```

[Federal Register Volume 78, Number 91 (Friday, May 10, 2013)]
[Proposed Rules]
[Pages 27485-27823]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10234]

[[Page 27485]]

Vol. 78

Friday,

No. 91

May 10, 2013

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 412, 418, 482, et al.

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; Medicare Program; FY 2014 Hospice Wage Index and Payment 
Rate Update; Hospice Quality Reporting Requirements; and Updates on 
Payment Reform; Proposed Rules

Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed 
Rules

[[Page 27486]]

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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.

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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.
    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.

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, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.

    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue 
SW., Washington, DC 20201.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487, and Ing-
Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, 
Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and 
Technology Add-On Payments, Hospital Geographic Reclassifications, 
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

[[Page 27487]]

Readmission Measures for Hospitals Issues.
    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 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-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''. 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/Medicare-Fee-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
APR DRG All Patient Refined Diagnosis Related Group System
APRN Advanced practice registered nurse
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASCA Administrative Simplification Compliance Act of 2002, Public 
Law 107-105
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
ATRA American Taxpayer Relief Act of 2012, Public Law 112-240
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation 
[Instrument]
CART CMS Abstraction & Reporting Tool
CAUTI Catheter-associated urinary tract infection
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCN CMS Certification Number
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CDC 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, Public Law 
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CRNA Certified registered nurse anesthetist
CY Calendar year
DACA Data Accuracy and Completeness Acknowledgement
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
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

[[Page 27488]]

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
HHS Department of Health and Human Services
HICAN Health Insurance Claims Account Number
HIPAA Health Insurance Portability and Accountability Act of 1996, 
Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
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
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
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of 
the Tax Relief and Health Care Act of 2006, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
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
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, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management
OQR [Hospital] Outpatient Quality Reporting
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PCH PPS-exempt cancer hospital
PCHQR PPS-exempt cancer hospital quality reporting
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPI Producer price index
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
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, Public Law 
97-248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and 
QI [Qualifying Individuals] Programs Extension Act of 2007, Public 
Law 110-90
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
    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

[[Page 27489]]

    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 Public Law 110-90
    2. Adjustment to the Average Standardized Amounts Required by 
Public Law 110-90
    a. Prospective Adjustment Required by Section 7(b)(1)(A) of 
Public Law 110-90
    b. Recoupment or Repayment Adjustments in FYs 2010 through 2012 
Required by Section 7(b)(1)(B) Public Law 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 Public Law 110-90
    5. Recoupment or Repayment Adjustment Authorized by Section 
7(b)(1)(B) of Public Law 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
    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
    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
    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[supreg])
    c. DIFICIDTM (Fidaxomicin) Tablets
    d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    4. FY 2014 Applications for New Technology Add-On Payments
    a. KcentraTM
    b. Argus[supreg] II Retinal Prosthesis System
    c. Responsive Neurostimulator (RNS) System
    d. Zilver[supreg] PTX[supreg] Drug Eluting Stent
    e. MitraClip[supreg] 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
    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
    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

[[Page 27490]]

Graduate Medical Education (GME) Costs
    A. Proposed Inpatient Hospital Updates for FY 2014 (Sec. Sec.  
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 (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    C. Proposed Payment Adjustment for Low-Volume Hospitals (Sec.  
412.101)
    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 (Sec.  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) Sec.  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 (Sec.  
412.108)
    1. Background
    2. Provisions of the ATRA for FY 2013
    a. Background
    b. Proposed Conforming Regulatory Changes
    c. Expiration of the MDH Program
    G. Hospital Readmissions Reduction Program: Proposed Changes 
(Sec. Sec.  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 (Sec.  412.152 and Sec.  
412.154(d))
    e. Proposed Floor Adjustment Factor for FY 2014 (Sec.  
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
    H. Hospital Value-Based Purchasing Program (Sec. Sec.  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
    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 Program
    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
    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 (Sec. Sec.  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
    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 
(Sec. Sec.  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
    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

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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
    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
    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 Sec.  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
    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
    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
    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 
Healthcare-Associated 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
    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

[[Page 27492]]

    4. Considerations in the Selection of the Quality Measures
    5 Proposed New Quality Measures
    a. Proposed New Measure Beginning with FY 2015--NHSN Healthcare-
Associated 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
    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)
    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 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
    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
    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
    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
    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
    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

[[Page 27493]]

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
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
    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
    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
    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
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 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 Public Law 106-113 and section 
307(b)(1) of Public Law 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.
     Sections 1814(l), 1820, and 1834(g) of the Act, which 
specifies that

[[Page 27494]]

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 (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 ``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 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 Public Law 110-90 to require the 
Secretary to make a recoupment adjustment to the standardized amount of 
Medicare payments to acute care hospitals to account for changes in MS-
DRG documentation and coding that do not reflect real changes in case-
mix, totaling $11 billion over a 4-year period of FYs 2014, 2015, 2016, 
and 2017. 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 Public Law 110-90 
until FY 2013. Prior to the ATRA, this amount could not have been 
recovered under Public Law 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 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

[[Page 27495]]

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.
    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 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 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 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

[[Page 27496]]

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 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, 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
    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 Public Law 110-90 
until FY 2013. Prior to the ATRA, this amount could not have been 
recovered under Public Law110-90.
    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

[[Page 27497]]

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. 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 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 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 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

[[Page 27498]]

Medicare Part A. Our actuaries estimate that 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 chart-abstracted 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 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 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 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.
    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.

[[Page 27499]]

    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 
1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is 
located more than 35 road miles from another hospital or that, by 
reason of factors such as isolated location, weather conditions, travel 
conditions, or absence of other like hospitals (as determined by the 
Secretary), is the sole source of hospital inpatient services 
reasonably available to Medicare beneficiaries. In addition, certain 
rural hospitals previously designated by the Secretary as essential 
access community hospitals are considered SCHs. Section 
1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is 
located in a rural area, has not more than 100 beds, is not an SCH, and 
has a high percentage of Medicare discharges (not less than 60 percent 
of its inpatient days or discharges in its cost reporting year 
beginning in FY 1987 or in two of its three most recently settled 
Medicare cost reporting years). Both of these categories of hospitals 
are afforded this special payment protection in order to maintain 
access to services for beneficiaries.
    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient hospital services ``in accordance 
with a prospective payment system established by the Secretary.'' The 
basic methodology for determining capital prospective payments is set 
forth in our regulations at 42 CFR 412.308 and 412.312. Under the 
capital IPPS, payments are adjusted by the same DRG for the case as 
they are under the operating IPPS. Capital IPPS payments are also 
adjusted for IME and DSH, similar to the adjustments made under the 
operating IPPS. In addition, hospitals may receive outlier payments for 
those cases that have unusually high costs.
    The existing regulations governing payments to hospitals under the 
IPPS are located in 42 CFR Part 412, Subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
    Under section 1886(d)(1)(B) of the Act, as amended, certain 
hospitals and hospital units are excluded from the IPPS. These 
hospitals and units are: Rehabilitation hospitals and units; 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 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 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

[[Page 27500]]

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 Public Law 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)
    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 Public Law 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 Public Law 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 Public Law 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 Public Law 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 Public Law 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.
     Section 3133 of Public Law 111-148, which modifies the 
methodologies for determining Medicare DSH payments and creates a new 
additional payment for uncompensated care.
     Section 3401 of Public Law 111-148, which provides for the 
incorporation of productivity adjustments into the market basket 
updates for IPPS hospitals and LTCHs.
     Section 10324 of Public Law 111-148, which provides for a 
wage adjustment for hospitals located in frontier States.
     Sections 3401 and 10319 of Public Law 111-148 and section 
1105 of Public Law 111-152, which revise certain market basket update 
percentages for IPPS and LTCH PPS payment rates for FY 2014.
     Section 5506 of Public Law 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:
     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 Public 
Law 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 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

[[Page 27501]]

(including public input, as directed by Pub. L. 108-173, obtained in a 
town hall meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to this proposed rule, we are 
proposing revisions to the wage index for acute care hospitals and the 
annual update of the wage data. Specific issues addressed include the 
following:
     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 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.
     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
    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
    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

[[Page 27502]]

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 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 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.

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 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 Public Law 110-90
    In the FY 2008 IPPS final rule with comment period (72 FR 47140 
through 47189), we adopted the MS-DRG patient classification system for 
the IPPS, effective October 1, 2007, to better recognize severity of 
illness in Medicare payment rates for acute care hospitals. The 
adoption of the MS-DRG system resulted in the expansion of the number 
of DRGs from 538 in FY 2007 to 745 in FY 2008. (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 final rule 
with comment period, we exercised our authority under section 
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget 
neutrality by adjusting the national standardized amount, to eliminate 
the estimated effect of changes in coding or classification that do not 
reflect real changes in case-mix. Our actuaries estimated that 
maintaining budget neutrality required an adjustment of -4.8 percent to 
the national standardized amount. We provided for phasing in this -4.8 
percent adjustment over 3 years. Specifically, we established 
prospective documentation and coding adjustments of -1.2 percent for FY 
2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010.
    On September 29, 2007, Congress enacted the TMA [Transitional 
Medical Assistance], Abstinence Education, and QI [Qualifying 
Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 
7(a) of Public Law 110-90 reduced the documentation and coding 
adjustment made as a result of the MS-DRG system that we adopted in the 
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 
and -0.9 percent for FY 2009, and we finalized the FY 2008 adjustment 
through rulemaking, effective October 1, 2007 (72 FR 66886).

[[Page 27503]]

    For FY 2009, section 7(a) of Public Law 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 Public Law 110-
90, are cumulative. As a result, the -0.9 percent documentation and 
coding adjustment for FY 2009 was in addition to the -0.6 percent 
adjustment for FY 2008, yielding a combined effect of -1.5 percent.
2. Adjustment to the Average Standardized Amounts Required by Public 
Law 110-90
a. Prospective Adjustment Required by Section 7(b)(1)(A) of Public Law 
110-90
    Section 7(b)(1)(A) of Public Law 110-90 requires that, if the 
Secretary determines that implementation of the MS-DRG system resulted 
in changes in documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2008 or FY 2009 
that are different than the prospective documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90, the 
Secretary shall make an appropriate adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act 
authorizes adjustments to the average standardized amounts for 
subsequent fiscal years in order to eliminate the effect of such coding 
or classification changes. These adjustments are intended to ensure 
that future annual aggregate IPPS payments are the same as the payments 
that otherwise would have been made had the prospective adjustments for 
documentation and coding applied in FY 2008 and FY 2009 reflected the 
change that occurred in those years.
b. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Section 7(b)(1)(B) Public Law 110-90
    If, based on a retroactive evaluation of claims data, the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different from the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of 
Public Law 110-90 requires the Secretary to make an additional 
adjustment to the standardized amounts under section 1886(d) of the 
Act. This adjustment must offset the estimated increase or decrease in 
aggregate payments for FYs 2008 and 2009 (including interest) resulting 
from the difference between the estimated actual documentation and 
coding effect and the documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90. This adjustment is in addition to 
making an appropriate adjustment to the standardized amounts under 
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) 
of Public Law 110-90. That is, these adjustments are intended to recoup 
(or repay, 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. Public Law 
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 Public Law 
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 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-and-Systems/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: 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 Public Law 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 Public Law 110-90 to 
make an adjustment to the average standardized amounts in order to 
eliminate the full effect of the documentation and coding changes that 
do not reflect real changes in case-mix on future payments. Unlike 
section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not 
specify when we must apply the prospective adjustment, but merely 
requires us to make an ``appropriate'' adjustment. Therefore, 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

[[Page 27504]]

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 Public Law 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 Public Law 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.
    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 Public Law 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 Public 
Law 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 Public Law 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 Public Law 110-90
    As discussed in section II.D.3. of this preamble, section 
7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an 
adjustment to the standardized amounts under section 1886(d) of the Act 
to offset the estimated increase or decrease in aggregate payments for 
FY 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 
Public Law 110-90. This determination must be based on a retrospective 
evaluation of claims data. Our actuaries estimated that 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 
Public Law 110-90 to adjust the standardized amounts for discharges 
occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount 
of the increase in aggregate payments (including interest) in FYs 2008 
and 2009.
    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 Public Law 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 
Public Law 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 
Public Law 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 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 Public Law 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 Public Law 
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 Public Law 110-90 until FY 2013. As discussed earlier, 
this delay in implementation resulted in overstated payment rates in 
FYs 2010, 2011, and 2012. The resulting overpayments could not have 
been recovered under Public Law 110-90.
    Similar to the adjustments authorized under section 7(b)(1)(B) of 
Public Law 110-90, the adjustment required under section 631 of the 
ATRA 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 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

[[Page 27505]]

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
    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 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 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 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 hospital-specific 
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

[[Page 27506]]

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 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 
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 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 ``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

[[Page 27507]]

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 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 
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.

 
------------------------------------------------------------------------
                                    Final  FY    Potential    Potential
              Group                  2013  15   FY 2014  15  FY 2014  19
                                       CCRs         CCRs         CCRs
------------------------------------------------------------------------
Routine days.....................        0.514        0.502        0.502
Intensive days...................        0.442        0.423        0.423
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 MS-DRGs in

[[Page 27508]]

the nervous system, digestive system, and respiratory system MDCs.

----------------------------------------------------------------------------------------------------------------
                                                                                                      Estimated
                                                                                                      percentage
                    MDC                                            Description                          change
                                                                                                      within MDC
                                                                                                      (percent)
----------------------------------------------------------------------------------------------------------------
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.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 Potential
                                                                                                                    Potential     relative
                MS-DRG                           Type                                  Title                         relative     weights     Percentage
                                                                                                                   weight with    with 19       change
                                                                                                                     15 CCRs        CCRs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          MS-DRGs that would experience the largest decrease in relative weight
--------------------------------------------------------------------------------------------------------------------------------------------------------
090..................................  MED.....................  Concussion without CC/MCC.......................       0.7614       0.7013         -7.9
084..................................  MED.....................  Traumatic Stupor & Coma, Coma >1 Hour without CC/      0.9137       0.8516         -6.8
                                                                  MCC.
087..................................  MED.....................  Traumatic Stupor & Coma, Coma       0.7899       0.7369         -6.7
                                                                  MCC.
965..................................  MED.....................  Other Multiple Significant Trauma without CC/MCC       1.0450        0.980         -6.1
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             0.9880       0.9517         -5.7
                                                                  Diagnosis without CC/MCC.
053..................................  MED.....................  Spinal Disorders & Injuries without CC/MCC......       0.9355       0.8825         -5.7
066..................................  MED.....................  Intracranial Hemorrhage or Cerebral Infarction         0.8034       0.7579         -5.7
                                                                  without CC/MCC.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          MS-DRGs that would experience the largest increase in relative weight
--------------------------------------------------------------------------------------------------------------------------------------------------------
454..................................  SURG....................  Combined Anterior/Posterior Spinal Fusion with         7.6399       8.0563          5.5
                                                                  CC.
455..................................  SURG....................  Combined Anterior/Posterior Spinal Fusion              5.9862       6.3133          5.5
                                                                  Without CC/MCC.
484..................................  SURG....................  Major Joint & Limb Reattachment Procedure of           2.1211       2.2380          5.5
                                                                  Upper Extremity without CC/MCC.
225..................................  SURG....................  Cardiac Defibrillator Implant with Cardiac             5.6298       5.9530          5.7
                                                                  Catheterization without AMI/HF/Shock without
                                                                  MCC.
223..................................  SURG....................  Cardiac Defibrillator Implant with Cardiac             6.0956       6.4482          5.8
                                                                  Catheterization with AMI/HF/Shock without MCC.
458..................................  SURG....................  Spinal Fusion Except Cervical with Spinal Curve/       4.8794       5.1630          5.8
                                                                  Malignant/Infection OR 9+ Fusion without CC/MCC.
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          5.2193       5.5714          6.7
                                                                  Catheterization without MCC.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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

[[Page 27509]]

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 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.

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 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.

[[Page 27510]]

[GRAPHIC] [TIFF OMITTED] TP10MY13.000

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 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-for-Service-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 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 discussion: the FY 2009 IPPS proposed 
rule (73 FR 23559) and final rule (73 FR

[[Page 27511]]

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.
    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-DRG-Conversion-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 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-Service-Payment/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 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-for-Service-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

[[Page 27512]]

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 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-Service-Payment/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-Service-Payment/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 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.

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 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:

------------------------------------------------------------------------
                                                  Average
             MS-DRGs                Number of    length of     Average
                                      cases         stay        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
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.

[[Page 27513]]

    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.
    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). 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)
     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.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                  MS-DRG                                    Number of    length of     Average
                                                                              cases         stay        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 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

[[Page 27514]]

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: MS-DRG 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 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[supreg] 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[supreg], 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 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 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[supreg] 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.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                 MS-DRGs                                   Number of     length of     Average
                                                                             cases         stay         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

[[Page 27515]]

 
                                             Major Chest Procedures
----------------------------------------------------------------------------------------------------------------
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 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 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 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

[[Page 27516]]

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.
    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.)

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                  MS-DRG                                    Number of    length  of    Average
                                                                              cases         stay        costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 163--All cases....................................................       11,287        13.33      $32,728
MS-DRG 163--Cases with principal diagnosis code 415.19 with procedure                4        13.50       46,959
 code 38.15 and 39.61 or 39.62 or 39.63..................................
MS-DRG 163--Cases with principal diagnosis code 416.2 with procedure code            3        14.33       53,048
 38.15 only..............................................................
MS-DRG 163--Cases with principal diagnosis code 416.2 with procedure code            5        16.20       50,393
 38.15 and 39.61 or 39.62 or 39.63.......................................
MS-DRG 164--All cases....................................................       16,113         6.69       17,494
MS-DRG 164--Cases with principal diagnosis code 415.19 with procedure                2        10.00       37,447
 code 38.15 with 39.61 or 39.62 or 39.63.................................
MS-DRG 164--Cases with principal diagnosis code 416.2 with procedure code            0            0            0
 38.15 only..............................................................
MS-DRG 164--Cases with principal diagnosis code 416.2 with procedure code            2         7.00       21,669
 38.15 and 39.61 or 39.62 or 39.63.......................................
----------------------------------------------------------------------------------------------------------------

    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 
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.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                  MS-DRG                                    Number of    length of     Average
                                                                              cases         stay        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 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 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

[[Page 27517]]

assigned to the GROUPER logic for MS-DRGs 280, 281, and 282, along with 
the proposed new discharge status codes and their titles.

----------------------------------------------------------------------------------------------------------------
                                             New
               Current code                 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 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 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 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

[[Page 27518]]

shoulder replacement techniques are included in these MS-DRGs.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                  MS-DRG                                    Number of    length of     Average
                                                                              cases         stay        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 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 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 (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.

----------------------------------------------------------------------------------------------------------------
                                                                                          Average
                                 MS-DRGs                                    Number of    length of     Average
                                                                              cases         stay        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

[[Page 27519]]

 
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.
    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 
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).
    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 Transferred to Another Acute Care Facility) to identify 
neonates that are transferred to a designated facility with a planned 
acute care hospital inpatient readmission.

----------------------------------------------------------------------------------------------------------------
                      New code                                                   Title
----------------------------------------------------------------------------------------------------------------
82..................................................  Discharged/transferred to a short term general hospital
                                                       for inpatient care with a planned acute care hospital
                                                       inpatient readmission.

[[Page 27520]]

 
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
    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 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 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.
----------------------------------------------------------------------------------------------------------------

[[Page 27521]]

    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.
    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 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 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 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))

[[Page 27522]]

diagnosis codes for the same condition should not be considered CCs for 
one another;
     Codes for the same condition that cannot coexist, such as 
partial/total, unilateral/bilateral, obstructed/unobstructed, and 
benign/malignant, should not be considered CCs for one another;
     Codes for the same condition in anatomically proximal 
sites should not be considered CCs for one another; and
     Closely related conditions should not be considered CCs 
for one another.
    The creation of the CC Exclusions List was a major project 
involving hundreds of codes. We have continued to review the remaining 
CCs to identify additional exclusions and to remove diagnoses from the 
master list that have been shown not to meet the definition of a CC.\1\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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.
    The following chart shows the analysis of the MedPAR claims data 
for FY 2012 for ICD-9-CM diagnosis code 414.4.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
                 Code                      Diagnosis description       CC level      Cnt 1      impact       Cnt 2      impact       Cnt 3      impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
414.4................................  Coronary atherosclerosis due        Non-CC     1,390        1.58       2,174        2.31       2,001        3.11
                                        to calcified lesion.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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-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 non-CC 
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.
    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

[[Page 27523]]

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.
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.
----------------------------------------------------------------------------------------------------------------

    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

[[Page 27524]]

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 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-for-Service-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-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 Unrelated to Principal Diagnosis), and 
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal 
Diagnosis) to determine whether it would be appropriate to change the 
procedures assigned among these CMS DRGs. Under the MS-DRGs that we 
adopted for FY 2008, CMS DRG 468 was split three ways and became MS-
DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal 
Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 
476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 
(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively).
    MS-DRGs 981 through 983, 984 through 986, and 987 through 989 
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for 
those cases in which none of the O.R. procedures performed are related 
to the principal diagnosis. These MS-DRGs are intended to capture 
atypical cases, that is, those cases not occurring with sufficient 
frequency to represent a distinct, recognizable clinical group. MS-DRGs 
984 through 986 (previously CMS DRG 476) are assigned to those 
discharges in which one or more of the following prostatic procedures 
are performed and are unrelated to the principal diagnosis:
     60.0 (Incision of prostate)
     60.12 (Open biopsy of prostate)
     60.15 (Biopsy of periprostatic tissue)
     60.18 (Other diagnostic procedures on prostate and 
periprostatic tissue)
     60.21 (Transurethral prostatectomy)
     60.29 (Other transurethral prostatectomy)
     60.61 (Local excision of lesion of prostate)
     60.69 (Prostatectomy, not elsewhere classified)
     60.81 (Incision of periprostatic tissue)
     60.82 (Excision of periprostatic tissue)
     60.93 (Repair of prostate)
     60.94 (Control of (postoperative) hemorrhage of prostate)
     60.95 (Transurethral balloon dilation of the prostatic 
urethra)
     60.96 (Transurethral destruction of prostate tissue by 
microwave thermotherapy)
     60.97 (Other transurethral destruction of prostate tissue 
by other thermotherapy)
     60.99 (Other operations on prostate)
    All remaining O.R. procedures are assigned to MS-DRGs 981 through 
983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those 
discharges in which the only procedures performed are nonextensive 
procedures that are unrelated to the principal diagnosis.\2\
---------------------------------------------------------------------------

    \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).

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

[[Page 27525]]

    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 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 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, cochaired by the National Center 
for Health Statistics (NCHS), the Centers for Disease Control and 
Prevention, and CMS, charged with maintaining and updating the ICD-9-CM 
system. The Committee is jointly responsible for approving coding 
changes, and developing errata, addenda, and other modifications to the 
ICD-9-CM to reflect newly developed procedures and technologies and 
newly identified diseases. The Committee is also responsible for 
promoting the use of Federal and non-Federal educational programs and 
other communication techniques with a view toward standardizing coding 
applications and upgrading the quality of the classification system.
    The Official 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 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

[[Page 27526]]

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.
    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 Email 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 Email 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.
    Section 503(a) of Public Law 108-173 included a requirement for 
updating ICD-9-CM codes twice a year instead of a single update on 
October 1 of each year. This requirement was included as part of the 
amendments to the Act relating to recognition of new technology under 
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by 
adding a clause (vii) which states that the ``Secretary shall provide 
for the addition of new diagnosis and procedure codes on April 1 of 
each year, but the addition of such codes shall not require the 
Secretary to adjust the payment (or diagnosis-related group 
classification) . . . until the fiscal year that begins after such 
date.'' This requirement improves the recognition of new technologies 
under the IPPS system by providing information on these new 
technologies at an earlier date. Data will be available 6 months 
earlier than would be possible with updates occurring only once a year 
on October 1.
    While section 1886(d)(5)(K)(vii) of the Act states that the 
addition of new diagnosis and procedure codes on April 1 of each year 
shall not require the Secretary to adjust the payment, or DRG 
classification, under section 1886(d) of the Act until the fiscal year 
that begins after such date, we have to update the DRG software and 
other systems in order to recognize and accept the new codes. We also 
publicize the code changes and the need for a mid-year systems update 
by providers to identify the new codes. Hospitals also have to obtain 
the new code books and encoder updates, and make other system changes 
in order to identify and report the new codes.
    The ICD-9-CM Coordination and Maintenance Committee holds its 
meetings in the spring and fall in order to update the codes and the 
applicable payment and reporting systems by October 1 of each year. 
Items are placed on the agenda for the ICD-9-CM Coordination and 
Maintenance Committee meeting if the request is received at least 2 
months prior to the meeting. This requirement allows time for staff to 
review and research the coding issues and prepare material for 
discussion at the meeting. It also allows time for the topic to be 
publicized in meeting announcements in the Federal Register as well as 
on the CMS Web site. The public decides whether or not to attend the 
meeting based on the topics listed on the agenda. Final decisions on 
code title revisions are currently made by March 1 so that these titles 
can be included in the IPPS proposed rule. A complete addendum 
describing details of all changes to ICD-9-CM, both tabular and index, 
is published on the CMS and NCHS Web sites in May of each year. 
Publishers of coding books and software use this information to modify 
their products that are used by health care providers. This 5-month 
time period has proved to be necessary for hospitals and other 
providers to update their systems.
    A discussion of this timeline and the need for changes are included 
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance 
Committee 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 Public Law 
108-173, by developing a mechanism for approving, in time for the April 
update, diagnosis and procedure code revisions needed to describe new 
technologies and medical services for purposes of the new technology 
add-on payment process. We also established the following process for 
making these determinations. Topics considered during the Fall ICD-9-CM 
Coordination and Maintenance Committee meeting are considered for an 
April 1 update if a strong and convincing case is made by the requester 
at the Committee's public meeting. The request must identify the reason 
why a new code is needed in April for purposes of the new technology 
process. The participants at the meeting and those reviewing the 
Committee meeting summary report are provided the opportunity to 
comment on this expedited request. All other topics are considered for 
the October 1 update. Participants at the Committee meeting are 
encouraged to comment on all such requests. There were no

[[Page 27527]]

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?redirect=/
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.
    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 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.
    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 Public Law 108-173. There were to be no 
updates to ICD-9-CM on October 1, 2014, as the 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-C-and-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,

[[Page 27528]]

2011, hospitals 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 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-DRG-Conversion-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.
    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 MS-DRGs 
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 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-Conversion-Project.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 MS-DRGs 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 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

[[Page 27529]]

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-C-and-M-Meeting-Materials.html. 
This update of the impact paper and the ICD-10 MS-DRG 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.
    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)'' 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:
     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.
     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

[[Page 27530]]

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 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 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.
    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-of-living adjustments, and DSH payments under 
the capital IPPS as well. Charges were then summed by MS-DRG for each 
of the 19 cost groups so that each MS-DRG had 19 standardized charge 
totals. 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 proposed 19 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.)

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Charges from
                                                                                          Cost from HCRIS         HCRIS
                                                     Revenue codes                         (worksheet  C,    (worksheet  C,     Medicare charges  from
  Cost center group  name (19     MedPAR  charge      contained in     Cost report line  part 1,  column 5   part 1,  column    HCRIS  (worksheet D-3,
            total)                    field          MedPAR  charge      description      and line number)   6 & 7  and line   column and line  number)
                                                         field                             form  CMS-2552-    number)  form        form CMS-2552-10
                                                                                                 10            CMS-2552-10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Routine Days..................  Private Room       011X and 014X....  Adults &           C--1--C5--30.....  C--1--C6--30....  D3--HOS--C2--30
                                 Charges.                              Pediatrics
                                                                       (General Routine
                                                                       Care).
                                Semi[dash]Private  012X, 013X and
                                 Room Charges.      016X[dash]019X.
                                Ward Charges.....  015X.............

[[Page 27531]]

 
Intensive Days................  Intensive Care     020X.............  Intensive Care     C--1--C5--31.....  C--1--C6--31....  D3--HOS--C2--31
                                 Charges.                              Unit.
                                Coronary Care      021X.............  Coronary Care      C--1--C5--32.....  C--1--C6--32....  D3--HOS--C2--32
                                 Charges.                              Unit.
                                                                      Burn Intensive     C--1--C5--33.....  C--1--C6--33....  D3--HOS--C2--33
                                                                       Care Unit.
                                                                      Surgical           C--1--C5--34.....  C--1--C6--34....  D3--HOS--C2--34
                                                                       Intensive Care
                                                                       Unit.
                                                                      Other Special      C--1--C5--35.....  C--1--C6--35....  D3--HOS--C2--35
                                                                       Care Unit.
Drugs.........................  Pharmacy Charges.  025X, 026X and     Intravenous        C--1--C5--64.....  C--1--C6--64....  D3--HOS--C2--64
                                                    063X.              Therapy.
                                                                                                            C--1--C7--64....
                                                                      Drugs Charged To   C--1--C5--73.....  C--1--C6--73....  D3--HOS--C2--73
                                                                       Patient.
                                                                                                            C--1--C7--73....
Supplies and Equipment........  Medical/Surgical   0270, 0271, 0272,  Medical Supplies   C--1--C5--71.....  C--1--C6--71....  D3--HOS--C2--71
                                 Supply Charges.    0273, 0274,        Charged to
                                                    0277, and 0621,    Patients.
                                                    0622, 0623.
                                                                                                            C--1--C7--71....
                                Durable Medical    0290, 0291, 0292   DME[dash]Rented..  C--1--C5--96.....  C--1--C6--96....  D3--HOS--C2--96
                                 Equipment          and
                                 Charges.           0294[dash]0299.
                                                                                                            C--1--C7--96....
                                Used Durable       0293.............  DME[dash]Sold....  C--1--C5--67.....  C--1--C6--97....  D3--HOS--C2--97
                                 Medical Charges.
                                                                                                            C--1--C7--97....
Implantable Devices...........                     0275, 0276, 0278,  Implantable        C--1--C5--72.....  C--1--C6--72....  D3--HOS--C2--72
                                                    0624.              Devices Charged
                                                                       to Patients.
                                                                                                            C--1--C7--72....
Therapy Services..............  Physical Therapy   042X.............  Physical Therapy.  C--1--C5--66.....  C--1--C6--66....  D3--HOS--C2--66
                                 Charges.
                                                                                                            C--1--C7--66....
                                Occupational       043X.............  Occupational       C--1--C5--67.....  C--1--C6--67....  D3--HOS--C2--67
                                 Therapy Charges.                      Therapy.
                                                                                                            C--1--C7--67....
                                Speech Pathology   044X and 047X....  Speech Pathology.  C--1--C5--68.....  C--1--C6--68....  D3--HOS--C2--68
                                 Charges.
                                                                                                            C--1--C7--68....
Inhalation Therapy............  Inhalation         041X and 046X....  Respiratory        C--1--C5--65.....  C--1--C6--65....  D3--HOS--C2--65
                                 Therapy Charges.                      Therapy.
                                                                                                            C--1--C7--65....
Operating Room................  Operating Room     036X.............  Operating Room...  C--1--C5--50.....  C--1--C6--50....  D3--HOS--C2--50
                                 Charges.
                                                                                                            C--1--C7--50....
                                                    071X............  Recovery Room....  C--1--C5--51.....  C--1--C6--51....  D3--HOS--C2--51
                                                                                                            C--1--C7--51....
Labor & Delivery..............  Operating Room     072X.............  Delivery Room and  C--1--C5--52.....  C--1--C6--52....  D3--HOS--C2--52
                                 Charges.                              Labor Room.
                                                                                                            C--1--C7--52....
Anesthesia....................  Anesthesia         037X.............  Anesthesiology...  C--1--C5--53.....  C--1--C6--53....  D3--HOS--C2--53
                                 Charges.
                                                                                                            C--1--C7--53....
Cardiology....................  Cardiology         048X and 073X....  Electrocardiology  C--1--C5--69.....  C--1--C6--69....  D3--HOS--C2--69
                                 Charges.
                                                                                                            C--1--C7--69....
Cardiac Catheterization.......                     0481.............  Cardiac            C--1--C5--59.....  C--1--C6--59....  D3--HOS--C2--59
                                                                       Catheterization.
                                                                                                            C--1--C7--59....
Laboratory....................  Laboratory         030X, 031X, and    Laboratory.......  C--1--C5--60.....  C--1--C6--60....  D3--HOS--C2--60
                                 Charges.           075X.
                                                                                                            C--1--C7--60....
                                                                      PBP Clinic         C--1--C5--61.....  C--1--C6--61....  D3--HOS--C2--61
                                                                       Laboratory
                                                                       Services.
                                                                                                            C--1--C7--61....
                                                   074X, 086X         Electro-           C--1--C5--70.....  C--1--C6--70....  D3--HOS--C2--70
                                                                       encephalography.
                                                                                                            C--1--C7--70....
Radiology.....................  Radiology Charges  032X, 040X.......  Radiology--Diagno  C--1--C5--54.....  C--1--C6--54....  D3--HOS--C2--54
                                                                       stic.
                                                                                                            C--1--C7--54....
                                                   028x, 0331, 0332,  Radiology--Therap  C--1--C5--55.....  C--1--C6--55....  D3--HOS--C2--55
                                                    0333, 0335,        eutic.
                                                    0339, 0342.
                                                   0343 and 344.....  Radioisotope.....  C--1--C5--56.....  C--1--C6--56....  D3--HOS--C2--56
                                                                                                            C--1--C7--56....
Computed Tomography (CT) Scan.  CT Scan Charges..  035X.............  Computed           C--1--C5--57.....  C--1--C6--57....  D3--HOS--C2--57
                                                                       Tomography (CT)
                                                                       Scan.

[[Page 27532]]

 
                                                                                                            C--1--C7--57....
Magnetic Resonance Imaging      MRI Charges......  061X.............  Magnetic           C--1--C5--58.....  C--1--C6--58....  D3--HOS--C2--58
 (MRI).                                                                Resonance
                                                                       Imaging (MRI).
                                                                                                            C--1--C7--58....
Emergency Room................  Emergency Room     045x.............  Emergency........  C--1--C5--91.....  C--1--C6--91....  D3--HOS--C2--91
                                 Charges.
                                                                                                            C--1--C7--91....
Blood and Blood Products......  Blood Charges....  038x.............  Whole Blood &      C--1--C5--62.....  C--1--C6--62....  D3--HOS--C2--62
                                                                       Packed Red Blood
                                                                       Cells.
                                                                                         C--1--C7--62.....
                                Blood Storage/     039x.............  Blood Storing,     C--1--C5--63.....  C--1--C6--63....  D3--HOS--C2--63
                                 Processing.                           Processing, &                        C--1--C7--63....
                                                                       Transfusing.
 Other Services...............  Other Service      0002-0099, 022X,
                                 Charge.            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--HOS--C2--74
                                ESRD Revenue       080X and 082X-                                           C--1--C7--74....
                                 Setting Charges.   088X.
                                                                      Home Program       C--1--C5--94.....  C--1--C6--94....  D3--HOS--C2--94
                                                                       Dialysis.                            C--1--C7--94....
                                Outpatient         049X.............  ASC (Non Distinct  C--1--C5--75.....  C--1--C6--75....  D3--HOS--C2--75
                                 Service Charges.                      Part).                               C--1--C7--75....
                                Lithotripsy        079X.                                                    ................
                                 Charge.
                                                                      Other Ancillary..  C--1--C5--76.....  C--1--C6--76....  D3--HOS--C2--76
                                                                                                            C--1--C7--76....
                                Clinic Visit       051X.............  Clinic...........  C--1--C5--90.....  C--1--C6--90....  D3--HOS--C2--90
                                 Charges.                                                                   C--1--C7--90....
                                                                                                            ................
                                                                      Observation beds.  C--1--C5--92.01..  C--1--C6--92.01.  D3--HOS--C2--92.01
                                                                                                            C--1--C7--92.01.
                                Professional Fees  096X, 097X, and    Other Outpatient   C--1--C5--93.....  C--1--C6--93....  D3--HOS--C2--93
                                 Charges.           098X.              Services.                            C--1--C7--93....
                                                                                                            ................
                                Ambulance Charges  054X.............  Ambulance........  C--1--C5--95.....  C--1--C6--95....  D3--HOS--C2--95
                                                                                                            C--1--C7--95....
                                                                                                            ................
                                                                      Rural Health       C--1--C5--88.....  C--1--C6--88....  D3--HOS--C2--88
                                                                       Clinic.
                                                                                                            C--1--C7--88....
                                                                      FQHC.............  C--1--C5--89.....  C--1--C6--89....  D3--HOS--C2--89
                                                                                                            C--1--C7--89....
--------------------------------------------------------------------------------------------------------------------------------------------------------

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 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

[[Page 27533]]

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.
    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, 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     FY 2013 FR weight
                               Transferred to        (adjusted by
                               Another Acute Care    percent change in
                               Facility.             average weight of
                                                     the cases in other
                                                     MS-DRGs).
790.........................  Extreme Immaturity    FY 2013 FR weight
                               or Respiratory        (adjusted by
                               Distress Syndrome,    percent change in
                               Neonate.              average weight of
                                                     the cases in other
                                                     MS-DRGs).
791.........................  Prematurity with      FY 2013 FR weight
                               Major Problems.       (adjusted by
                                                     percent change in
                                                     average weight of
                                                     the cases in other
                                                     MS-DRGs).
792.........................  Prematurity without   FY 2013 FR weight
                               Major Problems.       (adjusted by
                                                     percent change in
                                                     average weight of
                                                     the cases in other
                                                     MS-DRGs).
793.........................  Full-Term Neonate     FY 2013 FR weight
                               with Major Problems.  (adjusted by
                                                     percent change in
                                                     average weight of
                                                     the cases in other
                                                     MS-DRGs).
794.........................  Neonate with Other    FY 2013 FR weight
                               Significant           (adjusted by
                               Problems.             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 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/Bundled-Payments/index.html and to 
section IV.H.4. of the preamble of the FY 2013 IPPS/LTCH PPS final rule 
(77 FR 53341 through 53343) 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.

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

[[Page 27534]]

that a medical service or technology will be considered new if it meets 
criteria established by the Secretary after notice and opportunity for 
public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that 
a new medical service or technology may be considered for new 
technology add-on payment if, ``based on the estimated costs incurred 
with respect to discharges involving such service or technology, the 
DRG prospective payment rate otherwise applicable to such discharges 
under this subsection is inadequate.'' We note that beginning with 
discharges occurring in FY 2008, CMS transitioned from CMS-DRGs to MS-
DRGs.
    The regulations at 42 CFR 412.87 implement these provisions and 
specify three criteria for a new medical service or technology to 
receive the additional payment: (1) The medical service or technology 
must be new; (2) the medical service or technology must be costly such 
that the DRG rate otherwise applicable to discharges involving the 
medical service or technology is determined to be inadequate; and (3) 
the service or technology must demonstrate a substantial clinical 
improvement over existing services or technologies. Below we highlight 
some of the major statutory and regulatory provisions relevant to the 
new technology add-on payment criteria as well as other information. 
For a complete discussion on the new technology add-on payment 
criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51572 through 51574).
    Under the first criterion, as reflected in Sec.  412.87(b)(2), a 
specific medical service or technology will be considered ``new'' for 
purposes of new medical service or technology add-on payments until 
such time as Medicare data are available to fully reflect the cost of 
the technology in the MS-DRG weights through recalibration. We note 
that we do not consider a service or technology to be new if it is 
substantially similar to one or more existing technologies. That is, 
even if a technology receives a new FDA approval, 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, Sec.  412.87(b)(3) further provides 
that, to be eligible for the add-on payment for new medical services or 
technologies, the MS-DRG prospective payment rate otherwise applicable 
to 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 readers to the CMS Web 
site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-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, Sec.  412.87(b)(1) of our existing 
regulations provides that a new technology is an appropriate candidate 
for an additional payment when it represents ``an advance that 
substantially improves, relative to technologies previously available, 
the diagnosis or treatment of Medicare beneficiaries.'' For example, a 
new technology represents a substantial clinical improvement when it 
reduces mortality, decreases the number of hospitalizations or 
physician visits, or reduces recovery time compared to the technologies 
previously available. (We refer readers to the September 7, 2001 final 
rule for a more detailed discussion of this criterion (66 FR 46902).)
    The new medical service or technology add-on payment policy under 
the IPPS provides additional payments for cases with relatively high 
costs involving eligible new medical services or technologies while 
preserving some of the incentives inherent under an average-based 
prospective payment system. The payment mechanism is based on the cost 
to hospitals for the new medical service or technology. Under Sec.  
412.88, if the costs of the discharge (determined by applying cost-to-
charge ratios (CCRs) as described in Sec.  412.84(h)) exceed the full 
DRG payment (including payments for IME and DSH, but excluding outlier 
payments), Medicare will make an add-on payment equal to the lesser of: 
(1) 50 percent of the estimated costs of the new technology (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 Public Law 108-173 provides that there shall 
be no reduction or adjustment in aggregate payments under the IPPS due 
to add-on payments for new medical services and technologies. 
Therefore, in accordance with section 503(d)(2) of Public Law 108-173, 
add-on payments for new medical services or technologies for FY 2005 
and later years have not been subjected to budget neutrality.
    In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we 
modified our regulations at Sec.  412.87 to codify our longstanding 
practice of how CMS evaluates the eligibility criteria for new medical 
service or technology add-on payment applications. That is, we first 
determine whether a medical service or technology meets the newness 
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 Sec.  412.87(c) to specify that all applicants for new 
technology add-on payments must have FDA approval or clearance for 
their new medical service or technology by July 1 of each year prior to 
the beginning of the fiscal year that the application is being 
considered.
    The Council on Technology and Innovation (CTI) at CMS oversees the 
agency's cross-cutting priority on coordinating coverage, coding and 
payment processes for Medicare with respect to new technologies and 
procedures, including new drug therapies, as well as promoting the 
exchange of information on new technologies between CMS and other 
entities. The CTI, composed of senior CMS staff and clinicians, was 
established under section 942(a) of Public Law 108-173. The Council is 
co-chaired by the Director of the Center for Clinical Standards and 
Quality (CCSQ) and the Director of the Center for

[[Page 27535]]

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.
    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 that the medical service or technology 
meets the high-cost threshold. Complete application information, along 
with final deadlines for submitting a full application, will be posted 
as it becomes available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html. To allow interested parties to identify the new medical 
services or technologies under review before the publication of the 
proposed rule for FY 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 Public Law 108-173, provides for a mechanism for public 
input before publication of a notice of proposed rulemaking regarding 
whether a medical service or technology represents a substantial 
clinical improvement or advancement. The process for evaluating new 
medical service and technology applications requires the Secretary to--
     Provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology represents an 
advance in medical technology that substantially improves the diagnosis 
or treatment of Medicare beneficiaries;
     Make public and periodically update a list of the services 
and technologies for which applications for add-on payments are 
pending;
     Accept comments, recommendations, and data from the public 
regarding whether a service or technology represents a substantial 
clinical improvement; and
     Provide, before publication of a proposed rule, for a 
meeting at which organizations representing hospitals, physicians, 
manufacturers, and any other interested party may present comments, 
recommendations, and data regarding whether a new medical service or 
technology represents a substantial clinical improvement to the 
clinical staff of CMS.
    In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 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 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

[[Page 27536]]

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.
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 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 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 Sec.  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'' (Sec.  
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 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[supreg])
    BTG International, Inc. submitted an application for new technology 
add-on payments for Glucarpidase (trade brand Voraxaze[supreg]) 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[supreg] was approved by the FDA on January 17, 2012. 
Beginning in 1993, certain patients could obtain expanded access for 
treatment use to Voraxaze[supreg] as an investigational drug. Since 
2007, the applicant has been authorized to recover the costs of making 
Voraxaze[supreg] 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[supreg] was available on the market in the United States as a 
commercial product to the larger population as of April 30, 2012.

[[Page 27537]]

In the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27936 through 27939), 
we expressed concerns about whether Voraxaze[supreg] 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[supreg] 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[supreg] 
and consideration of the public comments we received in response to the 
FY 2013 IPPS/LTCH PPS proposed rule, we approved Voraxaze[supreg] for 
new technology add-on payments for FY 2013. Cases of Voraxaze[supreg] 
are identified with ICD-9-CM procedure code 00.95 (Injection or 
infusion of glucarpidase). The cost of Voraxaze[supreg] 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[supreg] is $90,000 ($22,500 x 4). Under Sec.  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 Voraxaze[supreg] 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'' (Sec.  412.87(b)(2)). With regard to the newness criterion 
for Voraxaze[supreg], as stated above, we consider the beginning of the 
newness period to commence when Voraxaze[supreg] was first available on 
the market on April 30, 2012. Because Voraxaze[supreg] 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.
c. DIFICIDTM (Fidaxomicin) Tablets
    Optimer Pharmaceuticals, Inc. submitted an application for new 
technology add-on 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 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, which results in an average cost per case 
for DIFICIDTM of $1,736 ($280 x 6.2). Under Sec.  
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'' (Sec.  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.
d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zenith[supreg] Fenestrated Abdominal Aortic 
Aneurysm (AAA) Endovascular Graft (Zenith[supreg] 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[supreg] F. Graft is an implantable device designed to treat 
patients who

[[Page 27538]]

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[supreg] 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[supreg] F. Graft was approved by the FDA 
on April 4, 2012, we believed that the Zenith[supreg] 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[supreg] 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[supreg] F. Graft for new technology add-on payments 
for FY 2013. Cases involving the Zenith[supreg] F. Graft that are 
eligible for new technology add-on payments are identified by ICD-9-CM 
procedure code 39.78 (Endovascular implantation of branching or 
fenestrated graft(s) in aorta). In the application, the applicant 
provided a breakdown of the costs of the Zenith[supreg] F. Graft. The 
total cost of the Zenith[supreg] F. Graft utilizing bare metal (renal) 
alignment stents was $17,264. Of the $17,264 in costs for the 
Zenith[supreg] 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[supreg] F. Graft. Therefore, the total maximum cost for 
the Zenith[supreg] F. Graft is $16,343 ($17,264 - $921). Under Sec.  
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[supreg] 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'' (Sec.  412.87(b)(2)). With regard to the newness criterion 
for the Zenith[supreg] F. Graft, as stated above, we consider the 
beginning of the newness period to commence when the Zenith[supreg] F. 
Graft was approved by the FDA on April 4, 2012. Because the 
Zenith[supreg] 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.
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-M-Meeting-Materials-Items/2013-03-05-MeetingMaterials.html. We note 
that any final 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.
    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 anti-coagulation 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

[[Page 27539]]

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 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 FDA-approved 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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 publications \4\ 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.
---------------------------------------------------------------------------

    \4\ Hanke A, et al., Efficacy and Long-Term Safety of a 
Pasteurized Nanofiltrated Prothrombin Complex Concentrate 
(BERIPLEX[supreg] P/N), 2009, J Thromb Haemost, Vol. 7 (Suppl.2) PP-
WE-697.
---------------------------------------------------------------------------

    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 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 study \5\ 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 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

[[Page 27540]]

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 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-and-Guidance/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. 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 operating 
costs of inpatient hospital services (that is, when no add-on payment 
is made for clotting factor).
b. Argus[supreg] II Retinal Prosthesis System
    Second Sight Medical Products, Inc. submitted an application for 
new technology add-on payments for the Argus[supreg] II Retinal 
Prosthesis System (Argus[supreg] II System) for FY 2014. The 
Argus[supreg] 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[supreg] 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[supreg] 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.
     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[supreg] 
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[supreg] 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 thereafter as 
needed. The clinician/physician also uses the

[[Page 27541]]

``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[supreg] 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[supreg] 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[supreg] 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 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[supreg] 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[supreg] 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[supreg] 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[supreg] 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/ICD-9-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: 
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[supreg] 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 ICD-9-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[supreg] 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 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[supreg] 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[supreg] 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 stress 
that care should be provided in the appropriate setting. We are 
inviting public comments on whether the Argus[supreg] 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[supreg] II 
System would create a financial incentive that

[[Page 27542]]

would shift utilization inappropriately from an outpatient to an 
inpatient setting.
    With regard to the substantial clinical improvement criterion, the 
Argus[supreg] 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. Therefore, the Argus[supreg] 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[supreg] II System ``on'' and 
``off'' (that is, control was available at each time point).
    According to the applicant, there were no unexpected adverse 
events. Non-serious adverse events represented the majority of events. 
The safety review concluded that the Argus[supreg] 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[supreg] II 
System provided all 30 patients with 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[supreg] 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[supreg] II System improved their performance on a spatial vision 
task. At 24 months, the mean response error was approximately 60[deg] 
with the system ``on'' versus more than 80[deg] 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[supreg] 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 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[supreg] 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[supreg] 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[supreg]II System during the 
town hall meeting's public comment period. These comments are 
summarized below.
    Comment: Several commenters supported approving the Argus[supreg] 
II System for new technology add-on payments. One commenter, a society 
of retina specialists, stated that the Argus[supreg] 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[supreg] 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[supreg] II System accessible for these patients who have no 
other treatment alternatives. The commenter recommended approving the 
Argus[supreg] II System for new technology add-on payments. The 
commenter noted that for patients with rare retinal diseases like 
retinitis pigmentosa, the Argus[supreg] II System represents the first 
approved breakthrough to help restore sight and improve quality of 
life.
    Response: We appreciate the commenters' support. We considered

[[Page 27543]]

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[supreg] 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[supreg]) System
    NeuroPace, Inc. submitted an application for new technology add-on 
payments for FY 2014 for the use of the RNS[supreg] 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[supreg] 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[supreg] 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[supreg] 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 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[supreg] 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[supreg] System in the second quarter of 2013.
    The following ICD[hyphen]9[hyphen]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[supreg] 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.
    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[supreg] 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:

----------------------------------------------------------------------------------------------------------------
                                                                                                  Percent change
           FY 2011 Calendar quarter                    Midpoint of quarter            CPI IP        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[supreg] 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[supreg] System Pivotal trial, and 
these queries yielded a mean and median CCR for implantable

[[Page 27544]]

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.
    Using this approach, the applicant added the anticipated hospital 
charge for the implantable RNS[supreg] 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[supreg] 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[supreg] 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[supreg] 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 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[supreg] System and determined a final inflated average 
standardized charge per case of $118,408. As noted above, although the 
applicant submitted data that related to the estimated cost of the 
RNS[supreg] 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[supreg] 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[supreg] 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[supreg] 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[supreg] System clinical trials provide Class I 
evidence that treatment with the RNS[supreg] 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.
    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[hyphen]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[supreg] System on neuropsychological function 
(including verbal functioning, visual-spatial processing, and memory) 
or mood. The applicant concluded that the RNS[supreg] 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[supreg] 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 safety and 
tolerability compares favorably to alternative treatments such as

[[Page 27545]]

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[supreg] System compares to other 
neurostimulation treatments was not provided by the applicant. The 
applicant did provide the following comparison of VNS to the 
RNS[supreg] System:

                     Key Differences Between the RNS[supreg] System and DBS and VNS Systems
----------------------------------------------------------------------------------------------------------------
                                                                 Deep brain stimulator    Vagus nerve stimulator
                                          RNS[supreg] System             (DBS)                    (VNS)
----------------------------------------------------------------------------------------------------------------
Type of stimulation..................  Closed loop: responsive                Open loop: scheduled.
                                                               -------------------------------------------------
Stimulation time/day.................  About 5 minutes........
Stimulation target...................  Cortical; varies         Deep brain nuclei......  Ascending vagus nerve.
                                        according to seizure
                                        focus.
                                                               -------------------------------------------------
Neurostimulator......................  Cranially implanted....       Subcutaneously (pectorally) implanted.
                                                               -------------------------------------------------
Programming changes..................  According to clinical             According to clinical response.
                                        and electrographic
                                        response.
                                                               -------------------------------------------------
Information from device..............  Device data,                               Device data.
                                        detections,
                                        stimulations and
                                        electrocorticograms.
                                                               -------------------------------------------------
Physician data review................  At time of programming   At time of programming.
                                        as well as online
                                        access to stored data.
----------------------------------------------------------------------------------------------------------------

    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[supreg] 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[supreg] 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[supreg] 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[supreg] 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[supreg] System's commercial availability and encouraged CMS to 
approve the RNS[supreg] System for new technology add-on payments. The 
commenter noted that the benefits of the RNS[supreg] 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 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[supreg] 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.
    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[supreg] 
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[supreg] PTX[supreg] Drug Eluting Peripheral Stent
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zilver[supreg] PTX[supreg] Drug Eluting 
Peripheral Stent (Zilver[supreg] PTX[supreg]) for FY 2014. The 
Zilver[supreg] PTX[supreg] 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

[[Page 27546]]

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[supreg] PTX[supreg]. The applicant maintains that the 
Zilver[supreg] PTX[supreg] is the first drug-eluting stent used 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[supreg] PTX[supreg] 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[supreg] PTX[supreg] 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[supreg] PTX[supreg], 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 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[supreg] PTX[supreg]. 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[supreg] PTX[supreg]. 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[supreg] PTX[supreg] stents 
per case, instead of using the amount of stents used per case based on 
the ICD-9-CM codes above, the applicant used an average of 1.9 stents 
per case based on the Zilver[supreg] PTX[supreg] Global Registry 
Clinical Study \6\. 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[supreg] PTX[supreg] is 80 mm (which could cause a variance in 
the actual amount of stents used per case when using the Zilver[supreg] 
PTX[supreg]). The applicant then multiplied the average of 1.9 stents 
used per case by the future market price for the Zilver[supreg] 
PTX[supreg] 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[supreg] PTX[supreg] 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[supreg] PTX[supreg], 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[supreg] 
PTX[supreg] 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), 
Paclitaxel-eluting 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.
---------------------------------------------------------------------------

    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[supreg] PTX[supreg] would meet the 
cost criterion.
    We are inviting public comments on whether or not the 
Zilver[supreg] PTX[supreg] 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[supreg] 
PTX[supreg] meets the substantial clinical improvement criterion 
because it decreases the

[[Page 27547]]

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.
    The applicant cited a 479-patient, multicenter, multinational 
randomized controlled trial that compared the Zilver[supreg] 
PTX[supreg] to balloon angioplasty \7\; an additional component of the 
study allowed a direct comparison of the Zilver[supreg] PTX[supreg] to 
a bare (uncoated) metal Zilver[supreg] stent. Patients were randomized 
to treatment with the Zilver[supreg] PTX[supreg] 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[supreg] PTX[supreg] or bare Zilver stents. This 
secondary randomization allows evaluation of the Zilver[supreg] 
PTX[supreg] 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[supreg] PTX[supreg].
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    According to the applicant, the Zilver[supreg] PTX[supreg] 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[supreg] 
PTX[supreg] 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[supreg] PTX[supreg] 
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[supreg] PTX[supreg] 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[supreg] PTX[supreg] and 
a bare metal stent, the Zilver[supreg] PTX[supreg] 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[supreg] PTX[supreg] is 
more effective in maintaining primary patency.\8\
---------------------------------------------------------------------------

    \8\ Dake, MD., VIVA 2012, October 10, 2012; Las Vegas, Nevada.
---------------------------------------------------------------------------

    The applicant also cited a prospective, multicenter, multinational, 
787-patient single arm study on the Zilver[supreg] PTX[supreg] 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[supreg] PTX[supreg] of 89.0 percent and an 
86.2 percent primary patency rate. According to the applicant, these 
results confirm the safety and effectiveness of the Zilver[supreg] 
PTX[supreg], 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\
---------------------------------------------------------------------------

    \9\ Dake, M. D., Scheinert, D., Tepe, G., Tessarek, J., Fanelli, 
F., Bosiers, M., et al., (2011). Nitinol stents with polymer-free 
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.
---------------------------------------------------------------------------

    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[supreg] PTX[supreg] 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[supreg] PTX[supreg] meets the substantial clinical improvement 
criterion. We note that we did not receive any public comments on the 
Zilver[supreg] PTX[supreg] during the new technology town hall 
meeting's public comment period.
e. MitraClip[supreg] System
    Abbott Vascular submitted an application for new technology add-on 
payments for the MitraClip[supreg] System for FY 2014. The 
MitraClip[supreg] System is a transcatheter mitral valve system that 
includes a MitraClip[supreg] 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[supreg] 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.''
    The MitraClip[supreg] System performs percutaneous mitral valve 
repair. The applicant noted that the MitraClip[supreg] 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

[[Page 27548]]

of MR since the early 1990s.1011121314 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.''
---------------------------------------------------------------------------

    \10\ Maisano, 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.
---------------------------------------------------------------------------

    With regard to the newness criterion, the manufacturer submitted a 
Premarket Approval (PMA) application in support of obtaining FDA 
approval for the MitraClip[supreg] 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[supreg] 
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[supreg] System. Specifically, 
the Committee was charged with determining if the 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[supreg] 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/MedicalDevices/MedicalDevicesAdvisoryCommittee/CirculatorySystemDevicesPanel/UCM345235.pdf. We are inviting public 
comments regarding how the MitraClip[supreg] 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[supreg] has demonstrated 
that it is extremely rare for a patient to receive stents concurrently 
with the MitraClip[supreg] 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 (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[supreg] 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[supreg] procedures that were performed in an IDE study 
setting where hospitals obtained the MitraClip[supreg] 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. 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[supreg] 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[supreg] cases were remarkably low for MS-DRGs 250 and 251, 
respectively. According to the applicant, the mean total standardized 
costs in the ``Supplies and Equipment'' cost center reflect only 50 
percent of the actual MitraClip[supreg] System costs not inclusive of 
other supply and equipment costs associated with the MitraClip[supreg] 
procedure and hospital stay. Therefore, the applicant

[[Page 27549]]

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[supreg] 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[supreg] 
procedure in the IDE study when hospitals obtained the 
MitraClip[supreg] 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 cost for the MitraClip[supreg] 
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[supreg] System would meet the cost criterion.
     Analysis 3: Because the first two analyses sought only to 
estimate standardized charges for the MitraClip[supreg] 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[supreg] 
System, which does not reflect the full commercial charge for the 
MitraClip[supreg] System. Therefore, the applicant removed the amount 
of clinical trial charges related to the MitraClip[supreg] 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).
    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[supreg] System, the applicant noted that the cost 
of the technology was proprietary information. To compute the 
commercial charges for the MitraClip[supreg] System, the applicant took 
the European commercial price of the MitraClip[supreg] 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[supreg] 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 MitraClip[supreg] 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[supreg] System, the applicant 
noted that the cost of the technology was proprietary information. To 
compute the commercial charges for the MitraClip[supreg] System, the 
applicant used the anticipated U.S. commercial price of the 
MitraClip[supreg] 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

[[Page 27550]]

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[supreg] System 
would meet the cost criterion.
    We are inviting public comments on whether or not the 
MitraClip[supreg] System meets the cost criterion. In addition, we are 
inviting public comments on the methodologies used by the applicant in 
its four analyses.
    The applicant asserted that the MitraClip[supreg] 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 Cardio-Thoracic Surgery (EACTS) clinical practice 
guideline for valvular heart disease, which recommended that the 
MitraClip[supreg] 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[supreg] procedure leads to a 
significant reduction of MR, improvements in left ventricular (LV) 
function including LV volumes and dimensions, improved patient outcomes 
as measured by improvements in New York Heart Association (NYHA) 
functional class, health-related 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 
Study \15\ 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    In addition to the published clinical experience from the EVEREST 
studies, the applicant cited data on the use of the MitraClip[supreg] 
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[supreg] 
device group of the ACCESS-EU post-approval clinical trial in Europe. 
The European use of the MitraClip[supreg] 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[supreg] procedure have consistently demonstrated a 
significant reduction in MR that is durable out to 1, 2, and 3 years. 
The applicant cited the EVEREST II High Risk Study, which demonstrated 
that the MitraClip[supreg] 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 (pIV representing marked or severe limitations in activity was 
significantly reduced from 82 percent at baseline to 17 percent at 1 
year (p17 18 19 20 21 22 23 and

[[Page 27551]]

(2) comparing MitraClip[supreg] 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.
---------------------------------------------------------------------------

    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[supreg] 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[supreg] System. However, both the surgical 
patients and the MitraClip[supreg] 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 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[supreg] 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[supreg] System. However, both the surgical 
patients and the MitraClip[supreg] System's patients showed comparable 
results for improved left ventricular function, NYHA functional class, 
and quality of life.
    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[supreg] 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[supreg] 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[supreg] 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[supreg] System because it is a novel technology utilizing the 
transcatheter approach to repair the mitral valve and has demonstrated 
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[supreg] 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[supreg] 
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[supreg] 
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[supreg] 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.

[[Page 27552]]

    One commenter indicated that the MitraClip[supreg] 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[supreg] System ``represents 
a landmark in our ability to perform mitral valve surgeries with less 
risk.'' This commenter further stated that the ``MitraClip[supreg] 
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[supreg] 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[supreg] 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.

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 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 (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 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,

[[Page 27553]]

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.

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 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 
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 CMS-2552-10. 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 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).

[[Page 27554]]

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 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
------------------------------------------------------------------------
                                                            Adjustment
                  After                       Before          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
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
    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 Public Law 106-554 amended 
section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 
years on the occupational mix of employees for each short-term, acute 
care hospital participating in the Medicare program. We used 
occupational mix data collected on the 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 and definitions as the 2010 
survey and

[[Page 27555]]

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 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.

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:

------------------------------------------------------------------------
                                                             Proposed
          Occupational mix nursing subcategory           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 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

[[Page 27556]]

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 Public Law 105-33 provides that, for discharges 
on or after October 1, 1997, the area wage index applicable to any 
hospital that is located in an urban area of a State may not be less 
than the area wage index applicable to hospitals located in rural areas 
in that State. This provision is referred to as the ``rural floor.'' 
Section 3141 of Public Law 111-148 also requires that a national budget 
neutrality adjustment be applied in implementing the rural floor. 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.
    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 Sec.  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 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 Sec.  
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 Sec.  
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.
    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 Sec.  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 Public Law 111-148 requires that hospitals in 
frontier States cannot be assigned a wage index of less than 1.0000 (we 
refer readers to 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

[[Page 27557]]

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.
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 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 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 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

[[Page 27558]]

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 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/Review-Boards/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.
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 
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 rule \24\) 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.

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 Public 
Law 108-173, beginning with FY 2005, we established a process to make 
adjustments to the hospital wage index based on commuting patterns of 
hospital employees (the ``out-migration'' adjustment). The process, 
outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an 
increase in the wage index for hospitals located in certain counties 
that have a relatively high percentage of hospital employees who reside 
in the county but work in a different county (or counties) with a 
higher wage index. 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.

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-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/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

[[Page 27559]]

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/Outreach-and-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.
    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 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-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/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-Service-Payment/AcuteInpatientPPS/Wage-Index-Files-Items/FY_2014_Wage_Index_Home_Page.html. The May 2013 public use files are made 
available solely for the limited purpose of identifying any potential 
errors made by CMS or the fiscal intermediary/MAC in the entry of the 
final wage index data that resulted from the correction process 
described above (revisions submitted to CMS by the fiscal 
intermediaries/MACs by April 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.
     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

[[Page 27560]]

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) 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 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 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[hellip].'' We refer 
to the portion of hospital costs attributable to wages and wage-related 
costs as the labor-related share. The labor-related share of the 
prospective payment rate is adjusted by an index of relative labor 
costs, which is referred to as the wage index.
    Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of 
the Act to provide that the Secretary must employ 62 percent as the 
labor-related share unless this ``would result in lower payments to a 
hospital than would otherwise be made.'' However, this provision of 
Public Law 108-173 did not change the legal requirement that the 
Secretary estimate ``from time to time'' the proportion of hospitals' 
costs that are ``attributable to wages and 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

[[Page 27561]]

result of hospitals with a wage index less than or equal to 1.0 being 
paid using a labor-related share lower than the labor-related share of 
hospitals with a wage index greater than 1.0.
    The labor-related share is used to determine the proportion of the 
national IPPS base payment rate to which the area wage index is 
applied. 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 Public Law 108-173 amended 
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that 
the Secretary must employ 62 percent as the labor-related share unless 
this employment ``would result in lower payments to a hospital than 
would otherwise be made.'' Therefore, for 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.
    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 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.

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 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.
    As noted above, the market basket is described as a fixed-weight 
index

[[Page 27562]]

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 Public 
Law 108-173, CMS determined a new frequency for rebasing the hospital 
market basket. We established a rebasing frequency of every 4 years 
and, therefore, for the FY 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 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
------------------------------------------------------------------------
                                                            Proposed FY
          Major cost categories            FY 2006-based    2010-based
                                           market basket   market basket
------------------------------------------------------------------------
Wages and salaries......................          45.156          45.819
Employee benefits.......................          11.873          12.713
Contract labor..........................           2.598           1.806
Professional Liability Insurance                   1.661           1.330
 (Malpractice)..........................
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 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.

[[Page 27563]]

 Table IV02--Wages and Salaries and Employee Benefits Cost Weights After
                        Contract Labor Allocation
------------------------------------------------------------------------
                                                            Proposed FY
          Major cost categories            FY 2006-based    2010-based
                                           market basket   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 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 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/Statistics-Trends-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 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.
     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

[[Page 27564]]

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 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
----------------------------------------------------------------------------------------------------------------
                                                   FY          Proposed FY
                                            2006[dash]based  2010[dash]based
              Cost categories                   hospital         hospital       Proposed FY 2010-based hospital
                                             market basket    market basket       market basket price proxies
                                              cost weights     cost weights
----------------------------------------------------------------------------------------------------------------
1. Compensation...........................           59.627           60.338  ..................................
    A. Wages and Salaries \1\.............           47.213           47.233  ECI for Wages and Salaries,
                                                                               Civilian Hospital Workers.
    B. Employee Benefits \1\..............           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.
     (3.) Food: Contract Services.........            0.575            0.578  CPI-U for Food Away From Home.
     (4.) Chemicals \2\...................            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               0.626            0.619  ECI for Compensation for Office
     Support Services \3\.                                                     and Administrative Services.
     (3.) All Other: Labor-Related                    3.193            3.130  ECI for Compensation for Private
     Services.                                                                 Service Occupations.
    C. Nonlabor-Related Services..........            7.885            7.379  ..................................
     (1.) Professional Fees: Nonlabor-                4.074            3.687  ECI for Compensation for
     Related.                                                                  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: Nonlabor-Related                 0.940            0.900  CPI-U for All Items less Food and
     Services.                                                                 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.

[[Page 27565]]

    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 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.
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.
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.
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.
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.

[[Page 27566]]

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.
    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
------------------------------------------------------------------------
                                                            Proposed FY
                                           FY 2006-based    2010-based
                                            IPPS market     IPPS market
            Fiscal year (FY)                  basket          basket
                                             operating       operating
                                           index percent   index percent
                                              change          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 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 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 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

[[Page 27567]]

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 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-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
------------------------------------------------------------------------
                                                            Proposed FY
                                           FY 2006-based    2010-based
                                           market basket   market basket
                                           cost weights    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...........           0.626           0.619
Support Services........................
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 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 
Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) 
of the Act to provide that the Secretary must employ 62 percent as the 
labor-related share unless 62 percent ``would result in lower payments 
to a hospital than would otherwise be made.''
    We also are proposing to update the labor-related share for Puerto 
Rico. Consistent with our methodology for determining the national 
labor-related

[[Page 27568]]

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.

    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
------------------------------------------------------------------------
                                                            Proposed FY
                                           FY 2006-based    2010-based
                                           market basket   market basket
                                           cost weights    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              0.626           0.619
 Services...............................
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.
    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 Sec.  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.

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 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

[[Page 27569]]

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.
    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
----------------------------------------------------------------------------------------------------------------
                                                 FY 2006       Proposed FY
              Cost categories                    weights      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 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-and-Systems/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 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

[[Page 27570]]

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 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 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 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
                                                         -----------------------------------------------------------------------------------------------
                        Year \1\                            FY 2006 25      FY 2010 26      FY 2006 12      FY 2010 12      FY 2006 25      FY 2010 26
                                                               years           years           years           years           years           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
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

[[Page 27571]]

 
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.

   Table IV09--Comparison of FY 2006-Based and Proposed FY 2010-Based
   Capital Input Price Index, Percent Change, FY 2008 Through FY 2016
------------------------------------------------------------------------
                                          CIPI, FY 2006-  Proposed CIPI,
               Fiscal year                     based       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
Forecast:
    FY 2013.....................................................             1.0             1.7            -2.8

[[Page 27572]]

 
    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.

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 
(Sec. Sec.  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 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 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 1886(b)(3)(B) of the Act, we 
are proposing to add a new paragraph (v) to Sec.  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,

[[Page 27573]]

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 Sec. Sec.  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 
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 Public Law 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 Sec.  412.211(c) currently set the update factor for the 
Puerto Rico-specific operating standardized amount equal to the update 
factor applied to the national standardized amount for all IPPS 
hospitals. Therefore, 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 (Sec.  412.96)

    Under the authority of section 1886(d)(5)(C)(i) of the Act, the 
regulations at Sec.  412.96 set forth the criteria that a hospital must 
meet in order to qualify under the IPPS as a rural referral center 
(RRC). RRCs receive some special treatment under both the DSH payment 
adjustment and the criteria for geographic reclassification.
    Section 402 of Public Law 108-173 raised the DSH payment adjustment 
for RRCs such that they are not subject to the 12-percent cap on DSH 
payments that is applicable to other rural hospitals. RRCs are also not 
subject to the proximity criteria when applying for geographic 
reclassification. In addition, they do not have to meet the requirement 
that a hospital's average hourly wage must exceed, by a certain 
percentage, the average hourly wage of the labor market area where the 
hospital is located.
    Section 4202(b) of Public Law 105-33 states, in part, ``[a]ny 
hospital classified as an RRC by the Secretary . . . for fiscal year 
1991 shall be classified as such an RRC for fiscal year 1998 and each 
subsequent year.'' In the August 29, 1997 IPPS final rule with comment 
period (62 FR 45999), CMS reinstated RRC status for all hospitals that 
lost the status due to triennial review or MGCRB reclassification. 
However, CMS did not reinstate the status of hospitals that lost RRC 
status because they were now urban for all purposes because of the OMB 
designation of their geographic area as urban. Subsequently, in the 
August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were 
revisiting that decision. Specifically, we stated that we would permit 
hospitals that previously qualified as an RRC and lost their status due 
to OMB redesignation of the county in which they are located from rural 
to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC 
status must satisfy all of the other applicable criteria. We use the 
definitions of ``urban'' and ``rural'' specified in Subpart D of 42 CFR 
Part 412. One of the criteria under which a hospital may qualify as an 
RRC is to have 275 or more beds available for use (Sec.  
412.96(b)(1)(ii)). A rural hospital that does not meet the bed size 
requirement can qualify as an RRC if the hospital meets two mandatory 
prerequisites (a minimum CMI and a minimum number of discharges), and 
at least one of three optional criteria (relating to specialty 
composition of medical staff, source of inpatients, or referral 
volume). (We refer readers to Sec.  412.96(c)(1) through (c)(5) and the 
September 30, 1988 Federal Register (53 FR 38513).) With respect to the 
two mandatory prerequisites, a hospital may be classified as an RRC 
if--
     The hospital's CMI is at least equal to the lower of the 
median CMI for urban hospitals in its census region, excluding 
hospitals with approved teaching programs, or the median CMI for all 
urban hospitals nationally; and
     The hospital's number of discharges is at least 5,000 per 
year, or, if fewer, the median number of discharges for urban hospitals 
in the census region in which the hospital is located. (The number of 
discharges criterion for an osteopathic hospital is at least 3,000 
discharges per year, as specified in section 1886(d)(5)(C)(i) of the 
Act.)
1. Case-Mix Index (CMI)
    Section 412.96(c)(1) provides that CMS establish updated national 
and regional CMI values in each year's annual notice of prospective 
payment rates for purposes of determining RRC status. The methodology 
we used to determine the national and regional CMI values is set forth 
in the regulations at Sec.  412.96(c)(1)(ii). The 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 Sec.  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

[[Page 27574]]

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 Sec.  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:

------------------------------------------------------------------------
                                                          Case-mix index
                         Region                                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 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:

------------------------------------------------------------------------
                                                             Number of
                         Region                             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 (Sec.  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 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 
Public Law

[[Page 27575]]

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 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 Public Law 
108-173, which initially added subparagraph (12) to section 1886(d) of 
the Act, the provision requires the Secretary to determine an 
applicable percentage increase for these low-volume hospitals based on 
the ``empirical relationship'' between ``the standardized cost-per-case 
for such hospitals and the total number of discharges of such hospitals 
and the amount of the additional incremental costs (if any) that are 
associated with such number of discharges.'' The statute thus mandates 
that the Secretary develop an empirically justifiable adjustment based 
on the relationship between costs and discharges for these low-volume 
hospitals. 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 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 Sec.  412.101(a), the term ``road 
miles'' to mean ``miles'' as defined at Sec.  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 Sec.  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 Sec.  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 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 Sec.  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

[[Page 27576]]

rule (77 FR 53406 through 53409), we discussed the low-volume hospital 
payment 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 Sec.  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.
    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 Sec.  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 
Sec.  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 Sec.  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 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 Sec.  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 Sec.  
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 
Sec.  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
    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 Sec.  
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 Sec.  412.101(b)(2)(i)). We use cost report data 
to determine if a hospital meets the discharge criterion because this 
is the best available data source that includes information on both 
Medicare and non-Medicare discharges. We note that, for FYs 2011, 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 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

[[Page 27577]]

specified at proposed Sec.  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 Sec.  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 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 Sec.  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 Sec.  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 
low-volume 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 (Sec.  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 the higher indirect patient care costs of 
teaching hospitals relative to nonteaching hospitals. The payment 
amount is determined by use of a statutorily specified adjustment 
factor. The regulations regarding the calculation of this additional 
payment, known as the IME adjustment, are located at Sec.  412.105. We 
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680) for 
a full discussion of the IME adjustment and IME adjustment factor. 
Section 1886(d)(5)(B) 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.

E. Payment Adjustment for Medicare Disproportionate Share Hospitals 
(DSHs) (Sec.  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 
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 Sec.  412.106 govern the Medicare DSH payment adjustment and 
specify how the DPP is calculated as well as how beds and patient days 
are counted in determining the Medicare DSH payment adjustment. Under 
Sec.  412.106(a)(1)(i), the number of beds for the Medicare DSH payment 
adjustment is determined in accordance with bed counting rules for the 
IME adjustment under Sec.  412.105(b).

[[Page 27578]]

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). 
We note that, under Sec.  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 Sec.  
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 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 Sec.  
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 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 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 
(Sec.  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

[[Page 27579]]

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 
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.''
    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.
    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.''
    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.

[[Page 27580]]

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, 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 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.
    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.
(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.
    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

[[Page 27581]]

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 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.
(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.
    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 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

[[Page 27582]]

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 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.
(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 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, 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

[[Page 27583]]

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 
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 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 Sec.  
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, 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 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.

[[Page 27584]]

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 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.
    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 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_ACAInsuranceCoverageEffects.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 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
Percent of individuals without insurance for 2014: 16 percent
1 - [verbar][(0.16 - 0.18)/0.18][verbar] = 1 - 0.111 = 0.889 (88.9 
percent)

[[Page 27585]]

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 Sec.  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 
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 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-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 Sec.  
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.
    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

[[Page 27586]]

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 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 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 Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/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 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.
    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-

[[Page 27587]]

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 
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 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.
    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 S-10, 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 
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-

[[Page 27588]]

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 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\
---------------------------------------------------------------------------

    \25\ Wynn, B. et al. Analysis of the Joint Distribution of 
Disproportionate Share Hospital Payments. PM-1387-ASPE. September 
20, 2002 http://www.urban.org/UploadedPDF/410975_ASPEDSH_final.pdf.
---------------------------------------------------------------------------

    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 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, low-
income 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 
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.
---------------------------------------------------------------------------

    \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.
    \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.
---------------------------------------------------------------------------

    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 
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 Sec.  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).

[[Page 27589]]

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 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 Web 
site, 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-Service-Payment/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 
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 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 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 Sec.  
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

[[Page 27590]]

settlement and cost report settlement occurs several years after 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.
    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 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 Web site at: 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/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 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 Sec.  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 
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

[[Page 27591]]

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-Service-Payment/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 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 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 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 Sec.  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 
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 Sec.  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

[[Page 27592]]

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 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 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-Calls-and-Events-Items/2013-01-08-ACA 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 Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html.

F. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
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 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 Public Law 
109-171 (DRA 2005), the MDH program was to be in effect through the end 
of FY 2011 only. Section 3124(a) of the Affordable Care Act amended 
sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to 
extend the MDH program and payment methodology 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 Sec.  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 
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 Sec.  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

[[Page 27593]]

a sole community hospital (SCH) or cancelled its rural classification 
under Sec.  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 Sec. Sec.  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 Sec. Sec.  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 Sec.  412.92(b)(2)(i) and 
Sec.  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 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 Sec.  
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 Sec.  
412.92(b)(2)(i).

G. Hospital Readmissions Reduction Program: Proposed Changes 
(Sec. Sec.  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) 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.
    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

[[Page 27594]]

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 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.
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.
    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 (Sec. Sec.  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);
     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 (Sec.  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, 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

[[Page 27595]]

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 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-Assessment-Instruments/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 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 Hospital-Wide 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 (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-Assessment-Instruments/Hospital_QualityInits/Measure-Methodology.html.
    We incorporated the algorithm into each condition-specific and 
procedure-specific 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

[[Page 27596]]

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-Assessment-Instruments/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 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 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.

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                  Proposed                  Proposed
                                      revised      Original     revised      Original     revised      Original
                                      measure      measure      measure      measure      measure      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          12.3%         7.6%         4.0%         0.0%         6.0%         0.0%
 Planned..........................
----------------------------------------------------------------------------------------------------------------

    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.
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

[[Page 27597]]

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 
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 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.
---------------------------------------------------------------------------

    \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.
    \32\ Kurtz 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.
    \33\ Ibid.
    \34\ 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.
    \35\ Bozic 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.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \36\ Jencks SF, Williams MV, Coleman EA. Rehospitalizations 
among patients in the Medicare fee-for-service program. N Engl J 
Med. April 2 2009;360(14):1478-1428.
    \37\ Committee MPA. Report to the Congress: Promoting Greater 
Efficiency in Medicare. 2007.
    \38\ 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/.
    \39\ Global Strategy for Diagnosis M, and Prevention of COPD. 
2009; Available at: http://www.goldcopd.org/.
    \40\ 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.
    \41\ 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).
    \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).
---------------------------------------------------------------------------

(3) Overview of COPD Measure: Hospital-Level, 30-Day, All-Cause, Risk-
Standardized Readmission Rate (RSRR) Following Chronic Obstructive 
Pulmonary Disease (COPD) Hospitalization (NQF 1891)
    The COPD readmission measure assesses hospitals' 30-day, all-cause 
risk-standardized rate of readmission for an acute exacerbation of COPD 
(AECOPD). In 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

[[Page 27598]]

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-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. 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 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-Instruments/HospitalQualityInits/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[hyphen]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.
---------------------------------------------------------------------------

    \43\ Gulshan 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.
    \44\ Nelson 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.
---------------------------------------------------------------------------

    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[hyphen]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 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-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/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 
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-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/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 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

[[Page 27599]]

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 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 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.
---------------------------------------------------------------------------

    \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/.
    \46\ Bozic 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.
    \47\ Grosso 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/.
---------------------------------------------------------------------------

(6) Overview of the THA/TKA Measure: Hospital-Level 30-Day All-Cause 
Risk-Standardized 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 2013 Hip/Knee Readmission Measures Updates and Specifications 
Report which is available on the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/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 
measure is appropriate for use in both programs. We are inviting public 
comments on this proposal.

[[Page 27600]]

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 (Sec.  412.152 and Sec.  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 exempted from the program each 
year. We codified this requirement at Sec.  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 Sec.  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 Sec.  412.152 of the regulations 
in the event that the State is not exempted from the Hospital 
Readmissions Reduction Program.
    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 Sec.  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 
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.
    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

[[Page 27601]]

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.
    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 Sec.  
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 Sec.  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 DRG payment 
amount'' means the base operating DRG payment amount defined at Sec.  
412.152. In other words, we are proposing to revise existing Sec.  
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 Sec.  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 Sec.  
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 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 Sec.  412.152) for purposes of determining the 
hospital's readmission adjustment factor that accounts for excess 
readmissions under Sec.  412.154(c). We are inviting public comments on 
this proposal.
e. Proposed Floor Adjustment Factor for FY 2014 (Sec.  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 Sec.  
412.154(c)(1) of the regulations. Section 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 Sec.  412.154(c)(2) 
of the regulations.
    For FY 2013, under Sec.  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 Sec.  
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

[[Page 27602]]

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.
    For the Hospital Readmissions Reduction Program for FY 2013, we 
established an applicable period under Sec.  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 Sec.  
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 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 IPPS/LTCH PPS final rule (77 FR 53387), we included this 
definition of ``aggregate payments for excess readmissions'' under the 
regulations at Sec.  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 Sec.  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 Sec.  412.152 to reflect our 
policy that the difference between the applicable 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

[[Page 27603]]

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 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.
    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 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 ICD-9-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, 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 hospital, as identified by the 
discharge status code on the MedPAR claim. This is consistent with how 
we identified patients who died in the

[[Page 27604]]

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.)
    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 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 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.

[[Page 27605]]

 
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.
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.
------------------------------------------------------------------------

           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.
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.

[[Page 27606]]

         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.
    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.

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 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 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

[[Page 27607]]

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 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 value-based 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 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 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).
    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
------------------------------------------------------------------------
               Measure ID                      Measure description
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
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.

[[Page 27608]]

 
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.
    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
------------------------------------------------------------------------
HCAHPS.................................  Hospital Consumer Assessment of
                                          Healthcare Providers and
                                          Systems Survey *.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
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 (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
------------------------------------------------------------------------
               Measure ID                      Measure description
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
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.
------------------------------------------------------------------------

[[Page 27609]]

 
                       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).
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 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.
    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.
    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

[[Page 27610]]

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.
    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 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 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 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

[[Page 27611]]

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.
    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 6 a.m. 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.
------------------------------------------------------------------------
* 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 necessary, or when a hospital 
determines under Sec.  482.30(d) or Sec.  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

[[Page 27612]]

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.
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 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 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.

 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-      January 1, 2014-
                               December 31, 2012.    December 31, 2014.
Patient Experience of Care..  January 1, 2012-      January 1, 2014-
                               December 31, 2012.    December 31, 2014.
Efficiency..................  January 1, 2012-      January 1, 2014-
                               December 31, 2012.    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.

[[Page 27613]]

  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  October 1, 2012-June
                               30, 2011.             30, 2014.
AHRQ PSI composite..........  October 15, 2010-     October 15, 2012-
                               June 30, 2011.        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 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
------------------------------------------------------------------------
           Domain                Baseline period     Performance period
------------------------------------------------------------------------
                      FY 2017 Hospital VBP Program
------------------------------------------------------------------------
Outcome
     Mortality......   October 1,    October 1,
                               2010-June 30, 2012.   2013-June 30, 2015.
     AHRQ PSI.......   October 1,    October 1,
                               2010-June 30, 2012.   2013-June 30, 2015.
------------------------------------------------------------------------
                      FY 2018 Hospital VBP Program
------------------------------------------------------------------------
Outcome
     Mortality......   October 1,    October 1,
                               2009-June 30, 2012.   2013-June 30, 2016.
     AHRQ PSI.......   July 1,       July 1,
                               2010-June 30, 2012.   2014-June 30, 2016.
------------------------------------------------------------------------
                      FY 2019 Hospital VBP Program
------------------------------------------------------------------------
Outcome
     Mortality......   July 1,       July 1,
                               2009-June 30, 2012.   2014-June 30, 2017.
     AHRQ PSI.......   July 1,       July 1,
                               2010-June 30, 2012.   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 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 Sec.  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.

[[Page 27614]]

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 IPPS/
LTCH PPS final rule (76 FR 51655). Accordingly, we are proposing to 
revise the definition of ``achievement threshold'' at Sec.  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 (Sec.  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 Sec.  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.
    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 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 Sec.  
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 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.

[[Page 27615]]

        Finalized Performance Standards for Certain FY 2016 Hospital VBP Program Outcome Domain Measures
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                 Measure ID                              Description                 threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................  Acute Myocardial Infarction (AMI)          0.847472        0.862371
                                              30-day mortality rate.
MORT-30-HF.................................  Heart Failure (HF) 30-day mortality        0.881510        0.900315
                                              rate.
MORT-30-PN.................................  Pneumonia (PN) 30-day mortality            0.882651        0.904181
                                              rate.
PSI-90.....................................  Complication/patient safety for            0.622879        0.451792
                                              selected indicators (composite).
----------------------------------------------------------------------------------------------------------------

   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         0.88625...............  1.00000
                                      Received Within 30 Minutes
                                      of Hospital Arrival.
IMM-2..............................  Influenza Immunization.....  0.89947...............  0.99036
PN-6...............................  Initial Antibiotic           0.96429...............  1.00000
                                      Selection for CAP in
                                      Immunocompetent Patient.
SCIP-Inf-1.........................  Prophylactic Antibiotic      0.98942...............  1.00000
                                      Received Within One Hour
                                      Prior to Surgical Incision.
SCIP-Inf-2.........................  Prophylactic Antibiotic      0.98951...............  1.00000
                                      Selection for Surgical
                                      Patients.
SCIP-Inf-3.........................  Prophylactic Antibiotics     0.97971...............  1.00000
                                      Discontinued Within 24
                                      Hours After Surgery End
                                      Time.
SCIP-Inf-4.........................  Cardiac Surgery Patients     0.96797...............  0.99977
                                      with Controlled 6AM
                                      Postoperative Serum
                                      Glucose.
SCIP-Inf-9.........................  Urinary Catheter Removed on  0.96743...............  1.00000
                                      Postoperative Day 1 or
                                      Postoperative Day 2.
SCIP-Card-2........................  Surgery Patients on Beta-    0.97561...............  1.00000
                                      Blocker Therapy Prior to
                                      Arrival Who Received a
                                      Beta-Blocker During the
                                      Perioperative Period.
SCIP-VTE-2.........................  Surgery Patients Who         0.98086...............  1.00000
                                      Received Appropriate
                                      Venous Thromboembolism
                                      Prophylaxes Within 24
                                      Hours Prior to Surgery to
                                      24 Hours After Surgery.
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
CAUTI..............................  Catheter-Associated Urinary  0.826.................  0.000
                                      Tract Infection.
CLABSI.............................  Central Line-Associated      0.473.................  0.000
                                      Blood Stream Infection.
SSI................................  Surgical Site Infection....  0.737.................  0.000
----------------------------------------------------------------------------------------------------------------
                                               Efficiency Measures
----------------------------------------------------------------------------------------------------------------
MSPB-1.............................  Medicare Spending per        Median Medicare         Mean of the lowest
                                      Beneficiary.                 Spending per            decile Medicare
                                                                   Beneficiary ratio       Spending per
                                                                   across all hospitals    Beneficiary ratios
                                                                   during the              across all hospitals
                                                                   performance period.     during the
                                                                                           performance period.
----------------------------------------------------------------------------------------------------------------

      Proposed Performance Standards for the FY 2016 Hospital VBP Program Patient Experience of Care Domain
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                     HCAHPS survey dimension                           Floor         threshold       Benchmark
                                                                     (percent)       (percent)       (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

[[Page 27616]]

 
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:

    Proposed Performance Standards for the Three 30-Day Mortality and AHRQ Composite Measures for the FY 2017
                                              Hospital VBP Program
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                 Measure ID                              Description                 threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................  Acute Myocardial Infarction (AMI)          0.851458        0.871669
                                              30-day mortality rate.
MORT-30-HF.................................  Heart Failure (HF) 30-day mortality        0.881794        0.903985
                                              rate.
MORT-30-PN.................................  Pneumonia (PN) 30-day mortality            0.882986        0.908124
                                              rate.
PSI-90.....................................  Complication/patient safety for            0.580808        0.399880
                                              selected indicators (composite).
----------------------------------------------------------------------------------------------------------------

    Proposed Performance Standards for the Three 30-Day Mortality and AHRQ Composite Measures for the FY 2018
                                              Hospital VBP Program
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                 Measure ID                              Description                 threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................  Acute Myocardial Infarction (AMI)          0.850916        0.873053
                                              30-day mortality rate.
MORT-30-HF.................................  Heart Failure (HF) 30-day mortality        0.883421        0.907656
                                              rate.
MORT-30-PN.................................  Pneumonia (PN) 30-day mortality            0.882860        0.907900
                                              rate.
PSI-90.....................................  Complication/patient safety for            0.585397        0.400502
                                              selected indicators (composite).
----------------------------------------------------------------------------------------------------------------

    Proposed Performance Standards for the Three 30-Day Mortality and AHRQ Composite Measures for the FY 2019
                                              Hospital VBP Program
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                 Measure ID                              Description                 threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI................................  Acute Myocardial Infarction (AMI)          0.850671        0.873263
                                              30-day mortality rate.
MORT-30-HF.................................  Heart Failure (HF) 30-day mortality        0.883472        0.908094
                                              rate.
MORT-30-PN.................................  Pneumonia (PN) 30-day mortality            0.882334        0.907906
                                              rate.
PSI-90.....................................  Complication/patient safety for            0.585397        0.400502
                                              selected indicators (composite).
----------------------------------------------------------------------------------------------------------------

    We are inviting public comments on these proposed performance 
standards.
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

[[Page 27617]]

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 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
------------------------------------------------------------------------
                                                                Weight
                           Domain                             (percent)
------------------------------------------------------------------------
Clinical Process of Care...................................           20
Patient Experience of Care.................................           30
Outcome....................................................           30
Efficiency.................................................           20
------------------------------------------------------------------------

    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 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
------------------------------------------------------------------------
                                                                Weight
                           Domain                             (percent)
------------------------------------------------------------------------
Clinical Process of Care...................................           10
Patient Experience of Care.................................           25
Outcome....................................................           40
Efficiency.................................................           25
------------------------------------------------------------------------

    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 
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

[[Page 27618]]

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.
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 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 must coexist. This 
notion is further exemplified by one of the 10 principles of the NQS, 
found at http://www.ahrq.gov/workingforquality/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 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

[[Page 27619]]

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 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.............................  35 percent.
   Clinical Care--Outcomes........   25 percent.
   Clinical Care--Process.........   10 percent.
Efficiency and Cost Reduction.............  25 percent.
Patient and Caregiver Centered Experience   25 percent.
 of Care/Care Coordination.
------------------------------------------------------------------------

    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 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    Clinical Care--
                                   of Care.            Process.
IMM-2...........................  Clinical Process    Clinical Care--
                                   of Care.            Process.
PN-6............................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-1......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-2......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-3......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-4......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Inf-9......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-Card-2.....................  Clinical Process    Clinical Care--
                                   of Care.            Process.
SCIP-VTE-2......................  Clinical Process    Clinical Care--
                                   of Care.            Process.
HCAHPS..........................  Patient Experience  Patient and
                                   of Care.            Caregiver
                                                       Centered
                                                       Experience of
                                                       Care/Care
                                                       Coordination.
CAUTI...........................  Outcome...........  Safety.
CLABSI..........................  Outcome...........  Safety.
MORT-30-AMI.....................  Outcome...........  Clinical Care--
                                                       Outcomes.
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

[[Page 27620]]

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 
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 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 value-based 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. 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 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 waiver process for the 
Hospital VBP Program as it aligns with

[[Page 27621]]

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.
    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 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 
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.
    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

[[Page 27622]]

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.

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 States.\48\ 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 guidelines.\50\ Further, HACs constitute a 
significant economic burden on the health care system. For example, in 
2009, the CDC estimated that preventable HAIs alone added nearly $6 
billion to U.S. health care costs each year.\51\ 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.
---------------------------------------------------------------------------

    \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.
    \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.
---------------------------------------------------------------------------

    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 correct procedure but on 
the wrong body part; or (3) the correct procedure but on the wrong 
patient.\53\
---------------------------------------------------------------------------

    \52\ National Quality Forum (NQF), Serious Reportable Events in 
Healthcare--2011 Update: A Consensus Report, Washington DC: NQF 
(2011).
    \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).
---------------------------------------------------------------------------

    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.
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 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

[[Page 27623]]

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 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 Sec. Sec.  412.170 and 412.172). 
We also are proposing to amend existing Sec.  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 Sec. Sec.  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 Sec.  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 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 hospital inpatient prospective payment system) so long as the 
hospital meets the criteria specified under Sec.  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 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

[[Page 27624]]

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 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 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 Sec.  412.172(b) 
that, ``For applicable hospitals, beginning with discharges occurring 
during FY 2015, the amount of payment under this section [proposed 
Sec.  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 Sec.  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 
Sec.  412.154, and the adjustment made under the Hospital Value-Based 
Purchasing Program under Sec.  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 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 Sec.  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 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.

[[Page 27625]]

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 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 
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 
results \54\ 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 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 measure 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 Total HAC Score model. As 
a result, we are proposing to group the AHRQ and the CDC HAI measures 
into two separate domains.
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    \54\ With the exception of PSI 5 (Volume of foreign object left 
in body), which is not risk-adjusted or reliability-adjusted.
    \55\ The exception is PSI 5 (Volume of foreign object left in 
body), which is not risk-adjust or reliability-adjusted.
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    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);

[[Page 27626]]

     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).
    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.

[[Page 27627]]

[GRAPHIC] [TIFF OMITTED] TP10MY13.001

[[Page 27628]]

    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.
---------------------------------------------------------------------------

    \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-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf.
---------------------------------------------------------------------------

    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 Compare Web site. The hospital level PSI-90 composite 
bucket also is available on the Hospital Compare Web site.\57\
---------------------------------------------------------------------------

    \57\ http://www.medicare.gov/hospitalcompare/About/HOSInfo/RCD.aspx#ssi.
---------------------------------------------------------------------------

    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 risk-adjustment methodology can be found on 
the Web site at: http://www.qualityindicators.ahrq.gov/Downloads/Modules/PSI/V44/Composite_User_Technical_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 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 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. of the preamble of this 
proposed rule for a discussion of this proposal under the Hospital IQR 
Program.)

[[Page 27629]]

(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 
Sec.  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.
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 Sec.  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 Sec.  412.172(e)(2)). In addition, we 
are proposing that CMS will calculate the Total HAC score by weighing 
Domain 1 score plus Domain 2 equally at 50 percent (proposed Sec.  
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 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 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 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)
-------------------------------------------------------------------------
                                         Rules for calculating Domain 1--
   Number of PSIs with complete data*             Option 1 score
------------------------------------------------------------------------
 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.

[[Page 27630]]

 
                                           Weight each PSI
                                          equally.
------------------------------------------------------------------------
*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  For PSI 5 (Volume of foreign object left in body) in 
Domain 1--Proposed Approach, the measure results are frequency counts.
    [cir] 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.
    [cir] 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.
    [cir] 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.
    [cir] 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.
    [cir] 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.
    [cir] 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.
    [cir] 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.
    [cir] 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.

                                 Table C--Calculation of Domain 1 and 2 Measures
----------------------------------------------------------------------------------------------------------------
                                                                                            Individual measure
             Measure name                   Measure result              Scenario              score (points)
----------------------------------------------------------------------------------------------------------------
PSI-5 *..............................  Frequency count........  Occurrence = 0.........  0
                                                                Occurrence >= 1........  10
PSIs 3, 6, 10, 12, 15 **.............  Rates ***..............  Rate >= 75%............  1-10
                                                                Rate = 75%.  1-10
                                        rates of component
                                        indicators.
                                                                Composite value  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.
     If a hospital did not have an ICU waiver for a CDC HAI 
measure:
    [cir] If the hospital did not submit data for the CDC HAI measures, 
we would assign 10 points to that measure for that hospital.
    [cir] If the hospital did submit data for at least one CDC NHSN 
measure:
    [ssquf] 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.
    [ssquf] If there are not enough adverse events to calculate the SIR 
for any of the measures, we would use only the

[[Page 27632]]

hospital's Domain 1 score to calculate its Total HAC Score.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP10MY13.003

BILLING CODE 4120-01-C

[[Page 27633]]

    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.
    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 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.
(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 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,

[[Page 27634]]

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 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, 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 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 
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.

[[Page 27635]]

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 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 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 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 Sec.  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 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)).

[[Page 27636]]

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.
     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 Sec.  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 
(Sec. Sec.  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 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 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 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

[[Page 27637]]

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 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 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 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 Sec.  412.64 of the regulations) and meets one of the 
conditions listed in the regulations at Sec.  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 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:

[[Page 27638]]

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       Direct GME Cap
                                                                                                            IME Cap (including +/-   (including +/- MMA
    Provider No.          Provider name           City and state        CBSA Code      Terminating date         MMA Sec. 422 1           Sec. 422 1
                                                                                                                 adjustment)            adjustment)
--------------------------------------------------------------------------------------------------------------------------------------------------------
330002.............  Peninsula Hospital       Far Rockaway, NY......        35644   April 9, 2012.........  28.31 + 0.01 section   28.31 + 8.03 section
                      Center.                                                                                422 increase = 28.32   422 increase = 36.34
                                                                                                             \2\.                   \3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law 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 July 25, 
2013. 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 
July 25, 2013. 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 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-Service-Payment/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.
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 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,

[[Page 27639]]

effective for ``discharges 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 Sec.  412.105(f)(1)(ii)(E) for IME and 
Sec.  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 Sec.  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 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 IPPS-excluded 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 Sec. Sec.  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 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 Sec.  413.70 of the 
regulations. We also note that, consistent with the regulations at 
Sec.  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 provider-based 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 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 Public Law 108-173 required the Secretary to 
establish a demonstration program to test the feasibility and 
advisability of establishing ``rural community'' hospitals to furnish 
covered inpatient hospital services to Medicare beneficiaries. The 
demonstration pays rural community hospitals under a reasonable cost-
based methodology for Medicare payment purposes for covered inpatient 
hospital services furnished to Medicare beneficiaries. A rural 
community hospital, as defined in section 410A(f)(1), is a hospital 
that--
     Is located in a rural area (as defined in section 
1886(d)(2)(D) of the Act) or is treated as being located in a rural 
area under section 1886(d)(8)(E) of the Act;
     Has fewer than 51 beds (excluding beds in a distinct part 
psychiatric or

[[Page 27640]]

rehabilitation unit) as reported in its most recent cost report;
     Provides 24-hour emergency care services; and
     Is not designated or eligible for designation as a CAH 
under section 1820 of the Act.
    Section 410A(a)(4) of Public Law 108-173 specified that the 
Secretary was to select for participation no more than 15 rural 
community hospitals in rural areas of States that the Secretary 
identified as having low population densities. Using 2002 data from the 
U.S Census Bureau, we identified the 10 States with the lowest 
population density in which rural community hospitals were to be 
located in order to participate in the demonstration: Alaska, Idaho, 
Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, 
Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of 
the United States: 2003).
    CMS originally solicited applicants for the demonstration in May 
2004; 13 hospitals began participation with cost reporting periods 
beginning on or after October 1, 2004. In 2005, 4 of these 13 hospitals 
withdrew from the 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 
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 Public Law 108-173, which established the 
rural community hospital demonstration program. Sections 3123 and 10313 
of the Affordable Care Act changed the rural community hospital 
demonstration program in several ways. First, the Secretary is required 
to conduct the demonstration program for an additional 5-year period 
that begins on the date immediately following the last day of the 
initial 5-year period. 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 Public Law 108-173, as added by section 3123(a) of the 
Affordable Care Act and further amended by section 10313 of such Act). 
In addition, the Affordable Care Act provides that, during the 5-year 
extension period, the Secretary shall expand the number of States with 
low population densities determined by the Secretary to 20 (section 
410A(g)(2) of Public Law 108-173, as added by section 3123(a) and 
amended by section 10313 of the Affordable Care Act). Further, the 
Secretary is required to use the same criteria and data that the 
Secretary used to determine the States under section 410A(a)(2) of 
Public Law 108-173 for purposes of the initial 5-year period. The 
Affordable Care Act also allows not more than 30 rural community 
hospitals in such States to participate in the demonstration program 
during the 5-year extension period (section 410A(g)(3) of Public Law 
108-173, as added by section 3123(a) of the Affordable Care Act and as 
further amended by section 10313 of such Act).
    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, 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 Public Law 108-173 required 
that, ``[i]n conducting the demonstration program under this section, 
the Secretary shall ensure that the aggregate payments made by the 
Secretary do not exceed the amount which the Secretary would have paid 
if the demonstration program under this section was not implemented.'' 
This requirement is commonly referred to as ``budget neutrality.'' 
Generally, when we implement a demonstration program on a budget 
neutral basis, the demonstration program is budget neutral in its own 
terms; in other words, the aggregate payments to the participating 
hospitals do not exceed the amount that would be paid to those same 
hospitals in the absence of the demonstration program. Typically, this 
form of budget neutrality is viable when, by changing payments or 
aligning incentives to improve overall efficiency, or both, a 
demonstration program may reduce the use of some services or eliminate 
the need for others, resulting in reduced expenditures for the 
demonstration program's participants. These reduced expenditures offset 
increased payments elsewhere under the demonstration program, thus 
ensuring that the demonstration program as a whole is budget neutral or 
yields savings. However, the small scale of this demonstration program, 
in conjunction with the payment methodology, makes it extremely 
unlikely that this demonstration program could be viable under the 
usual form of budget neutrality. Specifically, cost-based payments to 
participating small rural hospitals are likely to increase Medicare 
outlays without producing any offsetting reduction in Medicare 
expenditures elsewhere. Therefore, a rural community hospital's 
participation in this demonstration program is unlikely to yield 
benefits to the participant if budget neutrality were

[[Page 27641]]

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.
    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 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 Public Law 108-173. (We note that section 410A of Public Law 108-173 
was later amended by the Affordable Care Act.) The reasonable cost-
based methodology authorized by section 410A of Public Law 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 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, 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

[[Page 27642]]

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.
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, 
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 Public Law 108-173 stipulates swing-bed 
services are to be included among the covered inpatient hospital 
services for which the demonstration payment methodology applies, we 
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 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 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

[[Page 27643]]

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 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.
    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 from the amount paid to those hospitals under the 
reasonable cost methodology for such year.)

L. Hospital Emergency Services Under EMTALA: Technical Change (Sec.  
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 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

[[Page 27644]]

hospital to Medicare beneficiaries ``under arrangement,'' and that 
``routine services'' must be furnished in the hospital.
    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 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 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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.

[[Page 27645]]

    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 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 Sec.  482.30(d) or Sec.  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 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 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 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

[[Page 27646]]

hospital is systematically delaying the provision of care to surpass 
the 2-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 Sec.  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 an ``admitting diagnosis'' and ``all 
practitioners' orders.'' The CAH CoP at Sec.  485.638 contains similar, 
although not identical, language. In addition, under the hospital CoP 
at Sec.  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 Sec.  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, Sec.  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 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 Sec.  
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 Sec.  482.23(c)(3)(i) and (ii), and at 
Sec.  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 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 Sec.  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) of this section 
[discussed below] and Sec. Sec.  482.24(c),

[[Page 27647]]

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 Sec.  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 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 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 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 Sec.  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 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.

[[Page 27648]]

(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 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 Sec.  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 Sec.  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 
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 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 Sec.  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.
    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

[[Page 27649]]

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 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 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 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 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

[[Page 27650]]

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 
rates, and the Puerto Rico-specific standardized amount by 0.2 percent.

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 Sec.  412.312 of the 
regulations. For the purpose of calculating capital payments for each 
discharge, the standard Federal rate is adjusted as follows:
    (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment 
Factor (GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1 
+ Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if 
applicable).
    In addition, under Sec.  412.312(c), hospitals also may receive 
outlier payments under the capital IPPS for extraordinarily high-cost 
cases that qualify under the thresholds established for each fiscal 
year.

B. Additional Provisions

1. Exception Payments
    The regulations at Sec.  412.348 provide for certain exception 
payments under the capital IPPS. The regular exception payments 
provided under Sec. Sec.  412.348(b) through (e) were available only 
during the 10-year transition period. For a certain period after the 
transition period, eligible hospitals may have received additional 
payments under the special exceptions provisions at Sec.  412.348(g). 
However, FY 2012 was the final year hospitals could receive special 
exceptions payments. For additional details regarding these exceptions 
policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51725).
    Under Sec.  412.348(f), a hospital may request an additional 
payment if the hospital incurs unanticipated capital expenditures in 
excess of $5 million due to extraordinary circumstances beyond the 
hospital's control. Additional information on the exception payment for 
extraordinary circumstances in Sec.  412.348(f) can be found in the FY 
2005 IPPS final rule (69 FR 49185 and 49186).
2. New Hospitals
    Under the capital IPPS, Sec.  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 
Sec.  412.304(c)(2), under the capital IPPS a new hospital is paid 85 
percent of its allowable Medicare inpatient hospital capital-related 
costs through its first 2 years of operation, unless the new hospital 
elects to receive full prospective payment based on 100 percent of the 
Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51725) for additional information on payments to new hospitals 
under the capital IPPS.
3. 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).

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

[[Page 27651]]

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 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 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 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 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 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 Sec.  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 Public Law 
110-90 by section 631 of the ATRA.
    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 claims-based 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 that the issue of the

[[Page 27652]]

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 Public 
Law 110-90 to require the Secretary to make a recoupment adjustment to 
the operating IPPS standardized 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 Public Law 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 Public Law 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 Public Law 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 hospital-specific rates) for 
the cumulative MS-DRG documentation and coding effect through FY 2010.
    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 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).

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 Sec.  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 Sec.  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,

[[Page 27653]]

Subparts N, O, and P.) We note that the various transition periods 
provided for under the IRF PPS, the IPF PPS, and the LTCH PPS have 
ended.
    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 Sec.  403.752(a) of the 
regulations, RNHCIs are also subject to the rate-of-increase limits 
established under Sec.  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 
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 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. 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.
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    \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.
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    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 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.

[[Page 27654]]

    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, 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 
Sec.  485.635(a) and (b) of the regulations, we are proposing to amend 
the regulatory language at Sec.  485.635(b), as noted below, and we are 
proposing to revise the language under the standard for ``Patient care 
policies'' under Sec.  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 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 Sec.  485.635(a).
    We are proposing to remove paragraph (c)(1)(i) under Sec.  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 Sec.  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 Sec.  485.635 
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 Sec.  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 Sec.  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. 108-
173) and which was subsequently restated in regulation at Sec.  
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.

[[Page 27655]]

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.
    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 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 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 Sec. Sec.  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, Sec.  
412.23(e)(2)(ii) states that, for cost reporting periods beginning on 
or after August 5, 1997, a hospital that was first excluded from the 
PPS in 1986 and can demonstrate that at least 80 percent of its annual 
Medicare inpatient discharges in the 12-month cost reporting period 
ending in FY 1997 have a principal diagnosis that reflects a finding of 
neoplastic disease must have an average inpatient length of stay for 
all patients, including both Medicare and non-Medicare inpatients, of 
greater than 20 days.
b. Hospitals Excluded From the LTCH PPS
    The following hospitals are paid under special payment provisions, 
as described in Sec.  412.22(c) and, therefore, are not subject to the 
LTCH PPS rules:
     Veterans Administration hospitals.
     Hospitals that are reimbursed under State cost control 
systems approved under 42 CFR Part 403.
     Hospitals that are reimbursed in accordance with 
demonstration projects authorized under section 402(a) of the Social 
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or

[[Page 27656]]

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 Sec.  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 Sec. Sec.  409.82, 409.83, 
and 409.87 and for items and services as specified under Sec.  
489.30(a). However, under the LTCH PPS, Medicare will only pay for days 
for which the beneficiary has coverage until the short-stay outlier 
(SSO) threshold is exceeded. Therefore, if the Medicare payment was for 
a SSO case (Sec.  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 (Sec.  412.507).
4. Administrative Simplification Compliance Act (ASCA) and Health 
Insurance Portability and Accountability Act (HIPAA) Compliance
    Claims submitted to Medicare must comply with both the 
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105), 
and the Health Insurance Portability and Accountability Act of 1996 
(HIPAA) (Pub. L. 104-191). Section 3 of the ASCA requires that the 
Medicare Program deny payment under Part A or Part B for any expenses 
incurred for items or services ``for which a claim is submitted other 
than in an electronic form specified by the Secretary.'' Section 
1862(h) of the Act (as added by section 3(a) of the ASCA) provides that 
the Secretary shall waive such denial in two specific types of cases 
and may also waive such denial ``in such unusual cases as the Secretary 
finds appropriate'' (68 FR 48805). Section 3 of the ASCA operates in 
the context of the HIPAA regulations, which include, among other 
provisions, the transactions and code sets standards requirements 
codified as 45 CFR Parts 160 and 162, Subparts A and I through R 
(generally known as the Transactions Rule). The Transactions Rule 
requires covered entities, including covered health care providers, to 
conduct certain electronic 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)).
    As part of our efforts to better recognize severity of illness 
among patients, in the FY 2008 IPPS final rule with comment period (72 
FR 47130), the MS-DRGs and the Medicare severity long-term care 
diagnosis-related groups (MS-LTC-DRGs) were adopted under the IPPS and 
the LTCH PPS, respectively, effective beginning October 1, 2007 (FY 
2008). For a full description of the development, implementation, and 
rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers 
to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 
47175 and 47277 through 47299). (We note that, in that same final rule, 
we revised the regulations at Sec.  412.503 to specify that for LTCH 
discharges occurring on or after October 1, 2007, when applying the 
provisions of 42 CFR Part 412, Subpart O applicable to LTCHs for policy 
descriptions and payment calculations, all references to LTC-DRGs would 
be considered a reference to MS-LTC-DRGs. For the remainder of this 
section, we present the discussion in terms of the current MS-LTC-DRG 
patient classification system unless specifically referring to the 
previous LTC-DRG patient classification system that was in effect 
before October 1, 2007.)
    The MS-DRGs adopted in FY 2008 represent an increase in the number 
of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). The MS-DRG 
classifications are updated annually. 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 Sec.  412.515 of the 
regulations, we use information derived from LTCH PPS patient records 
to classify LTCH discharges into distinct MS-LTC-DRGs based on clinical 
characteristics and estimated resource needs. We then assign an 
appropriate weight to the MS-LTC-DRGs to account for the difference in 
resource use by patients exhibiting the case complexity and multiple 
medical problems characteristic of LTCHs. 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

[[Page 27657]]

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 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 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 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 ICD-10-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.
    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-

[[Page 27658]]

specific adjustments. Under the LTCH PPS, we provide an opportunity for 
LTCHs to review the MS-LTC-DRG assignments made by the Medicare 
contractor and to submit additional information within a specified 
timeframe as provided in Sec.  412.513(c).
    The GROUPER software is used both to classify past cases to measure 
relative hospital resource consumption to establish the MS-LTC-DRG 
relative weights and to classify current cases for purposes of 
determining payment. The records for all Medicare hospital inpatient 
discharges are maintained in the MedPAR file. The data in this file are 
used to evaluate possible MS-DRG and MS-LTC-DRG classification changes 
and to recalibrate the MS-DRG and MS-LTC-DRG relative weights during 
our annual update under both the IPPS (Sec.  412.60(e)) and the LTCH 
PPS (Sec.  412.517), respectively.
b. Proposed Changes to the MS-LTC-DRGs for FY 2014
    As specified by our regulations at Sec.  412.517(a), which require 
that the MS-LTC-DRG classifications and relative weights be updated 
annually, and consistent with our historical practice of using the same 
patient classification system under the LTCH PPS as is used under the 
IPPS, 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 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 (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 (Sec.  412.515). To ensure that Medicare patients 
classified to each MS-LTC-DRG have access to an appropriate level of 
services and to encourage efficiency, we calculate a relative weight 
for each MS-LTC-DRG that represents the resources needed by an average 
inpatient LTCH case in that MS-LTC-DRG. For example, cases in 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, low-volume and no-volume MS-LTC-
DRGs, adjustment for nonmonotonicity, and the steps 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 Sec.  412.517(b) (in 
conjunction with Sec.  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 Sec.  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).)
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

[[Page 27659]]

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 Public Law 90-248 or section 222(a) of Public Law 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 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 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 Sec.  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 (Sec.  412.529 and Sec.  412.503). The average 
adjusted charge reflects the average intensity of the health care 
services delivered by a particular LTCH and the average cost level of 
that LTCH. The resulting ratio is multiplied by that LTCH's case-mix 
index to determine the standardized charge for the case (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 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 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

[[Page 27660]]

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 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-LTC-DRGs 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 
MS-LTC-DRGs with the highest average charge cases were assigned into 
Quintile 5. Table 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 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 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

[[Page 27661]]

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 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 Sec.  412.529(a) in conjunction with Sec.  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 
``overpayment'' for SSO cases. Therefore, we are proposing to adjust 
for SSO cases under Sec.  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 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 hospital-specific 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 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 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

[[Page 27662]]

to assign the proposed no-volume MS-LTC-DRG the proposed relative 
weight of the proposed cross-walked MS-LTC-DRG. (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-LTC-DRG 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 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 MS-LTC-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.)
    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 cross-walked 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.
    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 (MS-LTC-DRG 6); 
Lung Transplant (MS-LTC-DRG 7); Simultaneous Pancreas/Kidney Transplant 
(MS-LTC-DRG 8); Pancreas Transplant (MS-LTC-DRG 10); and Kidney 
Transplant (MS-LTC-DRG 652). This is because Medicare will only cover 
these procedures if they are performed at a hospital that has been 
certified for the specific procedures by Medicare and presently no LTCH 
has been so certified. At the present time, we include these eight 
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 (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

[[Page 27663]]

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 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 Sec.  412.517(b) (in 
conjunction with Sec.  412.503), the annual update to the MS-LTC-DRG 
classifications and relative weights is done in a budget neutral manner 
such that estimated aggregate LTCH PPS payments would be unaffected, 
that is, would be neither greater than nor less than the estimated 
aggregate LTCH PPS payments that would have been made without the MS-
LTC-DRG classification and relative weight changes. (For a detailed 
discussion on the establishment of the budget neutrality requirement 
for the annual update of the MS-LTC-DRG classifications and relative 
weights, we refer readers to the RY 2008 LTCH PPS final rule (72 FR 
26881 and 26882).)
    The MS-LTC-DRG classifications and relative weights are updated 
annually based on the most recent available LTCH claims data to reflect 
changes in relative LTCH resource use (Sec.  412.517(a) in conjunction 
with Sec.  412.503). Under the budget neutrality requirement at Sec.  
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 Sec.  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.
    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 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 proposed normalized relative

[[Page 27664]]

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 Sec.  
412.529(a)), and the proposed ``IPPS Comparable Thresholds'' (used in 
determining SSO payments under Sec.  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).

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 Sec.  412.515 through Sec.  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 Sec.  412.523(c)(3), we refer readers to the 
following final rules: RY 2004 LTCH PPS final rule (68 FR 34134 through 
34140); RY 2005 LTCH PPS final rule (68 FR 25682 through 25684); RY 
2006 LTCH PPS final rule (70 FR 24179 through 24180); RY 2007 LTCH PPS 
final rule (71 FR 27819 through 27827); RY 2008 LTCH PPS final rule (72 
FR 26870 through 27029); RY 2009 LTCH PPS final rule (73 FR 26800 
through 26804); FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44021 
through 44030); FY 2011 IPPS/LTCH PPS final rule (75 FR 50443 through 
50444); FY 2012 IPPS/LTCH PPS final rule (76 FR 51769 through 51773); 
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 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 
Sec.  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 Sec.  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.)
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'' 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

[[Page 27665]]

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 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 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 
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).
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 Sec.  412.523(c)(4). Specifically, 
consistent with section 1886(m)(5)(A)(i) of the Act, under proposed 
Sec.  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

[[Page 27666]]

LTCHQR Program, the annual update to the standard Federal rate under 
Sec.  412.523(c)(3) would be further reduced by 2.0 percentage points. 
(Note, as discussed previously this section, the annual update to the 
standard Federal rate implemented under Sec.  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 
Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 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 
LTCH-specific 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.
    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 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. of this preamble). Accordingly, we are proposing to revise 
Sec.  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,

[[Page 27667]]

and as further adjusted, as appropriate, as described in Sec.  
412.523(d). For LTCHs that fail to submit quality reporting data under 
the LTCHQR Program, under proposed Sec.  412.523(c)(3)(x) in 
conjunction with proposed Sec.  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 Sec.  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 Sec.  412.523(d)(4) (as discussed in section 
V.B.5. of the Addendum of this proposed rule).)
3. Proposed Adjustment for the Second Year of the Phase-In of the One-
Time Prospective Adjustment to the Standard Federal Rate Under Sec.  
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 
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 Sec.  
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 Sec.  
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 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 Sec.  
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 Sec.  
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 Sec.  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 x 0.98734 x 0.98734 = 0.9625) to the 
standard Federal rate. Accordingly, in accordance with the existing 
regulations at Sec.  412.523(d)(3), we are proposing to apply a 
permanent factor of 0.98734 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

[[Page 27668]]

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 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 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 Sec.  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.

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 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).

[[Page 27669]]

    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 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.
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:
     ``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 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 [hellip] 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/Statistics-Trends-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: 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

[[Page 27670]]

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 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).
    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#TopOfPage.
    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 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 long-term care hospital facility and 
patient criteria for purposes of determining medical necessity, 
appropriateness of admission, and continued stay at, and discharge 
from, long-term 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.
    (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

[[Page 27671]]

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 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.
     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 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 Web site at: http://www.cms.gov/officeoflegislation/downloads/RTC-long-term-care-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).
    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

[[Page 27672]]

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 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-and-Systems/Statistics-Trends-and-Reports/Reports/downloads/Flood_PACPRD_RTC_CMS_Report_Jan_2012.pdf and http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/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 follow-up research under the ``Medical 
Necessity and Appropriateness of Care'' contract for the ``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.
    [cir] Between calendar year 2004 and 2010: number of LTCHs grew 
from 369 to 443 (+20%)
    [cir] The number of LTCH discharges grew from 125,000 to 141,000 
(+13%)
    [cir] Medicare LTCH-PPS payments grew from $3.7 billion to $5.2 
billion (+41%)
     LTCH patients are becoming more complex:
    [cir] More complex LTC-DRG types being admitted to LTCHs in terms 
of the relative value weights of the MS-LTC-DRGs used.
    [cir] Higher mix of severity within LTC DRGs in terms of the 
percent of patients with an MCC level of comorbidity status.
    [cir] Higher mix of severity within referral IPPS DRGs
    [cir] Increasing proportion of patients admitted with critical care 
in their prior IPPS stay
    [cir] Taken together, the evidence suggests real change in case 
mix, over and above any behavioral changes in coding
    [cir] 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:
    [cir] Combined IPPS + LTCH PPS payments
    [cir] Of combined IPPS + LTCH PPS costs
    [cir] 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 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 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

[[Page 27673]]

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.
[GRAPHIC] [TIFF OMITTED] TP10MY13.004

    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.
    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:
[GRAPHIC] [TIFF OMITTED] TP10MY13.005

[[Page 27674]]

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 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.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP10MY13.006

BILLING CODE 4120-01-C
    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 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.
    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 a LTCH 
or other provider setting. As noted, our research has indicated that 
the Medicare

[[Page 27675]]

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 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-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 step-down 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, 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 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.

[[Page 27676]]

    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 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.

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);
     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 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 EHR-based 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 
(other

[[Page 27677]]

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 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.
     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.
     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 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.

[[Page 27678]]

    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 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 non-substantive 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 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.
    We believe that this policy adequately balances our need to 
incorporate non-substantive 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 
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

[[Page 27679]]

notified via CMS listservs, CMS email 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 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.
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.
     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)

------------------------------------------------------------------------
                          17 Measures removed from hospital IQR program
         Topic                 measure set for the FY 2015 payment
                                determination and subsequent years
------------------------------------------------------------------------
Surgical Care Improvement Project (SCIP) Measure
------------------------------------------------------------------------
                          SCIP INF-VTE[dash]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 **
                          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.

[[Page 27680]]

 
** 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 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 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.
(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.

------------------------------------------------------------------------
                             Proposed removal of hospital IQR program
         Topic            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.
------------------------------------------------------------------------

[[Page 27681]]

 
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.
------------------------------------------------------------------------

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.

------------------------------------------------------------------------
                         Hospital IQR program measures suspended for the
         Topic             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 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 email 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.
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.

------------------------------------------------------------------------
                             Hospital IQR program measures previously
         Topic            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

[[Page 27682]]

 
                          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 [dagger]
                          STK-3 Anticoagulation therapy for Afib/
                          flutter [dagger]
                          STK-4 Thrombolytic therapy for acute
                          ischemic stroke [dagger]
                          STK-5 Antithrombotic therapy by the
                          end of hospital day 2 [dagger]
                          STK-6 Discharged on Statin [dagger]
                          STK-8 Stroke education [dagger]
                          STK-10 Assessed for rehab [dagger]
------------------------------------------------------------------------
VTE Measure Set
------------------------------------------------------------------------
                          VTE-1 VTE prophylaxis [dagger]
                          VTE-2 ICU VTE prophylaxis [dagger]
                          VTE-3 VTE patients with
                          anticoagulation overlap therapy [dagger]
                          VTE-4 Patients receiving un-
                          fractionated Heparin with doses/labs monitored
                          by protocol [dagger]
                          VTE-5 VTE discharge instructions
                          [dagger]
                          VTE-6 Incidence of potentially
                          preventable VTE [dagger]
------------------------------------------------------------------------
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) *
------------------------------------------------------------------------
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
------------------------------------------------------------------------

[[Page 27683]]

 
                          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 [dagger]
                          ED-2 Median time from admit decision
                          to time of departure from the emergency
                          department for emergency department patients
                          admitted to the inpatient status [dagger]
------------------------------------------------------------------------
Prevention: Global Immunization (IMM) Measures
------------------------------------------------------------------------
                          Immunization for Influenza
                          Immunization for Pneumonia
------------------------------------------------------------------------
Cost Efficiency
------------------------------------------------------------------------
                          Medicare Spending per Beneficiary
------------------------------------------------------------------------
Perinatal Care
------------------------------------------------------------------------
                          PC-01 Elective delivery prior to 39
                          completed weeks of gestation */[dagger]
------------------------------------------------------------------------
* New or expanded measures/items for the FY 2015 payment determination
  and subsequent years.
[dagger] 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.
(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-Assessment-Instruments/HospitalQualityInits/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.

[[Page 27684]]

(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 post-cardiac 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 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.
(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 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_Partnership.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.
    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

[[Page 27685]]

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 risk-standardized 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\
---------------------------------------------------------------------------

    \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/copd-trend-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/.
---------------------------------------------------------------------------

    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 more severe disease.\63\ 
Although COPD is an ACSC, readmission rates are also influenced by 
inpatient care.
---------------------------------------------------------------------------

    \63\ AHRQ Quality Indicators. Fact Sheet: Prevention Quality 
Indicators. 2006; Available at: http://qualityindicators.ahrq.gov/downloads/pqi/2006-Feb-PreventionQualityIndicators.pdf.
---------------------------------------------------------------------------

    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-Assessment-Instruments/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's fourth leading cause of death. Between 1998 and 
2008, the number of patients hospitalized annually for acute 
exacerbations of COPD (AECOPD) increased by 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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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

    \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.
---------------------------------------------------------------------------

    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-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. Please see the report 
for further details on the risk-adjustment statistical model.
(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)

[[Page 27686]]

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-Assessment-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 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-Assessment-Instruments/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 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 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 information on the calculation 
methodology please refer to our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/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

[[Page 27687]]

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 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\
---------------------------------------------------------------------------

    \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[hyphen]year 
outcome after cerebral infarction in whites, blacks, and Hispanics. 
Stroke 1991;22:305-11.
    \77\ Andersen HE, Schultz[hyphen]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[hyphen]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[hyphen]Day Readmission Following Acute Ischemic Stroke 
Hospitalization Measure: Report prepared for the Centers for 
Medicare & Medicaid Services. 2010; Available at: http://
www.qualitynet.org.
---------------------------------------------------------------------------

    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 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, risk-standardized 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. 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
---------------------------------------------------------------------------

    \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[hyphen]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[hyphen]year follow[hyphen]up in the Medicare population. 
Stroke 2007; 38:1899-904.
    \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.
---------------------------------------------------------------------------

    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-Assessment-Instruments/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-Assessment-Instruments/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 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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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,

[[Page 27688]]

limiting the 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-Assessment-Instruments/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 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 cohort definition, we refer readers to the stroke readmission 
technical report on our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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 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 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.
    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

[[Page 27689]]

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-Assessment-Instruments/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 been endorsed or adopted by the NQF, and were unable to identify 
any other NQF-endorsed 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 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\
---------------------------------------------------------------------------

    \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.
    \92\ Bernheim S.M., Wang C., Wang Y., et al. Hospital 
30[hyphen]Day Mortality Following Acute Ischemic Stroke 
Hospitalization Measure: Report prepared for the Centers for 
Medicare & Medicaid Services. 2010; Available at: http://
www.qualitynet.org.
---------------------------------------------------------------------------

    We are proposing to include a non-NQF endorsed hospital 30-day, 
all-cause risk-standardized 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, risk-standardized mortality rates 
following hospitalization for acute ischemic stroke. Studies 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 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 of which contribute to 
patient outcomes, but are difficult to measure by individual process 
measures.95 96
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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-Assessment-Instruments/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 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-Assessment-Instruments/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.

[[Page 27690]]

(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 timeframe 
in which a death may reasonably be attributed to the hospital care and 
transitional period to a non-acute setting.
---------------------------------------------------------------------------

    \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.
    \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.
---------------------------------------------------------------------------

    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, 
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-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
---------------------------------------------------------------------------

    \99\ American Heart Association, Heart Disease and Stroke 
Statistics--2012 Update. American Heart Association, Circulation 
2012, 125:e2-e220.
---------------------------------------------------------------------------

(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.
(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 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 another hospital for their index stroke 
hospitalization. The measure includes a risk-adjustment 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-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

[[Page 27691]]

    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 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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 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-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html. We refer 
readers to the 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-Assessment-Instruments/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 case-mix. The analytic time frame for the AMI 
payment measure begins

[[Page 27692]]

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/Quality-Initiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.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 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 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 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: http://cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/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

[[Page 27693]]

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.

------------------------------------------------------------------------
                           Previously adopted and proposed hospital IQR
         Topic               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[dagger]
                          STK-3 Anticoagulation therapy for Afib/
                          flutter[dagger]
                          STK-4 Thrombolytic therapy for acute
                          ischemic stroke[dagger]
                          STK-5 Antithrombotic therapy by the
                          end of hospital day 2[dagger]
                          STK-6 Discharged on Statin[dagger]
                          STK-8 Stroke education[dagger]
                          STK-10 Assessed for rehab[dagger]
------------------------------------------------------------------------
VTE Measure Set
------------------------------------------------------------------------
                          VTE-1 VTE prophylaxis[dagger]
                          VTE-2 ICU VTE prophylaxis[dagger]
                          VTE-3 VTE patients with
                          anticoagulation overlap therapy[dagger]
                          VTE-4 Patients receiving un-
                          fractionated Heparin with doses/labs monitored
                          by protocol[dagger]
                          VTE-5 VTE discharge
                          instructions[dagger]
                          VTE-6 Incidence of potentially
                          preventable VTE[dagger]
------------------------------------------------------------------------
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 arrival
                          who received a Beta Blocker during the
                          perioperative period
                          SCIP-VTE[dash]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***

[[Page 27694]]

 
                          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
------------------------------------------------------------------------
                          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[dagger]
                          ED-2 Median time from admit decision
                          to time of departure from the emergency
                          department for emergency department patients
                          admitted to the inpatient status[dagger]
------------------------------------------------------------------------
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*/[dagger]
------------------------------------------------------------------------
* 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.
[dagger] Proposed measure for electronic reporting via CEHRT in the
  Hospital IQR Program (voluntary participation in CY 2014).

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

[[Page 27695]]

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 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-and-Guidance/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.
    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 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).
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.
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 Sec.  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 Sec.  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.

[[Page 27696]]

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 Sec.  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 
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 4\1/2\ 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 chart-abstracted 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 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 p.m., 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 p.m. 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 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 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.
------------------------------------------------------------------------

[[Page 27697]]

    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.

 Medicare EHR Incentive Program Reporting Periods and Deadlines FY 2014
                                  \101\
------------------------------------------------------------------------
          Reporting periods                  Submission  deadlines
------------------------------------------------------------------------
For eligible hospitals in their first  July 1, 2014.
 year of the Medicare EHR Incentive
 Program--Any 90 consecutive days in
 FY 2014 prior to July 1, 2014.
For eligible hospitals that are        November 30, 2014.
 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).
------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \101\ We refer readers to Tables 5 and 6 at 77 FR 54051.
---------------------------------------------------------------------------

    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.
    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 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 Sec.  495.4 and 45 CFR Sec.  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 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-

[[Page 27698]]

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 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.
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 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 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

[[Page 27699]]

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 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 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 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.
    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 Sec.  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 Sec.  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

[[Page 27700]]

on our proposal to continue using these HCAHPS requirements for the FY 
2016 payment determination and subsequent years.
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.
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 hospital-specific 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:

------------------------------------------------------------------------
                             FY 2016 Payment Determination: Hospital
         Topic              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 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,

[[Page 27701]]

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 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 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 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.
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[[Page 27703]]

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.

 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, 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 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

[[Page 27704]]

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 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 ``self-identify 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 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.
---------------------------------------------------------------------------

    \102\ ``Catheter-Associated Urinary Tract Infection (CAUTI) 
Event'' http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf, 
last accessed February 19, 2013.
---------------------------------------------------------------------------

    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 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 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.

[[Page 27705]]

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 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 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 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.

----------------------------------------------------------------------------------------------------------------
                                                                                     Number of
                                                      Number of       Number of       records/       Number of
       APU Determination               HAI            hospitals       quarters        quarter/      records per
                                                                                      hospital       hospital
----------------------------------------------------------------------------------------------------------------
FY 2015 (previously finalized)  CLABSI, CAUTI,     Up to 600.....               4          12                 48
                                 SSI combined.
In the preamble to this
 proposed rule
FY 2015.......................  CLABSI, CAUTI,     Up to 600.....               3          12                 36
                                 SSI combined.
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 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

[[Page 27706]]

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 Sec.  
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 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 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 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 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

[[Page 27707]]

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 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 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 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 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.
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

[[Page 27708]]

entire medical record where the content of the medical record is 
defined under 42 CFR Sec.  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 Sec.  412.140(d)(1) states:
    ``(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 Sec.  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.
    Based on the instructions that we have historically provided with 
written requests for records under 42 CFR Sec.  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.

------------------------------------------------------------------------
                                            Approximate
 IPPS/LTCH PPS Final or Proposed Rule FY   average page      Citation
                                              length
------------------------------------------------------------------------
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 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

[[Page 27709]]

costs of submitting electronic versions of medical information. Because 
hospitals 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.
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.
    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 LTCH 
PPS final rule (76 FR 51651 through 51652) and can be found at 42 CFR 
Sec.  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 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.

[[Page 27710]]

We invite public comment on these proposals.

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 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 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 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

[[Page 27711]]

furnished by those hospitals. The measures should address gaps in the 
quality of cancer care.
     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 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 Pre-Rulemaking 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 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.
    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 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.

[[Page 27712]]

    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.
(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, 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 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 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

[[Page 27713]]

Cancer endorsement maintenance project report at: http://www.qualityforum.org/Publications/2012/12/Cancer_Endorsement_Maintenance_2011.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 activity, thereby reducing bone pain and fractures in 
patients with multiple myeloma.\103\ This measure addresses the 
National Quality Strategy domain of Clinical Effectiveness.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 
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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

(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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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 patient and payer.\109\ This measure addresses the 
National Quality Strategy domain of Clinical Efficiency.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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

[[Page 27714]]

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.
---------------------------------------------------------------------------

    \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.
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(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[supreg] 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).
    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 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 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.

[[Page 27715]]

------------------------------------------------------------------------
                            Proposed New Measure for the PCHQR Program
         Topic               Beginning with the FY 2015 Program Year
------------------------------------------------------------------------
Safety and Healthcare-Associated Infection--HAI
------------------------------------------------------------------------
                          (NQF 0753) Harmonized
                          Procedure Specific Surgical Site Infection
                          (SSI) Outcome Measure
------------------------------------------------------------------------

------------------------------------------------------------------------
                                          Proposed New Measures for the
                 Topic                     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
                                          (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 High-Risk
                                          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.
    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 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 accompanied by notifications to PCHQR Program-participating users, 
providing sufficient time between the change and effective dates in 
order to allow users to

[[Page 27716]]

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:
     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. 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);
     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.
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

[[Page 27717]]

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
------------------------------------------------------------------------
                                                         Data Submission
       Program Year (FY)        Reporting Periods (CY)      Deadlines
------------------------------------------------------------------------
2015..........................  Q1 2014 events          August 15, 2014
                                 (January 1, 2014-
                                 March 31, 2014).
2016..........................  Q2 2014 events (April   November 15,
                                 1, 2014-June 30,        2014
                                 2014).
                                Q3 2014 events (July    February 15,
                                 1, 2014-September 30,   2015
                                 2014).
                                Q4 2014 events          May 15, 2015
                                 (October 1, 2014-
                                 December 31, 2014).
2017..........................  Q1 2015 events          August 15, 2015
                                 (January 1, 2015-
                                 March 31, 2015).
                                Q2 2015 events (April   November 15,
                                 1, 2015-June 30,        2015
                                 2015).
                                Q3 2015 events (July    February 15,
                                 1, 2015-September 30,   2016
                                 2015).
                                Q4 2015 events          May 15, 2016
                                 (October 1, 2015-
                                 December 31, 2015).
------------------------------------------------------------------------

    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 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 CAUTI \111\ 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.
---------------------------------------------------------------------------

    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 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.

[[Page 27718]]

  Proposed Clinical Process/Oncology Care Measures--Proposed Reporting
           Periods and Submission Timeframes for FYs 2016-2018
------------------------------------------------------------------------
                                                         Data submission
       Program year (FY)        Reporting periods (CY)      deadlines
------------------------------------------------------------------------
2016..........................  Q1 2015 discharges      July 1, 2015-
                                 (January 1, 2015-       August 15, 2015
                                 March 31, 2015).
                                                       -----------------
2017..........................  Q2 2015 discharges
                                 (April 1, 2015-June
                                 30, 2015.
                                Q3 2015 discharges      July 1, 2016-
                                 (July 1, 2015-          August 15, 2016
                                 September 30, 2015).
                                Q4 2015 discharges
                                 (October 1, 2015-
                                 December 31, 2015).
                                                       -----------------
2018..........................  Q1 2016 discharges
                                 (January 1, 2016-
                                 March 31, 2016).
                                Q2 2016 discharges      July 1, 2017-
                                 (April 1, 2016-June     August 15, 2017
                                 30, 2016.
                                Q3 2016 discharges
                                 (July 1, 2016-
                                 September 30, 2016).
                                Q4 2016 discharges
                                 (October 1, 2016-
                                 December 31, 2016).
------------------------------------------------------------------------

    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 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
------------------------------------------------------------------------
                                                         Data Submission
       Program Year (FY)        Reporting Periods (CY)      Deadlines
------------------------------------------------------------------------
2016..........................  Q1 2015 discharges      August 15, 2015
                                 (January 1, 2015-
                                 March 31, 2015).
2017..........................  Q2 2015 discharges      November 15,
                                 (April 1, 2015-June     2015
                                 30, 2015).
                                Q3 2015 discharges      February 15,
                                 (July 1, 2015-          2016
                                 September 30, 2015).
                                Q4 2015 discharges      May 15, 2016
                                 (October 1, 2015-
                                 December 31, 2015).
2018..........................  Q1 2016 discharges      August 15, 2016
                                 (January 1, 2016-
                                 March 31, 2016).
                                Q2 2016 discharges      November 15,
                                 (April 1, 2016-June     2016
                                 30, 2016).
                                Q3 2016 discharges      February 15,
                                 (July 1, 2016-          2017
                                 September 30, 2016).
                                Q4 2016 discharges      May 15, 2017
                                 (October 1, 2016-
                                 December 31, 2016).
------------------------------------------------------------------------

    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.

[[Page 27719]]

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 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.hcahpsonline.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 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.
    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 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
------------------------------------------------------------------------
                                                         Data Submission
       Program Year (FY)        Reporting Periods (CY)      Deadlines
------------------------------------------------------------------------
2016..........................  Q2 2014 discharges      October 1, 2014
                                 (April 1, 2014-June
                                 30, 2014).
                                Q3 2014 discharges      January 7, 2015
                                 (July 1, 2014-
                                 September 30, 2014).
                                Q4 2014 discharges      April 1, 2015
                                 (October 1, 2014-
                                 December 31, 2014).
2017..........................  Q1 2015 discharges      July 1, 2015
                                 (January 1, 2015-
                                 March 31, 2015).
                                Q2 2015 discharges      October 7, 2015
                                 (April 1, 2015-June
                                 30, 2015).
                                Q3 2015 discharges      January 6, 2016
                                 (July 1, 2015-
                                 September 30, 2015).
                                Q4 2015 discharges      April 6, 2016
                                 (October 1, 2015-
                                 December 31, 2015).
2018..........................  Q1 2016 discharges      July 6, 2016
                                 (January 1, 2016-
                                 March 31, 2016).
                                Q2 2016 discharges      October 5, 2016
                                 (April 1, 2016-June
                                 30, 2016).
                                Q3 2016 discharges      January 4, 2017
                                 (July 1, 2016-
                                 September 30, 2016).
                                Q4 2016 discharges      April 5, 2017
                                 (October 1, 2016-
                                 December 31, 2016).
------------------------------------------------------------------------

[[Page 27720]]

    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.

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 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_Review.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 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_Partnership.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 December 
1, 2012,\113\ 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.
---------------------------------------------------------------------------

    \113\ Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=72363
---------------------------------------------------------------------------

    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 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

[[Page 27721]]

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 on 
our LTCH Quality Reporting Program Web site at: http://www.cms.gov/LTCH-Quality-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.                        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.
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.                        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.
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

[[Page 27722]]

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 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
------------------------------------------------------------------------
                                Final submission           Payment
  Data collection timeframe         deadlines           determination
------------------------------------------------------------------------
October 1, 2014 (or when the  May 15, 2015........  FY 2016.
 influenza vaccine becomes
 available)-March 31, 2015.
October 1, 2015 (or when the  May 15, 2016........  FY 2017.
 influenza vaccine becomes
 available)-March 31, 2016.
------------------------------------------------------------------------

    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 ``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/HPS-manual/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 Given 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 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.
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    \114\ 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. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html
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    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.

[[Page 27723]]

 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)
------------------------------------------------------------------------
                                    Submission            Payment
  Data collection timeframes        deadlines          determination
------------------------------------------------------------------------
April 1, 2014-June 30, 2014...  August 15, 2014..  FY 2016.
July 1, 2014-September 30,      November 15,
 2014.                           2014.
October 1, 2014-December 31,    February 15,
 2014.                           2015.
January 1, 2015-March 31, 2015  May 15, 2015.....  FY 2017.
April 1, 2015-June 30, 2015...  August 15, 2015.
July 1, 2015-September 30,      November 15,
 2015.                           2015.
October 1, 2015-December 31,    February 15,
 2015.                           2016.
------------------------------------------------------------------------

    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 
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-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html.
---------------------------------------------------------------------------

    \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-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.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.
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 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.
---------------------------------------------------------------------------

    \116\ National 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.
    \117\ Press 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_Time-Limited_Endorsement_for_13_Measures;--Measures--Now--Have--Endorsed--
Status.aspx
---------------------------------------------------------------------------

    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)

[[Page 27724]]

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 (Short-Stay)) 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-
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_Partnership.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 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 begun on 
January 1, 2013. The measure was developed by the CDC and is NQF-
endorsed.
    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\
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    \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 Dis 2008; 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.
---------------------------------------------------------------------------

    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 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

[[Page 27725]]

supported the direction of this measure.\127\
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    \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.
    \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.
---------------------------------------------------------------------------

    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 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)
---------------------------------------------------------------------------

    \128\ Data from CMS-CDC correspondence on February 1, 2013.
---------------------------------------------------------------------------

    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 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 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\
---------------------------------------------------------------------------

    \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.
    \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.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \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.
    \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.
---------------------------------------------------------------------------

    Currently, there are three States that require hospitals to report 
C. difficile data to NHSN. Fifteen States have implemented a C. 
difficile Prevention

[[Page 27726]]

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\
---------------------------------------------------------------------------

    \141\ Centers 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.
---------------------------------------------------------------------------

    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 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 laboratory-identified 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.
---------------------------------------------------------------------------

    \143\ Data from CMS-CDC correspondence on February 1, 2013.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \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.
    \145\ RTI analysis of 2010-2011 Medicare MedPAR claims data 
under CMS contract HHSM-500-2008-00021I.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \146\ Federal Register, Vol. 76, No. 160, Thursday, August 18, 
2011/Rules and Regulations, IV.C.1.a.
---------------------------------------------------------------------------

    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, 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 percent 147 148149 150151 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.
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    \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.
---------------------------------------------------------------------------

    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 setting, and reducing preventable facility-wide readmission

[[Page 27727]]

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) 
measure \155\ 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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
    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_All-Cause_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;
     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.
---------------------------------------------------------------------------

    \158\ National Quality Forum. ``Patient Outcomes: All-Cause 
Readmissions Expedited Review 2011''. July 2012. pp12
---------------------------------------------------------------------------

    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 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-Assessment-Instruments/LTCH-Quality-Reporting/. In addition to the list of planned

[[Page 27728]]

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 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 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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
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 injurious falls accounting for 6 
percent of medical expenses among those age 65 and older.\164\
---------------------------------------------------------------------------

    \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/tools-services/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.
    \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.
---------------------------------------------------------------------------

    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

[[Page 27729]]

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\
---------------------------------------------------------------------------

    \165\ 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.
    \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.
---------------------------------------------------------------------------

    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 
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.
---------------------------------------------------------------------------

    \167\ Morse, J. M. (2002) Enhancing the safety of 
hospitalization by reducing patient falls. Am J Infect Control 2002; 
30(6): 376-80.
    \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.
---------------------------------------------------------------------------

    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.
    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 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\
---------------------------------------------------------------------------

    \177\ Nursing Home Quality Initiative, Quality Measures. 
December 2012. Available: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/NHQIQualityMeasures.html.
---------------------------------------------------------------------------

    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-Assessment-Instruments/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.
---------------------------------------------------------------------------

    \178\ 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 
on updates to the LTCH CARE Data Set.
---------------------------------------------------------------------------

    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 injury)) 
since Admission/Entry or Reentry or Prior Assessment), available at: 
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/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

[[Page 27730]]

Manual Version 6.0 available on our Web site at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/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 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 (Long-Stay) (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 Self-Report 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).
------------------------------------------------------------------------

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 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.
------------------------------------------------------------------------

[[Page 27731]]

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 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/hcp-flu-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 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.
---------------------------------------------------------------------------

    \179\ 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. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    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.

 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 *
------------------------------------------------------------------------
                                             Final submission deadlines
    Data collection timeframe: CY 2014        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)
------------------------------------------------------------------------
                                             Final submission deadlines
         Data collection timeframe            for the LTCHQR program FY
                                             2016 payment  determination
------------------------------------------------------------------------
April 1, 2014-December 31, 2014...........  February 15, 2015.
------------------------------------------------------------------------

[[Page 27732]]

 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
------------------------------------------------------------------------
                                             Final submission deadlines
         Data collection timeframe            for the LTCHQR program FY
                                             2016 payment  determination
------------------------------------------------------------------------
October 1 2014 (or when vaccine becomes     May 15, 2015.
 available)-March 31, 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 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.

 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
------------------------------------------------------------------------
                                             Final submission deadlines
    Data collection timeframe: CY 2015        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
------------------------------------------------------------------------
                                             Final submission deadlines
         Data collection timeframe            for the LTCHQR program FY
                                             2017 payment determination
------------------------------------------------------------------------
October 1 2015 (or when vaccine becomes     May 15, 2016.
 available)-March 31, 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 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.

[[Page 27733]]

 
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
------------------------------------------------------------------------
                                             Final submission deadlines
    Data collection timeframe: CY 2016        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.
------------------------------------------------------------------------

 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
------------------------------------------------------------------------
                                             Final submission deadlines
         Data collection timeframe            for the LTCHQR program FY
                                             2018 payment determination
------------------------------------------------------------------------
October 1 2016 (or when vaccine becomes     May 15, 2017.
 available)-March 31, 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 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 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-Assessment-Instruments/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 FY

[[Page 27734]]

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 that the request has been received; and (2) provide a formal 
response to the CEO or any CEO-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-Initiatives-Patient-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 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 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-Assessment-Instruments/LTCH-Quality-Reporting/.
    We invite public comment on the proposed procedures for 
reconsideration and appeals for FY 2015 payment determination and 
subsequent payment determinations.

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

[[Page 27735]]

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 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 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.
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 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

[[Page 27736]]

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 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.
     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.
     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.
    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 No.     Measure ID            Measure description
----------------------------------------------------------------------------------------------------------------
Patient Safety................................         0640      HBIPS-2  Hours of Physical Restraint Use.
                                                       0641      HBIPS-3  Hours of Seclusion Use.
Clinical Quality of Care......................         0552      HBIPS-4  Patients Discharged on Multiple
                                                                           Antipsychotic Medications.
                                                       0560      HBIPS-5  Patients Discharged on Multiple
                                                                           Antipsychotic Medications with
                                                                           Appropriate Justification.
Care Coordination.............................         0557      HBIPS-6  Post-Discharge Continuing Care Plan
                                                                           Created.

[[Page 27737]]

 
                                                       0558      HBIPS-7  Post-Discharge Continuing Care Plan
                                                                           Transmitted to Next Level of Care
                                                                           Provider Upon Discharge.
----------------------------------------------------------------------------------------------------------------

    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).
    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_Partnership.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 
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/Follow-Up%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 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

[[Page 27738]]

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 
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;
     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 
timeframe.
    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 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/Follow-Up%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 welcome public 
feedback on this approach. However, we are proposing to collect chart-
abstracted 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 and subsequent 
years and the proposed additional measures for the FY 2016 payment 
determination and subsequent years.

[[Page 27739]]

                     Previously Adopted and Proposed Quality Measures for the IPFQR Program
----------------------------------------------------------------------------------------------------------------
      National quality strategy priority          NQF No.     Measure ID            Measure description
----------------------------------------------------------------------------------------------------------------
             Previously Adopted Measures for the FY 2014 Payment Determination and Subsequent Years
----------------------------------------------------------------------------------------------------------------
Patient Safety................................         0640      HBIPS-2  Hours of Physical Restraint Use.
                                                       0641      HBIPS-3  Hours of Seclusion Use.
Clinical Quality of Care......................         0552      HBIPS-4  Patients Discharged on Multiple
                                                                           Antipsychotic Medications.
                                                       0560      HBIPS-5  Patients Discharged on Multiple
                                                                           Antipsychotic Medications with
                                                                           Appropriate Justification.
Care Coordination.............................         0557      HBIPS-6  Post-Discharge Continuing Care Plan
                                                                           Created.
                                                       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
----------------------------------------------------------------------------------------------------------------
Clinical Quality of Care......................       Review        SUB-1  Alcohol Use Screening.
                                                    Pending
                                                     Review        SUB-4  Alcohol & Drug Use: Assessing Status
                                                    Pending                After Discharge.
                                                       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 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.
    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.
    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

[[Page 27740]]

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 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 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 
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.
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

[[Page 27741]]

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.
    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          Reporting period
          (fiscal year)                 (calendar year)                 Public display (calendar year)
----------------------------------------------------------------------------------------------------------------
FY 2014..........................  Q4 2012 (October 1, 2012-  April 2014.
                                    December 31, 2012).
                                   Q1 2013 (January 1, 2013-
                                    March 31, 2013).
FY 2015..........................  Q2 2013 (April 1, 2013-    April 2015.
                                    June 30, 2013).
                                   Q3 2013 (July 1, 2013-
                                    September 30, 2013).
                                   Q4 2013 (October 1, 2013-
                                    December 31, 2013).
FY 2016..........................  Q1 2014 (January 1, 2014-  April 2016.
                                    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).
----------------------------------------------------------------------------------------------------------------

    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/).
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 (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 (77 FR 53655). As we indicated in the 
FY 2013 IPPS/LTCH PPS final rule, the specifications

[[Page 27742]]

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/Follow-Up%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 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 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
----------------------------------------------------------------------------------------------------------------
                                      Reporting period for
 Payment  determination  (fiscal       services provided                   Data submission timeframe
              year)                     (calendar year)
----------------------------------------------------------------------------------------------------------------
FY 2014..........................  Q4 2012 (October 1, 2012-  July 1, 2013-August 15, 2013.
                                    December 31, 2012).
                                   Q1 2013 (January 1, 2013-
                                    March 31, 2013).
FY 2015..........................  Q2 2013 (April 1, 2013-    July 1, 2014-August 15, 2014.
                                    June 30, 2013).
                                   Q3 2013 (July 1, 2013-
                                    September 30, 2013).
                                   Q4 2013 (October 1, 2013-
                                    December 31, 2013).
FY 2016..........................  Q1 2014 (January 1, 2014-  July 1, 2015-August 15, 2015.
                                    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).
----------------------------------------------------------------------------------------------------------------

    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

[[Page 27743]]

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.
    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 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/Follow-Up%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 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
----------------------------------------------------------------------------------------------------------------
                                          Reporting period for
 Payment determination (fiscal year)  services provided (calendar          Data accuracy and completeness
                                                 year)                        acknowledgement deadline
----------------------------------------------------------------------------------------------------------------
FY 2014.............................  Q4 2012 (October 1, 2012-    August 15, 2013.
                                       December 31, 2012).
                                      Q1 2013 (January 1, 2013-
                                       March 31, 2013).
FY 2015.............................  Q2 2013 (April 1, 2013-June  August 15, 2014.
                                       30, 2013).
                                      Q3 2013 (July 1, 2013-
                                       September 30, 2013).
                                      Q4 2013 (October 1, 2013-
                                       December 31, 2013).
FY 2016.............................  Q1 2014 (January 1, 2014-    August 15, 2015.
                                       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).
----------------------------------------------------------------------------------------------------------------

    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 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.

[[Page 27744]]

    Data Accuracy and Completeness Acknowledgment (DACA) Deadlines for the FY 2014 Payment Determinations and
                                                Subsequent Years
----------------------------------------------------------------------------------------------------------------
                                Reporting period for
    Payment  determination       services provided       Submission      DACA  Deadline       Public display
        (fiscal year)             (calendar year)         timeframe
----------------------------------------------------------------------------------------------------------------
FY 2014......................  Q4 2012 (October 1,    July 1, 2013-     August 15, 2013.  April 2014.
                                2012-December 31,      August 15, 2013.
                                2012).
                               Q1 2013 (January 1,
                                2013-March 31, 2013).
FY 2015......................  Q2 2013 (April 1,      July 1, 2014-     August 15, 2014.  April 2015.
                                2013-June 30, 2013).   August 15, 2014.
                               Q3 2013 (July 1, 2013-
                                September 30, 2013).
                               Q4 2013 (October 1,
                                2013-December 31,
                                2013).
FY 2016......................  Q1 2014 (January 1,    July 1, 2015-     August 15, 2015.  April 2016.
                                2014-March 31, 2014).  August 15, 2015.
                               Q2 2014 (April 1,
                                2014-June 30, 2014).
                               Q3 2014 (July 1, 2014-
                                September 30, 2014).
                               Q4 2014 (October 1,
                                2014-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 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.
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.

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

[[Page 27745]]

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 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 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 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 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.

[[Page 27746]]

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 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.

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 
Sec.  482.23. Included in the standards for the nursing services 
condition is a standard for the preparation and administration of 
drugs. Section Sec.  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 Sec.  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[supreg], 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[supreg], Pfizer), 
which received FDA 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 Sec.  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.

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-Service-Payment/
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 (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

[[Page 27747]]

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 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
    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
    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.
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.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Periods Available: FY 2005 through FY 2014 IPPS Update.

[[Page 27748]]

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.
    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.

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 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 Public Law 106-554 amended section 1886(d)(3)(E) 
of the Act to require CMS to collect data at least once every 3 years 
on the occupational mix of employees for each short-term, acute care 
hospital participating in the Medicare program in order to construct an 
occupational mix adjustment to the wage index. We collect the data via 
the occupational mix survey.
    The burden associated with this information collection requirement 
is the time and effort required to collect and submit the data in the 
Hospital Wage Index Occupational Mix Survey to CMS. The aforementioned 
burden is subject to the PRA; 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 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, Public 
Law 108-173. This program expanded our voluntary Hospital Quality 
Initiative. The Hospital

[[Page 27749]]

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.
    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 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 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 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

[[Page 27750]]

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.
     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 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, 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
------------------------------------------------------------------------
Cancer-Specific Treatments........  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).
                                    Adjuvant Hormonal Therapy (NQF
                                     0220)
Healthcare Acquired Infections      National Healthcare Safety Network
 (HAIs)                              (NHSN) Central Line-Associated
                                     Bloodstream Infection (CLABSI)
                                     Outcome Measure (NQF 0139).
                                    National Healthcare Safety Network
                                     (NHSN)Catheter-Associated 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
------------------------------------------------------------------------
                                       NQF
         Measure domain            Endorsement         Measure name
                                      number
------------------------------------------------------------------------
Patient Safety.................            0753   Harmonized Procedure
                                                   Specific Surgical.
------------------------------------------------------------------------

[[Page 27751]]

              Proposed New Measures Beginning with FY 2016
------------------------------------------------------------------------
                                       NQF
         Measure domain            Endorsement         Measure name
                                     number
------------------------------------------------------------------------
Surgical Care Improvement                  0218  Surgery Patients Who
 Project (SCIP).                                  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
                                                  Post-Operative 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.
                                           0529  Prophylactic Antibiotic
                                                  Discontinued Within 24
                                                  Hrs After Surgery End
                                                  Time.
Clinical Process/Oncology Care.            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.
                                           0389  Prostate Cancer--
                                                  Avoidance of Overuse
                                                  Measure-Bone Scan for
                                                  Staging Low-Risk
                                                  Patients.
Patient Engagement/Patient                 0166  HCAHPS Patient
 Experience of Care.                              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 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.
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

[[Page 27752]]

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. 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 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.
---------------------------------------------------------------------------

    \180\ 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. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    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 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\
---------------------------------------------------------------------------

    \181\ National 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.
    \182\ Press 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_Time-Limited_Endorsement_for_13_Measures;--Measures--Now--Have--Endorsed--
Status.aspx.
    \183\ 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. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    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 Hospital-Onset 
Methicillin-Resistant Staphylococcus Aureus (MRSA) Bacteremia Outcome 
Measure (NQF 1716); (2) National Healthcare Safety Network 
(NHSN) Facility-Wide 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

[[Page 27753]]

data to NHSN. We believe that any burden increase related to complying 
with the LTCHQR Program 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.
    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 $765,019.\184\ 
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.
---------------------------------------------------------------------------

    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 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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 
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

[[Page 27754]]

data for NQF 0678 remains unchanged.\187\
---------------------------------------------------------------------------

    \186\ 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. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
    \187\ 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. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    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 2.01,\188\ so we anticipate that increase in burden due to the 
addition of items for NQF 0680 will be minimal. 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.
---------------------------------------------------------------------------

    \188\ 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. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    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 202,050 \189\ (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.
---------------------------------------------------------------------------

    \189\ MedPAC Report to Congress, March 2012, page 261. Available 
at: http://www.medpac.gov/documents/Mar12_EntireReport.pdf.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
    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-Assessment-Instruments/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. 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/

[[Page 27755]]

Medicare/Quality-Initiatives-Patient-Assessment-Instruments/
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 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.
    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

    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.

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

0
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).

0
2. Section 412.3 is added to read as follows:

Sec.  412.3  Admissions.

    (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 Sec. Sec.  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

[[Page 27756]]

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 Sec.  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 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.
0
3. Section 412.46 is revised to read as follows:

Sec.  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 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 Sec.  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.
0
4. Section 412.64 is amended--
0
a. By adding paragraph (d)(1)(v).
0
b. In paragraph (h)(4) introductory text, by removing the date 
``October 1, 2013'' and adding in its place the date ``October 1, 
2014''.
0
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:

Sec.  412.64  Federal rates for inpatient operating costs for Federal 
fiscal year 2005 and subsequent fiscal years.

* * * * *
    (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 Sec.  413.40(a) of this chapter) for hospitals in all 
areas.
* * * * *

Sec.  412.101  [Amended]

0
5. Section 412.101 is amended--
0
a. In paragraph (b)(2)(i), by removing the term ``FY 2013'' and adding 
in its place the term ``FY 2014.''
0
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,''.
0
c. In paragraph (c)(1), by removing the term ``FY 2013'' and adding in 
its place the term ``FY 2014.''
0
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,''.
0
e. In paragraph (d), by removing the term ``FY 2013'' and adding in its 
place the term ``FY 2014.''
0
6. Section 412.106 is amended by adding paragraphs (f), (g), and (h) to 
read as follows:

Sec.  412.106  Special treatment: Hospitals that serve a 
disproportionate share of low-income 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.
    (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.

[[Page 27757]]

    (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.
    (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.

Sec.  412.108  [Amended]

0
7. Section 412.108 is amended--
0
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''.
0
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''.
0
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:

Sec.  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.
* * * * *
    (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.
0
9. Section 412.150 is amended by adding paragraph (c) to read as 
follows:

Sec.  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 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 Hospital-Acquired Condition Reduction Program are specified in 
Sec. Sec.  412.170 and 412.172.
0
10. Section 412.152 is amended by revising the definition of ``Base 
operating DRG payment amount'' to read as follows:

Sec.  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 Sec.  412.162. This amount does not include 
any additional payments for indirect medical education under Sec.  
412.105, the treatment of a disproportionate share of low-income 
patients under Sec.  412.106, outliers under subpart F of this part, 
and a low volume of discharges under Sec.  412.101. With respect to a 
sole community hospital that receives payments under Sec.  412.92(d) or 
a Medicare-dependent, small rural hospital that receives payments under 
Sec.  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 that would be paid to such hospitals, absent the 
provisions of section 1814(b)(3) of the Act.
* * * * *
0
11. Section 412.154 is amended by revising paragraph (d)(2) to read as 
follows:

Sec.  412.154  Payment adjustments under the Hospital Readmissions 
Reduction Program.

* * * * *
    (d) * * *
    (2)(i) Maryland's annual report to the Secretary and request for 
exemption

[[Page 27758]]

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.
* * * * *

0
12. Section 412.160 is amended by revising the definitions of 
``Achievement threshold'' and ``Benchmark'' to read as follows:

Sec.  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 
measure, 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.
* * * * *
0
13. An undesignated center heading and Sec. Sec.  412.170 and 412.172 
are added to subpart I to read as follows:

Payment Adjustments under the Hospital-Acquired Condition Reduction 
Program

Sec.  412.170  Definitions for the Hospital-Acquired Condition 
Reduction Program.

    As used in this section and Sec.  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 Sec.  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.

Sec.  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 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 Sec.  412.154 and the 
adjustment made under the Hospital Value-Based Purchasing Program under 
Sec.  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 
Hospital-Acquired 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.
    (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 hospital-acquired 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.

[[Page 27759]]

    (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.
    (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 Sec.  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.
0
14. Section 412.523 is amended by--
0
a. Revising paragraph (c)(3) introductory text.
0
b. Adding paragraph (c)(3)(x).
0
c. Redesignating paragraph (c)(4) as paragraph (c)(5).
0
d. Adding a new paragraph (c)(4).
    The additions read as follows:

Sec.  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:
* * * * *
    (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 long-term 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 long-term 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

0
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.

0
16. Section 482.23 is amended by revising paragraph (c)(3) introductory 
text to read as follows:

Sec.  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 Sec.  
482.12(c).
* * * * *

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

0
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)).

0
18. Section 485.620 is amended by revising paragraph (a) to read as 
follows:

Sec.  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 Sec.  485.647, the CAH maintains no more than 
25 inpatient beds. Inpatient beds may be used for either inpatient or 
swing-bed services.
* * * * *
0
19. Section 485.635 is amended by revising paragraphs (a)(3)(vii), 
(b)(1), and (c)(1) to read as follows:

Sec.  485.635  Condition of participation: Provision of services.

    (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 Sec.  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;
    (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

0
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)).

0
21. In Sec.  489.24, the paragraph (f) heading is revised to read as 
follows:

Sec.  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)

[[Page 27760]]

    Dated: April 24, 2013.
 Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 25, 2013.
Kathleen Sebelius,
Secretary.

    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.
    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 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 Sec.  412.64. 
The basic methodology for determining the prospective payment rates 
for hospital inpatient operating costs for hospitals located in 
Puerto Rico for FY 2005 and subsequent fiscal years is set forth 
under Sec. Sec.  412.211 and 412.212. Below we discuss the factors 
we are using for determining the proposed prospective payment rates 
for FY 2014.
    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 
accordance with section 1886(d)(9)(C)(i) of the Act, as amended by 
section 401(c) of Public Law 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 Public Law 108-173, as amended by sections 3123 and 10313 of 
Public Law 111-148, which extended the demonstration program for an 
additional 5 years, are budget neutral as required under section 
410A(c)(2) of Public Law 108-173.
     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 Public Law 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

[[Page 27761]]

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.
    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 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) 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

    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 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

[[Page 27762]]

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 Public Law 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 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 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 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 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/Bundled-Payments/index.html.
    In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 
53343), for FY 2013 and subsequent fiscal years, we finalized a 
methodology to treat hospitals that participate in the BPCI 
initiative the same as prior fiscal years for the IPPS payment 
modeling and 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 
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

[[Page 27763]]

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 value-based 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.
    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 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 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 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 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

[[Page 27764]]

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 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 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 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 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 Sec.  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 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

[[Page 27765]]

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 aggregate payments as a result of not completing 
the prospective adjustment authorized under section 7(b)(1)(A) of 
Public Law 110-90 until FY 2013. 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 Public Law 
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 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 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 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 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

    As discussed in section V.K. of the preamble to this proposed 
rule, section 410A of Public Law 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 Public Law 108-173 requires that 
``[i]n conducting the demonstration program under this section, the 
Secretary shall ensure that the aggregate payments made by the 
Secretary do not exceed the amount which the Secretary would have 
paid if the demonstration program under this section was not 
implemented.''
    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

[[Page 27766]]

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 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) 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. 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-Service-Payment/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 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 
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

[[Page 27767]]

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 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 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 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.
    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.
    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 Sec.  412.152 and the Hospital VBP Program under Sec.  
412.160, outlier 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.

[[Page 27768]]

    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 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     Capital
                                                 amounts    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.
    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 Sec.  412.84, we calculate operating 
and capital CCR ceilings and assign a statewide average CCR for 
hospitals whose CCRs exceed 3.0 standard deviations from the mean of 
the log distribution of CCRs for all hospitals. Based on this 
calculation, for hospitals for which the 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 Sec.  412.84(i)(3) of 
our regulations), statewide average CCRs are used to determine 
whether a hospital qualifies for outlier payments. Table 8A listed 
in section VI. of this Addendum (and available only via the 
Internet) 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-Service-Payment/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. 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 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 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.

[[Page 27769]]

    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.
    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 Public Law 108-173, provides 
that the labor-related share for hospitals located in Puerto Rico be 
62 percent, unless the application of that percentage would result 
in lower payments to the hospital.)
    The following table illustrates the 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 Public Law 110-90. The MS-DRG 
reclassification and recalibration wage index budget neutrality 
factors are cumulative. Therefore, those FY 2013 factors are not 
removed from this table.

  Comparison of FY 2013 Standardized Amounts to the Proposed FY 2014 Standardized Amount With Full and Reduced
                                                     Update
----------------------------------------------------------------------------------------------------------------
                                                       Full update (1.8                        Reduced update (-
                                   Full update (1.8     percent); wage     Reduced update (-  0.2 percent); wage
                                    percent); wage    index is less than  0.2 percent); wage  index is less than
                                   index is greater       or equal to      index is greater       or equal to
                                  than 1.0000; labor/ 1.0000; labor/non-  than 1.0000; labor/ 1.0000; labor/non-
                                    non-labor share       labor share       non-labor share       labor share
                                      percentage          percentage          percentage          percentage
                                  (69.6/30.4).......  (62/38)...........  (69.6/30.4).......  (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     Labor: $4,176.63..  Labor: $3,720.56..  Labor: $4,176.63..  Labor: $3,720.56.
     2009, FY 2012, FY 2013       Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
     Documentation and Coding      $1,824.27.          $2,280.34.          $1,824.27.          $2,280.34.
     Adjustment as Required
     under Sections 7(b)(1)(A)
     and 7(b)(1)(B) of Public
     Law 110-90 (0.9478)
    4. FY 2013 Operating Outlier
     Offset (0.948999)
Proposed FY 2014 Update Factor..  1.018.............  1.018.............  0.998.............  0.998.
Proposed FY 2014 MS-DRG           0.997350..........  0.997350..........  0.997350..........  0.997350.
 Recalibration and Wage Index
 Budget Neutrality Factor.
Proposed FY 2014                  0.990971..........  0.990971..........  0.990971..........  0.990971.
 Reclassification Budget
 Neutrality Factor.
Proposed FY 2014 Rural Community  0.999834..........  0.999834..........  0.999834..........  0.999834.
 Demonstration Program Budget
 Neutrality Factor.
Proposed FY 2014 Operating        0.948997..........  0.948997..........  0.948997..........  0.948997.
 Outlier Factor.
Proposed Adjustment to Offset     0.998.............  0.998.............  0.998.............  0.998.
 the Cost of the Policy Proposal
 on Admission and Medical Review
 Criteria for Hospital Inpatient
 Services under Medicare Part A.
Cumulative Factor: FY 2008, FY    0.9403............  0.9403............  0.9403............  0.9403.
 2009, FY 2012, and FY 2013
 Documentation and Coding
 Adjustment as Required under
 Sections 7(b)(1)(A) and
 7(b)(1)(B) of Public Law 110-90
 and Proposed Documentation and
 Coding Recoupment Adjustment as
 required under Section 631 of
 the American Taxpayer Relief
 Act of 2012.

[[Page 27770]]

 
Proposed National Standardized    Labor: $3,741.72..  Labor: $3,333.14..  Labor: $3,668.21..  Labor: $3,267.66.
 Amount for FY 2014.              Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
                                   $1,634.32.          $2,042.90.          $1,602.21.          $2,002.76.
----------------------------------------------------------------------------------------------------------------

    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
                                      Update (1.8       percent); wage
                                    percent); wage    index is less than
                                   index is greater       or equal to
                                  than 1.0000; labor/ 1.0000; labor/non-
                                    non-labor share       labor share
                                      percentage          percentage
                                      (63.2/36.8)           (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)
    3. FY 2013 Puerto Rico        Labor: $1,700.33..  Labor: $1,668.05.
     Operating Outlier Offset     Nonlabor: $990.07.  Nonlabor:
     (0.944760)                                        $1,022.35.
Proposed FY 2014 Update Factor..  1.018.............  1.018.
Proposed FY 2014 MS-DRG           0.997583..........  0.997583.
 Recalibration Budget Neutrality
 Factor.
Proposed FY 2014                  0.990971..........  0.990971.
 Reclassification Budget
 Neutrality Factor.
Proposed FY 2014 Rural Community  0.999834..........  0.999834.
 Hospital Demonstration Program
 Budget Neutrality Factor.
Proposed FY 2014 Puerto Rico      0.952600..........  0.952600.
 Operating Outlier Factor.
Proposed Adjustment to Offset     0.998.............  0.998.
 the Cost of the Policy Proposal
 on Admission and Medical Review
 Criteria for Hospital Inpatient
 Services under Medicare Part A.
Proposed Puerto Rico-Specific     Labor: $1,626.53..  Labor: $1,595.64.
 Payment Rate for FY 2014.        Nonlabor: $947.09.  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 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.
    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

[[Page 27771]]

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 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 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 nonlabor-related 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).
    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
------------------------------------------------------------------------
                                                        Proposed cost of
                                                             living
                         Area                              adjustment
                                                             factor
------------------------------------------------------------------------
Alaska:
    City of Anchorage and 80-kilometer (50-mile)                    1.23
     radius by road...................................
    City of Fairbanks and 80-kilometer (50-mile)                    1.23
     radius by road...................................
    City of Juneau and 80-kilometer (50-mile) radius                1.23
     by road..........................................
    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 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.)

[[Page 27772]]

    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.
    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 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 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 hospital-specific 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 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 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.
    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.

[[Page 27773]]

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

    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.

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 Sec.  412.304(c)(2)) are paid based 
on the capital Federal rate. For FY 1992, we computed the standard 
Federal payment rate for capital-related costs under the IPPS by 
updating the FY 1989 Medicare inpatient capital cost per case by an 
actuarial estimate of the increase in Medicare inpatient capital 
costs per case. Each year after FY 1992, we update the capital 
standard Federal rate, as provided at Sec.  412.308(c)(1), to 
account for capital input price increases and other factors. The 
regulations at Sec.  412.308(c)(2) also provide that the capital 
Federal rate be adjusted annually by a factor equal to the estimated 
proportion of outlier payments under the capital Federal rate to 
total capital payments under the capital Federal rate. In addition, 
Sec.  412.308(c)(3) requires that the capital Federal rate be 
reduced by an adjustment factor equal to the estimated proportion of 
payments for exceptions under Sec.  412.348. (We note that, as 
discussed in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53705), 
there is generally no longer a need for an exceptions payment 
adjustment factor.) However, in limited circumstances, an additional 
payment exception for extraordinary circumstances is provided for 
under Sec.  412.348(f) for qualifying hospitals. Therefore, in 
accordance with Sec.  412.308(c)(3), an exceptions payment 
adjustment factor may need to be applied if such payments are made. 
Section 412.308(c)(4)(ii) requires that the capital standard Federal 
rate be adjusted so that the effects of the annual DRG 
reclassification and the recalibration of DRG weights and changes in 
the geographic adjustment factor (GAF) are budget neutral.
    Section 412.374 provides for 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 Public Law 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 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 Sec.  412.308(c)(1), the capital standard Federal rate is 
updated on the basis of an analytical framework that takes into 
account changes in a capital input price index (CIPI) and several 
other policy adjustment factors. Specifically, we adjust the 
projected CIPI rate-of-increase as appropriate each year for case-
mix index-related changes, for intensity, and for errors in previous 
CIPI forecasts. The proposed update factor for FY 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

[[Page 27774]]

     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 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 
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.
    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
                                                              ----------
    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 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.

[[Page 27775]]

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 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 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 Sec.  
412.308(c)(4)(ii) that estimated aggregate payments each year be no 
more or less than they would have been in the absence of the annual 
DRG reclassification and recalibration and changes in the GAFs.
    The methodology used to determine the recalibration and 
geographic adjustment factor (GAF/DRG) budget neutrality adjustment 
is similar to the methodology used in establishing budget neutrality 
adjustments under the IPPS for operating costs. One difference is 
that, under the operating IPPS, the budget neutrality adjustments 
for the effect of geographic reclassifications are determined 
separately from the effects of other changes in the hospital wage 
index and the MS-DRG relative weights. Under the capital IPPS, there 
is a single GAF/DRG budget neutrality adjustment factor (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 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 $432.03 
for 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.
     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.)
    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

[[Page 27776]]

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 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
----------------------------------------------------------------------------------------------------------------
                                                                   Proposed  FY
                                                      FY 2013          2014           Change      Percent change
----------------------------------------------------------------------------------------------------------------
Update Factor \1\...............................          1.0120          1.0090          1.0090            0.90
GAF/DRG Adjustment Factor \1\...................          0.9998          0.9988          0.9988           -0.12
Outlier Adjustment Factor \2\...................          0.9362          0.9451          1.0095            0.95
Adjustment for admission and medical review                  N/A          0.9980          0.9980           -0.20
 criteria \3\...................................
Capital Federal Rate............................         $425.49         $432.03          1.0154            1.54
----------------------------------------------------------------------------------------------------------------
\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 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 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 prospective 
payment rate for the MS-DRG plus the proposed fixed-loss amount of 
$24,140.
    Currently, as provided under Sec.  412.304(c)(2), we pay a new 
hospital 85 percent of its reasonable costs during the first 2 years 
of operation unless it elects to receive payment based on 100 
percent of the capital Federal rate. Effective with the third year 
of operation, we pay the hospital based on 100 percent of the 
capital Federal rate (that is, the same methodology used to pay all 
other hospitals subject to the capital PPS).

C. Capital Input Price Index

1. Background

    Like the operating input price index, the capital input price 
index (CIPI) is a fixed-weight price index that measures the price 
changes associated with capital costs during a given year. The CIPI 
differs from the operating input price index in one important 
aspect--the CIPI reflects the vintage nature of capital, which is 
the acquisition and use of capital over time. Capital expenses in 
any given year are determined by the stock of capital in that year 
(that is, capital that remains on hand from all current and prior 
capital acquisitions). An index measuring capital price changes 
needs to reflect this vintage nature of capital. Therefore, the CIPI 
was developed to capture the vintage nature of capital by using a 
weighted-average of past capital purchase prices up to and including 
the current year.
    We periodically update the base year for the operating and 
capital input price indexes

[[Page 27777]]

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. 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.

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 Sec.  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 Sec.  
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 Sec.  
403.752(a), RNHCIs are also subject to the rate-of-increase limits 
established under Sec.  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 accordance 
with applicable regulations at Sec.  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 
cost-based 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. 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.

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 Sec.  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 Sec.  
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 illness (71 FR 27818). 
Accordingly, we established under Sec.  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 Sec. Sec.  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 Sec. Sec.  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.
    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

[[Page 27778]]

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 
Sec.  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 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.

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 Sec.  
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 Sec.  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 Sec.  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 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 Sec.  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 x 1.018 x 0.98734 x 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 accordance with the 
LTCHQR Program under section 1886(m)(5) of the Act. Therefore, under 
proposed Sec.  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 Sec.  412.523(c)(3)(x) in conjunction 
with proposed Sec.  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 Sec.  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 x 1.018 x 0.98734 x 1.000433) 
for discharges occurring on or after October 1, 2013, and on or 
before 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 x 0.998 x 0.98734 x 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 Sec.  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

[[Page 27779]]

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 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 Sec.  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 Sec.  412.503. Currently under the LTCH PPS 
at Sec.  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 Sec.  412.525(c), we revised the labor market area 
definitions used under the LTCH PPS effective for discharges 
occurring on or after July 1, 2005, based on the Executive OMB's 
CBSA designations, which are based on 2000 Census data. We made this 
revision because we believe that the CBSA-based labor market area 
definitions will ensure that the LTCH PPS wage index adjustment most 
appropriately accounts for and reflects the relative hospital wage 
levels in the geographic area of the hospital as compared to the 
national average hospital wage level. We note that these are the 
same CBSA-based designations implemented for acute care hospitals 
under the IPPS at Sec.  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 
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 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

    Under the adjustment for differences in area wage levels at 
Sec.  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 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

[[Page 27780]]

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) 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 capital-related 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
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 
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, 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 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

[[Page 27781]]

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

    Historically, the LTCH PPS wage index and labor-related share 
are updated annually based on the latest available data. Under Sec.  
412.525(c)(2), any changes to the 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 Sec.  
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 Sec.  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 Sec.  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 level 
adjustment budget neutrality factor that would be applied to the 
standard Federal rate under Sec.  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 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 Sec.  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 Sec.  412.525(b), a cost-of-living adjustment (COLA) is 
provided for LTCHs located in Alaska and Hawaii to account for the 
higher costs incurred in those States. Specifically, we apply a COLA 
to payments to LTCHs located in Alaska and Hawaii by multiplying the 
nonlabor-related portion of the standard Federal payment rate by the 
applicable COLA factors established annually by CMS. Higher labor-
related costs for LTCHs located in Alaska and Hawaii are taken into 
account in the adjustment for area wage levels 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 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 
Sec.  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).)
    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 Sec.  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

[[Page 27782]]

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, 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 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             1.23
     by road............................................
    City of Fairbanks and 80-kilometer (50-mile) radius             1.23
     by road............................................
    City of Juneau and 80-kilometer (50-mile) radius by             1.23
     road...............................................
    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 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 Sec.  412.525(a), we established an adjustment 
for additional payments for outlier cases that have extraordinarily 
high costs relative to the costs of most discharges. We refer to 
these cases as high cost outliers (HCOs). Providing additional 
payments for outliers strongly improves the accuracy of the LTCH PPS 
in determining resource costs at the patient and hospital level. 
These additional payments reduce the financial losses that would 
otherwise be incurred when treating patients who require more costly 
care and, therefore, reduce the incentives to underserve these 
patients. We set the outlier threshold before the beginning of the 
applicable rate year so that total estimated outlier payments are 
projected to equal 8 percent of total estimated payments under the 
LTCH PPS.
    Under Sec.  412.525(a) in the regulations (in conjunction with 
Sec.  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 Sec.  412.525(a)(3) (in conjunction with Sec.  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 Sec.  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

[[Page 27783]]

case with unusually high costs before the LTCH will receive any 
additional payments. We calculate the fixed-loss amount by 
estimating aggregate payments with and without an outlier policy. 
The fixed-loss amount results in estimated total outlier payments 
being projected to be equal to 8 percent of projected total LTCH PPS 
payments. Currently, MedPAR claims data and CCRs based on data from 
the most recent Provider-Specific File (PSF) (or from the applicable 
statewide average CCR if a LTCH's CCR data are faulty or 
unavailable) are used to establish a fixed-loss threshold amount 
under the LTCH PPS.

2. Determining LTCH CCRs Under the LTCH PPS

a. Background

    The following is a discussion of CCRs that are used in 
determining payments for HCO and SSO cases under the LTCH PPS, at 
Sec.  412.525(a) and Sec.  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 Sec.  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 Sec.  412.525(a)) and SSO 
payments (at Sec.  412.529), we calculate the estimated cost of the 
case by multiplying the LTCH's overall CCR by the Medicare allowable 
charges for the case. In general, we use the LTCH's overall CCR, 
which is computed based on either the most recently settled cost 
report or the most recent tentatively settled cost report, whichever 
is from the latest cost reporting period, in accordance with Sec.  
412.525(a)(4)(iv)(B) and Sec.  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 Sec.  412.525(a)(4)(iv)(C) and Sec.  
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 
Sec.  412.525(a)(4)(iv)(A) and Sec.  412.529(f)(4)(i).) Under the 
LTCH PPS, a single prospective payment per discharge is made for 
both inpatient operating and capital-related costs. Therefore, we 
compute a single ``overall'' or ``total'' LTCH-specific CCR based on 
the sum of LTCH operating and capital costs (as described in Section 
150.24, Chapter 3, of the Medicare Claims Processing Manual (Pub. 
100-4)) as compared to total charges. Specifically, a LTCH's CCR is 
calculated by dividing a LTCH's total Medicare costs (that is, the 
sum of its operating and capital inpatient routine and ancillary 
costs) by its total Medicare charges (that is, the sum of its 
operating and capital inpatient routine and ancillary charges).

b. LTCH Total CCR Ceiling

    Generally, a LTCH is assigned the applicable statewide average 
CCR if, among other things, a LTCH's CCR is found to be in excess of 
the applicable maximum CCR threshold (that is, the LTCH CCR 
ceiling). This is because CCRs above this threshold are most likely 
due to faulty data reporting or entry, and, therefore, CCRs based on 
erroneous data should not be used to identify and make payments for 
outlier cases. Thus, under our established policy, generally, if a 
LTCH's calculated CCR is above the applicable ceiling, the 
applicable LTCH PPS statewide average CCR is assigned to the LTCH 
instead of the CCR computed from its most recent (settled or 
tentatively settled) cost report data.
    In accordance with Sec.  412.525(a)(4)(iv)(C)(2) for HCOs and 
Sec.  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 Sec.  412.525(a)(4)(iv)(C) and the 
SSO policy at Sec.  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 Sec.  489.18); (2) LTCHs whose CCR is 
in excess of the LTCH CCR ceiling; and (3) other LTCHs for whom data 
with which to calculate a CCR are not available (for example, 
missing or faulty data). (Other sources of data that the fiscal 
intermediary or MAC may consider in determining a LTCH's CCR include 
data from a different cost reporting period for the LTCH, data from 
the cost reporting period preceding the period in which the hospital 
began to be paid as a LTCH (that is, the period of at least 6 months 
that it was paid as a short-term, acute care hospital), or data from 
other comparable LTCHs, such as LTCHs in the same chain or in the 
same region.)
    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 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 short-term, 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 Sec.  
412.525(a)(4)(iv)(D) and the LTCH PPS SSO policy at Sec.  
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 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

[[Page 27784]]

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 Sec.  412.525(a)(3) 
(in conjunction with Sec.  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 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 $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 Sec.  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 Sec.  412.529 in 
conjunction with Sec.  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 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 
Sec.  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 Sec.  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 Sec.  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: 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.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Unadjusted Proposed Standard Federal Prospective              $40,622.06
 Payment Rate (provided the LTCH submits quality data
 in accordance with the LTCHQR Program under section
 1886(m)(5) of the Act)...............................
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       + $15,145.12
 ($40,622.06 x 0.37283)...............................
Adjusted Proposed Federal Rate Amount.................      = $41,758.33

[[Page 27785]]

 
Proposed MS-LTC-DRG 28 Relative Weight................          x 1.6023
Total Adjusted Proposed Federal Prospective Payment...      = $66,909.37
------------------------------------------------------------------------

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.
    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/Medicare-Fee-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
    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
    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-Service-Payment/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)
    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
----------------------------------------------------------------------------------------------------------------

[[Page 27786]]

 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
----------------------------------------------------------------------------------------------------------------
National \1\......................  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
------------------------------------------------------------------------

  Table 1E--Proposed LTCH Standard Federal Prospective Payment Rate--FY
                                  2014
------------------------------------------------------------------------
                                     Full update (1.8  Reduced update* (-
                                         percent)         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.

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 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.
    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

[[Page 27787]]

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 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 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 Sec.  413.40. (In 
accordance with Sec.  403.752(a) of the regulation, RNHCIs are paid 
under Sec.  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 Sec. Sec.  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 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 rate-of-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 Sec.  413.40 of the 
regulations are not subject to the reductions in the applicable 
percentage increase required under the Affordable Care Act. 
Therefore, for RNHCIs, children's hospitals, and the 11 cancer 
hospitals paid under Sec.  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.
    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 Sec.  413.40(d)(3), an excluded hospital 
that continues to be paid under the TEFRA system and whose costs 
exceed 110 percent of its rate-of-increase limit receives its rate-
of-increase limit plus the lesser of: (1) 50 percent of its 
reasonable costs in excess of 110 percent of the limit, or (2) 10 
percent of its limit. In addition, under the various provisions set 
forth in Sec.  413.40, hospitals can obtain payment adjustments for 
justifiable increases in operating costs that exceed the limit.

G. Quantitative Effects of the 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 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.

[[Page 27788]]

    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 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 
(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.
     The effects of the proposed implementation of section 
1886(d)(13) of the Act, as added by section 505 of Public Law 108-
173, which provides for an increase in a hospital's wage index if 
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 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 Public Law 109-171, as amended by section 4102(b)(1)(A) 
of the ARRA (Pub. L. 111-5) and by section 3401(a)(2) of the 
Affordable Care Act (Pub. L. 111-148), provides that, for FY 2007 
and each subsequent year, 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 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

[[Page 27789]]

the hospital-specific amounts for SCHs also are equal to the 
applicable percentage increase, or 1.8 percent. In addition, we 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.
    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.
    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.

[[Page 27790]]

                                                                        Table I--Impact Analysis of Proposed Changes to the IPPS for Operating Costs for FY 2014
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Proposed FY                 Proposed FY                        Proposed
                                                                                2014 weights  Proposed FY    2014 DRG,                       rural floor
                                                                   Proposed       and DRG      2014 wage     rel. wts.,                      and imputed    Proposed
                                                                hospital rate   changes with   data with     wage index    Proposed FY 2014   floor with  application   Proposed FY                 Proposed      Proposed       All
                                                     Number of    update and    application   application   changes with        MGCRB        application     of the        2014       Expiration    hospital     changes to  proposed FY
                                                     hospitals  documentation        of         of wage       wage and    reclassifications  of national    frontier   outmigration     of MDH    readmissions    Medicare       2014
                                                        \1\       and coding   recalibration     budget    recalibration         \6\         rural floor   wage index   adjustment   status \10\    reduction     DSH \12\     changes
                                                                  adjustment       budget      neutrality      budget                           budget        \8\           \9\                   program \11\                   \13\
                                                                     \2\         neutrality       \4\        neutrality                       neutrality
                                                                                    \3\                         \5\                              \7\
                                                           (1)         (2)            (3)           (4)           (5)              (6)             (7)          (8)           (9)         (10)          (11)         (12)         (13)
                                                   -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
All Hospitals.....................................       3,404           0.8            0             0             0.1              0               0            0.1           0           -0.1          -0.2         -0.9         -0.1
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         By Geographic Location
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Urban hospitals...................................        2481           0.8            0             0             0.1             -0.2             0            0.1           0            0            -0.2         -0.8          0.1
Large urban areas.................................        1367           0.8            0             0.1           0.2             -0.3             0            0             0            0            -0.2         -0.7          0.5
Other urban areas.................................        1114           0.8            0.1          -0.1           0               -0.1             0.1          0.2           0           -0.1          -0.1         -1.1         -0.4
Rural hospitals...................................         923           1.2           -0.5          -0.2          -0.6              1.7            -0.3          0.1           0.1         -1.2          -0.2         -0.9         -1.9
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Bed Size (Urban)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0-99 beds.........................................         622           0.8            0.3           0             0.3             -0.4             0.1          0.2           0           -0.4          -0.1          0.6          0.9
100-199 beds......................................         762           0.8           -0.1           0            -0.1             -0.1             0.3          0.1           0            0            -0.2         -1.1         -0.5
200-299 beds......................................         464           0.8           -0.1           0             0                0               0            0.1           0            0            -0.2         -0.7         -0.1
300-499 beds......................................         418           0.8            0.1           0             0.1             -0.2             0            0.1           0            0            -0.2         -0.8          0.1
500 or more beds..................................         215           0.8            0.2           0.1           0.4             -0.2            -0.1          0             0            0            -0.2         -1            0.4
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Bed Size (Rural)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0-49 beds.........................................         339           1.1           -0.8          -0.3          -1                0.5            -0.3          0.1           0.2         -2            -0.3          0.3         -2.4
50-99 beds........................................         328           1.2           -0.7          -0.2          -0.8              1.2            -0.3          0             0.2         -3.3          -0.3         -0.1         -3.3
100-149 beds......................................         151           1.2           -0.6          -0.3          -0.7              1.9            -0.3          0.1           0           -0.3          -0.3         -1           -1.1
150-199 beds......................................          59           1.1           -0.2          -0.2          -0.3              2.2            -0.4          0.1           0            0            -0.2         -1.5         -1.1
200 or more beds..................................          46           1.2           -0.1          -0.3          -0.2              2.4            -0.3          0             0            0            -0.2         -1.9         -1.2
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Urban by Region
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
New England.......................................         120           0.8           -0.1           0.4           0.4              0.7             4.4          0             0            0            -0.2         -1.5          0.2
Middle Atlantic...................................         318           0.8            0             0.7           0.7              0.3            -0.3          0             0            0            -0.3         -0.1          1.6
South Atlantic....................................         375           0.8            0            -0.4          -0.3             -0.4            -0.4          0             0           -0.1          -0.1         -0.4          0
East North Central................................         395           0.8            0            -0.2          -0.1             -0.2            -0.5          0             0            0            -0.2         -0.7         -0.2
East South Central................................         149           0.8            0.1          -0.5          -0.2             -0.3            -0.4          0             0            0            -0.2         -0.9         -0.3
West North Central................................         165           0.8            0.2          -0.2           0               -0.7            -0.5          0.8           0           -0.1          -0.1         -0.8         -0.2
West South Central................................         371           0.8            0.1          -0.3           0               -0.6            -0.5          0             0            0            -0.1         -0.8         -0.1
Mountain..........................................         156           0.9            0.2          -0.1           0.1             -0.1             0            0.2           0            0            -0.1          0.8          1.2
Pacific...........................................         381           0.8            0             0.5           0.5             -0.1             0.7          0             0            0            -0.1         -3.2         -1.5
Puerto Rico.......................................          51           1             -0.1           0.2           0.5             -0.8             0            0             0            0             0           34.5         35.7
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Rural by Region
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
New England.......................................          23           1             -0.3           0.2          -0.1              3.2            -0.5          0             0           -3.9           0           -0.8         -2.9
Middle Atlantic...................................          69           1.2           -0.5          -0.2          -0.6              1.6            -0.3          0             0.1         -2.1          -0.2          0.3         -1.2
South Atlantic....................................         165           1.1           -0.5          -0.3          -0.7              2.1            -0.4          0             0.1         -1            -0.3         -0.9         -1.8
East North Central................................         119           1.2           -0.3          -0.3          -0.6              1.3            -0.3          0             0.1         -2.1          -0.2         -0.3         -1.6
East South Central................................         171           0.9           -0.4          -0.5          -0.7              2.5            -0.5          0             0.1         -0.6          -0.4         -2           -3.5
West North Central................................         100           1.4           -0.3           0.1          -0.2              0.4            -0.1          0.3           0.1         -0.8          -0.1         -0.7         -0.4
West South Central................................         181           1             -0.6          -0.5          -0.9              2.2            -0.4          0             0.1         -0.4          -0.4         -1.2         -2.7
Mountain..........................................          65           1.5           -0.4          -0.1          -0.4              0.2            -0.1          0.4           0           -0.1          -0.1         -0.9          0
Pacific...........................................          29           1.4           -0.6           0.2          -0.4              1.1            -0.2          0             0           -0.1          -0.1         -0.7         -0.3
Puerto Rico.......................................           1           1              3.3          -0.5           3.4             -0.9            -0.4          0             0            0             0            0            4.6
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 27791]]

 
                                                                                                        By Payment Classification
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Urban hospitals...................................        2495           0.8            0             0             0.1             -0.2             0            0             0            0            -0.2         -0.8          0.1
Large urban areas.................................        1377           0.8            0             0.1           0.2             -0.2             0            0             0            0            -0.2         -0.7          0.5
Other urban areas.................................        1118           0.8            0.1          -0.1           0                0               0.1          0.1           0            0            -0.1         -1.1         -0.4
Rural areas.......................................         909           1.2           -0.4          -0.2          -0.6              1.4            -0.3          0.2           0.1         -1.2          -0.2         -0.9         -1.9
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Teaching Status
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Nonteaching.......................................        2378           0.9           -0.1          -0.1          -0.2              0.2             0            0             0           -0.3          -0.2         -0.9         -0.8
Fewer than 100 residents..........................         782           0.8            0             0             0               -0.1             0            0.1           0            0            -0.1         -0.9         -0.1
100 or more residents.............................         244           0.8            0.2           0.2           0.5             -0.2             0            0             0            0            -0.2         -0.7          0.8
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Urban DSH
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Non-DSH...........................................         706           0.8            0             0             0.1              0.1             0            0             0           -0.2          -0.2          0            0.2
100 or more beds..................................        1562           0.8            0.1           0             0.1             -0.2             0            0             0            0            -0.2         -1            0
Less than 100 beds................................         330           0.9           -0.4           0.1          -0.3              0.2             0.1          0.2           0           -0.5          -0.2          1.1          1.2
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Rural DSH
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SCH...............................................         260           1.5           -0.8           0            -0.8              0.1            -0.1          0             0           -0.2          -0.2         -0.1         -1.3
RRC...............................................         223           1.2           -0.3          -0.2          -0.4              2              -0.3          0.4           0           -0.3          -0.2         -1.9         -1.6
100 or more beds..................................          29           0.8           -0.5          -0.3          -0.6              1.2            -0.4          0             0.1         -1.5          -0.3          1.5          0.2
Less than 100 beds................................         294           0.8           -0.7          -0.5          -0.9              0.8            -0.5          0             0.4         -4.9          -0.4          1.1         -3.6
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Urban teaching and DSH
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Both teaching and DSH.............................         826           0.8            0.1           0.1           0.3             -0.3             0            0.1           0            0            -0.2         -0.9          0.4
Teaching and no DSH...............................         135           0.8            0             0.2           0.2              0.3             0.1          0             0            0            -0.2          0            0.7
No teaching and DSH...............................        1066           0.8           -0.1          -0.1          -0.1              0               0.2          0             0            0            -0.2         -1.2         -0.6
No teaching and no DSH............................         468           0.8            0.1           0             0.1             -0.2            -0.1          0.1           0            0            -0.2          0            0.3
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Special Hospital Types
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
RRC...............................................         207           0.8           -0.1          -0.1          -0.1              2.9            -0.4          0.5           0.1         -0.5          -0.2         -1.9         -1.4
SCH...............................................         329           1.5           -0.6           0            -0.6              0              -0.1          0             0           -0.1          -0.2         -0.2         -0.5
Former MDH........................................         192           0.8           -0.7          -0.6          -1.1              1.1            -0.4          0             0.3         -9.9          -0.5          0.3         -8.5
SCH and RRC.......................................         124           1.5           -0.3           0            -0.3              0.5            -0.1          0             0            0            -0.2         -1.1         -0.1
Former MDH and RRC................................          11           0.8           -0.4           0.3           0                2              -0.6          0             0.1        -15.7          -0.2         -0.8        -12.4
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Type of Ownership
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Voluntary.........................................        1944           0.8            0             0.1           0.1              0               0            0.1           0           -0.1          -0.2         -0.9         -0.1
Proprietary.......................................         895           0.8            0.1          -0.1           0                0.1             0            0.1           0           -0.1          -0.2         -1.4         -0.9
Government........................................         546           0.9            0            -0.2          -0.1             -0.1            -0.1          0             0           -0.1          -0.1          0.3          1.1
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           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            -0.1          4.4          6
25-50.............................................        1807           0.8            0.1           0             0.1             -0.2             0            0.1           0            0            -0.2         -1.5         -0.6
50-65.............................................         967           0.9           -0.2          -0.1          -0.2              0.6             0.1          0             0           -0.4          -0.2         -0.9         -0.8
Over 65...........................................         171           1             -0.4          -0.3          -0.7              0.8            -0.3          0             0.1         -1.6          -0.4         -0.6         -1.9
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            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          -0.2         -1.2         -0.5
Non-Reclassified Hospitals........................        2642           0.8            0             0             0.1             -0.7            -0.1          0.1           0           -0.1          -0.2         -0.7          0
Urban Hospitals Reclassified......................         451           0.8            0             0.1           0.1              1.9             0.4          0             0            0            -0.2         -1.1         -0.2
Urban Nonreclassified Hospitals, FY 2014..........        1990           0.8            0.1           0             0.2             -0.7            -0.1          0.1           0            0            -0.2         -0.8          0.2

[[Page 27792]]

 
All Rural Hospitals Reclassified FY 2014..........         311           1.1           -0.3          -0.3          -0.5              2.7            -0.3          0             0           -0.8          -0.2         -1.6         -1.7
Rural Nonreclassified Hospitals FY 2014...........         552           1.2           -0.6          -0.2          -0.8             -0.2            -0.3          0.1           0.2         -1.7          -0.3          0.2         -2.2
All Section 401 Reclassified Hospitals............          47           1.3           -0.4          -0.3          -0.6             -0.3             0            2.1           0           -2.4          -0.2         -0.2         -1.5
Other Reclassified Hospitals (Section                       61           1             -0.8          -0.7          -1.3              4.1            -0.4          0             0           -3.9          -0.2          0           -2.6
 1886(d)(8)(B))...................................
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Specialty Hospitals
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cardiac specialty Hospitals.......................          15           0.8            1.1           0.3           1.5             -0.8            -0.2          0.7           0            0            -0.1         -0.1          1.4
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. 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 adjustment to offset the costs of the proposed inpatient status policy including the 1.8 percent
  adjustment to the national standardized amount (the estimated 2.5 percent market basket update reduced by the proposed 0.4 percentage point for the multifactor productivity adjustment and the 0.3 percentage point reduction under
  the Affordable Care Act) and the 0.8 percent documentation and coding adjustment to the national standardized amount and the 0.2 percent adjustment for the policy proposal on admission and medical review criteria applied to the
  national standardized amount, hospital-specific rate and the Puerto Rico-specific amount.
\3\ This column displays the payment impact of the proposed changes to the Version 31.0 GROUPER, the proposed changes to the relative weight methodology 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 accordance with section 1886(d)(4)(C)(iii) of the Act. This column displays the application of the proposed recalibration budget neutrality factor of 0.997583 in accordance with
  section 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 changes to the labor-related share. This column displays the payment impact of the proposed
  application of the wage budget neutrality factor, which is calculated separately from the recalibration budget neutrality factor, and is calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The proposed wage budget
  neutrality factor is 0.999766
\5\ This column displays the combined payment impact of the proposed changes in Columns 3 through 4 and the proposed cumulative budget neutrality factor for 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 proposed cumulative wage and recalibration budget neutrality factor of 0.99783 is the product of the proposed wage budget neutrality factor and the proposed recalibration budget
  neutrality factor.
\6\ Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The effects demonstrate the proposed FY 2014 payment impact of going from no reclassifications to the
  reclassifications scheduled to be in effect for FY 2014. Reclassification for prior years has no bearing on the payment impacts shown here. This column reflects the proposed geographic budget neutrality factor of 0.990971.
\7\ This column displays the effects of the proposed rural floor and imputed floor. The Affordable Care Act requires the rural floor budget neutrality adjustment to be 100 percent national level adjustment. The proposed rural floor
  budget neutrality factor (which includes the proposed imputed floor) applied to the wage index 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 States have a wage index 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 Public Law 108-173, which provides for an increase in a hospital's wage index if the hospital qualifies by meeting a threshold
  percentage of residents of the county where the hospital is located who commute to work at hospitals in counties with higher wage indexes.
\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 Affordable Care Act, a non-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 payments by 75 percent and 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 hospital update, the proposed adjustment for documentation and coding, and the proposed adjustment for
  the policy proposal on admission and medical review criteria. It also reflects proposed changes in hospitals' reclassification status in FY 2014 compared to FY 2013. It incorporates all of the proposed changes displayed in Columns
  2, 5, 6, 7, 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 be different from the percentage changes shown here due to rounding and interactive
  effects.

[[Page 27793]]

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, 
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 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 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.
    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 
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 ``post-reclassified wage index'' or ``payment 
wage index,'' the proposed wage index that includes all such 
exceptions and

[[Page 27794]]

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.

------------------------------------------------------------------------
                                            Number of hospitals
  Percentage change in proposed  ---------------------------------------
     area wage index values              Urban               Rural
------------------------------------------------------------------------
Increase more than 10 percent...                   0                   0
Increase more than 5 percent and                   0                   0
 less than 10 percent...........
Increase or decrease less than 5               2,464                 918
 percent........................
Decrease more than 5 percent and                   0                   0
 less than 10 percent...........
Decrease more than 10 percent...                   0                   0
------------------------------------------------------------------------

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 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 (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 Public Law 105-33 established the 
rural floor by requiring that the wage index for a hospital in any 
urban area cannot be less than the wage index received by rural 
hospitals in the same State. 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 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 original 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

[[Page 27795]]

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 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 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 Rico-specific 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 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
----------------------------------------------------------------------------------------------------------------
                                                                             Percent change in
                                                               Number of      payments due to
                                                               hospitals       application of
                 State                       Number of         receiving       proposed rural    Difference (in
                                             hospitals      proposed rural   floor and imputed      millions)
                                                           floor or imputed  floor with budget
                                                                 floor           neutrality
 
                                                      (1)               (2)              (3)                 (4)
----------------------------------------------------------------------------------------------------------------
Alabama................................                93                 3               -0.5             -$7.7
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, DC.........................                 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

[[Page 27796]]

 
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
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 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 
Public Law 108-173, provides for an increase in the wage index for 
hospitals located in certain counties that have a relatively high 
percentage of hospital employees who reside in the county, but work 
in a different area with a higher wage index. Hospitals located in 
counties that qualify for the payment adjustment are to receive an 
increase in the wage index that is equal to a weighted average of 
the difference between the wage index of the resident county, post-
reclassification and the higher wage index work area(s), weighted by 
the overall percentage of workers who are employed in an area with a 
higher wage index. 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 
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

[[Page 27797]]

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 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 
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.
    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.
    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 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

[[Page 27798]]

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 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 
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]
----------------------------------------------------------------------------------------------------------------
                                                                     Proposed        Proposed
                                                     Number of      average FY      average FY     All proposed
                                                     hospitals     2013 payment    2014 payment       FY 2014
                                                                   per discharge   per discharge      changes
 
                                                             (1)             (2)             (3)             (4)
----------------------------------------------------------------------------------------------------------------
All Hospitals...................................           3,404          10,891          10,880            -0.1
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

[[Page 27799]]

 
    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
    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
    Other Reclassified Hospitals (Section                     61           7,754           7,549            -2.6
     1886(d)(8)(B)).............................
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

[[Page 27800]]

identify conditions that are: (1) High cost, high volume, or both; 
(2) result in the assignment of a case to an MS-DRG that has a 
higher payment when present as a secondary diagnosis; and (3) could 
reasonably have been prevented through application of evidence-based 
guidelines. For discharges occurring on or after October 1, 2008, 
hospitals will not receive additional payment for cases in which one 
of the selected conditions was not present on admission, unless, 
based on data and clinical judgment, it cannot be determined at the 
time of admission whether a condition is present. That is, the case 
will be paid as though the secondary diagnosis were not present. 
However, the statute also requires the Secretary to continue 
counting the condition as a secondary diagnosis that results in a 
higher IPPS payment when doing the budget neutrality calculations 
for MS-DRG reclassifications and recalibration. Therefore, we will 
perform our budget neutrality calculations as though the payment 
provision did not apply, but Medicare will make a lower payment to 
the hospital for the specific case that includes the secondary 
diagnosis. Thus, the provision results in cost savings to the 
Medicare program.
    We note that the provision will only apply when one or more of 
the selected conditions are the only secondary diagnosis or 
diagnoses present on the claim that will lead to higher payment. 
Medicare beneficiaries will generally have multiple secondary 
diagnoses during a hospital stay, such that beneficiaries having one 
MCC or CC will frequently have additional conditions that also will 
generate higher payment. Only a small percentage of the cases will 
have only one secondary diagnosis that would lead to a higher 
payment. Therefore, if at least one nonselected secondary diagnosis 
that leads to higher payment is on the claim, the case will continue 
to be assigned to the higher paying MS-DRG and there will be no 
Medicare savings from that case. In addition, as discussed in 
section II.F.3. 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:

------------------------------------------------------------------------
                                                           Savings (in
                         Year                               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 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[supreg], Dificid\TM\ and the 
Zenith[supreg] 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[supreg], based on 
the applicant's estimate from FY 2013, we currently estimate that 
new technology add-on payments for Voraxaze[supreg] will increase 
overall FY 2014 payments by $6,300,000. For Dificid\TM\, based on 
the applicant's estimate from FY 2013, we currently estimate that 
new technology add-on payments for Dificid\TM\ will increase overall 
FY 2014 payments by $34,839,784. For the Zenith[supreg] F. Graft, 
based on the applicant's estimate from FY 2013, we currently 
estimate that new technology add-on payments for the Zenith[supreg] 
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, 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 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.

[[Page 27801]]

    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 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
------------------------------------------------------------------------
                                                          Case weighted
                                          Number of        average (in
                                          hospitals         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
        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

[[Page 27802]]

 
        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 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.
     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-for-
profit/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, 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.

[[Page 27803]]

                                   Hospitals in Top Quartile (Worst Performing) for Domain 1--Proposed Approach Score And Domain 1--Alternative Approach Score
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                 In top quartile Domain 1--     Not in top quartile Domain 1--                  In Top quartile Domain 1--       Not in top quartile Domain 1--
                                  proposed approach score          proposed approach score                      alternative approach score         alternative approach score
                             ------------------------------------------------------------------  Domain 1-- ---------------------------------------------------------------------   Domain 1--
      Hospital category                              Percent                          Percent     proposed                                                                          alternative
                              Number of   Percent       of     Number of   Percent       of       approach   Number of   Percent   Percent of  Number of  Percent of  Percent of     approach
                              hospitals   of total   hospital  hospitals   of total   hospital     totals    hospitals   of total   hospital   hospitals     total     hospital       totals
                                                       type                             type                                          type                               type
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Teaching status
    Teaching................        149       19.2       55.2        121        4.6       44.8         270         154       17.9        57          116         4.5        43             270
    Non-teaching............        614         79       20.2      2,423       91.2       79.8       3,037         690       80.4        22.7      2,347        91.1        77.3         3,037
    No information..........         14        1.8       10.9        114        4.3       89.1         128          14        1.6        10.9        114         4.4        89.1           128
                             -------------------------------------------------------------------------------------------------------------------------------------------------------------------
        Total...............        777  .........       22.6      2,658  .........  .........       3,435         858  .........        25        2,577  ..........  ..........         3,435
DSH Status
    DSH.....................        639       82.2       24.2      2,002       75.3       75.8       2,641         703       81.9        26.6      1,938        75.2        73.4         2,641
    Non-DSH.................        130       16.7       17.6        610       22.9       82.4         740         147       17.1        19.9        593        23          80.1           740
    No information..........          8          1       14.8         46        1.7       85.2          54           8        0.9        14.8         46         1.8        85.2            54
                             -------------------------------------------------------------------------------------------------------------------------------------------------------------------
        Total...............        777  .........       22.6      2,658  .........  .........       3,435         858  .........        25.1      2,577  ..........  ..........         3,435
Bed Size
    Under 50................         60        7.7        9.1        596       22.4       90.9         656          73        8.5        11.1        583        22.6        88.9           656
    50-99...................        143       18.4       21.1        535       20.1       78.9         678         159       18.5        23.5        519        20.1        76.5           678
    100-199.................        190       24.5       21.5        694       26.1       78.5         884         224       26.1        25.3        660        25.6        74.7           884
    200-299.................        118       15.2       23.6        381       14.3       76.4         499         135       15.7        27.1        364        14.1        72.9           499
    300-399.................         90       11.6       34.2        173        6.5       65.8         263          90       10.5        34.2        173         6.7        65.8           263
    400-499.................         57        7.3         46         67        2.5         54         124          62        7.2        50           62         2.4        50             124
    500 or more.............        105       13.5       51.7         98        3.7       48.3         203         101       11.8        49.8        102         4          50.2           203
    No information..........         14        1.8       10.9        114        4.3       89.1         128          14        1.6        10.9        114         4.4        89.1           128
                             -------------------------------------------------------------------------------------------------------------------------------------------------------------------
        Total...............        777  .........       22.6      2,658  .........  .........       3,435         858  .........        25        2,577  ..........  ..........         3,435
Ownership
    For-profit..............        133       17.1       17.6        621       23.4       82.4         754         157       18.3        20.8        597        23.2        79.2           754
    Government..............        115       14.8       20.6        443       16.7       79.4         558         135       15.7        24.2        423        16.4        75.8           558
    Non-profit..............        515       66.3       25.8      1,480       55.7       74.2       1,995         552       64.3        27.7      1,443        56          72.3         1,995
    No infomation...........         14        1.8       10.9        114        4.3       89.1         128          14        1.6        10.9        114         4.4        89.1           128
                             -------------------------------------------------------------------------------------------------------------------------------------------------------------------
        Total...............        777  .........       22.6      2,658  .........        858       3,435         858  .........        25        2,577  ..........  ..........         3,435
Region/Division
    Northeast...............        151       19.4       28.3        382       14.4       71.7         533         137         16        25.7        396        15.4        74.3           533
        New England.........         37        4.8       25.9        106          4       74.1         143          37        4.3        25.9        106         4.1        74.1           143
        Mid-Atlantic........        114       14.7       29.2        276       10.4       70.8         390         100       11.7        25.6        290        11.3        74.4           390
    Midwest.................        188       24.2       23.5        613       23.1       76.5         801         201       23.4        25.1        600        23.3        74.9           801
        East North Central..        124         16       23.6        402       15.1       76.4         526         137         16        26          389        15.1        74             526
        West North Central..         64        8.2       23.3        211        7.9       76.7         275          64        7.5        23.3        211         8.2        76.7           275
    South...................        278       35.8       19.2      1,168       43.9       80.8       1,446         309         36        21.4      1,137        44.1        78.6         1,446
        South Atlantic......        117      15.16       21.2        434       16.3       78.8         551         140       16.3        25.4        411        15.9        74.6           551
        East South Central..         59        7.6       17.9        270       10.2       82.1         329          61        7.1        18.5        268        10.4        81.5           329
        West South Central..        102       13.1         18        464       17.5         82         566         108       12.6        19.1        458        17.8        80.9           566
    West....................        160       20.6       24.4        495       18.6       75.6         655         211       24.6        32.2        444        17.2        67.8           655
        Mountain............         58        7.5       24.2        182        6.8       75.8         240          82        9.6        34.2        158         6.1        65.8           240
        Pacific.............        102       13.1       24.6        313       11.8       75.4         415         129         15        31.1        286        11.1        68.9           415
                             -------------------------------------------------------------------------------------------------------------------------------------------------------------------
            Total...........        777  .........       22.6      2,658  .........  .........       3,435         858  .........  ..........      2,577  ..........  ..........         3,435
Urban/Rural
    Urban...................        601       77.3       24.4      1,860         70       75.6       2,461         689       80.3        28        1,772        68.8        72           2,461
    Rural...................        176       22.7       18.3        788       29.6       81.7         964         168       19.7        17.4        796        30.9        82.6           964
    No information..........          0          0          0         10        0.4        100          10           1        0.1        10            9         0.3        90              10
                             -------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total...................        777  .........       22.6      2,658      3,435      3,435       3,435       3,435      3,435     3,435        3,435     3,435       3,435           3,435
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 27804]]

    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 (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 (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 
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 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.

                                             Hospitals in Top Quartile (Worst Performing) for Domain 2 Score
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   In top quartile domain 2 score       Not in top quartile domain 2 score
                                                              ------------------------------------------------------------------------------
                        Hospital type                                                     Percent of                             Percent of     Totals
                                                                Number of    Percent of    hospital    Number of    Percent of    hospital
                                                                Hospitals      total         type      Hospitals      total         type
--------------------------------------------------------------------------------------------------------------------------------------------------------
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

[[Page 27805]]

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

    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 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

[[Page 27806]]

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 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.

[[Page 27807]]

                                Hospitals in Top Quartile (Worst Performing) for Total HAC Score--Domain 1--Proposed Approach and Domain 1--Alternative Approach
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       In top quartile for total HAC    Not in top quartile for total               In Top quartile for total HAC    Not in top quartile for total
                                        score for domain 1--proposed       HAC score for domain 1--                score for domain 1--alternative      HAC score for domain 1--
                                                  approach                    proposed approach          Domain 1              approach                   alternative approach         Domain 1
                                     ------------------------------------------------------------------  proposed ------------------------------------------------------------------ alternative
            Hospital type                                    Percent                          Percent    approach                         Percent                          Percent     approach
                                      Number of   Percent       of     Number of   Percent       of       totals   Number of   Percent       of     Number of   Percent       of        totals
                                      hospitals   of total   hospital  hospitals   of total   hospital             hospitals   of total   hospital  hospitals   of total   hospital
                                                               type                             type                                        type                             type
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Teaching status
    Teaching........................        153       17.8       56.7        117        4.5       43.3        270        138       16.5       51.1        132        5.1       48.9         270
    Non-teaching....................        691       80.5       22.8      2,346       91.0       77.2      3,037        687       82.2       22.6      2,350       90.4       77.4       3,037
    No information..................         14        1.6       10.9        114        4.4       89.1        128         11        1.3        8.6        117        4.5       91.4         128
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
        Total.......................        858  .........       25.0      2,577  .........  .........      3,435        836  .........       24.3      2,599  .........  .........       3,435
DSH Status
    DSH.............................        713       83.1       27.0      1,928       74.8       73.0      2,641        687       82.2       26.0      1,954       76.0       74.0       2,641
    Non-DSH.........................        140       16.3       18.9        600       23.3       81.1        740        144       17.2       20.2        569       22.1       79.8         713
    No information..................          5        0.6        9.3         49        1.9       90.7         54          5        0.6        9.3         49        1.9       90.7          54
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
        Total.......................        858  .........       25.0      2,577  .........  .........      3,435        836  .........       24.5      2,572  .........  .........       3,408
Bed Size
    Under 50........................         47        5.5        7.2        609       23.6       92.8        656         69        8.3       10.5        587       22.6       89.5         656
    50-99...........................        105       12.2       15.5        573       22.2       84.5        678        144       17.2       21.2        534       20.5       78.8         678
    100-199.........................        237       27.6       26.8        647       25.1       73.2        884        234       28.0       26.5        650       25.0       73.5         884
    200-299.........................        186       21.7       37.3        313       12.1       62.7        499        148       17.7       29.7        351       13.5       70.3         499
    300-399.........................        105       12.2       39.9        158        6.1       60.1        263         86       10.3       32.7        177        6.8       67.3         263
    400-499.........................         59        6.9       47.6         65        2.5       52.4        124         57        6.8       46.0         67        2.6       54.0         124
    500 or more.....................        105       12.2       51.7         98        3.8       48.3        203         87       10.4       42.9        116        4.5       57.1         203
    No information..................         14        1.6       10.9        114        4.4       89.1        128         11        1.3        8.6        117        4.5       91.4         128
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
        Total.......................        858  .........       25.0      2,577  .........  .........      3,435        836  .........       24.3      2,599  .........  .........       3,435
Ownership
    For-profit......................        166       19.3       22.0        588       22.8       78.0        754        162       19.4       21.5        592       22.8       78.5         754
    Government......................        136       15.9       24.4        422       16.4       75.6        558        139       16.6       24.9        419       16.1       75.1         558
    Non-profit......................        542       63.2       27.2      1,453       56.4       72.8      1,995        524       62.7       26.3      1,471       56.6       73.7       1,995
    No information..................         14        1.6       10.9        114        4.4       89.1        128         11        1.3        8.6        117        4.5       91.4         128
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
        Total.......................        858  .........       25.0      2,577  .........  .........      3,435        836  .........       24.3      2,599  .........  .........       3,435
Region/Division
    Northeast.......................        168       19.6       31.5        365       14.2       68.5        533        155       18.5       29.1        378       14.5       70.9         533
        New England.................         41        4.8       28.7        102        4.0       71.3        143         39        4.7       27.3        104        4.0       72.7         143
        Mid-Atlantic................        127       14.8       32.6        263       10.2       67.4        390        116       13.9       29.7        274       10.5       70.3         390
    Midwest.........................        176       20.5       22.0        625       24.3       78.0        801        184       22.0       23.0        617       23.7       77.0         801
    East North Central..............        127       14.8       24.1        399       15.5       75.9        526        130       15.6       24.7        396       15.2       75.3         526
    West North Central..............         49        5.7       17.8        226        8.8       82.2        275         54        6.5       19.6        221        8.5       80.4         275
    South...........................        326       38.0       22.5      1,120       43.5       77.5      1,446        303       36.2       21.0      1,143       44.0       79.0       1,446
        South Atlantic..............        154       17.9       27.9        397       15.4       72.1        551        137       16.4       24.9        414       15.9       75.1         551
    East South Central..............         62        7.2       18.8        267       10.4       81.2        329         59        7.1       17.9        270       10.4       82.1         329
    West South Central..............        110       12.8       19.4        456       17.7       80.6        566        107       12.8       18.9        459       17.7       81.1         566
    West............................        188       21.9       28.7        467       18.1       71.3        655        149       23.2       29.6        461       17.7       70.4         655
        Mountain....................         56        6.5       23.3        184        7.1       76.7        240         63        7.5       26.3        177        6.8       73.8         240
    Pacific.........................        132       15.4       31.8        283       11.0       68.2        415        131       15.7       31.6        284       10.9       68.4         415
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
        Total.......................        858  .........       25.0      2,577  .........       75.0      3,435        836  .........  .........      2,599  .........  .........       3,435
Urban/Rural
    Urban...........................        731       85.2       29.7      1,730       67.1       70.3      2,461        691       82.7       28.1      1,770       68.1       71.9       2,461
    Rural...........................        127       14.8       13.2        837       32.5       86.8        964        145       17.3       15.0        819       31.5       85.0         964
    No information..................          0        0.0        0.0         10        0.4      100.0         10          0        0.0        0.0         10        0.4      100.0          10
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
        Total.......................        858  .........       25.0      2,577  .........       75.0      3,435        836  .........       24.3      2,599  .........       75.7       3,435
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 27808]]

    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 
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 
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 
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) 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.

[[Page 27809]]

                                                   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)
  Hospital has complete data for Domain 1 (that  ------------------------------------------------------------------------------  Total No.      Total
 is, data for at least 3 measures for the Domain                   Yes                                     No                        of       percent by
1-Proposed Approach or enough data to  calculate ------------------------------------------------------------------------------  hospitals     hospital
  PSI 90 for the Domain 1-Alternative Approach)                              Percent of                             Percent of    by type        type
                                                     No. of     Percent of    hospital      No. of     Percent of    hospital
                                                   hospitals      total         type      hospitals      total         type
--------------------------------------------------------------------------------------------------------------------------------------------------------
YES
    Teaching....................................          265         13.8         98.1            5          0.3          1.9          270          7.9
    Non-teaching................................        1,643         85.3         54.1        1,394         92.4         45.9        3,037         88.4
    No information..............................           19          1.0         14.8          109          7.2         85.2          128          3.7
        Subtotal................................        1,927  ...........  ...........        1,508  ...........  ...........        3,435  ...........
    DSH.........................................        1,564         81.2         59.2        1,077         71.4         40.8        2,641         76.9
    Non-DSH.....................................          359         18.6         48.5          381         25.3         51.5          740         21.5
    No information..............................            4          0.2          7.4           50          3.3         92.6           54          1.6
        Subtotal................................        1,927  ...........  ...........        1,508  ...........  ...........        3,435  ...........
    For-profit..................................          365         18.9         48.4          389         25.8         51.6          754         22.0
     Government.................................          221         11.5         39.6          337         22.3         60.4          558         16.2
    Non-profit..................................        1,322         68.6         66.3          673         44.6         33.7         1995         58.1
    No information..............................           19          1.0         14.8          109          7.2         85.2          128          3.7
        Subtotal................................        1,927  ...........  ...........        1,508  ...........  ...........        3,435  ...........
    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 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 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 
Sec.  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 payment 
under Sec.  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 Public Law 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 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

[[Page 27811]]

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 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 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 
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.

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.
    The methodology for determining a capital IPPS payment is set 
forth at Sec.  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.
     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

[[Page 27812]]

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 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 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 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 
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]
----------------------------------------------------------------------------------------------------------------
                                                                    Average FY      Average FY
                                                     Number of    2013  payments/ 2014  payments/     Change
                                                     hospitals         case            case
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All hospitals...............................           3,404             816             826             1.1
    Large urban areas (populations over 1                  1,367             903             914             1.2
     million)...................................
    Other urban areas (populations of 1 million            1,114             794             803             1.2
     of fewer)..................................
    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

[[Page 27813]]

 
        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
        Puerto Rico.............................               1             198             210             6.2
By Payment Classification:
    All hospitals...............................           3,404             816             826             1.1
    Large urban areas (populations over 1                  1,377             902             913             1.2
     million)...................................
    Other urban areas (populations of 1 million            1,118             794             803             1.2
     of fewer)..................................
    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:                                                   260             530             530            -0.2
    Sole Community (SCH/EACH)...................
    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                     53             553             560             1.3
     1886(d)(8)(B)).............................
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
----------------------------------------------------------------------------------------------------------------

[[Page 27814]]

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, 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 Sec.  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 applied to the FY 2013 Federal standard rate set forth 
under section Sec.  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.)
    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 Sec.  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 pre-December 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, 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 Sec.  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 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

[[Page 27815]]

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 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 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 
Sec.  412.523(d)(2), we set total estimated payments for FY 2003 
under the LTCH PPS so that estimated aggregate payments under the 
LTCH PPS were estimated to equal the amount that would have been 
paid if the LTCH PPS had not been implemented.
    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 Sec.  412.534 
and Sec.  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 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 Sec.  412.515 through Sec.  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 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.
     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).

[[Page 27816]]

    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 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 (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 rate for FY 2013 
under Sec.  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).

 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 *)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Percent change
                                                                                                        Percent change    in estimated
                                                                                                         in estimated     payments per
                                                                                                         payments per    discharge from   Percent change
                                                                                                        discharge from   FY 2013 to FY   in payments per
                                                                     Average FY 2013  Average FY 2014     FY 2013 to        2014 for      discharge from
       LTCH Classification         Number of LTCHs   Number of LTCH      LTCH PPS         LTCH PPS       proposed FY        proposed      FY 2013 to FY
                                                       PPS cases       payment per      payment per      2014 for the    changes to the    2014 for all
                                                                           case           case \1\         proposed     area wage level      proposed
                                                                                                        annual update      adjustment      changes \4\
                                                                                                        to the Federal   with proposed
                                                                                                           rate \2\          budget
                                                                                                                         neutrality \3\
(1)                                            (2)              (3)              (4)              (5)              (6)              (7)              (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

[[Page 27817]]

 
    MOUNTAIN.....................               32            7,034           42,722           43,279              0.5             -0.1              1.3
    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 Sec.   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 Sec.
  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 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 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 Sec.  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 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

[[Page 27818]]

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. 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 proposed changes in 
the area wage level adjustment or proposed updates to the MS-LTC-
DRGs 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 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.

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). 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.

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

[[Page 27819]]

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.
    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 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 
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 
Catheter-Associated 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 
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.
    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

[[Page 27820]]

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 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.
---------------------------------------------------------------------------

    \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.
    \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. 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-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    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 
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\
---------------------------------------------------------------------------

    \197\ 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. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \198\ 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. http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.
---------------------------------------------------------------------------

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 
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 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

[[Page 27821]]

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 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 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 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 
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

[[Page 27822]]

fewer than 100 beds. Section 601(g) of the Social Security 
Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain 
New England counties as belonging to the adjacent urban area. Thus, 
for purposes of the IPPS and the LTCH PPS, we continue to classify 
these hospitals as urban hospitals. (We refer readers to Table I in 
section I.G. of this Appendix for the quantitative effects of the 
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.

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.

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 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.

C. Proposed FY 2014 Puerto Rico Hospital Update

    Section 401(c) of Public Law 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 
Sec.  403.752(a) of the regulations, RNHCIs are paid under the 
provisions of Sec.  413.40, which also use section 1886(b)(3)(B)(ii) 
of the Act to update the percentage increase in the rate-of-increase 
limits.
    Currently, children's hospitals, PPS-excluded cancer hospitals, 
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 Public Law 106-113, as amended by section 307(b) 
of Public Law 106-554 (and codified at section 1886(m)(1) of the 
Act), provides the statutory authority for updating payment rates 
under the LTCH PPS.
    As discussed in section V.A. of the Addendum to this proposed 
rule, we are proposing to establish an update to the LTCH

[[Page 27823]]

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 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 phase-in of the 
one-time prospective adjustment to the standard Federal rate under 
Sec.  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.
    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 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 Public Law 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 Public Law 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 payments. The proposed update to 
the capital rate is discussed in section III. of the Addendum to 
this proposed rule.

[FR Doc. 2013-10234 Filed 4-26-13; 4:15 pm]
BILLING CODE 4120-01-P
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