that same time period reported by all 

hospitals that receive Medicare DSH payments for that fiscal year. 

 Specifically, as provided by section 3133 of the Affordable Care Act, section 

1886(r) of the Act requires that, for “fiscal year 2014 and each subsequent fiscal year,” a 

“subsection (d) hospital” that would otherwise receive a “disproportionate share hospital 

payment... made under subsection (d)(5)(F)” will receive two separately calculated 

payments. Specifically, section 1886(r)(1) of the Act provides that the Secretary shall 

pay to such a subsection (d) hospital (including a Pickle hospital) 25 percent of the 

amount the hospital would have received under section 1886(d)(5)(F) of the Act for 

disproportionate share payments, which represents “the empirically justified amount for 

such payment, as determined by the Medicare Payment Advisory Commission in its 

March 2007 Report to the Congress.” We refer to this payment as the “empirically 

justified Medicare DSH payment.” 
 404 

 In addition to this payment, section 1886(r)(2) of the Act provides that, for fiscal 

year 2014 and each subsequent fiscal year, the Secretary shall pay to “such subsection (d) 

hospital an additional amount equal to the product of” three factors. The first factor is the 

difference between “the aggregate amount of payments that would be made to subsection 

(d) hospitals under subsection (d)(5)(F) if this subsection did not apply” and “the 

aggregate amount of payments that are made to subsection (d) hospitals under paragraph 

(1)” for each fiscal year. Therefore, this factor amounts to 75 percent of the payments 

that would otherwise be made under section 1886(d)(5)(F) of the Act. 

 The second factor is, for FYs 2014 through 2017, 1 minus the percent change in 

the percent of individuals under the age of 65 who are uninsured, determined by 

comparing the percent of such individuals who are uninsured in 2013, the last year before 

coverage expansion under the Affordable Care Act (as calculated by the Secretary based 

on the most recent estimates available from the Director of the Congressional Budget 

Office before a vote in either House on the Health Care and Education Reconciliation Act 

of 2010 that, if determined in the affirmative, would clear such Act for enrollment), 

minus 0.1 percentage point for FY 2014, and minus 0.2 percentage point for FYs 2015 

through 2017. For FYs 2014 through 2017, the baseline for the estimate of the change in 

uninsurance is fixed by the most recent estimate of the Congressional Budget Office 

before the final vote on the Health Care and Education Reconciliation Act of 2010, which 

is contained in a March 20, 2010 letter from the then Director of the Congressional 

Budget Office to the Speaker of the House. A link to this letter is included in section 

V.E.3.d.2. of the preamble of this proposed rule. 
 405 

 For FY 2018 and subsequent years, the second factor is 1 minus the percent 

change in the percent of individuals who are uninsured, as determined by comparing the 

percent of individuals “who are uninsured in 2013 (as estimated by the Secretary, based 

on data from the Census Bureau or other sources the Secretary determines appropriate, 

and certified by the Chief Actuary” of CMS, and “who are uninsured in the most recent 

period for which data is available (as so estimated and certified) minus 0.2 percentage 

points for FYs 2018 and 2019.” Thus, for FY 2018 and subsequent years, the statute 

provides some greater flexibility in the choice of the data sources to be used in the 

estimate of the change in the percent of the uninsured. 

 The third factor is a percent that, for each subsection (d) hospital, “represents the 

quotient of... the amount of uncompensated care for such hospital for a period selected 

by the Secretary (as estimated by the Secretary, based on appropriate data...),” including 

the use of alternative data “where the Secretary determines that alternative data is 

available which is a better proxy for the costs of subsection (d) hospitals for... treating 

the uninsured,” and “the aggregate amount of uncompensated care for all subsection (d) 

hospitals that receive a payment under this subsection.” Therefore, this third factor 

represents a hospital’s uncompensated care amount for a given time period relative to the 

uncompensated care amount for that same time period for all hospitals that receive 

Medicare DSH payments in that fiscal year, expressed as a percent. For each hospital, 

the product of these three factors represents its additional payment for uncompensated 

care for the applicable fiscal year. We refer to the additional payment determined by 

these factors as the “uncompensated care payment.” 
 406 

 Section 1886(r) of the Act states that this provision is effective for “fiscal year 

2014 and each subsequent fiscal year.” In this proposed rule, we set forth our proposals 

for implementing the required changes to the DSH payment methodology. We note that, 

because section 1886 (r) modifies the payment required under section 1886(d)(5)(F) of 

the Act, it affects only the DSH payment under the operating IPPS. It does not revise or 

replace the capital IPPS DSH payment provided under the regulations at 42 CFR Part 

412, Subpart M, which were established through the exercise of the Secretary’s discretion 

in implementing the capital IPPS under section 1886(g)(1)(A) of the Act. 

 Finally, section 1886(r)(3) of the Act provides that there shall be “no 

administrative or judicial review under section 1869, section 1878, or otherwise” of “any 

estimate of the Secretary for purposes of determining the factors described in paragraph 

(2),” or of “any period selected by the Secretary” for the purpose of determining those 

factors. Therefore, there can be no administrative or judicial review of the estimates 

developed for purposes of applying the three factors used to determine uncompensated 

care payments, or the periods selected in order to develop such estimates. 

b. Eligibility 

 As indicated above, the new payment methodology applies to “subsection (d) 

hospitals” that would otherwise receive a “disproportionate share payment... made under 

subsection (d)(5)(F).” Therefore, eligibility for empirically justified Medicare DSH 

payments is unchanged under this new provision. Consistent with the law, hospitals must 

receive empirically justified Medicare DSH payments in FY 2014 or a subsequent year to 

receive an additional Medicare uncompensated care payment for that year. Specifically, 
 407 

section 1886(r)(2) of the Act states that, “[i]n addition to the payment made to a 

subsection (d) hospital under paragraph (1),...the Secretary shall pay to such subsection 

(d) hospital an additional amount...” (Emphasis supplied.) Because paragraph (1) refers 

to empirically justified Medicare DSH payments, the additional payment under section 

1886(r)(2) is, therefore, limited to hospitals that receive empirically justified Medicare 

DSH payments pursuant to section 1886(r)(1) of the Act for FY 2014 and subsequent 

years. 

 In this proposed rule, we are proposing that hospitals that are not eligible to 

receive empirically justified Medicare DSH payments in FY 2014 and subsequent years 

would not receive uncompensated care payments for those respective years. We also are 

proposing to make a determination concerning eligibility for interim uncompensated care 

payments based on each hospital’s estimated DSH status for FY 2014 or the applicable 

year (using the most recent data that are available). Our final determination on the 

hospital’s eligibility for uncompensated care payments would be based on the hospital’s 

actual DSH status on the cost report for that payment year. (We discuss these proposals 

in more detail below.) 

 In the course of developing these proposed policies for implementing the 

provision of section 1886(r) of the Act, we considered whether several specific classes of 

hospitals are included within the scope of the statutory provision. In particular, we 

considered whether the provision applies to (1) hospitals in the Commonwealth of Puerto 

Rico, (2) hospitals in the State of Maryland paid under a waiver as provided in section 

1814(b) of the Act, (3) sole community hospitals (SCHs), (4) hospitals participating in 
 408 

the Bundled Payments for Care Improvement Initiative developed by the Center for 

Medicare and Medicaid Innovation (Innovation Center), and (5) hospitals participating in 

the Rural Community Hospital demonstration. We discuss each of these specific classes 

of hospitals below. 

(1) Puerto Rico Hospitals 

 Under section 1886(d)(9)(A) of the Act, Puerto Rico hospitals subject to the IPPS 

are not “subsection (d) hospitals,” but rather constitute a distinct class of “subsection (d) 

Puerto Rico hospitals.” However, section 1886(d)(9)(D)(iii) of the Act specifies that 

subparagraph (d)(5)(F) (the provision governing the current DSH payment methodology) 

“shall apply to subsection (d) Puerto Rico hospitals... in the same manner and to the 

extent as [it applies] to subsection (d) hospitals.” While the new section 1886(r) of the 

Act does not specifically address whether the methodology established there applies to 

“subsection (d) Puerto Rico hospitals,” section 3133 of the Affordable Care Act does 

make a revision to section 1886(d)(5)(F)(i) of the Act that is crucial for determining the 

eligibility of Puerto Rico hospitals for empirically justified Medicare DSH payments and 

uncompensated care payments under the new provision. Specifically, section 3133 of the 

Affordable Care Act amended section 1886(d)(5)(F)(i) of the Act to provide that this 

section is “[s]ubject to subsection (r).” One effect of this amendment is to provide that 

all hospitals subject to section 1886(d)(5)(F)(i) of the Act, including “subsection (d) 

Puerto Rico hospitals,” also are subject to the new payment methodology established in 

section 1886(r) of the Act. 
 409 

 In this proposed rule, we are proposing that subsection (d) Puerto Rico hospitals 

that are eligible for DSH payments also would be eligible to receive empirically justified 

Medicare DSH payments and uncompensated care payments under the new payment 

methodology. 

 We are inviting public comments on this proposal. 

(2) Hospitals Paid under a Waiver under Section 1814(b) of the Act 

 Under section 1814(b) of the Act, hospitals in the State of Maryland are subject to 

a waiver from the Medicare payment methodologies under which they would otherwise 

be paid. We have taken the position in other contexts, for example, for purposes of EHR 

incentive payments (75 FR 44448), that Maryland acute care hospitals remain subsection 

(d) hospitals. This is because these hospitals are “located in one of the fifty States or the 

District of Columbia” (as provided in the definition of subsection (d) hospitals) and do 

not meet the definitions of the hospitals that are specifically excluded from that category, 

such as cancer hospitals and psychiatric hospitals. However, section 1886(r) of the Act 

applies to hospitals that are both subsection (d) hospitals and hospitals that would 

otherwise receive a disproportionate share payment made under the previous DSH 

payment methodology. Because Maryland waiver hospitals are paid under section 

1814(b)(3) of the Act and not under section 1886(d)(5)(F) of the Act, they are not eligible 

to receive empirically justified Medicare DSH payments and uncompensated care 

payments under the new payment methodology of section 1886(r) of the Act. 
 410 

(3) Sole Community Hospitals (SCHs) 

 SCHs are paid based on their hospital-specific rate from certain specified base 

years or the IPPS Federal rate, whichever yields the greatest aggregate payment for the 

hospital’s cost reporting period. Payments based on the Federal rate are based on the 

IPPS standardized amount and include all applicable IPPS add-on payments, such as 

outliers, DSH, and IME, while payments based on the hospital-specific rate have no 

add-on payments. For each cost reporting period, the fiscal intermediary/MAC 

determines which of the payment options will yield the highest aggregate payment. 

Interim payments are automatically made on a claim-by-claim basis at the highest rate 

using the best data available at the time the fiscal intermediary/MAC makes the payment 

determination for each discharge. However, it may not be possible for the fiscal 

intermediary/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 

outlier payments or the final amount of the DSH payment adjustment or the IME 

adjustment until cost report settlement. As noted above, these adjustment amounts are 

applicable only to payments based on the Federal rate and not to payments based on the 

hospital-specific rate. The fiscal intermediary/MAC makes a final adjustment at cost 

report settlement after it determines precisely which of the payment rates would yield the 

highest aggregate payment to the hospital for its cost reporting period. This payment 

methodology makes SCHs unique as they can change on a yearly basis from receiving 

hospital-specific rate payments to receiving Federal rate payments, or vice versa. 
 411 

 In order to implement the provisions of section 1886(r) of the Act, we are 

proposing to continue to determine interim payments for SCHs based on what we 

estimate and project their DSH status to be prior to the beginning of the Federal fiscal 

year (based on the best available data at that time), subject to settlement through the cost 

report. We also are proposing that SCHs that receive interim empirically justified DSH 

payments in a fiscal year would receive interim uncompensated care payments that fiscal 

year, subject as well to settlement through the cost report. Final eligibility determinations 

would be made at the end of the cost reporting period at settlement, and both interim 

empirically justified Medicare DSH payments and uncompensated care payments would 

be adjusted accordingly. We are thus proposing to follow the same processes of interim 

and final payments for SCHs that we are proposing to follow for eligible IPPS DSH 

hospitals generally. (We discuss these processes in more detail below.) 

 As previously noted, under the SCH payment methodology, SCHs are paid the 

higher of the Federal rate or a hospital-specific payment rate. This payment methodology 

is defined under sections 1886(d)(5)(D)(i) and 1886(d)(1)(A)(iii) of the Act. Section 

1886(d)(3) specifically provides that SCH payments are to be made on a per-discharge 

basis. Accordingly, as we also note below, we are proposing that the uncompensated 

care payments would not be accounted for in determining whether an SCH is paid the 

higher of the Federal rate or the hospital-specific rate. This is because the 

uncompensated care payments are not discharge-driven payments, but rather are 

payments made on the basis of a hospital’s overall share of uncompensated care during a 

payment year. The amount of a hospital’s uncompensated care payments for a year is not 
 412 

directly affected by the number of the hospital’s discharges for the year. Therefore, we 

do not believe that uncompensated care payments should be taken into account in a 

comparison based on discharge driven hospital-specific and Federal rate payments. 

Furthermore, as we propose later in this rule, we intend to make interim uncompensated 

care payments on a periodic basis rather than a per discharge basis in order to create more 

predictability for hospitals and to increase administrative efficiency. To the extent the 

payments are intended to reflect the relative amount of uncompensated care furnished by 

the hospital, it is both reasonable and appropriate to view this payment as an amount for 

the year, which in the interests of predictability and consistency is made periodically 

through interim payments. 

 We are inviting public comments on all of these proposals affecting SCHs. 

(4) Hospitals Participating in the Bundled Payments for Care Improvement Initiative 

 IPPS hospitals that have elected to participate in the Bundled Payments for Care 

Improvement initiative receive a payment that links multiple services furnished to a 

patient during an episode of care. We have stated in previous rulemaking that those 

hospitals continue to be paid under the IPPS (77 FR 53342). Hospitals that elect to 

participate in the initiative can still receive DSH payments while participating in the 

initiative, if they otherwise meet the requirements for receiving such payments. 

 In this proposed rule, we are proposing to apply the new DSH payment 

methodology to the hospitals in this initiative, so that eligible hospitals would receive 

empirically justified DSH payments and uncompensated care payments. 

 We are inviting public comments on this proposal. 
 413 

(5) Hospitals Participating in the Rural Community Hospital Demonstration 

 Section 410A of the Medicare Modernization Act established the Rural 

Community Hospital Demonstration Program. After the initial 5-year period, the 

demonstration was extended for an additional 5-year period by sections 3123 and 10313 

of the Affordable Care Act. There are 23 hospitals currently participating in the 

demonstration. Under the payment methodology provided in section 410A, participating 

hospitals receive payment for Medicare inpatient services on the basis of a cost 

methodology. Specifically, for discharges occurring in the hospitals’ first cost reporting 

period of the initial 5-year demonstration or the first cost reporting period of the 5-year 

extension, they receive payments for the reasonable cost of providing such services. For 

discharges occurring in subsequent cost reporting periods during the applicable 5-year 

demonstration period, hospitals receive the lesser of the current year’s reasonable cost 

amount, or the previous year’s amount updated by the percentage increase in the IPPS 

market basket (the target amount). (We refer readers to section V.K. of the preamble of 

this proposed rule for further information on the demonstration.) The instructions (CR 

5020 (April 14, 2006) and CR 7505 (July 22, 2011)) for the demonstration require that 

the fiscal intermediary/MAC not pay Medicare DSH payments in addition to the amount 

received under the cost-based payment methodology. Although the amounts that would 

otherwise be paid for Medicare DSH payments (absent the demonstration) are calculated 

and identified on the hospital cost report for statistical and research purposes, as in the 

case of Maryland waiver hospitals, hospitals in this demonstration do not receive a 

separate or identifiable DSH payment. 
 414 

 Because hospitals participating in the Rural Community Hospital Demonstration 

do not receive DSH payments, these hospitals are also excluded from receiving 

empirically justified Medicare DSH payments and uncompensated care payments under 

the new payment methodology. 

c. Empirically Justified Medicare DSH Payments 

 As we have discussed above, the statute requires CMS to pay 25 percent of the 

“amount of disproportionate share hospital payment that would otherwise be made under 

subsection (d)(5)(F) to a subsection (d) hospital.” Currently, we have a system for 

interim payment and final settlement of DSH payments made under section 

1886(d)(5)(F). Specifically, interim payments are made for each claim based on the best 

available data concerning each hospital’s eligibility for DSH payments and the 

appropriate level of such payments. Final eligibility for Medicare DSH payments and the 

final amount of such payments for eligible hospitals are determined at the time of cost 

report settlement. Because section 1886(r)(1) of the Act merely requires the program to 

pay a designated percentage of these payments, without revising the criteria governing 

eligibility for DSH payments or the underlying payment methodology, we do not believe 

that it is necessary to develop and propose any new operational mechanisms for making 

such payments. 

 Therefore, we are proposing to implement this provision simply by revising the 

claims payment methodologies to adjust the interim claim payments to the requisite 25 

percent of what would have otherwise been paid. We will also make corresponding 

changes to the hospital cost report so that these empirically justified Medicare DSH 
 415 

payments can be settled at the appropriate level at the time of cost report settlement. We 

will provide more detailed operational instructions and cost report instructions following 

issuance of the final rule. 

 We are proposing to implement this provision by adding a new paragraph (f) 

under the regulations at 42 CFR 412.106. This proposed new paragraph provides for 

reducing Medicare DSH payments by 75 percent beginning in FY 2014. 

 We are inviting public comments on this proposal. 

d. Uncompensated Care Payments 

 As we have discussed above, section 1886(r)(2) of the Act provides that, for each 

eligible hospital in FY 2014 and subsequent years, the new uncompensated care payment 

is the product of three factors. These three factors represent our estimate of 75 percent of 

the amount of Medicare DSH payments that would otherwise have been paid, an 

adjustment to this amount for the percent change in the national rate of uninsurance 

compared to a base of 2013, and each eligible hospital’s estimated uncompensated care 

amount relative to the estimated uncompensated care amount for all eligible hospitals. 

Below we discuss the proposed data sources and methodologies for computing each of 

these factors. 

 Before we begin to discuss these data sources and methodologies, it is necessary 

to discuss the timing and manner for determining the eligibility of hospitals for 

uncompensated care payments. The statute provides that subsection (d) hospitals that 

receive a payment under section 1886(d)(5)(F) of the Act are eligible to receive a 

payment under section 1886(r)(2) of the Act. Specifically, section 1886(r)(2) of the Act 
 416 

states that, “[i]n addition to the payment made to a subsection (d) hospital under 

paragraph (1)...the Secretary shall pay to such subsection (d) hospitals an additional 

amount....” Therefore, because paragraph (1) refers to empirically justified Medicare 

DSH payments, the additional payment for FY 2014 and subsequent years is limited to 

hospitals that receive empirically justified Medicare DSH payments for the respective 

year. However, as we have discussed above, we currently have a system for interim 

payment and final settlement of DSH payments. Specifically, interim payments are made 

for each claim based on the best available data concerning each hospital’s eligibility for 

DSH payments and the appropriate level of such payments. Final determination of 

eligibility for Medicare DSH payments and the final amount of such payments for 

eligible hospitals are determined at the time of cost report settlement. 

 As we describe above, because section 1886(r)(1) of the Act does not revise the 

criteria governing eligibility for DSH payments or the underlying payment methodology, 

we do not believe that it is necessary to develop and propose any new operational 

mechanisms for making such payments and would thus continue using the existing 

system of interim eligibility and payment determination with final cost report settlement 

for the empirically justified Medicare DSH payments. We are proposing to adopt a 

similar system of interim eligibility and payment determination with final cost report 

settlement for purposes of uncompensated care payments. We discuss the specific 

operational details of this system in section V.E.3.f. of this preamble. 

 We are inviting public comments on these proposals. 
 417 

(1) Proposed Methodology to Calculate Factor 1 

 Section 1886(r)(2)(A) of the Act establishes Factor 1 in the calculation of the 

uncompensated care payment. Section 1886(r)(2)(A) of the Act states that it is a factor 

“equal to the difference between (i) the aggregate amount of payments that would be 

made to subsection (d) hospitals under subsection (d)(5)(F) if this subsection did not 

apply for such fiscal year (as estimated by the Secretary); and (ii) the aggregate amount 

of payments that are made to subsection (d) hospitals under paragraph (1) for such a 

fiscal year (as so estimated).” Therefore, section 1886(r)(2)(A)(i) of the Act represents 

the estimated Medicare DSH payment that would have been made if the reduction to the 

Medicare DSH payment by 75 percent under section 1886(r)(1) of the Act did not apply 

for such fiscal year. In other words, section 1886(r)(2)(A)(i) of the Act represents an 

estimate of the full Medicare DSH payment amount under section 1886(d)(5)(F) prior to 

the 75-percent reduction, for FY 2014 and subsequent years. This subparagraph specifies 

that, for each fiscal year to which the provision applies, such amount is to be “estimated 

by the Secretary.” Under a prospective payment system, we would not know the precise 

aggregate Medicare DSH payment amount that would be paid for a Federal fiscal year 

until cost report settlement for all IPPS hospitals is completed, which occurs several years 

after the end of the Federal fiscal year. Therefore, the statute gives CMS authority to 

estimate this amount, by specifying that, for each fiscal year to which the provision 

applies, such amount is to be “estimated by the Secretary.” Similarly, 

section 1886(r)(2)(A)(ii) of the Act represents the estimated empirically justified 

Medicare DSH payments to be made in FY 2014 and subsequent years, taking into 
 418 

account the application of the 75 percent reduction to the DSH payment amounts 

prescribed under section 1886(r)(1) of the Act. Again, section 1886(r)(2)(A)(ii) of the 

Act gives CMS authority to estimate this amount. 

 Therefore, Factor 1 is the difference between our estimates of: (1) the amount 

that would have been paid in Medicare DSH payments for FY 2014 and subsequent 

years, in the absence of the new payment provision; and (2) the amount of empirically 

justified Medicare DSH payments that are made for FY 2014 and subsequent years, 

which takes into account the requirement to reduce Medicare DSH payments by 75 

percent. In other words, this factor represents our estimate of 75 percent (100 percent 

minus 25 percent) of our estimate of Medicare DSH payments that would otherwise be 

made, in the absence of section 1886(r) of the Act, for FY 2014 and subsequent years. 

 In order to determine Factor 1 in the uncompensated care payment formula, we 

are proposing to develop final estimates of both the aggregate amount of Medicare DSH 

payments that would be made in the absence of section 1886(r)(1) and the aggregate 

amount of empirically justified Medicare DSH payments to hospitals under section 

1886(r)(1) prior to each fiscal year to which the new provision applies. We believe this 

will create some level of predictability and finality for hospitals eligible for these 

payments, in addition to being administratively efficient. Specifically, in order to 

determine the two elements of Factor 1 (Medicare DSH payments prior to the application 

of the 75 percent reduction, and empirically justified Medicare DSH payments after 

application of the 75 percent reduction), we are proposing to use the most recently 

available projections of Medicare DSH payments for FY 2014 and each subsequent year, 
 419 

as calculated by CMS’ Office of the Actuary. The Office of the Actuary projects 

Medicare DSH payments on a biannual basis, typically in February of each year (based 

on data from December of the previous year) as part of the President’s Budget, and in 

July (based on data from June) as part of the Midsession Review. The estimates are 

based on the most recently filed Medicare hospital cost report with Medicare DSH 

payment information and the most recent Medicare DSH patient percentages and 

Medicare DSH payment adjustments provided in the IPPS Impact File. 

 Therefore, for the Office of the Actuary’s February 2013 estimate, the data are 

based on the December 2012 update of the Medicare Hospital Cost Report Information 

System (HCRIS) and the FY 2013 IPPS/LTCH PPS final rule IPPS Impact file, published 

in conjunction with the publication of the FY 2013 IPPS/LTCH PPS final rule. For the 

July 2013 estimate, we anticipate that the data will be based on the March 2013 update of 

the Medicare Hospital Cost Report data and this proposed rule’s IPPS Impact file, 

published in conjunction with this proposed rule. For purposes of this proposed rule, we 

are using the February 2013 Medicare DSH estimates to calculate Factor 1 and to model 

the proposed impact of this provision. If our proposal to use the Office of the Actuary’s 

projections for Factor 1 is finalized, we would use the July 2013 Medicare DSH estimates 

to determine Factor 1 for the FY 2014 IPPS/LTCH PPS final rule. 

 In addition, because we are proposing to exclude sole community hospitals paid 

under their hospital specific payment rate from the application of section 1886(r) of the 

Act, we are also proposing to exclude these hospitals from our Medicare DSH estimate.

Similarly, because Maryland hospitals and hospitals participating in the Rural 
 420 

Community Hospital Demonstration do not receive DSH payments, we also exclude 

these hospitals from our Medicare DSH estimate. 

 Using the data sources discussed above, the Office of the Actuary uses the most 

recently submitted Medicare cost report data to identify current Medicare DSH payments 

and the most recent DSH payment adjustments provided in the IPPS Impact File, and 

applies inflation updates and assumptions for future changes in utilization and case mix 

to estimate Medicare DSH payments for the upcoming fiscal year. The February 2013 

Office of the Actuary estimate for Medicare DSH payments for FY 2014, without regard 

to the application of section 1886(r)(1) of the Act, is 12.338 billion. This estimate 

excludes Maryland hospitals, sole community hospitals paid under their hospital specific 

payment rate and hospitals participating in the Rural Community Hospital Demonstration 

as discussed above. Therefore, based on this estimate, the estimate for empirically 

justified Medicare DSH payments for FY 2014, with the application of section 1886(r)(1) 

of the Act, is $3.084 billion (25 percent of the total amount estimated). Under our 

proposal, Factor 1 is the difference of these two estimates of the Office of the Actuary. 

Therefore, for the purpose of modeling Factor 1, we calculate Factor 1 to be $9.2535 

billion. 

 We also are proposing to develop and use the estimates necessary for Factor 1 on 

a purely prospective basis. We are proposing to use the Actuary’s most recent February 

Medicare DSH estimates each year to calculate Factor 1 and to model the impact of this 

provision for the IPPS/LTCH PPS proposed rule. Similarly, we are proposing to use the 

Actuary’s most recent July Medicare DSH estimates to determine Factor 1 for the 
 421 

IPPS/LTCH PPS final rule each year. In other words, we would not revise or update our 

estimates after we know the final Medicare DSH payments for FY 2014 and subsequent 

years. As we discussed earlier, we do not know the aggregate Medicare DSH payment 

amount that would be paid for each federal fiscal year until the time of cost report 

settlements, which occur several years after the end of the fiscal year. Because the statute 

provides that CMS use estimates in order to determine Factor 1 each year, we believe that 

applying our best estimates prospectively would be most conducive to administrative 

efficiency, finality, and predictability in payments. 

 We are inviting public comments on all the elements of this proposed 

methodology to calculate Factor 1. 

 We are proposing to add a new paragraph (g)(1)(i) under § 412.106 of our 

regulations to define the methodology for calculating Factor 1. 

(2) Proposed Methodology to Calculate Factor 2 

 Section 1886(r)(2)(B) of the Act establishes Factor 2 in the calculation of the 

uncompensated care payment. Specifically, section 1886(r)(2)(B)(i) of the Act provides: 

“For each of fiscal years 2014, 2015, 2016, and 2017, a factor equal to 1 minus the 

percent change in the percent of individuals under the age of 65 who are uninsured, as 

determined by comparing the percent of such individuals (I) who are uninsured in 2013, 

the last year before coverage expansion under the Patient Protection and Affordable Care 

Act (as calculated by the Secretary based on the most recent estimates available from the 

Director of the Congressional Budget Office before a vote in either House on the Health 

Care and Education Reconciliation Act of 2010 that, if determined in the affirmative, 
 422 

would clear such Act for enrollment); and (II) who are uninsured in the most recent 

period for which data is available (as so calculated), minus 0.1 percentage points for 

fiscal year 2014 and minus 0.2 percentage points for each of fiscal years 2015, 2016, and 

2017.” 

 Section 1886(r)(2)(B) of the Act establishes, as Factor 2 in the uncompensated 

care payment formula, the percent change in uninsurance, based on a comparison of the 

percent of individuals under 65 without insurance in 2013 to the percent of such 

individuals without insurance in the most recent period for which we have data, minus 

0.1 percentage points for FY 2014 and 0.2 percentage points for each of FYs 2015, 2016, 

and 2017. 

 Section 1886(r)(2)(B)(i)(I) of the Act further indicates that the percent of 

individuals under 65 without insurance in 2013 must be the percent of such individuals 

“who are uninsured in 2013, the last year before coverage expansion under the Patient 

Protection and Affordable Care Act (as calculated by the Secretary based on the most 

recent estimates available from the Director of the Congressional Budget Office before a 

vote in either House on the Health Care and Education Reconciliation Act of 2010 that, if 

determined in the affirmative, would clear such Act for enrollment).” The Health Care 

and Education Reconciliation Act (Pub. L. 111-152) was enacted on March 30, 2010. It 

was passed in the House of Representatives on March 21, 2010 and by the Senate on 

March 25, 2010. Because the House of Representatives was the first House to vote on the 

Health Care and Education Reconciliation Act of 2010 on March 21, 2010, we have 

determined that the most recent estimate available from the Director of the Congressional 
 423 

Budget Office “before a vote in either House on the Health Care and Education 

Reconciliation Act of 2010...” appeared in a March 20, 2010 letter from the director of 

the CBO to the Speaker of the House. (Emphasis supplied.) Therefore, we believe that 

only the estimates in this March 20, 2010 letter meet the statutory requirement under 

section 1886(r)(2)(B)(i)(I). (To view the March 20, 2010 letter, we refer readers to the 

Web site at: 

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop

.pdf. 

 In its March 20, 2010 CBO letter to the Speaker of the House, the CBO provides 

two estimates of the “post-policy uninsured population.” The first estimate is of the 

“Insured Share of the Nonelderly Population Including All Residents” (which is 82 

percent) and the second estimate is of the “Insured Share of the Nonelderly Population 

Excluding Unauthorized Immigrants” (83 percent). We are proposing to use the first 

estimate that includes all residents, including unauthorized immigrants. We believe this 

estimate is most consistent with the statute which requires us to measure “the percent of 

individuals under the age of 65 who are uninsured,” and provides no exclusions except 

for individuals over the age 65. In addition, we believe that this estimate would more 

fully reflect the levels of uninsurance in the United States that influence uncompensated 

care for hospitals. Therefore, using this estimate would seem more consistent with the 

statutory requirement of establishing a payment for uncompensated care. For these 

reasons, we are proposing to use the estimate of the “Insured Share of the Nonelderly 
 424 

Population Including All Residents” for 2013 to calculate the baseline percentage of 

individuals under age 65 without insurance. 

 We are inviting public comments on this proposal. 

 The March 20, 2010 CBO letter reports these figures as the estimated percentage 

of individuals with insurance. However, because section 1886(r)(2)(B)(i) of the Act 

requires that we compare the percent of individuals “who are uninsured in 2013,” we are 

proposing to use the CBO insurance rate figure and subtract that amount from 100 

percent (i.e., the total population, without regard to insurance status) to estimate the 2013 

baseline percentage of individuals without insurance. In its March 20, 2010 letter, the 

CBO reported its estimate of the “Insured Share of the Nonelderly Population Including 

All Residents” as 82 percent. Therefore, we are proposing that, for FYs 2014-2017, our 

estimate of the uninsurance percentage for 2013 would be 18 percent. As provided for in 

the CBO March 20, 2010 letter, the CBO estimate for insurance for the nonelderly (under 

age of 65) population only includes residents of the 50 States and the District of 

Columbia, and the count of uninsured people includes unauthorized immigrants, as well 

as people who are eligible for, but not enrolled in, Medicaid. We note that, although we 

are proposing that acute care hospitals located in Puerto Rico that receive DSH payments 

will be eligible to receive payments under section 1886(r) of the Act, this estimate for 

insurance does not account for residents in Puerto Rico. We believe that the impact of 

the exclusion of Puerto Rico from the insurance estimate is negligible. 

 We are inviting public comments on this proposal. 
 425 

 Section 1886(r)(2)(B)(i) of the Act requires that we compare the baseline 

uninsurance rate to the percent of such individuals “who are uninsured in the most recent 

period for which data is available (as so calculated).” We are proposing to use the same 

data source, CBO estimates, to calculate this percent of individuals without insurance. 

Section 1886(r)(2)(B)(i)(I) of the Act refers to the percent of uninsured in 2013 “as 

calculated by the Secretary based on” the CBO data. Similarly, section 

1886(r)(2)(B)(i)(II) of the Act immediately afterwards refers to the percent of uninsured 

for 2014 “as so calculated.” (Emphasis supplied.) The phrase “as so calculated” in the 

latter section can be reasonably interpreted to require the calculation to similarly be based 

on CBO estimates. In addition, we believe that it is preferable from a statistical point of 

view to calculate a percent change in insurance over time using a consistent data source. 

Furthermore, rather than using the estimates included in the March 20, 2010 CBO letter, 

we believe it is appropriate to use more recent CBO estimates of the percent of 

individuals with insurance. The more recent CBO projections take into account changes 

in the environment that can impact insurance rates, such as more recent economic 

conditions and the Supreme Court’s decision in National Federation of Independent 

Business. v. Sebelius, ___ U.S. ___, 132 S. Ct. 2566 (2012), regarding Medicaid 

expansions authorized by the Affordable Care Act. Because the statute requires that we 

use “the most recent period for which data is available” to calculate the comparison 

percentage of individuals without insurance, we are proposing to use the most recent 

update (that is, the most recent update available at the time of rulemaking with respect to 
 426 

a particular fiscal year) to the percent of individuals with insurance provided by the CBO 

to calculate this comparison figure. 

 In addition, for FY 2014, we are proposing to use CBO’s most recent estimate for 

the percent of individuals with insurance in 2014 for purposes of section 

1886(r)(2)(B)(i)(II) because this is the year in which this provision is effective. This 

figure is used for Factor 2 and later applied to Factor 1, which is also based on an 

estimate for FY 2014. On February 5, 2013, the CBO released its annual Budget and 

Economic Outlook. The report included updated economic and budget projections that 

incorporated the effects of the legislation enacted prior to the start of the year, a revised 

economic forecast consistent with the budget projections, and other changes to CBO’s 

estimates. (To view the report, we refer readers to the Web site at: 

http://www.cbo.gov/sites/default/files/cbofiles/attachments/43900_ACAInsuranceCovera

geEffects.pdf.)

 In this proposed rule, we are using the February 5, 2013, CBO health insurance 

estimates in order to calculate the percentage of individuals without insurance for 2014. 

As we did for the uninsurance percentage estimate for 2013 (based on the March 20, 

2010 CBO letter discussed above), we are proposing to use the “Insured Share of the 

Nonelderly Population Including All Residents” to calculate the comparison of 

percentage of people without insurance for 2014. Consistent with the CBO estimate used 

to calculate the baseline uninsurance estimate, this estimate for insurance only includes 

residents of the 50 States and the District of Columbia, and the count of uninsured people 

includes unauthorized immigrants, as well as people who are eligible for, but not enrolled 
 427 

in, Medicaid. The CBO report projects that the “Insured Share of the Nonelderly 

Population Including All Residents” for 2014 will be 84 percent. Therefore, in the same 

manner that we calculated the uninsurance percentage for the baseline, we are proposing 

that the uninsurance percentage for 2014 would be 16 percent (i.e., 100 percent minus 84 

percent) for the purpose of this proposed rule. If our proposal is finalized, and there is a 

more recent estimate of the percentage of individuals with insurance in 2014 by the CBO 

available for the FY 2014 IPPS/LTCH PPS final rule, we would use that estimate to 

calculate Factor 2. However, we would not adjust Factor 2 retroactively to account for 

estimates that become available after publication of the final rule. 

 Section 1886(r)(2)(B)(i) of the Act states that Factor 2 for FY 2014 is equal to 1 

minus the percent change in the percent of individuals under the age of 65 who are 

uninsured, as determined by comparing the percent of such individuals without insurance 

in the baseline and in the most recent period for which we have data (minus 

0.1 percentage points for FY 2014). Therefore, we are proposing that Factor 2 is 1 minus 

the percent change of the baseline percentage of individuals without insurance in 2013 

(which is, for this proposed rule, 18 percent) and the most recent percentage of 

individuals without insurance for 2014 (which is, for this proposed rule, 16 percent) 

minus 0.1 percentage points. 

 Using the March 20, 2010 CBO projection for 2013 and the February 5, 2013 

CBO projection of uninsurance for all residents for 2014, we are proposing to use the 

following computation for Factor 2 for FY 2014: 

 Percent of individuals without insurance for 2013: 18 percent 
 428 

 Percent of individuals without insurance for 2014: 16 percent 

 1 – |[(0.16 - 0.18)/0.18]| = 1 - 0.111 = 0.889 (88.9 percent) 

 0.889 (88.9 percent) - 0.001 (0.1 percentage points) = 0.888 (88.8 percent) 

 0.888 = Factor 2 

 Accordingly, we are proposing Factor 2 to be 88.8 percent for FY 2014. In 

conjunction with this proposal, we are therefore proposing that the amount available for 

uncompensated care payments for FY 2014 will be $8.217 billion (0.888 times our 

proposed Factor 1 estimate of $9.2535 billion). As we noted previously, our proposal for 

Factor 2 may be subject to change if more recent CBO estimates of the insurance rate for 

2014 become available prior to the preparation of the final rule. 

 We are inviting public comment on our proposed methodology to calculate 

Factor 2. 

 In this proposed rule, we are proposing to add a new paragraph (g)(1)(ii) under 

§412.106 of our regulations to define the methodology for calculating Factor 2. 

(3) Proposed Methodology to Calculate Factor 3 

 Section 1886(r)(2)(C) of the Act defines Factor 3 in the calculation of the 

uncompensated care payment. As we have discussed above, section 1886(r)(2)(C) of the 

Act states that Factor 3 is “equal to the percent, for each subsection (d) hospital, that 

represents the quotient of (i) the amount of uncompensated care for such hospital for a 

period selected by the Secretary (as estimated by the Secretary, based on appropriate data 

(including, in the case where the Secretary determines alternative data is available which 

is a better proxy for the costs of subsection (d) hospitals for treating the uninsured, the 
 429 

use of such alternative data)); and (ii) the aggregate amount of uncompensated care for all 

subsection (d) hospitals that receive a payment under this subsection for such period (as 

so estimated, based on such data).” 

 Therefore, Factor 3 is a hospital-specific value that expresses the proportion of the 

estimated uncompensated care amount for each subsection (d) hospital and subsection (d) 

Puerto Rico hospital with the potential to receive DSH payments relative to the estimated 

uncompensated care amount for all hospitals estimated to receive DSH payments in the 

fiscal year for which the uncompensated care payment is to be made. Factor 3 is applied 

to the product of Factor 1 and Factor 2 to determine the amount of the uncompensated 

care payment that each eligible hospital will receive for FY 2014 and subsequent years. 

In order to implement the statutory requirements for this factor of the uncompensated 

care payment formula, we must determine the following: (1) the definition of 

uncompensated care, or in other words, the specific items that are to be included in the 

numerator (that is, the estimated uncompensated care amount for an individual hospital) 

and denominator (that is, the estimated uncompensated care amount for all hospitals 

estimated to receive DSH payments in the applicable FY); (2) the data source(s) for the 

estimated uncompensated care amount; and (3) the timing and manner of computing the 

quotient for each hospital estimated to receive DSH payments. The statute instructs the 

Secretary to estimate the amounts of uncompensated care for a period “based on 

appropriate data.” In addition, we note that the statute permits the Secretary to use 

alternative data “in the case where the Secretary determines that alternative data is 
 430 

available, which is a better proxy for the costs of subsection (d) hospitals for treating the 

uninsured 

 In the course of considering how to determine Factor 3, we considered proposing 

to define the amount uncompensated care for a hospital as the uncompensated care costs 

of that hospital and considered potential data sources for those costs. In doing so, we first 

considered which costs should be included in the definition of “uncompensated care 

costs.” We examined the broad literature on uncompensated care and the concepts of 

uncompensated care used in various public and private programs. We also considered 

input from stakeholders and public comments in various forums, including the national 

provider call that we held in January 2013. Our review of the information from these 

sources indicated that there is some variation in how different States, provider 

organizations, and Federal programs define “uncompensated care.” However, a common 

theme of almost all these definitions is that they include both “charity care” and “bad 

debt” as constituents of “uncompensated care.” After considering the various factors that 

are included in different definitions of “uncompensated care,” we considered proposing 

to adopt a definition which incorporated those factors that are most commonly included 

within the term. Thus we considered proposing to define “uncompensated care” as the 

cost of charity care plus bad debt which includes the cost of non-Medicare bad debt and 

non-reimbursed Medicare bad debt. In turn, we also considered proposing to define 

“charity care costs” as the cost of care for patients that meet hospitals’ individual criteria 

for charity care net of any partial payment received by the hospital from patients for that 

care, and to define “non-Medicare bad debt costs” as the cost of hospital care for non-
 431 

Medicare patients that have the financial capacity to pay, but are unwilling to settle the 

claim. In addition, we considered proposing to define “non-reimbursed Medicare bad 

debt costs” as the amount of allowable coinsurance and deductible for Medicare patients 

from whom the hospital has sought to collect payment through reasonable collection 

efforts as described in § 413.89(e) of the Medicare regulations and not reimbursed by 

Medicare. 

 Charity care is most commonly defined as hospital care provided to individuals 

that meet certain financial eligibility criteria, for which the hospital does not expect to 

receive payment because of the individual’s inability to pay. Definitions of charity care 

also regularly state that a patient must meet several guidelines for their care to qualify as 

charity care. These guidelines usually state that the patient must be uninsured, 

unqualified for a Federal program such as Medicaid, and/or fall under a certain Federal 

poverty line (FPL) standard. Some charity care is directed at insured individuals when 

insurance does not cover all the costs of their hospital care or when there are annual or 

lifetime limits. This definition also varies by hospital. Some hospitals may also seek 

payment from individuals who qualify for charity care as part of their financial assistance 

policies or to help offset the cost of that patient’s hospital care. To the extent that 

hospitals receive payment from a patient that qualifies for charity care for hospital care 

provided, we believe that those payments should be subtracted from the costs of that care. 

In this way, the cost of charity care reflects the financial burden on the hospital, or, stated 

another way, the cost of charity care reflects only the uncompensated portion of the 

charity care. 
 432 

 The literature suggests that bad debt has been consistently defined as 

unreimbursed care for persons for which the hospital did not receive payment. The 

regulations at 42 CFR 413.89(b)(1) define Medicare bad debt as “amounts considered to 

be uncollectible from accounts and notes receivable that were created or acquired in 

providing services.” The regulations also specify that: “‘accounts receivable’ and ‘notes 

receivable’ are designations for claims arising from the furnishing of services, and are 

collectible in money in the relatively near future.” Section 413.89(e) further specifies 

that under Medicare “bad debt must meet the following criteria to be allowable: (1) The 

debt must be related to covered services and derived from deductible and coinsurance 

amounts. (2) The provider must be able to establish that reasonable collection efforts 

were made. (3) The debt was actually uncollectible when claimed as worthless. (4) Sound 

business judgment established that there was no likelihood of recovery at any time in the 

future. We considered proposing to use the cost of non-Medicare and non-reimbursed 

Medicare bad debt (as reported on line 29 of the Worksheet S-10) as part of the proposed 

definition of “uncompensated care.” 

 Some definitions of uncompensated care, including that used for calculating the 

Medicaid DSH hospital payment limit at 42 CFR 447.299(c)(16), also include the 

difference between the costs incurred by a hospital for services to Medicaid individuals 

and applicable revenues for these services. While we recognize in some cases, a hospital 

may receive revenues that do not fully cover those costs, we note that this is true for any 

patient population treated by a hospital regardless of insurance status. Hospitals 
 433 

negotiate contractual allowances with commercial payers, and it is possible that payment 

for some of these patients would be less than the costs of their care. 

 We emphasize, however, that we plan to monitor the potential effects of different 

definitions of uncompensated care on various measures designed to expand health 

insurance coverage under the Affordable Care Act, including Medicaid expansion. 

 Specifically, we wish to avoid creating a policy that would serve as a disincentive 

for States wishing to expand Medicaid. Using some of the data discussed in this 

proposed rule, we recognize it would be possible for hospitals in States that choose to 

expand Medicaid to receive lower uncompensated care payments because they are less 

likely to have uninsured patients than hospitals in a State that does not choose to expand 

Medicaid. In practice, because the available data sources (such as the Medicare cost 

report) for a given federal fiscal year are not available until some time after the end of 

that federal fiscal year, we believe that data to understand these effects will not be 

available until 2016 or later. However, we also note that hospitals in expansion States 

would receive full Medicaid reimbursement for many previously uninsured patients. So 

on balance, we believe both hospitals and States stand to benefit greatly from Medicaid 

expansion, regardless of the data used to determine Factor 3. However, if warranted, we 

may in the future reconsider how to define uncompensated care, such as to include 

differences between applicable Medicaid costs and revenues, or consider other definitions 

that would account for differences in State Medicaid coverage. 

 For purposes of selecting an appropriate data source for this possible definition of 

uncompensated care costs, we reviewed the literature and available data sources and 
 434 

determined that the Medicare cost report Worksheet S-10 could potentially provide the 

most complete data for Medicare hospitals. (We refer readers to the report 

“Improvements to Medicare Disproportionate Share (DSH) Payments” for a full 

discussion and evaluation of the available data sources. The report can be found on the 

CMS Website at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html.) However, Worksheet S-10 is a relatively new 

data source that has been used for specific payment purposes only in relatively restricted 

ways (e.g., to provide a source of charity care charges in the computation of EHR 

incentive payments; 75 FR 44456.). Some stakeholders have expressed concern that 

hospitals have not had enough time to learn how to submit accurate and consistent data 

through this reporting mechanism. Other stakeholders have maintained that some 

instructions for Worksheet S-10 still require clarification in order to ensure standardized 

and consistent reporting by hospitals. We understand and appreciate the concerns of 

these stakeholders. At the same time, Worksheet S-10 is the only national data source 

that includes data for all Medicare hospitals and is designed to elicit data that are both 

accurate and consistent with the definition of uncompensated care costs that we 

considered proposing to use. 

 Charity care information is reported on Worksheet S-10, lines 20 through 23. On 

line 20, Column 3, hospitals report “Total initial obligation of patients approved for 

charity care (at full charges excluding non-reimbursable cost centers) for the entire 

facility” for both the insured and uninsured population. On Worksheet S-10, line 21, the 

charity care charges reported on line 20 are converted to charity care costs by multiplying 
 435 

the charity care charges by the cost-to-charge ratio (CCR) reported on line 1 of 

Worksheet S-10. Partial payment by patients for charity care is reported on line 22 of 

Worksheet S-10. Charity care costs are reported on line 23 of Worksheet S-10 as the 

difference between line 21 and 22. We could use “Cost of Charity Care,” line 23, 

Column 3 of Worksheet S-10 to identify a hospital’s charity care costs, as part of a 

definition of “uncompensated care.” 

 Bad debt information is reported on Worksheet S-10, lines 26 through 29. On 

Worksheet S-10, line 26 and line 27, a hospital reports its total bad debt expense and its 

Medicare reimbursed bad debt expense, respectively. On Worksheet S-10, line 28 

represents the non-Medicare bad debt expense and non-reimbursed Medicare bad debt 

expense, the difference between lines 27 and 26. The cost of non-Medicare bad debt and 

non-reimbursed Medicare is reported on line 29 of the Worksheet S-10 as the product of 

the CCR and the non-Medicare and non-reimbursed Medicare bad debt expense reported 

on line 28. We could use the cost of non-Medicare bad debt and non-reimbursed 

Medicare that is reported on line 29 of the Worksheet S-10 to identify a hospital’s bad 

debt costs, as part of a definition of “uncompensated care.” 

 To summarize, we could use the sum of line 23, Column 3 of Worksheet S-10 and 

line 29 of Worksheet S-10 to estimate a hospital’s uncompensated care cost. A hospital’s 

individual uncompensated care cost based on this estimate would represent that hospital’s 

numerator for Factor 3. The sum of the estimated uncompensated care costs for all the 

hospitals that we estimate would receive DSH payments (and thus the uncompensated 

care payment) for the fiscal year would represent the denominator of Factor 3. 
 436 

 In order to apply a definition of uncompensated care costs based upon information 

reported on the Worksheet S-10, it would be necessary to use the 2010/2011 cost reports, 

which were submitted on or after May 1, 2010, when the new Worksheet S-10 went into 

effect. These are the most recently available full year of cost reports and the first cost 

reports with detailed uncompensated care data on the Worksheet S-10 that would be 

available for use in implementing the new methodology for uncompensated care 

payments for FY 2014. Concerns about the standardization and completeness of the 

Worksheet S-10 data could be more acute for data collected in the first year of the 

Worksheet’s use. Because of these concerns, we are not proposing to define of 

uncompensated care in a way that would require use of the Worksheet S-10 data. 

 We believe, however, that Worksheet S-10 of the Medicare Cost Report would 

otherwise be an appropriate data source to determine uncompensated care costs. In 

particular, we note that Worksheet S-10 was developed specifically to collect information 

on uncompensated care costs in response to interest by MedPAC and other stakeholders 

regarding the topic (for example, MedPAC’s March 2007 Report to Congress) and that it 

is not unreasonable to expect information on the cost report to be used for payment 

purposes. Furthermore, hospitals attest to the accuracy and completeness of the 

information reported in the cost report at the time of submission. While we realize that 

hospitals may wish to have a more specific understanding of how this data will be used, 

we believe that the discussion in this proposed rule will help to increase their 

understanding and also inform our efforts to refine the cost report and cost report 

instructions so that hospitals may continue to gain experience in reporting accurate 
 437 

information. We also expect reporting on Worksheet S-10 to improve over time, 

particularly in the area of charity care which is already being used and audited for 

payment determinations related to the electronic health record incentive program, and 

will continue to monitor these data. Accordingly, we may proceed with a proposal to use 

data on the Worksheet S-10 to determine uncompensated care costs in the future, once 

hospitals are submitting accurate and consistent data through this reporting mechanism. 

 As we describe above, we are concerned about stakeholder input that the 

variations in the data reported on Worksheet S-10 of the Medicare cost report regarding 

uncompensated care may be due to hospitals’ relative lack of experience reporting all of 

the data elements on that worksheet. A large number of stakeholders noted that there is 

considerable variation and numerous inconsistencies in how uncompensated care is 

calculated and reported in Worksheet S-10 and they point out that these inconsistencies 

can produce divergent results. Some went as far as noting that data from Worksheet S-10 

is “flawed” and many suggested more precision in reporting instructions to help hospitals 

report data in a more consistent manner. We note that most of the data elements reported 

on Worksheet S-10 have been previously unused for payment purposes, with only some 

data elements recently being used for determining a hospital’s electronic health record 

incentive payments, and these data elements have not been subject to audit prior to this 

time. We believe it is important that data used to determine Factor 3 are data that have 

been historically publicly available, subject to audit, and used for payment purposes (or 

that the public understands will be used for payment purposes). It is our belief that 

hospitals expend more resources to ensure data accuracy when data are publicly available 
 438 

and used for payments. For example, the National Quality Forum (NQF) first endorsed 

quality measures for readmissions for heart failure (HF) in May 2008 and acute 

myocardial infarction (AMI) and pneumonia (PN) in October 2008. HF was 

subsequently adopted in the Hospital Inpatient Quality Reporting Program in the 

FY 2009 IPPS rule and AMI and PN in the CY2009 OPPS rule. All three were adopted 

for the FY 2010 HIQR program and publicly reported in Hospital Compare in 2009. 

More recently, starting in FY 2013, all three were used to determine a payment 

adjustment under 1886(q). As the measures became linked with payment, CMS has 

received an increasing number of questions regarding and requests to refine these 

measures, leading us to believe that hospitals are increasingly focused on ensuring that 

their data are correct. Furthermore, it is also our belief that auditing plays an important 

role in ensuring data accuracy by identifying and remediating problem areas and/or 

hospitals as well as by having a sentinel effect in others. For example, each year, CMS 

and its intermediaries work with hospitals to review salary and wage data reported on 

Worksheet S-3 of the Medicare cost report for use in determining the wage index. This 

extensive process identifies errors and ensures that anomalous data are reviewed, 

corrected as needed, and documented. Due to stakeholder concerns and our belief in the 

importance of using data that have been historically publicly available, subject to audit, 

and used for payment purposes(or that the public understands will be used for payment 

purposes), for FY 2014, we have serious concerns about proposing using Worksheet S-10 

to determine the amount of uncompensated care. 
 439 

 While the statute instructs the Secretary to estimate the amounts of 

uncompensated care for a period “based on appropriate data,” section 1886(r)(2)(C)(i) 

permits the Secretary to use alternative data “in the case where the Secretary determines 

that alternative data is available which is a better proxy for the costs of subsection (d) 

hospitals for treating the uninsured” for the numerator of Factor 3. For the denominator 

of that quotient, section 1886(r)(2)(C)(ii) requires the Secretary to use “the aggregate 

amount of uncompensated care for all subsection (d) hospitals that receive a payment 

under this subsection for such period (as so estimated, based on such data). (Emphasis 

added.) The phrase “as so estimated, based on such data” in the latter section can be 

reasonably interpreted to require the calculation to similarly be based on the same data as 

is used to estimate the numerator of the quotient in Factor 3, including any alternative 

data which is determined to be a better proxy for the costs of treating the uninsured. 

As a result of our concerns regarding variations in the data reported on the Worksheet S10, we believe that it is appropriate to consider the use of alternative data, at least in FY 

2014, the first year that this provision is effective, and possibly additional years until 

hospitals have adequate experience reporting all of the data elements on Worksheet S-10. 

We note that this is consistent with input we received from some stakeholders in response 

to the CMS National Provider Call in January 2013, who stated their belief that existing 

FY 2010 and FY 2011 data from the Worksheet S-10 cannot be used for implementation 

of 1886(r) and who requested the opportunity to re-submit the data once more specific 

instructions were issued by CMS. Accordingly, we examined alternative data sources 

that could be used to allow time for hospitals to gain experience with and to improve the 
 440 

accuracy of their S-10 reporting. For the reasons described above, we believe it would be 

appropriate to use data elements that have been historically publicly available, subject to 

audit, and used for payment purposes (or that the public understands will be used for 

payment purposes) as alternative data for the first year or years of implementation. 

 In order to implement the statutory requirements for Factor 3 using alternative 

data, we must: (1) determine whether alternative data would be a better proxy for the 

treatment costs of the uninsured than the information available on the Worksheet S-10; 

(2) identify a source for this alternative data; and (3) determine the timing and manner of 

computing the quotient for each hospital. 

 We believe that data on utilization for insured low-income patients can be a 

reasonable proxy for the treatment costs of uninsured patients. Moreover, due to the 

concerns regarding the accuracy and consistency of the data reported on the Worksheet 

S-10, we believe that this alternative data, which is currently reported on the Medicare 

cost report, would be a better proxy for the amount of uncompensated care provided by 

hospitals. Accordingly, we propose to use the utilization of insured low-income patients 

defined as inpatient days of Medicaid patients plus inpatient days of Medicare SSI 

patients as defined in 42 CFR 412.106(b)(4) and 412.106(b)(2)(i), respectively to 

determine Factor 3. We describe our proposal and rationale more fully below and seek 

public comment. 

 As a preliminary matter, we note that precise data on health care costs are difficult 

to obtain. We note that for Medicare payment purposes, we estimate those costs using 

reported charges and cost-to-charge ratios. This approach to estimating costs is what is 
 441 

used on Worksheet S-10 to determine costs for charity care and bad debt. Even though 

we do not believe it is appropriate to look beyond the Medicare cost report for alternative 

data because all hospitals are required to report data on that cost report, we think that it is 

important to point out that data on uninsured patients is difficult to find in a 

comprehensive manner on a hospital-specific basis. In a September 2002 report, 

Analysis of the Joint Distribution of Disproportionate Share Hospital Payments, RAND 

and Urban Institute researchers describe this difficulty, citing as an example how detailed 

inpatient utilization data on self-pay patients were available only for the sample of 

hospitals (20 percent sample) from the 24 states included in AHRQ’s HCUP database.25. 

 While Worksheet S-10 does contain some information regarding the treatment 

costs of the uninsured, most notably of those uninsured patients who qualify for charity 

care at an individual hospital, for the reasons described above, we are concerned about 

the use of information reported on the Worksheet S-10 as appropriate data for FY 2014 

and possibly additional years. As a result of these concerns, in identifying alternative 

data that could serve as a proxy for the treatment costs of the uninsured, we must 

consider methods other than costs to approximate the resources expended by hospitals to 

treat uninsured patients. One such method is utilization. A hospital’s costs for treating 

uninsured patients are a function of its input costs and utilization of services. In 

accordance with the statute, in order to determine Factor 3, a hospital-level estimate of 

uncompensated care is required. Such an estimate can be constructed using detailed data 

regarding specific items or services. However, such data are not available to us. In 

 

25 Wynn, B. et al. Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. PM1387-ASPE. September 20, 2002 

http://www.urban.org/UploadedPDF/410975_ASPEDSH_final.pdf
 442 

contrast, hospital level data measuring utilization as inpatient days or discharges are 

available. While we note that inpatient days or discharges would be more precise if they 

took into account the relative resource utilization of individual patients, such as case mix, 

no such data are available to us. In the September 2002 report discussed above, RAND 

and Urban Institute researchers asserted that without specific case mix data for low 

income populations, inpatient days are preferable to discharges as a way to measure 

utilization. Therefore, we believe that utilization based upon inpatient days is an 

appropriate method to approximate costs for the treatment costs of the uninsured. 

 We further believe that utilization by insured low-income patients, such as 

Medicaid patients or Medicare patients that receive SSI benefits (Medicare SSI), can be a 

reasonable proxy for utilization by uninsured patients. In its 2000 report on American’s 

Health Care Safety Net, the Institute of Medicine considers uninsured individuals, lowincome underinsured individuals, Medicaid beneficiaries, and patients with special health 

care needs all as vulnerable populations.26 We note that when studying access to care, 

researchers may study Medicaid and/or low-income populations (e.g., health outcomes, 

utilization, etc.) in order to understand more broadly the impact of similar policy 

interventions for other vulnerable populations.27 For example, recently, researchers have 

studied the effects of Medicaid expansions to gauge the effects of these expansions on 

health status and other indicators to inform policymakers as these expansion efforts 

 

26 Marion Ein Lewin and Stuart Altman, Editors; 

Committee on the Changing Market, Managed Care, 

and the Future Viability of Safety Net Providers, Institute of Medicine. America's Health Care Safety Net: 

Intact but Endangered. 2000. 

http://www.nap.edu/catalog/9612.html

27 John K. Iglehart. Medicaid. N Engl J Med 1993; 328:896-900. March 25, 1993. 
 443 

continue.28 Researchers have also studied the ability of Medicaid patients to gain access 

to outpatient care in an effort to highlight the ramifications of various policy 

interventions, such as mandatory co-payments and utilization restrictions.29 We believe 

that this type research is often used by state and other policy makers to evaluate how 

Medicaid and other public health insurance can expand access to care to uninsured 

populations. 

 While the report by RAND and the Urban Institute cited above found 

shortcomings in how well both Medicaid and Medicare DSH target funds towards safety 

net hospitals, another key finding of the report was that the allocation methods used by 

these programs target funds to safety net hospitals at least as well as the alternative 

allocation methods they examined. The allocation method used by Medicare for 

Medicare DSH is the sum of two computations. The first computation, defined at 42 

CFR 412.106(b)(2), known as the SSI ratio or Medicare fraction, is the proportion of a 

hospital’s Medicare SSI days relative to Medicare days. The second computation, 

defined at 42 CFR 412.106(b)(4), known as the Medicaid fraction, is the proportion of a 

hospital’s Medicaid days relative to total days. The by RAND and the Urban Institute 

study also found that the choice of patient populations used to evaluate how well 

Medicare and Medicaid DSH funds are allocated is important. The study notes that 

including Medicare SSI beneficiaries along with all other low-income patients generally 

performed better, resulting in a better targeting of these payments towards safety net 

 

28 Benjamin D. Sommers, M.D., Ph.D., Katherine Baicker, Ph.D., and Arnold M. Epstein, M.D. Mortality 

and Access to Care among Adults after State Medicaid Expansions. N Engl J Med 2012; 367:1025-1034. 

September 13, 2012. 

29 The Medicaid Access Study Group. Access of Medicaid Recipients to Outpatient Care. N Engl J Med 

1994; 330:1426-1430. May 19, 1994. 
 444 

hospitals. Therefore, we believe the utilization of insured low income patients defined as 

insured low-income days, or inpatient days of Medicaid patients plus inpatient days of 

Medicare-SSI patients could be a proxy for the treatment costs of uninsured patients. 

Currently, for the Medicare DSH adjustment, hospitals report utilization for Medicaid 

and Medicare SSI patients in accordance with the regulations at 42 CFR 412.106(b)(4) 

and 412.106(b)(2)(i), respectively. Specifically, we would define inpatient days for 

Medicaid patients as they are defined in 42 CFR 412.106(b)(4) and inpatient days for 

Medicare-SSI patients as they are defined at § 412.106(b)(2)(i). A hospital’s individual 

insured low-income insured days based on this calculation would represent that hospital’s 

numerator for Factor 3. The sum of the low-income insured days under this calculation 

for all the hospitals that we estimate would receive DSH payments (and thus the 

uncompensated care payment) for FY 2014 would represent the denominator of Factor 3. 

 It is important to point out that when these insured low-income utilization data are 

used to determine Medicare DSH payments, they are subject to additional computations 

as described in 42 CFR 412.106(b) and 412.106(d). Therefore, using these data to 

determine Factor 3 will lead to a different set of results than using these data to determine 

hospitals’ Medicare DSH payments. 

 We believe that the data in the Medicare cost report (and data that are used to 

update the SSI ratios in the cost report) are acceptable for use as a source for this 

alternative data because they include data for all Medicare hospitals. For the reasons 

described above, we considered data elements from the Medicare cost report that have 

been historically publicly available, subject to audit, and used for payment purposes, as 
 445 

alternative data for the costs of subsection (d) hospitals for treating the uninsured. 

Worksheet S-3, Part I of the CMS-2552-96 version of the Medicare cost report and 

Worksheet S-2, Part I of the CMS 2552-10 version of the Medicare cost report contain 

information on the utilization of Medicaid patients. Specifically, it contains information 

regarding Medicaid days (i.e., the numerator of the Medicaid fraction). The SSI ratios 

can be found in Worksheet E, Part A and hospitals’ SSI ratios are reported by CMS on 

the Medicare DSH website, by Federal fiscal year, and include a hospital’s Medicare SSI 

days. We point out that CMS calculates the SSI ratios using the MedPAR claims data 

and updates them annually in accordance with the process and timing set forth in the FY 

2011 IPPS rule (75 FR 50282), generally issuing them in the Spring of each year for the 

federal fiscal year two years prior. For instance, we would expect that the SSI ratios for 

FY 2011 would be made available in the Spring of 2013. SSI ratios can be downloaded 

from http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html. The SSI ratios for a Federal fiscal year are the 

data that would ultimately be used in Worksheet E, Part A to determine a hospital’s 

Medicare DSH adjustment for that fiscal year. While a hospital may choose to have its 

DSH payments settled using an SSI ratio based on the hospital’s cost reporting period, 

this choice will vary by hospital and the timing of this choice will vary. As a result, a 

hospital’s decision whether to have its SSI ratio calculated on the basis of its cost 

reporting period may not be available at the time we determine Factor 3 for a specific 

federal fiscal year. Therefore, in an effort to balance consistency and administrative 
 446 

efficiency with precision, we believe it is appropriate to use the SSI ratios based on the 

federal fiscal year. 

 Except for the data on Worksheet S-10, the Medicare cost report does not 

currently include information that would allow calculation of the treatment costs of 

uninsured patients. For the reasons described previously, for FY 2014 and possibly 

additional years, we have concerns with using these data. Accordingly, we propose to 

use Worksheet S-3 Part I of the CMS-2552-96 version of the Medicare cost report and 

Worksheet S-2, Part I of the CMS 2552-10 version of the Medicare cost report and data 

that are used to update the SSI ratios on that Worksheet E, Part A as the source of the 

alternative data to determine Factor 3 for FY 2014. We may propose to use data from 

Worksheet S-10 to determine uncompensated care costs in the future, once hospitals are 

submitting accurate and consistent data through this reporting mechanism. 

 The statute also allows the Secretary the discretion to determine the time periods 

from which we will derive the data to estimate the numerator and the denominator of the 

Factor 3 quotient. Specifically, the statute defines the numerator of the quotient as “the 

amount of uncompensated care for such hospital for a period selected by the Secretary...” 

The statute defines the denominator as “the aggregate amount of uncompensated care for 

all subsection (d) hospitals that receive a payment under this subsection for such period.” 

(Emphasis added.) As we have discussed above, we are proposing a process of making 

interim payments with final cost report settlement for both the empirically justified 

Medicare DSH payments and the uncompensated care payments required by section 3133 

of the Affordable Care Act. Consistent with that proposed process, we also are proposing 
 447 

to determine the time period from which to estimate the numerator and denominator of 

the Factor 3 quotient in a way that will be consistent with making interim and final 

payments. Specifically, we must have Factor 3 values available for hospitals that we 

estimate will qualify for Medicare DSH payments using most recently available historical 

data and for those hospitals that we do not estimate will qualify for Medicare DSH 

payments but that may ultimately qualify for Medicare DSH payments at the time of cost 

report settlement. 

 We are proposing to estimate the numerator and the denominator of Factor 3 for 

hospitals based on the most recently available full year of Medicare cost report data 

(including the most recently available data that may be used to update the SSI ratios) with 

respect to a Federal fiscal year. In other words, we are proposing to use data from the 

most recently available cost report for the Medicaid days and the most recently available 

SSI ratios (that is, latest available SSI ratios before the beginning of the Federal fiscal 

year) for the Medicare-SSI days. We note that these data are publicly available, subject 

to audit, and used for payment purposes. While we recognize that older data also meet 

these criteria, we often use the most recently available data for payment determinations. 

Therefore, for FY 2014, we are proposing to use data from the 2010/2011 cost reports for 

the Medicaid days and the FY 2011 SSI ratios for the Medicare-SSI days (or, if the FY 

2011 SSIs are unavailable, the FY 2010 SSI ratios) to estimate Factor 3 for FY 2014. 

 To summarize, for FY 2014, in response to stakeholder concerns regarding data 

variability and lack of reporting experience with Worksheet S-10, we propose to 

determine Factor 3 using insured low-income patient days from the 2010/2011 cost 
 448 

reports (including the FY2011 or FY 2010 SSI ratios, whichever represents the most 

recently available inputs prior to October 1, 2013) as alternative data which are a better 

proxy for the treatment costs of uninsured patients. We further propose to define insured 

low-income patient days as inpatient days of Medicaid patients plus inpatient days of 

Medicare SSI patients as defined in 42 CFR 412.106(b)(4) and 412.106(b)(2)(i), 

respectively. 

 We are proposing to add a new paragraph (g)(1)(iii) under § 412.106 of our 

regulations to define the methodology for calculating Factor 3. 

 We are inviting public comments on this proposal. Notwithstanding our concerns 

regarding Worksheet S-10, we are interested to hear commenters’ views on the quality of 

the data reported on the Worksheet S-10, and whether it would be sufficient for use in 

determining uncompensated care amounts for fiscal year 2014, either by itself or in 

combination with other data. We also seek comment on how fast we could transition to 

the use of Worksheet S-10 data based upon increased reliability over time, including 

whether the data could be used to determine uncompensated care in FY 2014 either alone 

or in combination with other data. 

 In addition, we are proposing to estimate which hospitals would receive an 

empirically justified DSH payment in a given Federal fiscal year using the most recent 

data available. As we described previously, only hospitals that receive Medicare DSH 

payments in a fiscal year may receive an uncompensated care payment. However, 

because whether or not a hospital will actually receive Medicare DSH payment is not 

known until cost report settlement and cost report settlement occurs several years after 
 449 

end of the federal fiscal year, we believe it is necessary to estimate which hospitals will 

receive Medicare DSH for a given fiscal year. Because the uncompensated care amounts 

for these hospitals are used to determine the denominator of Factor 3, this allows for the 

calculation of Factor 3 in advance of or during the federal fiscal year so that interim 

payments can begin during the fiscal year. We believe that this will create some level of 

predictability and finality for hospitals eligible for these payments, in addition to being 

administratively efficient. 

 Thus for FY 2014, the denominator for Factor 3 would reflect the estimated 

Medicaid and Medicare SSI patient days based on data from the 2010/2011 Medicare 

cost report (including the most recently available data that may be used to update the SSI 

ratios) for all hospitals that we estimate would receive an empirically justified DSH 

payment in FY 2014. The numerator of Factor 3 would be the estimated Medicaid and 

Medicare SSI patient days for the individual hospital based on its most recent 2010/2011 

Medicare cost report data (including the most recently available data that may be used to 

update the SSI ratios). We propose to calculate a numerator for all subsection (d) 

hospitals and subsection (d) Puerto Rico hospitals that have the potential of receiving a 

DSH payment regardless of whether we estimate that the hospital would receive DSH 

payments in the respective Federal fiscal year. In that way, if a hospital becomes eligible 

to receive the empirically justified DSH payment and also an uncompensated care 

payment, we will be able to finalize its uncompensated care payment efficiently and 

without affecting the uncompensated care payments of other hospitals. 
 450 

 We believe that this proposed approach strikes an appropriate balance between 

administrative efficiency, finality, and predictability in payments. Therefore, we also are 

proposing to publish a table or tables listing Factor 3 for all hospitals that we estimate 

would receive empirically justified DSH payments in a fiscal year (that is, hospitals that 

would receive interim uncompensated care payments during the fiscal year), and for the 

remaining subsection (d) and subsection (d) Puerto Rico hospitals that have the potential 

of receiving a DSH payment in the event that they receive an empirically justified DSH 

payment for the fiscal year as determined at cost report settlement. We are also 

proposing that hospitals have 60 days from the date of display of the IPPS/LTCH PPS 

proposed rule to review these tables and notify CMS in writing of a change in a hospital’s 

subsection (d) hospital status, such as if a hospital has closed or converted to a CAH. We 

will notify hospitals concerning the specifics of this process in program instructions after 

the final rule. For FY 2014, we will allow hospitals 60 days from the date of display of 

the IPPS/LTCH PPS proposed rule to review these tables and notify CMS in writing of a 

change in a hospital’s subsection (d) hospital status, and we may allow an additional 

(perhaps shorter) such period after the publication of the final rule. For hospitals that 

were not estimated to receive an empirically justified DSH payment for a fiscal year, but 

ultimately qualify for such a payment at cost report settlement, we would make the full 

uncompensated care payment at that time. In the case of hospitals that we estimated 

would receive an empirically justified Medicare DSH payment for a fiscal year and that 

received interim empirically justified Medicare DSH payments and uncompensated care 

payments, but are found to be ineligible for DSH payments at cost report settlement, we 
 451 

would recover the overpayment. However, we are proposing only to calculate the 

denominator once, at the time of the IPPS/LTCH PPS final rule each year. We are not 

proposing to recalculate the denominator at the time when cost reports are settled and 

final eligibility determinations for uncompensated care (and empirically justified 

Medicare DSH) payments are made. We discuss our proposals for interim payments and 

reconciliation processes later in this preamble. 

 For the purpose of this proposed rule, we are posting proposed tables listing 

Factor 3 for the hospitals that we have estimated would receive Medicare DSH payments 

for FY 2014 on the CMS Website at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html. We request that hospitals review these tables. In 

order to ensure that we have sufficient time to incorporate any updated information in the 

tables for the final rule, hospitals should notify CMS in writing within 60 days from the 

date of display of this proposed rule of any change in a hospital’s subsection (d) hospital 

status. As we state above, for FY 2014, we may allow an additional (perhaps shorter) 

such period after the publication of the final rule. 

 Our estimates of eligibility to receive FY 2014 Medicare DSH payments are 

based on the December 2012 update of the Provider Specific File that lists the most 

recently available DSH patient percentage (DPP) and DSH payment adjustments for 

hospitals that qualify to receive DSH payments. We estimate that 2,349 hospitals, or 68 

percent of all applicable hospitals, would be eligible for DSH payments in FY 2014. The 

proposed Factor 3 is based on the December 2012 update of the Medicare Hospital Cost 
 452 

Report and FY 2010 SSI ratios. The data from these 2,349 hospitals is used to determine 

the denominator for Factor 3. However, we will estimate a Factor 3 numerator for each 

subsection (d) and subsection (d) Puerto Rico hospital that has the potential of receiving 

DSH payments for FY 2014 and therefore of qualifying for the uncompensated care 

payment in FY 2014. We intend to update in the final rule the list of hospitals that we 

estimate will be eligible for DSH payments for FY 2014 and our estimate of Factor 3 

using more recent data and verified hospital notifications regarding hospital status (for 

example, closures). 

e. Limitations on Review 

 Section 1886(r)(3) of the Act provides that there will be no administrative or 

judicial review under section 1869 of the Act, 1878 of the Act, or otherwise for any of the 

following: 

● Any estimate of the Secretary for purposes of determining the factors described 

in paragraph (2) of section 1886(r) of the Act. 

● Any period selected by the Secretary for such purposes. 

 We are proposing to codify this policy in new § 412.106(g)(2) of our regulations. 

 We invite public comment on this proposal. 

f. Proposed Operational Considerations 

 As discussed earlier in section V.F.3.d. of the preamble of this proposed rule, and 

in accordance with section 1886(r)(2) of the Act, only subsection (d) hospitals that 

receive empirically justified Medicare DSH payments in a given Federal fiscal year will 

also receive the uncompensated care payment (that is, Factor 1 times Factor 2 times 
 453 

Factor 3) for that given Federal fiscal year. In addition, as discussed above in this 

section, we are proposing that subsection (d) Puerto Rico hospitals that receive 

empirically justified Medicare DSH payments in a given Federal fiscal year would also 

receive the uncompensated care payment (that is, Factor 1 times Factor 2 times Factor 3) 

for that given Federal fiscal year. As we discussed above, we intend to estimate Factor 3 

for each subsection (d) and subsection (d) Puerto Rico hospital with the potential to 

receive a DSH payment prior to the beginning of the Federal fiscal year and intend to 

make that information available via our Web site. 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html. 

 Specifically, we are proposing to make interim uncompensated care payments on 

the basis of our best available estimates concerning the eligibility of each hospital for 

empirically justified Medicare DSH payments and our best available calculations 

concerning the amount of the uncompensated care payments that the hospital is eligible 

to receive. We intend to make these interim uncompensated care payments on a periodic 

basis and not on a per discharge basis. As discussed above, we believe that this approach 

is more consistent with the plain language of the statute describing the additional 

payment, which includes no information from which it would be possible to infer that the 

payment should be made on a per discharge basis. We believe that this is the most 

administratively efficient means to distribute a set dollar amount to individual hospitals 

and also creates an appropriate level of predictability for hospitals. If we were to make 

these interim uncompensated care payments on a per discharge basis, unless a hospital’s 
 454 

Medicare utilization is identical to the period used to determine the per discharge 

payment level, it is certain that Medicare would overpay or underpay. By making interim 

payments periodically, we can virtually eliminate the possibility that Medicare pays a 

higher or lower amount than intended and limit the need for reconciliation to whether a 

hospital is eligible for Medicare DSH and thus the entire uncompensated care payment at 

cost report settlement. 

 We also are proposing to make a final determination concerning eligibility for 

uncompensated care payments at the time of cost report settlement. As a result of this 

proposal, our operational system must be able to handle the various situations that may 

arise between interim and final eligibility determinations. For example, a hospital may 

receive empirically justified DSH payments and uncompensated care payments based on 

an initial determination that the hospital is eligible for such payments, but the hospital 

may then be determined to be ineligible for such payments at cost report settlement. In 

such situations, we must be prepared and able to recoup the interim empirically justified 

DSH payments and uncompensated care payments that the hospital received. 

 For each Federal fiscal year, as we proposed earlier in this section, we intend to 

estimate which hospitals will receive an empirically justified DSH payment (that is, 

eligible hospitals). We are proposing to provide periodic payments to these hospitals 

during the relevant Federal fiscal year so that they can receive their uncompensated care 

payments on an interim basis. For a fiscal year, each eligible hospital’s interim 

uncompensated care payments will be determined by multiplying the final values for 
 455 

Factor 1, Factor 2, and Factor 3 for that year and dividing the amount by the number of 

periods over which the interim payments will be made. 

 Because we are using historical data to estimate each hospital’s eligibility for 

empirically justified DSH payments in FY 2014 and subsequent years, a reconciliation 

process will be necessary to account for cases in which a hospital’s eligibility for such 

payments changes after we have published our estimates during the rulemaking process. 

For example, a hospital that had not been estimated to be eligible for these payments may 

become eligible during the course of a given payment period. In such cases, our 

estimates would have indicated that the hospital was ineligible for empirically justified 

DSH payments and therefore ineligible for uncompensated care payments. That hospital 

would not receive interim payments. However, if the data available at cost report 

settlement were to indicate that the hospital is eligible for an empirically justified DSH 

payment, the hospital would become eligible for an uncompensated care payment based 

on that hospital’s Factor 3 value. 

 Therefore, we are proposing that at cost report settlement, the fiscal 

intermediary/MAC will make a final determination concerning whether each hospital is 

eligible for empirically justified Medicare DSH payments and, therefore, uncompensated 

care payments in FY 2014 and each subsequent year. In the case where a hospital 

received interim payments for its empirically justified Medicare DSH payments and 

uncompensated care payments for FY 2014 or a subsequent year on the basis of estimates 

prior to the payment year, but is determined to be ineligible for the empirically justified 

Medicare DSH payment at cost report settlement, the hospital would no longer be eligible 
 456 

for either payment and CMS would recoup those monies. For a hospital that did not 

receive interim payments for its empirically justified DSH payments and uncompensated 

care payments for FY 2014 or a subsequent year, but at cost report settlement is 

determined to be eligible for DSH payments, the fiscal intermediary/MAC would 

calculate the uncompensated care payment for such a hospital based on the Factor 3 value 

determined prospectively for that fiscal year. 

 We are proposing to codify this policy regarding the manner and timing of 

payments in new § 412.106(h) of our regulations. 

 We invite public comment on this proposal. 

 The reconciliations at cost report settlement would be based on the values for 

Factor 1, Factor 2, and Factor 3 that we have finalized prospectively for a Federal fiscal 

year. For example, a hospital that was estimated by CMS to receive empirically justified 

DSH payments for FY 2014 and received interim uncompensated care payments would 

not receive a different uncompensated care payment amount if the fiscal 

intermediary/MAC determined that the hospital remained eligible for empirically 

justified DSH payments at cost report settlement. In other words, we are not proposing to 

include a reestimation of Factor 1, Factor 2, or Factor 3 in the reconciliation process we 

are describing. Rather, Factor 1, Factor 2, and Factor 3 are estimates determined 

prospectively using methodologies we establish through rulemaking. We recognize that, 

under this proposal, we may pay a total amount that could either be more or less than the 

product of Factor 1 and Factor 2. However, we believe this is inherent in the use of 

estimates to determine the Factors, similar to the manner in which we estimate the 
 457 

amount of total outlier payments under section 1886(d)(5)(A)(iv) although, as in this 

case, the amount of actual total outlier payments might vary from that estimate. We do 

not know of any reason to believe that there will be a bias toward systematic 

overpayment or underpayment from year to year. 

 We are proposing to codify this policy at § 412.106(g)(1)(iv) of our regulations. 

 We are inviting public comments on this proposal, especially in regard to whether 

we should include Factor 3 within the reconciliation process. Depending on the 

comments, we may revise our proposed policy in the final rule so that at the time of cost 

report settlement and reconciliation a hospital’s final uncompensated care payments 

could be based on Factor 3 numerators and denominators estimated using more recent 

cost report data (and associated inputs). In addition, we may revise our proposed 

reconciliation process, as appropriate, to account for any policy changes that we make in 

the final rule to the proposals in this proposed rule. 

 We also note that the uncompensated care payment will be reported on the 

Medicare Hospital Cost Report. We recognize that hospitals have their own cost 

reporting periods that may differ from the Federal fiscal year and that may span more 

than one Federal fiscal year. We are proposing that hospitals receive their 

uncompensated care payments with respect to the fiscal year in which their cost report 

begins. For example, if a hospital is estimated to be eligible for the empirically justified 

DSH payment and also an uncompensated care payment in FY 2014 and has a cost report 

period of January 1, 2014 through December 31, 2014, this hospital would begin to 

receive interim payments for its uncompensated care on October 1, 2013. If, at cost 
 458 

report settlement, this hospital remained eligible for an empirically justified DSH 

payment, then the hospital would receive its FY 2014 uncompensated care payment on its 

cost report for the cost reporting period beginning on January 1, 2014 (that is, the hospital 

would neither owe nor be owed monies for its uncompensated care payment). As another 

example, if that same hospital is no longer eligible for an empirically justified Medicare 

DSH payment at the time of settlement of its cost report for the cost reporting period 

beginning January 1, 2014, the hospital would be required to pay back the interim 

payments it received for its uncompensated care payments. We note that this 

methodology would not delay the full payment of FY 2014 payments to hospitals with 

cost reporting periods that begin after October 1, 2013. While it is possible to align 

interim and final payments for the uncompensated care payment with individual 

hospital’s cost reporting periods, we believe it administratively efficient and practical to 

pay the uncompensated care payment on the basis of the Federal fiscal year because that 

is how it is determined, and to reconcile that amount in the cost reporting period that 

begins in the respective Federal fiscal year. If this proposal is finalized, we will revise 

the cost report accordingly. We are inviting public comments on our proposal. 

g. National Provider Call 

 On January 8, 2013, CMS hosted a National Provider Call regarding the 

implementation of section 3133 of the Affordable Care Act. During this call, CMS asked 

Dobson DaVanzo and Associates, LLC. with its subcontractor, KNG Health Consulting, 

LLC, to present information regarding alternative definitions, measures, and data sources 

for the various estimates required by section 1886(r) of the Act, including the rate of 
 459 

uninsured individuals under the age of 65 years and hospital-specific uncompensated 

care. Approximately 1,304 participants participated in this call. The presentation 

materials from the call are available on the CMS Web site at: 

http://www.cms.gov/Outreach-and-Education/Outreach/NPC/National-Provider-Callsand-Events-Items/2013-01-08-ACA-DSH-NPC.html. Subsequent to the call, participants 

were encouraged to submit public comments to CMS for consideration through 

January 15, 2013, when we undertook rulemaking and other activities related to 

implementation of section 1886(r) of the Act. Approximately 64 organizations submitted 

comments either on the National Provider Call or subsequent to the National Provider 

Call. We appreciate this input and have considered the issues raised by the commenters in 

developing the proposals discussed above. The report “Improvements to Medicare 

Disproportionate Share (DSH) Payments” discusses the issues raised in this National 

Provider Call. A summary of the comments on the National Provider Call has also been 

prepared. The report and summary can be found on the CMS Website at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html. 

F. Medicare-Dependent, Small Rural Hospital (MDH) Program (§ 412.108)

1. Backgound 

 Section 1885(d)(5)(G) of the Act provides special payment protections, under the 

IPPS, to a Medicare-dependent, small rural hospital (MDH). (For additional information 

on the MDH program and the payment methodology, we refer readers to the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51683 through 51684.) As we discussed in the 
 460 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50287) and in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51683 through 51684), section 3124 of the Affordable Care Act 

extended the expiration of the MDH program from the end of FY 2011 (that is, for 

discharges occurring before October 1, 2011) to the end of FY 2012 (that is, for 

discharges occurring before October 1, 2012). Under prior law, as specified in section 

5003(a) of Pub. L. 109-171 (DRA 2005), the MDH program was to be in effect through 

the end of FY 2011 only. Section 3124(a) of the Affordable Care Act amended sections 

1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to extend the MDH program and 

payment methodology by striking out “October 1, 2011” and inserting “October 1, 2012”. 

Section 3124(b) of the Affordable Care Act made conforming amendments to sections 

1886(b)(3)(D) and 1886(b)(3)(D)(iv) of the Act. 

 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50287 and 50414), we 

amended the regulations at § 412.108(a)(1) and (c)(2)(iii) to reflect the statutory 

extension of the MDH program through FY 2012. In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51683 through 51684), we did not make any additional changes to the MDH 

regulatory text for FY 2012. As discussed below, the ATRA (Pub. L. 112-240) amended 

the Act to extend the MDH program through the end of FY 2013. 

2. Provisions of the ATRA for FY 2013 

a. Background 

 Prior to the enactment of the ATRA, under section 3124 of the Affordable Care 

Act, the MDH program authorized by section 1886(d)(5)(G) of the Act was set to expire 

at the end of FY 2012. Section 606 of the ATRA amended sections 1886(d)(5)(G)(i) and 
 461 

1886(d)(5)(G)(ii)(II) of the Act to provide for an additional 1-year extension of the MDH 

program, effective from October 1, 2012 to September 30, 2013 (FY 2013). Section 606 

of the ATRA also made conforming amendments to sections 1886(b)(3)(D)(i) and 

1886(b)(3)(D)(iv) of the Act. Prior to the enactment of the ATRA, in the FY 2013 

IPPS/LTCH PPS final rule, we discussed the expiration of the MDH program at the end 

of FY 2012 (77 FR 53413 through 53414) and revised the SCH regulation at § 412.92(b) 

to change the effective date of SCH status for MDHs that apply for SCH status with the 

expiration of the MDH program (77 FR 53404 through 53405). 

 In a FY 2013 IPPS notice issued in the Federal Register on March 7, 2013 

(78 FR 14689), we announced the extension of the MDH program for FY 2013 in 

accordance with the provisions of section 606 of the ATRA. In that notice, we explained 

that, as a result of section 606 of the ATRA, the MDH program is now extended for 1 

additional year, through the end of FY 2013 (that is, effective October 1, 2012 through 

September 30, 2013). The FY 2013 IPPS notice explained how providers may be 

affected by the ATRA extension of the MDH program and described the steps to reapply 

for MDH status for FY 2013, as applicable. Generally, a provider that was classified as 

an MDH at the end of FY 2012 (that is, as of September 30, 2012) will be reinstated as an 

MDH effective October 1, 2012, with no need to reapply for MDH classification. 

However, if the MDH had classified as a sole community hospital (SCH) or cancelled its 

rural classification under § 412.103(g) effective on or after October 1, 2012, the effective 

date of MDH status may not be retroactive to October 1, 2012. In the FY 2013 IPPS 

notice, we also stated that we intended to make conforming changes to the regulations at 
 462 

§§ 412.108(a)(1) and (c)(2)(iii) in future rulemaking to reflect the statutory changes made 

by section 606 of the ATRA. We refer readers to the FY 2013 IPPS notice (78 FR 14689 

through 14694) for additional information on the extension of the MDH program through 

FY 2013 pursuant to section 606 of the ATRA and for additional information on how and 

when MDH status will be determined for hospitals classified as MDHs prior to the 

September 30, 2012 expiration of the program. 

b. Proposed Conforming Regulatory Changes 

 In this proposed rule, we are proposing to make conforming changes to the 

regulations at §§ 412.108(a)(1) and (c)(2)(iii) to reflect the statutory extension of the 

MDH program through FY 2013 made by section 606 of the ATRA. 

c. Expiration of the MDH Program 

 Because section 606 of the ATRA extends the MDH program through FY 2013 

only, effective FY 2014, the MDH program will no longer be in effect. Because the 

MDH program is not authorized by statute beyond FY 2013, beginning in FY 2014, all 

hospitals that previously qualified for MDH status will no longer have MDH status and 

will be paid based on the Federal rate. 

 As noted earlier, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 

through 53405), we revised our SCH policies to allow MDHs to apply for SCH status and 

be paid as such under certain conditions, following expiration of the MDH program at the 

end of FY 2012. We codified these changes in the regulations at § 412.92(b)(2)(i) and 

§ 412.92(b)(2)(v). For additional information, we refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53404 through 53405 and 53674). We note that those 
 463 

same conditions apply to MDHs that intend to apply for SCH status with the expiration of 

the MDH program at the end of FY 2013. Specifically, the existing regulations at 

§ 412.92(b)(2)(i) and (b)(2)(v) allow for an effective date of approval of SCH status that 

is the day following the expiration date of the MDH program. In accordance with these 

regulations, in order for an MDH to receive SCH status effective October 1, 2013, it must 

apply for SCH status at least 30 days before the end of the MDH program; that is, the 

MDH must apply for SCH status by August 31, 2013. The MDH also must request that, 

if approved as an SCH, the SCH status be effective with the expiration of the MDH 

program provision; that is, the MDH must request that the SCH status, if approved, be 

effective October 1, 2013, immediately after its MDH status expires with the expiration 

of the MDH program at the end of FY 2013, on September 30, 2013. 

 We note that an MDH that applies for SCH status in anticipation of the expiration 

of the MDH program would not qualify for the October 1, 2013 effective date upon 

approval if it does not apply by the August 31, 2013 deadline. The provider would 

instead be subject to the usual effective date for SCH classification, that is, 30 days after 

the date of CMS’ written notification of approval as specified at § 412.92(b)(2)(i).
 464 

G. Hospital Readmissions Reduction Program: Proposed Changes (§§412.150 through 

412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program 

 Section 3025 of the Affordable Care Act, as amended by section 10309 of the 

Affordable Care Act, added a new subsection (q) to section 1886 of the Act. Section 

1886(q) of the Act establishes the “Hospital Readmissions Reduction Program,” effective 

for discharges from an “applicable hospital” beginning on or after October 1, 2012, under 

which payments to those applicable hospitals may be reduced to account for certain 

excess readmissions. 

 Section 1886(q)(1) of the Act sets forth the methodology by which payments to 

“applicable hospitals” will be adjusted to account for excess readmissions. Pursuant to 

section 1886(q)(1) of the Act, payments for discharges from an “applicable hospital” will 

be an amount equal to the product of the “base operating DRG payment amount” and the 

adjustment factor for the hospital for the fiscal year. That is, “base operating DRG 

payments” are reduced by a hospital-specific adjustment factor that accounts for the 

hospital’s excess readmissions. Section 1886(q)(2) of the Act defines the base operating 

DRG payment amount as “the payment amount that would otherwise be made under 

subsection (d) (determined without regard to subsection (o) [the Hospital VBP Program]) 

for a discharge if this subsection did not apply; reduced by . . . any portion of such 

payment amount that is attributable to payments under paragraphs (5)(A), (5)(B), (5)(F), 

and (12) of subsection (d).” Paragraphs (5)(A), (5)(B), (5)(F), and (12) of subsection(d) 
 465 

refer to outlier payments, IME payments, DSH adjustment payments, and add-on 

payments for low volume hospitals, respectively. 

 Furthermore, section 1886(q)(2)(B) of the Act specifies special rules for defining 

“the payment amount that would otherwise be made under subsection (d)” for certain 

hospitals. Specifically, section 1886(q)(2)(B) of the Act states that “[i]n the case of a 

Medicare-dependent, small rural hospital (with respect to discharges occurring during 

fiscal years 2012 and 2013) or a sole community hospital . . . the payment amount that 

would otherwise be made under subsection (d) shall be determined without regard to 

subparagraphs (I) and (L) of subsection (b)(3) and subparagraphs (D) and (G) of 

subsection (d)(5).” In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374), we 

finalized policies to implement the statutory provisions related to the definition of “base 

operating DRG payment amount”. 

 Section 1886(q)(3)(A) of the Act defines the “adjustment factor” for an applicable 

hospital for a fiscal year as equal to the greater of “(i) the ratio described in subparagraph 

(B) for the hospital for the applicable period (as defined in paragraph (5)(D)) for such 

fiscal year; or (ii) the floor adjustment factor specified in subparagraph (C).” 

Section 1886(q)(3)(B) of the Act, in turn, describes the ratio used to calculate the 

adjustment factor. It states that the ratio is “equal to 1 minus the ratio of – (i) the 

aggregate payments for excess readmissions...; and (ii) the aggregate payments for all 

discharges....” Section 1886(q)(3)(C) of the Act describes the floor adjustment factor, 

which is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97 for FY 2015 and subsequent 

fiscal years. 
 466 

 Section 1886(q)(4) of the Act sets forth the definitions of the terms “aggregate 

payments for excess readmissions” and “aggregate payments for all discharges” for an 

applicable hospital for the applicable period. The term “aggregate payments for excess 

readmissions” is defined in section 1886(q)(4)(A) of the Act as “the sum, for applicable 

conditions . . . of the product, for each applicable condition, of (i) the base operating 

DRG payment amount for such hospital for such applicable period for such condition; 

(ii) the number of admissions for such condition for such hospital for such applicable 

period; and (iii) the “Excess Readmission Ratio... for such hospital for such applicable 

period minus 1.” The “excess readmission ratio” is a hospital-specific ratio based on 

each applicable condition. Specifically, section 1886(q)(4)(C) of the Act defines the 

excess readmission ratio as the ratio of “risk-adjusted readmissions based on actual 

readmissions” for an applicable hospital for each applicable condition, to the 

“risk-adjusted expected readmissions” for the applicable hospital for the applicable 

condition. 

 Section 1886(q)(5) of the Act provides definitions of “applicable condition,” 

“expansion of applicable conditions,” “applicable hospital,” “applicable period,” and 

“readmission.” The term “applicable condition” (which is addressed in detail in section 

IV.C.3.a. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51665 through 51666)) is 

defined as a “condition or procedure selected by the Secretary among conditions and 

procedures for which: (i) readmissions... represent conditions or procedures that are high 

volume or high expenditures . . . and (ii) measures of such readmissions . . . have been 

endorsed by the entity with a contract under section 1890(a) . . . and such endorsed 
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measures have exclusions for readmissions that are unrelated to the prior discharge (such 

as a planned readmission or transfer to another applicable hospital).” Section 

1886(q)(5)(B) of the Act also requires the Secretary, beginning in FY 2015, “to the extent 

practicable, [to] expand the applicable conditions beyond the 3 conditions for which 

measures have been endorsed . . . to the additional 4 conditions that have been identified 

by the Medicare Payment Advisory Commission in its report to Congress in June 2007 

and to other conditions and procedures as determined appropriate by the Secretary.” 

 Section 1886(q)(5)(C) of the Act defines “applicable hospital,” that is, a hospital 

subject to the Hospital Readmissions Reduction Program, as a “subsection (d) hospital or 

a hospital that is paid under section 1814(b)(3) [of the Act], as the case may be.” The 

term “applicable period,” as defined under section 1886(q)(5)(D) of the Act, “means, 

with respect to a fiscal year, such period as the Secretary shall specify.” As explained in 

the FY 2012 IPPS/LTCH PPS final rule, the “applicable period” is the period from which 

data are collected in order to calculate various ratios and adjustments under the Hospital 

Readmissions Reduction Program. 

 Section 1886(q)(6) of the Act sets forth the public reporting requirements for 

hospital-specific readmission rates. Section 1886(q)(7) of the Act limits administrative 

and judicial review of certain determinations made pursuant to section 1886(q) of the 

Act. Finally, section 1886(q)(8) of the Act requires the Secretary to collect data on 

readmission rates for all hospital inpatients for “specified hospitals” in order to calculate 

the hospital-specific readmission rates for all hospital inpatients and to publicly report 

these readmission rates. 
 468 

2. Overview 

 We have been implementing the requirements of the Hospital Readmissions 

Reduction Program in rulemakings, and will continue to do so. The payment adjustment 

factor set forth in section 1886(q) of the Act did not apply to discharges until FY 2013. 

In the FY 2012 IPPS/LTCH PPS final rule, we addressed the issues of the selection of 

readmission measures and the calculation of the excess readmission ratio, which will be 

used, in part, to calculate the readmission adjustment factor. Specifically, in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51660 through 51676), we addressed the portions of 

section 1886(q) of the Act related to the following provisions: 

● Selection of applicable conditions; 

● Definition of “readmission”; 

● Measures for the applicable conditions chosen for readmission; 

● Methodology for calculating the excess readmission ratio; and 

● Definition of “applicable period”; 

 With respect to the topics of “measures for readmission” for the applicable 

conditions, and “methodology for calculating the excess readmission ratio,” we 

specifically addressed the following: 

● Index hospitalizations; 

● Risk adjustment; 

● Risk standardized readmission rate; 

● Data sources; and 

● Exclusion of certain readmissions. 
 469 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 53401), we 

finalized our policies that relate to the calculation of the hospital readmission payment 

adjustment factor and the process by which hospitals can review and correct their data. 

Specifically, in the final rule, we addressed the portions of section 1886(q) of the Act 

related to the following provisions: 

● Base operating DRG payment amount, including policies for SCHs and MDHs 

and hospitals paid under section 1814(b) of the Act; 

● Adjustment factor (both the ratio and floor adjustment factor); 

● Aggregate payments for excess readmissions and aggregate payments for all 

discharges; 

● Applicable hospital; 

● Limitations on review; 

● Reporting of hospital-specific information, including the process for hospitals 

to review readmission information and submit corrections. 

 In the FY 2013 IPPS/LTCH PPS final rule, we established a new Subpart I under 

42 CFR Part 412 (§§412.150 through 412.154) to codify rules for implementing the 

Hospital Readmissions Reduction Program. 

3. FY 2014 Proposals for the Hospital Readmissions Reduction Program 

a. Overview 

 In this proposed rule, for FY 2014 and beyond, we are proposing to-- 

● Refine the readmissions measures and related methodology for the current 

applicable conditions (section V.G.3.b. of this preamble); 
 470 

● Expand the “applicable conditions” for FY 2015 (section V.G.3.c. of this 

preamble); 

● Specify additional policies for hospitals paid under section 1814(b)(3) of the 

Act (§ 412.154(d)), including the process to be exempted from the Hospital Readmissions 

Reduction Program and the definition of “base operating DRG payment amount” (section 

V.G.3.d. of this preamble); 

● Specify the proposed adjustment factor floor for FY 2014 (section V.G.3.e. of 

this preamble); 

● Specify the proposed applicable period for FY 2014 (section V.G.3.f. of this 

preamble); 

● Refine the methodology to calculate the aggregate payments for excess 

readmissions (section V.G.3.g. of this preamble); and 

● Clarify the process for reporting hospital-specific information, including the 

opportunity to review and submit corrections (section V.G.3.h. of this preamble). 

b. Proposed Refinement of the Readmission Measures and Related Methodology for 

FY 2014 and Subsequent Years Payment Determinations 

(1) Overview of the Inclusion of Planned Readmissions for the Calculation of the 

FY 2014 Readmissions Adjustment Factors 

 In the FY 2012 IPPS/LTCH PPS final rule, we adopted acute myocardial 

infarction (AMI), heart failure (HF), and pneumonia (PN) readmission measures for the 

Hospital Readmissions Reduction Program payment determinations beginning with 

FY 2013. During development of the three readmission measures for AMI, HF, and PN, 
 471 

we consulted with medical experts to identify readmissions that are typically scheduled as 

followup care for each specific condition within 30 days of discharge. We categorized 

these readmissions as planned followup care and excluded them from being counted as a 

readmission. The AMI measure finalized for the Hospital Readmissions Reduction 

Program included two revascularization procedures (coronary artery bypass graft surgery 

(CABG) and percutaneous coronary intervention (PCI) (76 FR 51667)). We considered 

these procedures planned readmissions and excluded them from the readmission 

calculation as long as the readmissions were not for one of five acute conditions (HF, 

AMI, other acute/subacute forms of ischemic heart disease, arrhythmia, and cardiac 

arrest). 

 During development of the HF and PN readmission measures, we did not identify 

any readmissions that were typically planned as followup care at the time of the patient’s 

discharge. Therefore, the readmission measures finalized for the Hospital Readmissions 

Reduction Program for these two conditions did not exclude any planned readmissions 

from the readmission calculation. 

(2) Proposed Refinement of the Readmission Measures and Related Methodology for the 

FY 2014 and Subsequent Years Payment Determinations 

 Since the development and implementation of the initial three readmission 

measures adopted under the Hospital Readmissions Reduction Program, we have 

received comments from the medical community, other stakeholders, and the general 

public encouraging us to identify and not count as readmissions a broader range of 

planned readmissions. Stakeholders also made recommendations for expanding the 
 472 

number and types of planned readmissions during the public comment period for 

FY 2013 IPPS/LTCH PPS proposed rule (as discussed in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53382 through 53398)). 

 Stakeholders commented that readmission measures are intended to capture 

unplanned readmissions that arise from acute clinical events requiring urgent 

rehospitalization within 30 days of discharge. In addition, stakeholders commented that 

planned readmissions do not generally signal poor quality of care. In response to 

stakeholders’ concerns, we have worked with experts in the medical community, other 

stakeholders, and the public to broadly identify planned readmissions for procedures and 

treatments for exclusion from the readmission measures. Specifically, we developed an 

expanded “planned readmission algorithm” in the CMS Planned Readmission Algorithm 

Version 2.1 Report to identify planned readmissions across our readmission measures, 

and are proposing to apply the algorithm to the AMI, HF, and PN measures for FY 2014. 

The CMS Planned Readmission Algorithm Version 2.1 Report is available on the CMS 

Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/Hospital QualityInits/Measure-Methodology.html. 

 We developed the algorithm based on a hospital-wide (not condition-specific) 

cohort of patients. We began the development by using the Agency for Healthcare 

Research and Quality’s (AHRQ’s) Clinical Classification Software (CCS) codes to group 

thousands of individual procedures and diagnoses codes into clinically coherent, mutually 

exclusive procedure and diagnosis categories (PROC-CCS categories and Diagnosis-CCS 

categories, respectively). A panel of independent, non-CMS clinicians then reviewed the 
 473 

procedure categories and identified those that are commonly planned and require 

admission. Clinicians also reviewed the diagnosis categories and identified those that 

were acute diagnoses likely requiring hospitalization. Using these procedure and 

diagnosis categories and some individual ICD-9-CM procedure and diagnoses codes in 

the categories, we developed an initial algorithm for identifying planned readmissions for 

a hospital-wide cohort of patients. 

 The algorithm underwent several reviews by stakeholders. We initially posted the 

detailed algorithm for informal public comment during the measurement development 

process in August 2011. The National Quality Forum (NQF) reviewed and made the 

algorithm available for public comment during its endorsement review of the HospitalWide All-Cause Unplanned Readmission Measure (NQF #1789). We also recruited 27 

surgical subspecialists nominated by their specialty societies to review the algorithm and 

suggest refinements, which resulted in Version 2.1 of the Planned Readmission 

Algorithm. We are proposing to use this algorithm in the readmission measures under 

the Hospital Readmissions Reduction Program beginning with FY 2014. A detailed 

description of this algorithm is included later in this section. 

 As required by section 1886(q)(5)(A)(ii) of the Act, the first three applicable 

conditions of AMI, HF and PN, must use readmission measures that have been endorsed 

by the entity with a contract under section 1890(a) of the Act; and such endorsed 

measures must have exclusions for readmissions that are unrelated to the prior discharge 

(such as planned readmission or transfer to another applicable hospital). Because the 

statute requires that the readmission measures for the three current applicable conditions 
 474 

(AMI, HF and PN) be NQF-endorsed, we sought NQF’s endorsement of the measures 

that were revised to include the CMS Planned Readmission Algorithm Version 2.1. NQF 

reviewed these revised measures through its ad hoc review process, which reviews 

previously endorsed measures that undergo material changes. Following ad hoc review, 

NQF endorsed the revised AMI (NQF #0505) and HF (NQF #0330) measures in January 

2013 and the PN measure (NQF #0506) in (March 2013)). 

(a) Description of CMS Planned Readmission Algorithm Version 2.1 

 This algorithm is a set of criteria for classifying readmissions as “planned” using 

Medicare claims. The algorithm identifies typical planned admissions that may occur 

within 30 days of discharge from the hospital. 

 We based the CMS Planned Readmission Algorithm on three principles: 

● A few specific, limited types of care are always considered planned (obstetrical 

delivery, transplant surgery, maintenance chemotherapy, rehabilitation); 

● Otherwise, a planned readmission is defined as a nonacute readmission for a 

scheduled procedure; and 

● Admissions for acute illness or for complications of care are never planned. 

 The Planned Readmission Algorithm uses a flow chart and four tables of 

procedures and conditions to implement these principles and to classify readmissions as 

planned or unplanned. The flow chart and tables are available in a report, CMS Planned 

Readmission Algorithm Version 2.1, which is available on the CMS Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/Hospital QualityInits/Measure-Methodology.html. 
 475 

 We incorporated the algorithm into each condition-specific and procedurespecific readmission measure. For most readmission measures, including the AMI, HF, 

and PN measures, we used one standard version of the algorithm—the CMS Planned 

Readmission Algorithm Version 2.1. However, for a subset of readmission measures, we 

revised the list of potentially planned procedures or acute primary diagnosis after 

applying the standard algorithm version because it was clinically indicated. For example, 

for the Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) readmission 

measure that we are proposing for FY 2015, we removed diagnostic cardiac 

catheterization from the potentially planned procedure list because patients in the 

hip/knee measure are typically well enough to undergo elective surgery and would not be 

expected to need a catheterization within 30 days of discharge. The details of these 

adaptations are available in the CMS Planned Readmission Algorithm Version 2.1 report 

(http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/Hospital QualityInits/Measure-Methodology.html). 

(b) Proposed Counting of Readmissions that Occur After a Planned Readmission 

 In this proposed rule, we are proposing a related change to the AMI, HF, and PN 

measures to address unplanned readmissions that occur after a planned readmission but 

within 30 days of the patient’s initial index discharge. The AMI measure finalized in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51666) counted unplanned readmissions for 

the index admission if they occurred within 30 days of discharge from the index 

admission, even if they occurred following planned readmissions (because the two other 
 476 

measures did not have any planned readmissions, this method of counting only applied to 

the AMI measure).

For the proposed revised AMI, HF, and PN measures, all of which now account 

for planned readmissions by incorporating the CMS Planned Readmission Algorithm 

Version 2.1, we are proposing the following additional change: if the first readmission is 

planned, it will not count as a readmission, nor will any subsequent unplanned 

readmission within 30 days of the index readmission. In other words, unplanned 

readmissions that occur after a planned readmission and fall within the 30-day post 

discharge timeframe would no longer be counted as outcomes for the index admission. 

The rationale for this proposed change is that, in this case, either the index or the planned 

readmission could have contributed to the patient’s unplanned readmission. Therefore, it 

is unclear whether the unplanned readmission should be attributed back to the index 

admission. This proposed change in counting practice would affect a very small 

percentage of readmissions (approximately 0.3 percent of index admissions nationally for 

AMI, 0.2 percent for HF, and less than 0.1 percent for PN).). However, we intend to 

monitor trends in the proportion of planned readmissions for evidence of misuse or 

misapplication, and other unintended consequences.

(c) Anticipated Effect of the Proposed Changes of CMS Planned Readmission Algorithm 

Version 2.1 and Counting of Readmissions on the Readmission Measures 

 The proposed changes to the measures in this proposed rule would have had the 

following effects on the measures based on our analyses of discharges between July 2008 

and June 2011, if these changes had been applied for FY 2013. We note that these 
 477 

statistics are for illustrative purposes only, and we are not proposing to revise the 

measure calculations for the FY 2013 payment determination. Rather, we are proposing 

to apply these changes to the readmissions measures for the FY 2014 payment 

determination and subsequent years. 

 Among hospitals that were subject to the Hospital Readmissions Reduction 

Program in FY 2013 (Table V.G.1), the number of eligible discharges based on the July 

2008 through June 2011 data were 501,765 discharges for AMI; 1,195,967 discharges for 

HF; and 957,854 discharges for PN): 

● The proposed 30-day readmission rate (excluding the planned readmissions) 

would decrease by 1 percentage point for AMI; 1.5 percentage points for HF; and 0.7 

percentage point for PN. 

● The new national measure (unplanned) rate for each condition would have 

been 18.2 percent for AMI; 23.1 percent for HF; and 17.8 percent for PN. 

● The number of readmissions considered planned (and, therefore, not counted as 

a readmission) would increase by 4,942 for AMI; 17,512 for HF; and 7,084 for PN. 
 478 

Table V.G.1.--Comparison of Original AMI/HF/PN Measures Finalized in FY 2013 

Relative to Proposed Revised AMI/HF/PN Measures for FY 2014 

(Based on July 2008 through June 2011 Discharges from 3,025 Hospitals) 

AMI PN HF 

Proposed 

Revised 

Measure 

Original 

Measure 

Proposed 

Revised 

Measure 

Original 

Measure 

Proposed 

Revised 

Measure 

Original 

Measure 

Number of 

Admissions 501,765 501,765 957,854 957,854 1,195,967 1,195,967

Number of 

Unplanned 

Readmissions 91,360 96,302 170,396 177,480 276,748 294,260

Readmission Rate 18.2% 19.2% 17.8% 18.5% 23.1% 24.6%

Number of Planned 

Readmissions 12,811 7,869 7,084 0 17,512 0

Planned Readmission 

Rate 2.6% 1.6% 0.7% 0.0% 1.5% 0.0%

Percent of 

Readmissions that are 

Planned 12.3% 7.6% 4.0% 0.0% 6.0% 0.0%

 In summary, we are proposing to use the proposed revised versions of the AMI, 

HF, and PN measures to calculate the payment adjustments for the Hospital 

Readmissions Reduction Program in FY 2014. We believe that the proposed revised 

measures will address stakeholder suggestions to broaden the number of planned 

readmissions and will result in a more accurate readmission calculation for purposes of 

the payment adjustment. We are proposing to update the measures to: (1) incorporate 

the CMS Planned Readmission Algorithm Version 2.1 to identify planned readmissions; 

and (2) not count unplanned readmissions that follow planned readmissions. We are 

inviting public comments on this proposal. 
 479 

c. Proposed Expansion of the Applicable Conditions for FY 2015 

(1) Background 

 Under section 1886(q)(5)(B) of the Act, beginning with FY 2015, the Secretary 

shall, to the extent practicable, expand the applicable conditions beyond the three 

conditions for which measures have been endorsed as described in subparagraph 

(A)(ii)(I) . . . to the additional 4 conditions that have been identified by the Medicare 

Payment Commission in its report to Congress in June 2007, and to other conditions and 

procedures as determined appropriate by the Secretary.” The four conditions and 

procedures recommended by MedPAC are: (1) coronary artery bypass graft (CABG) 

surgery; (2) chronic obstructive pulmonary disease (COPD); (3) percutaneous coronary 

intervention (PCI); and (4) other vascular conditions. Section 1886(q)(5)(A)(i) of the Act 

directs the Secretary, in selecting an “applicable condition,” to choose from among 

conditions and procedures “that represent conditions or procedures that are high volume 

or high expenditures under this title (or other criteria specified by the Secretary).” 

 In accordance with section 1886(q)(5)(A) of the Act, effective for the calculation 

of the readmissions payment adjustment factors in FY 2015, we are proposing to expand 

the applicable conditions and procedures to include: (1) patients admitted for an acute 

exacerbation of COPD; and (2) patients admitted for elective total hip arthroplasty (THA) 

and total knee arthroplasty (TKA). At this point, it is not feasible for CMS to add 

readmission measures for three of the conditions identified by MedPAC in its 2007 

Report to Congress (CABG, PCI, and other vascular conditions). We note that inpatient 

admissions for PCI and other vascular conditions seem to be decreasing, and these 
 480 

procedures are being performed more in hospital outpatient departments. This shift in 

setting for these procedures may make their future inclusion in the Hospital Readmssion 

Reduction Program more difficult and impracticable. 

 We are also exploring how we may address CABG in this program at a future 

time. 

 We are proposing inclusion of patients admitted for an acute exacerbation of 

COPD based on MedPAC’s recommendations and may consider other recommendations 

in future rulemaking. While MedPAC did not recommend inclusion of patients admitted 

for elective THA and TKA, we consider this category appropriate for the Hospital 

Readmissions Reduction Program because it is a high-volume and high-expenditure 

procedure. 

 For example, in 2003, 202,500 primary hip arthroplasties and 402,100 primary 

total knee arthroplasties were performed.30 The number of procedures performed has 

increased steadily over the past decade.31 Although these procedures can dramatically 

improve patient health-related quality-of-life, they are costly. In 2005, annual hospital 

charges totaled $3.95 billion and $7.42 billion for primary THA and TKA, respectively.32 

The aggregate costs for THA are projected to increase by 340 percent over a 10-year 

period, to $17.4 billion per fiscal year by FY 2015, and for TKA, by 450 percent to $40.8 

 

30 Kurtz S, Ong K, Lau E, Mowat F, Halpern M.: Projections of primary and revision hip and knee 

arthroplasty in the United States from 2005 to 2030. J Bone Joint Surg Am. Apr 2007;89(4):780-785.

31 Ong KL, Mowat FS, Chan N, Lau E, Halpern MT, Kurtz SM. Economic burden of revision hip and knee 

arthroplasty in Medicare enrollees. Clin Orthop Relat Res. May 2006;446:22-28. 

32Kurtz SM, Ong KL, Schmier J, et al.: Future clinical and economic impact of revision total hip and knee 

arthroplasty. J Bone Joint Surg Am. Oct 2007;89 Suppl 3:144-151. 
 481 

billion per fiscal year by 2015.33 Medicare is the single largest payer for these 

procedures, covering approximately two-thirds of all THAs and TKAs performed in the 

United States.34 THA and TKA procedures combined account for the largest procedural 

cost in the Medicare budget.35 Therefore, as explained in detail below, we believe that it 

is appropriate to include THA/TKA as an applicable condition. 

 We developed a hospital-level, 30-day, all-cause, risk-standardized readmission 

measure for THA/TKA. NQF endorsed the measure (NQF #1551) in January of 2012. 

The measure incorporated the Planned Readmission Version 2.1 algorithm and excludes 

transfers. Accordingly, we believe that the THA/TKA measure met the criteria of 

applicable condition and are proposing it for the Hospital Readmissions Reduction 

Program. 

 The rationale for expanding the applicable conditions and the measures used to 

estimate the Excess Readmission Ratios are described in detail below. 

(2) Proposed COPD Readmission Measure 

 COPD is a leading cause of readmissions to hospitals.36 In 2007, the MedPAC 

published a report to Congress in which it identified the seven conditions associated with 

the most costly potentially preventable readmissions. Among these seven conditions, 

COPD ranked fourth.37 Evidence also shows variation in readmissions for patients with 

 

33 Ibid. 

34Ong KL, Mowat FS, Chan N, Lau E, Halpern MT, Kurtz SM. Economic burden of revision hip and knee 

arthroplasty in Medicare enrollees. Clin Orthop Relat Res. May 2006;446:22-28. 

35Bozic KJ, Rubash HE, Sculco TP, Berry DJ. An analysis of medicare payment policy 

for total joint arthroplasty. Journal of Arthroplasty. 2008;23(6 Suppl 1):133-138. 

36Jencks SF, Williams MV, Coleman EA. Rehospitalizations among patients in the Medicare fee-forservice program. N Engl J Med. April 2 2009;360(14):1478-1428. 

37Committee MPA. Report to the Congress: Promoting Greater Efficiency in Medicare. 2007. 
 482 

COPD, supporting the finding that opportunities exist for improving care. The median, 

30-day, risk-standardized readmission rate among Medicare fee-for-service patients aged 

65 or older hospitalized for COPD in 2008 was 22.0 percent, and ranged from 18.33 

percent to 25.03 percent across 4,546 hospitals.38 Clinical trials and observational studies 

suggest that several aspects of care provided to patients hospitalized for exacerbations of 

COPD can have significant effects on readmission.39,40,41,42 In addition, inclusion of this 

measure in the Hospital Readmissions Reduction Program aligns with CMS’ priority 

objectives to promote successful transitions of care for patients from the acute care 

setting to the outpatient setting, and reduces short-term readmission rates. Therefore, we 

believe the COPD measure warrants inclusion in the Hospital Readmissions Reduction 

Program for FY 2015. We are inviting public comments on this proposal. 

(3) Overview of COPD Measure: Hospital-Level, 30-Day, All-Cause, RiskStandardized Readmission Rate (RSRR) following Chronic Obstructive Pulmonary 

Disease (COPD) Hospitalization (NQF #1891) 

 The COPD readmission measure assesses hospitals’ 30-day, all-cause riskstandardized rate of readmission for an acute exacerbation of COPD (AECOPD). In 

 

38Grosso L.M., Lindenauer P., Wang C., et al.: Hospital-level 30-day Readmission Following Admission 

for an Acute Exacerbation of Chronic Obstructive Pulmonary Disease: Report prepared for the Centers for 

Medicare & Medicaid Services. 2011; Available at: http://www.qualitynet.org/. 39Global Strategy for Diagnosis M, and Prevention of COPD. 2009; Available at: 

http://www.goldcopd.org/. 40National Institute for Health and Clinical Excellence. Chronic Obstructive Pulmonary Disease: 

Management of Chronic Obstructive Pulmonary Disease in Adults in Primary and Secondary Care (Partial 

Update):. National Collaborating Centre for Acute and Chronic Conditions. Available at: 

http://www.nice.org.uk/nicemedia/live/13029/49397/49397.pdf. 41Walters JA, PG Gibson, R Wood-Baker, M Hannay, EH Walters. Systemic corticosteroids for acute 

exacerbations of chronic obstructive pulmonary disease. Cochrane Database Syst Rev. 2009;CD001288(1).

42 Lightowler JV, Wedzicha JA, Elliott MW, Ram FS. Non-invasive positive pressure ventilation to treat 

respiratory Failure resulting from exacerbations of chronic obstructive pulmonary disease: Cochrane 

systematic review and meta-analysis. Bmj. 2003;326(7382). 
 483 

general, the measure uses the same approach to risk-adjustment and hierarchical logistic 

modeling (HLM) methodology that is specified for CMS’ AMI, HF, and PN readmission 

measures previously adopted for this program. Information on how the measure employs 

HLM can be found in the 2011 COPD Readmission Measure Methodology Report 

(available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/Hospital QualityInits/Measure-Methodology.html. This approach 

appropriately accounts for the types of patients a hospital treats (that is, hospital casemix), the number of patients it treats, and the quality of care it provides. The HLM 

methodology is an appropriate statistical approach to measuring quality based on patient 

outcomes when the patients are clustered within hospitals (and, therefore, the patients’ 

outcomes are not statistically independent) and sample sizes vary across hospitals. The 

measure methodology defines hospital case-mix based on the clinical diagnoses provided 

in the hospitals’ claims for the hospitals’ patient inpatient and outpatient visits for the 12 

months prior to the hospitalization for COPD, as well as those present in the claims for 

care at admission. However, the methodology specifically does not account for 

diagnoses present in the index admission that may indicate complications rather than 

patient comorbidities. 

 We are providing a summary of the measure methodology below. For further 

details on the risk-adjustment statistical model, we refer readers to the 2011 COPD 

Readmission Measure Methodology Report that we have posted on the CMS Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-
 484 

Instruments/Hospital QualityInits/Measure-Methodology.html. NQF endorsed the 

measure (NQF #1891) in March 2013 (http://www.qualityforum.org/QPS/1891). 

● Data Sources. The proposed COPD measure is claims-based. It uses Medicare 

administrative data from hospitalizations for fee‐for‐service Medicare beneficiaries 

hospitalized with an acute exacerbation of COPD (AECOPD). 

● Outcome. The outcome for the COPD measure is 30-day, all-cause 

readmission, defined as an unplanned subsequent inpatient admission to any applicable 

acute care facility from any cause within 30 days of the date of discharge from the index 

hospitalization. A number of studies demonstrate that improvements in care at the time 

of discharge can reduce 30‐day readmission rates.43,44 It is a timeframe that a 

readmission may reasonably be attributed to the hospital care and transitional period to a 

nonacute care setting. 

 The COPD readmissions measure assesses all-cause unplanned readmissions 

(excluding planned readmissions) rather than readmissions for acute exacerbations of 

COPD only. We are proposing this measure for several reasons. First, from the patient 

perspective, a readmission for any reason is likely to be an undesirable outcome of care, 

even though not all readmissions are preventable. Second, limiting the measure to 

COPD‐related readmissions may limit the effort focus too narrowly rather than 

encouraging broader initiatives aimed at improving the overall care within the hospital 

and transitions from the hospital setting. Moreover, it is often hard to exclude quality 

 

43Gulshan Sharma, Kou Yong-Fang, Freeman Jean L, Zhang Dong D, Goodwin James S.: Outpatient 

Follow-up Visit and 30-Day Emergency Department Visit and Readmission in Patients Hospitalized for 

Chronic Obstructive Pulmonary Disease. Arch Intern Med. Oct. 2010;170:1664-1670.

44Nelson EA, Maruish ME, Axler JL.: Effects of Discharge Planning and Compliance with Outpatient 

Appointments on Readmission Rates. Psychiatr Serv. July 1 2000;51(7):885-889.
 485 

issues and accountability based on the documented cause of readmission. For example, a 

patient with COPD who develops a hospital-acquired infection may ultimately be 

readmitted for sepsis. It would be inappropriate to consider such a readmission to be 

unrelated to the care the patient received for COPD. Finally, while the measure does not 

presume that each readmission is preventable, interventions generally have shown 

reductions in all types of readmissions. 

 The measure does not count planned readmissions as readmissions. Planned 

readmissions are identified in claims data using the CMS Planned Readmission 

Algorithm Version 2.1 that detects planned readmissions that may occur within 30 days 

of discharge from the hospital. This algorithm is described briefly in section 

V.G.3.b.(2)(a) of the preamble of this proposed rule and more detailed information can be 

found on the CMS Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/Hospital QualityInits/Measure-Methodology.html. For 

the COPD measures, unplanned readmissions that fall within the 30-day post discharge 

timeframe from the index admission would not be counted as readmissions for the index 

admission if they were preceded by a planned readmission (we refer readers to section 

V.G.3.b.(2)(b) of the preamble of this proposed rule on the proposed counting of 

readmissions that occur after a planned readmission). 

● Cohort of Patients. COPD is a group of lung diseases characterized by airway 

obstruction. Patients hospitalized for an acute exacerbation of COPD (AECOPD) present 

with varying degrees of severity ranging from a worsening of baseline symptoms 

(dyspnea, cough, and/or sputum) to respiratory failure. To capture the full spectrum of 
 486 

severity of patients hospitalized for an AECOPD, the measure includes patients with a 

principal diagnosis of COPD, as well as those with a principal diagnosis of respiratory 

failure with a secondary diagnosis of an AECOPD. Requiring AECOPD as a secondary 

diagnosis helps to identify respiratory failure due to COPD exacerbation versus another 

condition (for example, heart failure). For detailed information on the cohort definition, 

we refer readers to the 2013 COPD Readmission Measure Updates and Specifications 

Report on the CMS Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/Hospital QualityInits/Measure-Methodology.html. 

● Inclusion and Exclusion Criteria. The COPD measure includes hospitalizations 

for patients who are 65 years of age or older at the time of index admission and for whom 

there was a complete 12 months of Medicare fee-for-service (FFS) enrollment to allow 

for adequate risk-adjustment. The measure excludes the following admissions from the 

measure cohort: (1) admissions for patients who die during the initial hospitalization 

(these patients are not eligible for readmission); (2) admissions for patients having a 

principal diagnosis of COPD during the index hospitalization and subsequently 

transferred to another acute care facility (these are excluded because the measure focuses 

on discharges to a nonacute care setting such as the home or a SNF); (3) admissions for 

patients that are discharged against medical advice (AMA) (excluded because providers 

do not have the opportunity to deliver full care and prepare the patient for discharge); 

(4) admissions for patients without at least a 30-day post-discharge enrollment in 

Medicare FFS (excluded because the 30-day readmission outcome cannot be assessed in 

this group); and (5) additional COPD admissions for patients within 30 days of discharge 
 487 

from an index COPD admission will be considered readmissions and not additional index 

admissions. 

● Risk-Adjustment. The COPD measure adjusts for differences across hospitals 

in how at risk their patients are for readmission relative to patients cared for by other 

hospitals. The measure uses claims data to identify patient clinical conditions and 

comorbidites to adjust patient risk for readmission across hospitals, but does not adjust 

for potential complications of care. Consistent with NQF guidelines, the model does not 

adjust for socioeconomic status or race because risk-adjusting for these characteristics 

would hold hospitals with a large proportion of patients of minority race or low 

socioeconomic status to a different standard of care than other hospitals. Rather, this 

measure seeks to illuminate quality differences, and risk-adjustment for socioeconomic 

status or race would obscure such quality differences. 

● Calculating the Excess Readmission Ratio. The COPD readmission measure 

uses the same methodology and statistical modeling approach as the AMI, HF, and PN 

measures. We published a detailed description of how the readmission measures estimate 

the Excess Readmission Ratio used in the Hospital Readmissions Reduction Program in 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 through 53381). 

(4) Proposed Adoption of the COPD Measure for the Hospital Readmissions Reduction 

Program 

 We are proposing to adopt the COPD measure in the Hospital Readmissions 

Reduction Program beginning in FY 2015. We also are proposing the COPD measure for 

use in the Hospital IQR Program for FY 2014 (discussed in section IX.A. of this 
 488 

preamble). We note that the set of hospitals for which this measure is calculated for the 

Hospital Readmissions Reduction Program differs from those used in calculations for the 

Hospital IQR Program. The Hospital Readmissions Reduction Program includes only 

subsection (d) hospitals as defined in 1886(d)(1)(B) of the Act and hospitals paid under 

section 1814(b)(3) of the Act (that is, Maryland hospitals), while the Hospital IQR 

Program calculations include non-IPPS hospitals such as CAHs, cancer hospitals, and 

hospitals located in the Territories of the United States. However, we believe that the 

COPD measure is appropriate for use in both programs. We are inviting public 

comments on this proposal. 

(5) Total Hip Arthroplasty (THA) and Total Knee Arthroplasty (TKA) Measure

THA and TKA are commonly performed procedures that improve quality of life. 

Between 2008 and 2010, over 1.4 million THA and TKA procedures were performed on 

Medicare FFS patients aged 65 years and older.45 However, the costs of these 

procedures, especially to Medicare, are very high. Combined, THA and TKA procedures 

account for the largest procedural cost in the Medicare budget.46 Evidence also shows 

variation in readmissions of patients with THA/TKA procedures, supporting the finding 

that opportunities exist for improving care. The median 30-day risk-standardized 

readmission rate among Medicare FFS patients aged 65 or older undergoing THA/TKA 

procedures between 2008 and 2010 was 5.7 percent, and ranged from 3.2 percent to 9.9 

 

45 Gross, L.M., Curtis, J.P., Lin, Z., et al.: Hospital-level 30-Day All-Cause Risk-Standardized 

Readmission Rate Following Elective Primary total Hip Arthroplasty (THA) and/or Total Knee 

Arthroplasty (TKA): Report prepared for the Centers for Medicare & Medicaid Services, 2012. Available 

on the Web site at: http://www.qualitynet.org/. 46Bozic KJ, Rubash HE, Sculco TP.: Berry DJ. An analysis of medicare payment policy for total joint 

arthroplasty. J Arthroplasty. Sep 2008;23(6 Suppl 1):133-138.
 489 

percent across 3,497 hospitals.47 In addition, inclusion of a THA/TKA measure in the 

Hospital Readmissions Reduction Program aligns with CMS’ priority objectives to 

promote successful transitions of care for patients from the acute care inpatient setting to 

the outpatient setting, and reduces short-term readmission rates. Therefore, we believe 

the THA/TKA measure warrants inclusion in the Hospital Readmissions Reduction 

Program for FY 2015. 

(6) Overview of the THA/TKA Measure: Hospital-Level 30-Day All-Cause RiskStandardized Readmission Rate (RSRR) Following Elective Total Hip Arthroplasty 

(THA) and Total Knee Arthroplasty (TKA) (NQF #1551) 

 To better assess hospital care and care transitions for patients with elective 

THA/TKA procedures, we developed a hospital-level readmission measure for patients 

undergoing elective primary THA and/or TKA procedures. We finalized this measure for 

use in the Hospital IQR Program in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53519 through 53521). We are proposing to include this measure, updated with 

the CMS Planned Readmission Algorithm Version 2.1 adapted for THA/TKA (discussed 

in section V.G.3.b.(2) of this preamble) to: (1) expand the applicable conditions for the 

Hospital Readmissions Reduction Program; (2) derive the Excess Readmission Ratio for 

patients with THA/TKA procedures; and (3) calculate the readmission payment 

adjustments in FY 2015. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53519 through 53521) for details of the measure specifications as well as the 

 

47Grosso L.M., Curtis J.P., Lin Z., et al.: Hospital-level 30-Day All-Cause Risk-Standardized Readmission 

Rate Following Elective Primary Total Hip Arthroplasty (THA) And/Or Total Knee Arthroplasty (TKA): 

Report prepared for the Centers for Medicare & Medicaid Services. 2012. Available on the Web site at: 

http://www.qualitynet.org/.
 490 

2013 Hip/Knee Readmission Measures Updates and Specifications Report which is 

available on the CMS Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/Hospital QualityInits/Measure-Methodology.html. NQF 

endorsed the measure in January 2012 (http://www/qualityforum.org/QPS/1551). 

(7) Calculating the Excess Readmission Ratio 

 The THA/TKA readmission measure uses the same methodology and statistical 

modeling approach as the AMI, HF, and PN measures. We published a detailed 

description of how the readmission measures estimate the Excess Readmission Rate used 

in the Hospital Readmissions Reduction Program in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53380 through 53381). 

(8) THA/TKA Measure for the Hospital Readmissions Reduction Program 

 We are proposing to adopt the THA/TKA measure in the Hospital Readmissions 

Reduction Program beginning in FY 2015. We also finalized this measure for use in the 

Hospital IQR Program in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53519 through 

53521). We note that the set of hospitals for which this measure is calculated for the 

Hospital Readmissions Reduction Program differs from the set of hospitals used in 

calculations for the Hospital IQR Program. The Hospital Readmissions Reduction 

Program includes only subsection (d) hospitals as defined in 1886(d)(1)(B) of the Act and 

hospitals paid under section 1814(b)(3) of the Act (that is, Maryland hospitals), while the 

Hospital IQR Program calculations include non-IPPS hospitals such as CAHs, cancer 

hospitals, and hospitals in the Territories. However, we believe that the THA/TKA 
 491 

measure is appropriate for use in both programs. We are inviting public comments on 

this proposal. 

d. Proposals for Hospitals Paid under Section 1814(b)(3) of the Act, Including the 

Process to be Exempt from the Hospital Readmissions Reduction Program and Definition 

of “Base Operating DRG Payment Amount” for Such Hospitals (§ 412.152 and 

§ 412.154(d)) 

 As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53397), the 

definition of “applicable hospital” under section 1886(q)(5)(C) of the Act also includes 

hospitals paid under section 1814(b)(3) of the Act (that is, acute care Maryland hospitals 

that would have otherwise been paid under the IPPS, but for the waiver under section 

1814(b)(3) of the Act). Section 1886(q)(2)(B)(ii) of the Act allows the Secretary to 

exempt such hospitals from the Hospital Readmissions Reduction Program, provided that 

the State submits an annual report to the Secretary describing how a similar program to 

reduce hospital readmissions in that State achieves or surpasses the measured results in 

terms of health outcomes and cost savings established by Congress for the program as 

applied to “subsection (d) hospitals.” Accordingly, a program established by the State of 

Maryland that could serve to exempt the State from the Hospital Readmissions Reduction 

Program would focus on those “applicable” Maryland hospitals operating under the 

waiver provided by section 1814(b)(3) of the Act; that is, those hospitals that would 

otherwise have been paid by Medicare under the IPPS absent this provision. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53384), we established criteria 

for evaluation of an annual report to CMS to determine whether Maryland should be 
 492 

exempted from the program each year. We codified this requirement at § 412.154(d) of 

the regulations. In addition, we specified that we will evaluate a report submitted by the 

State of Maryland documenting how its program meets those criteria. However, because 

the Hospital Readmissions Reduction Program was in its first year and Maryland’s 

program was completing its first year, we specified that the evaluation of Maryland’s 

program for measurable health outcomes and cost savings would not begin until 

FY 2014. In that same final rule, we explained that it would be premature to evaluate 

Maryland’s readmission program on health outcomes and cost savings at that time, as we 

did not have sufficient information on which to evaluate Maryland’s program because 

FY 2013 was first year of the Hospital Readmissions Reduction Program. 

 We noted that our finalized criteria to evaluate Maryland’s program is for 

FY 2013, the first year of the program, and our evaluation criteria may change through 

notice-and-comment rulemaking as the Hospital Readmissions Reduction Program 

evolves. 

 In this proposed rule, we are proposing to establish a deadline by which the State 

must submit its annual report to the Secretary under proposed revised § 412.154(d)(2) of 

the regulations. We also are proposing the criteria that we would use to evaluate the 

State in order to determine whether or not the State would be exempted from the Hospital 

Readmissions Reduction Program beginning with FY 2014. In addition, we are 

proposing to define the “base operating DRG payment amount” for Maryland hospitals 

under § 412.152 of the regulations in the event that the State is not exempted from the 

Hospital Readmissions Reduction Program. 
 493 

 We are proposing that the State of Maryland must submit this preliminary report 

to CMS no later than January 15 of each year for CMS to consider, through the 

IPPS/LTCH PPS proposed rule for a Federal fiscal year, its exemption from the Hospital 

Readmissions Reduction Program for the upcoming Federal fiscal year. For example, the 

State of Maryland would have to submit the report by January 15, 2014 for consideration 

for the FY 2015 (beginning October 1, 2014) program year. This deadline would provide 

CMS sufficient time to evaluate the report, have any discussions with the State regarding 

its program, and prepare a presentation of that report for the IPPS/LTCH PPS proposed 

rule. Under this proposal, we also would require that the State submit a final report, with 

updated information on the State’s readmissions program and updated cost savings and 

health outcomes information, to CMS no later than June 1 of each year in order for CMS 

to determine, through the IPPS/LTCH PPS final rule for a Federal fiscal year, whether the 

State meets the requirements for exemption from the Hospital Readmissions Reduction 

Program in that upcoming Federal fiscal year. As such, for FY 2015, under proposed 

§ 412.154(d)(2)(ii), the State of Maryland would submit its preliminary report to the 

Secretary no later than January 15, 2014, and its final report to the Secretary no later than 

June 1, 2014, for consideration of exemption from the Hospital Readmissions Reduction 

Program. 

 For FY 2014, we have received a preliminary report from Maryland describing its 

readmissions program. Similar to its report submitted for FY 2013, Maryland described 

its current readmissions program, the Admissions-Readmission Revenue (ARR) Program. 

Under the voluntary program, the State pays hospitals under a case-mix adjusted bundled 
 494 

payment per episode of care, where the episode of care is defined as the initial admission 

and any subsequent readmissions to the same hospital or linked hospital system that 

occur within 30 days of the original discharge. According to the State, an initial 

admission with no readmissions provides the hospital with the same weight as an initial 

admission with multiple readmissions. Therefore, hospitals receive a financial reward for 

decreased readmissions (as determined through the case-mix adjusted episode of care 

weights). In the report, Maryland indicated that the reduction in intra-hospital 

readmission rates (that is, readmissions to the same hospital as the initial admission) 

resulted in approximately $25 million, or 0.27 percent, in savings to the participating 

hospitals for 2011 and 2012. In addition, Maryland reported that its readmission rate per 

1,000 Medicare beneficiaries declined from 17.14 percent (CY 2011, Quarter 2) to 15.21 

percent (CY 2012, Quarter 2). The State also acknowledged in that report that it has 

begun to track inter-hospital readmissions, where a patient is admitted to one hospital and 

readmitted to another hospital, which is comparable to how readmissions are measured 

under the Hospital Readmissions Reduction Program. In the FY 2013 IPPS/LTCH PPS 

final rule, we estimated that, under the Hospital Readmissions Reduction Program, for 

FY 2013, Medicare IPPS operating payments would decrease by approximately $300 

million (or 0.3 percent) of total Medicare IPPS operating payments. Maryland indicated 

that, for FY 2013, it would achieve comparable savings because it intends to reduce the 

rate update factor for all hospitals by 0.3 percent, regardless of a hospital’s performance 

on readmissions. 
 495 

 Furthermore, in its FY 2014 preliminary report to the Secretary, the State of 

Maryland indicated that, for FY 2014, subject to approval by the Commission, it is 

proposing a shared savings approach, which would be applied to all hospitals in the State. 

Under that shared savings approach, hospitals in the State would be ranked based on their 

performance on readmissions, under which hospitals with high readmissions above an 

established standard would experience a reduction in their revenue and the hospitals 

below the established standard would not experience a reduction in their revenue. For 

Maryland hospitals that are in the voluntary ARR program paid under the case-mix 

adjusted bundled payment per episode of care that are performing worse than the 

established standard for readmissions, their payment per episode of care would be 

reduced. In addition, the State proposes that hospitals that improve in readmissions 

above a certain standard would experience no reduction in their payments and those 

hospitals below the standard would experience a reduction. Based on this preliminary 

information, we believe that the State can achieve savings on readmissions that are tied to 

hospitals’ performance on readmissions, which is comparable to the Hospital 

Readmissions Reduction Program applied throughout the rest of the country. 

 For FY 2014, we are proposing to evaluate Maryland based on whether, under the 

shared savings approach, it can achieve comparable health outcomes and cost savings to 

the Hospital Readmissions Reduction Program. We note that, for FY 2014, we project 

that the Hospital Readmissions Reduction Program will result in a 0.2 percent decrease, 

or approximately $175 million, in payments to hospitals. We are inviting public 

comments on this proposal. 
 496 

 In this proposed rule, we also are proposing to define “base operating DRG 

payment amount” for hospitals paid under section 1814(b)(3) of the Act in the event that 

we do not exempt Maryland hospitals from the Hospital Readmissions Reduction 

Program in a given year. Consistent with section 1886(q)(2) of the Act, in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53382), under the regulations at § 412.152, we defined 

the “base operating DRG payment amount” under the Hospital Readmissions Reduction 

Program as the wage-adjusted DRG operating payment plus any applicable new 

technology add-on payments. As required by the statute, the definition of “base 

operating DRG payment amount” does not include adjustments or add-on payments for 

IME, DSH, outliers, and low-volume hospitals provided for under sections 

1886(d)(5)(A), (d)(5)(B), (d)(5)(F), and (d)(12) of the Act, respectively. Section 

1886(q)(2) of the Act does not exclude new technology payments made under section 

1886(d)(5)(K) of the Act in the definition of “base operating DRG payment amount”; 

therefore, any payments made under section 1886(d)(5)(K) of the Act are included in the 

definition of “base operating DRG payment amount.” In addition, under the regulations 

at § 412.152, we define “wage-adjusted DRG operating payment” as the applicable 

average standardized amount adjusted for resource utilization by the applicable MS-DRG 

relative weight and adjusted for differences in geographic costs by the applicable area 

wage index (and by the applicable COLA for hospitals located in Alaska and Hawaii). 

 Acute care hospitals located in the State of Maryland currently are not paid under 

the IPPS but are, instead, paid under a special waiver as provided by section 1814(b)(3) 

of the Act. For these applicable hospitals, we are proposing that the term “base operating 
 497 

DRG payment amount” means the base operating DRG payment amount defined at 

§ 412.152. In other words, we are proposing to revise existing § 412.152, to specify that, 

for Maryland hospitals, the “base operating DRG payment amount” is an amount equal to 

the IPPS wage adjusted DRG payment amount or the average standardized amount 

adjusted for resource utilization by the applicable MS-DRG relative weight and adjusted 

for differences in geographic costs by the applicable area wage index plus new 

technology payments that would be paid to Maryland hospitals absent section 1814(b)(3) 

of the Act. Although Maryland hospitals are currently paid under this waiver and not 

under the IPPS, if Maryland is not exempt from the Hospital Readmissions Reduction 

Program in a given year, we are proposing that, to determine the amount by which the 

hospitals’ payments under section 1814(b)(3) of the Act would be reduced under the 

Hospital Readmissions Reduction Program, the readmission payment adjustment under 

§ 412.154(b) would be determined using the estimated base operating DRG payment 

amount that would have applied had the hospital been paid under the IPPS. To 

implement this policy, we are proposing that claims submitted by Maryland hospitals 

would be “priced” under the IPPS payment methodology, and if a Maryland hospital has 

a readmissions payment adjustment factor, that factor would be applied to that base 

operating DRG payment amount to determine the payment adjustment under 

§ 412.154(b) (that is, the amount of the payment reduction). We are proposing that the 

amount of the payment reduction, if any, would be applied to (that is, subtracted from) 

the payments made to Maryland hospitals under the waiver. This proposed methodology 
 498 

would result in Maryland hospitals having the readmissions adjustment factor applied in a 

manner similar to that which is applied to hospitals that are paid under the IPPS. 

 Furthermore, we are proposing that if Maryland is not exempt from the Hospital 

Readmissions Reduction Program in a given year, the proposed definition of “base 

operating DRG payment amount” for Maryland hospitals discussed above (that is, the 

base operating DRG payment amount calculated as if the hospital were paid under the 

IPPS), and not any payment amount made under the waiver under by section 1814(b)(3) 

of the Act, would be used to calculate both the “aggregate payments for excess 

readmissions” and “aggregate payments for all discharges” (defined at § 412.152) for 

purposes of determining the hospital’s readmission adjustment factor that accounts for 

excess readmissions under § 412.154(c). We are inviting public comments on this 

proposal. 

e. Proposed Floor Adjustment Factor for FY 2014 (§ 412.154(c)(2)) 

 Section 1886(q)(3)(A) of the Act defines the “adjustment factor” for an applicable 

hospital for a fiscal year as equal to the greater of “(i) the ratio described in subparagraph 

(B) for the hospital for the applicable period (as defined in paragraph (5)(D)) for such 

fiscal year; or (ii) the floor adjustment factor specified in subparagraph (C).” 

Section 1886(q)(3)(B) of the Act, in turn, describes the ratio used to calculate the 

adjustment factor. Specifically, it states that the ratio is “equal to 1 minus the ratio of – 

(i) the aggregate payments for excess readmissions . . . and (ii) the aggregate payments 

for all discharges . . . .” In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53386), we 

codified the calculation of this ratio at § 412.154(c)(1) of the regulations. Section 
 499 

1886(q)(3)(C) of the Act specifies the floor adjustment factor, which is set at 0.99 for 

FY 2013, 0.98 for FY 2014, and 0.97 for FY 2015 and subsequent fiscal years. We 

codified the floor adjustment factor at § 412.154(c)(2) of the regulations. 

 For FY 2013, under § 412.154(c), we specified that an applicable hospital will 

receive an adjustment factor that is either the greater of the ratio or a floor adjustment 

factor of 0.99. For FY 2014, we are proposing that the floor adjustment factor be 0.98, 

consistent with section 1886(q)(3) of the Act, as codified at § 412.154(c)(2). As finalized 

in the FY 2013 IPPS/LTCH PPS final rule, the ratio is rounded to the fourth decimal 

place. In other words, for FY 2014, a hospital subject to the Hospital Readmissions 

Reduction Program would have an adjustment factor that is between 1.0 and 0.9800. We 

are inviting public comments on this proposal. 

f. Proposed Applicable Period for FY 2014 

 Under section 1886(q)(5)(D) of the Act, the Secretary has the authority to specify 

the applicable period with respect to a fiscal year under the Hospital Readmissions 

Reduction Program. We finalized our policy to use 3 years of claims data to calculate the 

readmission measures in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51671). In the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53390), we codified the definition of 

“applicable period” in the regulations at 42 CFR 412.152 as the 3-year period from which 

data are collected in order to calculate excess readmission ratios and adjustments for the 

fiscal year, which includes aggregate payments for excess readmissions and aggregate 

payments for all discharges used in the calculation of the payment adjustment. 
 500 

 For the Hospital Readmissions Reduction Program for FY 2013, we established 

an applicable period under § 412.152 as July 1, 2008, to June 30, 2011. Specifically, to 

calculate the excess readmission ratios and to calculate the payment adjustments for 

FY 2013 (including aggregate payments for excess readmissions and aggregate payments 

for all discharges used in the calculation of the payment adjustment), we used Medicare 

claims data from the 3-year time period of July 1, 2008 to June 30, 2011 (76 FR 51671 

and 77 FR 53388). 

 In this proposed rule, consistent with the definition at § 412.152 of the existing 

regulations, we are proposing that the applicable period for FY 2014 under the Hospital 

Readmissions Reduction Program would be the 3-year period from July 1, 2009, to 

June 30, 2012. That is, we would determine the excess readmission ratios and calculate 

the payment adjustment (including aggregate payments for excess readmissions and 

aggregate payments for all discharges) for FY 2014 using data from the 3-year time 

period of July 1, 2009 to June 30, 2012, as this is the most recent available 3-year period 

of data upon which to base these calculations. As discussed later in this section, although 

we are proposing an applicable period of July 1, 2009 through June 30, 2012 for 

FY 2014, for purposes of determining the proposed readmissions payment adjustment 

factors for this FY 2014 proposed rule, we are using excess readmission ratios based on 

older data, that is, from the FY 2013 applicable period of July 1, 2008 to June 30, 2011 

(that includes the application of the proposed planned readmission algorithm discussed 

earlier in this section). However, for the FY 2014 final rule, we intend to use excess 
 501 

readmission ratios based on data from the applicable period of July 1, 2009 to 

June 30, 2012, if that period is finalized. 

g. Proposed Refinements of the Methodology to Calculate the Aggregate Payments for 

Excess Readmissions 

 Section 1886(q)(3)(B) of the Act specifies the ratio used to calculate the 

adjustment factor under the Hospital Readmissions Reduction Program. It states that the 

ratio is “equal to 1 minus the ratio of – (i) the aggregate payments for excess 

readmissions . . . and (ii) the aggregate payments for all discharges . . . .” In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53387), we defined “aggregate payments for excess 

readmissions” and “aggregate payments for all discharges,” as well as a methodology for 

calculating the numerator of the ratio (aggregate payments for excess readmissions) and 

the denominator of the ratio (aggregate payments for all discharges). 

 Section 1886(q)(4) of the Act sets forth the definitions of “aggregate payments for 

excess readmissions” and “aggregate payments for all discharges” for an applicable 

hospital for the applicable period. The term “aggregate payments for excess 

readmissions” is defined in section 1886(q)(4)(A) of the Act as “for a hospital for an 

applicable period, the sum, for applicable conditions . . . of the product, for each 

applicable condition, of (i) the base operating DRG payment amount for such hospital for 

such applicable period for such condition; (ii) the number of admissions for such 

condition for such hospital for such applicable period; and (iii) the ‘Excess Readmission 

Ratio’... for such hospital for such applicable period minus 1.” In the FY 2013 
 502 

IPPS/LTCH PPS final rule (77 FR 53387), we included this definition of “aggregate 

payments for excess readmissions” under the regulations at § 412.152. 

 The “Excess Readmission Ratio” is a hospital-specific ratio calculated for each 

applicable condition. Specifically, section 1886(q)(4)(C) of the Act defines the excess 

readmission ratio as the ratio of “risk-adjusted readmissions based on actual 

readmissions” for an applicable hospital for each applicable condition, to the 

“risk-adjusted expected readmissions” for the applicable hospital for the applicable 

condition. The methodology for the calculation of the excess readmission ratio was 

finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673). “Aggregate 

payments for excess readmissions” is the numerator of the ratio used to calculate the 

adjustment factor under the Hospital Readmissions Reduction Program. 

 The term “aggregate payments for all discharges” is defined at section 

1886(q)(4)(B) of the Act as “for a hospital for an applicable period, the sum of the base 

operating DRG payment amounts for all discharges for all conditions from such hospital 

for such applicable period.” “Aggregate payments for all discharges” is the denominator 

of the ratio used to calculate the adjustment factor under the Hospital Readmissions 

Reduction Program. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53387), we 

included this definition of “aggregate payments for all discharges” under the regulations 

at § 412.152. 

 We note that we are taking this opportunity to propose to make a technical change 

to the definition of “basing operating DRG payment amount” in the existing regulations 

at § 412.152 to reflect our policy that the difference between the applicable 
 503 

hospital-specific payment rate and the Federal payment rate for SCHs and MDHs is 

excluded from the base operating DRG amount for these hospitals. We note that section 

1886(q)(2)(B)(i) of the Act provides “special rules” for MDHs with respect to discharges 

occurring during FYs 2012 and 2013, and not for subsequent years. Under current law, 

as discussed in section V.F. of the preamble of this proposed rule, the MDH program 

expires at the end of FY 2013 (that is, the MDH program is in effect through 

September 30, 2013); therefore, the technical change would reflect that our policy applies 

to MDHs for FY 2013 only. 

 As discussed above, when calculating the numerator (aggregate payments for 

excess readmissions), we determined the base operating DRG payments for the 

applicable period. “Aggregate payments for excess readmissions” (the numerator) is 

defined as “the sum, for applicable conditions . . . of the product, for each applicable 

condition, of (i) the base operating DRG payment amount for such hospital for such 

applicable period for such condition; (ii) the number of admissions for such condition for 

such hospital for such applicable period; and (iii) the ‘Excess Readmission Ratio’... for 

such hospital for such applicable period minus 1.” 

 When determining the base operating DRG payment amount for an individual 

hospital for such applicable period for such condition, we use Medicare inpatient claims 

from the MedPAR file with discharge dates that are within the same applicable period 

that was finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51671) to calculate 

the excess readmission ratio. We use MedPAR claims data as our data source for 

determining aggregate payments for excess readmissions and aggregate payments for all 
 504 

discharges, as this data source is consistent with the claims data source used in IPPS 

rulemaking to determine IPPS rates. 

 For FY 2014, we are proposing to use MedPAR claims with discharge dates that 

are on or after July 1, 2009, and no later than June 30, 2012. As specified in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53387), we use the update of the MedPAR file for 

each Federal fiscal year, which is updated 6 months after the end of each Federal fiscal 

year within the applicable period, as our data source (that is, the March updates of the 

respective Federal fiscal year MedPAR files) for the final rules. The FY 2009 through 

FY 2012 MedPAR data files can be purchased from CMS. Use of these files allows the 

public to verify the readmission adjustment factors. Interested individuals may order 

these files through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by 

clicking on the MedPAR Limited Data Set (LDS)-Hospital (National). This Web page 

describes the files and provides directions and further detailed instructions for how to 

order the data sets. 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: 

● If using the U.S. Postal Service: Centers for Medicare and Medicaid Services, 

RDDC Account, Accounting Division, P.O Box 7520, Baltimore, MD 21207-0520. 

● If using express mail: Centers for Medicare and Medicaid Services, 

OFM/Division of Accounting- RDDC, Mailstop C#-07-11, 7500 Security Boulevard, 

Baltimore, MD 21244-1850. 
 505 

 For this FY 2014 proposed rule, we are proposing to determine aggregate 

payments for excess readmissions and aggregate payments for all discharges using data 

from MedPAR claims with discharge dates that are on or after July 1, 2009, and no later 

than June 30, 2012. However, we note that, for the purposes of modeling the proposed 

readmissions payment adjustment factors in this proposed rule, we used excess 

readmission ratios based on an older performance period of July 1, 2008 to June 30, 2011 

with the application of the proposed planned readmission algorithm. 

 Consistent with the approach taken in the FY 2013 IPPS/LTCH PPS proposed 

rule (77 FR 27964), for the purpose of modeling the proposed FY 2014 readmissions 

payment adjustment factors, we are using excess readmission ratios for applicable 

hospitals from the FY 2013 Hospital Readmission Reduction Program applicable period. 

For FY 2014, applicable hospitals will have had the opportunity to review and correct 

data from the proposed FY 2014 applicable period of July 1, 2009 to June 30, 2012 

before they are made public under our policy regarding the reporting of hospital-specific 

information, which is discussed later in this section. 

 In this proposed rule, we are proposing for FY 2014 to use MedPAR data from 

July 1, 2009 through June 30, 2012, and we are using the March 2010 update of the 

FY 2009 MedPAR file to identify claims within FY 2009 with discharges dates that are 

on or after July 1, 2009, the March 2011 update of the FY 2010 MedPAR file to identify 

claims within FY 2010, the March 2012 update of the FY 2011 MedPAR file to identify 

claims within FY 2010, and the December 2012 update of the FY 2012 MedPAR file to 

identify claims within FY 2012 with discharge dates no later than June 30, 2012. For the 
 506 

FY 2014 IPPS/LTCH PPS final rule, we intend to use the same MedPAR files as listed 

above, with the exception of using the March 2013 update of the FY 2012 MedPAR file. 

 In order to identify the admissions for each condition for an individual hospital 

for calculating the aggregate payments for excess readmissions, as we did for FY 2013, 

we are proposing, for FY 2014, to identify each applicable condition using the same ICD9-CM codes used to identify applicable conditions to calculate the excess readmission 

ratios. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51669), in our discussion of the 

methodology of the readmissions measures, we stated that we identify eligible 

hospitalizations and readmissions of Medicare patients discharged from an applicable 

hospital having a principal diagnosis for the measured condition in an applicable period. 

The discharge diagnoses for each applicable condition are based on a list of specific 

ICD-9-CM codes for that condition. These codes are posted on the Web site at: 

http://www.QualityNet.org > Hospital-Inpatient > Claims-Based Measures > 

Readmission Measures > Measure Methodology. 

 In order to identify the applicable conditions to calculate the aggregate payments 

for excess readmissions, as we did for FY 2013, we are proposing, for FY 2014, to 

identify the claim as an applicable condition if the ICD-9-CM code for that condition is 

listed as the principal diagnosis on the claim, consistent with the methodology to identify 

conditions to calculate the excess readmission ratio. Based on public comments that we 

received on the FY 2013 IPPS/LTCH PPS proposed rule, which stated that the index 

admissions that are not considered readmissions for the purpose of the readmissions 

measures, and are thus excluded from the calculation of the excess readmission ratio, 
 507 

should also not be considered admissions for the purposes of determining a hospital’s 

aggregate payments for excess readmissions, we are proposing to further modify our 

methodology to identify the admissions included in the calculation of “aggregate 

payments for excess readmissions.” As we did for FY 2013 in response to public 

comments (77 FR 53390), using our MedPAR data source, we identified admissions for 

the purposes of calculating aggregate payments for excess readmissions making the 

following exclusions: (1) hospitalizations for patients discharged with an in hospital 

death; (2) hospitalization for patients discharged against medical advice; (3) transfers; 

(4) hospitalizations for patients under 65; (5) hospitalizations for patients enrolled in 

Medicare Part C; and (6) same day discharges for AMI cases. These admissions were 

excluded based on how they were identified in the MedPAR file. 

 For FY 2014, we are proposing to make the same exclusions as we did in 

FY 2013, but, for some of the exclusions, to identify them using a different methodology 

which is more consistent with the manner in which exclusions are made to the admissions 

used to calculate the excess readmission ratio. For FY 2014, in order to have the same 

types of admissions to calculate aggregate payments for excess readmissions, as is used 

to calculate the excess readmission ratio, we are proposing to identify admissions for the 

purposes of calculating aggregate payments for excess readmissions as follows; we note 

where our proposed methodology for exclusions for FY 2014 differs from our 

methodology in FY 2013: 

● We would exclude admissions that are identified as an applicable condition 

based on the ICD-9-CM code listed as the primary diagnosis if the patient died in the 
 508 

hospital, as identified by the discharge status code on the MedPAR claim. This is 

consistent with how we identified patients who died in the hospital in the FY 2013 

IPPS/LTCH PPS final rule. 

● We would exclude admissions identified as an applicable condition based on 

the ICD-9-CM code listed as the primary diagnosis for which the patient was transferred 

to another acute care hospital (that is, a CAH or an IPPS hospital), as identified through 

examination of contiguous stays in MedPAR at other hospitals. (We note that this 

proposed step differs from the methodology we used in the FY 2013 IPPS/LTCH PPS 

final rule to identify transfers based on discharge destination codes in the MedPAR file.) 

● We would exclude admissions identified as an applicable condition based on 

the ICD-9-CM code listed as the primary diagnosis for patients who are under the age of 

65, as identified by linking the claim information to the information provided in the 

Medicare Enrollment Database. (We note that this proposed step differs from the 

methodology we used in the FY 2013 IPPS/LTCH PPS Rule in that we previously used 

claims in the MedPAR file to identify a patient’s age.) 

● For conditions identified as AMI, we would exclude claims that are same day 

discharges, as identified by the admission date and discharge date on the MedPAR claim. 

(This is consistent with how we identified patients with same day discharges for AMI in 

the FY 2013 IPPS/LTCH PPS final rule. In addition, it is consistent with the calculation 

of the excess readmission ratio for AMI where same day discharges for AMI are not 

included as an index admission.) 
 509 

 Furthermore, we are proposing to only identify Medicare FFS claims that meet 

the criteria (that is, claims paid for under Medicare Part C (Medicare Advantage) would 

not be included in this calculation), consistent with the methodology to calculate excess 

readmission ratios based solely on admissions and readmissions for Medicare FFS 

patients. For FY 2013, we had excluded admissions for Medicare Advantage patients 

based on whether the claim was identified as a Medicare Advantage claim in the 

MedPAR file or whether the FFS payment amount on the claim was for an IME payment 

only, also indicative of an admission for a Medicare Advantage patient. For FY 2014, we 

would exclude admissions for patients enrolled in Medicare Advantage as identified in 

the Enrollment Database, which is consistent with how admissions for Medicare 

Advantage patients are identified in the calculation of the excess readmission ratios. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53390), we noted that there 

were additional exclusions to the admissions used to calculate the excess readmission 

ratio that we could not apply to the calculation of aggregate payments for excess 

readmissions at the time of rulemaking. However, we stated our intention to modify our 

systems to identify the additional exclusions in order to calculate the aggregate payments 

for excess readmissions in a manner that would be more consistent with the calculation of 

the excess readmission ratio. Thus, in addition to the exclusions to the admissions we 

finalized in the FY 2013, we are proposing additional exclusions so that the criteria used 

to identify admissions for the purposes of calculating aggregate payments for excess 

readmissions would be the same as the criteria used to identify admissions for the 

purposes of calculating the excess readmission ratios. We are proposing to link our 
 510 

MedPAR claims data with the Medicare Enrollment Database to make additional 

exclusions to the admissions used to calculate aggregate payments for excess 

readmissions, which is consistent with our established methodology for calculating of the 

excess readmission ratios. The Medicare Enrollment Database contains information on all 

individuals entitled to Medicare, including demographic information, enrollment dates, 

third party buy-in information, and Medicare managed care enrollment. For FY 2014, we 

are proposing to include the following additional steps to identify admissions for the 

purposes of calculating aggregate payments for excess readmissions: 

● We are proposing to exclude admissions for patients who did not have 

Medicare Parts A and B FFS enrollment in the 12 months prior to the index admission, 

based on the information provided in the Medicare Enrollment Database. 

● We are proposing to exclude admissions for patients without at least 30 days 

post-discharge enrollment in Medicare Parts A and B FFS, based on the information 

provided in the Medicare Enrollment Database. 

● We are proposing to exclude all multiple admissions within 30 days of a prior 

index admission, as identified in the MedPAR file, consistent with how multiple 

admissions within 30 days of an index admission are excluded from the calculation of the 

excess readmission ratio. 

 We are inviting public comments on these proposals. 

 The tables below list the ICD-9-CM codes we are proposing to use to identify 

each applicable condition to calculate the aggregate payments for excess readmissions 

under this proposal for FY 2014. These ICD-9-CM codes also will be used to identify 
 511 

the applicable conditions to calculate the excess readmission ratios, consistent with our 

policy finalized in the FY 2012 IPPS/LTCH PPS final rule. The list of ICD-9-CM codes 

for each condition has not changed from the list provided in the FY 2013 IPPS/LTCH 

PPS final rule. 

ICD-9-CM CODES TO IDENTIFY PNEUMONIA (PN) CASES 

ICD-9-CM 

Code Description of Code 

480.0 Pneumonia due to adenovirus 

480.1 Pneumonia due to respiratory syncytial virus 

480.2 Pneumonia due to parainfluenza virus 

480.3 Pneumonia due to SARS-associated coronavirus 

480.8 Viral pneumonia: pneumonia due to other virus not elsewhere classified 

480.9 Viral pneumonia unspecified 

481 Pneumococcal pneumonia [streptococcus pneumoniae pneumonia] 

482.0 Pneumonia due to klebsiella pneumoniae 

482.1 Pneumonia due to pseudomonas 

482.2 Pneumonia due to hemophilus influenzae [h. influenzae] 

482.30 Pneumonia due to streptococcus unspecified 

482.31 Pneumonia due to streptococcus group a 

482.32 Pneumonia due to streptococcus group b 

482.39 Pneumonia due to other streptococcus 

482.40 Pneumonia due to staphylococcus unspecified 

482.41 Pneumonia due to staphylococcus aureus 

482.42 Methicillin Resistant Pneumonia due to Staphylococcus Aureus 

482.49 Other staphylococcus pneumonia 

482.81 Pneumonia due to anaerobes 

482.82 Pneumonia due to escherichia coli [e.coli] 

482.83 Pneumonia due to other gram-negative bacteria 

482.84 Pneumonia due to legionnaires' disease 

482.89 Pneumonia due to other specified bacteria 

482.9 Bacterial pneumonia unspecified 

483.0 Pneumonia due to mycoplasma pneumoniae 

483.1 Pneumonia due to chlamydia 

483.8 Pneumonia due to other specified organism 
 512 

ICD-9-CM 

Code Description of Code 

485 Bronchopneumonia organism unspecified 

486 Pneumonia organism unspecified 

487.0 Influenza with pneumonia 

488.11 Influenza due to identified novel H1N1 influenza virus with pneumonia 
 513 

ICD-9-CM CODES TO IDENTIFY HEART FAILURE (HF) CASES 

ICD-9-CM 

Code Code Description 

402.01 Hypertensive heart disease, malignant, with heart failure 

402.11 Hypertensive heart disease, benign, with heart failure 

402.91 Hypertensive heart disease, unspecified, with heart failure 

404.01 Hypertensive heart and chronic kidney disease, malignant, with heart failure 

and with chronic kidney disease stage I through stage IV, or unspecified 

404.03 Hypertensive heart and chronic kidney disease, malignant, with heart failure 

and with chronic kidney disease stage V or end stage renal disease 

404.11 Hypertensive heart and chronic kidney disease, benign, with heart failure 

and with chronic kidney disease stage I through stage IV, or unspecified 

404.13 

Hypertensive heart and chronic kidney disease, benign, with heart failure 

and with chronic kidney disease stage I through stage IV, or unspecified 

failure and chronic kidney disease stage V or end stage renal disease 

404.91 

Hypertensive heart and chronic kidney disease, unspecified, with heart 

failure and chronic kidney disease stage V or end stage renal disease heart 

failure and with chronic kidney disease stage I through stage IV, or 

unspecified 

404.93 Hypertensive heart and chronic kidney disease, unspecified, with heart 

failure and chronic kidney disease stage V or end stage renal disease 

428.xx Heart Failure 

ICD-9-CM CODES TO IDENTIFY ACUTE MYOCARDIAL INFARCTION (AMI) 

CASES 

ICD-9-CM 

Code Description of Code 

410.00 AMI (anterolateral wall) – episode of care unspecified 

410.01 AMI (anterolateral wall) – initial episode of care 

410.10 AMI (other anterior wall) – episode of care unspecified 

410.11 AMI (other anterior wall) – initial episode of care 

410.20 AMI (inferolateral wall) – episode of care unspecified 
 514 

ICD-9-CM 

Code Description of Code 

410.21 AMI (inferolateral wall) – initial episode of care 

410.30 AMI (inferoposterior wall) – episode of care unspecified 

410.31 AMI (inferoposterior wall) – initial episode of care 

410.40 AMI (other inferior wall) – episode of care unspecified 

410.41 AMI (other inferior wall) – initial episode of care 

410.50 AMI (other lateral wall) – episode of care unspecified 

410.51 AMI (other lateral wall) – initial episode of care 

410.60 AMI (true posterior wall) – episode of care unspecified 

410.61 AMI (true posterior wall) – initial episode of care 

410.70 AMI (subendocardial) – episode of care unspecified 

410.71 AMI (subendocardial) – initial episode of care 

410.80 AMI (other specified site) – episode of care unspecified 

410.81 AMI (other specified site) – initial episode of care 

410.90 AMI (unspecified site) – episode of care unspecified 

410.91 AMI (unspecified site) – initial episode of care 

 

For FY 2014, we are proposing to calculate aggregate payments for excess 

readmissions, using MedPAR claims from July 1, 2009 to June 30, 2012, to identify 

applicable conditions based on the same ICD-9-CM codes used to identify the conditions 

for the readmissions measures and to apply the exclusions for the types of admissions 

discussed above. 
 515 

Formulas to Calculate the Readmission Adjustment Factor 

Aggregate payments for excess readmissions = [sum of base operating DRG payments 

for AMI x (Excess Readmission Ratio for AMI-1)] + [sum of base operating DRG 

payments for HF x (Excess Readmission Ratio for HF-1)] +[sum of base operating DRG 

payments for PN x (Excess Readmission Ratio for PN-1)]. 

Aggregate payments for all discharges = sum of base operating DRG payments for all 

discharges. 

Ratio = 1-(Aggregate payments for excess readmissions/Aggregate payments for all 

discharges). 

Readmissions Adjustment Factor for FY 2014 is the higher of the ratio or 0.9800. 

*Based on claims data from July 1, 2009 to June 30, 2012 for FY 2014. 

h. Clarification of Reporting Hospital-Specific Information, Including Opportunity to 

Review and Submit Corrections 

 In the FY 2013 IPPS/LTCH PPS final rule, we finalized our policy for the public 

reporting of the information for this program as well as providing hospitals with an 

opportunity to review and submit corrections to the information prior to public reporting. 

We are not proposing changes to the reporting, review, and submittal of corrections 

policy and the regulatory text that we finalized in the FY 2013 IPPS/LTCH final rule 

(77 FR 53399 through 53401). However, we wish to clarify that requests to incorporate 

claims previously billed under a different CMS Certification Number (CCN) by recently 

acquired entities into calculations for a particular CCN will not be considered. This is 

because the particular CCN was not responsible for the patients under the other CCN 

prior to the hospital merger at the time of service. 
 516 

 In addition to public comments on the proposed refinements to the readmissions 

measures, the proposed expansion of the applicable conditions for FY 2015, and the 

proposed changes to the readmission payment adjustment factors, we welcome public 

comment on the impact of the Hospital Readmissions Reduction Program on hospitals, 

including “safety net” hospitals. 
 517 

H. Hospital Value-Based Purchasing (VBP) Program

1. Statutory Background 

 Section 1886(o) of the Act, as added by section 3001(a)(1) of the Affordable Care 

Act, requires the Secretary to establish a hospital value-based purchasing program (the 

Hospital Value-Based Purchasing (VBP) Program) under which value-based incentive 

payments are made in a fiscal year to hospitals that meet performance standards 

established for a performance period for such fiscal year. Both the performance 

standards and the performance period for a fiscal year are to be established by the 

Secretary. 

 Section 1886(o)(1)(B) of the Act states that the Hospital VBP Program applies to 

payments for hospital discharges occurring on or after October 1, 2012. In accordance 

with section 1886(o)(6)(A) of the Act, we are required to make value-based incentive 

payments under the Hospital VBP Program to hospitals that meet or exceed performance 

standards for a performance period for a fiscal year. As further required by 

section 1886(o)(6)(C)(ii)(I) of the Act, we base each hospital’s value-based payment 

percentage on the hospital’s Total Performance Score (TPS) for a specified performance 

period. In accordance with section 1886(o)(7) of the Act, the total amount available for 

value-based incentive payments for a fiscal year will be equal to the total amount of the 

payment reductions for all participating hospitals for such fiscal year, as estimated by the 

Secretary. For FY 2013, the available funding pool was equal to 1.00 percent of the 

base-operating DRG payments to all participating hospitals, as estimated by the 

Secretary, and the size of the applicable percentage will increase to 1.25 percent for 
 518 

FY 2014, 1.50 percent for FY 2015, 1.75 percent for FY 2016, and 2.0 percent for 

FY 2017 and successive fiscal years. 

 Section 1886(o)(1)(C) of the Act generally defines the term “hospital” for 

purposes of the Hospital VBP Program as a subsection (d) hospital (as that term is 

defined in section 1886(d)(1)(B) of the Act), but excludes from the definition of the term 

“hospital,” with respect to a fiscal year: (1) a hospital that is subject to the payment 

reduction under section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital IQR Program) for 

such fiscal year; (2) a hospital for which, during the performance period for the fiscal 

year, the Secretary has cited deficiencies that pose immediate jeopardy to the health or 

safety of patients; and (3) a hospital for which there are not a minimum number (as 

determined by the Secretary) of measures that apply to the hospital for the performance 

period for the fiscal year involved, or for which there are not a minimum number (as 

determined by the Secretary) of cases for the measures that apply to the hospital for the 

performance period for such fiscal year. 

2. Overview of the FY 2013 Hospital VBP Program 

 In April 2011, we issued the Hospital Inpatient VBP Program final rule to 

implement section 1886(o) of the Act (76 FR 26490 through 26547). As described more 

fully in that final rule, for the FY 2013 Hospital VBP Program, we adopted 13 measures, 

including 12 clinical process of care measures and 8 dimensions from the Hospital 

Consumer Assessment of Healthcare Providers and Systems Survey (HCAHPS) measure 

that we categorized into two domains (76 FR 26495 through 26511). We grouped the 12 

clinical process-of-care measures into a clinical process of care domain, and placed the 
 519 

HCAHPS survey measure into a patient experience of care domain. We adopted a 

3-quarter performance period from July 1, 2011 through March 31, 2012 for these 

measures (76 FR 26494 through 26495), and performance standards on which hospital 

performance will be evaluated. To determine whether a hospital meets or exceeds the 

performance standards for these measures, we assessed each hospital’s achievement 

during this specified performance period, as well as its improvement during this period as 

compared with its performance during a 3-quarter baseline period from July 1, 2009 

through March 31, 2010 (76 FR 26493 through 26495). 

 We then calculated a TPS for each hospital by combining the greater of the 

hospital’s achievement or improvement points for each measure to determine a score for 

each domain, weighting each domain score (for the FY 2013 Hospital VBP Program, the 

weights were clinical process of care = 70 percent, patient experience of care = 30 

percent), and adding together the weighted domain scores. We converted each hospital’s 

TPS into a value-based incentive payment percentage using a linear exchange function 

and then converted the value-based incentive payment percentage into a per discharge 

value-based incentive payment amount. We incorporated the reduction to each hospital’s 

base operating DRG payment amount for each discharge, as well as the value-based 

incentive payment amounts that the hospital earned as a result of its performance (if 

applicable) into our claims processing systems in January 2013, and these adjustments 

applied to FY 2013 discharges. 

 We finalized the Hospital VBP Program’s payment adjustment calculation 

methodology, including codifying certain definitions related to the Program, in the 
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FY 2013 IPPS/LTCH PPS final rule (77 FR 53569 through 53571). We also finalized 

our methodology for estimating the total amount available for value-based incentive 

payments in a fiscal year under the Hospital VBP Program (77 FR 53571 through 53573), 

our methodology to calculate the value-based incentive payment adjustment factor 

(77 FR 53573 through 53576), the delayed application of the base-operating DRG 

payment amount reduction for FY 2013 discharges until incorporation of the value-based 

incentive payment adjustments into our claims processing system (77 FR 53577), and our 

process for reducing the base-operating DRG payment amount and applying the valuebased incentive payment adjustment for FY 2013 (77 FR 53577 through 53578). 

 We refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26490 

through 26547), the CY 2012 OPPS/ASC final rule with comment period (76 FR 74527 

through 74547) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53567 through 

53614) for further explanation of the details of the FY 2013 Hospital VBP Program and 

our other finalized policies related to future fiscal years. 

3. FY 2014 Payment Details 

 Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce the base 

operating DRG payment amount for a hospital for each discharge in a fiscal year by an 

applicable percent. Under section 1886(o)(7)(A) of the Act, the sum total of these 

reductions in a fiscal year must equal the total amount available for value-based incentive 

payments for all eligible hospitals for the fiscal year, as estimated by the Secretary. We 

finalized details on how we would implement these provisions in the FY 2013 
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IPPS/LTCH PPS final rule (77 FR 53571 through 53573), and refer readers to that final 

rule for more details. 

 Under section 1886(o)(7)(c)(ii) of the Act, the applicable percent for the FY 2014 

Hospital VBP Program is 1.25 percent. Based on the December 2012 update of the 

FY 2012 MedPAR file, we estimate that the total amount available for value-based 

incentive payments for FY 2014 is $1.1 billion. We intend to update this estimate for the 

final rule, using the March 2013 update of the FY 2012 MedPAR file. 

 As finalized in the FY 2013 IPPS/LTCH PPS final rule, as referenced above, we 

will utilize a linear exchange function to translate this estimated amount available into a 

value-based incentive payment percentage for each hospital, based on its Total 

Performance Score (TPS). We will then calculate a value-based incentive payment 

adjustment factor which will be applied to the base operating DRG payment amount for 

each discharge occurring in FY 2014, on a per-claim basis. Proxy value-based incentive 

payment adjustment factors may be found in Table 16 for this proposed rule (which is 

available on the CMS Web site). The proxy factors are based on the TPSs from the 

FY 2013 Hospital VBP Program. These FY 2013 performance scores are the most 

recently available performance scores that hospitals have been given the opportunity to 

review and correct. The slope of the linear exchange function used to calculate the proxy 

value-based incentive payment adjustment factors is 1.8362446088. This slope, along 

with the estimated amount available for value-based incentive payments, may also be 

found in Table 16. We intend to include an update to this table, as Table 16A, in the final 

rule (which will be available on the CMS Web site), to reflect changes based on the 
 522 

December update to the FY 2012 MedPAR file. The updated proxy value-based 

incentive payment adjustment factors for FY 2014 will continue to be based on historic 

FY 2013 Program TPSs because hospitals will not have been given the opportunity to 

review and correct their actual FY 2014 value-based incentive payment adjustment 

factors for the FY 2014 VBP program until after the final rule is published. After 

hospitals have been given an opportunity to review and correct their actual value-based 

incentive payment adjustment factors for FY 2014, we will add a new table, Table 16B 

(which will be available on the CMS Web site) to display the actual value-based 

incentive payment adjustment factors, exchange function slope, and estimated amount 

available for the FY 2014 Hospital VBP Program. We expect that Table 16B will be 

posted on the CMS Web site in October 2013. 

4. FY 2014 Hospital VBP Program Measures 

 For FY 2014, we adopted 17 measures for the Hospital VBP Program, including 

the 12 clinical process of care measures and the HCAHPS measure that we adopted for 

the FY 2013 Hospital VBP Program, 1 new clinical process of care measure (SCIP-Inf-9: 

Postoperative Urinary Catheter Removal on Postoperative Day 1 or 2), and 3 mortality 

outcome measures (Acute Myocardial Infarction (AMI) 30-Day Mortality Rate, Heart 

Failure (HF) 30-Day Mortality Rate, Pneumonia (PN) 30-Day Mortality Rate). The 

clinical process of care, HCAHPS, and mortality measures are discussed in more detail in 

the Hospital Inpatient VBP Program final rule (76 FR 26510 through 26511) and 

SCIP-Inf-9 is discussed in more detail in the CY 2012 OPPS/ASC final rule with 

comment period (76 FR 74530). 
 523 

 Although we also previously adopted 8 HAC measures, 2 AHRQ composite 

measures, and a Medicare Spending per Beneficiary Measure for the FY 2014 Hospital 

VBP Program, we have suspended the effective dates of these measures, with the result 

that these measures will not be included in the FY 2014 Hospital VBP Program 

(76 FR 74528 through 74530). However, as discussed further below, we finalized 

adoption of a Medicare Spending per Beneficiary Measure and an AHRQ composite 

measure for the FY 2015 Hospital VBP Program in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53582 through 53592). 

 Set out below is a complete list of the measures we adopted for the FY 2014 

Hospital VBP Program: 

Finalized Quality Measures for the FY 2014 Hospital VBP Program 

Clinical Process of Care Measures 

Measure ID Measure Description 

Acute myocardial infarction 

AMI-7a Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival 

AMI-8a Primary PCI Received Within 90 Minutes of Hospital Arrival 

Heart Failure 

HF-1 Discharge Instructions 

Pneumonia 

PN-3b Blood Cultures Performed in the Emergency Department Prior to 

Initial Antibiotic Received in Hospital 

PN-6 Initial Antibiotic Selection for CAP in Immunocompetent Patient 

Healthcare-associated infections 

SCIP-Inf-1 Prophylactic Antibiotic Received Within One Hour Prior to Surgical 

Incision 

SCIP-Inf-2 Prophylactic Antibiotic Selection for Surgical Patients 

SCIP-Inf-3 Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery 

End Time 

SCIP-Inf-4 Cardiac Surgery Patients with Controlled 6AM Postoperative Serum 

Glucose 

SCIP-Inf-9 Postoperative Urinary Catheter Removal on Post Operative Day 1 or 2 

Surgeries 

SCIP-Card-2 Surgery Patients on a Beta Blocker Prior to Arrival That Received a 

Beta Blocker During the Perioperative Period 
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Finalized Quality Measures for the FY 2014 Hospital VBP Program 

SCIP-VTE-1 Surgery Patients with Recommended Venous Thromboembolism 

Prophylaxis Ordered 

SCIP-VTE-2 Surgery Patients Who Received Appropriate Venous 

Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 

Hours After Surgery 

Patient Experience of Care Measures 

Measure ID Measure Description 

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems 

Survey* 

Outcome Measures

Measure ID Measure Description

MORT-30-

AMI 

Acute Myocardial Infarction (AMI) 30-Day Mortality Rate 

MORT-30-HF Heart Failure (HF) 30-Day Mortality Rate 

MORT-30 PN Pneumonia (PN) 30-Day Mortality Rate 

*The finalized dimensions of the HCAHPS survey for use in the FY 2014 Hospital VBP Program are: 

Communication with Nurses, Communication with Doctors, Responsiveness of Hospital Staff, Pain 

Management, Communication about Medicines, Cleanliness and Quietness of Hospital Environment, 

Discharge Information and Overall Rating of Hospital. These are the same dimensions that we 

adopted for the FY 2013 Hospital VBP Program. 

5. FY 2015 Hospital VBP Program Measures 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53582 through 53592), we 

adopted 12 Clinical Process of Care measures, one Patient Experience of Care measure in 

the form of the HCAHPS survey, 5 Outcome measures, including three 30-day mortality 

measures, the AHRQ PSI composite measure, and the CLABSI measure, and one 

Efficiency measure for the FY 2015 Hospital VBP Program. 

 We did not adopt two clinical process measures (SCIP-Inf-10 and AMI-10) that 

we determined were “topped-out” according to our criteria finalized in the Hospital 

Inpatient VBP Program final rule (76 FR 26496 through 26497). We also did not adopt 

SCIP-VTE-1 for the FY 2015 Hospital VBP Program because we believed that the 

measure is very similar to another measure we have adopted for the Program 
 525 

(SCIP-VTE–2) and, in our view, is not as closely linked to better surgical outcomes 

because it assesses the ordering of VTE prophylaxis, rather than the patient’s actual 

receipt of such prophylaxis within 24 hours of surgery. We also noted that, during a 

recent maintenance review of SCIP– VTE–1, the National Quality Forum (NQF) 

concluded that it would no longer endorse this measure. 

 Set out below is a complete list of the measures we adopted for the FY 2015 

Hospital VBP Program: 

Finalized Quality Measures for FY 2015 Hospital VBP Program 

Clinical Process of Care Measures 

Measure ID Measure Description 

AMI-7a Fibrinolytic Therapy Received Within 30 Minutes of Hospital 

Arrival 

AMI-8a Primary PCI Received Within 90 Minutes of Hospital Arrival 

HF-1 Discharge Instructions 

PN-3b Blood Cultures Performed in the Emergency Department Prior to 

Initial Antibiotic Received in Hospital 

PN-6 Initial Antibiotic Selection for CAP in Immunocompetent Patient 

SCIP-Inf-1 Prophylactic Antibiotic Received Within One Hour Prior to 

Surgical Incision 

SCIP-Inf-2 Prophylactic Antibiotic Selection for Surgical Patients 

SCIP-Inf-3 Prophylactic Antibiotics Discontinued Within 24 Hours After 

Surgery End Time 

SCIP-Inf-4 Cardiac Surgery Patients with Controlled 6AM Postoperative 

Serum Glucose 

SCIP-Inf-9 Urinary Catheter Removed on Postoperative Day 1 or 

Postoperative Day 2 

SCIP-Card-2 Surgery Patients on Beta-Blocker Therapy Prior to Arrival Who 

Received a Beta-Blocker During the Perioperative Period 

SCIP-VTE-2 Surgery Patients Who Received Appropriate Venous 

Thromboembolism Prophylaxes Within 24 Hours Prior to 

Surgery to 24 Hours After Surgery 

Patient Experience Measures

HCAHPS* Hospital Consumer Assessment of Healthcare Providers and 

Systems Survey 

Outcome Measures

AHRQ PSI 

composite 

Complication/patient safety for selected indicators (composite) 
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Finalized Quality Measures for FY 2015 Hospital VBP Program 

CLABSI Central Line-Associated Blood Stream Infection 

MORT-30-AMI Acute Myocardial Infarction (AMI) 30-day mortality rate 

MORT-30-HF Heart Failure (HF) 30-day mortality rate 

MORT-30-PN Pneumonia (PN) 30-day mortality rate 

Efficiency Measures

MSPB-1 Medicare Spending per Beneficiary 

*Dimensions of the HCAHPS survey for use in the FY 2015 Hospital VBP Program are: Communication 

with Nurses, Communication with Doctors, Responsiveness of Hospital Staff, Pain Management, 

Communication about Medicines, Cleanliness and Quietness of Hospital Environment, Discharge 

Information and Overall Rating of Hospital. These are the same dimensions of the HCAHPS survey that 

have been finalized for prior Hospital VBP Program years. 

6. FY 2016 Hospital VBP Program Measures 

a. Measures Previously Adopted and Proposal to Remove AMI-8a, PN-3b, and HF-1 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53592 through 53593), we 

adopted for the FY 2016 Hospital VBP Program the three 30-day mortality measures that 

we had finalized for the Hospital VBP Program for FYs 2014 and 2015. We also adopted 

the AHRQ patient safety composite (PSI-90) for the Hospital VBP Program for FY 2016. 

We adopted those measures at that time in order to adopt a longer performance period 

and collect more data for performance scoring than would be possible if we waited to 

make those proposals until this proposed rule. We also adopted those measures at that 

time because we recognized that under section 1886(o)(3)(C) of the Act, we must 

establish and announce performance standards not later than 60 days prior to the 

beginning of the performance period for the fiscal year involved. We also automatically 

readopted the remaining FY 2015 measures (with the exception of the CLABSI measure), 

in accordance with our policy of automatic readoption of measures (77 FR 53592). 

 In this proposed rule, we are proposing to remove three measures from the 

measure set previously adopted that we have discussed above. First, we analyzed the 
 527 

clinical process of care measures for “topped out” status and concluded that AMI-8a: 

Primary PCI Received within 90 Minutes of Hospital Arrival is “topped-out.” Our 

methodology for evaluating whether a measure is topped-out focuses on two criteria: 

(1) national measure data show statistically indistinguishable performance levels at the 

75th and 90th percentiles; and (2) national measure data show a truncated coefficient of 

variation (TCV) less than 0.10. We believe that topped-out measures should not be 

included in the Hospital VBP Program because measuring hospital performance on those 

measures has no meaningful effect on a hospital’s TPS. Therefore, we are proposing to 

remove AMI-8a from the FY 2016 Hospital VBP Program measure set. 

 We welcome public comments on our proposal to remove AMI-8a from the 

FY 2016 Hospital VBP Program measure set and on whether any other existing Hospital 

VBP Program measures are topped-out and, therefore, should be removed from the 

previously adopted FY 2016 measure set. We intend to update our topped-out analysis 

using the most recently available data and will announce in the FY 2014 IPPS/LTCH PPS 

final rule whether any of the other FY 2016 measures will be removed due to topped-out 

status. 
 528 

 Second, we are proposing to remove PN-3b, Blood Cultures Performed in the 

Emergency Department Prior to Initial Antibiotic Received in Hospital, and HF-1, 

Discharge Instructions, from the FY 2016 Hospital VBP Program. Both PN-3b and HF-1 

are no longer endorsed by the NQF, and we note that in its 2013 Pre-Rulemaking Report, 

the Measure Applications Partnership (MAP) did not recommend those measures for use 

in the Hospital VBP Program 

 As of February 28, 2012, the NQF Pneumonia Thoracic CT Work Group of the 

Pulmonary and Critical Care Endorsement Maintenance Project believed there was 

insufficient evidence that performing blood cultures prior to initiation of antibiotics led to 

better outcomes. The workgroup also cited significant issues with documentation of the 

timing of the blood cultures with respect to the initiation of the antibiotics. 

Documentation is often done retrospectively providing opportunities for data entry errors. 

The issue is compounded with EHRs as data entry is electronically time-stamped and 

may not accurately indicate when blood cultures were drawn or antibiotics given. 

Although the measure is currently “chart-abstracted,” the data might be abstracted from 

an EHR, instead of from a paper record. 

 We note further that NQF reviewed HF-1 during the summer of 2012. The NQF 

Steering Committee determined that there was insufficient evidence to link the HF-1 

measure of discharge instructions with better outcomes. The committee noted that 

discharge instructions, as measured by HF-1, did not cover several important issues, 

including patient understanding of the instructions and their appropriateness for patients’ 

education and literacy levels. 
 529 

 Therefore, we do not believe that these measures appropriately capture relevant 

inpatient quality information for purposes of the Hospital VBP Program, and, as indicated 

above, we are proposing to remove them from the FY 2016 program. 

b. Proposed New Measures for the FY 2016 Hospital VBP Program 

 We considered if we should adopt additional measures for the FY 2016 Hospital 

VBP Program. We considered what measures are eligible for adoption based on the 

statutory requirements, including specification under the Hospital IQR Program and 

posting dates on the Hospital Compare Web site, as well as our priorities for quality 

improvement as outlined in the National Quality Strategy, which is available for 

download at http://www.healthcare.gov/news/reports/nationalqualitystrategy032011.pdf. 

 We believe the following measures meet the statutory requirements for inclusion 

in the Hospital VBP Program. We also believe that these measures represent important 

components of quality improvement in the acute inpatient hospital setting. 

 Influenza Immunization (IMM-2, NQF #1659) is a chart-abstracted prevention 

measure that addresses acute care hospitalized inpatients age 6 months or older that were 

screened for seasonal influenza immunization status and were vaccinated prior to 

discharge, if indicated. We believe this measure is important to quality improvement 

efforts because about 36,000 adults die and over 200,000 are hospitalized annually for 

flu-related causes. Older adults are more vulnerable to influenza, and adults over age 65 

comprise about 90 percent of deaths related to flu. Vaccinations can significantly reduce 

the number of flu-related illnesses and deaths. 
 530 

 This measure was incorporated into the Hospital IQR Program for FY 2014 in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50211), and data collection began with 

January 1, 2012 discharges. Measure data were posted on Hospital Compare on 

December 13, 2012, and MAP supported its inclusion in the Hospital VBP Program in its 

February 2013 report (available at 

http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx), noting that it addresses a high-impact condition not adequately 

addressed in the program’s current measure set. Therefore, we are proposing to adopt 

IMM-2 into the Clinical Process of Care domain for the FY 2016 Hospital VBP Program. 

 Catheter-Associated Urinary Tract Infection (CAUTI, NQF #0138) is an HAI 

measure reported via CDC’s National Healthcare Safety Network (NHSN). This measure 

is important to quality improvement efforts because the urinary tract is the most common 

site of HAIs, accounting for more than 30 percent of infections reported by acute care 

hospitals. Complications associated with CAUTI cause discomfort to patients, prolonged 

hospitals stays, and increased costs and mortality. More than 13,000 deaths each year are 

associated with UTIs. 

 This measure was finalized for the Hospital IQR Program in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51617 through 51618), and data collection began with 

January 1, 2012 discharges. Measure data were posted on Hospital Compare on 

December 13, 2012, and MAP supported its inclusion in the Hospital VBP Program in its 

February 2013 report, noting that it addresses the National Quality Strategy (NQS) 

priorities not adequately addressed in the program’s current measure set. Therefore, we 
 531 

are proposing to adopt the NHSN CAUTI measure into the Outcome domain for the 

FY 2016 Hospital VBP Program. 

 Surgical Site Infection (SSI, NQF #0753) is an HAI measure reported via CDC’s 

NHSN. As currently specified under the Hospital IQR Program, the measure is restricted 

to colon procedures, including incision, resection, or anastomosis of the large intestine, 

and large-to-small and small-to-large bowel anastomosis, and abdominal hysterectomy 

procedures, including those done by laparoscope. The measure is reported separately on 

Hospital Compare for those two surgery sites, and does not include rectal operations. 

 This measure was incorporated into the Hospital IQR Program in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50211), and data collection began with 

January 1, 2012 discharges. Measure data were posted on Hospital Compare on 

December 13, 2012, and MAP supported its inclusion in the Hospital VBP Program in its 

February 2013 report, noting that it addresses NQS priorities not adequately addressed in 

the program’s current measure set. The SSI measure was stratified by surgery site when 

it was adopted for the Hospital IQR Program, and is both collected and publicly reported 

as a stratified measure. However, because we adopted SSI as one measure under the 

Hospital IQR Program, we are proposing to score the measure for purposes of the 

Hospital VBP Program as a weighted average of the measure’s strata by applicable cases 

per stratum. Under this proposed scoring methodology, if a hospital meets the Hospital 

IQR Program’s threshold for public display of its SSI measure strata scores during a 

Hospital VBP performance period – that is, at least one predicted infection during the 
 532 

applicable time period – we will calculate a weighted average of the measure’s strata to 

score under the Hospital VBP Program. 

 We believe this proposal enables us to score participating hospitals on the 

underlying components of the SSI measure fairly. We note further that, for purposes of 

calculating performance standards displayed subsequently, we will equally weight the 

SSI measure’s strata. We seek public comments on our proposed adoption of this 

measure and its proposed scoring methodology under the Hospital VBP Program. 

 We adopted the NHSN-based CLABSI measure in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53583), and refer readers to that regulation for further discussion of the 

measure. We continue to believe that the CLABSI measure is consistent with the 

Hospital VBP Program’s statutory requirement that we consider measures of HAIs for the 

FY 2013 Hospital VBP Program’s measure set. We also note that the measure was 

included in the HHS Action Plan to Prevent HAIs, which is referenced in 

section 1886(o)(2)(B)(i)(I)(ee) of the Act. 

 In the FY 2013 IPPS/LTCH PPS final rule, we stated that we would not 

automatically readopt CLABSI for the FY 2016 Program (77 FR 53592), although we 

stated our intent to adopt the measure in the future. We did not automatically readopt 

CLABSI because we understood that CDC was planning to submit a revised version of 

this measure to NQF for endorsement, and that there may have been substantive changes 

to the measure associated with reliability adjustment to the standardized infection ratio. 

 The reliability-adjusted standardized infection ratio (SIR) is an outcome measure 

that summarizes the healthcare-associated infection experience by type of infection (for 
 533 

example, central-line associated bloodstream infection, surgical site infection) for 

individual hospitals. The reliability-adjusted measure enables more meaningful statistical 

differentiation between hospitals by accounting for differences in patient case-mix, 

exposures to medical devices or procedures (for example, central line-days, surgical 

procedure volume), and unmeasured factors that are not reflected in the unadjusted SIR 

and that cause variation in outcomes between hospitals. Accounting for these sources of 

variability enables better measure discrimination between hospitals and leads to more 

reliable quality measurements. 

 We are aware that the CDC has submitted the reliability-adjusted version of the 

CLABSI measure to the NQF for endorsement. We note further that, in its February 

2013 report, MAP recommended adoption of the reliability-adjusted CLABSI measure 

“contingent on NQF endorsement,” and noted that the “most recent NQF-endorsed 

version should be applied.” We believe that our proposal to adopt the current CLABSI 

measure is consistent with this recommendation, and we intend to consider adopting the 

reliability-adjusted CLABSI measure in future rulemaking. 

 We intend to monitor CDC’s activity on this measure, particularly as it moves 

toward reliability adjustment, and intend to adopt the revised measure in future program 

years. However, in the absence of NQF endorsement of the reliability-adjusted measure, 

unless and until the Hospital IQR Program adopts the reliability adjustments, we are 

proposing to adopt the CLABSI measure as it currently exists into the Outcome domain 

for the FY 2016 Hospital VBP Program. 
 534 

 Below is a table that describes the measures for the FY 2016 Hospital VBP 

Program that we previously adopted, as well as the new measures that we are proposing 

to adopt. 

Proposed and Readopted Measures for the FY 2016 Hospital VBP Program 

Clinical Process of Care Measures 

AMI-7a Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival 

IMM-2** Influenza Immunization 

PN-6 Initial Antibiotic Selection for CAP in Immunocompetent Patient 

SCIP-Inf-1 Prophylactic Antibiotic Received Within One Hour Prior to Surgical 

Incision 

SCIP-Inf-2 Prophylactic Antibiotic Selection for Surgical Patients 

SCIP-Inf-3 Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery 

End Time 

SCIP-Inf-4 Cardiac Surgery Patients with Controlled 6AM Postoperative Serum 

Glucose 

SCIP-Inf-9 Urinary Catheter Removed on Postoperative Day 1 or Postoperative 

Day 2 

SCIP-Card-2 Surgery Patients on Beta-Blocker Therapy Prior to Arrival Who 

Received a Beta-Blocker During the Perioperative Period 

SCIP-VTE-2 Surgery Patients Who Received Appropriate Venous 

Thromboembolism Prophylaxes Within 24 Hours Prior to Surgery to 

24 Hours After Surgery 

Patient Experience Measures 

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems 

Survey 

Outcome Measures 

CAUTI** Catheter-Associated Urinary Tract Infection 

CLABSI*** Central Line-Associated Blood Stream Infection 

MORT-30-AMI* Acute Myocardial Infarction (AMI) 30-day mortality rate 

MORT-30-HF* Heart Failure (HF) 30-day mortality rate 

MORT-30-PN* Pneumonia (PN) 30-day mortality rate 

PSI-90* Complication/patient safety for selected indicators (composite) 

SSI** Surgical Site Infection 

• Colon 

• Abdominal Hysterectomy 

Efficiency Measures 

MSPB-1 Medicare Spending per Beneficiary 
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*Measures previously finalized for the FY 2016 Hospital VBP Program. 

**Proposed new measures. 

***Measures finalized for FY 2015 but not subject to immediate readoption. 

 We are inviting public comments on this measure set. 

 We also seek public comment on our intent to adopt the Methicillin-resistant 

Staphylococcus aureus (MRSA) Bacteremia and the Clostridium difficile (C. difficile) 

standardized infection ratio measures for the FY 2017 Hospital VBP Program. Both of 

these measures are high-priority HAI measures listed in the HHS Action Plan to Prevent 

HAIs. We anticipate posting performance data for these measures on Hospital Compare

later this year, and anticipate proposing to adopt these measures for the Hospital VBP 

Program in the FY 2015 IPPS/LTCH PPS proposed rule. 

c. Future Measures for the Efficiency Domain 

 We are considering including additional measures in the Efficiency Domain for 

future years of both the Hospital IQR Program and the Hospital VBP Program. If we 

were to expand the Efficiency Domain in the future, we would do so through future 

rulemaking and in accordance with the requirements of section 1886(o) of the Act. 

 We are considering adding a measure of hospitals’ performance on treating 

Medicare beneficiaries appropriately as a hospital inpatient or a hospital outpatient. 

Specifically, we are considering constructing a measure to assess the rate and/or dollar 

amount of billing hospital inpatient services to Medicare Part B, subsequent to the denial 

of a Part A hospital inpatient claim. We are considering such a measure in light of our 

recent proposal that when a Medicare Part A claim for inpatient hospital services is 

denied because the inpatient admission was determined not to be reasonable and 
 536 

necessary, or when a hospital determines under § 482.30(d) or § 485.641 after a 

beneficiary is discharged that his or her inpatient admission was not reasonable and 

necessary, the hospital may be paid for all of the Part B services that would have been 

reasonable and necessary had the beneficiary been treated as a hospital outpatient rather 

than admitted as an inpatient, if the beneficiary is enrolled in Medicare Part B 

(78 FR 16632 through 16646). We are inviting public comments on this or other 

approaches to include a measure of appropriateness of hospital inpatient services in future 

years of the Hospital IQR Program and the Efficiency Domain for the Hospital VBP 

Program. 

 We also are considering the addition of Medicare spending measures specific to 

physician services such as Radiology, Anesthesiology, and Pathology that occur during a 

hospital stay. We are inviting public comment on how to best to construct measures of 

Medicare spending for these or other physician services provided during a hospital stay, 

for future inclusion in the Hospital IQR Program and the Efficiency Domain in the 

Hospital VBP Program. 

7. Proposed Performance Periods and Baseline Periods 

a. Background 

 Section 1886(o)(4) of the Act requires the Secretary to establish a performance 

period for the Hospital VBP Program for a fiscal year that begins and ends prior to the 

beginning of such fiscal year. 
 537 

b. Proposed Clinical Process of Care Domain Performance Period and Baseline Period 

for the FY 2016 Hospital VBP Program 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53594 through 53595), we 

finalized a 12-month performance period for FY 2015 Clinical Process of Care measures 

of CY 2013, or January 1, 2013 through December 31, 2013, with a corresponding 

baseline period of CY 2011, or January 1, 2011 through December 31, 2011, for purposes 

of calculating improvement points and performance standards. As we stated in that rule, 

a 12-month performance period provides us more data on which to score hospital 

performance, which is an important goal both for CMS and for stakeholders. We also 

noted that a 12-month performance period is consistent with the reporting periods used 

for these measures under the Hospital IQR Program. 

 We are proposing to adopt a 12-month performance period for FY 2016 Clinical 

Process of Care measures of CY 2014, or January 1, 2014 through December 31, 2014, 

for the FY 2016 Hospital VBP Program. We also are proposing to adopt a corresponding 

12-month baseline period of CY 2012, or January 1, 2012 through December 31, 2012, 

for purposes of calculating improvement points and calculating performance standards. 

 We are inviting public comment on these proposals. 

c. Proposed Experience of Care Domain Performance Period and Baseline Period for the 

FY 2016 Hospital VBP Program 

 Consistent with our goal of adopting a full 12-month period for this domain in 

order to collect a larger amount of HCAHPS survey data compared to a 9-month period, 

in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53595), we finalized a 12-month 
 538 

performance period for FY 2015 Patient Experience of Care measures of CY 2013, or 

January 1, 2013 through December 31, 2013, with a corresponding baseline period of 

CY 2011, or January 1, 2011 through December 31, 2011, for purposes of calculating 

improvement points and performance standards. As we stated in that rule, a 12-month 

performance period provides us more data on which to score hospital performance, which 

is an important goal both for CMS and for stakeholders. 

 We are proposing to adopt a 12-month performance period for FY 2016 Patient 

Experience of Care measures of CY 2014, or January 1, 2014 through 

December 31, 2014, for the FY 2016 Hospital VBP Program. We also are proposing to 

adopt a corresponding 12-month baseline period of CY 2012, or January 1, 2012 through 

December 31, 2012, for purposes of calculating improvement points and calculating 

performance standards. 

 We are inviting public comment on these proposals. 

d. Proposed Efficiency Domain Measure Performance Period and Baseline Period for the 

FY 2016 Hospital VBP Program 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53595 through 53596), we 

finalized a performance period for the Medicare Spending per Beneficiary measure for 

the FY 2015 Hospital VBP Program of May 1, 2013 through December 31, 2013, with a 

corresponding baseline period of May 1, 2011 through December 31, 2011. We finalized 

that performance period based on the measure’s posting date on Hospital Compare, our 

desire to ensure consistency across domains where possible, and in order to ensure that 
 539 

data have been posted for at least 1 year prior to the beginning of the measure 

performance period. 

 In order to expand the dataset available for performance scoring on this measure, 

we are proposing to adopt a 12-month performance period for the Medicare Spending per 

Beneficiary measure for the FY 2016 Hospital VBP Program of CY 2014, or 

January 1, 2014 through December 31, 2014, with a corresponding baseline period of 

CY 2012, or January 1, 2012 through December 31, 2012. These proposed performance 

and baseline periods align with the performance and baseline periods for Clinical Process 

of Care Domain measures. These proposed performance and baseline periods also enable 

us to collect sufficient measure data, while allowing time to calculate and incorporate 

Medicare spending per Beneficiary measure data into the Hospital VBP Program scores 

in a timely manner. 

 We are inviting public comments on the proposed performance and baseline 

periods for the Medicare Spending per Beneficiary measure. 

 Proposed baseline and performance periods for FY 2016 (with the exception of 

the Outcome domain, discussed further below) are summarized in the following table. 
 540 

Proposed Performance and Baseline Periods for the FY 2016 Hospital VBP 

Program – Clinical Process of Care, Patient Experience of Care, and Efficiency 

Domains 

Domain Baseline Period Performance Period 

Clinical Process 

of Care 

January 1, 2012 – 

December 31, 2012 

January 1, 2014 – 

December 31, 2014 

Patient 

Experience of 

Care 

January 1, 2012 – 

December 31, 2012 

January 1, 2014 – 

December 31, 2014 

Efficiency January 1, 2012 – 

December 31, 2012 

January 1, 2014 – 

December 31, 2014

e. Proposed Outcome Domain Performance Periods and Baseline Periods for the 

FY 2017 through FY 2019 Hospital VBP Programs 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53598 through 53599) we 

finalized performance periods and baseline periods for the FY 2016 mortality and AHRQ 

PSI composite measures. These periods are summarized in the table below. 

Finalized FY 2016 Performance Periods and Baseline Periods for 30-Day Mortality 

and AHRQ PSI Measures 

Measure Baseline period Performance period 

Mortality October 1, 2010 – June 30, 2011 October 1, 2012 – June 30, 2014 

AHRQ PSI 

composite 

October 15, 2010 – June 30, 2011 October 15, 2012 – June 30, 2014 

 In light of the time needed to process measure data for the three 30-day mortality 

and AHRQ PSI composite measures and our policy goal to collect enough data to 

generate the most reliable scores possible, we are proposing in this proposed rule to adopt 

performance periods for the three 30-day mortality and AHRQ PSI composite measures 

for the FY 2017 through FY 2019 program years. We also seek to increase transparency 
 541 

about performance of the Hospital VBP Program measures through use of Hospital 

Compare as a monitoring tool for hospitals to assess their performance on the Hospital 

VBP Program measures. We believe that aligning the Hospital VBP Program 

performance periods with the Hospital IQR Program reporting period duration would 

allow hospitals to review Hospital Compare measure rates when they are updated and 

incorporate this information into their quality improvement efforts, rather than having to 

wait until the Hospital VBP Program provides its scoring reports to hospitals. Further, 

we believe that aligning the Hospital IQR Program and the Hospital VBP Program in this 

manner will minimize the burden on participating hospitals by aligning the time periods 

during which they must monitor their performance on these measures. 

 Therefore, we are proposing to adopt the following performance and baseline 

periods for the three 30-day mortality and AHRQ PSI composite measures for the 

FY 2017 through FY 2019 Hospital VBP Programs. We note that the performance 

periods proposed below for the AHRQ PSI composite measure reach 24 months at their 

maximum, compared to the 36 months proposed for the 30-day mortality measures. We 

are proposing those durations for the AHRQ PSI measure in order to adopt performance 

periods that align with AHRQ’s recommended data period for public reporting. 

Proposed Performance and Baseline Periods for 30-day Mortality and AHRQ PSI 

Composite Measures 

FY 2017 Hospital VBP Program 

Domain Baseline Period Performance Period 

Outcome 

• Mortality 

• AHRQ PSI

• October 1, 2010 – June 30, 2012 

• October 1, 2010 – June 30, 2012 

• October 1, 2013 – June 30, 2015

• October 1, 2013 – June 30, 2015

FY 2018 Hospital VBP Program 

Domain Baseline Period Performance Period 

Outcome 
 542 

• Mortality 

• AHRQ PSI

• October 1, 2009 – June 30, 2012 

• July 1, 2010 – June 30, 2012 

• October 1, 2013 – June 30, 2016 

• July 1, 2014 – June 30, 2016 

FY 2019 Hospital VBP Program 

Domain Baseline Period Performance Period 

Outcome 

• Mortality 

• AHRQ PSI

• July 1, 2009 – June 30, 2012 

• July 1, 2010 – June 30, 2012

• July 1, 2014 – June 30, 2017 

• July 1, 2015 – June 30, 2017

 We are inviting public comments on our proposal to adopt performance periods 

and corresponding baseline periods for these measures for the FY 2017 through FY 2019 

Hospital VBP Programs. 

8. Proposed Performance Standards for the Hospital VBP Program 

a. Background 

 Section 1886(o)(3)(A) of the Act requires the Secretary to establish performance 

standards for the measures selected under the Hospital VBP Program for a performance 

period for the applicable fiscal year. The performance standards must include levels of 

achievement and improvement, as required by section 1886(o)(3)(B) of the Act, and must 

be established and announced not later than 60 days before the beginning of the 

performance period for the fiscal year involved, as required by section 1886(o)(3)(C) of 

the Act. Achievement and improvement standards are discussed more fully in the 

Hospital Inpatient VBP Program final rule (76 FR 26511 through 26513). 

 In addition, when establishing the performance standards, section 1886(o)(3)(D) 

of the Act requires the Secretary to consider appropriate factors, such as: (1) practical 

experience with the measures, including whether a significant proportion of hospitals 

failed to meet the performance standard during previous performance periods; (2) 

historical performance standards; (3) improvement rates; and (4) the opportunity for 
 543 

continued improvement. In the FY 2013 IPPS/LTCH PPS final rule, (77 FR 53599 

through 53604), we codified our interpretation of the Hospital VBP statute with respect to 

performance standards in our regulations at § 412.165. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53599 through 53604), we 

adopted performance standards for FY 2015 and FY 2016 Hospital VBP Program 

measures. We also finalized our policy to update performance periods and performance 

standards for future Hospital VBP Program years via notice on our Web site or another 

publicly available Web site. 

b. Performance Standards for the FY 2016 Hospital VBP Program Measures 

 We refer readers to the Hospital Inpatient VBP Program final rule (76 FR 26511 

through 26513) for a detailed discussion of the methodology we adopted for calculating 

performance standards with respect to the clinical process of care, patient experience of 

care, and outcome measures, and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51654 

through 51656) for a discussion of the methodology we adopted for the Medicare 

Spending per Beneficiary measure. We have defined the “achievement threshold” as the 

median, or 50th percentile, of all hospitals’ performance on a measure during a baseline 

period (or during the performance period in the case of the Medicare Spending per 

Beneficiary measure) with respect to a fiscal year (42 CFR 412.160). We are proposing 

to revise this definition, in order to clarify that while this is true for the majority of 

Hospital VBP Program measures, it does not apply to the Medicare Spending per 

Beneficiary measure. The performance standards for the Medicare Spending per 

Beneficiary measure are based on performance period data, as finalized in the FY 2012 
 544 

IPPS/LTCH PPS final rule (76 FR 51655). Accordingly, we are proposing to revise the 

definition of “achievement threshold” at § 412.160 to read: “Achievement threshold (or 

achievement performance standard) means the median (50th percentile) of hospital 

performance on a measure during a baseline period with respect to a fiscal year, for 

Hospital VBP Program measures other than the Medicare Spending per Beneficiary 

measure, and the median (50th percentile) of hospital performance on a measure during 

the performance period with respect to a fiscal year, for the Medicare Spending per 

Beneficiary measure.” We welcome public comments on this proposed regulation text 

change. 

 We have defined the “benchmark” as the arithmetic mean of the top decile of all 

hospitals’ performance on a measure during the baseline period (§ 412.160). Similar to 

the codified definition of “achievement threshold” above, this definition of “benchmark” 

does not apply to the Medicare Spending per Beneficiary measure. We are proposing to 

revise the definition of “benchmark” at § 412.160 to read: “Benchmark means the 

arithmetic mean of the top decile of hospital performance on a measure during the 

baseline period with respect to a fiscal year, for Hospital VBP Program measures other 

than the Medicare Spending per Beneficiary measure, and the arithmetic mean of the top 

decile of hospital performance on a measure during the performance period with respect 

to a fiscal year, for the Medicare Spending per Beneficiary measure.” The “improvement 

threshold” is an individual hospital’s performance level on a measure during the baseline 

period with respect to a fiscal year,” and that definition applies to all measures. 
 545 

 We continue to believe that the finalized methodology for calculating 

performance standards is appropriate for the Hospital VBP Program, and we recognize 

that we have an obligation to calculate the numerical values for each of these standards 

accurately. However, we also are concerned that if we display the numerical values of 

the performance standards in a particular rulemaking document, but then discover that we 

made a data or calculation error, the result might be that hospitals are held to inaccurate 

performance standards. Examples of the types of errors that could occur are inaccurate 

variables on Medicare claims, programming errors excluding hospitals that should have 

been included from performance standards calculations, or other errors that result in 

inaccuracies. For example, if our quality measurement software incorrectly excluded a 

number of hospitals from a given measure’s performance standards calcluation, the 

resulting achievement thresholds and benchmarks could force participating hospitals to 

meet inaccurate performance standards, which could have unpredictable effects on 

hospitals’ scores. 

 We also are aware that hospitals rely on the performance standards that we 

publicly display in order to target quality improvement efforts, and do not believe that it 

would be fair to participating hospitals to update repeatedly our finalized performance 

standards if we were to identify multiple errors. 

 We believe that the best method to balance our obligation to publicly display 

accurate performance standards with the need to correct such performance standards if 

we subsequently discover data errors is to make a single correction to a given measure’s 

performance standards for a fiscal year. Under this proposed policy, if we identified data 
 546 

problems, calculation issues, or other errors with a significant impact on performance 

standards, we would have the ability to update the measure’s performance standards once 

for a fiscal year. 

 Therefore, we are proposing to interpret the finalized definitions of “achievement 

threshold” and “benchmark” found under § 412.160 to not include the numerical values 

that result when the performance standards are calculated. Further, we are proposing to 

update a measure’s performance standards for a fiscal year once if we identify data 

issues, calculation errors, or other problems that would significantly change the displayed 

performance standards. However, as has been our practice, and to remain fully 

transparent with participating hospitals, we intend to continue to display the performance 

standards’ numerical values in rulemaking. 

 We finalized FY 2016 performance standards for the three 30-day mortality 

measures and the AHRQ PSI composite measure in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53603) and are displaying them again in the first table below. The numerical 

values for the proposed FY 2016 performance standards for the clinical process, outcome, 

and efficiency measures appear in the second table below, while numerical values for the 

proposed FY 2016 performance standards for the patient experience of care (HCAHPS 

survey) measure appear in the third table below. We note that the numerical values for 

the performance standards displayed below represent estimates based on the most 

recently-available data. We intend to update the numerical values in the FY 2014 

IPPS/LTCH PPS final rule. Because the Medicare Spending per Beneficiary measure’s 

performance standards are based on performance period data, we are unable to provide 
 547 

numeric equivalents for the standards at this time. For information purposes, during the 

period of May 1, 2011 through December 31, 2011, the achievement threshold would 

have been a Medicare Spending per Beneficiary ratio of 0.99, which corresponds to a 

standardized, risk-adjusted Medicare Spending per Beneficiary amount of $18,079, and 

the benchmark would have been 0.82, which corresponds to a Medicare Spending per 

Beneficiary amount of $14,985. We also note that the performance standards for the 

NHSN-based CLABSI, CAUTI, and SSI measures, the AHRQ PSI composite measure, 

and the Medicare Spending per Beneficiary measure are calculated with lower values 

representing better performance, in contrast to other measures, on which higher values 

indicate better performance. As discussed above, the performance standards displayed 

below for SSI are an equally weighted average of the measure’s strata. 

Finalized Performance Standards for Certain FY 2016 Hospital VBP Program 

Outcome Domain Measures

Measure ID Description Achievement 

Threshold 

Benchmark 

Outcome Measures 

MORT-30-AMI Acute Myocardial Infarction 

(AMI) 30-day mortality rate 

0.847472 0.862371

MORT-30-HF Heart Failure (HF) 30-day 

mortality rate 

0.881510 0.900315

MORT-30-PN Pneumonia (PN) 30-day 

mortality rate 

0.882651 0.904181

PSI-90 Complication/patient safety for 

selected indicators (composite) 

0.622879 0.451792
 548 

Proposed Performance Standards for the FY 2016 Hospital VBP Program Clinical 

Process of Care, Outcome, and Efficiency Domain Measures

Measure ID Description Achievement 

Threshold 

Benchmark 

Clinical Process of Care Measures 

AMI-7a Fibrinolytic Therapy 

Received Within 30 Minutes 

of Hospital Arrival 

0.88625 1.00000

IMM-2 Influenza Immunization 0.89947 0.99036

PN-6 Initial Antibiotic Selection for 

CAP in Immunocompetent 

Patient 

0.96429 1.00000

SCIP-Inf-1 Prophylactic Antibiotic 

Received Within One Hour 

Prior to Surgical Incision 

0.98942 1.00000

SCIP-Inf-2 Prophylactic Antibiotic 

Selection for Surgical 

Patients 

0.98951 1.00000

SCIP-Inf-3 Prophylactic Antibiotics 

Discontinued Within 24 

Hours After Surgery End 

Time 

0.97971 1.00000

SCIP-Inf-4 Cardiac Surgery Patients with 

Controlled 6AM 

Postoperative Serum Glucose 

0.96797 0.99977

SCIP-Inf-9 Urinary Catheter Removed on 

Postoperative Day 1 or 

Postoperative Day 2 

0.96743 1.00000

SCIP-Card-2 Surgery Patients on BetaBlocker Therapy Prior to 

Arrival Who Received a 

Beta-Blocker During the 

Perioperative Period 

0.97561 1.00000

SCIP-VTE-2 Surgery Patients Who 

Received Appropriate Venous 

Thromboembolism 

Prophylaxes Within 24 Hours 

Prior to Surgery to 24 Hours 

After Surgery 

0.98086 1.00000

Outcome Measures 

CAUTI Catheter-Associated Urinary 0.826 0.000
 549 

Tract Infection 

CLABSI Central Line-Associated 

Blood Stream Infection 

0.473 0.000

SSI Surgical Site Infection 0.737 0.000

Efficiency Measures 

MSPB-1 Medicare Spending per 

Beneficiary 

Median 

Medicare 

Spending per 

Beneficiary ratio 

across all 

hospitals during 

the performance 

period 

Mean of the 

lowest decile 

Medicare 

Spending per 

Beneficiary 

ratios across all 

hospitals during 

the performance 

period 

Proposed Performance Standards for the FY 2016 Hospital VBP Program 

Patient Experience of Care Domain

HCAHPS Survey Dimension Floor (percent) Achievement 

Threshold 

(percent) 

Benchmark 

(percent) 

Communication with Nurses 53.33 77.59 85.98

Communication with Doctors 61.22 80.33 88.59

Responsiveness of Hospital Staff 36.44 64.65 79.72

Pain Management 47.93 70.16 78.24

Communication about Medicines 42.23 62.28 72.67

Hospital Cleanliness & Quietness 42.16 64.93 79.12

Discharge Information 62.85 84.45 90.26

Overall Rating of Hospital 36.45 69.05 83.89

 We are inviting public comments on these proposed performance standards. 

c. Certain Performance Standards for the FY 2017, FY 2018, and FY 2019 Hospital VBP 

Programs 

 We are proposing to adopt the following performance standards for the three 30-

day mortality and AHRQ PSI composite measures for the FY 2017, FY 2018, and FY 

2019 Hospital VBP Program years: 
 550 

Proposed Performance Standards for the Three 30-Day Mortality and AHRQ 

Composite Measures for the FY 2017 Hospital VBP Program 

Measure ID Description Achievement 

Threshold 

Benchmark 

Outcome Measures 

MORT-30-AMI Acute Myocardial Infarction 

(AMI) 30-day mortality rate 

0.851458 0.871669 

MORT-30-HF Heart Failure (HF) 30-day 

mortality rate 

0.881794 0.903985 

MORT-30-PN Pneumonia (PN) 30-day 

mortality rate 

0.882986 0.908124 

PSI-90 Complication/patient safety for 

selected indicators (composite) 

0.580808 0.399880 

Proposed Performance Standards for the Three 30-Day Mortality and AHRQ 

Composite Measures for the FY 2018 Hospital VBP Program 

Measure ID Description Achievement 

Threshold 

Benchmark 

Outcome Measures 

MORT-30-AMI Acute Myocardial Infarction 

(AMI) 30-day mortality rate 

0.850916 0.873053 

MORT-30-HF Heart Failure (HF) 30-day 

mortality rate 

0.883421 0.907656 

MORT-30-PN Pneumonia (PN) 30-day 

mortality rate 

0.882860 0.907900 

PSI-90 Complication/patient safety for 

selected indicators (composite) 

0.585397 0.400502 

Proposed Performance Standards for the Three 30-Day Mortality and AHRQ 

Composite Measures for the FY 2019 Hospital VBP Program 

Measure ID Description Achievement 

Threshold 

Benchmark 

Outcome Measures 

MORT-30-AMI Acute Myocardial Infarction 

(AMI) 30-day mortality rate 

0.850671 0.873263 

MORT-30-HF Heart Failure (HF) 30-day 

mortality rate 

0.883472 0.908094 

MORT-30-PN Pneumonia (PN) 30-day 

mortality rate 

0.882334 0.907906 

PSI-90 Complication/patient safety for 

selected indicators (composite) 

0.585397 0.400502 

 We are inviting public comments on these proposed performance standards. 
 551 

9. Proposed FY 2016 Hospital VBP Program Scoring Methodology 

a. Proposed General Hospital VBP Program Scoring Methodology 

 In the Hospital Inpatient VBP Program final rule, we adopted a methodology for 

scoring clinical process of care, patient experience of care, and outcome measures. As 

noted in that rule, this methodology outlines an approach that we believe is well 

understood by patient advocates, hospitals, and other stakeholders because it was 

developed during a lengthy process that involved extensive stakeholder input, and was 

based on a scoring methodology we presented in a report to Congress. We also noted in 

that final rule that we had conducted extensive additional research on a number of other 

important methodology issues to ensure a high level of confidence in the scoring 

methodology (76 FR 26514). In addition, we believe that, for reasons of simplicity, 

transparency, and consistency, it is important to score hospitals using the same general 

methodology each year, with appropriate modifications to accommodate new domains 

and measures. We finalized a scoring methodology for the Medicare Spending per 

Beneficiary measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51654 through 

51656). 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 28087), for the FY 2015 

Hospital VBP Program, we finalized our proposal to use these same scoring 

methodologies to score hospital performance for the FY 2015 Hospital VBP Program. In 

that rule, we stated that we believe these scoring methodologies continue to appropriately 

capture hospital quality as reflected by the finalized quality measure sets. We also noted 
 552 

that readopting the finalized scoring methodology from prior program years represents 

the simplest and most consistent policy for providers and the public. 

 We continue to believe that the finalized scoring methodology for the Hospital 

VBP Program is well understood by patient advocates, hospitals, and other stakeholders 

because it was developed during a lengthy process that involved extensive stakeholder 

input, and was based on a scoring methodology we presented in a report to Congress. As 

we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53604), we believe that, for 

reasons of simplicity, transparency, and consistency, it is important to score hospitals 

using the same general methodology each year, with appropriate modifications to 

accommodate new domains and measures. 

 Therefore, we are proposing to readopt the finalized scoring methodology adopted 

for the FY 2015 Hospital VBP Program for the FY 2016 Hospital VBP Program. We 

welcome public comments on this proposal. 

b. Proposed Domain Weighting for the FY 2016 Hospital VBP Program for Hospitals 

That Receive a Score on All Domains 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53582 through 53592), we 

added the Efficiency domain to the Hospital VBP Program beginning with the FY 2015 

Hospital VBP Program. We also finalized our proposal for the following domain weights 

for the FY 2015 Hospital VBP Program for hospitals that receive a score on all four 

proposed domains (77 FR 53605 through 53606): 

Final Domain Weights for the FY 2015 Hospital VBP Program 

for Hospitals Receiving a Score on All Proposed Domains 

Domain Weight 

Clinical Process of Care 20 percent
 553 

Final Domain Weights for the FY 2015 Hospital VBP Program 

for Hospitals Receiving a Score on All Proposed Domains 

Domain Weight 

Patient Experience of Care 30 percent

Outcome 30 percent

Efficiency 20 percent

 We stated that we believed this domain weighting appropriately reflects our 

priorities for quality improvement in the inpatient hospital setting and begins aligning 

with the National Quality Strategy’s priorities. We believe that the domain weighting 

will continue to improve the link between Medicare payments to hospitals and patient 

outcomes, efficiency and cost, and the patient experience. We note that the weighting 

places the strongest relative emphasis on outcomes and the patient experience, which we 

view as two critical components of quality improvement in the inpatient hospital setting. 

We further note that the domain weighting, for the first time, incorporates a measure of 

efficiency and continues to provide substantial weight to clinical processes. 

 As we stated in the Hospital Inpatient VBP Program final rule (76 FR 26491), we 

believe that domains need not be given equal weight, and that over time, scoring 

methodologies should be weighted more towards outcomes, patient experience of care, 

and functional status measures (for example, measures assessing physical and mental 

capacity, capability, well-being and improvement). We took these considerations into 

account when developing the domain weighting proposal outlined below. 

 We believe that the proposed domain weighting specified below will continue to 

improve the link between Medicare payments to hospitals and patient outcomes, 

efficiency and cost, and the patient experience. We note that the proposed domain 
 554 

weighting places the highest relative weight on measures of outcomes and continues to 

place significant weight on the patient experience and on efficiency, while maintaining 

clinical processes as an important component of the program’s quality measurement. 

 Therefore, we are proposing the following domain weighting for the FY 2016 

Hospital VBP Program: 

Proposed Domain Weights for the FY 2016 Hospital VBP Program 

for Hospitals Receiving a Score on All Proposed Domains 

Domain Weight 

Clinical Process of Care 10 percent

Patient Experience of Care 25 percent

Outcome 40 percent

Efficiency 25 percent

 We welcome public comments on this proposed domain weighting. 

c. Proposed Domain Weighting for the FY 2016 Hospital VBP Program for Hospitals 

Receiving Scores on Fewer than Four Domains 

 In prior program years, we finalized a policy that hospitals must have received 

domain scores on all finalized domains in order to receive a TPS. However, since the 

Hospital VBP Program has evolved from its initial two domains to an expanded measure 

set with additional domains, we considered whether it was appropriate to continue this 

policy. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 through 53609), we 

finalized our proposal for a higher minimum number of cases for the three 30-day 

mortality measures for the FY 2015 Hospital VBP Program than was finalized for the 

FY 2014 Hospital VBP Program. We made this change in our policy in order to improve 

these measures’ reliability given the relatively short performance period for these 
 555 

measures. However, we were concerned that the relatively higher minimum number of 

cases could result in a substantially larger number of hospitals being excluded from the 

Hospital VBP Program. We believe that we should make a concerted effort to include as 

many hospitals as possible in the program in order to offer quality incentives and 

encourage quality improvement. 

 Therefore, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53606 through 

53607), we finalized our proposal that, for the FY 2015 Hospital VBP Program and 

subsequent years, hospitals with sufficient data to receive at least two domain scores (that 

is, sufficient cases and measures to receive a domain score on at least two domains) will 

receive a TPS. We also finalized our proposal that, for hospitals with at least two domain 

scores, TPSs would be reweighted proportionately to the scored domains to ensure that 

the TPS is still scored out of a possible 100 points and that the relative weights for the 

scored domains remain equivalent to the weighting which occurs when there are scores in 

all four domains. We believe that this approach allows us to include relatively more 

hospitals in the Hospital VBP Program while continuing to focus on reliably scoring 

hospitals on their quality measure performance. We are proposing to continue this 

approach for the FY 2016 Hospital VBP Program and subsequent fiscal years for 

purposes of eligibility for the program. However, as detailed further below, we are 

proposing to reclassify the Hospital VBP Program’s quality measurement domains 

beginning with the FY 2017 program to align more closely with CMS’ National Quality 

Strategy, and we are seeking public comments on how we should determine minimum 

numbers of cases and measures under that proposed policy. 
 556 

d. Proposed Domain Reclassification and Domain Weighting for the FY 2017 Hospital 

VBP Program 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53593 through 53594), we 

outlined one possible set of measure classifications based on the National Quality 

Strategy. However, we did not finalize our proposal to adopt quality measurement 

domains based on the National Quality Strategy for the FY 2016 Hospital VBP Program, 

because we understood stakeholders to be concerned about our proposal to reshape the 

Program’s scoring methodology before hospitals had actual experience with the program 

and its value-based incentive payments. 

 However, we now believe that hospitals have accumulated practical experience 

with all components of the Hospital VBP Program, including performance periods and 

payment periods. As a result of our extensive outreach efforts to hospitals and 

stakeholders, as well as the practical experience with the first year of the program, we 

also believe that hospitals and other stakeholders generally understand the program’s 

operations and scoring methodology. Therefore, we believe that we have addressed 

commenters’ concerns, summarized in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53594), that we should wait until hospitals have experienced the program fully 

before fundamentally reshaping its structure. 

 We are attempting to align all of our quality improvement efforts with the NQS, 

particularly because it is a patient-centered approach that aligns public and private 

efforts. We are aware that NQF uses NQS-based domains, and we also use those 

domains in development of other agency-specific efforts. We note further that 
 557 

stakeholders frequently request that HHS align its quality improvement efforts so that 

providers are not subjected to different measurement approaches, and we believe that 

adapting the Hospital VBP Program domain structure is one approach to achieving that 

goal. We believe that the longer we wait to adapt the Hospital VBP Program to the NQS 

domains, the more difficult it will be, and we believe we need a common framework as 

we begin alignment efforts between the Hospital IQR Program, the Hospital VBP 

Program, and the EHR Incentive Program. CMS’s quality measurement strategic plan 

also centers on the NQS, and we believe that using these domains rewards hospitals for 

providing more efficient and more patient-centered care. The most recent Annual 

Progress Report to Congress addressing the NQS can be found on the Web site at: 

http://www.ahrq.gov/workingforquality/nqs/nqs2012annlrpt.pdf. 

 Therefore, we are proposing to align the Hospital VBP Program’s quality 

measurement domains with the NQS’ quality priorities, with certain modifications 

discussed further below. We are proposing to adopt this realignment beginning with the 

FY 2017 Hospital VBP Program. 

 We are proposing to combine the priorities of Care Coordination and Patient and 

Caregiver Centered Experience of Care into one domain for purposes of aligning the 

Hospital VBP Program domains with the NQS priorities. Care Coordination aligns with 

the NQS priority stated as promoting effective communication and coordination of care. 

Patient and Caregiver Centered Experience of Care aligns with the NQS priority stated as 

ensuring that each person and family are engaged as partners in their care. We believe 

that, in order to be engaged as partners, effective communication and coordination of care 
 558 

must coexist. This notion is further exemplified by one of the 10 principles of the NQS, 

found at http://www.ahrq.gov/workingfor quality/nqs/principles.html, which notes that 

“Person-centeredness and family engagement, including understanding and valuing 

patient preferences, will guide all strategies, goals, and health care improvement efforts. 

The most successful health care experiences are often those in which clinicians, patients, 

and their families work together to make decisions.” We believe that care coordination 

includes this shared decision-making among clinicians, patients, and their families, and 

further believe that a component of these important concepts can be captured with the 

HCAHPS measure. 

 Therefore, we believe that placing the HCAHPS measure into the proposed 

combined domain below will continue to encourage hospitals to focus on improving the 

patient’s experience during acute care hospitalizations and will enable us to continue 

providing incentives that focus on patient and caregiver experience and coordination of 

care. However, with the exception of the HCAHPS measure described above, we do not 

believe that any of the other proposed measures for the FY 2016 Hospital VBP Program, 

which would form the basis for the FY 2017 program’s measure set, should be placed 

into the proposed combined Patient and Caregiver Experience of Care/Care Coordination 

domain. We intend to consider proposing to adopt measures of care coordination in the 

future as they become available. 

 We may propose further refinements to the Hospital VBP Program domain 

structure in future years to accommodate the NQS’ population health priority or other 
 559 

quality improvement priorities as appropriate, but will not propose to adopt a Population 

Health domain at this time. 

 We note that the proposed NQS-based domain structure combines measures of 

clinical processes and outcomes under the “Clinical Care” priority. In order to ensure 

that outcomes remain a principal focus of hospitals’ quality improvement efforts, as well 

as to continue our effort to shift the program over time to include more measures of 

outcomes and efficiency, we are proposing to stratify the NQS-based Clinical Care 

domain into “Clinical Care – Outcomes” and “Clinical Care – Process,” which enables us 

to provide significant weight to measures of outcomes and avoid diluting hospitals’ focus 

on measures of outcomes. 

 We note further that the proposed NQS-based domains include “Efficiency and 

Cost Reduction,” a domain priority that we believe is analogous to the current 

“Efficiency” domain finalized for the Hospital VBP Program, and a “Safety” domain. 

We have placed measures of outcomes into both the Clinical Care – Outcome and Safety 

domains below and have generally distinguished between the two by focusing on the 

measures’ direct impact on patients. The measures we are proposing to place into the 

Safety domain include measures of healthcare-associated infections and the AHRQ 

patient safety composite. We believe that hospitals must continue to focus quality 

improvement efforts on these outcome safety measures, which track infection and safety 

events that pose direct harm to patients. 

 Finally, as we stated in the Hospital Inpatient VBP Program final rule 

(76 FR 26491), we believe that domains need not be given equal weight, and that over 
 560 

time, scoring methodologies should be weighted more towards outcomes, patient 

experience of care, and functional status measures (for example, measures assessing 

physical and mental capacity, capability, well-being and improvement). We took these 

considerations into account when developing the domain weighting proposal outlined 

below. We believe that the proposed domain weighting will continue to improve the link 

between Medicare payments to hospitals and patient outcomes, efficiency and cost, and 

the patient and care giver experience. 

 We note further that the proposed domain weighting below places significant 

weight on measures of clinical outcomes, efficiency, and the patient experience, while 

also prioritizing safety and clinical processes. We believe that the proposed domain 

weighting appropriately balances the clinical quality priorities described by the NQS. 

 Therefore, we are proposing to adopt the following domains and domain weights 

for the FY 2017 Hospital VBP Program: 

Proposed Domains and Domain Weights for the FY 2017 Hospital VBP Program for 

Hospitals Receiving a Score on All Proposed Domains 

Domain Weight 

Safety 15 percent 

Clinical Care 

● Clinical Care – Outcomes 

● Clinical Care – Process 

35 percent 

● 25 percent 

● 10 percent 

Efficiency and Cost Reduction 25 percent 

Patient and Caregiver Centered Experience of Care/Care 

Coordination 

25 percent 

 While we believe there are advantages to aligning the Hospital VBP Program 

domains with the NQS domains, we also recognize that there may be advantages 

associated with maintaining consistency with previous years’ domains. Accordingly, as 

an alternative to realigning the Hospital VBP Program’s domain structure more closely 
 561 

with the NQS beginning with FY 2017, we also are inviting public comments on whether 

we should adopt the following domains and domain weighting, which would be 

consistent with the proposals outlined for FY 2016 above: 

Alternative Domain Weights for the FY 2017 Hospital VBP Program 

for Hospitals Receiving a Score on All Proposed Domains 

Domain Weight 

Clinical Process of Care 10 percent

Patient Experience of Care 25 percent

Outcome 40 percent

Efficiency 25 percent

 We also seek public comments on how we should assign proposed measures to 

the new NQS-aligned domains, if finalized for FY 2017, and are seeking public 

comments on the following domain assignments for proposed FY 2016 measures, which 

would form the initial basis for the FY 2017 program’s measure set: 

Measure ID Current Domain NQS-Based Domain 

AMI-7a Clinical Process of Care Clinical Care – Process 

IMM-2 Clinical Process of Care Clinical Care – Process 

PN-6 Clinical Process of Care Clinical Care – Process 

SCIP-Inf-1 Clinical Process of Care Clinical Care – Process 

SCIP-Inf-2 Clinical Process of Care Clinical Care – Process 

SCIP-Inf-3 Clinical Process of Care Clinical Care – Process 

SCIP-Inf-4 Clinical Process of Care Clinical Care – Process 

SCIP-Inf-9 Clinical Process of Care Clinical Care – Process 

SCIP-Card-2 Clinical Process of Care Clinical Care – Process 

SCIP-VTE-2 Clinical Process of Care Clinical Care – Process 

HCAHPS Patient Experience of Care Patient and Caregiver Centered 

Experience of Care / Care 

Coordination 

CAUTI Outcome Safety 

CLABSI Outcome Safety 

MORT-30-AMI Outcome Clinical Care – Outcomes 
 562 

MORT-30-HF Outcome Clinical Care – Outcomes 

MORT-30-PN Outcome Clinical Care – Outcomes 

PSI-90 Outcome Safety 

SSI 

•

Outcome Safety 

MSPB-1 Efficiency Efficiency and Cost Reduction 

We also seek comment on how we should address minimum numbers of cases 

and measures under sections 1886(o)(1)(C)(ii)(III) and (IV) of the Act if we finalize this 

domain structure for the FY 2017 program. If we adopted the NQS-based domains solely 

for purposes of constructing the TPS, we could retain the general case and measure 

minimums structure adopted for prior program years. However, given the requirement in 

section 1886(o)(1)(C)(iii) of the Act that the Secretary conduct an independent analysis 

of what numbers are appropriate, we are also considering if we should commission such 

an analysis for the NQS domains, as modified. We are seeking public comments on this 

issue. 

e. Proposed Disaster/Extraordinary Circumstance Waivers under the Hospital VBP 

Program 

 We are concerned that hospital performance under the Hospital VBP Program 

might be adversely impacted as a direct result of a significant natural disaster or other 

extraordinary circumstance. We are aware, for example, that Hurricane Sandy forced 

some hospitals in the New York-New Jersey-Connecticut area to close during the autumn 

of 2012, which impacted their ability to report quality measure data that will be used for 

both the FY 2014 and FY 2015 Hospital VBP Programs. We also recognize that 

hospitals that are closed during a portion of a performance period may still be eligible to 
 563 

receive a TPS and value-based incentive payments based on their measured quality 

performance during the remaining portion of the performance period for a fiscal year. 

 However, we also are aware that many hospitals that were affected by Hurricane 

Sandy nevertheless remained open both during and after the storm, and we are concerned 

more generally that these hospitals, as well as other hospitals that are able to remain open 

despite being impacted by a local disaster or other extraordinary circumstance, might 

experience a decline in performance as a direct result of remaining open. For example, a 

hospital might be able to demonstrate that its performance on the HCAHPS survey was 

adversely impacted as a direct result of remaining open during or after a natural disaster 

if the hospital became overcrowded due to a neighboring hospital’s closure, or 

understaffed due to the inability of staff to get to work. We believe that these types of 

unforeseen extraordinary circumstances could substantially affect the ability of the 

hospital to perform at the same level at which it might otherwise have performed if the 

natural disaster or extraordinary circumstance had not occurred, and we are concerned 

that using cases and claims from this period to generate the TPS might negatively, and 

unfairly, impact the value-based incentive payment amount that the hospital would 

otherwise receive. 

 Currently, hospitals participating in the Hospital IQR Program may request that 

we grant an extension or waiver of one or more data submission deadlines in the event of 

extraordinary circumstances beyond the control of the hospital. However, we do not 

believe this process is entirely sufficient for the Hospital VBP Program. The Hospital 

IQR Program’s extraordinary circumstances extensions/waiver process allows hospitals 
 564 

that have been granted an extension/waiver to receive the full annual percentage increase 

under the IPPS for the applicable fiscal year even though they did not submit data on 

measures in the same time, form, and manner required of other hospitals. To the extent 

that a hospital, as a result of receiving an extension or waiver under the Hospital IQR 

Program, does not report the minimum number of cases or measures under the Hospital 

VBP Program (as determined appropriate by the Secretary under sections 

1886(o)(1)(C)(ii)(III) and (IV) of the Act), that hospital will be excluded from the 

Hospital VBP Program for the applicable fiscal year. 

 However, the Hospital IQR Program extraordinary circumstance extension/waiver 

process does not address the situation we are concerned with here; namely, where a 

hospital is able to continue to report data on measures that are included in both the 

Hospital IQR Program and the Hospital VBP Program, but can demonstrate that its 

Hospital VBP measure rates are negatively impacted as a result of a natural disaster or 

other extraordinary circumstance and, as a result, the hospital receives a lower valuebased incentive payment. Therefore, we are proposing to adopt a Hospital VBP Program 

extraordinary circumstance waiver process. 

 In developing our proposed approach, we considered the feasibility of adopting a 

waiver that would allow a hospital to not have the measure data submitted during the 

affected time period included in its measure scores. This type of waiver policy would 

enable affected hospitals to continue to participate in the Hospital VBP Program for a 

given fiscal year if they continued to meet applicable measure and case minimums 

despite the fact that their TPS would not include data that is the subject of the waiver. 
 565 

Therefore, this policy could prevent the possibility that a hospital’s TPS is significantly, 

and negatively, affected by a natural disaster or other extraordinary circumstance, which 

we believe would alleviate our concerns. 

 However, implementing this type of data waiver presents certain operational 

difficulties. While chart-abstracted measures generally are reported using a date of 

service that would enable us to correctly identify which data should be excluded, the 

same is not necessarily true of patient experience of care measure data because HCAHPS 

survey dates do not align with service dates; instead, they are dependent on the timing of 

the survey’s completion after discharge. 

 A further complication arises with certain claims-based measures. For example, 

the risk adjustment methodology currently in use for the 30-day mortality measures 

requires a fixed dataset for computation of all hospitals’ risk-adjusted measure rates. 

Adding or removing data from the national claims set used to calculate a mortality 

measure’s rates for a given time period therefore requires recalculation of all hospitals’ 

measure rates, as the risk profile used to adjust hospitals’ measured performance for the 

time period would have changed. In addition, in light of our policy to generate a TPS for 

hospitals that receive scores on fewer than all domains, we are concerned that proposing 

to adopt an extraordinary circumstances “waiver” process that would apply only to the 

clinical process of care domain data that we may relatively easily remove from scoring 

would be ineffective. We do not believe that waiving only clinical process of care 

domain data would mitigate the effects of a disaster or other extraordinary circumstances 

on hospitals’ TPSs under the program, particularly if hospitals’ performance on all 
 566 

measures is affected significantly by those circumstances. An increase in measured 

mortality rates, for example, would not be mitigated by a clinical process of care-centered 

waiver, and could penalize the hospital. 

 Given the operational constraints discussed above, we believe that the best way to 

implement an extraordinary circumstances waiver under the Hospital VBP Program is to 

interpret the minimum numbers of cases and measures requirement in section 

1886(o)(1)(C)(ii)(III) and (IV) of the Act to enable us to “waive” all applicable quality 

measure data from a performance period and, thus, exclude the hospital from the Hospital 

VBP Program for a fiscal year during which the hospital has experienced a disaster or 

other extraordinary circumstance. 

 Under this policy, a hospital struck by a natural disaster or other extraordinary 

circumstance would be able to request a Hospital VBP Program disaster/extraordinary 

circumstance waiver at the same time that it requests an extraordinary circumstance 

waiver under the Hospital IQR Program. The hospital would submit the Hospital IQR 

Program extension/waiver request form, including any available evidence of the impact 

of the extraordinary circumstances on the hospital’s quality measure performance, and 

would note that it also seeks a waiver from the Hospital VBP Program for the program 

year in which the same data could be used as performance period data to generate a TPS 

based on the measures included in the Hospital VBP Program. In the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51652), we finalized a requirement that affected 

hospitals submit their requests within 30 days of the date that the extraordinary 

circumstance occurred. We believe that this timeframe is appropriate for our proposed 
 567 

waiver process for the Hospital VBP Program as it aligns with the current requirements 

under the Hospital IQR Program and forestalls the possibility of hospitals attempting to 

“game” their Hospital VBP Program scores by requesting a waiver after they receive 

their Percentage Payment Summary Reports for a given fiscal year. 

 We will review waiver requests and, at our discretion based on our evaluation of 

the impact of the disaster/extraordinary circumstances on the hospital’s quality measure 

performance, provide a response to the hospital. We intend to notify hospitals about our 

Hospital VBP Program waiver decisions concurrent with decisions made under the 

Hospital IQR Program’s waiver process. 

 For these reasons, we are proposing that the phrases “minimum number of 

measures that apply to the hospital” in section 1886(o)(1)(C)(iii) of the Act and 

“minimum number of cases for the measures that apply to the hospital” in section 

1886(o)(1)(C)(iv) of the Act do not include any measures or cases that a hospital has 

submitted during a performance period for which it is granted a Hospital VBP Program 

disaster/extraordinary circumstance waiver. 

 We intend to implement this policy in a limited fashion, and based on prior 

experience with the Hospital IQR Program, anticipate providing such waivers only to a 

small number of hospitals. We do not intend to allow hospitals to use this proposed 

process to seek exclusion from the Hospital VBP Program solely because of 

comparatively poor performance under the Program’s scoring methodology; rather, we 

intend only to provide relief to hospitals whose performance suffered as a result of a 

disaster or other extraordinary circumstances. 
 568 

 We are inviting public comments on this proposal. We are specifically interested 

in public comments on the structure of the proposed process, and if we should consider 

implementing the process differently. 

10. Applicability of the Hospital VBP Program to Hospitals 

a. Background 

 Section 1886(o)(1)(C) of the Act specifies how the Hospital VBP Program applies 

to hospitals. Specifically, the term “hospital” is defined under section 1886(o)(1)(C)(i) of 

the Act as a “subsection (d) hospital (as defined in section 1886(d)(1)(B [of the Act])).” 

Section 1886(o)(1)(C)(ii) of the Act sets forth a list of exclusions to the definition of the 

term “hospital” with respect to a fiscal year, including a hospital that is subject to the 

payment reduction under section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital IQR 

Program), a hospital for which, during the performance period for the fiscal year, the 

Secretary has cited deficiencies that pose immediate jeopardy to the health or safety of 

patients, a hospital for which there are not a minimum number of measures that apply to 

the hospital for the applicable performance period for the fiscal year, and a hospital for 

which there are not a minimum number of cases for the measures that apply to the 

hospital for the performance period for the fiscal year. 

 In addition, section 1886(o)(1)(C)(iv) of the Act states that in the case of a 

hospital that is paid under section 1814(b)(3) of the Act, the Secretary may exempt the 

hospital from the Hospital VBP Program if the State submits an annual report to the 

Secretary describing how a similar program in the State for a participating hospital or 

hospitals achieves or surpasses the measured results in terms of patient health outcomes 
 569 

and cost savings established under the Hospital VBP Program. We interpret the reference 

to section 1814(b)(3) of the Act to mean those Maryland hospitals that are paid under 

section 1814(b)(3) of the Act and that, absent the “waiver” specified by 

section 1814(b)(3) of the Act, would have been paid under the IPPS. 

b. Proposed Minimum Numbers of Cases and Measures for the FY 2016 Hospital VBP 

Program Outcome Domain 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53608 through 53609), we 

finalized minimum numbers of cases and measures for the FY 2015 Hospital VBP 

Program’s Outcome domain. For the finalized 30-day mortality measures, we finalized a 

25-case minimum for FY 2015. For the AHRQ PSI composite measure, we adopted 

AHRQ’s methodology, which provides a score on the measure to any hospital with at 

least three cases on any underlying indicator. For the CLABSI measure, we adopted 

CDC’s minimum case criteria, which calculates a standardized infection ratio for a 

hospital on the CLABSI measure if the hospital has 1 predicted infection during the 

applicable period. We also finalized our policy to provide a TPS to hospitals with 

sufficient cases in at least two of the four finalized quality measure domains 

(77 FR 53607). 

 In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74532 through 

74534) we concluded, based on an independent analysis, that the minimum number of 

measures that a hospital must report in order to receive a score on the Outcome domain is 

two measures. We continue to believe that this minimum number is appropriate for the 

expanded Outcome domain because adding measure scores beyond the minimum number 
 570 

of measures has the effect of enhancing the domain score’s reliability. We therefore are 

proposing to retain the finalized minimum number of measures for the Outcome domain 

for the FY 2016 Hospital VBP Program. 

 We are inviting public comment on these proposals. 

c. Hospitals Paid under Section 1814(b)(3) of the Act 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53607 through 53608), 

beginning with the FY 2014 Hospital VBP Program, we adopted a new procedure for 

submission of the report in order for a Maryland hospital to be exempt from the Hospital 

VBP Program for a fiscal year. Under this finalized procedure, if the State seeks an 

exemption with respect to a particular program year, it would need to submit a report that 

meets the requirements of section 1886(o)(1)(C)(iv) of the Act in a timeframe that allows 

it to be received by the Secretary on or before November 15 prior to the effective fiscal 

year (for example, the report seeking an exemption from the FY 2014 Hospital VBP 

Program would have to be received by the Secretary no later than November 15, 2012). 

We stated that we anticipate notifying the State, as well as each hospital for which the 

State has requested an exemption, of our decision whether to grant the request no later 

than 90 days following the exemption request deadline. 

 We received an FY 2014 exemption request from the Maryland Health Services 

Cost Review Commission and the State of Maryland Department of Health and Mental 

Hygiene in November 2012, and the Secretary approved the exemption request on 

December 19, 2012. 
 571 

 We determined that Maryland meets or exceeds the patient health outcomes and 

cost savings requirements for exemption from the FY 2014 Hospital VBP Program. In 

terms of patient health outcomes, the Maryland Quality Based Reimbursement (MQBR) 

program focuses rewarding high quality care on hospital performance in similar clinical 

areas as the Hospital VBP Program (heart attack, heart failure, pneumonia, surgical 

processes of care and infection control). In general, the relevant health outcomes for the 

State’s hospitals cited in its request achieve or surpass the current national results for 

comparable quality process and closely related clinical outcomes. In terms of cost 

savings, both the Hospital VBP Program and the MQBR reward high performers in a 

revenue-neutral manner. In this way, Maryland has achieved cost savings under its 

quality programs that meet any documented savings under the Hospital VBP Program, 

thereby meeting the standard specified in section 1886(o)(1)(C)(iv) of the Act for 

hospitals paid under section 1814(b)(3) of the Act. 
 572 

I. Proposed Implementation of Hospital-Acquired Condition (HAC) Reduction Program 

for FY 2015

1. Background 

a. Overview 

 CMS is committed to promoting higher quality of care and improving outcomes 

for Medicare beneficiaries. Accordingly, as part of that effort, we have, in recent years, 

undertaken a number of initiatives to reduce the number of hospital-acquired conditions 

(HACs) among Medicare beneficiaries. HACs are conditions that patients acquire while 

receiving treatment for another condition in an acute care health setting. HACs include 

hospital-acquired infections (HAIs), such as surgical site infections, as well as conditions 

such as foreign objects retained after surgery. HACs constitute an adverse event for the 

patient and a financial burden on the health care system. Most HACs, especially those 

stemming from medical errors, represent a leading cause of mortality in the United 

States48. Deaths from HAIs alone are twice as high as those from HIV/AIDS and breast 

cancer combined.49 Many common HACs can be prevented through the proper 

application of evidence-based guidelines. Yet, surveys reveal that 87 percent of hospitals 

do not follow such guidelines50. Further, HACs constitute a significant economic burden 

on the health care system. For example, in 2009, the CDC estimated that preventable 

 

48 Kohn L T, Corrigan J M., Donaldson MS (Institute of Medicine) To Err is Human: Building a Safer 

Health System. Washington, DC: National Academy Press, 2000. 

49 Binder, Leah F.The Leapfrog Group Testimony before the House of Representatives Committee of 

Oversight and Government Reform, April 16, 2008. Available at: 

http://www.leapfroggroup.org/policy_leadership/leapfrog_news/4732651. 50 Id. 
 573 

HAIs alone added nearly $6 billion to U.S. health care costs each year51. Accordingly, 

we believe that our continued efforts to reduce HACs are vital to improving patients’ 

quality of care, and reducing complications and mortality, while simultaneously 

decreasing costs. 

 In section II.F. of the preamble of this proposed rule, we discuss prior and 

ongoing rulemakings to implement the provisions of section 5001(c) of the Deficit 

Reduction Act (DRA) of 2005. Section 5001(c) of the DRA requires the Secretary to 

identify conditions by October 1, 2007 that: (a) are high cost or high volume or both; 

(b) result in the assignment of a case to a DRG that has a higher payment when present as 

a secondary diagnosis; and (c) could reasonably have been prevented through the 

application of evidence based guidelines. An adjustment to the MS-DRG payment under 

the IPPS is made for identified HACs. This regulatory action has supported our efforts to 

encourage hospitals to reduce HACs. 

 Our initiatives to reduce HACs continued in 2009, when we developed National 

Coverage Determinations (NCDs) for the Medicare Program to eliminate “never events.” 

These “never events” stemmed from a 2002 report conducted by the NQF that listed 27 

adverse events, defined as serious reportable events, that were both serious and largely 

preventable.52 Under these NCDs, we have specified that Medicare does not cover a 

particular surgical or other invasive procedure to treat a particular medical condition 

when a practitioner erroneously performs: (1) a different procedure altogether; (2) the 

 

51 Centers for Disease Control, The Direct Medical Costs of Healthcare Associated Infections in US 

Hospitals and the Benefits of Prevention March, 2009. Available at: 

http://www.cdc.gov/hai/pdfs/hai/scott_costpaper.pdf. 52 National Quality Forum (NQF), Serious Reportable Events in Healthcare—2011 Update: A Consensus 

Report, Washington DC: NQF (2011).
 574 

correct procedure but on the wrong body part; or (3) the correct procedure but on the 

wrong patient.53

 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50196), we adopted 8 HAC 

measures into the Hospital IQR Program for the FY 2012 payment determination. These 

quality measures comprise additional efforts to promote quality of care by reducing the 

number of HACs in an acute care setting. We have been publicly reporting on these eight 

HAC measures successfully on the Hospital Compare Web site since September 2010. 

 As described above, the reduction of HACs is an important marker of quality of 

care and has a positive impact on both patient outcomes and costs of care. In accordance 

with section 1886(p) of the Act, the HAC Reduction Program aligns with our national 

strategy to improve health care quality by promoting the prevention of HACs, such as 

“serious reportable events” and HAIs. Our goal for the HAC Reduction Program is to 

heighten the awareness of HACs and reduce the number of incidences that occur through 

implementing the adjustments required by section 1886(p) of the Act. We believe our 

efforts in using payment adjustments and our measurement authority will encourage 

hospitals to eliminate the incidence of HACs that could be reasonably prevented by 

applying evidence-based guidelines. 

 

53 Center for Medicare and Medicaid Services (CMS), National Coverage Determination (NCD) for, 

Surgical or Other Invasive Procedure Performed on the Wrong Body Part (140.7), Pub-100-3 (2009); 

Surgical or Other Invasive Procedure Performed on the Wrong Patient (140.8), Pub 100-3 (2009); Wrong 

Surgery Performed on a Patient (140.9), Pub 100-3 (2009). 
 575 

2. Statutory Basis for the HAC Reduction Program 

 Section 3008 of the Affordable Care Act added section 1886(p) to the Act to 

provide an incentive for applicable hospitals to reduce HACs. Section 1886(p) of the Act 

requires the Secretary to make an adjustment to payments to “applicable hospitals” 

effective beginning on October 1, 2014 and for subsequent programs years. Section 

1886(p)(1) of the Act sets forth the requirements by which payments to “applicable 

hospitals” will be adjusted to account for HACs with respect to discharges occurring 

during FY 2015 or later. The amount of payment shall be equal to 99 percent of the 

amount of payment that would otherwise apply to such discharges under section 1886(d) 

or 1814(b)(3) of the Act, as applicable. Section 1886(p)(2)(A) of the Act defines 

“applicable hospitals” as subsection (d) hospitals that meet certain criteria. Section 

1886(p)(2)(B)(i) of the Act defines these criteria and specifies that the payment 

adjustment would apply to an applicable hospital that ranks in the top quartile (25 

percent) of all subsection (d) hospitals, relative to the national average, of conditions 

acquired during the applicable period, as determined by the Secretary. Section 1886 

(p)(2)(B)(ii) of the Act requires the Secretary to establish and apply a risk-adjustment 

methodology. 

 Sections 1886(p)(3) and (p)(4) of the Act define “hospital-acquired conditions” 

and “applicable period”, respectively. The term “hospital-acquired condition” means “a 

condition identified in subsection 1886(d)(4)(D)(iv) of the Act and any other condition 

determined appropriate by the Secretary that an individual acquires during a stay in an 
 576 

applicable hospital, as determined by the Secretary.” The term “applicable period” 

means, with respect to a fiscal year, a period specified by the Secretary. 

 Section 1886(p)(5) of the Act requires that, prior to FY 2015 and each subsequent 

fiscal year, the Secretary provides the delivery of confidential reports to applicable 

hospitals with respect to HACs of the applicable hospital during the applicable period. 

Section 1886(p)(6)(A) of the Act sets forth the reporting requirements by which the 

Secretary would make information available to the public regarding HACs for each 

applicable hospital. Section 1886(p)(6)(B) of the Act requires the Secretary to ensure 

that an applicable hospital has the opportunity to review, and submit corrections for, the 

information to be made public with respect to the HACs of the applicable hospital prior 

to such information being made public. Section 1886(p)(6)(C) of the Act requires that, 

once corrected, the HAC information be posted on the Hospital Compare Web site on the 

Internet in an easily understandable format. 

 Section 1886(p)(7) of the Act limits administrative and judicial review of certain 

determinations made pursuant to section 1886(p) of the Act. These determinations 

include what qualifies as an applicable hospital, the specifications of a HAC, the 

Secretary’s determination of an applicable period, the provision of confidential reports 

submitted to the applicable hospital, and the information publically reported on the 

Hospital Compare Web site. 

3. Proposals to Implement the HAC Reduction Program 

 In this proposed rule, we are proposing the general framework for implementation 

of the HAC Reduction Program for the FY 2015 implementation. We are including the 
 577 

following proposals for the program: (a) the relevant definitions applicable to the 

program; (b) the payment adjustment under the program; (c) the measure selection and 

conditions for the program, including a risk-adjustment and scoring methodology; 

(d) performance scoring; (e) the process for making hospital-specific performance 

information available to the public, including the opportunity for a hospital to review the 

information and submit corrections; and (f) limitation of administrative and judicial 

review. 

 In this proposed rule, we are proposing to establish the rules governing the 

payment adjustment under the HAC Reduction Program at Subpart I of 42 CFR Part 412 

(proposed §§ 412.170 and 412.172). We also are proposing to amend existing § 412.150 

(the section that describes the basis and scope of Subpart I of Part 412, which contains 

the regulations governing adjustments to the base operating DRG payment amounts 

under the IPPS for inpatient operating costs) to incorporate the basis and scope of 

proposed §§ 412.170 and 412.172 for the HAC Reduction Program. We discuss each of 

the proposed regulatory provisions under the appropriate subject area below. 

a. Proposed Definitions 

 In accordance with the provisions of section 1886(p) of the Act, we are proposing 

to include, under proposed § 412.170, definitions for the terms “hospital-acquired 

condition,” “applicable hospital,” and “applicable time period.” 

● Hospital-acquired condition. In accordance with the definition of 

“hospital-acquired condition” in section 1886(p)(3) of the act, we would include a 

definition of the term in the regulations to read: “Hospital-acquired condition is a 
 578 

condition as described in section 1886(d)(4)(D)(iv) of the Act and any other condition 

determined appropriate by the Secretary that an individual acquires during a stay in an 

applicable hospital, as determined by the Secretary.” 

 We also refer readers to section II.F. of the preamble of this proposed rule where 

we discuss the HACs that have been identified and selected by the Secretary through 

FY 2013 in accordance with the provisions of section 1886(d)(4)(D)(iv) of the Act as 

established by section 5001(c) of the DRA of 2005. 

● Applicable Hospital. Section 1886(p)(2)(A) of the Act specifies that, for the 

purpose of the HAC Reduction program, an “applicable hospital” is a subsection (d) 

hospital that meets certain criteria. A subsection (d) hospital is defined in section 

1886(d)(1)(B) of the Act, in part, as a “hospital located in one of the fifty States or the 

District of Columbia”, subject to certain exceptions. We also note that, for purposes of 

determining applicable hospitals under the HAC Reduction Program, subsection (d) 

hospitals include hospitals paid under a waiver under section 1814(b)(3) of the Act (that 

is, Maryland hospitals). Section 1886(p)(2)(B) of the Act specifies that “with respect to a 

subsection (d) hospital, [a hospital is considered to be an applicable hospital if] ... the 

subsection (d) hospital is in the top quartile of all subsection (d) hospitals, relative to the 

national average, of hospital acquired conditions during the applicable period, as 

determined by the Secretary.” Therefore, we are proposing to define an “applicable 

hospital” as “a hospital described in section 1886(d)(1)(B) of the Act (including a 

hospital in Maryland that is paid under section 1814(b)(3) of the Act and that, absent the 

waiver specified by section 1814(b)(3) of the Act, would have been paid under the 
 579 

hospital inpatient prospective payment system) so long as the hospital meets the criteria 

specified under § 412.172(e).” 

 We note that while all subsection (d) hospitals, including hospitals paid under 

section 1814(b)(3) of the Act, would be used to determine which hospitals are “applicable 

hospitals,” as required by section 1886(p)(2)(B) of the Act, we have identified several 

types of hospitals where subsection (d) status may not be clear for purposes of 

determining which hospitals are or are not subject to the provisions of the HAC 

Reduction Program. A subsection (d) hospital as defined in section 1886(d)(1)(B) of the 

Act does not include hospitals and hospital units excluded from the IPPS, such as 

LTCHs, cancer hospitals, children’s hospitals, IRFs, IPFs. Therefore, hospitals and 

hospital units that are excluded from the IPPS would not be considered when determining 

“applicable hospitals” nor would they be determined to be “applicable hospitals” subject 

to the payment adjustment under the HAC Reduction Program. Similarly, CAHs would 

not be considered when determining “applicable hospitals,” nor would they be 

determined to be “applicable hospitals” subject to the payment adjustment under the 

HAC Reduction Program, because they do not meet the definition of a “subsection (d) 

hospital.” CAHs are separately defined under section 1886(mm) of the Act and are paid 

under a reasonable cost methodology under section 1814(l) of the Act. An Indian Health 

Services hospital enrolled as a Medicare provider meets the definition of a subsection (d) 

hospital and, therefore, would be considered in determining “applicable hospitals” and 

would be considered to be an “applicable hospital” under the HAC Reduction Program. 

In addition, hospitals that are SCHs, although they may be paid under a hospital-specific 
 580 

rate instead of the Federal rate under the IPPS, are subsection (d) hospitals and, therefore, 

would be included in determining “applicable hospitals” and would be considered to be 

an applicable hospital under the HAC Reduction Program. Hospitals located in the 

Territories, including Puerto Rico, are not subsection (d) hospitals. Section 

1886(d)(9)(A) of the Act separately defines a “subsection (d) Puerto Rico hospital” as a 

hospital that is located in Puerto Rico and that “would be a subsection (d) hospital . . . if it 

were located in one of the 50 States.” However, because they are not located in “one of 

the fifty States,” Puerto Rico hospitals are not subsection (d) hospitals and, therefore, 

would not be included in determining “applicable hospitals,” nor would they be 

considered to be an “applicable hospital” under the HAC Reduction Program. Finally, 

hospitals paid under the authority of section 1814(b)(3) of the Act are located in 

Maryland, which is “one of the fifty States” as described under section 1886(d)(1)(B) of 

the Act. Therefore, these Maryland hospitals are subsection (d) hospitals and would be 

included in determining “applicable hospitals” and, unless the Secretary exempts them 

from the application of the payment adjustment under the HAC Reduction Program under 

the authority of section 1886(p)(2)(C) of the Act, would be considered to be “applicable 

hospitals” under the HAC Reduction Program. 

 We are inviting public comments on whether clarification is required for 

additional types of hospitals. 

● Applicable Time Period. In accordance with the proposal and discussion in 

section V.I.3.d. of this preamble regarding the proposed performance scoring 

methodology for proposed measures for selected conditions and a risk-adjustment 
 581 

methodology under the HAC Reduction Program, we are proposing to define the 

“applicable period” as, with respect to a fiscal year, the 2-year period (specified by the 

Secretary) from which data are collected in order to calculate the Total HAC Score for 

the Hospital-Acquired Reduction Program 

 We are inviting public comments on these proposed definitions. 

b. Proposed Payment Adjustment under the HAC Reduction Program, including 

Exemptions 

(1) Basic Payment Adjustment 

 Section 1886(p)(1) of the Act sets forth the requirements by which payments to 

“applicable hospitals” will be adjusted to account for HACs with discharges beginning on 

October 1, 2014. Section 1886(p)(1) of the Act specifies that the amount of payment 

shall be equal to 99 percent of the amount of payment that would otherwise apply to such 

discharges under section 1886(d) or 1814(b)(3) of the Act, as applicable. As specified in 

the statute, this payment adjustment is calculated and made after payment adjustments 

under sections 1886(o) and 1886(q) of the Act, the Hospital VBP Program and the 

Hospital Readmissions Reduction Program respectively, are calculated and made. (We 

note that the Hospital VBP Program is discussed in section V.H. of the preamble of this 

proposed rule and the Hospital Readmissions Reduction Program is discussed in section 

V.G. of the preamble of this proposed rule.) Section 1886(p)(2)(A) of the Act defines 

“applicable hospitals” as subsection(d) hospitals that meet certain criteria. Section 

1886(p)(2)(B)(i) of the Act defines these criteria and specifies that the payment 

adjustment would apply to an applicable hospital that ranks in the top quartile (25 
 582 

percent) of all subsection (d) hospitals, relative to the national average, of conditions 

acquired during the applicable period, as determined by the Secretary. Therefore, we are 

proposing to specify in proposed § 412.172(b) that, “For applicable hospitals, beginning 

with discharges occurring during FY 2015, the amount of payment under this section 

[proposed § 412.172], or section 1814(b)(3) of the Act, as applicable, for such discharges 

shall be equal to 99 percent of the amount of payment that would otherwise apply to such 

discharges under this section [proposed § 412.172], or section 1814(b)(3) of the Act. 

This amount of payment will be determined after the application of the payment 

adjustment under the Hospital Readmissions Reduction Program under § 412.154, and 

the adjustment made under the Hospital Value-Based Purchasing Program under 

§ 412.162, and section 1814(l)(4) but without regard to this section 1886(p) of the Act).” 

 We are inviting public comments on this proposal. 

(2) Applicability to Maryland Hospitals 

Section 1886(p)(2)(c) of the Act specifies that the Secretary may exempt hospitals 

paid under 1814(b)(3) “from the application of this subsection if the State which is paid 

under such section submits an annual report to the Secretary describing how a similar 

program in the state for a participating hospital or hospitals achieves or surpasses the 

measured results in terms of patient health outcomes and cost savings established under 

this subsection.” Accordingly, a program established by the State of Maryland that could 

serve to exempt hospitals in the State from the HAC Reduction Program would focus on 

hospitals operating under the waiver provided by section 1814(b)(3) of the Act, that is, 

those hospitals that would otherwise have been paid by Medicare under the IPPS, absent 
 583 

this provision. As we describe in section V.I.3. of the preamble of this proposed rule, 

because hospitals paid under section 1814(b)(3) of the Act are subsection (d) hospitals, 

they would be included in determining “applicable hospitals” (subject to the payment 

adjustment under the HAC Reduction Program), and unless the Secretary exempts these 

hospitals from the application of payment adjustments under the HAC Reduction 

Program under the authority of section 1886(p)(2)(C) of the Act, they are considered to 

be “applicable hospitals” (subject to the payment adjustments in the HAC Reduction 

Program) under the HAC Reduction Program. 

 In this proposed rule, we are proposing to establish criteria for evaluation to 

determine whether Maryland should be exempted from the application of the payment 

adjustments under the HAC Reduction Program for a given fiscal year. Under proposed 

§ 412.172(c), we would specify that “CMS will determine whether to exempt Maryland 

hospitals that are paid under section 1814(b)(3) of the Act and not under the hospital 

inpatient prospective payment system . . . .” and that, absent the provisions of section 

1814(b)(3) of the Act, would be paid under section 1886(d) of the Act from the 

application of payment adjustments under the Hospital-Acquired Condition Reduction 

Program, provided that the State submits an annual report to the Secretary describing how 

a similar program to reduce hospital acquired conditions in that State achieves or 

surpasses the measured results in terms of health outcomes and cost savings for the 

Hospital-Acquired Condition Reduction Program as applied to hospitals described in 

section 1886(d)(1)(B) of the Act. We would specify in the proposed regulations that 

“CMS will establish criteria for evaluation of Maryland’s annual report to the Secretary 
 584 

to determine whether Maryland will be exempted from the application of payment 

adjustments under this program for a given fiscal year.” We would also specify that 

“Maryland’s annual report to the Secretary and request for exemption from the 

Hospital-Acquired Condition Reduction Program must be resubmitted and reconsidered 

annually.” We are proposing that, for FY 2015, Maryland would submit a preliminary 

report to us by January 15,, 2014 and a final report to us by June 1, 2014. 

 We note that our proposed criteria to evaluate Maryland’s program is for 

FY 2015, the first year of the payment adjustment under the HAC Reduction Program, 

and that our evaluation criteria may change through notice and comment rulemaking as 

this program evolves. 

 We are inviting public comments on our proposals. 

c. Proposed Measure Selection and Conditions, Including a Proposed Risk-Adjustment 

and Scoring Methodology 

(1) General Selection of Proposed Measures 

 We are proposing measures and a scoring methodology for the HAC Reduction 

Program in this FY 2014 proposed rule. Although we are not required under section 

1886(p) of the Act to address specific measure scoring methodologies regarding the HAC 

Reduction Program in notice-and-comment rulemaking, as required under the Hospital 

VBP Program, we believe that it is important to set forth such scoring methodologies for 

each individual HAC measure, in order for the public to understand how the measures 

discussed and finalized in this year’s rulemaking relate to the performance methodology 
 585 

used to determine the applicable hospitals subject to the payment adjustment under the 

HAC Reduction Program. 

(2) Measure Selection and Scoring Methodology 

 As described more fully below, we are proposing initially to adopt eight measures 

for the FY 2015 determination under the HAC Reduction Program. Several of these 

measures are already part of the Hospital IQR Program and are reported on the Hospital 

Compare Web site. We note that all eight measures proposed for the HAC Reduction 

Program follow the criteria established by the DRA of 2005 in that they consist of 

high-volume or high-cost conditions that could be prevented by the use of evidence-based 

guidelines (we refer readers to section II.F. of the preamble of this proposed rule for 

further information). 

 In this proposed rule, we are proposing the measure selection and methodology 

used to determine the Total HAC Score. For measure selection under the HAC 

Reduction Program, we are proposing to group the measures into separate domains 

(Domain 1 and Domain 2) to calculate a Total HAC Score in order to determine the 

payment adjustment. For Domain 1, we are discussing two alternatives, and seeking to 

finalize a policy based upon public comment received regarding these alternatives. The 

first approach represents our proposal, as it is our preferred choice. However, we are 

including an alternative approach for public comment. Both approaches would utilize 

AHRQ Patient Safety Indicators (PSIs) and CDC Healthcare Associated Infection (HAI) 

measures collected via the National Healthcare Safety Network (NHSN), and both 

approaches would be grouped into two separate domains. Domain 1 would include the 
 586 

AHRQ PSI measures. Domain 2 would include CDC HAI measures. As explained 

below, these two domains would be used as part of calculating the Total HAC Score, 

which is the score used to determine the top quartile of subsection (d) hospitals subject to 

the payment adjustment under the HAC Reduction Program. The difference between our 

proposal and the alternative approach, as illustrated by Table A below, lies in the AHRQ 

measures proposed to be used in Domain 1. Domain 2 would be the same under either 

approach. 

 We are proposing to group the AHRQ and CDC HAI measures into separate 

domains to calculate a Total HAC Score because of the several major differences 

between the AHRQ and the CDC HAI measures. First, the AHRQ and CDC HAI 

measures use different data sources for their respective calculations. The AHRQ 

measures use Medicare FFS claims data and the CDC HAI measures use chart-abstracted 

data. Second, the AHRQ measures capture occurrences of adverse events among 

Medicare FFS discharges, while the CDC HAI measures capture adverse events to 

Medicare and non-Medicare patients alike. Third, the AHRQ measure results54 are 

risk-adjusted and reliability-adjusted based on a 24-month data period, whereas the CDC 

HAI measures are a Standardized Infection Ratio (SIR) based on quarterly reporting. In 

addition, the AHRQ measures identify adverse events occurring across units within a 

facility, while the CDC HAI measures identify adverse events at the unit level. The SIR 

adjusts for differences in levels of infection risk in patients. The CDC SIR measures are 

calculated by dividing the total facility number of observed HAI events by the total 

 

54 With the exception of PSI 5 (Volume of foreign object left in body), which is not risk-adjusted or 

reliability-adjusted. 
 587 

facility number of predicted HAI events. The facility must have ≥1 predicted HAI event 

during the reporting time period, for example, calendar quarter, for the meaure to be 

calculated. The number of predicted HAI events is first calculated for each patient care 

location by multiplying the location’s denominator (that is, the number of device days, 

procedure days, or patient days, depending on the HAI) by the NHSN-specific HAI rates 

from a standard population during a baseline time period, and dividing by 1.000. Then 

the predicted number of specific HAIs are summed across locations and used as the total 

facility number of predicted HAI events to reduce the overall SIR for a facility. 

Currently, CAUTI and CLABSI are inclusive of patients in the intensive care unit only. 

However, in this proposed rule, we are seeking public comment on the expansion of the 

population to include medical wards, surgical wards, and medical/surgical wards. (We 

refer readers to section IX.A. of the preamble of this proposed rule for a discussion of the 

Hospital IQR Program.) Furthermore, the AHRQ measures are risk-adjusted at the 

patient level,55 while the CDC HAI measures are risk-adjusted at the hospital-level and 

patient-care unit level. Specifically, the calculation of the AHRQ measures takes into 

consideration the risk factors of the patient’s age, gender, and comorbidities, while CDC 

HAI measures account for risk factors, including patient location within the facility, 

medical school affiliation, and bed size of patient care unit. Because of the important 

differences mentioned above in the calculation of the two sets of measures, combining 

measure results into a single composite measure would decrease the reliability of the 

 

55 The exception is PSI 5 (Volume of foreign object left in body), which is not risk-adjust or reliabilityadjusted. 
 588 

Total HAC Score model. As a result, we are proposing to group the AHRQ and the CDC 

HAI measures into two separate domains. 

 Both our proposal and the alternative approach under Domain 1 support the 

agency’s efforts to identify and monitor adverse events and inform hospitals about their 

patient safety performance. Both approaches also will allow us to compare hospital 

performance and to distinguish better performing hospitals from poor performing 

hospitals. Thus, the measures under either Domain 1 approach would result in a 

consistent scoring. 

 However, our proposed approach for Domain 1 would provide simpler results to 

interpret, allow a hospital to use the results to target patient safety improvement efforts, 

and avoid overlap between the two measure domains. Therefore, we believe that our 

proposed approach for Domain 1 provides hospitals with the most comprehensive picture 

of patient safety performance and is the method we are proposing to use. 

 Under our proposed approach, we are proposing to use the following six AHRQ 

measures for Domain 1 (Table A): 

● Pressure ulcer rate (PSI 3); 

● Volume of foreign object left in the body (PSI 5); 

● Iatrogenic Pneumothorax rate (PSI 6); 

● Postoperative physiologic and metabolic derangement rate (PSI 10); 

● Postoperative pulmonary embolism (PE) or deep vein thrombosis rate (DVT) 

(PSI 12); and 

● Accidental puncture and laceration rate (PSI 15). 
 589 

 Under the alternative approach, the measures under Domain 1 would consist of a 

Complications/Patient Safety for Selected Conditions composite (PSI 90). This 

composite is made up of the following eight individual component PSIs: 

● Pressure ulcer rate (PSI 3); 

● Iatrogenic Pneumothorax rate (PSI 6); 

● Central venous catheter-related blood stream infection rate (PSI 7); 

● Postoperative hip fracture rate (PSI 8); 

● Postoperative pulmonary embolism (PE) or deep vein thrombosis rate (DVT) 

(PSI 12); 

● Postoperative sepsis rate (PSI 13); 

● Wound dehiscence rate (PSI 14); and 

● Accidental puncture and laceration rate (PSI 15). 

 For Domain 2, regardless of the approach used for Domain 1, we are proposing to 

use CDC HAI measures. For FY 2015, we are proposing to use the CLABSI and CAUTI 

measures. Both of these measures are currently part of the Hospital IQR Program, are 

NQF endorsed, are publicly reported on the Hospital Compare Web site and were 

recommended by the MAP for use in the HAC Reduction Program. For FY 2016, we are 

proposing to add Surgical Site Infection (SSI), which is stratified by two conditions: 

colon surgery and abdominal hysterectomy. For 2017, we are proposing to add 

Methicillin-resistant Staphylococcus aurus (MRSA) Bacteremia and Clostridium difficile

infection. These measures are also part of the Hospital IQR Program and are being 

proposed for the Hospital VBP Program. 
 590 

Table A.--Proposed Measures for the Hospital-Acquired Condition Reduction 

Program 

Domain 1: AHRQ Patient Safety Indicators 

Proposed Approach: 

6 individual measures 

(FY 2015 onward) 

Alternative Approach: 

One composite of 8 component 

indicators 

(FY 2015 onward) 

PSI-3 (Pressure ulcer rate) 

PSI-5 (Foreign object left in body) 

PSI-6 (Iatrogenic pneumothorax rate) 

PSI-10 (Postoperative physiologic and metabolic 

derangement rate) 

PSI-12 (Postoperative PE/DVT rate) 

PSI-15 (Accidental puncture & laceration rate) 

PSI-90 

PSI-3 (Pressure ulcer 

rate) 

PSI-6 (Iatrogenic 

pneumathorax rate) 

PSI-7 (Central 

venous catheterrelated blood stream 

infections rate) 

PSI-8 (Postoperative 

hip fracture rate) 

PSI-12 (Postoperative 

PE/DVT rate) 

PSI-13 (Postoperative 

sepsis rate) 

PSI-14 (Wound 

dehiscence rate) 

PSI-15 (Accidental 

puncture & laceration 

rate) 
 591 

Domain 2: CDC HAI Measures Apply to Proposed Approach 

 and Alternative Approach 

(Multiple FYs)

• Central Line-associated Blood Stream Infection (CLABSI) (FY 2015 onward) 

• Catheter-associated Urinary Tract Infection (CAUTI) (FY 2015 onward) 

• Surgical Site Infection (SSI): 

 ◦ SSI Following Colon Surgery (FY 2016 onward) 

 ◦ SSI Following Abdominal Hysterectomy (FY 2016 onward) 

• Methicillin-resistant Staphylococcus aureus (MRSA) Bacteremia (FY 2017 onward) 

• Clostridium difficile (FY 2017 onward) 
 592 

 We are inviting public comment on whether the proposed approach or the 

alternative approach would better serve the HAC Reduction Program. 

(3) Applicable Time Period 

 We are proposing a 2-year applicable period to collect data that would be used to 

calculate the Total HAC Score. For Domain 1 (AHRQ measures), we are proposing a 

2-year data period to calculate the measures based on recommendations from AHRQ, the 

measure developer. In addition, an analysis by Mathematica Policy Research, a CMS 

contractor,56 shows that, with a 24-month data period, 50 to 90 percent of hospitals attain 

a moderate or high level of reliability for the proposed AHRQ measures. We believe that 

the proposed 24-month data period described below would provide hospitals and the 

general public the most current data available. The proposed 24-month data period also 

would allow time to complete the complex calculation process for these measures, to 

perform comprehensive quality assurance to enhance the accuracy of measure results, and 

to disseminate confidential reports on hospital-level results to individual hospitals. 

 For FY 2015, we are proposing to use the 24-month period from July 1, 2011 

through June 30, 2013 as the applicable time period for the AHRQ measures. The claims 

for all Medicare FFS beneficiaries discharged during this period would be included in the 

calculation of measure results for FY 2015. This includes claims data from the 2011, 

2012, and 2013 Inpatient Standard Analytic Files (SAFs). The national and 

hospital-specific rates for PSI 6, PSI 12, and PSI 15 are available on the Hospital 

 

56 Mathematica Policy Research (November 2011). Reporting period and reliability of AHRQ, CMS 30-

day and HAC Quality Measures – Revised.Available at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-

.pdf. 
 593 

Compare Web site. The hospital level PSI-90 composite bucket also is available on the 

Hospital Compare Web site.57

 The CDC measures are currently collected and calculated on a quarterly basis. 

However, for purposes of the HAC Reduction Program, we are proposing to use 2 years 

of data to calculate the Domain 2 score so Domain 1 and Domain 2 are calculated using 

24 months of data. For FY 2015, we are proposing to use calendar years 2012 and 2013 

for the HAC Reduction Program. 

(4) Measure Calculations 

 The AHRQ PSI measures are calculated using ICD-9-CM diagnosis and/or 

procedure codes and, for the secondary diagnoses, the present on admission (POA) value 

associated with each secondary diagnosis in the claim. POA data indicate whether an 

adverse event occurred during the hospital stay, or was already present at the time of 

admission. AHRQ measures also reflect the quality of inpatient care based on patient 

safety events that occurred during hospital stays. The FY 2008 IPPS final rule requires 

that all hospitals paid under the IPPS report on whether a diagnosis is present on 

admission (72 FR 47201). We note that in section II.F. of the preamble of this proposed 

rule, we also are proposing to extend this requirement to subsection (d) Maryland 

hospitals paid under the waiver at section 1814(b)(3) of the Act. The specifications of 

PSIs 3, 5, 6, 10, 12, 15, and the individual components for the composite PSI 90 can be 

found on the Web site at: 

http://www.qualityindicators.ahrq.gov/Modules/PSI_TechSpec.aspx. For the composite 

PSI 90, the calculation, the individual component weighting scheme and the 

 

57 http://www.medicare.gov/hospitalcompare/About/HOSInfo/RCD.aspx#ssi. 
 594 

risk-adjustment methodology can be found on the Web site at: 

http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V44/Composite_User_T

echnical_Specification_PSI%20V4.4.pdf. A detailed discussion of the measure 

specifications and methodology of the AHRQ Patient Safety Indicators (PSIs) can be 

found on the Web site at: 

http://www.qualityindicators.ahrq.gov/modules/psi_resources.aspx. 

 For the HAC Reduction Program, we are proposing that the same rules used for 

the Hospital IQR Program be applied to determine whether the AHRQ individual 

rate-based measures in our proposed approach to Domain 1, including PSI 3, PSI 5, PSI 

6, PSI 10, PSI 12, and PSI 15, are calculated for a hospital. In particular, under this 

proposal, for each of these measures, if a hospital had fewer than three eligible discharges 

in the denominator in general, except as described below, we would not calculate the 

result for that measure for the hospital. In the most recent public reporting of the AHRQ 

measures, less than 6 percent of the IPPS hospitals did not have enough eligible 

discharges to calculate the results for these measures. However, for PSI 5 (foreign object 

left in body), which identifies “never events,” even if a hospital has fewer than three 

occurrences, these events would be included in the calculation of the hospital’s results. 

For the PSI 90 composite in the alternative approach for Domain 1, we also would 

propose that the same rules used for the Hospital IQR Program be used to determine 

whether this composite measure is calculated for a hospital. Specifically, if the number 

of eligible discharges in the denominator for a given component indicator is fewer than 

three, the national rate would be substituted for the hospital rate. If the number of 
 595 

eligible discharges for a hospital is fewer than three for every component indicator that 

makes up the composite, the composite value would not be calculated. 

 For the HAC Reduction Program, we are proposing to use the same inclusion 

criteria as used under the Hospital IQR Program for the Domain 2 measures. In order to 

calculate a Standard Infection Ratio (SIR), a hospital’s number of expected HAIs must be 

>1. For hospitals that have an expected number of HAIs < 1, we would insert zero (0) in 

order to calculate the Domain score. Hospitals that have no ICU and have an active IQR 

zero ICU beds waiver for Hospital IQR program HAI quality reporting also would 

receive zero (0) points. If a hospital is eligible to report HAIs, does not have an active 

Hospital IQR program zero ICU beds waiver, and fails to report to NHSN, it would 

receive the maximum penalty of 10 points for that measure to calculate the Domain 2 

score. (We refer readers to the discussion of scoring under section V.I.3.d. of the 

preamble of this proposed rule.) 

 The CDC uses a SIR, which is a summary metric used to track HAIs. The SIR 

compares the actual number of HAIs at a facility to a national baseline. The number of 

observed infections is divided by the number of expected infections. The number of 

expected infections is calculated using event rates from a standard population during a 

baseline period. (http://www.cdc.gov/HAI/surveillance/QA_stateSummary.html#a6). 

The SIR for CLABSI and CAUTI includes ICU locations, including pediatric and 

neonatal units. We are proposing to expand both of the populations for these measures to 

care provided in areas outside of the ICU in the future. (We refer readers to section IX.A. 
 596 

of the preamble of this proposed rule for a discussion of this proposal under the Hospital 

IQR Program.) 

(5) Measure Risk-Adjustment Methodology 

 Section 1886(p)(2)(B)(ii) of the Act requires the Secretary to establish and apply 

an appropriate risk-adjustment methodology with respect to determining the top quartile 

of subsection (d) hospitals with respect to HACs subject to the 1 percent payment 

adjustment. We are proposing to use the existing measure-level risk-adjustment that is 

already part of the methodology for the individual measures being proposed for Domains 

1 and 2 in order to fulfill this requirement. We are proposing to codify the use of this 

methodology under proposed § 412.172(d). First, with the exception of PSI 5, all of the 

proposed PSI measures are risk-adjusted and reliability-adjusted. Specifically, risk 

factors such as the patient’s age, gender, comorbidities, and complications would be 

considered in the calculation of the measure rates so that hospitals serving a large 

proportion of sicker patients would not be unfairly penalized. We believe that such 

risk-adjustment is appropriate, pursuant to section 3008 of the Affordable Care Act. We 

note that the PSI 5 measure (foreign object left in body) is not risk-adjusted. However, a 

foreign object left in the body constitutes an adverse event that should never occur. Thus, 

such adverse events cannot be risk-adjusted because these events should not occur, 

regardless of patient-related or hospital-related characteristics. 

 We are inviting public comments on the proposed risk-adjustment methodology. 
 597 

d. Criteria for Applicable Hospitals and Performance Scoring 

 In general, we are proposing to use a scoring methodology similar to the 

achievement scoring methodology that is currently used under the Hospital VBP 

Program. We are proposing to implement a methodology for assessing the top quartile of 

applicable hospitals for HACs based on performance standards, under which we would 

score each hospital based on whether they are in the top quartile for each applicable 

measure and where in the top quartile they fall. In addition, we are proposing to calculate 

a Total HAC Score for each hospital by summing the hospital’s performance score on 

each measure within a domain to determine a score for each domain, then multiplying 

each domain score by a proposed weight (Domain 1-AHRQ Patient Safety Indicators 50 

percent, Domain 2- CDC NHSN Measures 50 percent), and adding together the weighted 

domain scores to determine the Total HAC Score. We are proposing to use each 

hospital’s Total HAC Score to determine the top quartile of subsection (d) hospitals 

(applicable hospitals) that would be subject to the payment adjustment beginning with 

discharges on or after October 1, 2014. 

 With respect to a subsection (d) hospital, we are proposing that CMS will identify 

the top quartile of all hospitals that are subsection (d) hospitals with respect to their rate 

of HACs during the applicable period (proposed § 412.172(e)(1)). We are proposing that 

CMS will use Total HAC scores to identify applicable hospitals and will identify the 25 

percent of hospitals with the highest Total HAC scores as applicable hospitals (proposed 

§ 412.172(e)(2)). In addition, we are proposing that CMS will calculate the Total HAC 
 598 

score by weighing Domain 1 score plus Domain 2 equally at 50 percent (proposed 

§ 412.172(e)(3)). 

 We are proposing that hospital performance under section 1886(p) of the Act 

would be based on a Total HAC Score, which combines a hospital’s results for Domains 

1 and 2. As discussed earlier, we are proposing that the Domain 1 score be a 

combination of each hospital’s result for all of the six individual AHRQ measures 

(Domain 1/Proposed Approach). We presented an alternative, the hospital’s result for 

PSI 90 (Domain 1/Alternative Approach), which also could be used. For Domain 

1/Proposed Approach, because hospitals may not have complete data for every AHRQ 

measure in the domain, we are proposing to use the same methodology as used for the 

Hospital VBP Program to determine the minimum number of measures with complete 

data to be included in the calculation of the Outcome Domain. We are proposing to use 

the following rules to determine the number of AHRQ measures to be included in the 

calculation for a hospital’s Domain 1 score (Table B). In this discussion, “complete data” 

refers to whether a hospital has enough eligible discharges to calculate a rate for a 

measure. Specifically-- 

 If a hospital did not have complete data for all six of the AHRQ measures, or if a 

hospital had complete data for fewer than three AHRQ measures, we would not calculate 

a Domain 1 score for that hospital. 

 If a hospital had complete data for at least three but fewer than six AHRQ 

measures, we would calculate a Domain 1 score for that hospital based on the rates of the 

available measures. The rate of each of these three to five available measures would be 
 599 

equally weighted to contribute to the Domain 1 score. We would exclude the AHRQ 

measure(s) for which the hospital did not have complete data. Thus, if a hospital had 

complete data for three AHRQ measures, each measure would contribute to one-third of 

the hospital’s Domain 1 score; if a hospital had complete data for four AHRQ measures, 

each measure would contribute to one-fourth of the hospital’s Domain 1 score; if a 

hospital had complete data for five AHRQ measures, each measure would contribute to 

one-fifth of the hospital’s Domain 1 score. 

 If a hospital had complete data for all six AHRQ measures, we would calculate a 

Domain 1 score for that hospital based on the rates of all six measures. The rate of each 

of these six measures would be equally weighted to contribute to the Domain 1 score. 

Thus, each measure would contribute to one-sixth of the hospital’s Domain 1 score. 

Table B.--Overall Description of How Measures in Domain 1/Proposed Approach 

Would Be Handled in Total HAC Score 

Domain 1 – Proposed Approach: Six individual AHRQ Patient Safety Indicators 

(PSIs) 

Number of PSIs 

with complete 

data* 

Rules for calculating Domain 1-Option 1 score 

< 3 ● Do not calculate Domain 1 score or Total HAC Score for 

hospital 

3 to 5 ● Include PSIs with complete data in calculation of Domain 1 

score. 

● Exclude PSIs without complete data 

● Weight each PSI equally 

6 ● Include all 6 PSIs in calculation of Domain 1 score and Total 

HAC score 

● Weight each PSI equally 
 600 

*Complete data = A hospital having enough cases to calculate the risk-adjusted and reliability-adjusted rate 

for an AHRQ PSI. 

 The calculation of the SIR for the CDC measures requires the facility have 

>1 predicted HAI event. The predicted number of events is calculated using the national 

HAI rate and the observed number of the specific HAIs. In the event an SIR cannot be 

calculated because the facility has <1 predicted infection, Domain 1 scores exclusively 

will be used to calculated a HAC score. In other words, we would exclude from the 

overall HAC score calculation any measure for which an SIR cannot be calculated for the 

reason set out above. 

 Because of the differences among the measures proposed for the HAC Reduction 

Program and the distribution of measure results, simply adding up the measure results to 

calculate the domain or Total HAC Scores would make the scores less meaningful to 

hospitals and the general public. As a result, we are proposing that points be assigned to 

hospitals’ performance for each measure. This approach aligns with the Hospital VBP 

Program for measuring hospital achievement. In particular, the Hospital VBP Program 

assigns up to 10 points for each measure based on a hospital’s result of that measure for a 

given time period. We note that, for the HAC Reduction Program, unlike the Hospital 

VBP Program where a higher score means better performance, the more points a hospital 

receives on a measure correspond with a poorer score. For the HAC Reduction Program, 

we are proposing a slightly different methodology for scoring points, depending on the 

specific measure (Table C). Specifically-- 

● For PSI 5 (Volume of foreign object left in body) in Domain 1 - Proposed 

Approach, the measure results are frequency counts. 
 601 

○ Because this measure captures the number of never events, which should never 

happen, regardless of patient or hospital characteristics, we are proposing to assign 10 

points, the maximum number of points, if the hospital had at least one occurrence. 

○ If a hospital had no occurrence for this measure, we would assign zero points. 

● For PSI 3, 6, 10, 12, and 15 in Domain 1 – Proposed Approach, point 

assignment for each measure would be based on the rate of occurrence for that measure. 

○ If a hospital’s rate is within the worse performing quartile for a measure, we 

would assign 1 to 10 points to the hospital for that measure. The proposed rules for 

determining the number of points to be assigned are discussed later. 

○ If a hospital’s rate is not within the worse performing quartile for a measure, 

we would assign zero points to the hospital for that measure. 

● For the AHRQ Patient Safety for Selected Condition (PSI 90) composite in 

Domain 1 – Alternative Approach, point assignment would be based on a hospital’s score 

for the composite measure. 

○ If a hospital’s result is within the worse performing quartile for a measure, we 

would assign 1 to 10 points to the hospital for this composite measure. The proposed 

rules for determining the number of points to be assigned are discussed later. 

○ If a hospital’s result is not within the worse performing quartile, we would 

assign zero points to the hospital for this composite measure. 

● For the CDC NHSN measures in Domain 2, point assignment for each measure 

would be based on the SIR for that measure. 
 602 

○ If a hospital’s SIR is within the worse performing quartile for a measure, we 

would assign 1 to 10 points to the hospital for that measure. The proposed rules for 

determining the number of points to be assigned are discussed later. 

○ If a hospital’s SIR is not within the worse performing quartile for a measure, 

we would assign zero points to the hospital for that measure. 
 603 

Table C.--Calculation of Domain 1 and 2 Measures 

Measure 

Name 

Measure Result Scenario Individual Measure 

Score (Points) 

Occurrence = 0 0 PSI-5* Frequency count 

Occurrence ≥ 1 10 

PSIs 3, 6, 10, Rate ≥ 75% 1 – 10 

12, 15** 

Rates*** 

Rate < 75% 0 

Composite value ≥

75% 

PSI 90 Weighted average of 1 – 10 

rates of component 

indicators 

Composite value < 

75% 

0 

CDC NHSN SIR ≥ 75% 1 – 10 (see Figure A) 

measure 

Standard Infection 

Ratio (SIR) 

SIR < 75% 0 

*PSI-5 is the Volume of foreign object left in the body measure, developed by AHRQ. 

**PSI-3 is Pressure ulcer rate; PSI-6 is Iatrogenic Pneomothorax; PSI-10 is Postoperative physiological and 

metabolic derangement rate; PSI-12 is Postoperative pulmonary embolism or deep vein thrombosis rate; 

PSI-15 is Accidental puncture and laceration rate. 

***These measure rates are risk-adjusted and reliability-adjusted. 

 For all the proposed measures for the HAC Reduction Program, with the 

exception of PSI 5, we are proposing the following rules to determine the number of 

points assigned to a measure that is within the top (or worse performing) quartile: Based 

on the distribution of measure results within the top (or worse performing) quartile of a 

measure, we would divide the measure results into percentiles. Figure A shows an 

example for point assignment for PSI 3 (Pressure ulcer rate). In this example, if a 

hospital’s rate for PSI 3 is between 0.3000 and 0.3400, it is within the top (or worse 

performing) quartile. For Hospital A, the rate for PSI 3 is 0.3378. As a result, Hospital 
 604 

A is subject to 1 to 10 points for PSI 3. Based on the distribution for PSI 3 rates for all 

the hospitals in the top quartile, we would divide the results into percentiles in increments 

of 10 with the lowest percentile ranges meaning better performance within the top 

quartile. Hospitals with PSI 3 rates within the lowest tenth percentile of the top quartile 

would be given one point; those with PSI 3 rates within the second lowest percentile 

range (between the 10th and 20th percentile) of the top quartile would be given 2 points, 

etc. Because Hospital A’s rate for PSI 3 is within the eighth percentile range (between 

the 70th and 80th percentile), we would assign 8 points to this PSI 3 measure for 

Hospital A. 
 605 

Figure A.--Example of Point Assignment for Hospital A with PSI-3 (Pressure 

ulcer rate) Rate = 0.3378 

 100 

 

 75 

 

 50 1st – 10thpercentile 

 41st - 50th percentile 

 25 

 

 0.3300 0.3400 

 (75%) 

 0.3378 (Hospital A) 

 PSI-3 Rate 

Point assignment for Hospital A’s PSI-3 score: 

If Hospital A’s PSI-3 rate falls into this percentile 

above 75% 

Then assign this number of 

points 

1st – 10th 1 

11th – 20th 2 

21st - 30th 3 

31st - 40th 4 

41st - 50th 5 

51st - 60th 6 

61st - 70th 7 

71st - 80th 8 

81 - 90th 9 

91st - 100th 10 

Top Quartile (1-10 pts) 
 606 

 For Domain 2, we would obtain measure results that hospitals submitted to the 

CDC NHSN for the Hospital IQR Program. The CDC HAI measures capture adverse 

events that occurred within intensive care units (ICUs), including pediatric and neonatal 

units. For the Hospital IQR Program, hospitals that elected to participate in the reporting 

program (that is, had an active IQR pledge), but did not have ICUs, can apply for an ICU 

waiver so that they would not be subject to the 2-percent payment reduction for 

nonsubmission of quality reporting data. 

 In the second quarter of 2012, among the 3,321 IPPS hospitals with an active IQR 

pledge for data submission, 377 (or 10.1 percent) applied and received an ICU waiver. 

At the same time, 2,939 hospitals (88.5 percent) of the IPPS hospitals did not have an 

ICU waiver and submitted data for the CDC HAI CLABSI measure, while 4 hospitals 

(0.1 percent) that had no ICU waiver failed to submit data to the NHSN. For the same 

quarter, of the 3,321 IPPS hospitals with an active IQR pledge, 2,935 (88.4 percent) that 

did not have an ICU waiver submitted data for the CDC HAI CAUTI measure, whereas 8 

hospitals (0.2 percent) did not submit data. Because data availability for the two 

proposed CDC HAI measures impact the score for Domain 2 and eventually the Total 

HAC Score, CMS aims to encourage hospitals with an ICU that did not submit data to 

begin data submission, and to reward hospitals that have already submitted data to 

continue data submission for all the CDC HAI measures. To this end, we are proposing 

the following rules (Figure B): 

● If a hospital had an ICU waiver for the CDC HAI measures, we would use only 

the Domain 1 score to calculate its Total HAC Score. 
 607 

● If a hospital did not have an ICU waiver for a CDC HAI measure: 

○ If the hospital did not submit data for the CDC HAI measures, we would assign 

10 points to that measure for that hospital. 

○ If the hospital did submit data for at least one CDC NHSN measure: 

▪ If there are complete data (that is, enough adverse events to calculate the SIR) 

for at least one measure, we would use those data to calculate a Domain 2 score and use 

the hospital’s Domain 1 and Domain 2 scores to calculate the Total HAC Score. 

▪ If there are not enough adverse events to calculate the SIR for any of the 

measures, we would use only the hospital’s Domain 1 score to calculate its Total HAC 

Score. 
 608 
 609 

Figure B. Calculation of Total HAC Score for Domain 2 CDC NHSN Measures

 

 Yes 

 

 

 

 No 

 

 

 

 No No 

 

 Yes 

 No 

 

 Yes 

Key: 

Domain 1 = AHRQ Patient Safety Indicators 

Domain 2 = CDC NHSN measures 

Total HAC score = 

Domain 1 score (weight = 50%) 

+ Domain 2 score (weight = 50%) 

Total HAC score = 

Domain 1 score (weight = 50%) + 

10 points for Domain 2 (weight = 50%) 

Total HAC score = 

Domain 1 score (weight = 100%) 

Hospital has 

ICU or other 

waiver? 

Submitted 

CDC 

NHSN 

data? 

Had enough 

cases to 

calculate 

SIR? 
 610 

 As discussed earlier, if a hospital has complete data for the measures in both 

Domain 1 and Domain 2, the scores of the two domains would contribute equally to the 

Total HAC Score. In the case of Domain 1 – Proposed Approach, if a hospital has 

complete data for at least three measures in Domain 1 and at least one measure in 

Domain 2, its Domain 1 score and Domain 2 score would contribute equally to its Total 

HAC Score. However, if a hospital has complete data for fewer than three measures in 

Domain 1 and at least one measure in Domain 2, its Total HAC Score would depend 

entirely on its Domain 2 score. Similarly, if a hospital has complete data for at least three 

of the measures in Domain 1 but none of the measures in Domain 2, its Total HAC Score 

would be based entirely on its Domain 1 score. If a hospital does not have complete data 

for at least three measures in Domain 1 and at least one measure in Domain 2, we would 

not calculate a Total HAC Score for this hospital. 

 In the case of Domain 1 – Alternative Approach, if a hospital has enough data to 

calculate PSI 90 for Domain 1 and complete data for at least one measure in Domain 2, 

the scores of the two domains would contribute equally to the Total HAC Score. 

However, if a hospital does not have enough data to calculate PSI 90 for Domain 1 but it 

has complete data for at least one measure in Domain 2, its Total HAC Score would 

depend entirely on its Domain 2 score. Similarly, if a hospital has complete data to 

calculate PSI 90 in Domain 1 but none of the measures in Domain 2, its Total HAC Score 

would be based entirely on its Domain 1 score. If the hospital does not have complete 

data to calculate PSI 90 for Domain 1 or any of the measures in Domain 2, we would not 

calculate a Total HAC Score for this hospital. 
 611 

 We are inviting public comments on this proposed scoring methodology. In 

addition, we are inviting public comments on alternate methodologies for scoring 

hospitals and determining most accurately those hospitals that are in the top quartile for 

the selected HACs. For example, instead of awarding points for each measure only to 

those hospitals that fall in the top quartile for that specific measure, an alternative option 

would be to award points to each hospital for each measure in deciles from the best 

performing hospital to the worst performing hospital. Another example would be to 

award points in deciles for each measure between the median rate for a particular 

measure and the rate of the worst performing hospital. We are seeking to identify 

hospitals that are in the top quartile for all of the HACs combined and are soliciting 

public comments on approaches to best identify this group of hospitals. 

e. Reporting Hospital-Specific Information, Including the Review and Correction of 

Information 

(1) Confidential Reports to Applicable Hospitals 

 Section 1886(p)(5) of the Act requires the Secretary to provide confidential 

reports to the applicable hospitals with respect to HACs. To meet the requirements under 

section 1886(p)(5) of the Act, we are proposing that confidential reports for the HAC 

Reduction Program contain information related to claims-based measure data for the PSI 

measures, the domain score for each domain, and the Total HAC Score. We note that, 

although we are proposing to use chart-abstracted measures in the HAC Reduction 

Program, such information will be contained in the reports hospitals currently receive as 

part of the Hospital IQR Program and can be reviewed and corrected through the process 
 612 

specified for that program. We believe that this method would reduce the burden on 

hospitals, by alleviating the need to correct data present in two different programs. 

However, we welcome any public comments and suggestions on this proposal. 

(2) Availability of Information to the Public 

 Section 1886(p)(6)(A) of the Act requires the Secretary to “make information 

available to the public regarding HAC rates of each subsection (d) hospital” under the 

HAC Reduction Program. Section 1886(p)(6)(C) of the Act requires the Secretary to post 

the HAC information for each applicable hospital on the Hospital Compare Web site in 

an easily understood format. Section 1886(p)(6)(B) of the Act also requires the Secretary 

to “ensure that an applicable hospital has the opportunity to review, and submit 

corrections for, the HAC information to be made public for each hospital.” 

 To meet the requirements under section 1886(p)(6)(C) of the Act, we are 

proposing that the following information would be made public on the Hospital Compare

Web site relating to the HAC Reduction Program: (1) hospital scores with respect to 

each measure; (2) each hospital’s domain specific score; and (3) the hospital’s Total 

HAC Score. However, because this is a new program, we are inviting public comments 

and suggestions on other information to be posted on the Hospital Compare Web site. 
 613 

(3) Review and Correction of Information 

 Section 1886(p)(6)(B) of the Act requires the Secretary to ensure that each 

hospital has the opportunity to review and submit corrections for the information to be 

made available to the public with respect to each hospital under section 1886(p)(6)(A) of 

the Act prior to such information being made available to the public. We are proposing 

that hospitals be allowed to review and correct the following information as part of the 

HAC Reduction Program prior to it being made available to the public: the claims-based 

measures in Domain 1; the point allocations for the measures in each domain; the domain 

scores; and the Total HAC Score. 

 For the FY 2015 HAC Reduction Program, we are proposing to use individual 

HAC measures consisting of CDC HAI measures as well as claims-based measures. 

Further, we are proposing for the HAC Reduction Program that hospitals have an 

opportunity to review and correct chart abstracted data and claims based data for each 

measure through the processes discussed below. These individual measures will be used 

to calculate the domain and Total HAC Score, which would determine those applicable 

hospitals within the top quartile, or those hospitals with the highest number of HACs. 

We also are proposing that hospitals have the opportunity to review and submit 

corrections on its Domain and Total HAC Score for the HAC Reduction Program, which 

is also described below. 

(a) Chart-Abstracted Measures (Domain 2 - CDC HAI Measures) 

 We are proposing to use the same process that hospitals currently have to review 

and correct data submitted on the Hospital IQR Program chart-abstracted measures to 
 614 

review and correct chart-abstracted measures in Domain 2 under the HAC Reduction 

Program. Under this proposed process, hospitals would continue to have the opportunity 

to review and correct data they submit on all Hospital IQR Program chart abstracted 

measures, whether or not the measure was adopted as a measure for the HAC Reduction 

Program. We are proposing to use the Hospital IQR Program’s data submission, review, 

and correction processes, which would allow for review and correction of data on a 

continuous basis as data are being submitted for the Hospital IQR Program, which in turn 

would allow hospitals to correct data used to calculate the Total HAC Score for those 

hospitals that participate in both the Hospital IQR Program and the HAC Reduction 

Program. We believe this process would satisfy the requirement in section 1886(p)(6) of 

the Act to allow hospitals to review and submit corrections for information that will be 

made public with respect to each hospital. Under the Hospital IQR Program, hospitals 

currently have an opportunity to submit, review, and correct any of the chart-abstracted 

information for the full 4 1⁄2 months following the last discharge date in a calendar 

quarter. Hospitals can begin submitting data on the first discharge day of any reporting 

quarter. Hospitals are encouraged to submit data early in the submission schedule to 

identify errors and resubmit data before the quarterly submission deadline. Users may 

view and make corrections to the data that they submit starting immediately following 

submission. The data are populated into reports that are updated immediately with all 

data that have been submitted successfully. Hospitals are able to view a report each 

quarter which shows the numerator, denominator, and percentage of total for each 

Clinical Measure Set and Stratum. That report contains the hospital’s performance on 
 615 

each measure set/stratum submitted quarterly by CDC on behalf of hospitals to 

CMS’QIO Clinical Warehouse. We believe that 4 1/2 months is sufficient time for 

hospitals to be able to submit, review data, make corrections to the data, and view their 

percentage of total, or measure rate, on each Clinical Measure Set/Strata for use in both 

the Hospital IQR Program and the HAC Reduction Program. In addition, because this 

process is familiar to most hospitals, use of this existing framework reduces the burden 

that could have been placed on hospitals that participate in the Hospital IQR Program if 

they had to learn a new process for submitting chart-abstracted data for the HAC 

Reduction Program. Subsequent to the period during which hospitals could review and 

correct data and measure rates for chart-abstracted measures as specified, they would 

have no further opportunity to correct such data or measure rates. We are proposing that 

once the hospital had an opportunity to review and correct quarterly data related to chart 

abstracted measures submitted in the Hospital IQR Program, we would consider that the 

hospital had been given the opportunity to review and correct the data for the HAC 

Reduction Program. We are proposing to use these data to calculate the measure scores 

for purposes of the HAC Reduction Program, and these measure scores would be used to 

calculate domain and Total HAC Scores for the HAC Reduction Program without further 

review and correction. We invite public comment on this proposal. 

(b) Claims Based Measures (Domain 1 AHRQ PSI Measures) 

 For purposes of the HAC Reduction Program for FY 2015, we are proposing to 

calculate Domain 1 measure rates using the 2-year applicable period for the FY 2015 

payment determination that spans from July 1, 2011 through June 30, 2013, data sources, 
 616 

and apply the minimum number of discharges criteria shown in Table B for each hospital 

as proposed. We intend to make this information available to the public, consistent with 

the requirements of section 1886(p)(6)(B) of the Act, as part of the FY 2015 rulemaking 

process, in addition to posting this information on the Hospital Compare Web site in a 

subsequent release. 

 We are proposing to provide hospitals an opportunity to review and submit 

corrections for claim-based measures using a process similar to the process currently used 

for posting results on the Hospital Compare Web site , which is also the process currently 

used in the Hospital Readmissions Reduction Program. Below, we are proposing the 

details regarding the process for hospitals to review and submit corrections to their data 

score prior to making this information available to the public in rulemaking and on the 

Hospital Compare Web site. 

 For FY 2015, for the HAC Reduction Program, we are proposing to deliver 

confidential reports and accompanying confidential discharge level information to 

hospitals as defined in section V.I.3.d. of the preamble of this proposed rule. These 

reports would be delivered in hospitals’ secure QualityNet accounts. The information in 

the confidential reports and accompanying confidential discharge-level information 

would be calculated using the claims information we had available approximately 90 

days after the last discharge date in the applicable period, which is when we would create 

the data extract for the calculations. The discharge-level information accompanying the 

Domain 1 PSI measure rates would include the risk factors for the discharges that factor 

into the calculation of the Total HAC Score used to determine the top quartile of 
 617 

applicable hospitals, dates of admission and discharge, discharge characteristics, and 

other information relevant to the measure calculations, that is, exclusions. Our intent in 

providing this information is twofold: (1) to facilitate hospitals’ verification of the 

Domain 1 PSI measure calculations we provide during the review and correction period 

based upon the information we had available at the time our data extract was created; and 

(2) to facilitate hospitals’ quality improvement efforts with respect to the PSI measures. 

 The review and correction process we are proposing for claims based measures in 

Domain 1 would not include submitting additional corrections related to the underlying 

claims data we used to calculate the measures for Domain 1, or adding new claims to the 

data extract we used to calculate the measures used in Domain 1. This is because it is 

necessary to take a static “snapshot” of the claims in order to perform the calculations. 

For purposes of this program, we would calculate the measures in Domain 1 using a static 

snapshot (data extract) taken at the conclusion of the 90-day period following the last 

date of discharge used in the applicable period. We recognize that under our current 

timely claims filing policy, hospitals have up to 1 year from the date of discharge to 

submit a claim to us. However, in using claims data to calculate measures for this 

program, we are proposing to create data extracts using claims in CMS’ Common 

Working File (CWF) 90 days after the last discharge date in the applicable period which 

we will use for the calculations. For example, if the last discharge date in the applicable 

period for a measure is June 30, 2013, we would create the data extract on 

September 30, 2013, and use that data to calculate the claims based measures for that 

applicable period. Hospitals would then receive the Domain 1 Score in their confidential 
 618 

reports and accompanying discharge-level information, and they would have an 

opportunity to review and submit corrections for the calculations of the measures in 

Domain 1. As we stated above, hospitals would not be able to submit corrections to the 

underlying claims snapshot used for the Domain 1 measure calculations after the extract 

date, and also would not be able to add claims to this data set. Therefore, we would 

consider hospitals’ claims data to be complete for purposes of calculating the Domain 1 

for the HAC Reduction Program at the conclusion of the 90-day period following the last 

date of discharge used in the applicable period. We considered a number of factors in 

determining that a 90-day “run-out” period is appropriate for purposes of calculating 

claims based measures. First, we seek to provide timely quality data to hospitals for the 

purpose of quality improvement and to the public for the purpose of transparency. Next, 

we seek to make payment adjustments to hospitals based on their performance on 

measures as close in time to the performance period as possible. Finally, with respect to 

claims-based measures, we seek to have as complete a data set as possible, recognizing 

that hospitals have up to 1 year from the date of discharge to submit a claim under CMS’ 

timely claims filing policy. After the data extract is created, it takes several months to 

incorporate other data needed for the calculations (particularly in the case of 

risk-adjusted, and/or episode-based measures). We then need to generate and check the 

calculations, as well as program, populate, and deliver the confidential reports and 

accompanying data to be delivered to hospitals. We also are aware that hospitals would 

prefer to receive the calculations to be used for the HAC Reduction Program as soon as 

possible. Because several months lead time is necessary after acquiring the data to 
 619 

generate these claims-based calculations, if we were to delay our data extraction point to 

12 months after the last date of the last discharge in the applicable period, we would not 

be able to deliver the calculations to hospitals sooner than 18 to 24 months after the last 

discharge. We believe this would create an unacceptably long delay both for hospitals 

and for us to deliver timely calculations to hospitals for quality improvement and 

transparency, and ultimately timely readmission adjustment factors for purposes of this 

program. Therefore, we are proposing to extract the data needed to calculate the Domain 

1 for this program 90 days after the last date of discharge for the applicable period so that 

we can balance the need to provide timely program information to hospitals with the need 

to calculate the claims based measures using as complete a data set as possible. We note 

that, under the proposed process, hospitals would retain the ability to submit new claims 

and corrections to submitted claims for payment purposes in line with CMS’ timely 

claims filing policies. However, we emphasize that the administrative claims data used 

to calculate the Domain 1 measures and the resulting Domain Score reflect the state of 

the claims at the time of extraction from CMS’ Common Working File. Under the 

proposed process, a hospital’s opportunity to submit corrections to the calculation of the 

Total HAC Score ends at the conclusion of the review and correction period. 

(c) Total HAC Score 

 We are proposing to provide hospitals with a period of 30 days to review and 

submit corrections for their Total HAC Scores for the HAC Reduction Program. This 

30-day period would begin when the hospitals’ confidential reports and accompanying 

discharge-level information are posted to their QualityNet accounts. This proposed 
 620 

requirement will enable us to evaluate correction requests and provide decisions on those 

requests in a timely manner. 

 We believe that this proposed review and corrections process will ensure that 

hospitals are able to fully and fairly review their domain and Total HAC Score. We view 

the review and corrections process as a means to ensure that the information posted on 

the Hospital Compare Web site is accurate. We are inviting public comments on the 

proposed review and corrections process for the HAC Reduction Program. Based on 

previous experience with public reporting of measures under the Hospital IQR Program, 

and review and correction processes currently in place for the Hospital Readmission 

Reduction Program and the Hospital VBP Program, we believe this 30-day period allows 

enough time for hospitals to review their data and notify us of calculation errors, and for 

us to incorporate appropriate corrections to the HAC calculations prior to making the data 

available to the public. We are proposing that the Total HAC Score would be made 

available to the public via Hospital Compare Web site after the review and correction 

period. During the review and correction period, hospitals should notify us of suspected 

errors in their Total HAC Score using the technical assistance contact information 

provided in their confidential reports. 

 During the 30-day review and correction process for the Total HAC Score, if a 

subsection (d) hospital suspects that discrepancies exist in our application of the HAC 

scoring methodology (assignment of points to measures, domain scoring, domain 

weighting), it should notify us during the review and correction period using the technical 

support contacts provided in the hospital’s confidential report. We would investigate the 
 621 

validity of each submitted correction and notify hospitals of the results. If we confirm 

that we made an error in creating the data extract or in calculating the Total HAC Score, 

we would correct the calculations, issue new confidential reports to affected subsection 

(d) hospitals, and then publicly report the corrected Total HAC Score. However, if the 

errors take more time than anticipated to correct, we would notify hospitals that corrected 

HAC Scores will be made available through delivery of confidential reports followed by 

a second 30-day review and correction period, subsequent publication, and posting on 

Hospital Compare Web site. In addition, we are proposing that any corrections to a 

hospital’s Total HAC Score would then be used to recalculate a hospital’s quartile under 

section 1886(p)(2)(B)(i) of the Act in order to determine the hospital’s adjustment factor 

in accordance with section 1886(p)(2)(B)(ii) of the Act. 

 We believe that this proposed process would fulfill the statutory requirements at 

section 1886(p)(2)(B), section 1886(p)(6)(B), and section 1886(p)(6)(C) of the Act. We 

further believe that the proposed process would allow hospitals to review and correct 

their Total HAC Score. 

 We are proposing to codify this review and correction process at proposed 

§ 412.172(f). In summary, we are specifying that CMS will make information available 

to the public regarding HAC rates of all hospitals described in section 1886(d)(1)(B) of 

the Act, including hospitals in Maryland paid under section 1814(b)(3) of the Act, under 

the HAC Reduction Program (proposed paragraph (f)). To ensure that a hospital has the 

opportunity to review and submit corrections for its HAC rates for the applicable 

conditions for a fiscal year that are used to determine its total hospital acquired conditions 
 622 

score, we are specifying that CMS will provide each hospital with confidential 

hospital-specific reports and discharge level information used in the calculation of its 

total hospital acquired conditions score (proposed paragraph (f)(2)). Hospitals will have 

a period of 30 days after receipt of the information provided to review and submit 

corrections for the hospital acquired conditions domain score for each condition that are 

used to calculate the Total HAC score for the fiscal year (proposed paragraph (f)(2)). 

The administrative claims data used to calculate a hospital's total hospital acquired 

conditions score for the conditions for a fiscal year will not subject to review and 

correction (proposed paragraph (f)(3)). CMS will post the total hospital acquired 

condition score for the applicable conditions for a fiscal year for each applicable hospital 

on the Hospital Compare Web site (proposed paragraph (f)(4)). 

f. Limitation on Administrative and Judicial Review 

 Section 1886(p)(7) of the Act provides that there will be no administrative or 

judicial review under Section 1869 of the Act, under Section 1878 of the Act, or 

otherwise for any of the following: 

● The criteria describing an applicable hospital under section 1886(p)(2)(A) of 

the Act. 

● The specification of hospital acquired conditions under section 1886(p)(3) of 

the Act. 

● The specification of the applicable period under section 1886(p)(4) of the Act. 

● The provision of reports to applicable hospitals under section 1886(p)(5) of the 

Act. 
 623 

● The information made available to the public under section 1886(p)(6) of the 

Act. 

 We are proposing to include these statutory provisions under proposed 

§ 412.172(g). We note that section 1886(p)(6) of the Act requires the Secretary to make 

information available to the public regarding HAC scores of each applicable hospital 

under the HAC Reduction Program. Section 1886(p)(6)(B) of the Act also requires the 

Secretary to ensure that an applicable hospital has the opportunity to review, and submit 

corrections for, the information to be made available to the public, prior to that 

information being made public. We believe that the review and correction process 

explained above will provide hospitals with the opportunity to correct data prior to its 

release on the Hospital Compare Web site. 

J. Payments for Direct Graduate Medical Education (GME) Costs (§§ 412.106 and 

413.75 through 413.83)

1. Background 

 Section 1886(h) of the Act, as added by section 9202 of the Consolidated 

Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 99–272) and as currently 

implemented in the regulations at 42 CFR 413.75 through 413.83, establishes a 

methodology for determining payments to hospitals for the direct costs of approved 

graduate medical education (GME) programs. Section 1886(h)(2) of the Act sets forth a 

methodology for the determination of a hospital-specific base-period per resident amount 

(PRA) that is calculated by dividing a hospital’s allowable direct costs of GME in a base 

period by its number of full-time equivalent (FTE) residents in the base period. The base 
 624 

period is, for most hospitals, the hospital’s cost reporting period beginning in FY 1984 

(that is, October 1, 1983 through September 30, 1984). The base year PRA is updated 

annually for inflation. In general, Medicare direct GME payments are calculated by 

multiplying the hospital's updated PRA by the weighted number of FTE residents 

working in all areas of the hospital complex (and at nonprovider sites, when applicable), 

and the hospital’s Medicare share of total inpatient days. 

 Section 1886(d)(5)(B) of the Act provides for a payment adjustment known as 

the indirect medical education (IME) adjustment under the hospital inpatient prospective 

payment system (IPPS) for hospitals that have residents in an approved GME program, in 

order to account for the higher indirect patient care costs of teaching hospitals relative to 

nonteaching hospitals. The regulations regarding the calculation of this additional 

payment are located at 42 CFR 412.105. The hospital’s IME adjustment applied to the 

DRG payments is calculated based on the ratio of the hospital's number of FTE residents 

training in either the inpatient or outpatient departments of the IPPS hospital to the 

number of inpatient hospital beds. 

 The calculation of both direct GME and IME payments is affected by the number 

of FTE residents that a hospital is allowed to count. Generally, the greater the number of 

FTE residents a hospital counts, the greater the amount of Medicare direct GME and IME 

payments the hospital will receive. In an attempt to end the implicit incentive for 

hospitals to increase the number of FTE residents, Congress, through the Balanced 

Budget Act of 1997 (Pub. L. 105–33), established a limit on the number of allopathic and 

osteopathic residents that a hospital may include in its FTE resident count for direct GME 
 625 

and IME payment purposes. Under section 1886(h)(4)(F) of the Act, for cost reporting 

periods beginning on or after October 1, 1997, a hospital’s unweighted FTE count of 

residents for purposes of direct GME may not exceed the hospital’s unweighted FTE 

count for direct GME in its most recent cost reporting period ending on or before 

December 31, 1996. Under section 1886(d)(5)(B)(v) of the Act, a similar limit based on 

the FTE count for IME during that cost reporting period is applied effective for 

discharges occurring on or after October 1, 1997. Dental and podiatric residents are not 

included in this statutorily mandated cap. 

 The Affordable Care Act made a number of statutory changes relating to the 

determination of a hospital’s FTE resident count for direct GME and IME payment 

purposes and the manner in which FTE resident limits are calculated and applied to 

hospitals under certain circumstances. Regulations implementing these changes are 

discussed in the November 24, 2010 final rule (75 FR 72133) and the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53416). 

2. Proposed Inclusion of Labor and Delivery Days in the Calculation of Medicare 

Utilization for Direct GME Purposes and for Other Medicare Inpatient Days Policy 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53411), we discussed 

Medicare’s policies with respect to the treatment of labor and delivery services in the 

calculation of the Medicare DSH payment adjustment. We noted that, in the FY 2010 

IPPS/LTCH PPS final rule, we made a change to include, in the DPP of the Medicare 

DSH payment adjustment, all patient days associated with patients occupying labor and 

delivery beds once the patient has been admitted to the hospital as an inpatient, regardless 
 626 

of whether the patient days are associated with patients who occupied a routine bed prior 

to occupying an ancillary labor and delivery bed. We stated that we made the change 

because the costs associated with labor and delivery patient days are generally payable 

under the IPPS. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53413), we finalized a policy 

extending our current approach of including labor and delivery patient days in the DPP of 

the Medicare DSH payment adjustment to our rules for bed counting for purposes of both 

the IME payment adjustment and the Medicare DSH payment adjustment. We stated that 

if a patient day is counted for DSH payment purposes because the services furnished are 

generally payable under the IPPS, the bed in which the services are furnished also should 

be considered to be available for IPPS-level care. To implement this policy, we amended 

the regulations at 42 CFR 412.105(b)(4) to remove from the list of excluded beds those 

beds associated with “ancillary labor/delivery services.” This change was effective for 

cost reporting periods beginning on or after October 1, 2012. 

 In response to our proposal in the FY 2013 IPPS/LTCH proposed rule to include 

labor and delivery bed days as available bed days for DSH and IME payment adjustment 

purposes, commenters noted that if these days are considered inpatient days, they also 

should be considered patient days for purposes of allocating direct GME payments. 

However, the Medicare cost report currently does not allow for labor and delivery patient 

days to be counted in the direct GME patient load. In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53413), we stated that we would undertake further review to determine 

whether it was necessary to make any changes in the manner in which patient days are 
 627 

reported on the Medicare cost report and whether these labor and delivery patient days 

should be excluded or included from the calculation of the Medicare patient load. 

 For this FY 2014 IPPS/LTCH PPS proposed rule, we have analyzed the 

calculation of the Medicare patient load and the cost reporting implications. Direct GME 

payments are calculated using three variables: the hospital’s per resident amount; the 

number of FTE residents a hospital is training subject to its FTE cap and the rolling 

average; and the hospital’s Medicare patient load. “Medicare patient load” is defined at 

42 CFR 413.75(b) as “with respect to a hospital’s cost reporting period, the total number 

of hospital inpatient days during the cost reporting period that are attributable to patients 

for whom payment is made under Medicare Part A divided by total hospital inpatient 

days. In calculating inpatient days, inpatient days in any distinct part of the hospital 

furnishing a hospital level of care are included and nursery days are excluded.” We agree 

with the commenters who stated that because labor and delivery days are considered 

inpatient days for DSH purposes, they also should be considered inpatient days for 

purposes of determining the Medicare share for direct GME payments. We believe that 

the best way to calculate a hospital’s Medicare patient load or the “Medicare utilization” 

(the term we will use for the remainder of this section) is to include all of the hospital’s 

inpatient days. Consistent with the inpatient day counting rules for DSH as clarified in 

the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we are proposing that patient days 

associated with maternity patients who were admitted as inpatients and were receiving 

ancillary labor and delivery services at the time the inpatient routine census is taken, 

regardless of whether the patient actually occupied a routine bed prior to occupying an 
 628 

ancillary labor and delivery bed and regardless of whether the patient occupies a 

“maternity suite” in which labor, delivery recovery, and postpartum care all take place in 

the same room, will be included in the Medicare utilization calculation. We understand 

that including labor and delivery inpatient days in the Medicare utilization ratio 

invariably would reduce direct GME payments because the denominator of the ratio, 

which includes the hospital’s total inpatient days, would usually increase at a higher rate 

than the numerator of the ratio. However, because the Medicare utilization ratio is a 

comparison of a hospital’s total Medicare inpatient days to its total inpatient days, we 

believe that revising the ratio to include labor and delivery days is appropriate because 

they are inpatient days and, therefore, should be counted as such. Therefore, we are 

proposing that, effective for cost reporting periods beginning on or after October 1, 2013, 

for purposes of applying the Medicare utilization ratio, we would include labor and 

delivery inpatient days in the numerator (to the extent that there are any labor and 

delivery inpatient days associated with Medicare beneficiaries), and all labor and delivery 

inpatient days (associated with all inpatients of the hospital) in the denominator. In order 

to implement this proposed change, we note that we would need to amend the applicable 

cost report worksheets and instructions (in particular, Worksheet S-3, Part 1) to allow for 

the inclusion of labor and delivery inpatient days in the Medicare utilization ratio. 

 In addition to direct GME, which uses the ratio of Medicare inpatient days to total 

inpatient days to determine payment, this proposal also impacts other Medicare policies 

where either the number of inpatient days or a ratio of Medicare inpatient days to total 

inpatient days is used to determine eligibility or payment. Regarding eligibility, for 
 629 

example, including labor and delivery days as inpatient days could affect a hospital’s 

eligibility for SCH status. A hospital can be classified as an SCH if it is located more 

than 35 miles from other like hospitals or is located in a rural area (as defined at § 412.64 

of the regulations) and meets one of the conditions listed in the regulations at § 412.92(a). 

In determining whether a nearby hospital is a like hospital, CMS compares the total 

inpatient days of the SCH applicant hospital with the total inpatient days of the nearby 

hospital. If the total inpatient days of the nearby hospital are greater than 8 percent of the 

total inpatient days reported by the SCH applicant hospital, the nearby hospital is 

considered a like hospital for purposes of evaluating the applicant hospital’s eligibility for 

SCH status. Therefore, including labor and delivery days as inpatient days may impact 

the count of inpatient days for both the SCH applicant hospital and the nearby hospital 

and may affect the applicant hospital’s eligibility for SCH status. However, this proposal 

would not impact Medicare payments calculated on a reasonable cost basis for routine 

inpatient services, which are apportioned in accordance with 42 CFR 413.53(a)(1). 

 In summary, we are proposing to include labor and delivery days as inpatient days 

in the Medicare utilization calculation, effective for cost reporting periods beginning on 

or after October 1, 2013. 

3. Notice of Closure of Teaching Hospital and Opportunity to Apply for Available Slots 

a. Background 

 Section 5506 of the Affordable Care Act authorizes the Secretary to redistribute 

residency cap slots after a hospital that trained residents in an approved medical 

residency program(s) closes. Specifically, section 5506 amended the Act by adding a 
 630 

subsection (vi) to section 1886(h)(4)(H) and modifying the language at section 

1886(d)(5)(B)(v) to instruct the Secretary to establish a process to increase the FTE 

resident caps for other hospitals based upon the FTE resident caps in teaching hospitals 

that closed “on or after a date that is 2 years before the date of enactment” (that is 

March 23, 2008). In the CY 2011 OPPS/ASC final rule with comment period issued in 

the Federal Register on November 24, 2010 (75 FR 72212), we established regulations 

and an application process for qualifying hospitals to apply to CMS to receive direct 

GME and IME FTE resident cap slots from a hospital that closed. The procedures we 

established apply both to teaching hospitals that closed after March 23, 2008, and on or 

before August 3, 2010, and to teaching hospitals that closed after August 3, 2010. We 

made clarifications and revisions to the policy regarding applications under section 5506 

in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434 through 53477). 

b. Notice of Closure of a Teaching Hospital 

 This notice serves to notify the public of the closure of a teaching hospital, and to 

initiate another round of the section 5506 application and selection process. This round 

would be the fourth round of the section 5506 (“Round 4”) application and selection 

process. The following closed teaching hospital is part of the Round 4 application 

process under section 5506: 

Provider 

Number 

Provider 

Name 

City and 

State 

CBSA 

Code 

Terminating 

Date 

IME Cap 

(including +/- 

MMA Sec. 

4221

Adjustment) 

Direct GME 

Cap 

(including +/-

MMA Sec. 

4221

Adjustment) 
 631 

Provider 

Number 

Provider 

Name 

City and 

State 

CBSA 

Code 

Terminating 

Date 

IME Cap 

(including +/- 

MMA Sec. 

4221

Adjustment) 

Direct GME 

Cap 

(including +/-

MMA Sec. 

4221

Adjustment) 

330002 Peninsula 

Hospital 

Center 

Far 

Rockaway, 

NY 

35644 April 9, 2012 28.31 + 0.01 

section 422 

increase

=28.322

28.31 + 8.03 

section 422 

increase 

=36.343

1

Section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), 

Pub. L. 108-173, redistributed unused residency slots effective July 1, 2005. 

2

Peninsula Hospital Center’s 1996 IME FTE cap is 28.31. Under section 422 of the MMA, the hospital 

received an increase of 0.01 to its IME FTE cap: 28.31 + 0.01 = 28.32. We note that, under 42 CFR 

412.105(d)(4), IME FTE cap slots associated with an increase received under section 422 of the MMA are 

to be paid using a special multiplier of 0.66. 

3

Peninsula Hospital Center’s 1996 direct GME FTE cap is 28.31. Under section 422 of the MMA, the 

hospital received an increase of 8.03 to its direct GME FTE cap: 28.31 + 8.03 = 36.34. We note that under 

42 CFR 413.77(g), direct GME FTE cap slots associated with an increase received under section 422 of the 

MMA are to be paid using the appropriate locality-adjusted national average per resident amount (PRA). 

c. Application Process for Available Resident Slots 

 The application period for hospitals to apply for slots under section 5506 is 90 

days following notification to the public of a hospital closure. Therefore, hospitals 

wishing to apply for and receive slots from the above hospital’s FTE resident caps must 

submit applications directly to the CMS Central Office no later than [insert date that is 90 

days after proposed rule goes on public display]. Unlike in the first 2 rounds of section 

5506, under this round, hospitals need not submit applications to their respective CMS 

Regional Office. The mailing address for the CMS Central Office is included on the 

application form. Applications must be received, not postmarked, by [insert date that is 

90 days after proposed rule goes on public display]. After an applying hospital sends a 

hard copy of a section 5506 application to the CMS Central Office mailing address, we 

strongly encourage it to send an email to: ACA5506application@cms.hhs.gov. In the 
 632 

email, the hospital should state: “I am sending this email to notify CMS that I have 

mailed a hard copy of a section 5506 application to CMS.” An applying hospital should 

not attach an electronic copy of the application to the email. The email will only serve to 

notify CMS Central Office that a hard copy application has been mailed to CMS Central 

Office. 

 In the CY 2011 OPPS/ASC final rule with comment period, we did not establish a 

deadline by when CMS would issue the final determinations to hospitals that receive slots 

under section 5506 of the Affordable Care Act. However, we will review all applications 

received by the deadline, and will notify applicants of our determinations as soon as 

possible. 

 We refer readers to the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dgme.html to download a copy of the application form 

(Section 5506 CMS Application Form) that hospitals are to use to apply for slots under 

section 5506. We also refer readers to this same Web site to access a copy of the 

CY 2011 OPPS/ASC final rule with comment period, a copy of the FY 2013 IPPS/LTCH 

PPS final rule (CMS-1488-F, 77 FR 53434 through 53447), and a list of additional 

section 5506 guidelines for an explanation of the policy and procedures for applying for 

slots, and the redistribution of the slots under sections 1886(h)(4)(H)(vi) and 

1886(d)(5)(B)(v) of the Act. 
 633 

4. Payments for Residents Training in Approved Residency Programs at CAHs 

a. Background 

 Recently, we have received questions regarding how CMS would make payment 

for residency training occurring in a CAH. In the past, we have advised that (1) CAHs 

may be paid directly under the CAH payment methodology (that is, 101 percent of the 

reasonable costs of the CAH in accordance with sections 1814(l) and 1834(g) of the Act), 

or (2) CAHs could function as nonhospital settings and therefore, as such, a hospital may 

be paid if it incurred the costs of training occurring in the CAH as provided under section 

1886(d)(5)(B)(iv) of the Act for IME and section 1886(h)(4)(E) of the Act for direct 

GME. 

 Section 5504 of the Affordable Care Act, titled “Counting Resident Time in 

Non-Provider Settings,” amended the Act in connection with “cost reporting periods 

beginning on or after July 1, 2010,” for direct GME, and for discharges on or after July 1, 

2010 for IME, to permit hospitals to count the time that a resident trains in activities 

related to patient care in a nonprovider site in its FTE count if the hospital incurs the 

costs of the residents’ salaries and fringe benefits for the time that the resident spends 

training in the nonprovider site. In connection with those periods and discharges, if more 

than one hospital incurs the residency training costs in a nonprovider setting, under 

certain circumstances, section 5504 allows each hospital to count a proportional share of 

the training time that a resident spends training in that setting, as determined by a written 

agreement between the hospitals. When Congress enacted section 5504 of the Affordable 

Care Act, it retained the statutory language which provides that a hospital can only count 
 634 

the time so spent by a resident under an approved medical residency training program in 

its FTE count if that one single hospital by itself “incurs all, or substantially all, of the 

costs for the training program in that setting.” Congress made that longstanding 

substantive standard and requirement applicable to “cost reporting periods beginning 

before July 1, 2010” for direct GME, and to “discharges occurring on or after 

October 1, 1997, and before July 1, 2010” for IME (Sections 1886(d)(5)(B)(iv)(I) and 

1886(h)(4)(E)(i) of the Act). 

 Section 5504 also changed the manner in which the Act refers to sites outside the 

hospital in which residents train. Specifically, section 5504(a)(4), amended the Act by 

adding at the end of section 1886(h)(4)(E) a sentence that specifically identified such 

“outpatient settings” as “nonprovider setting[s].” That is, prior to the enactment of the 

Affordable Care Act, section 1886(h) of the Act did not include a specific term, but rather 

used the phrase, “without regard to the setting” in which the residents train, and now, 

with amendments from the Affordable Care Act, the Act specifically refers both to the 

phrase, “without regard to the setting” and to the phrase “time spent in a nonprovider 

setting.” (We invite readers to compare section 1886(h)(4)(E)(i) of the Act) as of 2010 

with sections 1886(h)(4)(E)(i) and 1886(h)(4)(E)(ii) of the Act as of 2011.) 

 We also note that prior to the amendment in section 5504(b) of the Affordable 

Care Act, section 1886(d)(5)(B)(iv) of the Act relating to IME referenced training in a 

“nonhospital” setting. This remains true in the wake of the Affordable Care Act for 

“discharges occurring on or after October 1, 1997 and before July 1, 2010.” (We refer 

readers to section 1886(d)(5)(B)(iv)(I) of the Act.) However, effective for “discharges 
 635 

occurring on or after July 1, 2010,” the IME statutory language refers to training in a 

“nonprovider” setting. (We refer readers to section 5504(b) of the Affordable Care Act 

and section 1886(d)(5)(B)(iv)(II) of the Act.) 

 We acknowledge that, prior to the effective date of section 5504 of the Affordable 

Care Act (July 1, 2010), in the preamble of rules and in other policy discussions, we have 

used both the term “nonhospital” and “nonprovider” interchangeably in the context of 

allowing a hospital to count residents training at locations outside the hospital. We 

amended the regulations at § 412.105(f)(1)(ii)(E) for IME and § 413.78(g) for direct 

GME to reflect the changes made by section 5504 of the Affordable Care Act. Section 

413.78(g) is explicitly made applicable only to “cost reporting periods beginning on or 

after July 1, 2010,” whereas earlier cost reporting periods are governed by other 

preceding paragraphs of § 413.78. 

b. Residents in Approved Medical Residency Training Programs That Train at CAHs 

 Section 4201 of the BBA of 1997 (Pub. L. 105-33) amended section 1820 to the 

Act to create facilities called “Critical Access Hospitals” (CAHs). Following the 

enactment of the BBA, but before the enactment of the Affordable Care Act, we were 

asked if and how CMS would pay for residents that rotate to a CAH for some portion of 

the residency training program when another hospital pays for the costs of the training at 

the CAH. To answer this question, we considered that a CAH is a unique facility that, by 

definition, is not always a hospital. That is, section 1861(e) of the Act states that “the 

term ‘hospital’ does not include, unless the context otherwise requires, a critical access 

hospital (as defined in section 1861(mm)(1)).” Because a CAH is generally not 
 636 

considered a “hospital” under section 1861(e) of the Act, we concluded that a CAH could 

be treated as a nonhospital site for GME purposes. If a CAH could be treated as a 

nonhospital site for GME purposes, we also concluded that if another hospital (such as an 

IPPS hospital that is subject to payment under section 1886(h) of the Act or an IPPSexcluded hospital), incurred the costs of training the FTE residents for the portion of the 

time that they train at the CAH, and met the requirements of the regulations at 

§§ 413.78(d) through (f), the hospital could claim the FTE residents training at the CAH 

for IME and/or direct GME purposes. 

 We recently determined that, as a result of the amendments made by section 5504 

of the Affordable Care Act, we should reevaluate our policy regarding whether payment 

can be made to a hospital that incurs the costs of the FTE residents training at a CAH. 

 Section 1861(u) of the Act states that a “provider of services” is “a hospital, 

critical access hospital, skilled nursing facility, comprehensive outpatient rehabilitation 

facility, home health agency, hospice program, or . . . a fund.” Therefore, while section 

1861(e) of the Act states that a CAH is excluded from the definition of “hospital” unless 

the context requires otherwise, a CAH is a “provider.” 

 Because section 5504(a) of the Affordable Care Act amended sections 

1886(d)(5)(B)(iv)(II) and 1886(h)(4)(E) of the Act on a prospective basis to specifically 

identify the setting in which time spent by residents training outside of the hospital 

setting may be counted for both direct GME and IME purposes, a hospital’s ability to 

count residents not training in the hospital is now limited to only those settings that are 

“nonproviders.” Although the term “nonprovider” is not defined in the statute, we 
 637 

believe it is reasonable to define the term as meaning those settings that do not meet the 

definition of “provider” at section 1861(u) of the Act. 

 Accordingly, because a CAH is defined as a provider in the statute, we are 

proposing that, effective for portions of cost reporting periods occurring on or after 

October 1, 2013, a hospital may not claim the time FTE residents are training at a CAH 

for IME and/or direct GME purposes. However, under policies that were applicable prior 

to October 1, 2013, and that continue to apply on and after October 1, 2013, a CAH may 

incur the costs of training the FTE residents for the time that the FTE residents rotate to 

the CAH, and receive payment based on 101 percent of its Medicare reasonable costs 

under § 413.70 of the regulations. We also note that, consistent with the regulations at 

§ 413.24(d)(7), a CAH may not include as an allowable cost the portion of any training 

costs associated with the time that a resident is not training at the CAH and its providerbased facilities. 

5. Expiration of Inflation Update Freeze for High Per Resident Amounts (PRAs) 

 The Balanced Budged Refinement Act (BBRA) of 1999 (Pub. L. 106-113) 

amended section 1886(h)(2) of the Act to establish a methodology for the use of a 

national average per resident amount (PRA) in computing direct GME payments for cost 

reporting periods beginning on or after October 1, 2000, and on or before 

September 30, 2005. The BBRA established a “floor” for hospital-specific PRAs at 70 

percent of the locality-adjusted national average PRA. In addition, the BBRA established 

a “ceiling” that limited the annual adjustment to a hospital-specific PRA if the PRA 

exceeded 140 percent of the locality-adjusted national average PRA. Section 511 of the 
 638 

Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-554) further 

amended section 1886(h)(2) of the Act by increasing the floor established by the BBRA 

to 85 percent of the locality-adjusted national average PRA, for cost reporting periods 

beginning in FY 2002. For purposes of calculating direct GME payments, each 

hospital-specific PRA is compared to the floor and ceiling to determine whether the 

hospital-specific PRA should be revised. Section 711 of the Medicare Modernization Act 

of 2003 (Pub. L. 108-173) amended section 1886(h)(2)(D)(iv)(I) of the Act by freezing 

the annual CPI-U updates to hospital-specific PRAs for those PRAs that exceed the 

ceiling for FYs 2004 through 2013. The implementing regulations for these statutory 

provisions are located at 42 CFR 413.77(d). 

 We are providing notice here that the “freeze” for PRAs that exceed the ceiling 

expires beginning in FY 2014. That is, for cost reporting periods beginning on or after 

October 1, 2013, the usual full CPI-U update, as determined under 42 CFR 413.77(c)(1), 

would apply to all PRAs for direct GME payment purposes. 

K. Rural Community Hospital Demonstration Program

1. Background 

 Section 410A(a) of Pub. L. 108-173 required the Secretary to establish a 

demonstration program to test the feasibility and advisability of establishing “rural 

community” hospitals to furnish covered inpatient hospital services to Medicare 

beneficiaries. The demonstration pays rural community hospitals under a reasonable 

cost-based methodology for Medicare payment purposes for covered inpatient hospital 
 639 

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 Pub. L. 108-173 specified that the Secretary was to select 

for participation no more than 15 rural community hospitals in rural areas of States that 

the Secretary identified as having low population densities. Using 2002 data from the 

U.S Census Bureau, we identified the 10 States with the lowest population density in 

which rural community hospitals were to be located in order to participate in the 

demonstration: Alaska, Idaho, Montana, Nebraska, Nevada, New Mexico, North Dakota, 

South Dakota, Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of 

the United States: 2003). 

 CMS originally solicited applicants for the demonstration in May 2004; 13 

hospitals began participation with cost reporting periods beginning on or after 

October 1, 2004. In 2005, 4 of these 13 hospitals withdrew from the program and 

converted to CAH status. This left nine hospitals participating at that time. In 2008, we 

announced a solicitation for up to six additional hospitals to participate in the 
 640 

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. At that time, 13 hospitals were participating in the demonstration. 

 Five hospitals (3 of the hospitals were among the 13 hospitals that were original 

participants in the demonstration program and 2 of the hospitals were among the 

4 hospitals that began the demonstration program in 2008) withdrew from the 

demonstration program during CYs 2009 and 2010. (Three of these hospitals indicated 

that they would be paid more for Medicare inpatient hospital services under the rebasing 

option allowed under the SCH methodology provided for under section 122 of the 

Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275). One 

hospital restructured to become a CAH, and one hospital closed.) In CY 2011, one 

hospital that was among the original set of hospitals that participated in the demonstration 

withdrew from the demonstration. These actions left 7 of the originally participating 

hospitals (that is, hospitals that were selected to participate in either 2004 or 2008), 

participating in the demonstration program as of June 1, 2011. 

 Sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-148) amended 

section 410A of Pub. L. 108-173, which established the rural community hospital 

demonstration program. Sections 3123 and 10313 of the Affordable Care Act changed 

the rural community hospital demonstration program in several ways. First, the Secretary 

is required to conduct the demonstration program for an additional 5-year period that 

begins on the date immediately following the last day of the initial 5-year period. 
 641 

Further, the Affordable Care Act requires, in the case of a rural community hospital that 

is participating in the demonstration program as of the last day of the initial 5-year 

period, the Secretary to provide for the continued participation of such rural hospital in 

the demonstration program during the 5-year extension, unless the hospital makes an 

election, in such form and manner as the Secretary may specify, to discontinue 

participation (section 410A(g)(4)(A) of Pub. L. 108-173, as added by section 3123(a) of 

the Affordable Care Act and further amended by section 10313 of such Act). In addition, 

the Affordable Care Act provides that, during the 5-year extension period, the Secretary 

shall expand the number of States with low population densities determined by the 

Secretary to 20 (section 410A(g)(2) of Pub. L. 108-173, as added by section 3123(a) and 

amended by section 10313 of the Affordable Care Act). Further, the Secretary is required 

to use the same criteria and data that the Secretary used to determine the States under 

section 410A(a)(2) of Pub. L. 108-173 for purposes of the initial 5-year period. The 

Affordable Care Act also allows not more than 30 rural community hospitals in such 

States to participate in the demonstration program during the 5-year extension period 

(section 410A(g)(3) of Pub. L. 108-173, as added by section 3123(a) of the Affordable 

Care Act and as further amended by section 10313 of such Act). 

 We published a solicitation for applications for additional participants in the rural 

community hospital demonstration program in the Federal Register on August 30, 2010 

(75 FR 52960). Applications were due on October 14, 2010. The 20 States with the 

lowest population density that are eligible for the demonstration program are: Alaska, 

Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Minnesota, Mississippi, 
 642 

Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South 

Dakota, Utah, and Wyoming (Source: U.S. Census Bureau, Statistical Abstract of the 

United States: 2003). We approved 19 new hospitals for participation in the 

demonstration program. We determined that each of these new hospitals would begin 

participating in the demonstration with its first cost reporting period beginning on or after 

April 1, 2011. 

 Three of these 19 hospitals declined participation prior to the start of the cost 

reporting periods for which they would have begun the demonstration. In addition to the 

7 hospitals that were selected in either 2004 or 2008 and that are still participating, the 

new selection led to a total of 23 hospitals in the demonstration. 

 In addition, section 410A(c)(2) of Pub. L. 108-173 required that, “[i]n conducting 

the demonstration program under this section, the Secretary shall ensure that the 

aggregate payments made by the Secretary do not exceed the amount which the Secretary 

would have paid if the demonstration program under this section was not implemented.” 

This requirement is commonly referred to as “budget neutrality.” Generally, when we 

implement a demonstration program on a budget neutral basis, the demonstration 

program is budget neutral in its own terms; in other words, the aggregate payments to the 

participating hospitals do not exceed the amount that would be paid to those same 

hospitals in the absence of the demonstration program. Typically, this form of budget 

neutrality is viable when, by changing payments or aligning incentives to improve overall 

efficiency, or both, a demonstration program may reduce the use of some services or 

eliminate the need for others, resulting in reduced expenditures for the demonstration 
 643 

program’s participants. These reduced expenditures offset increased payments elsewhere 

under the demonstration program, thus ensuring that the demonstration program as a 

whole is budget neutral or yields savings. However, the small scale of this demonstration 

program, in conjunction with the payment methodology, makes it extremely unlikely that 

this demonstration program could be viable under the usual form of budget neutrality. 

Specifically, cost-based payments to participating small rural hospitals are likely to 

increase Medicare outlays without producing any offsetting reduction in Medicare 

expenditures elsewhere. Therefore, a rural community hospital’s participation in this 

demonstration program is unlikely to yield benefits to the participant if budget neutrality 

were to be implemented by reducing other payments for these same hospitals. 

 In the past nine IPPS final regulations, spanning the period for which the 

demonstration program has been implemented, we have adjusted the national inpatient 

PPS rates by an amount sufficient to account for the added costs of this demonstration 

program, thus applying budget neutrality across the payment system as a whole rather 

than merely across the participants in the demonstration program. As we discussed in the 

FYs 2005 through 2013 IPPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 

72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 76 FR 51698, and 77 FR 53449, 

respectively), we believe that the language of the statutory budget neutrality requirements 

permits the agency to implement the budget neutrality provision in this manner. In light 

of the statute’s budget neutrality requirement, in this FY 2014 IPPS/LTCH PPS proposed 

rule, we are proposing to continue to use the methodology we finalized in FY 2013 to 

calculate a budget neutrality adjustment factor to the FY 2014 national IPPS rates. 
 644 

 In general terms, in each of these previous years, we used available cost reports 

for the participating hospitals to derive an estimate of the additional costs attributable for 

the demonstration. Prior to FY 2013, we used finalized, or settled, cost reports, as 

available, and “as submitted” cost reports for hospitals for which finalized cost reports 

were not available. Annual market basket percentage increase amounts provided by the 

CMS Office of the Actuary reflecting the growth in the prices of inputs for inpatient 

hospitals were applied to these cost amounts. In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53452), we used “as submitted” cost reports (for cost reporting periods ending in 

CY 2010) for each hospital participating in the demonstration in estimating the costs of 

the demonstration. In addition, in FY 2013, we incorporated different update factors (the 

market basket percentage increase and the applicable percentage increase, as applicable, 

to several years of data as opposed to solely using the market basket percentage increase) 

for the calculation of the budget neutrality offset amount. Finally, in each of the previous 

years, an annual update factor provided by the CMS Office of the Actuary reflecting 

growth in the volume of inpatient operating services was also applied. For the budget 

neutrality calculations in the IPPS final rules for FYs 2005 through 2011, the annual 

volume adjustment applied was 2 percent; for the IPPS final rules for FYs 2012 and 

2013, it was 3 percent. For a detailed discussion of our budget neutrality offset 

calculations, we refer readers to the IPPS final rule applicable to the fiscal year involved. 

 In general, for FYs 2005 through 2009, we based the budget neutrality offset 

estimate on the estimated cost of the demonstration in an earlier given year. For these 

periods, we derived that estimated cost by subtracting the estimated amount that would 
 645 

otherwise be paid without the demonstration in an earlier given year from the estimated 

amount for the same year that would be paid under the demonstration under the 

reasonable cost-based methodology authorized by section 410A of Pub. L. 108-173. (We 

note that section 410A of Pub. L. 108-173 was later amended by the Affordable Care 

Act.) The reasonable cost-based methodology authorized by section 410A of Pub. L. 

108-173, as amended, is hereafter referred to as the “reasonable cost methodology.” (We 

ascertained the estimated amount that would be paid in an earlier given year under the 

reasonable cost methodology and the estimated amount that would otherwise be paid 

without the demonstration in an earlier given year from “as submitted” cost reports that 

were submitted by the hospitals prior to the inception of the demonstration.) We then 

updated the estimated cost described above to the current year by multiplying it by the 

market basket percentage increases applicable to the years involved and the applicable 

annual volume adjustment. For the FY 2010 IPPS/RY 2010 LTCH PPS final rule, data 

from finalized cost reports reflecting the participating hospitals’ experience under the 

demonstration were available. Specifically, the finalized cost reports for the first 2 years 

of the demonstration, that is, cost reports for cost reporting years beginning in FYs 2005 

and 2006 (CYs 2004, 2005, and 2006) were available. These data showed that the actual 

costs of the demonstration for these years exceeded the amounts originally estimated in 

the respective final rules for the budget neutrality adjustment. In the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule, we included in the budget neutrality offset 

amount an amount in addition to the estimate of the demonstration costs in that fiscal 

year. This additional amount was based on the amount that the costs of the 
 646 

demonstration for FYs 2005 and 2006 exceeded the budget neutrality offset amounts 

finalized in the IPPS rules applicable for those years. 

 Following upon the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we have 

continued to propose a methodology for calculating the budget neutrality offset amount to 

account for both the estimated demonstration costs in the upcoming fiscal year and an 

amount by which the actual demonstration costs corresponding to an earlier, given year 

(which would be known once we have finalized cost reports for that year) exceeded the 

budget neutrality offset amount finalized in the corresponding year’s IPPS final rule. 

However, we note that because of a delay affecting the settlement process for cost reports 

for IPPS hospitals occurring on a larger scale than merely for the demonstration, we have 

been unable to finalize this component of the budget neutrality offset amount accounting 

for the amount by which the actual demonstration costs in a given year exceeded the 

budget neutrality offset amount finalized in the corresponding year’s IPPS final rule for 

cost reports of demonstration hospitals dating to those beginning in FY 2007. (For only a 

fraction of the hospitals that have participated in the demonstration from FY 2007 to 

FY 2010 have cost reports been finalized in any year, making the overall calculation of 

this component of the budget neutrality impossible at this time for any given year.) 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53449 through 53453), we 

adopted changes to the methodology for calculating the budget neutrality offset amount 

in an effort to further improve and refine it. We noted that the revised methodology 

varied, in part, from that finalized in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51698 through 51705). Specifically, in adopting refinements to the methodology, 
 647 

our objective was to simplify the calculation so that it included as few steps as possible. 

In addition, we incorporated different update factors (the market basket percentage 

increase and the applicable percentage increase, as applicable, to several years of data as 

opposed to solely using the market basket percentage increase) for the calculation of the 

budget neutrality offset amount. We stated that we believed this approach would 

maximize the precision of our calculation because it would more closely replicate 

payments made with and without the demonstration. We refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53449 through 53453) for a detailed discussion of the 

methodology we used for FY 2013. We noted that, although we were making changes to 

certain aspects of the budget neutrality offset amount calculation for FY 2013, several 

core components of the methodology would remain unchanged. For example, we 

continued to include in the budget neutrality offset amount methodology the estimate of 

the demonstration costs for the upcoming fiscal year and the amount by which the actual 

demonstration costs corresponding to an earlier year (which would be determined once 

we have finalized cost reports for that year) exceeded the budget neutrality offset amount 

finalized in the corresponding year’s IPPS final rule). However, finalized cost reports for 

the hospitals participating in the demonstration were not available for FYs 2007, 2008, 

2009, and 2010 at the time of development of the FY 2013 IPPS/LTCH PPS final rule. 

Therefore, we were unable to finalize this component of the budget neutrality offset 

calculation. We stated in the final rule that we expected settled cost reports for all of the 

demonstration hospitals that participated in the applicable fiscal year (FYs 2007, 2008, 

2009, and 2010) to be available prior to the FY 2014 IPPS/LTCH PPS proposed rule. 
 648 

2. Proposed FY 2014 Budget Neutrality Offset Amount 

 For the reasons discussed in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53449 through 53453), we are proposing to continue to use the methodology 

finalized in that final rule to calculate a budget neutrality adjustment factor to be applied 

to the FY 2014 national IPPS payment rates. As we stated in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53451), we revised our methodology in that final rule to further 

improve and refine the calculation of the budget neutrality offset amount and to simplify 

the methodology so that it includes only a few steps. Consistent with the methodology 

finalized in the FY 2013 IPPS/LTCH PPS final rule, the proposed methodology for 

calculating the estimated FY 2014 demonstration cost for the 23 currently participating 

hospitals is as follows: 

Step 1: For each of the 23 participating hospitals, we are proposing to identify the 

general reasonable cost amount calculated under the reasonable cost methodology for 

covered inpatient hospital services (as indicated on the “as submitted” cost report for the 

hospital’s cost reporting period ending in CY 2011). The general reasonable cost amount 

calculated under the reasonable cost methodology is hereafter referred to as the 

“reasonable cost amount.” As we explained in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53451), we believe that a way to streamline our methodology for calculating the 

budget neutrality offset amount would be to use cost reports with the same status and 

from the same time period for all hospitals participating in the demonstration. Because 

“as submitted” cost reports ending in CY 2011 are the most recent available cost reports, 
 649 

we believe they would be an accurate predictor of the costs of the demonstration in 

FY 2014 because they give us a recent picture of the participating hospitals’ costs. 

 Because section 410A of Pub. L. 108-173 stipulates swing-bed services are to be 

included among the covered inpatient hospital services for which the demonstration 

payment methodology applies, we also are proposing to include the cost of these services, 

as reported on the cost reports for the hospitals that provide swing-bed services, within 

the general total estimated FY 2011 reasonable cost amount for covered inpatient hospital 

services under the demonstration. As indicated above, we are proposing to use “as 

submitted” cost reports for the hospital’s cost reporting period ending in CY 2011 for this 

calculation. 

 We are proposing to sum the two above-referenced amounts to calculate the 

general total estimated FY 2011 reasonable cost amount for covered inpatient hospital 

services for all 23 hospitals. 

 We are proposing to multiply this sum (that is, the general total estimated 

FY 2011 reasonable cost amount for covered inpatient hospital services for all 23 

hospitals) by the FYs 2012, 2013, and FY 2014 IPPS market basket percentage increases, 

which are formulated by the CMS Office of the Actuary. In this proposed rule, we have 

used the current estimate of the FY 2014 IPPS market basket percentage increase 

provided by the CMS Office of the Actuary. We are proposing to use the final IPPS 

market basket increase in the final rule. We also are proposing to then multiply the 

product of the general total estimated FY 2011 reasonable cost amount for all 23 

hospitals and the market basket percentage increases applicable to the years involved by a 
 650 

3-percent annual volume adjustment for the years 2012 through 2014—the result would 

be the general total estimated FY 2014 reasonable cost amount for covered inpatient 

hospital services for all 23 hospitals. 

 We are proposing to apply the IPPS market basket percentage increases 

applicable for FYs 2012 through 2014 to the FY 2011 reasonable cost amount described 

above to model the estimated FY 2014 reasonable cost amount under the demonstration. 

We are proposing to use the IPPS market basket percentage increases because we believe 

that these update factors appropriately indicate the trend of increase in inpatient hospital 

operating costs under the reasonable cost methodology for the years involved. The 

3-percent annual volume adjustment was stipulated by the CMS Office of the Actuary 

and is proposed because it is intended to accurately reflect the tendency of hospitals’ 

inpatient caseloads to increase. We acknowledge the possibility that inpatient caseloads 

for small hospitals may fluctuate, and are proposing to incorporate into the estimate of 

demonstration costs a factor to allow for a potential increase in inpatient hospital 

services. 

 Step 2: For each of the 23 hospitals, we are proposing to identify the general 

estimated amount that would otherwise be paid in FY 2011 under applicable Medicare 

payment methodologies for covered inpatient hospital services (as indicated on the “as 

submitted” cost report for cost reporting periods ending in CY 2011) if the demonstration 

was not implemented. Similarly, as in Step 1, for the hospitals that provide swing-bed 

services, we are proposing to identify the estimated amount that generally would 

otherwise be paid for these services (as indicated on the “as submitted” cost report for 
 651 

cost reporting periods ending in CY 2011) and include it in the total FY 2011 general 

estimated amount that would otherwise be paid for covered inpatient hospital services 

without the demonstration. We are proposing to sum these two amounts in order to 

calculate the estimated FY 2011 total payments that generally would otherwise be paid 

for covered inpatient hospital services for all 23 hospitals without the demonstration. 

 We are proposing to multiply the above amount (that is, the estimated FY 2011 

total payments that generally would otherwise be paid for covered inpatient hospital 

services for all 23 hospitals without the demonstration) by the FYs 2012 through 2014 

IPPS applicable percentage increases. In this proposed rule, the current estimate of the 

applicable percentage increase is specified in section V.A.1. of this preamble. This 

methodology differs from Step 1, in which we are proposing to apply the market basket 

percentage increases to the sum of the hospitals’ general total FY 2011 estimated 

reasonable cost amount for covered inpatient hospital services. We believe that the IPPS 

applicable percentage increases are appropriate factors to update the estimated amounts 

that generally would otherwise be paid without the demonstration. This is because IPPS 

payments would constitute the majority of payments that would otherwise be made 

without the demonstration and the applicable percentage increase is the factor used under 

the IPPS to update the inpatient hospital payment rates. Hospitals participating in the 

demonstration would be participating under the IPPS payment methodology if they were 

not in the demonstration. Then we are proposing to multiply the product of the estimated 

FY 2011 total payments that generally would otherwise be made without the 

demonstration and the IPPS applicable percentage increases applicable to the years 
 652 

involved by a 3-percent annual volume adjustment for FYs 2012 through 2014. The 

result would be the general total estimated FY 2014 costs that would otherwise be paid 

without the demonstration for covered inpatient hospital services to the 23 participating 

hospitals. 

 Step 3: We are proposing to subtract the amount derived in Step 2 (representing 

the sum of estimated amounts that generally would otherwise be paid to the 23 hospitals 

for covered inpatient hospital services for FY 2014 if the demonstration was not 

implemented) from the amount derived in Step 1 (representing the sum of the estimated 

reasonable cost amount that generally would be paid under the demonstration to all 23 

hospitals for covered inpatient hospital services for FY 2014). We are proposing that the 

resulting difference would be the amount for which an adjustment to the national IPPS 

rates would be calculated. 

 For this proposed rule, the resulting difference is $46,515,865. For this FY 2014 

IPPS/LTCH PPS proposed rule, this amount is the estimated amount for which an 

adjustment to the national IPPS rates is being calculated. This estimated amount is based 

on the specific assumptions identified regarding the data sources that are used, that is, “as 

submitted” recently available cost reports. We note that if updated data become available 

prior to the FY 2014 final rule, we are proposing to use them to the extent appropriate to 

estimate the costs of the demonstration program in FY 2014. Therefore, this estimated 

budget neutrality offset amount may change in the final rule, depending on the 

availability of updated data. 
 653 

 Similar to previous years, we are proposing to include in the budget neutrality 

offset amount the amount by which the actual demonstration costs corresponding to an 

earlier given year (which would be determined once we have finalized cost reports for 

that year) exceeded the budget neutrality offset amount finalized in the corresponding 

year’s IPPS final rule. Because of delays affecting the settlement process for cost reports 

for IPPS hospitals occurring on a larger scale than merely for the demonstration, we are 

unable to determine at this time the specific component of the budget neutrality offset 

amount accounting for the amount by which the actual demonstration costs in a given 

year exceeded the budget neutrality offset amount finalized in the corresponding year’s 

IPPS final rule for cost reports of demonstration hospitals dating to those beginning in 

FY 2007. (For only a fraction of the hospitals that have participated in the demonstration 

from FY 2007 to FY 2010 have cost reports been finalized in any year, making the 

overall calculation of this component of the budget neutrality offset impossible at this 

time for any given year.) Similar to previous years, we are proposing that if settled cost 

reports for all of the demonstration hospitals that participated in the applicable fiscal year 

(FY 2007, 2008, 2009, or 2010) are available prior to the FY 2014 IPPS/LTCH PPS final 

rule, we will include in the budget neutrality offset amount any additional amounts by 

which the final settled costs of the demonstration for the year (FY 2007, 2008, 2009, or 

2010) exceeded the budget neutrality offset amount applicable to such year as finalized in 

the respective year’s IPPS final rule. (The final settled costs of the demonstration for a 

year would be calculated by subtracting the total amount that would otherwise be paid 

under the applicable Medicare payment systems without the demonstration for the year 
 654 

from the amount paid to those hospitals under the reasonable cost methodology for such 

year.) 

L. Hospital Emergency Services under EMTALA: Technical Change (§ 489.24(f))

 In a final rule issued in the Federal Register on May 16, 2012 (77 FR 29002 

through 29031), we made changes to a number of regulations under 42 CFR Chapter IV 

governing the Medicare and Medicaid programs to achieve regulatory reforms under 

Executive Order 13563 on Improving Regulation and Regulatory Review and the 

Department’s Plan for Retrospective Review of Existing rules. In the May 16, 2012 final 

rule (77 FR 29021), we stated that, in response to comments from the public 

recommending that we discontinue our use of the term “recipient” under Medicaid, we 

made a nomenclature change to replace “recipient” with “beneficiary” throughout 42 

CFR Chapter IV in order to conform our regulations to our current use of the term 

“beneficiary.” Our current use of the term “beneficiary” means all individuals who are 

entitled to, or eligible for, Medicare or Medicaid services. However, we inadvertently 

replaced “recipient” with “beneficiary” in the title of the regulations at 42 CFR 489.24(f), 

which now reads “Beneficiary hospital responsibilities.” The regulations at 42 CFR 

489.24(f) specifically discuss the responsibilities of a hospital with specialized 

capabilities to accept the appropriate transfer of an individual as required by the 

Emergency Medical Treatment and Labor Act. The use of the word “recipient” in the 

title of 42 CFR 489.24(f) is appropriate because the regulations are discussing the 

requirements of the “receiving” hospital. The term “recipient” in this context is not 

referring to a Medicare or Medicaid patient, but rather to the hospital. Therefore, in this 
 655 

proposed rule, we are proposing to replace the word “beneficiary” with the word 

“recipient” so that the section heading of paragraph (f) of 42 CFR 489.24 is corrected to 

read as it did prior to the nomenclature change. The corrected regulation text at 42 CFR 

489.24(f) would read “Recipient hospital responsibilities.” 

M. Hospital Services Furnished under Arrangements

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51711 through 51714), we 

included a provision that limits the circumstances under which a hospital may furnish 

services to Medicare beneficiaries “under arrangement.” Under the revised policy, 

therapeutic and diagnostic services are the only services that may be furnished under 

arrangements outside of the hospital to Medicare beneficiaries. “Routine services” (that 

is, bed, board, and nursing and other related services) must be furnished in the hospital. 

Under this revised policy, routine services furnished to Medicare beneficiaries as 

inpatients in the hospital are considered services furnished by the hospital. If these 

services are furnished outside of the hospital, the services are considered to be furnished 

“under arrangement.” As we stated in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53453 through 53454), we have become aware that a number of hospitals affected 

by this policy need additional time to restructure existing arrangements and establish 

necessary operational protocols to comply with the requirement that therapeutic and 

diagnostic services are the only services that may be furnished outside of the hospital to 

Medicare beneficiaries “under arrangement,” and that “routine services” must be 

furnished in the hospital. 
 656 

 In the FY 2013 IPPS/LTCH PPS final rule, we stated that while we believe the 

policy to be correct and consistent with the statutory language, because a number of 

hospitals were actively pursuing compliance that involved building construction or 

restructuring, we postponed the effective date of the requirement to give hospitals 

additional time to comply with the provision. In the FY 2013 IPPS/LTCH PPS final rule, 

we changed the implementation date of the requirement to be effective for cost reporting 

periods beginning on or after October 1, 2013. We stated that we expected that, during 

FY 2013, hospitals would have completed the work needed to ensure compliance with the 

requirement. 

 While we still believe that our policy is correct and consistent with the statutory 

language, we are aware that a number of hospitals are still actively pursuing compliance 

with the requirement through major building construction to be completed in 2014. 

Therefore, we believe it is appropriate to further postpone the effective date of this 

requirement to give those hospitals additional time to comply. In this proposed rule, we 

are proposing to change the implementation date of the requirement to be effective for 

services provided on or after January 1, 2015 (instead of effective with cost reporting 

periods beginning on or after October 1, 2013). Because there are hospitals in the midst 

of significant building projects that, when completed, will enable the hospital to provide 

routine services in compliance with the requirements of this revised policy, we believe it 

is appropriate to further delay the effective date. We expect that, with the additional time 

before the revised “under arrangement” policy becomes effective, hospitals will complete 

the work needed to ensure compliance with the new requirement. Effective for services 
 657 

provided on or after January 1, 2015, all hospitals would need to be in full compliance 

with the revised policy for services furnished under arrangement. We will continue to 

work with affected hospitals to communicate the requirement established by this 

provision, and to provide continued guidance regarding compliance with the provision. 

N. Policy Proposal on Admission and Medical Review Criteria for Hospital Inpatient 

Services under Medicare Part A

 In this section of the proposed rule, we are clarifying what is required for 

Medicare Part A payment of hospital inpatient services. In addition, we are proposing a 

time-based presumption of medical necessity for hospital inpatient services based on the 

beneficiary’s length of stay, as part of our medical review criteria for payment of hospital 

inpatient services under Part A. 

1. Background 

 In the CY 2013 OPPS/ASC proposed rule (77 FR 45155 through 45157) and final 

rule with comment period (77 FR 68426 through 68433), we expressed concern about 

recent increases in the length of time that Medicare beneficiaries spend as hospital 

outpatients receiving observation services. We also solicited and summarized public 

comments on potential policy changes we could make to improve clarity and consensus 

among providers, Medicare, and other stakeholders regarding the relationship between 

admissions decisions and appropriate Medicare payment, such as when a Medicare 

beneficiary is appropriately admitted to a hospital as an inpatient. (In this section, 

“hospital” means hospital as defined at section 1861(e) of the Act, but includes critical 

access hospitals (CAHs) unless otherwise specified. Although the term “hospital” does 
 658 

not generally include CAHs, section 1861(e) of the Act provides that the term “hospital” 

includes CAHs if the context otherwise requires. We believe it is appropriate to propose 

to apply our proposed policies to CAHs as well as other hospitals.) Observation care is a 

well-defined set of specific, clinically appropriate services, which include ongoing 

short-term treatment, assessment, and reassessment before a decision can be made 

regarding whether a patient will require further treatment as a hospital inpatient or if he 

or she is able to be discharged from the hospital (Section 20.6, Chapter 6 of the Medicare 

Benefit Policy Manual (MBPM) (Pub. 100-02)). 

 In recent years, the number of cases of Medicare beneficiaries receiving 

observation services for more than 48 hours, while still small, has increased from 

approximately 3 percent in 2006 to approximately 8 percent in 2011. This trend concerns 

us because of the potential financial impact on Medicare beneficiaries, and we have 

published educational materials for beneficiaries to inform them of their respective 

liabilities as a hospital outpatient or inpatient.58 Beneficiaries who are treated for 

extended periods of time as hospital outpatients receiving observation services may incur 

greater financial liability than they would if they were admitted as hospital inpatients. 

They may incur financial liability for Medicare Part B copayments; the cost of 

self-administered drugs that are not covered under Part B, and the cost of post-hospital 

SNF care because section 1861(i) of the Act requires a prior 3-day hospital inpatient stay 

for coverage of post-hospital SNF care under Medicare Part A. In contrast, as a hospital 

inpatient under Medicare Part A, a beneficiary pays a one-time deductible for all hospital 

 

58 CMS Pamphlets: "Are You a Hospital Inpatient or Outpatient? If You Have Medicare Ask!", CMS 

Product No. 11435, Revised, February 2011; "How Medicare Covers Self Administered Drugs Given in 

Hospital Outpatient Settings," CMS Product No. 11333, Revised, February 2011. 
 659 

inpatient services provided during the first 60 days in the hospital of the benefit period. 

Therefore, an inpatient deductible does not necessarily apply to all hospitalizations. 

Medicare Part A coinsurance applies after the 60th day in the hospital. 

 In the CY 2013 OPPS/ASC proposed rule and final rule with comment period 

(77 FR 45155 and 77 FR 68426, respectively) and in a proposed rule entitled, “Medicare 

Program; Part B Inpatient Billing in Hospitals” that went on display at the Office of the 

Federal Register on March 13, 2013, and was issued in the Federal Register on March 

18, 2013 (78 FR 16632) (“Part B Inpatient Billing proposed rule”), we discussed how the 

trend towards the provision of extended observation services may be attributable in part 

to hospitals’ concerns about Medicare’s payment policy for billing under Part B when a 

Part A hospital inpatient claim is denied because a Medicare review contractor 

determines that the inpatient admission was not reasonable and necessary under section 

1862(a)(1)(A) of the Act. Under longstanding Medicare policy, in these situations, 

hospitals could only receive payment for a limited set of largely ancillary inpatient 

services under Part B. We stated that we have heard from various stakeholders that 

hospitals appear to be responding to the financial risk of admitting Medicare beneficiaries 

for inpatient stays that may later be denied upon contractor review by electing to treat 

beneficiaries as outpatients receiving observation services, often for long periods of time, 

rather than admitting them as inpatients. 

 As a step to address this issue, in the Part B Inpatient Billing proposed rule 

(78 FR 16632), we proposed to revise our Part B inpatient billing policy to allow 

payment for all hospital services that were furnished and would have been reasonable and 
 660 

necessary if the beneficiary had been treated as an outpatient, rather than admitted to the 

hospital as an inpatient. Specifically, we proposed that when a Medicare Part A claim for 

inpatient hospital services is denied because the inpatient admission was deemed not to 

be reasonable and necessary, or when a hospital determines under § 482.30(d) or 

§ 485.641 of the regulations after a beneficiary is discharged that his or her inpatient 

admission was not reasonable and necessary, a hospital may be paid for all Medicare 

Part B services (except for services that specifically require an outpatient status) that 

would have been reasonable and necessary had the beneficiary been treated as a hospital 

outpatient rather than admitted as an inpatient, if the beneficiary is enrolled in Medicare 

Part B. This policy would apply when CMS or a Medicare review contractor determines 

that the hospital admission was not reasonable and necessary or when a hospital 

determines after a beneficiary has been discharged that the beneficiary should have 

received hospital outpatient services rather than hospital inpatient services. We also 

proposed to continue applying the timely filing restriction to the billing of all Part B 

inpatient services, under which claims for Part B services must be filed within 1 year 

from the date of service. 

 In addition to evaluating our policy related to Medicare Part B inpatient billing 

following denials of Medicare Part A inpatient claims on the basis that the inpatient 

admission was not reasonable and necessary or following a hospital self-audit, we also 

believe it is important to consider whether we can provide more clarity regarding the 

relationship between inpatient admission decisions and Medicare payment. In the CY 

2013 OPPS/ASC final rule with comment period (77 FR 68426 through 68433), we 
 661 

discussed revising hospital inpatient status criteria as one of several policy clarifications 

or changes suggested by stakeholders to improve our policies governing when a Medicare 

beneficiary should be admitted as an inpatient, and how hospitals should be paid by 

Medicare for the associated costs they incur. 

 Specifically, stakeholders suggested that we redefine “inpatient” using parameters 

other than the current requirements of medical necessity and a physician order, such as 

using the beneficiary’s length of stay at the hospital. Currently, a beneficiary’s length of 

stay may be a factor in determining whether he or she should be admitted as an inpatient 

to the hospital, but it is not the only factor for this determination. Our current manual 

instructions state that, typically, the decision to admit a beneficiary as an inpatient should 

be made within 24 to 48 hours of observation care, and that expectation of an overnight 

stay may be a factor in the admission decision (Section 20.6, Chapter 6 and Section 10, 

Chapter 1 of the Medicare Benefit Policy Manual (MBPM)). We state that physicians 

should use a 24-hour period as a benchmark, that is, they should order admission for 

patients who are expected to need hospital care for 24 hours or more, and treat other 

patients on an outpatient basis. We state that, generally, a beneficiary is considered an 

inpatient if formally admitted as an inpatient with the expectation that he or she will 

remain at least overnight, whether or not the beneficiary is later discharged or transferred 

and is not present overnight. Nevertheless, our longstanding policy consistently has been 

that we do not define or pay under Medicare Part A for inpatient admissions solely on the 

basis of the length of time the beneficiary actually spends in the hospital. Rather, we rely 

on the physician to use his or her clinical judgment and evaluation of the patient’s needs 
 662 

to make the determination. We have stated in our manual guidance that the inpatient 

admission decision is a complex medical judgment that should take into consideration 

many factors, such as the patient’s medical history and medical needs, the types of 

facilities available to inpatients and outpatients, the hospital’s bylaws and admission 

policies, the relative appropriateness of treatment in each setting, patient risk of an 

adverse event, and other factors described in the MBPM provisions. The physician or 

other practitioner responsible for a patient’s care at the hospital also is responsible for 

deciding whether the patient should be admitted as an inpatient. 

 We believe that our current inpatient admission criteria are valid and 

appropriately reflect that the decision to admit a patient as a hospital inpatient is a 

complex medical judgment that can be made only after the physician has considered a 

number of factors. However, upon evaluating the suggestions of stakeholders who 

requested that we provide more clarity in the definition of “inpatient” using parameters 

other than those that we currently use, we recognize that it would be helpful to address 

what the requirements are for Medicare Part A payment and when a beneficiary should be 

admitted as a hospital inpatient. Toward that end, in this proposed rule, we are clarifying 

that a beneficiary becomes a hospital inpatient if formally admitted following a physician 

order for hospital inpatient admission, and also are clarifying when we believe hospital 

inpatient admissions are reasonable and necessary based on how long beneficiaries have 

spent, or are reasonably expected to spend, in the hospital. 

 Specifically, in sections V.N.2.a. and b. of the preamble of this proposed rule, we 

are clarifying that a beneficiary becomes a hospital inpatient if a physician (or other 
 663 

qualified practitioner as provided in the regulations) orders inpatient admission in 

accordance with the hospital conditions of participation (CoPs), and that Medicare pays 

under Part A for such an admission if the order is documented in the medical record. 

However, as we discuss in section V.N.3.d.(1) of the preamble of this proposed rule and 

as we specify under proposed 42 CFR 412.46(b), the order must be supported by 

objective medical information for purposes of the Part A payment determinations. 

During Medicare contractor review of an inpatient admission, documentation in the 

medical record is evaluated in conjunction with the physician order and the physician 

certification that is also required for payment of hospital inpatient services under section 

1814(a) of the Act and 42 CFR 424.13. In section V.N.2. of the preamble of this 

proposed rule, we describe the requirements for the physician order. In section V.N.3. of 

the preamble of this proposed rule, we discuss the role of the physician certification in 

medical review where applicable. 

 In addition, in section V.N.3. of the preamble of this proposed rule, we are 

proposing a new benchmark for purposes of medical review of hospital inpatient 

admissions, based on how long the beneficiary is in the hospital. Under our proposal, 

Medicare’s external review contractors would presume that hospital inpatient admissions 

are reasonable and necessary for beneficiaries who require more than 1 Medicare 

utilization day (defined by encounters crossing 2 “midnights”) in the hospital receiving 

medically necessary services. If a hospital is found to be abusing this 2-midnight 

presumption for nonmedically necessary inpatient hospital admissions and payment (in 

other words, the hospital is systematically delaying the provision of care to surpass the 2-
 664 

midnight timeframe), CMS review contractors would disregard the 2-midnight 

presumption when conducting review of that hospital. Similarly, we would presume that 

hospital services spanning less than 2 midnights should have been provided on an 

outpatient basis, unless there is clear documentation in the medical record supporting the 

physician’s order and expectation that the beneficiary would require care spanning more 

than 2 midnights or the beneficiary is receiving a service or procedure designated by 

CMS as inpatient-only. We note that our current manual instructions referenced above, 

indicating that physicians should use a 24-hour period and the expectation of a 

beneficiary’s need for an overnight stay in the hospital as inpatient admission 

benchmarks, remain in effect until we have finalized a new policy, at which time we will 

consider whether and how the existing instructions should be updated. 

2. Requirements for Physician Orders 

 The requirements for physician and other qualified practitioner orders are 

contained under the hospital and CAH CoPs (42 CFR Parts 482 and 485), which are the 

patient health and safety standards with which all Medicare and Medicaid hospitals and 

CAHs must comply in order to participate in the Medicare and Medicaid programs. The 

CoPs apply to facilities and services provided to all hospital patients, not just Medicare or 

Medicaid patients. The hospital medical record services CoP at § 482.24(c) specifies that 

a patient’s medical record must contain information to justify admission and continued 

hospitalization, support the diagnosis, and describe the patient’s progress and response to 

medications and services. The hospital medical record services CoP also requires 

specific elements that must be included in the patient record; among these elements are 
 665 

an “admitting diagnosis” and “all practitioners’ orders.” The CAH CoP at § 485.638 

contains similar, although not identical, language. In addition, under the hospital CoP at 

§ 482.12(c)(2), patients are admitted to the hospital as inpatients only on the 

recommendation of a physician or licensed practitioner permitted by the State to admit 

patients to a hospital. Under the hospital CoP at § 482.12(c)(1), every Medicare patient 

must be under the care of a physician or other type of practitioner listed in the regulations 

(“the practitioner responsible for the care of the patient”). Although the CoPs do not 

distinguish the term “inpatient admission order” from the required physician or 

practitioner orders in the regulatory text, it is an accepted standard of practice in hospitals 

and CAHs that such an order must be given before a patient can be admitted to a hospital 

or CAH. Similarly, the requirement that a patient is admitted as an inpatient “only on the 

recommendation of a physician or licensed practitioner permitted by the State to admit 

patients to a hospital” is understood to mean that a patient is admitted by way of an 

inpatient admission order given by the practitioner responsible for the care of the patient, 

provided that the practitioner, either a physician or other licensed practitioner, has been 

authorized by the State and granted such privileges by the hospital to do so. 

 We note that, under these requirements of the CoPs, patients are admitted to the 

hospital only on the recommendation of a licensed practitioner permitted by his or her 

State to admit patients to a hospital. In addition, § 482.12(c)(2) of the regulations 

requires that a Medicare patient who is admitted by a practitioner not specified in 

paragraph (c)(1) of this same section of the CoPs must then be under the care of a doctor 

of medicine or osteopathy; however, this “...is not to be construed to limit the authority 
 666 

of a doctor of medicine or osteopathy to delegate tasks to other qualified health care 

personnel to the extent recognized under State law or a State’s regulatory mechanism.” 

Therefore, the CoPs do not specifically prohibit the delegation of an inpatient admission 

to a nonphysician practitioner; however, neither do they specifically authorize it. We 

have stated that for payment purposes, as provided in the COPs at § 482.12(c), the 

physician or other practitioner responsible for a patient’s care at the hospital is also 

responsible for deciding whether the patient should be admitted as an inpatient (Section 

1, Chapter 10 of the MBPM). In specifying that the practitioner responsible for the 

patient’s care is responsible for making the admission decision, we precluded that 

practitioner from delegating the decision to another individual. Therefore, while the 

COPs do not preclude a doctor of medicine or osteopathy from delegating authority to 

other individuals, we are specifically clarifying in regulation that, for payment purposes, 

the authority to admit cannot be delegated to an individual who lacks that authority in his 

or her own right. 

 The CoPs also allow for inpatient admission orders to be given verbally in person 

or over the telephone as well as through the use of preprinted and electronic standing 

orders, order sets, and protocols. Such inpatient admission orders must be in accordance 

with the requirements for orders found at § 482.23(c)(3)(i) and (ii), and at § 482.24(c)(2) 

and (3) of the regulations. Included in these provisions is the requirement that if verbal 

orders are used, they must be used infrequently. In addition, all orders must be 

authenticated promptly by the ordering practitioner or another practitioner responsible for 

the care of the patient. While the CoPs do allow for inpatient admission orders through 
 667 

these mechanisms, it must be stressed that the CoPs also require that the patient medical 

record contains documentation that supports the decision reflected in the physician order 

to admit the patient to the hospital. 

 For all patients (not just Medicare beneficiaries), the physician admission order is 

the most basic means by which the hospital inpatient stay begins and by which the course 

of treatment and care is initially guided. The order details not only who is responsible for 

the patient's care while in the hospital, but also directs that care through the various 

diagnostic, dietary, medication, and other treatment orders. Before a Medicare 

beneficiary or any patient can be treated, there must be physician orders (including, and 

perhaps most importantly, the initiating admission order) to guide that treatment. 

Therefore, under the CoPs, the practitioner responsible for the care of the patient must 

determine that inpatient admission is medically necessary and order both the admission 

and reasonable and necessary inpatient services. 

 While the requirement for the physician admission order has long been clear in 

the CoPs, we are proposing to state explicitly in our payment regulations that admission 

pursuant to this order is the means whereby a beneficiary becomes a hospital inpatient 

and, therefore, is required for payment of hospital inpatient services under Medicare Part 

A. Accordingly, we are proposing to add a new § 412.3 titled “Admissions,” that would 

define a hospital inpatient admission as follows: “(a) For purposes of payment under 

Medicare Part A, an individual is considered an inpatient of a hospital, including a critical 

access hospital, if formally admitted as an inpatient pursuant to an order for inpatient 

admission by a physician or other qualified practitioner in accordance with paragraph (b) 
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of this section [discussed below] and §§ 482.24(c), 482.12(c), and 485.638(a)(4)(iii) of 

this chapter for a critical access hospital.” This physician order must be present in the 

medical record and be supported by the physician admission and progress notes, in order 

for the hospital to be paid for hospital inpatient services under Medicare Part A. 

 In proposed new § 412.3(b), we would clarify that, in contrast to the CoPs, for 

payment under Part A, the hospital inpatient admission order must be furnished by a 

physician or other specified practitioner as follows: “(b) The order must be furnished by a 

qualified and licensed practitioner who has admitting privileges at the hospital as 

permitted by State law, and who is responsible for the inpatient care of the patient at the 

hospital. The practitioner may not delegate the decision (order) to another individual 

who is not responsible for the care of that patient, is not authorized by the State to admit 

patients, or has not been granted admitting privileges applicable to that patient by the 

hospital’s medical staff.” 

3. Proposed Inpatient Admission Guidelines 

a. Background 

 CMS is authorized under section 1893 of the Act to implement the Medicare 

Integrity Program to conduct medical review of claims and ensure appropriateness of 

Medicare payment. Medicare review contractors, such as Medicare Administrative 

Contractors (MACs), Recovery Auditors (formerly known as the Recovery Audit 

Contractors, or RACs), the Comprehensive Error Rate Testing (CERT) Contractor, and 

other review contractors are hired by CMS to review claims on a pre-payment or 

post-payment basis to determine whether a claim should be paid or denied or whether a 
 669 

payment was properly made under Medicare payment rules. Following documentation 

reviews, many claim denials are made or improper payments identified because either— 

● The claim was incorrectly coded (for example, the provider did not 

appropriately assign the individual or grouper inpatient and/or outpatient coding for the 

care documented); or 

● The services were not medically necessary (that is, the review indicates that the 

services billed were not reasonable and necessary based upon Medicare payment policies 

or that the documentation was insufficient to support the medical necessity of the services 

billed). 

 Hospital claim errors are identified more frequently for shorter lengths of stay. 

The majority of improper payments under Medicare Part A for short-stay inpatient 

hospital claims have been due to inappropriate patient status (that is, the services 

furnished were reasonable and necessary, but should have been furnished on a hospital 

outpatient, rather than hospital inpatient, basis). 

 CMS developed the CERT program to calculate the Medicare FFS program 

improper payment rate. The CERT program considers any claim that was paid when it 

should have been denied or paid at another amount (including both overpayments and 

underpayments) to be an improper payment. In 2012, the CERT contractor found that 

Medicare Part A inpatient hospital admissions for 1-day stays or less had an improper 

payment rate of 36.1 percent. The improper payment rate decreased significantly for 

2-day or 3-day stays, which had improper payment rates of 13.2 percent and 13.1 percent, 

respectively. The improper payment rate further decreased to 8 percent for those 
 670 

beneficiaries who were treated as hospital inpatients for 4 days. 

 Inpatient hospital short-stay claim errors are frequently related to minor surgical 

procedures or diagnostic tests. In such situations, the beneficiary is typically admitted as 

a hospital inpatient after the procedure is completed on an outpatient basis, monitored 

overnight as an inpatient, and discharged from the hospital in the morning. Medicare 

review contractors typically find that while the underlying services provided were 

reasonable and necessary, the inpatient hospitalization following the procedure was not 

(that is, the services following the procedure should have been provided on an outpatient 

basis). 

 Through this proposed rule, we are seeking to clarify our longstanding policy on 

how Medicare review contractors review inpatient hospital admissions for payment under 

Medicare Part A. We also will issue revised guidance to physicians and hospitals 

regarding when a hospital inpatient admission should be ordered for Medicare 

beneficiaries once this proposed rule is finalized. 

b. Correct Coding Reviews 

 We are not proposing any changes to coding review strategies for hospital claims. 

Reviewers will continue to ensure that the correct codes were applied and are supported 

by the medical record documentation. 

c. Complete and Accurate Documentation 

 When conducting complex medical review, Medicare review contractors will 

continue to employ clinicians to review practitioner documented procedures and ensure 

that they are supported by the submitted medical record documentation. Such is the case 
 671 

when complex medical review is performed currently and will continue to be the case 

when the proposed review criteria are implemented. 

d. Medical Necessity Reviews 

(1) Physician Order and Certification 

 In statute and regulation, Medicare has certain requirements for physician orders 

and certifications, discussed above, that must be satisfied before payment may be made 

under Part A. We are proposing to codify in 42 CFR 412.46(b) the longstanding 

requirement that medical documentation must support the physician’s order and 

certification, as prescribed by CMS Ruling 93-1. The proposed new paragraph (b) titled 

“Physician’s order and certification regarding medical necessity” would read, “No 

presumptive weight shall be assigned to the physician’s order under § 412.3 or the 

physician’s certification under Subpart B of Part 424 of this chapter in determining the 

medical necessity of inpatient hospital services under section 1862(a)(1) of the Act. A 

physician’s order and certification will be evaluated in the context of the evidence in the 

medical record.” We are not proposing any changes to our current requirements for 

practitioner documentation of services ordered and furnished. While the physician order 

and the physician certification are required for all inpatient hospital admissions in order 

for payment to be made under Part A, the physician order and the physician certification 

are not considered by CMS to be conclusive evidence that an inpatient hospital admission 

or service was medically necessary. Rather, the physician order and physician 

certification are considered along with other documentation in the medical record. CMS 

and its medical review contractors base their payment determinations on objective 
 672 

medical information documented in the medical record about the patient’s condition and 

the services received. This documentation will be reviewed from the claims form and, 

when necessary, the medical record containing the physician order, the physician 

certification, and other supporting documentation that are required for payment under 

Medicare Part A. 

(2) Medical Review Criteria for All Hospital Services 

 We will continue to review individual claims to ensure the hospital services 

furnished to beneficiaries are “reasonable and necessary for the diagnosis or treatment of 

illness or injury or to improve the functioning of a malformed body member,” as required 

by section 1862(a)(1) of the Act. Any hospital service determined to be not reasonable or 

necessary may not be paid under Medicare Part A or Part B. 

(3) Inpatient Hospital Admission Guidelines 

 In this proposed rule, we are proposing inpatient hospital admission guidance 

under which a physician or other practitioner should order admission if he or she expects 

that the beneficiary’s length of stay will exceed a 2-midnight threshold or if the 

beneficiary requires a procedure specified as inpatient-only under 42 CFR 419.22. We 

are proposing that the starting point for this time-based instruction would be when the 

beneficiary is moved from any outpatient area to a bed in the hospital in which the 

additional hospital services will be provided. However, we are soliciting public 

comments on this proposed method of calculating the length of stay for purposes of this 

2-midnight threshold proposal. 

 There are certain types of cases for which a hospital inpatient admission is rarely 
 673 

appropriate. We have stated in our existing Medicare manual that when a beneficiary 

receives a minor surgical procedure or other treatment in the hospital that is expected to 

keep him or her in the hospital for only a few hours (less than 24), the services should be 

provided as outpatient hospital services, regardless of the hour the beneficiary comes to 

the hospital, whether he or she uses a bed, and whether he or she remains in the hospital 

past midnight (Section 10, Chapter 1 of the MBPM). We note that there has been 

considerable variation in the interpretation of this instruction. Therefore, we are 

proposing to clarify this policy and codify our general rule at § 412.3(c)(1), that in 

addition to services designated by CMS as inpatient only, surgical procedures, disgnostic 

tests, and other treatments would be generally appropriate for inpatient hospital payment 

under Medicare Part A when the physician expects the patient to require a stay that 

crosses at least 2 midnights and admits the patient to the hospital based upon that 

expectation. Conversely, when a patient enters a hospital for a surgical procedure not 

specified by Medicare as inpatient only under § 419.22(n), a diagnostic test, or any other 

treatment, and the physician expects to keep the patient in the hospital for only a limited 

period of time that does not cross 2 midnights, the services would be generally 

inappropriate for payment under Medicare Part A. This would be the case regardless of 

the hour that the patient came to the hospital or whether the patient used a bed. 

 Under our proposed policy, the judgment of the physician and the physician’s 

order for inpatient admission should be based on such complex medical factors as patient 

history and comorbidities, the severity of signs and symptoms, current medical needs, 

and the risk of an adverse event. In accordance with current policy, factors that may 
 674 

result in an inconvenience to a beneficiary or family would not, by themselves, justify 

inpatient hospital admission. When such convenience factors affect the beneficiary’s 

health, CMS and/or its contractor would consider these factors in determining whether 

inpatient hospital admission was appropriate. The factors that lead a physician to admit a 

particular patient based on the physician’s clinical expectation are significant clinical 

considerations. 

 In accordance with current policy and as discussed above, the physician would be 

required to clearly and completely document the clinical facts supporting the inpatient 

hospital admission. It is the documentation of the reasonable basis for the expectation of 

a stay crossing 2 midnights that would justify the medical necessity of the inpatient 

admission, regardless of the actual duration of the hospital stay and whether it ultimately 

crosses 2 midnights. As a result of the relationship that develops between a physician 

and his or her patient, the physician is in a unique position to incorporate complete 

medical evidence in beneficiary’s medical records, including his or her opinions and the 

pertinent medical history of the patient. In creating the medical assessment, medical 

history, and discharge notes that become part of the medical record, we believe the 

physician has ample opportunity to explain in detail why the course of treatment was 

appropriate in the context of that patient’s acute condition. In addition, the physician has 

the opportunity to describe and explain aspects of the beneficiary’s medical history that 

may not otherwise be apparent. Therefore, the physician would be responsible for 

ensuring that the beneficiary’s medical record includes complete medical information, 

and this information would be the basis for determining the medical necessity of the 
 675 

prescribed treatment. The final determination by the Medicare review contractor for 

payment purposes would not be based solely on the physician’s order and certification, 

and would reflect equal weight and evaluation of all documentation contained in the 

medical record. 

 We acknowledge that there may be an unforeseen circumstance that results in a 

shorter beneficiary stay than the physician’s expectation of 2 midnights. We expect that 

the majority of such inpatient hospital admissions would occur when an inpatient hospital 

admission is appropriately ordered, but a beneficiary’s transfer or death interrupts the 

beneficiary’s hospital stay that would have otherwise spanned 2 midnights. Therefore, 

we provide an exception to the general rule in proposed § 412.3(c)(2), that “If an 

unforeseen circumstance, such as beneficiary death or transfer, results in a shorter 

beneficiary stay than the physician’s expectation of at least 2 midnights, the patient may 

be considered to be appropriately treated on an inpatient basis, and the hospital inpatient 

payment may be made under Medicare Part A.” Documentation of such a circumstance 

constitutes supporting medical documentation in determining whether the inpatient 

hospital admission is reasonable and necessary for Medicare Part A payment. In 

addition, the physician must certify that inpatient hospital services were medically 

necessary in accordance with section 1814(a) of the Act and 42 CFR Part 424, Subpart B. 

(4) Medical Review Criteria for Payment of Inpatient Hospital Admissions under Part A 

 Until such time as this proposed rule is finalized, Medicare review contractors 

will continue to follow the current CMS policy and instruction regarding medical review 

criteria for payment of inpatient admissions under Medicare Part A. 
 676 

 Under our proposed medical review policy, Medicare’s external review 

contractors would presume that hospital inpatient status is reasonable and necessary for 

beneficiaries who require more than 1 Medicare utilization day (defined as encounters 

crossing 2 midnights) after admission. Medical review efforts for inpatient hospital 

admissions greater than 2 midnights would focus on undue delays in the provision of care 

in an attempt to meet the 2-midnight threshold (that is, inpatient hospital admissions 

where medically necessary treatment was not provided on a continuous basis throughout 

the hospital stay and the services could have been furnished in a shorter timeframe). 

Beneficiaries should not be held in the hospital absent medically necessary care for the 

purpose of meeting the 2-midnight presumption. 

 Patient status reviews for those admissions with lengths of stay greater than 2 

midnights would typically be conducted if CMS suspects that a provider is using the 

time-based presumption to effectuate systematic abuse or gaming. Review contractors 

would continue to assess claims in which the beneficiary span of care crossed the 2-

midnight threshold: 

● To ensure the services provided were medically necessary; 

● To validate provider coding and documentation as reflective of the medical 

evidence; 

● If the CERT Contractor is directed to do so under the Improper Payments 

Elimination and Recovery Improvement Act of 2012 (Pub. L. 112-248); or 

● If directed by CMS or other authoritative governmental entity (including but 

not limited to the HHS Office of Inspector General and Government Accountability 
 677 

Office). 

 As a result of the proposed admission guidelines above, we are proposing that 

medical review efforts will focus on those inpatient hospital admissions with lengths of 

stay crossing only only 1midnight or less (that is, only 1 Medicare utilization day, as 

defined in 42 CFR 409.61 and implemented in the Medicare Benefit Policy Manual, 

Chapter 3, Section 20.1). As we noted earlier, such claims have traditionally 

demonstrated the largest proportion of inpatient hospital improper payments under 

Medicare Part A. If the physician admits the beneficiary as an inpatient but the 

beneficiary is in the hospital for less than 2 midnights after admission, we are proposing 

that CMS and its medical review contractors would review the inpatient admission in 

accordance with current policy for Part A payment, as clarified below, and would not 

presume that the inpatient hospital admission was reasonable and necessary for payment 

purposes. Medicare review contractors would evaluate the physician order for inpatient 

admission to the hospital, the medical documentation supporting that order, and the 

physician certification in order to determine whether payment under Part A is 

appropriate. 

 The Medicare review contractors would consider, in their review of the medical 

record, complex medical factors that support a reasonable expectation of the needed 

duration of the stay relative to the 2-midnight threshold. These factors include such 

things as beneficiary medical history and comorbidities, the severity of signs and 

symptoms, current medical needs, and the risk of an adverse event. In other words, if it 

was reasonable for the physician to expect the beneficiary to require a stay lasting 2 
 678 

midnights, even though that did not transpire, payment would be made under Medicare 

Part A if the documentation in the medical record reflected such complex medical factors 

(and the physician’s order and certification requirements also are met). As discussed 

above, payment may be made in the case of services on Medicare’s inpatient only list and 

in exceptional cases such as beneficiary death or transfer. 

4. Proposed Payment Adjustment 

 The accurate determination of a beneficiary's patient status is an issue of concern 

across hospitals. As we discuss in section V.N.1. of the preamble of this proposed rule, 

in the CY 2013 OPPS/ASC proposed rule, we sought comment on actions that we could 

potentially undertake to address stakeholders’ concerns. We received approximately 350 

public comments on this issue in response to our solicitation from hospitals and hospital 

associations, physician associations, rehabilitative and long-term care facilities, 

beneficiaries, beneficiary advocacy organizations, Quality Improvement Organizations 

(QIOs), organizations specializing in medical necessity review, and other interested 

parties. In particular, as stated in the CY 2013 OPPS/ASC final rule with comment 

period (77 FR 68429) and discussed further in section V.N.1. of the preamble of this 

proposed rule, we heard from some stakeholders who specifically suggested a need for us 

to clarify our current instructions regarding the circumstances under which Medicare will 

pay for a hospital inpatient admission in order to improve hospitals’ ability to make 

appropriate admission decisions. 

 The issue also has a substantial impact on improper payments under Medicare 

Part A for short-stay inpatient hospital claims. As discussed earlier, the majority of 
 679 

improper payments under Medicare Part A for short-stay inpatient hospital claims have 

been due to inappropriate patient status (that is, the services furnished were reasonable 

and necessary, but should have been furnished on a hospital outpatient, rather than 

hospital inpatient, basis.) In 2012, the CERT contractor found that inpatient hospital 

admissions for 1-day stays or less had a Part A improper payment rate of 36.1 percent. 

The improper payment rate decreases significantly for 2-day or 3-day stays, which had 

improper payment rates of 13.2 percent and 13.1 percent, respectively. We believe the 

magnitude of these national figures demonstrates that the appropriate determination of a 

beneficiary’s patient status is a systemic and widespread issue and is not isolated to a few 

hospitals. We also note that the RAs have recovered more than $1.6 billion in improper 

payments because of inappropriate beneficiary patient status. 

 Our actuaries have estimated that our proposed policy that medical review of 

inpatient admissions will include a presumption that hospital inpatient admissions are 

reasonable and necessary for beneficiaries who require more than 1 Medicare utilization 

day (defined by encounters crossing 2 “midnights”) in the hospital receiving medically 

necessary services, as discussed in section V.N.3. of the preamble of this proposed rule, 

would increase IPPS expenditures by approximately $220 million. These additional 

expenditures result from an expected net increase in hospital inpatient encounters due to 

some encounters spanning more than 2 midnights moving to the IPPS from the OPPS, 

and some encounters of less than 2 midnights moving from the IPPS to the OPPS. 

Specifically, our actuaries examined FY 2009 through FY 2011 Medicare claims data for 

extended hospital outpatient encounters and shorter stay hospital inpatient encounters and 
 680 

estimated that approximately 400,000 encounters would shift from outpatient to inpatient 

and approximately 360,000 encounters would shift from inpatient to outpatient, causing a 

net shift of 40,000 encounters. These estimated shifts of 400,000 encounters from 

outpatient to inpatient and 360,000 encounters from inpatient to outpatient represent a 

significant portion of the approximately 11 million encounters paid under the IPPS. The 

net shift of 40,000 encounters represents an increase of approximately 1.2 percent in the 

number of shorter stay hospital inpatient encounters paid under the IPPS. Since shorter 

stay hospital inpatient encounters currently represent approximately 17 percent of the 

IPPS expenditures, our actuaries estimated that 17 percent of IPPS expenditures would 

increase by 1.2 percent under our proposed policy. These additional expenditures are 

partially offset by reduced expenditures from the shift of shorter stay hospital inpatient 

encounters to hospital outpatient encounters. Our actuaries estimated that on average the 

per encounter payments for these hospital outpatient encounters would be approximately 

30 percent of the per encounter payments for the hospital inpatient encounters. 

 In light of the widespread impact of the proposed policy discussed in section 

V.N.3. of the preamble of this proposed rule on the IPPS and the systemic nature of the 

issue as demonstrated above, we believe it is appropriate to propose to use our exceptions 

and adjustments authority under section 1886(d)(5)(I)(i) of the Act to offset the estimated 

$220 million in additional IPPS expenditures associated with this proposed policy. This 

special exceptions and adjustment authority authorizes us to provide “for such other 

exceptions and adjustments to [IPPS] payment amounts . . . as the Secretary deems 

appropriate.” We are proposing to reduce the standardized amount, the hospital-specific 
 681 

rates, and the Puerto Rico-specific standardized amount by 0.2 percent. 
 682 

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

A. Overview

 Section 1886(g) of the Act requires the Secretary to pay for the capital-related 

costs of inpatient acute hospital services “in accordance with a prospective payment 

system established by the Secretary.” Under the statute, the Secretary has broad authority 

in establishing and implementing the IPPS for acute care hospital inpatient capital-related 

costs. The IPPS for capital-related costs was initially implemented 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 

capital-related costs from a reasonable cost-based 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 

capital payments for each discharge, the standard Federal rate is adjusted as follows: 
 683 

 (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor 

(GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH 

Adjustment Factor + Capital IME Adjustment Factor, if applicable). 

 In addition, under § 412.312(c), hospitals also may receive outlier payments under 

the capital IPPS for extraordinarily high-cost cases that qualify under the thresholds 

established for each fiscal year. 

B. Additional Provisions

1. Exception Payments 

 The regulations at § 412.348 provide for certain exception payments under the 

capital IPPS. The regular exception payments provided under §§ 412.348(b) through (e) 

were available only during the 10-year transition period. For a certain period after the 

transition period, eligible hospitals may have received additional payments under the 

special exceptions provisions at § 412.348(g). However, FY 2012 was the final year 

hospitals could receive special exceptions payments. For additional details regarding 

these exceptions policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725). 

 Under § 412.348(f), a hospital may request an additional payment if the hospital 

incurs unanticipated capital expenditures in excess of $5 million due to extraordinary 

circumstances beyond the hospital’s control. Additional information on the exception 

payment for extraordinary circumstances in § 412.348(f) can be found in the FY 2005 

IPPS final rule (69 FR 49185 and 49186). 
 684 

2. New Hospitals 

 Under the capital IPPS, § 412.300(b) of the regulations defines a new hospital as a 

hospital that has operated (under previous or current ownership) for less than 2 years and 

lists examples of hospitals that are not considered new hospitals. In accordance with 

§ 412.304(c)(2), under the capital IPPS a new hospital is paid 85 percent of its allowable 

Medicare inpatient hospital capital-related costs through its first 2 years of operation, 

unless the new hospital elects to receive full prospective payment based on 100 percent of 

the Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725) for additional information on payments to new hospitals under the capital 

IPPS. 

3. 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 capital-related 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. Capital IPPS payments to hospitals located in Puerto Rico are computed 

based on a blend of 25 percent of the capital IPPS Puerto Rico rate and 75 percent of the 

capital IPPS Federal rate. For additional details on capital IPPS payments to hospitals 

located in Puerto Rico, we refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725). 
 685 

C. Other Proposed Changes for FY 2014 - Proposed Adjustment to Offset the Cost of the 

Policy Proposal on Admission and Medical Review Criteria for Hospital Inpatient 

Services under Medicare Part A

 In the Medicare Part B Inpatient Billing in Hospitals proposed rule that went on 

display at the Office of the Fedreal Register on March 13, 2013, and that appeared in the 

Federal Register on March 18, 2013 (78 FR 16632), we proposed to revise our Part B 

inpatient billing policy to allow payment of all hospital services that were furnished and 

would have been reasonable and necessary if the beneficiary had been treated as an 

outpatient, rather than admitted to the hospital as an inpatient, except for those services 

specifically requiring an outpatient status. This policy would apply when CMS or a 

Medicare review contractor determines that the hospital admission was not reasonable 

and necessary or when a hospital determines after a beneficiary has been discharged that 

the beneficiary should have received hospital outpatient services rather than hospital 

inpatient services. We also proposed to continue applying the timely filing restriction to 

the billing of all Part B inpatient services, under which claims for Part B services must be 

filed within 1 year from the date of service. As we discuss in section V.N. of the 

preamble of this proposed rule, in addition to evaluating our policy related to Medicare 

Part B inpatient billing following denials of Medicare Part A inpatient claims on the basis 

that the inpatient admission was not reasonable and necessary or following a hospital 

self-audit, we also believe it is important to consider whether we can provide more clarity 

regarding the relationship between inpatient admission decisions and Medicare payment. 

Toward that end, we are presenting a proposal that would clarify that a beneficiary 
 686 

becomes a hospital inpatient when formally admitted following the physician order for 

hospital inpatient admission, and would also clarify when we believe hospital inpatient 

admissions are reasonable and necessary based on how long beneficiaries have spent, or 

are reasonably expected to spend, in the hospital as inpatients. Under this proposal, 

Medicare’s external review contractors would presume that hospital inpatient admissions 

are reasonable and necessary for beneficiaries who require more than one Medicare 

utilization day (defined by encounters crossing 2 “midnights”) in the hospital receiving 

medically necessary services. Similarly, we would presume that generally services 

spanning less than 2 midnights should have been provided on an outpatient basis, unless 

there is clear physician documentation in the medical record supporting the physician’s 

order and expectation that the beneficiary required inpatient care. (For a complete 

discussion on our proposed inpatient admission guidelines, including our proposed timebased presumption of medical necessity for hospital inpatient services based on the 

beneficiary’s length of stay as part of our medical review criteria for payment of hospital 

inpatient services under Medicare Part A, we refer readers to section V.N.3 of the 

preamble of this proposed rule.) 

 Our actuaries project an increase in IPPS expenditures as a result of our proposed 

policy that medical review of inpatient admissions will include a presumption that 

hospital inpatient admissions are reasonable and necessary for beneficiaries who require 

more than 1 Medicare utilization day (defined by encounters crossing 2 “midnights”) in 

the hospital receiving medically necessary services as discussed in section V.N.3. of the 

preamble of this proposed rule (and as briefly summarized above). These additional 
 687 

expenditures result from an expected net increase in hospital inpatient encounters due to 

some encounters spanning more than 2 midnights moving to the IPPS from the OPPS, 

and some encounters of less than 2 midnights moving from the IPPS to the OPPS. In 

making this projection, the actuaries analyzed Medicare claims data for extended hospital 

outpatient encounters and shorter stay hospital inpatient encounters, and estimated the 

number of encounters that are expected to shift from outpatient to inpatient and vice versa 

(that is, the number that are expected to shift from inpatient to outpatient). These 

estimated shifts of encounters represent a significant portion of the total encounters paid 

under the IPPS. Our actuaries estimate that this projected net increase in inpatient 

encounters would increase IPPS expenditures by approximately $220 million. In light of 

the widespread impact on the IPPS of our proposed policy and the systemic nature of the 

issue, we believe it is appropriate to propose to use our exceptions and adjustments 

authority under section 1886(d)(5)(I)(i) of the Act to offset the estimated $220 million in 

additional IPPS expenditures associated with this proposed policy by proposing to apply 

a -0.2 percent adjustment to the operating IPPS standardized amount, the 

hospital-specific rates, and the Puerto Rico-specific standardized amount. (For additional 

information on our actuarial estimate, we refer readers to section V.N.5. of the preamble 

of this proposed rule.) 

 Consistent with the proposal that we are making for the operating national and 

Puerto Rico-specific standardized amounts and the hospital specific-rates , we believe 

that it is also appropriate, under the Secretary’s broad authority under section 1886(g) of 

the Act, to propose to reduce the national capital Federal rate and Puerto Rico-specific 
 688 

capital rate by 0.2 percent (an adjustment factor of 0.998) to offset the estimated increase 

in capital IPPS expenditures associated with the projected increase in inpatient 

encounters that is expected to result from our proposed inpatient admission guidelines. 

Because hospitals receive an operating IPPS payment and also a capital IPPS payment for 

each discharge, we believe it would be appropriate to reduce payments under both the 

operating and capital IPPS to fully offset the projected increase in expenditures 

associated with these inpatient discharges. (We refer readers to section V.N. of the 

preamble of this proposed rule for a complete discussion of our policy proposal on 

inpatient admission guidelines, including our proposed time-based presumption of 

medical necessity for hospital inpatient services based on the beneficiary’s length of stay 

as part of our medical review criteria for hospital inpatient services under Medicare 

Part A.) 

D. Proposed Annual Update for FY 2014

 The proposed annual update to the capital PPS Federal and Puerto 

Rico-specific rates, as provided for at § 412.308(c), for FY 2014 is discussed in 

section III. of the Addendum to this proposed rule. 

 We note that, in section II.D. of the preamble of this proposed rule, we 

present a discussion of the MS-DRG documentation and coding adjustment, 

including previously finalized policies and historical adjustments, as well as our 

proposed recoupment adjustment to the standardized amounts under section 1886(d) 

of the Act for FY 2014 pursuant to the amendments made to section 7(b)(1)(B) of 

Pub. L. 110-90 by section 631 of the ATRA. 
 689 

 Additional prospective adjustments for the MS-DRG documentation and 

coding effect through FY 2010 authorized under section 1886(d)(3)(A)(vi) of the 

Act are discussed in section II.D.7. of this preamble. Based on an analysis of 

FY 2010 data on claims paid through December 2011 using our historical claimsbased methodology, we determined an additional prospective documentation and 

coding effect of +0.8 through FY 2010. Consistent with our proposal for the 

operating IPPS standardized amounts, in the FY 2013 IPPS/LTCH PPS proposed 

rule (77 FR 27997), we proposed to reduce the national capital Federal rate in 

FY 2013 by an additional 0.8 percent to account for the remainder of the cumulative 

effect of the estimated changes in documentation and coding under the MS-DRG 

system that did not reflect an increase in case-mix severity through FY 2010. 

Numerous commenters objected to that proposal, and many commenters continued 

to assert that our estimates of documentation and coding were overstated, and could 

be explained by other factors. These commenters also focused on part of the 

analysis provided by MedPAC in its FY 2012 comment letter indicating that a 

slightly smaller additional prospective adjustment of -0.55 percent rather than -0.8 

percent might be required to offset the cumulative MS-DRG documentation and 

coding effect through FY 2010. (77 FR 53278 through 53280) Many commenters 

requested that if CMS were to apply an additional prospective adjustment for the 

MS-DRG documentation and coding effect through FY 2010, it should subtract 

0.25 percentage points from its estimate, for an adjustment of -0.55 percent, given 

the MedPAC analysis. After consideration of the public comments, we recognized 
 690 

that the issue of the estimate used for the cumulative MS-DRG documentation and 

coding effect through FY 2010 may merit further consideration. Therefore, 

consistent with the policy we adopted for the operating IPPS standardized amounts 

and hospital-specific rates for FY 2013, we did not finalize our proposal to apply a -

0.8 percent adjustment to the national capital Federal rate until more analysis could 

be completed (77 FR 53456). 

 We continue to consider whether MedPAC’s recommendation that an 

adjustment to offset the cumulative documentation and coding effects through 

FY 2010 under section 1886(d)(3)(A)(iv) of the Act is appropriate and supported by 

a review of the claims data. As discussed in section II.D.7. of the preamble of this 

proposed rule, after further consideration of the MedPAC analysis and the requests 

by public commenters, if we were to apply an additional adjustment for the 

cumulative MS-DRG documentation and coding effect through FY 2010, we 

believe the most appropriate additional adjustment is -0.55 percent. While we are 

not proposing an additional prospective adjustment in FY 2014 for the cumulative 

MS-DRG documentation and coding effects through FY 2010 at this time, we are 

soliciting comments on the issue of applying a prospective adjustment to the 

operating IPPS standardized amount (and hospital-specific rates) for the cumulative 

MS-DRG documentation and coding effect through FY 2010. 

 Section 631 of the ATRA, discussed in section II.D.6. of the preamble of 

this proposed rule, amended section 7(b)(1)(B) of Pub. L. 110-90 to require the 

Secretary to make a recoupment adjustment to the operating IPPS standardized 
 691 

amounts totaling $11 billion by FY 2017. This adjustment represents the amount of 

the increase in aggregate payments as a result of not completing the prospective 

adjustment to the operating IPPS standardized amounts authorized under section 

7(b)(1)(A) of Pub. L. 110-90 until FY 2013. Delaying the implementation of that 

prospective adjustment to the operating IPPS standardized amounts resulted in 

overstated payment rates in FYs 2010, 2011, and 2012, and those resulting 

overpayments could not be recovered under Pub. L. 110-90. Therefore, under the 

provisions of section 631 of ATRA, we are proposing a -0.8 percent recoupment 

adjustment to the operating IPPS standardized amount in FY 2014. Because section 

631 of the ATRA requires CMS to make a recoupment adjustment only to the 

operating IPPS standardized amount, we are not proposing a similar adjustment to 

the national or Puerto Rico capital IPPS rates (or to the operating IPPS hospital 

specific rates or Puerto Rico-specific standardized amount). This approach is 

consistent with our historical approach regarding the application of the recoupment 

adjustment authorized by section 7(b)(1)(B) of Pub. L. 110-90. In section II.D.7. of 

the preamble of this proposed rule, we are soliciting public comments as to whether 

any portion of the aforementioned -0.8 percent recoupment adjustment to the 

operating IPPS standardized amount should be reduced and instead applied as a 

prospective adjustment to the operating IPPS standardized amount (and hospitalspecific rates) for the cumulative MS-DRG documentation and coding effect 

through FY 2010. 
 692 

 We have consistently stated since the initial implementation of the MS-DRG 

system that we do not believe it is appropriate for Medicare expenditures under the 

capital IPPS to increase due to MS–DRG related changes in documentation and 

coding. We continue to believe that it is appropriate to make adjustments to the 

capital IPPS rates to eliminate increased Medicare expenditures that result from the 

effect of any documentation and coding changes due to the implementation of the 

MS–DRGs, since that portion of the increase in aggregate payments is not due to an 

increase in patient severity of illness (and costs). As a result, aggregate capital 

IPPS payments would be inappropriately high because annual aggregate capital 

IPPS payments are higher than payments that otherwise would have been made 

through FY 2010 absent the change to the MS–DRGs (77 FR 53456). Because the 

cumulative documentation and coding effect through FY 2010 results in 

inappropriately high capital IPPS payments, if we were to apply a prospective 

adjustment to the operating IPPS standardized amount and the hospital-specific 

rates to remove this effect, we would also do so for the national capital IPPS 

Federal rate. This approach would be consistent with our past practice regarding 

the application of prospective documentation and coding adjustments. In order to 

make this adjustment to the national capital IPPS Federal rate, as we have done in 

the past, we would use the Secretary’s broad authority under section 1886(g) of the 

Act to establish and implement the capital IPPS (discussed previously in this 

preamble), in conjunction with section 1886(d)(3)(A)(vi) of the Act. Therefore, if 

we attribute a portion of the proposed -0.8 percent recoupment adjustment to the 
 693 

operating IPPS standardized amount for FY 2014 to the prospective adjustment, 

under the Secretary’s broad authority under section 1886(g) of the Act, we would 

also make an appropriate adjustment to the national capital IPPS Federal rate. The 

capital IPPS Puerto Rico rate (and operating IPPS Puerto Rico-specific standardized 

amount) would not be affected as we previously found no significant additional 

MS-DRG documentation and coding effect through FY 2010 for Puerto Rico that 

would warrant any additional adjustment (77 FR 53279 and 53457). 
 694 

VII. Proposed Changes for Hospitals Excluded from the IPPS 

A. Proposed Rate of Increase in Payments to Excluded Hospitals for FY 2014

 Historically, certain 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) of the regulations) 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 certain 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 IPPS-excluded cancer hospitals. 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 42 CFR 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.) 
 695 

We note that the various transition periods provided for under the IRF PPS, the IPF PPS, 

and the LTCH PPS have ended. 

 Certain hospitals excluded from a propective payment system, including 

children’s hospitals and 11 cancer hospitals, continue to be subject to the rate-of-increase 

ceiling based on the hospital’s own historical cost experience. In accordance with 

§ 403.752(a) of the regulations, RNHCIs are also subject to the rate-of-increase limits 

established under § 413.40 of the regulations. 

 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 

and RNHCIs. 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 number of 

providers being paid based on reasonable cost subject to a ceiling, including children’s 

hospitals, 11 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. Therefore, for FY 

2014 and subsequent fiscal years, we would continue to use the percentage increase in the 

IPPS operating market basket to update the target amounts for these cancer hospitals, 

children’s hospitals, and RNHCIs for the reasons discussed in the FY 2006 IPPS final 

rule. 

 However, as described in section IV. of the preamble of this proposed rule, we are 

proposing to revise and rebase the IPPS operating market basket to a FY 2010 base year. 

Therefore, we are proposing to use the percentage increase in the FY 2010-based IPPS 

operating market basket to update the target amounts for children’s hospitals, the 11 
 696 

cancer hospitals, and RNHCIs for FY 2014 and subsequent fiscal years. Accordingly, the 

FY 2014 rate-of-increase percentage to be applied to the target amount for these cancer 

hospitals, children’s hospitals, and RNHCIs would be the FY 2014 percentage increase in 

the FY 2010-based IPPS operating market basket. Based on IHS Global Insight, Inc.’s 

2013 first quarter forecast, we estimate that the FY 2010-based IPPS operating market 

basket update for FY 2014 is 2.5 percent (that is, the estimate of the market basket 

rate-of-increase). We are proposing that if more recent data become available for the 

final rule, we would use them to calculate the IPPS operating market basket update for 

FY 2014. 

 The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We 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 

FY 2014. 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): Proposed Changes to the Conditions of 

Participation Relating to Payment for Inpatient Services

1. Background 

 Sections 1820 and 1861(mm) of the Act, as amended by section 4201 of the 

Balanced Budget Act (BBA) of 1997, replaced the Essential Access Community 

Hospitals and Rural Primary Care Hospitals (EACH/RPCH) program with the Medicare 

Rural Hospital Flexibility Program (MRHFP), under which a qualifying facility can be 

designated as a CAH. CAHs participating in the MRHFP must meet the conditions for 
 697 

designation by the State and be certified by the Secretary in accordance with section 1820 

of the Act. Further, in accordance with section 1820(e)(3) of the Act, a CAH must meet 

other criteria that the Secretary specifies. 

 Among the statutory requirements under section 1820(c) of the Act, a CAH must 

be located in a rural area (or in an area treated as rural); be located more than a 35-mile 

drive (or in the case of mountainous terrain or in areas with only secondary roads 

available, more than a 15-mile drive) from a hospital or another CAH, unless otherwise 

designated as a “necessary provider” prior to January 1, 2006; have not more than 25 

acute care inpatient beds for furnishing inpatient care for a period that does not exceed 96 

hours per patient on an annual, average basis; and make available 24-hour emergency 

care services. The conditions of participation (CoPs) located at 42 CFR Part 485, Subpart 

F, incorporate these statutory requirements as well as other criteria specified in section 

1820(e)(3) of the Act. 

2. Proposed Policy Changes 

 We have received a number of questions from stakeholders in the CAH provider 

community relating to whether CAHs are required to furnish acute care inpatient services 

under the CAH CoPs. Our interpretation is that CAHs must provide acute care inpatient 

services, and we are proposing revisions to clarify and restate this requirement. Using the 

July 2010 through June 2011 cost reports, we were able to review data for 1,230 of the 

existing 1,328 CAHs.59 These data suggest that 99 percent of CAHs are regularly 

providing acute care inpatient services and are in compliance with such requirements. 

 

59 Produced by the Cecil G. Sheps Center for Health Services Research at the University of North Carolina 

under a Cooperative Agreement with the Federal ORHP. 
 698 

However, the data regarding the remaining 1 percent, along with the questions we have 

received, suggest that there may be some service gaps. We further believe that a few 

CAHs would benefit from clarification of our interpretation that CAHs must furnish acute 

care inpatient services. 

 The CAH program was established to improve access for rural residents to 

essential health care services and particularly hospital services which include acute care 

inpatient services. We are proposing certain clarifications to ensure continued access to 

these critical services. Indeed, once a facility has been designated and certified as a 

CAH, that facility is expected to provide services as a CAH, and it is entrusted with the 

reliance of the general public and of the local community. When a CAH is not routinely 

furnishing inpatient services, service gaps arise. For example, we are aware of one 

instance in the past where a CAH was functioning, in essence, as a nursing home/skilled 

nursing facility. However, because it was classified as a CAH, it prevented a nearby rural 

hospital from converting to CAH status in order to continue providing acute care 

inpatient services to the community. In this case, the CAH in question, instead of 

assuring critically needed access to acute care inpatient services, not only was not 

offering such services, but also putting at risk the continued availability of such services 

in the rural community. We believe the proposed change in regulation in this proposed 

rule would address these gaps in service by clearly stating that CAHs are required to 

provide acute care inpatient services. 

 As set forth in section 1820 of the Act, the CAH program was established to 

improve access to hospital and other health services for rural residents of a State. We 
 699 

believe that the statutory requirements related to the provision of emergency care and 

acute care inpatient services, including those at section 1820(c)(2)(B) of the Act, suggest 

that a CAH must furnish these acute care inpatient services, albeit, in a more limited 

fashion than would be expected of a hospital. Hospitals are subject to a different set of 

CoPs, found in 42 CFR Part 482. 

 We recognize that, given its resources and the needs of the community it serves, a 

CAH may not be actively treating inpatients at all times. Indeed, the Act fully recognizes 

the variable nature of a CAH’s inpatient census, as it provides specific contingency 

language for the staffing requirements under section 1820(c)(2)(B)(iv) of the Act. For 

example, section 1820(c)(2)(B)(iv)(I) requires a CAH to meet the rural hospital staffing 

requirements under section 1861(e) of the Act, with the exception that the CAH does not 

need to meet the hospital standards relating to the number of hours per day or days per 

week when the CAH must be open and fully staffed, except as needed to make available 

24-hour emergency care and nursing services, and to staff the CAH whenever an 

inpatient is present. 

 We note that a CAH is not specifically required to maintain a minimum average 

daily census (ADC) of inpatients receiving inpatient acute care services or a minimum 

number of certified inpatient beds. We are aware that there are significant seasonal 

variations in the inpatient occupancy rates as well as variations that are a function of the 

size of the community in which a CAH is located. We also recognize the need for 

inpatient acute care services to be furnished in the best setting for the patient. However, 

while it is true that CAHs generally are not able to handle patients requiring complex, 
 700 

specialized inpatient services, such as those services provided by trauma centers, or 

cardiac surgery centers, it is also true that CAHs should be able to handle a range of 

patient needs requiring admission. We believe it is not in the best interest of patients for 

them to routinely be transferred to a more distant hospital if instead their care can be 

provided locally without compromising quality. The blue “H” hospital signs posted 

along the roadways for CAHs serve as public reminders of the services for which CAHs 

were created to provide. 

 We also wish to clarify the relationship between a CAH’s written policies and the 

services it offers. The regulations at 42 CFR 485.635(a) require a CAH to furnish health 

care services in accordance with appropriate written policies. Among other items, the 

CAH must describe its procedures for emergency medical services and its procedures for 

inpatient services. Therefore, we expect CAHs to be appropriately prepared to provide 

the described services. For example, a CAH’s policies and procedures should be 

reflected in the number of certified beds, appropriate equipment, and available staffing 

(whether as employees or through arrangements or agreements). Similarly, we would 

expect CAHs to, in fact, be providing the same services outlined in their policies and 

procedures, as appropriate to the needs of individual patients. To further clarify the 

interrelated standards at § 485.635(a) and (b) of the regulations, we are proposing to 

amend the regulatory language at § 485.635(b), as noted below, and we are proposing to 

revise the language under the standard for “Patient care policies” under 

§ 485.635(a)(3)(vii) to remove the conditional phrase “If a CAH furnishes inpatient 

services.” By removing this conditional phrase, we would eliminate regulatory language 
 701 

that could be creating ambiguity where none was intended. The elimination of this 

language would clarify that CAHs are required to provide acute care inpatient services. 

Our revision also would align the standard with the structure of neighboring standards 

under § 485.635(a). 

 We are proposing to remove paragraph (c)(1)(i) under § 485.635 requiring CAHs 

to furnish inpatient hospital care services through agreements or arrangements; to 

redesignate the existing language of paragraph (b)(1) as paragraph (b)(1)(i); and to add a 

new paragraph (b)(1)(ii) under the standard “Patient services” that more clearly requires 

CAHs to furnish acute care inpatient services. (Because we are proposing to remove 

paragraph (c)(1)(i), we are proposing to redesignate existing paragraphs (c)(1)(ii) through 

(c)(1)(iv) as paragraphs (c)(1)(i) through (c)(1)(iii), respectively.) 

 These proposed clarifying changes are in the spirit of the policies finalized in the 

May 16, 2012 final rule, “Medicare and Medicaid Programs; Reform of Hospital and 

Critical Access Hospital Conditions of Participation,” that sought to reduce outmoded 

and unnecessarily burdensome regulations, and to increase the ability of CAHs to devote 

more resources to providing high quality patient care (77 FR 29034). In that final rule, at 

§ 485.635(b), we revised the heading of the standard to read “Patient services” instead of 

“Direct services” to specify that a CAH can furnish certain types of services through 

agreement or arrangements rather than directly. We noted our expectation that furnishing 

timely services would be best achieved by providing CAH services onsite at the CAH as 

much as possible, whether through CAH employees or through agreements or 

arrangements (77 FR 29059). Our proposed addition of paragraph (b)(1)(ii) to § 485.635 
 702 

would clarify that a CAH must provide acute care inpatient services. We expect that 

these services would be provided as appropriate to a CAH’s resources and as appropriate 

to meet the needs of its patients. We regard the services furnished in accordance with 

§ 485.635(c) as other additional services, which a CAH may also provide through 

agreements or arrangements. 

 Notwithstanding these clarifications and proposed revisions, in accordance with 

section 1820(d) of the Act, each CAH member of a Rural Health Network would still be 

required to have an agreement with at least one full-service acute care hospital member of 

the network regarding patient referral and transfer. 

 We believe these proposed changes, as discussed above, would address the issues 

described in this section as well as eliminate existing provider confusion by clearly 

stating that CAHs are required to provide acute care inpatient services. We expect a 

CAH to meet all of the conditions of participation under 42 CFR Part 485, including all 

the standards relating to the furnishing of acute care inpatient services. In the event that a 

CAH decides that it is no longer able to comply, or that the circumstances no longer 

warrant compliance, with all of the CAH requirements, such a facility may wish to 

engage in a dialogue with CMS to explore its options, including avenues other than the 

CAH program, for continued participation in the Medicare program. 

 Finally, we are proposing a technical change at § 485.620(a), the section 

addressing the “Number of beds” standard. Specifically, we are proposing to remove the 

phrase “after January 1, 2004,” a prospective effective date established in the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 
 703 

108-173) and which was subsequently restated in regulation at § 485.620(a) 

(69 FR 49215). The MMA revised the bed limit upwards, to allow CAHs a maximum of 

25 acute care beds for inpatient services, regardless of the swing-bed approval. Prior to 

the MMA, CAHs were restricted to 15 acute care beds and a total of 25 beds if the CAH 

had been granted swing-bed approval. Retaining this date in regulation no longer serves 

the purpose of providing CAHs with notice that they could expand beyond 15 acute care 

beds. The effective date of January 1, 2004 has passed and the revised maximum bed 

limit of 25 continues to apply.
 704 

VIII. Proposed Changes to the Long-Term Care Hospital Prospective Payment 

System (LTCH PPS) for FY 2014 

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority 

 Section 123 of the Medicare, Medicaid, and SCHIP (State Children's Health 

Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) 

(Pub. L. 106-113) as amended by section 307(b) of the Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) provides for 

payment for both the operating and capital-related costs of hospital inpatient stays in 

long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set 

rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals 

that are described in section 1886(d)(1)(B)(iv) of the Act, effective for cost reporting 

periods beginning on or after October 1, 2002. 

 Section 1886(d)(1)(B)(iv)(I) of the Act defines 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. 
 705 

 Section 123 of the BBRA requires the PPS for LTCHs to be a “per discharge” 

system with a diagnosis-related group (DRG) based patient classification system that 

reflects the differences in patient resources and costs in LTCHs. 

 Section 307(b)(1) of the BIPA, among other things, mandates that the Secretary 

shall examine, and may provide for, adjustments to payments under the LTCH PPS, 

including adjustments to DRG weights, area wage adjustments, geographic 

reclassification, outliers, updates, and a disproportionate share adjustment. 

 In the August 30, 2002 Federal Register, we issued a final rule that implemented 

the LTCH PPS authorized under the BBRA and BIPA (67 FR 55954). For the initial 

implementation of the LTCH PPS (FYs 2003 through FY 2007), the system used 

information from LTCH patient records to classify patients into distinct long-term care 

diagnosis-related groups (LTC-DRGs) based on clinical characteristics and expected 

resource needs. Beginning in FY 2008, we adopted the Medicare severity long-term care 

diagnosis-related groups (MS-LTC-DRGs) as the patient classification system used under 

the LTCH PPS. Payments are calculated for each MS-LTC-DRG and provisions are 

made for appropriate payment adjustments. Payment rates under the LTCH PPS are 

updated annually and published in the Federal Register. 

 The LTCH PPS replaced the reasonable cost-based payment system under the Tax 

Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248) for payments for 

inpatient services provided by 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 PPS 
 706 

for acute care hospitals authorized by the Social Security Amendments of 1983 

(Pub. L. 98-21), which added section 1886(d) to the Act, certain hospitals, including 

LTCHs, were excluded from the PPS for acute care hospitals and were paid their 

reasonable costs for inpatient services subject to a per discharge limitation or target 

amount under the TEFRA system. For each cost reporting period, a hospital-specific 

ceiling on payments was determined by multiplying the hospital's updated target amount 

by the number of total current year Medicare discharges. (Generally, in section VIII. of 

this preamble, when we refer to discharges, we describe Medicare discharges.) The 

August 30, 2002 final rule further details the payment policy under the TEFRA system 

(67 FR 55954). 

 In the August 30, 2002 final rule, we provided for a 5-year transition period from 

payments under the TEFRA system to payments under the LTCH PPS. During this 

5-year transition period, 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, unless a LTCH 

made a one-time election to be paid based on 100 percent of the Federal rate. Beginning 

with LTCHs’ cost reporting periods beginning on or after October 1, 2006, total LTCH 

PPS payments are based on 100 percent of the Federal rate. 

 In addition, in the August 30, 2002 final rule, we presented an in-depth discussion 

of the LTCH PPS, including the patient classification system, relative weights, payment 

rates, additional payments, and the budget neutrality requirements mandated by section 

123 of the BBRA. The same final rule that established regulations for the LTCH PPS 
 707 

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). 

 We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51733 

through 51743) for a chronological summary of the main legislative and regulatory 

developments affecting the LTCH PPS through the annual update cycles prior to the 

FY 2013 rulemaking cycle. 

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 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 non-Medicare inpatients, of greater than 20 days. 
 708 

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-of-increase test at section 1814(b) of the Act). 

● Nonparticipating hospitals furnishing emergency services to Medicare 

beneficiaries. 

3. Limitation on Charges to Beneficiaries 

 In the August 30, 2002 final rule, we presented an in-depth discussion of 

beneficiary liability under the LTCH PPS (67 FR 55974 through 55975). 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, 
 709 

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 short-stay outlier (SSO) threshold is exceeded. Therefore, if the Medicare 

payment was for a SSO case (§ 412.529) that was less than the full LTC-DRG payment 

amount because the beneficiary had insufficient remaining Medicare days, the LTCH 

could also charge the beneficiary for services delivered on those uncovered days 

(§ 412.507). 

4. Administrative Simplification Compliance Act (ASCA) and Health Insurance 

Portability and Accountability Act (HIPAA) Compliance 

Claims submitted to Medicare must comply with both the Administrative 

Simplification Compliance Act (ASCA) (Pub. L. 107-105), and the Health Insurance 

Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191). Section 3 of the 

ASCA requires that the Medicare Program deny payment under Part A or Part B for any 

expenses incurred for items or services “for which a claim is submitted other than in an 

electronic form specified by the Secretary.” Section 1862(h) of the Act (as added by 

section 3(a) of the ASCA) provides that the Secretary shall waive such denial in two 

specific types of cases and may also waive such denial “in such unusual cases as the 

Secretary finds appropriate” (68 FR 48805). Section 3 of the ASCA operates in the 

context of the HIPAA regulations, which include, among other provisions, the 

transactions and code sets standards requirements codified as 45 CFR Parts 160 and 162, 

Subparts A and I through R (generally known as the Transactions Rule). The 

Transactions Rule requires covered entities, including covered health care providers, to 
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conduct certain electronic health care transactions according to the applicable 

transactions and code sets standards. 

B. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group 

(MS-LTC-DRG) Classifications and Relative Weights for FY 2014

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 long-term care hospital (LTCH) PPS] on the use of existing (or 

refined) hospital DRGs that have been modified to account for different resource use of 

LTCH patients, as well as the use of the most recently available hospital discharge data.” 

 When the LTCH PPS was implemented for cost reporting periods beginning on or 

after October 1, 2002, we adopted the same DRG patient classification system (that is, 

the CMS DRGs) that was utilized at that time under the IPPS. As a component of the 

LTCH PPS, we refer to this patient classification system as the “long-term care 

diagnosis-related groups (LTC-DRGs).” Although the patient classification system used 

under both the LTCH PPS and the IPPS are the same, the relative weights are different. 

The established relative weight methodology and data used under the LTCH PPS result in 

relative weights under the LTCH PPS that reflect “the differences in patient resource use 

. . .” of LTCH patients (section 123(a)(1) of the BBRA (Pub. L. 106-113)). 
 711 

 As part of our efforts to better recognize severity of illness among patients, in the 

FY 2008 IPPS final rule with comment period (72 FR 47130), the MS-DRGs and the 

Medicare severity long-term care diagnosis-related groups (MS-LTC-DRGs) were 

adopted under the IPPS and the LTCH PPS, respectively, effective beginning 

October 1, 2007 (FY 2008). For a full description of the development, implementation, 

and rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers to the 

FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175 and 47277 

through 47299). (We note that, in that same final rule, we revised the regulations at 

§ 412.503 to specify that for LTCH discharges occurring on or after October 1, 2007, 

when applying the provisions of 42 CFR Part 412, Subpart O applicable to LTCHs for 

policy descriptions and payment calculations, all references to LTC-DRGs would be 

considered a reference to MS-LTC-DRGs. For the remainder of this section, we present 

the discussion in terms of the current MS-LTC-DRG patient classification system unless 

specifically referring to the previous LTC-DRG patient classification system that was in 

effect before October 1, 2007.) 

 The MS-DRGs adopted in FY 2008 represent an increase in the number of DRGs 

by 207 (that is, from 538 to 745) (72 FR 47171). The MS-DRG classifications are 

updated annually. As described in section II.G. of this preamble, for FY 2014, we are not 

proposing to create or delete any MS-DRGs, and as such we would continue to have a 

total of 751 MS-DRG groupings for FY 2014. Consistent with section 123 of the BBRA, 

as amended by section 307(b)(1) of the BIPA, and § 412.515 of the regulations, we use 

information derived from LTCH PPS patient records to classify LTCH discharges into 
 712 

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. Below we provide a general summary of our existing 

methodology for determining the MS-LTC-DRG relative weights. 

 In a departure from the IPPS, and as discussed in greater detail below in section 

VIII.B.3.f. of this preamble, we are proposing to continue to 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 low-volume MS-LTC-DRGs, we are proposing to 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).) 

Under our existing methodology, we are proposing to account for adjustments to 

payments for SSO cases (that is, cases where the covered length of stay at the LTCH is 

less than or equal to five-sixths of the geometric average length of stay for the 

MS-LTC-DRG). Furthermore, we are proposing to 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 relative weights should increase monotonically with 
 713 

severity from the lowest to highest severity level. (We discuss nonmonotonicity in 

greater detail and our proposed methodology to adjust the proposed MS-LTC-DRG 

relative weights to account for nonmonotonically increasing relative weights in section 

VIII.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 
 714 

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 diagnosis and procedure codes considered for 

MS-DRG assignment was limited to nine and six, respectively. However, for claims 

submitted on the 5010 format beginning January 1, 2011, we increased the capacity to 

process diagnosis and procedure codes up to 25 diagnoses and 25 procedures. This 

includes one principal diagnosis and up to 24 secondary diagnoses for severity of illness 

determinations. We refer readers to section II.G.11.c. of the preamble of the FY 2011 

IPPS/LTCH PPS final rule for a complete discussion of this change (75 FR 50127). 

 Under HIPAA transactions and code sets regulations at 45 CFR Parts 160 and 

162, covered entities must comply with the adopted transaction standards and operating 

rules specified in Subparts I through S of Part 162. Among other requirements, by 

January 1, 2012, covered entities were required to use the ASC X12 Standards for 

Electronic Data Interchange Technical Report Type 3 -- Health Care Claim: Institutional 

(837), May 2006, ASC X12N/005010X223, and Type 1 Errata to Health Care Claim: 

Institutional (837) ASC X12 Standards for Electronic Data Interchange Technical Report 
 715 

Type 3, October 2007, ASC X12N/005010X233A1 for the health care claims or 

equivalent encounter information transaction (45 CFR 162.1102). 

 HIPAA requires covered entities to use the applicable medical data code set 

requirements when conducting HIPAA transactions (45 CFR 162.1000). Currently, upon 

the discharge of the patient, the LTCH must assign appropriate diagnosis and procedure 

codes from the most current version of the Internal Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD-9-CM). 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.) 

 On October 1, 2014, covered entities must begin using the ICD-10-CM and ICD10-PCS coding systems (45 CFR 162.1102(c)). We have been discussing the conversion 

to the ICD-10-CM and the ICD-10-PCS coding systems for many years. In prior rules 

published in the Federal Register (for example, section II.G.10. of the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50122 through 50128)), we discussed the 

implementation date for the conversion to the ICD-10-CM and ICD-10-PCS coding 

systems. We refer readers to section II.G.11. of this preamble for additional information 

on the implementation of the ICD-10-CM and ICD-10-PCS systems. 
 716 

 To create the MS-DRGs (and by extension, the MS-LTC-DRGs), base DRGs 

were subdivided according to the presence of specific secondary diagnoses designated as 

complications or comorbidities (CCs) into one, two, or three levels of severity, depending 

on the impact of the CCs on resources used for those cases. Specifically, there are sets of 

MS–DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC 

or a major complication or comorbidity (MCC). We refer readers to section II.D. of the 

FY 2008 IPPS final rule with comment period for a detailed discussion about the creation 

of MS-DRGs based on severity of illness levels (72 FR 47141 through 47175). 

 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 hospital-specific adjustments. Under the LTCH PPS, we 

provide an opportunity for LTCHs to review the MS-LTC-DRG assignments made by the 
 717 

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 relative weights and to 

classify current cases for purposes of determining payment. The records for all Medicare 

hospital inpatient discharges are maintained in the MedPAR file. The data in this file are 

used to evaluate possible MS-DRG and MS-LTC-DRG classification changes and to 

recalibrate the MS-DRG and MS-LTC-DRG relative weights during our annual update 

under both the IPPS (§ 412.60(e)) and the LTCH PPS (§ 412.517), respectively. 

b. Proposed Changes to the MS-LTC-DRGs for FY 2014 

 As specified by our regulations at § 412.517(a), which require that the 

MS-LTC-DRG classifications and relative weights be updated annually, and consistent 

with our historical practice of using the same patient classification system under the 

LTCH PPS as is used under the IPPS, we are proposing to update the MS-LTC-DRG 

classifications effective October 1, 2013, through September 30, 2014 (FY 2014) 

consistent with the proposed changes to specific MS-DRG classifications presented in 

section II.G. of this preamble (that is, proposed GROUPER Version 31.0). Therefore, the 

proposed MS-LTC-DRGs for FY 2014 presented in this proposed rule are the same as the 

proposed MS-DRGs that are being used under the IPPS for FY 2014. In addition, 

because the proposed MS-LTC-DRGs for FY 2014 are the same as the proposed 

MS-DRGs for FY 2014, the other proposed changes that affect MS-DRG (and by 

extension MS-LTC-DRG) assignments under proposed Version 31.0 of the GROUPER 
 718 

discussed in section II.G. of the preamble of this proposed rule, including the proposed 

changes to the MCE software and the ICD-9-CM coding system, are also applicable 

under the LTCH PPS for FY 2014. 

3. Development of the Proposed FY 2014 MS-LTC-DRG Relative Weights 

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

 One of the primary goals for the implementation of the LTCH PPS is to pay each 

LTCH an appropriate amount for the efficient delivery of medical care to Medicare 

patients. The system must be able to account adequately for each LTCH’s case-mix in 

order to ensure both fair distribution of Medicare payments and access to adequate care 

for those Medicare patients whose care is more costly (67 FR 55984). To accomplish 

these goals, we have annually adjusted the LTCH PPS standard Federal prospective 

payment system rate by the applicable relative weight in determining payment to LTCHs 

for each case. 

 The basic methodology used to develop the proposed MS-LTC-DRG relative 

weights generally continues to be consistent with the general methodology established 

when the LTCH PPS was implemented in the August 30, 2002 LTCH PPS final rule 

(67 FR 55989 through 55991), with the exception of some modifications of our historical 

procedures for assigning relative weights in cases of zero volume and/or 

nonmonotonicity resulting from the adoption of the MS-LTC-DRGs. (For details on the 

modifications to our historical procedures for assigning proposed relative weights in 

cases of zero volume and/or nonmonotonicity, we refer readers to the FY 2008 IPPS final 

rule with comment period (72 FR 47289 through 47295) and the FY 2009 IPPS final rule 
 719 

(73 FR 48542 through 48550).) Under the LTCH PPS, relative weights for each 

MS-LTC-DRG are a primary element used to account for the variations in cost per 

discharge and resource utilization among the payment groups (§ 412.515). To ensure that 

Medicare patients classified to each MS-LTC-DRG have access to an appropriate level of 

services and to encourage efficiency, we calculate a relative weight for each 

MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case 

in that MS-LTC-DRG. For example, cases in a MS-LTC-DRG with a relative weight 

of 2 will, on average, cost twice as much to treat as cases in a MS-LTC-DRG with a 

relative weight of 1. 

b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2014 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53462 through 53467), we 

presented our policies for the development of the MS-LTC-DRG relative weights for 

FY 2013. The basic methodology we used to develop the FY 2013 MS-LTC-DRG 

relative weights was the same as the methodology we used to develop the FY 2012 

MS-LTC-DRG relative weights in the FY 2012 IPPS/LTCH PPS final rule and was 

consistent with the general methodology established when the LTCH PPS was 

implemented in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). 

We are proposing to continue to apply our established methodology for FY 2014. Our 

development of the proposed FY 2014 MS-LTC-DRG relative weights include 

application of established policies related to the data, the hospital-specific relative value 

(HSRV) methodology, the treatment of severity levels in the MS-LTC-DRGs, lowvolume and no-volume MS-LTC-DRGs, adjustment for nonmonotonicity, and the steps 
 720 

for calculating the MS-LTC-DRG relative weights with a budget neutrality factor. Below 

we present the methodology that we are proposing to continue to use to determine the 

MS-LTC-DRG relative weights for FY 2014, which is consistent with the methodology 

presented in the FY 2013 IPPS/LTCH PPS final rule. 

 Beginning with the FY 2008 update, we established a budget neutrality 

requirement for the annual update to the MS-LTC-DRG classifications and relative 

weights at § 412.517(b) (in conjunction with § 412.503), such that estimated aggregate 

LTCH PPS payments would be unaffected, that is, would be neither greater than nor less 

than the estimated aggregate LTCH PPS payments that would have been made without 

the classification and relative weight changes (72 FR 26882 through 26884). Consistent 

with § 412.517(b), we are proposing to continue to apply our established two-step budget 

neutrality methodology, which is based on the current year MS-LTC-DRG classifications 

and relative weights. We are proposing to continue to apply our established two-step 

budget neutrality methodology such that the annual update to the MS-LTC-DRG 

classifications and relative weights for FY 2014 are based on the FY 2013 

MS-LTC-DRG classifications and relative weights established in Table 11 listed in 

section VI. of the Addendum to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53716 

through 53717). (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).) 
 721 

c. Data 

 For this proposed rule, to calculate the proposed MS-LTC-DRG relative weights 

for FY 2014, we are proposing to obtain total charges from FY 2012 Medicare LTCH bill 

data from the December 2012 update of the FY 2012 MedPAR file, which are the best 

available data at this time, and to use the proposed Version 31.0 of the GROUPER to 

classify LTCH cases. Consistent with our existing methodology, we also are proposing 

that if more recent data become available, we would use those data and the finalized 

Version 31.0 of the GROUPER in establishing the FY 2014 MS-LTC-DRG relative 

weights in the final rule. Consistent with our historical methodology, we are proposing to 

exclude 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 

Pub. L. 90-248 or section 222(a) of Pub. L. 92-603. Furthermore, consistent with our 

historical practice, we are proposing to exclude Medicare Advantage (Part C) claims, 

which are now included in the MedPAR files, in the calculations for the proposed relative 

weights under the LTCH PPS that are used to determine payments for Medicare 

fee-for-service claims. Specifically, we are proposing not to use any claims from the 

MedPAR files that have a GHO Paid indicator value of “1,” which effectively removes 

Medicare Advantage claims from the proposed relative weight calculations 

(73 FR 48532). Accordingly, in the development of the proposed FY 2014 

MS-LTC-DRG relative weights in this proposed rule, we excluded the data of 

14 all-inclusive rate providers and the 2 LTCHs that are paid in accordance with 
 722 

demonstration projects that had claims in the December 2012 update of the FY 2012 

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 ventilator-dependent 

patients and treatment of infections and wound care. Some case types (MS-DRGs) may 

be treated, to a large extent, in hospitals that have, from a perspective of charges, 

relatively high (or low) charges. This nonrandom distribution of cases with relatively 

high (or low) charges in specific MS-LTC-DRGs has the potential to inappropriately 

distort the measure of average charges. To account for the fact that cases may not be 

randomly distributed across LTCHs, consistent with the methodology we have used since 

the implementation of the LTCH PPS, we are proposing to continue to use a 

hospital-specific relative value (HSRV) methodology to calculate the proposed 

MS-LTC-DRG relative weights for FY 2014. We believe this method removes this 

hospital-specific source of bias in measuring LTCH average charges (67 FR 55985). 

Specifically, under this methodology, we reduce 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 
 723 

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, under this proposal, we would 

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 VIII.B.3.g. (Step 3) of 

this preamble) 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 the resulting ratio by the LTCH's case-mix index accounts for the fact 

that the same relative charges are given greater weight at a LTCH with higher average 

costs than they would at a LTCH with low average costs, which is needed to adjust each 

LTCH's relative charge value to reflect its case-mix relative to the average case-mix for 

all LTCHs. 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 
 724 

relative resource use than a $10,000 charge for a case at a LTCH with the same case-mix, 

but an average adjusted charge of $35,000. We believe that the adjusted charge of an 

individual case more accurately reflects actual resource use for an individual LTCH 

because the variation in charges due to systematic differences in the markup of charges 

among LTCHs is taken into account. 

e. Proposed Treatment of Severity Levels in Developing the MS-LTC-DRG Relative 

Weights 

 For purposes of determining the proposed MS-LTC-DRG relative weights, under 

our historical methodology, there are three different categories of MS-DRGs based on 

volume of cases within specific MS-LTC-DRGs. MS-LTC-DRGs with at least 25 cases 

are each assigned a unique relative weight; low-volume MS-LTC-DRGs (that is, 

MS-LTC-DRGs that contain between 1 and 24 cases based on a given year’s claims data) 

are grouped into quintiles (as described below) and assigned the relative weight of the 

quintile. No-volume MS-LTC-DRGs (that is, no cases in the given year’s claims data are 

assigned to those MS-LTC-DRGs) are cross-walked to other MS-LTC-DRGs based on 

the clinical similarities and assigned the relative weight of the cross-walked 

MS-LTC-DRG (as described in greater detail below). We are proposing to continue to 

utilize these same three categories of MS-LTC-DRGs for purposes of the treatment of 

severity levels in determining the proposed MS-LTC-DRG relative weights for FY 2014. 

(We provide in-depth discussions of our policy regarding weight-setting for proposed 

low-volume MS-LTC-DRGs in section VIII.B.3.f. of the preamble of this proposed rule 
 725 

and for proposed no-volume MS-LTC-DRGs, under Step 5 in section VIII.B.3.g. of this 

preamble.) 

 Furthermore, in determining the proposed FY 2014 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 VIII.B.3.g. of 

this preamble. We refer readers to the discussion in the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule for our rationale for including an adjustment for nonmonotonicity (74 FR 

43953 through 43954). 

f. Proposed Low-Volume MS-LTC-DRGs 

 In order to account for 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 proposed FY 2014 MS-LTC-DRG relative weights, we are proposing to 

continue to employ the quintile methodology for proposed low-volume MS-LTC-DRGs, 

such that we group the proposed “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 2014 MS-LTC-DRG relative weights in this proposed 

rule, in cases where the initial assignment of a proposed low-volume 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 proposed low-volume MS-LTC-DRGs to preserve 
 726 

monotonicity, as discussed in detail below in section VIII.B.3.g. (Step 6) of this 

preamble. 

 In this proposed rule, using LTCH cases from the December 2012 update of the 

FY 2012 MedPAR file (which is currently the best available data), we identified 280 

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 

56 proposed MS-LTC-DRGs (280/5 = 56 with no proposed MS-LTC-DRGs as the 

remainder). We are proposing to assign a proposed low-volume MS-LTC-DRG to a 

specific low-volume quintile by sorting the proposed low-volume MS-LTC-DRGs in 

ascending order by average charge in accordance with our established methodology. 

Based on the data available for this proposed rule, the number of proposed MS-LTCDRGs with less than 25 cases was evenly divisible by 5. However, had the number of 

proposed MS-LTC-DRGs with less than 25 cases not been evenly divisible by 5, 

consistent with our historical approach we would have used the average charge of the 

low-volume quintile to determine which of the low-volume quintiles contain the 

additional low-volume MS-LTC-DRGs. (For an example of the application of this 

approach, we refer readers to the discussion of the treatment of the low-volume 

MS-LTC-DRGs for FY 2013 (77 FR 53463).) Specifically for this proposed rule, after 

organizing the proposed MS-LTC-DRGs by ascending order by average charge, we are 

proposing to assign the first fifth (1st through 56th) of proposed low-volume 

MS-LTC-DRGs (with the lowest average charge) into Quintile 1. The proposed MSLTC-DRGs with the highest average charge cases were assigned into Quintile 5. Table 
 727 

13A, which is listed in section VI. of the Addendum to this proposed rule and is available 

via the Internet, lists the composition of the proposed low-volume quintiles for proposed 

MS-LTC-DRGs for FY 2014. 

 Accordingly, in order to determine the proposed FY 2014 relative weights for the 

proposed MS-LTC-DRGs with low volume, we are proposing to use the five low-volume 

quintiles described above. We determined a proposed relative weight and (geometric) 

average length of stay for each of the five low-volume quintiles using the methodology 

that we applied to the proposed MS-LTC-DRGs (25 or more cases), as described below 

in section VII.B.3.g. of this preamble. We are proposing to assign the same proposed 

relative weight and average length of stay to each of the proposed low-volume 

MS-LTC-DRGs that make up an individual low-volume quintile. We note that, as this 

system is dynamic, it is possible that the number and specific type of MS-LTC-DRGs 

with a low volume of LTCH cases will vary in the future. 

 Furthermore, 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 2014 MS-LTC-DRG Relative Weights 

 In this proposed rule, we are proposing to determine the FY 2014 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 
 728 

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, to determine the proposed FY 2014 

MS-LTC-DRG relative weights, we are proposing to group LTCH cases to the 

appropriate proposed MS-LTC-DRG, while taking into account the low-volume quintile 

(as described above). After grouping the cases to the appropriate MS-LTC-DRG (or 

low-volume quintile), we calculate the proposed FY 2014 relative weights by first 

removing statistical outliers and cases with a length of stay of 7 days or less (Steps 1 and 

2 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 7 days or less (Step 2 

below), the SSO adjusted discharges and corresponding charges were then used to 

calculate “relative adjusted weights” for each proposed MS-LTC-DRG (or low-volume 

quintile) using the HSRV method. 

 Below we discuss in detail the steps for calculating the proposed FY 2014 

MS-LTC-DRG relative weights. We note that, as we discussed in section VIII.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 

December 2012 update of the FY 2012 MedPAR file. 

 Step 1--Remove statistical outliers. 

 The first step in the calculation of the proposed FY 2014 MS-LTC-DRG relative 

weights is to remove statistical outlier cases. Consistent with our historical relative 
 729 

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 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 2014 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 2014 MS-LTC-DRG relative weights, we 
 730 

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 2014 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 are proposing to make this adjustment by counting an SSO case as a fraction 

of a discharge based on the ratio of the length of stay of the case to the average length of 

stay for the MS-LTC-DRG for non-SSO cases. This has the effect of proportionately 

reducing the impact of the lower charges for the SSO cases in calculating the average 

charge for the MS-LTC-DRG. This process produces the same result as if the actual 

charges per discharge of an SSO case were adjusted to what they would have been had 

the patient's length of stay been equal to the average length of stay of the MS-LTC-DRG. 

 Counting SSO cases as full discharges with no adjustment in determining the 

proposed FY 2014 MS-LTC-DRG relative weights would lower the proposed FY 2014 

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 non-SSO cases and an 
 731 

“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 2014 MS-LTC-DRG relative weights on an 

iterative basis. 

 Consistent with our historical relative weight methodology, we are proposing to 

calculate the proposed FY 2014 MS-LTC-DRG relative weights using the HSRV 

methodology, which is an iterative process. First, for each LTCH case, we are proposing 

to 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, we are proposing to calculate the proposed 

FY 2014 relative weight 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 
 732 

LTCH’s MS-LTC-DRG relative weights by its total number of cases. The LTCHs’ 

hospital-specific relative charge values (from above) are then multiplied by the hospitalspecific case-mix indexes. The 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 is continued until there is convergence between the 

weights produced at adjacent steps, for example, when the maximum difference was less 

than 0.0001. 

 Step 5--Determine a proposed FY 2014 relative weight for MS-LTC-DRGs with 

no LTCH cases. 

 As we stated above, we are proposing to determine the proposed FY 2014 relative 

weight for each proposed MS-LTC-DRG using total Medicare allowable total charges 

reported in the best available LTCH claims data (that is, the December 2012 update of the 

FY 2012 MedPAR file for this proposed rule). Using these data, we identified the 

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 2012 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 are 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 relative weight to each of the 
 733 

proposed no-volume MS-LTC-DRGs based on clinical similarity and relative costliness 

(with the exception of proposed “transplant” MS-LTC-DRGs and proposed “error” 

MS-LTC-DRGs, as discussed below). (For additional information on this step of the 

relative weight methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 

43960.) 

 In general, we are proposing to determine proposed FY 2014 relative weights for 

the proposed MS-LTC-DRGs with no LTCH cases in the December 2012 update of the 

FY 2012 MedPAR file used in this proposed rule (that is, proposed “no-volume” 

MS-LTC-DRGs) by cross-walking each proposed no-volume 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 proposed “no-volume” 

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 cross-walked (as described in 

greater detail below). 

 Of the 751 proposed MS-LTC-DRGs for FY 2014, we identified 236 proposed 

MS-LTC-DRGs for which there are no LTCH cases in the database (including the 

8 proposed “transplant” MS-LTC-DRGs and 2 proposed “error” MS-LTC-DRGs). As 

stated above, we are proposing to assign proposed relative weights for each of the 236 

proposed no-volume MS-LTC-DRGs (with the exception of the 8 proposed “transplant” 

MS-LTC-DRGs and the 2 proposed “error” MS-LTC-DRGs, which are discussed below) 

based on clinical similarity and relative costliness to one of the remaining 

515 (751 - 236= 515) proposed MS-LTC-DRGs for which we are able to determine 
 734 

proposed relative weights based on FY 2012 LTCH claims data using the steps described 

above. (For the remainder of this discussion, we refer to the proposed “cross-walked” 

MS-LTC-DRGs as the proposed MS-LTC-DRGs to which we crosswalk one of the 236 

proposed “no volume” MS-LTC-DRGs, with the exception of the 8 proposed “transplant” 

MS-LTC-DRGs and the 2 proposed “error” MS-LTC-DRGs, for purposes of determining 

a proposed relative weight.) Then, we are proposing to assign the proposed no-volume 

MS-LTC-DRG the proposed relative weight of the proposed cross-walked MS-LTCDRG. (As explained below in Step 6, when necessary, we made adjustments to account 

for nonmonotonicity.) 

 For this proposed rule, we are proposing to cross-walk the proposed no-volume 

MS-LTC-DRG to a proposed MS-LTC-DRG for which there are LTCH cases in the 

December 2012 update of the FY 2012 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 evaluated the relative costliness in determining the applicable proposed MS-LTCDRG to which a proposed no-volume MS-LTC-DRG is cross-walked in order to assign 

an appropriate proposed relative weight for the proposed no-volume MS-LTC-DRGs in 

FY 2014. (For more details on our process for evaluating relative costliness, we refer 

readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (73 FR 48543).) We believe 

in the rare event that there would be a few LTCH cases grouped to one of the proposed 

no-volume MS-LTC-DRGs in FY 2014, the proposed relative weights assigned based on 
 735 

the proposed cross-walked 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 are proposing to then assign the proposed relative weight of the proposed 

cross-walked MS-LTC-DRG as the proposed relative weight for the proposed no-volume 

MS-LTC-DRG such that both of these proposed MS-LTC-DRGs (that is, the proposed 

no-volume MS-LTC-DRG and the proposed cross-walked MS-LTC-DRG) have the same 

proposed relative weight for FY 2014. We note that if the proposed cross-walked 

MS-LTC-DRG had 25 cases or more, its proposed relative weight, which is calculated 

using the proposed methodology described in Steps 1 through 4 above, is assigned to the 

proposed no-volume MS-LTC-DRG as well. Similarly, if the proposed MS-LTC-DRG 

to which the proposed no-volume MS-LTC-DRG is cross-walked has 24 or less cases 

and, therefore, is designated to one of the proposed low-volume quintiles for purposes of 

determining the proposed relative weights, we assigned the proposed relative weight of 

the applicable proposed low-volume quintile to the proposed no-volume MS-LTC-DRG 

such that both of these proposed MS-LTC-DRGs (that is, the proposed no-volume MSLTC-DRG and the proposed cross-walked MS-LTC-DRG) have the same proposed 

relative weight for FY 2014. (As we noted above, in the infrequent case where 

nonmonotonicity involving a proposed no-volume MS-LTC-DRG results, additional 

adjustments as described in Step 6 were required in order to maintain monotonically 

increasing relative weights.) 
 736 

 For this proposed rule, a list of the proposed no-volume MS-LTC-DRGs and the 

proposed MS-LTC-DRGs to which each is cross-walked (that is, the proposed crosswalked MS-LTC-DRGs) for FY 2014 is shown in Table 13B, which is listed in section 

VI. of the Addendum to this proposed rule and is available via the Internet. 

 To illustrate this methodology for determining the proposed relative weights for 

the FY 2014 MS-LTC-DRGs with no LTCH cases, we are providing the following 

example, which refers to the proposed no-volume MS-LTC-DRGs crosswalk information 

for FY 2014 provided in Table 13B. 

 Example: There are no cases in the FY 2012 MedPAR file used for this proposed 

rule for proposed MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of Thrombolytic 

Agent with MCC). We determined that proposed MS-LTC-DRG 70 (Nonspecific 

Cerebrovascular Disorders with MCC) was similar clinically and based on resource use 

to proposed MS-LTC-DRG 61. Therefore, we assigned the same proposed relative 

weight of proposed MS-LTC-DRG 70 of 0.8222 for FY 2014 to proposed MS-LTC-DRG 

61 (obtained from Table 11, which is listed in section VI. of the Addendum to this 

proposed rule and is available via the Internet). 

 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 proposed no-volume MS-LTC-DRGs and to determine the proposed relative 

weights in this proposed rule. 
 737 

 Furthermore, for FY 2014, consistent with our historical relative weight 

methodology, we are proposing to establish the proposed MS-LTC-DRG relative weight 

of 0.0000 for the following proposed transplant MS-LTC-DRGs: Heart Transplant or 

Implant of Heart Assist System with MCC (MS-LTC-DRG 1); Heart Transplant or 

Implant of Heart Assist System without MCC (MS-LTC-DRG 2); Liver Transplant with 

MCC or Intestinal Transplant (MS-LTC-DRG 5); Liver Transplant without MCC (MSLTC-DRG 6); Lung Transplant (MS-LTC-DRG 7); Simultaneous Pancreas/Kidney 

Transplant (MS-LTC-DRG 8); Pancreas Transplant (MS-LTC-DRG 10); and Kidney 

Transplant (MS-LTC-DRG 652). This is because Medicare will only cover these 

procedures if they are performed at a hospital that has been certified for the specific 

procedures by Medicare and presently no LTCH has been so certified. At the present 

time, we include these eight proposed 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 proposed MS-LTC-DRGs 

would be administratively burdensome. (For additional information regarding our 

treatment of transplant MS-LTC-DRGs, we refer readers to the RY 2010 LTCH PPS final 

rule (74 FR 43964).) 

 Step 6--Adjust the proposed FY 2014 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 
 738 

(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 MS-DRG is subdivided into either 

two levels or the base MS-DRG is not subdivided. The two-level subdivisions could 

consist of the MS-DRG with CC/MCC and the MS-DRG without CC/MCC. 

Alternatively, the other type of two-level subdivision may consist of the MS-DRG with 

MCC and the MS-DRG without MCC. 

 In those base MS-LTC-DRGs that are split into either two or three severity levels, 

cases classified into the “without CC/MCC” MS-LTC-DRG are expected to have a lower 

resource use (and lower costs) than the “with CC/MCC” MS-LTC-DRG (in the case of a 

two-level split) or both the “with CC” and the “with MCC” MS-LTC-DRGs (in the case 

of a three-level split). That is, theoretically, cases that are more severe typically require 

greater expenditure of medical care resources and will result in higher average charges. 

Therefore, in the three severity levels, proposed relative weights should increase by 

severity, from lowest to highest. If the proposed relative weights decrease as severity 

increases (that is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a 

higher proposed relative weight than one with MCC, or the proposed 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 
 739 

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 2014 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 proposed MS-LTC-DRG for the purpose of computing a proposed relative 

weight when necessary to ensure that monotonicity is maintained. For a comprehensive 

description of our existing methodology to adjust for nonmonotonicity, we refer readers 

to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 43966). Any 

adjustments for nonmonotonicity that were made in determining the proposed FY 2014 

MS-LTC-DRG relative weights in this proposed rule by applying this proposed 

methodology are denoted in Table 11, which is listed in section VI. of the Addendum to 

this proposed rule and is available via the Internet. 

Step 7-- Calculate the proposed FY 2014 budget neutrality factor. 

 In accordance with the regulations at § 412.517(b) (in conjunction with 

§ 412.503), the annual update to the MS-LTC-DRG classifications and relative weights is 

done in a budget neutral manner such that estimated aggregate LTCH PPS payments 

would be unaffected, that is, would be neither greater than nor less than the estimated 

aggregate LTCH PPS payments that would have been made without the MS-LTC-DRG 

classification and relative weight changes. (For a detailed discussion on the 

establishment of the budget neutrality requirement for the annual update of the 
 740 

MS-LTC-DRG classifications and relative weights, we refer readers to the RY 2008 

LTCH PPS final rule (72 FR 26881 and 26882).) 

 The MS-LTC-DRG classifications and relative weights are updated annually 

based on the most recent available LTCH claims data to reflect changes in relative LTCH 

resource use (§ 412.517(a) in conjunction 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 MS-LTC-DRG classifications and relative weights for 

FY 2014 based on the most recent available LTCH data, and apply a budget neutrality 

adjustment in determining the proposed FY 2014 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. In this proposed rule, in the 

first step of our MS-LTC-DRG budget neutrality methodology, for FY 2014, we are 

proposing to calculate and apply a normalization factor to the recalibrated relative 

weights (the result of Steps 1 through 6 above) to ensure that estimated payments are not 

influenced by changes in the composition of case types or the changes to the 

classification system. That is, the normalization adjustment is intended to ensure that the 

recalibration of the proposed MS-LTC-DRG relative weights (that is, the process itself) 

neither increases nor decreases the average CMI. 
 741 

 To calculate the proposed normalization factor for FY 2014 (the first step of our 

budget neutrality methodology), we are proposing to use the following three steps: 

(1.a.) we use the most recent available LTCH claims data (FY 2012) and group them 

using the proposed FY 2014 GROUPER (Version 31.0) and the recalibrated proposed 

FY 2014 MS-LTC-DRG relative weights (determined in steps 1 through 6 of the Steps 

for Determining the Proposed FY 2014 MS-LTC-DRG Relative Weights above) to 

calculate the average CMI; (1.b.) we group the same LTCH claims data (FY 2012) using 

the FY 2013 GROUPER (Version 30.0) and FY 2013 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 2013 (determined in Step 1.b.) by the proposed average 

CMI for FY 2014 (determined in Step 1.a.). In determining the proposed MS-LTC-DRG 

relative weights for FY 2014, each recalibrated MS-LTC-DRG relative weight is 

multiplied by 1.11546 (determined in Step 1.c.) in the first step of the budget neutrality 

methodology, which produced proposed “normalized relative weights.” 

 In the second step of our proposed MS-LTC-DRG budget neutrality methodology, 

we are proposing to 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 2014 MS-LTC-DRG 

classifications and relative weights) are equal to estimated aggregate LTCH PPS 

payments before reclassification and recalibration (that is, the FY 2013 MS-LTC-DRG 

classifications and relative weights). Accordingly, consistent with our existing 

methodology, we are proposing to use FY 2012 discharge data to simulate payments and 
 742 

compare estimated aggregate LTCH PPS payments using the FY 2013 MS-LTC-DRGs 

and relative weights to estimate aggregate LTCH PPS payments using the proposed 

FY 2014 MS-LTC-DRGs and relative weights. Specifically, for this proposed rule, as 

discussed previously in section VIII.B.3.c. of this preamble, we are using LTCH claims 

data from the December 2012 update of the FY 2012 MedPAR file, as these are the best 

available data at this time. Furthermore, consistent with our historical policy of using the 

best available data, we also are proposing that if more recent data become available, we 

would use such data to determine the budget neutrality adjustment factor for FY 2014 in 

the final rule. 

 For this proposed rule, we are proposing to determine the proposed FY 2014 

budget neutrality adjustment factor using the following three steps: (2.a.) we simulate 

estimated total LTCH PPS payments using the proposed normalized relative weights for 

FY 2014 and proposed GROUPER Version 31.0 (as described above); (2.b.) we simulate 

estimated total LTCH PPS payments using the FY 2013 GROUPER (Version 30.0) and 

the FY 2013 MS-LTC-DRG relative weights in Table 11 of the Addendum to the 

FY 2013 IPPS/LTCH PPS final rule available on the Internet (76 FR 53716); 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 2013 GROUPER (Version 30.0) and 

the FY 2013 MS-LTC-DRG relative weights (determined in Step 2.b.) by the estimated 

total LTCH PPS payments using the proposed FY 2014 GROUPER (Version 31.0) and 

the proposed normalized MS-LTC-DRG relative weights for FY 2014 (determined in 

Step 2.a.). In determining the proposed FY 2014 MS-LTC-DRG relative weights, each 
 743 

proposed normalized relative weight is multiplied by a proposed budget neutrality factor 

of 0.9953277 (determined in Step 2.c.) in the second step of the budget neutrality 

methodology to determine the proposed budget neutral FY 2014 relative weight for each 

MS-LTC-DRG. 

 Accordingly, in determining the proposed FY 2013 MS-LTC-DRG relative 

weights in this proposed rule, consistent with our existing methodology, we are proposing 

to apply a normalization factor of 1.11546 and a budget neutrality factor of 0.9953277 

(computed as described above). Table 11, which is listed in section VI. of the Addendum 

to this proposed rule and is available via the Internet, lists the proposed MS-LTC-DRGs 

and their respective proposed relative weights, geometric mean length of stay, five-sixths 

of the geometric mean length of stay (used to identify SSO cases under § 412.529(a)), 

and the proposed “IPPS Comparable Thresholds” (used in determining SSO payments 

under § 412.529(c)(3)), for FY 2014 (and reflect both the proposed normalization factor 

of 1.11546 and the proposed budget neutrality factor of 0.9953277).
 744 

C. Proposed LTCH PPS Payment Rates for FY 2014

1. Overview of Development of the LTCH Payment Rates 

 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 we are proposing to use to update the LTCH PPS standard Federal rate for FY 2014, 

that is, effective for LTCH discharges occurring on or after October 1, 2013 through 

September 30, 2014. 

 For further details on the development of the FY 2003 standard Federal rate when 

the LTCH PPS was initially implemented, we refer readers to the August 30, 2002 LTCH 

PPS final rule (67 FR 56027 through 56037). For subsequent updates to the LTCH PPS 

standard Federal rate as implemented under § 412.523(c)(3), we refer readers to the 

following final rules: RY 2004 LTCH PPS final rule (68 FR 34134 through 34140); 

RY 2005 LTCH PPS final rule (68 FR 25682 through 25684); RY 2006 LTCH PPS final 

rule (70 FR 24179 through 24180); RY 2007 LTCH PPS final rule (71 FR 27819 through 

27827); RY 2008 LTCH PPS final rule (72 FR 26870 through 27029); RY 2009 LTCH 

PPS final rule (73 FR 26800 through 26804); FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 44021 through 44030); FY 2011 IPPS/LTCH PPS final rule (75 FR 50443 

through 50444); FY 2012 IPPS/LTCH PPS final rule (76 FR 51769 through 51773); and 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53479 through 53481). 

 The proposed update to the LTCH PPS standard Federal rate for FY 2014 is 

presented in section V.A. of the Addendum to this proposed rule. The components of the 

proposed annual market basket update to the LTCH PPS standard Federal rate for 
 745 

FY 2014 are discussed below, including the reduction to the annual update for LTCHs 

that fail to submit quality reporting data for fiscal year FY 2014 as required by the statute 

(as discussed below in section VIII.C.2.c. of this preamble). Furthermore, as discussed 

below in section VIII.C.3. of this preamble, for FY 2014, in addition to the proposed 

update factor, under the second year of the 3-year phase-in under the current regulations 

at § 412.523(d)(3), we are proposing to make a one-time prospective adjustment to the 

standard Federal rate for FY 2014 so that the effect of any significant difference between 

the data used in the original computations of budget neutrality for FY 2003 and more 

recent data to determine budget neutrality for FY 2003 is not perpetuated in the 

prospective payment rates for future years . In addition, as discussed in section V.A. of 

the Addendum of this proposed rule, we are proposing to make an adjustment to the 

standard Federal rate to account for the estimated effect of the proposed changes to the 

area wage level adjustment for FY 2014 on estimated aggregate LTCH PPS payments, in 

accordance with § 412.523(d)(4). (We refer readers to the discussion of the proposed 

reduction to the annual update for LTCHs that fail to submit quality reporting data in 

section VIII.C.2.c. of this preamble, the proposed application of the one-time prospective 

adjustment under the second year of the 3-year phase-in in section VIII.C.3. of this 

preamble, and the proposed budget neutrality adjustment for changes in the area wage 

levels in section V.A. of the Addendum of this proposed rule.) 
 746 

2. Proposed FY 2014 LTCH PPS Annual Market Basket Update 

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. As discussed in 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53468 through 53476), we adopted the 

newly created FY 2009-based LTCH-specific market basket for use under the LTCH PPS 

beginning in FY 2013. For additional details on the historical development of the market 

basket used under the LTCH PPS, we refer readers to the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53467 through 53468) and this preamble. 

 Section 3401(c) of the Affordable Care Act provides for certain adjustments to 

any annual update to the standard Federal rate and refers to the timeframes associated 

with such adjustments as a “rate year” (which are discussed in more detail in section 

VIII.C.2.b. of this preamble.) We note that because the annual update to the LTCH PPS 

policies, rates, and factors now occurs on October 1, we adopted the term “fiscal year” 

(FY) rather than “rate year” (RY) under the LTCH PPS beginning October 1, 2010, to 

conform with the standard definition of the Federal fiscal year (October 1 through 

September 30) used by other PPSs, such as the IPPS (75 FR 50396 through 50397). 

Although the language of sections 3004(a) 3401(c), 10319, and 1105(b) of the Affordable 

Care Act refers to years 2010 and thereafter under the LTCH PPS as “rate year,” 

consistent with our change in the terminology used under the LTCH PPS from “rate year” 
 747 

to “fiscal year,” for purposes of clarity, when discussing the annual update for the LTCH 

PPS, including the provisions of the Affordable Care Act, we use “fiscal year” rather than 

“rate year” for 2011 and subsequent years. 

b. Revision of Certain Market Basket Updates as Required by the Affordable Care Act 

 Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of the Affordable 

Care Act, specifies that, for rate year 2010 and each subsequent rate year through 2019, 

any annual update to the standard Federal rate shall be reduced: 

● For rate year 2010 through 2019, by the “other adjustment” specified in 

sections 1886(m)(3)(A)(ii) and (m)(4) of the Act; and 

● For rate year 2012 and each subsequent year, by the productivity adjustment 

(which we refer to as “the multifactor productivity (MFP) adjustment”) described in 

section 1886(b)(3)(B)(xi)(II) of the Act. 

 Section 1886(m)(3)(B) of the Act provides that the application of paragraph (3) of 

section 1886(m) of the Act may result in the annual update being less than zero for a rate 

year, and may result in payment rates for a rate year being less than such payment rates 

for the preceding rate year. 

 Section 1886(b)(3)(B)(xi)(II) of the Act defines the MFP adjustment as equal to 

the 10-year moving average of changes in annual economy-wide, private nonfarm 

business multifactor productivity (as projected by the Secretary for the 10-year period 

ending with the applicable fiscal year, calendar year, cost reporting period, or other 

annual period). Under our methodology, the end of the 10-year moving average of 

changes in the MFP coincides with the end of the appropriate FY update period. In 
 748 

addition, the MFP adjustment that is applied in determining any annual update to the 

LTCH PPS standard Federal rate is the same adjustment that is required to be applied in 

determining the applicable percentage increase under the IPPS under section 

1886(b)(3)(B)(i) of the Act as they are both based on a fiscal year. The MFP adjustment 

is derived using a projection of MFP that is currently produced by IHS Global Insight, 

Inc. (For additional details on the development of the MFP adjustment and its 

application under the LTCH PPS, we refer readers to the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51691 through 51692 and 51770 through 51771).) 

 For FY 2014, we are proposing to continue to use our methodology for 

calculating and applying the proposed MFP adjustment to determine the annual update to 

the LTCH PPS standard Federal rate for FY 2014. (For details on the development of the 

MFP adjustment, including our finalized methodology for calculating and applying the 

MFP adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 

51689 through 51692).) 

c. Adjustment to the Annual Update to the LTCH PPS Standard Federal Rate under the 

Long-Term Care Hospital Quality Reporting (LTCHQR) Program 

1. Background 

 In accordance with section 1886(m)(5) of the Act, as added by section 3004(a) of 

the Affordable Care Act, the Secretary established the Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program. (As noted above, although the language of section 

3004(a) of the Affordable Care Act refers to years 2011 and thereafter under the LTCH 

PPS as “rate year,” consistent with our change in the terminology used under the LTCH 
 749 

PPS from “rate year” to “fiscal year,” for purposes of clarity, when discussing the annual 

update for the LTCH PPS, including the provisions of the Affordable Care Act, we use 

“fiscal year” rather than “rate year” for 2011 and subsequent years.) Under the LTCHQR 

Program, as required by section 1886(m)(5)(A)(i) of the Act, for FY 2014 and each 

subsequent year, in the case of a LTCH that does not submit quality reporting data to the 

Secretary in accordance with section 1886(m)(5)(C) of the Act with respect to such a 

year, any annual update to a standard Federal rate for discharges for the hospital during 

the year, and after application of section 1886(m)(3) of the Act, shall be reduced by 2.0 

percentage points. Section 1886(m)(5)(A)(ii) of the Act provides that the application of 

the 2.0 percentage points reduction may result in an annual update that is less than 0.0 for 

a year, and may result in LTCH PPS payment rates for a year being less than such LTCH 

PPS payment rates for the preceding year. Furthermore, section 1886(m)(5)(B) of the 

Act specifies that the 2.0 percentage points reduction is applied in a noncumulative 

manner, such that any reduction made under section 1886(m)(5)(A) of the Act shall apply 

only with respect to the year involved, and shall not be taken into account in computing 

the LTCH PPS payment amount for a subsequent year. 

 Section 1886(m)(5)(D)(iii) of the Act requires the Secretary to publish the 

selected measures for the LTCHQR Program that will be applicable with respect to the 

FY 2014 payment determination no later than October 1, 2012. Under section 

1886(m)(5)(D)(i) of the Act, the quality measures for the LTCHQR Program are 

measures selected by the Secretary that have been endorsed by an entity that holds a 

contract with the Secretary under section 1890(a) of the Act, unless section 
 750 

1886(m)(5)(D)(ii) of the Act applies. This contract is currently held by the National 

Quality Forum (NQF). Section 1886(m)(5)(D)(ii) of the Act provides that an exception 

may be made in the case of a specified area or medical topic determined appropriate by 

the Secretary for which a feasible and practical measure has not been endorsed by the 

entity that holds a contract with the Secretary under section 1890(a) of the Act. In such a 

case, section 1886(m)(5)(D)(ii) of the Act authorizes the Secretary to specify a 

measure(s) that is not so endorsed, as long as due consideration is given to measures that 

have been endorsed or adopted by a consensus organization identified by the Secretary. 

 The LTCHQR Program was implemented in section VII.C. of the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51743 through 51756). In that same final rule as 

discussed in section IX.C. of the preamble of this proposed rule, we adopted the 

following three quality measures for the FY 2014 payment determination: Urinary 

Catheter-Associated Urinary Tract Infection (CAUTI) rate per 1, 000 urinary catheter 

days, for Intensive Care Unit Patients (NQF #013); Central Line Catheter-Associated 

Blood Stream Infection (CLABSI) Rate for ICU and High-Risk Nursery Patients (NQF 

#0139); and Percent of Residents with Pressure Ulcers That are New or Worsened 

(Application of NQF #0678). For additional discussion and details of the history of the 

LTCHQR Program, including the statutory authority and further details on the three 

measures previously finalized for the FY 2014 payment determination, we refer readers 

to section IX.C. of the preamble of this proposed rule and to the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51743 through 51756). 
 751 

2. Proposed Reduction to the Annual Update to the LTCH PPS Standard Federal Rate 

under the LTCHQR Program 

 Consistent with section 1886(m)(5)(A)(i) of the Act, for FY 2014 and subsequent 

fiscal years, we are proposing that for LTCHs that do not submit quality reporting data 

under the LTCHQR Program with respect to such a fiscal year, any annual update to a 

standard Federal rate for discharges for the LTCH during the fiscal year and after 

application of the market basket update adjustments required by section 1886(m)(3) of 

the Act, would be further reduced by 2.0 percentage points. That is, in establishing an 

update to the LTCH PPS standard Federal rate for FY 2014 and subsequent fiscal years, 

the full LTCH PPS market basket increase estimate, subject to an adjustment based on 

changes in economy-wide productivity (“the MFP adjustment”) required under section 

1886(m)(3)(A)(i) of the Act and an additional reduction required by sections 

1886(m)(3)(A)(ii) and 1886(m)(4) of the Act, would be further reduced by 2.0 percentage 

points for LTCHs that fail to submit quality reporting data under the LTCHQR Program. 

Accordingly, in this proposed rule, we are proposing to implement the reduction in the 

annual update to the LTCH PPS standard Federal rate for failure to report quality data 

under the LTCHQR Program for FY 2014 and subsequent fiscal years under proposed 

§ 412.523(c)(4). Specifically, consistent with section 1886(m)(5)(A)(i) of the Act, under 

proposed § 412.523(c)(4)(i), we are proposing that for a LTCH that does not submit 

quality reporting data in the form and manner and at the time specified by the Secretary 

under the LTCHQR Program, the annual update to the standard Federal rate under 

§ 412.523(c)(3) would be further reduced by 2.0 percentage points. (Note, as discussed 
 752 

previously this section, the annual update to the standard Federal rate implemented under 

§ 412.523(c)(3) reflects the application of the adjustments to any annual update as 

required by sections 1886(m)(3) and (m)(4) of the Act.) In addition, under proposed 

§ 412.523(c)(4)(ii), consistent with section 1886(m)(5)(A)(ii) of the Act, we are 

proposing that any reduction of the annual update to the standard Federal rate under 

proposed § 412.523(c)(4)(i) would apply only to the fiscal year involved and would not 

be taken into account in computing the annual update to the standard Federal rate for a 

subsequent fiscal year. Lastly, consistent with section 1886(m)(5)(B) of the Act, under 

proposed § 412.523(c)(4)(iii), we are proposing that the application of any reduction of 

the annual update to the standard Federal rate under proposed § 412.523(c)(4)(i) may 

result in an annual update that would be less than 0.0 percent for a fiscal year, and may 

result in payment rates for a fiscal year that would be less than such payment rates for the 

preceding rate year. 

 We also discuss this proposed application of the 2.0 percentage point reduction 

under proposed § 412.523(c)(4)(i) in our discussion of the proposed annual market basket 

update to the LTCH PPS standard Federal rate for FY 2014 below in section VIII.C.2.e. 

of this preamble. 

d. Proposed Market Basket under the LTCH PPS for FY 2014 

 Under the authority of section 123 of the BBRA as amended by section 307(b) of 

the BIPA, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53468), we adopted a newly 

created FY 2009-based LTCH-specific market basket for use under the LTCH PPS 

beginning in FY 2013. The FY 2009-based LTCH-specific market basket is based solely 
 753 

on the Medicare cost report data submitted by LTCHs and, therefore, specifically reflects 

the cost structures of only LTCHs. For additional details on the development of the 

FY 2009-based LTCH-specific market basket, we refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53467 through 53476). 

 For FY 2014, we are proposing to continue to use the FY 2009-based LTCHspecific market basket to update the LTCH PPS for FY 2014. We continue to believe 

that the FY 2009-based LTCH-specific market basket appropriately reflects the cost 

structure of LTCHs for the reasons discussed when we adopted the FY 2009-based 

LTCH-specific market basket for use under the LTCH PPS in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53467 through 53476). 

e. Proposed Annual Market Basket Update for LTCHs for FY 2014 

 Consistent with our historical practice, we are proposing to estimate the market 

basket update and the MFP adjustment based on IGI’s forecast using the most recent 

available data. Based on IGI’s first quarter 2013 forecast, the proposed FY 2014 full 

market basket estimate for the LTCH PPS using the FY 2009-based LTCH-specific 

market basket is 2.5 percent. Using our established methodology for determining the 

MFP adjustment, the current estimate of the MFP adjustment for FY 2014 based on IGI’s 

first quarter 2013 forecast is 0.4 percent (for additional details, we refer readers to section 

V.A.1. of this preamble). Consistent with our historical practice of using the best 

available data, we are proposing that if more recent data become available to determine 

the market basket estimate or the MFP adjustment, we would use such data for the final 

rule, if appropriate. 
 754 

 For FY 2014, section 1886(m)(3)(A)(i) of the Act requires that any annual update 

to the standard Federal rate be reduced by the productivity adjustment (“the MFP 

adjustment”) described in section 1886(b)(3)(B)(xi)(II) of the Act. Consistent with the 

statute, we are proposing to reduce the full FY 2014 market basket update by the 

FY 2014 MFP adjustment. To determine the market basket update for LTCHs for 

FY 2014, as reduced by the proposed MFP adjustment, consistent with our established 

methodology, we are proposing to subtract the FY 2014 MFP adjustment from the 

FY 2014 market basket update. Furthermore, sections 1886(m)(3)(A)(ii) and 

1886(m)(4)(D) of the Act requires that any annual update to the standard Federal rate for 

FY 2014 be reduced by the “other adjustment” described in paragraph (4), which is 

0.3 percentage point for FY 2014. Therefore, following application of the productivity 

adjustment, we are proposing to reduce the proposed adjusted market basket update (that 

is, the full market basket increase less the MFP adjustment) by the “other adjustment” 

specified by sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the Act. (For additional 

details on our established methodology for adjusting the market basket increase by the 

MFP and the “other adjustment” required by the statute, we refer readers to the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51771).) 

 As discussed previously in section VIII.C.2.c. of this preamble, for FY 2014, 

section 1886(m)(5) of the Act requires that for LTCHs that do not submit quality 

reporting data under the LTCHQR Program, any annual update to a standard Federal rate, 

after application of the adjustments required by section 1886(m)(3) of the Act, will be 

further reduced by 2.0 percentage points. Therefore, the proposed update to the LTCH 
 755 

PPS standard Federal rate for FY 2014 for LTCHs that fail to submit quality reporting 

data under the LTCHQR Program, the full LTCH PPS market basket increase estimate, 

subject to an adjustment based on changes in economy-wide productivity (“the MFP 

adjustment”) as required under section 1886(m)(3)(A)(i) of the Act and an additional 

reduction required by sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the Act, will also be 

further reduced by 2.0 percentage points. 

 In this proposed rule, in accordance with the statute we are proposing to reduce 

the proposed FY 2014 full market basket estimate of 2.5 percent (based on the first 

quarter 2013 forecast of the FY 2009-based LTCH-specific market basket) by the 

proposed FY 2014 MFP adjustment (that is, the 10-year moving average of MFP for the 

period ending FY 2014, as described in section V.A.1. of the preamble of this proposed 

rule) of 0.4 percentage point (based on IGI’s first quarter 2013 forecast). Following 

application of the proposed productivity adjustment, the proposed adjusted market basket 

update of 2.1 percent (2.5 percent minus 0.4 percentage point) is then reduced by 

0.3 percentage point, as required by sections 1886(m)(3)(A)(ii) and 1886(m)(4)(D) of the 

Act. Therefore, in this proposed rule, under the authority of section 123 of the BBRA as 

amended by section 307(b) of the BIPA, we are proposing to establish an annual market 

basket update under the LTCH PPS for FY 2014 of 1.8 percent (that is, the most recent 

estimate of the LTCH PPS market basket update at this time of 2.5 percent less the MFP 

adjustment of 0.4 percentage point less the 0.3 percentage point required under section 

1886(m)(4)(D) of the Act), provided the LTCH submits quality reporting data in 

accordance with section 1886(m)(5) of the Act (as discussed above in section VIII.C.2.c. 
 756 

of this preamble). Accordingly, we are proposing to revise § 412.523(c)(3) by adding a 

new paragraph (x), which specifies that the standard Federal rate for FY 2014 is the 

standard Federal rate for the previous LTCH PPS year updated by 1.8 percent, and as 

further adjusted, as appropriate, as described in § 412.523(d). For LTCHs that fail to 

submit quality reporting data under the LTCHQR Program, under proposed 

§ 412.523(c)(3)(x) in conjunction with proposed § 412.523(c)(4), we are proposing to 

further reduce the annual update to the LTCH PPS standard Federal rate by 2.0 

percentage points in accordance with section 1886(m)(5) of the Act (as discussed 

previously in section VIII.C.2.c. of this preamble). Accordingly, we are proposing to 

establish an annual update to the LTCH PPS standard Federal rate of -0.2 percent (that is, 

1.8 percent minus 2.0 percentage points) for FY 2014 for LTCHs that fail to submit 

quality reporting data under the LTCHQR Program. As stated above, consistent with our 

historical practice of using the most recent available data, we are proposing that, if more 

recent data become available when we develop the final rule, we would use such data, if 

appropriate, in determining the final market basket update under the LTCH PPS for 

FY 2014. (We note that we also are proposing to adjust the FY 2014 standard Federal 

rate by the proposed application of the one-time prospective adjustment under the second 

year of the 3-year phase-in under § 412.523(d)(3) (discussed below in section VIII.C.3. 

of this preamble) and by a proposed area wage level budget neutrality factor in 

accordance with § 412.523(d)(4) (as discussed in section V.B.5. of the Addendum of this 

proposed rule).) 
 757 

3. Proposed Adjustment for the Second Year of the Phase-In of the One-Time 

Prospective Adjustment to the Standard Federal Rate under § 412.523(d)(3) 

 We set forth regulations implementing the LTCH PPS, based upon the broad 

authority granted to the Secretary, under section 123 of the BBRA (as amended by 

section 307(b) of the BIPA). Section 123(a)(1) of the BBRA required that the system 

“maintain budget neutrality” in the August 30, 2002 LTCH PPS final rule (67 FR 55954). 

The statutory budget neutrality requirement means that estimated aggregate payments 

under the LTCH PPS for FY 2003 would be equal to the estimated aggregate payments 

that would have been made if the LTCH PPS were not implemented for FY 2003. The 

methodology for determining the LTCH PPS standard Federal rate for FY 2003 that 

would “maintain budget neutrality” is described in considerable detail in the August 30, 

2002 final rule (67 FR 56027 through 56037). Our methodology for estimating payments 

for the purposes of budget neutrality calculations used the best available data, and 

necessarily reflected several assumptions (for example, costs, inflation factors, and 

intensity of services provided) in estimating aggregate payments that would have been 

made if the LTCH PPS had not been implemented (without accounting for certain 

statutory provisions that affect the level of payments to LTCHs in years prior to the 

implementation of the LTCH PPS, as required by the statute). 

 In the August 30, 2002 final rule, we also stated our intentions to monitor LTCH 

PPS payment data to evaluate whether later data varied significantly from the data 

available at the time of the original budget neutrality calculations (for example, data 

related to inflation factors, intensity of services provided, or behavioral response to the 
 758 

implementation of the LTCH PPS). To the extent the later data significantly differed 

from the data employed in the original calculations, the aggregate amount of payments 

during FY 2003 based on later data may be higher or lower than the estimates upon 

which the budget neutrality calculations were based. Therefore, in that same final rule, 

under the broad authority conferred upon the Secretary in developing the LTCH PPS, 

including the authority for establishing appropriate adjustments, under section 123(a)(1) 

of the BBRA, as amended by section 307(b) of the BIPA, we provided in § 412.523(d)(3) 

of the regulations for the possibility of making a one-time prospective adjustment to the 

LTCH PPS rates, so that the effect of any significant difference between actual payments 

and estimated payments for the first year of the LTCH PPS would not be perpetuated in 

the LTCH PPS rates for future years. We refer readers to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53487 through 53488) for a complete discussion of the history of the 

development of the one-time prospective adjustment to the LTCH PPS standard Federal 

rate at § 412.523(d)(3). 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53495), we finalized our policy 

to make a one-time prospective adjustment to the standard Federal rate so that it will be 

permanently reduced by approximately 3.75 percent to account for the estimated 

difference between projected aggregate FY 2003 LTCH PPS payments and the projected 

aggregate payments that would have been made in FY 2003 under the TEFRA payment 

system if the LTCH PPS had not been implemented. Specifically, using the methodology 

we adopted in that same final rule, we determined that permanently applying a factor of 

0.9625 (that is, a permanent reduction of approximately 3.75 percent) to the standard 
 759 

Federal rate is necessary to ensure estimated total FY 2003 LTCH PPS payments equal 

estimated total FY 2003 TEFRA payments consistent with our stated policy goal of the 

one-time prospective adjustment under § 412.523(d)(3) (that is, to ensure that the 

difference between estimated total FY 2003 LTCH PPS payments and estimated total 

FY 2003 TEFRA payments is not perpetuated in the LTCH PPS payment rates in future 

years). (We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53487 

through 53502) for a complete discussion of the evaluation approach, methodology, and 

determination of the one-time prospective adjustment to the LTCH PPS standard Federal 

rate at § 412.523(d)(3).) 

 Given the magnitude of this adjustment, in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53501 through 53502), under § 412.523(d)(3), we established a policy to 

phase-in the permanent adjustment of 0.9625 to the standard Federal rate over a 3-year 

period. To achieve a permanent adjustment of 0.9625, under the phase-in of this 

adjustment, in that same final rule, we explained that we will apply a factor of 0.98734 to 

the standard Federal rate in each year of the 3-year phase-in, that is, in FY 2013 (which 

does not apply to payments for discharges occurring on or after October 1, 2012, and on 

or before December 28, 2012, consistent with current law), FY 2014, and FY 2015. By 

applying a permanent factor of 0.98734 to the standard Federal rate in each year for 

FYs 2013, 2014, and 2015, we will completely account for the entire adjustment by 

having applied a cumulative factor of 0.9625 (calculated as 0.98734 × 0.98734 × 0.98734 

= 0.9625) to the standard Federal rate. Accordingly, in accordance with the existing 

regulations at § 412.523(d)(3), we are proposing to apply a permanent factor of 0.98734 
 760 

for FY 2014 to the standard Federal rate under the second year of the 3-year phase-in of 

the one-time prospective adjustment. (The proposed LTCH PPS standard Federal rate for 

FY 2014 is presented in section V.A. of the Addendum to this proposed rule.) 

D. Expiration of Certain Payment Rules for LTCH Services - The 25-Percent Threshold 

Payment Adjustment

 Section 114(c) of the MMSEA, as amended by section 4302(a) of the ARRA and 

sections 3106(c) and 10312(a) of the Affordable Care Act provided for a 5-year 

moratorium on the full application of the 25-percent payment adjustment threshold policy 

that expired for some LTCHs and LTCH satellites for cost reporting periods beginning on 

or after October 1, 2012 (“October” LTCHs) and for other LTCHs and LTCH satellites 

for cost reporting periods beginning on or after July 1, 2012 (“July” LTCHs). In the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53483 through 53484) as amended by the 

FY 2013 IPPS/LTCH PPS correcting amendment (77 FR 63751 through 63753), we 

provided for extensions to the expiring statutory moratoria for both “October” and “July” 

LTCHs and LTCH satellites. 

 Specifically, we established a 1-year extension (that is, for cost reporting periods 

beginning on or after October 1, 2012, and before October 1, 2013) on the full application 

of the 25-percent threshold payment adjustment policy for “October” LTCHs, and for 

those “July” LTCHs that would have been affected by the “gap” between the expiration 

of the statutory moratorium (for cost reporting periods beginning on or after 

July 1, 2012) and our prospective regulatory relief (for cost reporting periods beginning 

on or after October 1, 2012) we also provided for an additional moratorium based on 
 761 

LTCH discharges occurring on or after October 1, 2012 and ending at the start of their 

next cost reporting period. For those “July” LTCHs with cost reporting periods 

beginning on or after October 1, 2012, the regulatory extension of the statutory 

moratorium, described above, effective for the hospital’s first cost reporting period 

beginning on or after October 1, 2012, resulted in seamless coverage for that group. But 

for those “July” LTCHs with cost reporting periods beginning on or after July 1, 2012, 

and before October 1, 2012, that would have otherwise been subject to the “gap” between 

the expiration of the statutory moratorium and the effective date of the regulatory 

moratoria we established a second regulatory moratorium effective with discharges 

occurring beginning October 1, 2012, through the end of the hospital cost reporting 

period (that is, the end of the cost reporting period that began on or after July 1, 2012, 

and before October 1, 2012). For more details about these moratoriums, we refer readers 

to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53483 through 53484). 

 Under current law, the regulatory moratorium on the full application of the 

25-percent threshold payment adjustment policy will expire for all LTCHs (both 

“October” and “July” LTCHs) for cost reporting periods beginning on or after 

October 1, 2013. As discussed in greater detail below, we do not anticipate further 

extending the regulatory moratorium of the 25-percent threshold payment adjustment 

policy. Therefore, LTCHs are encouraged to familiarize themselves with the prior 

rulemakings that established the adjustments for the various types of LTCHs and LTCH 

satellites. (We refer readers to the FY 2005 IPPS final rule (69 FR 49205 through 49214) 

and the RY 2007 LTCH PPS final rule (72 FR 26929). We note that the 25-percent 
 762 

threshold payment adjustment policy does not apply to “subclause (II)” LTCHs, that is, 

an LTCH described under section 1886(d)(1)(B)(iv)(II) of the Act as implemented at 

§ 412.23(e)(2)(ii) of the regulations. Subclause (II) LTCHs meeting that definition 

continue to be exempted from this policy. 

 While we could propose further extending the regulatory moratoria, we do not 

believe it would be appropriate to do so. We are allowing the moratoria to expire 

because we continue to be concerned that LTCHs that admit more than the applicable 

percentage of patients from a particular referring hospital are, in effect, behaving like 

step-down units of the referring hospital, and that results in two separate Medicare 

payments--one to the referring hospital and one to the LTCH--for what we believe should 

be structured as one episode of care. In light of our duties to protect the fiscal integrity of 

the Medicare program, we believe that it would be inappropriate to continue to offer the 

mortaria pending the implementation of the policy outcomes of the research described 

below. We welcome public comments on this approach. 

 In section VIII.E. of the preamble of this proposed rule we present interim results 

of CMS’ research initiatives that have been directed towards studying the different types 

of patients presently treated at LTCHs, and the potential options for establishing LTCH 

patient-level criteria. Although we are not proposing any policy changes based on the 

described research at this time, we indicate that such a policy might obviate the need for 

the 25-percent threshold payment adjustment policy. Therefore, we are inviting public 

comments on that possibility. 
 763 

E. Research on the Development of a Patient Criteria-Based Payment Adjustment under 

the LTCH PPS

1. Overview 

 CMS has been researching the development of patient and/or facility-level criteria 

for LTCHs, as originally recommended by MedPAC in its June 2004 Report to the 

Congress, “New Approaches in Medicare.” In that report, MedPAC recommended such 

criteria in the report’s fifth chapter on “Defining long-term care hospitals” (p. 121 

through 135). This report is hereinafter referred to as the MedPAC 2004 Report. Section 

114(a) of the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) of 2007, which 

added section 1861(ccc) to the Act, specified certain facility-level criteria for LTCHs. 

Therefore, we generally focused our subsequent research initiatives on the development 

of potential LTCH patient-level criteria. 

 In the FY 2013 IPPS/LTCH PPS proposed rule, we noted that two research 

projects were currently underway that we believed could potentially result in “... 

revisions to our payment policies that could render the 25-percent payment adjustment 

threshold policy unnecessary” (77 FR 28022). In the FY 2013 IPPS/LTCH PPS final 

rule, we noted that, “. . . [w]e continue to share MedPAC’s concerns regarding the 

treatment of medically appropriate patients in LTCHs” (77 FR 53485). We quoted 

MedPAC’s March 2012 Report to Congress, “Medicare Payment Policy,” in which 

MedPAC noted, “...if medically complex cases in LTCHs are, in essence, 

indistinguishable from medically complex cases in acute care hospitals, then Medicare 

must ensure that its payments for the same set of services are equitable, regardless of 
 764 

where the services are provided . . . policymakers must consider whether certain models 

of care will best serve the needs of medically complex patients. These steps will help 

ensure that Medicare beneficiaries receive appropriate, high quality care in the least 

costly setting consistent with their clinical conditions” (77 FR 53485). 

 We agreed with MedPAC’s assertions, and further noted our ongoing research 

that focused on determining whether there were some patient-level criteria that could be 

used to identify patients that are appropriately treated in a LTCH, consistent with their 

higher costs. At that time we shared our contractors’ preliminary findings that, 

“...focusing on a subset of patients who are ‘chronically critically ill,’ that is who have 

been in intensive or coronary care units for a significant period of time at IPPS hospitals 

immediately preceding the admission to the LTCH may prove to be an important step at 

this point.” In the final rule we ended our response to the comments received with the 

following assurance: “[a]s we have in the past, when this research reaches the 

appropriate stage, we intend to reach out to hospital industry stakeholders for reactions 

and feedback” (77 FR 53485). 

 In this proposed rule, we are describing the preliminary findings of this ongoing 

research that is being conducted by Kennell and Associates (Kennell) and its 

subcontractor, RTI, under the guidance of CMS’ Center for Medicare and Medicaid 

Innovation (the Innovation Center). We believe that this project, in large part, establishes 

a framework that can potentially be used to empirically identify the population of 

Medicare beneficiaries who we believe should form the core of LTCH patients 

appropriate for higher Medicare payments under the LTCH PPS. Although this research 
 765 

has not been completed, we believe that the preliminary findings suggest that certain 

types of patients, who are chronically critically ill and considered medically complex, as 

identified by specific clinical factors, are more appropriate candidates for high-cost 

treatment at a LTCH than other types of patients. It is worth noting that this is the same 

population that the LTCH industry in discussions with CMS has repeatedly defined as its 

target population. 

 The framework, described below, represents the latest research for refining the 

LTCH PPS. Historically CMS refinements have included the input of advocates for the 

LTCH industry and MedPAC, as well as CMS and its contractors. We hope that they 

will continue to offer their insights to the framework presented below as well, and CMS 

will continue to take into consideration all stakeholders’ input. However, we emphasize 

that we are not proposing a new payment policy at this time. Rather, we are interested in 

receiving feedback from the public on the findings of this research study and also on the 

potential impact that our framework could have on hospital markets with the expectation 

of formulating a proposal for FY 2015. 

 In the discussion below, we provide a summary of the research findings, discuss 

issues presented by our analyses of Medicare data from LTCHs and other hospital-level 

providers, describe the steps that led to our contractor’s findings, and present the 

resulting framework and our current understanding of the likely impact of this work on 

the Medicare payment system if we were to implement this framework. 
 766 

2. MedPAC’s 2004 Report to the Congress 

 Within a year of CMS’ implementation of the LTCH PPS, MedPAC noted in its 

June 2003 Report to the Congress, “Variation and Innovation in Medicare,” that, “... 

LTCH patients have higher mortality rates and Medicare pays more for their care, 

compared with patients who do not use LTCHs” (p. 71) and “...total payments for LTCH 

users were 140 to 260 percent of payments for post-acute users in market areas without 

LTCHs (in 42 out of 44 DRG-severity levels). Death rates were higher for LTCH users 

compared with post-acute users in markets without LTCHs; this phenomenon may reflect 

unmeasured severity of illness” (p. 85). 

 Although the report explicitly stated that MedPAC’s findings were drawn from 

pre-PPS data, MedPAC noted that, “...more research is needed to determine the role that 

LTCHs play for Medicare patients and to understand quality outcomes in this setting” (p. 

87). 

 The following year, in its June 2004 Report to Congress, “New Approaches in 

Medicare,” MedPAC provided a comprehensive examination of the LTCH universe 

based upon “...both qualitative and quantitative approaches to answer our key questions 

regarding the role that LTCHs play, where patients in areas without LTCHs are treated, 

and the differences in Medicare payments and outcomes for patients who use LTCHs 

compared to those treated in other settings” (p. 123). (For a detailed description of the 

methodology and data used in MedPAC’s analysis, we refer readers to MedPAC’s June 

2004 Report to the Congress, p. 121 through 135). MedPAC’s analysis resulted in the 

following findings: 
 767 

● “In the absence of LTCHs, clinically similar patients are principally treated in 

acute hospitals or in freestanding SNFs that are equipped to handle patients requiring a 

high level of care” (p. 127). 

● “Medicare should use more precise criteria to ensure that LTCHs treat only 

appropriate patients. In general, beneficiaries treated in long-term care hospitals cost 

Medicare more than patients treated in alternative settings; however, if LTCH care is 

better targeted to those patients who appear to be most suitable for LTCH care, the costs 

to Medicare are more comparable” (p. 127).

● “...Criteria that limit the types of patients treated in LTCHs may help avoid 

some of the problems that may result from current payment incentives, growth of the 

LTCH industry and high payment rates” (pp. 127 and 128). 

 Based on these and other findings, in that same report MedPAC made the 

following recommendation as “Recommendation 5A”: 

 “The Congress and the Secretary should define long-term care hospitals by 

facility and patient criteria that ensure that patients admitted to these facilities are 

medically complex and have a good chance of improvement. 

● Facility-level criteria should characterize this level of care by features such as 

staffing, patient evaluation and review processes, and mix of patients. 

● Patient-level criteria should identify specific clinical characteristics and 

treatment modalities” (p. 130). 

 MedPAC’s 2004 recommendations for the development of patient-level criteria 

for LTCHs have driven discussion regarding CMS’ policy on Medicare payments to 
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LTCHs since that time. If LTCHs actually (and appropriately) treated a unique category 

of patients with specific clinical features, we could justify the larger payments (as 

compared to alternative care settings) being made under the LTCH PPS. At the same 

time, the MedPAC Report noted that there were only 350 LTCHs nationwide, and these 

LTCHs were not dispersed throughout the country in a manner that reflected Medicare 

beneficiary demographics. In areas without LTCHs, they found that clinically similar 

patients were treated in acute care hospitals and SNFs (pp. 124 and 125). 

3. LTCHs in the Medicare Program 

 The concerns raised by MedPAC in 2004 have continued as the number of 

LTCHs has grown by more than 25 percent, from 350 in 2004 to approximately 440 in 

2013. The above described geographic pattern appears to have continued with “many 

LTCHs that have entered the Medicare program ...located in markets where LTCHs 

already existed instead of in new markets with few or no LTCHs” (MedPAC March 2012 

Report to the Congress, “Medicare Payment Policy,” p. 261). For example, there are 38 

LTCHs in Louisiana, where there is a beneficiary population of approximately 521,000, 

in New York State there are 4 LTCHs (all located in the New York City metropolitan 

area) with a beneficiary population of approximately 2,060,000. (We refer readers to the 

CMS Web site at: http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/MedicareMedicaidStatSupp/2011.htm, Table 2.5). Our 2012 data 

indicates that less than 2 percent of all Medicare beneficiaries who were hospitalized in 

CY 2010 were treated in LTCHs. Our 2013 data indicates that New Hampshire, Maine, 

and Vermont have no LTCHs and the following States have five or fewer LTCHs: 
 769 

Connecticut, Delaware, Hawaii, Iowa, Idaho, Kansas, Maryland, Minnesota, Montana, 

Nebraska, New Mexico, New York, Wisconsin, West Virginia, Wyoming, and the 

District of Columbia. Therefore, the number of LTCHs and their geographic distribution 

suggest to us that LTCHs are only treating a small percentage of the patients that they 

have identified as their target population nationwide. 

4. CMS’ Research: The RTI Report 

 We awarded a multi-year contract to RTI (from 2004 through 2007) to identify 

and distinguish the role of LTCHs as Medicare providers. The name of the project was 

“Long Term Care Hospital (LTCH) Payment System Refinement/Evaluation.” 

 RTI’s reports generated under the LTCH Payment System Refinement/Evaluation

project identified noteworthy trends that were developing in the LTCH industry since the 

introduction of the LTCH PPS, especially in terms of continued development of for-profit 

LTCHs, substantial increases in Medicare payments to LTCHs, and high LTCH profit 

margins for for-profit LTCHs under the LTCH PPS. (We refer readers to sections 1, 2, 

and 5 of the January 2007 “LTCH Payment System Monitoring and Evaluation, Phase II 

Report,” (hereinafter referred to as the RTI Report). In addition, RTI’s findings 

suggested that LTCHs did not treat a “unique” type of patient (p. 129). As a result, RTI 

believed that it would be difficult to identify patient-level criteria that differentiated a 

LTCH patient from patients receiving care in other provider settings, particularly in 

general acute care hospitals due to the non-unique nature of the LTCH patient (p. 133). 

 RTI based these conclusions on an extensive and careful analysis of the 

Medicare populations served by LTCHs during 2004, and a comparison of these 
 770 

populations with those treated in other acute care settings, including IPPS, IRFs, 

IPFs, as well as those treated in less intensive settings such as SNFs. This 

analysis was further informed through the input from site visits and interviews 

with health professionals and hospitals. In addition, RTI contacted different 

stakeholder associations, including national hospital and quality review 

organizations, associations representing LTCHs (including one association that 

primarily represents non-profit LTCHs), and representatives of several of the 

larger LTCH chains. Through these organizations and others, RTI also sought 

input from physicians, nurses, and hospital administrators representing, in 

addition to LTCHs, acute care hospitals, IRFs, and “high-acuity” SNFs, that treat 

the “type” of patient who is treated in LTCHs and as inpatients in other provider 

settings. These individuals formed two RTI-convened technical expert panels 

(TEPs) that met in early 2007. Both TEPs generally agreed that LTCHs 

specialize in treating many of the types of patients they admit, and noted that 

having a high volume of these intensively ill patients was a driver for their 

successful outcomes. However, it was additionally noted that these medical 

services are also provided in general acute care hospitals, particularly in ICU 

step-down units. Therefore, while LTCHs may specialize in a select group of 

intensively ill patients, they were not the only providers to successfully provide 

these treatments. For more information on the TEPs, we refer readers to the 

RY 2008 LTCH PPS final rule (72 FR 26947 through 26948). 
 771 

 The Phase I and Phase II reports on RTI’s research were summarized in 

our RY 2009 LTCH PPS proposed rule (73 FR 5374 through 5376) and have been 

posted under the “RTI reports” tab on the CMS Web site at: 

http://www.cms.hhs.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOf

Page. 

 Of key significance in the discussion of the role of LTCHs under the Medicare 

program was our data-based assertion that we included in our RY 2008 LTCH PPS final 

rule that, “[a]cross the United States, the over 3,700 acute care hospitals that discharge 

approximately 13 million Medicare beneficiaries treat the full range of medical issues 

including those that the commenters identify as LTCH cases,” as compared to the 

130,000 LTCH discharges that occurred during FY 2005. This Medicare data challenged 

the LTCH-industry commenters who believed that acute care hospitals paid under the 

IPPS do not and cannot deal with the medical conditions in which LTCHs specialize, and 

that patients remaining in general acute care hospitals rather than being transferred to 

LTCHs would receive “substandard care” (72 FR 26940). Several commenters argued 

that general acute care hospitals were “just not capable” of delivering the level of care 

required by typical LTCH patients. CMS responded to a number of these commenters by 

stating that, while “[w]e do not question that many LTCHs have highly regarded 

reputations for their success in treating respiratory and ventilator cases (DRG 475) 

but . . . the 2004 MedPAR files indicate that [while] LTCHs treated 13,394 cases 

assigned to DRG 475 [which codes for respiratory system diagnosis requiring ventilator 

support], acute care hospitals treated 18,727 Medicare patients [assigned to DRG 475 
 772 

and] an additional 7,072 [that qualified for high cost outliers (HCOs) who were assigned 

to]DRG 475. For DRG 88, chronic obstructive pulmonary disease (COPD), LTCHs 

treated 4,894 cases [and] acute care hospitals treated 37,523 cases. Data on other 

common DRGs treated in LTCHs as compared to the same DRG treated in acute care 

hospitals reflect a similar pattern, particularly among the DRGs that could fall into the 

broad category of “medically complex” patients” (72 FR 26940 and 26041). 

5. CMS’ Report to Congress: Determining Medical Necessity and Appropriateness of 

Care for Medicare Long-Term Care Hospitals 

 In 2007, Congress imposed LTCH facility and patient-level criteria research and 

reporting obligations on the Secretary under section 114(b) of the Medicare and Medicaid 

State Children’s Expansion Act of 2007 (MMSEA) (Pub.L. 110-173). The statute 

specified that: 

 “(1) In general.--The Secretary of Health and Human Services (in this section 

referred to as the ‘Secretary’) shall conduct a study on the establishment of national longterm care hospital facility and patient criteria for purposes of determining medical 

necessity, appropriateness of admission, and continued stay at, and discharge from, longterm care hospitals. 

 (2) Report.--Not later than 18 months after the date of the enactment of this Act, 

the Secretary shall submit to Congress a report on the study conducted under paragraph 

(1), together with recommendations for such legislation and administrative actions, 

including timelines for implementation of patient criteria or other actions, as the 

Secretary determines appropriate. 
 773 

 (3) Considerations.--In conducting the study and preparing the report under this 

subsection, the Secretary shall consider-- 

 (A) recommendations contained in a report to Congress by the Medicare 

Payment Advisory Commission in June 2004 for long-term care hospital-specific facility 

and patient criteria to ensure that patients admitted to long-term care hospitals are 

medically complex and appropriate to receive long-term care hospital services; and 

 (B) ongoing work by the Secretary to evaluate and determine the feasibility of 

such recommendations.” 

 In fulfillment of this statutory mandate, in 2008 CMS' Office of Research, 

Development, and Information (ORDI), which is now part of the Center for Medicare and 

Medicaid Innovation (the Innovation Center), awarded a contract to Kennell and 

Associates and their subcontractor RTI for additional analysis of data on Medicare 

payments and facility costs for the treatment of similar patients in LTCHs and alternative 

providers, as well as an analysis of patient outcomes and the range of hospital-level care 

delivered in each setting. In accordance with section 114(b) of the MMSEA, Kennel/RTI 

was tasked with, among other things, considering MedPAC’s June 2004 

recommendations in their research, as well as “...ongoing work by the Secretary to 

evaluate and determine the feasibility of such recommendations...” as they researched 

and developed the 2011 Report to Congress (73 FR 26829). 

 In March 2011, we submitted our CMS Report to Congress, “Determining 

Medical Necessity and Appropriateness of Care for Medicare Long Term Care 

Hospitals,” (hereinafter referred to as the 2011 Report to Congress) on the development 
 774 

of LTCH patient and facility-level criteria as required by section 114(b) of the MMSEA. 

The MMSEA-mandated 2011 Report to Congress concluded that, “...the Secretary does 

not recommend the development of additional patient and facility-level criteria for 

LTCHs at this time.” The research offered the following support for the Secretary’s 

conclusion: 

● “An examination of Medicare quality review contractors indicated that patients 

who are more appropriate for treatment at LTCHs than at other postacute care facilities 

have multiple comorbidities and require an intense level of care with frequent physician 

and nurse visits. 

● The two most important factors in predicting LTCH admission are: 

(1) proximity to an LTCH; that is, whether the beneficiary lived in a state where many 

LTCHs were available; and (2) severity of illness. 

● There were no differences in average outcomes between episodes from areas 

that have high LTCH use and those that do not. 

● For the most medically complex ventilator patients, Medicare payments were 

the same or lower, mortality was lower, and the chance of being discharged to home was 

higher than those remaining in acute care settings. However, among the least complex 

ventilator patients, Medicare payments were much higher, hospital stays were longer, and 

all other outcome measures were the same or worse for those referred to LTCHs versus 

those remaining in acute care settings. This finding supports previous research by 

MedPAC that LTCHs may provide beneficial and cost-effective services for a subset of 

complex patients, but not for all types of patients admitted to these hospitals. 
 775 

● An LTCH admission was associated with a shorter length of stay in the general 

acute care hospital, on average, and controlling for a number of factors, including age, 

gender, number of comorbid conditions, and critical care use. ... [A]t least for some 

patients, ... LTCH care may be substituting for what would normally be provided in the 

later days of an acute care hospital stay. 

● Between 40 to 45 percent of all LTCH admissions qualify for a payment 

reduction as a “short-stay outlier”. This means that payments for these cases are reduced 

if the length of stay is substantially less than the average length of stay for a given 

LTCH-DRG. A high percentage of short-stay cases in a payment system designed for 

long-stay patients highlight the complexity in discerning which patients are appropriate 

for admissions to LTCHs. 

● The RTI Technical Expert Panel (TEP) reached a consensus that LTCHs 

provide a service that is comparable to general acute step-down units and is not unique to 

LTCHs. Discussions with LTCH physicians and acute care hospital physicians practicing 

in areas that lack LTCHs confirmed that there is an overlap in the patient populations 

treated in LTCHs and in acute care. Critical care post-ICU patients whom LTCHs 

describe as their targeted population are treated throughout most of the country in acute 

care hospital step-down units. 

● The TEP acknowledged that Medicare patients with respiratory conditions 

requiring mechanical ventilation comprise less than 15 percent of all LTCH patients. 

Thus, these patients insufficiently define which critically ill patients with complex 

medical conditions should be treated at LTCHs. It was not clear that any criteria can be 
 776 

developed which identifies patients who belong in a LTCH exclusively” (2011 Report to 

Congress, pp. 6 and 7). 

 Regarding the establishment of facility-level criteria for LTCHs, the report noted 

the specific LTCH facility requirements established by section 114(a) of the MMSEA 

and stated that “CMS believes that these facility-level standards should improve the 

quality of care at LTCHs and has no plans for additional facility-level standards. CMS 

acknowledges that while these new requirements represent new standards for care 

provision, facility-level standards will be of very limited value in determining the 

appropriateness of patients for LTCH care” (2011 Report to Congress, pp. 10 and 11). 

The 2011 Report to Congress, which is entitled “Determining Medical Necessity and 

Appropriateness of Care for Medicare Long-Term Care Hospitals,” may be found on the 

CMS Website at: http://www.cms.gov/officeof legislation/downloads/RTC-long-termcare-hospitals-final.pdf. Our contractors’ research findings can also be found in 

Appendix A of the 2011Report to Congress. 

 Research on the development of patient and facility-level criteria for LTCHs, as 

summarized above, indicated the absence of any empirical findings indicating an 

exclusive or unique “LTCH patient.” Rather, as noted in the 2011 Report to Congress, 

“[f]ollowing the direction of MedPAC and the RTI TEP panels, CMS concurs with the 

view that LTCHs are appropriate providers for treating severely ill, but medically stable, 

patients with complex medical conditions. However, additional analysis of Medicare 

data across provider types is key in helping to formulate a clinically-based description of 

critically ill, medically complex patients” (2011 Report to Congress, pp. 11 and 12). 
 777 

 The Secretary also noted that additional follow-up research that CMS was 

sponsoring would update and refine our understanding of Medicare LTCH patients and 

payments. This research effort was part of the Post-Acute Care Payment Reform 

Demonstration (PAC-PRD), a separate initiative and report to Congress mandated by 

section 5008 of the Deficit Reduction Act (DRA) of 2005 (Pub. L. 109-171), and 

collected standardized patient assessment information using the Continuity Assessment 

Record and Evaluation (CARE) tool, which had been designed to be administered to 

patients in all acute and post acute care settings with the goal of developing consistent 

measures for case-mix adjustment. The 2011 Report to Congress indicated that, 

“[o]going research using the CARE tool should facilitate CMS’ efforts to empirically 

define types of chronic, complex medical conditions that currently receive treatment in 

both general acute care hospitals and LTCHs.” To this end, the 2011 Report to Congress 

noted, “CMS is currently funding contract research to use the CARE tool to collect 

suitable patient-level clinical data to better identify chronic, critically ill patients. CMS is 

also currently funding research to develop payment models that would pay for these 

patients’ care reasonably and appropriately in LTCHs or any other site of care” (2011 

Report to Congress, pp. 12 and 13). 

 The data collected using the CARE tool from the PAC-PRD project represent a 

significant new benchmark in capturing clinical patient-level data to measure outcomes, 

quality of care, and performance at LTCHs and other provider settings treating similar 

conditions. Previously, claims data was the only clinical information available to inform 

RTI’s LTCH research from 2004 through 2007. The data collected using the CARE tool 
 778 

has allowed Kennell/RTI’s follow-up research to evaluate “types of chronically ill 

patients with complex medical conditions, regardless of provider setting” and “to 

measure outcomes, quality of care and performance at LTCHs and other providers 

treating similar clinical conditions” (2011 Report to Congress, p. 12). 

 For additional information on the PAC-PRD report to Congress and for the CARE 

tool, we refer readers to: http://www.cms.gov/Research-Statistics-Data-andSystems/Statistics-Trends-andReports/Reports/downloads/Flood_PACPRD_RTC_CMS_Report_Jan_2012.pdf and 

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/Reports/downloads/GAGE_PACPRD_RTC_Supp_Materials_May_2011.pdf.

 In response to the established need for additional research on the key findings 

of the MMSEA-mandated Report to Congress, CMS extended its research contract with 

Kennell/RTI to utilize the clinical data provided by the CARE tool, as described above, 

and to examine payment issues associated with chronically critically ill and medically 

complex patients with long-term hospital needs. Kennell/RTI was also tasked with 

developing a robust clinical definition of the subgroup of chronically critically ill and 

medically complex patients identified as appropriate for treatment in both LTCHs and 

general acute care hospitals in order to allow for the evaluation of appropriate payment 

policies for the various settings in which patients are treated. (We refer readers to 

Appendix A of the 2011 Report to Congress, p. 79 through 86, for details on this followup research under the “ Medical Necessity and Appropriateness of Care” contract for the 
 779 

“Long Term Care Hospitals and the Chronically Critically Ill Population Payment 

Recommendations” (CCIP-PR).) 

 These additional recent research initiatives were focused on evaluations of clinical 

data on chronically critically ill Medicare beneficiaries. The variations in provider costs 

and the resulting Medicare payment differentials for treating these patients in different 

provider settings were also evaluated. 

6. Current Patterns in LTCHs 

 Kennel/RTI’s follow-up research to the 2011 Report to Congress studied trends in 

LTCH utilization based on 100 percent of the MedPAR data files for LTCH claims for 

2004, 2006, 2008, and 2010 provided the context and the foundation for the framework 

discussed below. This work indicated the following facts about LTCHs: 

● LTCHs and LTCH use has expanded significantly. 

○ Between calendar year 2004 and 2010: number of LTCHs grew from 369 to 

443 (+20%) 

○ The number of LTCH discharges grew from 125,000 to 141,000 (+13%) 

○ Medicare LTCH-PPS payments grew from $3.7 billion to $5.2 billion (+41%) 

● LTCH patients are becoming more complex: 

○ more complex LTC-DRG types being admitted to LTCHs in terms of the 

relative value weights of the MS-LTC-DRGs used. 

○ higher mix of severity within LTC DRGs in terms of the percent of patients 

with an MCC level of comorbidity status. 

○ higher mix of severity within referral IPPS DRGs 
 780 

○ increasing proportion of patients admitted with critical care in their prior IPPS 

stay 

○ taken together, the evidence suggests real change in case mix, over and above 

any behavioral changes in coding 

○ It should be noted that these trends began well before the 2008 implementation 

of the MS-LTC-DRG system. 

● LTCH use is associated with substantial increases in: 

○ combined IPPS + LTCH PPS payments 

○ of combined IPPS + LTCH PPS costs 

○ total episode inpatient days 

 Furthermore, RTI found that respiratory conditions (including mechanical 

ventilation, respiratory infections, pulmonary edema and respiratory failure), increased as 

a share of LTCH admissions from less than 20 percent in 2004 to almost 30 percent in 

2010. The share of admissions for septicemia more than doubled, and the percentage of 

admissions for osteomyelitis nearly doubled. Other less complex conditions that 

accounted for a relatively large share of LTCH claims in CY 2004 declined rapidly. For 

example, the percentage of LTCH admissions for degenerative nervous system disorders 

and rehabilitation fell by more than half and the percentage of admissions for 

musculoskeletal and other types of aftercare fell by half. The number and percentage of 

patients with heart failure and shock and with COPD also declined. The percentage of 

admissions for wound and skin conditions (including cellulitis, skin graft and 

debridement, and wound debridement) did not change. Over this period, Medicare data 
 781 

indicated that LTCH case-mix has become more concentrated in complex respiratory care 

and treatment of certain types of complex infections.

 Medicare data also reveals changes in levels of severity both overall and within 

the conditions (or base DRG families) of LTCH admissions since the start of the LTCH 

PPS. The percentage of admissions assigned to MS-LTC-DRGs with major 

complications or comorbidities (MCCs) increased from 37 percent to 61 percent over the 

study period, and the percentage of patients assigned to any of the single-severity 

ventilator DRGs increased from 12 percent to 16 percent over the study period. 

Complications or comorbidities (CCs) that did not rise to the level of MCCs had 

accounted for 39 percent of LTCH admissions in CY 2004, but only 20 percent in 

CY 2010. MS-LTC-DRGs with no CCs fell from 9 percent to 2 percent. Finally, 

Kennell/RTI found that the shift toward higher severity levels is evident not only within 

more complex conditions where the patient load is increasing, but also within the less 

complex conditions where the relative patient load has been declining. In summary, 

since the implementation of the LTCH PPS in FY 2003 there have been significant 

changes in LTCH case-mix and severity within case-mix. 

 A comparison of MedPAR data from CY 2006 to CY 2010 also indicated that an 

increasing proportion of the patients transferred to LTCHs had received critical care 

services at an IPPS hospital immediately prior to their LTCH admission. The number of 

such individuals rose from 54.9 percent to 58.5 percent of transfers. The number of 

individuals with at least one week of critical care in an IPPS hospital immediately prior to 

their LTCH admission also rose from 36.2 percent to 38.8 percent of transfers; and the 
 782 

number of individuals who were discharged directly from critical care to a LTCH (having 

spent no time in general hospital routine units) rose from 25.2 percent to 30.3 percent of 

transfers. 

 As a result, Kennell/RTI reported that, for purposes of understanding the most 

efficient use of Medicare resources in LTCHs and other provider settings for high acuity 

patients, with a focus on LTCHs, a primary step is an analysis of the spectrum of patients 

in LTCHs, with the chronically critically ill at one end, who overlap with hospital critical 

care and account for anywhere from a third to a half of the LTCH Medicare admissions 

continuum, and patients who may be approaching sub-acute levels of need at the other 

end. Kennell/RTI found that the potentially sub-acute level of care patients could 

account for as much as 15 to 20 percent of LTCH Medicare admissions. 

Range of Levels of Required Care and Overlap of Institutions Providing That 

Care 

Level of Required 

Care Critical Acute Sub-acute Skilled nursing 

Nonskilled 

nursing 

Institution Type: 

IPPS 

LTCH 

SNFs 

Subacute/Hospital 

based SNFs 

The chart above is useful for visualizing the observed patient acuity levels associated 

with various treatment sites under Medicare. It should be noted that these ranges do not 

necessarily represent desired or even appropriate levels of care within a setting. 
 783 

 While the data generally revealed an acuity continuum, RTI also developed three 

“categories” of patients in order to simplify presentation of their findings. The chart 

below summarizes RTI’s findings for these three acuity groups for LTCH patients treated 

in FYs 2004, 2006, 2008, and 2010: 

Three LTCH Populations 

Post-ICU and 

Chronic Critical Care 

 Low-acuity / 

 Sub-acute

Growing share 

Anywhere from 35% -50% of 

admissions 

 Declining share 

Recently15-20% admissions

Examples: 

Direct ICU transfers 

Mechanical ventilation – 

recent history of PMV, w/trach or 

recently weaned but with multiple 

comorbidities; 

Stable but still on pressors or other drips; 

Multiple organ failure and/or multiple 

infections. 

Continued need for critical/ intermediate -

level nursing ratios & daily physician care 

w/ specialty consults 

DRG mix is changing toward increasing 

PMV and other complex respiratory 

others – 

Continuing complex medical 

issues

---- A residual category ----- 

Patients could be transfers from 

routine or intermediate care units 

Complex medical needs including 

infections, surgical aftercare, 

wounds, multiple co-morbidities; 

also routine ventilator care. 

Continued need for routine-level 

nursing and daily physician care, 

some consults 

Examples: 

Routine unit transfers 

Surgical aftercare without multiple organ 

failure. Combinations of multiple IV 

management, wound care and 

rehabilitation. 

Patients needing complex nursing but 

possibly not daily physician care. 

Low-acuity DRG mix is changing – fewer 

rehab and organic brain syndrome cases, 

more infections, cellulitis, skin ulcers, 

other aftercare, COPD 

|---------- Some overlap in LTC-DRGs ---------| |------------ Some overlap in LTC-DRGs--------| 

7. Identification of Chronically Critically Ill/Medically Complex (CCI/MC) Patients 

 As noted above, CMS extended its research contract with Kennell/RTI following 

CMS’ issuance of the 2011 Report to Congress in order to develop a robust definition of 

the group of patients who our research confirmed could be appropriate for treatment at 
 784 

LTCHs and higher payments under the LTCH PPS – that is, those who are chronically 

critically ill and medically complex (CCI/MC). We also tasked RTI in the CCIP-PR 

contract with the examination of any payment issues across provider settings that might 

be associated with CCI/MC patients with long-term hospital treatment needs. 

The diagram below (which we discuss further below) illustrates the steps taken by 

Kennell/RTI to determine and refine the CCI/MC definition. 
 785 

Preliminary

Definitions

Expert Clinical

Review

MedPAR Analysis

IPPS

Margins 

Analysis
 786 

 The first step illustrated in the chart above represents Kennell/RTI’s further 

evaluation of the materials in Appendix A of the 2011 Report to Congress. Next, 

Kennel/RTI brought in several clinical consultants to provide feedback on those initial 

definitions. These experts suggested refinements to the clinical characteristics that could 

be used to describe CCI/MC patients in our request for RTI to examine clinical 

factors/conditions that are related to very long IPPS hospital or IPPS hospital plus LTCH 

treatment episodes, as well as factors related to long ICU stays that had not been included 

in the initial definitions found in Appendix A of the Phase II Report. We were 

particularly interested in identifying patients with certain conditions that regularly 

exceeded the average length of stay for MS-DRGs or that routinely became IPPS outliers. 

 In general, these clinical consultants agreed that the initial definitions provided in 

Appendix A of the Phase II Report gave an appropriate range of clinical conditions that 

could be used to define CCI/MC. However, they suggested some specific changes as 

well which, if accepted, would lead us to consider changes to some of the clinical 

conditions that we would want to include in our own eventual definition of CCI/MC. For 

example, based on feedback from the clinical consultants, we would add stroke, brain 

hemorrhage, and traumatic brain injury to the list of organ failure codes. We would also 

add leukemia and lymphoma as organ failures. Other suggestions would lead us to 

remove codes from the organ failure category. For example, we would remove chronic 

kidney disease and early stage pressure ulcers. 

 To confirm whether the changes in clinical characteristics recommended by the 

clinical consultants would identify long-staying and high-cost patients, Kennell/RTI used 
 787 

a 2009 MedPAR data set to analyze the clinical consultants’ recommendations related to 

episode lengths of stay, costs, and prevalence of the condition. This 2009 data set 

included index IPPS stays and additional institutional stays during the episode of care. 

We found that the data supported the clinical suggestions, and that patients diagnosed 

with lymphoma and leukemia did have long median general acute care hospital lengths of 

stay. Patients with Stage III and IV pressure ulcers and congestive heart failure 

(unspecified) were included in the data, and the MedPAR analysis confirmed the 

inclusion of primary and secondary diagnoses of stroke, brain hemorrhage, and traumatic 

brain injury. 

 Kennell/RTI also analyzed margins for Medicare payments to IPPS hospitals for 

those cases that met the preliminary definitions, including those with wounds, sepsis, 

multiple organ failure, and prolonged mechanical ventilation. As a result of these and 

additional evaluations, preliminary findings from Kennell/RTI’s project “Chronically 

Critically Ill Population Payment Reform (CCIP-PR)” identified CCI/MC patients 

generally as: 

● Requiring extended intensive care unit or critical care unit (ICU or CCU) stays 

in IPPS hospitals; 

● Having high Medicare payments; and 

● Having diagnoses including such factors as the presence of sepsis, prolonged 

mechanical ventilation (PMV), and multiple organ failure. 
 788 

Specifically, Kennell/RTI’s research defines CCI/MC patients as representing a 

population that is clinically variable in the presentation of its underlying disorders, yet 

definable in its final patterns of intensive service needs. 

 MedPAC came to similar conclusions in their March 2012 Report to Congress. In 

that report, they highlighted a definition of chronically critically ill patients, which was 

originally proposed by Nierman and Nelson in 2002, that noted “...the chronically 

critically ill patient exhibited metabolic, endocrine, physiologic, and immunologic 

abnormalities that resulted in profound debilitation and often ongoing respiratory failure, 

abnormalities that slowed or precluded recovery from a wide range of acute forms of 

medical, surgical, and neurologic critical illness” (pp. 273 and 274).

 Kennell/RTI’s follow-up research findings confirmed that a distinction can be 

drawn between chronically critically ill patients and patients who may need extended 

acute care, but do not require critical care. The medically complex (MC) patients are 

generally medically compromised (due to, for example, multiple comorbidities) and they 

may have prolonged care needs for surgical aftercare, wounds, or infections, but do not 

require long periods of mechanical ventilation and do not otherwise fit Kennell/RTI’s 

understanding of the clinical profile of CCI/MC patients. These patients may require 

hospitalization over several weeks or even months due to medical complexities in their 

care protocol that require acute-level nursing, but they have either not needed 

intensive-care nursing or have progressed from intensive to less intensive nursing care 

needs. However, both groups have a need for continued hospital-level care that can be 

met either through continued treatment in the initial acute care hospital or by a transfer to 
 789 

a LTCH or other provider setting. As noted, our research has indicated that the Medicare 

costs of delivering care to such patients in the various settings that could meet their 

treatment needs varies widely. Moreover, our most recent Kennell/RTI research findings 

indicate that, although LTCHs are admitting an increasing number of chronically 

critically ill patients and an increasing number of patients with prior critical care stays in 

the general acute care hospital, the majority of LTCH cases during the years evaluated do 

not fit the operational definition of CCI/MC patients or even medically complex, high 

acuity patients. 

8. LTCH PPS Payments for CCI/MC Patients 

 In summary, research sponsored by CMS under the original RTI contract 

(awarded from 2004 through 2007), findings from the PAC-PRD Report to Congress, the 

2011 Report to Congress, and Kennell/RTI’s follow-up research under the CIPP-PR 

study, as well as findings in historic and recent MedPAC Reports to Congress, have led 

us to believe that there are specific factors that can be used to identify the CCI/MC 

patient population, which can, in turn, be used to provide a robust definition for the core 

group of patients that we believe are appropriate for treatment at LTCHs and payment 

under the LTCH PPS. Furthermore, as CMS and its contractors evaluated Medicare 

claims and utilized the information derived from the application of the CARE tool across 

treatment settings to further analyze the care needs of this unique group, we have 

determined that our CCI/MC definition would capture a distinct subset of patients with 

consistent and significant negative margins when treated by general acute care hospitals 

paid under the Medicare IPPS -- a phenomenon that generally does not appear to be 
 790 

evident for other long-stay medically complex cases that are treated in the IPPS hospital 

setting. 

 As noted above, CMS wants to ensure that LTCHs treat the most appropriate 

patients given the comparatively high payments in this provider setting. While the 

original MedPAC recommendation that we develop LTCH-specific patient-level criteria 

has evolved somewhat over time, we believe we can identify CCI/MC patients as 

potentially appropriate for treatment in the LTCH setting. MedPAC’s and CMS’ data 

analyses have indicated that financial forces in the IPPS context may be encouraging the 

transfer of these and other high-cost cases to LTCHs, but the non-CCI/MC patients may 

not receive cost-effective care in the LTCH setting. Therefore, we are outlining potential 

revisions of the LTCH PPS that would be aimed at encouraging the LTCH industry to 

admit patients fitting the CCI/MC profile to ensure that such patients frame LTCHs’ 

“core” patient populations. We believe that the potential revisions to the LTCH PPS, 

which are described below would encourage LTCHs to refocus their admissions policies 

on serving medically stable but high-acuity patients. 

 The research suggests that, for purposes of this discussion, we consider CCI/MC 

patients to be those with the specific characteristics described below. A system that 

would identify CCI/MC patients would facilitate limiting the full LTCH PPS payment to 

patients who meet this definition of CCI/MC while they were in an IPPS hospital 

inpatient setting if they are subsequently directly admitted to a LTCH. CCI/MC status 

would be used to identify patients as they are discharged from an IPPS hospital and then 

transferred to a LTCH. We could also apply an adjustment to LTCH payments for non-
 791 

CCI/MC patients, that is, patients who by definition would not be most appropriate for 

treatment in a LTCH. Payment for non-CCI/MC patients would be made at an “IPPS 

comparable amount,” that is, an amount comparable to what would have been paid under 

the IPPS calculated as a per diem rate with total payments capped at the full IPPS 

MS-DRG payment rate. 

 The research suggests that a patient would be identified as a CCI/MC patient in 

the IPPS setting based on having one or more of the five clinical factors listed in the table 

below, combined with a stay of 8 or more days in an ICU/CCU at an IPPS hospital. The 

CCI/MC patient definition would be used to identify patients as they are discharged from 

an IPPS hospital and then transferred to a LTCH. 

Five Critically Ill/Medically Complex Status Clinical Factors 

Prolonged Mechanical Ventilation (PMV) 

Tracheotomy 

Multiple Organ Failure/Stroke/Intercerebral Hemorrhage/TBI 

Sepsis and Other Severe Infections 

Severe Wounds 

 The CCI/MC patient population discussed above have been shown to have 

intensive service needs, high costs, and negative margins in IPPS hospitals. In addition, 

these patients typically have a predictable and consistent need for extended hospital-level 

care that can be met either from continued stays in the initial IPPS hospital in a stepdown unit after ICU or CCU treatment, or through transfer to a LTCH. 

 When the LTCH PPS was implemented in FY 2003, length of patient stay was 

considered a proxy measure for resource use. MedPAC’s early research findings, 
 792 

subsequently confirmed by our researchers, however, provided clear evidence that 

without knowing the mix of routine or critical care days, length of stay was not a reliable 

proxy for patient acuity. As noted above, Medicare data indicates that LTCHs treat many 

patients with very long episode stays that did not meet the CCI/MC criteria. Under 

section 1886(d)(1)(B)(iv)(I) of the Act, a LTCH is an acute care hospital with an average 

length of stay of greater than 25 days. Therefore, under current law, an LTCH may treat 

even short-stay, non-critically ill patients as long as it maintains an average length of stay 

that exceeds 25 days. However, under this framework an adjusted LTCH PPS payment 

equal to the “IPPS-comparable” amount could be paid to a LTCH for those patients 

admitted to the LTCH without meeting the CCI/MC designation -- that is, an amount 

comparable to what would have been paid under the IPPS calculated as a per diem rate 

with total payments capped at the full IPPS MS-DRG payment rate. 

 We anticipate that if the payment policy is revised consistent with the framework 

discussed above, the industry could make adjustments to their admission and referral 

practices, and the mix of patients admitted to LTCHs would change significantly. 

Furthermore, our data discussed above detailing significant changes in LTCH admission 

practices since the start of the LTCH PPS would appear to indicate that LTCHs are 

already slowly revising their practices by admitting more critically ill patients. We are 

inviting public comments on whether such a policy could obviate the need for the 

“25-percent threshold payment adjustment policy.” In the future, if LTCHs begin to 

focus on treating CCI/MC patients, based on our research we believe that the Medicare 
 793 

program would be purchasing specialized and cost-effective services when making 

payment for these defined CCI/MC patients. 

 We believe that the potential policy changes discussed above are consistent with a 

significant body of research, which identifies the CCI/MC patient criteria as a useful 

indicator of an appropriate LTCH admission. Furthermore the CCI/MC criteria would 

appear to identify the patients that LTCHs have asserted in their discussions with CMS 

that they are best equipped to treat. 

 Although Kennell/RTI’s research is not yet completed, we want to note that we 

believe that the findings from the LTCH research over the past decade, culminating in the 

payment policy discussion we have outlined, is consistent with MedPAC’s June 2004 

Report to Congress’ recommendations. As discussed earlier, in that report the 

Commission recommended that CMS develop LTCH criteria that would result in 

identifying those patients whose conditions would justify Medicare’s payments under the 

LTCH PPS and ultimately dissuade LTCHs from treating those patients who did not meet 

the criteria. As described above, the advent of the CARE tool significantly extended the 

depth and range of our prior research initiatives. By utilizing data from the CARE tool, 

in addition to the research methodology specified above, to identify the CCI/MC 

population, we believe that we have established a robust set of patient-level criteria for 

Medicare payment in LTCHs and have responded to MedPAC’s concerns. 

Finally, we note that at both its January 11, 2013 and April 5, 2013 public meetings 

MedPAC discussed three “policy options” to “improve payment for chronically ill 

beneficiaries” that are also based in part on the use of ICU services as a defining 
 794 

characteristic of these CCI/MC patients. The first option offered by MedPAC would 

“remove the LTCH designation and pay for cases under a modified IPPS, which would 

include changes to the current IPPS high-cost outlier policy. The IPPS modifications 

would improve payment accuracy for very costly CCI patients.” A second option builds 

on the first by also breaking out CCI patients into separate MS-DRGs with higher 

payment relative weights. The third option would bundle expected post acute care costs 

into the new CCI MS-DRGs so that the hospital would be responsible for associated 

LTCH or SNF care for CCI/MC patients. MedPAC noted that more details of these 

options would be presented in “the coming months.” We will continue to analyze 

MedPAC’s work and future recommendations. (Additional information on these public 

meetings, including transcripts, are available on MedPAC’s Web site: 

http://www.medpac.gov/meetings.cfm.) 

We will post final reports on Kennell/RTI’s follow-up research on the CMS Web 

site as soon as they are completed. As previously noted, we are eager to receive public 

comments regarding this discussion of the research and the development of a patient 

criteria-based payment adjustment under the LTCH PPS as well as on the impact of such 

a proposal on hospital markets in advance of a policy proposal that we are expecting to 

include in the FY 2015 IPPS/LTCH PPS proposed rule in the spring of 2014. 
 795 

IX. Proposed Quality Data Reporting Requirements for Specific Providers and 

Suppliers 

 CMS is seeking to promote higher quality and more efficient health care for 

Medicare beneficiaries. This effort is supported by the adoption of widely agreed-upon 

quality measures. CMS has worked with relevant stakeholders to define measures of 

quality for most settings and to measure various aspects of care for most Medicare 

beneficiaries. These measures assess structural aspects of care, clinical processes, patient 

experiences with care, and, increasingly, outcomes. 

 CMS has implemented quality reporting programs for multiple settings of care, 

including: 

● Hospital inpatient services, under the Hospital Inpatient Quality Reporting 

(IQR) Program (formerly referred to as the Reporting Hospital Quality Data for Annual 

Payment Update (RHQDAPU) Program); 

● Hospital outpatient services, under the Hospital Outpatient Quality Reporting 

(OQR) Program (formerly referred to as the Hospital Outpatient Quality Data Reporting 

Program (HOP QDRP)); 

● Care furnished by physicians and other eligible professionals, under the 

Physician Quality Reporting System (PQRS, formerly referred to as the Physician 

Quality Reporting Program Initiative (PQRI)); 

● Inpatient rehabilitation facilities, under the Inpatient Rehabilitation Facility 

Quality Reporting Program (IRF QRP); 
 796 

● Long term care hospitals, under the Long Term Care Hospital Quality 

Reporting (LTCHQR) Program; 

● PPS-exempt cancer hospitals, under the PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program; 

● Ambulatory surgical centers, under the Ambulatory Surgical Center Quality 

Reporting (ASCQR) Program; 

● Inpatient psychiatric facilities, under the Inpatient Psychiatric Facilities Quality 

Reporting (IPFQR) Program; 

● Home health agencies, under the home health quality reporting program (HH 

QRP); and, 

● Hospices, under the Hospice Quality Reporting Program. 

 CMS has also implemented an end-stage renal disease quality improvement 

program (76 FR 628 through 646) that links payment to performance. 

 In implementing the Hospital IQR Program and other quality reporting programs, 

we have focused on measures that have high impact and support CMS and HHS priorities 

for improved quality and efficiency of care for Medicare beneficiaries. Our goal for the 

future is to align the clinical quality measure requirements of the Hospital IQR Program 

with various other Medicare and Medicaid programs, including those authorized by the 

Health Information Technology for Economic and Clinical Health (HITECH) Act, so that 

the burden for reporting will be reduced. As appropriate, we will consider the adoption 

of measures with electronic specifications, so that the electronic collection of 

performance information is part of care delivery. Establishing such a system will require 
 797 

interoperability between EHRs and CMS data collection systems, additional 

infrastructural development on the part of hospitals and CMS, and the adoption of 

standards for capturing, formatting, and transmitting the data elements that make up the 

measures. However, once these activities are accomplished, the adoption of many 

measures that rely on data obtained directly from EHRs will enable us to expand the 

Hospital IQR Program measure set with less cost and burden to hospitals. We believe 

that in the near future, automatic collection and reporting of data elements for many 

measures through EHRs will greatly simplify and streamline reporting for various CMS 

quality reporting programs, and that hospitals will be able to switch primarily to EHRbased reporting of data for many measures that are currently manually chart-abstracted 

and submitted to CMS for the Hospital IQR Program. 

 We have also implemented a Hospital Value-Based Purchasing (VBP) Program 

under section 1886(o) of the Act. In 2011, we issued the Hospital Inpatient VBP 

Program final rule (76 FR 26490 through 26547). We adopted additional policies for the 

Hospital VBP Program in section IV.B. of the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51653 through 51660), in section XVI. of the CY 2012 OPPS/ASC final rule with 

comment period (76 FR 74527 through 74547) and in section VIII.C. of the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53567 through 53614). Under the Hospital VBP 

Program, hospitals will receive value-based incentive payments if they meet performance 

standards with respect to measures for a performance period for the fiscal year involved. 

The measures under the Hospital VBP Program must be selected from the measures 
 798 

(other than readmission measures) specified under the Hospital IQR Program as required 

by section 1886(o)(2)(A) of the Act. 

 In selecting measures for the Hospital IQR Program, we are mindful of the 

conceptual framework of the Hospital VBP Program. Section 1886(o)(2)(B)(i)(I) of the 

Act states that for FY 2013, the selected measures for the Hospital VBP Program must 

cover at least the following five specified conditions or procedures: Acute myocardial 

infarction (AMI), Heart failure (HF), Pneumonia (PN), surgical care, as measured by the 

Surgical Care Improvement Project (SCIP), and Healthcare-Associated Infections 

(HAIs), as measured by the prevention metrics and targets established in the HHS Action 

Plan to Prevent HAIs (or any successor HHS plan). Section 1886(o)(2)(B)(i)(II) of the 

Act provides that, for FY 2013, measures selected for the Hospital VBP Program must 

also be related to the Hospital Consumer Assessment of Healthcare Providers and 

Systems survey (HCAHPS). 

 The Hospital IQR Program is linked with the Hospital VBP Program because the 

measures and reporting infrastructure for both programs overlap. We view the Hospital 

VBP Program as the next step in promoting higher quality care for Medicare 

beneficiaries by transforming Medicare from a passive payer of claims into an active 

purchaser of quality healthcare for its beneficiaries. Value-based purchasing is an 

important step to revamping how care and services are paid for, moving increasingly 

toward rewarding better value, outcomes, and innovations instead of merely volume. As 

we stated in the Hospital Inpatient VBP Program proposed rule (76 FR 2455), we applied 
 799 

the following principles for the development and use of measures and scoring 

methodologies: 

● Public reporting and value-based payment systems should rely on a mix of 

standards, process, outcomes, and patient experience of care measures, including 

measures of care transitions and changes in patient functional status. Across all 

programs, we seek to move as quickly as possible to the use of primarily outcome and 

patient experience measures. To the extent practicable and appropriate, outcome and 

patient experience measures should be adjusted for risk or other appropriate patient 

population or provider characteristics. 

● To the extent possible and recognizing differences in payment system maturity 

and statutory authorities, measures should be aligned across public reporting and payment 

systems under Medicare and Medicaid. The measure sets should evolve so that they 

include a focused core set of measures appropriate to the specific provider category that 

reflects the level of care and the most important areas of service and measures for that 

provider. 

● The collection of information should minimize the burden on providers to the 

extent possible. As part of this effort, we will continuously seek to align our measures 

with the adoption of e-specified measures, and reporting of quality data via Certified 

Electronic Health Record Technology (CEHRT), so the electronic collection of 

performance information is part of care delivery. 
 800 

● To the extent practicable, measures used by CMS should be nationally 

endorsed by a multi-stakeholder organization. Measures should be aligned with best 

practices among other payers and the needs of the end users of the measures. 

 We also view the Hospital-Acquired Condition (HAC) payment adjustment 

program authorized by section 3008 of the Affordable Care Act and the Hospital VBP 

Program as related, but separate, efforts to reduce HACs. The Hospital VBP Program is 

an incentive program that awards payments to hospitals based on quality performance on 

a wide variety of measures, while the program established by section 3008 of the 

Affordable Care Act, the HAC Reduction Program, creates a payment adjustment 

resulting in payment reductions for the lowest performing hospitals based on their rates 

of HACs. Proposals for the HAC Reduction Program are included in section V.I. of the 

preamble of this proposed rule. 

 Although we intend to monitor the various interactions of programs authorized by 

the Affordable Care Act and their overall impact on providers and suppliers, we also 

view programs that could potentially affect a hospital’s Medicaid payment as separate 

from programs that could potentially affect a hospital’s Medicare payment. 

 In the preamble of this proposed rule, we are proposing changes to the following 

Medicare quality reporting systems: 

● In section V.H., the Hospital VBP Program. 

● In section IX.A., the Hospital IQR Program. 

● In section IX.B., the PCHQR Program. 

● In section IX.C., the LTCHQR Program. 
 801 

● In section IX.D., the IPFQR Program. 

 In addition, in section IX.E. of the preamble of this proposed rule, we are 

proposing changes to the Electronic Health Record Incentive Program and meaningful 

use. 

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background 

a. History of Measures Adopted for the Hospital IQR Program 

 We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43860 through 43861) and the FY 2011 IPPS/LTCH PPS final rule (75 FR 50180 

through 50181) for detailed discussions of the history of the Hospital IQR Program, 

including the statutory history, and to the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53503 through 53555) for the measures we have adopted for the Hospital IQR 

measure set through FY 2016. 

b. Maintenance of Technical Specifications for Quality Measures 

 The technical specifications for the Hospital IQR Program measures, or links to 

Web sites hosting technical specifications, are contained in the CMS/The Joint 

Commission (TJC) Specifications Manual for National Hospital Quality Measures 

(Specifications Manual). This Specifications Manual is posted on the QualityNet Web 

site at https://www.QualityNet.org. We generally update the Specifications Manual on a 

semiannual basis and include in the updates detailed instructions and calculation 

algorithms for hospitals to use when collecting and submitting data on required measures. 

These semiannual updates are accompanied by notifications to users, providing sufficient 
 802 

time between the change and the effective date in order to allow users to incorporate 

changes and updates to the specifications into data collection systems. We will provide 

ICD-9 to ICD-10 crosswalks for the measure specifications in the manual for preview 

and comment in the July 2013 manual release. 

 The technical specifications for the HCAHPS patient experience of care survey 

are contained in the current HCAHPS Quality Assurance Guidelines manual, which is 

available at the HCAHPS On-Line Web site, http://www.hcahpsonline.org. We maintain 

the HCAHPS technical specifications by updating the HCAHPS Quality Assurance 

Guidelines manual annually, and include detailed instructions on survey implementation, 

data collection, data submission and other relevant topics. As necessary, HCAHPS 

Bulletins are issued to provide notice of changes and updates to technical specifications 

in HCAHPS data collection systems. 

 Many of the quality measures used in different Medicare and Medicaid reporting 

programs are endorsed by the National Quality Forum (NQF). The NQF is a voluntary 

consensus standard-setting organization with a diverse representation of consumer, 

purchaser, provider, academic, clinical, and other healthcare stakeholder organizations. 

The NQF was established to standardize healthcare quality measurement and reporting 

through its consensus development process. As part of its regular maintenance process 

for endorsed performance measures, the NQF requires measure stewards to submit annual 

measure maintenance updates and undergo maintenance of endorsement review every 

3 years. In the measure maintenance process, the measure steward (owner/developer) is 

responsible for updating and maintaining the currency and relevance of the measure and 
 803 

will confirm existing or minor specification changes to NQF on an annual basis. NQF 

solicits information from measure stewards for annual reviews and in order to review 

measures for continued endorsement in a specific 3-year cycle. 

 Through NQF’s measure maintenance process, NQF-endorsed measures are 

sometimes updated to incorporate changes that we believe do not substantially change the 

nature of the measure. Examples of such changes could be updated diagnosis or 

procedure codes, medication updates for categories of medications, changes to exclusions 

to the patient population, definitions, or extension of the measure endorsement to apply to 

other settings. We believe these types of maintenance changes are distinct from more 

substantive changes to measures that result in what are considered new or different 

measures, and that they do not trigger the same agency obligations under the 

Administrative Procedure Act. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 through 53505), we 

finalized a policy under which we will use a subregulatory process to make nonsubstantive updates to NQF-endorsed measures used for the Hospital IQR Program. 

With respect to what constitutes substantive versus nonsubstantive changes, we expect to 

make this determination on a case-by-case basis. Examples of non-substantive changes 

to measures might include updated diagnosis or procedure codes, medication updates for 

categories of medications, broadening of age ranges, and exclusions for a measure (such 

as the addition of a hospice exclusion to the 30-day mortality measures). We believe that 

non-substantive changes may also include updates to NQF-endorsed measures based 

upon changes to guidelines upon which the measures are based. We will revise the 
 804 

Specifications Manual so that it clearly identifies the updates and provide links to where 

additional information on the updates can be found. We also will post the updates on the 

QualityNet Web site at https://www.QualityNet.org. We will provide sufficient lead time 

for hospitals to implement the changes where changes to the data collection systems 

would be necessary. 

 We will continue to use rulemaking to adopt substantive updates made by the 

NQF to the endorsed measures we have adopted for the Hospital IQR Program. 

Examples of changes that we might consider to be substantive would be those in which 

the changes are so significant that the measure is no longer the same measure, or when a 

standard of performance assessed by a measure becomes more stringent (for example: 

changes in acceptable timing of medication, procedure/process, or test administration). 

Another example of a substantive change would be where the NQF has extended its 

endorsement of a previously endorsed measure to a new setting, such as extending a 

measure from the inpatient setting to hospice. The quality measure SCIP Infection 4, 

Controlled 6AM Glucose for Cardiac Surgery Patients (NQF #300), is an example of a 

measure that has undergone extensive changes as a result of the NQF maintenance 

process. The specifications have substantively changed and we are proposing to adopt 

these changes in this proposed rule. As we discuss below, the NQF Steering Committee 

voted to change the measure from controlled glucose at 6AM to controlled glucose 18-24 

hours post-surgery for cardiac surgery patients. The specifications also require corrective 

action to be documented if a post-operative glucose is over 180mg/dl. The specifications 

for the proposed updated measure can be found at: http://www.qualityforum.org. 
 805 

We believe that this policy adequately balances our need to incorporate nonsubstantive NQF updates to NQF–endorsed Hospital IQR Program measures in the most 

expeditious manner possible, while preserving the public’s ability to comment on updates 

that so fundamentally change an endorsed measure that it is no longer the same measure 

that we originally adopted. We also note that the NQF process incorporates an 

opportunity for public comment and engagement in the measure maintenance process. 

These policies regarding what is considered substantive versus non-substantive apply to 

all measures in the Hospital IQR Program. 

c. Proposed Public Display of Quality Measures 

 Section 1886(b)(3)(B)(viii)(VII) of the Act, as amended by section 3001(a)(2) of 

the Affordable Care Act, requires that the Secretary establish procedures for making 

information regarding measures submitted available to the public after ensuring that a 

hospital has the opportunity to review its data before they are made public. We are 

proposing, for the FY 2014 Hospital IQR Program and subsequent years, to continue our 

current policy of reporting data from the Hospital IQR Program as soon as it is feasible 

on CMS Web sites such as the Hospital Compare Web site, 

http://www.hospitalcompare.medicare.gov, and/or the interactive 

https://data.medicare.gov Web site, after a 30-day preview period. 

 The Hospital Compare Web site is an interactive Web tool that assists 

beneficiaries by providing information on hospital quality of care to those who need to 

select a hospital. It further serves to encourage beneficiaries to work with their doctors 

and hospitals to discuss the quality of care hospitals provide to patients, thereby 
 806 

providing an additional incentive to hospitals to improve the quality of care that they 

furnish. The Hospital IQR Program currently includes process of care measures, 

risk-adjusted outcome measures, the HCAHPS patient experience-of-care survey, 

structural measures, Emergency Department Throughput timing measures, hospital 

acquired condition measures, immunization measures, and hospital acquired infection 

measures, all of which are featured on the Hospital Compare Web site. 

 However, information that may not be relevant to or easily 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/ or https://data.medicare.gov. Publicly 

reporting the information in this manner, although 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 information regarding measures submitted under the 

Hospital IQR Program available to the public following a preview period. In such 

circumstances, affected parties are notified via CMS listservs, CMS e-mail blasts and 

memorandums, Hospital Open Door Forums, 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. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53507 through 53508), we 

removed five Agency for Healthcare Research and Quality (AHRQ) Patient Safety 

Indicators (PSIs). We did so noting that four of these indicators were part of the AHRQ 
 807 

PSI-90 measure, and that this information could be made publically available in the 

future in addition to the PSI-90 composite measure results that we currently make 

publically available. We recently received feedback from consumer advocacy groups and 

large purchasers that data on the individual PSI indicators that are part of the PSI-90 

composite measure are highly relevant to consumers, and not publically reporting them 

would be a disservice to consumers of healthcare. Therefore, we are proposing to make 

publicly available hospital level data for the PSI indicators that are part of the PSI-90 

composite in addition to the composite results. We invite public comment on this 

proposal. 

 We also invite public comment on what additional quality measures and 

information featured on Hospital Compare may be highly relevant to patients and other 

consumers of healthcare, and how we may better display this information on the Hospital 

Compare Web site. One option we have considered is aggregating measures in a 

graphical display, such as star ratings. 

2. Removal and Suspension of Hospital IQR Program Measures 

a. Considerations in Removing Quality Measures from the Hospital IQR Program 

 Generally, we retain measures from the previous year’s Hospital IQR Program 

measure set for subsequent years’ measure sets except when they are removed or 

replaced as indicated. We refer readers to the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53505 through 53506) for a discussion of the considerations we use in removing 

(formerly referred to as retiring) previously adopted Hospital IQR Program measures. 
 808 

b. Hospital IQR Program Measures Removed in Previous Rulemaking 

 In previous rulemakings, we have removed numerous Hospital IQR Program 

quality measures, including: 

● PN-1: Oxygenation Assessment for Pneumonia, a “topped-out” measure, 

because measures with very high performance among hospitals present little opportunity 

for improvement and do not provide meaningful distinctions in performance for 

consumers (73 FR 48604). 

● AMI-6: Beta Blocker at Arrival measure from the Hospital IQR Program 

because it no longer “represent[ed] the best clinical practice,” as required under 

section 1886(b)(3)(B)(viii)(VI) of the Act. 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, it is appropriate for CMS to take immediate action to remove a 

measure from the Hospital IQR Program and not wait for the annual rulemaking cycle. 

Therefore, we adopted the policy (74 FR 43864 and 43865) that we would promptly 

remove such a measure, confirm the removal in the next IPPS rulemaking cycle, and 

notify hospitals and the public of the decision to promptly remove measures through the 

usual hospital and QIO communication channels used for the Hospital IQR Program. 

These channels include memos, email notification, and QualityNet Web site postings. To 

this end, we confirmed the removal of the AMI-6 measure in the FY 2010 IPPS/LTCH 

PPS rulemaking cycle after immediate suspension because the measure posed patient 

safety risks. 
 809 

● Mortality for Selected Procedures Composite measure because the measure is 

not considered suitable for purposes of comparative reporting by the measure developer 

(75 FR 50186). 

● Three adult smoking cessation measures: AMI-4: Adult Smoking Cessation 

Advice/Counselling; HF-4: Adult Smoking Cessation Advice/Counselling; and 

PN-4: Adult Smoking Cessation Advice/Counselling, because these measures are 

“topped-out” and no longer NQF-endorsed (76 FR 51611). 

● PN-5c: Timing of Receipt of Initial Antibiotic Following Hospital Arrival 

measure out of concerns that the continued collection of this measure might lead to the 

unintended consequence of antibiotic overuse (76 FR 51611). 

● 17 measures set out below (77 FR 53506 through 53509) 

Topic 17 Measures Removed from Hospital IQR Program Measure Set 

for the FY 2015 Payment Determination and Subsequent Years 

Surgical Care Improvement Project (SCIP) Measure 

● SCIP INF -VTE-1: Surgery patients with recommended Venous 

Thromboembolism (VTE) prophylaxis ordered* 

AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) and 

Composite Measures 

● PSI 06: Iatrogenic pneumothorax, adult** 

● PSI 11: Post Operative Respiratory Failure** 

● PSI 12: Post Operative PE or DVT** 

● PSI 14: Postoperative wound dehiscence** 

● PSI 15: Accidental puncture or laceration** 

● IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or 

without volume) ** 

● IQI 19: Hip fracture mortality rate** 

● IQI 91: Mortality for selected medical conditions (composite) ** 

Hospital Acquired Condition Measures 

● Foreign Object Retained After Surgery** 

● Air Embolism ** 

● Blood Incompatibility** 
 810 

Topic 17 Measures Removed from Hospital IQR Program Measure Set 

for the FY 2015 Payment Determination and Subsequent Years 

● 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** 

* Chart-abstracted measure 

** Claims-based measure 

c. Proposed Removal of Hospital IQR Program Measures for the FY 2016 Payment 

Determination and Subsequent Years 

 As we move toward more outcome-related measures, we have considered the 

removal of additional measures using our stated removal criteria. We are proposing to 

remove 8 measures from the Hospital IQR Program. Three measures are chart-abstracted 

(one pneumonia measure, one heart failure measure, and one immunization measure), and 

one is a structural measure (Systematic Clinical Database Registry for Stroke Care). We 

are are also proposing to remove 4 additional chart-abstracted measures from the Hospital 

IQR Program because they were either recommended for removal by the MAP during the 

pre-rulemaking process or are considered “topped out.” 

(1) Proposed Removal of PN-3b: Blood Culture Performed in the Emergency 

Department Prior to First Antibiotic Received in the Hospital Measure 

 In the FY 2007 IPPS final rule, we adopted PN-3b: Blood Culture Performed in 

the Emergency Department Prior to First Antibiotic Received in the Hospital. We are 

proposing to remove this measure based on several considerations. First, the measure is 
 811 

no longer NQF-endorsed. Second, the MAP recommended removal of the measure from 

the Hospital IQR Program in a February 2013 pre-rulemaking report that made 

recommendations on measures under consideration by HHS. The MAP believed the 

measure was topped-out with no room for improvement. Third, the measure lacks an 

adequate association between processes of care and patient outcomes. Accordingly, since 

there is only limited data showing impact from drawing blood cultures prior to 

administering antibiotics and to address concerns of overuse of blood cultures, we are 

proposing to remove PN-3b from the Hospital IQR Program. 

(2) Proposed Removal of HF-1: Discharge Instructions Measure 

 In the FY 2007 IPPS final rule we adopted HF-1: Discharge Instructions. We are 

proposing to remove this measure based on several considerations. First, the measure is 

no longer NQF-endorsed. Second, the MAP recommended removal of the measure from 

the Hospital IQR Program in a February 2013 pre-rulemaking report that made 

recommendations on measures under consideration by HHS. The MAP was concerned 

because research showed a weak correlation between this measure and patient outcomes. 

Third, while we consider discharge instructions an important aspect of patient care, we 

face a challenge in validating the efficacy of the information received with this measure. 

Therefore, we are proposing to remove HF-1 from the Hospital IQR Program. 

(3) Proposed Removal of IMM-1: Immunization for Pneumonia Measure 

 We adopted IMM-1: Immunization for Pneumonia for the Hospital IQR Program 

for the FY 2014 payment determination with data collection beginning with 

January 1, 2012 discharges. We are proposing to remove this measure based on the 
 812 

following consideration. In October of 2012, the Advisory Committee on Immunization 

Practices (ACIP) released new guidelines on the administration of pneumococcal 

vaccination for various populations. Because IMM-1 was already required as part of the 

Hospital IQR Program before the new guidelines were published, we cannot feasibly 

implement the measure to incorporate the potential iterations of the new guidelines. We 

believe that maintaining the measure in the Hospital IQR Program during this period of 

rapid guideline changes would detract from hospitals efforts to administer vaccines 

appropriately. 

 We emphasize that, despite the removal of IMM-1 from the Hospital IQR 

Program, we expect hospitals to continue to keep up-to-date with the vaccination 

recommendations for various populations. 

(4) Proposed Removal of the Systematic Clinical Database Registry for Stroke Care 

Measure 

 We adopted the Systematic Clinical Database Registry for Stroke Care measure 

for the Hospital IQR Program for the FY 2013 payment determination beginning with 

January 1, 2011 discharges. We are proposing to remove this measure based on the 

following consideration. Since the adoption of this structural measure, we have adopted 

a Stroke measure set beginning with January 1, 2013 discharges. We believe that the 

Stroke measure set will provide more meaningful and detailed information regarding how 

well stroke care is being managed in a hospital setting than the current structural 

measure, which consists of a general yes/no response. 
 813 

(5) Proposed Removal of Four Additional Chart-Abstracted Measures 

 We are also proposing to remove four chart-abstracted measures from the 

Hospital IQR Program because these measures were either recommended for removal by 

the MAP during the pre-rulemaking process or are considered “topped out.” 

● AMI–2: Aspirin prescribed at discharge 

● AMI–10: Statin prescribed at discharge 

● HF–3: ACEI or ARB for LVSD 

● SCIP-Inf–10: Surgery Patients with perioperative temperature management 

 We invite public comment on our proposal to remove these measures. 

Topic Proposed Removal of Hospital IQR Program Measures for the 

FY 2016 Payment Determination and Subsequent Years 

Acute Myocardial Infarction 

● AMI-2 Aspirin prescribed at discharge 

● AMI-10 Statin prescribed at discharge 

Pneumonia 

● PN-3b Blood culture performed in the emergency department 

prior to first antibiotic received in hospital 

Heart Failure 

● HF-1 Discharge instructions

● HF-3 ACEI or ARB for LVSD 

Surgical Care Improvement Project 

● SCIP-Inf-10 Surgery patients with perioperative temperature 

management 

Immunization 

● IMM-1 Immunization for pneumonia 

Structural Measure 

● Participation in a systematic clinical database registry for stroke 

care 
 814 

d. Suspension of Data Collection for the FY 2014 Payment Determination and 

Subsequent Years 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51611), we suspended data 

collection for four measures beginning with January 1, 2012 discharges, affecting the 

FY 2014 payment determination and subsequent years. 

Topic Hospital IQR Program Measures Suspended for the FY 2014 

Payment Determination and Subsequent Years 

Acute Myocardial Infarction (AMI) 

● AMI-1 Aspirin at arrival 

● AMI-3 ACEI/ARB for left ventricular systolic dysfunction 

● AMI-5 Beta-blocker prescribed at discharge 

Surgical Care Improvement Project (SCIP) 

● SCIP INF-6 Appropriate Hair Removal

 We suspended, rather than removed, these measures, despite having evidence that 

these measures may be topped-out (that is, their performance is uniformly high 

nationwide, with little variability among hospitals) because we believe that the processes 

assessed by these measures are tied to better patient outcomes, and that permanent 

removal of the measures from the Hospital IQR Program may result in declines in 

performance and, therefore, worse outcomes. Therefore, we decided not to remove these 

measures from the Hospital IQR Program. The suspension of data collection for these 

four measures will be continued unless we have evidence that performance on the 

measures is in danger of declining. Should we determine that hospital adherence to these 

practices has unacceptably declined, we would resume data collection using the same 

form and manner and on the same quarterly schedule that we finalize for these and other 
 815 

chart abstracted measures, providing at least 3 months of notice prior to resuming data 

collection. Hospitals would be notified of this via CMS listservs, CMS e-mail blasts, 

national provider calls, and QualityNet announcements. In addition, we would comply 

with any requirements imposed by the Paperwork Reduction Act before resuming data 

collection of these four measures. 

3. Process for Retaining Previously Adopted Hospital IQR Program Measures for 

Subsequent Payment Determinations 

 For the purpose of streamlining the rulemaking process, in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53512 through 53513), we finalized our policy that 

when we adopt measures for the Hospital IQR Program beginning with a particular 

payment determination, these measures are automatically adopted for all subsequent 

payment determinations unless we propose to remove, suspend, or replace the measures. 

4. Additional Considerations in Expanding and Updating Quality Measures under the 

Hospital IQR Program 

 We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53510 

through 53512) for a discussion of the considerations we use to expand and update 

quality measures under the Hospital IQR Program and our policy, beginning with the FY 

2013, to use one calendar year of data for chart-abstracted measures for payment 

determinations. 
 816 

5. Proposed Changes to Hospital IQR Program Measures Previously Adopted for the 

FY 2015 and FY 2016 Payment Determinations and Subsequent Years 

a. Previously Adopted Hospital IQR Program Measures for the FY 2015 Payment 

Determination and Subsequent Years 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53512 through 53531), we 

finalized 59 measures for the Hospital IQR Program measure set for the FY 2015 

payment determination and subsequent years. These 59 measures are listed below. 

Topic Hospital IQR Program Measures Previously Adopted for the 

FY 2015 Payment Determination and Subsequent Years

Acute Myocardial Infarction (AMI) Measures 

● AMI-2 Aspirin prescribed at discharge 

● AMI-7a Fibrinolytic (thrombolytic) agent received within 30 

minutes of hospital arrival 

● AMI-8a Timing of Receipt of Primary Percutaneous Coronary 

Intervention (PCI) 

● AMI-10 Statin Prescribed at Discharge 

Heart Failure (HF) Measures 

● HF-1 Discharge instructions 

● HF-2 Evaluation of left ventricular systolic function 

● HF-3 Angiotensin Converting Enzyme Inhibitor (ACE-I) or 

Angiotensin II Receptor Blocker (ARB) for left ventricular systolic 

dysfunction 

Stroke (STK) Measure Set 

● STK-1 VTE prophylaxis 

● STK-2 Antithrombotic therapy for ischemic stroke† 

● STK-3 Anticoagulation therapy for Afib/flutter† 

● STK-4 Thrombolytic therapy for acute ischemic stroke† 

● STK-5 Antithrombotic therapy by the end of hospital day 2† 

● STK-6 Discharged on Statin† 

● STK-8 Stroke education† 

● STK-10 Assessed for rehab† 

VTE Measure Set 

● VTE-1 VTE prophylaxis† 

● VTE-2 ICU VTE prophylaxis† 
 817 

Topic Hospital IQR Program Measures Previously Adopted for the 

FY 2015 Payment Determination and Subsequent Years

● VTE-3 VTE patients with anticoagulation overlap therapy† 

● VTE-4 Patients receiving un-fractionated Heparin with doses/labs 

monitored by protocol† 

● VTE-5 VTE discharge instructions† 

● VTE-6 Incidence of potentially preventable VTE† 

Pneumonia (PN) Measures 

● PN-3b Blood culture performed in the emergency department prior 

to first antibiotic received in hospital 

● PN-6 Appropriate initial antibiotic selection 

Surgical Care Improvement Project (SCIP) Measures 

● SCIP INF-1 Prophylactic antibiotic received within 1 hour prior to 

surgical incision 

● SCIP INF-2: Prophylactic antibiotic selection for surgical patients 

● SCIP INF-3 Prophylactic antibiotics discontinued within 24 hours 

after surgery end time (48 hours for cardiac surgery) 

● SCIP INF-4: Cardiac surgery patients with controlled 6AM 

postoperative serum glucose 

● SCIP INF-9: Postoperative urinary catheter removal on post 

operative day 1 or 2 with day of surgery being day zero 

● SCIP INF-10: Surgery patients with perioperative temperature 

management 

● SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker prior to 

arrival who received a Beta Blocker during the perioperative period 

● SCIP-VTE-2: Surgery patients who received appropriate VTE 

prophylaxis within 24 hours pre/post surgery 

Mortality Measures (Medicare Patients) 

● Acute Myocardial Infarction (AMI) 30-day mortality rate 

● Heart Failure (HF) 30-day mortality rate 

● Pneumonia (PN) 30-day mortality rate 

Patients' Experience of Care Measures 

● HCAHPS survey (expanded to include one 3-item care transition 

set* and two new “About You” items)* 

Readmission Measures (Medicare Patients) 

● Acute Myocardial Infarction 30-day Risk Standardized Readmission 

Measure 

● Heart Failure 30-day Risk Standardized Readmission Measure 

● Pneumonia 30-day Risk Standardized Readmission Measure 

● 30-day Risk Standardized Readmission following Total Hip/Total 

Knee Arthroplasty* 

● Hospital-Wide All-Cause Unplanned Readmission (HWR)* 
 818 

Topic Hospital IQR Program Measures Previously Adopted for the 

FY 2015 Payment Determination and Subsequent Years

AHRQ Patient Safety Indicators (PSIs) Composite Measures 

● Complication/patient safety for selected indicators (composite) 

AHRQ PSI and Nursing Sensitive Care 

● PSI-4 Death among surgical inpatients with serious treatable 

complications 

Structural Measures 

● Participation in a Systematic Database for Cardiac Surgery 

● Participation in a Systematic Clinical Database Registry for Stroke 

Care 

● Participation in a Systematic Clinical Database Registry for Nursing 

Sensitive Care 

● Participation in a Systematic Clinical Database Registry for General 

Surgery 

Healthcare-Associated Infections Measures 

● Central Line Associated Bloodstream Infection 

● Surgical Site Infection 

 - SSI following Colon Surgery 

 - SSI following Abdominal Hysterectomy 

● Catheter-Associated Urinary Tract Infection 

● MRSA Bacteremia 

● Clostridium difficile (C. difficile) 

● Healthcare Personnel Influenza Vaccination 

Surgical Complications 

● Hip/Knee Complication: Hospital-level Risk-Standardized 

Complication Rate (RSCR) following Elective Primary Total Hip 

Arthroplasty* 

Emergency Department (ED)Throughput Measures 

● ED-1 Median time from emergency department arrival to time of 

departure from the emergency room for patients admitted to the 

hospital† 

● ED-2 Median time from admit decision to time of departure from 

the emergency department for emergency department patients admitted 

to the inpatient status†

Prevention: Global Immunization (IMM) Measures 

● Immunization for Influenza 
 819 

Topic Hospital IQR Program Measures Previously Adopted for the 

FY 2015 Payment Determination and Subsequent Years

● Immunization for Pneumonia 

Cost Efficiency 

● Medicare Spending per Beneficiary

Perinatal Care 

● PC-01 Elective delivery prior to 39 completed weeks of gestation*/†

* New or expanded measures/items for the FY 2015 payment determination and subsequent years. 

† Proposed measure for electronic reporting via CEHRT in the Hospital IQR Program (voluntary 

participation in CY 2014). 

b. Proposed Refinements to Existing Measures in the Hospital IQR Program 

 We are proposing to incorporate refinements for several measures that are 

currently adopted in the Hospital IQR Program. These refinements have either arisen out 

of the NQF endorsement maintenance process, or during our internal efforts to harmonize 

measurement approaches. The measure refinements include the following: 

(1) incorporation of the planned readmission algorithm in 30-day readmission measures 

for AMI, HF, PN, THA/TKA, and Hospital-Wide Readmission to match recent NQF 

endorsement maintenance decisions beginning in 2013; (2) expansion of CLABSI and 

CAUTI measures to select non-ICU locations in IPPS hospitals beginning with infections 

occurring on or after January 1, 2014 (consistent with NQF expansion of the measures 

beyond ICUs); (3) updates to SCIP Inf 4 to match recent NQF endorsement maintenance 

decisions beginning with January 1, 2014 discharges; and (4) an update to the MSPB 

measure to include Railroad Retirement Board (RRB) beneficiaries beginning in 2014. 

These proposed refinements are described in greater detail below. 
 820 

(1) Proposed Incorporation of Planned Readmission Algorithm for 30-day Readmission 

Measures 

 In response to stakeholder comments, we have developed an algorithm to identify 

readmissions that are likely to be planned as part of ongoing medical or surgical 

treatment. Planned readmissions are identified in claims data using the CMS Planned 

Readmission Algorithm Version 2.1 which detects readmissions that are typically 

planned and may occur within 30 days of discharge from the hospital. For more 

information on the methodology used to identify planned readmissions, and the list of 

planned diagnoses and procedures used in the algorithm, we refer to the Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/Hospital QualityInits/Measure-Methodology.html, as well as the discussion 

of planned readmissions under section 3025 of the Affordable Care Act in section V.G. of 

the preamble of this proposed rule. We submitted this algorithm for NQF review during 

annual maintenance of the AMI, HF, PN, and Total Hip/Total Knee Replacement 

readmission measures as well as for the recently adopted Hospital Wide Readmission 

measure. 

 NQF has endorsed the use of the algorithm for these measures, and we are 

proposing to incorporate the Planned Readmission Algorithm into the AMI, HF, PN, and 

Total Hip/Knee Replacement readmission measures in addition to the Hospital-Wide 

Readmission Measure beginning in 2013. We invite public comment on this proposal. 
 821 

(2) Proposed Expansion of Collection of CLABSI and CAUTI to Select Non-ICU 

Locations 

 We are proposing to expand the collection of the CAUTI and CLABSI measures 

to include several non-ICU locations beginning with infections occurring on or after 

January 1, 2014. Those proposed locations are medical wards, surgical wards, and 

medical/surgical wards. This expansion is consistent with the NQF re-endorsement 

update to these measures allowing application of the measures beyond ICUs. We are 

proposing this expansion to allow hospitals that do not have ICU locations to use the 

tools and resources of the NHSN for quality improvement and public reporting efforts. 

We invite public comment on this proposal. 

(3) Proposed Refinement of SCIP-INF-4 to Match Refinements Made During NQF 

Reendorsement 

 The quality measure SCIP Infection 4, Controlled 6AM Glucose for Cardiac 

Surgery Patients (NQF #300), is an example of a measure that has undergone extensive 

changes as a result of the NQF endorsement maintenance process. The specifications 

have changed so substantially that we are proposing to adopt them in this proposed rule. 

Specifically, the NQF Steering Committee voted to change the measure from controlled 

glucose at 6AM to a more comprehensive measure, controlled glucose 18-24 hours postcardiac surgery. The revised specifications also require corrective action to be 

documented if a post-operative glucose is over 180mg/dl. We are proposing to adopt 

these revised specifications for SCIP-INF-4 beginning with January 1, 2014 discharges 
 822 

and invite public comment on this proposal. The revised specifications for the measure 

can be found at http://www.qualityforum.org/QPS/0300. 

(4) Proposed Refinement of Medicare Spending Per Beneficiary Measure (MSPB) 

(a) Inclusion of Railroad Retirement Board Beneficiaries (RRB) 

 We are proposing a refinement to the Medicare spending per beneficiary (MSPB) 

measure previously finalized for the FY 2015 and subsequent years’ payment 

determination. We are proposing to include Railroad Retirement Board (RRB) 

beneficiaries in the measure for the FY 2016 and subsequent years’ payment 

determinations. We do not consider this refinement to be a substantive change. 

However, we are proposing this refinement through rulemaking because we explicitly 

stated in previous rulemaking that these beneficiaries would be excluded from the 

measure (76 FR 51620). Since that time, we have learned that we have complete claims 

data for RRB beneficiaries, and believe that eligible MSPB episodes generated by RRB 

hospital discharges should be included in the MSPB measure. We finalized the details of 

MSPB episode construction and adjustment in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51618 through 51626). The effect of including RRB beneficiaries on the MSPB 

ratio is minimal. For the majority of hospitals, the change in their MSPB measure rates 

would be small--between -0.01 and 0.01. 

 We welcome public comment on this proposal to refine the MSPB measure to 

include RRB beneficiaries. 
 823 

(b) Incorporating Maryland Hospitals 

 We are considering how best to incorporate Maryland hospitals paid under the 

waiver under section 1814(b)(3) of the Act into the MSPB measure. The payments made 

to Maryland hospitals pose a unique challenge to the payment standardization 

methodology currently used for the MSPB measure. Currently, hospitalizations in 

Maryland hospitals that are captured in the post-discharge window of the MSPB measure 

are standardized by applying the hospital wage index to the labor-related share of the 

IPPS payment, according to the methodology found on page 10 of the “CMS Price 

Standardization” document 

(http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier4&cid=1228772057350). This approach does not account for the absence 

of outlier payments on Maryland claims. In order to make a comparison of Maryland 

hospitals to other subsection (d) hospitals paid under the IPPS, in the event that MSPB 

measure rates are calculated for Maryland hospitals in the future, outliers would have to 

be imputed. If we were to include Maryland hospitals in the MSPB measure in the 

future, we would do so through future rulemaking. 

 We welcome public comment on the best approach to including Maryland 

hospitals in the MSPB measure and calculating MSPB measure rates for them. 

6. Proposed Additional Hospital IQR Program Measures for the FY 2016 Payment 

Determination and Subsequent Years 

 We are proposing to add five new risk-adjusted claims-based outcome measures 

to the Hospital IQR Program for the FY 2016 payment determination and subsequent 
 824 

years: (1) 30-day risk standardized COPD Readmission; (2) 30-day risk standardized 

COPD Mortality; (3) 30-day risk standardized Stroke Readmission; (4) 30-day risk 

standardized Stroke Mortality; and (5) AMI payment per Episode of Care. In 

section IX.A.7. of the preamble of this proposed rule, we also are proposing that hospitals 

may voluntarily report certain Hospital IQR measures in an electronic format. 

 The proposed measures were included on a publicly available document entitled 

“List of Measures Under Consideration for December 1, 2012” in compliance with 

section 1890A(a)(2) of the Act, and they were reviewed by the MAP in its “MAP 

Pre-Rulemaking Report: 2013 Recommendations on Measures Under Consideration by 

HHS,” which has been made available on the NQF Web site at 

http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partn

ership.aspx. We considered the input and recommendations provided by the MAP in 

selecting measures to propose for the Hospital IQR Program. 

 For purposes of the Hospital IQR Program, section 1886(b)(3)(B)(IX)(aa) of the 

Act requires that any measure specified by the Secretary must have been endorsed by the 

entity with a contract under section 1890(a) of the Act. However, the statutory 

requirements under section 1886(b)(3)(B)(IX)(bb) of the Act provide an exception that, 

in the case of a specified area or medical topic determined appropriate by the Secretary 

for which a feasible and practical measure has not been endorsed by the entity with a 

contract under section 1890(a) of the Act, the Secretary may specify a measure that is not 

so endorsed as long as due consideration is given to measures that have been endorsed or 

adopted by a consensus organization identified by the Secretary. 
 825 

 The proposed measures are described in greater detail below. 

a. Proposed Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) 

Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization Measure 

(NQF #1891) 

 We are proposing to include this NQF-endorsed measure in the Hospital IQR 

Program beginning with the FY 2016 payment determination. The MAP supports this 

measure. In 2007, MedPAC published a report to Congress in which it identified the 

seven conditions associated with the most costly potentially preventable readmissions; 

among these seven, COPD ranked fourth.60 In 2008, 12.1 million U.S. adults were 

estimated to have COPD resulting in approximately 672,000 hospital discharges.61 There 

is also evidence of variation in outcomes at hospitals for COPD patients, supporting the 

finding that there are opportunities for improving care. The median 30-day riskstandardized readmission rate among Medicare fee-for-service (FFS) patients aged 65 or 

older hospitalized for COPD in 2008 was 22.0 percent, and ranged from 18.33 percent - 

25.03 percent across 4,546 hospitals.62

 The AHRQ has identified COPD as an ambulatory-care-sensitive condition 

(ACSC). ACSCs are conditions for which good outpatient care can potentially prevent 

the need for hospitalization or for which early intervention can prevent complications or 

 

60 Committee MPA. Report to the Congress: Promoting Greater Efficiency in Medicare. 2007. 61 American Lung Association. Trends in COPD (Chronic Bronchitis and Emphysema): Morbidity and 

Mortality. 2010; Available at: http://www.lungusa.org/finding-cures/our-research/trend-reports/copdtrend-report.pdf.

62 Grosso L.M., Lindenauer P., Wang C., et al. Hospital-level 30-day Readmission Following Admission 

for an Acute Exacerbation of Chronic Obstructive Pulmonary Disease: Report prepared for the Centers for 

Medicare & Medicaid Services. 2011; Available at: http://www.qualitynet.org/. 
 826 

more severe disease.63 Although COPD is an ACSC, readmission rates are also 

influenced by inpatient care. 

 To better assess hospital care and care transitions for COPD patients, we 

developed a hospital-level readmission measure for patients hospitalized with an acute 

exacerbation of COPD. We are proposing this measure for use in the Hospital IQR 

Program as well as the Hospital Readmissions Reduction Program. We discuss the 

measure methodology in detail in the section of this proposed rule pertaining to the 

Hospital Readmissions Reduction Program. We refer readers to section IX.A.6.b. of the 

preamble of this proposed rule on COPD for details of the measure specifications. 

Details on the technical specifications of the measure can also be found on our Web site 

at: (http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 We invite public comment on this proposal. 

b. Proposed Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) 

Following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization Measure 

(NQF #1893) 

(1) Background 

 COPD affects as many as 24 million individuals in the United States and is the 

nation’sfourth leading cause of death. Between 1998 and 2008, the number of patients 

hospitalized annually for acute exacerbations of COPD (AECOPD) increased by 

 

63 AHRQ Quality Indicators. Fact Sheet: Prevention Quality Indicators. 2006; Available at: 

http://qualityindicators.ahrq.gov/downloads/pqi/2006-Feb-PreventionQualityIndicators.pdf. 
 827 

approximately 18 percent.64,65,66 Moreover, COPD is one of the top 20 conditions 

contributing to Medicare costs.67 Finally, there is evidence of variation in outcomes at 

hospitals for COPD patients, supporting the finding that there are opportunities for 

improving care. The median 30-day risk-standardized mortality rate among Medicare 

FFS patients aged 65 or older hospitalized for COPD in 2008 was 8.5 percent, and ranged 

from 5.9 percent to 13.5 percent across 4,537 hospitals.68

 We are proposing to include a hospital 30-day, all-cause risk-standardized rate of 

mortality following an admission for an AECOPD in the Hospital IQR Program. The 

measure aims to address a prevalent and costly health problem in the nation. In addition, 

the measure aligns with our priority objectives to promote quality improvements leading 

to successful transition of care for patients from acute care to outpatient settings, and 

reducing short term, preventable mortality rates. 

 We plan to implement this measure to encourage improvement of outcomes by 

providing patients, physicians, and hospitals with information about hospital-level, 

risk-standardized mortality rates following hospitalization for an AECOPD. Clinical 

trials and observational studies suggest that several aspects of care provided to patients 

hospitalized for AECOPD can have significant effects on mortality, thus supporting the 

 

64 National Heart L, and Blood Institute,. The Morbidity & Mortality: Chart Book on Cardiovascular, Lung 

and Blood Diseases. 2009; Available at: http://www.nhlbi.nih.gov/resources/docs/2009_ChartBook.pdf. 65 The Centers for Disease Control and Prevention. National Center for Health Statistics Chronic Lower 

Respiratory Disease. FastStats 2010; Available at: http://www.cdc.gov/nchs/fastats/copd.htm. 66 Agency for Healthcare Research and Quality. Healthcare Cost and Utilization Project Statistics on 

Hospitals Stays. 2009; Available at: http://hcupnet.ahrq.gov/. 67 Andrews RM. The National Hospital Bill: The Most Expensive Conditions by Payer, 2006. Rockville: 

Agency for Healthcare Research and Quality; 2008. 

68 Grosso L.M., Lindenauer P., Wang C., et al. Hospital-level 30-day Mortality Following Admission for an 

Acute Exacerbation of Chronic Obstructive Pulmonary Disease: Report prepared for the Centers for 

Medicare & Medicaid Services. 2011; Available at: http://www.qualitynet.org. 
 828 

essential construct of mortality as an appropriate outcome to measure quality.69, 70,71,72 

Moreover, by proposing an outcome measure, we intend to broaden the view of quality of 

care that encompasses more than what can be captured by merely measuring individual 

processes-of-care. Through outcome measures, we can capture complex and critical 

aspects of care, such as communication between providers, prevention of, and response 

to, complications, patient safety and coordinated transitions to the outpatient 

environment, all contribute to patient outcomes but are difficult to measure by individual 

process measures.73, 74 

The specifics of the measure methodology are included in the measure 

methodology report we have posted on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. Please see the report for 

further details on the risk-adjustment statistical model. 

 

69 Global strategy for Diagnosis M, and Prevention of COPD,. 2009; Available at: 

http://www.goldcopd.org/. 70 National Institute for Health and Clinical Excellence. Chronic Obstructive Pulmonary Disease: 

Management of Chronic Obstructive Pulmonary Disease in Adults in Primary and Secondary Care (Partial 

Update):. National Collaborating Centre for Acute and Chronic Conditions. Available at: 

http://www.nice.org.uk/nicemedia/live/13029/49397/49397.pdf. 71 Walters JA, PG Gibson, R Wood-Baker, M Hannay, EH Walters. Systemic corticosteroids for acute 

exacerbations of chronic obstructive pulmonary disease. Cochrane Database Syst Rev. 2009; CD001288(1). 72 Lightowler JV, Wedzicha JA, Elliott MW, Ram FS. Non-invasive positive pressure ventilation to treat 

respiratory Failure resulting from exacerbations of chronic obstructive pulmonary disease: Cochrane 

systematic review and meta-analysis. Bmj. 2003;326(7382). 

73 Krumholz H, Normand S-L, Spertus JA, Shahian DM, Bradley EH. Measuring Performance for Treating 

Heart Attacks and Heart Failure: The Case for Outcomes Measurement. Health Affairs 2007;26:75-85. 74 Bradley EH, Herrin J, Elbel B, et al. Hospital Quality for Acute Myocardial Infarction: Correlation 

Among Process Measures and Relationship With Short-term Mortality. The Journal of the American 

Medical Association 2006;296:72-8. 
 829 

(2) Overview of Measure 

 The measure is a NQF-endorsed 30-day, all-cause risk-standardized rate of 

mortality after admission for an AECOPD to any non-federal acute care hospital. The 

MAP supports this measure for inclusion in the Hospital IQR Program. 

 In general, the measure uses the same approach to risk-adjustment and 

hierarchical logistic modeling (HLM) methodology that is specified for our inpatient 

outcome measures previously adopted for the Hospital IQR Program, including AMI, HF, 

and PN readmission and mortality measures. For a discussion of this methodology, we 

refer readers to our Web site at: http://cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

(3) Data Sources 

 The proposed measure is claims-based and uses Medicare administrative data that 

contain hospitalizations for FFS Medicare beneficiaries hospitalized with AECOPDs. 

(4) Outcome 

 The outcome for this measure is 30-day all-cause mortality defined as a death 

from any cause within 30 days of the admission date for the index hospitalization. This 

outcome period is consistent with other NQF-endorsed publicly reported mortality 

measures (AMI, HF, and PN). 

 The measure assesses all-cause mortality not just COPD-specific mortality for 

several reasons. First, limiting the measure to COPD-related mortalities may limit the 

focus of efforts to improve care to a narrow set of approaches (such as processes that will 

prevent a recurrent exacerbation) as opposed to encouraging broader initiatives aimed at 
 830 

improving the overall in-hospital care. Second, cause of death may be unreliably 

recorded and it is often not possible to exclude quality issues and accountability based on 

the documented cause of mortality. For example, a COPD patient who develops a 

hospital-acquired infection may ultimately die from sepsis. It would be inappropriate to 

treat this death as unrelated to the care the patient received for COPD. Finally, from a 

patient perspective, death is the outcome that matters, regardless of cause. 

(5) Cohort 

 COPD is a group of lung diseases characterized by airway obstruction. Patients 

hospitalized for an AECOPD present with varying degrees of severity ranging from a 

worsening of baseline symptoms (dyspnea, cough, and/or sputum) to respiratory failure. 

To capture the full spectrum of severity of patients hospitalized for an AECOPD, we 

included patients with a principal diagnosis of COPD, as well as those with a principal 

diagnosis of respiratory failure who had a secondary diagnosis of an AECOPD. 

Requiring AECOPD as a secondary code helps to identify respiratory failure due to 

COPD exacerbation versus another condition (for example, heart failure). For detailed 

information on the cohort definition please reference the COPD mortality technical report 

on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

(6) Inclusion and Exclusion Criteria 

 The measure includes hospitalizations for patients 65 years or older at the time of 

index admission and for whom there was a complete 12 months of FFS enrollment to 

allow for adequate risk-adjustment. The measure excludes the following admissions 
 831 

from the measure cohort: (1) admissions for patients having a principal diagnosis of an 

AECOPD during the index hospitalization who were transferred from another acute care 

facility are excluded because the hospital where the patient was initially admitted made 

critical acute care decisions (including the decision to transfer and where to transfer); 

(2) admissions for patients enrolled in the Medicare Hospice Program any time in the 

12 months prior to the index hospitalization, including the first date of the index 

admission are excluded because it is likely that these patients are continuing to seek 

comfort care and their goal may not be survival; and (3) admissions for patients that are 

discharged alive and against medical advice are excluded because providers did not have 

the opportunity to deliver full care and prepare the patient for discharge. 

(7) Risk Adjustment 

 The measure adjusts for differences across hospitals in how at risk their patients 

are for death relative to patients cared for by other hospitals. Consistent with NQF 

guidelines, the model does not adjust for socioeconomic status or race because 

risk-adjusting for these characteristics would hold hospitals with a large proportion of 

minority or low socioeconomic status patients to a different standard of care than other 

hospitals. One goal of this measure is to illuminate quality differences that such 

risk adjustment would obscure. 

(8) Calculating the Risk-Standardized Mortality Ratio (RSMR) 

 The measure is calculated using hierarchical logistic modeling (HLM). This 

approach appropriately accounts for the types of patients a hospital treats (that is, hospital 

case mix), the number of patients it treats, and the quality of care it provides. The HLM 
 832 

is an appropriate statistical approach to measuring quality based on patient outcomes 

when the patients are clustered within hospitals (and therefore the patients’ outcomes are 

not statistically independent) and the number of eligible patients for the measure varies 

from hospital to hospital. As noted above, the measure methodology defines hospital 

case mix based on the clinical diagnoses provided in the hospital claims for their patients’ 

inpatient and outpatient visits for the 12 months prior to the COPD hospitalization, as 

well as those present in the claims for care at admission. The methodology, however, 

specifically does not account for diagnoses present in the index admission that may 

indicate complications rather than patient comorbidities. 

 The RSMR is calculated as the ratio of the number of predicted deaths to the 

number of expected deaths and then the ratio is multiplied by the national unadjusted 

mortality rate. The ratio is greater than one for hospitals that have more deaths that 

would be expected for an average hospital with similar cases and less than one if the 

hospital has fewer deaths than would be expected for an average hospital with similar 

cases. This approach is analogous to a ratio of “observed” or “crude” rate to an 

“expected” or risk-adjusted rate used in other similar types of statistical analyses. 

 The RSMR is a point estimate – the best estimate of a hospital’s mortality rate 

based on the hospital’s case mix. For displaying the measure for the Hospital IQR 

Program, we computed an interval estimate, which is similar to the concept of a 

confidence interval, to characterize the level of uncertainty around the point estimate. 

We use the point estimate and interval estimate to determine hospital performance (for 

example, higher than expected, as expected, or lower than expected). For more detailed 
 833 

information on the calculation methodology please refer to our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

We invite public comment on this proposal. 

c. Proposed Hospital 30-day, All-Cause Risk-Standardized Rate of Readmission 

Following Acute Ischemic Stroke (Stroke Readmission) Measure 

(1) Background 

 Stroke is an important and common diagnosis among Medicare patients. 

Ischemic stroke affects hundreds of thousands of adults in the United States each year 

and leaves many with new disability and at increased risk for complications, recurrent 

stroke and clinical deterioration.75 Hospital readmissions after stroke may result from the 

progression of disease, but may also be an indicator of poor care. Approximately 10 

percent of stroke survivors will have a recurrent stroke within a year and one out of four 

stroke patients will be readmitted to the hospital.76, 77, 78 Moreover, stroke is one of the 

 

75 American Heart Association, Heart Disease and Stroke Statistics - 2012 Update. American Heart 

Association, Circulation 2012, 125:e2-e220. 

76 Sacco RL, Hauser WA, Mohr JP, Foulkes MA. One‐year outcome after cerebral infarction in whites, 

blacks, and Hispanics. Stroke 1991;22:305‐11. 
 834 

top 20 conditions contributing to Medicare costs.79 Finally, there is evidence of variation 

in outcomes at hospitals for stroke patients, supporting the finding that there are 

opportunities for improving care. The median 30-day risk-standardized readmission rate 

among Medicare FFS patients aged 65 or older hospitalized for stroke in 2007 was 

14.7 percent, and ranged from 11.6 percent to 19.4 percent across 4,242 hospitals.80

 We are proposing to include this non-NQF-endorsed hospital 30-day, all-cause 

risk-standardized rate of readmission following acute ischemic stroke measure in the 

Hospital IQR Program, under the exception authority in section 1886(b)(3)(B)(IX)(bb) of 

the Act as previously discussed in section IX.A.6. of the preamble to this proposed rule. 

Although the proposed measure is not currently NQF-endorsed or MAP supported, we 

 

77 Andersen HE, Schultz‐Larsen K, Kreiner S, Forchhammer BH, Eriksen K, Brown A. Can readmission 

after stroke be prevented? Results of a randomized clinical study: a postdischarge follow‐up service for 

stroke survivors. Stroke 2000;31:1038‐45. 

78 Gooding J, Jette AM. Hospital readmissions among the elderly. Journal of the American Geriatric 

Society 1985;33:595‐601. 

79 Andrews RM. The National Hospital Bill: The Most Expensive Conditions by Payer, 2006. Rockville: 

Agency for Healthcare Research and Quality; 2008. 

80 Bernheim S.M., Wang C., Wang Y., et al. Hospital 30‐Day Readmission Following Acute Ischemic 

Stroke Hospitalization Measure: Report prepared for the Centers for Medicare & Medicaid Services. 2010; 

Available at: http://www.qualitynet.org. 
 835 

considered other available measures that have been endorsed or adopted by a consensus 

organization, and found no other feasible and practical measures on this topic. We 

believe it is imperative to adopt this measure as it aims to address a prevalent and costly 

health problem in the nation. In addition, the measure aligns with our priority objectives 

to promote quality improvements leading to successful transition of care for patients from 

acute care to outpatient settings, and reduce short term, preventable readmission rates. 

 We plan to implement this measure to encourage improvement of outcomes by 

providing patients, physicians, and hospitals with information about hospital-level, riskstandardized readmission rates following hospitalization for acute ischemic stroke. 

Studies have shown stroke readmission to be related to quality of care, and that 

improvements in care can reduce readmission rates.81, 82, 83 Moreover, by proposing an 

outcome measure, we intend to broaden the view of quality of care that encompasses 

more than what can be captured by merely measuring individual processes-of-care. 

 

81 Jack BW, Chetty VK, Anthony D, et al. A Reengineered Hospital Discharge Program to Decrease 

Rehospitalization. Annals of Internal Medicine 2009;150:178‐88. 

82 Naylor MD, Brooten D, Cambell R, et al. Comprehensive Discharge Planning and Home Follow‐up of 

Hospitalized Elders: A Randomized Clinical Trial. The Journal of the American Medical Association 1999; 

281:613‐20. 

83 Bravata DM, Ho SY, Meehan TP, Brass LM, Concato J. Readmission and death after hospitalization for 

acute ischemic stroke: 5‐year follow‐up in the Medicare population. Stroke 2007; 38:1899‐904. 
 836 

Through outcome measures, we can capture complex and critical aspects of care, such as 

communication between providers, prevention of, and response to, complications, patient 

safety and coordinated transitions to the outpatient environment, all of which contribute 

to patient outcomes but are difficult to measure by individual process measures.84, 85

 The specifics of the measure methodology are included in the measure 

methodology report we have posted on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. We refer readers to the 

report for further details on the risk-adjustment statistical model. 

(2) Overview of Measure 

 The measure is a 30-day, all-cause risk-standardized rate of readmission 

following hospitalization for acute ischemic stroke to any non-federal acute care hospital. 

The measure includes Medicare FFS patients aged 65 or older admitted for an acute 

ischemic stroke and assesses if the patient was readmitted within 30 days of discharge. 

 In general, the measure uses the same approach to risk-adjustment and HLM 

methodology that is specified for our inpatient outcome measures previously adopted for 

the Hospital IQR Program, including AMI, HF, and PN readmission and mortality 

measures. For a discussion of this methodology, we refer readers to our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 

84 Krumholz H, Normand S-L, Spertus JA, Shahian DM, Bradley EH. Measuring Performance for Treating 

Heart Attacks and Heart Failure: The Case for Outcomes Measurement. Health Affairs 2007;26:75-85. 85 Bradley EH, Herrin J, Elbel B, et al. Hospital Quality for Acute Myocardial Infarction: Correlation 

Among Process Measures and Relationship With Short-term Mortality. The Journal of the American 

Medical Association 2006;296:72-8. 
 837 

 Furthermore this measure, which is calculated using CMS claims or 

administrative data, is validated by comparing it to a medical record model in a matched 

cohort of admissions for which stroke medical record data and administrative claims data 

are available. 

(3) Data Sources 

 The proposed measure is claims-based and uses Medicare administrative data that 

contain hospitalizations for fee‐for‐service Medicare beneficiaries hospitalized with acute 

ischemic stroke. 

(4) Outcome 

 The outcome for this measure is 30-day all-cause readmission defined as an 

unplanned subsequent inpatient admission to any acute care facility from any cause 

within 30 days of the admission date for the index hospitalization. A number of studies 

have demonstrated that improvements in care at the time of patient discharge can reduce 
 838 

30‐day readmission rates.86, 87,88 It is a timeframe in which a readmission may reasonably 

be attributed to the hospital care and transitional period to a non-acute setting. 

 The measure assesses all-cause unplanned readmission (excluding planned 

readmissions) rather than only stroke-specific readmissions for several reasons. First, 

from the patient perspective, readmission for any reason is likely to be an undesirable 

outcome of care, even though not all readmissions are preventable. Second, limiting the 

 

86 Jack BW, Chetty VK, Anthony D, et al. A Reengineered Hospital Discharge Program to Decrease 

Rehospitalization. Annals of Internal Medicine 2009;150:178‐88. 

87 Coleman EA, Parry C, Chalmers S, Min S‐j. The Care Transitions Intervention: Results of a Randomized 

Controlled Trial. Archives of Internal Medicine 2006;166:1822‐8. 

88 Anderson C, Deepak BV, Amoateng‐Adjepong Y, Zarich S. Benefits of Comprehensive Inpatient 

Education and Discharge Planning Combined With Outpatient Support in Elderly Patients With Congestive 

Heart Failure. Congestive Heart Failure 2005;November‐December:315‐21. 
 839 

measure to stroke‐related readmissions may limit the focus of efforts to improve care to a 

narrow set of approaches (such as processes that will prevent recurrent stroke) as opposed 

to encouraging broader initiatives aimed overall at improving the care within the hospital 

and transitions from the hospital setting. Moreover, it is often hard to exclude quality 

issues and accountability based on the documented cause of readmission, for instance, a 

patient who came back with pneumonia may have aspirated due to inadequate preventive 

measures and therefore we would not want to discount such a readmission. 

 The measure does not count readmissions that are considered planned. Planned 

readmissions are identified in claims data using the CMS Planned Readmission 

Algorithm Version 2.1 which detects readmissions that are typically planned and may 

occur within 30 days of discharge from the hospital. For more information on the 

methodology used to identify planned readmissions, and the list of planned diagnoses and 

procedures used in the algorithm, please refer to on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. The stroke readmission 

measure makes one modification to the planned readmissions algorithm as it does not 

consider readmissions as planned for patients who are readmitted for debridement of 

wound; infection or burn (AHRQ’s Clinical Classification Software procedure category 

169). Such treatments are commonly provided for decubitus ulcers that can easily be 
 840 

unplanned readmissions following stroke care, because such ulcers can complicate a 

stroke. The algorithm includes planned readmissions for common related follow-up care 

for stroke patients (for example, carotid endarterectomy) as well as readmissions which 

are generally planned regardless of the original admission (for example, a stroke patient 

readmitted for cholecystectomy). Unplanned readmissions that fall within the 30-day 

post discharge timeframe from the index admission are not counted as outcomes for the 

index admission if they are preceded by a planned readmission. 

(5) Cohort 

 The cohort of index hospital admissions included in the measure is restricted to 

hospitalizations for ischemic stroke. The measure is limited to ischemic stroke 

hospitalizations for several reasons. First, ischemic strokes are the most common type of 

stroke, accounting for the vast majority of stroke hospitalizations.89 Second, the etiology 

and prognosis of ischemic stroke is quite different than that of hemorrhagic stroke, so a 

combined cohort would be more heterogeneous. This heterogeneity could make it more 

difficult to account for a hospital’s patient mix and lead to a less fair measure. Similarly, 

patients with transient ischemic attacks (TIAs) are not included largely due to concerns 

about inconsistency in the use of administrative codes to define TIA and potential for 

inclusion of patients without cerebrovascular conditions. For detailed information on the 

 

89 Thom T, Haase N, Rosamond W, et al. Heart Disease and Stroke Statistics‐2006 Update: A Report From 

the American Heart Association Statistics Committee and Stroke Statistics Subcommittee. Journal of the 

American Heart Association 2006:85‐151. 
 841 

cohort definition, we refer readers to the stroke readmission technical report on our Web 

site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

(6) Inclusion and Exclusion Criteria 

 The measure includes hospitalizations for patients 65 years or older at the time of 

index admission and for whom there was a complete 12 months of FFS enrollment to 

allow for adequate risk-adjustment. The measure excludes the following admissions 

from the measure cohort: (1) admissions for patients who die during the initial 

hospitalization because they are not eligible for readmission; (2) admissions for patients 

having a principal diagnosis of stroke during the index hospitalization and subsequently 

transferred to another acute care facility are excluded because the measure’s focus is on 

hospitals that discharge patients to a non-acute setting (for example, to home or a skilled 

nursing facility); (3) admissions for patients that are discharged against medical advice 

are excluded because providers did not have the opportunity to deliver full care and 

prepare the patient for discharge; (4) admissions for patients without at least 30-days 

post-discharge enrollment in Medicare FFS are excluded because the 30-day readmission 

outcome cannot be assessed in this group; and (5) additional stroke admissions for 

patients within 30 days of discharge from an index stroke admission will be considered 

readmissions and not additional index admissions. 

(7) Risk Adjustment 

 The measure adjusts for differences across hospitals in how at risk their patients 

are for readmission relative to patients cared for by other hospitals. Consistent with NQF 
 842 

guidelines, the model does not adjust for socioeconomic status or race because riskadjusting for these characteristics would hold hospitals with a large proportion of 

minority or low socioeconomic patients to a different standard of care than other 

hospitals. One goal of this measure is to illuminate quality differences that such 

risk-adjustment would obscure. 

(8) Calculating the Risk Standardized Readmission Ratio (RSRR) 

 The measure is calculated using HLM. This approach appropriately accounts for 

the types of patients a hospital treats (that is, hospital case mix), the number of patients it 

treats, and the quality of care it provides. HLM is an appropriate statistical approach to 

measuring quality based on patient outcomes when the patients are clustered within 

hospitals (and therefore the patients’ outcomes are not statistically independent) and the 

number of eligible patients for the measure varies from hospital to hospital. As noted 

above, the measure methodology defines hospital case mix based on the clinical 

diagnoses provided in the hospital claims for their patients’ inpatient and outpatient visits 

for the 12 months prior to the ischemic stroke hospitalization, as well as those present in 

the claims for care at admission. However, the methodology specifically does not 

account for diagnoses present in the index admission that may indicate complications 

rather than patient comorbidities. In addition, the measure takes into account situations 

where patients initially present at one ED but are then admitted to another hospital for 

their index stroke hospitalization. The measure includes a risk-adjustment factor to 

account for ED-transfer patients. 
 843 

 The RSRR is calculated as the ratio of the number of predicted readmissions to 

the number of expected readmissions and then the ratio is multiplied by the national 

unadjusted readmission rate. The ratio is greater than one for hospitals that have more 

readmission that would be expected for an average hospital with similar cases and less 

than one if the hospital has fewer readmissions than would be expected for an average 

hospital with similar cases. This approach is analogous to a ratio of “observed” or 

“crude” rate to an “expected” or risk-adjusted rate used in other similar types of statistical 

analyses. 

 The RSRR is a point estimate – the best estimate of a hospital’s readmission rate 

based on the hospital’s case mix. For displaying the measure for the Hospital IQR 

Program, we computed an interval estimate, which is similar to the concept of a 

confidence interval, to characterize the level of uncertainty around the point estimate. 

We use the point estimate and interval estimate to determine hospital performance (for 

example, higher than expected, as expected, or lower than expected). For more detailed 

information on the calculation methodology, we refer readers to our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 We are proposing to adopt this measure in the Hospital IQR Program for the 

FY 2016 payment determination and subsequent years under the exception authority in 

section 1886(b)(3)(B)(IX)(bb) of the Act as previously discussed in section IX.A.6. of the 

preamble of this proposed rule. Although the proposed measure is not currently 

NQF-endorsed or MAP supported, we considered other available measures that have 
 844 

been endorsed or adopted by the NQF, and were unable to identify any other NQFendorsed measures that assess stroke readmission with a standard period of follow-up. 

We also are not aware of any other 30-day stroke readmission measures that have been 

endorsed or adopted by a consensus organization. The development of this measure went 

through the same rigorous development process as the other publicly reported outcomes 

measures and involved extensive input by stakeholders and clinical experts. It follows 

the same scientific approach to evaluate hospital performance as other Hospital IQR 

Program outcome measures. Finally, it has been validated with medical record measures 

and shown to produce similar hospital-level results. Accordingly, we are proposing to 

adopt the 30-day stroke readmission measure under the Secretary’s authority set forth at 

section 1886(b)(3)(B)(IX)(bb) of the Act. 

 We invite public comment on this proposal. 

d. Proposed Hospital 30-Day, All-Cause Risk-Standardized Rate of Mortality Following 

an Admission for Acute Ischemic Stroke (Stroke Mortality) Measure 

(1) Background 

 Stroke is an important and common diagnosis among Medicare patients. Stroke 

affects approximately 795,000 people each year in the U.S. with high rates of mortality 

and morbidity. Stroke is the fourth most common cause of death after heart disease, 

cancer, and chronic lower respiratory disease.90 Moreover, stroke is one of the top 

20 conditions contributing to Medicare costs.91 Finally, there is evidence of variation in 

 

90 American Heart Association, Heart Disease and Stroke Statistics - 2012 Update. American Heart 

Association, Circulation 2012, 125:e2-e220. 

91 Andrews RM. The National Hospital Bill: The Most Expensive Conditions by Payer, 2006. Rockville: 

Agency for Healthcare Research and Quality; 2008. 
 845 

outcomes at hospitals for stroke patients, supporting the finding that there are 

opportunities for improving care. The median 30-day risk-standardized mortality rate 

among Medicare FFS patients aged 65 or older hospitalized for stroke in 2007 was 

15.3 percent, and ranged from 10.7 percent to 23.5 percent across 4,288 hospitals.92

 We are proposing to include a non-NQF endorsed hospital 30-day, all-cause riskstandardized rate of mortality following an admission for acute ischemic stroke measure 

in the Hospital IQR Program, under the exception authority in 

section 1886(b)(3)(B)(IX)(bb) of the Act as previously discussed in section IX.A.6. of the 

preamble of this proposed rule. Although the proposed measure is not currently 

NQF-endorsed or MAP supported, we considered other available measures that have 

been endorsed or adopted by a consensus organization, and found no other feasible and 

practical measures on this topic. We believe it is important to adopt this measure as it 

aims to address a prevalent and costly health problem in the nation. In addition, the 

measure aligns with our priority objectives to promote quality improvements leading to 

successful transition of care for patients from acute care to outpatient settings, and 

reducing short term, preventable mortality rates. 

 We plan to implement this measure to encourage improvement of outcomes by 

providing patients, physicians, and hospitals with information about hospital-level, riskstandardized mortality rates following hospitalization for acute ischemic stroke. Studies 

 

92 Bernheim S.M., Wang C., Wang Y., et al. Hospital 30‐Day Mortality Following Acute Ischemic Stroke 

Hospitalization Measure: Report prepared for the Centers for Medicare & Medicaid Services. 2010; 

Available at: http://www.qualitynet.org.
 846 

have shown stroke mortality to be related to quality of care, and that there are effective 

interventions that hospitals can adopt to reduce mortality rates.93,94 Moreover, by 

proposing an outcome measure, we intend to broaden the view of quality of care that 

encompasses more than what can be captured by merely measuring individual processesof-care. Through outcome measures, we can capture complex and critical aspects of care, 

such as communication between providers, prevention of, and response to, complications, 

patient safety and coordinated transitions to the outpatient environment, all of which 

contribute to patient outcomes, but are difficult to measure by individual process 

measures.95,96 

The specifics of the measure methodology are included in the measure 

methodology report we have posted on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. We refer readers to the 

report for further details on the risk-adjustment statistical model. 

(2) Overview of Measure 

 The measure is a 30-day, all-cause risk-standardized rate of mortality after 

admission for acute ischemic stroke to any non-federal acute care hospital. The measure 

 

93 Fonarow GC, Reeves MJ, Zhao X, et al. Age-Related Differences in Characteristics, Performance 

Measures, Treatment Trends, and Outcomes in Patients With Ischemic Stroke. Journal of the American 

Heart Association 2010;121:879-91. 

94 Bravata DM, Wells CK, Lo AC, et al. Processes of Care Associated With Acute Stroke Outcomes. 

Archives of Internal Medicine 2010;170:804-10. 

95 Krumholz H, Normand S-L, Spertus JA, Shahian DM, Bradley EH. Measuring Performance for Treating 

Heart Attacks and Heart Failure: The Case for Outcomes Measurement. Health Affairs 2007;26:75-85. 96 Bradley EH, Herrin J, Elbel B, et al. Hospital Quality for Acute Myocardial Infarction: Correlation 

Among Process Measures and Relationship With Short-term Mortality. The Journal of the American 

Medical Association 2006;296:72-8. 
 847 

includes Medicare fee-for-service patients aged 65 or older admitted for an acute 

ischemic stroke and assesses if the patient died within 30 days of admission. 

 In general, the measure uses the same approach to risk-adjustment and HLM 

methodology that is specified for our inpatient outcome measures previously adopted for 

the Hospital IQR Program, including AMI, HF, and PN readmission and mortality 

measures. For a discussion of this methodology, we refer readers to our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 Furthermore this measure, which is calculated using CMS claims or 

administrative data, is validated by comparing it to a medical record model in a matched 

cohort of admissions for which stroke medical record data and administrative claim data 

are available. 

(3) Data Sources 

 The proposed measure is claims-based and uses Medicare administrative data that 

contain hospitalizations for Medicare FFS beneficiaries hospitalized with acute ischemic 

stroke. 

(4) Outcome 

 The outcome for this measure is 30-day all-cause mortality defined as a death 

from any cause within 30 days of the admission date for the index hospitalization. Thirty 

days is a standard time period used in other measures of stroke mortality.97,98 It is a 

 

97 Saposnik G, Hill MD, O'Donnell M, Fang J, Hachinski V, Kapral MK. Variables Associated With 7-Day, 

30-Day, and 1-Year Fatality After Ischemic Stroke. Journal of the American Heart Association 2008;39. 
 848 

timeframe in which a death may reasonably be attributed to the hospital care and 

transitional period to a non-acute setting. 

 The measure assesses all-cause mortality as opposed to stroke-specific mortality 

for several reasons. First of all, limiting the measure to stroke-related mortalities may 

limit the focus of efforts to improve care to a narrow set of approaches (such as processes 

that will prevent recurrent stroke) as opposed to encouraging broader initiatives aimed at 

improving the overall care within the hospital. Second, cause of death may be unreliably 

recorded and it is often impossible to exclude quality issues and accountability based on 

the documented cause of mortality. For example, a stroke patient who develops a 

hospital-acquired infection may ultimately die from sepsis. It would be inappropriate to 

treat this mortality as unrelated to the care the patient received for stroke. Finally, from a 

patient perspective, death is the outcome that matters, regardless of cause. 

(5) Cohort 

 The cohort of index hospital admissions included in the measure is restricted to 

hospitalizations for ischemic stroke. The measure is limited to ischemic stroke 

hospitalizations for a few reasons. First, ischemic strokes are the most common type of 

stroke, accounting for the vast majority of stroke hospitalizations.99 Second, the causes 

and prognosis of ischemic stroke are quite different than that of hemorrhagic stroke, so a 

combined cohort would be more heterogeneous. This heterogeneity could make it more 

difficult to account for a hospital’s patient mix and lead to a less fair measure. Similarly, 

 98 Counsell C, Dennis M, McDowall M, Warlow C. Predicting Outcome After Acute and Subacute Stroke: 

Development and Validation of New Prognostic Models Journal of the American Heart Association 

2002:1041-7. 

99 American Heart Association, Heart Disease and Stroke Statistics - 2012 Update. American Heart 

Association, Circulation 2012, 125:e2-e220. 
 849 

patients with TIAs are not included largely due to concerns about inconsistency in the use 

of administrative codes to define TIA and potential for inclusion of patients without 

cerebrovascular conditions. For detailed information on the cohort definition please 

reference the stroke mortality technical report on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

(6) Inclusion and Exclusion Criteria 

 The measure includes hospitalizations for patients 65 years or older at the time of 

index admission and for whom there was a complete 12 months of FFS enrollment to 

allow for adequate risk-adjustment. The measure excludes the following admissions 

from the measure cohort: (1) admissions for patients having a principal diagnosis of 

stroke during the index hospitalization who were transferred from another acute care 

facility are excluded because the hospital where the patient was initially admitted made 

critical acute care decisions (including the decision to transfer and where to transfer); 

(2) admissions for patients enrolled in the Medicare Hospice program any time in the 

12 months prior to the index hospitalization, including the first date of the index 

admission are excluded because it is likely that these patients are continuing to seek 

comfort care and their goal may not be survival; and (3) admissions for patients that are 

discharged alive and against medical advice are excluded because providers did not have 

the opportunity to deliver full care and prepare the patient for discharge. 
 850 

(7) Risk Adjustment 

 The measure adjusts for differences across hospitals in how at risk their patients 

are for death relative to patients cared for by other hospitals. Consistent with NQF 

guidelines, the model does not adjust for socioeconomic status or race because riskadjusting for these characteristics would hold hospitals with a large proportion of 

minority or low socioeconomic status patients to a different standard of care than other 

hospitals. One goal of this measure is to illuminate quality differences that such 

risk-adjustment would obscure. 

(8) Calculating the Risk Standardized Mortality Ratio (RSMR) 

 The measure is calculated using hierarchical logistic modeling (HLM). This 

approach appropriately accounts for the types of patients a hospital treats (that is, hospital 

case mix), the number of patients it treats, and the quality of care it provides. The HLM 

is an appropriate statistical approach to measuring quality based on patient outcomes 

when the patients are clustered within hospitals (and therefore the patients’ outcomes are 

not statistically independent) and the number of eligible patients for the measure varies 

from hospital to hospital. As noted above, the measure methodology defines hospital 

case mix based on the clinical diagnoses provided in the hospital claims for their patients’ 

inpatient and outpatient visits for the 12 months prior to the stroke hospitalization, as well 

as those present in the claims for care at admission. However, the methodology 

specifically does not account for diagnoses present in the index admission that may 

indicate complications rather than patient comorbidities. In addition, the measure takes 

into account situations where patients initially present at one ED, are then admitted to 
 851 

another hospital for their index stroke hospitalization. The measure includes a riskadjustment factor to account for ED-transfer patients. 

 The RSMR is calculated as the ratio of the number of predicted deaths to the 

number of expected deaths and then the ratio is multiplied by the national unadjusted 

mortality rate. The ratio is greater than one for hospitals that have more deaths that 

would be expected for an average hospital with similar cases and less than one if the 

hospital has fewer deaths than would be expected for an average hospital with similar 

cases. This approach is analogous to a ratio of an “observed” or “crude” rate to an 

“expected” or risk-adjusted rate used in other similar types of statistical analyses. 

 The RSMR is a point estimate – the best estimate of a hospital’s mortality rate 

based on the hospital’s case mix. For displaying the measure for the Hospital IQR 

Program, we computed an interval estimate, which is similar to the concept of a 

confidence interval, to characterize the level of uncertainty around the point estimate. 

We use the point estimate and interval estimate to determine hospital performance (for 

example, higher than expected, as expected, or lower than expected). For more detailed 

information on the calculation methodology, we refer readers to our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 We are proposing to adopt this measure in the Hospital IQR Program for the 

FY 2016 payment determination and subsequent years under the exception authority in 

section 1886(b)(3)(B)(IX)(bb) of the Act as previously discussed in section IX.A.6. of the 

preamble of this proposed rule. Although the proposed measure is not currently 
 852 

NQF-endorsed or MAP supported, we considered other available measures that have 

been endorsed or adopted by the NQF, and were unable to identify any other 

NQF-endorsed measures that assess stroke mortality with a standard period of follow-up. 

We also are not aware of any other 30-day stroke mortality measures that have been 

endorsed or adopted by a consensus organization. The development of this measure went 

through the same rigorous development process as the other publicly reported outcomes 

measures and involved extensive input by stakeholders and clinical experts. It follows 

the same scientific approach to evaluate hospital performance as other Hospital IQR 

outcome measures. Finally, it has been validated with medical record measures and 

shown to produce similar hospital-level results. Accordingly, we are proposing to adopt 

the 30-day stroke mortality measure under the Secretary’s authority set forth at 

section 1886(b)(3)(B)(IX)(bb) of the Act. 

 We invite public comment on this proposal. 

e. Proposed Hospital Risk-Standardized Payment Associated with a 30-day 

Episode-of-Care for Acute Myocardial Infarction (AMI) Measure 

(1) Background 

 Providing high-value care is an essential part of our mission to provide better 

health care for individuals, better health for populations, and lower costs for health care. 

In order to incentivize innovation that promotes high-quality care at high value it is 

critical to examine measures of payment and patient outcomes concurrently. There is 

evidence of variation in payments at hospitals for AMI patients; mean 30-day 

risk-standardized payment among Medicare FFS patients aged 65 or older hospitalized 
 853 

for AMI in 2008 was $20,207, and ranged from $15,521 to $27,317 across 1,846 

hospitals.100 However, high or low payments to hospitals are difficult to interpret in 

isolation. Some high payment hospitals may have better clinical outcomes when 

compared with low payment hospitals while other high payment hospitals may not have 

better outcomes. For this reason, the value of hospital care is more clearly assessed when 

pairing hospital payments with hospital quality. Therefore, we are proposing to include a 

non-NQF-endorsed measure: hospital risk-standardized payment associated with a 30-day 

episode-of-care for acute myocardial infarction (AMI) in the Hospital IQR Program 

under the exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act as previously 

discussed in section IX.A.6. of the preamble of this proposed rule. Although the 

proposed measure is not currently NQF-endorsed, we considered other available 

measures that have been endorsed or adopted by a consensus organization, and found no 

other feasible and practical measures on this topic. The MAP supports this measure 

contingent on NQF-endorsement. 

 We believe it is important to adopt this measure as it is aligned with our 30-day 

AMI mortality measure and can also be paired with our 30-day AMI readmission 

measure. This would facilitate assessing hospital value, because including this measure 

in the Hospital IQR Program and publicly reporting it on Hospital Compare will allow 

stakeholders to assess information about a hospital’s quality and cost of care for AMI. 

The measure reflects differences in the management of care for patients with AMI both 

during hospitalization and immediately post-discharge. AMI is a condition with 

 

100 Kim N., Bernheim S.M., Ott L.S., et al. Hospital-level, Risk-Standardized Payment Associated with a 

30-Day Episode-of-Care for AMI: Report prepared for the Centers for Medicare & Medicaid Services. 

2013; Available at: http://www.qualitynet.org. 
 854 

substantial variation in costs of care and, therefore, is an ideal condition for assessing 

relative value for an episode-of-care that begins with an acute hospitalization. By 

focusing on one specific condition, value assessments may provide actionable feedback 

to hospitals and incentivize targeted improvements in care. 

(2) Rationale for Examining Payments for a 30-Day Episode-of-Care 

 When examining variation in payments, consideration of the episode-of-care 

triggered by admission is meaningful for several reasons. First, hospitalizations represent 

a brief period of illness that requires ongoing management post-discharge and decisions 

made at the admitting hospital affect payments for care in the immediate post-discharge 

period. Second, attributing payments for a continuous episode-of-care to admitting 

hospitals may reveal practice variations in the full care of the illness that can result in 

increased payments. Third, a 30-day preset window provides a standard observation 

period by which to compare all hospitals. Lastly, the AMI payment measure is intended 

to be paired with our 30-day AMI mortality and readmission measures and capture 

payments for Medicare patients across all care settings, services, and supplies, except for 

Medicare Part D (that is, inpatient, outpatient, skilled nursing facility, home health, 

hospice, physician/clinical laboratory/ambulance services, supplier Part B items, and 

durable medical equipment, prosthetics/orthotics, and supplies). 

 We have posted the measure methodology report on our Web site at: 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. We refer readers to the 
 855 

report for further details on the risk adjustment statistical model as well as the model 

results. 

(3) Overview of the Measure 

 The AMI payment measure assesses hospital risk-standardized payment 

associated with a 30-day episode-of-care for AMI for any non-federal acute care hospital. 

The measure includes Medicare FFS patients aged 65 or older admitted for an AMI and 

calculates payments for these patients over a 30-day episode-of-care beginning with the 

index admission. In general, the measure uses the same approach to risk-adjustment as 

our 30-day outcome measures previously adopted for the Hospital IQR Program, 

including the AMI, HF, and PN readmission and mortality measures. We refer readers to 

our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

(4) Data Sources 

 The proposed measure is claims-based and uses Medicare administrative data that 

contain hospitalizations and payments for Medicare FFS beneficiaries hospitalized with 

AMI. 

(5) Outcome 

 The primary outcome of the AMI payment measure is the hospital-level 

risk-standardized payment for an AMI episode-of-care. The measure captures payments 

for Medicare patients across all care settings, services, and supplies, except Part D. By 

risk-standardizing the payment measure, we are able to adjust for case-mix at any given 

hospital and compare a specific hospital’s AMI payment to other hospitals with the same 
 856 

case-mix. The analytic time frame for the AMI payment measure begins with the index 

admission for AMI and ends 30 days post-admission. 

 In order to isolate payment variation that reflects practice patterns rather than 

CMS payment adjustments, the AMI payment measure excludes policy and geography 

payment adjustments unrelated to clinical care decisions. We achieve this by “stripping” 

or “standardizing” payments for each care setting. Stripping refers to removing 

geographic differences and policy adjustments in payment rates for individual services 

from the total payment for that service. Standardizing refers to averaging payments 

across geographic areas for those services where geographic differences in payment 

cannot be stripped. Stripping and standardizing the payment amounts allows for a fair 

comparison across hospitals based solely on payments for decisions related to clinical 

care of AMI.

(6) Cohort 

 We created the AMI payment measure cohort to be aligned with the publicly 

reported AMI mortality measure cohort. Consistent with these measures, the AMI 

payment measure includes hospitalizations with a principal hospital discharge diagnosis 

of AMI using the International Classification of Diseases, Ninth revision, Clinical 

Modification. A full list of ICD-9-CM codes included in the final cohort can be found in 

Appendix B of the technical report on our Web site at: http://cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/HospitalQualityInits/MeasureMethodology.html. An index hospitalization is the initial AMI admission that triggers 

the 30-day episode-of-care for this payment calculation. The measure includes only 
 857 

those hospitalizations from short-stay acute care hospitals in the index cohort and restricts 

the cohort to patients enrolled in FFS Medicare Parts A and B (with no Medicare 

Advantage coverage). 

(7) Inclusion and Exclusion Criteria 

 The AMI payment measure includes hospitalizations for patients 65 years or older 

at the time of index admission and for whom there was a complete 12 months of FFS 

enrollment to allow for adequate risk adjustment. The measure excludes the following 

admissions from the measure cohort: (1) admissions for patients with fewer than 30 days 

of post-admission enrollment in Medicare because this is necessary in order to identify 

the outcome (payments) in the sample over the analytic period; (2) admissions for 

patients having a principal diagnosis of AMI during the index hospitalization who were 

transferred from another acute care facility are excluded, because the hospital where the 

patient was initially admitted made the critical acute care decisions (including the 

decision to transfer and where to transfer); (3) admissions for AMI patients who were 

discharged on the same or next day as the index admission and did not die or get 

transferred are excluded, because it is unlikely these patients suffered a clinically 

significant AMI; (4) admissions for patients enrolled in the Medicare Hospice program 

any time in the 12 months prior to the index hospitalization, including the first date of the 

index admission are excluded, because it is likely that these patients are continuing to 

seek comfort care and their goal may not be survival; (5) admissions for patients who are 

discharged alive and against medical advice are excluded because providers did not have 

the opportunity to deliver full care and prepare the patient for discharge; (6) admissions 
 858 

for patients transferred to or from federal or Veterans Administration hospitals are 

excluded, because we do not have claims data for these hospitals; thus, including these 

patients would systematically underestimate payments; and (7) admissions without a 

DRG or DRG weight for the index hospitalization are excluded, because we cannot 

calculate a payment for these patients’ index admission using the IPPS; this would 

underestimate payments for the entire episode-of-care. 

(8) Risk Adjustment 

 The measure adjusts for differences across hospitals in how payments are affected 

by patient comorbidities relative to patients cared for by other hospitals. Consistent with 

NQF guidelines, the model does not adjust for socioeconomic status or race, because 

risk-adjusting for these characteristics would hold hospitals with a large proportion of 

minority or low socioeconomic status patients to a different standard of care than other 

hospitals. One goal of this measure is to illuminate quality differences that such 

risk-adjustment would obscure. 

(9) Calculating the Risk Standardized Payment (RSP) 

 The measure is calculated using hierarchical generalized linear statistical models 

with a log link and an inverse Gaussian error distribution. This approach appropriately 

models a positive, continuous, right-skewed outcome like payment and also accounts for 

the types of patients a hospital treats (that is, hospital case mix), the number of patients it 

treats, and the quality of care it provides. The hierarchical generalized linear model is an 

appropriate statistical approach to measuring quality based on patient outcomes when the 

patients are clustered within hospitals (and therefore the patients’ outcomes are not 
 859 

statistically independent) and sample sizes vary across hospitals. As noted above, the 

measure methodology defines hospital case mix based on the clinical diagnoses provided 

in the hospital claims for their patients’ inpatient and outpatient visits for the 12 months 

prior to the AMI hospitalization, as well as those present in the claims for care at 

admission. This methodology specifically does not, however, account for diagnoses 

present in the index admission that may indicate complications rather than patient 

comorbidities. 

 The RSP is calculated as the ratio of predicted payments to expected payments 

and then the ratio is multiplied by the national unadjusted average payment for an 

episode-of-care. The ratio is greater than one for hospitals that have higher payments 

than would be expected for an average hospital with similar cases and less than one if the 

hospital has lower payments than would be expected for an average hospital with similar 

cases. This approach is analogous to a ratio of “observed” or “crude” rate to an 

“expected” or “risk-adjusted” rate used in other similar types of statistical analyses. 

 The RSP is a point estimate – the best estimate of a hospital’s payment based on 

the hospital’s case mix. For displaying the measure for the Hospital IQR Program, we 

computed an interval estimate, which is similar to the concept of a confidence interval, to 

characterize the level of uncertainty around the point estimate, we use the point estimate 

and interval estimate to determine hospital performance (for example, higher than 

expected, as expected, or lower than expected). For more detailed information on the 

calculation methodology, we refer readers to our Web site at: 
 860 

http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. 

 We are proposing to adopt the AMI payment measure in the Hospital IQR 

Program for the FY 2016 payment determination and subsequent years under the 

exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act as previously discussed 

in section IX.A.6. of the preamble of this proposed rule. Although the proposed measure 

is not currently NQF-endorsed, we considered available measures that have been 

endorsed or adopted by the NQF, and we were unable to identify any measures that 

assess hospital risk-standardized payment associated with a 30-day episode-of-care for 

acute myocardial infarction. We also are not aware of any other 30-day episode-of-care 

for acute myocardial infarction measures that have been endorsed or adopted by a 

consensus organization. 

 This measure is meant to be paired with our 30-day AMI mortality and/or 

readmission measure in order for us to gain a better understanding of the value of care for 

a hospital’s patients and the nation as a whole. We invite public comment on this 

proposal. 

 Set out below is a table showing both the previously adopted and proposed new 

quality measures for the FY 2016 payment determination and subsequent years. This 

table does not include suspended measures and measures proposed for removal. 
 861 

Topic Previously Adopted and Proposed Hospital IQR Program 

Measures for the FY 2016 Payment Determination and Subsequent 

Years

Acute Myocardial Infarction (AMI) Measures 

● AMI-7a Fibrinolytic (thrombolytic) agent received within 30 

minutes of hospital arrival 

● AMI-8a Timing of Receipt of Primary Percutaneous Coronary 

Intervention (PCI) 

Heart Failure (HF) Measures 

● HF-2 Evaluation of left ventricular systolic function 

Stroke Measure (STK) Set 

● STK-1 VTE prophylaxis 

● STK-2 Antithrombotic therapy for ischemic stroke† 

● STK-3 Anticoagulation therapy for Afib/flutter† 

● STK-4 Thrombolytic therapy for acute ischemic stroke† 

● STK-5 Antithrombotic therapy by the end of hospital day 2† 

● STK-6 Discharged on Statin† 

● STK-8 Stroke education† 

● STK-10 Assessed for rehab† 

VTE Measure Set 

● VTE-1 VTE prophylaxis† 

● VTE-2 ICU VTE prophylaxis† 

● VTE-3 VTE patients with anticoagulation overlap therapy† 

● VTE-4 Patients receiving un-fractionated Heparin with doses/labs 

monitored by protocol† 

● VTE-5 VTE discharge instructions† 

● VTE-6 Incidence of potentially preventable VTE† 

Pneumonia (PN) Measures 

● PN-6 Appropriate initial antibiotic selection 

Surgical Care Improvement Project (SCIP) Measures 

● SCIP INF-1 Prophylactic antibiotic received within 1 hour prior to 

surgical incision 

● SCIP INF-2: Prophylactic antibiotic selection for surgical patients 

● SCIP INF-3 Prophylactic antibiotics discontinued within 24 hours 

after surgery end time (48 hours for cardiac surgery) 

● SCIP INF-4: Cardiac surgery patients with controlled 6AM 

postoperative serum glucose 

● SCIP INF-9: Postoperative urinary catheter removal on post 

operative day 1 or 2 with day of surgery being day zero 

● SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker prior to 
 862 

Topic Previously Adopted and Proposed Hospital IQR Program 

Measures for the FY 2016 Payment Determination and Subsequent 

Years

arrival who received a Beta Blocker during the perioperative period 

● SCIP-VTE-2: Surgery patients who received appropriate VTE 

prophylaxis within 24 hours pre/post surgery 

Mortality Measures (Medicare Patients) 

● Acute Myocardial Infarction (AMI) 30-day mortality rate 

● Heart Failure (HF) 30-day mortality rate 

● Pneumonia (PN) 30-day mortality rate 

● Stroke 30-day mortality rate*** 

● COPD 30-day mortality rate*** 

Patients' Experience of Care Measures 

● HCAHPS survey (expanded to include one 3-item care transition 

set* and two new “About You” items)* 

Readmission Measures (Medicare Patients) 

● Acute Myocardial Infarction (AMI) 30-day Risk Standardized 

Readmission Measure 

● Heart Failure (HF) 30-day Risk Standardized Readmission Measure 

● Pneumonia (PN) 30-day Risk Standardized Readmission Measure 

● 30-day Risk Standardized Readmission following Total Hip/Total 

Knee Arthroplasty* 

● Hospital-Wide All-Cause Unplanned Readmission (HWR)* 

● Stroke 30-day Risk Standardized Readmission*** 

● COPD 30-day Risk Standardized Readmission*** 

AHRQ Patient Safety Indicators (PSIs) Composite Measures 

● Complication/patient safety for selected indicators (composite) 

AHRQ PSI and Nursing Sensitive Care 

● PSI-4 Death among surgical inpatients with serious treatable 

complications 

Structural Measures 

● Participation in a Systematic Database for Cardiac Surgery 

● Participation in a Systematic Clinical Database Registry for Nursing 

Sensitive Care 

● Participation in a Systematic Clinical Database Registry for General 

Surgery 

● Safe Surgery Checklist Use** 

Healthcare-Associated Infections Measures 
 863 

Topic Previously Adopted and Proposed Hospital IQR Program 

Measures for the FY 2016 Payment Determination and Subsequent 

Years

● Central Line Associated Bloodstream Infection 

● Surgical Site Infection 

 - SSI following Colon Surgery 

 - SSI following Abdominal Hysterectomy 

● Catheter-Associated Urinary Tract Infection 

● MRSA Bacteremia 

● Clostridium difficile (C. difficile) 

● Healthcare Personnel Influenza Vaccination 

Surgical Complications 

● Hip/Knee Complication: Hospital-level Risk-Standardized 

Complication Rate (RSCR) following Elective Primary Total Hip 

Arthroplasty* 

Emergency Department (ED) Throughput Measures 

● ED-1 Median time from emergency department arrival to time of 

departure from the emergency room for patients admitted to the 

hospital† 

● ED-2 Median time from admit decision to time of departure from 

the emergency department for emergency department patients admitted 

to the inpatient status†

Prevention: Global Immunization (IMM) Measures 

● Immunization for Influenza 

Cost Efficiency 

● Medicare Spending per Beneficiary

● AMI Payment per Episode of Care*** 

Perinatal Care 

● Elective delivery prior to 39 completed weeks of gestation*/† 

* New or expanded measures/items for FY 2015 payment determination and subsequent years. 

** New measures for FY 2016 payment determination and subsequent years. 

*** Proposed measures for FY 2016 payment determination and subsequent years. 

† Proposed measure for electronic reporting via CEHRT in the Hospital IQR Program (voluntary 

participation in CY 2014). 
 864 

7. Electronic Clinical Quality Measures 

 We believe that collection and reporting of data through health information 

technology will greatly simplify and streamline reporting for many CMS quality 

reporting programs. Through electronic reporting, hospitals will be able to leverage 

EHRs to capture, calculate, and electronically submit quality data that is currently 

manually chart-abstracted and submitted to CMS for the Hospital IQR Program. As we 

noted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51614), we recognize the need 

to align and harmonize measures across hospital quality reporting programs to minimize 

the reporting burden imposed on hospitals. In the Medicare EHR Incentive Program 

Stage 2 final rule (77 FR54083 through 54087), we finalized 29 clinical quality measures 

from which hospitals must select a total of 16 measures covering at least three domains to 

report beginning in FY 2014. We anticipate that, as health information technology 

evolves and infrastructure is expanded, we will have the capacity to accept electronic 

reporting of many of the chart-abstracted measures that are currently part of the Hospital 

IQR Program. 

 Recently, we published in the Federal Register (78 FR 308 through 310) a 

Request for Information (RFI) entitled, “Medicare Program; Request for Information on 

Hospital and Vendor Readiness for Electronic Health Records Hospital Inpatient Quality 

Data Reporting” to gather stakeholder feedback to determine the optimal timing and 

transition strategy for adopting electronic reporting of quality measures by hospitals 

participating in the Hospital IQR Program. The information sent in response to the RFI 

was considered as the proposals set forth below were developed. We are proposing an 
 865 

approach that begins to align the Hospital IQR and Medicare EHR Incentive Programs by 

providing hospitals currently participating in the Hospital IQR Program with the option 

of electronically reporting a subset of measures. 

 We are proposing that hospitals would be able to, on a voluntary basis, 

electronically report 16 measures across four measure sets, (stroke [STK], venous 

thromboembolism [VTE], emergency department [ED] and perinatal care [PC]) in 

CY 2014 for the FY 2016 Hospital IQR Program payment determination. These four 

measure sets are also already included in the Hospital IQR Program as chart-abstracted 

measures. The measures in three of these four measure sets – STK, VTE, ED – 

(15 measures) are already included in the Medicare EHR Incentive Program Electronic 

Reporting Pilot for Eligible Hospitals and CAHs (76 FR 74489). With regard to the 

measure set perinatal care (PC), we stated in the 2013 IPPS/LTCH PPS final rule that we 

would consider electronic reporting when the e-specification of the PC-01 measure 

became available. The electronic specifications for these measures are included in the 

electronic clinical quality measure library at: http://www.cms.gov/Regulations-andGuidance/Legislation/EHRIncentivePrograms/eCQM_Library.html. We recognize that 

PC-01 is a highly burdensome measure for hospitals to report via chart abstraction. Also, 

we do not believe that the measures, in their electronically specified form, are 

substantively different than they are in their chart-abstracted form, although we recognize 

that the EHR-based extraction methodology is different from the chart abstraction data 

collection methodology. 
 866 

 We considered proposing to require hospitals to electronically report either a 

greater or lesser number of Hospital IQR quality measures. Based on the RFI comments, 

we grew concerned that hospitals, vendors and other stakeholders might not be able to 

comply with a requirement to report certain quality measures electronically in CY 2014. 

As a result, we are proposing to make electronic reporting voluntary in CY 2014. We 

strongly encourage participation in voluntary electronic reporting during CY 2014 to 

prepare for required electronic reporting that we intend to propose for certain measures 

beginning in CY 2015. The proposed requirements for electronic reporting are discussed 

below in section IX.A.9.d.of the preamble of this proposed rule. We invite public 

comment on this proposal. 

8. Possible New Quality Measures and Measure Topics for Future Years 

 We anticipate that, as EHR technology evolves, hospitals will electronically 

report all chart-abstracted clinical process of care and HAI measures which are currently 

part of the Hospital IQR Program or which have been proposed for adoption into the 

Program. As stated above, we intend for the future direction of electronic quality 

measure reporting to significantly reduce administrative burden on hospitals under the 

Hospital IQR Program. We will continue to work with measure stewards and developers 

to develop new measure concepts, and conduct pilot, reliability and validity testing. We 

believe that this proposal will provide hospitals and CMS with the ability to test systems 

in CY 2014 in order to prepare for required electronic reporting that we intend to propose 

for CY 2015. We believe this will simplify measure collection and submission for the 
 867 

Hospital IQR Program, and will reduce the burden on hospitals to report chart-abstracted 

measures. 

 We intend to propose that hospitals report additional electronic measures in an 

effort to reduce the burden associated with reporting chart abstracted measures and to 

continue to promote the adoption of CEHRT. 

 We are inviting public comment on our intention to add 5 new measures to be 

collected via EHRs in the future. The five new measures listed below were reviewed by 

the MAP for inclusion in the Hospital IQR Program: 

● Severe Sepsis and Septic Shock Management Bundle NQF #0500 (MAP 

supported) 

● PC-02 Cesarean Section NQF #0471 (MAP supported) 

● PC-05 Exclusive Breast Milk Feeding NQF #0480 (MAP supported) 

● Healthy Term Newborn NQF #0716 (MAP supported the direction of this 

measure) 

● Hearing Screening Prior to Hospital Discharge NQF #1354 (MAP supported). 

.
 868 

9. Form, Manner, and Timing of Quality Data Submission 

a. Background 

 Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act state that the applicable 

percentage increase for FY 2007 and each subsequent fiscal year shall be reduced by 

2.0 percentage points (or beginning with FY 2015, by one-quarter of such applicable 

percentage increase (determined without regard to sections 1886(b)(3)(B)(ix), (xi), or 

(xii) of the Act)) for any subsection (d) hospital that does not submit, to the Secretary in 

accordance with this clause and in a form and manner, and at a time, specified by the 

Secretary, data required to be submitted on measures selected under this clause with 

respect to such a fiscal year. For each Hospital IQR Program year, we require that 

hospitals submit data on each measure in accordance with the measure’s specifications 

for a particular period of time. The data submission requirements, Specifications 

Manual, and submission deadlines are posted on the QualityNet Web site at: 

http://www.QualityNet.org/. Hospitals submit quality data through the secure portion of 

the QualityNet (formerly known as QualityNet Exchange) Web site 

(https://www.QualityNet.org). This Web site meets or exceeds all current Health 

Insurance Portability and Accountability Act requirements for security of protected health 

information. 

 In order to participate in the Hospital IQR Program, hospitals must meet specific 

procedural requirements. Hospitals choosing to participate in the Hospital IQR Program 

must also meet specific data collection, submission, and validation requirements. 
 869 

b. Procedural Requirements for the FY 2016 Payment Determination and Subsequent 

Years 

 The Hospital IQR Program procedural requirements are now codified in 

regulation at 42 CFR § 412.140. Hospitals should generally refer to the regulation for 

participation requirements. We are, however, proposing to make three changes to the 

procedural requirements in this proposed rule. 

 We are proposing to align the last date to withdraw with the final submission 

deadline. The current withdrawal deadline is August 15 of the fiscal year preceding the 

fiscal year for which a Hospital IQR Program payment determination will be made. We 

are proposing to change that deadline to May 15 prior to the start of the payment year 

affected in order to align with the last submission quarter deadline. For example, if a 

hospital wanted to withdraw from the program for the FY 2016 payment determination, 

the hospital would need to complete the withdrawal by May 15, 2015. We are proposing 

to amend the language at 42 CFR § 412.140(b) to reflect this proposal. We are proposing 

this change because we are striving to provide more timely feedback to hospitals 

regarding their annual payment update (APU) status. We do not believe this change 

would add any additional burden to hospitals and it would provide CMS the ability to 

make earlier participation decisions. We invite public comment on this proposal. 

 In addition, we are proposing two technical corrections to the regulation text at 

42 CFR § 412.140. The first correction is to the title of this section. The current title is 

“Participation, Data Submission, and Validation Requirements under the Hospital 

Inpatient Quality Review (IQR) Program.” This should state “Participation, Data 
 870 

Submission, and Validation Requirements Under the Hospital Inpatient Quality 

Reporting (IQR) Program.” The second technical correction is at paragraph (a)(3) which 

states: “Submit a completed Notice of Participation Form to CMS if the hospital is 

participating in the program for the first time, has previously withdrawn from the 

program and would like to participate again, or has received a new CMS Certification 

Number (CNN).” We are proposing to correct the acronym “CNN” to “CCN”. The 

proposed language would state: “Submit a completed Notice of Participation Form to 

CMS if the hospital is participating in the program for the first time, has previously 

withdrawn from the program and would like to participate again, or has received a new 

CMS Certification Number (CCN).” 

c. Proposed Data Submission Requirements for Chart-Abstracted Measures 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53536 through 53537), for the 

FY 2015 payment determination and subsequent years, we retained the 41⁄2 months 

quarterly submission deadline for chart-abstracted quality measures. We also retained the 

aggregate population and sampling deadline of 4 months. Hospitals would continue to be 

required to submit aggregate population and sample size counts to CMS on a quarterly 

basis for Medicare and non-Medicare discharges for the topic areas for which chartabstracted data must be submitted (76 FR 51640 through 51641). We adopted the same 

14-day period after the aggregate population and sample size count deadline to submit the 

required patient-level records. For the FY 2016 payment determination and subsequent 

years, hospitals must submit data for four consecutive calendar year discharge quarters. 

For example, for the FY 2016 payment determination, the submission quarters are as 
 871 

follows: 1Q CY 2014, 2Q CY 2014, 3Q CY 2014 and 4Q CY 2014. We also adopted 

this submission deadline for the new chart-abstracted measure for FY 2016, Elective 

Delivery Prior to 39 Completed Weeks Gestation: Percentage of Babies Electively 

Delivered Prior to 39 Completed Weeks Gestation which is collected via a Web Based 

Tool. 

 For the FY 2016 payment determination and subsequent years, we are proposing 

to clarify the submission deadline time. Although we have historically stated that the 

submission deadline is 11:59 pm, we have not clarified which time zone. For the 

FY 2016 payment determination and subsequent years we are proposing to clarify that 

submissions to QualityNet will be accepted until 11:59 pm Pacific time. We invite public 

comment on this proposal. 

d. Proposed Data Submission Requirements for Quality Measures That May be 

Voluntarily Electronically Reported for the FY 2016 Payment Determination 

 We are proposing the following approach to begin to align quality measure 

reporting under the Hospital IQR and Medicare EHR Incentive Programs. (We note that 

this proposal does not implement any statutory provisions of the HITECH Act or change 

any of the existing regulatory provisions of the Medicare EHR Incentive Program, which 

are the subject of section IX.E of the preamble of this proposed rule, separate rulemaking 

and public comment.) Under the Hospital IQR Program, for the FY 2016 payment 

determination, hospitals may choose to either (1) electronically report at least one quarter 

of CY 2014 quality measure data for each measure in each of four Hospital IQR measure 

sets (STK, VTE, ED and PC), or (2) to continue reporting all of these measures using 
 872 

chart-abstracted data for all four quarters of CY 2014. If a hospital chooses to 

electronically report the four measure sets, all of the quality measures in those four 

measure sets must be electronically reported for the same reporting quarter(s) although, 

as stated above, the hospital may choose which quarter(s) to report. 

 We strongly recommend hospitals electronically report the 16 measures in these 

four measure sets in CY 2014, to provide hospitals and CMS with the ability to test 

systems and adjust workflow in CY 2014 in order to prepare for required electronic 

reporting that we intend to propose for CY 2015 in the Hospital IQR Program. We 

believe this will simplify quality reporting and submission for the Hospital IQR Program, 

and will reduce the reporting burden on hospitals. To further incentivize hospitals to 

choose this option, we also intend to use the electronically reported data to determine 

whether the hospital has satisfied the Medicare EHR Incentive Program clinical quality 

measure reporting requirement. The hospital must also satisfy all other requirements for 

the Medicare EHR Incentive Program. 

 We are proposing different Hospital IQR Program data submission deadlines for 

each quarter depending on whether the hospital is submitting the data solely for the 

Hospital IQR Program (that is, if the hospital does not want the data to be used to 

determine whether the hospital has satisfied the Medicare EHR Incentive Program 

clinical quality measure reporting requirement) or whether the hospital wishes to satisfy 

the requirements of both programs. 

 If a hospital chooses to report the four measure sets electronically for the Hospital 

IQR Program, but does not want the data to be used to determine whether the hospital has 
 873 

satisfied the Medicare EHR Incentive Program clinical quality measure reporting 

requirement, the reporting periods and deadlines are as follows,: 

FY 2016 Hospital IQR Program Chart-Abstracted Measure Reporting Periods and 

Deadlines 

Discharge Reporting Periods Submission Deadlines 

January 1, 2014 - March 31, 2014 August 15,2014

April 1, 2014 - June 30, 2014 November 15, 2014

July 1, 2014 - September 30, 2014 February 15, 2015

October 1, 2014 - December 31, 2014 May 15, 2015

 However, if the hospital does want us to use the electronically reported data to 

also determine whether the hospital has satisfied the Medicare EHR Incentive Program 

clinical quality measure reporting requirement, we are proposing to modify this data 

submission schedule to align the reporting periods and deadlines for the Hospital IQR 

and Medicare EHR Incentive Programs. Specifically, we are proposing that if a hospital 

wants us to also use the electronically reported data to determine whether the hospital has 

satisfied the Medicare EHR Incentive Program clinical quality measure reporting 

requirement, the Medicare EHR Incentive Program reporting periods and deadlines could 

be used to satisfy the Hospital IQR Program requirements. The Medicare EHR Incentive 

Program clinical quality measure reporting follows the Federal fiscal year while the 

Hospital IQR Program follows the calendar year. The table below lists the FY 2014 

Medicare EHR Incentive Program reporting periods and submission deadlines. 
 874 

Medicare EHR Incentive Program Reporting Periods and Deadlines FY 2014101

Reporting Periods 

Submission 

Deadlines 

For eligible hospitals in their first year of the Medicare EHR 

Incentive Program - Any 90 consecutive days in FY 2014 prior to 

July 1, 2014 July 1, 2014

For eligible hospitals that are beyond their first year of the 

Medicare EHR Incentive Program reporting electronically – Any 

FY 2014 quarter, or the entire FY 2014 (October 1, 2013 - 

September 30, 2014) November 30, 2014

 We note that the submission deadline is November 30, 2014 for hospitals that are 

beyond their first year of the Medicare EHR Incentive Program. Accordingly, if such a 

hospital chooses to electronically report 3Q CY 2014 data under the Hospital IQR 

Program, it would need to submit the data by November 30, 2014 (not 

February 15, 2015) for us to also use that data to determine whether the hospital has 

satisfied its Medicare EHR Incentive Program clinical quality measurement requirement. 

In addition, as noted above, the hospital must satisfy all other program requirements 

established for the Medicare EHR Incentive Program. 

 We also note that because of the difference in reporting deadlines, we will not be 

able to use 4Q 2014 electronically submitted Hospital IQR data for purposes of 

determining whether a hospital has satisfied its Medicare EHR Incentive Program clinical 

quality measurement requirement. Hospitals, however, can still report the data 

electronically to meet their Hospital IQR Program requirements. 

 

101 We refer readers to Tables 5 and 6 at 77 FR 54051. 
 875 

 We are proposing in section IX.E. of the preamble of this proposed rule to extend 

the beginning of the electronic submission period to January 2. If finalized, we note that 

hospitals in their first year of demonstrating meaningful use could also electronically 

submit the four measure sets (STK, VTE, ED and PC) for one quarter by July 1, 2014 to 

meet the clinical quality measure reporting criteria for the Medicare EHR Incentive 

Program as well as the Hospital IQR Program reporting requirement for those measure 

sets. We are also proposing that hospitals choosing to report at least one quarter of 

quality measure data electronically would not need to submit chart-abstracted quality 

measure data for the other quarters in CY 2014 for these four measure sets (STK, VTE, 

ED and PC). 

 For hospitals choosing to report electronically in the Hospital IQR Program, we 

are proposing that hospitals submitting these four measure sets electronically must use 

the Medicare EHR Incentive Program process for electronically submitting quality 

measure data into QualityNet (for EHR-based reporting). We are proposing Hospital 

IQR Program hospitals follow the submission requirements finalized in the Medicare 

EHR Incentive Program Stage 2 final rule (77 FR 54080). Hospitals will utilize their 

existing QualityNet account to submit electronic quality measure data. Specific 

submission procedures will be posted on the QualityNet Web site at: 

https://www.qualitynet.org/. We are proposing to align with the case threshold 

exemption from the Medicare EHR Incentive Program, which means that for each quality 

measure for which hospitals do not have a minimum number of patients that meet the 

patient population denominator criteria for the relevant EHR reporting period, hospitals 
 876 

will have the ability to declare a “case threshold exemption” of five or fewer discharges. . 

Our intent is to finalize the same process in both the Medicare EHR Incentive Program 

and the Hospital IQR Program as further detailed below. 

 In preparation for this transition to electronic quality measure reporting under the 

Hospital IQR Program, we are proposing that if a hospital chooses to report the four 

measure sets (STK, VTE, ED and PC) electronically during CY 2014, the hospital’s data 

will be extracted from the Certified Electronic Health Record Technology (CEHRT) and 

submitted to CMS using the Health Level Seven (HL7) Quality Reporting Document 

Architecture (QRDA) Category I Revision 2 standard. Certified EHR Technology is 

defined for the Medicare EHR Incentive Program at 42 CFR § 495.4 and 

45 CFR § 170.102. 

 We recognize that a small percentage of Hospital IQR Program-participating 

hospitals are not currently participating in the Medicare EHR Incentive Program and that 

this proposal may not be applicable to those hospitals. These hospitals should continue to 

report the four measure sets using chart-abstraction. However, we believe greater 

adoption of CEHRT and reporting of quality measures electronically across Medicare 

hospital quality reporting will reduce the administrative burden on hospitals associated 

with the reporting of chart-abstracted quality measures. This will help hospitals to meet 

both Hospital IQR Program and Medicare EHR Incentive Program requirements with a 

streamlined data submission to CMS. We invite public comment on this proposal. 

 In the recent HHS ONC final rule regarding standards, implementation 

specifications, and certification criteria for health information technology (77 FR 54163 
 877 

through 54292), HHS adopted “2014 Edition” EHR certification criteria that will require 

CEHRT to provide the capability to submit electronic clinical quality measure data in the 

HL7 QRDA Category I standard to support patient-level data submissions. We do not 

believe that our proposal to use QRDA Category I (patient-level) data under the Hospital 

IQR Program will create a new reporting burden for hospitals because we already require 

hospitals to submit “all-payer” patient-level data under the Hospital IQR Program. 

 The QRDA standard specifies the framework for quality reporting, standardizes 

measure-defined data elements for interoperability between organizations, and is used to 

transmit clinical quality measure data needed to meet meaningful use (MU) requirements 

under the Medicare EHR Incentive Program. 

 We are proposing that we will not publicly report data collected from hospitals 

choosing to report these four measure sets electronically in CY 2014. After reviewing 

comments we received from our Request for Information (RFI) entitled “Medicare 

Program; Request for Information on Hospital and Vendor Readiness for Electronic 

Health Records Hospital Inpatient Quality Data Reporting” (78 FR 308 through 310), it 

became clear that we should consider not publicly reporting clinical quality measure data 

submitted electronically for the four proposed measure sets due to possible abnormalities 

in the data and/or the submission process that may occur during the first year of 

electronic reporting to CMS. This proposal will provide us time to assess the data 

reported to determine the optimal timing and transition strategy for electronic quality 

measure reporting by hospitals participating in the Hospital IQR Program. However, we 

would like to recognize hospitals that report electronically and invite public comment on 
 878 

whether hospitals choosing electronic reporting of quality measures would like to be 

acknowledged on the Hospital Compare Web site as “Pioneers” in Medicare EHR-based 

reporting. However, the data results for Medicare EHR-based measures would not be 

publicly reported. 

 We are concerned that a large number of hospitals would not be able to meet the 

Hospital IQR Program requirements for FY 2016 if we proposed to require hospitals to 

electronically report the four measure sets. Accordingly, we believe this proposal – 

providing hospitals the opportunity for voluntary electronic submission of data for one 

quarter of CY 2014 discharges – represents a balanced policy that some hospitals will be 

able to take advantage of while ensuring that the FY 2016 Hospital IQR Program 

requirements are attainable for all participating hospitals. As we move further toward 

alignment of quality measures reporting among our reporting initiatives, we intend to 

propose in the future to require hospitals to report electronically specified quality 

measures. We invite public comment on this approach. 

 We are not proposing to validate any of the data that is electronically reported for 

the FY 2016 Hospital IQR Program. However, we share the concern among hospitals, 

vendors, and other stakeholders that there is a need to develop a comprehensive 

validation process that applies to electronically reported data. We intend to develop and 

propose to adopt a data validation strategy for electronically reported quality measure 

data in the FY 2015 IPPS/LTCH PPS proposed rule. This strategy will be informed, in 

part, by comments we receive in response to this proposed rule. We invite public 

comment regarding potential data validation methodologies. 
 879 

e. Sampling and Case Thresholds for the FY 2016 Payment Determination and 

Subsequent Years 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641), we continued, for the 

FY 2015 payment determination and subsequent years, the approach we adopted in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50230) regarding hospital submission of 

population and sampling data. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53537), 

we did not make any changes to these requirements. For the FY 2016 payment 

determination and subsequent years, we are not proposing to make any changes to these 

requirements. 

 We strongly recommend that hospitals review the QIO Clinical Warehouse 

Feedback Reports and the Hospital IQR Program Provider Participation Reports that are 

available after patient-level data are submitted to the QIO Clinical Warehouse. We 

generally update 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. 

f. Proposed HCAHPS Requirements for the FY 2017 Payment Determination and 

Subsequent Years 

 In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50220), we adopted the 

HCAHPS requirements for the FY 2013 and FY 2014 Hospital IQR Program payment 

determinations. 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641 through 51643), we 

made one change to these requirements. Beginning with discharges occurring in third 
 880 

quarter CY 2011, we established that hospitals will have about 13 weeks after the end of 

a calendar quarter to submit HCAHPS data for that quarter to the QIO Clinical 

Warehouse. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53537 through 53538), for the 

FY 2016 Hospital IQR Program payment determination, we continued these HCAHPS 

requirements. 

 For the FY 2017 payment determination and subsequent years, we are proposing 

to retain these requirements. 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) self-administer the survey without using a 

survey vendor provided that the hospital attends HCAHPS training and meets Minimum 

Survey Requirements as specified on the HCAHPS Web site at: 

http://www.hcahpsonline.org. A current list of approved HCAHPS survey vendors can 

be found on the HCAHPS Web site. For the FY 2017 Hospital IQR Program, the 

HCAHPS data would be based on discharges from January 1, 2015 through 

December 31, 2015. 

 Every hospital choosing to contract with a survey vendor must provide the sample 

frame of HCAHPS-eligible discharges to its survey vendor with sufficient time to allow 
 881 

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 survey administration.) 

Hospitals are strongly encouraged to submit their entire patient discharge list, excluding 

patients who had requested “no publicity” status or who are excluded because of State 

regulations, in a timely manner to their survey vendor to allow adequate time for sample 

creation, sampling, and survey administration. We emphasize that hospitals must also 

provide the administrative data that is required for HCAHPS in a timely manner to their 

survey vendor. This includes the patient MS-DRG at discharge, or alternative 

information that can be used to determine the patient’s service line, in accordance with 

the survey protocols in the most recent HCAHPS Quality Assurance Guidelines. 

 We note that the HCAHPS Quality Assurance Guidelines require that hospitals 

maintain complete discharge lists that indicate which patients were eligible for the 

HCAHPS survey, which patients were not eligible, and which patients were excluded, 

and the reason(s) for ineligibility and exclusion. (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. 

 Hospitals must obtain and submit at least 300 completed HCAHPS surveys in a 

rolling four-quarter period unless the hospital is too small to obtain 300 completed 

surveys. We wish to emphasize that the absence of a sufficient number of HCAHPS 
 882 

eligible discharges is the only acceptable reason for obtaining and submitting fewer than 

300 completed HCAHPS surveys in a rolling four quarter period. If a hospital obtains 

fewer than 100 completed surveys, the hospital’s HCAHPS scores will be accompanied 

by an appropriate footnote on the Hospital Compare Web site alerting the Web site users 

that the scores should be reviewed with caution, as the number of surveys may be too low 

to reliably assess hospital performance. 

 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) and the HCAHPS Review and Correction Report that are 

available. These reports enable a hospital to ensure that its survey vendor has submitted 

the data on time, the data has been accepted into the QIO Clinical Warehouse, and the 

data accepted into the QIO Clinical Warehouse are complete and accurate. 

 In order to ensure compliance with HCAHPS survey and administration 

protocols, survey vendors and hospitals that self-administer the HCAHPS Survey must: 

(1) meet HCAHPS Minimum Survey Requirements and Rules of Participation presented 

in the current HCAHPS Quality Assurance Guidelines; (2) adhere to the HCAHPS survey 

administration protocols provided in the current HCAHPS Quality Assurance Guidelines

and updated through HCAHPS Bulletins and announcements on the official HCAHPS 

On-Line Web site, www.hcahpsonline.org; and (3) 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 
 883 

protocols based upon the most recent HCAHPS Quality Assurance Guidelines. All 

materials relevant to survey administration will be subject to review. 

 The systems and program review includes, but is not limited to: (a) survey 

management and data systems; (b) printing and mailing materials and facilities; 

(c) telephone and Interactive Voice Response (IVR) materials and facilities; (d) data 

receipt, entry and storage facilities; and (e) written documentation of survey processes. 

As needed, hospitals and survey vendors will be subject to follow-up site visits or 

conference calls. We point out that the HCAHPS Quality Assurance Guidelines state that 

hospitals should refrain from activities that explicitly influence how patients respond on 

the HCAHPS survey. If we determine that a hospital is not compliant with HCAHPS 

program requirements, we may determine that the hospital is not submitting HCAHPS 

data that meet the requirements of the Hospital IQR Program. 

 We strongly recommend that hospitals approved to self-administer the HCAHPS 

Survey attend both HCAHPS Introductory Training and HCAHPS Update Training every 

year. The dates of HCAHPS training session are announced on the HCAHPS On-Line 

Web site, www.hcahpsonline.org. 

 The HCAHPS Survey is available in official translations in several languages 

other than English: Spanish (mail and telephone modes); Chinese (mail mode); Russian 

(mail mode); and Vietnamese (mail mode). All official translations of the HCAHPS 

Survey instrument are available in the current HCAHPS Quality Assurance Guidelines. 

We strongly encourage hospitals with a significant patient population that speaks 

Spanish, Chinese, Russian or Vietnamese to offer the HCAHPS Survey in those 
 884 

languages. We plan to offer an official translation of the HCAHPS Survey in Portuguese 

(mail mode) in 2013. We encourage hospitals that serve patient populations that speak 

languages other than those noted to request CMS to create an official translation of the 

HCAHPS Survey in those languages. Only the official translations of the HCAHPS 

Survey instrument can be implemented. 

 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 Hospital IQR 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 wish to emphasize that, barring the exception that the hospital is too small to 

obtain 300 completed surveys in a four-quarter period, IPPS hospitals that do not meet 

the minimum 300 completed surveys requirement may not be in compliance with the 

Hospital IQR Program’s requirement that hospitals submit quality data in the form, 

manner, and time specified by the Secretary in order to receive the full APU. If we 

become aware of specific cases in which a hospital has not met the finalized HCAHPS 

survey protocols, we may determine that the hospital has failed to meet the applicable 

APU requirement, and will reduce that hospital’s APU accordingly. 
 885 

 We are proposing to codify the current guideline that approved HCAHPS survey 

vendors and self-administering hospitals must fully comply with all HCAHPS oversight 

activities, including allowing CMS and its HCAHPS Project Team to perform site visits 

at hospitals’ and survey vendors’ locations. We are proposing to codify this survey 

requirement at § 412.140(f)(1). 

 We are proposing to codify the current guideline that CMS approves survey 

vendor applicants to administer the HCAHPS survey for hospitals clients when applicants 

have met the Minimum Survey Requirements and Rules of Participation listed in the 

current HCAHPS Quality Assurance Guidelines and adhere to the survey administration 

protocols provided in the current HCAHPS Quality Assurance Guidelines and 

occasionally updated through HCAHPS Bulletins and announcements on the official 

HCAHPS On-Line Web site. We are proposing to include this survey requirement at 

§ 412.140(f)(2). 

 The absence of a sufficient number of HCAHPS eligible discharges is the only 

acceptable reason for obtaining and submitting fewer than 300 completed HCAHPS 

surveys in a rolling quarter period. Hospitals and HCAHPS survey vendors should 

regularly check the official HCAHPS Web site at http://www.hcahpsonline.org for new 

information and program updates regarding the HCAHPS Survey, its administration, 

oversight and data adjustments. We invite public comment on our proposal to continue 

using these HCAHPS requirements for the FY 2016 payment determination and 

subsequent years. 
 886 

g. Proposed Data Submission Requirements for Structural Measures for the FY 2015 and 

FY 2016 Payment Determinations 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51643 through 51644), 

beginning with FY 2013, we finalized the period of data collection for which hospitals 

will submit the required structural measure information once annually for the structural 

measures via a Web-Based Measure Tool. We finalized our proposal for FY 2014 for 

submission of structural measures between April 1, 2013 and May 15, 2013 with respect 

to the time period of January 1, 2012 through December 31, 2012. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53538 through 53539), we finalized our proposal to 

continue this policy for the FY 2015 payment determination and subsequent years. 

 However, in order to provide the more timely feedback to hospitals regarding 

APU participation status, for the FY 2015 payment determination, we are proposing to 

change the date that structural measures will be submitted from April 1 2014- 

May 15, 2014 to January 1, 2014- February 15 2014. For the FY 2016 payment 

determination, we are proposing that the period of data collection for which hospitals will 

submit the required registry participation information for the structural measures via a 

Web-Based Measure Tool be between January 1, 2015 and February 15, 2015, with 

respect to the time period of January 1, 2014 through December 31, 2014. These 

proposals will allow us to provide earlier feedback to hospitals regarding APU status. 

We invite public comment on our proposals. 
 887 

h. Proposed Data Submission and Reporting Requirements for Healthcare-Associated 

Infection (HAI) Measures Reported via NHSN 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51644 through 51645), we 

adopted the data submission and reporting standard procedures that have been set forth 

by CDC for NHSN participation in general and for submission of the HAI measures to 

NHSN. The existing data collection and submission timeframes for the HAI measures 

for the FY 2015 payment determination and subsequent years align with the submission 

timeframes for chart-abstracted measures with the exception of Healthcare Provider 

Influenza Vaccination as defined below. The data submission deadlines are posted on the 

QualityNet Web site at: http://www.QualityNet.org/. 

 Hospitals will have until the Hospital IQR Program final submission deadline to 

submit their quarterly data for CLABSI, SSI, CAUTI, MRSA Bacteremia and 

Clostridium difficile to NHSN. After the final Hospital IQR Program submission 

deadline has occurred for each calendar quarter of CY 2013, we will obtain the hospitalspecific calculations that have been generated by the NHSN for the Hospital IQR 

Program. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539), we continued the data 

submission and reporting standard procedures we adopted in the FY 2012 IPPS/LTCH 

PPS final rule, with two exceptions discussed below, for the FY 2015 payment 

determination and subsequent years. 

 The HAI measures that will be included in the FY 2016 payment determination 

are included in the following chart: 
 888 

Topic FY 2016 Payment Determination: Hospital Associated Infection 

Measures (CDC/NHSN) 

Central Line Associated Blood Stream Infection 

Surgical Site Infection 

Catheter-Associated Urinary Tract Infection 

MRSA Bacteremia

Clostridium difficile

Healthcare Provider Influenza Vaccination 

 We realize that some hospitals may not have locations that meet the NHSN 

criteria for CLABSI or CAUTI reporting, for example, when a hospital has no ICUs. In 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53539), we provided an exception for the 

CLABSI and CAUTI measures for hospitals that do not have an ICU, reducing the 

burden associated with reporting to NHSN. 

 In addition, we recognize that some facilities may perform so few procedures 

requiring surveillance under the SSI measure that the data may not meaningfully assess 

the hospital’s performance on the measure. Therefore, in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53539), we provided an exception for these hospitals from the reporting 

requirement in any given year if the hospital performed fewer than a combined total of 10 

colon and abdominal hysterectomy procedures in the calendar year prior to the reporting 

year. For example, a hospital that performed only 2 colon surgeries and 4 abdominal 

hysterectomies in CY 2013 is not required to report the SSI measure in CY 2014. We 

finalized our proposal to provide hospitals with a single HAI exception form, to be used 

for seeking an exception for any of the CLABSI, CAUTI and SSI measures, which is 

available on QualityNet at: https://www.qualitynet.org/ Hospitals-Inpatient>Healthcare 
 889 

Associated Infections (HAI). For the FY 2016 payment determination and subsequent 

years, we are not proposing to make any changes to these requirements and exceptions. 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51631-51633) we finalized 

collection of the Healthcare Provider Influenza Vaccination measure data from 

October 1 through March 31st to coincide with the flu season. Because this measure is 

collected seasonally, we are proposing to collect this measure on May 15th of the calendar 

year for which the season ends. For example, for the Healthcare Provider Influenza 

Vaccination measure collection for vaccinations given from October 1, 2013 (or when the 

vaccine becomes available) – March 31, 2014, the submission deadline would be 

May 15, 2014. We invite public comment on this proposal. 

 For the FY 2016 payment determination and subsequent years we are proposing 

to require hospitals to report the Medicare Beneficiary ID numbers to the NHSN system 

for all events reported for Medicare beneficiaries. The NHSN system currently supports 

the voluntary submission of this information, but CMS is proposing to make it mandatory 

for patients with HIC numbers. We make this proposal to better support our validation 

efforts. CMS currently matches medical records to NHSN data as part of validation. 

With the information available for matching, CMS may occasionally fail to match a 

reported event. By requiring that hospitals report the HIC number when it is available, 

we increase our confidence that records reported to NHSN will appropriately be matched 

with the records we sample for validation. Because we cannot anticipate in advance 

which records may be sampled for validation, we are proposing to require that hospitals 
 890 

provide this information for all reported events. We invite public comment on this 

proposal. 

10. Proposed Modifications to the Validation Process for Chart-Abstracted Measures 

under the Hospital IQR Program 

 For the FY 2015 payment determination and subsequent years, we are proposing 

some modifications to the validation requirements and methods we finalized in the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53539 through 53553). As described below, 

these proposals are intended to strengthen the Hospital IQR Program by validating new 

HAI measures while simultaneously decreasing burden relative to previous years. 

 The procedures to which we are proposing to modify are organized into the 

following sections: (a) number and timing of quarters included in validation; 

(b) selection of measures and sampling of charts to be included in validation; 

(c) procedures for computing the validation score; (d) selection of hospitals for validation 

of chart-abstracted measures; and (e) procedures for submitting records for validation. 

a. Proposed Timing and Number of Quarters Included in Validation 

 As finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50219), the 

quarters included in the validation effort for each year’s Hospital IQR Program payment 

determination are the 4th calendar quarter (October through December) of the year that 

occurs 2 years before the payment determination and the first 3 calendar quarters 

(January through September) of the following calendar year. For example, as illustrated 

below, for the FY 2015 payment determination, the quarters previously finalized for 

inclusion in validation are the fourth quarter of CY 2012 through the third quarter of 
 891 

CY 2013. The first figure below shows the timeline and steps associated with the 

Hospital IQR Program and the subsequent steps in annual validation as previously 

finalized and as proposed. 

 Section 1886(o)(1)(C)(ii)(I) of the Act precludes a hospital from participating in 

the Hospital VBP Program for a fiscal year if the hospital is subject to the payment 

reduction under the Hospital IQR Program for that fiscal year. As illustrated in the 

figure, the process previously finalized (75 FR 50219), yields the determination of a 

hospital’s Hospital IQR Program APU in August of every year. However, to support the 

hospital’s payment determination under the Hospital VBP Program in a timely manner, 

the IQR APU determination must be made by July 1 of each year. Therefore, we are 

proposing the changes discussed below. 

 For the FY 2015 payment determination and subsequent years, we are proposing 

to change this requirement to include in validation only the 4th quarter of the calendar 

year that occurs 2 years before the payment determination and the first 2 calendar 

quarters (January through June) of the following calendar year. As illustrated below, for 

the FY 2015 payment determination, the quarters proposed for inclusion in validation are 

the fourth quarter of CY 2012 through the second quarter of CY 2013; and for the 

FY 2016 payment determination, the quarters proposed for inclusion in validation are the 

fourth quarter of CY 2013 through the second quarter of CY 2014. 

 For the FY 2016 payment determination and subsequent years, we are also 

proposing to change the validation requirement to include the 3rd and 4th calendar quarters 

of the year that occurs 2 years before the payment determination is made and the 1st and 
 892 

2nd quarters of the subsequent year for validation. As discussed above, this timeframe 

still allows an APU determination by July 1 each year. From an operational standpoint, 

gathering data for the entire year is preferable to gathering data for only three quarters. 

Also, we believe that all four quarters of data that are used for the Hospital IQR and VBP 

Programs should be checked for accuracy. 

However, as described further below, we will not have built the infrastructure 

needed to support the proposed HAI validation process by the 3rd quarter of CY 2013. 

Therefore, for the FY 2016 payment determination, we are proposing to validate all 

measures except for HAIs starting with 3rd quarter of CY 2013, and to initiate validation 

of HAIs in the 4th quarter of CY 2013. We invite public comment on this proposal. 
 893 

Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

Quarter 4

Quarter 1

Quarter 2

Quarter 3

Care provided

Additional time warehouse open

Medical records requested and submitted

Charts abstracted

APU determined, hospital review and request

reconsideration, final APU determined

Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Quarter 4

Quarter 1

Quarter 2

Care provided

Additional time warehouse open

Medical records requested and submitted

Charts abstracted

APU determined, hospital review and request

reconsideration, final APU determined

Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

Quarter 3

Quarter 4

Quarter 1

Quarter 2

Care provided

Additional time warehouse open

Medical records requested and submitted

Charts abstracted

APU determined, hospital review and request

reconsideration, final APU determined

 
 894 

b. Proposed Selection of Measures and Sampling of Charts to be Included in Validation 

(1) Clinical Process of Care Measures 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53540 through 53550), for the 

FY 2015 payment determination and subsequent years, we finalized separate processes 

for selecting and scoring for validation of 21 chart-abstracted clinical process of care 

measures and three HAI measures. The measures finalized for validation for clinical 

processes of care were included in 6 measure sets: acute myocardial infarction (AMI), 

heart failure (HF), pneumonia (PN), surgical care improvement project (SCIP), 

emergency department (ED) and immunization (IMM) (77 FR 53541 through 53542). 

 For the purposes of the FY 2016 payment determination and subsequent years, we 

are proposing to retain for validation 12 of the 21 chart-abstracted clinical process of care 

measures and to suspend validation for the remaining 9 chart-abstracted clinical process 

of care measures. With respect to seven of the nine measures, we are not proposing to 

include them in the FY 2016 measure set. 

 However, we are proposing to suspend validation of ED-1 and ED-2, despite their 

proposed inclusion in the FY 2016 measure set, because we do not operationally have the 

ability to validate electronically reported versions of the measures. We believe that 

continuing to validate the measures only when they are reported via chart-abstraction 

could create inequity in the validation process that favors hospitals opting to report the 

measures electronically. Therefore, we are proposing to delete the ED measure set from 

the validation process. We invite public comment on these proposals. 
 895 

Hospital IQR Program Chart-Abstracted Clinical Process of Care Measures 

Proposed for Validation for the FY 2016 Payment Determination 

Measure 

AMI-7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival 

AMI-8a Timing of receipt of primary percutaneous coronary intervention 

HF-2 Evaluation of left ventricular systolic function 

PN-6 Appropriate initial antibiotic selection 

SCIP INF-1 Prophylactic antibiotic received within 1 hour prior to surgical incision 

SCIP INF-2: Prophylactic antibiotic selection for surgical patients 

SCIP INF-3 Prophylactic antibiotics discontinued within 24 hours after surgery end time 

(48 hours for cardiac surgery) 

SCIP INF-4: Cardiac surgery patients with controlled 6AM postoperative serum glucose 

SCIP INF-9: Postoperative urinary catheter removal on postoperative day 1 or 2 with day 

of surgery being day zero 

SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker prior to arrival who received 

a Beta Blocker during the perioperative period 

SCIP-VTE-2: Surgery patients who received appropriate VTE prophylaxis within 24 

hours pre/post surgery 

IMM-2 Immunization for pneumonia 

 The process for sampling of clinical process of care cases previously finalized for 

the FY 2015 payment determination and subsequent years in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53540 through 53541) is as follows. A sample of 15 records per 

quarter is to be drawn for validation of the chart-abstracted clinical process of care 

measures (77 FR 53540 through 53541). As finalized in the FY 2012 IPPS/LTCH PPS 

final rule for the FY 2014 payment determination and subsequent years, the sample is to 

include 3 records each sampled from among the AMI, HF, PN, and SCIP measure sets, 

and 3 records to validate for both the ED and IMM measures sets from among “principal 

diagnoses and surgical procedures not already included in the AMI, HF, PN, and SCIP 

populations eligible for validation sampling in these four topic areas (76 FR 51648).” As 

finalized in the FY 2012 IPPS/LTCH PPS final rule, the records sampled for AMI, HF, 
 896 

PN, and SCIP will also be validated for ED/IMM (76 FR 51648), but as finalized in the 

FY 2013 IPPS/LTCH PPS final rule these cases will not be validated from among charts 

sampled for HAI validation (77 FR 53540 through 53541). 

We are proposing to modify this process for the FY 2016 payment determination 

and future years in two ways. First, we are proposing to eliminate validation of the ED 

measure set for the reasons described immediately above. Second, we are proposing to 

change the requirement to validate ED and IMM for all records included in the validation 

sample for AMI, HF, PN, and SCIP (77 FR 53540 through 53541). When previously 

finalized, this policy was intended for two purposes. When a patient chart sampled for 

validation for AMI, HF, PN, or SCIP also had data submitted to the warehouse for 

ED/IMM, we have been evaluating the accuracy of the data submitted to the warehouse 

for ED and IMM and including our assessment of accuracy in the validation score. In 

addition, when a patient chart sampled for validation for AMI, HF, PN, or SCIP did not 

include data submitted to the warehouse, our intention in abstracting data on ED and 

IMM was to assess the extent to which hospitals may have misdrawn the sample such 

that the ED and IMM data reported to the warehouse was inaccurate. Although it was 

our intention to use the data for both reasons, we have found it challenging to use the data 

to evaluate inaccurate sampling and have not yet done so. 

Therefore, for the FY 2016 payment determination and future years, we are 

proposing to validate IMM for between 3 and 15 charts per hospital per quarter. These 

include the 3 charts sampled for IMM from among principal diagnoses and surgical 

procedures not already included in the AMI, HF, PN, and SCIP populations eligible for 
 897 

validation sampling in these four topic areas, and as many of the 12 charts sampled for 

AMI, HF, PN, and SCIP populations as have IMM data submitted to the warehouse. We 

invite public comment on this proposal. 

(2) HAI Measures Included in the Current Validation Process 

 The three HAIs specified for chart-abstracted validation in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53542), for FY 2015 payment determination and 

subsequent years are CLABSI, CAUTI, and SSI for patients undergoing abdominal 

hysterectomies and colon procedures. HAIs are very rare events, which makes validating 

that they have been reported accurately more challenging than validating the clinical 

process of care measures. As previously finalized in the FY 2012 and FY 2013 

IPPS/LTCH PPS final rules (76 FR 51645 through 51648 and 77 FR 53542 through 

53548, respectively), for each HAI, we identify a set of patient episodes of care which 

have a much higher probability of containing a reportable HAI than others. Each quarter, 

we sample up to 12 of these candidates, request patient charts from hospitals to determine 

whether or not an HAI occurred, and score these charts by determining whether events 

were appropriately reported to NHSN. 

 In order to identify candidate cases referenced above for CLABSI and CAUTI, 

we also require hospitals to submit supplemental information on certain patient episodes 

of care quarterly. In the FY 2012 and FY 2013 IPPS/LTCH PPS final rules 

(76 FR 51645 through 51648 and 77 53542 through 53548, respectively), we identified 

the supplemental information to be provided and the types of patient episodes of care for 

which this information is needed. We require hospitals to submit this supplemental 
 898 

information in two separate “Validation Templates” according to formats specified on 

QualityNet. We require separate CLABSI and CAUTI Validation Templates because 

different information is required to identify candidate CLABSIs and candidate CAUTIs. 

For a detailed discussion of these requirements, we refer readers to our Web site at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier2&cid=1228760487021. 

 As stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51646), for the 

FY 2012 payment determination and subsequent years, hospitals are required to report 

positive blood cultures for intensive care unit patients and are also required to “selfidentify intensive care unit patients with a CVC [central venous catheter] that are on this 

blood culture list.” We are proposing for the FY 2016 payment determination and 

subsequent years to remove the requirement to note a CVC and replace it with a 

requirement to note a “central line.” In other words, we are proposing to require that 

hospitals note on the CLABSI Validation Template whether patients had a “central line” 

present at any time during their hospital stay. We are making this proposal to better align 

with current NHSN definitions. 

 The FY 2012 IPPS/LTCH PPS final rule (76 FR 51646) also specified which 

organisms should be reported on the CLABSI Validation Template, which are also 

regarded as common commensals (often referred to as skin contaminants), and where 

hospitals could find an updated list of these commensals. This list is frequently updated, 

but the link containing updates is currently out of date. When we review the CLABSI 

Validation Templates for the FY 2016 payment determination and subsequent years, we 
 899 

are proposing to apply the most up-to-date list available at the time of review. At present 

that list may be found at:http://www.cdc.gov/nhsn/acute-care-hospital/clabsi/index.html.

 We also are proposing for the FY 2016 payment determination and subsequent 

years that hospitals must exclude from CAUTI Validation Templates urine cultures with 

more than 2 organisms, even if they have greater than or equal to 1,000 colony-forming 

units (CFUs)/ml. We are making this proposal because, when we finalized the 

requirement to include on the CAUTI Validation Templates all urine cultures with greater 

than or equal to 1,000 CFUs /ml (77 FR 53542 through 53545), our intention was to 

identify urine cultures that conform to NHSN definitions for CAUTI. Although these 

definitions vary, all require that there be no more than 2 organisms identified in the result 

(because multiple organisms often indicate contamination).102 We invite public comment 

on this proposal. 

 We are proposing for the FY 2016 payment determination and subsequent years 

to notify hospitals of future changes to the definition of candidate HAI events through 

HAI Validation guidance documents to be posted annually on QualityNet. As illustrated 

by several proposals immediately above identifying places where CMS and NHSN are 

slightly misaligned, we believe that these very detailed specifications may more 

appropriately be addressed through sub-regulatory guidance than through the rulemaking 

process. Therefore, we are making this proposal to simplify future proposed rules 

regarding validation, to ensure that we are able to remain current with NHSN guidance 

 

102“Catheter-Associated Urinary Tract Infection (CAUTI) Event” 

http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf, last accessed February 19, 2013. 
 900 

and protocols, and to ensure that hospitals are made aware of these updates. We invite 

public comment on this proposal. 

 For the FY 2016 payment determination and subsequent years, we also are 

proposing to exclude from HAI validation all patient episodes of care with lengths of stay 

of more than 120 days. Patient episodes of care involving lengths of stay over 120 days 

are very rare, accounting for much less than one percent of the records submitted for Q1 

2012 CLABSI validation. Because medical records for patients with very long lengths of 

stay may be tens of thousands of pages, the burden and costs of validation to hospitals 

and CMS are disproportionate to the information gained from their validation. In 

addition, this proposed change aligns the HAI episode of care maximum length of stay 

with the Hospital IQR Program’s clinical process of care measures episode of care 

maximum length of stay of 120 days as detailed in the Specifications Manual for the 

National Hospital Inpatient Quality Measures (http://www.qualitynet.org). We invite 

public comment on this proposal. 

 For the FY 2016 payment determination and subsequent years, we also are 

proposing to require each hospital to submit data without modifications to the format 

within the Validation Template posted on QualityNet at the beginning of each validation 

cycle. We believe this requirement is needed based on our experience with the CLABSI 

Validation Template for the FY 2013 payment determination. We have observed that 

many hospitals enter the required data but alter the format of the downloadable 

Validation Template. For example, hospitals may change the length or format of a 

column or change its column name. Because our contractors must process hundreds of 
 901 

these templates in a matter of weeks, even minor alterations to formats of the data within 

the Template create significant operational delays. We will continue to give hospitals 

feedback on their Validation Templates prior to the submission deadline. To assist 

hospitals in meeting this formatting requirement, we will include formatting in future 

feedback. We invite public comment on this proposal. 

(3) HAI Measures to be Added to the Validation Process 

 For the FY 2016 payment determination and subsequent years, we are proposing 

to validate two new HAI measures: methicillin-resistant staphylococcus aureus (MRSA) 

bacteremia Laboratory-identified (LabID) Events and Clostridium difficile (CDI) LabID 

Events. MRSA and CDI were finalized for inclusion in the Hospital IQR Program in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51629 through 51631) starting with the 

FY 2015 payment determination. We are proposing to validate MRSA and CDI 

consistent with requirements under section 1886(b)(3)(B)(viii)(XI) of the Act which 

requires us to establish a process to validate measures included in the Hospital IQR 

Program as appropriate. We invite public comment on this proposal. 

 For MRSA and CDI validation, we are proposing a process similar to that for 

CLABSI and CAUTI for the FY 2016 payment determination and subsequent years. 

Specifically, we are proposing to require sampled hospitals to provide to CMS or its 

contractor one list of final blood cultures positive for MRSA and a second list of all final 

stool specimens toxin positive for CDI. We note that although CMS only publicly 

reports hospital-onset infections, CMS requires hospitals to report both hospital and 

community-onset cases. We require hospitals to report community-onset cases because 
 902 

NHSN employs this information in risk-adjustment. Validation of MRSA and CDI 

requires confirmation that both hospital and community-onset cases are reported correctly 

and completely. Therefore, for the FY 2016 payment determination and subsequent 

years, we are proposing that both types of cases be included on the MRSA and CDI 

Validation Templates. 

 For these payment determinations, we are proposing to collect the following 

information on the MRSA and CDI Validation Templates needed to identify each 

candidate event: (1) laboratory accession number, collection date, and location; 

(2) necessary information to identify the patient (that is, patient identifier, Medicare 

Beneficiary number also known as the health insurance claim [HIC] number, sex, and 

date of birth); (3) the patient’s admission and discharge dates; and (4) necessary 

information to identify the hospital (NHSN Facility ID, Provider ID/CCN, Hospital 

Name and State, Contact Information for the Person Completing the Template). 

 Draft versions of the proposed MRSA and CDI Validation Templates will be 

posted on the QualityNet Web site at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier2&cid=1228760487021 during the public comment period. We are 

proposing this approach for MRSA and CDI validation, because we believe that this is 

the best way for us to systematically identify candidates that are likely to yield a high 

proportion of cases that should have appropriately been reported to NHSN. Consistent 

with the process we have been using for the CLABSI and CAUTI Validation Templates, 

we are proposing that quarterly submission deadlines correspond to those for population 
 903 

and sampling data as defined in section IX.A.9.e. of the preamble of this proposed rule. 

We invite public comment on this proposal. 

 We recognize that the proposal to add two new HAI Validation Templates has the 

potential to increase burden to individual hospitals selected for validation. As finalized in 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53551 through 53553), for the FY 2015 

payment determination and subsequent years, the annual validation sample includes 400 

randomly selected hospitals and up to 200 hospitals sampled based on targeting criteria. 

To add these new Templates without increasing burden for the FY 2016 payment 

determination and subsequent years, we are proposing to randomly assign half of 

hospitals to submit templates for CLABSI and CAUTI validation and half of hospitals to 

submit templates for MRSA and CDI validation. We believe this proposal will limit 

hospital burden to that finalized in the FY 2013 IPPS/LTCH PPS final rule, because no 

hospital would be required to submit more than two templates per quarter. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53547 through 53548), we 

established a sample size of 12 records for HAI validation per quarter for the FY 2015 

payment determination and subsequent years. Each quarterly sample is to be drawn from 

a list of patient episodes of care for all three types of candidate HAIs (CLABSI, CAUTI, 

and SSI) combined in one non-stratified sampling frame. For the FY 2016 payment 

determination and subsequent years, we are proposing to target separate sampling strata 

for each type of HAI. We are making this proposal because we believe that having 

separate sampling targets for each infection will better accommodate the very different 

incidence of different types of HAI events, particularly for hospitals which are to be 
 904 

validated for SSI, MRSA, and CDI. This proposal also supports the objective to evaluate 

how well each HAI is reported to NHSN when considered across all hospitals combined. 

APU 

Determination 

HAI Number 

of 

Hospitals 

Number 

of 

Quarters

Number of 

Records/Quarter

/Hospital 

Number of 

Records 

per 

Hospital 

FY 2015 

(previously 

finalized) 

CLABSI, 

CAUTI, SSI 

combined 

Up to 600 4 12 48 

In the preamble to this proposed rule 

FY 2015 CLABSI, 

CAUTI, SSI 

combined 

Up to 600 3 12 36 

FY 2016 CLABSI Up to 300 3 5 15 

FY 2016 CAUTI Up to 300 3 5 15 

FY 2016 MRSA Up to 300 3 5 15 

FY 2016 CDI Up to 300 3 5 15 

FY 2016 SSI Up to 600 3 2 6 

FY 2017 and 

subsequent 

years 

CLABSI Up to 300 4 3.75 15 

FY 2017 and 

subsequent 

years 

CAUTI Up to 300 4 3.75 15 

FY 2017 and 

subsequent 

years 

MRSA Up to 300 4 3.75 15 

FY 2017 and 

subsequent 

years 

CDI Up to 300 4 3.75 15 

FY 2017 and 

subsequent 

years 

SSI Up to 600 4 1.5 6 

 The sample sizes for each HAI proposed for the FY 2016 payment determination 

are shown in the table above. For hospitals submitting CLABSI and CAUTI templates, 

the infection-specific sample sizes per hospital per quarter proposed are: 2 for SSI, 5 for 
 905 

CLABSI, and 5 for CAUTI (12 per quarter). For hospitals submitting MRSA and CDI 

Validation Templates, the infection-specific sample sizes per hospital per quarter 

proposed are: 2 for SSI, 5 for MRSA, and 5 for CDI. For each hospital, in each quarter, 

these cases would be drawn randomly from each individual Validation Template (or from 

claims for SSI) from among episodes of care containing at least one candidate event. 

Across all hospitals and quarters combined, we are assuming that approximately 10 

percent of patients with candidate CLABSI events had a CLABSI. This will yield 

approximately 450 hospital discharges with actual events. Assuming a design effect 

resulting from clustered data collection of no more than 2, this will allow us to estimate 

accurate reporting (+/- 5 percentage points with 90 percent confidence) of CLABSI if it 

occurs approximately 75 percent of the time. We developed sample size requirements 

based on a 75 percent score to align with CMS requirements for a 75 percent score to 

pass validation as specified in 42 CFR § 412.140(d)(2), and using a two-tailed 90 percent 

confidence interval as finalized in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53551). Based on these statistics, we believe this is the smallest sample size 

needed to meet the objective of accurately evaluating how well hospitals report CLABSI 

data to NHSN. 

 Because we have less data on which to base sample size calculations for CAUTI, 

MRSA bacteremia, and CDI than we have for CLABSI, we are proposing similar sample 

size targets for these 4 HAIs. By proposing similar sample size requirements across these 

4 HAIs for the FY 2016 payment determination and subsequent years, we assure that 
 906 

hospitals will be required to submit the same number of records regardless of which set 

of Validation Templates they are assigned to submit. 

 For SSI, the proposed sample size assumes that most hospitals will not have more 

than 2 candidate SSIs per quarter. By sampling fewer SSI cases over twice as many 

hospitals, we ensure that the sample size for SSI validation is also adequate. Because SSI 

cases may be sampled without the added submission requirement of a Validation 

Template, we foresee no difficulty in requiring all hospitals sampled for validation to 

provide information for SSI. We invite public comment on these proposals. 

 Within each hospital for each type of HAI event each quarter, a random sample 

would be drawn from among patient episodes of care with at least one candidate event 

identified from the Validation Template (or claims data for SSI) to meet the targeted 

sample size. If there are not enough cases in any stratum, we are proposing for the 

FY 2016 payment determination and subsequent years to reallocate those cases to any 

stratum or strata that have more than enough cases to meet sample size targets. We are 

proposing to reallocate cases because different hospitals may have different relative 

frequencies of each HAI. The proposed reallocation process will give CMS the 

flexibility to meet sample size quotas in the event that one hospital has more than enough 

candidate MRSA events but not enough candidate CDI events and the next hospital has 

more than enough candidate CDI events and not enough candidate MRSA events. We 

invite public comment on this proposal. 

 For the FY 2017 payment determination and subsequent years, we are proposing 

to reduce the quarterly HAI sample from 12 to 9. Please see the chart above. This is to 
 907 

reflect the fact that we are proposing to collect data for 4 quarters instead of for 3 quarters 

starting with the FY 2017 payment determination (section IX.A.10.a. of the preamble of 

this proposed rule). When we distribute over 4 quarters, the 15 annual patient charts each 

for CLABSI, CAUTI, MRSA, and CDI and 6 annual patient charts each for SSI, the 

process produces fractions. We are proposing to request 9 patient charts by establishing 

quarterly targets of 3, 3, and 1 respectively for CLABSI, CAUTI, and SSI and 3, 3, and 1 

respectively for MRSA, CDI, and SSI, and then randomly allocating the remaining 2 

records to meet the hospital target of 9 HAIs for the quarter. We invite public comment 

on these proposals. 

c. Proposed Procedures for Scoring Records for Validation 

 We are not proposing any changes to the procedures for scoring records for 

validation for the clinical process of care measures for the FY 2016 payment 

determination or subsequent years. This process was described in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50226). However, we are proposing changes to the 

procedures for scoring records for validation of HAI measures. 

(1) Scoring of CLABSI, CAUTI, and SSI 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53550 through 53551), for the 

FY 2015 payment determination and subsequent years), we finalized a scoring approach 

considering all three HAI measures simultaneously. In general, if hospitals have matched 

data on all three HAIs, they would receive a score of 1, and if they have a mismatch on 

one or more HAIs, they would receive a score of 0. For example, if a patient had a 

CLABSI during an episode of care and no CAUTI or SSI and the CLABSI was properly 
 908 

reported, the hospital received a score of 1 for that patient. We developed this approach 

primarily out of an interest in maximizing the information available to us about CLABSI, 

CAUTI, and SSI using the same set of records reviewed for all three infections at once, 

and because we recognized that an individual infection event could not simultaneously be 

attributed to more than one cause, that is, a particular infection was either a primary 

CLABSI, CAUTI, or SSI, but never all three at once. In addition, the records were 

sampled from a single unduplicated frame. With a single sampling frame for all three 

events, it was not always possible to determine in advance which event to evaluate for a 

particular case. Moreover, it is apparent that an event that was sampled because of a 

MRSA bacteremia result does not need to be evaluated for CDI or vice-versa. For both 

of these reasons, we are proposing for the FY 2016 payment determination and 

subsequent years, to evaluate and score each case only for the infection for which it was 

sampled as having candidate events. For example, episodes of care for patients on the 

CLABSI Validation Template will be evaluated and scored only for CLABSI. We invite 

public comment on this proposal. 

 We also are proposing for the FY 2016 payment determination and subsequent 

years to score charts selected for SSI, CLABSI, and CAUTI in the manner that scoring 

was finalized for CLABSI in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51647). If 

the Clinical Data Abstraction Center (CDAC) contractor reviews a medical record and 

determines that patient had no CLABSI events and the hospital reported no CLABSI to 

NHSN, the case will receive a score of 1. If the CDAC contractor determines that the 

patient had a CLABSI and this was reported to NHSN, the case will also receive a score 
 909 

of 1. If a mismatch occurs and the CDAC contractor determined that the patient had no 

CLABSI when one is reported, or that the patient had a CLABSI that was not reported, 

the hospital will receive a score of 0. If the CMS quarterly validation process identified 

that 3 out of 4 total sampled records accurately reported the presence of CLABSI or did 

not report a CLABSI when none was present, then the hospitals’ quarterly CLABSI 

validation score would be 3⁄4 or 75 percent. If two or more infections are detected for a 

patient episode of care, the case may receive separate scores for each event. For 

example, if one patient episode of care included two CLABSIs, both of which were 

reported correctly, and reported correctly for 2 of the remaining three records evaluated 

for CLABSI, then the validation score for CLABSI that quarter would be 4/5 or 

80 percent. 

(2) Scoring of MRSA and CDI 

 MRSA bacteremia and CDI, have very different reporting requirements from 

other HAIs included in the Hospital IQR Program. The major difference between the 

case definitions for MRSA and CDI relative to other HAIs being reported as part of IQR 

is that MRSA and CDI are laboratory-identified events that do not require extensive 

clinical judgment on the part of the reporting hospital. If the laboratory events and date 

of hospital admission are reported accurately, CDC makes the determination as to 

whether the event was community or hospital onset. 

 Our proposal entails evaluating each patient episode of care on a minimum of two 

components, with a score of 1 for each matched component and 0 for each mismatched 

component. We are proposing to evaluate each laboratory identified event on the 
 910 

following components: (1) whether it was reported to NHSN when it should have been 

reported; and (2) whether the correct dates of admission and event were reported such 

that NHSN correctly classified the event as hospital or community onset. Each of these 

components contributes to an assessment of the accuracy and completeness of the public 

reporting result that appears on Hospital Compare, and each is important. 

 Because each candidate event will be scored on two different components, scores 

will be reported in multiples of two. For example, if a sampled patient episode of care 

has only one candidate event, and 1 out of 2 elements matched for that event, the total 

score for that candidate event would be 1/2. If a particular patient episode of care 

contains multiple candidate events, that patient episode will be evaluated on each of these 

events, increasing the number of possible elements to be validated by 2, one for each 

candidate event evaluated. The maximum number of events that we would validate for 

any episode of care would be 4. Therefore, the maximum possible score for any one 

patient episode of care would be 8 (2 x 4). NHSN has an automated process to remove 

events that should not have been reported to NHSN if they occurred within 14 days of a 

previous laboratory-identified event for the same infection. Because NHSN excludes 

these events automatically, we are proposing for the FY 2016 payment determination and 

subsequent years that hospitals will not be credited or penalized for reporting or failing to 

report an automatically excluded event. We invite public comment on these proposals. 

(3) Combined Scores 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53549), we finalized the 

process for combining the clinical process of care and HAI validation scores for the 
 911 

FY 2015 payment determination and subsequent years scores by weighting them 

proportionate to the number of measures validated in each group. We are not proposing 

any changes to this process. Using the finalized procedure for combining the clinical 

process of care and HAI validation scores, the relative weights for the FY 2016 payment 

determination would be 12/17 for the clinical process of care measures included in 

validation and 5/17 for the HAI measures included in validation. 

 As previously finalized in the FY 2013 IPPS/LTCH PPS payment rule for the 

FY 2015 payment determination and subsequent years (77 FR 53551), we use the upper 

bound of a two-tailed 90 percent confidence interval around the combined score to 

determine if a hospital passes or fails validation. If this number is greater than or equal to 

75 percent, then the hospital passes validation. We are not proposing changes to this 

methodology. We intend to post the specific formulas used to compute the confidence 

interval on the QualityNet Web site at least one year prior to computation as we have 

done in the past 

(https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier2&cid=1138115987129). These formulas will continue to account 

appropriately for the manner in which patient charts are sampled and scored for the 

measures corresponding to the payment determination period. 

d. Proposed Procedures to Select Hospitals for Validation 

 In the FY 2013 IPPS/LTCH PPS final rule, for the FY 2015 payment 

determination and subsequent years, we finalized an annual hospital validation sample 

size of 400 randomly selected hospitals and a supplemental sample of up to 200 hospitals 
 912 

to be selected for more targeted validation (77 FR 53552 through 53553). The 

supplemental sample of up to 200 hospitals will include all hospitals that fail validation in 

the previous year and a random sample of hospitals meeting certain targeting criteria for 

the FY 2015 payment determination and subsequent years. The targeting criteria were 

finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53552 through 53553) for the 

FY 2016 payment determination and subsequent years. A summary of these criteria is set 

out below. 

● Any hospital with abnormal or conflicting data patterns. 

● Any hospital with rapidly changing data patterns. 

● Any hospital that submits data to NHSN after the Hospital IQR Program data 

submission deadline has passed. 

● Any hospital that joined the Hospital IQR Program within the previous 3 years, 

and which has not been previously validated. 

● Any hospital that has not been randomly selected for validation in any of the 

previous 3 years. 

● Any hospital that passed validation in the previous year, but had a two-tailed 

confidence interval that included 75 percent. 

 For the FY 2016 payment determination and subsequent years, we are proposing 

one additional criterion for targeting as follows: any hospital which failed to report to 

NHSN at least half of actual HAI events detected as determined during the previous 

year’s validation effort. We are making this proposal to increase incentives for properly 

reporting HAI events that should have been reported to NHSN. To ensure a fair process 
 913 

for validation scoring, we credit hospitals for following NHSN protocols correctly. In 

this regard, hospitals receive credit for not reporting to NHSN candidate HAI events that 

we determine were not actually events and reporting candidate HAI events to NHSN that 

we determine were actually HAI events. We anticipate that hospitals may receive credit 

for not reporting many such candidate events. We believe it is appropriate to pass 

hospitals for following NHSN protocols correctly by not reporting non-events. However, 

we recognize that the Hospital VBP Program might give hospitals an unintended 

incentive to underreport HAI events because the lower their HAI measure rates, the more 

points they will earn. 

 Therefore, we are proposing to use evidence of severe under-reporting (less than 

50 percent) as a targeting criterion for supplemental validation. In making this proposal, 

we recognize that the sample size of events, which should have been reported to NHSN, 

may not be reliable as it is a subset of the sample of 36 candidate HAI events per hospital 

per year. For the 30 candidate CLABSI and CAUTI records selected each year, we 

expect less than half of candidate events to be actual events. We would not wish to fail 

hospitals based upon such a small sub-sample. Instead, in such situations we would like 

to gather more data, which is why we are proposing to add a targeting criterion for 

hospitals that appear to frequently under-report HAIs. We invite public comment on this 

proposal. 
 914 

e. Proposed Procedures for Submitting Records for Validation 

(1) Separate Submission Requirements for MRSA Bacteremia and CDI Validation 

 Under section 412.140(d)(1) of our regulations, a hospital must submit to CMS a 

sample of patient charts that the hospital used for purposes of data submission under the 

program. Historically, we have requested the entire medical record where the content of 

the medical record is defined under 42 CFR § 482.24. For validation of the MRSA 

bacteremia and CDI measures for the FY 2016 payment determination and subsequent 

years, we are proposing to require hospitals to submit only those two specific parts of the 

medical record that are needed to validate these measures. For each sampled charts, the 

two required parts are: (1) all final positive blood cultures for MRSA and toxin-positive 

specimens for CDI with specimen collection dates; and (2) all documentation of the dates 

on which a patient was admitted to, transferred to, or discharged from each location 

within the hospital during his/her stay. We are proposing to request only this information 

because it is all that CMS needs to complete validation for these measures. Therefore, 

this proposal will save CMS effort in completing validation, resulting in more timely 

feedback to hospitals. In addition, we believe that this more limited request may alleviate 

burden for many hospitals. Finally, this proposal should reduce the cost to CMS in both 

photocopying and shipping compared with submission of the entire patient chart. We 

invite public comment on this proposal. 

(2) Proposed Secure Transmission of Electronic Versions of Medical Information 

 The current regulation at 42 CFR § 412.140(d)(1) states: 
 915 

 “(d) Validation of Hospital IQR Program data. CMS may validate one or more 

measures selected under section 1886(b)(3)(B)(viii) of the Act by reviewing patient 

charts submitted by selected participating hospitals. (1) Upon written request by CMS or 

its contractor, a hospital must submit to CMS a sample of patient charts that the hospital 

used for purposes of data submission under the program. The specific sample that a 

hospital must submit will be identified in the written request. A hospital must submit the 

patient charts to CMS or its contractor within 30 days of the date identified on the written 

request.” 

 We are proposing that this requirement may be met by employing either of the 

following options each quarter: (1) a hospital may submit paper medical records, which is 

the form in which CMS has historically requested them; or (2) a hospital may securely 

transmit electronic versions of medical information for the FY 2016 payment 

determination and subsequent years. The intent of this proposal is to offer an additional 

mode through which hospitals may meet the requirement to submit patient charts. The 

content of the patient charts to be submitted are defined at 42 CFR § 482.24(c). We are 

not proposing to change the content of these charts (except for MRSA bacteremia and 

CDI as proposed in section IX.A.10.e.(1) of the preamble of this proposed rule). We are 

proposing this change because hospitals are rapidly adopting EHR systems as their 

primary source of information about patient care. Our understanding is that as of 

December 2012, more than 4,000 hospitals, including 77 percent of hospitals 

participating in the Hospital IQR Program, had enrolled in the Medicare EHR Incentive 

Program. 
 916 

 Based on the instructions that we have historically provided with written requests 

for records under 42 CFR § 412.140(d)(1), hospitals have only been able to submit this 

information in paper format. For records stored electronically, hospitals expend 

additional resources printing records onto paper that may be more efficiently transmitted 

electronically. We pay hospitals at a rate of 12 cents per page, plus shipping 

(70 FR 23667). In addition, the length of paper charts has been increasing, and the paper 

used to submit these records has an environmental impact. As shown in the table below, 

the average patient chart based on the most recent available statistics from our CDAC 

contractor, is much larger than when CMS began validating quality reporting data. 

IPPS/LTCH PPS 

Final or Proposed 

Rule FY 

Approximate average 

page length 

Citation 

Final 2006 140 70 FR 47702 

Final 2009 150 73 FR 49075 

Final 2012 275 76 FR 51828 

Proposed 2014 410 

 In examining the most recent statistics available, which are based on records 

submitted for 2Q 2012, most of the increase in chart length is attributable to including 

HAI charts in the sample; HAI charts are on average 1,500 pages long, but other inpatient 

chart lengths are also larger, now averaging about 300 pages. Therefore, the proposal to 

allow hospitals to choose between submitting paper copy patient charts and securely 

transmitting electronic versions of medical information has the potential for significant 

reduction in administrative burden, cost, and environmental impact. Furthermore, this 
 917 

potential for savings grows as the measures selected for Hospital IQR Program chart 

validation increasingly focus on HAIs. 

 We are proposing for the FY 2016 payment determination and subsequent years 

that those hospitals wishing to securely transmit electronic versions of medical 

information to download or copy the digital image of the patient chart onto CD, DVD, or 

flash drive and ship it following instructions similar to those for shipping paper copies of 

patient charts. The precise guidelines to achieve this process will be posted on 

QualityNet and included with CMS’ written requests for patient charts. This proposal 

requires hospitals to use this single method for secure transmission of electronic versions 

of medical information, because it will enable us to efficiently process records and 

provide timely feedback to hospitals. We recognize that there may be many other 

methodologies under which transmission of electronic versions of medical information 

might occur. After evaluating several different potential approaches, we are proposing 

the only one available at this time that has been successfully tested. We will continue to 

develop and test additional technologies for secure transmission of electronic versions of 

medical information. We will notify hospitals through QualityNet as we acquire any new 

capabilities for accepting electronic versions of medical information, and to update 

available methodologies through future payment rules. We invite public comment on this 

proposal. 

 For the FY 2016 payment determination and subsequent years, we also are 

proposing to incentivize the electronic option by offering reimbursement for the labor and 

supply costs of submitting electronic versions of medical information. Because hospitals 
 918 

can choose between the current paper and the proposed electronic option of submitting 

validation records, we believe that this proposal does not increase cost or burden to 

hospitals. We invite public comment on this proposal. 

11. Proposed Data Accuracy and Completeness Acknowledgement Requirements for the 

FY 2015 Payment Determination and Subsequent Years 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53554), we finalized our 

proposal to require hospitals to continue to electronically acknowledge their data 

accuracy and completeness once annually. For the FY 2015 payment determination and 

subsequent years, the submission deadline finalized for the Data Accuracy and 

Completeness Acknowledgement (DACA) was aligned with the final submission quarter 

for each fiscal year. For example, for the FY 2015 payment determination, the 

submission deadline for the Data Accuracy and Completeness Acknowledgement is 

currently May 15, 2014, with respect to the reporting period of January 1, 2013, through 

December 31, 2013. 

 In order to provide the timely feedback to hospitals regarding the APU status, we 

are proposing that for the FY 2015 payment determination and subsequent years, we 

would collect the DACA in alignment with the 3rd quarter submission deadline. This 

would mean, for example, the electronic acknowledgement of data accuracy and 

completeness for the FY 2015 payment determination would be submitted between 

January 1, 2014 and February 15, 2014, with respect to the reporting period of 

January 1, 2013 through December 31, 2013. We invite public comment on this 

proposal. 
 919 

12. Public Display Requirements for the FY 2016 Payment Determination and 

Subsequent Years 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650), we continued, for the 

FY 2014 payment determination and subsequent years, the approach we adopted in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50230) for public display requirements for 

the FY 2012 payment determination and subsequent years. In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53554), we did not make any changes to these requirements. For 

the FY 2016 payment determination and subsequent years, we are not proposing to make 

any changes to these requirements. As previously stated in section IX.A.9.d. of the 

preamble of this proposed rule, we are proposing that we would not publicly report data 

collected from hospitals choosing to report the four measure sets (VTE, STK, ED and 

PC) electronically in CY 2014. 

 The Hospital IQR Program quality measures are typically reported on the 

Hospital Compare Web site at: http://www.medicare.gov/hospitalcompare, but on 

occasion are reported on other CMS Web sites such as http://www.cms.gov and/or 

https://data.medicare.gov. We require that hospitals sign a Notice of Participation form 

when they first register to participate in the Hospital IQR Program. Once a hospital has 

submitted a form, the hospital is considered to be an active Hospital IQR 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 us to publicly 

report the quality measures included in the Hospital IQR Program. 
 920 

 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. 

13. Proposed Reconsideration and Appeal Procedures for the FY 2015 Payment 

Determination and Subsequent Years 

 The Hospital IQR Program reconsideration and appeals requirements were 

adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650 through 51651) and are 

found at section 412.140(e) of our regulations. The form for reconsiderations and a 

detailed description of the reconsideration process are available on the QualityNet Web 

site at: http://www.qualitynet.org/ > Hospitals-Inpatient>Hospital Inpatient Quality 

Reporting Program>APU Reconsiderations. We are proposing to interpret this 

requirement to allow for this form to be completed online via the secure portion of the 

QualityNet Web site. 

 In the past, it has been CMS’s process to allow hospitals with a quarterly Overall 

Validation Result of <75 percent to request a review by or appeal mismatched data 

element(s) to their State Quality Improvement Organization (QIO). This process requires 

that the CDAC contractor copy and ship all records for any hospital that receives an 

overall validation score of <75 percent to the State QIO. In the past two years, none of 

the mismatch appeals would have resulted in a change to the final APU determination. 

As described at § 412.140(e) of our regulations, hospitals can also request a 

reconsideration of a decision by CMS that the hospital has not met the requirements of 

the Hospital IQR Program for a particular fiscal year. This includes reconsideration on 
 921 

the basis that CMS concluded it did not meet the validation requirements. We believe 

this process is redundant and, for the FY 2015 payment determination and subsequent 

years, we are proposing to remove the quarterly appeal of mismatched data elements to 

the State QIO. We invite public comment on this proposal. 

14. Hospital IQR Program Extraordinary Circumstances Extensions or Waivers 

 The Hospital IQR Program extraordinary circumstances disaster extensions or 

waiver requirements were adopted in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51651 through 51652) and can be found at 42 CFR § 412.140(c)(2). In the 

FY 2012 IPPS/LTCH PPS final rule, we explained the requirements for disaster 

extensions or waivers. The forms and a detailed description of the extension or waiver 

process are available on the QualityNet Web site at: http://www.qualitynet.org/ > 

Hospitals-Inpatient>Hospital Inpatient Quality Reporting Program. 

 We are proposing to allow for not only a CEO, but also other hospital-designated 

personnel contact to complete and sign waiver/extraordinary circumstances forms. This 

proposed change would allow hospitals to designate an appropriate, non-CEO, contact at 

its discretion. This individual would be responsible for the submission, and would be the 

one signing the form. 

 In addition, we are proposing to allow for this form to be completed online via the 

secure portion of the QualityNet Web site securely online via the QualityNet Web site. 

 We also are proposing that we may grant a waiver or extension to hospitals if we 

determine that a systemic problem with one of our data collection systems directly 

affected the ability of the hospitals to submit data. Because we do not anticipate that 
 922 

these types of systemic errors will happen often, we do not anticipate granting a waiver or 

extension on this basis frequently. 

 If we make the determination to grant a waiver or extension, we are proposing to 

communicate this decision through routine communication channels to hospitals, vendors 

and QIOs by means of, for example, memoranda, emails, and notices on the QualityNet 

Web site. We invite public comment on these proposals. 
 923 

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

1. Statutory Authority 

 Section 3005 of the Affordable Care Act added new subsections (a)(1)(W) and (k) 

to section 1866 of the Act. Section 1866(k) of the Act establishes a quality reporting 

program for a hospital described in section 1886(d)(1)(B)(v) of the Act (referred to as a 

“PPS-Exempt Cancer Hospital” or “PCH”). Section 1866(k)(1) of the Act states that, for 

FY 2014 and each subsequent fiscal year, a PCH shall submit data to the Secretary in 

accordance with section 1866(k)(2) of the Act with respect to such a fiscal year. 

Section 1866(k)(2) of the Act provides that, for FY 2014 and each subsequent fiscal year, 

each hospital described in section 1886(d)(1)(B)(v) of the Act shall submit data to the 

Secretary on quality measures specified under section 1866(k)(3) of the Act in a form and 

manner, and at a time, specified by the Secretary. 

 Section 1866(k)(3)(A) of the Act requires that any measure specified by the 

Secretary must have been endorsed by the entity with a contract under section 1890(a) of 

the Act, unless an exception under section 1866(k)(3)(B) of the Act applies. The NQF 

currently holds this contract. The NQF is a voluntary, consensus-based, 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 healthcare quality measurement and reporting through its consensus 

development processes. We have generally adopted NQF-endorsed measures in our 

reporting programs. However, section 1866(k)(3)(B) of the Act provides an exception. 

Specifically, it provides that, in the case of a specified area or medical topic determined 
 924 

appropriate by the Secretary for which a feasible and practical measure has not been 

endorsed by the entity with a contract under section 1890(a) of the Act, the Secretary may 

specify a measure that is not so endorsed as long as due consideration is given to 

measures that have been endorsed or adopted by a consensus organization identified by 

the Secretary. 

 Under section 1866(k)(3)(C) of the Act, the Secretary was required to publish the 

measure selection for PCHs no later than October 1, 2012, with respect to FY 2014. 

 Section 1866(k)(4) of the Act requires the Secretary to establish procedures for 

making public the data submitted by PCHs under the PCHQR Program. Such procedures 

must ensure that a PCH has the opportunity to review the data that is to be made public 

with respect to the PCH prior to such data being made public. The Secretary must report 

quality measures of process, structure, outcome, patients’ perspective on care, efficiency, 

and costs of care that relate to services furnished by PCHs on the CMS Web site. 

2. Covered Entities 

 Section 1886(d)(1)(B)(v) of the Act excludes particular cancer hospitals from 

payment under the IPPS. This proposed rule covers only those PPS-excluded cancer 

hospitals meeting eligibility criteria specified in 42 CFR 412.23(f). 

3. Previously Finalized Quality Measures for PCHs Beginning with the FY 2014 

Program 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556 through 53561), we 

finalized five quality measures for the FY 2014 program and subsequent years. 

Specifically, we finalized two CDC/NHSN-based HAI quality measures (outcome 
 925 

measures): (1) Central Line-Associated Bloodstream Infection (CLABSI); and 

(2) Catheter-Associated Urinary Tract Infection (CAUTI). We also finalized three 

cancer-specific process of care measures: (1) Adjuvant chemotherapy is considered or 

administered within 4 months (120 days) of surgery to patients under the age of 80 with 

AJCC III (lymph node positive) colon cancer; (2) Combination chemotherapy is 

considered or administered within 4 months (120 days) of diagnosis for women under 

70 with AJCC T1c, or Stage II or III hormone receptor negative breast cancer; and 

(3) Adjuvant hormonal therapy. 

 The finalized measures are shown below. 

PCHQR Program Measures Finalized in the FY 2013 IPPS/LTCH PPS Final Rule 

Beginning with the 

FY 2014 Program Year 

Safety and Healthcare-Associated Infections—HAI

● (NQF #0139) NHSN Central Line-Associated Bloodstream 

Infection (CLABSI) Outcome Measure 

● (NQF #0138) NHSN Catheter-Associated Urinary Tract 

Infections (CAUTI) Outcome Measure 

Clinical Process/Cancer-Specific Treatments

● (NQF #0223) Adjuvant Chemotherapy is considered or 

administered within 4 months (120 days) of surgery to patients 

under the age of 80 with AJCC III (lymph node positive) colon 

cancer 

● (NQF #0559) Combination Chemotherapy is considered or 

administered within 4 months (120 days) of diagnosis for 

women under 70 with AJCC T1c, or Stage II or III hormone 

receptor negative breast cancer 

● (NQF #0220) Adjuvant Hormonal Therapy 

We are not proposing to remove or replace any of the previously finalized 

measures from the PCHQR program for the FY 2015 program year. We discussed the 
 926 

collection requirements and submission timeframes for these measures in the preamble of 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53563 through 53564). 

4. Considerations in the Selection of the Quality Measures 

 Section 1866(k)(3)(A) of the Act requires that any measure specified by the 

Secretary must have been endorsed by the entity with a contract under section 1890(a) of 

the Act, unless section 1866(k)(3)(B) of the Act applies. Section 1866(k)(3)(B) of the 

Act states that, in the case of a specified area or medical topic determined appropriate by 

the Secretary for which a feasible and practical measure has not been endorsed by the 

entity with a contract under section 1890(a) of the Act, the Secretary may specify a 

measure that is not so endorsed as long as due consideration is given to measures that 

have been endorsed or adopted by a consensus organization identified by the Secretary. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556), we indicated that we 

have taken a number of principles into consideration when developing measures for the 

PCHQR Program, and that many of these principles are modeled on those we use for 

measure development under the Hospital IQR Program: 

● Public reporting should rely on a mix of standards, outcomes, process of care 

measures, and patient experience of care measures, including measures of care transitions 

and changes in patient functional status. 

● The measure set should evolve so that it includes a focused core set of 

measures appropriate to cancer hospitals that reflects the level of care and the most 

important areas of service furnished by those hospitals. The measures should address 

gaps in the quality of cancer care. 
 927 

● We also consider input solicited from the public through rulemaking and public 

listening sessions. 

● We consider suggestions and input from a PCH Technical Expert Panel (TEP), 

convened by a CMS measure development contractor, which rated potential PCH quality 

measures for importance, scientific soundness, usability, and feasibility. The TEP 

membership includes health-care providers specializing in the treatment of cancer, cancer 

researchers, consumer and patient advocates, disparities experts, and representatives from 

payer organizations. 

 Like the Hospital IQR Program, the PCHQR Program also supports the National 

Quality Strategy, national priorities, HHS Strategic Plans and Initiatives, and CMS 

Strategic Plans, as well as takes into consideration the recommendations of the MAP and 

strives for burden reduction whenever possible. 

 We invite public comment on these considerations. 

5. Proposed New Quality Measures 

 For the PCHQR Program beginning with FY 2015, we are proposing to adopt one 

new measure: NHSN HAI measure of Surgical Site Infection (SSI). 

 For the PCHQR Program beginning with FY 2016, we are proposing to adopt 13 

new measures: six measures of Surgical Care Improvement Project (SCIP), six Clinical 

Process/Oncology Care Measures, and one Patient Experience of Care measure (the 

HCAHPS Survey). 

 All 14 of these proposed measures are NQF-endorsed. Some address inpatient 

care, and others address outpatient care. All of the measures address treatment provided 
 928 

to cancer patients in PCH inpatient or outpatient settings. In addition, the adoption of 

measures that apply to more than one healthcare setting is one of our objectives in 

promoting quality care consistently across all health care settings. The 14 proposed 

measures are a subset of 19 measures that we included on a publicly available document 

entitled “List of Measures Under Consideration for December 1, 2012” in compliance 

with section 1890A(a)(2) of the Act. These measures were reviewed by the MAP, a 

multi-stakeholder body convened by the NQF for the purpose of providing input to HHS 

on the selection of measures, and the MAP’s conclusions can be found in the “MAP PreRulemaking Report: 2013 Recommendations on Measures Under Consideration by 

HHS.” The MAP Report can be accessed at: 

http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx. 

 We considered the input and recommendations provided by the MAP in selecting 

the 14 measures we are proposing for the PCHQR Program. Of these 14 measures, the 

MAP supported the inclusion of 13 of them in the PCHQR Program, and supported the 

direction of the proposed HCAHPS measure, noting that additional experience with the 

survey is needed so that the survey questions are applicable for use in the PCH settings. 

Although we recognize that some stakeholders would prefer that we adopt an experience 

of care measure developed specifically for the cancer hospital setting, we believe that 

other stakeholders think HCAHPS is appropriate for the cancer hospital setting, and are 

aware that approximately 27 percent of PCHs are currently administering HCAHPS to 

their patients. For these reasons, we believe that until a new patient experience measure 
 929 

is developed specifically for the PCH setting, the HCAHPS will provide valuable 

information to the public on the patient experience of care in PCHs. 

 In addition, the proposed measures address the National Quality Strategy domains 

of Patient Safety, Clinical Effectiveness, and Patient Experience/Engagement, and further 

our goal of aligning measures across programs because they are already in use in either 

the Hospital IQR Program or the PQRS Program. We describe these proposed measures 

in greater detail below. 

a. Proposed New Measure Beginning with FY 2015 - NHSN Healthcare-Associated 

Infection (HAI) Measure: Surgical Site Infection (SSI) (NQF #0753) 

 This NQF-endorsed American College of Surgeons/CDC harmonized measure of 

surgical site infection (SSI) meets the measure selection requirements at section 

1866(k)(3)(A) of the Act, and expands upon the existing Healthcare-Associated 

Infections (HAIs) measurement topic that is part of the PCHQR Program. The measure 

addresses HAIs, a topic area widely acknowledged by HHS, the Institute of Medicine, the 

National Priorities Partnership and others as a high priority requiring measurement and 

improvement. HAIs are among the leading causes of death in the United States. The 

CDC estimates that as many as 2 million infections are acquired each year in hospitals 

and that HAIs result in approximately 90,000 deaths per year. 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. 
 930 

 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 have called 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 give hospitals an incentive to improve infection control 

efforts (75 FR 50201). 

 Detailed specifications for this proposed measure can be found at: 

http://www.cdc.gov/nhsn/TOC_manual.html. This measure assesses the incidence of 

surgical site infections following colon surgeries and abdominal hysterectomies 

performed by PCHs and includes laparoscopic procedures. The measure rate is 

calculated as the Standardized Infection Ratio for each procedure type. Adult patients 

18 years and older with deep incisional and organ space infections during the 30-day 

postoperative period are included in the measure. This measure is risk-adjusted and 

reported at the facility level. It is not specific to a hospital ward or setting, rather it is 

applicable to all postoperative patients who fall into the numerator criteria. The 

denominator is calculated using logistic regression models, determining the expected 

number of SSI’s by facility and procedure type. We invite public comment on this 

proposed SSI measure. 

b. Proposed New Measures Beginning with the FY 2016 PQHQR Program 

(1) Surgical Care Improvement Project (SCIP) Measures 

 Measures from the Surgical Care Improvement Project (SCIP) have been 

collected as part of the Hospital IQR Program for most subsection (d) hospitals paid 
 931 

under the IPPS and reported on the Hospital Compare Web site for a number of years, 

because they assess effective care for patients undergoing surgery. In general, these 

measures are also applicable to patients undergoing surgery in PCHs. We are proposing 

to adopt six NQF-endorsed, SCIP measures for the PCHQR Program beginning with the 

FY 2016 program year. All six of the measures are NQF-endorsed and therefore meet the 

selection requirements at section 1866(k)(3)(A) of the Act. 

 In addition, all six of these measures were supported by the MAP for inclusion in 

the PCHQR Program in its February 2013 pre-rulemaking report to HHS located at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 

Four of these measures: SCIP – Inf 1 (NQF #0527); SCIP – Inf 2 (NQF #0528), SCIP – 

Inf 3 (NQF #0529); and SCIP – Inf 9 (NQF #0453) assess hospital performance with 

regard to infection prevention practices. SCIP-Card-2 (NQF #0284) assesses the 

continuity of beta blocker treatment during the perioperative period for cardiac patients 

undergoing non-cardiac surgery. SCIP – VTE 2 (NQF #0218) assesses hospital 

performance regarding effective preventive care for venous thromboembolism. 

 These measures are described below, and detailed measure specifications for all 

six of these measures can be found in the Hospital IQR Program Specifications Manual 

located at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier4&cid=1228772433589. 

 We invite public comment on these six proposed SCIP measures. 
 932 

(A) SCIP – Inf 1: Prophylactic Antibiotics received within 1 Hour Prior to Surgical 

Incision (NQF #0527) 

 This measure assesses the percent of surgical patients with prophylactic 

antibiotics initiated within one hour prior to surgical incision. Patients who received 

vancomycin or a fluoroquinolone for prophylactic antibiotics should have the antibiotics 

initiated within 2 hours prior to surgical incision. This measure addresses the National 

Quality Strategy domain of Clinical Effectiveness, and complements the proposed SSI 

measure. 

(B) SCIP – Inf 2: Prophylactic Antibiotic Selection for Surgical Patients (NQF #0528) 

 This measure assesses the percent of surgical patients who received prophylactic 

antibiotics consistent with current guidelines (specific to each type of surgical procedure). 

A goal of prophylaxis with antibiotics is to use an agent that is safe, cost-effective, and 

has a spectrum of action that covers most of the probable intraoperative contaminants for 

the operation. This measure addresses the National Quality Strategy domain of Clinical 

Effectiveness, and complements the SSI measure. 

(C) SCIP – Inf 3: Prophylactic Antibiotic Discontinuation within 24 Hours after Surgery 

End Time (NQF #0529) 

 This measure assesses the percentage of surgical patients whose prophylactic 

antibiotics were discontinued within 24 hours after Anesthesia End Time. A goal of 

prophylaxis with antibiotics is to provide benefit to the patient with as little risk as 

possible. It is important to maintain therapeutic serum and tissue levels throughout the 

operation. Intraoperative re-dosing may be needed for long operations. However, 
 933 

administration of antibiotics for more than 24 hours after the incision is closed offers no 

additional benefit to the surgical patient. Prolonged administration increases the risk of 

Clostridium difficile infection and the development of antimicrobial resistant pathogens. 

This measure addresses the National Quality Strategy domain of Clinical Effectiveness, 

and complements the proposed SSI measure. 

(D) SCIP – Inf 9: Urinary Catheter Removed on Post-Operative Day 1 or Post-Operative 

Day 2 with Day Surgery being Day Zero (NQF #0453) 

 This measure assesses the percent of surgical patients with urinary catheter 

removed on Postoperative Day 1 or Postoperative Day 2 with day of surgery being day 

zero. The risk of catheter-associated urinary tract infection (UTI) increases with longer 

duration of indwelling urinary catheterization. This measure complements the CAUTI 

measure currently adopted for the PCHQR Program. 

(E) SCIP – Card 2: Surgery Patients on Beta Blocker Therapy Prior to Admission Who 

Received a Beta Blocker during the Perioperative Period (NQF #0284) 

 This measure assesses the percent of surgery patients on beta-blocker therapy 

prior to arrival who received a beta-blocker during the perioperative period. The 

perioperative period for this measure is defined as the day prior to surgery through 

postoperative day two, with day of surgery being day zero. The American College of 

Cardiology/American Heart Association promote continuation of beta-blocker therapy in 

the perioperative period as a class I indication, and accumulating evidence suggests that 

titration to maintain tight heart rate control should be the goal. We believe that this 

measure targets an important process of care, beta blocker administration for non-cardiac 
 934 

surgery patients. Concerns regarding the discontinuation of beta-blocker therapy in the 

perioperative period have existed for several decades. This measure addresses the 

National Quality Strategy domain of Clinical Effectiveness. 

(F) SCIP – VTE 2: Surgical Patients who Received Appropriate VTE Prophylaxis within 

24 Hours prior to Surgery to 24 Hours after Surgery End Time (NQF #0218) 

 This measure assesses the percent of surgery patients who received appropriate 

VTE prophylaxis within 24 hours prior to Anesthesia Start Time to 24 hours after 

Anesthesia End Time. The frequency of VTE, which includes deep vein thrombosis and 

pulmonary embolism, is related to the type and duration of surgery, patient risk factors, 

duration and extent of postoperative immobilization, and use or nonuse of prophylaxis. 

Despite the evidence that VTE is one of the most common postoperative complications 

and prophylaxis is the most effective strategy to reduce morbidity and mortality, it is 

often underused. We believe that this measure will encourage practices to reduce the risk 

of post-operative complications associated with VTE. This measure addresses the 

National Quality Strategy domain of Clinical Effectiveness. 

(2) Clinical Process/Oncology Care Measures 

 We are proposing to add to the PCHQR Program, beginning with FY 2016, six 

measures specific to assessing the quality of medical treatment and staging of cancer by 

PPS-exempt cancer hospitals. All six measures are specified and endorsed for outpatient 

settings to evaluate the performance of a cancer treatment team which is an integral part 

of a cancer center. In addition, all six of these measures are NQF-endorsed and address 
 935 

the quality of outpatient cancer treatment provided at PCHs; therefore, they meet the 

measure selection requirement at section 1866(k)(3)(A) of the Act. 

 All six measures also are recommended as priorities for program alignment in the 

PCHQR Program by the MAP in a June 2012 Final Report entitled “Performance 

Measurement Coordination Strategy for PPS-Exempt Cancer Hospitals.” In addition, all 

six of the measures are supported for inclusion in the PCHQR Program by the MAP in its 

2013 Pre-Rulemaking Final Report issued in February 2013. Both of these MAP reports 

can be located at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 

 Detailed specifications of these six proposed measures can be found in Appendix 

A of the December 2012 NQF Cancer endorsement maintenance project report at: 

http://www.qualityforum.org/Publications/2012/12/Cancer_Endorsement_Maintenance_2

011.aspx. We invite public comment on these six proposed clinical process/oncology 

care measures. 

(A) Clinical Process/Oncology Care - Multiple Myeloma-Treatment with 

Bisphosphonates (NQF #0380) 

 This measure assesses the percentage of patients aged 18 years and older with a 

diagnosis of multiple myeloma, not in remission, for which intravenous bisphosphonate 

therapy was prescribed or received within the 12-month reporting period. This measure 

is intended to promote the appropriate use of bisphosphonates to reduce morbidity and 

mortality in multiple-myeloma patients. Bisphosphonates specifically decrease osteoclast 
 936 

activity, thereby reducing bone pain and fractures in patients with multiple myeloma.103 

This measure addresses the National Quality Strategy domain of Clinical Effectiveness. 

(B) Clinical Process/Oncology Care - Radiation Dose Limits to Normal Tissues 

(NQF #0382) 

 This measure assesses the percentage of patients, regardless of age, with a 

diagnosis of pancreatic or lung cancer receiving 3D conformal radiation therapy with 

documentation in the medical record that radiation dose limits to normal tissues were 

established prior to the initiation of a course of 3D conformal radiation for a minimum of 

two tissues. This measure is intended to assess the appropriate use of 3D conformal 

radiation therapy in the treatment of pancreatic and lung cancers. Treatment is important 

due to the high rate of morbidity and mortality associated with these cancers. For 

example, among cancers in US adults, lung cancers are the leading cause of deaths in 

both men and women. It is estimated from 2006 - 2008 rates that 6.94 percent of U.S. 

men and women born today will be diagnosed with cancer of the lung and bronchus at 

some time during their lifetime.104

 Regarding pancreatic cancer, there has been an increased frequency of this cancer 

since 1998 of 0.8 percent in men and 1.0 percent in women.105 Based on rates from 2006 

through 2008, 1.45 percent of men and women born today will be diagnosed with cancer 

of the pancreas at some time during their lifetime. A major goal of radiation therapy is 

 

103 NQF. Cancer Endorsement Maintenance 2011.Candidate Review Consensus – Phase 1. Available at: 

http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C. 104 NQF. Cancer Endorsement Maintenance 2011.Candidate Review Consensus – Phase 1. Available at: 

http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C. 105 NQF. Cancer Endorsement Maintenance 2011.Candidate Review Consensus – Phase 1. Available at: 

http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C. 
 937 

the delivery of the desired dose distribution of radiation to target tissue while limiting the 

radiation dose to the surrounding normal tissues to an acceptable level. 

 Patients treated with 3D conformal radiation therapy are often subjected to 

radiation dose levels that exceed normal tissue tolerance. Precise specification of 

maximum doses to be received by normal tissues during radiation treatment planning is 

considered a best practice to avoid delivering unnecessary radiation to patients. 

(C) Clinical Process/Oncology Care - Plan of Care for Pain (NQF #0383) 

 This measure assesses the percentage of visits for patients, regardless of age, with 

a diagnosis of cancer currently receiving chemotherapy or radiation therapy, who report 

having pain, with a documented plan of care to address that pain. Pain is one of the most 

common symptoms associated with cancer, occurring in approximately one quarter of 

patients with newly diagnosed malignancies, one third of patients undergoing treatment, 

and three quarters of patients with advanced disease. Proper pain management is critical 

to achieving pain control. “Unrelieved pain denies [patients] comfort and greatly affects 

their activities, motivation, interactions with family and friends, and overall quality of 

life.”106 This measure aims to improve attention to pain management and requires a plan 

of care for cancer patients who report having pain to allow for individualized treatment 

based on clinical circumstances and patient wishes.107 This measure addresses the 

National Quality Strategy domain of Patient and Family Engagement. This measure is 

intended to be paired with NQF #0384 below. 

 

106 NQF. Cancer Endorsement Maintenance 2011.Candidate Review Consensus – Phase 1. Available at: 

http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C. 107 NQF. Cancer Endorsement Maintenance 2011.Candidate Review Consensus – Phase 1. Available at: 

http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C. 
 938 

(D) Clinical Process/Oncology Care - Pain Intensity Quantified (NQF #0384) 

 This measure assesses the percentage of patient visits, regardless of patient age, 

with a diagnosis of cancer currently receiving chemotherapy or radiation therapy in 

which pain intensity is quantified. As described above for Oncology: Plan of Care for 

Pain (NQF #0383), pain is the most common symptom in cancer patients and this 

measure is used in conjunction with NQF #0384 to encourage consistent assessment of 

pain intensity to better guide the care of pain.108 This measure addresses the National 

Quality Strategy domain of Patient and Family Engagement. Higher rates are indicative 

of better performance. This measure is intended to be paired with NQF #0383 above. 

(E) Clinical Process/Oncology Care - Prostate Cancer-Avoidance of Overuse 

Measure-Bone Scan for Staging Low-Risk Patients (NQF #0389) 

 This measure assesses the percentage of patients, regardless of age, with a 

diagnosis of prostate cancer at low risk of recurrence receiving interstitial prostate 

brachytherapy, or external beam radiotherapy to the prostate, or radical prostatectomy, or 

cryotherapy, who did not have a bone scan performed at any time since diagnosis of 

prostate cancer. 

 Prostate cancer is the most commonly diagnosed cancer and the second leading 

cause of cancer death in men over the age of 40 years in the United States. Current 

guidelines and best practices do not recommend bone scans for patients in the low risk 

stratum for prostate cancer bony involvement. This goal of this measure is to reduce the 

use of bone scans that are clinically unnecessary and reduce economic burden to the 

 

108 NQF. Cancer Endorsement Maintenance 2011.Candidate Review Consensus – Phase 1. Available at: 

http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C. 
 939 

patient and payer.109 This measure addresses the National Quality Strategy domain of 

Clinical Efficiency. 

(F) Clinical Process/Oncology Care - Prostate Cancer-Adjuvant Hormonal Therapy for 

High-Risk Patients (NQF #0390) 

 This measure assesses the percentage of patients, regardless of age, with a 

diagnosis of prostate cancer at high risk of recurrence receiving external beam 

radiotherapy to the prostate, who were prescribed adjuvant hormonal therapy (GnRH 

agonist or antagonist). Prostate cancer is the most commonly diagnosed cancer and the 

second leading cause of cancer death in men over the age of 40 years in the United States. 

If patients are receiving external beam radiotherapy as primary therapy, those patients 

that are designated as high risk may be prescribed hormonal therapy. Adjuvant hormonal 

therapy in these patients has been shown to increase the effectiveness of the radiotherapy 

and may also prolong survival. Further, the American Urological Association and the 

National Comprehensive Cancer Network guidelines recommend adjuvant hormonal 

therapy with radiotherapy for high risk prostate cancer patients for prolonged survival. 

This measure attempts to encourage compliance with this guideline for this specific 

patient population.110 This measure addresses the National Quality Strategy domain of 

Clinical Effectiveness. 

 

109 NQF. Cancer Endorsement Maintenance 2011.Candidate Review Consensus – Phase 1. Available at: 

http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C. 110 NQF. Cancer Endorsement Maintenance 2011.Candidate Review Consensus – Phase 1. Available at: 

http://www.qualityforum.org/Projects/Cancer_Endorsement_Maintenance_2011.aspx#t=2&s=&p=3%7C. 
 940 

(3) Patient Experience of Care Survey: HCAHPS 

 To advance patient safety and quality improvement in cancer hospital settings, we 

are proposing that for the FY 2016 PCHQR Program and subsequent years PCHs submit 

data on the HCAHPS Survey of patient experience-of-care. We partnered with AHRQ to 

develop HCAHPS. The HCAHPS Survey is the first national, standardized, publicly 

reported survey of patients’ experience of hospital care. HCAHPS, also known as 

CAHPS® Hospital Survey, is a survey instrument and data collection methodology for 

measuring patients’ perceptions of their hospital experience. 

 The HCAHPS Survey asks recently discharged patients 32 questions about 

aspects of their hospital experience that they are uniquely suited to address. The core of 

the survey contains 21 items that ask “how often” or whether patients experienced a 

critical aspect of hospital care. The survey also includes four items to direct patients to 

relevant questions, five items to adjust for the mix of patients across hospitals, and two 

items that support Congressionally-mandated reports (77 FR 53513 through 53515). 

 Ten HCAHPS measures (six summary measures, two individual items and two 

global items) are currently publicly reported on the Hospital Compare Web site 

(http://www.hospitalcompare.hhs.gov/) for each hospital participating in the Hospital 

IQR Program. One new composite item, “Transition to post-hospital care,” will be added 

to the Hospital Compare Web site for the Hospital IQR Program once participating 

hospitals have submitted four calendar quarters of data on the three Care Transition 

Measure items that were added to the HCAHPS Survey beginning with January 2013 

discharges (77 FR 53513 through 53515). 
 941 

 Each of the six currently reported summary measures, or composites, is 

constructed from two or three survey questions. The six composites summarize how well 

doctors communicate with patients, how well nurses communicate with patients, how 

responsive hospital staff are to patients’ needs, how well hospital staff helps patients 

manage pain, how well the staff communicates with patients about medicines, and 

whether key information is provided at discharge. The two individual items address the 

cleanliness and quietness of patients’ rooms, while the two global items report patients’ 

overall rating of the hospital, and whether they would recommend the hospital to family 

and friends. 

 The HCAHPS Survey is administered to a random sample of adult inpatients 

between 48 hours and 6 weeks after discharge. Patients admitted in the medical, surgical 

and maternity care service lines are eligible for the survey; the survey is not restricted to 

Medicare beneficiaries. PCHs may use an approved survey vendor, or collect their own 

HCAHPS data (if approved by CMS to do so). To accommodate hospitals, HCAHPS can 

be implemented using one of four different survey modes: mail, telephone, mail with 

telephone follow-up, or active interactive voice recognition (IVR). Regardless of the 

mode used, the PCH would be required to make multiple attempts to contact patients. 

 PCHs may use the HCAHPS Survey alone, or include additional questions after 

the 21 core items discussed above. PCHs must survey patients throughout each month of 

the year, and PCHs participating in the PCHQR Program must target at least 

300 completed surveys over four calendar quarters in order to attain the reliability 

criterion CMS has set for publicly reported HCAHPS scores. The HCAHPS Survey is 
 942 

available in official translations in several languages other than English: Spanish (mail 

and telephone modes); Chinese (mail mode); Russian (mail mode); and Vietnamese (mail 

mode). All official translations of the HCAHPS Survey instrument are available in the 

current HCAHPS Quality Assurance Guidelines. The survey itself and the protocols for 

sampling, data collection, coding and file submission can be found in the current 

HCAHPS Quality Assurance Guidelines manual, available on the HCAHPS On-Line 

Web site located at: http://www.hcahpsonline.org. 

 We partnered with AHRQ to develop and test the HCAHPS Survey. AHRQ 

carried out a rigorous and multi-faceted scientific process, including a public call for 

measures; literature review; cognitive interviews; consumer focus groups; stakeholder 

input; a three-State pilot test; extensive psychometric analyses; consumer testing; and 

numerous small-scale field tests. In addition, we provided three separate opportunities 

for the public to comment on HCAHPS, and responded to over 1,000 comments. 

 In May 2005, the HCAHPS Survey was NQF-endorsed and in December 2005 

OMB gave its final approval for the national implementation of HCAHPS for public 

reporting purposes. We implemented the HCAHPS Survey for the Hospital IQR 

Program in October 2006 and the first public reporting of HCAHPS results under that 

program occurred in March 2008. The survey, its methodology and the results it 

produces are available on Hospital Compare. 

 Currently, nearly 3,900 hospitals that participate in the Hospital IQR Program 

publicly report their HCAHPS scores on Hospital Compare, and about 27 percent of 

PCHs voluntarily administer the HCAHPs Survey. We strongly encourage those PCHs 
 943 

that are currently submitting the HCAHPS measure to continue their current data 

submission. 

 In summary, we invite public comment on our proposals to adopt one new 

measure (SSI measure) beginning with the FY 2015 PCHQR Program and 13 new 

measures (six SCIP measures, six Clinical Process/Oncology Care measures, and one 

HCAHPS measure) beginning with the FY 2016 PCHQR Program. We refer readers to 

section IX.B.9. of the preamble of this proposed rule for more detailed information about 

the form, manner, and timing of data collection for these proposed measures. The tables 

below list the proposed new measures for the PCHQR Program beginning with the 

FY 2015 and FY 2016 respectively. 

Topic Proposed New Measure for the PCHQR Program 

Beginning with the FY 2015 Program Year 

Safety and Healthcare-Associated Infection—HAI

● (NQF #0753) Harmonized Procedure Specific Surgical Site 

Infection (SSI) Outcome Measure 

Topic Proposed New Measures for the PCHQR Program 

Beginning with the FY 2016 Program Year 

SCIP 

● (NQF #0218) Surgery Patients who Received Appropriate VTE 

Prophylaxis within 24 Hrs Prior to Surgery to 24 Hrs After Surgery 

End Time 

● (NQF #0453) Urinary Catheter Removed on Post-Operative Day 1 or 

Post-Operative Day 2 with Day of Surgery Being Day Zero 

● (NQF #0527) Prophylactic Antibiotic Received Within 1 Hr Prior to 

Surgical Incision 

● (NQF #0528) Prophylactic Antibiotic Selection for Surgical Patients 

● (NQF #0529) Prophylactic Antibiotic Discontinued Within 24 Hrs 

After Surgery End Time 
 944 

Topic Proposed New Measures for the PCHQR Program 

Beginning with the FY 2016 Program Year 

● (NQF #0284) Surgery Patients on Beta Blocker Therapy Prior to 

Admission who Received a Beta Blocker During the Perioperative 

Period 

Clinical Process/Oncology Care Measures 

● (NQF #0380) Multiple Myeloma-Treatment with Bisphosphonates 

● (NQF #0382) Oncology-Radiation Dose Limits to Normal Tissues 

● (NQF #0383) Oncology: Plan of Care for Pain 

● (NQF #0384) Oncology: Pain Intensity Quantified 

● (NQF #0390) Prostate Cancer-Adjuvant Hormonal Therapy for HighRisk Patients 

● (NQF #0389) Prostate Cancer-Avoidance of Overuse Measure-Bone 

Scan for Staging Low-Risk Patients 

Patient Engagement/Experience of Care 

● (NQF #0166) HCAHPS 

6. Possible New Quality Measure Topics for Future Years 

 We seek to develop a comprehensive set of quality measures to be available for 

widespread use for informed decision-making and quality improvement in the 

PPS-exempt cancer hospital setting. Therefore, through future rulemaking, we intend to 

propose to adopt new or updated measures, such as measures that assess the safety and 

efficiency of diagnosis and treatment of cancer, measures that take into account novel 

diagnostic and treatment modalities, measures that assess symptoms and functional 

status, measures of appropriate disease management and care coordination, and measures 

of admissions for complications of cancer and treatment for cancer, that help us further 

our goal of achieving better health care and improved health for Medicare beneficiaries 

who obtain cancer services through the widespread dissemination and use of performance 

information. 
 945 

 We welcome public comment and suggestions for the following measure 

domains: clinical quality of care, care coordination, patient safety, patient and caregiver 

experience of care, population/community health, and efficiency. These domains align 

with those of the National Quality Strategy, and we believe that selecting measures to 

address these domains will promote better cancer care while bringing the PCHQR 

Program in line with other established quality reporting and pay for performance 

programs such as the Hospital IQR Program, the Hospital VBP Program, and the 

Hospital OQR Program, and others within our purview. 

7. Maintenance of Technical Specifications for Quality Measures 

 Many of the quality measures used in different Medicare and Medicaid reporting 

programs are NQF-endorsed. As part of its regular maintenance process for endorsed 

performance measures, the NQF requires measure stewards to submit annual measure 

maintenance updates and undergo maintenance of endorsement review every 3 years. In 

the measure maintenance process, the measure steward (owner/developer) is responsible 

for updating and maintaining the currency and relevance of the measure and will confirm 

existing or minor specification changes to NQF on an annual basis. NQF solicits 

information from measure stewards for annual reviews and in order to review measures 

for continued endorsement in a specific 3-year cycle. 

 Through NQF’s measure maintenance process, NQF-endorsed measures are 

sometimes updated to incorporate changes that we believe do not substantively change 

the nature of the measure. We believe these types of maintenance changes are distinct 

from more substantive changes to measures that result in what are considered new or 
 946 

different measures, and that they do not trigger the same agency obligations under the 

Administrative Procedure Act. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53562), we adopted a policy to 

use a subregulatory process to make nonsubstantive updates to NQF-endorsed measures 

used for the PCHQR Program. We also said that we expected to make the determination 

of what constitutes a substantive versus a nonsubstantive change on a case-by-case basis, 

and provided examples of the types of changes that would fall into each category. We 

further said that the policies regarding what is considered substantive versus 

nonsubstantive changes would apply to all PCHQR Program measures. 

 The technical specifications for the HCAHPS patient experience of care survey 

are contained in the current HCAHPS Quality Assurance Guidelines manual, which is 

available at HCAHPS On-Line Web site, http://www.hcahpsonline.org. As necessary, 

HCAHPS Bulletins are issued to provide notice of changes and updates to technical 

specifications in HCAHPS data collection systems. As stated in our previous rulemaking 

(77 FR 53562), the specifications for the other measures are posted on the Specification 

Manual on the QualityNet Web site at www.qualitynet.org. 

 The Specifications Manual contains links to measure specifications, data 

abstraction information, data submission information, and other information necessary 

for PCHs to participate in the PCHQR Program. We maintain the technical specifications 

for the quality measures by updating this Manual periodically as we continue to expand 

and update our PCHQR Program. These updates include detailed instructions for PCHs 

to use when collecting and submitting data on the required measures and are 
 947 

accompanied by notifications to PCHQR Program-participating users, providing 

sufficient time between the change and effective dates in order to allow users to 

incorporate changes and updates to the measure specifications into data collection 

systems. We also revise the Specifications Manual and provide links to reflect measure 

changes which are also posted on the QualityNet Web site at: 

https://www.QualityNet.org. 

8. Public Display Requirements Beginning with FY 2015 Program Year 

 Section 1866(k)(4) of the Act requires the Secretary to establish procedures for 

making the data submitted under the PCHQR Program available to the public. Such 

procedures shall ensure that a PCH has the opportunity to review the data that is to be 

made public with respect to the hospital prior to such data being made public. 

Section 1866(k)(4) of the Act also provides that the Secretary shall report quality 

measures of process, structure, outcome, patients’ perspective on care, efficiency, and 

costs of care that relate to services furnished in such hospital on the CMS Web site. 

In order to meet these requirements, in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53562 through 56563), we finalized our policy to publicly display the submitted 

data on the Hospital Compare Web site (http://www.hospitalcompare.hhs.gov/) and 

established a preview period of 30 days prior to making such data public. 

 This year we have more information on the state of our systems’ capability and 

readiness, therefore, we are proposing to publicly display in 2014 the data for the 

measures listed below: 
 948 

● Adjuvant Chemotherapy is considered or administered within 4 months 

(120 days) of surgery to patients under the age of 80 with AJCC III (lymph node positive) 

colon cancer (NQF #0223); and 

● Combination Chemotherapy is considered or administered within 4 months 

(120 days) of diagnosis for women under 70 with AJCC T1c, or Stage II or III hormone 

receptor negative breast cancer (NQF #0559). 

 However, at this time, we are proposing to defer the public reporting of the 

remaining three finalized measures for FY 2014 PCHQR Program. We are in the process 

of testing and assessing data quality, including the reliability and validity of the measure 

rates, and do not believe that the data will be ready for public posting until sometime in 

the future. We will provide more information in future rulemaking. 

 We invite public comment on these proposals. 

9. Form, Manner, and Timing of Data Submission Beginning with the FY 2015 Program 

Year 

a. Background 

 Section 1866(k)(2) of the Act requires that, beginning with FY 2014 PCHQR 

Program, each PCH must submit to the Secretary data on quality measures specified 

under section 1866(k)(3) of the Act in a form and manner, and at a time as specified by 

the Secretary. 

 The complete data submission requirements and submission deadlines for 

FY 2014 have been posted on the QualityNet Web site at: https://www.QualityNet.org. 
 949 

We also refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53563 through 

535567) for more information. 

b. Proposed Waivers from Program Requirements 

 In our experience with other quality reporting and/or performance programs, we 

have noted occasions when providers have been unable to submit required quality data 

due to extraordinary circumstances that are not within their control (for example, natural 

disasters). We do not wish to unduly increase their burden during these times. 

Therefore, we are proposing that, beginning with FY 2014, PCHs may request and we 

may grant waivers with respect to the reporting of required quality data when 

extraordinary circumstances beyond the control of the PCH warrant. When waivers are 

granted, we will notify the respective PCH. 

 Under the proposed process, in the event of extraordinary circumstances not 

within the control of the PCH, such as a natural disaster, the PCH may request a reporting 

extension or a complete waiver of the requirement to submit quality data for one or more 

quarters. Such facilities would submit to CMS a request form that would be made 

available on the QualityNet Web site. The following information should be noted on the 

form: 

● The PCH’s CCN; 

● The PCH’s name; 

● Contact information for the PCH’s CEO and any other designated personnel, 

including name, email address, telephone number, and mailing address (the address must 

be a physical address, not a post office box); 
 950 

● The PCH’s reason for requesting an extension or waiver; 

● Evidence of the impact of extraordinary circumstances, including but not 

limited to photographs, newspaper and other media articles; and 

● A date when the PCH will again be able to submit PCHQR Program data, and a 

justification for the proposed date. 

 We are proposing that the request form must be signed by the PCH’s CEO or 

designee, and must be submitted within 30 days of the date that the extraordinary 

circumstances occurred. Following receipt of the request form, we would: (1) provide a 

written acknowledgement, using the contact information provided in the request, to the 

CEO and any additional designated PCH personnel, notifying them that the PCH’s 

request has been received; and (2) provide a formal response to the CEO and any 

additional designated PCH personnel, using the contact information provided in the 

request, notifying them of our decision. 

 This proposal does not preclude us from granting waivers or extensions to PCHs 

that have not requested them when we determine that an extraordinary circumstance, 

such as an act of nature (for example, a hurricane or other natural disaster that could 

reasonably affect a PCH’s ability to compile or report data), affects an entire region or 

locale. If we make the determination to grant a waiver or extension to PCHs in a region 

or locale, we are proposing to communicate this decision through routine communication 

channels to PCHs and vendors, by means of memoranda, emails, and notices on the 

QualityNet Web site, among other means. 

 We invite public comment on this proposal. 
 951 

c. Proposed Reporting Periods and Submission Timelines for the Proposed SSI Measure 

 We are proposing that PCHs report the proposed SSI measure beginning with 

January 1, 2014 events. We believe that this date will provide enough advance notice for 

PCHs to prepare to report the measure, and we base this belief on our experience gained 

from collecting the SSI measure for the Hospital IQR Program. 

 We are proposing to calculate the SSI measure rate for purposes of the FY 2015 

PCHQR Program using data from the first quarter (Q1) of calendar year (CY) 2014. We 

recognize that using data from only one quarter may not provide a complete picture of the 

quality of care provided at a PCH. However, our intent is to align the PCHQR reporting 

timeline with the reporting timeline used by the Hospital IQR Program as well as to 

leverage current IT infrastructure to minimize cost and burden. 

 We are proposing to calculate the SSI measure rate for purposes of the FY 2016 

program using data from the last three quarters (Q2, Q3, and Q4) of CY 2014, and we are 

proposing to calculate the SSI measure rate for purposes of the FY 2017 program using 

data from all four quarters (Q1, Q2, Q3, and Q4) of CY 2015. The table below outlines 

the proposed reporting periods and submission timeframes for FY 2015, FY 2016, and 

FY 2017. 

Proposed SSI Measure Reporting Periods and Submission Timeframes for 

FYs 2015, 2016 and 2017 

Program Year 

(FY) 

Reporting Periods (CY) Data Submission 

Deadlines 

2015 Q1 2014 events 

(January 1, 2014 – March 31, 2014) 

August 15, 2014 

Q2 2014 events 

(April 1, 2014 – June 30, 2014) 

2016 November 15, 2014 

Q3 2014 events 

(July 1, 2014 – September 30, 2014) 

February 15, 2015 
 952 

Proposed SSI Measure Reporting Periods and Submission Timeframes for 

FYs 2015, 2016 and 2017 

Program Year 

(FY) 

Reporting Periods (CY) Data Submission 

Deadlines 

Q4 2014 events 

(October 1, 2014 – December 31, 2014) 

May 15, 2015 

Q1 2015 events 

(January 1, 2015 – March 31, 2015) 

August 15, 2015 

Q2 2015 events 

(April 1, 2015 – June 30, 2015) 

November 15, 2015 

Q3 2015 events 

(July 1, 2015 – September 30, 2015) 

February 15, 2016 

2017 

Q4 2015 events 

(October 1, 2015 – December 31, 2015) 

May 15, 2016 

 We are proposing that PCHs submit the SSI measure data to the CDC through the 

NHSN database. This is the same procedural/reporting mechanism requirement used for 

the CLABSI and CAUTI measures we finalized in FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53563 through 53564). The data submission and reporting procedures have been 

set forth by CDC for NHSN participation in general and for submission of the SSI 

measure to NHSN. We refer readers to the CDC’s Web site (http://www.cdc.gov/nhsn/) 

for detailed data submission and reporting procedures. After the final submission 

deadline has passed, we will obtain the PCH-specific calculations that have been 

generated by the NHSN for the PCHQR Program. 

 As noted in the table above, we are proposing to adopt a quarterly submission 

process for the SSI measure that uses a reporting mechanism that is the same as the one 

finalized for the Hospital IQR Program (77 FR 53539). We have successfully 

implemented this reporting mechanism in the Hospital IQR Program, and we strongly 
 953 

believe that this type of data submission is the most feasible option because PCHs are 

accustomed to reporting the CAUTI and CLABSI measures to the NHSN this way. 

 We welcome public comment on this proposal. 

d. Proposed Exceptions to Reporting and Data Submission for HAI Measures (CAUTI, 

CLABSI, and Proposed SSI) 

 Last year we finalized policies for the Hospital IQR Program providing 

exceptions to the reporting and data submission requirements for the CLABSI, CAUTI 

and SSI measures (77 FR 53539). We implemented these exceptions because we realize 

that some hospitals may not have locations that meet the NHSN criteria for CLABSI or 

CAUTI reporting and that that some hospitals may perform so few procedures requiring 

surveillance under the SSI measure that the data may not be meaningful for Hospital 

Compare or sufficiently reliable to be utilized for payment determination. We also 

finalized last year the CLABSI and CAUTI measures for PCHQR Program starting with 

FY 2014 (77 FR 53557) but did not propose to adopt the same exceptions for those 

measures. This year, we are proposing to adopt the same exceptions to the CLABSI and 

CAUTI measures for PCHs, which are outlined in CDC’s specifications manual, because 

we realize that some hospitals may not have locations that meet the NHSN criteria. We 

refer readers to the CDC’s specifications manual for more information on location 

exceptions for the CAUTI111 and CLABSI.112

 

111 Catheter-Associated Urinary Tract Infection (CAUTI) Event at 

http://www.cdc.gov/nhsn/pdfs/pscManual/7pscCAUTIcurrent.pdf

112 Central Line-Associated Bloodstream Infection (CLABSI) Event at: 

http://www.cdc.gov/nhsn/pdfs/pscmanual/4psc_clabscurrent.pdf
 954 

In addition, as with the Hospital IQR Program, we recognize that some PCHs may 

perform so few procedures requiring surveillance under the proposed SSI measure that 

the data may not be meaningful for Hospital Compare or sufficiently reliable to be 

utilized for quality reporting purposes. We are proposing to provide an exception for 

these PCHs from the reporting requirement in any given year if the PCH performed less 

than a combined total of 10 colon and abdominal hysterectomy procedures in the 

calendar year prior to the reporting year. 

We are proposing to provide PCHs with a single HAI exception form, to be used 

for seeking an exception for any of the CLABSI, CAUTI, and SSI measures. This 

exception form will be available on QualityNet Web site. 

 We invite public comment on this proposal. 

e. Proposed Reporting and Data Submission Requirements for the Proposed Clinical 

Process/Oncology Care Measures 

 We are proposing that PCHs report the proposed clinical process/oncology care 

measures beginning with January 1, 2015 discharges. We believe that this date will 

provide enough advance notice for PCHs to prepare to report the measures. We believe 

that this timeline provides PCHs with sufficient time to prepare to report on the new 

measures. We are proposing to calculate the clinical process/oncology care measure rates 

for purposes of the FY 2016 program using data from the first quarter (Q1) of CY 2015, 

and that PCHs submit aggregated data for each measure for this quarter during a data 

submission window that will be open from July 1 through August 15, 2015. We are 

proposing to calculate the clinical process/oncology care measure rates for purposes of 
 955 

the FY 2017 program using data from the last three quarters (Q2, Q3, and Q4) of 

CY 2015. We are proposing that PCHs submit aggregated data for each measure for each 

of these quarters during a data submission window that will be open from July 1 through 

August 15, 2016. We are proposing to calculate the clinical process/oncology care 

measure rates for purposes of the FY 2018 program using data from the four quarters 

(Q1, Q2, Q3, and Q4) of CY 2016. We are proposing that PCHs submit aggregated data 

for each measure for each of these quarters during a data submission window that will be 

open from July 1 through August 15, 2017. The table below outlines the proposed 

reporting periods and submission timeframes for FY 2016, FY 2017, and FY 2018 for the 

proposed clinical process/oncology care measures. 

Proposed Clinical Process/Oncology Care Measures - Proposed Reporting Periods 

and Submission Timeframes for FYs 2016-2018 

Program Year 

(FY) 

Reporting Periods (CY) Data Submission 

Deadlines 

2016 Q1 2015 discharges 

(January 1, 2015 – March 31, 2015) 

July 1, 2015 - 

August 15, 2015 

2017 Q2 2015 discharges 

(April 1, 2015 – June 30, 2015 

Q3 2015 discharges 

(July 1, 2015 – September 30, 2015) 

Q4 2015 discharges 

(October 1, 2015 – December 31, 2015) 

July 1, 2016 - August 15, 

2016 

2018 Q1 2016 discharges 

(January 1, 2016 – March 31, 2016) 

Q2 2016 discharges 

(April 1, 2016 – June 30, 2016 

Q3 2016 discharges 

(July 1, 2016 – September 30, 2016) 

Q4 2016 discharges 

(October 1, 2016 – December 31, 2016) 

July 1, 2017 - August 15, 

2017 
 956 

 For data collection, we are proposing that PCHs submit aggregate-level data 

through the CMS Web-based Measures Tool. This proposal mirrors the requirements we 

have finalized for the IPFQR Program (77 FR 53655). PCHs would submit all the data 

required for a particular program year once annually during the data submission windows 

we proposed above, and would do so via the PCH section on the QualityNet secure Web 

site. However, the data input forms on the QualityNet Web site for such submission will 

require aggregate data for each separate quarter. Therefore, PCHs will need to track and 

maintain quarterly records for their data. We refer readers to FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53655) for more information on the CMS Web-based aggregated data 

collection tool used in the IPFQR Program, which we are now proposing to also use in 

the PCHQR Program. We believe that this option is less burdensome to PCHs than 

patient level reporting. 

 We also recognize that aggregate level reporting has the potential to result in less 

accurate measure rates than patient level reporting; however, we have assessed our 

infrastructure readiness to collect these measures in the PCHQR Program and believe that 

an aggregate data submission approach is the most feasible approach at this time. 

 We welcome public comment on the proposed reporting periods and data 

collection methods/modes for the clinical process/oncology care measures. 

f. Proposed Reporting and Data Submission Requirements for the Proposed SCIP 

Measures 

 We are proposing that PCHs report the proposed SCIP measures beginning with 

January 1, 2015 discharges. We believe that this date will provide enough advance notice 
 957 

for PCHs to prepare to report the measures, and our belief is based on the experience 

gained from collecting the SCIP measures for the Hospital IQR Program. 

 We are proposing to calculate the SCIP measure rates for purposes of the 

FY 2016 program using patient-level data from the first quarter (Q1) of CY 2015. We 

recognize that using data from only one quarter may not provide a complete picture of the 

quality of care provided at a PCH. However, our intent is to align the PCHQR Program’s 

current reporting timeline with the reporting timeline used by the Hospital IQR Program, 

as well as to leverage the current IT infrastructure to minimize cost and burden. We are 

proposing to calculate the SCIP measure rates for purposes of the FY 2017 program using 

the last three quarters (Q2, Q3, and Q4) of CY 2015. This will allow us to calculate 

measure rates for FY 2018 using data from all four quarters (Q1, Q2, Q3, and Q4) of 

CY 2016. The table below outlines the proposed reporting periods and submission 

timeframes for the FY 2016, FY 2017, and FY 2018 program years. 

Proposed SCIP Measures - Proposed Reporting Periods and Submission 

Timeframes for FYs 2016-2018 

Program Year 

(FY) 

Reporting Periods (CY) Data Submission 

Deadlines 

2016 Q1 2015 discharges 

(January 1, 2015 – March 31, 2015) 

August 15, 2015 

Q2 2015 discharges 

(April 1, 2015 – June 30, 2015) 

November 15, 2015 

Q3 2015 discharges 

(July 1, 2015 – September 30, 2015) 

February 15, 2016 

2017 

Q4 2015 discharges 

(October 1, 2015 – December 31, 2015) 

May 15, 2016 

Q1 2016 discharges 

(January 1, 2016 – March 31, 2016) 

2018 August 15, 2016 

Q2 2016 discharges 

(April 1, 2016 – June 30, 2016) 

November 15, 2016 
 958 

Proposed SCIP Measures - Proposed Reporting Periods and Submission 

Timeframes for FYs 2016-2018 

Program Year 

(FY) 

Reporting Periods (CY) Data Submission 

Deadlines 

Q3 2016 discharges 

(July 1, 2016 – September 30, 2016) 

February 15, 2017 

Q4 2016 discharges 

(October 1, 2016 – December 31, 2016) 

May 15, 2017 

 We are proposing that PCHs submit patient level data for each of the SCIP 

measures to CMS through the QualityNet infrastructure. This is the same 

procedural/reporting mechanism requirement used for collecting Hospital IQR Program 

SCIP process of care measures. We have successfully implemented this reporting 

mechanism in the Hospital IQR Program and intend to use the same reporting mechanism 

to collect data for the PCHQR Program. We are proposing the patient-level data 

submission approach for the SCIP measures so that we can compare the data being 

submitted by PCHs with that being submitted by hospitals under the Hospital IQR 

Program. We also believe that patient-level data will provide us with more granular 

information that we can use to better assess the quality of care provided at a PCH. 

 We welcome public comment on the proposed reporting and submission 

requirements for the proposed SCIP measures and welcome feedback on using patient 

level versus other types of data submission. 

g. Proposed HCAHPS Requirements 

 The HCAHPS requirements that we are proposing mirror those used for the 

Hospital IQR Program (77 FR 53537 through 53538). Similarly, we are proposing that 

PCHs submit HCAHPS data in accordance with the current HCAHPS Quality Assurance 
 959 

Guidelines and the quarterly data submission deadlines, both of which are posted at 

http://www.hcahpsonline.org. Like acute care hospitals that submit HCAHPS data under 

the Hospital IQR Program, we are proposing that PCHs will have approximately 

13 weeks after the end of a calendar quarter to submit HCAHPS data for that quarter to 

the QIO Clinical Warehouse, also referred to as the “HCAHPS data warehouse.” 

 In order for a PCH to participate in the collection of HCAHPS data, a PCH must 

either: (1) contract with an approved HCAHPS survey vendor that will conduct the 

survey and submit data on the PCH’s behalf to the QIO Clinical Warehouse; or 

(2) self-administer the survey without using a vendor provided that the PCH attends 

HCAHPS training and meets Minimum Survey Requirements as specified on the 

HCAHPS Web site at: http://www.hacahpsonline.org. A current list of approved 

HCAHPS survey vendors can be found on the HCAHPS Web site. 

 We are proposing that a PCH which chooses to contract with a survey vendor 

must 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 

survey administration.) We would strongly encourage PCHs to submit their entire patient 

discharge list, excluding patients who had requested “no publicity” status or who are 

excluded because of State regulations, in a timely manner to their survey vendor to allow 

adequate time for sample creation, sampling, and survey administration. We emphasize 

that PCHs must also provide the administrative data that is required for HCAHPS in a 
 960 

timely manner to their survey vendor. This includes the patient’s MS-DRG at discharge, 

or alternative information that can be used to determine the patient’s service line, in 

accordance with the survey protocols in the most recent HCAHPS Quality Assurance 

Guidelines. 

 We note that HCAHPS Quality Assurance Guidelines require that hospitals 

maintain complete discharge lists that indicate which patients were eligible for the 

HCAHPS Survey, which patients were not eligible, which patients were excluded, and 

the reason(s) for ineligibility and exclusion. (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 PCH must authorize the survey vendor to 

submit data via My QualityNet, the secure part of the QualityNet Web site, on the PCH’s 

behalf. 

 We are proposing that the PCHs obtain and submit at least 300 completed 

HCAHPS surveys in a rolling four-quarter period unless the PCH is too small to obtain 

300 completed surveys. We are proposing that the absence of a sufficient number of 

HCAHPS-eligible discharges will be the only acceptable reason for obtaining and 

submitting fewer than 300 completed HCAHPS surveys in a rolling four quarter period. 

We are proposing that if a PCH obtains fewer than 100 completed surveys, the PCH’s 

scores will be accompanied by an appropriate footnote on the Hospital Compare Web site 

alerting the Web site users that the scores should be reviewed with caution, as the number 

of surveys may be too low to reliably assess PCH performance. 
 961 

 After the survey vendor submits the data to the QIO Clinical Warehouse, we 

strongly recommend that PCHs employing a survey vendor promptly review the two 

HCAHPS Feedback Reports (the Provider Survey Status Summary Report and the Data 

Submission Detail Report) and the HCAHPS Review and Correction Report that are 

available. These reports will enable a PCH to ensure that its survey vendor has submitted 

the data on time, the data has been accepted into the QIO clinical Warehouse, and the 

data accepted into the QIO Clinical Warehouse are complete and accurate. 

 In order to ensure compliance with HCAHPS survey and administration 

protocols, we are proposing that PCHs and survey vendors must participate in oversight 

activities, which will include onsite visits and/or conference calls. During the oversight 

process, the HCAHPS Project Team will review the PCH’s or survey vendor’s survey 

systems and assess protocols based upon the most recent HCAHPS Quality Assurance 

Guidelines. All materials relevant to survey administration will be subject to review. 

The systems and program review includes, but is not limited to: (a) survey management 

and data systems; (b) printing and mailing materials and facilities; (c) telephone and 

Interactive Voice Response (IVR) materials and facilities; (d) data receipt, entry and 

storage facilities; and (e) written documentation of survey processes. As needed, 

hospitals and survey vendors will be subject to follow-up site visits or conference calls. 

We point out that the HCAHPS Quality Assurance Guidelines state that hospitals should 

refrain from activities that explicitly influence how patients respond on the HCAHPS 

Survey. We are proposing that if we determine that a PCH is not compliant with 

HCAHPS program requirements, we may determine that the PCH is not submitting 
 962 

HCAHPS data that meet the requirements of the PCHQR Program. Below is a table 

outlining the proposed reporting and data submission requirements. 

Proposed HCAHPS Measure - Proposed Reporting Periods and Submission 

Timeframes For FYs 2016-2018 

Program Year 

(FY) 

Reporting Periods (CY) Data Submission 

Deadlines 

Q2 2014 discharges 

(April 1, 2014 – June 30, 2014) 

October 1, 2014 

Q3 2014 discharges 

(July 1, 2014 – September 30, 2014) 

January 7, 2015 

2016 

Q4 2014 discharges 

(October 1, 2014 – December 31, 2014) 

April 1, 2015 

Q1 2015 discharges 

(January 1, 2015 – March 31, 2015) 

July 1, 2015 

Q2 2015 discharges 

(April 1, 2015 – June 30, 2015) 

October 7, 2015 

Q3 2015 discharges 

(July 1, 2015 – September 30, 2015) 

January 6, 2016 

2017 

Q4 2015 discharges 

(October 1, 2015 – December 31, 2015) 

April 6, 2016 

Q1 2016 discharges 

(January 1, 2016 – March 31, 2016) 

July 6, 2016 

Q2 2016 discharges 

(April 1, 2016 – June 30, 2016) 

October 5, 2016 

Q3 2016 discharges 

(July 1, 2016 – September 30, 2016) 

January 4, 2017 

2018 

Q4 2016 discharges 

(October 1, 2016 – December 31, 2016) 

April 5, 2017 

 We strongly encourage those PCHs that are currently administering the HCAHPS 

Survey to continue to do so. We welcome public comment on our proposed HCAHPS 

requirements for PCHs. 
 963 

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

1. Statutory History 

 In accordance with section 1886(m)(5) of the Act, as added by section 3004 of the 

Affordable Care Act, the Secretary established the Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program. Under the LTCHQR Program, for the FY 2014 payment 

determination and subsequent payment determinations, in the case of an LTCH that does 

not submit data to the Secretary in accordance with section 1886(m)(5)(C) of the Act 

with respect to such a rate year, any annual update to a standard Federal rate for 

discharges for the hospital during the rate year, and after application of section 

1886(m)(3) of the Act, shall be reduced by two percentage points. 

 Section 1886(m)(5)(D)(iii) of the Act requires the Secretary to publish the 

selected measures for the LTCHQR Program that will be applicable with respect to the 

FY 2014 payment determination no later than October 1, 2012. 

Under section 1886(m)(5)(D)(i) of the Act, the quality measures for the LTCHQR 

Program are measures selected by the Secretary that have been endorsed by an entity that 

holds a contract with the Secretary under section 1890(a) of the Act, unless section 

1886(m)(5)(D)(ii) of the Act applies. This contract is currently held by the National 

Quality Forum (NQF). The NQF was established to standardize healthcare quality 

measurement and reporting through its consensus development process 

(http://www.qualityforum.org/About_NQF/Mission_and_Vision.aspx). The NQF 

undertakes review of: (a) new quality measures and national consensus standards for 

measuring and publicly reporting on performance; (b) regular maintenance processes for 
 964 

endorsed quality measures; (c) measures with time limited endorsement for consideration 

of full endorsement; and, (d) ad hoc review of endorsed quality measures, practices, 

consensus standards, or events with adequate justification to substantiate the review 

(http://www.qualityforum.org/Measuring_Performance/Ad_Hoc_Reviews/Ad_Hoc_Revi

ew.aspx). Additional information regarding NQF and its measure review processes is 

available at: 

http://www.qualityforum.org/Measuring_Performance/Measuring_Performance.aspx.

 Section 1886(m)(5)(D)(ii) of the Act provides that an exception may be made in 

the case of a specified area or medical topic determined appropriate by the Secretary for 

which a feasible and practical measure has not been endorsed by the entity that holds a 

contract with the Secretary under section 1890(a) of the Act. In such a case, section 

1886(m)(5)(D)(ii) of the Act authorizes the Secretary to specify a measure(s) that is not 

so endorsed, as long as due consideration is given to measures that have been endorsed or 

adopted by a consensus organization identified by the Secretary. The LTCHQR Program 

was implemented in section VII.C. of the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51743 through 51756). 

2. General Considerations Used for Selection of Quality Measures for the LTCHQR 

Program 

 We seek to promote higher quality and more efficient health care for the citizens 

we serve. Quality reporting programs, as well as public reporting of that information, 

furthers such quality improvement efforts. Quality measurement remains the key tool to 
 965 

the success of these programs. Therefore, the selection of only the highest caliber of 

measures remains a constant priority for CMS. 

 We seek to adopt measures for the LTCHQR Program that promote better, safer, 

and more efficient care. Our measure development and selection activities for the 

LTCHQR Program take into account national priorities, such as those established by the 

National Priorities Partnership (http://www.nationalprioritiespartnership.org/), HHS 

Strategic Plan (http://www.hhs.gov/secretary/about/priorities/priorities.html), and the 

National Quality Strategy (NQS), which is described at: 

http://www.healthcare.gov/center/reports/quality03212011a.html. 

 We also consider input from the Measure Applications Partnership (MAP) when 

selecting measures under the LTCHQR Program. The MAP is composed of 

multi-stakeholder groups convened by our contractor under section 1890 of the Act 

(currently the NQF). The NQF must convene these stakeholders and provide us with the 

stakeholders’ input on the selection of certain categories of quality and efficiency 

measures as part of a pre-rulemaking process described in section 1890A of the Act. 

CMS, in turn, must take this input into consideration in selecting those categories of 

measures, The NQF provided MAP input to CMS in February of 2013, as required under 

section 1890A(a)(3) of the Act. This input appears at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partn

ership.aspx. Measures proposed for the LTCHQR Program in this proposed rule were 

measures CMS included under its List of Measures Under Consideration (MUC List) for 
 966 

December 1, 2012113, a list CMS must make public by December 1 of each year, as part 

of the pre-rulemaking process, as described in section 1890A(a)(2). The list is discussed 

in the MAP Pre-Rulemaking Report available at: 

http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx (pp. 170-176). The MAP supported the direction of each of the 

proposed measures described below, noting the measure concepts as promising for 

several of them, and requiring further testing and development. 

 In the absence of NQF endorsement for measures we are proposing for the LTCH 

setting, or measures that are not fully supported by the MAP for the LTCHQR Program, 

we are proposing measures that most closely align with the national priorities discussed 

above and for which the MAP supports the measure concept. Further discussion of why 

these measures are high-priority in the LTCH setting is included for each proposed 

measure below. 

 In addition, for measures not endorsed by the NQF, we have sought, to the extent 

practicable, to adopt measures that have been endorsed or adopted by a national 

consensus organization, recommended by multi-stakeholder organizations, and/or 

developed with the input of providers, purchasers/payers, and other stakeholders. 

3. Process for Retention of LTCHQR Program Measures Adopted in Previous Payment 

Determinations 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through 53637), for the 

LTCHQR Program, we adopted a policy that once a quality measure is adopted, it is 

retained for use in subsequent payment determinations, unless otherwise stated. For the 

 

113 Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72363
 967 

purpose of streamlining the rulemaking process, when we initially adopt a measure for 

the LTCHQR Program for a payment determination, this measure will be automatically 

adopted for all subsequent payment determinations or until we propose to remove, 

suspend, or replace the measure. For further information on how measures are 

considered for removal, suspension, or replacement, we refer readers to 77 FR 53614 and 

53615. 

4. Process for Adopting Changes to LTCHQR Program Measures 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 53616), we 

finalized our policy that if the NQF updates an endorsed measure that we have adopted 

for the LTCHQR Program in a manner that we consider to not substantively change the 

nature of the measure, we will use a subregulatory process to incorporate those updates to 

the measure specifications that apply to the LTCHQR Program. Examples of such 

nonsubstantive changes could be updated diagnosis or procedure codes, medication 

updates for categories of medications, changes to exclusions to the patient population, or 

minor changes to definitions. Examples of changes that we might consider to be 

substantive would be those in which the changes are so significant that the measure is no 

longer the same measure, or when a standard of performance assessed by a measure 

becomes more stringent. Specific examples of what we might consider substantive are 

changes in acceptable timing of medication, procedure/process, or test administration, or 

expansion of the measure to a new setting. The subregulatory process for nonsubstantive 

changes will include revision of the LTCHQR Program Manual and posting of updates 
 968 

on our LTCH Quality Reporting Program Web site at: http://www.cms.gov/LTCHQuality-Reporting/. 

5. Previously Adopted Quality Measures for the FY 2014 and FY 2015 Payment 

Determinations and Subsequent Payment Determinations 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53616 through 53623), we 

retained the application of NQF #0678 to the LTCH setting (initially adopted in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51745 through 51750)) and adopted updated 

versions of NQF #0138 and NQF #0139, for the FY 2014 and FY 2015 payment 

determination and subsequent payment determinations as listed in the following table: 

Quality Measures Finalized in the FY 2013 IPPS/LTCH PPS Final Rule for the 

FY 2014 and FY 2015 Payment Determinations and Subsequent Payment 

Determinations

NQF Measure 

ID

Measure Title

NQF #0138 National Health Safety Network (NHSN) Catheter-associated Urinary 

Tract Infection (CAUTI) Outcome Measure 

NQF #0139 National Health Safety Network (NHSN) Central line-associated 

Blood Stream Infection (CLABSI) Outcome Measure 

Application of 

NQF #0678 

Percent of Residents with Pressure Ulcers That are New or Worsened 

(Short-Stay) 

 We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53619 

through 53623 and 53667 through 53672) for a discussion of the data collection and 

submission methods for these measures for the FY 2014 payment determination and all 

subsequent payment determinations and for references to the descriptions and 

specifications of these measures. 
 969 

6. Previously Adopted Quality Measures for the FY 2016 Payment Determination and 

Subsequent Payment Determinations 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 53636), we 

adopted two additional quality measures for the LTCHQR Program for the FY 2016 

payment determination and subsequent payment determinations, in addition to the three 

previously adopted measures (CAUTI measure, CLABSI measure, and Pressure Ulcer 

measure). 

 Set out below are the quality measures, adopted in FY 2013 IPPS/LTCH PPS 

final rule, for the FY 2016 payment determination and subsequent payment 

determinations. 

Quality Measures Finalized in the FY 2013 IPPS/LTCH PPS Final Rule for the 

FY 2016 LTCHQR Program Payment Determination and Subsequent Payment 

Determinations 

NQF Measure 

ID 

Measure Title 

NQF #0138 National Health Safety Network (NHSN) Catheter-associated 

Urinary Tract Infection (CAUTI) Outcome Measure* 

NQF #0139 National Health Safety Network (NHSN) Central line-associated 

Blood Stream Infection (CLABSI) Outcome Measure* 

Application of 

NQF #0678 

Percent of Residents with Pressure Ulcers That are New or Worsened 

(Short-Stay)* 

NQF #0680 Percent of Residents or Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza Vaccine (Short-Stay)** 

NQF #0431 Influenza Vaccination Coverage among Healthcare Personnel** 

* Adopted for the FY 2014 payment determination and subsequent payment determinations. 

** Adopted for the FY 2016 payment determination and subsequent payment determinations.

7. Proposed Revisions to Previously Adopted Quality Measures 

 We are proposing the following revisions to the quality measures we have 

previously adopted for the LTCHQR Program. 
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a. Proposed Revisions for Influenza Vaccination Coverage among Healthcare Personnel 

(NQF #0431) 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53630 through 53631) we 

finalized that for Influenza Vaccination Coverage Among Healthcare Personnel (NQF 

#0431), LTCHs should begin to submit data for January 1, 2014 through 

December 31, 2014 (CY 2014) for the FY 2016 payment determination. There is unique 

seasonality in the timing of influenza activity each year. The CDC, the steward of this 

measure, notes (http://www.cdc.gov/flu/about/season/flu-season-2012-2013.htm) that 

while influenza activity most commonly peaks in January or February in the United 

States, it can begin as early as October and can continue to occur as late as May. The 

CDC recommends that people get vaccinated against influenza as long as influenza 

viruses are circulating. Thus, influenza vaccination season usually begins in early fall. 

 Therefore, we are proposing that, for the LTCHQR Program, the Influenza 

Vaccination Coverage Among Healthcare Personnel measure (NQF #0431) have its own 

reporting period to align with the influenza vaccination season, which is defined by the 

CDC as October 1 (or when the vaccine becomes available) through March 31. Instead 

of beginning data collection and submission in the middle of the 2013-2014 influenza 

season, as is the case when reporting begins on January 1, 2014 (as finalized in FY 2013 

IPPS/LTCH PPS final rule), we are proposing that data collection begin on 

October 1, 2014, or when the influenza vaccine becomes available (as defined by the 

CDC) and continue through March 31, 2015 for the 2014-2015 influenza season. This 

change will allow LTCHs to collect and report data on influenza vaccination for the 
 971 

entirety of the 2014-2015 influenza season for the FY 2016 payment determination. This 

change is presented in the following table for the FY 2016 and FY 2017 payment 

determinations: 

Proposed Timeline for Submission of LTCHQR Program Quality Data for the 

FY 2016 and FY 2017 Payment Determinations: 

NQF #0431 Influenza Vaccination Coverage Among Healthcare Personnel 

Data collection 

timeframe Final submission deadlines Payment Determination 

October 1, 2014 (or 

when the influenza 

vaccine becomes 

available) – March 

31, 2015 

May 15, 2015 FY 2016 

October 1, 2015 (or 

when the influenza 

vaccine becomes 

available) – March 

31, 2016 

May 15, 2016 FY 2017 

 While LTCHs can enter information in CDC’s NHSN (www.cdc.gov/nhsn/) at 

any point during the influenza season for NQF #0431, data submission is only required 

once per year, unlike the other measures finalized for the LTCHQR Program that utilize 

NHSN (CAUTI measure NQF #0138 and CLABSI measure NQF #0139). For example, 

LTCHs can choose to submit influenza vaccination data for NQF #0431 on a monthly 

basis. However, each time an LTCH submits these data, it will be asked to provide a 

cumulative total of vaccinations for the “current” influenza season. Thus, entering this 

information at the end of the influenza season would yield the same total number of 

vaccinations. The NHSN system will not track the individual number of vaccinations on 

a monthly basis, but, rather, will track the cumulative total of vaccinations for the 
 972 

“current” influenza season. Also, we note that data collection period for this measure is 

not 12 months, as with other measures, but is approximately 6 months (October 1 (or 

when the vaccine becomes available) through March 31). The final deadlines associated 

with submitting data, approximately 45 days after the end of the data collection 

timeframe for the FY 2016 payment determination and subsequent payment 

determinations, remain consistent across measures. 

 We note that these proposed changes are applicable only to NQF #0431 Influenza 

Vaccination Coverage Among Healthcare Personnel, and not applicable to any other 

LTCHQR Program measures, proposed or adopted, unless explicitly stated. The 

specifications for this measure can be found at http://www.cdc.gov/nhsn/PDFs/HPSmanual/vaccination/HPS-flu-vaccine-protocol.pdf. We invite public comments on our 

proposal to revise the data collection and reporting timeline for this influenza vaccination 

measure (NQF #0431) for FY 2016 and FY 2017 payment determination, and subsequent 

payment determinations. 

b. Proposed Revisions for Percent of Residents or Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680) 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 53627), we 

finalized that for NQF #0680, Percentage of Residents or Patients Who Were Assessed 

and Appropriately Give the Seasonal Influenza Vaccine (Short-Stay), LTCHs should 

begin to collect and submit data on January 1, 2014 through December 31, 2014 

(CY 2014) for the FY 2016 payment determination. This measure, stewarded by CMS, 
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will be collected using items included in the LTCH CARE Data Set (Version 2.01).114 

On February 1, 2013, we solicited public comment on this information collection request 

through 60-day notice (78 FR 7433 through 7434). On April 12, 2013, we published a 

30-day notice to solicit public comment on this information collection request 

(78 FR 21955 through 21956). Later in 2013, we will release the final data submission 

specifications and updated LTCHQR Program Manual for the LTCH CARE Data Set 

(Version 2.01) containing items related to NQF #0680. 

 In order to allow time and opportunity for LTCHs and vendors to participate in 

CMS-sponsored training activities pertaining to the implementation of the LTCH CARE 

Data Set (Version 2.01), as well as time to plan for and incorporate changes into their 

data collection and entry systems, we are proposing to revise the previously finalized start 

date of January 1, 2014 for reporting of this measure to April 1, 2014. For CY 2014, data 

collection will continue through December 31, 2014. We are proposing that data for 

admissions and discharges for an LTCH during April 1, 2014 through 

December 31, 2014 will be used for the FY 2016 payment determination. We are also 

proposing that data for January 1, 2015 through December 31, 2015 (CY 2015) will be 

used for the FY 2017 payment determination. Thereafter, data for January 1 through 

December 31 of each year will be used for subsequent payment determinations. The 

proposed change is illustrated in the table below for the FY 2016 and FY 2017 payment 

determinations. 

 

114The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits public comment on additions and updates to the LTCH 

CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html
 974 

Proposed Timeline for Submission of LTCHQR Program Quality Data for the 

FY 2016 and FY 2017 Payment Determinations: 

NQF #0680 Percentage of Residents or Patients Who Were Assessed and 

Appropriately Give the Seasonal Influenza Vaccine (Short-Stay)

Data collection timeframes Submission deadlines Payment 

Determination

April 1, 2014 – June 30, 2014 August 15, 2014 

July 1, 2014 – September 30, 2014 November 15, 2014 

October 1, 2014 – December 31, 2014 February 15, 2015 

FY 2016 

January 1, 2015 – March 31, 2015 May 15, 2015 

April 1, 2015 – June 30, 2015 August 15, 2015 

July 1, 2015 – September 30, 2015 November 15, 2015 

October 1, 2015 – December 31, 2015 February 15, 2016 

FY 2017 

 Further, we are proposing that while an LTCH’s compliance with reporting 

quality data for NQF #0680 will be based on the calendar year, the measure calculation 

and public reporting of this measure (once public reporting is instated) will be based on 

the influenza vaccination season starting on October 1 (or when vaccine becomes 

available) and ending on March 31 of the subsequent year. For example, while reporting 

compliance is based on April 1, 2014 through December 31, 2014 for the FY 2016 

payment determination, calculation of the measure for public reporting purposes (if this 

proposal is finalized) will be based on the 2014-2015 influenza vaccination season 

(October 1, 2014 (or when the vaccine becomes available) – March 31, 2015). Similarly 

for the following year, reporting compliance will be based on January 1, 2015 through 

December 31, 2015 for the FY 2017 payment determination, with calculation of the 

measure for public reporting purposes (if this proposal is finalized) will be based on the 
 975 

2015-2016 influenza vaccination season (October 1, 2015 (or when vaccine becomes 

available) – March 31, 2016). 

 All LTCHs will be required to collect data using the LTCH CARE Data Set.115 

The Quality Improvement and Evaluation System (QIES) Assessment Submission and 

Processing (ASAP) System will remain the data submission mechanism for the LTCH 

CARE Data Set. Further information on data submission of the LTCH CARE Data Set 

for the LTCHQR Program Reporting using the QIES ASAP system is available at: 

https://www.qtso.com/ and http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html. 

 We note that these proposed changes are applicable only to the Percent of 

Residents or Patients Who Were Assessed and Appropriately Given the Seasonal 

Influenza Vaccine (Short-Stay) (NQF #0680) for the LTCHQR Program, and not 

applicable to any other LTCHQR Program measures, proposed or adopted, unless 

explicitly stated. 

 We invite public comments on our proposal to revise the data collection and 

reporting timeline for this influenza vaccination measure (NQF #0680) for FY 2016 and 

FY 2017 payment determinations, and subsequent payment determinations. 

 

115 The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits public comment on additions and updates to the LTCH 

CARE Data Set. Available on the Web site at: http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
 976 

c. Proposed Revisions for Percent of Residents or Patients With Pressure Ulcers That 

Are New or Worsened (Short-Stay) (NQF #0678) 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51748 through 51750), we 

adopted an application of NQF #0678 Percent of Residents with Pressure Ulcers That are 

New or Worsened (Short-Stay) for the FY 2014 payment determination, and retained this 

application of the measure in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 

through 53619) for the FY 2015 payment determination and subsequent payment 

determinations. We refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51748 through 51750) for a discussion of the rationale, data collection methods, 

and submission methods finalized for this measure for the FY 2014 payment 

determination and subsequent payment determinations, and for references to the 

description and specifications of this measure. 

 At the time we completed our work on the FY 2013 IPPS/LTCH PPS final rule, 

NQF #0678 was not yet NQF-endorsed for use in the LTCH setting and was undergoing 

ad hoc review at the NQF for expansion to the LTCH setting. As a result, we were only 

able to adopt an application of the endorsed measure in our FY 2013 IPPS/LTCH PPS 

final rule. NQF #0678 underwent review for expansion to the LTCH setting by the NQF 

Consensus Standards Approval Committee (CSAC) on July 11, 2012 and was 

subsequently ratified by the NQF Board of Directors for expansion to LTCH setting on 

August 1, 2012.116,117 The title of the measure was changed to Percent of Residents or 

 

116National Quality Forum, Consensus Standards Approval Committee Wednesday, July 11, 2012. 

Transcript. Available on the Web site at: 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=71612. 
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Patients with Pressure Ulcers that are New or Worsened (Short-Stay) to reflect this 

expansion. Updated specifications, reflecting the expansion are available on the NQF 

Web site at: http://www.qualityforum.org/QPS/0678. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 53616), we 

stated that we would continue to use the rulemaking process to adopt changes to 

measures when NQF review substantially changes the measure. We stated that one 

example of a substantive change would be the change the NQF makes to a previously 

endorsed measure when it extends that measure to a new setting. Because NQF #0678 

has received endorsement for the LTCH setting, we are now proposing to adopt the 

updated measure NQF #0678 Percent of Residents or Patients with Pressure Ulcers that 

are New or Worsened (Short-Stay) for the FY 2015 payment determination and 

subsequent payment determinations. 

 This change would not alter the data collection, data submission, or burden 

finalized in the FY 2013 IPPS/LTCH PPS final rule since there have been no changes to 

the data elements in the LTCH CARE Data Set (version 1.01), data submission system 

(QIES ASAP) and technical submission specifications for the LTCH CARE Data Set 

used for this measure. The only difference between the previously finalized measure 

(NQF #0678 Percent of Residents with Pressure Ulcers that are New or Worsened (ShortStay)) and this expanded measure (NQF #0678 Percent of Residents or Patients with 

Pressure Ulcers that are New or Worsened (Short-Stay)) is the change in name and NQF-

 117Press Release: NQF Removes Time-Limited Endorsement Status for 13 Measures, Measures Now Have 

Endorsed Status. August 1, 2012. Available on the Web site at: 

http://www.qualityforum.org/News_And_Resources/Press_Releases/2012/NQF_Removes_TimeLimited_Endorsement_for_13_Measures;_Measures_Now_Have_Endorsed_Status.aspx
 978 

endorsed expansion of this measure to the LTCH (and IRF) patient population in addition 

to Skilled Nursing Facility/Nursing Home Short-Stay residents. 

 We invite public comment on this proposal to adopt NQF #0678 Percent of 

Residents or Patients with Pressure Ulcers that are New or Worsened (Short-Stay) for the 

LTCHQR Program. 

8. Proposed New LTCHQR Program Quality Measures for the FY 2017 and FY 2018 

Payment Determinations and Subsequent Payment Determinations 

a. Considerations in Updating and Expanding Quality Measures under the LTCHQR 

Program for the FY 2017 Payment Determination and Subsequent Payment 

Determinations 

 As noted in section IX.C.2. of the preamble of this proposed rule, we consider 

input from the MAP 

(http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partn

ership.aspx) in selecting measures for the LTCHQR Program. Measures proposed for the 

LTCHQR Program in this proposed rule were included on CMS’s List of Measures under 

Consideration for December 1, 2012 (MUC List) and discussed in the MAP 

Pre-Rulemaking Report available at: 

http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx (pp. 170-176). MAP supported the direction of each proposed 

measure. 

 In the absence of any NQF-endorsed measures for the LTCH setting or measures 

fully supported by the MAP for LTCHQR Program, we are proposing measures that most 
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closely align with the national priorities discussed in section IX.C.2. of the preamble of 

this proposed rule and for which there is MAP support for the measure concept. Further 

discussion of why a particular measure is high priority in the LTCH setting is included 

for each proposed measure below. 

 In addition, to the extent practicable, we have for each proposed measure that is 

not endorsed by the NQF, sought to adopt a measure that has been endorsed or adopted 

by a national consensus organization, been recommended by multi-stakeholder 

organizations, and/or been developed with the input of providers, purchasers/payers, and 

other stakeholders. 

b. Proposed New LTCHQR Program Quality Measures for the FY 2017 Payment 

Determination and Subsequent Payment Determinations 

 We are proposing the following three new quality measures for the LTCHQR 

Program to affect the FY 2017 payment determination and subsequent payment 

determinations: 

(1) Proposed Quality Measure #1: National Healthcare Safety Network (NHSN) 

Facility-wide Inpatient Hospital-onset Methicillin-resistant Staphylococcus aureus

(MRSA) Bacteremia Outcome Measure (NQF #1716) 

 NQF #1716 is a standardized infection ratio (SIR) of hospital-onset unique blood 

source MRSA laboratory-identified events among all inpatients in the facility. It was 

adopted by the Hospital IQR Program in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51630) for the FY 2015 payment determination, with data collection having 
 980 

begun on January 1, 2013. The measure was developed by the CDC and is NQFendorsed. 

 Methicillin-Resistant Staphylococcus aureus (S. aureus) (MRSA) infections are 

caused by a strain of S. aureus bacteria that has become resistant to antibiotics commonly 

used to treat these infections. Between 2003 and 2004, an estimated 4.1 million persons 

in the United States had nasal colonization with MRSA.118 In addition, in 2005 it is 

estimated that there were 94,000 invasive MRSA infections in the United States 

associated with about 18,000 deaths.119 Currently, there are eight States that have 

implemented a MRSA Prevention Collaborative.120 For Medicare populations, MRSA is 

a source of increased cost, lengths of stay, morbidity and mortality, and can be a 

consequence of poor quality of care.121,122

 Older adults and patients in healthcare settings are most vulnerable to MRSA 

infections, as these patients have weakened immune systems. LTCHs are characterized 

by having highly acutely ill patients with multiple comorbidities and longer lengths of 

stay, thereby making LTCH patients at risk for acquisition of an antibiotic-resistant 

infection like MRSA infection.123 According to analysis of ICD-9 codes reported on 

 

118 Gorwitz RJ, Kruszon-Moran D, McAllister SK, et al. Changes in the prevalence of nasal colonization 

with Staphylococcus aureus in the United States, 2001–2004. J Infect Dis2008; 197: 1226–34. 119 Department of Health and Human Services. National Action Plan to Prevent Healthcare-Associated 

Infections: Roadmap to Elimination. Available at http://www.hhs.gov/ash/initiatives/hai/infection.html. 120 Centers for Disease Control and Prevention. State Has Implemented a MRSA Prevention Collaborative. 

Available at http://www.cdc.gov/hai/stateplans/states-w-MRSA-collaborative.html 121 Centers for Disease Control and Prevention. People at Risk of Acquiring MRSA Infections. Available at 

http://www.cdc.gov/mrsa/riskfactors/index.html. 122 Centers for Disease Control and Prevention. Management of Multidrug-Resistant 

Organisms in Healthcare Settings, 2006. Available at 

http://www.cdc.gov/hicpac/pdf/guidelines/MDROGuideline2006.pdf. 123 Furuno JP, Hebden JN, Standiford HC, et al. Prevalence of methicillin-resistant Staphylococcus aureus 

and Acinetobacter baumannii in a long-term acute care facility. Am J Infect Control 2008;36:468-71. 
 981 

Medicare claims, LTCHs reported 5,853 cases of MRSA in 2009. Present on admission 

indicators are not available on LTCH claims; therefore, we are unable to say whether these 

conditions are present on admission or acquired during the LTCH stay. Therefore, it was 

not possible to determine which of these infections occurred in the LTCH. However, we 

note that on the majority of claims, the primary diagnosis is the admitting diagnosis and is 

considered to be present on admission and therefore, the secondary diagnoses can be 

assumed to provide a count of conditions that could have been acquired in the LTCH.124 

When it was assumed that a MRSA infection recorded in the primary diagnosis code was 

likely present on admission and an MRSA infection recorded in the secondary diagnosis 

code was acquired in the LTCH, there were 5,826 reported cases that may have been 

acquired in the LTCH.125 Further, healthcare-associated MRSA infections occur 

frequently in patients who have invasive devices, such as catheters or ventilators.126 We 

included the proposed MRSA measure in the December 1, 2012 MUC list. The MAP 

supported the direction of this measure.127

 We are proposing to use the CDC/NHSN reporting and submission infrastructure 

for reporting of the proposed NHSN Facility-Wide Inpatient Hospital-onset MRSA 

Bacteremia Outcome Measure (NQF #1716). CDC/NHSN is the data collection and 

 

124 Centers for Medicare & Medicaid Services Center for Medicare & Medicaid Innovation. Hospital 

Acquired Conditions (HAC) – Report to Congress. Available at 

http://innovation.cms.gov/Files/x/HospAcquiredConditionsRTC.pdf 125 Bernard SL, Dalton K, Lenfestey N F, Jarrett NM, Nguyen KH, Sorensen AV, Thaker S, West ND. 

Study to support a CMS Report to Congress: Assess feasibility of extending the hospital-acquired 

conditions—present on admission IPPS payment policy to non-IPPS payment environments. Prepared for 

the Centers for Medicare & Medicaid Services (CMS Contract No. HHSM-500-T00007). 2011. 

126 Centers for Disease Control and Prevention. Protect Yourself from MRSA. Available at 

http://www.cdc.gov/features/mrsainhealthcare/. 127 National Quality Forum. Measure Applications Partnership Pre-Rulemaking Report: 2013 

Recommendations of Measures Under Consideration by HHS: February 2013. Available at: 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738.
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submission framework currently used for reporting the CAUTI (#0138), CLABSI 

(#0139), and Influenza Vaccination Coverage Among Healthcare Personnel (#0431) 

measures. Details related to the procedures for using NHSN for data submission and 

information on definitions, numerator data, denominator data, data analyses, and measure 

specifications for the proposed NHSN Facility-Wide Inpatient Hospital-onset MRSA 

Bacteremia Outcome Measure (NQF #1716) can be found at: 

http://www.qualityforum.org/QPS/1716 and 

http://www.cdc.gov/nhsn/PDFs/pscManual/12pscMDRO_CDADcurrent.pdf. For 

January 2012 through January 2013, an estimated 42 LTCHs reported 

laboratory-identified MRSA event data into NHSN.128 By building on the CDC/NHSN 

reporting and submission infrastructure, we intend to reduce the administrative burden 

related to data collection and submission for this measure under the LTCHQR Program. 

We refer readers to section IX.C.9. of the preamble to this proposed rule for more 

information on data collection and submission. We invite public comment on this 

proposed measure and data collection and submission for the proposed measure for the 

FY 2017 payment determination and subsequent payment determinations. 

(2) Proposed Quality Measure #2: National Healthcare Safety Network (NHSN) 

Facility-wide Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome 

Measure (NQF #1717) 

 This measure is a standardized infection ratio (SIR) of hospital-onset CDI 

Laboratory-identified events among all inpatients in the facility, and was adopted by the 

Hospital IQR Program in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51630-51631 

 

128 Data from CMS-CDC correspondence on February 1, 2013. 
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for the FY 2015 payment determination, with data collection having begun on 

January 1, 2013. The measure was developed by the CDC and is NQF-endorsed. 

 Clostridium difficile (C. difficile) can cause a range of serious symptoms 

including diarrhea, serious intestinal conditions, sepsis, and death.129 In the United 

States, C. difficile is responsible for an estimated 337,000 infections and 14,000 deaths 

annually.130 Based on the HHS National Action Plan to Prevent Healthcare-Associated 

Infections, C. difficile rates have increased in recent years.131 The CDC estimates that 

C. difficile infections cost more than $1 billion in additional health care costs each 

year.132 In recent years, C. difficile infections have become more frequent, more severe 

and more difficult to treat. Mortality rates for C. difficile infections are highest in elderly 

patients.133 Between 1996 and 2009, rates of C. difficile infection among hospitalized 

patients aged 65 years and older increased 200 percent, while deaths related to 

C. difficile increased 400 percent between 2000 and 2007, which is partly attributed to a 

stronger germ strain.134,135 Further, an estimated 90 percent of the C. difficile-related 

 

129 McDonald LC, Coignard B, Dubberke E, et al. Recommendations for surveillance of Clostridium 

difficile–associated disease. Infect Control Hosp Epidemiol 2007;28:140–145. Available at: 

http://www.jstor.org/stable/pdfplus/10.1086/511798.pdf?acceptTC=true. 130 Centers for Disease Control and Prevention. Investigating Clostridium difficile Infections Across the 

U.S. Available at http://www.cdc.gov/hai/eip/pdf/Cdiff-factsheet.pdf. 131 Department of Health and Human Services. National Action Plan to Prevent Healthcare-Associated 

Infections: Roadmap to Elimination. Available at http://www.hhs.gov/ash/initiatives/hai/infection.html. 132 Centers for Disease Control and Prevention. Making Health Care Safer: Stopping C. difficile Infections. 

Available at: http://www.cdc.gov/VitalSigns/HAI/index.html. 133 Centers for Disease Control and Prevention. Investigating Clostridium difficile Infections Across the 

U.S. Available at: http://www.cdc.gov/hai/eip/pdf/Cdiff-factsheet.pdf. 

134 Centers for Disease Control and Prevention. QuickStats: Rates of Clostridium difficile Infection 

Among Hospitalized Patients Aged ≥65 Years,* by Age Group --- National Hospital 

Discharge Survey, United States, 1996—2009.MMWR, 60(34); 1171. Available at: 

http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6034a7.htm.

135 Centers for Disease Control and Prevention. Making Health Care Safer: Stopping C. difficile Infections. 

Available at: http://www.cdc.gov/VitalSigns/HAI/index.html. 
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deaths occur in patients 65 and older. C. difficile is a source of increased costs in patient 

care, lengths of stay, morbidity and mortality, and can be a consequence of poor quality 

of care for Medicare patients.136

 Illness from C. difficile most commonly affects older adults in hospitals or in 

facilities with longer lengths of stay, where germs spread easily, antibiotic use is 

common, and people are especially vulnerable to infection.137 Considering C. difficile

infections are increasing in LTCHs and that the LTCH population is highly vulnerable to 

C. difficile infection, it is important to measure these rates in LTCHs.138 According to 

analysis of ICD-9 codes reported on Medicare claims, LTCHs reported 12,282 cases of 

C. difficile-associated disease in 2009. Present on admission indicators are not available 

on LTCH claims, therefore we are unable to say whether these conditions are present on 

admission or acquired during the LTCH stay. Therefore, it was not possible to determine 

which of these infections occurred in the LTCH. However, we note that on the majority 

of claims, the primary diagnosis is the admitting diagnosis and is considered to be present 

on admission and therefore, the secondary diagnoses can be assumed to provide a count 

of conditions that could have been acquired in the LTCH.139 When it was assumed that a 

C. difficile-associated infection recorded in the primary diagnosis code was likely present 

 

136 Dubberke ER, Reske KA, Olsen MA, McDonald LC, Fraser VJ. Short- and long-term attributable costs 

of Clostridium difficile–associated disease in nonsurgical inpatients. Clin Infect Dis 2008; 46:497-504. 

Available at: http://cid.oxfordjournals.org/content/46/4/497.long. 137 Centers for Disease Control and Prevention. Frequently Asked Questions about Clostridium difficile for 

Healthcare Providers. Available at: http://www.cdc.gov/HAI/organisms/cdiff/Cdiff_faqs_HCP.html. 138 Goldstein EJC, Polonsky J, Touzani M, Citron DM. C. difficile infection (CDI) in a long-term acute care 

facility (LTAC). Anaerobe 2009;15:241–243. Available at: 

http://www.sciencedirect.com/science/article/pii/S1075996409001176.

139 Centers for Medicare & Medicaid Services Center for Medicare & Medicaid Innovation. Hospital 

Acquired Conditions (HAC) – Report to Congress. Available at: 

http://innovation.cms.gov/Files/x/HospAcquiredConditionsRTC.pdf 
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on admission and a C. difficile-associated infection recorded in the secondary diagnoses 

code may have been acquired in the LTCH, there were 11,384 reported cases that may 

have been acquired in the LTCH.140 In addition, there is evidence that C. difficile

infections are preventable, and therefore surveillance and measuring infection rates is 

important to reducing infections and improving patient safety. 

 Currently, there are three States that require hospitals to report C. difficile data to 

NHSN. Fifteen States have implemented a C. difficile Prevention Collaborative.141 The 

goal for this proposed C. difficile measure is to provide a common mechanism 

(CDC/NHSN) for all LTCHs to report and analyze these data that will inform infection 

control staff of the impact of targeted prevention efforts. We included the proposed 

C. difficile measure in the December 1, 2012 MUC list. The MAP supported the 

direction of this measure.142

 We are proposing to use the CDC/NHSN reporting and submission infrastructure 

for reporting of the proposed NHSN Facility-wide Inpatient Hospital-onset Clostridium 

difficile Outcome Measure (NQF #1717). CDC/NHSN is the data collection and 

submission framework currently used for reporting the CAUTI, CLABSI and Influenza 

Vaccination Coverage Among Healthcare Personnel measures. Similar to the NHSN 

MRSA Bacteremia Outcome Measure we have proposed above, details related to the 

 

140 Bernard SL, Dalton K, Lenfestey N F, Jarrett NM, Nguyen KH, Sorensen AV, Thaker S, West ND. 

Study to support a CMS Report to Congress: Assess feasibility of extending the hospital-acquired 

conditions—present on admission IPPS payment policy to non-IPPS payment environments. Prepared for 

the Centers for Medicare & Medicaid Services (CMS Contract No. HHSM-500-T00007). 2011. 

141Centers for Disease Control and Prevention. State Has Implemented a C. diff Prevention Collaborative. 

Available at: http://www.cdc.gov/hai/stateplans/states-w-CDI-collaborative.html. 142 National Quality Forum. Measure Applications Partnership Pre-Rulemaking Report: 2013 

Recommendations of Measures Under Consideration by HHS: February 2013. Available at: 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738
 986 

procedures for using NHSN for data submission and information on definitions, 

numerator data, denominator data, data analyses, and measure specifications for the 

proposed NHSN Facility-wide Inpatient Hospital-onset Clostridium difficile Outcome 

Measure (NQF #1717) can be found at: http://www.qualityforum.org/QPS/1717 and 

http://www.cdc.gov/nhsn/PDFs/pscManual/12pscMDRO_CDADcurrent.pdf. For 

January 2012 through January 2013, an estimated 46 LTCHs reported laboratoryidentified C. Difficile event data into NHSN.143 By building on the CDC/NHSN 

reporting and submission infrastructure, we intend to reduce the administrative burden 

related to data collection and submission for this measure under the LTCHQR Program. 

 We refer readers to section IX.C.9. of the preamble to this proposed rule for more 

information on data collection and submission. We invite public comment on this 

proposed measure and data collection and submission for the proposed measure for the 

FY 2017 payment determination and subsequent payment determinations. 

(3) Proposed Quality Measure #3: All-cause Unplanned Readmission Measure for 

30 days Post- Discharge from Long-Term Care Hospitals 

 LTCHs treat patients who, on average, are hospitalized 25 days or greater with 

medically complex problems, including prolonged mechanical ventilation or multiple 

organ failure. In 2011, as reported by MedPAC, about 123,000 Medicare beneficiaries 

received care for almost 140,000 LTCH stays in roughly 424 LTCHs nationwide, with 

payments of $5.4 billion.144 For patients discharged from LTCH settings, the unadjusted 

 

143 Data from CMS-CDC correspondence on February 1, 2013. 144 Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy. 

Available at: http://www.medpac.gov/documents/Mar13_EntireReport.pdf, March 2013, see Chapter 11, 

Long-term care hospital services, pg. 237-257. 
 987 

rate of readmission to LTCHs and IPPS hospitals in the 30 days after an LTCH discharge 

was about 26 percent in 2010 and 2011.145 With such a large proportion of patients being 

readmitted to an acute level of care (that is, to either an LTCH or to an IPPS hospital), we 

are interested in monitoring the rates for each facility and reducing rates that are 

inappropriately high. Thus, we are proposing a risk-adjusted measure of readmission 

rates, the All-cause Unplanned Readmission Measure for 30 days Post Discharge from 

Long-Term Care Hospitals. 

 This measure will enhance efforts to promote patient safety, reduce 

healthcare-associated infections, improve coordination of care and care transitions, and 

reduce healthcare costs. Readmissions are costly to the Medicare program and have been 

identified as sensitive to improvements in coordination of care and discharge planning for 

patients.146 Literature on readmissions is mainly focused on discharges from short-term 

acute care hospitals. However, processes that may affect readmission rates, such as 

discharge planning, communications, and coordination, also occur at other inpatient 

facilities. 

 While some readmissions are unavoidable, such as those resulting from the 

inevitable progression of disease or worsening of chronic conditions, readmissions may 

also result from poor quality of care or inadequate transitions between care settings. 

Randomized controlled trials in short-stay acute care hospitals have shown that 

improvement in the following areas can directly reduce hospital readmission rates: 

quality of care during the initial admission; improvement in communication with patients, 

 

145 RTI analysis of 2010-2011 Medicare MedPAR claims data under CMS contract 

HHSM-500-2008-00021I. 

146 Federal Register, Vol. 76, No. 160, Thursday, August 18, 2011 / Rules and Regulations, IV.C.1.a. 
 988 

their caregivers and their clinicians; patient education; pre-discharge assessment; and 

coordination of care after discharge. Successful randomized trials have reduced 30-day 

readmission rates by 20 to 40 percent147,148,149,150,151,152,153 and a 2011 meta-analysis of 

randomized clinical trials found evidence that interventions associated with discharge 

planning helped to reduce readmission rates,154 illustrating how hospitals may influence 

readmission rates through best practices. 

 Because many studies have shown readmissions to be related to quality of care, 

and that interventions have been able to reduce 30-day readmission rates, we believe it is 

appropriate to include All-cause Unplanned Readmission Measure for 30 days Post 

Discharge from Long-Term Care Hospitals as a quality measure in the LTCHQR 

Program. Promoting quality improvements leading to successful transitions of care for 

patients moving from the LTCH setting to the community or another post-acute care 

 

147 Jack BW, Chetty VK, Anthony D, Greenwald JL, Sanchez GM, Johnson AE, et al. A reengineered 

hospital discharge program to decrease rehospitalization: a randomized trial. Ann Intern Med 

2009;150(3):178–87. 

148 Coleman EA, Smith JD, Frank JC, Min SJ, Parry C, Kramer AM. Preparing patients and caregivers to 

participate in care delivered across settings: the Care Transitions Intervention. J Am Geriatr Soc 

2004;52(11):1817–25. 

149 Courtney M, Edwards H, Chang A, Parker A, Finlayson K, Hamilton K. Fewer emergency readmissions 

and better quality of life for older adults at risk of hospital readmission: a randomized controlled trial to 

determine the effectiveness of a 24-week exercise and telephone follow-up program. J Am Geriatr Soc 

2009;57(3):395–402. 

150 Garasen H, Windspoll R, Johnsen R. Intermediate care at a community hospital as an alternative to 

prolonged general hospital care for elderly patients: a randomised controlled trial. BMC Public Health 

2007;7:68. 

151 Koehler BE, Richter KM, Youngblood L, Cohen BA, Prengler ID, Cheng D, et al. Reduction of 30- day 

postdischarge hospital readmission or emergency department (ED) visit rates in high-risk elderly medical 

patients through delivery of a targeted care bundle. J Hosp Med 2009;4(4):211– 218. 

152 Naylor M, Brooten D, Jones R, Lavizzo-Mourey R, Mezey M, Pauly M. Comprehensive discharge 

planning for the hospitalized elderly. A randomized clinical trial. Ann Intern Med 1994;120(12):999– 1006. 153 Naylor MD, Brooten D, Campbell R, Jacobsen BS, Mezey MD, Pauly MV, et al. Comprehensive 

discharge planning and home follow-up of hospitalized elders: a randomized clinical trial. Jama 

1999;281(7):613–20. 

154 Naylor MD, Aiken LH, Kurtzman ET, Olds DM, Hirschman KB.The Importance of Transitional Care in 

Achieving Health Reform. Health Affairs 2011; 30(4):746-754. 
 989 

setting, and reducing preventable facility-wide readmission rates, is consistent with the 

NQS aims of safer, better coordinated care and lower costs. 

 Our approach to developing this measure is consistent with NQF-endorsed 

Hospital-Wide Risk-Adjusted All-Cause Unplanned Readmission Measure (NQF #1789) 

(http://www.qualityforum.org/QPS/1789) finalized for the Hospital IQR Program in the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53521 through 53528). We are proposing to 

use the same statistical approach, the same time window and a similar set of patient 

characteristics. To the extent appropriate, the proposed LTCH measure is being 

harmonized with this Hospital-Wide Readmission (HWR) measure155 and other measures 

of readmission rates being developed for post-acute care (PAC) settings, including the 

All-cause Unplanned Readmission Measure for 30 days Post Discharge from Inpatient 

Rehabilitation Facilities. This reflects MAP recommendations to promote alignment 

across care settings.156

 LTCH patients, on average, require long stays at a hospital level of care and need 

care even after discharge. The setting chosen for placement of the discharged patient, 

and coordination with caregivers after discharge, are important for the stability of these 

patients. The rate of readmission to an acute level of care (short or long-term) for such 

patients will be sensitive to appropriate discharge placement. The All-cause Unplanned 

Readmission Measure for 30 days Post Discharge from Long-Term Care Hospitals 

 

155 QualityNet. Hospital-wide All-Cause Unplanned Readmission (HWR) Measure. Available at

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid

=1228772504318. As obtained on March 20, 2013. 156 National Quality Forum. Measure Applications Partnership Pre-Rulemaking Report: 2013 

Recommendations of Measures Under Consideration by HHS: February 2013. Available at: 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738
 990 

assesses return to short-stay acute care hospitals or LTCHs within 30 days of discharge 

from an LTCH to the community or another care setting of lesser intensity. Patient 

readmissions are tracked using Medicare FFS claims data for 30 days after discharge, or 

the date of patient death if the patient dies within 30 days of discharge. 

 In the Hospital IQR Program, two readmission measurement approaches were 

taken: (1) measures related to patients with specific medical conditions, such as heart 

failure, pneumonia, and acute myocardial infarction,157 and (2) a hospital-wide measure. 

In LTCHs, patients tend to be complex and not easily classified into specific condition or 

procedure types. In addition, LTCHs have relatively small numbers of patients. Even 

ventilator patients, who are reasonably definable, are not numerous enough to provide 

good stable indicators of quality. Therefore, a hospital-wide all-cause readmission 

measure reflects a broader assessment of the quality of care in LTCHs, and may 

consequently better promote quality improvement and inform consumers about quality 

care. 

 In applying the All-cause Unplanned Readmission Measure for 30 days Post 

Discharge from Long-Term Care Hospitals, we will follow patients for 30 days after the 

LTCH discharge date, or date of death if the patient dies within the 30 day post-discharge 

period, using Medicare FFS claims data. Because patients differ in morbidity and 

complexity, the measure is risk-adjusted for patient case-mix. The measure also excludes 

planned readmissions because these are not considered to be indicative of poor quality 

care on the part of the LTCH. 

 

157 Please refer to 77 FR 53377 and table on 77 FR 53531 for current condition-specific readmission 

measures used in the Hospital IQR Program, available at: http://www.gpo.gov/fdsys/pkg/FR-2012-08-

31/pdf/2012-19079.pdf. 
 991 

 A model developed by a CMS measure development contractor predicts 

admission rates while accounting for patient demographics, primary condition in the prior 

short stay, comorbidities, and a few other patient factors. The use of such risk adjusters 

will account for case-mix differences that affect patient readmission rates among 

facilities. While estimating the predictive power of the patient characteristics, the model 

also estimates a facility specific effect common to patients treated at that facility. Similar 

to the Hospital IQR Program hospital-wide readmission measure, the proposed LTCHQR 

Program measure is the ratio of the number of risk-adjusted predicted unplanned 

readmissions for each individual LTCH, including the estimated facility effect, to the 

average number of risk-adjusted predicted unplanned readmissions for the same patients 

treated at a facility with the average effect on readmissions. A ratio above one indicates a 

higher than expected readmission rate, or lower level of quality, while a ratio below one 

indicates a lower than expected readmission rate, or higher level of quality. (The 

construction of the Hospital IQR Program hospital-wide measure and the NQF report 

may be downloaded from: 

http://www.qualityforum.org/Publications/2012/07/Patient_Outcomes_AllCause_Readmissions_Expedited_Review_2011.aspx.) 

 The patient population for the All-cause Unplanned Readmission Measure for 

30 days Post Discharge from Long-Term Care Hospitals includes LTCH patients who: 

● Were discharged alive from the LTCH; 

● Had 12 months of Medicare Part A, fee-for-service coverage prior to the LTCH 

stay; 
 992 

  Had 30 days of Medicare Part A, fee-for-service coverage post discharge; 

● Had an IPPS hospital stay within the 30 days prior to the LTCH stay; and 

● Were aged 18 years or above when admitted to the LTCH. 

 As in the Hospital IQR Program hospital-wide readmission measure, patients 

whose principal diagnosis was cancer and whose treatment was nonsurgical are excluded. 

Studies of this population that were reviewed for the Hospital IQR Program readmission 

measure showed them to have a different trajectory of illness and mortality than other 

patient populations.158 The measure also excludes patients who were discharged against 

medical advice. 

 Readmissions that are not included in the measure are: 

● Transfers from an LTCH to another LTCH or IPPS hospital; and 

● Readmissions within the 30 day window that are usually considered planned 

due to the nature of the procedures and principal diagnoses of the readmission. 

 LTCH stays that are problematic (for example, overlapping admission and 

discharge dates). 

 The planned readmission list for the All-cause Unplanned Readmission Measure 

for 30 days Post Discharge from Long-Term Care Hospitals includes the planned 

procedures specified in the Hospital-Wide All-Cause Unplanned Readmission (HWR) 

Measure (NQF #1789) used in the Hospital IQR Program, plus other procedures that 

were determined in consultation with technical expert panel. The list of procedures 

considered planned may be found in the LTCH Readmissions Measure Specifications file 

 

158 National Quality Forum. “Patient Outcomes: All-Cause Readmissions Expedited Review 2011”. 

July 2012. pp12 
 993 

which will be made available for download at the time of release of this proposed rule at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. In addition to the list of planned procedures 

there is a list of diagnoses which, if found as the principal diagnosis on the readmission 

claim, would indicate that the procedure occurred during an unplanned readmission. 

 A patient discharged from an LTCH is tracked until one of the following occurs: 

(1) the 30-day period post-discharge ends; (2) the patient dies; or, (3) the patient is 

readmitted to an acute level of care (short or long term). If multiple readmissions occur, 

only the first is considered for this measure. If the first readmission is unplanned, it is 

counted as a readmission in the measure rate. The occurrence of a planned readmission 

ends the 30-day window of the index discharge from the LTCH. 

 Readmission rates are risk-adjusted for patient case-mix characteristics, 

independent of quality. The risk adjusted model accounts for demographic 

characteristics, principal diagnosis, co-morbidities, length of stay in the prior IPPS 

hospital, critical care days in the prior IPPS hospital, number of IPPS hospital stays in the 

prior year, and the occurrence of various surgery types in the prior IPPS hospital stay. 

 In modeling LTCH readmissions, all patients are included in a single model, an 

approach different from the five-cohort approach of the Hospital IQR Program HWR 

measure, adapted to account for a substantially smaller patient population in the LTCH 

setting. Separate models for patient types, as was done for the Hospital IQR Program 

measure, are not feasible. The number of cases is much smaller in the LTCHs than in the 

IPPS hospitals and patients are generally not as strongly characterized by one major 
 994 

admitting diagnosis or condition. Patient characteristics are captured by diagnoses and 

prior surgeries, with a marker for prolonged mechanical ventilation also included. 

 Because there are approximately 120,000 LTCH admissions per year, and 

approximately 110,000 of those admissions meet the criteria for inclusion, the proposed 

measure will use a model that merges two years of Medicare claims data. This approach 

is similar to that used by the Hospital IQR Program condition-specific readmission 

measures, which use three years of claims data (77 FR 53523). Merging multiple years 

of data produces more precise estimates of the effects of all the risk adjusters, and 

increases the sample size associated with each facility. Larger patient samples are better 

able to meaningfully distinguish facility performance. 

 Under the exception authority in section 1886(m)(5)(D)(ii) of the Act, we are 

proposing to use this measure in the LTCHQR Program. This section provides that in the 

case of a specified area or medical topic determined appropriate by the Secretary for 

which a feasible and practical measure has not been endorsed by the entity with a 

contract under section 1890(a) of the Act, the Secretary may specify a measure that is not 

so endorsed as long as due consideration is given to measures that have been endorsed or 

adopted by a consensus organization identified by the Secretary. 

 In 2012, NQF endorsed two hospital-wide readmission measures, the National 

Committee for Quality Assurance (NCQA) measure intended for health plans, Plan 

All-Cause Readmissions (NQF #1768), and CMS’ Hospital-Wide All-Cause Unplanned 

Readmission Measure (HWR) (NQF #1789). NQF #1789 is the model for the All-cause 

Unplanned Readmission Measure for 30 days Post Discharge from Long-Term Care 
 995 

Hospital measure we are proposing. The most recent MAP Pre-Rulemaking Report noted 

that “readmission measures are also examples of measures that MAP recommends be 

standardized across settings, yet customized to address the unique needs of the 

heterogeneous Post-Acute Care (PAC)/LTC population. MAP has continually noted the 

need for care transition measures in PAC/LTC performance measurement programs. 

Setting-specific admission and readmission measures under consideration would address 

this need.”159

 We intend to seek NQF endorsement of the All-cause Readmission Measure for 

30 days Post Discharge from Long-Term Care Hospital. As this is a claims-based 

measure not requiring reporting of new data by LTCHs, this measure will not be used to 

determine LTCH reporting compliance for the LTCHQR Program. We are proposing to 

begin reporting feedback to LTCHs on performance of this measure in CY 2016. The 

initial feedback will be based on FY 2013 and FY 2014 Medicare claims data related to 

LTCH readmissions. The readmission measure will be part of the LTCH public reporting 

program once public reporting is instated. We intend to provide details pertaining to 

public reporting, such as LTCH preview of performance results, of this measure in our 

future rulemaking. 

 We invite public comment on these proposals. 

 

159 National Quality Forum. Measure Applications Partnership Pre-Rulemaking Report: 2013 

Recommendations of Measures Under Consideration by HHS: February 2013. Available at 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72738.
 996 

c. Proposed New LTCHQR Program Quality Measure for the FY 2018 Payment 

Determination and Subsequent Payment Determinations 

 We are proposing one new quality measure, Application of the Percent of 

Residents Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674), 

for the LTCHQR Program to affect the FY 2018 payment determination and subsequent 

payment determinations. 

 This NQF-endorsed measure is an outcome measure that reports the percentage of 

residents (or patients if finalized for the LTCH setting) who experienced falls with major 

injury over a 12 month period. This measure was developed by the CMS and is 

NQF-endorsed for the Nursing Home/Skilled Nursing Facility setting. 

 Research indicates that fall related injuries are the most common cause of accidental 

death in people aged 65 and older, with approximately 41 percent of accidental deaths 

annually.160 Rates increase to 70 percent of accidental deaths amongst individuals ages 

75 and older.161 In addition to death, falls can lead to fracture, soft tissue or head injury, 

fear of falling, anxiety and depression.162 Research also indicates that approximately 

75 percent of nursing facility residents fall at least once a year; twice the rate of their 

counterparts in the community.163 Similar data are not available for the LTCH setting. 

Falls also represent a significant cost burden to the entire health care system, with 

 

160 Currie LM. Fall and injury prevention. Annu Rev Nurs Res. 2006;24:39-74. 161 Fuller GF. Falls in the elderly. Am Fam Physician. Apr 1 2000;61(7):2159-2168, 2173-2154. 162 Premier Inc. Causes of Falls. 2013. Available: https://www.premierinc.com/quality-safety/toolsservices/safety/topics/falls/causes_of_falls.jsp. 163 Rubenstein LZ, Josephson KR, Robbins AS. Falls in the nursing home. Ann Intern Med. 1994 Sep 15; 

121(6):442-51. 
 997 

injurious falls accounting for 6 percent of medical expenses among those age 65 and 

older.164

 According to analysis of ICD-9 codes reported on Medicare claims, LTCHs 

reported 2,567 major injuries due to falls in 2009. Present on admission indicators are not 

available on LTCH claims, therefore we are unable to say whether these conditions are 

present on admission or acquired during the LTCH stay. Therefore, it was not possible to 

determine which of these falls occurred in the LTCH. However, we note that on the 

majority of claims, the primary diagnosis is the admitting diagnosis and is considered to 

be present on admission and therefore, the secondary diagnoses can be assumed to provide 

a count of conditions that could have been acquired in the LTCH.165 When it was 

assumed that a fall recorded in the primary diagnosis code was likely present on admission 

and that a fall recorded in the secondary diagnosis code was acquired in the LTCH, there 

were 2,049 reported injuries that may have been acquired in the LTCH.166

 According to Morse (2002), 78 percent of falls are anticipated physiologic falls. 

Anticipated physiological falls are falls amongst individuals who scored high on a risk 

assessment scale, meaning their risk could have been identified in advance of the fall.167 

To date, studies have identified a number of risk factors for 

 

164 Rubenstein LZ, Powers CM, MacLean CH. Quality indicators for the management and prevention of 

falls and mobility problems in vulnerable elders (ACOVE). Ann Intern Med. 2001 Oct 16;135(8 Pt 2):686-

93 

165Centers for Medicare & Medicaid Services Center for Medicare & Medicaid Innovation. Hospital 

Acquired Conditions (HAC) – Report to Congress. Available at 

http://innovation.cms.gov/Files/x/HospAcquiredConditionsRTC.pdf 166 Bernard SL, Dalton K, Lenfestey N F, Jarrett NM, Nguyen KH, Sorensen AV, Thaker S, West ND. 

Study to support a CMS Report to Congress: Assess feasibility of extending the hospital-acquired 

conditions—present on admission IPPS payment policy to non-IPPS payment environments. Prepared for 

the Centers for Medicare & Medicaid Services (CMS Contract No. HHSM-500-T00007). 2011. 

167 Morse, J. M. (2002) Enhancing the safety of hospitalization by reducing patient falls. Am J Infect 

Control 2002; 30(6): 376-80 
 998 

falls.168,169,170,171,172,173,174.175,176 The identification of such risk factors suggests the 

potential for health care facilities to reduce and prevent the incidence of falls for their 

patients. 

 In light of the evidence discussed above, we are proposing an application of the 

measure NQF #0674 Percent of Residents Experiencing One or More Falls with Major 

Injury (Long Stay), for the LTCHQR Program for the FY 2018 payment determination 

and subsequent payment determinations. 

 We note that, while NQF #0674 is currently endorsed only for long stay nursing 

home residents, we believe that an application of this measure would be highly relevant 

for the LTCH setting. As stated above, many patients receiving care in the LTCH setting 

are elderly and are at high risk for death and other injuries due to falls. A technical 

expert panel convened by our measure development contractor discussed potential quality 

measures for the LTCH setting and stressed that falls with major injury are a major 

concern in LTCH setting. 

 

168 Rothschild JM, Bates DW, Leape LL. Preventable medical injuries in older patients. Arch Intern Med. 

2000 Oct 9; 160(18):2717-28. 169 Morris JN, Moore T, Jones R, et al. Validation of long-term and post-acute care quality indicators. CMS 

Contract No: 500-95-0062/T.O. #4. Cambridge, MA: Abt Associates, Inc., June 2003. 

170 Avidan AY, Fries BE, James ML, Szafara KL, Wright GT, Chervin RD. Insomnia and hypnotic use, recorded 

in the minimum data set, as predictors of falls and hip fractures in Michigan nursing homes. J Am Geriatr Soc. 

2005 Jun; 53(6):955-62. 

171 Fonad E, Wahlin TB, Winblad B, Emami A, Sandmark H. Falls and fall risk among nursing home residents. J 

Clin Nurs. 2008 Jan; 17(1):126-34. 

172 Currie LM. Fall and injury prevention. Annu Rev Nurs Res. 2006;24:39-74. 173 Ellis AA, Trent RB. Do the risks and consequences of hospitalized fall injuries among older adults in 

California vary by type of fall? J Gerontol A Biol Sci Med Sci. Nov 2001;56(11):M686-692. 

174 Chen XL, Liu YH, Chan DK, Shen Q, Van Nguyen H. Chin Med J (Engl). Characteristics associated 

with falls among the elderly within aged care wards in a tertiary hospital: a retrospective. 2010 

Jul;123(13):1668-72. 

175 Frisina PG, Guellnitz R, Alverzo J. A time series analysis of falls and injury in the inpatient 

rehabilitation setting. Rehabil Nurs. 2010 Jul-Aug;35(4):141-6, 166. 

176 Lee JE, Stokic DS. Risk factors for falls during inpatient rehabilitant Am J Phys Med Rehabil. 2008 

May;87(5):341-50; quiz 351, 422. 
 999 

 In section 1886(m)(5)(D)(ii) of the Act, the exception authority provides that “[i]n 

the case of a specified area or medical topic determined appropriate by the Secretary for 

which a feasible and practical measure has not been endorsed by the entity with a 

contract under section 1890(a) of the Act, the Secretary may specify a measure that is not 

so endorsed as long as due consideration is given to measures that have been endorsed or 

adopted by a consensus organization identified by the Secretary.” We reviewed NQF’s 

consensus endorsed measures and were unable to identify any NQF-endorsed measures 

for falls with major injury in the LTCH setting. We are unaware of any other measures 

for falls with major injury that have been endorsed or adopted by another consensus 

organization for the LTCH setting. 

 Therefore, we are proposing to adopt an application of the NQF-endorsed 

measure Percent of Nursing Home Residents Experiencing One or More Falls with Major 

Injury (Long Stay) (NQF #0674) for use in the LTCH setting for the LTCHQR Program 

under the Secretary’s authority to select non-NQF endorsed measures. In the future we 

will consider applying for NQF review for endorsement of this measure to the LTCH 

setting as part of the measure expansion process. Additional information regarding 

NQF #0674, on which our proposed application of the measure will be based, including 

measure specifications, is available at: http://www.qualityforum.org/QPS/0674. The use 

of different applications of the same quality measure across multiple healthcare settings is 

also consistent with the 2008 NQF steering committee recommendation that “in the 

interest of standardization and minimizing the burden for those implementing and using 

measures, measure harmonization is an important consideration in evaluating and 
 1000 

recommending measures for endorsement.” Data on NQF #0674 is currently collected 

and reported on Nursing Home Compare as part of the Nursing Home Quality 

Initiative.177

 We are proposing that data for the proposed application of NQF #0674 will be 

collected through the LTCH CARE Data Set,178 with submission through the QIES 

ASAP System, as described in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53619 

through 53621). For more information on LTCHQR Program reporting using the QIES 

ASAP system, we refer readers to the Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html. We intend to 

revise the LTCH CARE Data Set to include new items which assess the presence of falls 

and falls with major injury, should this proposed application of the measure be adopted. 

These new items will be applied to all LTCH patients and will not distinguish between 

long stay versus short stay patients since this categorization is not applicable to the LTCH 

setting. 

 The items used for the proposed application of the quality measure will be based 

on the items from the Minimum Data Set (MDS) 3.0, version 1.13.0 (1/17/13) items 

J1800 (Any Falls Since Admission/Entry or Reentry or Prior Assessment) and J1900A, B 

and C (Number of Falls (A: with no injury, B: with injury (except major), C with Major 

 

177 Nursing Home Quality Initiative, Quality Measures. December 2012. Available: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/NursingHomeQualityInits/NHQIQualityMeasures.html

178The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits public comment on additions on updates to the LTCH 

CARE Data Set. 
 1001 

injury)) since Admission/Entry or Reentry or Prior Assessment), available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/NursingHomeQualityInits/NHQIMDS30TechnicalInformation.html. The 

calculation of the proposed application of the measure will be based on item J1900C, 

Number of Falls with major injury, since admission. The specifications and data 

elements for NQF #0674 are available in the MDS 3.0 Quality Measures User’s Manual 

Version 6.0 available on our Web site at http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/NursingHomeQualityInits/MDS30RAIManual.html. 

 By building on the existing reporting and submission infrastructure for LTCHs, 

(the LTCH CARE Data Set, which we began using for data collection on October 1, 2012 

for the Pressure Ulcer measure), we intend to reduce the administrative burden related to 

data collection and submission for this measure under the LTCHQR Program. We refer 

readers to section IX.C.9. of the preamble to this proposed rule for more information on 

data collection and submission. 

 We invite public comment on this proposed measure and data collection and 

submission for the proposed measure for the FY 2018 payment determination and 

subsequent payment determinations. 

d. LTCHQR Program Quality Measures and Concepts under Consideration for Future 

Years Payment Determinations 

 We are considering the measures and measure topics in the table below for future 

years in the LTCHQR Program. We invite public comment on these measures and 
 1002 

measure topics, specifically comments regarding the clinical importance, feasibility of 

data collection and implementation, current use, and usability of data to inform quality 

improvements in the LTCH setting. 

Future Measures and Measure Topics Under Consideration for the LTCH Quality 

Reporting Program 

National Quality Strategy Priority: Safety and Healthcare-Associated Infections HAIs 

● Surgical Site Infection 

● Ventilator-Associated Event 

 Ventilator Bundle

National Quality Strategy Priority: Safety and Healthcare-Acquired Conditions: 

Avoidable Adverse Events and Serious Reportable Events 

● Manifestations of Poor Glycemic Control 

National Quality Strategy Priority: Effective Clinical Processes 

● Severe Sepsis and Septic Shock: Management Bundle 

● Application of Venous Thromboembolism Prophylaxis (NQF #0371) 

● Ventilator Weaning Rate 

National Quality Strategy Priority: Patient Safety 

● Application of Hospital-Based Inpatient Psychiatric Services (HBIPS)-2 Hours 

of Physical Restraint Use (NQF #0640) 

● Application of Percent of Residents Who Were Physically Restrained (LongStay) (NQF #0687) 

National Quality Strategy Priority: Patient and Caregiver-Centered Care 

● Depression Assessment and Management 

● Functional Change 

● Application of HCAHPS (NQF #0166) 

● Application of Pain Management (for example, Percent of Residents Who SelfReport Moderate to Severe Pain (Short-Stay) (NQF #0677)) 

National Quality Strategy Priority: Communication and Coordination of Care 

● Application of Medication Reconciliation (NQF #0097) 

● Application of Medication Reconciliation Post-Discharge (NQF #0554) 

● Reconciled Medication List Received by Discharged Patients (NQF #0646) 

● Transition Record with Specified Elements Received by Discharged Patients 

(NQF #0647) 

● Timely Transmission of Transition Record (NQF #0648) 
 1003 

9. Form, Manner, and Timing of Quality Data Submission for the FY 2016 Payment 

Determination and Subsequent Payment Determinations 

a. Background 

 Section 1886(m)(5)(C) of the Act requires that, for the FY 2014 payment 

determination and each subsequent payment determination, each LTCH submit to the 

Secretary data on quality measures specified by the Secretary and that such data shall be 

submitted in a form and manner, and at a time, specified by the Secretary. As required by 

section 1886(m)(5)(A)(i) of the Act, for any LTCH that does not submit data in 

accordance with section 1886(m)(5)(C) of the Act with respect to a rate year, the 

Secretary will reduce any annual update to the standard Federal rate for discharges for the 

hospital during the rate year by two percentage points. 

b. Finalized Timeline for Data Submission Under the LTCHQR Program for the 

FY 2016 Payment Determination 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53636 through 53637), we 

finalized the data submission timeline for measures for the FY 2016 payment 

determination. LTCHs are required to submit data on LTCH admissions and discharges 

occurring from January 1, 2014 through December 31, 2014 (CY 2014) for the FY 2016 

payment determination. We adopted this timeframe because we believe this will provide 

sufficient time for LTCHs and CMS to put processes and procedures in place to meet the 

additional quality reporting requirements. We also finalized in this rule the quarterly 

submission deadlines for the FY 2016 payment determination as approximately 45 days 

after the end of each quarter, as outlined in the table below. This is the date by which all 
 1004 

data collected during that quarter must be submitted to CMS for measures using the 

LTCH CARE Data Set and to CDC for measures using the CDC/NHSN. 

Finalized Timeline for Submission of LTCHQR Program Quality Data 

for the FY 2016 Payment Determination

Data collection timeframe: CY 2014 Submission Deadline 

Q1 (January–March 2014) May 15, 2014 

Q2 (April–June 2014) August 15, 2014 

Q3 (July–September 2014) November 15, 2014 

Q4 (October–December 2014) February 15, 2015 

c. Proposed Timeline for Data Submission for the NQF #0431 Influenza Vaccination 

Coverage Among Healthcare Personnel Measure for the FY 2016 Payment Determination 

and Subsequent Payment Determinations 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53630 through 53631) we 

finalized the adoption of the Influenza Vaccination Coverage among Healthcare 

Personnel (NQF #0431) measure for the FY 2016 payment determination. In the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53636) we also finalized the data collection 

period for the FY 2016 payment determination to be January 1, 2014 through December 

31, 2014. As noted in IX.C.7.a. of the preamble to this proposed rule, there is a unique 

seasonality in the timing of influenza activity each year. The CDC, the steward of this 

measure, recommends that people get vaccinated against influenza as long as influenza 

viruses are circulating. We are proposing that, for the LTCHQR Program, the Influenza 

Vaccination Coverage Among Healthcare Personnel measure (NQF #0431) have its own 

reporting period to align with the influenza vaccination season, which is defined by the 

CDC as October 1 (or when the vaccine becomes available) through March 31of the 
 1005 

subseqeuent year for the influenza season. This timeline is consistent with how the NQF 

specifies this measure. Further details related to the procedures for using the 

CDC/NHSN for data submission and measure specifications for the Influenza 

Vaccination Coverage among Healthcare Personnel (NQF #0431) measure can be found 

at: http://www.qualityforum.org/QPS/0431 and http://www.cdc.gov/nhsn/LTACH/hcpflu-vac/index.html. 

 If our proposal in IX.C.7.a. of the preamble to this proposed rule is finalized, 

LTCHs would be required to report data on the Influenza Vaccination Coverage among 

Healthcare Personnel (NQF #0431) measure from October 1, 2014 or the date on which 

the vaccine becomes available, whichever occurs first, through March 31, 2015 for the 

2014-2015 influenza season for FY 2016 payment determination. We are also proposing 

that this October (or when vaccine becomes available) through March reporting period 

for the Influenza Vaccination Coverage among Healthcare Personnel (NQF #0431) 

measure would apply to the FY 2017 payment determination and subsequent payment 

determinations. 

d. Proposed Timeline for Data Submission for the NQF #0680 Percent of Residents or 

Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 

(Short Stay) Measure for the FY 2016 Payment Determination and Subsequent Payment 

Determinations 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 53627), we 

finalized the adoption of the Percent of Residents or Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza Vaccine (Short Stay) (NQF #0680) measure 
 1006 

for the FY 2016 payment determination. In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53637) we also finalized the data collection period for the FY 2016 payment 

determination to begin January 1, 2014 and continue through December 31, 2014. This 

measure will be collected using the LTCH CARE Data Set. The LTCH CARE Data Set 

(version 2.01), 179 proposed data collection instrument for this measure, is currently 

undergoing OMB review under the Paperwork Reduction Act. We anticipate that the 

review and approval will be completed by summer 2013. 

 We generally allow 9-12 months for LTCHs to comply with and integrate the 

requisite changes to new versions of data sets into their existing IT infrastructure, and to 

train staff members. Because summer 2013 approval of the LTCH CARE Data Set 

version 2.01 would only allow 6 months for LTCHs to put plans and procedures into 

place, we are proposing to move the start date for data collection of this measure to 

April 1, 2014 instead of the previously finalized start date of January 1, 2014. Data 

collection and submission of this measure will continue through December 31, 2014 for 

the FY 2016 payment determination. This proposed change would only affect CY 2014 

reporting. We are proposing that for all subsequent payment determinations this measure 

will be collected on a calendar year basis beginning on January 1 and continuing through 

December 31 of each year. 

 

179The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits public comment on additions and updates to the LTCH 

CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
 1007 

Timeline for Data Collection of LTCHQR Program Quality Data 

for the FY 2016 Payment Determination 

NQF Measure ID Data Collection Timeframe 

NQF # 0138* January 1, 2014- December 31, 2014 

NQF # 0139* January 1, 2014- December 31, 2014 

NQF #0678* January 1, 2014- December 31, 2014 

NQF # 0680 April 1, 2014- December 31, 2014** 

NQF # 0431 October 1, 2014 (or when vaccine becomes 

available)-March 31, 2015** 

* The data collection period for this measure was finalized in the FY 2013 IPPS/LTCH PPS final rule. 

** This data collection timeframe for this measure is proposed in this proposed rule. 

Timeline for Submission of LTCHQR Program Quality Data 

for the FY 2016 Payment Determination and Subsequent Payment Determinations 

NQF #0138*, NQF #0139*, NQF #0678* 

Data collection timeframe: 

CY 2014 

Final submission deadlines for the LTCHQR 

Program FY 2016 payment determination 

Q1 (January–March 2014) May 15, 2014 

Q2 (April–June 2014) August 15, 2014 

Q3 (July–September 2014) November 15, 2014 

Q4 (October–December 2014) February 15, 2015 

*The data collection period for this measure was finalized in the FY 2013 IPPS/LTCH PPS final rule.

Proposed Timeline for Submission of LTCHQR Program Quality Data 

for the FY 2016 Payment Determination and Subsequent Payment Determinations: 

NQF #0680 Percentage of Residents or Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza Vaccine (Short Stay)

Data collection timeframe Final submission deadlines for the LTCHQR 

Program FY 2016 payment determination 

April 1, 2014-

December 31, 2014 

February 15, 2015 

Proposed Timeline for Submission of LTCHQR Program Quality Data 

for the FY 2016 Payment Determination and Subsequent Payment Determinations: 

NQF #0431: Influenza Vaccination Coverage Among Healthcare Personnel 

Data collection timeframe Final submission deadlines for the LTCHQR 

Program FY 2016 payment determination 
 1008 

Proposed Timeline for Submission of LTCHQR Program Quality Data 

for the FY 2016 Payment Determination and Subsequent Payment Determinations: 

NQF #0431: Influenza Vaccination Coverage Among Healthcare Personnel 

Data collection timeframe Final submission deadlines for the LTCHQR 

Program FY 2016 payment determination 

October 1 2014 (or when vaccine 

becomes available)-March 31, 2015 

May 15, 2015 

 We invite public comment on these proposed data collection and quarterly 

submission timeframes for NQF #0680 and NQF #0431 for the FY 2016 payment 

determination. 

e. Proposed Timeline for Data Submission under the LTCHQR Program for the FY 2017 

Payment Determination and Subsequent Payment Determinations 

As previously stated, in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53636 

through 53637), we finalized the data submission timeline for the FY 2016 payment 

determination. For the FY 2017 payment determination, we are proposing to require data 

submission for the LTCHQR Program on all LTCH admissions and discharges occurring 

January 1, 2015 through December 31, 2015 (CY 2015) with the exception of Influenza 

Vaccination Among Healthcare Personnel (NQF #0431). We are proposing that the data 

collection timeframe for this measure (NQF #0431) be in alignment with measure 

specifications per advisement of the CDC, the steward for this NQF-endorsed measure. 

Please refer to section IX.C.9.c. of the preamble to this proposed rule for additional 

information on this measure’s timelines. 

 We note that the All-cause Unplanned Readmission Measure for 30 days 

Post-Discharge from Long-Term Care Hospitals is a Medicare claims-based measure, 

therefore no new data need to be collected or reported by the facility. We will use 
 1009 

CY 2013 and CY 2014 Medicare claims data to calculate the All-cause Unplanned 

Readmission Measure for 30 days Post- Discharge from Long-Term Care Hospitals. We 

are proposing these timeframes because we believe this will provide sufficient time for 

CMS and LTCHs to put processes and procedures in place to meet the quality reporting 

requirements under the LTCHQR Program. The proposed data collection reporting 

periods for the measures applicable to the FY 2017 payment determination are listed in 

the following table. 

Proposed Timeline for Collection of LTCHQR Program Quality Data for the 

FY 2017 Payment Determination 

NQF Measure ID Data Collection Timeframe 

NQF # 0138 January 1, 2015- December 31, 2015 

NQF # 0139 January 1, 2015- December 31, 2015 

NQF # 0678 January 1, 2015- December 31, 2015 

NQF # 0680 January 1, 2015- December 31, 2015 

NQF # 0431 October 1, 2015 (or when vaccine becomes 

available)-March 31, 2016 

NQF # 1716 January 1, 2015- December 31, 2015 

NQF # 1717 January 1, 2015- December 31, 2015 

 For each quarter outlined in the table below during which the LTCHs are required 

to collect data, we are proposing final submission deadlines occurring approximately 45 

days after the end of any given quarter by which all data collected during that quarter 

must be submitted. We believe that this is a reasonable amount of time to allow LTCHs 

to submit data and make any necessary corrections. Set out below is the proposed 

timeline for submission of LTCHQR Program quality data for the FY 2017 payment 

determination. 
 1010 

Proposed Timeline for Submission of LTCHQR Program Quality Data 

for the FY 2017 Payment Determination: 

NQF #0138, NQF #0139, NQF #0678, NQF #0680, NQF #1716, NQF #1717

Data collection timeframe: 

CY 2015 

Final submission deadlines for the LTCHQR 

Program FY 2017 payment determination 

Q1 (January–March 2015) May 15, 2015 

Q2 (April–June 2015) August 15, 2015 

Q3 (July–September 2015) November 15, 2015 

Q4 (October–December 

2015) 

February 15, 2016 

Proposed Timeline for Submission of LTCHQR Program Quality Data for the 

FY 2017 Payment Determination: 

NQF #0431: Influenza Vaccination Coverage Among Healthcare Personnel 

Data collection timeframe Final submission deadlines for the 

LTCHQR Program FY 2017 payment 

determination 

October 1 2015 (or when vaccine becomes 

available)-March 31, 2016 

May 15, 2016 

 We invite public comment on this proposal. 

f. Proposed Timeline for Data Submission under the LTCHQR Program for the FY 2018 

Payment Determination and Subsequent Payment Determinations 

 For measures for the FY 2018 payment determination, we are proposing to 

require data collection on LTCH discharges occurring from January 1, 2016 through 

December 31, 2016 with the exception of Influenza Vaccination Among Healthcare 

Personnel (NQF #0431). We are proposing that the data collection timeframe for this 

measure (NQF #0431) be in alignment with measure specifications per advisement of the 

CDC, the steward for this NQF-endorsed measure. LTCHs would follow the proposed 
 1011 

deadlines presented in the tables below to complete submission of data for each quarter 

for each proposed measure for the FY 2018 payment determination. For each quarter 

outlined in the table below during which LTCHs are required to collect data, we are 

proposing a final submission deadline occurring approximately 45 days after the end of 

each quarter by which all data collected during that quarter must be submitted. We 

believe that this is a reasonable amount of time to allow LTCHs to submit data and make 

any necessary corrections. 

Proposed Timeline for Data Collection of LTCHQR Program Quality Data for the 

FY 2018 Payment Determination 

NQF Measure ID Data Collection Timeframe 

NQF # 0138 January 1, 2016- December 31, 2016 

NQF # 0139 January 1, 2016- December 31, 2016 

NQF # 0678 January 1, 2016- December 31, 2016 

NQF # 0680 January 1, 2016- December 31, 2016 

NQF # 0431 October 1, 2016 (or when vaccine becomes 

available)-March 31, 2017 

NQF #1716 January 1, 2016-December 31, 2016 

NQF #1717 January 1, 2016-December 31, 2016 

NQF #0674 January 1, 2016-December 31, 2016 

Proposed Timeline for Submission of LTCHQR Program Quality Data 

for the FY 2018 Payment Determination and Subsequent Payment Determinations 

for All Measures Except #0431: Influenza Vaccination Coverage Among Healthcare 

Personnel 

Data collection timeframe: 

CY 2016 

Final submission deadlines for the LTCHQR 

Program FY 2018 payment determination 

Q1 (January–March 2016) May 15, 2016 

Q2 (April–June 2016) August 15, 2016 

Q3 (July–September 2016) November 15, 2016 

Q4 (October–December 2016) February 15, 2017 
 1012 

Proposed Timeline for Submission of LTCHQR Program Quality Data 

for the FY 2018 Payment Determination and Subsequent Payment Determinations: 

NQF #0431: Influenza Vaccination Coverage Among Healthcare Personnel 

Data collection timeframe Final submission deadlines for the LTCHQR 

Program FY 2018 payment determination 

October 1 2016 (or when vaccine 

becomes available)-March 31, 

2017 

May 15, 2017 

 We invite public comment on this proposal. 

10. Public Display of Data Quality Measures for the LTCHQR Program 

 Under section 1886(m)(5)(E) of the Act, the Secretary is required to establish 

procedures for making any quality data submitted by LTCHs under section 

1886(m)(5)(C) of the Act available to the public. Section 1886(m)(5)(E) of the Act 

requires that such procedures shall ensure that a LTCH has the opportunity to review the 

data that is to be made public with respect to its facility, prior to such data being made 

public. The statute also requires that the Secretary report quality measures that relate to 

services furnished in LTCHs on CMS’s Internet Web site. In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53637) we received and responded to public comment regarding 

the procedures we could adopt for the public reporting of quality data under the 

LTCHQR Program. 

 Currently, we are developing plans regarding the implementation of these 

provisions. We appreciate the need for transparency into the processes and procedures 

that will be implemented to allow for public reporting of the LTCHQR Program data and 

to afford LTCHs the opportunity to preview that data before it is made public. At this 

time, we have not established procedures or timelines for public reporting of data, but we 
 1013 

intend to include related proposals in future rulemaking. We welcome public comment 

on what we should consider when developing future proposals related to public reporting 

of quality measures for the LTCHQR Program. 

11. Proposed LTCHQR Program Submission Waiver Requirements for the FY 2015 

Payment Determination and Subsequent Payment Determinations 

 Our experience with other quality reporting programs has shown that there are 

times when providers are unable to submit quality data due to extraordinary 

circumstances beyond their control (for example, natural or man-made disasters). We 

define a “disaster” as any natural or man-made catastrophe which causes damages of 

sufficient severity and magnitude to partially or completely destroy or delay access to 

medical records and associated documentation. Natural disasters could include events 

such as hurricanes, tornadoes, earthquakes, volcanic eruptions, fires, mudslides, 

snowstorms, and tsunamis. Man-made disasters could include such events as terrorist 

attacks, bombings, floods caused by man-made actions, civil disorders, and explosions. 

A disaster may be widespread or impact multiple structures or be isolated and impact a 

single site only. 

 In certain instances of either natural or man-made disasters, an LTCH may have 

the ability to conduct a full patient assessment, and record and save the associated data 

either during or before the occurrence of an extraordinary event. In this case, the 

extraordinary event has not caused the facility’s data files to be destroyed, but it could 

hinder the LTCH’s ability to meet the quality reporting program’s data submission 

deadlines. In this scenario, the LTCH would potentially have the ability to report the data 
 1014 

at a later date, after the emergency circumstances have subsided. In such cases, a 

temporary waiver of the LTCH duty to report quality measure data may be appropriate. 

 In other circumstances of natural or man-made disaster, an LTCH may not have 

had the ability to conduct a full patient assessment, and record and save the associated 

data before the occurrence of an extraordinary event. In such a scenario, the facility does 

not have data to submit to CMS as a result of the extraordinary event. We believe that it 

is appropriate, in these situations, to grant a full waiver of the reporting requirements. 

 We do not wish to penalize LTCHs in these circumstances or to unduly increase 

their burden during these times. Therefore, we are proposing a process, for the FY 2015 

payment determination and subsequent payment determinations, for LTCHs to request 

and for CMS to grant waivers with respect to the reporting of required quality data when 

there are extraordinary circumstances beyond the control of the LTCHs. When a waiver 

is granted, an LTCH will not incur payment reduction penalties for failure to comply with 

the requirements of the LTCHQR Program. For LTCHQR Program reporting and 

submission of quality measure data for the FY 2014 payment determination, we will be 

issuing guidance on the waiver process via the LTCH Quality Reporting Program Web 

site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. 

 Under the proposed process for the FY 2015 payment determination and 

subsequent payment determinations, an LTCH may request a waiver of the requirement 

to submit quality data for one or more quarters. We are proposing a process that, in the 

event that an LTCH seeks to request a waiver for quality reporting purposes for the 
 1015 

FY 2015 payment determination and subsequent payment determinations, the LTCH may 

request a waiver for one or more quarters by submitting a written request to CMS. We 

are proposing that the LTCH compose a letter to CMS that documents the waiver request, 

with the information below, and submit the letter to CMS via email to the LTCH Quality 

Waiver mailbox at LTCHQRPReconsiderations@cms.hhs.gov. 

 We note that the subject of the email must read “Disaster Waiver Request” and 

the letter must contain the following information: 

● LTCH CCN; 

● LTCH name; 

● CEO or CEO-designated personnel contact information including name, 

telephone number, email address, and mailing address (the address must be a physical 

address, not a post office box); 

● LTCH’s reason for requesting a waiver; 

● Evidence of the impact of extraordinary circumstances, including but not 

limited to photographs, newspaper and other media articles; and 

● A date when the LTCH believes it will be able to again submit LTCH QRP 

data and a justification for the proposed date. 

 We are proposing that the letter documenting the disaster waiver request be 

signed by the LTCH’s CEO or CEO designated personnel, and must be submitted within 

30 days of the date that the extraordinary circumstances occurred. Following receipt of 

the letter, we would: (1) provide a written acknowledgement, using the contact 

information provided in the letter, to the CEO or CEO-designated contact notifying them 
 1016 

that the request has been received; and (2) provide a formal response to the CEO or 

anyCEO-designated LTCH personnel, using the contact information provided in the 

letter, indicating our decision. 

 This proposal does not preclude us from granting waivers to LTCHs that have not 

requested them when we determine that an extraordinary circumstance, such as an act of 

nature, affects an entire region or locale. If we make the determination to grant a waiver 

to LTCHs in a region or locale, we are proposing to communicate this decision through 

routine communication channels to LTCHs and vendors, including, but not limited to, 

issuing memos, emails, and notices on http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/LTCH-Quality-Reporting/index.html. 

 We invite public comment on this proposal. 

12. Proposed LTCHQR Program Reconsideration and Appeals for the FY 2015 Payment 

Determination and Subsequent Payment Determinations 

 At the conclusion of any given quality data reporting and submission period, we 

will review the data received from each LTCH during that reporting period to determine 

if the LTCH has met the quality data reporting requirements. LTCHs that are found to be 

noncompliant with the reporting requirements set forth for that reporting cycle could 

receive a reduction in the amount of 2 percentage points to their annual payment update 

for the upcoming fiscal year. 

 We are aware that some of our other quality reporting programs, such as the 

Hospital IQR Program, include an opportunity for providers and suppliers to request a 

reconsideration of our initial non-compliance determination. We are also aware, for the 
 1017 

purposes of the LTCHQR Program, that we will be making compliance determinations 

for the FY 2014 payment determination in the coming months and there is a need for 

providers to be able to request a reconsideration if the circumstances warrant. Therefore, 

to be consistent with other established quality reporting programs and to provide an 

opportunity for providers to seek reconsideration of our initial non-compliance decision, 

we are proposing a process that will allow LTCHs to request reconsiderations pertaining 

to their FY 2015 payment determination and that of subsequent payment determinations. 

 As part of this process, LTCHs that are non-compliant with the reporting 

requirements during a given reporting cycle will be notified of that finding. The purpose 

of this notification is to put the LTCH on notice of the following: (1) that the LTCH has 

been identified as being non-compliant with the LTCHQR Program’s reporting 

requirements for the reporting cycle in question; (2) that the LTCH will be scheduled to 

receive a reduction in the amount of two percentage points to the annual payment update 

for the upcoming fiscal year; (3) that the LTCH may file a request for reconsideration if 

they believe that the finding of non-compliance is erroneous, or that if they were 

non-compliant, they have a valid and justifiable excuse for this non-compliance; and 

(4) that the LTCH must follow a defined process on how to file a request for 

reconsideration, which will be described in the notification. 

 Upon the conclusion of our review of each request for reconsideration, we will 

render a decision. We may reverse our initial finding of noncompliance if: (1) the LTCH 

provides proof of full compliance with all requirements during the reporting period; or 

(2) the LTCH provides adequate proof of a valid or justifiable excuse for non-compliance 
 1018 

if the LTCH was not able to comply with requirements during the reporting period. We 

will uphold our initial finding of noncompliance if the LTCH cannot show any 

justification for noncompliance. 

 We intend to provide details pertaining to the reconsideration process, and the 

mechanisms related to provider requests for reconsiderations of their payment 

determination, such as filing requests, required content, supporting documentation, and 

mechanisms of notification and final determinations on the LTCHQR Program Web site 

in spring 2013 prior to any LTCH’s need for information on the CMS reconsideration 

process for the FY 2014 payment determination and subsequent payment determinations 

at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. 

 We invite public comment on the proposed procedures for reconsideration and 

appeals for FY 2015 payment determination and subsequent payment determinations. 
 1019 

D. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

1. Statutory Authority 

 Section 1886(s)(4) of the Act, as added and amended by sections 3401(f) and 

10322(a) of the Affordable Care Act, requires the Secretary to implement a quality 

reporting program for inpatient psychiatric hospitals and psychiatric units. 

Section 1886(s)(4)(A)(i) of the Act requires that, for rate year (RY) 2014 and each 

subsequent rate year, the Secretary shall reduce any annual update to a standard Federal 

rate for discharges occurring during such rate year by 2.0 percentage points for any 

inpatient psychiatric hospital or psychiatric unit that does not comply with quality data 

submission requirements with respect to an applicable rate year. 

 We note that section 1886(s)(4)(A)(i) of the Act uses the term “rate year.” 

Beginning with the annual update of the inpatient psychiatric facility prospective 

payment system (IPF PPS) that took effect on July 1, 2011 (RY 2012), we aligned the 

IPF PPS update with the annual update of the ICD-9-CM codes, which are effective on 

October 1 of each year. The change allows for annual payment updates and the 

ICD-9-CM coding update to occur on the same schedule and appear in the same Federal 

Register document, thus making updating rules more administratively efficient. To 

reflect the change to the annual payment rate update cycle, we revised the regulations at 

42 CFR 412.402 to specify that, beginning October 1, 2012, the 12-month period of 

October 1 through September 30 is referred to as a fiscal year (FY) (76 FR 26435). For 

more information regarding this terminology change, we refer readers to section III. of 

the RY 2012 IPF PPS final rule (76 FR 26434 through 26435). For purposes of the 
 1020 

discussion below, the term “rate year” and “fiscal year” both refer to the period beginning 

October 1 and ending September 30. To avoid any confusion that may be caused by 

using the term “rate year” with respect to the inpatient psychiatric hospitals and 

psychiatric units quality reporting program, we will use the term “fiscal year” rather than 

“rate year” throughout this proposed rule, even when we are referring to statutory 

provisions that refer to “rate year.” 

 As provided in section 1886(s)(4)(A)(ii) of the Act, the application of the 

reduction for failure to report under section 1886(s)(4)(A)(i) of the Act may result in an 

annual update of less than 0.0 percent for a fiscal year, and may result in payment rates 

under section 1886(s)(1) of the Act being less than such payment rates for the preceding 

year. In addition, section 1886(s)(4)(B) of the Act requires that the application of the 

reduction to a standard Federal rate update be noncumulative across fiscal years. Thus, 

any reduction applied under section 1886(s)(4)(A) of the Act will apply only with respect 

to the fiscal year rate involved and the Secretary shall not take into account such 

reduction in computing the payment amount under the system described in 

section 1886(s)(1) of the Act for subsequent years. 

 Section 1886(s)(4)(C) of the Act requires that, for FY 2014 (October 1, 2013 

through September 30, 2014) and each subsequent year, each psychiatric hospital and 

psychiatric unit shall submit to the Secretary data on quality measures as specified by the 

Secretary. Such data shall be submitted in a form and manner, and at a time, specified by 

the Secretary. Under section 1886(s)(4)(D)(i) of the Act, measures selected for the 

quality reporting program must have been endorsed by the entity with a contract under 
 1021 

section 1890(a) of the Act. The National Quality Forum (NQF) currently holds this 

contract. The NQF is a voluntary, consensus-based, 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 

generally prefer to adopt NQF-endorsed measures in our reporting programs with some 

exceptions as provided by law. 

 For purposes of the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) 

Program, section 1886(s)(4)(D)(ii) of the Act provides that, in the case of a specified area 

or medical topic determined appropriate by the Secretary for which a feasible and 

practical measure has not been endorsed by the entity with a contract under section 

1890(a) of the Act, the Secretary may specify a measure that is not so endorsed as long as 

due consideration is given to measures that have been endorsed or adopted by a 

consensus organization identified by the Secretary. Finally, pursuant to 

section 1886(s)(4)(D)(iii) of the Act, the Secretary shall publish the measures applicable 

to the FY 2014 IPFQR Program no later than October 1, 2012. 

 Section 1886(s)(4)(E) of the Act requires the Secretary to establish procedures for 

making public the data submitted by inpatient psychiatric hospitals and psychiatric units 

under the IPFQR Program. Such procedures must ensure that a facility has the 

opportunity to review its data prior to such data being made public. The Secretary must 

report quality measures that relate to services furnished by the psychiatric hospitals and 

units on a CMS Web site. 
 1022 

2. Application of the Payment Update Reduction for Failure to Report for the FY 2014 

Payment Determination and Subsequent Years 

 Beginning in FY 2014, section 1886(s)(4)(A)(i) of the Act requires the application 

of a 2.0 percentage point reduction to the applicable annual update to a Federal standard 

rate for those psychiatric hospitals and psychiatric units that fail to comply with the 

quality reporting requirements implemented in accordance with section 1886(s)(4)(C) of 

the Act, as detailed below. The application of the reduction may result in an annual 

update for a fiscal year that is less than 0.0 percent and in payment rates for a fiscal year 

being less than the payment rates for the preceding fiscal year. Pursuant to 

section 1886(s)(4)(B) of the Act, any such reduction is not cumulative and it will apply 

only to the fiscal year involved. In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53678), we adopted requirements regarding the application of the payment 

reduction to the annual update of the standard Federal rate for failure to report data on 

measures selected for the FY 2014 payment determination and subsequent years and 

added new regulatory text at 42 CFR 412.424 to codify these requirements. 

3. Covered Entities 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53645), we established that the 

IPFQR Program’s quality reporting requirements cover those psychiatric hospitals and 

psychiatric units that are paid under Medicare’s IPF PPS (42 CFR 412.404(b)). 

Generally, psychiatric hospitals and psychiatric units within acute care and critical access 

hospitals that treat Medicare patients are paid under the IPF PPS. For more information 

on the application of and exceptions to payments under the IPF PPS, we refer readers to 
 1023 

section IV. of the November 15, 2004 IPF PPS final rule (69 FR 66926). As we noted in 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53645), we use the term “inpatient 

psychiatric facility” (IPF) to refer to both inpatient psychiatric hospitals and psychiatric 

units. This usage follows the terminology we have used in the past in our IPF PPS 

regulations (42 CFR 412.402). 

4. Considerations in Selecting Quality Measures 

 For purposes of the IPFQR Program, section 1886(s)(4)(D)(i) of the Act requires 

that any measure specified by the Secretary must have been endorsed by the entity with a 

contract under section 1890(a) of the Act. However, the statutory requirements under 

section 1886(s)(4)(D)(ii) of the Act provide an exception that, in the case of a specified 

area or medical topic determined appropriate by the Secretary for which a feasible and 

practical measure has not been endorsed by the entity with a contract under section 

1890(a) of the Act, the Secretary may specify a measure that is not so endorsed as long as 

due consideration is given to measures that have been endorsed or adopted by a 

consensus organization identified by the Secretary. 

 In implementing the IPFQR Program, our overarching objective is to support the 

HHS National Quality Strategy’s three-part aim of better health care for individuals, 

better health for populations, and lower costs for health care services: 

http://www.healthcare.gov/news/reports/quality03212011a.html#na. Implementation of 

the IPFQR Program will help achieve the three-part aim by creating transparency around 

the quality of care provided at IPFs to support patient decision-making and quality 

improvement. Over time, the IPFQR Program will help align the goals for quality 
 1024 

measurement and improvement at IPFs with those of other providers in the health care 

system. 

 We seek to collect data in a manner that balances the need for information related 

to the full spectrum of quality performance and the need to minimize the burden of data 

collection and reporting. We have focused on measures that have high impact and 

support CMS and HHS priorities for improved quality and efficiency of care provided by 

IPFs. As we stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53645 through 

53646), we will use the following considerations for the development and selection of 

measures: 

● Given the availability of well-validated measures and the need to balance 

breadth with minimizing burden, the measures should address, as fully as possible, the six 

domains of measurement that arise from the six priorities of the National Quality Strategy 

(NQS): clinical care; person- and caregiver-centered experience and outcomes; safety; 

efficiency and cost reduction; care coordination; and community/population health. 

● Public reporting should rely on a mix of standards, outcomes, process of care 

measures, and patient experience of care measures, including measures of care transitions 

and changes in patient functional status, with an emphasis on measurement as close to the 

patient-centered outcome of interest as possible. 

● The measure sets should evolve so that they include a focused set of measures 

appropriate to IPFs that reflects the level of care and the most important areas of service 

and measures for IPFs as well as measures addressing a core set of measure concepts that 

align quality improvement objectives across all provider and supplier types and settings. 
 1025 

● Measures should address gaps in quality of inpatient psychiatric care. 

● As part of our burden reduction efforts, we continuously seek to weigh the 

relevance and utility of the measures compared to the burden on IPFs submitting data 

under the IPFQR Program. As appropriate, we will align our measures with other 

Medicare and Medicaid quality programs and may consider how we can incorporate data 

reporting by means of electronic reporting mechanisms, so that the collection of 

performance information is part of care delivery. 

● To the extent practicable, measures used by CMS should be nationally 

endorsed by a multi-stakeholder organization. Measures should be aligned with best 

practices among other payers and the needs of the end users of the measures. We take 

into account widely accepted criteria established in medical literature. We consider 

suggestions and input from technical expert panels (TEPs), convened by CMS 

contractors, which evaluate IPFQR quality measures for importance, scientific soundness, 

usability, and feasibility. 

 We also take into account national priorities and HHS Strategic Plans and 

Initiatives:

● HHS engaged a wide range of stakeholders to develop the National Quality 

Strategy, as required by the Affordable Care Act, which pursues three aims (better care, 

healthy people, and affordable care) that establish a framework with six identifiable 

priorities http://www.healthcare.gov/news/reports/quality03212011a.html#na: 

●● Ensuring that each person and family is engaged as partners in their care. 

●● Promoting effective communication and coordination of care. 
 1026 

●● Promoting the most effective prevention and treatment practices for the 

leading causes of mortality, starting with cardiovascular disease. 

●● Working with communities to promote wide use of best practices to enable 

healthy living. 

●● Making quality care more affordable for individuals, families, employers, and 

governments by developing and spreading new health care delivery models. 

●● Making care safer by reducing harm caused in the delivery of care. 

● We consider recommendations of the Measures Application Partnership 

(MAP) for the inclusion of clinical quality measures http://www.qualityforum.org/MAP/. 

The MAP is a public-private partnership convened by the NQF for the primary purpose 

of providing input to HHS on selecting performance measures for quality reporting 

programs and pay-for-reporting programs. 

● HHS is the United States Government’s principal department for protecting the 

health of all Americans. HHS accomplishes its mission through programs and initiatives. 

The goals of the HHS Strategic Plan for FYs 2010 through 2015 are: Strengthen Health 

Care; Advance Scientific Knowledge and Innovation; Advance the Health, Safety, and 

Well-Being of the American People; Increase Efficiency, Transparency, and 

Accountability of HHS Programs; and Strengthen the Nation’s Health and Human 

Services Infrastructure and Workforce 

(http://www.hhs.gov/secretary/about/priorities.html). HHS will update this strategic plan 

every 4 years and measure its progress in addressing specific national problems, needs, or 

mission-related challenges. 
 1027 

 HHS prioritizes policy and program interventions to address the leading causes of 

death and disability in the United States, including heart disease, cancer, stroke, chronic 

lower respiratory diseases, unintentional injuries, and preventable behaviors. Initiatives 

such as the HHS Action Plan to Reduce Healthcare-Associated Infections in clinical 

settings and the Partnership for Patients exemplify these programs. 

5. Proposed Quality Measures for the FY 2015 Payment Determination and Subsequent 

Years 

a. Background 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53646 through 53652), we 

adopted the following six chart-abstracted IPF quality measures for the FY 2014 payment 

determination and subsequent years shown in the table below: 

Previously Adopted IPFQR Program Quality Measures Beginning with the FY 2014 

Payment Determination 

National Quality 

Strategy Priority

NQF 

# 

Measure 

ID Measure Description 

0640 HBIPS-2 Hours of Physical Restraint Use Patient Safety 0641 HBIPS-3 Hours of Seclusion Use 

0552 HBIPS-4 Patients Discharged on Multiple 

Antipsychotic Medications Clinical Quality of 

Care 0560 HBIPS-5 Patients Discharged on Multiple 

Antipsychotic Medications with 

Appropriate Justification 

0557 HBIPS-6 Post-Discharge Continuing Care Plan 

Created 

Care Coordination 0558 HBIPS-7 Post-Discharge Continuing Care Plan 

Transmitted to Next Level of Care Provider 

Upon Discharge 
 1028 

 We note that, at the time of the finalization of the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53258), providers were using ICD-9-CM codes, but as of October 1, 2014 

ICD-10-CM codes will be in effect. We do not at this time anticipate that this change 

will have substantive effects on any measures. 

 Measures adopted for the IPFQR Program will remain in the quality reporting 

program for all subsequent years unless specifically stated otherwise (for example, 

through removal or replacement). We are not proposing to remove or replace any of the 

previously adopted measures from the IPFQR Program or add any new measures to the 

IPFQR Program for the FY 2015 payment determination. We believe that keeping the 

same measures for the FY 2015 payment determination will allow IPFs one additional 

year during which they could ramp up recordkeeping and improve quality of care on 

existing measures. We discussed the collection requirements and submission timeframes 

for these measures in section VIII.F.7. of the preamble of the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53654 through 53658). 

b. Proposed New Quality Measures for the FY 2016 Payment Determination and 

Subsequent Years 

 We are proposing three new measures for the FY 2016 payment determination 

and subsequent years for the IPFQR Program. The measures are: (1) SUB-1: Alcohol 

Use Screening (Submitted for NQF review); (2) SUB-4: Alcohol & Drug Use: Assessing 

Status After Discharge (Submitted for NQF review); and (3) Follow-Up After 

Hospitalization for Mental Illness (FUH) (NQF #0576). 
 1029 

 The three proposed measures were included in a publicly available document 

entitled “List of Measures under Consideration for December 1, 2012” in compliance 

with section 1890A(a)(2) of the Act, and they were reviewed by the MAP in its “MAP 

Pre-Rulemaking Report: 2013 Recommendations on Measures Under Consideration by 

HHS,” which is available on the NQF Web site at 

http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partn

ership.aspx. We considered the input and recommendations provided by the MAP in 

selecting measures to propose for the IPFQR Program at this time. The MAP supported 

the inclusion of the third proposed measure in the IPFQR Program, and supported the 

direction of the first two measures, noting that their recommendation is contingent on 

NQF endorsement. The first two measures were submitted to the NQF in 2012. 

Currently, the dates for their review have not been established. 

 The first two of these measures have been developed by and are maintained by 

The Joint Commission (TJC) (the measure steward) and the third measure has been 

developed by and is maintained by the National Committee for Quality Assurance 

(NCQA) (the measure steward). These measures are appropriate for the purposes of 

assessing the quality of inpatient psychiatric services and align with National Quality 

Strategy goals of promoting effective prevention and treatment practices (clinical quality 

of care), and promoting effective communication and coordination of care. Technical 

specifications for measures “SUB-1: Alcohol Use Screening” and “SUB-4: Alcohol & 

Drug Use: Assessing Status After Discharge” can be found on the TJC Web site at: 

https://manual.jointcommission.org/bin/view/Manual/WebHome. Technical 
 1030 

specifications for the measure “Follow-Up After Hospitalization for Mental Illness” 

(FUH) (NQF #0576) can currently be found on the NCQA Web site at: 

http://www.ncqa.org/portals/0/FollowUp%20After%20Hospitalization%20for%20Mental%20Illness.pdf. 

 The three proposed measures for FY 2016 and subsequent years are described in 

more detail below. 

(1) SUB-1: Alcohol Use Screening (NQF Review Pending) 

 Individuals with mental health conditions experience substance use disorders 

(SUDs) at a much higher rate than the general population. Individuals with the most 

serious mental illnesses have the highest rates of such disorders. Co-occurring SUDs 

often go undiagnosed and, without treatment, contribute to a longer persistence of 

disorders, poorer treatment outcomes, lower rates of medication adherence, and greater 

impairments to functioning. Accordingly, this proposed measure, and the one 

immediately following, are intended to assess efforts by IPFs to screen for the most 

common type of such disorder, alcohol abuse, and to follow up after discharge with 

individuals who screen positive for alcohol abuse or who received a diagnosis of alcohol 

or drug disorder during the inpatient stay. 

 In late 2008, TJC received funding from the Partnership for Prevention and HHS’ 

Substance Abuse and Mental Health Services Administration (SAMHSA) to develop, 

specify, and test standardized performance measures addressing alcohol screening and 

cessation counseling. Four alcohol/substance use performance measures were pilot tested 

in the spring/summer of 2010. The four alcohol/substance use measures (SUB measure 
 1031 

set) were approved as a core measure set for use in TJC’s accreditation programs 

(http://www.jointcommission.org/core_measure_sets.aspx). The SUB measures can be 

found in the TJC’s Specification Manual for National Hospital Inpatient Quality 

Measures at: https://manual.jointcommission.org/bin/view/Manual/WebHome. 

 The SUB-1: Alcohol Use Screening proposed measure assesses the number of 

patients 18 years of age and older who were screened for alcohol use using a validated 

screening questionnaire for unhealthy drinking during their inpatient stay, and is reported 

as a percentage. The numerator includes the number of patients who were screened for 

alcohol use using a validated screening questionnaire for unhealthy drinking. The 

denominator includes the number of hospitalized inpatients 18 years of age or older. 

Higher rates on the measure are indicative of better performance. The measure excludes 

the following populations: patients younger than 18, cognitively impaired patients, and 

patients admitted for less than 1 day or greater than 120 days. 

 This measure is specified for collection through chart abstraction. We are 

proposing the form, manner, and timing of collection in section IX.D.9. of the preamble 

of this proposed rule. Full specifications for this measure are available at: 

https://manual.jointcommission.org/bin/view/Manual/WebHome. 

 The SUB-1: Alcohol Use Screening proposed measure meets the measure 

selection exception requirements for the IPFQR Program under 1886(s)(4)(D)(ii) of the 

Act as previously discussed in Section 4 (Considerations in Selecting Quality Measures) 

of this rule. Although the proposed measure is not currently NQF-endorsed, we 

considered available measures that have been endorsed or adopted by a consensus 
 1032 

organization and found no other feasible and practical measures on the topic of substance 

use disorder screening for the inpatient population. 

 We invite public comment on this proposed measure. 

(2) SUB-4: Alcohol and Drug Use: Assessing Status After Discharge (NQF Review 

Pending) 

 The SUB-4: Alcohol and Drug Use proposed measure assesses whether 

discharged patients are contacted between 7 and 30 days after hospital discharge in order 

to collect post-discharge follow-up information regarding their alcohol or drug use status. 

The measure applies to patients 18 years of age or older who screened positive for 

alcohol abuse, or who received a diagnosis of alcohol or drug disorder during their 

inpatient stay. The numerator includes the number of discharged patients that are 

contacted between 7 and 30 days after hospital discharge and follow-up information 

regarding alcohol or drug use status is collected. The denominator includes the number 

of discharged patients 18 years of age and older who screened positive for alcohol abuse 

or who received a diagnosis of alcohol or drug use disorder during their hospital stay. 

Higher rates on the measure are indicative of better performance. 

 The following patients are excluded from the measure: 

● Patients less than 18 years of age; 

● Patients who are cognitively impaired; 

● Patients who were not screened or refused to be screened for alcohol use; 

● Patients who expired; 
 1033 

● Patients who have a duration of stay less than or equal to 1 day or greater than 

120 days; 

● Patients who do not screen positive for alcohol abuse; 

● Patients discharged to another hospital; 

● Patients who left against medical advice; 

● Patients discharged to another health care facility; 

● Patients discharged to home or other health care facility for hospice care; 

● Patients who do not reside in the United States; 

● Patients who do not have a phone or cannot provide any contact information; 

● Patients discharged to a detention facility, jail, or prison; and 

● Patients who are readmitted within the follow-up time frame. 

 This measure is specified for collection through chart abstraction. We are 

proposing the form, manner, and timing of collection in section IX.D.9. of the preamble 

of this proposed rule. Full specifications for this measure are available at: 

https://manual.jointcommission.org/bin/view/Manual/WebHome

 The SUB-4: Alcohol and Drug Use: Assessing Status After Discharge proposed 

measure meets the measure selection exception requirements for the IPFQR Program 

under section 1886(s)(4)(D)(ii) of the Act as previously discussed in section IX.D.4. of 

the preamble of this proposed rule. Because this measure is not currently NQF-endorsed, 

we considered other available measures that have been endorsed or adopted by a 

consensus organization. We found no other feasible and practical measures on the topic 
 1034 

of post-discharge alcohol and drug assessment for inpatients who screened positive for 

substance abuse. 

 We invite public comment on this proposed measure. 

(3) Follow-Up After Hospitalization for Mental Illness (FUH) (NQF #0576) 

 Mental illness accounts for a very large disease burden and it is estimated that half 

of first-time psychiatric patients are readmitted within two years of hospital discharge. 

Continuity of treatment and appropriate follow-up care and management of chronic 

diseases, such as mental illnesses, are known to reduce the risk of repeated 

hospitalizations. Proper follow-up treatment for psychiatric hospitalization can lead to 

improved quality of life for patients, families, and society as a whole. 

 The Follow-Up After Hospitalization for Mental Illness measure assesses the 

percentage of discharges for patients 6 years of age and older who were hospitalized for 

treatment of selected mental health disorders, and who subsequently had an outpatient 

visit or an intensive outpatient encounter with a mental health practitioner, or received 

partial hospitalization services. The measure separately identifies the percentage of 

patients who received follow-up within 7 and 30 days of discharge. The detailed 

technical specifications for this measure can be found at: 

http://www.ncqa.org/portals/0/FollowUp%20After%20Hospitalization%20for%20Mental%20Illness.pdf. 

 This measure is specified by the steward for either collection through chart 

abstraction or calculation using claims/administrative data. We considered using 

claims/administrative data for patients discharged from IPFs to calculate the measure, and 
 1035 

welcome public feedback on this approach. However, we are proposing to collect chartabstracted data for this measure in order to maintain consistency with the approach used 

for existing measures in the IPFQR Program, and solicit comment on this proposal. We 

also considered using claims/administrative data for patients discharged from IPFs to 

calculate the measure, and would welcome public feedback on this alternative approach. 

We are proposing the form, manner, and timing of collection in section IX.D.9. of the 

preamble of this proposed rule. 

 The Follow-Up After Hospitalization for Mental Illness (FUH) proposed measure 

meets the measure selection criteria under section 1886(s)(4)(D)(i) of the Act, because it 

is NQF-endorsed. 

 We invite public comment on this proposed measure. 

 In summary, we are retaining all six of the chart-abstracted measures previously 

adopted for the FY 2014 payment determination and subsequent years. Also, for the 

FY 2016 payment determinations and subsequent years, we are proposing the addition of 

three new chart-abstracted measures for the IPFQR Program: (1) SUB-1: Alcohol Use 

Screening (NQF review pending); (2) SUB-4: Alcohol & Drug Use: Assessing Status 

After Discharge (NQF review pending); and (3) Follow-Up After Hospitalization for 

Mental Illness (FUH) (NQF #0576). 

 We are proposing the collection requirements for these measures in the “form, 

manner, and timing” section (section IX.D.9.) of the preamble of this proposed rule. The 

table below lists the previously adopted measures for the FY 2014 payment determination 
 1036 

and subsequent years and the proposed additional measures for the FY 2016 payment 

determination and subsequent years. 

Previously Adopted and Proposed Quality Measures for the IPFQR Program 

National Quality 

Strategy Priority NQF # Measure ID Measure Description 

Previously Adopted Measures for the FY 2014 Payment Determination and 

Subsequent Years 

0640 HBIPS-2 Hours of Physical Restraint Use Patient Safety 0641 HBIPS-3 Hours of Seclusion Use 

0552 HBIPS-4 Patients Discharged on Multiple 

Antipsychotic Medications Clinical Quality of 

Care 0560 HBIPS-5 Patients Discharged on Multiple 

Antipsychotic Medications with 

Appropriate Justification 

0557 HBIPS-6 Post-Discharge Continuing Care Plan 

Created 

Care Coordination 0558 HBIPS-7 Post-Discharge Continuing Care Plan 

Transmitted to Next Level of Care Provider 

Upon Discharge 

Proposed New Measures for the FY 2016 Payment Determination and Subsequent 

Years 

Review 

Pending

SUB-1 Alcohol Use Screening 

Review 

Pending

SUB-4 Alcohol & Drug Use: Assessing Status 

After Discharge 

Clinical Quality of 

Care 

0576 FUH Follow-Up After Hospitalization for 

Mental Illness 

 We invite public comment on these proposals. 

c. Maintenance of Technical Specifications for Quality Measures 

 We will provide a user manual that will contain links to measure specifications, 

data abstraction information, data submission information, a data submission mechanism 

known as the Web-based Measure Tool, and other information necessary for IPFs to 

participate in the IPFQR Program. This manual will be posted on the QualityNet Web 
 1037 

site at: https://www.QualityNet.org. We will maintain the technical specifications for 

the quality measures by updating this manual periodically and including detailed 

instructions for IPFs to use when collecting and submitting data on the required 

measures. These updates will be accompanied by notifications to IPFQR Program 

participants, providing sufficient time between the change and effective dates in order to 

allow users to incorporate changes and updates to the measure specifications into data 

collection systems. 

 Many of the quality measures used in different Medicare and Medicaid reporting 

programs are NQF-endorsed. As part of its regular maintenance process for 

NQF-endorsed performance measures, the NQF requires measure stewards to submit 

annual measure maintenance updates and undergo maintenance of endorsement review 

every 3 years. In the measure maintenance process, the measure steward 

(owner/developer) is responsible for updating and maintaining the currency and relevance 

of the measure and will confirm existing or minor specification changes with NQF on an 

annual basis. NQF solicits information from measure stewards for annual reviews, and it 

reviews measures for continued endorsement in a specific 3-year cycle. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53652), we stated that the NQF 

regularly maintains its endorsed measures through annual and triennial reviews, which 

may result in the NQF making updates to the measures. We believe that it is important to 

have in place a subregulatory process to incorporate nonsubstantive updates made by the 

NQF into the measure specifications we have adopted for the IPFQR Program so that 

these measures remain up-to-date. 
 1038 

 Through NQF’s measure maintenance process, NQF endorsed measures are 

sometimes updated to incorporate changes that we believe do not substantially change the 

nature of the measure. We believe these types of maintenance changes are distinct from 

more substantive changes to measures that result in what are considered new or different 

measures, and that they do not trigger the same agency obligations under the 

Administrative Procedure Act. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53653), we adopted a policy to 

use a subregulatory process to make nonsubstantive updates to NQF-endorsed measures 

used for the IPFQR Program. We also stated that we expected to make the determination 

of what constitutes a substantive versus a nonsubstantive change on a case-by-case basis, 

and provided examples of the types of changes that would fall into each category. 

 Examples of nonsubstantive changes to measures might include updated diagnosis 

or procedure codes, medication updates for categories of medications, broadening of age 

ranges, and exclusions for a measure (such as the addition of a hospice exclusion to the 

30-day mortality measures). We believe that non-substantive changes may include 

updates to NQF-endorsed measures based upon changes to guidelines upon which the 

measures are based. As stated in the FY 2013 IPPS/LTCH PPS final rule, we will revise 

the Specifications Manual so that it clearly identifies the updates and provide links to 

where additional information on the updates can be found. We also will post the 

updates on the QualityNet Web site at https://www.QualityNet.org. We will provide 

sufficient lead time for facilities to implement the changes where changes to the data 

collection systems would be necessary. 
 1039 

 We will continue to use rulemaking to adopt substantive updates made by the 

NQF to the endorsed measures we have adopted for the IPFQR Program. Examples of 

changes that we might consider to be substantive would be those in which the changes 

are so significant that the measure is no longer the same measure, or when a standard of 

performance assessed by a measure becomes more stringent (for example: changes in 

acceptable timing of medication, procedure/process, or test administration). Another 

example of a substantive change would be where the NQF has extended its endorsement 

of a previously endorsed measure to a new setting, such as extending a measure from the 

inpatient setting to hospice. 

 We believe that the policy finalized in the FY 2013 IPPS/LTCH PPS final rule 

adequately balances our need to incorporate non-substantive NQF updates to 

NQF-endorsed IPFQR Program measures in the most expeditious manner possible, while 

preserving the public’s ability to comment on updates that so fundamentally change an 

endorsed measure that it is no longer the same measure that we originally adopted. We 

also note that the NQF process incorporates an opportunity for public comment and 

engagement in the measure maintenance process. These policies regarding what is 

considered substantive versus non-substantive apply to all measures in the IPFQR 

Program. 

6. Proposed Request for Voluntary Information – IPF Assessment of Patient Experience 

of Care 

 As indicated previously, we strive to address each of the six priorities of the HHS 

National Quality Strategy in our quality reporting programs. One priority area currently 
 1040 

unaddressed in the IPFQR Program is that of patient and family engagement and 

experience of care. We included on our “List of Measures under Consideration for 

December 1, 2012,” the measure “Inpatient Consumer Survey of Inpatient Behavioral 

Healthcare Services” (NQF #0726). The MAP provided input on this measure supporting 

its inclusion in the IPFQR Program. 

 We believe that while the specific survey instrument incorporated in that measure 

addressed an important area of quality care, we are not proposing to adopt the measure at 

this time because of several issues. These issues include potential reporting and 

information collection burdens in a new program, and compatibility with the content and 

format of other similar CMS beneficiary surveys. We intend to pursue the adoption of a 

standardized measure of patient experience of care for the IPFQR Program in the near 

future. 

 In an effort to proceed cautiously with the selection of an assessment instrument 

and collection protocol, we are instead proposing at this time to collect information from 

IPFs participating in the IPFQR Program regarding whether the IPF assesses patient 

experience of inpatient behavioral health services using a standardized instrument 

(Yes/No). We will also ask those IPFs that answer “Yes” to indicate the name of the 

survey that they administer. Submission of this information is completely voluntary and 

would not in any way affect an IPF’s FY 2016 payment determination. 

 We will use information we collect from this request for voluntary information to 

assess readiness of IPFs to report patient experience of care measure data in the IPFQR 
 1041 

Program. We intend to propose to make this request for voluntary information a 

mandatory measure in future rulemaking. 

 Section IX.D.9. of the preamble of this proposed rule, which covers the form, 

manner, and timing of data submissions, includes our proposal for collection 

requirements that would apply to any information IPFs voluntarily submit. 

Section X.D.9. also includes more information about the request for voluntary 

information. 

 We welcome comments on this approach as well as recommendations concerning 

future measurement of this domain, including recommendations of specific instruments 

for surveying patient and family engagement and experience of care in inpatient 

psychiatric settings. 

7. Request for Recommendations for New Quality Measures for Future Years 

 We seek to develop a comprehensive set of quality measures to be available for 

widespread use for informed decision-making and quality improvement in the inpatient 

psychiatric setting. Therefore, through future rulemaking, we intend to propose new 

measures that will help us further our goal of achieving better health care and improved 

health for Medicare beneficiaries who obtain inpatient psychiatric services, through the 

widespread dissemination and use of performance information. 

 We plan to continue developing a comprehensive set of quality measures to be 

available for widespread use for informed decision-making and quality improvement in 

IPFs. Accordingly, we are soliciting recommendations concerning future measures to 

assess the domains that arise from the six NQS priorities: clinical care; person- and 
 1042 

caregiver-centered experience and outcomes; safety; efficiency and cost reduction; care 

coordination; and community/population health. This approach will enhance better 

psychiatric care while bringing the IPFQR Program in line with other established quality 

reporting and performance improvement programs who also aim to align with the NQS 

priorities such as the Hospital Inpatient Quality Reporting (IQR) Program, the Hospital 

Outpatient Quality Reporting (OQR) Program, the Hospital Value-Based Purchasing 

(VBP) Program, the End-Stage Renal Disease Quality Incentive Program (ESRD QIP), 

and other CMS quality programs. Recommendations for consideration of individual 

measures should address the importance of the measure, its scientific evidence, its 

relevance for quality improvement, and the feasibility of collection and reporting. 

 We welcome all recommendations related to any of the identified domains. 

However, we are particularly interested in measure and domain recommendations 

concerning: (1) inpatient psychiatric treatment and quality of care of geriatric patients 

and other adults, adolescents, and children; (2) quality of prescribing for antipsychotics 

and antidepressants; (3) readmissions; (4) access to care; (5) screening for suicide and 

violence; and (6) screening and treatment for nonpsychiatric, comorbid conditions for 

which patients with mental or substance use disorders are at higher risk. In addition, we 

seek recommendations on any other measures related to patient experience of care and 

overall quality of care for IPFs. 

 We welcome public comment on considerations of additional measure topics for 

the IPFQR Program in future rulemaking. 
 1043 

8. Proposed Public Display Requirements for the FY 2014 Payment Determination and 

Subsequent Years 

 Section 1886(s)(4)(E) of the Act requires the Secretary to establish procedures for 

making the data submitted under the IPFQR Program available to the public. Such 

procedures shall ensure that an IPF has the opportunity to review the data that is to be 

made public with respect to the IPF prior to such data being made public. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53653 through 53654), we finalized our procedures for 

the FY 2014 payment determination and subsequent years regarding public display. We 

previously finalized that the data collected under the IPFQR program would be displayed 

on a CMS Web site and that public display would begin in the first quarter of the 

calendar year following the respective payment determination year (77 FR 53654). Last 

year, we also finalized a 30-day preview period that would allow IPFs to review their 

data before it became public. The previously finalized preview period is September 20 

through October 19 of the respective payment determination year (77 FR 53654). 

 We are proposing to change our finalized policies, however, in an attempt to align 

the IPF preview and display periods with that of the Hospital IQR Program. We are 

proposing that for the FY 2014 payment determination and subsequent years, we will 

publicly display the submitted data on a CMS Web site in April of each calendar year 

following the start of the respective payment determination year. In other words, the 

public display period for the FY 2014 payment determination would be April 2014; the 

public display periods for the FY 2015 and FY 2016 payment determinations would be 

April 2015 and April 2016 respectively, and so forth. 
 1044 

 Accordingly, we also propose that the preview period for the FY 2014 payment 

determination and subsequent years be modified to 30 days approximately twelve weeks 

prior to the public display of the data. This is to align with the Hospital IQR Program’s 

preview and display periods and, as a result, reduce burden to facilities. Below, please 

find a table that displays the new proposed public display timeline. Although we have 

listed the public display timeline only for the FYs 2014 through 2016 payment 

determinations, this policy applies to the FY 2014 payment determination and subsequent 

years. 

Proposed Public Display Timeline for the FY 2014 Payment Determination and 

Subsequent Years 

Payment 

Determination 

Year (Fiscal 

Year) 

Reporting Period 

(Calendar Year) 

Public Display 

(Calendar Year) 

 

FY 2014 Q4 2012 

(October 1, 2012 – 

December 31, 2012) 

Q1 2013 

(January 1, 2013 - March 31, 2013) 

April 2014 

FY 2015 Q2 2013 

(April 1, 2013 – June 30, 2013) 

Q3 2013 

(July 1, 2013 – September 30, 2013) 

Q4 2013 

(October 1, 2013 – 

December 31, 2013) 

April 2015 

FY 2016 Q1 2014 

(January 1, 2014 – March 31, 2014) 

Q2 2014 

(April 1, 2014 – June 30, 2014) 

Q3 2014 

(July 1, 2014 – September 30, 2014) 

Q4 2014 

(October 1, 2014 - December 31, 

2014) 

April 2016 
 1045 

We welcome public comment on these proposals. 

9. Form, Manner, and Timing of Quality Data Submission for the FY 2014 Payment 

Determination and Subsequent Years 

a. Background 

 Section 1886(s)(4)(C) of the Act requires that, for the FY 2014 payment 

determination and each subsequent year, each IPF submit to the Secretary data on quality 

measures as specified by the Secretary. Such data shall be submitted in a form and 

manner, and at a time, specified by the Secretary. As required by section 1886(s)(4)(A) 

of the Act, for any IPF that fails to submit quality data in accordance with section 

1886(s)(4)(C) of the Act, the Secretary will reduce any annual update to a standard 

Federal rate for discharges occurring during such fiscal year by 2.0 percentage points. 

The complete data submission requirements, submission deadlines, and data submission 

mechanism, known as the Web-Based Measure Tool, is posted on the QualityNet Web 

site at: http://www.qualitynet.org/. The Web-Based Measure Tool is an Internet 

database for IPFs to submit their aggregate data. In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53654 through 53658), we required that IPFs submit data in accordance with 

the specifications for the appropriate proposed reporting periods to the Web-Based 

Measures Tool found in the IPF section on the QualityNet Web site 

(http://www.qualitynet.org/). 
 1046 

b. Procedural Requirements 

In order to participate in the IPFQR Program, in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53654 through 53655), we required IPFs to comply with certain 

procedural requirements. We have aligned these procedural requirements with the 

Hospital IQR Program to avoid imposing additional burden on providers and to increase 

efficiencies by virtue of allowing providers to use similar submission requirements across 

programs. Under these adopted policies, IPFs must-- 

● Register with QualityNet before the IPF begins reporting, regardless of the 

method used for submitting the 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 (NOP). IPFs that wish to participate in the 

IPFQR Program must complete an online NOP. Submission of a NOP is an indication 

that the IPF agrees to participate in the IPFQR Program and public reporting of their 

measure rates. The timeframe for completing the NOP is between January 1 and 

August 15 before each respective payment determination year. For example, for the 

FY 2015 payment determination year, the timeframe for completing the NOP is between 

January 1, 2014 and August 15, 2014. 

● Any IPF that receives a new CMS Certification Number (CCN) on or after the 

beginning of the respective payment determination year and wishes to participate in the 

IPFQR Program, but has not otherwise submitted a NOP using the new CCN, must 

submit a completed NOP no later than 180 days from the date identified as the open date 
 1047 

(that is, the Medicare acceptance date) on the approved CMS Quality Improvement 

Evaluation System to participate in the IPFQR Program. 

● Withdrawals from the IPFQR Program will be accepted no later than 

August 15 before the beginning of each respective payment determination year. We 

believe the August 15 deadline will give us sufficient time to update payment 

determinations for each respective year. For example, under current policies, the 

withdrawal period for the FY 2015 payment determination year is between 

January 1, 2014 and August 15, 2014. If in a given payment determination year, an IPF 

withdraws from the program, it will receive a reduction of 2.0 percentage points to that 

year’s applicable percentage increase. Once an IPF has submitted a NOP, it is considered 

to be an active IPFQR Program participant until such time as the IPF submits a 

withdrawal form to CMS. 

● We determine if an IPF has complied with our data submission requirements 

by validating each IPF’s CCN and their aggregated data submission on the QualityNet 

Web site. 

● IPFs must submit the aggregated numerator and denominator data for all age 

groups, for all measures, to avoid the 2.0 percentage point reduction. 

c. Proposed Submission Requirements for the FY 2016 Payment Determination and 

Subsequent Years 

 Currently, IPFs choosing to participate in the IPFQR Program must meet the 

specific data collection and submission requirements as described on the QualityNet Web 

site at http://www.qualitynet.org/ and by TJC, the HBIPS measure steward 
 1048 

(77 FR 53655). As we indicated in the FY 2013 IPPS/LTCH PPS final rule, the 

specifications for the HBIPS measures can be found on the TJC Web site at: 

https://manual.jointcommission.org/bin/view/Manual/WebHome. 

 For the FY 2016 payment determination, we are proposing that, for the proposed 

chart-abstracted measures listed in the preamble of this proposed rule, participating IPFs 

meet the same specific data collection and submission requirements when reporting 

quality measure data. The specifications for the SUB-1 and SUB-4 measures can be 

found on the TJC Web site at: 

http://www.jointcommission.org/specifications_manual_for_national_hospital_inpatient_

quality_measures.aspx. The specifications for the FUH measure are posted on the NCQA 

Web site at: http://www.ncqa.org/portals/0/FollowUp%20After%20Hospitalization%20for%20Mental%20Illness.pdf. 

 We finalized a policy in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53655 

through 53656) requiring that IPFs submit aggregate data on measures on an annual basis 

via the Web-Based Measures Tool found in the IPF section on the QualityNet Web site. 

While this policy applies on an annual basis beginning in FY 2014, it is listed under a 

sub-heading labeled “Reporting and Submission Requirements for the FY 2014 Payment 

Determination” (77 FR 53655). To avoid reader confusion, we clarify that these 

reporting and submission requirements finalized in the FY 2013 IPPS/LTCH PPS final 

rule apply to all subsequent years unless we change our policy through future rulemaking. 

It is our intent to require that IPFs submit aggregate data on measures on an annual basis 
 1049 

via the Web-Based Measures Tool found in the IPF section on the QualityNet Web site 

for the FY 2014 payment determination and subsequent years. 

 The data input forms on the QualityNet Web site for such submission will require 

aggregate data for each separate quarter. Therefore, IPFs will need to track and maintain 

quarterly records for their data. 

 With respect to the NCQA’s FUH measure, we are proposing all-payer 

Web-based collection to maintain consistency throughout the measures we have selected 

for the IPFQR Program. However, we welcome comments for alternative forms of data 

submission. 

 As noted earlier, NQF #0726 “Inpatient Consumer Survey of Inpatient Behavioral 

Healthcare Services” is a patient experience measure covering information not measured 

by existing program measures. While we are not adopting NQF #0726 at this time, we 

are proposing to request voluntary information about survey administration asking 

whether the IPF assesses patient experience of inpatient behavioral health services using 

a standardized instrument. IPFs would only have to provide a “yes” or “no” response. 

We will also ask those IPFs that answer “yes” to indicate which survey they administer. 

We are proposing that this information be collected through a Web-based collection tool. 

 We invite public comment on the proposed submission requirements. 

d. Reporting Requirements for the FY 2016 Payment Determination and Subsequent 

Years 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53655 through 53657), we 

established reporting periods and submission timeframes for the FY 2014, FY 2015, and 
 1050 

FY 2016 payment determinations, but we did not require any data validation approach. 

However, we encouraged the IPFs to use a validation method and conduct their own 

analysis. Our recommendations remain the same in this proposal. In future years, should 

we modify the program to require patient-level data, we will consider proposals for an 

appropriate validation method using rulemaking. 

 Although in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53655 through 

53657) we adopted policies for the FY 2014 payment determination and subsequent 

years, we only listed quality reporting periods and submission timeframes for the 

FY 2014, FY 2015, and FY 2016 payment determinations. We explained that the 

reporting periods for the FY 2014 and FY 2015 payment determinations were 6 and 9 

months, respectively, to allow us to achieve a 12 month (calendar year) reporting period 

for the FY 2016 payment determination. We also indicated that the submission 

timeframe is between July 1 and August 15 within the same calendar year that marks the 

beginning of the appropriate payment determination year. We have included this 

information in the table below. 

Quality Reporting Periods and Submission Timeframes for the FY 2014 Payment 

Determination and Subsequent Years 

Payment 

Determination 

(Fiscal Year) 

Reporting Period for Services Provided 

(Calendar Year) 

Data Submission 

Timeframe 

FY 2014 Q4 2012 

(October 1, 2012 – December 31, 2012) 

Q1 2013 

(January 1, 2013 - March 31, 2013) 

July 1, 2013 – 

August 15, 2013 

FY 2015 Q2 2013 

(April 1, 2013 – June 30, 2013) 

Q3 2013 

(July 1, 2013 – September 30, 2013) 

Q4 2013 

July 1, 2014 – 

August 15, 2014 
 1051 

Quality Reporting Periods and Submission Timeframes for the FY 2014 Payment 

Determination and Subsequent Years 

Payment 

Determination 

(Fiscal Year) 

Reporting Period for Services Provided 

(Calendar Year) 

Data Submission 

Timeframe 

(October 1, 2013 – December 31, 2013) 

FY 2016 Q1 2014 

(January 1, 2014 – March 31, 2014) 

Q2 2014 

(April 1, 2014 – June 30, 2014) 

Q3 2014 

(July 1, 2014 – September 30, 2014) 

Q4 2014 

(October 1, 2014 - December 31, 2014) 

July 1, 2015 – 

August 15, 2015 

To avoid reader confusion, we are reiterating that the policy we adopted for the 

FY 2016 payment determination also applies to the FY 2017 payment determination and 

subsequent years, unless we change it through future rulemaking. 

e. Proposed Population, Sampling, and Minimum Case Threshold for the FY 2016 

Payment Determination and Subsequent Years 

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53657 through 53658), for the 

FY 2014 payment determination and subsequent years, we finalized our policy that 

participating IPFs must meet specific population, sample size, and minimum reporting 

case threshold requirements as specified in TJC’s Specifications Manual. We also 

indicated that the Specifications Manual for the measures is updated at least twice a year 

(and may be updated more often as necessary), and IPFs must follow the requirements in 

the most recent manual, which can be found on the TJC Web site at: 

https://manual.jointcommission.org/bin/view/Manual/WebHome. 
 1052 

 We also finalized our policy that the target population for the quality measures 

includes all patients, not solely Medicare beneficiaries, to improve quality of care. We 

believe it is important to require IPFs to submit measures on all patients because quality 

improvement is of industry-wide importance and should not be focused exclusively on a 

certain subset of patients. In addition, we need this scope of data in order to be able to 

assess the quality of care being provided to Medicare beneficiaries. 

 We also finalized our policy that IPFs that have no data to report for a given 

measure must enter zero for the population and sample counts. For example, an IPF that 

has no hours of physical restraint use (HBIPS-2) to report for a given quarter is still 

required to submit a zero for its quarterly aggregate population for HBIPS-2 in order to 

meet the reporting requirement. We believe it is important for IPFs to submit data on all 

measures even when the population size for a given measure is zero or small because it 

provides us with the opportunity to identify, assess, and evaluate the baseline for the 

number of cases for each measure in future years. This will also assist us in determining 

the minimum case threshold for future years in the rule. In cases where the measure rates 

are calculated based on low caseloads, when the submitted data are publicly displayed on 

the QualityNet Web site, we will clearly note that the affected measure rates were 

calculated based on low caseloads that may affect the result. 

 For the HBIPS measures, which we finalized in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53657 through 53658), we will continue to apply our finalized policies 

for population, sampling, and minimum case threshold outlined above. For the measures 

we have proposed for the FY 2016 payment determination and subsequent years, we are 
 1053 

proposing that IPFs follow the sampling and population requirements as specified by the 

appropriate measure steward as outlined below. 

 The most recent version of the Specifications Manual, including the sampling and 

population information for the SUB measures, can be found on the TJC Web site at: 

http://www.jointcommission.org/specifications_manual_for_national_hospital_inpatient_

quality_measures.aspx. We note that IPFs are required to report data only for inpatient 

discharges treated by the IPF, not for acute care hospital discharges that are not treated 

and billed by the IPFs. 

 We are proposing that there will be no sampling required for the FUH measure – 

IPFs are expected to submit all data. We are proposing that IPFs follow the population 

requirements outlined at: http://www.ncqa.org/portals/0/FollowUp%20After%20Hospitalization%20for%20Mental%20Illness.pdf. 

 We invite public comment on this proposal. 

f. Data Accuracy and Completeness Acknowledgement (DACA) Requirements 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658), we finalized our 

DACA policy for the FY 2014 payment determination and subsequent years. We stated 

that IPFs must acknowledge their data accuracy and completeness once annually using a 

form provided on the QualityNet Web site. To affirm that the data provided to meet the 

IPFQR Program data submission requirements are accurate and complete to the best of an 

IPF’s knowledge, an IPF is required to submit the DACA form. We will provide a link to 

this form once IPFs have completed entry of all aggregated measure data. Data 

submission is not complete until the IPF submits the DACA form. In the FY 2013 
 1054 

IPPS/LTCH PPS final rule (77 FR 53658), we listed the DACA deadlines for the 

FY 2014, FY 2015, and FY 2016 payment determinations only, even though our finalized 

policy was for the FY 2014 payment determination and subsequent years. Set out in the 

table below are the DACA deadlines we listed in the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53658). 

Data Accuracy and Completeness Acknowledgment (DACA) Deadlines for 

the FY 2014 Payment Determinations and Subsequent Years 

Payment 

Determination 

(Fiscal Year) 

Reporting Period for Services 

Provided 

(Calendar Year) 

Data Accuracy and 

Completeness 

Acknowledgement 

Deadline 

FY 2014 Q4 2012 

(October 1, 2012 – December 31, 2012) 

Q1 2013 

(January 1, 2013 - March 31, 2013) 

August 15, 2013 

FY 2015 Q2 2013 

(April 1, 2013 – June 30, 2013) 

Q3 2013 

(July 1, 2013 – September 30, 2013) 

Q4 2013 

(October 1, 2013 - December 31, 2013) 

August 15, 2014 

FY 2016 Q1 2014 

(January 1, 2014 – March 31, 2014) 

Q2 2014 

(April 1, 2014 – June 30, 2014) 

Q3 2014 

(July 1, 2014 – September 30, 2014) 

Q4 2014 

(October 1, 2014 - December 31, 2014) 

August 15, 2015 

 To avoid reader confusion, we are reiterating that the DACA finalized policies 

listed above will continue to apply for the FY 2014 payment determination and 

subsequent years unless and until we change such policies through our rulemaking 

process. Thus, we will continue with our adopted policy that the deadline for submission 
 1055 

of both measure data and the DACA form is no later than August 15 prior to the 

applicable IPFQR Program payment determination year. 

 We have summarized the pertinent IPFQR dates in the table below with regard to 

data reporting periods, submission deadlines, DACA deadlines, and public display 

periods. 

Data Accuracy and Completeness Acknowledgment (DACA) Deadlines for the 

FY 2014 Payment Determinations and Subsequent Years 

Payment 

Determinat

ion (Fiscal 

Year) 

Reporting Period for 

Services Provided 

(Calendar Year) 

Submission 

Timeframe 

DACA 

Deadline 

Public Display 

FY 2014 Q4 2012 

(October 1, 2012 – 

December 31, 2012) 

Q1 2013 

(January 1, 2013 - 

March 31, 2013) 

July 1, 2013 – 

August 15, 2013 

August 15, 

2013 

April 2014 

FY 2015 Q2 2013 

(April 1, 2013 – June 

30, 2013) 

Q3 2013 

(July 1, 2013 – 

September 30, 2013) 

Q4 2013 

(October 1, 2013 - 

December 31, 2013) 

July 1, 2014 – 

August 15, 2014 

August 15, 

2014 

April 2015 

FY 2016 Q1 2014 

(January 1, 2014 – 

March 31, 2014) 

Q2 2014 

(April 1, 2014 – June 

30, 2014) 

Q3 2014 

(July 1, 2014 – 

September 30, 2014) 

Q4 2014 

(October 1, 2014 - 

July 1, 2015 – 

August 15, 2015 

August 15, 

2015 

April 2016 
 1056 

Data Accuracy and Completeness Acknowledgment (DACA) Deadlines for the 

FY 2014 Payment Determinations and Subsequent Years 

Payment 

Determinat

ion (Fiscal 

Year) 

Reporting Period for 

Services Provided 

(Calendar Year) 

Submission 

Timeframe 

DACA 

Deadline 

Public Display 

December 31, 2014) 

 Again, we have listed information until FY 2016, but these deadlines apply to the 

FY 2014 payment determination and subsequent years. 

10. Reconsideration and Appeals Procedures for the FY 2014 Payment Determination 

and Subsequent Years 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53658 through 53659), we 

adopted a reconsideration process whereby IPFs can request a reconsideration of their 

payment update reduction in the event an IPF believes that its annual payment update has 

been incorrectly reduced for failure to report quality data under the IPFQR Program. We 

codified the reconsideration procedures that IPFs must follow at 42 CFR 412.434. We 

instituted an annual reconsideration process similar to the Hospital IQR Program 

(74 FR 43892). We do not utilize reconsideration policies and procedures related to the 

Hospital IQR Program validation requirement because the IPFQR Program does not 

currently include an annual validation requirement for IPFs. 

11. Waivers from Quality Reporting Requirements for the FY 2014 Payment 

Determination and Subsequent Years 

 In our experience with other quality reporting and/or performance programs, we 

have noted occasions when participants have been unable to submit required quality data 

due to extraordinary circumstances that are not within their control (for example, natural 
 1057 

disasters). It is our goal to avoid penalizing IPFs in such circumstances or to unduly 

increase their burden during these times. Therefore, in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53659 through 53660), we adopted a policy that, for the FY 2014 

payment determination and subsequent years, IPFs may request and we may grant 

waivers with respect to the reporting of required quality data when extraordinary 

circumstances beyond the control of the IPF may warrant. When waivers are granted, 

IPFs will not incur payment reductions for failure to comply with the requirements of the 

IPFQR Program. 

 Under the process, in the event of extraordinary circumstances not within the 

control of the IPF, such as a natural disaster, the IPF may request a reporting extension or 

a complete waiver of the requirement to submit quality data for one or more quarters. 

Such IPFs would submit a request form to CMS available on the QualityNet Web site at: 

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier3&cid=1228772379030. 

 This process does not preclude us from granting waivers or extensions to IPFs 

that have not requested them when we determine that an extraordinary circumstance, 

such as an act of nature (for example, a hurricane or other natural disaster that could 

reasonably affect an IPF’s ability to compile or report data), affects an entire region or 

locale. If we make the determination to grant a waiver or extension to IPFs in a region or 

locale, we will communicate this decision through routine communication channels to 

IPFs and vendors, by means of memoranda, emails, and notices on the QualityNet Web 

site, among other means. 
 1058 

12. Electronic Health Records (EHRs) 

Under the current and proposed chart-abstracted quality measures, IPFs cannot 

use EHRs (also referred to as electronic medical records) for data collection because the 

current and proposed measures will be submitted as aggregate data. However, we 

encourage IPFs to take steps towards adoption of EHRs that will allow for reporting of 

clinical quality data from EHRs directly to a CMS repository. We encourage IPFs that 

are implementing, upgrading, or developing EHR systems to ensure that the technology 

obtained, upgraded, or developed conforms to standards adopted by HHS. Although the 

IPFQR Program is in its initial implementation stages, we recommend that IPFs ensure 

that their EHR systems accurately capture quality data and that, ideally, such systems 

provide point-of-care decision support that promotes optimal levels of clinical 

performance. 

 In the future, we will 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. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53660), we responded to public 

comments on the adoption of EHRs for the IPFQR Program in the future and we again 

invite public comment on this issue. 
 1059 

E. Electronic Health Record (EHR) Incentive Program and Meaningful Use (MU)

1. Background 

 The HITECH Act (Title IV of Division B of the ARRA, together with Title XIII 

of Division A of the ARRA) authorizes incentive payments under Medicare and 

Medicaid for the adoption and meaningful use of certified EHR technology (CEHRT). 

Eligible hospitals and critical access hospitals (CAHs) may qualify for these incentive 

payments under Medicare (as authorized under sections 1886(n) and 1814(l) of the Act, 

respectively) if they successfully demonstrate meaningful use of CEHRT, which includes 

reporting on clinical quality measures (CQMs) using CEHRT. 

 The set of CQMs from which eligible hospitals and CAHs will report under the 

EHR Incentive Program beginning in FY 2014 is listed in Table 10 of the EHR Incentive 

Program Stage 2 final rule (77 FR 54083 through 54087). The subset of CQMs that we 

are proposing for voluntary electronic reporting in the Hospital IQR Program in 

section IX.A.7. of the preamble to this proposed rule is included in Table 10 of the EHR 

Incentive Program Stage 2 final rule. 

 We continue to believe there are important synergies with respect to the two 

programs. We believe the financial incentives under the EHR Incentive Program for the 

adoption and meaningful use of CEHRT by eligible hospitals and CAHs will encourage 

the adoption and use of CEHRT for the anticipated electronic reporting of CQMs under 

the Hospital IQR Program. We expect that the electronic submission of quality data from 

EHRs under the EHR Incentive Program will provide a foundation for establishing the 
 1060 

capacity of hospitals to send, and for CMS to receive, CQMs via CEHRT for certain 

Hospital IQR Program measures. 

2. Proposed Expanded Electronic Submission Period for CQMs 

 Section 1886(n)(3)(B)(iii) of the Act requires that, in selecting CQMs for and 

establishing the form and manner of reporting for the EHR Incentive Program, the 

Secretary shall seek to avoid redundant or duplicative reporting with reporting otherwise 

required. To the extent that CQMs are included in both the Hospital IQR Program and 

the EHR Incentive Program, we expect that the Hospital IQR Program would transition to 

using CEHRT rather than manual chart abstraction. The beginning of this transition is 

described in section IX.A.7. of the preamble to this proposed rule with the proposed 

voluntary electronic reporting of up to 16 CQMs in the Hospital IQR Program, which are 

also included in the set of CQMs from which hospitals will report for the EHR Incentive 

Program beginning in FY 2014 (77 FR 54083 through 54087). By using voluntary 

electronic reporting in FY 2014 for all 16 of the CQMs proposed under the Hospital IQR 

Program, hospitals can submit once and fulfill the CQM component of MU as well as the 

reporting requirement for those 16 CQMs in the Hospital IQR Program. 

 In the EHR Incentive Program Stage 2 final rule (77 FR 54049-54051), for CQM 

data that is submitted electronically beginning in 2014, we established the submission 

period as the two months immediately following the end of the FY (October 1 – 

November 30 for eligible hospitals and CAHs). In response to feedback we have 

received through various forums, we are proposing to open the submission period for 

electronically submitted files on January 2. This will allow for better alignment with the 
 1061 

Hospital IQR Program. The proposed expanded submission period would allow more 

flexibility for eligible hospitals and CAHs to start submitting earlier and more frequently, 

as patients who fit the denominator criteria of the CQMs that the hospitals will submit are 

discharged. As established in the EHR Incentive Program Stage 2 final rule, the 

submission period would end on November 30, and eligible hospitals that are 

demonstrating MU for the first time in the year immediately preceding any payment 

adjustment year must submit by July 1. This proposal would not change the reporting 

periods for CQMs established in the EHR Incentive Program Stage 2 final rule 

(77 FR 54051). 

 We also are proposing, beginning in FY 2014, to allow eligible hospitals and 

CAHs that are demonstrating meaningful use for the first time to report CQMs by 

attestation or through the electronic reporting methods that we establish for the EHR 

Incentive Program. In the EHR Incentive Program Stage 2 final rule (77 FR 54049 

through 54051), we finalized a policy that first-time meaningful EHR users would be 

required to report CQMs through attestation. This proposal would change that policy to 

allow more flexibility for eligible hospitals and CAHs to choose between reporting by 

attestation or electronically in their first year of MU. For further explanation of reporting 

CQMs by attestation or electronically under the EHR Incentive Program, we refer readers 

to the discussion of reporting methods in the EHR Incentive Program Stage 2 final rule 

(77 FR 54087 through 54089). Regardless of the reporting method selected, however, the 

July 1 deadline for avoiding the Medicare payment adjustments will remain the same, as 

established in the EHR Incentive Program Stage 2 final rule (77 FR 54049 
 1062 

through 54051). We emphasize that to avoid a payment adjustment under Medicare, 

eligible hospitals demonstrating MU for the first time in the year immediately preceding 

any payment adjustment year must complete their submission of CQM data by July 1. 

 We note although reporting CQM data by attestation would still be an option for 

first-time meaningful users under the EHR Incentive Program, it would not fulfill any 

Hospital IQR Program requirements. We welcome public comment on this proposal. 

3. Quality Reporting Data Architecture Category III (QRDA-III) Option in 2014 

 In the EHR Incentive Program Stage 2 final rule (77 FR 54088), we finalized two 

options for eligible hospitals and CAHs to electronically submit CQMs beginning in 

FY 2014 under the Medicare EHR Incentive Program. Option 1 was to electronically 

submit aggregate-level CQM data using QRDA-III. Option 2 was to electronically 

submit using a method similar to the Hospital IQR Program electronic reporting pilot, 

which uses QRDA-I (patient-level data). We also stated that, consistent with 

section 1886(n)(3)(B)(ii) of the Act, in the event the Secretary does not have the capacity 

to receive CQM data electronically, eligible hospitals and CAHs that are beyond their 

first year of meaningful use may continue to report aggregate CQM results through 

attestation. 

 We have determined that the electronic submission of aggregate-level data using 

QRDA-III will not be feasible in 2014 for eligible hospitals and CAHs under the 

Medicare EHR Incentive Program. Thus, for the 2014 reporting period under the 

Medicare EHR Incentive Programs, eligible hospitals and CAHs would have the option 

to continue to report aggregate CQM results through attestation. We will reassess this 
 1063 

policy for the 2015 and future reporting periods. We note that submissions of aggregate 

CQM data via attestation would not satisfy the reporting requirements for the Hospital 

IQR Program. We also note that this proposed policy does not apply to the Medicaid 

EHR Incentive Program. Therefore, the States may still require the submission of 

QRDA-III files to fulfill the CQM reporting requirements for hospitals that participate in 

the Medicaid EHR Incentive Program. 

 As described in section IX.A.9.d. of the preamble of this proposed rule, the 

Hospital IQR Program intends to continue its policy to accept patient-level data as it 

transitions to electronic reporting. In order to remain aligned with the Hospital IQR 

Program, and because over 82 percent of hospitals that participate in the Hospital IQR 

Program are already meaningful users, we strongly recommend that hospitals that are 

eligible to participate in both programs electronically submit the 16 CQMs identified by 

the Hospital IQR Program in section IX.A.7. of the preamble of this proposed rule. We 

believe that keeping the two programs aligned will ultimately reduce reporting burden for 

hospitals. We believe that the proposed extension of the submission period that we are 

proposing in section IX.E.2. of the preamble of this proposed rule will also help the 

electronic submission process for hospitals. We welcome public comment on this 

proposal. 

4. Case Number Threshold Exemption--Proposed Requirements Regarding Data 

Submission 

 In the EHR Incentive Program Stage 2 final rule (77 FR 54080), we established a 

case number threshold exemption policy for eligible hospitals and CAHs that experience 
 1064 

a low volume of cases addressed by certain CQMs, and stated that hospitals seeking an 

exemption under the policy must submit aggregate population and sample size data in the 

same manner as required in the Hospital IQR Program. Our intent was to reduce the 

burden on hospitals and CAHs that participate in both programs so they would only need 

to submit this information once. However, we have determined that this information 

could be captured in QualityNet for both the EHR Incentive Program and the Hospital 

IQR Program during the process of electronically submitting CQMs. We are proposing 

to require that the aggregate population data be entered into QualityNet (for EHR-based 

reporting) during the process of electronically submitting CQMs. We note that sample 

size data are not required for electronically submitted CQMs. 

 We note that, in general, the submission deadline for the aggregate population 

data is the same as the submission deadline for CQMs (November 30). For eligible 

hospitals in their first year of demonstrating MU, the aggregate population data would 

need to be submitted no later than July 1 for hospitals that seek to invoke the case number 

threshold exemption, as this data would be needed to determine whether the eligible 

hospital met the CQM reporting requirements for MU. 
 1065 

X. Proposed Change to the Medicare Hospital Conditions of Participation (CoPs) 

Relating to the Administration of Pneumococcal Vaccines 

 Among the regulations at 42 CFR Part 482 governing the Conditions of 

Participation (CoPs) for hospitals to participate in the Medicare program, we have 

established a condition for Nursing Services under § 482.23. Included in the standards 

for the nursing services condition is a standard for the preparation and administration of 

drugs. Section §482.23(c)(3) contains the following provision: “With the exception of 

influenza and pneumococcal polysaccharide [emphasis added] vaccines, which may be 

administered per physician-approved hospital policy after an assessment of 

contraindications, orders for drugs and biologicals must be documented and signed by a 

practitioner who is authorized to write orders in accordance with State law and hospital 

policy, and who is responsible for the care of the patient as specified under § 482.12(c).” 

At the time that this CoP standard was originally promulgated (October 2, 2002), and for 

several years thereafter, the pneumococcal polysaccharide vaccine (PPSV or Pneumovax 

23®, Merck) was the only pneumococcal vaccine approved for adult use. In developing 

the original standard, it was not the Agency’s intention to specify a particular type or 

brand of pneumococcal vaccine. Instead, the Agency wanted to allow hospitals the 

flexibility to have a policy where nurses could administer influenza and pneumococcal 

vaccines without a prior practitioner order and only after assessing patients for any 

contraindications to the vaccines being administered. 

 However, we recently became aware of another pneumococcal vaccine 

(pneumococcal conjugate vaccine (PCV) or Prevnar 13®, Pfizer), which received FDA 
 1066 

approval for adult use in December 2011. We believe that the availability of another 

FDA-approved pneumococcal vaccine may have the potential for causing confusion in 

the hospital community at large by our use of the term “polysaccharide” as a 

distinguisher for the pneumococcal vaccine in the hospital CoP standard. Indeed, it has 

come to our attention that some hospitals may be using only the polysaccharide type of 

pneumococcal vaccine because they believe they are not permitted under the CoPs to 

stock and use any other type of pneumococcal vaccine. We believe the proposed change 

would allow for the inclusion of all pneumococcal vaccines approved for use now and in 

the future. With two types of pneumococcal vacccines currently approved for use with 

adults, we also believe that patient access to the pneumococcal vaccine would potentially 

improve because hospitals would now possess the freedom and flexibility to choose 

which type of pneumococcal vaccine(s) it will now stock and use. 

 Therefore, in this proposed rule, we are proposing to amend the regulatory 

language at §482.23(c)(3) to delete the term “polysaccharide”. This proposed deletion 

would allow a hospital to include any type of pneumococcal vaccine as part of its 

physician-approved policy for administration by nurses without a prior practitioner order, 

provided the vaccine has been approved by the FDA for the patient population to which 

the hospital intends to administer it. In addition, this proposed change would give 

hospitals the added flexibility to include the administration of any pneumococcal 

vaccines that are approved in the future by the FDA for administration under this CoP 

standard.
 1067 

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 2013 “Report to the Congress: Medicare Payment Policy” 

and have given the recommendations in the report consideration in conjunction with the 

proposed policies set forth in this proposed rule. MedPAC recommendations for the 

IPPS for FY 2014 are addressed in Appendix B to this proposed rule. 

 For further information relating specifically to the MedPAC reports or to obtain a 

copy of the reports, contact MedPAC at (202) 653-7226, or visit MedPAC's Web site at: 

http://www.medpac.gov. 

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/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html. 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 
 1068 

(payable to CMS-PUF) to cover the cost of the data files requested, to the following 

address: Centers for Medicare & Medicaid Services, Public Use Files, Accounting 

Division, P.O. Box 7520, Baltimore, MD 21207-0520, (410) 786-3691. Files on the 

Internet may be downloaded without charge. 

1. CMS Wage Data Public Use File 

 This file contains the hospital hours and salaries from Worksheet S-3, Parts II and 

III from FY 2010 Medicare cost reports used to create the proposed FY 2014 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.J. of the preamble of this proposed rule. 

Processing Year Wage Data Year PPS Fiscal Year 

2013 2010 2014 

2012 2009 2013 

2011 2008 2012 

2010 2007 2011 

2009 2006 2010 

2008 2005 2009 

2007 2004 2008 

2006 2003 2007 

2005 2002 2006 

2004 2001 2005 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. 

Periods Available: FY 2005 through FY 2014 IPPS Update. 

2. CMS Occupational Mix Data Public Use File 

 This file contains the 2010 occupational mix survey data to be used to compute 

the occupational mix adjustment wage indexes. Multiple versions of this file are created 
 1069 

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.J. of the preamble of this proposed 

rule. 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. 

 Period Available: FY 2014 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 2014 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 2005 through FY 2014 IPPS Update. 

5. FY 2014 IPPS SSA/FIPS CBSA State and County Crosswalk 
 1070 

 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 2014 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 
 1071 

 Period Available: Quarterly Update. 

8. CMS Medicare Case-Mix Index File 

 This file contains the Medicare case-mix index by provider number as published 

in each year’s update of the Medicare hospital inpatient prospective payment system. 

The case-mix index is a measure of the costliness of cases treated by a hospital relative to 

the cost of the national average of all Medicare hospital cases, using DRG/MS-DRG 

weights as a measure of relative costliness of cases. Two versions of this file are created 

each year. 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 2014. 

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 2005 through FY 2014 IPPS Update 
 1072 

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, HCRIS Cost Report 

Data, 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. 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/HIF/list.asp#TopOfPage. 

 Periods Available: FY 1994 through FY 2014 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. 
 1073 

 Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage. 

 Periods Available: FY 2005 through FY 2014 IPPS Update. 

12. Prospective Payment System (PPS) Standardizing File 

 This file contains information that standardizes the charges used to calculate 

relative weights to determine payments under the hospital inpatient operating and capital 

prospective payment systems. Variables include wage index, cost-of-living adjustment 

(COLA), case-mix index, indirect medical education (IME) adjustment, disproportionate 

share, and the Core-based Statistical Area (CBSA). The file supports the 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 2014 IPPS Update. 

13. Hospital Readmissions Reduction Program File 

 This file contains information on the calculation of the Hospital Readmissions 

Reduction Program payment adjustment. Variables include the proxy excess readmission 

ratios for acute myocardial infarction, pneumonia and heart failure and the proxy 

readmissions payment adjustment for each provider included in the program. 

The file supports the following: 

● Notice of proposed rulemaking published in the Federal Register. 

● Final rule published in the Federal Register. 
 1074 

Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage. 

 Period Available: FY 2014 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.
 1075 

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments 

 Under the Paperwork Reduction Act of 1995, we are required to provide 60-day 

notice in the Federal Register and solicit public comment before a collection of 

information requirement is submitted to the Office of Management and Budget (OMB) 

for review and approval. In order to fairly evaluate whether an information collection 

should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 

1995 requires that we solicit comment on the following issues: 

● The need for the information collection and its usefulness in carrying out the 

proper functions of our agency. 

● The accuracy of our estimate of the information collection burden. 

● The quality, utility, and clarity of the information to be collected. 

● Recommendations to minimize the information collection burden on the 

affected public, including automated collection techniques. 

 In this proposed rule, we are soliciting public comment on each of these issues for 

the following sections of this document that contain information collection requirements 

(ICRs). 

2. ICRs for Add-On Payments for New Services and Technologies 

Section II.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 2015 must submit a 

formal request. A formal request includes a full description of the clinical applications of 
 1076 

the medical service or technology and the results of any clinical evaluations 

demonstrating that the new medical service or technology represents a substantial clinical 

improvement. In addition, the request must contain a significant sample of the data to 

demonstrate that the medical service or technology meets the high-cost threshold. 

 We believe the burden associated with this requirement is exempt from the PRA 

under 5 CFR 1320.3(c), which defines the agency collection of information subject to the 

requirements of the PRA as information collection imposed on 10 or more persons within 

any 12-month period. This information collection does not impact 10 or more entities in 

a 12-month period. In FYs 2008, 2009, 2010, 2011, 2012, 2013, and FY 2014, we 

received 1, 4, 5, 3, 3, 5, and 5 applications, respectively. 

3. ICRs for the Proposed Occupational Mix Adjustment to the Proposed FY 2014 Index 

(Hospital Wage Index Occupational Mix Survey) 

 Section III.F. of the preamble of this proposed rule discusses the occupational mix 

adjustment to the proposed FY 2014 wage index. While the preamble does not contain 

any new ICRs, we note that there is an OMB approved information collection request 

associated with the hospital wage index. 

 Section 304(c) of Pub. L. 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. 
 1077 

 The burden associated with this information collection requirement is the time 

and effort required to collect and submit the data in the Hospital Wage Index 

Occupational Mix Survey to CMS. The aforementioned burden is subject to the PRA; it 

is currently approved under OCN 0938-0907. 

4. Hospital Applications for Geographic Reclassifications by the MGCRB 

 Section III.H.3. of the preamble of this proposed rule discusses proposed 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 was 

previously approved under OCN 0938–0573. However, the information collection 

expired on December 31, 2011. We are currently seeking to reinstate the information 

collection and, as required by the PRA, will announce public notice and comment periods 

in the Federal Register separate from this rulemaking. 

5. ICRs for Application for GME Resident Slots 

 The information collection requirements associated with the preservation of 

resident cap positions from closed hospitals, addressed under section V.J.3. of this 
 1078 

preamble, are not subject to the Paperwork Reduction Act , as stated in section 5506 of 

the Affordable Care Act. 

6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program 

 The Hospital IQR Program (formerly referred to as the Reporting Hospital 

Quality Data for Annual Payment (RHQDAPU) Program) was originally established to 

implement section 501(b) of the MMA, Pub. L. 108-173. This program expanded our 

voluntary Hospital Quality Initiative. The Hospital IQR Program originally consisted of 

a “starter set” of 10 quality measures. The collection of information associated with the 

original starter set of quality measures was previously approved under OMB control 

number 0938-0918. All of the information collection requirements previously approved 

under OMB control number 0938-0918 have been combined with the information 

collection request previously approved under OMB control number 0938-1022. We will 

no longer be using the OMB control number 0938-0918. 

 We added additional quality measures to the Hospital IQR Program and submitted 

the information collection request to OMB for approval. This expansion of the Hospital 

IQR measures was part of our implementation of section 5001(a) of the DRA. 

Section 1886(b)(3)(B)(viii)(III) of the Act, added by section 5001(a) of the DRA, 

requires that the Secretary expand the “starter set”' of 10 quality measures that were 

established by the Secretary as of November 1, 2003, to include measures “that the 

Secretary determines to be appropriate for the measurement of the quality of care 

furnished by hospitals in inpatient settings.” The burden associated with these reporting 

requirements was previously approved under OMB control number 0938-1022. 
 1079 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53666), we stated that, for the 

FY 2016 payment determinations and subsequent years updates, we are seeking OMB 

approval for a revised information collection request using the same OMB control 

number (0938-1022). In the revised request we will add the 5 proposed claims-based 

measures, if finalized: (1) 30-day risk standardized COPD Readmission; (2) 30-day risk 

standardized COPD Mortality; (3) 30-day risk standardized Stroke Readmission; 

(4) 30-day risk standardized Stroke Mortality; and (5) AMI payment per Episode of Care. 

In addition, we are proposing to remove three chart-abstracted measures: (1) PN-3b: 

Blood Culture Performed in the Emergency Department Prior to First Antibiotic 

Received in the Hospital; (2) HF 1: Discharge Instructions; and (3) IMM-1: 

Immunization for Pneumonia. We are also proposing to remove seven chart-abstracted 

measures: (1) PN 3b: Blood Culture Performed in the Emergency Department Prior to 

First Antibiotic Received in the Hospital; (2) HF 1: Discharge Instructions; and (3) IMM 

1: Immunization for Pneumonia; (4) AMI–2: Aspirin Prescribed at Discharge; (5) AMI–

10: Statin Prescribed at Discharge; (6) HF–3: ACEI or ARB for LVSD; (7) SCIP-Inf–10: 

Surgery Patients with Perioperative Temperature Management and one structural 

measure, Systematic Clinical Database Registry for Stroke Care. 

 Because claims-based measures can be calculated based on data that are already 

reported to the Medicare program for payment purposes, we believe no additional 

information collection will be required from the hospitals. However, we do believe there 

will be a reduction in the burden associated with the removal of seven chart-abstracted 

measures and one structural measure. We estimate a reduction in burden associated with 
 1080 

data collection for chart- abstracted measures and associated forms. For the FY 2015 

payment determination, we estimated that the burden for chart abstracted measures and 

associated forms for each hospital is 1,900 hours annually. For the FY 2016 payment 

determination, we estimate the burden to be 1,775 hours annually per hospital. We 

estimate the total burden for chart abstraction and structural measures for the 

approximately 3,300 Hospital IQR Program-participating hospitals to be 5.86 million 

hours. 

 To support the proposed validation of two additional HAI measures, we also are 

proposing to add two new HAI Validation Templates for a total of four Validation 

Templates to be completed by hospitals selected for annual validation. To add these new 

Templates without increasing burden for the FY 2016 payment determination and future 

years, we are proposing to randomly assign one-half of the hospitals to submit templates 

for CLABSI and CAUTI validation and one-half of the hospitals to submit templates for 

MRSA and CDI validation. We believe this proposal would limit hospital burden 

because, of the 600 potential, total hospitals selected for annual validation, only up to 300 

hospitals would be required to submit for MRSA and CDI validation and up to 300 

hospitals would be required to submit for CLABSI and CAUTI validation. We estimate 

completion of the CLABSI and CAUTI validation templates will take approximately 

20 hours each quarter. We estimate completion of the MRSA and CDI validation 

templates will take approximately 16 hours each quarter. Our proposed validation for the 

FY 2016 payment determination is for 3 quarters. Therefore, we estimate the total 

burden for HAI validation to be 60 hours for hospitals validated for CLABSI and CAUTI 
 1081 

and 48 hours for hospitals validated for MRSA and CDI. We estimate the total burden 

for validation templates for the 600 IQR participating hospitals selected for validation to 

be 32,000 hours. 

 Utilizing the estimates above, we estimate an overall reduction in burden from the 

FY 2015 estimate of 6.3 million hours annually to 5.9 million hours annually for the 

FY 2016 payment determination year. This burden estimate includes both newly added 

measures and measure sets and those for which we are requesting renewal. It excludes 

burden associated with the NHSN and HCAHPS measures, both of which are submitted 

under separate OMB numbers. 

 Previously, we required hospitals to provide 12 patient charts per quarter per 

hospital for HAI validation and 15 patient charts per quarter per hospital for validation of 

clinical process of care measures, for a total of 27 charts per quarter per hospital and 108 

charts per year per hospital. For the FY 2016 payment determination and subsequent 

years, we are proposing to reduce this requirement by 12 charts per hospital per year. 

 In addition, we are proposing that the requirement to submit patient charts for 

validation of Hospital IQR Program data may be met by employing either of the 

following options each quarter: (1) a hospital may submit paper medical records, which 

is the form in which we have historically requested them; or (2) a hospital may securely 

transmit electronic versions of medical information for the FY 2016 payment 

determination and subsequent years. The intent of this proposal is to offer an additional 

mode through which hospitals may meet the requirement to submit patient charts. To 

support this proposal, which has the potential to reduce burden, cost, and environmental 
 1082 

impact, we also are proposing for the FY 2016 payment determination and subsequent 

years to reimburse hospitals for submission of electronic versions of medical information. 

 We are proposing a reimbursement rate of $3.00 per chart taking into account the 

following considerations: 

● Cost estimates are for retrieval of records and not for the maintenance of 

electronic health records systems, which are supported by CMS by other means. 

● The activities associated with submitting an electronic version of a patient 

medical record include downloading, verifying, and copying records, which must be done 

for every record separately, and packaging and encrypting CDs or DVDs which must be 

done only once per DVD or CD sent. 

● We assume that an average patient record will be 412 pages in length, that the 

average capacity of a DVD of 45,000 pages, and that all 27 records submitted in a quarter 

will fit on one DVD most of the time. 

● Based on time and motion studies conducted by our contractor, we estimate 

that for records of average lengths, the minimum labor time is between 1 and 2 minutes 

per record. 

● To acknowledge that some records may be so large that they require their own 

DVD, and that some systems may be slower than others, we also estimated a maximum 

labor of about 12 minutes per record. 

● Averaging these two estimates, we achieve an average of less than 7 minutes of 

labor per record. 
 1083 

● The labor performed can be accomplished by a combination of staff equivalent 

to a GS-5 administrative secretary and a GS-5 information technologist, earning within 

the middle range for this grade, which in 2013 was $38,616 per year. Assuming, 2,080 

hours in a work year, we achieve an hourly rate of $18.57 per hour. 

● Applying OMB Circular A-76, we assumed overhead of 36.25 percent, for a 

fully burdened labor rate of $25.30 per hour. 

● The labor cost associated with each record is $2.95. 

● Supply costs are limited to DVDs and packaging. DVDs cost $20 per 100, or 

20 cents per DVD. A protective shipping container also costs 20 cents each. 

● If a hospital submits all records on the same DVD, supply costs will equal 

approximately 1.4 cents per DVD. If a hospital submits one DVD per record, supply 

costs will equal approximately 40 cents per record. Averaging these costs results in 

21 cents per record. 

● Adding supplies to labor yields a total cost of $3.16 per record. 

● Rounding to the nearest whole dollar yields $3.00 per record. 

 For the FY 2016 payment determination, we also are encouraging hospitals to 

voluntarily submit 16 measures electronically for the Hospital IQR Program in a manner 

that would permit eligible hospitals to align Hospital IQR Program requirements with 

some requirements under the Medicare EHR Incentive Program. We estimate that the 

total burden associated with the electronic quality measure reporting option will be 

similar to the burden outlined for hospitals in the EHR Incentive Program Stage 2 final 

rule (77 FR 53968 through 54162). As established in that final rule, beginning in 
 1084 

FY 2014, hospitals that are beyond their first year of meaningful use must electronically 

report a total of 16 clinical quality measures covering at least three domains using 

CEHRT that has been certified to the 2014 Edition certification criteria. 

 In accordance with the estimates in the Medicare EHR Incentive Program Stage 2 

final rule, we believe it will take a hospital approximately 2 hours and 40 minutes to 

select, prepare, and electronically submit the 16 quality measures using CEHRT. In 

addition, in accordance with the Medicare EHR Incentive Program Stage 2 final rule, we 

believe an individual with commensurate skills will submit electronic clinical quality 

measures on behalf of the hospital at a rate of approximately $59.00 per hour. Therefore, 

we believe it will cost a hospital approximately $156.94 ($59.00 x 2.66 hours) to report 

16 clinical quality measures electronically in CY 2014 (77 FR 54133). Additional 

information about the chart abstraction burden is detailed in section XI.B.6. of the 

preamble to this proposed rule. 

7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program 

 As discussed in section IX.B. of the preamble of this proposed rule, 

section 1866(k) of the Act requires, for purposes of FY 2014 and each subsequent fiscal 

year, that a hospital described in section 1886(d)(1)(B)(v) of the Act (a PPS-exempt 

cancer hospital, or a PCH) submit data in accordance with section 1866(k)(2) of the Act 

with respect to such fiscal year. In the FY 2013 IPPS/LTCH PPS final rule, we 

implemented the PCHQR Program to comply with the statutory mandate, and in an effort 

to improve the quality of care for inpatient cancer patients. It is our aim and goal to 

encourage PCHs to furnish high quality care in a manner that is effective and meaningful, 
 1085 

while remaining mindful of the reporting burden created by the implementation of this 

new program. Therefore, we intend to reduce and avoid duplicative reporting efforts, 

whenever possible, by leveraging existing infrastructure. 

 In the FY 2013 IPPS/LTCH PPS final rule, for the FY 2014 program year, we 

adopted five NQF-endorsed quality measures, two of which were developed by the CDC 

and three of which were developed by the American College of Surgeons’ Commission 

on Cancer (ACoS/CoC) and discussed the information collection requirements for these 

measures. 

Topic Quality Measures 

Adjuvant Chemotherapy is considered or administered within 4 

months (120 days) of surgery to patients under the age of 80 

with AJCC Stage III (lymph node positive) colon cancer (NQF 

#0223) 

Combination Chemotherapy is considered or administered 

within 4 months (120 days) of diagnosis for women under 70 

with AJCC T1c, or Stage II or III hormone receptor negative 

Breast Cancer (NQF #0559) 

Cancer-Specific 

Treatments 

Adjuvant Hormonal Therapy (NQF #0220) 

National Healthcare Safety Network (NHSN) Central LineAssociated Bloodstream Infection (CLABSI) Outcome 

Healthcare Acquired Measure (NQF #0139) 

Infections (HAIs) National Healthcare Safety Network (NHSN)CatheterAssociated Urinary Tract Infection (CAUTI) Outcome Measure 

(NQF #0138) 

 In this proposed rule, we are proposing that PCHs submit data on 1 additional 

measure beginning with FY 2015 and 13 additional measures beginning with FY 2016 

(as listed below), for a total of 19 measures (5 previously adopted plus 14 new measures). 

Proposed New Measure Beginning with FY 2015
 1086 

Measure Domain NQF Endorsement Number Measure Name

Patient Safety 0753 Harmonized Procedure Specific 

Surgical 

Proposed New Measures Beginning with FY 2016

Measure Domain NQF Endorsement Number Measure Name

0218 

Surgery Patients Who Received 

Appropriate VTE Prophylaxis 

within 24 Hrs Prior to Surgery to 

24 Hrs After Surgery End Time 

0284 

Surgery Patients on Beta Blocker 

Therapy Prior to Admission Who 

Received a Beta Blocker during 

the Perioperative Period 

0453 

Urinary Catheter Removed on 

Post-Operative Day 1 or PostOperative Day 2 with Day 

Surgery Being Day Zero 

0527 

Prophylactic Antibiotic Received 

Within 1 Hr Prior to Surgical 

Incision 

0528 Prophylactic Antibiotic Selection 

for Surgical Patients 

Surgical Care

Improvement

Project (SCIP) 

0529 

Prophylactic Antibiotic 

Discontinued Within 24 Hrs After

Surgery End Time 

0380 Multiple Myeloma-Treatment 

with Bisphosphonates 

0382 Oncology-Radiation Dose Limits 

to Normal Tissues 

0383 Oncology: Plan of Care for Pain 

0384 Oncology: Pain Intensity 

0390 

Prostate Cancer-Adjuvant 

Hormonal Therapy for High-Risk 

Patients 

Clinical 

Process/Oncology

Care 

0389 

Prostate Cancer-Avoidance of 

Overuse Measure-Bone Scan for 

Staging Low-Risk Patients 
 1087 

Proposed New Measures Beginning with FY 2016

Measure Domain NQF Endorsement Number Measure Name

Patient 

Engagement/Patient 

Experience of Care 

0166 

HCAHPS Patient 

Experience of Care Survey 

 We believe that our proposal to require PCHs to submit data on these additional 

proposed measures will not prove burdensome. PCHs have familiarity with and 

experience reporting quality data to CMS during the initial year of the PCHQR program. 

Therefore, we believe that because a majority of PCHs have demonstrated the ability to 

report these measures, the reporting requirements we are proposing will not significantly 

impact PCHs. 

 The anticipated burden on these PCHs consists of the following: training of 

appropriate staff members on how to use the NHSN for the reporting of the proposed SSI 

measure, CMS (QualityNet) for the reporting of the proposed SCIP measures, and the 

CMS Web Measures Tool for the reporting of the proposed clinical process/oncology 

care measures; the time required for collection and aggregation of data; and the time 

required for reporting of the data by the PCH’s representative; and the time required to 

participate and collect HCAHPS data. We have taken into account all these elements in 

our burden calculation. 

 We estimate that 11 PCHs will submit data on approximately 63,468 cancer cases 

annually. It will require, on average, 9.5 hours for a PCH to abstract the information 

from medical records and submit such information for each case. The time required to 

administer the HCAHPS is likely to be lower than the time for chart abstraction. 

However, the same method was used to ensure a high-end estimate so that facilities will 
 1088 

not experience a higher burden than estimated. In addition, sampling was not considered 

for this reason. Therefore, this burden represents the “worst-case scenario” of what 

would be required of each facility. Based on these assumptions, we estimate that the 

annual hourly burden on each PCH for the collection, submission, and training of 

personnel for submitting all quality measure data would be approximately 54,822 hours. 

8. ICRs for the Hospital Value-Based Purchasing (VBP) Program 

 In section V.H. of the preamble of this proposed rule, we discuss proposed 

requirements for the Hospital VBP Program. Specifically, in this proposed rule, we are 

proposing to adopt three new measures for the FY 2016 Hospital VBP Program, 

including IMM-2: Influenza Immunization and CAUTI, and the Surgical Site Infection 

(SSI) measure, stratified as SSI-Colon and SSI-Abdominal Hysterectomy. We also are 

proposing to adopt CLABSI, a measure that we finalized for FY 2015 but did not readopt 

at that time. 

 In addition, we are proposing to adopt the three 30-day mortality measures and 

the AHRQ PSI composite measure for FYs 2017 through 2019 program determinations. 

 All of these additional measures are required for the Hospital IQR Program; 

therefore, their inclusion in the Hospital VBP Program does not result in any additional 

burden because the Hospital VBP Program uses data that are required for the Hospital 

IQR Program. 
 1089 

9. ICRs for the Long-Term Care Hospital Quality Reporting (LTCHQR) Program 

 In section IX.C. of the preamble of the proposed rule, we discuss the requirements 

for the LTCHQR Program, established by section 1886(m)(5) of the Act, which was 

added by section 3004 of the Affordable Care Act. 

 In the FY 2013 IPPS/LTCH PPS final rule, we finalized the adoption of five 

quality measures for use in the LTCHQR Program for the FY 2016 payment update 

determination and subsequent payment determinations. These measures are: (1) NHSN 

Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138); 

(2) NHSN Central Line-Associated Blood Stream Infection (CLABSI) Outcome Measure 

(NQF #0139); (3) Application of Percent of Residents with Pressure Ulcers that are New 

or Worsened (Short Stay) (NQF #0678); (4) Percent of Residents or Patients Who Were 

Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 

#0680); and (5) Influenza Vaccination Coverage Among Healthcare Personnel (NQF 

#0431). 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53630 through 53631) we 

finalized that for Influenza Vaccination Coverage Among Healthcare Personnel 

(NQF #0431), LTCHs should begin to submit data from January 1, 2014 through 

December 31, 2014 (CY 2014) for the FY 2016 payment determination. However, there 

is unique seasonality in the timing of influenza activity each year. To account for this, 

we are proposing that, for the LTCHQR Program, this measure only (NQF #0431) have 

its own reporting period to align with the influenza vaccination season, which is defined 

by the CDC as October 1st (or when the vaccine becomes available) through March 31st

. 
 1090 

This proposed change would allow LTCHs to collect and report data on influenza 

vaccination for the entirety of the 2014-2015 influenza season for the FY 2016 payment 

determination. Similarly, this change would allow LTCHs to collect and report data on 

influenza vaccination for the entirety of future influenza seasons for subseqeuent 

payment determinations. 

 While LTCHs can enter information in NHSN at any point during the influenza 

season for NQF #0431, data submission is only required once per year, unlike the other 

measures finalized for the LTCHQR Program that utilize CDC/NHSN (CAUTI measure 

NQF #0138 and CLABSI measure NQF #0139). LTCHs can choose to submit influenza 

vaccination data on an incremental basis (for example, on a monthly basis), or just once a 

year. The final deadlines associated with submitting data, approximately 45 days after 

the end of the data collection timeframe for the FY 2016 payment determination, remain 

consistent across measures. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53624 through 53627), we 

finalized that for NQF #0680, Percentage of Residents or Patients Who Were Assessed 

and Appropriately Give the Seasonal Influenza Vaccine (Short-Stay), LTCHs should 

begin to collect and submit data on January 1, 2014 through December 31, 2014 

(CY 2014) for the FY 2016 payment determination. This measure, stewarded by CMS, 

will be collected using items included in the LTCH Continuity Assessment Record and 

Evaluation (CARE) Data Set (Version 2.01).180 On February 1, 2013, we solicited public 

 

180The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits public comment on additions and updates to the LTCH 
 1091 

comment on this information collection request (78 FR 7433 through 7434). On 

April 12, 2013, we published a 30-day notice to solicit public comment on this 

information collection request (78 FR 21955 through 21956). Later in 2013, we will 

release the final data submission specifications and updated LTCHQR Program Manual 

for the LTCH CARE Data Set (Version 2.01) containing items related to NQF #0680. 

 In order to allow time and opportunity for LTCHs and vendors to participate in 

CMS-sponsored training activities pertaining to the implementation of the LTCH CARE 

Data Set (Version 2.01), as well as time to plan for and incorporate changes into their 

data collection and entry systems, we are proposing to revise the previously finalized start 

date of January 1, 2014 for reporting of this measure to April 1, 2014. For CY 2014, data 

collection will continue through December 31, 2014. We are proposing that data for 

admissions and discharges for an LTCH during April 1, 2014 through 

December 31, 2014 will be used for the FY 2016 payment determination. We are also 

proposing that data for January 1, 2015 through December 31, 2015 (CY 2015) will be 

used for the FY 2017 payment determination. Thereafter, data for January 1 through 

December 31 of each year will be used for subsequent payment determinations. 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51748 through 51750), we 

adopted an application of NQF #0678 Percent of Residents with Pressure Ulcers That are 

New or Worsened (Short-Stay) for the FY 2014 payment determination, and retained this 

application of the measure in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 

through 53619) for the FY 2015 payment determination and subsequent payment 

 CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html
 1092 

determinations. We refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51748 through 51750) for a discussion of the rationale, data collection methods, 

and submission methods finalized for this measure for the FY 2014 payment 

determination and subsequent payment determinations, and for references to the 

description and specifications of this measure. 

 At the time we completed our work on the FY 2013 IPPS/LTCH PPS final rule, 

we were only able to adopt an application of the endorsed measure in our final version of 

the FY 2013 rule. NQF #0678 was subsequently ratified by the NQF Board of Directors 

for expansion to the LTCH setting on August 1, 2012.181,182 Because NQF #0678 has 

received endorsement for the LTCH setting, we are now proposing to adopt the updated 

measure NQF #0678 Percent of Residents or Patients with Pressure Ulcers that are New 

or Worsened (Short-Stay) for the FY 2015 payment determination and subsequent 

payment determinations. This measure will continue to be collected using items included 

in the LTCH Continuity Assessment Record and Evaluation (CARE) Data Set (Version 

1.01) for CY 2013 and first quarter of CY 2014. Further, starting April 1, 2014, this 

measure is proposed to be collected using items included in the LTCH CARE Data Set 

Version 2.01.183

 

181National Quality Forum, Consensus Standards Approval Committee Wednesday, July 11, 2012. 

Transcript. Available on the Web site at: 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=71612. 182Press Release: NQF Removes Time-Limited Endorsement Status for 13 Measures, Measures Now Have 

Endorsed Status. August 1, 2012. Available on the Web site at: 

http://www.qualityforum.org/News_And_Resources/Press_Releases/2012/NQF_Removes_TimeLimited_Endorsement_for_13_Measures;_Measures_Now_Have_Endorsed_Status.aspx 183The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits public comment on additions and updates to the LTCH 
 1093 

 The changes we have described to the reporting periods for two measures 

(NQF #0431 and NQF #0680) and the updated NQF-endorsed pressure ulcer measure 

(NQF #0678) are not new measures. We do not believe that these changes will result in 

any additional reporting burden on LTCHs. 

 In section IX.C.8.b. of the preamble of this proposed rule, we are proposing three 

additional measures for use in the LTCHQR Program for the FY 2017 payment 

determination and subsequent payment determinations. These proposed measures are: 

(1) National Healthcare Safety Network (NHSN) Facility-Wide Inpatient HospitalOnset Methicillin-Resistant Staphylococcus Aureus (MRSA) Bacteremia Outcome 

Measure (NQF #1716); (2) National Healthcare Safety Network (NHSN) FacilityWide Inpatient Hospital-onset Clostridium Difficile Infection (CDI) Outcome Measure 

(NQF #1717); and (3) All-Cause Unplanned Readmission Measure for 30-Days Post 

Discharge from Long-Term Care Hospitals.. 

 For the FY 2017 payment determination, in addition to the CAUTI, CLABSI, and 

Influenza Vaccination Coverage among Healthcare Personnel measures, we are 

proposing that LTCHs would report quality data related to the MRSA and CDI measures 

to the CDC’s NHSN data submission system (http://www.cdc.gov/nhsn/). The NHSN is 

a secure, Internet-based surveillance system that is maintained and managed by CDC. 

 There are currently approximately 440 LTCHs in operation in the United States 

and, according to the CDC, over 413 of these LTCHs already submit HAI data to NHSN. 

We believe that any burden increase related to complying with the LTCHQR Program 

 CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html. 
 1094 

requirements for submission of the MRSA and CDI measures will be minimal for those 

LTCHs that are already familiar with the NHSN submission process, for several reasons. 

First, these LTCHs will have already completed initial setup and become familiar with 

reporting data in the NHSN system due to the requirement to report CAUTI and CLABSI 

measures beginning on October 1, 2012 for the FY 2014 payment determination and 

continuing reporting for CY 2013 for the FY 2015 payment determination. Second, as of 

January 2013, there are approximately 42 LTCHs reporting MRSA measure data and 

approximately 46 facilities reporting Clostridium Difficile measure data into NHSN. 

Third, there has been no change in the registration and training requirements for 

providers that are already acquainted with the NHSN. Therefore, we believe that most 

LTCH providers should be very comfortable using the NHSN for continuing with the 

reporting of data for CAUTI and CLABSI measures for CY 2014 for FY 2016 payment 

update determination. Further, we believe that by the time (October 1, 2014 or when 

vaccine becomes available) reporting for NQF #0431 begins for the FY 2016 payment 

determination, a vast majority of LTCH providers should be very comfortable using the 

NHSN. 

 The most significant burden associated with the quality measures is the time and 

effort associated with collecting and submitting the data on the CAUTI, CLABSI, 

Influenza Vaccination Coverage among Healthcare Personnel, MRSA, and Clostridium 

Difficile measures to NHSN for LTCHs that are not currently reporting any measures 

data. 
 1095 

 There are currently approximately 440 LTCHs in the United States paid under the 

CMS LTCH PPS. We estimate that each LTCH will execute approximately 12 NHSN 

submissions (6 CAUTI events and 6 CLABSI events) per month (144 events per LTCH 

annually). This equates to a total of approximately 63,360 submissions of HAI data to 

NHSN from all LTCHs per year. We estimate that each NHSN assessment will take 

approximately 25 minutes to complete. This time estimate consists of 10 minutes of 

clinical time (for example, nursing time) needed to collect the clinical data and 15 

minutes of clerical time necessary to enter the data into the NHSN database. Based on 

this estimate, we expect each LTCH will expend 300 minutes (5 hours) per month and 60 

hours per year reporting to NHSN. 

 Therefore, the total estimated annual hourly burden on all LTCHs in the United 

States for reporting to NHSN is 26,400 hours. The estimated cost per submission is 

estimated at $12.07. These costs are estimated using an hourly wage for a registered 

nurse of $41.59 and a medical billing clerk/data entry person of $20.57 (U.S. Bureau of 

Labor Statistics data). Therefore, we estimate that the annual cost per each LTCH will be 

$1,739 and the total yearly cost to all LTCHs for the submission of CAUTI and CLABSI 

data to NHSN will be $765,019184. While these requirements are subject to the 

Paperwork Reduction Act, we believe the associated burden hours are accounted for in 

the information collection request currently approved under OMB control number 

0920-0666. 

 

184 Nursing Time—24 hours @ $41.59 per hour = $998.16; $998.16 x 440 LTCHs = approximately 

$439,140; Administrative Time—36 hours @ $20.57 per hour = $740.52; $740.52 x 440 LTCHs = 

approximately $325,829; TOTAL = $439,140 + $325,829 = $765,019. 
 1096 

 We estimate that each LTCH will execute only one NHSN submission per year 

(total number of vaccinations) as required by the CDC for the NHSN-reported Influenza 

Vaccination Coverage Among Healthcare Personnel measure (NQF #0431). This equates 

to a total of approximately 440 submissions of vaccination data to NHSN from all 

LTCHs per year. We estimate that each NHSN submission will take approximately 

15 minutes to complete. This time estimate consists of 15 minutes of clerical time 

necessary to enter the data into the NHSN database. Based on this estimate, we expect 

each LTCH will expend 15 minutes per year reporting to NHSN. Therefore, the total 

estimated annual burden on all LTCHs in the United States for reporting this measure to 

NHSN is 110 hours. The estimated cost per submission is estimated at $3.90. The cost is 

estimated using an hourly wage for a medical billing clerk/data entry person of $15.59 

(U.S. Bureau of Labor and Statistics data). We estimate the annual cost per each LTCH 

will be $3.90 and the total yearly cost to all LTCHs for the submission of the Influenza 

Coverage Among Healthcare Personnel measure (NQF #0431) will be $1,715. 

 Similar to the submission of CAUTI and CLABSI data, we estimate that each 

LTCH will execute approximately 12 NHSN submissions (6 MRSA events and 6 

C. Difficile events) per month (144 events per LTCH annually). This equates to a total of 

approximately 63,648 submissions of HAI data to NHSN from all LTCHs per year. We 

estimate that each NHSN assessment will take approximately 25 minutes to complete. 

This time estimate consists of 10 minutes of clinical time (for example, nursing time) 

needed to collect the clinical data and 15 minutes of clerical time necessary to enter the 
 1097 

data into the NHSN. Based on this estimate, we expect each LTCH will expend 300 

minutes (5 hours) per month and 60 hours per year reporting to NHSN. 

 Therefore, the total estimated annual hourly burden on all LTCHs in the United 

States for reporting to NHSN is 26,400 hours. The estimated cost per submission is 

estimated at $12.07. These costs are estimated using an hourly wage for a registered 

nurse of $41.59 and a medical billing clerk/data entry person of $20.57 (U.S. Bureau of 

Labor Statistics data). Therefore, we estimate that the annual cost per each LTCH will be 

$1,739 and the total yearly cost to all LTCHs for the submission of CAUTI and CLABSI 

data to NHSN will be $765,019.185

 We estimate that the total annual cost to all LTCHs for submission of NHSN data 

will be $1,531,753 or $3,481 per LTCH annually. 

 We are proposing to adopt the updated measure NQF #0678 Percent of Residents 

or Patients with Pressure Ulcers that are New or Worsened (Short-Stay) for the FY 2015 

payment determination and subsequent payment determinations. This change would not 

alter the data collection, data submission, or burden finalized in the FY 2013 IPPS/LTCH 

PPS final rule and PRA package for LTCH CARE Data Set (Version 1.01) 186 since there 

have been no changes to the data elements, data submission system (QIES ASAP) and 

technical submission specifications for the LTCH CARE Data Set used for this measure 

for CY 2013 and first quarter of CY 2014. The only difference between the previously 

 

185 Nursing Time—24 hours @ $41.59 per hour = $998.16; $998.16 x 440 LTCHs = approximately 

$439,140; Administrative Time—36 hours @ $20.57 per hour = $740.52; $740.52 x 440 LTCHs = 

approximately $325,829; TOTAL = $439,140 + $325,829 = $765,019. 

186The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits public comment on additions and updates to the LTCH 

CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html. 
 1098 

finalized measure and the proposed measure is the change in name and NQF-endorsed 

expansion of this measure to the LTCH (and IRF) patient populations in addition to 

Skilled Nursing Facility/Nursing Home Short-Stay residents. Therefore, the burden on 

providers for reporting of data for NQF #0678 remains unchanged. 187

 In order to allow time and opportunity for LTCHs and vendors to participate in 

CMS-sponsored training activities pertaining to the implementation of the LTCH CARE 

Data Set (Version 2.01), as well as time to plan for and incorporate changes into their 

data collection and entry systems, we are proposing to revise the previously finalized start 

date for Percent of Residents or Patients Who Were Assessed and Appropriately Given 

the Seasonal Influenza Vaccine (Short-Stay) (NQF #0680) of January 1, 2014 to 

April 1, 2014. For CY 2014, data collection will continue through December 31, 2014. 

We are proposing that data for admissions and discharges for an LTCH during 

April 1, 2014 through December 31, 2014 will be used for the FY 2016 payment 

determination. Three items will be included on the LTCH CARE Data Set Version 2.01 

for this measure. We have also removed several items from the administrative, 

functional status, and skin conditions sections of the LTCH CARE Data Set Version 1.01 

to create the LTCH CARE Data Set Version 2.01188, so we anticipate that increase in 

burden due to the addition of items for NQF #0680 will be minimal. Later in 2013, we 

 

187The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits public comment on additions and updates to the LTCH 

CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html. 188The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits public comment on additions and updates to the LTCH 

CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
 1099 

will release the final data submission specifications and updated LTCHQR Program 

Manual for the LTCH CARE Data Set (Version 2.01) containing items related to 

NQF #0680. 

 As previously mentioned, there are currently approximately 440 LTCHs in the 

United States paid under the LTCH PPS. We estimate that the total number of LTCH 

discharges per year is 202,050189 (134,700 Medicare beneficiaries and 67,350 

non-Medicare beneficiaries). Therefore, the total number of discharges estimated for 

each LTCH is 457 annually and 38 monthly. We estimate that the total number of LTCH 

CARE Data Sets (LCDS) submitted by all LTCHs per year is 404,100 which equates to a 

total of 914 total LCDS submissions for each LTCH on an annual basis. The average 

number of LCDS submitted by each LTCH on a monthly basis is 76. 

 We estimate that the total time required to complete an LCDS per patient to be 

approximately 32 minutes,190 which includes 11 minutes for the admission assessment, 

11 minutes for the discharge assessment and 10 minutes for data entry. Therefore, each 

LTCH will spend approximately 1,216 minutes per month, or approximately 20.27 hours 

per month submitting the LCDS. We expect each LTCH to spend approximately 243 

hours per year engaged in data collection and submission of the LCDS. Therefore, the 

total estimated burden to all LTCHs for reporting the LCDS is 106,920 hours per year.191

 

189 MedPAC Report to Congress, March 2012, page 261. Available at: 

http://www.medpac.gov/documents/Mar12_EntireReport.pdf. 190 This time estimate includes the time required to complete both the required and voluntary questions on 

the LTCH CARE Data Set. 

191 32 minutes/form x 38 forms per LTCH per month = 1,216 minutes per LTCH per month; 1,216 minutes 

/ 60 minutes per hour = 20.27 hours per LTCH per month; 20.27 hours per LTCH per month x 12 

months/year = 243 hours per each LTCH/year; 243 hours/each LTCH per year x 440 LTCHs in U.S. = 

106,920 hrs/all LTCHs/year. 
 1100 

 We estimate that the total annual cost to each LTCH will be approximately $6,751 

to submit the LCDS. That estimate is based on the hourly wage for a registered nurse to 

complete the LCDS at $33.23 per hour and for an administrative assistant to transmit the 

LCDS at $15.59.192 As previously stated, we estimate a total of 457 annual discharges 

(914 LCDS submissions) for each LTCH on an annual basis and that it will take 

22 minutes total (11 minutes each) to complete the admissions and discharge assessments 

per patient. That is, 10,054 minutes of time, or 167.57 hours, that a registered nurse in 

each LTCH will spend completing the LCDS annually. For a registered nurse to spend 

167.57 hours per year completing the LCSDs at a rate of $33.23 per hour, the associated 

cost for each LTCH will be approximately $5,568 and, for approximately 440 LTCHs, a 

total of $2,449,920 nursing wages per year. 

 Similarly, we previously estimated that it will take approximately 10 minutes per 

patient for data entry by an administrative assistant, resulting in approximately 4,570 

minutes that each LTCH will spend transmitting the LCDS per year, or 76 administrative 

hours per year. At a rate of $15.59, that equates to approximately $1,185 for each LTCH 

and $521,330 for all LTCHs per year. Therefore, we estimate that the total annualized 

cost to each LTCH will be approximately $6,751 and $2,971,250 to all LTCHs. 

 While these requirements are subject to the Paperwork Reduction Act, we believe 

the associated burden hours are accounted for in the information collection request 

currently under consideration for approval under OMB control number 0920-0666. 

 

192 The mean hourly wage of $15.59 per hour for a Medical Secretary was obtained from the U.S. 

Bureau of Labor Statistics. We refer readers to: http://www.bls.gov/oes/current/oes436013.htm.
 1101 

 We also are proposing the All-Cause Unplanned Readmission Measure for 

30 days Post Discharge from Long-Term Care Hospitals which we do not believe would 

increase LTCH provider burden because it is a Medicare FFS claims-based measure and 

does not require reporting of data other than submission of Medicare FFS claims data 

(LTCHs submit these data to CMS for payment purposes). 

 In section IX.C.8.c. of the preamble of this proposed rule, we are proposing one 

additional quality measure for use in the LTCHQR Program for the FY 2018 payment 

determination and subsequent payment determinations. We are proposing that LTCHs 

report data for an application of the Percent of Residents Experiencing One or More Falls 

with Major Injury (Long Stay) (NQF #0674) measure beginning January 1, 2016. It is 

our intent to foster alignment between measures by expanding preexisting data collection 

and submission methods to reduce the administrative burden related to data collection 

and submission. This measure will be collected using the LTCH CARE Data Set. The 

items used for the proposed application of the NQF #0674 will be based on the items 

from the Minimum Data Set (MDS) 3.0, version 1.13.0 (1/17/13) items J1800 (Any Falls 

Since Admission/Entry or Reentry or Prior Assessment) and J1900A, B and C (Number 

of Falls (A: with no injury, B: with injury (except major), C with Major injury)) since 

Admission/Entry or Reentry or Prior Assessment), available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/NursingHomeQualityInits/NHQIMDS30TechnicalInformation.html. The 

calculation of the proposed application of the measure will be based on item J1900C, 

Number of Falls with major injury, since admission/entry or reentry or prior assessment. 
 1102 

The specifications and data elements for NQF #0674 are available in the MDS 3.0 

Quality Measures User’s Manual Version 6.0 available on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/NursingHomeQualityInits/MDS30RAIManual.html. 

 We believe that the initial registration for use of the LTCH CARE Data Set, along 

with any necessary training, occurred for most LTCHs prior to the reporting of the 

Pressure Ulcer measure which began on October 1, 2012. Therefore, we believe the 

burden will be minimal related to the addition of this proposed quality measure into the 

LTCH CARE Data Set. 

 Therefore, we do not expect the addition of the NQF #0674 Percent of Residents 

Experiencing One or More Falls with Major Injury (Long Stay) measure to increase the 

burden substantially. Further, LTCHs will have been reporting data for the LTCHQR 

Program using the LTCH CARE Data Set for more than 2 years by the time the data 

collection begins for this measure. 

 At this time, we have not completed the revision of the information collection 

instrument (LTCH CARE Data Set) that LTCHs would be required to submit to report 

the proposed measure (NQF #0674) for the FY 2018 payment determination and 

subsequent payment determinations. Because the forms are still under development, we 

cannot make a complete burden estimate at this time for the inclusion of the Percent of 

Residents Experiencing One or More Falls with Major Injury (Long Stay) measure in the 

LTCH CARE Data Set. Once the forms are available, we will prepare and submit the 

required information collection request, which will fully set forth the anticipated burden 
 1103 

to LTCHs as a result of the new data items that need to be added to the LTCH CARE 

Data Set. 

10. ICRs for the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program 

 In section VIII.F. of the preamble of the FY 2013 IPPS/LTCH PPS final rule, we 

discussed the implementation of the Inpatient Psychiatric Facilities Quality Reporting 

(IPFQR) Program pursuant to the Secretary’s authority under section 1886(s)(4) of the 

Act. We previously adopted six measures for the FY 2014 IPFQR Program payment 

determination and subsequent years. In section IX.D. of the preamble of this proposed 

rule, we are proposing that, for the FY 2016 payment determination and subsequent 

years, IPFs must submit aggregate data on three additional measures, for a total of nine 

measures. In addition, we are proposing a request for voluntary information. 

 To reduce the burden on IPFs, we are not proposing to make changes to the 

administrative, reporting or submission requirements for the existing six measures 

previously finalized in last year’s rule (77 FR 53654 through 53657). However, there 

will be new reporting and submission requirements associated with the three proposed 

additional measures and the proposed request for voluntary information for the FY 2016 

payment determination and subsequent years. 

 We believe that the proposed measures will help improve the quality of care 

provided by IPFs as we work to make quality data more transparent to the public. As 

required by the Act, we will share the information collected under the IPFQR Program 

with the public. These data will be displayed on the CMS Web site. 
 1104 

 We have estimated the burden associated with IPFs complying with the 

requirements of the IPFQR Program. In our burden estimate calculation, we have 

included the time that would be spent for: (1) the submission of voluntary information; 

(2) chart abstraction; and (3) training personnel on the collection of chart-abstracted data, 

aggregation of the data, and for protocols to submit the aggregate-level data through 

QualityNet. We estimate that the annual hourly burden on each IPF for the collection, 

submission, and training of personnel for submitting all quality measures, including 30 

minutes needed for the voluntary submission, is approximately 1,030 hours in a year for 

each IPF. Therefore, the average hourly burden on each IPF is approximately 86 hours 

per month. At this time, we have no way to estimate how many IPFs will participate in 

the program. Therefore, we cannot estimate the aggregate impact. 

 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-1599-P 

 Fax: (202) 395-6974; or 

 Email: OIRA_submission@omb.eop.gov 

C. Response to Comments
 1105 

 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.
 1106 

List of Subjects 

42 CFR Part 412 

 Administrative practice and procedure, Health facilities, Medicare, Puerto Rico, 

Reporting and recordkeeping requirements. 

42 CFR Part 482 

 Grant program—health, Hospitals, Medicaid, Medicare, Reporting and 

recordkeeping requirements 

42 CFR Part 485 

 Grant programs—health, Health facilities, Medicaid, Medicare, Reporting and 

recordkeeping requirements. 

42 CFR Part 489 

 Health facilities, Medicare, Reporting and recordkeeping requirements. 

For the reasons stated in the preamble of this 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 Pub. L. 106-113 (113 Stat. 1501A-332). 

 2. Section 412.3 is added to read as follows: 

§ 412.3 Admissions.
 1107 

 (a) For purposes of payment under Medicare Part A, an individual is considered 

an inpatient of a hospital, including a critical access hospital, if formally admitted as an 

inpatient pursuant to an order for inpatient admission by a physician or other qualified 

practitioner in accordance with paragraph (b) of this section and §§ 482.24(c), 482.12(c), 

and 485.638(a)(4)(iii) of this chapter for a critical access hospital. 

 (b) The order must be furnished by a qualified and licensed practitioner who has 

admitting privileges at the hospital as permitted by State law, and who is responsible for 

the inpatient care of the patient at the hospital. The practitioner may not delegate the 

decision (order) to another individual who is not responsible for the care of that patient, is 

not authorized by the State to admit patients, or has not been granted admitting privileges 

applicable to that patient by the hospital’s medical staff. 

 (c) Except as specified in paragraph (c)(2) of this section— 

 (1) When a patient enters a hospital for a surgical procedure not specified by 

Medicare as inpatient only under § 419.22(n) of this chapter, a diagnostic test, or any 

other treatment, and the physician expects to keep the patient in the hospital for only a 

limited period of time that does not cross 2 midnights, the services are generally 

inappropriate for inpatient payment under Medicare Part A, regardless of the hour that the 

patient came to the hospital or whether the patient used a bed. Surgical procedures, 

diagnostic tests, and other treatment are generally appropriate for inpatient hospital 

payment under Medicare Part A when the physician expects the patient to require a stay 

that crosses at least 2 midnights. The expectation of the physician should be based on 

such complex medical factors as patient history and comorbidities, the severity of signs 
 1108 

and symptoms, current medical needs, and the risk of an adverse event. The factors that 

lead to a particular clinical expectation must be documented in the medical record in 

order to be granted consideration. 

 (2) If an unforeseen circumstance, such as a beneficiary’s death or transfer, result 

in a shorter beneficiary stay than the physician’s expectation of at least 2 midnights, the 

patient may be considered to be appropriately treated on an inpatient basis, and hospital 

inpatient payment may be made under Medicare Part A. 

 3. Section 412.46 is revised to read as follows: 

§ 412.46 Medical review requirements. 

 (a) Physician acknowledgement. (1) Basis. Because payment under the 

prospective payment system is based in part on each patient’s principal and secondary 

diagnoses and major procedures performed, as evidenced by the physician’s entries in the 

patient’s medical record, physicians must complete an acknowledgement statement to 

this effect. 

 (2) Content of physician acknowledgement statement. When a claim is 

submitted, the hospital must have on file a signed and dated acknowledgement from the 

attending physician that the physician has received the following notice: 

Notice to Physicians: Medicare payment to hospitals is based in part on each patient’s 

principal and secondary diagnoses and the major procedures performed on the patient, as 

attested to by the patient’s attending physician by virtue of his or her signature in the 

medical record. Anyone who misrepresents, falsifies, or conceals essential information 
 1109 

required for payment of Federal funds, may be subject to fine, imprisonment, or civil 

penalty under applicable Federal laws. 

 (3) Completion of acknowledgement. The acknowledgement must be completed 

by the physician at the time that the physician is granted admitting privileges at the 

hospital, or before or at the time the physician admits his or her first patient. Existing 

acknowledgements signed by physicians already on staff remain in effect as long as the 

physician has admitting privileges at the hospital. 

 (b) Physician’s order and certification regarding medical necessity. No 

presumptive weight shall be assigned to the physician’s order under § 412.3 or the 

physician’s certification under subpart B of part 424 of the chapter in determining the 

medical necessity of inpatient hospital services under section 1862(a)(1) of the Act. A 

physician’s order or certification will be evaluated in the context of the evidence in the 

medical record. 

 4. Section 412.64 is amended— 

 a. By adding paragraph (d)(1)(v). 

 b. In paragraph (h)(4) introductory text, by removing the date “October 1, 2013” 

and adding in its place the date “October 1, 2014”. 

 c. In paragraph (h)(4)(vi), by removing the date “October 1, 2013” and adding in 

its place the date “October 1, 2014”. 

 The addition reads as follows: 

§ 412.64 Federal rates for inpatient operating costs for Federal fiscal year 2005 and 

subsequent fiscal years. 
 1110 

* * * * * 

 (d) * * * 

 (1) * * * 

 (v) For fiscal year 2014, the percentage increase in the market basket index less a 

multifactor productivity adjustment (as determined by CMS) and less 0.3 percentage 

point for prospective payment hospitals (as defined in § 413.40(a) of this chapter) for 

hospitals in all areas. 

* * * * * 

§412.101 [Amended] 

5. Section 412.101 is amended— 

 a. In paragraph (b)(2)(i), by removing the term “FY 2013” and adding in its place 

the term “FY 2014.” 

 b. In paragraph (b)(2)(ii), by removing the phrase “For FY 2011 and FY 2012,” 

and adding in its place the phrase “For FY 2011, FY 2012, and FY 2013,”. 

 c. In paragraph (c)(1), by removing the term “FY 2013” and adding in its place 

the term “FY 2014.” 

 d. In paragraph (c)(2) introductory text, by removing the phrase “For FY 2011 

and FY 2012,” and adding in its place the phrase “For FY 2011, FY 2012, and FY 

2013,”. 

 e. In paragraph (d), by removing the term “FY 2013” and adding in its place the 

term “FY 2014.” 
 1111 

 6. Section 412.106 is amended by adding paragraphs (f), (g), and (h) to read as 

follows: 

§412.106 Special treatment: Hospitals that serve a disproportionate share of lowincome patients.

* * * * * 

 (f) Empirically justified Medicare DSH payments. Effective for discharges on or 

after October 1, 2013, the amounts otherwise payable to a hospital under paragraph (d) of 

this section are reduced by 75 percent. 

 (g) Additional payment for uncompensated care. (1) Payment rules. Hospitals 

that qualify for payments under this section for fiscal year 2014 and each subsequent 

year, will receive an additional amount equal to the product of the following three 

factors: 

 (i) Factor 1. For FY 2014 and each subsequent fiscal year, a factor equal to the 

difference between: 

 (A) The most recently available estimates, as calculated by CMS’ Office of the 

Actuary, of the aggregate amount of payments that would be made to such hospitals 

under paragraphs (a) through (e) of this section if paragraph (f) of this section did not 

apply for the fiscal year; and 

 (B) The most recently available estimates, as calculated by CMS’ Office of the 

Actuary, of the aggregate amount of payments that are made to such hospitals pursuant to 

paragraph (f) of this section for the fiscal year. 
 1112 

 (ii) Factor 2. For each of fiscal years 2014, 2015, 2016, and 2017, a factor equal 

to 1 minus the percent change in the percent of individuals under the age of 65 who are 

uninsured (and subtracting from the factor 0.1 percentage point for fiscal year 2014 and 

0.2 percentage point for each of fiscal years 2015, 2016, and 2017), as determined by 

comparing: 

 (A) 18 percent, the percent of such individuals who are uninsured in 2013, based 

on the March 20, 2010 estimate of the “Insured Share of the Nonelderly Population 

Including All Residents” by the Congressional Budget Office; and 

 (B) The percent of such individuals who are uninsured in the applicable fiscal 

year, based on the most recent estimate of the “Insured Share of the Nonelderly 

Population Including All Residents” by the Congressional Budget Office available at the 

time of development of the annual final rule for the hospital inpatient prospective 

payment system. 

 (iii) Factor 3. A factor equal to the percent, for each inpatient prospective 

payment system hospital, that represents the quotient of: 

 (A) The amount of uncompensated care for such hospital as estimated by CMS. 

 (B) The aggregate amount of uncompensated care as estimated by CMS for all 

hospitals that are estimated to receive a payment under this section. 

 (C) Beginning with fiscal year 2014, CMS will base its estimates of the amount 

of hospital uncompensated care on the most recent available data on utilization for 

Medicaid and Medicare SSI patients, as determined by CMS in accordance with 

paragraphs (b)(2)(i) and (b)(4) of this section. 
 1113 

 (iv) The final values for each of the three factors are determined for each fiscal 

year at the time of development of the annual final rule for the hospital inpatient 

prospective payment system, and these values are used for both interim and final payment 

determinations. 

 (2) Preclusion of administrative and judicial review. There is no administrative 

or judicial review under sections 1869 or 1878 of the Act, or otherwise, of the following: 

 (i) Any estimate of the Secretary for the purpose of determining the factors in 

section paragraph (g)(1) of this section; and 

 (ii) Any period selected by the Secretary for such purposes. 

 (h) Manner and timing of payments. (1) Interim payments are made on a 

periodic basis during the payment year to each hospital that is estimated to be eligible for 

payments under this section at the time of the annual final rule for the hospital inpatient 

prospective payment system, subject to the final determination of eligibility at the time of 

cost report settlement for each hospital. 

 (2) Final payment determinations are made at the time of cost report settlement, 

based on the final determination of each hospital’s eligibility for payment under this 

section. 

§412.108 [Amended] 

7. Section 412.108 is amended— 

a. In paragraph (a)(1) introductory text, by removing the phrase “before 

October 1, 2012” and adding in its place the phrase “before October 1, 2013”. 
 1114 

 b. In paragraph (c)(2)(iii) introductory text, by removing the phrase “before 

October 1, 2012” and adding in its place the phrase “before October 1, 2013”. 

 8. Section 412.140 is amended by revising the section heading and paragraphs 

(a)(3) introductory text and (b) and adding paragraph (f) to read as follows: 

§ 412.140 Participation, data submission, and validation requirements under the 

Hospital Inpatient Quality Reporting (IQR) Program. 

 (a) * * * 

 (3) Submit a completed Notice of Participation Form to CMS if the hospital is 

participating in the program for the first time, has previously withdrawn from the 

program and would like to participate again, or has received a new CMS Certification 

Number (CCN). 

* * * * * 

 (b) Withdrawal from the Hospital IQR Program. CMS will accept Hospital IQR 

Program withdrawal forms from hospitals on or before— 

 (1) Prior to the FY 2016 payment determination, August 15 of the fiscal year 

preceding the fiscal year for which a Hospital IQR determination will be made. 

 (2) Beginning with the FY 2016 payment determination, May 15 of the fiscal 

year preceding the fiscal year for which a Hospital IQR payment determination will be 

made. 

* * * * *
 1115 

 (f) Patient experience of care data (HCAHPS survey). HCAHPS is the Hospital 

Consumer Assessment of Healthcare Providers and Systems survey that measures patient 

experience of care after a recent hospital stay. 

 (1) Approved HCAHPS survey vendors and self-administering hospitals must 

fully comply with all HCAHPS oversight activities, including allowing CMS and its 

HCAHPS Project Team to perform site visits at the hospitals’ and survey vendors’ 

company locations. 

 (2) CMS approves an application for an entity to administer the HCAHPS survey 

as an approved HCAHPS survey vendor on behalf of one or more hospitals when an 

applicant has met the Minimum Survey Requirements and Rules of Participation listed in 

the most recently available version of the HCAHPS Quality Assurance Guidelines, 

available on the official HCAHPS On-Line Web site, and agree to comply with the 

survey administration protocols contained in the most recently available version of the 

HCAHPS Quality Assurance Guidelines and as updated through HCAHPS Bulletins and 

announcements on the official HCAHPS On-Line Web site. An entity must be an 

approved HCAHPS survey vendor in order to administer and submit HCAHPS data to 

CMS on behalf of one or more hospitals. 

 9. Section 412.150 is amended by adding paragraph (c) to read as follows: 

§ 412.150 Basis and scope of subpart.

* * * * * 

 (c) Section 1886(p) of the Act requires the Secretary to establish an adjustment to 

hospital payments for hospital-acquired conditions, or a Hospital-Acquired Condition 
 1116 

Reduction Program, under which payments to applicable hospitals are adjusted to provide 

an incentive to reduce hospital-acquired conditions, effective for discharges beginning on 

October 1, 2014. The rules for determining the payment adjustment under the HospitalAcquired Condition Reduction Program are specified in §§412.170 and 412.172. 

 10. Section 412.152 is amended by revising the definition of “Base operating 

DRG payment amount” to read as follows: 

§ 412.152 Definitions for the Hospital Readmissions Reduction Program. 

 * * * * * 

 Base operating DRG payment amount is the wage-adjusted DRG operating 

payment plus any applicable new technology add-on payments under subpart F of this 

part. This amount is determined without regard to any payment adjustments under the 

Hospital Value-Based Purchasing Program, as specified under § 412.162. This amount 

does not include any additional payments for indirect medical education under § 412.105, 

the treatment of a disproportionate share of low-income patients under § 412.106, outliers 

under subpart F of this part, and a low volume of discharges under § 412.101. With 

respect to a sole community hospital that receives payments under § 412.92(d) or a 

Medicare-dependent, small rural hospital that receives payments under § 412.108(c) for 

FY 2013, this amount also does not include the difference between the hospital-specific 

payment rate and the Federal payment rate determined under subpart D of this part. With 

respect to a hospital that is paid under section 1814(b)(3) of the Act, this amount is an 

amount equal to the wage adjusted DRG payment amount plus new technology payments 
 1117 

that would be paid to such hospitals, absent the provisions of section 1814(b)(3) of the 

Act. 

* * * * * 

 11. Section 412.154 is amended by revising paragraph (d)(2) to read as follows: 

§ 412.154 Payment adjustments under the Hospital Readmissions Reduction 

Program. 

* * * * * 

 (d) * * * 

 (2)(i) Maryland’s annual report to the Secretary and request for exemption from 

the Hospital Readmissions Reduction Program must be resubmitted and reconsidered 

annually. 

 (ii) Beginning with the FY 2015 program year— 

 (A) The State must submit a preliminary report to CMS no later than January 15 

of each year for the Secretary to consider, through the annual proposed rule, its 

exemption from the Hospital Readmissions Reduction Program for the upcoming Federal 

fiscal year. 

 (B) The State must submit a final report to CMS no later than June 1 of each year 

for the Secretary to consider, through the annual final rule, its exemption from the 

Hospital Readmissions Reduction Program in the upcoming Federal fiscal year. 

 (C) The reports required under paragraphs (d)(2)(ii)(A) and (B) of this section 

must include information as specified by CMS. 

* * * * * 
 1118 

 12. Section 412.160 is amended by revising the definitions of “Achievement 

threshold” and “Benchmark” to read as follows: 

§ 412.160 Definitions for the Hospital Value-Based Purchasing (VBP) Program 

* * * * * 

 Achievement threshold (or achievement performance standard) means the median 

(50th percentile) of hospital performance on a measure during a baseline period with 

respect to a fiscal year, for Hospital VBP Program measures other than the Medicare 

Spending per Beneficiary mearsure, and the (50th percentile) of hospital performance on a 

measure during the performance period with respect to a fiscal year, for the Medicare 

Spending per Beneficiary measure. 

* * * * * 

 Benchmark means the arithmetic mean of the top decile of hospital performance 

on a measure during the baseline period with respect to a fiscal year, for Hospital VBP 

Program measures other than the Medicare Spending per Beneficiary measure, and the 

arithmetic mean of the top decile of hospital performance on a measure during the 

performance period with respect to a fiscal year, for the Medicare Spending per 

Beneficiary measure. 

* * * * * 

 13. An undesignated center heading and §§ 412.170 and 412.172 are added to 

subpart I to read as follows: 

Payment Adjustments under the Hospital-Acquired Condition Reduction Program 

§ 412.170 Definitions for the Hospital-Acquired Condition Reduction Program. 
 1119 

 As used in this section and § 412.172, the following definitions apply: 

 Applicable hospital is a hospital described in section 1886(d)(1)(B) of the Act 

(including a hospital in Maryland that is paid under the waiver under section 1814(b)(3) 

of the Act and that, absent the waiver specified by section 1814(b)(3) of the Act, would 

have been paid under the hospital inpatient prospective payment system) as long as the 

hospital meets the criteria specified under § 412.172(e). 

 Applicable period is, with respect to a fiscal year, the 2-year period (specified by 

the Secretary) from which data are collected in order to calculate the total 

hospital-acquired condition score under the Hospital-Acquired Condition Reduction 

Program. 

 Hospital-acquired condition is a condition as described in section 

1886(d)(4)(D)(iv) of the Act and any other condition determined appropriate by the 

Secretary that an individual acquires during a stay in an applicable hospital, as 

determined by the Secretary. 

§ 412.172 Payment adjustments under the Hospital-Acquired Condition Reduction 

Program. 

 (a) Scope. This section sets forth the requirements for determining the payment 

adjustments under the Hospital-Acquired Condition Reduction Program for hospitals that 

meet the criteria described under paragraph (e) of this section. 

 (b) Payment adjustment. With respect to all discharges from an applicable 

hospital occurring during FY 2015 or a subsequent year, the amount of payment under 

this section, or section 1814(b)(3) of the Act as applicable, for such discharges during the 
 1120 

fiscal year will be equal to 99 percent of the amount of payment that would otherwise 

apply to these discharges under this section or section 1814(b)(3) of the Act (determined 

after the application of the payment adjustment under the Hospital Readmissions 

Reduction Program under § 412.154 and the adjustment made under the Hospital 

Value-Based Purchasing Program under § 412.162 and section 1814(l)(4) of the Act but 

without regard to section 1886(p) of the Act). 

 (c) Hospitals paid under section 1814(b)(3) of the Act (certain Maryland 

hospitals). CMS will determine whether to exempt Maryland hospitals that are paid 

under section 1814(b)(3) of the Act and not under the hospital inpatient prospective 

payment system from the application of the payment adjustments under this section. The 

State must submit an annual report to CMS that describes how a similar program to 

reduce hospital-acquired conditions in that State achieves or surpasses the measured 

results in terms of health outcomes and cost savings for the Hospital-Acquired Conditions 

Reduction Program as applied to hospitals described in section 1886(d)(1)(B) of the Act. 

 (1) CMS will establish criteria for evaluation of Maryland’s annual report to 

determine whether the State will be exempted from the application of the payment 

adjustments under this section for a given fiscal year. 

 (2) Maryland’s annual report and request for exemption from the HospitalAcquired Condition Reduction Program must be resubmitted and reconsidered annually. 

 (d) Risk adjustment. In carrying out the provisions of paragraph (e) of this 

section, CMS will establish and apply an appropriate risk-adjustment methodology. 
 1121 

 (e) Criteria for applicable hospitals. (1) General. With respect to a subsection 

(d) hospital, CMS will identify the top quartile of all subsection (d) hospitals with respect 

to hospital-acquired conditions as measured during the applicable period. 

 (2) Use of total hospital-acquired condition scores. CMS will use total hospitalacquired condition scores to identify applicable hospitals. CMs will identify the 25 

percent of hospitals with the highest total scores. 

 (3) Methodology for calculating total hospital-acquired condition scores. CMS 

will calculate the total hospital-acquired condition scores by weighing the selected 

measures according to the established methodology. 

 (f) Reporting of hospital-specific information. CMS will make information 

available to the public regarding hospital-acquired condition rates of all hospitals under 

the Hospital-Acquired Reduction Program. 

 (1) CMS will provide each hospital with confidential hospital-specific reports 

and discharge level information used in the calculation of its total hospital-acquired 

condition score. 

 (2) Hospitals will have a period of 30 days after the receipt of the information 

provided under paragraph (f)(1) of this section to review and submit corrections for the 

hospital-acquired condition domain score for each condition that is used to calculate the 

score for the fiscal year. 

 (3) The administrative claims data used to calculate a hospital’s total 

hospital-acquired condition score for the condition for a fiscal year are not subject to 

review and correction under paragraph (f)(2) of this section. 
 1122 

 (4) CMS will post the total hospital-acquired condition score for the applicable 

conditions for a fiscal year for each hospital on an appropriate Web site. 

 (g) Limitations on review. There is no administrative or judicial review under 

§ 412.170 and this section for the following: 

 (1) The criteria describing applicable hospitals. 

 (2) The applicable period. 

 (3) The specification of hospital-acquired conditions. 

 (4) The provision of reports to hospitals and the information made available to 

the public. 

 14. Section 412.523 is amended by— 

 a. Revising paragraph (c)(3) introductory text. 

 b. Adding paragraph (c)(3)(x). 

 c. Redesignating paragraph (c)(4) as paragraph (c)(5). 

 d. Adding a new paragraph (c)(4). 

 The additions read as follows: 

§ 412.523 Methodology for calculating the Federal prospective payment rates. 

* * * * * 

 (c) * * * 

 (3) Computation of the standard Federal rate. Subject to the provisions of 

paragraph (c)(4) of this section, the standard Federal rate is computed as follows: 

* * * * * 
 1123 

 (x) For long-term care hospital prospective payment system fiscal year beginning 

October 1, 2013, and ending September 30, 2014. The standard Federal rate for the longterm care hospital prospective payment system beginning October 1, 2013, and ending 

September 30, 2014, is the standard Federal rate for the previous long-term care hospital 

prospective payment system fiscal year updated by 1.8 percent, and further adjusted, as 

appropriate, as described in paragraph (d) of this section. 

 (4) For fiscal year 2014 and subsequent fiscal years—(i) In the case of a longterm care hospital that does not submit quality reporting data to CMS in the form and 

manner and at a time specified by the Secretary, the annual update to the standard Federal 

rate specified in paragraph (c)(3) of this section is further reduced by 2.0 percentage 

points. 

 (ii) Any reduction of the annual update to the standard Federal rate under 

paragraph (c)(4)(i) of this section will apply only to the fiscal year involved and will not 

be taken into account in computing the annual update to the standard Federal rate for a 

subsequent fiscal year. 

* * * * * 

PART 482—CONDITIONS OF PARTICIPATION FOR HOSPITALS 

 15. The authority citation for Part 482 continues to read as follows: 

Authority: Secs. 1102, 1871, and 1881 of the Social Security Act (42 U.S.C. 

1302, 1395hh, and 1395rr), unless otherwise noted. 

 16. Section 482.23 is amended by revising paragraph (c)(3) introductory text to 

read as follows: 
 1124 

§482.23 Condition of participation: Nursing services. 

* * * * * 

 (c) * * * 

 (3) With the exception of influenza and pneumococcal vaccines, which may be 

administered per physician-approved hospital policy after an assessment of 

contraindications, orders for drugs and biologicals must be documented and signed by a 

practitioner who is authorized to write orders in accordance with State law and hospital 

policy, and who is responsible for the care of the patient as specified under § 482.12(c). 

* * * * * 

PART 485—CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS 

 17. 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)). 

 18. Section 485.620 is amended by revising paragraph (a) to read as follows: 

§ 485.620 Condition of participation: Number of beds and length of stay. 

(a) Standard: Number of beds. Except as permitted for CAHs having distinct part 

units under § 485.647, the CAH maintains no more than 25 inpatient beds. Inpatient beds 

may be used for either inpatient or swing-bed services. 

* * * * * 

 19. Section 485.635 is amended by revising paragraphs (a)(3)(vii), (b)(1), and 

(c)(1) to read as follows: 

§ 485.635 Condition of participation: Provision of services.
 1125 

 (a) * * * 

 (3) * * * 

 (vii) Procedures that ensure that the nutritional needs of inpatients are met in 

accordance with recognized dietary practices and the orders of the practitioner 

responsible for the care of the patients, and that the requirement of § 483.25(i) of this 

chapter is met with respect to inpatients receiving posthospital SNF care. 

* * * * * 

 (b) * * * 

 (1) General: (i) The CAH provides those diagnostic and therapeutic services and 

supplies that are commonly furnished in a physician's office or at another entry point into 

the health care delivery system, such as a low intensity hospital outpatient department or 

emergency department. These CAH services include medical history, physical 

examination, specimen collection, assessment of health status, and treatment for a variety 

of medical conditions. 

 (ii) The CAH furnishes acute care inpatient services. 

* * * * * 

 (c) * * * 

 (1) The CAH has agreements or arrangements (as appropriate) with one or more 

providers or suppliers participating under Medicare to furnish other services to its 

patients, including— 

 (i) Services of doctors of medicine or osteopathy; 
 1126 

 (ii) Additional or specialized diagnostic and clinical laboratory services that are 

not available at the CAH; and 

 (iii) Food and other services to meet inpatients’ nutritional needs to the extent 

these services are not provided directly by the CAH. 

* * * * * 

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL 

 20. The authority citation for Part 489 continues to read as follows: 

 Authority: Secs. 1102 1819, 1820(E), 1861, 1864(M), 1866, 1869, and 1871 of 

the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x, 1395aa(m), 1395cc, 1395ff, and 

1395(hh)). 

 21. In § 489.24, the paragraph (f) heading is revised to read as follows: 

§ 489. 24 Special responsibilities of Medicare hospitals in emergency cases. 

* * * * * 

 (f) Recipient hospital responsibilities. * * * 

* * * * * 
(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 24, 2013

 ______________________________ 

 Marilyn Tavenner, 

 Acting Administrator, Centers for 

 Medicare & Medicaid Services

Dated: April 25, 2013

 ___________________________ 

 Kathleen Sebelius,

 Secretary. 

BILLING CODE 4120-01-P
 1128 

Note: The following addendum and appendices 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, 2013 and Payment Rates for LTCHs Effective for Discharges 

Occurring on or after October 1, 2013 

I. Summary and Background 

 In this Addendum, we are setting forth a description of the methods and data we 

used to determine the proposed prospective payment rates for Medicare hospital inpatient 

operating costs and Medicare hospital inpatient capital-related costs for FY 2014 for 

acute care hospitals. 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 2014. 

We note that, because certain hospitals excluded from the IPPS are paid on a reasonable 

cost basis subject to a rate-of-increase ceiling (and not by the IPPS), these hospitals are 

not affected by the figures for the standardized amounts, offsets, and budget neutrality 

factors. Therefore, in this proposed rule, we are proposing the rate-of-increase 

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, 2013. 

 In addition, we are setting forth a description of the methods and data we used to 

determine the proposed standard Federal rate that would be applicable to Medicare 

LTCHs for FY 2014. 
 1129 

 In general, except for SCHs and hospitals located in Puerto Rico, for FY 2014, 

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 FY 2006 costs per discharge. 

We note that section 606 of the American Taxpayer Relief Act of 2012 (ATRA) 

extended the MDH program from the end of FY 2012 (that is, for discharges occurring 

before October 1, 2012) to the end of FY 2013 (that is, for discharges occurring before 

October 1, 2013). Under prior law, the MDH program was to be in effect through the end 

of FY 2012 only. Absent additional legislation further extending the MDH program, the 

MDH program will expire for discharges beginning in FY 2014. Therefore, due to the 

expiration of the MDH program beginning with FY 2014, we are not including hospitals 

that are currently MDHs (until October 1, 2013) in our update of the hospital-specific 

rates for FY 2014. 

 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 
 1130 

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 2014. In section III. of this Addendum, 

we discuss our proposed policy changes for determining the prospective payment rates 

for Medicare inpatient capital-related costs for FY 2014. 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 2014. In 

section V. of this Addendum, we are proposing to make changes in the determination of 

the standard Federal rate for LTCHs paid under the LTCH PPS for FY 2014. The tables 

to which we refer in the preamble of this proposed rule are listed in section VI. of this 

Addendum and are available via the Internet. 

II. Proposed Changes to Prospective Payment Rates for Hospital Inpatient 

Operating Costs for Acute Care Hospitals for FY 2014 

 The basic methodology for determining prospective payment rates for hospital 

inpatient operating costs for acute care hospitals for FY 2005 and subsequent fiscal years 

is set forth under § 412.64. The basic methodology for determining the prospective 

payment rates for hospital inpatient operating costs for hospitals located in Puerto Rico 

for FY 2005 and subsequent fiscal years is set forth under §§ 412.211 and 412.212. 

Below we discuss the factors we are using for determining the proposed prospective 

payment rates for FY 2014. 
 1131 

 In summary, the standardized amounts set forth in Tables 1A, 1B, and 1C that are 

listed and published in section VI. of this Addendum (and available via the Internet) 

reflect— 

● Equalization of the standardized amounts for urban and other areas at the level 

computed for large urban hospitals during FY 2004 and onward, as provided for under 

section 1886(d)(3)(A)(iv)(II) of the Act. 

● The labor-related share that is applied to the standardized amounts and Puerto 

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. 

● A proposed update of 1.8 percent for all areas (that is, the FY 2014 estimate of 

the market basket rate-of-increase of 2.5 percent less an adjustment of 0.4 percentage 

point for MFP and less 0.3 percentage point), as required by section 1886(b)(3)(B)(i) of 

the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act. For 

hospitals that fail 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, pursuant to 

section 1886(b)(3)(B)(viii) of the Act, the proposed update is –0.2 percent (that is, the 

FY 2014 estimate of the market basket rate-of-increase of 2.5 percent, less 2.0 percentage 

points for failure to submit data under the Hospital IQR Program, less an adjustment of 

0.4 percentage point for MFP, and less 0.3 percentage point). 

● A proposed update of 1.8 percent to the Puerto Rico-specific standardized 

amount (that is, the FY 2014 estimate of the market basket rate-of-increase of 2.5 percent 

less an adjustment of 0.4 percentage point for MFP and less 0.3 percentage point), in 
 1132 

accordance with section 1886(d)(9)(C)(i) of the Act, as amended by section 401(c) of 

Pub. L. 108-173, which sets the update to the Puerto Rico-specific standardized amount 

equal to the applicable percentage increase set forth under section 1886(b)(3)(B)(i) of the 

Act. 

● An adjustment to the standardized amount to ensure budget neutrality for DRG 

recalibration and reclassification, as provided for under section 1886(d)(4)(C)(iii) of the 

Act. 

● An adjustment to ensure the wage index changes are budget neutral, as 

provided for under section 1886(d)(3)(E)(i) of the Act. We note that 

section 1886(d)(3)(E)(i) of the Act requires that when we compute such budget 

neutrality, we assume that the provisions of section 1886(d)(3)(E)(ii) of the Act 

(requiring a 62 percent labor-related share in certain circumstances) had not been 

enacted. 

● An adjustment to ensure the effects of geographic reclassification are budget 

neutral, as provided for under section 1886(d)(8)(D) of the Act, by removing the FY 2013 

budget neutrality factor and applying a revised factor. 

● An adjustment to ensure the effects of the rural community hospital 

demonstration program required under section 410A of Pub. L. 108-173, as amended by 

sections 3123 and 10313 of Pub. L. 111-148, which extended the demonstration program 

for an additional 5 years, are budget neutral as required under section 410A(c)(2) of 

Pub. L. 108-173. 
 1133 

● An adjustment to remove the FY 2013 outlier offset and apply an offset for 

FY 2014, as provided for under section 1886(d)(3)(B) of the Act. 

● As discussed below and in section II.D. of the preamble of this proposed rule, a 

proposed recoupment to meet the requirements of section 631 of ATRA to adjust the 

standardized amount to offset the estimated amount of the increase in aggregate payments 

as a result of not completing the prospective adjustment authorized under 

section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. 

● As discussed below and in section V.N. of the preamble of this proposed rule, a 

proposed adjustment to offset the cost of the policy proposal on admission and medical 

review criteria for hospital inpatient services under Medicare Part A. 

 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 2013, for FY 2014, consistent with current law, we are proposing to continue to apply 

the rural floor budget neutrality adjustment to hospital wage indices rather than the 

standardized amount. Also, consistent with section 3141 of the Affordable Care Act, 

instead of applying a State level rural floor budget neutrality adjustment to the wage 

index, we are proposing to apply a uniform, national budget neutrality adjustment to the 

proposed FY 2014 wage index for the rural floor. We note that, in section III.G.2.b. of 

the preamble to this proposed rule, we are proposing to extend the imputed floor policy 

(both the original methodology and alternative methodology) for one additional year, 

through September 30, 2014. 
 1134 

 Therefore, for this proposed rule, we are proposing to continue to include the 

imputed floor (calculated under the original and alternative methodologies) in calculating 

the uniform, national rural floor budget neutrality adjustment, which will be reflected in 

the proposed FY 2014 wage index. 

A. Calculation of the Proposed Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts 

 In general, the national standardized amount is based on per discharge averages of 

adjusted hospital costs from a base period (section 1886(d)(2)(A) of the Act), updated 

and otherwise adjusted in accordance with the provisions of section 1886(d) of the Act. 

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 case-mix, differences in area wage levels, cost-of-living adjustments for Alaska 
 1135 

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 amount is divided into labor-related and 

nonlabor-related amounts; only the proportion considered to be the labor-related amount 

is adjusted by the wage index. Section 1886(d)(3)(E) of the Act requires that 62 percent 

of the standardized amount be adjusted by the wage index, unless doing so would result 

in lower payments to a hospital than would otherwise be made. 

(Section 1886(d)(9)(C)(iv)(II) of the Act extends this provision to the labor-related share 

for hospitals located in Puerto Rico.) 

 For FY 2014, we are proposing to rebase and revise the national and Puerto 

Rico-specific labor-related and nonlabor-related shares from the percentages established 

for FY 2013. Specifically, under section 1886(d)(3)(E) of the Act, the Secretary 

estimates from time to time the proportion of payments that are labor-related: “The 

Secretary shall adjust the proportion, (as estimated by the Secretary from time to time) of 

hospitals' costs which are attributable to wages and wage-related costs, of the DRG 

prospective payment rates . . . .” We refer to the proportion of hospitals’ costs that are 

attributable to wages and wage-related costs as the “labor-related share.” For FY 2014, 

as discussed in section IV.B.4. of the preamble of this proposed rule, we are proposing a 

labor-related share of 69.6 percent for the national standardized amounts and 63.2 percent 

for the Puerto Rico-specific standardized amount. Consistent with section 1886(d)(3)(E) 
 1136 

of the Act, we are the wage index to a labor-related share of 62 percent for all IPPS 

hospitals whose wage index values are less than or equal to 1.0000. For all IPPS 

hospitals whose wage indices are greater than 1.0000, we are proposing to apply the wage 

index to a labor-related share of 69.6 percent of the national standardized amount. For 

FY 2014, all Puerto Rico hospitals have a proposed wage index less than 1.0 because the 

proposed average hourly rate of every hospital in Puerto Rico divided by the proposed 

national average hourly rate (the sum of all salaries and hours for all hospitals in the 50 

United States and Puerto Rico) results in a proposed wage index below 1.0000. 

Therefore, the national labor-related share would be 62 percent because the proposed 

wage index for all Puerto Rico hospitals is less than 1.0. 

 When we divide the proposed average hourly rate of every hospital in Puerto Rico 

by the proposed Puerto Rico- Specific national average hourly rate (the sum of all salaries 

and hours for all hospitals only in Puerto Rico), we determine a proposed Puerto Rico 

Specific wage index above or below 1.0000, depending on the hospital. For hospitals 

located in Puerto Rico, we are proposing to apply a labor-related share of 63.2 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 proposing to apply a labor share of 62 percent. 

 The proposed standardized amounts for operating costs appear in Tables 1A, 1B, 

and 1C that are listed and published in section VI. of the Addendum to this proposed rule 

and are available via the Internet. 

2. Computing the Average Standardized Amount 
 1137 

 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 proposed FY 2014 

national standardized amount and Puerto Rico-specific rate irrespective of whether a 

hospital is located in an urban or rural location. 

3. Updating the Average Standardized Amount 

 Section 1886(b)(3)(B) of the Act specifies the applicable percentage increase used 

to update the standardized amount for payment for inpatient hospital operating costs. We 

note that, in compliance with section 404 of the MMA, in this proposed rule, we are 

proposing to replace the FY 2006-based IPPS operating and capital market baskets with 

the revised and rebased FY 2010-based IPPS operating and capital market baskets for 

FY 2014. As discussed in section V.A. of the preamble of this proposed rule, in 

accordance with section 1886(b)(3)(B) of the Act, as amended by section 3401(a) of the 

Affordable Care Act, we are proposing to reduce the proposed FY 2014 applicable 

percentage increase (which is based on the first quarter 2013 forecast of the 

FY 2010-based IPPS market basket) by the proposed MFP adjustment (the 10-year 

moving average of MFP for the period ending FY 2014) of 0.4 percent, which is 

calculated based on IHS Global Insight, Inc.’s (IGI’s) first quarter 2013 forecast. 

 In addition, in accordance with section 1886(b)(3)(B)(i) of the Act, as amended 

by sections 3401(a) and 10319(a) of the Affordable Care Act, we are proposing to further 
 1138 

update the standardized amount for FY 2014 by the estimated market basket percentage 

increase less 0.3 percentage point for hospitals in all areas. Sections 1886(b)(3)(B)(xi) 

and (xii) of Act, as added and amended by sections 3401(a) and 10319(a) of the 

Affordable Care Act, further state that these adjustments may result in the applicable 

percentage increase being less than zero. The percentage increase in the market basket 

reflects the average change in the price of goods and services comprising routine, 

ancillary, and special care unit hospital inpatient services. Based on IGI’s 2013 first 

quarter forecast of the hospital market basket increase (as discussed in Appendix B of this 

proposed rule), the most recent forecast of the hospital market basket increase for 

FY 2014 is 2.5 percent. Thus, for FY 2014, the proposed update to the average 

standardized amount is 1.8 percent for hospitals in all areas (that is, the FY 2014 estimate 

of the market basket rate-of-increase of 2.5 percent less a proposed adjustment of 0.4 

percentage point for MFP and less 0.3 percentage point). For hospitals that do not submit 

quality data pursuant to section 1886(b)(3)(B)(viii) of the Act, the estimated update to the 

proposed operating standardized amount is -0.2 percent (that is, the FY 2014 estimate of 

the market basket rate-of-increase of 2.5 percent, less 2.0 percentage points for failure to 

submit data under the Hospital IQR Program, less a proposed adjustment of 0.4 

percentage point for MFP, and less 0.3 percentage point). The proposed standardized 

amounts in Tables 1A through 1C that are published in section VI. of this Addendum and 

that are available via the Internet reflect these differential amounts. 

 Section 401(c) of Pub. L. 108-173 amended section 1886(d)(9)(C)(i) of the Act 

and states that, for discharges occurring in a fiscal year (beginning with FY 2004), the 
 1139 

Secretary shall compute an average standardized amount for hospitals located in any area 

of Puerto Rico that is equal to the average standardized amount computed under 

subclause (I) for FY 2003 for hospitals in a large urban area (or, beginning with FY 2005, 

for all hospitals in the previous fiscal year) increased by the applicable percentage 

increase under subsection (b)(3)(B) for the fiscal year involved. Therefore, the update to 

the Puerto Rico-specific operating standardized amount is subject to the applicable 

percentage increase set forth under section 1886(b)(3)(B)(i) of the Act, as amended by 

sections 3401(a) and 10319(a) of the Affordable Care Act (that is, the same update factor 

as for all other hospitals subject to the IPPS). Accordingly, we are proposing an 

applicable percentage increase to the Puerto Rico-specific standardized amount of 

1.8 percent. 

 Although the update factors for FY 2014 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 2014 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 2014 standardized amount to 

remove the effects of the FY 2013 geographic reclassifications and outlier payments 

before applying the proposed FY 2014 updates. We then apply budget neutrality offsets 
 1140 

for outliers and geographic reclassifications to the standardized amount based on 

proposed FY 2014 payment policies. 

 We do not remove the prior year’s budget neutrality adjustments for 

reclassification and recalibration of the DRG relative weights and for updated wage data 

because, in accordance with sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act, 

estimated aggregate payments after updates in the DRG relative weights and wage index 

should equal estimated aggregate payments prior to the changes. If we removed the prior 

year’s adjustment, we would not satisfy these conditions. 

 Budget neutrality is determined by comparing aggregate IPPS payments before 

and after making changes that are required to be budget neutral (for example, changes to 

MS-DRG classifications, recalibration of the MS-DRG relative weights, updates to the 

wage index, and different geographic reclassifications). We include outlier payments in 

the simulations because they may be affected by changes in these parameters. 

 In order to appropriately estimate aggregate payments in our modeling, we make 

several inclusions and exclusions so that the appropriate universe of claims and charges 

are included. We discuss IME Medicare Advantage payment amounts, fee-for-service 

only claims, and charges for anti-hemophilic blood factor and organ acquisition below. 

 First, consistent with our methodology established in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50422 through 50433), because IME Medicare Advantage 

payments are made to IPPS hospitals under section 1886(d) of the Act, we believe these 

payments must be part of these budget neutrality calculations. However, we note that it 

is not necessary to include Medicare Advantage IME payments in the outlier threshold 
 1141 

calculation or the outlier offset to the standardized amount because the statute requires 

that outlier payments be not less than 5 percent nor more than 6 percent of total 

“operating DRG payments,” which does not include IME and DSH payments. We refer 

readers to the FY 2011 IPPS/LTCH PPS final rule for a complete discussion on our 

methodology of identifying and adding the total Medicare Advantage IME payment 

amount to the budget neutrality adjustments. 

 Second, consistent with the methodology in the FY 2012 IPPS/LTCH PPS final 

rule, in order to ensure that we capture only fee-for-service claims, we are only including 

claims with a “Claim Type” of 60 (which is a field on the MedPAR file that indicates a 

claim is a fee-for-service claim). 

 Third, consistent with our methodology established in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50422 through 50423), we examined the MedPAR file and 

removed pharmacy charges for anti-hemophilic blood factor (which are paid separately 

under the IPPS) with an indicator of “3” for blood clotting with a revenue code of “0636” 

from the covered charge field for the budget neutrality adjustments. We also removed 

organ acquisition charges from the covered charge field for the budget neutrality 

adjustments because organ acquisition is a pass-through payment not paid under the 

IPPS. 

 The Bundled Payments for Care Improvement (BPCI) initiative, developed under 

the authority of section 3021 of the Affordable Care Act (codified at section 1115A of the 

Act), is comprised of four broadly defined models of care, which link payments for 

multiple services beneficiaries receive during an episode of care. Under the BPCI 
 1142 

initiative, organizations enter into payment arrangements that include financial and 

performance accountability for episodes of care. On January 31, 2013, CMS announced 

the health care organizations selected to participate in the BPCI initiative. For additional 

information on the BPCI initiative, we refer readers to the CMS Center for Medicare and 

Medicaid Innovation’s Web site at: http://innovation.cms.gov/initiatives/BundledPayments/index.html. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 53343), for 

FY 2013 and subsequent fiscal years, we finalized a methodology to treat hospitals that 

participate in the BPCI initiative the same as prior fiscal years for the IPPS payment 

modeling and rate setting process (which includes recalibration of the MS-DRG relative 

weights, ratesetting, calculation of the budget neutrality factors, and the impact analysis) 

without regard to a hospital’s participation within these bundled payment models (that is, 

as if they are not participating in those models under the BPCI initiative). Therefore, for 

FY 2014, we are continuing to include all applicable data from subsection (d) hospitals 

participating in BPCI Models 1, 2, and 4 in our IPPS payment modeling and ratesetting 

calculations. We refer the reader to the FY 2013 IPPS/LTCH PPS final rule for a 

complete discussion on our final policy for the treatment of hospitals in the BPCI 

initiative in our rate setting process. 

 The Affordable Care Act established the Hospital Readmissions Reduction 

Program and the Hospital VBP Program which adjust payments to certain IPPS hospitals 

beginning with discharges on or after October 1, 2012. Because the adjustments made 

under these programs affect the estimation of aggregate IPPS payments, in this proposed 
 1143 

rule, consistent with our methodology established in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53687 through 53688), we believe it is appropriate to include adjustments for 

these programs within our budget neutrality calculations. We discuss the treatment of 

these two programs in the context of budget neutrality adjustments below. 

 Section 1886(q) of the Act establishes the “Hospital Readmissions Reduction 

Program” effective for discharges from an “applicable hospital” beginning on or after 

October 1, 2012, under which payments to those hospitals under section 1886(d) of the 

Act are reduced to account for certain excess readmissions. Under the Hospital 

Readmissions Reduction Program, for discharges beginning on October 1, 2012 

discharges from an “applicable hospital” are paid at an amount equal to the product of the 

“base operating DRG payment amount” and an “adjustment factor” that accounts for 

excess readmissions for the hospital for the fiscal year plus any applicable add-on 

payments. We refer readers to section V.G. of the preamble of this proposed rule for full 

details of our implementation of the Hospital Readmissions Reduction Program. We also 

note that the Hospital Readmissions Reduction Program provided for under 

section 1886(q) of the Act is not budget neutral. 

 Section 1886(o) of the Act requires the Secretary to establish a Hospital VBP 

Program under which, for discharges beginning on October 1, 2012, value-based 

incentive payments are made in a fiscal year to eligible subsection (d) hospitals that meet 

performance standards established for a performance period for that fiscal year. As 

specified under section 1886(o)(7)(B)(i) of the Act, these value-based incentive payments 

are funded by a reduction applied to each eligible hospital’s base-operating DRG 
 1144 

payment amount, for each discharge occurring in the fiscal year. As required by 

section 1886(o)(7)(A) of the Act, the total amount of allocated funds available for valuebased incentive payments with respect to a fiscal year is equal to the total amount of 

base-operating DRG payment reductions, as estimated by the Secretary. In a given fiscal 

year, hospitals may earn a value-based incentive payment amount for a fiscal year that is 

greater than, equal to, or less than the reduction amount, based on their performance on 

quality measures under the Hospital VBP Program. Thus, the Hospital VBP Program is 

estimated to have no net effect on overall payments. We refer readers to section V.H. of 

the preamble of this proposed rule for full details regarding the Hospital VBP Program. 

 Both the hospital readmissions payment adjustment (reduction) and the hospital 

VBP payment adjustment (redistribution) are applied on a claim-by-claim basis by 

adjusting, as applicable, the base-operating DRG payment amount for individual 

subsection (d) hospitals, which affects the overall sum of aggregate payments on each 

side of the comparison within the budget neutrality calculations. For example, when we 

calculate the budget neutrality factor for MS-DRG reclassification and recalibration of 

the relative weights, we compare aggregate payments estimated using the prior year’s 

GROUPER and relative weights to estimated payments using the new GROUPER and 

relative weights. (We refer readers to section II.4.a. of this Addendum for full details.) 

Other factors, such as the DSH and IME payment adjustments, are the same on both sides 

of the comparison because we are only seeking to ensure that aggregate payments do not 

increase or decrease as a result of the changes of MS-DRG reclassification and 

recalibration. 
 1145 

 In order to properly determine aggregate payments on each side of the 

comparison, for FY 2014 and subsequent years, we are proposing to continue to apply the 

hospital readmissions payment adjustment and the hospital VBP payment adjustment on 

each side of the comparison consistent with the methodology we adopted in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53687 through 53688). That is, we are proposing to 

apply the readmissions payment adjustment factor and the hospital VBP payment 

adjustment factor on both sides of our comparison of aggregate payments when 

determining all budget neutrality factors described in section II.A.4. of this Addendum. 

 For the purpose of calculating the proposed FY 2014 readmissions payment 

adjustment factors, we are proposing to use excess readmission ratios and aggregate 

payments for excess readmissions based on admissions from the prior fiscal year’s 

applicable period because hospitals have had the opportunity to review and correct these 

data before the data were made public under the policy we adopted regarding the 

reporting of hospital-specific readmission rates, consistent with section 1886(q)(6) of the 

Act. The data from the proposed applicable period for FY 2014 have not yet been 

through the review and correction process required by section 1886(q)(6) of the Act. For 

the final rule, we intend to calculate the readmissions payment adjustment factors using 

excess readmission ratios and aggregate payments for excess readmissions based on 

admissions from the finalized applicable period for FY 2014 as hospitals will have had 

the opportunity to review and correct these data before the data are made public under 

our policy regarding the reporting of hospital-specific readmission rates consistent with 

section 1886(q)(6) of the Act. We discuss our proposed policy regarding the reporting of 
 1146 

hospital-specific readmission rates for FY 2014 in section V.G.3.f. of the preamble of this 

proposed rule. (For additional information on our general policy for the reporting of 

hospital-specific readmission rates, consistent with section 1886(q)(6) of the Act, we 

refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53399 through 53400).) 

 In addition, for this proposed rule, for the purpose of modeling aggregate 

payments when determining all budget neutrality factors, we are proposing to use 

proposed hospital VBP payment adjustment factors for FY 2014 that are based on data 

from a historical period because hospitals have not yet had an opportunity to review and 

submit corrections for their data from the FY 2014 performance period. (For additional 

information on our policy regarding the review and correction of hospital-specific 

measure rates under the Hospital VBP Program, consistent with section 

1886(o)(10)(A)(ii) of the Act, we refer readers to the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53578 through 53581), the CY 2012 OPPS/ASC final rule with comment period 

(76 FR 74544 through 74547), and the Hospital Inpatient VBP final rule (76 FR 26534 

through 26536).) 

 The Affordable Care Act also establishes a new section 1886(r) of the Act that 

modified the methodology for computing the Medicare DSH payment adjustment 

beginning in FY 2014. Beginning in FY 2014, IPPS hospitals receiving DSH 

adjustments will receive 25 percent of the amount they previously would have received 

under the current statutory formula for Medicare DSH payments. In accordance with 

section 1886(r)(2) of the Act, the remaining amount, equal to an estimate of 75 percent of 

what otherwise would have been paid as Medicare DSH payments, reduced to reflect 
 1147 

changes in the percentage of individuals under age 65 who are uninsured, will be 

available to make additional payments to Medicare DSH hospitals based on their share of 

the total amount of uncompensated care reported by Medicare DSH hospitals for a given 

time period. In order to properly determine aggregate payments on each side of the 

comparison for budget neutrality, prior to FY2014, we included estimated Medicare DSH 

payments on both sides of our comparison of aggregate payments when determining all 

budget neutrality factors described in section II.A.4. of this Addendum. 

 To do this for FY 2014 and subsequent years, we are proposing to include 

estimated DSH payments that will be paid in accordance with section 1886(r)(1) of the 

Act and also to include estimates of the additional payments made to hospitals receiving 

Medicare DSH as described by section 1886(r)(2) of the Act. That is, we are proposing 

to include estimated Medicare DSH payments at 25 percent of what would otherwise be 

paid and also the estimated additional payments for hospitals receiving Medicare DSH on 

both sides of our comparison of aggregate payments when determining all budget 

neutrality factors described in section II.A.4. of this Addendum. 

a. Proposed Recalibration of MS-DRG Relative 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.H. of the preamble of this proposed rule, we normalized the recalibrated 

MS-DRG relative weights by an adjustment factor so that the average case relative 
 1148 

weight after recalibration is equal to the average case relative weight prior to 

recalibration. However, equating the average case relative weight after recalibration to 

the average case relative weight before recalibration does not necessarily achieve budget 

neutrality with respect to aggregate payments to hospitals because payments to hospitals 

are affected by factors other than average case relative weight. Therefore, as we have 

done in past years, we are proposing to make a budget neutrality adjustment to ensure 

that the requirement of section 1886(d)(4)(C)(iii) of the Act is met. 

 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 wage 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 
 1149 

taking into account the fact that hospitals with a wage index less than or equal to 1.0 are 

paid using a labor-related share of 62 percent. Consistent with current policy, for 

FY 2014, we are proposing to adjust 100 percent of the wage index factor for 

occupational mix. We describe the occupational mix adjustment in section III.F. of the 

preamble of this proposed rule. 

 For FY 2014, to comply with the requirement that MS-DRG reclassification and 

recalibration of the relative weights be budget neutral for the Puerto Rico standardized 

amount and the hospital-specific rates, we used FY 2012 discharge data to simulate 

payments and compared aggregate payments using the FY 2013 labor-related share 

percentages, the FY 2013 relative weights, and the FY 2013 pre-reclassified wage data 

and applied the proposed FY 2014 hospital readmissions payment adjustments and 

estimated FY 2014 hospital VBP payment adjustments to aggregate payments using the 

FY 2013 labor-related share percentages, the proposed FY 2014 relative weights, and the 

FY 2013 pre-reclassified wage data and applied the same hospital readmissions payment 

adjustments and estimated hospital VBP payment adjustments. Based on this 

comparison, we computed a proposed budget neutrality adjustment factor equal 

to 0.997583. As discussed in section IV. of this Addendum, we also are proposing to 

apply the proposed MS-DRG reclassification and recalibration budget neutrality factor 

of 0.997583 to the hospital-specific rates that are effective for cost reporting periods 

beginning on or after October 1, 2013. 

 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 neutrality, it was 
 1150 

necessary to use a three-step process to comply with the requirements that MS-DRG 

reclassification and recalibration of the relative weights and the updated wage index and 

labor-related share have no effect on aggregate payments for IPPS hospitals. We first 

determined a proposed MS- DRG reclassification and recalibration budget neutrality 

factor of 0.997583 (by using the same methodology described above to determine the 

proposed MS-DRG reclassification and recalibration budget neutrality factor for the 

Puerto Rico standardized amount and hospital-specific rates). Secondly, to compute a 

proposed budget neutrality factor for wage index and labor-related share changes, we 

used FY 2012 discharge data to simulate payments and compared aggregate payments 

using the proposed FY 2014 relative weights and the FY 2013 pre-reclassified wage 

indices, applied the FY 2013 labor-related share of 68.8 percent to all hospitals 

(regardless of whether the hospital’s wage index was above or below 1.0) and applied the 

proposed FY 2014 hospital readmissions payment adjustment and the FY 2014 estimated 

hospital VBP payment adjustment when estimating aggregate payments using the 

proposed FY 2014 relative weights and the proposed FY 2014 pre-reclassified wage 

indices, applied the proposed labor-related share for FY 2014 of 69.6 percent to all 

hospitals (regardless of whether the hospital’s wage index was above or below 1.0), and 

applied the same proposed FY 2014 hospital readmissions payment adjustments and 

estimated FY 2014 hospital VBP payment adjustments. In addition, we applied the 

proposed MS-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 2013 to FY 2014. By applying this methodology, we 
 1151 

determined a proposed budget neutrality factor of 0.999766 for changes to the wage 

index. Finally, we multiplied the proposed MS-DRG reclassification and recalibration 

budget neutrality factor of 0.997583 (derived in the first step) by the proposed budget 

neutrality factor of 0.999766 for changes to the wage index (derived in the second step) 

to determine the proposed MS-DRG reclassification and recalibration and updated wage 

index budget neutrality factor of 0.99735. 

b. Reclassified Hospitals—Budget Neutrality Adjustment 

 Section 1886(d)(8)(B) of the Act provides that certain rural hospitals are deemed 

urban. In addition, section 1886(d)(10) of the Act provides for the reclassification of 

hospitals based on determinations by the MGCRB. Under section 1886(d)(10) of the 

Act, a hospital may be reclassified for purposes of the wage index. 

 Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the 

standardized amount to ensure that aggregate payments under the IPPS after 

implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of 

the Act are equal to the aggregate prospective payments that would have been made 

absent these provisions. We note that the wage index adjustments provided for under 

section 1886(d)(13) of the Act are not budget neutral. Section 1886(d)(13)(H) of the Act 

provides that any increase in a wage index under section 1886(d)(13) shall not be taken 

into account in “applying any budget neutrality adjustment with respect to such index” 

under section 1886(d)(8)(D) of the Act. To calculate the proposed budget neutrality 

factor for FY 2014, we used FY 2012 discharge data to simulate payments and compared 

total IPPS payments with proposed FY 2014 relative weights, proposed FY 2014 
 1152 

labor-related share percentages, and proposed FY 2014 wage data prior to any 

reclassifications under sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act and 

applied the proposed FY 2014 hospital readmissions payment adjustments and the 

estimated FY 2014 hospital VBP payment adjustments to total IPPS payments with 

proposed FY 2014 relative weights, proposed FY 2014 labor-related share percentages, 

and proposed FY 2014 wage data after such reclassifications and applied the same 

hospital readmissions payment adjustments and the estimated hospital VBP payment 

adjustments. Based on these simulations, we calculated a proposed adjustment factor of 

0.990971 to ensure that the effects of these provisions are budget neutral, consistent with 

the statute. 

 The proposed FY 2014 budget neutrality adjustment factor is applied to the 

standardized amount after removing the effects of the FY 2013 budget neutrality 

adjustment factor. We note that the proposed FY 2014 budget neutrality adjustment 

reflects proposed FY 2014 wage index reclassifications approved by the MGCRB or the 

Administrator. 

c. Proposed Rural Floor Budget Neutrality Adjustment 

 As noted above, as discussed in section III.G. 2.b. of the preamble of this 

proposed rule, in the FY 2012 IPPS/LTCH PPS final rule, we extended the imputed floor 

calculated under the original methodology through FY 2013 (76 FR 51594). In the 

FY 2013 IPPS/LTCH PPS final rule, we established an alternative methodology for 

calculating the imputed floor and established a policy that the minimum wage index 

value for an all-urban state would be the higher of the value determined under the 
 1153 

original methodology or the value computed using the alternative methodology 

(77 FR 53368 through 53369). We make an adjustment to the wage index to ensure that 

aggregate payments to hospitals 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 not affected. In addition, we note in section III.G.2.b. of the preamble of 

this proposed rule, we are proposing to extend the imputed floor using the higher of the 

value determined under the original methodology or the alternative methodology for FY 

2014. Consistent with the methodology for treating the imputed floor, similar to the 

methodology we used in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53368 through 

53369), we included this alternative methodology for computing the imputed floor index 

in the calculation of the uniform, national rural floor budget neutrality adjustment for FY 

2014. Also, consistent with section 3141 of the Affordable Care Act and as discussed in 

section III.G. of this proposed rule, the budget neutrality adjustment for the rural and 

imputed floors is a national adjustment to the wage index. 

 Since FY 2012, there has been one hospital in rural Puerto Rico. Therefore, 

similar to our calculation in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51593 and 

51788) and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53689), for FY 2014, we are 

proposing to calculate a national rural Puerto Rico wage index (used to adjust the 

labor-related share of the national standardized amount for hospitals located in Puerto 

Rico which receive 75 percent of the national standardized amount) and a rural Puerto 

Rico-specific wage index (which is used to adjust the labor-related share of the Puerto 

Rico-specific standardized amount for hospitals located in Puerto Rico that receive 25 
 1154 

percent of the Puerto Rico-specific standardized amount). Because this rural Puerto Rico 

hospital still has no established wage data, our calculation is based on the policy adopted 

in the FY 2008 IPPS final rule with comment period (72 FR 47323). A complete 

discussion regarding the computation of the rural Puerto Rico wage index can be found in 

the FY 2012 IPPS/LTCH PPS final rule (76 FR 51594). 

 To calculate the proposed national rural floor and imputed floor budget neutrality 

adjustment factor and the proposed Puerto Rico-specific rural floor budget neutrality 

adjustment factor, we used FY 2012 discharge data and proposed FY 2014 

post-reclassified national and Puerto Rico-specific wage indices to simulate IPPS 

payments. First, we compared the national and Puerto Rico-specific simulated payments 

without the national rural floor and imputed floor and Puerto Rico-specific rural floor 

applied to the national and Puerto Rico-specific simulated payments with the national 

rural floor and imputed floor and Puerto Rico-specific rural floor applied to determine the 

proposed national rural budget neutrality adjustment factor of 0.990189 and the proposed 

Puerto Rico-specific budget neutrality adjustment factor of 0.990877. The national 

adjustment is applied to the national wage indices to produce a national rural floor budget 

neutral wage index and the Puerto Rico-specific adjustment is applied to the Puerto 

Rico-specific wage indices to produce a Puerto Rico-specific rural floor budget neutral 

wage index. 

d. Proposed Case-Mix Budget Neutrality Adjustment 

 Below we summarize the proposed recoupment adjustment to the FY 2014 

payment rates, as required by section 631 of ATRA, to account for the increase in 
 1155 

aggregate payments as a result of not completing the prospective adjustment authorized 

under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. We refer readers to section 

II.D. of the preamble of this proposed rule for a complete discussion regarding our 

proposals and previously finalized policies (including our historical adjustments to the 

payment rates) relating to the effect of changes in documentation and coding that do not 

reflect real changes in case-mix. We note that section II.D. of the preamble of this 

proposed rule also includes a discussion on documentation and coding effects that 

occurred through FY 2010, including a request for public comments as to whether any 

portion of the proposed -0.8 percent recoupment adjustment discussed below should be 

reduced and instead applied as a prospective adjustment for the cumulative MS-DRG 

documentation and coding effect through FY 2010. 

(1) Recoupment or Repayment Adjustment Authorized by Section 631 of the American 

Taxpayer Relief Act of 2012 (ATRA) to the National Standardized Amount 

 Section 631 of the ATRA amended section 7(b)(1)(B) of Pub. L. 110-90 to 

require the Secretary to make a recoupment adjustment totaling $11 billion by FY 2017. 

Our actuaries estimate that if CMS were to fully account for the $11 billion recoupment 

required by section 631 of ATRA in FY 2014, a one time -9.3 percent adjustment to the 

standardized amount would be necessary. It is often our practice to delay or phase in rate 

adjustments over more than one year, in order to moderate the effect on rates in any one 

year. Therefore, consistent with the policies that we have adopted in many similar cases, 

we are proposing a -0.8 percent adjustment to the standardized amount in FY 2014. We 

note that, as section 631 of the ATRA instructs CMS to make a recoupment adjustment 
 1156 

only to the standardized amount, this proposed adjustment would not apply to the Puerto 

Rico-specific rate. 

e. Proposed Adjustment to Offset the Cost of the Policy Proposal on Admission and 

Medical Review Criteria for Hospital Inpatient Services under Medicare Part A 

 In the Medicare Part B Inpatient Billing in Hospitals proposed rule that went on 

display at the Office of the Federal Register on March 13, 2013, and that appeared in the 

Federal Register on March 18, 2013 (78 FR 16632), we proposed to revise our Part B 

inpatient billing policy to allow payment of all hospital services that were furnished and 

would have been reasonable and necessary if the beneficiary had been treated as an 

outpatient, rather than admitted to the hospital as an inpatient, except for those services 

specifically requiring an outpatient status. This policy would apply when CMS or a 

Medicare review contractor determines that the hospital admission was not reasonable 

and necessary or when a hospital determines after a beneficiary has been discharged that 

the beneficiary should have received hospital outpatient services rather than hospital 

inpatient services. We also proposed to continue applying the timely filing restriction to 

the billing of all Part B inpatient services, under which claims for Part B services must be 

filed within 1 year from the date of service. As we discuss in section V.N. of the 

preamble to this proposed rule, in addition to evaluating our policy related to Part B 

inpatient billing following denials of Part A inpatient claims on the basis that the 

inpatient admission was not reasonable and necessary or following self-audit, we also 

believe it is important to consider whether we can provide more clarity regarding the 

relationship between inpatient admission decisions and Medicare payment. Toward that 
 1157 

end, in section V.N.3. of the preamble of this proposed rule, we present a proposal that 

would clarify that a beneficiary becomes a hospital inpatient when formally admitted 

following the physician order for hospital inpatient admission, and would also clarify 

when we believe hospital inpatient admissions are reasonable and necessary based on 

how long beneficiaries have spent, or are reasonable expected to spend, in the hospital as 

inpatients. Under this proposal, Medicare’s external review contractors would presume 

that hospital inpatient admissions are reasonable and necessary for beneficiaries who 

require more than one Medicare utilization day (defined by encounters crossing 2 

“midnights”) in the hospital receiving medically necessary services. Similarly, we would 

presume that generally services spanning less than 2 midnights should have been 

provided on an outpatient basis, unless there is clear physician documentation in the 

medical record supporting the physician’s order and expectation that the beneficiary 

required an inpatient level of care. (For a complete discussion on our proposed inpatient 

admission guidelines, including our proposed time-based presumption of medical 

necessity for hospital inpatient services based on the beneficiary’s length of stay as part 

of our medical review criteria for payment of hospital inpatient services under Medicare 

Part A, we refer readers to section V.N.3 of this proposed rule.) 

 Our actuaries project a net increase in IPPS expenditures as a result of the 

proposed policy that medical review of inpatient admissions will include a presumption 

that hospital inpatient admissions are reasonable and necessary for beneficiaries who 

require more than 1 Medicare utilization day (defined by encounters crossing 2 

“midnights”) in the hospital receiving medically necessary services, discussed in section 
 1158 

V.N.3. of the preamble of this proposed rule (as summarized above). These additional 

expenditures result from an expected net increase in hospital inpatient encounters due to 

some encounters spanning more than 2 midnights moving to the IPPS from the OPPS, 

and some encounters of less than 2 midnights moving from the IPPS to the OPPS. In 

making this projection, the actuaries analyzed Medicare claims data for extended hospital 

outpatient encounters and shorter stay hospital inpatient encounters, and estimated the 

number of encounters that are expected to shift from outpatient to inpatient and vice versa 

(that is, the number that are expected to shift from inpatient to outpatient). In section 

V.N.5. of the preamble of this proposed rule, we discuss that our actuaries estimate that 

this projected net increase in inpatient encounters would increase IPPS expenditures by 

approximately $220 million. In light of the widespread impact on the IPPS of the 

proposed policy and the systemic nature of the issue, we believe it is appropriate to use 

our exceptions and adjustments authority under section 1886(d)(5)(I)(i) of the Act to 

offset to offset the estimated $220 million in additional IPPS expenditures associated 

with this proposed policy by proposing to reduce the national standardized amount, the 

Puerto Rico-specific standardized amount, and hospital-specific rates by 0.2 percent (or 

0.998 adjustment). We refer readers to section V.N.4. of the preamble of this proposed 

rule for a complete discussion on this proposed adjustment to offset the estimated cost of 

the proposed time-based presumption of medical necessity for hospital inpatient services 

based on the beneficiary’s length of stay as part of our medical review criteria for 

hospital inpatient services under Medicare Part A. 

f. Proposed Rural Community Hospital Demonstration Program Adjustment 
 1159 

 As discussed in section V.K. of the preamble to this proposed rule, section 410A 

of Pub. L. 108-173 originally required the Secretary to establish a demonstration program 

that modifies reimbursement for inpatient services for up to 15 small rural hospitals. 

Section 410A(c)(2) of Pub. L. 108-173 requires that “[i]n conducting the demonstration 

program under this section, the Secretary shall ensure that the aggregate payments made 

by the Secretary do not exceed the amount which the Secretary would have paid if the 

demonstration program under this section was not implemented.” 

 Sections 3123 and 10313 of the Affordable Care Act extended the demonstration 

program for an additional 5-year period, and allowed up to 30 hospitals to participate in 

20 States with low population densities determined by the Secretary. (In determining 

which States to include in the expansion, the Secretary is required to use the same criteria 

and data that the Secretary used to determine the States for purposes of the initial 5-year 

period.) In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53449 through 53453), in 

order to achieve budget neutrality, we adjusted the national IPPS rates by an amount 

sufficient to account for the added costs of this demonstration program as described in 

section IV.K. of that final rule. In other words, we applied budget neutrality across the 

payment system as a whole rather than merely across the participants of this 

demonstration program, consistent with past practice. We stated that we believe that the 

language of the statutory budget neutrality requirement permits the agency to implement 

the budget neutrality provision in this manner. The statutory language requires that 

“aggregate payments made by the Secretary do not exceed the amount which the 
 1160 

Secretary would have paid if the demonstration...was not implemented,” but does not 

identify the range across which aggregate payments must be held equal. 

 For FY 2014, for the 23 hospitals participating in the demonstration program, we 

are proposing to adjust the national IPPS payment rates according to the same 

methodology that we used for FY 2013, as set forth in section V.K. of the preamble of 

this proposed rule. For this proposed rule, the estimated amount for the proposed 

adjustment to the national IPPS payment rates for FY 2014 is $46,515,865. (The 

estimated amount for the adjustment to the national IPPS payment rates for FY 2013 was 

$34,288,129.) Accordingly, to account for the estimated costs of the demonstration 

program, for FY 2014, we computed a factor of 0.999834 for the rural community 

hospital demonstration program budget neutrality adjustment that would be applied to the 

IPPS standard Federal payment rate. 

 We note that if updated data became available prior to the publication of the 

FY 2014 IPPS/LTCH PPS final rule, we are proposing to use that data, to the extent 

appropriate, to estimate the costs of the demonstration program in FY 2014. Therefore, 

this estimated budget neutrality offset amount may change in the final rule to reflect the 

updated data. 

 In addition, if settled cost reports for all of the demonstration hospitals that 

participated in the applicable fiscal year (2007, 2008, 2009 or 2010) are made available 

prior to the FY 2014 IPPS/LTCH PPS final rule, we are proposing to incorporate into the 

FY 2014 budget neutrality offset amount any additional amounts by which the final 

settled costs of the demonstration in any of these years (as described previously) 
 1161 

exceeded the budget neutrality offset amount applicable to such year as finalized in the 

respective year’s IPPS final rule. 

g. 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 “fixed-loss” amount (a dollar amount by which 

the costs of a case must exceed payments in order to qualify for an outlier payment). We 

refer to the sum of the prospective payment rate for the 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 2014 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 (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. 
 1162 

We do not include any other payments such as IME and DSH within the outlier target 

amount. Therefore, it is not necessary to include Medicare Advantage IME payments in 

the outlier threshold calculation. Section 1886(d)(3)(B) of the Act requires the Secretary 

to reduce the average standardized amount by a factor to account for the estimated 

proportion of total DRG payments made to outlier cases. Similarly, 

section 1886(d)(9)(B)(iv) of the Act requires the Secretary to reduce the average 

standardized amount applicable to hospitals located in Puerto Rico to account for the 

estimated proportion of total DRG payments made to outlier cases. More information on 

outlier payments may be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/outlier.html. 

(1) Proposed FY 2014 Outlier Fixed-Loss Cost Threshold 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53691 through 53696), we 

received comments from the public concerning our methodology for calculating the 

outlier threshold. Specifically, many commenters expressed concern that CMS is still not 

reaching the 5.1 percent target for outlier payments and believed there is still room for 

improvement. The commenters made various suggestions to improve the current 

methodology used to calculate the outlier threshold. In that final rule we responded that 

we appreciate the commenters providing multiple alternative methodologies to adjust the 

CCRs used in our outlier fixed-loss cost threshold. Due to the many options the 

commenters presented, we stated that the most prudent approach was to study the merits 

of each methodology and, if appropriate, make a proposal in the FY 2014 IPPS/LTCH 
 1163 

PPS proposed rule if we believe making a change to our current methodology would 

improve our methodology for projecting the outlier fixed-loss cost threshold. Since 

publication of the FY 2013 IPPS/LTCH PPS final rule, we have studied the merits of the 

commenters’ suggestions to improve the outlier threshold methodology. Below we 

discuss our proposed outlier methodology for FY 2014 with revisions from the prior 

fiscal year. 

 As we have done in the past, to calculate the proposed FY 2014 outlier threshold, 

we simulated payments by applying proposed FY 2014 payment rates and policies using 

cases from the FY 2012 MedPAR file. Therefore, in order to determine the proposed 

FY 2014 outlier threshold, we inflated the charges on the MedPAR claims by 2 years, 

from FY 2012 to FY 2014. Since FY 2005, we have used the same methodology to 

inflate charges. For FY 2014 and subsequent years, we are proposing to further refine 

our current methodology which uses more recent data that reflect the rate-of-change in 

hospital charges under the new outlier policy. In the FY 2005 IPPS final rule 

(69 FR 49277), to compute the 1-year average annualized rate-of-change in charges per 

case, we stated that we were taking the unprecedented step of comparing the average 

charge per case from the most recent 6 month period of charge data available to the 

average charge per case from the same 6 month period from the prior year rather than 

using a full year of charge data. At that time, we noted that we adopted this methodology 

to calculate the outlier threshold for FY 2005 as a result of the special circumstances 

surrounding the revisions to the outlier payment methodology; specifically the 

exceptionally high rate of hospital charge inflation that was reflected in the data for 
 1164 

FYs 2001, 2002, and 2003. We also noted that we would continue to consider other 

methodologies for determining charge inflation when calculating the outlier threshold in 

the future. We refer the reader to the FY 2005 IPPS final rule for a complete discussion 

on this methodology. 

 For FY 2014, if we were to propose to continue to use our current methodology 

that we adopted in FY 2005, we would have computed the 1-year average annualized 

rate-of-change in charges per case by comparing the last quarter of FY 2011 in 

combination with the first quarter of FY 2012 (July 1, 2011, through December 31, 2011) 

to the last quarter of FY 2012 in combination with the first quarter of FY 2013 

(July 1, 2012, through December 31, 2012). This rate-of-change was 4.7 percent 

(1.046908) or 9.6 percent (1.096016) over 2 years. After nine years of using the same 

methodology, the special circumstances of the exceptionally high rate of hospital charge 

inflation that was reflected in the data for FYs 2001, 2002, and 2003 may not be as 

applicable. We believe the policies that we implemented in the FY 2003 Outlier final 

rule (outlier reconciliation and no longer assigning the statewide average CCR for those 

hospitals that fall below a CCR floor) have helped control inflation of hospital charges. 

 Therefore, instead of comparing periods of the most recent 6 months of charge 

data, we are proposing to adopt a new methodology to inflate charges that use periods of 

1-year of the most recent charge data. We believe a methodology that is based on 1-year 

of charge data will provide a more stable measure to project the average charge per case 

since a 6 month measure inherently uses fewer claims than a 1-year measure, which 

makes it more susceptible to fluctuations in the average charge per case as a result of any 
 1165 

significant charge increases or decreases by hospitals. Under this new proposed 

methodology, to compute the 1-year average annualized rate-of-change in charges per 

case for FY 2014, we are proposing to compare the second quarter of FY 2011 through 

the first quarter of FY 2012 (January 1, 2011, through December 31, 2011) to the second 

quarter of FY 2012 through the first quarter of FY 2013 (January 1, 2012, through 

December 31, 2012). This rate-of-change was 4.8 percent (1.048458) or 9.9 percent 

(1.099264) over 2 years. 

 As we have done in the past, we are proposing to establish the proposed FY 2014 

outlier threshold using hospital CCRs from the December 2012 update to the 

Provider-Specific File (PSF) -- the most recent available data at the time of this proposed 

rule. For FY 2014, we are also proposing to continue to apply an adjustment factor to the 

CCRs to account for cost and charge inflation (as explained below). In the FY 2007 IPPS 

final rule (71 FR 48150), we worked with the Office of Actuary to develop the current 

methodology used to adjust the CCRs. We have used this same methodology to adjust 

the CCRs from FY 2007 through FY 2013. 

 Over the years, many commenters have stated that our current methodology is 

unnecessary complicated. In addition, as mentioned above, in the FY 2013 IPPS/LTCH 

PPS final rule, commenters made various suggestions to improve the current 

methodology used to calculate the outlier threshold and we stated that we would study the 

merits of each methodology and, if appropriate, make a proposal in the FY 2014 

IPPS/LTCH PPSproposed rule if we believe making a change to our current methodology 

would improve our projection of the outlier fixed-loss cost threshold. In that same final 
 1166 

rule, some commenters suggested the use of historical CCR data from the PSF to 

compute a rate-of-change in CCRs. Under this approach, the commenters compared the 

national average case-weighted operating and capital CCR from the most recent update of 

the PSF to the national average case-weighted operating and capital CCR from the same 

period of the prior year. The commenters stated that although this adjustment would be 

based on 1 year’s data, the commenters believed that the use of historical data to adjust 

the CCRs is consistent with CMS’ estimation of charge inflation. After reviewing the 

commenters’ suggestion, we agree that the use of historical data to adjust the CCRs is 

simpler and is consistent with CMS’ estimation of charge inflation. 

 Therefore, for FY 2014, we are proposing to adjust the CCRs from the December 

2012 update of the PSF by comparing the percentage change in the national average 

case-weighted operating CCR and capital CCR from the December 2011 update of the 

PSF to the national average case-weighted operating CCR and capital CCR from the 

December 2012 update of the PSF. We note that we used total transfer-adjusted cases 

from FY 2012 to determine the national average case-weighted CCRs for both sides of 

the comparison. We believe it is appropriate to use the same case count on both sides of 

the comparison as this will produce the true percentage change in the average 

case-weighted operating and capital CCR from one year to the next without any effect 

from a change in case count on different sides of the comparison. 

 Using the proposed methodology above, we calculated a December 2011 

operating national average case-weighted CCR of 0.303178 and a December 2012 

operating national average case-weighted CCR of 0.295049. We then calculate the 
 1167 

percentage change between the two national operating case-weighted CCRs by 

subtracting the December 2011 operating national average case-weighted CCR from the 

December 2012 operating national average case-weighted CCR and then dividing by the 

December 2011 national operating average case-weighted CCR. This resulted in a 

national operating CCR adjustment factor of 0.973187. 

 We used the same methodology proposed above to also adjust the capital CCRs. 

Specifically, we calculated a December 2011 capital national average case-weighted 

CCR of 0.025994 and a December 2012 capital national average case-weighted CCR 

of 0.0249373. We then calculated the percentage change between the two national 

capital case-weighted CCRs by subtracting the December 2011 capital national average 

case-weighted CCR from the December 2012 capital national average case-weighted 

CCR and then dividing by the December 2011 capital national average case-weighted 

CCR. This resulted in a national capital CCR adjustment factor of 0.959337. 

 Consistent with our methodology in the past and 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. 
 1168 

 As stated above, for FY 2014, we applied the proposed FY 2014 rates and policies 

using cases from the FY 2012 MedPAR files in calculating the proposed outlier 

threshold. 

 As discussed in section III.B.3. of the preamble to the FY 2011 IPPS/LTCH PPS 

final rule (75 FR 50160 and 50161) and in section III.G.3. of the preamble of this 

proposed rule, in accordance with section 10324(a) of the Affordable Care Act, beginning 

in FY 2011, we created a wage index floor of 1.00 for all hospitals located in States 

determined to be frontier States. We noted that the frontier State floor adjustments will 

be calculated and applied after rural and imputed floor budget neutrality adjustments are 

calculated for all labor market areas, in order to ensure that no hospital in a frontier State 

will receive a wage index lesser than 1.00 due to the rural and imputed floor adjustment. 

In accordance with section 10324(a) of the Affordable Care Act, the frontier State 

adjustment will not be subject to budget neutrality, and will only be extended to hospitals 

geographically located within a frontier State. However, for purposes of estimating the 

proposed outlier threshold for FY 2014, it was necessary to apply this provision by 

adjusting the wage index of those eligible hospitals in a frontier State when calculating 

the outlier threshold that results in outlier payments being 5.1 percent of total payments 

for FY 2014. If we did not take into account this provision, our estimate of total FY 2014 

payments would be too low, and, as a result, our proposed outlier threshold would be too 

high, such that estimated outlier payments would be less than our projected 5.1 percent of 

total payments. 
 1169 

 As we did in establishing the FY 2009 outlier threshold (73 FR 57891), in our 

projection of FY 2014 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. 

 As described in sections V.G. and V.H., respectively, of the preamble of this 

proposed rule, sections 1886(q) and 1886(o) of the Act establish the Hospital 

Readmissions Reduction Program and the Hospital VBP Program, respectively. We do 

not believe it is appropriate to include the hospital VBP payment adjustments and the 

hospital readmissions payment adjustments in the outlier threshold calculation or the 

outlier offset to the standardized amount. Specifically, consistent with our definition of 

the base operating DRG payment amount for the Hospital Readmissions Reduction 

Program under § 412.152 and the Hospital VBP Program under § 412.160, outlier 
 1170 

payments under section 1886(d)(5)(A) of the Act are not affected by these payment 

adjustments. Therefore, outlier payments would continue to be calculated based on the 

unadjusted base DRG payment amount (as opposed to using the base-operating DRG 

payment amount adjusted by the hospital readmissions payment adjustment and the 

hospital VBP payment adjustment). Consequently, we are proposing to exclude the 

hospital VBP payment adjustments and the hospital readmissions payment adjustments 

from the calculation of the outlier fixed-loss cost threshold. 

 Using this proposed methodology, we are proposing an outlier fixed-loss cost 

threshold for FY 2014 equal to the prospective payment rate for the DRG, plus any IME 

and DSH payments, and any add-on payments for new technology, plus $24,140. 

We note that the proposed FY 2014 threshold is higher than the FY 2013 final 

outlier threshold of $21,821. We believe that the decrease in DSH payments due to the 

implementation of section 1886(r)(1) of the Act contributed to a higher proposed 

fixed-loss outlier threshold for FY 2014. We note that the additional payments based on 

uncompensated care made to hospitals receiving Medicare DSH under section 1886(r)(2) 

of the Act are not taken into consideration when determining outlier payments because 

we did not propose to make this payment on a per discharge basis. However, when 

computing a claim by claim outlier threshold, we calculate DSH payments under section 

1886(d)(5)(f) of the Act with the reduction under section 1886(r)(1) (the original DSH 

amount multiplied by 0.25). Therefore, we believe that, decreasing DSH payments 

decreases total funds to typical cases, which is used to compute the claim by claim outlier 

threshold thus leading to an increase in outlier payments. This requires that we raise the 
 1171 

outlier threshold to decrease the amount of outlier dollars expended in order to reach the 

5.1 percent target. 

(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 2014 will result in outlier payments that will equal 5.1 percent of 

operating DRG payments and 5.49 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 2014 standardized amount by the same percentage to account for the projected 

proportion of payments paid as outliers. 

 The outlier adjustment factors that would be applied to the standardized amount 

based on the FY 2014 outlier threshold are as follows: 

Operating 

Standardized Amounts Capital Federal Rate 

National 0.948997 0.945149 

Puerto Rico 0.952600 0.944392 

 We are proposing to apply the outlier adjustment factors to the proposed FY 2014 

rates after removing the effects of the FY 2013 outlier adjustment factors on the 

standardized amount. 
 1172 

 To determine whether a case qualifies for outlier payments, we apply 

hospital-specific CCRs to the total covered charges for the case. Estimated operating and 

capital costs for the case are calculated separately by applying separate operating and 

capital CCRs. These costs are then combined and compared with the outlier fixed-loss 

cost threshold. 

 Under our current policy at § 412.84, we calculate operating and capital CCR 

ceilings and assign a statewide average CCR for hospitals whose CCRs exceed 3.0 

standard deviations from the mean of the log distribution of CCRs for all hospitals. 

Based on this calculation, for hospitals for which the fiscal intermediary or MAC 

computes operating CCRs greater than 1.152 or capital CCRs greater than 0.166, or 

hospitals for which the fiscal intermediary or MAC is unable to calculate a CCR (as 

described under § 412.84(i)(3) of our regulations), statewide average CCRs are used to 

determine whether a hospital qualifies for outlier payments. Table 8A listed in 

section VI. of this Addendum (and available only via the Internet) 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 hospital-specific CCR within the 

above range. Effective for discharges occurring on or after October 1, 2013, these 

statewide average ratios would replace the ratios posted on our Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/FY-2013-IPPS-Final-Rule-Home-Page-Items/FY2013-

Final-Rule-Tables.html. Table 8B listed in section VI. of this Addendum (and available 

via the Internet) contains the proposed comparable statewide average capital CCRs. 
 1173 

Again, the CCRs in Tables 8A and 8B would be used during FY 2014 when 

hospital-specific CCRs based on the latest settled cost report are either not available or 

are outside the range noted above. Table 8C listed in section VI. of this Addendum (and 

available via the Internet) contains the proposed statewide average total CCRs used under 

the LTCH PPS as discussed in section V. of this Addendum. 

 We finally note that we published a manual update (Change Request 3966) to our 

outlier policy on October 12, 2005, which updated Chapter 3, Section 20.1.2 of the 

Medicare Claims Processing Manual. The manual update covered an array of topics, 

including CCRs, reconciliation, and the time value of money. We encourage hospitals 

that are assigned the statewide average operating and/or capital CCRs to work with their 

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. In addition, as mentioned above, 

we published an additional manual update (Change Request 7192) to our outlier policy 

on December 3, 2010, which also updated Chapter 3, Section 20.1.2 of the Medicare 

Claims Processing Manual. The manual update outlines the outlier reconciliation process 

for hospitals and Medicare contractors. To download and view the manual instructions 
 1174 

on outlier reconciliation, we refer readers to the CMS Web site: 

http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf. 

(3) FY 2012 and FY 2013 Outlier Payments 

 In the FY 2013 IPPS final rule (77 FR 53697 through 53698), we stated that, 

based on available data, we estimated that actual FY 2012 outlier payments would be 

approximately 5.0 percent of actual total MS-DRG payments. This estimate was 

computed based on simulations using the FY 2011 MedPAR file (discharge data for 

FY 2011 claims). That is, the estimate of actual outlier payments did not reflect actual 

FY 2012 claims, but instead reflected the application of FY 2012 payment rates and 

policies to available FY 2011 claims. 

 Our current estimate, using available FY 2012 claims data, is that actual outlier 

payments for FY 2012 were approximately 5.47 percent of actual total MS-DRG 

payments. Thus, the data indicate that, for FY 2012, the percentage of actual outlier 

payments relative to actual total payments is higher than we projected for FY 2012. 

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 2012 are equal to 5.1 percent of total 

MS-DRG payments. 

 We currently estimate that, using the latest CCRs from the March 2013 update of 

the PSF, actual outlier payments for FY 2013 will be approximately 5.17 percent of 

actual total MS-DRG payments, approximately 0.1 percentage point higher than the 

5.1 percent we projected when setting the outlier policies for FY 2013. This estimate of 
 1175 

5.17 percent is based on simulations using the FY 2012 MedPAR file (discharge data for 

FY 2012 claims). 

5. Proposed FY 2014 Standardized Amount 

 The adjusted standardized amount is divided into labor-related and 

nonlabor-related portions. Tables 1A and 1B listed and published in section VI. of this 

Addendum (and available via the Internet) contain the proposed national standardized 

amounts that we are proposing to apply to all hospitals, except hospitals located in Puerto 

Rico, for FY 2014. The proposed Puerto Rico-specific amounts are shown in Table 1C 

listed and published in section VI. of this Addendum (and available via the Internet). 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 

69.6 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 proposing to apply a labor-related share of 

62 percent, unless application of that percentage would result in lower payments to a 

hospital than would otherwise be made. In effect, the statutory provision means that we 

will apply a labor-related share of 62 percent for all hospitals whose wage indices are less 

than or equal to 1.0000. 

 In addition, Tables 1A and 1B include the proposed standardized amounts 

reflecting the applicable percentage increase of 1.8 percent for FY 2014, and a proposed 

update of -0.2 percent for hospitals that fail to submit quality data consistent with section 

1886(b)(3)(B)(viii) of the Act. 
 1176 

 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 amount is set forth in Table 1A). The proposed labor-related 

and nonlabor-related portions of the national average standardized amounts for Puerto 

Rico hospitals for FY 2014 are set forth in Table 1C listed and published in section VI. of 

this Addendum (and available via the Internet). This table also includes the proposed 

Puerto Rico standardized amounts. The proposed labor-related share applied to the 

Puerto Rico-specific standardized amount is the labor-related share of 63.2 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 Pub. L. 108-173, 

provides that the labor-related share for hospitals located in Puerto Rico be 62 percent, 

unless the application of that percentage would result in lower payments to the hospital.) 

 The following table illustrates the proposed changes from the FY 2013 national 

standardized amount. The second column shows the proposed changes from the FY 2013 

standardized amounts for hospitals that satisfy the quality data submission requirement 

and, therefore, receive the full proposed update of 1.8 percent. The third column shows 

the proposed changes for hospitals receiving the proposed reduced update of -0.2 percent. 

The first row of the table shows the proposed updated (through FY 2013) average 

standardized amount after restoring the FY 2013 offsets for outlier payments, 

demonstration budget neutrality, the geographic reclassification budget neutrality, and the 

retrospective documentation and coding adjustment under section 7(b)(1)(B) of 

Pub. L. 110-90. The MS-DRG reclassification and recalibration wage index budget 
 1177 

neutrality factors are cumulative. Therefore, those FY 2013 factors are not removed from 

this table. 
 1178 

COMPARISON OF FY 2013 STANDARDIZED AMOUNTS TO THE PROPOSED 

FY 2014 STANDARDIZED AMOUNT WITH FULL AND REDUCED UPDATE 

 

Full Update 

(1.8 percent); 

Wage index 

is greater 

than 1.0000; 

Labor/NonLabor Share 

Percentage 

(69.6/30.4) 

Full Update 

(1.8 percent);

Wage index 

is less than 

or equal to 

1.0000; 

Labor/NonLabor Share 

Percentage 

(62/38) 

Reduced 

Update 

(-0.2 

percent); 

Wage index 

is greater 

than 1.0000; 

Labor/NonLabor 

Share 

Percentage 

(69.6/30.4) 

Reduced 

Update 

(-0.2 percent); 

Wage index is 

less than or 

equal to 

1.0000; 

Labor/NonLabor Share 

Percentage 

(62/38) 

FY 2013 Base Rate 

after removing: 

1. FY 2013 Geographic 

Reclassification Budget 

Neutrality (0.991276) 

2. FY 2013 Rural 

Community Hospital 

Demonstration Program 

Budget Neutrality 

(0.999677) 

3. Cumulative FY 

2008, FY 2009, FY 

2012, FY 2013 

Documentation and 

Coding Adjustment as 

Required under 

Sections 7(b)(1)(A) and 

7(b)(1)(B) of Pub. L. 

110-90 (0.9478) 

4. FY 2013 Operating 

Outlier Offset 

(0.948999) 

Labor: 

$4,176.63 

Nonlabor: 

$1,824.27 

Labor: 

$3,720.56 

Nonlabor: 

$2,280.34 

Labor: 

$4,176.63 

Nonlabor: 

$1,824.27 

Labor: 

$3,720.56 

Nonlabor: 

$2,280.34 

Proposed FY 2014 

Update Factor 1.018 1.018 0.998 0.998 
 1179 

Proposed FY 2014 

MS-DRG Recalibration 

and Wage Index Budget 

Neutrality Factor 0.997350 0.997350 0.997350 0.997350 

Proposed FY 2014 

Reclassification Budget 

Neutrality Factor 0.990971 0.990971 0.990971 0.990971 

Proposed FY 2014 

Rural Community 

Demonstration Program 

Budget Neutrality 

Factor 0.999834 0.999834 0.999834 0.999834 

Proposed FY 2014 

Operating Outlier 

Factor 0.948997 0.948997 0.948997 0.948997 

Proposed Adjustment to 

Offset the Cost of the 

Policy Proposal on 

Admission and Medical 

Review Criteria for 

Hospital Inpatient 

Services under 

Medicare Part A 0.998 0.998 0.998 0.998 

Cumulative Factor: FY 

2008, FY 2009, FY 

2012,and FY 2013 

Documentation and 

Coding Adjustment as 

Required under 

Sections 7(b)(1)(A) and 

7(b)(1)(B) of Pub. L. 

110-90 and Proposed 

Documentation and 

Coding Recoupment 

Adjustment as required 

under Section 631 of 

the American Taxpayer 

Relief Act of 2012 0.9403 0.9403 0.9403 0.9403 

Proposed National 

Standardized Amount 

for FY 2014 

Labor: 

$3,741.72 

Nonlabor: 

$1,634.32 

Labor: 

$3,333.14 

Nonlabor: 

$2,042.90 

Labor: 

$3,668.21 

Nonlabor: 

$1,602.21 

Labor: 

$3,267.66 

Nonlabor: 

$2,002.76 
 1180 

 The following table illustrates the proposed changes from the FY 2013 Puerto 

Rico-specific payment rate for hospitals located in Puerto Rico. The second column 

shows the proposed changes from the FY 2013 Puerto Rico specific payment rate for 

hospitals with a Puerto Rico-specific wage index greater than 1.0000. The third column 

shows the proposed changes from the FY 2013 Puerto Rico specific payment rate for 

hospitals with a Puerto Rico-specific wage index less than 1.0000. The first row of the 

table shows the proposed updated (through FY 2013) Puerto Rico-specific payment rate 

after restoring the FY 2013 offsets for Puerto Rico-specific outlier payments, rural 

community hospital demonstration program budget neutrality, and the geographic 

reclassification budget neutrality. The MS-DRG recalibration budget neutrality factor is 

cumulative and is not removed from this table. 

COMPARISON OF FY 2013 PUERTO RICO-SPECIFIC PAYMENT RATE TO 

THE PROPOSED FY 2014 PUERTO RICO-SPECIFIC PAYMENT RATE 

Update 

(1.8 percent); Wage 

index is greater than 

1.0000; Labor/NonLabor Share 

Percentage (63.2/36.8) 

Update 

(1.8 percent); 

Wage index is less than 

or equal to 1.0000; 

Labor/Non-Labor 

Share Percentage 

(62/38) 

FY 2013 Puerto Rico Base Rate, 

after removing: 

1. FY 2013 Geographic 

Reclassification Budget 

Neutrality (0.991276) 

2. FY 2013 Rural Community 

Hospital Demonstration Program 

Budget Neutrality (0.999677) 
 1181 

Update 

(1.8 percent); Wage 

index is greater than 

1.0000; Labor/NonLabor Share 

Percentage (63.2/36.8) 

Update 

(1.8 percent); 

Wage index is less than 

or equal to 1.0000; 

Labor/Non-Labor 

Share Percentage 

(62/38) 

3. FY 2013 Puerto Rico 

Operating Outlier Offset 

(0.944760) 

Labor: $1,700.33 

Nonlabor: $990.07 

Labor: $1,668.05 

Nonlabor: $1,022.35 

Proposed FY 2014 Update Factor 1.018 1.018 

Proposed FY 2014 MS-DRG 

Recalibration Budget Neutrality 

Factor 0.997583 0.997583 

Proposed FY 2014 

Reclassification Budget 

Neutrality Factor 0.990971 0.990971 

Proposed FY 2014 Rural 

Community Hospital 

Demonstration Program Budget 

Neutrality Factor 0.999834 0.999834 

Proposed FY 2014 Puerto Rico 

Operating Outlier Factor 0.952600 0.952600 

Proposed Adjustment to Offset 

the Cost of the Policy Proposal 

on Admission and Medical 

Review Criteria for Hospital 

Inpatient Services under 

Medicare Part A 0.998 0.998 

Proposed Puerto Rico-Specific 

Payment Rate for FY 2014 

Labor: $1,626.53 

Nonlabor: $947.09 

Labor: $1,595.64 

Nonlabor: $977.98 

B. Proposed Adjustments for Area Wage Levels and Cost-of-Living

 Tables 1A through 1C, as published in section VI. of this Addendum (and 

available via the Internet), contain the proposed labor-related and nonlabor-related shares 

that we used to calculate the proposed prospective payment rates for hospitals located in 

the 50 States, the District of Columbia, and Puerto Rico for FY 2014. This section 
 1182 

addresses two types of adjustments to the standardized amounts that are made in 

determining the prospective payment rates as described in this Addendum. 

1. Proposed Adjustment for Area Wage Levels 

 Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require that we make an 

adjustment to the labor-related portion of the national 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 2014 wage index. 

2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii 

 Section 1886(d)(5)(H) of the Act provides discretionary authority to the Secretary 

to make “such adjustments . . . as the Secretary deems appropriate to take into account 

the unique circumstances of hospitals located in Alaska and Hawaii.” Higher 

labor-related costs for these two States are taken into account in the adjustment for area 

wages described above. To account for higher nonlabor-related costs for these two 

States, we multiply the nonlabor-related portion of the standardized amount for hospitals 

located in Alaska and Hawaii by an adjustment factor. For FY 2011 and in prior fiscal 

years, we used the most recent cost-of-living adjustment (COLA) factors obtained from 

the U.S. Office of Personnel Management (OPM) Web site at: 

http://www.opm.gov/oca/cola/rates/asp to update this nonlabor portion. 
 1183 

 In the FY 2013 IPPS/LTCH PPS proposed and final rules (77 FR 28145 through 

28146 and 77 FR 53700 through 53701, respectively), we explained that statutory 

changes transitioned the Alaska and Hawaii COLAs to locality pay. We further 

explained that, beginning in FY 2012, as OPM transitioned away from COLAs, we 

continued to use the same “frozen” COLA factors that were used to adjust payments in 

FY 2011 (based on OPM’s 2009 COLA factors) to adjust the nonlabor-related portion of 

the standardized amount for hospitals located in Alaska and Hawaii while we explored 

alternatives for updating the COLA factors in the future. In the FY 2013 IPPS/LTCH 

PPS final rule, for FY 2013, we continued to use the same COLA factors used to adjust 

payments in FY 2012 (which are based on OPM’s 2009 COLA factors). We also 

established a methodology to update the COLA factors for Alaska and Hawaii that were 

published by OPM every 4 years (at the same time as the update to the labor-related share 

of the IPPS market basket), beginning in FY 2014. We refer readers to the FY 2013 

IPPS/LTCH PPS proposed and final rules for additional background and a detailed 

description of this methodology (77 FR 28145 through 28146 and 77 FR 53700 through 

53701, respectively). 

 For FY 2014, we are proposing to update the COLA factors published by OPM 

for 2009 (as these are the last COLA factors OPM published prior to transitioning from 

COLAs to locality pay) using the methodology that we finalized in the FY 2013 

IPPS/LTCH PPS final rule. Specifically, under our methodology, we are using a 

comparison of the growth in the Consumer Price Indices (CPIs) in Anchorage and 

Honolulu relative to the growth in the overall CPI as published by the Bureau of Labor 
 1184 

Statistics (BLS) to update the COLA adjustment factors for all areas in Alaska and 

Hawaii, respectively. As discussed in the FY 2013 IPPS/LTCH PPS proposed rule 

(77 FR 28145 through 28146), because BLS publishes CPI data for only Anchorage, 

Alaska and Honolulu, Hawaii, our methodology for updating the COLA factors uses a 

comparison of the growth in the CPIs for those cities relative to the growth in the overall 

CPI to update the COLA adjustment factors for all areas in Alaska and Hawaii, 

respectively. We believe that the relative price differences between these cities and the 

United States (as measured by the CPIs mentioned above) are generally appropriate 

proxies for the relative price differences between the “other areas” of Alaska and Hawaii 

and the United States. 

 The CPIs for “All Items” that BLS publishes for Anchorage, Alaska, Honolulu, 

Hawaii, and for the average U.S. city are based on a different mix of commodities and 

services than is reflected in the nonlabor related share of the IPPS market basket. As 

such, under the methodology we established to update the COLA factors, we calculated a 

“reweighted CPI” using the CPI for commodities and the CPI for services for each of the 

geographic areas to mirror the composition of the IPPS market basket nonlabor-related 

share. The current composition of BLS’ CPI for “All Items” for all of the respective 

areas is approximately 40 percent commodities and 60 percent services. However, the 

nonlabor-related share of the proposed IPPS market basket is comprised of approximately 

60 percent commodities and 40 percent services. We note that, if finalized, we do not 

anticipate that the proposals in section IV. of the preamble of this proposed rule 

(proposing to revise and rebase the IPPS market basket for FY 2014) would alter the 
 1185 

commodities/services weights of the nonlabor-related share of the IPPS market basket. 

Therefore, under the methodology we established in the FY 2013 IPPS/LTCH PPS final 

rule, we have created reweighted indexes for Anchorage, Alaska, Honolulu, Hawaii, and 

the average U.S. city using the respective CPI commodities index and CPI services index 

and applying the approximate 60/40 weights from the proposed IPPS market basket. We 

believe that this methodology is appropriate because we would continue to make a COLA 

adjustment for hospitals located in Alaska and Hawaii by multiplying the nonlaborrelated portion of the standardized amount by a COLA factor. 

 Under the COLA factor update methodology we established in the FY 2013 

IPPS/LTCH PPS final rule, we further exercised our discretionary authority to adjust 

payments made to hospitals located in Alaska and Hawaii by incorporating a 25-percent 

cap on the CPI-updated COLA factors used to adjust the nonlabor-related portion of the 

standardized amounts, which is consistent with a statutorily mandated 25-percent cap that 

was applied to OPM’s published COLA factors. We believe that this is appropriate 

because our proposed CPI-updated COLA factors for FY 2014 use the 2009 OPM COLA 

factors as a basis. In addition, we are proposing to continue to establish COLA factors 

that are rounded to 2 decimal places, which is consistent with the number of decimal 

places in the 2009 OPM COLA factors that are used as the basis for calculating the 

proposed FY 2014 COLA factors. This policy also would maintain consistency with the 

rounding used for the 25-percent cap on the COLA factors (that is, a COLA factor of no 

more than 1.25). 
 1186 

 Applying this methodology, we are proposing to establish the COLA factors for 

FY 2014 that would adjust the nonlabor-related portion of the standardized amount for 

hospitals located in Alaska and Hawaii as shown in the table below. 

Proposed FY 2014 Cost-of-Living Adjustment Factors: 

Alaska and Hawaii Hospitals 

Area Proposed 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 1.19 

County of Kauai 1.25 

County of Maui and County of Kalawao 1.25 

 Each of the COLA factors was calculated using data through 2012 as these are the 

latest historical CPI data published by the BLS. The reweighted CPI for Honolulu, 

Hawaii grew faster than the reweighted CPI for average U.S. city over the time period 

from 2009 to 2012, with a growth rate of 8.9 percent and 8.3 percent, respectively. As a 

result, for FY 2014, we calculated proposed COLA factors for the City and County of 

Honolulu, the County of Kauai, the County of Maui, and the County of Kalawao to be 

1.26 compared to the FY 2013 COLA factor of 1.25. However, as stated above, our 

COLA factor update methodology caps COLA factors at 1.25. In addition, the proposed 
 1187 

COLA factor calculated for the County of Hawaii for FY 2014 is 1.19 compared to the 

FY 2013 COLA factor of 1.18. 

 The reweighted CPI for Anchorage, Alaska grew slower than the reweighted CPI 

for average U.S. city over the time period from 2009 to 2012, with a growth rate of 8.0 

percent and 8.3 percent, respectively. However, applying this slower relative growth rate 

to the FY 2009 COLA factors for each of the Alaska areas results in no proposed change 

to the COLA factors for the Alaska areas for FY 2014 (1.25 for “All other” areas of 

Alaska and 1.23 for the three specified urban areas of Alaska (Anchorage, Fairbanks and 

Juneau)) as compared to the FY 2013 COLA factors. 

C. Calculation of the Proposed Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY 2014 

 In general, the operating prospective payment rate for all hospitals paid under the 

IPPS located outside of Puerto Rico, except SCHs, for FY 2014 equals the Federal rate. 

(As noted above, due to the expiration of the MDH program, beginning with FY 2014, 

we are not including MDHs in our discussion of the update of the hospital-specific rates 

for FY 2014.) 

 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 FY 2006 costs per discharge 

to determine the rate that yields the greatest aggregate payment. 
 1188 

 The prospective payment rate for SCHs for FY 2014 equals the higher of the 

applicable Federal rate, or the hospital-specific rate as described below. The prospective 

payment rate for hospitals located in Puerto Rico for FY 2014 equals 25 percent of the 

Puerto Rico-specific payment 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 hospitals submitting quality 

data; update including a -2.0 percent adjustment for hospitals that did not submit these 

data). 

 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 (Table 5 listed in section VI. of this Addendum 

and available via the Internet). 

 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 
 1189 

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 the formula described 

in section V.C. of the preamble of this proposed rule. Finally, the base-operating DRG 

payment amount may be further adjusted by the hospital readmissions payment 

adjustment and the hospital VBP payment adjustment as described under 

sections 1886(q) and 1886(o) of the Act, respectively. 

2. Hospital-Specific Rate (Applicable Only to SCHs) 

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 

FY 2006 costs per discharge to determine the rate that yields the greatest aggregate 

payment. For a more detailed discussion of the calculation of the hospital-specific rates, 

we refer readers to the FY 1984 IPPS interim final rule (48 FR 39772); the April 20, 1990 

final rule with comment period (55 FR 15150); the FY 1991 IPPS final rule 

(55 FR 35994); and the FY 2001 IPPS final rule (65 FR 47082). 

b. Updating the FY 1982, FY 1987, FY 1996 and FY 2006 Hospital-Specific Rate for 

FY 2013 

 Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage 

increase applicable to the hospital-specific rates for SCHs equals the applicable 
 1190 

percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same 

update factor as for all other hospitals subject to the IPPS). Because the Act sets the 

update factor for SCHs equal to the update factor for all other IPPS hospitals, the update 

to the hospital-specific rates for SCHs is subject to the amendments to 

section 1886(b)(3)(B) of the Act made by sections 3401(a) and 10319(a) of the 

Affordable Care Act. Accordingly, the proposed applicable percentage increase to the 

hospital-specific rates applicable to SCHs is 1.8 percent (that is, the FY 2014 estimate of 

the market basket rate-of-increase of 2.5 percent less a proposed adjustment of 

0.4 percentage point for MFP and less 0.3 percentage point) for hospitals that submit 

quality data or –0.2 percent (that is, the FY 2014 estimate of the market basket 

rate-of-increase of 2.5 percent, less 2.0 percentage points for failure to submit data under 

the Hospital IQR Program, less a proposed adjustment of 0.4 percentage point for MFP, 

and less 0.3 percentage point) for hospitals that fail to submit quality data. For a 

complete discussion of the applicable percentage increase applicable to the hospitalspecific rates for SCHs, we refer readers to section V.A. of the preamble of this proposed 

rule. 

 In addition, because SCHs use the same MS-DRGs as other hospitals when they 

are paid based in whole or in part on the hospital-specific rate, the hospital-specific rate is 

adjusted by a budget neutrality factor to ensure that changes to the MS-DRG 

classifications and the recalibration of the MS-DRG relative weights are made in a 

manner so that aggregate IPPS payments are unaffected. Therefore, a SCH’s 

hospital-specific rate is adjusted by the proposed MS-DRG reclassification and 
 1191 

recalibration budget neutrality factor of 0.997583, as discussed in section III. of this 

Addendum. The resulting rate is used in determining the payment rate an SCH will 

receive for its discharges beginning on or after October 1, 2013. We note that, in this 

proposed rule, for FY 2014, we are not proposing to make a documentation and coding 

adjustment to the hospital-specific rate. We refer readers to section II.D. of the preamble 

of this proposed rule for a complete discussion regarding our proposals and previously 

finalized policies (including our historical adjustments to the payment rates) relating to 

the effect of changes in documentation and coding that do not reflect real changes in 

case-mix. We note that section II.D. of the preamble of this proposed rule also includes a 

discussion on documentation and coding effects that occurred through FY 2010, 

including a request for public comments as to whether any portion of the proposed -0.8 

percent recoupment adjustment discussed in section II.D.6. of the preamble of this 

proposed rule should be reduced and instead applied as a prospective adjustment for the 

cumulative MS-DRG documentation and coding effect through FY 2010. 

c. Proposed Adjustment to Offset the Cost of the Admission and Medical Review 

Criteria for Hospital Inpatient Services under Medicare Part A Proposal and Clarification 

 As discussed previously, in section V.N.5. of the preamble of this proposed rule, 

our actuaries project additional IPPS expenditures would result from our proposed policy 

that medical review of inpatient admissions will include a presumption that hospital 

inpatient admissions are reasonable and necessary for beneficiaries who require more 

than 1 Medicare utilization day (defined by encounters crossing 2 “midnights”) in the 

hospital receiving medically necessary services (which is presented in section V.N.3. of 
 1192 

the preamble of this proposed rule). We believe it is appropriate to use our exceptions 

and adjustments authority under section 1886(d)(5)(I)(i) of the Act to propose reductions 

of 0.2 percent (or 0.998 adjustment) to the IPPS rates, including the proposed FY 2014 

hospital-specific rate for SCHs, to offset our estimate of the increase in IPPS payments. 

We refer readers to section V.N. of the preamble of this proposed rule for a complete 

discussion of our policy proposal on admission and medical review criteria for hospital 

inpatient services under Medicare Part A. 

3. General Formula for Calculation of Prospective Payment Rates for Hospitals Located 

in Puerto Rico Beginning on or after October 1, 2013, and before October 1, 2014 

 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-Specific Rate 

 The Puerto Rico-specific prospective payment rate is determined as follows: 

 Step 1 - Select the applicable average standardized amount considering the 

applicable wage index (obtained from Table 1C published in section VI. of this 

Addendum and available via the Internet). 

 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. 
 1193 

 Step 4 - Multiply the amount from Step 3 by the applicable MS-DRG relative 

weight (obtained from Table 5 listed in section VI. of this Addendum and available via 

the Internet). 

 Step 5 - Multiply the result in Step 4 by 25 percent. 

b. National Prospective Payment 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 (obtained from Table 5 listed in section VI. of this Addendum and available via 

the Internet). 

 Step 5--Multiply the result in Step 4 by 75 percent. 

 The sum of the Puerto Rico-specific rate and the national prospective payment 

rate computed above equals the prospective payment for a given discharge for a hospital 

located in Puerto Rico. This rate is then further adjusted if the hospital qualifies for 

either the IME or DSH adjustment. 

c. Proposed Adjustment to Offset the Cost of the Admission and Medical Review 

Criteria for Hospital Inpatient Services under Medicare Part A Proposal and Clarification 
 1194 

 As discussed previously, in section V.N.5. of the preamble of this proposed rule, 

our actuaries project additional IPPS expenditures would result from our proposed policy 

that medical review of inpatient admissions will include a presumption that hospital 

inpatient admissions are reasonable and necessary for beneficiaries who require more 

than 1 Medicare utilization day (defined by encounters crossing 2 “midnights”) in the 

hospital receiving medically necessary services (which is presented in section V.N.3. of 

the preamble of this proposed rule). We believe it is appropriate to use our exceptions 

and adjustments authority under section 1886(d)(5)(I)(i) of the Act to propose reductions 

of 0.2 percent (or 0.998 adjustment) to the IPPS rates, including the FY 2014 national 

standardized amount and the Puerto Rico standardized amount, to offset our estimate of 

the increase in IPPS payments. We refer readers to section V.N. of the preamble of this 

proposed rule for a complete discussion of our policy proposal on admission and medical 

review criteria for hospital inpatient services under Medicare Part A.
 1195 

III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient 

Capital-Related Costs for FY 2014 

 The PPS for acute care hospital inpatient capital-related costs was implemented 

for cost reporting periods beginning on or after October 1, 1991. Effective with that cost 

reporting period, over a 10-year transition period (which extended through FY 2001) the 

payment methodology for Medicare acute care hospital inpatient capital-related costs 

changed from a reasonable cost-based methodology to a prospective methodology (based 

fully on the Federal rate). 

 The basic methodology for determining Federal capital prospective rates is set 

forth in the regulations at 42 CFR 412.308 through 412.352. Below we discuss the 

factors that we used to determine the proposed capital Federal rate for FY 2014, which 

would be effective for discharges occurring on or after October 1, 2013. 

 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) also provide that the capital Federal rate be adjusted 

annually by a factor equal to the estimated proportion of outlier payments under the 
 1196 

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 exceptions under § 412.348. (We note 

that, as discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53705), there is 

generally no longer a need for an exceptions payment adjustment factor.) However, in 

limited circumstances, an additional payment exception for extraordinary circumstances 

is provided for under § 412.348(f) for qualifying hospitals. Therefore, in accordance with 

§ 412.308(c)(3), an exceptions payment adjustment factor may need to be applied if such 

payments are made. Section 412.308(c)(4)(ii) requires that the capital standard Federal 

rate be adjusted so that the effects of the annual DRG reclassification and the 

recalibration of DRG weights and changes in the geographic adjustment factor (GAF) are 

budget neutral. 

 Section 412.374 provides for blended payments to hospitals located in Puerto 

Rico under the IPPS for acute care hospital inpatient capital-related costs. Accordingly, 

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. Effective October 1, 2004, in 

accordance with section 504 of Pub. L. 108-173, 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 25 percent of the applicable standardized amount specific to Puerto 
 1197 

Rico hospitals and 75 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, 2004, we also revised the methodology for computing 

capital payments made to hospitals located in Puerto Rico to be based on a blend of 

25 percent of the Puerto Rico capital rate and 75 percent of the national capital Federal 

rate (69 FR 49185). 

A. Determination of the Proposed Federal Hospital Inpatient Capital-Related Prospective 

Payment Rate Update

 In the discussion that follows, we explain the factors that we are proposing to use 

to determine the capital Federal rate for FY 2014. In particular, we explain why the 

proposed FY 2014 capital Federal rate would increase approximately 1.5 percent, 

compared to the FY 2013 capital Federal rate. As discussed in the impact analysis in 

Appendix A to this proposed rule, we estimate that capital payments per discharge would 

increase 1.1 percent during that same period. Because capital payments constitute about 

10 percent of hospital payments, a percent change in the capital Federal rate yields only 

about a 0.1 percent change in actual payments to hospitals. 

1. Projected Capital Standard Federal Rate Update 

a. Description of the Update Framework 

 Under § 412.308(c)(1), the capital standard Federal rate is updated on the basis of 

an analytical framework that takes into account changes in a capital input price index 

(CIPI) and several other policy adjustment factors. Specifically, we adjust the projected 

CIPI rate-of-increase as appropriate each year for case-mix index-related changes, for 
 1198 

intensity, and for errors in previous CIPI forecasts. The proposed update factor for 

FY 2014 under that framework is 0.9 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 proposed revised and rebased FY 2010-based CIPI (discussed in more 

detail in section IV.D. of the preamble of this proposed rule), a 0.0 percentage point 

adjustment for intensity, a 0.0 percentage point adjustment for case-mix, a 0.0 percentage 

point adjustment for the FY 2012 DRG reclassification and recalibration, and a forecast 

error correction of -0.3 percentage point. 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 2014 CIPI projection in that same section of this Addendum. Below we 

describe the policy adjustments that we are proposing to apply in the update framework 

for FY 2014. 

 The case-mix index is the measure of the average DRG weight for cases paid 

under the IPPS. Because the DRG weight determines the prospective payment for each 

case, any percentage increase in the case-mix index corresponds to an equal percentage 

increase in hospital payments. 

 The case-mix index can change for any of several reasons: 

● The average resource use of Medicare patients changes (“real” case-mix 

change); 

● Changes in hospital documentation and coding of patient records result in 

higher-weighted DRG assignments (“coding effects”); and 
 1199 

● The annual DRG reclassification and recalibration changes may not be budget 

neutral (“reclassification effect”). 

 We define real case-mix change as actual changes in the mix (and resource 

requirements) of Medicare patients as opposed to changes in documentation and coding 

behavior that result in assignment of cases to higher-weighted DRGs, but do not reflect 

higher resource requirements. The capital update framework includes the same case-mix 

index adjustment used in the former operating IPPS update framework (as discussed in 

the May 18, 2004 IPPS proposed rule for FY 2005 (69 FR 28816)). (We no longer use an 

update framework to make a recommendation for updating the operating IPPS 

standardized amounts as discussed in section II. of Appendix B to the FY 2006 IPPS final 

rule (70 FR 47707).) 

 For FY 2014, we are projecting a 0.5 percent total increase in the case-mix index. 

We estimated that the real case-mix increase will also equal 0.5 percent for FY 2014. 

The proposed net adjustment for change in case-mix is the difference between the 

projected real increase in case-mix and the projected total increase in case-mix. 

Therefore, the proposed net adjustment for case-mix change in FY 2014 is 0.0 percentage 

point. 

 The capital update framework also contains an adjustment for the effects of DRG 

reclassification and recalibration. This adjustment is intended to remove the effect on 

total payments of prior year’s changes to the DRG classifications and relative weights, in 

order to retain budget neutrality for all case-mix index-related changes other than those 

due to patient severity of illness. Due to the lag time in the availability of data, there is a 
 1200 

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 2012 DRG reclassification and recalibration as part of our update for FY 2014. We 

estimate that FY 2012 DRG reclassification and recalibration resulted in no change in the 

case-mix when compared with the case-mix index that would have resulted if we had not 

made the reclassification and recalibration changes to the DRGs. Therefore, we are 

proposing to make a 0.0 percentage point adjustment for reclassification and recalibration 

in the update framework for FY 2014. 

 The capital update framework also contains an adjustment for forecast error. The 

input price index forecast is based on historical trends and relationships ascertainable at 

the time the update factor is established for the upcoming year. In any given year, there 

may be unanticipated price fluctuations that may result in differences between the actual 

increase in prices and the forecast used in calculating the update factors. In setting a 

prospective payment rate under the framework, we make an adjustment for forecast error 

only if our estimate of the change in the capital input price index for any year is off by 

0.25 percentage point or more. There is a 2-year lag between the forecast and the 

availability of data to develop a measurement of the forecast error. A forecast error of 

-0.3 percentage point was calculated for the proposed FY 2014 update. That is, current 

historical data indicate that the forecasted FY 2012 rate-of-increase of the FY 2006-based 

CIPI (1.5 percent) used in calculating the FY 2012 update factor slightly overstated the 

actual realized FY 2012 price increases of the FY 2006-based CIPI (1.2 percent) by 0.3 

percentage point because the prices associated with both the depreciation and interest cost 
 1201 

categories grew more slowly than anticipated. Historically, when forecast error of the 

CIPI is greater than 0.25 percentage point in absolute terms, it is reflected in the update 

recommended under this framework. Therefore, we are proposing to make a -

0.3 percentage point adjustment for forecast error in the update for FY 2014. 

 Under the capital IPPS update framework, we also make an adjustment for 

changes in intensity. Historically, we calculated this adjustment using the same 

methodology and data that were used in the past under the framework for operating IPPS. 

The intensity factor for the operating update framework reflected how hospital services 

are utilized to produce the final product, that is, the discharge. This component accounts 

for changes in the use of quality-enhancing services, for changes within DRG severity, 

and for expected modification of practice patterns to remove noncost-effective services. 

Our intensity measure is based on a 5-year average. 

 We calculate case-mix constant intensity as the change in total cost per discharge, 

adjusted for price level changes (the 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 quality-enhancing new technologies and complexity within the DRG 

system, we assume that one-half of the annual increase is due to each of these factors. 

The capital update framework thus provides an add-on to the input price index rate of 

increase of one-half of the estimated annual increase in intensity, to allow for increases 

within DRG severity and the adoption of quality-enhancing technology. 
 1202 

 In this proposed rule, we are proposing to continue to use a Medicare-specific 

intensity measure that is based on a 5-year adjusted average of cost per discharge for 

FY 2014 (we refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50436) for 

a full description of our Medicare-specific intensity measure). Specifically, for FY 2014, 

we are proposing to use an intensity measure that is based on an average of cost per 

discharge data from the 5-year period beginning with FY 2006 and extending through 

FY 2011. Based on these data, we estimated that case-mix constant intensity declined 

during FYs 2006 through 2011. In the past, when we found intensity to be declining, we 

believed a zero (rather than a negative) intensity adjustment was appropriate. Consistent 

with this approach, because we estimate that intensity declined during that 5-year period, 

we believe it is appropriate to propose to continue to apply a zero intensity adjustment for 

FY 2014. Therefore, we are proposing to make a 0.0 percentage point adjustment for 

intensity in the update for FY 2014. 

 Above, we described the basis of the components used to develop the proposed 

0.9 percent capital update factor under the capital update framework for FY 2014 as 

shown in the table below. 

Proposed CMS FY 2014 Update Factor to the Capital Federal Rate 

Capital Input Price Index* 1.2 

Intensity: 0.0 

Case-Mix Adjustment Factors: 

 Real Across DRG Change -0.5 

 Projected Case-Mix Change 0.5 

Subtotal 1.2 

Effect of FY 2012 Reclassification and Recalibration 0.0 

Forecast Error Correction -0.3 
 1203 

Total Update 0.9 

*The capital input price index is based on the proposed revised and rebased FY 2010-based CIPI discussed 

in section IV.D. of the preamble of this proposed rule. 

b. Comparison of CMS and MedPAC Update Recommendation 

 In its March 2013 Report to Congress, MedPAC did not make a specific update 

recommendation for capital IPPS payments for FY 2014. (We refer readers to 

MedPAC’s Report to the Congress: Medicare Payment Policy, March 2013, Chapter 3.) 

2. Outlier Payment Adjustment Factor 

 Section 412.312(c) establishes a unified outlier payment methodology for 

inpatient operating and inpatient capital-related costs. A single set of thresholds is used 

to identify outlier cases for both inpatient operating and inpatient capital-related 

payments. Section 412.308(c)(2) provides that the standard Federal rate for inpatient 

capital-related costs be reduced by an adjustment factor equal to the estimated proportion 

of capital-related outlier payments to total inpatient capital-related PPS payments. The 

outlier thresholds are set so that operating outlier payments are projected to be 

5.1 percent of total operating IPPS DRG payments. 

 For FY 2013, we estimated that outlier payments for capital will equal 

6.38 percent of inpatient capital-related payments based on the capital Federal rate in 

FY 2013. Based on the proposed thresholds as set forth in section II.A. of this 

Addendum, we estimate that outlier payments for capital-related costs would equal 5.49 

percent for inpatient capital-related payments based on the proposed capital Federal rate 

in FY 2014. Therefore, we are proposing to apply an outlier adjustment factor of 0.9451 
 1204 

in determining the proposed capital Federal rate for FY 2014. Thus, we estimate that the 

percentage of capital outlier payments to total capital Federal rate payments for FY 2014 

will be somewhat lower than the percentage for FY 2013. This decrease in estimated 

capital outlier payments is primarily due to the proposed increase in the outlier threshold 

used to identify outlier cases for both inpatient operating and inpatient capital-related 

payments, which is discussed in section II.A. of this Addendum. That is, because the 

outlier threshold used to identify outlier cases would be higher, cases would receive 

lower outlier payments and fewer 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 2014 outlier adjustment of 0.9451 is a 0.95 percent change from the 

FY 2013 outlier adjustment of 0.9362. Therefore, the proposed net change in the outlier 

adjustment to the capital Federal rate for FY 2014 is 1.0095 (0.9451 /0.9362). Thus, the 

proposed outlier adjustment would increase the FY 2014 capital Federal rate by 

0.95 percent compared to the FY 2013 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 
 1205 

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. 

To determine the proposed factors for FY 2014, we compared (separately for the 

national capital rate and the Puerto Rico capital rate) estimated aggregate capital Federal 

rate payments based on the FY 2013 MS-DRG classifications and relative weights and 

the FY 2013 GAF to estimated aggregate capital Federal rate payments based on the 

FY 2013 MS-DRG classifications and relative weights and the proposed FY 2014 GAFs. 

To achieve budget neutrality for the changes in the national GAFs, based on calculations 

using updated data, we are proposing to apply an incremental budget neutrality 

adjustment factor of 0.9998 for FY 2014 to the previous cumulative FY 2013 adjustment 

factor of 0.9904, yielding an adjustment factor of 0.9902 through FY 2014. For the 

Puerto Rico GAFs, we are proposing to apply an incremental budget neutrality 

adjustment factor of 0.9990 for FY 2014 to the previous cumulative FY 2013 adjustment 

factor of 1.0095, yielding a cumulative adjustment factor of 1.0084 through FY 2014. 

 We then compared estimated aggregate capital Federal rate payments based on 

the FY 2013 MS-DRG relative weights and the proposed FY 2014 GAFs to estimated 

aggregate capital Federal rate payments based on the cumulative effects of the proposed 

FY 2014 MS-DRG classifications and relative weights and the proposed FY 2014 GAFs. 

The proposed incremental adjustment factor for DRG classifications and changes in 
 1206 

relative weights is 0.9990 both nationally and for Puerto Rico. The proposed cumulative 

adjustment factors for MS-DRG classifications and proposed changes in relative weights 

and for proposed changes in the GAFs through FY 2014 are 0.9892 nationally and 

1.0074for Puerto Rico. (We note that all the values are calculated with unrounded 

numbers.) The GAF/DRG budget neutrality adjustment factors are built permanently into 

the capital rates; that is, they are applied cumulatively in determining the capital Federal 

rate. This follows the requirement under § 412.308(c)(4)(ii) that estimated aggregate 

payments each year be no more or less than they would have been in the absence of the 

annual DRG reclassification and recalibration and changes in the GAFs. 

 The methodology used to determine the recalibration and geographic adjustment 

factor (GAF/DRG) budget neutrality adjustment is similar to the methodology used in 

establishing budget neutrality adjustments under the IPPS for operating costs. One 

difference is that, under the operating IPPS, the budget neutrality adjustments for the 

effect of geographic reclassifications are determined separately from the effects of other 

changes in the hospital wage index and the MS-DRG relative weights. Under the capital 

IPPS, there is a single GAF/DRG budget neutrality adjustment factor (the national capital 

rate and the Puerto Rico capital rate are determined separately) for changes in the GAF 

(including geographic reclassification) and the MS-DRG relative weights. In addition, 

there is no adjustment for the effects that geographic reclassification has on the other 

payment parameters, such as the payments for DSH or IME. 

 The proposed cumulative adjustment factor accounts for the proposed MS-DRG 

reclassifications and recalibration and for proposed changes in the GAFs. It also 
 1207 

incorporates the effects on the proposed GAFs of FY 2014 geographic reclassification 

decisions made by the MGCRB compared to FY 2013 decisions. However, it does not 

account for changes in payments due to changes in the DSH and IME adjustment factors. 

4. Proposed Capital Federal Rate for FY 2014 

 For FY 2013, we established a capital Federal rate of $425.49 (77 FR 53706). 

We are proposing to establish an update of 0.9 percent in determining the FY 2014 

capital Federal rate for all hospitals. In addition, as discussed in greater detail in section 

IV.C. of the preamble of this proposed rule, we are proposing to make a reduction of 0.2 

percent to the capital IPPS rates, to offset the estimated additional IPPS expenditures that 

are projected to result from our policy proposal on admission and medical review criteria 

for hospital inpatient services under Medicare Part A. 

 As a result of the proposed 0.9 percent update, the proposed budget neutrality 

factors, and the proposed 0.2 percent reduction to offset the estimated additional IPPS 

expenditures projected to result from our policy proposal on admission and medical 

review criteria for hospital inpatient services discussed above, we are proposing to 

establish a national capital Federal rate of $432.03for FY 2014. The proposed national 

capital Federal rate for FY 2014 was calculated as follows: 

● The proposed FY 2014 update factor is 1.009, that is, the proposed update is 

0.9 percent. 

● The proposed FY 2014 budget neutrality adjustment factor that is applied to the 

proposed capital Federal rate for proposed changes in the MS-DRG classifications and 

relative weights and proposed changes in the GAFs is 0.9988. 
 1208 

● The proposed FY 2014 outlier adjustment factor is 0.9451. 

● A proposed adjustment factor of 0.9980 (that is, a reduction of 0.2 percent) to 

offset the estimated additional IPPS expenditures that are projected to result from our 

policy proposal on admission and medical review criteria for hospital inpatient services 

under Medicare Part A. 

 (We note, in section VI.D. of the preamble of this proposed rule, we discuss the 

MS-DRG documentation and coding adjustment, including our proposed -0.8 percent 

recoupment adjustment to the operating IPPS standardized amount in FY 2014 under the 

provisions of section 631 of the ATRA, as well as additional prospective adjustments for 

the MS-DRG documentation and coding effect through FY 2010 authorized under section 

1886(d)(3)(A)(vi) of the Act. Although we are not proposing an additional prospective 

adjustment in FY 2014 for the cumulative MS-DRG documentation and coding effects 

through FY 2010, we are soliciting public comments as to whether any portion of the 

proposed -0.8 percent recoupment adjustment to the operating IPPS standardized amount 

should be reduced and instead applied as a prospective adjustment to the operating IPPS 

standardized amount (and hospital-specific rates) for the cumulative MS-DRG 

documentation and coding effect through FY 2010. We discuss in that same section that 

if we were to attribute a portion of the proposed -0.8 percent recoupment adjustment to 

the operating IPPS standardized amount for FY 2014 as a prospective adjustment, under 

the Secretary’s broad authority under section 1886(g) of the Act, we also would make an 

appropriate adjustment to the national capital IPPS Federal rate (and note that the capital 

IPPS Puerto Rico rate would not be affected). 
 1209 

 Because the proposed capital Federal rate has already been adjusted for 

differences in case-mix, wages, cost-of-living, indirect medical education costs, and 

payments to hospitals serving a disproportionate share of low-income patients, we are not 

proposing to make additional adjustments in the capital Federal rate for these factors, 

other than the proposed budget neutrality factor for proposed changes in the MS-DRG 

classifications and relative weights and for proposed changes in the GAFs. (As noted 

previously in this section, there is no need for an exceptions payment adjustment budget 

neutrality factor in determining the FY 2014 capital Federal rate.) 

 We are providing the following chart that shows how each of the proposed factors 

and proposed adjustments for FY 2014 affects the computation of the proposed FY 2014 

national capital Federal rate in comparison to the FY 2013 national capital Federal rate. 

The proposed FY 2014 update factor has the effect of increasing the capital Federal rate 

by 0.9 percent compared to the FY 2013 capital Federal rate. The proposed GAF/DRG 

budget neutrality adjustment factor has the effect of decreasing the capital Federal rate by 

0.12 percent. The proposed FY 2014 outlier adjustment factor has the effect of 

increasing the capital Federal rate by 0.95 percent compared to the FY 2013 capital 

Federal rate. The proposed adjustment to account for the estimated additional IPPS 

expenditures that are projected to result from our policy proposal on admission and 

medical review criteria for hospital inpatient services under Medicare Part A has the 

effect of decreasing the capital Federal rate by 0.2 percent compared to the FY 2013 

capital Federal rate. The combined effect of all the proposed changes would increase the 
 1210 

national capital Federal rate by 1.54 percent compared to the FY 2013 national capital 

Federal rate. 

Comparison of Factors and Adjustments: 

FY 2013 Capital Federal Rate and 

Proposed FY 2014 Capital Federal Rate 

1

 The update factor and the GAF/DRG budget neutrality adjustment factors are built permanently into the capital Federal rates. Thus, 

for example, the incremental change from FY 2013 to FY 2014 resulting from the application of the proposed 0.9988 GAF/DRG 

budget neutrality adjustment factor for FY 2014 is a net change of 0.9988 (or -0.12 percent). 2

 The outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is not applied cumulatively in 

determining the capital Federal rate. Thus, for example, the net change resulting from the application of the proposed FY 2014 outlier 

adjustment factor is 0.9451/0.9362, or 1.0095 (or 0.95 percent). 

3

 The proposed adjustment to account for the estimated additional IPPS expenditures that are projected to result from our policy

proposal on admission and medical review criteria for hospital inpatient services under Medicare Part A (discussed in section VI.C. of 

the preamble of this proposed rule). 

6. Proposed Special Capital Rate for Puerto Rico Hospitals 

Section 412.374 provides for the use of a blended payment system for payments 

made 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, beginning with discharges occurring on or after 

October 1, 2004, capital payments made to hospitals located in Puerto Rico are based on 

FY 2013 

Proposed 

FY 2014

Change Percent 

Change 

Update Factor1 1.0120 1.0090 1.0090 0.90

GAF/DRG Adjustment 

Factor1 0.9998 0.9988 0.9988 -0.12

Outlier Adjustment Factor2 0.9362 0.9451 1.0095 0.95

Adjustment for admission 

and medical review criteria3 N/A 0.9980 0.9980 -0.20

Capital Federal Rate $425.49 $432.03 1.0154 1.54
 1211 

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 adjustment factors for the national GAF and for the 

Puerto Rico GAF. However, we apply the same budget neutrality adjustment factor for 

MS-DRG reclassifications and recalibration nationally and for Puerto Rico. The 

proposed budget neutrality adjustment factors for the proposed national GAF and for the 

proposed Puerto Rico GAF, and the proposed budget neutrality factor for MS-DRG 

reclassifications and recalibration (which is the same nationally and for Puerto Rico) is 

discussed above in section III.A.3. of this Addendum. 

 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 
 1212 

which the hospital is located (which is computed from national data for all hospitals in 

the United States and Puerto Rico). 

 For FY 2013, the special capital rate for hospitals located in Puerto Rico was 

$207.25 (77 FR 53707). With the changes we are proposing to make to the other factors 

used to determine the capital Federal rate (including the proposed adjustment to account 

for the estimated additional IPPS expenditures that are projected to result from our policy 

proposal on admission and medical review criteria for hospital inpatient services under 

Medicare Part A (discussed in section V.N. of the preamble of this proposed rule), the 

proposed FY 2014 special capital rate for hospitals in Puerto Rico is $212.50. 

B. Calculation of the Proposed Inpatient Capital-Related Prospective Payments for 

FY 2014

 For purposes of calculating payments for each discharge during FY 2014, the 

capital Federal rate is adjusted as follows: (Standard Federal Rate) x (DRG weight) x 

(GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + DSH Adjustment 

Factor + IME Adjustment Factor, if applicable). The result is the adjusted capital Federal 

rate. 

 Hospitals also may receive outlier payments for those cases that qualify under the 

thresholds established for each fiscal year. Section 412.312(c) provides for a single set of 

thresholds to identify outlier cases for both inpatient operating and inpatient 

capital-related payments. The proposed outlier thresholds for FY 2014 are in 

section II.A. of this Addendum. For FY 2014, 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 
 1213 

prospective payment rate for the MS-DRG plus the proposed fixed-loss amount of 

$24,140. 

 Currently, as provided under § 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). 
 1214 

C. Capital Input Price Index

1. Background 

 Like the operating input price index, the capital input price index (CIPI) is a 

fixed-weight price index that measures the price changes associated with capital costs 

during a given year. The CIPI differs from the operating input price index in one 

important aspect--the CIPI reflects the vintage nature of capital, which is the acquisition 

and use of capital over time. Capital expenses in any given year are determined by the 

stock of capital in that year (that is, capital that remains on hand from all current and 

prior capital acquisitions). An index measuring capital price changes needs to reflect this 

vintage nature of capital. Therefore, the CIPI was developed to capture the vintage 

nature of capital by using a weighted-average of past capital purchase prices up to and 

including the current year. 

 We periodically update the base year for the operating and capital input price 

indexes to reflect the changing composition of inputs for operating and capital expenses. 

In this proposed rule, we are proposing to rebase and revise the CIPI to a FY 2010 base 

year to reflect the more current structure of capital costs in hospitals. A complete 

discussion of this rebasing is provided in section IV.D. of the preamble of this proposed 

rule. The CIPI was last rebased to FY 2006 in the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 44021). 

2. Forecast of the CIPI for FY 2014 

 Based on the latest forecast by IHS Global Insight, Inc. (first quarter of 2013), we 

are forecasting the proposed FY 2010-based CIPI to increase 1.2 percent in FY 2014. 
 1215 

This reflects a projected 1.8 percent increase in vintage-weighted depreciation prices 

(building and fixed equipment, and movable equipment), and a projected 2.8 percent 

increase in other capital expense prices in FY 2014, partially offset by a projected 2.3 

percent decline in vintage-weighted interest expenses in FY 2014. The weighted average 

of these three factors produces the forecasted 1.2 percent increase for the proposed 

FY 2010-based CIPI as a whole in FY 2014.
 1216 

IV. Proposed Changes to Payment Rates for Excluded Hospitals: Rate-of-Increase 

Percentages for FY 2014 

 Historically, certain 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-of-increase percentage. The updated target amount for that period was multiplied 

by the Medicare discharges during that period and applied as an aggregate upper limit 

(the ceiling as defined in § 413.40(a)) on total inpatient operating costs for a hospital’s 

cost reporting period. Prior to October 1, 1997, these payment provisions applied 

consistently to certain 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. 

 Payments for services furnished in children’s hospitals and cancer hospitals that 

are excluded from the IPPS continue to be subject to the rate-of-increase ceiling based on 

the hospital’s own historical cost experience. (We note that, in accordance with 

§ 403.752(a), RNHCIs are also subject to the rate-of-increase limits established under 

§ 413.40 of the regulations.) 

 We are proposing that the FY 2014 rate-of-increase percentage for updating the 

target amounts for the 11 cancer hospitals, children’s hospitals, and RNHCIs would be 

the estimated percentage increase in the FY 2014 IPPS operating market basket, in 
 1217 

accordance with applicable regulations at § 413.40. As described in section IV. of the 

preamble of this proposed rule, we are proposing to revise and rebase the IPPS operating 

market basket to a FY 2010 base year. Therefore, we are proposing to use the percentage 

increase in the FY 2010-based IPPS operating market basket to update the target amounts 

for children’s hospitals, 11 cancer hospitals, and RNHCIs for FY 2014 and subsequent 

fiscal years. Accordingly, the FY 2014 rate-of-increase percentage to be applied to the 

target amount for these cancer hospitals, children’s hospitals, and RNHCIs would be the 

FY 2014 percentage increase in the FY 2010-based IPPS operating market basket. Based 

on IHS Global Insight, Inc.’s 2013 first quarter forecast, we estimate that the FY 2010-

based IPPS operating market basket update for FY 2014 is 2.5 percent (that is, the 

estimate of the market basket rate-of-increase). We are proposing that if more recent data 

become available for the final rule, we would use them to calculate the IPPS operating 

market basket update for FY 2014. 

 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 was based on costbased reimbursement rules under 42 CFR Part 413 (certain providers do not receive a 

transition 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. 
 1218 

The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We refer readers to 

section VIII. of the preamble of this proposed rule and section V. of the Addendum to 

this proposed rule for the update changes to the Federal payment rates for LTCHs under 

the LTCH PPS for FY 2014. The annual updates for the IRF PPS and the IPF PPS are 

issued by the agency in separate Federal Register documents.
 1219 

V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 2014 

A. Proposed LTCH PPS Standard Federal Rate for FY 2014

1. Background 

 In section VIII. of the preamble of this proposed rule, we discuss our proposed 

updates to the payment rates, factors, and specific policies under the LTCH PPS for 

FY 2014. 

 Under § 412.523(c)(3)(ii) of the regulations, for LTCH PPS rate years beginning 

RY 2004 through RY 2006, we updated the standard Federal rate annually by a factor to 

adjust for the most recent estimate of the increases in prices of an appropriate market 

basket of goods and services for LTCHs. We established this policy of annually updating 

the standard Federal rate because, at that time, we believed that was the most appropriate 

method for updating the LTCH PPS standard Federal rate for years after the initial 

implementation of the LTCH PPS in FY 2003. Thus, under § 412.523(c)(3)(ii), for 

RYs 2004 through 2006, the annual update to the LTCH PPS standard Federal rate was 

equal to the previous rate year’s Federal rate updated by the most recent estimate of 

increases in the appropriate market basket of goods and services included in covered 

inpatient LTCH services. 

 In determining the annual update to the standard Federal rate for RY 2007, based 

on our ongoing monitoring activity, we believed that, rather than solely using the most 

recent estimate of the LTCH PPS market basket update as the basis of the annual update 

factor, it was appropriate to adjust the standard Federal rate to account for the effect of 

documentation and coding in a prior period that was unrelated to patients’ severity of 
 1220 

illness (71 FR 27818). Accordingly, we established under § 412.523(c)(3)(iii) that the 

annual update to the standard Federal rate for RY 2007 was zero percent based on the 

most recent estimate of the LTCH PPS market basket at that time, offset by an adjustment 

to account for changes in case-mix in prior periods due to the effect of documentation 

and coding that were unrelated to patients’ severity of illness. For RY 2008 through 

FY 2011, we also made an adjustment for the effect of documentation and coding that 

was unrelated to patients’ severity of illness in establishing the annual update to the 

standard Federal rate as set forth in the regulations at §§ 412.523(c)(3)(iv) through 

(c)(3)(vii). For FYs 2012 and 2013, we updated the standard Federal rate by the most 

recent estimate of the LTCH PPS market basket at that time, including additional 

statutory adjustments required by section 1886(m)(3)(A) of the Act as set forth in the 

regulations at §§ 412.523(c)(3)(viii) through (c)(3)(ix). 

 Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of the Affordable 

Care Act, specifies that, for rate year 2010 and each subsequent rate year, any annual 

update to the standard Federal rate shall be reduced: 

● For rate year 2010 through 2019, by the other adjustment specified in section 

1886(m)(3)(A)(ii) and (m)(4) of the Act; and 

● For rate year 2012 and each subsequent year, by the productivity adjustment 

described in section 1886(b)(3)(B)(xi)(II) of the Act (which we refer to as “the 

multifactor productivity (MFP) adjustment”) as discussed in section VIII.C.2.b. of the 

preamble of this proposed rule. 
 1221 

 Section 1886(m)(3)(B) of the Act provides that the application of paragraph (3) of 

section 1886(m) of the Act may result in the annual update being less than zero for a rate 

year, and may result in payment rates for a rate year being less than such payment rates 

for the preceding rate year. (As noted in section VIII.C.2.b. of the preamble of this 

proposed rule, the annual update to the LTCH PPS occurs on October 1 and we have 

adopted the term “fiscal year” (FY) rather than “rate year” (RY) under the LTCH PPS 

beginning October 1, 2010. Therefore, for purposes of clarity, when discussing the 

annual update for the LTCH PPS, including the provisions of the Affordable Care Act, 

we use the term “fiscal year” rather than “rate year” for 2011 and subsequent years.) 

 For FY 2013, consistent with our historical practice, we established an update to 

the LTCH PPS standard Federal rate based on the full estimated LTCH PPS market 

basket increase of 2.6 percent and the 0.8 percentage point reductions required by 

sections 1886(m)(3)(A)(i) and 1886(m)(3)(A)(ii) with 1886(m)(4)(C) of the Act. 

Accordingly, at § 412.523(c)(3)(ix) of the regulations, we established an annual update of 

1.8 percent to the standard Federal rate for FY 2013 (77 FR 53708 through 53711 and 

53481). 

 For FY 2014, as discussed in greater detail in section VIII.C.2.e. of the preamble 

of this proposed rule, we are proposing to establish an annual update to the LTCH PPS 

standard Federal rate based on the full estimated increase in the LTCH PPS market 

basket, less the MFP adjustment consistent with section 1886(m)(3)(A)(i) of the Act and 

less the 0.3 percentage point required by sections 1886(m)(3)(A)(ii) and (m)(4)(D) of the 

Act. In addition, as discussed in greater detail in section VIII.C.2.c., beginning in 
 1222 

FY 2014, the proposed annual update will be further reduced by 2.0 percentage points for 

LTCHs that fail to submit quality reporting data in accordance with the LTCHQR 

Program under section 1886(m)(5) of the Act. 

 Specifically, in this proposed rule, based on the best available data, we are 

proposing to establish an annual update to the standard Federal rate of 1.8 percent 

provided the LTCH submits quality reporting data for FY 2014 in accordance with the 

LTCHQR Program under section 1886(m)(5) of the Act, which is based on the full 

estimated increase in the LTCH PPS market basket of 2.5 percent, less the proposed MFP 

adjustment of 0.4 percentage point consistent with section 1886(m)(3)(A)(i) of the Act 

and less the 0.3 percentage point required by sections 1886(m)(3)(A)(ii) and (m)(4)(D) of 

the Act. As discussed in greater detail in section VIII.C.2.c., for LTCHs that fail to 

submit quality reporting data for FY 2014 in accordance with the LTCHQR Program, the 

proposed annual update will be further reduced by 2.0 percentage points as required by 

section 1886(m)(5) of the Act. 

 Accordingly, we are proposing an annual update to the LTCH PPS standard 

Federal rate of -0.2 percent for LTCHs that fail to submit quality reporting data for 

FY 2014. This is calculated based on the full estimated increase in the LTCH PPS 

market basket of 2.5 percent, less a proposed MFP adjustment of 0.4 percentage point, 

less an additional adjustment of 0.3 percentage point required by the statute, and less 2.0 

percentage points for failure to submit quality reporting data as required by section 

1886(m)(5) of the Act. 
 1223 

2. Development of the Proposed FY 2014 LTCH PPS Standard Federal Rate 

 We continue to believe that the annual 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, including any statutory adjustments. Consistent with our historical practice, for 

FY 2014, we applied the annual update to the LTCH PPS standard Federal rate from the 

previous year. In determining the proposed standard Federal rate for FY 2014, we also 

are proposing to make certain regulatory adjustments. Specifically, we are proposing to 

apply an adjustment factor under the second year of the 3-year phase-in of the one-time 

prospective adjustment to the standard Federal rate under § 412.523(d)(3), as discussed in 

greater detail in section VIII.C.3. of the preamble of this proposed rule. In addition, in 

determining the proposed FY 2014 standard Federal rate, we are proposing to apply a 

budget neutrality adjustment factor for the changes related to the area wage adjustment 

(that is, changes to the wage data and labor-related share) in accordance with 

§ 412.523(d)(4). 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53708 through 53710 and 

53481), we established an annual update to the LTCH PPS standard Federal rate of 

1.8 percent for FY 2013 based on the full estimated LTCH PPS market basket increase of 

2.6 percent, less the MFP adjustment of 0.7 percentage point consistent with section 

1886(m)(3)(A)(i) of the Act and less the 0.1 percentage point required by sections 

1886(m)(3)(A)(ii) and( m)(4)(C) of the Act. Accordingly, at § 412.523(c)(3)(ix), we 

established an annual update to the standard Federal rate for FY 2013 of 1.8 percent. 

That is, we applied an update factor of 1.018 to the FY 2012 Federal rate of $40,222.05 
 1224 

to determine the FY 2013 standard Federal rate. Effective December 29, 2012, we also 

adjusted the standard Federal rate for FY 2013 by the one-time prospective adjustment 

factor for FY 2013 of 0.98734 under § 412.523(d)(3)(ii) (this adjustment was not applied 

to payments for discharges occurring before December 29, 2012, consistent with the 

statute). Furthermore, for FY 2013, we applied an area wage level budget neutrality 

factor of 0.999265 to the standard Federal rate to ensure that any changes to the area 

wage level adjustment (that is, the annual update of the wage index values and 

labor-related share) would not result in any change (increase or decrease) in estimated 

aggregate LTCH PPS payments. Consequently, we established a standard Federal rate 

for FY 2013 of $40,397.96 (calculated as $40,222.05 × 1.018 × 0.98734 × 0.999265). 

Furthermore, consistent with the statute, the one-time prospective adjustment factor of 

0.98734 applied to the standard Federal rate for FY 2013 is not applied to payments for 

discharges occurring before December 29, 2012. Thus, payment for discharges occurring 

on or after October 1, 2012, and on or before December 28, 2012, does not reflect that 

adjustment and instead are paid based on a standard Federal rate of $40,915.95 

(calculated as $40,397.96 divided by 0.98734). 

 In this proposed rule, we are proposing to establish an annual update to the LTCH 

PPS standard Federal rate of 1.8 percent (that is, an update factor of 1.018) for FY 2014, 

based on the full estimated increase in the LTCH PPS market basket of 2.5 percent less 

the proposed MFP adjustment of 0.4 percentage point, consistent with section 

1886(m)(3)(A)(i) of the Act, and less the 0.3 percentage point required by sections 

1886(m)(3)(A)(ii) and(m)(4)(D) of the Act, provided the LTCH submits quality data in 
 1225 

accordance with the LTCHQR Program under section 1886(m)(5) of the Act. Therefore, 

under proposed § 412.523(c)(3)(x), we are proposing to apply a factor of 1.018 to the 

FY 2013 standard Federal rate of $40,397.96 (as established in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53710)) to determine the proposed FY 2014 standard Federal rate. 

For LTCHs that fail to submit quality reporting data for FY 2014 under the LTCHQR 

Program, under proposed § 412.523(c)(3)(x) in conjunction with proposed 

§ 412.523(c)(4), we are proposing to reduce the annual update to the LTCH PPS standard 

Federal rate by an additional 2.0 percentage points consistent with section 1886(m)(5) of 

the Act. Therefore, we are proposing to establish an annual update to the LTCH PPS 

standard Federal rate of -0.2 percent (that is, 1.8 percent minus 2.0 percentage points = 

-0.2 percent or an update factor of 0.9980) for FY 2014 for LTCHs that fail to submit 

quality reporting data for FY 2014 under the LTCHQR Program. We also are proposing 

to establish that the standard Federal rate for FY 2014 would be further adjusted by a 

proposed adjustment factor of 0.98734 for FY 2014 under the second year of the 3-year 

phase-in of the one-time prospective adjustment at § 412.523(d)(3)(ii). In addition, for 

FY 2014, we are proposing to apply an area wage level budget neutrality factor of 

1.000433 to the standard Federal rate to ensure that any proposed changes to the area 

wage level adjustment (that is, the proposed annual update of the wage index values and 

labor-related share) would not result in any change (increase or decrease) in estimated 

aggregate LTCH PPS payments. Accordingly, we are proposing to establish a standard 

Federal rate for FY 2014 of $40,622.06 (calculated as $40,397.96 × 1.018 × 0.98734 × 

1.000433) for discharges occurring on or after October 1, 2013, and on or before 
 1226 

September 30, 2014, provided the LTCH submits quality reporting data for FY 2014 in 

accordance with the LTCHQR Program under section 1886(m)(5) of the Act. For 

LTCHs that fail to submit quality reporting data for FY 2014 in accordance with the 

LTCHQR Program under section 1886(m)(5) of the Act, we are proposing to establish a 

standard Federal rate for FY 2014 of $39,823.99 (calculated as $40,397.96 × 0.998 × 

0.98734 × 1.000433) for discharges occurring on or after October 1, 2013, and on or 

before September 30, 2014. 

B. Proposed Adjustment for Area Wage Levels under the LTCH PPS for FY 2014

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. 

 When we implemented the LTCH PPS, we established a 5-year transition to the 

full area wage index level adjustment. The area wage level adjustment was completely 

phased-in for cost reporting periods beginning in FY 2007. Therefore, for cost reporting 

periods beginning on or after October 1, 2006, the applicable LTCH wage index values 

are the full LTCH PPS wage index values calculated based on acute care hospital 
 1227 

inpatient wage index data without taking into account geographic reclassification under 

section 1886(d)(8) and section 1886(d)(10) of the Act. For additional information on the 

phase-in of the area wage level adjustment under the LTCH PPS, we refer readers to the 

August 30, 2002 LTCH PPS final rule (67 FR 56015 through 56019) and the RY 2008 

LTCH PPS final rule (72 FR 26891). 

2. Proposed Geographic Classifications/Labor Market Area Definitions 

 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 area wage level 

adjustment at existing § 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 
 1228 

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) (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 generally updated the LTCH PPS CBSA-based labor market area 

definitions annually since they were adopted for RY 2006 when updates from OMB were 

available (73 FR 26812 through 26814, 74 FR 44023 through 44204, and 75 FR 50444 

through 50445). 

 In OMB Bulletin No. 10-2, issued on December 1, 2009, OMB announced that 

the CBSA changes in that bulletin would be the final update prior to the 2010 Census of 

Population and Housing. We adopted those changes under the LTCH PPS in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50444 through 50445), effective beginning 

October 1, 2010, and adopted their continued use for FY 2012 and FY 2013 

(76 FR 51808 and 77 FR 53710, respectively). In the FY 2013 IPPS/LTCH PPS final 

rule, we explained that in 2013 OMB planned to announce new area delineations based 

on its 2010 standards and the 2010 Census data and, therefore, for the FY 2013 LTCH 

area wage level adjustment, we would continue to use the same labor market areas that 

we adopted for FY 2012 (77 FR 53710). In fact, on February 28, 2013, OMB issued 

OMB Bulletin No. 13-01, announcing revisions to the delineation of Metropolitan 

Statistical Areas, Micropolitian Statistical Areas, and Combined Statistical Areas, and 
 1229 

guidance on uses of the delineation of these areas. A copy of this bulletin may be 

obtained at http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-

01.pdf. According to OMB, this bulletin provides the delineations of all Metropolitan 

Statistical Areas, Metropolitan Divisions, Micropolitan Statistical Areas, Combined 

Statistical Areas, and New England City and Town Areas in the United States and Puerto 

Rico based on the standards published in the Federal Register on June 28, 2010 

(75 FR 37246 through 37252) and Census Bureau data. 

 In order to implement these changes for the LTCH PPS (as in the case of the 

IPPS, as discussed in section III.B. of the preamble of this proposed rule), it is necessary 

to identify the new area designations for each county and hospital in the country. While 

the revisions OMB published on February 28, 2013, are not as sweeping as the changes 

OMB announced in 2003, the February 28, 2013 bulletin does contain a number of 

significant changes. For example, there are new CBSAs, urban counties that have 

become rural, rural counties that have become urban, and existing CBSAs that have been 

split apart. 

 Because the update was not issued until February 28, 2013, and the changes made 

by the update and their ramifications must be extensively reviewed and verified, we were 

unable to undertake such a lengthy process before publication of this FY 2014 proposed 

rule. By the time the update was issued, the FY 2014 IPPS/LTCH PPS proposed rule was 

in the advanced stages of development. We had already developed the FY 2014 

proposed LTCH PPS wage indexes based on the previous OMB definitions that are 

currently used under the LTCH PPS. We note that CMS was faced with a similar 
 1230 

situation 10 years ago, when OMB announced changes resulting from the 2000 Census in 

June 2003. At that time, CMS proposed and implemented the changes under the IPPS for 

FY 2005, followed by the adoption under the LTCH PPS in RY 2006 (as noted 

previously). Similarly, to allow for sufficient time to assess the new changes and their 

ramifications, consistent with the proposal under the IPPS discussed in section III.B. of 

the preamble of this proposed rule, we intend to propose the adoption of the newest 

CBSA designations and the corresponding changes to the wage index based on those 

CBSA changes under the LTCH PPS for FY 2015 through notice and comment 

rulemaking. We refer readers to the RY 2006 LTCH PPS final rule (70 FR 24182 

through 24191) for further information on the CBSA-based labor market area definitions 

currently used under the LTCH PPS. In addition, we refer readers to the FY 2005 IPPS 

final rule (69 FR 49026 through 49032) for those interested in learning about the issues 

that may need to be addressed in developing a proposal to implement the latest OMB 

update to the CBSA designations for FY 2015, and some of the policy decisions that may 

need to be taken into consideration in the development of such a proposal. 

 For FY 2014, we are proposing to continue to use the same labor market areas 

that were used under the LTCH PPS for FY 2013 (77 FR 53710) as we assess the new 

changes to the CBSA designations and their effect on LTCH PPS payments. This is 

consistent with the proposed approach being taken under the IPPS, and as noted 

previously, the LTCH PPS currently uses the same CBSA-based designations 

implemented for acute care hospitals under the IPPS. 

3. Proposed LTCH PPS Labor-Related Share 
 1231 

 Under the adjustment for differences in area wage levels at § 412.525(c), the 

labor-related share of a LTCH’s PPS Federal prospective payment is adjusted by the 

applicable wage index for the labor market area in which the LTCH is located. The 

LTCH PPS labor-related share currently represents the sum of the labor-related portion of 

operating costs (Wages and Salaries, Employee Benefits, Professional Fees: 

Labor-Related, Administrative and Business Support Services, and All-Other: 

Labor-Related Services) and a labor-related portion of capital costs using the applicable 

LTCH PPS market basket. (Additional background information on the historical 

development of the labor-related share under the LTCH PPS 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 FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51766 through 51769 and 51808).) 

 For FY 2013, we revised and rebased the market basket used under the LTCH 

PPS by adopting the newly created FY 2009-based LTCH-specific market basket. In 

addition, we determined the labor-related share for FY 2013 as the sum of the FY 2013 

relative importance of each labor-related cost category of the FY 2009-based 

LTCH-specific market basket. Specifically, we determined the LTCH PPS labor-related 

share for FY 2013 based on the relative importance of the labor-related share of operating 

costs (Wages and Salaries, Employee Benefits, Professional Fees: Labor-Related, 

Administrative and Business Support Services, and All Other: Labor-Related Services) 

and the labor-related share of capital costs of the LTCH-specific market basket based on 

FY 2009 data, as we believed these were the best data available to reflect the cost 
 1232 

structure of LTCHs. In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53477 through 

53479 and 53710 through 53711), we established a labor-related share under the LTCH 

PPS for FY 2013 of 63.096 percent based on IGI’s second quarter 2012 forecast of the 

FY 2009-based LTCH-specific market basket for FY 2013, as these were the most recent 

available data at that time that reflected the cost structure of LTCHs. (For additional 

details on the development of the LTCH PPS labor-related share for FY 2013, we refer 

readers to section VII.C.3.f. of the preamble of the FY 2013 IPPS/LTCH PPS final rule.) 

 Consistent with our historical practice, we are proposing to determine the LTCH 

PPS labor-related share for FY 2014 based on the proposed FY 2014 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 2009) and FY 2014. For this 

proposed rule, we are proposing to determine the LTCH PPS labor-related share for 

FY 2014 based on IGI’s first quarter 2013 forecast of the FY 2009-based LTCH-specific 

market basket as this is currently the best available data. In addition, consistent with our 

proposal to update the labor-related share with the most recent available data, we are 

proposing that if more recent data become available, we would use those data in 

determining the labor-related share under the LTCH PPS for FY 2014 in the final rule. 

 The table below shows the proposed FY 2014 labor-related share relative 

importance using IGI’s first quarter 2013 forecast of the FY 2009-based LTCH-specific 

market basket. The sum of the proposed relative importance for FY 2014 for operating 

costs (Wages and Salaries, Employee Benefits, Professional Fees: Labor-related, 

Administrative and Business Support Services, and All Other: Labor-related Services) 
 1233 

would be 58.495 percent. We are proposing that the portion of capital-related costs that 

is influenced by the local labor market continue to be estimated to be 46 percent. 

Because the relative importance for capital-related costs would be 9.179 percent of the 

proposed FY 2009-based LTCH-specific market basket in FY 2014, we are proposing to 

take 46 percent of 9.179 percent to determine the proposed labor-related share of capitalrelated costs for FY 2014, which would result in 4.222 percent (0.46 x 9.179). We would 

then add that proposed 4.222 for the capital-related cost amount to the proposed 

58.495percent for the operating cost amount to determine the total proposed labor-related 

share for FY 2014. Thus, 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 a labor-related share 

under the LTCH PPS in FY 2014 of 62.717 percent. This proposed labor-related share is 

determined using the same methodology as employed in calculating all previous LTCH 

labor-related shares. 

PROPOSED FY 2014 LABOR-RELATED SHARE 

RELATIVE IMPORTANCE BASED ON 

THE FY 2009-BASED LTCH-SPECIFIC MARKET BASKET 

Proposed FY 2014 

Labor-Related 

Share Relative 

Importance 

Wages and Salaries 45.130 

Employee Benefits 8.134 

Professional Fees: Labor-Related 2.214 

Administrative and Business 

Support Services 

0.502 

All Other: Labor-Related Services 2.515 

Subtotal 58.495 
 1234 

Proposed FY 2014 

Labor-Related 

Share Relative 

Importance 

Labor-Related Portion of Capital 

Costs (46%) 

4.222 

Total Labor-Related Share 62.717 

4. Proposed LTCH PPS Wage Index for FY 2014 

 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 area wage level 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 FY 2013 LTCH PPS final rule (77 FR 53711 through 53712), we calculated 

the FY 2013 LTCH PPS wage index values using the same data used for the FY 2013 

acute care hospital IPPS (that is, data from cost reporting periods beginning during 

FY 2009), without taking into account geographic reclassification under sections 

1886(d)(8) and 1886(d)(10) of the Act, as these were the most recent complete data 

available at that time. In that same final rule, we indicated that we computed the 

FY 2013 LTCH PPS wage index values consistent with the urban and rural geographic 

classifications (labor market areas) and consistent with the pre-reclassified IPPS wage 

index policy (that is, our historical policy of not taking into account IPPS geographic 

reclassifications in determining payments under the LTCH PPS). As with the IPPS wage 

index, wage data for multicampus hospitals with campuses located in different labor 
 1235 

market areas (CBSAs) are apportioned to each CBSA where the campus (or campuses) 

are located. We also continued to use our existing policy for determining wage index 

values in areas where there are no IPPS wage data. 

 Consistent with our historical methodology, to determine the applicable wage 

index values under the LTCH PPS for FY 2014, under the broad authority conferred upon 

the Secretary by section 123 of the BBRA, as amended by section 307(b) of the BIPA, to 

determine appropriate adjustments under the LTCH PPS, we are proposing to use wage 

data collected from cost reports submitted by IPPS hospitals for cost reporting periods 

beginning during FY 2010, without taking into account geographic reclassification under 

sections 1886(d)(8) and 1886(d)(10) of the Act. We are proposing to use FY 2010 data 

because these data are the most recent complete data available. These are the same data 

used to compute the proposed FY 2014 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 2014 LTCH PPS wage index values were computed consistent 

with the urban and rural geographic classifications (labor market areas) discussed above 

in section V.B.2. of the Addendum to 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 under sections 1886(d)(8) and 1886(d)(10) of 

the Act in determining payments under the LTCH PPS). As with the IPPS wage index, 
 1236 

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 

(as discussed in section III.G. of the preamble of this proposed rule). Furthermore, in 

determining the proposed FY 2014 LTCH PPS wage index values in this proposed rule, 

we are proposing to 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 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 continue to use this methodology 

for FY 2014. (We refer readers to the RY 2009 LTCH PPS final rule (73 FR 26817 

through 26818) for an explanation of and rationale for our policy for determining LTCH 

PPS wage index values for areas that have no IPPS wage data.) 

 There are currently no LTCHs located in labor areas without IPPS hospital wage 

data (or IPPS hospitals) for FY 2014. 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. Under our existing 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, and the LTCH PPS wage index value 

for rural areas with no IPPS wage data is determined by using the unweighted average of 

the wage indices from all of the CBSAs that are contiguous to the rural counties of the 

State. 

 Based on the FY 2010 IPPS wage data that we used to determine the proposed 

FY 2014 LTCH PPS wage index values in this proposed rule, there are no IPPS wage 
 1237 

data for the urban area Hinesville-Fort Stewart, GA (CBSA 25980). Consistent with the 

methodology discussed above, we calculated the proposed FY 2014 wage index value for 

CBSA 25980 as the average of the wage index values for all of the other urban areas 

within the State of Georgia (that is, CBSAs 10500, 12020, 12060, 12260, 15260, 16860, 

17980, 19140, 23580, 31420, 40660, 42340, 46660 and 47580), as shown in Table 12A, 

which is listed in section VI. of the Addendum to this proposed rule and available via the 

Internet on the CMS Web site). We note that, as IPPS wage data are dynamic, it is 

possible that urban areas without IPPS wage data will vary in the future. 

 Based on FY 2010 IPPS wage data that we are using to determine the proposed 

FY 2014 LTCH PPS wage index values in this proposed rule, there are no rural areas 

without IPPS hospital wage data. Therefore, it is not necessary to use our established 

methodology to calculate a LTCH PPS wage index value for rural areas with no IPPS 

wage data for FY 2014. We note that, as IPPS wage data are dynamic, it is possible that 

rural areas without IPPS wage data will vary in the future. 

 The proposed FY 2014 LTCH wage index values that would be applicable for 

LTCH discharges occurring on or after October 1, 2013, through September 30, 2014, are 

presented in Table 12A (for urban areas) and Table 12B (for rural areas), which are listed 

in section VI. of the Addendum of this proposed rule and available via the Internet on the 

CMS Web site. 

5. Proposed Budget Neutrality Adjustment for Changes to the Area Wage Level 

Adjustment 
 1238 

 Historically, the LTCH PPS wage index and labor-related share are updated 

annually based on the latest available data. Under § 412.525(c)(2), any changes to the 

wage index values or labor-related share are made in a budget neutral manner such that 

estimated aggregate LTCH PPS payments are unaffected; that is, will be neither greater 

than nor less than estimated aggregate LTCH PPS payments without such changes to the 

area wage level adjustment. Under this policy, we determine an area wage level 

adjustment budget neutrality factor that will be applied to the standard Federal rate to 

ensure that any changes to the area wage level adjustment are budget neutral such that 

any changes to the wage index values or labor-related share will not result in any change 

(increase or decrease) in estimated aggregate LTCH PPS payments. Accordingly, under 

§ 412.523(d)(4), we apply an area wage level adjustment budget neutrality factor in 

determining the standard Federal rate, and we also established a methodology for 

calculating an area wage level adjustment budget neutrality factor. (For additional 

information on the establishment of our budget neutrality policy for changes to the area 

wage level adjustment, we refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51771 through 51773 and 51809).) 

 As we did for FY 2013, in accordance with § 412.523(d)(4), for FY 2014, we are 

proposing to apply an area wage level adjustment budget neutrality factor to adjust the 

standard Federal rate to account for the estimated effect of the proposed adjustments or 

updates to the area wage level adjustment under § 412.525(c)(1) on estimated aggregate 

LTCH PPS payments using the methodology we established in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51773). Specifically, we are proposing to determine an area wage 
 1239 

level adjustment budget neutrality factor that would be applied to the standard Federal 

rate under § 412.523(d)(4) for FY 2014 using the following methodology: 

Step 1—We simulated estimated aggregate LTCH PPS payments using the 

FY 2013 wage index values (as established in Tables 12A and 12B listed in the 

Addendum to the FY 2013 IPPS/LTCH PPS final rule and available via the Internet on 

the CMS Web site) and the FY 2013 labor-related share of 63.096 percent (as established 

in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53477 through 53479 and 53710 

through 53711). 

Step 2—We simulated estimated aggregate LTCH PPS payments using the 

proposed FY 2014 wage index values (as shown in Tables 12A and 12B listed in the 

Addendum to this proposed rule and available via the Internet on the CMS Web site) and 

the proposed FY 2014 labor-related share of 62.717 percent (based on the latest available 

data as discussed previously in section V.B.3. of this Addendum). 

Step 3—We calculated the ratio of these estimated total LTCH PPS payments by 

dividing the estimated total LTCH PPS payments using the FY 2013 area wage level 

adjustments (calculated in Step 1) by the estimated total LTCH PPS payments using the 

proposed FY 2014 area wage level adjustments (calculated in Step 2) to determine the 

proposed area wage level adjustment budget neutrality factor for FY 2014. 

Step 4—We then applied the proposed FY 2014 area wage level adjustment 

budget neutrality factor from Step 3 to determine the proposed FY 2014 LTCH PPS 

standard Federal rate after the application of the proposed FY 2014 annual update 

(discussed in section V.A.2. of the Addendum to this proposed rule). For this proposed 
 1240 

rule, using the steps in the methodology described above, we determined a proposed 

FY 2014 area wage level adjustment budget neutrality factor of 1.000433. Accordingly, 

in section V.A.2. of the Addendum to this proposed rule, to determine the proposed 

FY 2014 LTCH PPS standard Federal rate, we are proposing to apply a proposed area 

wage level adjustment budget neutrality factor of 1.000433, in accordance with 

§ 412.523(d)(4). The proposed FY 2014 LTCH PPS standard Federal rate shown in 

Table 1E of the Addendum to this proposed rule reflects this adjustment factor. 

C. Proposed LTCH PPS Cost-of-Living Adjustment for LTCHs Located in Alaska and 

Hawaii

 Under § 412.525(b), a cost-of-living adjustment (COLA) is provided for LTCHs 

located in Alaska and Hawaii to account for the higher costs incurred in those States. 

Specifically, we apply a COLA to payments to LTCHs located in Alaska and Hawaii by 

multiplying the nonlabor-related portion of the standard Federal payment rate by the 

applicable COLA factors established annually by CMS. Higher labor-related costs for 

LTCHs located in Alaska and Hawaii are taken into account in the adjustment for area 

wage levels described above. 

 As discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 through 

53482 and 53712 through 53713), historically, we used the most recent updated COLA 

factors obtained from the U.S. Office of Personnel Management (OPM) Web site at 

http://www.opm.gov/oca/cola/rates.asp to adjust the LTCH PPS payments for LTCHs 

located in Alaska and Hawaii. Statutory changes have transitioned the Alaska and 

Hawaii COLAs to locality pay (phased in over a 3-year period beginning in 
 1241 

January 2010, with COLA rates being frozen as of October 28, 2009, and then 

proportionately reduced to reflect the phase-in of locality pay). We explained that we did 

not believe it was appropriate to use either the 2010 or 2011 reduced COLA factors to 

adjust the nonlabor-related portion of the standard Federal rate for LTCHs located in 

Alaska and Hawaii for Medicare payment purposes. In addition, we believe that it was 

appropriate to use “frozen” COLA factors to adjust payments, while we explored 

alternatives for updating the COLA factors in the future. 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53712 through 53713), we 

continued to use the same “frozen” COLA factors used in FY 2012 to adjust the 

nonlabor-related portion of the standard Federal rate for LTCHs located in Alaska and 

Hawaii in FY 2013 under § 412.525(b). In that same final rule, we also established a 

methodology to update the COLA factors for Alaska and Hawaii, every 4 years (at the 

same time as the update to the labor-related share of the IPPS market basket), beginning 

in FY 2014. The methodology we established to update the COLA factors is based on a 

comparison of the growth in the CPIs for Anchorage, Alaska and Honolulu, Hawaii 

relative to the growth in the CPI for the average U.S. city as published by the Bureau of 

Labor Statistics (BLS). As also explained in that same final rule, we believe that using 

these updated COLA factors will appropriately adjust the nonlabor-related portion of the 

standard Federal rate for LTCHs located in Alaska and Hawaii. (For additional details on 

the methodology we established in the FY 2013 IPPS/LTCH PPS final rule to update the 

COLA factors for Alaska and Hawaii beginning in FY 2014, we refer readers to section 

VII.D.3. of the preamble of that final rule (77 FR 53481 through 53482).) 
 1242 

 In this proposed rule, for FY 2014, under the broad authority conferred upon the 

Secretary by section 123 of the BBRA, as amended by section 307(b) of the BIPA, to 

determine appropriate adjustments under the LTCH PPS, we are proposing to update the 

COLA factors published by OPM for 2009 (as these are the last COLA factors OPM 

published prior to transitioning from COLAs to locality pay) using the methodology that 

we finalized in the FY 2013 IPPS/LTCH PPS final rule for purposes of making a COLA 

for LTCHs located in Alaska and Hawaii under § 412.525(b). Specifically, the 

methodology uses a comparison of the growth in the CPIs for Anchorage, Alaska and 

Honolulu, Hawaii relative to the growth in the CPI for the average U.S. city as published 

by the BLS. As discussed in that same final rule (77 FR 53481 through 53482), because 

BLS publishes CPI data for only Anchorage, Alaska and Honolulu, Hawaii, our 

methodology uses a comparison of the growth in the Consumer Price Indices (CPIs) for 

those cities relative to the growth in the overall CPI to update the COLA factors for all 

areas located in Alaska and Hawaii, respectively. We believe that the relative price 

differences between these cities and the United States (as measured by the CPIs 

mentioned above) are generally appropriate and necessary proxies for the relative price 

differences between the “other areas” of Alaska and Hawaii and the United States. 

 The “CPI for All Items” that BLS publishes for Anchorage, Honolulu, and for the 

average U.S. city are based on a different mix of commodities and services than is 

reflected in the nonlabor-related share of the IPPS market basket. We note that the mix 

of commodities and services for the nonlabor-related share based on the LTCH market 

basket is similar to that of the nonlabor-related share of the IPPS market basket. As such, 
 1243 

under the methodology we established to update the COLA factors, we calculated a 

“reweighted CPI” using the CPI for commodities and the CPI for services for each of the 

geographic areas to mirror the composition of the IPPS market basket nonlabor-related 

share. Furthermore, we note that, if finalized, we do not anticipate that the proposals in 

section IV. of this preamble to revise and rebase the IPPS market basket for FY 2014 

would alter the commodity/services weights for the nonlabor-related share of the IPPS 

market basket. 

 The current composition of BLS’ CPI for All Items for all of the respective areas 

is approximately 40 percent commodities and 60 percent services. However, the 

nonlabor-related share of the proposed IPPS market basket is comprised of approximately 

60 percent commodities and 40 percent services. Therefore, under the methodology we 

established in the FY 2013 IPPS/LTCH PPS final rule we have created reweighted 

indexes for Anchorage, Alaska and Honolulu, Hawaii, and the average U.S. city using the 

respective CPI commodities index and CPI services index and applying the approximate 

60/40 weights from the proposed IPPS market basket. We believe that this method of 

reweighting is appropriate because we would continue to make a COLA for LTCHs 

located in Alaska and Hawaii by multiplying the nonlabor-related portion of the LTCH 

PPS standard Federal rate by a COLA factor. 

 Under the COLA factor update methodology we established in the FY 2013 

IPPS/LTCH PPS final rule, we further exercised our discretionary authority to adjust 

payments made to LTCHs located in Alaska and Hawaii by incorporating a 25-percent 

cap on the CPI-updated COLA factors used to adjust the nonlabor-related portion of the 
 1244 

LTCH PPS standard Federal rate, which is consistent with a statutorily mandated 

25-percent cap that was applied to OPM’s published COLA factors. We believe that this 

is appropriate because our proposed CPI-updated COLA factors for FY 2014 uses the 

2009 OPM COLA factors as a basis. In addition, we are proposing to continue to 

establish COLA factors that are rounded to 2 decimal places, which is consistent with the 

number of decimal places in the 2009 OPM COLA factors that are used as the basis for 

calculating the proposed FY 2014 COLA factors. This policy would also maintain 

consistency with the rounding used for the 25-percent cap on the COLA factors (that is, a 

COLA factor of no more than 1.25). 

 Applying this methodology, we are proposing to establish the COLA factors for 

FY 2014 that would adjust the nonlabor-related portion of the standard Federal rate for 

LTCHs located in Alaska and Hawaii as shown in the table below. 

Proposed Cost-of-Living Adjustment Factors for Alaska and Hawaii 

Hospitals for the LTCH PPS for FY 2014 

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 1.19

 County of Kauai 1.25

 County of Maui and County of Kalawao 1.25

 Each of the COLA factors were calculated using data through 2012, as these are 

the latest historical CPI data published by the BLS. The reweighted CPI for Honolulu, 

Hawaii grew faster than the reweighted CPI for the average U.S. city over the time period 
 1245 

from 2009 to 2012, with a growth rate of 8.9 percent and 8.3 percent, respectively. As a 

result, for FY 2014, we calculated proposed COLA factors for the City and County of 

Honolulu, the County of Kauai, the County of Maui, and the County of Kalawao to be 

1.26 compared to the FY 2013 COLA factor of 1.25. However, as stated above, our 

COLA factor update methodology caps the COLA factors at 1.25. In addition, the 

proposed COLA factor calculated for the County of Hawaii for FY 2014 is 1.19 

compared to the FY 2013 COLA factor of 1.18. 

 The reweighted CPI for Anchorage, Alaska grew slower than the reweighted CPI 

for the average U.S. city over the time period from 2009 to 2012, with a growth rate of 

8.0 percent and 8.3 percent, respectively. However, applying this slower relative growth 

rate to the FY 2009 COLA factors for each of the Alaska areas results in no proposed 

change to the COLA factors for the Alaska areas for FY 2014 (1.25 for “All other areas 

of Alaska” and 1.23 for the three specified urban areas of Alaska (Anchorage, Fairbanks, 

and Juneau) as compared to the FY 2013 COLA factors. 

D. 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 the 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 
 1246 

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 make an additional 

payment for an HCO case that is equal to 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 (adjusted MS-LTC-DRG payment plus the 

fixed-loss amount). The fixed percentage of costs is called the marginal cost factor. We 

calculate the estimated cost of a case by multiplying the Medicare allowable covered 

charge by the hospital’s overall hospital cost-to-charge ratio (CCR). 

 Under the LTCH PPS HCO policy at § 412.525(a), we determine a fixed-loss 

amount, that is, the maximum loss that a LTCH can incur under the LTCH PPS for a case 
 1247 

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 
 1248 

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 
 1249 

LTCH instead of the CCR computed from its most recent (settled or tentatively settled) 

cost report data. 

 In accordance with § 412.525(a)(4)(iv)(C)(2) for HCOs and 

§ 412.529(f)(4)(iii)(B) for SSOs, in this proposed rule, using our established 

methodology for determining the LTCH total CCR ceiling (described above), based on 

IPPS total CCR data from the December 2012 update of the PSF, we are proposing to 

establish a total CCR ceiling of 1.259 under the LTCH PPS that would be effective for 

discharges occurring on or after October 1, 2013 through September 30, 2014. 

Consistent with our historical policy of using the best available data, we also are 

proposing that if more recent data became available, we would use such data to establish 

a total CCR ceiling for FY 2014 in the final rule. 

c. LTCH Statewide Average CCRs 

 Our general methodology established for determining the statewide average CCRs 

used under the LTCH PPS is similar to our established methodology for determining the 

LTCH total CCR ceiling (described above) because it is based on “total” IPPS CCR data. 

Under the LTCH PPS HCO policy at § 412.525(a)(4)(iv)(C) and the SSO policy at 

§ 412.529(f)(4)(iii), the fiscal intermediary or MAC may use a statewide average CCR, 

which is established annually by CMS, if it is unable to determine an accurate CCR for a 

LTCH in one of the following circumstances: (1) new LTCHs that have not yet 

submitted their first Medicare cost report (for this purpose, consistent with current policy, 

a new LTCH is defined as an entity that has not accepted assignment of an existing 

hospital's provider agreement in accordance with § 489.18); (2) LTCHs whose CCR is in 
 1250 

excess of the LTCH CCR ceiling; and (3) other LTCHs for whom data with which to 

calculate a CCR are not available (for example, missing or faulty data). (Other sources of 

data that the fiscal intermediary or MAC may consider in determining a LTCH's CCR 

include data from a different cost reporting period for the LTCH, data from the cost 

reporting period preceding the period in which the hospital began to be paid as a LTCH 

(that is, the period of at least 6 months that it was paid as a short-term, acute care 

hospital), or data from other comparable LTCHs, such as LTCHs in the same chain or in 

the same region.) 

 Consistent with our historical practice of using the best available data, in this 

proposed rule, using our established methodology for determining the LTCH statewide 

average CCRs, based on the most recent complete IPPS “total CCR” data from the 

December 2012 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, 2013 through September 20, 2014, in Table 8C listed in 

section VI. of the Addendum to this proposed rule (and available via the Internet). 

Furthermore, consistent with our historical practice of using the best available data, we 

also are proposing that if more recent data become available, we would use such data to 

establish LTCH PPS statewide average total CCRs for urban and rural hospitals that 

would be effective for FY 2014 in the final rule. All areas in the District of Columbia, 

New Jersey, and Rhode Island are classified as urban. Therefore, there are no rural 

statewide average total CCRs listed for those jurisdictions in Table 8C. This policy is 

consistent with the policy that we established when we revised our methodology for 
 1251 

determining the applicable LTCH statewide average CCRs in the FY 2007 IPPS final rule 

(71 FR 48119 through 48121) and is the same as the policy applied under the IPPS. In 

addition, although Connecticut has areas that are designated as rural, there are no shortterm, acute care IPPS hospitals or LTCHs located in those areas as of March 2013. 

Therefore, consistent with our existing methodology, we are proposing to use the national 

average total CCR for rural IPPS hospitals for rural Connecticut in Table 8C listed in 

section VI. of the Addendum to this proposed rule (and available via the Internet). 

 In addition, consistent with our existing methodology, in determining the urban 

and rural statewide average total CCRs for Maryland LTCHs paid under the LTCH PPS, 

we are proposing to continue to use, as a proxy, the national average total CCR for urban 

IPPS hospitals and the national average total CCR for rural IPPS hospitals, respectively. 

We are proposing to use this proxy because we believe that the CCR data in the PSF for 

Maryland hospitals may not be entirely accurate (as discussed in greater detail in the 

FY 2007 IPPS final rule (71 FR 48120)). 

d. Reconciliation of 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 cost-to-charge data 

computed from the relevant cost report determined at the time the cost report coinciding 

with the discharge is settled. For additional information, we refer readers to sections 

150.26 through 150.28 of the Medicare Claims Processing Manual (Pub. 100-4) as added 
 1252 

by Change Request 7192 (Transmittal 2111; December 3, 2010) and the RY 2009 LTCH 

PPS final rule (73 FR 26820 through 26821). 

3. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for FY 2014 

 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 LTCH’s CCR. Under § 412.525(a)(3) (in conjunction with § 412.503), if the 

estimated cost of the case exceeds the outlier threshold, we make an outlier payment 

equal to 80 percent of the difference between the estimated cost of the case and the 

outlier threshold (that is, the sum of the adjusted Federal prospective payment for the 

MS-LTC-DRG and the fixed-loss amount). 

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53715), we presented our 

policies regarding the methodology and data we would use to establish the fixed-loss 

amount of $15,408 for FY 2013. In general, for FY 2014, we are proposing to continue 

to use our existing methodology to calculate a fixed-loss amount for FY 2014 using the 

best available data that would maintain estimated HCO payments at the projected 

8 percent of total estimated LTCH PPS payments (based on the rates and policies 
 1253 

presented in that proposed rule). (For additional detail on the rationale for setting the 

HCO payment “target” at 8 percent of total estimated LTCH PPS payments, we refer 

readers to the FY 2003 LTCH PPS final rule (67 FR 56022 through 56024).) Using our 

existing methodology, we are proposing a fixed-loss amount of $14,139 for FY 2014. 

 In this proposed rule, we are proposing to continue to use our existing 

methodology to calculate the fixed-loss amount for FY 2014 (based on the data and the 

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. Consistent 

with our historical practice of using the best data available, in determining the fixed-loss 

amount for FY 2014, we are proposing to use the most recent available LTCH claims 

data and CCR data at this time. Specifically, for this proposed rule, we are proposing to 

use LTCH claims data from the December 2012 update of the FY 2012 MedPAR file and 

CCRs from the December 2012 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 2014 because these data are the most recent complete LTCH 

data available at this time. 

 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 $14,139 for FY 2014. 

Thus, we are proposing to make an additional payment for an HCO case that is equal to 

80 percent of the difference between the estimated cost of the case and the outlier 

threshold (the sum of the adjusted Federal LTCH payment for the MS-LTC-DRG and the 

fixed-loss amount of $14,139). We also note that the proposed fixed-loss amount of 
 1254 

$14,139 for FY 2014 is lower than the FY 2013 fixed-loss amount of $15,408. Based on 

our payment simulations using the most recent available data at this time, the decrease in 

the proposed fixed-loss amount for FY 2014 is 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 fixed-loss amount at the current level would result in 

HCO payments that are less than the current regulatory 8-percent requirement because a 

higher fixed-loss amount would result in fewer cases qualifying as outlier cases. In 

addition, maintaining the higher fixed-loss amount would result in a decrease in the 

amount of the additional payment for an 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 lowering the fixed-loss amount is 

appropriate and necessary to maintain that estimated outlier payments would equal 

8 percent of estimated total LTCH PPS payments as required under § 412.525(a). 

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 an SSO case (as defined in the 

regulations at § 412.529 in conjunction with § 412.503) and also as an 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 estimated costs exceeded the HCO threshold (that is, the SSO 
 1255 

payment plus the fixed-loss amount), the discharge is eligible for payment as an HCO. 

Thus, for an SSO case in FY 2014, 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 $14,139 and the amount paid under the SSO policy as 

specified in § 412.529). 

E. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments for 

FY 2014

 Section 412.525 sets forth the adjustments to the LTCH PPS standard Federal 

rate. Under § 412.525(c), the standard Federal rate is adjusted to account for differences 

in area wages by multiplying the labor-related share of the standard Federal rate by the 

applicable LTCH PPS wage index (proposed FY 2014 values are shown in Tables 12A 

and 12B listed in section VI. of the Addendum of this proposed rule and are available via 

the Internet). The standard Federal rate is also adjusted to account for the higher costs of 

LTCHs located in Alaska and Hawaii by the applicable COLA factors (the proposed 

FY 2014 factors are shown in the chart in section V.C. of this Addendum) in accordance 

with § 412.525(b). In this proposed rule, we are proposing to establish a standard Federal 

rate for FY 2014 of $40,622.06 (provided the LTCH submits quality reporting data for 

FY 2014 in accordance with the LTCHQR Program under section 1886(m)(5) of the 

Act), as discussed above in section V.A.2. of the Addendum to this proposed rule. We 

illustrate the methodology to adjust the proposed LTCH PPS Federal standard rate for 

FY 2014 in the following example: 

Example:
 1256 

 During FY 2014, a Medicare patient is in a LTCH located in Chicago, Illinois 

(CBSA 16974) and discharged on January 1, 2014. The proposed FY 2014 LTCH PPS 

wage index value for CBSA 16974 is 1.0446 (obtained from Table 12A listed in section 

VI. of the Addendum of this proposed rule and available via the Internet on the CMS 

Web site). The Medicare patient is classified into MS-LTC-DRG 28 (Spinal Procedures 

with MCC), which has a relative weight for FY 2014 of 1.6023 (obtained from Table 11 

listed in section VI. of the Addendum of this proposed rule and available via the Internet 

on the CMS Web site). The LTCH submitted quality reporting data for FY 2014 in 

accordance with the LTCHQR Program under section 1886(m)(5) of the Act. 

 To calculate the LTCH's total adjusted Federal prospective payment for this 

Medicare patient in FY 2014, we compute the wage-adjusted proposed Federal 

prospective payment amount by multiplying the unadjusted proposed FY 2014 standard 

Federal rate ($40,622.06, for LTCHs that submit quality reporting data for FY 2014 in 

accordance with the LTCHQR Program under section 1886(m)(5) of the Act) by the 

proposed labor-related share (62.717 percent) and the proposed wage index value 

(1.0446). This wage-adjusted amount is then added to the proposed nonlabor-related 

portion of the unadjusted proposed standard Federal rate (37.283 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 (1.6023) to calculate the 

total adjusted proposed Federal LTCH PPS prospective payment for FY 2014 

($66,909.36). The table below illustrates the components of the calculations in this 

example. 
 1257 

Unadjusted Proposed Standard Federal Prospective 

Payment Rate (provided the LTCH submits quality data in 

accordance with the LTCHQR Program under section 

1886(m)(5) of the Act) 

$40,622.06

Proposed Labor-Related Share x 0.62717 

Labor-Related Portion of the Proposed Federal Rate = $25,476.94

Proposed Wage Index (CBSA 16974) x 1.0446

Proposed Wage-Adjusted Labor Share of Federal Rate = $26,613.21

Proposed Nonlabor-Related Portion of the Federal Rate 

($40,622.06 x 0.37283) + $15,145.12

Adjusted Proposed Federal Rate Amount = $41,758.33

Proposed MS-LTC-DRG 28 Relative Weight x 1.6023

Total Adjusted Proposed Federal Prospective Payment = $66,909.37
 1258 

VI. Tables Referenced in this Proposed Rule and Available Only through the 

Internet on the CMS Web Site 

 This section lists the tables referred to throughout the preamble of this proposed 

rule and in this Addendum. In the past, a majority of these tables were published in the 

Federal Register as part of the annual proposed and final rules. However, similar to 

FYs 2012 and 2013, for the FY 2014 rulemaking cycle, the IPPS and LTCH tables will 

not be published as part of the annual IPPS/LTCH PPS proposed and final rulemakings 

and will be available only through the Internet. Specifically, IPPS Tables 2, 3A, 3B, 4A, 

4B, 4C, 4D, 4E, 4F, 4J, 5, Supplement to 5, 6G, 6H, 6I, 6J, 6K, 7A, 7B, 8A, 8B, 9A, 9C, 

10, 15, and 16 and LTCH PPS Tables 8C, 11, 12A, 12B, 13A, and 13B will be available 

only through the Internet. IPPS Tables 1A, 1B, 1C, and 1D, and LTCH PPS Table 1E, 

displayed at the end of this section, will continue to be published in the Federal Register

as part of the annual proposed and final rules. As discussed in section II.G.9. and 11. of 

the preamble of this proposed rule, Tables 6A through 6F will not be issued with this 

FY 2014 proposed rule because there are no changes to the ICD-9-CM codes. As 

discussed in section V.C. of the preamble of this proposed rule, effective FY 2014 and 

forward, the low-volume hospital definition and payment adjustment methodology under 

section 1886(d)(12) of the Act returns to the pre-Affordable Care Act definition and 

payment adjustment methodology (we refer readers to section V.C. for complete details 

on the low-volume hospital payment adjustment). Therefore, we are no longer including 

a table (previously Table 14) in this proposed rule that lists the low-volume payment 

adjustments. 
 1259 

 Readers who experience any problems accessing any of the tables that are posted 

on the CMS Web sites identified below should contact Michael Treitel at (410) 786-4552. 

The following IPPS tables for this FY 2014 proposed rule are available only 

through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left 

side of the screen titled, “FY 2014 IPPS Proposed Rule Home Page” or “Acute 

Inpatient--Files for Download”. 

Table 2.—Proposed Acute Care Hospitals Case-Mix Indexes for Discharges 

Occurring in Federal Fiscal Year 2012; Proposed Hospital Wage Indexes for Federal 

Fiscal Year 2014; Hospital Average Hourly Wages for Federal Fiscal Years 2012 (2008 

Wage Data), 2013 (2009 Wage Data), and 2014 (2010 Wage Data); and 3-Year Average 

of Hospital Average Hourly Wages 

Table 3A.—Proposed FY 2014 and 3-Year*

 Average Hourly Wage for Acute 

Care Hospitals in Urban Areas by CBSA 

Table 3B.—Proposed FY 2014 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 2014 

Table 4B.—Proposed Wage Index and Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--FY 2014 

Table 4C.—Proposed Wage Index and Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by State--FY 2014 
 1260 

Table 4D.—States Designated as Frontier, with Acute Care Hospitals Receiving 

at a Minimum the Frontier State Floor Wage Index; Urban Areas with Acute Care 

Hospitals Receiving the Proposed Statewide Rural Floor or Imputed Floor Wage Index—

FY 2014 

 Table 4E.—Urban CBSAs and Constituent Counties for Acute Care 

Hospitals--FY 2014 

 Table 4F.—Proposed Puerto Rico Wage Index and Capital Geographic 

Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2014 

 Table 4J.—Proposed Out-Migration Adjustment for Acute Care Hospitals—

FY 2014 

 Table 5.—List of Proposed Medicare Severity Diagnosis-Related Groups 

(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of 

Stay--FY 2014 

 Supplement to Table 5--List of MS-DRGs and Relative Weighting Factors Using 

15 Cost-to-Charge Ratios (Not Proposed)–FY 2014 

 Table 6G.—Proposed Additions to the CC Exclusions List--FY 2014 

 Table 6H – Proposed Deletions from the CC Exclusions List – FY 2014 

 Table 6I.—Proposed Major CC List—FY 2014 

 Table 6J.—Proposed Complete CC List—FY 2014 

 Table 6K.—Proposed Complete List of CC Exclusions—FY 2014 

 Table 7A.—Medicare Prospective Payment System Selected Percentile Lengths 

of Stay: FY 2012 MedPAR Update—December 2012 GROUPER V30.0 MS-DRGs 
 1261 

 Table 7B.—Medicare Prospective Payment System Selected Percentile Lengths 

of Stay: FY 2012 MedPAR Update—December 2012 GROUPER V31.0 MS-DRGs 

 Table 8A.—Proposed FY 2014 Statewide Average Operating Cost-to-Charge 

Ratios (CCRs) for Acute Care Hospitals (Urban and Rural) 

 Table 8B.—Proposed FY 2014 Statewide Average Capital Cost-to-Charge Ratios 

(CCRs) for Acute Care Hospitals 

 Table 9A.—Hospital Reclassifications and Redesignations--FY 2014 

 Table 9C.—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the 

Act--FY 2014 

 Table 10.—Proposed New Technology Add-On Payment Thresholds 1,2 for 

Applications for FY 2015 

 Table 15.—Proposed FY 2014 Proxy Readmissions Adjustment Factors 

 Table 16.—Proposed Proxy Hospital Inpatient Value-Based Purchasing (VBP) 

Program Adjustment Factors for FY 2014 

 The following LTCH PPS tables for this FY 2014 proposed rule are available 

only through the Internet on the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/LongTermCareHospitalPPS/index.html under the list item for Regulation 

Number CMS-1599-P. 

 Table 8C.—Proposed FY 2014 Statewide Average Total Cost-to-Charge Ratios 

(CCRs) for LTCHs (Urban and Rural) 
 1262 

 Table 11.—Proposed MS-LTC-DRGs, Relative Weights, Geometric Average 

Length of Stay, Short-Stay Outlier (SSO) Threshold, and “IPPS Comparable Threshold” 

for Discharges Occurring from October 1, 2013 through September 30, 2014 under the 

LTCH PPS 

 Table 12A.—Proposed LTCH PPS Wage Index for Urban Areas for Discharges 

Occurring from October 1, 2013 through September 30, 2014 

 Table 12B.—Proposed LTCH PPS Wage Index for Rural Areas for Discharges 

Occurring from October 1, 2013 through September 30, 2014 

 Table 13A.—Proposed Composition of Low-Volume Quintiles for 

MS-LTC-DRGs—FY 2014 

 Table 13B.—Proposed No-Volume MS-LTC-DRG Crosswalk for FY 2014 

TABLE 1A.—PROPOSED NATIONAL ADJUSTED OPERATING 

STANDARDIZED AMOUNTS, LABOR/NONLABOR (69.6 PERCENT LABOR 

SHARE/30.4 PERCENT NONLABOR SHARE IF WAGE INDEX 

IS GREATER THAN 1)--FY 2014 

Full Update (1.8 Percent) Reduced Update (-0.2 Percent) 

Labor-related Nonlabor-related Labor-related Nonlabor-related 

$3,741.72 $1,634.32 $3,668.21 $1,602.21
 1263 

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)--FY 2014 

Full Update (1.8 Percent) Reduced Update (-0.2 Percent) 

Labor-related Nonlabor-related Labor-related Nonlabor-related 

$3,333.14 $2,042.90 $3,267.66 $2,002.76

TABLE 1C.—PROPOSED ADJUSTED OPERATING STANDARDIZED 

AMOUNTS FOR PUERTO RICO, LABOR/NONLABOR (NATIONAL: 62 

PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE BECAUSE 

WAGE INDEX IS LESS THAN OR EQUAL TO 1; PUERTO RICO: 63.2 

PERCENT LABOR SHARE/36.8 PERCENT NONLABOR SHARE IF WAGE 

INDEX IS GREATER THAN 1 OR 62 PERCENT LABOR SHARE/38 PERCENT 

NONLABOR SHARE IF WAGE INDEX IS LESS THAN OR EQUAL TO 1—

FY 2014 

Rates if Wage Index is 

Greater Than 1 

Rates if Wage Index is Less 

Than or Equal to 1 

Standardized 

Amount Labor Nonlabor Labor Nonlabor 

1

National Not 

Applicable 

Not 

Applicable $3,333.14 $2,042.90

Puerto Rico $1,626.53 $947.09 $1,595.64 $977.98

 1 For FY 2014, there are no CBSAs in Puerto Rico with a proposed national wage index greater than 1. 

TABLE 1D.—PROPOSED CAPITAL STANDARD FEDERAL PAYMENT 

RATE—FY 2014 

Rate 

National $432.03

Puerto Rico $212.50
 1264 

TABLE 1E.—PROPOSED LTCH STANDARD FEDERAL PROSPECTIVE 

PAYMENT RATE--FY 2014 

Full Update 

(1.8 Percent) 

Reduced 

Update* 

(-0.2 Percent)

Standard Federal Rate $40,622.06 $39,823.99

 * For LTCHs that fail to submit quality reporting data for FY 2014 in accordance with the LTCH Quality 

Reporting Program, the proposed annual update is reduced by 2.0 percentage points as required by section 

1886(m)(5) of the Act. 
 1265 

Appendix A: Economic Analyses 

I. Regulatory Impact Analysis 

A. Introduction

 We have examined the impacts of this proposed rule as required by Executive 

Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation and Regulatory Review (February 2, 2011) the 

Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) 

of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 

(March 22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)). 

 Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits 

of available regulatory alternatives and, if regulation is necessary, to select regulatory 

approaches that maximize net benefits (including potential economic, environmental, 

public health and safety effects, distributive impacts, and equity). Executive Order 13563 

emphasizes the importance of quantifying both costs and benefits, of reducing costs, of 

harmonizing rules, and of promoting flexibility. A regulatory impact analysis (RIA) must 

be prepared for major rules with economically significant effects ($100 million or more 

in any 1 year). 

 We have determined that this proposed rule is a major rule as defined in 

5 U.S.C. 804(2). We estimate that the proposed changes for FY 2014 acute care hospital 

operating and capital payments will redistribute amounts in excess of $100 million to 

acute care hospitals. The applicable percentage increase to the IPPS rates required by the 
 1266 

statute, in conjunction with other proposed payment changes in this proposed rule, would 

result in an estimated $110 million decrease in FY 2014 operating payments (or 

-0.1 percent change) and an estimated $101 million increase in FY 2014 capital payments 

(or 1.1 percent change). These proposed changes are relative to payments made in 

FY 2013. The impact analysis of the proposed capital payments can be found in section 

I.K. of this Appendix. In addition, as described in section I.L. of this Appendix, LTCHs 

are expected to experience an increase in payments by $62 million in FY 2014 relative to 

FY 2013. 

 Our operating impact estimate includes the proposed -0.8 percent documentation 

and coding adjustment applied to the IPPS standardized amount, as part of the 

recoupment required under section 631 of the ATRA. It includes the proposed 

-0.2 percent adjustment applied to the IPPS standardized amount, the hospital-specific 

rate, and the Puerto Rico-specific rate to offset the cost of the policy proposal on 

admission and medical review criteria for hospital inpatient services under Medicare Part 

A. In addition, our operating payment impact estimate includes the proposed 1.8 percent 

hospital update to the standardized amount (which includes the estimated 2.5 percent 

market basket update less 0.4 percentage point for the proposed multifactor productivity 

adjustment and less 0.3 percentage point required under the Affordable Care Act). The 

estimates of proposed IPPS operating payments to acute care hospitals do not reflect any 

changes in hospital admissions or real case-mix intensity, which will also affect overall 

payment changes. 
 1267 

 The analysis in this Appendix, in conjunction with the remainder of this 

document, demonstrates that this proposed rule is consistent with the regulatory 

philosophy and principles identified in Executive Orders 12866 and 13563, the RFA, and 

section 1102(b) of the Act. This proposed rule would affect payments to a substantial 

number of small rural hospitals, as well as other classes of hospitals, and the effects on 

some hospitals may be significant. 

B. Need

 This proposed rule is necessary in order to make payment and policy changes 

under the Medicare IPPS for Medicare acute care hospital inpatient services for operating 

and capital-related costs as well as for certain hospitals and hospital units excluded from 

the IPPS. This proposed rule also is necessary to make payment and policy changes for 

Medicare hospitals under the LTCH PPS payment system. 

C. Objectives of the IPPS

 The primary objective of the IPPS is to create incentives for hospitals to operate 

efficiently and minimize unnecessary costs while at the same time ensuring that payments 

are sufficient to adequately compensate hospitals for their legitimate costs in delivering 

necessary care to Medicare beneficiaries. In addition, we share national goals of 

preserving the Medicare Hospital Insurance Trust Fund. 

 We believe 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 will ensure that the outcomes of the prospective payment systems are 
 1268 

reasonable and equitable while avoiding or minimizing unintended adverse 

consequences. 

D. Limitations of Our Analysis

 The following quantitative analysis presents the projected effects of our proposed 

policy changes, as well as statutory changes effective for FY 2014, on various hospital 

groups. We estimate the effects of individual proposed policy changes by estimating 

payments per case while holding all other payment policies constant. We use the best 

data available, but, generally, we do not attempt to make adjustments for future changes 

in such variables as admissions, lengths of stay, or case-mix. 

E. Hospitals Included in and Excluded from the IPPS

The prospective payment systems for hospital inpatient operating and 

capital-related costs of acute care hospitals encompass most general short-term, acute 

care hospitals that participate in the Medicare program. There were 31 Indian Health 

Service hospitals in our database, which we excluded from the analysis due to the special 

characteristics of the prospective payment methodology for these hospitals. Among other 

short-term, acute care hospitals, 45 such hospitals in Maryland remain excluded from the 

IPPS pursuant to the waiver under section 1814(b)(3) of the Act. 

 As of March 2013, there are 3,404 IPPS acute care hospitals included in our 

analysis. This represents approximately 55 percent of all Medicare-participating 

hospitals. The majority of this impact analysis focuses on this set of hospitals. There 

also are approximately 1,328 CAHs. These small, limited service hospitals are paid on 

the basis of reasonable costs rather than under the IPPS. IPPS-excluded hospitals and 
 1269 

units include IPFs, IRFs, LTCHs, RNHCIs, children's hospitals, and 11 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 proposed policy changes to the LTCH PPS for 

FY 2014 is discussed in section I.L. of this Appendix. 

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

 As of March 2013, there were 97 children's hospitals, 11 cancer hospitals, and18 

RNHCIs being paid on a reasonable cost basis subject to the rate-of-increase ceiling 

under § 413.40. (In accordance with § 403.752(a) of the regulation, RNHCIs are paid 

under § 413.40.) Among the remaining providers, 234 rehabilitation hospitals and 898 

rehabilitation units, and 437 LTCHs, are paid the Federal prospective per discharge rate 

under the IRF PPS and the LTCH PPS, respectively, and 472 psychiatric hospitals and 

1,155 psychiatric units are paid the Federal per diem amount under the IPF PPS. As 

stated above, IRFs and IPFs are not affected by the rate updates discussed in this 

proposed rule. The impacts of the proposed changes on LTCHs are discussed in section 

I.L. of this Appendix. 

 For children’s hospitals, the 11 cancer hospitals, and RNHCIs, the proposed 

update of the rate-of-increase limit (or target amount) is the estimated FY 2014 

percentage increase in the IPPS operating market basket, consistent with section 

1886(b)(3)(B)(ii) of the Act, and §§ 403.752(a) and 413.40 of the regulations. As 

discussed in section IV. of the preamble of this proposed rule, we are proposing to rebase 
 1270 

the IPPS operating market basket to a FY 2010 base year. Therefore, we are proposing to 

use the percentage increase in the FY 2010-based IPPS operating market basket to update 

the target amounts for FY 2014 and subsequent years for children’s hospitals, the 11 

cancer hospitals, and RNHCIs that are paid based on reasonable costs subject to the rateof-increase limits. Consistent with current law, based on IHS Global Insight, Inc.’s 2013 

first quarter forecast of the proposed FY 2010-based market basket increase, we are 

estimating that the proposed FY 2014 update based on the IPPS operating market basket 

is 2.5 percent (that is, the current estimate of the market basket rate-of-increase). 

However, the Affordable Care Act requires an adjustment for multifactor productivity 

(currently proposed to be 0.4 percentage point) and a 0.3 percentage point reduction to 

the market basket update resulting in a proposed 1.8 percent applicable percentage 

increase for IPPS hospitals subject to a reduction of 2.0 percentage points if the hospital 

fails to submit quality data under rules established by the Secretary in accordance with 

section 1886(b)(3)(B)(viii) of the Act. Children’s hospitals, the 11 cancer hospitals, and 

RNCHIs that continue to be paid based on reasonable costs subject to rate-of-increase 

limits under § 413.40 of the regulations are not subject to the reductions in the applicable 

percentage increase required under the Affordable Care Act. Therefore, for RNHCIs, 

children’s hospitals, and the 11 cancer hospitals paid under § 413.40 of the regulations, 

the proposed update is the proposed percentage increase in the FY 2014 IPPS operating 

market basket, estimated at 2.5 percent, without the reductions required under the 

Affordable Care Act. 
 1271 

 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 rate-of-increase limits since their base period, the major 

effect is on the level of incentive payments these excluded hospitals receive. Conversely, 

for excluded hospitals with cost increases above the cumulative update in their 

rate-of-increase limits, the major effect is the amount of excess costs that will not be paid. 

 We note that, under § 413.40(d)(3), an excluded hospital that continues to be paid 

under the TEFRA system and whose costs exceed 110 percent of its rate-of-increase limit 

receives its rate-of-increase limit plus the lesser of: (1) 50 percent of its reasonable costs 

in excess of 110 percent of the limit, or (2) 10 percent of its limit. In addition, under the 

various provisions set forth in § 413.40, hospitals can obtain payment adjustments for 

justifiable increases in operating costs that exceed the limit. 

G. Quantitative Effects of the Proposed Policy Changes under the IPPS for Operating 

Costs

1. Basis and Methodology of Estimates 

 In this proposed rule, we are announcing proposed policy changes and proposed 

payment rate updates for the IPPS for FY 2014 for operating costs of acute care hospitals. 

The proposed FY 2014 updates to the capital payments to acute care hospitals are 

discussed in section I.K. of this Appendix. 

 Based on the overall percentage change in payments per case estimated using our 

payment simulation model, we estimate that total FY 2014 operating payments will 
 1272 

decrease by 0.1 percent compared to FY 2013. In addition to the applicable percentage 

increase, this amount reflects the proposed FY 2014 recoupment adjustment for 

documentation and coding described in section II.D. of the preamble of this proposed rule 

and the proposed adjustment to offset the cost of the policy proposal on admission and 

medical review criteria for hospital inpatient services under Medicare Part A: a 

-0.8 percent adjustment to the IPPS national standardized amounts for the proposed 

documentation and coding adjustment and a -0.2 percent adjustment to the IPPS national 

standardized amount, the Puerto Rico-specific rate and the hospital-specific rate for the 

policy proposal on admission and medical review criteria. The impacts do not reflect 

changes in the number of hospital admissions or real case-mix intensity, which will also 

affect overall payment changes. 

 We have prepared separate impact analyses of the proposed changes to each 

system. This section deals with the proposed changes to the operating inpatient 

prospective payment system for acute care hospitals. Our payment simulation model 

relies on the most recent available data to enable us to estimate the impacts on payments 

per case of certain changes in this proposed rule. However, there are other proposed 

changes for which we do not have data available that will allow us to estimate the 

payment impacts using this model. For those proposed changes, we have attempted to 

predict the payment impacts based upon our experience and other more limited data. 

 The data used in developing the quantitative analyses of proposed changes in 

payments per case presented below are taken from the FY 2012 MedPAR file and the 

most current Provider-Specific File (PSF) that is used for payment purposes. Although 
 1273 

the analyses of the proposed changes to the operating PPS do not incorporate cost data, 

data from the most recently available hospital cost reports were used to categorize 

hospitals. Our analysis has several qualifications. First, in this analysis, we do not make 

adjustments for future changes in such variables as admissions, lengths of stay, or 

underlying growth in real case-mix. Second, due to the interdependent nature of the IPPS 

payment components, it is very difficult to precisely quantify the impact associated with 

each change. Third, we use various data sources to categorize hospitals in the tables. In 

some cases, particularly the number of beds, there is a fair degree of variation in the data 

from the different sources. We have attempted to construct these variables with the best 

available source overall. However, for individual hospitals, some miscategorizations are 

possible. 

 Using cases from the FY 2012 MedPAR file, we simulated proposed payments 

under the operating IPPS given various combinations of payment parameters. As 

described above, Indian Health Service hospitals and hospitals in Maryland were 

excluded from the simulations. The proposed impact of payments under the capital IPPS, 

or the impact of payments for costs other than inpatient operating costs, are not analyzed 

in this section. Proposed estimated payment impacts of the capital IPPS for FY 2014 are 

discussed in section I.K. of this Appendix. 

 We discuss the following proposed changes below: 

● The effects of the application of the proposed documentation and coding 

adjustment, the proposed adjustment to offset the costs of the policy proposal on 

admission and medical review criteriaand the proposed applicable percentage increase 
 1274 

(including the market basket update, the multifactor productivity adjustment and the 

applicable percentage reduction in accordance with the Affordable Care Act) to the 

standardized amount and hospital-specific rates. 

● The effects of the proposed changes to the relative weights and MS-DRG 

grouper, including the proposed methodology to calculate the MS-DRG cost based 

relative weights using 19 departmental CCRs instead of the current 15 departmental 

CCRs. 

● The effects of the proposed changes in hospitals’ wage index values reflecting 

updated wage data from hospitals’ cost reporting periods beginning during FY 2010, 

compared to the FY 2009 wage data and the proposed changes in the labor related share 

from 68.8 percent for FY 2013 to the proposed 69.6 percent for FY 2014 for hospitals 

with a wage index greater than 1.0. 

● The effects of the proposed 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 the geographic reclassifications by the MGCRB as of 

publication of this proposed rule that would be effective for FY 2014. 

● The effects of the proposed rural floor and imputed floor with the application 

of the national budget neutrality factor applied to the wage index. 

● The effects of the proposed frontier State wage index adjustment under the 

statutory provision that requires that hospitals located in States that qualify as frontier 

States cannot have a wage index less than 1.0. This provision is not budget neutral. 
 1275 

● The effects of the proposed implementation of section 1886(d)(13) of the Act, 

as added by section 505 of Pub. L. 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 effects of the proposed policies for implementation of the Hospital 

Readmissions Reduction Program under section 1886(q) of the Act, as added by section 

3025 of the Affordable Care Act, that adjusts hospital’s base operating DRG amount by 

an adjustment factor to account for a hospital’s excess readmissions. 

● The effects of the expiration of the special payment status for MDHs under 

section 606 of the ATRA under which MDHs that currently receive the higher of 

payments made under the Federal standardized amount or the payments made under the 

Federal standardized amount plus 75 percent of the difference between the Federal 

standardized amount and the hospital-specific rate will be paid based on the Federal 

standardized amount starting in FY 2014. 

● The effects of the proposed implementation of section 3133 of the Affordable 

Care Act that reduces Medicare DSH payments to 25 percent of what hospitals had been 

previously paid under section 1886(d)(5)(F) of the Act and establishes an additional 

payment to be made to hospitals that receive DSH payments for their relative share of the 

total amount of uncompensated care. 

● The total estimated change in payments based on the proposed FY 2014 

policies relative to payments based on FY 2013 policies that include the applicable 
 1276 

percentage increase of 1.8 percent (or 2.5 percent market basket update with a proposed 

reduction of 0.4 percentage point for the multifactor productivity adjustment, and a 0.3 

percentage point reduction, as required under the Affordable Care Act). 

 To illustrate the impact of the proposed FY 2014 changes, our analysis begins 

with a FY 2013 baseline simulation model using: the proposed FY 2014 applicable 

percentage increase of 1.8 percent and the proposed documentation and coding 

adjustment of 0.8 percent to the Federal standardized amount and the proposed 

adjustment 0.2 percent to the Federal standardized amount, the hospital-specific rate, and 

the Puerto Rico-specific rate for the policy proposal on admission and medical review 

criteria; the FY 2013 MS-DRG GROUPER (Version 30.0); the most current CBSA 

designations for hospitals based on OMB’s MSA definitions; the FY 2013 wage index; 

and no MGCRB reclassifications. Outlier payments are set at 5.1 percent of total 

operating MS-DRG and outlier payments for modeling purposes. 

 Section 1886(b)(3)(B)(viii) of the Act, as added by section 5001(a) of 

Pub. L. 109-171, as amended by section 4102(b)(1)(A) of the ARRA (Pub. L. 111-5) and 

by section 3401(a)(2) of the Affordable Care Act (Pub. L. 111-148), provides that, for 

FY 2007 and each subsequent year, the update factor will include a reduction of 

2.0 percentage points for any subsection (d) hospital that does not submit data on 

measures in a form and manner and at a time specified by the Secretary. (Beginning in 

FY 2015, the reduction is one-quarter of such applicable percentage increase determined 

without regard to section 1886(b)(3)(B)(ix), (xi), or (xii) of the Act.) At the time that this 

impact was prepared, 52 hospitals did not receive the full market basket rate-of-increase 
 1277 

for FY 2013 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 2014 using a reduced update for these 52 hospitals. However, 

we do not have enough information at this time to determine which hospitals will not 

receive the full update factor for FY 2014. 

 Each proposed policy change, statutory or otherwise, is then added incrementally 

to this baseline, finally arriving at an FY 2014 model incorporating all of the proposed 

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 2013 to FY 2014. 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 2014 using a proposed applicable percentage increase of 1.8 percent. 

This includes our forecasted IPPS operating hospital market basket increase of 

2.5 percent with a proposed reduction of 0.4 percentage point for the multifactor 

productivity adjustment and a 0.3 percentage point reduction as required under the 

Affordable Care Act. (Hospitals that fail to comply with the quality data submission 

requirements would receive a proposed update of -0.2 percent (this proposed update 

includes the 2.0 percentage point reduction for failure to submit these data)). Under 

section 1886(b)(3)(B)(iv) of the Act, the updates to the hospital-specific amounts for 

SCHs also are equal to the applicable percentage increase, or 1.8 percent. In addition, we 
 1278 

are proposing to update the Puerto Rico-specific amount by an applicable percentage 

increase of 1.8 percent. 

 A second significant factor that affects the changes in hospitals' payments per 

case from FY 2013 to FY 2014 is the change in hospitals’ geographic reclassification 

status from one year to the next. That is, payments may be reduced for hospitals 

reclassified in FY 2013 that are no longer reclassified in FY 2014. Conversely, payments 

may increase for hospitals not reclassified in FY 2013 that are reclassified in FY 2014. 

 A third significant factor is that we currently estimate that actual outlier payments 

during FY 2013 will be 5.2 percent of total MS-DRG payments. When the FY 2013 final 

rule was published, we projected FY 2013 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 2013 (as discussed in the Addendum to this proposed rule) are reflected in the 

analyses below comparing our current estimates of FY 2013 payments per case to 

estimated FY 2014 payments per case (with outlier payments projected to equal 

5.1 percent of total MS-DRG payments). 

2. Analysis of Table I 

 Table I displays the results of our analysis of the proposed changes for FY 2014. 

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 3,404 acute care hospitals included in the 

analysis. 
 1279 

 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 2,481 hospitals located in urban areas included in our analysis. 

Among these, there are 1,367 hospitals located in large urban areas (populations over 

1 million), and 1,114 hospitals in other urban areas (populations of 1 million or fewer). 

In addition, there are 923 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 2013 

payment classifications, including any reclassifications under section 1886(d)(10) of the 

Act. For example, the rows labeled urban, large urban, other urban, and rural show that 

the numbers of hospitals paid based on these categorizations after consideration of 

geographic reclassifications (including reclassifications under sections 1886(d)(8)(B) and 

1886(d)(8)(E) of the Act that have implications for capital payments) are 2,495; 1,377; 

1,118; and 909, respectively. 

 The next three groupings examine the impacts of the proposed changes on 

hospitals grouped by whether or not they have GME residency programs (teaching 

hospitals that receive an IME adjustment) or receive Medicare DSH payments, or some 

combination of these two adjustments. There are 2,378 nonteaching hospitals in our 

analysis, 782 teaching hospitals with fewer than 100 residents, and 244 teaching hospitals 

with 100 or more residents. 
 1280 

 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 proposed changes on rural 

hospitals by special payment groups (SCHs, RRCs, and former MDHs). There were 207 

RRCs, 329 SCHs, 192 former MDHs, and 124 hospitals that are both SCHs and RRCs, 

and 11 hospitals that were former MDHs and RRCs. 

 The next series of groupings are based on the type of ownership and the hospital's 

Medicare utilization expressed as a percent of total patient days. These data were taken 

from the FY 2011 or FY 2010 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 2014. The second grouping shows the MGCRB rural reclassifications. 

The final category shows the impact of the proposed policy changes on the 15 cardiac 

hospitals. 
 1281 

TABLE I.— IMPACT ANALYSIS OF PROPOSED CHANGES TO THE IPPS FOR OPERATING CO

No. of 

Hospitals1

Proposed 

Hospital 

Rate 

Update 

and 

Documentation 

and 

Coding 

Adjustment 2

Proposed 

FY 2014 

Weights 

and DRG 

Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality3

Proposed 

FY 2014 

Wage 

Data with 

Application of 

Wage 

Budget 

Neutrality4

Proposed 

FY 2014 

DRG, Rel. 

Wts., Wage 

Index 

Changes 

with Wage 

and Recalibration 

Budget 

Neutrality5

Proposed 

FY 2014 

MGCRB 

Reclassifications6

Proposed 

Rural 

Floor and 

Imputed 

Floor 

with 

Application of National 

Rural 

Floor 

Budget 

Neutrality7

Proposed 

Application of 

the 

Frontier 

Wage 

Index8

Proposed 

FY 2014 

OutMigration 

Adjustment9 

Propo

Hosp

Rea

missi

Red

tion P

gram

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

Expiration 

of 

MDH 

Status10 

(10) (11

All Hospitals 3,404 0.8 0 0 0.1 0 0 0.1 0 -0.1 -By Geographic Location:Urban hospitals 2481 0.8 0 0 0.1 -0.2 0 0.1 0 0 -Large urban areas 1367 0.8 0 0.1 0.2 -0.3 0 0 0 0 -Other urban areas 1114 0.8 0.1 -0.1 0 -0.1 0.1 0.2 0 -0.1 -Rural hospitals 923 1.2 -0.5 -0.2 -0.6 1.7 -0.3 0.1 0.1 -1.2 -Bed Size (Urban): 0-99 beds 622 0.8 0.3 0 0.3 -0.4 0.1 0.2 0 -0.4 -100-199 beds 762 0.8 -0.1 0 -0.1 -0.1 0.3 0.1 0 0 -200-299 beds 464 0.8 -0.1 0 0 0 0 0.1 0 0 -300-499 beds 418 0.8 0.1 0 0.1 -0.2 0 0.1 0 0 -500 or more beds 215 0.8 0.2 0.1 0.4 -0.2 -0.1 0 0 0 -Bed Size (Rural): 0-49 beds 339 1.1 -0.8 -0.3 -1 0.5 -0.3 0.1 0.2 -2 -
 1282 

No. of 

Hospitals1

Proposed 

Hospital 

Rate 

Update 

and 

Documentation 

and 

Coding 

Adjustment 2

Proposed 

FY 2014 

Weights 

and DRG 

Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality3

Proposed 

FY 2014 

Wage 

Data with 

Application of 

Wage 

Budget 

Neutrality4

Proposed 

FY 2014 

DRG, Rel. 

Wts., Wage 

Index 

Changes 

with Wage 

and Recalibration 

Budget 

Neutrality5

Proposed 

FY 2014 

MGCRB 

Reclassifications6

Proposed 

Rural 

Floor and 

Imputed 

Floor 

with 

Application of National 

Rural 

Floor 

Budget 

Neutrality7

Proposed 

Application of 

the 

Frontier 

Wage 

Index8

Proposed 

FY 2014 

OutMigration 

Adjustment9 

Propo

Hosp

Rea

missi

Red

tion P

gram

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

Expiration 

of 

MDH 

Status10 

(10) (11

50-99 beds 328 1.2 -0.7 -0.2 -0.8 1.2 -0.3 0 0.2 -3.3 -100-149 beds 151 1.2 -0.6 -0.3 -0.7 1.9 -0.3 0.1 0 -0.3 -150-199 beds 59 1.1 -0.2 -0.2 -0.3 2.2 -0.4 0.1 0 0 -200 or more beds 46 1.2 -0.1 -0.3 -0.2 2.4 -0.3 0 0 0 -Urban by Region: New England 120 0.8 -0.1 0.4 0.4 0.7 4.4 0 0 0 -Middle Atlantic 318 0.8 0 0.7 0.7 0.3 -0.3 0 0 0 -South Atlantic 375 0.8 0 -0.4 -0.3 -0.4 -0.4 0 0 -0.1 -East North Central 395 0.8 0 -0.2 -0.1 -0.2 -0.5 0 0 0 -East South Central 149 0.8 0.1 -0.5 -0.2 -0.3 -0.4 0 0 0 -West North Central 165 0.8 0.2 -0.2 0 -0.7 -0.5 0.8 0 -0.1 -West South Central 371 0.8 0.1 -0.3 0 -0.6 -0.5 0 0 0 -Mountain 156 0.9 0.2 -0.1 0.1 -0.1 0 0.2 0 0 -Pacific 381 0.8 0 0.5 0.5 -0.1 0.7 0 0 0 -Puerto Rico 51 1 -0.1 0.2 0.5 -0.8 0 0 0 0 
 1283 

No. of 

Hospitals1

Proposed 

Hospital 

Rate 

Update 

and 

Documentation 

and 

Coding 

Adjustment 2

Proposed 

FY 2014 

Weights 

and DRG 

Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality3

Proposed 

FY 2014 

Wage 

Data with 

Application of 

Wage 

Budget 

Neutrality4

Proposed 

FY 2014 

DRG, Rel. 

Wts., Wage 

Index 

Changes 

with Wage 

and Recalibration 

Budget 

Neutrality5

Proposed 

FY 2014 

MGCRB 

Reclassifications6

Proposed 

Rural 

Floor and 

Imputed 

Floor 

with 

Application of National 

Rural 

Floor 

Budget 

Neutrality7

Proposed 

Application of 

the 

Frontier 

Wage 

Index8

Proposed 

FY 2014 

OutMigration 

Adjustment9 

Propo

Hosp

Rea

missi

Red

tion P

gram

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

Expiration 

of 

MDH 

Status10 

(10) (11

Rural by Region: New England 23 1 -0.3 0.2 -0.1 3.2 -0.5 0 0 -3.9 Middle Atlantic 69 1.2 -0.5 -0.2 -0.6 1.6 -0.3 0 0.1 -2.1 -South Atlantic 165 1.1 -0.5 -0.3 -0.7 2.1 -0.4 0 0.1 -1 -East North Central 119 1.2 -0.3 -0.3 -0.6 1.3 -0.3 0 0.1 -2.1 -East South Central 171 0.9 -0.4 -0.5 -0.7 2.5 -0.5 0 0.1 -0.6 -West North Central 100 1.4 -0.3 0.1 -0.2 0.4 -0.1 0.3 0.1 -0.8 -West South Central 181 1 -0.6 -0.5 -0.9 2.2 -0.4 0 0.1 -0.4 -Mountain 65 1.5 -0.4 -0.1 -0.4 0.2 -0.1 0.4 0 -0.1 -Pacific 29 1.4 -0.6 0.2 -0.4 1.1 -0.2 0 0 -0.1 -Puerto Rico 1 1 3.3 -0.5 3.4 -0.9 -0.4 0 0 0 By Payment Classification: Urban hospitals 2495 0.8 0 0 0.1 -0.2 0 0 0 0 -Large urban areas 1377 0.8 0 0.1 0.2 -0.2 0 0 0 0 -
 1284 

No. of 

Hospitals1

Proposed 

Hospital 

Rate 

Update 

and 

Documentation 

and 

Coding 

Adjustment 2

Proposed 

FY 2014 

Weights 

and DRG 

Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality3

Proposed 

FY 2014 

Wage 

Data with 

Application of 

Wage 

Budget 

Neutrality4

Proposed 

FY 2014 

DRG, Rel. 

Wts., Wage 

Index 

Changes 

with Wage 

and Recalibration 

Budget 

Neutrality5

Proposed 

FY 2014 

MGCRB 

Reclassifications6

Proposed 

Rural 

Floor and 

Imputed 

Floor 

with 

Application of National 

Rural 

Floor 

Budget 

Neutrality7

Proposed 

Application of 

the 

Frontier 

Wage 

Index8

Proposed 

FY 2014 

OutMigration 

Adjustment9 

Propo

Hosp

Rea

missi

Red

tion P

gram

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

Expiration 

of 

MDH 

Status10 

(10) (11

Other urban areas 1118 0.8 0.1 -0.1 0 0 0.1 0.1 0 0 -Rural areas 909 1.2 -0.4 -0.2 -0.6 1.4 -0.3 0.2 0.1 -1.2 -Teaching Status: Nonteaching 2378 0.9 -0.1 -0.1 -0.2 0.2 0 0 0 -0.3 -Fewer than 100 residents 782 0.8 0 0 0 -0.1 0 0.1 0 0 -100 or more residents 244 0.8 0.2 0.2 0.5 -0.2 0 0 0 0 -Urban DSH: Non-DSH 706 0.8 0 0 0.1 0.1 0 0 0 -0.2 -100 or more beds 1562 0.8 0.1 0 0.1 -0.2 0 0 0 0 -Less than 100 beds 330 0.9 -0.4 0.1 -0.3 0.2 0.1 0.2 0 -0.5 -Rural DSH: SCH 260 1.5 -0.8 0 -0.8 0.1 -0.1 0 0 -0.2 -RRC 223 1.2 -0.3 -0.2 -0.4 2 -0.3 0.4 0 -0.3 -100 or more beds 29 0.8 -0.5 -0.3 -0.6 1.2 -0.4 0 0.1 -1.5 -Less than 100 beds 294 0.8 -0.7 -0.5 -0.9 0.8 -0.5 0 0.4 -4.9 -
 1285 

No. of 

Hospitals1

Proposed 

Hospital 

Rate 

Update 

and 

Documentation 

and 

Coding 

Adjustment 2

Proposed 

FY 2014 

Weights 

and DRG 

Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality3

Proposed 

FY 2014 

Wage 

Data with 

Application of 

Wage 

Budget 

Neutrality4

Proposed 

FY 2014 

DRG, Rel. 

Wts., Wage 

Index 

Changes 

with Wage 

and Recalibration 

Budget 

Neutrality5

Proposed 

FY 2014 

MGCRB 

Reclassifications6

Proposed 

Rural 

Floor and 

Imputed 

Floor 

with 

Application of National 

Rural 

Floor 

Budget 

Neutrality7

Proposed 

Application of 

the 

Frontier 

Wage 

Index8

Proposed 

FY 2014 

OutMigration 

Adjustment9 

Propo

Hosp

Rea

missi

Red

tion P

gram

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

Expiration 

of 

MDH 

Status10 

(10) (11

Urban teaching and DSH: Both teaching and DSH 826 0.8 0.1 0.1 0.3 -0.3 0 0.1 0 0 -Teaching and no DSH 135 0.8 0 0.2 0.2 0.3 0.1 0 0 0 -No teaching and DSH 1066 0.8 -0.1 -0.1 -0.1 0 0.2 0 0 0 -No teaching and no DSH 468 0.8 0.1 0 0.1 -0.2 -0.1 0.1 0 0 -Special Hospital Types: RRC 207 0.8 -0.1 -0.1 -0.1 2.9 -0.4 0.5 0.1 -0.5 -SCH 329 1.5 -0.6 0 -0.6 0 -0.1 0 0 -0.1 -Former MDH 192 0.8 -0.7 -0.6 -1.1 1.1 -0.4 0 0.3 -9.9 -SCH and RRC 124 1.5 -0.3 0 -0.3 0.5 -0.1 0 0 0 -Former MDH and RRC 11 0.8 -0.4 0.3 0 2 -0.6 0 0.1 -15.7 -Type of Ownership: Voluntary 1944 0.8 0 0.1 0.1 0 0 0.1 0 -0.1 -
 1286 

No. of 

Hospitals1

Proposed 

Hospital 

Rate 

Update 

and 

Documentation 

and 

Coding 

Adjustment 2

Proposed 

FY 2014 

Weights 

and DRG 

Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality3

Proposed 

FY 2014 

Wage 

Data with 

Application of 

Wage 

Budget 

Neutrality4

Proposed 

FY 2014 

DRG, Rel. 

Wts., Wage 

Index 

Changes 

with Wage 

and Recalibration 

Budget 

Neutrality5

Proposed 

FY 2014 

MGCRB 

Reclassifications6

Proposed 

Rural 

Floor and 

Imputed 

Floor 

with 

Application of National 

Rural 

Floor 

Budget 

Neutrality7

Proposed 

Application of 

the 

Frontier 

Wage 

Index8

Proposed 

FY 2014 

OutMigration 

Adjustment9 

Propo

Hosp

Rea

missi

Red

tion P

gram

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

Expiration 

of 

MDH 

Status10 

(10) (11

Proprietary 895 0.8 0.1 -0.1 0 0.1 0 0.1 0 -0.1 -Government 546 0.9 0 -0.2 -0.1 -0.1 -0.1 0 0 -0.1 -Medicare Utilization as a Percent of Inpatient Days: 0-25 368 0.8 0.2 0.3 0.5 -0.3 -0.1 0 0 0 -25-50 1807 0.8 0.1 0 0.1 -0.2 0 0.1 0 0 -50-65 967 0.9 -0.2 -0.1 -0.2 0.6 0.1 0 0 -0.4 -Over 65 171 1 -0.4 -0.3 -0.7 0.8 -0.3 0 0.1 -1.6 - FY 2014 Reclassifications by the Medicare Geographic Classification Review Board: All Reclassified Hospitals 762 0.9 -0.1 0 0 2.1 0.2 0 0 -0.2 -Non-Reclassified Hospitals 2642 0.8 0 0 0.1 -0.7 -0.1 0.1 0 -0.1 -
 1287 

No. of 

Hospitals1

Proposed 

Hospital 

Rate 

Update 

and 

Documentation 

and 

Coding 

Adjustment 2

Proposed 

FY 2014 

Weights 

and DRG 

Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality3

Proposed 

FY 2014 

Wage 

Data with 

Application of 

Wage 

Budget 

Neutrality4

Proposed 

FY 2014 

DRG, Rel. 

Wts., Wage 

Index 

Changes 

with Wage 

and Recalibration 

Budget 

Neutrality5

Proposed 

FY 2014 

MGCRB 

Reclassifications6

Proposed 

Rural 

Floor and 

Imputed 

Floor 

with 

Application of National 

Rural 

Floor 

Budget 

Neutrality7

Proposed 

Application of 

the 

Frontier 

Wage 

Index8

Proposed 

FY 2014 

OutMigration 

Adjustment9 

Propo

Hosp

Rea

missi

Red

tion P

gram

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

Expiration 

of 

MDH 

Status10 

(10) (11

Urban Hospitals Reclassified 451 0.8 0 0.1 0.1 1.9 0.4 0 0 0 -Urban Nonreclassified Hospitals, FY 2014 1990 0.8 0.1 0 0.2 -0.7 -0.1 0.1 0 0 -All Rural Hospitals Reclassified FY 2014 311 1.1 -0.3 -0.3 -0.5 2.7 -0.3 0 0 -0.8 -Rural Nonreclassified Hospitals FY 2014 552 1.2 -0.6 -0.2 -0.8 -0.2 -0.3 0.1 0.2 -1.7 -All Section 401 Reclassified Hospitals 47 1.3 -0.4 -0.3 -0.6 -0.3 0 2.1 0 -2.4 -Other Reclassified Hospitals (Section 1886(d)(8)(B)) 61 1 -0.8 -0.7 -1.3 4.1 -0.4 0 0 -3.9 -
 1288 

No. of 

Hospitals1

Proposed 

Hospital 

Rate 

Update 

and 

Documentation 

and 

Coding 

Adjustment 2

Proposed 

FY 2014 

Weights 

and DRG 

Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality3

Proposed 

FY 2014 

Wage 

Data with 

Application of 

Wage 

Budget 

Neutrality4

Proposed 

FY 2014 

DRG, Rel. 

Wts., Wage 

Index 

Changes 

with Wage 

and Recalibration 

Budget 

Neutrality5

Proposed 

FY 2014 

MGCRB 

Reclassifications6

Proposed 

Rural 

Floor and 

Imputed 

Floor 

with 

Application of National 

Rural 

Floor 

Budget 

Neutrality7

Proposed 

Application of 

the 

Frontier 

Wage 

Index8

Proposed 

FY 2014 

OutMigration 

Adjustment9 

Propo

Hosp

Rea

missi

Red

tion P

gram

(1) (2) (3) (4) (5) (6) (7) (8) (9) 

Expiration 

of 

MDH 

Status10 

(10) (11

Specialty Hospitals Cardiac specialty Hospitals 15 0.8 1.1 0.3 1.5 -0.8 -0.2 0.7 0 0 -1 Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not eq

Discharge data are from FY 2012, and hospital cost report data are from reporting periods beginning in FY 2010 and FY 2009. 

2 This column displays the payment impact of the proposed hospital rate update, the documentation and coding adjustment and the adju

of the proposed inpatient status policy including the 1.8 percent adjustment to the national standardized amount (the estimated 2.5 percreduced by the proposed 0.4 percentage point for the multifactor productivity adjustment and the 0.3 percentage point reduction under t

and the 0.8 percent documentation and coding adjustment to the national standardized amount and the 0.2 percent adjustment for the padmission and medical review criteria applied to the national standardized amount, hospital-specific rate and the Puerto Rico-specific a

3 This column displays the payment impact of the proposed changes to the Version 31.0 GROUPER, the proposed changes to the relativ

that uses 19 CCRs as opposed to 15 CCRs, and the proposed recalibration of the MS-DRG weights based on FY 2012 MedPAR data in 

1886(d)(4)(C)(iii) of the Act. This column displays the application of the proposed recalibration budget neutrality factor of 0.997583 i

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

4 This column displays the payment impact of the proposed update to wage index data using FY 2010 cost report data and proposed cha

share. This column displays the payment impact of the proposed application of the wage budget neutrality factor, which is calculated s

recalibration budget neutrality factor, and is calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The proposed wage bud

0.999766 

5 This column displays the combined payment impact of the proposed changes in Columns 3 through 4 and the proposed cumulative bu

MS-DRG and wage changes in accordance with section 1886(d)(4)(C)(iii) of the Act and section 1886(d)(3)(E) of the Act. The propos
 1289 

recalibration budget neutrality factor of 0.99783 is the product of the proposed wage budget neutrality factor and the proposed recalibra

factor. 

6 Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The 

proposed FY 2014 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 2014. Reyears has no bearing on the payment impacts shown here. This column reflects the proposed geographic budget neutrality factor of 0.9

7 This column displays the effects of the proposed rural floor and imputed floor. The Affordable Care Act requires the rural floor budge

be 100 percent national level adjustment. The proposed rural floor budget neutrality factor (which includes the proposed imputed floorindex is 0.990189. 

8 This column shows the impact of the policy required under section 10324 of the Affordable Care Act that hospitals located in frontier 

no less than 1.0. 

9 This column displays the impact of section 1886(d)(13) of the Act, as added by section 505 of Pub. L. 108-173, which provides for an 

wage index if the hospital qualifies by meeting a threshold percentage of residents of the county where the hospital is located who comm

in counties with higher wage indexes. 

10 This column displays the impact of the expiration of MDH status for FY 2014, a non-budget neutral payment provision. 11 This column displays the impact of the implementation of the Hospital Readmissions Reduction Program, section 3025 of the Afford

budget neutral provision that adjusts a hospital’s payment for excess readmissions. 

12 This column displays the impact of the implementation of section 3133 of the Affordable Care Act that reduces Medicare DSH paym

establishes an additional uncompensated care payment. 

13 This column shows the proposed changes in payments from FY 2013 to FY 2014. It reflects the impact of the proposed FY 2014 hos

adjustment for documentation and coding, and the proposed adjustment for the policy proposal on admission and medical review criteriproposed changes in hospitals' reclassification status in FY 2014 compared to FY 2013. It incorporates all of the proposed changes disp7, 8, 9, 10, 11 and 12 (the proposed changes displayed in Columns 3 and 4 are included in Column 5). The sum of these impacts may bpercentage changes shown here due to rounding and interactive effects.
 1290 

a. Effects of the Proposed Hospital Update , Documentation and Coding Adjustment and 

Adjustment for the Policy Proposal on Admission and Medical Review Criteria (Column 

2) 

 As discussed in section II.D. of the preamble of this proposed rule, this column 

includes the proposed hospital update, including the proposed 2.5 percent market basket 

update, the proposed reduction of 0.4 percentage point for the multifactor productivity 

adjustment, and the 0.3 percentage point reduction in accordance with the Affordable 

Care Act. In addition, this column includes the proposed FY 2014 documentation and 

coding recoupment adjustment of -0.8 percent on the national standardized amount as 

part of the recoupment required by section 631 of the ATRA. Finally, we are proposing a 

-0.2 percent adjustment to offset the cost of the policy proposal on admission and medical 

review criteria for hospital inpatient services under Medicare Part A that is applied to the 

national standardized amount, the hospital-specific rate, and the Puerto Rico specific rate. 

As a result, we are proposing to make a 0.8 percent update to the national standardized 

amount. 

 This column also includes the proposed 1.6 percent update to the hospital-specific 

rates, which includes the proposed 1.8 percent for the hospital update and proposed -0.2 

percent adjustment to offset the cost of the policy proposal on admission and medical 

review criteria for hospital inpatient services under Medicare Part A. 

 Overall, hospitals would experience a 0.8 percent increase in payments primarily 

due to the effects of the hospital update and documentation and coding adjustment on the 

national standardized amount. Hospitals that are paid under the hospital-specific rate, 
 1291 

namely SCHs, would experience a 1.6 percent increase in payments; therefore, hospital 

categories with SCHs paid under the hospital-specific rate would experience increases in 

payments of more than 0.8 percent. 

b. Effects of the Proposed Changes to the MS-DRG Reclassifications and Relative 

Cost-Based Weights with Recalibration Budget Neutrality (Column 3) 

 Column 3 shows the effects of the proposed changes to the MS-DRGs and 

relative weights with the application of the proposed recalibration budget neutrality factor 

to the standardized amounts. Section 1886(d)(4)(C)(i) of the Act requires us annually to 

make appropriate classification changes in order to reflect changes in treatment patterns, 

technology, and any other factors that may change the relative use of hospital resources. 

Consistent with section 1886(d)(4)(C)(iii) of the Act, we are proposing to calculate a 

recalibration budget neutrality factor to account for the proposed changes in MS-DRGs 

and relative weights to ensure that the overall payment impact is budget neutral. 

 As discussed in section II.E. of the preamble of this proposed rule, the FY 2014 

MS-DRG relative weights will be 100 percent cost-based and 100 percent MS-DRGs. 

For FY 2014, the MS-DRGs are calculated using the FY 2012 MedPAR data grouped to 

the Version 31.0 (FY 2014) MS-DRGs. In addition, for FY 2014, we are proposing to 

move from 15 departmental CCRs to 19 departmental CCRs to calculate the cost-based 

relative weights. The four additional CCRs of implantable devices, CT scan, MRI, and 

cardiac catheterization have generally increased the relative weight values for surgical 

MS-DRGs and decreased the relative weight values for medical MS-DRGs. The 

proposed methodology to calculate the relative weights and the proposed reclassification 
 1292 

changes to the GROUPER are described in more detail in section II.H. of the preamble of 

this proposed rule. 

 The “All Hospitals” line in Column 3 indicates that proposed changes due to the 

MS-DRGs and relative weights would result in a 0.0 percent change in payments with the 

application of the proposed recalibration budget neutrality factor of 0.997583 on to the 

standardized amount. Hospital categories that generally treat more surgical cases than 

medical cases would experience increases in their payments due to the proposed changes 

to the relative weight methodology. Rural hospitals would experience a 0.5 percent 

decrease in payments because rural hospitals tend to treat fewer surgical cases than 

medical cases, while teaching hospitals with more than 100 residents would experience 

an increase in payments by 0.2 percent as those hospitals treat more surgical cases than 

medical cases. 

c. Effects of the Proposed Wage Index Changes (Column 4) 

 Column 4 shows the impact of updated wage data and the proposed change to the 

labor-related share with the application of the proposed wage budget neutrality factor. 

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 2014 is based on 

data submitted for hospital cost reporting periods beginning on or after October 1, 2009 

and before October 1, 2010. The estimated impact of the updated wage data and the 

proposed labor-related share on hospital payments is isolated in Column 4 by holding the 

other payment parameters constant in this simulation. That is, Column 4 shows the 
 1293 

proposed percentage change in payments when going from a model using the FY 2013 

wage index, based on FY 2009 wage data, the FY 2013 labor-related share of 68.8 

percent and having a 100-percent occupational mix adjustment applied, to a model using 

the proposed FY 2014 pre-reclassification wage index with the proposed labor-related 

share of 69.6 percent, also having a 100-percent occupational mix adjustment applied, 

based on FY 2010 wage data (while holding other payment parameters such as use of the 

Version 31.0 MS-DRG GROUPER constant). The proposed occupational mix 

adjustment is based on the 2010 occupational mix survey. 

 In addition, the column shows the impact of the application of the proposed wage 

budget neutrality to the proposed national standardized amount. In FY 2010, we began 

calculating separate wage budget neutrality and recalibration budget neutrality factors, in 

accordance with section 1886(d)(3)(E) of the Act, which specifies that budget neutrality 

to account for wage 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 2014, we are proposing to calculate the 

wage budget neutrality factor to ensure that payments under updated wage data and the 

proposed labor-related share of 69.6 percent are budget neutral without regard to the 

lower labor-related share of 62 percent applied to hospitals with a wage index less than or 

equal to 1.0. In other words, the wage budget neutrality is calculated under the 

assumption that all hospitals receive the higher labor-related share of the standardized 

amount. The proposed wage budget neutrality factor is 0.999766, and the overall 

proposed payment change is zero percent. 
 1294 

 Column 4 shows the impacts of updating the wage data using FY 2010 cost 

reports. Overall, the new wage data and the proposed labor-related share, combined with 

the proposed wage budget neutrality adjustment, would lead to a 0.0 percent change for 

all hospitals as shown in Column 4. Among the regions, the largest increase is in the 

urban Middle Atlantic region, which would experience 0.7 percent increase. The largest 

decline from updating the wage data and the proposed change in the labor-related share to 

69.9 percent is seen in the rural West South Central region, rural East South Central, rural 

Puerto Rico and Urban East South Central (-0.5 percent decrease). 

 In looking at the wage data itself, the national average hourly wage increased 

2.0 percent compared to FY 2013. Therefore, the only manner in which to maintain or 

exceed the previous year’s wage index was to match or exceed the national 2.0 percent 

increase in average hourly wage. Of the 3,382 hospitals with wage data for both 

FYs 2013 and 2014, 1,626, or 48.1 percent, would experience an average hourly wage 

increase of 2.0 percent or more. 

 The following chart compares the shifts in proposed wage index values for 

hospitals due to changes in the average hourly wage data for FY 2014 relative to 

FY 2013. Among urban hospitals, none would experience an increase or decrease of 

more than 5 percent. Among rural hospitals, none would experience an increase or 

decrease of more than 5 percent. However, 918 rural hospitals would experience 

increases or decreases of less than 5 percent, while 2,464 urban hospitals would 

experience increases or decreases of less than 5 percent. These figures reflect proposed 

changes in the “pre-reclassified, occupational mix-adjusted wage index,” that is, the 
 1295 

proposed wage index before the proposed application of geographic reclassification, the 

proposed rural and imputed floors, the proposed out-migration adjustment, and other 

proposed wage index exceptions and adjustments. (We refer readers to sections III.G.2. 

through III.I. of the preamble of this proposed rule for a complete discussion of the 

exceptions and adjustments to the wage index.) We note that the proposed “postreclassified wage index” or “payment wage index,” the proposed wage index that 

includes all such exceptions and adjustments (as reflected in Tables 2, 4A, 4B, 4C, and 

4F of the Addendum to this proposed rule, which are available via the Internet on the 

CMS Web site) is used to adjust the proposed labor-related share of a hospital’s 

standardized amount, either 69.6 percent or 62 percent, depending upon whether a 

hospital’s wage index is greater than 1.0 or less than or equal to 1.0. Therefore, the 

proposed pre-reclassified wage index figures in the chart below may illustrate a 

somewhat larger or smaller change than would occur in a hospital’s payment wage index 

and total payment. 

 The following chart shows the projected impact of changes in the average hourly 

wage data for urban and rural hospitals. 

Percentage Change in Proposed Area Wage Index 

Values Number of Hospitals 

 Urban Rural 

Increase more than 10 percent 0 0

Increase more than 5 percent and less than 10 percent 0 0

Increase or decrease less than 5 percent 2,464 918

Decrease more than 5 percent and less than 10 percent 0 0

Decrease more than 10 percent 0 0
 1296 

d. Combined Effects of the 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 0.999766 and a proposed recalibration budget neutrality factor of 

0.997583 (which is applied to the Puerto Rico-specific standardized amount and the 

hospital-specific rates). The product of the two proposed budget neutrality factors is the 

proposed cumulative wage and recalibration budget neutrality factor. The proposed 

cumulative wage and recalibration budget neutrality adjustment is 0.997350, or 

approximately -0.27 percent, which is applied to the proposed 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. 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 would result in a 0.1 percent change in payments. 

 We estimate that the combined impact of the proposed changes to the relative 

weights and MS-DRGs and the updated wage data and the proposed change in the 

labor-related share with budget neutrality applied would result in 0.1 percent increase in 

payments for urban hospitals and 0.6 percent decrease in payments for rural hospitals 

primarily due to the proposed changes to the relative weights. Urban Middle Atlantic 
 1297 

hospitals would experience a 0.7 percent increase in payments due to proposed increases 

in their wages compared to the national average, while the rural West South Central area 

would experience a 0.9 percent decrease in payments because of below average increases 

in wages and due to the proposed changes to the relative weights. 

e. Effects of Proposed 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 proposed changes in Column 6 reflect the per case payment 

impact of moving from this baseline to a simulation incorporating the proposed MGCRB 

decisions for FY 2014 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 proposed 

rule in the Federal Register to decide whether to withdraw or terminate an approved 

geographic reclassification for the following year. 

 The overall effect of geographic reclassification is required by 

section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, for purposes of this 

impact analysis, we are proposing to apply an adjustment of 0.990971 to ensure that the 

effects of the reclassifications under section 1886(d)(10) of the Act are budget neutral 
 1298 

(section II.A. of the Addendum to this proposed rule). Geographic reclassification 

generally benefits hospitals in rural areas. We estimate that the geographic 

reclassification would increase payments to rural hospitals by an average of 1.7 percent. 

By region, all the rural hospital categories, with the exception of one rural Puerto Rico 

hospital, would experience increases in payments due to MGCRB reclassifications. 

Rural hospitals in the New England region would experience a 3.2 percent increase in 

payments and rural hospitals in the Mountain region would experience a 0.2 percent 

increase in payments. Urban hospitals in New England and the Middle Atlantic would 

experience an increase in payments of 0.7 percent and 0.3 percent, respectively, largely 

due to reclassifications of hospitals in Connecticut and New Jersey. 

 Table 9A listed in section VI. of the Addendum to this proposed rule and 

available via the Internet on the CMS Web site reflects the reclassifications for FY 2014. 

f. Effects of the Proposed Rural and Imputed Floor, Including Application of Proposed 

National Budget Neutrality (Column 7) 

 As discussed in section III.B. of the preamble of the FY 2009 IPPS final rule, the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule, the FYs 2011, 2012, and 2013 

IPPS/LTCH PPS final rules, and this proposed rule, section 4410 of Pub. L. 105-33 

established the rural floor by requiring that the wage index for a hospital in any urban 

area cannot be less than the wage index received by rural hospitals in the same State. We 

apply a uniform budget neutrality adjustment to the wage index. In addition, the imputed 

floor, which is also included in the calculation of the budget neutrality adjustment to the 

wage index, was extended in FY 2012 for 2 additional years. In the past, only urban 
 1299 

hospitals in New Jersey had been receiving the imputed floor. As discussed in the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53369), we established an alternative 

temporary methodology for the imputed floor, which resulted in an imputed floor for 

Rhode Island for FY 2013. For FY 2014, we are proposing to extend the imputed rural 

floor, as calculated under the priginal methodology and the alternative methodology. 

 The Affordable Care Act requires that we apply one rural floor budget neutrality 

factor to the wage index nationally, and the imputed floor is part of the rural floor budget 

neutrality factor applied to the wage index nationally. We have calculated a proposed 

FY 2014 rural floor budget neutrality factor to be applied to the wage index of 0.990189, 

which will reduce wage indexes by 0.98 percent. 

 Column 7 shows the projected impact of the proposed rural floor and proposed 

imputed floor with the proposed national rural floor budget neutrality factor applied to 

the proposed wage index. The column compares the proposed post-reclassification 

FY 2014 wage index of providers before the rural floor and imputed floor adjustment and 

the proposed post-reclassification FY 2014 wage index of providers with the proposed 

rural floor and imputed floor adjustment. Only urban hospitals can benefit from the rural 

and imputed floors. Because the provision is budget neutral, all other hospitals (that is, 

all rural hospitals and those urban hospitals to which the adjustment is not made) would 

experience a decrease in payments due to the proposed budget neutrality adjustment that 

is applied nationally to their wage index. 

 We estimate that 434 hospitals benefit from the proposed rural and imputed floors 

while the remaining 2,970 IPPS hospitals in our model have their proposed wage index 
 1300 

reduced by the proposed rural floor budget neutrality adjustment of 0.990189 (or 0.98 

percent). We project that, in aggregate, rural hospitals would experience a 0.3 percent 

decrease in payments as a result of the application of the proposed rural floor budget 

neutrality because the rural hospitals do not benefit from the rural floor, but have their 

wage indexes downwardly adjusted to ensure that the application of the rural floor is 

budget neutral overall. We project hospitals located in other urban areas (populations of 

1 million or fewer) would experience a 0.1 percent increase in payments because those 

providers benefit from the rural floor. Urban hospitals in the New England region can 

expect a 4.4 percent increase in payments primarily due to the application of the proposed 

rural floor in Massachusetts and Connecticut. All 60 urban providers in Massachusetts 

are expected to receive the proposed rural floor wage index value, including proposed 

rural floor budget neutrality, of 1.3108 increasing payments to Massachusetts by an 

estimated $169 million. During most past years, there have been no IPPS hospitals 

located in rural areas in Massachusetts. There was one urban IPPS hospital that was 

reclassified to rural Massachusetts (under section 1886(d)(8)(E) of the Act) which 

established the Massachusetts rural floor, but the wage index resulting from that 

hospital’s data was not high enough for any urban hospital to benefit from the rural floor 

policy. However, beginning with the FY 2012 wage index, the rural floor for the State is 

established by the conversion of a CAH to an IPPS hospital that is geographically located 

in rural Massachusetts. We estimate that Massachusetts hospitals would receive 

approximately a 5.6 percent increase in IPPS payments due to the application of the 

proposed rural floor. In addition, 27 out of 32 hospitals in Connecticut would benefit 
 1301 

from the proposed rural floor, which would increase payments to the State by an 

estimated $75 million. 

 Urban Puerto Rico hospitals are expected to experience a 0.0 percent change in 

payments as a result of the application of a proposed Puerto Rico rural floor with the 

application of the proposed Puerto Rico rural floor budget neutrality adjustment. Urban 

Puerto Rico hospitals would receive a proposed rural floor as a result of a one IPPS 

hospital located in rural Puerto Rico setting the rural floor. We are proposing to apply a 

proposed rural floor budget neutrality factor to the Puerto Rico-specific wage index of 

0.990877 or -0.9 percent. The Puerto Rico-specific wage index adjusts the Puerto Ricospecific standardized amount, which represents 25 percent of payments to Puerto Rico 

hospitals. The increases in payments experienced by the urban Puerto Rico hospitals that 

benefit from a rural floor are offset by the decreases in payments by the nonrural floor 

urban Puerto Rico hospitals that have their wage indexes downwardly adjusted by the 

proposed rural floor budget neutrality adjustment. As a result, overall, urban Puerto Rico 

hospitals would experience a 0.0 percent change in payments due to the proposed 

application of the proposed rural floor with rural floor budget neutrality. 

 There are 35 hospitals in New Jersey that benefit from the extension of the 

proposed imputed floor and would receive the proposed imputed floor wage index value, 

including the proposed rural floor budget neutrality, of 1.1144, which we estimate would 

increase their payments by approximately $15 million. Urban Middle Atlantic hospitals 

would experience a 0.3 percent decrease in payments, which reflects the proposed 

increase in payments for New Jersey hospitals receiving the proposed imputed floor and a 
 1302 

proposed decrease for other urban hospitals in the in the Middle Atlantic region. Four 

Rhode Island hospitals would benefit from the proposed imputed rural floor calculated 

under the alternative methodology and would receive an additional $3.5 million. 

 In response to a public comment addressed in the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51593), we are providing the payment impact of the proposed rural floor and 

imputed floor with budget neutrality at the State level. Column 1 of the table below 

displays the number of IPPS hospitals located in each State. Column 2 displays the 

number of hospitals in each State that would receive the proposed rural floor or imputed 

floor wage index for FY 2014. Column 3 displays the percentage of total payments each 

State would receive or contribute to fund the proposed rural floor and imputed floor with 

national budget neutrality. The column compares the proposed post-reclassification 

FY 2014 wage index of providers before the proposed rural floor and imputed floor 

adjustment and the proposed post-reclassification FY 2013 wage index of providers with 

the proposed rural floor and imputed floor adjustment. Column 4 displays the estimated 

payment amount that each State would gain or lose due to the application of the proposed 

rural floor and imputed floor with national budget neutrality. 

FY 2014 Proposed IPPS Estimated Payments Due to Proposed Rural Floor and 

Imputed Floor with National Budget Neutrality

State 

Number of 

Hospitals 

(1) 

Number of 

Hospitals 

Receiving 

Proposed Rural 

Floor or 

Imputed Floor 

(2) 

Percent Change 

in Payments 

due to 

Application of 

Proposed Rural 

Floor and 

Imputed Floor 

with Budget 

Neutrality 

(3) 

Difference 

(in millions) 

(4) 

Alabama 93 3 -0.5 -$7.7 
 1303 

FY 2014 Proposed IPPS Estimated Payments Due to Proposed Rural Floor and 

Imputed Floor with National Budget Neutrality

State 

Number of 

Hospitals 

(1) 

Number of 

Hospitals 

Receiving 

Proposed Rural 

Floor or 

Imputed Floor 

(2) 

Percent Change 

in Payments 

due to 

Application of 

Proposed Rural 

Floor and 

Imputed Floor 

with Budget 

Neutrality 

(3) 

Difference 

(in millions) 

(4) 

Alaska 6 4 3.3 $4.7 

Arizona 57 7 -0.4 -$6.7 

Arkansas 45 0 -0.5 -$5.0 

California 308 178 0.9 $86.4 

Colorado 46 7 0.1 $1.5 

Connecticut 32 27 4.9 $75.0 

Delaware 6 0 -0.6 -$2.3 

Washington, D.C. 7 0 -0.5 -$2.5 

Florida 168 5 -0.4 -$29.6 

Georgia 107 0 -0.5 -$12.3 

Hawaii 14 0 -0.4 -$1.2 

Idaho 14 0 -0.3 -$1.0 

Illinois 127 5 -0.6 -$26.8 

Indiana 89 4 -0.5 -$12.9 

Iowa 34 0 -0.5 -$4.2 

Kansas 55 0 -0.4 -$3.7 

Kentucky 65 1 -0.4 -$7.6 

Louisiana 99 4 -0.5 -$6.5 

Maine 20 0 -0.5 -$2.4 

Massachusetts 61 60 5.6 $169.1 

Michigan 95 0 -0.5 -$22.1 

Minnesota 51 0 -0.5 -$9.0 

Mississippi 65 1 -0.5 -$5.1 

Missouri 77 0 -0.4 -$10.7 

Montana 12 4 -0.1 -$0.4 

Nebraska 23 0 -0.4 -$2.5 

Nevada 24 19 1.6 $10.9 

New Hampshire 13 9 0.8 $3.6 

New Jersey 64 35 0.4 $14.8 

New Mexico 25 0 -0.3 -$1.5 

New York 166 2 -0.6 -$46.5 

North Carolina 87 0 -0.4 -$15.2 

North Dakota 6 1 -0.3 -$0.9 

Ohio 137 3 -0.4 -$17.7 

Oklahoma 86 2 -0.4 -$5.4 
 1304 

FY 2014 Proposed IPPS Estimated Payments Due to Proposed Rural Floor and 

Imputed Floor with National Budget Neutrality

State 

Number of 

Hospitals 

(1) 

Number of 

Hospitals 

Receiving 

Proposed Rural 

Floor or 

Imputed Floor 

(2) 

Percent Change 

in Payments 

due to 

Application of 

Proposed Rural 

Floor and 

Imputed Floor 

with Budget 

Neutrality 

(3) 

Difference 

(in millions) 

(4) 

Oregon 33 0 -0.5 -$4.5 

Pennsylvania 157 6 -0.5 -$21.8 

Puerto Rico 52 13 0 $0.0 

Rhode Island 11 4 0.5 $1.7 

South Carolina 57 5 -0.3 -$5.0 

South Dakota 19 0 -0.3 -$1.0 

Tennessee 97 11 -0.3 -$7.6 

Texas 322 3 -0.5 -$31.9 

Utah 32 0 -0.4 -$2.0 

Vermont 6 0 -0.4 -$0.8 

Virginia 78 1 -0.4 -$10.5 

Washington 49 5 -0.2 -$3.6 

West Virginia 30 3 -0.3 -$2.3 

Wisconsin 66 2 -0.4 -$7.3 

Wyoming 11 0 -0.1 -$0.2 

g. Effects of the Proposed Application of the Frontier State Wage Index (Column 8) 

 Section 10324(a) of Affordable Care Act requires that we establish a minimum 

post-reclassified wage-index of 1.00 for all hospitals located in “frontier States.” The 

term “frontier States” is defined in the statute as States in which at least 50 percent of 

counties have a population density less than 6 persons per square mile. Based on these 

criteria, four States (Montana, North Dakota, South Dakota, and Wyoming) are 

considered frontier States and 46 hospitals located in those States will receive a frontier 

wage index of 1.0000. Although Nevada is also, by definition, a frontier State and was 

assigned a frontier floor value of 1.0000 for FY 2012, its FY 2013 rural floor value of 
 1305 

1.0256 was greater and, therefore, was the State’s minimum wage index for FY 2013. 

For FY 2014, its proposed post-reclassification wage index is also above 1.0000, 

hospitals located in Nevada would not experience a change in payment as a result of this 

provision. Overall, this provision is not budget neutral and is estimated to increase IPPS 

operating payments by approximately $63 million or approximately 0.1 percent. 

 Urban hospitals located in the West North Central region and urban hospitals 

located in the Mountain region would receive an increase in payments by 0.8 percent and 

0.2 percent, respectively because many of the hospitals located in this region are frontier 

hospitals. Similarly, rural hospitals located in the Mountain region and rural hospitals in 

the West North Central region would experience an increase in payments by 0.4 percent 

and 0.3 percent, respectively. 

h. Effects of the Proposed Wage Index Adjustment for Out-Migration (Column 9) 

 Section 1886(d)(13) of the Act, as added by section 505 of Pub. L. 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. 

Overall, rural hospitals would experience a 0.1 percent increase in payments as a result of 

the proposed out-migration wage adjustment. Rural DSH providers with less than 100 
 1306 

beds would experience a 0.4 percent increase in payments. There are 210 providers that 

would receive the proposed out-migration wage adjustment in FY 2014. This 

out-migration wage adjustment is not budget neutral, and we estimate the impact of these 

providers receiving the proposed out-migration increase to be approximately $17 million. 

i. Effects of the Expiration of MDH Special Payment Status (Column 10) 

 Column 10 shows our estimate of the changes in payments due to the expiration 

of MDH status, a nonbudget neutral payment provision. MDH status had previously 

expired for FY 2013 under section 3124 of the Affordable Care Act, but was extended for 

an additional year through FY 2013 under section 606 of the ATRA. Hospitals that 

qualified to be MDHs receive the higher of payments made under the Federal 

standardized amount or the payments made under the Federal standardized amount plus 

75 percent of the difference between the Federal standardized amount and the 

hospital-specific rate (a hospital-specific cost-based rate). Because this provision was not 

budget neutral, the expiration of this payment provision results in a 0.1 percent decrease 

in payments overall. There are currently 192 MDHs, of which 134 are estimated to be 

paid under the blended payment of the Federal standardized amount and hospital-specific 

rate for FY 2013. Because those 134 MDHs will no longer receive the blended payment 

and will be paid only under the Federal standardized amount in FY 2014, it is estimated 

that those hospitals will experience an overall decrease in payments of approximately 

$127 million. 

 MDHs were generally rural hospitals, so the expiration of the MDH program will 

result in an overall decrease in payments to rural hospitals of 1.2 percent. Rural New 
 1307 

England hospitals can expect a decrease in payments of 3.9 percent because 8 out of the 

23 rural New England hospitals are MDHs that will lose this special payment status under 

the expiration of the program at the end of FY 2013. MDHs can expect a decrease in 

payments of 9.9 percent. 

j. Effects of the Proposed Reductions under the Hospital Readmissions Reduction 

Program (Column 11) 

 Column 11 shows our estimates of the effects of the proposed policies for 

reductions in payments under the Hospital Readmissions Reduction Program, which was 

established under section 3025 of the Affordable Care Act. The Hospital Readmissions 

Reduction Program requires a reduction to a hospital’s base operating DRG payments to 

account for excess readmissions, which is based on a hospital’s risk-adjusted readmission 

rate during a 3-year period for three applicable conditions: Acute Myocardial Infarction, 

Heart Failure, and Pneumonia. This provision is not budget neutral. A hospital’s 

readmission adjustment is the higher of a ratio of the hospital’s aggregate payments for 

excess readmissions to their aggregate payments for all discharges, or a floor, which has 

been defined in statute as 0.98 (or a 2.0 percent reduction) for FY 2014. A hospital’s 

base operating DRG payment (that is, wage-adjusted DRG payment amount, as discussed 

in section V.G. of the preamble of this proposed rule) is the portion of the IPPS payment 

subject to the readmissions payment adjustment (DSH, IME, outliers and low-volume 

add-on payments are not subject to the readmissions adjustment). In this proposed rule, 

we estimate that 2,173 hospitals will have their base operating DRG payments reduced by 

their hospital-specific proposed readmissions adjustment, resulting in a 0.2 percent 
 1308 

decrease, or approximately $175 million, in payments to hospitals overall for FY 2014 

relative to no provision. 

 Urban hospitals in the Middle Atlantic, rural hospitals in the East South Central 

region, West South Central region, rural DSH hospitals and hospitals with Medicare 

utilization of over 65 percent would experience the highest decreases of 0.4 percent 

among the different hospital categories. Rural New England hospitals would experience 

the no change in payments. Puerto Rico hospitals show a 0 percent change in payments 

because they are exempt from the provision. 

k. Effects of the Proposed Changes to Medicare DSH Payments (Column 12) 

 Column 12 shows the proposed effects of the implementation of adjustments to 

Medicare DSH payments made under section 3133 of the Affordable Care Act. Under 

section 3133, hospitals that are eligible to receive Medicare DSH payments will receive 

25 percent of the amount they previously would have received under the current statutory 

formula for Medicare DSH payments. The remainder, equal to an estimate of 75 percent 

of what otherwise would have been paid as Medicare DSH payments, reduced to reflect 

changes in the percentage of individuals under age 65 who are uninsured and additional 

statutory adjustments, will become available to make additional payments to each 

hospital that qualifies for Medicare DSH payments. Each Medicare DSH hospital will 

receive an additional payment based on its estimated share of the total amount of 

uncompensated care for all Medicare DSHs. The reduction to Medicare DSH payments 

is not budget neutral. 
 1309 

 We are proposing that the amount to be distributed on the basis of uncompensated 

care, which is 75 percent of what otherwise would have been paid for Medicare DSH 

payment adjustments (that is, Factor 1), is adjusted to 88.8 percent of that amount for 

changes in the percentage of individuals under age 65 who are uninsured and additional 

statutory adjustments (that is, Factor 1 multiplied by Factor 2). As a result, we project 

that the reduction of Medicare DSH payments, together with the introduction of the new 

uncompensated care payment, will reduce payments overall by 0.9 percent as compared 

to Medicare DSH payments prior to the implementation of section 3133 of the Affordable 

Care Act. The proposed uncompensated care payment has redistributive effects based on 

a disproportionate share hospital’s low income insured patient days (sum of Medicaid 

patient days and Medicare SSI patient days) relative to all disproportionate share 

hospitals Medicaid patient days and Medicare SSI patient days, and the payment amount 

is not tied to a hospital’s discharges. Urban hospitals located in the Pacific would 

experience the largest decreases in payments of 3.2 percent, as these hospitals have lower 

uncompensated care relative to other hospital categories. Hospitals with low Medicare 

utilization with Medicare days that are less than 25 percent of total inpatient days would 

experience a 4.4 percent increase in payment. 

l. Effects of All Proposed FY 2014 Changes (Column 13) 

 Column 13 shows our estimate of the changes in payments per discharge from 

FY 2013 and FY 2014, resulting from all proposed changes reflected in this proposed 

rule for FY 2014. It includes combined effects of the previous columns in the table. 
 1310 

 The proposed average decrease in payments under the IPPS for all hospitals is 

approximately 0.1 percent for FY 2014 relative to FY 2013. As discussed in section II.D. 

of the preamble of this proposed rule, this column includes the proposed FY 2014 

documentation and coding adjustment of -0.8 percent on the national standardized 

amount as part of the recoupment required under section 631 of the ATRA. In addition, 

this column includes the proposed annual hospital update of 1.8 percent to the national 

standardized amount. This annual hospital update includes the proposed 2.5 percent 

market basket update, the proposed reduction of 0.4 percentage point for the multifactor 

productivity adjustment, and the 0.3 percentage point reduction under section 3401 of the 

Affordable Care Act. Finally, it includes the proposed -0.2 percent adjustment of the 

national standardized amount, the hospital-specific payment rate, and the Puerto 

Rico-specific rate to offset the costs of the policy proposal on admission and medical 

review criteria for hospital inpatient services under Medicare Part A. As described in 

Column 2, the proposed annual hospital update, combined with the proposed 

documentation and coding adjustment and the adjustment to offset the cost of the policy 

proposal on admission and medical review criteria for hospital inpatient services under 

Medicare Part A, would result in a 0.8 percent increase in payments in FY 2014 relative 

to FY 2013. Column 5 shows an increase in payments by 0.1 percent due to the effects of 

the cumulative DRG and wage budget neutrality. Column 8 describes an estimated 

0.1 percent increase in payments due to the proposed frontier State wage index. Column 

10 describes the estimated 0.1 percent decrease in payments due to the expiration of the 

MDH status under section 606 of the ATRA. Column 11 shows the estimated 0.2 percent 
 1311 

decrease in payments due to the proposed reductions in payments under the Hospital 

Readmissions Reduction Program, which reduce a hospital’s base operating DRG 

payments by a readmission adjustment factor based on a hospital’s performance on 

readmissions for specified conditions. Column 12 shows the estimated 0.9 percent 

decrease in Medicare DSH payments due to the changes made under section 3133 of the 

Affordable Care Act, which reduces Medicare DSH payments by 75 percent and 

redistributes the remainder, equal to an estimate of 75 percent of what otherwise would 

have been paid as Medicare DSH payments, reduced to reflect changes in the percentage 

of individuals under age 65 who are uninsured, to each hospital that qualifies for 

Medicare DSH payments as an uncompensated care payment based on the hospital’s 

relative share of the total amount of uncompensated care. The impact of moving from 

our estimate of FY 2013 outlier payments, 5.2 percent, to the estimate of FY 2014 outlier 

payments, 5.1 percent, would result in a decrease of 0.1 percent in FY 2014 payments 

relative to FY 2013. There also might be interactive effects among the various factors 

comprising the payment system that we are not able to isolate. For these reasons, the 

values in Column 13 may not equal the sum of the estimated percentage changes 

described above. 

 Overall payments to hospitals paid under the IPPS are estimated to decrease by 

0.1 percent for FY 2014. The proposed payment decrease among the hospital categories 

is largely attributed to the reduction in Medicare DSH payment adjustments and the 

redistribution of a portion of the Medicare DSH payments as an additional payment for a 

hospital’s relative uncompensated care amount. Hospitals in urban areas would 
 1312 

experience a 0.1 percent increase in payments per discharge in FY 2014 compared to 

FY 2013. Hospital payments per discharge in rural areas are estimated to decrease by 

-1.9 percent in FY 2014 as compared to FY 2013 largely due to the expiration of MDH 

status and reductions to Medicare DSH payments. 

 Among urban census divisions, the Urban Pacific hospitals would experience an 

estimated 1.5 percent decrease in payments, more than the national average, because 

many of the urban providers in this region would see reductions to their Medicare DSH 

payments. Urban hospitals in the Middle Atlantic would experience a 1.6 percent 

increase in payments. 

 Among the rural regions, the hospitals in the East South Central region would 

experience the estimated decreases in payments of 3.5 percent, due to the expiration of 

MDH status and reductions to Medicare DSH payments. Rural hospitals in the Mountain 

region are estimated to experience no change in payments. 

 Among special categories of hospitals, former MDHs would receive an estimated 

payment decrease of 8.5 percent due to the expiration of the MDH special payment 

status. SCHs are paid the higher of their Federal rate and the hospital-specific rate. 

Overall, SCHs are estimated to experience a payment decrease of 0.5 percent due to the 

proposed changes to the relative weights methodology and minor reductions under the 

rural floor budget neutrality and changes to Medicare DSH. 

 Rural hospitals reclassified for FY 2014 would receive an estimated 1.7 percent 

payment decrease. Rural hospitals that are not reclassifying are estimated to receive a 

payment decrease of 2.2 percent due to lower wage data, the application of the proposed 
 1313 

rural floor budget neutrality and expiration of MDH status. Urban reclassified hospitals 

would experience an estimated payment decrease of 0.2 percent due to decreases in 

payments under the Medicare DSH changes. Urban nonreclassified hospitals would 

experience an estimated payment increase of 0.2 percent. 

 Cardiac hospitals are expected to experience a payment increase of 1.4 percent in 

FY 2014 relative to FY 2013 primarily due to the proposed changes in the relative 

weights and the proposed application of the frontier State wage index. 

3. Impact Analysis of Table II 

 Table II presents the projected impact of the proposed changes for FY 2014 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 2013 with the average 

payments per discharge for FY 2014, 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 13 of Table I. 

TABLE II.--IMPACT ANALYSIS OF PROPOSED CHANGES FOR FY 2014 

ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT SYSTEM 

(PAYMENTS PER DISCHARGE) 

Number of 

Hospitals 

(1) 

Proposed 

Average 

FY 2013 

Payment 

Per 

Discharge 

(2) 

Proposed 

Average 

FY 2014 

Payment Per 

Discharge 

(3) 

All 

Proposed 

FY 2014 

Changes 

(4) 

All Hospitals 3,404 10,891 10,880 -0.1 
 1314 

Number of 

Hospitals 

(1) 

Proposed 

Average 

FY 2013 

Payment 

Per 

Discharge 

(2) 

Proposed 

Average 

FY 2014 

Payment Per 

Discharge 

(3) 

All 

Proposed 

FY 2014 

Changes 

(4) 

By Geographic Location: 

Urban hospitals 2,481 11,305 11,315 0.1 

Large urban areas 1,367 11,978 12,033 0.5 

Other urban areas 1,114 10,488 10,443 -0.4 

Rural hospitals 923 8,110 7,957 -1.9 

Bed Size (Urban): 

0-99 beds 622 8,742 8,825 0.9 

100-199 beds 762 9,538 9,488 -0.5 

200-299 beds 464 10,234 10,223 -0.1 

300-499 beds 418 11,637 11,653 0.1 

500 or more beds 215 13,815 13,870 0.4 

Bed Size (Rural): 

0-49 beds 339 6,537 6,379 -2.4 

50-99 beds 328 7,551 7,304 -3.3 

100-149 beds 151 7,859 7,772 -1.1 

150-199 beds 59 8,970 8,870 -1.1 

200 or more beds 46 9,829 9,710 -1.2 

Urban by Region: 

New England 120 12,354 12,376 0.2 

Middle Atlantic 318 12,367 12,560 1.6 

South Atlantic 375 10,289 10,288 0 

East North Central 395 10,498 10,475 -0.2 

East South Central 149 9,895 9,865 -0.3 

West North Central 165 11,069 11,051 -0.2 

West South Central 371 10,371 10,358 -0.1 

Mountain 156 11,613 11,751 1.2 

Pacific 381 14,431 14,208 -1.5 

Puerto Rico 51 5,505 7,469 35.7 

Rural by Region: 

New England 23 10,960 10,642 -2.9 

Middle Atlantic 69 8,618 8,519 -1.2 

South Atlantic 165 7,771 7,628 -1.8 

East North Central 119 8,310 8,180 -1.6 

East South Central 171 7,452 7,193 -3.5 

West North Central 100 8,610 8,574 -0.4 

West South Central 181 7,047 6,858 -2.7 

Mountain 65 9,061 9,065 0 

Pacific 29 10,996 10,961 -0.3 

Puerto Rico 1 2,799 2,927 4.6 

By Payment Classification: 

Urban hospitals 2,495 11,295 11,305 0.1 

Large urban areas 1,377 11,967 12,021 0.5 

Other urban areas 1,118 10,468 10,424 -0.4 
 1315 

Number of 

Hospitals 

(1) 

Proposed 

Average 

FY 2013 

Payment 

Per 

Discharge 

(2) 

Proposed 

Average 

FY 2014 

Payment Per 

Discharge 

(3) 

All 

Proposed 

FY 2014 

Changes 

(4) 

Rural areas 909 8,241 8,087 -1.9 

Teaching Status: 

Nonteaching 2,378 9,128 9,057 -0.8 

Fewer than 100 residents 782 10,676 10,670 -0.1 

100 or more residents 244 15,902 16,036 0.8 

Urban DSH: 

Non-DSH 706 9,423 9,445 0.2 

100 or more beds 1,562 11,763 11,764 0 

Less than 100 beds 330 8,061 8,157 1.2 

Rural DSH: 

SCH 260 8,158 8,052 -1.3 

RRC 223 9,048 8,902 -1.6 

100 or more beds 29 7,100 7,117 0.2 

Less than 100 beds 294 6,414 6,187 -3.6 

Urban teaching and DSH: 

Both teaching and DSH 826 12,856 12,902 0.4 

Teaching and no DSH 135 10,466 10,543 0.7 

No teaching and DSH 1,066 9,658 9,595 -0.6 

No teaching and no DSH 468 9,036 9,062 0.3 

Special Hospital Types: 

RRC 207 9,347 9,214 -1.4 

SCH 329 8,825 8,782 -0.5 

Former MDH 192 6,817 6,236 -8.5 

SCH and RRC 124 9,924 9,918 -0.1 

Former MDH and RRC 11 8,586 7,520 -12.4 

Type of Ownership: 

Voluntary 1,944 11,020 11,005 -0.1 

Proprietary 895 9,759 9,670 -0.9 

Government 546 11,776 11,902 1.1 

Medicare Utilization as a Percent of 

Inpatient Days: 

 

 

0-25 368 14,920 15,810 6 

25-50 1,807 11,442 11,378 -0.6 

50-65 967 8,932 8,861 -0.8 

Over 65 171 7,914 7,767 -1.9 

 FY 2014 Reclassifications by the Medicare 

Geographic Classification Review Board: 

 

 

All Reclassified Hospitals 762 10,510 10,454 -0.5

Non-Reclassified Hospitals 2,642 11,022 11,026 0

Urban Hospitals Reclassified 451 11,271 11,252 -0.2

Urban Nonreclassified Hospitals, FY 2014: 1,990 11,336 11,356 0.2

All Rural Hospitals Reclassified FY 2014: 311 8,609 8,460 -1.7

Rural Nonreclassified Hospitals FY 2014: 552 7,439 7,275 -2.2

All Section 401 Reclassified Hospitals: 47 9,523 9,382 -1.5
 1316 

Number of 

Hospitals 

(1) 

Proposed 

Average 

FY 2013 

Payment 

Per 

Discharge 

(2) 

Proposed 

Average 

FY 2014 

Payment Per 

Discharge 

(3) 

All 

Proposed 

FY 2014 

Changes 

(4) 

Other Reclassified Hospitals (Section 

1886(d)(8)(B)) 61 7,754

7,549

-2.6

Specialty Hospitals 

Cardiac specialty Hospitals 15 11,720 11,888 1.4

H. 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 proposed changes. Our estimates of the 

likely impacts associated with these other proposed changes are discussed below. 

1. Effects of Proposed Policy on MS-DRGs for Preventable 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 
 1317 

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. 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: 
 1318 

Year Savings 

(in 

millions)

FY 2014 $26

FY 2015 $28

FY 2016 $30

FY 2017 $33

FY 2018 $36

 In section V.I. of the preamble of this proposed rule, we are proposing to 

implement the HAC Reduction Program. We refer readers to section I.H.6. of this 

Appendix A for a discussion of the impact of this proposed implementation. 

2. 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 five 

applications for add-on payments for new medical services and technologies for 

FY 2014, as well as the status of the four new technologies that were approved to receive 

new technology add-on payments in FY 2013. 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 five applications we received for 

consideration for new technology add-on payments for FY 2014 will meet the specified 

criteria. Consequently, it is premature to estimate the potential payment impact of these 

five applications for any potential new technology add-on payments for FY 2014. We 

note that if any of the five applications are found to be eligible for new technology 
 1319 

add-on payments for FY 2014, in the FY 2014 IPPS/LTCH PPS final rule, we would 

discuss the estimated payment impact for FY 2014 in that final rule. 

 In the preamble to this proposed rule, we are proposing to continue making new 

technology add-on payments in FY 2014 for three of the four new technologies 

(Voraxaze®, DificidTM and the Zenith® F. Graft) that were approved to receive new 

technology add-on payments in FY 2013. We note that new technology add-on payments 

per case are limited to the lesser of (1) 50 percent of the costs of the new technology or 

(2) 50 percent of the amount by which the costs of the case exceed the standard MS-DRG 

payment for the case. Because it is difficult to predict the actual new technology add-on 

payment for each case, our estimates below are based on the increase in add-on payments 

for FY 2014 as if every claim that would qualify for a new technology add-on payment 

would receive the maximum add-on payment. For Voraxaze®, based on the applicant’s 

estimate from FY 2013, we currently estimate that new technology add-on payments for 

Voraxaze® will increase overall FY 2014 payments by $6,300,000. For DificidTM, based 

on the applicant’s estimate from FY 2013, we currently estimate that new technology 

add-on payments for DificidTM will increase overall FY 2014 payments by $34,839,784. 

For the Zenith® F. Graft, based on the applicant’s estimate from FY 2013, we currently 

estimate that new technology add-on payments for the Zenith® F. Graft will increase 

overall FY 2014 payments by $4,085,750. 

3. Effects of the Proposed Payment Adjustment for Low-Volume Hospitals for FY 2014 

 In section V.C. of the preamble to this proposed rule, we discuss the provisions of 

the ATRA (Pub. L. 112-240) which extended for an additional year, through FY 2013, 
 1320 

the temporary changes to the low-volume hospital definition and methodology for 

determining the payment adjustment made by the Affordable Care Act for FYs 2011 and 

2012. In accordance with section 1886(d)(12) of the Act, beginning with FY 2014, the 

low-volume hospital definition and payment adjustment methodology revert back to the 

statutory requirements that were in effect prior to the amendments made by the 

Affordable Care Act. Therefore, effective for FY 2014 and subsequent years, in order to 

qualify as a low-volume hospital, a subsection (d) hospital must be more than 25 road 

miles from another subsection (d) hospital and have less than 200 discharges (that is, less 

than 200 discharges total, including both Medicare and non-Medicare discharges) during 

the fiscal year. 

 Based on FY 2012 claims data (December 2012 update of the MedPAR file), we 

estimate that approximately 600 hospitals qualify as a low-volume hospital in FY 2013, 

and with the statutory changes to the low-volume hospital payment adjustment for 

FY 2014, we estimate only approximately 6 hospitals will continue to qualify as a 

low-volume hospital in FY 2014. We project that the expiration of the temporary 

changes to the low-volume hospital definition and payment adjustment methodology 

made by the Affordable Care Act and extended by the ATRA will result in a decrease in 

payments of approximately $288 million in FY 2014 as compared to the payments these 

hospitals would have otherwise received in FY 2014 in the absence of the statutory 

changes to the low-volume hospital payment adjustment for FY 2014. This estimate 

accounts for our projection of the 6 IPPS low-volume hospitals remaining in FY 2014 
 1321 

that will continue to receive a low-volume hospital payment adjustment of an additional 

25 percent. 

4. Effects of Extension of the MDH Program through FY 2013 

 In section V.F. of the preamble of this proposed rule, we briefly discuss the 

statutory extension of the MDH program through FY 2013 made by section 606 of the 

ATRA. We refer readers to a March 7, 2013 notice that we published in the Federal 

Register to announce the extension of the MDH program for FY 2013 in accordance with 

this ATRA provision, where we also stated the impact on Medicare expenditures of the 

statutory extension (78 FR 14689). 

5. Effects of Changes under the FY 2014 Hospital Value-Based Purchasing (VBP) 

Program 

 Section 1886(o)(1)(B) of the Act directs the Secretary to begin making 

value-based incentive payments under the Hospital VBP Program to hospitals that meet 

performance standards during the performance period for discharges occurring on or after 

October 1, 2012. These incentive payments will be funded for FY 2014 through a 

reduction to the FY 2014 base operating MS–DRG payment for each discharge of 

1.25 percent, as required by section 1886(o)(7)(B) of the Act. The applicable percentage 

for FY 2014 is 1.25 percent, for FY 2015 is 1.5 percent, for FY 2016 is 1.75 percent, and 

for FY 2017 and subsequent years is 2 percent. We are required to ensure that the total 

amount available for value-based incentive payments is equal to the total amount of 

reduced payments for all hospitals for the fiscal year, as estimated by the Secretary. 
 1322 

 We finalized numerous policies related to the FY 2014 Hospital VBP Program in 

the CY 2012 OPPS/ASC final rule with comment period (76 FR 74527 through 74547) 

and the FY 2013 IPPS/LTCH PPS final rule (77 FR 53567 through 53614), including an 

additional measure in the Clinical Process of Care domain, minimum numbers of cases 

and measures for the Outcome domain, performance and baseline periods for FY 2014 

measures, performance standards, domain weighting, and requirements for the review 

and corrections processes. We also refer readers to the Hospital Inpatient VBP Program 

final rule (76 FR 26495 through 26511) where we finalized three 30-day mortality 

measures, to be placed in the new Outcome domain for the FY 2014 Hospital VBP 

Program. 

 In section V.H. of the preamble of this proposed rule, we estimate the available 

pool of funds for value-based incentive payments in the FY 2014 Hospital VBP Program, 

which, in accordance with section 1886(o)(7)(C)(ii) of the Act, will be 1.25 percent of 

base operating DRG payments, or a total of approximately $1.1 billion. This estimated 

available pool for FY 2014 is based on the historical pool of hospitals that were eligible 

to participate in the FY 2013 Hospital VBP Program and the payment information from 

the December 2012 update to the FY 2012 MedPAR file. We intend to provide an update 

to this estimate, which will be based on the March 2013 update to the FY 2012 MedPAR 

file, in the FY 2014 IPPS/LTCH PPS final rule. 

 The estimated impacts of the FY 2014 Hospital VBP Program by hospital 

characteristic, found in the table below, are based on historical TPSs. We used the 

FY 2013 Hospital VBP Program TPSs to calculate the proxy adjustment factors used for 
 1323 

this impact analysis. These are the most recently available scores that hospitals were 

given an opportunity to review and correct. The proxy adjustment factors use estimated 

annual base operating DRG payment amounts derived from the March 2013 update to the 

FY 2012 MedPAR file. The proxy adjustment factors can be found in Table 16 

associated with this proposed rule (available on the CMS Web site). The impact analysis 

shows that, for the FY 2014 Hospital VBP Program, the number of hospitals that would 

receive an increase in base operating DRG payment amount is slightly higher than the 

number of hospitals that would receive a decrease. Approximately 44 percent of 

hospitals would have a change in base operating DRG payment amount that is between -

0.2 percent and +0.2 percent. Urban hospitals in the West South Central region and rural 

hospitals in the East North Central region would have the highest average increase in 

base operating DRG payment amount while both urban and rural hospitals in the Middle 

Atlantic and Pacific would receive an average decrease in base operating DRG payment 

amount. As the percent of disproportionate share (DSH) payments increases, we would 

see a decrease in base operating DRG payment amounts, while as the Medicare 

utilization (MCR) percent increases, we would see an increase in base operating DRG 

payment amount. Nonteaching hospitals would have an average positive adjustment to 

the base operating DRG payment amount, and teaching hospitals would have an average 

decrease in base operating DRG payment amount. 

Impact Analysis of Base Operating DRG Payment Amount Changes 

Resulting From the FY 2014 Hospital VBP Program 

 

Number of 

Hospitals 

Case Weighted 

Average 

(in percent) 
 1324 

 

Number of 

Hospitals 

Case Weighted 

Average 

(in percent) 

BY GEOGRAPHIC 

LOCATION: 

 All Hospitals 2,984 0.000%

 Large Urban 1,226 -0.003%

 Other Urban 1,015 0.002%

 Rural Area 740 0.005%

 

 Urban hospitals 2,241 -0.001%

 0-99 beds 465 0.149%

 100-199 beds 717 0.014%

 200-299 beds 435 0.015%

 300-499 beds 421 -0.010%

 500 or more beds 203 -0.048%

 

 Rural hospitals 740 0.005%

 0-49 beds 162 0.049%

 50-99 beds 324 -0.029%

 100-149 beds 150 0.027%

 150-199 beds 57 -0.004%

 200 or more beds 47 0.021%

 

BY REGION: 

 Urban By Region 2,241 -0.001%

 New England 113 -0.020%

 Middle Atlantic 295 -0.066%

 South Atlantic 356 0.049%

 East North Central 373 0.024%

 East South Central 129 0.019%

 West North Central 155 0.002%

 West South Central 314 0.042%

 Mountain 155 -0.013%

 Pacific 351 -0.078%

 

 Rural By Region 740 0.005%

 New England 21 -0.103%
 1325 

 

Number of 

Hospitals 

Case Weighted 

Average 

(in percent) 

 Middle Atlantic 64 -0.115%

 South Atlantic 143 0.021%

 East North Central 117 0.104%

 East South Central 114 0.064%

 West North Central 85 -0.032%

 West South Central 114 -0.053%

 Mountain 54 -0.017%

 Pacific 28 -0.100%

 Puerto Rico 

 

By MCR Percent 

 0-25 288 -0.082%

 25-50 1,715 -0.003%

 50-65 853 0.019%

 Over 65 79 0.081%

 

BY DSH Percent: 

 0-25 1,429 0.033%

 25-50 1,257 -0.010%

 50-65 157 -0.120%

 Over 65 138 -0.187%

 

BY TEACHING STATUS: 

 Teaching 971 -0.031%

 Non-Teaching 2,010 0.033%

 We intend to provide an updated impact analysis in the FY 2014 IPPS/LTCH PPS 

final rule. However, actual FY 2014 Hospital VBP Program TPSs will not be reviewed 

and corrected by hospitals until after the FY 2014 IPPS/LTCH PPS final rule has been 

published. Therefore, the same historical universe of eligible hospitals and 

corresponding TPSs from the FY 2013 Hospital VBP Program will be used for that 
 1326 

updated impact analysis. The updated impact analysis for the final rule will reflect 

estimated annual base operating DRG payment amount changes based on the December 

2012 update to the FY 2012 MedPAR file. 

6. Effects of Proposed Implementation of the HAC Reduction Program 

 In section V.I. of the preamble of this proposed rule, we are proposing measures, 

scoring, and risk adjustment methodology to implement the FY 2015 payment reduction 

under the HAC Reduction Program. Section 1886(p) of the Act, as added under section 

3008(a) of the Affordable Care Act, establishes an adjustment to hospital payments for 

HACs, or a HAC Reduction program, under which payments to applicable hospitals are 

adjusted to provide an incentive to reduce HACs, effective for discharges beginning on 

October 1, 2014 and for subsequent program years. 

 We note that there is no payment impact for FY 2014. For FY 2015, we are 

presenting the overall impact of the HAC Reduction Program provision along with other 

IPPS payment provision impacts in section I.G. of this Appendix A. The tables and 

analyses that we are presenting below show the distributional effect of the measures and 

scoring system for this program included in this proposed rule. 

 The four tables below show the following data distribution: 

● The first table presents data on hospitals in the top (that is, worst performing) 

quartile for the Domain 1-Proposed Approach and the Domain 1-Alternative Approach 

scores, with hospital scores segregated by hospital types. 
 1327 

● The second table presents data on hospitals in the top (that is, worst 

performing) quartile for Domain 2 scores, with hospital scores segregated by hospital 

types. 

● The third table presents data on hospitals in top (that is, worst performing) 

quartile for Total HAC Scores for the Domain 1–Proposed Approach and the 

Domain 1-Alternative Approach, with hospital scores segregated by hospital types. 

● The fourth table presents data on (1) hospitals that have complete data for 

Domain 1 (that is, data for at least three measures for the Domain 1-Proposed Approach 

or on hospitals that have enough data to calculate PSI 90 for the Domain 1-Alternative 

Approach), with hospital scores segregated by hospital type; and (2) hospitals that have 

complete data for Domain 2 (that is, at least one measure for Domain 2), with hospital 

scores segregated by hospital types. 

 The data for these data tables are derived from 3,445 IPPS hospitals (minus 

CAHs) for the time period of July 1, 2009 to June 30, 2011. The data source for 

Domain 1 is the Standard Analytic File (SAF) claims data, and the data source for 

Domain 2 is the chart-abstracted data on CDC’s National Healthcare Safety Network 

(NHSN). The data used to determine teaching status and for-profit/not-forprofit/government-owned status in the fourth table is derived from American Hospital 

Association (AHA) 2010 Annual Survey of Hospital data, while the data used to 

determine DSH status in the fourth table is derived from the CMS FY 2013 IPPS Impact 

File. Maryland hospitals were excluded from the data in the fourth table because 

Maryland hospitals were not required to submit POA data in their claims and, therefore, 
 1328 

no AHRQ measures could be calculated. Finally, the data source for the Region/Division 

categories of all four tables is the Citation of Region/Division data available on the Web 

site at https://www.census.gov/geo/www/us_regdiv.pdf, and the data source for the 

Urban/Rural categories for all four tables is the Urban/Rural data from the U.S. 

department of Agriculture’s Economic Research Service, which is available on the Web 

site at: http://www.ers.usda.gov/data-products/rural-urban-continuum-codes.aspx . 
 1329 

HOSPITALS IN TOP QUARTILE (WORST PERFORMING) FOR DOMAIN 1–PROPOSED APPROA

DOMAIN 1–ALTERNATIVE APPROACH SCORE 

In Top Quartile Not in Top Quartile In Top Quartile Not 

Domain 1-Proposed Approach Score Domain 1–Proposed Approach Score Domain 1-Alternative Approach Score Domain 1–

Hospital 

Category 

No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

Domain 1-

Proposed 

Approach 

Totals No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

No. of 

Hospitals 

Teaching status  Teaching 149 19.2 55.2 121 4.6 44.8 270 154 17.9 57 116  Non-teaching 614 79 20.2 2,423 91.2 79.8 3,037 690 80.4 22.7 2,347  No information 14 1.8 10.9 114 4.3 89.1 128 14 1.6 10.9 114  Total 777 22.6 2,658 3,435 858 25 2,577 DSH Status  DSH 639 82.2 24.2 2,002 75.3 75.8 2,641 703 81.9 26.6 1,938  Non-DSH 130 16.7 17.6 610 22.9 82.4 740 147 17.1 19.9 593  No information 8 1 14.8 46 1.7 85.2 54 8 0.9 14.8 46  Total 777 22.6 2,658 3,435 858 25.1 2,577 
 1330 

In Top Quartile Not in Top Quartile In Top Quartile Not 

Domain 1-Proposed Approach Score Domain 1–Proposed Approach Score Domain 1-Alternative Approach Score Domain 1–

Hospital 

Category 

No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

Domain 1-

Proposed 

Approach 

Totals No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

No. of 

Hospitals 

Bed Size  Under 50 60 7.7 9.1 596 22.4 90.9 656 73 8.5 11.1 583  50-99 143 18.4 21.1 535 20.1 78.9 678 159 18.5 23.5 519  100 – 199 190 24.5 21.5 694 26.1 78.5 884 224 26.1 25.3 660  200 – 299 118 15.2 23.6 381 14.3 76.4 499 135 15.7 27.1 364  300 – 399 90 11.6 34.2 173 6.5 65.8 263 90 10.5 34.2 173  400 – 499 57 7.3 46 67 2.5 54 124 62 7.2 50 62  500 or more 105 13.5 51.7 98 3.7 48.3 203 101 11.8 49.8 102  No information 14 1.8 10.9 114 4.3 89.1 128 14 1.6 10.9 114  Total 777 22.6 2,658 3,435 858 25 2,577 Ownership  For-profit 133 17.1 17.6 621 23.4 82.4 754 157 18.3 20.8 597 
 1331 

In Top Quartile Not in Top Quartile In Top Quartile Not 

Domain 1-Proposed Approach Score Domain 1–Proposed Approach Score Domain 1-Alternative Approach Score Domain 1–

Hospital 

Category 

No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

Domain 1-

Proposed 

Approach 

Totals No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

No. of 

Hospitals 

 Government 115 14.8 20.6 443 16.7 79.4 558 135 15.7 24.2 423  Non-profit 515 66.3 25.8 1,480 55.7 74.2 1,995 552 64.3 27.7 1,443  No infomation 14 1.8 10.9 114 4.3 89.1 128 14 1.6 10.9 114  Total 777 22.6 2,658 858 3,435 858 25 2,577 Region/Division  Northeast 151 19.4 28.3 382 14.4 71.7 533 137 16 25.7 396  New England 37 4.8 25.9 106 4 74.1 143 37 4.3 25.9 106  Mid-Atlantic 114 14.7 29.2 276 10.4 70.8 390 100 11.7 25.6 290  Midwest 188 24.2 23.5 613 23.1 76.5 801 201 23.4 25.1 600  East North Central 124 16 23.6 402 15.1 76.4 526 137 16 26 389  West North Central 64 8.2 23.3 211 7.9 76.7 275 64 7.5 23.3 211 
 1332 

In Top Quartile Not in Top Quartile In Top Quartile Not 

Domain 1-Proposed Approach Score Domain 1–Proposed Approach Score Domain 1-Alternative Approach Score Domain 1–

Hospital 

Category 

No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

Domain 1-

Proposed 

Approach 

Totals No. of 

Hospitals 

Percent 

of Total 

Percent of 

Hospital 

Type 

No. of 

Hospitals 

South 278 35.8 19.2 1,168 43.9 80.8 1,446 309 36 21.4 1,137  South Atlantic 117 15.16 21.2 434 16.3 78.8 551 140 16.3 25.4 411  East South Central 59 7.6 17.9 270 10.2 82.1 329 61 7.1 18.5 268  West South Central 102 13.1 18 464 17.5 82 566 108 12.6 19.1 458 West 160 20.6 24.4 495 18.6 75.6 655 211 24.6 32.2 444  Mountain 58 7.5 24.2 182 6.8 75.8 240 82 9.6 34.2 158  Pacific 102 13.1 24.6 313 11.8 75.4 415 129 15 31.1 286  Total 777 22.6 2,658 3,435 858 2,577 Urban/Rural  Urban 601 77.3 24.4 1,860 70 75.6 2,461 689 80.3 28 1,772  Rural 176 22.7 18.3 788 29.6 81.7 964 168 19.7 17.4 796  No information 0 0 0 10 0.4 100 10 1 0.1 10 9  Total 777 22.6 2,658 3,435 3,435 3,435 3,435 3,435 3,435 3,435 
 1333 
 1334 

 The first table above shows the characteristics of the worst performing hospitals 

for the Domain 1–Proposed Approach score and for the Domain 1–Alternative Approach 

score. In the first table, of the hospitals in the top quartile for Domain 1-Proposed 

Approach, 19.2 percent were teaching hospitals, 79.0 percent were nonteaching hospitals, 

82.2 percent were disportionate share hospitals, 16.7 percent were nondisportionate share 

hospitals, 50.6 percent were hospitals with a bed size of 199 or smaller, and 66.3 percent 

were nonprofit. In the first table, of the hospitals in the top quartile for Domain 

1-Alternative Approach, 17.9 percent were teaching hospitals, 80.4 percent were 

nonteaching hospitals, 81.9 percent were disproportionate share hospitals, 17.1 percent 

were nondisproportionate share hospitals, 53.1 percent were hospitals with a bed size of 

199 or smaller, and 64.3 percent were nonprofit. Altogether, 3,435 hospitals had 

complete data for the Domain 1–Proposed Approach score and the Domain 1-Alternative 

Approach score. Among these hospitals, the majority (3,037 for both approaches) were 

nonteaching hospitals, with the majority of these nonteaching hospitals (2,423, or 79.8 

percent, for the proposed approach, and 2,347, or 77.3 percent, for the alternative 

approach) not in the top quartile score. A minority of the hospitals (270 for both 

approaches) were teaching hospitals; less than half of these hospitals (121, or 44.8 

percent, for the proposed approach, and 116, or 43.0 percent, for the alternative approach) 

were not in the top quartile score. Of those hospitals that were not in the top quartile 

score, the nonteaching hospitals were the majority (2,423, or 91.2 percent, for the 

proposed approach, and 2,347, or 91.1 percent, for the alternative approach). Most of 

these hospitals were DSHs (2,641 for both approaches), with a minority being non-DSHs 
 1335 

(40 for both approaches). The majority of the DSHs (2,002, or 75.8 percent, for the 

proposed approach, and 1,938, or 73.4 percent, for the alternative approach) were not in 

the top quartile score. Slightly less than a quarter of the DSHs (639, or 24.2 percent, for 

the proposed approach, and 703, or 26.6 percent, for the alternative approach) were in the 

top quartile (that is, worst performing) score. 

 In terms of bed size for both the Domain 1-Proposed Approach and the Domain 1-

Alternative Approach, the majority of hospitals had less than 300 beds and the majority 

of these were not in the top quartile score. The majority (884 for both approaches) of 

hospitals with less than 300 beds were in the 100 – 199 bed size range. Of those 884 

hospitals, the majority (694, or 78.5 percent, for the proposed approach, and 600, or 74.7 

percent for the alternative approach) were not in the top quartile score. The minority of 

hospitals for both approaches had greater than 300 beds. The hospitals with 300 – 399 

bed size range (263 for both approaches) had a majority of hospitals (173, or 65.8 

percent, for both approaches) not in the top quartile score. For the Domain 1-Proposed 

Approach, the hospitals with 400 – 499 bed size range (124) also had a majority of 

hospitals (67, or 54.0 percent) not in the top quartile score; however, hospitals with a 500 

or more bed size range (203) had a slight majority (105, or 51.7 percent) in the top 

quartile (that is, worst performing) score. For the Domain 1-Alternative Approach, 

hospitals with 400 – 499 bed size range (124) had an equal number of hospitals (62, or 50 

percent) in the top quartile (that is, worst performing) score as not in the top quartile 

score, while hospitals with a 500 or more bed size range had an extremely slight majority 
 1336 

(102 or 50.2 percent) not in the top quartile score compared to hospitals in the top 

quartile (that is, worst performing) score (101, or 49.8 percent). 

 In terms of ownership, for both the Domain 1-Proposed Approach and the 

Domain 1-Alternative Approach, more than half of the total of these 3,435 hospitals were 

nonprofit (1,995). Of these nonprofit hospitals, the majority (1,480, or 74.2 percent for 

the proposed approach, and 1,443, or 72.3 percent for the alternative approach) were not 

in top quartile score, while for-profit hospitals (754 for both approaches) also had a 

majority (621, or 82.4 percent, for the proposed approach, and 597, or 79.2 percent, for 

the alternative approach) not in top quartile score. 

 In terms of region/division for both the Domain 1-Proposed Approach and the 

domain 1-Alternative Approach, of the total 3,435 hospitals, the Northeast region had a 

total of 533 hospitals with a minority (143) in New England region and a majority (390) 

in Mid-Atlantic region. The Midwest region had a total of 801 hospitals, with a majority 

(526) in the East North Central region and the minority (275) in the West North Central 

region. The South region had the majority of hospitals by a region (1,446), with the 

South Atlantic region (551) and the West South Central region (566) having similar 

numbers of hospitals and the East South Central region having the minority of hospitals 

(329) of the South region. The West region had a total of 655 hospitals, with a majority 

in the Pacific region (415) and the minority in the Mountain region (240). The South 

region had the largest number of hospitals (278, or 35.8 percent for the proposed 

approach, and 309, or 36.0 percent, for the alternative approach) in the top quartile score. 

For the Domain 1-Proposed Approach, the Northeast New England region had the lowest 
 1337 

number of hospitals (37, or 4.8 percent) in the top quartile score, with the Mountain 

region (58, or 7.5 percent) and the East South Central region (59, or 7.6 percent) having 

the next lowest number of hospitals in the top quartile score. For the Domain 1-

Alternative Approach, the New England region had the lowest number of hospitals (37, 

or 4.3 percent) in the top quartile score, with the East South Central region (61, or 7.1 

percent) and the West North Central region (64, or 7.5 percent) having the next lowest 

number of hospitals in the top quartile score. For both approaches, the South region had 

the largest number (1,168, or 43.9 for the proposed approach, and 1,137, or 44.1 percent 

for the alternative approach) not in the top quartile score, with the New England region 

having the lowest number of hospitals (106, or 4.0 for the proposed alternative, and 106, 

or 4.1 percent for the alternative approach) not in the top quartile score. The Mountain 

region (182, or 6.8 percent for the proposed approach, and 158, or 6.1 percent for the 

alternative approach) and the West North Central region (211, or 7.9 percent in the 

proposed approach, and 211, or 8.2 percent for the alternative approach) having the next 

lowest amount of hospitals not in the top quartile score. 

 In terms of urban/rural location of the total 3,435 hospitals, for the Domain 1-

Proposed approach and the Domain 1-Alternative Approach, the majority of hospitals 

(2,461) were urban, and a minority of hospitals (964) being rural. Of the total urban 

hospitals (2,461), for the Domain 1-Proposed approach, there were 1,860 urban hospitals 

(75.6 percent) not in top quartile score; the 1,860 urban hospitals also were the majority 

(70.0 percent) of hospitals not in top quartile score. There were 601 urban hospitals (24.4 

percent) in the top quartile score for the Domain 1-Proposed Approach; the 601 urban 
 1338 

hospitals also were the majority (77.3 percent) of hospitals in the top quartile. For the 

Domain 1-Alternative Approach, there were 1,772 urban hospitals (72.0 percent) not in 

the top quartile score; the 1,772 urban hospitals also were the majority of hospitals (68.8 

percent) not in the top quartile score. There were 689 urban hospitals (28.0 percent) in 

the top quartile score for the Domain 1-Alternative Approach; the 689 urban hospitals 

also were the majority of hospitals (80.3 percent) in the top quartile score.
 1339 

HOSPITALS IN TOP QUARTILE (WORST PERFORMING) FOR DOMAIN 2 SC

In Top Quartile Domain 2 Score 

Not in Top Quartile 

Domain 2 Score 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of 

Total 

Percent 

of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of 

Total 

Percent 

of 

Hospital 

Type 

Totals

Teaching status  Teaching 104 14.9% 38.5% 166 6.0% 61.5% 270  Non-teaching 585 84.2% 19.2% 2,456 89.3% 80.8% 3,041  No information 7 1.0% 5.2% 127 4.6% 94.8% 134  Total 696 - 20.2% 2,749 - - 3,445 DSH Status  DSH 566 81.3% 21.4% 2,076 75.5% 78.6% 2,642  Non-DSH 129 18.5% 17.4% 612 22.3% 82.6% 741  No information 1 0.1% 1.6% 61 2.2% 98.4% 62  Total 696 - 20.2% 2,749 - - 3,445 Bed Size  Under 50 17 2.4% 2.6% 641 23.3% 97.4% 658  50 - 99 54 7.8% 8.0% 624 22.7% 92.0% 678  100 – 199 208 29.9% 23.5% 676 24.6% 76.5% 884  200 – 299 203 29.2% 40.7% 296 10.8% 59.3% 499  300 – 399 96 13.8% 36.4% 168 6.1% 63.6% 264  400 – 499 41 5.9% 33.1% 83 3.0% 66.9% 124  500 or more 70 10.1% 34.3% 134 4.9% 65.7% 204  No information 7 1.0% 5.2% 127 4.6% 94.8% 134  Total 696 - 20.2% 2,749 - - 3,445 Ownership 
 1340 

In Top Quartile Domain 2 Score 

Not in Top Quartile 

Domain 2 Score 

 For-profit 138 19.8% 18.3% 617 22.4% 81.7% 755  Government 100 14.4% 17.9% 459 16.7% 82.1% 559  Non-profit 451 64.8% 22.6% 1,546 56.2% 77.4% 1,997  No information 7 1.0% 5.2% 127 4.6% 94.8% 134  Total 696 - 20.2% 2,749 - - 3,445 Region/Division  Northeast 145 20.8% 27.1% 391 14.2% 72.9% 536  New England 34 4.9% 23.8% 109 4.0% 76.2% 143  Mid-Atlantic 111 15.9% 28.2% 282 10.3% 71.8% 393  Midwest 129 18.5% 16.1% 673 24.5% 83.9% 802  East North Central 97 13.9% 18.4% 430 15.6% 81.6% 527  West North Central 32 4.6% 11.6% 243 8.8% 88.4% 275 South 271 38.9% 18.7% 1,176 42.8% 81.3% 1,447  South Atlantic 132 19.0% 24.0% 419 15.2% 76.0% 551  East South Central 50 7.2% 15.2% 280 10.2% 84.8% 330  West South Central 89 12.8% 15.7% 477 17.4% 84.3% 566 West 151 21.7% 22.9% 509 18.5% 77.1% 660  Mountain 39 5.6% 16.1% 203 7.4% 83.9% 242  Pacific 112 16.1% 26.8% 306 11.1% 73.2% 418  Total 696 - 20.2% 2,749 - 79.8% 3,445 Urban/Rural  Urban 640 92.0% 25.9% 1,828 66.5% 74.1% 2,468  Rural 55 7.9% 5.7% 911 33.1% 94.3% 966  No information 1 0.1% 9.1% 10 0.4% 90.9% 11  Total 696 - 20.2% 2,749 - 79.8% 3,445 
 1341 

 The second table above shows the characteristics of the worst performing 

hospitals for the Domain 2 score. In the second table, of the hospitals in the top quartile 

for the Domain 2 score, 14.9 percent were teaching hospitals, 84.2 percent were 

nonteaching hospitals, 81.3 percent were disproportionate share hospitals, 18.5 percent 

were nondisproportionate share hospitals, 40.1 percent were hospitals with a bed size of 

199 or smaller, and 64.8 percent were nonprofit. Altogether, 3445 hospitals had 

complete data for the Domain 2 score. Among these hospitals, the majority (3,041) were 

nonteaching hospitals, with the majority of these nonteaching hospitals (2,456, or 80.8 

percent) not in the top quartile score. A minority of the hospitals (270) were teaching 

hospitals; more than half of these (166, or 61.5 percent) were not in the top quartile score 

for Domain 2. Of those hospitals not in the top quartile score, these nonteaching 

hospitals were the majority (2,456, or 89.3 percent). Most of the total 3,445 hospitals 

were DSHs (2,642), with a minority of the hospitals being non-DSHs (741). The 

majority of the DSHs (2,076, or 78.6 percent) were not in the top quartile for the Domain 

2 score. While less than a quarter of DSHs (566, or 21.4 percent) were in the top quartile 

(that is, worst performing) Domain 2 score. 

 In terms of bed size, for the Domain 2 score, the majority of hospitals had less 

than 300 beds. The majority of these hospitals with less than 300 beds were not in the 

top quartile for the Domain 2 score. The majority of the hospitals (884) with less than 

300 beds were in the 100 – 199 bed size range. Of those 884 hospitals, the majority (676, 

or 76.5 percent) were not in the top quartile of the Domain 2 score. The minority of 
 1342 

hospitals had greater than 300 beds. The hospitals with 300 – 399 bed size range (264) 

had a majority of hospitals (168, or 63.6 percent) not in the top quartile score, along with 

the hospitals with 400 – 499 bed size range (124) also having a majority of hospitals (83, 

or 66.9 percent) not in the top quartile of the Domain 2 score. Hospitals with a 500 or 

more bed size range (204) also had a majority not in the top quartile score (134, or 65.7 

percent), with a double digit minority (70, or 34.3 percent) in the top quartile (that is, 

worst performing) Domain 2 score. 

 In terms of ownership, for the Domain 2 score, more than half of the total of the 

3,445 hospitals were nonprofit hospitals (1,997). Of these 1,997 nonprofit hospitals, the 

majority (1,546, or 77.4 percent) were not in the top quartile score, while the for-profit 

hospitals (755) also had a majority (617, or 81.7 percent) not in the top quartile score for 

Domain 2. 

 In terms of region/division of the total 3,445 hospitals for Domain 2, the 

Northeast region had a total of 536 hospitals with a minority (143) in the New England 

region and a majority (393) in Mid-Atlantic region. The Midwest region had a total of 

802 hospitals, with a majority (527) in the East North Central region and the minority 

(275) in the West North Central region. The South region had the majority of hospitals 

by a region (1,447), with the South Atlantic region (551) and the West South Central 

region (566) having similar amounts of hospitals and the East South Central region 

having the minority of hospitals (330) of the South region. The West region had a total 

of 660 hospitals, with a majority in the Pacific region (418) and the minority in the 

Mountain region (242). The South region had the largest number of hospitals (271, or 
 1343 

38.9 percent) in the top quartile score of Domain 2. The West North Central region had 

the lowest number of hospitals (32, or 4.6 percent) in the top quartile score of Domain 2, 

with the New England region (34, or 4.9 percent) and the Mountain region (39, or 5.6 

percent) having the next lowest number of hospitals in the top quartile score of Domain 2. 

The South region had the largest number of hospitals (1,176, or 42.8 percent) not in the 

top quartile of the Domain 2 score, with the New England region having the lowest 

number of hospitals (109, or 4.0 percent) not in the top quartile of the Domain 2 score. 

The Mountain region (203, or 7.4 percent) and the West North Central region (243, or 8.8 

percent) having the next lowest number of hospitals not in the top quartile of the Domain 

2 score. 

 In terms of urban/rural location of the total 3,445 hospitals, for Domain 2, the 

majority of hospitals (2,468) were urban, with a minority of hospitals (966) being rural. 

Of the total 2,468 urban hospitals, there were 1,828 urban hospitals (74.1 percent) not in 

top quartile of the Domain 2 score. The 1,828 urban hospitals also were the majority of 

hospitals (66.5 percent) not in top quartile of the Domain 2 score. There were 640 urban 

hospitals (25.9 percent) in the top quartile of the Domain 2 score. The 640 urban 

hospitals also were the majority of hospitals (92.0 percent) in the top quartile of the 

Domain 2 score. 
 1344 

HOSPITALS IN TOP QUARTILE (WORST PERFORMING) FOR TOTAL HAC SCORE--DOMAIN 

APPROACH AND DOMAIN 1 – ALTERNATIVE APPROACH 

In Top Quartile for Total 

HAC Score for 

Domain 1 - 

Proposed Approach 

Not in Top Quartile for 

Total HAC Score for 

Domain 1 – 

Proposed Approach 

In Top Quartile for Total 

HAC Score for 

Domain 1 - 

Alternative Approach 

Not in T

Total H

Domain 

Hospital A

Type No. of 

Hospitals 

Percent 

of 

Total 

Percent 

of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of 

Total 

Percent 

of 

Hospital 

Type 

Domain 1 

Proposed 

Approach

Totals No. of 

Hospitals 

Percent 

of 

Total 

Percent 

of 

Hospital 

Type 

No. of 

Hospitals 

Teaching status  Teaching 153 17.8 56.7 117 4.5 43.3 270 138 16.5 51.1 132  Non-teaching 691 80.5 22.8 2,346 91.0 77.2 3,037 687 82.2 22.6 2,350  No information 

14 1.6 10.9 114 4.4 89.1 128 11 1.3 8.6 117 

 Total 858 25.0 2,577 3,435 836 24.3 2,599 DSH Status  DSH 713 83.1 27.0 1,928 74.8 73.0 2,641 687 82.2 26.0 1,954  Non-DSH 140 16.3 18.9 600 23.3 81.1 740 144 17.2 20.2 569  No information 

5 0.6 9.3 49 1.9 90.7 54 5 0.6 9.3 49 

 Total 858 25.0 2,577 3,435 836 24.5 2,572 Bed Size  Under 50 47 5.5 7.2 609 23.6 92.8 656 69 8.3 10.5 587  50-99 105 12.2 15.5 573 22.2 84.5 678 144 17.2 21.2 534 
 1345 

 100 – 199 237 27.6 26.8 647 25.1 73.2 884 234 28.0 26.5 650  200 – 299 186 21.7 37.3 313 12.1 62.7 499 148 17.7 29.7 351  300 – 399 105 12.2 39.9 158 6.1 60.1 263 86 10.3 32.7 177  400 – 499 59 6.9 47.6 65 2.5 52.4 124 57 6.8 46.0 67  500 or more 105 12.2 51.7 98 3.8 48.3 203 87 10.4 42.9 116  No information 

14 1.6 10.9 114 4.4 89.1 128 11 1.3 8.6 117 

 Total 858 25.0 2,577 3,435 836 24.3 2,599 Ownership  For-profit 166 19.3 22.0 588 22.8 78.0 754 162 19.4 21.5 592  Government 136 15.9 24.4 422 16.4 75.6 558 139 16.6 24.9 419  Non-profit 542 63.2 27.2 1,453 56.4 72.8 1995 524 62.7 26.3 1,471  No infomation 

14 1.6 10.9 114 4.4 89.1 128 11 1.3 8.6 117 

 Total 858 25.0 2,577 3,435 836 24.3 2,599 Region/Division  Northeast 168 19.6 31.5 365 14.2 68.5 533 155 18.5 29.1 378  New England 41 4.8 28.7 102 4.0 71.3 143 39 4.7 27.3 104  Mid-Atlantic 127 14.8 32.6 263 10.2 67.4 390 116 13.9 29.7 274  Midwest 176 20.5 22.0 625 24.3 78.0 801 184 22.0 23.0 617  East North Central 

127 14.8 24.1 399 15.5 75.9 526 130 15.6 24.7 396 

 West North Central 

49 5.7 17.8 226 8.8 82.2 275 54 6.5 19.6 221 

South 326 38.0 22.5 1,120 43.5 77.5 1,446 303 36.2 21.0 1,143  South Atlantic 154 17.9 27.9 397 15.4 72.1 551 137 16.4 24.9 414  East South Central 

62 7.2 18.8 267 10.4 81.2 329 59 7.1 17.9 270 

 West South Central 

110 12.8 19.4 456 17.7 80.6 566 107 12.8 18.9 459 

West 188 21.9 28.7 467 18.1 71.3 655 149 23.2 29.6 461  Mountain 56 6.5 23.3 184 7.1 76.7 240 63 7.5 26.3 177  Pacific 132 15.4 31.8 283 11.0 68.2 415 131 15.7 31.6 284  Total 858 25.0 2,577 75.0 3,435 836 2,599 
 1346 

Urban/Rural  Urban 731 85.2 29.7 1,730 67.1 70.3 2,461 691 82.7 28.1 1,770  Rural 127 14.8 13.2 837 32.5 86.8 964 145 17.3 15.0 819  No information 

0 0.0 0.0 10 0.4 100.0 10 0 0.0 0.0 10 

 Total 858 25.0 2,577 75.0 3,435 836 24.3 2,599 
 1347 

 The third table above shows the characteristics of the worst performing hospitals 

by the Total HAC Score for Domain 1-Proposed Approach and for Domain 1–Alternative 

Approach. In the third table, of the hospitals in the top quartile for total HAC score 

(Domain 1-Proposed Approach), 17.8 percent were teaching hospitals, 80.5 percent were 

nonteaching hospitals, 83.1 percent were disproportionate share hospitals, 16.3 percent 

were nondisproportionate share hospitals, 45.3 percent were hospitals with a bed size of 

199 or smaller, and 63.2 percent were nonprofit. In the third table, of the hospitals in the 

top quartile for total HAC score (Domain 1-Alternative Approach), 16.5 percent were 

teaching hospitals, 82.2 percent were nonteaching hospitals, 82.2 percent were 

disproportionate share hospitals, 17.2 percent were nondisproportionate share hospitals, 

53.5 percent were hospitals with a bed size of 199 or smaller, and 62.7 percent were 

nonprofit. Altogether, 3,435 hospitals had complete data for both the Domain 

1-Proposed Approach, and the Domain 1-Alternative Approach. Among these hospitals, 

the majority (3,037) were nonteaching hospitals, with the majority of these nonteaching 

hospitals (2,346, or 77.2 percent for the proposed approach, and 2,350, or 77.4 percent 

for the alternative approach) not in the top quartile total HAC score. A minority of these 

hospitals (270) were teaching hospitals and slightly more than half of these hospitals 

(153, or 56.7 percent for the proposed approach, and 138, or 51.1 percent in the 

alternative approach) were in the top quartile (that is, worst performing) for the 

Domain 1- Proposed Approach Score and the Domain 1-Alternative Approach score. Of 

those hospitals not in the top quartile score, the nonteaching hospitals were the majority 

(2,346, or 91.0 percent for the proposed approach, and 2,350, or 90.4 percent for the 
 1348 

alternative approach). Of the total 3,435 hospitals, the majority were DSHs (2,641), with 

a minority being non-DSHs (740 for the proposed approach and 713 for the alternative 

approach). The majority of the DSHs (1,928, or 73.0 for the proposed approach, and 

1,954 or 74.0 percent for the alternative approach) were not in the top quartile for the 

total HAC score. While slightly more than a quarter of DSHs (713, or 27.0 percent for 

the proposed approach, and 687, or 26.0 percent for the alternative approach) were in the 

top quartile (that is, worst performing) for the total HAC score. 

 In terms of bed size, for the Domain 1-Proposed Approach and the Domain 1-

Alternative Approach, the majority of hospitals had less than 300 beds. The majority of 

these hospitals with less than 300 beds were in not in the top quartile for the total HAC 

score. The majority of hospitals (884) with less than 300 beds were in the 100 – 199 bed 

size range. Of those 884 hospitals, the majority of hospitals (647, or 73.2 percent for the 

proposed approach, and 650, or 73.5 percent for the alternative approach) were not in the 

top quartile of total HAC score. The minority of hospitals had greater than 300 beds. Of 

those hospitals with greater than a 300-bed size range, the hospitals with the 300 – 399 

bed size range (263) had a majority of hospitals (158, or 60.1 percent for the proposed 

approach, and 177, or 67.3 percent, for the alternative approach) not in the top quartile of 

total HAC score. The hospitals with 400 – 499 bed size range (124) also had a slight 

majority of hospitals (65, or 52.4 percent, for the proposed approach, and 67, or 54.0 

percent, for the alternative approach) not in the top quartile of the total HAC score. 

Hospitals with a 500 or more bed size range (203) had a slight majority in the top 

quartile’ section (that is, worst performing) of 105 (or 51.7 percent) for the proposed 
 1349 

approach, and 87 (or 42.9 percent) of hospitals for the alternative approach, with a double 

digit minority (98, or 48.3 percent) not in the top quartile for the Domain 1–Proposed 

Approach total HAC score, and a slight majority (116, or 57.1 percent) not in the top 

quartile for the Domain 1-Alternative Approach total HAC score. 

 In terms of ownership, for the Domain 1-Proposed Approach and Domain 1-

Alternative Approach total HAC score, more than half of the total 3435 hospitals were 

non-profit hospitals (1,995). Of these 1,995 nonprofit hospitals, the majority (1,453, or 

72.8 percent, for the proposed approach, and 1,471, or 73.7 percent for the alternative 

approach) were not in top quartile of the total HAC score, while the 754 for-profit 

hospitals also had a majority (588, or 78.0 percent, for the proposed approach, and 592, 

or 78.5 percent for the alternative approach) not in the top quartile of the total HAC 

score. 

 In terms of region/division of the total 3,435 hospitals for Domain 1-Proposed 

Approach and the Domain 1-Alternative Approach, the Northeast region had a total of 

533 hospitals, with a minority (143) in the New England region and a majority (390) in 

Mid-Atlantic region. The Midwest region had a total of 801 hospitals, with a majority 

(526) in the East North Central region and the minority (275) in the West North Central 

region. The South region had the majority of hospitals by a region (1,446), with the 

South Atlantic region (551) and the West South Central region (566) having similar 

numbers of hospitals and the East South Central region having the minority of hospitals 

(329) of the South region. The West region had a total of 655 hospitals, with a majority 

in the Pacific region (415) and the minority in the Mountain region (240). The South 
 1350 

region had the largest number of hospitals (326, or 38.0 percent, for the proposed 

approach, and 303, or 36.2 percent, for the alternative approach) in the top quartile of the 

total HAC score. The New England region had the lowest number of hospitals (41, or 4.8 

percent, for the proposed approach, and 39, or 4.7 percent, for the alternative approach) 

in the top quartile for the total HAC score, with the West North Central region (49, or 5.7 

percent for the proposed approach, and 54, or 6.5 percent, for the alternative approach) 

and the Mountain region (56, or 6.5 percent) having the next lowest number of hospitals 

in the top quartile of the Domain 1-Proposed Approach total HAC score and the East 

South Central region (59 or 7.1 percent) having the next lowest number in the top quartile 

for the Domain 1-Alternative Approach total HAC score. The South region had the 

largest number of hospitals (1,120, or 43.5 percent, for the proposed approach, and 1,143, 

or 44.0 percent, for the alternative approach) not in the top quartile of the total HAC 

score, with the New England region having the lowest number of hospitals (102, or 4.0 

percent, for the proposed approach, and 104, or 4.0 percent, for the alternative approach) 

not in the top quartile of the total HAC score. The Mountain region (184, or 7.1 percent, 

for the proposed approach, and 177, or 6.8 percent for the alternative approach) and the 

West North Central region (226, or 8.8 percent, for the proposed approach, and 221, or 

8.5 percent for the alternative approach) had the next lowest number of hospitals not in 

the top quartile of the total HAC score. 

 In terms of urban/rural location of the total 3,435 hospitals for the Domain 1-

Proposed Approach total HAC score and the Domain 1-Alternative Approach total HAC 

score, the majority of hospitals (2,461) were urban, with a minority of hospitals (964) 
 1351 

being rural. Of the total 2,461 urban hospitals, there were 1,730 urban hospitals (70.3 

percent) not in the top quartile of the total HAC score for the Domain 1-Proposed 

Approach, and 1,770 urban hospitals (71.9 percent) not in the top quartile of the total 

HAC score for the Domain 1-Alternative Approach. The 1,730 urban hospitals also were 

the majority (67.1 percent) of hospitals not in the top quartile of Domain 1-Proposed 

Approach total HAC score, and the 1,770 urban hospitals also were the majority (68.1 

percent) of hospitals not in the top quartile of Domain 1-Alternative Approach total HAC 

score. There were 731 urban hospitals (29.7 percent) in the top quartile of the Domain 1- 

Proposed Approach total HAC score, with also a majority of hospitals (85.2 percent) in 

the top quartile. There were 691 urban hospitals (28.1 percent) in the top quartile of the 

Domain 1- Alternative Approach total HAC score, with also a majority of hospitals (82.7 

percent) in the top quartile. 
 1352 

HOSPITALS’ COMPLETENESS OF DATA FOR DOMAINS 1 AND 2 

Hospital has complete data for Domain 2 (that is, has data for at least 

1 measure for the domain) 

Yes No

Hospital has complete data for Domain 1 (that is, data for at least 3 measures for the Domain 1-Proposed Approach or enough data to calculate PSI 90 for the Domain 1-Alternative Approach) 

No. of 

Hospitals 

Percent 

of Total 

Percent 

of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of Total 

Percent 

of 

Hospital 

Type 

Total N

Hospital

Type

YES  Teaching 265 13.8% 98.1% 5 0.3% 1.9%  Non-teaching 1643 85.3% 54.1% 1394 92.4% 45.9% 3 No information 19 1.0% 14.8% 109 7.2% 85.2% 

Subtotal 1,927 1,508 3

 DSH 1,564 81.2% 59.2% 1,077 71.4% 40.8% 2 Non-DSH 359 18.6% 48.5% 381 25.3% 51.5%  No information 4 0.2% 7.4% 50 3.3% 92.6% 

Subtotal 1,927 1,508 3
 1353 

Hospital has complete data for Domain 2 (that is, has data for at least 

1 measure for the domain) 

Yes No

Hospital has complete data for Domain 1 (that is, data for at least 3 measures for the Domain 1-Proposed Approach or enough data to calculate PSI 90 for the Domain 1-Alternative Approach) 

No. of 

Hospitals 

Percent 

of Total 

Percent 

of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of Total 

Percent 

of 

Hospital 

Type 

Total N

Hospital

Type

 For-profit 365 18.9% 48.4% 389 25.8% 51.6%  Government 221 11.5% 39.6% 337 22.3% 60.4%  Non-profit 1,322 68.6% 66.3% 673 44.6% 33.7%  No information 19 1.0% 14.8% 109 7.2% 85.2% 

Subtotal 1,927 1,508 3

 < 50 beds 12 0.6% 1.8% 644 42.7% 98.2%  50-99 beds 164 8.5% 24.2% 514 34.1% 75.8%  100 - 199 beds 665 34.5% 75.2% 219 14.5% 24.8%  200 - 299 beds 486 25.2% 97.4% 13 0.9% 2.6%  300 - 399 beds 259 13.4% 98.5% 4 0.3% 1.5%  400 - 499 beds 121 6.3% 97.6% 3 0.2% 2.4%  500+ beds 201 10.4% 99.0% 2 0.1% 1.0%  No information 19 1.0% 14.8% 109 7.2% 85.2% 
 1354 

Hospital has complete data for Domain 2 (that is, has data for at least 

1 measure for the domain) 

Yes No

Hospital has complete data for Domain 1 (that is, data for at least 3 measures for the Domain 1-Proposed Approach or enough data to calculate PSI 90 for the Domain 1-Alternative Approach) 

No. of 

Hospitals 

Percent 

of Total 

Percent 

of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of Total 

Percent 

of 

Hospital 

Type 

Total N

Hospital

Type

Subtotal 1,927 1,508 3

NO  Teaching 0 0.0% 0.0% 0 0.0% 0.0%  Non-teaching 0 0.0% 0.0% 4 40.0% 100.0%  No information 0 0.0% 0.0% 6 60.0% 100.0% 

Subtotal 0 10 

 DSH 0 0.0% 0.0% 1 10.0% 0.0%  Non-DSH 0 0.0% 0.0% 1 10.0% 100.0%  No information 0 0.0% 0.0% 8 80.0% 100.0% 

Subtotal 0 10 

 For-profit 0 0.0% 0.0% 1 10.0% 100.0%  Government 0 0.0% 0.0% 1 10.0% 100.0% 
 1355 

Hospital has complete data for Domain 2 (that is, has data for at least 

1 measure for the domain) 

Yes No

Hospital has complete data for Domain 1 (that is, data for at least 3 measures for the Domain 1-Proposed Approach or enough data to calculate PSI 90 for the Domain 1-Alternative Approach) 

No. of 

Hospitals 

Percent 

of Total 

Percent 

of 

Hospital 

Type 

No. of 

Hospitals 

Percent 

of Total 

Percent 

of 

Hospital 

Type 

Total N

Hospital

Type

 Non-profit 0 0.0% 0.0% 2 20.0% 100.0%  No information 0 0.0% 0.0% 6 60.0% 100.0% 

Subtotal 0 10 

< 50 beds 0 0.0% 0.0% 2 20.0% 100.0% 50-99 beds 0 0.0% 0.0% 0 0.0% 0.0% 100 - 199 beds 0 0.0% 0.0% 0 0.0% 0.0% 200 - 299 beds 0 0.0% 0.0% 0 0.0% 0.0% 300 - 399 beds 0 0.0% 0.0% 1 10.0% 100.0% 400 - 499 beds 0 0.0% 0.0% 0 0.0% 0.0% 500+ beds 0 0.0% 0.0% 1 10.0% 100.0% No information 0 0.0% 0.0% 6 60.0% 100.0% 

Subtotal 0 0.0% 0.0% 10 
 1356 

 The fourth table above contains information on hospitals that had complete data 

for Domain 1 (that is, had complete data for at least 3 measures for the 

Domain 1-Proposed Approach or had enough data to calculate PSI 90 for the 

Domain 1-Alternative Approach) and hospitals that had complete data for Domain 2 (that 

is, had data for at least 1 measure for the domain). Altogether, 3,435 hospitals had 

complete data for Domain 1, regardless of whether the proposed approach or the 

alternative approach was selected.193 Among these hospitals, 3,037 (88.4 percent) were 

nonteaching hospitals, while 270 (7.9 percent) were teaching hospitals. Most of these 

hospitals were DSHs (2,641, or 76.9 percent), slight more than a fifth (740, or 21.5 

percent) were non-DSHs. More than half of these 3,435 hospitals were non-profit (1,995, 

or 58.1 percent). For-profit hospitals accounted for slightly more than one-fifth (754, or 

22 percent) of the 3,435 hospitals with complete data for Domain 1, while 16.2 percent 

(558) were government hospitals.194 In terms of bed size, almost 40 percent of the 3,435 

hospitals were small facilities, with fewer than 100 beds. Slightly, more than a quarter 

(884, or 25.7 percent) had 100 to 199 beds, while the remaining 31.7 percent had at least 

200 beds. We have no information about the teaching status, ownership, or bed size for 

 

193 The reason that there were 3,435 hospitals with complete data for Domain 1, regardless of options, has 

to do with the minimum measure criterion for Domain 1, Option 1. In particular, a hospital had to have 

complete data for at least 3 measures in Domain 1-Proposed Approach to have a Domain 1 score 

calculated. According to the data that CMS used to develop the scoring method for implementing section 

3008 of the Affordable Care Act, 3,435 hospitals had complete data for at least 3 measures in Domain 

1-Proposed Approach to calculate a Domain 1 score. As for Domain 1-Alternative Approach, for hospitals 

that did not have enough cases to calculate any one of the eight component indicators for PSI 90, the rate 

for that component indicator was substituted by the national rate for that component indicator to calculate 

the hospital’s rate for PSI 90. 

194 Government hospitals include military hospitals, hospitals run by the U.S. Department of Veteran 

Affairs, U.S. Department of Justice, and the Indian Health Service. 
 1357 

128 of the 3,435 hospitals that had complete data for Domain 1, or the DSH status of 54 

of these hospitals. 

 Of the 3,435 hospitals with complete data for Domain 1, more than half (1,927, or 

56.1 percent) also had complete data for Domain 2. Among the 1,927 hospitals with 

complete data for both domains, the majority were nonteaching hospitals (1,643, or 85.3 

percent), DSHs (1,564, or 81.2 percent), and nonprofit hospitals (1,322, or 68.6 percent). 

More than 40 percent of these 1,927 hospitals had fewer than 200 beds, a quarter (486, or 

25.2 percent) had 200 to 299 beds, while more than 30 percent had 300 or more beds. 

Among the 1,508 hospitals with complete data for Domain 1 but not for Domain 2, the 

vast majority were nonteaching hospitals (1,394, or 92.4 percent); almost three-quarters 

of these hospitals were DSHs (1,077, or 71.4 percent). Nonprofit hospitals (673, or 44.6 

percent) and small hospitals with fewer than 50 beds (644, or 42.7 percent) accounted for 

a considerable minority among these 1,508 hospitals. 

 In addition, among the 3,435 hospitals with complete data for Domain 1, the 

proportion of teaching hospitals that also had complete data for Domain 2 far exceeded 

that of those that did not (98.1 percent versus 1.9 percent). The proportion of 

nonteaching hospitals that had complete data was also higher than the proportion of those 

hospitals that did not, but the difference was smaller (54.1 percent versus 45.9 percent). 

DSHs were 18.4 percent more likely to have complete data for both domains than for 

only Domain 1; non-DSHs, on the other hand, were 3 percent more likely to have 

complete data for only Domain 1 than for both domains. For-profit and government 

hospitals were more likely to have complete data for Domain 1 only (51.6 percent and 
 1358 

60.4 percent, respectively) than for both domains (48.4 percent and 39.6 percent, 

respectively), while nonprofit hospitals were less likely to have complete data for 

Domain 1 only than for both domains (66.3 percent versus 33.7 percent). In terms of bed 

size, hospitals with more beds were more likely to have complete data for both domains, 

while those with fewer than 100 beds were more likely to have complete data for Domain 

1 only than for both domains. 

 Among the 3,435 hospitals in our analysis, none had complete data for only 

Domain 2 but not Domain 1. Ten of the 3,435 hospitals had no complete data for either 

Domain 1 or Domain 2. Among these 10 hospitals, none were teaching hospitals and 4 

were nonteaching hospitals. One hospital was a DSH; another was not. One hospital was 

a for-profit hospital, one was a government hospital, and two were nonprofit hospitals. 

Two of the 10 hospitals had fewer than 50 beds, 1 hospital had 300 to 399 beds, and 

another was a large hospital with at least 500 beds. Of these 10 hospitals, there were 6 

hospitals for which we had no information about their teaching status, ownership, or bed 

size, and 8 hospitals for which we have no information about whether or not they were 

DSH. 

7. Effects of the Policy Changes Relating to Payments for GME and IME 

 In section V.J.2. of the preamble of this proposed rule, we discuss our proposal to 

include labor and delivery days in the Medicare utilization calculation. We are 

proposing, consistent with the inpatient day counting rules for DSH as clarified in the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule, that effective for cost reporting periods 

beginning on or after October 1, 2013, for purposes of applying the Medicare utilization 
 1359 

ratio, we would include labor and delivery inpatient days in the numerator (to the extent 

that there are any labor and delivery inpatient days associated with Medicare 

beneficiaries), and all labor and delivery inpatient days in the denominator (associated 

with all inpatients of the hospital). In addition to payments for direct GME, we believe 

this proposal also would affect other Medicare policies where either the number of 

inpatient days or a ratio of Medicare inpatient days to total inpatient days is used to 

determine eligibility or payment. However, this proposal would not impact Medicare 

payments calculated on a reasonable cost basis for routine inpatient services, which are 

apportioned in accordance with 42 CFR 413.53(a)(1). We believe including labor and 

delivery days in the Medicare utilization calculation would result in a savings of 

approximately $15 million for FY 2014. 

 In section V.J.3. of the preamble of this proposed rule, in accordance with section 

5506 of the Affordable Care Act which instructs the Secretary to establish a process to 

increase the FTE resident caps for other hospitals based upon the FTE resident caps in 

teaching hospitals that closed “on or after a date that is 2 years before the date of 

enactment” (that is March 23, 2008), we notify the public of the closure of one teaching 

hospital and the initiation of another round of the section 5506 application and selection 

process to redistribute FTE resident slots. We are initiating “Round 4” of section 5506, 

to redistribute the FTE resident slots of the Peninsula Hospital Center in Far Rockaway, 

NY, which closed on April 9, 2012. We are merely using this proposed rule as a vehicle 

to initiate another round of the section 5506 application and selection process, which is 
 1360 

an ongoing provision triggered each time a teaching hospital closes. Therefore, there is 

no impact for this provision. 

 In section V.J.4. of the preamble of this proposed rule, we are proposing that 

another IPPS or IPPS-excluded hospital may not count the resident(s) training at the 

CAH for IME and/or direct GME purposes, even if that hospital is paying for the 

residents’ salary and fringe benefits. Specifically, we are proposing that, effective for 

portions of cost reporting periods occurring on or after October 1, 2013, a hospital may 

not claim the FTE residents that are training at a CAH for IME and/or direct GME 

purposes. However, under policies that were applicable prior to October 1, 2013 and that 

continue to apply on and after October 1, 2013, the CAH may incur the costs of training 

the FTE residents for the time that the FTE residents rotate to the CAH, and receive 

payment based on 101 percent of its Medicare reasonable costs under 42 CFR 413.70. 

 We do not believe that there is any financial impact of this proposed policy, as we 

are not precluding all Medicare payment for residents training at CAHs. Rather, we are 

precluding payment to one group of providers (that is, hospitals), but continuing to allow 

payment to another group (that is, CAHs). Under current policy, either a hospital could 

receive IME and direct GME payment for the time spent by residents training at a CAH if 

the hospital incurred the cost of that training, or the CAH could receive payment under 

§ 413.70 if the CAH incurred the training cost. Under the proposed policy, hospitals 

would no longer be allowed to receive IME and direct GME payment for the costs 

associated with training residents at a CAH. However, CAHs could continue to receive 
 1361 

payment under § 413.70 for the allowable costs associated with training residents at a 

CAH in approved residency training programs. 

 In section V.J.5. of the preamble of this proposed rule, we discuss the provisions 

of section 711 of the Medicare Modernization Act (Pub. L. 108-173) which amended 

section of 1886(h)(2)(D)(iv)(I) of the Act to freeze annual CPI-U updates to 

hospital-specific PRAs for direct GME payment purposes for those PRAs that exceed the 

ceiling for FYs 2004 through 2013. Therefore, the “freeze” for PRAs that exceed the 

ceiling expires beginning in FY 2014. That is, for cost reporting periods beginning on or 

after October 1, 2013, the usual full CPI-U update, as determined under 

42 CFR 413.77(c)(1) would apply to all PRAs for direct GME payment purposes. We 

note that we are not making any proposals related to this provision in this proposed rule. 

We are merely providing notice to the public that a statutory provision will no longer 

apply in FY 2014. 

8. Effects of Implementation of Rural Community Hospital Demonstration Program 

 In section V.K. of the preamble of this proposed rule, we discuss our 

implementation of section 410A of Pub. L. 108-173, as amended, which requires the 

Secretary to conduct a demonstration that would modify reimbursement for inpatient 

services for up to 30 rural community hospitals. Section 410A(c)(2) requires that “[i]n 

conducting the demonstration program under this section, the Secretary shall ensure that 

the aggregate payments made by the Secretary do not exceed the amount which the 

Secretary would have paid if the demonstration program under this section was not 

implemented.” As discussed in section V.K. of the preamble of this proposed rule, in the 
 1362 

IPPS final rules for each of the previous 9 fiscal years, we have estimated the additional 

payments made by the program for each of the participating hospitals as a result of the 

demonstration. In order to achieve budget neutrality, we 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 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. 

 We are proposing to adjust the national IPPS rates according to the methodology 

set forth elsewhere in this proposed rule. The proposed adjustment to the national IPPS 

rates to account for estimated demonstration cost for FY 2014 for the 7 “pre-expansion” 

participating hospitals that are currently participating in the demonstration and the 16 

additional hospitals participating as a result of the expansion of the demonstration under 

the Affordable Care Act is $46,515,865. In addition, in this FY 2014 proposed rule, we 

are proposing that if settled cost reports for all of the demonstration hospitals that 

participated in the applicable fiscal year (2007, 2008, 2009, or 2010) are made available 

prior to the FY 2014 IPPS/LTCH PPS final rule, we would incorporate into the FY 2014 

budget neutrality offset amount any additional amounts by which the final settled costs of 
 1363 

the demonstration for the year (FY 2007, 2008, 2009, or 2010) exceeded the budget 

neutrality offset amount applicable to such year as finalized in the respective year’s IPPS 

final rule. The estimated amount of $46,515,865 that we are proposing for FY 2014 does 

not account for any differences between the cost of the demonstration program for 

hospitals participating in the demonstration for FYs 2007 through 2010 and the amounts 

that were offset by the budget neutrality adjustment for these years because the specific 

numeric value associated with this component of the adjustment to the national IPPS 

rates cannot be known at this time. This is because the large majority of settled cost 

reports beginning in FYs 2007 through 2010 for the hospitals participating in the 

demonstration during those years also are not available at this time. 

9. Effects of the Extended Effective Date for Policy on Hospital Services Furnished 

under Arrangements 

 In section V.M. of the preamble of this proposed rule, we discuss our proposed 

change in the implementation date of our revised policy, as outlined in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51711) under which we limit the circumstances under 

which a hospital may furnish services to Medicare beneficiaries “under arrangements.” 

We are proposing to change the implementation date of the requirement to be effective 

for services provided on or after January 1, 2015 (instead of effective with cost reporting 

periods beginning on or after October 1, 2013). Because there are hospitals in the midst 

of significant building projects that, when completed, will enable the hospital to provide 

routine services in compliance with the requirements of this revised policy, we believe it 

is appropriate to further delay the effective date. We expect that, with the additional time 
 1364 

before the revised “under arrangement” policy becomes effective, hospitals will complete 

the work needed to ensure compliance with the new requirement. Effective for services 

provided on or after January 1, 2015, all hospitals would need to be in full compliance 

with the revised policy for services furnished under arrangement. We have determined 

that the impact of this proposed effective date change would be negligible. 

I. Effects of Proposal Relating to the Furnishing of Acute Care Inpatient Services by 

CAHs

 In section VII.B.2. of the preamble of this proposed rule, we discuss our proposal 

to revise the requirements under the CoPs for CAHs to specify that CAHs must provide 

acute care inpatient services. We estimate that the costs to CAHs to implement this 

proposal would be minimal. The vast majority of CAHs, approximately 99 percent, 

already are providing acute care inpatient services. In fact, we believe that most CAHs 

would not consider the proposal a change in policy. We believe most CAHs will view 

this proposal as a clarification that confirms their usual and customary business practices. 

We welcome public comments on our assumptions and estimates. 

J. Effects of Proposed Changes to the CoPs for Hospitals Relating to the Administration 

of Pneumococcal Vaccines

 In section X. of the preamble of this proposed rule, we discuss our proposal to 

amend the standard under the CoPs for hospitals relating to the administration of 

pneumococcal vaccine by nursing staff. We are proposing to delete the term 

“polysaccharide” vaccine in the standard to allow hospitals to include any type of 
 1365 

pneumococcal vaccine as part of its physician-approved policy for administration by 

nurses without a prior practitioner order. 

 While we expect this proposed change to have a positive effect on hospitals by 

providing them with additional regulatory flexibility in this area, it is difficult to estimate 

this positive effect in terms of actual cost savings for hospitals. We believe that the 

proposed change would carry the additional benefit of improving patient access to 

pneumococcal vaccines if hospitals choose to exercise the potential regulatory flexibility 

proposed and purchase and stock more than one type of pneumococcal vaccine as a 

result. This benefit would be particularly apparent if there were a shortage of one type of 

the pneumococcal vaccine in the future. In conclusion, while we cannot estimate any 

cost savings that would result from this proposed change, we are confident that it would 

not impose any burden on hospitals.
 1366 

K. Effects of Proposed Changes in the Capital IPPS

1. General Considerations 

 For the impact analysis presented below, we used data from the December 2012 

update of the FY 2012 MedPAR file and the December 2012 update of the 

Provider-Specific File (PSF) that is used for payment purposes. Although the analyses of 

the proposed changes to the capital prospective payment system do not incorporate cost 

data, we used the December 2012 update of the most recently available hospital cost 

report data (FYs 2010 and 2011) 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. 

 Due to the interdependent nature of the IPPS, it is very difficult to precisely 

quantify the impact associated with each proposed change. In addition, we draw upon 

various sources for the data used to categorize hospitals in the tables. In some cases (for 

instance, the number of beds), there is a fair degree of variation in the data from different 

sources. We have attempted to construct these variables with the best available sources 

overall. However, it is possible that some individual hospitals are placed in the wrong 

category. 

 Using cases from the December 2012 update of the FY 2012 MedPAR file, we 

simulated payments under the capital IPPS for FY 2013 and FY 2014 for a comparison of 

total payments per case. Any short-term, acute care hospitals not paid under the general 

IPPS (for example, Indian Health Service hospitals and hospitals in Maryland) are 

excluded from the simulations. 
 1367 

 The methodology for determining a capital IPPS payment is set forth at 

§ 412.312. The basic methodology for calculating capital IPPS payments in FY 2014 is 

as follows: 

 (Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals located 

in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME adjustment factor, if 

applicable). 

 In addition to the other adjustments, hospitals may also receive outlier payments 

for those cases that qualify under the threshold established for each fiscal year. We 

modeled payments for each hospital by multiplying the capital Federal rate by the GAF 

and the hospital's case-mix. We then added estimated payments for indirect medical 

education, disproportionate share, and outliers, if applicable. For purposes of this impact 

analysis, the model includes the following assumptions: 

● We estimate that the Medicare case-mix index would increase by 0.5 percent in 

both FYs 2013 and 2014. 

● We estimate that Medicare discharges would be approximately 12.3 million in 

FY 2013 and 12.7 million in FY 2014. 

● The capital Federal rate was updated beginning in FY 1996 by an analytical 

framework that considers changes in the prices associated with capital-related costs and 

adjustments to account for forecast error, changes in the case-mix index, allowable 

changes in intensity, and other factors. As discussed in section III.A.1.a. of the 

Addendum to this proposed rule, the proposed update is 0.90 percent for FY 2014. 
 1368 

● In addition to the proposed FY 2014 update factor, the proposed FY 2014 

capital Federal rate was calculated based on a proposed GAF/DRG budget neutrality 

adjustment factor of 0.9988, a proposed outlier adjustment factor of 0.9451, and a 

proposed adjustment factor of 0.9980 to offset the estimated additional IPPS expenditures 

that are projected to result from our policy proposal on admission and medical review 

criteria for hospital inpatient services under Medicare Part A, as discussed in section 

VI.C. of the preamble of this proposed rule. 

2. Results 

 We used the actuarial model described above to estimate the potential impact of 

our proposed changes for FY 2014 on total capital payments per case, using a universe of 

3,404 hospitals. As described above, the individual hospital payment parameters are 

taken from the best available data, including the December 2012 update of the FY 2012 

MedPAR file, the December 2012 update to the PSF, and the most recent cost report data 

from the December 2012 update of HCRIS. In Table III, we present a comparison of 

estimated total payments per case for FY 2013 and estimated total payments per case for 

FY 2014 based on the proposed FY 2014 payment policies. Column 2 shows estimates 

of payments per case under our model for FY 2013. Column 3 shows estimates of 

payments per case under our model for FY 2014. Column 4 shows the proposed total 

percentage change in payments from FY 2013 to FY 2014. The proposed change 

represented in Column 4 includes the proposed 0.90 percent update to the capital Federal 

rate and other proposed changes in the adjustments to the capital Federal rate. The 
 1369 

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 2014 are expected to increase as compared to capital payments per case in FY 2013. 

The proposed capital Federal rate for FY 2014 would increase approximately 1.5 percent 

as compared to the FY 2013 capital Federal rate. Overall, across all hospitals, the 

proposed changes to the GAFs are expected to have no net effect on capital payments. 

However, regionally, the effect of the proposed changes to the GAFs on capital payments 

are consistent with the projected changes in payments due to proposed changes in the 

wage index (and proposed policies affecting the wage index) as shown in Table I in 

section I.G. of this Appendix. 

 We are estimating a slight decrease in outlier payments in FY 2014 as compared 

to FY 2013. This is primarily because of the proposed increase to the proposed outlier 

fixed-loss amount (discussed in section II.A.4.f. of the Addendum to this proposed rule). 

 The net impact of these proposed changes is an estimated 1.1 percent change in 

capital payments per discharge from FY 2013 to FY 2014 for all hospitals (as shown 

below in Table III). 

 The geographic comparison shows that, on average, with the exception of one 

region, all hospitals are expected to experience an increase in capital IPPS payments per 

case in FY 2014 as compared to FY 2013. These expected increases are primarily due to 

the proposed increase in the capital Federal rate, but are somewhat offset by the projected 

decrease in payments because of the proposed GAFs, and the projected decrease in 
 1370 

outlier payments. Capital IPPS payments per case for both large urban hospitals and 

other urban hospitals are estimated to increase 1.2 percent. Rural hospitals, on average, 

are expected to experience a 0.6 percent increase in capital payments per discharge from 

FY 2013 to FY 2014. The factors contributing to the difference in the projected increase 

in capital IPPS payments per discharge for urban hospitals as compared to rural hospitals 

are a decrease in capital payments to rural hospitals due to proposed changes to the GAF, 

a relatively larger decrease in projected outlier payments to rural hospitals, and a 

relatively lower projected increase in capital payments to rural hospitals due to the 

proposed changes to the MS-DRG relative weights. 

 The comparisons by region show that the estimated increases in capital payments 

per discharge from FY 2013 to FY 2014 in urban areas ranges from a 2.3 percent increase 

for the New England urban region to a 0.6 percent increase for the Mountain urban 

region. Similarly, for rural regions, the New England rural region is expected to 

experience the largest increase in capital IPPS payments per discharge at 1.7 percent. 

Unlike most other urban and rural regions, for both the New England urban and rural 

region, a large part of the expected increase in capital IPPS payments per discharge is due 

to the proposed GAFs, which are consistent with the proposed changes in the wage index 

for hospitals located in the New England area, as discussed in section I. of this Appendix. 

 Whereas all urban regions and most rural regions are estimated to experience an 

increase in capital IPPS payments per discharge, the Mountain rural region is expected to 

experience a 0.1 percent decrease in capital IPPS payments per discharge – the only 

region not expected to experience an increase. This is mainly due both to projected 
 1371 

decreases in capital payments in FY 2014 resulting from the proposed changes to the 

GAFs, as well as proposed changes to the outlier threshold. 

 All but one of the hospitals located in Puerto Rico are in urban areas. Hospitals 

located in the Puerto Rico urban region are expected to experience a 2.1 percent increase 

in capital IPPS payments per discharge in FY 2014 as compared to FY 2013. This larger 

than average projected increase in capital IPPS payments per discharge is mostly due to 

the proposed GAFs, which are consistent with the proposed changes in the wage index 

for hospitals located in the Puerto Rico urban areas, as discussed in section I. of this 

Appendix. 

 Hospitals of all types of ownership (that is, voluntary hospitals, government 

hospitals, and proprietary hospitals) are estimated to experience an increase in capital 

payments per case from FY 2013 to FY 2014. The proposed increase in capital payments 

for both government and proprietary hospitals is estimated at 1.0 percent, and voluntary 

hospitals are estimated to experience a 1.3 percent increase in capital payments per case 

from FY 2013 to FY 2014. 

 Section 1886(d)(10) of the Act established the MGCRB. Hospitals may apply for 

reclassification for purposes of the wage index for FY 2014. Reclassification for wage 

index purposes also affects the GAFs because that factor is constructed from the hospital 

wage index. To present the effects of the hospitals being reclassified as of the publication 

of this proposed rule for FY 2014, we show the average capital payments per case for 

reclassified hospitals for FY 2014. Urban reclassified hospitals are expected to 

experience a 1.6 percent increase in capital payments, whereas urban nonreclassified 
 1372 

hospitals are expected to experience an increase of 1.1 percent. The proposed estimated 

percentage increase for rural reclassified hospitals is 1.1 percent. However, rural 

nonreclassified hospitals are expected to experience a 0.2 percent decrease in capital 

payments per case. Other reclassified hospitals (that is, hospitals reclassified under 

section 1886(d)(8)(B) of the Act) are expected to experience a 1.3 percent increase in 

capital payments from FY 2013 to FY 2014. 

TABLE III.—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 2013 PAYMENTS COMPARED TO FY 2014 PAYMENTS] 

Number of 

hospitals 

Average FY 

2013 

payments/ 

case 

Average FY 

2014 

payments/ 

case 

Change 

By Geographic Location: 

All hospitals ......................................................................................................... 3,404 816 826 1.1 

Large urban areas (populations over 1 million)................................................... 1,367 903 914 1.2 

Other urban areas (populations of 1 million of fewer) ......................................... 1,114 794 803 1.2 

Rural areas.......................................................................................................... 923 564 568 0.6 

Urban hospitals ................................................................................................... 2,481 854 864 1.2 

0-99 beds......................................................................................................... 622 716 712 -0.5 

100-199 beds................................................................................................... 762 738 745 0.9 

200-299 beds................................................................................................... 464 786 795 1.2 

300-499 beds................................................................................................... 418 870 882 1.3 

500 or more beds ............................................................................................ 215 1,016 1,031 1.5

Rural hospitals..................................................................................................... 923 564 568 0.6 

0-49 beds......................................................................................................... 339 457 458 0.0 

50-99 beds....................................................................................................... 328 517 521 0.7 

100-149 beds................................................................................................... 151 559 562 0.5 

150-199 beds................................................................................................... 59 628 633 0.7 

200 or more beds ............................................................................................ 46 675 682 0.9 

By Region: 

Urban by Region ................................................................................................. 2,481 854 864 1.2 

New England ................................................................................................... 120 928 949 2.3 

Middle Atlantic ................................................................................................. 318 900 920 2.2

South Atlantic .................................................................................................. 375 786 792 0.7

East North Central........................................................................................... 395 818 825 0.9 

East South Central .......................................................................................... 149 745 752 1.0 

West North Central.......................................................................................... 165 851 860 1.0 

West South Central ......................................................................................... 371 789 797 1.0 

Mountain.......................................................................................................... 156 890 896 0.6 

Pacific.............................................................................................................. 381 1,064 1,077 1.2 

Puerto Rico...................................................................................................... 51 380 388 2.1

Rural by Region................................................................................................... 923 564 568 0.6 

New England ................................................................................................... 23 765 778 1.7 

Middle Atlantic ................................................................................................. 69 581 585 0.6 

South Atlantic .................................................................................................. 165 544 547 0.5

East North Central........................................................................................... 119 586 590 0.7 

East South Central .......................................................................................... 171 517 519 0.4 

West North Central.......................................................................................... 100 596 602 0.9 

West South Central ......................................................................................... 181 504 507 0.4 

Mountain.......................................................................................................... 65 617 617 -0.1 

Pacific.............................................................................................................. 29 723 733 1.4 
 1373 

TABLE III.—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 2013 PAYMENTS COMPARED TO FY 2014 PAYMENTS] 

Number of 

hospitals 

Average FY 

2013 

payments/ 

case 

Average FY 

2014 

payments/ 

case 

Change 

Puerto Rico...................................................................................................... 1 198 210 6.2 

By Payment Classification: 

All hospitals ......................................................................................................... 3,404 816 826 1.1 

Large urban areas (populations over 1 million)................................................... 1,377 902 913 1.2 

Other urban areas (populations of 1 million of fewer) ......................................... 1,118 794 803 1.2 

Rural areas.......................................................................................................... 909 571 574 0.5 

Teaching Status: 

Non-teaching ................................................................................................... 2,378 699 704 0.7 

Fewer than 100 Residents............................................................................... 782 803 814 1.3 

100 or more Residents .................................................................................... 244 1,148 1,166 1.6 

Urban DSH: 

100 or more beds ........................................................................................ 1,562 874 886 1.3 

Less than 100 beds ..................................................................................... 330 615 622 1.1 

Rural DSH: 

Sole Community (SCH/EACH) .................................................................... 260 530 530 -0.2 

Referral Center (RRC/EACH)...................................................................... 223 625 630 0.7 

Other Rural: 

100 or more beds..................................................................................... 29 523 521 -0.4 

Less than 100 beds ................................................................................. 294 460 461 0.3 

Urban teaching and DSH: 

Both teaching and DSH................................................................................... 826 944 958 1.5 

Teaching and no DSH ..................................................................................... 135 837 849 1.4 

No teaching and DSH...................................................................................... 1,066 737 745 1.0 

No teaching and no DSH................................................................................. 468 770 771 0.1 

Rural Hospital Types: 

Non special status hospitals............................................................................ 2,367 859 869 1.2 

RRC/EACH...................................................................................................... 76 770 791 2.7 

SCH/EACH...................................................................................................... 37 758 765 0.9 

SCH, RRC and EACH ..................................................................................... 17 779 800 2.7 

Hospitals Reclassified by the Medicare Geographic Classification Review Board:

FY2014 Reclassifications: 

All Urban Reclassified ..................................................................................... 451 849 862 1.6 

All Urban Non-Reclassified.............................................................................. 1,990 858 867 1.1 

All Rural Reclassified....................................................................................... 311 601 607 1.1 

All Rural Non-Reclassified............................................................................... 552 513 511 -0.2 

Other Reclassified Hospitals (Section 1886(d)(8)(B)) ..................................... 53 553 560 1.3 

Type of Ownership: 

Voluntary ......................................................................................................... 1,944 828 839 1.3 

Proprietary....................................................................................................... 895 741 748 1.0 

Government..................................................................................................... 546 853 861 1.0 

Medicare Utilization as a Percent of Inpatient Days: 

0-25 ................................................................................................................. 368 1,038 1,053 1.5 

25-50 ............................................................................................................... 1,807 857 867 1.2 

50-65 ............................................................................................................... 967 685 692 1.1 

Over 65............................................................................................................ 171 601 606 0.8 
 1374 

L. Effects of Proposed Payment Rate Changes and Policy Changes under the LTCH PPS

1. Introduction and General Considerations 

 In section VIII. of the preamble of this proposed rule and section V. of the 

Addendum to this proposed rule, we set forth the proposed annual update to the payment 

rates for the LTCH PPS for FY 2014. In the preamble of this proposed rule, we specify 

the statutory authority for the proposed provisions that are presented, identify those 

proposed policies, and present rationales for our proposed decisions as well as 

alternatives that were considered. In this section of Appendix A to this proposed rule, we 

discuss the impact of the proposed changes to the payment rate, factors, and other 

payment rate policies related to the LTCH PPS that are presented in the preamble of this 

proposed rule in terms of their estimated fiscal impact on the Medicare budget and on 

LTCHs. 

 Currently, there are 423 LTCHs included in this impacts analysis, which includes 

data for 78 nonprofit (voluntary ownership control) LTCHs, 327 proprietary LTCHs, and 

18 LTCHs that are government-owned and operated. (We note that although there are 

currently approximately 440 LTCHs, for purposes of this impact analysis, we excluded 

the data of all inclusive rate providers and the LTCHs that are paid in accordance with 

demonstration projects, consistent with the development of the proposed FY 2014 

MS-LTC-DRG relative weights (discussed in section VIII.B.3.c. of the preamble of this 

proposed rule)). In the impact analysis, we used the proposed payment rate, factors, and 

policies presented in this proposed rule, including the proposed 1.8 percent annual update 

for LTCHs that submit quality data in accordance with section 1886(m)(5)(C) of the Act, 
 1375 

which is based on the full estimated increase of the LTCH PPS market basket and the 

reductions required by sections 1886(m)(3) and (m)(4) of the Act, the proposed second 

year phase of a one-time prospective adjustment factor of 0.98734 (approximately –1.3 

percent), the proposed update to the MS-LTC-DRG classifications and relative weights, 

the proposed update to the wage index values and labor-related share, and the best 

available claims and CCR data to estimate the change in payments for FY 2014. (As 

discussed in section IX.C. of the preamble of this proposed rule, in accordance with 

section 1886(m)(5)(C) of the Act, for LTCHs that fail to submit quality data, the 

proposed annual update to the LTCH PPS standard Federal rate is reduced by 2.0 

percentage points beginning in FY 2014.) 

 The standard Federal rate for FY 2013 is $40,397.96. However, consistent with 

the statute, the payment for FY 2013 discharges occurring on or before 

December 28, 2012 does not reflect the one-time prospective adjustment under 

§ 412.523(d)(3) of the regulations, and such discharges are paid based on a standard 

Federal rate of $40,915.95 (77 FR 53710) . For FY 2014, we are proposing to establish a 

standard Federal rate of $40,622.06, which reflects the proposed 1.8 percent annual 

update to the standard Federal rate, and the proposed area wage budget neutrality factor 

of 1.000433 to ensure that the proposed changes in the wage indexes and labor-related 

share do not influence aggregate payments, and the proposed second year of the phase-in 

of the one-time prospective adjustment factor of 0.98734. We note that the proposed 

factors described above to determine the proposed FY 2014 standard Federal rate are 
 1376 

applied to the FY 2013 Federal standard rate set forth under section 

§ 412.523(c)(3)(ix)(A) (that is, $40,397.96). 

 Based on the best available data for the 423 LTCHs in our database, we estimate 

that the proposed annual update to the standard Federal rate for FY 2014 (discussed in 

section V.A.2. of the Addendum to this proposed rule) and the proposed changes to the 

area wage adjustment for FY 2014 (discussed in section V.B. of the Addendum to this 

proposed rule), in addition to an estimated increase in HCO payments would result in an 

increase in estimated payments from FY 2013 of approximately $62 million. Based on 

the 423 LTCHs in our database, we estimate that the FY 2014 LTCH PPS payments 

would be approximately $5.599 billion, as compared to estimated FY 2013 LTCH PPS 

payments of approximately $5.537 billion. Because the combined distributional effects 

and estimated changes to the Medicare program payments are over approximately 

$100 million, this proposed rule is considered a major economic rule, as defined in this 

section. We note that the approximate $62 million for the projected increase in estimated 

aggregate proposed LTCH PPS payments from FY 2013 to FY 2014 does not reflect 

changes in LTCH admissions or case-mix intensity in estimated LTCH PPS payments, 

which also will affect overall payment changes. (We note that this impact does not 

include an estimate effect of the 2.0 percentage points reduction to the proposed annual 

update to the LTCH PPS standard Federal rate for LTCHs that fail to submit quality data, 

as required by section 1886(m)(5)(C) of the Act, because we have not determined at this 

time which, if any, LTCHs failed to submit the requisite quality data for FY 2014 under 

the LTCH Quality Reporting Program.) 
 1377 

 The projected 1.1 percent increase in estimated proposed payments per discharge 

from FY 2013 to FY 2014 is attributable to several factors, including the proposed 

1.8 percent annual update to the standard Federal rate, the proposed one-time prospective 

adjustment factor for FY 2014 of 0.98734 (approximately –1.3 percent), and projected 

increases in estimated HCO payments. As Table IV shows, the change attributable solely 

to the proposed annual update to the standard Federal rate (1.8 percent), including the 

proposed one-time prospective adjustment factor for FY 2014 under the second year of 

the phase–in (approximately –1.3 percent), is projected to result in an increase of 

0.5 percent in payments per discharge from FY 2013 to FY 2014, on average, for all 

LTCHs. We note, the estimated change in payments solely attributable to the proposed 

annual update to the standard Federal rate does not take into account that the one-time 

prospective adjustment to the standard Federal rate for FY 2013 under § 412.523(d)(3) is 

not applied to payments for discharges occurring before December 29, 2012, consistent 

with the statute (and, therefore, are paid based on a relatively higher rate). The change in 

payments solely attributable to the proposed annual update to the standard Federal rate 

for FY 2014 would be a smaller increase in payments relative to the preDecember 29, 2012 LTCH payment rates (approximately 0.2 percent instead of 0.5 

percent). In addition to the proposed 1.8 percent annual update for FY 2014 and the 

proposed -1.3 percent one-time prospective adjustment factor for FY 2014, this estimated 

increase in aggregate LTCH PPS payments of 0.5 percent also includes estimated 

payments for SSO cases that are paid using special methodologies that are not affected by 

the annual update to the standard Federal rate. Therefore, for some hospital categories, 
 1378 

the projected increase in payments based on the proposed standard Federal rate is less 

than the proposed 0.5 percent annual update for FY 2014. 

 Because we are proposing to apply an area wage level budget neutrality factor to 

the standard Federal rate, the proposed annual update to the wage data and labor-related 

share does not impact the increase in aggregate payments. In addition, we note that the 

updates to the standard Federal rate to determine the estimated effects described above 

were applied to the FY 2013 standard Federal rate set forth under section 

§ 412.523(c)(3)(ix)(A) (that is, $40,397.96). 

 As discussed in section V.B. of the Addendum to this proposed rule, we are 

proposing to update the wage index values for FY 2014 based on the most recent 

available data. In addition, we are proposing to decrease the labor-related share from 

63.096 percent to 62.717 percent under the LTCH PPS for FY 2014, based on the most 

recent available data on the relative importance of the labor-related share of operating 

and capital costs based on the FY 2009-based LTCH-specific market basket. We also are 

proposing to apply an area wage level budget neutrality factor of 1.000433, which 

increases the proposed standard Federal rate by approximately 0.04 percent. Therefore, 

the proposed changes to the wage data and labor-related share do not result in a change in 

estimated aggregate LTCH PPS payments. 

 Table IV below shows the impact of the proposed payment rate and the proposed 

policy changes on LTCH PPS payments for FY 2014 presented in this proposed rule by 

comparing estimated FY 2013 payments to estimated FY 2014 payments. The projected 

increase in payments per discharge from FY 2013 to FY 2014 is 1.1 percent (shown in 
 1379 

Column 9). This projected increase in payments is attributable to the impacts of the 

proposed change to the standard Federal rate (0.5 percent in Column 6) and the effect of 

the estimated increase in proposed payments for HCO cases and SSO cases (0.8 percent 

and 0.2 percent, respectively). That is, estimated total HCO payments are projected to 

increase from FY 2013 to FY 2014 in order to ensure that the estimated HCO payments 

would be 8 percent of the total estimated LTCH PPS payments in FY 2014. An analysis 

of the most recent available LTCH PPS claims data (that is, FY 2012 claims data from 

the December 2012 update of the MedPAR file) indicates that the FY 2013 HCO 

threshold of $15,408 (as established in the FY 2013 IPPS/LTCH PPS final rule) may 

result in HCO payments in FY 2014 that fall below the estimated 8 percent. Specifically, 

we currently estimate that HCO payments would be approximately 7.2 percent of the 

estimated total LTCH PPS payments in FY 2013. We estimate that the impact of the 

increase in HCO payments would result in approximately a 0.8 percent increase in 

estimated payments from FY 2013 to FY 2014, on average, for all LTCHs. Furthermore, 

in calculating the estimated increase in payments from FY 2013 to FY 2014 for HCOs, 

we increased estimated costs by the applicable market basket percentage increase as 

projected by our actuaries. This increase in estimated costs also results in a projected 

increase in SSO payments of approximately 0.2 percent relative to last year. The net 

result of these projected changes in HCO and SSO payments in FY 2014 is an estimated 

change in aggregate payments of 1.0 percent. We note that estimated payments for all 

SSO cases comprise approximately 12 percent of the estimated total LTCH PPS 

payments, and estimated payments for HCO cases comprise approximately 8 percent of 
 1380 

the estimated total FY 2014 LTCH PPS payments. Payments for HCO cases are based on 

80 percent of the estimated cost of the case above the HCO threshold, while the majority 

of the payments for SSO cases (approximately 57 percent) are based on the estimated 

cost of the 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 would result in an increase in estimated aggregate LTCH PPS payments and 

that the resulting LTCH PPS payment amounts would result in appropriate Medicare 

payments. 

2. Impact on Rural Hospitals 

 For purposes of section 1102(b) of the Act, we define a small rural hospital as a 

hospital that is located outside of an urban area and has fewer than 100 beds. As shown 

in Table IV, we are projecting a 0.7 percent increase in estimated payments per discharge 

for FY 2014 as compared to FY 2013 for rural LTCHs that would result from the 

proposed changes presented in 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 

27 rural LTCHs in our database (out of 423 LTCHs) for which complete data were 

available. 

 The estimated increase in LTCH PPS payments from FY 2013 to FY 2014 for 

rural LTCHs (0.7 percent) is less than the national average increase (1.1 percent). The 

estimated increase in LTCH PPS payments from FY 2013 to FY 2014 for rural LTCHs is 

primarily due to the proposed increase to the standard Federal rate. However, rural 
 1381 

LTCHs are experiencing slightly lower increases than the national average due to 

decreases in their wage index for FY 2014 compared to FY 2013. 

3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes and Policy 

Changes 

a. Budgetary Impact 

 Section 123(a)(1) of the BBRA requires that the PPS developed for LTCHs 

“maintain budget neutrality.” We believe that the statute’s mandate for budget neutrality 

applies only to the first year of the implementation of the LTCH PPS (that is, FY 2003). 

Therefore, in calculating the FY 2003 standard Federal 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 above in section I.L.1. of this Appendix, we project an increase in 

aggregate LTCH PPS payments in FY 2014 relative to FY 2013 of approximately 

$62 million based on the 423 LTCHs in our database. 

b. Expiration of Statutory Delay of Full Implementation of the “25-Percent Threshold” 

Payment Adjustment Policy and 1-Year Extension 

 As discussed in section VIII.D. of the preamble of this proposed rule, the statutory 

delay of the full application of the “25-percent threshold” payment adjustment for LTCHs 

under § 412.534 and § 412.536 expired for cost reporting periods beginning on or after 

July 1, 2012, or October 1, 2012, as applicable. We established a 1-year extension of the 

moratorium on the application of the “25-percent threshold” payment adjustment policy 
 1382 

as provided by section 114(c) of the MMSEA, as amended by section 4302(a) of the 

ARRA and sections 3106(a) and 10312(a) of the Affordable Care Act, for cost reporting 

periods beginning on or after October 1, 2012, and before October 1, 2013 (and for 

discharges occurring on or after October 1, 2012, through the end of the cost reporting 

period of LTCHs with cost reporting periods beginning on or after July 1, 2012, and 

before September 30, 2012, as explained in section VIII.D. of the preamble of this 

proposed rule). The regulatory moratorium on the full application of the “25-percent 

threshold” payment adjustment will expire for certain LTCHs for cost reporting periods 

beginning on or after October 1, 2013, and as discussed in section VIII.D. of the 

preamble of this proposed rule, we do not anticipate extending the regulatory moratorium 

of the full application of the 25-percent payment adjustment threshold further. We 

estimate that the expiration of this moratorium will result in a payment reduction of 

approximately $190 million to LTCHs. 

c. Impact on Providers 

 The basic methodology for determining a per discharge LTCH PPS payment is set 

forth under § 412.515 through § 412.536. In addition to the basic MS-LTC-DRG 

payment (the standard Federal rate multiplied by the MS-LTC-DRG relative weight), we 

make adjustments for differences in area wage levels, the COLA for LTCHs located in 

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 2014, it is 
 1383 

necessary to estimate payments per discharge for FY 2013 using the rates, factors 

(including the FY 2013 GROUPER (Version 30.0), and relative weights and the policies 

established in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53458 through 53502 and 

53708 through 53716). It is also necessary to estimate the payments per discharge that 

would be made under the proposed LTCH PPS rates, factors, policies, and GROUPER 

(proposed Version 31.0) for FY 2014 (as discussed in section VIII. of the preamble of 

this proposed rule and section V. of the Addendum to this proposed rule). These 

estimates of FY 2013 and FY 2014 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 proposed 

change in estimated FY 2013 payments to estimated FY 2014 payments (on a per 

discharge basis) for each category of LTCHs. We are proposing to establish a standard 

Federal rate for FY 2014 of $40,622.06 that includes the proposed 1.8 percent annual 

update, the proposed area wage budget neutrality factor of 1.000433, and the proposed 

one-time prospective adjustment to the standard Federal rate for FY 2014 of 0.98734 

(approximately -1.3 percent). 

 Hospital groups were based on characteristics provided in the OSCAR data, 

FY 2009 through FY 2011 cost report data in HCRIS, and PSF data. Hospital groups 

included the following: 

● Location: large urban/other urban/rural. 

● Participation date. 

● Ownership control. 
 1384 

● Census region. 

● Bed size. 

 To estimate the impacts of the proposed payment rates and policy changes among 

the various categories of existing providers, we used LTCH cases from the FY 2012 

MedPAR file to estimate payments for FY 2013 and to estimate payments for FY 2014 

for 423 LTCHs. We believe that the discharges based on the FY 2012 MedPAR data for 

the 423 LTCHs in our database, which includes 327 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. 

d. 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 2012 MedPAR files. For modeling estimated LTCH PPS payments for FY 2013, we 

used the FY 2013 standard Federal rate (that is, $40,915.95 used to make payments for 

LTCH discharges occurring on or after October 1, 2012 through December 28, 2012, and 

$40,397.96 for discharges occurring on or after December 29, 2012 through 

September 30, 2013). 

 For modeling estimated LTCH PPS payments for FY 2014, we used the proposed 

FY 2014 standard Federal rate of $40,622.06, which includes the proposed one-time 

prospective adjustment of 0.98734 for FY 2014 for the second year of the 3-year 

phase-in. The proposed FY 2014 standard Federal rate of $40,622.06 includes the 

proposed application of an area wage level budget neutrality factor of 1.000433 (as 
 1385 

discussed in section V.B.5. of the Addendum to this proposed rule). Furthermore, in 

modeling estimated LTCH PPS payments for both FY 2013 and FY 2014 in this impact 

analysis, we applied the FY 2013 and the proposed FY 2014 adjustments for area wage 

levels and the proposed COLA for LTCHs located in Alaska and Hawaii. Specifically, 

we adjusted for differences in area wage levels in determining estimated FY 2013 

payments using the current LTCH PPS labor-related share of 63.096 percent 

(77 FR 53711) and the wage index values established in the Tables 12A and 12B listed in 

the Addendum to the FY 2013 IPPS/LTCH PPS final rule (which are available via the 

Internet (77 FR 53717)). We also applied the FY 2013 COLA factors shown in the table 

in section V.C. of the Addendum to that final rule (77 FR 53713) to adjust the FY 2013 

nonlabor-related share (36.904 percent) for LTCHs located in Alaska and Hawaii. 

Similarly, we adjusted for differences in area wage levels in determining the estimated 

FY 2014 payments using the proposed FY 2014 LTCH PPS labor-related share of 

62.717 percent and the proposed FY 2014 wage index values presented in Tables 12A 

and 12B listed in section VI. of the Addendum to this proposed rule (and available via the 

Internet). We also applied the proposed FY 2014 COLA factors shown in the table in 

section V.C. of the Addendum to this proposed rule to the proposed FY 2014 

nonlabor-related share (37.283 percent) for LTCHs located in Alaska and Hawaii. 

 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.D. of the Addendum to this proposed rule). In modeling proposed payments 

for SSO and HCO cases in FY 2014, we applied an inflation factor of 4.8 percent 
 1386 

(determined by OACT) to estimate the costs of each case using the charges reported on 

the claims in the FY 2012 MedPAR files and the best available CCRs from the 

December 2012 update of the PSF. Furthermore, in modeling estimated LTCH PPS 

payments for FY 2014 in this impact analysis, we used the proposed FY 2014 fixed-loss 

amount of $14,139 (as discussed in section V.D. of the Addendum to this proposed rule). 

 These impacts reflect the estimated “losses” or “gains” among the various 

classifications of LTCHs from FY 2013 to FY 2014 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 FY 2013 (as 

described above). 

● The fifth column shows the estimated payment per discharge for FY 2014 (as 

described above). 

● The sixth column shows the percentage change in estimated payments per 

discharge from FY 2013 to FY 2014 due to the proposed annual update to the standard 

Federal rate (as discussed in section V.A.2. of the Addendum to this proposed rule), 

including the second year of the phase-in of the one-time prospective adjustment factor 

for FY 2014. (As noted previously, the estimate payment changes shown in this column 

do not take into account that the one-time prospective adjustment to the standard Federal 
 1387 

rate for FY 2013 under § 412.523(d)(3) is not applied to payments for discharges 

occurring before December 29, 2012, consistent with the statute.) 

● The seventh column shows the percentage change in estimated payments per 

discharge from FY 2013 to FY 2014 for proposed changes to the area wage level 

adjustment (that is, the proposed wage indexes and proposed labor-related share), 

including the proposed application of an area wage level budget neutrality factor (as 

discussed in section V.B.5. of the Addendum to this proposed rule). 

● The eighth column shows the percentage change in estimated payments per 

discharge from FY 2013 (Column 4) to FY 2014 (Column 5) for all proposed changes 

(and includes the effect of estimated proposed changes to HCO and SSO payments). 
 1388 

TABLE IV: IMPACT OF PROPOSED PAYMENT RATE AND POLICY 

CHANGES TO LTCH PPS PAYMENTS FOR FY 2014 (ESTIMATED FY 2013 

PAYMENTS COMPARED TO ESTIMATED FY 2014 PAYMENTS*

) 

LTCH Classification 

(1) 

Number 

of 

LTCHs 

(2) 

Number 

of LTCH 

PPS Cases 

(3) 

Average FY 

2013 LTCH 

PPS 

Payment Per 

Case

(4) 

Average FY 

2014 LTCH 

PPS Payment 

Per Case1 

(5)

Percent 

Change in 

Estimated 

Payments 

Per 

Discharge 

from FY 

2013 to 

Proposed 

FY 2014 for 

the 

Proposed 

Annual 

Update to 

the Federal 

Rate 2 

(6) 

Percent 

Change in 

Estimated 

Payments 

Per 

Discharge 

from FY 

2013 to FY 

2014 for 

Proposed 

Changes to 

the Area 

Wage Level 

Adjustment 

with 

Proposed 

Budget 

Neutrality3 

(7) 

Percent 

Change 

in 

Payments 

Per 

Discharge 

from FY 

2013 to 

FY 2014 

for All 

Proposed 

Changes4 

(8) 

ALL PROVIDERS 423 140,490 $39,417 $39,856 0.5 0.0 1.1 

 

BY LOCATION: 

 RURAL 27 6,504 $35,149 $35,382 0.5 -0.2 0.7 

 URBAN 396 133,986 $39,624 $40,073 0.5 0.0 1.1 

 LARGE 197 77,541 $41,615 $42,133 0.4 0.1 1.2 

 OTHER 199 56,445 $36,889 $37,244 0.5 -0.1 1.0 

 

BY PARTICIPATION DATE: 

 BEFORE OCT. 1983 16 5,621 $34,969 $35,400 0.4 0.1 1.2 

 OCT. 1983 - SEPT. 1993 44 17,271 $42,088 $42,592 0.4 0.1 1.2 

 OCT. 1993 - SEPT. 2002 182 64,138 $38,720 $39,097 0.5 -0.1 1.0 

 AFTER OCTOBER 2002 181 53,460 $39,858 $40,351 0.5 0.1 1.2 

 

BY OWNERSHIP TYPE: 

 VOLUNTARY 78 19,042 $39,558 $40,137 0.4 0.0 1.5 

 PROPRIETARY 327 118,366 $39,259 $39,677 0.5 0.0 1.1 

 GOVERNMENT 18 3,082 $44,603 $45,012 0.4 -0.6 0.9 

 

BY REGION: 

 NEW ENGLAND 14 7,266 $34,984 $35,448 0.4 0.2 1.3 

 MIDDLE ATLANTIC 30 8,374 $41,646 $42,311 0.5 0.5 1.6 

 SOUTH ATLANTIC 60 18,053 $41,634 $42,024 0.4 -0.2 0.9 

 EAST NORTH CENTRAL 70 20,431 $40,664 $41,119 0.5 -0.1 1.1 

 EAST SOUTH CENTRAL 31 8,792 $39,386 $39,843 0.5 -0.1 1.2 

 WEST NORTH CENTRAL 26 6,492 $39,461 $39,921 0.5 -0.2 1.2 

 WEST SOUTH CENTRAL 135 50,268 $35,416 $35,733 0.5 -0.1 0.9 

 MOUNTAIN 32 7,034 $42,722 $43,279 0.5 -0.1 1.3 
 1389 

LTCH Classification 

(1) 

Number 

of 

LTCHs 

(2) 

Number 

of LTCH 

PPS Cases 

(3) 

Average FY 

2013 LTCH 

PPS 

Payment Per 

Case

(4) 

Average FY 

2014 LTCH 

PPS Payment 

Per Case1 

(5)

Percent 

Change in 

Estimated 

Payments 

Per 

Discharge 

from FY 

2013 to 

Proposed 

FY 2014 for 

the 

Proposed 

Annual 

Update to 

the Federal 

Rate 2 

(6) 

Percent 

Change in 

Estimated 

Payments 

Per 

Discharge 

from FY 

2013 to FY 

2014 for 

Proposed 

Changes to 

the Area 

Wage Level 

Adjustment 

with 

Proposed 

Budget 

Neutrality3 

(7) 

Percent 

Change 

in 

Payments 

Per 

Discharge 

from FY 

2013 to 

FY 2014 

for All 

Proposed 

Changes4 

(8) 

 PACIFIC 25 13,780 $48,552 $49,246 0.4 0.3 1.4 

 

BY BED SIZE: 

 BEDS: 0-24 25 2,948 $35,535 $35,745 0.5 -0.3 0.6 

 BEDS: 25-49 202 47,094 $38,578 $38,960 0.5 0.0 1.0 

 BEDS: 50-74 116 38,180 $40,303 $40,834 0.5 0.1 1.3 

 BEDS: 75-124 43 20,917 $41,248 $41,725 0.5 0.0 1.2 

 BEDS: 125-199 24 17,017 $38,624 $38,991 0.5 -0.1 1.0 

 BEDS: 200 + 13 14,334 $38,882 $39,342 0.5 0.1 1.2 

1

 Estimated FY 2014 LTCH PPS payments based on the proposed payment rate and policy changes presented in the preamble and the 

Addendum to this proposed rule. 

2

 Percent change in estimated payments per discharge from FY 2013 to FY 2014 for the proposed annual update to the standard 

Federal rate and the proposed one-time prospective adjustment factor for FY 2014 as discussed in section V.A.2. of the Addendum to 

this proposed rule. Note, this column does not take into account that the one-time prospective adjustment to the standard Federal rate 

for FY 2013 under § 412.523(d)(3) is not applied to payments for discharges occurring before December 29, 2012, consistent with the 

statute (and therefore, are paid based on a relatively higher rate). 

3

 Percent change in estimated payments per discharge from FY 2013 to FY 2014 for proposed changes to the area wage level 

adjustment under § 412.525(c) (as discussed in section V.B. of the Addendum to this proposed rule). 4

 Percent change in estimated payments per discharge from FY 2013 LTCH PPS (shown in Column 4) to FY 2014 LTCH PPS (shown 

in Column 5), including all of the proposed changes presented in the preamble and the Addendum to this proposed rule. Note, this 

column, which shows the percent change in estimated payments per discharge for all proposed changes, does not equal the sum of the 

percent changes in estimated payments per discharge for the proposed annual update to the standard Federal rate (column 6) and the 

proposed changes to the area wage level adjustment with budget neutrality (Column 7) due to the effect of estimated changes in both 

estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO payments (as discussed in this impact 

analysis), as well as other interactive effects that cannot be isolated. 

e. Results 

 Based on the most recent available data for 423 LTCHs, we have prepared the 

following summary of the impact (as shown above 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 
 1390 

increase 1.1 percent, on average, for all LTCHs from FY 2013 to FY 2014 as a result of 

the proposed payment rate and policy changes presented in this proposed rule, including 

an estimated increase in HCO payments. This estimated 1.1 percent increase in LTCH 

PPS payments per discharge from the FY 2013 to FY 2014 for all LTCHs (as shown in 

Table IV) was determined by comparing estimated FY 2014 LTCH PPS payments (using 

the proposed payment rate and policies discussed in this proposed rule) to estimated 

FY 2013 LTCH PPS payments (as described above in section I.L.1. of this Appendix). 

 We are proposing to establish a standard Federal rate of $40,622.06 for FY 2014. 

Specifically, we are proposing to update the standard Federal rate for FY 2014 by 1.8 

percent, which is based on the latest estimate of the proposed LTCH PPS market basket 

increase (2.5 percent), the proposed reduction of 0.4 percentage point for the MFP 

adjustment, and the 0.3 percentage point reduction consistent with sections 1886(m)(3) 

and (m)(4) of the Act. In addition, we are proposing to apply a one-time prospective 

adjustment factor for FY 2014 of 0.98734 (approximately -1.3 percent) to the standard 

Federal rate for the second year of the 3-year phase-in. We note that consistent with the 

statute, the one-time prospective adjustment to the standard Federal rate for FY 2013 is 

not applied to payments for discharges occurring before December 29, 2012. Therefore, 

payments for FY 2013 discharges occurring on or before December 28, 2012, are paid 

based on a standard Federal rate that does not reflect that adjustment (and, therefore, are 

paid based on a relatively higher rate). 

 We noted earlier in this section that, for most categories of LTCHs, as shown in 

Table IV (Column 6), the impact of the increase of 0.5 percent in the proposed annual 
 1391 

update to the standard Federal rate and the proposed application of the one-time 

prospective adjustment for FY 2014 of approximately -1.3 percent for the second year of 

the 3-year phase-in is projected to result in approximately a 0.5 percent increase in 

estimated payments per discharge for all LTCHs from FY 2013 to FY 2014. (As noted 

previously, the estimate payment changes shown in this column were determined based 

on the FY 2013 standard Federal rate of $40,915.95, and do not take into account that the 

one-time prospective adjustment to the standard Federal rate for FY 2013 under 

§412.523(d)(3) is not applied to payments for discharges occurring before 

December 29, 2012, consistent with the statute.) 

 In addition, our estimate of the proposed changes in payments due to the proposed 

update to the standard Federal rate also reflects estimated payments for SSO cases that 

are paid using special methodologies that are not affected by the update to the standard 

Federal rate. For these reasons, we estimate that payments would increase by less than 

0.5 percent for certain hospital categories due to the proposed annual update to the 

standard Federal rate and the proposed application of the second phase of the one-time 

prospective adjustment for FY 2014. 

(1) 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 5 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 FY 2013 to FY 2014 for all hospitals 
 1392 

is 1.1 percent for all proposed changes. For rural LTCHs, the percent change for all 

proposed changes is estimated to be 0.7 percent, while for urban LTCHs, we estimate the 

increase would be 1.1 percent. Large urban LTCHs are projected to experience an 

increase of 1.2 percent in estimated payments per discharge from FY 2013 to FY 2014, 

while other urban LTCHs are projected to experience an increase of 1.0 percent in 

estimated payments per discharge from FY 2013 to FY 2014, as shown in Table IV. 

(2) Participation Date 

 LTCHs are grouped by participation date into four categories: (1) before 

October 1983; (2) between October 1983 and September 1993; (3) between October 1993 

and September 2002; and (4) after October 2002. Based on the most recent available 

data, the categories of LTCHs with the largest percentage of LTCH cases (approximately 

46 percent) are in hospitals that began participating in the Medicare program between 

October 1993 and September 2002, and hospitals that began participating in the Medicare 

program after October 2002, and they are projected to experience a 1.0 and 1.2 percent 

in estimated payments per discharge from FY 2013 to FY 2014, respectively, as shown in 

Table IV. 

 Approximately 4 percent of LTCHs began participating in the Medicare program 

before October 1983, and these LTCHs are projected to experience a slightly higher than 

average percent increase (1.2 percent) in estimated payments per discharge from FY 2013 

to FY 2014, as shown in Table IV. Approximately 10 percent of LTCHs began 

participating in the Medicare program between October 1983 and September 1993. 
 1393 

These LTCHs are also projected to experience a 1.2 percent increase in estimated 

payments from FY 2013 to FY 2014. 

(3) Ownership Control 

 LTCHs are grouped into three categories based on ownership control type: 

voluntary, proprietary, and government. Based on the most recent available data, 

approximately 18 percent of LTCHs are identified as voluntary (Table IV). We expect 

that LTCHs in the voluntary category will experience a higher than the average increase 

(1.5 percent) in estimated FY 2014 LTCH PPS payments per discharge as compared to 

estimated payments in FY 2013 primarily because we project the estimated increase in 

HCO payments to be higher than the average increase for these LTCHs. The majority 

(over 77 percent) of LTCHs are identified as proprietary and these LTCHs are projected 

to experience the national average increase (1.1 percent) in estimated payments per 

discharge from FY 2013 to FY 2014. Finally, government-owned and operated LTCHs 

are also expected to experience an increase in payments of 0.9 percent in estimated 

payments per discharge from FY 2013 to FY 2014. 

(4) Census Region 

 Estimated payments per discharge for FY 2014 are projected to increase for 

LTCHs located in all regions in comparison to FY 2013. 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 Middle Atlantic and Pacific regions (1.6 percent and 1.4 

percent, respectively as shown in Table IV). The estimated percent increase in payments 

per discharge from FY 2013 to FY 2014 for those regions is largely attributable to the 
 1394 

proposed changes in the area wage level adjustment or proposed updates to the MS-LTCDRGs classifications and relative weights. 

 In contrast, LTCHs located in the South Atlantic and West South Central regions 

are projected to experience the smallest increase in estimated payments per discharge 

from FY 2013 to FY 2014. The lower than average estimated increase in payments of 0.9 

percent for LTCHs in the South Atlantic and West South Central regions is primarily due 

to estimated decreases in payments associated with the proposed changes to the area 

wage level adjustment. 

(5) Bed Size 

 LTCHs are grouped into six categories based on bed size: 0-24 beds; 25-49 beds; 

50-74 beds; 75-124 beds; 125-199 beds; and greater than 200 beds. Most bed size 

categories are projected to receive either a slightly higher or slightly lower than average 

increase in estimated payments per discharge from FY 2013 to FY 2014. We project 

that small LTCHs (0-24 beds) would experience a 0.6 percent increase in payments, 

mostly due to decreases in the area wage level adjustment, while large LTCHs (200+ 

beds) would experience a 1.2 percent increase in payments. LTCHs with between 75 and 

124 beds are expected to experience an above average increase in payments per discharge 

from FY 2013 to FY 2014 (1.2 percent). 

4. Effect on the Medicare Program 

 As noted previously, we project that the provisions of this proposed rule would 

result in an increase in estimated aggregate LTCH PPS payments in FY 2014 relative to 

FY 2013 of approximately $62 million (or approximately 1.1 percent) for the 423 LTCHs 
 1395 

in our database. In addition, the effects of the expiration of the regulatory moratorium on 

the application of the “25-percent threshold” payment adjustment policy effective for cost 

reporting periods beginning or after October 1, 2013 (as discussed in section VIII.D. of 

the preamble of this proposed rule) would result in a payment reduction of approximately 

$190 million to LTCHs. 

5. Effect on Medicare Beneficiaries 

 Under the LTCH PPS, hospitals receive payment based on the average resources 

consumed by patients for each diagnosis. We do not expect any changes in the quality of 

care or access to services for Medicare beneficiaries under the LTCH PPS, but we 

continue to expect that paying prospectively for LTCH services will enhance the 

efficiency of the Medicare program. 
 1396 

M. Effects of Proposed Requirements for Hospital Inpatient Quality Reporting (IQR) 

Program

 In section IX.A. of the preamble of this proposed rule, we discuss our proposed 

requirements for hospitals to report quality data under the Hospital IQR Program in order 

to receive the full annual percentage increase for the FY 2016 payment determination. 

Information is not available to determine the precise number of hospitals that would not 

meet the requirements to receive the full annual percentage increase for the FY 2016 

payment determination. We now estimate that approximately 200 hospitals may not 

receive the full annual percentage increase in any fiscal year. Based on historical 

information, we believe that increased reporting requirements for several new measure 

topics may contribute to an increase in the number of providers subject to payment 

reduction. However, historical information also indicates that reporting improves in 

subsequent years following an initial increase in the number of providers subject to 

payment reduction. We believe that this reporting improvement will offset increased 

proposed reporting requirements from newly added measures. Based on our current 

successful participation rate, we anticipate an increase in the number of hospitals that 

may not receive the full annual percentage increase – from approximately 95 to 

approximately 200. At the time that the analysis was prepared, 66 hospitals did not 

receive the full annual percentage increase for the FY 2013 payment determination. 

 We estimate that the total burden associated with the voluntary electronic quality 

measure reporting option will be similar to the burden outlined for hospitals in the 

Medicare EHR Incentive Program Stage 2 final rule (77 FR 53968 through 54162). 
 1397 

However, by allowing hospitals to submit data that could be used to satisfy the 

requirements for both programs, each hospital that participates in the proposed voluntary 

electronic quality measure reporting option could realize a reduction in burden of 

approximately 800 hours. This estimate assumes an annual collection burden for chart 

abstracted Stroke, VTE and PC-01 to be a combined 816 hours annually per hospital and 

an estimated 2.66 hours to submit those measures electronically for one quarter. Since 

the ED measures are a subset of the global measure set that also includes the 

Immunization measures, which will continue to be collected via chart abstraction, we do 

not believe there will be a significant reduction in burden for electronic submission of the 

ED-1 and ED-2 measures. 

 If our proposals related to validation, including submission of and reimbursement 

for secure electronic versions of medical information for validation for the FY 2016 

payment determination and subsequent years are finalized, as described in the ICRs for 

the Hospital IQR Program, it will result in a cost savings to CMS of approximately $1.3 

million. 

 The cost to the Federal Government associated with the collection and validation 

of the data are estimated at $14,550,000.00 annually for the validation, and quality 

reporting support contracts. In addition, this program takes 3 CMS staff at a GS-13 level 

to operate. A GS-13 level approximate annual salary is $92,001 for an additional cost of 

$276,000. 
 1398 

N. Effects of Proposals for the PPS-Exempt Cancer Hospital Quality Reporting 

(PCHQR) Program for FY 2014

 In section IX.B. of the preamble of this proposed rule, we discuss our proposed 

policies for FYs 2015 and 2016 for the quality data reporting program for PPS-exempt 

cancer hospitals (PCHs), which we refer to as the PCHQR Program. The PCHQR 

Program is authorized under section 1866(k) of the Act, which was added by 

section 3005 of the Affordable Care Act. The quality reporting requirements affect all 

PCHs participating in Medicare. In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53556 through 53561), we adopted five quality measures for the FY 2014 

program and subsequent program years. 

 In this proposed rule, we are proposing that PCHs submit data on 1 additional 

measure beginning with the FY 2015 program and 13 additional measures beginning with 

the FY 2016 program, for a total of 19 measures. We are not proposing to make changes 

to the reporting requirements that we have previously finalized for the five measures we 

first adopted beginning with the FY 2014 program. 

 The anticipated burden to these PCHs consists of the following: training of 

appropriate staff members on how to use the NSHN for the reporting of the proposed SSI 

measure, CMS (QualityNet) for the reporting of the proposed SCIP measures, and the 

CMS Web Measures Tool for the reporting of the proposed clinical process/oncology 

care measures; the time required for collection and aggregation of data; and the time 

required for the reporting of data by the PCH’s representative. 
 1399 

 In addition, in order for a PCH to participate in the collection of HCAHPS data, a 

PCH must either: (1) contract with an approved HCAHPS survey vendor that will 

conduct the survey and submit data on the PCH’s behalf to the QIO Clinical Warehouse; 

or (2) self-administer the survey without using a vendor, provided that the PCH attends 

HCAHPS training. Finally, all PCHS that do not already report data under the PCHQR 

Program will need to register with QualityNet, identify a QualityNet administrator, 

complete an online Notice of Participation form, and learn the CMS contractor’s and the 

CDC’s collection mechanism in order to submit data for those measures. 

 One of our priorities is to help achieve better health and better health care for 

individuals through collection of valid, reliable, and relevant measures of quality health 

care data. Such data can be displayed publicly and used to further the development of 

health care quality, which, in turn, helps to further our objectives and goals. Health care 

organizations can use their health care quality data for many purposes such as in their risk 

management programs, health care acquired infection prevention programs and research 

and development of medical programs, among others. 

 We will share the information collected under the PCHQR Program with the 

public as is required under the statute. These data will be displayed on the Hospital 

Compare Web site. The goals of making these data available to the public in a public 

user-friendly and relevant format, include, but are not limited to: (1) keeping the public 

informed of the quality of care that is being provided in PCHs as a whole; (2) keeping the 

public informed of the quality of care being provided in specific PCHs; (3) allowing the 

public to compare and contrast the data about specific PCHs, thus enabling the public to 
 1400 

make informed health care decisions regarding PCHs; and (4) providing information 

about current trends in health care. There are many other public uses for these quality 

data concerning PCHs. Further, keeping the public informed of quality of care provided 

in health care has always been of high priority to CMS. 

 We also seek to align the PCHQR Program measures and reporting requirements 

with current HHS high priority conditions and topics and to ultimately provide a 

comprehensive assessment of the quality of health care delivered in a variety of settings. 

O. Effects of Proposals for FY 2014 Relating to the LTCH Quality Reporting 

(LTCHQR) Program

 In section IX.C. of the preamble of this proposed rule, we discuss the 

implementation of section 3004(a) of the Affordable Care Act, which added 

section 1886(m)(5) to the Act. Section 1886(m)(5) of the Act provides that, for rate year 

2014 and each subsequent year, any LTCH that does not submit data to the Secretary in 

accordance with section 1886(m)(5)(C) of the Act will receive a 2.0 percentage point 

reduction to the annual update to the standard Federal rate for discharges for the hospital 

during the applicable fiscal year. The initial requirements for this LTCHQR Program 

were finalized in section VII.C. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 

through 51756). 

 In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51839 through 51840), we 

estimated that only a few LTCHs would not receive the full payment update in any fiscal 

year because they did not submit data under the LTCHQR Program. Data collection for 

the LTCHQR Program did not begin until October 1, 2012. We believe that the 
 1401 

statements we made in the FY 2012 IPPS/LTCH PPS final rule regarding the number and 

types of LTCHs that may not receive the full payment update as a result of failing to 

submit data to the Secretary under the LTCHQR Program remain valid. We are now able 

to verify, following the first quarter (October 1, 2012-December 31, 2012) of data 

collection and submission for the LTCHQR Program, that a majority of CMS-certified 

LTCHs are submitting quality data to CMS. We believe this number will only increase 

between the date of publication of this proposed rule and the final deadline for the first 

quarter of data submission (October 1, 2012 – December 31, 2012) of May 15, 2013. We 

believe that a majority of LTCHs will continue to submit data for CY 2013 and 

sunsequent years because they will continue to view the LTCHQR Program as an 

important step in improving the quality of care patients receive in the LTCHs. 

 As discussed in section VIII.D.3. of the preamble of the FY 2013 IPPS/LTCH 

PPS final rule, for FY 2015, we retained the three quality measures that were finalized for 

use in the LTCHQR Program in the FY 2012 IPPS/LTCH PPS final rule, with some 

modifications . These measures are: (1) NHSN Catheter-Associated Urinary Tract 

Infections (CAUTI) Outcome Measure (NQF #0138); (2) NHSN Central Line CatheterAssociated Blood Stream Infection Event (CLABSI) Outcome Measure (NQF #0139); 

and (3) an Application of the Percent of Residents or Patients with Pressure Ulcers That 

Are New or Worsened (Short-Stay) (NQF #0678). In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51780 through 51781), we estimated that the total yearly cost to all LTCHs 

that are paid under the LTCH PPS to report these data (including NHSN registration and 

training for the CAUTI and CLABSI quality measures, data submission for all three 
 1402 

measures, and monitoring data submission) will be approximately $756,326. We adopted 

this same burden estimate in the FY 2013 IPPS/LTCH PPS final rule. 

 As part of its endorsement maintenance process under NQF’s Patient Safety 

Measures Project (http://www.qualityforum.org/projects/patient safety_measures.aspx), 

the NQF reviewed the CAUTI and CLABSI measures that we adopted in the FY 2012 

IPPS/LTCH PPS final rule. As a result of this review, the NQF expanded the scope of 

endorsement of these measures to include additional care settings, including LTCHs. In 

the FY 2013 IPPS/LTCH PPS final rule, we specified that the CAUTI and CLABSI 

measures will be adopted in their expanded form for the FY 2014 payment update 

determination and all subsequent fiscal year payment determinations. 

 We did not believe that the total burden estimate of $756,326 that we made in the 

FY 2012 IPPS/LTCH PPS final rule would be affected by the expansion of the CAUTI 

and CLABSI measures. We made this statement because these expanded measures are 

the same measures we adopted in the FY 2012 IPPS/LTCH PPS final rule, except that the 

measure names have been changed and the scope of endorsement expanded so as to be 

applicable to the LTCH setting. The expanded CAUTI and CLABSI measures make no 

changes to the way that data are to be collected and reported by LTCHs. Thus, the use of 

the expanded CAUTI and CLABSI measures will place no additional financial burden on 

LTCHs. In addition, we believe that this financial burden should remain relatively stable 

over the first several years of this LTCHQR Program, subject to normal inflationary 

increases, such as increased labor wage rates. 
 1403 

 As discussed in section VIII.D.3.d. of the preamble of the FY 2013 IPPS/LTCH 

PPS final rule, for the FY 2016 LTCHQR Program, we added two additional quality 

measures to the LTCHQR Program. These quality measures are: (1) Percent of 

Residents or Patients Who Were Assessed and Appropriately Given the Seasonal 

Influenza Vaccine (Short-Stay) (NQF #0680); and (2) Influenza Vaccination Coverage 

Among Healthcare Personnel (NQF #0431). Data for the staff immunization measure 

will be reported by LTCHs to the CDC’s NHSN. Details related to the use of NHSN for 

data submission and information on definitions, numerator data, denominator data, data 

analyses, and measure specifications for the Influenza Vaccination Coverage among 

Healthcare Personnel (NQF #0431) measure can be found at 

http://www.cdc.gov/nhsn/LTACH/hcp-flu-vac/index.html. 

 Data for the patient influenza vaccination measure will be collected using the 

LTCH CARE Data Set, and we anticipate the new data item set will consist of 

3 additional items added to the LTCH CARE Data Set. These items are harmonized with 

data elements (O0250: Influenza Vaccination Status) from the Minimum Data Set (MDS) 

3.0.195 The LTCH CARE Data Set Version 2.01 is currently under review by the Office 

of Management and Budget (OMB) in accordance with the Paperwork Reduction Act 

(PRA). 196 The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by 

OMB in accordance with the PRA. The OMB Control Number is 0938-1163. The 

 

195 Centers for Medicare & Medicaid Services. MDS 3.0 Item Subsets V1.10.4 for the April 1, 2012 

Release. Retrieved from 

https://www.cms.gov/NursingHomeQualityInits/30_NHQIMDS30TechnicalInformation.asp. 196The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits public comment on additions and updates to the LTCH 

CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
 1404 

specifications and data elements for this measure are available in the MDS 3.0 QM 

User’s Manual available on our Web site at: 

https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf. 

 Because the LTCHQR Program is nearing the end of the submission timeframe 

first quarter of reporting, we have become more familiar with the burden of this program. 

We have now received feedback from LTCH providers about the time burden associated 

with the completion of the LTCH CARE Data Set. We have considered feedback from 

LTCH providers in the form of public comments to the most recent LTCH proposed rule 

(FY 2013 IPPS/LTCH PPS proposed rule), questions during Open Door forums, and 

LTCH helpdesk inquiries. LTCH providers have stated that we had underestimated the 

amount of time that is required of the LTCH staff to complete the LTCH CARE Data Set 

on each LTCH patient. 

 In response to the feedback received, we have significantly revised our burden 

estimates. For example, in our previous PRA package burden estimate we estimated 

burden based solely on LTCH yearly discharges of Medicare beneficiaries, while the 

revised burden estimate includes yearly LTCH discharges of both Medicare and 

non-Medicare patients. Additionally, the original burden calculation only took one 

assessment per patient (admission) into account, while the revised estimate includes two 

assessment records per patient (admission and discharge). 

 While the burden calculation for this PRA submission has increased significantly 

compared to our original calculation, we believe that the calculation now more accurately 

reflects the burden associated with implementing collection of the quality measures, as 
 1405 

mandated by section 1886(m)(5) of the Act. For a complete discussion on the current 

LTCH CARE Data Set version 2.01 burden estimate, we refer readers to the PRA 

package currently under review by OMB.197

 In section IX.C.8.b. and c. of the preamble to this proposed rule, we are proposing 

to adopt four new quality measures for inclusion in the LTCHQR Program: (1) NHSN 

Facility-Wide Inpatient Hospital-Onset Methicillin-resistant Staphylococcus aureus

(MRSA) Bacteremia Outcome Measure (NQF #1716); (2) NHSN Facility-Wide Inpatient 

Hospital-Onset Clostridium Difficile (C. Difficile) Outcome Measure (NQF #1717); 

(3) All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge from 

Long-Term Care Hospitals; and (4) Application of Percent of Residents Experiencing 

One or More Falls with Major Injury (Long-Stay) (NQF #0674) The first three proposed 

measures would apply to the FY 2017 payment update determination and subsequent 

payment determinations. The fourth proposed measure would apply to the FY 2018 

payment update determination and subsequent payment determinations. 

 Of the measures listed above, we believe that the first two measures (NHSN 

Facility-Wide Inpatient Hospital-Onset Methicillin-resistant Staphylococcus aureus

(MRSA) Bacteremia Outcome Measure (NQF #1716) and NHSN Facility-Wide Inpatient 

Hospital-Onset Clostridium Difficile (C. Difficile) Outcome Measure (NQF #1717)) will 

only minimally increase burden on LTCHs. These two measures are reported through the 

CDC’s NHSN. LTCHs will be familiar with the submission of quality data using this 

 

197The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits public comment on additions and updates to the LTCH 

CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html. 
 1406 

system as they began submitting required quality data through NHSN beginning 

October 1, 2012 for CAUTI and CLABSI measures. The third measure (All-Cause 

Unplanned Readmission Measure for 30 Days Post-Discharge from Long-Term Care 

Hospitals) is a claims-based measure, and it will not increase the reporting burden of 

LTCHs since it is a Medicare FFS claims-based measure. Lastly, we believe the fourth 

measure (application of Percent of Residents Experiencing One or More Falls with Major 

Injury (Long-Stay) (NQF #0674) will also have a minimal impact on the reporting burden 

as calculated for the LTCH CARE Data Set version 2.01 currently under review by the 

Office of Management and Budget (OMB) in accordance with the Paperwork Reduction 

Act (PRA). 198 This measure will be collected using the LTCH CARE Data Set to which 

a total of two questions will be added in order to allow CMS to collect the data necessary 

to calculate this measure. 

 

198The LTCH CARE Data Set Version 1.01 was approved on April 24, 2012 by OMB in accordance with 

the PRA. The OMB Control Number is 0938-1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits public comment on additions and updates to the LTCH 

CARE Data Set. http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html. 
 1407 

P. Effects of Proposed Changes to the Requirements for the Inpatient Psychiatric 

Facilities Quality Reporting (IPFQR) Program

 In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53644), we finalized policies to 

implement the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program. One 

goal of the IPFQR Program is to implement the statutory requirements of 

section 1886(s)(4) of the Act, as added by sections 3401(f) and 10322(a) of the 

Affordable Care Act. In addition, one of our priorities is to help achieve better health and 

better health care for individuals through collection of valid, reliable, and relevant 

measures of quality health care data. Such data can be shared with appropriate health 

care related organizations and used to further the development of health care quality, 

which, in turn, helps to further our objectives and goals. Health care organizations can 

use such health care quality data for many purposes such as in their risk management 

programs, patient safety and quality improvement initiatives and research and 

development of mental health programs, among others. 

 In section IX.D. of the preamble of this proposed rule, we are proposing that, for 

the FY 2016 payment determination and subsequent years, IPFs must submit aggregate 

data on three additional measures, for a total of 9 measures. In addition, we are 

proposing a request for voluntary information. We are not proposing to make changes to 

the administrative, reporting or submission requirements for the existing six measures 

previously finalized in last year’s rule (77 FR 53654 through 53657). However, there 

will be new reporting and submission requirements associated with the three proposed 
 1408 

additional measures and proposed request for voluntary information for the FY 2016 

payment determination and subsequent years. 

 We have estimated the burden associated with IPFs complying with the 

requirements of the IPFQR Program. In our burden estimate calculation, we have 

included the time that would be spent for (1) the submission of the voluntary information, 

(2) chart abstractions, and (3) training personnel on the collection of chart-abstracted 

data, aggregation of the data, and protocols to submit aggregate-level data through 

QualityNet. We estimate that the annual hourly burden to each IPF for the collection, 

submission, and training of personnel for submitting all quality measures, including 30 

minutes needed for the voluntary submission, is approximately 1,030 hours a year for 

each IPF. Thus, the average hourly burden to each IPF is approximately 86 hours per 

month. At this time, we have no way to estimate how many IPFs will participate in the 

program. Therefore, we cannot estimate the aggregate impact. 

II. Alternatives Considered 

 This proposed rule contains a range of proposed policies. It also provides 

descriptions of the statutory provisions that are addressed, identifies the proposed 

policies, and presents rationales for our decisions and, where relevant, alternatives that 

were considered. 

III. Overall Conclusion 

1. Acute Care Hospitals 

 Table I of section I.G. of this Appendix demonstrates the estimated distributional 

impact of the IPPS budget neutrality requirements for the proposed MS-DRG and wage 
 1409 

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. As discussed in section 

I.G. of this Appendix, we estimate that proposed operating payments will decrease by 

approximately $110 million in FY 2014 relative to FY 2013. However, when we account 

for the impact of the changes in Medicare DSH payments and the impact of the new 

additional payments based on uncompensated care in accordance with section 3133 of the 

Affordable Care Act, based on estimates provided by the CMS Office of the Actuary, 

consistent with our proposal discussed in section V.E. of the preamble of this proposed 

rule, we estimate that proposed operating payments would increase by approximately 

$217 million relative to FY 2013. In addition, we estimate a savings of $26 million 

associated with the proposed HACs policies in FY 2014, which is an additional 

$2 million in savings as compared to FY 2013. We estimate that the expiration of the 

expansion of low-volume hospital payments in FY 2014 under section 605 of the ATRA 

will result in a decrease in payments of approximately $288 million. We estimate new 

technology payments will increase payments by $45 million in FY 2014, which is 

$1 million less than our estimate of new technology payments made in FY 2013. These 

estimates, combined with our proposed FY 2014 operating estimate of $217 million, 

result in an estimated decrease of approximately $74 million for FY 2014. We estimate 

that hospitals will experience a 1.1 percent increase in capital payments per case, as 

shown in Table III of section I.I. of this Appendix. We project that there will be a $101 

million increase in capital payments in FY 2014 compared to FY 2013. The proposed 

cumulative operating and capital payments would result in a net increase of 
 1410 

approximately $27 million to IPPS providers. The discussions presented in the previous 

pages, in combination with the rest of this proposed rule, constitute a regulatory impact 

analysis. 

2. LTCHs 

 Overall, LTCHs are projected to experience an increase in estimated payments per 

discharge in FY 2014. 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 

proposed change in payments under the LTCH PPS for FY 2014. Accordingly, based on 

the best available data for the 423 LTCHs in our database, we estimate that FY 2014 

LTCH PPS payments will increase approximately $62 million relative to FY 2013 as a 

result of the proposed payment rates and factors presented in this proposed rule. In 

addition, we estimate that the expiration of the moratorium on the full application of the 

“25-percent threshold” payment adjustment policy under current law, beginning with cost 

reporting period beginning on or after October 1, 2013 as discussed in section VIII.D. of 

the preamble of this proposed rule, will result in a reduction in LTCH PPS payments of 

$190 million. 

IV. Accounting Statements and Tables 

A. Acute Care Hospitals

 As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table V below, we have prepared an 

accounting statement showing the classification of the expenditures associated with the 
 1411 

provisions of this proposed rule as they relate to acute care hospitals. This table provides 

our best estimate of the proposed change in Medicare payments to providers as a result of 

the proposed changes to the IPPS presented in this proposed rule. All expenditures are 

classified as transfers to Medicare providers. 

 The cost to the Federal Government associated with the policies in this proposed 

rule are estimated at $27 million. 

Table V.—Accounting Statement: Classification of Proposed Estimated 

Expenditures under the IPPS from FY 2013 to FY 2014 

Category Transfers 

Annualized Monetized Transfers $27 million 

From Whom to Whom Federal Government to IPPS Medicare Providers 

Total $27 million 

B. LTCHs

 As discussed in section I.L. of this Appendix, the impact analysis of the proposed 

payment rates and factors presented in this proposed rule under the LTCH PPS, in 

conjunction with the estimated payment impact of the moratorium on the full application 

of the “25-percent threshold” payment adjustment policy under current law, is projected 

to result in a decrease in estimated aggregate LTCH PPS payments in FY 2014 relative to 

FY 2013 of approximately -$128 million based on the data for 423 LTCHs in our 

database that are subject to payment under the LTCH PPS. Therefore, as required by 

OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in 

Table VI below, we have prepared an accounting statement showing the classification of 

the expenditures associated with the provisions of this proposed rule as they relate to the 
 1412 

proposed changes to the LTCH PPS. Table VI provides our best estimate of the 

estimated decrease in Medicare payments under the LTCH PPS as a result of the 

proposed payment rates and factors and other provisions presented in this proposed rule 

based on the data for the 423 LTCHs in our database. All expenditures are classified as 

transfers to Medicare providers (that is, LTCHs). 

 The savings to the Federal Government associated with the proposed policies for 

LTCHs in this proposed rule is estimated at $128 million. 

TABLE VI.—Accounting Statement: Classification of Proposed Estimated 

Expenditures from the FY 2013 LTCH PPS to the FY 2014 LTCH PPS 

Category Transfers 

Annualized Monetized Transfers Negative transfer--Estimated decrease in 

expenditures: $128 million 

V. Regulatory Flexibility Act (RFA) Analysis 

 The RFA requires agencies to analyze options for regulatory relief of small 

entities. For purposes of the RFA, small entities include small businesses, nonprofit 

organizations, and small government jurisdictions. We estimate that most hospitals and 

most other providers and suppliers are small entities as that term is used in the RFA. The 

great majority of hospitals and most other health care providers and suppliers are small 

entities, either by being nonprofit organizations or by meeting the SBA definition of a 

small business (having revenues of less than $7.5 million to $34.5 million in any 1 year). 

(For details on the latest standards for health care providers, we refer readers to page 33 

of the Table of Small Business Size Standards for NAIC 622 found on the SBA Web site 
 1413 

at: 

http://www.sba.gov/contractingopportunities/sizestandardtopics/tableofsize/index.html.) 

 For purposes of the RFA, all hospitals and other providers and suppliers are 

considered to be small entities. Individuals and States are not included in the definition 

of a small entity. We believe that the provisions of this proposed rule relating to acute 

care hospitals would have a significant impact on small entities as explained in this 

Appendix. Because we lack data on individual hospital receipts, we cannot determine the 

number of small proprietary LTCHs. Therefore, we are assuming that all LTCHs are 

considered small entities for the purpose of the analysis in section I.L. 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 regulatory 

flexibility analysis. In this proposed rule, we are soliciting public comments on our 

estimates and analysis of the impact of our proposals on those small entities. Any public 

comments that we receive and our responses will be presented in the final rule. 

VI. Impact on Small Rural Hospitals 

 Section 1102(b) of the Social Security Act requires us to prepare a regulatory 

impact analysis for any proposed or final rule that may have a significant impact on the 

operations of a substantial number of small rural hospitals. This analysis must conform 

to the provisions of section 603 of the RFA. With the exception of hospitals located in 

certain New England counties, for purposes of section 1102(b) of the Act, we define a 

small rural hospital as a hospital that is located outside of an urban area and has fewer 
 1414 

than 100 beds. Section 601(g) of the Social Security Amendments of 1983 

(Pub. L. 98-21) designated hospitals in certain New England counties as belonging to the 

adjacent urban area. Thus, for purposes of the IPPS and the LTCH PPS, we continue to 

classify these hospitals as urban hospitals. (We refer readers to Table I in section I.G. of 

this Appendix for the quantitative effects of the proposed policy changes under the IPPS 

for operating costs.) 

VII. Unfunded Mandates Reform Act Analysis 

 Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) also 

requires that agencies assess anticipated costs and benefits before issuing any rule whose 

mandates require spending in any 1 year of $100 million in 1995 dollars, updated 

annually for inflation. In 2013, that threshold level is approximately $141 million. This 

proposed rule will not mandate any requirements for State, local, or tribal governments, 

nor will it affect private sector costs. 

VIII. Executive Order 12866 

In accordance with the provisions of Executive Order 12866, the Executive Office 

of Management and Budget reviewed this proposed rule.
 1415 

Appendix B: Recommendation of Update Factors for Operating Cost Rates of 

Payment for Inpatient Hospital Services 

I. Background 

 Section 1886(e)(4)(A) of the Act requires that the Secretary, taking into 

consideration the recommendations of MedPAC, recommend update factors for inpatient 

hospital services for each fiscal year that take into account the amounts necessary for the 

efficient and effective delivery of medically appropriate and necessary care of high 

quality. Under section 1886(e)(5) of the Act, we are required to publish update factors 

recommended by the Secretary in the proposed and final IPPS rules, respectively. 

Accordingly, this Appendix provides the recommendations for the update factors for the 

IPPS national standardized amount, the Puerto Rico-specific standardized amount, the 

hospital-specific rate for SCHs, and the rate-of-increase limits for certain hospitals 

excluded from the IPPS, as well as LTCHs. In prior years, we have made a 

recommendation in the IPPS proposed rule and final rule for the update factors for the 

payment rates for IRFs and IPFs. However, for FY 2014, we plan to include the 

Secretary’s recommendation for the update factors for IRFs and IPFs in separate Federal 

Register documents at the time that we announce the annual updates for IRFs and IPFs. 

We also discuss our response to MedPAC’s recommended update factors for inpatient 

hospital services. 
 1416 

II. Inpatient Hospital Update for FY 2014 

A. Proposed FY 2014 Inpatient Hospital Update

 Section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) 

of the Affordable Care Act, sets the applicable percentage increase under the IPPS for 

FY 2014 as equal to the rate-of-increase in the hospital market basket for IPPS hospitals 

in all areas, subject to a reduction of 2.0 percentage points if the hospital fails to submit 

quality data under rules established by the Secretary in accordance with section 

1886(b)(3)(B)(viii) of the Act, and then subject to an adjustment based on changes in 

economy-wide productivity and an additional reduction of 0.3 percentage point. Sections 

1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by section 3401(a) of the 

Affordable Care Act, state that the application of the multifactor productivity adjustment 

and the additional FY 2014 adjustment of 0.3 percentage point may result in the 

applicable percentage increase being less than zero. 

 We note that, in compliance with section 404 of the MMA, in this proposed rule, 

we are proposing to replace the FY 2006-based IPPS operating and capital market 

baskets with revised and rebased FY 2010-based IPPS operating and capital market 

baskets for FY 2014. In accordance with section 1886(b)(3)(B) of the Act, as amended 

by section 3401(a) of the Affordable Care Act, in section V.A.1. of the preamble of this 

proposed rule, we are proposing a multifactor productivity (MFP) adjustment (the 

10-year moving average of MFP for the period ending FY 2014 ) of 0.4 percent. 

Therefore, based on IHS Global Insight Inc.’s (IGI’s) first quarter 2013 forecast of the 

proposed FY 2010-based IPPS market basket, we are proposing an applicable percentage 
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increase to the FY 2013 operating standardized amount of 1.8 percent (that is, the 

proposed FY 2014 estimate of the market basket rate-of-increase of 2.5 percent less an 

adjustment of 0.4 percentage point for economy-wide productivity and less 0.3 

percentage point) for hospitals in all areas, provided the hospital submits quality data in 

accordance with section 1886(b)(3)(B)(viii) of the Act and our rules. For hospitals that 

fail to submit quality data, we are proposing an applicable percentage increase to the 

operating standardized amount of -0.2 percent (that is, the FY 2014 estimate of the 

market basket rate-of-increase of 2.5 percent less 2.0 percentage points for failure to 

submit quality data, less an adjustment of 0.4 percentage point for economy-wide 

productivity, and less an additional adjustment of 0.3 percentage point). 

B. Proposed Update for SCHs for FY 2014

 Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2014 applicable 

percentage increase in the hospital-specific rate for SCHs equals the applicable 

percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same 

update factor as for all other hospitals subject to the IPPS). Therefore, the update to the 

hospital specific rate for SCHs is subject to section 1886(b)(3)(B)(i) of the Act, as 

amended by sections 3401(a) and 10319(a) of the Affordable Care Act. Accordingly, we 

are proposing an applicable percentage increase to the hospital-specific rate applicable to 

SCHs of 1.8 percent for hospitals that submit quality data or -0.2 percent for hospitals 

that fail to submit quality data. 
 1418 

C. Proposed FY 2014 Puerto Rico Hospital Update

 Section 401(c) of Pub. L. 108-173 amended section 1886(d)(9)(C)(i) of the Act 

and states that, for discharges occurring in a fiscal year (beginning with FY 2004), the 

Secretary shall compute an average standardized amount for hospitals located in any area 

of Puerto Rico that is equal to the average standardized amount computed under 

subclause (I) for FY 2003 for hospitals in a large urban area (or, beginning with FY 2005, 

for all hospitals in the previous fiscal year) increased by the applicable percentage 

increase under subsection (b)(3)(B) for the fiscal year involved. Therefore, the update to 

the Puerto Rico-specific operating standardized amount is subject to the applicable 

percentage increase set forth in section 1886(b)(3)(B)(i) of the Act as amended by 

sections 3401(a) and 10319(a) of the Affordable Care Act (that is, the same update factor 

as for all other hospitals subject to the IPPS). Accordingly, we are proposing an 

applicable percentage increase to the Puerto Rico-specific standardized amount of 

1.8 percent. 

D. Proposed Update for Hospitals Excluded from the IPPS

 Section 1886(b)(3)(B)(ii) of the Act is used for purposes of determining the 

percentage increase in the rate-of-increase limits for children’s and cancer hospitals. 

Section 1886(b)(3)(B)(ii) of the Act sets the percentage increase in the rate-of-increase 

limits equal to the market basket percentage increase. In accordance with § 403.752(a) of 

the regulations, RNHCIs are paid under the provisions of § 413.40, which also use 

section 1886(b)(3)(B)(ii) of the Act to update the percentage increase in the rate-ofincrease limits. 
 1419 

 Currently, children’s hospitals, PPS-excluded cancer hospitals, and RNHCIs are 

among the remaining three types of hospitals still paid under the reasonable cost 

methodology, subject to the rate-of-increase limits. We are proposing that, for FY 2014 

and subsequent fiscal years, the rate-of-increase percentage applicable to the target 

amount for children’s hospitals, PPS-excluded cancer hospitals, and RNHCIs is the 

percentage increase in the proposed revised and rebased FY 2010-based IPPS operating 

market basket. Accordingly, the FY 2014 rate-of-increase percentage to be applied to the 

target amount for cancer hospitals, children’s hospitals, and RNHCIs would be the FY 

2014 percentage increase in the proposed revised and rebased FY 2010-based IPPS 

operating market basket. For this proposed rule, the current estimate of the FY 2014 

IPPS operating market basket percentage increase is 2.5 percent. 

E. Proposed Update for LTCHs for FY 2014

 Section 123 of Pub. L. 106-113, as amended by section 307(b) of Pub. L. 106-554 

(and codified at section 1886(m)(1) of the Act), provides the statutory authority for 

updating payment rates under the LTCH PPS. 

 As discussed in section V.A. of the Addendum to this proposed rule, we are 

proposing to establish an update to the LTCH PPS standard Federal rate for FY 2014 

based on the full LTCH PPS market basket increase estimate (for this proposed rule, 

estimated to be 2.5 percent), subject to an adjustment based on changes in economy-wide 

productivity and an additional reduction required by sections 1886(m)(3)(A)(ii) and 

(m)(4)(D) of the Act, provided the LTCH submits quality data in accordance with section 

1886(m)(5)(C) of the act and our rules. Beginning in FY 2014, in accordance with the 
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LTCHQR Program under section 1886(m)(5) of the Act, we are proposing to reduce the 

annual update to the LTCH PPS standard Federal rate by 2.0 percentage points for failure 

of a LTCH to submit quality data. The productivity adjustment described in section 

1886(b)(3)(B)(xi)(ii) of the Act is currently estimated to be 0.4 percent for FY 2014. In 

addition, section 1886(m)(3)(A)(ii) of the Act requires that any annual update for 

FY 2014 be reduced by the “other adjustment” at section 1886(m)(4)(D) of the Act, 

which is 0.3 percentage point. Therefore, based on IGI’s first quarter 2013 forecast of the 

FY 2014 market basket increase, we are proposing an annual update to the LTCH PPS 

standard Federal rate of 1.8 percent (that is, the current FY 2014 estimate of the market 

basket rate-of-increase of 2.5 percent less a proposed adjustment of 0.4 percentage point 

for economy-wide productivity and less 0.3 percentage point), provided the LTCH 

submits quality data in accordance with the LTCHQR Program under section 

1886(m)(5)(C) of the Act. Accordingly, we are proposing to apply an update factor of 

1.018 in determining the LTCH PPS standard Federal rate for FY 2014 provided the 

LTCH submits quality data in accordance with section 1886(m)(5)(C) of the Act and our 

rules. For LTCHs that fail to submit quality data, we are proposing an annual update to 

the LTCH PPS standard Federal rate of -0.2 percent (that is, the FY 2014 estimate of the 

market basket rate-of increase of 2.5 percent less a proposed adjustment of 0.4 percentage 

point for economy-wide productivity, less an additional adjustment of 0.3 percentage 

point, and less 2.0 percentage points for failure to submit quality data) by applying an 

update factor of 0.998 in determining the LTCH PPS standard Federal rate for FY 2014. 

Furthermore, we are proposing to make an adjustment for the second year of the 3-year 
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phase-in of the one-time prospective adjustment to the standard Federal rate under 

§ 412.523(d)(3) by applying a factor of 0.98734 (or approximately –1.3 percent) in 

FY 2014, consistent with current law. 

III. Secretary’s Recommendations 

 MedPAC is recommending an inpatient hospital update equal to one percent for 

FY 2014. MedPAC’s rationale for this update recommendation is described in more 

detail below. As mentioned above, section 1886(e)(4)(A) of the Act requires that the 

Secretary, taking into consideration the recommendations of MedPAC, recommend 

update factors for inpatient hospital services for each fiscal year that take into account the 

amounts necessary for the efficient and effective delivery of medically appropriate and 

necessary care of high quality. Consistent with current law, we are recommending an 

applicable percentage increase to the standardized amount of 1.8 percent (that is, the 

FY 2014 estimate of the market basket rate-of-increase of 2.5 percent less a proposed 

adjustment of 0.4 percentage point for economy-wide productivity and less 0.3 

percentage point). We are recommending that the same applicable percentage increase 

apply to SCHs and the Puerto Rico-specific standardized amount. 

 In addition to making a recommendation for IPPS hospitals, in accordance with 

section 1886(e)(4)(A) of the Act, we are recommending update factors for certain other 

types of hospitals excluded from the IPPS. Consistent with our policies for these 

facilities, we are recommending an update for children's hospitals, cancer hospitals, and 

RNHCIs of 2.5 percent. 
 1422 

 For FY 2014, consistent with policy set forth in section VIII. of the preamble of 

this proposed rule, we are recommending an update of 1.8 percent (that is, the current 

FY 2014 estimate of the market basket rate-of-increase of 2.5 percent less a proposed 

adjustment of 0.4 percentage point for economy-wide productivity and less 0.3 

percentage point) to the LTCH PPS standard Federal rate. 

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 

Payments in Traditional Medicare 

 In its March 2013 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 1.0 percent. 

MedPAC expects Medicare margins to remain low in 2013. At the same time, 

MedPAC’s analysis finds that efficient hospitals have been able to maintain positive 

Medicare margins while maintaining a relatively high quality of care. MedPAC also 

recommended that Congress should require the Secretary to use the difference between 

the increase of the applicable percentage increase under the IPPS for FY 2014 and 

MedPAC’s recommendation of a 1.0 percent update to gradually recover past 

overpayments due to documentation and coding changes. 

 Response: With regard to MedPAC’s recommendation of an update to the 

hospital inpatient rates equal to 1 percent, for FY 2014, as discussed above, sections 

3401(a) and 10319(a) of the Affordable Care Act amended section 1886(b)(3)(B) of the 

Act. Section 1886(b)(3)(B) of the Act, as amended by these sections, sets the 

requirements for the FY 2014 applicable percentage increase. Therefore, we are 
 1423 

proposing an applicable percentage increase for FY 2014 of 1.8 percent, provided the 

hospital submits quality data, consistent with these statutory requirements. 

 With regard to MedPAC’s recommendation that Congress should require the 

Secretary to use the difference between the increase of the applicable percentage increase 

under the IPPS for FY 2014 and MedPAC’s recommendation of a 1.0 percent update to 

gradually recover past overpayments due to documentation and coding changes, we refer 

readers to section II.D. of the preamble of this proposed rule for a complete discussion of 

the FY 2014 documentation and coding adjustment. We note that section 631 of the 

ATRA amended section 7(b)(1)(B) of Pub. L. 110-90 to require the Secretary to make a 

recoupment totaling $11 billion by 2017. This adjustment represents the amount of the 

increase in aggregate payments as a result of not completing the prospective adjustment 

authorized under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. Our actuaries 

estimate that if CMS were to fully account for the $11 billion recoupment required by 

section 631 of the ATRA in FY 2014, a -9.3 percent adjustment to the standardized 

amount would be necessary. MedPAC estimates that a -2.4 percent adjustment made in 

FY 2014, and not removed until FY 2018, also would recover the required recoupment 

amount. It is often our practice to delay or phase in rate adjustments over more than 1 

year, in order to moderate the effect on rates in any one year. Therefore, consistent with 

the policies that we have adopted in many similar cases, we are proposing a -0.8 percent 

adjustment to the standardized amount in FY 2014. 

 We also note that, because the operating and capital prospective payment systems 

remain separate, we are continuing to use separate updates for operating and capital 
 1424 

payments. The proposed update to the capital rate is discussed in section III. of the 

Addendum to this proposed rule. 

Billing Code 4120-01-P 

[FR Doc. 2013-10234 Filed 04/26/2013 at 4:15 pm; Publication Date: 05/10/2013]